<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 25, 1998
REGISTRATION NO. 333-49429
333-49429-01
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4/A-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ISSUER OF SENIOR NOTES REGISTERED HEREBY
PRESTOLITE ELECTRIC INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3621 94-3142032
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
GUARANTOR OF SENIOR NOTES REGISTERED HEREBY
PEI HOLDING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3621 94-3142033
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
2100 COMMONWEALTH BOULEVARD
ANN ARBOR, MI 48105
(734) 913-6600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
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P. KIM PACKARD
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PRESTOLITE ELECTRIC INCORPORATED
2100 COMMONWEALTH BOULEVARD
ANN ARBOR, MI 48105
(734) 913-6600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPY TO:
MICHAEL J. KENNEDY
MICHAEL S. DORF
ANDREW M. KANTER
BROBECK, PHLEGER & HARRISON LLP
ONE MARKET, SPEAR STREET TOWER
SAN FRANCISCO, CA 94105
(415) 442-0900
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Approximate date of commencement of the proposed sale of the securities to
the public: As soon as practicable after the effective date of this
Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box [_] .
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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PROSPECTUS
PRESTOLITE ELECTRIC INCORPORATED
OFFER TO EXCHANGE ITS
OUTSTANDING
[PRESTOLITE ELECTRIC 9 5/8% SENIOR NOTES DUE 2008
INCORPORATED LOGO] FOR ANY AND ALL OF ITS
9 5/8% SENIOR NOTES DUE 2008
FULLY AND UNCONDITIONALLY GUARANTEED ON A SENIOR BASIS BY
PEI HOLDING, INC.
---------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON JULY 27,
1998, UNLESS EXTENDED.
INTEREST PAYABLE FEBRUARY 1 AND AUGUST 1 DUE FEBRUARY 1, 2008
---------------
Prestolite Electric Incorporated, a Delaware corporation (the "Issuer"),
hereby offers upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange an aggregate principal amount of
up to $125,000,000 of 9 5/8% Senior Notes Due 2008 (the "Exchange Notes"),
which are fully and unconditionally guaranteed by PEI Holding Inc., a Delaware
corporation and parent of the Issuer ("PEI") and have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to the
registration statement of which this Prospectus constitutes a part (including
any amendments and supplements thereto, the "Registration Statement") for a
like principal amount of its 9 5/8% Senior Notes Due 2008 (the "Outstanding
Notes" and, together with the Exchange Notes, the "Notes") of the Issuer with
the holders thereof, which are fully and unconditionally guaranteed by PEI but
have not been so registered.
The Exchange Notes will be freely transferable. The terms of the Exchange
Notes are identical in all material respects to the Outstanding Notes except
for certain transfer restrictions and registration rights relating to the
Outstanding Notes and except that, if the Exchange Offer is not consummated by
July 21, 1998, the interest rate on the Outstanding Notes will increase by
0.5% until the Exchange Offer is consummated. The Exchange Notes are offered
hereunder in order to satisfy certain obligations of the Issuer under the
Purchase Agreement dated as of January 16, 1998 among the Issuer, PEI and
Credit Suisse First Boston Corporation and BT Alex.Brown Incorporated, the
initial purchasers of the Outstanding Notes (the "Initial Purchasers"), and
the Registration Rights Agreement dated as of January 22, 1998 (the
"Registration Rights Agreement") among the Issuer, PEI and the Initial
Purchasers. The Exchange Notes evidence the same debt as the Outstanding Notes
and are issued under, and are entitled to the same benefits under, the
Indenture (as defined herein) as the Outstanding Notes. In addition, the
Exchange Notes and the Outstanding Notes are treated as one series of
securities under the Indenture. The Exchange Notes will mature on February 1,
2008, unless previously redeemed. Interest on the Exchange Notes is payable
semi-annually on February 1 and August 1 of each year commencing on August 1,
1998.
The Exchange Notes will be redeemable at the option of the Issuer, in whole
or in part, at any time on or after February 1, 2003 at the redemption prices
set forth herein, plus accrued and unpaid interest, if any, to the date of
redemption. In addition, up to 35.0% of the original aggregate principal
amount of the Exchange Notes may be redeemed from time to time prior to
February 1, 2001 at the redemption price set forth herein, plus accrued and
unpaid interest, if any, to the date of redemption, with the net cash proceeds
of one or more Public Equity Offerings (as defined) provided that at least
$81.25 million principal amount of the Exchange Notes originally issued
remains outstanding immediately after each such redemption. See "Description
of the Exchange Notes."
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Outstanding Notes as of June 26, 1998.
The Issuer will not receive any proceeds from the Exchange Offer. The Issuer
has agreed to bear the expenses of the Exchange Offer. No underwriter is being
used in connection with the Exchange Offer.
The Exchange Notes will be unsecured, senior obligations of the Issuer and
will rank pari passu in right of payment with all other existing and future
senior indebtedness of the Issuer and senior in right of payment to any
existing and future subordinated indebtedness of the Issuer. The Exchange
Notes will be effectively subordinated to all existing and future secured
indebtedness of
--------------- (continued on following page)
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS OF
OUTSTANDING NOTES, SEE "RISK FACTORS" BEGINNING ON PAGE 15.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
The date of this Prospectus is June 26, 1998
<PAGE>
the Issuer, including indebtedness under the New U.S. Credit Facility (as
defined), to the extent of the value of the assets securing such indebtedness.
The Exchange Notes will be structurally subordinated to all existing and
future indebtedness of any subsidiary of the Issuer, including indebtedness
under the New U.K. Credit Facility (as defined). The Exchange Notes will be
fully and unconditionally guaranteed on an unsecured, senior basis by PEI.
None of the Issuer's subsidiaries will guarantee the Exchange Notes. As of
December 31, 1997, on a pro forma basis after giving effect to the
Transactions (as defined) as if the Transactions had occurred on such date,
the Issuer would have had approximately $129.5 million of consolidated
indebtedness outstanding, of which approximately $4.5 million would have
represented secured indebtedness, and the indebtedness of the Issuer's
subsidiaries would have been approximately $3.2 million (excluding trade
payables of approximately $18.4 million). In addition, as of April 4, 1998,
the Issuer had approximately $132.6 million of consolidated indebtedness
outstanding, of which approximately $7.6 million represented secured
indebtedness, and the indebtedness of the Issuer's subsidiaries was
approximately $5.1 million. The Indenture relating to the Exchange Notes
permits the Issuer and its subsidiaries to incur additional indebtedness,
including senior indebtedness, subject to certain limitations. See
"Description of the Exchange Notes."
Prior to the Exchange Offer, there has been no public market for either the
Outstanding Notes or the Exchange Notes. If a market for the Exchange Notes
should develop, the Exchange Notes could trade at a discount from their face
amount. The Issuer does not intend to list the Exchange Notes on any national
securities exchange. It is not anticipated that an active public market for
the Exchange Notes will develop. Although the Initial Purchasers have informed
the Issuer that they currently intend to make a market in the Exchange Notes,
they are not obligated to do so, and any such market-making may be
discontinued at any time without notice. Accordingly, there can be no
assurance as to the development or liquidity of any market for the Exchange
Notes. See "Risk Factors--Lack of Public Market for Securities."
Based upon no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Issuer believes
that Exchange Notes issued pursuant to the Exchange Offer in exchange for
Outstanding Notes may be offered for resale, resold and otherwise transferred
by a holder thereof other than (i) a broker-dealer who purchased such
Outstanding Notes directly from the Issuer to resell pursuant to Rule 144A
under the Securities Act or any other available exemption under the Securities
Act or (ii) a person that is an "affiliate" (as defined in Rule 405 under the
Securities Act) of the Issuer or PEI without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and that such holder is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of such
Exchange Notes. See "The Exchange Offer--Purpose and Effects."
Each broker-dealer (other than an "affiliate" of the Issuer) that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of Exchange Notes received
in exchange for Outstanding Notes where such Outstanding Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities. The Issuer has agreed that, for a period of 180 days after the
Expiration Date (as defined), it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution." Any broker-dealer who is an affiliate of the Issuer may not
rely on such no-action letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transactions. See "The Exchange Offer."
Any Outstanding Notes not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the rights and preferences and
will be subject to the limitations applicable thereto under the Indenture.
Following consummation of the Exchange Offer, the holders of Outstanding Notes
will continue to be subject to the existing restrictions on transfer thereof
and the Issuer will have no further obligation to such holders to provide for
the registration under the Securities Act of the Outstanding Notes held by
them. To the extent that Outstanding Notes are tendered and accepted in the
Exchange Offer, a holder's ability to sell untendered Outstanding Notes could
be adversely affected. It is not expected that an active market for the
Outstanding Notes will develop while they are subject to restrictions on
transfer. See "Risk Factors--Consequences of Failure to Exchange."
The Issuer will accept for exchange any and all Outstanding Notes that are
validly tendered and not withdrawn on or prior to 5:00 p.m., New York City
time, on the date the Exchange Offer expires, which will be July 27, 1998,
(the "Expiration Date"), unless the Exchange Offer is extended by the Issuer
(but in no event to a date later than August 10, 1998), in its sole
discretion, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended. Tenders of Outstanding
Notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the Expiration Date, unless previously accepted for payment by the Company.
The Exchange Offer is not conditioned upon any minimum principal amount of
Outstanding Notes being tendered for exchange. However, the Exchange Offer is
subject to certain conditions which may be waived by the Issuer and to the
terms and provisions of the Registration Rights Agreement. The Exchange Notes
bear interest from the last interest payment date of the Outstanding Notes to
occur prior to the issue date of the Exchange Notes or, if no such interest
has been paid, from January 22, 1998. Holders of the Outstanding Notes whose
Outstanding Notes are accepted for exchange will not receive interest on such
Outstanding Notes for any period subsequent to the last interest payment date
to occur prior to the issue date of the Exchange Notes, if any, and will be
deemed to have waived the right to receive any interest payment on the
Outstanding Notes accrued from and after such interest payment date or, if no
such interest has been paid, from January 22, 1998. See "The Exchange Offer."
Outstanding Notes may be tendered only in integral multiples of $1,000.
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THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUER ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OUTSTANDING NOTES IN ANY JURISDICTION
IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN
COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
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"Prestolite Electric" is a registered trade name of AlliedSignal
Corporation. "Leece-Neville" is a registered trademark of the Issuer. "Hobart"
is a registered trademark of Hobart Brothers Company, a subsidiary of Illinois
Tool Works. "Lucas" is a registered trademark of Lucas Industries plc. Certain
other trademarks of the Issuer and other companies are used in this
Prospectus.
3
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the related notes, appearing elsewhere in this Prospectus. As used in
this Prospectus, unless the context otherwise requires, (i) the "Issuer" refers
to Prestolite Electric Incorporated, (ii) "PEI" refers to PEI Holding, Inc.,
the sole stockholder of the Issuer, (iii) "Prestolite" refers to PEI, the
Issuer and all of their respective subsidiaries prior to the closing of the
Lucas Acquisition (as defined), (iv) the "Company" refers to Prestolite after
giving effect to the Lucas Acquisition and (v) the "Lucas Businesses" refers
collectively to the Heavy Duty Products ("Lucas HDP") division of a subsidiary
of Lucas Industries plc, an English corporation ("Lucas Industries"), Lucas
Holdings South Africa (Proprietary) Limited, a South African corporation
(renamed Prestolite Electric Holdings South Africa (Proprietary) Limited)
("Lucas South Africa"), and the controlling interest in Lucas Indiel Argentina
S.A., an Argentine corporation ("Lucas Argentina") acquired by Prestolite in
the Lucas Acquisition. The statement of operations and other sales-related
information presented herein on a pro forma basis gives effect to the
Transactions (as defined) as if the Transactions had occurred at January 1,
1997. For purposes of the financial and other information set forth in this
Prospectus, references to a fiscal year relate to a December 31 fiscal year end
for Prestolite and the Company and to a January 31 fiscal year end for the
Lucas Businesses. All share data for PEI reflect a 20-for-1 stock split
effective March 26, 1998.
THE COMPANY
The Company is a leading global manufacturer and distributor of electro-
mechanical power conversion products and systems for niche markets, including
heavy duty vehicles, material handling, defense and industrial applications.
The Company's products are primarily used for diesel engines and electric
vehicles and include alternators, starter motors, direct current electric
motors, relays and controls and battery chargers. In 1997, approximately 45% of
Prestolite's net sales were derived from aftermarket sales, with the remainder
derived from original equipment manufacturers ("OEMs"). Approximately 40% of
Prestolite's aftermarket net sales in 1997 were derived from the service arms
of OEM customers ("OES"), with the balance derived from independent warehouse
distributors and the U.S. Department of Defense. The Company's largest OEM and
OES customers include Ford Motor Company, Freightliner, Clark Material
Handling, Caterpillar, the U.S. Department of Defense and Thermo King in North
America and BT Lifters, Cummins Engine, ERF Trucks, Leyland Trucks, Perkins
Engine and Mitsubishi Caterpillar Forklift in Europe. No single customer
individually accounts for more than ten percent of the Company's consolidated
revenues. None of the Company's United States employees is represented by a
labor union.
On January 22, 1998, Prestolite completed the acquisition of the Lucas
Businesses from Lucas Industries (the "Lucas Acquisition"). The Lucas
Businesses manufacture primarily alternators and starter motors for the truck,
bus and automotive markets in the United Kingdom, continental Europe, South
America and South Africa. The Lucas Acquisition (i) strengthens the Company's
position as a leading global manufacturer and distributor of alternators and
starter motors, (ii) complements the Company's historic product portfolio and
(iii) augments the Company's core technology in its principal product lines. In
addition, the Company has the opportunity to sell certain truck, bus and
automotive products through Lucas Industries' worldwide distribution network of
over 4,000 outlets. The Lucas Acquisition significantly enhances the Company's
access to an international customer base, and provides an entrance to the
international automotive market. In the year ended December 31, 1997,
approximately 43% of the Lucas Businesses' net sales were derived from
aftermarket sales, with the remainder derived from OEMs. The Lucas Businesses'
largest OEM and OES customers include Ford Motor Company, Mercedes-Benz,
Nissan, Perkins Engine, Volkswagen and Volvo.
As a result of the Lucas Acquisition, the Company will consolidate its global
leadership position in its primary markets, expand its global reach and improve
its aftermarket distribution capabilities. The Company believes that it is the
largest producer in North America of (i) newly manufactured heavy duty truck
alternators
4
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for the aftermarket, (ii) original equipment high amperage alternators for
school buses, (iii) electric motors for pump and winch applications and (iv)
solenoid switches for heavy duty starter circuits. The Company also believes
that it is the second largest original equipment supplier of heavy duty truck
and bus alternators and starter motors for the European market and one of the
three largest worldwide producers of heavy duty alternators and material
handling motors, as well as solenoid switches for heavy duty starter circuits.
After giving pro forma effect to the Lucas Acquisition, the Company's net sales
in 1997 to customers outside North America would have increased to
approximately 55% of its pro forma net sales as compared with approximately 21%
of Prestolite's net sales in 1997 on a stand-alone basis, while its aftermarket
sales would have remained relatively constant at approximately 45% of net sales
and pro forma net sales. On a combined basis, the Company's pro forma net sales
and EBITDA (as defined) for the twelve months ended December 31, 1997 would
have been approximately $300.3 million and $23.2 million, respectively.
THE TRANSACTIONS
On January 22, 1998, Prestolite completed the acquisition of Lucas HDP, Lucas
South Africa and a controlling interest in Lucas Argentina from Lucas
Industries. The total consideration paid at closing in the Lucas Acquisition
was approximately $41.3 million plus, in connection with Lucas Argentina, (i)
approximately $1.2 million payable upon exercise of an option to purchase
substantially all the remaining shares of Lucas Argentina, (ii) approximately
$7.1 million of outstanding indebtedness which was assumed or repaid (excluding
approximately $2.6 million outstanding under drawn letters of credit that was
also assumed) and (iii) a maximum aggregate of $19.0 million of post-closing
contingent payments. In addition, Prestolite Electric Limited, the Issuer's
U.K. subsidiary ("Prestolite U.K."), purchased from Lucas Aftermarket
Operations, the aftermarket division of a subsidiary of Lucas Industries
("LAO"), certain inventory of $2.0 million and transition assistance of
$600,000, both payable in installments in the first and fourth quarters of
1998.
On January 22, 1998, Prestolite also completed the offering of the
Outstanding Notes (the "Offering"). In connection with the Offering, the
Company effected a series of transactions that resulted in a recapitalization
of the Company (such transactions are collectively referred to herein as the
"Recapitalization"). The Recapitalization consisted of (i) the Offering, (ii)
the repayment of approximately $42.0 million of outstanding indebtedness
(including approximately $3.4 million of indebtedness of Lucas Argentina),
(iii) the payment of a dividend to PEI to enable PEI and an affiliate to
purchase securities of PEI from PEI's securityholders for an aggregate purchase
price of approximately $29.7 million, (iv) the entry by the Issuer into a
credit facility (the "New U.S. Credit Facility") providing for up to $23.0
million of revolving credit loans and (v) the entry by Prestolite U.K. into a
temporary line of credit (the "Temporary U.K. Credit Facility") providing for
short-term borrowings of up to (Pounds)3.0 million. On April 21, 1998,
Prestolite U.K. replaced the Temporary U.K. Credit Facility with a long-term
credit facility (the "New U.K. Credit Facility") providing for borrowings of up
to (Pounds)7.0 million (approximately $11.3 million based on exchange rates as
of June 1, 1998). See "The Transactions--The Recapitalization," "Certain
Transactions" and "Description of Certain Indebtedness."
The Lucas Acquisition and the Recapitalization are collectively referred to
herein as the "Transactions."
5
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OWNERSHIP AND MANAGEMENT
On October 29, 1991, Genstar and certain members of the Company's management
completed the acquisition out of bankruptcy of the assets comprising
Prestolite. In the two years following the acquisition, Prestolite, under the
direction of its present management team, rationalized its production
facilities, decentralized and streamlined its organizational structure and
reorganized its operations. Several facilities were closed, certain non-core
business lines were sold and corporate staff was reduced by 65%. Since the
acquisition, management has instituted continuous improvement programs at all
of Prestolite's manufacturing facilities, including synchronous manufacturing
techniques, cellular manufacturing arrangements and kanban-based just-in-time
inventory control. Genstar and management presently own approximately 85% and
15%, respectively, of the common stock, par value $0.01 per share ("Common
Stock"), of PEI (in each case on a fully-diluted basis). The purchase of PEI
securities from Genstar and its shareholders and from management pursuant to
the Recapitalization represented the first realization on their investment in
the Company.
Genstar is an Alberta, Canada corporation (with shares listed on the Alberta
Stock Exchange) specializing in the acquisition of basic manufacturing and
service businesses. Since its founding in 1988, Genstar has consummated a
number of acquisitions including, in addition to Prestolite, the acquisition of
the following companies: Wolverine Tube, Inc., a leading North American copper
tube manufacturer and distributor; Gentek Building Products, Inc. and Gentek
Building Products Ltd., leading manufacturers of aluminum, vinyl and steel
siding; and Seaspan International Ltd., Canada's largest tug and barge company.
----------------
The Company conducts substantially all of its operations through the Issuer.
The Issuer is a direct wholly-owned subsidiary of PEI. In addition to the
Issuer, PEI has certain other direct wholly-owned subsidiaries, none of which
engage in any activities other than the holding of trademarks, trade names and
the shares of common stock of PEI purchased in the Recapitalization, with the
exception of Prestolite Electric of Michigan Incorporated, which employs the
Company's field sales force and Michigan-based employees. Such additional
subsidiaries are subject to certain covenants which restrict their ability to
engage in any activities other than those conducted on the date the Outstanding
Notes were originally issued or to incur any liabilities. See "Description of
the Exchange Notes -- Certain Covenants -- Restrictive Covenant of Existing
Non-Issuer PEI Subsidiaries." The Issuer conducts certain of its operations
through its direct and indirect U.S. and foreign subsidiaries, including
Prestolite U.K., all of which are wholly-owned with the exception of Lucas
Argentina, which is presently 52.34% owned by the Issuer. In August 1998 the
Issuer expects to exercise an option to acquire substantially all of the
remaining shares of Lucas Argentina for $1.2 million, as a result of which the
Issuer will own 99.59% of Lucas Argentina.
The Company's headquarters are located at 2100 Commonwealth Boulevard, Ann
Arbor, Michigan 48105, and its telephone number at that address is (734) 913-
6600.
RISK FACTORS
Prospective participants in the Exchange Offer should carefully consider the
specific matters set forth under "Risk Factors" as well as the other
information and data included in this Prospectus prior to making any
determination as to their participation.
6
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SUMMARY OF THE TERMS OF THE EXCHANGE OFFER
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The Exchange Offer................ The Issuer is offering to exchange $1,000
principal amount of Exchange Notes for each
$1,000 principal amount of Outstanding
Notes that are properly tendered and
accepted. The terms of the Exchange Notes
are identical in all material respects to
the Outstanding Notes except for certain
transfer restrictions and registration
rights relating to the Outstanding Notes
and that, if the Exchange Offer is not
consummated by July 21, 1998, the interest
rate on the Outstanding Notes shall
increase by 0.5% until the Exchange Offer
is consummated. The issuance of Exchange
Notes is intended to satisfy certain
obligations of the Issuer contained in the
Registration Rights Agreement. The Exchange
Notes represent the same debt as the
Outstanding Notes, and will be issued, and
holders thereof are entitled to the same
benefits as holders of Outstanding Notes,
under the Indenture.
Expiration Date.................. 5:00 P.M., New York City time, on July 27,
1998, unless the Exchange Offer is extended
by the Issuer (but in no event to a date
later than August 10, 1998). See "The
Exchange Offer--Period for Tendering
Outstanding Notes."
Accrued Interest on the Exchange Each Exchange Note will bear interest from
Notes and the Outstanding the last interest payment date on which
Notes........................... interest was paid on the Outstanding Notes,
or, if interest has not yet been paid on
the Outstanding Notes, from January 22,
1998, the date of issuance (the "Issue
Date") of the Outstanding Notes. Such
interest will be paid with the first
interest payment on the Exchange Notes.
Accordingly, interest, which has accrued
since the last interest payment date or
January 22, 1998, as the case may be, on
the Outstanding Notes accepted for exchange
will cease to be payable upon issuance of
the Exchange Notes. Untendered Outstanding
Notes that are not exchanged for Exchange
Notes pursuant to the Exchange Offer will
bear interest at a rate of 9 5/8% per annum
after the Expiration Date.
Conditions of the Exchange The Exchange Offer is subject to certain
Offer........................... customary conditions, any or all of which
may be waived by the Issuer. See "The
Exchange Offer--Certain Conditions to the
Exchange Offer."
Procedures for Tendering Each holder of Outstanding Notes wishing to
Outstanding Notes............... accept the Exchange Offer must complete and
sign the Letter of Transmittal, in
accordance with the instructions contained
herein and therein, and forward or hand-
deliver such Letter of Transmittal to the
Exchange Agent identified below at the
address set forth herein and therein. Each
exchanging holder will be required to
represent in the Letter of Transmittal that
such holder is acquiring the Exchange Notes
in the ordinary course of business, is not
engaged in, and does not intend to engage
in, a distribution of Exchange Notes and is
not an affiliate of the Issuer or PEI. Any
holder of Outstanding Notes whose
Outstanding Notes are registered in the
name
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7
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<TABLE>
<CAPTION>
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of brokers, dealers, commercial banks,
trust companies or nominees is urged to
contact such registered holders promptly if
such holder wishes to accept the Exchange
Offer. See "The Exchange Offer--Procedures
for Tendering Outstanding Notes."
Guaranteed Delivery Procedures... Holders of Outstanding Notes who wish to
tender their Outstanding Notes and whose
Outstanding Notes are not immediately
available, or who cannot deliver their
Outstanding Notes, the Letter of
Transmittal or any other documents required
by the Letter of Transmittal to the
Exchange Agent prior to the Expiration
Date, or who cannot complete the procedure
for book-entry transfer on a timely basis
must tender their Outstanding Notes
according to the guaranteed delivery
procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Withdrawal of Tenders............ Tenders of Outstanding Notes may be
withdrawn at any time prior to 5:00 P.M.,
New York City time, on the Expiration Date.
See "The Exchange Offer--Withdrawal
Rights."
Acceptance of Outstanding Notes The Company will accept for exchange any
and Delivery of Exchange Notes.. and all Outstanding Notes which are
properly tendered in the Exchange Offer
prior to 5:00 P.M., New York City time, on
the Expiration Date. The Exchange Notes
issued pursuant to the Exchange Offer will
be delivered promptly following the
Expiration Date. See "The Exchange Offer--
Acceptance of Outstanding Notes for
Exchange; Delivery of Exchange Notes."
Certain Federal Income Tax For a discussion of certain federal income
Considerations.................. tax considerations relating to the exchange
of the Outstanding Notes for the Exchange
Notes, see "Certain Federal Income Tax
Considerations."
Rights of Dissenting Holders of Outstanding Notes do not have
Noteholders..................... any appraisal or dissenters' rights under
the Delaware General Corporation Law in
connection with the Exchange Offer.
Use of Proceeds.................. There will be no cash proceeds payable to
the Issuer from the issuance of the
Exchange Notes pursuant to the Exchange
Offer.
Exchange Agent................... The Trustee is also the Exchange Agent. The
mailing address of the Exchange Agent is
U.S. Bank Trust National Association, P.O.
Box 64485, St. Paul, MN, 55164-9549
Attention: Specialized Finance (SPFT0414).
The address for deliveries by overnight
courier and by registered/certified mail
is: 180 East Fifth Street, St. Paul, MN
55101, Attention: Specialized Finance
(SPFT0414). Hand deliveries should be made
before 5:00 p.m. (New York Time) to 100
Wall Street, 20th Floor, New York, NY
10005. For information with respect to the
Exchange Offer, the telephone number for
the Exchange Agent is (612) 244-8161 and
the facsimile number for the Exchange Agent
is (612) 244-1537, Attention: Melina Black.
</TABLE>
8
<PAGE>
SUMMARY OF THE TERMS OF THE EXCHANGE NOTES
The Exchange Offer applies to an aggregate principal amount of $125,000,000
of the Outstanding Notes. The form and terms of the Exchange Notes will be the
same as the form and terms of the Outstanding Notes except that the Exchange
Notes will not bear legends restricting the transfer thereof. The Exchange
Notes will be obligations of the Issuer entitled to the benefits of the
Indenture. See "Description of the Exchange Notes."
Exchange Notes Offered...... $125,000,000 aggregate principal amount of 9 5/8%
Senior Notes due 2008 of Prestolite Electric
Incorporated (the "Issuer"), fully and
unconditionally guaranteed by PEI.
Comparison With Outstanding
Notes; Transferability.....
The Exchange Notes will be freely transferable
under the Securities Act by holders of
Outstanding Notes who are not affiliates of the
Issuer. The holders of Outstanding Notes
currently are entitled to certain registration
rights pursuant to the Registration Rights
Agreement. However, upon consummation of the
Exchange Offer, holders of Outstanding Notes who
do not exchange their Outstanding Notes for
Exchange Notes will no longer be entitled to any
registration rights and will not be able to
reoffer, resell or otherwise dispose of their
Outstanding Notes, unless they are subsequently
registered under the Securities Act, which the
Issuer will have no obligation to do, or unless
an exemption from the registration requirements
of the Securities Act is available. The Exchange
Notes otherwise will be identical in all material
respects to the Outstanding Notes except for
certain transfer restrictions and registration
rights relating to the Outstanding Notes and
except that, if the Exchange Offer is not
consummated by July 21, 1998, the interest rate
on the Outstanding Notes will increase by 0.5%
until the Exchange Offer is consummated. See "The
Exchange Offer."
Maturity Date............... February 1, 2008
Interest Payment Dates...... February 1 and August 1 of each year, commencing
August 1, 1998.
Optional Redemption......... The Exchange Notes will be redeemable at the
option of the Issuer, in whole or in part, at any
time on or after February 1, 2003 at the
redemption prices set forth herein, plus accrued
and unpaid interest, if any, to the date of
redemption. In addition, up to 35.0% of the
original aggregate principal amount of the
Exchange Notes may be redeemed from time to time
prior to February 1, 2001 at the redemption price
set forth herein, plus accrued and unpaid
interest, if any, to the date of redemption, with
the net cash proceeds of one or more Public
Equity Offerings (as defined) provided that at
least $81.25 million principal amount of the
Exchange Notes originally issued remains
outstanding immediately after each such
redemption. See "Description of the Exchange
Notes--Optional Redemption."
Change of Control........... Upon a Change of Control (as defined) each holder
of Exchange Notes may require the Issuer to
repurchase such holder's outstanding Exchange
Notes at 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the
date of repurchase. The Company may not be able
to fund the repurchase of all of the Exchange
Notes
9
<PAGE>
in the event of a Change of Control. See "Risk
Factors--Limitations on Repurchases of Exchange
Notes upon Change of Control" and "Description of
the Exchange Notes--Change of Control."
Guarantee................... Payment of the principal of and interest on the
Exchange Notes will be fully and unconditionally
guaranteed on an unsecured, senior basis by PEI
(the "Guarantee"). None of the Issuer's
subsidiaries will guarantee the Exchange Notes.
Ranking..................... The Exchange Notes will be unsecured, senior
obligations of the Issuer and will rank pari
passu in right of payment with all other existing
and future senior indebtedness of the Issuer and
senior in right of payment to any existing and
future subordinated indebtedness of the Issuer.
The Exchange Notes will be effectively
subordinated to all existing and future secured
indebtedness of the Issuer, including
indebtedness under the New U.S. Credit Facility,
to the extent of the value of the assets securing
such indebtedness. The Exchange Notes will be
structurally subordinated to all existing and
future indebtedness of any subsidiary of the
Issuer, including indebtedness under the New U.K.
Credit Facility. As of December 31, 1997, on a
pro forma basis after giving effect to the
Transactions (as defined) as if the Transactions
had occurred on such date, the Issuer would have
had approximately $129.5 million of consolidated
indebtedness outstanding, of which approximately
$4.5 million would have represented secured
indebtedness, and the indebtedness of the
Issuer's subsidiaries would have been
approximately $3.2 million (excluding trade
payables of approximately $18.4 million). In
addition, as of April 4, 1998, the Issuer had
approximately $132.6 million of consolidated
indebtedness outstanding, of which approximately
$7.6 million represented secured indebtedness,
and the indebtedness of the Issuer's subsidiaries
was approximately $5.1 million. The Indenture
relating to the Exchange Notes permits the Issuer
and its subsidiaries to incur additional
indebtedness, including senior indebtedness,
subject to certain limitations. See "Description
of the Exchange Notes."
The Guarantee will be an unsecured, senior
obligation of PEI and will rank pari passu in
right of payment with all other senior, unsecured
indebtedness of PEI. As of April 4, 1998, PEI had
no indebtedness outstanding, other than the
Guarantee.
Restrictive Covenants....... The indenture under which the Exchange Notes will
be issued (the "Indenture") contains certain
covenants that, among other things, limit (i) the
issuance of additional indebtedness by the
Issuer, (ii) the issuance of indebtedness and
preferred stock by the Issuer's subsidiaries,
(iii) the payment of dividends on the capital
stock of the Issuer and its subsidiaries and the
purchase, redemption or retirement of capital
stock and certain indebtedness, (iv) investments,
(v) certain transactions with affiliates, (vi)
sales of assets including capital stock of
subsidiaries and (viii) certain consolidations,
mergers and transfers of assets. The Indenture
also prohibits certain restrictions on
distributions from subsidiaries and limits the
business activities, borrowings and investments
of PEI. However, all of these limitations are
subject to a number of important qualifications.
See "Description of the Exchange Notes--Certain
Covenants."
10
<PAGE>
SUMMARY FINANCIAL INFORMATION
Set forth below is summary pro forma information for the Company and summary
historical financial information for PEI and the Lucas Businesses. The
information in the following tables is qualified by reference to, and should be
read in conjunction with, "Selected Consolidated Historical Financial Data,"
"Unaudited Pro Forma Combined Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the respective
financial statements of PEI, Lucas HDP, Lucas Argentina and Lucas South Africa
and the related notes thereto, included elsewhere in this Prospectus.
THE COMPANY--PRO FORMA
The unaudited pro forma financial information for the Company set forth below
has been derived from the unaudited pro forma financial information included
elsewhere in this Prospectus and gives effect to the Transactions, including
the issuance of the Notes, borrowings under the New U.S. Credit Facility, the
Lucas Acquisition and the other matters described under "Unaudited Pro Forma
Combined Financial Data." The pro forma statements of operations data give
effect to the Transactions as if they had occurred on January 1, 1997 and the
pro forma balance sheet data give effect to the Transactions as if they had
occurred on December 31, 1997. The unaudited pro forma financial information
does not purport to represent what the Company's financial position and results
of operations would have been if the Transactions had actually been completed
as of the dates indicated and is not intended to project the Company's
financial position or results of operations for any future period.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1997
-----------------
(IN THOUSANDS,
EXCEPT RATIOS)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................... $300,287
Cost of goods sold.......................................... 246,649
Selling, general and administrative expenses................ 40,992
Redundancy charges.......................................... 1,656
--------
Operating income............................................ 10,990
Other income(a)............................................. (438)
Interest expense............................................ 12,642
--------
Loss from continuing operations before minority interest and
income taxes............................................... (1,214)
Provision for income taxes.................................. 1,159
--------
Loss from continuing operations before minority interest.... (2,373)
Minority interest........................................... (16)
--------
Loss from continuing operations............................. $ (2,357)
========
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (excluding current debt).................... $ 52,095
Total assets................................................ 186,045
Total debt.................................................. 129,517
Stockholders' equity (deficit).............................. (13,572)
OTHER DATA:
EBITDA(b)................................................... $ 23,171
Depreciation and amortization............................... 11,743
Capital expenditures........................................ 9,930
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
SELECTED RATIOS:
Ratio of EBITDA to interest expense....................................... 1.8 x
Ratio of total debt to EBITDA(c).......................................... 5.6 x
Ratio of earnings to fixed charges(d)..................................... --
</TABLE>
- --------
(a) Other income consists primarily of interest income.
(b) EBITDA for any period is calculated as the sum of income (loss) from
continuing operations plus the following to the extent deducted in
calculating such net income: (i) minority interest, (ii) interest expense,
(iii) income tax expense, (iv) depreciation expense and (v) amortization
expense, in each case for such period. The Company considers EBITDA to be a
widely accepted financial indicator of a company's ability to service debt,
fund capital expenditures and expand its business; however, EBITDA is not
calculated the same by all companies and is not a measurement required by
generally accepted accounting principles. EBITDA should not be considered
by an investor as an alternative to net income, as an indicator of the
Company's operating performance or as an alternative to cash flow (as
defined in accordance with generally accepted accounting principles) as a
measure of liquidity.
(c) The pro forma ratio of total debt to EBITDA represents total pro forma debt
at December 31, 1997, divided by pro forma EBITDA for the twelve months
ended December 31, 1997.
(d) For purposes of calculating the ratio of earnings to fixed charges,
earnings include loss from continuing operations before minority interest
and income taxes plus fixed charges. Fixed charges consist of interest
expense and 33% of rental expense (deemed by management to be
representative of the interest factor of rental payments). Pro forma
earnings were insufficient to cover fixed charges by approximately $1.2
million.
12
<PAGE>
PEI--HISTORICAL
The following table sets forth certain consolidated historical financial
information of PEI. The financial information as of and for the fiscal years
ended December 31, 1995, 1996 and 1997 has been derived from PEI's audited
financial statements included elsewhere in this Prospectus. The financial
information as of and for the three months ended April 5, 1997 and April 4,
1998 has been derived from financial statements which are unaudited, but, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments necessary for a fair presentation of the financial
position and results of operations for such periods. Operating results for the
three months ended April 4, 1998 are not necessarily indicative of results that
may be expected for the full year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 THREE MONTHS ENDED
------------------------------- --------------------
APRIL 5, APRIL 4,
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT RATIOS
DATA: AND SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales............... $ 131,503 $ 148,765 $ 171,700 $ 44,302 $ 74,525
Cost of goods sold...... 106,541 120,585 137,792 35,346 60,031
Selling, general and
administrative
expenses............... 18,955 20,986 23,188 5,629 9,806
Costs associated with
options purchased...... -- -- -- -- 2,101
Restructuring charges... 3,100 56 -- -- 980
--------- --------- --------- --------- ---------
Operating income........ 2,907 7,138 10,720 3,327 1,607
Other expense(a)........ 203 108 210 20 (86)
Interest expense........ 4,282 5,313 5,384 1,433 3,281
--------- --------- --------- --------- ---------
Income (loss) from
continuing operations
before income taxes.... (1,578) 1,717 5,126 1,874 (1,588)
Provision (benefit) for
income taxes........... 630 (2,314) 2,303 747 (606)
--------- --------- --------- --------- ---------
Income (loss) from
continuing operations
before extraordinary
items.................. (2,208) 4,031 2,823 1,127 (982)
========= ========= ========= ========= =========
Earnings per common
share from continuing
operations before
extraordinary items (b):
Basic................. (0.64) 1.17 0.82 0.33 (0.42)
Diluted............... (0.64) 1.13 0.78 0.31 (0.42)
Shares used in computing
earning per share (b):
Basic................. 3,466,740 3,454,740 3,446,740 3,450,740 2,323,194
Diluted............... 3,466,740 3,553,800 3,628,020 3,655,180 2,323,194
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital
(excluding current
debt).................. $ 25,486 $ 29,567 $ 31,588 31,943 54,385
Total assets............ 72,473 93,604 88,685 97,074 187,655
Total debt.............. 40,451 46,514 42,930 50,149 132,586
Stockholders' equity.... 13,273 18,018 18,943 18,946 (10,872)
OTHER DATA:
EBITDA(c)............... $ 7,254 $ 12,276 $ 16,011 4,661 4,685
Cash flow from operating
activities............. 1,447 2,560 7,749 (2,910) 5,874
Cash flow from investing
activities............. (5,035) (10,336) 1,483 (772) (57,114)
Cash flow from financing
activities............. 3,789 8,032 (9,582) 3,286 58,309
Depreciation and
amortization........... 4,550 5,246 5,501 1,354 2,992
Capital expenditures.... 4,864 6,794 5,638 772 2,681
Ratio of earnings to
fixed charges(d)....... -- 1.3x 1.8x 2.1x --
</TABLE>
- --------
(a) Other expense consists primarily of operating costs of idle facilities.
(b) Earnings per common share and shares used in the computation reflect the
20-for-1 stock split.
(c) EBITDA for any period is calculated as the sum of income (loss) from
continuing operations plus the following to the extent deducted in
calculating such net income: (i) minority interest, (ii) interest expense,
(iii) income tax expense, (iv) depreciation expense and (v) amortization
expense, in each case for such period. The Company considers EBITDA to be a
widely accepted financial indicator of a company's ability to service debt,
fund capital expenditures and expand its business; however, EBITDA is not
calculated the same by all companies and is not a measurement required by
generally accepted accounting principles. EBITDA should not be considered
by an investor as an alternative to net income, as an indicator of the
Company's operating performance or as an alternative to cash flow (as
defined in accordance with generally accepted accounting principles) as a
measure of liquidity.
(d) For purposes of computing the ratio of earnings to fixed charges, earnings
include income (loss) from continuing operations before income taxes plus
fixed charges. Fixed charges consist of interest expense and 33% of rental
expense (deemed by management to be representative of the interest factor
of rental payments). Earnings were insufficient to cover fixed charges in
1995 and for the three months ended April 4, 1998 by approximately $1.6
million for both periods.
13
<PAGE>
THE LUCAS BUSINESSES--COMBINED HISTORICAL (UNAUDITED)
The following table sets forth certain combined historical financial
information of the Lucas Businesses. Each of the Lucas Businesses changed its
fiscal year-end from July 31 to January 31 during 1996, and from January 31 to
December 31 following the Lucas Acquisition. Accordingly, the January 31, 1997
and December 31, 1997 statement of operations data are for the six months and
eleven months then ended, respectively. The Lucas Businesses' combined
financial data as of January 31, 1997 and December 31, 1997, for the years
ended July 31, 1995 and 1996, the six-month period ended January 31, 1997 and
the eleven-month period ended December 31, 1997 were derived from the audited
financial statements of Lucas HDP, Lucas Argentina and Lucas South Africa
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ELEVEN MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
JULY 31, JULY 31, JANUARY 31, DECEMBER 31,
1995 1996 1997 1997(A)
---------- ---------- ----------- -------------
(IN THOUSANDS)
STATEMENTS OF OPERATIONS DATA:
<S> <C> <C> <C> <C>
Net sales...................... $130,138 $129,757 $ 62,076 $121,734
Cost of goods sold............. 104,183 102,945 50,159 100,571
Selling, general and
administrative expenses....... 27,228 24,857 10,702 20,280
Nonrecurring charges (b)....... -- 1,455 -- 763
Redundancy charges............. 284 528 200 1,656
-------- -------- -------- --------
Operating income (loss)........ (1,557) (28) 1,015 (1,536)
Other expense (income)......... 155 401 (102) (393)
Interest expense............... 1,352 1,320 734 1,427
-------- -------- -------- --------
Income (loss) before income
taxes, minority interest and
extraordinary items........... (3,064) (1,749) 383 (2,570)
Provision for income taxes..... 992 1,657 1,009 1,815
-------- -------- -------- --------
Income (loss) before minority
interest...................... $ (4,056) $ (3,406) $ (626) $ (4,385)
Minority Interest.............. 21 15 -- --
-------- -------- -------- --------
Net loss....................... (4,035) (3,391) (626) (4,385)
======== ======== ======== ========
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital (excluding
debt)......................... $ 43,189 $ 50,614
Total assets................... 102,916 110,978
Total debt..................... 16,000 11,620
Stockholders' equity and parent
company equity................ 64,218 72,725
OTHER DATA:
EBITDA (c)..................... $ 3,551 $ 6,745 $ 4,089 $ 5,158
Cash flow from operating
activities.................... (1,854) 3,238 3,188 5,101
Cash flow from investing
activities.................... (5,446) (3,927) (3,870) (4,077)
Cash flow from financing
activities.................... 5,090 6,711 2,971 6,070
Depreciation and amortization
(d)........................... 5,263 7,174 2,972 6,301
Capital expenditures........... 5,579 4,013 3,880 4,146
</TABLE>
- --------
(a) Lucas Argentina's 1997 balance sheet date was January 2, 1998.
(b) Represents in 1996 a writedown of $1,455 of Lucas Argentina goodwill and in
1997 nonrecurring Lucas Argentina expense related to purchase adjustments
agreed to by Lucas Industries and Prestolite for remanufactured inventory
($300) and for pension liability ($455).
(c) EBITDA for any period is calculated as the sum of income (loss) from
continuing operations plus the following to the extent deducted in
calculating such net income: (i) minority interest, (ii) interest expense,
(iii) income tax expense, (iv) depreciation expense and (v) amortization
expense, in each case for such period. The Company considers EBITDA to be a
widely accepted financial indicator of a company's ability to service debt,
fund capital expenditures and expand its business; however, EBITDA is not
calculated the same by all companies and is not a measurement required by
generally accepted accounting principles. EBITDA should not be considered
by an investor as an alternative to net income, as an indicator of the
Company's operating performance or as an alternative to cash flow (as
defined in accordance with generally accepted accounting principles) as a
measure of liquidity.
(d) Depreciation and amortization for the twelve months ended July 31, 1996,
includes a write down of $1,455 of goodwill of Lucas Argentina discussed in
Note (b).
14
<PAGE>
RISK FACTORS
Prospective participants in the Exchange Offer should carefully consider the
following risk factors, as well as the other information and data included
elsewhere in this Prospectus, prior to making any determination as to their
participation.
SUBSTANTIAL LEVERAGE; INABILITY TO SERVICE DEBT
In connection with the Transactions, the Issuer has incurred a significant
amount of indebtedness. As a result, the Issuer is highly leveraged and has
substantial repayment obligations, as well as significantly increased interest
expense. In addition, subject to the restrictions contained in the New U.S.
Credit Facility and the Indenture, the Issuer and its subsidiaries may incur
additional indebtedness from time to time to finance acquisitions or capital
expenditures or for other purposes. As of December 31, 1997, on a pro forma
basis after giving effect to the Transactions as if the Transactions had
occured on such date, the Issuer would have had approximately $129.5 million
of consolidated indebtedness outstanding and the Issuer's stockholders'
deficit would have been approximately $13.6 million. On a pro forma basis
after giving effect to the Transactions as if the Transactions had occurred on
January 1, 1997, earnings would have been insufficient to cover fixed charges
for the year ended December 31, 1997 by approximately $1.2 million. For the
three months ended April 4, 1998 earnings were insufficient to cover fixed
changes by approximately $1.6 million.
The Issuer's ability to make scheduled payments of principal or interest on,
or to refinance, its indebtedness will depend on future operating performance
and cash flow, which are subject to prevailing economic conditions, prevailing
interest rate levels and financial, competitive, business and other factors
beyond its control. The degree to which the Issuer is leveraged could have
important consequences to holders of the Exchange Notes, including the
following: (i) the Issuer's ability to obtain additional financing for working
capital, capital expenditures, acquisitions or general corporate purposes may
be impaired; (ii) a substantial portion of the Issuer's cash flow from
operations must be dedicated to the payment of interest on the Notes and
interest on its other existing indebtedness, thereby reducing the funds
available to the Issuer for other purposes; (iii) the agreements governing the
Issuer's long-term indebtedness, including the New U.S. Credit Facility and
the Indenture, contain certain restrictive financial and operating covenants;
(iv) the indebtedness under the New U.S. Credit Facility is at variable rates
of interest, which causes the Issuer to be vulnerable to increases in interest
rates; (v) the indebtedness outstanding under the New U.S. Credit Facility is
secured by all inventory, accounts receivable and general intangibles of the
Issuer and will become due prior to the time the principal on the Exchange
Notes will become due; (vi) the indebtedness outstanding under the New U.K.
Credit Facility is structurally senior to the Exchange Notes and is secured by
all the accounts receivable of Prestolite U.K., but is not guaranteed by the
Issuer or PEI, and may become due prior to the time the principal on the
Exchange Notes will become due; (vii) the Issuer is substantially more
leveraged than certain of its competitors, which might place the Issuer at a
competitive disadvantage; (viii) the Issuer may be hindered in its ability to
adjust rapidly to changing market conditions; (ix) the Issuer's substantial
degree of leverage may negatively affect certain suppliers' willingness to
give the Issuer favorable payment terms; and (x) the Issuer's substantial
degree of leverage could make it more vulnerable in the event of a downturn in
general economic conditions or in its business. See "Description of Certain
Indebtedness."
The Issuer believes that, based upon its current and anticipated levels of
operations, it will have sufficient capital to carry on its business and will
be able to meet its debt service obligations, including interest payments on
the Notes, when due. There can be no assurance, however, that the future cash
flow of the Issuer will be sufficient to meet the Issuer's obligations and
commitments. If the Issuer cannot generate sufficient cash flow from
operations to service its indebtedness and to meet its other obligations and
commitments, the Issuer might be required to refinance its debt or to dispose
of assets to obtain funds for such purpose. There is no assurance that
refinancings or asset dispositions could be effected on a timely basis or on
satisfactory terms, if at all, or would be permitted by the terms of the New
U.S. Credit Facility or the Indenture. In the event that the Issuer is unable
to refinance the New U.S. Credit Facility or raise funds through asset sales,
sales of equity or otherwise, its ability to pay principal of, and interest
on, the Notes would be adversely affected.
15
<PAGE>
GUARANTEE; RANKING
PEI will fully and unconditionally guarantee the Exchange Notes on an
unsecured, senior basis. PEI is a holding company that derives substantially
all of its operating income and cash flow from the Issuer and whose only
material assets are the outstanding shares of common stock of the Issuer.
Accordingly, PEI will be dependent upon the earnings and cash flow of, and
dividends and distributions from, the Issuer to perform on its guarantees of
the Exchange Notes. None of the Issuer's subsidiaries will guarantee the
Exchange Notes.
The Outstanding Notes currently are, and the Exchange Notes will be,
unsecured, senior obligations of the Issuer ranking pari passu in right of
payment with all other existing and future senior indebtedness of the Issuer
and senior in right of payment to any existing and future subordinated
indebtedness of the Issuer. The Exchange Notes will be effectively
subordinated to all existing and future secured indebtedness of the Issuer,
including indebtedness under the New U.S. Credit Facility, which is secured by
a lien on all inventory and accounts receivable of the Issuer. See
"Description of Certain Indebtedness--New U.S. Credit Facility." Holders of
existing or future secured indebtedness of the Issuer permitted under the
Indenture, including holders of indebtedness under the New U.S. Credit
Facility, will have claims with respect to the assets constituting collateral
that are prior to the claims of holders of the Notes. The Exchange Notes will
also be structurally subordinated to all existing and future indebtedness of
any subsidiary of the Issuer, including indebtedness under the New U.K. Credit
Facility, if any. As of December 31, 1997, on a pro forma basis after giving
effect to the Transactions as if the Transactions had occured on such date,
the Issuer would have had approximately $129.5 million of consolidated
indebtedness outstanding, of which approximately $4.5 million would have
represented secured indebtedness, and the indebtedness of the Issuer's
subsidiaries would have been approximately $3.2 million (excluding trade
payables of approximately $18.4 million). In addition, as of April 4, 1998,
the Issuer had approximately $132.6 million of consolidated indebtedness
outstanding, of which approximately $7.6 represented secured indebtedness, and
the indebtedness of the Issuer's subsidiaries was approximately $5.1 million.
See "Description of the Exchange Notes--Ranking." The Indenture will permit
the Issuer and its subsidiaries to incur additional indebtedness, including
senior indebtedness, subject to certain limitations.
RESTRICTIVE LOAN COVENANTS
The New U.S. Credit Facility includes certain negative covenants and
restrictions on actions by the Issuer including, without limitation,
restrictions on (i) the making of investments, loans and advances and the
paying of dividends and other restricted payments; (ii) the incurrence of
additional indebtedness; (iii) the granting of liens, other than liens created
pursuant to the New U.S. Credit Facility and certain permitted liens; (iv)
mergers, consolidations and sales of all or a substantial part of the
Company's business or property; (v) the acquisition of all of the assets or a
division of another corporation or capital expenditures greater than $15.0
million in a calendar year; (vi) the sale of receivables or the repayment of
other debt; and (vii) the guarantee of certain obligations. The New U.S.
Credit Facility also requires the Company to meet certain financial covenants,
including maintaining capitalization levels, capitalization ratios, minimum
fixed charge coverage ratios and funded debt ratios. All of these restrictive
covenants may restrict the Company's ability to expand or to pursue its
business strategies. The ability of the Company to comply with these and other
provisions of the New U.S. Credit Facility may be affected by changes in
economic or business conditions, results of operations or other events beyond
the Company's control. The breach of any of these covenants could result in a
default under the New U.S. Credit Facility, in which case, depending on the
actions taken by the lender thereunder or its successors or assignees, such
lender could elect to declare all indebtedness under the New U.S. Credit
Facility to be due and payable. If the Company were unable to repay such
borrowings, such lender could proceed against the collateral granted to them
to secure that indebtedness, which indebtedness is secured by liens on all
inventory, accounts receivable and general intangibles of the Issuer. In
addition, the New U.S. Credit Facility contains certain events of default
which are substantially similar to the events of default under the Indenture
except as follows: (i) the Issuer's failure to pay other indebtedness or
judgments entered against the Issuer will trigger a default under the New U.S.
Credit Facility at lower dollar amounts than in the Indenture; (ii) the
failure of any security interest in collateral securing the New U.S. Credit
Facility will trigger a default under the New U.S. Credit Facility; (iii) a
Change of Control that triggers the Company's repurchase obligations under the
Indenture will trigger a default under the New U.S. Credit Facility; (iv) the
New U.S. Credit Facility prohibits the optional redemption of the Notes in
certain circumstances; and (v) the New U.S. Credit Facility generally has
shorter
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grace periods and lower default thresholds than the Indenture. If the
indebtedness under the New U.S. Credit Facility were to be accelerated, there
can be no assurance that the assets of the Company would be sufficient to
repay in full such indebtedness and the other indebtedness of the Company,
including the Notes. See "Description of Certain Indebtedness--New U.S. Credit
Facility."
The New U.K. Credit Facility includes certain covenants of Prestolite U.K.
that, among other things, restrict (i) the incurrence of senior indebtedness
by Prestolite U.K., (ii) the creation or subsistence of security interests in
Prestolite U.K. (other than certain permitted liens or encumbrances) and (iii)
the payment of dividends and interest and/or repayment of capital on
intercompany indebtedness to the Issuer when Prestolite U.K. is in default
under the New U.K. Credit Facility. The New U.K. Credit Facility also requires
Prestolite U.K. to comply with certain financial covenants, including
restrictions regarding total debt, total debt service and tangible net worth.
The breach of any of these covenants could result in a default under the New
U.K. Credit Facility. Further, in certain circumstances intercompany
indebtedness of Prestolite U.K. to the Issuer is subordinated to indebtedness
outstanding under the New U.K. Credit Facility. See "Description of Certain
Indebtedness--New U.K. Credit Facility."
LIMITATIONS ON REPURCHASES OF NOTES UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined in the Indenture),
each holder of the Notes will be entitled to require the Company to purchase
such holder's Notes at a purchase price equal to 101% of the principal amount
of such Notes, plus accrued and unpaid interest, if any, to the date of
repurchase. However, the New U.S. Credit Facility will prohibit the purchase
of Notes by the Company in the event of a Change of Control, unless and until
such time as the indebtedness under the New U.S. Credit Facility is repaid in
full. The Company's failure to purchase Notes would result in a default under
the Indenture and the New U.S. Credit Facility which would permit the trustee
under the Indenture, the holders of at least 25% in principal amount of the
outstanding Notes or the lender under the New U.S. Credit Facility to declare
the principal and accrued but unpaid interest to be due and payable. The
inability to repay the indebtedness under the New U.S. Credit Facility, if
accelerated, would also constitute an event of default under the Indenture,
which could cause an acceleration of the indebtedness under the Indenture. In
the event of a Change of Control, there can be no assurance that the Company
would have either (i) the ability to refinance the New U.S. Credit Facility or
(ii) sufficient assets to satisfy all of its obligations under the New U.S.
Credit Facility and the Notes. See "Description of Certain Indebtedness--New
U.S. Credit Facility" and "Description of the Exchange Notes--Change of
Control."
DEPENDENCE ON ORIGINAL EQUIPMENT MANUFACTURERS; CYCLICAL BUSINESS
The Company's sales to OEMs would have accounted for approximately 56% of
its pro forma net sales for the year ended December 31, 1997. As a result, the
sale of a significant portion of the Company's products is related to the
overall level of domestic and foreign new diesel and electric production.
Industry sales and production are cyclical and can be affected by the strength
of the economy generally or in specific regions, by prevailing interest rates
and other factors which may have an effect on the Company's sales. In
addition, strikes, lock-outs, work stoppages or other production interruptions
in the heavy duty vehicle or material handling industries may adversely affect
the demand for the Company's products. Although the balance of the Company's
aftermarket and OEM sales, as well as the diversity of the OEM markets served
(both in terms of end-use and geography), help stabilize the Company's
revenues, a decline in the demand for or production of new diesel or electric
vehicles, particularly in North America, could have a material adverse effect
on the Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DIFFICULTY OF INTEGRATING ACQUIRED OPERATIONS
In order to expand its markets and to complement its product portfolio, the
Company's growth strategy includes growth through acquisitions. The Company is
continually investigating opportunities for domestic and foreign acquisitions.
There can be no assurance, however, that future acquisitions can be
consummated on
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acceptable terms or that any acquired companies can be successfully integrated
into the Company's operations. The Company's ability to make future
acquisitions may also be constrained by its ability to obtain financing. See
"--Substantial Leverage; Ability to Service Debt," "--Restrictive Loan
Covenants" and "Business--Growth Strategy."
Acquisitions may also involve a number of special risks, including: (i)
initial reductions in the Company's operating results; (ii) diversion of
management's attention; (iii) unanticipated problems or legal liabilities; and
(iv) a possible reduction in earnings due to amortization of acquired
intangible assets in the event that such acquisitions are made at levels that
exceed the fair market value of net tangible assets. Some or all of these
items could have a material adverse effect on the Company. There can be no
assurance that businesses acquired in the future will achieve sales and
profitability that justify the investment therein. In addition, to the extent
that consolidation becomes more prevalent in the industry, the prices for
attractive acquisition candidates may increase to unacceptable levels.
The full benefits of the Lucas Acquisition will require the integration of
Prestolite's and the Lucas Businesses' respective administrative, finance,
manufacturing, engineering and sales and marketing organizations, the
coordination of sales efforts and the implementation of appropriate
operations, financial and management systems and controls. While the Company
believes that it has sufficient financial and management resources to
accomplish the integration of the Lucas Businesses, there can be no assurance
that such will be the case or that the Company will not experience
difficulties with customers, personnel or other factors. The Company has
initiated a rationalization of its production operations following the Lucas
Acquisition, which includes the closing of certain facilities. These
transition and integration activities will require substantial attention from
the Company's management team. The diversion of management attention, as well
as any other difficulties which may be encountered in the transition and
integration process, could have an adverse impact on the revenues and
operating results of the Company. There can be no assurance that the Company
will be able to successfully integrate the operations of the Lucas Businesses
or that any expected cost reductions will be achieved.
In addition, most of the 1,541 employees who were employed by the Lucas
Businesses at the time of the Lucas Acquisition are represented by labor
unions, including all of the hourly employees and some of the salaried
employees. The agreement covering the employees of Lucas HDP expires in
January 1999. There can be no assurance that a strike or work stoppage will
not occur upon expiration of the agreement governing Lucas HDP if such
agreement is not renewed. There can be no assurance that any actions taken by
the Company following the Lucas Acquisition, including any actions taken in
connection with manufacturing realignments and overhead cost reductions, will
not adversely affect the Company's relations with the Lucas Businesses'
unionized employees. See "The Transactions--The Lucas Acquisition" and
"Business--Growth Strategy--Continue Cost Reduction Emphasis."
RISK OF EXPANSION OF FOREIGN OPERATIONS; FOREIGN EXCHANGE RISK
The Company currently conducts business outside of the United States, the
United Kingdom, South Africa and Argentina. After giving pro forma effect to
the Lucas Acquisition, the Company's net sales in 1997 to customers outside
North America would have increased to approximately 55% of its pro forma net
sales from approximately 21% of Prestolite's net sales in 1997 on a stand-
alone basis. The Company intends to expand its international presence through
strategic acquisitions as well as internal growth. The Company intends to
pursue joint ventures in those countries or regions in which a local partner
is critical to success. However, as the Company's international operations
grow to account for a larger percentage of the Company's total net sales,
adverse results from the Company's operations in one or more foreign countries
could adversely affect the Company's financial condition and results of
operations. The success of the Company's operations in an expansion into
international markets will depend on numerous factors, many of which are
beyond its control. Such factors include, but are not limited to, economic and
political conditions in the foreign countries in which the Company operates.
In particular, Argentina and South Africa have historically been less
economically and politically stable than the United States and the United
Kingdom. In addition, international operations and
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expansion may increase the Company's exposure to certain risks inherent in
doing business outside the United States, including slower payment cycles,
unexpected changes in regulatory requirements, potentially adverse tax
consequences, restrictions on the repatriation of profits and assets,
compliance with foreign laws and standards and political risks. See
"Business--Growth--Strategy--Pursue Global Expansion."
As a result of the Lucas Acquisition, the Company is likely to experience
increased foreign currency exchange gains and losses in the ordinary course of
its business due to the increase in its operations outside the United States.
As a result, fluctuations between the U.S. dollar and the currencies of other
countries in which the Company conducts its business may have a material
adverse impact on the Company's financial condition or results of operations.
In addition, exchange rate fluctuations may impact, perhaps materially, the
amount of any cost reductions that the Company anticipates following the Lucas
Acquisition. While the Company may engage in foreign currency hedging
transactions which may moderate the overall effect of such currency exchange
rate fluctuations, the Company expects that it will be affected by such
fluctuations, and there can be no assurance that the Company will be
successful in its hedging activities, if any, or that such exchange rate
fluctuations will not otherwise have a material adverse impact on the
Company's financial condition or results of operations, or cause significant
fluctuations in quarterly results of operations. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
COMPETITION
The markets in which the Company operates are highly competitive. While no
single competitor competes with the Company in all of its product lines, the
Company faces significant competition in each of its product lines. There can
be no assurance that the Company's products will continue to compete
successfully with the products of other companies, many of whom are
significantly larger and have substantially greater financial and other
resources than the Company. In addition, the Company is under increasing
pressure from its major OEM customers to reduce product costs. Management
believes that the Company's experience in engineering and implementing cost
reduction programs and its ability to develop new and improved products and to
control manufacturing and development costs should allow the Company's
products and prices to remain competitive. However, there can be no assurance
that the Company will be able to improve or maintain profit margins. See
"Business--Competition."
WARRANTY EXPOSURE
The Company warrants to its OEM customers that its products are defect-free
and meet certain OEM specifications. The Company also provides warranties to
its aftermarket customers. These OEM and aftermarket customers in turn offer
product warranties to their customers. As a result, the Company receives
claims and requests for payment from its customers to remedy complaints made
by the ultimate consumers. Beginning in the fourth quarter of 1995, Prestolite
began to experience increased warranty claims resulting from a combination of
increased sales, plant relocation activities and unexpected failure rates on
certain alternator models. The unexpected failure rates were partly attributed
to manufacturing difficulties associated with the relocation of certain
alternator production operations from Prestolite's Cleveland, Ohio facility to
its facility in Arcade, New York, and to the use of such alternators in
certain newer engine applications where heat and vibration conditions were
severe. Since the third quarter of 1996, Prestolite has designed and released
numerous product improvements intended to reduce these failure rates, and
management believes that the major factors contributing to such warranty
claims have been addressed. Despite this increase in warranty expense,
management believes that the Company has not lost any significant sales and
believes that its alternator performance is similar to that of its
competitors' alternators. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's performance depends in part upon the continued service of its
executive officers, including its chief executive officer P. Kim Packard. The
loss of the services of any of its key employees could have a material adverse
effect on the Company's result of operations, financial position or cash
flows. Presently, the
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Company does not maintain a "key man" life insurance policy on any of its
executives or employees. The Company's future success also depends on its
continuing ability to identify, hire, train, and retain other highly qualified
technical and managerial personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will be able to attract or
retain highly qualified technical and managerial personnel in the future. An
inability to attract and retain the necessary technical and managerial
personnel could have a material adverse effect on the Company's business,
results of operations, financial condition or cash flows. See "Management--
Employment Agreements" for a description of certain agreements that the
Company has entered into with certain of its key executive officers.
ENVIRONMENTAL RISKS
The Company's operations and properties are subject to federal, state, local
and foreign laws, regulations and ordinances relating to the use, storage,
handling, generation, transportation, treatment, emission, release, discharge
and disposal of certain materials, substances and wastes. The nature of the
Company's operations exposes it to the risk of liabilities or claims with
respect to environmental matters, including off-site disposal matters, and
there can be no assurance that material costs will not be incurred in
connection with such liabilities or claims or that the indemnities provided by
the sellers of the various businesses acquired will be applicable or
available.
The Company believes that it complies with all relevant environmental
regulations and that its reserves are sufficient to cover any known
environmental claims related to its properties. Based upon the Company's
experience to date, the Company believes that the future cost of compliance
with existing environmental laws, regulations and ordinances (or liability for
known environmental claims) will not have a material adverse effect on the
Company's business, financial condition or results of operations. However,
future events, such as changes in existing laws and regulations or their
interpretation, may give rise to additional compliance costs or liabilities
that could have a material adverse effect on the Company's business, financial
condition or results of operations. Compliance with more stringent laws or
regulations, as well as more vigorous enforcement policies of regulatory
agencies or stricter or different interpretations of existing laws, may
require additional expenditures by the Company that may be material.
CONTROL BY PRINCIPAL STOCKHOLDER
As of March 31, 1998, Genstar presently owned approximately 85% (on a fully-
diluted basis), of the Common Stock of PEI. PEI owns all of the outstanding
common stock of the Issuer. Consequently, Genstar has the ability to control
the business and affairs of the Issuer by virtue of its ability to elect a
majority of PEI's and the Issuer's respective Boards of Directors and its
voting power with respect to actions requiring stockholder approval. See
"Principal Stockholders" and "Certain Transactions."
FRAUDULENT CONVEYANCE RISKS; INSOLVENCY
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid obligations
under the Notes in favor of other existing or future creditors of the Company.
Proceeds from the Offering were used, in part, to fund a purchase of Common
Stock and options and warrants to purchase Common Stock from PEI's
securityholders. If a court in a lawsuit on behalf of any unpaid creditor of
the Company or a representative of the Company's creditors, such as a trustee
in bankruptcy or the Company as a debtor in possession, were to find that, at
the time the Company issued the Outstanding Notes, the Company (x) intended to
hinder, delay or defraud any existing or future creditor or contemplated
insolvency with a design to prefer one or more creditors to the exclusion in
whole or in part of others or (y) did not receive fair consideration in good
faith or reasonably equivalent value for issuing the Outstanding Notes and the
Company (i) was insolvent, (ii) was rendered insolvent by reason of such
distribution, (iii) was engaged or about to engage in business or transactions
for which its remaining assets constituted unreasonably small capital to
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carry on its business, or (iv) intended to incur, or believed that it would
incur, debts beyond its ability to pay such debts as they matured, such court
could avoid obligations under the Notes and avoid such transactions.
Alternatively, in such event, claims of the holders of Notes could be
subordinated to claims of other creditors of the Company. The Company may be
viewed as insolvent at the time of or as a result of the Recapitalization if
the fair market value of its assets does not exceed its probable liabilities
at the time of, or following, the Recapitalization.
Based upon financial and other information currently available to it,
management of the Company believes that the Outstanding Notes were incurred
for proper purposes and in good faith. Certain courts have held, however, that
a company's purchase of its own equity securities does not constitute
reasonably equivalent value or fair consideration for incurring indebtedness.
Moreover, in this case the Issuer upstreamed a portion of the proceeds of the
Outstanding Notes to PEI to fund the purchase of PEI's equity securities by
PEI or an affiliate without the Issuer receiving any direct benefit from the
transaction. Thus, even if a court were to view the purchase of PEI's equity
securities as conferring reasonably equivalent value on PEI, it may still view
the transfer of the proceeds from the Issuer to PEI as without conferring
reasonably equivalent value. Thus, the Recapitalization may be viewed as not
constituting reasonably equivalent value or fair consideration to PEI, the
Issuer or both. The Company believes that it (i) is solvent and will continue
to be solvent after issuing the Exchange Notes, because the Company believes
the fair value of the Company's assets exceeds and will exceed its probable
liabilities, (ii) will have sufficient capital for carrying on the business it
intends to conduct after such issuance and (iii) will be able to pay its debts
as they mature. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." There
can be no assurance, however, that a court would concur with such beliefs and
positions. In rendering its opinion on the validity of the Outstanding Notes,
counsel for each of the Company and the Initial Purchasers expressed no
opinion as to federal or state laws relating to fraudulent transfers.
LACK OF PUBLIC MARKET FOR SECURITIES
There is no existing trading market for the Exchange Notes, and there can be
no assurance regarding the future development of a market for the Exchange
Notes, or the ability of holders to sell their Exchange Notes or the price at
which such holders may be able to sell their Exchange Notes. If such a market
were to develop, the Exchange Notes could trade at prices that may be higher
or lower than the initial offering price of Outstanding Notes depending on
many factors, including prevailing interest rates, the market for similar
securities, general economic conditions and the financial conditions and
performance of, and prospects for, the Company. The Initial Purchasers have
advised the Issuer that they currently intend to make a market in the Exchange
Notes. The Initial Purchasers are not obligated to do so, however, and any
market making with respect to the Exchange Notes may be discontinued at any
time without notice. Therefore, there can be no assurance as to the liquidity
of any trading market for the Exchange Notes, or that an active market for the
Exchange Notes will develop. The Outstanding Notes are designated for trading
in the PORTALSM Market, a subsidiary of the NASDAQ Stock Market, Inc. The
Issuer does not intend to apply for listing or quotation of the Exchange Notes
on any securities exchange or stock market. Historically, the market for non-
investment grade debt has been subject to disruptions that have caused
substantial volatility in the prices of such securities. There can be no
assurance that the market for the Exchange Notes, will not be subject to
similar disruptions. Any such disruptions could have an adverse effect on
holders of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Outstanding Notes who do not exchange their Outstanding Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Outstanding Notes as set forth in the
legend thereon as a consequence of the issuance of the Outstanding Notes
pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, the Outstanding Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws. The Issuer does not currently anticipate that it will
register the Outstanding Notes under the Securities Act. In
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addition, upon the consummation of the Exchange Offer holders of Outstanding
Notes which remain outstanding will not be entitled to any rights to have such
Outstanding Notes registered under the Securities Act or to any similar rights
under the Registration Rights Agreement. See "Description of the Exchange
Notes--Registration Rights." To the extent that Outstanding Notes are tendered
and accepted in the Exchange Offer, a holder's ability to sell untendered, or
tendered but unaccepted, Outstanding Notes could be adversely affected. The
tender of Outstanding Notes pursuant to the Exchange Offer may have an adverse
effect upon, and increase the volatility of, the market prices of the
Outstanding Notes due to a reduction in liquidity.
YEAR 2000 RISK
Currently, many automated systems and software products are coded to accept
only two digit entries in the date code field. These date code fields will
need to accept four digit entries or otherwise modified to distinguish 21st
century dates from 20th century dates. As a result, many companies' systems
and software may need to be upgraded or replaced in order to function
correctly after December 31, 1999. The Company expects that the material
aspects of the automated systems at its United States and United Kingdom
manufacturing facilities will be fully upgraded or replaced prior to December
31, 1999. While the financial impact of the Company's Year 2000 remediation
efforts at its United States and United Kingdom facilities is not anticipated
to be material to the Company's results of operations, financial position or
cash flows, there can be no assurance of no such material adverse impact. The
Company is also conducting a review of the automated systems used by Lucas
Argentina and Lucas South Africa, as well as an additional review of selected
suppliers, to assess their Year 2000 compliance efforts. At this time, the
Company is unable to determine the cost of compliance efforts for its
Argentine and South African facilities, or the impact of the Company's
Argentine and South African and third party compliance efforts, if any, on the
Company's results of operations, financial position or cash flow. However,
significant delays in product delivery by the Company's suppliers, or
significant cost-cutting efforts by the Company's customers to compensate for
Year 2000 costs, could have a material impact on the Company's results of
operations, financial position or cash flow. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Risk."
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THE TRANSACTIONS
THE LUCAS ACQUISITION
On January 22, 1998, Prestolite completed the acquisition of Lucas HDP,
Lucas South Africa, and a controlling interest in Lucas Argentina from Lucas
Industries. The Lucas Businesses manufacture primarily alternators and starter
motors for the truck, bus and automotive markets in the United Kingdom,
continental Europe, South America and South Africa. The Lucas Acquisition (i)
strengthens the Company's position as a leading global manufacturer and
distributor of alternators and starter motors, (ii) complements Prestolite's
historic product portfolio and (iii) augments the Company's core technology in
its principal product lines. In addition, the Company has the opportunity to
sell certain truck, bus and automotive products through Lucas Industries'
worldwide distribution network of over 4,000 outlets. The Lucas Acquisition
significantly enhanced the Company's access to an international customer base,
and provided an entrance to the international automotive market.
The total consideration paid at closing in the Lucas Acquisition was
approximately $41.3 million plus, in connection with Lucas Argentina, (i)
approximately $1.2 million payable upon exercise of an option to purchase
substantially all of the remaining shares of Lucas Argentina, (ii)
approximately $7.1 million of outstanding indebtedness which was assumed or
repaid (excluding approximately $2.6 million outstanding under drawn letters
of credit that was also assumed) and (iii) a maximum aggregate of $19.0
million of post-closing contingent payments. In connection with the Lucas
Acquisition: (i) Prestolite U.K. acquired the assets comprising Lucas HDP for
a purchase price of approximately $30.3 million, (ii) Prestolite acquired all
of the outstanding shares of Lucas South Africa for a purchase price of
approximately $7.1 million, and (iii) Prestolite (A) acquired approximately
56% of the shares of Lucas Argentina for a purchase price of approximately
$0.3 million and (B) purchased from Lucas Industries intercompany indebtedness
of Lucas Argentina for approximately $3.6 million, for an aggregate purchase
price of approximately $3.9 million. In addition, a subsidiary of the Issuer
will be required to make certain post-closing payments to Lucas Industries of
up to a maximum of $9.0 million contingent upon the collection of certain
receivables and up to a maximum of $10.0 million contingent upon Lucas
Argentina having achieved certain earnings targets in 1998, 1999 and 2000. Any
such post-closing contingent payments are expected to be paid from the
collection of such receivables or from such earnings. PEI guaranteed the
obligation of its subsidiary to make these post-closing payments in the event
that such contingencies occur. In addition, Prestolite has the option to
purchase, and Lucas Industries has the option to require Prestolite to
purchase, substantially all the remaining outstanding shares of Lucas
Argentina at any time during August 1998 for approximately $1.2 million.
In conjunction with the Lucas Acquisition, the Company entered into a number
of ancillary agreements providing for, among other things, distribution
arrangements, supply of products and intellectual property licensing. In
particular, for five years Lucas South Africa will (i) supply to LAO certain
products for distribution through LAO's worldwide distribution network, (ii)
act as importer and primary distributor of certain Lucas-branded products for
LAO in the aftermarkets of South Africa, Lesotho, Namibia, Botswana and
Swaziland (the "Southern African Territories") and for a transition period
will have rights to certain trademarks of Lucas Industries. For five years
Lucas Argentina will act as exclusive supplier of Lucas Argentina's
manufactured products to Lucas Diesel Do Brasil Ltda. ("Lucas Brasil") for
aftermarket sale and distribution by Lucas Brasil in South America (except
Argentina), and in Argentina will (i) act as importer from and distributor for
LAO, (ii) distribute in the aftermarket Lucas-branded products and for a
transition period will be permitted to brand products manufactured and sold by
it with certain trademarks of Lucas Industries. Prestolite U.K. has a
continuing license for intellectual property relating to in-line diesel pumps
for manufacture and sale to the original equipment market and for sale to LAO
for supply and distribution by LAO in the aftermarket. Prestolite U.K. is
additionally permitted to brand electrical products with certain trademarks of
Lucas Industries through 1998 for sale to the original equipment market and
through 1999 for sale to the aftermarket. In addition, subject to certain
conditions, for five years Prestolite U.K will act as exclusive supplier to
LAO for LAO's requirements of in-line diesel pumps branded with trademarks of
Lucas Industries for aftermarket sales. During 1998,
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Prestolite U.K. will assume control for the distribution to the aftermarket
and OES market of certain products produced by Lucas HDP. In connection with
such transition, Prestolite U.K. will purchase from LAO certain inventory of
$2.0 million and transition assistance of $600,000, both payable in
installments in the first and fourth quarters of 1998. During such transition
period, LAO will sell certain products produced by Lucas HDP as agent for
Prestolite, and will be entitled to receive commissions with respect to such
sales. The acquisition agreements provide that, with certain exceptions, Lucas
Industries will not, for a period of four years following consummation of the
Lucas Acquisition, design or manufacture anywhere in the world products sold
by Lucas HDP, nor sell in the Southern African Territories or Argentina
products manufactured by Lucas South Africa or Lucas Argentina prior to the
Lucas Acquisition.
Each of the acquisition agreements contained certain warranties and
covenants. With certain exceptions, the warranties of the selling party under
each acquisition agreement expire between one and seven years after the date
of the closing. In general, each of the acquisition agreements provides for
the recovery of damages by the Company in the event of any inaccuracy in or
breach of the warranties and covenants made by the selling party in the
acquisition agreements and indemnification of the Company by Lucas Industries
for losses relating to taxes or environmental claims.
THE RECAPITALIZATION
On January 22, 1998, Prestolite also completed the Offering of the
Outstanding Notes. In connection with the Offering, the Company effected a
series of transactions that resulted in the Recapitalization of the Company.
The Recapitalization consisted of (i) the Offering (ii) the repayment of
approximately $42.0 million of outstanding indebtedness (including
approximately $3.4 million of indebtedness of Lucas Argentina), (iii) the
payment of a dividend to PEI to enable PEI and an affiliate to purchase
securities of PEI from PEI's securityholders for an aggregate purchase price
of approximately $29.7 million, (iv) the entry by the Issuer into the New U.S.
Credit Facility providing for up to $23.0 million of revolving credit loans
and (v) the entry by Prestolite U.K. into the Temporary U.K. Credit Facility
providing for short-term borrowings of up to (Pounds)3.0 million. On April 21,
1998, Prestolite U.K. replaced the Temporary U.K. Credit Facility with the New
U.K. Credit Facility providing for borrowings of up to (Pounds)7.0 million
(approximately $11.3 million based on exchange rates as of June 1, 1998). See
"Certain Transactions" and "Description of Certain Indebtedness."
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USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. The Outstanding Notes surrendered in exchange
for the Exchange Notes will be retired and canceled and cannot be reissued.
Accordingly, the issuance of the Exchange Notes will not result in any
increase in the indebtedness of the Company.
The $125.0 million of proceeds from the sale of the Outstanding Notes were
used to (i) pay the purchase price of approximately $41.3 million in
connection with the closing of the Lucas Acquisition, (ii) repay approximately
$42.0 million of outstanding indebtedness pursuant to the Recapitalization
(including approximately $3.4 million of debt of Lucas Argentina), (iii) fund
the purchase of approximately $29.7 million of securities of PEI from its
securityholders pursuant to the Recapitalization and (iv) pay fees and
expenses of approximately $5.6 million in connection with the Lucas
Acquisition and the Recapitalization, including prepayment fees. The remaining
amount of approximately $6.4 million was used for general corporate purposes,
including working capital. See "The Transactions."
25
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECTS
The Exchange Offer is designed to provide to holders of Outstanding Notes an
opportunity to acquire Exchange Notes which, unlike the Outstanding Notes,
will be freely transferable at all times (provided that the holder is not an
affiliate of the Issuer).
The Outstanding Notes were originally issued and sold on January 22, 1998,
in the principal amount of $125 million in a transaction exempt from the
registration requirements of the Securities Act. The Outstanding Notes may not
be reoffered, resold or transferred unless done so pursuant to a registration
statement filed pursuant to the Securities Act or unless an exemption from the
registration requirements of the Securities Act is available.
The Issuer is making the Exchange Offer in reliance on the position of the
staff of the Securities and Exchange Commission (the "Commission") as set
forth in certain no-action letters addressed to other parties in other
transactions. However, the Issuer has not sought its own no-action letter and
there can be no assurance that the staff of the Commission would make a
similar determination with respect to the Exchange Offer as in such other
circumstances. Based upon these interpretations by the staff of the
Commission, the Issuer believes that Exchange Notes issued pursuant to this
Exchange Offer in exchange for Outstanding Notes may be offered for resale,
resold and otherwise transferred by a holder thereof other than (i) a broker-
dealer who purchased such Outstanding Notes directly from the Issuer to resell
pursuant to Rule 144A under the Securities Act or any other available
exemption under the Securities Act or (ii) a person that is an "affiliate" (as
defined in Rule 405 under the Securities Act) of the Issuer or PEI without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holder's business and that such holder is not participating,
and has no arrangement or understanding with any person to participate, in the
distribution of such Exchange Notes. Holders of Outstanding Notes accepting
the Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes may not rely on the position of the staff of the Commission as
set forth in these no-action letters and would have to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. A secondary resale
transaction in the United States by a holder who is using the Exchange Offer
to participate in the distribution of Exchange Notes must be covered by a
registration statement containing the selling securityholder information
required by Item 507 of Regulation S-K under the Securities Act.
The Exchange Notes will be freely transferable by the Holders thereof,
subject to the limitations described in the immediately preceding paragraphs.
The Exchange Notes will be identical in all material respects to the
Outstanding Notes for which they may be exchanged pursuant to this Exchange
Offer except for certain transfer restrictions and registration rights
relating to the Outstanding Notes and except that, if the Exchange Offer is
not consummated by July 21, 1998, the interest rate on the Outstanding Notes
will increase by 0.5% until the Exchange Offer is consummated. HOLDERS WHO DO
NOT EXCHANGE THEIR OUTSTANDING NOTES PURSUANT TO THIS EXCHANGE OFFER WILL
CONTINUE TO HOLD OUTSTANDING NOTES WHICH ARE SUBJECT TO RESTRICTIONS ON
TRANSFER.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Outstanding Notes, where such Outstanding Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Promptly after the Registration Statement of which this Prospectus
constitutes a part has been declared effective, the Issuer will offer the
Exchange Notes in exchange for surrender of the Outstanding Notes. The Issuer
will keep the Exchange Offer open for not less than 30 days (or longer if
required by applicable law) after the date on which notice of the Exchange
Offer is mailed to the holders of the Outstanding Notes. For each $1,000
principal amount of Outstanding Notes validly tendered to the Issuer pursuant
to the Exchange Offer and not withdrawn by the holder thereof, the holder of
such Outstanding Notes will receive $1,000 principal amount
26
<PAGE>
of Exchange Notes. Interest on each Exchange Note will accrue from the last
interest payment date on which interest was paid on the Outstanding Note
surrendered in exchange therefor or, if no interest has been paid on such
Outstanding Note, from the date of the original issue of the Outstanding
Notes. The Exchange Notes evidence the same debt as the Outstanding Notes and
are issued under and entitled to the same benefits under the Indenture as the
Outstanding Notes. In addition, the Exchange Notes and the Outstanding Notes
are treated as one series of securities under the Indenture.
If (i) by April 22, 1998, neither the Registration Statement nor the Shelf
Registration Statement (as defined in the Registration Rights Agreement) has
been filed with the Commission; (ii) by July 21, 1998, neither the Exchange
Offer is consummated nor the Shelf Registration Statement is declared
effective; or (iii) after either the Registration Statement or the Shelf
Registration Statement is declared effective, such Registration Statement
thereafter ceases to be effective or usable (subject to certain exceptions) in
connection with resales of Outstanding Notes or Exchange Notes in accordance
with and during the periods specified in the Registration Rights Agreement
(each such event referred to in clause (i) through (iii) being herein called a
"Registration Default"), additional cash interest will accrue on the Notes at
the rate of 0.50% per annum from and including the date on which any such
Registration Default shall occur to but excluding the date on which all
Registration Default have been cured, calculated on the principal amount of
the Notes as of the date on which such interest is payable. Such interest is
payable in addition to any other interest payable from time to time with
respect to the Notes.
As of June 1, 1998, $125,000,000 aggregate principal amount of Outstanding
Notes were outstanding. This Prospectus and the Letter of Transmittal are
being sent to all registered holders of Outstanding Notes.
Tendering holders of Outstanding Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Outstanding Notes
pursuant to the Exchange Offer. The Issuer will pay all charges and expenses,
other than certain transfer taxes which may be imposed, in connection with the
Exchange offer. See "--Transfer Taxes" below.
Holders of Outstanding Notes do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law in connection with the Exchange
Offer.
PERIOD FOR TENDERING OUTSTANDING NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Issuer will accept for exchange Outstanding Notes which
are properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m.,
New York City time, on July 27, 1998, unless the Exchange Offer is extended by
the Issuer (but in no event to a date later than August 10, 1998); provided,
however, that the Issuer's obligation to accept Outstanding Notes for exchange
pursuant to the Exchange Offer is subject to certain conditions set forth
under "--Certain Conditions to the Exchange Offer" below.
The Issuer expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance of exchange of any Outstanding Notes, by giving oral
or written notice of such extension to the holders thereof as described below.
During any such extension, all Outstanding Notes previously tendered will
remain subject to the Exchange Offer and may be accepted for exchange by the
Issuer. Any Outstanding Notes not accepted for exchange for any reason will be
returned without expense to the tendering holder thereof as promptly as
practicable after the expiration or termination of the Exchange Offer.
The Issuer expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Outstanding Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified below under "--Certain Conditions to the Exchange
Offer." The Issuer will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the Outstanding
Notes as promptly as practicable, such notice in the case of any extension to
be issued by means of a press release or other public announcement no later
than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
27
<PAGE>
PROCEDURES FOR TENDERING OUTSTANDING NOTES
Except as set forth below, a holder of Outstanding Notes who wishes to
tender Outstanding Notes for exchange pursuant to the Exchange Offer must
transmit a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to U.S.
Bank Trust National Association (the "Exchange Agent") at the address set
forth below under "--Exchange Agent" on or prior to the Expiration Date. In
addition, either (i) certificates for such Outstanding Notes must be received
by the Exchange Agent, or (ii) a timely confirmation of a book-entry transfer
(a "Book-Entry Confirmation") of such Outstanding Notes into the Exchange
Agent's account at The Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedure for book-entry transfer described below,
must be received by the Exchange Agent on or prior to the Expiration Date, or
(iii) the holder of Outstanding Notes must comply with the guaranteed delivery
procedures described below.
Each exchanging holder of Outstanding Notes will be required to represent in
the Letter of Transmittal that such holder is acquiring the Exchange Notes in
the ordinary course of business, is not engaged in, and does not intend to
engage in, a distribution of Exchange Notes and is not an affiliate of the
Issuer or PEI.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER OF
OUTSTANDING NOTES. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN
ALL CASES SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO
LETTERS OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO THE ISSUER OR
PEI.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Outstanding Notes, where such Outstanding Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution."
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Outstanding Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of the
Outstanding Notes who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution (as defined below). In the
event that signatures on a Letter of Transmittal or a notice of withdrawal, as
the case may be, are required to be guaranteed, such guarantees must be made
by a firm which is a member of a registered national securities exchange or a
member of the National Association of Securities Dealers, Inc. or by a
commercial bank or trust company having an office or correspondent in the
United States (collectively, "Eligible Institutions"). If Outstanding Notes
are registered in the name of a person other than a signer of the Letter of
Transmittal, the Outstanding Notes surrendered for exchange must be endorsed
by, or be accompanied by a written instrument or instruments of transfer or
exchange, in satisfactory form as determined by the Issuer in its sole
discretion, duly executed by the registered holder of Outstanding Notes with
the signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Outstanding Notes tendered for exchange will be
determined by the Issuer in its sole discretion, which determination shall be
final and binding. The Issuer reserves the absolute right to reject any and
all tenders of any particular Outstanding Notes not properly tendered or to
not accept any particular Outstanding Notes which acceptance might, in the
judgment of the Issuer or its counsel, be unlawful. The Issuer also reserves
the absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Outstanding Notes either before or after
the Expiration Date. The interpretation of the terms and conditions of the
Exchange Offer as to any particular Outstanding Notes either before or after
the Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Issuer shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of
Outstanding Notes for exchange must be cured within such reasonable period of
time as the Issuer shall determine. Neither the Issuer, the Exchange Agent nor
any other person shall
28
<PAGE>
be under any duty to give notification of any defect or irregularity with
respect to any tender of Outstanding Notes for exchange, nor shall any of them
incur any liability for failure to give such notification. Tenders of
Outstanding Notes received by the Exchange Agent that are not properly
tendered and as to which the irregularities have not been cured or waived will
be returned by the Exchange Agent to the tendering holder, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
If the Letter of Transmittal is signed by a person or persons other than the
registered holder or holders of Outstanding Notes, such Outstanding Notes must
be endorsed or accompanied by appropriate powers of attorney, in either case
signed exactly as the name or names of the registered holder or holders that
appear on the Outstanding Notes.
If the Letter of Transmittal or any Outstanding Notes or powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-
fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Issuer of
their authority to so act must be submitted.
In all cases, issuance of Exchange Notes for Outstanding Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Outstanding
Notes or a timely Book-Entry Confirmation of such Outstanding Notes in the
Exchange Agent's account at the Book-Entry Transfer Facility, a properly
completed and duly executed Letter of Transmittal and all other required
documents. If any tendered Outstanding Notes are not accepted for any reason
set forth in the terms and conditions of the Exchange Offer or Outstanding
Notes are submitted for a greater principal amount than the holder thereof
desires to exchange, such unaccepted or non-exchanged Outstanding Notes will
be returned without expense to the tendering holder thereof (or, in the case
of Outstanding Notes tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility pursuant to the book-entry
procedures described below, such non-exchanged Outstanding Notes will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Outstanding Notes at the Book-Entry Transfer Facility for purposes of
the Exchange Offer within two business days after the date of this Prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Outstanding Notes by
causing the Book-Entry Transfer Facility to transfer such Outstanding Notes
into the Exchange Agent's account at the Book-Entry Transfer Facility in
accordance with such Book-Entry Transfer Facility's procedures for transfer.
However, although delivery of Outstanding Notes may be effected through book-
entry transfer at the Book-Entry Transfer Facility, the Letter of Transmittal
(or a copy thereof), with any required signature guarantees and any other
required documents, must, in any case, be transmitted to and received by the
Exchange Agent at the address set forth below under "--Exchange Agent" on or
prior to the Expiration Date or the guaranteed delivery procedures described
below must be complied with.
ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Tenders of Outstanding Notes will be accepted only in principal amounts of
$1,000 and integral multiples thereof.
Upon the terms and subject to the conditions of the Exchange Offer, the
Issuer will accept all Outstanding Notes validly tendered and not withdrawn
promptly prior to 5:00 p.m. on the Expiration Date. The Issuer will deliver
Exchange Notes in exchange for Outstanding Notes promptly following acceptance
of the Outstanding Notes.
For purposes of the Exchange Offer, the Issuer shall be deemed to have
accepted validly tendered Outstanding Notes when, as and if the Issuer has
given oral or written notice thereof to the Exchange Agent.
29
<PAGE>
The Exchange Agent will act as agent for the tendering holders of Outstanding
Notes for the purposes of receiving the Exchange Notes. Under no circumstances
will interest be paid by the Issuer or the Exchange Agent by reason of any
delay in making such payment or delivery.
The Issuer's acceptance for exchange of Outstanding Notes tendered pursuant
to the Exchange Offer will constitute a binding agreement between the
tendering holder and the Issuer upon the terms and subject to the conditions
of the Exchange Offer.
If any tendered Outstanding Notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth herein or
otherwise, any such unaccepted Outstanding Notes will be returned, at the
Issuer's expense, to the tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange Offer.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Outstanding Notes desires to tender such
Outstanding Notes and the Outstanding Notes are not immediately available, or
time will not permit such holder's Outstanding Notes or other required
documents to reach the Exchange Agent before the Expiration Date, or the
procedure for book-entry transfer cannot be completed on a timely basis, a
tender may be effected if (i) the tender is made through an Eligible
Institution, (ii) prior to the Expiration Date, the Exchange Agent receives
from such Eligible Institution a properly completed and duly executed Notice
of Guaranteed Delivery, substantially in the form provided by the Issuer
(mail, courier or hand delivery or by facsimile transmission), setting forth
the name and address of the holder of Outstanding Notes, the certificate
number(s) of such Outstanding Notes (except in the case of book-entry tenders)
and the principal amount of Outstanding Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three New York
Stock Exchange ("NYSE") trading days after the Expiration Date, the Letter of
Transmittal (or a copy thereof) together with the certificates for all
physically tendered Outstanding Notes, in proper form for transfer, or a Book-
Entry Confirmation, as the case may be, and any other documents required by
the Letter of Transmittal will be deposited by the Eligible Institution with
the Exchange Agent, and (iii) such properly completed and executed Letter of
Transmittal (or a copy thereof) together with the certificates for all
physically tendered Outstanding Notes, in proper form for transfer, or a Book-
Entry Confirmation, as the case may be, and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within three
NYSE trading days after the Expiration Date.
WITHDRAWAL RIGHTS
Tenders of Outstanding Notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth below under "--
Exchange Agent." Any such notice of withdrawal must (i) specify the name of
the person having tendered the Outstanding Notes to be withdrawn, (ii)
identify the Outstanding Notes to be withdrawn (including the certificate
numbers and principal amount of such Outstanding Notes (except in the case of
book-entry tenders)), (iii) be signed by the holder of Outstanding Notes in
the same manner as the original signature on the Letter of Transmittal by
which such Outstanding Notes are tendered or be accompanied by sufficient
documents of transfer and (iv) specify the name in which such Outstanding
Notes are registered, if different from that of the withdrawing holder. If
certificates for Outstanding Notes have been delivered or otherwise identified
to the Exchange Agent, then, prior to the release of such certificates, the
withdrawing holder must also submit the certificate numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an Eligible Institution unless such holder of Outstanding Notes
is an Eligible Institution. If Outstanding Notes have been tendered for book-
entry transfer as described above, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Outstanding Notes and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
30
<PAGE>
the Issuer, whose determination shall be final and binding on all parties. Any
Outstanding Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Outstanding
Notes which have been tendered for exchange but which are not exchanged for
any reason will be returned to the holder thereof without cost to such holder
(or, in the case of Outstanding Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, such Outstanding Notes will be
credited to an account maintained with such Book-Entry Transfer Facility for
the Outstanding Notes) as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer. Properly withdrawn Outstanding
Notes may be retendered by following one of the procedures described under "--
Procedures for Tendering Outstanding Notes" above at any time on or prior to
the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Issuer shall
not be required to accept for exchange, or to issue Exchange Notes in exchange
for, any Outstanding Notes and may terminate or amend the Exchange Offer, if
at any time before the acceptance of such Outstanding Notes for exchange or
the exchange of the Exchange Notes for such Outstanding Notes, any of the
following events shall occur:
(a) such acceptance or issuance would violate applicable law or any
applicable interpretation of the staff of the Commission;
(b) there shall be instituted or pending any action or proceeding by or
before any court or governmental agency with respect to the Exchange
Offer which, in the Company's sole judgment might impair the ability of
the Company to proceed with the Exchange Offer; or
(c) there shall have been proposed, adopted or enacted any law, statute,
rule or regulation which, in the sole judgment of the Company, might
materially impair the ability of the Company to proceed with the
Exchange Offer.
The foregoing conditions are for the sole benefit of the Issuer and may be
asserted by the Issuer regardless of the circumstances giving rise to any such
condition or may be waived by the Issuer in whole or in part at any time and
from time to time in its sole discretion. The failure by the Issuer at any
time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time.
In addition, the Issuer will not accept for exchange any Outstanding Notes
tendered, and no Exchange Notes will be issued in exchange for any such
Outstanding Notes, if at such time any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939.
31
<PAGE>
EXCHANGE AGENT
U.S. Bank Trust National Association has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at the address set forth below. Questions and
requests for assistance, requests for additional copies of the Prospectus or
of the Letter of Transmittal and requests for Notices of Guaranteed Delivery
should be directed to the Exchange Agent, addressed as follows:
BY FACSIMILE: BY MAIL:
U.S. Bank Trust National Association U.S. Bank Trust National
(612) 244-1537 Association
Attention: Specialized Finance P.O. Box 64485
(SPFT0414) St. Paul, Minnesota 55164-9549
Confirm by Telephone to: (612) 244- Attention: Specialized Finance
8161 (SPFT0414)
BY HAND BEFORE 5:00 p.m. (New York BY OVERNIGHT COURIER AND BY
Time): REGISTERED/CERTIFIED MAIL:
U.S. Bank Trust National Association U.S. Bank Trust National Association
100 Wall Street 180 East Fifth Street
20th Floor St. Paul, Minnesota 55101
New York, NY 10005 Attention: Specialized Finance
(SPFT0414)
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA FAX TRANSMISSION OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The Issuer will not make any payment to brokers, dealers, or others
soliciting acceptances of the Exchange Offer.
The Issuer will pay certain other expenses to be incurred in connection with
the Exchange Offer, including the fees and expenses of the Exchange Agent,
accounting and certain legal fees.
TRANSFER TAXES
Holders who tender their Outstanding Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith. If however,
Exchange Notes and/or substitute Outstanding Notes not exchanged are to be
delivered to, or are to be registered or issued in the name of, any person
other than the registered holder of the Outstanding Notes, or if tendered
Outstanding Notes are registered in the name of any person other than the
person signing a Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the transfer of Outstanding Notes to the Issuer or its
order pursuant to the Exchange Offer, the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be
payable by the tendering holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted together with a Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Outstanding Notes who do not exchange their Outstanding Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Outstanding Notes as set forth in the
legend thereon as a consequence of the issuance of the Outstanding Notes
pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, the Outstanding Notes may not be offered or sold,
unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the Securities Act and applicable
state securities laws.
32
<PAGE>
The Issuer does not currently anticipate that it will register Outstanding
Notes under the Securities Act. To the extent that Outstanding Notes are
tendered in connection with the Exchange Offer, any trading market for
Outstanding Notes not tendered in connection with the Exchange Offer could be
adversely affected. The tender of Outstanding Notes pursuant to the Exchange
Offer may have an adverse effect upon, and increase the volatility of, the
market prices of the Outstanding Notes due to a reduction in liquidity. See
"Risk Factors--Consequences of Failure to Exchange."
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Outstanding Notes, as reflected in the Issuer's accounting records on the date
of the exchange. Accordingly, no gain or loss for accounting purposes will be
recognized. The expenses of the Exchange Offer will be amortized over the term
of the Exchange Notes.
33
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of PEI as of April 4, 1998
This presentation should be read in conjunction with PEI's Consolidated
Financial Statements and the related notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AS OF
APRIL 4, 1998
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Cash and cash equivalents .............................. $ 7,565
========
Total debt (including current portion):
New U.S. Credit Facility(a)........................... $ 1,634
Temporary U.K. Credit Facility(b)..................... 846
9 5/8% Senior Notes due 2008.......................... 125,000
Other debt(c)......................................... 5,106
--------
Total debt..........................................
Stockholders' equity (deficit):
Common Stock, par value $0.01 per share; 5,000,000
shares authorized; .................................. 2
Additional paid-in capital............................ 16,623
Retained earnings (accumulated deficit)............... (2,891)
Treasury shares and other............................. (24,606)
--------
Total stockholders' equity (deficit)................ (10,872)
--------
Total capitalization................................ $121,714
========
</TABLE>
- --------
(a) Total availability under the New U.S. Credit Facility is $23.0 million,
subject to borrowing base restrictions. See "Description of Certain
Indebtedness--New U.S. Credit Facility."
(b) On April 21, 1998, Prestolite U.K. replaced the Temporary U.K. Credit
Facility with the New U.K. Credit Facility providing for borrowings of up
to (Pounds)7.0 million (approximately $11.3 million based on exchange
rates as of June 1, 1998). See "Description of Certain Indebtedness--New
U.K. Credit Facility."
(c) Consists of $0.8 million of capitalized leases, $3.9 million of
indebtedness of Lucas Argentina and $0.4 million of other debt. See
"Description of Certain Indebtedness--Other Indebtedness."
34
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
PEI
The following table sets forth selected consolidated historical financial
data of PEI as of and for the periods indicated. The statements of operations
data for each of the fiscal years in the three-year period ended December 31,
1997 and the balance sheet data as of December 31, 1996 and 1997 have been
derived from audited financial statements of PEI included elsewhere in this
Prospectus. The statements of operations data for each of the fiscal years in
the two year period ended December 31, 1994 and the balance sheet data as of
December 31, 1993, 1994 and 1995 have been derived from the audited financial
statements of PEI not included in this Prospectus. The data as of and for the
three-month periods ending April 5, 1997 and April 4, 1998 were derived from
PEI's unaudited consolidated financial statements that have been prepared on
the same basis as PEI's audited financial statements and, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of the interim
periods. The results of operations for the three-month period ended April 4,
1998 are not necessarily indicative of the results expected for a complete
fiscal year or any other interim period. The information in the table should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of PEI, including the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
---------------------------------------------------- -------------------
APRIL 5, APRIL 4,
1993 1994 1995 1996 1997 1997 1998
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT RATIOS AND SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Net sales............... $ 116,040 $ 129,011 $ 131,503 $ 148,765 $ 171,700 $ 44,302 $ 74,525
Cost of goods sold...... 94,986 102,858 106,541 120,585 137,792 35,346 60,031
Selling, general and
administrative
expenses............... 17,454 18,583 18,955 20,986 23,188 5,629 9,806
Costs associated with
option purchased....... -- -- -- -- 2,101 -- --
Restructuring and idle
facility costs......... 1,000 -- 3,100 56 -- -- 960
--------- --------- --------- --------- --------- --------- ---------
Operating income........ 2,600 7,570 2,907 7,138 10,720 3,327 1,607
Other expense(a)........ 51 544 203 108 210 20 (86)
Interest expense........ 3,066 3,360 4,282 5,313 5,384 1,433 3,281
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from
continuing operations
before income taxes and
extraordinary items.... (517) 3,666 (1,578) 1,717 5,126 1,874 (1,588)
Provision for income
taxes.................. 123 480 630 (2,314) 2,303 747 (606)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from
continuing operations
before extraordinary
items.................. (640) 3,186 (2,208) 4,031 2,823 1,127 (982)
========= ========= ========= ========= ========= ========= =========
Earnings per common
share from continuing
operations before
extraordinary items(b):
Basic................. (0.20) 0.96 (0.64) 1.17 0.82 0.33 (0.42)
Diluted............... (0.20) 0.94 (0.64) 1.13 0.78 0.31 (0.42)
Shares used in computing
earnings per share(b):
Basic................. 3,215,000 3,301,940 3,466,740 3,454,740 3,446,740 3,450,740 2,323,194
Diluted............... 3,215,000 3,401,400 3,466,740 3,553,800 3,628,020 3,655,180 2,323,194
BALANCE SHEET DATA (AT
END OF PERIOD):
Working capital
(excluding debt)....... $ 18,960 $ 24,920 $ 25,486 $ 29,567 $ 31,588 $ 31,943 $ 54,365
Total assets............ 65,131 72,366 72,473 93,604 88,685 99,074 187,655
Total debt.............. 33,854 36,548 40,451 46,514 42,930 50,149 132,586
Stockholders' equity.... 11,715 15,605 13,273 18,018 18,943 17,946 (10,877)
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(c)............... $ 6,263 $11,041 $ 7,254 $ 12,276 $16,011 $ 4,661 $ 4,685
Cash flow from operating
activities............. 3,280 1,100 1,447 2,560 7,749 (2,910) 5,874
Cash flow from investing
activities............. (1,195) (2,667) (5,035) (10,336) 1,483 (772) (57,114)
Cash flow from financing
activities............. (2,257) 1,786 3,789 8,032 (9,582) 3,286 58,309
Depreciation and
amortization........... 3,714 4,015 4,550 5,246 5,501 1,354 2,992
Capital expenditures.... 1,452 2,688 4,864 6,794 5,638 772 2,681
Ratio of earnings to
fixed charges(d)....... -- 1.9x -- 1.3x 1.8x 2.1x --
</TABLE>
- --------
(a) Other expense consists primarily of operating costs of idle facilities.
(b) Earnings per common share and shares used in the computation reflect the
20-for-1 stock split.
(c) EBITDA for any period is calculated as the sum of income (loss) from
continuing operations plus the following to the extent deducted in
calculating such net income: (i) minority interest, (ii) interest expense,
(iii) income tax expense, (iv) depreciation expense and (v) amortization
expense, in each case for such period. The Company considers EBITDA to be
a widely accepted financial indicator of a company's ability to service
debt, fund capital expenditures and expand its business; however, EBITDA
is not calculated the same by all companies and is not a measurement
required by generally accepted accounting principles. EBITDA should not be
considered by an investor as an alternative to net income, as an indicator
of the Company's operating performance or as an alternative to cash flow
(as defined in accordance with generally accepted accounting principles)
as a measure of liquidity.
(d) For purposes of computing the ratio of earnings to fixed charges, earnings
include income before income taxes, discontinued operations and
extraordinary items plus fixed charges. Fixed charges consist of interest
expense and 33% of rental expense (deemed by management to be
representative of the interest factor of rental payments). Earnings were
insufficient to cover fixed charges in 1993 and 1995 by approximately $0.5
million and $1.6 million, respectively.
36
<PAGE>
THE LUCAS BUSINESSES--COMBINED HISTORICAL (UNAUDITED)
The following table sets forth selected combined historical financial data
of the Lucas Businesses as of and for the periods indicated. Each of the Lucas
Businesses changed its fiscal year from July 31 to January 31 during 1996, and
from January 31 to December 31 following the Lucas Acquisition. Accordingly,
the January 31, 1997 and December 31, 1997 statement of operations data are
for the six months and eleven months then ended, respectively. The Lucas
Businesses' selected combined historical financial data as of January 31, 1997
and December 31, 1997, and for the years ended July 31, 1995 and 1996, the
six-month period ended January 31, 1997 and eleven-month period ended December
31, 1997 were derived from the audited financial statements of Lucas HDP,
Lucas Argentina and Lucas South Africa included elsewhere in this Prospectus.
The information in the table should be read in conjunction with the Financial
Statements of each of Lucas HDP, Lucas Argentina and Lucas South Africa,
including the related notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX ELEVEN
YEAR ENDED MONTHS MONTHS
------------------ ENDED ENDED
JULY 31, JULY 31, JANUARY 31, DECEMBER 31,
1995 1996 1997 1997(A)
-------- -------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales........................ $130,138 $129,757 $ 62,076 $121,734
Cost of goods sold............... 104,183 102,945 50,159 100,571
Selling, general and
administrative expenses......... 27,228 24,857 10,702 20,280
Nonrecurring charges(b).......... -- 1,455 -- 763
Redundancy charges............... 284 528 200 1,656
-------- -------- -------- --------
Operating income................. (1,557) (28) 1,015 (1,536)
Other expense (income)........... 155 401 (102) (393)
Interest expense................. 1,352 1,320 734 1,427
-------- -------- -------- --------
Income (loss) before income taxes
and minority interest........... (3,064) (1,749) 383 (2,570)
Provision for income taxes....... 992 1,657 1,009 1,815
-------- -------- -------- --------
Income (loss) before minority
interest........................ (4,056) (3,406) (626) (4,385)
Minority Interest................ 21 15 -- --
-------- -------- -------- --------
Net loss......................... $ (4,035) $ (3,391) $ (626) $ (4,385)
======== ======== ======== ========
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital (excluding
debt)........................... $ 43,189 $ 50,614
Total assets..................... 102,916 110,978
Total debt....................... 16,000 11,620
Stockholders' equity and parent
company equity.................. 64,218 72,725
OTHER DATA:
EBITDA(c)........................ $ 3,551 $ 6,745 $ 4,089 $ 5,158
Cash flow from operating
activities...................... (1,854) 3,238 3,188 5,101
Cash flow from investing
activities...................... (5,446) (3,927) (3,870) (4,077)
Cash flow from financing
activities...................... 5,090 6,711 2,971 6,070
Depreciation and
amortization(d)................. 5,263 7,174 2,972 6,301
Capital expenditures............. 5,579 4,013 3,880 4,146
</TABLE>
- --------
(a) Lucas Argentina's 1997 balance sheet date was January 2, 1998.
(b) Represents in 1996 a writedown of $1,455 of Lucas Argentina goodwill and
in 1997 non recurring Lucas Argentina expenses related to purchase
adjustments agreed to by Lucas Argentina as provisions for remanufactured
inventory ($300) and for pension liability ($455).
(c) EBITDA for any period is calculated as the sum of income (loss) from
continuing operations plus the following to the extent deducted in
calculating such net income: (i) minority interest, (ii) interest expense,
(iii) income tax expense, (iv) depreciation expense and (v) amortization
expense, in each case for such period. The Company considers EBITDA to be
a widely accepted financial indicator of a company's ability to service
debt, fund capital expenditures and expand its business; however, EBITDA
is not calculated the same by all companies and is not a measurement
required by generally accepted accounting principles. EBITDA should not be
considered by an investor as an alternative to net income, as an indicator
of the Company's operating performance or as an alternative to cash flow
(as defined in accordance with generally accepted accounting principles)
as a measure of liquidity.
(d) Depreciation and amortization for the twelve months ended July 31, 1996,
includes a write down of $1,455 of goodwill of Lucas Argentina discussed
in note (b).
37
<PAGE>
LUCAS HDP
The following table sets forth selected historical financial data of Lucas
HDP as of and for the periods indicated. Lucas HDP changed its fiscal year
from July 31 to January 31 during 1996, and from January 31 to December 31
following the Lucas Acquisition. Accordingly, the January 31, 1997 and
December 31, 1997 statement of operations data are for the six months and
eleven months then ended, respectively. Lucas HDP's selected historical
financial data as of January 31, 1997 and December 31, 1997, and for the years
ended July 31, 1995 and 1996, the six-month period ended January 31, 1997 and
eleven-month period ended December 31, 1997 were derived from Lucas HDP's
audited financial statements included elsewhere in this Prospectus. The
information in the table should be read in conjunction with the Financial
Statements of Lucas HDP, including the notes thereto, included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SIX ELEVEN
YEAR ENDED MONTHS MONTHS
------------------ ENDED ENDED
JULY 31, JULY 31, JANUARY 31, DECEMBER 31,
1995 1996 1997 1997
-------- -------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales........................ $37,544 $44,794 $22,562 $41,528
Cost of goods sold............... 27,631 32,432 16,050 29,300
Selling, general and
administrative expenses......... 8,085 7,749 4,209 7,708
Redundancy charges............... -- 162 57 92
------- ------- ------- -------
Operating income................. 1,828 4,451 2,246 4,428
Interest expense................. n/a n/a n/a n/a
------- ------- ------- -------
Income before income taxes....... 1,828 4,451 2,246 4,428
Provision for income taxes....... 603 1,469 741 1,461
------- ------- ------- -------
Net income....................... $ 1,225 $ 2,982 $ 1,505 $ 2,967
======= ======= ======= =======
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital (excluding
debt)........................... $22,675 $29,601
Total assets..................... 35,877 44,870
Total debt....................... n/a n/a
Parent company equity............ 31,314 38,288
OTHER DATA:
EBITDA(a)........................ $ 3,071 $ 5,731 $ 2,976 $ 5,987
Cash flow from operating
activities...................... 2,261 5,614 3,750 7,745
Cash flow from investing
activities...................... (1,688) (1,278) (1,191) (1,435)
Cash flow from financing
activities...................... -- -- -- --
Depreciation and amortization.... 1,243 1,280 730 1,559
Capital expenditures............. 1,779 1,278 1,194 1,453
</TABLE>
- --------
(a) EBITDA for any period is calculated as the sum of income (loss) from
continuing operations plus the following to the extent deducted in
calculating such net income: (i) minority interest, (ii) interest expense,
(iii) income tax expense, (iv) depreciation expense and (v) amortization
expense, in each case for such period. The Company considers EBITDA to be
a widely accepted financial indicator of a company's ability to service
debt, fund capital expenditures and expand its business; however, EBITDA
is not calculated the same by all companies and is not a measurement
required by generally accepted accounting principles. EBITDA should not be
considered by an investor as an alternative to net income, as an indicator
of the Company's operating performance or as an alternative to cash flow
(as defined in accordance with generally accepted accounting principles)
as a measure of liquidity.
38
<PAGE>
LUCAS ARGENTINA
The following table sets forth selected historical financial data of Lucas
Argentina as of and for the periods indicated. Lucas Argentina changed its
fiscal year from July 31 to January 31 during 1996, and from January 31 to
December 31 following the Lucas Acquisition. Accordingly, the January 31, 1997
and January 2, 1998, statement of operations data are for the six months and
eleven months then ended, respectively. Lucas Argentina's selected historical
financial data as of January 31, 1997 and January 2, 1998, and for the years
ended July 31, 1995 and 1996, the twelve-month period ended July 31, 1996 and
for the six-month period ended January 31, 1997 were derived from Lucas
Argentina's audited financial statements included elsewhere in this
Prospectus. The information in the table should be read in conjunction with
the Financial Statements of Lucas Argentina, including the notes thereto,
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX ELEVEN
YEAR ENDED MONTHS MONTHS
------------------ ENDED ENDED
JULY 31, JULY 31, JANUARY 31, JANUARY 2,
1995 1996 1997 1998
-------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.......................... $74,124 $68,436 $32,125 $66,119
Cost of goods sold................. 61,838 57,607 28,618 60,731
Selling, general and administrative
expenses.......................... 16,169 14,070 5,107 9,881
Nonrecurring charges(a)............ -- 1,455 -- 763
Redundancy charges................. 284 366 143 1,564
------- ------- ------- -------
Operating income (loss)(a)......... (4,167) (5,062) (1,743) (6,820)
Other expense (income)............. 155 401 (83) (230)
Interest expense................... 1,310 1,162 734 1,427
------- ------- ------- -------
Income (loss) before income taxes
and minority interest............. (5,632) (6,625) (2,394) (8,017)
Provision for income taxes......... -- 2 -- --
------- ------- ------- -------
Income (loss) before minority
interest.......................... $(5,632) $(6,627) $(2,394) $(8,017)
Minority interest.................. 21 15 -- --
------- ------- ------- -------
Net loss........................... (5,611) (6,612) (2,394) (8,017)
======= ======= ======= =======
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital (excluding debt)... $17,796 $18,072
Total assets....................... 59,738 58,683
Total debt......................... 16,000 11,620
Stockholders' equity............... 29,821 32,304
OTHER DATA:
EBITDA(b).......................... $ (709) $ (64) $ 357 $(2,252)
Cash flow from operating
activities........................ (5,065) (2,939) (1,374) (4,044)
Cash flow from investing
activities........................ (2,521) (2,123) (2,490) (2,264)
Cash flow from financing
activities........................ 5,195 6,750 3,200 6,120
Depreciation and amortization(c)... 3,613 5,399 2,017 4,338
Capital expenditures............... 2,521 2,123 2,490 2,264
</TABLE>
- --------
(a) Represents in 1996 a goodwill writedown of $1,455 and in 1997 non
recurring expenses related to purchase adjustments agreed by Lucas
Industries and Prostolite for manufactured inventory ($300) and for
pension liability ($455).
(b) EBITDA for any period is calculated as the sum of income (loss) from
continuing operations plus the following to the extent deducted in
calculating such net income: (i) minority interest, (ii) interest expense,
(iii) income tax expense, (iv) depreciation expense and (v) amortization
expense, in each case for such period. The Company considers EBITDA to be
a widely accepted financial indicator of a company's ability to service
debt, fund capital expenditures and expand its business; however, EBITDA
is not calculated the same by all companies and is not a measurement
required by generally accepted accounting principles. EBITDA should not be
considered by an investor as an alternative to net income, as an indicator
of the Company's operating performance or as an alternative to cash flow
(as defined in accordance with generally accepted accounting principles)
as a measure of liquidity.
(c) Depreciation and amortization for the twelve months ended July 31, 1996,
includes a write down of $1,455 of goodwill of Lucas Argentina as
discussed in note (a).
39
<PAGE>
LUCAS SOUTH AFRICA
The following table sets forth selected historical financial and operating
data of Lucas South Africa as of and for the periods indicated. Lucas South
Africa changed its fiscal year from July 31 to January 31 during 1996, and
from January 31 to December 31 following the Lucas Acquisition. Accordingly,
the January 31, 1997 and December 31, 1997 statement of operations data are
for the six months and eleven months then ended, respectively. Lucas South
Africa's selected historical financial data as of January 31, 1997 and
December 31, 1997, and the years ended July 31, 1995 and 1996, for the six-
month period ended January 31, 1997 and for the eleven-month period ended
December 31, 1997 were derived from Lucas South Africa's audited financial
statements included elsewhere in this Prospectus. The information in the table
should be read in conjunction with the Financial Statements of Lucas South
Africa, including the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX ELEVEN
YEAR ENDED MONTHS MONTHS
------------------ ENDED ENDED
JULY 31, JULY 31, JANUARY 31, DECEMBER 31,
1995 1996 1997 1997
-------- -------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales........................ $19,093 $17,330 $7,601 $14,497
Cost of goods sold............... 15,337 13,709 5,703 10,950
Selling, general and
administrative expenses......... 2,974 3,038 1,386 2,691
Redundancy charges............... -- -- -- --
------- ------- ------ -------
Operating income................. 782 583 512 856
Other expense (income) (interest
income)......................... -- -- (19) (163)
Interest expense................. 42 158 -- --
------- ------- ------ -------
Income before income taxes....... 740 425 531 1,019
Provision for income taxes....... 389 186 268 354
------- ------- ------ -------
Net income....................... $ 351 $ 239 $ 263 $ 665
======= ======= ====== =======
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital (excluding
debt)........................... $2,718 $ 2,941
Total assets..................... 7,420 7,505
Total debt....................... -- --
Stockholders' equity............. 4,530 4,326
OTHER DATA:
EBITDA(a)........................ $ 1,189 $ 1,078 $ 756 $ 1,423
Cash flow from operating
activities...................... 950 563 812 1,400
Cash flow from investing
activities...................... (1,237) (526) (189) (378)
Cash flow from financing
activities...................... (105) (39) (229) (50)
Depreciation and amortization.... 407 495 225 404
Capital expenditures............. 1,279 612 196 429
</TABLE>
- --------
(a) EBITDA for any period is calculated as the sum of income (loss) from
continuing operations plus the following to the extent deducted in
calculating such net income: (i) minority interest, (ii) interest expense,
(iii) income tax expense, (iv) depreciation expense and (v) amortization
expense, in each case for such period. The Company considers EBITDA to be
a widely accepted financial indicator of a company's ability to service
debt, fund capital expenditures and expand its business; however, EBITDA
is not calculated the same by all companies and is not a measurement
required by generally accepted accounting principles. EBITDA should not be
considered by an investor as an alternative to net income, as an indicator
of the Company's operating performance or as an alternative to cash flow
(as defined in accordance with generally accepted accounting principles)
as a measure of liquidity.
40
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined financial data present the pro
forma combined balance sheet of the Company as of December 31, 1997 as if the
Transactions had occurred on December 31, 1997, and present the pro forma
combined statement of operations data of the Company as if the Transactions
had occurred on January 1, 1997. The pro forma data reflect (i) issuance of
the Outstanding Notes in the Offering and the repayment of approximately $42.0
million of outstanding indebtedness (including approximately $3.4 million of
indebtedness of Lucas Argentina); (ii) the acquisition of Lucas HDP, Lucas
South Africa and a controlling interest in Lucas Argentina from Lucas
Industries, which was accounted for as a purchase and; (iii) the purchase of
approximately $29.7 million of securities of PEI from its securityholders. See
"The Transactions."
The unaudited pro forma combined financial data are based on the historical
consolidated financial statements of PEI and the historical financial
statements of each of the Lucas Businesses, and on the assumptions and
adjustments described in the notes to such unaudited pro forma combined
financial data. The statements of operations data for the Lucas Businesses are
based on the audited statements of operations for the eleven months ended
December 31, 1997 (January 2, 1998 for Lucas Argentina) included elsewhere in
this Prospectus and the unaudited statements of operations for the month ended
January 31, 1997 (the Lucas Businesses fiscal year end was January 31). The
unaudited pro forma combined financial data do not reflect certain cost
reductions which the Company believes could be realized in connection with the
Lucas Acquisition as a result of productivity improvements, manufacturing
realignments and overhead cost reductions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business--
Business Strengths--Continue Cost Reduction Emphasis." Such estimated cost
reductions are based on management's preliminary assumptions. There can be no
assurance, however, as to the amount of cost savings, if any, that will
actually be realized.
The unaudited pro forma combined financial data do not purport to represent
what the Company's financial position and results of operations would have
been if the Transactions had actually been completed as of the dates indicated
and are not intended to project the Company's financial position or results of
operations for any future period.
The unaudited pro forma combined financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the respective historical financial statements
of PEI, Lucas HDP, Lucas Argentina and Lucas South Africa and the related
notes thereto included elsewhere in this Prospectus.
41
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------------------------
PRO
LUCAS LUCAS LUCAS TRANSACTION FORMA
PRESTOLITE HDP ARGENTINA SOUTH AFRICA ADJUSTMENTS COMBINED
---------- ------- --------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and marketable
securities............. $ 455 $19,508 $ 1,516 $1,342 $ (16,234)(a) $ 6,587
Accounts receivable..... 26,326 8,164 9,200 2,523 1,384 (b) 47,597
Inventory............... 24,687 5,833 18,096 1,655 1,980 (c) 52,251
Prepaid expenses and
other assets........... 4,191 2,267 1,513 -- (2,193)(d) 5,778
------- ------- -------- ------ --------- --------
Total current
assets............. 55,659 35,772 30,325 5,520 (15,063) 112,213
------- ------- -------- ------ --------- --------
Property, plant and
equipment, net of
accumulated
depreciation........... 26,179 8,768 16,369 1,985 2,397 (e) 55,698
Intangible assets....... 2,834 -- 1,601 -- 2,564 (f) 6,999
Discontinued
operations............. 1,416 -- -- -- -- 1,416
Other................... 2,597 330 10,388 -- (3,596)(g) 9,719
------- ------- -------- ------ --------- --------
Total assets........ $88,685 $44,870 $ 58,683 $7,505 $ (13,698) $186,045
======= ======= ======== ====== ========= ========
LIABILITIES
Accounts payable........ $12,042 $ 5,162 $ 9,539 $2,579 $ 1,900 (h) $ 31,222
Accrued expenses........ 12,029 1,420 2,714 -- 12,733 (i) 28,896
Current debt............ 4,196 -- -- -- (4,003)(j) 193
------- ------- -------- ------ --------- --------
Total current
liabilities........ 28,267 6,582 12,253 2,579 10,630 60,311
Existing credit
facilities............. 32,373 -- 11,620 -- (43,993)(k) --
New credit facilities... -- -- -- -- -- --
Senior notes............ -- -- -- -- 125,000 (l) 125,000
Subordinated debt....... 9,267 -- -- -- (9,267)(m) --
Other debt.............. 1,290 -- -- -- 3,227 (n) 4,517
Less current debt....... (4,196) -- -- -- 4,003 (j) (193)
------- ------- -------- ------ --------- --------
38,734 -- 11,620 -- 78,970 129,324
Other long-term
liabilities............ 2,741 -- 2,503 600 4,100 (o) 9,944
------- ------- -------- ------ --------- --------
Total liabilities... 69,742 $ 6,582 $ 26,376 $3,179 $ 93,700 199,579
------- ------- -------- ------ --------- --------
MINORITY INTEREST....... -- -- 3 -- 35 (p) 38
SHAREHOLDERS' EQUITY
Common stock, paid in
capital, warrants and
parent company
equity............... $19,864 $38,288 $ 45,463 $1,880 $ (88,870)(q) $ 16,625
Retained earnings
(deficit)............ (634) -- (13,159) 2,446 5,696 (q) (5,651)
Treasury shares and
other................ (287) -- -- -- (24,259)(q) (24,546)
------- ------- -------- ------ --------- --------
Total shareholders'
equity............. 18,943 38,288 32,304 4,326 (107,433) (13,572)
------- ------- -------- ------ --------- --------
Total liabilities
and equity......... $88,685 $44,870 $ 58,683 $7,505 $ (13,698) $186,045
======= ======= ======== ====== ========= ========
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements.
42
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS)
The acquisition of Lucas HDP, Lucas South Africa and a controlling interest
in Lucas Argentina from Lucas Industries was accounted for as a purchase. The
following is a summary of the purchase price allocation:
<TABLE>
<S> <C>
Purchase Price:
Cash paid at closing......................................... $41,309
Imputed interest to adjust back to December 31, 1997......... (59)
Purchase price adjustments................................... (1,928)
Deferred purchase price...................................... 1,883
Debt assumed................................................. 6,620
-------
$47,825
Estimated Purchase Adjustments:
Cash balances not acquired................................... 19,508
Amount due to Lucas.......................................... 160
Adjustment of Lucas Argentina tax receivable................. 4,896
Elimination of Lucas HDP pension asset....................... 2,193
Establishment of Lucas South Africa pension asset............ (1,300)
Elimination of existing Lucas Argentina goodwill............. 1,601
Establishment of restructuring accrual....................... 8,220
Adjustment of Lucas U.K. warranty accrual.................... (303)
Establishment of Lucas Argentina contingent tax liability.... 4,100
Lucas Argentina minority interest............................ 35
Transaction costs (primarily professional fees) allocated to
the Lucas purchase.......................................... 2,000
Elimination of historical Lucas balances:
Debt....................................................... (11,620)
Equity..................................................... (74,918)
-------
Adjustment of property, plant and equipment to fair value...... $ 2,397
=======
</TABLE>
The above is an estimate based on information available to Prestolite as of
the date of this Prospectus. There can be no assurance that the actual
allocation will not change upon the finalization of such purchase price
allocation. However, management does not expect that any such change will
materially differ from the amounts set forth above.
The unaudited pro forma balance sheet as of December 31, 1997, has been
prepared as if the Transactions had occurred on December 31, 1997. The
following adjustments were recorded:
(a) Represents the elimination of cash at Lucas HDP of $19,508 offset by
assumed net proceeds of $3,274 for general corporate purposes as a result
of the Offering.
(b) Represents $1,464 due from Lucas Industries for the Lucas HDP purchase
price adjustment less the elimination of $80 of intercompany accounts
receivable.
(c) Represents deferred inventory purchases at Prestolite from Lucas
Industries.
(d) Represents the elimination of the Lucas HDP pension asset not acquired.
(e) Represents the allocation of the purchase price to property, plant and
equipment. This adjustment is an estimate, and final property, plant and
equipment valuations have not been completed.
(f) Represents estimated financing costs related to the issuance of the
Outstanding Notes (a total of $5,518, of which $1,018 is included on PEI's
balance sheet at December 31, 1997), net of capitalized costs of $335
related to the refinanced credit facilities and less the Lucas Argentina
goodwill.
(g) Represents the adjustment of other long-term receivables of $4,896 at
Lucas Argentina pursuant to the acquisition agreement dated January 22,
1998, less a pension asset of $1,300 at Lucas South Africa.
Under the terms of the agreements executed in connection with the
acquisition of Lucas Argentina, proceeds from the $4,896 tax receivable
will be paid to Lucas Industries and, therefore, no asset or liability has
been recorded related to this item.
43
<PAGE>
(h) Represents the liability for the deferred inventory purchase ($1,980) less
elimination of intercompany balances ($80).
(i) Represents the following:
<TABLE>
<S> <C>
Restructuring accrual related to Lucas recognized as a purchase
price adjustment................................................. $ 8,220
Restructuring accrual related to Prestolite's existing U.K.
operations (employee severance).................................. 980
Liability for exercise of an option to acquire substantially all
of the remaining shares of Lucas Argentina....................... 1,230
Purchase price adjustment for Lucas Argentina which is an agreed
offset to the option exercise price.............................. (464)
Liability to Lucas Industries for acquisition of the aftermarket
operation of Lucas HDP........................................... 653
Warranty of Lucas HDP retained by Lucas........................... (303)
Amount due to Lucas for certain costs incurred.................... 160
Estimated acquisition costs payable............................... 2,257
-------
$12,733
=======
</TABLE>
The Lucas Acquisition restructuring accrual is an estimate related to
employee reductions in the United Kingdom and Argentina and a plant
closure. Not all portions of the restructuring plan have been finalized or
approved by the board of directors of the Company.
The option relates to the purchase of substantially all of the remaining
shares of Lucas Argentina and is exercisable between August 1, 1998 and
August 31, 1998. Lucas Industries has the right to require Prestolite to
execute this option during this period. Prestolite believes that it is
probable that this option will be exercised in August 1998.
(j) Represents adjustments to eliminate current maturities of the refinanced
debt referred to in note (k).
(k) Represents adjustments to eliminate refinanced indebtedness and eliminate
existing indebtedness of the Lucas Businesses that was repaid, assumed
(see note (n) below), reclassified or eliminated as a result of the
Transactions.
(l) Represents the issuance of the Outstanding Notes.
(m) Represents the repayment of the 12% Senior Subordinated Note due 2004.
(n) Represents the assumption of Lucas Argentina debt of $6,620 less repayment
at closing of $3,393.
(o) Represents $4,100 of contingent liabilities in connection with the
acquisition of Lucas Argentina. In connection with the acquisition of
Lucas Argentina, Prestolite agreed to pay a maximum of $10,000 contingent
upon Lucas Argentina's achieving certain earnings targets through the year
2000, for which no liability has been recorded on the pro forma balance
sheet. Prestolite has also agreed to pay up to $9,000 contingent upon
collection through 2002 of certain long-term receivables of Lucas
Argentina. These receivables were adjusted to exclude the approximately
$4,900 for which Lucas Industries retains the rights to all proceeds
collected (see note (g) above) and accordingly a contingent liability of
$4,100 was established.
(p) Represents an approximate 0.3% minority interest in Lucas Argentina,
existing after the exercise of the option referred in note (i) above.
(q) Represents the following equity adjustments:
<TABLE>
<CAPTION>
TREASURY
COMMON STOCK RETAINED SHARES
AND PAID IN EARNINGS AND
CAPITAL (DEFICIT) OTHER
------------ --------- --------
<S> <C> <C> <C>
Elimination of Lucas deficit (equity)..... $(85,631) $10,713 $ --
Purchase of PEI securities................ (3,239) (2,242) (24,259)
Prestolite restructuring charge........... -- (980) --
Loss on debt restructuring................ -- (1,795) --
-------- ------- --------
$(88,870) $ 5,696 $(24,259)
======== ======= ========
</TABLE>
The purchase of PEI securities includes the purchase of (i) 1,286,000 shares
of Common Stock at $18.86 per share, (ii) 123,960 options to purchase
shares of Common Stock at $18.86 per share less the exercise price and
(iii) warrants to purchase 171,740 shares of Common Stock at $20.00 per
share.
The loss on debt restructuring has been reflected as an extraordinary item
for the quarter ended March 31, 1998, and $2,047 of compensation expense
related to the purchase of PEI securities and $980 related to the
Prestolite restructuring have been charged to operations during the first
quarter of 1998. See "Certain Transactions."
44
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT RATIOS AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------------------------------------
LUCAS LUCAS LUCAS TRANSACTION PRO FORMA
PRESTOLITE HDP ARGENTINA SOUTH AFRICA ADJUSTMENTS COMBINED
---------- ------- --------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $171,700 $46,148 $71,035 $15,617 $(4,213)(a) $300,287
Cost of goods sold...... 137,792 32,488 65,376 11,867 (874)(b) 246,649
-------- ------- ------- ------- ------- --------
Gross profit.......... 33,908 13,660 5,659 3,750 (3,339) 53,638
Selling, general and
administrative
expenses............... 23,188 8,785 10,693 2,887 (4,561)(c) 40,992
Non recurring charges... -- -- 763 -- (763)(d) --
Redundancy charges...... -- 92 1,564 -- -- 1,656
-------- ------- ------- ------- ------- --------
Operating income...... 10,720 4,783 (7,361) 863 1,985 10,990
Other expense (income)
(primarily interest
income)................ 210 -- (230) (181) (237)(e) (438)
Interest expense........ 5,384 -- 1,537 -- 5,721 (f) 12,642
-------- ------- ------- ------- ------- --------
Income (loss) from
continuing operations
before minority
interest and income
taxes.................. 5,126 4,783 (8,668) 1,044 (3,499) (1,214)
Provision for income
taxes.................. 2,303 1,578 -- 363 (3,085)(g) 1,159
-------- ------- ------- ------- ------- --------
Income (loss) from
continuing operations
before minority
interest............... $ 2,823 $ 3,205 $(8,668) $ 681 $ (414) $ (2,373)
Minority interest....... -- -- -- -- (16)(h) (16)
-------- ------- ------- ------- ------- --------
Income (loss) from
continuing operations
....................... $ 2,823 $ 3,205 $(8,668) $ 681 $ (398) $ (2,357)
======== ======= ======= ======= ======= ========
Earnings per common
share from continuing
operations(i):
Basic................. $ 0.82 $ (1.19)
Fully diluted......... 0.78 (1.19)
OTHER DATA:
Depreciation and
amortization........... 5,501 1,684 4,497 446 (385) 11,743
Capital expenditures.... 5,638 1,463 2,359 470 -- 9,930
SELECTED RATIOS:
Ratio of earnings to fixed charges(k)......................................... --
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma combined
financial statements.
45
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PERCENTAGES)
The unaudited pro forma statement of operations for the year ended December
31, 1997 has been prepared as if the Transactions had occurred on January 1,
1997. The following adjustments were recorded:
(a) Represents elimination of intercompany sales ($447) plus reclassification
of the Lucas Argentina VAT credit ($3,766) to selling, general and
administrative expenses.
(b) Represents the following:
<TABLE>
<S> <C>
Elimination of intercompany sales...................................... $447
Adjust Lucas Businesses warranty expense:
Lucas HDP............................................................ 152
Lucas Argentina...................................................... 275
----
$874
====
</TABLE>
The Lucas Businesses warranty expense was charged to operations in 1997 and
the adjustments relate either to liabilities not assumed by Prestolite or
for liabilities for which Lucas Industries has indemnified Prestolite.
(c) Represents the following:
<TABLE>
<S> <C>
Reclassification of Lucas Argentina VAT credit...................... $3,766
Decrease in depreciation and amortization related to intangible
assets written off net of additional amortization (10 years) of
financing costs.................................................... 385
Lucas South Africa royalty payments related to an agreement not
assumed by Prestolite.............................................. 210
Lost Lucas Argentina VAT benefit for which Lucas Industries has
indemnified Prestolite............................................. 200
------
$4,561
======
</TABLE>
The decrease in depreciation ($446) relates to the depreciation over 15
years (estimated average remaining useful life of assets expected to be
adjusted) of the purchase price allocated to property, plant and equipment
as of December 31, 1996. Additional amortization is based on $5,500 of
deferred financing costs amortized over 10 years (term of the Outstanding
Notes). The amortization was decreased by $263 (related to historical
goodwill in Argentina written off as a purchase price adjustment) and by
$226 (related to the amortization of capitalized financing costs of
refinanced Prestolite debt).
(d) Represents the elimination of non recurring Lucas Argentina expenses
related to purchase adjustments agreed to by Lucas Industries and
Prestolite for remanufactured inventory ($308) and for the pension
liability ($455).
(e) Represents additional interest income on average cash balances computed at
5%.
(f) Represents increased interest expense to reflect indebtedness incurred in
connection with the Transactions assuming a 9 5/8% interest rate on the
Notes and 11.5% (actual 1997 rate) on borrowings in Lucas Argentina. Pro
forma interest is comprised of the following:
<TABLE>
<CAPTION>
AVERAGE BALANCE INTEREST
--------------- --------
<S> <C> <C>
Notes............................................... $125,000 $12,031
Lucas Argentina..................................... 3,310 381
Prestolite Borrowings not refinanced................ 1,325 130
Fees................................................ 100
-------
$12,642
=======
</TABLE>
(g) Represents the tax effect of the adjustments at the effective rates of for
each taxing jurisdiction excluding adjustments related to Lucas Argentina
which is in a tax loss position for which no tax benefit is recorded.
46
<PAGE>
(h) Represents the approximate 0.3% Lucas Argentina minority interest.
(i) The shares used in computing earnings per common share have been adjusted
to reflect the recapitalization as if it occurred on January 1, 1997 as
well as to reflect the 20-for-1 stock split effective March 26, 1998. The
following is a reconciliation of shares used.
<TABLE>
<CAPTION>
BASIC DILUTED
---------- ----------
<S> <C> <C>
Shares per audited financial statement............... 3,446,740 3,628,020
Shares repurchased................................... (1,286,000) (1,286,000)
Warrants repurchased................................. (171,740) (171,740)
Effect of antidilutive options....................... -- (181,280)
---------- ----------
Used in pro forma EPS................................ 1,989,000 1,989,000
========== ==========
</TABLE>
(j) Pro forma earnings before interest, taxes, depreciation and amortization
("EBITDA") is $23,171. EBITDA is calculated as the sum of income (loss)
from continuing operations plus the following to the extent deducted in
calculating such net income: (i) minority interest, (ii) interest expense,
(iii) income tax expense, (iv) depreciation expense and (v) amortization
expense. The Company considers EBITDA to be a widely accepted financial
indicator of a company's ability to service debt, fund capital
expenditures and expand its business; however, EBITDA is not calculated
the same by all companies and is not a measurement required by generally
accepted accounting principles. EBITDA should not be considered by an
investor as an alternative to net income, as an indicator of the Company's
operating performance or as an alternative to cash flow (as defined in
accordance with generally accepted accounting principles) as a measure of
liquidity.
(k) For purposes of calculating the ratio of earnings to fixed charges,
earnings include income (loss) from continuing operations before minority
interest and income taxes plus fixed charges. Fixed charges consist of
interest expense and 33% of rental expense (deemed by management to be
representative of the interest factor of rental payments). Pro forma
earnings were insufficient to cover fixed charges by approximately $1.2
million.
47
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Most of the Company's products are component parts used on diesel engines,
electric vehicles and automobiles sold to both aftermarket and original
equipment customers. The Company sells its products to a variety of markets,
both in terms of end-use and geography. The Company believes that the balance
of its aftermarket and OEM sales, as well as the diversity of markets served,
helps stabilize the Company's sales and earnings.
The Company's net sales to aftermarket customers in 1997 would have
represented approximately 44% of its pro forma net sales, with the remainder
derived from OEM customers. Demand in the Company's OEM markets tends to
follow capital goods business cycles. The aftermarket, while highly fragmented
and competitive, is generally a more stable source of sales and generates
higher margins than the Company's sales to its OEM customers. The Company's
aftermarket distribution channels consist of (i) OES customers, (ii)
independent warehouse distributors who supply repair shops, dealers and
retailers and (iii) government agencies that purchase aftermarket products
directly from the Company. Net sales through such channels would have
accounted for approximately 26%, 65% and 9%, respectively, of the Company's
pro forma aftermarket net sales in 1997.
After giving pro forma effect to the Lucas Acquisition, the Company's net
sales in 1997 to customers outside North America would have increased to
approximately 55% of its pro forma net sales, as compared with approximately
21% of Prestolite's net sales in 1997 on a stand-alone basis. Of the Company's
1997 pro forma net sales, approximately 26%, 22% and 5% would have been
derived from sales of the Company's operations in the United Kingdom,
Argentina and South Africa, respectively. Because of these foreign sales, the
Company's business is subject to the risks of doing business abroad, including
currency exchange rate fluctuations, withholding taxes, limits on repatriation
of funds, compliance with foreign laws and other economic and political
uncertainties. See "Risk Factors--Risk of Expansion of Foreign Operations;
Foreign Exchange Risk."
The Company completed the Recapitalization and the Lucas Acquisition during
the first quarter of 1998. In connection with the Recapitalization, the
Company expects to record a non-recurring charge of approximately $3.9 million
for the write off of unamortized financing expenses and discounts, to pay
prepayment penalties and for compensation expense in connection with the
purchase of management stock options. These charges are expected to be
incurred in the first quarter of 1998. The Company also expects to record a
restructuring charge to operations of approximately $1.0 million related to
costs that are expected to be incurred at certain Prestolite facilities as a
result of the Lucas Acquisition.
In February 1996, Prestolite completed the acquisition of the battery
charger business and certain welding product lines of Hobart Brothers Company
("Hobart"), now a subsidiary of Illinois Tool Works. The cost of the acquired
business, excluding working capital requirements and certain subsequent
capital expenditures, was $11.8 million, which was partially financed by the
seller. The battery charger business was acquired because it complements
Prestolite's material handling product lines. In September 1997, Prestolite
sold the assets of the welding division acquired from Hobart for $7.5 million,
plus contingent future payments totaling approximately $1.9 million.
Prestolite retained accounts receivable, accounts payable and certain other
liabilities. Results for the 1997 and 1996 fiscal years treat the welding
equipment business as a discontinued operation. In conjunction with this sale,
Prestolite recorded a $1.5 million after-tax loss on disposition.
At the end of 1995, Prestolite announced the closing of a manufacturing
facility in Cleveland, Ohio, and moved the production of alternators from the
Cleveland facility to Prestolite's Arcade, New York facility. Primarily as the
result of this decision, a restructuring charge of $2.4 million was recorded
in 1995. A significant factor leading to the decision to close the Cleveland
facility was the increased application of cellular manufacturing arrangements
at the Arcade facility in 1994 and 1995 and the consequent reduction in floor
space requirements.
48
<PAGE>
Beginning in the fourth quarter of 1995, Prestolite began to experience
increased warranty claims resulting from a combination of increased sales,
plant relocation activities and unexpected failure rates on certain alternator
models. The unexpected failure rates were partly attributed to manufacturing
difficulties associated with the relocation of certain alternator production
operations from the Cleveland facility to the Arcade facility, and to the use
of such alternators in certain newer engine applications where heat and
vibration conditions were severe. The table below summarizes Prestolite's
warranty expenses for the periods shown. These warranty expenses include
credits issued to customers and such adjustments as management believes
necessary to record an end-of-period warranty reserve for units sold prior to
the end-of-period which management expects to be returned for credit in
subsequent periods.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------------- ------------------
APRIL 5, APRIL 4,
1994 1995 1996 1997 1997 1998(A)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales ............... $129,011 $131,503 $148,765 $171,700 $44,302 $44,205
Warranty Expense .... 2,274 2,255 4,268 8,461 1,786 1,817
Percent of Sales .... 1.76% 1.71% 2.87% 4.93 % 4.03% 4.11%
</TABLE>
--------
(a) Excluding the Lucas Businesses.
Units returned for warranty credit are analyzed for, among other things,
date manufactured and type of failure. Based on that analysis, management
believes that $0.5 million of the warranty expense recorded in the fourth
quarter of 1996 and $2.4 million of the warranty expense recorded in 1997
resulted from actions taken during and because of the closing of the Cleveland
facility and the transfer of production operations from Cleveland to Arcade.
Because warranty coverage is generally extended for 18 months, management
believes the exposure period for production during the Cleveland-to-Arcade
move has ended and warranty expenses will drop to lower levels. In addition,
over the past 18 months Prestolite has designed and released numerous product
improvements intended to reduce these failure rates, and management believes
that the major factors contributing to such warranty claims have been
addressed. Despite this increase in warranty expense, management believes that
the Company has not lost any significant sales and believes that its
alternator performance is similar to that of its competitors' alternators.
However, there can be no assurance that the Company will not incur substantial
warranty expense in the future. Increased warranty claims and the related
expenses could have a material adverse effect on the Company's financial
condition and results of operations. See "Risk Factors--Warranty Exposure."
RESULTS OF OPERATIONS--PEI HISTORICAL
The following discussion relates to the results of operations of PEI on a
stand-alone basis and, except as otherwise noted, does not include a
discussion of the Lucas Businesses and does not give pro forma effect to the
Lucas Acquisition. The results of operations of the Issuer are substantially
identical to those of PEI. Results of operations have been restated to treat
the Beech Electric business as part of continuing operations and the welding
equipment business as a discontinued operation.
Three Months Ended April 4,1998 Compared to Three Months Ended April 5, 1997
Net sales for the three months ended April 4, 1998 were $74.5 million, an
increase of $30.2 million, or 68%, from the $44.3 million recorded by
Prestolite in the first quarter of 1997. The Lucas Acquisition was responsible
for $30.4 million of the increase in net sales. Compared to pro forma results
including the Lucas Acquisition for the first quarter of 1997, net sales
increased by $4,000. While sales to most markets were about equal to, or
slightly above, pro forma 1997 sales levels, shipments of military alternators
in North America declined by $2.0 million and sales to the North American
heavy duty aftermarket dropped by $0.9 million.
Gross profit was $14.5 million in the first quarter of 1998, or 19.4% of net
sales. This compares to $9.0 million, or 20.2% of net sales, recorded by
Prestolite for the first quarter of 1997. The decline in gross profit as a
percentage of net sales occurred because the Lucas Businesses had lower gross
margins than the previous Prestolite businesses. On a pro forma basis
including the Lucas Acquisition, the first quarter of 1997 gross margin was
$14.1 million, or 18.9% of net sales. Lower material costs, improved labor
productivity, and shift in sales towards higher margin products all
contributed to the improvement from the first quarter 1997 pro forma gross
margin percentage.
49
<PAGE>
Selling, general, and administrative expense was $9.8 million, or 13.2% of
net sales, for the first quarter of 1998, an increase of 74.2% from $5.6
million, or 12.7% of net sales, recorded by Prestolite in the first quarter of
1997 but a decrease of 11% from $10.8 million, or 14.5% of net sales, in the
first quarter of 1997 on a pro forma basis to include the Lucas Acquisition.
Reduction in selling, general, and administrative expenses as compared to the
pro forma results reflect the initial benefits of the integration of the Lucas
Acquisition.
Prestolite recorded a $2.1 million charge in the first quarter of 1998 to
record the repurchase of 60% of the stock options outstanding. Prestolite also
recorded a charge of $980,000 to cover restructuring activities at the
existing Prestolite facility in Leyland, England. This charge relates to
severance costs to be paid in conjunction with the transfer of certain
activities from the existing Prestolite facility in Leyland, England, to a
facility acquired as part of the Lucas Acquisition. The Leyland facility will
remain in operation with employment levels lower than those that previously
existed; the severance costs in question are expected to be paid by the end of
1998. Pro forma results for 1997 include redundancy costs of $261,000 incurred
by the former Lucas operations in the United Kingdom and Argentina.
As the result of the factors discussed above, operating income in the first
quarter of 1998 was $1.6 million, or 2.1% of net sales, versus $3.3 million,
or 7.5% of net sales, recorded by Prestolite in the first quarter of 1997 and
$3.0 million, or 4.1% of net sales, in the first quarter of 1997 on a pro
forma basis including the Lucas Acquisition. Other income was $86,000 in the
first quarter of 1998 versus other expense of $20,000 recorded in the first
quarter of 1997. This item consists primarily of pension expense for inactive
defined benefit pension plans associated with United States facilities that
have been closed, gain on the sale of fixed assets, and interest income.
Interest expense was $3.3 million in the first quarter of 1998 compared to
$1.4 million recorded in the first quarter of 1997. The increase in interest
expense resulted from the increase in debt caused by the offering of $125
million of the Outstanding Notes in January 1998, the proceeds of which were
used to finance the Lucas Acquisition and the Recapitalization. Interest
expense for the first quarter of 1997, pro forma as though the Transactions
had occurred on January 1, 1997, was $3.2 million.
Provision for income taxes was a $606,000 benefit for the first quarter of
1998, 38.2% of losses from continuing operations before the extraordinary
item, compared to income tax expense of $747,000 recorded by Prestolite in the
first quarter of 1997, 39.9% of income from continuing operations. The small
decline in the tax rate resulted from changes in the countries in which income
is expected to be generated in 1998 compared to 1997. As more fully described
in note 2 to PEI's unaudited financial statements, Prestolite recorded an
extraordinary item of $1.3 million net-of-tax in the first quarter of 1998.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales were $171.7 million for 1997, an increase of $22.9 million, or
15.4%, from $148.8 million in 1996. The Company experienced increased net
sales in each of its major distribution channels in 1997. The increase in net
sales was also positively affected by the inclusion of twelve months of
battery charger sales in 1997 compared with ten months of battery charger
sales in 1996.
Gross profit was $33.9 million in 1997, an increase of $5.7 million, or
20.3%, from $28.2 million in 1996. As a percentage of net sales, gross profit
was 19.7% and 18.9%, respectively. Gross profit increased primarily due to
productivity improvements and increased sales volume. Gross profit was
adversely affected by warranty expense of $8.4 million in 1997 compared with
$4.2 million in 1996. Prestolite believes that approximately $2.4 million of
the warranty expenses recorded during 1997 were non-recurring in nature,
stemming from actions that occurred during and because of production
relocation, and that warranty costs will decline after the fourth quarter of
1997. See "Risk Factors--Warranty Exposure."
50
<PAGE>
Selling, general and administrative expenses were $23.2 million in 1997, an
increase of $2.2 million, or 10.5%, from $21.0 million in 1996. As a
percentage of net sales, these expenses decreased to 13.5% in 1997 from 14.1%
in 1996. In addition to modest increases resulting from inflation and the
increased level of sales, selling, general and administrative expenses in 1997
included increases from 1996 of $0.6 million for bonus expense; $0.4 million
for consulting, legal and audit expenses; and $0.5 million related to twelve
months of ownership of the battery charger business in 1997 compared with ten
months in 1996.
Operating income was $10.7 million in 1997, an increase of $3.6 million, or
50.2%, from $7.1 million for 1996 due to the factors discussed above.
Operating income as a percentage of net sales was 6.2% in 1997, compared to
4.8% in 1996.
Net interest expense was $5.4 million in 1997, an increase of $0.1 million,
or 1.3%, from $5.3 million in 1996. Interest expense increased because of
increases in borrowings associated with the Hobart acquisition and to fund
increased working capital requirements associated with increased net sales.
Income taxes were $2.3 million of expense in 1997, an increase of $4.6
million from $2.3 million of income in 1996. Prestolite's effective tax rate
was 45% for the period.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales were $148.8 million for 1996, an increase of $17.3 million, or
13.1%, from $131.5 million in 1995. The increase in net sales was due
primarily to the February 1996 acquisition of the Hobart battery charger
business. In addition, alternator sales to the heavy duty OES market increased
37% from 1995 as Prestolite continued selling newly manufactured alternators
into a market that had previously been serviced primarily with remanufactured
products. These sales increases were partly offset by reduced sales in the
United Kingdom.
Gross profit was $28.2 million in 1996, an increase of $3.2 million, or
12.9%, from $25.0 million in 1995. As a percentage of net sales, gross profit
was 18.9% and 19.0%, respectively. Productivity improvements in many areas
were offset in part by the costs associated with the relocation of alternator
production from the Cleveland facility to the Arcade facility. In addition,
Prestolite began to experience increased alternator warranty expenses in the
fourth quarter of 1995, which continued throughout 1996. See "Risk Factors--
Warranty Exposure."
Selling, general and administrative expenses were $21.0 million for 1996, an
increase of $2.0 million, or 10.7%, from $19.0 million in 1995. This increase
was largely due to Prestolite's acquisition of the battery charger business in
February 1996. As a percentage of net sales, these expenses decreased to 14.1%
in 1996 from 14.4% in 1995.
Operating income was $7.1 million for 1996, an increase of $4.2 million, or
145.5%, from $2.9 million for 1995 due to the factors discussed above and the
recording of a $3.1 million restructuring charge in 1995, primarily related to
the decision to close the Cleveland facility. Operating income as a percentage
of net sales was 4.8% in 1996, compared to 2.2% in 1995.
Net interest expense was $5.3 million in 1996, an increase of $1.0 million,
or 24.1%, from $4.3 million in 1995. Net interest expense increased due to the
increase in borrowings incurred in connection with the Hobart acquisition.
The provision for income taxes was a $2.3 million benefit in 1996 compared
to a $0.6 million expense in 1995. This benefit was generated by recording
during 1996 the benefit of prior year net operating loss carry forwards. The
improved financial performance of Prestolite in 1996 made it likely that the
tax benefits of these losses would be realized in future periods, enabling the
Company to record a tax benefit in 1996. The 1996 tax benefit involved
judgmental determinations by management regarding 1997 operating results as
opposed to quantitative changes in Prestolite's net sales, and should not be
considered indicative of tax benefits that may be realized in future periods.
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<PAGE>
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net sales were $131.5 million for 1995, an increase of $2.5 million, or
1.9%, from $129.0 million in 1994. The marginal increase in net sales was
primarily due to an increase in non-defense sales of 9.3%. Such gains were
offset by a decrease in defense-related sales of 31.0% due to reduced
purchases by the U.S. Department of Defense.
Gross profit was $25.0 million in 1995, a decrease of $1.2 million, or 4.6%,
from $26.2 million in 1994. Gross profit in 1995 was unfavorably impacted due
to market mix, rising commodity prices (especially copper) and costs
indirectly related to the closing of Prestolite's Cleveland facility.
Selling, general and administrative expenses were $19.0 million for 1995, an
increase of $0.4 million, or 2.7%, from $18.6 million in 1994. These expenses
were 14.4% of net sales in 1995 and 1994.
Operating income was $2.9 million for 1995, a decrease of $4.7 million, or
61.6%, from $7.6 million for 1994 due to the factors discussed above and the
$3.1 million restructuring charge related to the closure of the Cleveland
facility ($2.4 million) and the write-down of assets at the Beech Electric
operation ($0.7 million). Operating income as a percentage of net sales was
2.2% in 1995, compared to 5.9% in 1994.
Net interest expense was $4.3 million in 1995, an increase of $0.9 million,
or 27.4%, from $3.4 million in 1994. Net interest expense increased as the
result of increased capital spending in 1995 plus the effect of a general
increase in interest rates.
Prestolite had an income tax expense of $0.6 million in 1995 as compared to
income tax expense of $0.5 million in 1994. This expense related primarily to
certain state income taxes which were levied despite the net operating loss
position of the Company for tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
PEI
Prestolite's principal sources of cash in the 1997, 1996 and 1995 fiscal
years were from operations and borrowings under Prestolite's then existing
credit facilities. Cash generated from operating activities during such
periods was $7.7 million, $2.6 million and $1.4 million, respectively. During
each of such periods, Prestolite used such cash primarily to fund operations
and capital expenditures.
Capital expenditures for 1997 amounted to $5.6 million. Capital expenditures
for 1996 amounted to $6.8 million (including $0.4 million of capital leases
and $1.7 million recorded as part of the welding business which was
subsequently sold). Capital spending in both 1997 and 1996 was primarily for
additional equipment and tooling to reduce costs through automation, replace
existing equipment and enable Prestolite to manufacture new products. $7
million of the 1996 capital expenditures related to the Hobart acquisition;
approximately half of those expenditures were associated with the
establishment of production in a new facility. Capital expenditures for 1995
amounted to $4.9 million, primarily for the replacement of existing equipment
and cost reduction programs.
During fiscal 1995, Prestolite announced the closing of its Cleveland
facility. In 1996, Prestolite sold its Cleveland facility as well as idle
facilities in Gainesville, Georgia, and Cardiff, Wales. In addition,
Prestolite sold its Florence, Kentucky warehouse and leased back 60% of the
space. These asset sales generated an aggregate of $4.3 million of cash in
1996.
The Company
Cash generated from operating activities during the first quarter of 1998
was $5.9 million (including $1.3 million spent on redundancy costs during the
period and charged to a reserve established in conjunction with the
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<PAGE>
Lucas Acquisition). Capital expenditures were $2.7 million, including $1.6
million for the existing Prestolite facilities, an increase of $0.8 million
from the $0.8 million spent in the first quarter of 1997. The capital
expenditures at the facilities acquired in the Lucas Acquisition were $1.1
million in the first quarter of 1998. Capital expenditures for the remainder
of 1998 are expected to be approximately $10.5 million. Planned capital
expenditures consist primarily of expenditures to reduce costs through
automation, replace existing equipment and enable the Company to manufacture
new products, and expenditures related to improving the Company's
manufacturing infrastructure in connection with the realignment of certain
manufacturing operations of the Lucas Businesses.
In connection with the integration of the Lucas Businesses, the Company
expects to incur aggregate costs of approximately $9.2 million through the end
of fiscal 2000. These costs are expected to include approximately $1.0 million
related to existing Prestolite facilities and approximately $8.2 million
related to the implementation of employee reductions and plant closure at the
facilities acquired in the Lucas Acquisition.
In connection with the acquisition of Lucas Argentina, the Company assumed
approximately $7.1 million of outstanding indebtedness, of which $3.7 million
remained outstanding following the Recapitalization. An additional
approximately $2.6 million outstanding under drawn letters of credit was also
assumed by the Company. In addition, a subsidiary of the Issuer will be
required to make certain post-closing payments to Lucas Industries of up to a
maximum of $9.0 million contingent upon the collection of certain receivables
and up to a maximum of $10.0 million contingent upon Lucas Argentina having
achieved certain earnings targets in 1998, 1999 and 2000. Any such post-
closing contingent payments are expected to be paid from the collection of
such receivables or from such earnings. PEI guaranteed the obligation of its
subsidiary to make these post-closing payments in the event that such
contingencies occur. In connection with the acquisition from LAO of certain
inventory and transition assistance, Prestolite U.K. is required to make
estimated payments of approximately $2.0 million to LAO, payable in
installments in the first and fourth quarters of 1998. Prestolite also
presently expects to exercise an option to purchase substantially all of the
remaining shares of Lucas Argentina in August 1998 for a purchase price of
approximately $1.2 million payable upon such exercise.
Debt, net of cash, increased from $42.5 million at December 31, 1997 to
$125.0 million at April 4, 1998, due to the sale of $125 million of
Outstanding Notes on January 22, 1998 and the use of a part of the proceeds
from such offering to refinance existing indebtedness. Additional debt
outstanding in Argentina and the United Kingdom was offset by cash balances in
South Africa and the United States.
The Company's liquidity needs are expected to consist primarily of working
capital needs and scheduled payments of principal and interest on its
indebtedness, including the Notes and any indebtedness that may be outstanding
from time to time under the New U.S. Credit Facility and the New U.K. Credit
Facility. See "Risk Factors--Substantial Leverage; Ability to Service Debt."
The Company's short-term liquidity needs, including a portion of the one-time
costs associated with the Lucas Acquisition, are expected to be provided by:
(i) existing cash balances; (ii) operating cash flows; and (iii) borrowings
under the New U.S. Credit Facility and the New U.K Credit Facility. The
Company expects to fund its long-term liquidity needs from its operating cash
flows, the issuance of debt and/or equity securities and bank borrowings.
Concurrently with the Offering, the Issuer entered into the New U.S. Credit
Facility. See "Description of Certain Indebtedness--New U.S. Credit Facility."
Pursuant to the New U.S. Credit Facility, Comerica Bank has agreed to lend to
the Issuer up to $23.0 million in the form of a senior secured revolving
credit facility, including a $2.0 million letter of credit subfacility.
Indebtedness under the New U.S. Credit Facility is guaranteed on a senior
basis by PEI and is secured by a first priority lien on all inventory,
accounts receivable and general intangibles of the Issuer. The Issuer's
ability to borrow under the New U.S. Credit Facility is restricted by a
borrowing base consisting of a percentage of eligible inventory and accounts
receivable. Also in connection with the Offering, Prestolite U.K. entered into
the Temporary U.K. Credit Facility. On April 21, 1998, Prestolite U.K.
replaced the Temporary U.K. Credit Facility with the New U.K. Credit Facility
providing for borrowings of up
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<PAGE>
to (Pounds)7.0 million (approximately $11.3 million based on exchange rates as
of June 1, 1998). Indebtedness under the New U.K. Credit Facility is secured
by the accounts receivable of Prestolite U.K. Prestolite U.K.'s ability to
borrow under the New U.K. Credit Facility is restricted by a borrowing base
consisting of a percentage of Prestolite U.K.'s eligible receivables. See
"Description of Certain Indebtedness--New U.K. Credit Facility."
The Company believes that cash flows from operations, its existing cash
balances and amounts available under the New U.S. Credit Facility and the New
U.K. Credit Facility will be adequate to meet the Company's anticipated
requirements for working capital, interest payments, planned capital
expenditures and principal payments on debt for at least the next twelve
months. Estimates as to working capital needs and other expenditures may be
materially affected if the foregoing sources are not available or do not
otherwise provide sufficient funds to meet the Company's obligations.
YEAR 2000 RISK
The financial impact of the Company's Year 2000 remediation efforts at its
United States and United Kingdom facilities is not anticipated to be material
to the Company's results of operations, financial position or cash flows.
However, there can be no assurance that there will not be any such material
adverse impact. At this time, the Company is unable to determine the cost of
compliance efforts for its Argentina and South Africa facilities, or the
impact of the Company's Argentina and South Africa and third party compliance
efforts, if any, on the Company's results of operations, financial position or
cash flow. However, significant delays in product delivery by the Company's
suppliers, or significant cost-cutting efforts by the Company's customers to
compensate for Year 2000 costs, could have a material impact on the Company's
results of operations, financial position or cash flow. See "Risk Factors--
Year 2000 Risk."
NET OPERATING LOSSES
At December 31, 1997 Prestolite had net operating loss ("NOL") carryforwards
for tax reporting purposes of approximately $6.2 million related to U.S. tax
reporting. The NOLs in the U.S. expire beginning in 2006.
INFLATION
The Company believes that the relatively moderate inflation over the last
few years has not had a significant impact on the Company's revenues or
profitability and that it has been able to offset the effects of inflation by
increasing prices or by realizing improvements in operating efficiency.
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BUSINESS
The Company is a leading global manufacturer and distributor of electro-
mechanical power conversion products and systems for niche markets, including
heavy duty vehicles, material handling, defense and industrial applications.
The Company's products are primarily used for diesel engines and electric
vehicles and include alternators, starter motors, direct current electric
motors, relays and controls and battery chargers. In 1997, approximately 45%
of Prestolite's net sales were derived from aftermarket sales, with the
remainder derived from OEMs. Approximately 40% of Prestolite's aftermarket net
sales in 1997 were derived from OES customers, with the balance derived from
independent warehouse distributors and the U.S. Department of Defense. The
Company's largest OEM and OES customers include Ford Motor Company,
Freightliner, Clark Material Handling, Caterpillar, the U.S. Department of
Defense and Thermo King in North America and BT Lifters, Cummins Engine, ERF
Trucks, Leyland Trucks, Perkins Engine and Mitsubishi Caterpillar Forklift in
Europe. No single customer individually accounts for more than ten percent of
the Company's consolidated revenues. None of the Company's United States
employees is represented by a labor union.
On January 22, 1998, Prestolite completed the acquisition of the Lucas
Businesses from Lucas Industries. The Lucas Businesses manufacture primarily
alternators and starter motors for the truck, bus and automotive markets in
the United Kingdom, continental Europe, South America and South Africa. The
Lucas Acquisition (i) strengthens the Company's position as a leading global
manufacturer and distributor of alternators and starter motors, (ii)
complements Prestolite's historic product portfolio and (iii) augments the
Company's core technology in its principal product lines. In addition, the
Company has the opportunity to sell certain truck, bus and automotive products
through Lucas Industries' worldwide distribution network of over 4,000
outlets. The Lucas Acquisition significantly enhanced the Company's access to
an international customer base, and provides an entrance to the international
automotive market. In the year ended December 31, 1997, approximately 43% of
the Lucas Businesses' net sales were derived from aftermarket sales, with the
remainder derived from OEMs. The Lucas Businesses' largest OEM and OES
customers include Ford Motor Company, Mercedes-Benz, Nissan, Perkins Engine,
Volkswagen and Volvo.
As a result of the Lucas Acquisition, the Company will consolidate its
global leadership position in its primary markets, expand its global reach and
improve its aftermarket distribution capabilities. The Company believes that
it is the largest producer in North America of (i) newly manufactured heavy
duty truck alternators for the aftermarket, (ii) original equipment high
amperage alternators for school buses, (iii) electric motors for pump and
winch applications and (iv) solenoid switches for heavy duty starter circuits.
The Company also believes that it is the second largest original equipment
supplier of heavy duty truck and bus alternators and starter motors for the
European market and one of the three largest worldwide producers of heavy duty
alternators, and material handling motors, as well as solenoid switches for
heavy duty starter circuits. After giving pro forma effect to the Lucas
Acquisition, the Company's net sales in 1997 to customers outside North
America would have increased to approximately 55% of pro forma net sales as
compared with approximately 21% of Prestolite's net sales in 1997 on a stand-
alone basis, while its aftermarket sales would have remained relatively
constant at approximately 45% of net sales and pro forma net sales. On a
combined basis, the Company's pro forma net sales and EBITDA for the twelve
months ended December 31, 1997 would have been approximately $300.3 million
and $23.2 million, respectively.
BUSINESS STRENGTHS
The Company believes that its leading global market position in its primary
markets can be attributed to the following factors:
Product Quality and Brand Recognition. The Company believes that its
products are generally recognized by its customers as superior based on their
advanced technology, innovation, reliability, durability and quality. The
Company believes that its primary brand names, Leece-Neville in the heavy duty
vehicle market (Butec Leece-Neville in Europe and the Middle East), Prestolite
in the material handling and industrial markets and Hobart for battery
chargers in the material handling market, are generally recognized as being of
the highest quality in their respective markets. Prestolite has received
numerous manufacturing and product quality awards
55
<PAGE>
from its customers, including Q1 status from Ford Motor Company and preferred
supplier status from Cummins Engine.
Attractive Aftermarket/Original Equipment Balance. Approximately 44% of the
Company's 1997 pro forma net sales would have been to aftermarket customers.
The aftermarket is generally a more stable source of sales and generates
higher margins than the Company's sales to its OEM customers, which include a
number of major OEMs in North America and Europe. The Company believes that
its aftermarket and original equipment businesses are complementary and
provide the Company with a competitive advantage in meeting customer needs and
in maintaining the high levels of expertise necessary to compete successfully
in both markets. The strong engineering and manufacturing capabilities
necessary to meet the stringent requirements for original equipment technology
and quality are transferable to the Company's aftermarket operations, and OEM
position, in turn, is a major factor in generating aftermarket demand.
Further, the understanding of replacement activity gained through the
aftermarket enhances the Company's understanding of the demanding needs of
OEMs.
Applied Technological and Engineering Capabilities. The Company has built an
engineering team with in-depth design and application experience, which has
allowed it to introduce innovative new products and applications. Processes
and systems common to a number of product lines are designed by engineers at
the Company's research and development facility in Ann Arbor, Michigan.
Company engineers work closely with partners at a number of major
universities, including the University of Michigan, in the areas of
electronics, magnetics, alternative materials and product testing. Product
design, development and application are performed by dedicated engineering
teams located at the Company's manufacturing facilities, which work closely
with customers to design products and systems that meet each customer's
specifications. Successful new product introductions include:
. A self-diagnostic alternator, which utilizes an LED indicator to signal
whether the alternator is functioning properly. This self-diagnostic
feature, the first of its kind, was designed to help prevent the
unnecessary replacement of a properly functioning alternator when
another component, such as the battery, wiring or starter motor, is
actually responsible for electrical system failure. A U.S. patent
application has been filed for this technology.
. The XOT (extended on-time) motor, which management estimates provides
approximately 20% more operating "on-time" than competitive motors for
pump, winch, lift and similar applications at lower cost than the
Company's previous design.
. The CDAC (computer data acquisition and control) system, which allows a
lift truck fleet manager to monitor individual battery chargers and
obtain performance feedback on each charger, battery and electric lift
truck within a facility. The resultant computer data on truck and
battery activity allow the fleet manager to maximize battery life and
optimize fleet operating cost.
Manufacturing Excellence. The Company's present management team, which
joined Prestolite following Genstar's acquisition of Prestolite in 1991, has
instituted continuous improvement programs at all of Prestolite's
manufacturing facilities, including synchronous manufacturing techniques,
cellular manufacturing arrangements and kanban-based just-in-time inventory
control. Changes in manufacturing methods have made floor space available for
expansion at most of Prestolite's facilities. From 1992 to 1997, Prestolite
increased its sales per employee by approximately 65% and increased its sales
per square foot of manufacturing and warehouse space by approximately 160%.
Ongoing training programs for Prestolite's experienced workforce are an
integral part of such continuous improvement efforts.
International Presence. As the Company's original equipment (OEM and OES)
customers expand their manufacturing operations in foreign countries, the
Company expects that these customers will increasingly turn to suppliers who
can support their locally-manufactured OEM products and aftermarket presence.
The Company believes that its global manufacturing and distribution network,
further enhanced by the Lucas Acquisition, provides an advantage over its
competitors in servicing its North American and European customers' foreign
manufacturing operations. The Lucas Acquisition also significantly enhanced
the Company's access to an
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<PAGE>
international customer base in rapidly growing emerging markets. In addition,
the Company acquired the Lucas Businesses' strong automotive parts
distribution networks in Argentina and South Africa and has the opportunity to
sell certain truck, bus and automotive products through Lucas Industries'
worldwide distribution network of over 4,000 outlets.
GROWTH STRATEGY
The Company's goal is to continue to increase revenues and profitability.
Key elements of the Company's growth strategy include:
Provide Systems Solutions to Customers. OEMs are increasingly demanding
systems solutions, particularly in the markets for heavy duty truck and non-
automotive electric vehicles, as customers consolidate their supplier base and
lower the overall cost of their products by incorporating systems consisting
of components designed to work together. The Company anticipates that its
engineering strengths, combined with its market knowledge and the broad range
of products offered within each product category, will enable the Company to
assist its customers with the design and manufacture of integrated system
solutions, such as the entire charging and starting system of a heavy duty
truck or the motive power system of a forklift.
Develop New Applications and Products. The Company intends to continue to
leverage its strong technological capabilities into its new product
development process, allowing it to better serve its customers through
continued product introductions and improvements. For example, one of the
Company's Leece-Neville alternators, initially developed for the aftermarket,
is now standard equipment on Freightliner FLD series trucks. In addition to
having its aftermarket products adopted by OEMs, the Company works with its
OEM customers to design the Company's products and systems into the OEMs'
finished products. For example, in 1996 more than twenty-five motor designs
were custom engineered to fit specific lift trucks being developed by
Prestolite's OEM customers.
Continue Cost Reduction Emphasis. A primary focus of the Company's
management has been to significantly reduce manufacturing costs through
continuous improvement programs at Prestolite's manufacturing facilities.
Further cost reductions have been achieved through ongoing value engineering
efforts, such as a product redesign that enabled Prestolite to reduce the cost
of one of its European starter motors by over 30%. In addition, cost
reductions have been achieved through plant closings and corporate staff
reductions. In connection with the Lucas Acquisition, the Company has
specifically identified estimated cost reductions of $1.7 million in 1998,
$5.1 million in 1999 and $6.2 million in 2000 based on expected productivity
improvements, manufacturing realignments and overhead cost reductions. Such
estimates are based on management's preliminary estimates. There can be no
assurance, however, as to the amount of cost savings, if any, that will
actually be realized.
Pursue Global Expansion. The Company is expanding its international presence
in order to benefit from the trend toward international standardization and to
participate in rapidly growing emerging markets. The Lucas Acquisition is a
significant further step toward increasing the Company's international
presence, and the Company intends to expand its international presence through
strategic acquisitions as well as internal growth. The Company presently owns
an interest in a producer of alternators and starter motors for the automotive
and heavy duty markets in India. The Company intends to pursue joint ventures
in those countries or regions where a local partner is critical to success.
Such global expansion is expected to provide access to new customers and
technologies, as well as protection from regional economic cycles.
Strategically Acquire Complementary Businesses. Management intends to
continue to selectively pursue acquisitions of businesses producing products
which complement the Company's existing product portfolio. For example, the
Hobart acquisition added battery chargers to the Company's existing electric
vehicle product line, and the Lucas Acquisition complements Prestolite's
existing product portfolio with a variety of truck, bus and automotive
products.
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LUCAS BUSINESSES
The Lucas Businesses manufacture primarily alternators and starter motors
for the truck, bus and automotive markets in the United Kingdom, continental
Europe, South America and South Africa. The Lucas Acquisition (i) strengthens
the Company's position as a leading global manufacturer and distributor of
alternators and starter motors, (ii) complements Prestolite's historic product
portfolio and (iii) augments the Company's core technology for its principal
product lines. In addition, the Company has the opportunity to sell certain
truck, bus and automotive products through Lucas Industries' worldwide
distribution network of over 4,000 outlets. The Lucas Acquisition
significantly enhanced the Company's access to an international customer base,
and provided an entrance to the international automotive market.
United Kingdom. The heavy duty products offered by Lucas HDP in the United
Kingdom and continental Europe complement Prestolite's historic heavy duty
product portfolio. Lucas HDP manufactures a wide range of heavy duty products,
including brushless alternators and coaxial starter motors, two significant
product lines not previously produced by Prestolite. Lucas HDP has a strong
position in the high amperage 24-volt bus alternator market, which Prestolite
has only had limited success in penetrating. Lucas HDP also add major new
European customers, including Mercedes-Benz and Volvo.
Argentina. Lucas Argentina produces automotive starter motors, alternators
and steering columns and distributes a wide range of automotive products to
OEMs and the aftermarket. Approximately 75% of Lucas Argentina's net sales
represent sales of products manufactured by Lucas Argentina, with the
remainder representing sales of products purchased from third parties. The
Lucas Acquisition gives the Company a foothold in the emerging Mercosur
market. In addition, the Company believes that there is an opportunity for
Lucas Argentina to supply the Company with certain alternator and starter
motor components manufactured by Lucas Argentina which the Company currently
purchases from third parties.
South Africa. Lucas South Africa produces automotive starter motors and
alternators and distributes a wide range of automotive products to OEMs and
the aftermarket. Approximately 73% of Lucas South Africa's net sales represent
sales of products manufactured by Lucas South Africa, with the remainder
representing sales of products purchased from third parties. In addition,
Lucas South Africa produces a low material-cost starter motor which the
Company believes is well-suited for production in emerging markets with low
labor costs.
Distribution. In conjunction with the Lucas Acquisition, the Company entered
into a number of ancillary agreements providing for, among other things,
distribution arrangements, supply of products and intellectual property
licensing. In particular, for five years Lucas South Africa will (i) supply to
LAO certain products for LAO's distribution through LAO's worldwide
distribution network, (ii) act as importer and primary distributor of certain
Lucas-branded products for LAO in the aftermarkets of the Southern African
Territories and for a transition period has rights to certain trademarks of
Lucas Industries. For five years Lucas Argentina will act as exclusive
supplier of Lucas Argentina's manufactured products to Lucas Brasil for
aftermarket sale and distribution by Lucas Brasil in South America (except
Argentina), and in Argentina (i) act as importer from and distributor for LAO,
(ii) distribute in the aftermarket Lucas-branded products and for a transition
period will be permitted to brand products manufactured and sold by it with
certain trademarks of Lucas Industries. Prestolite U.K. has a continuing
license for intellectual property relating to in-line diesel pumps for
manufacture and sale to the original equipment market and for sale to LAO for
supply and distribution by LAO in the aftermarket. Prestolite U.K. is
additionally permitted to brand electrical products with certain trademarks of
Lucas Industries through 1998 for sale to the original equipment market and
through 1999 for sale to the aftermarket. In addition, subject to certain
conditions, for five years Prestolite U.K will act as exclusive supplier to
LAO for LAO's requirements of in-line diesel pumps branded with trademarks of
Lucas Industries for aftermarket sales. During 1998, Prestolite U.K. will
assume control for the distribution to the aftermarket and OES market of
certain products produced by Lucas HDP. See "The Transactions--The Lucas
Acquisition."
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PRODUCTS
The Company manufactures and distributes electro-mechanical power conversion
products and systems for heavy duty vehicles and material handling, defense,
industrial and automotive applications. Prestolite historically manufactured
alternators, starter motors, direct current electric motors and relays and
controls. The Hobart acquisition added battery chargers, and the Lucas
Acquisition added additional truck, bus and automotive product offerings that
complement the Prestolite's historic product portfolio. Although the Company's
products are primarily used for diesel engines and electric vehicles, most
products are also used in a broad range of industrial applications. The
Company generally focuses on applications which are high value-added in terms
of engineering or which require special customer support. The following table
summarizes the products offered by the Company:
<TABLE>
<CAPTION>
% OF PRO
FORMA 1997
PRODUCTS NET SALES BRAND NAMES MARKETS SERVED/(PRIMARY END USE)
- -------------------------------------------------------------------------------------------------------
<C> <C> <C> <S>
Alternators/Regulators 33% Leece-Neville Heavy Duty (trucks, school and shuttle buses,
Butec Leece-Neville emergency vehicles, off road and
Lucas* special purpose vehicles, transport
refrigeration and generator sets)
Defense (military vehicles)
Automotive (automobiles and light trucks)
Material Handling (internal combustion engine
lift trucks)
Industrial (marine and other industrial
applications)
- -------------------------------------------------------------------------------------------------------
Starter Motors 17% Prestolite Defense (military vehicles)
Butec Leece-Neville
Lucas*
Heavy Duty (trucks, school and shuttle buses,
emergency vehicles, off road and
special purpose vehicles, transport
refrigeration and generator sets)
Automotive (automobiles and light trucks)
Industrial (marine and other industrial
applications)
- -------------------------------------------------------------------------------------------------------
Direct Current 10% Prestolite Material Handling (electric lift trucks and
Electric Motors Lucas* other commercial electric
vehicles)
Industrial (hydraulic pumps)
- -------------------------------------------------------------------------------------------------------
Relays and Controls 16% Prestolite Heavy Duty (trucks, school and shuttle buses,
(Solenoids, Contactors Lucas* emergency vehicles, off road and
and Control Boxes) special purpose vehicles and
generator sets)
Automotive (light trucks)
Material Handling (electric lift trucks and
other commercial electric
vehicles)
Defense (military vehicles)
Industrial (marine, telecommunications and
other industrial applications)
- -------------------------------------------------------------------------------------------------------
Battery Chargers 6% Hobart Material Handling (electric lift truck and
other commercial electric
vehicles)
- -------------------------------------------------------------------------------------------------------
Other Products** 18% Prestolite Heavy Duty (trucks, school and shuttle buses,
TrekStar emergency vehicles, off road and
Lucas* special purpose vehicles, transport
Thermostart refrigeration and generator sets)
Automotive (automobiles and light trucks)
Industrial (marine and other industrial
applications)
</TABLE>
* Manufactured by the Lucas Businesses for distribution by the Company under
the Company's brand names (and for a transition period under the "Lucas"
brand name) and for sale to Lucas Industries for distribution under brand
names of Lucas Industries. See "The Transactions--The Lucas Acquisition"
and "Patents, Trademarks and Licenses."
** Includes ignition distributors, speedometers and odometers, in-line diesel
pumps, steering columns and diesel engine pre-heaters.
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Alternators. The Company manufactures alternators and regulators primarily
for heavy duty applications, generally under the Leece-Neville name (Butec
Leece-Neville in Europe and the Middle East), and for automotive applications.
Alternators are electric generators that produce rectified direct current.
Regulators are electronic devices that control alternator output. Alternator
output is directly related to alternator frame size, or diameter. The Company
manufactures alternators in sizes ranging from 5-inch alternators for use in
off road and sport utility vehicles, transport refrigeration, trucks and
generator sets, to 8 9/16-inch alternators for use in military vehicles, buses
and special purpose vehicles. The Lucas Businesses also produce smaller
internal and external fan alternators for a wide variety of cars, light to
medium trucks and agricultural vehicles.
The Company recently introduced a self-diagnostic alternator, which utilizes
an LED indicator to signal whether the alternator is functioning properly.
Approximately 25% of the alternators returned to the Company for warranty
credit are found to be operating properly, indicating that mechanics
frequently misdiagnose the cause of electrical system failure. This self-
diagnostic feature, the first of its kind, was designed to help prevent the
unnecessary replacement of a properly functioning alternator when another
component, such as the battery, wiring or starter motor, is actually
responsible for electrical system failure. A U.S. patent application has been
filed for this technology.
The Company believes that, based on its increased sales, it has
significantly increased its share of the North American commercial truck and
transport refrigeration OEM alternator markets since 1992. Management believes
that this increase is due to the advanced technology, innovation, reliability
and quality of the Company's products. The Company believes that its standard
heavy duty alternators meet the increased demand for electric power on modern
trucks better than competitors' products. The size of the Leece-Neville
alternators, which generally have larger diameters than competing products,
gives them superior magnetic and electrical properties resulting in higher
output at low speeds. This is a significant factor as truck electrical
requirements increase with greater use of electronics in vehicle systems and
the addition of "creature comforts" such as air conditioning and other
auxiliary devices in sleeper-cab equipped long-haul trucks, and is also
significant for applications involving frequent idling, start-and-stop and
low-speed driving, such as local pick-up and delivery trucks and school buses.
Motors. The Company manufactures three main types of motors: starter motors,
material handling motors and pump and winch motors.
Starter motors are the largest individual motor category sold by the
Company. Historically, Prestolite's product offerings were limited to the
upper end of the North American heavy duty market (consisting primarily of
military and special purpose vehicles and larger heavy duty trucks), which
limited Prestolite's ability to successfully penetrate the commercial starter
motor market. Over 65% of the starter motors manufactured by Prestolite from
1992 to 1996 were sold to the U.S. Department of Defense or OEM defense
contractors for military applications. Over the past two years, Prestolite has
developed a full line of starter motors which includes products designed for
the lower-end and mid-size segments of the market. In the United Kingdom, the
Company manufactures a range of heavy duty starter motors which are sold
primarily for use in trucks and generator sets. In addition, the Lucas
Businesses' starter motor product range includes both direct drive and gear-
reduced types for automobiles and light commercial vehicles. By offering a
full product line, management believes the Company will be able to increase
its commercial starter motor sales. In addition, the Company expects that a
full line of starter motors will help the Company maintain and augment its
position in the alternator market as customers turn to suppliers offering
integrated systems rather than individual products.
Material handling motors, which are 5 to 13 inches in diameter, provide the
motive power, operate the forks and provide power steering for lift trucks and
other commercial electric vehicles. A material handling motor is generally
designed for a specific forklift truck model.
Pump and winch motors, which are 4.5 inches in diameter, are generally used
in hydraulic pump operations and other applications such as the lift
mechanisms in tow trucks. The Company believes that its share of the pump and
winch motor market has increased since 1994, largely due to sales of the XOT
(extended on-time)
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motor introduced in late 1995. This motor produces approximately 20% more
operating "on-time" than competitive motors for pump, winch, lift and similar
appliances at lower cost than the Company's previous design. In 1996, two of
the largest United States producers of hydraulic pumps, Monarch Hydraulics and
MTE Hydraulics, completed their testing and began purchasing the XOT motor.
The Company also manufactures a 3.3-inch diameter motor used for back-up
braking systems on school buses and certain other applications.
Relays and Controls. Relays and controls include solenoids, contactors and
control boxes. A solenoid is an electromagnet used to move a plunger in and
out to operate contacts that make and break electric circuits. The Company's
solenoid switches are typically used to control a vehicle starter motor or a
hydraulic pump motor. Contactors are similar to solenoids, but are built for
heavier duty applications and are more expensive. The Company's contactors are
primarily designed for material handling, defense, industrial and
telecommunications applications. The Company is currently redesigning most of
its contactor product line to an "A-frame" design, which uses fewer components
and is expected to be manufactured at a lower unit cost than the Company's
previous designs. A control box (called "switchgear" in the United Kingdom),
which includes solenoids and electronic circuits in an enclosed case, assists
the starting circuit of a diesel-powered vehicle to provide a pre-heating
cycle for the engine. The Company's control boxes are sold primarily for
military applications.
Battery Chargers. The Company acquired its battery charger business from
Hobart in February 1996 to enhance the Company's position in the material
handling market. The Company sells industrial battery chargers under the
Hobart brand name, which has been recognized in the battery charger
marketplace since 1917. The Hobart product range covers all batteries
customarily used in the material handling market. The Company's high-end
product line provides battery sensing and multi-functional output control of
the charging cycle, which makes it well suited for sealed batteries or for
difficult applications such as use inside cold storage freezers.
The Company's advanced CDAC (Computer Data Acquisition and Control) system
technology allows a lift truck fleet manager to monitor individual battery
chargers and obtain performance feedback on each charger, battery and electric
lift truck within a facility. A truck identification device attached to the
truck communicates to the battery and a battery identification device then
communicates through the charger to the computer during the charging cycle.
The resultant computer data on truck and battery activity allow the fleet
manager to maximize battery life and optimize fleet operating cost.
Other Products. Other products manufactured by the Company include ignition
distributors primarily for marine applications and the TrekStar line of
speedometers and odometers. The Lucas Businesses also manufacture in-line
diesel pumps, steering columns and Thermostart brand pre-heaters for diesel
engines, and redistribute in Argentina and South Africa a wide range of
automotive products manufactured by third parties. The Company's welding
equipment business, which was acquired from Hobart in February 1996, was
divested in the third quarter of 1997.
MARKETS
Market Dynamics
Most of the Company's products are component parts used on diesel engines,
electric vehicles and automobiles. Vehicle components often do not last for
the entire life of the vehicle. As a result, sales are made to both
aftermarket and original equipment customers. For example, the Company
believes that aftermarket sales represent approximately 75% of total sales in
the heavy duty truck alternator market because such trucks generally have
useful lives of 1.2 to 1.5 million miles while alternators last approximately
200,000 to 500,000 miles. The Company's sales to aftermarket customers would
have represented approximately 44% of its 1997 pro forma net sales, with its
remaining net sales derived from OEM customers.
Aftermarket. The aftermarket consists of the production and sale of both new
and remanufactured parts used in the maintenance and repair of vehicles. The
Company's aftermarket distribution channels consist of (i)
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OES customers, (ii) independent warehouse distributors who supply repair
shops, dealers and retailers and (iii) government agencies that purchase
aftermarket products directly from the Company. Although OEM position is a
major factor in generating aftermarket demand, the Company has been successful
in securing replacement sales in North America of heavy duty alternators
originally produced by other manufacturers. The Company is also working to
achieve similar results in the replacement markets for heavy duty and
automotive starter motors, direct current motors and contactors.
The Company's newly manufactured aftermarket products compete with
remanufactured products, which consist of used components that are reassembled
into finished products. The Company believes that until 1993, the North
American heavy duty truck alternator aftermarket was approximately 80% served
by remanufactured units. In that year, the Company began to actively promote a
new (not rebuilt) alternator that provided 130 amperes of power compared to
the 100 to 115 amperes provided by most remanufactured units. The Company
believes that since 1992, it has significantly increased its share of the
heavy duty truck alternator aftermarket.
The North American heavy duty truck aftermarket is a significant market for
the Company. In the 1990s, the OES arms of truck manufacturers have more
aggressively pursued aftermarket business, upgrading maintenance capabilities,
instituting 24-hour service and welcoming the opportunity to repair trucks of
other manufacturers. The Company believes that the OES share of the North
American heavy duty truck aftermarket has increased significantly from 1991
through 1996. The Company has seen similar trends emerging in the European
heavy duty truck aftermarket and in the material handling market.
Distribution through independent warehouse distributors is an additional
important element of the aftermarket. Unlike OES suppliers, these distributors
are typically privately owned. These distributors often focus on a specific
market (heavy duty, automotive, material handling, etc.). In addition to
supplying the aftermarket, independent warehouse distributors often provide
products to smaller OEMs. Although the distributors' share of the North
American and European aftermarket has declined in recent years, warehouse
distribution remains an important distribution channel for the Company. The
Company believes that warehouse distributors will continue to represent the
principal aftermarket distribution channel in emerging markets.
Original Equipment. The original equipment market consists of the production
and sale of new component parts for use in the manufacture of new vehicles or
equipment. Original equipment sales are generally made to the vehicle OEM
although some sales may be to another component manufacturer which in turn
supplies the OEM. While OEMs tend to be large and relatively well-known firms
with considerable negotiating strength, the Company believes that they are
normally reluctant to change suppliers. Products sold to an OEM often must be
designed or modified to fit the OEM customer's unique specifications. Whether
or not the product is specific to the vehicle application, most OEMs have
rigorous testing procedures, performed by the vendor or the OEM, that require
supervision and review by the OEM's engineering function. In addition,
component changes may require changes in product design and aftermarket
cataloging by the OEM.
In response to pressure to improve product quality, shorten design cycles
and reduce capital spending, production and inventory costs, OEMs are
increasingly outsourcing design and production of non-strategic components.
Led by the automotive industry, OEMs are turning to suppliers who can provide
the design, engineering, manufacturing and project management support for
complete systems of integrated products. By purchasing complete systems, OEMs
are able to shift design, engineering and product management to fewer and more
capable suppliers. Integrated systems suppliers are generally able to design,
manufacture and deliver components at a lower cost than OEMs due to (i) their
lower labor costs and other manufacturing efficiencies, (ii) their ability to
spread research and development and engineering costs over products provided
to multiple OEMs and (iii) other economies of scale inherent in manufacturing
products for multiple OEMs, such as the ability to automate and leverage
global purchasing capabilities.
The original equipment market has been impacted by recent fundamental
changes in OEM sourcing strategies. OEMs are consolidating their supplier base
and are seeking suppliers which can (i) meet their shorter product design
cycles and bring products to market on an expedited basis, (ii) provide
technologically advanced
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product lines and integrated systems solutions, (iii) reliably produce and
ship products on a just-in-time basis, (iv) lower product and system costs and
pass those cost savings on to the OEM customer and (v) assist the OEM in
serving the aftermarket needs of its customers through its OES network. As a
result, the Company believes that OEMs generally prefer to purchase components
from a small group of preferred suppliers.
OEMs are becoming increasingly global, both through acquisition (for
example, Renault (France) acquired Mack Trucks, Inc. (U.S.) in 1990, BT
Lifters (Sweden) acquired The Raymond Corporation (U.S.) in 1997, and PACCAR
Inc. (U.S.) acquired DAF Trucks N.V. (Holland) in 1996 and Foden Trucks (U.K.)
in 1981) and expansion into foreign markets directly and through joint
ventures (for example, Cummins Engine, J.I. Case and Freightliner have each
entered into joint ventures in China, and Toyota (Japan) and Halla (Korea)
have announced plans to produce lift trucks in Europe). They are in turn
requiring their preferred suppliers to establish global production
capabilities to meet their original equipment needs as they expand their
manufacturing operations internationally, and establish global distribution
networks to support their aftermarket presence.
Markets Served.
The Company sells its products to a variety of markets. The Company believes
that the diversity of markets served, both in terms of end-use and geography,
helps stabilize the Company's sales and earnings.
Heavy Duty. The heavy duty market, which represented approximately 28% of
the Company's pro forma net sales in 1997, includes heavy duty trucks, school
and shuttle buses, emergency vehicles, off road and special purpose vehicles,
transport refrigeration and generator sets. The heavy duty products sold by
the Company are designed primarily for use with diesel engines, generally 2.5
liters or larger. The products sold into this market (alternators, starter
motors, starter solenoids, in-line diesel pumps and the Thermostart brand pre-
heater) usually fit multiple applications with limited or no modification for
a specific application.
Automotive. The automotive and light truck market represented approximately
18% of the Company's pro forma net sales in 1997. Products sold to automobile
OEMs include starter solenoids for light truck application in the United
States, starter motors and alternators in Argentina and South Africa and
steering columns in Argentina.
Material Handling. The material handling market, which represented
approximately 15% of the Company's pro forma net sales in 1997, includes
direct current electric motors and contactors for electric lift trucks and
alternators for internal combustion engine lift trucks. This market category
also includes products manufactured for other electrically-powered commercial
vehicles, such as golf cars. The direct current electric motors sold to the
material handling market are generally designed for specific forklift truck
models. The Company works closely with its OEM customers to design motors that
meet the OEM's specifications, often while the vehicles are at the prototype
stage or earlier in the development cycle. Once an OEM selects a motor for a
forklift, the vendor is normally the original equipment and the primary
aftermarket supplier for that model for its entire product life.
Defense. The products sold by the Company to the defense market include
alternators, starter motors and control boxes for use in military vehicles
including tanks, trucks, personnel carriers and the HMMWV, and are generally
designed for use with a specific diesel engine. The Company's position as an
original equipment supplier to the U.S. Department of Defense and to a number
of defense contractors is of major importance in capturing aftermarket demand.
Although the defense market has declined in recent years, it was still
responsible for approximately 9% of the Company's pro forma net sales in 1997.
Industrial, Marine and Other Applications. Approximately 4% of the Company's
1997 pro forma net sales were to a wide range of other markets. These include
starter motors, alternators and ignition distributors for marine and other
applications, contactors sold to the telecommunications market for use with
backup battery systems and direct current motors sold for a variety of
industrial applications.
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Warehouse Distribution. A portion of the sales of each product line sold by
the Company represents sales to independent warehouse distributors. Almost all
of the Company's battery chargers are sold to distributors, which normally
purchase lift trucks, batteries and battery chargers from separate suppliers.
The Company has a network of automotive parts distributors in Argentina and
South Africa, many operating with a "Lucas" franchise that includes
distinctive signage and branded product. About half of the Company's sales
through these automotive distribution networks represents products
manufactured by third parties and purchased by the Company for resale. Sales
to independent warehouse distributors represented approximately 26% of the
Company's pro forma net sales in 1997.
MARKETING AND CUSTOMERS
A principal component of the Company's marketing strategy is for the
Company's engineering teams to work closely with customers to design products
and systems that meet each customer's specifications. An integral part of the
Company's recent success at penetrating new markets has been its multi-tiered
approach to selling. For example, in the truck market, the Company's sales
representatives call on truck manufacturers, engine manufacturers, dealers and
fleet buyers. Such multi-level selling enables the Company to generate both
"pull-through" and "push-down" demand. Technical support is provided to the
customer before, during and after the sale. On time delivery and aftermarket
support are also important factors influencing the customer's buying decision.
No single customer individually accounts for more than ten percent of the
Company's consolidated revenues.
Alternators. The Company's alternators and regulators are sold to a variety
of aftermarket and original equipment customers. In North America, Prestolite
historically emphasized the aftermarket. Over time, market demand led to
increased OEM sales, and Leece-Neville alternators are now standard equipment
on trucks manufactured by Freightliner, the leading producer of heavy duty
trucks in North America. Leece-Neville alternators are also standard equipment
on Ford heavy duty trucks, and optional equipment on Kenworth Truck, Peterbilt
Motors, Navistar, Mack Trucks, Western Star and Volvo heavy duty trucks. The
Company believes it is the market share leader in the OES businesses of four
of the five largest heavy duty truck manufacturers in North America, and the
Company's growth in this channel has helped increase original equipment
placement and market share among these key customers. This represents a
significant improvement from 1992, when the Company's alternators and
regulators were not standard equipment with any OEM. The Company also believes
it is the primary supplier to Carrier and Thermo King, the leading producers
of transportation refrigeration units in North America.
In the market for commercial high-amperage alternators, the Company has been
a leader since the 1940s. Applications include ambulances, fire trucks,
limousines, shuttle buses, school buses and recreational vehicles. Recent
efforts by the Company have produced significant growth in this segment. Key
customers for these applications include Bluebird, Thomas Built Buses and
Spartan Motors. Automotive alternators are produced in South Africa and
Argentina. Most sales are to OEMs. Major customers include Ford, Volkswagen,
Toyota, Samcor and Nissan.
Motors. The Company's starter motors sold for installation on new diesel
engines are sold to military vehicle OEMs such as AM General, Stewart &
Stevenson Services, Oshkosh Truck and General Dynamics. Aftermarket sales of
starter motors for defense applications are primarily sold directly to the
U.S. Department of Defense. Heavy duty starter motors are also sold to
commercial truck OEMs when one of the Company motors is specified by their
customer, but annual quantities are relatively small. In the United Kingdom,
the Company manufactures a range of heavy duty starter motors which are sold
primarily for use in trucks and generator sets. Aftermarket sales of
commercial heavy duty starter motors are sold through the Company's network of
independent warehouse distributors, and also through OES suppliers.
Automotive starter motors are produced in South Africa and Argentina and
sold primarily to OEMs. Major customers include Ford and Toyota.
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The Company's material handling motors are typically custom designed for
OEMs. In 1997 approximately 83% of Prestolite's material handling motors were
sold directly to original equipment customers for OEM production or for resale
into their OES dealer network, and the remaining 17% were sold through a
network of approximately 120 independent warehouse distributors for sale into
the aftermarket. The major customers for the Company's material handling
motors are electric forklift truck OEMs such as Clark Material Handling, BT
Lifters/Prime Mover and Mitsubishi Caterpillar Forklift Europe, all of which
have well-developed dealer networks and active OES programs which sell the
Company's products into the aftermarket. The Company also sells replacement
motors for many older model lift trucks primarily through the Company's
network of independent warehouse distributors.
The Company's pump motors are typically sold to a limited number of OEMs,
such as Monarch Hydraulics, MTE Hydraulics and Fenner Fluid Power, whose
products are then sold to a wide variety of mobile equipment manufacturers,
such as Waltco (tailgate lifts), JLG Industries (aerial work platforms) and
Fleetwood Enterprises (RV leveling systems). Motors for winch applications are
typically sold directly to the winch manufacturer.
Relays and Controls. The principal customers for the Company's solenoid
sales are Ford in the light truck and sport utility vehicle market; Navistar,
Freightliner and Ford in the heavy duty truck market; John Deere, J.I. Case
and New Holland in the agricultural equipment market; AM General, Stewart &
Stevenson Services and Oshkosh Truck in the military vehicle market; Barnes,
MTE Hydraulics, Monarch Hydraulics and Warn Industries in the hydraulic pump
and winch motor market; Fermont, Libby and the U.S. Department of Defense in
the military generator set market; and Club Car, EZ-GO Textron and Raymond in
the electric vehicle market. Nearly all solenoid sales to OEM customers are
direct, and many of these OEMs have extensive dealer networks that allow the
Company to capture additional aftermarket sales through their OES channels.
Most of the Company's contactors are sold directly to original equipment
customers. The contactor business has been repositioned over the past five
years with telecommunications emerging as the Company's largest application in
the North American market, including original equipment customers such as
Lucent Technologies, Nortel and Ericsson. Sales to the material handling
market, upon which the Company's contactor business was originally founded,
have declined because of the widening use of electronic speed controllers in
newer forklift models. Major original equipment lift truck customers include
BT Lifters/Prime Mover and Mitsubishi Caterpillar Forklift Europe. The Company
has a large installed base of contactors in older model forklifts and is
revamping its distributor support programs to capture more of the aftermarket
business. A significant amount of the Company's annual contactor sales are to
OEM defense contractors, including Fermont, Essex Electro and GEC Marconi.
Aftermarket sales of contactors and control boxes for military applications
are usually made directly to the U.S. Department of Defense and AM General in
the United States and the U.K. Ministry of Defense and Vickers in the United
Kingdom.
Battery Chargers. The principal customers for the Company's battery chargers
include distributors and lift truck dealers, which typically work with the
final buyer of the truck to provide a package, including a battery and a
charger unit. The Company is seeking to increase its share of the North
American industrial battery charger market through private branding for other
companies in the industry and by expanding beyond the material handling
market.
APPLIED ENGINEERING AND MANUFACTURING
The Company has built an engineering team with in-depth design and
application experience, which has allowed it to introduce innovative new
products and applications. Processes and systems common to a number of product
lines are directed by engineers at the Company's research and development
facility in Ann Arbor, Michigan. Company engineers work closely with partners
at a number of major universities, including the University of Michigan, in
the areas of electronics, magnetics, alternative materials and product
testing. Product design, development and application are performed by
dedicated engineering teams located at the Company's manufacturing facilities
which work closely with customers to design products and systems that meet
each customer's specifications.
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The Company generally focuses on applications which are high value-added in
terms of engineering or require special customer support as these markets
provide higher margins than many high-volume applications. The Company prefers
to work with customers to achieve "designed-in" status. For example, in the
material handling market more than twenty-five motors were custom designed in
1996 to fit specific lift trucks being developed by the Company's OEM
customers. The Company's engineering strengths, combined with its market
knowledge and the broad range of products offered within each product
category, enable the Company to assist its customers with the design and
manufacture of integrated system solutions to meet its customers' needs, such
as the entire charging and starting system of a heavy duty truck or the motive
power system of a forklift. The Company expects that such system selling will
become more prevalent as the Company's OEM customers seek to reduce the number
of suppliers and lower the overall cost of their products by using components
designed to work together.
The Company's present management team, which joined Prestolite following
Genstar's acquisition of Prestolite in 1991, has instituted continuous
improvement programs at all of Prestolite's manufacturing facilities,
including synchronous manufacturing techniques, cellular manufacturing
arrangements and kanban-based just-in-time inventory control. Changes in
manufacturing methods have made floor space available for expansion at most of
Prestolite's facilities. From 1992 to 1997, Prestolite increased its sales per
employee by approximately 65% and increased its sales per square foot of
manufacturing and warehouse space by approximately 160%. Ongoing training
programs for Prestolite's experienced workforce are an integral part of such
continuous improvement efforts.
COMPETITION
The markets in which the Company operates are highly competitive. While no
single competitor competes with the Company in all of its product lines, the
Company faces significant competition in each of its product lines. In
addition, the Company is under constant pressure from its major OEM customers
to reduce product costs. Management believes that the Company's experience in
engineering and implementing cost reduction programs and its ability to
develop new and improved products and to control manufacturing and development
costs should allow the Company's products and prices to remain competitive.
See "Risk Factors--Competition."
Alternators. Delco Remy International Inc. ("Delco") is the Company's
principal competitor in the North American market for truck alternators in
both the OEM and aftermarket segments. Some national and many local
remanufacturers also compete in the aftermarket. The Company's principal
competitor in the North American transportation refrigeration and off-road
portions of the market for heavy duty alternators is Bosch. Bosch is also the
Company's principal competitor in the European market for truck alternators.
The Company's principal competitors in the South African and Argentine OEM
market include Bosch and other international corporations that import into
such markets. C.E. Niehoff is the Company's major competitor in the market for
military alternators. The Company's principal competitors in the market for
high-amperage (165 to 300 ampere) commercial alternators are Lestek and
Powerline. At the lower end of the heavy duty alternator market, automotive-
based designs and foreign competitors are a significant factor.
Motors. The Company's principal competitors in the North American and
European starter motor market are Delco and Bosch, respectively. Principal
North American competitors in the material handling motor market are General
Electric and Advanced DC. The Company's principal competitors in the South
African and Argentine OEM market include Bosch and other international
corporations that import into such markets.
Relays and Controls. The Company's principal competitors in the solenoid
market are Electromation and Automotive Controls (Echlin) in the light truck
sector; Stancor Electric (Emerson) in the heavy duty market; Stancor Electric
and Clum in the material handling market; and Stancor Electric in industrial
markets. The Company's principal competitors in the contactor market are
Albright Engineers (primarily in Europe), Contact Industries and, in the
forklift aftermarket, Intrupa Manufacturing.
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Battery Chargers. The Company's principal competitors in the battery charger
market include Hertner and Ferro Magnetic.
PATENTS, TRADEMARKS AND LICENSES
The Company holds various patents and trademarks related to its products. No
single patent or trademark is currently of material importance to the
Company's operations. The Company has applied for a U.S. patent for its self-
diagnostic alternator.
The Company has the exclusive right to use the "Prestolite Electric" trade
name for use with motor and ignition parts through a perpetual, royalty-free
license from AlliedSignal Corporation. "Prestolite Wire" and "Prestolite
Batteries" are sold by unrelated companies. In connection with the Hobart
acquisition, the Company acquired the use of the "Hobart" brand name for
battery chargers for five years from the February 28, 1996 acquisition date.
Lucas Industries retained all rights to the "Lucas" trade name and logo and
certain other trademarks of Lucas Industries following the Lucas Acquisition.
As part of the Lucas Acquisition, Lucas Argentina, Lucas South Africa and
Prestolite U.K. are each permitted for a transition period to brand products
manufactured and sold by them with certain Lucas Industries trademarks.
In connection with the Lucas Acquisition, on April 8, 1998 the Company
entered into an agreement with Hitachi, Ltd., a Japanese corporation, for a
seven-year non-exclusive, non-transferrable license to manufacture and sell
certain starter motors and alternators utilizing Hitachi's proprietary
technology in exchange for a one-time fee of (Yen)30.0 million and royalty
payments based on the net sales of such products.
PROPERTIES
The Company's corporate headquarters are located at 2100 Commonwealth
Boulevard, Ann Arbor, Michigan 48105. The Company leases its headquarters. The
following table sets forth certain information regarding the facilities
operated by the Company as of the date of this Prospectus:
<TABLE>
<CAPTION>
APPROX. OWNED/
LOCATION USE SQUARE FEET LEASED
-------- ----------------- ----------- ------
<S> <C> <C> <C>
Ann Arbor, MI........................... Headquarters 11,000 Leased
Ann Arbor, MI........................... Technology Center 4,500 Leased
Arcade, NY.............................. Manufacturing 342,800 Owned
Decatur, AL............................. Manufacturing 258,000 Owned
Wagoner, OK............................. Manufacturing 50,000 Leased
Troy, OH................................ Manufacturing 160,000 Leased
Dearborn Heights, MI.................... Remanufacturing 22,000 Leased
Florence, KY............................ Warehouse 108,800 Leased
Leyland, U.K............................ Manufacturing 250,000 Owned
Cardiff, U.K............................ Manufacturing 15,000 Owned
Acton, U.K.............................. Manufacturing 368,900 Owned
Johannesburg, South Africa.............. Manufacturing 118,400 Owned
Buenos Aires, Argentina................. Manufacturing 159,000 Owned
San Lorenzo, Argentina.................. Manufacturing 76,676 Owned
San Luis, Argentina..................... Manufacturing 30,800 Owned
</TABLE>
The lease for the Company's Ann Arbor headquarters expires in October 1998;
the Ann Arbor technology center in December 1998; the Wagoner facility in
April 1999; the Troy facility in October 2006; the Dearborn Heights facility
in November 1998; and the Florence facility in June 2000.
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The Company believes that it complies with all relevant environmental
regulations and that its reserves are sufficient to cover any known
environmental claims related to its properties. See Note 7 of the Notes to
PEI's Consolidated Financial Statements.
EMPLOYEES
The Company had 2,732 employees as of April 4, 1998. There are no collective
bargaining agreements in effect with respect to any of the Company's
employees, with the exception of (i) employees at the Company's Leyland,
England facility and (ii) all of the hourly and some of the salaried employees
at the five facilities acquired in the Lucas Acquisition. The agreement
covering the employees of Lucas HDP expires in January 1999. While the Company
has not experienced a strike or work stoppage at any of its facilities,
including those acquired in the Lucas Acquisition, there can be no assurance
that a strike or work stoppage will not occur upon expiration of the agreement
governing Lucas HDP if such agreement is not renewed. See "Risk Factors--
Difficulty of Integrating Acquired Operations." The Company believes that
relations with its employees are excellent.
LEGAL PROCEEDINGS
From time to time the Company is involved in various litigation matters
arising in the ordinary course of its business. Management believes that none
of the matters in which the Company is currently involved, either individually
or in the aggregate, is material to the financial position, results of
operations, or cash flows of the Company.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information as of March 31, 1998,
with respect to the executive officers and Directors of the Issuer and PEI:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
P. Kim Packard............. 58 President, Chief Executive Officer and
Director of the Issuer and PEI
Kenneth C. Cornelius....... 53 Senior Vice President, Chief Financial Officer
and Secretary of the Issuer and PEI
Thomas C. Dolson........... 64 Vice President and Division President,
Prestolite Products Division of the Issuer
I. Conrad Schwab........... 56 Vice President and Division President,
Prestolite Power Division of the Issuer
Thomas E. Hunt............. 45 Vice President and Division President, Leece-
Neville Heavy Duty Division of the Issuer
Michael Lea................ 53 Vice President and Managing Director,
Prestolite U.K.
Dennis P. Chelminski....... 45 Controller of the Issuer, Assistant Secretary
of the Issuer and PEI
Richard D. Paterson(a)(b).. 55 Chairman of the Board and Director of the
Issuer and PEI
Ross J. Turner(b).......... 67 Director of the Issuer and PEI
John A. West(a)(b)......... 69 Director of the Issuer and PEI
</TABLE>
- --------
(a)Member of Audit Committee of PEI and the Issuer
(b)Member of Compensation Committee of PEI and the Issuer
P. Kim Packard joined the Issuer and PEI in December 1991 as President,
Chief Executive Officer and a Director. Prior to joining the Company, Mr.
Packard was President and Chief Operating Officer of Hobart Brothers Company
of Troy, Ohio for six years. Previously, Mr. Packard served as President of
Warner & Swasey and an officer or executive of various divisions of
Allied/Bendix. He also served in various marketing, sales, and executive
capacities with GTE Sylvania. Mr. Packard holds a B.S. in electrical
engineering from Pennsylvania State University and an M.S. from the
Massachusetts Institute of Technology, where he was a Sloan Fellow. He is also
a director of Kurz-Kasch Corporation, Dayton, Ohio.
Kenneth C. Cornelius became Senior Vice President and Chief Financial
Officer of the Issuer and PEI in August 1992 and has been Secretary of the
Issuer and PEI since 1993. Previously, he was Chief Financial Officer with M-C
Industries for three years, after spending 17 years with Maremont Corporation
in various financial positions, including eight years as Chief Financial
Officer. Mr. Cornelius holds a B.A. from Carleton College and an M.B.A. from
the University of Michigan.
Thomas C. Dolson joined the Issuer in November 1994 as President of the
Prestolite Products Division. He previously served as Chief Executive Officer
of Nitram Energy and Chief Operating Officer of M-C Industries. Mr. Dolson
also served more than twenty years in the U.S. Marine Corps, with his final
rank being Lieutenant Colonel. He holds a B.S. in Business from the University
of Idaho and M.S. in Personnel Administration from George Washington
University.
I. Conrad Schwab became an officer of the Issuer in conjunction with the
Issuer's acquisition of two product lines from Hobart in February 1996. He
joined Hobart in 1988 as General Manager of the Ground Power Division. He was
formerly General Manager, Personal Aircraft, at Piper Aircraft; Director of
Business Development for Fiat-Allis, and served in various positions for
Firestone in Europe. He received a B.A. in Biological Science from Johns
Hopkins University, did graduate studies at the University of Tubingen in
Germany and received a Master of Foreign Trade from the American Graduate
School of International Management in Phoenix.
69
<PAGE>
Thomas E. Hunt joined the Issuer in July 1996 as the Leece-Neville Director
of Product Engineering. He was promoted to his current position in January
1997. Previously, he was Director of Heavy Duty Engineering with the Delco-
Remy division of General Motors, which became Delco Remy America in 1994. Mr.
Hunt joined Delco in 1974 and held various positions there before becoming the
head of heavy duty engineering in 1988. Mr. Hunt received a B.S. in Electrical
Engineering from Rose-Hulman Institute of Technology and an M.B.A. from
Anderson University.
Michael Lea became Managing Director of Prestolite U.K. in December 1993. He
had previously been Sales and Marketing Director of Polypenco Ltd. From 1977
to 1990 he served in various positions with GKN, leading to Managing Director
of GKN Composites Ltd. Mr. Lea is a Chartered Engineer holding Bachelor of
Technology in Metallurgy and Doctor of Philosophy in Engineering degrees from
Brunel University.
Dennis P. Chelminski has been Controller of the Issuer and Treasurer and
Assistant Secretary of the Issuer and PEI since February 1992. Mr. Chelminski
is also Treasurer and Assistant Secretary of PEI. He held the position of
Chief Accounting Officer from October 1991 to February 1992 and was previously
Manager of Financial Analysis. Prior to 1986, he held various financial
positions with Eltra Corporation and AlliedSignal Corporation. Mr. Chelminski
holds a B.S. in accounting from the University of Toledo, and is a C.P.A.
Richard D. Paterson has been a Director and Chairman of the Board of
Directors of the Issuer and PEI since 1991. Mr. Paterson has been Executive
Vice President and a director of Genstar Investment Corporation, an affiliate
of Genstar ("GIC"), since 1987 and was a director of Genstar from 1988 through
August 1995. In addition, he is currently a director of a number of privately
held corporations.
Ross J. Turner has been a Director of the Issuer and PEI since 1991. Mr.
Turner has been Chairman of the Board of Directors of GIC since 1987 and was a
director of Genstar from 1988 through August 1995. Mr. Turner is the Deputy
Chairman and a director of Rio Algom Limited in Canada and of Guy F. Atkinson
Company and Blue Shield of California in the United States. In addition, he is
currently a director of a number of privately held corporations.
John A. West has been a Director of the Issuer and PEI since 1991. Mr. West
has been Executive Vice President of GIC since 1992 and a director of GIC
since 1987 and was a director of Genstar from 1988 through August 1995. In
addition, he is currently a director of a number of privately held
corporations.
Directors of PEI are elected annually to serve until the next annual meeting
of shareholders of PEI or until their successors have been elected and
qualified. Executive officers of PEI are appointed by, and serve at the
discretion of, the Board of Directors of PEI. None of the executive officers
or Directors of PEI is related by blood, marriage or adoption to any other
executive officer or Director of PEI.
70
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes all compensation paid for the year ended
December 31, 1997 to the Company's Chief Executive Officer and the four other
highest compensated executive officers who were serving as executive officers
at December 31, 1997 (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------- LONG-TERM
OTHER ANNUAL COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)(A) COMPENSATION($)(B) AWARDS(C) COMPENSATION($)(D)
- --------------------------- --------- ----------- ------------------ ------------ ------------------
<S> <C> <C> <C> <C> <C>
P. Kim Packard.......... 305,000 249,900 -- -- 10,220
President and Chief
Executive Officer
Kenneth C. Cornelius.... 156,769 95,800 -- -- 6,034
Senior Vice President
and Chief Financial
Officer
Thomas C. Dolson........ 135,292 71,100 -- -- 6,109
Vice President and
Division President,
Prestolite Products
I. Conrad Schwab........ 134,385 94,000 -- -- 5,183
Vice President and
Division President,
Prestolite Power
Thomas E. Hunt.......... 117,308 98,700 -- -- 435
Vice President and
Division President,
Leece-Neville Heavy
Duty Division
</TABLE>
- --------
(a)Amounts reflect bonuses earned during 1997 but paid during 1998.
(b) Other annual compensation in the form of perquisites and other personal
benefits has been omitted where the aggregate amount of such perquisites
and other personal benefits constituted the lesser of $50,000 or 10% of
the total annual salary and bonus for the Named Executive Officer for the
year.
(c) The Company did not make any long-term incentive awards to any of the
Named Executive Officers in 1997.
(d) Amounts reflect premiums paid for life insurance coverage in excess of
$50,000 and contributions, if any, by Prestolite pursuant to its 401(k)
plan. Also includes for Messrs. Packard and Cornelius above-market
interest on deferred compensation payable pursuant to a Deferred
Compensation Agreement between each of Messrs. Packard and Cornelius and
PEI.
71
<PAGE>
OPTIONS GRANTED IN LAST FISCAL YEAR
The Company did not grant any options to purchase shares of Common Stock to
any of the Named Executive Officers during 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table summarizes the number and value of all unexercised
options held by the Named Executive Officers as of December 31, 1997. No
options were exercised by any of the Named Executive Officers during 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END (#) FY-END ($)(A)
------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
P. Kim Packard.............. 156,600 22,400 $2,097,224 $243,342
Kenneth C. Cornelius........ 20,900 8,600 262,322 93,276
Thomas C. Dolson............ 9,900 8,100 111,474 87,569
I. Conrad Schwab............ 3,200 4,800 33,963 50,945
Thomas E. Hunt.............. -- -- -- --
</TABLE>
- --------
(a) Value is based upon the fair market value of the stock as of December 31,
1997, as determined by the PEI Board of Directors, minus the exercise
price. Fair market value was determined in good faith by the Board of
Directors of PEI and was based upon the historical and projected financial
performance of the Company.
COMPENSATION OF DIRECTORS
The Directors of PEI and the Issuer do not receive any compensation for
their services as Directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committees of PEI and the Issuer are
Messrs. Richard A. Paterson, chairman, and John A. West. Each is an executive
officer and currently a director of GIC and was a director of Genstar at
various times from 1988 through August 1995.
EMPLOYMENT AGREEMENTS
PEI has entered into agreements with each of Messrs. Packard, Cornelius,
Dolson, Schwab, Hunt and Lea. The agreements with Messrs. Packard, Cornelius,
Dolson, Schwab and Lea provide in each case that if the employee's employment
with PEI is terminated at any time for any reason, other than by the employee
voluntarily except in the event of a substantial diminution in
responsibilities, for cause (as defined in the respective employment
agreements) or as a result of death or disability, the terminated individual
shall receive from PEI for a period of one year following the date of
termination the then current salary and benefits that the employee would
otherwise have been entitled to receive (except for Mr. Packard who would
receive two years salary and benefits).
Each of the agreements provides that in the event that the employee's
employment is terminated at any time within twelve months following a change
of control (as defined in the respective employment agreements) for any reason
other than for cause, the agreements provide that the respective individual
would be entitled to receive from PEI an additional one year period of such
salary and benefits following the expiration of the salary and benefits such
employee is entitled to receive in the event of termination for any other
reason.
Any benefits payable under the agreements, absent mutual agreement of the
parties, shall be payable at such time and in such manner as if the employee
remained employed by PEI, and such benefits, if any, shall continue
notwithstanding re-employment and/or death of the employee following
termination of employment.
72
<PAGE>
1991 OPTION PLAN
In 1991, PEI adopted the PEI Holding, Inc. Management Stock Option Plan (as
amended, the "1991 Option Plan"), designed to provide an incentive to those
designated employees of PEI to continue in their employment and to increase
their efforts for the success of PEI. The designated employees are selected in
the sole discretion of the Compensation Committee of the Board of Directors of
PEI (the "Plan Administrator"). As of April 4, 1998, an aggregate of 350,280
shares of Common Stock were reserved for issuance under the 1991 Option Plan.
The 1991 Option Plan provides for granting to designated employees stock
options to purchase shares of Common Stock. The Plan Administrator has sole
authority to select those individuals to whom options may be granted and to
determine the number of shares of Common Stock to be subject to the options
granted to such individual. The purchase price of each share of Common Stock
subject to the options is the fair market price of the Common Stock on the
date of the grant as determined by the Board of Directors of PEI. All options
granted are subject to the terms of the Stock Option Agreement ("Option
Agreement") entered into by the recipient of the options.
Each Option Agreement entered into by the recipient of options requires the
recipient to be bound by the terms of any stockholders agreement entered into
between certain stockholders and PEI. Options vest beginning on January 1 of
the first full calendar year following granting of the option (or on the first
anniversary of the date of grant if granted in connection with hiring) and
vest at a rate of 20% per year on each subsequent January 1. Options are not
transferable by the recipient other than by will or by the laws of descent and
distribution and are exercisable during the recipient's lifetime only by the
recipient. All options terminate on the tenth anniversary of the date of
grant. Options are exercisable within 90 days after a registration statement
pertaining to Common Stock has been filed with the Commission under the
Securities Act and declared effective, upon receipt by PEI of an acceptable
opinion of counsel stating that such options are exempt from such registration
or until PEI otherwise determines in its sole discretion.
If the recipient is terminated by PEI without cause (as defined in the
Option Agreement) or for permanent disability or death then all unvested
options are terminated and canceled on the date of termination; within 30 days
of termination PEI may make a cash payment to the recipient in the amount of
the excess of the fair market value of the Common Stock subject to such
options over the exercise price for such shares, or make such other decisions
with respect to such options as in the sole discretion of PEI. If the
recipient is terminated for cause then all options, including vested and
unvested options, are canceled on the last day of such recipient's employment.
In the event of a merger or consolidation of PEI (subsequent to which the
present stockholders of PEI own less than 50% of the voting stock of the
surviving entity), a sale of all or substantially all of the assets of PEI to
an entity not affiliated with Genstar or a dissolution or liquidation of PEI,
then the Plan Administrator may provide for the vesting of up to all options
outstanding within 30 days of such event or authorize a cash payment to each
option holder equal to the excess of the fair market value of the shares of
Common Stock subject to such holder's option over the applicable exercise
price. The options are subject to anti-dilution provisions in the event of a
change in the capital structure of PEI.
As of June 1, 1998, options to purchase an aggregate of 268,840 shares of
Common Stock at prices from $5.00 to $18.86 were outstanding under the 1991
Option Plan.
73
<PAGE>
PRINCIPAL STOCKHOLDERS
The table below sets forth certain information regarding beneficial
ownership of the Common Stock of PEI as of June 1, 1998 by (i) each person or
entity known by PEI to own beneficially 5% or more of the Common Stock; (ii)
each Director and Named Executive Officer; and (iii) all executive officers
and Directors as a group. PEI owns 100% of the Common Stock of the Issuer. As
of June 1, 1998, there were 1,993,000 shares of Common Stock outstanding:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-----------------------------
NAME NUMBER(A) PERCENT(A)
---- --------------- -------------
<S> <C> <C>
Genstar Capital Corporation (b)........... 1,920,000 96.3%
Scotia Plaza, Suite 4900
40 King Street West
Toronto, Ontario M54 4AA
Canada
P. Kim Packard (c)........................ 102,000 5.1
c/o Prestolite Electric Incorporated
2100 Commonwealth Blvd.
Ann Arbor, Michigan 48105
Kenneth C. Cornelius (d).................. 17,100 *
Thomas C. Dolson (e)...................... 11,500 *
I. Conrad Schwab (f)...................... 8,000 *
Thomas E. Hunt (g)........................ 8,000 *
Richard D. Paterson (h)................... 89,280 4.5
Ross J. Turner (h)........................ 89,280 4.5
John A. West (h).......................... 89,280 4.5
All executive officers and Directors as a
group (10 persons) (i)................... 264,380 13.3
</TABLE>
- --------
* Less than 1%
(a) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Shares of Common Stock subject to options or warrants
currently exercisable or convertible, or exercisable or convertible within
60 days of June 1, 1998, are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person. Except as
indicated in the footnotes to this table and pursuant to applicable
community property laws, the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock
beneficially owned.
(b) Genstar's shares are held of record by The Royal Trust Company, a licensed
trust company in Canada, that holds the shares for the benefit of Genstar,
its preferred shareholders and GIC.
(c) Consists of 17,000 shares of Common Stock and 85,000 shares issuable upon
exercise of options that are currently exercisable or exercisable within
60 days of June 1, 1998. Does not include 53,900 shares issuable upon
exercise of options which vest more than 60 days after June 1, 1998.
(d) Consists of 8,000 shares of Common Stock and 9,100 shares issuable upon
exercise of options that are currently exercisable or exercisable within
60 days of June 1, 1998. Does not include 19,000 shares issuable upon
exercise of options which vest more than 60 days after June 1, 1998.
(e) Consists of 8,000 shares of Common Stock and 3,500 shares issuable upon
exercise of options that are currently exercisable or exercisable within
60 days of June 1, 1998. Does not include 15,100 shares issuable upon
exercise of options which vest more than 60 days after June 1, 1998.
(f) Consists of 8,000 shares of Common Stock. Does not include 6,900 shares
issuable upon exercise of options which vest more than 60 days after June
1, 1998.
(g) Consists of 8,000 shares of Common Stock. Does not include 6,900 shares
issuable upon exercise of options which vest more than 60 days after June
1, 1998.
(h) Consists of 89,280 shares of Common Stock indirectly owned by GIC by
virtue of GIC's ownership in Genstar, as to which Messrs. Paterson, Turner
and West may be deemed to be beneficial owners. Excludes the remaining
shares of Common Stock owned by Genstar as to which Messrs. Paterson,
Turner and West disclaim beneficial ownership. See "Certain Transactions--
GIC Management Agreement." Genstar owns approximately 84.9% of the Common
Stock of PEI on a fully-diluted basis.
(i) Amount shown includes an aggregate of 110,100 shares of Common Stock
issuable upon the exercise of options exercisable within 60 days of June
1, 1998. Does not include an aggregate of 128,900 shares issuable upon
exercise of options which vest more than 60 days after June 1, 1998.
74
<PAGE>
CERTAIN TRANSACTIONS
THE RECAPITALIZATION
In connection with the Offering, the Company effected a series of
transactions that resulted in the Recapitalization of the Company. The
Recapitalization consisted of (i) the Offering (ii) the repayment of
approximately $42.0 million of outstanding indebtedness (including
approximately $3.2 million of debt of Lucas Argentina), (iii) the payment of a
dividend to PEI to enable PEI and an affiliate to purchase securities of PEI
from PEI's securityholders for an aggregate purchase price of approximately
$29.7 million, (iv) the entry by the Issuer into the New U.S. Credit Facility
providing for up to $23.0 million in revolving credit loans and (v) the entry
by Prestolite U.K. into the Temporary U.K. Credit Facility providing for
short-term borrowings of up to (Pounds)3.0 million. On April 21, 1998,
Prestolite U.K. replaced the Temporary U.K. Credit Facility with the New U.K.
Credit Facility providing for borrowings of up to (Pounds)7.0 million
(approximately $11.3 million based on exchange rates as of June 1, 1998). See
"The Transactions--The Recapitalization" and "Description of Certain
Indebtedness."
The following table summarizes all purchases of Common Stock and options and
warrants to purchase Common Stock pursuant to the Recapitalization. All shares
of Common Stock were purchased by a limited liability company affiliated with
PEI, and all options and warrants to purchase Common Stock were purchased by
PEI.
<TABLE>
<CAPTION>
NAME TOTAL SECURITIES PURCHASED PURCHASE PRICE(A)
---- -------------------------- -----------------
<S> <C> <C>
Genstar Capital Corporation
and/or the preferred
shareholders thereof........ 1,280,000(b) $24,145,408
Entities affiliated with
Cigna Mezzanine Partners
III, L.P.................... 171,740(c) 3,434,700
P. Kim Packard............... 77,600(d) 1,325,188
Kenneth C. Cornelius......... 11,800(e) 196,996
Thomas C. Dolson............. 7,200(f) 103,074
I. Conrad Schwab............. 3,200(g) 41,470
Dennis P. Chelminski......... 6,600(h) 111,722
Michael Lea.................. 9,000(i) 139,831
Other employees as a group (4
persons).................... 14,560(j) 242,192
--------- -----------
Total........................ 1,581,700 $29,740,581
========= ===========
</TABLE>
- --------
(a) Equal to (i) $18.86 per share of Common Stock, (ii) a price per warrant
equal to $20.00 per share of Common Stock issuable upon exercise of such
warrant and (iii) a price per option equal to $18.86 per share of Common
Stock issuable upon exercise of such option minus the applicable exercise
price. Amounts paid to management included payments to compensate for less
favorable tax treatment with respect to purchased options and were net of
any indebtedness owed to PEI pursuant to applicable stock purchase
agreements.
(b) Genstar's shares were held of record by The Royal Trust Company, a
licensed trust company in Canada, that held the shares for the benefit of
Genstar, its preferred shareholders and GIC.
(c) Consists of warrants to purchase 171,740 shares of Common Stock at an
exercise price of $0.01 per share. The warrants repurchased in the
Recapitalization constituted 100% of the equity interest in the Company of
the entities affiliated with Cigna Mezzanine Partners III, L.P.
(d) Consists of 6,000 shares of Common Stock and vested options to purchase
71,600 shares of Common Stock at an exercise price of $5.00 per share.
(e) Consists of vested options to purchase 11,800 shares of Common Stock at a
weighted average exercise price of $5.19 per share.
(f) Consists of vested and unvested options to purchase 7,200 shares of Common
Stock at a weighted average exercise price of $7.14 per share.
(g) Consists of vested options to purchase 3,200 shares of Common Stock at an
exercise price of $8.25 per share.
(h) Consists of vested options to purchase 6,600 shares of Common Stock at an
exercise price of $5.00 per share.
(i) Consists of vested and unvested options to purchase 9,000 shares of Common
Stock at a weighted average exercise price of $6.14 per share.
(j) Consists of vested options held by four other employees of the Company to
purchase an aggregate of 14,560 shares of Common Stock at a weighted
average exercise price of $5.02 per share.
75
<PAGE>
Management also received payments with respect to purchased options that
provided management, on an after-tax basis (taking into account taxes on such
additional payments), with a net amount equal to the after-tax amount that
management would have realized had the shares issued upon exercise of such
options been held sufficiently long to qualify for the capital gains tax rate
applicable to a capital asset held for more than 18 months (assuming that
ordinary income or short-term capital gains were taxable to management at the
highest marginal tax rate applicable to such income at the time of the
purchase).
Messrs. Paterson, Turner and West, all directors of PEI, are executive
officers of GIC. Messrs. Paterson, Turner and West are also shareholders of
GIC. GIC holds approximately 4.65% of the outstanding preferred shares of
Genstar and, as a result, was entitled to approximately 4.65% of the proceeds
distributed to Genstar and/or its preferred shareholders in connection with
the Recapitalization. See "The Recapitalization" and "Principal Stockholders."
GIC acts as the advisor to Genstar, and is entitled to certain fees and
reimbursement of expenses from Genstar for services rendered to Genstar. To
the extent that GIC collects fees and expenses directly from portfolio
companies of Genstar, such as the Company, Genstar's obligation to pay these
fees and expenses to GIC is offset.
GIC MANAGEMENT AGREEMENT
The Company has entered into a management agreement (the "Management
Agreement") with GIC terminating on December 31, 2002, under which GIC has
agreed to provide the Company with ongoing management and financial advisory
services. The Company has agreed to pay GIC a fee of $200,000 per quarter as
compensation for services rendered by GIC under the Management Agreement, plus
all out-of-pocket costs and expenses incurred in connection therewith. On
January 1, 1998, this fee increased to the greater of $900,000 or 0.3% of the
Company's annual net sales. During the years ended December 31, 1995, 1996 and
1997, the Company paid management and advisory fees of $800,000, respectively,
plus out-of-pocket expenses to GIC.
SEVERANCE
In August 1997 the Company paid approximately $495,000 to a former executive
officer in connection with termination of his employment, including amounts
paid in exchange for all stock option rights, shares of Common Stock and
certain other rights held by such officer.
76
<PAGE>
DESCRIPTION OF THE EXCHANGE NOTES
GENERAL
The Outstanding Notes were issued under an Indenture, dated as of January
22, 1998 (the "Indenture"), between the Issuer, PEI and U.S. Bank Trust
National Association, as Trustee (the "Trustee"). The Exchange Notes also will
be issued under the Indenture. The Outstanding Notes and the Exchange Notes
will be treated as a single class of securities under the Indenture.
The following is a summary of certain provisions of the Indenture and the
Notes. A copy of the Indenture, including the form of the Notes, has been
filed as an exhibit to the Registration Statement of which this Prospectus
forms a part. Capitalized terms used but not otherwise defined herein have the
respective meanings ascribed to them in the Indenture. For purposes of this
summary, the term "Issuer" refers only to Prestolite Electric Incorporated and
not to PEI or any Subsidiary of PEI or the Issuer.
The following summary does not purport to be complete and is subject to, and
is qualified in its entirety by reference to, all the provisions of the
Indenture, including the definitions of certain terms therein and those terms
made a part thereof by the TIA. Certain terms used herein and in the Indenture
are defined below under "--Certain Definitions." As used herein, the term
"Notes" means the Exchange Notes and the Outstanding Notes, treated as a
single class. Except as otherwise indicated below, the following summary
applies to both the Outstanding Notes and the Exchange Notes offered hereby.
The terms of the Exchange Notes will be identical in all respects to those of
the Outstanding Notes, except for the freely tradeable character of the
Exchange Notes (provided the Holder thereof is not an affiliate of the
Company) and the absence of certain registration rights granted to holders of
the Outstanding Notes. See "The Exchange Offer--Purpose and Effects." The
Exchange Notes will be issued solely in exchange for an equal principal amount
of Outstanding Notes pursuant to the Exchange Offer made hereby.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Issuer in the Borough of Manhattan, The City of New York (which initially
shall be the corporate trust office of the Trustee, at 100 Wall Street, Suite
1600, New York, New York 10005), except that, at the option of the Issuer,
payment of interest may be made by check mailed to the registered holders of
the Exchange Notes at their registered addresses.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Issuer may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
For each Outstanding Note accepted for exchange, the holder of such
Outstanding Note will receive an Exchange Note having a principal amount equal
to that of the surrendered Outstanding Note.
TERMS OF THE NOTES
The Notes are unsecured, senior obligations of the Issuer, limited to $125.0
million aggregate principal amount, and will mature on February 1, 2008
Each Exchange Note will bear interest at a rate per annum shown on the front
cover of this Prospectus from the date of issuance thereof (July 27, 1998
unless the Exchange Offer is extended) or from the most recent date to which
interest on the Outstanding Notes has been paid or provided for, payable
semiannually to Holders of record at the close of business on the January 15
or July 15 immediately preceding the interest payment date on February 1 and
August 1 of each year, commencing August 1, 1998. Accordingly, registered
holders of Exchange Notes on the relevant record date for the first interest
payment date following the consummation of the Exchange Offer will receive
interest from the most recent interest payment date to which interest has been
paid on the Outstanding Notes or, if no interest has been paid, from January
22, 1998. Outstanding Notes accepted for
77
<PAGE>
exchange will cease to accrue interest from and after the date of the
consummation of the Exchange Offer. Holders whose Outstanding Notes are
accepted for exchange will not receive any payment in respect of interest on
such Outstanding Notes for any period subsequent to the last interest payment
date, if any, of the Outstanding Notes to occur prior to the issue date of the
Exchange Notes and will be deemed to have waived the right to receive any
payment in respect of interest on the Outstanding Notes accrued from and after
such interest payment date, if any. The Issuer will pay interest on overdue
principal at 1% per annum in excess of such rate, and it will pay interest on
overdue installments of interest at such higher rate to the extent lawful.
Interest on the Notes will be computed on the basis of a 360-day year of
twelve 30-day months.
The interest rates on the Notes is subject to increase in certain
circumstances if the Registration Statement ceases to be effective as further
described under "--Registration Rights."
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Issuer prior to February 1, 2003. Thereafter,
the Notes will be redeemable, at the Issuer's option, in whole or in part, at
any time or from time to time, upon not less than 30 nor more than 60 days'
prior notice mailed by first-class mail to each Holder's registered address,
at the following redemption prices (expressed as a percentage of principal
amount), plus accrued interest, if any, to the redemption date (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date), if redeemed during the 12-month period
commencing on February 1 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2003........................................................... 104.8125%
2004........................................................... 103.2083%
2005........................................................... 101.6042%
2006 and thereafter............................................ 100.0000%
</TABLE>
In addition, at any time and from time to time prior to February 1, 2001,
the Issuer may redeem in the aggregate up to 35% of the original aggregate
principal amount of the Notes with the proceeds of one or more Public Equity
Offerings to the extent that, in the case of a Public Equity Offering of PEI,
the net cash proceeds thereof are contributed to the equity capital of the
Issuer, at a redemption price (expressed as a percentage of principal amount
thereof) of 109.625% plus accrued interest, if any, to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date); provided,
however, that at least $81.25 million principal amount of the Notes must
remain outstanding after each such redemption.
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other
method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal
to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note.
PEI GUARANTEE
PEI, as primary obligor and not merely as surety, irrevocably and
unconditionally guaranteed, on a senior basis, the performance and punctual
payment when due, whether at Stated Maturity, by acceleration or otherwise, of
all obligations of the Issuer under the Indenture and the Notes, whether for
principal of or interest on the Notes, expenses, indemnification or otherwise
(all such obligations guaranteed by PEI being herein called the "Guaranteed
Obligations"). PEI has agreed to pay, in addition to the amounts stated above,
any and all expenses
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(including reasonable counsel fees and expenses) incurred by the Trustee or
the Holders in enforcing any rights under the PEI Guarantee. PEI has no
material assets other than the common stock of the Issuer and the Existing
Non-Issuer PEI Subsidiaries.
The PEI Guarantee is a continuing guarantee and (a) will remain in full
force and effect until payment in full of all the Guaranteed Obligations, (b)
is binding upon PEI and (c) inures to the benefit of and is enforceable by the
Trustee, the Holders and their successors, transferees and assigns.
The PEI Guarantee is an unsecured senior obligation of PEI and ranks pari
passu with other senior unsecured indebtedness of PEI, including its Guarantee
of the Outstanding Notes. Under the Indenture, PEI agreed not to engage in any
activities other than holding the outstanding securities of the Issuer and the
Existing Non-Issuer PEI Subsidiaries and not to incur any liabilities other
than those relating to its guarantees of the Notes, guarantees of certain
other obligations of the Issuer, including guarantees of the performance of
the Issuer's obligations in connection with the Lucas Acquisition and
liabilities for overhead expenses, taxes, and legal, accounting and other
professional fees and expenses. See "--Certain Covenants--Restrictive Covenant
of PEI."
PEI is a holding company which derives all of its operating income from its
Subsidiaries, including the Issuer. The holders of the Notes will have no
direct claim against such Subsidiaries (other than the Issuer). The rights of
holders of the Notes to participate in any distribution of assets of any such
Subsidiary upon its liquidation, bankruptcy, reorganization or otherwise will,
as is the case with other unsecured creditors of PEI, be subject to prior
claims of creditors of that Subsidiary. PEI must rely upon dividends and other
payments from such Subsidiaries, including the Issuer, to generate the funds
to meet its obligations, including the payment of principal of, premium, if
any, and interest under its Guarantee. The ability of PEI's Subsidiaries
(other than the Issuer) to make such payments may be restricted by, among
other things, applicable state and foreign corporate laws and other laws and
regulations or by the terms of agreements to which they may become party.
RANKING
The indebtedness evidenced by the Outstanding Notes is, and the indebtedness
evidenced by the Exchange Notes will be, unsecured Senior Indebtedness of the
Issuer, ranking pari passu in right of payment with all existing and future
Senior Indebtedness of the Issuer and senior in right of payment to all
existing and future Subordinated Obligations of the Issuer. The Outstanding
Notes are, and the Exchange Notes will also be, effectively subordinated to
all existing and future Secured Indebtedness of the Issuer, including
indebtedness under the New U.S. Credit Facility, to the extent of the value of
the assets securing such Indebtedness. The Outstanding Notes are, and the
Exchange Notes will be, structurally subordinated to all existing and future
Indebtedness of any Subsidiary of the Issuer, including indebtedness under the
New U.K. Credit Facility.
As of December 31, 1997, on a pro forma basis after giving effect to the
Transactions as if the Transactions had occured on such date, the Issuer would
have had approximately $129.5 million of consolidated indebtedness
outstanding, of which approximately $4.5 million would have represented
secured indebtedness, and the indebtedness of the Issuer's subsidiaries would
have been approximately $3.2 million (excluding trade payables of
approximately $18.4 million). In addition, as of April 4, 1998, the Issuer had
approximately $132.6 million of consolidated indebtedness outstanding, of
which approximately $7.6 million represented Secured Indebtedness, and the
indebtedness of the Issuer's Subsidiaries was approximately $5.1 million.
Although the Indenture contains limitations on the amount of additional
Indebtedness which the Issuer may Incur, under certain circumstances the
amount of such Indebtedness could be substantial and, in any case, such
Indebtedness may be Senior Indebtedness or Secured Indebtedness. See "--
Certain Covenants--Limitation on Indebtedness."
A substantial portion of the operations of the Issuer will be conducted
through its Subsidiaries. Claims of creditors of such Subsidiaries, including
trade creditors, secured creditors and creditors holding indebtedness and
guarantees issued by such Subsidiaries, and claims of holders of Preferred
Stock (if any) of such Subsidiaries generally will have priority with respect
to the assets and earnings of such Subsidiaries over the claims of creditors
of the Issuer, including holders of the Notes. The Notes, therefore, will be
effectively subordinated to creditors (including trade creditors) and holders
of Preferred Stock (if any) of Subsidiaries of the Issuer. Although
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the Indenture limits the Incurrence of Indebtedness and Preferred Stock of
certain of the Issuer's Subsidiaries, such limitation is subject to a number
of significant qualifications. Moreover, the Indenture does not impose any
limitation on the Incurrence by such Subsidiaries of liabilities that are not
considered Indebtedness or Preferred Stock under the Indenture. See "--Certain
Covenants--Limitation on Indebtedness and Preferred Stock of Subsidiaries."
CHANGE OF CONTROL
Upon the occurrence of any of the following events (each a "Change of
Control"), each Holder will have the right to require the Issuer to repurchase
all or any part of such Holder's Notes at a purchase price in cash equal to
101% of the principal amount thereof, plus accrued and unpaid interest, if
any, to the date of repurchase (subject to the right of Holders of record on
the relevant record date to receive interest due on the related interest
payment date):
(i)prior to the first public offering of common stock of PEI or the
Issuer, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of the
Voting Stock of the Issuer, whether as a result of issuance of securities
of PEI or the Issuer, any merger, consolidation, liquidation or dissolution
of PEI or the Issuer, any direct or indirect transfer of securities by PEI
or the Issuer or otherwise (for purposes of this clause (i) and clause (ii)
below, the Permitted Holders shall be deemed to beneficially own any Voting
Stock of a corporation (the "specified corporation") held by any other
corporation (the "parent corporation") so long as the Permitted Holders
beneficially own (as so defined), directly or indirectly, in the aggregate
a majority of the voting power of the Voting Stock of the parent
corporation);
(ii)subsequent to the first public offering of common stock of PEI or the
Issuer, (A) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in clause (i) above) directly or
indirectly, of more than 35% of the total voting power of the Voting Stock
of the Issuer and (B) the Permitted Holders "beneficially own" (as defined
in clause (i) above), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of the Issuer than
such other person and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the
Board of Directors of the Issuer (for the purposes of this clause (ii),
such other person shall be deemed to beneficially own any Voting Stock of a
specified corporation held by a parent corporation, if such other person is
the beneficial owner (as defined in clause (i) above), directly or
indirectly, of more than 35% of the voting power of the Voting Stock of
such parent corporation and the Permitted Holders "beneficially own" (as
defined in clause (i) above), directly or indirectly, in the aggregate a
lesser percentage of the voting power of the Voting Stock of such parent
corporation and do not have the right or ability by voting power, contract
or otherwise to elect or designate for election a majority of the board of
directors of such parent corporation); provided, however, that a Person
shall not be deemed the "beneficial owner" of shares tendered pursuant to a
tender or exchange offer made by such Person or any Affiliate of such
Person until the tendered shares are accepted for purchase or exchange;
(iii)during any period of two consecutive years (or, in the case this
event occurs within the first two years after the Issue Date, such shorter
period as shall have begun on the Issue Date), individuals who at the
beginning of such period constituted the Board of Directors of PEI or the
Issuer (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of PEI or
the Issuer was approved by a vote of 662/3% of the directors of PEI or the
Issuer then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of PEI or the Issuer then in office;
(iv)the merger or consolidation of PEI or the Issuer with or into another
Person or the merger of another Person with or into PEI or the Issuer, or
the sale of all or substantially all the assets of PEI or the Issuer to
another Person (other than a Person that is controlled by the Permitted
Holders), and, in the case
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of any such merger or consolidation, the securities of PEI or the Issuer
that are outstanding immediately prior to such transaction and which
represent 100% of the aggregate voting power of the Voting Stock of PEI or
the Issuer are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent immediately after such transaction, at
least a majority of the aggregate voting power of the Voting Stock of the
surviving corporation.
Within 30 days following any Change of Control, the Issuer shall mail a
notice to each Holder at its registered address with a copy to the Trustee
stating: (1) that a Change of Control has occurred and that such Holder has
the right to require the Issuer to purchase such Holder's Notes at a purchase
price in cash equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of repurchase (subject to the right of
Holders of record on the relevant record date to receive interest on the
relevant interest payment date); (2) the circumstances and relevant facts
regarding such Change of Control (including information with respect to pro
forma historical income, cash flow and capitalization after giving effect to
such Change of Control); (3) the repurchase date (which shall be no earlier
than 30 days nor later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Issuer, consistent with this covenant,
that a Holder must follow in order to have its Notes purchased.
The phrase "all or substantially all," as used with respect to a sale of
assets in the definition in the Indenture of "Change of Control," varies
according to the facts and circumstances of the subject transaction, has no
clearly established meaning under New York law (the law governing the
Indenture) and is subject to judicial interpretation. Accordingly, in certain
circumstances, there may be a degree of uncertainty in ascertaining whether a
particular transaction would involve a disposition of "all or substantially
all" of the assets of a Person and therefore it may be unclear whether a
Change of Control has occurred.
The Issuer will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to this covenant. To the
extent that the provisions of any securities laws or regulations conflict with
provisions of this covenant, the Issuer will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under this paragraph by virtue thereof.
The Change of Control purchase feature is a result of negotiations between
PEI, the Issuer and the Initial Purchasers. The Board of Directors of PEI has
no present intention to engage in a transaction involving a Change of Control,
although it is possible that PEI would decide to do so in the future. Subject
to the limitations discussed below, PEI or the Issuer could, in the future,
enter into certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Issuer's capital structure or credit rating.
Restrictions on the ability of the Issuer to incur additional Indebtedness are
contained in the covenants described under "--Certain Covenants--Limitation on
Indebtedness" and "--Limitation on Indebtedness and Preferred Stock of
Restricted Subsidiaries." Such restrictions can only be waived with the
consent of the holders of a majority in principal amount of the Notes then
outstanding. Except for the limitations contained in such covenants, however,
the Indenture will not contain any covenants or provisions that may afford
holders of the Notes protection in the event of a highly leveraged
transaction.
The New U.S. Credit Facility generally prohibits the Issuer from purchasing
any Notes and will also provide that the occurrence of certain change of
control events (as defined therein) with respect to PEI or the Issuer would
constitute a default thereunder. In the event a Change of Control occurs at a
time when the Issuer is prohibited from purchasing Notes, the Issuer could
seek the consent of its lenders to the purchase of Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Issuer does not
obtain such a consent or repay such borrowings, the Issuer will remain
prohibited from purchasing Notes. In such case, the Issuer's failure to
purchase tendered Notes would constitute an Event of Default under the
Indenture which would, in turn, constitute a default under the New U.S. Credit
Facility.
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Future Indebtedness of the Issuer may contain prohibitions on the occurrence
of certain events which would constitute a Change of Control or require such
Indebtedness to be repurchased upon a change of control (as defined in the
instruments governing such Indebtedness). Moreover, the exercise by the
Holders of their right to require the Issuer to repurchase the Notes could
cause a default under such indebtedness, even if the Change of Control itself
does not, due to the financial effect of such repurchase on the Issuer.
Finally, the Issuer's ability to pay cash to the Holders following the
occurrence of a Change of Control may be limited by the Issuer's then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases. The provisions
under the Indenture relative to the Issuer's obligation to make an offer to
repurchase the Notes as a result of a Change of Control may be waived or
modified with the written consent of the holders of a majority in principal
amount of the Notes.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Issuer will not Incur, directly or
indirectly, any Indebtedness unless, on the date of such Incurrence and after
giving effect to such Incurrence and the application of the net proceeds
therefrom, the Consolidated Coverage Ratio would exceed 2.00:1 if such
Incurrence shall occur prior to February 1, 2000 or would exceed 2.25:1 if
such Incurrence shall occur thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Issuer may Incur any or
all of the following Indebtedness: (i) Indebtedness of the Issuer Incurred
under the New U.S. Credit Facility in an aggregate principal amount
outstanding at any time not to exceed the greater of (A) $23.0 million and (B)
the sum of (x) 50% of the book value of the inventory of the Issuer and its
Restricted Subsidiaries and (y) 85% of the book value of the accounts
receivable of the Issuer and its Restricted Subsidiaries, provided that the
amount in clause (A) shall be reduced by the aggregate amount of all proceeds
from all Asset Dispositions that have been applied since the Issue Date to
permanently reduce the outstanding amount of such Indebtedness pursuant to "--
Certain Covenants--Limitation on Sale of Assets and Subsidiary Stock" and less
the aggregate amount of all mandatory prepayments of principal of term loans
thereunder that have been made since the Issue Date; (ii) Indebtedness of the
Issuer owing to and held by any Wholly Owned Subsidiary; provided, however,
that any subsequent issuance or transfer of any Capital Stock or any other
event which results in any such Wholly Owned Subsidiary ceasing to be a Wholly
Owned Subsidiary or any subsequent transfer of any such Indebtedness (except
to another Wholly Owned Subsidiary) will be deemed, in each case, to
constitute the Incurrence of such Indebtedness by the Issuer unless such
Indebtedness is assumed by the buyer of such Wholly Owned Subsidiary or
otherwise discharged in connection with such transaction and such Wholly Owned
Subsidiary is fully released in connection therewith; (iii) Indebtedness
represented by the Notes; (iv) Indebtedness of the Issuer (other than the
Indebtedness described in clauses (i), (ii) or (iii) above) outstanding on the
Issue Date; (v) Indebtedness (including Capitalized Lease Obligations) of the
Issuer Incurred to finance the acquisition, construction or improvement of
fixed or capital assets in an aggregate principal amount at any one time
outstanding not to exceed $10.0 million, provided that such Indebtedness is
Incurred within 180 days after the date of such acquisition, construction or
improvement and does not exceed the fair market value of such acquired,
constructed or improved assets, as determined in good faith by the Board of
Directors of the Issuer; (vi) Refinancing Indebtedness Incurred in respect of
any Indebtedness Incurred pursuant to paragraph (a) or pursuant to clause
(iii), (iv) or this clause (vi); (vii) Indebtedness (A) in respect of
performance bonds, bankers' acceptances, letters of credit and surety or
appeal bonds provided by the Issuer in the ordinary course of its business and
which do not secure Indebtedness other than the Indebtedness and the
obligations with respect to which such instruments were issued and (B) under
Currency Agreements and Interest Rate Agreements Incurred which, at the time
of Incurrence, is in the ordinary course of business; provided, however, that,
in the case of Currency Agreements which relate to Indebtedness and Interest
Rate Agreements, such Currency Agreements and Interest Rate Agreements are
directly related to Indebtedness permitted to be Incurred by the Issuer
pursuant to the Indenture; (viii) Indebtedness represented by Guarantees by
the Issuer of Indebtedness otherwise permitted to be Incurred pursuant to this
covenant or "--Certain Covenants--Limitation on Indebtedness and Preferred
Stock of Restricted Subsidiaries"; and (ix) other Indebtedness in an aggregate
principal amount outstanding at any time not to exceed $10.0 million.
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(c) Notwithstanding the foregoing, the Issuer shall not Incur any
Indebtedness pursuant to the foregoing paragraph (b) if the proceeds thereof
are used, directly or indirectly, to Refinance any Subordinated Obligations
unless such new Indebtedness shall be subordinated to the Notes to at least
the same extent as such Subordinated Obligations being Refinanced.
(d) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one
of the types of Indebtedness described above, the Issuer, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses
and (ii) an item of Indebtedness may be divided and classified in more than
one of the types of Indebtedness described above.
Limitation on Indebtedness and Preferred Stock of Restricted
Subsidiaries. The Issuer shall not permit any Restricted Subsidiary to Incur,
directly or indirectly, any Indebtedness or Preferred Stock except: (a)
Indebtedness (1) Incurred under the U.K. Credit Facility (including Guarantees
thereof by Wholly-Owned Subsidiaries of Prestolite U.K.) in an aggregate
principal amount outstanding at any time not to exceed the greater of (A)
(Pounds)9.0 million and (B) the sum (such sum, the "Borrowing Base") of (x)
50% of the book value of the inventory of Prestolite Electric Limited (or any
successor entity) and its Restricted Subsidiaries and (y) 80% of the book
value of the accounts receivable of such entities, (2) Incurred under the
Argentina Credit Facility in an aggregate principal amount outstanding at any
time not to exceed the greater of (A) $8.0 million and (B) the Borrowing Base
of Lucas Argentina or any other Non-U.S./U.K. Subsidiary having more than 66-
2/3% of its tangible assets located in Argentina or Brazil, and its Restricted
Subsidiaries and (3) Incurred under the South Africa Credit Facility in an
aggregate principal amount outstanding at any time not to exceed the greater
of (A) $3.0 million and (B) the Borrowing Base of Lucas Holdings South Africa
(Proprietary) Ltd. (or any successor entity) and its Restricted Subsidiaries,
provided that each of the amounts in clauses (1)(A), (2)(A) and (3)(A) shall
be reduced by the aggregate amount of all proceeds from all Asset Dispositions
that have been applied since the Issue Date to permanently reduce the
outstanding amount of such Indebtedness pursuant to the covenant "Limitation
on Sale of Assets and Subsidiary Stock" and less the aggregate amount of all
mandatory prepayments of principal of term loans thereunder that have been
made since the Issue Date; (b) Indebtedness or Preferred Stock of a Restricted
Subsidiary issued to and held by the Issuer or a Wholly Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of any Capital
Stock which results in any such Wholly Owned Subsidiary ceasing to be a Wholly
Owned Subsidiary or any subsequent transfer of such Indebtedness or Preferred
Stock (other than to the Issuer or a Wholly Owned Subsidiary) shall be deemed,
in each case, to constitute the issuance of such Indebtedness or Preferred
Stock by the issuer thereof unless such Indebtedness is assumed by the buyer
of such Wholly Owned Subsidiary or otherwise discharged in connection with
such transaction and such Wholly Owned Subsidiary is fully released in
connection therewith; (c) Indebtedness or Preferred Stock of a Restricted
Subsidiary Incurred and outstanding on or prior to the date on which such
Restricted Subsidiary was acquired by the Issuer (other than Indebtedness or
Preferred Stock Incurred in connection with, or to provide all or any portion
of the funds or credit support utilized to consummate, the transaction or
series of related transactions pursuant to which such Restricted Subsidiary
became a Restricted Subsidiary or was acquired by the Issuer); provided,
however, that on the date of such acquisition and after giving effect thereto,
the Issuer would have been able to Incur at least $1.00 of additional
Indebtedness pursuant to clause (a) of the covenant described under "--Certain
Covenants--Limitation on Indebtedness"; (d) Indebtedness or Preferred Stock
outstanding on the Issue Date, including (i) any such Indebtedness acquired or
assumed in connection with the Lucas Acquisition and (ii) promissory notes
issued by Lucas Argentina in connection with any contingent obligations of
Lucas Argentina pursuant to the terms of the Lucas Acquisition (in each case
other than Indebtedness described in clauses (a) and (b) of this paragraph);
(e) Refinancing Indebtedness Incurred in respect of Indebtedness or Preferred
Stock referred to in clauses (c) or (d)(i) of this paragraph or this clause
(e); provided, however, that to the extent such Refinancing Indebtedness
directly or indirectly Refinances Indebtedness or Preferred Stock of a
Subsidiary described in clause (c), such Refinancing Indebtedness shall be
Incurred only by such Subsidiary; and (f) Indebtedness (A) in respect of
performance bonds, bankers' acceptances, letters of credit and surety or
appeal bonds provided by a Restricted Subsidiary in the ordinary course of its
business and which do not secure Indebtedness other than the Indebtedness and
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obligations with respect to which they were issued and (B) under Currency
Agreements which relate to other Indebtedness and Interest Rate Agreements
Incurred which, at the time of Incurrence, is in the ordinary course of
business; provided, however, that, in the case of Currency Agreements and
Interest Rate Agreements, such Currency Agreements and Interest Rate
Agreements are directly related to Indebtedness permitted to be Incurred by a
Restricted Subsidiary pursuant to the Indenture.
The Issuer will not permit any Unrestricted Subsidiary to Incur any
Indebtedness other than Non-Recourse Debt, provided, however, if any such
Indebtedness ceases to be Non-Recourse Debt, such event shall be deemed to
constitute an Incurrence of Indebtedness by the Issuer or a Restricted
Subsidiary.
Limitation on Restricted Payments. (a) The Issuer will not, and will not
permit any Restricted Subsidiary, directly or indirectly, to make any
Restricted Payment if at the time of such Restricted Payment: (1) a Default or
Event of Default will have occurred and be continuing (or would result
therefrom); (2) the Issuer could not Incur at least $1.00 of additional
Indebtedness under paragraph (a) of the covenant described under "--Certain
Covenants--Limitation on Indebtedness;" or (3) the aggregate amount of such
Restricted Payment and all other Restricted Payments (the amount so expended,
if other than in cash, to be determined in good faith by the Board of
Directors of the Issuer, whose determination will be evidenced by a resolution
of such Board of Directors certified in an Officers' Certificate to the
Trustee) declared or made subsequent to the Issue Date would exceed the sum
of: (A) 50% of the Consolidated Net Income accrued during the period (treated
as one accounting period) from the beginning of the fiscal quarter immediately
following the fiscal quarter during which the Issue Date occurs to the end of
the most recent fiscal quarter ending prior to the date of such Restricted
Payment for which financial statements are available (or, in case such
Consolidated Net Income will be a deficit, minus 100% of such deficit); (B)
the aggregate Net Cash Proceeds received by the Issuer from the issue or sale
of Capital Stock (other than Disqualified Stock) or other cash contributions
from PEI to its capital subsequent to the Issue Date (other than an issuance
or sale to a Subsidiary of the Issuer and other than an issuance or sale to a
trust established by the Issuer, or any of its Restricted Subsidiaries); (C)
the amount by which Indebtedness of the Issuer is reduced on the Issuer's
balance sheet upon the conversion or exchange (other than by a Restricted
Subsidiary) subsequent to the Issue Date of any Indebtedness of the Issuer
convertible or exchangeable for Capital Stock (other than Disqualified Stock)
of the Issuer (less the amount of any cash, or the fair value of any other
property, distributed by the Issuer upon such conversion or exchange); and (D)
an amount equal to the sum of (i) the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, repayments of loans or
advances or other transfers of assets to the Issuer or any Restricted
Subsidiary from Unrestricted Subsidiaries and (ii) the portion (proportionate
to the Issuer's equity interest in such Subsidiary) of the fair market value
of the net assets of an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided, that the foregoing
sum shall not exceed, in the case of any Unrestricted Subsidiary, the amount
of Investments previously made by the Issuer or any Restricted Subsidiary in
such Unrestricted Subsidiary, which amount was included in the calculation of
the amount of Restricted Payments.
(b) The provisions of the foregoing paragraph (a) will not prohibit: (i) any
purchase, redemption, defeasance or other acquisition of Capital Stock of the
Issuer or Subordinated Obligations made by exchange for, or out of the net
proceeds of the substantially concurrent sale of, Capital Stock of the Issuer
(other than Disqualified Stock and other than Capital Stock issued or sold to
a Subsidiary of the Issuer or to a trust established by the Issuer or any of
its Subsidiaries); provided, however, that (A) such purchase, redemption,
defeasance or other acquisition will be excluded in the calculation of the
amount of Restricted Payments and (B) the Net Cash Proceeds from such sale
will be excluded from clause (3)(B) of paragraph (a) above; (ii) any purchase,
redemption, defeasance or other acquisition of Subordinated Obligations made
by exchange for, or out of the net proceeds of the substantially concurrent
sale of, Subordinated Obligations of the Issuer; provided, however, that (A)
the principal amount of such new Indebtedness does not exceed the principal
amount of the Subordinated Obligations being so redeemed, repurchased,
acquired or retired for value (plus the amount of any premium required to be
paid under the terms of the instrument governing the Subordinated Obligations
being so redeemed, repurchased, acquired or retired), (B) such new
Indebtedness is subordinated to the Notes at least to the same extent as such
Subordinated Obligations so purchased, exchanged, redeemed, repurchased,
acquired or
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retired for value, (C) such new Indebtedness has a final scheduled maturity
date later than the earlier of the final scheduled maturity date of the
Subordinated Obligations being so redeemed and the final scheduled maturity
date of the Notes and (D) such new Indebtedness has an Average Life equal to
or greater than the Average Life of the Notes; provided further, however, that
such purchase, redemption, defeasance or other acquisition will be excluded in
the calculation of the amount of Restricted Payments; (iii) the purchase by
the Issuer or a Wholly Owned Subsidiary of shares of Lucas Argentina pursuant
to the Lucas Argentina Option; provided that the amount of any such purchase
shall be excluded from the calculation of the amount of Restricted Payments;
(iv) the purchase by the Issuer or a Wholly Owned Subsidiary of any of the
approximately 1% of the outstanding shares of Lucas Argentina not owned by the
Issuer, directly or indirectly, on the Issue Date and not subject to the Lucas
Argentina Option for an aggregate purchase price not to exceed $300,000;
provided that the amount of any such purchase shall be excluded from the
calculation of the amount of Restricted Payments; (v) any dividend,
distribution, purchase or payment made to PEI on or after the Issue Date in
connection with the Recapitalization in an aggregate amount not to exceed
$30.1 million; provided that the amount of any such dividend shall be excluded
from the calculation of the amount of Restricted Payments; (vi) any dividend
paid to PEI the proceeds of which are used for repurchases by PEI of Common
Stock of PEI from employees, officers and directors of PEI, the Issuer or any
of their respective Subsidiaries or their authorized representatives upon the
death, disability or termination of employment of such employees, in an
aggregate amount not to exceed the sum of (A) $1.0 million in any calendar
year plus (B) to the extent previously received by the Issuer, the aggregate
net cash proceeds from any reissuance during such calendar year of Common
Stock of PEI to employees, officers or directors of PEI, the Issuer and their
respective Subsidiaries plus (C) to the extent previously received by the
Issuer, the aggregate net cash proceeds from any payments on life insurance
policies with respect to any employees, officers or directors of PEI, the
Issuer and their respective Subsidiaries which proceeds are used to purchase
the Common Stock of PEI held by any such employees, officers or directors;
provided that the amount of any such dividend shall be included in the
calculation of the amount of Restricted Payments; (vii) any dividend paid to
PEI in respect of overhead expenses, tax liabilities and legal, accounting and
other professional fees and expenses that are directly attributable to the
operations of the Company and its Restricted Subsidiaries, provided that the
amount of any such dividends will be excluded from the calculation of the
amount of Restricted Payments; and (viii) dividends paid within 60 days after
the date of declaration thereof if at such date of declaration such dividend
would have complied with this covenant; provided, however, that the amount of
such dividend will be included in the calculation of the amount of Restricted
Payments; and provided further that, at the time of, and after giving effect
to, any Restricted Payment permitted by clauses (i), (ii), (iv) and (vi) no
Default or Event of Default shall have occurred and be continuing.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Issuer will not, and will not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends or make any other distributions on
its Capital Stock to the Issuer or a Restricted Subsidiary or pay any
Indebtedness or other obligation owed to the Issuer, (ii) make any loans or
advances to the Issuer or (iii) transfer any of its property or assets to the
Issuer or any Restricted Subsidiary, except: (1) any encumbrance or
restriction pursuant to an agreement in effect at or entered into on the Issue
Date; (2) any encumbrance or restriction with respect to the Argentina Credit
Facility, the South Africa Credit Facility or the U.K. Credit Facility;
provided, however, that, except during a period when a default or an event of
default under such facilities shall have occurred and be continuing, no such
encumbrance or restriction shall limit the ability of the applicable borrower
under any such facility to dividend, loan, advance or otherwise transfer funds
to the Issuer required to pay interest, including additional interest,
principal and premium, if any, on the Notes, (3) any encumbrance or
restriction with respect to a Restricted Subsidiary pursuant to an agreement
relating to any Indebtedness Incurred by such Restricted Subsidiary on or
prior to the date on which such Restricted Subsidiary was acquired by the
Issuer or a Restricted Subsidiary (other than Indebtedness Incurred as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Subsidiary
or was acquired by the Issuer or a Restricted Subsidiary) and outstanding on
such date; (4) any encumbrance or restriction pursuant to an agreement
effecting a Refinancing of Indebtedness Incurred pursuant to an agreement
referred to in clause (1), (2) or (3) of this
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covenant or contained in any amendment to an agreement referred to in clause
(1), (2) or (3) of this covenant; provided, however, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any such
refinancing agreement or amendment are no less favorable to the Noteholders
than the encumbrances and restrictions with respect to such Restricted
Subsidiary contained in such predecessor agreements, as determined in good
faith by the Issuer and evidenced by an Officers' Certificate; (5) in the case
of clause (iii), any encumbrance or restriction that restricts in a customary
manner the subletting, assignment or transfer of any property or asset that is
subject to a lease, license or similar contract; (6) in the case of clause
(iii), contained in security agreements or mortgages securing Indebtedness of
a Restricted Subsidiary to the extent such encumbrance or restrictions
restrict the transfer of the property subject to such security agreements or
mortgages; (7) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; and (8) any such encumbrance
or restriction imposed by applicable law.
Limitation on Sales of Assets and Subsidiary Stock. (a) The Issuer will not,
and will not permit any Restricted Subsidiary to, directly or indirectly,
consummate any Asset Disposition unless (i) the Issuer or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at
least equal to the fair market value of the shares and assets subject to such
Asset Disposition (including as to the value of all non cash consideration),
as determined in good faith by the Board of Directors of the Issuer, (ii) at
least 75% of the consideration thereof received by the Issuer or such
Restricted Subsidiary is in the form of cash or cash equivalents and (iii) an
amount equal to 100% of the Net Available Cash from such Asset Disposition is
applied by the Issuer or such Restricted Subsidiary, as the case may be, (A)
first, to the extent the Issuer or any Restricted Subsidiary, as the case may
be, elects (or is required by the terms of any Senior Indebtedness), to
prepay, repay, redeem or purchase Senior Indebtedness of the Issuer or
Indebtedness (other than Disqualified Stock) of a Restricted Subsidiary (in
each case other than Indebtedness owed to the Issuer or an Affiliate of the
Issuer) within 180 days from the later of the date of such Asset Disposition
or the receipt of such Net Available Cash; provided, however, that any
temporary prepayment or temporary repayment of amounts outstanding under the
New U.S. Credit Facility pending application pursuant to clause (B) shall not
constitute a prepayment or repayment of Senior Indebtedness pursuant to this
clause (A); (B) second, to the extent of the balance of Net Available Cash
after application in accordance with clause (A), to the extent the Issuer or
such Restricted Subsidiary, as the case may be, elects, to the investment by
the Issuer or any Wholly Owned Subsidiary in Additional Assets within 360 days
from the later of the date of such Asset Disposition or the receipt of such
Net Available Cash; (C) third, to the extent of the balance of such Net
Available Cash after application in accordance with clauses (A) and (B), to
make an Offer (as defined below) to Holders of the Notes to purchase Notes
pursuant to and subject to the conditions set forth in paragraph (b) of this
covenant; and (D) fourth, to the extent of the balance of such Net Available
Cash after application in accordance with clauses (A), (B) and (C), to (x) the
acquisition by the Issuer or any Wholly Owned Subsidiary of Additional Assets
or (y) the prepayment, repayment or purchase of Indebtedness of the Issuer
(other than Indebtedness owed to an Affiliate of the Issuer and other than
Disqualified Stock of the Issuer) or Indebtedness of any Restricted Subsidiary
(other than Indebtedness owed to the Issuer or an Affiliate of the Issuer), in
each case within 360 days from the later of the receipt of such Net Available
Cash and the date the Offer is consummated; provided, however that in
connection with any prepayment, repayment or purchase of Indebtedness pursuant
to clause (A) or (C) above, the Issuer or such Restricted Subsidiary will
permanently retire such Indebtedness and will cause any related loan
commitment or availability (if any) to be permanently reduced in an amount
equal to the principal amount so prepaid, repaid or purchased.
Notwithstanding the foregoing provisions, the Issuer and its Restricted
Subsidiaries shall not be required to apply any Net Available Cash in
accordance herewith except to the extent that the aggregate Net Available Cash
from all Asset Dispositions which are not applied in accordance with this
covenant exceeds $5.0 million. Pending application of Net Available Cash
pursuant to this covenant, such Net Available Cash shall be invested in
Permitted Investments or to reduce outstanding loans under any working capital
facility.
For the purposes of this covenant but not for purposes of the definition of
"Net Available Cash", the following are deemed to be cash: (x) the assumption
by the transferee of Indebtedness of the Issuer (other than Disqualified Stock
of the Issuer and other than Indebtedness that is subordinated to the Notes)
or Indebtedness
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of any Restricted Subsidiary and the release of the Issuer or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such
Asset Disposition and (y) securities received by the Issuer or any Restricted
Subsidiary from the transferee that are promptly converted by the Issuer or
such Restricted Subsidiary into cash.
Notwithstanding the requirement in clause (ii) above that at least 75% of
the consideration received in connection with an Asset Disposition consist of
cash or cash equivalents, the Issuer or its Restricted Subsidiaries may sell
or cause to be sold (A) assets of Lucas Argentina or its Subsidiaries or (B)
shares of Capital Stock of Lucas Argentina or its Subsidiaries representing
less than 50% of the total voting power of the Capital Stock thereof in
exchange for Additional Assets, equity interests in joint ventures or other
Persons engaged in a Related Business; provided that (1) in the event such
exchange transaction or series of related exchange transactions (each an
"Exchange Transaction") involves an aggregate value in excess of $1.0 million,
the terms of such Exchange Transaction shall have been approved by a majority
of the members of the Board of Directors of the Issuer having no personal
stake in such Exchange Transaction, (2) in the event such Exchange Transaction
involves an aggregate value in excess of $5.0 million, the Issuer shall have
received a written opinion from a nationally recognized independent investment
banking firm that the Issuer has received consideration equal to the fair
market value of the assets or Capital Stock being disposed of and (3) the fair
market value (as determined in good faith by the Board of Directors of the
Issuer as of the date of each such Exchange Transaction) of all such Exchange
Transactions made since the Issue Date is no more than $10.0 million in the
aggregate.
(b) In the event of an Asset Disposition that requires the purchase of Notes
pursuant to clause (a)(iii)(C) of this covenant, the Issuer will be required
to purchase Notes tendered pursuant to an offer by the Issuer for the Notes
(the "Offer") at a purchase price of 100% of their principal amount (without
premium) plus accrued interest to the date of purchase in accordance with the
procedures (including prorating in the event of oversubscription) set forth in
the Indenture. If the aggregate purchase price of Notes tendered pursuant to
the Offer is less than the Net Available Cash allotted to the purchase of the
Notes, the Issuer will apply the remaining Net Available Cash in accordance
with clause (a)(iii)(D) above. The Issuer shall not be required to make an
Offer for Notes pursuant to this covenant if the Net Available Cash available
therefor (after application of the proceeds as provided in clauses (A) and
(B)) are less than $10.0 million for all Asset Dispositions (which lesser
amounts shall be carried forward for purposes of determining whether an Offer
is required with respect to the Net Available Cash from any subsequent Asset
Disposition).
(c) The Issuer will comply, to the extent applicable, with the requirements
of Section 14(e) of the Exchange Act and any other securities laws or
regulations in connection with the repurchase of Notes pursuant to this
covenant. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this covenant, the Issuer will comply
with the applicable securities laws and regulations and will not be deemed to
have breached its obligations under this covenant by virtue thereof.
Limitation on Transactions with Affiliates. (a) The Issuer will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, enter
into or conduct any transaction or series of transactions (including the
purchase, sale, lease or exchange of any property, employee compensation
arrangements or the rendering of any service) with any Affiliate of the Issuer
(an "Affiliate Transaction") unless (i) the terms of such transaction are no
less favorable to the Issuer or such Restricted Subsidiary, as the case may
be, than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate; (ii) in the
event such Affiliate Transaction involves an aggregate amount in excess of
$1.0 million, the terms of such transaction are set forth in writing and shall
have been approved by a majority of the members of the Board of Directors
having no personal stake in such Affiliate Transaction (and such majority
determines that such Affiliate Transaction satisfies the criteria in clause
(i) above) and (iii) in the event such Affiliate Transaction involves an
aggregate amount in excess of $5.0 million, the Issuer has received a written
opinion from a nationally recognized independent investment banking firm that
such Affiliate Transaction is fair to the Issuer and its Restricted
Subsidiaries from a financial point of view.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Restricted Payment permitted to be made pursuant to "--Certain Covenants--
Limitation on Restricted Payments," (ii) any issuance of
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securities, or other payments, awards or grants in cash, securities or
otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of Directors, (iii)
the grant of stock options or similar rights to employees and directors of the
Issuer pursuant to plans approved by the Board of Directors, (iv) loans or
advances to employees in the ordinary course of business in accordance with
the past practices of the Issuer or its Restricted Subsidiaries, but in any
event not to exceed $1.5 million in the aggregate outstanding at any one time,
(v) the payment of reasonable fees and indemnities to directors of the Issuer
and its Restricted Subsidiaries who are not employees of the Issuer or its
Restricted Subsidiaries, (vi) any transaction between the Issuer and a Wholly
Owned Subsidiary or between Wholly Owned Subsidiaries, (vii) the issuance or
sale of any Capital Stock (other than Disqualified Stock) of the Issuer and
(viii) the payment to Genstar Investment Corporation or an affiliate of an
annual management fee not to exceed an amount per annum equal to the greater
of $900,000 and 0.3% of the Issuer's consolidated net sales, plus, in each
case, the reimbursement of reasonable out-of-pocket expenses.
Limitation on Liens. The Issuer will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or permit to exist any Lien on
any of its property or assets (including Capital Stock), whether owned on the
Issue Date or thereafter acquired, securing any obligation, other than
Permitted Liens, unless contemporaneously therewith effective provision is
made to secure the Notes equally and ratably with (or on a senior basis to, in
the case of Subordinated Obligations) such obligation for so long as such
obligation is so secured.
Limitation on Sale or Issuance of Capital Stock of Restricted
Subsidiaries. The Issuer (i) will not, and will not permit any Restricted
Subsidiary of the Issuer to, transfer, convey, sell, lease or otherwise
dispose of any Capital Stock of any Restricted Subsidiary to any Person (other
than to the Issuer or a Wholly Owned Subsidiary), unless (a) such transfer,
conveyance, sale, lease or other disposition is of all the Capital Stock of
such Restricted Subsidiary (or, (x) in the case of a non-Wholly Owned
Subsidiary, all of the Capital Stock of such Subsidiary owned by the Issuer
and (y) in the case of Lucas Argentina and its Subsidiaries, shares of Capital
Stock in Exchange Transactions in accordance with the covenant "--Limitation
on Sales of Assets and Subsidiary Stock" so long as after any such sale Lucas
Argentina continues to constitute a Restricted Subsidiary) and (b) the net
cash proceeds from such transfer, conveyance, sale, lease or other disposition
are applied in accordance with the covenant described above under "Limitation
on Sales of Assets and Subsidiary Stock" and (ii) will not permit any
Restricted Subsidiary to issue any of its Capital Stock (other than, if
necessary, shares of its Capital Stock constituting directors' qualifying
shares or similar shares and, in the case of a Non-U.S./U.K. Subsidiary,
shares required to be owned by citizens of such Subsidiary's jurisdiction of
organization) to any Person other than to the Issuer or a Wholly Owned
Subsidiary or to officers or employees of such Restricted Subsidiary in
connection with stock options or stock ownership or other benefit plans
approved by the Board of Directors of the Issuer.
Limitation on Sale/Leaseback Transactions. The Issuer will not, and will not
permit any Restricted Subsidiary to, enter into any Sale/Leaseback Transaction
with respect to any property unless (i) the Issuer or such Restricted
Subsidiary would be entitled to (A) Incur Indebtedness in an amount equal to
the Attributable Indebtedness with respect to such Sale/Leaseback Transaction
pursuant to the covenant described under "--Certain Covenants--Limitation on
Indebtedness" and (B) create a Lien on such property securing such
Attributable Indebtedness without equally and ratably securing the Notes
pursuant to the covenant described under "--Certain Covenants--Limitation on
Liens," (ii) the net cash proceeds received by the Issuer or any Restricted
Subsidiary in connection with such Sale/Leaseback Transaction are at least
equal to the fair value (as determined in good faith by the Board of Directors
of the Issuer and certified in an Officers' Certificate to the Trustee) of
such property and (iii) the transfer of such property is permitted by, and the
Issuer or such Restricted Subsidiary applies the proceeds of such transaction
in compliance with, the covenant described under "--Certain Covenants
Limitation on Sales of Assets and Subsidiary Stock."
SEC Reports. Notwithstanding that PEI and the Issuer may not be subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act, PEI and
the Issuer will file with the SEC (unless the SEC will not accept such a
filing) and provide within 15 days to the Trustee and Noteholders such annual
reports and such
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information, documents and other reports as are specified in Sections 13 and
15(d) of the Exchange Act and applicable to a U.S. corporation subject to such
Sections. In lieu of filing and providing separate reports as set forth above,
PEI and the Issuer may, so long as PEI owns 100% of the Capital Stock of the
Issuer and if permitted by the SEC, include in the reports filed and provided
by PEI as set forth above such financial information and narrative disclosure
regarding the Issuer and the PEI Guarantee as required by the SEC in lieu of
filing such separate reports. PEI and the Issuer also will comply with the
other provisions of TIA 314(a).
Restrictive Covenant of PEI. PEI shall not (i) engage in any activities or
hold any assets other than the Capital Stock of the Issuer and of the Existing
Non-Issuer PEI Subsidiaries or (ii) Incur any liabilities other than (A)
liabilities under the PEI Guarantee, (B) liabilities under Guarantees by PEI
of amounts under the New U.S. Credit Facility, (C) liabilities under
Guarantees by PEI of the performance of the Issuer's obligations in connection
with the Lucas Acquisition and (D) liabilities for overhead expenses, taxes
and legal, accounting and other professional fees and expenses. PEI shall not
make any Investment other than in (i) the Voting Stock of the Issuer and of
the Existing Non-Issuer PEI Subsidiaries, (ii) Guarantees permitted by this
covenant, (iii) Temporary Cash Investments and (iv) connection with the
Recapitalization; provided, however, that if PEI merges into the Issuer, this
covenant shall no longer be applicable.
Restrictive Covenant of Existing Non-Issuer PEI Subsidiaries. PEI shall
cause each Existing Non-Issuer PEI Subsidiary not to (i) engage in any
activities other than activities conducted by such Existing Non-Issuer PEI
Subsidiary as of the Issue Date or (ii) Incur any liabilities; provided,
however, that if any Existing Non-Issuer PEI Subsidiary shall merge into the
Issuer or any Wholly Owned Subsidiary, this covenant shall no longer be
applicable with respect to such Existing Non-Issuer PEI Subsidiary. As of the
Issue Date, no Existing Non-Issuer PEI Subsidiary engages in any activities
other than the holding of trademarks, trade names and other intellectual
property rights, and the shares of common stock of PEI purchased in the
Recapitalization, with the exception of Prestolite Electric of Michigan
Incorporated, which employs the Company's field sales force and Michigan-based
employees. All of the Capital Stock of each Existing Non-Issuer PEI Subsidiary
is owned by PEI.
MERGER AND CONSOLIDATION
The Issuer will not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, all or
substantially all its assets to, any Person, unless: (i) the resulting,
surviving or transferee Person (the "Successor Issuer") will be a Person
organized and existing under the laws of the United States of America, any
State thereof or the District of Columbia and the Successor Issuer (if not the
Issuer) will expressly assume, by supplemental indenture, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Issuer under the Notes and the Indenture; (ii) immediately
after giving effect to such transaction (and treating any Indebtedness which
becomes an obligation of the Successor Issuer or any Restricted Subsidiary as
a result of such transaction as having been Incurred by the Successor Issuer
or such Restricted Subsidiary at the time of such transaction), no Default or
Event of Default will have occurred and be continuing; (iii) immediately after
giving effect to such transaction, the Successor Issuer would be able to Incur
an additional $1.00 of Indebtedness under paragraph (a) of the covenant
described under "--Certain Covenants--Limitation on Indebtedness;" (iv)
immediately after giving effect to such transaction, the Successor Issuer will
have a Consolidated Net Worth in an amount which is not less than the
Consolidated Net Worth of the Issuer immediately prior to such transaction;
and (v) the Issuer will have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such supplemental indenture (if any) comply with the Indenture,
as set forth in the Indenture.
The Successor Issuer will succeed to, and be substituted for, and may
exercise every right and power of, the Issuer under the Indenture, but the
predecessor Issuer in the case of a conveyance, transfer or lease of all or
substantially all its assets will not be released from the obligation to pay
the principal of and interest on the Notes.
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DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in any
payment of interest on any Note when due, continued for 30 days, (ii) a
default in the payment of principal of any Note when due at its Stated
Maturity, upon optional redemption, upon required repurchase, upon declaration
or otherwise, (iii) the failure by the Issuer to comply with its obligations
under "--Merger and Consolidation," (iv) the failure by PEI or the Issuer to
comply for 30 days after notice with any of its obligations under the
covenants described under "--Change of Control" or "--Certain Covenants" (in
each case, other than a failure to purchase Notes), (v) the failure by PEI or
the Issuer to comply for 60 days after notice with its other agreements
contained in the Indenture, (vi) the failure by PEI or the Issuer or any
Significant Subsidiary of the Issuer to pay any Indebtedness within any
applicable grace period after final maturity or the acceleration of any such
Indebtedness by the holders thereof because of a default if the total amount
of such Indebtedness unpaid or accelerated exceeds $10.0 million or its
foreign currency equivalent (the "cross acceleration provision"), (vii)
certain events of bankruptcy, insolvency or reorganization of PEI, the Issuer
or any Significant Subsidiary of the Issuer (the "bankruptcy provisions") or
(viii) any judgment or decree for the payment of money in excess of $10.0
million is rendered against PEI, the Issuer or any Significant Subsidiary of
the Issuer and either (A) an enforcement proceeding has been commenced by any
creditor upon such judgment or decree and is not discharged, waived or stayed
within 10 days after notice and is not covered by insurance or (B) such
judgment or decree remains outstanding for a period of 60 days following such
judgment and is not discharged, waived or stayed within 10 days after notice
(the "judgment default provision") and is not covered by insurance.
The foregoing will constitute Events of Default whatever the reason for any
such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body.
However, a default under clauses (iv), (v), (vi) and (viii) will not
constitute an Event of Default until the Trustee or the Holders of 25% in
aggregate principal amount of the outstanding Notes notify the Issuer as
provided in the Indenture of the default and the Issuer does not cure such
default within the time specified in clauses (iv) and (v) hereof after receipt
of such notice.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in aggregate principal amount of the outstanding Notes by
notice to the Issuer may declare the principal of and accrued but unpaid
interest on all the Notes to be due and payable. Upon such a declaration, such
principal and interest will be due and payable immediately. If an Event of
Default relating to certain events of bankruptcy, insolvency or reorganization
of the Issuer occurs and is continuing, the principal of and accrued interest
on all the Notes will ipso facto become immediately due and payable without
any declaration or other act on the part of the Trustee or any Holders. Under
certain circumstances, the Holders of a majority in aggregate principal amount
of the outstanding Notes may rescind any such acceleration with respect to the
Notes and its consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such
Holders shall have offered to the Trustee reasonable indemnity or security
against any loss, liability or expense. Except to enforce the right to receive
payment of principal, premium (if any) or interest when due, no Holder may
pursue any remedy with respect to the Indenture or the Notes unless (i) such
Holder shall have previously given the Trustee notice that an Event of Default
is continuing, (ii) Holders of at least 25% in aggregate principal amount of
the outstanding Notes shall have requested the Trustee to pursue the remedy,
(iii) such Holders shall have offered the Trustee reasonable security or
indemnity against any loss, liability or expense, (iv) the Trustee shall not
have complied with such request within 60 days after the receipt of the
request and the offer of security or indemnity and (v) the Holders of a
majority in principal amount of the outstanding Notes shall not have given the
Trustee a direction inconsistent with such request within such 60-day period.
Subject to certain restrictions, the Holders of a majority in principal amount
of the outstanding Notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
of exercising any trust or power
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conferred on the Trustee. The Trustee, however, may refuse to follow any
direction that conflicts with law or the Indenture or that the Trustee
determines is unduly prejudicial to the rights of any other Holder or that
would involve the Trustee in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the
Default within the earlier of 90 days after it occurs or 30 days after it is
known to a Trust Officer or written notice of it is received by the Trustee.
Except in the case of a Default in the payment of principal of, premium (if
any) or interest on any Note, the Trustee may withhold notice if and so long
as a committee of its Trust Officers in good faith determines that withholding
notice is not opposed to the interests of the Noteholders. In addition, the
Issuer is required to deliver to the Trustee, within 120 days after the end of
each fiscal year, a certificate indicating whether the signers thereof know of
any Default that occurred during the previous year. The Issuer also is
required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Issuer is taking or proposes to take in
respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange for
the Notes) and any past default or compliance with any provisions may be
waived with the consent of the Holders of a majority in principal amount of
the Notes then outstanding. However, without the consent of each Holder of an
outstanding Note affected, no amendment may, among other things, (i) reduce
the amount of Notes whose Holders must consent to an amendment, (ii) reduce
the rate of or extend the time for payment of interest on any Note, (iii)
reduce the principal of or extend the Stated Maturity of any Note, (iv) reduce
the premium payable upon the redemption of any Note or change the time at
which any Note may be redeemed as described under "--Optional Redemption," (v)
make any Note payable in money other than that stated in the Note, (vi) impair
the right of any Holder to receive payment of principal of and interest on
such Holder's Notes on or after the due dates therefor or to institute suit
for the enforcement of any payment on or with respect to such Holder's Notes
or (vii) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions.
Without the consent of any Holder, the Issuer and the Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations the Issuer
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are as described in Section 163(f)(2)(B) of
the Code), to add Guarantees with respect to the Notes, to secure the Notes,
to add to the covenants of the Issuer for the benefit of the Noteholders or to
surrender any right or power conferred upon the Issuer, to make any change
that does not adversely affect the rights of any Holder and to comply with any
requirement of the SEC in connection with the qualification of the Indenture
under the TIA.
The consent of the Noteholders is not necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Issuer is
required to mail to Noteholders a notice briefly describing such amendment.
However, the failure to give such notice to all Noteholders, or any defect
therein, will not impair or affect the validity of the amendment.
TRANSFER AND EXCHANGE
A Noteholder may transfer or exchange Notes in accordance with the
Indenture. Upon any transfer or exchange, the registrar and the Trustee may
require a Noteholder, among other things, to furnish appropriate endorsements
and transfer documents and the Issuer may require a Noteholder to pay any
taxes required by law
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or permitted by the Indenture, including any transfer tax or other similar
governmental charge payable in connection therewith. The Issuer is not
required to transfer or exchange any Note selected for redemption or to
transfer or exchange any Note for a period of 15 days prior to a selection of
Notes to be redeemed. The Notes will be issued in registered form and the
registered holder of a Note will be treated as the owner of such Note for all
purposes.
DEFEASANCE
The Issuer at any time may terminate all its obligations under the Notes and
the Indenture ("legal defeasance"), except for certain obligations, including
those respecting the defeasance trust and obligations to register the transfer
or exchange of the Outstanding Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Issuer at any time may terminate its obligations under the
covenants described under "Certain Covenants (other than the covenant
described under "--Merger and Consolidation")," the operation of the cross
acceleration provision, the bankruptcy provisions with respect to Significant
Subsidiaries and the judgment default provision described under "Defaults" and
the limitations contained in clauses (iii) and (iv) under "Merger and
Consolidation" ("covenant defeasance").
The Issuer may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Issuer exercises its
legal defeasance option, payment of the Notes may not be accelerated because
of an Event of Default with respect thereto. If the Issuer exercises its
covenant defeasance option, payment of the Notes may not be accelerated
because of an Event of Default specified in clause (iv), (v), (vi), (vii)
(with respect only to Significant Subsidiaries) or (viii) under "--Defaults"
above or because of the failure of the Issuer to comply with clause (iii) or
(iv) under "--Merger and Consolidation."
In order to exercise either defeasance option, the Issuer must irrevocably
deposit or cause to be deposited in trust (the "defeasance trust") with the
Trustee money or U.S. Government Obligations which through the scheduled
payment of principal and interest in respect thereof in accordance with their
terms will provide cash at such times and in such amounts as will be
sufficient to pay principal and interest when due on all the Notes (except
lost, stolen or destroyed Notes which have been replaced or repaid) to
maturity or redemption, as the case may be, and must comply with certain other
conditions, including delivery to the Trustee of an Opinion of Counsel to the
effect that holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and defeasance and
will be subject to federal income tax on the same amounts and in the same
manner and at the same times as would have been the case if such deposit and
defeasance had not occurred (and, in the case of legal defeasance only, such
Opinion of Counsel must be based on a ruling of the Internal Revenue Service
or other change in applicable federal income tax law).
CONCERNING THE TRUSTEE
U.S. Bank Trust National Association (formerly known as First Trust National
Association) is the Trustee under the Indenture and has been appointed by the
Issuer as Registrar and Paying Agent with regard to the Outstanding Notes and
the Exchange Notes.
The Holders of a majority in principal amount of the issued and outstanding
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that if an Event of Default occurs
(and is not cured), the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request of
any Holder of Notes, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense and then only to the extent required by the terms of the Indenture.
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GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock
of a Person that becomes a Wholly Owned Restricted Subsidiary as a result of
the acquisition of such Capital Stock by the Issuer or another Wholly Owned
Restricted Subsidiary; (iii) shares of Capital Stock of a Person that becomes
a Non-U.S./U.K. Subsidiary as a result of the acquisition of such Capital
Stock by the Issuer or a Wholly Owned Restricted Subsidiary; or (iv) Capital
Stock constituting a minority interest in any Person that at such time is a
Restricted Subsidiary; provided, however, that, in the case of clauses (ii),
(iii) and (iv), such Restricted Subsidiary is primarily engaged in a Related
Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the covenants in the Indenture, "Affiliate" shall
also mean any beneficial owner of Capital Stock representing 10% or more of
the total voting power of the Voting Stock (on a fully diluted basis) of the
Issuer or of rights or warrants to purchase such Voting Stock (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Argentina Credit Facility" means one or more credit facilities to be
entered into on or after the Issue Date among one or more of Lucas Argentina
or any other Non-U.S./U.K. Subsidiary having more than 66-2/3% of its tangible
assets located in Argentina or Brazil and the lenders from time to time party
thereto, including any collateral documents, instruments and agreements
executed in connection therewith, and the term Argentina Credit Facility shall
also include any amendments, supplements, modifications, extensions, renewals,
restatements or refundings thereof and any credit facilities that replace,
refund or refinance any part of the loans, other credit facilities or
commitments thereunder, including any such replacement, refunding or
refinancing facility that increases the amount borrowable thereunder or alters
the maturity thereof.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Issuer or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of
this definition as a "disposition"), of (i) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares or similar
shares or shares required by applicable law to be held by a Person other than
the Issuer or a Restricted Subsidiary or issuances of shares permitted under
"--Certain Covenants--Limitation on Sale or Issuance of Capital Stock of
Restricted Subsidiaries."), (ii) all or substantially all the assets of any
division or line of business of the Issuer or any Restricted Subsidiary or
(iii) any other assets of the Issuer or any Restricted Subsidiary outside of
the ordinary course of business of the Issuer or such Restricted Subsidiary
(other than, in the case of (i), (ii) and (iii) above, (v) a pledge, sale or
transfer of title of receivables in connection with a Permitted Lien described
in clause (l) of the definition thereof, (w) a disposition of obsolete or
worn-out assets, (x) a disposition by a Restricted Subsidiary to the Issuer or
by the Issuer or a Restricted Subsidiary to a Wholly Owned Subsidiary, (y) for
purposes of the covenant described under "--Certain Covenants--Limitation on
Sales of Assets and Subsidiary Stock" only, a disposition that constitutes a
Restricted Payment permitted by the covenant described under "--Certain
Covenants--Limitation on Restricted Payments" and (z) disposition of assets
with a fair market value of less than $500,000).
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"Attributable Indebtedness" in respect of a Sale/Leaseback Transaction
means, as at the time of determination, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale/Leaseback Transaction (including any period for
which such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the product of the numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (ii) the sum of all such payments.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or any committee thereof duly authorized to act on
behalf of such Board.
"Business Day" means a day other than a Saturday, Sunday or other day on
which banking institutions in New York City are authorized or required by law
to close.
"Capitalized Lease Obligation" means an obligation that is required to be
classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented
by such obligation shall be the capitalized amount of such obligation
determined in accordance with GAAP; and the Stated Maturity thereof shall be
the date of the last payment of rent or any other amount due under such lease
prior to the first date upon which such lease may be terminated by the lessee
without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participation or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending prior to the date of such
determination for which financial statements are available to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided,
however, that (1) if the Issuer or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding or if
the transaction giving rise to the need to calculate the Consolidated Coverage
Ratio is an Incurrence of Indebtedness, or both, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving effect on a
pro forma basis to such Indebtedness as if such Indebtedness had been Incurred
on the first day of such period, (2) if the Issuer or any Restricted
Subsidiary has repaid, repurchased, defeased or otherwise discharged any
Indebtedness since the beginning of such period or if any Indebtedness is to
be repaid, repurchased, defeased or otherwise discharged (in each case other
than Indebtedness Incurred under any revolving credit facility unless such
Indebtedness has been permanently repaid and has not been replaced) on the
date of the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio, EBITDA and Consolidated Interest Expense for such period shall
be calculated on a pro forma basis as if such discharge had occurred on the
first day of such period and as if the Issuer or such Restricted Subsidiary
has not earned the interest income actually earned during such period in
respect of cash or Temporary Cash Investments used to repay, repurchase,
defease or otherwise discharge such Indebtedness, (3) if since the beginning
of such period the Issuer or any Restricted Subsidiary shall have made any
Asset Disposition or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to the EBITDA (if
negative) directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of the
Issuer or any Restricted Subsidiary repaid, repurchased,
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defeased or otherwise discharged with respect to the Issuer and its continuing
Restricted Subsidiaries in connection with such Asset Disposition for such
period (or, if the Capital Stock of any Restricted Subsidiary is sold, the
Consolidated Interest Expense for such period directly attributable to the
Indebtedness of such Restricted Subsidiary to the extent the Issuer and its
continuing Restricted Subsidiaries are no longer liable for such Indebtedness
after such sale), (4) if since the beginning of such period the Issuer or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment
in any Restricted Subsidiary (or any Person which becomes a Restricted
Subsidiary) or an acquisition of assets, including any acquisition of assets
occurring in connection with a transaction requiring a calculation to be made
hereunder, which constitutes all or substantially all of an operating unit of
a business, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the Incurrence of
any Indebtedness) as if such Investment or acquisition occurred on the first
day of such period and (5) if since the beginning of such period any Person
(that subsequently became a Restricted Subsidiary or was merged with or into
the Issuer or any Restricted Subsidiary since the beginning of such period)
shall have made any Asset Disposition, any Investment or acquisition of assets
that would have required an adjustment pursuant to clause (3) or (4) above if
made by the Issuer or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or
acquisition of assets occurred on the first day of such period. For purposes
of this definition, whenever pro forma effect is to be given to an acquisition
of assets, the amount of income or earnings relating thereto and the amount of
Consolidated Interest Expense associated with any Indebtedness Incurred in
connection therewith, the pro forma calculations shall be determined in good
faith by a responsible financial or accounting officer of the Issuer. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest expense on such Indebtedness shall be calculated as if
the rate in effect on the date of determination had been the applicable rate
for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Issuer and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
Incurred by the Issuer or its Restricted Subsidiaries, without duplication,
(i) interest expense attributable to Capitalized Lease Obligations and to
leases constituting part of a Sale/Leaseback Transaction, (ii) amortization of
debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-
cash interest expense, (v) commissions and discounts owed with respect to
letters of credit and bankers' acceptance financing, (vi) net costs associated
with Hedging Obligations (including amortization of fees), (vii) Preferred
Stock dividends in respect of all Preferred Stock of the Issuer and its
Subsidiaries held by Persons other than the Issuer or a Wholly Owned
Subsidiary, (viii) interest incurred in connection with Investments in
discontinued operations, (ix) interest accruing on any Indebtedness of any
other Person to the extent such Indebtedness is Guaranteed by (or secured by
the assets of) the Issuer or any Restricted Subsidiary and (x) the cash
contributions to any employee stock ownership plan or similar trust to the
extent such contributions are used by such plan or trust to pay interest or
fees to any Person (other than the Issuer) in connection with Indebtedness
Incurred by such plan or trust.
"Consolidated Net Income" means, for any period, the net income (loss) of
the Issuer and its consolidated Subsidiaries; provided, however, that there
shall not be included in such Consolidated Net Income:
(i)any net income (loss) of any Person (other than the Issuer) if such
Person is not a Restricted Subsidiary, except that (A) subject to the
exclusion contained in (iv) below, the Issuer's equity in the net income of
any such Person for such period shall be included in such Consolidated Net
Income up to the aggregate amount of cash actually distributed by such
Person during such period to the Issuer or a Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained
in clause (iii) below) and (B) the Issuer's equity in a net loss of any
such Person for such period shall be included in determining such
Consolidated Net Income,
(ii)any net income (loss) of any Person acquired by the Issuer or a
Subsidiary in a pooling of interests transaction for any period prior to
the date of such acquisition,
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(iii)any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Issuer, except that (A) subject
to the exclusion contained in (iv) below the Issuer's equity in the net
income of any such Restricted Subsidiary for such period shall be included
in such Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Restricted Subsidiary during such period to the Issuer
or another Restricted Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution paid to another
Restricted Subsidiary, to the limitation contained in this clause) and (B)
the Issuer's equity in a net loss of any such Restricted Subsidiary for
such period shall be included in determining such Consolidated Net Income,
(iv)any gain or loss realized upon the sale or other disposition of any
assets of the Issuer, its consolidated Subsidiaries or any other Person
(including pursuant to any Sale/Leaseback Transaction) which is not sold or
otherwise disposed of in the ordinary course of business and any gain or
loss realized upon the sale or other disposition of any Capital Stock of
any Person,
(v)any extraordinary gain or loss, and
(vi)the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purposes of the covenant described
under "--Certain Covenants--Limitation on Restricted Payments" only, there
shall be excluded from Consolidated Net Income any dividends, repayments of
loans or advances or other transfers of assets from Unrestricted Subsidiaries
to the Issuer or a Restricted Subsidiary to the extent such dividends,
repayments or transfers increase the amount of Restricted Payments permitted
under such covenant pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Issuer and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Issuer ending prior to the taking of any action for the
purpose of which the determination is being made for which financial
statements are available, as (i) the par or stated value of all outstanding
Capital Stock of the Issuer plus (ii) paid-in capital or capital surplus
relating to such Capital Stock plus (iii) any retained earnings or earned
surplus less (A) any accumulated deficit and (B) any amounts attributable to
Disqualified Stock.
"Currency Agreement" means in respect of a Person any foreign exchange
contract, currency swap agreement or other similar agreement designed to
protect such Person against fluctuations in currency values as to which such
Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness
or Disqualified Stock or (iii) is redeemable at the option of the holder
thereof, in whole or in part, in each case on or prior to the first
anniversary of the Stated Maturity of the Notes; provided, however, that any
Capital Stock that would not constitute Disqualified Stock but for provisions
thereof giving holders thereof the right to require such Person to repurchase
or redeem such Capital Stock upon the occurrence of an "asset sale" or "change
of control" occurring prior to the first anniversary of the Stated Maturity of
the Notes shall not constitute Disqualified Stock if the "asset sale" or
"change of control" provisions applicable to such Capital Stock are not more
favorable to the holders of such Capital Stock than the provisions described
under "--Change of Control" and "--Certain Covenants--Limitation on Sales of
Assets and Subsidiary Stock."
"EBITDA" for any period means the sum of Consolidated Net Income, plus the
following to the extent deducted in calculating such Consolidated Net Income:
(a) Consolidated Interest Expense, (b) all income tax
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expense of the Issuer and its consolidated Restricted Subsidiaries, (c)
depreciation expense of the Issuer and its consolidated Restricted
Subsidiaries, (d) amortization expense of the Issuer and its consolidated
Restricted Subsidiaries (excluding amortization expense attributable to a
prepaid cash item that was paid in a prior period) and (e) all other non-cash
charges of the Issuer and its consolidated Restricted Subsidiaries (excluding
any such non-cash charge to the extent that it represents an accrual of or
reserve for cash expenditures in any future period), in each case for such
period. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization and non-cash
charges of, a Restricted Subsidiary shall be added to Consolidated Net Income
to compute EBITDA only to the extent (and in the same proportion) that the net
income of such Restricted Subsidiary was included in calculating Consolidated
Net Income and only if a corresponding amount would be permitted at the date
of determination to be divided to the Issuer by such Restricted Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to such Restricted
Subsidiary or its stockholders.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Non-Issuer PEI Subsidiaries" means, collectively, PEI 1998 LLC, a
Delaware limited liability company, Prestolite International Sales
Corporation, a Delaware corporation, Prestolite Electric of Michigan,
Incorporated, a Delaware corporation, Megatron Industries Incorporated, a
Delaware corporation, Leece-Neville Corporation, a Delaware corporation, and
Beech Electric Corporation, a Delaware corporation.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board, (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession and (iv) the rules and regulations of the SEC governing
the inclusion of financial statements (including pro forma financial
statements) in periodic reports required to be filed pursuant to Section 13 of
the Exchange Act, including opinions and pronouncements in staff accounting
bulletins and similar written statements from the accounting staff of the SEC.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness or other obligation of such Person (whether arising by
virtue of partnership arrangements, or by agreements to keep-well, to purchase
assets, goods, securities or services, to take-or-pay or to maintain financial
statement conditions or otherwise) or (ii) entered into for the purpose of
assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole
or in part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by
such Subsidiary at the time it becomes a Subsidiary. The term "Incurrence"
when used as a noun shall have a correlative meaning. The accretion of
principal of a non-interest bearing or other discount security shall be deemed
the Incurrence of Indebtedness.
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"Indebtedness" means, with respect to any Person on any date of
determination (without duplication):
(i)the principal in respect of (A) indebtedness of such Person for money
borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is
responsible or liable, including, in each case, any premium on such
indebtedness to the extent such premium has become due and payable;
(ii)all Capitalized Lease Obligations of such Person and all Attributable
Indebtedness in respect of Sale/Leaseback Transactions entered into by such
Person;
(iii)all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligations of such Person under any title retention agreement (but
excluding Trade Payables arising in the ordinary course of business);
(iv)all obligations of such Person for the reimbursement of any obligor
on any letter of credit, banker's acceptance or similar credit transaction
(other than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses (i) through (iii)
above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following receipt by such Person of a demand for reimbursement
following a payment on the letter of credit);
(v)the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect to any Subsidiary of such Person, the liquidation preference
with respect to, any Preferred Stock (but excluding, in each case, any
accrued dividends);
(vi)all obligations of the type referred to in clauses (i) through (v) of
other Persons and all dividends of other Persons for the payment of which,
in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(vii)all obligations of the type referred to in clauses (i) through (vi)
of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(viii)to the extent not otherwise included in this definition, net
Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date; provided,
however, that the amount outstanding at any time of any Indebtedness Incurred
with original issue discount is the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP.
"Interest Rate Agreement" means with respect to any Person any interest rate
protection agreement, interest rate future agreement, interest rate option
agreement, interest rate swap agreement, interest rate cap agreement, interest
rate collar agreement, interest rate hedge agreement or other similar
agreement or arrangement designed to protect such Person against fluctuations
in interest rates as to which such Person is party or a beneficiary.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extension of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or
other similar instruments issued by such Person. For purposes of the
definitions of "Unrestricted Subsidiary" and "Restricted Payment" and "--
Certain Covenants--Limitation on Restricted Payments", (i) "Investment" shall
include the portion (proportionate to the Issuer's equity interest in such
Subsidiary) of the fair market value of the net assets
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of any Subsidiary of the Issuer at the time that such Subsidiary is designated
an Unrestricted Subsidiary; provided, however, that upon a redesignation of
such Subsidiary as a Restricted Subsidiary, the Issuer shall be deemed to
continue to have a permanent "Investment" in an Unrestricted Subsidiary equal
to an amount (if positive) equal to (x) the Issuer's "Investment" in such
Subsidiary at the time of such redesignation less (y) the portion
(proportionate to the Issuer's equity interest in such Subsidiary) of the fair
market value of the net assets of such Subsidiary at the time that such
Subsidiary is so re-designated a Restricted Subsidiary; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined in good
faith by the Board of Directors and evidenced by a resolution of such Board of
Directors certified in an Officers' Certificate to the Trustee.
"Issue Date" means the date on which the Outstanding Notes are originally
issued.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Lucas Argentina" means, collectively, Lucas Indiel Argentina S.A., an
Argentine corporation, Prestolite Newco, Inc., a Delaware corporation, and
Lucas Argentine Holdings Inc., a Delaware corporation, or any successor entity
to either or any of the foregoing.
"Lucas Argentina Option" means the right of the Issuer to acquire, directly
or indirectly, all of the shares of Capital Stock of Lucas Argentina not
owned, directly or indirectly, by the Issuer as of the Issue Date, other than
approximately 1% of the outstanding shares of Capital Stock of Lucas
Argentina, for an aggregate purchase price not to exceed 1.23 million
Argentine Pesos.
"Net Available Cash" from an Asset Disposition means cash payments received
(including any cash payments received by way of deferred payment of principal
pursuant to a note or installment receivable or otherwise and proceeds from
the sale or other disposition of any securities received as consideration, but
only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other non
cash form) therefrom, in each case net of (i) all legal, title and recording
tax expenses, commissions and other fees and expenses incurred, and all
Federal, state, provincial, foreign and local taxes required to be paid or
accrued as a liability under GAAP, as a consequence of such Asset Disposition,
(ii) all payments made on any Indebtedness which is secured by any assets
subject to such Asset Disposition, in accordance with the terms of any Lien
upon or other security arrangement of any kind with respect to such assets, or
which must by its terms, or in order to obtain a necessary consent to such
Asset Disposition, or by applicable law, be repaid out of the proceeds from
such Asset Disposition, (iii) all distributions and other payments required to
be made to minority interest holders in Restricted Subsidiaries or joint
ventures as a result of such Asset Disposition and (iv) the deduction of
appropriate amounts to be provided by the seller as a reserve, in accordance
with GAAP, against any liabilities associated with the assets disposed of in
such Asset Disposition and retained by the Issuer or any Restricted Subsidiary
after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"New U.S. Credit Facility" means that certain credit facility, dated as of
January 22, 1998, entered into among the Issuer and the lenders from time to
time party thereto, including any collateral documents, instruments and
agreements executed in connection therewith, and the term New U.S. Credit
Facility shall also include any amendments, supplements, modifications,
extensions, renewals, restatements or refundings thereof and any credit
facilities that replace, refund or refinance any part of the loans, other
credit facilities or commitments thereunder, including any such replacement,
refunding or refinancing facility that increases the amount borrowable
thereunder or alters the maturity thereof.
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"Non-Recourse Debt" means Indebtedness (i) as to which neither the Issuer
nor any Restricted Subsidiary (a) provides any Guarantee or credit support of
any kind (including any undertaking, Guarantee, indemnity, agreement or
instrument that would constitute Indebtedness) or (b) is directly or
indirectly liable (as a guarantor or otherwise) and (ii) no default with
respect to which (including any rights that the holders thereof may have to
take enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Issuer or any Restricted Subsidiary to declare a default under such other
Indebtedness or cause the payment thereof to be accelerated or payable prior
to its stated maturity.
"Non-U.S./U.K. Subsidiary" means any Restricted Subsidiary of the Issuer
having more than 66 2/3% of its tangible assets located in one or more
jurisdictions outside of the United States or the United Kingdom.
"PEI" means PEI Holding, Inc., the Issuer's parent corporation.
"PEI Guarantee" means the Guarantee of the Notes by PEI.
"Permitted Holders" means Genstar Capital Corporation, its Affiliates and
its stockholders and the Issuer's executive officers as of the Issue Date.
"Permitted Investment" means an Investment by the Issuer or any Restricted
Subsidiary in (i) the Issuer, a Restricted Subsidiary or a Person which will,
upon the making of such Investment, become a Restricted Subsidiary; provided,
however, that the primary business of such Restricted Subsidiary is a Related
Business; (ii) another Person if as a result of such Investment such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Issuer or a Restricted Subsidiary;
provided, however, that such Person's primary business is a Related Business;
(iii) Temporary Cash Investments; (iv) receivables owing to the Issuer or any
Restricted Subsidiary, if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade
terms; provided, however, that such trade terms may include such concessionary
trade terms as the Issuer or any such Restricted Subsidiary deems reasonable
under the circumstances; (v) payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be
treated as expenses for accounting purposes and that are made in the ordinary
course of business; (vi) loans or advances to employees made in the ordinary
course of business consistent with past practice of the Issuer or such
Restricted Subsidiary; (vii) stock, obligations or securities received in
settlement of debts created in the ordinary course of business and owing to
the Issuer or any Restricted Subsidiary or in satisfaction of judgments;
(viii) any Person (including a joint venture) to the extent such investment
represents the non-cash portion of the consideration received for an Asset
Disposition as permitted pursuant to the covenant described under "Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock"; (ix) Lucas
Argentina in connection with the exercise by the Issuer of the Lucas Argentina
Option; (x) joint ventures in Related Businesses made in exchange for or
conversion of Investments existing on the Issue Date in other joint ventures
in Related Businesses; and (xi) joint ventures in an aggregate amount at any
one time outstanding not to exceed $10.0 million, provided that such joint
ventures are engaged in a Related Business.
"Permitted Liens" means, with respect to any Person, (a) pledges or deposits
by such Person under workmen's compensation laws, unemployment insurance laws
or similar legislation, or good faith deposits in connection with bids,
tenders, contracts (other than for the payment of Indebtedness) or leases to
which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits or cash or United States government
bonds to secure surety or appeal bonds to which such Person is a party, or
deposits as security for contested taxes or import duties or for the payment
of rent, in each case incurred in the ordinary course of business; (b) Liens
imposed by law, such as carriers', warehousemen's and mechanics' Liens, in
each case for sums not yet due or being contested in good faith by appropriate
proceeding or other Liens arising out of judgments or awards against such
Person with respect to which such Person shall then be proceeding with an
appeal or other proceedings for review; (c) Liens for property taxes not yet
subject to penalties for non-payment, which are being contested in good faith
by appropriate proceedings or with respect to which adequate reserves have
been recorded in accordance with GAAP; (d) Liens in favor of issuers of surety
bonds or letters of credit issued pursuant to the request of and for the
account of such Person in the ordinary course of its business;
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(e) survey exceptions, encumbrances, easements or reservations of, or rights
of others for, licenses, rights of way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions as
to the use of real properties or liens incidental to the conduct of the
business of such Person or to the ownership of its properties; (f) Liens
securing Hedging Obligations so long as the related Indebtedness is, and is
permitted to be under the Indenture, secured by a Lien on the same property
securing such Hedging Obligations; (g) leases and subleases of real property
which do not interfere with the ordinary conduct of the business of the Issuer
or any of its Restricted Subsidiaries, and which are made on customary and
usual terms applicable to similar properties; (h) Liens existing as of the
Issue Date and Liens created by the Indenture; (i) Liens created solely for
the purpose of securing the payment of all or a part of the purchase price of
assets or property acquired or constructed in the ordinary course of business
after the date on which the Notes are originally issued; provided, however,
that (A) the aggregate principal amount of Indebtedness secured by such Liens
shall not exceed the lesser of cost or fair market value of the assets or
property so acquired or constructed, (B) the Indebtedness secured by such
Liens shall have otherwise been permitted to be issued under the Indenture and
(C) such Liens shall not encumber any other assets or property of the Issuer
or any of its Restricted Subsidiaries and shall attach to such assets or
property within 180 days of the construction or acquisition of such assets or
property; (j) Liens on the assets or property of a Restricted Subsidiary of
the Issuer existing at the time such Restricted Subsidiary became a Subsidiary
of the Issuer and not incurred as a result of (or in connection with or in
anticipation of) such Restricted Subsidiary becoming a Subsidiary of the
Issuer; provided, however, that (A) any such Lien does not by its terms cover
any property or assets after the time such Restricted Subsidiary becomes a
Subsidiary which were not covered immediately prior to such transaction, (B)
the incurrence of the Indebtedness secured by such Lien shall have otherwise
been permitted to be issued under the Indenture, and (C) such Liens do not
extend to or cover any other property or assets of the Issuer or any of its
Restricted Subsidiaries; (k) Liens to secure Capitalized Lease Obligations
permitted to be Incurred under the Indenture; (l) Liens on accounts
receivable, inventory and general intangibles securing Indebtedness
outstanding or committed under the New U.S. Credit Facility and the South
Africa Credit Facility and Liens securing Indebtedness outstanding or
committed under the Argentina Credit Facility and the U.K. Credit Facility;
(m) Liens extending, renewing or replacing in whole or in part a Lien
permitted by the Indenture; provided, however, that (A) such Liens do not
extend beyond the property subject to the existing Lien and improvements and
construction on such property and (B) the Indebtedness secured by the Lien may
not exceed the Indebtedness secured at the time by the existing Lien;
(n) Liens on inventory deemed to arise by reason of the consignment of
inventory in the ordinary course of business of the Issuer and its Restricted
Subsidiaries; and (o) Liens on the assets or property of a Restricted
Subsidiary of the Issuer to secure Indebtedness of such Restricted Subsidiary
owing to and held by the Issuer.
"Person" means any individual, corporation, partnership joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends or distributions, or as to the distribution of
assets upon any voluntary or involuntary liquidation or dissolution of such
Person, over shares of Capital Stock of any other class of such Person.
"Principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time; provided, however, that for purposes of calculating any such
premium, the term "principal" shall not include the premium with respect to
which such calculation is being made.
"Public Equity Offering" means an underwritten primary public offering of
common stock of PEI or the Issuer pursuant to an effective registration
statement under the Securities Act.
"Recapitalization" means any one or more of the following transactions, any
one or more of which may occur on or following the Issue Date: (i) the payment
of a dividend by the Issuer to PEI; (ii) the making by PEI of an Investment in
a Wholly Owned Subsidiary for the purpose of effecting a repurchase of the
Capital Stock of
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PEI, (iii) the purchase by PEI or such Wholly Owned Subsidiary of shares of
Capital Stock of PEI from the holders thereof, (iv) the purchase by PEI of
options or warrants to purchase shares of Capital Stock of PEI from the
holders thereof, and/or (v) the payment by PEI of certain additional amounts
to the holders of options to purchase shares of Capital Stock of PEI;
provided, however, that the total of the payments referred to in clauses (i)
through (v), net of any amounts received from the holders of such shares,
options or warrants in connection with such transactions, shall not exceed
$30.1 million in the aggregate.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness, and shall
include the Refinancing of multiple facilities with a single facility and the
Refinancing of a single facility with multiple facilities. "Refinanced" and
"Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Issuer or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture (including Indebtedness of
the Issuer that Refinances Indebtedness of any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary that Refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that Refinances
Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness has a Stated Maturity no earlier than the Stated Maturity of the
Indebtedness being Refinanced, (ii) the Refinancing Indebtedness has an
Average Life at the time such Refinancing Indebtedness is Incurred that is
equal to or greater than the Average Life of the Indebtedness being Refinanced
and (iii) such Refinancing Indebtedness is Incurred in an aggregate principal
amount (or if issued with original issue discount, an aggregate issue price)
that is equal to or less than the sum of the aggregate principal amount (or if
issued with original issue discount, the aggregate accreted value) then
outstanding or committed (plus fees and expenses, including any premium and
defeasance costs) under the Indebtedness being Refinanced; provided further,
however, that Refinancing Indebtedness shall not include (x) Indebtedness of a
Subsidiary that Refinances Indebtedness of the Issuer or (y) Indebtedness of
the Issuer or a Subsidiary that refinances Indebtedness of an Unrestricted
Subsidiary.
"Related Business" means any business related, ancillary or complementary to
the businesses of the Issuer and the Restricted Subsidiaries on the date of
the Indenture.
"Restricted Payment" with respect to any Person means (i) the declaration or
payment of any dividends or any other distributions of any sort in respect of
its Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the direct or
indirect holders of its Capital Stock (other than dividends or distributions
payable solely in its Capital Stock (other than Disqualified Stock) and
dividends or distributions payable solely to the Issuer or a Restricted
Subsidiary, and other than pro rata dividends or other distributions made by a
Subsidiary that is not a Wholly Owned Subsidiary to minority stockholders (or
owners of an equivalent interest in the case of a Subsidiary that is an entity
other than a corporation)), (ii) the purchase, redemption or other acquisition
or retirement for value of any Capital Stock of the Issuer held by any Person
or of any Capital Stock of a Restricted Subsidiary held by any Person (other
than a Restricted Subsidiary), including the exercise of any option to
exchange any Capital Stock (other than into Capital Stock of the Issuer that
is not Disqualified Stock), (iii) the purchase, repurchase, redemption,
defeasance or other acquisition or retirement for value, prior to scheduled
maturity, scheduled repayment or scheduled sinking fund payment of any
Subordinated Obligations (other than the purchase, repurchase or other
acquisition of Subordinated Obligations purchased in anticipation of
satisfying a sinking fund obligation, principal installment or final maturity,
in each case due within one year of the date of acquisition) or (iv) the
making of any Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Issuer other than an
Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Issuer or a Restricted Subsidiary
transfers such property to a Person and the Issuer or a Restricted Subsidiary
leases such property from such Person.
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"SEC" means the U.S. Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Issuer secured by a
Lien.
"Senior Indebtedness" means (i) Indebtedness of the Issuer, whether
outstanding on the Issue Date or thereafter Incurred, and (ii) accrued and
unpaid interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Issuer to the
extent post-filing interest is allowed in such proceeding) in respect of (A)
indebtedness of the Issuer for money borrowed and (B) indebtedness evidenced
by notes, debentures, bonds or other similar instruments for the payment of
which the Issuer is responsible or liable unless, in the case of (i) and (ii),
in the instrument creating or evidencing the same or pursuant to which the
same is outstanding, it is provided that such obligations are subordinate in
right of payment to the Notes; provided, however, that Senior Indebtedness
shall not include (1) any obligation of the Issuer to any Subsidiary, (2) any
liability for Federal, state, local or other taxes owed or owing by the
Issuer, (3) any Trade Payables arising in the ordinary course of business, (4)
any Indebtedness of the Issuer (and any accrued and unpaid interest respect
thereof) which is subordinate or junior in any respect to any other
Indebtedness or other obligation of the Issuer, (5) that portion of any
Indebtedness which at the time of Incurrence is Incurred in violation of the
Indenture.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Issuer within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"South Africa Credit Facility" means one or more credit facilities to be
entered into on or after the Issue Date among Lucas Holdings South Africa
(Proprietary) Limited, or any successor entity, and the lenders from time to
time party thereto, including any collateral documents, instruments and
agreements executed in connection therewith, and the term South Africa Credit
Facility shall also include any amendments, supplements, modifications,
extensions, renewals, restatements or refundings thereof and any credit
facilities that replace, refund or refinance any part of the loans, other
credit facilities or commitments thereunder, including any such replacement,
refunding or refinancing facility that increases the amount borrowable
thereunder or alters the maturity thereof.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the payment of principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency beyond the control of the issuer unless such contingency has
occurred).
"Subordinated Obligation" means any Indebtedness of the Issuer (whether
outstanding on the Issue Date or thereafter Incurred) which is expressly
subordinate or junior in right of payment to the Notes pursuant to a written
agreement.
"Subsidiary" of any Person means any corporation, association, partnership,
limited liability company or other business entity of which more than 50% of
the total voting power of shares of Capital Stock or other interests
(including partnership interests) entitled (without regard to the occurrence
of any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by (i)
such Person, (ii) such Person and one or more Subsidiaries of such Person or
(iii) one or more Subsidiaries of such Person.
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations Guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized
by the United States of America having capital, surplus and undivided profits
aggregating in excess of $50.0 million (or the
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foreign currency equivalent thereof) and whose long-term debt is rated "A" (or
such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money market fund sponsored by a registered broker
dealer or mutual fund distributor including those offered by the Trustee or an
affiliate of the Trustee, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) investments in commercial paper, maturing not more than 90
days after the date of acquisition, issued by a corporation (other than an
Affiliate of an Issuer) organized and in existence under the laws of the
United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or
"A-1" (or higher) according to Standard & Poor's Ratings Group, (v)
investments in securities with maturities of six months or less from the date
of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings
Group or "A" by Moody's Investors Service, Inc.; and (vi) investments in
mutual funds, whose investment guidelines restrict such funds' investments to
investments which are substantially similar to those described in clauses (i)-
(v).
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-77bbbb)
as in effect on the date of the Indenture.
"Trade Payables" means, with respect to any Person, any accounts payable or
any indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by such Person arising in the ordinary course of business in
connection with the acquisition of goods or services.
"U.K. Credit Facility" means one or more credit facilities to be entered
into or on or after the Issue Date among Prestolite Electric Limited, or any
successor entity, or any of its Wholly Owned Subsidiaries and the lenders from
time to time party thereto, including any collateral documents, instruments
and agreements executed in connection therewith, and the term U.K. Credit
Facility shall also include any amendments, supplements, modifications,
extensions, renewals, restatements or refundings thereof and any credit
facilities that replace, refund or refinance any part of the loans, other
credit facilities or commitments thereunder, including any such replacement,
refunding or refinancing facility that increases the amount borrowable
thereunder or alters the maturity thereof.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Issuer that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
of the Issuer (including any newly acquired or newly formed Subsidiary of the
Issuer) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any
Lien on any property of, the Issuer or any other Subsidiary of the Issuer that
is not a Subsidiary of the Subsidiary to be so designated; provided, however,
that either (A) the Subsidiary to be so designated has total consolidated
assets of $1,000 or less or (B) if such Subsidiary has consolidated assets
greater than $1,000, then such designation would be permitted under "Certain
Covenants--Limitation on Restricted Payments." The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that immediately after giving effect to such designation (x) the
Issuer could Incur $1.00 of additional Indebtedness under clause (a) of
"Certain Covenants--Limitation on Indebtedness" and (y) no Default shall have
occurred and be continuing. Any such designation by the Board of Directors
shall be evidenced to the Trustee by promptly filing with the Trustee a copy
of the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States
of America (including any agency or instrumentality thereof) for the payment
of which the full faith and credit of the United States of America is pledged
and which are not callable or redeemable at the issuer's option.
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"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding
and normally entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers, or trustee thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary of the Issuer all
the Capital Stock of which (other than directors' qualifying shares or similar
shares and, in the case of a Non-U.S./U.K. Subsidiary, shares required to be
owned by citizens of such Subsidiary's jurisdiction of organization) is owned
by the Issuer or one or more other Wholly Owned Subsidiaries; provided that,
notwithstanding the foregoing, the term "Wholly Owned Subsidiary" shall be
deemed to include Lucas Argentina, unless the Issuer shall not have exercised
the Lucas Argentina Option prior to August 31, 1998.
BOOK-ENTRY; DELIVERY AND FORM
The Exchange Notes will be issued in definitive, fully registered form
without interest coupons. The Exchange Notes will be represented by one or
more permanent global Notes (the "Global Exchange Note") and will be deposited
with the Trustee as custodian for DTC and registered in the name of a nominee
of DTC. Except as set forth below, the Global Exchange Note may be
transferred, in whole and not in part, only to DTC or nominee of DTC.
Investors may hold their beneficial interests in the Global Exchange Note
directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system.
Notes that are issued as described below under "Certificated Notes" will be
issued in definitive form. Upon the transfer of a Note in definitive form,
such Note will, unless the Global Exchange Note has previously been exchanged
for Notes in definitive form, be exchanged for an interest in the Global
Exchange Note representing the principal amount of Notes being transferred.
Upon the issuance of the Global Exchange Note, DTC will credit, on its
internal system, the respective principal amount of the individual beneficial
interests represented by such Global Exchange Note to the accounts of persons
who have accounts with such depositary. Ownership of beneficial interests in a
Global Exchange Note will be limited to persons who have accounts with DTC
("participants") or persons who hold interests through participants. Ownership
of beneficial interests in the Global Exchange Note will be shown on, and the
transfer of that ownership will be effected only through, records maintained
by DTC or its nominee (with respect to interests of participants) and the
records of participants (with respect to interests of persons other than
participants). The laws of some jurisdictions may require that certain
purchasers of securities takes physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to transfer or
pledge beneficial interests in the Global Exchange Note.
So long as DTC, or its nominee, is the registered owner or holder of a
Global Exchange Note, DTC or such nominee, as the case may be, will be
considered the sole owner or holder of the Exchange Notes represented by such
Global Exchange Note for all purposes under the Indenture and the Notes.
Except as set forth below, owners of beneficial interests in the Global
Exchange Note will not be entitled to have the Exchange Notes represented by
the Global Exchange Note registered in their names, will not receive or be
entitled to receive physical delivery of certificated Exchange Notes in
definitive form and will not be considered to be the owners or holders of any
Exchange Notes under the Global Exchange Note.
Payments of the principal of, and interest on, the Global Exchange Note will
be made to DTC or its nominee, as the case may be, as the registered owner
thereof. Neither the Issuer, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Exchange Note or for maintaining, supervising or reviewing any records
relating to such beneficiary ownership interests.
The Issuer expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Exchange Note will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global
Exchange Note as shown on the records of
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DTC or its nominee. The Issuer also expects that payments by participants to
owners of beneficial interests in such Global Exchange Note held through such
participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such
payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
DTC has advised the Issuer that it will take any action permitted to be
taken by a holder of Exchange Notes (including the presentation of Exchange
Notes for exchange as described below) only at the direction of one or more
participants to whose account the DTC interests in the Global Exchange Note is
credited and only in respect of such portion of the aggregate principal amount
of Exchange Notes as to which such participant or participants has or have
given such direction.
DTC has advised the Issuer as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of l934. DTC was
created to hold securities for its participants and facilitate the clearance
and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants
include securities brokers and dealers, banks, trust companies and clearing
corporations and certain other organizations. Indirect access to the DTC
system is available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
participant, either directly or indirectly ("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Exchange Note among participants of DTC,
it is under no obligation to perform or continue to perform such procedures,
and such procedures may be discontinued at any time. Neither the Issuer nor
the Trustee will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under
the rules and procedures governing their respective operations.
CERTIFICATED NOTES
The Exchange Notes represented by the Global Exchange Note are exchangeable
for certificated Exchange Notes in definitive form of like tenor as such
Exchange Notes in denominations of U.S. $1,000 and integral multiples thereof
if (i) DTC notifies the Issuer that it is unwilling or unable to continue as
depository for the Global Exchange Note or if at any time DTC ceases to be a
clearing agency registered under the Exchange Act and a successor depository
is not appointed by the Issuer within 90 days, (ii) the Issuer in its
discretion at any time determines not to have all of the Exchange Notes
represented by the Global Exchange Note or (iii) an Event of Default has
occurred and is continuing. Any Exchange Note that is exchangeable pursuant to
the preceding sentence is exchangeable for certificated Exchange Notes
issuable in authorized denominations and registered in such names as DTC shall
direct. Subject to the foregoing, the Global Exchange Note is not
exchangeable, except for a Global Exchange Note of the same aggregate
denomination to be registered in the name of DTC or its nominee.
REGISTRATION RIGHTS
The holders of Exchange Notes will not be entitled to any registration
rights with respect to the Exchange Notes. Pursuant to the Registration Rights
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part, the Issuer is required by no
later than July 21, 1998 to have consummated the Exchange Offer or have
declared effective by the Commission a "shelf" registration statement for an
offering on a continuous basis of Outstanding Notes. In the event (i) the
Exchange Offer made hereby is not consummated (or a shelf registration
statement is not declared effective) as
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aforementioned, or (ii) after either the Registration Statement of which this
Prospectus constitutes a part or such shelf registration statement is declared
effective, such registration statement thereafter ceases to be effective or
usable (subject to certain exceptions) in connection with resales of
Outstanding Notes or Exchange Notes in accordance with and during the periods
specified in the Registration Rights Agreement (each such event referred to in
clause (i) and (ii) being herein called a "Registration Default"), additional
cash interest will accrue on the Outstanding Notes and the Exchange Notes at
the rate of 0.50% per annum from and including the date on which any such
Registration Default shall occur to but excluding the date on which all
Registration Defaults have been cured, calculated on the principal amount of
the Notes as of the date on which such interest is payable. Such interest is
payable in addition to any other interest payable from time to time with
respect to the Notes.
Assuming consummation of the Exchange Offer made hereby, all of the Issuer's
registration obligations with respect to the Outstanding Notes under the
Registration Rights Agreement will have been fulfilled.
The foregoing summary of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been filed as an Exhibit to the Registration
Statement of which this Prospectus forms a part.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW U.S. CREDIT FACILITY
In connection with the Offering, the Issuer entered into the New U.S. Credit
Facility with Comerica Bank. The following is a summary of the material terms
and conditions of the New U.S. Credit Facility and is subject to the detailed
provisions of the New U.S. Credit Facility and various related documents
entered into in connection with the New U.S. Credit Facility.
The New U.S. Credit Facility consists of a revolving credit facility in an
aggregate principal amount of $23.0 million, including a $2.0 million letter
of credit subfacility, and will mature on January 31, 2000. Indebtedness under
the New U.S. Credit Facility is guaranteed on a senior basis by PEI and is
secured by a first priority lien on all of the Issuer's accounts receivable,
inventory and general intangibles. The Issuer is entitled to draw amounts
under the New U.S. Credit Facility, subject to availability pursuant to a
borrowing base formula based upon eligible accounts receivable and inventory
levels, in order to meet the Issuer's working capital requirements and for
general corporate purposes.
Interest accrues on amounts outstanding under the New U.S. Credit Facility
at a rate equal to the per annum interest rate established by Comerica Bank as
its prime rate for its borrowers, as such rate may vary from time to time,
plus up to 0.125% depending upon the applicable borrowing base. Such prime
rate is not necessarily the lowest rate on loans made by Comerica Bank at any
such time. The New U.S. Credit Facility does not contain any mandatory
prepayment provisions as long as the aggregate amounts outstanding under the
New U.S. Credit Facility do not exceed the applicable borrowing base. The
Issuer is permitted to prepay amounts outstanding under the New U.S. Credit
Facility in whole or in part without penalty.
The New U.S. Credit Facility also includes certain negative covenants and
restrictions on actions by the Issuer including, without limitation,
restrictions on (i) the making of investments, loans and advances and the
paying of dividends and other restricted payments; (ii) the incurrence of
additional indebtedness; (iii) the granting of liens, other than liens created
pursuant to the New U.S. Credit Facility and certain permitted liens; (iv)
mergers, consolidations and sales of all or a substantial part of the
Company's business or property; (v) the acquisition of all of the assets or a
division of another corporation or capital expenditures greater than $15.0
million in a calendar year; (vi) the sale of receivables or the repayment of
other debt; and (vii) the guarantee of certain obligations. The New U.S.
Credit Facility also requires the Company to meet certain financial covenants,
including maintaining capitalization levels, capitalization ratios, minimum
fixed charge coverage ratios and funded debt ratios. The New U.S. Credit
Facility specifies certain customary events of default including, without
limitation, non-payment of principal, interest or fees, violation of
covenants, inaccuracy of representations and warranties in any material
respect, cross default to certain other indebtedness and agreements,
bankruptcy and insolvency events, material judgments and liabilities, and
unenforceability of certain documents under the New U.S. Credit Facility. The
events of default under the New U.S. Credit Facility are substantially similar
to the events of default under the Indenture except as follows: (i) the
Issuer's failure to pay other indebtedness or judgments entered against the
Issuer will trigger a default under the New U.S. Credit Facility at lower
dollar amounts than in the Indenture; (ii) the failure of any security
interest in collateral securing the New U.S. Credit Facility will trigger a
default under the New U.S. Credit Facility; (iii) a Change of Control that
triggers the Company's repurchase obligations under the Indenture will trigger
a default under the New U.S. Credit Facility; (iv) the New U.S. Credit
Facility will prohibit the optional redemption of the Notes in certain
circumstances; and (v) the New U.S. Credit Facility will generally have
shorter grace periods and lower default thresholds than the Indenture. If the
indebtedness under the New U.S. Credit Facility were to be accelerated, there
can be no assurance that the assets of the Company would be sufficient to
repay in full such indebtedness and the other indebtedness of the Company,
including the Notes. See "Risk Factors--Restrictive Loan Covenants."
The foregoing summary of certain provisions of the New U.S. Credit Facility
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the New U.S. Credit Facility,
a copy of which has been filed as an Exhibit to the Registration Statement of
which this Prospectus forms a part.
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NEW U.K. CREDIT FACILITY
On April 21, 1998, Prestolite U.K. replaced the Temporary U.K. Credit
Facility (which was entered into in connection with the Recapitalization) with
the New U.K. Credit Facility providing for borrowings of up to (Pounds)7.0
million (approximately $11.3 million based on exchange rates as of June 1,
1998). Indebtedness incurred under the New U.K. Credit Facility is secured by
the accounts receivable of Prestolite U.K. Prestolite U.K. is entitled to draw
amounts under the New U.K. Credit Facility, subject to availability pursuant
to a borrowing base formula based upon eligible receivable levels, in order to
meet working capital requirements, for restructuring costs in connection with
the Lucas Acquisition and to refinance the Temporary U.K. Credit Facility. The
New U.K. Credit Facility includes certain covenants of Prestolite U.K. that,
among other things, will restrict (i) the incurrence of senior indebtedness by
Prestolite U.K., (ii) the creation or subsistence of security interests by
Prestolite U.K. (other than certain permitted loans or encumbrances) and (iii)
the payment of dividends and interest and/or repayment of capital on
intercompany indebtedness to the Issuer when Prestolite U.K. is in default
under the New U.K. Credit Facility. The New U.K. Credit Facility also requires
Prestolite U.K. to comply with certain financial covenants, including
restrictions regarding total debt, total debt service, bearing and tangible
net worth. The breach of any of these covenants could result in a default
under the New U.K. Credit Facility. Interest accrues on amounts outstanding
under the New U.K. Credit Facility at a rate equal to the lender's base rate
plus 1.75% per annum. The New U.K. Credit Facility has a term of three years.
In certain circumstances intercompany indebtedness of Prestolite U.K. to the
Issuer is subordinated to indebtedness outstanding under the New U.K. Credit
Facility, and dividend payments or other distributions by Prestolite U.K. to
the Issuer are restricted, pursuant to a Subordination Agreement between the
Issuer, Prestolite U.K. and the tender under the New U.K. Credit Facility (the
"Subordination Agreement"). Pursuant to the terms of the Subordination
Agreement, Prestolite U.K. is generally prohibited from making such payments
upon the occurrence of an event of default, or in the event that such payment
would result in an event of default, under the New U.K. Credit Agreement.
The foregoing summary of certain provisions of the New U.K. Credit Facility
and the Subordination Agreement does not purport to be complete and is subject
to, and is qualified in its entirety by reference to, all the provisions of
the New U.K. Credit Facility and the Subordination Agreement, copies of which
have been filed as Exhibits to the Registration Statement of which this
Prospectus forms a part.
OTHER INDEBTEDNESS
At April 4, 1998, the Company had, on a consolidated basis, approximately
$7.6 million of other indebtedness outstanding. In connection with the Lucas
Acquisition the Company assumed approximately $7.1 million of outstanding
indebtedness of Lucas Argentina, of which approximately $3.9 million remained
outstanding following the closing of the Transactions. Such indebtedness is
comprised of short-term revolving lines of credit with a number of banks,
which lines of credit are generally unsecured and bear interest at variable
rates. In addition, approximately $3.6 million was outstanding under drawn
letters of credit.
In addition, the Company had approximately $0.9 million in capital lease
obligations as of April 4, 1998. Imputed interest rates on such capital lease
obligations range from approximately 9% to 10.5%. These capital lease
obligations are secured by the assets of various facilities and leased
equipment.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain material United States federal
income tax consequences of the acquisition, ownership and disposition of the
Exchange Notes. Unless otherwise stated, this discussion is limited to the tax
consequences to those persons who are original beneficial owners of the
Exchange Notes and who hold such Exchange Notes as capital assets ("Holders").
This discussion does not address specific tax consequences that may be
relevant to particular persons (including, for example, financial
institutions, broker-dealers, insurance companies, tax-exempt organizations,
and persons in special situations, such as those who hold Exchange Notes as
part of a straddle, hedge, short-sale, conversion transaction, or other
integrated investment). This discussion also does not address the tax
consequences to Non-U.S. Holders (as defined below) that are subject to U.S.
federal income tax on a net basis or income realized with respect to an
Exchange Note because such income is effectively connected with the conduct of
a U.S. trade or business. This discussion does not address the tax
consequences to persons that have a functional currency other than the U.S.
dollar. In addition, this discussion does not address U.S. federal alternative
minimum tax consequences or any aspect of state, local or foreign taxation.
This discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), the Treasury regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all as of the date hereof
and all of which are subject to change, possibly on a retroactive basis.
PROSPECTIVE PURCHASERS OF THE EXCHANGE NOTES ARE URGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THEM
OF ACQUIRING, OWNING AND DISPOSING OF THE EXCHANGE NOTES, AS WELL AS THE
APPLICATION OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
U.S. FEDERAL INCOME TAXATION OF U.S. HOLDERS
Exchange Offer
The exchange of Outstanding Notes for Exchange Notes pursuant to the
Exchange Offer will not be treated as a taxable "exchange" for U.S. federal
income tax purposes because the Exchange Notes will not be considered to
differ materially in kind or extent from the Outstanding Notes. As a result, a
Holder should not recognize taxable gain or loss upon the receipt of an
Exchange Note. A Holder's holding period for an Exchange Note should include
the Holder's holding period for the Outstanding Note exchanged therefor and
the Holder's adjusted tax basis in an Exchange Note should be the same as the
Holder's adjusted tax basis in such Outstanding Note.
Payments of Interest
In general, interest on an Exchange Note will be taxable to a beneficial
owner who or which is: (i) a citizen or resident of the United States; (ii) a
corporation created or organized under the laws of the United States or any
State thereof (including the District of Columbia); or (iii) a person
otherwise subject to U.S. federal income taxation on its worldwide income (a
"U.S. Holder") as ordinary income from domestic sources at the time it is
(actually or constructively) received or accrued, depending on the beneficial
owner's method of accounting for U.S. federal income tax purposes.
Bond Premium on the Exchange Notes
If a U.S. Holder of an Exchange Note purchased an Outstanding Note for an
amount in excess of the amount payable at the maturity date (or a call date,
if appropriate) of the Outstanding Note, the U.S. Holder may deduct such
excess as amortizable bond premium over the aggregate terms of the Outstanding
Notes and the Exchange Notes (taking into account earlier call dates, as
appropriate) under a yield-to-maturity formula. The deduction is available
only if an election is made by the U.S. Holder or is in effect. This election
is revocable only with the consent of the Internal Revenue Service ("IRS").
The election applies to all obligations owned or subsequently
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acquired by the U.S. Holder. The U.S. Holder's adjusted tax basis in the
Outstanding Notes and the Exchange Notes will be reduced to the extent of the
deduction of amortizable bond premium. Except as may otherwise be provided in
future regulations, under the Code amortizable bond premium is treated as an
offset to interest income on the Outstanding Notes and the Exchange Notes
rather than as a separate deduction item.
Market Discount on the Exchange Notes
The tax consequences of a disposition of the Exchange Notes may be affected
by the market discount provisions of the Code. These rules generally provide
that if a U.S. Holder acquired the Outstanding Notes or the Exchange Notes at
a market discount which equals or exceeds 1/4 of 1% of the stated redemption
price of the Exchange Notes at maturity multiplied by the number of remaining
complete years to maturity and thereafter recognizes gain upon a disposition
(or makes a gift) of the Exchange Notes, the lesser of (i) such gain (or
appreciation, in the case of a gift) or (ii) the portion of the market
discount which accrued while the Outstanding Notes or Exchange Notes were held
by such U.S. Holder will be treated as ordinary income at the time of the
disposition (or gift). For these purposes, market discount with respect to an
Exchange Note received for an Outstanding Note means the excess (if any) of
the stated redemption price at maturity over the basis of such Outstanding
Note immediately after their acquisition by the U.S. Holder. A U.S. Holder of
the Exchange Notes may elect to include any market discount (whether accrued
under the Outstanding Notes or the Exchange Notes) in income currently rather
than upon disposition of the Exchange Notes. This election once made applies
to all market discount obligations acquired on or after the first taxable year
to which the election applies, and may not be revoked without the consent of
the IRS.
A U.S. Holder of any Exchange Note who acquired an Outstanding Note or an
Exchange Note at a market discount generally will be required to defer the
deduction of a portion of the interest on any indebtedness incurred or
maintained to purchase or carry such Outstanding Note or Exchange Note until
the market discount is recognized upon a subsequent disposition of the
Exchange Note. Such a deferral is not required, however, if the U.S. Holder
elects to include accrued market discount in income currently.
Disposition of Exchange Notes
Upon the sale, exchange, redemption, retirement at maturity or other
disposition of an Exchange Note, a U.S. Holder generally will recognize
taxable gain or loss equal to the difference between: (i) the sum of cash plus
the fair market value of all other property received on such disposition
(except to the extent such cash or property is attributable to accrued but
unpaid interest, which will be taxable as ordinary income); and (ii) such
beneficial owner's adjusted tax basis in the Exchange Note. Such gain or loss
recognized on the disposition of an Exchange Note generally will be capital
gain or loss (except to the extent of any accrued market discount). Under
recently enacted legislation, capital gains of individuals derived in respect
of capital assets held for more than one year are eligible for reduced rates
of taxation which may vary depending upon the holding period of such capital
assets. The deductibility of capital losses is subject to limitations.
U.S. FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS
Under present U.S. federal income tax law and subject to the discussion of
backup withholding below:
(i)payments of principal and interest on the Exchange Notes by the Issuer
or any agent of the Issuer to any beneficial owner of an Exchange Note that
is not a U.S. Holder (a "Non-U.S. Holder") will not be subject to U.S.
federal withholding tax, provided that in the case of interest (a) (1) the
beneficial owner does not actually or constructively own 10 percent or more
of the total combined voting power of all classes of stock of the Issuer
entitled to vote within the meaning of Section 871(h)(3) of the Code and
the Treasury regulations thereunder, (2) the beneficial owner is not a
controlled foreign corporation that is related to the Issuer through stock
ownership, (3) the beneficial owner is not a bank described in Section
881(c)(3)(A) of the Code, and (4) either (A) the beneficial owner of the
Exchange Notes certifies to the Issuer or its agent on Internal Revenue
Service ("IRS") Form W-8 (or a suitable substitute form), under penalties
of perjury,
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that it is not a "U.S. person" (as defined in the Code) and provides its
name and address, or (B) a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary
course of its trade or business (a "financial institution") and holds the
Exchange Notes on behalf of the beneficial owner certifies to the Issuer or
its agent under penalties of perjury that such statement has been received
from the beneficial owner by it or by a financial institution between it
and the beneficial owner and furnishes the payor with a copy thereof or (b)
the Non-U.S. Holder is entitled to the benefits of an income tax treaty
under which interest on the Exchange Notes is exempt from U.S. federal
withholding tax and provides a properly executed IRS Form 1001 claiming the
exemption;
(i)a Non-U.S. Holder will not be subject to U.S. federal tax on gain
realized on the sale, exchange or other disposition of an Exchange Note
unless (a) the Non-U.S. Holder is an individual who is present in the
United States for a period or periods aggregating 183 or more days in the
taxable year of the disposition and certain other conditions are met or (b)
the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S.
tax law applicable to certain U.S. expatriates; and
(iii)the exchange of Outstanding Notes for Exchange Notes pursuant to the
Exchange Offer will not be treated as a taxable "exchange" for U.S. federal
income tax purposes because the Exchange Notes will not be considered to
differ materially in kind or extent from the Outstanding Notes.
Under recently finalized Treasury regulations (the "Final Regulations"), the
certification requirement referred to in (a)(4)(A) of paragraph (i) above may
also be satisfied with other documentary evidence for interest paid after
December 31, 1998 with respect to an offshore account or through certain
intermediaries. In addition, under the Final Regulations, Non-U.S. Holders
will generally be required to provide IRS Form W-8 in lieu of IRS Form 1001 in
order to be entitled to the benefits of an income tax treaty as referred to in
(b) of paragraph (i) above. However, alternative documentation may be
applicable in certain situations.
INFORMATION REPORTING AND BACKUP WITHHOLDING
For each calendar year in which the Exchange Notes are outstanding, the
Issuer is required to provide the IRS with certain information, including the
beneficial owner's name, address and taxpayer identification number, the
aggregate amount of payments to that beneficial owner during the calendar year
and the amount of tax withheld, if any. This obligation, however, does not
apply with respect to certain payments to U.S. Holders, including
corporations, tax-exempt organizations, qualified pension and profit sharing
trusts and individual retirement accounts, provided that they establish
entitlement to an exemption.
In the event that a U.S. Holder subject to the reporting requirements
described above fails to supply its correct taxpayer identification number in
the manner required by applicable law or underreports its tax liability, the
Issuer, its agents or paying agents or a broker may be required to "backup"
withhold a tax equal to 31% of each payment of interest and principal on the
Exchange Notes. This backup withholding is not an additional tax and may be
credited against the U.S. Holder's U.S. federal income tax liability, provided
that the required information is furnished to the IRS.
Under current Treasury regulations, backup withholding and information
reporting will not apply to payments made by the Issuer or any agent thereof
(in its capacity as such) to a Non-U.S. Holder of an Exchange Note if such
Non-U.S. Holder has provided the required certification that it is not a U.S.
person as set forth in clause (a)(4)(A) in paragraph (i) under "--U.S. Federal
Income Taxation of Non-U.S. Holders," or has otherwise established an
exemption (provided that neither the Issuer nor its agent has actual knowledge
that the holder is a U.S. person or that the conditions of any exemption are
not in fact satisfied).
Payment of the proceeds from the sale of an Exchange Note to or through a
foreign office of a broker will not be subject to information reporting or
backup withholding, except that if the broker is a U.S. person, a controlled
foreign corporation for U.S. federal income tax purposes, a foreign person 50
percent or more of whose gross income from all sources for the three-year
period ending with the close of its taxable year preceding
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the payment was effectively connected with a U.S. trade or business or, with
respect to payments made after December 31, 1999, a foreign partnership that
is owned 50 percent or more by U.S. persons or is engaged in a U.S. trade or
business, information reporting may apply to such payments. Payment of the
proceeds from a sale of an Exchange Note to or through the U.S. office of a
broker will be subject to information reporting and backup withholding unless
the holder or beneficial owner certifies as to its taxpayer identification
number or otherwise establishes an exemption from information reporting and
backup withholding.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for
Outstanding Notes where such Outstanding Notes were acquired as a result of
market-making activities or other trading activities. The Issuer has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until September 24, 1998, all
dealers effecting transactions in the Exchange Notes may be required to
deliver a prospectus.
The Issuer will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own
accounts pursuant to the Exchange Offer may be sold from time to time in one
or more transactions in the over-the-counter market or, in negotiated
transactions or a combination of such methods of resale, at market prices
prevailing at the time of resale, at prices related to such prevailing market
prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange
Notes that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such new
Notes may be deemed to be an "Underwriter" within the meaning of the
Securities Act and any profit on any such resale or Exchange Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Issuer will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the
Letter of Transmittal. The Issuer has agreed to pay all expenses incident to
the Exchange Offer (including the expenses of one counsel for the holders of
the Notes) other than commissions or concessions of any brokers or dealers and
will indemnify the holders of the Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities Act.
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Exchange Notes in Canada is being made only on a
private placement basis exempt from the requirement that the Issuer prepare
and file a prospectus with the securities regulatory activities in each
province where trades of the Exchange Notes are effected. Accordingly, any
resale of the Exchange Notes in Canada must be made in accordance with
applicable securities laws which will vary depending on the relevant
jurisdiction, and which may require resales to be made in accordance with
available statutory exemptions or pursuant to a discretionary exemption
granted by the applicable Canadian securities regulatory authority. Purchasers
are advised to seek legal advice prior to any resale of the Exchange Notes.
REPRESENTATION OF PURCHASERS
Each purchaser of Exchange Notes in Canada who receives a purchase
confirmation will be deemed to represent to the Issuer and the dealer from
whom such purchase confirmation is received that (i) such purchaser is
entitled under applicable provincial securities laws to purchase such Exchange
Notes without the benefit of a prospectus qualified under such securities
laws, (ii) where required by law, such purchaser is purchasing as principal
and not as agent and (iii) such purchaser has reviewed the text above under
"--Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws. Following a decision of the U.S. Supreme Court, it is possible that
Ontario purchasers will not be able to rely upon the remedies set out in
Section 12(2) of the United States Securities Act of 1933 where securities are
being offered under a U.S. private placement memorandum.
ENFORCEMENT OF LEGAL RIGHTS
All of the Issuer's directors and officers, as well as the experts named
herein, may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the Issuer or such persons. All or a substantial portion of the assets of
the Issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the Issuer or such
persons in Canada or to enforce a judgment obtained in Canadian courts against
such Issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Exchange Notes to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Exchange Notes acquired by such purchaser pursuant to this Offering. Such
report must be in the form attached to British Columbia Securities Commission
Blanket Order BOR #95/17, a copy of which may be obtained from the Issuer.
Only one such report must be filed in respect of Exchange Notes acquired on
the same date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Exchange Notes should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Exchange
Notes in their particular circumstances and with respect to the eligibility of
the Exchange Notes for investment by the purchaser under relevant Canadian
legislation.
115
<PAGE>
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Brobeck, Phleger & Harrison LLP, San Francisco, California.
EXPERTS
The consolidated financial statements of PEI as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997,
included in this Prospectus, have been included in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The financial statements of Lucas HDP as of December 31, 1997 and January
31, 1997 and for the eleven-month period ending December 31, 1997, the six-
month period ended January 31, 1997, and the years ended July 31, 1996 and
1995, appearing in this Prospectus, have been included in reliance on the
report of Ernst & Young, chartered accountants, independent accountants, given
on the authority of that firm as experts in accounting and auditing.
The consolidated financial statements of Lucas Argentina as of January 2,
1998, January 31, 1997 and July 31, 1996, for the years ended July 31, 1995
and 1996, the six-month period ended January 31, 1997, and the eleven month
period ended January 2, 1998, appearing in this Prospectus, have been included
in reliance on the report of Deloitte & Co., independent accountants, given on
the authority of that firm as experts in accounting and auditing.
The consolidated financial statements of Lucas South Africa as of December
31, 1997, and January 31, 1997, for the eleven-month period ending December
31, 1997 and the six-month period ended January 31, 1997, and as of and for
the years ended July 31, 1996 and 1995, appearing in this Prospectus, have
been included in reliance on the report of Arthur Andersen & Co., Chartered
Accountants (S.A.), given on the authority of that firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Issuer and PEI have filed jointly with the Commission a Registration
Statement on Form S-4 under the Securities Act, with respect to the Exchange
Notes offered by this Prospectus. For the purposes hereof, the term
"Registration Statement" means the original Registration Statement and any and
all amendments thereto. This Prospectus does not contain all of the
information set forth in the Registration Statement and the schedules and
exhibits thereto, to which reference hereby is made. Each statement made in
this Prospectus concerning a document filed as an exhibit to the Registration
Statement is qualified in its entirety by reference to such exhibit for a
complete statement of its provisions. Any interested party may inspect the
Registration Statement and its exhibits, without charge, at the public
reference facilities of the Commission at its principal office at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at its
regional office at 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661
and 7 World Trade Center, 13th Floor, New York, New York 10007. Any interested
party may obtain copies of all or any portion of the Registration Statement
and its exhibits at prescribed rates from the Public Reference Section of the
Commission at its principal office at Judiciary Plaza, 450 Fifth Street, N.W.,
Room 1024, Washington DC 20549.
Following the effective date of the Registration Statement, the Issuer will
be subject to the periodic reporting and other information requirements of the
Exchange Act pursuant to Section 15(d) thereof. The Issuer and PEI have agreed
that, whether or not they are subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act, they will file with the Commission (unless
the Commission will not accept such a filing), and
116
<PAGE>
furnish to the holders of the Notes with the annual reports and such
information, documents and other reports as are specified in Sections 13 and
15(d) of the Exchange Act. All reports filed with the Commission will be
available on the Commission's web site at http:www.sec.gov. In addition, for
so long as any of the Notes remain outstanding, the Issuer has agreed to make
available to any prospective purchaser of the Notes or beneficial owner of the
Notes, in connection with any sale thereof, the information required by Rule
144A(d)(4) under the Securities Act.
117
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PEI HOLDING, INC. AND SUBSIDIARIES
AUDITED FINANCIAL STATEMENTS
Report of Independent Accountants..................................... F-3
Consolidated Balance Sheets as of December 31, 1997 and 1996.......... F-4
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1996 and 1995.................................................. F-5
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995..................................... F-6
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995.................................................. F-7
Notes to Consolidated Financial Statements............................ F-8
Financial Statement Schedule: Schedule II--Valuation and Qualifying
Accounts ............................................................ F-22
UNAUDITED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of April 4, 1998 and December
31, 1997............................................................. F-23
Condensed Consolidated Statements of Operations for the Three-Month
Periods Ended April 4, 1998 and April 5, 1997 ....................... F-24
Condensed Consolidated Statements of Cash Flows for the Three-Month
Periods Ended April 4, 1998 and April 5, 1997........................ F-25
Notes to Condensed Unaudited Consolidated Financial Statements........ F-26
HEAVY DUTY PRODUCTS DIVISION OF LUCAS INDUSTRIES PLC
Report of Independent Auditors........................................ F-30
Balance Sheets as of December 31, 1997 and January 31, 1997........... F-31
Statements of Income for the Eleven-Month Period Ended December 31,
1997, the Six-Month Period Ended January 31, 1997 and the Years Ended
July 31, 1996 and July 31, 1995...................................... F-32
Statements of Changes in Parent Company Equity for the Eleven-Month
Period Ended December 31, 1997, the Six-Month Period Ended January
31, 1997 and the Years Ended July 31, 1996 and July 31, 1995......... F-33
Statements of Cash Flows for the Eleven-Month Period Ended December
31, 1997, the Six-Month Period Ended January 31, 1997 and the Years
Ended July 31, 1996 and July 31, 1995................................ F-34
Notes to Financial Statements......................................... F-35
LUCAS INDIEL ARGENTINA S.A.
Report of Independent Auditors........................................ F-40
Consolidated Balance Sheets as of January 2, 1998, January 31, 1997
and July 31, 1996.................................................... F-41
Consolidated Statements of Operations for the Years Ended July 31,
1995 and July 31, 1996, the Six-Month Period Ended January 31, 1997
and the Eleven-Month Period Ended January 2, 1998 ................... F-42
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended July 31, 1995 and July 31, 1996, the Six-Month Period
Ended January 31, 1997 and the Eleven-Month Period Ended January 2,
1998 ................................................................ F-43
Consolidated Statements of Cash Flows for the Years Ended July 31,
1995 and July 31, 1996, the Six-Month Period Ended January 31, 1997
and the Eleven-Month Period Ended January 2, 1998 ................... F-44
Notes to Consolidated Financial Statements............................ F-45
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED
Report of Independent Auditors........................................ F-54
Consolidated Balance Sheets as of December 31, 1997 and January 31,
1997................................................................. F-55
Consolidated Statements of Income for the Eleven-Month Period Ended
December 31, 1997 and the Six-Month Period Ended January 31, 1997.... F-56
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
Consolidated Statements of Cash Flows for the Eleven-Month Period
Ended December 31, 1997 the Six-Month Period Ended January 31, 1997.. F-57
Notes to Consolidated Financial Statements............................ F-58
Report of Independent Auditors........................................ F-66
Consolidated Balance Sheets as of July 31, 1996 and July 31, 1995..... F-67
Consolidated Statements of Income for the Years ended July 31, 1996
and July 31, 1995.................................................... F-68
Consolidated Statements of Cash Flows for Years Ended July 31, 1996
and July 31, 1995.................................................... F-69
Notes to Consolidated Financial Statements............................ F-70
Convenience Translation............................................... F-78
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of PEI Holding, Inc.:
We have audited the accompanying consolidated balance sheet of PEI Holding,
Inc. and Subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows
and the financial statement schedule listed on the index to financial
statements for the years ended December 31, 1997, 1996 and 1995. These
financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PEI Holding,
Inc. and Subsidiaries as of December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for the years ended December
31, 1997, 1996 and 1995, in conformity with generally accepted accounting
principles. In addition, in our opinion the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole presents fairly, in all material respects, the
financial information required to be included therein.
Coopers & Lybrand L.L.P.
Detroit, Michigan
January 30, 1998, except for
Note 21(b) for which the
date is March 26, 1998
F-3
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................... $ 455 $ 795
Accounts receivable, net of allowance for doubtful
accounts of $1,812 and $1,662 at December 31, 1997 and
1996, respectively...................................... 26,326 23,899
Inventories, net......................................... 24,687 24,958
Deferred tax asset, net.................................. 3,226 2,595
Prepaid and other current assets......................... 965 687
-------- --------
Total current assets................................... 55,659 52,934
-------- --------
Property, plant and equipment:
Land..................................................... 771 771
Building and improvements................................ 12,840 10,693
Equipment and tooling.................................... 31,461 25,895
Construction in progress................................. 1,276 3,840
-------- --------
46,348 41,199
Less accumulated depreciation.......................... (20,169) (15,382)
-------- --------
26,179 25,817
Net assets of discontinued operations...................... 1,416 10,437
Property, plant and equipment held for disposal............ -- 1,326
Investments................................................ 2,597 650
Intangible assets.......................................... 2,834 2,440
-------- --------
$ 88,685 $ 93,604
======== ========
LIABILITIES
Current liabilities:
Revolving credit......................................... $ 3,052 $ 515
Current portion of long-term debt........................ 1,144 4,235
Accounts payable......................................... 12,042 12,904
Accrued liabilities...................................... 12,029 10,463
-------- --------
Total current liabilities.............................. 28,267 28,117
Long-term debt............................................. 29,467 32,605
Subordinated debt, net..................................... 9,267 9,159
Accrued pension liability, net of current.................. 451 678
Deferred gain and other long-term liabilities (includes
$3,308 in 1996 related to the Hobart acquisition)......... 583 4,122
Deferred tax liabilities, net.............................. 1,707 905
-------- --------
Total liabilities...................................... 69,742 75,586
STOCKHOLDERS' EQUITY (NOTE 21(B))
Common stock, par value $.01; 5,000,000 shares authorized,
3,303,000 shares issued and outstanding in 1997 and 1996,
respectively.............................................. 2 2
Paid-in capital............................................ 16,623 16,623
Stock warrants, for 171,740 shares, at estimated current
value..................................................... 3,239 1,073
Retained earnings (accumulated deficit).................... (634) 382
Notes receivable, employees' stock purchase, 7.74%, due
2002...................................................... (346) (396)
Foreign currency translation adjustment.................... 379 550
Treasury stock, 32,000 and 24,000 shares in 1997 and 1996,
respectively, at cost..................................... (320) (216)
-------- --------
Total stockholders' equity............................. 18,943 18,018
-------- --------
$ 88,685 $ 93,604
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales........................................ $171,700 $148,765 $131,503
Cost of goods sold............................... 137,792 120,585 106,541
-------- -------- --------
Gross profit................................. 33,908 28,180 24,962
Selling, general and administrative expenses..... 23,188 20,986 18,955
Restructuring charge............................. -- 56 3,100
-------- -------- --------
Operating income............................. 10,720 7,138 2,907
Interest expense................................. 5,384 5,313 4,282
Other............................................ 210 108 203
-------- -------- --------
Income (loss) from continuing operations,
before income taxes......................... 5,126 1,717 (1,578)
Provision (benefit) for income taxes............. 2,303 (2,314) 630
-------- -------- --------
Income (loss) from continuing operations..... 2,823 4,031 (2,208)
Income (loss) from discontinued operation
(including asset write-down of $2,500 in 1997),
net of taxes of $1,116 and $175 in 1997 and
1996, respectively.............................. (1,673) 312 --
-------- -------- --------
Net income (loss)............................ $ 1,150 $ 4,343 $ (2,208)
======== ======== ========
Basic earnings per common share: (Note 21(b))
Income from continuing operations.............. $ 0.82 $ 1.17 $ (0.64)
Discontinued operations........................ (0.49) 0.09 --
-------- -------- --------
Net income (loss)............................ $ 0.33 $ 1.26 $ (0.64)
======== ======== ========
Diluted earnings per common share: (Notes 21(b))
Income from continuing operations.............. $ 0.78 $ 1.13 $ (0.64)
Discontinued operations........................ (0.46) 0.09 --
-------- -------- --------
Net income (loss)............................ $ 0.32 $ 1.22 $ (0.64)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED NOTES FOREIGN
------------------- EARNINGS RECEIVABLE CURRENCY
SHARES PAID-IN STOCK (ACCUMULATED EMPLOYEE TRANSLATION TREASURY
(NOTE 21(B)) AMOUNT CAPITAL WARRANT DEFICIT) STOCK ADJUSTMENT STOCK TOTAL
------------ ------ ------- ------- ------------ ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1995................... 3,303,000 $ 2 $16,623 $1,073 $(1,753) $(545) $205 $15,605
Net loss................ (2,208) (2,208)
Translation adjustment.. (79) (79)
Common stock, purchased
from employees and
other.................. 99 $(144) (45)
--------- --- ------- ------ ------- ----- ---- ----- -------
Balance, December 31,
1995................... 3,303,000 2 16,623 1,073 (3,961) (446) 126 (144) 13,273
Net income.............. 4,343 4,343
Translation adjustment.. 424 424
Common stock, purchased
from employees and
other.................. 50 (72) (22)
--------- --- ------- ------ ------- ----- ---- ----- -------
Balance, December 31,
1996................... 3,303,000 2 16,623 1,073 382 (396) 550 (216) 18,018
Net income.............. 1,150 1,150
Translation adjustment.. (171) (171)
Transfer to stock
warrants............... 2,166 (2,166) --
Common stock, purchased
from employees and
other.................. 50 (104) (54)
--------- --- ------- ------ ------- ----- ---- ----- -------
Balance, December 31,
1997................... 3,303,000 $ 2 $16,623 $3,239 $ (634) $(346) $379 $(320) $18,943
========= === ======= ====== ======= ===== ==== ===== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $1,150 $ 4,343 $(2,208)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Loss on sale of discontinued operations.......... 2,500 -- --
Cash (used in) discontinued operations........... (979) (2,663) --
Write-down and loss on property, plant and
equipment held for disposal..................... 277 167 2,200
Deferred gain on sale and leaseback.............. (233) (117) --
Depreciation and amortization.................... 5,501 5,246 4,550
Loss (gain) on sale of property, plant and
equipment....................................... 148 (462) (18)
Deferred taxes................................... 171 (1,700) --
Changes in assets and liabilities:
Accounts receivable............................ (2,651) (3,861) 1,677
Inventories.................................... 103 (635) (1,940)
Prepaid and other current assets............... (233) 635 (469)
Accounts payable............................... (751) 3,944 (775)
Accrued liabilities............................ 2,746 (2,337) (1,570)
------ ------- -------
Net cash provided by operating activities..... 7,749 2,560 1,447
------ ------- -------
Cash flows from investing activities:
Capital expenditures............................... (5,638) (6,794) (4,864)
Additions to Lucas Acquisition and refinancing
costs in 1997 and other........................... (1,019) (122) (56)
Proceeds from sale of property, plant and
equipment......................................... 1,140 2,787 285
Proceeds from sale of discontinued operations and
assets held for disposal.......................... 7,500 1,543 --
Purchase of certain product lines from Hobart,
including net assets of discontinued
operations of $5,053.............................. -- (7,500) --
Investment in affiliates........................... (500) (250) (400)
------ ------- -------
Net cash used in investing activities......... 1,483 (10,336) (5,035)
------ ------- -------
Cash flows from financing activities:
Net increase in revolving credit loan.............. 3,691 6,119 5,514
Payments on long-term debt......................... (6,799) (7,102) (2,575)
Proceeds from borrowings........................... -- 6,000 793
Purchase of treasury stock......................... (54) (22) (45)
Borrowings (payments) on capital leases, net....... (194) 41 (64)
Installment purchase of inventory from Hobart...... -- 2,465 --
Payments on acquisition payable to Hobart.......... (6,150) (633) --
Deferred gain on sale leaseback.................... -- 1,164 --
Other financing costs, net......................... (76) -- 166
------ ------- -------
Net cash provided by financing activities..... (9,582) 8,032 3,789
------ ------- -------
Effect of foreign currency exchange rate on cash.... 10 (43) (29)
------ ------- -------
Net (decrease) increase in cash..................... (340) 213 172
Cash, beginning of year............................. 795 582 410
------ ------- -------
Cash, end of year................................... $ 455 $ 795 $ 582
====== ======= =======
Supplemental cash flow information:
Interest paid...................................... $5,017 $ 4,930 $ 4,013
====== ======= =======
Taxes paid......................................... $ 619 $ 213 $ 247
====== ======= =======
Noncash financing transaction, deferred payment on
Hobart acquisition................................ -- $ 4,318 --
====== ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS ORGANIZATION
PEI Holding, Inc. ("PEI" or the "Company"), a subsidiary of Genstar Capital
Corporation ("Genstar" or the "Parent"), was formed in 1991 to acquire
substantially all of the assets and assume certain liabilities of Prestolite
Electric Incorporated and its wholly owned subsidiaries ("Prestolite"). PEI
includes the wholly owned subsidiaries Prestolite Electric Incorporated and
Prestolite Electric of Michigan, Inc. Prestolite Electric Incorporated's
wholly owned subsidiaries include Prestolite Electric Limited, a U. K.
corporation, and Prestolite Power Corporation, a company formed in 1996 to
acquire certain products lines of Hobart Brothers Company. Operations are
generally conducted as Prestolite Electric Incorporated. There are no material
differences between the financial statements of PEI and Prestolite Electric
Incorporated.
The Company manufactures and distributes heavy duty alternators and starter
motors, direct current electric motors and other electrical components for
aftermarket and original equipment application in the heavy duty vehicle,
defense, material handling, marine and other industries. Sales related to U.S.
Department of Defense contracts were 11.8 percent, 10.5 percent and 12.0
percent of consolidated sales for 1997, 1996 and 1995, respectively, with
about half of those sales directly to the U.S. government. Five manufacturing
facilities and one distribution warehouse are located in the United States and
two manufacturing facilities are located in the United Kingdom.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the accounts of PEI and its direct and indirect wholly owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
b. FOREIGN CURRENCY TRANSLATION: The assets and liabilities of foreign
subsidiaries have been translated into U.S. dollars at the rates of exchange
existing as of the balance sheet date. Revenues and expenses have been
translated at the average monthly exchange rates. Translation adjustments are
recorded as a separate component of stockholders' equity.
c. INVENTORIES: Inventories are stated at the lower of cost or market with
cost being established by the last-in, first-out ("LIFO") method for
substantially all inventory owned by domestic companies and by the first-in,
first-out ("FIFO") method for all inventories owned by foreign subsidiaries
and divisions. Approximately $6,492,000 and $6,502,000 of net inventories at
December 31, 1997 and 1996, respectively, have been valued based on FIFO cost.
d. PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated
at cost. Costs of maintenance and repairs are charged to operations when
incurred; costs of renewals, betterments and additions are capitalized. The
cost and accumulated depreciation applicable to assets retired or sold are
removed from the accounts, and the gain or loss on disposition is recognized
as income. Depreciation is computed on a straight-line basis over the
estimated useful lives of the buildings and improvements (11 to 31 years) and
the machinery and equipment (3 to 10 years).
e. INTANGIBLE ASSETS: Intangible assets are comprised of organization and
financing costs and goodwill. At each balance sheet date management assesses
whether there has been an impairment in the carrying value of intangible
assets. This assessment is based on comparing amortization to anticipated cash
flows and operating income.
f. PRODUCT WARRANTY COSTS AND SERVICE RETURNS: Anticipated costs related to
product warranty and service returns are provided for based upon management's
estimate of such costs, after consideration of historical trends and sales of
the products to which such costs relate.
F-8
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
g. ENGINEERING EXPENSES: Engineering costs are expensed as incurred and are
included in selling, general and administrative expenses. Total engineering
expenses for the years ended December 31, 1997, 1996 and 1995 were $5,988,336,
$5,967,517, and $4,351,794, respectively. Included in these engineering
expenses are research and development costs (as defined by Statement of
Financial Accounting Standards No. 2) for the years ended December 31, 1997,
1996 and 1995 of $4,947,685, $4,935,087 and $3,607,566, respectively.
h. EARNINGS PER SHARE: Basic earnings per share is calculated by dividing
income available to common stockholders by the weighted average number of
common shares outstanding. Diluted earnings per share is calculated by
dividing income available to common stockholders by the weighted average
number of common shares outstanding and potentially issuable common shares.
i. 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,
the 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.
j. FINANCIAL INSTRUMENTS: The carrying amount of the Company's financial
instruments, which includes cash, accounts receivable, accounts payable, and
long-term debt approximates their fair value at December 31, 1997 and 1996.
Fair values have been determined based on management estimates and information
from market sources.
k. RECLASSIFICATIONS: Certain prior year amounts have been reclassified to
conform to current year presentation.
l. NEW ACCOUNTING PRONOUNCEMENTS: In 1998, the Company will adopt the
disclosure requirements of SFAS No. 130, "Reporting of Comprehensive Income,"
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," and SFAS No. 132, "Employers' Disclosure about Pensions and
Other Postretirement Benefits." These statements are effective for fiscal
years beginning after December 15, 1997, and will not effect reported
earnings.
3. EARNINGS PER SHARE ("EPS")
In computing income available to common stockholders no adjustments were
required to the amounts reported in the statement of operations. Shares used
in the computation have been restated to reflect the 20-for-1 stock split
effective subsequent to year end (see Note 21(b)). Shares of common stock
available and potentially issuable used in the computation are comprised of
the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Average number of shares of common stock
used in computing basic EPS................ 3,275,000 3,283,000 3,295,000
Warrants, issuable for a nominal exercise
price...................................... 171,740 171,740 171,740
--------- --------- ---------
Shares used in computing basic EPS........ 3,446,740 3,454,740 3,466,740
Dilutive effect of stock options............ 181,280 99,060 --
--------- --------- ---------
Shares used in computing dilutive EPS..... 3,628,020 3,553,800 3,466,740
========= ========= =========
</TABLE>
Options were excluded from 1995 dilutive EPS since the inclusion of these
would have been antidilutive.
F-9
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. INVENTORIES
Inventories consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
FIFO cost:
Raw materials............................................ $10,303 $12,073
Work in process.......................................... 6,939 6,760
Finished goods........................................... 8,710 7,533
------- -------
Total FIFO cost........................................ 25,952 26,366
Adjustment to LIFO cost.................................... 1,552 1,768
Reserves for excess and obsolescence....................... (2,817) (3,176)
------- -------
$24,687 $24,958
======= =======
</TABLE>
As a result of a decrease in inventory, there was a 1997 LIFO liquidation
which resulted in a $216,000 decrease in income from continuing operations,
before income taxes ($0.06 decrease in basic and diluted earnings per share),
as compared to that which would have been reported had there been no
liquidation.
5. INVESTMENTS
Investments at December 31, 1997 are carried at cost. They include $597,000
representing a 5 percent interest in an Indian company and a $2 million
interest in a U.S. company. The U.S. investment includes $1.5 million that
will be paid in 1998 (which amount is included in accrued liabilities) at
which time the Company's ownership will increase to 35 percent from 9 percent
at December 31, 1997. In conjunction with the increase in ownership, the
Company expects to change to the equity method of accounting for the U.S.
company. The determination of the fair value of these investments is not
practicable.
6. INTANGIBLES ASSETS
Intangibles assets consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Organizational costs (5 year amortization).................... $3,761 $3,761
Goodwill (5 to 10 year amortization).......................... 1,165 1,165
Financing costs (3 to 10 year amortization)................... 1,149 1,149
Lucas acquisition and refinancing costs (Note 21(a)).......... 1,018 --
------ ------
7,093 6,075
Accumulated amortization...................................... 4,259 3,635
------ ------
$2,834 $2,440
====== ======
</TABLE>
The financing costs will be written off in 1998 as a result of the
refinancing discussed in Note 21(a). The Lucas acquisition and refinancing
costs will be considered in allocating the purchase price of the Lucas
acquisition.
F-10
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accrued compensation........................................ $ 3,139 $ 2,556
Accrued warranty............................................ 3,232 2,195
Payable to Hobart Brothers Company.......................... -- 2,842
Accrued environmental liability............................. 529 791
Amount due related to 1997 investment (Note 5).............. 1,500 --
Other accrued liabilities................................... 3,629 2,079
------- -------
$12,029 $10,463
======= =======
</TABLE>
8. DEBT
Debt consists of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
North America:
Revolving credit, interest at prime rate plus .75
percent, collateralized by all North American assets.. $18,383 $15,006
Term loan, interest at prime rate plus .75 to 1.25
percent, collateralized by all North American assets.. 10,205 15,494
Subordinated debt, interest at 12 percent.............. 10,000 10,000
------- -------
Total................................................ 38,588 40,500
------- -------
United Kingdom, interest at the bank's base rate plus 2
percent, collateralized by all U.K. assets:
Revolving credit....................................... 431 119
Term loan.............................................. 3,354 5,054
------- -------
Total................................................ 3,785 5,173
------- -------
Total term, revolving credit and subordinated debt
(refinanced subsequent to year-end)................. 42,373 45,673
Capital lease obligations................................ 942 1,150
Unamortized discount on subordinated debt................ (733) (841)
Other.................................................... 348 532
------- -------
Consolidated total................................... 42,930 46,514
Less current maturities.................................. 4,196 4,750
------- -------
Long-term debt....................................... $38,734 $41,764
======= =======
</TABLE>
As discussed in Note 21(a), subsequent to year-end the Company refinanced
all of its term, revolving credit and subordinated debt with the proceeds from
the $125 million, 9 5/8 percent (interest payable semiannually) unsecured
senior notes. The notes mature on February 1, 2008, and are redeemable at the
option of the Company, in whole or in part, beginning on February 1, 2003 at
amounts from 104.8125 percent to 100 percent of the principal amount, plus
accrued and unpaid interest to the redemption date with the net proceeds of a
public equity offering. In addition, up to 35 percent of the principal amount
of the notes may be redeemed prior to February 1, 2001 at an amount equal to
109.625 percent of the principal amount redeemed, plus accrued and unpaid
interest to the redemption date.
F-11
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. DEBT--(CONTINUED)
In connection with the refinancing the Company entered into new credit
agreements in the U.S. and the U.K. The U.S. agreements consist of a $23
million revolving credit facility, including a $2 million letter of credit
subfacility, which will be advanced pursuant to a formula based on eligible
U.S. accounts receivable and inventory levels. The borrowings will be
collateralized by all U.S. accounts receivable and inventories, will bear
interest at the bank's prime rates (8.5 percent at December 31, 1997) plus up
to .125 percent and will mature on January 31, 2000. No amounts were drawn on
the facility in connection with the refinancing.
The U.K. agreement consists of a credit facility providing for short-term
borrowings of up to (Pounds)3 million (approximately $4.9 million based on
exchange rates as of December 31, 1997) and is secured by liens on all U.K.
assets. It is expected that a new U.K. agreement will be entered into
consisting of (Pounds)7 million (approximately $11.6 million based on exchange
rates at December 31, 1997) credit facility which will be advanced based upon
eligible U.K. accounts receivable. The borrowings will be collateralized by
all U.K. accounts receivable, will bear interest at the bank's base rate (7.25
percent at December 31, 1997) plus 1.75 percent and will mature in February
2001. No amounts were drawn on the facility in connection with the
refinancing.
The senior notes and credit facilities mentioned above contain various
covenants including limits on a) issuance of additional debt or preferred
stock; b) the payment of dividends and purchases, redemptions or retirements
or common stock; c) investments; d) sale of assets and capital stock of
subsidiaries; and e) certain consolidations, mergers, transfers of assets and
certain other transactions with affiliates.
Maturities of debt obligations at December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR
----
<S> <C>
1998................................................................. $ 4,196
1999................................................................. 223
2000................................................................. 175
2001................................................................. 216
2002................................................................. 27
Thereafter........................................................... 38,093
-------
Total.............................................................. $42,930
=======
</TABLE>
9. INCOME TAXES
Income (loss) from continuing operations, before income taxes, consists of
the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
U.S................................................... $2,866 $ 442 $(3,584)
Foreign............................................... 2,260 1,275 2,006
------ ------ -------
$5,126 $1,717 $(1,578)
====== ====== =======
</TABLE>
F-12
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES--(CONTINUED)
The components of income tax related to continuing operations are as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
U.S.:
Current -- -- --
Deferred........................................ $ 920 $ 81 $(1,300)
Increase (decrease) in valuation reserve........ (196) (1,256) 1,300
Foreign:
Current......................................... 573 -- --
Deferred........................................ 202 370 390
Increase (decrease) in valuation reserve........ 489 (1,815) --
State and local................................... 315 306 240
------ ------- -------
$2,303 $(2,314) $ 630
====== ======= =======
</TABLE>
A reconciliation of the U.S. statutory tax rate to the effective tax rate
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ------ -----
<S> <C> <C> <C>
Statutory rate........................................ 34.0% 34.0% 34.0%
Change in valuation reserve........................... 5.7 (178.9) (82.4)
State and local, net of federal benefit............... 4.1 11.8 (10.0)
Difference in foreign tax rates....................... -- (3.7) 18.5
Other................................................. 1.1 2.0 --
---- ------ -----
Effective tax rate.................................. 44.9% (134.8)% (39.9)%
==== ====== =====
</TABLE>
The major components of deferred taxes (stated on an after tax basis) on the
balance sheet are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accrued tax benefit carryforwards.......................... $ 2,201 $ 3,835
Assets of discontinued operations.......................... 1,015 --
Current liabilities........................................ 2,176 1,766
Deferred gain.............................................. 185 366
Inventories................................................ (1,471) (1,324)
Property, plant and equipment.............................. (3,511) (3,267)
Other...................................................... 924 801
Valuation reserve.......................................... -- (487)
------- -------
$ 1,519 $ 1,690
======= =======
</TABLE>
PEI has net operating loss ("NOL") carryforwards at December 31, 1997 for
U.S. tax reporting purposes of approximately $6.2 million and approximately
$160,000 of alternative minimum tax benefit carryforwards. All U.K. NOLs have
been used as of December 31, 1997. The changes in the valuation reserve are
the result of management's estimate as to the recovery of deferred tax assets,
in particular the recovery of U.S. and U.K. NOLs. Management's estimate in
1996 as to the recovery of the NOLs was based primarily on 1996 results of
operations and expected favorable operating results in 1997. The NOLs in the
U.S. expire beginning in 2006.
F-13
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. EMPLOYEE BENEFIT PLANS
The Company has retirement savings plans for substantially all of its United
States employees. These retirement savings plans have cash or deferred salary
arrangements and include an option for matching contributions by the Company
and additional contributions at the discretion of its Board of Directors. The
Company's matching contributions to these plans were $699,000, $663,000 and
$549,000 for 1997, 1996 and 1995, respectively. The Company also has defined
benefit plans that cover certain former employees. Benefits under these
defined benefit plans are based on years of service. The Company's funding
policy is to meet the minimum funding requirements of the Employee Retirement
Income Security Act of 1974, as amended. The Company's subsidiary in the U.K.
provides benefits based on the employees' earnings. The Company's funding
policy is to meet the minimum funding requirements imposed by current statutes
or tax regulations.
The funded status of the United States defined benefit plans at December 31,
1997 and 1996, based upon most recent actuarial valuations (December 31, 1997
and 1996), is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Actuarial present value of accumulated benefit obligations
(all vested)................................................ $2,927 $2,943
====== ======
Projected benefit obligation for service rendered to date.... $2,927 $2,943
Plan assets at fair value (principally short-term cash
equivalents, corporate notes, U.S. bonds and equities)...... 2,429 2,205
------ ------
Projected benefit obligation in excess of plan assets........ 498 738
Unrecognized net loss (gain)................................. (30) 158
------ ------
Net accrued pension cost..................................... $ 528 $ 580
====== ======
</TABLE>
The components of pension expense for the United States plans for the years
ended December 31, 1997, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Service costs for benefits earned during the period... $ 13 $ 50 $ 67
Interest cost......................................... 209 207 206
Actual return on plan assets.......................... (270) (186) (259)
Net amortization and deferral......................... 94 31 139
Curtailment........................................... -- 2 --
----- ----- -----
Net periodic pension cost........................... $ 46 $ 104 $ 153
===== ===== =====
Rates used in the calculation of amounts above are:
Discount rate......................................... 7.5% 7.5% 7.5%
Expected rate of return on assets..................... 8.0 8.0 8.0
</TABLE>
F-14
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. EMPLOYEE BENEFIT PLANS--(CONTINUED)
The funded status of the U.K. plans at December 31, 1997 and 1996, based
upon the most recent actuarial valuation (December 31, 1997 and 1996), is as
follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Actuarial present value of accumulated benefit obligations
(all vested)............................................. $ 8,815 $ 7,381
Effect of estimated future compensation increases......... 710 1,352
------- -------
Projected benefit obligation for service rendered to
date..................................................... 9,525 8,733
Plan assets at fair value (principally short-term cash
equivalents, corporate notes and U.K. equities).......... 12,262 10,614
------- -------
Plan assets in excess of projected benefit obligation..... 2,737 1,881
Unrecognized net gain..................................... 2,735 1,979
------- -------
Net accrued pension cost.................................. $ (2) $ 98
======= =======
</TABLE>
The components of pension expense for the U.K. plans for the years ended
December 31, 1997, 1996 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ----- -------
<S> <C> <C> <C>
Service costs for benefits earned during the
period.......................................... $ 480 $ 438 $ 376
Interest cost.................................... 693 657 589
Actual return on plan assets..................... (2,103) (942) (1,360)
Net amortization and deferral.................... 1,030 (128) 505
------- ----- -------
Net periodic pension cost...................... $ 100 $ 25 $ 110
======= ===== =======
Rates used in the calculation of amounts above are:
Discount rate.................................... 7.0% 8.5% 8.5%
Expected rate of return on assets................ 8.0 9.5 9.5
Anticipated rate of salary increase.............. 5.0 6.5 7.5
</TABLE>
11. ENVIRONMENTAL ISSUES
Certain of the Company's plants (primarily two manufacturing facilities) are
in the process of remedial cleanup and containment for environmental
contamination that occurred prior to PEI's acquisition of Prestolite. PEI has
assumed a portion of the environmental liability related to the acquired
facilities. The prior owners of the two manufacturing facilities have taken
the lead to manage the cleanup and remedial actions. They bill PEI for its
share of the costs. The liability of $529,000 and $791,000 at December 31,
1997 and 1996, respectively, is included in current liabilities is based upon
environmental studies and represents management's best estimate of the
Company's share of the liability for cleanup and containment costs. Management
believes that the majority of its share of the costs will be expended in 1998.
While it is possible that the cleanup and containment costs could exceed the
liability recorded, management does not believe any excess would materially
affect future consolidated financial statements of PEI.
12. LEASES
The Company leases certain office and manufacturing facilities, data
processing equipment and automobiles under long-term operating lease
agreements. In the current year, the Company entered into capital leases for
certain manufacturing and engineering equipment and improvements related to
real property. The leases expire
F-15
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. LEASES--(CONTINUED)
on various dates through 2006. The following are schedules of future minimum
lease payments for operating and capital leases (with terms in excess of one
year) at December 31, 1997 (in thousands):
<TABLE>
<S> <C>
Operating leases (year ended December 31):
1998............................................................... $1,885
1999............................................................... 1,349
2000............................................................... 1,134
2001............................................................... 784
2002............................................................... 973
Thereafter......................................................... 2,109
------
$8,234
======
</TABLE>
Rent expense for operating leases was $3,195,218, $1,622,280 and $1,490,793
for the years ended December 31, 1997, 1996 and 1995, respectively.
<TABLE>
<S> <C>
Capital leases (year ended December 31):
1998............................................................... $ 403
1999............................................................... 278
2000............................................................... 203
2001............................................................... 151
2002............................................................... 29
Thereafter......................................................... 109
------
Total minimum lease payments..................................... 1,173
Less imputed interest............................................ 210
------
Present value of net minimum lease payments...................... $ 963
======
</TABLE>
The book value, as of December 31, 1997, of equipment under capital leases
was $1,169,000, which is net of amortization of $641,000.
13. STOCK OPTIONS
PEI has established a stock option plan for certain designated employees.
All shares and per share amounts reflect the 20-for-1 stock split effective
subsequent to year end (see Note 21(b)). The Company has reserved 350,280
shares for the plan. All options outstanding as of December 31, 1997 have an
exercise price of $5.00 to $8.25 per share, and no options have been
exercised. Options generally vested 20 percent per year over five years but
may not be exercised until 90 days following the effective date of a
registration statement under the Securities Act of 1933 or upon receipt by PEI
of a legal opinion that registration is not required or until PEI determines
otherwise. The exercise date may be accelerated upon a change of control of
the Company and options expire 10 years from the date of grant.
F-16
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. STOCK OPTIONS--(CONTINUED)
The changes in stock options outstanding for the years ended December 31,
1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
OPTIONS PRICE
------- --------
<S> <C> <C>
Outstanding at January 1, 1995............................. 297,200 $5.20
Granted.................................................... 59,500 8.25
Forfeited.................................................. (23,800) 7.20
------- -----
Outstanding at December 31, 1995........................... 332,900 $5.60
======= =====
Exercisable at December 31, 1995........................... -- --
======= =====
Outstanding at January 1, 1996............................. 332,900 $5.60
Granted.................................................... 86,000 8.25
Forfeited.................................................. (57,500) 7.20
------- -----
Outstanding at December 31, 1996........................... 361,400 $6.20
======= =====
Exercisable at December 31, 1996........................... -- --
======= =====
Outstanding at January 1, 1997............................. 361,400 $6.20
Forfeited.................................................. (51,500) 5.90
------- -----
Outstanding at December 31, 1997........................... 309,900 $6.25
======= =====
Exercisable at December 31, 1997........................... -- --
======= =====
</TABLE>
Information with respect to stock options outstanding at December 31, 1997,
is as follows:
<TABLE>
<CAPTION>
EXERCISE OUTSTANDING AT AVERAGE REMAINING
PRICE ($) DECEMBER 31, 1997 (#) CONTRACTUAL LIFE (YEARS)
--------- --------------------- ------------------------
<S> <C> <C>
5.00 166,900 4.2
6.25 36,000 6.0
8.25 107,000 7.6
</TABLE>
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-
Based Compensation" (SFAS 123) became effective for the company in 1996. As
allowed by SFAS 123, the Company has elected to continue to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock issued to Employees"
("APB 25") in accounting for its stock option plans. Under APB 25, the Company
does not recognize compensation expense on the issuance of its stock options
because the option terms are fixed and the exercise price equals the market
price of the underlying stock on the grant date.
As required by SFAS 123, the Company has determined the pro forma
information as if the Company had accounted for stock options granted since
January 1, 1995 under the fair value method of SFAS 123.
Principal assumptions used in calculating the pro forma information were as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Risk free interest rates......................................... 6.31% 7.83%
Expected life, in years.......................................... 7.00 7.00
Expected volatility.............................................. -- --
Expected dividend yield.......................................... -- --
Weighted average fair value of options granted................... 5.31 4.87
</TABLE>
F-17
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. STOCK OPTIONS--(CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period. The
Company's pro forma information follows (in thousands except for earnings per
share information):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
Net income (loss), as reported....................... $1,150 $4,343 $(2,208)
Net income (loss), pro forma......................... 1,094 4,265 (2,240)
Earnings per share, as reported...................... 0.33 1.26 (0.64)
Earnings per share, pro forma........................ 0.32 1.23 (0.65)
</TABLE>
The pro forma effect on net income for 1997, 1996 and 1995 is not
representative of the pro forma effect on net income in future years because
it does not take into consideration pro forma compensation expense related to
grants made prior to 1995.
In connection with the issuance of the subordinated debt (Note 8) the
Company issued warrants to purchase 171,740 shares of common stock exercisable
for a nominal amount. The Company assigned these warrants a fair value of
$1,073,375 ($6.25 share) at the date of issuance and revalued them to current
fair value during 1997 through a transfer from paid in capital. All warrants
were repurchased in January 1998 in connection with the refinancing (See Note
21(a)).
14. RELATED PARTY TRANSACTIONS
The Company has a management consulting agreement with Genstar Investment
Corporation ("GIC"), an affiliate of Genstar. Under the agreement, the Company
pays GIC a management consulting fee of $800,000 per year. For each of the
years ended December 31, 1997, 1996 and 1995, $800,000 were charged to
operations under this agreement. At December 31, 1997 and 1996, $200,000 of
consulting fees were accrued and unpaid.
15. PROPERTY, PLANT AND EQUIPMENT HELD FOR DISPOSAL
Property, plant and equipment held for disposal at December 31, 1996
included one facility. During 1997, the Company sold this facility; a loss of
approximately $277,000 was recognized on this transaction.
16. LITIGATION AND CLAIMS
Various legal actions and claims are pending or may be instituted or
asserted in the future against the Company. The outcome of individual matters
is not predictable at this time. Except as related to environmental issues as
discussed in Note 11, the potential aggregate amount of liability at December
31, 1997 and 1996 with respect to these matters cannot be ascertained;
however, management believes that any resulting unrecorded liability would not
materially affect the future consolidated financial statements of the Company.
17. DISCONTINUED OPERATIONS
During the third quarter of 1997, the Company sold its welding equipment
division for $7.5 million plus commitments from the buyer to acquire up to
$1.9 million of inventory not included in the initial sale. Net assets of
discontinued operations at December 31, 1997, include uncollected accounts
receivable and inventory of the welding equipment division which were not
sold. This division was acquired during 1996 as a part of the purchase of
certain product lines from Hobart Brothers Company. This division is treated
as a discontinued operation, and the 1996 financial statements have been
reclassified to exclude the operations of the welding equipment division from
continuing operations. The Company recorded a $1.5 million after tax loss on
the sale ($2.5 million loss, less $1 million tax benefit).
F-18
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. DISCONTINUED OPERATIONS--(CONTINUED)
During 1997, the Company decided to retain its Beech Electric Division
("Beech") as part of the Company's continuing operations. This decision was
based on the inability to sell Beech at reasonable terms and management's
subsequent belief that the division could be operated profitably and the
continued operations would be in the best interest of PEI. Beech was
identified for disposition in 1995 and had been accounted for as a
discontinued operation since that time. The accompanying consolidated
financial statements have been reclassified to include Beech in continuing
operations. As a result of the decision to dispose of Beech, the Company
recorded $700,000 to write-down the assets to their net realizable value,
which amount is included with the restructuring charge in the 1995
consolidated statement of operations.
The prior year financial statements have been reclassified to reflect the
welding equipment division as a discontinued operation and to include Beech in
continuing operations. The effect of the restatement on prior years follows
(in thousands):
<TABLE>
<CAPTION>
PREVIOUSLY WELDING
REPORTED DIVISION BEECH RESTATED
---------- -------- ------ --------
<S> <C> <C> <C> <C>
1996:
Assets of discontinued operation...... $ 968 $ 10,437 $ (968) $ 10,437
Total assets.......................... 96,969 (3,466) 101 93,604
Total liabilities..................... 78,951 (3,466) 101 75,586
Net sales............................. 166,609 (20,283) 2,439 148,765
Operating income...................... 7,838 (590) (110) 7,138
Discontinued operations............... (115) 312 115 312
1995:
Net sales............................. 128,924 -- 2,579 131,503
Operating income...................... 3,839 -- (932) 2,907
Discontinued operations............... (936) -- 936 --
</TABLE>
18. RESTRUCTURING CHARGE
During 1995, the Company announced restructuring plans which included the
closing of its plant in Cleveland, Ohio and moving operations previously
conducted at the Cleveland plant to the plant located in Arcade, New York. A
provision of $2,400,000 was recognized in 1995 related to the restructurings.
The 1995 restructuring charge consists of the following (in thousands):
<TABLE>
<S> <C>
Employee severance costs............................................ $ 975
Write-down of property, plant and equipment......................... 1,120
Post-closing facility costs (primarily utility, security and related
costs)............................................................. 305
------
2,400
Asset write down of previously discontinued operations (Note 17).... 700
------
$3,100
======
</TABLE>
The Cleveland plant closing was completed during 1996 and no accrual
remained as of the end of 1996. Costs incurred were approximately equal to the
amount provided. Certain costs such as start-up costs and training were not
provided for in the 1995 restructuring provision and were charged to
operations in 1996.
F-19
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. OPERATIONS BY GEOGRAPHIC AREA
The Company operates primarily in one segment which is the manufacture and
distribution of electrical equipment primarily for heavy duty vehicle,
defense, material handling and marine applications. Financial information
summarized by geographic area is as follows (in thousands):
<TABLE>
<CAPTION>
UNITED GREAT
STATES BRITAIN ELIMINATIONS CONSOLIDATED
-------- ------- ------------ ------------
<S> <C> <C> <C> <C>
For twelve months ended:
December 31, 1997:
Sales......................... $143,865 $31,312 $(3,477) $171,700
Operating income.............. 8,093 2,532 95 10,720
December 31, 1996:
Sales......................... $124,669 $26,503 $(2,407) $148,765
Operating income.............. 5,191 1,746 201 7,138
December 31, 1995:
Sales......................... $105,539 $27,794 $(1,830) $131,503
Operating income.............. 334 2,609 (36) 2,907
Identifiable assets:
As of December 31, 1997......... $ 75,008 $19,181 $(5,504) $ 88,685
As of December 31, 1996......... 79,381 19,302 (5,079) 93,604
</TABLE>
Sales eliminations represent primarily sales from the United States to Great
Britain and are priced at cost plus a mark up that represents market prices.
20. SALE AND LEASEBACK
In 1996, the Company sold its Florence, Kentucky, facility and leased back
approximately 60 percent of the space in that facility. The transaction
resulted in a gain of approximately $1,447,000, of which approximately
$283,000 was recognized upon completion of the transaction. The remainder of
the gain is being amortized through June 2001, offsetting the rental expense.
The lease is classified as an operating lease. The minimum future rental
payments are included in Note 8. The current portion of the gain,
approximately $233,000 at both December 31, 1997 and 1996, is included in
accrued liabilities.
21. SUBSEQUENT EVENTS
(a) On January 22, 1998, Prestolite issued $125 million, 9 5/8 percent
(interest payable semiannually), unsecured senior notes. Proceeds from the
issuance of the notes were used as follows (in thousands):
<TABLE>
<S> <C>
Acquire certain affiliates of Lucas Industries plc................ $ 44,702
Repay existing Prestolite debt (of which $42,373 was outstanding
at December 31, 1997)............................................ 38,653
Purchase of PEI securities........................................ 29,741
Fees and expenses................................................. 6,950
General corporate purposes........................................ 4,954
--------
$125,000
========
</TABLE>
On January 22, 1998, Prestolite acquired the heavy duty products division of
Lucas Industries plc (a U.K. corporation), Lucas Holdings South Africa
(Proprietary) Limited and a controlling interest in Lucas Indiel Argentina
S.A. ("Lucas Argentina") (collectively referred to as the "Lucas Businesses").
The Lucas Businesses manufacture primarily alternators and starter motors for
the truck, bus and automotive markets in the U.K., continental Europe, South
America and South Africa. The purchase price was as follows (in thousands):
F-20
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
21. SUBSEQUENT EVENTS--(CONTINUED)
<TABLE>
<S> <C>
Cash at closing, including repayment of $3,393 of debt.............. $44,702
Assumption of Lucas Argentina debt.................................. 6,300
Future payment for additional equity of Lucas Argentina............. 1,200
-------
$52,202
=======
</TABLE>
The purchase price is subject to adjustments based upon the closing balance
sheets of each of the businesses acquired and additional payments, with a
maximum aggregate amount of $19 million, may be required based on the
operating performance of Lucas Argentina over the next three years and upon
the collection of certain receivables. Prestolite has also agreed to acquire
certain inventory and consulting services from Lucas Industries plc for an
estimated aggregate amount of $2.6 million. Summary unaudited combined
financial information as of September 30, 1997 and for the 12 months then
ended for the Lucas Businesses follows (in thousands):
<TABLE>
<S> <C>
Total assets........................................................ $110,591
Total liabilities................................................... 45,605
Net sales........................................................... 134,548
Operating income.................................................... 2,317
</TABLE>
Prestolite refinanced all of its existing senior bank debt and the senior
subordinated notes. In connection with the refinancing, the Company incurred
prepayment penalties, eliminated the discount related to the senior
subordinated notes and wrote-off unamortized financing costs related to the
existing debt. These amounts, which aggregated approximately $2 million, will
be reflected as an extraordinary loss on refinancing in 1998.
The PEI common stock and options were acquired at a fair value of $18.86 per
share of PEI common stock and $18.86 per option to purchase shares of PEI
common stock less any applicable exercise price. The warrants to purchase
shares of PEI common stock were acquired for $20.00 per warrant. The purchase
of the PEI securities consisted of the following (in thousands):
<TABLE>
<S> <C>
Repurchase of 1,286,000 (after stock split) shares of PEI common
stock.............................................................. $24,259
Repurchase of all outstanding warrants associated with the
refinanced senior subordinated debt................................ 3,435
Repurchase of stock options for 123,960 (after stock split) shares
of PEI common stock (recorded as compensation expense in 1998)..... 2,047
-------
$29,741
=======
</TABLE>
(b) On March 10, 1998 the Board of Directors approved a 20-for-1 stock split
effective March 26, 1998, and increased the number of authorized shares to
5,000,000. All shares and per share amounts have been restated to reflect the
split.
22. SUMMARY FINANCIAL INFORMATION
Summary financial information of Prestolite Electric Incorporated follows ($
thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Balance sheet:
Current assets.................................... $ 55,676 $ 52,934
Non current assets................................ 33,026 40,670
Current liabilities............................... 28,267 28,143
Non current liabilities........................... 41,475 47,469
Stockholders' equity.............................. 18,960 17,992
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Statement of operations:
Net sales......................................... $171,700 $148,765 $131,503
Gross profit...................................... 33,908 28,180 24,962
Income (loss) from continuing operations.......... 2,812 4,024 (2,212)
Net income (loss)................................. 1,139 4,336 (2,212)
</TABLE>
F-21
<PAGE>
SCHEDULE II
PEI HOLDING, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGE TO BALANCE AT
BEGINNING COSTS AND CHARGED TO END OF
OF PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS(1) PERIOD
---------- --------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
Year ended December 31,
1997.................. $1,662 $608 -- $ 458 $1,812
Year ended December 31,
1996.................. $1,285 $499 -- $ 122 $1,662
Year ended December 31,
1995.................. $1,218 $223 -- $ 156 $1,285
Reserve for Inventory
Obsolescence:
Year ended December 31,
1997.................. $3,176 $908 -- $1,267 $2,817
Year ended December 31,
1996.................. $3,146 $708 -- $ 678 $3,176
Year ended December 31,
1995.................. $2,937 $787 -- $ 578 $3,146
</TABLE>
- --------
(1) Deductions related to the allowance for doubtful accounts relate to the
writeoff of uncollectable accounts and adjustments for receivables, which
are expected to be satisfied by the return of used parts returned for
credit. Deductions related to inventory obsolescence relate primarily to
the disposal of obsolete inventory.
F-22
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
AS OF APRIL 4, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 7,565 $ 455
Accounts receivable, net of allowance for doubtful
accounts of $2,870 and $1,812 at April 4, 1998 and
December 31, 1997, respectively.......................... 47,991 26,326
Inventories, net.......................................... 52,195 24,687
Deferred tax asset, net................................... 5,295 3,226
Prepaid and other current assets.......................... 2,641 965
-------- -------
Total current assets.................................... 115,687 55,659
Property, plant and equipment, net.......................... 62,167 26,179
Investments
Intangible assets......................................... 339 2,834
Other..................................................... 9,462 4,013
-------- -------
Total assets............................................ $187,665 $88,685
======== =======
LIABILITIES
Current liabilities:
Revolving credit.......................................... $ 2,436 $ 3,052
Current portion of long-term debt and capital lease
obligations.............................................. 4,212 1,144
Accounts payable.......................................... 25,006 12,042
Accrued liabilities....................................... 36,296 12,029
-------- -------
Total current liabilities............................... 67,950 28,267
Senior notes................................................ 125,000 --
Other long-term debt........................................ 938 29,467
Subordinated debt, net...................................... -- 9,267
Other non-current liabilities............................... 2,959 1,034
Deferred tax liabilities, net............................... 1,645 1,707
-------- -------
Total liabilities....................................... 198,492 69,742
Minority interest in Argentina subsidiary................... 35 --
STOCKHOLDERS' EQUITY
Common stock, par value $.01; 5,000,000 shares authorized,
3,303,000 shares issued and outstanding at April 4, 1998
and December 31, 1997, respectively........................ 2 2
Paid-in capital............................................. 16,623 16,623
Stock warrants.............................................. -- 3,239
Retained earnings (accumulated deficit)..................... (2,891) (634)
Notes receivable, employees' stock purchase................. (297) (346)
Foreign currency translation adjustment..................... 420 379
Treasury stock, 1,310,000 and 32,000 shares on April 4, 1998
and December 31, 1997, respectively........................ (24,729) (320)
-------- -------
Total stockholders' equity.............................. (10,872) 18,943
-------- -------
Total liabilities and stockholders' equity.............. $187,655 $88,685
======== =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-23
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 4, 1998 AND APRIL 5, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Net sales................................................ $ 74,525 $ 44,302
Cost of goods sold....................................... 60,031 35,346
--------- ---------
Gross profit......................................... 14,494 8,956
Selling, general and administrative expenses............. 9,806 5,629
Costs associated with option repurchase.................. 2,101 --
Restructuring charge..................................... 980 --
--------- ---------
Operating income..................................... 1,607 3,327
Interest expenses........................................ 3,281 1,433
Other expense (income)................................... (86) 20
--------- ---------
Income (loss) from contributing operations before
extraordinary loss and income taxes................. (1,588) 1,874
Provision (benefit) for income taxes..................... (606) 747
--------- ---------
Income (loss) from continuing operations............. (982) 1,127
Income from discontinued operation, net.................. -- 26
Extraordinary loss, net of taxes of $716................. 1,275 --
--------- ---------
Net income (loss).................................... (2,257) 1,153
Other comprehensive income (expense):
Foreign currency translation adjustment................ 41 (225)
--------- ---------
Comprehensive income (loss).......................... $ (2,216) $ 928
========= =========
Basic earnings per common share:
Income from continuing operations...................... $ (0.42) $ 0.33
Discontinued operations................................ -- --
Extraordinary item..................................... $ (0.55) --
--------- ---------
Net income (loss).................................... $ (0.97) $ 0.33
========= =========
Diluted earnings per common share:
Income from continuing operations...................... $ (0.42) $ 0.31
Discontinued operations................................ -- 0.01
Extraordinary item..................................... $ (0.55) --
--------- ---------
Net income (loss).................................... $ (0.97) $ 0.32
========= =========
Basic shares outstanding................................. 2,323,194 3,450,740
Diluted shares outstanding............................... 2,232,194 3,655,180
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-24
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED APRIL 4, 1998 AND APRIL 5, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (2,257) $ 1,153
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Cash (used) in discontinued operations.................. 1,221 (2,348)
Loss (gain) on sale of property, plant and equipment.... -- 9
Deferred taxes.......................................... (2,069) 703
Compensation expense related to options................. 2,101 --
Depreciation and amortization........................... 2,992 1,354
Loss on debt extinguishment............................. 1,991 --
Changes in working capital items........................ 1,895 (3,781)
-------- -------
Net cash provided by (used for) operating activities.. 5,874 (2,910)
Cash flows used for investing activities:
Capital expenditures...................................... (2,681) (772)
Acquisition of Lucas businesses........................... (54,433) --
-------- -------
Net cash used for investing activities................ (57,114) (772)
Cash flows from financing activities:
Proceeds from issuance of senior notes.................... 125,000 --
Debt assumed in acquisition of Lucas businesses........... 3,227 --
Net (decrease) increase in revolving credit............... (552) 6,644
Redemption of subordinated notes.......................... (10,000) --
Payments on long-term debt................................ (28,653) (2,656)
Payments on acquisition payable to Hobart................. -- (637)
Purchase of stock and warrants............................ (27,692) --
Payments of capital lease obligations and other........... (90) (65)
Purchase of treasury stock and options.................... (2,203) --
Debt refinancing costs.................................... (728) --
-------- -------
Net cash from financing activities.................... 58,309 3,286
Effect of foreign currency exchange rate on cash............ 41 9
-------- -------
Net increase (decrease) in cash............................. 7,110 (387)
Cash, beginning of period................................... 455 795
-------- -------
Cash, end of period......................................... $ 7,565 $ 408
======== =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-25
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION
The unaudited condensed consolidated financial statements included herein
have been prepared by PEI Holding, Inc., which conducts all of its operations
through its wholly-owned principal subsidiary, Prestolite Electric
Incorporated. There are no material differences between the financial
statements of PEI Holding, Inc. and Prestolite Electric Incorporated
(collectively, "the Company" or "Prestolite"). The year-end 1997 condensed
balance sheet data was derived from the Company's audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles.
During the first quarter of 1998 the Company adopted SFAS No. 130,
"Reporting of Comprehensive Income." The effect of this was to include a
foreign currency translation credit (charge) of $41,000 and ($225,000) for
1998 and 1997, respectively, as a component of comprehensive income (loss).
Other than for the adoption of SFAS No. 130 described above, the unaudited
interim financial statements furnished with this report have been prepared on
a consistent basis with the Company's audited financial statements for the
year ended December 31, 1997. These statements reflect all adjustments,
consisting only of items of a normal recurring nature, which are, in the
opinion of management, necessary for the fair statement of the consolidated
financial position and consolidated results of operations for the interim
period presented. Prior period amounts have been restated or reclassified
where necessary to conform to current presentation.
These financial statements and the related notes should be read in
conjunction with the Company's audited financial statements and notes thereto
and other material included in the Confidential Offering Circular (the
"Offering Circular") dated January 16, 1998. The results of operations for the
three month period ended April 4, 1998 are not necessarily indicative of the
operating results that may be expected for the full fiscal year or any other
interim period.
The equity securities of PEI Holding, Inc. are held by Genstar Capital
Corporation and Company management.
2. ACQUISITION, SHARE REPURCHASE AND REFINANCING
On January 22, 1998, Prestolite acquired the heavy duty products division of
Lucas Industries plc (a U.K. corporation), Lucas Holdings South Africa
(Proprietary) Limited and a controlling interest in Lucas Indiel Argentina
S.A. (collectively, the "Lucas Acquisition"). The purchase price included
approximately $41.3 million in cash and the assumption of approximately $6.6
million in debt. In addition, the Company expects to pay $766,000 in August,
1998, for substantially all the remaining shares of Lucas Indiel Argentina
S.A. Contingent payments, with a maximum aggregate amount of $19 million may
be required based on the operating performance of Lucas Indiel Argentina S.A.
over the next three years and upon the collection of certain receivables.
Prestolite also agreed to acquire certain inventory and consulting services
from Lucas Industries plc for an estimated aggregate amount of $2.5 million.
F-26
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. ACQUISITION, SHARE REPURCHASE AND REFINANCING -- (CONTINUED)
On January 22, 1998, Prestolite Electric Incorporated completed the offering
of $125 million of 9.625% Senior Notes due 2008 (the "Notes"), discussed in
Note 5. The proceeds of the Notes were used to fund the Lucas Acquisition, to
repay approximately $42 million of outstanding indebtedness, and to pay
approximately $29.7 million for the repurchase of PEI Holding, Inc. common
stock, plus warrants and options to purchase common stock. These transactions
are more fully described in the Offering Circular.
In conjunction with these transactions, the Company recorded expense of
$2,101,000 for the repurchase of options, and an extraordinary item of
$1,275,000 net of tax benefit. The extraordinary item included, on a pre-tax
basis, approximately $923,000 of fees and other costs associated with the
prepayment of previously-existing debt, $335,000 for the write-off of
unamortized financing costs, and $733,000 to write off the unamortized
discount on subordinated debt. As described in Note 6, the Company recorded a
$980,000 restructuring charge related to costs anticipated to be incurred at
the Company's existing facilities as a result of the Lucas Acquisition.
Results for the first quarter of 1998 are recorded as though the Lucas
Acquisition was completed on January 1, 1998, and an imputed interest cost of
$213,000 was charged to interest expense for the period from January 1, to
January 22. The Lucas Acquisition has been accounted for as a purchase and a
preliminary allocation of the purchase price has been made in accordance with
Accounting Principals Board Opinion 16. The purchase price allocation will be
completed by the end of the year and will likely change from that included in
the accompanying statements.
Pro forma unaudited consolidated operating results of the Company for the
first quarter of 1997 as through Lucas Acquisition had been consummated on
January 1, 1997 are summarized below. Pro forma adjustments include only the
addition of the results of the acquired business units and do not reflect
anticipated efficiencies in operations. These results are not necessarily
indicative of future results of operations nor are they indicative of the
results of historical operations had the acquisitions been consummated as of
the assumed dates. These results also reflect the 20 for one stock split
effective March 26, 1998.
<TABLE>
<S> <C>
Net Sales in thousands................................................. $74,521
Net Loss, in thousands................................................. $ (432)
Earnings (Loss) per Share..............................................
Basic................................................................ $(0.13)
Diluted.............................................................. $(0.13)
</TABLE>
Basic earnings per share are the same as diluted earnings per share because
the sue of diluted shares in calculating earnings per share would reduced the
loss per share.
3. INVENTORIES
Inventories are summarized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
APRIL DECEMBER
4, 1998 31, 1997
------- --------
<S> <C> <C>
Raw Material........... $16,201 $ 9,027
Work in Process........ 15,750 6,096
Finished Goods......... 20,144 9,564
------- -------
Total................ $52,195 $24,687
======= =======
</TABLE>
F-27
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, Plant and Equipment consists of the following (in thousands of
dollars):
<TABLE>
<CAPTION>
APRIL 4, 1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
Land & Buildings.......................... $ 28,994 $ 13,611
Machinery & Equipment..................... 52,104 31,461
Construction in Progress.................. 3,900 1,276
-------- --------
Total, at Cost.......................... 84,998 46,349
Accumulated Depreciation.................. (22,831) (20,169)
-------- --------
Net................................... $ 62,167 $ 26,179
======== ========
</TABLE>
5. DEBT
In connection with the Lucas Acquisition, share repurchases and refinancing
discussed in Note 2, on January 22, 1998 Prestolite Electric Incorporated
issued $125 million of 9.625% Senior Notes due 2008. The Notes pay interest
semi-annually and mature on February 1, 2008 but may be redeemed earlier at
the Company's option under conditions specified in the indenture pursuant to
which the Notes were issued. The Notes are unsecured obligations of Prestolite
Electric Incorporated and are full and unconditionally guaranteed on a senior
basis by PEI Holding, Inc. The Notes are more fully described in the Offering
Circular.
On January 22, 1998 the Company entered into a new financing agreement with
the U.S. bank that had previously been the Company's senior debt provider for
up to $23 million of borrowings at the bank's prime rate, secured by the U.S.
receivables and inventory of the Company. On January 22 the Company's United
Kingdom subsidiary entered into an interim borrowing agreement with the U.K.
bank that had previously been the Company's U.K. debt provider, and on April
21 that interim agreement was replaced with an agreement providing for up to
(Pounds)7 million (approximately $11.6 million) of borrowings at the U.K.
bank's base rate plus 1.75%, secured by the U.K. receivables and inventory of
the Company's U.K. subsidiary. In addition, the Company's Argentina subsidiary
has borrowing arrangements with several banks secured by the receivables and
inventory of the Company's Argentina subsidiary.
Debt is summarized as follows (in thousands of dollars):
<TABLE>
<CAPTION>
APRIL 4, 1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
U.S. Bank Debt.......................... $ 1,634 $28,588
U.K. Bank Debt.......................... 846 3,785
Argentine Bank Debt..................... 3,900 --
Senior Notes............................ 125,000 --
Subordinated Debt....................... -- 10,000
Unamortized Discount on Subordinated
Debt................................... -- (733)
Capital Lease Obligations............... 849 942
Other Debt.............................. 357 348
-------- -------
Total............................... 132,586 42,930
Current Maturities...................... 6,648 4,196
-------- -------
Long Term Debt...................... $125,938 $38,734
======== =======
</TABLE>
F-28
<PAGE>
PEI HOLDING, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. RESTRUCTURING
During 1997 the Company's board of directors approved a restructuring plan
for the Company's facility in Leyland, England, contingent upon completion of
the Lucas Acquisition. This plan was announced during the first quarter of
1998 and includes moving production of certain products from the Leyland
facility to a facility in the United Kingdom acquired as part of the Lucas
Acquisition. A restructuring charge of $980,000, consisting entirely of
employee severance costs, was accrued and charged to operations during the
first quarter of 1998. During the first quarter of 1998 the company charged
$17,000 against this accrual. The entire amount is expected to be paid by the
end of 1998.
As of the date of the Lucas Acquisition, management had begun to formulate
restructuring plans related to the operations acquired in the Lucas
Acquisition. These plans will include employee reductions and a plant closure.
Not all portions of the plan have been completed, approved, and announced as
of April 4, 1998. An accrual of $8,220,000 has been established as a purchase
accounting adjustment related to these restructuring actions. Severance
payments of $1,238,000 were made to employees and charged to this accrual
during the first quarter of 1998. Completion and approval of the restructuring
plans for these operations are expected by the end of 1998, and the accrual
will be adjusted accordingly as a purchase price adjustment.
F-29
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS PRESTOLITE ELECTRIC LIMITED:
We have audited the accompanying balance sheets of the Heavy Duty Products
Division of Lucas Industries plc ("Lucas HDP") as of December 31, 1997 and
January 31, 1997, and the related statements of income, cash flows and changes
in parent company equity for the eleven-month period ended December 31, 1997,
the six-month period ended January 31, 1997 and the years ended July 31, 1996
and July 31, 1995. Lucas HDP was acquired by Prestolite Electric Limited, a
wholly-owned subsidiary of Prestolite Electric Incorporated, on January 22,
1998. These financial statements are the responsibility of the management of
Prestolite Electric Limited. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Lucas HDP as of December
31, 1997 and January 31, 1997, and the results of its operations and its cash
flows for the eleven-month period ended December 31, 1997, the six-month
period ended January 31, 1997 and the years ended July 31, 1996 and July 31,
1995, in conformity with accounting principles generally accepted in the
United States.
Ernst & Young
Chartered Accountants
London, England
March 30, 1998
F-30
<PAGE>
HEAVY DUTY PRODUCTS DIVISION OF LUCAS INDUSTRIES PLC
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JANUARY 31,
1997 1997
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................ $ 19,508 $ 12,765
Trade accounts receivable (Note 7).................. 1,008 1,254
Amounts owed by Lucas Industries group companies
(Note 8)........................................... 7,156 6,278
Inventories (Note 9)................................ 5,833 4,985
Pension Asset....................................... 2,193 1,447
Prepayments......................................... 74 130
-------- --------
Total current assets.............................. 35,772 26,859
-------- --------
FIXED ASSETS:
Property, plant and equipment (Note 10)............. 8,768 8,656
Other noncurrent assets--tooling.................... 330 362
-------- --------
Total assets...................................... $ 44,870 $ 35,877
======== ========
LIABILITIES AND PARENT COMPANY EQUITY
CURRENT LIABILITIES:
Trade accounts payable.............................. $ 4,848 $ 2,843
Amounts owed to Lucas Industries group companies
(Note 8)........................................... 314 559
Payroll and other taxes............................. 545 485
Accrued liabilities................................. 464 297
-------- --------
Total current liabilities......................... 6,171 4,184
NONCURRENT LIABILITIES:
Warranty provisions................................. 411 379
-------- --------
Total liabilities................................. 6,582 4,563
PARENT COMPANY EQUITY................................. 38,288 31,314
-------- --------
Total liabilities and parent company equity....... $ 44,870 $ 35,877
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-31
<PAGE>
HEAVY DUTY PRODUCTS DIVISION OF LUCAS INDUSTRIES PLC
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, JANUARY 31, JULY 31, JULY 31,
1997 1997 1996 1995
------------- ----------- -------- --------
<S> <C> <C> <C> <C>
Sales............................ $41,528 $22,562 $44,794 $37,544
Cost of goods sold............... (29,392) (16,107) (32,594) (27,631)
Selling, general and
administrative expenses......... (7,708) (4,209) (7,749) (8,085)
------- ------- ------- -------
Operating income (Note 3)........ 4,428 2,246 4,451 1,828
Income taxes (Note 6) (1,461) (741) (1,469) (603)
------- ------- ------- -------
Net income................... $ 2,967 $ 1,505 $ 2,982 $ 1,225
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-32
<PAGE>
HEAVY DUTY PRODUCTS DIVISION OF LUCAS INDUSTRIES PLC
STATEMENTS OF CHANGES IN PARENT COMPANY EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, JANUARY 31, JULY 31, JULY 31,
1997 1997 1996 1995
------------- ----------- -------- --------
<S> <C> <C> <C> <C>
Net income for the financial
period.......................... $ 2,967 $ 1,505 $ 2,982 $ 1,225
Exchange adjustments............. 996 703 (584) 856
Net funding--non-cash............ 3,011 622 1,198 1,039
------- ------- ------- -------
Net increase to parent company
equity.......................... 6,974 2,830 3,596 3,120
Opening parent company equity.... 31,314 28,484 24,888 21,768
------- ------- ------- -------
Closing parent company equity.... $38,288 $31,314 $28,484 $24,888
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-33
<PAGE>
HEAVY DUTY PRODUCTS DIVISION OF LUCAS INDUSTRIES PLC
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, JANUARY 31, JULY 31, JULY 31,
1997 1997 1996 1995
------------- ----------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income....................... $ 4,428 $ 2,246 $ 4,451 $ 1,828
Adjustments to reconcile net
income to cash provided by
operating activities:
Depreciation--property, plant
and equipment................. 1,182 582 992 962
Amortization tooling........... 377 148 288 281
Loss on disposals of property,
plant and equipment........... 79 62 2 (11)
Noncash income from Lucas
Industries group companies.... 836 (479) (411) 355
Increase/(decrease) from changes
in:
Receivables.................... (335) 346 (1,709) 40
Inventories.................... (687) 714 2,458 (434)
Accounts payable and accrued
liabilities................... 1,845 178 (779) (757)
Warranty provisions............ 20 (47) 322 (3)
------- ------- ------- -------
7,745 3,750 5,614 2,261
------- ------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property, plant and
equipment....................... (1,118) (1,024) (976) (1,388)
Purchase of tooling.............. (335) (170) (302) (391)
Proceeds on disposals of
property, plant and equipment... 18 3 -- 91
------- ------- ------- -------
(1,435) (1,191) (1,278) (1,688)
------- ------- ------- -------
Foreign currency translation
adjustment........................ 433 210 (90) 985
------- ------- ------- -------
Net increase in cash............... 6,743 2,769 4,246 1,558
Cash at beginning of period........ 12,765 9,996 5,750 4,192
------- ------- ------- -------
Cash at end of period.............. $19,508 $12,765 $ 9,996 $ 5,750
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-34
<PAGE>
HEAVY DUTY PRODUCTS DIVISION OF LUCAS INDUSTRIES PLC
NOTES TO FINANCIAL STATEMENTS
1. HEAVY DUTY PRODUCTS DIVISION OF LUCAS INDUSTRIES PLC
Lucas HDP was formerly the Heavy Duty Products division of a subsidiary of
Lucas Industries plc, a company incorporated in the United Kingdom, until it
was acquired by Prestolite Electric Limited, wholly-owned subsidiary of
Prestolite Electric Incorporated, in January 1998. Lucas HDP manufactures
primarily alternators, starter motors, switch gear and pumps for the
automotive market at its facility in the United Kingdom. For the purposes of
these financial statements Lucas HDP is presented as a separate subsidiary of
Lucas Industries plc.
The financial statements have been prepared on a stand alone basis to
reflect all operating assets and liabilities and all costs of operations. In
particular, adjustments have been made to include property and related
charges, and appropriate charges in respect of pension benefits and income
taxes. Cost of goods sold and selling, general and administrative expenses,
and related assets and liabilities, include recharges on an actual basis to
reflect costs incurred on behalf of Lucas HDP by Lucas Industries plc group
companies consistent with the terms of the purchase of Lucas HDP by Prestolite
Electric Limited.
The functional currency is pounds sterling. The financial statements have
been prepared in United States dollars, and in conformity with accounting
principles generally accepted in the United States, for the purpose of
distribution in the United States in connection with the prospectus to be
prepared in connection with the registration statement of Prestolite Electric
Incorporated and PEI Holding, Inc.
Change of fiscal year. Effective January 31, 1997, Lucas HDP changed its
fiscal year end from July 31 to January 31 and, effective December 31, 1997,
from January 31 to December 31.
2. ACCOUNTING POLICIES
Currency translation. Transaction exchange gains and losses are presented in
the income statement. Assets and liabilities have been translated into U.S.
dollars at the rates of exchange as of the balance sheet date. Revenues and
expenses have been translated into U.S. dollars at the monthly average rates.
Translation adjustments have been recorded in parent company equity.
Depreciation. Depreciation is based on the estimated useful lives of assets
and is charged at the following rates:
<TABLE>
<S> <C>
Land...................................................... 0%
Buildings................................................. 2% per annum
Plant and equipment....................................... 4% - 33% per annum
</TABLE>
Inventories. Inventories are valued at the lower of cost and net realizable
value, using the first in, first out method, after making due allowance for
obsolete and slow moving items. In the case of work in progress and finished
goods, cost comprises direct materials, direct labor and an appropriate
proportion of production overheads.
Deferred taxation. Provision for deferred taxation is made under the
liability method on all temporary differences between the book and tax bases
of assets and liabilities.
Pensions. Pension costs are determined in accordance with the requirements
of SFAS 87--"Employers' Accounting for Pensions."
Revenue recognition. Sales are recorded when products are dispatched.
F-35
<PAGE>
HEAVY DUTY PRODUCTS DIVISION OF LUCAS INDUSTRIES PLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. ACCOUNTING POLICIES--(CONTINUED)
Use of estimates. The preparation of financial statements 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.
3. OPERATING INCOME (IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, JANUARY 31, JULY 31, JULY 31,
1997 1997 1996 1995
------------- ----------- -------- --------
<S> <C> <C> <C> <C>
Operating income is arrived at
after charging:
Depreciation--property, plant and
equipment....................... $1,182 $582 $992 $962
Amortization--tooling............ 377 148 288 281
Redundancy and reorganization.... 92 57 162 --
====== ==== ==== ====
</TABLE>
4. EXPORT SALES (IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, JANUARY 31, JULY 31, JULY 31,
1997 1997 1996 1995
------------- ----------- -------- --------
<S> <C> <C> <C> <C>
Intercompany sales to subsidiaries
of Lucas
Industries plc in the following
areas were:
Continental Europe.............. $ 241 $ 21 $ 23 $ --
Rest of World................... 61 15 52 27
Sales to third parties in the
following areas were:
Continental Europe.............. 13,796 7,045 12,785 8,313
North America................... 34 16 55 48
Rest of World................... 210 80 368 243
------- ------ ------- ------
$14,342 $7,177 $13,283 $8,631
======= ====== ======= ======
</TABLE>
5. INTERCOMPANY PURCHASES (IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, JANUARY 31, JULY 31, JULY 31,
1997 1997 1996 1995
------------- ----------- -------- --------
<S> <C> <C> <C> <C>
Intercompany purchases from
subsidiaries of Lucas Industries
plc:
Raw materials and consumables... $ 770 $776 $1,326 $1,765
Services........................ 303 165 500 653
------ ---- ------ ------
$1,073 $941 $1,826 $2,418
====== ==== ====== ======
</TABLE>
6. TAXATION (IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, JANUARY 31, JULY 31, JULY 31,
1997 1997 1996 1995
------------- ----------- -------- --------
<S> <C> <C> <C> <C>
The charge based on the profit for
the year comprises:
United Kingdom Corporation tax at
33%.............................. $ 1,461 $ 741 $ 1,469 $ 603
======= ===== ======= =====
</TABLE>
As part of a larger United Kingdom group, the tax liability is settled
within the group's tax affairs and consequently, the liability for income and
corporation taxes is included under parent company equity.
F-36
<PAGE>
HEAVY DUTY PRODUCTS DIVISION OF LUCAS INDUSTRIES PLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
7. TRADE ACCOUNTS RECEIVABLE (IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JANUARY 31,
1997 1997
------------ -----------
<S> <C> <C>
Trade accounts receivable.............................. $1,122 $1,264
Allowance for doubtful accounts........................ (114) (10)
------ ------
$1,008 $1,254
====== ======
</TABLE>
8. RELATED PARTIES
Prior to January 22, 1998, Lucas HDP was a division of Lucas Limited, a
subsidiary of Lucas Industries plc. All balances with Lucas Industries plc are
included under parent company equity.
Balances with Lucas Industries group companies are as follows (in thousands):
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JANUARY 31,
1997 1997
------------ -----------
<S> <C> <C>
Amounts owned by Lucas Industries group companies:
Lucas Limited--UK................................... $4,884 $4,942
Varity Perkins--UK.................................. 2,272 1,336
------ ------
$7,156 $6,278
====== ======
Amounts owned to Lucas Industries group companies:
Lucas Limited--UK................................... $ 74 $ 170
Lucas Finance--UK................................... 194 342
Lucas T.V.S.--India................................. 21 37
Lucas Dizel Sanyive Ticaret--Turkey................. 25 10
------ ------
$ 314 $ 559
====== ======
</TABLE>
9. INVENTORIES (IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JANUARY 31,
1997 1997
------------ -----------
<S> <C> <C>
Raw materials and consumables.......................... $ 767 $ 806
Work in progress....................................... 3,868 3,784
Finished goods......................................... 1,198 395
------ ------
$5,833 $4,985
====== ======
</TABLE>
F-37
<PAGE>
HEAVY DUTY PRODUCTS DIVISION OF LUCAS INDUSTRIES PLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. PROPERTY, PLANT AND EQUIPMENT (IN THOUSANDS)
<TABLE>
<CAPTION>
FREEHOLD PLANT
LAND AND AND
BUILDINGS EQUIPMENT TOTAL
--------- --------- -------
<S> <C> <C> <C>
At December 31, 1997
Cost.............................................. $3,229 $23,664 $26,893
Depreciation...................................... 1,535 16,590 18,125
------ ------- -------
Net book values................................. $1,694 $ 7,074 $ 8,768
====== ======= =======
At January 31, 1997
Cost.............................................. $3,130 $23,106 $26,236
Depreciation...................................... 1,439 16,141 17,580
------ ------- -------
Net book values................................. $1,691 $ 6,965 $ 8,656
====== ======= =======
</TABLE>
11. PENSIONS AND POSTRETIREMENT HEALTH CARE
Pensions. The majority of employees are members of the Lucas Industries plc
pension plan, the Lucas Pension Plan (the "Plan"). This is a defined benefit
plan. The assets of the Plan are invested primarily in equities and fixed
interest securities. The latest actuarial valuation of the Plan was made as at
March 31, 1994.
The pension costs and funded status is calculated on a stand alone basis,
assuming a separation from the Plan effective from July 31, 1994 but on the
same terms as for the acquisition by Prestolite Electric Limited. Otherwise,
the actuarial methods and assumptions applied are consistent with those
adopted by Lucas Industries plc. Company contributions are assumed to remain
suspended having regard to the surplus disclosed for the Plan.
Under the terms of the acquisition, on separation from the Plan, the fair
value of the Plan assets allocated to Lucas HDP will be in excess of the
related accumulated benefit obligations.
The pension cost computed in accordance with the requirements of SFAS 87
comprises (in thousands):
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, JANUARY 31, JULY 31, JULY 31,
1997 1997 1996 1995
------------- ----------- -------- --------
<S> <C> <C> <C> <C>
Service Cost.................. $ 1,532 $ 791 $ 1,417 $ 1,383
Interest Cost................. 2,316 1,302 2,168 1,924
Actual return on scheme
assets....................... (3,012) (1,635) (4,960) (2,594)
Net amortization and
deferral..................... -- (41) 2,665 595
------- ------- ------- -------
Net periodic pension cost... $ 836 $ 417 $ 1,290 $ 1,308
======= ======= ======= =======
</TABLE>
The major assumptions in computing the pension expense were:
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, JANUARY 31, JULY 31, JULY 31,
1997 1997 1996 1995
------------- ----------- -------- --------
<S> <C> <C> <C> <C>
Investment return................ 8.5% 9.5% 8.5% 8.5%
Discount rate.................... 7.5% 8.5% 8.5% 8.5%
Salary increases................. 5.0% 6.0% 6.0% 6.0%
Pension increases................ 3.0% 4.0% 4.0% 4.0%
</TABLE>
F-38
<PAGE>
HEAVY DUTY PRODUCTS DIVISION OF LUCAS INDUSTRIES PLC
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. PENSIONS AND POSTRETIREMENT HEALTH CARE--(CONTINUED)
Funded status (in thousands):
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JANUARY 31,
1997 1997
------------ -----------
<S> <C> <C>
Projected benefit obligation...................... $(36,706) $(31,840)
Fair value of plan assets......................... 42,402 36,685
-------- --------
Plan assets in excess of projected benefit
obligation....................................... 5,696 4,845
Unrecognized transition asset, net of
amortisation..................................... (3,503) (3,398)
-------- --------
Net pension asset............................... $ 2,193 $ 1,447
======== ========
</TABLE>
Other postretirement benefits. There are no other postretirement benefit
obligations.
F-39
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE PRESIDENT AND DIRECTORS OF LUCAS INDIEL ARGENTINA S.A.:
We have audited the accompanying consolidated balance sheets of Lucas Indiel
Argentina S.A. (an Argentine Corporation) and its consolidated subsidiaries
(the "Company") as of July 31, 1996, January 31, 1997 and January 2, 1998, and
the related consolidated statements of operations, changes in stockholders
equity and cash flows for the years ended July 31, 1995 and 1996, the six
month period ended January 31, 1997 and the eleven month period ended January
2, 1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Argentina which are in substantial agreement with those in the
United States of America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly in all material respects the financial position of the Company
as of July 31, 1996, January 31, 1997 and January 2, 1998 and the results of
its operations and its cash flows for the years ended July 31, 1995 and 1996,
the six month period ended January 31, 1997 and the eleven month period ended
January 2, 1998 in conformity with accounting principles generally accepted in
the United States of America.
Deloitte & Co.
Buenos Aires, Argentina
March 30, 1998
F-40
<PAGE>
LUCAS INDIEL ARGENTINA S.A.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
AS OF AS OF AS OF
JULY 31, JANUARY 31, JANUARY 2,
1996 1997 1998
-------- ----------- ----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash......................................... $ 2,368 $ 1,704 $ 1,516
Accounts receivable.......................... 10,607 7,396 9,200
Prepaid and other assets..................... 5,510 1,295 1,513
Inventories.................................. 17,563 19,097 18,096
------- ------- --------
Total Current Assets..................... 36,048 29,492 30,325
------- ------- --------
Other assets................................. 5,948 10,416 10,388
Property, plant and equipment, net........... 17,373 17,966 16,369
Intangible assets, net....................... 2,008 1,864 1,601
------- ------- --------
Total assets............................. $61,377 $59,738 $ 58,683
======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................. $11,381 $10,158 $ 9,539
Short term debt.............................. 7,800 11,000 6,620
Accrued liabilities:
Accrued payroll and payroll taxes.......... 1,356 777 1,409
Accrued taxes.............................. 291 220 271
Other accrued expenses and liabilities..... 785 541 1,034
------- ------- --------
Total Current Liabilities................ 21,613 22,696 18,873
------- ------- --------
Advances from parent company................. 5,000 5,000 5,000
Other liabilities............................ 2,123 1,751 1,929
Accrued claims and other litigation
expenses.................................... 422 467 574
------- ------- --------
Total Liabilities........................ 29,158 29,914 26,376
------- ------- --------
Minority interest............................ 4 3 3
------- ------- --------
Sub-total................................ 29,162 29,917 26,379
------- ------- --------
STOCKHOLDERS' EQUITY
Common stock, par value $1 per share;
2,786,176 and 14,786,176 shares authorized,
respectively................................ 2,786 2,786 14,786
Overall adjustment........................... 24,630 24,630 24,630
Additional paid-in capital................... 6,535 6,535 5,035
Legal reserve................................ 1,012 1,012 1,012
Accumulated deficit.......................... (2,748) (5,142) (13,159)
------- ------- --------
Total stockholders equity................ 32,215 29,821 32,304
------- ------- --------
$61,377 $59,738 $ 58,683
======= ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-41
<PAGE>
LUCAS INDIEL ARGENTINA S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ELEVEN
SIX MONTHS MONTHS
ENDED ENDED
YEAR ENDED YEAR ENDED JANUARY 31, JANUARY 2,
JULY 31, 1995 JULY 31, 1996 1997 1998
------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenues................ $74,124 $68,436 $32,125 $66,119
Cost of sales............... 61,838 57,607 28,618 60,731
------- ------- ------- -------
Gross profit.............. 12,286 10,829 3,507 5,388
Selling, general and
administrative expenses.... 16,169 14,070 5,107 9,881
Non recurring charges....... -- 1,455 -- 763
Redundancy charges.......... 284 366 143 1,564
------- ------- ------- -------
Operating loss............ (4,167) (5,062) (1,743) (6,820)
Other (expenses) income,
net........................ (155) (401) 83 230
Interest expense............ 1,310 1,162 734 1,427
------- ------- ------- -------
Loss before provision for
income tax and minority
interest in
subsidiaries............. (5,632) (6,625) (2,394) (8,017)
Provision for income tax.... -- 2 -- --
------- ------- ------- -------
Loss before minority
interests in
subsidiaries............. (5,632) (6,627) (2,394) (8,017)
Minority interests in
subsidiaries............... 21 15 -- --
------- ------- ------- -------
Net loss.................. $(5,611) $(6,612) $(2,394) $(8,017)
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-42
<PAGE>
LUCAS INDIEL ARGENTINA S.A.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1995 AND 1996 , THE SIX-MONTH PERIOD ENDED
JANUARY 31, 1997, AND THE ELEVEN-MONTH PERIOD ENDED JANUARY 2, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
STOCKHOLDERS' CONTRIBUTIONS RETAINED EARNINGS
------------------------------------- ----------------------
ADDITIONAL UNAPPROPRIATED
OVERALL PAID-IN LEGAL RETAINED
CAPITAL ADJUSTMENT CAPITAL TOTAL RESERVE EARNINGS TOTAL
------- ---------- ---------- ------- ------- -------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at July 31,
1994................... $ 300 $24,630 $ 1,535 $26,465 $ 831 $ 12,172 $39,468
As per resolution of the
Extraordinary Stock-
holders' Meeting held
on
November 15, 1994:
Legal reserve......... -- -- -- 181 (181) --
Dividends............. -- -- -- -- (630) (630)
Net loss................ -- -- -- -- (5,611) (5,611)
------- ------- -------- ------- ------ -------- -------
Balances at July 31,
1995................... 300 24,630 1,535 26,465 1,012 5,750 33,227
As per resolution of the
Extraordinary Stock-
holders' Meeting held
on
November 6, 1995:
Capitalization of re-
tained earnings...... 1,886 -- 1,886 -- (1,886) --
Capitalization of un-
paid cash
dividends approved in
prior years.......... 600 -- 600 -- -- 600
Irrevocable capital con-
tributions............. -- 5,000 5,000 -- -- 5,000
Net loss................ -- -- -- -- (6,612) (6,612)
------- ------- -------- ------- ------ -------- -------
Balances at July 31,
1996................... 2,786 24,630 6,535 33,951 1,012 (2,748) 32,215
Net loss................ -- -- (2,394) (2,394)
------- ------- -------- ------- ------ -------- -------
Balances at January 31,
1997................... 2,786 24,630 6,535 33,951 1,012 (5,142) 29,821
Irrevocable capital con-
tributions............. -- 7,000 7,000 -- -- 7,000
As per resolution of the
Extraordinary Stock-
holders' Meeting held
on
November 28, 1997:
Capitalization of ir-
revocable capital
contributions........ 12,000 (12,000) -- -- --
Irrevocable capital con-
tributions............. -- 3,500 3,500 -- -- 3,500
Net loss................ -- -- -- -- (8,017) (8,017)
------- ------- -------- ------- ------ -------- -------
Balances at January 2,
1998................... $14,786 $24,630 $ 5,035 $44,451 $1,012 $(13,159) $32,304
======= ======= ======== ======= ====== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-43
<PAGE>
LUCAS INDIEL ARGENTINA S.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ELEVEN MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
JULY 31, 1995 JULY 31, 1996 JANUARY 31, 1997 JANUARY 2, 1998
------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss for the
year/period.......... $(5,611) $(6,612) $(2,394) $(8,017)
Adjustments to
reconcile net loss to
net cash used in
operations:
Depreciation and
amortization....... 3,613 3,944 2,017 4,338
Tax credits
uncollectible...... 340
Goodwill write off.. 1,455
Increase in
allowance for
doubtful accounts.. 47 160
Other............... (25)
Changes in operating
assets and
liabilities:
Accounts
receivable....... 3,985 (3,686) 3,211 (1,964)
Prepaid and other
receivables...... (1,495) (134) (230) (404)
Accounts payable.. (2,424) 1,926 (1,446) (619)
Accrued taxes..... (487) 254 (71) 51
Accrued payroll
and payroll
taxes............ (799) 177 (579) 632
Other
liabilities...... 800 (2,465) (348) 778
Inventories....... (2,647) 1,840 (1,534) 1,001
------- ------- ------- -------
Net cash used in
operations..... (5,065) (2,939) (1,374) (4,044)
------- ------- ------- -------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Increase in property,
plant and equipment.. (2,521) (2,123) (2,490) (2,264)
------- ------- ------- -------
Net cash used in
investing
activities..... (2,521) (2,123) (2,490) (2,264)
------- ------- ------- -------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from short
term and long term
borrowings........... 825 1,150 3,200
Advances from the
parent company....... 5,000
Irrevocable capital
contributions........ 5,600 10,500
Dividends paid........ (630)
Cancellation of short
term debt............ (4,380)
------- ------- ------- -------
Net cash
provided by
financing
activities..... 5,195 6,750 3,200 6,120
------- ------- ------- -------
Increase (decrease) in
cash................... (2,391) 1,688 (664) (188)
Cash at beginning of
year/period............ 3,071 680 2,368 1,704
------- ------- ------- -------
Cash at end of
year/period............ $ 680 $ 2,368 $ 1,704 $ 1,516
======= ======= ======= =======
SUPPLEMENTAL
DISCLOSURES:
Cash paid for
interest............. $ 1,048 $ 1,131 $ 491 $ 1,647
Cash paid for income
tax.................. -- -- 2 3
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-44
<PAGE>
LUCAS INDIEL ARGENTINA S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PURPOSE OF THESE FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America ("U.S. GAAP"), for inclusion in the prospectus to be prepared in
connection with the registration statement of Prestolite Electric Incorporated
and PEI Holding, Inc., which acquired a majority of the outstanding common
stock of Lucas Indiel Argentina S.A. (the "Company") on January 22, 1998.
The U.S. GAAP consolidated financial statements were derived from the
statutory consolidated financial statements of the Company which are stated in
Argentine pesos, the currency of the country in which the Company is
incorporated and operates. The Company's statutory consolidated financial
statements are prepared in accordance with accounting principles generally
accepted in Argentina (Argentine GAAP), which differ in certain respects from
U.S. GAAP.
2. NATURE OF BUSINESS--OPERATIONS AND MAJOR CUSTOMERS
As of January 2, 1998, the Company was a subsidiary of LucasVarity plc. On
January 22, 1998, Prestolite Electric Incorporated acquired a majority of the
outstanding shares of the Company and, accordingly, the Company is a
subsidiary of Prestolite Electric Incorporated.
The Company manufactures and distributes motor starters, alternators,
distributors and steering columns. Two of the Company's customers accounted
for greater than 10% of total net sales. The Company is specialized in its
field of activities, working with up-dated machinery as from a technological
point of view. Sales to these customers amounted to $31,300 for the year ended
July 31, 1995; $13,246 for the year ended July 31, 1996; $5,062 for the six
month period ended January 31, 1997; and $17,552 for the eleven month period
ended January 2, 1998, respectively.
3. MERGER BETWEEN LUCAS INDIEL S.A. AND F.M.R. SAN LUIS S.A.
On September 24, 1996, the Boards of Directors of the Company and its former
subsidiary, F.M.R. San Luis S.A., approved the Preliminary Merger Agreement of
the two companies by which F.M.R. San Luis S.A. was merged into the Company.
Before the merger, the Company had a 99.82% interest in F.M.R. San Luis S.A.
The approval of the merger was based on special purpose balance sheets
prepared as of July 31, 1996. The Preliminary Merger Agreement was approved by
the Extraordinary Stockholders' Meetings held on October 22, 1996. The
Definitive Merger Agreement was signed on December 13, 1996. The merged
entities agreed that the merger came into effect on July 31, 1996. The merger
was registered before the Companies Inspection Bureau on April 1, 1997.
The merger was considered a business combination of entities under common
control and, accordingly, was accounted for as a reorganization, similar to
the pooling of interests method under U.S. GAAP.
4. CHANGE OF FISCAL YEAR
Effective January 31, 1997, the Company changed its fiscal year end from
July 31 to January 31. Accordingly, the 1997 fiscal year ended on January 31,
1997 whereas the previous fiscal year ended on July 31.
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation. At July 31, 1995 and 1996 the consolidated
financial statements include the accounts of Lucas Indiel Argentina S.A. and
its subsidiaries FMR San Luis S.A., Equipos Originales S.A. and Jovsa S.A. At
January 31, 1997 and January 2, 1998 the consolidated financial statements
include the accounts of the mentioned companies; FMR San Luis S.A.'s balances
are included in Lucas Indiel Argentina S.A.'s as a consequence of the merger
mentioned in Note 3. All significant intercompany balances and transactions
have been eliminated.
F-45
<PAGE>
LUCAS INDIEL ARGENTINA S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Presentation of financial statements in US dollars. These consolidated
financial statements are presented in U.S. dollars. The translation of all
items of these consolidated financial statements has been made using the
exchange rate of one Argentine peso to one U.S. dollar; this exchange rate
reflects the free market exchange rate prevailing at July 31, 1995 and 1996,
January 31, 1997 and January 2, 1998. Also this exchange rate results from the
so called "convertibility law" enacted by the Argentine government in April
1991.
Restatement of financial statements in constant monetary units. Consolidated
financial statements reflect the effects of the changes in the purchasing
power of the Argentine peso through August 31, 1995, on the financial position
of the Company. The inclusion of price-level adjustments in the financial
statements is considered appropriate under the prolonged inflationary
conditions affecting the Argentine economy. Effective September 1, 1995, and
following general Resolutions of the Argentine Federation of Councils of
Economic Sciences the restatement has been discontinued, and the Company
started accounting for its transactions at the nominal value. For purposes of
the restatement through August 31, 1995, the Company used coefficients based
on the Argentine Wholesale Price Index.
Use of estimates. The preparation of financial statements in conformity with
U.S. GAAP 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 amount of revenues and expenses during the reporting period. Actual
results may differ from the estimates and assumptions used in preparing the
financial statements.
Revenue recognition. Operating revenues, are recognized upon shipment of
products, with appropriate provision for uncollectible accounts.
Monetary items. Cash, receivables and liabilities were stated at their
nominal values.
Foreign currency denominated assets and liabilities. Foreign currency
denominated assets and liabilities were translated into Argentine pesos at
current rates in effect at January 31, 1997 and January 2, 1998. Gains and
losses arising from fluctuations in exchange rates are reflected in income
under the caption "Other" in the period in which they arise (loss of $59 for
the year ended July 31, 1995; gain of $60 for the year ended July 31, 1996;
gain of $22 for the six month period ended January 31, 1997 and loss of $32
for the eleven month period ended January 2, 1998, respectively).
Inventories. The value of inventories reflected in the accompanying
financial statements is substantially the same as its historical cost
established by the first-in, first-out ("FIFO") method. Inventories are stated
at the lower of cost or market.
Property, plant and equipment. Property plant and equipment was stated at
cost restated by applying the procedure described in the third paragraph of
this note. Depreciation expenses are generally provided on a straight line
basis. Property, plant and equipment is stated at the lower of cost or net
recoverable values.
Intangible assets--Goodwill. Goodwill is stated at cost, when applicable,
restated in terms of purchasing power of August 31, 1995, as described above.
Goodwill basically represents the excess of the purchase price of the
acquisition of Jovsa S.A. over the fair value of the net assets acquired and
is amortized by the straight-line method over a period of 10 years. Management
has reviewed the realizability of goodwill based on undiscounted future cash
flow and an evaluation of the remaining useful lives, and has determined
impairment of $1,455 as of July 31, 1996, reflected in the Statement of
Operations under the caption "Non-recurring charges." No impairment has been
determined as of January 31, 1997 and January 2, 1998.
F-46
<PAGE>
LUCAS INDIEL ARGENTINA S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
Fair value of financial instruments. The Company's financial instruments
include cash, receivables, payables, and short and long-term debt. At July 31,
1996, January 31, 1997 and January 2, 1998, the carrying values of the Company
financial instruments approximated their fair values based on current market
prices and rates.
Impairment of long-lived assets. Management believes that no events or
changes in circumstances indicate that the Company's property, or intangible
assets may not be recoverable at July 31, 1996, January 31, 1997 and January
2, 1998 based on the undiscounted future cash flow.
Non-recurring charges. Non-recurring charges for the eleven month period
ended January 2, 1998 relate to provisions recorded as a result of changes in
the Company's policies implemented by the Company's new management.
6. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (in thousands):
<TABLE>
<CAPTION>
AS OF AS OF AS OF
JULY 31, JANUARY 31, JANUARY 2,
1996 1997 1998
-------- ----------- ----------
<S> <C> <C> <C>
Trade receivables......................... $10,658 $7,481 $9,365
Notes receivable.......................... 71 24 96
Debtors in legal proceedings.............. 258 271 279
------- ------ ------
Sub-total............................... 10,987 7,776 9,740
Less: Allowance for uncollectible accounts
receivable............................... (380) (380) (540)
------- ------ ------
$10,607 $7,396 $9,200
======= ====== ======
</TABLE>
7. PREPAID AND OTHER ASSETS
Prepaid and other assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
AS OF AS OF AS OF
JULY 31, JANUARY 31, JANUARY 2,
1996 1997 1998
-------- ----------- ----------
<S> <C> <C> <C>
Current:
Tax credits............................... $3,531 $ 71 $ 776
Other debtors............................. 424 93 297
Prepaid expenses.......................... 114 21 46
Advances to suppliers..................... 571 364 353
Other..................................... 870 746 41
------ ------- -------
$5,510 $ 1,295 $ 1,513
====== ======= =======
Non-current:
Tax credits arising from the suspension of
tax benefits
(See Note 18)............................ $4,922 $ 4,922 $ 4,922
Other tax credits......................... 631 5,104 5,182
Miscellaneous............................. 418 390 284
------ ------- -------
$5,971 $10,416 $10,388
====== ======= =======
</TABLE>
F-47
<PAGE>
LUCAS INDIEL ARGENTINA S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
AS OF AS OF AS OF
JULY 31, JANUARY 31, JANUARY 2,
1996 1997 1998
-------- ----------- ----------
<S> <C> <C> <C>
Finished goods............................... $ 4,873 $ 4,467 $ 4,609
Work in process.............................. 6,017 6,877 5,368
Raw materials and other supplies............. 1,916 3,558 3,529
Goods in transit............................. 2,141 1,285 860
Resale merchandise........................... 1,762 2,124 3,260
Advances to suppliers........................ 854 786 470
------- ------- -------
$17,563 $19,097 $18,096
======= ======= =======
</TABLE>
9. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
AS OF AS OF AS OF
JULY 31, JANUARY 31, JANUARY 2,
USEFUL LIVES 1996 1997 1998
------------ -------- ----------- ----------
YEARS
<S> <C> <C> <C> <C>
Land......................... $ 813 $ 803 $ 803
Buildings.................... 50 8,953 8,937 8,937
Machinery.................... 10 19,996 20,877 22,432
Tooling...................... 3 4,636 5,771 6,838
Installations................ 10 3,109 3,204 3,225
Furniture and fittings....... 10 2,156 2,214 2,312
Vehicles..................... 5 738 738 766
------- ------- -------
Subtotal................... 40,401 42,544 45,313
------- ------- -------
Advances to suppliers........ 382 702 197
------- ------- -------
Subtotal................... 40,783 43,246 45,510
------- ------- -------
Less: Accumulated
depreciation................ (23,410) (25,280) (29,141)
------- ------- -------
$17,373 $17,966 $16,369
======= ======= =======
</TABLE>
The change in property, plant and equipment balances during the year ended
July 31, 1996, the six month period ended January 31, 1997 and the eleven month
period ended January 2, 1998 is as follows:
<TABLE>
<CAPTION>
ELEVEN
YEAR SIX MONTHS MONTHS
ENDED ENDED ENDED
JULY 31, JANUARY 31, JANUARY 2,
1996 1997 1998
-------- ----------- ----------
<S> <C> <C> <C>
Balance at beginning of period............. $38,660 $40,783 $43,246
Additions.................................. 2,123 2,490 2,264
Withdrawals................................ -- (27) --
------- ------- -------
Balance at end of period................... 40,783 43,246 45,510
------- ------- -------
Accumulated depreciation at beginning of
period.................................... 19,959 23,410 25,280
Withdrawals................................ -- (3) --
Depreciation for the period................ 3,451 1,873 3,861
------- ------- -------
Accumulated depreciation at end of period.. 23,410 25,280 29,141
------- ------- -------
$17,373 $17,966 $16,369
======= ======= =======
</TABLE>
F-48
<PAGE>
LUCAS INDIEL ARGENTINA S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. ACCOUNTS PAYABLE
Accounts payable consisted of the following (in thousands):
<TABLE>
<CAPTION>
AS OF AS OF AS OF
JULY 31, JANUARY 31, JANUARY 2,
1996 1997 1998
-------- ----------- ----------
<S> <C> <C> <C>
Trade........................................ $ 3,077 $ 1,715 $6,382
Notes payable................................ 8,304 8,443 3,157
------- ------- ------
$11,381 $10,158 $9,539
======= ======= ======
</TABLE>
Notes payable bore interest at the approximate average rate of Libor plus
3.50%, 2.50% and 1.50%, respectively.
11. SHORT TERM DEBT
Bank loans totalled $7,800, $11,000 and $6,620 as at July 31, 1996, January
31, 1997 and January 2, 1998 respectively. The approximate average interest
rate was 10% and 11.50%, respectively.
12. ADVANCES FROM PARENT COMPANY
Advances from LucasVarity plc totalled $5,000 as at July 31, 1996, January
31, 1997 and January 2, 1998. These advances bear no interest and have no
stated maturity.
13. NET REVENUES
Net revenues consisted of the following (in thousands):
<TABLE>
<CAPTION>
ELEVEN
YEAR- SIX MONTHS MONTHS
YEAR ENDED ENDED ENDED ENDED
JULY 31, JULY 31, JANUARY 31, JANUARY 2,
1995 1996 1997 1998
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales (net of discounts).... $68,240 $64,408 $29,808 $62,259
Tax benefit (under Laws Nos.
22,021 and 22,702)............. 5,884 3,957 2,278 3,766
Other........................... -- 71 39 94
------- ------- ------- -------
$74,124 $68,436 $32,125 $66,119
======= ======= ======= =======
</TABLE>
14. REDUNDANCY CHARGES
Information related to the Company's redundancy charges is summarised as
follows:
<TABLE>
<CAPTION>
ELEVEN
YEAR SIX MONTHS MONTHS
YEAR ENDED ENDED ENDED ENDED
JULY 31, JULY 31, JANUARY 31, JANUARY 2,
1995 1996 1997 1998
---------- -------- ----------- ----------
<S> <C> <C> <C> <C>
Amount of the redundancy charges
accrued and charged to expense.. 284 366 143 1,564
Number of employees terminated
(Workers and administrative for
all periods).................... 71 116 62 81
Amount of actual termination
benefits to be paid............. 284 -- -- 286
Number of employees to be
terminated...................... 71 -- -- 25
</TABLE>
F-49
<PAGE>
LUCAS INDIEL ARGENTINA S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. RELATED PARTIES
Prior to January 22, 1998, the Company was a subsidiary of LucasVarity plc.
At July 31, 1996, January 31, 1997 and January 2, 1998 the Company had an
outstanding liability of $5,000 with LucasVarity plc.
Outstanding balances with other subsidiaries of LucasVarity plc are as
follows (in thousands):
<TABLE>
<CAPTION>
AS OF AS OF AS OF
JULY 31, JANUARY 31, JANUARY 2,
1996 1997 1998
-------- ----------- ----------
<S> <C> <C> <C>
Lucas Diesel do Brasil Ltda................ $ 51 $ (66) $ 326
Lucas Export Services--Shirley--UK......... (622) (681) (741)
Aftermarket Operations HQ--Shirley--UK..... 88 140 38
Lucas Holdings SA (Pty) Ltd--Johannesburg--
South Africa.............................. 30 (7) 154
Other affilliated companies................ (11) (30) (130)
</TABLE>
Operations with other susidiaries of LucasVarity plc are as follows (in
thousands):
<TABLE>
<CAPTION>
ELEVEN
SIX MONTHS MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
JULY 31, JULY 31, JANUARY 31, JANUARY 2,
1995 1996 1997 1998
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
a)Purchases
Lucas Diesel do Brasil Ltda..... $ 989 $769 $687 $1,936
Lucas Export Services--Shirley--
UK............................. 1,728 856 871 1,881
Lucas KK (Japan)................ 1,463 -- -- --
Other affilliated companies..... 269 506 309 1,001
b)Sales
Lucas Diesel do Brasil Ltda..... $ -- $775 $400 $1,358
Aftermarket Operations HQ--
Shirley--UK.................... 447 440 325 128
Lucas Holdings SA (Pty) Ltd--
Johannesburg--South Africa..... 604 754 198 410
Other affiliated companies...... -- -- -- 174
</TABLE>
16. CAPITAL STOCK
As at July 31, 1995 the Company's common stock was $300.
The Stockholders' Meeting held on November 6, 1995 declared stock dividends
on the Company's common stock. The dividend was charged to retained earnings
in the amount of $1,886. This stockholders' meeting also approved the
capitalization of unpaid cash dividends for $600. Such increases of common
stock were registered with the Public Registry of Commerce of the Province of
San Luis on March 13, 1996. Therefore, the total capital as of July 31, 1996
and January 31, 1997 amounted to $2,786.
The Stockholders' Meeting held on November 28, 1997 approved the
capitalization of capital contributions for $12,000. Consequently, as of
January 2, 1998 the total capital amounted to $14,786.
F-50
<PAGE>
LUCAS INDIEL ARGENTINA S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. TAX BENEFITS
Under Decrees Nos. 299/85, 2,563/85, 476/86, 1,732/86, 1,733/86, 3,111/86,
3,176/86, 3,177/86, 1,477/88 and 5,041/90 of the Province of San Luis, the
Martin Amato San Luis S.A. company was granted the exemptions established by
Law No. 22,021 (amended by Law No. 22,702), which include, among others, the
following benefits:
a) Exemption from payment of Income Tax and Capital/Assets Tax for a
period of fifteen years as from the start-up date of the industrial plant,
ranging from 100% for the first five years up to 12.6% for the last year.
b) Exemption from payment of VAT on domestic market sales for a period of
fifteen years as from the start-up date of the industrial plant, using and
following the same percentage scale as that mentioned in point a) above.
The Economic Emergency Law No. 23,697 suspended 50% of promotional benefits
for a period of six months as from September 25, 1989 which had been obtained
and extended for another six-month period under Decree No. 435 of the National
Executive Power. Also, this Decree repealed the release from VAT billed by raw
material and semi-processed goods suppliers.
Under Decree No. 1,033/91 of the National Executive Power the benefit
repealed by article 45 of Decree No. 435 was reinstated by delivering tax
credit certificates.
As from December 1, 1992, Decree No. 2,054/92 replaced the promotional
benefits. These benefits were credited to a current account with the Tax
Authority (D.G.I.), based on the theoretical tax costs.
The VAT actually billed to customers and whose payment the Company is
exempted from is considered a higher sales price, and therefore reflected in
"Net revenues."
18. TAX CREDITS RESULTING FROM THE SUSPENSION OF TAX BENEFITS
Prior to the year ended July 31, 1995, the Company accounted for $4,922, an
estimate of the Company's rights, resulting from the suspension of the tax
benefits under Law No. 23,697, and the exemption from customs duties repealed
by article 45 of Decree No. 435/90. Such amount is reflected in the caption
"Other receivables non current," and was credited to income when recorded.
On June 28 and November 18, 1994, the Tax Authority issued General
Resolutions Nos. 3,838/94 and 3,905/94 published in the Official Bulletin
dated June 30 and November 25, 1994, respectively, which regulated the
granting of Tax Credit Certificates resulting from the suspension of the
promotional benefits under Law No. 23,697 and the exemption from customs
duties repealed by article 45 of Decree No. 435/90.
In June 1995, the Company submitted all the elements established by these
General Resolutions to the corresponding control authority. Notwithstanding
the foregoing, the corresponding control authority can request additional
information in order to establish whether the granting of the aforementioned
Tax Credit Certificates is applicable.
Once it is verified whether the granting of tax credits is applicable, the
Company will receive the Debt Consolidation Bonds created by Law No. 23,982 in
connection with the claims predating April 1, 1991, and the rest will be
credited to a computerized current account provided by the Tax Authority.
F-51
<PAGE>
LUCAS INDIEL ARGENTINA S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. TAX LOSS CARRYFORWARDS UNDER LAW NO. 24,073
In line with the provisions of Law No. 24,073, tax loss carryforwards
originated before March 31, 1991 will be converted, once approved by the Tax
Authority, into tax credits to be repaid by the Federal Government with Debt
Consolidation Bonds under Law No. 23,982.
On April 27, 1993, the Company made the corresponding filing with the Tax
Authority for $728. The Tax Authority rejected the Company's request. The
Company accounted for a valuation allowance to cover the rejected tax credit.
The Company appealed the decision with the Tax Authority.
20. DEFERRED INCOME TAX
The components of the deferred income tax are the following:
<TABLE>
<CAPTION>
AS OF AS OF AS OF
JULY 31, JANUARY 31, JANUARY 2,
1996 1997 1998
-------- ----------- ----------
<S> <C> <C> <C>
Tax loss carryforwards..................... $18,904 $17,979 28,708
Capitalized expenses for tax purposes...... 3,825 3,634 2,932
Disallowable expenses...................... 1,379 1,206 2,222
Other...................................... (655) (586) (600)
------- ------- -------
Subtotal................................. 23,453 22,233 33,262
Current rate............................... 33% 33% 33%
------- ------- -------
Subtotal................................. 7,740 7,337 10,976
Valuation allowance........................ (7,740) (7,337) (10,976)
------- ------- -------
Deferred Income tax position............... -- -- --
</TABLE>
Considering that the Company has been showing a deficit in the last years
and taking into account management's projections for the future years
management has decided to provide for the deferred tax position. No charge to
income has arisen as at July 31, 1996, January 31, 1997 or January 2, 1998.
The expiration dates of the tax loss carryforwards are as follows:
<TABLE>
<CAPTION>
AS OF AS OF AS OF
JULY 31, JANUARY 31, JANUARY 2,
EXPIRATION DATE 1996 1997 1998
--------------- -------- ----------- ----------
<S> <C> <C> <C>
January 1998............................... 4,360 -- --
January 1999............................... 1,655 1,655 1,655
January 2000............................... 11,262 11,262 11,262
January 2001............................... 1,627 1,627 1,627
January 2002............................... -- 3,435 3,435
January 2003............................... -- -- 10,729
------ ------ ------
18,904 17,979 28,708
====== ====== ======
</TABLE>
21. ACCRUED CLAIMS AND OTHER LITIGATION EXPENSES
The Company is involved in various claims and legal proceedings of a nature
considered normal to its business. At July 31, 1996, January 31, 1997 and
January 2, 1998 the Company recorded a liability related to these claims of
$422, $467 and $574 respectively. The final outcome of such claims and
proceedings is uncertain.
F-52
<PAGE>
LUCAS INDIEL ARGENTINA S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
22. RESTRICTIONS ON THE DISTRIBUTION OF PROFITS
Under Argentine Corporation Law No. 19,550, Companies must appropriate 5% of
each year's income to a legal reserve, until the reserve is equivalent to 20%
of the carrying value of common stock, determined by applying accounting
principles generally accepted in Argentina.
Dividend distributions must be approved by a vote of the stockholders.
Dividends are allowed only to the extent of retained earnings, based upon
financial statements prepared in accordance with Argentine GAAP.
F-53
<PAGE>
REPORT OF THE INDEPENDENT AUDITORS
TO THE MEMBER OF PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA (PROPRIETARY)
LIMITED:
We have audited the Group financial statements of PRESTOLITE ELECTRIC
HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED (formerly known as Lucas Holdings
South Africa (Proprietary) Limited) and subsidiaries at December 31, 1997, and
for the eleven months then ended, and at January 31, 1997, and for the six
months then ended, set out on pages F-55 to F-65. These financial statements
are the responsibility of the Company's Directors. Our responsibility is to
report on these financial statements.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance that, in all material respects, fair presentation
is achieved in the financial statements. An audit includes an evaluation of
the appropriateness of the accounting policies, an examination, on a test
basis, of evidence supporting the amounts and disclosures included in the
financial statements, an assessment of the reasonableness of significant
estimates and a consideration of the appropriateness of the overall financial
statement presentation. We consider that our audit procedures were appropriate
in the circumstances to express our opinion presented below.
We conducted our audit in accordance with auditing standards applicable in
South Africa. These auditing standards are substantially similar to auditing
standards applicable in the United States of America. Certain accounting
practices of the Group used in preparing the accompanying financial statements
conform with generally accepted accounting principles in South Africa but do
not conform with accounting principles generally accepted in the United
States. A description of these differences and the adjustments required to
conform the financial statements to accounting principles generally accepted
in the United States are set forth in Note 19.
In our opinion, the above-mentioned financial statements fairly present the
financial position of the Group at December 31, 1997 and January 31, 1997, and
the results of its operations and cash flow information for the eleven and six
months, respectively, then ended, in conformity with generally accepted
accounting practice and subject to the fact that no Directors' Report has been
included therein, in the manner required by the Companies Act.
Johannesburg, South Africa Arthur Andersen & Co.
February 27, 1998 Chartered Accountants (S.A.)
F-54
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JANUARY 31,
1997 1997
------------ -----------
(SOUTH AFRICAN RAND)
<S> <C> <C>
CAPITAL EMPLOYED
Share capital (Note 2)................................. 2,051,002 2,051,002
Share premium.......................................... 7,091,145 7,091,145
Non-distributable reserves (Note 3).................... 1,267,064 1,282,785
Retained income........................................ 14,974,063 12,810,786
---------- ----------
Shareholder's equity................................. 25,383,274 23,235,718
Payable to holding company (Note 4).................... -- 243,492
---------- ----------
25,383,274 23,479,210
========== ==========
EMPLOYMENT OF CAPITAL
Fixed assets (Note 5).................................. 11,071,766 11,079,875
---------- ----------
CURRENT ASSETS:
Inventories (Note 6)................................. 8,051,937 9,159,112
Accounts receivable.................................. 8,909,902 10,821,336
Receivable from fellow subsidiaries.................. 3,364,225 1,398,218
Bank and cash balances............................... 6,528,983 1,797,932
---------- ----------
Total current assets............................... 26,855,047 23,176,598
---------- ----------
CURRENT LIABILITIES:
Accounts payable..................................... 10,672,241 8,707,169
Payable to holding and fellow subsidiary companies... 1,245,157 2,070,094
Taxation payable..................................... 626,141 --
---------- ----------
Total current liabilities.......................... 12,543,539 10,777,263
---------- ----------
Net current assets................................. 14,311,508 12,399,335
---------- ----------
25,383,274 23,479,210
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-55
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, JANUARY 31,
1997 1997
------------- -----------
(SOUTH AFRICAN RAND)
<S> <C> <C>
Turnover............................................. 66,730,887 34,949,274
Cost of sales........................................ 50,400,789 26,223,037
---------- ----------
Gross profit......................................... 16,330,098 8,726,237
---------- ----------
Operating income (Note 7)............................ 4,690,389 2,785,289
Net finance income (Note 8).......................... 749,975 85,611
---------- ----------
Income before taxation............................... 5,440,364 2,870,900
Taxation (Note 9).................................... 626,141 --
---------- ----------
Net income........................................... 4,814,223 2,870,900
Transfer from non-distributable reserves (Note 3).... 15,721 15,721
Dividend paid........................................ (2,666,667) --
Retained income, beginning of period................. 12,810,786 9,924,165
---------- ----------
Retained income, end of period....................... 14,974,063 12,810,786
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-56
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, JANUARY 31,
1997 1997
------------- -----------
(SOUTH AFRICAN RAND)
<S> <C> <C>
CASH GENERATED BY OPERATING ACTIVITIES:
Cash generated by operations (Note 10).............. 6,533,301 3,803,695
Decrease (increase) in working capital (Note 11).... 2,192,737 (186,075)
Net finance income (Note 8)......................... 749,975 85,611
Dividend paid....................................... (2,666,667) --
---------- ---------
6,809,346 3,703,231
CASH GENERATED FROM INVESTING ACTIVITIES:
Additions to fixed assets (Note 5).................. (2,081,300) (891,567)
Proceeds on disposal of fixed assets................ 246,497 33,408
---------- ---------
(1,834,803) (858,159)
---------- ---------
4,974,543 2,845,072
========== =========
CASH EFFECTS OF FINANCING ACTIVITIES:
Decrease in payable to holding company.............. (243,492) (732,000)
Net increase in bank and cash balances.............. 4,731,061 2,113,072
Bank and cash equivalents at beginning of period.... 1,797,932 (315,140)
---------- ---------
Bank and cash balances at end of period............. 6,528,983 1,797,932
========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Taxation........................................... -- --
---------- ---------
Interest........................................... 29,569 60,510
---------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-57
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
The financial statements are prepared on the historical cost basis (adjusted
by the revaluation of land and buildings as more fully detailed below), and
incorporate the following significant accounting policies which, unless
otherwise stated, have been applied on a consistent basis.
Investment in subsidiaries and principles of consolidation: The Group
financial statements include the financial position and results of operations
of the Company and its subsidiaries. Intercompany balances and transactions
have been eliminated on consolidation. Goodwill arising on consolidation,
being the excess of the purchase price over the fair value of net tangible
assets of that company, is stated in the consolidated financial statements as
a deduction from non-distributable reserves.
Fixed assets: Fixed assets are stated at cost or valuation less accumulated
depreciation. Fixed assets stated at valuation are valued periodically on an
open market, existing use basis. Depreciation of fixed assets is provided on
the straight line basis, at rates considered appropriate to write off the cost
over the expected useful lives of the assets. The applicable amount of
depreciation on the revalued portion of fixed assets is transferred to
distributable reserves on an annual basis.
The annual rates of depreciation used are as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings.............................................................. 2%
Motor vehicles......................................................... 20%
Office and computer equipment.......................................... 20%
Plant and machinery.................................................... 5-33%
</TABLE>
Land is not depreciated.
Inventories: Inventories are valued at the lower of cost (determined on a
first-in, first-out or weighted average basis) and net realisable value. Cost,
where applicable, includes an appropriate portion of labour and production
overheads. Maintenance stocks are written-off against income.
Translation of foreign currency items: Foreign currency items have been
translated into South African Rands at the balance sheet rates of exchange for
items not covered by forward exchange contracts. Foreign currency items
covered by forward exchange contracts are translated at the appropriate
forward cover rate. Gains and losses arising from fluctuations in exchange
rates are reflected in income in the period in which they arise.
Deferred taxation: Deferred taxation is provided on the liability method
using the comprehensive basis for the tax effect of timing differences between
the financial and taxable reporting of income and expenditure. Where the
estimated taxation loss available to be carried forward exceeds the aggregate
timing differences, no provision is raised for the resulting deferred tax
asset.
Retirement benefit costs: Retirement benefit costs are charged against
income in the period in which they are incurred.
Turnover: Turnover comprises the net amount invoiced for goods and services
and excludes Value Added Taxation.
F-58
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SHARE CAPITAL
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JANUARY 31,
1997 1997
------------ -----------
(SOUTH AFRICAN RAND)
<S> <C> <C>
Authorised:
1,268,225 ordinary shares of 2 Rand each............. 2,536,450 2,536,450
1 B share of 2 Rand.................................. 2 2
--------- ---------
2,536,452 2,536,452
========= =========
Issued:
1,025,500 ordinary shares of 2 Rand each............. 2,051,000 2,051,000
1 B share of 2 Rand.................................. 2 2
--------- ---------
2,051,002 2,051,002
========= =========
</TABLE>
The unissued shares are under the control of the Directors until the next
annual general meeting.
All of the Company's outstanding shares are owned by Prestolite Electric
Incorporated, which is registered in the United States of America.
3. NON-DISTRIBUTABLE RESERVES
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JANUARY 31,
1997 1997
------------ -----------
(SOUTH AFRICAN RAND)
<S> <C> <C>
Capital redemption reserve fund...................... 536,450 536,450
Reserve arising on valuation of land and buildings... 1,336,302 1,352,023
Release of depreciation on revalued portion of land
and buildings....................................... (15,721) (15,721)
Goodwill written-off................................. (589,967) (589,967)
--------- ---------
1,267,064 1,282,785
========= =========
</TABLE>
4. PAYABLE TO HOLDING COMPANY
The amount payable to the holding company is unsecured, bears interest at 12%
per annum and is payable in six-monthly instalments of (Pounds)50,000 each.
(Refer Note 16).
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JANUARY 31,
1997 1997
------------ -----------
(SOUTH AFRICAN RAND)
<S> <C> <C>
Loan payable........................................... 268,816 975,492
Less current portion included in payable to holding
and fellow subsidiary companies..................... (268,816) (732,000)
-------- --------
-- 243,492
======== ========
</TABLE>
F-59
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. FIXED ASSETS
<TABLE>
<CAPTION>
AS OF AS OF
JANUARY 31, DECEMBER 31,
1997 1997
----------- ----------------------------------
NET BOOK COST OR ACCUMULATED NET BOOK
VALUE VALUATION DEPRECIATION VALUE
----------- ---------- ------------ ----------
(SOUTH AFRICAN RAND)
<S> <C> <C> <C> <C>
Land and buildings, at
valuation..................... 2,345,935 2,752,688 451,663 2,301,025
Motor vehicles................. 1,382,765 1,973,867 1,049,057 924,810
Office and computer equipment.. 400,524 1,583,980 1,203,639 380,341
Plant and machinery............ 6,950,651 18,163,234 10,697,644 7,465,590
---------- ---------- ---------- ----------
11,079,875 24,473,769 13,402,003 11,071,766
========== ========== ========== ==========
<CAPTION>
AS OF AS OF
JULY 31, JANUARY 31,
1996 1997
----------- ----------------------------------
NET BOOK COST OR ACCUMULATED NET BOOK
VALUE VALUATION DEPRECIATION VALUE
----------- ---------- ------------ ----------
(SOUTH AFRICAN RAND)
<S> <C> <C> <C> <C>
Land and buildings............. 2,370,432 2,752,688 406,753 2,345,935
Motor vehicles................. 1,271,128 2,290,107 907,342 1,382,765
Office and computer equipment.. 393,663 1,477,195 1,076,671 400,524
Plant and machinery............ 7,204,899 16,449,438 9,498,787 6,950,651
---------- ---------- ---------- ----------
11,240,122 22,969,428 11,889,553 11,079,875
========== ========== ========== ==========
</TABLE>
MOVEMENT SUMMARY DECEMBER 31, 1997
<TABLE>
<CAPTION>
AS OF AS OF
JANUARY 31, DECEMBER 31,
1997 1997
----------- ------------------------------------------
NET BOOK DEPRECIATION NET BOOK
VALUE ADDITIONS DISPOSAL CHARGE VALUE
----------- --------- -------- ------------ ----------
(SOUTH AFRICAN RAND)
<S> <C> <C> <C> <C> <C>
Land and buildings...... 2,345,935 -- -- 44,910 2,301,025
Motor vehicles.......... 1,382,765 98,486 193,536 362,905 924,810
Office and computer
equipment.............. 400,524 120,755 5,626 135,312 380,341
Plant and machinery..... 6,950,651 1,862,059 32,719 1,314,401 7,465,590
---------- --------- ------- --------- ----------
11,079,875 2,081,300 231,881 1,857,528 11,071,766
========== ========= ======= ========= ==========
<CAPTION>
AS OF AS OF
JULY 31, JANUARY 31,
1996 1997
----------- ------------------------------------------
NET BOOK DEPRECIATION NET BOOK
VALUE ADDITIONS DISPOSAL CHARGE VALUE
----------- --------- -------- ------------ ----------
(SOUTH AFRICAN RAND)
<S> <C> <C> <C> <C> <C>
Land and buildings...... 2,370,432 -- -- 24,497 2,345,935
Motor vehicles.......... 1,271,128 327,160 18,045 197,478 1,382,765
Office and computer
equipment.............. 393,663 79,977 -- 73,116 400,524
Plant and machinery..... 7,204,899 484,430 -- 738,678 6,950,651
---------- --------- ------- --------- ----------
11,240,122 891,567 18,045 1,033,769 11,079,875
========== ========= ======= ========= ==========
</TABLE>
F-60
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. FIXED ASSETS--(CONTINUED)
Land and buildings comprise Erf 98 Lea Glen Township, Roodepoort, together
with factory buildings thereon. They were last valued in August 1989.
6. INVENTORIES
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JANUARY 31,
1997 1997
------------ -----------
(SOUTH AFRICAN RAND)
<S> <C> <C>
Raw material and consumables........................ 4,276,299 4,912,206
Work-in-progress.................................... 239,212 363,938
Finished goods...................................... 3,536,426 3,882,968
--------- ---------
8,051,937 9,159,112
========= =========
</TABLE>
7. OPERATING INCOME
(a) Operating income has been arrived at after charging (crediting) the
following:
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, JANUARY 31,
1997 1997
------------- -----------
(SOUTH AFRICAN RAND)
<S> <C> <C>
Auditors' remuneration:
Audit fees....................................... 200,000 182,500
Other services................................... 120,834 67,901
Depreciation....................................... 1,857,528 1,033,769
Profit on disposal of fixed assets................. (14,616) (15,363)
Net loss on foreign exchange....................... 77,662 82,499
Operating lease charges:
Equipment and vehicles........................... 326,758 123,231
Buildings........................................ 51,526 90,750
Royalties:
Current portion.................................. 2,308,210 1,210,269
Technical Consulting Fees.......................... 2,544,811 --
========= =========
</TABLE>
(b) Directors' emoluments:
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, JANUARY 31,
1997 1997
------------- -----------
(SOUTH AFRICAN RAND)
<S> <C> <C>
For services as director paid by company.......... 26,969 13,232
For other services paid by subsidiary companies... 386,465 194,706
------- -------
413,434 207,938
======= =======
</TABLE>
F-61
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. NET FINANCE INCOME
Net finance income (costs) consists of the following:
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, JANUARY 31,
1997 1997
------------- -----------
(SOUTH AFRICAN RAND)
<S> <C> <C>
Interest received:
Other............................................ 779,544 146,121
Interest paid:
Holding company.................................. (29,569) (58,530)
Other............................................ -- (1,980)
------- -------
749,975 85,611
======= =======
</TABLE>
9. TAXATION
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, JANUARY 31,
1997 1997
------------- -----------
(SOUTH AFRICAN RAND)
<S> <C> <C>
South African normal taxation...................... 292,808 --
Secondary tax on companies......................... 333,333 --
------- -----
626,141 --
======= =====
Reconciliation of rate of tax (%)
South African normal tax rate...................... 35.0 35.0
Adjusted for:
Assessed loss.................................... (29.5) (35.0)
Secondary tax on companies....................... 6.0 --
------- -----
11.5 --
======= =====
</TABLE>
10. CASH (UTILIZED) GENERATED BY OPERATIONS
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, JANUARY 31,
1997 1997
------------- -----------
(SOUTH AFRICAN RAND)
<S> <C> <C>
Operating income................................... 4,690,389 2,785,289
Adjusted for:
Depreciation..................................... 1,857,528 1,033,769
Profit on disposal of fixed assets............... (14,616) (15,363)
--------- ---------
6,533,301 3,803,695
========= =========
</TABLE>
F-62
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. INCREASE (DECREASE) IN WORKING CAPITAL
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, JANUARY 31,
1997 1997
------------- ---------------
(SOUTH AFRICAN RAND)
<S> <C> <C>
Decrease in inventories..................... 1,107,175 3,536,156
Decrease in accounts receivable............. 1,911,434 310,320
Decrease (increase) in receivable from
fellow subsidiaries........................ (1,966,007) 803,656
(Decrease) increase in accounts payable..... 1,965,072 (3,868,867)
(Decrease) in payable to holding and fellow
subsidiary companies....................... (824,937) (967,340)
----------- ---------------
2,192,737 (186,075)
=========== ===============
12. UNCOVERED FOREIGN CURRENCY ASSETS (LIABILITIES)
At the applicable balance sheet date the Group has the following uncovered
foreign currency denominated assets (liabilities) relating to overseas and
purchases of stock, forming part of the Company's normal operating activities:
<CAPTION>
AS OF AS OF
DECEMBER 31, JANUARY 31,
1997 1997
------------- ---------------
<S> <C> <C>
Pound Sterling.............................. (Pounds)-- (Pounds) 63,511
Japanese Yen................................ (Yen) -- (Yen)(2,624,237)
</TABLE>
13. RETIREMENT BENEFITS
The Group participates in the Lucas Automotive Pension Fund, a defined
benefit plan, governed by the Pension Funds Act, 1956, which covers
substantially all employees. The latest actuarial valuation of the pension
fund, at July 1, 1995, disclosed no unfunded past service liabilities.
14. LEASE COMMITMENTS
Commitments in respect of minimum annual rentals under operating lease
agreements are as follows:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31,1997 JANUARY 31,1997
---------------------------- ----------------------------
EQUIPMENT EQUIPMENT
AND MOTOR AND MOTOR
PREMISES VEHICLES TOTAL PREMISES VEHICLES TOTAL
-------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Due within one year.. 189,677 82,269 271,946 162,921 201,524 364,445
Due thereafter....... 390,928 456,896 847,824 487,340 426,410 913,750
------- ------- --------- ------- ------- ---------
580,605 539,165 1,119,770 650,261 627,934 1,278,195
======= ======= ========= ======= ======= =========
</TABLE>
15. CAPITAL COMMITMENTS
Capital commitments, for which funds will be provided from existing Group
bank facilities, comprise:
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, JANUARY 31,
1997 1997
------------ -----------
<S> <C> <C>
Authorised and contracted for....................... 1,742,858 1,031,548
========= =========
</TABLE>
F-63
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. EXCHANGE CONTROL RESTRICTIONS
Present exchange control restrictions prevent South African companies from
distributing to non-resident shareholders profits earned prior to January 1,
1984, unless special approval is obtained from the Exchange Control
authorities. Where such approval is given, distributions are normally
restricted to earnings arising from trading profits. Furthermore, profits of a
capital nature earned subsequent to January 1, 1984, may not ordinarily be
distributed to non-residents.
Holding company loans of 268,816 Rand (January 31, 1997--975,492 Rand) are
subject to the South African debt standstill arrangements and may only be
repaid with the prior approval of the Exchange Control Authorities (Refer Note
4).
The group's local borrowing facilities total 5.0 million Rand.
17. CHANGE IN FINANCIAL YEAR END
The Company has changed its financial year end from July 31 to January 31
with effect from January 31, 1997, and to December 31 with effect from
December 31, 1997.
18. COMPARATIVES
Some of the prior year figures have been restated in order to achieve
consistency in the presentation of the financial statements.
19. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP)
The following adjustments are required to restated the financial statements
from South African Generally Accepted Accounting Practice to that applicable
in the United States:
(A) DEFERRED TAXATION
Under South African Generally Accepted Accounting Practice deferred tax
asset balances should not be carried forward unless the recoverability
thereof is assured beyond reasonable doubt. The Company has therefore not
created a deferred tax asset by utilising the assessed loss. Under United
States Generally Accepted Accounting Principles ("US GAAP") assessed losses
carried forward are recognised if it is more than likely that the deferred
tax asset will be realised. Therefore the financial statements of the group
have been adjusted as set out hereunder to take effect to the deferred tax
asset created by the assessed loss.
(B) DEFINED BENEFIT PENSION FUND
The Company is currently enjoying a pension holiday and therefore no
pension cost is provided for in the financial statements. Under US GAAP the
yearly expense should be based on actuarial valuation. Additionally the
surplus generated in the fund should be used to reduce this yearly expense,
spread over the remaining working lives of the members. Currently no
actuarial valuation is available to determine the yearly expense, therefore
the charge to income for US GAAP purposes has been based upon previous
contributions recalculated to take effect of current payroll costs. The
charge to the Income Statement has then been reduced by the surplus of the
pension fund over the estimated working lives of members.
(C) REVALUATION OF LAND AND BUILDINGS
In 1989 the Company revalued the land and buildings taking the amount by
which they were revalued to a revaluation non-distributable reserve. The
additional depreciation charged on the amount by which they
F-64
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
19. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP)--
(CONTINUED)
were revalued has been transferred from distributable retained earnings to
the non-distributable revaluation reserve. Under US GAAP no upward
revaluation is allowed. The revaluation has therefore been reserved and the
revaluation non-distributable reserve has been reduced to a zero balance.
The additional depreciation on the revalued amount has been ignored as this
is considered to be immaterial.
(D) GOODWILL
Goodwill has previously been written off to non distributable reserve as
stated in Note 1 hereto. Under USGAAP this write off should have been taken
to retained income. The goodwill would have been fully amortised by July
31, 1995 in terms of US GAAP. A transfer has therefore been made between
retained income and non distributable reserves.
<TABLE>
<CAPTION>
SIX MONTHS
ELEVEN MONTHS ENDED
ENDED JANUARY
DECEMBER 31, 31,
1997 1997
------------- ----------
(SOUTH AFRICAN RAND,
IN THOUSANDS)
<S> <C> <C>
NET INCOME
Retained income before taxation under South African
GAAP............................................... 4,814 2,871
Pension Fund Adjustment per (b) above............... (749) (433)
Deferred Tax Adjustment per (a) above............... (1,004) (1,234)
------ ------
Retained income as adjusted for U.S. GAAP........... 3,061 1,204
====== ======
SHAREHOLDER'S FUNDS
Shareholder's Equity under South African GAAP....... 25,383 23,236
Effect of prior year U.S. GAAP adjustments.......... (2,575) (908)
------ ------
Adjusted Shareholder's Equity..................... 22,808 22,328
Deferred Tax Asset per (a) above.................... (1,004) (1,234)
Pension Fund Adjustment per (b) above............... (749) (433)
------ ------
Shareholder's Equity as Adjusted for U.S. GAAP.... 21,055 20,661
====== ======
AMORTISATION OF GOODWILL
Increase in Non-Distributable Reserves.............. 590 590
Reduction in Retained Income........................ (590) (590)
------ ------
Effect on Shareholder's Equity...................... -- --
====== ======
EFFECT OF PRIOR YEAR US GAAP ADJUSTMENTS
Revaluation Of Land And Buildings................... (1,414) (1,414)
Pension Fund Adjustments............................ (2,165) (1,732)
Deferred Tax Asset ................................. 1,004 2,238
------ ------
(2,575) (908)
====== ======
</TABLE>
F-65
<PAGE>
REPORT OF THE INDEPENDENT AUDITORS
TO THE MEMBER OF PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA (PROPRIETARY)
LIMITED:
We have audited the Group annual financial statements of PRESTOLITE ELECTRIC
HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED (formerly known as Lucas Holdings
South Africa (Proprietary) Limited) and Subsidiaries at July 31, 1996 and July
31, 1995, and for the years then ended, set out on pages F-67 to F-77. These
annual financial statements are the responsibility of the Company's Directors.
Our responsibility is to report on these annual financial statements.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to
obtain reasonable assurance that, in all material respects, fair presentation
is achieved in the annual financial statements. An audit includes an
evaluation of the appropriateness of the accounting policies, an examination,
on a test basis, of evidence supporting the amounts and disclosures included
in the annual financial statements, an assessment of the reasonableness of
significant estimates and a consideration of the appropriateness of the
overall financial statement presentation. We consider that our audit
procedures were appropriate in the circumstances to express our opinion
presented below.
We conducted our audit in accordance with auditing standards applicable in
South Africa. These auditing standards are substantially similar to auditing
standards applicable in the United States of America. Certain accounting
practices of the Group used in preparing the accompanying financial statements
conform with generally accepted accounting principles in South Africa but do
not conform with accounting principles generally accepted in he United States.
A description of these differences and the adjustments required to conform the
financial statements to accounting principles generally accepted in the United
States are set forth in Note 18.
In our opinion, the above-mentioned annual financial statements fairly
present the financial position of the Group at July 31, 1996 and July 31,
1995, and the results of its operations and cash flow information for the
years then ended, in conformity with generally accepted accounting practice
and subject to the fact that no Directors' Report has been included therein,
in the manner required by the Companies Act.
Johannesburg, South Africa Arthur Andersen & Co.
February 27, 1998 Chartered Accountants (S.A.)
F-66
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
CONSOLIDATED BALANCE SHEETS
AS OF JULY 31, 1996 AND JULY 31, 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(SOUTH AFRICAN RAND)
<S> <C> <C>
CAPITAL EMPLOYED
Share capital (Note 2).................................... 2,051,002 2,051,002
Share premium............................................. 7,091,145 7,091,145
Non-distributable reserves (Note 3)....................... 1,298,506 1,298,506
Retained income........................................... 9,924,165 7,370,555
---------- ----------
Shareholder's equity.................................... 20,364,818 17,811,208
Payable to holding company (Note 4)....................... 975,492 1,637,510
---------- ----------
21,340,310 19,448,718
========== ==========
EMPLOYMENT OF CAPITAL
Fixed assets (Note 5)..................................... 11,240,122 10,557,607
---------- ----------
CURRENT ASSETS:
Inventories (Note 6).................................... 12,695,268 14,159,149
Accounts receivable..................................... 11,131,656 10,624,373
Receivable from fellow subsidiaries..................... 2,201,874 884,037
Bank and cash balances.................................. 2,200 9,092
---------- ----------
Total current assets................................... 26,030,998 25,676,651
========== ==========
CURRENT LIABILITIES:
Accounts payable........................................ 12,576,036 13,056,639
Payable to holding and fellow subsidiary companies...... 3,037,434 3,585,916
Bank overdraft.......................................... 317,340 142,985
---------- ----------
Total current liabilities.............................. 15,930,810 16,785,540
---------- ----------
Net current assets...................................... 10,100,188 8,891,111
---------- ----------
21,340,310 19,448,718
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-67
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED JULY 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(SOUTH AFRICAN RAND)
<S> <C> <C>
Turnover................................................ 68,671,817 68,467,362
Cost of sales........................................... 54,323,137 54,987,588
---------- ----------
Gross profit............................................ 14,348,680 13,479,774
---------- ----------
Operating income (Note 7)............................... 3,179,264 3,669,362
Net finance costs (Note 8).............................. (625,654) (150,926)
---------- ----------
Income before taxation.................................. 2,553,610 3,518,436
Taxation (Note 9) -- --
---------- ----------
Net income.............................................. 2,553,610 3,518,436
Transfer from non-distributable reserves................ 31,442 220,094
Retained income, beginning of period.................... 7,339,113 3,632,025
---------- ----------
Retained income, end of period.......................... 9,924,165 7,370,555
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-68
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
CONSOLIDATED CASH FLOW STATEMENTS
FOR THE YEARS ENDED JULY 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(SOUTH AFRICAN RAND)
<S> <C> <C>
CASH GENERATED BY OPERATING ACTIVITIES:
Cash generated by operations (Note 10)................. 4,862,091 4,997,007
(Increase) in working capital (Note 11)................ (1,700,306) (1,408,508)
Net finance costs (Note 8)............................. (625,654) (150,926)
---------- ----------
2,536,131 3,437,573
CASH GENERATED FROM INVESTING ACTIVITIES:
Additions to fixed assets (Note 5)..................... (2,757,531) (4,531,870)
Proceeds on disposal of fixed assets................... 392,189 54,520
---------- ----------
(2,365,342) (4,477,350)
---------- ----------
170,789 (1,039,777)
========== ==========
CASH EFFECTS OF FINANCING ACTIVITIES:
Decrease in payable to holding company................. (352,036) (523 734)
Net decrease in bank and cash balances................. (181,247) (1,563,511)
Bank and cash balances at beginning of year............ (133,893) 1,429,618
---------- ----------
Bank and cash balances at end of year.................. (315,140) (133,893)
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Taxation.............................................. -- --
Interest.............................................. 625,654 382,796
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-69
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. ACCOUNTING POLICIES
The financial statements are prepared on the historical cost basis (adjusted
by the revaluation of land and buildings as more fully detailed below), and
incorporate the following significant accounting policies which, unless
otherwise stated, have been applied on a consistent basis.
Investment in subsidiaries and principles of consolidation: The Group
financial statements include the financial position and results of operations
of the Company and its subsidiaries. Intercompany balances and transactions
have been eliminated on consolidation. Goodwill arising on consolidation,
being the excess of the purchase price over the fair value of net tangible
assets of that company, is stated in the consolidated financial statements as
a deduction from non-distributable reserves.
Fixed assets: Fixed assets are stated at cost or valuation less accumulated
depreciation. Fixed assets stated at valuation are valued periodically on an
open market, existing use basis. Depreciation of fixed assets is provided on
the straight line basis, at rates considered appropriate to write off the cost
over the expected useful lives of the assets. The applicable amount of
depreciation on the revalued portion of fixed assets is transferred to
distributable reserves on an annual basis.
The annual rates of depreciation used are as follows:
<TABLE>
<CAPTION>
<S> <C>
Buildings.............................................................. 2%
Motor vehicles......................................................... 20%
Office and computer equipment.......................................... 20%
Plant and machinery.................................................... 5-33%
</TABLE>
Land is not depreciated.
Inventories: Inventories are valued at the lower of cost (determined on a
first-in, first-out or weighted average basis) and net realisable value. Cost,
where applicable, includes an appropriate portion of labour and production
overheads. Maintenance stocks are written-off against income.
Translation of foreign currency items: Foreign currency items have been
translated into South African Rands at the balance sheet rates of exchange for
items not covered by forward exchange contracts. Foreign currency items
covered by forward exchange contracts are translated at the appropriate
forward cover rate. Gains and losses arising from fluctuations in exchange
rates are reflected in income in the period in which they arise.
Deferred taxation: Deferred taxation is provided on the liability method
using the comprehensive basis for the tax effect of timing differences between
the financial and taxable reporting of income and expenditure. Where the
estimated taxation loss available to be carried forward exceeds the aggregate
timing differences, no provision is raised for the resulting deferred tax
asset.
Retirement benefit costs: Retirement benefit costs are charged against
income in the period in which they are incurred.
Turnover: Turnover comprises the net amount invoiced for goods and services
and excludes Value Added Taxation.
F-70
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. SHARE CAPITAL (AS OF JULY 31)
<TABLE>
<CAPTION>
1996 1996
--------- ---------
(SOUTH AFRICAN
RAND)
<S> <C> <C>
Authorised:
1,268,225 ordinary shares of 2 Rand each............... 2,536,450 2,536,450
1 B share of 2 Rand.................................... 2 2
--------- ---------
2,536,452 2,536,452
========= =========
Issued:
1,025,500 ordinary shares of 2 Rand each............... 2,051,000 2,051,000
1 B share of 2 Rand.................................... 2 2
--------- ---------
2,051,002 2,051,002
========= =========
</TABLE>
The unissued shares are under the control of the Directors until the next
annual general meeting.
All of the Company's outstanding shares are owned by Prestolite Electric
Incorporated, which is registered in the United States of America.
3. NON-DISTRIBUTABLE RESERVES (AS OF JULY 31)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(SOUTH AFRICAN
RAND)
<S> <C> <C>
Capital redemption reserve fund...................... 536,450 536,450
Reserve arising on valuation of land and buildings... 1,383,465 1,131,929
Release of depreciation on revalued portion of land
and buildings....................................... 31,442 220,094
Goodwill written-off................................. (589,967) (589,967)
--------- ---------
1,298,506 1,298,506
========= =========
</TABLE>
4. PAYABLE TO HOLDING COMPANY (AS OF JULY 31)
The amount payable to the holding company is unsecured, bears interest at 12%
per annum and is payable in six-monthly instalments of (Pounds)50,000 each.
(Refer Note 16).
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(SOUTH AFRICAN
RAND)
<S> <C> <C>
Loan payable.......................................... 1,285,474 1,637,510
Less current portion included in payable to holding
and fellow subsidiary companies...................... (309,982) --
--------- ---------
975,492 1,637,510
========= =========
</TABLE>
5. FIXED ASSETS (AS OF JULY 31)
<TABLE>
<CAPTION>
1996 1995
---------------------------------- ----------
COST OR ACCUMULATED NET BOOK NET BOOK
VALUATION DEPRECIATION VALUE VALUE
---------- ------------ ---------- ----------
(SOUTH AFRICAN RAND)
<S> <C> <C> <C> <C>
Land and buildings, at
valuation.................. 2,752,688 382,256 2,370,432 2,419,425
Motor vehicles.............. 2,021,045 749,917 1,271,128 1,059,050
Office and computer
equipment.................. 1,397,218 1,003,555 393,663 414,773
Plant and machinery......... 15,965,202 8,760,303 7,204,899 6,664,359
---------- ---------- ---------- ----------
22,136,153 10,896,031 11,240,122 10,557,607
========== ========== ========== ==========
</TABLE>
F-71
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. FIXED ASSETS--(CONTINUED)
MOVEMENT SUMMARY 1996
<TABLE>
<CAPTION>
1995 1996
---------- --------------------------------------------
NET BOOK DEPRECIATION NET BOOK
VALUE ADDITION DISPOSALS CHARGE VALUE
---------- --------- --------- ------------ ----------
(SOUTH AFRICAN RAND)
<S> <C> <C> <C> <C> <C>
Land and buildings...... 2,419,425 -- -- (48,993) 2,370,432
Motor vehicles.......... 1,059,050 669,550 (116,619) (340,853) 1,271,128
Office and computer
equipment.............. 414,773 120,652 -- (141,762) 393,663
Plant and machinery..... 6,664,359 1,967,329 -- (1,426 789) 7,204,899
---------- --------- -------- ---------- ----------
10,557,607 2,757,531 (116,619) (1,958,397) 11,240,122
========== ========= ======== ========== ==========
MOVEMENT SUMMARY 1995
<CAPTION>
1994 1995
---------- --------------------------------------------
NET BOOK DEPRECIATION NET BOOK
VALUE ADDITION DISPOSALS CHARGE VALUE
---------- --------- --------- ------------ ----------
(SOUTH AFRICAN RAND)
<S> <C> <C> <C> <C> <C>
Land and buildings...... 2,468,418 -- -- (48,993) 2,419,425
Motor vehicles.......... 797,298 539,046 (18,975) (258,319) 1,059,050
Office and computer
equipment.............. 293,408 245,151 -- (123,786) 414,773
Plant and machinery..... 3,848,778 3,747,673 -- (932 092) 6,664,359
---------- --------- -------- ---------- ----------
7,407,902 4,531,870 (18,975) (1,363,190) 10,557,607
========== ========= ======== ========== ==========
</TABLE>
Land and buildings comprise Erf 98 Lea Glen Township, Roodepoort, together
with factory buildings thereon. They were last valued in August 1989.
6. INVENTORIES (AS OF JULY 31)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(SOUTH AFRICAN RAND)
<S> <C> <C>
Raw materials and consumables.......................... 5,754,544 8,280,763
Work-in-progress....................................... 1,032,000 1,407,123
Finished goods......................................... 5,908,724 4,471,263
---------- ----------
12,695,724 14,159,149
========== ==========
</TABLE>
F-72
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. OPERATING INCOME (YEAR ENDED JULY 31)
(a) Operating income has been arrived at after charging (crediting) the
following:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(SOUTH AFRICAN
RAND)
<S> <C> <C>
Auditors' remuneration:
Audit fees........................................... 182,500 184,500
Other services....................................... 97,444 --
Depreciation........................................... 1,958,392 1,459,697
Profit on disposal of fixed assets..................... (275,565) (132,052)
Net loss on foreign exchange........................... 295,930 68,693
Operating lease charges
Equipment and vehicles............................... 349,807 284,038
Buildings
Recurring............................................ 371,885 434,239
Non-recurring........................................ -- 490,000
Royalties
Current portion...................................... 2,417,147 2,374,925
Prior years' portion................................. 639,000 1,119,000
(b) Directors' emoluments 1996
<CAPTION>
1996 1995
--------- ---------
(SOUTH AFRICAN
RAND)
<S> <C> <C>
For services as director-paid by company............... 34,069 31,712
For other services-paid by subsidiary companies........ 366,356 344,084
--------- ---------
400,425 375,796
========= =========
</TABLE>
8. NET FINANCE INCOME
Net finance income (costs) consists of the following (year ended July 31):
<TABLE>
<CAPTION>
1996 1995
-------- --------
(SOUTH AFRICAN
RAND)
<S> <C> <C>
Interest received
Others................................................. -- 231,870
Interest paid
Holding company........................................ (154,257) (249,879)
Other.................................................. (471,397) (132,917)
-------- --------
(614,654) (150,926)
======== ========
</TABLE>
9. TAXATION
There is no current taxation charge due to estimated tax losses in the
Company and subsidiary companies of approximately 2.5 million Rand (1995--2.4
million Rand) and 5.1 million Rand (1995--6.3 million Rand) respectively, to
be set-off against future taxable income.
F-73
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. CASH (UTILIZED) GENERATED BY OPERATIONS (YEAR ENDED JULY 31)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(SOUTH AFRICAN
RAND)
<S> <C> <C>
Operating income....................................... 3,179,264 3,669,362
Adjusted for:
Depreciation......................................... 1,958,392 1,459,697
Profit on disposal of fixed assets................... (275,565) (132,052)
--------- ---------
4,862,091 4,997,007
========= =========
</TABLE>
11. INCREASE (DECREASE) IN WORKING CAPITAL (YEAR ENDED JULY 31)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
(SOUTH AFRICAN RAND)
<S> <C> <C>
Decrease in inventories............................ 1,463,881 (3,694,717)
Increase in accounts receivable.................... (507,283) (1,745,543)
(Increase) in receivable from fellow subsidiaries.. (1,317,837) (614 126)
(Decrease) increase in accounts payable............ (408,603) 2,986,475
(Decrease) increase in payable to holding and
fellow subsidiary companies....................... (858,464) 1,659,403
---------- ----------
(1,700,306) (1,408,508)
========== ==========
</TABLE>
12. UNCOVERED FOREIGN CURRENCY ASSETS (LIABILITIES) (AS OF JULY 31)
The Group has the following uncovered foreign currency denominated assets
(liabilities) relating to overseas sales and purchases of stock, forming part
of the Company's normal operating activities:
<TABLE>
<CAPTION>
1996 1995
-------------- ----------------
<S> <C> <C>
Pound Sterling.............................. (Pounds) -- (Pounds) (17,066)
Pound Sterling.............................. (Pounds)16,914 (Pounds) 26,017
Japanese Yen................................ (Yen) 12,385 (Yen)(12,163,991)
United States Dollars....................... $ 104,702 $ 26,146
-------------- ----------------
</TABLE>
13. RETIREMENT BENEFITS
The Group participates in the Lucas Automotive Pension Fund, a defined
benefit plan, governed by the Pension Funds Act, 1956, which covers
substantially all employees. The latest actuarial valuation of the pension
fund, at July 1, 1995, disclosed no unfunded past service liabilities.
F-74
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. LEASE COMMITMENTS (AS OF JULY 31)
Commitments in respect of minimum annual rentals under operating lease
agreements are as follows:
<TABLE>
<CAPTION>
1996
-----------------------------
EQUIPMENT
AND MOTOR
PREMISES VEHICLES TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Due within one year............................ 369,316 92,798 462,114
Due thereafter................................. 721,684 128,318 850,002
--------- ------- ---------
1,091,000 221,116 1,312,116
========= ======= =========
<CAPTION>
1995
-----------------------------
EQUIPMENT
AND MOTOR
PREMISES VEHICLES TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Due within one year............................ 333,722 191,358 525,080
Due thereafter................................. 632,966 193,125 826,091
--------- ------- ---------
966,688 384,483 1,351,171
========= ======= =========
</TABLE>
15. CAPITAL COMMITMENTS (AS OF JULY 31)
Capital commitments, for which funds will be provided from existing bank
facilities, comprise:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
(SOUTH AFRICAN
RAND)
<S> <C> <C>
Authorised and contracted for............................ 338,064 672,426
Authorised and not contracted for........................ 684,408 701,514
--------- ---------
1,022,472 1,373,940
========= =========
</TABLE>
16. EXCHANGE CONTROL RESTRICTIONS
Present exchange control restrictions prevent South African companies from
distributing to nonresident shareholders profits earned prior to January 1,
1984, unless special approval is obtained from the Exchange Control
authorities. Where such approval is given, distributions are normally
restricted to earnings arising from trading profits. Furthermore, profits of a
capital nature earned subsequent to january 1, 1984, may not ordinarily be
distributed to nonresidents.
Holding company loans of 1,285,474 Rand (1995--1,637,510 Rand) are subject
to the South African debt standstill arrangements and may only be repaid with
the prior approval of the Exchange Control Authorities (Refer Note 4).
The group's local borrowing facilities total 6.0 million Rand (1995--4.0
million Rand).
17. COMPARATIVES
Some of the July 31, 1995 figures have been restated in order to achieve
consistency in the presentation of the financial statements.
F-75
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP)
The following adjustments are required to restate the financial statements
from South African Generally Accepted Accounting Practice to that applicable
in the United States;
(A) DEFERRED TAXATION
Under South African Generally Accepted Accounting Practice deferred tax
asset balances should not be carried forward unless the recoverability
thereof is assured beyond reasonable doubt. The Company has therefore not
created a deferred tax asset by utilising the assessed loss. Under United
States Generally Accepted Accounting Principles ("US GAAP") assessed losses
carried forward are recognised if it is more than likely that the deferred
tax asset will be realised. Therefore the financial statements of the group
have been adjusted as set out hereunder to take effect of the deferred tax
asset created by the assessed loss.
(B) DEFINED BENEFIT PENSION FUND
The Company is currently enjoying a pension holiday and therefore no
pension cost is provided for in the financial statements. Under US GAAP the
yearly expense should be based on actuarial valuations. Additionally the
surplus generated in the fund should be used to reduce this yearly expense,
spread over the remaining working lives of the members. Currently no
actuarial valuation is available to determine the yearly expense, therefore
the charge to income for US GAAP purposes has been based upon previous
contributions recalculated to take effect of current payroll costs. This
charge to the Income Statement has then been reduced by the surplus of the
pension fund over the estimated working lives of members.
(C) REVALUATION OF THE LAND AND BUILDINGS
In 1989 the Company revaluated the land and buildings taking the amount
by which they were revalued to a revaluation non-distributable reserve. The
additional depreciation charged on the amount by which they were revalued
had been transferred from distributable retained earnings to the non
distributable revaluation reserve. Under US GAAP no upward revaluation is
allowed. The revaluation has therefore been reversed and the revaluation
non-distributable reserve has been reduced to a zero balance. The
additional depreciation on the revalued amount has been ignored as this is
considered to be immaterial.
(D) GOODWILL
Goodwill has previously been written off to non distributable reserves as
stated in Note 1 hereto. Under US GAAP this write off should have been
taken to retained income. the goodwill would have been fully amortised by
July 31, 1995 in terms of US GAAP. A transfer has therefore been made
between retained income and non distributable reserves.
F-76
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (US GAAP)--
(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
JULY 31,
----------------------
1996 1995
---------- ----------
(SOUTH AFRICAN RAND,
IN THOUSANDS)
<S> <C> <C>
NET INCOME
Retained income before taxation under South African
GAAP................................................ 2,554 3,518
Pension Fund Adjustment per (b) above................ (866) (866)
Deferred Tax Adjustment per (a) above................ (737) (1,394)
---------- ----------
Retained income as adjusted for U.S. GAAP............ 951 (1,258)
========== ==========
SHAREHOLDER'S FUNDS
Shareholder's Equity under South African GAAP........ 20,265 17,811
Deferred Tax Asset Created in 1994................... 4,369
Effect of prior year U.S. GAAP adjustments........... 695 --
---------- ----------
Adjusted Shareholder's Equity........................ 21,060 22,180
Deferred Tax Asset per (a) above..................... (737) (1,394)
Revaluation of Land and Buildings per (c) above...... -- (1,414)
Pension Fund Adjustment per (b) above................ (866) (866)
---------- ----------
Shareholder's Equity as Adjusted for U.S. GAAP....... 19,457 18,506
========== ==========
AMORTISATION OF GOODWILL
Increase in Non-distributable Reserves............... 590 590
Reduction in Retained Income......................... (590) (590)
---------- ----------
Effect on Shareholder's Equity....................... -- --
========== ==========
EFFECT OF PRIOR YEAR US GAAP ADJUSTMENTS
Revaluation Of Land and Buildings.................... (1,414) --
Pension Fund Adjustment.............................. (866) --
Deferred Tax Asset................................... 2,975 --
---------- ----------
695
========== ==========
</TABLE>
F-77
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
CONVENIENCE TRANSLATION
Basis of translation into US Dollars:
The financial information set out on the following four pages translates the
Consolidated Income Statements, Balance Sheets, Cash Flow Statements and the
Reconciliation between South African GAAP and United States GAAP for Lucas
Holdings South Africa (Proprietary) Limited and subsidiaries at and for the
periods ended December 31, 1997, January 31, 1997, July 31, 1996 and July 31,
1995, prepared in South African currency (Rands) under South African Generally
Accepted Accounting Practice into United States Dollars.
The method of translation is as follows:
Balance Sheet items are translated at the exchange rate ruling as at the
balance sheet date.
Income Statement items are translated at the average rate for the period.
The reconciliation is translated at the corresponding balance sheet date.
F-78
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
CONVENIENCE TRANSLATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF AS OF AS OF AS OF
DECEMBER 31, JANUARY 31, JULY 31, JULY 31,
1997 1997 1996 1995
------------ ----------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CAPITAL EMPLOYED
Share capital....................... $ 422 $ 450 $ 455 $ 567
Share premium....................... 1,458 1,555 1,574 1,959
Non-distributable reserves.......... 260 281 288 360
Forex Translation Reserve........... 42 (442) (466) (698)
Retained income..................... 3,775 3,274 2,646 1,994
------ ------ ------ -------
Shareholder's equity.............. 5,217 5,094 4,521 4,922
Payable to holding company.......... -- 53 216 452
------ ------ ------ -------
$5,217 $5,147 $4,737 $ 5,374
====== ====== ====== =======
EMPLOYMENT OF CAPITAL
Fixed assets........................ $2,276 $2,429 $2,495 $ 2,917
------ ------ ------ -------
CURRENT ASSETS:
Inventories....................... 1,655 2,009 2,818 3,913
Accounts receivable............... 1,831 2,372 2,471 2,936
Receivable from fellow
subsidiaries..................... 692 306 489 244
Bank and cash balances............ 1,342 394 -- 2
------ ------ ------ -------
Total current assets............ 5,520 5,081 5,778 7,095
====== ====== ====== =======
CURRENT LIABILITIES:
Accounts payable.................. 2,194 1,909 2,792 3,607
Payable to holding and fellow
subsidiary companies............. 256 454 674 991
Bank overdraft.................... -- -- 70 40
Taxation.......................... 129 -- -- --
------ ------ ------ -------
Total current liabilities....... 2,579 2,363 3,536 4,638
------ ------ ------ -------
Net current assets.............. 2,941 2,718 2,242 2,457
------ ------ ------ -------
$5,217 $5,147 $4,737 $ 5,374
====== ====== ====== =======
</TABLE>
F-79
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
CONVENIENCE TRANSLATION
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, JANUARY 31, JULY 31, JULY 31,
1997 1997 1996 1995
------------- ----------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Turnover......................... $14,497 $7,601 $17,330 $19,093
Cost of sales.................... 10,950 5,703 13,709 15,337
------- ------ ------- -------
Gross profit..................... $ 3,547 $1,898 $ 3,621 $ 3,756
======= ====== ======= =======
Operating income................. 1,019 606 802 1,023
Net finance income (costs) ...... 163 19 (158) (42)
------- ------ ------- -------
Income before taxation........... 1,182 625 644 981
Taxation......................... (136) -- -- --
------- ------ ------- -------
Net income, for the period....... 1,046 625 644 981
Transfer from non-distributable
reserves........................ 3 3 8 --
Dividend paid.................... (548) -- -- --
Retained income, beginning of
period.......................... 3,274 2,646 1,994 1,013
------- ------ ------- -------
Retained income, end of period... $ 3,775 $3,274 $ 2,646 $ 1,994
======= ====== ======= =======
</TABLE>
F-80
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
CONVENIENCE TRANSLATION
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, JANUARY 31, JULY 31, JULY 31,
1997 1997 1996 1995
------------- ----------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash Generated by Operating
Activities:
Cash generated by operations..... $1,343 $ 834 $1,079 $ 1,381
Decrease (increase) in working
capital......................... 451 (41) (377) (389)
Net finance income (costs)....... 154 19 (139) (42)
Dividend paid.................... (548) -- -- --
------ ----- ------ -------
1,400 812 563 950
Cash Generated from Investing
Activities:
Additions to fixed assets........ (429) (196) (612) (1,279)
Proceeds on disposal of fixed
assets.......................... 51 7 86 42
------ ----- ------ -------
(378) (189) (526) (1,237)
------ ----- ------ -------
1,022 623 37 (287)
====== ===== ====== =======
Cash Effects of Financing
Activities:
Decrease in payable to holding
company......................... (50) (160) (78) (145)
Decrease (increase) in bank and
cash balances................... (972) (394) 2 392
Decrease (increase) in bank
overdraft....................... -- (69) 39 40
------ ----- ------ -------
(1,022) (623) 37 287
====== ===== ====== =======
</TABLE>
F-81
<PAGE>
PRESTOLITE ELECTRIC HOLDINGS SOUTH AFRICA
(PROPRIETARY) LIMITED AND SUBSIDIARIES
(FORMERLY KNOWN AS LUCAS HOLDINGS SOUTH AFRICA (PROPRIETARY) LIMITED)
CONVENIENCE TRANSLATION
RECONCILIATION OF SOUTH AFRICAN GAAP TO UNITED STATES GAAP
<TABLE>
<CAPTION>
ELEVEN MONTHS SIX MONTHS YEAR YEAR
ENDED ENDED ENDED ENDED
DECEMBER 31, JANUARY 31, JULY 31, JULY 31,
1997 1997 1996 1995
------------- ----------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
NET INCOME
Retained income before taxation
under South African GAAP........ $1,046 $ 625 $ 644 $ 981
Pension Fund Adjustment.......... (163) (94) (219) (241)
Deferred Tax Adjustment.......... (218) (268) (186) (389)
------ ------ ------ ------
Retained income as adjusted for
U.S. GAAP....................... 665 263 239 351
====== ====== ====== ======
SHAREHOLDER'S FUNDS
Shareholder's Equity under South
African GAAP.................... 5,217 5,094 4,521 4,921
Effect of prior year U.S. GAAP
adjustments..................... (530) (199) 154 1,207
------ ------ ------ ------
Adjusted Shareholder's equity.. 4,687 4,895 4,675 6,128
Deferred Tax Adjustment.......... (207) (270) (163) (385)
Revaluation of Land and
Buildings....................... -- -- -- (392)
Pension Fund Adjustment.......... (154) (95) (192) (239)
------ ------ ------ ------
Shareholder's Equity as
Adjusted for U.S. GAAP........ 4,326 4,530 4,320 5,112
====== ====== ====== ======
AMORTIZATION OF GOODWILL
Non-Distributable Reserves....... 181 129 131 164
Retained Income.................. (181) (129) (131) (164)
------ ------ ------ ------
Effect on Shareholder's Equity -- -- -- --
====== ====== ====== ======
</TABLE>
F-82
<PAGE>
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE ISSUER OR PEI. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS
OF THE ISSUER OR PEI SINCE SUCH DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 15
The Transactions......................................................... 23
Use of Proceeds.......................................................... 25
The Exchange Offer....................................................... 26
Capitalization........................................................... 34
Selected Consolidated Historical Financial Data.......................... 35
Unaudited Pro Forma Combined Financial Data.............................. 41
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 48
Business................................................................. 55
Management............................................................... 69
Principal Stockholders................................................... 74
Certain Transactions..................................................... 75
Description of the Exchange Notes........................................ 77
Description of Certain Indebtedness...................................... 108
Certain Federal Income Tax Consequences.................................. 110
Plan of Distribution..................................................... 114
Notice to Canadian Residents............................................. 115
Legal Matters............................................................ 116
Experts.................................................................. 116
Available Information.................................................... 116
Index to Financial Statements............................................ F-1
</TABLE>
------------
UNTIL SEPTEMBER 24, 1998 ALL DEALERS EFFECTING TRANSACTIONS IN THE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
================================================================================
================================================================================
[PRESTOLITE ELECTRIC INCORPORATED LOGO]
PRESTOLITE ELECTRIC INCORPORATED
OFFER TO EXCHANGE ITS
OUTSTANDING
9 5/8% SENIOR NOTES DUE 2008
FOR ANY AND ALL OF ITS
9 5/8% SENIOR NOTES DUE 2008,
Which are Fully and Unconditionally Guaranteed on a Senior Basis by
PEI HOLDING, INC.
----------------
PROSPECTUS
----------------
June 26, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Prestolite Electric Incorporated (the "Issuer") and PEI Holding, Inc.
("PEI"), the Issuer's parent corporation, are each Delaware corporations.
Section 145 of the General Corporation Law of the state of Delaware (the
"Delaware Law") empowers a Delaware corporation to indemnify any persons who
were, are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceedings, whether civil, criminal,
administrative or investigative (other than action by or in the right of such
corporation), by reason of the fact that such person is or was an officer or
director of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation
or enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided that such officer or director acted in good faith and in a manner he
reasonably believed to be in or not opposed to the corporation's best
interests, and, for criminal proceedings, had no reasonable cause to believe
his conduct was illegal. A Delaware corporation may indemnify officers and
directors in any action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the
corporation in the performance of his duty. Where an officer or director is
successful on the merits or otherwise in the defense of any action referred to
above, the corporation must indemnify him against the expenses which such
officer or director actually and reasonably incurred.
In accordance with Delaware Law, the certificate of incorporation of each of
the Issuer and PEI contains a provision to limit the personal liability of the
directors of the Issuer and PEI for violations of their fiduciary duty. This
provision eliminates each director's liability to the Issuer and PEI or their
respective stockholders for monetary damages except (i) for any breach of the
director's duty of loyalty to the Issuer and PEI or their respective
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the Delaware Law providing for liability of directors for unlawful payment
of dividends or unlawful stock purchases or redemptions, or (iv) for any
transaction from which a director derived any improper personal benefit. The
effect of this provision is to eliminate the personal liability of directors
for monetary damages for actions involving a breach of their fiduciary duty of
care, including any such actions involving gross negligence.
The Bylaws of each of the Issuer and PEI provide for indemnification of the
officers and directors of the Issuer and PEI to the fullest extent permitted
by applicable law. The Issuer and PEI have each purchased insurance coverage
under policies which insure each of the Issuer and PEI for amounts which each
company is required or permitted to pay as indemnification of directors and
certain officers of the Issuer and PEI, respectively, and their subsidiaries
and which insure directors and certain officers of the Issuer and PEI,
respectively, and their subsidiaries against certain liabilities which might
be incurred by them in such capacities and for which they are not entitled to
indemnification by the Issuer and PEI, as the case may be.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1* Umbrella Agreement, dated as of January 22, 1998, relating to the Sale
and Purchase of Lucas' Electrical Products Business in England and
companies in South Africa and Argentina, by and between Lucas
Industries plc and others, Prestolite Electric Limited and others, and
PEI
2.2* Agreement, dated as of January 22, 1998, relating to the Sale and
Purchase of Assets of the Lucas Electrical and Electronic Systems-
Heavy Duty Products Business, by and between Lucas Limited, Prestolite
Electric Limited and Lucas Industries plc.
2.3* Agreement, dated as of January 22, 1998, for the Sale and Purchase of
the Entire Issued Share Capital of Lucas Argentine Holdings, Inc. and
Shares in Lucas Indiel Argentina S.A., by and between Lucas Industries
plc, the Issuer and Prestolite Newco, Inc.
2.4* Agreement for the Sale and Purchase of the Entire Issued Share Capital
of Lucas Holdings South Africa (Proprietary) Limited, by and between
Lucas Industries plc and the Issuer
3.1* Certificate of Incorporation of the Issuer
3.2* Certificate of Amendment of Certificate of Incorporation of the Issuer
3.3* Amended and Restated Certificate of Incorporation of PEI
3.4* Certificate of Amendment to Amended and Restated Certificate of
Incorporation of PEI
3.5* By-Laws of the Issuer
3.6* By-Laws of PEI
4.1* Indenture, dated as of January 22, 1998, among the Issuer, PEI and
U.S. Bank Trust National Association (formerly known as First Trust
National Association) as Trustee, including forms of Senior Notes
4.2* Registration Rights Agreement, dated as of January 22, 1998, between
the Issuer, PEI and Credit Suisse First Boston Corporation and BT
Alex.Brown Incorporated as Initial Purchasers
5.1* Opinion of Brobeck, Phleger & Harrison LLP
10.1* Amended and Restated Credit Agreement, dated as of January 22, 1998,
between Comerica Bank and the Issuer
10.2* Invoice Discounting Agreement, dated as of April 21, 1998, between
Lombard NatWest Discounting Limited and Prestolite Electric Limited
10.3* Subordination Agreement, dated as of April 21, 1998, between Lombard
NatWest Discounting Limited, Prestolite Electric Limited and the
Issuer.
10.4* Management Consulting Agreement, dated as of October 31, 1991, between
the Issuer and Genstar Investment Corporation
10.5* Amendment No. 1 to Management Consulting Agreement, dated as of
January 1, 1998, between the Issuer and Genstar Investment Corporation
10.6* Promissory Note, dated as of January 22, 1998, payable to Lucas
Industries plc by Prestolite Newco, Inc. ("A" Loan Note)
10.7* Promissory Note, dated as of January 22, 1998, payable to Lucas
Industries plc by Prestolite Newco, Inc. ("B" Loan Note)
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
10.8* Promissory Note, dated as of January 22, 1998, payable to Lucas
Industries plc by Prestolite Newco, Inc. ("C" Loan Note)
10.9* Option Agreement, dated as of January 22, 1998, between Lucas
Industries plc and the Issuer
10.10* Tax Deed, dated as of January 22, 1998, between Lucas Industries plc,
the Issuer and Lucas Indiel Argentina S.A.
10.11* Distribution Agreement--South Africa, dated as of January 22, 1998, by
and between Lucas Limited and Lucas Automotive (Pty) Ltd.
10.12* Distribution Agreement--Argentina, dated as of January 22, 1998, by and
between Lucas Limited and Lucas Indiel Argentina S.A.
10.13* South African Supply Agreement, dated as of January 22, 1998, by and
between Lucas Limited and Lucas Automotive (Pty) Ltd.
10.14* Supply and Distribution Agreement for South America (excluding
Argentina), dated as of January 22, 1998, by and between Lucas Indiel
Argentina S.A. and Lucas Diesel do Brasil Ltda.
10.15* Acton Trade Mark Licence, dated as of January 22, 1998, by and between
Lucas Industries plc and Prestolite Electric Limited
10.16* Trade Mark Licence--Argentina, dated as of January 22, 1998, by and
between Lucas Industries plc and Lucas Indiel Argentina S.A.
10.17* LAO Sale and Transition Agreement relating to Acton, dated as of
January 22, 1998, by and between Lucas Limited and Prestolite Electric
Limited
10.18* Licence of Intellectual Property Relating to In-Line Diesel Pumps,
dated as of January 22, 1998, by and between Lucas Limited and
Prestolite Electric Limited
10.19* Technical Assistance Agreement on Starter Motors and Alternators, dated
as of April 8, 1998, between the Issuer and Hitachi, Ltd.
10.20* PEI Holding, Inc. Management Stock Option Plan
10.21* Lease, dated as of September 3, 1993, between Plymouth Square and the
Issuer for the Ann Arbor, Michigan headquarters property
10.22* Lease, dated as of March 8, 1994, between Green Road Associates Limited
Partnership and the Issuer for the Ann Arbor, Michigan research
properties
10.23* Lease, dated as of October 11, 1991, between Lawrence Boes and Raymond
Boes and the Issuer, as amended, for the Dearborne Heights, Michigan
property
10.24* Lease, dated as of March 20, 1996, between Miller-Valentine Partners
Limited and the Issuer (as successor by merger to Prestolite Power
Corporation) for the Troy, Ohio property
10.25* Lease, dated as of November 7, 1997, between Miller-Valentine Partners
Limited and the Issuer (as successor by merger to Prestolite Power
Corporation) for the Troy, Ohio property
10.26* Lease, dated as of January 12, 1994, between The City of Wagoner,
Oklahoma and the Issuer for the Wagoner, Oklahoma property
10.27* Lease Agreement, dated as of June 14, 1996, between Duke Realty Limited
Partnership and the Issuer, as amended, for the sale and leaseback of
the Florence, Kentucky property
10.28* Licence Agreement, dated as of October 29, 1991, among PMI Holding,
Corp., the Issuer, Prestolite Electric of New York, Inc., Prestolite
Electric of Michigan, Inc., and Prestolite Technology Corp. and PEI
1991 Acquisition, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.29* Employment Agreement, dated as of January 1, 1997, between PEI and P. Kim Packard
10.30* Employment Agreement, dated as of January 1, 1997, between PEI and Kenneth C. Cornelius
10.31* Employment Agreement, dated as of January 1, 1997, between PEI and Thomas E. Hunt
10.32* Employment Agreement, dated as of January 1, 1997, between PEI and Michael Lea
10.33* Employment Agreement, dated as of January 1, 1997, between PEI and Thomas C. Dolson
10.34* Employment Agreement, dated as of January 1, 1997, between PEI and I. Conrad Schwab
12* Statement of Computation of Ratio of Earnings to Fixed Charges
21* Subsidiaries of PEI
23.1+ Consent of Coopers & Lybrand L.L.P.
23.2+ Consent of Ernst & Young
23.3+ Consent of Deloitte & Co.
23.4+ Consent of Arthur Andersen & Co.
23.5* Consent of Brobeck, Phleger & Harrison LLP (contained in its opinion filed as Exhibit 5.1)
24.1* Powers of Attorney for the Issuer.
24.2* Powers of Attorney for PEI
25* Form T-1 Statement of Eligibility of U.S. Bank Trust National Association
27* Financial Data Schedule
99.1+ Form of Letter of Transmittal.
99.2+ Form of Notice of Guaranteed Delivery.
</TABLE>
- --------
*Previously filed.
+Filed herewith.
(B) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information required
to be set forth therein is not applicable or is shown in the financial
statements or the notes thereto.
II-4
<PAGE>
ITEM 22. UNDERTAKINGS
(a) The undersigned Registrants hereby undertake (i) to file, during any
period in which offers or sales are being made, a post-effective amendment to
this Registration Statement (A) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933, as amended (the "Act"); (B) to reflect
in the prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and (C) to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement; (ii) that, for the purpose of
determining any liability under the Securities Act of 1933, each such post-
effective amendment shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and (iii) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) (1) The undersigned Registrants hereby undertake as follows: that prior
to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the Issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information
called for by the other items of the applicable form.
(2) The Registrants undertake that every prospectus (i) that is filed
pursuant to paragraph (a)(1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and
is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the Registration
Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new
Registration Statement, relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrants
pursuant to the foregoing provisions, or otherwise, the Registrants have been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of
expenses incurred or paid by a director, officer or controlling person of the
Registrants in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrants will, unless in the opinion
of their counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
PRESTOLITE ELECTRIC INCORPORATED
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Ann
Arbor, State of Michigan on the 24th day of June, 1998.
PRESTOLITE ELECTRIC INCORPORATED
/s/ P. Kim Packard
By __________________________________
P. Kim Packard
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATED
/s/ P. Kim Packard President, Chief
- ------------------------------------- Executive Officer June 24, 1998
P. KIM PACKARD (principal
executive officer),
Director
* Chairman of the
- ------------------------------------- Board, Director June 24, 1998
RICHARD D. PATERSON
/s/ Kenneth C. Cornelius Vice President,
- ------------------------------------- Chief Financial June 24, 1998
KENNETH C. CORNELIUS Officer (principal
accounting and
financial officer)
and Secretary
* Director
- ------------------------------------- June 24, 1998
ROSS J. TURNER
* Director
- ------------------------------------- June 24, 1998
JOHN A. WEST
*By: /s/ Kenneth C. Cornelius
----------------------------------
KENNETH C. CORNELIUS
ATTORNEY-IN-FACT
II-6
<PAGE>
PEI HOLDING, INC.
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Ann Arbor,
State of Michigan on the 24th day of June, 1998.
PRESTOLITE ELECTRIC INCORPORATED
/s/ P. Kim Packard
By ___________________________________
P. Kim Packard
President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATED
/s/ P. Kim Packard President, Chief
- ------------------------------------ Executive Officer June 24, 1998
P. KIM PACKARD (principal
executive
officer), Director
* Chairman of the
- ------------------------------------ Board, Director June 24, 1998
RICHARD D. PATERSON
/s/ Kenneth C. Cornelius Vice President,
- ------------------------------------ Chief Financial June 24, 1998
KENNETH C. CORNELIUS Officer (principal
accounting and
financial officer)
and Secretary
* Director
- ------------------------------------ June 24, 1998
ROSS J. TURNER
* Director
- ------------------------------------ June 24, 1998
JOHN A. WEST
*By: /s/ Kenneth C. Cornelius
---------------------------------
KENNETH C. CORNELIUS
ATTORNEY-IN-FACT
II-7
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND]
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Amendment No. 2
to Form S-4 and related Prospectus of Prestolite Electric Incorporated
(Prestolite) and PEI Holding, Inc. (PEI) related to Prestolite's $125 million
9 5/8% senior notes and related guarantee of PEI of our report dated January
30, 1998, except for Note 21b for which the date is March 26, 1998, on our
audits of the financial statements and financial statement schedule of PEI
Holding, Inc. and Subsidiaries. We also consent to the reference to our Firm
under the caption "Experts."
/s/ Coopers & Lybrand LLP
Detroit, Michigan
June 24, 1998
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 30, 1998, with respect to the financial
statements of the Heavy Duty Products Division of Lucas Industries plc in
Amendment No. 2 to the Registration Statement on Form S-4 and related
Prospectus of Prestolite Electric Incorporated ("Prestolite") and PEI Holding,
Inc. ("PEI") for the registration of $125,000,000 9-5/8% Senior Notes due 2008
of Prestolite and related guarantee of PEI.
/s/ Ernst & Young
ERNST & YOUNG
Chartered Accountants
London, England
June 24, 1998
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
-----------------------------
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-49429 of Prestolite Electric Incorporated and PEI Holding, Inc. of our
report dated March 30, 1998 on the financial statements of Lucas Indiel
Argentina S.A. and subsidiaries appearing in the Prospectus, which is part of
this Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ Deloitte & Co.
- ------------------
DELOITTE & CO.
Buenos Aires, Argentina
June 24, 1998
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN]
EXHIBIT 23.4
24 June, 1998
The Directors
Prestolite Electric Incorporated
2100 Commonwealth Boulevard
Ann Arbor
Michigan 48105
U.S.A.
Dear Sirs:
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the use of our report on
the financial statements of Prestolite Electric Holdings South Africa
(Proprietary) Limited and subsidiaries dated February 27, 1998 (and to all
references to our firm) included in or made a part of the Registration Statement
on Form S-4 and related Prospectus of Prestolite Electric Incorporated
("Prestolite") and PEI Holdings, Inc. ("PEI") for the registration of
Prestolite's 9-5/8 Senior Notes due 2008 and related guarantee of PEI.
/s/ Arthur Andersen & Co.
Johannesburg, South Africa Arthur Andersen & Co.
June 24, 1998 Chartered Accountants (S.A.)
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
FOR TENDERS OF
$125,000,000 AGGREGATE PRINCIPAL AMOUNT OF
9 5/8% SENIOR NOTES DUE 2008
OF
PRESTOLITE ELECTRIC INCORPORATED
FULLY AND UNCONDITIONALLY GUARANTEED ON A SENIOR BASIS BY PEI HOLDING, INC.
PURSUANT TO THE PROSPECTUS DATED JUNE 26, 1998
OF PRESTOLITE ELECTRIC INCORPORATED
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON JULY ,
1998, UNLESS EXTENDED (THE "EXPIRATION DATE") UNLESS THE EXCHANGE OFFER IS
EXTENDED (BUT IN NO EVENT TO A DATE LATER THAN , 1998). TENDERED
SECURITIES MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
TO: U.S. BANK TRUST NATIONAL ASSOCIATION, EXCHANGE AGENT
By Facsimile: By Mail:
U.S. Bank Trust National Association U.S. Bank Trust National Association
(612) 244-1537 P.O. Box 64485
Attention: Melina Black (SPFT0414) St. Paul, Minnesota 55164-9549
Confirm by Telephone to: (612) 244- Attention: Specialized Finance
8161 (SPFT0414)
By Hand Before 5:00 p.m. (New York By Overnight Courier and by
Time): Registered/Certified Mail:
U.S. Bank Trust National Association
100 Wall Street U.S. Bank Trust National Association
20th Floor 180 East Fifth Street
New York, NY 10005 St. Paul, Minnesota 55101
Attention: Specialized Finance
(SPFT0414)
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS, OR TRANSMISSION VIA
FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER
OF TRANSMITTAL IS COMPLETED.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX
List below the Outstanding Notes to which this Letter of Transmittal
relates. If the space provided below is inadequate, the certificate numbers
and principal amount of Outstanding Notes should be listed on a separate
signed schedule affixed hereto.
DESCRIPTION OF OUTSTANDING NOTES
(SEE INSTRUCTIONS 2, 3 AND 8)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) OUTSTANDING NOTE(S) TENDERED
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)
- ------------------------------------------------------------------------------------------------------------
TITLE OF SECURITIES AGGREGATE PRINCIPAL AMOUNT OF
AND CERTIFICATE PRINCIPAL AMOUNT OUTSTANDING NOTES
NUMBER(S)(1) OF OUTSTANDING NOTE TENDERED(2)
<S> <C> <C> <C>
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
TOTAL
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Certificate numbers not required if Outstanding Notes are being
tendered by book-entry transfer.
(2) Unless otherwise indicated in this column, a holder will be deemed to
have tendered the entire principal amount represented by the
Outstanding Note indicated in column 2. Outstanding Notes tendered
hereby must be in denominations of $1,000 or integral multiples
thereof. See Instruction 1.
<PAGE>
This Letter of Transmittal is to be completed by a holder of Outstanding
Notes either if certificates are to be forwarded herewith or if a tender of
certificates for Outstanding Notes, if available, is to be made by book-entry
transfer to the account maintained by the Exchange Agent at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedures
set forth in "The Exchange Offer--Procedures for Tendering Outstanding Notes"
section of the Prospectus. Holders of Outstanding Notes whose certificates are
not immediately available, or who are unable to deliver their certificates or
confirmation of the book-entry tender of their Outstanding Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation") and deliver all other documents required by this Letter of
Transmittal to the Exchange Agent on or prior to the Expiration Date, may
tender their Outstanding Notes according to the guaranteed delivery procedures
set forth in the Prospectus under the section entitled "The Exchange Offer--
Guaranteed Delivery Procedures."
Holders who wish to tender their Outstanding Notes must complete this Letter
of Transmittal in its entirety.
[_]CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-
ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: ______________________
Account Number: _____________________________________
Transaction Code Number: ____________________________
[_]CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s): ____________________
Window Ticket Number (if any): ______________________
Date of Execution of Notice of Guaranteed Delivery: _
[_]CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: _______________________________________________
Address: ____________________________________________
______________________________________________
______________________________________________
2
<PAGE>
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE EXCHANGE NOTES FOR THEIR
OUTSTANDING NOTES PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT
WITHDRAW) THEIR OUTSTANDING NOTES TO THE EXCHANGE AGENT PRIOR TO THE
EXPIRATION DATE.
The undersigned acknowledges that it has received and reviewed the
Prospectus dated June 26, 1998 (the "Prospectus"), of Prestolite Electric
Incorporated (the "Issuer"), and this Letter of Transmittal (the "Letter of
Transmittal"), which together constitute the Issuer's offer (the "Exchange
Offer") to exchange an aggregate principal amount of up to $125,000,000 of its
9 5/8% Senior Notes Due 2008 (the "Exchange Notes"), for a like principal
amount of the Issuer's issued and outstanding 9 5/8% Senior Notes Due 2008
(the "Outstanding Notes").
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on July
27, 1998, unless the Issuer, in its sole discretion, extends the Exchange
Offer (but in no event to a date later than August 10, 1998). The Issuer
reserves the right, at any time or from time to time, to extend the period of
time during which the Exchange Offer is open at its sole discretion, in which
event the term "Expiration Date" shall mean the time and date when the
Exchange Offer as so extended shall expire. During any such extension, all
Outstanding Notes previously tendered will remain subject to the Exchange
Offer and may be accepted for exchange by the Issuer. Any Outstanding Notes
not accepted for exchange for any reason will be returned without expense to
the tendering holder thereof as promptly as practicable after the expiration
or termination of the Exchange Offer.
The Issuer expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Outstanding Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified in the Prospectus under the section entitled "The
Exchange Offer--Certain Conditions to the Exchange Offer."
The Issuer shall notify the holders of the Outstanding Notes of any
extension, amendment, non-acceptance or termination by means of a press
release or other public announcement not later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date.
The Exchange Notes will bear interest from the last interest payment date on
which interest was paid on the Outstanding Notes surrendered in exchange
therefor or, if no interest has been paid on such Outstanding Notes, from the
date of original issue of the Outstanding Notes at the same rate and upon the
same terms as the Outstanding Notes. Holders whose Outstanding Notes are
accepted for exchange will not receive interest on such Outstanding Notes for
any period subsequent to the last interest payment date, if any, of the
Outstanding Notes to occur prior to the issue date of the Exchange Notes and
will be deemed to have waived the right to receive any payment in respect of
interest on the Outstanding Notes accrued from and after such interest payment
date or, if no interest has been paid, from January 22, 1998.
The Exchange Offer is not conditioned upon any minimum principal amount of
Outstanding Notes being tendered for exchange. However, the Exchange Offer is
subject to certain conditions. Please see the Prospectus under the section
entitled "The Exchange Offer--Certain Conditions to the Exchange Offer."
The Exchange Offer is not being made to, nor will tenders be accepted from
or on behalf of, holders of Outstanding Notes in any jurisdiction in which the
making or acceptance of the Exchange Offer would not be in compliance with the
laws of such jurisdiction.
Based upon no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission") to third parties, the Issuer believes
that Exchange Notes issued pursuant to the Exchange Offer in exchange for
Outstanding Notes may be offered for resale, resold and otherwise transferred
by a holder thereof other than (i) a broker-dealer who purchased such
Outstanding Notes directly from the Issuer to resell pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "Securities Act") or any
other available exemption under the Securities Act or (ii) a person that is an
"affiliate" (as defined in Rule 405 under the Securities Act) of the Issuer or
PEI Holding, Inc. ("PEI") without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holder's business
and that such holder is not participating, and has no arrangement or
understanding with any person to participate, in the distribution of such
Exchange Notes.
3
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE
ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Issuer the aggregate principal amount of
Outstanding Notes indicated above. The undersigned has completed, executed and
delivered this Letter of Transmittal to indicate the action the undersigned
desires to take with respect to the Exchange Offer.
Subject to, and effective upon, the acceptance for exchange of the
Outstanding Notes tendered hereby, the undersigned hereby sells, assigns and
transfers to, or upon the order of, the Issuer all right, title and interest
in and to such Outstanding Notes as are being tendered hereby. The undersigned
hereby irrevocably constitutes and appoints the Exchange Agent its agent and
attorney-in-fact (with full knowledge that the Exchange Agent also acts as the
agent of the Issuer with respect to the tendered Outstanding Notes) with full
power of substitution to (i) deliver certificates for such Outstanding Notes
to the Issuer and deliver all accompanying evidences of transfer and
authenticity to, or upon the order of, the Issuer, (ii) present such
Outstanding Notes for transfer on the books of the Issuer and (iii) receive
for the account of the Issuer all benefits and otherwise exercise all rights
of the beneficial ownership of such Outstanding Notes, all in accordance with
the terms of the Exchange Offer. The power of attorney granted in this
paragraph shall be deemed to be irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Outstanding Notes
tendered hereby and that the Issuer will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claim when the same are accepted by the Issuer.
The undersigned hereby further represents that (i) any Exchange Notes acquired
in exchange for Outstanding Notes tendered hereby will have been acquired in
the ordinary course of business of the person receiving such Exchange Notes,
whether or not such person is the undersigned, (ii) neither the holder nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes and (iii) neither the
holder nor any such other person is an "affiliate", as described in Rule 405
under the Securities Act of the Issuer or PEI.
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of the
Exchange Notes. If the undersigned is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Outstanding Notes, it
represents that the Outstanding Notes to be exchanged for Exchange Notes were
acquired by it as a result of market-making activities or other trading
activities and acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such
Exchange Notes pursuant to the Exchange Offer; however, by so acknowledging
and by delivering a prospectus, the undersigned will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Issuer to be necessary or
desirable to complete the assignment, transfer and sale of the Outstanding
Notes tendered hereby. All authority conferred or agreed to be conferred in
this Letter of Transmittal and every obligation of the undersigned hereunder
shall be binding upon the successors, assigns, heirs, executors,
administrators, trustees in bankruptcy and legal representatives of the
undersigned and shall not be affected by, and shall survive, the death or
incapacity of the undersigned. This tender may be withdrawn only in accordance
with the procedures set forth in the instructions contained in this Letter of
Transmittal.
For the purposes of the Exchange Offer, the Issuer shall be deemed to have
accepted validly tendered Outstanding Notes when, as and if the Issuer has
given oral or written notice thereof to the Exchange Agent.
If any tendered Outstanding Notes are not accepted for exchange pursuant to
the Exchange Offer for any reason, certificates for any such unaccepted
Outstanding Notes will be returned (or, in the case of Outstanding Notes
tendered by book-entry transfer through the Book-Entry Transfer Facility, will
be credited to an account maintained at the Book-Entry Transfer Facility),
without expense, to the undersigned at the address shown below or at a
different address as may be indicated herein under the "Special Delivery
Instructions" as promptly as practicable after the Expiration Date.
4
<PAGE>
The undersigned understands that tenders of Outstanding Notes pursuant to
the procedures described under the section entitled "The Exchange Offer--
Procedures for Tendering Outstanding Notes" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the
undersigned and the Issuer upon the terms and subject to the conditions of the
Exchange Offer.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the Exchange Notes (and, if applicable,
substitute certificates representing Outstanding Notes for any Outstanding
Notes not exchanged) in the name(s) of the undersigned or, in the case of a
book-entry delivery of Outstanding Notes, please credit the account indicated
above maintained at the Book-Entry Transfer Facility. Similarly, unless
otherwise indicated under the box entitled "Special Delivery Instructions"
below, please send the Exchange Notes (and, if applicable, substitute
certificates representing Outstanding Notes for any Outstanding Notes not
exchanged) to the undersigned at the address shown above in the box entitled
"Description of Outstanding Notes." In the event that both "Special Issuance
Instructions" and "Special Delivery Instructions" are completed, please issue
the certificates representing the Exchange Notes issued in exchange for the
Outstanding Notes accepted for exchange in the name(s) of, and return any
certificates for Outstanding Notes not tendered or not exchanged to, the
person(s) so indicated. The undersigned understands that the Issuer has no
obligation pursuant to the "Special Issuance Instructions" and "Special
Delivery Instructions" to transfer any Outstanding Notes from the name of the
registered holder(s) thereof if the Issuer does not accept for exchange any of
the Outstanding Notes so tendered.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OUTSTANDING
NOTES" ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE
TENDERED THE OUTSTANDING NOTES AS SET FORTH IN SUCH BOX ABOVE.
5
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
------------------------------------------------- ---------------------, 1998
------------------------------------------------- ---------------------, 1998
------------------------------------------------- ---------------------, 1998
SIGNATURE(S) OF OWNER(S) DATE
If a holder is tendering any Outstanding Notes, this Letter of Transmittal
must be signed by the registered holder(s) as the name(s) appear(s) on the
certificates for the Outstanding Note(s) or on a security position listing or
by any person(s) authorized to become registered holder(s) by endorsements
and documents transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, officer or other person acting in a fiduciary or
representative capacity, please set forth full title. See Instruction 4.
Name(s):______________________________________________________________________
_______________________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity:_____________________________________________________________________
Address:______________________________________________________________________
_______________________________________________________________________
(INCLUDING ZIP CODE)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 4)
Signature(s) Guaranteed by
an Eligible Institution: _____________________________________________________
(AUTHORIZED SIGNATURE)
______________________________________________________________
(TITLE)
______________________________________________________________
(NAME OF FIRM)
Dated: ___________________________, 1998
6
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5) (SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if certifi- To be completed ONLY if certifi-
cates for Outstanding Notes not cates for Outstanding Notes not
exchanged and/or Exchange Notes exchanged and/or Exchange Notes
are to be issued in the name of are to be sent to someone other
and sent to someone other than than the person or persons whose
the person or person(s) whose signature(s) appear(s) on this
signature(s) appear(s) on this Letter of Transmittal above or to
Letter of Transmittal above, or such person or persons at an ad-
if Outstanding Notes delivered by dress other than shown in the box
book-entry transfer which are not entitled "Description of Out-
accepted for exchange are to be standing Notes" on this Letter of
returned by credit to an account Transmittal above.
maintained at the Book-Entry
Transfer Facility other than the
account indicated above.
Issue Exchange Notes and/or Out- Mail Exchange Notes and/or Out-
standing Notes to: standing Notes to:
Name(s) __________________________ Name(s)___________________________
(PLEASE TYPE OR PRINT) (PLEASE TYPE OR PRINT)
__________________________________ __________________________________
(PLEASE TYPE OR PRINT) (PLEASE TYPE OR PRINT)
Address __________________________ Address __________________________
__________________________________ __________________________________
(INCLUDING ZIP CODE) (INCLUDING ZIP CODE)
(Complete accompanying Substi-
tute Form W-9)
Credit unexchanged Outstanding
Notes delivered by book-entry
transfer to the Book-Entry Trans-
fer Facility account set forth
below:
__________________________________
(BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER, IF APPLICABLE)
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY
BEFORE COMPLETING ANY BOX ABOVE.
THIS LETTER OF TRANSMITTAL MUST BE USED TO FORWARD, AND MUST ACCOMPANY, ALL
CERTIFICATES FOR OUTSTANDING NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER.
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Certificates. This Letter of
Transmittal is to be completed by holders if certificates are to be forwarded
herewith or if tenders are to be made pursuant to the procedures for delivery
by book-entry transfer set forth in "The Exchange Offer--Procedures for
Tendering Outstanding Notes" section of the Prospectus. Certificates for all
physically tendered Outstanding Notes, or Book-Entry Confirmation, as the case
may be, as well as a properly completed and duly executed Letter of
Transmittal (or a copy hereof) and any other documents required by this Letter
of Transmittal, must be received by the Exchange Agent at the address set
forth herein on or prior to the Expiration Date, or the tendering holder must
comply with the guaranteed delivery procedures set forth below. Outstanding
Notes tendered hereby must be in denominations of $1,000 or integral multiples
thereof.
The method of delivery of this Letter of Transmittal, the Outstanding Notes
and all other required documents is at the election and risk of the tendering
holders, but the delivery will be deemed made only when actually received or
confirmed by the Exchange Agent. If Outstanding Notes are sent by mail, it is
suggested that the mailing be made sufficiently in advance of the Expiration
Date to permit delivery to the Exchange Agent prior to the Expiration Date. NO
LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO THE ISSUER.
Holders who wish to tender their Outstanding Notes and (i) whose Outstanding
Notes are not immediately available, (ii) cannot deliver their Outstanding
Notes, this Letter of Transmittal or any other documents required hereby to
the Exchange Agent prior to the Expiration Date or (iii) who cannot comply
with the procedures for book entry tender on a timely basis must tender their
Outstanding Notes according to the guaranteed delivery procedures set forth in
the Prospectus. Pursuant to such procedures: (x) such tender must be made
through an Eligible Institution (as defined below); (y) prior to the
Expiration Date, the Exchange Agent must have received from the Eligible
Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by mail, courier or hand delivery or transmitted via facsimile)
setting forth the name and address of the holder, the certificate number(s) of
the Outstanding Notes to be tendered (except in the case of book-entry
tenders) and the principal amount of Outstanding Notes to be tendered, stating
that the tender is being made thereby and guaranteeing that, within three NYSE
(as defined in the Prospectus) trading days after the Expiration Date, this
Letter of Transmittal (or a copy hereof) together with the certificate(s)
representing the Outstanding Notes (except in the case of book-entry
tender(s)) and any other required documents will be deposited by the Eligible
Institution with the Exchange Agent; and (z) such properly completed and
executed Letter of Transmittal (or a copy thereof), as well as all other
documents required by this Letter of Transmittal and the certificate(s)
representing all tendered Outstanding Notes (except in the case of book-entry
tender(s)) in proper form for transfer or a Book-Entry Confirmation with
respect to such Outstanding Notes, must be received by the Exchange Agent
within three NYSE trading days after the Expiration Date, all as provided in
the Prospectus under the section entitled "The Exchange Offer--Guaranteed
Delivery Procedures." Any holder who wishes to tender its Outstanding Notes
pursuant to the guaranteed delivery procedures described above must ensure
that the Exchange Agent receives the Notice of Guaranteed Delivery prior to
the Expiration Date. As used in this Letter of Transmittal, "Eligible
Institution" shall mean a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States.
All questions as to the validity, eligibility (including time of receipt),
acceptance and withdrawal of tendered Outstanding Notes will be determined by
the Issuer in its sole discretion, which determination will be final and
binding. The Issuer reserves the absolute right to reject any and all
Outstanding Notes not properly tendered or any Outstanding Notes the Issuer's
acceptance of which would, in the opinion of counsel for the Issuer, be
unlawful. The Issuer also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Outstanding Notes. The
Issuer's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this Letter of Transmittal) shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Outstanding Notes must be cured within such time as
the Issuer shall determine. Neither the Issuer, the Exchange Agent nor any
other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Outstanding Notes, nor shall any of
them incur any liability for failure to give such notification. Tenders of
Outstanding Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Outstanding Notes received by
the Exchange Agent that are not properly tendered and as to which the defects
or irregularities have not been cured or waived will be returned by
8
<PAGE>
the Exchange Agent to the tendering holders, unless otherwise provided in this
Letter of Transmittal, as soon as practicable following the Expiration Date.
See "The Exchange Offer" in the Prospectus.
2. Tender by Holder. Only a registered holder of Outstanding Notes may
tender such Outstanding Notes in the Exchange Offer. Any beneficial owner
whose Outstanding Notes are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and who wishes to tender
should contact the registered holder promptly and instruct such registered
holder to tender on behalf of such beneficial owner. If such beneficial owner
wishes to tender on such owner's own behalf, such owner must, prior to
completing and executing this Letter of Transmittal and delivering such
owner's Outstanding Notes, either make appropriate arrangements to register
ownership of the Outstanding Notes in such owner's name or obtain a properly
completed bond power from the registered holder. The transfer of registered
ownership may take considerable time.
3. Partial Tenders and Withdrawals. Tenders of Outstanding Notes will be
accepted only in denominations of $1,000 and integral multiples thereof. If
less than all of the Outstanding Notes represented by a certificate or owned
by a holder are to be tendered, the tendering holder(s) should fill in the
aggregate principal amount of Outstanding Notes to be tendered in the box
above entitled "Description of Outstanding Notes--Principal Amount of
Outstanding Notes Tendered." A reissued certificate representing the balance
of non-tendered Outstanding Notes will be sent to such tendering holder
(except in the case of book-entry tenders), unless otherwise provided in the
appropriate box on this Letter of Transmittal, promptly after the Expiration
Date. All of the Outstanding Notes delivered to the Exchange Agent will be
deemed to have been tendered unless otherwise indicated.
Any holder who has tendered Outstanding Notes may withdraw the tender by
delivering written notice of withdrawal to the Exchange Agent prior to the
Expiration Date. For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent at its address set forth on
the first page of this Letter of Transmittal. Any such notice of withdrawal
must (i) specify the name of the person having deposited the Outstanding Notes
to be withdrawn (the "Depositor"); (ii) identify the Outstanding Notes to be
withdrawn (including the certificate number or numbers and principal amount of
such Outstanding Notes (except in the case of book-entry tenders)); (iii) be
signed by the holder in the same manner as the original signature on this
Letter of Transmittal by which such Outstanding Notes were tendered (including
any required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee (as defined in the Prospectus) register the
transfer of such Outstanding Notes into the name of the person withdrawing the
tender, and (iv) specify the name in which any such Outstanding Notes are to
be registered, if different from that of the Depositor. If Outstanding Notes
have been delivered or otherwise identified to the Exchange Agent, the name of
the registered holder and the certificate numbers of the particular
Outstanding Notes withdrawn must also be furnished to the Exchange Agent as
aforesaid prior to the physical release of the withdrawn Outstanding Notes. If
the Outstanding Notes have been tendered pursuant to the procedures for book-
entry tender set forth in the Prospectus, a notice of withdrawal must specify,
in lieu of certificate numbers, the name and account number at the Book-Entry
Transfer Facility to be credited with the withdrawn Outstanding Notes.
Outstanding Notes properly withdrawn will thereafter be deemed not validly
tendered for purposes of the Exchange Offer; provided, however, that withdrawn
Outstanding Notes may be tendered by again following one of the procedures
herein at any time prior to the Expiration Date. All questions as to the
validity, form and eligibility (including time of receipt) of notice of
withdrawal will be determined by the Issuer in its sole discretion, which
determination will be final and binding on all parties. Neither the Issuer,
the Exchange Agent nor any other person will be under any duty to give
notification of any defects or irregularities in any notice of withdrawal or
incur any liability for failure to give any such notification. See "The
Exchange Offer--Withdrawal Rights" in the Prospectus.
4. Signatures on this Letter of Transmittal; Bond Powers and Endorsements;
Guarantee of Signature. If this Letter of Transmittal is signed by the
registered holder of the Outstanding Notes tendered hereby, the signature must
correspond exactly with the name as written on the face of the certificates
(if applicable) without any change whatsoever.
If any tendered Outstanding Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
9
<PAGE>
If any tendered Outstanding Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as
many separate copies of this Letter of Transmittal as there are different
registrations of certificates.
When this Letter of Transmittal is signed by the registered holder or
holders of the Outstanding Notes specified herein and tendered hereby, no
endorsements of certificates or separate bond powers are required. If,
however, the Exchange Notes are to be issued, or any untendered Outstanding
Notes are to be reissued, to a person other than the registered holder, then
endorsements of any certificates transmitted hereby or separate bond powers
are required.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of any certificate(s) specified herein, such
certificate(s) must be endorsed or accompanied by appropriate bond powers, in
either case signed exactly as the name or names of the registered holder(s)
appear(s) on the certificate(s).
If this Letter of Transmittal or any certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and, unless waived by the
Issuer, proper evidence satisfactory to the Issuer of their authority to so
act must be submitted.
Endorsements on certificates for Outstanding Notes or signatures on bond
powers required by this Instruction 4 must be guaranteed by an Eligible
Institution.
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the Outstanding Notes are tendered: (i) by a
registered holder of such Outstanding Notes (which term, for purposes of the
Exchange Offer, includes any participant in the Book-Entry Transfer Facility
system whose name appears on a security position listing as the holder of such
Outstanding Notes) who has not completed the box entitled "Special Issuance
Instructions" on this Letter of Transmittal; or (ii) for the account of an
Eligible Institution.
5. Special Issuance and Delivery Instructions. Tendering holders of
Outstanding Notes should indicate in the applicable box the name and address
in or to which Exchange Notes issued pursuant to the Exchange Offer and/or
substitute certificates evidencing Outstanding Notes not exchanged are to be
issued or sent, if different from the name or address of the person signing
this Letter of Transmittal. In the case of issuance in a different name, the
employer identification or social security number of the person named must
also be indicated. Holders tendering Outstanding Notes by book-entry transfer
may request that Outstanding Notes not exchanged be credited to such account
maintained at the Book-Entry Transfer Facility as such holder may designate
hereon. If no such instructions are given, such Outstanding Notes not
exchanged will be returned to the name or address of the person signing this
Letter of Transmittal.
6. Transfer Taxes. The Issuer will pay all transfer taxes, if any,
applicable to the transfer of Outstanding Notes to it or its order pursuant to
the Exchange Offer. If however, Exchange Notes and/or substitute Outstanding
Notes not exchanged are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Outstanding
Notes tendered hereby, or if tendered Outstanding Notes are registered in the
name of any person other than the person signing this Letter of Transmittal,
or if a transfer tax is imposed for any reason other than the transfer of
Outstanding Notes to the Issuer or its order pursuant to the Exchange Offer,
the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly
to such tendering holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Outstanding Notes specified in this
Letter of Transmittal.
7. Waiver of Conditions. Subject to the terms and conditions set forth in
the Prospectus, the Issuer reserves the absolute right to waive satisfaction
of any or all conditions enumerated in the Prospectus.
8. No Conditional Tenders. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering holders of Outstanding
Notes, by execution of this Letter of Transmittal, shall waive any right to
receive notice of the acceptance of their Outstanding Notes for exchange.
10
<PAGE>
Neither the Issuer nor any other person is obligated to give notice of
defects or irregularities in any tender, nor shall any of them incur any
liability for failure to give any such notice.
9. Mutilated, Lost, Stolen or Destroyed Outstanding Notes. Any holder whose
Outstanding Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address indicated above for further
instructions.
10. Requests for Assistance or Additional Copies. Questions relating to the
procedure for tendering, as well as requests for additional copies of the
Prospectus and this Letter of Transmittal, may be directed to the Exchange
Agent, at the address indicated on the first page of this Letter of
Transmittal or by telephone at (612) 244-8161.
11
<PAGE>
IMPORTANT TAX INFORMATION
Under U.S. federal income tax laws, a registered holder of Outstanding Notes
or Exchange Notes is required to provide the Trustee (as payor) with such
holder's correct Taxpayer Identification Number ("TIN") on Substitute Form W-9
below or otherwise establish a basis for exemption from backup withholding. If
such holder is an individual, the TIN is his or her social security number. If
the Trustee is not provided with the correct TIN, a $50 penalty may be imposed
by the Internal Revenue Service, and payments made to such holder with respect
to Outstanding Notes or Exchange Notes may be subject to backup withholding.
Certain holders (including, among others, all corporations and certain
foreign persons) are not subject to these backup withholding and reporting
requirements. Exempt holders should indicate their exempt status on Substitute
Form W-9. A foreign person may qualify as an exempt recipient by submitting to
the Trustee a properly completed Internal Revenue Service Form W-8, signed
under penalties of perjury, attesting to that holder's exempt status. A Form
W-8 can be obtained from the Trustee.
If backup withholding applies, the Trustee is required to withhold 31% of
any payments made to the holder or other payee. Backup withholding is not an
additional U.S. federal income tax. Rather, the U.S. federal income tax
liability of persons subject to backup withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
Purpose of Substitute Form W-9. To prevent backup withholding on payments
made with respect to Outstanding Notes or Exchange Notes the holder is
required to provide the Trustee with: (i) the holder's correct TIN by
completing the form below, certifying that the TIN provided on Substitute Form
W-9 is correct (or that such holder is awaiting a TIN) and that (A) such
holder is exempt from backup withholding, (B) the holder has not been notified
by the Internal Revenue Service that the holder is subject to backup
withholding as a result of failure to report all interest or dividends or (C)
the Internal Revenue Service has notified the holder that the holder is no
longer subject to backup withholding and (ii) if applicable, an adequate basis
for exemption.
12
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE "IMPORTANT TAX INFORMATION"
ABOVE)
PAYER'S NAME: U.S. BANK TRUST NATIONAL ASSOCIATION
- -------------------------------------------------------------------------------
SUBSTITUTE PART I -- PLEASE PROVIDE SOCIAL SECURITY NUMBER
FORM W-9 YOUR TIN IN THE BOX AT OR EMPLOYER IDENTIFI-
RIGHT AND CERTIFY BY CATION NUMBER
SIGNING AND DATING BELOW.
DEPARTMENT OF THE
TREASURY ----------------------
PART II -- Certification -- PART III -- AWAITING
Under Penalties of TIN [_]
Perjury, I certify that:
INTERNAL REVENUE --------------------------------------------------------
SERVICE
(1) The number shown on
PAYER'S REQUEST FOR this form is my correct
TAXPAYER Taxpayer Identification
IDENTIFICATION NUMBER Number (or I am waiting
(TIN) for a number to be
issued to me) and
(2) I am not subject to
backup withholding
either because I have
not been notified by
the Internal Revenue
Service ("IRS") that I
am subject to backup
withholding as a result
of failure to report
all interest or
dividends, or the IRS
has notified me that I
am no longer subject to
backup withholding.
--------------------------------------------------------
CERTIFICATE INSTRUCTIONS -- You must cross out item
(2) in Part 2 above if you have been notified by the
IRS that you are subject to backup withholding
because of underreporting interest or dividends on
your tax return. However, if after being notified by
the IRS that you were subject to backup withholding
you received another notification from the IRS
stating that you are no longer subject to backup
withholding, do not cross out item (2).
- -------------------------------------------------------------------------------
SIGNATURE __________________________ DATE _______________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO HOLDERS OF EXCHANGE NOTES
PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM
W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART
3 OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within
60 days, 31% of all payments made to me thereafter will be withheld until I
provide a number.
____________________________________ ____________________________________
Signature Date
13
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
9 5/8% SENIOR NOTES DUE 2008
OF
PRESTOLITE ELECTRIC INCORPORATED
FULLY AND UNCONDITIONALLY GUARANTEED ON A SENIOR BASIS BY PEI HOLDING, INC.
As set forth in the Prospectus dated June 26, 1998 (the "Prospectus") of
Prestolite Electric Incorporated (the "Issuer") and in the accompanying Letter
of Transmittal and instructions thereto (the "Letter or Transmittal"), this
form or one substantially equivalent hereto must be used to accept the Issuer's
exchange offer (the "Exchange Offer") to purchase all of its outstanding 9 5/8%
Senior Notes Due 2008 (the "Outstanding Notes") if (i) certificates
representing the Outstanding Notes to be tendered for exchange pursuant to the
Exchange Offer are not lost but are not immediately available, (ii) time will
not permit the Letter of Transmittal, certificates representing such
Outstanding Notes or other required documents to reach the Exchange Agent prior
to the Expiration Date or (iii) the procedures for book-entry transfer cannot
be completed prior to the Expiration Date. This form may be delivered by an
Eligible Institution by mail, courier or hand delivery, or transmitted via
facsimile (receipt confirmed by telephone), to the Exchange Agent as set forth
below. All capitalized terms used herein but not defined herein shall have the
meanings ascribed to them in the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON JULY
27, 1998 UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION DATE") UNLESS
THE EXCHANGE OFFER IS EXTENDED (BUT IN NO EVENT TO A DATE LATER
THAN AUGUST 10, 1998). TENDERS OF OUTSTANDING NOTES MAY BE
WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. NEW YORK CITY TIME
ON THE EXPIRATION DATE.
By Facsimile: By Mail:
U.S. Bank Trust National Association U.S. Bank Trust National Association
(612) 244-1537 P.O. Box 64485
Attention: Melina Black (SPFT0414) St. Paul, Minnesota 55164-9549
Confirm by Telephone to: Attention: Specialized Finance
(612) 244-8161 (SPFT0414)
By Hand Before 5:00 p.m. By Overnight Courier and
(New York Time): by Registered/Certified Mail:
U.S. Bank Trust National Association
20th Floor U.S. Bank Trust National Association
100 Wall Street 180 East Fifth Street
New York, NY 10005 St. Paul, Minnesota 55101
Attention: Specialized Finance
(SPFT0414)
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE,
OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
LADIES AND GENTLEMEN:
The undersigned hereby tender(s) to the Issuer, upon the terms and subject to
the conditions set forth in the Prospectus and the Letter of Transmittal,
receipt of which is hereby acknowledged, the aggregate principal amount of
Outstanding Notes set forth below pursuant to the guaranteed delivery
procedures set forth in the Prospectus under the caption "The Exchange Offer--
Guaranteed Delivery Procedures."
The undersigned understands that tenders of Outstanding Notes will be
accepted only in principal amounts equal to $1,000 or integral multiples
thereof. The undersigned understands that tenders of Outstanding Notes pursuant
to the Exchange Offer may not be withdrawn after 5:00 p.m., New York City time,
on the Expiration Date pursuant to the procedures set forth in the Prospectus
under the caption "The Exchange Offer--Withdrawal Rights."
<PAGE>
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned,
and every obligation of the undersigned under this Notice of Guaranteed
Delivery shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
PLEASE COMPLETE AND SIGN
SIGNATURE(S) OF REGISTERED HOLDER(S) NAME(S) OF REGISTERED HOLDER(S):
OR AUTHORIZED SIGNATORY: ______________________________________
______________________________________ ______________________________________
______________________________________
______________________________________ ADDRESS:
______________________________________ _______________________________
______________________________________
PRINCIPAL AMOUNT OF OUTSTANDING NOTES
TENDERED: AREA CODE AND TELEPHONE NO.:
______________________________________ ______________________________________
______________________________________
IF OUTSTANDING NOTES WILL BE
DELIVERED BY BOOK-ENTRY TRANSFER AT
THE DEPOSITORY TRUST COMPANY, INSERT
DEPOSITORY TRUST ACCOUNT NO.:
CERTIFICATE NO(S). OF OUTSTANDING NOTES
(IF AVAILABLE):
______________________________________ ______________________________________
______________________________________
DATE:
______________________________________
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Outstanding Notes exactly as its (their) name(s) appear on
certificates for Outstanding Notes or on a security position listing as the
owner of Outstanding Notes, or by person(s) authorized to become registered
holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information:
NAME(S): ______________________________________________________________________
_______________________________________________________________________________
CAPACITY: _____________________________________________________________________
ADDRESS(ES): __________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
DO NOT SEND OUTSTANDING NOTES WITH THIS FORM. OUTSTANDING NOTES SHOULD BE
SENT TO THE EXCHANGE AGENT TOGETHER WITH A PROPERLY COMPLETED AND DULY
EXECUTED LETTER OF TRANSMITTAL.
2
<PAGE>
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial
bank or trust company having an office or a correspondent in the United
States, hereby (a) represents that each holder of Outstanding Notes on whose
behalf this tender is being made "own(s)" the Outstanding Notes covered hereby
within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as
amended, (b) represents that such tender of Outstanding Notes complies with
such Rule 14e-4, and (c) guarantees that, within three NYSE (as defined in the
Prospectus) trading days after the Expiration Date, a properly completed and
duly executed Letter of Transmittal (or a copy thereof), together with the
certificate(s) representing the Outstanding Notes covered hereby in proper
form for transfer (or confirmation of the book-entry transfer of such
Outstanding Notes into the Exchange Agent's account at The Depository Trust
Company, pursuant to the procedure for book-entry transfer set forth in the
Prospectus) and any other required documents will be deposited by the
undersigned with the Exchange Agent.
The undersigned acknowledges that it must deliver the Letter of Transmittal
and Outstanding Notes tendered hereby to the Exchange Agent within the time
period set forth above and that failure to do so could result in financial
loss to the undersigned.
______________________________________ ______________________________________
NAME OF FIRM AUTHORIZED SIGNATURE
ADDRESS: _____________________________ ______________________________________
NAME
______________________________________
______________________________________ ______________________________________
AREA CODE AND TELEPHONE NO. TITLE
______________________________________
DATE
3
