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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
for the fiscal year ended December 31, 1998.
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______________ to
_______________.
Commission file number 333-34061.
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CAMBRIDGE INDUSTRIES, INC.
CE AUTOMOTIVE TRIM SYSTEMS, INC.
(EXACT NAMES OF REGISTRANTS AS SPECIFIED IN THEIR CHARTERS)
CAMBRIDGE--DELAWARE
CE-MICHIGAN
(State of other jurisdiction of
Incorporation or organization)
CAMBRIDGE-38-3188000
CE-38-3173408
(I.R.S. Employer
IDENTIFICATION NO.)
555 HORACE BROWN DRIVE
MADISON HEIGHTS, MICHIGAN
(Address of principal executive offices)
(248) 616-0500
(Registrant's telephone number,
INCLUDING AREA CODE)
48071
(ZipCode)
NONE
(Name of exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [_] No [_]
As of March 26, 1999, the aggregate market value of the registrants' Common
Stock held by non-affiliates of the Company was $0.00.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes [_] No [_]
APPLICABLE ONLY TO CORPORATE REGISTRANTS. As of March 26, 1999, the numbers of
shares outstanding of each of the classes of common stock of Cambridge
Industries Holdings, Inc., of which the Company is a wholly-owned subsidiary,
was 64,550.06 of Class A Common, 25,666.69 of Class L Common and 45,000.00 of
Class P Common.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrants' knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [_]
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report constitute "forward-looking
statements" within the meaning of the Securities Act of 1933, as amended, and
the Securities Exchange Act of 1934, as amended, and the Company intends that
such forward-looking statements be subject to the safe harbors created thereby.
The words "anticipate", "will", "expect", and "believe" identify forward-
looking statements. These forward-looking statements reflect the Company's
current views with respect to future events and financial performance, but are
subject to many uncertainties and factors relating to the Company's operations
and business environment which may cause the actual results of the Company to be
materially different from any future results expressed or implied by such
forward-looking statements. Please see the section entitled "Certain Important
Factors" in this Annual Report for a list of such uncertainties and factors.
The Company undertakes no obligation to publicly update or revise any forward-
looking statements whether as a result of new information, future events, or
otherwise.
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CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS
<TABLE>
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PAGE NUMBER
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OR REFERENCE
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PART I
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ITEM 1. Business......................................................................................... 1
ITEM 2. Properties....................................................................................... 19
ITEM 3. Legal proceedings................................................................................ 19
ITEM 4. Submission of matters to a vote of security holders.............................................. 20
PART II
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ITEM 5. Market for the Company's common stock and related stockholder matters............................ 20
ITEM 6. Selected financial data.......................................................................... 20
ITEM 7. Management's discussion and analysis of financial condition and results of operations............ 22
ITEM 8. Consolidated financial statements and supplementary data......................................... 31
ITEM 9. Changes in and disagreements with accountants on accounting and financial disclosure............. 31
PART III
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ITEM 10. Directors and executive officers of the Company.................................................. 32
ITEM 11. Executive compensation........................................................................... 33
ITEM 12. Security ownership of certain beneficial owners and management................................... 36
ITEM 13. Certain relationships and related transactions................................................... 39
PART IV
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ITEM 14. Exhibits, financial statement schedules, and reports on Form 8-K................................. 41
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PART I
ITEM 1 -- BUSINESS
As used in this Annual Report, unless the context otherwise requires, the
"Company" or "Cambridge" refers to Cambridge Industries, Inc. and its wholly-
owned subsidiaries, including the co-registrant, CE Automotive Trim Systems,
Inc. ("CE"). The Company is a wholly-owned subsidiary of Cambridge Industries
Holdings, Inc. ("Holdings").
GENERAL
The Company is a leading Tier 1 supplier of plastic components and composite
systems for GM, Ford, DaimlerChrysler, Toyota, Honda, Mazda, Nissan, Volkswagen,
Freightliner, PACCAR, 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 transportation OEM
market for plastic products there are three distinct types of applications, all
of which the Company can provide: exterior, structural/functional/powertrain and
interior. The Company manufactures components, modules and systems for exterior
and structural/functional/powertrain applications and components and modules for
interior applications. In addition to products supplied to its automotive and
commercial truck 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 top coat painting capabilities at OEM Class A standards.
The Company has experienced rapid growth since 1991 due to increased plastic
usage by OEMs, five major acquisitions and significant new product
introductions. Additionally, the Company's average content per vehicle
(automobile, light truck and commercial truck) produced in North America has
increased from approximately $0.86 in 1991 to approximately $30.47 in 1998.
At December 31, 1998, the Company employed approximately 4,800 people.
DESCRIPTION OF BUSINESS BY OPERATING SEGMENT
Cambridge's businesses are organized, managed, and internally reported as
three operating segments. The operating segments, which are based on differences
in customers and products, technologies and services, are as follows:
Operating Segment Principal Products
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Automotive and Light Truck Molded engineered plastic components for
automotive original equipment manufacturers
Commercial Truck Molded engineered plastic components for the
commercial transportation industry, class 4
through class 8 commercial trucks
Industrial and Non-automotive Various plastic components for the
agricultural, appliance, commercial
construction, and recreational transportation
industries
Segment financial data for the years 1996 through 1998, including financial
information about export sales, is included in Note 17 of Notes to Consolidated
Financial Statements. Cambridge's three operating segments bridge together
common or related technologies, enhancing the development of innovative products
and services and providing for efficient sharing of business resources. Various
corporate assets and overhead expenses are not assigned to the segments.
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,
reduce weight, and shorten the development time required for new vehicle
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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 to be the primary trends in the automotive and light truck 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 weight per passenger vehicle has increased by 68%,
from approximately 150 pounds in 1988 to approximately 253 pounds in 1998, and
is projected by industry observers to grow another 18% to approximately 299
pounds per vehicle by 2008. 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/powertrain 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. Plastic's design freedom is also key to its
increased use. Not only does plastic allow for the manufacture of products that
cannot be manufactured with other materials, plastic makes it possible to
combine several parts, saving weight and cost. 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 and
4.6L engines. Furthermore, according to industry sources, plastics usage in
engine and mechanical components is expected to increase by more than 50% from
1998 to 2008.
Historically, plastic has generally had an advantage over steel in low volume
production runs due to lower upfront tooling costs. With its lower tooling
costs, the Company benefits from the increase in niche vehicles (such as the
DaimlerChrysler 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 (such as step-assists
on certain sport utility vehicles such as GM's GMT800, and DaimlerChrysler'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 usually a less expensive raw material with lower
finishing costs.
Increased Outsourcing by Domestic OEMs
In an effort to reduce costs, accelarate 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 1998, Ford and DaimlerChrysler 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 1998 and 2002.
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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 suppliers generally 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, materials and manufacturing
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 multiyear production runs at high
capacity utilization levels. As a result, smaller, poorly capitalized suppliers
with limited product lines, engineering and design capabilities have been and
will continue to be eliminated and lose 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 their market share.
Increased Levels of Manufacturing in North America by Transplants
New domestic automotive manufacturers (previously Japanese and European
transplants) 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 political
pressure, sales of vehicles imported from Japan declined from 1983 to 1998,
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 34%
in 1998. Industry sources forecast that this trend will continue. For example,
both Mercedes Benz and BMW commenced manufacturing in the U.S. in 1996. Further,
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.
The Company anticipates that 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 1998, the Company
had sales to Transplants of $1.7 million or 0.4% of total Company sales.
COMMERCIAL TRUCK COMPONENTS INDUSTRY
The commercial truck components industry has also experienced increased use of
plastics. Continuing consolidation of the domestic OEM's coupled with on-going
consolidation of the supplier base have served to increase levels of
manufacturing in North America. The increased use of plastics is particularly
pronounced in the commercial 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 commercial truck production, lower up front tooling costs
give plastic an advantage over steel. Finally, in contrast to the automotive and
light truck component industry, the commercial 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, that have broad design and
engineering capabilities and extensive commercial truck component manufacturing
experience. The Company is a key supplier to Kenworth, Freightliner, GM, Volvo,
Sterling, Ford and Mack Truck.
INDUSTRIAL AND NON-AUTOMOTIVE COMPONENTS INDUSTRY
The industrial and non-automotive markets for the Company's manufacturing
processes include recreation, agriculture, transportation, construction, marine
and military industries. A substantial portion of the reinforced plastic
products supplied to these markets comes from sheet molded composite ("SMC"),
much of which is captively molded by companies such as General Electric, White
Westinghouse, Therma-Tru, Kohler, Rubbermaid, Xerox and RCA. 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. Sales to these markets in 1998
were less than 7% of overall sales.
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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 industry 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.
Since its initial formative acquisitions in 1988 and 1990, the Company's
management has consummated five major and four minor acquisitions over the past
nine years, implementing a focused strategy to enhance profitability and
reposition the acquired entities for growth. This strategy has included one or
more of the following steps designed to reduce costs, simplify manufacturing and
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) reducing headcount; and (v) reducing overall administrative costs,
including insurance, benefit plans, and professional fees.
The following summarizes the Company's acquisition history:
1988 Nortec Precision Plastics
Precision functional parts manufacturer. Principal customer was
DaimlerChrysler.
1990 Wolf Engineering Corporation ("Wolf")
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.
1993 Voplex Corporation (including Voplex Canada) (collectively, "Voplex")
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.
1993 Troy Products
Added larger tonnage press capacity and structural foam
technology.
1994 Rockwell 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 commercial truck
OEMs as customers. Management consolidated sales forces,
renegotiated insurance and benefit policies and reduced plant
level administration head-count.
1996 GenCorp 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
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date, management has re-negotiated insurance and benefit policies
and significantly reduced intercompany charges related to
corporate level administration.
1997 APX--PMC Division
Added resin transfer molding ("RTM") technology and paint
priming. The acquisition also added in-house RTM tooling and
prototype capabilities and strengthened the Company's
relationship with DaimlerChrysler.
1997 Eagle-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.
1997 Goodyear-Jackson--Engineered Composites Business
Strengthened the Company's position as the leading SMC supplier
to medium and heavy truck OEMs and enhanced its relationship with
Ford and Freightliner. Added new products (grill opening panels &
retainers, air brake pistons) and manufacturing processes (SMC
injection molding). Increased SMC production capacity with the
addition of compression and injection molding presses.
1997 Owens-Corning Brazil--Brazilian Molded Plastic and Pultrusion
Operations
Added ability to manufacture components for Brazil-based
customers and Brazilian subsidiaries of North American OEMs.
1998 Livingston, Inc.
Enhanced the Company's relationship with PACCAR (Kenworth) and
provided the Company with a Class 8 commercial truck component
assembly facility on the west coast of the United States.
THE LIVINGSTON ACQUISITION
As of January 1, 1998, the Company acquired substantially all of the operating
assets of Livingston, Inc. ("Livingston"), located in Auburn, Washington, for
a total purchase price of $2.15 million, subject to post-closing adjustments
(the "Livingston Acquisition"). Livingston's primary customer is PACCAR
(Kenworth). The Livingston Acquisition has provided the Company with a Class 8
commercial truck component assembly facility on the west coast of the United
States and has added ability for spray-up molding. The Company believes the
acquisition will enhance its relationship and business with PACCAR.
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 ("Owens-Corning--Brazil") located in Rio
Clara, Brazil of Owens-Corning Fiberglas A.S. LTDA., a Brazilian subsidiary of
Owens-Corning, for $5.5 million (the "Owens-Corning Acquisition"). This
acquisition allows the Company to manufacture plastic components for automotive
customers and other industries in the Brazilian market.
THE EAGLE-PICHER ACQUISITION
Effective July 1, 1997, the Company acquired the plastics division of Eagle-
Picher Industries, Inc. ("Eagle-Picher") for a total purchase price of
approximately $32.0 million (the "Eagle-Picher Acquisition"). 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.
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Eagle-Picher's SMC production facilities and process capabilities 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 DaimlerChrysler will allow the Company to offer more
products to these OEM customers. As 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 is beginning to realize cost savings in these
operations.
Specifically, the Company is realizing several strategic and financial
benefits, including:
Top coat painting capability: The top coat painting capability and state-of-
the-art paint systems acquired from Eagle-Picher allow the Company to deliver
painted assembly-ready parts meeting OEM Class A standards.
Industrial and non-automotive market presence: Through the Eagle-Picher
Acquisition, the Company now manufactures industrial and 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 allows
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,
21 of which 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: Through the Eagle-Picher Acquisition, the Company
acquired advanced SMC production capability at its Grabill, Indiana facility.
This has allowed the Company to consolidate its manufacturing of SMC, which is
resulting in significant raw material production cost savings. In connection
with the Eagle-Picher Acquisition, the Company reduced costs by mothballing the
Huntington, Indiana facility and transferring production and assembly to other
Company facilities.
THE GOODYEAR-JACKSON ACQUISITION
As of July 1, 1997, the Company acquired the engineered composites business of
The Goodyear Tire & Rubber Company ("Goodyear") located in Jackson, Ohio for a
total purchase price of approximately $38.0 million, subject to post-closing
adjustments (the "Goodyear-Jackson Acquisition"). The Goodyear-Jackson assets
acquired by the Company include one manufacturing facility which produces
automotive and commercial truck components, primarily using SMC in compression
and injection manufacturing processes. The Goodyear-Jackson Acquisition
strengthened the Company's position as the leading SMC parts supplier to the
medium and commercial truck OEMs. It also enhanced the Company's relationships
with Ford and Freightliner.
The Company has not substantially altered the Goodyear-Jackson manufacturing
facilities. The Company, however, has implemented cost savings initiatives in
the areas of purchased materials, plant overhead, and selling, general and
administrative costs.
The Company experienced 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 was interrupted for
approximately five months during 1998. In addition, Ford has announced its
decision to replace the HN78 medium truck platform with its new H215 platform.
These changeovers impacted and interrupted production at Goodyear-Jackson for
approximately eight months in 1998, thereby reducing sales for 1998. The
reductions in sales reduced earnings disproportionately because the Company was
not able to achieve proportional reductions in expenses during the period of
temporary sales decline.
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Management believes the Goodyear-Jackson Acquisition expanded 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 most
to Goodyear-Jackson's sales were Ford's current medium (HN78) (to be replaced by
H215) and Sterling's (Freightliner) 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 commercial truck OEMs. It
also enhances the Company's relationships with Ford and Freightliner.
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: Through the Goodyear-Jackson
Acquisition, the Company acquired 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.) These large presses are comparatively
scarce and expensive as well as time-consuming to install. In acquiring these
presses, the Company enhanced its ability to bid for and produce large, complex
automotive and commercial truck parts.
SMC production capability: The addition of Goodyear-Jackson's SMC production
capacity has allowed the Company to continue producing all of its key raw
material in-house and has permitted consolidation of SMC production with the
Company's existing facilities. Further, Goodyear-Jackson's production process is
capable of producing SMC up to 60 inches wide (which the Company believes is the
widest in the industry). This gives the Company greater flexibility in product
design and process engineering.
THE APX ACQUISITION
In February 1997, the Company acquired the Production Molded Composites
Division ("PMC") of APX International, for a total purchase price of
approximately $2.4 million (the "APX Acquisition"). PMC supplies body panels
to DaimlerChrysler for the Viper Roadster and Coupe using the RTM manufacturing
process. As a result of the APX Acquisition, the Company improved its position
as a Tier 1 supplier to DaimlerChrysler 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.
SENIOR SUBORDINATED NOTES DUE 2007
On July 10, 1997, the Company issued (the "Offering") its Senior
Subordinated Notes due 2007, Series A (the "Series A Notes") in the principal
amount of $100.0 million. On January 14, 1998, the Company completed an exchange
offer (the "Exchange Offer") pursuant to which $98.0 million principal amount
of Series A Notes were exchanged for the Company's Senior Subordinated Notes due
2007, Series B (the "Series B Notes," together with the Series A Notes, the
"Notes"). The Notes bear interest at a rate of 10 1/4 % per annum, payable on
each January 15 and July 15, commencing January 15, 1998. The Notes will mature
on July 15, 2007. The Company may redeem the Notes on or after July 15, 2002.
The Notes are general unsecured obligations of the Company. The Notes are
guaranteed on a senior subordinated basis by the Company's only existing U.S.
subsidiary, CE, and all of the Company's future U.S. subsidiaries (the
"Guarantors"). The Guarantees are general unsecured obligations of the
Guarantors. The proceeds of the Offering, together with financing under the
Credit Agreement (as defined below), were used, in part, to finance the Eagle-
Picher Acquisition and Goodyear-Jackson Acquisition.
As a result of the Exchange Offer, Section 13 of the Exchange Act requires
that the Company file certain reports, including this Annual Report. However,
pursuant to Exchange Act Rule 15d-6, the Company filed a Form 15 with the
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Securities and Exchange Commission before January 30, 1998, which suspended the
Company's duty to file Section 13 reports.
In connection with the issuance of the Notes, the Company agreed with Note
purchasers to prepare and distribute the reports specified by Section 13 to Note
holders and to submit those reports to the Securities and Exchange Commission
for filing under the Exchange Act. While the Company intends to comply with its
contractual obligations, the filing of Section 13 reports is no longer required
by the Exchange Act.
CREDIT AGREEMENT
On July 10, 1997, the Company entered into a credit agreement with Bankers
Trust Company as agent ("Agent") and other institutions providing loans up to
$280.0 million, consisting of: $70.0 million in aggregate principal amount of A
Term Loans; $135.0 million in aggregate principal amount of B Term Loans; and
$75.0 million revolving credit facility. The Company used the A Term Loans and
the B Term Loans to repay term loans under a previous credit agreement. As of
February 28, 1999, the Company had drawn $24.5 million of the revolving credit
facility.
The credit agreement contains restrictive covenants which, among other things,
limit the incurrence of additional indebtedness, dividends, transactions with
affiliates, assets sales, acquisitions, mergers and consolidations, prepayments
of other indebtedness, liens and encumbrances, capital expenditures and other
matters customarily restricted in such agreements. The covenants also require
the Company to meet minimum levels of EBITDA (earnings before interest, income
taxes, depreciation and amortization) and interest coverage, and establish a
maximum leverage ratio.
In September 1998, the Company entered into a Second Waiver and Amendment and
in January 1999 the Company entered into a Third Waiver and Amendment pursuant
to which certain restrictive covenants contained in the credit agreement were
waived and amended. On February 23, 1999, the Company entered into a Fourth
Waiver and Amendment to the credit agreement (together with the Second, Third,
and Fourth Waivers and Amendments, the "Credit Agreement") with the Agent and
other institutions, which is effective as of December 31, 1998 through and
including March 31, 2000, whereby the aggregate outstanding principal amount of
the revolving credit facility shall not at any time exceed $65 million, and
shall not exceed $50 million on the last day of any month. In addition, certain
restrictive covenants were waived and amended. Letters of Credit outstanding
under the Credit Agreement are limited to $5.3 million.
The amended Credit Agreement eliminated covenant requirements at December 31,
1998, and amended the covenants for periods through March 31, 2000.
BUSINESS STRATEGY
The Company's strategy is to capitalize on its perceived competitive strengths
(see "Competition") 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 historically 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 recently won a contract from GM for 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 and
structural/functional/powertrain components to continue to increase during the
next several years. Forcasted growth in structual/funtional/powertrain
applications is expected to exceed 150% over a ten year period (1998-2008).
8
<PAGE>
Acquire complementary manufacturers: The Company intends to selectively pursue
attractive opportunities to acquire exterior or 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. The Company's
ability to effectuate such a plan is limited by, and to the extent of, the
availability of seller financing or institutional financing, which is limited by
and subject to the terms of the Credit Agreement.
Penetrate new markets and access new technologies through joint ventures and
licensing arrangements: The Company seeks to exploit joint ventures, strategic
alliances 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 a strategic alliance agreement with
Menzolit Fibron, and a joint venture agreement with Mexican Industries, Inc. in
Michigan.
EXISTING JOINT VENTURES AND LICENSING ARRANGEMENTS
The Company has established joint ventures 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 its traditional competitors.
The Menzolit Fibron strategic alliance was established to give the Company
direct access to the European automakers and provide a mechanism to establish a
manufacturing presence while limiting capital spending. The Company believes
that Menzolit Fibron is one of Europe's largest SMC's suppliers. The Company
also has access to their material and processing technologies. This joint
alliance has resulted in the job award of a bumper beam support system from
Mercedes.
In May 1998, the Company entered into a joint venture with Mexican Industries
in Michigan, Inc. ("Mexican Industries") to assist domestic OEM's in meeting
their minority content goals by supplying, through the joint venture, interior
trim products to the OEM's and industry suppliers. The joint venture takes the
form of a Michigan limited liability company with the name Mexican and
Cambridge, L.L.C., doing business as Dos Manos Technologies ("Dos Manos"). In
connection with the formation and operation of the joint venture, Mexican
Industries built a manufacturing and assembly facility in Detroit, Michigan,
which is being leased by Dos Manos. The facility commenced operations in
December 1998.
CUSTOMERS
The Company has a diverse customer base, including, among others, Ford, GM,
DaimlerChrysler, Honda, Mazda, Nissan, Volkswagen, Freightliner, PACCAR, Mack
Truck and Volvo Heavy Truck. The Company has close ties to the automobile
manufacturing industry and has integral components in some of the industry's
most popular vehicles. The Company currently has products in over 80 vehicles,
including high-volume, long-lasting models sold in the United States such as the
Ford Explorer, Ranger, Taurus and F-150 truck, the GM Suburban and Astro Minivan
and the Honda Accord. The following chart highlights vehicles which use products
produced by the Company:
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1998 VEHICLE NAMEPLATES--AND SELECTED NON-AUTOMOTIVE CUSTOMERS
<TABLE>
<CAPTION>
CUSTOMERS MODELS
- ------------------- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AUTOMOBILE AND
LIGHT TRUCK:
Auto Alliance(1).......... Mazda 626 Mazda MX6
DaimlerChrysler CHRYSLER DODGE PLYMOUTH JEEP/EAGLE
-------- ----- -------- ----------
Automobiles ............ Concorde Intrepid Vision
Neon
Viper Coupe
Viper Convertible
Light Trucks ........... Town & Country Caravan Voyager Cherokee
Dakota Grand Cherokee
Ram Van Wrangler
Ford FORD FORD LINCOLN MERCURY
---- ---- ------- -------
Automobiles ............ Crown Victoria Mustang Mark VIII Grand Marquis
Thunderbird Taurus Continental
Town Car
Light Trucks ........... F-Series Pickup Bronco Villager
Econoline Ranger
Windstar Explorer
Aerostar Van
General Motors CHEVROLET BUICK OLDSMOBILE CADILLAC PONTIAC SATURN
--------- ----- ---------- -------- ------- ------
Automobiles ............ Monte Carlo Le Sabre Intrigue Seville Firebird Saturn SL
Lumina Riviera Cadillac Eldorado Bonneville Saturn SC
Camaro Regal Cutlass Deville Grand Am
Corvette Park Avenue Aurora Catera
Century Alero Fleetwood
Light Trucks ........... CK Pickup Opel Bravada Trans Sport
Tahoe/Yukon Silhouette Montana
Suburban
Astro/Safari
Blazer
Venture
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
</TABLE>
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CUSTOMER MODELS
- ---------------------- ---------------------------------------
COMMERCIAL TRUCKS:
Freightliner
GM
Ford
Volvo Heavy Truck
Mack Truck
PACCAR:
Kenworth
Peterbilt
INDUSTRIAL AND
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
Toyota ................ Lift Trucks
Mercury Marine ........ Marine outboard
engines
Xerox ................. Toner bottles
(1) Ford/Mazda joint venture.
(2) GM/Suzuki joint venture.
PRODUCTS
The Company's principal products include the exterior,structural/functional
/powertrain interior trim and industrial parts listed below. The products
manufactured by the Company are made from a variety of powertrain and
thermoplastic materials. The Company's product diversity illustrated by the
table below, positions the Company as a versatile source to the automotive,
truck and non-automotive industries.
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<PAGE>
<TABLE>
<CAPTION> SEGMENTS
EXTERIOR AUTOMOTIVE AND LIGHT TRUCK COMMERCIAL TRUCK INDUSTRIAL AND NON AUTOMOTIVE
--------------------------- ---------------- ----------------------------
<S> <C> <C> <C>
Hoods and hood assemblies Hoods and hood assemblies
Liftgates and doors Liftgates and doors
Roof and roof moldings Roof and roof moldings
Fenders Fenders
Bodyside moldings/rubstrips Fairings
Windshield surrounds Grill opening retainers
Deck lids Grill opening panels
Hatches Storage doors
Spoilers
Grill opening retainers
Grill opening panels
End gates
Truck pick-up boxes
STRUCTURAL/FUNCTIONAL/POWERTRAIN
Headlamp carriers Bumper beams
Engine shields/covers Battery trays
Structural beams Plenums (firewalls)
Bumper beams Air spring pistons
Structural component carriers
Load floors
Fuel tank shields
Seat pans
Fluid systems linkages
Rocker arm covers
Fan shrouds
Radiator support beams
Bearing cages
Steering yokes
Battery trays
Gears
Fuel valves
Plenums (firewalls)
INTERIOR Windshield cowls
Cross car beam
Cross members
Steering column bezels Garnish molding systems
Glove box door and assemblies Sleeper bunk
Instrument panel trim components Door modular system
Liftgate trim panels Head Liners
Door trim panels Engine Covers
Rear shelf panels "A" Pillars
Consoles/overhead
Seat backs/bases
Shift knobs
Garnish molding systems
Handles/assists straps
Electrical carriers
Cargo doors
Sunshades
Knee bolsters
Window shades
Door modular system
Rear package tray system
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
SEGMENTS
AUTOMOTIVE AND LIGHT TRUCK COMMERCIAL TRUCK INDUSTRIAL AND NON AUTOMOTIVE
-------------------------- ---------------- -------------------------------
<S> <C> <C> <C>
INDUSTRIAL AND
NON-AUTOMOTIVE Blow molded bottles
Forklift body panels
Residential door systems
Personal watercraft decks
& covers
Military vehicle hoods,
engine covers& seats
Tractor hoods,
shields/pans,
consoles and seats
Combine components
Lift truck hoods
Outboard engine cowls
</TABLE>
MANUFACTURING PROCESSES
The Company has a full range of equipment, including compression molding
presses from 50 to 4,400 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 glass reinforced
plastics that when heated and pressurized 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 recycled to be used
again in conjunction with virgin materials.
The Company is a leading manufacturer of Sheet Molding Compound (SMC), a
thermoset material from which large complex shaped automotive and commercial
truck panels are manufactured. SMC is experiencing extensive growth for
automotive and commercial truck applications. In 1998, 16 manufacturers used SMC
for over 400 components on over 100 global passenger car and truck lines. The
Company's Shelbyville, Indiana facility is the newest State-of-the-Art facility
producing SMC parts in the industry. The use of SMC in the automotive and
truck industry has increased from 147 million pounds in 1992, to 237 million
pounds in 1998. Projections for the continued growth of SMC are for it to
exceed 315 million pounds in the year 2003, all for applications in automotive
and comercial truck industry. SMC is particularly well suited for exterior and
structural/functional/powertrain components because it offers lower upfront
tooling investment to customers and weight savings over steel, and allows
design and styling flexibility . Management believes the Company is the leading
manufacturer of SMC automotive and commercial truck 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 lines, providing a capability to top coat paint automotive
components to Class A standards, which the Company did not previously have.
The Company's automated paint systems acquired through the Eagle-Picher
Acquisition 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 in-depth). Related systems include prime and
topcoat bake ovens with high discharge rates; multi-stage power washers; and
numerous waterfall spray booths connected to prime and top coat bake ovens by
conveyors.
Through the Goodyear-Jackson Acquisition, the Company acquired 16
compression molding presses ranging from 250 to 3,000 tons and 10
thermoset/thermoplastic injection molding presses ranging from 500 to 2,200
tons. The Goodyear-Jackson Acquisition also added additional SMC-making
production capacity.
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<PAGE>
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/powertrain 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 thermoplastic resins (ABS,
Polypropylene, Nylon, ABS/PC, TPO, Nylon, HDPE, Polyster and other engineered
products) and thermoset resins (acrylic and polyester). Additionally, the
Company manufactures all of its own SMC. The Company's principal suppliers
include Bayer, Dow Chemical, DuPont and Prime Source Polymers for thermoplastic
resins. Ashland Chemical, Reichold and Alpha Owens Corning provide SMC resins
and Vetrotex and PPG provide glass fibers for the SMC and bulk molding composite
("BMC") process. GenCorp, Inc. and Sherwin Williams provide coatings and
paint. Ashland Chemical and Lord Adhesive provide adhesive products.
Historically, the vast majority of the Company's raw materials 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 relationship with its principal
suppliers are good. The Company has never experienced major disruptions in its
flow of raw materials or finished goods. The Company works with its strategic
suppliers to obtain long-term corporate contracts, shared technologies,
resources and cooperative working relationships.
ENGINEERING/RESEARCH AND DEVELOPMENT
The Company has the ability to design and engineer its products to meet its
customers' specific applications and needs through its dedicated engineering and
research and development staff of professionals. The Company utilizes advanced
quality planning techniques by coordinating manufacturing and engineering
personnel in development/launch teams that produce the most efficient, cost
competitive design for the customer using advanced techniques including
integrated CAD/CAM design systems. The Company has further extended its product
engineering and design capabilities by supporting each division with dedicated
expertise and equipment to address customer needs.
COMPETITION
The Company operates in a highly competitive environment. As a result of
the more demanding service requirements placed on suppliers by the OEMs, and the
resulting rationalization of the OEM supplier base, the automotive plastic parts
industry has consolidated many small entities into fewer, much larger entities.
In the automotive and light truck industry, the Company's major competitors in
the exterior and structural/functional/powertrain market segments include Budd,
Venture Holdings Trust and Core Materials Corp. The interior business is largely
consolidated around such suppliers as Magna International, Textron Automotive
Division, JCI, United Technologies Automotive Division and Lear Seating.
Although the exterior and structural/functional markets are still fragmented,
the Company expects them to consolidate along the lines of the interior
markets.
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 new
model development 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 as the incumbent
supplier.
The Company has significantly increased its size and enhanced its strategic
position. Management believes that the following are the Company's primary
competitive strengths.
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<PAGE>
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, DaimlerChrysler, Toyota,
Honda, Mazda, Nissan, 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 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, pultrusion,
spray-up molding and RTM and is able to use a wide variety of materials
including SMC, 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, bonding
with urethane and epoxy adhesives and 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 its
diverse capabilities enhance 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, 1996 and
1997), DaimlerChrysler'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, Newton, NC, Centralia, IL,
Lapeer, MI, Canandaigua, NY, Dearborn, MI, Grabill, IN, Woodstock, Ontario,
Canada, Shelbyville, IN, Rushville, IN, Brazil and Madison Heights, MI
facilities. The Company has achieved ISO 9000 certification in its Jackson, OH
facility. The Company is in the process of obtaining QS 9000 certification in
the remainder of its facilities. The Company has achieved Ford Q1 certification
status at its Lenoir, NC, Newton, NC, Grabill, IN, Dearborn, MI, Lapeer, MI and
Jackson, OH 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 1997, the Company 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. The Company recently won a program on
GM's H-car for a front-end system (headlamp carrier) that, in comparison to
traditional methods, consolidated five separate parts into one, and reduced the
weight of the system by 40%. The Company is recognized as a leading designer of
components for the commercial truck industry as evidenced by completion of total
design responsibility and finite element validation for the Freightliner Century
Program, Mack Vision 2000 Program and the Ford H-215 program.
15
<PAGE>
EMPLOYEES
As of February 28, 1999, the Company had approximately 4,729 employees, of
whom 1,989 are union members; approximately 3,957 employees are hourly and
approximately 772 are salaried. The Company is a party to collective bargaining
agreements with respect to hourly employees at its Centralia, Lapeer, Woodstock,
Dearborn, Jackson and Rio Clara facilities. The agreement with the UAW at the
Centralia facility expires on October 1, 2003. The agreement with the UAW at
the Dearborn facility expires on September 30, 1999, and the agreement with the
UAW at the Lapeer facility expires February 1, 2000. Each of the Company's
agreements with the UAW contains a no strike clause. The agreement with the
Canadian Automobile Workers Union at the Woodstock facility expires on March 22,
2000. The collective bargaining agreements with the United Steel Workers of
America at Jackson expire on April 15, 2000. The industry wide agreement at Rio
Clara is negotiated each year with the current agreement expiring on November
30, 1999. There do not appear to be any significant issues which would prevent
an adoption of a mutually acceptable agreement in November 1999. In December
1998, in part to resolve continuing litigation with APX (prior owner) concerning
UAW representation at the Stephenson Highway location, the Company recognized
the UAW as the bargaining representative of the production and maintenance
employees. The collective bargaining process is scheduled at this facility to
begin in February 1999. Preliminary discussions indicate no major potential
obstacles to reaching an acceptable agreement.
Management believes its relationship with its employees is generally good.
In fact, the Company has received UAW and Steelworker support for its lean
manufacturing/continuous improvement process. The Company has not experienced
significant work interruptions resulting from serious labor disputes with its
employees.
PATENTS
The Company owns various patents which aid in maintaining its competitive
position. These patents expire over 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 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 $0.1 million.
16
<PAGE>
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 $0.3 million to date and currently estimates that
remediation costs over the next four or five years should not exceed an
additional $0.3 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 Company's acquisition of Rockwell Plastics, 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. 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 Company's acquisition of
GenCorp RPD, 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 its acquisition of GenCorp RPD 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 $3.25 million, the Company is also
indemnified for any unidentified on-site contamination at, on, under or about
the former Eagle-Picher facilities and unidentified 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 contamination identified at the time of the
acquisition as presently in place or which may be required to be remediated
pursuant to certain revised clean-up standards 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 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
17
<PAGE>
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 $0.3 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.
With respect to the facilities leased as a result of the Livingston
Acquisition, the Company did not assume any of the liabilities for violation of
environmental laws with respect to solid waste or hazardous materials
transported by or on behalf of Livingston for off-site disposal or any
liabilities of Livingston for the violation of environmental laws arising from
the operation of Livingston prior to the closing date, including, any fine or
penalty arising from any permit violation. Under the terms of the Livingston
Acquisition, Livingston must indemnify the Company for all liabilities not
assumed by the Company. However, Livingston's liability for all indemnity claims
(environmental and non-environmental) is capped at approximately $1.7 million.
A number of the Company's facilities are likely to be required to comply with
the provisions of the Federal Clean Air Act ("CAA"), 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 (with the possible exception of the
cost of CAA compliance described above) 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, cash flows 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 in Item 8 of this Annual Report.
18
<PAGE>
ITEM 2--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 22 operating facilities with a total of approximately 2.6 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 are in good condition and that it has sufficient capacity to meet its
current and projected manufacturing and distribution needs through the 1999
model year. The following sets forth certain information concerning the
Company's operating facilities:
<TABLE>
<CAPTION> Square
LOCATION Footage OWNED/LEASED OPERATING SEGMENT
- ---------------------------------------------- -------- ------------ ------------------
<S> <C> <C> <C>
Centralia, IL ....................... 473,000 Owned Commercial Truck
Shelbyville, IN ..................... 366,000 Owned Automotive and Light Truck
Canandaigua, NY (3 facilities) ...... 280,000 Owned Automotive and Light Truck
Lapeer, MI .......................... 230,000 Owned Automotive and Light Truck
Grabill, IN ......................... 225,000 Owned Automotive and Light Truck
Jackson, OH ......................... 220,400 Owned/Leased Commercial Truck
Lenoir, NC (3 facilities) ........... 160,000 Owned/Leased Automotive and Light Truck
Ashley, IN .......................... 130,000 Owned Industrial and Non-Automotive
Products
Rushville, IN ....................... 97,400 Leased Commerical Truck
Madison Heights,MI.................... 90,000 Leased Automotive and Light Truck
Dearborn, MI (3 facilities) ......... 87,000 Owned Automotive and Light Truck
Auburn, WA (2 facilities) ........... 85,000 Leased Commercial Truck
Rio Clara, Brazil ................... 79,000 Leased Industrial and Non-Automotive
Products
Newton, NC .......................... 54,000 Owned Automotive and Light Truck
Woodstock, Ontario, Canada .......... 50,000 Leased Automotive and Light Truck
---------
Total ........................... 2,626,800
=========
</TABLE>
The Company also owns property and improvements in (i) Vassar, Michigan, which
is currently leased (with an option to purchase) to a third party (this property
was sold in February 1999), (ii) Pittsford Township, New York, which is
currently unoccupied, and (iii) Huntington, Indiana, which is currently
unoccupied.
In addition, a 100,000 square foot facility is leased by Dos Manos
Technologies, a joint venture between the Company and Mexican Industries in
Michigan, Inc., in which the Company owns a 48% interest.
ITEM 3--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, results of operations or cash flows 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. Discovery commenced December 31, 1997. A hearing to
determine the property described in and protected by the patent was held in the
summer of 1998. The court has defined the patent in terms which management
believes are favorable to the Company. Therma-Tru filed a motion requesting
summary disposition of certain issues material to determining the property
rights protected by the patent. The Company anticipates that the hearing on
Therma-Tru's motion will occur sometime in late 1999.
19
<PAGE>
The proceedings are not sufficiently advanced in either the Caradon or the
Therma-Tru case to allow an assessment of the Company's exposure in either case,
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.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In lieu of a special meeting of the shareholders of Holdings, by written
consent dated December 31, 1997, the holders of 97% of the voting securities of
Holdings approved an amendment to the Amended and Restated Certificate of
Incorporation of Holdings (the "Certificate of Incorporation") to set the
value of Holdings' Class P Common Stock (the "Class P Common") at $316.6667
per share. The Certificate of Amendment (the "Certificate of Amendment") to
the Certificate of Incorporation was filed with the Delaware Secretary of State
on January 21, 1998. Prior to the filing of the Certificate of Amendment, the
value of the Class P Common was determined based on the net sales (as defined in
the Certificate of Incorporation) of the Company.
PART II
ITEM 5--MARKET FOR THE COMPANY'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Company's or Holdings'
common stock.
The number of holders of each class of common equity of Holdings' is as follows:
Class A Common: 17
Class L Common: 18
Class P Common: 1
Preference: 1
There were no cash dividends paid during the two most recent fiscal years.
The Credit Agreement imposes certain restrictions on the payment of dividends,
and the indenture governing the Notes prohibits the declaration of dividends.
The Company has no intention to pay cash dividends in the foreseeable future.
Ten key employees hold an aggregate of 2,363.64 shares of Holdings' Class A
Common Stock and 590.93 shares of Holdings' Class L Common Stock, purchased as
of December 31, 1997, payable pursuant to promissory notes with an aggregate
original principal amount of approximately $0.8 million. As and when such notes
are paid, the proceeds from the notes are used for general working capital
purposes. To date, an aggregate of $0.2 million has been paid on such notes .
ITEM 6--SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Financial Statements included elsewhere in this Form 10-K. 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, 1998 and 1997, and for the years ended December 31,
1998, 1997 and 1996, are derived from the Company's audited consolidated
financial statements included elsewhere in this Form 10-K. The selected balance
sheet data and the selected statement of operations data as of December 31,
1996, 1995 and 1994 as of and for the years ended December 31, 1995 and 1994,
were derived from audited financial statements, not presented herein.
20
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------
1994(1) 1995 1996(2) 1997(3) 1998(4)
------------- ------------ -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS DATA:
Sales.......................................... $190,944 $297,746 $346,026 $426,094 $487,184
Cost of sales.................................. 159,455 253,893 294,742 367,037 432,720
-------- -------- -------- -------- --------
Gross profit................................... 31,489 43,853 51,284 59,057 54,464
Selling, general and administrative expenses... 15,312 17,678 26,240 31,742 40,776
-------- -------- -------- -------- --------
Income from operations......................... 16,177 26,175 25,044 27,315 13,688
Interest expense............................... 6,161 12,388 23,190 28,036 31,974
Other (income) expense......................... (657) (746) 180 (56) (555)
-------- -------- -------- -------- --------
Income (loss) before income taxes.............. 10,673 14,533 1,674 (665) (17,731)
Income tax expense (benefit)(5)................ (1,450) 5,410 565 (238) 625
-------- -------- -------- -------- --------
Income (loss) before extraordinary item........ 12,123 9,123 1,109 (427) (18,356)
Extraordinary item(6).......................... - 4,426 - 9,788 -
-------- -------- -------- -------- --------
Net income (loss).............................. $ 12,123 $ 4,697 $ 1,109 $(10,215) $(18,356)
======== ======== ======== ======== ========
OTHER DATA:
Depreciation and amortization.................. $ 8,952 $ 16,715 $ 21,319 $ 24,082 $ 28,032
Capital expenditures........................... 3,972 10,646 9,630 17,509 21,940
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------
1994(1) 1995 1996(2) 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Working capital................................ $ 24,887 $ 25,544 $ 37,529 $ 48,377 $ 26,678
Total assets................................... 189,317 175,115 262,230 369,484 363,822
Property, plant & equipment.................... 99,403 109,864 177,556 263,102 283,242
Accumulated depreciation....................... (11,651) (25,006) (44,232) (66,452) (89,904)
Long-term debt, less current portion........... 124,500 177,133 224,112 314,789 315,029
Total stockholder's deficit.................... (14,753) (63,839) (62,141) (72,494) (90,822)
</TABLE>
(1) 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 the Company's consolidated operating
results from August 1, 1994. Also, effective August 1, 1994, the
stockholders of Wolf and Voplex 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.
(2) 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.
(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 Company's
consolidating operating results from February 1, 1997. In July 1997, the
Company 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 operating results
from July 1, 1997.
(4) In January 1998, the Company acquired Livingston for a purchase price of
$2.15 million plus the assumption of certain debt instruments. The
operating results of Livingston are included in the Company's consolidated
operating results from January 1, 1998.
(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 1994, the pro forma income tax
provision would be approximately $4.1 million.
(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 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 Offering and borrowings under the Credit Agreement, and application of
the proceeds thereof.
21
<PAGE>
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a leading designer, developer, and manufacturer of plastic
components and systems to original equipment manufacturers ("OEM's") of
passenger cars, light trucks, and heavy (commercial) trucks. The Company also
operates to a lesser extent, in the industrial and non-automotive components
industry. As such, the Company's businesses are organized, managed, and
internally reported as three segments. The segments, which are based on
differences in customers and products, technologies and services, are Automotive
and Light Truck, Commercial Truck, and Industrial and Non-Automotive. The
Automotive and Light Truck Segment produces molded engineered plastic components
for automotive original equipment manufacturers. This segment primarily
supplies components for automotive interiors, exteriors, and structural support
and power train systems. The Commercial Truck Segment produces molded-
engineered plastics for the commercial transportation industry. The segment
primarily supplies external body panel components for Class 4 through Class 8
commercial trucks. The Industrial and Non-Automotive Segment produces various
plastic components for the agricultural, appliance, commercial construction, and
recreational transportation industries. The Company's segment operating results
are discussed in the Segment Review and Note 17 of Notes to Consolidated
Financial Statements.
Net loss of the Company was $18.4 million and $10.2 million in fiscal 1998
and 1997, respectively. Results in fiscal 1997 included an extraordinary loss of
$9.8 million, net of tax, for the write-off of existing deferred financing
costs, remaining original issue discount and expense upon the early
extinguishment of debt.
The Company's Financial Statements and Notes to Consolidated Financial
Statements on pages F-3 through F-34 should be read as an integral part of this
discussion and analysis.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1996 1997 1998
------------ ------------ ------------
% OF SALES % OF SALES % OF SALES
------------ ------------ ------------
<S> <C> <C> <C>
Sales......................................... 100.0% 100.0% 100.0%
Gross profit.................................. 14.8 13.9 11.2
Selling, general and administrative expenses.. 7.6 7.4 8.4
Income (loss) before extraordinary item....... 0.3 (0.1) (3.8)
Extraordinary item............................ -- 2.3 --
Net income (loss)............................. 0.3 (2.4) (3.8)
</TABLE>
SALES REVENUE - 1998 VERSUS 1997
Sales increased by $61.1 million, or 14.3% to $487.2 million in 1998, compared
to $426.1 million in 1997. The increase in sales was primarily the result of
the acquisitions of Goodyear-Jackson and Eagle-Picher in July 1997, Owens-
Corning Brazil in September 1997 and Livingston in January 1998 (collectively
the "Acquisitions"). The Acquisitions added incremental sales in 1998 of
approximately $82.1 million. Sales at the Company's existing operations
decreased $21.0 million, or 5.9%, due in part to the adverse impact of the
General Motors work stoppages in the United States, Canada, and Mexico, and
changes in product mix.
OPERATING PERFORMANCE - 1998 VERSUS 1997
Gross profit decreased by $4.6 million or 7.8%, to $54.5 million for 1998,
compared to $59.1 million for 1997. The decrease was due in part to the
Acquisitions whose gross profit decreased $1.4 million, or 14.9%, to $8.2
million, compared to $9.6 million for 1997. Gross profit at the Company's
existing facilities decreased $3.2 million or 6.4%, to $46.3 million compared to
$49.5 million for 1997. Gross margin decreased from 13.9% in 1997 to 11.2% in
1998. The decline in gross margin resulted primarily from the following: the
adverse impact of the General Motors work stoppages in the United States, Canada
and
22
<PAGE>
Mexico, costs associated with realignment of products among the Company's
divisions, costs associated with plant consolidations and certain changes in the
Company's product mix.
Selling, general and administrative expenses ("SG&A") increased 28.5% to
$40.8 million, or 8.4% of sales for 1998, compared to $31.7 million, or 7.4% of
sales for 1997. The increase in SG&A of $9.0 million reflects the full year
impact of the Acquisitions, which added incremental SG&A costs of $3.6 million.
The remaining increase in SG&A expenses is primarily due to the continuing
investment in program management necessary to manage newly awarded programs.
The Company recorded a net loss of $18.4 million in 1998, compared to a net
loss, before extraordinary item, of $0.4 million in 1997. This decrease was the
result of the items mentioned above, an increase in interest expense of $3.9
million and the recognition of a $5.5 million valuation allowance due to the
uncertainty of realizing certain deferred income tax assets. The increase in
interest expense for 1998 was primarily attributable to higher borrowings on
revolving debt and a full year of expense on debt outstanding related to the
Goodyear-Jackson, Eagle-Picher, APX, Owens-Corning Brazil, and Livingston
acquisitions.
SALES REVENUE - 1997 VERSUS 1996
Sales increased by $80.1 million, or 23.1% to $426.1 million in 1997, compared
to $346.0 million in 1996. The increase in sales was primarily the result of
the 1997 acquisitions of APX in February, Goodyear-Jackson and Eagle-Picher in
July and Owens-Corning Brazil in September 1997. These acquisitions added sales
of approximately $84.3 million in aggregate in 1997. Sales at the Company's
existing operations decreased $4.2 million, resulting from changes in product
mix and volume fluctuations.
OPERATING PERFORMANCE - 1997 VERSUS 1996
Gross profit increased by $7.8 million or 15.2%, to $59.1 million for 1997,
compared to $51.3 million for 1996. The increase was primarily the result of
the acquisitions of APX, Goodyear-Jackson, Eagle-Picher, and Owens-Corning
Brazil in 1997, which added aggregate gross profit of $12.7 million. Gross
margin decreased from 14.8% in 1996 to 13.9% in 1997. The decline in gross
margin resulted primarily from launch costs incurred on programs launched
beginning in the fourth quarter of 1996 (C-5 Corvette, Jeep and Volvo), along
with costs associated with realignment of products among the Company's divisions
and certain changes in the Company's product mix.
Selling, general and administrative expenses ("SG&A") of $31.7 million
decreased to 7.4% of sales for 1997, compared to $26.2 million or 7.6% of sales
for 1996. The increase in SG&A of $5.5 million reflects the addition of APX,
Goodyear-Jackson, Eagle-Picher and OC-Brazil, which added SG&A costs of $2.2
million. The decrease in SG&A expenses as a percentage of sales reflects the
spreading of overhead costs over the Company's expanding sales base.
In July 1997, the Company retired all of its outstanding indebtedness with
proceeds from the Offering and borrowings under the Credit Agreement. In
connection with this refinancing, the Company recorded an extraordinary loss of
$9.8 million, net of tax, reflecting the write-off of existing deferred
financing costs, remaining original issue discount and expense upon early
extinguishment of debt.
The Company recorded a net loss, before extraordinary item, of $0.4 million in
1997, compared to net income of $1.1 million in 1996. This decrease was the
result of the items mentioned above and an increase in interest expense of $4.8
million to $28.0 million in 1997, compared to $23.2 million for 1996. The
increase in interest expense for 1997 was primarily attributable to the increase
in debt outstanding related to the Goodyear-Jackson, Eagle-Picher, APX, and the
Owens-Corning Brazil acquisitions.
23
<PAGE>
BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
Commercial Corporate and
---------- -------------
Year Automotive Truck Industrial Unallocated Total Company
---- ----------- ----- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net Sales 1998 $252,398 $203,068 $31,718 $487,184
1997 248,438 163,647 14,009 426,094
1996 219,414 126,612 - 346,026
Operating Income 1998 19,517 9,688 (325) * $ (15,192) 13,688
1997 30,251 12,826 1,478 * (17,240) 27,315
1996 25,306 11,385 * (11,647) 25,044
EBITDA** 1998 33,358 21,936 1,015 (14,034) 42,275
1997 42,543 23,426 1,832 (16,348) 51,453
1996 37,056 20,922 (11,795) 46,183
</TABLE>
*Operating income includes unallocated corporate overhead expenses.
** Earnings before interest, income taxes, depreciation, and amortization
expense.
1998 COMPARED TO 1997
AUTOMOTIVE AND LIGHT TRUCK revenues increased $4.0 million, or 1.6%, to $252.4
million, compared to $248.4 in 1997. The increase was due in part due to the
acquisition of Eagle-Picher in July 1997, which added one plant to the
automotive segment and incremental sales in 1998 of approximately $37.0 million
including higher volumes related to the Dodge Ram and Voyager, GMT600, and
Chrysler Neon. Sales at the Company's existing operations decreased $33.1
million, due in part to the adverse impact of the General Motors work stoppages
in the United States, Canada and Mexico and changes in product mix: the build
out of such programs as Mazda and Honda Accord bumpers and Ford Aerostar
liftgates, partially offset by full year volumes of GMX 130, and Cadillac S5S,
which were launched in late 1997, and lower volumes on the Dodge Viper and Jeep
Grand Cherokee, Volkswagen Golf, and Ford Taurus/Sable wagon load floors. These
decreases were offset, in part, by increases in volumes on GM (strike adjusted)
C-5 Corvette and GMX 170, Ford Ranger and Mustang, as well as higher engine
cover volumes.
Operating income decreased $10.7 million, or 35.5%, to $19.5 million (7.7% of
sales), compared to $30.3 million (12.2% of sales) in 1997. Operating income
for the automotive acquisition above decreased as a percent of sales from 6.7%
in 1997 to 4.8% in 1998. Operating income at the Company's existing operations
decreased as a percent of sales from 12.6% in 1997 to 8.5% in 1998. The decline
in operating income resulted primarily from the following: the adverse impact of
the General Motors work stoppages in the United States, Canada and Mexico, costs
associated with realignment of products among the Company's divisions, increases
in allocated corporate expenses relating to sales and program management, and
certain changes in the Company's product mix. The mix change includes the build
out of higher margin programs such as Mazda and Honda bumpers and Ford Aerostar
liftgates, which balanced out in 1997, lower volumes on higher margin programs
such as the Taurus/Sable wagon load floors, DaimlerChrysler Jeep louver, Dodge
Viper, Volkswagen Golf, as well as the higher volumes on low margin programs
such as the GMX 130 and 170, GMT 600, and Cadillac S5S, all of which negatively
impacted operating income. Higher volumes on such programs as GM Corvette C-5,
Ford Ranger and Mustang, Dodge Voyager (launched in 1998), and Chrysler Neon,
partially offset the negative impact on operating income.
EBITDA decreased $9.2 million, or 21.6%, to $33.4 million, compared to $42.6
million in 1997. The primary reasons for the decrease have been discussed in
the preceding paragraphs.
COMMERCIAL TRUCK revenues increased $39.4 million, or 24.1%, to $203.1 million
in 1998, compared to $163.6 million in 1997. The increase in sales was primarily
the result of the acquisitions of Goodyear-Jackson and Eagle-Picher in July
1997, which added two plants to the Commercial Truck segment, and Livingston in
January 1998. These acquisitions added incremental sales in 1998 of
approximately $27.3 million. Sales at the Company's existing facilities
increased $12.1 million due to higher volumes for Kenworth, Freightliner, Volvo,
and service parts.
24
<PAGE>
Operating income decreased $3.1 million, or 24.5%, to $9.7 million (4.8% of
sales), compared to $12.8 million (7.8% of sales) in 1997. Operating income for
the acquisitions above decreased as a percent of sales from 18.1% in 1997 to
3.1% in 1998. This decrease was due in part to the impact of plant
consolidations, unrealized plant synergies after the Livingston acquisition, and
low volumes due to a delayed launch of the Ford H215 program. Operating income
at the Company's existing operations, before allocation of corporate expenses,
increased as a percent of sales from 6.5% in 1997 to 8.2% in 1998. Allocated
expenses increased $1.1 million due to investments in sales support and program
management.
EBITDA decreased $1.5 million, or 6.4%, to $21.9 million, compared to $23.4
million in 1997. The significant factors attributable to the decrease have been
discussed in the preceding paragraphs.
INDUSTRIAL AND NON-AUTOMOTIVE revenues increased $17.7 million, or 126.4%,
to $31.7 million, compared to $14.0 million in 1997. The increase in sales was
primarily the result the of the acquisitions of Eagle-Picher in July 1997, which
added one plant to the Industrial segment, and Owens-Corning Brazil in September
1997. These acquisitions added incremental sales of approximately $17.7 million.
Operating income decreased $1.8 million to a loss of $0.3 million, compared
to income of $1.5 million in 1997. The decrease was due in part to reduced
volumes and launch delays of many of Brazilian products, and increases in
allocated expenses related to sales support and program management.
EBITDA decreased $0.8 million, or 45.0%, to $1.0 million, compared to $1.8
million in 1997. The primary reasons for the decrease have been discussed in the
preceding paragraphs.
1997 COMPARED TO 1996
AUTOMOTIVE revenues increased $ 29.0 million, or 13.2%, to $248.4 million,
compared to $219.4 in 1996. The increase was due in part to the acquisitions of
APX in February and Eagle-Picher in July 1997, which added two plants to the
automotive segment. These acquisitions added incremental sales in 1997 of
approximately $30.8 million. Sales at the Company's existing operations
decreased $1.8 million, due in part to changes in product mix; including the
build out of such programs as GM U-Van and C-4 Corvette (build out in 1996),
Mazda and Honda Accord bumpers, and Ford Aerostar liftgates (build out in 1997),
partially offset by full year volumes of C-5 Corvette and Jeep Wrangler, which
were launched in late 1996, and the GMX 170 and 130, launched in 1997. Lower
volumes on GM Suburban, M-Van and F-Car, Ford Taurus/Sable wagon load floors and
Aerostar, were offset in part by increases in volumes on GM W-Car,
Blazer/Bravada, Ford Mustang, and Volkswagen.
Operating income increased $4.9 million, or 19.5%, to $30.3 million (12.2%
of sales), compared to $25.3 million (11.5% of sales) in 1996. The automotive
acquisitions above added operating income of $4.7 million (15.4% of sales).
Operating income at the Company's existing operations increased as a percent of
sales from 11.5% in 1996 to 11.7% in 1997. The change in operating income
resulted primarily from certain changes in the segment's product mix, including
the build out of high margin programs such as GM U-Van and C-4 Corvette (build
out in 1996), Mazda and Honda Accord bumpers, and Ford Aerostar liftgates (build
out in 1997). Lower volumes on the Taurus/Sable wagon load floors, the F-Car, M-
Van, Suburban, along with costs associated with realignment of products among
the Company's divisions and increases in allocated corporate expenses relating
to sales and program management negatively impacted operating income. Higher
volumes on such programs as GM Corvette C-5, Jeep Wrangler, Blazer/Bravada, W-
Car, Ford Mustang, and operational improvements at various facilities, offset
the negative impact of the items above.
EBITDA increased $5.5 million, or 14.8%, to $42.6 million, compared to
$37.1 million in 1996. The significant factors that explain the increase have
been discussed in the preceding paragraphs.
COMMERCIAL TRUCK revenues increased $37.0 million, or 29.3%, to $163.6
million in 1997, compared to $126.6 million in 1996. The increase in sales was
primarily the result of the acquisitions of Goodyear-Jackson and Eagle-Picher in
July 1997, which added two plants to the Commercial Truck segment. These
acquisitions added incremental sales in 1997 of approximately $39.5 million.
Sales at the Company's existing facilities decreased $2.5 million due to the
build out of the Ford L Series truck, offset in part by the increased volumes
for Kenworth, Freightliner, Volvo, and service parts.
Operating income increased $1.4 million, or 12.7%, to $12.8 million (7.8%
of sales), compared to $11.4 million (9.0% of sales) in 1996. The Commercial
Truck acquisitions above added operating income of $7.2 million (18.2% of
sales), while operating income decreased $3.1 million, or 24.5%, to $9.7 million
(4.8% of sales), compared to $12.8 million (7.8% of sales) in 1997. Operating
income for the acquisitions above decreased as a percent of sales from 18.1% in
1997 to 3.1% in 1998. This decrease was due in part to the impact of plant
consolidations, unrealized plant synergies after the Livingston acquisition, and
low volumes due to a delayed launch of the Ford H215 program. Operating income
at the Company's existing operations, before allocation of corporate expenses,
increased as a percent of sales from 6.5% in 1997 to 8.2% in 1998. Allocated
expenses increased $1.1 million due to investments in sales support and program
management.
25
<PAGE>
EBITDA increased $2.5 million, or 12.0%, to $23.4 million, compared to
$20.9 million in 1996. The primary reasons that support the increase have been
discussed in the preceding paragraphs.
INDUSTRIAL AND NON-AUTOMOTIVE revenues increased $14.0 million due to the
acquisitions of Eagle-Picher in July 1997, which added one plant to the
Industrial segment, and Owens-Corning Brazil in September 1997.
As a result of the acquisitions above, operating income increased $1.5
million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs historically have been for operating
expenses, working capital and capital expenditures. Acquisitions have been
financed through debt facilities collateralized by the Company's assets and cash
flows. Management expects future cash will be required for capital expenditures
and to fund working capital as the Company continues to expand its operations.
Management expects capital expenditures to be approximately $25.4 million in
1999.
Upon consummation of the Offering, the Company's previous credit agreement was
replaced by a new 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 mature on the fifth and eighth
anniversary of the initial borrowing, respectively, and will require annual
principal payments (payable in quarterly installments) totaling approximately
$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 matures 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.
In September 1998, the Company entered into a Second Waiver and Amendment and
in January 1999 the Company entered into a Third Waiver and Amendment pursuant
to which certain restrictive covenants contained in the credit agreement were
waived and amended. On February 23, 1999, the Company entered into a Fourth
Waiver and Amendment to the credit agreement (together with the Second, Third,
and Fourth Waivers and Amendments, the "Credit Agreement") with the Agent and
other institutions, which is effective as of December 31, 1998 through and
including March 31, 2000, whereby the aggregate outstanding principal amount of
the revolving credit facility shall not at any time exceed $65 million, and
shall not exceed $50 million on the last day of any month. In addition, certain
restrictive covenants were waived and amended. Letters of Credit outstanding
under the Credit Agreement are limited to $5.3 million.
The amended Credit Agreement eliminated covenant requirements at December 31,
1998, and amended the covenants for periods through March 31, 2000.
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 provided by operating activities for 1998 was $19.6 million,
comprising net loss of $18.4 million with non-cash items such as depreciation
and amortization of $28.0 million, a charge of $2.8 million to income for
postretirement benefits and a deferred income tax benefit of $2.9 million.
Changes in working capital components generated $10.0 million, primarily as a
result of timing of collections on trade accounts receivable, and the payment of
trade payables and accrued liabilities.
The Company repaid $9.1 million of long-term debt obligations in fiscal 1998
under the Company's Credit Agreement.
26
<PAGE>
Net cash provided by operating activities for 1997 was $15.8 million,
comprising net loss before extraordinary item for 1997 of $0.4 million with non-
cash adjustments of $23.2 million. The non-cash items consisted of depreciation
and amortization of $24.1 million, a non-cash charge to income for
postretirement benefits of $2.2 million and deferred income tax benefit of $3.1
million. Changes in working capital components used $6.9 million, primarily as
a result of timing of collections on trade accounts receivable, including billed
reimbursable tooling.
Net cash used in operating activities was $4.2 million for 1996 resulting from
net income of $1.1 million, offset by non-cash expense of $24.5 million and a
negative change in working capital of $29.8 million. The negative cash flow
from working capital is the result of timing of collections on customer tooling
and other trade receivables, and timing of cash disbursements.
The Company had capital expenditures of approximately $21.9 million in 1998,
in comparison to approximately $17.5 million in 1997. Expenditures in 1998
relate primarily to the GM step assist, Ford 4.6L Cam Cover, Volvo L-5 program,
Ford PN96, Kenworth T603/T2000, Ford Ranger, Sterling H80, Case and MIS
installations. Cash used for acquisitions of $0.3 million in 1998 relates to
Livingston Molded Products; acquisitions of $72.4 million in 1997 relates to
Goodyear-Jackson, Eagle-Picher, APX and Owens Corning-Brazil.
QUARTERLY FINANCIAL DATA
The following table sets forth a summary of the quarterly results of
operations for the years ended December 31, 1998 and 1997 (dollars in
thousands).
<TABLE>
<CAPTION>
1998
Three Months Ended
-------------------
March 31 June 30 September 30 December 31
----------------- ----------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Net sales $121,141 $119,719 $112,097 $134,227
Gross profit 11,983 15,664 9,407 17,410
Net income (loss) (3,312) (551) (4,532) (9,961)
</TABLE>
<TABLE>
<CAPTION>
1997
Three Months Ended
------------------
March 31 June 30 September 30 December 31
---------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C>
Net sales $89,793 $96,838 $109,765 $129,698
Gross profit 12,165 14,840 14,284 17,768
Net income (loss) 230 1,305 (10,451) (1,299)
</TABLE>
During the fourth quarter of 1998, the Company recorded significant
adjustments that impacted reported results for the first three quarters. These
adjustments corrected the treatment of amounts applied against purchase
accounting reserves and charged them against operating expenses. The effect of
these adjustments was to reduce gross profit by $1.3 million, $.2 million and
$1.2 million and increase net loss by $1.2 million, $.1 million and $.7 million
for the quarters ending March 31, June 30 and September 30, respectively. The
data above for 1998 reflect the impact of those adjustments.
YEAR 2000 COMPLIANCE
The "Year 2000" problem relates to computer systems that have time and date-
sensitive programs that were designed to read years beginning with "19", but may
not properly recognize the year 2000. If a computer system or software
application used by the Company or a third party dealing with the Company fails
because of the inability of the system or application to properly read the year
"2000," the results could conceivably have a material adverse effect on the
Company.
As a key supplier to the transportation industry, the Company's major exposure
for Year 2000 problems is the effect of shutting down production at one of its
customer's factories. While lost revenues from such an event are a concern for
the Company, the greater risks are the consequential damages for which the
Company could be liable if it in fact is found responsible for the shutdown of
one of its customer's facilities. Such a finding could have a material adverse
impact on the Company's results of operations.
The most likely way in which the Company would shut down production at a
customer's facility is by being unable to supply parts to that customer. The
parts supplied by the Company, in most instances, are integral components of the
end products produced by the customer, and the inability to provide them may
render the customer unable to manufacture and sell its products. Breakdowns in
any number of the Company's computer systems and applications could prevent the
27
<PAGE>
Company from being able to manufacture and ship its products. Examples are
failures in the Company's manufacturing application software, barcoding systems,
computer chips embedded in plant floor equipment, lack of supply of materials
from its suppliers, or lack of power, heat or water from utilities servicing its
facilities. The Company's products do not contain computer devices that require
remediation to meet Year 2000 requirements. A review of the Company's status
with respect to remediating its computer systems for Year 2000 compliance is
presented below.
The Company utilizes an IBM AS400 based computer system for its financial and
manufacturing reporting systems. In addition to this centralized processing
system, the company is installing local-area networks ("LANs") and wide-area
networks ("WANs"). The Company has substantially completed the remediation of
all AS400 software to ensure compliance with Y2K requirements. Testing of these
changes will be completed by July 31, 1999. To date, the Company has incurred
$0.6 million related to software upgrades and hardware replacement. The Company
estimates that additional costs of approximately $0.8 million will be incurred
during 1999. All of the expenditures related to the year 2000 remediation have
been funded through normal operating cash flows. The operating system on the
AS400 has been upgraded to the latest version that IBM guarantees to be Year
2000 compliant.
Personal computers and network systems are also in the process of being
upgraded to Windows NT. This process has required the replacement of more than
ninety percent of all current personal computers and file servers. The
replacement is scheduled to be finished by late August or September of 1999.
All applications being processed on personal computers are non-mission critical.
The only area that can leave some area for concern is what is called end-user
computing. End user computing is the processing of data in spreadsheets and
personal data bases that a particular user may have set up. Since the
Information Group does not build any of these spreadsheets or data bases, we
have left the correction of any date-related calculations to the end users.
Although there can be no assurance that the Company will identify and correct
every Year 2000 problem found in the computer applications used in its
production processes, the Company believes that it has in place a comprehensive
program to identify and correct any such problems, and expects to have
substantially completed the remediation of its production systems by the end of
calendar year 1999.
The Company is also reviewing its building and utility systems (heat, light,
phones, etc.) for the impact of Year 2000. Many of the systems in this area are
Year 2000 ready. While the Company is working diligently with all of its
utility suppliers and has no reason to expect that they will not meet their
required Year 2000 compliance targets, there can be no assurance that these
suppliers will in fact meet the Company's requirements. The failure of any such
supplier to fully remediate its systems for Year 2000 compliance could cause a
shutdown of one or more of the Company's plants, which could impact the
Company's ability to meet its obligations to supply products to its customers.
The Company has also commenced a program to assess the Year 2000 compliance
efforts of its equipment and material suppliers. The Company has sent
comprehensive questionnaires to all of its significant suppliers regarding their
Year 2000 compliance and is attempting to identify any problem areas with
respect to them. This program will be ongoing and the Company's efforts with
respect to specific problems identified will depend in part upon its assessment
of the risk that any such problems may cause the shutdown of a customer's plant
or other problem which the Company believes would have a material adverse impact
on its operations. Because the Company cannot control the conduct of its
suppliers, and there can be no guarantee that Year 2000 problems originating
with a supplier will not occur. The Company has not yet developed contingency
plans in the event of a Year 2000 failure caused by a supplier or third party,
but intends to do so if a specific problem is identified through the program
described above. In some cases, especially with respect to its utility vendors,
alternative suppliers may not be available.
As a Tier 1 supplier in the auto industry, the Company takes an active role in
many industry-sponsored organizations, including the Automotive Industry Action
Group ("AIAG"). The AIAG has been proactive in working with OEM's and Tier 1, 2
and 3 suppliers to ensure that the industry as a whole addresses the Year 2000
problem. Tools to assist in achieving compliance include standardized
questionnaires, regular meetings of members, follow-up by AIAG personnel
regarding answers to questionnaires, etc. The Company continues to work with
such industry groups to ensure compliance.
28
<PAGE>
The information presented above sets forth the key steps taken by the Company
to address the Year 2000 problem. There can be no absolute assurance that third
parties will convert their systems in a timely manner and in a way that is
compatible with the Company's systems. While the Company believes that its
actions with suppliers will minimize these risks, there can be no assurance that
the cost of Year 2000 compliance for its information and production systems will
not be material to its consolidated results of operations and financial
position.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities," effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. SFAS 133 requires that all derivatives be
recognized as either assets or liabilities in the statement of financial
position and be measured at fair value. Management intends to adopt SFAS 133 at
the beginning of fiscal year 2000. Management anticipates that the adoption
will not have a significant impact on its financial statements.
CERTAIN IMPORTANT FACTORS
All forward-looking statements contained in this Annual Report reflect the
Company's current views with respect to future events and financial performance,
but are subject to many uncertainties and factors relating to the Company's
operations and business environment, specifically including but not limited to
the following important factors, all of which may cause the actual results of
the Company to be materially different from any future results expressed or
implied by such forward-looking statements.
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 it operating results. See "Business--
Automotive 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 places 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--Automotive 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 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
29
<PAGE>
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, 1998, approximately 21.9% of the Company's
sales were to General Motors, approximately 25.9% of the Company's sales were to
Ford and approximately 10% of the Company's sales were to DaimlerChrysler. 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's 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. A 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 DaimlerChrysler 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, increase quality control and, in some cases, 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.
INTEGRATION OF ACQUISITIONS
The Company has successfully integrated a number of significant operations in
the past several years and believes that it has developed and initiated
comprehensive plans to consummate integration of Eagle-Picher, Goodyear-Jackson,
Owens-Corning Brazil and Livingston. Successful integration requires realization
of cost savings through consolidation of SG&A functions, optimization of
manufacturing processes, reduction of materials' cost through consolidated
purchasing and other identified strategies. The realization of these cost
savings, in some instances, requires cooperation of customers, suppliers and
employees of the Company and no assurance can be given that the integration of
Eagle-Picher, Goodyear-Jackson, Owens-Corning Brazil, Livingston or future
acquisitions will be successful or that their anticipated strategic benefits
will be realized. If the Company is unable to successfully integrate these or
future acquisitions, the Company's results from operations may be adversely
affected. See "Business--The Eagle-Picher Acquisition" and "--The Goodyear-
Jackson Acquisition."
30
<PAGE>
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Page
------
Index to Financial Statements
<S> <C>
Financial Statements:
Report of Independent Accountants................................................................ F-1
Independent Auditor's Report..................................................................... F-2
Consolidated Balance Sheets at December 31, 1998 and 1997........................................ F-3
Consolidated Statements of Operations for each of three years in the period ended December 31,
1998........................................................................................... F-4
Consolidated Statements of Cash Flows for each of the three years in the period ended December
31, 1998....................................................................................... F-5
Consolidated Statements of Changes in Stockholder's Deficit for each of three years in the period
ended December 31, 1998........................................................................ F-6
Notes to Consolidated Financial Statements........................................................ F-7
Financial Statement Schedule:
Report of Independent Accountants on Financial Statement Schedule.................................. F-35
Independent Auditor's Report on Financial Statement Schedule....................................... F-36
Schedule II--Valuation and Qualifying Accounts for each of the three years in the period ended
December 31, 1998................................................................................ F-37
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
PREVIOUS INDEPENDENT ACCOUNTANTS
On October 16, 1997, the Company dismissed Deloitte & Touche LLP as its
independent accountants. The report of Deloitte & Touche LLP on the Company's
financial statements for the year ended December 31, 1996 contained no adverse
opinion or disclaimer of opinion and was 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 audit for the year ended December 31, 1996
and through October 16, 1997, there were 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 year ended December 31, 1996 and through October 16, 1997, there
were no reportable events (as defined in Regulations S-K Item 304(a)(l)(v)).
NEW INDEPENDENT ACCOUNTANTS
The Company engaged PricewaterhouseCoopers LLP as its new independent
accountants as of October 17, 1997. During the most recent fiscal year prior to
and through October 17, 1997, the Company has not consulted with
PricewaterhouseCoopers 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 PricewaterhouseCoopers 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.
31
<PAGE>
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages as of March 1, 1999 and a brief account of
the business experience of each person who is a director, executive officer or
other significant employee of the Company or Holdings.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- ----- ---------------------------------------------------------
<S> <C> <C>
Richard S. Crawford....... 52 Chairman of the Board and Chief Executive Officer
Kevin J. Alder............ 41 Chief Operating Officer and President
John M. Colaianne......... 42 Chief Financial Officer and Secretary
Jon W. Anderson........... 40 Corporate Controller and Treasurer
Thomas N. Paisley......... 48 President--Automotive and Light Truck Segment
Robert Ostendorf.......... 48 President--Commercial Truck Segment
Patrick Pavelka........... 47 President--Industrial and Non-Automotive Products Segment
Bal Dubay................. 53 Executive Vice President--R&D-Technical Services
Alan M. Swiech............ 40 Vice President--Human Resources
Ira J. Jaffe.............. 59 Director
Robert C. Gay............. 47 Director
Edward W. Conard.......... 42 Director
Ronald P. Mika............ 38 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 Chief
Executive Officer and 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, was appointed Executive
Vice President Business Development in December 1996, and in April 1997 was
appointed Chief Financial Officer. Mr. Colaianne has 18 years financial
experience with 12 years automotive related and 6 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.
JON W. ANDERSON joined the Company in October 1998. From 1994 until joining
the Company, Mr. Anderson was Vice President - Chief Financial Officer and
Corporate Controller and Assistant Treasurer at MSP Industries Corporation.
Prior to that he was Manager of Corporate Accounting & Financial Reporting at
Guardian Industries, Director of Accounting at Fruehauf Corporation and an
auditor with Touche Ross & Company for seven years.
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.
32
<PAGE>
ROBERT OSTENDORF joined the Company in November 1998 as the President of
Commercial Truck Group. He was previously President of American Sunroof
Company, and prior to that he was the President and CEO of VMC Fiberglass
Products in Daleville, Alabama. Mr. Ostendorf has led numerous successful
turnarounds and developed new businesses.
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.
BAL DUBAY joined the Company in November 1998 as Executive Vice President
Technology Development. He was previously the Manager Materials Engineering at
Toyota. Prior to Toyota, he was Marketing Manager at Akzo Coatings where he was
responsible for automotive OEM market development and introduction of
strategically focused products.
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.
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
Directors currently receive no directors' compensation.
ITEM 11--EXECUTIVE COMPENSATION
The following information is set forth concerning the compensation for Mr.
Crawford, the Company's Chief Executive Officer and the four other most highly
compensated executive officers in each year presented.
33
<PAGE>
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
Compensation
Other
Name and Fiscal Annual Stock
Principal Position Year Salary Bonus Compensation Related(3)
<S> <C> <C> <C> <C> <C>
Richard S. Crawford 1998 $475,000 $500,000 $ 765
Director, CEO 1997 475,000 370,833 765 $10,267
1996 462,500 - 2,321
Kevin J Alder 1998 275,000 190,000 19,050
COO, President(4) 1997 275,000 148,582 7,624 7,025
1996 62,893 50,000 1,667
Thomas N. Paisley 1998 200,000 75,000 14,060
President-Automotive Products 1997 200,000 44,585 8,820 18,020
1996 199,701 15,000 66,851
Patrick Pavelka 1998 175,000 75,000 10,080
President-Industrial Products 1997 175,000 54,585 8,325 8,325
1996 175,000 25,000 10,483
John M. Colaianne 1998 180,000 75,000 13,160
CFO 1997 151,458 84,585 7,403 16,208
1996
Richard E. Warnick 1998
COO(1) 1997 218,750 - - 9,500
1996 250,000 - 5,287
Donald Holton 1998
Director, President(2) 1997 475,000 - -
1996
</TABLE>
(1) 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 (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 received an annual
salary of $218,750 in 1997.
(2) 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
approximately $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 $42,000; (iv) continuation of Mr. Holton's non-solicitation
agreement until no later than December 31, 1998; and (v) Mr. Holton's
agreement not to sue Holdings and the Company. There can be no assurance
that an agreement with Mr. Holton will be concluded or that if concluded,
it will include these terms.
(3) As of December 1, 1997, certain key employees purchased shares of Holdings
Class A Common Stock and shares of Holdings Class L Common Stock and
certain key employees and were issued options to purchase Holdings Class A
Common Stock. The Company believes all stock purchased by such key
employees during 1997 was purchased at fair
34
<PAGE>
market value. The Company also believes that the options for Holdings Class
A Common Stock are exercisable at fair market value as of the date of grant
and that current values of shares subject to options are at or below
exercise prices. See "Stock Option Grants in Last Fiscal Year" table,
"Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR
Values" table and "Business--Stock Purchase and Stock Option Agreements"
below.
(4) Reflects Mr. Alder's 1996 cash compensation from November 1996, the date he
joined the Company.
AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES*
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES ACQUIRED VALUE REALIZED OPTIONS AT FY-END (#) OPTIONS AT FY-END ($)
Name ON EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------- --------------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Richard S. Crawford...... -0- -0- 7,922.54/7,922.54(1) -0-
Kevin J. Alder........... -0- -0- 1000/1500 -0-
Thomas N. Paisley........ -0- -0- 270/180 -0-
Patrick Pavelka.......... -0- -0- 270/180 -0-
John M. Colaianne........ -0- -0- 180/270 -0-
Richard Warnick.......... -0- -0- -0- -0-
Donald Holton............ -0- -0- -0- -0-
</TABLE>
* Table summarizes Holdings options.
(1) Consists of 3,961.27 at $312.13/sh, and 3,961.27 at $642.13/sh.
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 Company's
acquisition of GenCorp RPD. A December 31, 1997 amendment to Mr. Crawford's
employment agreement provides that at the closing of each acquisition of an
additional business the Company will pay Mr. Crawford a fee in the amount of
three quarters of one percent (0.75%). 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
The Company has outstanding Stock Purchase and Stock Option Agreements with 10
of its key employees. Pursuant to those agreements, each such employee purchased
shares of Holdings' Class A Common Stock and Holdings' Class L Common Stock (the
"Purchased Shares"), at a per share price of $3.30 and $1,306.80,
respectively, and some Holdings' employees were granted options (the
"Options") to purchase additional shares of Holdings' Class A Common Stock
(the "Option Shares", and together with the Purchased Shares, the "Shares").
The consideration for the Purchased Shares was 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 were secured by a pledge of the
Purchased Shares.
So long as the employee remains employed by the Company, the Purchased Shares
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 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.
35
<PAGE>
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 $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, Holdings 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. Holdings must
exercise the repurchase right within one year following termination of the
employee's employment, unless Holdings is legally or contractually prohibited
from exercising such right during such period, in which case Holdings shall be
entitled to defer such purchase until all such restrictions have been removed.
Two employee stockholders, Terrence Werrell and Peter C. Herrmann, have left
the employment of the Company. Pursuant to the terms of their respective Stock
Purchase and Stock Option Agreements, Holdings has repurchased their respective
shares of the Holdings' Common Stock for the original purchase price.
Each employee is subject to non-compete, non-solicitation and confidentiality
provisions which are set forth in the agreements.
The following employees, who are named in the preceding compensation tables,
purchased shares of Holdings' Class A Common Stock and Holdings' Class L Common
Stock and were granted options for Holdings' Class A Common Stock as follows:
<TABLE>
<CAPTION>
CLASS A CLASS L SHORT-TERM EMPLOYEE
NAME SHARES SHARES PURCHASE PRICE NOTE AMOUNT NOTE AMOUNT
- ----------------------- ------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Kevin J. Alder......... 757.58 189.39 $249,994.87 $124,997.44 $124,997.44
Thomas M. Paisley...... 303.03 75.76 100,003.17 50,001.59 50,001.58
Patrick T. Pavelka..... 303.03 75.76 100,003.17 50,001.59 50,001.58
John M. Colaianne...... 303.03 75.76 100,003.17 50,001.59 50,001.58
</TABLE>
CHANGE IN CONTROL SEVERANCE AGREEMENTS
The Company has severence agreements in favor of Kevin J. Alder, John M.
Colaianne, Thomas N. Paisley, Richard H. Frank, and Patrick T. Pavelka, 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.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The Company is a wholly owned subsidiary of Cambridge Industries Holdings,
Inc. ("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.
36
<PAGE>
The following tables set forth certain information as of December 31, 1998
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.
37
<PAGE>
<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 95.46% 15,333.32 56.14% --0-- 0% --0-- 0% 76,666.60 55.73%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Richard S. Crawford(3) ................ 7,922.54 10.98% 11,250.00 43.96% 45,000 100% 1,000 100% 65,172.54 45.33%
Cambridge Industries, Inc.
555 Horace Brown Drive
Madison Heights, MI 48071
Robert C. Gay(2) ...................... 61,333.28 95.46% 15,333.32 56.14% --0-- 0% --0-- 0% 76,666.60 55.73%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Edward Conard(2) ...................... 61,333.28 95.46% 15,333.32 56.14% --0-- 0% --0-- 0% 76,666.60 55.73%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Ronald P. Mika(2) ..................... 61,333.28 95.46% 15,333.32 56.14% --0-- 0% --0-- 0% 76,666.60 55.73%
c/o Bain Capital, Inc.
Two Copley Place
Boston, MA 02116
Kevin J. Alder ........................ 1,757.58 2.69% 189.39 .74% --0-- 0% --0-- 0% 1,946.97 1.42%
Thomas M. Paisley ..................... 573.03 .89% 75.76 .30% --0-- 0% --0-- 0% 648.79 .48%
Patrick T. Pavelka .................... 573.03 .89% 75.76 .30% --0-- 0% --0-- 0% 648.79 .48%
John M. Colaianne ..................... 483.03 .75% 75.76 .30% --0-- 0% --0-- 0% 558.79 .41%
All Directors and Executive Officers
as a Group
(12 persons)(1)(2) ................... 72,642.49 98.31% 26,999.99 98.86% 45,000 100% 1,000 100% 145,642.48 98.94%
</TABLE>
(1) Includes a total of 9,642.54 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
38
<PAGE>
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.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE 1995 TRANSACTION
In November 1995, Holdings was recapitalized (the "1995 Transaction"), the
terms of 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".
STOCKHOLDERS AGREEMENT AND REGISTRATION RIGHTS AGREEMENT
Pursuant to a stockholders agreement which was amended as of December 31,
1997 (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 two of Crawford
LLC's nominees to the Company's and Holdings' boards of directors. The
Stockholders Agreement and both the Company's and Holdings' By-Laws require that
four of the five Directors be present in person or by proxy to constitute a
quorum for voting purposes; the affirmative vote of four of the five Directors
is required to approve a proposal voted upon. 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, amended as of March 1,
1996, and further amended as of December 31, 1997, 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
three-quarters of one percent (.75%) of the transaction value of such
acquisition and (ii) an annual fee of $950,000 per year, plus out-of-pocket
expenses. Pursuant to the management services agreement, the Company paid Bain
fees of approximately $937,000 during 1996 and fees of $950,000 in 1997 and
1998. In addition, the Company paid Bain $3.8 million in connection with the
Offering, the Credit Agreement, the Eagle-Picher Acquisition and the Goodyear-
Jackson Acquisition.
39
<PAGE>
AIRCRAFT LEASE
Effective January 1, 1998, the Company and Mack, L.L.C., (now named Mack
Aviation, L.L.C.), a limited liability company owned by Mr. Crawford and his
wife and managed by Mr. Crawford, entered into an aircraft lease (the "Original
Aircraft Lease) pursuant to which the Company leased a Lear 35A aircraft from
Mr. Crawford. Terms of the Original Aircraft Lease included (i) monthly rent in
the amount of $28,823, (ii) a one-time preparation fee in the amount of
$250,000, and (iii) the obligation of the Company to bear all costs of
maintenance, repair, inspection, taxes and insurance (which was approximately
$16,000 per month). In connection with the execution of the Orignal Aircraft
Lease, the Company entered into a sublease of the Original Aircraft Lease (the
"Aircraft Sublease") with Mr. Crawford. The Aircraft Sublease provided, among
other things, that Mr. Crawford could hire and lease the aircraft from the
Company for a maximum of 30 hours each month at an hourly rate of $710. The
Company believes that the terms of both the Original Aircraft Lease and the
Aircraft Sublease reflected currently available market terms and rates for
similar aircraft.
As of March 27, 1998, Mack Aviation acquired a Westwind 2 aircraft, a larger
plane than the Lear 35A, which it currently leases to the Company in lieu of the
Lear 35A. The new lease, together with a services agreement (collectively, the
"Current Aircraft Lease"), both entered into by Mack Aviation, L.L.C. and the
Company as of January 1, 1999, provide that the Company will use the Westwind 2
aircraft a minimum of 200 hours per year at a cost of $1,950 per hour, which
includes the cost of the pilots, insurance, maintenance and taxes, but does not
include the costs of fuel, catering, landing fees or special needs. The Company
believes that the Current Aircraft Lease reflects currently available market
terms and rates for similar aircraft.
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 acquisition of GenCorp RPD, the APX
Acquisition, the Eagle-Picher Acquisition, the Goodyear Acquisition, the Owens-
Corning Brazil Acquisition and the Livingston Acquisition. The Company and
Holdings paid JRH&W legal fees of approximately $1.0 million and $1.9 million,
respectively, for the years ending December 31, 1998 and 1997.
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
40
<PAGE>
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 Company's acquisition of GenCorp RPD, 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.
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. In 1998,
the Baine MezFunds excercised the warrants for all 6,883.28 shares of Class A
Common for an approximate aggregate purchase price of $22,700.
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report.
1. Financial Statements referred to in Item 8.
2. Financial Statement Schedules referred to in Item 8.
3. The exhibits listed on the "Index to Exhibits" on pages I-1 and I-2
are filed with this Annual Report or incorporated by reference as set
forth below.
(b) The following reports on Form 8-K were filed during the quarter ended
December 31, 1998.
None.
(c) The exhibits listed on the "Index to Exhibits" on pages I-1 and I-2
are filed with this Annual Report or incorporated by reference as set
forth below.
(d) Additional Financial Statement Schedules.
None.
41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholder of Cambridge Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows, and of changes in
stockholder's deficit present fairly, in all material respects, the financial
position of Cambridge Industries, Inc. and its subsidiaries at December 31, 1998
and 1997, and the results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The consolidated financial statements of Cambridge Industries, Inc. and its
subsidiaries for the year ended December 31, 1996 were audited by other
independent accountants whose report dated March 28, 1997 expressed an
unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Bloomfield Hills, Michigan
March 12, 1999
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Cambridge Industries, Inc.
We have audited the accompanying consolidated statements of operations, of
cash flows and of changes in stockholder's deficit of Cambridge Industries, Inc.
and subsidiaries (the "Company") for the year 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 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.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of operations and cash flows of the
Company for the year ended December 31, 1996, in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Detroit, Michigan
March 28, 1997
F-2
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash....................................................................................$ 4,474 $ 3,788
Receivables ........................................................................... 80,516 82,117
Inventories ........................................................................... 25,625 25,111
Reimbursable tooling costs ............................................................ 22,914 16,913
Deferred income taxes and other ....................................................... 5,788 14,663
---------- -----------
Total current assets .............................................................. 139,317 142,592
Property, plant and equipment, net ..................................................... 193,338 196,650
Other assets............................................................................. 31,167 30,242
---------- -----------
Total assets ......................................................................$ 363,822 $ 369,484
========== ===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long-term debt .....................................................$ 17,272 $ 7,765
Accounts payable ...................................................................... 65,227 48,759
Accrued liabilities ................................................................... 30,140 37,691
---------- -----------
Total current liabilities ......................................................... 112,639 94,215
Noncurrent liabilities:
Long-term debt ......................................................................... 315,029 314,789
Workers' compensation .................................................................. - 1,251
Postretirement healthcare benefits .................................................... 23,431 20,669
Other noncurrent liabilities .......................................................... 3,545 3,365
Deferred income taxes ................................................................. - 7,689
---------- -----------
Total liabilities ................................................................. 454,644 441,978
---------- -----------
Commitments and contingencies (Note 16) - -
Stockholder's deficit:
Common stock, $.01 par value, 3,000 shares authorized, 1,000 shares issued and
outstanding ..........................................................................
Paid-in capital ....................................................................... 17,808 17,539
Accumulated other comprehensive income.................................................. (466) (225)
Accumulated deficit ................................................................... (108,164) (89,808)
---------- -----------
Total stockholder's deficit ....................................................... (90,822) (72,494)
---------- -----------
Total liabilities and stockholder's deficit .......................................$ 363,822 $ 369,484
========== ===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ------------- -----------
<S> <C> <C> <C>
Net sales.................................................................... $487,184 $426,094 $346,026
Cost of sales .............................................................. 432,720 367,037 294,742
-------- -------- --------
Gross profit ............................................................... 54,464 59,057 51,284
Selling, general and administrative expenses ............................... 40,776 31,742 26,240
-------- -------- --------
Income from operations ..................................................... 13,688 27,315 25,044
Other expense (income):
Interest expense ...................................................... 31,974 28,036 23,190
Other, net ............................................................ (555) (56) 180
-------- -------- --------
Income (loss) before income tax and extraordinary item ..................... (17,731) (665) 1,674
Income tax expense (benefit) ............................................... 625 (238) 565
-------- -------- --------
Income (loss) before extraordinary item .................................... (18,356) (427) 1,109
Extraordinary loss, net of income tax benefit of $5,465...................... - 9,788 -
-------- -------- --------
Net income (loss) .......................................................... $(18,356) $(10,215) $ 1,109
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Income (loss) before extraordinary item................................... $(18,356) $ (427) $ 1,109
Adjustments to reconcile income (loss) before extraordinary item to net
cash provided by (used in) operating activities:
Depreciation and amortization........................................... 28,032 24,082 21,319
Postretirement benefit expenses, net of cash payments................... 2,762 2,229 2,211
Deferred income tax provision (benefit)................................. (2,859) (3,148) 1,015
Net changes in assets and liabilities, excluding the effect of
acquisitions:
Receivables......................................................... 2,357 (23,723) (16,950)
Inventories......................................................... (186) 2,351 (1,744)
Reimbursable tooling costs.......................................... (4,885) 7,297 2,710
Accounts payable and accrued liabilities............................ 9,041 11,192 (12,121)
Other............................................................... 3,714 (4,046) (1,699)
-------- --------- --------
Net cash provided by (used in) operating activities............. 19,620 15,807 (4,150)
-------- --------- --------
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired........................................ (340) (72,434) (18,160)
Purchases of property, plant and equipment................................ (21,940) (17,509) (9,630)
-------- --------- --------
Net cash used in investing activities........................... (22,280) (89,943) (27,790)
-------- --------- --------
Cash Flows from Financing Activities:
Net borrowings from revolving debt........................................ 12,500 11,500 13,000
Repayment of long-term debt............................................... (9,069) (233,712) (48,363)
Principal payments on capital lease obligations........................... (227) (244)
Proceeds from issuance of long-term debt.................................. - 305,000 73,178
Cost of debt and equity financing......................................... - (16,424) (2,907)
Contribution from stockholder............................................ 269 - 275
-------- --------- --------
Net cash provided by financing activities....................... 3,473 66,120 35,183
-------- --------- --------
Effect of foreign currency rate fluctuations on cash........................ (127) (138) 37
-------- --------- --------
Increase (decrease) in cash................................................. 686 (8,154) 3,280
Cash at beginning of the year............................................... 3,788 11,942 8,662
-------- --------- --------
Cash at end of the year..................................................... $ 4,474 $ 3,788 $ 11,942
======== ========= ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CAMBRIDGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S DEFICIT
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE COMMON STOCK PAID-IN COMPREHENSIVE ACCUMULATED
INCOME (LOSS) $0.01 PAR VALUE CAPITAL INCOME DEFICIT TOTAL
------------ --------------- ------- ------------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1995............. $ - $ 17,264 $ (401) $ (80,702) $(63,839)
Contribution by
stockholder relating to
issuance of warrants......... 275 275
Net income................... $ 1,109 1,109 1,109
Foreign currency
translation adjustment,
net of tax of $19............ 37 37 37
Minimum pension
liability adjustment,
net of tax of $141........... 277 277 277
--------
Comprehensive income......... $ 1,423
======== _________ ________ ________ __________ ________
December 31, 1996............. - 17,539 (87) (79,593) (62,141)
Net loss..................... $(10,215) (10,215) (10,215)
Foreign currency
translation adjustment,
net of tax of $77........... (138) (138) (138)
Comprehensive
income (loss)................. $(10,353)
======== _________ ________ ________ __________ ________
December 31, 1997............. - 17,539 (225) (89,808) (72,494)
Capital contribution......... 269 269
Net loss..................... $(18,356) (18,356) (18,356)
Foreign currency
translation adjustment,
net of tax of $57............ (93) (93) (93)
Minimum pension
liability adjustment,
net of tax of $91............ (148) (148) (148)
--------
Comprehensive
income (loss)............... $(18,597)
======== _________ ________ ________ __________ ________
December 31, 1998............. $ - $17,808 $ (466) $ (108,164) $(90,822)
========= ======== ======== ========== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Cambridge Industries, Inc. and its subsidiaries (collectively, 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, Canada and Brazil. The Company is
wholly-owned by Cambridge Industries Holdings, Inc. (Holdings), which has no
significant assets other than its investment in the Company.
CONSOLIDATION
The accompanying consolidated financial statements include the accounts and
balances of the Company and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include bank deposits and short-term, highly-liquid
investments with original maturities of 90 days or less when purchased.
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's foreign subsidiaries have been
translated in accordance with Statement of Financial Accounting Standards (SFAS)
No. 52. Current rates of exchange are used to translate the balance sheets of
these entities, while the average exchange rate of each fiscal year is used for
the translation of income and expense accounts. The resulting unrealized gains
and losses are recorded as a component of other comprehensive income.
REVENUE AND ACCOUNTS RECEIVABLE
Sales, net of estimated returns and allowances, and costs of sales are
recorded upon shipment of product to customers and transfer of title under
standard commercial terms.
All of the Company's accounts receivable are due from a limited number of
customers in the automotive and truck manufacturing industry. Consistent with
industry practice, such receivables are not collateralized.
CONCENTRATION OF CREDIT RISK
The Company manufactures plastic components and composite systems for the
North American transportation industry. Financial instruments which potentially
subject the Company to concentrations of credit risk are primarily accounts
receivable. The Company performs ongoing credit evaluations of its customers'
financial condition and limits the amount of credit extended when deemed
necessary but generally requires no collateral. The allowance for uncollectible
accounts receivable is based on the expected collectibility of all accounts
receivable.
INVENTORIES
Inventories are stated at the lower of cost or market, as determined under the
first-in, first-out method.
F-7
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998 1997 AND 1996
(dollars in thousands, except per share data)
REIMBURSABLE TOOLING COSTS
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 estimated aggregate costs exceed amounts considered
collectible. Excess reimbursements on tooling projects are recognized as income
when the tooling project is substantially complete.
PROPERTY AND EQUIPMENT
Property, plant and equipment 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:
Leasehold improvements 5-13 years
Buildings 5-40 years
Machinery and equipment 3-11 years
Company-owned tooling 3-5 years
Furniture and fixtures 2-11 years
Significant renewals and betterments are capitalized, while maintenance and
repair expenditures are charged against operations as incurred.
GOODWILL
The Company recognizes goodwill on purchase business combinations for the
amount by which the purchase price exceeds the fair value of the assets acquired
and liabilities assumed. Goodwill is amortized on a straight-line basis over 15-
25 years.
INVESTMENTS
The Company's investment in Dos Manos Technologies, a 48% owned joint-venture
in the United States, is accounted for under the equity method. The Company's
investment was $48 at December 31, 1998, and is included in Other Assets in the
accompanying Consolidated Balance Sheets. The Company's share of Dos Manos'
operating loss was $150 in 1998.
IMPAIRMENT OF ASSETS
Property, plant, 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 as the amount by which the carrying amount of the asset exceeds its
fair value. As of December 31, 1998 and 1997, no significant impairment exists.
F-8
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(dollars in thousands, except per share data)
ACCRUED COMMITMENTS UNDER LOSS CONTRACTS
Accrued commitments under loss contracts are recorded based on management's
estimate of the future profitability of sales 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 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
The Company was self-insured for workers' compensation claims for periods
ending before April 1, 1998. The Company recorded as workers' compensation
expense the estimated cost, not reimbursable under insurance contracts, of
settling such claims. Accruals for workers' compensation claims for which the
Company was self-insured were estimated from historical claims experience using
computations of the estimated ultimate settlement cost, including claims
incurred but not reported. During the fourth quarter of 1998, the Company
entered into a contract to fully insure all workers' compensation claims
incurred in periods prior to April 1, 1998. For all periods subsequent to March
31, 1998, the Company utilizes third party insurance for workers' compensation
claims.
INCOME TAXES
The Company provides deferred taxes on temporary differences between the book
and tax bases of assets and liabilities. The Company assesses the realizability
of deferred tax assets and records a valuation allowance when realization of
deferred tax assets is not considered more likely than not. Income tax expense
includes United States, foreign and state income taxes, exclusive of taxes on
the undistributed income of foreign subsidiaries where it is the intention of
the Company to have those subsidiaries reinvest the income locally.
FINANCIAL INSTRUMENTS
The Company carries its financial instruments, which include accounts
receivable, accounts payable, indebtedness and an interest rate swap agreement,
at cost which approximates fair value, except for certain indebtedness and the
interest rate swap. The estimated loss on the interest rate swap approximated
$464 at December 31, 1998. The fair value of the interest rate swap represents
the present value of the difference between the estimated future fixed-rate
payments and future variable-rate receipts. The estimated fair value of the
Company's senior subordinated notes at December 31, 1998 approximated $80,000
and is based on quoted market prices.
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. The Company's accruals for environmental claims
were not significant at December 31, 1998 and 1997.
F-9
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(dollars in thousands, except per share data)
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation expense using the intrinsic
value method of APB No. 25, "Accounting for Stock Issued to Employees." The
Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting
for Stock-Based Compensation," which defines a fair value method of accounting
for stock options and other equity instruments. In determining the fair value of
stock options issued, the Company uses a risk-free rate, which approximates the
rate on U.S. Treasury obligations with similar duration, and expected lives
based on the provisions of the option agreements. As Holdings' stock currently
does not include a dividend, dividend payments are not included in fair value
determinations.
CAPITALIZED SOFTWARE COSTS
The Company capitalizes costs associated with the development and
implementation of software obtained or developed for internal use. Capitalized
costs include internal payroll and payroll-related costs for employees who are
directly associated with implementation programs and related external costs.
Upon project completion, capitalized costs are amortized over a three-year
useful life.
BUSINESS PROCESS REENGINEERING COSTS
In November 1997, the Company changed its accounting for business process
reengineering costs, as required by the consensus of the Emerging Issues Task
Force on issue 97-13. During 1997, the Company recorded a pre-tax charge of $483
to write-off previously capitalized reengineering costs to recognize the
cumulative effect of this change in accounting principle. The Company has
included this charge in selling, general and administrative expenses.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
SUPPLEMENTAL CASH FLOW DISCLOSURES
Income taxes paid totaled $280, $1,340, and $1,032 in 1998, 1997 and 1996,
respectively; interest payments totaled $33,419, $20,113, and $20,828 in these
periods, respectively.
In 1996, the Company issued notes payable of $13,700 in connection with its
purchase of GenCorp RPD (as defined). In 1997, the Company entered into a
capital lease covering certain computer equipment and assumed capital lease
obligations in conjunction with an acquisition; these obligations totaled $898.
The Company also issued a note payable of $5,400 to the sellers in connection
with its purchase of OC-Brazil (as defined). In 1998, the Company issued notes
payable of $3,643 to insurance companies to fully insure all workers'
compensation claims incurred in periods before April 1, 1998. The Company also
issued a note payable of $1,550 to the seller in connection with its purchase of
Livingston, Inc.
F-10
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998 1997 AND 1996
(dollars in thousands, except per share data)
RECLASSIFICATIONS
Certain prior-year amounts have been reclassified to conform to 1998
presentation in the consolidated financial statements.
2. NEW ACCOUNTING STANDARDS ADOPTED
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income," effective for fiscal years beginning after December 15, 1997. SFAS 130
establishes standards for the reporting and display in the financial statements
of total net income and the components of all other non-owner changes in equity,
referred to as comprehensive income.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information," effective for fiscal years beginning
after December 15, 1997. SFAS 131 requires disclosure of business and
geographic segments, based on the "Management Approach", in the consolidated
financial statements of the Company. Restatement of comparative information for
earlier periods presented is required in the initital year of application.
Interim information is not required until the second year of application.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 (SFAS 132), "Employers' Disclosure
about Pensions and Other Postretirement Benefits," effective for fiscal years
beginning after December 15, 1997. SFAS 132 standardizes the disclosure
requirements for pensions and other postretirement benefits, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis and eliminates certain disclosures.
3. ACQUISITIONS
Effective January 1, 1998, the Company acquired substantially all of the
operating assets of Livingston, Inc. (Livingston) for $2,150 and the assumption
of certain debt of $1,554. The Company accounted for this acquisition under the
purchase method. The Company's operating results include Livingston from
January 1, 1998. The acquired assets and operating results of Livingston are
not material to the accompanying consolidated financial statements.
Effective July 1, 1997, the Company acquired certain net assets of the
engineered composite business (Goodyear-Jackson) of The Goodyear Tire & Rubber
Company, and certain net assets of the plastics division (Eagle-Picher) of
Eagle-Picher Industries, Inc., for $38,219 and $32,035, respectively, including
acquisition costs. 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.
F-11
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998 1997 AND 1996
(dollars in thousands, except per share data)
A summary of the Company's purchase price allocation for the Goodyear-Jackson
and Eagle-Picher acquisitions follows:
Goodyear-Jackson Eagle-Picher
----------------- -------------
Receivables................................ $ 41 $ 9,027
Inventories................................ 1,796 4,328
Reimbursable tooling costs (advances)...... 8,131 (421)
Deferred income taxes and other assets..... 2,115 5,026
Property, plant and equipment.............. 26,520 33,634
Other assets............................... 3,823
Goodwill................................... 5,362
Accounts payable........................... (2,678) (2,458)
Accrued liabilities........................ (6,891) (12,477)
Deferred income tax liability.............. (4,624)
------- --------
Net assets acquired..................... $38,219 $ 32,035
======= ========
During 1997, the Company also completed acquisitions of certain net assets of
the production molded composites division of Aero-Detroit, Inc. (PMC), and the
molded plastics and pultrusion operations of a Brazilian subsidiary of Owens-
Corning (OC-Brazil), for aggregate purchase price of approximately $8,000,
including acquisition costs. The Company accounted for these acquisitions using
the purchase method. The operating results and acquired assets of PMC and OC-
Brazil are not material.
Effective March 1, 1996, the Company acquired certain assets and assumed
certain liabilities of the Reinforced Plastics Divison of GenCorp., Inc.
(GenCorp RPD). The transaction was accounted for as a purchase. The total
purchase price was $33,482, which consisted of $18,200 of cash, a note payable
of $13,700 and acquisition costs of $1,582. During 1998, the final purchase
price adjustment negotiations were completed, resulting in the Company receiving
$250, which is included as a component of operations in the accompanying
financial statements. The Company's operating results include GenCorp RPD from
March 1996.
The following unaudited pro forma information presents certain operating data
calculated to give pro forma effect to the acquisitions of GenCorp RPD, PMC,
Goodyear-Jackson, Eagle-Picher, and OC-Brazil, as if the acquisitions had taken
place at the beginning of such periods. The pro forma impact of Livingston has
been excluded as it is not significant.
YEARS ENDED
DECEMBER 31,
------------
1997 1996
---- ----
(UNAUDITED)
-----------
Sales....................................... $499,427 $519,702
Income (loss) before extraordinary
item...................................... (100) 2,218
Net income (loss)........................... (9,922) 2,218
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.
F-12
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
4. RECEIVABLES
A summary of receivables at December 31 follows:
1998 1997
----------- -----------
Trade accounts. ............................ $81,558 $85,017
Other....................................... 1,362 154
------- -------
Total. .................................. 82,920 85,171
Less--allowance for doubtful accounts. ..... (2,404) (3,054)
------- -------
Receivables, net. ...................... $80,516 $82,117
======= =======
5. INVENTORIES
A summary of inventories at December 31 follows:
1998 1997
----------- -----------
Finished goods. ........................... $ 4,890 $10,811
Work-in-process. .......................... 8,106 6,598
Raw materials. ............................ 11,946 6,773
Supplies. ................................. 1,571 2,152
------- -------
Total. ................................. 26,513 26,334
Less--allowance for obsolescence and
lower of cost or market reserve. .......... (888) (1,223)
------- -------
Inventories, net. ....................... $25,625 $25,111
======= =======
6. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment at December 31 follows:
1998 1997
---------- ---------
Land and land improvements. ................ $ 5,675 $ 5,409
Buildings and building improvements. ....... 54,845 53,268
Machinery, equipment and tooling. .......... 203,408 179,415
Furniture and fixtures. .................... 5,785 5,435
Construction in progress. .................. 13,529 19,575
-------- --------
Total. .................................. 283,242 263,102
Less--accumulated depreciation. ............ (89,904) (66,452)
-------- --------
Property, plant and equipment, net. ..... $193,338 $196,650
======== ========
F-13
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
7. OTHER ASSETS
A summary of other assets at December 31 follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred financing costs (net of accumulated amortization of $2,933 and $978)......... $11,655 $13,610
Goodwill (net of accumulated amortization of $1,623 and $1,082)....................... 9,816 9,006
Deferred tax asset.................................................................... 1,682 -
Favorable lease agreement (net of accumulated amortization of $282 and $90)........... 3,541 3,733
Intangible pension assets............................................................. 1,642 -
Capitalized software costs (net of accumulated amortization of $123 and $0)........... 1,357 986
Prepaid pension costs................................................................. - 537
Other................................................................................. 1,474 2,370
------- -------
Other assets.......................................................................... $31,167 $30,242
======= =======
</TABLE>
8. ACCRUED LIABILITIES
A summary of accrued liabilities at December 31 follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Payroll and employee benefit related................................................ $10,687 $10,727
Accrued commitments under acquired contracts........................................ 4,895 6,418
Accrued interest.................................................................... 4,862 8,262
Other............................................................................... 9,696 12,284
------- -------
Accrued liabilities. ............................................................ $30,140 $37,691
======= =======
</TABLE>
9. LONG-TERM DEBT
Long-term debt at December 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Revolving lines of credit........................................................... $ 24,000 $ 11,500
Term loans.......................................................................... 197,650 205,000
Senior subordinated notes........................................................... 100,000 100,000
Notes payable for acquisitions...................................................... 6,581 5,400
Notes payable to insurance companies................................................ 3,643 -
Capital leases...................................................................... 427 654
-------- --------
Total............................................................................ 332,301 322,554
Less--current portion............................................................... (17,272) (7,765)
-------- --------
Long-term debt................................................................... $315,029 $314,789
======== ========
</TABLE>
On July 10, 1997, the Company retired all previously outstanding debt with the
proceeds from the issuance of $100,000 in senior subordinated notes (the Notes)
and borrowings under a new credit agreement, comprising $205,000 in term loans
and $2,500 in draws under a revolving line of credit. As a result of the
refinancing, the Company recorded an extraordinary item of $9,788 (net of tax),
reflecting the write-off of deferred financing costs, unamortized discount and
other costs upon early extinguishment of debt.
F-14
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998 1997 AND 1996
(dollars in thousands, except per share data)
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 two term
loans (in principal amounts of $70,000 and $135,000) and $75,000 under a
revolving credit facility. The term loans mature on the fifth and eighth
anniversaries of the credit agreement, respectively, and the revolving credit
facility matures on the fifth anniversary of the credit agreement. Interest on
borrowings under the credit agreement is calculated at an increment over a
defined base rate. At December 31, 1998 and 1997, the interest rates on the term
loans were 8.3% and 8.8%, respectively; the interest rate on the revolving
credit facility was 10.5% and 10.0% respectively. The line of credit includes
a commitment fee on the average unused balance of the commitment. This fee (1/2
of 1% at December 31, 1998 and 1997) varies based upon the Company's leverage
ratio.
In September 1998, the Company entered into a Second Waiver and Amendment and
in January 1999 the Company entered into a Third Waiver and Amendment pursuant
to which certain restrictive covenants contained in the credit agreement were
waived and amended. On February 23, 1999, the Company entered into a Fourth
Waiver and Amendment to the credit agreement (together with the Second, Third,
and Fourth Waivers and Amendments, the "Credit Agreement") with Bankers Trust
Company as the Agent and other institutions, which is effective as of December
31, 1998 through and including March 31, 2000. The amendment provides for
borrowings under the revolving line of credit of up to $65,000 throughout each
month, with a maximum of $50,000 at any month end. The amendment also limits
letters of credit to $5,300 from the effective date of the amendment. The
amendment waived restrictive convenants as of December 31, 1998 and amended the
covenants for periods through March 31, 2000.
As of February 28, 1999, the Company has drawn $24,500 of the revolving credit
facility.
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 18). 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, letters
of credit amounts and liens.
Notes payable for acquisitions at December 31, 1998 represent amounts due to
former owners of OC-Brazil and Livingston. A substantial portion of the notes
payable due to OC-Brazil bears interest at a variable rate (8.3% and 8.8% at
December 31, 1998 and 1997, respectively) and is payable in installments that
are calculated based on the earnings of OC-Brazil. The remaining notes
outstanding are non-interest bearing and are payable in equal amounts each
quarter through September 2000. The total amount outstanding at December 31,
1998 is $5,062.
The note payable due to the former owner of Livingston bears interest at 5.56%
and is payable in twenty-five monthly payments of principal and interest of $10,
plus a payment of $400 in February 1999. All outstanding principal and accrued
interest is due on February 15, 2000.
F-15
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998 1997 AND 1996
(dollars in thousands, except per share data)
The notes payable to insurance companies represent amounts due from contracts
entered into during 1998 to fully insure all workers' compensation claims
incurred in periods before April 1, 1998. The notes are unsecured obligations
of the Company. The notes bear interest at 8.25% and mature in July 2000. The
terms of the notes require monthly principal and interest payments of $217.
The Company entered into a three year interest rate swap agreement in
accordance with the terms described in the Credit Agreement. At December 31,
1998, the Company had an interest rate swap with a notional amount of $50
million. Under the swap agreement, the Company will pay the counter-party
interest at a rate of 5.75% and the counter-party will pay the Company interest
at the three month LIBOR adjusted quarterly. If the three-month LIBOR equals or
exceeds 6.75%, the Company will pay the counter-party at the three-month LIBOR.
The maximum rate of interest the Company can pay under this agreement is 9.0%.
The annual maturities of long-term debt, including principal payments on
capital leases, at December 31, 1998 are as follows:
YEAR ENDING
DECEMBER 31,
1999................ $ 17,272
2000................ 20,510
2001................ 21,917
2002................ 34,500
2003................ 35,523
Thereafter.......... 202,579
--------
$332,301
========
10. OTHER NONCURRENT LIABILITIES
A summary of other noncurrent liabilities at December 31 follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Accrued commitments under acquired contracts.............. $1,664 $3,365
Minimum pension liability................................. 1,881 -
------ ------
Other liabilities...................................... $3,545 $3,365
====== ======
</TABLE>
11. EMPLOYEE RETIREMENT BENEFITS
Employee Retirement Plan
The Company has two noncontributory defined benefit pension plans covering
eligible employees at two of its plants. Pension benefits are based on
participants' years of credited service. The Company's policy is to fund the
minimum required annual contribution to the plans. Plan assets generally
consist of mutual funds.
F-16
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
POSTRETIREMENT HEALTH CARE BENEFITS
The Company provides postretirement healthcare and prescription drug
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 recognizes the estimated cost of
providing such benefits over the service lives of the covered employees.
Postretirement benefits provided by the Company are funded as claims are
incurred.
EMPLOYEE RETIREMENT BENEFIT EXPENSE
The Company's expense for pensions and postretirement health care was as
follows:
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
---------------- -----------------------
COSTS RECOGNIZED IN INCOME 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost.............................. $ 795 $ 930 $ 830 $1,396 $1,188 $1,132
Interest cost............................. 378 143 85 1,855 1,582 1,288
Expected return on plan assets............ (342) (272) (153) - - -
Amount of recognized (gain) loss.......... (4) 4 111 145 162 190
Amount of prior service cost recognized... 120 - - - - -
----- ----- ----- ------ ------ ------
Net pension/postretirement $ 947 $ 805 $ 873 $3,396 $2,932 $2,610
expense......... ===== ===== ===== ====== ====== ======
</TABLE>
In connection with the recognition of the minimum liability as required by SFAS
No. 87, "Employer's Accounting for Pensions", the Company has recorded an
intangible asset of $1,642 included in Other Assets in the accompanying balance
sheet, a $1,881 additional minimum liability included in Other Liabilities, and
an equity reduction of $148 (net of related tax benefit of $91).
F-17
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
---------------- -----------------------
CHANGE IN BENEFIT OBLIGATION 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Benefit obligation at Jan. 1.......................... $3,043 $1,926 $26,072 $ 20,080
Service cost........................................ 795 930 1,396 1,188
Interest cost....................................... 378 143 1,855 1,582
Amendments.......................................... 1,752
Obligation assumed in acquisition................... - - - 3,276
Benefits paid....................................... (56) (21) (415) (704)
Actuarial gains..................................... 113 65 2,356 650
------ ------ ------ ------
Benefit obligation at Dec. 31 $6,025 $3,043 $31,264 $ 26,072
------ ------ ------ ------
CHANGE IN PLAN ASSETS
Fair value of plan assets at Jan. 1................... $3,335 $2,299 $ - $ -
Actual return on plan assets.......................... 455 316 - -
Company contribution.................................. 394 741 415 704
Benefits paid......................................... (55) (21) (415) (704)
------ ------ ----- -----
Fair value of plan assets at Dec. 31.................. $4,129 $3,335 $ - $ -
------ ------ ----- -----
FUNDED STATUS OF PLAN
Plan assets in excess of (less than) projected
benefits............................................. $(1,896) $ 292 $(31,264) $(26,072)
Unrecognized prior service cost...................... 1,642 10 - -
Unrecognized net actuarial (gain) loss............... 239 235 7,833 5,403
------- ------ -------- --------
Net asset (liability) recognized..................... $ (15) $ 537 $(23,431) $(20,669)
======= ====== ======== ========
AMOUNTS RECOGNIZED IN THE BALANCE SHEET
Other assets......................................... $ - $ 537 - -
Deferred tax asset................................... 91 - - -
Intangible asset..................................... 1,642 - - -
Accrued liabilities.................................. (15) - $(23,431) $(20,669)
Additional minimum liability......................... (1,881) - - -
Accumulated other comprehensive income................ 148 - - -
------- ------ -------- --------
Net amount recognized............................... $ (15) $ 537 $(23,431) $(20,669)
======= ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
PENSION BENEFITS POSTRETIREMENT BENEFITS
------------------------------ ------------------------------
ASSUMPTIONS AS OF DECEMBER 31 1998 1997 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Discount rate....................................... 6.75% 7.25% 6.75% 7.25
Expected return on assets........................... 10.00% 10.00%
Health care cost trend rate......................... 5.00% 5.00%
</TABLE>
A one percentage point increase each year in the assumed healthcare cost
trend rate would increase the accumulated postretirement obligation at December
31, 1998 by 13.1% and the service and interest cost components of net periodic
postretirement benefit cost for 1998 by 13.7%.
DEFINED CONTRIBUTION PLAN
The Company sponsors 401(k) retirement plans for substantially all of its
employees, which allow employees to contribute up to a specified percentage of
their compensation into tax deferred accounts. The Company recorded expense for
its contributions to these plans of $780, $932 and $303 in 1998, 1997, and 1996
respectively.
F-18
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
12. INCOME TAXES
The income tax provision (benefit) for 1998, 1997 and 1996 consists of the
following components:
1998 1997 1996
---------- ----------- ----------
Current provision (benefit)........ $ 3,484 $ 2,910 $ (450)
Deferred provision (benefit)....... (2,859) (3,148) 1,015
------- ------- -------
Income tax expense (benefit)....... $ 625 $ (238) $ 565
======= ======= =======
A reconciliation of the Company's statutory and effective income tax rates
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- --------
<S> <C> <C> <C>
Applicable statutory tax rate.............................. (34)% (34)% 34%
State income taxes......................................... (6) (2) 3
Permanent differences...................................... 4
Foreign tax rate difference................................ 2
Valuation allowance........................................ 31
Other net,................................................. 7 (3)
----- ------ ------
Effective tax rate......................................... 4% (36)% 34%
===== ====== ======
</TABLE>
The components of the Company's deferred tax assets and liabilities at
December 31 are as follows:
<TABLE>
<CAPTION>
1998 1997
DEFERRED DEFERRED DEFERRED DEFERRED
INCOME TAX INCOME TAX INCOME TAX INCOME TAX
LIABILITY ASSET LIABILITY ASSET
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Property, plant and equipment, net........ $25,036 $ $21,952 $
Accrued liabilities....................... 5,336 8,130
Postretirement health care benefits....... 8,526 7,709
Alternative minimum tax credit
carryforwards........................... 2,774 733
Foreign tax credit carryforwards.......... 690
Net operating loss carryforwards.......... 14,743 6,447
Other..................................... 3,888 951 2,311
Less valuation allowance.................. (5,460) ________ ________
------- ------
Total..................................... $25,036 $ 30,497 $22,903 $ 25,330
======= ======= ======== ========
</TABLE>
The Company has net operating loss carryforwards with potential future tax
benefits of $13,199 for federal income tax purposes and $1,544 for state income
tax purposes at December 31, 1998. The federal net operating losses expire in
2018 and the state net operating losses expire during the years 2013 through
2018. In addition, the Company has alternative minimum tax credit carryforwards
aggregating $2,774 at December 31, 1998, which can be carried forward
indefinitely. The Company also has $690 of foreign tax credit carryforwards. A
valuation allowance has been established due to the uncertainty of realizing
certain deferred income tax assets.
F-19
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
If the Company experiences a change in ownership within the meaning of
Section 382 of the Internal Revenue Code, an annual limitation could be placed
upon the Company's ability to realize the benefits of its net operating loss
carryforwards.
13. STOCKHOLDER'S DEFICIT
Each of the 1,000 shares of the Company's outstanding common stock is owned
by Holdings. The following summarizes the rights of the various classes of
Holdings' preference and common stock.
PREFERENCE STOCK
Preference stock, which is nonvoting, 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. There were 1,000 shares of preference stock
outstanding at December 31, 1998 and 1997.
CLASS P COMMON STOCK
Class P common stock is voting stock, which includes a liquidation
preference equal to $250 per share. There were 45,000 shares of Class P common
stock outstanding at December 31, 1998 and 1997.
CLASS L COMMON STOCK
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. There were 25,591 shares and
25,667 shares of Class L common stock issued and outstanding at December 31,
1998 and 1997, respectively.
CLASS A COMMON STOCK
Class A common stock is voting stock, but contains no liquidation
preference. There were 64,247 and 57,667 shares of Class A common stock issued
and outstanding at December 31, 1998 and 1997, respectively.
F-20
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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 sales of shares, and
other provisions which allow particular groups of shareholders to require a sale
of the Company after March 31, 1998.
During 1997, Holdings entered into agreements with certain officers and key
employees of the Company pursuant to which the employees purchased 2,667 shares
and 667 shares of Class A and Class L common stock, respectively, for an
aggregate purchase price of $880. The employees executed full recourse
promissory notes for the purchase price of the stock. Shares purchased under
these agreements vest in 20% increments annually. Upon termination of
employment, the Company, at its option, may repurchase vested shares for fair
value and unvested shares for the lower of original cost or fair value.
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. The warrants
are exercisable through November 2005. The fair value of the warrants was
recorded as an increase to additional paid-in capital during the year.
ACCUMULATED OTHER COMPREHENSIVE INCOME
A summary of components of accumulated other comprehensive income follows:
<TABLE>
<CAPTION>
TOTAL
FOREIGN ACCUMULATED
CURRENCY MINIMUM OTHER
TRANSLATION PENSION COMPREHENSIVE
ADJUSTMENT LIABILITY INCOME
---------- --------- ------
<S> <C> <C> <C>
December 31, 1997................ $(225) $ - $(225)
Current period change.......... (93) (148) (241)
----- ------ -----
December 31, 1998................ $(318) $ (148) $(466)
===== ====== =====
</TABLE>
14. STOCK-BASED COMPENSATION
Holdings is authorized to grant options to the Company's executive officers
at the discretion of the Board of Directors up to the authorized number of
shares for Holdings. The exercise price, vesting schedule and maximum term of
options granted are set by the Board of Directors. The Company recognizes
compensation cost (if any) for options and other stock-based compensation
granted by Holdings to the Company's employees. The Company's compensation cost
with respect to grants under the stock-based compensation program was not
significant; compensation cost calculated in accordance with SFAS 123 is also
not material.
For purposes of SFAS 123 disclosures, the Company estimates the fair value
of each option grant on the date of grant using the minimum value option-pricing
method with the following weighted-average assumptions used for grants in 1997:
dividend yield rate of zero, as Holdings does not pay dividends on its common
stock, risk-free interest rates of approximately 6.0%, representing rates on
U.S. Treasury obligations with similar duration, and an expected life of 5
years.
F-21
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
A summary of option activity for 1998, 1997 and 1996, follows:
<TABLE>
<CAPTION>
1998 1997 1996
WEIGHTED- WEIGHTED- WEIGHED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ------ ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year ....... 20,145 $ 275.43 15,845 $240.21 15,845 $240.21
Granted ................................ - 4,300 405.22
Exercised .............................. - -
Forfeited or expired ................... -
------ ------ ------
Outstanding at end of year ............. 20,145 $ 275.43 20,145 $275.43 15,845 $240.21
====== ====== ======
Exercisable at year end ................ 9,914 6,439 2,614
Weighted average fair value of options
granted during the year ............... $ - $ 0.81 $ -
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding OPTIONS EXERCISABLE
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ------------------------ ----------- ----------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.30 10,073 6.4 $ 3.30 8,918 $ 3.30
312.13 3,961 7.0 312.13 - 312.13
642.13 5,036 5.2 642.13 498 642.13
972.13 1,075 4.0 972.13 498 972.13
</TABLE>
15. RELATED PARTY TRANSACTIONS
Management and advisory services are provided by an affiliate of certain
shareholders of Holdings, under an agreement which requires an annual fee of
$950, plus certain other contingent fees. Total fees charged to the Company by
such affiliate during 1998, 1997, and 1996 were approximately $1,015, $6,475,
and $1,350, respectively. The Company also leases certain equipment from an
affiliate of Holdings; total fees charged to the Company by such affiliate were
approximately $386 in 1998 and $250 in 1997.
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
$1,175, $1,900 and $1,600 in 1998, 1997 and 1996, respectively. As of December
31, 1998 and 1997, the Company owed $670 and $121, respectively.
F-22
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
16. COMMITMENTS AND CONTINGENCIES
During 1998 and 1997, the Company entered into equipment leases which are
classified as capital leases. Assets under capital leases at December 31, 1998
are as follows:
<TABLE>
<S> <C>
Equipment ................ $1,000
Accumulated amortization... (589)
------
$ 411
======
</TABLE>
The Company leases certain equipment and plant facilities under
noncancellable operating leases. Rental expense for the Company totaled
approximately $5,965, $4,383, $2,385 during 1998, 1997 and 1996, respectively.
Minimum payments for operating leases having initial or remaining
noncancellable lease terms in excess of one year at December 31, 1998 are
summarized below:
<TABLE>
<CAPTION>
YEAR ENDING
-----------
DECEMBER 31
-----------
<S> <C>
1999 ......... $ 5,489
2000 ......... 4,307
2001 ......... 3,298
2002 ......... 2,736
2003 ......... 1,801
Thereafter ... 2,811
-------
Total ....... $20,442
=======
</TABLE>
The Company has letters of credit outstanding of $5,650 at December 31,
1998.
The Company is also subject to other lawsuits and claims pending or
asserted with respect to matters arising in the ordinary course of business.
Management does not believe that the outcome of these uncertainties will have a
material adverse effect on the consolidated financial position, results of
operations or cash flows of the Company.
F-23
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
17. BUSINESS SEGMENTS
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information." SFAS No. 131
establishes new standards for segment reporting which are based on the way
management organizes segments within a company for making operating decisions
and assessing performance. Prior period amounts have been restated to conform to
the requirements of this statement.
The Company's businesses are organized, managed, and internally reported as
three segments. The segments, which are based on differences in customers and
products, technologies and services, are Automotive and Light Truck, Commercial
Truck, and Industrial and Non-Automotive. The Automotive and Light Truck
Industry Segment produces molded engineered plastic components for automotive
original equipment manufacturers. This segment primarily supplies components for
automotive interiors, exteriors, and power trains. The Commercial Truck Industry
Segment produces molded-engineered plastics for the commercial transportation
industry. The segment primarily supplies external body panel components for
class 4 through class 8 commercial trucks. The Industrial and Non-Automotive
Segment produces various plastic components for the agricultural, appliance,
commercial construction, and recreational transportation industries. Net sales
by segment exclude inter-segment sales. Operating income consists of net sales
less applicable operating costs and expenses related to those sales. The
Company's general corporate expenses are excluded from segment operating income.
Earnings before interest, taxes, depreciation and amortization ("EBITDA") by
segment consists of operating income, other expense (income) net, adjusted for
interest, taxes, depreciation, and amortization. Identifiable assets by segment
are those assets that are used in the operations of each segment. General
corporate assets are those not identifiable with the operations of a segment.
The Company is not dependent on any single product or market.
The Company's major customers include automotive and commercial truck
original equipment manufacturers. The percentage of sales of each of these major
customers to total consolidated sales for the three year periods 1998, 1997, and
1996, respectively, are as follows: Ford, 25.9%, 27.2% and 33.2%; General
Motors, 21.9%, 21.7%, and 27.9%; DaimlerChrysler, 10.0%, 11.2%, and 5.3%; and
Freightliner, 8.8 %, 9.8%, and 5.5%.
F-24
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
Commercial Corporate and
---------- -------------
Year Automotive Truck Industrial Unallocated Total Company
---- ---------- ----- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales 1998 $252,398 $ 203,068 $ 31,718 $ 487,184
1997 248,438 163,647 14,009 426,094
1996 219,414 126,612 - 346,026
Operating income 1998 19,517 9,688 (325) * $ (15,192) 13,688
1997 30,251 12,826 1,478 * (17,240) 27,315
1996 25,306 11,385 * (11,647) 25,044
EBITDA** 1998 33,358 21,936 1,015 (14,034) 42,275
1997 42,543 23,426 1,832 (16,348) 51,453
1996 37,056 20,922 (11,795) 46,183
Assets *** 1998 189,370 127,194 16,213 *** 31,045 363,822
1997 195,436 127,100 9,776 *** 37,172 369,484
1996 169,387 71,829 21,014 262,230
Depreciation and 1998 13,193 12,826 1,385 628 28,032
amortization
1997 12,580 10,457 354 691 24,082
1996 11,750 9,537 32 21,319
Capital 1998 14,782 6,332 463 363 21,940
expenditures 1997 11,261 5,027 1,221 17,509
1996 4,316 4,603 711 9,630
</TABLE>
*Operating income includes unallocated corporate overhead expenses.
** EBITDA includes operating income, other expense (income) net, adjusted for
interest, taxes, depreciation, and amortization.
The following table reconciles EBITDA to pretax income (loss):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
EBITDA $ 42,275 $ 51,453 $ 46,183
Less:
Depreciation and amortization 28,032 24,082 21,319
Interest expense 31,974 28,036 23,190
--------- ------- -------
Pretax income (loss) $(17,731) $ (665) $ 1,674
========= ======= =======
</TABLE>
***Segment assets primarily include accounts receivable; inventory, property,
plant and equipment - net, goodwill and other miscellaneous assets. Assets
included in Corporate and Unallocated principally are cash and cash equivalents,
deferred financing costs, deferred income taxes, unallocated goodwill, certain
investments, other assets, and certain unallocated property, plant and
equipment.
F-25
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
GEOGRAPHIC AREAS
- ----------------
Information in the table below is presented on the basis the Company uses to
manage its businesses. Export sales and certain income and expense items are
reported within the geographic area where the final sales to customers are made.
<TABLE>
<CAPTION>
GEOGRAPHIC INFORMATION
Year United States Canada Mexico Other Total Company
---- ------------- ------ ------ ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales 1998 $406,914 $58,850 $10,967 $10,453 $487,184
1997 375,907 41,907 3,922 4,358 426,094
1996 309,887 31,101 4,897 141 346,026
Operating 1998 11,433 1,653 308 294 13,688
income 1997 24,098 2,686 251 280 27,315
1996 22,428 2,252 354 10 25,044
EBITDA 1998 35,310 5,107 952 906 42,275
1997 45,393 5,060 474 526 51,453
1996 41,360 4,151 653 19 46,183
Identifiable 1998 351,128 7,801 - 4,893 363,822
assets 1997 354,696 7,644 - 7,144 369,484
1996 255,748 6,482 - 262,230
</TABLE>
18. 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 of Canada and the
Brazilian subsidiary. The guarantee of the Notes by CE is full and
unconditional. The following condensed consolidated 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 of Canada and the
Brazilian subsidiary, as non-guarantor subsidiaries. The financial position and
operating results of the non-guarantor subsidiaries do not include any
allocation of overhead or other similar charges.
Separate financial statements of CE are not presented herein, as management
does not believe that such statements would be material. 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; the Company's
equity investment in CE at that date was $0. 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. CE had no revenues or operations during
the periods presented.
F-26
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
NON-GUARANTOR GUARANTOR ELIMINATIONS/
------------- --------- -------------
PARENT SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
-------- ------------ ---------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash......................................... $ 4,141 $ 333 $ - $ - $ 4,474
Receivables.................................. 74,310 6,206 - - 80,516
Inventories.................................. 23,745 1,880 - - 25,625
Reimbursable tooling costs................... 22,590 324 - - 22,914
Deferred income taxes and other.............. 5,703 85 - - 5,788
--------- ------------- ---------- ------------ ---------
Total current assets....................... 130,489 8,828 - - 139,317
Property, plant and equipment, net.............. 189,559 3,779 - - 193,338
Other long-term assets.......................... 31,080 87 - - 31,167
Investment in consolidated subsidiaries......... 6,395 - - (6,395) -
--------- ------------- ---------- ------------ ---------
Total assets............................... $ 357,523 $ 12,694 $ - $ (6,395) $ 363,822
========= ============= ========== ============ =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities
Current portion of long-term debt............ $ 16,729 $ 543 $ - $ - $ 17,272
Accounts payable............................. 64,073 1,154 - - 65,227
Accrued liabilities.......................... 29,739 401 - - 30,140
--------- ------------- ---------- ------------ ---------
Total current liabilities.................. 110,541 2,098 - - 112,639
Noncurrent liabilities
Long-term debt............................... 310,510 4,519 - - 315,029
Workers' compensation........................ - - - - -
Postretirement healthcare benefits........... 23,431 - - - 23,431
Other liabilities............................ 3,545 - - - 3,545
--------- ------------- ---------- ------------ ---------
Total liabilities.......................... 448,027 6,617 - - 454,644
--------- ------------- ---------- ------------ ---------
Stockholder's equity (deficit)
Common stock................................. - - - - -
Paid-in capital.............................. 17,808 5,257 - (5,257) 17,808
Accumulated other comprehesive income........ (148) (318) - - (466)
Retained earnings (accumulated deficit)...... (108,164) 1,138 - (1,138) (108,164)
--------- ------- ---------- ------------ ---------
Total stockholder's equity (deficit)....... (90,504) 6,077 - (6,395) (90,822)
--------- ------- ---------- ------------ ---------
Total liabilities and equity (deficit)..... $ 357,523 $12,694 $ - $ (6,395) $ 363,822
========= ======= ========== ============ =========
</TABLE>
F-27
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
NON-
----
GUARANTOR GUARANTOR ELIMINATIONS/
--------- --------- ------------
PARENT SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
-------- ------------ ---------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash............................................ $ 1,646 $ 2,142 $ - $ $ 3,788
Receivables..................................... 79,760 5,926 (3,569) 82,117
Inventories..................................... 23,081 2,030 25,111
Reimbursable tooling costs...................... 16,727 186 16,913
Deferred income taxes and other................. 14,466 197 14,663
-------- ------- --------- -------- --------
Total current assets........................... 135,680 10,481 - (3,569) 142,592
Property, plant and equipment, net................ 192,343 4,307 196,650
Other long-term assets............................ 30,242 30,242
Investment in consolidated subsidiaries........... 6,800 (6,800)
-------- ------- --------- -------- --------
Total assets................................... $365,065 $14,788 $ - $(10,369) $369,484
======== ======= ========= ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities
Current portion of long-term debt............... $ 7,765 $ - $ - $ - $ 7,765
Accounts payable................................ 50,995 1,333 (3,569) 48,759
Accrued liabilities............................. 36,211 1,480 37,691
-------- ------- --------- -------- --------
Total current liabilities...................... 94,971 2,813 - (3,569) 94,215
Noncurrent liabilities
Long-term debt.................................. 309,389 5,400 314,789
Workers' compensation........................... 1,251 1,251
Postretirement healthcare benefits.............. 20,669 20,669
Other long-term liabilities..................... 3,365 3,365
Deferred income taxes........................... 7,689 7,689
-------- ------- --------- -------- --------
Total liabilities.............................. 437,334 8,213 - (3,569) 441,978
-------- ------- --------- -------- --------
Stockholder's equity (deficit)
Common stock
Paid-in capital................................. 17,539 5,257 (5,257) 17,539
Accumulated other comprehensive income.......... (225) (225)
Retained earnings (accumulated deficit)......... (89,808) 1,543 (1,543) (89,808)
-------- ------- --------- -------- --------
Total stockholder's equity (deficit)........... (72,269) 6,575 - (6,800) (72,494)
-------- ------- --------- -------- --------
Total liabilities and stockholder's
equity (deficit)............................... $365,065 $14,788 $ - $(10,369) $369,484
======== ======= ========= ======== ========
</TABLE>
F-28
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
NON-GUARANTOR GUARANTOR ELIMINATIONS/
------------- --------- -------------
PARENT SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
--------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Sales........................................ $470,931 $16,253 $ - $ - $487,184
Cost of sales................................ 418,245 14,475 - - 432,720
-------- ------- ---------- ------------- --------
Gross profit................................. 52,686 1,778 - - 54,464
Selling, general and administrative
expenses................................ 39,152 1,624 - - 40,776
-------- ------- ---------- ------------- --------
Income from operations....................... 13,534 154 - - 13,688
Other expense (income)
Interest expense........................ 31,710 264 - - 31,974
Other, net.............................. (553) (2) - - (555)
-------- ------- ---------- ------------- --------
Loss before income tax....................... (17,623) (108) - - (17,731)
Income tax expense........................... 328 297 - - 625
-------- ------- ---------- ------------- --------
Loss before equity in income of
consolidated subsidiaries................... (17,951) (405) - - (18,356)
Equity in loss of consolidated
subsidiaries................................ (405) - - 405 -
-------- ------- ---------- ------------- --------
Net loss..................................... $(18,356) $ (405) $ - $ 405 $(18,356)
======== ======= ========== ============= ========
</TABLE>
F-29
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NON-GUARANTOR GUARANTOR ELIMINATIONS/
------------- --------- -------------
PARENT SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
--------- ------------ ---------- ------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales........................................ $413,536 $12,558 $ - $ - $426,094
Cost of sales................................ 357,439 9,598 367,037
-------- ------- ---------- ------- --------
Gross profit................................. 56,097 2,960 - - 59,057
Selling, general and administrative
expenses................................... 31,239 957 (454) 31,742
-------- ------- ---------- ------- --------
Income from operations....................... 24,858 2,003 - 454 27,315
Other expense (income)
Interest expense........................ 27,941 95 28,036
Other, net.............................. (431) (79) 454 (56)
-------- ------- ---------- ------- --------
Income (loss) before income tax.............. (2,652) 1,987 - - (665)
Income tax expense (benefit)................. (951) 713 (238)
-------- ------- ---------- ------- --------
Income (loss) before extraordinary item...... (1,701) 1,274 - - (427)
Extraordinary loss........................... 9,788 9,788
-------- ------- ---------- ------- --------
Income (loss) before equity in income of
consolidated subsidiaries.................. (11,489) 1,274 - - (10,215)
Equity in income of consolidated
subsidiaries............................... 1,274 - - (1,274) -
-------- ------- ---------- ------- --------
Net income (loss)............................ $(10,215) $ 1,274 $ - $(1,274) $(10,215)
======== ======= ========== ======= ========
</TABLE>
F-30
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
NON-GUARANTOR GUARANTOR ELIMINATIONS/
------------- --------- -------------
PARENT SUBSIDIARIES 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 subsidiaries............ 277 832 - - 1,109
Equity in income of consolidated
subsidiaries........................ 832 - (832) -
-------- ------ ------ ----- --------
Net income............................ $ 1,109 $ 832 $ - $(832) $ 1,109
======== ====== ====== ===== ========
</TABLE>
F-31
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
<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....... $ 20,834 $ (1,214) $ - $ 19,620
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash required........................ (340) - - (340)
Purchases of property, plant and equipment................ (21,602) (338) - (21,940)
--------- --------- -------- ---------
NET PROVIDED BY (CASH USED) IN INVESTING ACTIVITIES... (21,942) (338) - (22,280)
--------- --------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings from revolving debt........................ 12,500 - - 12,500
Repayment of long-term debt............................... (8,939) (130) - (9,069)
Principal payments on capital lease obligations........... (227) - - (227)
Contribution by stockholders.............................. 269 - - 269
--------- --------- -------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES... 3,603 (130) - 3,473
--------- --------- -------- ---------
Effect of foreign currency rate fluctuations on cash...... - (127) - (127)
--------- --------- -------- ---------
Net increase (decrease) in cash........................... 2,495 (1,809) - 686
Cash at beginning of period............................... 1,646 2,142 - 4,474
--------- --------- -------- ---------
Cash at end of period..................................... $ 4,141 $ 333 $ - $ 6,155
========= ========= ======== =========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING TRANSACTIONS:
Note payable issued in connection with acquisition........ $ 1,550 $ - $ - $ 1,550
========= ========= ======== =========
</TABLE>
F-32
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<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...... $ 17,663 $ (1,856) $ - $ 15,807
--------- -------- ------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired....................... (72,434) (72,434)
Purchases of property, plant and equipment............... (17,498) (11) (17,509)
--------- -------- ------- ---------
NET CASH USED IN INVESTING ACTIVITIES................ (89,932) (11) - (89,943)
--------- -------- ------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings from revolving debt....................... 11,500 11,500
Repayment of long-term debt.............................. (233,712) (233,712)
Principal payments on capital lease obligations.......... (244) (244)
Proceeds from issuance of long-term debt................. 305,000 305,000
Cost of debt and equity financing........................ (16,424) (16,424)
--------- --------- ------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES............ 66,120 - - 66,120
--------- -------- ------- ---------
Effect of foreign currency rate fluctuations on cash..... (138) (138)
--------- -------- ------- ---------
Net decrease in cash..................................... (6,149) (2,005) - (8,154)
Cash at beginning of period.............................. 7,795 4,147 11,942
--------- -------- ------- ---------
Cash at end of period.................................... $ 1,646 $ 2,142 $ - $ 3,788
========= ======== ======= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING TRANSACTION:
Notes payable issued in connection with acquisition...... $ - $ 5,400 $ - $ 5,400
========= ======== ======= =========
</TABLE>
F-33
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<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....... $ (5,929) $ 1,779 $ - $ (4,150)
--------- --------- ------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired........................ (18,160) (18,160)
Purchases 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
Repayment of long-term debt............................... (48,363) (48,363)
Proceeds from issuance of long-term debt.................. 73,178 73,178
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 8,662
--------- --------- ------- ---------
Cash at end of period..................................... $ 7,795 $ 4,147 $ - $ 11,942
========= ========= ======= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING TRANSACTION:
Notes payable issued in connection with acquisition....... $ 13,700 $ 13,700
========= =========
</TABLE>
F-34
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholder of Cambridge Industries, Inc.
Our audit of the consolidated financial statements of Cambridge Industries,
Inc. and subsidiaries as of December 31, 1998 and 1997 and for the years then
ended referred to in our report dated March 12, 1999 appearing on page F-1 of
this Annual Report on Form 10-K also included an audit of the accompanying
Financial Statement Schedule. In our opinion, this Financial Statement Schedule
of Cambridge Industries, Inc. and its subsidiaries presents fairly, in all
material respects, the information set forth therein as of December 31, 1998 and
1997, and for the years then ended when read in conjunction with the related
consolidated financial statements.
The consolidated financial statements and the Financial Statement Schedule
for the year ended December 31, 1996 were audited by other independent
accountants whose report dated March 28, 1997 expressed an unqualified opinion
on those statements and that schedule.
PricewaterhouseCoopers LLP
Bloomfield Hills, Michigan
March 12, 1999
F-35
<PAGE>
INDEPENDENT AUDITOR'S REPORT ON
FINANCIAL STATEMENT SCHEDULE
Cambridge Industries, Inc.
We have audited the consolidated statements of operations, of cash flows and
of changes in stockholder's deficit of Cambridge Industries, Inc. and
subsidiaries (the "Company") for the year ended December 31, 1996 and have
issued our report thereon dated March 28, 1997; such financial statements and
report are included in this Annual Report on Form 10-K. Our audit included the
Financial Statement Schedule of the Company for the year ended December 31,
1996, listed in Item 14. This Financial Statement Schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on the
Financial Statement Schedule based on our audit. In our opinion, such Financial
Statement Schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein for the year ended December 31,
1996.
Deloitte & Touche LLP
Detroit, Michigan
March 28, 1997
F-36
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(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,
1998....................................... $ 3,054 $ 706 $ - $ (1,356) $ 2,404
1997....................................... $ 3,921 $ 642 $ - $ (1,509) $ 3,054
1996....................................... $ 1,479 $ 3,355 $ - $ (913) $ 3,921
Allowance for inventory obsolescence and
lower of cost or market reserve
For the year ended December 31,
1998....................................... $ 1,223 $ 473 $ 40 $ (848) $ 888
1997....................................... $ 1,150 $ - $ 405 $ (332) $ 1,223
1996....................................... $ 610 $ 315 $ 603 $ (378) $ 1,150
Allowance for reimbursable tooling
For the year ended December 31,
1998....................................... $ 4,100 $ - - $ (4,100) $ -
1997....................................... $ 4,100 $ - $ - $ - $ 4,100
1996....................................... $ 1,373 $ 27 $ 2,700 $ - $ 4,100
</TABLE>
F-37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, CAMBRIDGE INDUSTRIES, INC. and CE AUTOMOTIVE TRIM SYSTEMS,
INC. have duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Madison Heights, State of Michigan, on
April 1, 1998.
CAMBRIDGE INDUSTRIES, INC.
By: /s/ Richard S. Crawford
RICHARD S. CRAWFORD
Chief Executive Officer
CE AUTOMOTIVE TRIM SYSTEMS, INC.
By: /s/ Richard S. Crawford
RICHARD S. CRAWFORD
Chairman of the Board
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
ANNUAL REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON
THE DATES INDICATED:
CAMBRIDGE INDUSTRIES, INC.
SIGNATURE
---------
TITLE
-----
DATE
----
/s/ Richard S. Crawford
RICHARD S. CRAWFORD
Chairman of the Board and Chief Executive
Officer (Principal Executive Officer)
March 31, 1999
/s/ John M. Colaianne
JOHN M. COLAIANNE
Secretary and Chief Financial Officer
(Principal Financial Officer)
March 31, 1999
i
<PAGE>
/s/ Ira J. Jaffe*
IRA J. JAFFE
Director
March 31, 1999
/s/ Robert C. Gay*
ROBERT C. GAY
Director
March 31, 1999
/s/ Edward W. Conard*
EDWARD W. CONARD
Director
March 31, 1999
/s/ Ronald P. Mika*
RONALD P. MIKA
Director
March 31, 1999
ii
<PAGE>
CE AUTOMOTIVE TRIM SYSTEMS, INC.
SIGNATURE
---------
TITLE
-----
DATE
----
/s/ Richard S. Crawford
RICHARD S. CRAWFORD
Chairman of the Board (Principal Executive
Officer) and Director
March 31, 1999
/s/ Kevin J. Alder
KEVIN J. ALDER
President and Director
March 31, 1999
/s/ John M. Colaianne
JOHN M. COLAIANNE
Secretary and Chief Financial Officer
(Principal Financial Officer)
March 31, 1999
/s/ Jon W. Anderson
JON W. ANDERSON
Corporate Controller (Principal Accounting
Officer)
March 31, 1999
iii
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit EXHIBIT
Number -------
------
<S> <C>
2.1 Asset Purchase Agreement, dated as of January 1, 1999, among Livingston, Inc., Robert D. Morganstern, and Cambridge
Industries, Inc.
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.*
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 A Warrant Certificate No. W-L3, Date of Issuance: March 1, 1996.*
10.20 Class A Warrant Certificate No. W-L4, Date of Issuance: March 1, 1996.*
10.21 Class A Warrant Certificate No. W-L5, Date of Issuance: March 1, 1996.*
10.22 Class A Warrant Certificate No. W-L6, Date of Issuance: March 1, 1996.*
10.23 Class A 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.*
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number EXHIBIT
- --------- -------
<S> <C>
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.*
10.38 Amendment to Stockholders Agreement, dated December 31, 1997, among Holdings, Richard S.
Crawford, certain individual members of the Bain Group, Bankers Trust Company and each other
Bank Holder which becomes a party to the Stockholders Agreement.**
10.39 Second Amendment to Employment Agreement, dated December 31, 1997, effective January 1, 1998,
between the Company and Richard S. Crawford.**
10.40 Second Amendment to Management Services Agreement, dated December 31, 1997, effective January
1, 1998, between the Company and Bain Capital, Inc.**
10.41 Aircraft Lease, dated January 1, 1998, between Mack L.L.C. and the Company.**
10.42 Aircraft Lease, dated January 1, 1998, between the Company and Richard S. Crawford.**
10.43 Second, Third and Fourth Amendments to the Credit Agreement among Cambridge Holdings, Inc.,
Cambridge Industries, Inc., various lending institutions, and Bankers Trust Company, as Agent
16.1 Letter regarding Change in Independent Accountants.*
21.1 List of All Subsidiaries.*
27.1 Financial Data Schedule
</TABLE>
- --------------
* Incorporated by reference to the Company's Registration Statement on Form S-4
effective as of December 10, 1997.
** Previously filed with the Company's Annual Report on Form 10-K on March 31,
1998.
* Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Annual Report.
** This exhibit was the subject of a Form 12b-25 and is included herein.
I-2
<PAGE>
EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
By And Among
CAMBRIDGE INDUSTRIES, INC.,
LIVINGSTON, INC.
And
ROBERT D. MORGANSTERN
January 14,1998
(Effective as of January 1, 1998)
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement is made and entered into on January 14,
1998, effective as of January 1, 1998 (the "Effective Date") by and among
CAMBRIDGE INDUSTRIES, INC., a Delaware corporation ("Purchaser"), LIVINGSTON,
INC., a Washington corporation ("Seller"), and ROBERT D. MORGANSTERN, the sole
shareholder of Seller ("Shareholder").
RECITALS:
A. Seller is engaged in the business of manufacturing, assembling
and selling plastic components for the transportation and marine industries (the
"Business").
B. Seller desires to sell and Purchaser desires to purchase
substantially all the operating assets used or usable in connection with the
operation of the Business, upon the terms and subject to the conditions set
forth in this Agreement.
NOW, THEREFORE, for and in consideration of the premises, the mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt and adequacy of which is hereby mutually
acknowledged, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
---------------------------
1.1 Purchase and Sale of the Assets. Subject to the terms and
-------------------------------
conditions set forth in this Agreement, Seller hereby agrees to transfer, sell
and assign to Purchaser on the Closing Date, and Purchaser agrees to purchase on
the Closing Date, all of the operating assets and properties, personal, tangible
and intangible, wherever situated, owned by Seller or in which Seller has any
right or interest and used or usable in connection with the operation of the
Business (whether known or unknown, tangible or intangible, real, personal or
mixed, and wherever located) (all such assets and properties being hereinafter
referred to as the "Assets"), other than the assets identified in Section 1.2,
including, without limitation, the following:
(a) All furniture, fixtures and other fixed assets owned by
Seller and used in the operation of the Business, including without
limitation those listed on Schedule 1.1(a), attached hereto and made
---------------
a part hereof.
(b) The goodwill and other intangible assets associated with
the Business.
(c) All patents, patent applications, trademarks, trademark
applications and registrations, trade names, service marks, service
names, copyrights, copy right applications and registrations,
commercial and technical trade secrets, engineering, production and
other designs, drawings, specifications, formulae, technology, computer
and electronic data processing programs and software, inventions,
processes, know-how, confidential information and other proprietary
property rights and interests used in or relating to the Business or
Division (hereinafter collectively referred to as the "Intellectual
Property"), including, without limitation the items set forth on the
attached Schedule 4.1(e);
---------------
(d) All sales and business records, personnel records of
Seller's employees, credit records of Seller's customers, customer
list, advertising and promotional materials, and all other books and
records of every kind and nature which relate to the Business, other
than Seller's minute books and related corporate records.
-1-
<PAGE>
(e) All equipment, machinery, tools, dies, jigs, patterns,
molds, engineering and office equipment, and vehicles used in
connection with or related to the Business, including, without
limitation, the items listed on the attached Schedule 1.1(e).
---------------
(f) All leases entered into by Seller for the use of personal
property to the extent such personal property is used in connection
with Business, and all other contracts and agreements (collectively,
"Contracts"), entered into by Seller in the ordinary course of the
Business, including, without limitation, those described on Schedule
--------
1.1(f), other than those specifically excluded on Schedule 1.2(d).
------ ---------------
(g) All licenses and permits held by Seller in connection with
the Business or the Assets, including, without limitation, those
described on Schedule 1.1(g).
---------------
(h) All inventories of whatever nature or kind.
(i) All third party warranties and claims for warranties
relating to the Business or the Assets, including, without limitation,
the warranties set forth on Schedule 1.1(i).
---------------
(j) The leases and subleases for all land, buildings and
improvements leased by Seller and used in connection with the Business
(the "Real Property"), as described on the attached Schedule 1.1(i).
---------------
(k) All of Seller's accounts receivable, including without
limitation those described on the attached Schedule 1.1(k).
---------------
(l) All of Seller's cash and cash equivalents.
(m) All claims and rights of Seller in connection with any
litigation in which the Seller, in connection with the Business, is a
claimant.
1.2 Excluded Assets. Notwithstanding anything to the contrary
---------------
contained in Section 1.1 above, the following shall not be included in the
Assets and shall not be sold by Seller to Purchaser:
(a) All tax returns of Seller.
(b) Seller's right to any refunds from Washington State
Industrial Insurance Fund for the years 1995, 1996 and 1997.
(c) Any and all written or oral employment agreements (unless
otherwise specifically assumed hereunder).
(d) Any items listed on Schedule 1.2(d), attached hereto and
---------------
made a part hereof.
ARTICLE II
LIABILITIES ASSUMED
-------------------
2.1 Assumption of Liabilities. Purchaser shall not assume and shall
-------------------------
not be liable for any liabilities of Seller, of whatever type or nature, other
than (i) all current liabilities of the Business set forth on the face of the
June 30 Balance Sheet (as defined in Section 4.1(1)) (rather than the notes
thereto) up to the amount of such liabilities set forth therein, (ii) all
accounts payable which have arisen after the date of the June 30 Balance Sheet
and which have been incurred in the ordinary course of business, including
current payroll tax liabilities and pro rated property taxes payable (iii) all
of Seller's obligations to the U.S. Bank of Washington, N.A., (iv) all of
Seller's obligations to Shareholder
-2-
<PAGE>
represented by that certain promissory note, dated July 18, 1996, in the
original principal amount of $300,000, and (v) all of Seller's obligations to
Steven Dow, a former shareholder of Seller (the "Former Shareholder"), under
that certain consulting agreement between Seller and the Former Shareholder
dated October 31, 1995, a copy of which is attached to Schedule 1.1(f) attached
---------------
hereto; and (vi) those liabilities arising from and after the Effective Date
with respect to any other contracts or agreements assumed by Purchaser hereunder
and not identified on the Schedule 1.2(d) (collectively, the "Assumed
---------------
Liabilities").
2.2 Excluded Liabilities; No Other Liabilities Assumed. Other than
--------------------------------------------------
the Assumed Liabilities, Purchaser has not agreed to pay and shall not assume,
nor have any liability or obligation, direct or indirect, absolute or contingent
for any liability or obligation of the Seller ("Excluded Liabilities"). Without
limiting the foregoing, the Excluded Liabilities include the following: (a) all
of Seller's obligations or liabilities to the Former Shareholder with respect to
the redemption of the shares of capital stock of Seller owned by the Former
Shareholder (the "Stock Liability"); (b) any liability or obligation in respect
of any litigation arising out of the conduct of the Business by Seller prior to
the Closing; (c) any liability or obligation of Seller under the Environmental
Laws (as defined in Section 4.1(s) in respect of solid waste or Hazardous
Materials which have been transported by or on behalf of Seller for off-site
disposal, and all arrangements therefor; (d) any liability or obligation of
Seller for any violation of the Environmental Laws to the extent arising from
the operation of the Business prior to the Closing Date, including, without
limitation, in respect of any fine or penalty arising from any permit violation;
(e) liabilities or obligations of Seller relating to any employee pension,
savings, severance, separation, bonus or other employee plan, program or
arrangement or to any employee of Seller for vacation pay; (f) any federal,
state or local Tax liability (or adjustments thereto) relating to the Business
prior to the Closing.
ARTICLE III
PURCHASE PRICE
--------------
3.1 Initial Purchase Price for Assets. For and in consideration of
---------------------------------
the sale of the Assets in accordance with the provisions hereof, Purchaser shall
pay to Seller the sum of Two Million One Hundred Fifty Thousand Dollars
($2,150,000) (the "Initial Purchase Price") and Purchaser shall assume the
Assumed Liabilities.
3.2 Income Adjustment. Seller projects that the Business will produce
-----------------
Adjusted Income (defined below) in calendar years 1998 and 1999 of $1,856,000 in
the aggregate, exclusive of any new earnings produced by Purchaser that are not
from Paccar, Inc. (the "Projected Income"). To the extent that the actual
Adjusted Income produced by the Business in calendar years 1998 and 1999 in the
aggregate, exclusive of any new earnings produced by Purchaser that are not
earnings from Paccar, Inc. that constituted a part of the Business prior to the
Effective Date (other than earnings from Paccar, Inc.'s Kenworth Division
relating to products manufactured by processes currently used in production by
Seller, which shall constitute earnings produced by Seller) (the "Actual
Income"), is less than the Projected Income, the Initial Purchase Price shall be
reduced by an amount (the "Income Adjustment") equal to the lesser of (i)
$305,000 or (ii) the amount by which the Projected Income exceeds the Actual
Income. For purposes of this Agreement, "Adjusted Income" means the Business's
earnings before interest, taxes, depreciation and amortization, excluding (i)
any principal or interest payments to the Former Shareholder pursuant to the
consulting agreement described in Section 2.1(v), (ii) the Stock Liability
(defined in Section 2.2), (iii) income from any sale of the assets of the
Business other than in the ordinary course of business, and (iv) any increase in
overhead or direct costs mandated by Purchaser. The Income Adjustment, if any,
is to be made pursuant to the Note (as defined in Section 3.6(b)) and if there
is any inconsistency between the terms of this Section 3.2 and the terms of the
Note, the terms of the Note shall prevail. Notwithstanding the foregoing, in the
event that Purchaser should sell or transfer a substantial portion of the Assets
or Business during calendar years 1998 or 1999 without the prior written consent
of Seller (which consent will not be unreasonably withheld provided that such
sale or transfer does not adversely affect the projected earnings of the
Business), the terms of this Section 3.2 and the Income Adjustment shall lapse.
-3-
<PAGE>
3.3 Net Worth Adjustment. If Seller's net worth on the Closing Date
--------------------
(defined in Section 8.1 below) (the "Closing Date Net Worth"), determined, after
giving effect to the Distribution (defined in Section 11.1 below), on the basis
of Seller's unaudited balance sheet dated as at the Closing Date (the "Closing
Date Balance Sheet"), prepared and finally determined in accordance with Section
3.4 below, is less than Seller's net worth (the "June 30 Net Worth") as set
forth on Seller's June 30, 1997 balance sheet (the "June 30 Balance Sheet"), the
Initial Purchase Price shall be reduced by an amount (the "Net Worth
Adjustment") equal to the amount by which the June 30 Net Worth exceeds the
Closing Date Net Worth.
3.4 Preparation of Closing Date Balance Sheet and Determination of
--------------------------------------------------------------
Net Worth Adjustment.
- --------------------
(a) Seller shall prepare and deliver to Purchaser, within
twenty (20) days following the Closing Date, the Closing Date Balance
Sheet setting forth the Closing Date Net Worth. The Closing Date
Balance Sheet shall be prepared in accordance with generally accepted
accounting principles consistently applied with the principles used in
preparation of the June 30 Balance Sheet.
(b) Purchaser may object to the Net Worth Adjustment or to any
of the information contained in the Closing Date Balance Sheet which
could affect the Net Worth Adjustment if such objection is based on a
claim that the Closing Date Balance Sheet was not prepared in
accordance with subsection 3.4(a). Any such objection must be made by
delivery of a written statement of objections (stating the basis of the
objections with reasonable specificity) to Seller within 60 days
following delivery of the Closing Date Balance Sheet. In connection
with its review of the Closing Date Balance Sheet and during such 60
day period, Purchaser may, at its sole cost and expense, have the
Closing Date Balance Sheet audited by its accountants. If Purchaser
makes any such objection, Purchaser and Seller shall seek in good faith
to resolve such differences within 20 days following the delivery of
such objections. During such time, if Seller disagrees with the
objections of Purchaser, it shall state the basis of such disagreement
with reasonable specificity. If Purchaser does not so object to the
Closing Date Balance Sheet within such 60-day period, the Closing Date
Balance Sheet shall be considered final and binding upon the parties.
If Purchaser and Seller are unable to mutually resolve any disputes
with respect to any aspect of the price differential within the periods
described above, the parties shall, within ten (10) days following the
expiration of such periods, engage the Seattle, Washington office of
Arthur Andersen or such other mutually agreed upon accounting firm (the
"Mediator") to act as a Mediator and determine, in accordance with the
provisions of this Section 3.4, the appropriate Net Worth Adjustment.
In connection with the review of the Closing Date Balance Sheet by
Purchaser or its accountants, Purchaser and its accountants shall have
reasonable access to the records of the Business and any work papers
prepared by Seller, its officers or accountants in the preparation of
the Closing Date Balance Sheet.
3.5 Submission to Mediator. If the Mediator is engaged pursuant to
----------------------
Section 3.4(b), then, within ten (10) days of the engagement, the Mediator shall
be furnished with a copy of this Agreement, a letter from Seller describing
Seller's position on the disputed amount and a letter from Purchaser describing
Purchaser's position on the disputed amount. Neither party shall make any
additional submission except pursuant to the Mediator's written request. The
Mediator shall have thirty (30) days to review such documents and such other
information as the Mediator deems appropriate. Within such thirty-day period,
the Mediator will furnish both parties with its written determination with
respect to each of the unresolved price differentials in dispute. In arriving at
its determination, the Mediator may select either the adjustment as proposed by
the position of the Seller or by the position of Purchaser, or its own
determination (provided such determination is between the Seller's or
Purchaser's position) with respect to such differential. The determination of
the Mediator with respect to each such adjustment will be final and binding upon
the parties and a judgment, based on the Mediator's determination, may be
entered into a court of competent jurisdiction in accordance with, and pursuant
to, the United States Arbitration Act, 9 U.S.C., Section 1 et.seq. or the
Michigan Uniform Arbitration Act, MCL, Section 600.5001 et. seq. The fee of the
Mediator shall be borne by the Parties in the same proportion that the
-4-
<PAGE>
dollar amount of the disputed items lost by a party bears to the total dollar
amount in dispute in the mediation. In the process of preparing and reviewing
the price differential and conducting of review by either party or the Mediator,
each party will grant the other party all reasonable access to the records of
the Business and any workpapers, including accountant's workpapers, prepared
with respect to the price differential.
3.6 Payment of Purchase Price. As used in this Agreement, the term
-------------------------
"Purchase Price" shall mean the Initial Purchase Price taking into consideration
the Income Adjustment and the Net Worth Adjustment. Purchaser shall pay the
Purchase Price to Seller as follows:
(a) Purchaser shall pay to Seller in cash at Closing (as
defined in Section 8.1) the sum of $600,000 (less the cost of obtaining
the Letter of Credit as provided in subsection (c) below), of which
$422,690 shall be paid to Former Shareholder on behalf of Seller in
full payment of the Stock Liability;
(b) The balance of the Purchase Price (other than the portion
of the Purchase Price attributable to the Assumed Liabilities and
without regard to the Net Worth Adjustment) shall be evidenced by a
promissory note (the "Original Note") in the form and substance set
forth on Exhibit "A" to this Agreement, which shall be delivered to
-----------
Seller at the Closing. If necessary, the Original Note shall be
replaced and superseded by a replacement note (the "Replacement Note")
in an amount equal to the Purchase Price (taking into account the Net
Worth Adjustment) at such time as the Net Worth Adjustment is finally
determined pursuant to Sections 3.4 and 3.5. All terms of the
Replacement Note, other than the principal amount thereof, shall be
identical to the Original Note. For purposes of this Agreement, the
then outstanding promissory note, whether the Original Note or the
Replacement Note, shall be referred to in this Agreement as the "Note."
Purchaser's obligations under the Note shall be junior and subordinate
in all rights to Purchaser's obligations to senior and senior
subordinated creditors, which shall nonetheless not affect Seller's
right to draw on the Letter of Credit or the Replacement Letter of
Credit, as defined in Section 3.6 (c) below.
(c) Purchaser shall cause a $1,000,000 letter of credit (the
"Letter of Credit"), which will expire on February 15, 1999, to be
issued in favor of Seller at the Closing, to secure payment of
Purchaser's obligations under the Note. Seller shall be responsible for
all costs and expenses incurred in obtaining and maintaining the Letter
of Credit and Purchaser shall be entitled to set off all costs and
expenses incurred in obtaining the Letter of Credit against the portion
of the Purchase Price to be paid to Seller at the Closing. If requested
by Seller, at least sixty (60) days prior to February 15, 1999,
Purchaser shall cause another letter of credit (the "Replacement Letter
of Credit"), which will expire on February 15, 2000, to be issued in
favor of Seller as of February 15, 1999, to secure payment of
Purchaser's then-remaining obligations under the Note. The Replacement
Letter of Credit shall be in such amount as Seller may reasonably
request, but in no event in an amount exceeding the positive
difference, if any, found by subtracting the amount paid to Seller
under the Note on February 15, 1999 from $1,000,000. Purchaser shall be
entitled to set off all costs and expenses incurred in obtaining and
maintaining the Replacement Letter of Credit against future payments to
be made by Purchaser to Seller pursuant to the Note.
3.7 Allocation of Purchase Price. The parties agree that for all tax
----------------------------
and other reporting purposes, the Purchase Price (other than the amount thereof
attributable to cash, cash equivalents, and accounts receivable) shall be
allocated among the Assets as follows: (i) furniture, fixtures, machinery,
equipment and leasehold improvements shall be allocated an amount of the
Purchase Price equal to the basis of such assets for federal income tax purposes
(generally, cost less depreciation and amortization); and (ii) the balance of
the Purchase Price shall be allocated to goodwill and other intangible Assets.
-5-
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
4.1 Representations and Warranties of Seller. Seller and Shareholder
----------------------------------------
hereby, jointly and severally, represent, warrant and covenant the following to
Purchaser:
(a) Assets. The Assets constitute all of the assets used by
------
Seller in the operation of the Business, other than as set forth on
Schedule 1.2(d). Seller owns and has an unencumbered, marketable title
---------------
to or has an unencumbered interest in all of the Assets being sold to
Purchaser pursuant to the terms of this Agreement, except for those
liabilities which will be released concurrently with the Closing or
which Purchaser is expressly assuming pursuant to this Agreement.
(b) Good Standing and Authority. Seller is a corporation
---------------------------
organized, validly existing and in good standing under the laws of the
State of Washington, with the corporate power and authority to enter
into this Agreement, and to consummate the transactions contemplated
herein. Seller is duly qualified to do business and in good standing in
each jurisdiction in which it is required to be so qualified. Seller
has full corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated herein. This
Agreement and all instruments of transfer and other documents to be
delivered by Seller in connection with this Agreement and the
consummation of the transactions contemplated herein have been or will
be, on or prior to the Closing Date, duly authorized and approved by
all necessary and proper corporate action of Seller, and all
instruments of transfer and other documents to be delivered in
connection wherewith, when executed and delivered, will constitute
legal, valid and binding obligations of Seller enforceable against
Seller in accordance with their respective terms, except to the extent
that the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws of general application
affecting creditors' rights generally and application of general
principles of equity.
(c) Liens. There are no judgments, liens or security interests
-----
which will be outstanding on the Closing Date against the Seller or the
Assets, which would affect Seller's title to or ability to transfer the
Assets, except those which will be released concurrently with the
Closing or which Purchaser is expressly assuming pursuant to Section
2.1.
(d) Equipment and Other Assets. Schedule 1.1(a) contains a
-------------------------- ---------------
true and complete list of all material furniture, fixtures and fixed
assets used by Seller in the Schedule 1.1(e) contains a true and
---------------
complete list of all equipment, machinery, tools, dies, jigs, patterns,
mold, engineering and office equipment, and vehicles used by Seller in
the Business; Schedule 1.1(f) contains a true and complete list of all
---------------
personal property leases and other contracts and agreements entered
into by Seller; Schedule 1.1(i) contains a true and complete list of
---------------
all material third party warranties relating to the Business and the
Assets; Schedule 1.1(i) contains a true and complete list of all real
---------------
property leased by Seller and used in connection with the Business; and
Schedule 1.1(k) contains a true and complete list of all accounts
---------------
receivable as of two (2) business days immediately preceding the
Closing Date.
(e) Intellectual Property. The attached Schedule 4.1(e)
--------------------- ---------------
contains a true and complete list of all patents, patent applications,
registered trademarks, applications for registered trademarks,
registered service marks, applications for registered service marks,
logos, registered copyrights and applications for registered copyrights
used in the Business and any and all corporate and assumed names under
which Seller has in the past conducted or is currently conducting
business. Except as set forth on the attached Schedule 4.1(e), Seller
---------------
is the owner of or licensee under a valid license for the Intellectual
Property (defined in Section 1.1(c)) material to the Business taken as
a whole, has good and marketable title to or is a licensee under a
valid license of and has the exclusive right to assign its entire
right, title and interest in and to all of the Intellectual Property
relating to the Business. The items comprising such Intellectual
Property
-6-
<PAGE>
are the only proprietary property used or necessary in connection with
the Business. Seller has not infringed, misappropriated or misused any
Intellectual Property of another. Except as set forth on the attached
Schedule 4.1(e), to Seller's knowledge, no third party has infringed,
---------------
misappropriated or misused any of the Intellectual Property or other
proprietary information related to the Business.
(f) Good Condition. Except as set forth in Schedule 4.1(f), all
-------------- ---------------
facilities used by Seller in the operation of the Business, all of the
Assets, and the personal property covered by the leases, agreements and
contracts described in Schedule 1.1(f), are currently operating for
---------------
their respective intended uses and need no major repairs, normal wear
and tear excepted.
(g) Contracts. Schedule 1.1(f) identifies all major Contracts
--------- ---------------
with respect to the Business or the Division. All Contracts listed on
Schedule 1.1(f) were entered into in the ordinary course of business.
---------------
Except as set forth on Schedule 1.1(f), Seller has complied in all
---------------
material respects with the provisions of each such Contract and is not
in default thereunder and Seller does not have knowledge that the other
party or parties thereto have failed to comply in all material respects
with the provisions of each such Contract or is in default thereunder.
(h) Litigation. Except as set forth on Schedule 4.1(h) hereto,
---------- ---------------
there are no actions, suits, investigations or proceedings, either
pending or threatened against Seller, the Business or the Assets, at
law or in equity, before any federal, state, municipal, or other
governmental department, commission, board, agency, court or
instrumentality. Seller is not in default with respect to any order,
writ, injunction or decree of any court or other governmental
department, commission, board, agency or instrumentality.
(i) Compliance with Applicable Laws and Regulations. Except as
-----------------------------------------------
set forth on Schedules 4.1(i) and 4.1(s), Seller has complied in all
---------------------------
material respects with all laws, regulations, rules, orders, judgments,
decrees and other requirements imposed by any governmental authority
applicable to it in the operation of the Business and ownership of the
Assets.
(j) Permits and Licenses. Schedule 1.1(g) lists all
-------------------- ---------------
governmental franchises, permits, licenses or other authorizations held
by Seller in connection with the Business, and the Assets, all of which
are in full force and effect, and true copies of which have been
delivered to Purchaser. Seller has obtained all permits, licenses,
franchises and other authorizations necessary or desirable with respect
to, and have complied with all laws applicable to, the operation of the
Business and ownership of the Assets, and Seller has not engaged in any
activity which would cause revocation or suspension of any such
permits, licenses, franchises or authorizations. No action or
proceeding looking to or contemplating the revocation or suspension of
any such permits, licenses, franchises or authorizations are pending or
threatened.
(k) Employees. Schedule 4.1(k) contains a complete and accurate
--------- ---------------
list of all of Seller's current employees, such employees' salaries or
hourly rates, and annual bonuses (last paid or payable), if any, and
the total value and list of any other fringe benefits or incentive paid
or payable to such employees. Except as specifically described in
Schedule 4.1(k), all employees are actively at work and no employee is
---------------
currently on a leave of absence, layoff, suspension, sick leave,
workers compensation, short or long term disability, military leave or
otherwise not actively performing his or her work during all normally
scheduled business hours.
(l) Employee Relations. All payments determined to be due from
------------------
Seller on account of Seller's employees' work, health or welfare
insurance, under any agreement, whether oral or written, will have been
paid as of the Effective Date. Any amounts due to or with respect to
Seller's employees, including health and welfare or workers
compensation benefits, incurred prior to the Effective Date, which
cannot be determined on or before the Closing Date, shall be paid by
Seller immediately upon determination thereof. Purchaser shall, in no
way, be deemed to be liable for any such amounts. Except as provided in
Section 4.1(v) below, Seller has no pension, profit sharing, retirement
or similar plan, or other employee benefit plan, in effect.
-7-
<PAGE>
(m) Financial Information. Schedule 4.1(m) consists of:
--------------------- ---------------
(i) Seller's reviewed financial statements for the year
ended December 31, 1996;
(ii) Seller's unaudited financial statements for the ten
months ended October 31, 1997; and
(iii) Seller's unaudited balance sheet as at June 30, 1997
(the "June 30 Balance Sheet").
(iv) All such financial statements (the "Financial
Statements") were prepared from the Sellers books of account in
accordance with generally accepted accounting principles,
consistently applied, and materially accurately present the
financial position, results of operations and cash flows of
Seller at the dates and for the periods indicated.
(n) No Undisclosed Liabilities. Except as and to the extent
--------------------------
reflected in the June 30 Balance Sheet, the current liabilities
incurred by Seller in the ordinary course of business since the date of
the June 30 Balance Sheet, and the Assumed Liabilities, Seller has no
debts, liabilities or obligations of any nature or kind (whether
absolute, accrued, contingent, unliquidated or otherwise, whether or
not known to Seller, whether due or to become due and regardless of
when asserted) arising out of transactions entered into at or prior to
the Closing, or any action or inaction at or prior to the Closing or
any state of facts existing at or prior to the Closing. Except as set
forth on Schedule 4.1(o), Seller knows of no existing, proposed or
---------------
threatened change which would be a material adverse change to the
Business or its future prospects.
(o) Conduct of Business Since June 30. 1997. Except as set
---------------------------------------
forth on Schedule 4.1(o), since June 30, 1997, there has not been any
---------------
material adverse change in the business, operations, or condition
(financial or otherwise) of the Business. Except as set forth on
Schedule 4.1(o), since June 30, 1997, Seller has caused the Business to
---------------
be conducted only in the ordinary course and has not:
(i) made or incurred any capital expenditures in excess
of $25,000 in any one transaction or series of similar
transactions;
(ii) except in accordance with consistent prior practice
and in the ordinary course, made any change in the rate of
compensation, commission, bonus or other direct or indirect
remuneration payable or to become payable to any employee or
agent of Seller, or agreed or orally promised to pay,
conditionally or otherwise, any bonus, extra compensation,
pension or severance or vacation pay, to any employee, or agent
of Seller;
(iii) sold or transferred any of its assets, other than
inventories in the ordinary course of business;
(iv) terminated or materially amended any material
Contract to the detriment of Purchaser;
(v) incurred or guaranteed any loan or other obligation
(in connection with or related to the Business or the Assets)
other than in the ordinary course of business;
(vi) subjected any of the Assets to any mortgage, pledge,
lien or other material encumbrance;
(vii) declared or paid any dividend with respect to the
capital stock of Seller other than the Distribution authorized in
Section 11.1; or
-8-
<PAGE>
(viii) entered into any agreement or commitment (other than
this Agreement or any arrangement provided for or contemplated in
this Agreement) to take any of the types of action described in
subsection (i) through (vii) of this Section 4.1(o).
(p) Tax Matters.
-----------
Except as set forth on the attached Schedule 4.1(p):
---------------
(i) Seller has filed all Tax Returns which it is
required to file under applicable laws and regulations, and all
such Tax Returns are complete and correct and have been prepared
in compliance with all applicable laws and regulations;
(ii) Seller has paid all Taxes due and owing by it
(whether or not such Taxes are required to be shown on a Tax
Return) and has withheld and paid over to the appropriate taxing
authority all Taxes which it is required to withhold from amounts
paid or owing to any employee, stockholder, creditor or other
third party;
(iii) Seller has not waived any statute of limitations
with respect to any Taxes or agreed to any extension of time with
respect to any Tax assessment or deficiency;
(iv) the accrual for Taxes on the June 30 Balance Sheet
would be adequate to pay all Tax liabilities of Seller if its
current tax year were treated as ending on the date of the June
30 Balance Sheet (excluding any amount recorded which is
attributable solely to timing differences between book and Tax
income);
(v) since the date of the June 30 Balance Sheet, Seller
has not incurred any liability for Taxes other than in the
ordinary course of business;
(vi) no foreign, federal, state or local tax audits or
administrative or judicial proceedings are pending or being
conducted with respect to Seller;
(vii) Seller has not received from any foreign, federal,
state or local taxing authority any (a) written notice indicating
an intent to open an audit or other review or (b) request for
information related to Tax Matters; and
(viii) there are no material unresolved questions which
have been made known to the Seller by any taxing authority or
claims concerning Seller's Tax liability.
(ix) Except as set forth on the Schedule 4.1(p), Seller
---------------
(a) has not made an election under `341(f) of the IRC, (b) is not
liable for the Taxes of another Person (l) under Treas. Reg.
`1.1502-6 (or comparable provisions of state, local or foreign
law), (2) as a transferee or successor, (3) by contract or
indemnity or (4) otherwise, (c) is not a party to any tax sharing
agreement or (d) has not made any payments, is not obligated to
make any payments or is not party to an agreement that could
obligate it to make any payments that would not be deductible
under IRC `280G.
For purposes of this Agreement "Tax" means any federal, province,
---
local, or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits,
environmental, customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration,
value added, alternative or add-on minimum, estimated, or other tax of
any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not. For purposes of this Agreement, "Tax
---
Return" means any return, declaration, report, claim for refund, or
------
information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
-9-
<PAGE>
(q) Real Property Owned. Seller does not own and has never
-------------------
owned real property used, in any way, in connection with the Business.
(r) Real Property Leased. Schedule 4.1(r) lists and briefly
-------------------- ---------------
describes all real properties leased or subleased to Seller for use in
connection with the Business (the "Real Property"). Seller has
delivered to Purchaser correct and complete copies of the leases and
subleases listed on Schedule 4.1(r). With respect to each such lease or
---------------
sublease:
(i) the lease or sublease is legal, valid, binding,
enforceable and in full force and effect;
(ii) the lease or sublease will continue to be legal,
valid, binding, enforceable and in full force and effect on
identical terms following the Closing;
(iii) neither the Seller nor, to the Seller's knowledge,
any other party to the lease or sublease is in breach or default,
and no event has occurred which, with notice or lapse of time,
would constitute such a breach or default or permit termination,
modification or acceleration under the lease or sublease by
Seller, or, to Seller's knowledge, by any other party to the
lease or sublease;
(iv) no party to the lease or sublease has repudiated any
of its provisions;
(v) there are no disputes, oral agreements or
forbearance programs in effect as to the lease or sublease;
(vi) Seller has not assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the
leasehold or subleasehold;
(vii) all facilities leased or subleased thereunder
are supplied with utilities and other services necessary for the
operation of such facilities; and
(viii) all facilities leased or subleased are in good
operating condition, ordinary wear and tear excepted. No property
insurer or similar body has made any recommendations which have
not been complied with, and, except as set forth in Schedule
--------
4.1(r), all structures on the leased real property meet all
------
qualifications for "highly protected risk" classification for
fire insurance purposes.
(s) Environmental. Health and Safety Matters.
----------------------------------------
(i) Definitions.
-----------
(A) "Environmental Laws" shall mean and all
international, federal, state, and local statutes, laws,
regulations, ordinances, orders, common law, and similar
provisions having the force or effect of law, concerning
public health or safety, worker health or safety or
pollution or protection of the environment, including but
not limited to, the Clean Air Act, 42 U.S.C. (S) 7401 et
--
seq., the Clean Water Act, 33 U.S.C. (S) 1251 et seq., the
--- -- ---
Resource Conservation Recovery Act ("RCRA"), 42 U.S.C. (S)
6901 et seq., the Toxic Substances Control Act, 15 U.S.C.
-- ---
(S) 2601 et seq., and the Comprehensive Environmental
-- ---
Response, Compensation and Liability Act ("CERCLA"), 42
U.S.C. (S) 9601 et seq. whether currently in existence or
-- ---
hereafter enacted or which govern: (i) the existence,
cleanup removal and/or remedy of contamination or threat of
contamination on or about the Owned Real Property and
Leased Real Property (collectively, the "Real Property");
(ii) the emission or discharge of Hazardous Materials into
the environment; (iii) the control of Hazardous Materials;
or (iv) the use, generation,
-10-
<PAGE>
transport, treatment, storage, disposal, removal,
recycling, handling or recovery of Hazardous Materials,
including building materials.
(B) "Hazardous Materials" shall mean any material
or substance: (i) is or becomes defined as a "hazardous
substance", "pollutant" or contaminant" pursuant to CERCLA
and amendments thereto and regulations promulgated
thereunder; (ii) containing gasoline, oil, diesel fuel or
other petroleum products, or fractions thereof; (iii) which
is or becomes defined as a "hazardous waste" pursuant to
RCRA and amendments thereto and regulations promulgated
thereunder; (iv) containing polychlorinated biphenyls
(PCBs); (v) containing asbestos; (vi) which is radioactive;
(vii) which is biologically hazardous; (viii) the presence
of which requires investigation or remediation under any
federal, state or local statute, regulation, ordinance or
policy; (ix) which is or becomes defined as a "hazardous
waste", "hazardous substance", "pollutant" or "contaminant"
or other such terms used to define a substance having an
adverse effect on the environment under any federal, state
or local statute, regulation or ordinance; (x) any toxic,
explosive, dangerous, corrosive or otherwise hazardous
substance, material or waste which is or becomes regulated
by any federal, state or local governmental authority or
(xi) which causes a nuisance upon or waste to the Real
Property.
(C) "Environmental Reports" shall mean the
Environmental Reports obtained from Environmental
Associates, Inc. and Environmental Resource Management with
respect to the environmental condition of the Real Property
listed on Schedule 4.1(s).
---------------
(ii) Except as set forth in the Environmental Reports,
Seller has not received notice, nor does it have any information
which indicates that Seller will be receiving such a notice, of
proceedings, claims or losses relating to alleged violations by
the Seller of any Environmental Laws relating to the Business of
Division, or relating to the presence, discharge, release or
disposal of Hazardous Materials on the Real Property or on
property adjoining the Real Property:
(A) Seller has not received notice as a potentially
responsible party ("PRP") for any facility, site or
location pursuant to CERCLA or other similar Environmental
Law relating to the Business or the Real Property;
(B) Seller is in compliance with all applicable
limitations, restrictions, conditions, standards,
prohibitions, requirements and obligations established
under the requirements of Environmental Laws relating to
the Business or the Division, except where such
noncompliance would not have any reasonable likelihood,
singly or in the aggregate, of materially adversely
affecting the financial condition, operations, assets,
business or properties of the Divisions, taken as a whole;
(C) Seller has timely filed all notices, reports
and other submissions required under all Environmental
Laws, except for such notices, reports or other submissions
with respect to which the failure to so file would not have
any reasonable likelihood, singly or in the aggregate, of
materially adversely affecting the financial condition,
operations, assets, business or properties of the Business;
(D) All Real Property owned, operated or leased by
Seller is and continues to be owned and operated in
compliance with all Environmental Laws, in each case except
for such violations which would not have any reasonable
likelihood, singly or in the aggregate, of materially
adversely affecting the
-11-
<PAGE>
financial condition, operations, assets, business or
properties of the Business, taken as a whole and all Real
Property has been owned, operated or leased by Seller in
compliance with all Environmental Laws, in each case except
for such violations which would not have any reasonable
likelihood, singly or in the aggregate, of materially
adversely affecting the financial condition, operations,
assets, business or properties of the Business;
(E) Seller has been issued all permits,
certificates, approvals, licenses and other authorizations
required under all Environmental Laws, has timely applied
therefore and is and continues to be in compliance
therewith and Seller has had all such required permits, and
other authorizations and have been in compliance therewith,
in each case except for such permits and other
authorizations with respect to which the failure to obtain
or to comply with which would not have any reasonable
likelihood, singly or in the aggregate, of materially
adversely affecting the financial condition, operations,
assets, business or properties of the Business;
(F) Neither Seller nor, to Seller's knowledge, any
other person, has ever caused or suffered any Hazardous
Materials to be disposed onto or into soils of the Real
Property or other property, owned or operated or leased by
Seller, which would have any reasonable likelihood, singly
or in the aggregate, of materially adversely affecting the
financial condition, operations, assets, business or
properties of the Business;
(G) There is no contamination in soils or
groundwater of or beneath any Real Property owned or leased
by Seller, above levels that exceed remediation standards
based on regulations, guidances or risk-based criteria
warranting studies or remediation or both which would have
any reasonable likelihood, singly or in the aggregate, of
materially adversely affecting the financial condition,
operations, assets, business or properties of the Business;
(H) Except as set forth in the Environmental
Reports, there have not been and there are no underground
storage tanks, active or abandoned, on or under any Real
Property or other property now or previously owned or
leased by Seller, which have not been removed together with
any associated contaminated media in accordance with
currently applicable requirements;
(l) No conditions exist at or on or under any Real
Property now or previously owned, leased or operated by
Seller, which, with the passage of time, or the giving of
notice or both, would give rise to liability under any
Environmental Law or any common law which would have any
reasonable likelihood, singly or in the aggregate, of
materially adversely affecting the financial condition,
operations, assets, business or properties of the Business
taken as a whole;
(J) Seller has not arranged for the transportation,
treatment or disposal of any waste that was disposed of or
treated at any site listed on any federal CERCLA or state
list or other lists of hazardous substances sites;
(K) There are no liens under Environmental Laws on
any of the Real Property or other assets owned, leased or
operated by Seller and no government actions have been
taken or are in process which could subject any of such
properties or assets to such liens;
(L) There have been no environmental
investigations, audits, reviews or assessments commissioned
by Seller of any property or facility
-12-
<PAGE>
currently or previously owned or operated by Seller which
have not been provided to Purchaser; and
(M) Without limiting the generality of the
foregoing, to Seller's knowledge, there are no other facts,
events or conditions relating to the past or present
operations, properties or facilities of Seller which would
give rise to any material liability or investigatory,
corrective or remedial obligation under any Environmental
Laws.
(t) Consents, Approvals and Authorizations. Except as set forth
--------------------------------------
in Schedule 4.1(t), no consent, approval or authorization of or
---------------
designation, declaration or filing with, any governmental authority, or
any lenders, lessors, creditors, shareholders or others, is required on
the part of Seller in connection with the valid execution and delivery
of this Agreement or the consummation of the transactions contemplated
herein without breach or violation of any agreement, lease, indenture
or other instrument, or any judgment, decree, order, award, law, rule
or regulation applicable to or affecting Seller, the Business or the
Assets, other than any consent, approval or authorization, filing or
notification which, if not obtained or made would not have a material
adverse effect on the Business.
(u) Insurance. Seller has maintained and now maintains
---------
insurance with respect to the Assets and the Business, covering
property damage by fire or other casualty, and against such
liabilities, claims and risks, including without limitation, workers
compensation. Schedule 4.1(u) hereto contains a true and correct copy
---------------
of all insurance policies maintained by Seller. Except as disclosed in
Schedule 4.1(u), no policy of insurance is subject to any deductible,
---------------
self-insured retention, retrospective rating agreement, indemnification
agreement, or any other method or device by which the insured person is
subject to all or any part of the liability for any or all claims. True
and correct copies of all such insurance policies have concurrently
herewith or prior hereto been delivered to Purchaser. All such
insurance policies will be in full force and effect through the
Effective Date. Except as set forth on Schedule 4.1(u), there is no
---------------
state of facts and no event has occurred forming the basis for any
present property, casualty or, to the knowledge of Seller, fidelity
claim against it which is not fully covered by insurance. Schedule
--------
4.1(u) hereto contain loss runs for the last five years setting forth
------
all property, general and products liability and workers compensation
claim activity against the Business, including the date and place of
the occurrence, claimant's name, reserves, amounts paid, a brief
description of the incident and whether the claim is open or closed.
Except as set forth in Schedule 4.1(u), Seller knows of no occurrence,
---------------
circumstance, or event which could reasonably be expected to result in
the claim against it of the type enumerated in such schedule.
(v) Employee Benefits. Except for the employee benefit plans
-----------------
listed in the attached Schedule 4.1(v) (the "Employee Benefit Plans"),
---------------
Seller is not a party to or bound by any profit sharing, stock option,
pension, severance, retirement, stock purchase, hospitalization, group
or individual life, disability or health insurance, or employee welfare
benefit or similar plan or agreement providing benefits to the current
or former employees or agents of Seller. Seller shall timely pay all
amounts due under or with respect to the Employee Benefit Plans, and
Seller does not, nor will it prior to the Closing Date, participate in,
contribute to or employ any persons covered by a multiemployer plan, as
defined in Section 3(37) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and has not, and will not prior to the
Closing Date, incur any withdrawal liability within the meaning of
Title IV of ERISA. Seller does not, nor will it prior to the Closing
Date, maintain a pension plan, as defined in Section 3(3) of ERISA,
subject to Section 412 of the Internal Revenue Code of 1986, as amended
(the "Code"), or Title IV of ERISA. Seller has complied with, and will
through and after the Closing Date, continue to comply with the
Employee Benefit Plans and all requirements of law relating to the
Employee Benefit Plans, and Purchaser shall have no liability or
responsibility whatsoever with respect to the Employee Benefit Plans.
-13-
<PAGE>
(w) Notes and Accounts Receivable. All notes and accounts
-----------------------------
receivable of Seller, including receivables for customer tooling, are
reflected properly on its books and records, are valid receivables
subject to no setoffs or counterclaims, are current and collectible,
and will be collected in substantial accordance with their terms and at
their recorded amounts, subject only to the reserve for bad debts set
forth on the face of the June 30 Balance Sheet as adjusted for the
passage of time through the Closing Date in accordance with generally
acceptable accounting principles.
(x) Inventory. All inventory included in the Assets is properly
---------
valued on its books and records at the lower of cost or market
(calculated on a FIFO basis), finished goods were produced to satisfy
existing contracts, and all inventory, including raw materials and work
in process are useable in current or anticipated production and are not
obsolete, damaged or deteriorated. With respect to all inventory which
Seller holds on consignment, (i) all such inventory is salable in the
ordinary course of business and (ii) there are no disputes between
Seller and the consignors of such inventory.
(y) Non-Violative Agreement. Neither the execution and delivery
-----------------------
of this Agreement nor the consummation of the transaction contemplated
herein will conflict with or result in the breach of the terms,
conditions or provisions of any other agreement or instrument to which
Seller is a party, or by which it may be bound or to which it may be
subject, or constitute a default thereunder, which would result in
Seller or the Assets being subjected to a lien or other encumbrance.
(z) Disclosure. No representation or warranty by the Seller
----------
contained in this Agreement and no statement contained in any
certificate or other instrument furnished or to be furnished pursuant
hereto or in connection with the transaction contemplated hereby,
contains or will contain any untrue statement of a material fact, or
omits or will omit, to state a material fact necessary in order to make
any of the statements not misleading, or necessary in order to provide
Purchaser with all material information regarding the Assets or the
Business.
4.2 Representations and Warranties of Purchaser. Purchaser hereby
-------------------------------------------
represents, warrants and covenants the following to Seller and Shareholder:
(a) Purchaser's Authority. Purchaser is a corporation
---------------------
organized, validly existing and in good standing under the laws of the
State of Delaware with the power and authority to enter into this
Agreement, and to consummate the transactions contemplated herein.
(b) Obligations of Purchaser. The execution of this Agreement
------------------------
and the consummation of the transactions contemplated herein have been
duly authorized and approved by the Board of Directors of Purchaser,
and this Agreement constitutes a valid and binding obligation of
Purchaser, enforceable in accordance with its terms, except to the
extent that the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws of general
application affecting creditors' rights generally and application of
general principles of equity.
(c) Non-Violative Agreement. Neither the execution and
-----------------------
delivery of this Agreement nor the consummation of the transactions
contemplated herein will conflict with or result in the breach of the
terms, conditions or provisions of any other agreement or instrument to
which Purchaser is a party, or by which Purchaser may be bound or to
which it may be subject, or constitute a default thereunder.
(d) Litigation. Except as set forth on Schedule 4.2(d) hereto,
---------- ---------------
there are no actions, suits, investigations or proceedings, either
pending or threatened against Purchaser, at law or in equity, before
any federal, state, municipal, or other govemmental department,
commission, board, agency, court or instrumentality, which would
materially adversely affect Purchaser's
-14-
<PAGE>
ability to perform its obligations, or consummate the transactions
contemplated, under this Agreement.
(e) Consents, Approvals and Authorizations. Except as set forth
--------------------------------------
in Schedule 4.2(e), no consent, approval or authorization of or
---------------
designation, declaration or filing with, any governmental authority, or
any lenders, lessors, creditors, shareholders or others, is required on
the part of Purchaser in connection with the valid execution and
delivery of this Agreement or the consummation of the transactions
contemplated herein without breach or violation of any agreement,
lease, indenture or other instrument, or any judgment, decree, order,
award, law, rule or regulation applicable to or affecting Purchaser,
other than any consent, approval or authorization, filing or
notification which, if not obtained or made would not have a material
adverse effect on Purchaser or its ability to consummate the
transactions contemplated in this Agreement.
(f) Disclosure. No representation or warranty by Purchaser
----------
contained in this Agreement and no statement contained in any
certificate or other instrument furnished or to be furnished pursuant
hereto or in connection with the transaction contemplated hereby,
contains or will contain any untrue statement of a material fact, or
omits or will omit, to state a material fact necessary in order to make
any of the statements not misleading, or necessary in order to provide
Seller with all material information regarding Purchaser's ability to
perform its obligations and to consummate the transactions contemplated
in this Agreement.
ARTICLE V
EMPLOYEE MATTERS
----------------
5.1 Obligation to Hire. Effective as of the Closing Date, Purchaser
------------------
will offer employment to substantially all employees of Seller who are actively
employed (excluding employees on layoff, leave, military leave, suspension, sick
leave, workers' compensation, salary continuance or long-term or short-term
disability, on the date immediately preceding the Closing Date ("Inactive
Employees")) on terms and conditions similar to those under which Purchaser
employs persons of similar skill, experience and training. Those employees
accepting such offers of employment are referred to in this Agreement as
"Continued Employees." Nothing contained in this Agreement is intended to confer
upon any Continued Employee any right to continued employment after the Closing
Date, subsequent to Purchaser's evaluation of its employment needs with respect
to the Business.
5.2 Employee Benefit Plans for Continued Employees. Effective as of a
----------------------------------------------
Continued Employee's acceptance of employment with Purchaser, a Continued
Employee shall be entitled to the benefits afforded under, and subject to the
terms and conditions of, Purchaser's employee benefit plans. Purchaser shall
give prior service credit to the Continued Employees with respect to
eligibility, vesting and retirement under Purchaser's employee benefit plans.
Seller shall retain all liability to fully perform, pay and discharge all
incurred but unpaid claims under the insurance programs provided to Seller's
employees immediately preceding the Closing Date. Upon the Closing, Purchaser
shall be responsible for administering all continuation coverage under any
medical and health plans of Seller for Seller's employees and their spouses,
dependents and beneficiaries, in accordance with the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA") for all qualified beneficiaries whose
original Qualifying Event (as defined in COBRA) occurred on or prior to the
Effective Date.
5.3 Worker's Compensation Claims. Purchaser and Seller hereby
----------------------------
acknowledge and agree that all workers compensation benefit claims payable to
Seller's employees for any claim for workers compensation benefits arising as
the result of an injury or occupational disease sustained while employed by
Seller will be covered under the Washington State Industrial Insurance program
in which Seller is a participant, even if such claims are filed subsequent to
the Closing.
-15-
<PAGE>
5.4 Special Employment Arrangements. At the Closing, Purchaser and
-------------------------------
Shareholder shall enter into an employment agreement in the form and substance
set forth on Exhibit "B." In addition, notwithstanding anything to the contrary
------------
contained in Section 5.1 above, Purchaser shall offer employment to Seller's
employees Paul Rittenhouse, Rod Cameron, John Turpen, Dick Krueger and Brian
Carmody, on terms and conditions similar to those under which Purchaser employs
persons of similar skill, experience and training, but with salaries reasonably
commensurate with those paid to such individuals by Seller.
5.5 Employee Vacation Benefits. The parties agree that employees of
--------------------------
Seller hired by Purchaser shall be entitled to equal or better vacation benefits
as if they had continued to be employed by Seller. All such vacations after
Closing shall be the responsibility of Purchaser. However, Purchaser shall not
be responsible for any vacation carryovers from 1997 to 1998.
ARTICLE VI
COVENANTS
---------
6.1 Interim Operations. Seller shall maintain, operate and further
------------------
the Business in the ordinary course; there shall be no material adverse changes
in the Business; there shall be no sale of the Assets other than in the ordinary
course of business; and Seller shall not enter into any agreement, contract or
other document, except in the ordinary course of business, without the prior
written consent of Purchaser, from and after the date hereof to the Closing
Date, and Purchaser shall be kept fully informed of the Business and all
transactions of Seller (other than in the ordinary course of business) during
such period. From the Effective Date through the Closing Date, Purchaser shall
reimburse Seller for all payments to or on behalf of the employees of the
Business hired by Purchaser, including without limitation all payroll expenses.
6.2 Additional Capital. Following the Closing, at such time and in
------------------
such amount as Purchaser may reasonably deem appropriate, Purchaser shall
provide the Business with capital sufficient to implement the planned
improvements from Robotic Water Jet Trimming and Dust Control Enhancements, and
to continue research and development at current levels for Seller's infusion
process, until such time as Purchaser reasonably determines that such capital
and such efforts will no longer provide reasonable cost-effective benefits to
Purchaser or the planned improvement are completed.
6.3 Full Access. Seller shall fully cooperate with Purchaser and make
-----------
available to Purchaser, Seller's accountants, attorneys, lenders, employees,
officers and other representatives, all records, books of account, documents and
information which Purchaser, its agents, representatives, attorneys, accountants
or lenders may from time-to-time request, so that Purchaser may investigate all
aspects of the Business, Assets, and prospects and financial condition of the
Business.
6.4 Notice of Material Developments. Seller and Purchaser will give
-------------------------------
prompt written notice to the other of any (i) representation or warranty
contained herein which was true as of the date hereof, but which has
subsequently become untrue, (ii) breach of any covenant hereunder by either
party, and (iii) any other material development affecting the ability of such
party to consummate the transactions contemplated in this Agreement.
6.5 Exclusivity. From the date hereof through January 31, 1998,
-----------
neither Seller nor Shareholder shall, directly or indirectly, offer or solicit
offers for, or maintain discussions or negotiations with respect to, the sale of
the Business or Assets (other than in the ordinary course of business) or any
capital stock of Seller, with any party other than Purchaser unless Purchaser
consents thereto in writing.
6.6 Consent and Approvals. Seller shall use its best efforts to
---------------------
obtain any consent, approval, authorization, designation, declaration or filing
required by Seller in connection with the consummation of the transactions
contemplated in this Agreement, and true copies thereof have or will be given to
Purchaser's counsel.
-16-
<PAGE>
6.7 Confidentiality. All information and documents delivered or
---------------
disclosed by Seller in connection with the transactions contemplated in the
Agreement shall be treated and held by Purchaser, its employees, and agents as
confidential and proprietary in accordance with the letter agreement between the
parties dated July 23, 1997, a copy of which is attached hereto as Exhibit "G"
-----------
and incorporated herein by this reference.
ARTICLE VII
CONDITIONS TO CLOSING
---------------------
7.1 Conditions Precedent to Purchaser's Obligation. The obligation of
----------------------------------------------
Purchaser to consummate the transactions contemplated by this Agreement at the
Closing is subject to the satisfaction of all of the following conditions, any
of which may be waived in writing by Purchaser:
(a) Seller's Representations, Warranties and Covenants. All
--------------------------------------------------
representations and warranties of Seller herein contained shall be true
and correct as of the Effective Date and on the Closing Date, and
Seller shall have performed, and there shall be no breach of, Seller's
covenants and agreements set forth herein on or before the Closing
Date.
(b) Environmental Reports. Purchaser shall be satisfied, in
---------------------
its sole discretion, with the results set forth in the Environmental
Reports (as defined in Section 4.l(s)(i)(C)).
(c) Real Property Leases.
--------------------
(i) Purchaser and DM Properties Limited Partnership, the
lessor of one of the parcels of the Real Property, shall have
entered into a new lease for such Real Property (or,
alternatively, an amendment and assignment of the existing lease
for such Real Property) (in either event, the "DM Lease") on
terms and conditions satisfactory to Purchaser.
(ii) Purchaser and "B" Street Partners, the lessor of one
of the parcels of the Real Property, shall have entered into a
new lease for such Real Property (or, alternatively, an
assignment and assumption agreement with respect to the existing
lease for such Real Property in the form and substance set forth
on the attached Exhibit "C" (in either event, the "`B' Street
-----------
Lease").
(d) Release of Guarantees. Purchaser and Seller shall have
---------------------
obtained the release of all guarantees of debt of the Seller made by
Shareholder and the Former Shareholder executed in favor of U.S. Bank
of Washington, N.A.
(e) Documentation. All documents relating to the transactions
-------------
contemplated in this Agreement shall be satisfactory in form and
content to Purchaser's legal counsel.
(f) Approvals. All directors', shareholders', lender and other
---------
approvals or consents, including the consent of the Former Shareholder
to assignment of the Consulting Agreement to Purchaser (the "Former
Shareholder's Consent"), to the transactions contemplated herein which
may be required of Seller shall have been obtained by Seller.
(g) No Encumbrances. All of the Assets shall be owned free and
---------------
clear of all liens and encumbrances, other than those liens and
encumbrances the obligations of which will be released concurrently
with the Closing or which Purchaser specifically agrees to assume
pursuant to the terms of this Agreement.
-17-
<PAGE>
(h) UCC Searches. Purchaser, at its sole expense, shall have
------------
obtained Uniform Commercial Code financing statement searches, or its
equivalent with respect to foreign jurisdictions dated not earlier than
ten (10) days prior to the Closing Date, from each state, country and
foreign jurisdiction in which Seller owns or leases any property,
showing no security interests, pledges, liens, claims or encumbrances
in or affecting any part of Seller's assets, other than those which
Seller causes to be released prior to or concurrently with the Closing
or which Purchaser specifically agrees to assume pursuant to the terms
of this Agreement.
(i) Litigation. There shall be no action, suit or proceeding
----------
pending or threatened before any court or quasi-judicial or
administrative agency of any jurisdiction wherein an unfavorable
judgment, order, decree, stipulation, injunction or charge would (i)
prevent consummation of the transactions contemplated herein, (ii)
cause any of the transactions contemplated herein to be rescinded
following consummation, or (iii) affect adversely the right of
Purchaser to own, operate or control the Assets or the Business.
(j) Covenant Not to Compete. Seller shall execute, enter into
-----------------------
and deliver to Purchaser a Confidentiality Agreement and Covenant Not
to Compete (the "Covenant Not to Compete") in substantially the form
and content set forth in Exhibit "D" hereto.
-----------
(k) Employment Agreement. Purchaser and Shareholder shall
--------------------
execute, enter into and deliver the employment agreement described in
Section 5.4 (the "Employment Agreement").
(l) Consents and Estoppel Certificates. All leases for all
----------------------------------
personal property used by Seller shall be satisfactory to Purchaser and
shall be properly assigned. In the event that the existing `B' Street
Lease is assigned to Purchaser (as opposed to Purchaser and the lessor
thereof entering into a new lease), Seller shall obtain the a consent
and estoppel certificate from the such lessor, certifying that the
existing `B' Street Lease and all amendments thereto are as attached to
the certificate and (i) such lease is in full force and effect, (ii)
there are no uncured defaults thereunder, (iii) the date through which
lease payments or any other applicable payments thereunder have been
paid, and (iv) the amount of any security deposit held thereunder.
(m) Warranty Bill of Sale and Assignment and Assumption.
---------------------------------------------------
Seller shall deliver all necessary consents to assignment of any
contract to be assumed by Purchaser hereunder. Seller shall execute and
deliver to Purchaser a Warranty Bill of Sale and Assignment and
Assumption Agreement in substantially the form and substance set forth
in Exhibit "E" hereto.
-----------
(n) Vehicles. Seller shall have properly transferred title to
--------
the vehicles listed on Schedule 1.1(e) to Purchaser.
---------------
7.2 Conditions Precedent to Seller's Obligation. The obligation of
-------------------------------------------
Seller to consummate the transactions contemplated by this Agreement at the
Closing is subject to the satisfaction of all of the following conditions, any
of which may be waived in writing by the Seller:
(a) Purchaser's Representations, Warranties and Covenants. All
-----------------------------------------------------
representations and warranties of the Purchaser contained herein shall
be true and correct as of the Effective Date and on the Closing Date,
and Purchaser shall have performed, and there shall be no breach of,
Purchaser's covenants and agreements set forth herein on or before the
Closing Date.
(b) Release of Guarantees. Purchaser and Seller shall have
---------------------
obtained the release of all guarantees of debt of the Seller made by
Shareholder and the Former Shareholder executed in favor of U.S. Bank
of Washington, N.A.
(c) Approvals. All directors', shareholders' and other
---------
approvals or consents to the transactions contemplated herein which may
be required of Purchaser shall have been obtained by Purchaser.
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<PAGE>
(d) Leases. Purchaser shall have entered into the DM Lease and
------
the `B' Street Lease.
(e) Litigation. There shall be no action, suit or proceeding
----------
pending or threatened before any court or quasi-judicial or
administrative agency of any jurisdiction wherein an unfavorable
judgment, order, decree, stipulation, injunction or charge would (i)
prevent consummation of the transactions contemplated herein, (ii)
cause any of the transactions contemplated herein to be rescinded
following consummation, or (iii) affect adversely the right of
Purchaser to own, operate or control the Assets or the Business.
(f) Employment Agreement. Purchaser and Shareholder shall
--------------------
execute, enter into and deliver the Employment Agreement.
(g) Delivery of Note and Letter of Credit. Purchaser shall
-------------------------------------
have delivered to Seller the Note and the Letter of Credit (on terms
reasonably satisfactory to Seller and Seller's counsel).
(h) Documentation. All documents relating to the transactions
-------------
contemplated in this Agreement shall be satisfactory in form and
content to Seller's legal counsel.
ARTICLE VIII
CLOSING
8.1 Closing. The closing (the "Closing") of the transaction
-------
contemplated herein shall be at the offices of Jaffe, Raitt, Heuer & Weiss,
Professional Corporation on January __, 1998 (the "Closing Date"), or at such
other time and location as mutually agreed to by the parties and shall, in any
event, be effective as of 12:01 a.m. on January 1, 1998.
8.2 Documents to Be Delivered at Closing by Seller. At the Closing,
----------------------------------------------
Seller shall deliver to Purchaser:
(a) A certificate executed by an officer of Seller, dated the
Closing Date, to the effect that (i) the warranties and representations
of Seller contained herein are true on the Closing Date with the same
effect as though made on and as of the Closing Date and the Effective
Date, (ii) Seller has performed and complied with all obligations
imposed upon it hereunder, including the performances of all covenants,
(iii) there has been no material adverse change in the Business or the
Assets from the date of this Agreement to the Closing Date, and (iv)
Seller has operated the Business only in the ordinary course, and there
have been no material adverse changes in the Business or Assets from
the date hereof to the Closing Date.
(b) Certified Resolutions of Seller's Board of Directors and,
if applicable, shareholders approving the terms and conditions of this
Agreement and the sale of the Assets as herein provided.
(c) Warranty Bill of Sale and Assignment and Assumption
Agreement, transferring all of the Assets to Purchaser, in the form
attached hereto as Exhibit "E" and made a part hereof.
-----------
(d) The Covenant Not to Compete.
(e) The consent and estoppel certificates described in Section
7.1(j) above.
(f) All of the Assets.
-19-
<PAGE>
(g) The DM Lease.
(h) The Assignment and Assumption of the "B" Street Lease or
new "B" Street Lease, as the case may be.
(i) The Employment Agreement.
(j) The Former Shareholder's Consent.
(k) Such other documents and instruments as may be reasonably
requested by counsel for Purchaser.
8.3 Documents to be Delivered at Closing by Purchaser. At the
-------------------------------------------------
Closing, Purchaser shall deliver to Seller:
(a) Certificate executed by an officer of Purchaser dated the
Closing Date, to the effect that (i) the warranties and representations
of Purchaser contained herein are true on the Closing Date with the
same effect as though made on and as of the Closing Date and the
Effective Date, and (ii) Purchaser has performed and complied with all
obligations imposed upon it hereunder, including the performances of
all covenants.
(b) Certified Resolutions of the Board of Directors of
Purchaser approving the terms and conditions of this Agreement and the
purchase of the Assets as herein provided.
(c) The Purchase Price as provided in Article III (including
the Note and the Letter of Credit).
(d) The Employment Agreement.
(e) Such other documents and instruments as may be reasonably
requested by counsel for Seller.
ARTICLE IX
INDEMNIFICATION
---------------
9.1 Indemnification of Purchaser. Seller and Shareholder hereby,
----------------------------
jointly and severally, agree to indemnify, defend (as provided below) and hold
Purchaser, and its officers, directors, employees, shareholders, successors and
assigns, harmless from and against any and all liability, loss, costs or
expenses which Purchaser may suffer and become liable for as a result or in
connection with:
(a) Any and all liabilities and obligations and claims against
Seller not assumed by Purchaser pursuant to the provisions of this
Agreement, whether disclosed or not, including without limitation, any
and all liabilities and obligations of, or claims, demands, liens, or
judgments against Purchaser incurred or which arise from or in any way
relate to the activities of Seller, claims arising as the result of
injuries alleged to have been sustained at any time as the result of
any actual or alleged defect in a product manufactured by Seller or the
operation of the Business by Seller, prior to the Closing;
(b) Any and all liabilities and claims incurred by Purchaser
based upon, arising out of or otherwise in connection with
non-compliance by Seller with the provisions of any bulk transfer laws
which may apply to the transactions contemplated in this Agreement;
-20-
<PAGE>
(c) Any and all monetary damages or deficiencies resulting
from any misrepresentation, or breach of warranty, under this Agreement
or resulting from any misrepresentation or omission from any
certificate, schedule, list, or other instrument to be furnished by
Seller to Purchaser under this Agreement;
(d) Any nonfulfillment of any agreement or covenant on the
part of Seller; or
(e) Any and all actions, suits, proceedings, demands,
assessments, judgments, costs, and expenses including reasonable
attorneys and consultants fees, incident to any of the foregoing;
provided, however, that within sixty (60) days after learning of the assertion
of any claim against which Purchaser claims indemnification hereunder, Purchaser
shall notify Seller and afford it the opportunity to assume the defense or
settlement thereof at its own expense with counsel of its choosing, and
Purchaser shall have cooperated fully to make available to Seller all pertinent
information under its control or in its possession. Purchaser shall have the
right to join in the defense of any such claim with counsel of its own choosing
and at its own expense.
9.2 Indemnification of Seller. Purchaser hereby agrees to indemnify,
-------------------------
defend (as provided below) and hold Seller and Shareholder, and their respective
successors and assigns, and Seller's officers and directors and shareholder
harmless from and against any and all liability, loss, cost or expense which
Seller or Shareholder may suffer or become liable for as a result or in
connection with:
(a) Any and all liabilities, obligations and claims, which
arise from or in any way relate to the ownership or operation of the
Business by Purchaser after the Closing Date;
(b) Any and all liabilities and claims arising after the
Closing Date under any contract, agreement or lease assigned to
Purchaser pursuant to the terms of this Agreement;
provided, however, that within sixty (60) days after learning of the assertion
of any claim against which Seller claims indemnification hereunder, Seller shall
notify Purchaser and afford it the opportunity to assume the defense or
settlement thereof at its own expense with counsel of its choosing, and Seller
shall have cooperated fully to make available to Purchaser all pertinent
information under its control or in its possession. Seller shall have the right
to join in the defense of any such claim with counsel of its own choosing and at
its own expense.
9.3 Minimization of Indemnities. The parties hereto shall each use
---------------------------
reasonable efforts to minimize the obligation of the others to indemnify
hereunder, by, among other reasonable things and without limiting the generality
of the foregoing, taking such reasonable remedial action as it believes may
minimize such obligation and seeking to the maximum extent possible
reimbursement from insurance carriers under applicable insurance policies
covering any such liability.
9.4 Assignment of Claims. The parties hereto agree upon satisfaction
--------------------
of the obligation to indemnify hereunder, and in consideration thereof, to
assign to the party making such payment or giving such credit, any and all
claims, causes of action and demands of whatever kind and nature which such
indemnified party may have against any person, firm or other entity giving rise
to such indemnified loss, and to reasonably cooperate in any efforts to recover
therefrom.
9.5 Purchaser's Right to Settle Claims. Notwithstanding anything
----------------------------------
herein contained to the contrary, in the event that, in order to protect the
Business to be acquired by Purchaser hereunder or the customers of the Business,
or the Assets, Purchaser shall desire to settle any claims or actions, the
defense of which Seller would otherwise be entitled to assume pursuant to the
provisions hereof, Purchaser shall be entitled to so settle such claim or
action, after first giving Seller not less than five (5) days prior written
notice of such claim or action and the proposed settlement, and the terms of
such settlement shall be binding upon Seller so long as they are commercially
reasonable measured in the context of the matter settled and not in respect of
other considerations of the Purchaser.
-21-
<PAGE>
9.6 Remedies Not Exclusive. Each Party to this Agreement shall be
----------------------
entitled to exercise and resort to all rights and remedies for misrepresentation
or breach as are afforded to such party at law or in equity, including, without
limitation, rescission, specific performance, action for damages, adjustment to
the Purchase Price or such other remedies and relief as may be afforded to such
art under this Agreement or by a court of competent jurisdiction. Neither the
existence or exercise of any specific remedies is intended to be exclusive of or
impair or otherwise adversely affect in any manner whatsoever any rights,
remedies or relief otherwise available to such party, and each and every right
and remedy will be cumulative and in addition to every other right and remedy
provided in this Agreement or by law.
9.7 Right of Offset. Any amounts payable by Seller to Purchaser
---------------
under this Agreement (including pursuant to this Article IX) may, at the option
of Purchaser, be set off against any amounts due Seller by Purchaser hereunder,
including, without limitation, pursuant to the Note (as defined in Section 3.2).
9.8 Limitation on Indemnities. Notwithstanding any provision to the
-------------------------
contrary, no claim by either party against the other for breach of
representation or warranty shall be valid and assertible unless and until the
aggregate amount of all claims which may be asserted exceeds $100,000, except
that no claim by Purchaser against Seller for breach of the representations and
warranties contained in Sections 4.1(i), 4.1(j) and 4.1(s) shall be valid and
assertible unless and until the aggregate amount of all such claims which may be
asserted under such sections exceeds $200,000, and then (in both instances) such
claims shall be payable from the first dollar. Additionally, all claims for
breach of representation or warranty, together with any claims for
indemnification by Purchaser against Seller relating to any environmental
liability (whether or not a breach of representation or warranty) shall not
exceed an amount equal to the Initial Purchase Price less the amount of the
Initial Purchase Price to be paid to the Former Shareholder pursuant to Section
3.6(a) of this Agreement. The dollar limitations set forth in this Section 9.8
shall not apply to any other Excluded Liabilities or to any breach of a party's
covenants or other agreements hereunder; provided, however, if any claim by
Purchaser against Seller with respect to an Excluded Liability could also be
asserted by Purchaser against Seller as a breach of representations or
warranties hereunder, Purchaser shall assert such claim (to the extent
applicable) as a breach of a representation and warranty rather than an Excluded
Liability.
9.9 Survival. The representations and warranties of Seller and
--------
Purchaser contained in this Agreement shall survive for a period of two (2)
years from the Closing Date (other than Seller's representations and warranties
with respect to assets contained in Section 4.1(a), good standing and authority
found in Section 4.1(b), tax matters found in Section 4.1(p), and consents,
approvals and authorizations found in Section 4.1(t), which shall continue in
full force and effect until expiration of their respective statutes of
limitation, and environmental matters found in Section 4.1(s), which shall
continue in full force and effect for a period of three (3) years).
ARTICLE X
TERMINATION
-----------
10.1 Termination. This Agreement may be terminated at any time before
-----------
the Closing:
(a) by mutual consent of the Boards of Directors of Purchaser
and Seller; or
(b) by the Board of Directors of Seller if any of the
conditions set forth in Section 7.2 of this Agreement have not been
fulfilled, satisfied or waived by January 31, 1998, or Purchaser
breaches any covenant or agreement set forth in this Agreement; or
(c) by the Board of Directors of Purchaser if any of the
conditions set forth in Section 7.1 of this Agreement have not been
fulfilled, satisfied or waived by January 31, 1998, or Seller breaches
any covenant or agreement set forth in this Agreement.
-22-
<PAGE>
10.2 Effect of Termination. If this Agreement is terminated in
---------------------
accordance with Section 10.1,it shall be null and void and have no further
force or effect.
ARTICLE XI
MISCELLANEOUS
-------------
11.1 Distribution to Shareholder. Immediately prior to the Closing,
---------------------------
Seller may distribute to Shareholder an amount equal to Seller's Adjusted Income
(defined in Section 3.2) for the period commencing on July 1,1997 and ending on
the Effective Date (the "Distribution").
11.2 Expenses. Seller and Purchaser hereby agree that they shall each
--------
bear their own expenses incurred by them in connection with the preparation and
negotiation of this Agreement and the consummation of the transactions
contemplated herein.
11.3 Dispute Resolution Any and all disputes between the parties
------------------
hereto arising out of any provision of this Agreement shall be resolved in
accordance with the alternative Dispute Resolution Procedures set forth in the
attached Exhibit "H", provided, however, that a party hereto may seek a
-----------
preliminary injunction or other provisional judicial relief if in its judgment
such action is necessary to avoid irreparable damage or to preserve the status
quo. Despite any such action, the parties hereto will continue to participate in
good faith in the procedures set forth in Exhibit "H".
-----------
11.4 Notices. Any and all notices, requests, demands and other
-------
communications permitted or required hereunder shall be in writing and shall be
deemed given, if personally delivered or if mailed, postage prepaid, certified
or registered, return receipt requested, to the parties as follows, or at such
other addresses as they may indicate by written notice given as herein provided:
<TABLE>
<CAPTION>
<S> <C>
If to Seller: With a Required Copy to:
Livingston, Inc. Stoel Rives LLP
6045 N.E. 135th Street 600 University Street, Suite 3600
Kirkland, WA 98034 Seattle, WA 98101
Attention: Mr. Robert D. Morganstern Attention: John E. Poffenbarger, Esq.
If to Purchaser: With a Required Copy to:
Cambridge Industries, Inc. Jaffe, Raitt, Heuer & Weiss
555 Horace Brown Drive Professional Corporation
Madison Heights, Michigan 48071 One Woodward Avenue, Suite 2400
Attention: President Detroit, Michigan 48226
Attention: Robin H. Krueger, Esq.
</TABLE>
11.5 Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
11.6 Construction. This Agreement has been executed in, and shall be
------------
construed and enforced in accordance with the laws of the State of Michigan.
11.7 Assignment; Benefit. This Agreement may not be assigned by a
-------------------
party without the prior written consent of the other party (which consent shall
not be unreasonably withheld). This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
-23-
<PAGE>
11.8 Entire Agreement. This Agreement, including the Exhibits and the
----------------
Schedules attached or to be attached hereto, is and shall be deemed to be the
complete and final expression of the agreement between the parties as to the
matters herein contained and relative thereof, and supersedes any previous
agreements between the parties pertaining to such matters, other than that
certain confidentiality agreement between the parties dated July 23, 1997, which
shall survive the execution of this Agreement, but shall terminate upon the
Closing.
11.9 Tax Matters.
-----------
(i) Seller will be responsible for the preparation and filing
of all Tax Returns for Seller for all periods as to which Tax Returns
are due after the Closing Date. Seller will make all payments required
with respect to any such Tax Returns.
(ii) Purchaser will be responsible for the preparation and
filing of all Tax Returns for the Business for all periods as to which
Tax Returns are due after the Closing Date. Purchaser will make all
payments required with respect to any such Tax Return; provided,
however, that Seller will reimburse Purchaser concurrently therewith to
the extent any payment the Purchaser is making relates to the
operations of the Business for any period ending on or before the
Closing Date.
(iii) All sales, use and transfer taxes (including taxes, if
any, imposed upon the transfer of real and personal property), filing,
recording and registration fees payable in connection with the
transactions contemplated hereby shall be paid by Seller.
11.10 Books and Records. Purchaser agrees that it will preserve all
-----------------
documents, books and records of the Business delivered to Purchaser by Seller
pursuant to this Agreement for a period of six (6) years from the Closing Date
and will allow Seller, and any of its representatives, full access thereto and
the right to make copies and extracts therefrom at any time during such six-year
period during normal business hours after reasonable notice.
11.11 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
11.12 Waiver. The waiver by any party of any breach of any provision
------
hereof shall not operate or be construed as a waiver of any subsequent or
similar breach.
11.13 Amendment. This Agreement may only be amended by written
---------
agreement executed by the parties hereto, or their respective successor or
assigns.
11.14 Further Assurances. From time to time after the Closing Date,
------------------
at Purchaser's request and without further consideration, Seller and Shareholder
shall execute and deliver or cause to be executed and delivered such further
instruments of conveyance, assignment and transfer and shall take such other
action as Purchaser may reasonably request in order more effectively to convey,
transfer, reduce to possession or record title to any of the Assets purchased
pursuant hereto. Upon the request of Purchaser, Seller and Shareholder will
cooperate and will use their best efforts to have the officers, directors and
other employees of Seller cooperate with Purchaser on or after the Closing Date
by furnishing information, evidence, testimony and other assistance in
connection with any actions, proceedings, arrangements or disputes involving
Purchaser and which are based upon contracts, leases, arrangements or acts of
Seller which were in effect or occurred on or prior to the Closing Date. From
time to time after the Closing Date, at Seller's request and without further
consideration, Purchaser shall execute and deliver or cause to be executed and
delivered such further instruments and documents as may be necessary or
reasonably desirable for the consummation of the transactions contemplated in
this Agreement.
************************
-24-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Asset Purchase
Agreement to be fully executed as of the day and year first written above.
CAMBRIDGE INDUSTRIES, INC.
a Delaware corporation
By: /s/ Richard Crawford
-----------------------------------------
Its: Chairman of the Board
----------------------------------------
LIVINGSTON, INC.,
a Washington corporation
By: /s/ Robert D. Morganstern
------------------------------------------
Its: President
-----------------------------------------
/s/ Robert D. Morganstern
---------------------------------------------
ROBERT D. MORGRANSTERN
-25-
<PAGE>
LIST OF SCHEDULES
1.1(a) - Furniture, Fixtures and Other Fixed Assets
1.1(e) - Equipment, Machinery and Vehicles
1.1(f) - Contracts
1.1(g) - Licenses and Permits
1.1(i) - Third Party Warranties
1.1(j) - Real Property
1.1(k) - Accounts Receivable
1.2(d) - Excluded Assets
4.1(e) - Intellectual Property
4.1(f) - Condition of Assets
4.1(h) - Litigation
4.1(i) - Compliance with Applicable Laws and Regulations
4.1(k) - Employees
4.1(m) - Financial Statements
4.1(o) - Conduct of Business Since June 30, 1997
4.1(p) - Tax Matters
4.1(r) - Leased Real Property
4.1(s) - Environmental Reports
4.1(t) - Consents, Approvals and Authorization
4.1(u) - Insurance
4.1(v) - Employee Benefit Plans
-26-
<PAGE>
LIST OF EXHIBITS
A - Form of Promissory Note
B - Form of Employment Agreement
C - Form of Assignment and Assumption of "B" Street Lease or
New "B" Street Lease
D - Form of Covenant Not to Compete
E - Form of Warranty Bill of Sale and Assignment and Assumption
F - Alternative Dispute Resolution
G - Confidentiality Agreement
-27-
<PAGE>
LIST OF SCHEDULES
1.1(a) - Furniture, Fixtures and Other Fixed Assets
1.1(e) - Equipment, Machinery and Vehicles
1.1(f) - Contracts
1.1(g) - Licenses and Permits
1.1(i) - Third Party Warranties
1.1(j) - Real Property
1.1(k) - Accounts Receivable
1.2(d) - Excluded Assets
4.1(e) - Intellectual Property
4.1(f) - Condition of Assets
4.1(h) - Litigation
4.1(i) - Compliance with Applicable Laws and Regulations
4.1(k) - Employees
4.1(m) - Financial Statements
4.1(o) - Conduct of Business Since June 30, 1997
4.1(p) - Tax Matters
4.1(r) - Leased Real Property
4.1(s) - Environmental Reports
4.1(t) - Consents, Approvals and Authorization
4.1(u) - Insurance
4.1(v) - Employee Benefit Plans
In accordance with Item 601(b)(2) of Regulation S--K, the exhibits and schedules
described in the List of Exhibits and Schedules of this Agreement have not been
filed with the Current Report on Form 10--K to which this Agreement is an
exhibit. The Registrant hereby agrees to furnish supplementally copies of such
exhibits and schedules to the Commission upon request.
26
<PAGE>
LIST OF EXHIBITS
A - Form of Promissory Note
B - Form of Employment Agreement
C - Form of Assignment and Assumption of "B" Street Lease or
New "B" Street Lease
D - Form of Covenant Not to Compete
E - Form of Warranty Bill of Sale and Assignment and Assumption
F - Alternative Dispute Resolution
G - Confidentiality Agreement
In accordance with Item 601(b)(2) of Regulation S--K, the exhibits and Schedules
described in the List of Exhibits and Schedules of this Agreement have not been
filed with the Current Report on Form 10--K to which this Agreement is an
exhibit. The Registrant hereby agrees to furnish supplementally copies of such
exhibits and schedules to the Commission upon request.
27
<PAGE>
EXHIBIT 10.43
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
SECOND AMENDMENT (this "Amendment"), dated as of July 1, 1998,
among Cambridge Industries Holdings, Inc. ("Holdings"), Cambridge Industries,
Inc. (the "Borrower"), the lenders party to the Credit Agreement referred to
below (the "Banks"), and Bankers Trust Company, as Agent (in such capacity,
the "Agent"). All capitalized terms used herein and not otherwise defined
herein shall have the respective meanings provided such terms in the Credit
Agreement referred to below.
WITNESSETH:
----------
WHEREAS, Holdings, the Borrower, the Banks and the Agent are
parties to a Credit Agreement, dated as of July 10, 1997 (as amended, modified
or supplemented through the date hereof, the "Credit Agreement"); and
WHEREAS, the parties to the Credit Agreement wish to amend the
Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed:
1. Section 8.10 of the Credit Agreement is hereby amended
by deleting the ratio "1.7:1.0" opposite each of the dates "September 30, 1998"
and "December 31, 1998" and inserting the ratio "1.6:1.0" in lieu thereof.
2. Section 8.11 of the Credit Agreement is hereby amended
by deleting the ratio "6.0:1.0" opposite each of the dates "September 30, 1998"
and "December 31, 1998" and inserting the ratio "6.5:1.0" in lieu thereof.
3. This Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.
4. In order to induce the Banks to enter into this
Amendment, each of Holdings and the Borrower hereby represents and warrants that
(x) no Default or Event of Default exists on the Second Amendment Effective Date
after giving effect to this Amendment and (y) all of the representations and
warranties contained in the Credit Documents shall be true and correct in all
material respects on the Second Amendment Effective Date both before and after
giving effect to this Amendment with the same effect as though such
representations and warranties had been made on and as of the Second Amendment
Effective Date (it being understood that any representation or warranty made as
of a specific date shall be true and correct in all material respects as of such
specific date).
5. This Amendment may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which counterparts when executed and delivered shall be an original, but all
of which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with the Borrower and the Agent.
<PAGE>
6. This Amendment and the rights and obligations of the
parties hereunder shall be construed in accordance with and governed by the law
of the State of New York.
7. This Amendment shall become effective as of July 1, 1998
on the date (the "Second Amendment Effective Date") when each of Holdings, the
Borrower and the Required Banks shall have signed a counterpart hereof (whether
the same or different counterparts) and shall have delivered (including by way
of telecopier) the same to the Agent at its Notice Office. The Agent shall
promptly notify the Borrower and the Banks in writing of the Second Amendment
Effective Date.
8. From and after the Second Amendment Effective Date, all
references in the Credit Agreement and each of the other Credit Documents to the
Credit Agreement shall be deemed to be references to the Credit Agreement after
giving effect to this Amendment.
-2-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.
CAMBRIDGE INDUSTRIES HOLDINGS, INC.
By /s/ John M. Colaianne
------------------------
Title: CFO
CAMBRIDGE INDUSTRIES, INC.
By /s/ John M. Colaianne
------------------------
Title: CFO
<PAGE>
BANKERS TRUST COMPANY,
Individually and as Agent
By /s/ Mary Kay Coyle
------------------------------
Title: MANAGING DIRECTOR
<PAGE>
BANKBOSTON, N.A.
By /s/ Kimberly F. Harris
------------------------------
Title: VP
<PAGE>
CITY NATIONAL BANK
By [signature illegible]
------------------------------
Title: VP
<PAGE>
COMERICA BANK
By [signature illegible]
------------------------------
Title: VP
<PAGE>
DRESDNER BANK AG, NEW YORK
AND GRAND CAYMAN BRANCHES
By /s/ Beverly G. Cason
------------------------------
Title: BEVERLY G. CASON
VICE PRESIDENT
By /s/ John W. Sweeney
------------------------------
Title: JOHN W. SWEENEY
ASSISTANT VICE PRESIDENT
<PAGE>
DEEPROCK & COMPANY
By Eaton Vance Management, as
Investment Advisor
By /s/ Scott H. Page
------------------------------
Title: SCOTT H. PAGE
VICE PRESIDENT
<PAGE>
SENIOR DEBT PORTFOLIO
By: Boston Management and Research
as Investment Advisor
By /s/ Scott H. Page
------------------------------
Title: SCOTT H. PAGE
VICE PRESIDENT
<PAGE>
FLEET NATIONAL BANK
By [signature illegible]
------------------------------
Title: Senior Vice-President
<PAGE>
INDOSUEZ CAPITAL FUNDING III, LIMITED
By: Indosuez Capital Luxembourg, as Collateral
Manager
By /s/ Francoise Berthelot
------------------------------
Title: FRANCOISE BERTHELOT
AUTHORIZED SIGNATORY
<PAGE>
INDOSUEZ CAPITAL FUNDING IIA, LIMITED
By: Indosuez Capital Luxembourg, as Collateral
Manager
By /s/ Francoise Berthelot
------------------------------
Title:
<PAGE>
PILGRIM AMERICA PRIME RATE TRUST
By /s/ Robert L. Wilson
------------------------------
Title: Robert L. Wilson
Vice-President
<PAGE>
SANWA BUSINESS CREDIT CORPORATION
By /s/ Stanley Kaminski
------------------------------
Title: Stanley Kaminski
Vice-President
<PAGE>
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By /s/ Perry Vavoules
------------------------------
Title: Perry Vavoules
Senior Vice-President
<PAGE>
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By /s/ Jeffrey W. Maillet
--------------------------------
Title: JEFFREY W. MAILLET
SR. VICE PRES. & DIRECTOR
<PAGE>
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
By /s/ Sean Mounier
------------------------------
Title: First Vice President
By: /s/ Brian O'Leary
----------------------------
Title: Vice President
<PAGE>
GENERAL ELECTRIC CAPITAL
CORPORATION
By /s/ Murray Stegelmann
---------------------------------
Title: Murray Stegelmann
Duly Authorized Signatory
<PAGE>
OCTAGON LOAN TRUST
By Octagon Credit Incestors,
its manager
/s/ Richard W. Stewart
---------------------------
Title: RICHARD W. STEWART
MANAGING DIRECTOR
<PAGE>
BANK POLSKA KASA OPIEKI S.A., PEKAO
S.A. GROUP, NEW YORK BRANCH
By [signature illegible]
--------------------------------
Title: Vice President
<PAGE>
DLJ CAPITAL FUNDING, INC.
By [signature illegible]
--------------------------------
Title:
<PAGE>
ML CLO XII PILGRIM AMERICA
(CAYMAN) LTD.
By: Pilgrim America Investments, Inc.
as its Investment Manager
By /s/ Robert L. Wilson
--------------------------------
Name: Robert L. Wilson
Title: Vice President
<PAGE>
ML CLO XV PILGRIM AMERICA
(CAYMAN) LTD.
By: Pilgrim America Investments, Inc.
as its Investment Manager
By /s/ Robert L. Wilson
--------------------------------
Name: Robert L. Wilson
Title: Vice President
<PAGE>
PAMCO CAYMAN LTD (PROTECTIVE)
By: Highland Capital Management, L.P.
as Collateral Manager
By /s/ James Dondero
---------------------------------------
Name: James Dondero, CFA, CPA
Title: President
Highland Capital Management L.P.
<PAGE>
CERES FINANCE LTD.
By /s/ John H. Cullinane
--------------------------------
Name: John H. Cullinane
Title: Director
<PAGE>
THIRD WAIVER AND AMENDMENT
THIRD WAIVER AND AMENDMENT (this "Waiver"), dated as of December
31, 1998, among CAMBRIDGE INDUSTRIES HOLDINGS, INC. ("Holdings"), CAMBRIDGE
INDUSTRIES, INC., (the "Borrower"), the lenders from time to time party to the
Credit Agreement described below (each, a "Bank" and collectively, the "Banks"),
and BANKERS TRUST COMPANY, as Agent (the "Agent"). All capitalized terms used
herein and not otherwise defined herein shall have the respective meanings
provided such terms in the Credit Agreement.
WITNESSETH:
WHEREAS, Holdings, the Borrower, the Banks and the Agent are
party to a Credit Agreement, dated as of July 10, 1997 (as amended, modified and
supplemented prior to the date hereof, the "Credit Agreement"); and
WHEREAS, Holdings, the Borrower, the Banks and the Agent intend
to enter into an amendment to the Credit Agreement amending, on or prior to
March 15, 1999, certain provisions of the Credit Agreement, including but not
limited to, Sections 8.09, Section 8.10 and Section 8.11 of the Credit Agreement
(the "Permanent Amendment", and the date of effectiveness of the Permanent
Amendment, the "Permanent Amendment Effective Date");
WHEREAS, the Borrower has requested that the Banks provide the
Waiver provided for herein and the Banks have agreed to provide such Waiver on
the terms and conditions set forth herein;
NOW, THEREFORE, it is agreed:
1. On the Permanent Amendment Effective Date the definition
of "Applicable Base Rate Margin" in Section 10 of the Credit Agreement shall
retroactive to January 1, 1999, be amended by (i) deleting the percentage
"1.50%" appearing therein and inserting "2.00%" in lieu thereof and (ii)
deleting the percentage "2.00%" appearing therein and inserting "2.50%" in lieu
thereof provided however, that interest on Base Rate Loans that is retroactively
amended shall be payable on the later of (x) the Permanent Amendment Effective
Date and (y) the date such interest is otherwise due.
2. On the Permanent Amendment Effective Date the definition
of "Applicable Eurodollar Margin" in Section 10 of the Credit Agreement shall
retroactive to January 1, 1999, be amended by (i) deleting the percentage
"2.50%" appearing therein and inserting "3.00%" in lieu thereof and (ii)
deleting the percentage "3.00%" appearing therein and inserting "3.50%" in lieu
thereof.
1
<PAGE>
3. On the Permanent Amendment Effective Date the definition
of "Interest Reduction Discount" shall retroactive to January 1, 1999, be
amended by deleting such definition in its entirety and inserting the following
new definition in lieu thereof.
"Interest Reduction Discount" shall mean initially zero,
provided that from and after any Start Date to and including the corresponding
End Date, the Interest Reduction Discount shall be (I) in the case of A Term
Loans and Revolving Loans, the respective percentage per annum set forth in
clause (A), (B), (C), (D), (E), or (F) below if, but only if, as of the Test
Date for such Start Date the applicable condition set forth in clause (A), (B),
(C), (D), (E), or (F) below, as the case may be, is met:
(A) .250% if, but only if, the Leverage Ratio on such Test
Date is less than 5.50:1.00 but greater than or equal to 5.00:1.00; or
(B) .500% if, but only if, the Leverage Ratio on such Test
Date is less than 5.00:1.00 but greater than or equal to 4.50:1.00; or
(C) .750% if, but only if, the Leverage Ratio on such Test
Date is less than 4.50:1.00 but greater than or equal to 4.00:1.00; or
(D) 1.00% if, but only if, the Leverage Ratio on such Test
Date is less than 4.00:1.00 but greater than or equal to 3.50:1.00; or
(E) 1.25% if, but only if, the Leverage Ratio on such Test
Date is less than 3.50:1.00 but greater than or equal to 3.00:1.00; or
(F) 1.50% if, but only if, the Leverage Ratio on such Test
Date is less than 3.00:1.00;
and (II) in the case of B Term Loans, the respective percentage per annum set
forth in clause (A) or (B) below if, but only if, as of the Test Date for such
Start Date the applicable condition set forth in clause (A) or (B) below, as the
case may be, is met:
(A) .250% if, but only if, the Leverage Ratio on such Test
Date is less than 5.50:1.00 but greater than or equal to 5.00:1.00; or
(B) .500% if, but only if, the Leverage Ratio on such Test
Date is less than 5.00:1.00.
Notwithstanding anything to the contrary contained above in this
definition, the Interest Reduction Discount shall be zero at any time when an
Event of Default shall exist.
4. Effective for any Test Period or any fiscal quarter
ending on December 31, 1998 through and including March 15, 1999 (the "Waiver
Termination Date"), the Banks hereby waive compliance with the provisions of
Section 8.09, Section 8.10 and Section 8.11 of the Credit Agreement. This Waiver
shall be effective only for the period from December 31, 1998 to and
2
<PAGE>
including the Waiver Termination Date (the "Waiver Period") and shall be of no
force or effect at any other time.
5. In order to induce the Banks to enter into this Waiver,
the Borrower agrees that at all times from the Waiver Effective Date (as defined
below) to and including the Waiver Termination Date, the sum of (i) the
aggregate outstanding principal amount of Revolving Loans and Swingline Loans
and (ii) the Letter of Credit Outstandings under the Credit Agreement shall not
exceed $45,000,000.
6. In order to induce the Banks to enter into this Waiver,
each of Holdings and the borrower hereby represents and warrants that (i) no
Default or Event of Default exists as of the Waiver Effective Date (as defined
below) after giving effect to this Waiver and (ii) on the Waiver Effective Date,
both before and after giving effect to this Waiver, all representations and
warranties contained in the Credit Agreement and in the other Credit Documents
are true and correct in all material respects.
7. This Waiver shall become effective on the date (the
"Waiver Effective Date") when (i) the Required Banks, Holdings and the Borrower
shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Agent at its Notice Office and (ii) each Bank
which shall have signed and delivered a copy of this Waiver prior to the close
of business on January 13, 1999, shall have received a waiver fee equal to 1/8
of 1% on the Revolving Loan Commitment and/or outstanding Term Loans of such
Bank as in effect on such date.
8. This Waiver is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreement or any other Credit Document.
9. This Waiver may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which counterparts when executed and delivered shall be an original, but all
of which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with the Borrower and the Agent.
10. At all times during the Waiver Period, all references in
the Credit Agreement and each of the Credit Documents to the Credit Agreement
shall be deemend to be references to such Credit Agreement after giving effect
to this Waiver.
11. THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN THE ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
***
3
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Waiver to be duly executed and delivered as of the date
hereof.
CAMBRIDGE INDUSTRIES HOLDINGS,
INC.
By /s/ John Colaianne
------------------------------
Name: John Colaianne
Title: CFO
CAMBRIDGE INDUSTRIES, INC.
INC.
By /s/ John Colaianne
------------------------------
Name: John Colaianne
Title: CFO
4
<PAGE>
BANKERS TRUST COMPANY,
Individually and as Agent
By /s/ Mary Kay Coyle
------------------------------
Name: MARY KAY COYLE
Title: Managing Director
5
<PAGE>
BANKBOSTON, N.A.
By /s/ Kimberly F. Harris
------------------------------
Title: VP
6
<PAGE>
CITY NATIONAL BANK
By /s/ Lalward Vassell
------------------------------
Title: V.P.
7
<PAGE>
COMERICA BANK
By Mark Reifel
------------------------------
Title: V.P.
8
<PAGE>
CREDIT LYONNAIS CHICAGO BRANCH
By /s/ Lee E. Greve
------------------------------
Title: LEE E. GREVE
FIRST VICE PRESIDENT
9
<PAGE>
CYPRESS TREE INVESTMENT
MANAGEMENT COMPANY, INC.
As: Attorney-in-Fact and on
Behalf of First Allmerica Financial
Life Insurance Company
By /s/ Catherine C. McDermott
------------------------------
Title: CATHERINE C. McDERMOTT
PRINCIPAL
10
<PAGE>
DRESDNER BANK AG, NEW YORK
AND GRAND CAYMAN BRANCHES
By /s/ Christopher E. Sarisky
------------------------------
Title: CHRISTOPHER E. SARISKY
Assistant Vice President
By /s/ John W. Sweeney
------------------------------
Title: JOHN W. SWEENEY
ASSISTANT VICE PRESIDENT
11
<PAGE>
DEEPROCK & COMPANY
By: Eaton Vance Management, as
Investment Advisor
By /s/ Scott H. Page
------------------------------
Title: SCOTT H. PAGE
VICE PRESIDENT
12
<PAGE>
SENIOR DEBT PORTFOLIO
By Boston Management and Research, as
Investment Advisor
By /s/ Scott H. Page
------------------------------
Title: SCOTT H. PAGE
VICE PRESIDENT
13
<PAGE>
FLEET NATIONAL BANK
By George O. Januga
------------------------------
Title: Vice President
14
<PAGE>
HELLER FINANCIAL, INC.
By Craig Gallehugh
------------------------------
Title: Vice President
15
<PAGE>
INDOSUEZ CAPITAL FUNDING III, LIMITED
By Indosuez Capital Luxembourg, as
Collateral Manaager
By /s/ Francoise Berthelot
------------------------------
Title: FRANCOISE BERTHELOT
AUTHORIZED SIGNATORY
16
<PAGE>
INDOSUEZ CAPITAL FUNDING IIA, LIMITED
By Indosuez Capital Luxembourg, as
Collateral Manaager
By /s/ Francoise Berthelot
------------------------------
Title: FRANCOISE BERTHELOT
AUTHORIZED SIGNATORY
17
<PAGE>
PILGRIM AMERICA PRIME RATE TRUST
By Pilgrim Investments, Inc.
as its Investment Manager
By /s/ Robert L. Wilson
------------------------------
Title: Robert L. Wilson
Vice President
18
<PAGE>
SANWA BUSINESS CREDIT CORPORATION
By: No Signature Received
--------------------------
Title:
19
<PAGE>
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By /s/ Perry Vavoules
------------------------------
Title: Perry Vavoules
Senior Vice President
20
<PAGE>
VAN KAMPEN PRIME RATE INCOME TRUST
By /s/ Jeffrey W. Marlet
------------------------------
Title: JEFFREY W. MARLET
Senior Vice President & Director
21
<PAGE>
KZH PAMCO LLC
By /s/ Michael M. Wong
------------------------------
Title: Michael M. Wong
Authorized Agent
22
<PAGE>
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
By /s/ Sean Mounier
------------------------------
Title: First Vice President
By /s/ Brian O'Leary
------------------------------
Title: Vice President
23
<PAGE>
GENERAL ELECTRIC CAPITAL
CORPORATION
By /s/ Michael McGonigle
------------------------------
Title: MICHAEL McGONIGLE
DULY AUTHORIZED SIGNATORY
24
<PAGE>
BANK POLSAK KASA OPIEKI S.A., PEKAO
S.A. GROUP, NEW YORK BRANCH
By Harvey Winter
------------------------------
Title: Vice President
25
<PAGE>
FIRST UNION NATIONAL BANK
By: No Signature Received
--------------------------
Title:
26
<PAGE>
ML CLO XII PILGRIM AMERICA (CAYMAN)
LTD. By: Pilgrim Investments, Inc.
as its Investment Manager
By /s/ Robert L. Wilson
------------------------------
Name: Robert L. Wilson
Title: Vice President
27
<PAGE>
ML CLO XV PILGRIM AMERICA
(CAYMAN) LTD.
By: Pilgrim Investments, Inc.
as its Investment Manager
By /s/ Robert L. Wilson
------------------------------
Name: Robert L. Wilson
Title: Vice President
28
<PAGE>
PAMCO CAYMAN LTD
By: Highland Capital Management, L.P.
as Collateral Manager
By [signature illegible]
------------------------------
Name:
Title:
29
<PAGE>
TORONTO DOMINION (TEXAS), INC.
By Sonja R. Jordan
------------------------------
Name: SONJA R. JORDAN
Title: VICE PRESIDENT
30
<PAGE>
CERES FINANCE LTD.
By [signature illegible]
------------------------------
Name:
Title:
31
<PAGE>
EATON VANCE SENIOR INCOME TRUST
BY: EATON VANCE MANAGEMENT
AS INVESTMENT ADVISOR
By /s/ SCOTT H. PAGE
------------------------------
Name: SCOTT H. PAGE
Title: VICE PRESIDENT
32
<PAGE>
CYPRESS TREE INVESTMENT
PARTNERS I, LTD.
By: Cypress Tree Investment
Company, Inc., as Portfolio Manager
By /s/ Philip C. Robbins
------------------------------
Title: PHILIP C. ROBBINS
PRINCIPAL
33
<PAGE>
FOURTH WAIVER AND AMENDMENT
---------------------------
FOURTH WAIVER AND AMENDMENT (this "Amendment"), dated as of
February 23, 1999, among CAMBRIDGE INDUSTRIES HOLDINGS, INC. ("Holdings"),
CAMBRIDGE INDUSTRIES, INC., (the "Borrower"), the lenders from time to time
party to the Credit Agreement described below (each, a "Bank" and collectively,
the "Banks"), and BANKERS TRUST COMPANY, as Agent (the "Agent"). All capitalized
terms used herein and not otherwise defined herein shall have the respective
meanings provided such terms in the Credit Agreement.
WITNESSETH:
----------
WHEREAS, Holdings, the Borrower, the Banks and the Agent are
party to a Credit Agreement, dated as of July 10, 1997 (as amended, modified and
supplemented prior to the date hereof, the "Credit Agreement");
WHEREAS, Holdings, the Borrower, the Banks and the Agent entered
into the Third Waiver and Amendment to the Credit Agreement ("Third Waiver")
dated as of December 31, 1998, which Third Waiver contemplated, among other
things, the entering into of a Permanent Amendment (as defined in the Third
Waiver);
WHEREAS, this Amendment is the Permanent Amendment, although
certain terms and provisions of this Amendment differ from those contemplated by
the Third Waiver, and the parties hereto intend that as to any such differences
the terms and provisions of this amendment shall govern;
WHEREAS, the parties hereto wish to amend the Credit Agreement
as provided herein;
NOW, THEREFORE, it is agreed;
1. Sections 1, 2, and 3 of the Third Waiver are hereby
deleted in their entirety and replaced by Sections 2, 3 and 7 of this Amendment.
2. The definition of "Applicable Base Rate Margin" in
Section 10 of the Credit Agreement is hereby amended (retroactively to January
1, 1999) by (i) deleting the percentage "1.50%" appearing therein and inserting
"2.50% in lieu thereof and (ii) deleting the percentage "2.00%" appearing
therein and inserting "3.00%" in lieu thereof (it being understood and agreed
that to the extent any interest payments on Base Rate Loans have been made
between January 1, 1999 and the Amendment Effective Date, the Borrower will make
a supplemental interest payment to the Banks on the Amendment Effective Date to
give retroactive effect to the increase in interest rates effected by this
Agreement).
1
<PAGE>
3. The definition of "Applicable Eurodollar Margin" in
Section 10 of the Credit Agreement is hereby amended (retroactively to January
1, 1999) by (i) deleting the percentage "2.50%" appearing therein and inserting
"3.50%" in lieu thereof and (ii) deleting the percentage "3.00%" appearing
therein and inserting "4.00%" in lieu thereof (it being understood and agreed
that to the extent any interest payments on Eurodollar Loans have been made
between January 1, 1999 and the Amendment Effective Date, the Borrower will make
a supplemental interest payment to the Banks on the Amendment Effective Date to
give retroactive effect to the increase in interest rates effected by this
Amendment).
4. Section 8.09(a) of the Credit Agreement is hereby
amended by deleting the portion of the table set forth therein from and
including March 31, 1999 to and including March 31, 2000 (together with the
amounts set forth opposite such dates), and by inserting in lieu thereof the
following:
"March 31, 1999 $ 40,000,000
June 30, 1999 $ 39,500,000
September 30, 1999 $ 42,000,000
December 31, 1999 $ 53,000,000
March 31, 2000 $ 60,000,000"
5. Section 8.10 of the Credit Agreement is hereby amended
by deleting the portion of the table set forth therein from and including March
31, 1999 to and including March 31, 2000 (together with the ratios set forth
opposite such dates), and by inserting in lieu thereof the following:
"March 31, 1999 1.3:1.0
June 30, 1999 1.3:1.0
September 30, 1999 1.4:1.0
December 31, 1999 1.8:1.0
March 31, 2000 2.0:1.0"
6. Section 8.11 of the Credit Agreement is hereby amended
by deleting the portion of the table set forth therein from and including March
31, 1999 to and including March 31, 2000 (together with the ratios set forth
opposite such dates), and by inserting in lieu thereof the following:
"March 31, 1999 8.6:1.0
June 30, 1999 8.6:1.0
September 30, 1999 8.1:1.0
December 31, 2000 6.5:1.0
March 31, 2000 5.7:1.0"
2
<PAGE>
7. The definition of "Interest Reduction Discount"
appearing in Section 10 of the Credit Agreement is hereby amended (retroactive
to January 1, 1999) by deleting such definition in its entirety and inserting
the following new definition in lieu thereof:
"Interest Reduction Discount" shall mean initially zero,
provided that from and after any Start Date to and including the corresponding
End Date, the Interest Reduction Discount shall be (I) in the case of A Term
Loans and Revolving Loans, the respective percentage per annum set forth in
clause (A), (B), (C), (D), (E), (F), or (G) below if, but only if, as of the
Test Date for such Start Date the applicable condition set forth in clause
(A), (B), (C), (D), (E), (F), or (G) below, as the case may be, is met:
(A) .500% if, but only if, the Leverage Ratio on such Test Date is
less than 6:00:1.00 but greater than or equal to 5:50:1.00; or
(B) .750% if, but only if, the Leverage Ratio on such Test Date is
less than 5.50:1.00 but greater than or equal to 5.00:1.00; or
(C) .1.00% if, but only if, the Leverage Ratio on such Test Date is
less than 5.00:1.00 but greater than or equal to 4.50:1.00; or
(D) 1.25% if, but only if, the Leverage Ratio on such Test Date is
less than 4.50:1.00 but greater than or equal to 4.00:1.00; or
(E) 1.50% if, but only if, the Leverage Ratio on such Test Date is
less than 4.00:1.00 but greater than or equal to 3.50:1.00; or
(F) 1.75% if, but only if, the Leverage Ratio on such Test Date is
less than 3.50:1.00 but greater than or equal to 3.00:1.00; or
(G) 2.00% if, but only if, the Leverage Ratio on such Test Date is
less than 3.00:1.00;
and (II) in the case of B Term Loans, the respective percentage per annum set
forth in clause (A), (B) or (C) below if, but only if, as of the Test Date for
such Start Date the applicable condition set forth in clause (A), (B) or (C)
below, as the case may be, is met:
(A) .500% if, but only if, the Leverage Ratio on such Test Date is
less than 6:00:1.00 but greater than or equal to 5:50:1:00; or
(B) .750% if, but only if, the Leverage Ratio on such Test Date is
less than 5.50:1.00 but greater than or equal to 5.00:1.00; or
(C) 1,00% if, but only if, the Leverage Ratio on such Test Date is
less than 5.00:1.00.
Notwithstanding anything to the contrary contained above in this
definition, the Interest Reduction Discount shall be zero at any time when an
Event of Default shall exist.
3
<PAGE>
8. Effective for any Test Period or any fiscal quarter ending on
(i) December 31, 1998, the Banks hereby permanently waive compliance with the
provisions of Section 8.09(a), Section 8.10 and section 8.11 of the Credit
Agreement and (ii) December 31, 1998 through and including March 31, 2000, the
Banks hereby waive compliance with the provisions of Section 8.09(b).
9. In order to induce the Banks to enter into this Amendment, the
Borrower agrees that from the Amendment Effective Date (as defined below) to and
including March 31, 2000, the aggregate outstanding principal amount of
Revolving Loans and Swingline Loans shall not (x) at any time exceed $65,000,000
and (y) on the last day of any month exceed $50,000,000. The Borrower further
agrees that at all times from the Amendment Effective Date to and including
March 31, 2000, the Letter of Credit Outstandings under the Credit Agreement
shall not exceed $5,300,000.
10. Notwithstanding anything to the contrary contained in Sections
4.01, 4.02 (A)(b)(i) and 4.02(A)(b)(ii) of the Credit Agreement, on the
Amendment Effective Date the Borrower shall prepay $12,500,000 of the principal
amount of A Term Loans (i.e. the principal amount of A Term Loans required as
Scheduled A Repayments for the periods from and including March, 1999 to and
including December, 1999) and (y) $1,350,000 of the principal amount of B Term
Loans (i.e. the principal amount of B Term Loans required as Scheduled B
Repayments for the periods from and including March, 1999 to and including
December, 1999), it being understood and agreed that such prepayments shall
reduce the remaining Scheduled Repayments in direct order of maturity.
11. In order to induce the Banks to enter into this Amendment, each
of Holdings and the Borrower hereby represents and warrants that (i) no Default
or Event of Default exists as of the Amendment Effective date (as defined below)
after giving effect to this Amendment and (ii) on the Amendment Effective Date,
both before and after giving effect to this Amendment, all representations and
warranties contained in the Credit Agreement and in the other Credit Documents
are true and correct in all material respects.
12. This Amendment shall become effective on the date (the
"Amendment Effective Date") when (i) the Required Banks, Holdings and the
Borrower shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Agent at its Notice Office, (ii) the Borrower
shall have made the prepayments described in Section 10 of this Amendment and
(iii) each Bank which shall have signed and delivered a copy of this amendment
prior to the close of business on March 10, 1999, shall have received an
amendment fee equal to (x) 1/2 of 1% on the Revolving Loan Commitment and
outstanding A Term Loans of such Bank as in effect on such date and (y) 3/8 of
1% on the outstanding B Term Loans of such Bank as in effect on such date.
13. This Amendment is limited as specified and shall not constitute
a modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
4
<PAGE>
14. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Agent.
15. From and after the Amendment Effective Date, all references in
the Credit Agreement and each of the Credit Documents to the Credit Agreement
shall be deemed to be references to such Credit Agreement after giving effect to
this Amendment.
16. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK
* * *
5
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Waiver to be duly executed and delivered as of the date
hereof.
CAMBRIDGE INDUSTRIES HOLDINGS, INC.
By /s/ John M. Colaianne
------------------------
Name: John M. Colaianne
Title: CFO
CAMBRIDGE INDUSTRIES, INC.
By /s/ John M. Colaianne
------------------------
Name: John M. Colaianne
Title: CFO
6
<PAGE>
BANKERS TRUST COMPANY
Individually and as Agent
By /s/ Mary Kay Coyle
------------------------------
Name: MARY KAY COYLE
Title: MANAGING DIRECTOR
7
<PAGE>
BANKBOSTON N.A.
By /s/ Kimberly F. Harris
------------------------------
Title: VP
8
<PAGE>
CITY NATIONAL BANK
By Edward Vassallo
------------------------------
Title: VP
9
<PAGE>
DRESDNER BANK AG, NEW YORK
AND GRAND CAYMAN BRANCHES
By /s/ John W. Sweeney
------------------------------
Name: JOHN W. SWEENEY
Title: ASSISTANT VICE PRESIDENT
By /s/ Beverly G. Cason
------------------------------
Name: BEVERLY G. CASON
Title: VICE PRESIDENT
13
<PAGE>
DEEPROCK & COMPANY
By Eaton Vance Management, as
Investment Advisor
By /s/ Scott H. Page
------------------------------
Title: SCOTT H. PAGE
VICE PRESIDENT
14
<PAGE>
SENIOR DEBT PORTFOLIO
By: Boston Management and Research
as Investment Advisor
By /s/ Scott H. Page
------------------------------
Title: SCOTT H. PAGE
VICE PRESIDENT
<PAGE>
FLEET NATIONAL BANK
By [signature illegible]
------------------------------
Title: Vice-President
16
<PAGE>
HELLER FINANCIAL, INC.
By [sig illegible]
------------------------------
Title: Vice President
17
<PAGE>
INDOSUEZ CAPITAL FUNDING III, LIMITED
By: Indosuez Capital as Portfolio Advisor
By [signature illegible]
------------------------------
Title: Vice President
18
<PAGE>
INDOSUEZ CAPITAL FUNDING IIA, LIMITED
By: Indosuez Capital as Portfolio Advisor
By [signature illegible]
------------------------------
Title: Vice President
19
<PAGE>
EATON VANCE SENIOR INCOME TRUST
BY: Eaton Vance Management
as Investment Advisor
By /s/ SCOTT H. PAGE
------------------------------
Name: SCOTT H. PAGE
Title: VICE PRESIDENT
<PAGE>
FLEET BUSINESS CREDIT CORPORATION
F/K/A
SANWA BUSINESS CREDIT CORPORATION
By Peter Levy
------------------------------
Title: Sr. V.P.
21
<PAGE>
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By /s/ Perry Vavoules
------------------------------
Title: Perry Vavoules
Senior Vice-President
22
<PAGE>
VAN KAMPEN PRIME RATE INCOME TRUST
By /s/ Jeffrey W. Maillet
--------------------------------
Title: JEFFREY W. MAILLET
Senior Vice President & Director
23
<PAGE>
KZH-PAMCO LLC
By /s/ Shari Finkelstein
--------------------------------
Title: SHARI FINKELSTEIN
Authorized Agent
24
<PAGE>
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
By /s/ Sean Mounier
------------------------------
Title: First Vice President
By: /s/ Anthony Rock
----------------------------
Title: Vice President
25
<PAGE>
GENERAL ELECTRIC CAPITAL
CORPORATION
By William Richardson
----------------------------
Title: Duly Authorized Signatory
26
<PAGE>
BANK POLSKA KASA OPIEKI S.A. PEKAO
S.A. GROUP, NEW YORK BRANCH
By [signature illegible]
--------------------------------
Title: Vice President
27
<PAGE>
ML CLO XII PILGRIM AMERICA
(CAYMAN) LTD.
By: Pilgrim Investments, Inc.
as its Investment Manager
By /s/ Robert L. Wilson
--------------------------------
Name: Robert L. Wilson
Title: Vice President
29
<PAGE>
ML CLO XV PILGRIM AMERICA
(CAYMAN) LTD.
By: Pilgrim Investments, Inc.
as its investment manager
By /s/ Robert L. Wilson
---------------------------------------
Name: Robert L. Wilson
Title: Vice President
30
<PAGE>
PAMCO CAYMAN LTD.
By: Highland Capital Management, L.P.
as Collateral Manager
By /s/ James Dondero
--------------------------------
Name: James Dondero, CFA, CPA
Title: President
Highland Capital Management LP.
31
<PAGE>
CERES FINANCE LTD.
By /s/ John H. Cullinane
--------------------------------
Name: John H. Cullinane
Title: Director
33
<PAGE>
BLACK DIAMOND CLO 1998-1 LTD.
By /s/ John H. Cullinane
------------------------
Name: John H. Cullinane
Title: Director
36
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> $4,474
<SECURITIES> 0
<RECEIVABLES> 82,920
<ALLOWANCES> (2,404)
<INVENTORY> 25,625
<CURRENT-ASSETS> 139,317
<PP&E> 283,242
<DEPRECIATION> (89,904)
<TOTAL-ASSETS> 363,822
<CURRENT-LIABILITIES> 112,639
<BONDS> 315,029
0
0
<COMMON> 0
<OTHER-SE> (90,822)
<TOTAL-LIABILITY-AND-EQUITY> 363,822
<SALES> 0
<TOTAL-REVENUES> 487,184
<CGS> 432,720
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 40,221
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,974
<INCOME-PRETAX> (17,731)
<INCOME-TAX> 625
<INCOME-CONTINUING> (18,356)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,356)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
