<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 2, 1997
REGISTRATION NO. 333-34061
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 3
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
CAMBRIDGE INDUSTRIES, INC.
CE AUTOMOTIVE TRIM SYSTEMS, INC.
(EXACT NAMES OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
----------------
CAMBRIDGE--DELAWARE 3083 CAMBRIDGE--38-3188000
CE--MICHIGAN (PRIMARY STANDARD INDUSTRIAL CE--38-3173408
(STATE OR OTHER CLASSIFICATION CODE NUMBER) (I.R.S. EMPLOYER
JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
555 HORACE BROWN DRIVE
MADISON HEIGHTS, MICHIGAN 48071
(248) 616-0500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
----------------
COPY TO:
RICHARD S. CRAWFORD PETER SUGAR
CHAIRMAN AND CHIEF EXECUTIVE JAFFE, RAITT, HEUER & WEISS,
OFFICER PROFESSIONAL CORPORATION
CAMBRIDGE INDUSTRIES, INC. ONE WOODWARD AVENUE, SUITE 2400
555 HORACE BROWN DRIVE DETROIT, MICHIGAN 48226
MADISON HEIGHTS, MICHIGAN 48071 (313) 961-8380
(248) 616-0500
(NAME, ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
10 1/4% Senior
Subordinated Notes due
2007, Series B....... $100,000,000 100% $100,000,000 $30,303.03(1)
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Guaranty of 10 1/4%
Senior Subordinated
Notes due 2007,
Series B.............. (2) N/A N/A (3)
</TABLE>
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(1) Calculated in accordance with Rule 457(f).
(2) No separate consideration will be received for the Guarantees.
(3) Pursuant to Section 457(n) of the Securities Act of 1933, no separate
consideration is payable for the Guarantees.
----------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT THAT 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 DECEMBER 2, 1997
PROSPECTUS
, 1997
$100,000,000
LOGO
CAMBRIDGE INDUSTRIES, INC.
OFFER TO EXCHANGE ITS SERIES B 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007 FOR
ANY AND ALL OF ITS OUTSTANDING 10 1/4% SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON DECEMBER ,
1997, UNLESS EXTENDED.
Cambridge Industries, Inc., a Delaware corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and conditions set forth in this
Prospectus (the "Prospectus") and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its Series B
10 1/4% Senior Subordinated Notes due 2007, (the "New Notes"), issued in a
transaction registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which this
Prospectus is a part, for each $1,000 principal amount of its outstanding 10
1/4% Senior Subordinated Notes due 2007 (the "Old Notes"), of which
$100,000,000 principal amount is outstanding. The form and terms of the New
Notes are the same as the form and terms of the Old Notes (which they replace),
except that the New Notes will bear a Series B designation and will have been
issued in a transaction that has been registered under the Securities Act and
therefore, will not bear legends restricting their transfer. The New Notes will
evidence the same debt as the Old Notes (which they replace) and will be issued
under and be entitled to the benefits of an Indenture, dated as of July 10,
1997 (the "Indenture"), among the Company and State Street Bank and Trust
Company, as Trustee, governing the Old Notes and the New Notes. The Old Notes
and the New Notes are sometimes referred to herein collectively as the "Notes."
See "The Exchange Offer" and "Description of Notes."
The Notes bear interest at a rate of 10 1/4% per annum, payable semi-annually
on each January 15 and July 15, commencing January 15, 1998. The Notes will
mature on July 15, 2007. On or after July 15, 2002, the Company may redeem the
Notes, in whole or in part, at the redemption prices set forth herein, plus
accrued and unpaid interest to the date of redemption. Notwithstanding the
foregoing, at any time or from time to time, on or prior to July 15, 2000, the
Company may, at its option, use the net cash proceeds of one or more Equity
Offerings (as defined) to redeem (the "Equity Proceeds Offer") up to 35% of the
original aggregate principal amount of Notes at a redemption price of 110.25%
of the principal amount thereof, plus accrued and unpaid interest to the date
of the redemption; provided that at least $65.0 million in aggregate principal
amount of Notes remains outstanding immediately after any such redemption. Upon
a Change of Control (as defined), the Company will be required to make an offer
to repurchase the Notes pursuant to the offer described below, at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. See "Description of Notes--Change
of Control."
The New Notes will be, as the Old Notes (which they replace) are, general
unsecured obligations of the Company, subordinated in right of payment to all
Senior Debt (as defined) of the Company, including borrowings under the Credit
Agreement (as defined). The New Notes will be guaranteed on a senior
subordinated basis by the Company's only existing U.S. subsidiary and all of
the Company's future U.S. subsidiaries (the "Guarantors"). The Guarantees (as
defined) will be general unsecured obligations of the Guarantors and will be
subordinated in right of payment to all existing and future Senior Debt of the
Guarantors. The Guarantees will be full, unconditional and joint and several.
As of September 30, 1997, the Outstanding Senior Debt of the Company, including
the Notes, would have been approximately $324.5 million. See "Capitalization"
and "Description of Notes." The Indenture permits the Company to incur
additional indebtedness, subject to certain limitations. As of the date of this
Prospectus, the Company has no indebtedness junior to the Notes.
(Cover continued on following page)
-----------
SEE "RISK FACTORS," BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS WHO TENDER THEIR OLD NOTES IN THE EXCHANGE
OFFER.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
(Cover page continued)
The Company will accept for exchange any and all Old Notes validly tendered
and not withdrawn prior to 5:00 p.m., New York City time on December , 1997,
unless extended by the Company in its sole discretion (the "Expiration Date").
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m. on the
Expiration Date. The Exchange Offer is subject to certain customary
conditions. The Old Notes were sold by the Company on July 10, 1997 to the
Initial Purchaser (as defined) in a transaction not registered under the
Securities Act in reliance upon an exemption under the Securities Act (the
"Initial Offering"). The Initial Purchaser subsequently resold the Old Notes
to qualified institutional buyers in reliance upon Rule 144A under the
Securities Act and to a limited number of institutional "accredited investors"
(as defined in Rule 501(a) (1), (2), (3) or (7) under the Securities Act).
Accordingly, the Old Notes may not be reoffered, resold or otherwise
transferred in the United States unless registered under the Securities Act or
unless an applicable exemption from the registration requirements of the
Securities Act is available. The New Notes are being offered hereunder in
order to satisfy the obligations of the Company under the Registration Rights
Agreement (as defined) entered into by the Company and the Initial Purchaser
in connection with the Initial Offering. See "The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Company believes
the New Notes issued pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by any holder thereof (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business and such
holder has no arrangement or understanding with any person to participate in
the distribution of such New Notes. See "The Exchange Offer--Resale of the New
Notes." Each broker-dealer (a "Participating Broker-Dealer") that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market making activities or other
trading activities. See "Plan of Distribution."
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act. The Company
will pay all the expenses incurred by it incident to the Exchange Offer. See
"The Exchange Offer."
There has not previously been any public market for the Old Notes or the New
Notes. The Company does not intend to list the New Notes on any securities
exchange or to seek approval for quotation through any automated quotation
system. The Old Notes are currently eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market.
However, there can be no assurance that an active market for the New Notes
will develop. See "Risk Factors--Absence of a Public Market Could Adversely
Affect the Value of Notes." Moreover, to the extent that Old Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Old Notes could be adversely affected.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Exchange Offer Registration Statement," which term shall encompass
all amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the issuance of the New Notes being offered hereby. This Prospectus does not
contain all the information set forth in the Exchange Offer Registration
Statement. For further information with respect to the Company and the
Exchange Offer, reference is made to the Exchange Offer Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document
filed as an exhibit to the Exchange Offer Registration Statement, reference is
made to the exhibit for a more complete description of the document or matter
involved. The Exchange Offer Registration Statement, including the exhibits
thereto, can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, at the Regional Offices of the Commission at 7 World Trade Center,
13th Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a Web site that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission. The address of such site is http://www.sec.gov.
As a result of the Exchange Offer Registration Statement being declared
effective by the Commission, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will be required to file
periodic reports and other information with the Commission. The obligation of
the Company to file periodic reports and other information with the Commission
will be suspended if the New Notes are held of record by fewer than 300
holders as of the beginning of any fiscal year of the Company other than the
fiscal year in which the Exchange Offer Registration Statement is declared
effective. The Company has agreed, pursuant to the Indenture to deliver to the
Trustee within 15 days after the filing of the same with the Commission,
copies of the quarterly and annual reports and of the information, documents
and other reports, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstanding that the
Company may not be subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, the Company will also provide the Trustee and
Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. In addition,
whether or not required by the rules and regulations of the Commission, at any
time after the Company files the Exchange Offer Registration Statement with
the Commission, the Company will file a copy of all such information with the
Commission for public availability (unless the Commission will not accept such
a filing) and make such information available to investors who request it in
writing. The Company will also comply with the other provisions of TIA (S)
314(a).
i
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the "Unaudited Pro Forma Financial Data," "Selected Historical Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements (as defined) included elsewhere in
this Prospectus. Unless otherwise stated in this Prospectus or unless the
context otherwise requires, references to the "Company" or "Cambridge" include
the Company and its subsidiaries (without regard to the Eagle-Picher
Acquisition or the Goodyear-Jackson Acquisition), and references to "pro forma
basis" mean the application of the pro forma adjustments (including adjustments
relating to the Eagle-Picher Acquisition and the Goodyear-Jackson Acquisition)
described under "Unaudited Pro Forma Financial Data."
THE COMPANY
Cambridge is a leading Tier 1 supplier of plastic components and systems for
GM, Ford, Chrysler, Toyota, Honda, Mazda, Nissan, BMW, Volkswagen,
Freightliner, Kenworth, Mack Truck and Volvo Heavy Truck. As a Tier 1 supplier,
the Company is increasingly responsible for the design, engineering,
manufacturing and quality control testing of parts and pre-assembled components
for original equipment manufacturers ("OEMs"). Within the automotive OEM market
for plastic products there are three distinct segments, all of which the
Company services: exterior, structural/functional and interior. The Company
manufactures components, modules and systems for the exterior and
structural/functional segments and components and modules for the interior
segment. In addition to products supplied to its automotive OEM customers, the
Company also manufactures a number of products for non-automotive customers.
The Company's production utilizes a wide range of processes, including
compression, injection, extrusion and blow molding, and with the Eagle-Picher
Acquisition, top coat painting capabilities at Automotive Class A standards.
Plastic usage in the automobile and light truck industry has grown from
approximately $7.5 billion in 1991 to approximately $12.3 billion in 1996, a
compound annual growth rate ("CAGR") of 10.4%. Of this amount, approximately
$7.3 billion is non-captive and outsourced by the OEMs to suppliers such as the
Company. This non-captive market has grown at a CAGR of 13.4% since 1991. In
addition, the average plastic content per passenger vehicle has increased by
14% from approximately 209 pounds in 1991 to approximately 238 pounds in 1996
and is projected to grow another 22% to approximately 291 pounds per vehicle by
2006. This growth is driven by the lighter weight, greater design flexibility
and lower tooling costs of plastic versus steel, which traditionally has been
used for many parts. In addition, innovations in molding, painting and
materials technologies have improved the performance and appearance of plastic
components.
Within the $7.3 billion non-captive plastics market, Cambridge has a
particular expertise in the $900 million sheet molded compound ("SMC") market.
The use of SMC (which is a type of fiber reinforced plastic) in the automotive
industry has grown from approximately 147 million pounds in 1992 to
approximately 240 million pounds in 1996, a CAGR of approximately 13%. SMC is
particularly well-suited for exterior and structural/functional parts because
of its superior design flexibility, corrosion resistance, dent resistance and
dimensional and structural stability. Management believes that the Company is
the leading manufacturer of SMC automotive products in North America.
Cambridge has experienced rapid growth since 1991 due to increased plastic
usage by OEMs, five major acquisitions and significant new product
introductions. Sales have grown from $9.9 million in 1991 to $509.7 million in
1996, respectively, on a pro forma basis. Additionally, the Company's average
content per vehicle (automobile, light truck and heavy truck) produced in North
America has increased from approximately $0.86 in 1991 to approximately $33.03
in 1996, on a pro forma basis.
1
<PAGE>
Cambridge's broad range of material and manufacturing processes allows it to
select the most cost effective combination of plastic materials and
manufacturing methods for its customers, providing the Company with an
advantage over many of its competitors that have narrower ranges of
capabilities. The diversity in the Company's processes and materials
capabilities enhances its role as a cost-effective, full-service supplier.
Management believes that the Company is among the lowest cost, highest quality
suppliers of plastic components in North America because of its strict cost
controls and continuous improvement programs. The Company has received numerous
awards from its customers attesting to its competency, including Ford's Q1, GM
Supplier of the Year (1995 and 1996), Chrysler's QE designation, Honda's
Quality, Plant & Delivery Award and Mazda's Total Quality Excellence award.
Cambridge has an internal engineering and research and development staff that
develops new products, materials and processing technologies and works directly
with OEM designers and engineers to create innovative solutions to simplify
vehicle assembly and reduce OEM production costs. For example, the Company
designed, engineered and introduced a structural instrument panel mounting beam
(the "Cross Car Beam") for the Ford Ranger/Explorer which replaced
approximately 20 separate metal and plastic parts and reduced vibration and
noise by approximately 33% compared to the metal components it replaced. In
addition, in 1996, the Company supplemented its design capabilities by opening
an engineering and technical center in association with MSX International,
Inc., a subsidiary of MascoTech, Inc., which further strengthened its existing
full service design capabilities to the automotive and commercial truck
industries.
The name of the Company is Cambridge Industries, Inc. and the name of the
Guarantor is CE Automotive Trim Systems, Inc. The address of the principal
executive office of the Company and the Guarantor is 555 Horace Brown Drive,
Madison Heights, MI 48071 and their telephone number is (248) 616-0500.
2
<PAGE>
The following chart illustrates the Company's principal products, customers
and manufacturing processes in its product segments:
<TABLE>
<CAPTION>
STRUCTURAL
EXTERIOR AND FUNCTIONAL INTERIOR NON-AUTOMOTIVE
---------------------- ---------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
1996 Pro Forma Sales: $278 Million* $130 Million* $80 Million* $22 Million*
% Total Sales........... 55% 25% 16% 4%
Products: Hoods and hood Headlamp carriers Steering column Blow molded bottles
assemblies Engine shields/covers bezels Forklift body panels**
Liftgates and doors Structural beams Glove box door and Swimming poolfilters/
Roof and roof Bumper beams assemblies heater covers
moldings Structural component Instrument panel trim Residential door
Fenders carriers components systems**
Bodyside Load floors Liftgate trim panels Personal watercraft
moldings/rubstrips Fuel tank shields Door trim panels decks & covers**
Windshield surrounds Seat pans/backs Rear Shelf panels Military vehicle
Deck lids Knee bolsters Consoles hoods, engine covers
Hatches Fluid systems linkages Seat backs/bases & seats**
Storage doors Rocker arm covers Shift knobs Tractor hoods,
Spoilers Fan shrouds Garnish molding shields/pans, consoles
Fairings Radiator support systems and seats**
Grill opening beams Handles Combine
retainers*** Bearing cages Rear shelves components**
Grill opening Steering yokes Electrical carriers Lift truck hoods**
panels*** Battery trays Cargo doors Outboard engine
Gears Handles Combine
Fuel valves Rear shelves components**
Plenums (firewalls) Electrical carriers Lift truck hoods**
Windshield cowls Cargo doors Outboard engine
Air spring pistons*** Sunshades cowls**
Customers: GM, Ford, Chrysler, GM, Ford, GM, Ford, Chrysler Hyster,
Volkswagen, Chrysler, Honda, Honda, Mazda, Misc Kodak,
Mazda, Freightliner, Mazda, Nissan, GM, Ford, Chrysler, Purex, Menasha,
Kenworth, Mack Freightliner, Volvo, Honda, Mazda, Misc Xerox,
Truck, CAMI, Collins & Tier 2 companies, Caradon**, Pease**,
Volvo Heavy Truck, Aikman, Inalfa, Freightliner, Rockwell Premedoor**,
Subaru**, Subaru, Saturn Polaris**,
Isuzu, Mitsubishi** Kawasaki**,
AM General**,
John Deere**, Ford
New Holland**,
U.S. Military**,
Mercury Marine
Primary Processes: Compression molding, Compression Injection molding, Blow molding
Extrusion, Prime & top molding, Blow molding Compression
coat painting Injection molding molding
</TABLE>
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* These amounts include revenues attributable to (a) Eagle-Picher as follows:
Exterior-$46.8 million; Structural/Functional-$10.1 million; Interior-$2.6
million; and Non-Automotive-$19.9 million, and (b) Goodyear as follows:
Exterior-$51.2 million; and Non-Automotive-$2.7 million.
** Attributable solely to Eagle-Picher.
*** Attributable solely to Goodyear-Jackson.
3
<PAGE>
MAJOR INDUSTRY TRENDS
The Company attributes its success, in part, to the significant growth in the
use of plastic by OEMs. In addition, the Company has capitalized on several
other industry trends which have resulted from the competitive pressures on
OEMs to reduce costs, increase vehicle quality and durability and improve
styling.
Increased Outsourcing by Domestic OEMs: In an effort to reduce costs, speed
product design and simplify manufacturing, domestic OEMs have increasingly
turned to independent manufacturers which have lower overall costs and can
achieve economies of scale through product specialization. As a part of this
outsourcing trend, domestic OEMs have increasingly required suppliers to accept
greater responsibility for assembly and supplier management. This trend favors
suppliers with full design and engineering capabilities, such as the Company,
that can develop ready-to-install modules and systems that reduce domestic OEM
production times.
Consolidation of Supplier Base by OEMs: To reduce their procurement-related
costs and accelerate new platform development, OEMs have forged stronger links
to selected suppliers and have decreased their overall number of suppliers.
From 1987 to 1997, Ford and Chrysler reduced their supplier bases by an average
of 79% and have announced plans to further reduce their supplier bases by an
average of 60% between 1997 and 2002. Management expects this trend to
continue, especially in the relatively fragmented exterior and
structural/functional segments. This has benefited large suppliers, such as the
Company, that have the ability to supply complex components and systems and
effectively manage their own supplier base.
Increased Levels of Manufacturing in North America by Transplants: Due to the
relative cost advantage of producing vehicles in North America and to political
pressures, foreign automotive manufacturers have built and continue to build
manufacturing facilities in North America ("Transplants") and have increased
the domestic parts content of their vehicles. Transplants' share of passenger
vehicles (automobiles and light trucks) manufactured in North America has
increased from approximately 3% in 1985 to approximately 21% in 1996. This has
benefited suppliers, such as the Company, by providing increased revenue
opportunities from platforms that previously had been manufactured overseas.
Increased Plastic Usage by the Heavy Truck Industry: The significant weight
advantage and lower up-front tooling costs of plastic over steel make plastic
more attractive to heavy truck manufacturers, where fuel economy and low volume
production are critical considerations. Heavy truck manufacturers continue to
outsource most of their component parts, benefiting suppliers such as the
Company.
BUSINESS STRATEGY
The Company has responded to these industry trends by developing and
acquiring the full-service design, engineering, manufacturing and finishing
capabilities required by OEMs. To enhance its position as a Tier 1 supplier and
to continue its profitable growth, the Company intends to pursue the following
business strategies:
Capitalize on Increased Plastic Usage for Exterior and Structural/Functional
Components: Plastic content per vehicle is expected to continue to increase due
to its lower overall costs, lighter weight (which improves fuel economy) and
increased design flexibility and durability. To foster and capitalize on this
trend, the Company continues to seek opportunities to increase plastic content
per vehicle through the design, development and manufacture of plastic
components and systems which historically have been fabricated in metal. For
example, the Company has successfully introduced a plastic rocker arm cover,
which weighs 48% less than the metal part it replaced, and the Cross Car Beam,
which replaced approximately 20 separate metal and plastic parts.
4
<PAGE>
Acquire Complementary Manufacturers: As evidenced by the recent Eagle-Picher
Acquisition, Goodyear-Jackson Acquisition, APX Acquisition (as defined) and
Owens-Corning Brazil Acquisition (as defined), as well as the proposed Huron
Plastics Acquisition (as defined) the Company intends to selectively pursue
attractive opportunities to acquire complementary manufacturers. The Company
has acquired non-strategic operations of larger entities and has systematically
restructured their operations to significantly reduce costs and position them
to achieve growth. Acquisition opportunities are available because: (i) these
product segments historically have been fragmented; (ii) OEMs are focusing
their supplier consolidation efforts on manufacturers of these components; and
(iii) many plastic suppliers are non-strategic operations of significantly
larger entities. Such acquisitions have broadened the Company's product lines
and manufacturing capabilities, diversified its customer base, improved its
absorption of corporate overhead and enhanced its attractiveness as a Tier 1
supplier to the OEMs.
Penetrate New Markets and Access New Technologies through Joint Ventures and
Licensing Arrangements: The Company seeks to exploit joint ventures and
licensing arrangements to enter new geographic markets and develop new
products, materials and process technologies that provide opportunities for
growth while limiting its investment risk. The Company currently has joint
ventures with E.I. duPont de Nemours and Company, Siebe Fluid Systems and
Menzolit Fibron and a licensing agreement with Empe Ernst Pelz GmbH & Co. KG
and Empe Ernst Pelz Vetrebs GmbH.
SIGNIFICANT TRANSACTIONS
The Huron Plastics Acquisition: The Company has entered into a letter of
intent for the acquisition of all of the issued and outstanding shares of the
capital stock of Huron Plastics Group, Inc. ("Huron Plastics") and
substantially all of the assets of a related entity, Tadim, Inc. (together, the
"Huron Plastics Acquisition"), for an aggregate purchase price of $60.0
million. In addition, the Company would pay $15.0 million to certain
shareholders of Tadim, Inc. and Huron Plastics pursuant to covenants not to
compete, employment agreements and consulting agreements. Definitive agreements
have not been entered into and significant conditions must be met prior to
completing the possible acquisition.
The Owens-Corning Brazil Acquisition: As of August 31, 1997, Cambridge
Industrial do Brasil, LTDA, a newly formed Brazilian subsidiary of the Company,
purchased certain assets of the molded plastic and pultrusion operations
located in Rio Claro, Brazil from Owens-Corning Fiberglas A.S. LTDA., a
Brazilian subsidiary of Owens-Corning, for $5.5 million (the "Owens-Corning
Brazil Acquisition"). The Company believes this acquisition will allow the
Company to manufacture plastic components for automotive customers and other
industries in the Brazilian market. The Company believes Cambridge Industrial
do Brasil, LTDA is inconsequential, individually and when aggregated with the
Company's other non-guarantor subsidiary, to the consolidated financial
statements.
The Eagle-Picher Acquisition: On July 10, 1997, the Company completed the
acquisition of the plastics division of Eagle-Picher Industries, Inc. ("Eagle-
Picher") for a total purchase price of $32.2 million, subject to post-closing
adjustments (the "Eagle-Picher Acquisition"). Eagle-Picher is a manufacturer of
compression molded, assembled and painted components using SMC. The Eagle-
Picher Acquisition has broadened and strengthen the Company's position in its
core business by: (i) adding top coat painting capabilities which meet
automotive OEM Class A standards; (ii) adding substantial non-automotive market
presence with a salesforce and manufacturing facility dedicated to products
including watercraft components and tractor panels; (iii) enhancing strong Tier
1 relationships with Transplants, such as Mitsubishi; (iv) adding 48 additional
compression molding presses; and (v) increasing capacity to produce SMC, which
will provide consolidating opportunities for the Company. The Company has
identified and intends to pursue profit enhancement opportunities, including
plant consolidations, purchasing rationalization and manufacturing material
flow redesign. See "Business--The Eagle-Picher Acquisition."
5
<PAGE>
The Goodyear-Jackson Acquisition: On July 10, 1997, the Company completed the
acquisition of the engineered composites business ("Goodyear-Jackson") of The
Goodyear Tire and Rubber Company ("Goodyear"), located in Jackson, Ohio, for a
total purchase price of $37.6 million, subject to post-closing adjustments (the
"Goodyear-Jackson Acquisition"). Goodyear-Jackson manufactures plastic
components and modules for sale to OEMs of automobiles and light, medium and
heavy trucks. The majority of Goodyear-Jackson's sales are of parts
manufactured with SMC in a compression molding process. The Goodyear-Jackson
Acquisition is expected to benefit the Company by: (i) strengthening its
position as the leading SMC supplier to medium and heavy truck OEMs; (ii)
enhancing its relationship with Ford and Freightliner; (iii) further broadening
its array of products and manufacturing processes; (iv) adding 16 compression
molding presses, including 9 equal to or greater than 1,000 tons, and 10
injection molding presses, including 9 equal to or greater than 1,000 tons; and
(v) increasing its capacity to produce SMC. The Company has identified and
intends to pursue profit-improvement opportunities in the areas of raw
materials purchasing, plant overhead costs and selling, general and
administrative costs. See "Business--The Goodyear-Jackson Acquisition."
The APX Acquisition: In February 1997, the Company acquired the Production
Molded Composites Division ("APX") of APX International, for a total purchase
price of approximately $2.4 million (the "APX Acquisition"). APX is a
manufacturer focused on supplying body panels to Chrysler for the Viper
Roadster and Coupe using the resin transfer molding ("RTM") manufacturing
process. As a result of the APX Acquisition, the Company improved its position
as a Tier 1 supplier to Chrysler by becoming the sole supplier of a majority of
Viper exterior components. In addition, the Company strengthened its RTM
manufacturing capabilities which allows the Company to offer a broader variety
of products and processes to its customers. See "Business--Background and
Acquisition History."
The GenCorp Acquisition: In March 1996, the Company acquired the reinforced
plastics division ("GenCorp RPD") of GenCorp Inc. for a total purchase price of
approximately $32 million (the "GenCorp Acquisition"). As a result of the
GenCorp Acquisition, the Company enhanced its status as a Tier 1 supplier to
OEMs and added Volvo Heavy Truck and Kenworth to its customer base, thereby
solidifying its leadership in the heavy truck industry. In addition, GenCorp
RPD further expanded the Company's wide range of molding and finishing
capabilities.
The 1995 Transaction: In November 1995, Holdings was recapitalized in a
transaction (the "1995 Transaction") which included: (i) the purchase of
Holdings' common stock for approximately $18 million by the Bain Funds (as
defined); (ii) the repurchase by Holdings of its common stock for approximately
$70 million from certain of its stockholders; and (iii) the exchange of
Holdings' common stock for newly issued Holdings' capital stock by an affiliate
of Richard S. Crawford, Chairman of the Board and a principal stockholder of
the Company. See "Certain Transactions--The 1995 Transaction" and "--
Subordinated Notes and Warrant Agreements."
THE INITIAL OFFERING
Notes....................... The Old Notes were sold by the Company on July
10, 1997 to BT Securities Corporation (the "Ini-
tial Purchaser") pursuant to a Purchase Agreement
dated July 2, 1997 (the "Purchase Agreement").
The Initial Purchaser subsequently resold the Old
Notes to qualified institutional buyers pursuant
to Rule 144A under the Securities Act and to a
limited number of institutional "accredited in-
vestors" (as defined in Rule 501(a)(1),(2),(3) or
(7) under the Securities Act).
Registration Rights Pursuant to the Purchase Agreement, the Company
Agreement.................. and the Initial Purchaser entered into a Regis-
tration Rights Agreement, dated as of July 10,
1997 (the "Registration Agreement"), which grants
to the
6
<PAGE>
holders of the Old Notes certain exchange and
registration rights. The Exchange Offer is in-
tended to satisfy such exchange rights which ter-
minate upon the consummation of the Exchange Of-
fer.
THE EXCHANGE OFFER
Securities Offered.......... $100,000,000 aggregate principal amount of Series
B 10 1/4% Senior Subordinated Notes due 2007 of
the Company.
The Exchange Offer.......... $1,000 principal amount of New Notes in exchange
for each $1,000 principal amount of Old Notes. As
of the date hereof, $100,000,000 aggregate prin-
cipal amount of Old Notes are outstanding. The
Company will issue the New Notes to holders on or
promptly after the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, the Company believes that New
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without com-
pliance with the registration and prospectus de-
livery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary
course of such holder's business and that such
holder does not intend to participate and has no
arrangement or understanding with any person to
participate in the distribution of such New
Notes. Each holder accepting the Exchange Offer
is required to represent to the Company in the
Letter of Transmittal that, among other things,
the New Notes will be acquired by the holder in
the ordinary course of business and the holder
does not intend to participate and has no ar-
rangement or understanding with any person to
participate in the distribution of such New
Notes.
Any Participating Broker-Dealer that acquired Old
Notes for its own account as a result of market-
making activities or other trading activities may
be a statutory underwriter. Each Participating
Broker-Dealer that receives New Notes for its own
account pursuant to the Exchange Offer must ac-
knowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The
Letter of Transmittal states that by so acknowl-
edging and by delivering a prospectus, a Partici-
pating Broker-Dealer will not be deemed to admit
that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a Participating Broker-Dealer as a result
of market-making activities or other trading ac-
tivities. The Company and the Guarantors have
agreed for a period of 180 days after consumma-
tion of the Exchange Offer to make available a
prospectus meeting requirements of the Securities
Act to Participating Broker-Dealers and other
persons, if any, with similar prospectus delivery
requirements for use in connection with any re-
sale of such Exchange Notes. See "Plan of Distri-
bution."
7
<PAGE>
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose
of participating, in a distribution of the New
Notes could not rely on the position of the staff
of the Commission enunciated in no-action letters
and, in the absence of an exemption therefrom,
must comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction. Failure
to comply with such requirements in such instance
may result in such holder incurring liability un-
der the Securities Act for which the holder is
not indemnified by the Company.
Expiration Date.............
5:00 p.m., New York City time, on December ,
1997 unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer
is extended.
Accrued Interest on the New
Notes and the Old Notes....
Interest on the New Notes will accrue from the
last interest payment date on which interest was
paid on the Notes surrendered in exchange there-
for or, if no interest has been paid on the Old
Notes, from the Issue Date. Such interest will be
paid with the first interest payment on the New
Notes to the persons who are registered holders
of the New Notes. Interest on the Old Notes ac-
cepted for exchange will cease to accrue upon is-
suance of the New Notes.
Conditions to the Exchange The Exchange Offer is subject to certain custom-
Offer...................... ary conditions, which may be waived by the Compa-
ny. See "The Exchange Offer--Conditions."
Procedures for Tendering Each holder of Old Notes wishing to accept the
Old Notes.................. Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a facsim-
ile thereof or transmit an Agent's Message (as
defined) in connection with a book-entry trans-
fer, in accordance with the instructions con-
tained herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such fac-
simile, or such Agent's Message, together with
the Old Notes and any other required documenta-
tion to the Exchange Agent (as defined herein) at
the address set forth herein. By executing the
Letter of Transmittal or Agent's Message, each
holder will represent to the Company that, among
other things, the New Notes acquired pursuant to
the Exchange Offer are being obtained in the or-
dinary course of business of the person receiving
such New Notes, whether or not such person is the
holder, that neither the holder nor any such
other person (i) has any arrangement or under-
standing with any person to participate in the
distribution of such New Notes, (ii) is engaging
or intends to engage in the distribution of such
New Notes, or (iii) is an "affiliate," as defined
under rule 405 of the Securities Act, of the Com-
pany. See "The Exchange Offer--Purpose and Effect
of the Exchange Offer" and "--Procedures for
Tendering."
Untendered Old Notes........ Following the consummation of the Exchange Offer,
holders of Old Notes eligible to participate but
who do not tender their Old Notes will not have
any further exchange rights and such Old Notes
will
8
<PAGE>
continue to be subject to certain restrictions on
transfer. Accordingly, the liquidity of the mar-
ket for such Old Notes could be adversely affect-
ed.
Consequences of Failure to The Old Notes that are not exchanged pursuant to
Exchange................... the Exchange Offer will remain restricted securi-
ties. Accordingly, such Old Notes may be resold
only (i) to the Company, (ii) pursuant to Rule
144A or Rule 144 under the Securities Act or pur-
suant to some other exemption under the Securi-
ties Act, (iii) outside the United States to a
foreign person pursuant to the requirements of
rule 904 under the Securities Act, or (iv) pursu-
ant to an effective registration statement under
the Securities act. See "The Exchange Offer--Con-
sequences of Failure to Exchange."
Shelf Registration If any holder of the Old Notes (other than any
Statement.................. such holder which is an "affiliate" of the Com-
pany within the meaning of Rule 405 under the Se-
curities Act) is not eligible under applicable
securities laws to participate in the Exchange
Offer, and such holder has provided information
regarding such holder and the distribution of
such holder's Old Notes to the Company for use
therein, the Company has agreed to register the
Old Notes on a shelf registration statement (the
"Shelf Registration Statement") and use its best
efforts to cause it to be declared effective by
the Commission as promptly as practical on or af-
ter the consummation of the Exchange Offer. The
Company has agreed to maintain the effectiveness
of the Shelf Registration Statement for, under
certain circumstances, a maximum of two years, to
cover resales of the Old Notes held by any such
holders.
Special Procedures for
Beneficial Owners..........
Any beneficial owner whose Old Notes are regis-
tered in the name of a broker, dealer, commercial
bank, trust company or other nominee and who
wishes to tender should contact such registered
holder promptly and instruct such registered
holder to tender on such beneficial owner's be-
half. Such beneficial owner must, prior to com-
pleting and executing the Letter of Transmittal
and delivering its Old Notes, either make appro-
priate arrangements to register ownership of the
Old Notes in such beneficial owner's name or ob-
tain a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time. The Company
will keep the Exchange Offer open for not less
than twenty business days in order to provide for
the transfer of registered ownership.
Guaranteed Delivery Holders of Old Notes who wish to tender their Old
Procedures................. Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes,
the Letter of Transmittal or any other documents
required by the letter of Transmittal to the Ex-
change Agent (or comply with the procedures for
book-entry transfer) prior to the Expiration Date
must tender their Old Notes according to the
guaranteed delivery procedures set forth in "The
Exchange Offer--Guaranteed Delivery Procedures."
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date.
9
<PAGE>
Acceptance of Old Notes and
Delivery of New Notes......
The Company will accept for exchange any and all
Old Notes which are properly tendered in the Ex-
change Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The New Notes is-
sued pursuant to the Exchange Offer will be de-
livered promptly following the Expiration Date.
See "The Exchange Offer--Terms of the Exchange
Offer."
Use of Proceeds............. There will be no cash proceeds to the Company
from the exchange pursuant to the Exchange Offer.
Exchange Agent.............. State Street Bank & Trust Company.
THE NEW NOTES
General..................... The form and terms of the New Notes are the same
as the form and terms of the Old Notes (which
they replace) except that (i) the new Notes bear
a Series B designation, (ii) the New Notes will
be issued in a transaction that has been regis-
tered under the Securities Act and, therefore,
will not bear legends restricting the transfer
thereof, and (iii) the holders of New Notes will
not be entitled to certain rights under the Reg-
istration Rights Agreement, including the provi-
sions providing for liquidated damages in certain
circumstances relating to the timing of the Ex-
change Offer, which rights will terminate when
the Exchange Offer is consummated. See "The Ex-
change Offer--Purpose and Effect of the Exchange
Offer." The New Notes will evidence the same debt
as the Old Notes and will be entitled to the ben-
efits of the Indenture. See "Description of
Notes." The Old Notes and the New Notes are re-
ferred to herein collectively as the "Notes."
Maturity Date............... July 15, 2007
Interest and Payment January 15 and July 15 of each year, commencing
Dates...................... January 15, 1998.
Optional Redemption......... The New Notes are redeemable, in whole or in
part, at the option of the Company on or after
July 15, 2002, at the redemption prices set forth
herein plus accrued and unpaid interest to the
date of redemption. In addition, at any time on
or prior to July 15, 2000, the Company may redeem
up to 35% of the aggregate principal amount of
the Notes issued with the net cash proceeds of
one or more Equity Offerings (as defined), at a
redemption price equal to 110.25% of principal
amount to be redeemed plus accrued interest to
the redemption date; provided that at least $65.0
million of the aggregate principal amount of
Notes remains outstanding immediately after any
such redemption.
Change of Control........... Upon a Change of Control, the Company will be ob-
ligated to make an offer to repurchase all of the
outstanding New Notes at a price equal to 101% of
the principal amount thereof plus accrued and un-
paid interest, if any, to the date of repurchase.
See "Description of Notes--Change of Control."
The Company may not have sufficient cash to re-
deem the New Notes upon a Change of Control. See
"Risk Factors--Change of Control."
10
<PAGE>
Ranking.....................
The New Notes will be, as the Old Notes (which
they replace) are, general unsecured obligations
of the Company, subordinated in right of payment
to all Senior Debt (as defined) of the Company,
including borrowings under the Credit Agreement.
As of September 30, 1997, the Company had approx-
imately $224.5 million of Senior Debt outstand-
ing. The Indenture permits the Company to incur
additional indebtedness, including Senior Debt,
subject to certain limitations.
Guarantees.................. The New Notes will be, as the Old Notes (which
they replace) are, guaranteed on a senior subor-
dinated basis by the Guarantors. The Guarantees
will be full, unconditional and joint and sever-
al. The Guarantees will be general unsecured ob-
ligations of the Guarantors and will be subordi-
nated in right of payment to all existing and fu-
ture Senior Debt of such Guarantors, which will
include any guarantee by such Guarantors of the
Company's indebtedness under the Credit Agree-
ment.
Certain Covenants........... The Indenture contains certain covenants that
limit the ability of the Company and its subsidi-
aries to, among other things, incur additional
indebtedness and issue preferred stock, pay divi-
dends or make certain other Restricted Payments
(as defined), enter into certain transactions
with affiliates, create liens, merge or consoli-
date with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of
all or substantially all of the assets of the
Company, issue or sell capital stock or wholly-
owned subsidiaries and engage in other lines of
business.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating the investment in the Notes.
11
<PAGE>
SUMMARY HISTORICAL AND UNAUDITED PRO FORMA DATA
The summary consolidated results of operations data for the years ended
December 31, 1996, 1995 and 1994 and balance sheet data as of December 31, 1996
and 1995 set forth below are derived from the Company's consolidated financial
statements included elsewhere in this Prospectus; such data as of September 30,
1997 and for the nine months ended September 30, 1997 and 1996 are derived from
the Company's unaudited interim financial statements included elsewhere in this
Prospectus. The summary unaudited pro forma data for the year ended December
31, 1996 and for the nine month period ended September 30, 1997, are derived
from the Unaudited Pro Forma Financial Data included elsewhere in the
Prospectus. The Unaudited Pro Forma Financial Data do not purport to represent
what the Company's results of operations actually would have been if the
transactions referred therein had been consummated on the date or for the
periods indicated, or what such results will be for any future date or for any
future period. The Unaudited Pro Forma Financial Data should be read in
conjunction with the "Selected Historical Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements of the Company, of GenCorp RPD, of Rockwell Plastics
(as defined) and of Goodyear-Jackson and the related notes thereto
(collectively, the "Financial Statements") included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
TWELVE
MONTHS
ENDED
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------- ----------------------------------- -------------
PRO FORMA PRO FORMA
1994(1) 1995 1996(2) 1996(5)(7) 1996(2) 1997(3) 1997(4) 1997(5)(7)
-------- -------- -------- ---------- ---------- ---------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
DATA:
Sales................... $190,944 $297,746 $346,026 $509,702 $ 264,086 $ 296,396 $ 363,229 $474,798
Gross profit............ 31,489 43,853 51,284 67,843 40,806 41,289 47,628 66,176
Selling, general and
administrative
expenses............... 15,312 17,678 26,240 34,102 17,654 20,955 23,605 32,491
Income from operations.. 16,177 26,175 25,044 33,741 23,152 20,334 24,023 33,685
Interest expense........ 6,161 12,388 23,190 29,791 16,942 19,796 22,911 32,203
Other income (expense).. 657 746 (180) (76) (145) (145) (145) (21)
Income (loss) before
income taxes........... 10,673 14,533 1,674 3,874 6,065 393 967 1,461
Income before
extraordinary item..... 12,123 9,123 1,109 2,458 4,040 236 539 653
Net income (loss)(6).... 12,123 4,697 1,109 2,458 4,040 (8,916)
OTHER DATA:
Depreciation and
amortization........... $ 8,952 $ 16,715 $ 21,319 $ 32,401 $ 15,773 $ 18,129 $ 24,113 $ 32,492
Capital expenditures.... 3,972 10,646 9,630 22,275 6,958 14,396 16,207 22,622
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital......... $ 24,887 $ 25,544 $ 37,529 $ 57,349 $ 56,015
Total assets............ 189,317 175,115 262,230 253,308 374,891
Long-term debt, less
current portion........ 124,500 177,133 224,112 230,809 318,987
</TABLE>
(Footnotes on following page)
12
<PAGE>
- --------
(1) In August 1994, the Company acquired substantially all the assets of the
Plastics Products Business ("Rockwell Plastics") of Rockwell International
Corporation ("Rockwell"), and such transaction was accounted for as a
purchase. The operating results of Rockwell Plastics are included in the
consolidated operating results from August 1, 1994. Also, effective August
1, 1994, the stockholders of Wolf Engineering Corporation ("Wolf"), Voplex
Corporation ("Voplex") and Voplex of Canada, Inc. ("Voplex Canada") formed
the Company, and contributed the shares of such businesses or merged such
businesses, as the case may be, into the Company. This transaction
constituted a combining of interests under common control, and was
accounted for in a manner similar to a pooling of interests.
(2) In March 1996, the Company acquired GenCorp RPD for a purchase price of
approximately $32 million. The operating results of GenCorp RPD are
included in the consolidated operating results from March 1, 1996.
(3) In February 1997, the Company acquired APX for a purchase price of $2.4
million. The operating results of APX are included in the consolidating
operating results from February 1, 1997. Effective July 1, 1997, the
Company completed the Goodyear-Jackson Acquisition and the Eagle-Picher
Acquisition. The operating results of Goodyear-Jackson and Eagle-Picher are
included in historical results from July 1, 1997.
(4) The Summary Unaudited Pro Forma Data are derived from the Unaudited Pro
Forma Financial Data included elsewhere in this Prospectus. The pro forma
results of operations data for 1996 give effect to: (i) the GenCorp
Acquisition; (ii) the APX Acquisition; (iii) the Eagle-Picher Acquisition;
(iv) the Goodyear-Jackson Acquisition; and (v) the completion of the
Initial Offering and the Credit Agreement and application of the net
proceeds therefrom, as if each had occurred on January 1, 1996. The pro
forma results of operations data for the nine months ended September 30,
1997 give effect to items (ii), (iii), (iv) and (v), as if these had
occurred at January 1, 1996.
(5) The Summary Unaudited Pro Forma Data for the twelve months ended September
30, 1997, have been derived by combining the pro forma financial data for
the year ended December 31, 1996, with the pro forma financial data for the
nine month period ended September 30, 1997, and deducting the pro forma
financial data for the nine month period ended September 30, 1996. These
pro forma data are presented for the purpose of additional information and
analysis, and are not a required part of the Unaudited Pro Forma Financial
Data. Such financial data give effect to the APX Acquisition, the Eagle-
Picher Acquisition, the Goodyear-Jackson Acquisition, the Initial Offering
and the Credit Agreement and application of the net proceeds therefrom, as
if such items had occurred at the beginning of the period.
(6) On August 1, 1994, the Company changed its tax status from Subchapter S to
Subchapter C; in 1993, the Company's earnings were included in the taxable
income of the Company's stockholders. If the Company had operated as a
Subchapter C corporation for the full year ended December 31, 1994, the
income tax provision would have been approximately $4.1 million, and net
income would have been approximately $6.6 million. See Note 12 to the
Company's financial statements included elsewhere in this Prospectus.
(7) The Company has identified additional cost savings that it expects to
derive from the elimination of certain corporate overhead allocations
charged to the acquired Eagle-Picher and Goodyear-Jackson operations. The
Company expects to realize additional cost savings aggregating $2.5
million, net of incremental Cambridge overhead costs, annually. These
additional cost savings are not reflected in the pro forma results of
operations as they are not viewed as directly related to the Eagle-Picher
and Goodyear-Jackson Acquisitions. See "Unaudited Pro Forma Financial
Data."
13
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to the other information set forth in this Prospectus before
tendering the Old Notes for the New Notes. This Prospectus contains forward-
looking statement that involve risk and uncertainties. Actual results could
differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those
identified below as well as those discussed elsewhere in this Prospectus.
LEVERAGE; STOCKHOLDER'S DEFICIT
As a result of the 1995 Transaction and the Company's borrowings in
connection with the acquisitions of GenCorp RPD, APX, Eagle-Picher and
Goodyear-Jackson, the Company is highly leveraged. The Company has a
stockholder's deficit which, at September 30, 1997, was approximately $71.3
million. See "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The Company's indebtedness was
approximately $324.5 million as of September 30, 1997. In addition, subject to
the restrictions in the Credit Agreement and the Indenture, the Company and
its subsidiaries may incur additional indebtedness (including additional
Senior Debt) from time to time to finance acquisitions or capital expenditures
or for other purposes.
The level of the Company's indebtedness could have important consequences to
holders of the Notes, including: (i) a substantial portion of the Company's
cash flow from operations must be dedicated to debt service and will not be
available for other purposes; (ii) the Company's ability to obtain additional
debt financing in the future for working capital, capital expenditures,
research and development or acquisitions may be limited; and (iii) the
Company's substantial leverage may make it more vulnerable to adverse economic
conditions and limit its ability to withstand competitive pressures or take
advantage of business opportunities.
The Company's ability to pay principal and interest on the Notes and to
satisfy its other debt obligations depend upon its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond its control
as well as the availability of revolving credit borrowings under the Credit
Agreement or a successor facility. The Company anticipates that its operating
cash flow, together with borrowings under the Credit Agreement, will be
sufficient to meet its operating expenses and to service its debt requirements
as they become due. If the Company is unable to service its indebtedness, it
will be forced to take actions such as reducing or delaying capital
expenditures, selling assets, restructuring or refinancing its indebtedness
(which could include the Notes), or seeking additional equity capital. There
is no assurance that any of these remedies can be effected on satisfactory
terms, if at all.
SUBORDINATION OF NOTES AND THE GUARANTEES
The Notes and the Guarantees are and will be subordinated in right of
payment to all Senior Debt of the Company and the Guarantors, respectively. In
the event of bankruptcy, liquidation or reorganization of the Company, the
assets of the Company or the Guarantors will be available to pay obligations
on the Notes only after all Senior Debt of the Company or the Guarantors, as
the case may be, has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on any or all of the Notes then outstanding. The
Company had approximately $224.5 million of Senior Debt outstanding at
September 30, 1997. Additional Senior Debt may be incurred by the Company and
the Guarantors from time to time, subject to certain restrictions. Although
the Indenture generally provides that a Subsidiary (as defined) may incur
indebtedness only if such Subsidiary agrees to guarantee the Notes on a senior
subordinated basis, a Foreign Subsidiary (as defined) may incur an unlimited
amount of indebtedness without providing a Guarantee. If indebtedness is
incurred by a Foreign Subsidiary which is not a Guarantor, the Notes will be
structurally subordinated to such indebtedness with respect to the assets of
such Subsidiary. See "Description of Notes" and "Description of Credit
Agreement." The holders of the Notes have no direct claim against the
Guarantors other than the claim created by the Guarantees,
14
<PAGE>
if any, which may themselves be subject to legal challenge in the event of the
bankruptcy or insolvency of a Guarantor. See "--Fraudulent Conveyance
Considerations." If such a challenge were upheld, the Guarantees would be
invalidated and unenforceable. To the extent that the Guarantees are held to be
unenforceable or have been released pursuant to the terms of the Indenture, the
rights of holders of the Notes to participate in any distribution of assets of
any Guarantor upon liquidation, bankruptcy or reorganization may, as is the
case with other unsecured creditors of the Company, be subject to prior claims
against such Guarantor.
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The Indenture restricts, among other things, the Company's and the
Guarantors' ability to incur additional indebtedness, incur liens, pay
dividends or make certain other restricted payments, consummate certain asset
sales, enter into certain transactions with affiliates, incur indebtedness that
is subordinate in right of payment to any Senior Debt and senior in right of
payment to the Notes, merge or consolidate with any other person or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of the assets of the Company. In addition, the Credit Agreement contains
other and more restrictive covenants and prohibits the Company and its
subsidiaries from prepaying other indebtedness (including the Notes). The
Credit Agreement also requires the Company to maintain specified financial
ratios and satisfy certain financial condition tests. The Company's ability to
meet those financial ratios and tests can be affected by events beyond its
control, and there can be no assurance that the Company will meet those tests.
A breach of any of these covenants could result in a default under the Credit
Agreement and/or the Indenture. Upon the occurrence of an event of default
under the Credit Agreement, the lenders could elect to declare all amounts
outstanding under the Credit Agreement, together with accrued interest, to be
immediately due and payable. If the Company were unable to repay those amounts,
the lenders could proceed against the collateral granted to them to secure that
indebtedness. If the Senior Debt were to be accelerated, there can be no
assurance that the assets of the Company would be sufficient to repay in full
that indebtedness and the other indebtedness of the Company, including the
Notes. Substantially all the assets of the Company and its subsidiaries are
pledged as security under the Credit Agreement. See "Description of Credit
Agreement" and "Description of Notes--Certain Covenants."
INDUSTRY CONDITIONS
The Company's business is tied to the North American vehicle industry which
is highly cyclical and dependent on consumer spending and general economic
conditions in North America. There can be no assurance that North American
automotive production will not decline in the future or that the Company will
be able to utilize any additional capacity it adds in the future. Economic
factors adversely affecting automotive sales and production and consumer
spending could adversely impact the Company's sales and its operating results.
See "Business--Automobile and Light Truck Components Industry." In addition,
the growing trend among OEMs to reduce their supplier base and to reduce costs
while increasing quality control puts great pressure on suppliers such as the
Company.
Many OEMs and their suppliers have unionized work forces. Work stoppages or
slow-downs experienced by OEMs or their suppliers could result in slow-downs or
closures of assembly plants where the Company's products are included in
assembled vehicles. These events could have a material adverse effect on the
Company's results of operations.
INDUSTRY CONSOLIDATION
The automotive plastic component supply industry has undergone, and is likely
to continue to experience, consolidation. See "Business--Automobile and Light
Truck Components Industry--Consolidation of Supplier Base by OEMs." The Company
believes that in order for it to maintain and enhance its position as a Tier 1
supplier to OEMs, it is important that it participate in this consolidation.
Accordingly, the Company intends to selectively pursue acquisition targets that
will broaden its product and process capabilities. There can be no
15
<PAGE>
assurance, however, that it will be successful in consummating such
acquisitions or that it will be able to successfully integrate any such
acquisitions without adversely affecting the Company's financial position or
results of operations.
COMPETITION
The Company's industry is highly competitive. A large number of actual or
potential competitors exist, including the internal component operations of
the OEMs as well as independent suppliers, some of which are larger than the
Company and have substantially greater resources. There can be no assurance
that the Company's business will not be adversely affected by increased
competition in the market in which it currently operates or in markets in
which it will operate in the future, or that the Company will be able to
improve or maintain its profit margins on sales to OEMs. In addition, the
Company principally competes for new business both at the beginning of the
development of new models and upon the redesign of existing models by its
major customers. New model development generally begins two to five years
prior to the marketing of such models to the public. Although the Company has
been successful in obtaining significant new business on new models, there can
be no assurance that the Company will continue to be able to obtain such new
business. Certain of the Company's competitors currently are larger, have
greater operating flexibility and have greater financial resources than the
Company. See "Business--Competition."
RELIANCE ON MAJOR CUSTOMERS
For the year ended December 31, 1996, on a pro forma basis (including the
Eagle-Picher Acquisition and the Goodyear-Jackson Acquisition), approximately
24.9% of the Company's sales were to General Motors, approximately 35.4% of
the Company's sales were to Ford and approximately 8.1% of the Company's sales
were to Chrysler. Sales to these customers consist of a large number of
different parts, tooling and other services, which are sold to separate
divisions and operating groups within each customer's organization. Although
the Company believes that its overall relations with customers are good, there
can be no assurance that such customers will continue to purchase the Company
products, continue with a particular vehicle program or purchase the Company's
products for any successor vehicle program. The loss of any one of such
customers, or a significant decrease in demand for certain models or a group
of related models sold by any of its major customers, could have a material
adverse effect on the Company. The failure of the Company to obtain new
business for new models or to retain or increase business on redesigned
existing models could have a material adverse effect on the Company. Decline
in the production of new North American vehicles, due to reductions in North
American vehicle demand or an increase in the share of the North American
vehicle market by foreign OEMs manufacturing in their home countries, could
have a material adverse effect on the Company. Moreover, because sales are
typically secured during the two to five year vehicle model development period
prior to marketing to the public, there can be no assurance that efforts to
replace any lost sales, if successful, would yield cash revenues in time to
prevent a material adverse effect on the Company. See "Business--Customers."
Automotive suppliers are under constant pressure to reduce product prices.
General Motors, Ford and Chrysler have established policies which do not
permit price increases, even though underlying material or other costs may
have increased due to circumstances beyond a supplier's control. Most of the
Company's products are manufactured using petroleum-based plastic resins. The
price of petroleum, while relatively stable in recent years, has experienced
wide fluctuations in the past. Significant increases in the price of petroleum
could result in increased cost of the Company's principal raw materials which,
if not recoverable from the Company's customers, could have a material adverse
effect on the Company's results of operations.
At the same time, OEMs continue to pressure suppliers such as the Company to
reduce costs, to increase quality control and, in some cases, to share cost
savings with them through a reduction of parts prices. Although the Company
believes that its prices will remain competitive, there can be no assurance
that it will be able to improve or maintain its profit margins on sales to
OEMs.
16
<PAGE>
INTEGRATION OF ACQUISITIONS
Although the Company has successfully integrated a number of significant
operations in the past and believes that it has developed comprehensive plans
to integrate Eagle-Picher and Goodyear-Jackson, no assurance can be given that
the integration of Eagle-Picher, Goodyear-Jackson or future acquisitions will
be successful or that the anticipated strategic benefits of Eagle-Picher,
Goodyear-Jackson or of future acquisitions will be realized. If the Company is
unable to successfully integrate Eagle-Picher, Goodyear-Jackson or future
acquisitions, the Company's results from operations may be adversely affected.
See "Business--The Eagle-Picher Acquisition" and "--The Goodyear-Jackson
Acquisition."
ENVIRONMENTAL MATTERS
Like similar companies, the Company's operations and properties are subject
to extensive federal, state, local and foreign regulation under environmental
laws and regulations concerning, among other things, emissions into the air,
discharges into the water, the remediation of contaminated soil and
groundwater, and the generation, handling, storage, transportation, treatment
and disposal of waste and other materials (collectively, "Environmental
Laws"). Violations of these Environmental Laws can result in civil or criminal
penalties being levied against the Company or in a cease and desist order
against the operations that are not in compliance. Inherent in manufacturing
operations and property use or ownership is the risk of environmental
liabilities as a result of both current and past operations, which liabilities
cannot be predicted with certainty. The Company has incurred and will continue
to incur costs, on an ongoing basis, associated with compliance and liability
under Environmental Laws in its business. In 1994, the Company determined that
certain of its facilities evidenced soil and groundwater contamination in
excess of applicable state cleanup levels. It also determined that the
facilities acquired from Rockwell had certain contamination and non-compliance
issues. The Company is indemnified by Rockwell for certain pre-existing
environmental exposures associated with the former Rockwell plants, subject to
a maximum aggregate contribution by the Company of $0.6 million and to the
survival period of Rockwell's environmental representations and warranties,
which expire July 2004. In 1996, the Company consummated the GenCorp
Acquisition. The Company did not assume any liabilities arising from pre-
existing violations of Environmental Laws, pre-existing contamination at
GenCorp RPD facilities or off-site disposal of waste materials. The Company is
indemnified for such non-assumed liabilities (the "GenCorp Indemnity"). As
part of the GenCorp Acquisition, the Company determined that certain former
GenCorp RPD facilities were not in complete compliance with Environmental
Laws. The Company has subsequently brought the facilities into substantial
compliance.
In connection with the Eagle-Picher Acquisition, the Company has determined
that certain Eagle-Picher facilities are not in complete compliance with
Environmental Laws, face potential exposure for past off-site disposal of
waste materials and contain hazardous materials in soil, sediments and
groundwater in excess of applicable regulatory standards. Under the terms of
the Eagle-Picher Acquisition, Eagle-Picher agreed to remediate all identified
on-site contamination above state industrial standards as presently calculated
or as materially changed prior to 2003. Eagle-Picher also indemnified the
Company for any fines or penalties arising out of certain identified non-
compliance issues. Eagle-Picher also agreed to indemnify the Company for
unidentified on-site contamination for a period of four years. The total
maximum exposure to Eagle-Picher for such remediation of unidentified
contamination, unidentified pre-existing non-compliance issues and additional
remediation necessary due to a change in clean-up standards is $3.25 million.
Based upon its pre-acquisition due diligence, the Company does not expect any
such liabilities to exceed this $3.25 million limit. In addition, the Company
is indemnified by Eagle-Picher for any off-site disposal liabilities arising
under Environmental Laws.
In connection with the Goodyear-Jackson Acquisition, the Company has
determined that the Jackson facility may not be in complete compliance with
Environmental Laws, may face potential exposure for past off-site disposal of
waste materials and may contain hazardous materials in soil and groundwater in
excess of applicable regulatory standards. Under the terms of the Goodyear-
Jackson Acquisition, Goodyear agreed to indemnify the Company for all costs
associated with pre-existing non-compliance issues. In addition, subject to a
maximum
17
<PAGE>
payment of $1.0 million, Goodyear agreed to reimburse the Company for further
investigation and necessary repairs of the causes or sources of the
contamination. After completion of the foregoing investigation and repairs,
Goodyear agreed to remediate all identified on-site contamination at the
facility and to make reasonable efforts to obtain a covenant not to sue under
applicable state law. With respect to any unidentified environmental costs,
including unidentified on-site contamination or unidentified pre-existing non-
compliance with Environmental Laws, Goodyear agreed to indemnify the Company
for a period of three years following the closing, with the Company agreeing
to bear the first $0.25 million of such unidentified environmental costs and
to share in some portion of the costs thereafter. Goodyear's maximum exposure
for any unidentified environmental costs is limited to $2.5 million.
A number of the Company's facilities are likely to be required to comply
with Titles III and V of the Clean Air Act ("CAA"). The cost of such
compliance could be material. Title III of the CAA includes provisions
requiring the implementation of Maximum Achievable Control Technology (MACT)
to reduce emissions of certain hazardous air pollutants, including styrene, at
certain manufacturing facilities emitting designated quantities of such
pollutants. Air pollution controls to address styrene emissions could cost
approximately $1.0 million per facility and, if MACT is ultimately required in
connection with both the manufacture and use of this compound, may be required
at three to five of the Company's facilities.
Based upon the Company's experience to date, as well as the existence of
certain remediation and indemnification agreements obtained in connection with
those acquisitions described above, the Company believes that the future cost
of compliance with existing Environmental Laws and liability for identified
environmental claims will not have a material adverse effect on the Company's
business, results of operations or financial position. However, future events,
such as new information, more vigorous enforcement policies of regulatory
agencies, stricter or different interpretations of existing Environmental
Laws, changes in existing Environmental Laws or their interpretation, or the
failure of indemnitors to fulfill their contractual obligations, may give rise
to additional costs or claims that could have a material adverse effect on the
Company's business, results of operations or financial condition. See
"Business--Environmental Matters."
PURCHASE OF THE NOTES UPON CHANGE OF CONTROL
Upon a Change of Control, the Company is required to offer to purchase all
outstanding Notes at 101% of the principal amount thereof plus accrued
interest to the date of purchase. The source of funds for any such purchase
will be the Company's available cash or cash generated from operating or other
sources, including borrowing, sales of assets, sales of equity or funds
provided by a new controlling person. A Change of Control will likely trigger
an event of default under the Credit Agreement which will permit the lenders
thereto to accelerate the debt under the Credit Agreement. However, there can
be no assurance that sufficient funds will be available at the time of any
Change of Control to make any required repurchases of Notes tendered, or that,
if applicable, restrictions in the Credit Agreement will allow the Company to
make such required repurchases. See "Description of Notes--Change of Control."
FRAUDULENT CONVEYANCE CONSIDERATIONS
The incurrence by the Company and the Guarantors of the indebtedness
evidenced by the Notes and the Guarantees is subject to review under relevant
U.S. federal and state fraudulent conveyance statutes ("Fraudulent Conveyance
Statutes") in a bankruptcy case or a lawsuit by or on behalf of creditors of
the Company or the Guarantors. Under these statutes, a court could subordinate
all or part of such indebtedness to presently existing and future indebtedness
of the Company or the Guarantors, as the case may be, avoid the issuance of
such indebtedness and direct the repayment of any amounts paid thereunder to
the Company's or the Guarantors', as the case may be, creditors or take other
action detrimental to the holders of such indebtedness, if at the time the
Notes were issued and the proceeds applied: (i) the Company or the Guarantors
incurred such indebtedness or the Company applied the proceeds with the intent
of hindering, delaying or defrauding creditors; or (ii) the Company or the
Guarantors received less than a reasonably equivalent value or fair
consideration for incurring
18
<PAGE>
such indebtedness and, after so applying the proceeds, the Company or the
Guarantors (a) was insolvent or rendered insolvent by reason of such
transactions, (b) was engaged in a business or transaction for which the
assets remaining with the Company or the Guarantors constituted unreasonably
small capital or (c) intended to incur, or believed that it would incur, debts
beyond its ability to pay as they matured (as the foregoing terms are defined
in or interpreted under Fraudulent Conveyance Statutes).
The holders of the Notes will have the benefit of the Guarantees. However,
the Guarantees will be limited to the maximum amount the Guarantors are
permitted to guarantee under applicable law. As a result, the Guarantors'
liability under their Guarantees could be reduced to zero, depending upon the
amount of other obligations of the Guarantors. Notwithstanding such provision,
such Guarantees may be subject to review by a court under relevant fraudulent
conveyance statutes and, if a court makes certain findings, it could take
certain actions detrimental to the holders of the Notes. The Guarantees may
also be released under certain circumstances. See "Description of Notes--
Guarantees."
Based upon the financial and other information currently available to it,
each of the Company and the Guarantors believes that the indebtedness and
obligations evidenced by the Notes and the Guarantees will be incurred and the
proceeds of the Notes will be used for proper purposes and in good faith. Each
of the Company and the Guarantors believes that at the time of, and after
giving effect to, the incurrence of the indebtedness and obligations evidenced
by the Notes and the Guarantees, the Company will be solvent and will have
sufficient capital to carry on the business and that it will pay its debts as
they mature. No assurance can be given, however, that a court would concur
with such beliefs and positions.
In the event the Guarantee of a Guarantor is voided as a fraudulent
conveyance, holders of the Notes would effectively be subordinated to all
indebtedness and other liabilities and commitments of such Guarantor.
The measure of insolvency for these purposes will vary depending upon the
law of the jurisdiction being applied. Generally, a company will be considered
insolvent for these purposes if the company is unable to pay its debts as they
become due in the usual course of its business or the sum of the company's
debts is greater than all of the company's property at a fair valuation or if
the present fair salable value of the company's assets is less than the amount
that will be required to pay its probable liability on its existing debts as
they become absolute and mature.
In rendering their opinions with respect to the validity of the Old Notes
and the Guarantees, counsel for the Company and the Guarantors and counsel for
the Initial Purchaser did not express any opinion as to the applicability of
federal or state statutes relating to fraudulent conveyances and obligations.
ABSENCE OF PUBLIC MARKET COULD ADVERSELY AFFECT THE VALUE OF THE NOTES
The Old Notes were issued to, and the Company believes are currently owned
by, a relatively small number of beneficial owners. Prior to the Exchange
Offer, there has not been any public market for the Old Notes. The Old Notes
have not been registered under the Securities Act and will be subject to
restrictions on transferability to the extent that they are not exchanged for
New Notes by holders who are entitled to participate in this Exchange Offer.
The holders of Old Notes (other than any such holder that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act) who are
not eligible to participate in the Exchange Offer are entitled to certain
registration rights, and the Company is required to file a Shelf Registration
Statement with respect to such Old Notes. The New Notes will constitute a new
issue of securities with no established trading market. The Company does not
intend to list the New Notes on any national securities exchange or seek the
admission thereof to trading in the National Association of Securities Dealers
Automated Quotation System. The Initial Purchaser has advised the Company that
it currently intends to make a market in the New Notes, but it is not
obligated to do so and may discontinue such market making at any time. In
addition, such market making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act and may be limited during the Exchange
Offer and the pendency of the Shelf Registration Statement. Accordingly, no
assurance can be given that an active public or other market will develop for
the New Notes or as to the liquidity of the trading
19
<PAGE>
market for the New Notes. If a trading market does not develop or is not
maintained, holders of the New Notes may experience difficulty in reselling
the New Notes or may be unable to sell them at all. If a market for the New
Notes develops, any such market may be discontinued at any time.
If a public trading market develops for the New Notes, future trading prices
of such securities will depend on many factors including, among other things,
prevailing interest rates, the Company's results of operations and the market
for similar securities. Depending on prevailing interest rates, the market for
similar securities and other factors, including the financial condition of the
Company, the New Notes may trade at a discount from their principal amount.
FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the New Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
Old Notes, a properly completed and duly executed Letter of Transmittal or
Agent's Message and all other required documents. Therefore, holders of the
Old Notes desiring to tender such Old Notes in exchange for New Notes should
allow sufficient time to ensure timely delivery. The Company is under no duty
to give notification of defects or irregularities with respect to the tenders
of Old Notes for exchange. Old Notes that are not tendered or are tendered but
not accepted will, following the consummation of the Exchange Offer, continue
to be subject to the existing restrictions upon transfer thereof, and, upon
consummation of the Exchange Offer, certain registration rights under the
Registration Rights Agreement will terminate. In addition, any holder of Old
Notes who tenders in the Exchange Offer for the purpose of participating in a
distribution of the New Notes may be deemed to have received restricted
securities, and if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a Prospectus in connection
with any resale of such New Notes. See "Plan of Distribution." To the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Old Notes could be adversely
affected. See "The Exchange Offer."
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements, including,
without limitation, statements concerning the Company's operations, economic
performance and financial condition, including in particular statements
relating to the Company's business and growth strategy. The words "believe,"
"expect," "anticipate" and other similar expressions generally identify
forward-looking statements. Holders are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of their dates. These
forward-looking statements are based largely on the Company's current
expectations and are subject to a number of risks and uncertainties,
including, without limitation, those identified under "Risk Factors" and
elsewhere in this Prospectus and other risks and uncertainties indicated from
time to time in the Company's filings with the Securities and Exchange
Commission. Actual results could differ materially from these forward-looking
statements. In addition, important factors to consider in evaluating such
forward-looking statements include changes in external market factors, changes
in the Company's business or growth strategy or an inability to execute its
strategy due to changes in its industry or the economy generally, the
emergence of new or growing competitors and various other competitive factors.
In light of these risks and uncertainties, there can be no assurance that the
matters referred to in the forward-looking statements contained in this
Prospectus will in fact occur.
20
<PAGE>
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the New Notes offered hereby.
In consideration for issuing the New Notes contemplated in this Prospectus,
the Company will receive Old Notes in like principal amount, the form and
terms of which are the same as the form and terms of the New Notes (which
replace the Old Notes), except as described herein.
The gross proceeds of $100.0 million from the Initial Offering, together
with borrowings under the Credit Agreement, were used to consummate the Eagle-
Picher Acquisition and the Goodyear-Jackson Acquisition, to repay existing
indebtedness and to pay related fees and expenses.
The following table illustrates the sources and uses of funds from the
Initial Offering and the Credit Agreement.
<TABLE>
<CAPTION>
AMOUNTS
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
SOURCES OF FUNDS
Credit Agreement(1)................................... $205.1
Initial Offering...................................... 100.0
------
Total Sources of Funds.............................. $305.1
======
USES OF FUNDS
Purchase price of Eagle-Picher Acquisition............ $ 32.2
Purchase price of Goodyear-Jackson Acquisition........ 37.6
Repay debt under Previous Credit Agreement(2)......... 189.4
Repurchase Holdings' Senior Subordinated Notes(3)..... 14.9
Repurchase Holdings' Junior Subordinated Notes(4)..... 5.1
Repurchase Existing Senior Subordinated Notes(5)...... 11.9
Fees and expenses(6).................................. 14.0
------
Total Uses of Funds................................. $305.1
======
</TABLE>
- --------
(1) The Credit Agreement consists of $205.0 million in aggregate principal
amount of term loans and a $75.0 million revolving credit facility, of
which $0.1 million was drawn upon consummation of the Initial Offering,
the Eagle-Picher Acquisition and the Goodyear-Jackson Acquisition. See
"Description of Credit Agreement."
(2) The amount shown for repayment was the Company's balance of debt
outstanding under a credit agreement among the Company, as borrower,
Holdings, as guarantor, and Bankers Trust Company, as agent, as amended
and restated as of March 1, 1996 (the "Previous Credit Agreement"), at
July 10, 1997, the closing date under the Credit Agreement. Of the total
repayment of approximately $189.4 million, (i) approximately $50.2 million
accrued interest at 8.00%; (ii) approximately $45.8 million accrued
interest at 8.50%; (iii) approximately $51.5 million accrued interest at
9.00%; (iv) approximately $22.9 million accrued interest at 9.25%; and (v)
approximately $19.0 million accrued interest at approximately 9.5% under a
variable rate revolving credit agreement.
(3) Holdings' 8% Notes due 2006 ("Holdings' Senior Subordinated Notes") issued
in the aggregate principal amount of $13.75 million to GenCorp Inc. in
connection with the GenCorp Acquisition, plus $1.1 million in accrued,
unpaid interest for the year ended March 1, 1997, which was capitalized
into the amended and restated Holdings' Senior Subordinated Notes on June
27, 1997. The Holdings' Senior Subordinated Notes bear interest at 8% and
mature on March 1, 2006.
(4) Holdings' 12% Junior Subordinated Notes due 2005 ("Holdings' Junior
Subordinated Notes") issued in the aggregate principal amount of $5.1
million to the Bain MezFunds (as defined) in connection with the GenCorp
Acquisition. Such amounts include an original issue discount of $0.2
million.
(5) The Company's 12% Senior Subordinated Notes due 2005 ("Existing Senior
Subordinated Notes") issued in the aggregate principal amount of $11.9
million to the Bain MezFunds in connection with the 1995 Transaction. Such
amounts include original issue discount of $0.1 million.
(6) Includes discounts to the Initial Purchaser, bank fees, financial advisory
fees and legal, accounting and other costs payable or reimbursable by the
Company in connection with the Initial Offering and related transactions.
21
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1997. This table should be read in conjunction with the Selected
Historical and Unaudited Pro Forma Financial Data and the Financial Statements
included elsewhere in this Prospectus. The Exchange Offer has no effect on the
Company's capitalization at September 30, 1997.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Long term debt (including current portion):
Credit Agreement(1).................................... $ 224,500
Initial Offering....................................... 100,000
---------
Total long-term debt................................. 324,500
---------
Total stockholder's deficit.......................... (71,265)
---------
Total capitalization................................. $ 253,235
=========
</TABLE>
- --------
(1) Excludes letters of credit in the aggregate face amount of $3.9 million.
22
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data (the "Unaudited Pro Forma
Financial Data") for the nine months ended September 30, 1997 and for the year
ended December 31, 1996 have been derived by the application of pro forma
adjustments to the financial statements of the Company included elsewhere in
this Prospectus. The pro forma results of operations data for the year ended
December 31, 1996 give effect to: (i) the GenCorp Acquisition; (ii) the APX
Acquisition; (iii) the Eagle-Picher Acquisition; (iv) the Goodyear-Jackson
Acquisition; and (v) the completion of the Initial Offering and the Credit
Agreement and application of the proceeds therefrom, as if each had occurred
on January 1, 1996. The pro forma consolidated statement of operations data
for the nine months ended September 30, 1997 give effect to (ii), (iii), (iv)
and (v) as if each had occurred on January 1, 1996. The adjustments are
described in the accompanying notes. The Exchange Offer has no effect on the
Unaudited Pro Forma Financial Data. The Unaudited Pro Forma Financial Data do
not purport to represent what the Company's results of operations actually
would have been if those transactions had been consummated on the date or for
the periods indicated, or what such results will be for any future date or for
any future period. The Unaudited Pro Forma Financial Data should be read in
conjunction with "Selected Historical Financial Data", "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements included elsewhere in this Prospectus.
23
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS--PRO FORMA BASIS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ADJUSTMENTS
---------------------------------------------------------------
GENCORP AND INITIAL EAGLE- GOODYEAR-
APX OFFERING AND PICHER JACKSON PRO
CAMBRIDGE ACQUISITIONS CREDIT AGREEMENT ACQUISITION (8) ACQUISITION (8) FORMA
--------- ------------ ---------------- --------------- --------------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Sales................... $346,026 $14,671 (1) $79,363 (2) $53,899(3) $509,702
15,743 (4)
Cost of sales........... 294,742 9,624 (1) 74,646 (2) 46,560(3) 441,859
16,287 (4)
-------- ------- ----- ------- ------- --------
Gross profit............ 51,284 4,503 4,717 7,339 67,843
Selling, general and
administrative 469 (1)
expenses............... 26,240 1,593 (4) 2,965 (2) 2,835(3) 34,102
-------- ------- ----- ------- ------- --------
Income from operations.. 25,044 2,441 1,752 4,504 33,741
Other expense (income):
Interest expense...... 23,190 663 (4) $(381)(5) 2,819 (2) 3,287(3) 29,791
213 (1)
Other, net............ 180 (91)(4) (13)(2) 76
-------- ------- ----- ------- ------- --------
Income (loss) before
income tax............. 1,674 1,656 381 (1,054) 1,217 3,874
Income tax expense
(benefit).............. 565 613 (6) 141 (6) (390)(6) 487(6) 1,416
-------- ------- ----- ------- ------- --------
Net income (loss)....... $ 1,109 $ 1,043 $ 240 $ (664) $ 730 $ 2,458
======== ======= ===== ======= ======= ========
Other Data:
Ratio of earnings to
fixed charges (7)...... 1.07 1.13
</TABLE>
See Notes to Unaudited Pro Forma Statements of Operations.
24
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS--PRO FORMA BASIS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
ADJUSTMENTS
-----------------------------------------------
APX
ACQUISITION,
INITIAL OFFERING EAGLE- GOODYEAR-
AND CREDIT PICHER JACKSON
CAMBRIDGE AGREEMENT ACQUISITION(8) ACQUISITION(8) PRO FORMA
--------- ---------------- -------------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales................... $296,396 $556 (1) $33,008 (2) $33,269(3) $363,229
Cost of sales........... 255,107 396 (1) 31,877 (2) 28,221(3) 315,601
-------- ---- ------- ------- --------
Gross profit............ 41,289 160 1,131 5,048 47,628
Selling, general and
administrative
expenses............... 20,955 1 (1) 1,181 (2) 1,468(3) 23,605
-------- ---- ------- ------- --------
Income from operations.. 20,334 159 (50) 3,580 24,023
Other expense (income):
Interest expense...... 19,796 18 (1) 1,410 (2) 1,643(3) 22,911
44 (5)
Other, net............ 145 145
-------- ---- ------- ------- --------
Income before income
tax.................... 393 97 (1,460) 1,937 967
Income tax expense
(benefit).............. 157 36 (6) (540)(6) 775(6) 428
-------- ---- ------- ------- --------
Income (loss) before
extraordinary item..... $ 236 $ 61 $ (920) $ 1,162 $ 539
======== ==== ======= ======= ========
Other Data:
Ratio of earnings to
fixed charges(7)....... 1.02 1.04
</TABLE>
See Notes to Unaudited Pro Forma Statements of Operations.
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(1) Pro forma adjustments to reflect the operations of APX for the year ended
December 31, 1996 and for the month ended January 31, 1997. APX results
after January 31, 1997 are included in the Company's historical results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 MONTH ENDED JANUARY 31, 1997
--------------------------------- --------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- --------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales................... $10,948 $3,723(a) $14,671 $ 114 $442(a) $556
Cost of sales........... 9,624 9,624 396 396
------- ------ ------- ----- ---- ----
Gross profit............ 1,324 3,723 5,047 (282) 442 160
Selling, general and
administrative
expenses............... 469 469 1 1
------- ------ ------- ----- ---- ----
Income from operations.. 855 3,723 4,578 (283) 442 159
Interest expense........ 213(b) 213 18(b) 18
------- ------ ------- ----- ---- ----
Income before income
taxes.................. $ 855 $3,510 $ 4,365 $(283) $424 $141
======= ====== ======= ===== ==== ====
</TABLE>
--------
(a) Pro forma adjustment to reflect effect of pricing agreement entered
into immediately prior to, and as a condition of, the Company's
acquisition of APX. The agreement provides for volume-based pricing
adjustments for certain major products of APX.
(b) Pro forma adjustment to interest expense on borrowings under the
Previous Credit Agreement, at an average rate of 9%, incurred in
connection with the APX Acquisition. Interest expense related to debt
incurred in connection with the APX Acquisition is included in the
Company's historical results after January 31, 1997.
(2) Pro forma adjustments to reflect the operations of Eagle-Picher for the
year ended December 31, 1996 and for the six months ended June 30, 1997.
Eagle-Picher operations are included in the Company's historical results
from July 1, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 SIX MONTHS ENDED JUNE 30, 1997
------------------------------------ ------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS(C) PRO FORMA HISTORICAL ADJUSTMENTS(C) PRO FORMA
---------- -------------- --------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales................... $79,363 $79,363 $33,008 $33,008
Cost of sales........... 76,533 (1,887)(a) 74,646 33,984 (2,107)(a) 31,877
------- ------- ------- ------- ------- -------
Gross profit............ 2,830 1,887 4,717 (976) 2,107 1,131
Selling, general and
administrative
expenses (c)........... 4,554 (1,589)(a) 2,965 1,976 (795)(a) 1,181
------- ------- ------- ------- ------- -------
Income (loss) from
operations............. (1,724) 3,476 1,752 (2,952) 2,902 (50)
Other expense (income):
Interest expense...... 2,819 (b) 2,819 1,410 (b) 1,410
Other, net............ (13) (13) --
------- ------- ------- ------- ------- -------
Income (loss) before
income taxes........... $(1,711) $ 657 $(1,054) $(2,952) $ 1,492 $(1,460)
======= ======= ======= ======= ======= =======
</TABLE>
--------
(a) Pro forma adjustments to cost of sales and selling, general and
administrative expense, as follows:
26
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------------- -----------------------
SELLING, SELLING,
COST OF GENERAL AND COST OF GENERAL AND
SALES ADMINISTRATIVE SALES ADMINISTRATIVE
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Increased depreciation due
to excess of fair value of
assets over historical
cost....................... $ 1,972 $ 104 $ 986 $ 52
Elimination of defined
benefit pension plans...... (516) (258)
Staff reductions in
recognition of duplication
of sales forces and
administrative personnel
(i)........................ $(1,693) (847)
Elimination of loss related
to commitments under
acquired contracts (ii).... (3,343) (2,835)
------- ------- ------- -----
Total pro forma
adjustments................ $(1,887) $(1,589) $(2,107) $(795)
======= ======= ======= =====
</TABLE>
--------
(i) Sales force reductions principally represent duplicative automotive
sales personnel. Management expects to service Eagle-Picher
automotive customers through the Company's existing sales force and
does not anticipate any reduction in sales volumes or revenues as a
result of staff reductions. Related severance costs are accrued on
the pro forma balance sheet.
(ii) The Company evaluates the anticipated profitability of sales
contracts on a vehicle platform basis. Had the Eagle-Picher
Acquisition taken place at the beginning of 1996, the Company's
purchase accounting at that date would have included an accrual for
anticipated losses on acquired sales contracts in order to conform
accounting methods. Losses on such contracts for the year ended
December 31, 1996 and the six months ended June 30, 1997 would have
been charged against the accrual and therefore would not have been
included in the Company's operating results for those periods.
(b) Pro forma adjustment to interest expense to reflect borrowings under
the Credit Agreement, at an average rate of 8.75%, incurred in connection
with the Eagle-Picher Acquisition.
(c) See additional information in footnote (8).
(3) Pro forma adjustments to reflect the operations of Goodyear-Jackson for
the year ended December 31, 1996 and the six months ended June 30, 1997.
Goodyear-Jackson operations are included in the Company's historical
results from July 1, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 SIX MONTHS ENDED JUNE 30, 1997
------------------------------------ ------------------------------------
PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS(C) PRO FORMA HISTORICAL ADJUSTMENTS(C) PRO FORMA
---------- -------------- --------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales .................. $53,899 $53,899 $33,269 $33,269
Cost of sales .......... 46,864 (304)(a) 46,560 28,373 (152)(a) 28,221
------- ------- ------- ------- ------- -------
Gross profit ........... 7,035 304 7,339 4,896 152 5,048
Selling, general and
administrative
expenses(c)............ 2,169 2,169 1,176 1,176
------- ------- ------- ------- ------- -------
Income from operations
....................... 4,866 304 5,170 3,720 152 3,872
Interest expense ....... 3,287 (b) 3,287 1,643 (b) 1,643
Corporate franchise
fee(c) ................ 666 666 292 292
------- ------- ------- ------- ------- -------
Income before income
taxes ................. $ 4,200 $(2,983) $ 1,217 $ 3,428 $(1,491) $ 1,937
======= ======= ======= ======= ======= =======
</TABLE>
--------
(a) Pro forma adjustments to cost of sales, as follows:
27
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
COST OF COST OF
SALES SALES
------------ ----------
<S> <C> <C>
Increased depreciation due to excess of fair value
of assets over historical cost................... $ 1,617 $ 809
Reduced pension and other postretirement benefit
expense related to retired employees (obligations
retained by seller).............................. (1,921) (961)
------- -----
Total pro forma adjustments....................... $ (304) $(152)
======= =====
</TABLE>
--------
(b) Pro forma adjustment to interest expense to reflect borrowings under
the Credit Agreement, at an average rate of 8.75%, incurred in
connection with Goodyear-Jackson Acquisition.
(c) See additional information in footnote (8).
(4) Pro forma adjustments to reflect the operations of GenCorp for the two
months ended February 29, 1996. After February 29, 1996, operating results
of GenCorp are included in the Company's historical results.
<TABLE>
<CAPTION>
TWO MONTHS ENDED FEBRUARY 29,
1996
----------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Sales .................................. $15,743 $15,743
Cost of sales .......................... 17,361 (1,074)(a) 16,287
------- ------ -------
Gross profit ........................... (1,618) 1,074 (544)
Selling, general and administrative
expenses .............................. 1,650 (57)(b) 1,593
------- ------ -------
Income from operations ................. (3,268) 1,131 (2,137)
Other expense (income):
Interest expense ..................... 663 (c) 663
Other, net ........................... (91) (91)
------- ------ -------
Income before income taxes ............. $(3,177) $ 468 $(2,709)
======= ====== =======
</TABLE>
--------
(a) To reflect reduced pension and other postretirement benefit expense and
other restructuring of employee benefits.
(b) Reflects reduced pension and other postretirement benefit expense and
other restructuring of employee benefits.
(c) Pro forma adjustments to reflect debt incurred in connection with the
GenCorp Acquisition. Interest expense related to debt incurred in
connection with the GenCorp Acquisition is included in the Company's
historical results after February 29, 1996.
<TABLE>
<S> <C>
Interest expense on Previous Credit Agreement at an average rate of
9%................................................................ $378
Interest expense on Holdings' Junior Subordinated Notes at 12%..... 102
Interest expense on Holdings' Senior Subordinated Notes at 8%...... 183
----
Total adjustment................................................... $663
====
</TABLE>
28
<PAGE>
(5) Pro forma adjustments to interest expense to reflect the Initial Offering
and Credit Agreement for the year ended December 31, 1996 and for the nine
months ended September 30, 1997, respectively.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Interest expense on the Initial Offering at
10.25%......................................... $ 10,250 $ 5,125
Interest expense under the Credit Agreement at
8.75%.......................................... 11,839 5,919
Amortization of deferred financing costs........ 1,221 611
Commitment fees of 1/2% on unused revolving line
of credit...................................... 375 188
Amortization of financing costs written off..... (2,181) (1,134)
Interest on refinanced debt..................... (21,885) (10,665)
-------- --------
Total adjustment................................ $ (381) $ 44
======== ========
</TABLE>
The interest on refinanced debt includes the Company's historical interest
expense, excluding amortization of deferred financing costs, as well as the
incremental interest expense incurred in connection with the GenCorp
Acquisition and APX Acquisition, calculated on a pro forma basis as
described in Notes 4 and 1, respectively.
A 1/8% increase in the interest rate under the Credit Agreement would
increase interest expense and reduce pre-tax income by $256 for the year
ended December 31, 1996 and by $192 for the nine months ended September 30,
1997.
(6) These adjustments record the income tax effect of the pro forma
adjustments, assuming a combined federal and state income tax rate of 37%,
applicable to the pro forma pre-tax income or loss. The pro forma
adjustment for the Goodyear-Jackson Acquisition records income tax on pro
forma income before tax at a combined statutory federal and state tax rate
of 40%.
(7) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income before income taxes, plus fixed charges.
Fixed charges consist of interest expense on all indebtedness (including
amortization of deferred debt issuance costs) and a portion of operating
lease expense that is representative of the interest factor. A pro forma
ratio of earnings to fixed charges to reflect the effect of the Initial
Offering and Credit Agreement is not presented as the effect of such
transactions did not change the historical ratio by 10% or more.
(8) In connection with its acquisitions of Eagle-Picher and Goodyear-Jackson,
the Company performed a thorough analysis of selling, general and
administrative expenses anticipated subsequent to the acquisitions. The
Company has identified additional cost savings opportunities as summarized
below. As the Eagle-Picher Acquisition and Goodyear-Jackson Acquisition
were completed effective July 1, 1997, additional cost savings are
presented for the 1997 period prior to the acquisitions.
<TABLE>
<CAPTION>
SELLING, GENERAL
AND ADMINISTRATIVE
-----------------------
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
<S> <C> <C>
Eagle-Picher:
Elimination of corporate allocations, net of $400
and $200 of incremental expenses, respectively... $1,250 $ 652
------ ------
Goodyear-Jackson:
Elimination of corporate overhead allocations, net
of incremental expenses of $254 and 128,
respectively..................................... 590 441
Elimination of corporate franchise fee............ 666 292
------ ------
Subtotal Goodyear-Jackson....................... 1,256 733
------ ------
Total additional cost savings....................... $2,506 $1,385
====== ======
</TABLE>
As the adjustments to selling, general and administrative expenses
presented by the above cost savings opportunities are not viewed as
directly related to the Goodyear-Jackson Acquisition and Eagle-Picher
Acquisition, they are not included in the pro forma statements of
operations for the year ended December 31, 1996 or the nine months ended
September 30, 1997.
29
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data should be read in
conjunction with the Financial Statements included elsewhere in this
Prospectus. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The selected consolidated balance sheet and
statement of operations data presented below, as of December 31, 1996 and
1995, and for the years ended December 31, 1996, 1995 and 1994, are derived
from the Company's audited consolidated financial statements included
elsewhere in this Prospectus. The selected balance sheet data and the selected
statement of operations data as of December 31, 1994 and as of and for the
years ended December 31, 1993 and 1992, were derived from audited financial
statements, not presented herein. The selected interim statement of operations
and balance sheet data as of and for the nine months ended September 30, 1997
and 1996 are derived from unaudited interim financial statements that, in the
opinion of management, reflect all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for such periods. The results of operations
for interim periods are not necessarily indicative of those to be expected for
a full year.
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
--------------------------------------------- --------------------
1992 1993(1) 1994(2) 1995 1996(3) 1996(3) 1997(4)
------- ------- -------- -------- -------- --------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
DATA:
Sales................... $14,438 $74,544 $190,944 $297,746 $346,026 $ 264,086 $ 296,396
Cost of sales........... 11,600 62,727 159,455 253,893 294,742 223,280 255,107
------- ------- -------- -------- -------- --------- ---------
Gross profit............ 2,838 11,817 31,489 43,853 51,284 40,806 41,289
Selling, general and
administrative
expenses............... 2,153 9,654 15,312 17,678 26,240 17,654 20,955
------- ------- -------- -------- -------- --------- ---------
Income from operations.. 685 2,163 16,177 26,175 25,044 23,152 20,334
Interest expense........ 538 1,769 6,161 12,388 23,190 16,942 19,796
Other income (expense).. 17 519 657 746 (180) (145) (145)
------- ------- -------- -------- -------- --------- ---------
Income before income
taxes.................. 164 913 10,673 14,533 1,674 6,065 393
Income tax expense
(benefit)(5)........... -- -- (1,450) 5,410 565 2,025 157
------- ------- -------- -------- -------- --------- ---------
Income before
extraordinary item..... 164 913 12,123 9,123 1,109 4,040 236
Extraordinary item(6)... -- -- -- 4,426 -- -- 9,152
------- ------- -------- -------- -------- --------- ---------
Net income.............. $ 164 $ 913 $ 12,123 $ 4,697 $ 1,109 $ 4,040 $ (8,916)
======= ======= ======== ======== ======== ========= =========
OTHER DATA:
Depreciation and
amortization........... $ 260 $ 1,893 $ 8,952 $ 16,715 $ 21,319 $ 15,770 $ 18,129
Capital expenditures.... 46 70 3,972 10,646 9,630 6,958 14,396
Ratio of earnings to
fixed charges(7)....... 1.28 1.50 2.71 2.16 1.07 1.35 1.02
BALANCE SHEET DATA (AT
PERIOD END):
Working capital
(deficit).............. $ 661 $ (269) $ 24,887 $ 25,544 $ 37,529 $ 57,349 $ 56,015
Total assets............ 7,563 40,547 189,317 175,115 262,230 253,308 374,891
Long-term debt, less
current portion........ 3,859 16,254 124,500 177,133 224,112 230,809 318,987
Total stockholders'
equity (deficit)....... 433 1,787 (14,753) (63,839) (62,141) (62,138) (71,265)
</TABLE>
- --------
(1) Includes results of Voplex from its February 1993 acquisition, which was
accounted for as a purchase.
(2) In August 1994, the Company acquired Rockwell Plastics, and such
transaction was accounted for as a purchase. The operating results of
Rockwell Plastics are included in consolidated operating results from
August 1, 1994. Also, effective August 1, 1994, the stockholders of Wolf
Engineering Company ("Wolf"), Voplex Company ("Voplex") and Voplex of
Canada, Inc. ("Voplex Canada") formed the Company and contributed shares
of such businesses or merged such businesses into the Company. This
transaction constituted a combining of interests under common control and
was accounted for in a manner similar to a pooling of interests and prior
year separate company financial statements were consolidated.
(3) In March 1996, the Company acquired GenCorp RPD for a purchase price of
$32 million. The operating results of GenCorp RPD are included in the
consolidated operating results from March 1, 1996.
(4) In February 1997, the Company acquired APX for a purchase price of $2.4
million. The operating results of APX are included in the consolidating
operating results from February 1, 1997. In July 1997, the Company
30
<PAGE>
completed the Goodyear-Jackson Acquisition and the Eagle-Picher
Acquisition. The results of acquired Eagle-Picher and Goodyear-Jackson
operations are included in the Company's consolidated results from July 1,
1997.
(5) In August 1994, the Company changed its tax status from Subchapter S to
Subchapter C; prior to 1994, the Company's earnings were included in the
taxable income of the Company's stockholders. If the Company had operated
as a Subchapter C corporation during each of the periods presented, the
pro forma income tax provision would be approximately $4.1 million, $0.4
million and $0.1 million in 1994, 1993 and 1992, respectively.
(6) As part of the refinancing which occurred in 1995, a prepayment premium of
$3.7 million was incurred, and approximately $3.4 million in deferred
financing costs were charged against operations, net of certain tax
benefits of $2.7 million. The extraordinary item for the nine months ended
September 30, 1997 reflects the write-off of existing financing costs,
remaining original issue discount and expense on early extinguishment of
debt, net of tax, in connection with the Initial Offering and borrowings
under the Credit Agreement, and application of the proceeds thereof.
(7) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income before income taxes, plus fixed charges.
Fixed charges consist of interest expense on all indebtedness (including
amortization of deferred debt issuance costs) and a portion of operating
lease expense that is representative of the interest factor.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading designer, developer and manufacturer of plastic
components and systems for a variety of automobile, light truck and heavy
truck OEMs.
The Company has experienced rapid growth since 1990 due to increased plastic
usage by OEMs, five major acquisitions (including the Eagle-Picher Acquisition
and the Goodyear-Jackson Acquisition) and significant new product
introductions. Such acquisitions include: Voplex and Voplex Canada in 1993,
Rockwell Plastics in 1994, GenCorp RPD in 1996 and the Eagle-Picher Acquisition
and Goodyear-Jackson Acquisition in July 1997. Following each acquisition and
its successful integration with the Company's existing operations, the
Company's consolidated sales and operating margins have improved.
The acquisition of Voplex and Voplex Canada increased the Company's overall
molding and painting capabilities and significantly increased its sales through
the entry into the interior plastic trim market. The acquisition of Rockwell
Plastics increased sales to Ford, added Transplants and heavy truck OEMs as
customers, enhanced the Company's functional parts manufacturing capabilities
and added structural and exterior body panel manufacturing capabilities. The
GenCorp Acquisition increased the Company's SMC capabilities, significantly
increased its sales to General Motors and added Volvo Heavy Truck and Kenworth
as heavy truck customers. The Eagle-Picher Acquisition added top coat painting
capability, expanded the Company's non-automotive markets presence, enhanced
relationships with Transplants, added to the Company's compression molding
press capacity and is expected to enable the Company to consolidate its
manufacturing of SMC. The Goodyear-Jackson Acquisition is expected to
strengthen the Company's position as the leading SMC supplier to the medium and
heavy truck OEMs, enhance relationships with Ford and Freightliner, expand its
product offerings, and expand its SMC manufacturing, compression molding and
injection molding capacity.
Management believes that the Company has significant competitive advantages,
including: (i) Tier 1 status and strong relationships with OEMs, which are
important elements in achieving continued profitable growth; (ii) diversity of
processes and materials which, in contrast to many competitors, allows the
Company to manufacture each part in a cost effective manner, utilizing the
optimal raw material and manufacturing method; (iii) a low cost, high quality
manufacturing position; and (iv) strong design and engineering expertise. See
"Business--Competitive Advantages."
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------- ------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
% OF % OF % OF % OF % OF
SALES SALES SALES SALES SALES
<S> <C> <C> <C> <C> <C>
Sales....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit................ 16.5 14.7 14.8 15.5 13.9
Selling, general and admin-
istrative expenses......... 8.0 5.9 7.6 6.7 7.1
Income before extraordinary
item....................... 6.3 3.1 0.3 1.5 0.0
Extraordinary item.......... -- 1.5 -- -- 3.1
Net income (loss)........... 6.3 1.6 0.3 1.5 (3.0)
</TABLE>
32
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1996
SALES
The Company's sales increased by $32.3 million, or 12.2% to $296.4 million
in the nine month period ended September 30, 1997 (the "1997 Period"),
compared to $264.0 million in the nine month period ended September 30, 1996
(the "1996 Period"). The increase in sales was primarily the result of the
February 1997 acquisition of APX, which added sales of approximately $10.4
million for the nine months ended September 30, 1997, and the July 1997
acquisitions of Goodyear-Jackson and Eagle-Picher, which added sales of $16.2
million and $15.9 million, respectively. Exclusive of the acquisitions, sales
for the nine months ended September 30, 1997 declined $10.1 million, or 3.8%
when compared to the nine months ended September 30, 1996. The decrease in
sales was due in part to the adverse impact of work stoppages at certain GM
and Chrysler plants, as well as changes in product mix resulting from the
termination and launch of certain significant programs. Program terminations
included General Motors' U-Van (which was terminated earlier than expected)
and C-4 Corvette and Ford's Bronco liftgate and L Series heavy truck. New
program launches during the second half of 1996, including the Jeep CJ, C-5
Corvette, Volvo 2200, Kenworth T-2000 and GMT 530 truck, partially offset the
program terminations noted above. Additional decreases in sales can be
attributed to lower volumes for the Taurus/Sable Wagon load floor, Honda
Accord sunshades and bumpers and the Ford Aerostar liftgate. Increases in
volume on certain other programs, such as Ford PN96, partially offset the
sales decreases.
GROSS PROFIT
Gross profit increased by $0.5 million, or 1.2%, to $41.3 million for the
1997 Period, compared to $40.8 million for the 1996 Period. The increase in
gross margin was attributable to the acquisitions discussed above, which
contributed $6.8 million in the 1997 Period. Offsetting the margin
contributions of the acquired companies were the impact of work stoppages at
certain GM and Chrysler plants and the product mix and volume changes
indicated above. In addition, the gross margin on the new programs launched
during the second half of 1996 were, on average, lower than the programs that
were terminated.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased to 7.1% of
sales or $21.0 million in the 1997 Period, compared to 6.7% of sales or $17.7
million in the 1996 Period. The increase in SG&A as a percentage of sales was
the result of management's decision to invest in administrative infrastructure
at corporate headquarters, which added personnel in the areas of management
and information systems, finance, program management, human resources,
sales/marketing, quality and materials control. Management believes these
investments position the Company for growth without commensurate increases in
SG&A.
EXTRAORDINARY ITEM
The Company retired all of its outstanding indebtedness with proceeds from
the Initial Offering and borrowings under the Credit Agreement. In connection
with this refinancing, the Company recorded an extraordinary loss of $9.2
million, net of tax, in the 1997 Period reflecting the write-off of existing
deferred financing costs, remaining original issue discount and expense upon
early extinguishment of debt.
NET INCOME
The Company recorded a net loss of $8.9 million in the 1997 Period, compared
to net income of $4.0 million in the 1996 Period. This decrease was the result
of the items mentioned above and an increase in interest expense of $ 2.9
million to $ 19.8 million for the 1997 Period, compared to $ 16.9 million for
the 1996 Period. The increase in interest expense for the 1997 Period was
primarily attributable to the increase in debt outstanding related to the
Goodyear-Jackson, Eagle-Picher, APX and GenCorp RPD Acquisitions.
33
<PAGE>
1996 COMPARED TO 1995
SALES
The Company's sales increased by $48.3 million, or 16.2%, to $346.0 million
in 1996, compared to $297.7 million in 1995. The increase was primarily the
result of the inclusion of GenCorp RPD operations for ten months following the
GenCorp Acquisition, which added sales of $53.8 million compared to 1995.
Sales at the existing Cambridge operations were $5.6 million lower than in
1995. This decrease resulted primarily from lower production volumes on the
Chrysler Viper due to issues at other suppliers to the Viper and the Ford L&H
series heavy trucks, which were discontinued earlier than expected in favor of
the HN80, the L&H replacement vehicle.
GROSS PROFIT
Gross profit increased by $7.4 million, or 16.9%, to $51.3 million in 1996,
compared to $43.9 million in 1995. Gross margins remained relatively constant
in 1996 at 14.8% of sales compared to 14.7% in 1995. The inclusion of GenCorp
RPD operations for ten months following the GenCorp Acquisition added $1.2
million of gross profit, or 2.2% of GenCorp RPD sales. The GenCorp RPD gross
margin reflects termination of GM's APV vehicle and delays associated with the
launch of the following new programs: the Jeep hard top; the Volvo 2200; the
GMT 530; and the Kenworth T2000. The impact of GenCorp RPD operations on
consolidated gross margin was largely offset by strong gross margins in the
Company's existing operations, reflecting production efficiencies for programs
including the Cross Car Beam, Honda bumpers and Freightliner heavy truck
programs, which the Company is able to realize as it gains experience with
manufacturing new programs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A increased to 7.6% of sales, or $26.2 million, in 1996, compared to 5.9%
of sales or $17.7 million, in 1995. The increase was due in part to inclusion
of GenCorp RPD operations for ten months following the GenCorp Acquisition
which added $3.4 million in SG&A. An additional increase of $3.1 million is
attributable to the investment in infrastructure at corporate headquarters
(described above), increased sales commissions and increases in professional
fees associated with acquisition activities. Technical services increased $1.1
million in 1996 compared to 1995 as the Company opened its technical center.
NET INCOME
The Company's net income was $1.1 million in 1996, compared to $9.1 million
(before an extraordinary item of $4.4 million) in 1995. This decrease was
primarily the result of the increased SG&A explained above and increased
interest expense, which grew to $23.2 million in 1996, from $12.4 million in
1995, partially offset by the increase in gross profit explained above. The
increase in interest was primarily due to additional indebtedness associated
with the 1995 Transaction and the GenCorp Acquisition. The Company's effective
tax rate in 1996 was 34%, compared to 37% in 1995.
1995 COMPARED TO 1994
SALES
The Company's sales increased by $106.8 million, or 56%, in 1995, compared
to $190.9 million in 1994. The increase was primarily the result of the full
year's effect of the 1994 acquisition of Rockwell Plastics, which added sales
of $118.5 million compared to 1994. Sales also increased due to the success of
the Cross Car Beam project. Offsetting this increase was a decrease in sales
volume resulting from a 2% decrease in North American passenger vehicle
production, to 14.9 million vehicles in 1995, compared to 15.2 million
vehicles in 1994, and the loss of the Chrysler ZJ part program, which had
provided $8.3 million in sales in 1994.
GROSS PROFIT
Gross profit increased by $12.4 million, or 39.3%, to $43.9 million in 1995,
as compared to $31.5 million in 1994. Gross margin decreased in 1995 to 14.7%
of sales compared to 16.5% in 1994. The inclusion of Rockwell Plastics
operations added $26.6 million of gross profit, or 12.7% of Rockwell Plastics
sales. Rockwell Plastics' gross margin reflects the launching of the Cross Car
Beam in 1994 which decreased gross margin percentage by 1.8%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A declined to 5.9% of sales or $17.7 million in 1995, compared to 8.0% of
sales or $15.3 million in 1994. This decrease as a percentage of sales was
primarily attributable to special management bonuses paid in 1994, whereas no
corresponding bonuses were granted in 1995. Also contributing to the decrease
was the
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continuing integration of Rockwell Plastics functions as well as other
corporate cost reduction programs. The increase in aggregate SG&A was
attributable to the full year effect of the 1994 acquisition of Rockwell
Plastics, which caused an increase in headcount, payroll and payroll-related
costs and added SG&A of $2.6 million in comparison to 1994.
NET INCOME
The Company's net income was $9.1 million before extraordinary items,
compared to $12.1 million in 1994. This decrease was primarily the result of
increased interest expense which grew to $12.4 million in 1995, compared to
$6.2 million in 1994, as the result of the acquisition of Rockwell Plastics.
The increase in interest expense was somewhat offset by the improvement in
absolute gross profit. The effective tax rate in 1995 was 37.2%, compared to a
tax benefit of $1.5 million in 1994, as the Company changed its tax status from
a Subchapter S, whereby the earnings were included in the taxable income of the
Company's shareholders, to that of a Subchapter C corporation.
EXTRAORDINARY LOSS
An extraordinary loss of $4.4 million was incurred in 1995, attributable to
the 1995 Transaction whereby a prepayment penalty of $3.7 million was paid and
$3.4 million in financing costs related to the extinguishment of debt were
charged to expense. A tax benefit of $2.7 million was also recognized which
reduced the loss incurred. No similar losses occurred in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs historically have been for operating
expenses, working capital and capital expenditures. The Company has
historically utilized cash flows from operations and borrowings under credit
arrangements to fund these needs. Acquisitions have been financed through debt
facilities collateralized by the Company's assets and cash flows. Management
expects future cash will be required for additional acquisitions, capital
expenditures and to fund working capital as the Company continues to expand its
operations. Management expects capital expenditures to be approximately $3.0 to
$4.0 million during the remainder of 1997, and approximately $25.0 million in
1998.
Upon consummation of the Initial Offering, the Previous Credit Agreement was
replaced by the Credit Agreement, pursuant to which the Company may borrow up
to $280.0 million. The Credit Agreement consists of $205.0 million in aggregate
principal amount of term loans and a $75.0 million revolving credit facility
available for working capital and general corporate purposes. The A Term Loans
and B Term Loans of the Credit Agreement will mature on the fifth and eighth
anniversary of the initial borrowing, respectively, and will require annual
principal payments (payable in quarterly installments) totalling approximately
$7.4 million in 1998, $13.9 million in 1999, $16.4 million in 2000, $21.4
million in 2001, $34.0 million in 2002, $35.0 million in 2003, $40.0 million in
2004 and $37.1 million in 2005. The revolving credit portion of the Credit
Agreement will mature on the fifth anniversary of the initial borrowing. The
interest rate under the Credit Agreement is based on the Eurodollar rate plus
the applicable Eurodollar margin. The Credit Agreement contains restrictive
covenants which, among other things, limit the incurrence of additional
indebtedness, dividends, transactions with affiliates, asset sales,
acquisitions, mergers and consolidations, prepayments of other indebtedness,
liens and encumbrances, capital expenditures and other matters customarily
restricted in such agreements. See "Description of Credit Agreement."
The Company believes that, based on current levels of operations and
anticipated growth, its cash from operations, together with other available
sources of liquidity, including borrowings under the Credit Agreement, will be
sufficient over the next several years to make required payments of principal
and interest on its debt, including payments due on the Notes and remaining
obligations under the Credit Agreement, permit anticipated capital expenditures
and fund working capital requirements.
Net cash flow from operating activities for the nine months ended September
30, 1997 was $0.9 million. Net income before extraordinary item for the period
was $0.1 million with non-cash adjustments of $24.4 million. The non-cash items
consisted of depreciation and amortization of $18.1 million, a non-cash charge
to income for postretirement benefits of $1.9 million and a deferred income tax
provision of $4.4 million. Changes
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in working capital components used $23.6 million, primarily the result of
timing of collections on trade accounts receivable and an increase in
reimbursable tooling as the Company awaits customer approvals for Volvo L-5,
Ford 4.6L Cam Cover, Kenworth and GMT800 programs.
Net cash used in operating activities was $3.7 million for the nine months
ended September 30, 1996, resulting from net income of $4.0 million, offset by
non-cash expenses of $20.1 million and a negative change in working capital of
$27.8 million. The negative cash flow from working capital is the result of
timing of collections on customer tooling and other trade receivables.
The Company spent approximately $14.4 million and $7.0 million for the nine
months ended September 30, 1997 and 1996, respectively, on capital items. Such
capital items in the 1997 Period relate primarily to the GM Step Assist, Ford
Cam Cover and Volvo L-5 programs. Acquisitions of $72.2 million in the 1997
Period relate to Goodyear-Jackson, Eagle-Picher and APX; acquisitions of $18.2
million in the 1996 Period relate to GenCorp RPD.
In March 1996, the Company purchased certain assets and liabilities of
GenCorp RPD for a purchase price of approximately $32.0 million, comprised of
a cash payment of $18.2 million and debt issued of $13.8 million. The Company
and Holdings retired indebtedness related to the subordinated notes payable
and paid down the debt under the Previous Credit Agreement with the proceeds
from the issuance of the Initial Offering.
Net cash used in operating activities in 1996 was $4.2 million. The net use
of cash is attributable to changes in working capital components of $29.8
million primarily as the result of an increase in accounts receivable and the
timing of payments to tooling vendors in 1996. These uses were partially
offset by net income of $1.1 million and non-cash items of $24.5 million. The
non-cash expenses included depreciation and amortization of $21.3 million and
a non-cash charge to income for other postretirement benefits of $2.2 million.
The decrease in working capital is primarily the result of an increase in
accounts receivable and the timing of payments to tooling vendors in 1996, as
well as the settlement of certain contract obligations assumed in the GenCorp
Acquisition. New product launches in 1996 required substantial funding for
tooling builds in advance of reimbursement from customers.
Net cash flow from operating activities was $33.8 million in 1995. Such
amounts were generated primarily from net income before extraordinary items of
$9.1 million, non-cash expenses of $16.6 million and net positive changes in
working capital components of $8.1 million. The non-cash expenses were
principally comprised of depreciation and amortization of $16.7 million,
postretirement benefit expense, net of cash payments made, of $1.0 million,
offset by an income tax benefit of $1.1 million. The change in working capital
reflects favorable timing of receipts from customers and payments to
suppliers, as well as improved management of tooling and Rockwell receivables.
Net cash flow from operating activities was $9.5 million for the year ended
December 31, 1994. Such amount was generated primarily by net income of $12.1
million and non-cash expenses of $9.6 million, offset by an increase in
working capital of $8.2 million and a deferred income tax benefit of $4.0
million. The non-cash expenses were principally depreciation and amortization
of $8.9 million and a net non-cash charge to income for other postretirement
benefits of $0.7 million. The increase in working capital reflects year end
timing of receipts from customers and payments to suppliers.
The Company spent approximately $9.6 million, $10.6 million and $4.0 million
for the years ended December 31, 1996, 1995 and 1994, respectively, on capital
improvements. The expenditures in 1996 were related to new launches and the
consolidation of the Ionia facility into other Company facilities. The
expenditures in 1995 related to the Cross Car Beam and other similar
investments in platform programs.
The Year 2000 compliance issue, which is common to most companies, concerns
the inability of computerized information systems to properly recognize and
process date sensitive information as the year 2000 approaches. The Company is
currently working to address and resolve this issue with respect to its
computerized information systems, but has not yet assessed the total cost.
However, based on preliminary information available to the Company, such costs
are not currently expected to have a material adverse impact on the Company's
financial position or results of operations in future periods.
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BUSINESS
GENERAL
The Company is a leading Tier 1 supplier of plastic components and systems
for GM, Ford, Chrysler, Toyota, Honda, Mazda, Nissan, BMW, Volkswagen,
Freightliner, Kenworth, Mack Truck and Volvo Heavy Truck. As a Tier 1
supplier, the Company is increasingly responsible for the design, engineering,
manufacturing and quality control testing of parts and pre-assembled
components for original equipment manufacturers OEMs. Within the automotive
OEM market for plastic products there are three distinct segments, all of
which the Company services: exterior, structural/functional and interior. The
Company manufactures components, modules and systems for the exterior and
structural/functional segments and components and modules for the interior
segment. In addition to products supplied to its automotive OEM customers, the
Company also manufactures a number of products for non-automotive customers.
The Company's production utilizes a wide range of processes, including
compression, injection, extrusion and blow molding, and with the Eagle-Picher
Acquisition, top coat painting capabilities at Automotive Class A standards.
The Company has experienced rapid growth since 1991 due to increased plastic
usage by OEMs, five major acquisitions (including the Eagle-Picher Acquisition
and the Goodyear-Jackson Acquisition) and significant new product
introductions. Additionally, the Company's average content per vehicle
(automobile, light truck and heavy truck) produced in North America has
increased from approximately $0.86 in 1991 to approximately $33.03, on a pro
forma basis in 1996 (including the Eagle-Picher Acquisition and the Goodyear-
Jackson Acquisition).
AUTOMOBILE AND LIGHT TRUCK COMPONENTS INDUSTRY
As automobile and light truck manufacturers have faced increased competitive
pressures, they have sought to significantly reduce costs, improve quality and
shorten the development time required for new vehicle platforms. These changes
have altered the OEM/supplier relationship and benefited larger suppliers such
as the Company that have low costs, strong product engineering and development
capabilities, superior quality and the ability to deliver products on a timely
basis. The Company believes the following are the primary trends in the
automotive components industry:
Increased Use of Plastics
The combined pressures of cost reduction, increased durability requirements
and rising fuel economy standards have caused OEMs to concentrate on
developing and employing lower cost, more durable and lighter weight
materials. As a result, the average plastic content per passenger vehicle has
increased by 14%, from approximately 209 pounds in 1991 to approximately 238
pounds in 1996, and is projected to grow another 22% to approximately 291
pounds per vehicle by 2006. While plastics historically have been used for
many interior trim components, they are now being used more extensively in
such structural components as grille opening retainers, floor panels, bumpers
and support beams, as well as in such nonstructural components as exterior
trim panels, grilles, duct systems, tail lights, fluid reservoirs, intake
manifolds, valve covers and drive train components. These trends toward the
increased use of plastics in exterior and structural/functional components
have been driven by innovations in material, molding and painting
technologies, which have improved the performance and appearance of molded
plastic components as well as lowering their costs. Additionally, recently
introduced plastics that can withstand the hot, corrosive environment of the
engine compartment are becoming more prevalent. For example, the Company has
developed plastic rocker arm covers for use on the high production volume Ford
3.0L engine. Furthermore, according to industry sources, plastics usage in
engine and mechanical components will increase by more than 50% from 1995 to
2005.
Historically, due to lower upfront tooling costs, plastic generally has had
an advantage over steel in low volume production runs. With its lower tooling
costs, the Company benefits from the increase in niche vehicles (such as the
Chrysler Viper and Prowler and the GM Corvette), customization of high volume
vehicles (such as the addition of flare fenders to the Ford Ranger and Ford F-
150 pick-ups) and the use of optional accessories
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(such as step-assists on sport utility vehicles, GM's GMT800, and Chrysler's
Jeep Wrangler hard-top). For higher volume production runs where tooling costs
may be amortized over a larger number of units, steel generally has an
advantage, because it is generally a less expensive raw material with lower
finishing costs.
Increased Outsourcing by Domestic OEMs
In an effort to reduce costs, speed product design and simplify
manufacturing, domestic OEMs have outsourced the manufacture of many
components, systems and modules which were previously manufactured internally.
Independent suppliers generally are able to design, manufacture and deliver
components at a lower cost than the OEMs due to: (i) their significantly lower
direct labor, fringe benefit and overhead costs; (ii) the ability to spread
R&D and engineering costs over products provided to multiple OEMs; and (iii)
the economies of scale inherent in product specialization. The domestic OEMs
have benefited because outsourcing has allowed them to reduce costs and to
focus on overall vehicle design and consumer marketing.
Suppliers such as the Company have benefited from outsourcing because the
aggregate number and value of components which they manufacture have increased
dramatically. In addition, the outsourcing trend has increased the complexity
of components which are manufactured by independent suppliers and this has
favored low cost, full service, high quality suppliers such as the Company
which can develop modules and systems that OEMs can easily install.
Consolidation of Supplier Base by OEMs
The OEMs have significantly consolidated their supplier bases in an effort
to reduce their procurement related costs and accelerate new platform
development. Many suppliers have either been eliminated or tiered (i.e., they
supply other suppliers) in order to minimize the number of direct supplier
contacts the OEM must maintain. From 1987 to 1997, Ford and Chrysler reduced
their supplier bases by an average of 79% and have announced plans to further
reduce their supplier base by an average of 60% between 1997 and 2002.
This consolidation has altered the typical structure of supplier contracts.
In the past, OEMs generally outsourced relatively simple parts under annual
contracts primarily on the basis of cost, and such suppliers generally have
functioned as contract manufacturers, with the OEM performing all development,
design and engineering related tasks. With the trend towards the outsourcing
of increasingly complex multicomponent systems, the basis of competition among
suppliers has shifted to one encompassing a broad range of additional criteria
including design capabilities, speed of development, manufacturing and process
expertise, consistency of quality and reliability of delivery. In many cases,
sole-source supply contracts cover the life of a vehicle or platform.
Suppliers benefit because this enables them to devote the resources necessary
for proprietary product development with the knowledge that they will have the
opportunity to earn an adequate return on such investment over the multiyear
life of a contract. In turn, the OEMs benefit because they share in the
manufacturing cost savings attributable to long, multiyear production runs at
high capacity utilization levels. As a result, smaller, poorly capitalized
suppliers with limited product lines and engineering and design capabilities
have been eliminated or have lost market share. Larger suppliers, such as the
Company, with broad product lines, in-house design and engineering
capabilities and the ability to effectively manage their own supplier bases,
have increased market share.
Increased Levels of Manufacturing in North America by Transplants
Japanese automotive manufacturers have gained a significant share of the
United States market, initially by exporting their vehicles but more recently
by acquiring and developing manufacturing facilities located in North America.
Due to the relative cost advantage of producing vehicles in North America and
to political pressures, sales of vehicles imported from Japan declined from
1983 to 1996, while Transplant manufacturing has offset this decline by
shifting more production to North America. Transplants have increased their
share of North American vehicle production from approximately 3% in 1985 to
approximately 21% in 1996. Industry sources forecast that this trend will
continue. For example, both Mercedes Benz and BMW commenced manufacturing
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in the U.S. in 1996. Further, Toyota has announced plans to build its T-100
pickup truck in Indiana by 1998, Honda has announced plans to build its
Odyssey minivan in North America by 1999 and Volkswagen has announced that it
is considering re-entering North America as a manufacturer.
Increased levels of manufacturing by Transplants, as well as higher levels
of local content, will continue to benefit the Company by allowing it to
participate in new platforms that previously had been imported or supplied by
manufacturers located in Japan or Europe. In 1996, the Company, on a pro forma
basis after giving effect to the Eagle-Picher Acquisition and the Goodyear-
Jackson Acquisition, as if each had occurred on January 1, 1996, had sales to
Transplants of $55.5 million or 10.9% of total Company sales.
HEAVY TRUCK COMPONENTS INDUSTRY
The heavy truck components industry has also experienced increased use of
plastics, increased outsourcing by Domestic OEMs, consolidation of Supplier
base by OEMs and increased levels of manufacturing in North America by
Transplants. The increased use of plastics is particularly pronounced in the
Heavy Truck Industry. Plastics allow for significant weight savings and
improved fuel economy relative to steel. For example, the Company believes
that a composite truck hood assembly made by the Company weighs approximately
30% less than a comparable steel assembly. In addition, because of low annual
volumes of heavy truck production, lower up front tooling costs give plastic
an advantage over steel. Finally, in contrast to the automotive component
industry, the heavy truck industry historically has not manufactured its own
components, but rather has relied heavily on suppliers for their design,
engineering and manufacturing of components. These industry characteristics
favor suppliers like the Company, which have broad design and engineering
capabilities and extensive heavy truck component manufacturing experience. The
Company is a key supplier to Kenworth, Freightliner, GM, Volvo and Mack Truck,
all of whom launched new platforms in the last 18 months.
NON-AUTOMOTIVE COMPONENTS INDUSTRY
The non-automotive market includes recreation, agriculture, transportation,
construction, marine, military, health and medical, and business equipment
industries. A substantial portion of the reinforced plastic products supplied
in these markets comes from SMC, much of which is captively molded by
companies such as General Electric, White Westinghouse, Therma-Tru, Kohler,
Rubbermaid, RCA and Kawasaki. Management believes that the non-automotive SMC
marketplace presents significant opportunities for growth. The development of
business in this market typically comes from two areas of opportunity:
conversion from alternate materials and conversion from alternate composite
processes due to increased volume requirements.
BACKGROUND AND ACQUISITION HISTORY
The Company has grown rapidly since its inception by capitalizing on both
the consolidation of the industry and the increase in plastic content per
vehicle. It has responded to the consolidation by building or acquiring full-
service design, engineering and manufacturing capabilities. The Company's
ability to offer a comprehensive range of processes and materials has given it
a strong competitive position among full-service OEM suppliers.
The Company has acquired businesses that have attractive products or new
technologies, but have been undermanaged. Typically, the Company has targeted
either privately owned manufacturers that lack the management depth and other
resources necessary to compete as major suppliers or divisions of large
companies that considered such operations to be peripheral to their core
businesses.
The Company's management has successfully integrated three major and four
minor acquisitions over the past nine years by implementing a focused strategy
which has rapidly enhanced profitability and repositioned the acquired
entities for growth. This strategy has included one or more of the following
steps designed to reduce costs, simplify manufacturing and rapidly increase
profitability: (i) placing strong managers in key positions in the newly
acquired company to implement changes; (ii) rationalizing raw materials and
components purchasing (the Company's largest single cost component) to reduce
costs of goods sold; (iii) redesigning manufacturing and material flow to
eliminate indirect costs, reduce inventories and shorten production cycle
times; (iv)
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replacing or modifying accounting systems to improve the accuracy, timeliness
and usefulness of management information; (v) reducing headcount; and (vi)
reducing overall administrative costs, including insurance, benefit plans, and
professional fees. See "Risk Factors--Integration of Acquisitions."
The following summarizes the Company's acquisition history:
1988Nortec Precision Plastics
Precision functional parts manufacturer. Principal customer was
Chrysler.
1990Wolf Engineering Corporation
Enhanced functional parts capabilities and added tool building
capability. Added GM as customer. Management improved
manufacturing material flow, improved labor productivity and
reduced SG&A.
1993Voplex Corporation (including Voplex Canada)
Entered interior plastic trim market. Added blow-molding,
compression-molded fiber processing, extrusion, co-extrusion,
paint and large press capabilities. Added Canadian manufacturing
facilities. Management reduced manufacturing and supervisory
headcount, improved labor productivity, closed two facilities,
increased raw material yields and substantially increased sales
to GM.
1993Troy Products
Added larger tonnage press capacity and structural foam
technology.
1994Rockwell Plastics
Added thermoset and compression molding technology. Enhanced
functional parts market position and added structural parts
capabilities. Added Honda, Mazda, Nissan and Suzuki to customer
base as well as significant Ford business. Added heavy truck
OEMs as customers. Management consolidated sales forces,
renegotiated insurance and benefit policies and reduced plant
level administration head-count.
1996GenCorp RPD
Substantially increased SMC capabilities, making the Company the
leading manufacturer of SMC. Added Volvo Heavy Truck and
Kenworth to customer base as well as significantly increased
business with GM. To date, management has re-negotiated
insurance and benefit policies and significantly reduced
intercompany charges related to corporate level administration.
See "Business--GenCorp RPD" for additional cost savings plans.
1997APX--PMC Division
Additional RTM technology and paint priming. In house RTM
tooling and prototype capabilities. Strengthened supplier
relationship with Chrysler.
1997Eagle-Picher--Plastics Division
Improved painting capabilities by adding top coat painting which
meets OEM Class A standards. Added non-automotive product lines
and expected to strengthen Transplant relationships. Added
additional large tonnage presses and open plant capacity and
ability to consolidate SMC production with other Company plants.
1997Goodyear-Jackson--Engineered Composites Business
Strengthened the Company's position as the leading SMC supplier
to medium and heavy truck OEMs and expected to enhance its
relationship with Ford and Freightliner. Added products (grill
opening panels & retainers, air brake pistons) and new
manufacturing processes (SMC injection molding). Increased SMC
production capacity with the addition of compression and
injection molding presses.
1997Owens-Corning Brazil--Brazilian Molded Plastic and Pultrusion Operations
Added ability to manufacture components for Brazil-based
customers and Brazilian subsidiaries of North American OEMs.
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THE EAGLE-PICHER ACQUISITION
Effective July 1, 1997, the Company consummated the Eagle-Picher Acquisition
for a total purchase price of $32.2 million, subject to post-closing
adjustments. The Eagle-Picher assets acquired by the Company include three
manufacturing facilities which produce automotive (body panels, hoods,
spoilers) and non-automotive (jet ski components, tractor panels) parts using
SMC.
Eagle-Picher's SMC production facilities and process capability enhance the
Company's existing leadership position in the manufacture of SMC parts for
automotive and non-automotive applications. Additionally, significant overlap
in sales to GM, Ford and Chrysler will allow the Company to offer more
products to these OEM customers. Because the overall volume of business, and
the range of products provided to an OEM customer are factors in achieving and
retaining Tier 1 status, the overlap resulting from the Eagle-Picher
Acquisition further enhances the Company's Tier 1 position. Through plant
consolidations, raw material purchasing and production rationalization,
manufacturing material flow redesign, headcount reduction and selling, general
and administrative reductions, the Company expects to realize profit
improvements.
Specifically, the Company expects to realize several strategic and financial
benefits, including:
Top coat painting capability: Eagle-Picher's top coat painting capability
and state-of-the-art paint systems will allow the Company to deliver
painted assembly-ready parts meeting OEM Class A standards.
Non-automotive market presence: Eagle-Picher's business will allow the
Company to diversify its customer base beyond automotive OEMs, thus further
capitalizing upon the Company's core SMC manufacturing technologies and
processes. Eagle-Picher manufactures non-automotive products, including
jet-ski components for Polaris and Kawasaki, tractor panels for John Deere,
residential door systems for Pease and Caradon Peachtree and outboard motor
housings for Mercury Marine. This business is supported by a dedicated
sales force, product design staff and manufacturing facility.
Transplant relationships: The addition of Eagle-Picher's customer base
will allow the Company to strengthen its relationships with certain
Transplants, further solidifying the Company's position as a leading Tier 1
supplier.
Compression molding presses: The Company has positioned itself for future
growth opportunities by acquiring Eagle-Picher's 48 compression molding
presses, of which 21 are in the 1,000-4,400 ton range. These large presses
are comparatively scarce, expensive and time-consuming to install and
enhance the Company's ability to bid for and produce large, complex
automotive and non-automotive parts.
SMC production capability: Eagle-Picher has an advanced SMC production
capability at its Grabill, IN facility. This will allow the Company to
consolidate its manufacturing of SMC, which will result in significant raw
material production cost savings.
In connection with the Eagle-Picher Acquisition, the Company has formed an
integration taskforce, led by the Company's top management, which will
implement a plan to reduce costs in the near-term by closing the facility in
Huntington, Indiana and transferring production and assembly from that
facility to other Company facilities.
THE GOODYEAR-JACKSON ACQUISITION
Effective July 1, 1997, the Company consummated the Goodyear-Jackson
Acquisition for a total purchase price of $37.6 million, subject to post-
closing adjustments. The Goodyear-Jackson assets acquired by the Company
include one manufacturing facility which produces automotive parts, including
body panels, grill opening panels and retainers, primarily using SMC in
compression and injection manufacturing processes.
The Company does not anticipate substantial alterations to the Goodyear-
Jackson manufacturing facilities. The Company, however, has identified profit-
improvement opportunities that it expects to realize in the areas of purchased
materials price, plant overhead costs and selling, general and administrative
costs.
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The Company anticipates a temporary reduction in sales from the acquired
Goodyear-Jackson operations during 1998 due to one-time events. As a result of
the announced sale and resulting transfer of manufacturing from Ford to
Freightliner, production of Ford's HN80 heavy truck platform is expected to be
interrupted for approximately three months during 1998. In addition, Ford has
announced its intention to replace the HN78 medium truck platform with its new
HN201 platform. These changeovers are expected to temporarily interrupt
production at Goodyear-Jackson for approximately eight months in 1998, thereby
reducing sales for 1998. The reductions in sales are expected to reduce
earnings disproportionately because the Company does not expect to achieve
proportional reductions in expenses during the period of temporary sales
decline.
Management believes the Goodyear-Jackson Acquisition expands the Company's
breadth of capabilities and assets, enhancing its status as a leading Tier 1
supplier. Specifically, Management believes the most significant acquired
capabilities and assets include:
Medium and Heavy Truck Sales: In 1996, the two platforms that contributed
the most to Goodyear-Jackson's sales were Ford's current medium (HN78) and
recently launched heavy (HN80) truck platforms. The Goodyear-Jackson
Acquisition strengthens the Company's position as the leading SMC parts
supplier to the medium and heavy truck OEMs. It also enhances the Company's
relationships with Ford and Freightliner. Freightliner has announced its
intention to purchase substantially all of Ford's heavy truck business,
including the HN80 platform.
New Products and Processes: The Goodyear-Jackson Acquisition adds SMC
injection molding to the array of process capabilities currently offered by
the Company to its customers. The Goodyear-Jackson Acquisition also adds a
number of new products, including air spring pistons for heavy trucks and
grill opening panels and grill opening retainers for all types of vehicles.
These additions further enhance the Company's position as the leading Tier
1 SMC supplier, offering the broadest range of products, processes and
materials.
Compression and Injection Molding Presses: Goodyear-Jackson has 16
compression molding presses (including 9 in the 1,000 ton to 3,000 ton
range) and 10 injection molding presses, (including 9 in the 1,000 ton to
2,200 ton range.) One of the 3,000 ton presses was recently installed and
began producing production parts in early 1997. These large presses are
comparatively scarce and expensive and are also time-consuming to install.
In acquiring more of these presses, the Company enhanced its ability to bid
for and produce large, complex automotive and non-automotive parts.
SMC Production Capability: The addition of Goodyear-Jackson's SMC
production capacity will allow the Company to continue producing all of
this key raw material in-house and will permit consolidation of SMC
production with the Company's existing facilities. Further, the fact that
Goodyear-Jackson's SMC maker is 60 inches wide (which the Company believes
is the widest in the industry) gives the Company greater flexibility in
product design and process engineering.
COMPETITIVE ADVANTAGES
The Company has significantly increased its size, improved profitability and
enhanced its strategic position. Management believes that the following are
the Company's primary competitive advantages.
Tier 1 Status and Strong Relationships with OEMs
The Company has established a position as a leading Tier 1 supplier of
plastic components and systems to Ford, General Motors, Chrysler, Toyota,
Honda, Mazda, Nissan, BMW, Volkswagen, Volvo Heavy Truck, Mack Truck, Kenworth
and Freightliner. Tier 1 status and strong customer relationships are
important elements in achieving continued profitable growth because as OEMs
narrow their supplier bases, well-regarded, existing suppliers have an
advantage in gaining new contracts. The evolution of OEM relationships into
strategic partnerships provides a significant advantage to Tier 1 suppliers
with systems integration capabilities (such as
42
<PAGE>
the Company) in retaining existing contracts as well as in participating
during the design phase for new vehicles, which is integral to becoming a
supplier to such new platforms.
Diverse Process and Material Manufacturing Capabilities
The Company utilizes a broad range of manufacturing processes including
compression molding, injection molding, blow molding, extrusion, resin
transfer molding ("RTM") and is able to use a wide variety of materials
including SMC, bulk molding compound ("BMC"), glass mat thermoplastic ("GMT"),
structural foam, glass reinforced urethane, polyethylene, polypropylene,
polyvinyl chloride, Azdel and resinated natural fibers. The Company has
secondary finishing capabilities including painting, in-mold coating,
ultrasonic and vibration welding and bonding with urethane and epoxy
adhesives. With the anticipated acquisition of Eagle-Picher, the Company will
have top coat painting capabilities sufficient to meet OEM Class A standards.
These capabilities give the Company the ability to select a cost effective
combination of materials and manufacturing methods for a given component and
to deliver a finished component which is ready for installation. They also
allow the Company to change its manufacturing techniques as technological
innovation allows in order to reduce costs and improve product performance.
Many competitors are dependent on fewer manufacturing processes and are at a
competitive disadvantage to the Company when changes in manufacturing
specifications by the OEM or new technologies or materials emerge that favor
one raw material or manufacturing method over another. The Company believes
this capability enhances its relationship with OEMs and further solidifies its
role as a Tier 1 supplier.
Low Cost, High Quality Manufacturing Position
The Company believes that it is one of the lowest cost Tier 1 suppliers of
plastic automotive components in North America. This is largely due to the
strict cost controls implemented following its acquisitions and continuous
improvement programs to enhance productivity and further reduce costs.
Management believes OEMs prefer stable suppliers who can generate productivity
gains that can be shared to reduce OEM costs. The Company's cost controls are
closely integrated with its high quality manufacturing operations, thereby
allowing it to profitably deliver high quality, easy to install and
competitively priced components on a just-in-time basis. The Company has
received numerous quality and performance awards including Ford's Q1, General
Motors' Targets of Excellence award, GM Supplier of the Year (1995 and 1996),
Chrysler's QE designation, Honda's Quality, Plant & Delivery Award and Mazda's
Total Quality Excellence award. Quality levels are currently being
standardized across OEMs through the QS 9000 program. The Company has achieved
QS 9000 certification in its Lenoir, NC and Newton, NC facilities and is in
the process of obtaining QS 9000 certification in the remainder of its
facilities.
Strong Design and Engineering Expertise
The Company has an engineering and research and development staff that
develops new products, materials and processing technologies through computer-
aided design techniques. The Company works directly with OEM designers to
create innovative solutions that simplify vehicle assembly. For example, the
Company redesigned the rocker arm cover for the Ford 3.0L engine by combining
the gasket, attachments, tubes and plates into one lightweight unit that can
be more easily installed by the OEM. This part weighs 2 pounds (or 48%) less
than a comparable steel rocker arm cover. Subsequently, this rocker arm cover
has been successfully rolled out to Ford's 4.6L engine and a similar design
was used for the 7.3L diesel engine cover. The Company also designed,
engineered and now produces the Cross Car Beam, a structural component for the
Ford Ranger/Explorer platform on which all of the instrument panel components
are mounted. This Cross Car Beam eliminates approximately 20 separate metal
and plastic parts, weighs less and reduces noise and vibration by
approximately 33% compared to the steel structure it replaced. In 1996, the
Company supplemented its design capabilities by opening an engineering and
technical center in association with MascoTech, Inc. which further
strengthened its existing design capabilities to the automotive industry. The
Company recently won a contract to supply the step-assist on GM's GMT800 sport
utility vehicle. The Company's step-assist allowed design flexibility not
possible with steel and is 20% lighter than a functionally similar steel step-
assist.
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<PAGE>
BUSINESS STRATEGY
The Company's strategy is to capitalize on its competitive advantages in
order to enhance its leadership position in the industry through the
following:
Capitalize on Increased Plastic Usage for Exterior and Structural/Functional
Components
The Company continues to seek opportunities to increase plastic content per
vehicle through the design, development and manufacture of plastic components
and systems which have been historically fabricated in metal. For example, the
Company generates significant revenue from several products which were not
previously fabricated in plastic, such as the plastic rocker arm covers, the
Cross Car Beam and the step-assist. The Company is now actively marketing
these technologies to other OEMs for use in other platforms. The Company has
also developed and is field testing a composite pickup truck bed that weighs
less and has increased durability compared to steel beds currently in use. The
Company expects plastic content per vehicle for exterior,
structural/functional components to continue to increase during the next
several years.
Acquire Complementary Manufacturers
The Company intends to selectively pursue attractive opportunities to
acquire exterior, structural/functional parts manufacturers that have the
potential to increase profitability and improve its strategic position. These
acquisition opportunities are available because: (i) these product segments
have been historically fragmented; (ii) OEMs are focusing their supplier
consolidation efforts in these areas, requiring fewer, but more competitive,
suppliers; and (iii) many such suppliers are subsidiaries or divisions of
significantly larger entities (as in the acquisitions of Rockwell, GenCorp
RPD, Eagle-Picher and Goodyear-Jackson) which may not be inclined to devote
the resources necessary to compete effectively as a Tier 1 supplier.
Successful acquisitions could broaden the Company's product lines and
manufacturing capabilities, improve the absorption of corporate overhead and
enhance its attractiveness as a Tier 1 supplier to the OEMs.
Penetrate New Markets and Access New Technologies Through Joint Ventures and
Licensing Arrangements
The Company seeks to exploit joint ventures and licensing arrangements to
develop new products, materials and processing technologies that provide
opportunities for growth while limiting its investment risk. The Company
currently has joint ventures with E.I. du Pont de Nemours and Company, Siebe
Fluid Systems and Menzolit Fibron and a licensing agreement with Empe Ernst
Pelz GmbH & Co. KG and Empe Ernst Pelz Vetrebs GmbH.
Expand Non-automotive Market Presence
Consummation of the Eagle-Picher Acquisition will allow the Company to
diversify its customer base beyond OEMs, thus further capitalizing upon the
Company's core SMC manufacturing technologies and processes. Eagle-Picher
manufactures non-automotive products, including jet-ski components for Polaris
and Kawasaki, tractor panels for John Deere, residential door systems for
Pease and Caradon Peachtree and outboard motor housings for Mercury Marine.
This business is supported by a dedicated sales force, product design staff
and manufacturing facility.
Pro Forma for the Eagle-Picher Acquisition and the Goodyear-Jackson
Acquisition, the Company generated non-automotive sales of approximately $22
million in 1996. Management believes that there exists significant opportunity
to expand SMC sales to non-automotive customers as such customers better
realize the product attributes of SMC.
EXISTING JOINT VENTURES AND LICENSING ARRANGEMENTS
The Company has established several joint venture and alliances in the
United States and in Europe to gain access to new materials, new processing
technologies and to open new markets. The forming of these joint ventures
provide considerable advantages to the Company over their traditional
competitors.
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The DuPont joint venture is currently working to a high grade, low cost,
fiber reinforced, recycled PET material, which will be used as an automotive
interior material, when reinforced with nature fibers, or as an exterior
material, when reinforced with glass fibers or as a structural material, when
reinforced with carbon fibers. The Company believes that it will have a
considerable competitive advantage, through the joint development of this
multipurpose, recycled material. This program is partially funded by the
United States Government under the NIST program.
The Empe licensing agreement gives the Company exclusive rights in the NAFTA
market to the patented Empeflex material. This material consists of a matrix
of polypropylene and natural fibers which allows that an interior Door Panel
or Package Shelf can be decorated during the compression molding cycle in a
cost saving, one step system.
The Company has developed the Siebe Fluid System quick connect/disconnect
automotive fluid handling system. This system provides for a two part, self
contained snap on design. This allows the automotive manufacturer to integrate
their new fluid connect systems directly to the radiator, transmission or to
the brake cylinders. At the same time it provides quick access to the system
for repair mechanics. The system is currently being tested by all major U.S.
auto manufacturers and the Company expects a job award from GM soon.
The Menzolit Fibron joint venture was established to give the Company direct
access to the European automakers. The Company believes that Menzolit Fibron
is one of Europe's largest SMC supplier. The Company also has access to their
material and processing technologies. This joint venture has resulted in the
job award of a spoiler from BMW, and a trunk lid from Mercedes.
CUSTOMERS
The Company has a diverse customer base, including Ford, GM, Chrysler,
Honda, Mazda, Nissan, Volkswagen, Freightliner, Kenworth, Mack Truck and Volvo
Heavy Truck. The Company has close ties to the automobile manufacturing
community and has integral components in some of the industry's most popular
vehicles. The Company currently has products in over 70 vehicles, including
high-volume, long-lasting model cars sold in the United States such as the
Ford Explorer, Ranger, Taurus and F-150 truck, the GM Suburban and Astro Mini-
Van and the Honda Accord. The following chart highlights vehicles which use
products produced by the Company:
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<PAGE>
1996 VEHICLE NAMEPLATES--AND SELECTED NON-AUTOMOTIVE CUSTOMERS
<TABLE>
<CAPTION>
COMPANY MODELS
- ------- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AUTOMOBILE AND LIGHT
TRUCK:
Auto Alliance(1)........ Mazda 626 Mazda MX6
Chrysler
Automobiles............ Chrysler Concorde Dodge Intrepid Dodge Viper Dodge Viper
Eagle Vision Neon Convertible Coupe
Light Trucks........... Dodge Caravan Dodge Dakota Dodge Ram Van* Jeep Cherokee
Jeep Grand Jeep Wrangler Plymouth Voyager
Cherokee
Ford
Automobiles............ Ford Crown Ford Mustang Ford Taurus Ford
Victoria Lincoln Lincoln Mark Lincoln Town Thunderbird**
Continental** VIII Car** Mercury Cougar**
Mercury Grand
Marquis**
Light Trucks........... Ford Aerostar Van Ford Bronco Ford Econoline Ford Explorer
Ford F-Series Ford Ranger Ford Windstar Mercury
Pickup Villager*
General Motors
Automobiles............ Buick LeSabre Buick Park Buick Regal
Cadillac Avenue Cadillac Seville
Eldorado Cadillac Chevrolet Lumina
Buick Riviera Chevrolet Camero Fleetwood Oldsmobile
Cadillac Deville Oldsmobile Chevrolet Intrigue Saturn
Chevrolet Barretta Aurora Pontiac Corvette SL
Chevrolet Monte Firebird Oldsmobile
Carlo Pontiac Cutlass Saturn
Bonneville SC
Light Trucks........... CK Chevrolet Astro Chevrolet Blazer Chevy Lumina APV
Pickup/Tahoe/Yukon Chevrolet Tahoe Oldsmobile Oldsmobile
Chevrolet Suburban Pontiac Trans Bravada Silhouette*
Opel Saturn Sport
Honda................... Honda Accord Acura
Nissan.................. Quest*
Volkswagen.............. Jetta Golf
CAMI(2)................. GEO Tracker
Mazda................... Miata* MPV*
Toyota.................. Micro Bus* Sierra Minivan
Subaru.................. Legacy Wagon* Legacy Sedan*
Isuzu................... Frontera*
Mitsubishi.............. Eclipse* Eagle*
HEAVY TRUCKS:
Freightliner
GM
Ford
Volvo Heavy Truck
Mack Truck
Kenworth
NON-AUTOMOTIVE:
Caradon................. Residential door
skins*
Pease................... Residential door
skins*
Premedoor............... Residential door
skins*
AM General.............. Hummer* Humvee*
John Deere.............. Tractors* Combines*
Kawasaki................ Jet skis*
Ford New Holland........ Tractors*
U.S. Military........... Tank set*
Polaris................. Jet skis*
Hyster.................. Lift Trucks
Toyota.................. Lift Trucks*
Mercury Marine.......... Marine outboard
engines*
Kodak................... Toner bottles
Xerox................... Toner bottles
Purex................... Swimming pool
filters
Menasha.................
</TABLE>
- --------
* Attributable solely to the Eagle-Picher Acquisition.
**Attributable solely to the Goodyear-Jackson Acquisition.
(1)Ford/Mazda joint venture.
(2)GM/Suzuki joint venture.
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<PAGE>
PRODUCTS
The Company's principal products include the exterior,
structural/functional, interior form and industrial parts listed below. The
products manufactured by the Company are made from a variety of thermoset and
thermoplastic materials. See "--Manufacturing Processes." The Company's
product diversity, illustrated by the table below, positions the Company as a
versatile source to the automotive and truck industry.
<TABLE>
<CAPTION>
EXTERIOR STRUCTURAL AND FUNCTIONAL INTERIOR NON-AUTOMOTIVE
-------- ------------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Hoods and hood assem- Headlamp carriers Steering column Blow molded bottles
blies Engine bezels Forklift body
Liftgates and doors shields/covers Glove box door and panels*
Roof and roof moldings Structural beams assemblies Swimming
Fenders Bumper beams Instrument panel poolfilters/heater
Bodyside Structural trim components covers
moldings/rubstrips component carriers Liftgate trim Residential door
Windshield surrounds Load floors panels systems*
Deck lids Fuel tank shields Door trim panels Personal watercraft
Hatches Seat pans/backs Rear shelf panels decks & covers*
Storage doors Knee bolsters Consoles Military vehicle
Spoilers Fluid systems Seat backs/bases hoods, engine
Fairings linkages Shift knobs covers & seats*
Grill opening retain- Rocker arm covers Garnish molding Tractor hoods,
ers** Fan shrouds systems shields/pans,
Grill opening panels** Radiator support Handles consoles and
beams Rear shelves seats*
Bearing cages Electrical carriers Combine components*
Steering yokes Cargo doors Lift truck hoods*
Battery trays Sunshades Outboard engine
Gears cowls*
Fuel valves
Plenums (firewalls)
Windshield cowls
Air spring
pistons**
</TABLE>
- --------
* These parts are attributable solely to Eagle-Picher.
** These parts are attributable solely to Goodyear-Jackson.
MANUFACTURING PROCESSES
The Company has a full range of equipment, including compression molding
presses from 50 to 4,000 tons, injection molding presses from 28 to 2,500
tons, single and twin screw extrusion and co-extrusion machines and 7 to 90
ton blow-molding machines. These capabilities allow the various operating
divisions of the Company extensive manufacturing flexibility. The Company is
capable of processing both thermosets and thermoplastics. Thermosets are
heated and pressurized plastics which undergo a chemical change and generally
provide superior impact strength, dimensional stability and heat resistance as
compared to other plastics. Thermoplastics are heated into a liquid state and
then formed through injection, blow-molding, extrusion or compression
processing techniques. Thermoplastics can be re-heated to be used again in
conjunction with virgin materials.
Through the GenCorp Acquisition, the Company has become the leading
manufacturer of SMC, a material from which large exterior body panels are
molded. SMC is one of the newest technologies in the automotive plastics
industry and the Shelbyville, Indiana facility, acquired in connection with
the GenCorp Acquisition, is one of the newer state of the art facilities
producing parts from SMC. SMC is a type of fiber reinforced plastic, which, in
1995, was used for over 400 components on over 100 domestic and import
passenger and truck lines produced by 16 manufacturers. The use of SMC has
increased from approximately 147 million pounds in 1992 to 240 million pounds
in 1996, a CAGR of approximately 13%. SMC is particularly well-suited for
exterior and structural/functional parts because of its superior design
flexibility, corrosion resistance, dent resistance and
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<PAGE>
dimensional and structural stability. Management believes that it is the
leading manufacturer of SMC automotive products in North America.
Through the Eagle-Picher Acquisition, the Company acquired 48 additional
compression molding presses ranging up to 4,400 tons and also acquired
additional SMC production capacity. Further, the Eagle-Picher Acquisition
added top coat paint producing lines, providing a capability to top coat paint
automotive components to Class A standards which the company did not
previously have.
Eagle-Picher's automated paint systems have high volume capabilities. The
conveyor lines have adjustable speeds and can handle parts in a variety of
sizes (up to ten feet in length by five feet wide and three feet thick).
Related systems include ovens (up to 500(degrees)F) with high discharge rates;
multi-stage power washers; and numerous waterfall spray booths connected to
ovens by conveyors.
Through the Goodyear-Jackson Acquisition, the Company acquired 16
compression molding presses ranging from 250 to 3,000 tons and 10 injection
molding presses ranging from 500 to 2,200 tons. The Goodyear-Jackson
Acquisition also added additional SMC making production capacity.
Quality throughout the manufacturing process is maintained through the
implementation of statistical process control ("SPC") techniques. Typical
characteristics measured and controlled through SPC methods include material
properties such as viscosity, gel time, sheen or gloss color and other
quantifiable physical and appearance properties for exterior and interior
components. Characteristics for structural/functional parts including physical
properties and dimensional stability at both the component and systems level
are monitored. SPC data provide the production operator with trend information
on the process which allows for proactive measures to be implemented to assure
product specifications are maintained and to minimize variation.
RAW MATERIALS AND SUPPLIERS
The Company's primary raw materials include engineered resins, glass-filled
resins, mineral-filled resins, polyethylene, polypropylene, polyvinyl chloride
and ABS resins. Additionally, the Company manufactures all of its own SMC. The
Company's principal suppliers include General Electric Company (resins), Bayer
(resins), Ashland Chemical (resins), Alpha Owens Corning (resins), Dow
Chemical Company (resins), DuPont (resins), GenCorp, Inc. (adhesives and
paint), Vetrotex Certainteed (glass fiber), Owens Corning (glass fiber), PPG
(glass fiber and paint) and Sherwin Williams (paint). Historically, the vast
majority of the Company's raw materials generally have been available, and no
serious shortages or delivery delays have been encountered. Certain of the
Company's suppliers must be pre-qualified by the Company's customers.
Management believes that its relations with its principal suppliers are good.
The Company has never experienced major disturbances in its flow of raw
material or supplies. The Company attempts to work with suppliers to obtain
longer-term buying agreements, share technologies and resources and build
relationships.
ENGINEERING/RESEARCH AND DEVELOPMENT
The Company has the ability to design and engineer its products to meet its
customers' specific applications and needs. The Company has an engineering and
research and development staff of professionals. The Company utilizes advanced
quality planning techniques by coordinating manufacturing and engineering in
development/launch teams. These teams work together to produce the most
efficient, cost competitive design for the customer using advanced techniques
including integrated CAD/CAM design systems. In addition, in 1996, the Company
supplemented its design capabilities by opening an engineering and technical
center in association with MascoTech, Inc., which further strengthens its full
service design capabilities to the automotive industry.
COMPETITION
The Company operates in a highly competitive environment. Recently, the
automotive plastic parts industry has consolidated many small entities into
fewer, much larger entities. The OEMs have adopted supplier management
policies designed to rationalize their supply base. See "--Automobile and
Light Truck Components
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<PAGE>
Industry--Consolidation of Supplier Base by OEMs." In the exterior and
structural/functional market segments, the Company's major competitors include
Budd Canada, Venture Holdings Trust and Rymac Investment Trust. The interior
business is largely consolidated around such suppliers as Magna International,
Textron Automotive Division, JCI, Inc., United Technologies Automotive
Division and Lear Seating. Although the exterior and structural/functional
market segments are still fragmented, the Company expects them to consolidate
along the lines of the interior market segments.
The Company competes on the basis of cost, product quality, timely delivery,
design support, customer service, product mix and new product innovation. The
Company competes for new business both at the beginning of the development of
new models and upon the redesign of existing models by its major customers.
New model development generally begins two to five years prior to the
marketing of such models to the public. Once a supplier has been designated to
supply parts to a new program, an OEM will usually continue to purchase those
parts from the designated supplier for the life of the program, and generally
the supplier has an advantage in obtaining replacement business.
PROPERTIES
The Company's executive offices are located in approximately 24,000 square
feet of owned space at 555 Horace Brown Drive, Madison Heights, Michigan. The
Company has 19 operating facilities with a total of approximately 2.4 million
square feet of space. Molding operations are located at all of its operating
facilities other than Rushville, Indiana, which is an assembly and warehouse
facility. The Company believes that substantially all of its property and
equipment is in good condition and that it has sufficient capacity to meet its
current and projected manufacturing and distribution needs through the 1997
model year. The following sets forth certain information concerning the
Company's operating facilities:
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE OWNED/LEASED
- -------- -------------- ------------
<S> <C> <C>
Dearborn, MI (3 facilities)........................ 87,000 Owned
Lapeer, MI......................................... 230,000 Owned
Woodstock, Ontario, Canada......................... 50,000 Leased
Canandaigua, NY (3 facilities)..................... 280,000 Owned
Newton, NC......................................... 54,000 Owned
Lenoir, NC (3 facilities).......................... 160,000 Owned/Leased
Centralia, IL...................................... 473,000 Owned
Shelbyville, IN.................................... 366,000 Owned
Rushville, IN...................................... 97,440 Leased
Madison Heights, MI (APX facility)................. 90,000 Leased
Grabill, IN(1)..................................... 225,000 Owned
Ashley, IN(1)...................................... 130,000 Owned
Huntington, IN(1).................................. 174,000 Owned
Jackson, OH(2)..................................... 220,400 Leased
Rio Clara, Brazil(3)............................... 7,480(4) Leased
---------
Total............................................ 2,636,840
=========
</TABLE>
- --------
(1) Eagle-Picher facilities.
(2) Goodyear-Jackson facility.
(3) Owens-Corning Brazil.
(4) Square meters.
The Company also owns property and improvements in Vassar, Michigan, which
is currently being used by the Company for storage, but which is expected to
be leased (with an option to purchase) to a third party. The Company also owns
property in Pittsford Township, New York, which is currently unoccupied.
EMPLOYEES
As of September 30, 1997, the Company had approximately 4,590 employees of
whom approximately 1,659 are union members. Approximately 3,819 are hourly
employees and approximately 771 are salaried personnel. The Company is a party
to collective bargaining agreements with respect to hourly employees at its
Centralia, Lapeer, Woodstock and Dearborn facilities. The agreement with the
UAW at the Centralia facility expires on October 1, 1998. With respect to this
agreement, the Company and the UAW have begun preliminary discussions
49
<PAGE>
regarding benefits and other issues to minimize potential obstacles to
reaching an acceptable agreement prior to expiration. The agreement with the
UAW at Dearborn expires on September 30, 1999, and the agreement with the UAW
at the Lapeer facility expires on February 1, 2000. The agreement with The
Canadian Automobile Workers Union at the Woodstock facility expires on March
22, 1998, and the Company anticipates commencing preliminary negotiations with
the UAW on this agreement in the fall of 1997. Each of the Company's
agreements with the UAW contains a no-strike clause. The Company has
successfully negotiated closing agreements with the International Union of
Electrical Workers, Furniture Workers Division, Local No. 420 and the
International Union, United Plant Guard Workers of America and its affiliated
Local No. 40 in connection with the cessation of operations at Ionia. As of
May 31, 1997, Eagle-Picher had 820 employees, none of whom were subject to
collective bargaining agreements. As of March 31, 1997, Goodyear-Jackson had
451 employees, 393 of whom were members of the United Steel Workers of
America, AFL-CIO/CLC Local No. 820-L and subject to a collective bargaining
agreement which expires April 15, 2000.
As of September 1, 1997, Owens Corning Brazil had 134 employees, 104 of whom
are covered by a collective bargaining agreement between the Industry
Syndicate of Glass, Flat and Hollow Crystal of the State of Sao Paulo and the
Union of Workers in Glass, Crystal and Mirror Industries of the State of Sao
Paulo. This industry wide agreement is negotiated each year with the current
agreement expiring on November 30, 1997. There does not appear to be any
significant issues which would prevent an adoption of a mutually acceptable
agreement in November 1997.
Management believes its relationship with its employees is generally good.
The Company has not experienced significant work interruptions resulting from
serious labor disputes with its employees.
During the last two years, the only organizing activity within the Company's
non-union facilities to come to the Company's attention was at the Canandaigua
location. The organizing attempt was taken to a vote by employees on April 11,
1997, where the Company prevailed. The Company monitors this activity closely
and is not aware of any current organizing activity at any of its non-union
locations.
PATENTS
The Company owns various patents which aid in maintaining its competitive
position. These patents expire in the next ten years. The expiration of such
patents are not expected to have a material adverse effect on the Company's
operations.
ENVIRONMENTAL MATTERS
Like similar companies, the Company's operations and properties are subject
to extensive federal, state, local and foreign regulation under environmental
laws and regulations concerning, among other things, emissions into the air,
discharges into the water, the remediation of contaminated soil and
groundwater, and the generation, handling, storage, transportation, treatment
and disposal of waste and other materials (collectively, "Environmental
Laws"). Inherent in manufacturing operations and the Company's real estate
ownership and occupance activities is the risk of environmental liabilities as
a result of both current and past operations, which liabilities cannot be
predicted with certainty. The Company has incurred and will continue to incur
costs associated with Environmental Laws in its business. As is the case with
manufacturers in general, if a release of hazardous materials occurs on the
Company's properties or at any off-site disposal location utilized by the
Company or its predecessors, the Company may be held strictly, jointly and
severally liable for response costs and natural resource damages under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended and similar state and foreign laws (collectively, "Superfund").
While the Company devotes resources to ensuring that its operations are
conducted in a manner which reduces such risks, the amount of such liability
could be material.
The soil and groundwater at the Company's Brickyard Road facility, located
in Canandaigua, New York, contain hazardous materials in excess of applicable
state cleanup standards. The Company currently estimates that the total cost
to be incurred at this facility as a result of environmental conditions could
range up to $0.6 million.
The soil and groundwater at the Company's 111 North Street facility, located
in Canandaigua, New York, contain hazardous materials in excess of applicable
state cleanup standards. The Company is currently remediating the facility
pursuant to a consent order entered into with the State of New York. The
Company has spent approximately $0.25 million to date and currently estimates
that remediation costs over the next four or five years should not exceed an
additional $0.5 million.
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<PAGE>
The soil and groundwater at a facility located on Linden Road in Rochester,
New York, which is vacant, contain hazardous materials in excess of applicable
state cleanup standards. The Company currently estimates that expenditures for
remediation could reach $0.5 million.
Each of these preliminary cost estimates is based upon currently available
information. The actual cost of further investigation or remediation could
differ materially from these projections.
Under the terms of the Rockwell Plastics acquisition transaction, Rockwell
has indemnified the Company for past environmental liabilities (the "Rockwell
Environmental Indemnity"), subject to a maximum aggregate contribution by the
Company of $0.6 million and to the survival period of Rockwell's environmental
representations and warranties, which expire July 2004. Since the time of the
Rockwell Plastics acquisition, Rockwell, pursuant to the Rockwell
Environmental Indemnity, has performed additional investigation and analyses
of the facilities acquired in that acquisition. These assessments verified
some of the Company's findings but disagreed with others. Rockwell has
subsequently remediated certain areas of the facilities and Rockwell and the
Company are currently discussing the remaining unremediated areas.
Notwithstanding the Rockwell Environmental Indemnity, the Company could be
pursued in the first instance by governmental authorities or third parties
with respect to such matters, subject to its right to seek indemnification
from Rockwell. If Rockwell fails to honor its obligations under the Rockwell
Environmental Indemnity, the Company would be required to bear the cost of
bringing the former Rockwell facilities into substantial compliance in which
event the Company's total exposure could be material. However, the Company has
no reason to believe that Rockwell will not honor its remediation commitments.
With respect to the facilities acquired in the GenCorp Acquisition, the
Company identified a number of permitting, contamination, off-site liability,
recordkeeping, reporting and hazardous waste regulation non-compliance issues.
Since that acquisition, the Company believes it has brought the former GenCorp
facilities into substantial compliance with applicable Environmental Laws.
Under the terms of the transaction, the Company did not assume any liabilities
arising from pre-existing violations of Environmental Laws, pre-existing
contamination at GenCorp RPD facilities or off-site disposal of waste
materials under Superfund. The Company is completely indemnified for these
non-assumed liabilities (the "GenCorp Indemnity"). Notwithstanding the GenCorp
Indemnity, the Company could be pursued in the first instance by governmental
authorities or third parties with respect to such matters, subject to its
right to seek indemnification from GenCorp, Inc. If GenCorp, Inc. fails to
honor the GenCorp Indemnity, the Company's total exposure for environmental
matters arising from the GenCorp Acquisition could be material. However, the
Company has no reason to believe that GenCorp, Inc. will not honor the GenCorp
Indemnity.
With respect to the facilities acquired in the Eagle-Picher Acquisition, the
Company identified a number of permitting, contamination, off-site liability,
recordkeeping, reporting and hazardous waste regulation non-compliance issues.
The Company intends to bring the Eagle-Picher facilities into substantial
compliance with applicable Environmental Laws as soon as possible. Under the
terms of the transaction, the Company did not assume any liabilities arising
from off-site disposal of waste materials under Superfund, and the Company is
completely indemnified for this potential Superfund liability by Eagle-Picher.
In addition, the Company is indemnified by Eagle-Picher against any fines or
penalties arising out of any pre-existing violations of Environmental Laws.
Subject to a maximum indemnification limit of 53.25 million, the Company is
also indemnified for any unidentified on-site contamination at, on, under or
about the former Eagle-Picher facilities and unindemnified non-compliance
issues, provided the Company asserts an indemnification claim within four
years of the Eagle-Picher Acquisition. Finally, and in addition to its
indemnity obligations, Eagle-Picher covenanted to remediate identified
contamination as presently in place or as materially changed prior to 2003,
(subject to certain financial limitations in the event of change in clean-up
standards) at the former Eagle-Picher facilities pursuant to and in accordance
with applicable state industrial standards. Notwithstanding these Eagle-Picher
covenants and indemnification obligations, the Company could be pursued in the
first instance by governmental authorities or third parties with respect to
such matters, subject to its right to seek indemnification from Eagle-Picher.
If Eagle-Picher fails to honor those indemnities or covenants provided to the
Company, the
51
<PAGE>
Company's total exposure for environmental matters arising from the Eagle-
Picher Acquisition could be material. However the Company has no reason to
believe that Eagle-Picher will not honor the covenants or indemnities provided
to the Company under the Eagle-Picher Acquisition.
With respect to the facility acquired in the Goodyear-Jackson Acquisition,
the Company identified a number of contamination, off-site liability,
recordkeeping, hazardous waste regulation, underground storage tank,
wastewater discharge and permitting non-compliance issues. The Company intends
to bring the Goodyear-Jackson facility into substantial compliance with
Environmental Laws as soon as possible. Under the terms of the acquisition,
the Company is indemnified for the costs associated with rectifying identified
violations of Environmental Laws. The Company did not assume any liabilities
arising from off-site disposal of waste materials under Superfund, and the
Company is fully indemnified for any potential Superfund liability by
Goodyear. In addition, the Company is indemnified by Goodyear, subject to a
maximum indemnification limit of $2.5 million and after bearing the first
$0.25 million of claims and a cost-sharing formula thereafter, against any
unidentified pre-existing compliance issues under Environmental Laws and any
unidentified on-site contamination at, on, under or about the former Goodyear-
Jackson facility, provided the Company asserts an indemnification claim within
three years of the Goodyear-Jackson Acquisition. In addition to its indemnity
obligations, Goodyear covenanted to remediate identified contamination in
excess of applicable regulatory limits and to make reasonable efforts to
obtain a covenant not to sue under applicable state laws. Before remediating,
Goodyear agreed to reimburse the Company, up to a maximum of $1.0 million, to
investigate and repair the causes or sources of the identified contamination.
Notwithstanding these Goodyear covenants and indemnification obligations, the
Company could be pursued in the first instance by governmental authorities or
third parties with respect to such matters, subject to its right to seek
indemnification from Goodyear. If Goodyear refuses to honor the indemnities or
covenants provided to the Company, the Company's total exposure for
environmental matters arising from the Goodyear-Jackson Acquisition could be
material. However, the Company has no reason to believe that Goodyear will not
honor the covenants or indemnities provided to the Company in connection with
the Goodyear-Jackson Acquisition.
A number of the Company's facilities are likely to be required to comply
with the provisions of the Federal Clean Air Act, including Titles III and V
of the CAA. Title III of the CAA includes provisions requiring the
implementation of Maximum Achievable Control Technology (MACT) to reduce
emissions of certain hazardous air pollutants, including styrene, at certain
manufacturing facilities emitting designated quantities of such pollutants.
Air pollution controls to address styrene emissions could cost approximately
$1.0 million per facility and, if MACT is ultimately required in connection
with both the manufacture and use of this compound, may be required at three
to five of the Company's facilities. It is possible that the cost of complying
with the CAA could be material and the Company's failure to comply with the
CAA in the future would likely have a material adverse effect on the Company.
Based upon the Company's experience to date, as well as the existence of
certain remediation and indemnification agreements obtained in connection with
those acquisitions described above, the Company believes that the future cost
of compliance with existing Environmental Laws and liability for identified
environmental claims will not have a material adverse effect on the Company's
business, results of operations or financial position. However, future events,
such as new information, more vigorous enforcement policies of regulatory
agencies, stricter or different interpretations of existing Environmental
Laws, changes in existing Environmental Laws or their interpretation, or the
failure of indemnitors to fulfill their contractual obligations, may give rise
to additional costs or claims that could have a material adverse effect on the
Company's business, results of operations or financial condition.
The Company's accounting policy is to accrue for environmental claims which
it considers probable and reasonably estimable and to disclose a range of
reasonably possible claims. See Note 1 to the Company's consolidated financial
statements contained elsewhere in this Prospectus.
52
<PAGE>
LEGAL PROCEEDINGS
From time to time the Company is engaged in routine litigation arising in
the ordinary course of business; however, the Company is not party to any
lawsuit or proceeding which, individually or in the aggregate, in the opinion
of management, is likely to have a material adverse effect on the financial
condition or results of operations of the Company.
Eagle-Picher is a defendant in litigation commenced in May 1997 by Caradon
Doors and Windows Inc. ("Caradon"), in the U.S. District Court, Northern
District of Georgia. Caradon alleges that Eagle-Picher induced it to buy door
skins from Eagle-Picher, causing Caradon to infringe upon a patent held by
Therma-Tru Corporation, contrary to Eagle-Picher's representations. The
complaint alleges claims for damages exceeding $10 million. Eagle-Picher
intends to vigorously defend the claims in the complaint.
On September 15, 1997, Therma-Tru Corporation filed an action against the
Company and Pease Industries, Inc. alleging patent infringement under 35
U.S.C. (S) 271 and related claims, based upon substantially the same facts as
in the Caradon case. Therma-Tru seeks an injunction against Cambridge and
money damages of an unspecified amount.
The proceedings are not sufficiently advanced in either the Caradon or the
Therma-Tru case to allow an assessment of likely exposure for the claims, if
any. Under the terms of the Eagle-Picher Acquisition, the Company believes
that it will be fully indemnified by Eagle-Picher for any amounts ultimately
owed to Caradon or Therma-Tru resulting from the litigation.
53
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages as of August 5, 1997 and a brief account
of the business experience of each person who will be a director, executive
officer or other significant employee of the Company or Holdings.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard S. Crawford..... 50 Chairman of the Board and Chief Executive Officer
Kevin J. Alder.......... 39 Chief Operating Officer and President
John M. Colaianne....... 41 Chief Financial Officer and Secretary
C. Keith Chulumovich.... 36 Corporate Controller and Treasurer
Thomas N. Paisley....... 45 President--Structural/Functional Division
Richard H. Frank........ 58 President--Specialty Vehicle/Commercial Truck Division
Patrick Pavelka......... 45 President--Interior Systems Division
Terry S. Werrell........ 61 President--Industrial Products Division
Michael E. Kilpinen..... 51 Executive Vice President--R&D-Technical Services
Dale L. Freel........... 40 Vice President--Purchasing and Tooling
Alan M. Swiech.......... 39 Vice President--Human Resources
David W. Marten......... 41 Vice President--Quality
Jerrold L. Glick........ 53 Director
Ira J. Jaffe............ 57 Director
Robert C. Gay........... 44 Director
Edward W. Conard........ 40 Director
Ronald P. Mika.......... 36 Director
</TABLE>
RICHARD S. CRAWFORD founded a predecessor of the Company in 1988. Mr.
Crawford was President, Chief Executive Officer and director of the Company,
Holdings and its predecessors from their inception to March, 1996 when he
became Chairman of the Board of the Company and Holdings. Prior to founding
the company which was to become the Company, Mr. Crawford founded a real
estate, construction and marketing firm, the Lakeside Investment Company. He
has also been active as a real estate developer, financial investor and merger
and acquisition specialist.
KEVIN J. ALDER joined the Company in November 1996. Mr. Alder possesses 17
years of industrial experience varying from Engineering to Operations
Management. From 1993 until joining the Company, Mr. Alder was the Vice
President Operations & Sales at Magna Interior Systems Group. In addition, he
held the position of Vice President Operations at Textron, President and Chief
Operating Officer at US Farathane Corporation and Vice President Operations
(General Plants Manager) at Johnson Controls and Engineer/Quality Engineer at
John Deere.
JOHN M. COLAIANNE joined the Company in June 1996 and was appointed
Executive Vice President Business Development in December 1996, and in April
1997 he was appointed Chief Financial Officer. Mr. Colaianne has 18 years
financial experience with 12 years automotive related and six years aerospace
and railway experience. From 1993 until joining the Company, Mr. Colaianne was
Chief Financial Officer at RPI, Inc. and Butler Metal Products, American &
Canadian subsidiaries of Oxford Investment Group. Prior to that he was
Corporate Controller and Vice President of Freedom Forge Corporation
(specializing in railway parts), Corporate Controller/Controller at American
Technologies/Ferro Manufacturing (specializing in automotive and aerospace)
and Auditor of automotive and property development industries with Touche Ross
& Co.
C. KEITH CHULUMOVICH joined the Company in 1993 as controller of the
Dearborn facility. Prior to becoming corporate controller in early 1996, he
was also controller of the Lapeer facility. Prior to joining the Company, Mr.
Chulumovich was a manager with Deloitte & Touche llp in Detroit, serving
clients for nine years in manufacturing, leasing and other industries.
54
<PAGE>
THOMAS N. PAISLEY joined the Company upon the consummation of the Company's
acquisition of Rockwell Plastics. Mr. Paisley has over 27 years experience in
manufacturing. Mr. Paisley joined the Company's Ontario facility of Butler
Polymet in 1976 as Production Manager. In 1983 he moved to Lenoir as
Manufacturing Manager. In 1990, after the acquisition of Butler Polymet by
Rockwell Plastics, Mr. Paisley was promoted to Plant Manager of the Lenoir
facility. In 1993, Mr. Paisley was promoted to Director of
Structural/Functional and Energy Management Systems for Rockwell Plastics. In
August 1994 Mr. Paisley became General Manager of Cambridge North Carolina
operations and was promoted to President of Engineered Products Division in
October 1994.
RICHARD H. FRANK joined the Company in 1994 upon the consummation of the
Company's acquisition of Rockwell Plastics, where he had been employed for 18
years. Prior to joining Rockwell, Mr. Frank was employed for 18 years in
various positions by General Motors. Mr. Frank is a member of the Industrial
Development Research Council, the Society of Plastic Engineers and the Project
Management Institute.
PATRICK PAVELKA joined the Company in 1988 and, prior to becoming the
General Manager of the Lapeer facility, was General Manager of the Dearborn
facility. Prior to joining the Company, Mr. Pavelka was a manufacturing and
materials manager for Signet Industries. Mr. Pavelka has over 20 years of
experience in the areas of manufacturing and materials management.
TERRY S. WERRELL joined a predecessor of the Company in June 1992. Mr.
Werrell has 42 years of manufacturing and engineering experience in the
automotive industry, 20 years with General Motors in various management
positions and 22 years in the supplier industry serving in general management
positions. Prior to joining the Company he was a co-owner of a decorative zinc
die casting company headquartered in Detroit.
MICHAEL E. KILPINEN joined the Company in March 1996 upon the consummation
of the GenCorp Acquisition where he had been employed since 1989. Prior to
becoming Executive vice President Engineering and Technology, Mr. Kilpinen
served in various engineering management positions with ASC, Ford Motor
Company Body Engineering and American Motors Corporation.
DALE L. FREEL joined the Company in December 1996 as Vice President of
Purchasing and Tooling. From 1993 until joining the Company, Mr. Freel held
various purchasing positions within the Lear Corporation. Prior to that he
held various manufacturing and sales positions with General Motors, CPC
Division, specializing in stampings, plastics and tooling.
ALAN M. SWIECH joined the Company in August 1996. Prior to joining the
Company Mr. Swiech served as Employee & Industrial Relations Manager at United
Technologies Automotive since 1993. He was previously with Pratt & Whitney
Aircraft (United Technologies Corporation), an aerospace manufacturer, from
May 1982 until July 1993 where he held various management positions within the
Human Resources Organization. Mr. Swiech has over 18 years experience in the
area of labor relations and human resource management.
DAVID W. MARTEN joined the Company in 1996 as Vice President of Quality and
Continuous Improvement. Mr. Marten has over 22 years experience in automotive
and heavy truck component manufacturing. From January 1995 until joining the
Company, Mr. Marten was Director-Product & Process Improvement for Echlin
Automotive, Preferred Technical Group. From April 1989 until joining Echlin
Automotive, Mr. Marten was Manager-Product & Process Quality for TRW Inc.,
Vehicle Safety Systems.
MR. GLICK was a director of the Company and Holdings from August 1, 1994
through November 17, 1995, and was re-elected as a director in March 1996. Mr.
Glick is an investor in and manager of several commercial and mixed use real
estate interests in Colorado. Mr. Glick has been the General Partner of the
Columbia Group Limited, the entity responsible for managing the operations of
Mr. Glick's various real estate interests, for more than five years preceding
the date of this Prospectus. None of Mr. Glick's real estate interests are
affiliated with the Company. Since May 1997, Mr. Glick has also been Chairman
of American Medical Laboratories, Inc., a Virginia based health care service
Company, which is not affiliated with the Company.
55
<PAGE>
IRA J. JAFFE has been a director of the Company and Holdings since February
27, 1996. Mr. Jaffe has been a member of the law firm of Jaffe, Raitt, Heuer &
Weiss, Professional Corporation since 1968, which provides legal services to
Holdings and the Company.
ROBERT C. GAY became a director of the Company and Holdings on November 17,
1995. Mr. Gay has been a Managing Director of Bain Capital, Inc. since April
1993 and has been a general partner of Bain Venture Capital since 1989. Mr.
Gay is a director of IHF Capital, Inc., parent of ICON Health and Fitness,
Inc., Physio-Control International Corporation, GT Bicycles, Inc., GS
Technologies Operating Co., Inc. and American Pad & Paper Company.
EDWARD W. CONARD became a director of the Company and Holdings on November
17, 1995. Mr. Conard has been a Managing Director of Bain Capital, Inc. since
April 1993. From 1990 to 1993, Mr. Conard was a director of Wasserstein
Perella, an investment banking firm that specializes in mergers and
acquisitions. Previously, he was a Vice President at Bain & Company, where he
headed the firm's operations practice area. Mr. Conard is a director of Waters
Corporation and Medical Specialties Group, Inc.
RONALD P. MIKA became a director of the Company and Holdings in March 1996.
Mr. Mika has been a Managing Director of Bain Capital, Inc. since January 1997
and, prior to that time, had been a principal of Bain Capital, Inc. since
December 1992. Mr. Mika is a director of IHF Capital, Inc., parent of ICON
Health and Fitness, Inc.
DIRECTORS' COMPENSATION POLICY
The outside directors will be reimbursed for out-of-pocket expenses incurred
in connection with attending meetings. Directors, other than Mr. Glick,
currently receive no other directors' compensation; Mr. Glick receives
compensation of $2,500.00 per Board meeting.
COMPENSATION OF EXECUTIVE OFFICERS
The following table and notes set forth information concerning the
compensation for 1996 for Mr. Crawford, the four other most highly compensated
executive officers and the two most highly compensated executive officers of
the Company or Holdings who were not executive officers as of the end of 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------
OTHER ANNUAL
SALARY COMPENSATION
NAME AND PRINCIPAL POSITION* ($) BONUS($) ($)
- ---------------------------- -------- ------- ------------
<S> <C> <C> <C>
Richard S. Crawford, Director, CEO............. $462,500 -0- $2,321
Kevin J. Alder, COO/President(1)............... 62,893 $50,000 1,667
Thomas N. Paisley, President-
Structural/Functional Division................ 199,701 15,000 66,851
Richard Frank, President-Specialty
Vehicle/Commercial Vehicle.................... 166,708 10,000 9,578
Patrick Pavelka, President-Interior System
Division...................................... 175,000 25,000 10,483
Richard E. Warnick, COO(2)..................... 250,000 -0- 5,287
</TABLE>
- --------
(1) Reflects Mr. Alder's 1996 cash compensation from November 1996, the date
he joined the Company. Mr. Alder is compensated at a current annual rate
of $253,000.
(2) In connection with the 1995 Transaction, Holdings purchased Mr. Warnick's
20% interest in Holdings (actually held by R&C Warnick, L.L.C., a limited
liability company owned by Mr. Warnick and his wife
56
<PAGE>
(the "Warnick LLC"), for $10 million, pursuant to a Stock Purchase
Agreement dated as of November 17, 1995 in which the Warnick LLC and Mr.
Warnick agreed to a five-year covenant not to compete. Simultaneously, Mr.
Warnick and the Company entered into an Employment Agreement pursuant to
which Mr. Warnick agreed to provide transitional assistance to the Company
for a period of two years. Under the Employment Agreement, Mr. Warnick will
receive an annual salary of $250,000.
* Effective December 4, 1996, the employment of Donald Holton as President
and a Director of the Company was terminated by mutual agreement of the
Company and Mr. Holton. The Company and Mr. Holton have negotiated terms of
an agreement, but a written agreement has not yet been concluded. The
negotiated terms include: (i) the purchase by Mr. Holton of shares of Class
A and Class L Common Stock of Holdings for an aggregate purchase price of
$1 million to be paid by application of approximately $350,000 of salary
and bonus earned by Mr. Holton during 1996, a promissory note from Mr.
Holton in the amount of $500,000 and approximately $150,000 in cash; (ii)
full vesting of 2,000 Tranche 1 option shares of Holdings previously
granted to Mr. Holton; (iii) payments of severance benefits of
approximately $42,000; (iv) continuation of Mr. Holton's non-competition
agreement with the Company until no later than December 31, 1997; and (v)
Mr. Holton's agreement not to sue Holdings and the Company. There can be no
assurance that an agreement with Mr. Holton will be concluded or that if
concluded, it will include these terms.
EMPLOYMENT AGREEMENTS
In connection with the 1995 Transaction, Mr. Crawford entered into an
employment agreement with the Company, pursuant to which Mr. Crawford receives
an annual base salary in the amount of $475,000 and an annual performance
based bonus for an amount not to exceed 50% of his base salary. In addition,
Mr. Crawford was paid a $412,500 consulting fee in connection with the GenCorp
Acquisition. Mr. Crawford's employment agreement also provides for a severance
payment equal to three months of his base salary in the event his employment
is terminated for any reason other than resignation. The employment agreement
provides that Mr. Crawford will not directly or indirectly compete with the
Company for two years following termination of his employment with the
Company.
STOCK PURCHASE AND STOCK OPTION AGREEMENTS
In October 1997, the Company distributed Stock Purchase and Stock Option
Agreements to fourteen of its key employees. See "Management--Key Employee
Stock and Options Table." Pursuant to those agreements, each employee will be
given an opportunity to purchase shares of Class A Common Stock and Class L
Common Stock (the "Purchased Shares"), at a per share price of $3.30 and
$1,306.80, respectively, and some employees will be granted options (the
"Options") to purchase additional shares of Class A Common Stock (the "Option
Shares", and together with the Purchased Shares, the "Shares"). The Company
anticipates that the agreements will be executed by December 31, 1997, with an
effective date of December 1, 1997.
The consideration for the Purchased Shares is to be paid as follows: (i) at
least fifty percent in cash or pursuant to a short-term 8.5% full recourse
promissory note, to be repaid out of the employee's bonuses for 1997 and 1998,
with any remaining balance being due on May 1, 1999; and (ii) the balance in
the form of a five-year 8.5% full recourse promissory note, with interest-only
payments being required on an annual basis. Both notes will be secured by a
pledge of the Purchased Shares.
So long as the employee remains employed by the Company, the Purchased
Shares will vest over a five year period, beginning on the later of November
17, 1995 or the date the employee first became employed by the Company.
The Options also will vest over the same five year period, so long as the
employee remains employed by the Company, although the occurrence of certain
"acceleration events" may cause the Options to become fully vested.
In order to exercise the Options, the employee must so notify the Company
within thirty days after the earlier of the termination of the employee's
employment with the Company or the end of the fifth year after the date the
Option first became exercisable. Fifty percent of an employee's Options are
exercisable at a price of
57
<PAGE>
$3.30 per share, twenty-five percent are exercisable at a price of $642.13 per
share, and the balance are exercisable at a price of $972.13 per share.
The employee may not transfer any of the Shares, except to a charitable
remainder trust or certain family members, or under other, limited
circumstances.
On termination of the employee's employment with the Company, the Company
and its shareholders may purchase all or a portion of the Shares. The purchase
price for vested Shares will be their fair market value, if the employee's
employment was terminated for any reason other than cause. In all other
circumstances, the repurchase price for the Shares, vested or unvested, will
be the lower of fair market value or the original purchase price paid for the
Shares. The Company must exercise the repurchase right within one year
following termination of the employee's employment, unless the Company is
legally or contractually prohibited from exercising such right during such
period, in which case the Company shall be entitled to defer such purchase
until all such restrictions have been removed.
Each employee is subject to non-compete, non-solicitation and
confidentiality provisions which are set forth in the agreements.
Set forth below is a table identifying the executive officers who have been
presented with Stock Purchase and Stock Option Agreements, and the number of
Purchased Shares and Option Shares in respect of each such officer:
KEY EMPLOYEE STOCK AND OPTIONS TABLE
<TABLE>
<CAPTION>
CLASS A CLASS L TOTAL SHORT-TERM EMPLOYEE CLASS A
NAME & ADDRESS TITLE SHARES SHARES PURCHASE PRICE NOTE AMOUNT NOTE AMOUNT OPTIONS
-------------- ----------------------- ------- ------- -------------- ----------- ----------- -------
<C> <S> <C> <C> <C> <C> <C> <C>
Kevin J. Alder President and 757.58 189.39 $249,994.87 $124,997.44 $124,997.43 2,500
Chief Operating
Officer
Thomas N. Paisley President and 303.03 75.76 $100,003.17 $ 50,001.59 $ 50,001.58 450
EPG
Richard Frank President 303.03 75.76 $100,003.17 $ 50,001.59 $ 50,001.58 450
SV&CT
Patrick T. Pavelka President 303.03 75.76 $100,003.17 $ 50,001.59 $ 50,001.58 450
Interiors
John Colaianne Chief Financial Officer 303.03 75.76 $100,003.17 $ 50,001.59 $ 50,001.58 450
Michael E. Kilpinen Executive 303.03 75.76 $100,003.17 $ 50,001.59 $ 50,001.58 450
Vice President
Eng
David W. Marten Vice President 151.52 37.88 $ 50,001.60 $ 25,000.80 $ 25,000.80 0
Quality
Alan M. Swiech Vice President 151.52 37.88 $ 50,001.60 $ 25,000.80 $ 25,000.80 0
Human Resources
Dale L. Freel Vice President 151.52 37.88 $ 50,001.60 $ 25,000.80 $ 25,000.80 0
Purchasing
Sandra Galloway Director 30.30 7.58 $ 10,005.54 $ 5,002.77 $ 5,002.77 0
Customer Service
Dennis R. Agusti Director 30.30 7.58 $ 10,005.54 $ 5,002.77 $ 5,002.77 0
MIS
Charles K. Chulumovich Controller 30.30 7.58 $ 10,005.54 $ 5,002.77 $ 5,002.77 0
Terry Werrell President 151.52 37.88 $ 50,001.60 $ 25,000.80 $ 25,000.80 0
SPG
Peter C. Hermann VP Market Sales 151.52 37.88 $ 50,001.60 $ 25,000.80 $ 25,000.80 0
Europe
</TABLE>
58
<PAGE>
CHANGE IN CONTROL SEVERANCE AGREEMENTS
Kevin J. Alder, John M. Colaianne, Thomas N. Paisley, Richard H. Frank,
Patrick T. Pavelka and Terry S. Werrell each have been presented with a Change
In Control Severance Agreement, pursuant to which the Company will pay the
employee up to one year's salary and will provide the employee up to one
year's benefits as severance pay, in the event there is a "change in control"
of the Company or substantially all of the Company's assets are sold (a
"Change In Control Event"), and the employee's employment with the successor
is terminated without cause or the employee terminates such employment with
good reason. Under those same circumstances, the employee will have the option
of causing the Company to purchase all or any portion of the Shares, at their
fair market value. The period of time during which the Company must make such
severance payments and provide such severance benefits will be reduced by the
amount of time during which the employee was employed by the Company's
successor after the Change In Control Event. The Company anticipates that the
agreements will be executed by December 31, 1997, with an effective date of
December 1, 1997.
59
<PAGE>
SECURITY OWNERSHIP
The Company is a wholly owned subsidiary of Holdings. The capital stock of
Holdings consists of preference stock, par value $.01 per share ("Preference
Stock"), Class A common stock, par value $0.01 per share ("Class A Common"),
Class L common stock, par value $0.01 per share ("Class L Common"), and
Class P common stock, par value $0.01 per share ("Class P Common" and
collectively with the Class A Common and Class L Common, "Common Stock"). The
Preference Stock is senior in right of payment to the Common Stock; the Class
L Common is senior in right of payment to the Class A Common and Class P
Common; and the Class P Common is senior in right of payment to the Class A
Common. All of the issued and outstanding shares of Preference Stock are owned
by Crawford Investment Group L.L.C. ("Crawford LLC"). Holders of Preference
Stock have no voting rights except as required by law. The holders of Common
Stock are entitled to one vote per share on all matters to be voted upon by
the stockholders of Holdings, including the election of directors. The Bain
Funds and Crawford LLC, own 55% and 42%, respectively, of the voting stock and
are parties to a stockholder agreement regarding the ownership (including the
voting) of such stock. By virtue of such stock ownership and agreement, the
Bain Funds and Crawford LLC will have the power to control all matters
submitted to a vote of stockholders, including election of directors of
Holdings and, indirectly, to elect all directors of the Company.
The following tables set forth certain information as of the date of the
Initial Offering regarding the beneficial ownership of (i) voting common stock
by each person (other than directors and executive officers of the Company)
known to the Company to own more than 5% of the outstanding voting common
stock of Holdings and (ii) voting and non-voting common stock by each director
of the Company, each named executive officer and all of the Company's
directors and executive officers as a group. To the knowledge of the Company,
each of such stockholders has sole voting and investment power as to the
shares shown unless otherwise noted.
<TABLE>
<CAPTION>
NUMBER AND NUMBER AND NUMBER AND NUMBER AND NUMBER AND
PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF PERCENTAGE OF
OUTSTANDING OUTSTANDING OUTSTANDING OUTSTANDING OUTSTANDING
SHARES OF SHARES OF SHARES OF SHARES OF SHARES OF
CLASS A CLASS L CLASS P PREFERENCE VOTING
COMMON(1) COMMON(1) COMMON(1) STOCK SECURITIES(1)
---------------- ---------------- ---------------------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Bain Funds(2)........... 61,333.28 91.3% 15,333.32 57.4% -0- 0% -0- 0% 76,804.10 55.3%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Richard S. Crawford(3).. 2,640.84 3.9% 11,250.00 42.1% 45,000 100% 1,000 100% 58,890.84 42.4%
Cambridge Industries,
Inc.
555 Horace Brown Drive
Madison Heights, MI
48071
Robert C. Gay(2)........ 61,333.28 91.3% 15,333.32 57.4% -0- 0% -0- 0% 76,804.10 55.3%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Edward Conard(2)........ 61,333.28 91.3% 15,333.32 57.4% -0- 0% -0- 0% 76,804.10 55.3%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Ronald P. Mika(2)....... 61,333.28 91.3% 15,333.32 57.4% -0- 0% -0- 0% 76,804.10 55.3%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
All Directors and
Executive Officers as a
Group
(12 persons)(1)(2)..... 63,974.12 95.21% 26,720.82 100.0% 45,000 100% 1,000 100% 135,694.94 97.7%
</TABLE>
60
<PAGE>
- --------
(1) Includes a total of 12,195.63 shares of Class A Common and a total of
1,720.82 shares of Class L Common, respectively, issuable upon exercise of
warrants and options exercisable currently or within 60 days from the date
hereof. Does not include shares which may be issued to Donald Holton, a
former officer and director of the Company. See "Business--Compensation of
Executive Officers".
(2) Amounts shown represent the aggregate number of shares of Class A Common
(including warrants to obtain Class A Common) and Class L Common
(including warrants to obtain Class L Common) held by Bain Capital Fund V,
L.P., Bain Capital Fund V-B, L.P., Bain Capital Fund IV, L.P., Bain
Capital Fund IV-B, L.P., BCIP Associates, BCIP Trust Associates, L.P. and
Bain Capital V Mezzanine Fund, L.P. (collectively, the "Bain Funds").
Messrs. Gay, Conard and Mika are directors of the Company and Holdings and
are managing directors of Bain Capital Investors, Inc. ("BCI") and Bain
Capital Investors V, Inc. ("BCI-V"). BCI is the general partner of Bain
Capital Partners IV ("BCP-IV"), BCI-V is the general partner of Bain
Capital Partners V ("BCP-V") and Bain Capital V Mezzanine Partners, L.P.
("BCMP-V"). Messrs. Gay and Conard are also limited partners of BCP-IV and
BCP-V and Mr. Mika is a limited partner of BCP-V. BCP-IV is the general
partner of Bain Capital Fund IV, L.P. and Bain Capital Fund IV-B, L.P.
BCP-V is the general partner of Bain Capital Fund V, L.P. and Bain Capital
Fund V-B, L.P. BCMP-V is the general partner of Bain Capital V Mezzanine
Fund, L.P. Messrs. Gay, Conard and Mika are general partners of BCIP
Associates and BCIP Trust Associates, L.P. Accordingly, Messrs. Gay,
Conard and Mika may be deemed to beneficially own shares owned by the Bain
Funds; although Messrs. Gay, Conard and Mika disclaim beneficial ownership
of any such shares.
(3) Includes 45,000 shares of Class P Common and 11,250 shares of Class L
Common and 1,000 shares of Preferred Stock beneficially owned by Richard
S. Crawford through Crawford Investment Group LLC, formerly known as
22708-12 Harper L.L.C., owned 45% by Mr. Crawford, 45% by the 1994 Richard
Crawford Qualified Annuity Trust u/a/d December 22, 1994, 5% by Elizabeth
T. Crawford, his wife, and 5% by the 1994 Elizabeth T. Crawford Qualified
Annuity Trust u/a/d December 23, 1994.
61
<PAGE>
CERTAIN TRANSACTIONS
THE 1995 TRANSACTION
In November 1995, Holdings was recapitalized in the 1995 Transaction which
included: (i) the purchase of Holdings' common stock for approximately $18
million by the Bain Funds; (ii) the repurchase by Holdings of shares of its
common stock (the "Redeemed Shares") (a) from Crawford LLC for $23.25 million,
(b) from an affiliate of Richard E. Warnick for $10.0 million, (c) from an
affiliate of John D. Craft, an officer and former director of the Company and
a former principal stockholder of Holdings, for $16 million and (d) from DLJ
Merchant Banking, Inc. for $21.3 million; and (iii) the exchange of shares of
Holdings' common stock (the "Exchanged Shares") held by Crawford LLC for newly
issued shares of Holdings' capital stock. The Exchanged Shares and the
Redeemed Shares represented all of the outstanding stock of Holdings prior to
the 1995 Transaction. As a result, the newly issued capital stock of Holdings
referred to above represents all of the capital stock of Holdings. See
"Security Ownership."
Simultaneously with the 1995 Transaction, the Company replaced a credit
facility with the Previous Credit Agreement which at that time provided term
and revolver facilities in the aggregate principal amount of $185 million. As
of March 1, 1996, the Previous Credit Agreement was amended and restated to
increase the indebtedness incurred under the various facilities to $215
million in the aggregate, in part to finance the GenCorp Acquisition.
STOCKHOLDERS AGREEMENT AND REGISTRATION RIGHTS AGREEMENT
Pursuant to a stockholders agreement (the "Stockholders Agreement"),
Holdings, Crawford LLC, the Bain Funds and certain other investors have agreed
that until certain designated events occur, such parties will vote for three
of Bain's nominees and three of Crawford LLC's nominees to the Company's and
Holdings' boards of directors. The Stockholders Agreement also contains
restrictions (with certain exceptions) on the transfer of the common stock by
a party thereto, including rights of first offer of Holdings and other
stockholders of Holdings and establishes drag-along and preemptive rights in
certain events. The parties to the Stockholders Agreement have also entered
into a registration rights agreement providing certain registration rights
relating to their shares of Common Stock.
STOCK OPTION AGREEMENT
At the time of the 1995 Transaction, Holdings entered into a stock option
agreement with Mr. Crawford (the "Stock Option Agreement") which grants him
options to acquire 15,845.08 shares of Class A Common in the following
tranches: (i) a three year straight-line vested option to purchase up to
7,922.54 shares of Class A Common for $3.30 per share; and (ii) options to
purchase up to 3,961.27 shares of Class A Common at an exercise price of
$312.13 per share and up to 3,961.27 shares of Class A Common at $642.13 per
share, exercisable after the Company has achieved earnings before interest and
taxes of at least $32 million. All three tranches expire on the earlier of the
November 17, 2005, the termination of Mr. Crawford's employment by the Company
or Holdings or the occurrence of certain transactions resulting in Holdings
becoming a public company or otherwise undergoing a change of control. The
Stock Option Agreement also includes restrictions on transfer and the right of
Holdings to repurchase the options or shares upon termination of Mr.
Crawford's employment with Holdings and the Company. Holdings may in the
future enter into additional stock option agreements with other members of
management.
MANAGEMENT SERVICES AGREEMENT
The Company is party to a five year management services agreement with Bain
Capital, Inc. ("Bain"), dated as of November 17, 1995 and amended as of March
1, 1996, pursuant to which the Company paid Bain a fee of $2.25 million in
connection with the 1995 Transaction and a fee of $412,500 in connection with
the GenCorp Acquisition and will pay Bain (i) at the closing of each
acquisition of an additional business an amount equal to 1% of the transaction
value of such acquisition and (ii) an annual fee of $950,000 per year, plus
62
<PAGE>
out-of-pocket expenses; provided that such annual fee payment will be reduced
by the amount of any payment of any closing fee described in clause (ii) above
for up to four consecutive fiscal quarters following the consummation of any
such acquisition. Pursuant to the management services agreement, during 1996
the Company paid Bain fees of approximately $937,000 and, in 1997, paid Bain
$3.8 million in connection with the Initial Offering, the Credit Agreement,
the Eagle-Picher Acquisition and the Goodyear-Jackson Acquisition.
HOLDINGS SERVICES AGREEMENT
The Company and Holdings have entered into a ten year services agreement
dated as of July 1, 1997, pursuant to which Holdings provides the Company with
management services and personnel necessary to perform such services. Under
such agreement, the Company must reimburse Holdings for: (i) reasonable
out-of-pocket expenses actually paid to unaffiliated third parties in
connection with such services; and (ii) other expenses of Holdings of up to
$500,000 per year incurred in connection with such services.
LEGAL SERVICES
Ira J. Jaffe, a director of the Company, practices law with, and is a
shareholder of, the law firm of Jaffe, Raitt, Heuer & Weiss, Professional
Corporation ("JRH&W"). JRH&W has served as general counsel to Holdings and the
Company since their inceptions and has represented them in a variety of legal
matters, including the 1995 Transaction, the GenCorp Acquisition, the APX
Acquisition, the Eagle-Picher Acquisition and the Goodyear Acquisition. During
1996 Holdings and the Company paid JRH&W legal fees of approximately $1.6
million.
SUBORDINATED NOTES AND WARRANT AGREEMENTS
In connection with the 1995 Transaction, the Company obtained a bridge loan
in the aggregate principal amount of $11.9 million from Bankers Trust. On
December 14, 1995, the notes evidencing this bridge loan were repurchased from
Bankers Trust by the Company using, inter alia, the proceeds received from
issuance of the Company's Senior Subordinated Notes to two of the Bain Funds,
Bain Capital V Mezzanine Fund, L.P. and BCIP Trust Associates, L.P.
(collectively the "Bain MezFunds"). The Company's Senior Subordinated Notes
issued to the Bain MezFunds bear interest at 12% and mature in November 2005.
Interest is due semi-annually, beginning on April 30, 1996. Voluntary
prepayment or mandatory prepayment in the case of a Change in Control (as
defined therein) bears a prepayment premium beginning at 12% and declining
annually. Prepayments are required to the extent permitted by the Credit
Agreement, upon the occurrence of an Asset Sale. Casualty Event (each as
defined therein) or Change in Control. To the extent the Bain MezFunds receive
any prepayments, they are obligated to use such prepayments to purchase
Holdings' Senior Subordinated Notes. See "Business--GenCorp RPD." The
Company's Senior Subordinated Notes are subordinated to the Company's Senior
Debt, including indebtedness under the Credit Agreement. The credit agreement
related to the Company's Senior Subordinated Notes contains covenants similar
to, but less onerous than, those in the Credit Agreement.
In connection with the issuance of the Company's Senior Subordinated Notes,
Holdings entered into a warrant agreement with the Bain MezFunds pursuant to
which the Bain MezFunds purchased warrants exercisable for an aggregate of
4,723.01 shares of Class A Common at an exercise price of $3.30 per share and
1,180.75 shares of Class L Common at an exercise price of $1,306.80 per share.
The warrants are exercisable immediately, provide for anti-dilution rights
upon the occurrence of certain events and are entitled to all dividends
distributed by Holdings on an as if exercised basis.
In connection with the GenCorp Acquisition, Holdings issued the Holdings'
Junior Subordinated Notes in the aggregate principal amount of $5.1 million to
the Bain MezFunds and Crawford LLC. Crawford LLC subsequently sold its notes
to the Bain MezFunds. The terms of these notes are substantially similar to
the terms of those issued under the Company's Senior Subordinated Notes, but
they are subordinated to indebtedness under the Credit Agreement, Holdings'
Senior Subordinated Notes and the Company's Senior Subordinated Notes.
63
<PAGE>
In connection with the issuance of Holdings' Junior Subordinated Notes,
Holdings entered into a warrant agreement with the Bain MezFunds and Crawford
LLC pursuant to which the Bain MezFunds and Crawford LLC purchased warrants
exercisable for an aggregate of 2,160.27 shares of Class A Common at an
exercise price of $3.30 per share and 540.07 shares of Class L Common at an
exercise price of $1,306.80 per share. The warrants are exercisable
immediately, provide for anti-dilution rights upon the occurrence of certain
events and are entitled to all dividends distributed by Holdings on an as if
exercised basis. Crawford LLC subsequently sold its warrants to the Bain
MezFunds in connection with the sale of its Holdings' Junior Subordinated
Notes to the Bain MezFunds.
64
<PAGE>
DESCRIPTION OF CREDIT AGREEMENT
Upon consummation of the Initial Offering, the Previous Credit Agreement was
replaced by a Credit Agreement (the "Credit Agreement") with Bankers Trust
Company as agent (the "Agent") and other institutions party thereto (the
"Banks"), which provides loans up to $280.0 million. Loans under the Credit
Agreement consist of $70.0 million in aggregate principal amount of A Term
Loans and $135.0 million in aggregate principal amount of B Term Loans (the "A
Term Loans" and the "B Term Loans" are referred to collectively as the "Term
Loans") and a $75.0 million revolving credit facility (the "Revolving Credit
Facility"), which permits the Company to borrow to finance working capital,
letters of credit and other general corporate needs. The Company used the Term
Loans to repay term loans under the Previous Credit Agreement which provided a
portion of the funds necessary to consummate the 1995 Transaction and the
GenCorp Acquisition. This information relating to the Credit Agreement is
qualified in its entirety by reference to the complete text of the documents
entered into in connection therewith. The following is a description of the
general terms of the Credit Agreement.
Indebtedness of the Company under the Credit Agreement is guaranteed by
Holdings and any existing and future domestic subsidiaries of the Company and
is secured by: (i) a first priority security interest in all of the
receivables, contracts, contract rights, securities, equipment (other than
certain equipment secured by purchase money security interests), intellectual
property, inventory and real estate owned by Holdings, the Company and any
existing and future domestic subsidiaries; (ii) a first priority perfected
pledge of all capital stock and intercompany notes of the Company and any
existing and future domestic subsidiaries and 65% of the capital stock of any
existing and future first tier foreign subsidiaries; and (iii) a first priority
perfected pledge of intercompany notes of Holdings' or the Company's foreign
subsidiaries owed to the Company or Holdings.
Indebtedness under the Credit Agreement bears interest at a floating rate.
Indebtedness under the Revolving Credit Facility (the "Revolving Loans") and
the Term Loans bear interest at a rate based (at the Company's option) upon (i)
the Base Rate (defined as the higher of (x) the applicable prime rate of
Bankers Trust Company and (y) the Federal Reserve reported certificate of
deposit rate (as adjusted pursuant to the Credit Agreement) plus 1/2 of 1%), in
each case plus 1.50% in respect of the A Term Loans and the Revolving Loans and
2.00% in respect of the B Term Loans or (ii) the Eurodollar Rate (as defined in
the Credit Agreement) for one, two, three or six months, in each case plus
2.50% in respect of the A Term Loans and Revolving Loans and 3.00% in respect
of the B Term Loans. The foregoing interest rates may be reduced in increments
of 0.25% up to a maximum of 1.00% if the Company attains specified Leverage
Ratios, as defined below, for quarterly periods ending after September 30,
1997.
The A Term Loans and the Revolving Loans mature 5 years following the date of
initial borrowing; the B Term Loans mature 8 years following the date of
initial borrowing. The Credit Agreement provides for mandatory repayments,
subject to certain exceptions, of the Term Loans (and after all Term Loans have
been repaid, certain commitment reductions under the Revolving Credit Facility)
based on certain net proceeds from asset sales outside the ordinary course of
business of Holdings and its subsidiaries, the net proceeds of certain debt and
equity issuances, and 75% of Excess Cash Flow (as defined therein) per annum.
The Revolving Loans may be repaid and reborrowed. The Company is required to
pay to the lenders under the Credit Agreement a commitment fee equal to 1/2 of
1% per annum of the daily unutilized total commitment thereunder, payable on a
quarterly basis. The Company is also required to pay to the lenders
participating in the Revolving Credit Facility letter of credit fees equal to
2.50% plus 1/4 of 1% per annum on the daily stated amount of each letter of
credit outstanding (but not less than $500) payable annually.
The Credit Agreement requires the Company and its Subsidiaries to maintain
minimum levels of consolidated EBITDA, certain minimum interest coverage
ratios, certain maximum leverage ratios and restricts capital expenditures.
65
<PAGE>
Consolidated EBITDA is defined generally as net income before interest
expense and interest income and provision for taxes, adjusted by adding back
depreciation and amortization expenses deducted in determining net income, and
is tested for each Test Period and on a cumulative basis as of the end of each
fiscal quarter of the Company. "Test Period" means (i) prior to June 30, 1998,
the period from July 1, 1997 to the last day of the fiscal quarter of the
Company then ended, and (ii) thereafter, the trailing four fiscal quarters of
the Company. Required levels of consolidated EBITDA are:
<TABLE>
<CAPTION>
TEST PERIOD
MINIMUM CUMULATIVE
CONSOLIDATED CONSOLIDATED
FOR PERIOD ENDING EBITDA EBITDA
----------------- ------------ ------------
<S> <C> <C>
September 30, 1997.............................. $10,000,000 $ 10,000,000
December 31, 1997............................... $20,000,000 $ 20,000,000
March 31, 1998.................................. $35,000,000 $ 35,000,000
June 30, 1998................................... $42,500,000 $ 42,500,000
September 30, 1998.............................. $45,000,000 $ 60,000,000
December 31, 1998............................... $48,200,000 $ 75,100,000
March 31, 1999.................................. $51,000,000 $ 92,600,000
June 30, 1999................................... $54,000,000 $110,200,000
September 30, 1999.............................. $55,000,000 $127,700,000
December 31, 1999............................... $57,000,000 $145,300,000
March 31, 2000.................................. $60,000,000 $165,000,000
June 30, 2000................................... $63,000,000 $184,700,000
September 30, 2000.............................. $65,500,000 $204,400,000
December 31, 2000............................... $69,000,000 $224,100,000
March 31, 2001.................................. $70,300,000 $244,500,000
June 30, 2001................................... $70,300,000 $265,000,000
September 30, 2001.............................. $70,300,000 $285,400,000
December 31, 2001............................... $71,600,000 $305,900,000
March 31, 2002.................................. $73,400,000 $327,400,000
June 30, 2002................................... $73,400,000 $348,800,000
September 30, 2002.............................. $73,400,000 $370,300,000
December 31, 2002............................... $75,100,000 $391,700,000
March 31, 2003.................................. $76,900,000 $414,200,000
June 30, 2003................................... $76,900,000 $436,700,000
September 30, 2003.............................. $76,900,000 $459,200,000
December 31, 2003............................... $78,700,000 $481,700,000
March 31, 2004.................................. $80,600,000 $505,200,000
June 30, 2004................................... $80,600,000 $528,800,000
September 30, 2004.............................. $80,600,000 $552,400,000
December 31, 2004............................... $82,500,000 $576,000,000
March 31, 2005.................................. $82,500,000 $600,000,000
June 30, 2005................................... $82,500,000 $624,000,000
</TABLE>
66
<PAGE>
Interest coverage ratio is the ratio of consolidated EBITDA to consolidated
interest expense of the Company and its Subsidiaries. Interest coverage ratio
during any fiscal quarter may not be less than the following:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING RATIO
--------------------- -------
<S> <C>
September 30, 1997................................................ 1.7:1.0
December 31, 1997................................................. 1.7:1.0
March 31, 1998.................................................... 1.7:1.0
June 30, 1998..................................................... 1.7:1.0
September 30, 1998................................................ 1.7:1.0
December 31, 1998................................................. 1.7:1.0
March 31, 1999.................................................... 1.8:1.0
June 30, 1999..................................................... 1.9:1.0
September 30, 1999................................................ 1.9:1.0
December 31, 1999................................................. 2.0:1.0
March 31, 2000.................................................... 2.1:1.0
June 30, 2000..................................................... 2.3:1.0
September 30, 2000................................................ 2.4:1.0
December 31, 2000................................................. 2.5:1.0
March 31, 2001.................................................... 2.8:1.0
June 30, 2001..................................................... 2.9:1.0
September 30, 2001................................................ 3.0:1.0
December 31, 2001................................................. 3.0:1.0
March 31, 2002.................................................... 3.1:1.0
June 30, 2002..................................................... 3.3:1.0
September 30, 2002................................................ 3.3:1.0
December 31, 2002................................................. 3.5:1.0
March 31, 2003.................................................... 3.7:1.0
June 30, 2003..................................................... 4.0:1.0
September 30, 2003................................................ 4.1:1.0
December 31, 2003 and each fiscal quarter ending thereafter....... 4.2:1.0
</TABLE>
67
<PAGE>
Leverage ratio is the ratio of Consolidated Debt of the Company and its
Subsidiaries (defined generally as all indebtedness of the Company and its
subsidiaries, including for borrowed money, deferred purchase price, letters
of credit, capitalized leases, guaranties, interest rate protection agreements
and other contingent obligations) to consolidated EBITDA and is tested for
each Test Period; provided however, that for the Test Period ended September
30, 1997, Consolidated EBITDA for the period is multiplied by 4, for the Test
Period Ending December 31, 1997, Consolidated EBITDA for the period is
multiplied by 2, and for the Test Period ending March 31, 1998, Consolidated
EBITDA for the period is multiplied by 4/3. Leverage Ratio during any fiscal
quarter may not exceed the following:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDING RATIO
--------------------- -------
<S> <C>
September 30, 1997.............................................. 6.0:1.0
December 31, 1997............................................... 6.0:1.0
March 31, 1998.................................................. 6.0:1.0
June 30, 1998................................................... 6.0:1.0
September 30, 1998.............................................. 6.0:1.0
December 31, 1998............................................... 6.0:1.0
March 31, 1999.................................................. 5.7:1.0
June 30, 1999................................................... 5.4:1.0
September 30, 1999.............................................. 5.1:1.0
December 31, 1999............................................... 4.9:1.0
March 31, 2000.................................................. 4.6:1.0
June 30, 2000................................................... 4.4:1.0
September 30, 2000.............................................. 4.0:1.0
December 31, 2000............................................... 3.9:1.0
March 31, 2001.................................................. 3.6:1.0
June 30, 2001................................................... 3.5:1.0
September 30, 2001.............................................. 3.1:1.0
December 31, 2001............................................... 3.2:1.0
March 31, 2002.................................................. 3.1:1.0
June 30, 2002................................................... 3.0:1.0
September 30, 2002.............................................. 2.8:1.0
December 31, 2002............................................... 2.6:1.0
March 31, 2003.................................................. 2.4:1.0
June 30, 2003................................................... 2.3:1.0
September 30, 2003.............................................. 2.2:1.0
December 31, 2003 and the last day of each fiscal quarter ending
thereafter..................................................... 2.0:1.0
</TABLE>
The Company and its Subsidiaries may make capital expenditures in the fiscal
year ending December 31, 1997 in an aggregate amount not to exceed
$15,000,000; thereafter aggregate capital expenditures may not exceed
$25,000,000 in any fiscal year. The unused portion of permitted capital
expenditures may be carried forward, but the expenditures in any year may not
exceed 150% of the annual permitted amount. Allowable capital expenditures may
increase up to $35,000,000 annually if certain Consolidated EBITDA levels are
met and joint venture investments do not exceed certain levels. Capital
expenditures made from insurance proceeds or from net proceeds of asset sales
not required to be applied as mandatory prepayments, or in connection with a
permitted acquisition are excluded for purposes of capital expenditure
limitation amounts.
The Credit Agreement also contains covenants which, among other things,
limit the incurrence of additional indebtedness, dividends, transactions with
affiliates, asset sales, acquisitions, mergers and consolidations, prepayments
of other indebtedness, liens and encumbrances, capital expenditures and other
matters customarily restricted in such agreements.
The Credit Agreement contains customary events of default, including payment
defaults, breach of representations and warranties, covenant defaults, cross-
defaults to certain other indebtedness, certain events of bankruptcy and
insolvency, ERISA, judgment defaults, failure of any guaranty or security
agreement supporting the Credit Agreement to be in full force and effect and
change of control of Holdings or the Company.
68
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on July 10, 1997 to the
Initial Purchaser pursuant to the Purchase Agreement. The Initial Purchaser
subsequently resold the Old Notes to qualified institutional buyers in
reliance on Rule 144A under the Securities Act and a limited number of
institutional "accredited investors" as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act. As a condition of the Purchase Agreement, the
Company entered into the Registration Rights Agreement with the Initial
Purchaser pursuant to which the Company has agreed, for the benefit of the
holders of the Old Notes, at the Company's cost, to use its best efforts to
(i) within 60 days after the original issue date (the "Issue Date"), file the
Exchange Offer Registration Statement with the Commission; (ii) within 120
days after the Issue Date, use its best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the Securities Act; and
(iii) within 150 days after the Issue Date, use its best efforts to consummate
the Exchange Offer. Upon the Exchange Offer Registration Statement being
declared effective, the Company and the Guarantors will offer the New Notes in
exchange for surrender of the Notes. The Company and the Guarantors will keep
the New Offer open for not less than 20 business days (or longer if required
by applicable law) after the date notice of the Exchange Offer is mailed to
the holders of the Old Notes. For each Old Note surrendered to the Company
pursuant to the Exchange Offer, the holder will receive a New Note having a
principal amount equal to that of the surrendered Note. Interest on the New
Notes will accrue from the last interest payment date on which interest was
paid on the Notes surrendered in exchange therefor or, if no interest has been
paid on the Old Notes, from the Issue Date. Such interest will be paid with
the first interest payment on the New Notes to the persons who are registered
holders of the New Notes. Interest on the Old Notes accepted for exchange will
cease to accrue upon issuance of the New Notes.
Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, the New Notes will, in general, be
freely tradeable after the Exchange Offer without further registration under
the Securities Act. However, any purchaser of Old Notes who is an "affiliate'
(as defined in the Securities Act) of the Company or who intends to
participate in the Exchange Offer for the purpose of distributing the New
Notes (i) will not be able to rely on the interpretation of the staff of the
Commission, (ii) will not be able to tender its Old Notes in the Exchange
Offer and (iii) must comply with the registration and prospectus delivery
requirement of the Securities Act in connection with any sale or transfer of
the Old Notes, unless such sale or transfer is made pursuant to an exemption
from such requirements.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Company in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder or the person receiving such New Notes, whether or not
such person is the holder, in the ordinary course of business, (ii) the holder
or any such other person (other than a broker-dealer referred to in the next
sentence) is not engaging and does not intend to engage in distribution of the
New Notes, (iii) the holder or any such other person has no arrangement or
understanding with any person to participate in the distribution of the New
Notes, (iv) neither the holder nor any such other person is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act, and (v)
the holder or any such other person acknowledges that if such holder or any
other person participating in the Exchange Offer for the purpose of
distributing the New Notes it must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale of
the New Notes and cannot rely on those no-action letters. As indicated above,
each Participating Broker-Dealer that receives a New Note for its own account
in exchange for Old Notes must acknowledge that it (i) acquired the Old Notes
for its own account as a result of market-making activities or other trading
activities, (ii) has not entered into any arrangement or understanding with
the Company or any "affiliate" of the Company (within the meaning of Rule 405
under the Securities Act) to distribute the New Notes to be received in the
Exchange Offer and (iii) will deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale of such New Notes. For a
description of the procedures for resales by Participating Broker-Dealers, see
"Plan of Distribution."
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In the event that applicable interpretations of the staff of the Commission
do not permit the Company and the Guarantors to effect such an Exchange Offer,
or if for any other reason the Exchange Offer is not consummated within 150
days after the Issue Date, the Company and the Guarantors will, at their own
expense, (a) as promptly as practicable, file a shelf registration statement
covering resales of the Notes (the "Shelf Registration Statement"), (b) use
their best efforts to cause the Shelf Registration Statement to be declared
effective under the Act and (c) use their best efforts to keep effective the
Shelf Registration Statement until the earlier of two years after the Issue
Date and such time as all of the applicable Notes have been sold thereunder.
The Company will, in the event such a Shelf Registration Statement is
required, provide to each holder of the Old Notes copies of the prospectus
which is a part of such a Shelf Registration Statement, notify each such
holder when the Shelf Registration Statement for the Notes has become
effective and take certain other actions as are required to permit
unrestricted resales of the Notes. A holder that sells its Notes pursuant to
the Shelf Registration Statement generally will be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus
to purchasers, will be subject to certain of the civil liability provisions
under the Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement that are applicable to such a
holder (including certain indemnification rights and obligations).
If the Company fails to comply with the above provisions or if such
registration statements fail to become effective, then, as liquidated damages,
additional interest (the "Additional Interest") shall become payable with
respect to the Old Notes as follows:
(i) if the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed within 60 days following the Issue Date, Additional
Interest shall be accrued on the Notes over and above the stated interest
at a rate of 0.50% per annum for the first 90 days commencing on the 61st
day after the Issue Date, such Additional Interest rate increasing by an
additional 0.50% per annum at the beginning of each subsequent 90-day
period;
(ii) if an Exchange Offer Registration Statement or Shelf Registration
Statement is not declared effective within 120 days following the Issue
Date, then, commencing on the 121st day after the Issue Date, Additional
Interest shall be accrued on the Notes over and above the stated interest
at a rate of 0.50% per annum for the first 90 days immediately following
the 120th day after the Issue Date, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each
subsequent 90-day period; or
(iii) if either (A) the Company and the Guarantors have not exchanged the
Exchange Notes for all Notes validly tendered in accordance with the terms
of the Exchange Offer on or prior to 150 days after the Issue Date or (B)
the Exchange Offer Registration Statement ceases to be effective at any
time prior to the time that the Exchange Offer is consummated or (C) if
applicable, the Shelf Registration Statement has been declared effective
and such Shelf Registration Statement ceases to be effective at any time
prior to the third anniversary of its effective date, then Additional
Interest shall accrue on the Notes (over and above any interest otherwise
payable on the Notes) at a rate of 0.50% per annum on (x) the 151st day
after such effective date, in the case of clause (A) above, or (y) the date
the Exchange Offer Registration Statement ceases to be effective, in the
case of clause (B) above, or (z) the day the Shelf Registration Statement
ceases to be effective, in the case of clause (C) above, such Additional
Interest rate increasing by an additional 0.50% per annum at the beginning
of each subsequent 90-day period;
provided that the Additional Interest rate on the Notes may not exceed 1.0%
per annum in the aggregate; provided, further, that (1) upon the filing of the
Exchange Offer Registration Statement or a Shelf Registration Statement (in
the case of clause (i) above), (2) upon the effectiveness of the Exchange
Offer Registration Statement or a Shelf Registration Statement (in the case of
clause (ii) above), or (3) upon the exchange of Exchange Notes for all Notes
tendered (in the case of clause (iii)(A) above) or upon the effectiveness of
the Exchange Offer Registration Statement which has ceased to remain effective
(in the case of clause (iii)(B) above), or upon the effectiveness of the Shelf
Registration Statement which has ceased to remain effective (in the case of
clause (iii)(C) above), Additional Interest on the Notes as a result of such
clause (i), (ii) or (iii) above (or the relevant subclause thereof), as the
case may be, shall cease to accrue.
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Any amounts of Additional Interest due pursuant to clause (i), (ii) or (iii)
above will be payable in cash on scheduled interest payment dates for the
Notes, commencing with the first such date occurring after any such Additional
Interest commences to accrue. The amount of Additional Interest will be
determined by multiplying the applicable Additional Interest rate by the
principal amount of the Notes, multiplied by a fraction, the numerator of
which is the number of days such Additional Interest rate was applicable
during such period (determined on the basis of a 360-day year comprised of
twelve 30-day months) and the denominator of which is 360.
The Registration Statement of which this Prospectus is a part was not
declared effective by November 7, 1997, as required by the provisions
summarized above. As a result, Additional Interest of approximately $1,390 per
day will be assessed from November 8, 1997 until the date of this Prospectus.
Likewise, the Exchange Offer will not be consummated by December 7, 1997, as
required under the provisions summarized above. Consequently, Additional
Interest of approximately $1,390 per day will be assessed from December 8,
1997 until the Exchange Offer is consummated, in addition to any Additional
Interest assessed as a result of this Prospectus not being declared effective
by November 8, 1997.
Holders of the Old Notes will be required to make certain representations to
the Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information
to be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and benefit from the provisions regarding
Additional Interest set forth above.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to all the provisions
of the Registration Rights Agreement, a copy of which is filed as an exhibit
to the Exchange Offer Registration Statement of which this Prospectus is a
part.
Following the consummation of the Exchange Offer, holders of the Old Notes
who were eligible to participate in the Exchange Offer but who did not tender
their Old Notes will not have any further registration rights and such Old
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old Notes could be adversely
affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount
of New Notes in exchange for each $1,000 principal amount of outstanding Old
Notes accepted in the Exchange Offer. Holders may tender some or all of their
Old Notes pursuant to the Exchange Offer. However, Old Notes may be tendered
only in integral multiples of $1,000.
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that (i) the New Notes bear a Series B designation and a
different CUSIP Number from the Old Notes, (ii) the New Notes will be issued
in a transaction that has been registered under the Securities Act and,
therefore, will not bear legends restricting the transfer thereof and (iii)
the holders of the New Notes will not be entitled to certain rights under the
Registration Rights Agreement, including the provisions providing for
liquidated damages in certain circumstances relating to the timing of the
Exchange Offer, all of which rights will terminate when the Exchange Offer is
terminated. The New Notes will evidence the same debt as the Old Notes and
will be entitled to the benefits of the Indenture.
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of Old Notes were outstanding. The Company has fixed the close of business on
November 10, 1997 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware, or the Indenture in connection with
the Exchange Offer. The Company intends to conduct the
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Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes when,
as and if the Company has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth herein or otherwise,
the certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
exchange fees and expenses.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
December , 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will mail to the
registered holders an announcement thereof, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "Conditions"
shall not have been satisfied, by giving oral or written notice of such delay,
extension or termination to the Exchange Agent or (ii) to amend the terms of
the Exchange Offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practical by oral or
written notice thereof to the registered holders.
INTEREST ON THE NEW NOTES
Interest on the New Notes will accrue from the last interest payment date on
which interest was paid on the Notes surrendered in exchange therefor or, if no
interest has been paid on the Old Notes, from the Issue Date. Such interest
will be paid with the first interest payment on the New Notes to the persons
who are registered holders of the New Notes. Interest on the Old Notes accepted
for exchange will cease to accrue upon issuance of the New Notes.
Interest on the New Notes is payable semi-annually on each January 15 and
July 15, commencing on January 15, 1998.
PROCEDURES FOR TENDERING
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal or transmit an Agent's
Message in connection with a book-entry transfer, and mail or otherwise deliver
such Letter of Transmittal or such facsimile, or Agent's Message, together with
the Old Notes and any other required documents, to the Exchange Agent prior to
5:00 p.m., New York City time, on the Expiration Date. To be tendered
effectively, the Old Notes, Letter of Transmittal or an Agent's Message and
other required documents must be completed and received by the Exchange Agent
at the address set forth below under "Exchange Agent" prior to 5:00 p.m., New
York City time, on the Expiration Date. Delivery of the Old Notes may be made
by book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the Exchange Agent
prior to the Expiration Date.
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The term "Agent's Message" means a message, transmitted by a book-entry
transfer facility to, and received by, the Exchange Agent forming a part of a
confirmation of a book-entry, which states that such book-entry transfer
facility has received an express acknowledgment from the participant in such
book-entry transfer facility tendering the Old Notes that such participant has
received and agrees: (i) to participate in the Automated Tender Option Program
("ATOP"); (ii) to be bound by the terms of the Letter of Transmittal; and
(iii) that the Company may enforce such agreement against such participant.
By executing the Letter of Transmittal or Agent's Message, each holder will
make to the Company the representations set forth above in the third paragraph
under the heading "Purpose and Effect of the Exchange Offer."
The tender by a holder and the acceptance thereof by the Company will
constitute agreement between such holder and the Company in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal or Agent's Message.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL OR AGENT'S
MESSAGE AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE
ELECTION AND SOLE RISK OF THE HOLDERS. AS AN ALTERNATIVE TO DELIVERY BY MAIL,
HOLDERS MAY WISH TO CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other nominee and who wishes to
tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. See
"Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner" included with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined herein)
unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of a Eligible Institution. In the event that
signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantee must be by a member firm
of the Medallion System (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power, signed by such registered
holder as such registered holder's name appears on such Old Notes with the
signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Old Notes at the Book-Entry Transfer Facility (as defined in the Letter of
Transmittal) for the purpose of facilitating the Exchange Offer, and subject
to the establishment thereof, any financial institution that is a participant
in the Book-Entry Transfer Facility's system may make book-entry delivery of
Old Notes by causing such Book-Entry Transfer Facility to transfer such Old
Notes into
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the Exchange Agent's account with respect to the Old Notes in accordance with
the Book-Entry Transfer Facility's procedures for such transfer. Although
delivery of the Old Notes may be effected through book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility, unless an
Agent's Message is received by the Exchange Agent, in compliance with ATOP, an
appropriate Letter of Transmittal properly completed and duly executed with
any required signature guarantee and all other required documents must in each
case be transmitted to and received or confirmed by the Exchange Agent at its
address set forth below on or prior to the Expiration Date, or, if the
guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures. Delivery of documents to the Book-
Entry Transfer Facility does not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute
right to reject any and all Old Notes not properly tendered or any Old Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right in its sole
discretion to waive any defects, irregularities or conditions of tender as to
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Old Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent or (iii) who
cannot complete the procedures for book-entry transfer, prior to the
Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution,
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes (or a confirmation of book-entry transfer of
such Notes into the Exchange Agent's account at the Book-Entry Transfer
Facility), and any other documents required by the Letter of Transmittal
will be deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (of
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Old Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility), and all other documents required by the Letter of
Transmittal are received by the Exchange Agent upon five New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
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WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Old Notes to be withdrawn
(the "Depositor"); (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case
of Old Notes transferred by book-entry transfer, the name and number of the
account at the Book-Entry Transfer Facility to be credited); (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
have the Trustee with respect to the Old Notes register the transfer of such
Old Notes into the name of the person withdrawing the tender and (iv) specify
the name in which any such Old Notes are to be registered, if different from
that of the Depositor. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Company,
whose determination shall be final and binding on all parties. Any Old Notes
so withdrawn will be deemed not to have been validly tendered for purposes of
the Exchange Offer and no New Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have
been tendered but which are not accepted for exchange will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the Exchange Offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "Procedures for Tendering" at any time prior to the
Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate or amend the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or any
material adverse development has occurred in any existing action or
proceeding with respect to the Company, Holdings or any of their
subsidiaries; or
(b) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company
to proceed with the Exchange Offer or materially impair the contemplated
benefits of the Exchange Offer to the Company; or
(c) any governmental approval has not been obtained, which approval the
Company shall, in its reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its reasonable discretion that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the expiration
of the Exchange Offer, subject, however, to the rights of holders to withdraw
such Old Notes (see "--Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Notes which have not been withdrawn.
EXCHANGE AGENT
State Street Bank & Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of
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Transmittal and requests for Notice of Guaranteed Delivery should be directed
to the Exchange Agent addressed as follows:
State Street Bank & Trust
Company
Attention: Steve Cimalore 777
Maine Street, 11th Floor
Hartford, Connecticut 06115
Delivery to an address other than as set forth above will not constitute a
valid delivery.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers and
regular employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers, or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value, as reflected in the Company's accounting records on the
date of exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The expenses of the Exchange Offer will be expensed
over the term of the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will remain restricted securities. Accordingly, such Old Notes may be
resold only (i) to the Company (upon redemption thereof or otherwise), (ii) so
long as the Old Notes are eligible for resale pursuant to Rule l44A, to a
person inside the United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule l44A under the
Securities Act in a transaction meeting the requirements of Rule l44A, in
accordance with Rule 144 under the Securities Act, or pursuant to another
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel reasonably acceptable to the Company), (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, or (iv) pursuant to an
effective registration statement under the Securities Act, in each case in
accordance with any applicable securities laws of any state of the United
States.
RESALE OF THE NEW NOTES
With respect to resales of New Notes, based on interpretations by the staff
of the Commission set forth in no-action letters issued to third parties, the
Company believes that a holder or other person who receives the New Notes,
whether or not such person is the holder (other than a person that is a
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) who receives New Notes in exchange for Old Notes in the ordinary course
of business and who is not participating, does not intend to participate, and
has no arrangement or understanding with any person to participate, in the
distribution of the New Notes, will be allowed to resell the New Notes to the
public without further registration under the Securities Act and without
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delivering to the purchasers of the New Notes a prospectus that satisfies the
requirements of Section 10 of the Securities Act. However, if any holder
acquires New Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the New Notes, such holder cannot rely on
the position of the staff of the Commission enunciated in such no-action
letters or any similar interpretive letters, and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction, unless an exemption from registration
is otherwise available. Further, each Participating Broker-Dealer that
receives New Notes for its own account in exchange for Old Notes, where such
Old Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such New Notes.
As contemplated by these no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent
to the Company in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder or the person receiving such New Notes, whether or not
such person is the holder, in the ordinary course of business, (ii) the holder
or any such other person (other than a broker-dealer referred to in the next
sentence) is not engaging and does not intend to engage, in the distribution
of the New Notes, (iii) the holder or any such other person has no arrangement
or understanding with any person to participate in the distribution of the New
Notes, (iv) neither the holder nor any such other person is a "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act, and (v)
the holder or any such other person acknowledges that if such holder or other
person participates in the Exchange Offer for the purpose of distributing the
New Notes it must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale of the New
Notes and cannot rely on those no-action letters. As indicated above, each
Participating Broker-Dealer that receives a New Note for its own account in
exchange for Old Notes must acknowledge that it will deliver a Prospectus in
connection with any resale of such New Notes. For a description of the
procedures for such resales by Participating Broker-Dealers, see "Plan of
Distribution."
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DESCRIPTION OF NOTES
The New Notes will be issued under the Indenture. The form and terms of the
New Notes are the same as the form and terms of the Old Notes (which they
replace) except that (i) the New Notes bear a Series B designation, (ii) the
New Notes have been issued in a transaction that has been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof, and (iii) the holders of New Notes will not be entitled to certain
rights under the Registration Agreement, including the provisions providing
for liquidated damages in certain circumstances relating to the timing of the
Exchange Offer, which rights will terminate when the Exchange Offer is
consummated. The following summary of certain provisions of the Indenture and
the Notes does not purport to be complete and is subject to the Trust
Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of
the Indenture, including the definitions of certain terms therein and those
terms made a part of the Indenture by reference to the TIA as in effect on the
date of the Indenture. A copy of the Indenture may be obtained from the
Company or the Initial Purchaser. The definitions of certain capitalized terms
used in the following summary are set forth below under "Certain Definitions."
For purposes of this section, references to the "Company" include only
Cambridge Industries, Inc. and not its subsidiaries.
The Notes are and will be general unsecured obligations of the Company,
ranking subordinate in right of payment to all existing and future Senior Debt
of the Company.
The Notes are and will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as Paying Agent and Registrar for the Notes. The Notes
may be presented for registration of transfer and exchange at the offices of
the Registrar, which initially will be the Trustee's corporate trust office.
The Company may change any Paying Agent and Registrar without notice to
Holders of the Notes. The Company will pay principal (and premium, if any) on
the Notes at the Trustee's corporate office in New York, New York. At the
Company's option, interest, if any, may be paid at the Trustee's corporate
trust office or by wire transfer or check mailed to the registered address of
Holders.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $130,000,000, of
which $100,000,000 were issued in the Initial Offering, are the subject of the
Exchange Offer and will mature on July 15, 2007. Additional amounts may be
issued in one or more series from time to time, subject to the limitations set
forth under "Certain Covenants--Limitation on Additional Indebtedness and
Issuance of Preferred Stock." Interest on the Notes accrues at the rate of 10
1/4% per annum and are payable semiannually in arrears on each January 15 and
July 15, commencing on January 15, 1998, to the persons who are registered
Holders at the close of business on the January 1 and July 1 immediately
preceding the applicable interest payment date. Interest on the Notes accrues
from the most recent date to which interest has been paid or, if no interest
has been paid, from and including the date of issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Interest on the Notes may increase if the Company fails to fulfill its
obligations under the Registration Rights Agreement (as defined). See "The
Exchange Offer."
The Notes are not entitled to the benefit of any mandatory sinking fund.
REDEMPTION
Optional Redemption. The Notes are redeemable at the Company's option, in
whole at any time or in part from time to time, on and after July 15, 2002 at
the following redemption prices (expressed as a percentage of principal
amount), if redeemed during the twelve-month period commencing on July 15 of
each year set forth below, plus, in each case, accrued interest thereon to the
date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002............................................................ 105.125%
2003............................................................ 103.417%
2004............................................................ 101.708%
2005 and thereafter............................................. 100.000%
</TABLE>
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Optional Redemption upon Equity Offerings. At any time, or from time to
time, on or prior to July 15, 2000, the Company may, at its option, use the
net cash proceeds of one or more Equity Offerings (as defined below) to redeem
(the "Equity Proceeds Offer") up to 35% of the aggregate principal amount of
Notes originally issued at a redemption price of 110.25% of the aggregate
principal amount of Notes to be redeemed, plus accrued and unpaid interest, to
such redemption date; provided that at least $65.0 million in aggregate
principal amount of Notes remains outstanding immediately after any such
redemption. In order to effect the foregoing redemption with the proceeds of
any Equity Offering, the Company shall make such redemption not more than 90
days after the consummation of any such Equity Offering (the "Equity Proceeds
Purchase Date").
Within 30 days following the date upon which the Equity Offering is
consummated, the Company must send, by first class mail, a notice to each
Holder, with a copy to the Trustee, which notice shall govern the terms of the
Equity Proceeds Offer. Such notice will state, among other things, the Equity
Proceeds Purchase Date, which must be no earlier than 30 days nor later than
60 days from the date such notice is mailed, other than as may be required by
law, and the procedure which the Holder must follow to exercise such right.
The Equity Proceeds Offer is required to remain open for at least 20 Business
Days and until the close of business on the Equity Offer Purchase Date.
As used in the preceding paragraph, "Equity Offering" means an underwritten
public offering of Qualified Capital Stock of Holdings or the Company pursuant
to a registration statement filed with the Commission in accordance with the
Securities Act (other than on Form S-8 or any other form relating to
securities issuable under any benefit plan of the Company) or a private
placement of Capital Stock of the Company or Holdings; provided that, in the
event of an Equity Offering by Holdings, Holdings contributes to the capital
of the Company the portion of the net cash proceeds of such Equity Offering
necessary to pay the aggregate redemption price (plus accrued interest to the
redemption date) of the Notes to be redeemed pursuant to the preceding
paragraph.
SELECTION AND NOTICE OF REDEMPTION
In case of a partial redemption, selection of the Notes or portions thereof
for redemption shall be made by the Trustee by lot, pro rata or in such manner
as it shall deem appropriate and fair and in such manner as complies with any
applicable legal requirements; provided, however, that if a partial redemption
is made with the proceeds of a Equity Offering, selection of the Notes or
portions thereof for redemption shall be made by the Trustee only on a pro
rata basis, unless such method is otherwise prohibited. Notes may be redeemed
in part in multiples of $1,000 principal amount only. Notice of redemption
will be sent, by first class mail, postage prepaid, at least 30 days and not
more than 60 days prior to the date fixed for redemption to each Holder whose
Notes are to be redeemed at the last address for such Holder then shown on the
registry books. If any Note is to be redeemed in part only, the notice of
redemption that relates to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note. On and after any redemption date,
interest will cease to accrue on the Notes or parts thereof called for
redemption as long as the Company has deposited with the Paying Agent funds in
satisfaction of the redemption price pursuant to the Indenture.
SUBORDINATION
The payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full in cash or Cash Equivalents of all
Obligations on Senior Debt. Upon any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any total or partial liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors or marshaling of
assets of the Company or in a bankruptcy, reorganization, insolvency,
receivership or other similar proceeding relating to the Company or its
property, whether voluntary or involuntary, all Obligations due or to become
due upon all Senior Debt shall first be paid in full in cash or Cash
Equivalents, or such payment duly provided for to the satisfaction of the
holders of Senior Debt, before any payment or distribution of any kind or
character is made on account of any Obligations on the Notes, or for the
acquisition of any of the Notes for cash or property or otherwise (except that
Holders of Notes may receive securities of the Company that are unsecured and
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subordinated at least to the same extent as the Notes to Senior Debt as
provided in the Indenture, do not have a maturity any shorter than the
security which it is replacing and will not cause the Notes to be treated in
any case or proceeding as part of the same class of claims as the Senior Debt
or any class of claims pari passu with, or senior to, the Senior Debt for any
payment or distribution). If any default occurs and is continuing in the
payment when due, whether at maturity, upon any redemption, by declaration or
otherwise, of any principal of, interest on, unpaid drawings for letters of
credit issued in respect of or regularly accruing fees with respect to any
Senior Debt, no payment of any kind or character shall be made by or on behalf
of the Company or any other Person on its or their behalf with respect to any
Obligations on the Notes or to acquire any of the Notes for cash or property
or otherwise.
In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Debt, as such event of default is defined in
the instrument creating or evidencing such Designated Senior Debt, permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the event of default to the
Trustee (a "Default Notice"), then, unless and until all events of default
have been cured or waived or have ceased to exist or the Trustee receives
notice from the Representative for the respective issue of Designated Senior
Debt terminating the Blockage Period (as defined below), during the 179 days
after the delivery of such Default Notice (the "Blockage Period"), neither the
Company nor any other Person on its behalf shall (x) make any payment of any
kind or character with respect to any Obligations on the Notes or (y) acquire
any of the Notes for cash or property or otherwise. Notwithstanding anything
herein to the contrary, in no event will a Blockage Period extend beyond 179
days from the date the payment on the Notes was due and only one such Blockage
Period may be commenced within any 360 consecutive days. No event of default
which existed or was continuing on the date of the commencement of any
Blockage Period with respect to the Designated Senior Debt shall be, or be
made, the basis for commencement of a second Blockage Period by the
Representative of such Designated Senior Debt whether or not within a period
of 360 consecutive days unless such event of default shall have been cured or
waived for a period of not less than 90 consecutive days (it being
acknowledged that any subsequent action or any breach of any financial
covenants for a period commencing after the date of commencement of such
Blockage Period that, in either case, would give rise to an event of default
pursuant to any provisions under which an event of default previously existed
or was continuing shall constitute a new event of default for this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt,
including the Holders of the Notes, may recover less, ratably, than holders of
Senior Debt.
On a pro forma basis, after giving effect to the Initial Offering and the
Credit Agreement and the application of the proceeds therefrom, as if they
occurred on June 30, 1997, the Company would have had approximately $205.1
million of Senior Debt.
GUARANTEES
Each Guarantor unconditionally guarantees, on a senior subordinated basis,
jointly and severally, to each Holder and the Trustee, the full and prompt
performance of the Company's obligations under the Indenture and the Notes,
including the payment of principal of and interest on the Notes. The
Guarantees will be subordinated to Senior Debt of each Guarantor on the same
basis as the Notes are subordinated to Senior Debt. The obligations of each
Guarantor are limited to the maximum amount which, after giving effect to all
other contingent and fixed liabilities of such Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Guarantor in respect of the obligations of such other Guarantor under its
Guarantee or pursuant to its contribution obligations under the Indenture,
will result in the obligations of such Guarantor under the Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a
Guarantee shall be entitled to a contribution from each other Guarantor in an
amount pro rata, based on the net assets of each Guarantor, determined in
accordance with GAAP.
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Each Guarantor may consolidate with or merge into or sell its assets to the
Company or another Guarantor that is a Wholly Owned Restricted Subsidiary of
the Company without limitation, or with other Persons upon the terms and
conditions set forth in the Indenture. See "Certain Covenants--Merger,
Consolidation and Sale of Assets." In the event all of the Capital Stock of a
Guarantor is sold by the Company and the sale complies with the provisions set
forth in "Certain Covenants--Limitation on Asset Sales," the Guarantor's
Guarantee will be released.
Separate financial statements of the Guarantors are not included herein
because such Guarantors are jointly and severally liable with respect to the
Company's obligations pursuant to the Notes, and the aggregate net assets,
earnings and equity of the Guarantors and the Company are substantially
equivalent to the net assets, earnings and equity of the Company on a
consolidated basis. As a result, management has determined that separate
financial statements of the Guarantor would not be material to investors in
the Notes.
CHANGE OF CONTROL
The Indenture provides that upon a Change of Control the Company will be
required to make an offer to repurchase the Notes pursuant to the offer
described below (the "Change of Control Offer"), at a purchase price equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of repurchase.
The Indenture provides that, prior to the mailing of the notice referred to
below, but in any event within 30 days following any Change of Control, the
Company covenants to (i) repay in full and terminate all commitments under
indebtedness under the Credit Agreement and all other Senior Debt the terms of
which require repayment upon a Change of Control or offer to repay in full and
terminate all commitments under all Indebtedness under the Credit Agreement
and all other such Senior Debt and to repay the Indebtedness owed to each
lender that has accepted such offer or (ii) obtain the requisite consents
under the Credit Agreement and all other Senior Debt to permit the repurchase
of the Notes as provided below. The Company shall first comply with the
covenant in the immediately preceding sentence before it shall be required to
repurchase Notes pursuant to the provisions described below. The Company's
failure to comply with the immediately preceding paragraph and the next
paragraph shall constitute an Event of Default described in clause (iii) and
not in clause (ii) under "Events of Default" below.
Within 30 days following the date upon which a Change of Control occurs, the
Company must send, by first class mail, a notice to each Holder, with a copy
to the Trustee, which notice shall govern the terms of the Change of Control
Offer. Such notice shall state, among other things, the purchase date, which
must be no earlier than 30 days nor later than 60 days from the date such
notice is mailed, other than as may be required by law (the "Change of Control
Payment Date"). The Change of Control Offer is required to remain open for at
least 20 Business Days and until the close of business on the Change of
Control Payment Date. Holders electing to have a Note purchased pursuant to a
Change of Control Offer will be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day prior to the Change of Control
Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company would have sufficient funds to pay the repurchase price for all the
Notes that might be delivered by Holders seeking to accept the Change of
Control Offer. In the event that the Company is required to purchase
outstanding Notes pursuant to a Change of Control Offer, the Company expects
that it would seek third-party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing.
The Company will comply with the requirements of Rules 14e-1 and 13e-4 under
the Exchange Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
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The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchaser. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of Indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit
ratings. The Indenture provides that the Company's obligations to make an
offer to repurchase the Notes as a result of a Change of Control may be waived
or modified with the written consent of the holders of a majority in principal
amount of the Notes.
The Credit Agreement prohibits the Company from purchasing any Notes and
also provides that certain change of control events with respect to the
Company would constitute a default thereunder. Any future credit agreements or
other agreements relating to Senior Debt to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing Notes,
the Company could seek the consent of its lenders to the purchase of Notes or
could attempt to refinance the borrowings that contain such prohibition. If
the Company does not obtain such a consent or repay such borrowings, the
Company will remain prohibited from purchasing Notes. In such case, the
Company's failure to purchase tendered Notes would constitute an Event of
Default under the Indenture, which would, in turn, constitute a default under
the Credit Agreement. In such circumstances, the subordination provisions in
the Indenture would likely restrict payments to the Holders of Notes.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Additional Indebtedness and Issuance of Preferred Stock. The
Company will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee, acquire, become liable contingently or otherwise, with respect to,
or otherwise become responsible for payment of any Indebtedness, (other than
Permitted Indebtedness), and the Company will not permit any of its
Subsidiaries to issue any shares of Preferred Stock other than Permitted
Subsidiary Preferred Stock; provided, however, that if no Default or Event of
Default shall have occurred or be continuing at the time of or as a
consequence of the incurrence of such Indebtedness or issuance of Preferred
Stock, the Company or any of its Restricted Subsidiaries that are Guarantors
may incur Indebtedness and Restricted Subsidiaries that are Guarantors may
issue shares of Preferred Stock if on the date of the incurrence of such
Indebtedness or issuance of such Preferred Stock, after giving effect to the
incurrence or issuance thereof, the Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which
such additional Indebtedness is incurred or such Preferred Stock is issued,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or
the Preferred Stock had been issued, as the case may be, at the beginning of
such four-quarter period would have been greater than 2.0 to 1.0 for
Indebtedness incurred or Preferred Stock issued on or prior to July 15, 2000
and 2.25 to 1.0 thereafter.
Limitation on Restricted Payments. The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Equity Interests, (b) purchase, redeem or
otherwise acquire or retire for value any Equity Interests of the Company, (c)
purchase, redeem or otherwise acquire or retire for value any Indebtedness
(other than the Notes) that is subordinated to the Notes, except at final
maturity, (d) make any Investments (other than Permitted Investments) (all
such payments and other actions set forth in clauses (a) through (d) above
being referred to as "Restricted Payments"), if, at the time of or immediately
after giving effect to such Restricted Payment, (i) a Default or Event of
Default has occurred and is continuing or would result therefrom; (ii) the
Company is not able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with
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the "Limitation on Additional Indebtedness and Issuance of Preferred Stock"
covenant; (iii) the aggregate amount of Restricted Payments made subsequent to
the Issue Date (the amount of any such payment, if other than cash, to be
determined by the Board of Directors, whose determination shall be conclusive
and evidenced by a resolution in an Officers' Certificate delivered to the
Trustee), together with the aggregate of all other Restricted Payments made
after the date of the Indenture (including Restricted Payments permitted by
the next succeeding paragraph other than pursuant to clauses (ii), (iii),
(iv), (vii), (ix) or (x) or (vi) (to the extent "key-man" life insurance
policies are used to make such redemptions or repurchases in respect thereof),
shall exceed the sum of (1) $5,000,000, plus (2) the sum of (x) 50% of the
Consolidated Net Income of the Company (or, if such Consolidated Net Income
for such period is a loss, minus 100% of such loss) earned subsequent to the
Issue Date and on or prior to the date the Restricted Payment occurs (the
"Reference Date") (treating such period as a single accounting period); plus
(y) 100% of the aggregate net proceeds received by the Company (including the
fair market value of property other than cash) from the issue or sale
subsequent to the Issue Date of Qualified Capital Stock of the Company or of
Disqualified Capital Stock or debt securities of the Company that have been
converted into, or exchanged for, such Qualified Capital Stock (other than
Qualified Capital Stock sold or issued to a Subsidiary of the Company), plus
(3) 100% of the aggregate proceeds (including the fair value of property other
than cash) received by the Company as capital contributions to the Company
after the date on which the Notes are originally issued, plus (4) the amount
of the net reduction in Investments in Unrestricted Subsidiaries resulting
from (A) the payment of cash dividends or the repayment in cash of the
principal of loans or the cash return on any Investment, in each case to the
extent received by the Company or any Wholly Owned Restricted Subsidiary of
the Company from Unrestricted Subsidiaries and to the extent not included in
Consolidated Net Income, (B) to the extent that any Restricted Investment that
was made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash and to the extent such proceeds are not included
in Consolidated Net Income, the after-tax cash return of capital with respect
to such Restricted Investment (less the cost of disposition, if any) and (C)
the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued as provided in the definition of "Investment"), such aggregate amount
of the net reduction in Investments not to exceed in the case of any
Unrestricted Subsidiary, the amount of Restricted Investments previously made
by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary,
which amount was included in the calculation of the amount of Restricted
Payments.
Notwithstanding the foregoing, these provisions do not prohibit (i) the
payment of any dividend within 60 days after the date of declaration thereof,
if at said date of declaration such payment would have complied with the
provisions of the Indenture; (ii) the redemption, repurchase, retirement or
other acquisition of any Equity Interests of the Company, or the defeasance,
redemption or repurchase of subordinated Indebtedness in exchange for, or out
of the proceeds of, the substantially concurrent sale (other than to a
Subsidiary of the Company) of Equity Interests of the Company (other than any
Disqualified Stock) or out of the proceeds of a substantially concurrent cash
capital contribution received by the Company; (iii) the defeasance, redemption
or repurchase of subordinated Indebtedness with the net proceeds from an
incurrence of Refinancing Indebtedness; (iv) the making of Restricted Payments
to Holdings to be used by Holdings to pay its reasonable out-of-pocket
operating and administrative expenses, including directors' fees, legal and
audit expenses, Commission compliance expenses and corporate franchise and
other taxes; provided that no such payments may be made to any Affiliate of
Holdings; (v) the making of Investments in joint ventures that are engaged in
a Permitted Business in an aggregate amount not to exceed $10,000,000; (vi)
the making of Restricted Payments to Holdings of up to $2,000,000 per year or
$5,000,000 in the aggregate (which amount shall be increased by the aggregate
amount of (x) net cash proceeds from sales of Capital Stock of Holdings to
management employees subsequent to the date of the Indenture to the extent
contributed to the Company and not otherwise applied to any calculation under
clause (y) of the immediately preceding paragraph to make a Restricted Payment
and (y) any "key-man" insurance policies that are used to make such
redemptions or repurchases), net of the cash proceeds received by the Company
from subsequent reissuances of such Equity Interests to new members of
management, to be used by Holdings to redeem, repurchase or retire for value
any Equity Interests of Holdings held by one or more employees of Holdings or
the Company or any of its Subsidiaries in connection with the termination of
such employee's or employees' employment with such employer for any reason;
provided that the cancellation of Indebtedness owing to the Company from
members of management of the Company or any of its Restricted
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Subsidiaries in connection with a repurchase of Capital Stock of Holdings will
not be deemed to constitute a Restricted Payment under the Indenture; (vii)
the making of Restricted Payments to or for the benefit of Holdings pursuant
to the Tax Sharing Agreement or the Holdings Service Agreement in each case as
in effect on the Issue Date; (viii) the acquisition by a Receivables
Subsidiary in connection with a Qualified Receivables Transaction of Equity
Interests of a trust or other Person established by such Receivables
Subsidiary to effect such Qualified Receivables Transaction; (ix) so long as
no Default or Event of Default shall have occurred and be continuing, payments
to Holdings not to exceed $100,000 in the aggregate, to enable Holdings to
make payments to holders of its Capital Stock in lieu of issuance of
fractional shares of its Capital Stock; and (x) repurchases of Capital Stock
deemed to occur upon the exercise of stock options if such Capital Stock
represents a portion of the exercise price thereof.
Limitation on Asset Sales. The Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless: (i) the
Company or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors, the approval shall be evidenced by a
Board Resolution); (ii) at least 75% of the consideration received by the
Company or the Restricted Subsidiary, as the case may be, from such Asset Sale
shall be cash or Cash Equivalents and is received at the time of such
disposition; provided, however, that the amount of (A) any liabilities (as
shown on the Company's or such Restricted Subsidiary's most recent balance
sheet or in the notes thereto) of the Company or any Restricted Subsidiary
(other than liabilities that are by their terms subordinated in right of
payment to the Notes) that are assumed by the transferee of any such assets
and (B) any notes or other obligations received by the Company or such
Restricted Subsidiary from such transferee that are immediately converted by
the Company or such Restricted Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision; and
provided, further, that the 75% limitation referred to in this clause (ii)
shall not apply to any Asset Sale in which the cash portion of the
consideration received therefrom, determined in accordance with the foregoing
proviso, is equal to or greater than what the after-tax proceeds would have
been had such Asset Sale complied with the aforementioned 75% limitation; and
(iii) upon the consummation of an Asset Sale, the Company shall apply, or
cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to
such Asset Sale within 270 days of receipt thereof either (A) to prepay any
Senior Debt and, in the case of any Senior Debt under any revolving credit
facility, effect a permanent reduction in the availability under such
revolving credit facility, (B) to invest in another business, capital
expenditures or other long-term tangible assets, in each case, in the same or
a similar line of business as the Company or any Subsidiary was engaged in on
the date of the Indenture ("Replacement Assets") or (C) a combination of
payment and investment permitted by clauses (A) and (B) above. On the 271st
day after an Asset Sale or such earlier date, if any, as the Board of
Directors of the Company or of such Restricted Subsidiary determines not to
apply the Net Cash Proceeds relating to such Asset Sale as set forth in
clauses (iii)(A), (iii)(B) or (iii)(C) of the next preceding sentence (each, a
"Net Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds
which have not been applied on or before such Net Proceeds Offer Trigger Date
as permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding
sentence (each, a "Net Proceeds Offer Amount") shall be applied by the Company
or such Subsidiary to make an offer to purchase (the "Net Proceeds Offer") on
a date (the "Net Proceeds Offer Payment Date") not less than 30 nor more than
45 days following the applicable Net Proceeds Offer Trigger Date, from all
Holders on a pro rata basis that amount of Notes equal to the Net Proceeds
Offer Amount at a price equal to 100% of the principal amount of the Notes to
be purchased, plus accrued and unpaid interest thereon, if any, to the date of
purchase; provided, however, that if at any time any non-cash consideration
received by the Company or any Restricted Subsidiary of the Company, as the
case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash (other than interest received with respect to
any such non-cash consideration), then such conversion or disposition shall be
deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof
shall be applied in accordance with this covenant. A transfer of assets by the
Company to a Wholly Owned Restricted Subsidiary or by a Restricted Subsidiary
to the Company or to another Wholly Owned Restricted Subsidiary will not be
deemed to be an Asset Sale.
Notwithstanding the two immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least
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75% of the consideration for such Asset Sale constitutes Replacement Assets,
cash, Cash Equivalents and/or marketable securities (i.e., such securities
which would be converted into cash within 180 days of the acquisition thereof)
and (ii) such Asset Sale is for fair market value (as determined in good faith
by the Company's Board of Directors); provided that any consideration not
constituting Replacement Assets received by the Company or any of its
Restricted Subsidiaries in connection with any Asset Sale permitted to be
consummated under this paragraph shall be subject to the provisions of the two
preceding paragraphs.
Notwithstanding the foregoing, if a Net Proceeds Offer Amount is less than
$10,000,000, the application of the Net Cash Proceeds constituting such Net
Proceeds Offer Amount to a Net Proceeds Offer may be deferred until such time
as such Net Proceeds Offer Amount plus the aggregate amount of all Net
Proceeds Offer Amounts arising subsequent to the Net Proceeds Offer Trigger
Date relating to such initial Net Proceeds Offer Amount from all Asset Sales
by the Company and its Restricted Subsidiaries aggregates at least
$10,000,000, at which time the Company or such Subsidiary shall apply all Net
Cash Proceeds constituting all Net Proceeds Offer Amounts that have been so
deferred to make a Net Proceeds Offer (the first date the aggregate of all
such deferred Net Proceeds Offer Amounts is equal to $10,000,000 or more shall
be deemed to be a "Net Proceeds Offer Trigger Date"). To the extent the
aggregate amount of the Notes tendered pursuant to the Net Proceeds Offer is
less than the Net Proceeds Offer Amount, the Company may use such deficiency
for general corporate purposes. Upon completion of such offer to purchase, the
Net Proceeds Offer Amount shall be reset at zero.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders not less than 30 days nor more than 60 days following the
Net Proceeds Offer Trigger Date, with a copy to the Trustee, and shall comply
with the procedures set forth in the Indenture. Upon receiving notice of the
Net Proceeds Offer, Holders may elect to tender their Notes in whole or in
part in integral multiples of $1,000 in exchange for cash. To the extent
Holders properly tender Notes in an amount exceeding the Net Proceeds Offer
Amount, Notes of tendering Holders will be purchased on a pro rata basis
(based on amounts tendered). A Net Proceeds Offer shall remain open for a
period of 20 business days or such longer period as may be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset
Sale" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Asset Sale" provisions of the Indenture by
virtue thereof. The agreements governing certain outstanding Senior Debt of
the Company will require that the Company and its Subsidiaries apply all
proceeds from asset sales to repay in full outstanding obligations under such
Senior Debt prior to the application of such proceeds to repurchase
outstanding notes.
Merger, Consolidation and Sale of Assets. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or
into any Person, or sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of the Company's assets, whether as an entirety or
substantially as an entirety to any Person unless (i) either (A) the Company
is the surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or (B) the surviving
person to which such sale, assignment, transfer, lease, conveyance or other
disposition (x) shall have been made is a corporation, partnership or trust
and validly existing under the laws of the United States, any state thereof or
the District of Columbia and (y) the Person formed by or surviving any such
consolidation or merger (if other than the Company) or the Person to which
such sale, assignment, transfer, lease, conveyance or other disposition shall
have been made and shall expressly assume, by supplemental indenture, in a
form reasonably satisfactory to the Trustee all the obligations of the Company
under the Notes and the Indenture and the Registration Rights Agreement; (ii)
immediately after such transaction no Default or Event of Default exists; and
(iii) the Company or any Person formed by or surviving any such consolidation
or merger, or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made, will, at the time of such transaction
and after giving pro forma effect thereto (including giving effect to any
Indebtedness and Acquired Indebtedness
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incurred or anticipated to be incurred in connection with or in respect of
such transaction) as if such transaction had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) in compliance with
the "--Limitation on Additional Indebtedness and Issuance of Preferred Stock"
covenant. For purposes of the foregoing, the transfer (by lease, assignment,
sale or otherwise, in a single transaction or series of transactions) of all
or substantially all of the properties and assets of one or more Subsidiaries
of the Company, the Capital Stock of which constitutes all or substantially
all of the properties and assets of the Company, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
The Indenture provides that upon any consolidation, combination or merger or
any transfer of all or substantially all of the assets of the Company in
accordance with the foregoing, the surviving entity shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture and the Notes with the same effect as if such surviving entity
had been named as such.
Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the Indenture in connection
with any transaction complying with the provisions of "--Limitation on Asset
Sales") will not, and the Company will not cause or permit any Guarantor to,
consolidate with or merge with or into any Person other than the Company or
any other Guarantor unless: (i) the entity formed by or surviving any such
consolidation or merger (if other than the Guarantor) or to which such sale,
lease, conveyance or other disposition shall have been made is a corporation
organized and existing under the laws of the United States or any State
thereof or the District of Columbia; (ii) such entity assumes by supplemental
indenture all of the obligations of the Guarantor on the Guarantee; (iii)
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; and (iv) immediately after
giving effect to such transaction and the use of any net proceeds therefrom on
a pro forma basis, the Company could satisfy the provisions of clause (iii) of
the first paragraph of this covenant. Any merger or consolidation of a
Guarantor with and into the Company (with the Company being the surviving
entity) or another Guarantor that is a Wholly Owned Restricted Subsidiary of
the Company need only comply with the following sentence of this covenant. The
Company or the surviving entity shall have delivered to the Trustee an
officers' certificate and an opinion of counsel, each stating that such
consolidation, merger, sale, assignment, transfer, lease, conveyance or other
disposition and, if a supplemental indenture is required in connection with
such transaction, such supplemental indenture comply with the applicable
provisions of the Indenture and that all conditions precedent in the Indenture
relating to such transaction have been satisfied.
Limitation on Transactions with Affiliates. (a) The Company will not and
will not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, conduct any business or enter into any transaction or series of
transactions with or for the benefit of any of their Affiliates involving
aggregate consideration in excess of $1.0 million (each an "Affiliate
Transaction") other than (x) Affiliate Transactions permitted under paragraph
(b) below and (y) Affiliate Transactions on terms that are not materially less
favorable to the Company than those that could have been obtained in a
comparable transaction on an arm's-length basis from a Person not an Affiliate
of the Company. With respect to all Affiliate Transactions involving aggregate
payments equal to or in excess of $5,000,000 and less than $10,000,000, the
Company or such Restricted Subsidiary, as the case may be, shall have
delivered a resolution of the Board of Directors set forth in an officers'
certificate to the Trustee certifying that such transaction or series of
transactions complies with clause (y) above. All Affiliate Transactions (and
each series of related Affiliate Transactions which are similar or part of a
common plan) involving aggregate payments or other property with a fair market
value in excess of $10,000,000, the Company or such Restricted Subsidiary, as
the case may be, shall, prior to the consummation thereof, obtain a favorable
opinion as to the fairness of such transaction or series of related
transactions to the Company or the relevant Restricted Subsidiary, as the case
may be, from a financial point of view from an investment bank of national
standing with an expertise in underwriting non-investment grade debt
securities and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to: (i) any
employment agreement or stock option agreement entered into by the Company or
any of its Restricted Subsidiaries in the ordinary course of business; (ii)
transactions between or among the Company and its Restricted Subsidiaries;
(iii) transactions permitted by
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the provisions of the Indenture described above under "--Limitation on
Restricted Payments;" (iv) the payment of reasonable fees to directors of the
Company or its Restricted Subsidiaries; (v) any issuance of securities or
other payments, awards or grants in cash, securities or otherwise pursuant to,
or the funding of employment arrangements, stock options and stock ownership
plans of the Company entered into in the ordinary course of business and
approved by the Board of Directors; (vi) transactions exclusively between or
among the Company and/or its Wholly Owned Restricted Subsidiaries; provided
that such transactions are not otherwise prohibited by the Indenture,
transactions exclusively between a Receivables Subsidiary and any Person in
which the Receivables Subsidiary has an Investment in connection with a
Qualified Receivable Transaction; (vii) any agreements as in effect as of the
Issue Date or any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) in any replacement agreement
thereto so long as any such amendment or replacement is not more
disadvantageous to the Holders in any material respect than the original
agreement as in effect on the Issue Date; (viii) reasonable fees and related
expenses paid to the Principals and their Affiliates for management,
consulting and advisory services as determined in good faith by the Company's
Board of Directors or senior management; (ix) payments by the Company or any
of its Restricted Subsidiaries to the Principals and their Affiliates made
pursuant to any financial advisory, financing, underwriting or placement
agreement as in effect as of the Issue Date or any amendment thereto, or any
transaction contemplated thereby (including pursuant to any amendment thereto)
or any replacement agreement thereto so long as any such amendment or
replacement agreement is not more disadvantageous to the Holders in any
material respect than the original agreement as in effect on the Issue Date;
(x) payments or loans to employees or consultants which are approved by the
Board of Directors of the Company in good faith; (xi) transactions permitted
by, and complying with, the provisions of the covenant described under "--
Merger, Consolidation and Sale of Assets"; and (xii) transactions with
customers, clients, suppliers, joint venture partners or purchasers or sellers
of goods or services, in each case in the ordinary course of business
(including, without limitation, pursuant to joint venture agreements) and
otherwise in compliance with the terms of the Indenture which are fair to the
Company or its Restricted Subsidiaries, in the reasonable determination of the
Board of Directors of the Company or the senior management thereof, or are on
terms at least as favorable as might reasonably have been obtained at such
time from an unaffiliated party.
Guarantee of the Notes. The Company will not permit any Restricted
Subsidiary to Guarantee any Indebtedness (other than (A) Indebtedness and
other obligations under the Credit Agreement, (B) Permitted Indebtedness of a
Restricted Subsidiary, (C) Indebtedness under any Currency Agreements or
Commodity Agreements in reliance on clause (vi) of the definition of Permitted
Indebtedness, (D) Hedging Obligations incurred in reliance on clause (iv) of
the definition of Permitted Indebtedness, or (E) Indebtedness incurred in
reliance on clause (x) of the definition of Permitted Indebtedness), unless
such Restricted Subsidiary enters into or has entered into a Guarantee of the
Notes in accordance with the terms of the Indenture (except if such Guarantee
is a Guarantee by a Foreign Subsidiary solely of the Indebtedness of another
Foreign Subsidiary).
Any such Guarantee of the Notes by a Restricted Subsidiary will be
subordinated to all Senior Debt of such Subsidiary, including any guarantee by
such Restricted Subsidiary of the Company's obligations under the Credit
Agreement, on substantially the same terms as the Notes are subordinated to
Senior Debt of the Company. Any such Guarantee by a Restricted Subsidiary will
be limited in amount to an amount not to exceed the maximum amount that can be
guaranteed by that Restricted Subsidiary without rendering such Guarantee
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting the rights of creditors generally.
Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary
of the Notes shall provide by its terms that it shall be automatically and
unconditionally released and discharged, without any further action required
on the part of the Trustee or any Holder, upon: (i) release of such Restricted
Subsidiary from its liability in respect of the Indebtedness in connection
with which such Guarantee was executed and delivered pursuant to the preceding
paragraph (including any deemed release upon payment in full of all
obligations under such Indebtedness); or (ii) sale or other disposition of a
Restricted Subsidiary that is a Guarantor (other than to the Company or an
Affiliate of the Company) permitted by the Indenture, provided that the
proceeds of such sale or disposition are applied in accordance with the
provisions described under "--Limitation on Asset Sales."
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In addition, subject to the next paragraph, no Guarantor may (except in a
transaction pursuant to which its Guarantee is released pursuant to clause
(ii) of the prior sentence) consolidate or merge with or into (whether or not
such Guarantor is the surviving entity) another Person unless: (i) such
Guarantor is the surviving Person or the Person formed by or surviving any
such consolidation or merger (if other than such Guarantor and if such
Guarantor is not a Foreign Subsidiary) is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia; (ii) the Person formed by or surviving any such consolidation or
merger (if other than such Guarantor) expressly assumes all the obligations of
such Guarantor under the Notes and the Indenture, pursuant to a supplemental
indenture in form reasonably satisfactory to the Trustee; and (iii)
immediately after such transaction, no Default or Event of Default exists.
Except as set forth in the provisions entitled "Certain Covenants" and "--
Merger, Consolidation and Sale of Assets," nothing contained in the Indenture
shall prevent any consolidation or merger of a Guarantor with or into the
Company or a Wholly Owned Restricted Subsidiary that is a Guarantor or shall
prevent any sale or conveyance of the property of a Guarantor as an entirety
or substantially as an entirety to the Company or a Wholly Owned Restricted
Subsidiary that is a Guarantor.
Limitation on Liens. The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist or remain in effect any Liens of any kind against or
upon any of its property or assets of the Company or any of its Restricted
Subsidiaries whether owned on the Issue Date or acquired after the Issue Date,
or any proceeds therefrom unless (i) in the case of Liens securing
Indebtedness that is expressly subordinate or junior in right of payment to
the Notes, the Notes are secured by a Lien on such property, assets or
proceeds that is senior in priority to such Liens and (ii) in all other cases,
the Notes are equally and ratably secured, except for (A) Liens existing as of
the Issue Date and any extensions, renewals or replacements thereof; (B) Liens
securing Senior Debt; (C) Liens securing the Notes and the guarantees; (D)
Liens of the Company or a Wholly Owned Restricted Subsidiary on assets of any
Restricted Subsidiary of the Company; (E) Liens securing Indebtedness which is
incurred to refinance Indebtedness which has been secured by a Lien permitted
under the Indenture and which has been incurred in accordance with the
provisions of the Indenture; provided, however, that such Liens do not extend
to or cover any property or assets of the Company or any of its Subsidiaries
not securing the Indebtedness so refinanced; and (F) Permitted Liens.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any consensual encumbrance or
consensual restriction on the ability of any Restricted Subsidiary to (a) pay
dividends or make any other distributions to the Company or any of its
Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any
other interest or participation in, or measured by, its profits, (b) pay any
indebtedness owed to the Company or any of its Subsidiaries, (c) make loans or
advances or pay any indebtedness owed to the Company or any of its
Subsidiaries or (d) transfer any of its property or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (1) Existing Indebtedness as in effect on the date of
the Indenture, (2) the Indenture, the Notes and the Guarantees, (3) applicable
law, (4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties
or assets of any Person, other than the Person, or the property or assets of
the Person, so acquired, (5) customary nonassignment provisions in contracts
entered into in the ordinary course of business, (6) Purchase Money
Obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (d) above on the
property so acquired, (7) any restriction or encumbrance contained in
contracts for sale of assets permitted by the Indenture in respect of the
assets being sold pursuant to such contracts, (8) Indebtedness or other
contractual requirements of a Receivables Subsidiary in connection with a
Qualified Receivables Transaction, provided that such restrictions apply only
to such Receivables Subsidiary, (9) restrictions on the transfer of assets
subject to any Lien permitted under the Indenture imposed by the holder of
such Lien, (10) Refinancing Indebtedness; provided, however, that the
provisions relating to such restrictions contained in such Refinancing
Indebtedness
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are not less favorable to the Company in any material respect as determined by
the Board of Directors of the Company than the provisions relating to such
restrictions contained in the agreements referred to in clause (a), (b), (c)
or (d) above.
Prohibition on Incurrence of Senior Subordinated Debt. Neither the Company
nor any Guarantor will incur or suffer to exist Indebtedness that is senior in
right of payment to the Notes or such Guarantor's Guarantee and subordinate in
right of payment to any Senior Debt of the Company or Guarantees by such
Guarantor.
Limitation on Issuances and Sales of Capital Stock of Wholly Owned
Restricted Subsidiaries. Other than in connection with the issuance of
Preferred Stock issued in accordance with the Fixed Charge Coverage Ratio
under the "--Limitation on Additional Indebtedness and Issuance of Preferred
Stock" covenant and Permitted Subsidiary Preferred Stock, the Company (i) will
not, and will not cause or permit any Wholly Owned Restricted Subsidiary of
the Company to, transfer, convey, sell, lease or otherwise dispose of any
Capital Stock of any Wholly Owned Restricted Subsidiary of the Company to any
Person (other than the Company or a Wholly Owned Restricted Subsidiary of the
Company) unless (a) such transfer, conveyance, sale, lease or other
disposition is of all of the Capital Stock of such Wholly Owned Restricted
Subsidiary and (b) the Net Cash Proceeds from such transfer, conveyance, sale,
lease or other disposition are applied in accordance with the "--Limitation on
Asset Sales" covenant, and (ii) will not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Equity Interests (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares) to any Person other than to the Company or a Wholly Owned Restricted
Subsidiary of the Company.
Limitation on Conduct of Business. The Company and its Subsidiaries will not
engage in any businesses which are not the same, similar or related to or a
reasonable extension, development or expansion of, the businesses in which the
Company and its Subsidiaries are engaged on the Issue Date.
Reports to Holders. The Indenture will provide that the Company will deliver
to the Trustee within 15 days after the filing of the same with the
Commission, copies of the quarterly and annual reports and of the information,
documents and other reports, including a "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and, with respect to the
annual information only, a report thereon by the Company's certified
independent accountants, if any, which the Company is required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The
Indenture will further provide that, notwithstanding that the Company may not
be subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company will provide the Trustee and Holders with such
annual reports and such information, documents and other reports specified in
Sections 13 and 15(d) of the Exchange Act. In addition, whether or not
required by the rules and regulations of the Commission, at any time after the
Company files the Exchange Offer Registration Statement with the Commission,
the Company will file a copy of all such information with the Commission for
public availability (unless the Commission will not accept such a filing) and
make such information available to investors who request it in writing. The
Company will also comply with the other provisions of TIA (S)314(a).
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest, if any, on any Notes when the same
becomes due and payable and the default continues for a period of 30 days;
(ii) the failure to pay the principal on any Notes, when such principal
becomes due and payable, at maturity, upon redemption or otherwise
(including, the failure to make a payment to purchase Notes tendered
pursuant to a Change of Control Offer or Net Proceeds Offer) (whether or
not such payment shall be prohibited by the provisions of the Indenture);
(iii) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period
of 30 days after the Company receives written notice specifying the default
(and demanding that such default be remedied) from the Trustee or the
Holders of at
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least 25% of the outstanding principal amount of the Notes (except in the
case of a default with respect to the "Merger, Consolidation and Sale of
Assets" covenant, which will constitute an Event of Default with such
notice requirement but without such passage of time requirement);
(iv) one or more judgments in an aggregate amount in excess of
$10,000,000 (to the extent not covered by third-party insurance as to which
the insurance company has acknowledged coverage) shall have been rendered
against the Company or any of its Significant Restricted Subsidiaries and
such judgments remain undischarged, unpaid or unstayed for a period of 60
days after such judgment or judgments become final and non-appealable;
(v) certain events of bankruptcy, insolvency or reorganization affecting
the Company or any of its Significant Restricted Subsidiaries;
(vi) (a) a default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness of the Company or any of its Restricted Subsidiaries (other
than a Receivables Subsidiary) (or the payment of which is guaranteed by
the Company or any of its Restricted Subsidiaries (other than a Receivables
Subsidiary)), whether such Indebtedness now exists or is created after the
Issue Date, which default either (x) is caused by a failure to pay any such
Indebtedness at its stated final maturity and such failure continues for a
period of 20 days or more or (y) relates to an obligation other than the
obligation to pay such Indebtedness at its stated final maturity and
results in the holder or holders of such Indebtedness causing such
Indebtedness to become due prior to its stated final maturity (which
acceleration is not rescinded, annulled or otherwise cured within 20 days
of receipt by the Company or such Restricted Subsidiary of notice of any
such acceleration) and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal at stated final
maturity or the maturity of which has been so accelerated, in each case
with respect to which the default continues for a period of 20 days,
aggregates $10,000,000 or more at any one time outstanding; and
(vii) any Guarantee by a Significant Restricted Subsidiary being held in
any judicial proceeding to be unenforceable or invalid or failure of any
Guarantee by a Significant Restricted Subsidiary to be in full force and
effect other than as permitted by the Indenture or the denial or
disaffirmance by any Guarantor that is a Significant Restricted Subsidiary
of its obligations under its Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately; provided, however, that so
long as the Credit Agreement shall be in effect, if an Event of Default shall
have occurred and be continuing (other than an Event of Default specified in
clause (v) above with respect to the Company), any such acceleration shall not
be effective until the earlier of (x) five business days following delivery of
a notice of acceleration specifying the respective Event of Default and
stating that it is a "notice of acceleration" to the Agent Bank under the
Credit Agreement (but only if such Event of Default is then continuing) and
(y) the acceleration of any Indebtedness under the Credit Agreement.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency with respect to the Company, all
outstanding Notes will become due and payable without further action or
notice. Holders of the Notes may not enforce the Indenture or the Notes except
as provided in the Indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
The Indenture provides that, at any time after a declaration of acceleration
with respect to the Notes as described in the preceding paragraph, the Holders
of a majority in principal amount of the Notes may rescind and cancel such
declaration and its consequences (i) if the rescission would not conflict with
any judgment or decree, (ii) if all existing Events of Default have been cured
or waived except nonpayment of principal or interest, if any, that has become
due solely because of the acceleration, (iii) to the extent the payment of
such interest is lawful, interest on overdue installments of interest, if any,
and overdue principal that has become due
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otherwise than by such declaration of acceleration has been paid, (iv) if the
Company has paid the Trustee its reasonable compensation and reimbursed the
Trustee for its expenses, disbursements and advances and (v) in the event of
the cure or waiver of an Event of Default of the type described in clause
(iv), (v) and (vii) in the description above of Events of Default, the Trustee
shall have received an Officers' Certificate and an opinion of counsel that
such Event of Default has been cured or waived. No such rescission shall
affect any subsequent Default or impair any right consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its
consequences, except a default in the payment of the aggregate principal
amount of or interest, if any, on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an Officers'
Certificate to the Trustee promptly upon any such officer obtaining knowledge
of any Default or Event of Default (provided that such officers shall provide
such certification at least annually whether or not they know of any Default
or Event of Default) that has occurred and, if applicable, describe such
Default or Event of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to
the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that
the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Notes, except for: (i) the rights
of Holders to receive payments in respect of the principal, premium, if any,
and interest on the Notes when such payments are due; (ii) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payments; (iii) the rights, powers,
trust, duties and immunities of the Trustee and the Company's obligations in
connection therewith; and (iv) the Legal Defeasance provisions of the
Indenture. In addition, the Company may, at its option and at any time, elect
to have the obligations of the Company released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, reorganization and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance: (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, non-callable U.S. Government Obligations,
or a combination thereof, in such amount as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Notes on the stated date
for payment thereof or on the applicable redemption date, as the case may be;
(ii) in the case of Legal Defeasance, the Company shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the date
of the Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders will not recognize income, gain or
loss for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance had
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not occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default with respect to the Indenture
resulting from the incurrence of Indebtedness all or a portion of which will
be used to defease the Notes concurrently with such incurrence) or insofar as
Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit; (v) such
Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under the Indenture or any other
material agreement or instrument to which the Company is a party or by which
the Company is bound; (vi) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company
with the intent of preferring the Holders over any other creditors of the
Company or others; (vii) the Company shall have delivered to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with; (viii) the Company shall have
delivered to the Trustee an opinion of counsel to the effect that (A) the
trust funds will not be subject to any rights of holder of Senior Debt,
including, without limitation, those arising under the Indenture and (B) after
the 91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; and (ix) certain other customary
conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes that have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for the principal,
premium, if any, and interest on the Notes to the date of deposit together
with irrevocable instructions from the Company directing the Trustee to apply
such funds to the payment thereof at maturity or redemption, as the case may
be; (ii) the Company has paid all other sums payable under the Indenture by
the Company; and (iii) the Company has delivered to the Trustee an Officers'
Certificate and an opinion of counsel stating that all conditions precedent
under the Indenture relating to the satisfaction and discharge of the
Indenture have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company, the Guarantors and the Trustee, without the
consent of the Holders, may amend the Indenture for certain specified
purposes, including curing ambiguities, defects or inconsistencies, so long as
such change does not, in the opinion of the Trustee, adversely affect the
rights of any of the Holders in any material respect. In formulating its
opinion on such matters, the Trustee will be entitled to rely on such evidence
as it deems appropriate, including, without limitation, solely on an opinion
of counsel. Other modifications and amendments of the Indenture may be made
with the consent of the Holders of a majority in principal amount of the then
outstanding Notes issued under the Indenture, except that, without the consent
of each Holder affected thereby, no amendment may: (i) reduce the amount of
Notes whose Holders must consent to an amendment; (ii) reduce the rate of or
change or have the effect of changing the time for payment of interest, if
any, including defaulted interest, on any Notes; (iii) reduce the principal of
or change or have the effect of changing the fixed maturity of any Notes, or
change the date on which any Notes may be subject to redemption or repurchase,
or reduce the redemption or repurchase price therefor; (iv) make any Notes
payable in money
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other than that stated in the Notes; (v) make any change in provisions of the
Indenture protecting the right of each Holder to receive payment of principal
and interest, if any, on such Note on or after the due date thereof or to
bring suit to enforce such payment, or permitting Holders of a majority in
principal amount of Notes to waive Defaults or Events of Default; (vi) amend,
change or modify in any material respect the obligation of the Company to make
and consummate a Net Proceeds Offer with respect to any Asset Sale that has
been consummated or modify any of the provisions or definitions with respect
thereto; (vii) modify or change any provision of the Indenture or the related
definitions affecting the subordination or ranking of the Notes or any
Guarantee in a manner that adversely affects the Holders; or (viii) release
any Guarantor from any of its obligations under its Guarantee or the Indenture
otherwise than in accordance with the terms of the Indenture.
Without the consent of at least 80% in principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for Notes), no waiver or amendment to the Indenture may make
any change in the provisions described above under the caption "Change of
Control" if such change would adversely affect the rights of any Holder of
Notes. Notwithstanding the foregoing, without the consent of any Holder of
Notes, the Company and the Trustee may amend or supplement the Indenture or
the Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's or any Guarantor's obligations to
Holders of the Notes in the case of a merger or consolidation, to make any
change that would provide any additional rights or benefits to the Holders of
the Notes or that does not adversely affect the legal rights under the
Indenture of any such Holder, or to comply with requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
TIA.
GOVERNING LAW
The Indenture provides that it, the Notes and the Guarantees will be
governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the law of another jurisdiction would be
required thereby.
THE TRUSTEE
State Street Bank and Trust Company is the Trustee under the Indenture and
has been appointed by the Company as Registrar and Paying Agent with respect
to the Notes.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it by the Indenture and
use the same degree of care and skill in its exercise as a prudent person
would exercise or use under the circumstances in the conduct of his own
affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to
obtain payments of claims in certain cases or to realize on certain property
received in respect of any such claim as security or otherwise. Subject to the
TIA, the Trustee will be permitted to engage in other transactions; provided
that if the Trustee acquires any conflicting interest as described in the TIA,
it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" of any Person means Indebtedness of another Person
and any of its Subsidiaries existing at the time such other Person becomes a
Subsidiary of the referent Person or at the time it merges or
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consolidates with the referent Person or any of the referent Person's
Subsidiaries or assumed by the referent Person or any Subsidiary of the
referent Person in connection with the acquisition of assets from such other
Person and in each case not incurred by the referent Person or any Subsidiary
of the referent Person or such other Person in connection with, or in
anticipation or contemplation of, such other Person becoming a Subsidiary of
the referent Person or such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. The term "control" means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise, and the terms
"controlling" and "controlled" have meanings correlative of the foregoing;
provided, however, that beneficial ownership of 10% or more of the voting
securities of a Person shall be deemed to be control. Notwithstanding the
foregoing, no Person (other than the Company or any Restricted Subsidiary of
the Company) in whom a Receivables Subsidiary makes an Investment in
connection with a Qualified Receivables Transaction shall be deemed to be an
Affiliate of the Company or any of its Restricted Subsidiaries solely by
reason of such Investment.
"Agent Bank" means: Bankers Trust Company or any successor as agent under
the Credit Agreement.
"all or substantially all" shall have the meaning given such phrase in the
Revised Model Business Corporation Act.
"Asset Sale" means: (i) the sale, lease (other than pursuant to operating
leases of real or personal property entered into in the ordinary course of
business), conveyance or other disposition (collectively, "dispositions") of
any assets (including by way of a Sale/Leaseback Transaction) other than
dispositions of inventory in the ordinary course of business; (ii) the
issuance by any Restricted Subsidiary of Equity Interests of such Restricted
Subsidiary; and (iii) the disposition by the Company, in the case of either
clause (i), (ii) or (iii), whether in a single transaction or a series of
related transactions (a) that have a fair market value in excess of $1,000,000
or (b) for net proceeds in excess of $1,000,000. Notwithstanding the
foregoing, the following will not be deemed to be Asset Sales: (i) a
disposition of assets by the Company or a Restricted Subsidiary to the Company
or a Wholly Owned Restricted Subsidiary; (ii) an issuance of (a) Equity
Interests by a Restricted Subsidiary to the Company or to a Wholly Owned
Restricted Subsidiary, (b) Preferred Stock issued in accordance with the Fixed
Charge Coverage Ratio under the "Limitation on Additional Indebtedness and
Issuance of Preferred Stock" covenant or (c) Permitted Subsidiary Preferred
Stock; (iii) a disposition consisting of a Permitted Investment or Restricted
Payment permitted by the covenant described above under the caption
"Restricted Payments;" (iv) the disposition of all or substantially all of the
assets of the Company and its Restricted Subsidiaries taken as a whole
permitted by the covenant described above under the caption "--Merger,
Consolidation or Sale of Assets;" (v) the surrender or waiver of contract
rights or the settlement, release or surrender of contract, tort or other
claims of any kind; (vi) the grant in the ordinary course of business of any
non-exclusive license of patents, trademarks, registrations therefor and other
similar intellectual property; (vii) sales of accounts receivable and related
assets of the type specified in the definition of "Qualified Receivables
Transaction" to a Receivables Subsidiary for the fair market value thereof,
including cash in an amount at least equal to 75% of the book value thereof as
determined in accordance with GAAP; (viii) transfers of accounts receivable
and related assets of the type specified in the definition of "Qualified
Receivables Transaction" (or a fractional undivided interest therein) by a
Receivables Subsidiary in a Qualified Receivables Transaction; and (ix) the
sale or discount, in each case without recourse, of accounts receivable
arising in the ordinary course of business, but only in connection with the
compromise or collection thereof. For the purposes of clause (viii), notes
received in exchange for the transfer of accounts receivable and related
assets shall be deemed cash if the Receivables Subsidiary or other payor is
required to repay said notes as soon as practicable from available cash
collections less amounts required to be established as reserves pursuant to
contractual agreements with entities that are not Affiliates of the Company
entered into as part of a Qualified Receivables Transaction.
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"Attributable Debt" in respect of a Sale and Leaseback Transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP or,
in the event that such rate of interest is not reasonably determinable,
discounted at the rate of interest borne by the Notes) of the obligation of
the lessee for net rental payments during the remaining term of the lease
included in such Sale and Leaseback Transaction (including any period for
which such lease has been extended or may, at the option of the lessor, be
extended).
"Bain" means Bain Capital, Inc., a Delaware corporation.
"Bain Funds" means Bain Capital Fund V, L.P., Bain Capital Fund V-B, L.P.,
Bain Capital V Mezzanine Fund, L.P., Bain Capital Fund IV, L.P., Bain Capital
Fund IV-B, L.P., BCIP Associates, and BCIP Trust Associates, L.P.
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"Borrowing Base" means the sum of (i) 85% of the net book value (after
allowance for doubtful accounts) of accounts receivable of the Company and the
Guarantors arising in the ordinary course of business from the sale of
products sold by the Company and the Guarantors or the provision of services
by the Company and the Guarantors and (ii) 65% of the net book value (after
appropriate write-downs of obsolescence, quality problems and the like) of
inventories of the Company and the Guarantors held in the ordinary course of
business, in each case on a consolidated basis with Restricted Subsidiaries in
accordance with generally accepted accounting principles.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to
any Person that is not a corporation, any and all partner-ship or other equity
interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligation at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means: (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any commercial bank
organized under the laws of the United States of America or any state thereof
or the District of Columbia or any U.S. branch of a foreign bank having at the
date of acquisition thereof combined capital and surplus of not less than
$100,000,000; (v) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications specified in clause (iv)
above; and (vi) investments in money market funds which invest substantially
all their assets in securities of the types described in clauses (i) through
(v).
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition, in one or a series of
related transactions, of all or substantially all of the assets of Holdings
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or the Company to any Person or group (as such term is used in Sections
13(d)(3) and 14(d)(2) of the Exchange Act) other than the Principals or their
Related Parties; (ii) the adoption of a plan relating to the liquidation or
dissolution of Holdings or the Company; (iii) any Person or group (as defined
above), other than the Principals or their Related Parties, is or becomes the
"beneficial owner" (as defined in Rules 13d-2 and 13d-5 under the Exchange
Act, except that a Person shall be deemed to have "beneficial ownership" of
all shares that any such Person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time), directly or
indirectly, of more than 25% of the total voting power of the Voting Stock of
the Company, including by way of merger, consolidation or otherwise; provided
that the Principals or their Related Parties "beneficially own" (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, in the
aggregate a lesser percentage of the total voting power of the Voting Stock of
the Company than such other Person (for the purposes of this clause; (iii) any
Person shall be deemed to beneficially own any Voting Stock of a corporation
held by any other corporation (the "parent corporation"), if such Person
"beneficially owns" (with respect to any Person or group other than the
Principals or their Related Parties, as defined in clause (iii) above or, with
respect to the Principals or their Related Parties, as defined in the
provision to clause (iii) above), directly or indirectly, more than 50% of the
voting power of the Voting Stock of such parent corporation); and (iv) the
first day on which a majority of the members of the Board of Directors of
Holdings or the Company are not Continuing Directors.
"Commodity Agreement" means any commodity futures contract, commodity option
or other similar agreement or arrangement entered into by the Company or any
Subsidiary designed to protect the Company or any of its Subsidiaries against
fluctuations in the price of commodities actually used in the ordinary course
of business of the Company and its Subsidiaries.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period, plus (a) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an asset sale, to the extent such losses were deducted in computing
Consolidated Net Income, plus (b) provision for taxes based on income or
profits of such Person for such period, to the extent such provision for taxes
was deducted in computing Consolidated Net Income, plus (c) Consolidated
Interest Expense of such Person for such period, to the extent such amount was
deducted in computing Consolidated Net Income, plus (d) depreciation and
amortization (including amortization of goodwill and other intangibles and
amortization of deferred compensation in respect of non-cash compensation but
excluding amortization of prepaid cash expenses that were paid in a prior
period) of such Person for such period, to the extent such depreciation and
amortization were deducted in computing Consolidated Net Income, in each case,
for such period without duplication on a consolidated basis and determined in
accordance with GAAP.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the aggregate consolidated interest, whether expensed or capitalized,
paid, accrued or scheduled to be paid or accrued, of such Person and its
Restricted Subsidiaries for such period (including: (i) amortization of
original issue discount and non-cash interest payments and accruals; (ii) the
interest portion of all deferred payment obligations, calculated in accordance
with the effective interest method; and (iii) the interest component of any
payments associated with Capitalized Lease Obligations and net payments (if
any) pursuant to Hedging Obligations, in each case, to the extent attributable
to such period, but excluding (x) commissions, discounts and other fees and
charges incurred with respect to letters of credit and bankers' acceptances
financing and (y) any interest expense on Indebtedness of another Person that
is Guaranteed by such Person or secured by a Lien on assets of such Person)
determined in accordance with GAAP. Consolidated Interest Expense of the
Company shall not include any prepayment premiums or amortization of original
issue discount or deferred financing costs, to the extent such amounts are
incurred as a result of the prepayment on the date of the Indenture of any
Indebtedness of the Company with the proceeds of the Notes.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that: (i) the Net Income of any Person that is not a Subsidiary or
that is
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accounted for by the equity method of accounting shall be included only to the
extent of the amount of cash dividends or cash distributions paid to the
referent Person or a Wholly Owned Subsidiary thereof that is a Guarantor or
Foreign Subsidiary or both; (ii) the Net Income of any Person that is a
Restricted Subsidiary (other than a Wholly Owned Restricted Subsidiary that is
a Guarantor or Foreign Subsidiary or both) shall be included only to the
extent of the amount of cash dividends or cash distributions paid to the
referent Person or a Wholly Owned Restricted Subsidiary thereof that is a
Guarantor; (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition
shall be excluded; (iv) all extraordinary gains and extraordinary losses and
any unusual or non-recurring charges recorded or accrued in connection with
the issuance of the Notes (including without limitation the amounts described
in the last sentence of the definition of Consolidated Interest Expense) shall
be excluded; (v) the cumulative effect of a change in accounting principles
shall be excluded; and (vi) gains from Asset Sales (without regard to the $1.0
million limitation set forth in the definition thereof) or abandonments or
reserves relating thereto and the related tax effects according to GAAP shall
be excluded.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company, who: (i) was a member of such Board of
Directors on the date of the Indenture; (ii) was nominated for election or
elected to such Board of Directors with the affirmative vote of a majority of
the Continuing Directors who were members of such Board at the time of such
nomination or election; or (iii) was nominated for election or elected to such
Board of Directors by one or more of the Principals.
"Credit Agreement" means that certain Credit Agreement dated as of July 10,
1997, among the Company, the lenders party thereto from time to time in their
capacities as lenders thereunder and Bankers Trust Company, as agent (and any
successor agent thereunder), together with the related documents thereto
(including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from
time to time, including any agreement extending the maturity of, refinancing,
replacing, refunding or otherwise restructuring (including, without
limitation, increasing the amount of available borrowings thereunder or adding
Subsidiaries of the Company as additional borrowers or guarantors thereunder)
all or any portion of the Indebtedness under such agreement or any successor
or replacement agreement and whether by the same or any other agent, lender or
group of lenders.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Restricted Subsidiaries in the ordinary course of
business against fluctuation in the values of the currencies of the countries
(other than the United States) in which the Company or its Restricted
Subsidiaries conduct business.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
"Designated Senior Debt" means (a) with respect to the Company, (i) the
Obligations of the Company with respect to the Senior Bank Debt and (ii) any
other Senior Debt of the Company permitted under the Indenture the principal
amount of which at original issuance is $25.0 million or more and is
specifically designated in the instrument evidencing such Senior Debt as
"Designated Senior Debt" by the Company and (b) with respect to any Guarantor,
(i) the Obligations of such Guarantor with respect to the Senior Bank Debt and
(ii) any other Senior Debt of such Guarantor permitted under the Indenture the
principal amount of which at original issuance is $25.0 million or more and is
specifically designated in the instrument evidencing such Senior Debt as
"Designated Senior Debt" by the Company.
"Disqualified Capital Stock" means any Capital Stock which, by its terms (or
by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the Holder thereof (other than as a result of a Change of
Control), in whole or in part, on or prior to July 15, 2007.
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"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than the Senior Bank Debt) in existence on the date of the
Indenture, until such amounts are repaid.
"Fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom
is under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of the Company acting
reasonably and in good faith and shall be evidenced by a Board Resolution of
the Board of Directors of the Company delivered to the Trustee.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or if the Company or any
of its Subsidiaries issues or redeems any preferred stock, in each case
subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the date of the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Transaction Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
period. For purposes of making the computation referred to above, acquisitions
(including all mergers and consolidations), dispositions and discontinuance of
operations that have been made by the Company or any of its Subsidiaries
during the four-quarter reference period or subsequent to such reference
period and on or prior to the Transaction Date shall be calculated on a pro
forma basis assuming that all such acquisitions, dispositions and
discontinuance of operations had occurred on the first day of the four-quarter
reference period; provided, however, that Fixed Charges shall be reduced by
amounts attributable to operations that are so disposed of or discontinued
only to the extent that the obligations giving rise to such Fixed Charges
would no longer be obligations contributing to the Company's Fixed Charges
subsequent to the Transaction Date.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (a) Consolidated Interest Expense, (b) commissions,
discounts and other fees and charges incurred with respect to letters of
credit and bankers' acceptances financing, (c) any interest expense on
Indebtedness of another Person that is guaranteed by such Person or secured by
a Lien on assets of such Person, and (d) the product of (i) all cash dividend
payments (and non-cash dividend payments in the case of a Subsidiary of such
Person) on any series of preferred stock of such Person or any Subsidiary of
such Person, times (ii) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state and
local statutory tax rate of such Person, expressed as a decimal, determined,
in each case, on a consolidated basis and in accordance with GAAP.
"Foreign Subsidiary" means any subsidiary organized and incorporated in a
jurisdiction outside of the United States.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date. All
ratios and computations based on GAAP contained in the Indenture shall be
computed in conformity with GAAP applied on a consistent basis, except that
calculations made for purposes of determining compliance with the terms of the
covenants and with other provisions of the Indenture shall be made without
giving effect to (i) the deduction or amortization of any premiums, fees, and
expenses incurred in
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connection with the Eagle-Picher Acquisition, the Goodyear-Jackson Acquisition
and related financings or any other permitted incurrence of Indebtedness or
Refinancing Indebtedness and (ii) except as otherwise provided, the
amortization of any amounts required or permitted by Accounting Principles
Board Opinion Nos. 16 (including non-cash write-ups and non-cash charges
relating to inventory, fixed assets and in-process research and development,
in each case arising in connection with the Eagle-Picher Acquisition and the
Goodyear-Jackson Acquisition) and 17 (including non-cash charges relating to
intangibles and goodwill arising in connection with the Eagle-Picher
Acquisition and the Goodyear-Jackson Acquisition).
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means: (i) CE Automotive Trim Systems, Inc.; and (ii) each of
the Company's Restricted Subsidiaries located in the U.S. that in the future
executes a supplemental indenture in which such Restricted Subsidiary agrees
to be bound by the terms of the Indenture as a Guarantor; provided that any
Person constituting a Guarantor as described above shall cease to constitute a
Guarantor when its respective Guarantee is released in accordance with the
terms of the Indenture.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Holder" means the Person in whose name a Note is registered on the
Registrar's books.
"Holdings" means Cambridge Industries Holdings, Inc., a Delaware
corporation.
"Holdings Services Agreement" means the Services Agreement between Holdings
and the Company as in effect on the Issue Date.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Indebtedness
or other obligation or the recording, as required pursuant to GAAP or
otherwise, of any such Indebtedness or other obligation on the balance sheet
of such person (and "incurrence," "incurred," "incurable," and "incurring"
shall have meanings correlative to the foregoing); provided that a change in
GAAP that results in an obligation of such Person that exists at such time
becoming Indebtedness shall not be deemed an incurrence of such Indebtedness.
"Indebtedness" means with respect to any Person, without duplication: (i)
all Obligations of such Person for borrowed money; (ii) all Obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments; (iii) all Capitalized Lease Obligations of such Person, (iv) all
Obligations of such Person issued or assumed as the deferred purchase price of
property, all conditional sale obligations and all Obligations under any title
retention agreement (but excluding trade accounts payable and accrued
liabilities arising in the ordinary course of business); (v) all Obligations
for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction; (vi) all Guarantees of such Person;
(vii) Hedging Obligations, except any such balance that constitutes an accrued
expense or trade payable, if and to the extent any of the foregoing
indebtedness (other than letters of credit and Hedging Obligations) would
appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP; (viii) all Indebtedness of others secured by any Lien on
any asset or property (including, without limitation, leasehold interests and
any other tangible or intangible property) of such Person, the amount of such
Indebtedness for the purposes of this definition shall be limited to the
lesser of the amount of such Indebtedness secured by such Lien or the fair
market value of the assets or property securing such Lien; and (ix) all
Disqualified Capital Stock issued by such Person with the amount of
Indebtedness represented by such Disqualified Capital Stock being equal to the
greater of its voluntary or involuntary liquidation preference and its maximum
fixed repurchase price, but excluding accrued dividends, if any.
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"Industrial Revenue Obligations" means any debt obligation issued by a state
or local government or governmental authority to finance plants, equipment or
facilities that are made subject to a lease, or other transaction which
provides the credit support for such debt obligation, with the Company or any
Wholly Owned Restricted Subsidiary that is a Guarantor or a Foreign Subsidiary
or both.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans
(including Guarantees), advances or capital contributions (excluding
commission, travel, salary and other advances to officers and employees made
in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. For purposes of the covenant described above
under "Restricted Payment," (i) "Investment" in a Subsidiary shall include the
portion (proportionate to the Company's Equity Interest in such Subsidiary) of
the fair market value (as determined in good faith by the Board of Directors)
of such Subsidiary at the time that such Subsidiary is designated an
Unrestricted Subsidiary; provided that upon a redesignation of such Subsidiary
as a Restricted Subsidiary, the Company shall be deemed to continue to have a
permanent "Investment" in an Unrestricted Subsidiary in an amount (if
positive) equal to (x) the Company's "Investment" in such Subsidiary at the
time of such redesignation less (y) the portion (proportionate to the
Company's Equity Interest in such Subsidiary) of the fair market value (as
determined in good faith by the Board of Directors) of the net assets of such
Subsidiary at the time of such redesignation; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents (including payments in respect of
deferred payment obligations when received in the form of cash or Cash
Equivalents) received by the Company or any of its Restricted Subsidiaries
from such Asset Sale net of (a) reasonable out-of-pocket expenses and fees
relating to such Asset Sale (including, without limitation, brokerage, legal,
accounting and investment banking fees and sales commissions) and any
relocation expenses incurred as a result thereof, (b) taxes paid or payable
((1) including, without limitation, income taxes reasonably estimated to be
actually payable as a result of any disposition of property within two years
of the date of disposition and (2) after taking into account any reduction in
tax liability due to available tax credits or deductions and any tax sharing
arrangements) and (c) appropriate amounts to be provided by the Company as a
reserve, in accordance with GAAP, against any liabilities associated with such
Asset Sale and retained by the Company after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale and the repayment
of Indebtedness secured by a Lien on the asset or assets subject to the Asset
Sale.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (a) any gain or
loss, together with any related provision for taxes on such gain or loss,
realized in connection with (i) any Asset Sale (including, without limitation,
dispositions pursuant to sale and leaseback transactions), or (ii) the
disposition of any securities or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries, and (b) any extraordinary
gain or loss, together with any related provision for taxes on such
extraordinary gain or loss, (c) any one time charges relating to the GenCorp
Acquisition including, without
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limitation, any one-time charges relating to integration costs and adjustments
resulting in the write-up of inventory above cost, and (d) any write-off of
deferred financing fees or the incurrence of prepayment penalties or premiums
relating to the GenCorp Acquisition.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer or any Treasurer of such Person that shall comply
with applicable provisions of the Indenture.
"Permitted Business" means a business in which the Company and its
Subsidiaries was engaged on the date of the Indenture or a business that is
directly related or incidental thereto, including, without limitation, the
automotive component manufacturing business.
"Permitted Indebtedness" means without duplication each of the following:
(i) Existing Indebtedness (including Indebtedness of the Company and its
Restricted Subsidiaries under the Notes issued in connection with the
Offering) outstanding on the date of the Indenture;
(ii) Indebtedness of the Company or any of its Restricted Subsidiaries
that are Guarantors or Foreign Subsidiaries or both incurred pursuant to
the Credit Agreement in an aggregate principal amount at any time
outstanding not to exceed the greater of (a) $280.0 million or (b) the
Borrowing Base at such time; provided, however that the aggregate principal
amount of Indebtedness under clauses (a) and (b) shall be reduced dollar
for dollar for any Indebtedness outstanding under clause (viii) below and
to the extent Net Cash Proceeds relating to an Asset Sale is used to prepay
Indebtedness under this clause (ii) in accordance with the provisions
described under "Limitation on Asset Sales"; provided, further that the
aggregate principal amount of Indebtedness under clause (b) shall be
reduced dollar for dollar for any Indebtedness outstanding under clause
(viii) below only to the extent that the receivables transferred by the
Company or any of its Restricted Subsidiaries pursuant to the Qualified
Receivables Transaction giving rise to the Indebtedness incurred under
clause (viii) below are included in the Borrowing Base;
(iii) Obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
of the Company in the ordinary course of business;
(iv) Hedging Obligations that are incurred by the Company or any of its
Restricted Subsidiaries that are Guarantors or Foreign Subsidiaries or both
for the purpose of fixing or hedging interest rate risk with respect to any
Indebtedness that is permitted by the terms of the Indenture to be
outstanding;
(v) Intercompany Indebtedness incurred by the Company or any of its
Restricted Subsidiaries to the Company or any of its Restricted
Subsidiaries that are Guarantors or Foreign Subsidiaries or both, in each
case subject to no Lien (other than Liens securing the Credit Agreement)
held by a Person other than the Company or a Restricted Subsidiary or a
Guarantor or a Foreign Subsidiary or the holders of Senior Debt; provided
that if as of any date any Person other than the Company or a Restricted
Subsidiary or a Guarantor or a Foreign Subsidiary or the holders of Senior
Debt owns or holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebtedness.
(vi) Indebtedness of the Company or any of its Restricted Subsidiaries
that are Guarantors or Foreign Subsidiaries or both attributable to any
Currency Agreement or Commodity Agreement; provided, however, that such
agreements are entered into to protect the Company from fluctuations in the
prices of currency exchange rates and commodities, respectively;
(vii) Acquired Indebtedness incurred pursuant to this clause (vii) by the
Company or any of its Restricted Subsidiaries that are Guarantors or
Foreign Subsidiaries or both, which does not exceed $15,000,000 at any time
outstanding;
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(viii) The incurrence by a Receivables Subsidiary of Indebtedness in a
Qualified Receivables Transaction that is without recourse to the Company
or to any Restricted Subsidiary of the Company or their assets (other than
such Receivables Subsidiary and its assets), and is not guaranteed by any
such Person; provided that any outstanding Indebtedness incurred under this
clause (viii) shall reduce the aggregate amount permitted to be incurred
under clause (ii) above to the extent set forth therein;
(ix) Guarantees by the Company's Restricted Subsidiaries of Indebtedness
permitted to be incurred under the Indenture; provided that such Restricted
Subsidiary complies with the "Guarantee of the Notes" covenant;
(x) Additional Indebtedness of the Company or any of its Restricted
Subsidiaries that are Guarantors or Foreign Subsidiaries or both incurred
pursuant to this clause (x), which together with the aggregate liquidation
value of outstanding Permitted Subsidiary Preferred Stock, does not exceed
$20,000,000 at any time outstanding (which amount may be, but need not be,
incurred in whole or in part under the Credit Agreement); and
(xi) The incurrence by the Company or any of its Restricted Subsidiaries
that are Guarantors or Foreign Subsidiaries or both of Indebtedness issued
in exchange for, or the proceeds of which are used to extend, refinance,
renew, replace, defease or refund Indebtedness permitted to be incurred or
remain outstanding under the Indenture in whole or in part; provided,
however, that (1) the principal amount of such Refinancing Indebtedness
shall not exceed the principal amount of Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded; (2) the Refinancing
Indebtedness shall have a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded; (3) if
the Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes, the Refinancing
Indebtedness shall be subordinated in right of payment to the Notes or any
Guarantees on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (4) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is Indebtedness of the Company or a Guarantor, the Refinancing
Indebtedness shall be incurred by the Company or a Guarantor (any such
extension, refinancing, renewal, replacement, defeasance or refunding being
referred to as "Refinancing Indebtedness"); provided, further, that the
foregoing clauses (1), (2) and (3) shall not apply with respect to
Indebtedness under clause (ii) above or, to the extent incurred under the
Credit Agreement, Indebtedness under clauses (vii) and (x) above so long as
the aggregate principal amount of such Refinancing Indebtedness does not
exceed the amount of Indebtedness permitted under such clauses (ii), (vii)
and (x);
(xii) Indebtedness (including Capitalized Lease Obligations, Industrial
Revenue Obligations or Purchase Money Obligations) incurred by the Company
or any of its Restricted Subsidiaries or Permitted Subsidiary Preferred
Stock to finance the purchase, lease or improvement of property (real or
personal) or a business or equipment (whether through the direct purchase
of assets or the Capital Stock of any Person owning such assets or any
Indebtedness or Permitted Subsidiary Preferred Stock issued to a seller to
finance the purchase of property, a business or equipment in connection
therewith) in an aggregate principal amount not to exceed the greater of
$10,000,000 at any one time outstanding or 5% of Total Assets at the time
of any incurrence thereof (including any Refinancing Indebtedness with
respect thereto) (which amount may, but need not, be incurred in whole or
in part under the Credit Agreement); and
(xiii) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary of the Company providing for indemnification,
adjustment of purchase price, earn out or other similar obligations, in
each case, incurred or assumed in connection with the disposition of any
business, assets or a Restricted Subsidiary of the Company, other than
guarantees of Indebtedness incurred by any Person acquiring all or any
portion of such business, assets or Restricted Subsidiary for the purpose
of financing such acquisition; provided that the maximum assumable
liability in respect of all such Indebtedness shall at no time exceed the
gross proceeds actually received by the Company and its Restricted
Subsidiaries in connection with such disposition.
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"Permitted Investments" means: (a) any Investments in the Company or in a
Wholly Owned Restricted Subsidiary of the Company that is a Guarantor; (b) any
Investments in Cash Equivalents; (c) Investments by the Company or any
Restricted Subsidiary of the Company in a Person, if as a result of such
Investment: (i) such Person becomes a Wholly Owned Restricted Subsidiary of
the Company and a Guarantor or (ii) such Person is consolidated or amalgamated
with or into, or transfers or conveys substantially all of its assets to, or
is liquidated into, the Company or a Wholly Owned Restricted Subsidiary of the
Company that is a Guarantor; (d) Investments existing on the date of the
Indenture; (e) Investments in any Foreign Subsidiary in an aggregate amount
not to exceed $10,000,000 at any time outstanding; (f) any Investment in
Voplex Canada Inc. in an amount not to exceed $1,000,000; (g) any Investment
by the Company or a Wholly Owned Restricted Subsidiary of the Company in a
Receivables Subsidiary or any Investment by a Receivables Subsidiary in any
other Person in connection with a Qualified Receivables Transaction; provided
that the foregoing Investment is in the form of a note that the Receivables
Subsidiary or other Person is required to repay as soon as practicable from
available cash collections less amounts required to be established as reserves
pursuant to contractual agreements with entities that are not Affiliates of
the Company entered into as part of a Qualified Receivables Transaction;
(h) loans and advances to employees and officers of the Company and its
Restricted Subsidiaries not in excess of $3,000,000 at any one time
outstanding; (i) accounts receivable created or acquired in the ordinary
course of business; (j) Hedging Obligations, Currency Agreements and Commodity
Agreements entered into in the ordinary course of the Company's or its
Restricted Subsidiaries' businesses and otherwise in compliance with the
Indenture; (k) Investments in Unrestricted Subsidiaries in an amount at any
one time outstanding not to exceed $5,000,000; (l) Guarantees (A) by the
Company of Indebtedness otherwise permitted to be incurred by Restricted
Subsidiaries of the Company under the Indenture or (B) permitted by the
"Guarantee of the Notes" covenant; (m) Investments received by the Company or
its Restricted Subsidiaries as consideration for asset sales, including Asset
Sales; provided in the case of an Asset Sale, such Asset Sale is effected in
compliance with the "Asset Sale" covenant; (n) Investments in securities of
trade creditors or customers received pursuant to any plan of reorganization
or similar arrangement upon the bankruptcy or insolvency of such trade
creditors or customers; (o) additional Investments having an aggregate fair
market value, taken together with all other Investments made pursuant to this
clause (o) that are at that time outstanding, not to exceed 5% of Total Assets
at the time of such Investment (with the fair market value of each Investment
being measured at the time made and without giving effect to subsequent
changes in value); and (p) Investments the payment for which consists
exclusively of Qualified Capital Stock of the Company.
"Permitted Liens" means: (a) Liens in favor of the Company; (b) Liens
securing Senior Debt of the Company or of any Guarantor that was permitted to
be incurred pursuant to the Indenture; (c) Liens on property of a Person
existing at the time such Person is merged into or consolidated with the
Company or any Restricted Subsidiary of the Company, provided that such Liens
were in existence prior to the contemplation of such merger or consolidation
and do not extend to any assets other than those of the Person merged into or
consolidated with the Company or such Restricted Subsidiary; (d) Liens on
property existing at the time of acquisition thereof by the Company or any
Subsidiary of the Company; provided that such Liens were in existence prior to
the contemplation of such acquisition; (e) Liens to secure surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (f) Liens existing on the date of the Indenture;
(g) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by appropriate
proceedings promptly instituted and diligently concluded; provided that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (h) Liens imposed by law, such as
mechanics', carriers', warehousemen's, materialmen's, and vendors' Liens,
incurred in good faith in the ordinary course of business with respect to
amounts not yet delinquent or being contested in good faith by appropriate
proceedings if a reserve or other appropriate proceedings if a reserve or
other appropriate provisions, if any, as shall be required by GAAP shall have
been made therefor; (i) zoning restrictions, easements, licenses, covenants,
reservations, restrictions on the use of real property or minor irregularities
of title incident thereto that do not, in the aggregate, materially detract
from the value of the property or the assets of the Company or impair the use
of such property in the operation of the Company's business; (j) judgment
Liens to the extent that such judgments do not cause or constitute a Default
or an Event of Default; and (k) Liens to secure the payment of all or a part
of the purchase price of
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property or assets acquired or constructed in the ordinary course of business
on or after the date of the Indenture, provided that (i) such property or
assets are used in the same or similar line of business as the Company was
engaged in on the date of the Indenture, (ii) at the time of incurrence of any
such Lien, the aggregate principal amount of the obligations secured by such
Lien shall not exceed the lesser of the cost or fair market value of the
assets or property (or portions thereof) so acquired or constructed, (iii)
each such Lien shall encumber only the assets or property (or portions
thereof) so acquired or constructed and shall attach to such property within
180 days of the purchase or construction thereof and (iv) any Indebtedness
secured by such Lien shall have been permitted to be incurred under the
"Limitation on Additional Indebtedness and Issuance of Preferred Stock"
covenant; (l) Liens of land-lords or of mortgagees of landlords arising by
operation of law; provided that the rentals payments secured thereby are not
yet due and payable; (m) Liens incurred in the ordinary course of business of
the Company or any Subsidiary of the Company with respect to obligations that
do not exceed $5,000,000 at any one time outstanding and that (a) are not
incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than trade credit in the ordinary course of
business) and (b) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof in the operation of business
by the Company or such Subsidiary; (n) Liens incurred or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (o) Liens securing
reimbursement obligations with respect to letters of credit which encumber
only documents and other property relating to such letters of credit and the
products and proceeds thereof; (p) Liens encumbering deposits made to secure
obligations arising from statutory, regulatory, contractual or warranty
requirements; (q) Liens arising out of consignment or similar arrangements for
the sale of goods in the ordinary course of business; (r) any interest or
title of a lessor in property subject to any capital lease obligation or
operating lease; (s) any interest or title of a lessor in property subject to
any capital lease obligation or operating lease, (t) Liens on assets of a
Receivables Subsidiary incurred in connection with a Qualified Receivables
Transaction; (u) Liens securing Indebtedness under Currency Agreements; (v)
Liens securing Hedging Obligations which Hedging Obligations relate to
Indebtedness that is otherwise permitted under the Indenture; (w) leases or
subleases granted to others that do not materially interfere with the ordinary
course of business of the Company and its Restricted Subsidiaries; (x) Liens
arising from filing Uniform Commercial Code financing statements regarding
leases; and (y) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of custom duties in connection with the
importation of goods.
"Permitted Subsidiary Preferred Stock" means any series of Preferred Stock
of a domestic or foreign Restricted Subsidiary of the Company or Wholly Owned
Restricted Subsidiary that constitutes Qualified Capital Stock and has a fixed
dividend rate, the liquidation value of all series of which is issued pursuant
to clauses (x) and (xii) of the definition of Permitted Indebtedness.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government (including any agency or political subdivision thereof).
"Post-Petition Interest" means any interest accruing subsequent to the
filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an allowed
claim under applicable law.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Principals" means Bain, the Bain Funds and Richard S. Crawford.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Securities Act as interpreted by the
Company's Board of Directors in consultation with its independent certified
public accountants.
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"Purchase Money Obligations" of any Person means any obligations of such
Person or any of its subsidiaries to any seller or any other person incurred
or assumed in connection with the purchase of real or personal property to be
used in the business of such person or any of its subsidiaries within 180 days
of such incurrence or assumption.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of its Restricted
Subsidiaries pursuant to which the Company or any of its Restricted
Subsidiaries may sell, convey or otherwise transfer to (i) a Receivables
Subsidiary (in the case of a transfer by the Company or any of its Restricted
Subsidiaries) and (ii) any other person (in the case of a transfer by a
Receivables Subsidiary), or may grant a security interest in, any accounts
receivable (whether now existing or arising in the future) of the Company or
any of its Restricted Subsidiaries, and any assets related thereto including,
without limitation, all collateral securing such accounts receivable, all
contracts and all guarantees or other obligations in respect of such accounts
receivable, proceeds of such accounts receivable and other assets which are
customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable.
"Receivables Subsidiary" means a Wholly Owned Restricted Subsidiary of the
Company that engages in no activities other than in connection with the
financing of accounts receivable and that is designated by the Board of
Directors of the Company (as provided below) as a Receivables Subsidiary (a)
no portion of the Indebtedness or any other Obligations (contingent or
otherwise) of which (i) is guaranteed by the Company or any Restricted
Subsidiary of the Company (excluding guarantees of Obligations (other than the
principal of, and interest on, Indebtedness) pursuant to representations,
warranties, covenants and indemnities entered into in the ordinary course of
business in connection with a Qualified Receivables Transaction), (ii) is
recourse to or obligates the Company or any Restricted Subsidiary of the
Company in any way other than pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business in
connection with a Qualified Receivables Transaction or (iii) subjects any
property or asset of the Company or any Restricted Subsidiary of the Company,
directly or indirectly, contingently or otherwise, to the satisfaction
thereof, other than pursuant to representations, warranties, covenants and
indemnities entered into in the ordinary course of business in connection with
a Qualified Receivables Transaction, (b) with which neither the Company nor
any Restricted Subsidiary of the Company has any material contract, agreement,
arrangement or understanding other than on terms no less favorable to the
Company or such Restricted Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of the Company, other than fees
payable in the ordinary course of business in connection with servicing
accounts receivable and (c) with which neither the Company nor any Restricted
Subsidiary of the Company has any obligation to maintain or preserve such
Restricted Subsidiary's financial condition or cause such Restricted
Subsidiary to achieve certain levels of operating results. Any such
designation by the Board of Directors of the Company shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of the
Board of Directors of the Company giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions.
"Related Party" with respect to any Principal means (i) any controlling
stockholder, general partner, majority owned Subsidiary, or spouse or
immediate family member (in the case of an individual) of such Principal or
(ii) (a) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners, owners or Persons beneficially holding
80% or more of the Voting Stock of which consist of such Principal and/or such
other Persons referred to in the immediately preceding clause (i) or (b) any
partnership the sole general partner of which is a Principal or one of the
Persons referred in clause (i).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of such Person that
is not an Unrestricted Subsidiary.
105
<PAGE>
"Revolving Credit Facility" means the revolving credit portion of the Credit
Agreement.
"Senior Bank Debt" means all Obligations arising under the Credit Agreement.
"Senior Debt" means (a) with respect to the Company: (i) Senior Bank Debt of
the Company (including, without limitation, Post-Petition Interest with
respect thereto); (ii) Obligations of the Company with respect to Commodity
Agreements; (iii) Obligations of the Company with respect to Currency
Agreements; (iv) Hedging Obligations of the Company (including, without
limitation, Post-Petition Interest with respect thereto); and (v) any other
Indebtedness, including, without limitation, Post-Petition Interest with
respect thereto, incurred by the Company unless the instrument under which
such Indebtedness is incurred expressly provides that it is pari passu with or
subordinated in right of payment to the Notes, and (b) with respect to any
Guarantor: (i) Senior Bank Debt of such Guarantor; (ii) Obligations of such
Guarantor with respect to Commodity Agreements; (iii) Obligations of such
Guarantor with respect to Currency Agreements, (iv) Hedging Obligations of
such Guarantor (including, without limitation, Post-Petition Interest with
respect thereto); (v) any Guarantee by such Guarantor of any Senior Debt of
the Company; and (vi) any other Indebtedness, including, without limitation,
Post-Petition Interest with respect thereto, incurred by such Guarantor,
unless the instrument under which such Indebtedness is incurred expressly
provides that it is pari passu with or subordinated in right of payment to the
Subsidiary Guarantee of such Guarantor. Notwithstanding anything to the
contrary in the foregoing, Senior Debt shall not include (v) any obligation of
the Company or any Guarantor to, in respect of or imposed by any
environmental, landfill, waste management or other regulatory governmental
agency, statute, law or court order, (w) any liability for federal, state,
local or other taxes owed or owing by the Company or any Guarantor, (x) any
Indebtedness of the Company or any Guarantor to any of the Company's
Subsidiaries or other Affiliates, (y) any trade payables or (z) that portion
of any Indebtedness that is incurred in violation of the Indenture on or
before the date of the Indenture (but, as to any such obligation, no such
violation shall be deemed to exist for purposes of this clause (z) if the
holder(s) of such obligation or their representative and the Trustee shall
have received an officers' certificate of the Company to the effect that the
incurrence of such Indebtedness does not (or, in the case of revolving credit
Indebtedness, that the incurrence of the entire committed amount thereof at
the date on which the initial borrowing thereunder is made would not) violate
such provisions of the Indenture).
"Senior Representative" means the Agent Bank or any other representative
designated in writing to the Trustee or the holders of any class or issue of
Designated Senior Debt; provided that, in the absence of a representative of
the type described above, any holder or holders of a majority of the principal
amount outstanding of any class or issue of Designated Senior Debt may
collectively act as the Senior Representative for such class or issue.
"Significant Restricted Subsidiary" means any Restricted Subsidiary of the
Company constituting a Significant Subsidiary.
"Significant Subsidiary" means any Subsidiary of the Company that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"Subsidiary" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person or a
combination thereof.
"Tax Sharing Agreement" means the tax sharing agreement, dated November 17,
1995, between Holdings and the Company.
"Total Assets" means total consolidated assets of the Company and its
Restricted Subsidiaries, as set forth on the Company's most recent
consolidated balance sheet.
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"Unrestricted Subsidiary" means (A) any Wholly Owned Subsidiary of the
Company designated by the Board of Directors of the Company as an Unrestricted
Subsidiary pursuant to a Board resolution set forth in an Officers'
Certificate and delivered to the Trustee (i) that, at the time of designation,
(x) has total assets not exceeding $1,000 or (y) whose designation as such
would be permitted in accordance with the covenant entitled "Certain
Covenants--Restricted Payments," (ii) no portion of the Indebtedness or any
other obligations (contingent or otherwise) of which is (a) guaranteed by the
Company or any other Subsidiary (other than another Unrestricted Subsidiary)
of the Company, (b) is recourse to or obligates the Company or any other
Subsidiary (other than another Unrestricted Subsidiary) of the Company in any
way or (c) subjects any property or asset of the Company or any other
Subsidiary (other than another Unrestricted Subsidiary) of the Company,
directly or indirectly, contingently or otherwise, to the satisfaction
thereof, (iii) with which neither the Company nor any other Subsidiary of the
Company (other than another Unrestricted Subsidiary) has any contract,
agreement, arrangement or under-standing other than on terms no less favorable
to the Company or such other Subsidiary than those that might be obtained at
the time from persons who are not Affiliates of the Company and (iv) with
which neither the Company nor any other Subsidiary of the Company (other than
another Unrestricted Subsidiary) has any obligation (a) to subscribe for
additional shares of Capital Stock or other Equity Interests therein or (b) to
maintain or preserve such Subsidiary's financial condition or to cause such
Subsidiary to achieve certain levels of operating results and (B) any
Subsidiary of an Unrestricted Subsidiary.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States
of America (including any agency or instrumentality thereof) for the payment
of which the full faith and credit of the United States of America is pledged
and which are not callable at the issuer's option.
"Voting Stock" means any class or classes of Capital Stock pursuant to which
the holders thereof have the general voting power under ordinary circumstances
to elect at least a majority of the board of directors, managers, general
partners or trustees of any Person (irrespective of whether or not, at the
time, Capital Stock of any other class or classes shall have, or might have,
voting power by reason of the happening of any contingency) or, with respect
to a partnership (whether general or limited), any general partner interest in
such partnership.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect thereof, by (b)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
aggregate principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the out-standing Capital Stock or other
ownership interests of which (other than directors qualifying shares,
Permitted Subsidiary Preferred Stock or Preferred Stock issued in accordance
with the Fixed Charge Coverage Ratio under the "Limitation on Additional
Indebtedness and issuance of Preferred Stock" covenant) shall at the time be
owned by such Person or by one or more Wholly Owned Restricted Subsidiaries of
such Person.
107
<PAGE>
BOOK ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Notes are and will be
represented by one or more permanent global certificates in definitive, fully
registered form (the "Global Notes"). The Global Notes will be deposited on
the date of the consummation of the Exchange Offer with, or on behalf of, The
Depository Trust Company, New York, New York ("DTC") and registered in the
name of a nominee of DTC. The Global Note will be subject to certain
restrictions on transfer set forth therein and will bear the legend regarding
such restrictions set forth under the heading "Transfer Restrictions" herein.
Notes (i) originally purchased by or transferred to "foreign purchasers" (as
defined in "Transfer Restrictions") or (ii) held by QIBs or Accredited
Investors who are not QIBs who elect to take physical delivery of their
certificates instead of holding their interests through a Global Note (and
which are thus ineligible to trade through DTC) (collectively referred to
herein as the "Non-Global Purchasers") will be issued in registered form (the
"Certificated Security"). Upon the transfer to a QIB of any Certificated
Security initially issued to a Non-Global Purchaser, such Certificated
Security will, unless the transferee requests otherwise or the Global Note has
previously been exchanged in whole for Certificated Securities, be exchanged
for an interest in the Global Note. For a description of the restrictions on
the transfer of Certificated Securities and any interest in Global Notes, see
"Transfer Restrictions."
The Global Notes. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Notes, DTC or its
custodian will credit, on its internal system, the principal amount of Notes
of the individual beneficial interests represented by such global securities
to the respective accounts of persons who have accounts with such depositary
and (ii) ownership of beneficial interests in the Global Notes will be shown
on and the transfer of such ownership will be effected only through, records
maintained by DTC or its nominee (with respect to interests of participants)
and the records of participants (with respect to interests of persons other
than participants). Such accounts initially will be designated by or on behalf
of the Initial Purchaser and ownership of beneficial interests in the Global
Notes will be limited to persons who have accounts with DTC ("participants")
or persons who hold interests through participants. QIBs and Accredited
Investors may hold their interests in the Global Notes directly through DTC if
they are participants in such system, or indirectly through organizations that
are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Notes for all purposes
under the Indenture. No beneficial owner of an interest in any of the Global
Notes will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture with respect
to the Notes.
Payments of the principal of, premium (if any) and interest (including
Additional Interest) on the Global Notes will be made to DTC or its nominee,
as the case may be, as the registered owner thereof. None of the Company, the
Trustee or any Paying Agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest (including Additional Interest) on the
Global Notes, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Notes as shown on the records of DTC or its nominee. The Company
also expects that payments by participants to owners of beneficial interests
in the Global Notes held through such participants will be governed by
standing instructions and customary practice, as is now the case with
securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
108
<PAGE>
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. If a
holder requires physical delivery of a Certificated Security for any reason,
including to sell Notes to persons in states that require physical delivery of
the Notes, or to pledge such securities, such holder must transfer its
interest in the Global Notes, in accordance with the normal procedures of DTC
and with the procedures set forth in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if
there is an Event of Default under the Indenture, DTC will exchange the Global
Notes for Certificated Securities that it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical movement of certificates. Participants include securities brokers and
dealers, banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among participants of DTC, it is
under no obligation to perform such procedures and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Notes and a successor depositary is
not appointed by the Company within 90 days, Certificated Securities will be
issued in exchange for the Global Notes.
109
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable Treasury regulations, judicial
authority and administrative rulings and practice. There can be no assurance
that the Internal Revenue Service (the "Service") will not take a contrary
view, and no ruling from the Service has been or will be sought. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conditions set forth herein. Any such
changes or interpretations may or may not be retroactive and could affect the
tax consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. The Company
recommends that each holder consult such holder's own tax advisor as to the
particular tax consequences of exchanging such holder's Old Notes for New
Notes, including the applicability and effect of any state, local or foreign
tax laws.
The Company believes that the exchange of Old Notes for New Notes pursuant
to the Exchange Offer will not be treated as an "exchange" for federal income
tax purposes because the New Notes will not be considered to differ materially
in kind or extent from the Old Notes. Rather, the New Notes received by a
holder will be treated as a continuation of the Old Notes in the hands of such
holder. As a result, there will be no federal income tax consequences to
holders exchanging Old Notes for New Notes pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of New Notes received
in exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any Participating Broker-
Dealer for use in connection with any such resale (provided that the Company
receives notice from any Participating Broker-Dealer of its status as a
Participating Broker-Dealer within 30 days after the Expiration Date). In
addition, until , 199 (90 days after the commencement of the Exchange
Offer), all dealers effecting transactions in the New Notes, whether or not
participating in this distribution, may be required to deliver a prospectus.
The Company will not receive any proceeds from any sales of the New Notes by
Participating Broker-Dealers. New Notes received by Participating Broker-
Dealers for their own accounts pursuant to the Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such Participating Broker-Dealer and/or the purchasers of
any such New Notes. Any Participating Broker-Dealer that resells the New Notes
that were received by it for its own account pursuant to the Exchange Offer
and any broker or dealer that participates in a distribution of such New Notes
may be deemed to be an "underwriter" within the meaning of the Securities Act
and any profit on any such resale of New Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that
by acknowledging that it will deliver and by delivering a Prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly, upon request and in no event more than five business days after such
request, send additional copies of this Prospectus and any
110
<PAGE>
amendment or supplement to this Prospectus to any Participating Broker-Dealer
that has provided the Company with notice of its status as a Participating
Broker-Dealer within 30 days of the Expiration Date.
LEGAL MATTERS
Certain legal matters relating to the issuance of the New Notes will be
passed upon for the Company by its counsel, Jaffe, Raitt, Heuer & Weiss,
Professional Corporation, Detroit, Michigan.
CHANGE IN INDEPENDENT ACCOUNTANTS
PREVIOUS INDEPENDENT ACCOUNTANTS
On October 16, 1997, the Company dismissed Deloitte & Touche LLP as its
independent accountants. The reports of Deloitte & Touche LLP on the Company's
financial statements for the past two years contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle. The Company's Board of Directors
participated in and approved the decision to change independent accountants.
In connection with its audits for the two most recent fiscal years and through
October 16, 1997, there have been no disagreements with Deloitte & Touche LLP
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not
resolved to the satisfaction of Deloitte & Touche LLP would have caused them
to make reference thereto in their report on the financial statements for such
years.
During the two most recent fiscal years and through October 16, 1997, there
have been no reportable events (as defined in Regulations S-K Item
304(a)(l)(v)).
NEW INDEPENDENT ACCOUNTANTS
The Company engaged Price Waterhouse LLP as its new independent accountants
as of October 17, 1997. During the two most recent fiscal years and through
October 17, 1997, the Company has not consulted with Price Waterhouse LLP
regarding either (i) the application of accounting principles to a specific
transaction either completed or proposed; or the type of audit opinion that
might be rendered on the Company's financial statements, and either a written
report was provided to the Company or oral advice was provided that Price
Waterhouse LLP concluded was an important factor considered by the Company in
reaching a decision as to the accounting, auditing or financial reporting
issue; or (ii) any matter that was either the subject of a disagreement, as
that term is defined in Item 304(a)(l)(iv) of Regulation S-K and the related
instructions to Item 304 of Regulation S-K, or a reportable event, as that
term is defined in Item 304(a)(l)(v) of Regulation S-K.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and 1995 and for each of the three years in the period ended December 31, 1996
and the statement of sales less costs and expenses of the Centralia Plant and
Butler Polymet, Inc., for the ten month period ended July 31, 1994 included in
this Prospectus and related financial statement schedule of the Company
included elsewhere in the Registration Statement have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports appearing
herein and elsewhere in the Registration Statement, and have been so included
in reliance upon the reports of such firm given upon their authority as
experts in accounting and auditing.
The financial statements of GenCorp RPD as of November 30, 1995, and for the
years ended November 30, 1995 and 1994, included in this Prospectus, have been
so included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
111
<PAGE>
The financial statements of The Goodyear Tire & Rubber Company--Jackson
Plant as of December 31, 1996 and 1995, and for each of the three years in the
period ended December 31, 1996, included in this Prospectus, have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
With respect to the unaudited condensed consolidated financial information
of Cambridge Industries, Inc. and subsidiaries for the nine-month periods
ended September 30, 1997 and 1996, included in this Prospectus, Price
Waterhouse LLP reported that they have applied limited procedures in
accordance with professional standards for a review of such information.
However, their separate report dated November 25, 1997 appearing herein,
states that they did not audit and they do not express an opinion on that
unaudited condensed consolidated financial information. Price Waterhouse LLP
has not carried out any significant or additional audit tests beyond those
which would have been necessary if their report had not been included herein.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
Price Waterhouse LLP is not subject to the liability provisions of section 11
of the Securities Act of 1933 for their report on the unaudited condensed
consolidated financial information because that report is not a "report" or a
"part" of the registration statement prepared or certified by Price Waterhouse
LLP within the meaning of sections 7 and 11 of the Securities Act of 1933.
AVAILABLE INFORMATION
As a result of the Exchange Offer Registration Statement being declared
effective by the Commission, the Company will become subject to the
informational requirements of the Exchange Act, and in accordance therewith
will be required to file periodic reports and other information with the
Commission. The obligation of the Company to file periodic reports and other
information with the Commission will be suspended if the New Notes are held of
record by fewer than 300 holders as of the beginning of any fiscal year of the
Company other than the fiscal year in which the Exchange Offer Registration
Statement is declared effective. The Company has agreed, pursuant to the
Indenture, to deliver to the Trustee within 15 days after the filing of the
same with the Commission, copies of the quarterly and annual reports and of
the information, documents and other reports, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants, if any, which the Company is required to
file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
Notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will also
provide the Trustee and Holders with such annual reports and such information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act. In addition, whether or not required by the rules and regulations of the
Commission, at any time after the Company files the Exchange Offer
Registration Statement with the Commission, the Company will file a copy of
all such information with the Commission for public availability (unless the
Commission will not accept such a filing) and make such information available
to investors who request it in writing. The Company will also comply with the
other provisions of TIA (S) 314(a).
The Company, a corporation organized under Delaware law, has its principal
executive offices at 555 Horace Brown Drive, Madison Heights, Michigan 48071;
its telephone number is (248) 616-0500.
112
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Cambridge Industries, Inc. and Subsidiaries Consolidated Financial
Statements............................................................... F-2
Review Report of Independent Accountants................................ F-3
Condensed Consolidated Balance Sheets--September 30, 1997 (unaudited)
and December 31, 1996.................................................. F-4
Unaudited Condensed Consolidated Statements of Operations--Nine Months
Ended September 30, 1997 and 1996 ..................................... F-5
Unaudited Condensed Consolidated Statements of Cash Flows--Nine Months
Ended September 30, 1997 and 1996...................................... F-6
Notes to Unaudited Condensed Consolidated Financial Statements.......... F-7
Independent Auditors' Report............................................ F-17
Consolidated Balance Sheets--December 31, 1996 and 1995................. F-18
Consolidated Statements of Operations--Years Ended December 31, 1996,
1995 and 1994.......................................................... F-19
Consolidated Statements of Cash Flows--Years Ended December 31, 1996,
1995 and 1994.......................................................... F-20
Notes to Financial Statements........................................... F-21
GenCorp Inc. Reinforced Plastics Division Financial Statements............ F-43
Report of Independent Accountants....................................... F-44
Balance Sheets as of February 29, 1996 (unaudited) and November 30,
1995................................................................... F-45
Statements of Operations--Three Months Ended February 29, 1996
(unaudited) and February 28, 1995 (unaudited) and the years ended
November 30, 1995 and 1994............................................. F-46
Statements of Cash Flows--Three Months Ended February 29, 1996
(unaudited) and February 28, 1995 (unaudited) and the years ended
November 30, 1995 and 1994............................................. F-47
Notes to Financial Statements........................................... F-48
Centralia Plant and Butler Polymet, Inc. Financial Statements............. F-57
Independent Auditors' Report............................................ F-58
Statement of Sales Less Costs and Expenses--Ten Months Ended July 31,
1994................................................................... F-59
Statement of Cash Flows--Ten Months Ended July 31, 1994................. F-60
Notes to Financial Statements........................................... F-61
The Goodyear Tire & Rubber Company--Jackson Plant Financial Statements.... F-65
Report of Independent Accountants....................................... F-66
Balance Sheets as of June 30, 1997 (Unaudited) and December 31, 1996 and
1995................................................................... F-67
Statements of Operations--Six Months Ended June 30, 1997 and 1996
(Unaudited) and Each of the Three Years in the Period Ended December
31, 1996............................................................... F-68
Statements of Cash Flows--Six Months Ended June 30, 1997 and 1996
(Unaudited) and Each of the Three Years in the Period Ended December
31, 1996............................................................... F-69
Notes to Financial Statements........................................... F-70
</TABLE>
F-1
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND REVIEW REPORT OF
INDEPENDENT ACCOUNTANTS
F-2
<PAGE>
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Cambridge Industries, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Cambridge Industries, Inc. and subsidiaries as of September 30, 1997, and the
related statements of operations and of cash flows for the nine month periods
ended September 30, 1997 and 1996. The financial information is the
responsibility of the Company's management.
We conducted our review of the financial information in accordance with
standards established by the American Institute of Certified Public
Accountants. A review of interim financial information consists principally of
applying analytical procedures to financial data and making inquires of
persons responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with generally accepted
auditing standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial information for it to be in
conformity with generally accepted accounting principles.
The December 31, 1996 balance sheet information has been derived from the
Company's consolidated financial statements which were audited by other
independent accountants, whose report dated March 28, 1997 expressed an
unqualified opinion thereon.
Price Waterhouse LLP
Detroit, Michigan
November 25, 1997
F-3
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.............................................. $ 3,541 $ 11,942
Receivables....................................... 76,136 48,985
Inventories (Note 2).............................. 26,210 21,297
Reimbursable tooling costs........................ 32,530 17,674
Income tax refundable............................. 3,270 3,270
Deferred income taxes and other................... 2,375 6,571
-------- --------
Total current assets................................ 144,062 109,739
Property, plant and equipment, net.................. 199,037 133,324
Other assets........................................ 31,792 19,167
-------- --------
Total assets........................................ $374,891 $262,230
======== ========
Liabilities and stockholder's equity (deficit)
Current liabilities:
Current portion of long-term debt................. $ 5,513 $ 9,080
Accounts payable.................................. 48,957 38,028
Accrued liabilities............................... 33,579 25,102
-------- --------
Total current liabilities........................... 88,049 72,210
Noncurrent liabilities:
Long-term debt (including related party amounts of
$16,480 at December 31, 1996).................... 318,987 224,112
Workers' compensation............................. 968 968
Postretirement health care benefits............... 21,779 15,164
Accrued commitments under acquired contracts...... 2,244
Deferred income taxes............................. 16,375 9,673
-------- --------
Total liabilities................................... 446,158 324,371
-------- --------
Commitments and contingencies (Note 3)
Stockholder's deficit:
Common stock, $.01 par value, 3,000 shares
authorized, 1,000 shares issued and outstanding.. 1 1
Paid-in capital................................... 17,538 17,538
Unrealized foreign currency translation........... (297) (87)
Accumulated deficit............................... (88,509) (79,593)
-------- --------
Total stockholder's deficit......................... (71,267) (62,141)
-------- --------
Total liabilities and stockholder's deficit......... $374,891 $262,230
======== ========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.
F-4
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1997 1996
-------- --------
<S> <C> <C>
Sales....................................................... $296,396 $264,086
Cost of sales............................................... 255,107 223,280
-------- --------
Gross profit................................................ 41,289 40,806
Selling, general and administrative expenses................ 20,955 17,654
-------- --------
Income from operations...................................... 20,334 23,152
Other expense (income):
Interest expense........................................... 19,796 16,942
Other, net................................................. 145 145
-------- --------
Income before income tax and extraordinary item............. 393 6,065
Income tax expense.......................................... 157 2,025
-------- --------
Income before extraordinary item............................ 236 4,040
Extraordinary item, net of tax benefit...................... (9,152) --
-------- --------
Net income (loss)........................................... $ (8,916) $ 4,040
======== ========
</TABLE>
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.
F-5
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1997 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Income before extraordinary item......................... $ 236 $ 4,040
Adjustments to reconcile income before extraordinary item
to net cash provided by operating activities:
Depreciation and amortization.......................... 18,129 15,773
Postretirement benefit expenses, net of cash payments.. 1,900 1,516
Deferred income tax provision.......................... 4,369 2,838
Changes in assets and liabilities, excluding the effect
of acquisitions:
Receivables.......................................... (17,825) (18,162)
Inventories.......................................... 2,321 (1,192)
Reimbursable tooling................................. (5,573) (3,196)
Accounts payable and accrued liabilities............. 1,719 2,870
Other................................................ (2,694) (8,143)
--------- --------
Net cash provided by (used in) operating activities...... 2,582 (3,656)
--------- --------
Cash flows from investing activities:
Acquisitions, net of cash acquired..................... (72,161) (18,160)
Purchase of property, plant and equipment.............. (14,396) (6,958)
--------- --------
Net cash used in investing activities.................... (86,557) (25,118)
--------- --------
Cash flows from financing activities:
Net borrowings from revolving debt..................... 10,500 15,000
Proceeds from issuance of long-term debt............... 305,000 29,998
Repayment of long-term debt............................ (225,812) (2,428)
Cost of debt and equity financing...................... (13,904) (2,907)
--------- --------
Net cash provided by financing activities................ 75,784 39,663
--------- --------
Effect of foreign currency rate fluctuations on cash..... (210) 39
--------- --------
Net increase (decrease) in cash.......................... (8,401) 10,928
Cash at beginning of period.............................. 11,942 8,662
--------- --------
Cash at end of period.................................... $ 3,541 $ 19,590
========= ========
</TABLE>
See accompanying Notes to Condensed Unaudited Consolidated Financial
Statements.
F-6
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with Rule 10-01 of Regulation S-X and, in the
opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position of
Cambridge Industries, Inc. and its subsidiaries (the "Company") as of
September 30, 1997 and the results of their operations and their cash flows
for the nine month periods ended September 30, 1997 and 1996.
The unaudited condensed consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996. The results of operations for the interim periods are not
necessarily indicative of the operating results for the full year.
2. INVENTORIES
At September 30, 1997 and December 31, 1996, inventories consist of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Finished goods............................... $7,239 $6,023
Work-in-process.............................. 7,486 4,724
Raw materials................................ 10,886 8,299
Supplies..................................... 1,610 3,401
------- -------
Total...................................... 27,221 22,447
Less allowance for obsolescence and lower of
cost or market.............................. (1,011) (1,150)
------- -------
Net........................................ $26,210 $21,297
======= =======
</TABLE>
3. COMMITMENT AND CONTINGENCIES
The Company has letters of credit outstanding of $3,900 September 30, 1997.
Subsequent to the closing of the acquisition of the reinforced plastics
division ("GenCorp RPD") of GenCorp, Inc. ("GenCorp") in March 1996, the
Company has been unable to reach an agreement with GenCorp on the related
purchase price adjustment. GenCorp filed suit against the Company in June
1996, in an effort to prevent the Company from submitting the dispute to
arbitration. Although the Company's right to seek arbitration was upheld, this
matter is still subject to negotiation by the parties. The outcome of this
matter is uncertain. However, the Company does not believe that the outcome of
this uncertainty will have a material adverse effect on the consolidated
financial position or results of operations of the Company.
The Company is also party to other lawsuits and claims pending or asserted
with respect to matters in the ordinary course of business. The Company does
not believe the outcome of these uncertainties will have a material impact on
its financial position or results of operations.
F-7
<PAGE>
4. ACQUISITIONS
Effective July 1, 1997, the Company acquired certain net assets of the
engineered composite business ("Goodyear-Jackson") of The Goodyear Tire &
Rubber Company, and of the plastics division ("Eagle-Picher") of Eagle-Picher
Industries, Inc., for approximately $37,600 and $32,200, respectively, plus
acquisition costs. On August 31, 1997, the Company acquired certain assets of
the molded plastics and pultrusion operations of Owens Corning Fiberglass A.S.
LTDA ("OC-Brazil"), a Brazilian subsidiary of Owens-Corning, for approximately
$5,500. The Company accounted for these acquisitions under the purchase
method. The Company's operating results include Goodyear-Jackson and Eagle-
Picher from July 1, 1997. The operating results and acquired assets of
OC-Brazil are not material.
A summary of the Company's preliminary purchase price allocation for the
Eagle-Picher and Goodyear-Jackson acquisitions follows.
<TABLE>
<CAPTION>
GOODYEAR- EAGLE-
JACKSON PICHER
--------- -------
<S> <C> <C>
Receivables.......................................... $ 75 $ 9,027
Inventories.......................................... 2,326 4,328
Reimbursable tooling costs........................... 8,487 110
Deferred income taxes and other...................... 2,577 4,155
Property, plant and equipment........................ 35,183 33,445
Other assets......................................... 3,823 1,865
Accounts payable and accrued liabilities............. (6,879) (15,948)
Postretirement health care and other employee
benefits............................................ (4,420)
Deferred income taxes................................ (2,560) (4,155)
------- -------
Net assets acquired................................ $38,612 $32,827
======= =======
</TABLE>
The preliminary purchase price allocation is subject to change after
completion of fixed assets appraisals, valuations of certain other acquired
assets, liabilities and assumed employee benefit obligations, and management's
evaluations of such information. Management is currently finalizing its plan
for closure of certain acquired operations and refining its estimates of
related costs. Adjustments to such estimates will be reflected in the final
purchase price allocations.
The following pro forma information presents certain operating data
calculated to give pro forma effect to the acquisitions of Goodyear-Jackson,
Eagle-Picher and OC-Brazil as if such acquisitions had taken place at the
beginning of such periods.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------ ---
1997 1996
-------- --------
<S> <C> <C> <C>
Sales.............................................. $371,429 $367,424
Income before extraordinary item................... 539 6,121
Net income (loss).................................. (8,613) 6,121
</TABLE>
Such pro forma data do not purport to represent what actual operating
results would have been, if the acquisitions had been consummated on the dates
indicated or what such results will be for any future period.
5. REFINANCING
On July 10, 1997, the Company retired all previously outstanding debt with
the proceeds of issuance of $100,000 in senior subordinated notes (the
"Notes") and $207,500 of term loans and a revolving line of credit under a new
Credit Agreement.
F-8
<PAGE>
The Notes bear interest at 10.25% and mature in 2007. The new Credit
Agreement provides for maximum borrowings of $280,000, consisting of $205,000
in term loans and $75,000 under a revolving credit facility. The term loans
mature on the fifth and eighth anniversaries of the Credit Agreement and the
revolving credit facility matures on the fifth anniversary of the Credit
Agreement. The interest rate on the term loans is based on the Eurodollar rate
plus the applicable Eurodollar margin, and the interest rate on the revolving
credit facility is based on the Base rate plus the applicable Base rate
margin.
Indebtedness under the Credit Agreement is collateralized by substantially
all assets of the Company, a pledge of intercompany notes and a pledge of
certain stock of the Company's subsidiaries. The Notes are guaranteed by the
Company's parent and the Company's domestic subsidiaries. (See Note 6.) The
Notes are subordinated to the Company's obligations under the Credit
Agreement.
The Credit Agreement includes covenants requiring the Company to maintain
(i) minimum levels of consolidated EBITDA (earnings before interest, taxes,
depreciation and amortization), (ii) minimum interest coverage ratios and
(iii) maximum leverage ratios. The Credit Agreement also contains covenants
limiting capital expenditures, additional indebtedness, dividends,
transactions with affiliates, acquisitions and asset sales, prepayments of
indebtedness and liens.
As a result of the refinancing, the Company recorded an extraordinary item
of $9,152 (net of tax), reflecting the write-off of deferred financing costs,
unamortized discount and other costs upon early extinguishment of debt.
6. CONDENSED CONSOLIDATING INFORMATION
The Notes are guaranteed by CE Automotive Trim Systems, Inc. ("CE"), a
wholly-owned consolidated subsidiary of the Company, but are not guaranteed by
the Company's other consolidated subsidiaries, Voplex Canada and its Brazilian
subsidiary. The guarantee of the Notes by CE is full and unconditional. The
following condensed consolidating financial information presents the financial
position, results of operations and cash flows of (i) the Company, as parent,
as if it accounted for its subsidiaries on the equity method; (ii) CE, the
guarantor subsidiary, and (iii) Voplex, Canada and the Brazilian subsidiary,
as non-guarantor subsidiaries. Separate financial statements of CE are not
presented herein as management does not believe that such statements would be
material. CE had no revenues or operations during the periods presented. The
financial position and operating results of the non-guarantor subsidiaries do
not include any allocation of overhead or other similar charges.
F-9
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEETS
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NON GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
-------- ------------- ---------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................. $ 2,503 $1,038 $-- $ -- $ 3,541
Receivables (net)..... 74,399 5,116 (3,379) 76,136
Inventories........... 25,497 713 26,210
Reimbursable tooling
costs................ 32,347 183 32,530
Income tax
refundable........... 3,270 3,270
Deferred income taxes
and other............ 2,299 76 2,375
-------- ------ ---- -------- ---------
Total current assets.... 140,315 7,126 (3,379) 144,062
Property, plant and
equipment (net)........ 198,716 321 199,037
Other long-term assets.. 31,792 31,792
Investment in
consolidated
subsidiaries........... 6,242 (6,242) --
-------- ------ ---- -------- ---------
Total assets............ $377,065 $7,447 $-- $ (9,621) $ 374,891
======== ====== ==== ======== =========
LIABILITIES AND
STOCKHOLDER'S EQUITY
(DEFICIT)
Current liabilities:
Current portion of
long-term debt....... $ 5,513 $ -- $-- $ -- $ 5,513
Accounts payable...... 51,456 880 (3,379) 48,957
Accrued liabilities... 32,957 622 33,579
-------- ------ ---- -------- ---------
Total current
liabilities............ 89,926 1,502 (3,379) 88,049
Noncurrent liabilities:
Long-term debt........ 318,987 318,987
Workers compensation.. 968 968
Postretirement health
care benefits........ 21,779 21,779
Deferred income
taxes................ 16,375 16,375
-------- ------ ---- -------- ---------
Total liabilities....... 448,035 1,502 (3,379) 446,158
-------- ------ ---- -------- ---------
Stockholder's equity
(deficit):
Common stock.......... 1 1
Paid-in capital....... 17,538 5,057 (5,057) 17,538
Unrealized foreign
currency
translation.......... -- (297) (297)
Retained earnings
(accumulated
deficit)............. (88,509) 1,185 (1,185) (88,509)
-------- ------ ---- -------- ---------
Total stockholder's
equity (deficit)....... (70,970) 5,945 (6,242) (71,267)
-------- ------ ---- -------- ---------
Total liabilities and
stockholder's equity
(deficit).............. $377,065 $7,447 $-- $ (9,621) $374,891
======== ====== ==== ======== =========
</TABLE>
F-10
<PAGE>
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NON GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARY SUBSIDIARY ADJUSTMENTS CONSOLIDATED
-------- ------------- ---------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................. $ 7,795 $4,147 $-- $-- $ 11,942
Receivables (net)..... 47,854 1,131 48,985
Inventories........... 20,716 581 21,297
Reimbursable tooling
costs................ 17,606 68 17,674
Income tax
refundable........... 3,270 3,270
Deferred income taxes
and other............ 6,571 6,571
-------- ------ ---- ------- --------
Total current assets.... 103,812 5,927 109,739
Property, plant and
equipment (net)........ 132,769 555 133,324
Other long-term assets.. 19,167 19,167
Investment in
consolidated
subsidiary............. 5,326 (5,326) --
-------- ------ ---- ------- --------
Total assets............ $261,074 $6,482 $ 0 $(5,326) $262,230
======== ====== ==== ======= ========
LIABILITIES AND
STOCKHOLDER'S EQUITY
(DEFICIT)
Current liabilities:
Current portion of
long-term debt....... $ 9,080 $ 9,080
Accounts payable...... 37,281 $ 747 38,028
Accrued liabilities... 24,606 496 25,102
-------- ------ ---- ------- --------
Total current
liabilities............ 70,967 1,243 72,210
Noncurrent liabilities:
Long-term debt........ 224,112 224,112
Workers compensation.. 968 968
Postretirement health
care benefits........ 15,164 15,164
Acquired commitments
under acquired
contracts............ 2,244 2,244
Deferred income
taxes................ 9,673 9,673
-------- ------ ---- ------- --------
Total liabilities....... 323,128 1,243 324,371
-------- ------ ---- ------- --------
Stockholder's equity
(deficit):
Common stock..........
Paid-in capital....... 17,539 5,057 (5,057) 17,539
Unrealized foreign
currency
translation.......... (87) (87)
Retained earnings
(accumulated
deficit)............. (79,593) 269 (269) (79,593)
-------- ------ ---- ------- --------
Total stockholder's
equity (deficit)....... (62,054) 5,239 (5,326) (62,141)
-------- ------ ---- ------- --------
Total liabilities and
stockholder's equity
(deficit).............. $261,074 $6,482 $ 0 $(5,326) $262,230
======== ====== ==== ======= ========
</TABLE>
F-11
<PAGE>
CONDENSED CONSOLIDATING INCOME STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NON GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
-------- ------------- ---------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales................... $289,947 $6,449 $-- $ -- $296,396
Cost of sales........... 250,622 4,485 255,107
-------- ------ ---- ----- --------
Gross profit............ 39,325 1,964 -- -- 41,289
Selling, general and
administrative
expenses............... 20,774 503 (322) 20,955
-------- ------ ---- ----- --------
Income from operations.. 18,551 1,461 -- 322 20,334
Other expense (income):
Interest expense...... 19,796 19,796
Other, net............ (111) (66) 322 145
-------- ------ ---- ----- --------
Income before income
tax, equity in income
of consolidated
subsidiaries and
extraordinary item..... (1,134) 1,527 -- -- 393
Income tax expense...... (454) 611 157
-------- ------ ---- ----- --------
Income before equity in
income of consolidated
subsidiaries and
extraordinary item..... (680) 916 -- -- 236
Equity in income of
consolidated
subsidiaries........... 916 (916) --
-------- ------ ---- ----- --------
Income (loss) before
extraordinary item..... 236 916 (916) 236
Extraordinary item, net
of tax benefit......... 9,152 9,152
-------- ------ ---- ----- --------
Net income.............. $ (8,916) $ 916 $-- $(916) $ (8,916)
======== ====== ==== ===== ========
</TABLE>
F-12
<PAGE>
CONDENSED CONSOLIDATING INCOME STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NON GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARY SUBSIDIARY ADJUSTMENTS CONSOLIDATED
-------- ------------- ---------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales................... $256,746 $7,340 $-- $ -- $ 264,086
Cost of sales........... 217,768 5,512 223,280
-------- ------ ---- ----- ---------
Gross profit............ 38,978 1,828 40,806
Selling, general and
administrative
expenses............... 17,373 648 (367) 17,654
-------- ------ ---- ----- ---------
Income from operations.. 21,605 1,180 367 23,152
Other expense (income):
Interest expense...... 16,942 16,942
Other, net............ (57) (165) 367 145
-------- ------ ---- ----- ---------
Income before income tax
and equity in income of
consolidated
subsidiary............. 4,720 1,345 6,065
Income tax expense...... 1,581 444 2,025
-------- ------ ---- ----- ---------
Income before equity in
income of consolidated
subsidiary............. 3,139 901 4,040
Equity in income of
consolidated
subsidiary............. 901 (901) --
-------- ------ ---- ----- ---------
Net income.............. $ 4,040 $ 901 $-- $(901) $ 4,040
======== ====== ==== ===== =========
</TABLE>
F-13
<PAGE>
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
NON GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARY CONSOLIDATED
--------- ------------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by (used $--
in) operating activities:... $ 5,600 $(3,018) $ 2,582
--------- ------- ---- ---------
Cash flows from investing
activities:
Acquisition, net of cash
acquired.................. (72,161) (72,161)
Purchase of property, plant
and equipment............. (14,515) 119 (14,396)
--------- ------- ---- ---------
Net cash used in investing
activities.................. (86,676) 119 -- (86,557)
--------- ------- ---- ---------
Cash flows from financing
activities:
Net borrowings from
revolving debt............ 10,500 10,500
Proceeds from issuance of
long-term debt............ 305,000 305,000
Repayment of long-term
debt...................... (225,812) (225,812)
Cost of debt and equity
financing................. (12,213) (12,213)
Contribution by
stockholder............... --
--------- ------- ---- ---------
Net cash provided by
financing activities........ 75,784 -- -- 75,784
--------- ------- ---- ---------
Effect of foreign currency
rate fluctuations on cash... -- (210) (210)
--------- ------- ---- ---------
Net decrease in cash......... (5,292) (3,109) -- (8,401)
Cash at beginning of period.. 7,795 4,147 11,942
--------- ------- ---- ---------
Cash at end of period........ $ 2,503 $ 1,038 $-- $ 3,541
========= ======= ==== =========
</TABLE>
F-14
<PAGE>
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
NON GUARANTOR GUARANTOR
PARENT SUBSIDIARY SUBSIDIARY CONSOLIDATED
-------- ------------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by operating
activities:.................. $ (5,141) $1,485 $ -- $ (3,656)
-------- ------ ----- --------
Cash flows from investing
activities:
Acquisition, net of cash
acquired................... (18,160) (18,160)
Purchase of property, plant
and equipment.............. (6,946) (12) (6,958)
-------- ------ ----- --------
Net cash used in investing
activities................... (25,106) (12) (25,118)
-------- ------ ----- --------
Cash flows from financing
activities:
Net borrowings from
revolving debt............. 15,000 15,000
Proceeds from issuance of
long-term debt............. 29,998 29,998
Repayment of long-term
debt....................... (2,428) (2,428)
Cost of debt and equity
financing.................. (2,907) (2,907)
Contribution by
stockholder................ --
-------- ------ ----- --------
Net cash provided by financing
activities................... 39,663 -- -- 39,663
-------- ------ ----- --------
Effect of foreign currency
rate fluctuations on cash.... -- 39 39
-------- ------ ----- --------
Net increase in cash.......... 9,416 1,512 -- 10,928
Cash at beginning of period... 6,095 2,567 8,662
-------- ------ ----- --------
Cash at end of period......... $ 15,511 $4,079 $ -- $ 19,590
======== ====== ===== ========
</TABLE>
F-15
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1996 AND 1995
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
AND INDEPENDENT AUDITORS' REPORT
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
Cambridge Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Cambridge
Industries, Inc. and subsidiaries (the "Company"), as of December 31, 1996 and
1995, and the related statements of operations and of cash flows for each of
the three years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Cambridge Industries, Inc.
and subsidiaries as of December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Deloitte & Touche llp
Detroit, Michigan
March 28, 1997 (August 31, 1997 as to Note 17)
F-17
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................... $ 11,942 $ 8,662
Receivables (Note 4)..................................... 48,985 32,035
Inventories (Notes 5 and 17)............................. 21,297 15,458
Reimbursable tooling costs............................... 17,674 13,026
Income tax refundable (Note 12).......................... 3,270 537
Deferred income taxes and other.......................... 6,571 2,415
-------- --------
Total current assets....................................... 109,739 72,133
Property, plant and equipment, net (Note 6)................ 133,324 84,858
Other assets (Note 7)...................................... 19,167 18,124
-------- --------
Total assets (Note 9)...................................... $262,230 $175,115
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt (Note 9)............... $ 9,080 $ 4,494
Accounts payable......................................... 38,028 29,654
Accrued liabilities (Note 8)............................. 25,102 12,441
-------- --------
Total current liabilities.................................. 72,210 46,589
Noncurrent liabilities:
Long-term debt (including related party amounts of
$16,480 and $54,952 at December 31, 1996 and 1995,
respectively) (Notes 9 and 15).......................... 224,112 177,133
Workers' compensation.................................... 968 1,045
Postretirement health care benefits (Note 11)............ 15,164 10,353
Accrued commitments under acquired contracts............. 2,244
Deferred income taxes (Note 12).......................... 9,673 3,834
-------- --------
Total liabilities.......................................... 324,371 238,954
Commitments and contingencies (Note 16)
Stockholder's equity (deficit) (Note 13):
Common stock, $.01 par value, 3,000 shares authorized,
1,000 shares issued and outstanding.....................
Paid-in capital.......................................... 17,539 17,264
Unrealized foreign currency translation.................. (87) (124)
Minimum pension liability adjustment (Note 10)........... (277)
Accumulated deficit...................................... (79,593) (80,702)
-------- --------
Total stockholder's deficit................................ (62,141) (63,839)
-------- --------
Total liabilities and stockholder's equity (deficit)....... $262,230 $175,115
======== ========
</TABLE>
See notes to consolidated financial statements.
F-18
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Sales (Note 1)................................... $346,026 $297,746 $190,944
Cost of sales.................................... 294,742 253,893 159,455
-------- -------- --------
Gross profit..................................... 51,284 43,853 31,489
Selling, general and administrative expenses..... 26,240 17,678 15,312
-------- -------- --------
Income from operations........................... 25,044 26,175 16,177
Other expense (income):
Interest expense............................... 23,190 12,388 6,161
Other, net..................................... 180 (746) (657)
-------- -------- --------
Income before income tax and extraordinary item.. 1,674 14,533 10,673
Income tax expense (benefit) (Note 12)........... 565 5,410 (1,450)
-------- -------- --------
Income before extraordinary item................. 1,109 9,123 12,123
Extraordinary loss (Net of income tax benefit of
$2,712) (Note 9)................................ 4,426
-------- -------- --------
Net income....................................... $ 1,109 $ 4,697 $ 12,123
======== ======== ========
Pro forma (Note 12):
Income tax provision........................... $ 4,100
========
Net income..................................... $ 6,573
========
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Income before extraordinary item........ $ 1,109 $ 9,123 $ 12,123
Adjustments to reconcile income before
extraordinary item to net cash provided
by operating activities:
Depreciation and amortization......... 21,319 16,715 8,952
Postretirement benefit expenses, net
of cash payments..................... 2,211 960 660
Deferred income tax provision
(benefit)............................ 1,015 (1,100) (4,000)
Changes in assets and liabilities,
excluding the effect of acquisitions:
Receivables......................... (16,950) 20,604 (27,512)
Inventories......................... (1,744) 1,065 (1,893)
Reimbursable tooling................ 2,710 3,352 (2,123)
Accounts payable and accrued
liabilities........................ (12,121) (17,213) 23,612
Other............................... (1,699) 282 (307)
-------- -------- --------
Net cash provided by (used in) operating
activities............................. (4,150) 33,788 9,512
-------- -------- --------
Cash flows from investing activities:
Acquisitions, net of cash acquired.... (18,160) (75,217)
Purchase of property, plant and
equipment............................ (9,630) (10,646) (3,972)
-------- -------- --------
Net cash used in investing activities... (27,790) (10,646) (79,189)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (repayments) from
revolving debt....................... 13,000 5,000 (2,316)
Proceeds from issuance of long-term
debt................................. 73,178 176,620 123,000
Repayment of long-term debt........... (48,363) (130,450) (18,369)
Cost of debt and equity financing..... (2,907) (14,573) (4,171)
Distribution to stockholder........... (70,339) (29,817)
Contribution by stockholder........... 275 18,200 1,000
-------- -------- --------
Net cash provided by (used in) financing
activities............................. 35,183 (15,542) 69,327
-------- -------- --------
Effect of foreign currency rate
fluctuations on cash................... 37 (58) (76)
-------- -------- --------
Net increase (decrease) in cash......... 3,280 7,542 (426)
Cash at beginning of period............. 8,662 1,120 1,546
-------- -------- --------
Cash at end of period................... $ 11,942 $ 8,662 $ 1,120
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SIGNIFICANT ACCOUNTING POLICIES
General--Cambridge Industries, Inc. and its subsidiaries (the "Company") are
engaged primarily in the manufacture of plastic molded systems and
subassemblies for the North American transportation industry. The Company
operates facilities in the United States and Canada. The Company is wholly-
owned by Cambridge Industries Holdings, Inc. ("Holdings"), which has no
significant assets other than its investment in the Company.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting policies 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
reporting period. Actual results could differ from those estimates.
Consolidation--The accompanying consolidated financial statements include
the accounts and balances of Cambridge Industries, Inc. and its wholly owned
subsidiaries, CE Automotive Trim Systems, Inc. and Voplex of Canada, Inc. All
significant intercompany balances and transactions have been eliminated.
Revenue Recognition--Sales, net of estimated returns and allowances, and
cost of sales are recorded upon shipment of product to customers and transfer
of title under standard commercial terms.
Cash and Cash Equivalents include bank deposits and short-term, highly
liquid investments with original maturities of 90 days or less when purchased.
Inventories are stated at the lower of cost or market, as determined under
the first-in, first-out method.
Reimbursable Tooling Costs are stated at amounts which management expects to
recover under customer agreements. Unrecoverable tooling costs are charged to
cost of sales when aggregate estimated total costs exceed the amounts deemed
collectible. Excess reimbursements on tooling projects are recognized when the
tooling project is substantially complete.
Property and Equipment--Property is stated at cost, and is depreciated under
the straight-line method over the estimated useful lives of such assets.
Estimated service lives are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Leasehold improvements................................................. 5-13
Buildings.............................................................. 5-40
Machinery and equipment................................................ 3-11
Corporate-owned tooling................................................ 3-5
Furniture and fixtures................................................. 2-11
</TABLE>
Significant renewals and betterments are capitalized, while maintenance and
repair expenditures are charged against operations.
Goodwill is amortized on a straight-line basis over 15-25 years.
Impairment--Property, equipment and goodwill are reviewed for impairment
whenever events or changes in circumstances indicate that their carrying
amounts may not be recoverable. In performing the review for recoverability,
the Company estimates the future undiscounted cash flows expected to result
from the use of the assets and their eventual disposition. Any impairment loss
recognized is measured based on the amount by which the carrying amount of the
asset exceeds the fair value of the asset. As of December 31, 1996 and 1995,
no significant impairment exists.
Accrued Commitments under Loss Contracts are recorded based on management's
estimate of the future profitability of contracts. The Company evaluates the
profitability of its sales contracts on a vehicle platform basis, which is
consistent with the measures utilized by management in monitoring the
Company's operations. A vehicle platform represents one or more vehicles
produced by one manufacturer utilizing common basic
F-21
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
engineering and design features and common components. The Company records a
reserve for loss contracts when management's estimate of expected costs
exceeds the related estimated revenues.
Workers' Compensation costs included in the consolidated financial
statements represent the estimated accrued cost, not reimbursable under
insurance contracts, of settling such claims. Accruals for certain workers'
compensation claims for which the Company is self-insured are determined from
the historical claims incurred experience using actuarial computations of the
estimated ultimate settlement cost, including claims incurred but not yet
reported.
Income Taxes--Prior to August 1994, the Company was a Subchapter S
Corporation, such that the income of the Company was included in the
shareholders' personal income tax returns, and no provision was recognized by
the Company. Beginning in August 1994, the Company changed to a Subchapter C
status, and a corporate provision has been determined under Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
The income tax benefit related to the Company's change in tax status was $1.5
million in 1994.
Financial Instruments included in the consolidated balance sheets are
recorded at cost and such amounts approximate fair value. All of the
receivables of the Company are due from a limited number of automotive and
truck manufacturers; consistent with practice in the industry, such
receivables are uncollateralized.
Segment Information--The Company operates in a single segment. Three of the
customers of the Company each accounted for over 10% of sales in 1996, 1995
and 1994. Sales to these customers as a group totaled approximately 68%, 73%
and 73% in 1996, 1995 and 1994, respectively. Sales to these customers
individually ranged from 10% to 32% during these periods.
Environmental Claims--The Company periodically evaluates the existence of
contingent obligations related to environmental claims and clean-up costs,
including claims related to Superfund sites where it may be identified as a
potentially responsible party. Accruals are established whenever such
obligations are considered probable, which would normally occur when a
specific claim is asserted and a preliminary investigation is performed. At
December 31, 1996, the Company's accrual for environmental claims totaled
approximately $235,000; the additional environmental claims considered
reasonably possible by the Company totaled approximately $1.0 million at
December 31, 1996.
Stock Compensation--In October 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," which defines a fair value method
of accounting for stock options and other equity instruments. As permitted by
SFAS No. 123, the Company continues to calculate compensation expense using
the intrinsic value method of APB No. 25, "Accounting for Stock Issued to
Employees." In determining the fair value of stock options issued, the Company
uses a risk free rate which approximates the rate on U.S. Treasury Bills with
a similar duration and expected lives based on the provisions of the option
agreements. As the Company's stock currently does not include a dividend,
dividend payments are not included in fair value determinations.
Capitalization of Software Costs--The Company capitalizes external direct
costs of materials and services and payroll and payroll-related costs for
employees who are directly associated with software obtained or developed for
internal use. Capitalized costs totaled $200,000 in 1996 and, upon project
completion, will be amortized over a 3 year useful life.
Other--Income taxes paid totaled $1,032,000 and $5,546,000 in 1996 and 1995,
respectively. Interest payments totaled $20,828,000, $13,119,000 and
$3,658,000 in 1996, 1995 and 1994, respectively.
Reclassifications--Certain reclassifications have been made to the 1995 and
1994 financial statements to conform to the classifications used in 1996.
F-22
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. CORPORATE REORGANIZATION
Effective August 1, 1994, the stockholders of Wolf Engineering Company
("Wolf"), Voplex Company ("Voplex") and Voplex of Canada, Inc. ("Voplex
Canada") formed the Company and contributed the shares of such businesses or
merged such businesses into a wholly owned subsidiary of Cambridge Industries
Holdings, Inc. This transaction constituted the combining of interests under
common control and, consequently, was accounted for in a manner similar to a
pooling of interests; accordingly, separate company financial statements have
been presented herein as if they have been part of the Company since their
acquisition by the stockholders.
The revenues and net income of the previously separate companies for the
seven months ended July 31, 1994 are as follows (in thousands):
<TABLE>
<CAPTION>
NET
REVENUES INCOME
-------- -------
<S> <C> <C>
Wolf...................................................... $13,287 $ 3,697
Voplex.................................................... 40,309 7,449
Voplex Canada............................................. 4,843 481
Consolidating and other adjustments....................... (1,951) (80)
------- -------
Total................................................... $56,488 $11,547
======= =======
</TABLE>
3. ACQUISITIONS
Effective March 1, 1996, the Company acquired certain assets and assumed
certain liabilities of the Reinforced Plastics Division of GenCorp, Inc.
("GenCorp RPD"). The transaction was accounted for as a purchase. The total
purchase price was $33.5 million, which consisted of $18.2 million of cash, a
note payable of $13.7 million and acquisition costs of $1.6 million. An
adjustment to the purchase price is currently the subject of ongoing
negotiation (Note 16); future adjustments to the estimated settlement of the
matter will be included as a component of operations in the period in which
such adjustments are determinable. The Company's results of operations include
GenCorp RPD from March 1, 1996.
The purchase price as allocated to the assets acquired and liabilities
assumed is presented below (in thousands):
<TABLE>
<S> <C>
Inventories........................................................ $ 4,095
Reimbursable tooling costs......................................... 7,358
Property, plant and equipment...................................... 59,952
Accounts payable................................................... (5,128)
Accrued commitments under acquired contracts....................... (25,191)
Accrued compensation and other liabilities......................... (5,004)
Other postretirement benefits...................................... (2,600)
--------
Net assets acquired................................................ $ 33,482
========
</TABLE>
Contemporaneously with the acquisition, the Company terminated certain
former employees of GenCorp RPD and, in accordance with Emerging Issues Task
Force Issue 95-3, "Recognition of Liabilities in Connection with a Purchase
Business Combination," accrued approximately $1,780,000 in termination costs,
substantially all of which were disbursed in 1996.
Unaudited pro forma sales and net loss for the Company, assuming the
acquisition of GenCorp RPD occurred on January 1, 1995, were approximately
$361,769,000 and ($541,000), respectively, for 1996 and approximately
$418,517,000 and ($11,375,000), respectively, for 1995.
F-23
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Effective August 1, 1994, the Company acquired substantially all the net
assets of the Plastic Products Business of Rockwell International Corporation
(the "Rockwell Business") including the stock of Butler Polymet, Inc. The
transaction was accounted for as a purchase. The total purchase price was
$76.5 million, which consisted of cash of $67.8 million, a note payable of
$5.0 million and acquisition costs of $3.7 million. The Company's results of
operations include the Rockwell Business from August 1, 1994.
The purchase price was allocated, as adjusted, to the assets acquired and
liabilities assumed, as follows (in thousands):
<TABLE>
<S> <C>
Receivables........................................................ $ 12,789
Inventories........................................................ 8,809
Reimbursable tooling costs......................................... 17,915
Property, plant and equipment...................................... 70,435
Goodwill........................................................... 960
Accounts payable................................................... (17,356)
Accrued compensation and other liabilities......................... (7,577)
Deferred income taxes.............................................. (6,150)
Other postretirement benefits...................................... (3,371)
--------
Net assets acquired................................................ $ 76,454
========
</TABLE>
Unaudited pro forma sales and net income for the Company, assuming the
acquisition occurred at January 1, 1994 were approximately $319,447,000 and
$16,223,000, respectively, for the year ended December 31, 1994.
4. RECEIVABLES
Receivables at December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Trade accounts............................................. $51,777 $32,984
Other...................................................... 1,129 530
------- -------
Total.................................................... 52,906 33,514
Less allowance for doubtful accounts....................... (3,921) (1,479)
------- -------
Receivables, net........................................... $48,985 $32,035
======= =======
</TABLE>
5. INVENTORIES
Inventories at December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Finished goods........................................... $ 6,023 $ 4,593
Work-in-process.......................................... 4,724 3,048
Raw materials............................................ 8,299 6,922
Supplies................................................. 3,401 1,505
------- -------
Total.................................................. 22,447 16,068
Less allowances for obsolescence and lower of cost or
market reserve.......................................... (1,150) (610)
------- -------
Inventories, net......................................... $21,297 $15,458
======= =======
</TABLE>
F-24
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment at December 31 is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Land and leasehold improvements.......................... $ 3,837 $ 2,442
Buildings................................................ 36,489 27,225
Machinery, equipment and tooling......................... 130,061 75,679
Furniture and fixtures................................... 4,597 2,215
Construction in progress................................. 2,572 2,303
-------- --------
Total.................................................. 177,556 109,864
Less accumulated depreciation............................ (44,232) (25,006)
-------- --------
Property, plant and equipment, net....................... $133,324 $ 84,858
======== ========
</TABLE>
7. OTHER ASSETS
Other assets at December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred financing costs (less accumulated amortization of
$2,434 and $253)......................................... $13,899 $13,173
Goodwill (less accumulated amortization of $749 and
$546).................................................... 3,883 4,086
Intangible pension asset.................................. 351
Prepaid pension costs..................................... 600
Reimbursable tooling costs and other...................... 785 514
------- -------
Other assets.............................................. $19,167 $18,124
======= =======
</TABLE>
8. ACCRUED LIABILITIES
Accrued liabilities at December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Payroll and employee benefit related........................ $ 8,760 $ 4,889
Accrued commitments under acquired contracts................ 8,910
Accrued interest............................................ 2,280 2,099
Accrued pension costs....................................... 733
Workers' compensation....................................... 1,674 1,374
Other....................................................... 3,478 3,346
------- -------
Other accrued liabilities................................... $25,102 $12,441
======= =======
</TABLE>
F-25
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. LONG-TERM DEBT
Long-term debt at December 31 consisted of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Revolving lines of credit.............................. $ 28,000 $ 15,000
Term loans............................................. 174,962 111,675
Notes payable.......................................... 43,325
Senior subordinated note payable....................... 13,750
Subordinated notes payable, net of unamortized discount
of $520 and $273...................................... 16,480 11,627
-------- --------
Total................................................ 233,192 181,627
Less current portion................................... (9,080) (4,494)
-------- --------
Long-term debt....................................... $224,112 $177,133
======== ========
</TABLE>
The revolving line of credit at December 31, 1996 and 1995 consists of
borrowings on a $35 million line of credit (which bears interest at a variable
interest rate of 9.4% and 10.3% at December 31, 1996 and 1995) and expires in
November 2000. Borrowings under the line are secured by substantially all the
assets of the Company. The revolving line of credit includes a commitment fee
of 1/2 of 1% of the average unused balance of the commitment.
The term loans are divided into four separate commitments ("A," "B," "C" and
"D") and are secured by all assets of the Company. Substantially all of the
term loans bear interest at a Eurodollar-based lending rate (5.63% at December
31, 1996) plus 2.75%, 3.25%, 3.75% and 4.00% for the A, B, C and D
commitments, respectively. Prior to February 1996, such term loans bore
interest at a prime-based lending rate (8.5% at December 31, 1995) plus 1.75%,
2.25%, 2.75% and 3.00%, respectively. Principal payments on such loans
commenced in March 1996, with initial payments ranging from $50,000 to
$860,000 per quarter. Such amounts escalate to quarterly payments of $4.6
million, $11.1 million, $8.2 million and $10.7 million for each of the
respective commitments, through final maturities which range from November
2000 through May 2004. Additional principal payments are required under the
term loan agreement if the Company has proceeds from asset sales or a stock
offering which exceeds $1,000,000, or if the Company generates excess cash
flows as defined by the loan agreement. Amounts outstanding under the term
loans at December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Term Loan A................................................ $ 54,140 $ 6,675
Term Loan B................................................ 46,052 40,000
Term Loan C................................................ 51,794 45,000
Term Loan D................................................ 22,976 20,000
-------- --------
Total.................................................... $174,962 $111,675
======== ========
</TABLE>
The senior subordinated note payable represents amounts due from Holdings to
the former owner of GenCorp RPD. This note is due in full in March 2006 and
bears interest at 8% annually. The note requires mandatory repayment under
certain conditions, including an initial public offering or recapitalization,
certain changes in control, and significant sales of assets.
The subordinated notes payable represent amounts due from Holdings or the
Company to certain shareholders. These notes are due in full in November 2005
and bear interest at 12% annually.
F-26
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The notes payable of $43.325 million, due from Holdings to certain current
and former shareholders of Holdings, were repaid in January 1996.
The annual maturities of long-term debt at December 31, 1996 are as follows
(in thousands):
<TABLE>
<S> <C>
Year ending December 31:
1997.............................................................. $ 9,080
1998.............................................................. 13,312
1999.............................................................. 17,152
2000.............................................................. 47,476
2001.............................................................. 22,852
Thereafter........................................................ 123,320
--------
Total........................................................... $233,192
========
</TABLE>
The Company is also subject to certain debt covenants, which, among others,
prohibit the issuance of certain additional debt and the declaration of
dividends, limit capital expenditures to $22 million in 1996 and $16 million
annually thereafter, require increasing minimum earnings before interest,
taxes, depreciation and amortization, require an interest coverage and current
ratio (as defined) of at least 1.5:1.0 and 1.0:1.0, respectively, and which
require that the ratio of consolidated debt to consolidated earnings before
interest, taxes, and depreciation not exceed 5.7:1.0 for the quarter ended
December 31, 1996. Such covenants become more stringent through June 2004.
Management believes it is in compliance with these covenants at December 31,
1996.
As part of a refinancing that occurred in 1995, a prepayment penalty of $3.7
million was incurred, and approximately $3.4 million in deferred financing
costs were charged against operations. Such amounts were recorded as an
extraordinary loss, net of certain tax benefits of $2.7 million.
10. PENSION BENEFITS
The Company sponsors certain contributory and noncontributory 401(k)
retirement plans for substantially all of its employees, which allow employees
to contribute up to a specified percentage of compensation into tax deferred
accounts. Pension expense recognized by the Company, relating to amounts
contributed to these plans was $303,000, $213,000 and $177,000 during 1996,
1995 and 1994, respectively.
The Company has a noncontributory defined benefit pension plan covering
eligible employees of the Centralia, Illinois plant. Pension plan benefits are
based on participants' years of credited service. The Company's policy is to
fund the minimum actuarially computed annual contribution required under the
Employee Retirement Income Security Act of 1974. Plan assets generally consist
of mutual funds. The components of net periodic pension cost relating to the
defined benefit pension plan are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
----- ---- ----
<S> <C> <C> <C>
Service cost on benefits earned during the year........... $ 830 $414 $173
Interest cost on projected benefit obligation............. 85 46 --
Actual gain on plan assets................................ (153) (12) --
Net amortization and deferral............................. 111 47 --
----- ---- ----
Net periodic pension cost................................. $ 873 $495 $173
===== ==== ====
</TABLE>
F-27
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The actuarial present value of benefit obligations and funded status for the
defined benefit pension plan is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................. $1,454 $1,296
Nonvested benefit obligation.............................. 472 151
------ ------
Accumulated and projected benefit obligation................ 1,926 1,447
Plan assets at fair value................................... 2,299 714
------ ------
Plan assets greater than (less than) projected benefit
obligation................................................. 373 (733)
Unrecognized prior service cost............................. 10 351
Unrecognized net loss....................................... 217 420
Additional minimum liability................................ (771)
------ ------
Accrued pension asset (obligation).......................... $ 600 $ (733)
====== ======
</TABLE>
The discount rates used in developing the projected benefit obligations were
7.25% and 6.75% at December 31, 1996 and 1995, respectively. The expected
long-term rate of return on plan assets was assumed to be 10% and 8.5% as of
December 31, 1996 and 1995, respectively.
11. POSTRETIREMENT HEALTH CARE BENEFITS
The Company provides postretirement health care and prescription drug
coverage benefits to a limited number of current retirees; certain active
hourly employees and their covered dependents may become eligible for these
benefits, although the Company does not necessarily have a legal obligation to
provide benefits to all such participants. The Company accounts for the
accrual of the postretirement benefit costs under the provisions of SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
Postretirement benefits provided by the Company are unfunded.
The following table reconciles the status at December 31 of the accrued
postretirement benefit obligation (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Retirees................................................... $ 5,942 $ 2,246
Fully eligible active plan participants.................... 1,398 1,000
Other active plan participants............................. 12,740 10,543
------- -------
Accumulated postretirement benefit obligation.............. 20,080 13,789
Unamortized net loss....................................... 4,916 3,436
------- -------
Postretirement obligation included on the consolidated
balance sheet............................................. $15,164 $10,353
======= =======
</TABLE>
The net periodic postretirement benefit cost for the year consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ----
<S> <C> <C> <C>
Service cost............................................. $1,132 $ 518 $346
Interest cost............................................ 1,288 638 454
Amortization of unrecognized net loss.................... 190
------ ------ ----
Net periodic postretirement benefit cost................. $2,610 $1,156 $800
====== ====== ====
</TABLE>
F-28
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
For measurement purposes, the weighted average annual rate of increase
assumed in the per capita cost of covered health care benefits was 10.6% in
1996. The rate was assumed to decrease to 4.5% in 2004, and remain at that
level thereafter. The discount rate used to value the obligation was 7.25% and
6.75% at December 31, 1996 and 1995, respectively. A one percentage point
increase each year in the assumed health care cost trend rate would increase
the accumulated postretirement benefit obligation at December 31, 1996 by 16%
and the service and interest cost components of net periodic postretirement
benefit cost for 1996 by 13%.
12. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." In August 1994, the Company changed its tax
status from Subchapter S to Subchapter C; prior to this date, the Company's
earnings were included in the taxable income of the Company's stockholders. If
the Company had operated as a Subchapter C Corporation during all of 1994, the
pro forma income tax provision would be approximately $4,100,000.
The income tax provision (benefit) for 1996, 1995 and 1994 (subsequent to
the Subchapter C election date), consists of the following components:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------- -------
<S> <C> <C> <C>
Current provision (benefit)....................... $ (450) $ 6,510 $ 2,550
Deferred provision (benefit)...................... 1,015 (1,100) (2,500)
Effect of change in taxable status................ (1,500)
------ ------- -------
Income tax expense (benefit)...................... $ 565 $ 5,410 $(1,450)
====== ======= =======
</TABLE>
A reconciliation of the Company's statutory and effective income tax rates
is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Applicable statutory rate................................... 34% 34% 34%
State income taxes.......................................... 3 5 3
Effect of income earned prior to change in tax status....... (36)
Effect of change in taxable status.......................... 14
Net operating loss utilization in foreign jurisdiction...... (2) (2)
Other....................................................... (3) 1
--- --- ---
Effective tax rate.......................................... 34% 37% 14%
=== === ===
</TABLE>
The tax effect of the components of the Company's future taxable and future
deductible temporary differences at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
DEFERRED DEFERRED DEFERRED DEFERRED
INCOME TAX INCOME TAX INCOME TAX INCOME TAX
ASSET LIABILITY ASSET LIABILITY
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Property, plant and equipment,
net........................... $16,656 $6,018
Accrued liabilities............ $ 7,079 $2,219
Postretirement health care
benefits...................... 3,783 2,532
Alternative minimum tax credit
carryforward.................. 2,162
Other.......................... 71 845 522 355
------- ------- ------ ------
Total........................ $13,095 $17,501 $5,273 $6,373
======= ======= ====== ======
</TABLE>
F-29
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
A deferred tax liability has not been established for the Company's Canadian
subsidiary because management does not anticipate the repatriation of such
earnings in the foreseeable future. The unrecognized deferred income tax
liability related to such subsidiary was approximately $850,000 and $700,000 at
December 31, 1996 and 1995, respectively.
13. STOCKHOLDER'S EQUITY (DEFICIT)
The components of changes in the Company's stockholder's equity (deficit)
accounts are as follows (in thousands):
<TABLE>
<CAPTION>
COMMON UNREALIZED MINIMUM RETAINED
STOCK FOREIGN PENSION EARNINGS
$.01 PAR PAID-IN CURRENCY LIABILITY (ACCUMULATED
VALUE CAPITAL TRANSLATION ADJUSTMENTS DEFICIT) TOTAL
-------- ------- ----------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C>
January 1, 1994......... $ 600 $ (58) $ 1,245 $ 1,787
Contribution by
stockholder relating
to issuance of
warrants............. 1,000 1,000
Net income............ 12,123 12,123
Translation
adjustments.......... 154 154
Distributions to
stockholders......... (29,817) (29,817)
------ ------- ----- ----- -------- --------
December 31, 1994....... 1,600 96 (16,449) (14,753)
Contribution by
stockholder relating
to issuance of stock
and warrants......... 17,264 17,264
Net income............ 4,697 4,697
Translation
adjustments.......... (220) (220)
Minimum pension
liability
adjustments.......... $(277) (277)
Distribution to
stockholder.......... (1,600) (68,950) (70,550)
------ ------- ----- ----- -------- --------
December 31, 1995....... 17,264 (124) (277) (80,702) (63,839)
Contribution by
stockholder relating
to issuance of
warrants............. 275 275
Net income............ 1,109 1,109
Translation
adjustments.......... 37 37
Minimum pension
liability
adjustments.......... 277 277
------ ------- ----- ----- -------- --------
December 31, 1996....... $17,539 $ (87) $ $(79,593) $(62,141)
====== ======= ===== ===== ======== ========
</TABLE>
Each of the 1,000 shares of common stock outstanding of the Company is owned
by Holdings. The following summarizes the rights of the various classes of the
Holdings' preference and common stock:
Preference stock, which is non-voting, contains a liquidation premium equal
to $18,150 per share, plus a yield equal to 9.1% per year of such liquidation
amount, measured from December 1995. Such liquidation amount is payable upon
liquidation, sale of the Company, or upon the completion of an initial public
offering of Holdings' common stock.
Class P common stock is voting stock, which includes a liquidation preference
equal to $250 per share, if the Company's net sales exceed $505 million for any
previous year, or $125 per share, if the Company's net sales exceed $405
million for any previous year. Class P common stock has no liquidation
preference if neither of these conditions is achieved.
Class L common stock is voting stock, which includes a liquidation preference
equal to $1,307 per share, plus a 10% yield per year on such liquidation amount
measured from December 1995.
Class A common stock is voting stock, but contains no liquidation preference.
F-30
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The rights and obligations of the holders of these classes of stock are
governed by a stockholders' agreement, which provides for the election of
directors and officers, a right of first refusal in the sale of shares, and
other provisions which allow particular groups of shareholders to require a
sale of the Company after March 31, 1998.
In 1996, warrants were issued to certain shareholders and lenders to acquire
2,160 shares of Holdings' Class A common stock at $3.30 per share, and 540
shares of Holdings' Class L common stock at $1,307 per share. Such warrants
can be exercised through November 2005. The fair value of the warrants was
recorded as an increase to additional paid in capital during the year.
In 1995, warrants were issued to certain lenders to acquire 2,672 shares of
Holdings' Class A common stock at par value, 4,723 shares of Holdings' Class A
common stock for $3.30 per share, and 1,181 shares of Holdings' Class L common
stock for $1,307 per share. Such warrants can be exercised through November
2005. The fair value of the warrants was recorded as an increase to additional
paid in capital during the year.
In 1994, the Company issued warrants to a creditor to acquire up to
2,500,000 shares of Holdings' common stock at $4 per share in connection with
financing provided in conjunction with the acquisition of the Rockwell
Business; the warrants were exercisable at any time through August 2004. The
estimated fair value of the warrants of approximately $1 million was recorded
as an increase to additional paid in capital. Such warrants were repurchased
by the Company in 1995 subsequent to the acquisition and integration of the
Rockwell Business for a cash price of approximately $21.3 million. The
repurchase was charged to shareholder's deficit in conjunction with the
recapitalization of the Company in 1995.
14. STOCK-BASED COMPENSATION
The Company has stock option agreements with executive officers to purchase
Holdings' Class A common stock. Options granted and the related exercise
prices under the agreements are as follows:
<TABLE>
<CAPTION>
AVERAGE
OPTIONS EXERCISE
GRANTED PRICES
------- --------
<S> <C> <C>
Balance at December 31, 1994................................ --
Granted................................................... 15,845 $240
------
Balance at December 31, 1995................................ 15,845 240
Granted................................................... 70,257 74
------
Balance at December 31, 1996................................ 86,102 104
======
</TABLE>
In 1996, 63,557 options were granted with an exercise price of $3.30 per
share, 1,250 options were granted with an exercise price of $447 per share,
and 5,450 options were granted with exercise prices ranging from $807 to $972
per share. Of the total options issued, 8,750 of the options vest over a three
year period and the remaining options vest over a five year period; the
options can be exercised through October 2006. The weighted average grant-date
fair value of options granted during the year was $.84 per share. The weighted
average exercise price and weighted average fair value of options with an
exercise price equal to the market value of Holdings' common stock as of the
grant date was $3.30 and $0.93 per share, respectively. The weighted average
exercise price and weighted average fair value of options with an exercise
price in excess of the market value of Holdings' common stock as of the grant
date was $747 and $0 per share, respectively. No options were issued with an
exercise price less than the market value of Holdings' common stock as of the
date of grant.
If the Company were to apply the fair value based method of accounting for
stock-based compensation, its pro forma net income would not be materially
different from the net income reported in 1996 and 1995. The primary
assumptions used in the fair value of the options granted include the
following:
Dividend Yield--As the Company's stock currently does not include a
dividend, dividend payments were not included in fair value determination.
F-31
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Risk Free Rate--The rate applicable to Treasury Bills with a duration
similar to options granted was used to determine the risk free rate, which was
approximately 6% at each of the respective grant dates.
Expected Life--The expected life of the options was approximately 5 years,
based on the provisions of the option agreements.
At December 31, 1996, exercise prices on outstanding options ranged from
$3.30 to $972, the weighted average exercise price was $105 and the average
remaining contractual life was 5.6 years. At December 31, 1996, the number of
options outstanding with an exercise price equal to the market value of
Holdings' common stock as of the grant date was 71,479, such options have a
weighted average exercise price of $3.30 per share and a weighted average
remaining contractual life of 5.6 years. Of such options, 66,198 are currently
exercisable with an weighted-average exercise price of $3.30. At December 31,
1996, the number of options outstanding with an exercise price in excess of
the market value of Holdings' common stock as of the grant date was 14,623,
such options have a weighted average exercise price of $601 per share and a
weighted average remaining contractual life of 8.9 years. Of such options,
6,700 are currently exercisable with an weighted-average exercise price of
$747. There was no compensation cost for stock-based compensation recognized
in income during 1996 or 1995.
15. RELATED PARTY TRANSACTIONS
In 1996, a $412,500 fee was paid to a shareholder and officer in connection
with the GenCorp Acquisition.
Certain management and advisory services are provided by an affiliate of
certain shareholders of Holdings, under an agreement, which requires an annual
fee of $950,000, plus certain other contingent fees. Total fees charged to the
Company by such affiliate during 1996 and 1995 were approximately $1,349,500
and $3,105,000, respectively.
During 1996, certain legal services were provided by an affiliate of a
director of the Company. Total fees charged to the Company by such affiliate
were approximately $1.6 million.
Prior to August 1994, the Company's sales force and certain management
services were provided by a company affiliated through common ownership which
charged a monthly sales commission and fees, which totaled $2,053,000 in 1994.
As discussed in Note 9, notes payable are due to certain current and former
shareholders of Holdings at December 31, 1996 and 1995.
16. COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment and plant facilities under
noncancelable operating leases. Rental expense for the Company totaled
approximately $2,385,000, $1,568,000 and $1,349,000 during 1996, 1995 and
1994, respectively.
Total lease commitments at December 31, 1996 are summarized below based on
the expected year in which such commitments are due (in thousands):
<TABLE>
<S> <C>
Year ending December 31:
1997................................................................ $1,795
1998................................................................ 1,387
1999................................................................ 1,311
2000................................................................ 768
2001................................................................ 241
------
Total............................................................. $5,502
======
</TABLE>
F-32
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company has letters of credit outstanding of $1,000,000 at December 31,
1996.
Subsequent to the closing of the acquisition of GenCorp RPD, the Company has
been unable to reach an agreement with the seller on the related purchase
price adjustment. The seller filed suit against the Company in June 1996, in
an effort to prevent the Company from submitting the dispute to arbitration.
Although the Company's right to seek arbitration was upheld, this matter is
still subject to negotiation by the parties. The outcome of this matter is
uncertain, however, the Company does not believe that the outcome of this
uncertainty will have a material adverse effect on the consolidated financial
position or results of operations of the Company.
The Company is also subject to other lawsuits and claims pending or asserted
with respect to matters in the ordinary course of business. The Company does
not believe that the outcome of these uncertainties will have a material
adverse effect on the consolidated financial position or results of operations
of the Company.
17. SUBSEQUENT EVENTS
On February 1, 1997, the Company acquired the Production Molded Companies
Division of APX International, for a total purchase price of approximately
$2.4 million.
Effective July 1, 1997, the Company acquired certain net assets of the
engineered composite business of The Goodyear Tire & Rubber Company and the
plastics division of Eagle-Picher Industries, Inc. for approximately $37.6 and
$32.2 million, respectively. In addition, the Company retired all outstanding
debt with the proceeds of the issuance of $100 million in Senior Subordinated
Notes and $207.5 million of term loans and a revolving line of credit under a
new Credit Agreement.
On August 26, 1997, the Company entered into a letter of intent to acquire
all of the issued and outstanding shares of the capital stock of Huron
Plastics Group, Inc. ("Huron Plastics") and substantially all of the assets of
a related entity, Tadim, Inc., for approximately $60.0 million. In addition,
the Company would pay $15.0 million to certain shareholders of Tadim, Inc. and
Huron Plastics pursuant to covenants not to compete, employment agreements and
consulting agreements. The Company is still conducting its due diligence and
no definitive agreements have been reached.
On August 31, 1997, the Company acquired certain assets of the molded
plastic and pultrusion operations (the "Brazilian Subsidiary") of Owens-
Corning Fiberglass A.S. LTDA, a Brazilian subsidiary of Owens-Corning, for
approximately $5.5 million.
F-33
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In July, 1997, the Company retired all outstanding debt with the proceeds of
the issuance of $100 million in Senior Subordinated Notes and $207.5 million
in term loans and a revolving line of credit under a new Credit Agreement. The
$100 million Senior Subordinated Notes bear interest at 10.25% and mature in
2007. The new Credit Agreement provides for maximum borrowings of $280 million
consisting of $205 million in term loans and $75 million under a revolving
facility. The term loans mature on the fifth and eighth anniversary of the
Credit Agreement and the revolving credit facility matures on the fifth
anniversary of the Credit Agreement. The interest rate on the Credit Agreement
is based on the Eurodollar rate plus the applicable Eurodollar margin and the
interest rate on the revolving credit facility is based on the Base rate plus
the applicable Base rate margin.
The Senior Subordinated Notes are guaranteed by CE Automotive Trim Systems,
Inc. ("CE"), a wholly owned, consolidated subsidiary of the Company, but are
not guaranteed by the Company's other consolidated subsidiaries, Voplex Canada
and the Brazilian Subsidiary (which was formed in 1997.) The guarantee of the
Senior Subordinated Notes by CE is full and unconditional. The following
condensed consolidating financial statements state the financial position,
results of the operations and cash flows of (i) Cambridge Industries, Inc., as
parent, as if it accounted for its subsidiaries on the equity method, (ii)
,CE, the guarantor subsidiary, and (iii) Voplex Canada, the non guarantor
subsidiary, as of December 31, 1996 and 1995, and for each of the three years
in the period ended December 31, 1996. Separate financial statements of CE are
not presented herein as management believes such statements would not be
material. The financial position and results of operations of Voplex Canada do
not include any allocation of corporate overhead or other similar charges.
CE was formed in 1994 as a joint venture with an unrelated entity. The
Company accounted for its 50% interest in CE as an equity investment as of
December 31, 1996 and 1995. In 1997, the Company purchased the other entity's
interest in CE for an immaterial amount and CE became a consolidated
subsidiary of the Company. The Company's equity investment in CE as of
December 31, 1996 and 1995 was $0 and $3,300, respectively. CE had no revenues
or operations during the periods presented.
F-34
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1996
<TABLE>
<CAPTION>
NON GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARY SUBSIDIARY ADJUSTMENTS CONSOLIDATED
-------- ------------- ---------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................. $ 7,795 $4,147 $-- $-- $ 11,942
Receivables (net)..... 47,854 1,131 48,985
Inventories........... 20,716 581 21,297
Reimbursable tooling
costs................ 17,606 68 17,674
Income tax
refundable........... 3,270 3,270
Deferred income taxes
and other............ 6,571 6,571
-------- ------ ---- ------- --------
Total current assets.... 103,812 5,927 109,739
Property, plant and
equipment (net)........ 132,769 555 133,324
Other long-term assets.. 19,167 19,167
Investment in
consolidated
subsidiary............. 5,326 (5,326) --
-------- ------ ---- ------- --------
Total assets............ $261,074 $6,482 $ 0 $(5,326) $262,230
======== ====== ==== ======= ========
LIABILITIES AND
STOCKHOLDER'S EQUITY
(DEFICIT)
Current liabilities:
Current portion of
long-term debt....... $ 9,080 $ 9,080
Accounts payable...... 37,281 $ 747 38,028
Accrued liabilities... 24,606 496 25,102
-------- ------ ---- ------- --------
Total current
liabilities............ 70,967 1,243 72,210
Noncurrent liabilities:
Long-term debt........ 224,112 224,112
Workers compensation.. 968 968
Postretirement health
care benefits........ 15,164 15,164
Acquired commitments
under acquired
contracts............ 2,244 2,244
Deferred income
taxes................ 9,673 9,673
-------- ------ ---- ------- --------
Total liabilities....... 323,128 1,243 324,371
-------- ------ ---- ------- --------
Stockholder's equity
(deficit):
Common stock..........
Paid-in capital....... 17,539 5,057 (5,057) 17,539
Unrealized foreign
currency
translation.......... (87) (87)
Retained earnings
(accumulated
deficit)............. (79,593) 269 (269) (79,593)
-------- ------ ---- ------- --------
Total stockholder's
equity (deficit)....... (62,054) 5,239 (5,326) (62,141)
-------- ------ ---- ------- --------
Total liabilities and
stockholder's equity
(deficit).............. $261,074 $6,482 $ 0 $(5,326) $262,230
======== ====== ==== ======= ========
</TABLE>
F-35
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
NON GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARY SUBSIDIARY ADJUSTMENTS CONSOLIDATED
-------- ------------- ---------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................. $ 6,095 $2,567 $-- $ -- $ 8,662
Receivables (net)..... 30,939 1,096 32,035
Inventories........... 14,467 991 15,458
Reimbursable tooling
costs................ 13,026 13,026
Income tax
refundable........... 537 537
Deferred income taxes
and other............ 2,419 (4) 2,415
-------- ------ ---- ------- --------
Total current assets.... 67,483 4,650 72,133
Property, plant and
equipment (net)........ 84,066 792 84,858
Other assets............ 18,124 18,124
Investment in
consolidated
subsidiary............. 4,494 (4,494) --
-------- ------ ---- ------- --------
Total assets............ $174,167 $5,442 $ 0 $(4,494) $175,115
======== ====== ==== ======= ========
LIABILITIES AND
STOCKHOLDER'S EQUITY
(DEFICIT)
Current liabilities:
Current portion of
long-term debt....... $ 4,494 $ 4,494
Accounts payable...... 29,099 $ 555 29,654
Accrued liabilities... 11,924 517 12,441
-------- ------ ---- ------- --------
Total current
liabilities............ 45,517 1,072 46,589
Noncurrent liabilities:
Long-term debt........ 177,133 177,133
Workers compensation.. 1,045 1,045
Postretirement health
care benefits........ 10,353 10,353
Deferred income
taxes................ 3,834 3,834
-------- ------ ---- ------- --------
Total liabilities....... 237,882 1,072 238,954
-------- ------ ---- ------- --------
Stockholder's equity
(deficit):
Common stock.......... 0
Paid-in capital....... 17,264 5,057 (5,057) 17,264
Minimum pension
liability
adjustment........... (277) (277)
Unrealized foreign
currency
translation.......... (124) (124)
Retained earnings
(accumulated
deficit)............. (80,702) (563) 563 (80,702)
-------- ------ ---- ------- --------
Total stockholder's
equity (deficit)....... (63,715) 4,370 (4,494) (63,839)
-------- ------ ---- ------- --------
Total liabilities and
stockholder's equity
(deficit).............. $174,167 $5,442 $ 0 $(4,494) $175,115
======== ====== ==== ======= ========
</TABLE>
F-36
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENTS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NON GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARY SUBSIDIARY ADJUSTMENTS CONSOLIDATED
-------- ------------- ---------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales................... $336,470 $9,556 $ -- $ -- $346,026
Cost of sales........... 287,629 7,113 294,742
-------- ------ ----- ----- --------
Gross profit............ 48,841 2,443 51,284
Selling, general and
administrative
expenses............... 25,963 761 (484) 26,240
-------- ------ ----- ----- --------
Income from operations.. 22,878 1,682 484 25,044
Other expense (income):
Interest expense...... 23,190 23,190
Other, net............ (737) 433 484 180
-------- ------ ----- ----- --------
Income before income
tax.................... 425 1,249 1,674
Income tax expense...... 148 417 565
-------- ------ ----- ----- --------
Income before equity in
income of consolidated
subsidiary............. 277 832 0 0 1,109
Equity in income of
consolidated
subsidiary............. 832 -- -- (832) --
-------- ------ ----- ----- --------
Net income.............. $ 1,109 $ 832 $0 $(832) $ 1,109
======== ====== ===== ===== ========
</TABLE>
F-37
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENTS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NON GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARY SUBSIDIARY ADJUSTMENTS CONSOLIDATED
-------- ------------- ---------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales................... $288,644 $9,102 $-- $ -- $297,746
Cost of sales........... 247,002 6,891 253,893
-------- ------ ---- ------- --------
Gross profit............ 41,642 2,211 43,853
Selling, general and
administrative
expenses............... 16,905 1,234 (461) 17,678
-------- ------ ---- ------- --------
Income from operations.. 24,737 977 461 26,175
Other expense (income):
Interest expense...... 12,388 12,388
Other, net............ (1,078) (129) 461 (746)
-------- ------ ---- ------- --------
Income before income
tax.................... 13,427 1,106 14,533
Income tax expense...... 5,410 5,410
-------- ------ ---- ------- --------
Income before
extraordinary item..... 8,017 1,106 9,123
Extraordinary loss...... 4,426 4,426
-------- ------ ---- ------- --------
Income before equity in
income of consolidated
subsidiary ............ 3,591 1,106 0 0 4,697
Equity in income of
consolidated
subsidiary............. 1,106 (1,106) --
-------- ------ ---- ------- --------
Net income.............. $ 4,697 $1,106 $ 0 $(1,106) $ 4,697
======== ====== ==== ======= ========
</TABLE>
F-38
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING INCOME STATEMENTS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NON GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARY SUBSIDIARY ADJUSTMENTS CONSOLIDATED
-------- ------------- ---------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales................... $182,080 $8,864 $-- $ -- $190,944
Cost of sales........... 152,588 6,867 159,455
-------- ------ ---- ----- --------
Gross profit............ 29,492 1,997 31,489
Selling, general and
administrative
expenses............... 14,010 1,487 (185) 15,312
-------- ------ ---- ----- --------
Income from operations.. 15,482 510 185 16,177
Other expense (income):
Interest expense...... 6,165 (4) 6,161
Other, net............ (814) (28) 185 (657)
-------- ------ ---- ----- --------
Income before income
tax.................... 10,131 542 10,673
Income tax expense
(benefit).............. (1,450) (1,450)
-------- ------ ---- ----- --------
Income before equity in
income of consolidated
subsidiary............. 11,581 542 0 0 12,123
Equity in income of
consolidated
subsidiary............. 542 (542) --
-------- ------ ---- ----- --------
Net income.............. $ 12,123 $ 542 $ 0 $(542) $ 12,123
======== ====== ==== ===== ========
</TABLE>
F-39
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NON GUARANTOR GUARANTOR
PARENT SUBSIDIARY SUBSIDIARY CONSOLIDATED
-------- ------------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities:........ $ (5,929) $1,779 $ $ (4,150)
-------- ------ --- --------
Cash flows from investing
activities:
Acquisition, net of cash
acquired................... (18,160) (18,160)
Purchase of property, plant
and equipment.............. (9,394) (236) (9,630)
-------- ------ --- --------
Net cash used in investing
activities................... (27,554) (236) (27,790)
-------- ------ --- --------
Cash flows from financing
activities:
Net borrowings from
revolving debt............. 13,000 13,000
Proceeds from issuance of
long-term debt............. 73,178 73,178
Repayment of long-term
debt....................... (48,363) (48,363)
Cost of debt and equity
financing.................. (2,907) (2,907)
Contribution by
stockholder................ 275 275
-------- ------ --- --------
Net cash provided by financing
activities................... 35,183 35,183
-------- ------ --- --------
Effect of foreign currency
rate fluctuations on cash.... 37 37
-------- ------ --- --------
Net increase in cash.......... 1,700 1,580 3,280
Cash at beginning of period... 6,095 2,567 0 8,662
-------- ------ --- --------
Cash at end of period......... $ 7,795 $4,147 $ 0 $ 11,942
======== ====== === ========
</TABLE>
F-40
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
NON
GUARANTOR GUARANTOR
PARENT SUBSIDIARY SUBSIDIARY CONSOLIDATED
--------- ---------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by operating
activities..................... $ 32,597 $1,191 $ $ 33,788
--------- ------ ------- ---------
Cash flows from investing
activities--
Purchase of property, plant
and equipment................ (10,569) (77) (10,646)
--------- ------ ------- ---------
Net cash used in investing
activities..................... (10,569) (77) (10,646)
--------- ------ ------- ---------
Cash flows from financing
activities:
Net borrowings from revolving
debt......................... 5,000 5,000
Proceeds from issuance of
long-term debt............... 176,620 176,620
Repayment of long-term debt... (130,450) (130,450)
Cost of debt and equity
financing.................... (14,573) (14,573)
Distribution to stockholder... (70,339) (70,339)
Contribution by stockholder... 18,200 18,200
--------- ------ ------- ---------
Net cash used in financing
activities..................... (15,542) (15,542)
--------- ------ ------- ---------
Effect of foreign currency rate
fluctuations on cash........... (58) (58)
--------- ------ ------- ---------
Net increase in cash............ 6,486 1,056 7,542
Cash at beginning of period..... (391) 1,511 0 1,120
--------- ------ ------- ---------
Cash at end of period........... $ 6,095 $2,567 $0 $ 8,662
========= ====== ======= =========
</TABLE>
F-41
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
NON GUARANTOR GUARANTOR
PARENT SUBSIDIARY SUBSIDIARY CONSOLIDATED
-------- ------------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net cash provided by operating
activities................... $ 9,254 $ 258 $ $ 9,512
-------- ------ --- --------
Cash flows from investing
activities:
Acquisition, net of cash
acquired................... (75,217) (75,217)
Purchase of property, plant
and equipment.............. (3,972) (3,972)
-------- ------ --- --------
Net cash used in investing
activities................... (79,189) (79,189)
-------- ------ --- --------
Cash flows from financing
activities:
Net borrowings (repayments)
from revolving debt........ (2,316) (2,316)
Proceeds from issuance of
long-term debt............. 123,000 123,000
Repayment of long-term
debt....................... (18,369) (18,369)
Cost of debt and equity
financing.................. (4,171) (4,171)
Distribution to
stockholder................ (29,817) (29,817)
Contribution by
stockholder................ 1,000 1,000
-------- ------ --- --------
Net cash provided by financing
activities................... 69,327 69,327
-------- ------ --- --------
Effect of foreign currency
rate fluctuations on cash.... (76) (76)
-------- ------ --- --------
Net increase (decrease) in
cash......................... (608) 182 (426)
Cash at beginning of period... 217 1,329 0 1,546
-------- ------ --- --------
Cash at end of period......... $ (391) $1,511 $0 $ 1,120
======== ====== === ========
</TABLE>
F-42
<PAGE>
GENCORP INC.
REINFORCED PLASTICS DIVISION
FINANCIAL STATEMENTS AS OF FEBRUARY 29, 1996 (UNAUDITED) ANDNOVEMBER 30, 1995,
AND FOR THE THREE-MONTH PERIODS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
(UNAUDITED), AND FOR THE YEARS ENDED NOVEMBER 30, 1995 AND 1994
F-43
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholder of Cambridge Industries, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations and of cash flows present fairly, in all material respects, the
financial position of the Reinforced Plastics Division ("the Division") of
GenCorp Inc. at November 30, 1995, and the results of its operations and its
cash flows for the years ended November 30, 1995 and 1994, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of management of GenCorp Inc. and the Division; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
The Division is a division of GenCorp Inc. and, as disclosed in Note 11 to
the financial statements, has extensive transactions and relationships with
other GenCorp Inc. entities. Because of these relationships, the terms of
these transactions may differ from those that would result from transactions
among wholly unrelated parties.
As discussed in Note 14, on March 1, 1996, certain net assets of the
Division were purchased by Cambridge Industries, Inc. and its affiliate. The
accompanying financial statements do not give effect to the purchase
transaction.
Price Waterhouse llp
Detroit, Michigan
April 24, 1996
F-44
<PAGE>
GENCORP INC.
REINFORCED PLASTICS DIVISION
BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 29, NOVEMBER 30 ,
1996 1995
------------ -------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Cash............................................... $ 32 $ 404
Accounts receivable................................ 18,148 14,407
Inventories........................................ 4,093 3,774
Prepaid expenses and other current assets.......... 238 24
------- -------
Total current assets............................. 22,511 18,609
Property and equipment, net.......................... 69,213 68,249
Other assets......................................... 162 186
------- -------
$91,886 $87,044
======= =======
LIABILITIES AND GENCORP INVESTMENT
Current liabilities
Accounts payable................................... $ 5,128 $ 5,918
Accrued liabilities................................ 20,564 22,594
------- -------
Total current liabilities........................ 25,692 28,512
Noncurrent liabilities............................... 14,246 14,339
Commitments and contingencies (Note 13)
------- -------
Total liabilities................................ 39,938 42,851
GenCorp investment................................... 51,948 44,193
------- -------
$91,886 $87,044
======= =======
</TABLE>
See accompanying notes to financial statements.
F-45
<PAGE>
GENCORP INC.
REINFORCED PLASTIC DIVISION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS YEAR ENDED
ENDED ENDED NOVEMBER 30,
FEBRUARY 29, FEBRUARY 28, ------------------
1996 1995 1995 1994
------------- ------------- -------- --------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales......................... $23,615 $32,690 $120,771 $144,993
Cost of sales................. 26,042 31,085 115,286 133,790
------- ------- -------- --------
Gross profit (loss)......... (2,427) 1,605 5,485 11,203
Selling, general and
administrative expense....... 2,475 2,618 10,467 13,931
Provision for adverse sales
commitments.................. 27,191
Other (income), expense net... (137) (114) 137
Restructuring charges
Property and equipment...... 3,234
Other restructuring
charges.................... 661 706
------- ------- -------- --------
Loss before interest expense
and provision for income
taxes........................ (4,765) (899) (32,834) (6,805)
Interest expense.............. 996 1,186 4,440 4,462
Provision for income taxes....
------- ------- -------- --------
Net loss...................... $(5,761) $(2,085) $(37,274) $(11,267)
======= ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-46
<PAGE>
GENCORP INC.
REINFORCED PLASTICS DIVISION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS YEAR ENDED
ENDED ENDED NOVEMBER 30,
FEBRUARY 29, FEBRUARY 28, ------------------
1996 1995 1995 1994
------------- ------------- -------- --------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss...................... $ (5,761) $(2,085) $(37,274) $(11,267)
Adjustments to reconcile net
loss to net cash used for
operating activities:
Depreciation and
amortization............... 1,836 1,854 7,419 7,191
Loss on sale of property and
equipment.................. 392 167
Provision for adverse sales
commitments................ 27,191
Noncash restructuring
charges.................... 3,234
Changes in assets and
liabilities:
Accounts receivable....... (3,741) 2,042 2,082 1,310
Inventories............... (319) (358) (111) 149
Prepaid expenses and other
current assets........... (214) 156 172 (151)
Accounts payable.......... (790) (666) (927) (2,110)
Accrued liabilities....... (2,030) (1,743) (2,135) 144
Noncurrent liabilities.... (93) 82 (880) (21)
-------- ------- -------- --------
NET CASH USED FOR
OPERATING ACTIVITIES... (11,112) (718) (4,071) (1,354)
-------- ------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and
equipment and other assets... (2,776) (481) (4,461) (10,367)
Proceeds from sale of property
and equipment................ 292 683
-------- ------- -------- --------
NET CASH USED FOR
INVESTING ACTIVITIES... (2,776) (481) (4,169) (9,684)
-------- ------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Increase in GenCorp
investment................... 13,516 645 8,069 11,592
-------- ------- -------- --------
NET INCREASE (DECREASE) IN
CASH......................... (372) (554) (171) 554
Cash at beginning of the
period....................... 404 575 575 21
-------- ------- -------- --------
Cash at end of the period..... $ 32 $ 21 $ 404 $ 575
======== ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-47
<PAGE>
GENCORP INC.
REINFORCED PLASTICS DIVISION
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. THE DIVISION
The Reinforced Plastics Division (the Division), a division of GenCorp Inc.
(GenCorp), designs, manufactures and supplies automotive, light truck, heavy
truck and industrial components made of reinforced plastic. The Division
operates production facilities in Shelbyville, Indiana; Ionia, Michigan;
Rushville, Indiana; and shares a production facility in Marion, Indiana with
another GenCorp division. The Division's fiscal year ends on November 30.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These financial statements present the historical financial position,
results of operations and cash flows of the Division previously included in
the GenCorp consolidated financial statements. The Division's financial
information included herein is not necessarily indicative of the financial
position, results of operations and cash flows of the Division in the future,
or of the results which would have been reported if the Division had operated
as an unaffiliated enterprise.
Transactions between the Division and GenCorp (and its other divisions) are
herein referred to as "intercompany" or "related party" transactions.
Concentration of credit risk
Financial instruments which potentially expose the Division to
concentrations of credit risk consist primarily of accounts receivable. To
minimize this risk, ongoing credit evaluations of customers' financial
condition are performed, although collateral is not required. In addition, the
Division maintains reserves for potential credit losses and historically has
not experienced significant losses related to receivables from individual
customers.
The Division's customer base includes significant automobile, light truck
and heavy truck manufacturers primarily in the United States and Canada and is
therefore directly affected by the economic well-being of those industries.
During 1995 and 1994, sales to four customers accounted for approximately 95%
and 97%, respectively, of total sales as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
General Motors Corporation....................................... 68% 74%
Volvo............................................................ 13 10
Chrysler Corporation............................................. 9 7
Ford Motor Company............................................... 5 6
Others........................................................... 5 3
--- ---
100% 100%
=== ===
</TABLE>
Export sales, primarily to Canadian affiliates of these customers,
approximated $25,600 and $29,800 for the years ended November 30, 1995 and
1994, respectively.
Financial instruments
At November 30, 1995 and 1994, the carrying value of financial instruments,
comprising cash, accounts receivable and accounts payable, approximated their
fair values.
F-48
<PAGE>
GENCORP INC.
REINFORCED PLASTICS DIVISION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Management 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
reporting period. Actual results could differ from those estimates.
Unbilled tooling
Unbilled tooling amounts represent net costs incurred on tooling projects
for which the Division expects to be reimbursed by customers. Ongoing
estimates of total costs to be incurred on each tooling project are made by
management and losses, if any, are recorded when known. Generally, tooling
revenue is recognized upon acceptance of the tooling by the customer. Tooling
revenue or losses are included in cost of sales.
Inventories
Productive inventories are stated at the lower of cost or market. Cost is
determined using the last in, first out (LIFO) method. Supply inventories are
stated at the lower of cost or market with cost being determined on a first
in, first out (FIFO) basis.
Property and equipment
Property and equipment are recorded at cost. Additions and improvements,
unless of relatively minor amounts, are capitalized. Expenditures for repairs
and maintenance are charged to expense as incurred. Property and equipment no
longer utilized in operations as a result of restructuring plans or other
changes in operations are reduced to net realizable or salvage value. (See
Note 12.) Upon disposal or retirement of property and equipment, the related
cost and accumulated depreciation are removed from the Division's accounts and
any gain or loss is included in results of operations. Property and equipment
are depreciated using the straight-line method for financial reporting
purposes and accelerated methods for tax purposes.
Other assets
Other assets comprise primarily of purchased computer software, net of
accumulated amortization. Computer software is amortized on the straight-line
basis over three years.
Income taxes
The Division is included in the consolidated U.S. federal income tax return
of GenCorp. In preparing its financial statements, the Division has determined
its tax provision on a separate return basis. Deferred income taxes are
provided on differences between the book and tax bases of assets and
liabilities at the statutory tax rates expected to be in effect when such
differences reverse. A valuation allowance on deferred tax assets is provided
if it is considered more likely than not that such deferred tax assets will
not be realized.
Revenue recognition
Sales and related cost of sales are recognized upon the shipment of
products. Sales are recorded net of estimated returns and allowances.
Adverse Sales Commitments
The Division periodically assesses the future profitability of its sales
commitments on a vehicle platform basis. The Division records a reserve for
adverse sales commitments when management's estimate of the costs of producing
the related products exceeds the related revenues over the estimated platform
life.
F-49
<PAGE>
GENCORP INC.
REINFORCED PLASTICS DIVISION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Research, development and engineering expenses
Research, development and engineering expenses related to design and
development of new products and planning and design for new processes are
expensed as incurred.
Environmental expenditures
Environmental expenditures are expensed or capitalized depending upon their
future economic benefit. Expenditures which improve a property as compared
with the condition of the property when originally constructed or acquired and
which prevent future environmental contamination are capitalized. Expenditures
which return a property to its condition at the time of acquisition are
expensed. Liabilities related to these expenditures are recorded when it is
probable that obligations have been incurred and the amounts can be reasonably
estimated.
Interim financial data
The interim financial data are unaudited; however, in the opinion of
management, the interim data include all adjustments, consisting only of
normal recurring items, necessary for a fair statement of the results for the
interim periods.
3. ACCOUNTS RECEIVABLE
Accounts receivable comprised the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
1995
------------
<S> <C>
Customer accounts receivable.................................... $13,902
Raw material rebates receivable................................. 477
Unbilled tooling................................................ 1,342
Other........................................................... 373
Reserve for returns and credits................................. (1,687)
-------
$14,407
=======
</TABLE>
4. INVENTORIES
Inventories comprised the following:
<TABLE>
<CAPTION>
FEBRUARY 29, NOVEMBER 30,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Raw materials...................................... $2,667 $2,351
Work-in-process.................................... 920 897
Finished goods..................................... 688 623
------ ------
Total productive inventories....................... 4,275 3,871
Less--LIFO reserve................................. (1,220) (1,216)
------ ------
Net productive inventories......................... 3,055 2,655
------ ------
Supplies inventory................................. 1,977 2,041
Less--Supplies obsolescence reserve................ (939) (922)
------ ------
Net supplies inventory............................. 1,038 1,119
------ ------
Net inventories.................................... $4,093 $3,774
====== ======
</TABLE>
F-50
<PAGE>
GENCORP INC.
REINFORCED PLASTICS DIVISION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment comprised the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE NOVEMBER 30,
(YEARS) 1995
------------ ------------
<S> <C> <C>
Land.............................................. -- $ 565
Buildings and building improvements............... 10-40 19,925
Machinery and equipment........................... 5-30 94,699
Furniture and fixtures............................ 3-15 4,455
Leasehold improvements............................ 1-20 993
Construction-in-progress.......................... 2,965
-------
123,602
Less--Accumulated depreciation and amortization... (55,353)
-------
$68,249
=======
</TABLE>
6. ACCRUED LIABILITIES
Accrued liabilities comprised the following:
<TABLE>
<CAPTION>
NOVEMBER 30 ,
1995
-------------
<S> <C>
Payroll and payroll taxes...................................... $ 628
Accrued vacation............................................... 1,955
State and local taxes.......................................... 920
Workers' compensation.......................................... 898
Restructuring reserve.......................................... 1,566
Self-insured medical claims.................................... 1,037
Environmental.................................................. 1,000
Reserve for adverse sales commitments.......................... 14,037
Other.......................................................... 553
-------
Total accrued liabilities...................................... $22,594
=======
</TABLE>
7. NONCURRENT LIABILITIES
Noncurrent liabilities comprised the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
1995
------------
<S> <C>
Reserve for adverse sales commitments........................... $13,154
Environmental................................................... 1,000
Other........................................................... 185
-------
Total noncurrent liabilities.................................... $14,339
=======
</TABLE>
During fiscal 1995, the Division recorded a provision for adverse sales
commitments of $27,191, related to the Division's commitment to provide
certain passenger car and heavy truck products and tooling to certain of its
customers. The Division expects to begin production on these programs during
fiscal 1996.
F-51
<PAGE>
GENCORP INC.
REINFORCED PLASTICS DIVISION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. EMPLOYEE BENEFIT PLANS
Retirement plans
Substantially all salaried and hourly employees of the Division participate
in GenCorp defined benefit pension plans. For salaried employees, plan
benefits are generally based on years of service and the employee's
compensation. For hourly employees, plan benefits are generally based on years
of service and the benefit level established by the collective bargaining
agreement for each facility. For the purpose of these financial statements,
the Division is considered to have participated in multiemployer pension
plans.
Employers participating in multiemployer plans are required to recognize as
net periodic pension costs, total contributions for the period. The Division
recorded net periodic pension cost of $1,940 and $1,830 for the years ended
November 30, 1995 and 1994 respectively, related to its participation in the
GenCorp plans.
GenCorp also sponsors a number of defined contribution pension plans.
Participation in these plans is available to substantially all salaried
employees and to certain groups of hourly employees. GenCorp contributions to
these plans are based on either a percentage of employee contributions or on a
specified amount per hour based on the provisions of each plan. The cost to
the Division for providing benefits under the GenCorp defined contribution
plans was $660 and $560 for the years ended November 30, 1995 and 1994,
respectively.
Other postretirement benefits
GenCorp provides certain other postretirement health care and life insurance
benefits for certain retired employees, including the Division's eligible
retired employees. These retiree health care and life insurance plans provide
varied coverage by employee group. For the purpose of these financial
statements, the Division is considered to have participated in multiemployer
postretirement benefit plans.
Employers participating in multiemployer plans are required to recognize
total contributions for the period as net postretirement benefit costs. The
Division charged to expense $1,850 and $1,830 for the years ended November 30,
1995 and 1994, respectively, related to its participation in the GenCorp
postretirement healthcare and life insurance benefit plans.
9. OPERATING LEASES
The Company leases two facilities and certain manufacturing, computer and
transportation equipment under operating leases expiring on various dates
through 2000. Future minimum lease payments required under leases that have
noncancelable lease terms in excess of one year at November 30, 1995 are as
follows:
<TABLE>
<S> <C>
Fiscal 1996........................................................... $ 425
1997.............................................................. 420
1998.............................................................. 366
1999.............................................................. 173
2000.............................................................. 118
------
$1,502
======
</TABLE>
Rental expense charged to operations was approximately $820 and $530 for the
years ended November 30, 1995 and 1994, respectively.
F-52
<PAGE>
GENCORP INC.
REINFORCED PLASTICS DIVISION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES
There was no current or deferred federal or state income tax provision for
the years ended November 30, 1995 and 1994. Temporary differences giving rise
to the Division's deferred tax assets and liabilities, and related valuation
allowances, comprised the following:
<TABLE>
<CAPTION>
NOVEMBER 30,
1995
------------
<S> <C>
Deferred tax assets
Accounts receivable reserves.................................. $ 277
Restructuring reserves........................................ 630
Environmental reserves........................................ 804
Reserve for adverse sales commitments......................... 10,876
Other reserves not currently deductible....................... 1,641
Net operating loss carryforwards.............................. 49,354
-------
63,582
Deferred tax liabilities
Property and equipment........................................ (14,755)
-------
Net deferred tax asset before valuation allowance............. 48,827
Valuation allowance............................................. (48,827)
-------
Net deferred taxes............................................ $ --
=======
</TABLE>
The provision for income taxes differs from income taxes computed by
applying the U.S. statutory federal income tax rate as a result of the
following:
<TABLE>
<CAPTION>
YEAR ENDED
NOVEMBER 30,
---------------
1995 1994
------ ------
<S> <C> <C>
Taxes computed at federal statutory rate................... (35.0)% (35.0)%
Increase in deferred tax valuation allowance............... 34.6 34.7
Other...................................................... 0.4 0.3
------ ------
-- % -- %
====== ======
</TABLE>
At November 30, 1995, for financial reporting purposes the Division had
federal and state net operating loss carryforwards of approximately $123,000
which expire from 2005 through 2010. The loss carryforwards have been utilized
by GenCorp in its consolidated federal and state tax returns and are therefore
not available for tax return purposes.
11. INTERCOMPANY TRANSACTIONS AND ALLOCATIONS
Cash management
The Division utilizes GenCorp centralized cash management services. Under
this arrangement, the Division's accounts receivable are collected and its
cash disbursements are funded by GenCorp on a daily basis. Net cash activity
between GenCorp and the Division is reflected in GenCorp's investment in the
Division.
Intercompany purchases
The Division purchases certain raw materials from other divisions of
GenCorp; such purchases approximated $2,100 and $2,700 for the years ended
November 30, 1995 and 1994, respectively. Intercompany payables related to
purchases between the Division and other GenCorp entities are included in
GenCorp's investment in the Division.
F-53
<PAGE>
GENCORP INC.
REINFORCED PLASTICS DIVISION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Corporate services
GenCorp allocates certain corporate, general and administrative costs,
including legal, tax, accounting, human resources, employee benefits,
insurance, cash management, information systems and research and development
to the Division. Other corporate overhead costs are allocated among GenCorp's
operating units based upon each unit's percentage of total payroll, sales or
invested capital, depending on the type of cost. Allocated corporate overhead
totaled $5,100 and $3,400 for the years ended November 30, 1995 and 1994,
respectively, and is included in selling, general and administrative expenses
(SG&A) in the statements of operations.
GenCorp manages workers' compensation, employee medical, dental and life
insurance, postretirement benefits and pension plans on a consolidated basis.
GenCorp charges the Division for its share of such employee-related costs
based upon the Division's actual experience, or headcount, depending upon the
nature of the cost. Charges from GenCorp for employee-related costs aggregated
$8,700 and $10,700 for the years ended November 30, 1995 and 1994 and are
classified in cost of sales or SG&A in the statements of operations, depending
upon the nature of the cost.
GenCorp charges the Division intercompany interest on the GenCorp investment
balance, utilizing a short-term interest rate which averaged approximately
6.8% and 6.4% in 1995 and 1994, respectively. Interest charges approximated
$4,400 and $4,500 for the years ended November 30, 1995 and 1994,
respectively.
Management believes that the methods utilized to allocate costs to the
Division, as discussed above, are reasonable. However, the terms of
transactions between the Division and GenCorp, including allocated costs, may
differ from those that would result from transactions with unrelated parties.
GENCORP INVESTMENT
The GenCorp investment balance represents the cumulative intercompany
activity from transactions, charges and credits between the Division and
GenCorp (and its other divisions), as more fully described above. A summary of
changes in GenCorp investment follows.
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED NOVEMBER 30,
FEBRUARY 26, ----------------
1996 1995 1994
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Beginning GenCorp investment.................. $44,193 $73,398 $73,073
Net loss...................................... (5,761) (37,274) (11,267)
Intercompany activity......................... 13,516 8,069 11,592
------- ------- -------
Ending GenCorp investment..................... $51,948 $44,193 $73,398
======= ======= =======
</TABLE>
F-54
<PAGE>
GENCORP INC.
REINFORCED PLASTICS DIVISION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. RESTRUCTURING
During 1995, 1994 and 1992, the Division initiated three separate
restructuring plans pursuant to which the Division planned to close the
Division's headquarters in Carmel, Indiana (1995 plan) consolidate the
Division's passenger vehicle business into one production facility (1994 plan)
and consolidate like product lines into similar production facilities (1992
plan). The following table shows the activity in the restructuring reserves
for the years ended November 30, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994 1992
RESTRUCTURING RESTRUCTURING RESTRUCTURING TOTAL
------------- ------------- ------------- -------
<S> <C> <C> <C> <C>
Balance at November 30,
1993...................... $-- $ -- $ 4,532 $ 4,532
Establishment of 1994 re-
serve..................... 2,846 2,846
Charges against reserve.... (2,392) (2,392)
Changes in estimates....... (2,140) (2,140)
----- ------- ------- -------
Balance at November 30,
1994...................... 2,846 2,846
Establishment of 1995 re-
serve..................... 700 700
Charges against reserve.... (454) (1,487) (1,941)
Changes in estimates....... (39) (39)
----- ------- ------- -------
Balance at November 30,
1995...................... $ 246 $ 1,320 $ -- $ 1,566
===== ======= ======= =======
</TABLE>
The charges against the reserve during the year ended November 30, 1994
primarily related to remaining costs of relocating product lines from Marion
and the demolition of certain buildings at the Marion location. The charges
against the reserve during the year ended November 30, 1995 related to the
demolition of certain buildings at the Marion and Ionia, Michigan facilities
and certain other exit costs related to the 1995 and 1994 restructuring plans.
The November 30, 1995 reserve balance primarily relates to demolition costs
which are expected to be incurred during 1996.
13. COMMITMENTS AND CONTINGENCIES
Environmental
The Division is subject to federal, state and local regulations which govern
environmental matters. The Division has recorded amounts which, in
management's best estimate, will be sufficient to provide for anticipated
costs of known environmental matters, which consist primarily of remediation
requirements at the Division's Ionia, Michigan facility.
The nature of environmental investigation and remediation activities often
makes it difficult to determine the timing and amount of any estimated future
costs that may be required for remedial measures. However, the Division
reviews these matters and accrues for costs associated with the remediation of
environmental pollution when it becomes probable that a liability has been
incurred and its proportionate share of the amount can be reasonably
estimated. The Division's balance sheet reflects accruals for environmental
remediation approximating $2,000 at November 30, 1995 and February 29, 1996
(unaudited).
The effect of resolution of environmental matters on results of operations
cannot be predicted due to the uncertainty concerning both the amount and
timing of future expenditures and future results of operations. However,
management believes, on the basis of presently-available information, that
resolution of these matters will not materially affect the financial condition
of the Division. The Division will continue its efforts to mitigate past and
future costs through pursuit of claims for insurance coverage and continued
investigation of new remediation alternatives and associated technologies.
F-55
<PAGE>
GENCORP INC.
REINFORCED PLASTICS DIVISION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
General
The Division is subject to various claims, lawsuits and administrative
proceedings related to matters arising out of the normal course of business.
In the opinion of management, after reviewing the information which is
currently available with respect to such matters and consulting with counsel,
any liability which may ultimately be incurred with respect to these matters
will not materially affect the financial condition of the Division. The effect
of resolution of these matters on results of operations cannot be predicted
because any such effect depends on both future results of operations and the
amount and timing of the resolution of such matters.
14. SUBSEQUENT EVENT
On March 1, 1996, GenCorp sold certain assets and liabilities of the
Division to Cambridge Industries, Inc. and its affiliate, Cambridge Holdings,
Inc., (collectively, Cambridge) for approximately $31,900, subject to certain
adjustments. GenCorp received approximately $13,700 in senior subordinated
notes of Cambridge and approximately $18,200 in cash in payment of purchase
price.
As a result of the transaction, Cambridge (i) purchased substantially all
assets of the Division, excluding trade accounts receivable, the Ionia,
Michigan facility and the Marion, Indiana facility, (ii) assumed certain
liabilities, primarily trade accounts payable and payroll-related accruals,
and (iii) assumed the Division's obligations under its sales commitments.
Subsequent to the closing of the acquisition of the Division, Cambridge has
been unable to reach an agreement with GenCorp on the related purchase price
adjustment. The purchase agreement provides for arbitration of such disputes;
the matter has not yet been submitted to arbitration and continues to be
subject to negotiation by the parties.
The accompanying financial statements do not give effect to the purchase
transaction.
F-56
<PAGE>
CENTRALIA PLANT AND BUTLER POLYMET, INC.
FINANCIAL STATEMENTS FOR THE TEN MONTHS ENDED JULY 31, 1994
AND INDEPENDENT AUDITORS' REPORT
F-57
<PAGE>
INDEPENDENT AUDITORS' REPORT
Cambridge Industries, Inc.:
We have audited the accompanying statements of sales less costs and
expenses, and of cash flows of the Centralia Plant and Butler Polymet, Inc.
(the "Business"), formerly the plastic products business of another company,
for the ten-month period ended July 31, 1994. These financial statements are
the responsibility of the management of the Business. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying financial statements were prepared in connection with the
acquisition of the Business by Cambridge Industries, Inc. as discussed in Note
1 and are not intended to be a complete presentation of the results of
operations and cash flows of the Business.
In our opinion, such financial statements present fairly, in all material
respects, the sales less costs and expenses of the Business and its cash flows
for the ten-month period ended July 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Note 4 to the financial statements, the Business changed its
method of accounting for postretirement benefits other than pensions effective
October 1, 1993 to conform with Statement of Financial Accounting Standards
No. 106.
Deloitte & Touche LLP
Detroit, Michigan
September 15, 1995
F-58
<PAGE>
CENTRALIA PLANT AND BUTLER POLYMET, INC.
STATEMENT OF SALES LESS COSTS AND EXPENSES
FOR THE TEN MONTHS ENDED JULY 31, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
SALES............................................................... $181,760
COSTS OF SALES...................................................... 165,945
--------
GROSS PROFIT........................................................ 15,815
OPERATING EXPENSES:
Engineering....................................................... 3,458
Marketing......................................................... 966
General and administrative........................................ 1,836
Corporate allocations............................................. 2,889
--------
Total operating expenses........................................ 9,149
--------
SALES LESS COSTS AND EXPENSES BEFORE FEDERAL INCOME TAX............. 6,666
PROVISION FOR FEDERAL INCOME TAX.................................... 2,333
--------
SALES LESS COSTS AND EXPENSES BEFORE CUMULATIVE EFFECT OF ACCOUNTING
CHANGE............................................................. 4,333
CUMULATIVE EFFECT OF ACCOUNTING CHANGE (NET OF TAX BENEFIT OF
$2,053) (Note 4)................................................... (3,813)
--------
SALES LESS COSTS AND EXPENSES....................................... $ 520
========
</TABLE>
See notes to financial statements.
F-59
<PAGE>
CENTRALIA PLANT AND BUTLER POLYMET, INC.
STATEMENT OF CASH FLOWS
FOR THE TEN MONTHS ENDED JULY 31, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Sales less costs and expenses before cumulative effect of accounting
change.............................................................. $ 4,333
Adjustments to reflect cash provided by (used in) operations:
Depreciation and amortization...................................... 8,708
Amortization of intangible assets.................................. 482
Changes in assets and liabilities:
Accounts receivable................................................ 3,984
Inventories........................................................ (117)
Reimbursable tooling costs......................................... (7,358)
Accounts payable, accrued and other liabilities.................... (7,782)
-------
Net cash provided by operating activities.......................... 2,250
CASH FLOWS FROM INVESTING ACTIVITIES--Purchase of property and
equipment........................................................... (7,417)
-------
NET CASH FLOWS FROM ROCKWELL......................................... $(5,167)
=======
</TABLE>
See notes to financial statements.
F-60
<PAGE>
CENTRALIA PLANT AND BUTLER POLYMET, INC.
NOTES TO FINANCIAL STATEMENTS
TEN MONTHS ENDED JULY 31, 1994
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared for the purpose of
presenting the sales less costs and expenses and cash flows of the Centralia
Plant and Butler Polymet, Inc. (the "Business") of Rockwell International
Corporation ("Rockwell"), for the ten-month period ended July 31, 1994. The
related acquisition occurred pursuant to the Stock and Asset Sale Agreement
between Rockwell and Plastics Acquisition Corporation, a subsidiary of
Cambridge Industries, Inc. (the "Buyer"), dated April 28, 1994, as amended
August 1, 1994 (the "Agreement"). The acquisition, which was effective on
August 1, 1994 (the "Closing Date"), consisted of the plants and operations of
the Business located in Centralia, Illinois and the stock of Butler Polymet,
Inc. which operates plants in Lenoir and Newton, North Carolina. The effect of
all interplant transactions has been eliminated.
The statement of sales less costs and expenses presents the historical
operating performance of the Business. During all of the periods presented in
the accompanying financial statements, the Business operated as an integral
part of the Rockwell's overall operations. The financial statements include
various allocated costs and expenses and intercompany transactions, which are
not necessarily indicative of the costs and expenses, or transaction terms
that would have occurred, had the Business operated on a stand-alone basis.
However, all of the allocations and estimates reflected in the financial
statements are based on assumptions which management believes are reasonable.
Corporate allocations were based principally on the relative revenues of the
Business, as compared to the respective consolidated amounts of Rockwell and
other factors which estimate usage of particular corporate functions. It is
not considered practicable to estimate the amount of such costs as if the
Business operated on a stand-alone basis.
2. SIGNIFICANT ACCOUNTING POLICIES
General--The Business is engaged in the design, manufacture and sale of
plastic injection molding components for the automotive industry.
Inventories are stated at the lower of actual cost or market; approximately
43% of the inventory is costed on the last-in, first-out (LIFO) method, and
the remainder is costed on the first-in, first-out (FIFO) basis. If the FIFO
method had been used at each balance sheet date presented, the inventory
balance would have been $1.4 million higher at both July 31, 1994 and
September 30, 1993.
Reimbursable Tooling Costs are stated at amounts which management expects to
recover under customer agreements.
Property, Plant and Equipment--Property is stated at cost. Depreciation is
calculated using the straight-line method except for certain machinery and
equipment at Centralia which are depreciated using a method which adjusts
straight-line depreciation for variances in excess of $100,000 from normal
production levels, defined as the previous five-year average production
measured by standard direct labor hours. Such adjustments have the effect of
lengthening or shortening the period over which assets are depreciated. The
ranges of estimated useful lives used in computing depreciation are as
follows:
<TABLE>
<S> <C>
Land and leasehold improvements...................................... 5-13
Buildings............................................................ 5-50
Machinery, equipment and tooling..................................... 3-11
Office and data processing equipment................................. 2-11
</TABLE>
Significant renewals and betterments are capitalized and replaced units are
written off. Maintenance and repairs, as well as renewals of minor amounts,
are charged to expense.
F-61
<PAGE>
CENTRALIA PLANT AND BUTLER POLYMET, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Intangible Assets include goodwill and a covenant not to compete related to
the acquisition of a portion of the Business; such intangible assets are being
amortized on a straight-line basis over 25 and 5 years, respectively. The
Business evaluates at each balance sheet date the recoverability of its
intangible assets and records a reserve whenever such balances appear
unrecoverable.
Workers' Compensation, Automobile, Product and General Liability Costs
included in the financial statements represent the accrued cost, not
reimbursable under insurance contracts, of settling such claims. Accruals for
workers-compensation, for which the Business is self-insured, are determined
for each period presented from the historical claims incurred experience of
the Business using actuarial computations of the estimated ultimate settlement
cost of such claims including claims incurred but not yet reported. Such
actuarial estimates are discounted to their present value utilizing a rate of
6.5% at July 31, 1994 and 4.5% at September 30, 1993, management's estimate of
the risk free rate of return.
Financial Instruments included in the statement of net assets acquired are
recorded at amounts which approximate fair value. All of the receivables of
the Business are due from a limited number of domestic automotive and truck
manufacturers; consistent with practice in the industry, such receivables are
uncollateralized.
Income Taxes--The provision for income taxes of the Business has been
determined in accordance with Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes." Deferred income taxes consist
of the tax effects, for Butler Polymet, Inc., of temporary differences of
$1,570,000 and $1,868,000 at July 31, 1994 and September 30, 1993,
respectively, related to property, less the tax effects of temporary
differences of $470,000 and $388,000 at such respective dates, related to
other assets and liabilities. The Federal income tax provision for the
Business was an allocation of Rockwell's tax liability and was estimated based
upon the appropriate effective tax rate of Rockwell for the ten-month period
ended July 31, 1994. A tax benefit in 1994 was recognized related to the
cumulative effect of accounting change because a tax provision was incurred on
income before the cumulative effect adjustment in this period.
Segment Information--The Business operates in a single segment. Three of the
customers of the Business each accounted for over 10% of sales in each of the
periods presented. Sales to these customers as a group totaled approximately
71% of sales for the ten-month period ended July 31, 1994. Sales to these
customers individually ranged from 11% to 56% during the period.
3. PENSION BENEFITS
During the period, Rockwell maintained pension programs covering the
employees of the Business. Hourly employees and retirees of Centralia and
salaried retirees of Butler were covered under stand-alone pension plans
consisting of the Retirement Plan for Hourly-Rated Employees of the Centralia,
Illinois and Louisville, Kentucky Plants and the Butler Polymet, Inc.
Employees Retirement Plan (the "Plans"). Pension benefits for hourly employees
were based primarily on specified benefit amounts and years of service, while
salaried benefits were based on credited service and average earnings near
retirement. Plan assets consisted principally of United States government
obligations, fixed income investments and equity securities. Rockwell's policy
was to fund its pension obligations using long-term actuarial assumptions and
the entry-age normal actuarial method. Other employees and retirees
participated in Rockwell plans which also covered other divisions and
subsidiaries of the Rockwell.
F-62
<PAGE>
CENTRALIA PLANT AND BUTLER POLYMET, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following table presents the components of the net periodic pension cost
recognized in the statement of sales less costs and expenses for the ten
months ended July 31, 1994 (in thousands of dollars):
<TABLE>
<S> <C>
Employees and retirees of the Plans:
Service costs................................................... $ 299
Interest cost................................................... 447
Actual return on assets......................................... (368)
Net amortization................................................ 251
------
Total......................................................... 629
Contribution to Rockwell plans for other employees................ 1,018
------
Net pension costs................................................. $1,647
======
</TABLE>
The Agreement provides that Rockwell retain the obligation for all prior
service pension benefits, as measured under the benefit formula in effect at
the Closing Date. However, the obligation for certain benefit adjustments
which took effect subsequent to the Closing Date, but which were included in
collective bargaining agreements assumed by the Buyer, is presented in the
statement of net assets acquired. Such obligation was estimated as the
actuarial present value of future expected benefit payments.
The measurement date utilized in determining the net periodic pension cost
was June 30. The assumed discount rate used to determine pension cost is 7.75%
for the ten months ended July 31, 1994 and the assumed long-term rate of
return on plan assets is 9%.
4. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective October 1, 1993, the Business adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and recognized a
one-time cumulative effect adjustment of $5,866,000, less a tax benefit of
$2,053,000. This cumulative effect adjustment included an obligation of
approximately $2,966,000 for hourly and salaried active employees, which was
assumed by the Buyer, and an obligation of approximately $2,900,000 for
retirees, which was retained by the Rockwell.
Employees of the Business are eligible to participate in medical and death
benefit programs during retirement. The hourly employees of the Business
participate in a stand-alone plan of the Business while salaried employees
participated in a Rockwell plan which also covers other divisions and
subsidiaries of Rockwell; both plans are unfunded.
The components of the net postretirement benefit cost recognized for the ten
months ended July 31, 1994 is as follows (in thousands):
<TABLE>
<S> <C>
Hourly employees and retirees:
Service cost...................................................... $ 99
Interest cost..................................................... 252
----
Total........................................................... 351
Contribution to Rockwell plan for salaried employees and retirees... 255
----
Total postretirement benefit cost................................... $606
====
</TABLE>
The above amounts were determined using a discount rate of 8.25% and 7.75%
at July 31, 1994 and October 1, 1993, respectively; the assumed health care
cost trend rate is 10% in 1994, decreasing linearly to 5.5% in 2015, and
remaining constant thereafter. A one percentage point increase in the assumed
health care cost trend
F-63
<PAGE>
CENTRALIA PLANT AND BUTLER POLYMET, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
rate would not significantly change the service and interest cost for hourly
employees for the ten months ended July 31, 1994.
5. COMMITMENTS AND CONTINGENCIES
Rental expense of the Business totaled $526,000 for the ten-month period
ended July 31, 1994. Total lease commitments at July 31, 1994 were $346,000,
which become due in the following periods ending September 30: 1994-$17,000;
1995-$288,000; 1996-$36,000; 1997-$5,000.
F-64
<PAGE>
THE GOODYEAR TIRE & RUBBER COMPANY--JACKSON PLANT
FINANCIAL STATEMENTS AS OF JUNE 30, 1997 (UNAUDITED),
DECEMBER 31, 1996 AND 1995 AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 1997
AND 1996 (UNAUDITED),
AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1996
F-65
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of The Goodyear Tire & Rubber
Company
In our opinion, the accompanying balance sheets and the related statements
of operations and of cash flows present fairly, in all material respects, the
financial position of the Jackson Plant ("the Plant"), a business unit of The
Goodyear Tire & Rubber Company ("Goodyear"), at December 31, 1996 and 1995,
and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the management of Goodyear and the Plant, our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
The Plant is a business unit of Goodyear and, as disclosed in Note 9 to the
financial statements, has extensive transactions and relationships with
Goodyear. Because of those relationships, the terms of these transactions may
differ from those that would result from transactions among wholly unrelated
parties.
As discussed in Note 11, on July 10, 1997, Goodyear sold certain net assets
of the Plant to Cambridge Industries, Inc. The accompanying financial
statements do not give effect to this transaction.
Price Waterhouse LLP
Cleveland, Ohio
March 27, 1997, except for the last paragraph
of Note 11, which is as of July 10, 1997
F-66
<PAGE>
THE GOODYEAR TIRE & RUBBER COMPANY--JACKSON PLANT
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------
1997 1996 1995
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash............................................. $ 6 $ 14 $ 7
Accounts receivable.............................. 6,586 8,246 6,412
Inventories...................................... 2,741 2,289 1,833
Unbilled tooling................................. 8,487 7,605 14,467
Deferred income taxes............................ 464 414 361
Other current assets............................. 17 26 29
------- ------- -------
Total current assets............................... 18,301 18,594 23,109
Property and equipment, net........................ 26,174 26,039 20,338
------- ------- -------
$44,475 $44,633 $43,447
======= ======= =======
LIABILITIES AND GOODYEAR INVESTMENT
Current liabilities:
Accounts payable................................. $ 2,753 $ 4,214 $ 3,462
Accrued liabilities.............................. 2,861 1,680 1,805
------- ------- -------
Total current liabilities.......................... 5,614 5,894 5,267
Deferred income taxes.............................. 3,458 3,458 3,389
------- ------- -------
Total liabilities.................................. 9,072 9,352 8,656
Commitments and contingencies (Note 10)
Goodyear investment................................ 35,403 35,281 34,791
------- ------- -------
$44,475 $44,633 $43,447
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-67
<PAGE>
THE GOODYEAR TIRE & RUBBER COMPANY--JACKSON PLANT
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
----------------- --------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales
Trade sales.................... $ 28,648 $ 21,433 $ 41,996 $ 38,437 $ 36,884
Intercompany sales............. 4,621 6,366 11,903 13,998 9,099
-------- -------- -------- -------- --------
33,269 27,799 53,899 52,435 45,983
Cost of sales.................... 28,373 24,213 46,864 44,185 39,310
-------- -------- -------- -------- --------
Gross profit..................... 4,896 3,586 7,035 8,250 6,673
Selling, general and
administrative expense.......... 1,176 1,066 2,169 2,145 2,117
Corporate franchise fee.......... 292 333 666 666 703
-------- -------- -------- -------- --------
Income before provision for
income taxes.................... 3,428 2,187 4,200 5,439 3,853
Provision for income taxes....... 1,371 875 1,694 2,208 1,546
-------- -------- -------- -------- --------
Net income....................... $ 2,057 $ 1,312 $ 2,506 $ 3,231 $ 2,307
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-68
<PAGE>
THE GOODYEAR TIRE & RUBBER COMPANY--JACKSON PLANT
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------ ----------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income.................. $ 2,057 $ 1,312 $ 2,506 $ 3,231 $ 2,307
Adjustments to reconcile net
income to net cash provided
by (used for) operating
activities:
Depreciation and
amortization............. 1,063 839 1,756 1,702 1,629
Loss on disposition of
property and equipment... 133 225 571 1,962
Changes in assets and
liabilities:
Accounts receivable..... 1,660 1,913 (1,834) 278 (1,377)
Inventories............. (452) 39 (456) 137 (196)
Unbilled tooling........ (882) (4,584) 6,862 (8,649) (2,806)
Prepaid expenses and
other current assets... 9 8 3 (6) 6
Accounts payable........ (1,461) 306 752 945 14
Accrued liabilities..... 1,181 658 (125) 299 (116)
Deferred income taxes... (50) 16 146 11
-------- -------- -------- -------- --------
Net cash provided by (used
for) operating activities.. 3,258 491 9,705 (1,346) 1,434
-------- -------- -------- -------- --------
Cash flows from investing
activities:
Purchases of property and
equipment................ (1,331) (2,338) (7,682) (3,539) (1,970)
-------- -------- -------- -------- --------
Net cash provided by (used
for) investing activities.. (1,331) (2,338) (7,682) (3,539) (1,970)
-------- -------- -------- -------- --------
Cash flows from financing
activities:
Increase (decrease) in
Goodyear investment...... (1,935) 1,848 (2,016) 4,885 537
-------- -------- -------- -------- --------
Net cash provided by (used
for) financing activities.. (1,935) 1,848 (2,016) 4,885 537
-------- -------- -------- -------- --------
Net (decrease) increase in
cash....................... (8) 1 7 1
Cash at beginning of the
period..................... 14 7 7 7 6
-------- -------- -------- -------- --------
Cash at end of the period... $ 6 $ 8 $ 14 $ 7 $ 7
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
F-69
<PAGE>
THE GOODYEAR TIRE & RUBBER COMPANY--JACKSON PLANT
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. THE PLANT
The Jackson Plant ("Jackson" or the "Plant") is located in Jackson, Ohio and
operates as a business unit of The Goodyear Tire & Rubber Company
("Goodyear"). The Plant manufactures compression and injection molded
thermoset sheet molded compound and reinforced thermoplastic products. These
products are sold to original equipment manufacturers ("OEMs") of passenger
cars, light trucks and heavy trucks.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation--These financial statements present the historical
financial position, results of operations and cash flows of the Plant
previously included in the Goodyear consolidated financial statements.
Jackson's financial information included herein is not necessarily indicative
of the financial position, results of operations and cash flows of the Plant
in the future, or of the results which would have been reported if the Plant
had operated as an unaffiliated enterprise.
Transactions between Jackson and Goodyear (and Goodyear's other business
units) are herein referred to as "intercompany" or "related party"
transactions.
If the Plant were operated as an independent, unaffiliated facility, it may
not be able to purchase raw material and other goods and services at price
levels historically enjoyed when purchasing as a part of Goodyear's worldwide
purchasing process.
Concentration of credit risk--Financial instruments which potentially expose
the Plant to a concentration of credit risk consist primarily of accounts
receivable. To minimize this risk, ongoing credit evaluations of customers'
financial condition are performed, although collateral is not required. The
Plant does not maintain reserves for credit losses and historically has not
experienced significant losses related to accounts receivable.
The majority of the Plant's sales are made to an OEM of automobiles, light
trucks and heavy trucks. During 1996, 1995 and 1994, direct and indirect sales
to this customer accounted for approximately 93%, 91%, and 86%, respectively,
of total sales; at December 31, 1996, approximately 93% of accounts receivable
were from this customer. The Plant may be impacted significantly by the
economic well being of its major customer as well as by the industry in which
the customer operates, or by the loss of its major customer.
Financial instruments--The carrying values of the Plant's financial
instruments, comprising cash, accounts receivable, accounts payable and
accrued liabilities, approximate their fair values.
Management 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 reporting periods. Actual results could differ from those
estimates.
Accounts receivable--During 1995, Goodyear had agreements to sell undivided
interests in designated pools of trade accounts receivable, including those of
the Plant. As of December 31, 1996, the Plant's trade accounts receivable were
no longer included in the designated pool.
Unbilled tooling--Unbilled tooling accounts represent actual costs incurred
on reimbursable tooling projects. Such costs have been accumulated in
accordance with, and include only those types of costs reimbursable under,
customer supplier practices. Reimbursement of the unbilled tooling amounts is
dependent on the Plant's future performance of obligations and the customer's
approval. The Plant has not provided an allowance for unrecoverable amounts as
of December 31, 1996 and 1995.
F-70
<PAGE>
THE GOODYEAR TIRE & RUBBER COMPANY--JACKSON PLANT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Inventories--Inventories are stated at the lower of cost or market. Cost is
determined on a first in, first out (FIFO) basis.
Property and equipment--Property and equipment are recorded at cost.
Additions and improvements, unless of relatively minor amounts, are
capitalized. Expenditures for repairs and maintenance are charged to expense
as incurred. Upon disposal or retirement of property and equipment, the
related cost and accumulated depreciation are removed from the Plant's
accounts and any gain or loss is included in results of operations. Property
and equipment are depreciated using the straight-line method for financial
reporting purposes and accelerated methods for tax purposes.
Income taxes--The Plant is included in the consolidated U.S. federal income
tax return of Goodyear. In preparing its financial statements, the Plant has
determined its tax provision on a separate return basis. Deferred income taxes
are provided on differences between the book and tax bases of assets and
liabilities at the statutory tax rates expected to be in effect when such
differences reverse. A valuation allowance on deferred tax assets is provided
if it is considered more likely than not that such deferred tax assets will
not be realized.
Revenue recognition--Sales and related cost of sales are recognized upon the
shipment of products. Sales are recorded net of estimated returns and
allowances.
Research, development and engineering expenses--Research, development and
engineering expenses related to design and development of new products, and
planning and design for new processes, are expensed as incurred. Such amounts
approximated $1,431, $1,524 and $1,146 in 1996, 1995 and 1994, respectively.
Environmental expenditures--The Plant expenses environmental expenditures
related to existing conditions resulting from past or current operations and
from which no current or future benefit is discernible. Expenditures which
extend the life of the related property or mitigate or prevent future
environmental contamination are capitalized. The Plant records a liability for
remediation costs at the time when it is probable and can be reasonably
estimated. The Plant's estimated liability is reduced to reflect the
anticipated participation of other potentially responsible parties in those
instances where it is probable that such parties are legally responsible and
financially capable of paying their respective shares of the relevant costs.
The estimated liability of the Plant is not discounted or reduced for possible
recoveries from insurance carriers.
Interim financial data--The interim financial data are unaudited; however, in
the opinion of management, the interim data include all adjustments,
consisting only of normal recurring items, necessary for a fair statement of
the results for the interim periods.
3. INVENTORIES
Inventories comprised the following:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, --------------
1997 1996 1995
----------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.................................... $ 590 $ 555 $ 378
Work-in-process.................................. 280 334 411
Finished goods................................... 1,214 708 320
------ ------ ------
Total productive inventories................... 2,084 1,597 1,109
Supplies inventory............................... 847 867 849
Less--Inventory reserve.......................... (190) (175) (125)
------ ------ ------
Net inventories.................................. $2,741 $2,289 $1,833
====== ====== ======
</TABLE>
F-71
<PAGE>
THE GOODYEAR TIRE & RUBBER COMPANY--JACKSON PLANT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment comprised the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIFE ------------------
(YEARS) 1996 1995
----------- -------- --------
<S> <C> <C> <C>
Land improvements............................. 15-40 $ 425 $ 425
Buildings and building improvements........... 30-40 6,590 6,441
Machinery, furniture and equipment............ 3-20 30,293 27,041
Construction-in-progress...................... 5,409 1,913
-------- --------
42,717 35,820
Less--Accumulated depreciation and
amortization................................. (16,678) (15,482)
-------- --------
$ 26,039 $ 20,338
======== ========
</TABLE>
A portion of the Plant building is the subject of a capital lease. The
building may be purchased for $200 plus the unamortized cost of any additions
pursuant to the lease option ($831 at December 31, 1996).
5. ACCRUED LIABILITIES
Accrued liabilities comprised the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1995
------ ------
<S> <C> <C>
Payroll and payroll taxes........................................ $ 352 $ 221
Accrued vacation................................................. 601 550
Other............................................................ 727 1,034
------ ------
Total accrued liabilities........................................ $1,680 $1,805
====== ======
</TABLE>
6. EMPLOYEE BENEFIT PLANS
Certain liabilities including life insurance, dental, pensions, medical,
postretirement, postemployment and workers' compensation, among others, are
included on the corporate books of Goodyear.
Pension Plans
Substantially all salaried and hourly employees of the Plant participate in
defined benefit pension plans covering Goodyear employees. For salaried
employees, plan benefits are generally based on years of service and the
employee's compensation. For hourly employees, plan benefits are generally
based on years of service and the benefit level established by the collective
bargaining agreement. Solely for the purpose of these financial statements,
the Plant is considered to have participated in multiemployer pension plans.
Employers participating in multiemployer plans are required to recognize as
net periodic pension costs, total contributions for the period. The Plant
recorded net periodic pension cost of $781, $670 and $715 for the years ended
December 31, 1996, 1995 and 1994, respectively, related to its participation
in the Goodyear defined benefit pension plans.
Goodyear also sponsors a number of defined contribution pension plans.
Participation in these plans is available to substantially all salaried
employees. Goodyear contributions to these plans are based on a percentage
F-72
<PAGE>
THE GOODYEAR TIRE & RUBBER COMPANY--JACKSON PLANT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
of employee contributions. The cost to the Plant of providing benefits under
the Goodyear defined contribution plans was $84, $87 and $76 for the years
ended December 31, 1996, 1995 and 1994, respectively.
Other postretirement benefits
Goodyear provides certain other postretirement health care and life
insurance benefits for certain retired employees, including the Plant's
eligible retired employees. These plans provide varied coverage by employee
group. Solely for the purpose of these financial statements, the Plant is
considered to have participated in multiemployer postretirement benefit plans.
Employers participating in multiemployer plans are required to recognize
total contributions for the period as net postretirement benefit costs. The
Plant charged to expense $2,342, $1,779 and $1,829 for the years ended
December 31, 1996, 1995 and 1994, respectively, related to its participation
in the Goodyear postretirement health care and life insurance benefit plans.
7. OPERATING LEASES
The Plant leases certain manufacturing and office equipment under operating
leases expiring on various dates through 2001. Future minimum lease payments
required under leases that have noncancelable lease terms in excess of one
year at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1997................................................................. $119
1998................................................................. 83
1999................................................................. 64
2000................................................................. 27
2001................................................................. 13
----
$306
====
</TABLE>
Rental expense charged to operations was approximately $120, $112 and $141
for the years ended December 31, 1996, 1995 and 1994, respectively.
8. INCOME TAXES
The provision for income taxes comprises:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Current tax expense
Federal.............................................. $ 1,304 $ 1,578 $ 1,192
State and local...................................... 374 484 343
------- ------- -------
1,678 2,062 1,535
Deferred tax expense................................... 16 146 11
------- ------- -------
Provision for income taxes............................. $ 1,694 $ 2,208 $ 1,546
======= ======= =======
</TABLE>
F-73
<PAGE>
THE GOODYEAR TIRE & RUBBER COMPANY--JACKSON PLANT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes differs from income taxes computed by
applying the U.S. statutory federal income tax rate as a result of the
following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Taxes computed at federal
statutory rate (35%)..... $ 1,470 $ 1,904 $ 1,348
State taxes (net of
federal benefit)......... 249 341 228
Other..................... (25) (37) (30)
------- ------- -------
Provision for income
taxes.................. $ 1,694 $ 2,208 $ 1,546
======= ======= =======
Effective rate.......... 40.3% 40.6% 40.1%
======= ======= =======
</TABLE>
Temporary differences giving rise to the Plant's deferred tax assets and
liabilities comprised the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets
Inventory reserves...................................... $ 70 $ 50
Accrued liabilities..................................... 344 311
------- -------
414 361
Deferred tax liabilities
Property and equipment.................................. (3,458) (3,389)
------- -------
Net deferred tax liability.............................. $(3,044) $(3,028)
======= =======
</TABLE>
9. INTERCOMPANY TRANSACTIONS AND ALLOCATIONS
Cash management--The Plant utilizes Goodyear centralized cash management
services. Under this arrangement, the Plant's accounts receivable are
collected and its cash disbursements are funded by Goodyear on a daily basis.
Net cash activity between Goodyear and the Plant is reflected in Goodyear's
investment in the Plant.
Corporate services--Goodyear allocates certain corporate and divisional
general and administrative costs to the various business units using an
effort-based approach. Such costs relate to such functions as sales and
marketing, accounting and finance, human resources, insurance and information
systems. Allocated costs of corporate services approximated $824 for the year
ended December 31, 1996 and $840 for each of the years ended December 31, 1995
and 1994 and are included in selling, general and administrative expenses in
the accompanying statements of operations.
Goodyear allocates certain corporate overhead, such as executive management,
advertising and investor relations, to its business units through the
corporate franchise fee, which is allocated based primarily on sales. This
allocation is presented separately in the accompanying statements of
operations.
Goodyear manages employee medical, dental, life insurance, pension,
postretirement and postemployment benefits on a consolidated basis. Goodyear
charges the Plant for its share of such employee-related costs based upon the
Plant's estimated experience or headcount, depending on the nature of the
cost. Charges from Goodyear for such costs aggregated $4,555, $3,970 and
$4,367 for the years ended December 31, 1996, 1995 and 1994, respectively, and
are included in cost of sales in the accompanying statements of operations.
F-74
<PAGE>
THE GOODYEAR TIRE & RUBBER COMPANY--JACKSON PLANT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Management believes that the methods utilized to allocate costs to the
Plant, as discussed above, are reasonable. However, the terms of transactions
between the Plant and Goodyear, including allocated costs, may differ from
those that would result from transactions with unrelated parties.
Intercompany sales--Gross profit (at standard cost of sales) on intercompany
sales approximated $2,457, $2,216 and $1,207 in 1996, 1995 and 1994,
respectively.
Goodyear investment--The Goodyear investment balance represents cumulative
intercompany activity from transactions, cost allocations, cash management and
other charges and credits between the Plant and Goodyear (and its other
business units), as more fully described above. A summary of changes in
Goodyear investment follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED JUNE 30, ------------------------
1997 1996 1995 1994
-------------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning Goodyear investment...... $35,281 $34,791 $26,675 $23,831
Net income......................... 2,057 2,506 3,231 2,307
Intercompany activity.............. (1,935) (2,016) 4,885 537
------- ------- ------- -------
Ending Goodyear investment......... $35,403 $35,281 $34,791 $26,675
======= ======= ======= =======
</TABLE>
The financial statements do not reflect interest on Goodyear's investment in
the Plant.
10. COMMITMENTS AND CONTINGENCIES
Environmental--The Plant is subject to federal, state and local regulations
which govern environmental matters. The effect of resolution of environmental
matters on results of operations cannot be predicted due to the uncertainty
concerning both the amount and timing of future expenditures and future
results of operations. Management believes that the resolution of these
matters will not materially affect the financial position of the Plant. The
Plant will continue its efforts to mitigate past and future costs through
continued investigation of new remediation alternatives and associated
technologies.
General--The Plant is subject to various claims, lawsuits and administrative
proceedings related to matters arising out of the normal course of business.
Management believes that the resolution of these matters will not materially
affect the financial position of the Plant.
11. SUBSEQUENT EVENTS
Subsequent to December 31, 1996, the heavy truck business of the Plant's
largest customer was acquired by one of the customer's competitors. The effect
of this consolidation in the heavy truck industry on the cash flows, results
of operations or financial position of the Plant, if any, is not known.
On July 10, 1997, Goodyear sold substantially all of the net assets of the
Plant, excluding trade accounts receivable but including certain
postretirement benefit obligations, to Cambridge Industries, Inc. for
approximately $37.6 million, subject to certain post-closing adjustments. The
financial statements do not give effect to this transaction.
F-75
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THOSE
TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 14
Use of Proceeds........................................................... 21
Capitalization............................................................ 22
Unaudited Pro Forma Financial Data........................................ 23
Selected Historical Financial Data........................................ 30
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 32
Business.................................................................. 37
Management................................................................ 54
Security Ownership........................................................ 60
Certain Transactions...................................................... 62
Description of Credit Agreement........................................... 65
The Exchange Offer........................................................ 69
Description of Notes...................................................... 78
Book-Entry; Delivery and Form............................................. 108
Certain Federal Income Tax Consequences................................... 110
Plan of Distribution...................................................... 110
Legal Matters............................................................. 111
Change in Independent Accountants......................................... 111
Experts................................................................... 111
Available Information..................................................... 112
Index to Financial Statements............................................. F-1
Valuation and Qualifying Accounts......................................... S-1
</TABLE>
UNTIL , 1997 (90 DAYS AFTER THE COMMENCEMENT OF THE EXCHANGE
OFFER), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
---------------
PROSPECTUS
---------------
$100,000,000
CAMBRIDGE INDUSTRIES, INC.
LOGO
OFFER TO EXCHANGE ITS SERIES B
10 1/4% SENIOR SUBORDINATED NOTES DUE 2007
FOR ANY AND ALL OF ITS OUTSTANDING
10 1/4% SENIOR SUBORDINATED NOTES DUE 2007
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
General Corporation Law
The Company is incorporated under the laws of the State of Delaware. Section
145 ("Section 145") of the General Corporation Law of the State of Delaware,
as the same exists or may hereafter be amended (the "General Corporation
Law"), inter alia, provides that a Delaware corporation may indemnify any
persons who were, are or are threatened to be made, parties to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation), by reason of the fact that such person is or was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent
of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's
best interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was illegal. A Delaware
corporation may indemnify any persons who are, were or are threatened to be
made, a party to any threatened, pending or completed action or suit by or in
the right of the corporation by reasons of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent
of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided
such person acted in good faith and in a manner he reasonably believed to be
in or not opposed to the corporations best interests, provided that no
indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where
an officer, director, employee or agent is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director has actually
and reasonably incurred.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation
or enterprise, against any liability asserted against him and incurred by him
in any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
The Guarantor is incorporated under the laws of the State of Michigan. As
with Delaware, the Michigan Business Corporation Act authorizes a corporation,
under certain circumstances, to indemnify its directors and officers
(including to reimburse them for expenses incurred).
Certificate of Incorporation and By-Laws
Both the Company's and Guarantor's Certificate of Incorporation and Bylaws
generally provide for the indemnification of officers and directors to the
fullest extent permitted by law.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1 Amended and Restated Certificate of Incorporation of Cambridge
Industries, Inc.
3.2 Amended and Restated Bylaws of Cambridge Industries, Inc.
3.3 Articles of Incorporation of CE Automotive Trim Systems, Inc.
3.4 Bylaws of CE Automotive Trim System, Inc.
4.1 Purchase Agreement, dated as of July 2, 1997, among Cambridge
Industries, Inc., CE Automotive Trim Systems, Inc., as Guarantor,
and BT Securities Corporation.
4.2 Indenture, dated as of July 10, 1997, among Cambridge Industries,
Inc., each of the Guarantors named therein and State Street Bank
& Trust Company, as Trustee.
4.3 Form of 10 1/4% Senior Subordinated Notes due 2007, Series A.
4.4 Form of 10 1/4% Senior Subordinated Notes due 2007, Series B.
4.5 Registration Rights Agreement, dated as of July 10, 1997, among
Cambridge Industries, Inc., the Guarantors and BT Securities
Corporation, as Initial Purchaser.
5.1 Opinion of Jaffe, Raitt, Heuer & Weiss, P.C.
10.1 Employment Agreement, dated as of November 17, 1995, between
Richard S. Crawford and Cambridge Industries, Inc.
10.2 Amendment to Employment Agreement, dated as of March 1, 1996,
between Richard S. Crawford and Cambridge Industries, Inc.
10.3 Employment Agreement, dated as of November 17, 1995, between
Richard E. Warnick and Cambridge Industries, Inc.
10.4 Employment Agreement, dated as of November 17, 1995, between John
D. Craft and Cambridge Industries, Inc.
10.5 Management Services Agreement, dated as of November 17, 1995 and
amended as of March 1, 1996, between Cambridge Industries, Inc.
and Bain Capital, Inc.
10.6 Warrant Agreement dated as of November 17, 1995 between Cambridge
Industries Holdings, Inc. and Bankers Trust Company.
10.7 Amendment to Warrant Agreement between Cambridge Industries
Holdings, Inc. and Bankers Trust Company, dated as of December
12, 1995.
10.8 Warrant Agreement dated as of December 14, 1995 among Bain Capital
V Mezzanine Fund, L.P., BCIP Trust Associates, L.P. and Cambridge
Industries Holdings, Inc.
10.9 Class A Warrant Certificate No. W-A1, Date of Issuance: December
14, 1995.
10.10 Class A Warrant Certificate No. W-A2, Date of Issuance: December
14, 1995.
10.11 Class L Warrant Certificate No. W-L1, Date of Issuance: December
14, 1995.
10.12 Class L Warrant Certificate No. W-L2, Date of Issuance: December
14, 1995.
10.13 Warrant Agreement, dated as of March 1, 1996, among Cambridge
Holdings Industries, Inc., Bein Capital V Mezzeine Fund, L.P.,
BCIP Trust Associates, L.P. and Crawford Investment Group, L.L.C.
10.14 Class A Warrant Certificate No. W-A3, Date of Issuance: March 1,
1996.
10.15 Class A Warrant Certificate No. W-A4, Date of Issuance: March 1,
1996.
10.16 Class A Warrant Certificate No. W-A5, Date of Issuance: March 1,
1996.
10.17 Class A Warrant Certificate No. W-A6, Date of Issuance: March 1,
1996.
10.18 Class A Warrant Certificate No. W-A7, Date of Issuance: March 1,
1996.
10.19 Class L Warrant Certificate No. W-L3, Date of Issuance: March 1,
1996.
10.20 Class L Warrant Certificate No. W-L4, Date of Issuance: March 1,
1996.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.21 Class L Warrant Certificate No. W-L5, Date of Issuance: March 1,
1996.
10.22 Class L Warrant Certificate No. W-L6, Date of Issuance: March 1,
1996.
10.23 Class L Warrant Certificate No. W-L7, Date of Issuance: March 1,
1996.
10.24 Asset Purchase Agreement, dated as of March 1, 1996, among
GenCorp. Inc., Cambridge Industries Holdings, Inc. and Cambridge
Industries, Inc.
10.25 Management Agreement with Donald I. Holton, dated as of October
15, 1996.
10.26 Holdings Services Agreement, dated as of July 1, 1997, between
Cambridge Industries, Inc. and Cambridge Industries Holdings,
Inc.
10.27 Credit Agreement, dated as of July 10, 1997, among Cambridge
Industries Holdings, Inc., Cambridge Industries, Inc., various
lending institutions, and Bankers Trust Company, as Agent.
10.28 Subsidiary Guaranty, dated as of July 10, 1997.
10.29 Pledge Agreement, dated as of July 10, 1997, among Cambridge
Industries Holdings, Inc., Cambridge Industries, Inc., various
lending institutions, and Bankers Trust Company, as Agent.
10.30 Security Agreement, dated as of July 10, 1997, among Cambridge
Industries Holdings, Inc., Cambridge Industries, Inc., various
lending institutions, and Bankers Trust Company, as Agent.
10.31 Asset Purchase Agreement, dated as of July 9, effective as of June
30, 1997, between Eagle-Picher Industries, Inc. and Cambridge
Industries, Inc.
10.32 Agreement, dated as of July 8, 1997, between Cambridge Industries,
Inc. and The Goodyear Tire & Rubber Company.
10.33 Stock Purchase Agreement, dated as of April 25, 1997 between Erpe
Ernst Pelz Vertriebs GmbH and Cambridge Industries, Inc.
10.34 Joint Venture Agreement, dated as of March 4, 1994, among
Cambridge Industries, Inc., Empe Ernst Pelz GmbH & Co. and Erpe
Ernst Pelz Vertriebs GmbH (the "Empe-Erpe JV Agreement").
10.35 Purchase Election, dated as of March 13, 1997 by Cambridge
Industries, Inc. in relation to the Empe-Erpe JV Agreement.
10.36 Acceptance of Empe-Erpe JV Agreement Purchase Election, dated as
of March 28, 1997.
10.37 Election to Terminate the Empe-Erpe JV Agreement, dated as of
February 6, 1997.
12.1 Statement Regarding Computation of Earnings to Fixed Charges.
15.1 Letter of Price Waterhouse LLP regarding report on review of
interim financial information.
16.1 Letter regarding Change in Independent Accountants.
21.1 List of All Subsidiaries.
23.1 Consent of Deloitte & Touche llp.
23.2 Consent of Price Waterhouse llp.
23.3 Consent of Jaffe, Raitt, Heuer & Weiss, Professional Corporation
(included in Exhibit 5.1, Opinion re: Legality).
24.1 Power of Attorney (included in Part II to the Registration
Statement).
25.1 Statement of Eligibility of Trustee on Form T-1.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Tender Instructions.
</TABLE>
- --------
+ The Company agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit to such agreement upon request by the
Commission.
II-3
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULE:
The following financial statement schedule is included in this Registration
Statement:
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
All other schedules for which provision is made in the applicable accounting
regulations of the Commission are not required under the related instructions,
are inapplicable or not material, or the information called for thereby is
otherwise included in the financial statements and therefore have been
omitted.
ITEM 22. UNDERTAKINGS.
The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial
bonafide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(5) (i) That the Prospectus is filed pursuant to paragraph (4) immediately
preceding, or (ii) that any prospectus that purports to meet the requirements
of Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrants pursuant to the provisions described
under Item 20 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.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, CAMBRIDGE
INDUSTRIES, INC. AND CE AUTOMOTIVE TRIM SYSTEMS, INC. HAVE DULY CAUSED THIS
REGISTRATION STATEMENT ON FORM S-4 TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF MADISON HEIGHTS, STATE
OF MICHIGAN, ON DECEMBER 2, 1997.
Cambridge Industries, Inc.
/s/ Richard S. Crawford
By: _________________________________
RICHARD S. CRAWFORD
Chief Executive Officer
CE Automotive Trim Systems, Inc.
/s/ Richard S. Crawford
By: _________________________________
RICHARD S. CRAWFORD
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Kevin J. Alder and John M. Colaianne and both
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-
effective amendments) to this registration statement and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
* * * *
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT AND POWER OF ATTORNEY HAVE BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
CAMBRIDGE INDUSTRIES, INC.
SIGNATURE CAPACITY DATES
/s/ Richard S. Crawford Chairman of the
- ------------------------------------- Board and Chief December 2,
RICHARD S. CRAWFORD Executive Officer 1997
(Principal
Executive Officer)
/s/ John M. Colaianne Secretary and Chief
- ------------------------------------- Financial Officer December 2,
JOHN M. COLAIANNE (Principal 1997
Financial Officer)
/s/ C. Keith Chulumovich Treasurer and
- ------------------------------------- Corporate December 2,
C. KEITH CHULUMOVICH Controller 1997
(Principal
Accounting Officer)
II-5
<PAGE>
SIGNATURE CAPACITY DATES
/s/ Jerrold L. Glick* Director
- ------------------------------------- December 2,
JERROLD L. GLICK 1997
/s/ Ira J. Jaffe* Director
- ------------------------------------- December 2,
IRA J. JAFFE 1997
/s/ Robert C. Gay* Director
- ------------------------------------- December 2,
ROBERT C. GAY 1997
/s/ Edward W. Conard* Director
- ------------------------------------- December 2,
EDWARD W. CONARD 1997
/s/ Ronald P. Mika* Director
- ------------------------------------- December 2,
RONALD P. MIKA 1997
CE AUTOMOTIVE TRIM SYSTEMS, INC.
SIGNATURE CAPACITY DATES
/s/ Richard S. Crawford Chairman of the
- ------------------------------------- Board (Principal December 2,
RICHARD S. CRAWFORD Executive Officer) 1997
and Director
/s/ Kevin J. Alder President and
- ------------------------------------- Director December 2,
KEVIN J. ALDER 1997
/s/ John M. Colaianne Secretary and
- ------------------------------------- Treasurer December 2,
JOHN M. COLAIANNE (Principal 1997
Financial Officer)
/s/ C. Keith Chulumovich Corporate Controller
- ------------------------------------- (Principal December 2,
C. KEITH CHULUMOVICH Accounting Officer) 1997
- --------
*By John M. Colaianne pursuant to power of attorney.
II-6
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------
CHARGED
BALANCE AT TO COSTS CHARGED BALANCE
BEGINNING OF AND TO OTHER WRITE- AT END OF
YEAR EXPENSES ACCOUNTS OFFS YEAR
------------ -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts
For the year ended December
31,
1996........................ $1,479 $3,355 $ -- $ (913) $3,921
1995........................ $3,877 $2,964 $ -- $(5,362) $1,479
1994........................ $ 330 $5,087 $ -- $(1,540) $3,877
Allowance for inventory
obsolescence and lower of
cost or market reserve
For the years ended December
31,
1996........................ $ 610 $ 315 $603 $ (378) $1,150
1995........................ $ 630 $ 313 $ -- $ (333) $ 610
1994........................ $ 35 $ 184 $490 $ (79) $ 630
Allowance for reimbursable
tooling
For the year ended December
31,
1996........................ $1,373 $ 27 $600 $ -- $2,000
1995........................ $ -- $1,373 $ -- $ -- $1,373
1994........................ $ -- $ -- $ -- $ -- $ --
</TABLE>
S-1
<PAGE>
GENCORP INC. REINFORCED PLASTICS DIVISION
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED NOVEMBER 30, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------
BALANCE AT CHARGED TO CHARGES BALANCE AT
BEGINNING COST AND TO OTHER END OF
DESCRIPTION OF YEAR EXPENSE ACCOUNTS WRITE-OFFS YEAR
----------- ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Supplies obsolescence
reserve
For the year ended
November 30,
1995..................... $ 990 $ 30 $ -- $ (98) $ 922
1994..................... 1,468 (478) 990
Valuation allowance on
deferred tax assets
For the year ended
November 30,
1995..................... 33,952 14,875 48,827
1994..................... 29,465 4,487 33,952
</TABLE>
S-2
<PAGE>
Exhibit 5.1
December 2, 1997
Cambridge Industries, Inc.
CE Automotive Trim Systems, Inc.
555 Horace Brown Drive
Madison Heights, Michigan 48071
Ladies and Gentlemen:
At your request, we are delivering this opinion to you in connection with
Amendment # 3 to the Registration Statement on Form S-4 (No. 333-34061)(the
"Registration Statement") of Cambridge Industries, Inc. ("Cambridge"), which you
are filing pursuant to the Securities Act of 1933, covering Cambridge's 10 1/4%
Senior Subordinated Notes, due 2007, Series B. Unless otherwise defined herein,
all capitalized terms used herein shall have the meanings ascribed to them in
the prospectus included as part of the Registration Statement.
In our capacity as counsel to Cambridge, we have considered such matters of
law and of fact, and relied upon certificates and other information furnished to
us, as we have deemed appropriate as a basis for our opinions set forth below.
This opinion is governed by, and shall be interpreted in accordance with,
Part II of the Report of the Ad Hoc Committee of the Business Law Section of the
State Bar of Michigan on Standardized Legal Opinions in Business Transactions
dated August 1, 1991, incorporated herein by reference. Without limiting the
generality of the foregoing, the meaning of the terms and phrases used in this
opinion (other than those defined in the prospectus included as part of the
Registration Statement) is governed by and is subject to such Part II.
Based upon the foregoing, we are of the opinion that the issuance of the
Cambridge Industries, Inc. 10 1/4% Senior Subordinated Notes, due 2007, Series B
has been duly authorized and, when issued and delivered as described in the
prospectus included as part of the Registration Statement, will be validly
issued, fully paid and nonassessable and binding obligations of Cambridge
Industries, Inc. and CE Automotive Trim Systems, Inc.
We also consent to the inclusion of this opinion as an exhibit to the
Registration Statement, and to the inclusion of a reference to this opinion and
to our firm name in the prospectus included as part of the Registration
Statement.
<PAGE>
December 2, 1997
Page 2
We do not purport to be experts on, or to express any opinion herein
concerning any law other than the laws of the State of Michigan and this opinion
is qualified accordingly.
Very truly yours,
JAFFE, RAITT, HEUER & WEISS
Professional Corporation
/s/ Peter Sugar
<PAGE>
Exhibit 12.1
Statement Regarding Computation of Earnings to Fixed Charges
For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before income taxes, plus fixed charges. Fixed charges
consist of interest expense on all indebtedness (including amortization of
deferred debt issuance costs) and a portion of operating lease rental expense
that is representative of the interest factor. A pro forma ratio of earnings to
fixed charges to reflect the effect of the Initial Offering and Credit Agreement
was not presented as the effect of such transactions did not change the
historical ratio by ten percent or more.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (Income before income taxes) $ 164 $ 913 $ 10,673 $ 14,533 $ 1,674 6,065 $ 393
Fixed Charges
Interest Expense (including amortization $ 538 $ 1,769 $ 6,161 $ 12,388 $ 23,190 $16,942 $ 19,796
of deferred debt issuance costs)
Interest factor of operating lease
rental expense 39 59 94 110 167 143 120
------------------------------------------------------------------------------------
Total Fixed Charges $ 577 $ 1,828 $ 6,255 $ 12,498 $ 23,357 $17,085 $ 19,916
====================================================================================
Total Earnings and Fixed Charges $ 741 $ 2,741 $ 16,928 $ 27,031 $ 25,031 $23,150 $ 20,309
====================================================================================
Ratio of Earnings to Fixed Charges 1.28 1.50 2.71 2.16 1.07 1.35 1.02
</TABLE>
<PAGE>
EXHIBIT 15.1
November 25, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that Cambridge Industries, Inc. has included our report dated
November 25, 1997 (issued pursuant to the provisions of Statement on Auditing
Standards No. 71) in the Prospectus constituting part of its Registration
Statement on Form S-4 to be filed on or about December 2, 1997. We are also
aware of our responsibilities under the Securities Act of 1933.
Yours very truly,
/s/
Price Waterhouse LLP
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 3 to Registration Statement No. 333-
34061 of Cambridge Industries, Inc. and CE Automotive Trim Systems, Inc. of our
report dated March 28, 1997 (August 31, 1997 as to Note 17) on the consolidated
financial statements of Cambridge Industries, Inc. and Subsidiaries and our
report dated September 15, 1995 on the financial statements of Centralia Plant
and Butler Polymet, Inc., both appearing in the Prospectus, which is part of
this Registration Statement, and to the references to us under the headings
"Experts" and "Change in Independent Accountants" in such Prospectus.
Our audits of the financial statements of Cambridge Industries, Inc. referred to
in our aforementioned report dated March 28, 1997 (August 31, 1997 as to Note
17) also include the financial statement schedule of Cambridge Industries, Inc.
listed in Item 21. The financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly,
in all materials respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Detroit, Michigan
November 25, 1997
<PAGE>
EXHIBIT 23.2
Consent of Independent Accountants
We hereby consent to the use in the Prospectus constituting part of this
Amendment #3 to the Registration Statement on Form S-4 (No. 333-34061) of
Cambridge Industries, Inc. of our report dated March 27, 1997, except as to the
last paragraph of Note 11, which is as of July 10, 1997, relating to the
financial statements of The Goodyear Tire & Rubber Company - Jackson Plant,
which report appears in such Prospectus.
We also consent to the use in such Prospectus of our report dated April 24, 1996
relating to the financial statements of GenCorp Inc. - Reinforced Plastics
Division, which report appears in such Prospectus. We also consent to the
application of such report to the Financial Statement Schedule relating to
GenCorp Inc. - Reinforced Plastics Division listed under Item 21(b) of this
Registration Statement when such schedule is read in conjunction with the
financial statements referred to in our report. The audits referred to in such
report also included such schedule.
We also consent to the references to us under the headings "Experts" and "Change
in Independent Accountants" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Detroit, Michigan
November 25, 1997
