<PAGE> 1
As filed with the Securities and Exchange Commission on June 1, 1998
REGISTRATION NO. 333-49011
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
ADVANCED ACCESSORY SYSTEMS, LLC
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 3714
(State or Other Jurisdiction of (Primary Standard Industrial
Incorporation or Organization) Classification Code Number)
<CAPTION>
<S> <C>
DELAWARE 13-3848156
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
-------------------------
12900 HALL ROAD, SUITE 200, STERLING HEIGHTS, MICHIGAN 48313
(810) 997-2900
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
-------------------------
AAS CAPITAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 6719
(State or Other Jurisdiction of (Primary Standard Industrial
Incorporation or Organization) Classification Code Number)
<CAPTION>
<S> <C>
DELAWARE 13-3969422
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
-------------------------
12900 HALL ROAD, SUITE 200, STERLING HEIGHTS, MICHIGAN 48313
(810) 997-2900
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
-------------------------
AAS HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 6719
(State or Other Jurisdiction of (Primary Standard Industrial
Incorporation or Organization) Classification Code Number)
<CAPTION>
<S> <C>
DELAWARE 38-3319226
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
-------------------------
12900 HALL ROAD, SUITE 200, STERLING HEIGHTS, MICHIGAN 48313
(810) 997-2900
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
-------------------------
SPORTRACK, LLC
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 3714
(State or Other Jurisdiction of (Primary Standard Industrial
Incorporation or Organization) Classification Code Number)
<CAPTION>
<S> <C>
DELAWARE 13-3848154
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
-------------------------
12900 HALL ROAD, SUITE 200, STERLING HEIGHTS, MICHIGAN 48313
(810) 997-2900
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
-------------------------
VALLEY INDUSTRIES, LLC
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
DELAWARE 3714
(State or Other Jurisdiction of (Primary Standard Industrial
Incorporation or Organization) Classification Code Number)
<CAPTION>
<S> <C>
DELAWARE 38-3363492
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
-------------------------
12900 HALL ROAD, SUITE 200, STERLING HEIGHTS, MICHIGAN 48313
(810) 997-2900
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
-------------------------
<TABLE>
<S> <C>
VALTEK, LLC
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 3714
(State or Other Jurisdiction of (Primary Standard Industrial
Incorporation or Organization) Classification Code Number)
<CAPTION>
<S> <C>
VALTE VALTEK, LLC
(Exact Name of Registrant (Exact Name of Registrant as Specified in
Its Charter)
DELAWARE 38-3402070
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
-------------------------
12900 HALL ROAD, SUITE 200, STERLING HEIGHTS, MICHIGAN 48313
(810) 997-2900
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
-------------------------
MARSHALL D. GLADCHUN
CHIEF EXECUTIVE OFFICER
12900 HALL ROAD, SUITE 200
STERLING HEIGHTS, MICHIGAN 48313
(810) 997-2900
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
-------------------------
With a copy to:
JOHN J. SUYDAM
O'SULLIVAN GRAEV & KARABELL, LLP
30 ROCKEFELLER PLAZA, NEW YORK, NEW YORK 10112
(212) 408-2400
-------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
-------------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
ADVANCED ACCESSORY SYSTEMS, LLC
AAS CAPITAL CORPORATION
------------------------
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B),
SHOWING LOCATION OF INFORMATION REQUIRED BY ITEMS OF FORM S-4
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
-------------------------------- ---------------------------------
<S> <C> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..... Facing Page of Registration Statement;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front and Outside Back Cover Pages
of Prospectus; Available Information
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information.............. Prospectus Summary; Risk Factors; Selected
Consolidated Financial Information
4. Terms of the Transaction................... Prospectus Summary; The Exchange Offer;
Description of the Notes
5. Pro Forma Financial Information............ Unaudited Pro Forma Financial Information
6. Material Contracts with the Company Being
Acquired................................... *
7. Additional Information Required for
Reoffering by Persons and Parties Deemed to
be Underwriters............................ Plan of Distribution
8. Interests of Named Experts and Counsel..... *
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ *
10. Information With Respect to S-3
Registrants................................ *
11. Incorporation of Certain Information by
Reference.................................. *
12. Information With Respect to S-2 or S-3
Registrants................................ *
13. Incorporation of Certain Information by
Reference.................................. *
14. Information With Respect to Registrants
Other Than S-2 or S-3 Registrants.......... Prospectus Summary; Risk Factors; Selected
Consolidated Financial Information;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Description of the
Credit Facilities
15. Information With Respect to S-3
Companies..................................
16. Information With Respect to S-2 or S-3
Companies.................................. *
17. Information With Respect to Companies Other
Than S-2 or S-3 Companies.................. *
18. Information if Proxies, Consents or
Authorization Are to be Solicited.......... *
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited, or
in an Exchange Offer....................... Management; Ownership of Capital Stock;
Certain Transactions
</TABLE>
- -------------------------
* Not applicable or answer is in the negative.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
SUBJECT TO COMPLETION, DATED JUNE 1, 1998
PROSPECTUS
ADVANCED ACCESSORY SYSTEMS, LLC
AAS CAPITAL CORPORATION
OFFER TO EXCHANGE UP TO $125,000,000 OF THEIR
9 3/4% SERIES B SENIOR SUBORDINATED NOTES DUE 2007
FOR ANY AND ALL OUTSTANDING
9 3/4% SENIOR SUBORDINATED NOTES DUE 2007
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED
------------------------
Advanced Accessory Systems, LLC ("AAS" and, together with its subsidiaries,
the "Company") and AAS Capital Corporation ("Capital Corp." and, together with
AAS, the "Issuers") hereby offer, 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 $1,000 principal amount of
9 3/4% Series B Senior Subordinated Notes due 2007 (the "New Notes") of the
Issuers for each $1,000 principal amount of the issued and outstanding 9 3/4%
Senior Subordinated Notes due 2007 (the "Old Notes," and the Old Notes and the
New Notes, collectively, the "Notes") of the Issuers from the Holders (as
defined herein) thereof. As of the date of this Prospectus, there is
$125,000,000 aggregate principal amount of the Old Notes outstanding. The terms
of the New Notes are identical in all material respects to the Old Notes, except
that the New Notes have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), and therefore will not bear legends restricting
their transfer and will not contain certain provisions providing for the payment
of liquidated damages to the holders of the Old Notes under certain
circumstances relating to the Registration Rights Agreement (as defined herein),
which provisions will terminate as to all of the Notes upon the consummation of
the Exchange Offer.
Interest on the New Notes will accrue from April 1, 1998 and will be payable
in cash semi-annually in arrears on April 1 and October 1 of each year
commencing October 1, 1998. Interest will be payable on the Old Notes accepted
for exchange to, but not including, April 1, 1998.
The New Notes will be unsecured and will be subordinated in right of payment
to all existing and future Senior Indebtedness (as defined) of the Issuers. The
New Notes will rank pari passu in right of payment with any future senior
subordinated Indebtedness (as defined) of the Issuers and will rank senior in
right of payment to all Subordinated Indebtedness (as defined) of the Issuers.
The New Notes will be fully and unconditionally guaranteed (the "Guarantees"),
jointly and severally on a senior subordinated basis, by each of the Company's
direct and indirect domestic subsidiaries (excluding Unrestricted Subsidiaries
(as defined)) (collectively, the "Guarantors"). The Guarantees will be unsecured
obligations of the Guarantors and will be subordinated to all existing and
future Senior Indebtedness of such Guarantors, including their obligations under
their guarantees in respect of the Amended and Restated Credit Agreement (as
defined). See "Description of the Notes." As of March 31, 1998, including the
1998 Transactions (as defined), the aggregate principal amount of the Issuers'
outstanding Senior Indebtedness was approximately $70.0 million (excluding
unused commitments). In addition, the Indenture (as defined) permits the Issuers
to incur additional indebtedness, including Senior Indebtedness, subject to
certain limitations. See "Description of the Notes -- Ranking" and "--
Subordination of the Notes -- Guarantees of the Notes."
The Old Notes were not registered under the Securities Act in reliance upon
an exemption from the registration requirements thereof. In general, the Old
Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act. The New Notes are being offered hereby in order to satisfy
certain obligations of the Issuers contained in the Registration Rights
Agreement. Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Issuers believe that the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold or otherwise
transferred by any holder thereof (other than any such holder that is an
"affiliate" of the Issuers within the meaning of Rule 405 promulgated under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holder's business, such holder has no arrangement
with any person to participate in the distribution of such New Notes and neither
such holder nor any such other person is engaging in or intends to engage in a
distribution of such New Notes. Notwithstanding the foregoing, each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with any resale of New Notes received in
exchange for such Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Issuers). The
Issuers have agreed that, for a period of 180 days after the date of this
Prospectus, they will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
The Old Notes are designated for trading in the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") market. There is no
established trading market for the New Notes. The Issuers do not currently
intend to list the New Notes on any securities exchange or to seek approval for
quotation through any automated quotations system. Accordingly, there can be no
assurance as to the development or liquidity of any market for the New Notes.
The Issuers will not receive any proceeds from the Exchange Offer. The
Issuers will pay all of the expenses incident to the Exchange Offer. Tenders of
Old Notes pursuant to the Exchange Offer may be withdrawn as provided herein at
any time prior to the Expiration Date (as defined herein). The Exchange Offer is
subject to certain customary conditions.
This Prospectus has been prepared for use in connection with the Exchange
Offer and may be used by Chase Securities Inc. ("CSI") in connection with offers
and sales related to market-making transactions in the Notes. CSI may act as
principal or agent in such transactions. Such sales will be made at prices
related to prevailing market prices at the time of sale. See "Plan of
Distribution."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
------------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE COMMISSION NOR HAS THE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE> 4
MARKET DATA USED THROUGHOUT THIS PROSPECTUS WAS OBTAINED THROUGH COMPANY
RESEARCH, SURVEYS OR STUDIES PURCHASED BY THE COMPANY OR THE INITIAL PURCHASERS
(AS DEFINED) AND CONDUCTED BY THIRD PARTIES AND FROM INDUSTRY OR GENERAL
PUBLICATIONS. THE COMPANY HAS NOT INDEPENDENTLY VERIFIED MARKET DATA PROVIDED BY
THIRD PARTIES OR INDUSTRY OR GENERAL PUBLICATIONS. SIMILARLY, INTERNAL COMPANY
SURVEYS, WHILE BELIEVED BY THE COMPANY TO BE RELIABLE, HAVE NOT BEEN VERIFIED BY
ANY INDEPENDENT SOURCES.
------------------------
FORWARD LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITH RESPECT TO
THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY,
INCLUDING STATEMENTS UNDER THE CAPTIONS "SUMMARY," "UNAUDITED PRO FORMA
FINANCIAL INFORMATION," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS." ALL OF THESE FORWARD
LOOKING STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT OF
THE COMPANY WHICH, ALTHOUGH BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN.
THEREFORE, UNDUE RELIANCE SHOULD NOT BE PLACED UPON SUCH ESTIMATES AND
STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH ESTIMATES WILL BE
REALIZED AND IT IS LIKELY THAT ACTUAL RESULTS WILL DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH
DIFFERENCES INCLUDE: (1) INCREASED COMPETITION; (2) INCREASED COSTS; (3) LOSS OR
RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (4) INCREASES IN THE COMPANY'S COST OF
BORROWING OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY CAPITAL; (5) ADVERSE
STATE OR FEDERAL LEGISLATION OR REGULATION OR ADVERSE DETERMINATIONS BY
REGULATIONS; AND (6) CHANGES IN GENERAL ECONOMIC CONDITIONS AND/OR IN THE
MARKETS IN WHICH THE COMPANY MAY, FROM TIME TO TIME, COMPETE. MANY OF SUCH
FACTORS ARE BEYOND THE CONTROL OF THE COMPANY AND ITS MANAGEMENT. FOR FURTHER
INFORMATION OR OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF THE
COMPANY AND SUCH FORWARD LOOKING STATEMENTS, SEE "RISK FACTORS."
2
<PAGE> 5
AVAILABLE INFORMATION
The Issuers have filed with the Commission a Registration Statement on Form
S-4 (together with all amendments, exhibits, schedules and supplements thereto,
the "Registration Statement") under the Securities Act with respect to the New
Notes being offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain portions of which
have been omitted pursuant to the rules and regulations promulgated by the
Commission. Statements made in this Prospectus as to the contents of any
contract, agreement or other document are not necessarily complete. With respect
to each such contract, agreement or other document filed or incorporated by
reference as an exhibit to the Registration Statement, reference is made to such
exhibit for a more complete description of the matter involved, and each such
statement is qualified in its entirety by such reference.
The Registration Statement may be inspected by anyone without charge at the
Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material may also be obtained at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees. Such
materials can also be inspected on the Internet at http://www.sec.gov.
Upon consummation of the Exchange Offer, AAS will become subject to the
informational reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and in accordance therewith will file reports and
other information with the Commission. Such materials filed by AAS with the
Commission may be inspected, and copies thereof obtained, at the places, and in
the manner, set forth above.
In the event that AAS ceases to be subject to the informational reporting
requirements of the Exchange Act, AAS has agreed that, so long as the Notes
remain outstanding, it will file with the Commission and distribute to holders
of the Notes copies of the financial information that would have been contained
in annual reports and quarterly reports, including management's discussion and
analysis of financial condition and results of operations, that AAS would have
been required to file with the Commission pursuant to the Exchange Act. Such
financial information will include annual reports containing consolidated
financial statements and notes thereto, together with an opinion thereto
expressed by an independent public accounting firm, as well as quarterly reports
containing unaudited condensed consolidated financial statements for the first
three quarters of each fiscal year. AAS will also make such reports available to
prospective purchasers of the Notes, securities analysts and broker-dealers upon
their request. In addition, AAS has agreed that for so long as any of the Old
Notes remain outstanding it will make available to any prospective purchaser of
the Old Notes or beneficial owner of the Old Notes in connection with any sale
thereof the information required by Rule 144A(d)(4) under the Securities Act,
until such time as the Issuers have either exchanged the Old Notes for
securities identical in all material respects which have been registered under
the Securities Act or until such time as the holders thereof have disposed of
such Old Notes pursuant to an effective registration statement filed by the
Issuers.
3
<PAGE> 6
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained elsewhere in this
Prospectus. Unless the context otherwise requires, the term the "Company" refers
to Advanced Accessory Systems, LLC, a Delaware limited liability company, and
its subsidiaries, including SportRack, Brink and Valley. The term "SportRack"
refers to SportRack, LLC, a Delaware limited liability company, and its
subsidiaries; the term "Brink" refers to Brink International B.V., a private
company with limited liability incorporated under the laws of The Netherlands,
and its subsidiaries; the term "Valley" refers to Valley Industries, LLC, a
Delaware limited liability company; the term "SportRack International" refers to
SportRack International Inc., a Quebec corporation and a subsidiary of
SportRack; and the term "Ellebi" refers to Ellebi S.r.1., an Italian corporation
and a subsidiary of Brink. As used herein, the term "light vehicles" comprises
light trucks and passenger cars, and the term "light trucks" includes minivans,
standard size vans, sport utility vehicles ("SUVs") and pickup trucks.
THE COMPANY
GENERAL
The Company is one of the world's largest designers, manufacturers and
suppliers of towing and rack systems and related accessories for the automotive
original equipment manufacturer ("OEM") market and the automotive aftermarket.
The Company's products include a complete line of towing systems including
accessories such as trailer balls, ball mounts, electrical harnesses, safety
chains and locking hitch pins. The Company's broad offering of rack systems
includes fixed and detachable racks and accessories which can be installed on
vehicles to carry items such as bicycles, skis, luggage, surfboards and
sailboards. The Company's products are sold as standard accessories or options
for a variety of light vehicles. In 1997, on a pro forma basis, the Company
estimates that approximately 49% of its net sales were generated from products
sold for light trucks. The Company is the sole Tier 1 OEM supplier of towing or
rack systems for eight of the top ten light trucks produced in North America,
including the General Motors ("GM") C/K Pickup and Blazer, the Chrysler Grand
Cherokee (towing systems and rack systems), T-3000 Pickup and Caravan and the
Ford Explorer, Ranger and Windstar. On a pro forma basis for the year ended
December 31, 1997, the Company's net sales and EBITDA (as defined) would have
been $268.5 million and $36.3 million, respectively. For the three months ended
March 31, 1998 and 1997, the Company's net sales were $74.0 million and $34.5
million, respectively, and EBITDA was $10.2 million and $5.6 million,
respectively.
COMPETITIVE ADVANTAGES
Leading Global Market Position. The Company believes that it is the world's
largest designer, manufacturer and supplier of towing systems and one of the
world's largest designers, manufacturers and suppliers of rack systems. The
Company also believes that it is the largest supplier of towing systems in
Europe, the largest supplier of towing systems to automotive OEMs in North
America and the second largest supplier of towing systems to the aftermarket in
North America. The Company is also one of the two largest suppliers of rack
systems sold to automotive OEMs in North America. The Company has 19
engineering, manufacturing and distribution facilities strategically located in
the United States, Canada, The Netherlands, Denmark, Germany, the United
Kingdom, Sweden, Italy and France. By virtue of its size and global presence,
the Company believes it benefits from several competitive advantages, including
the ability to (i) satisfy local design, production, quality and timing
requirements of global OEMs; (ii) provide "one-stop shopping" for customers'
product and service requirements; (iii) optimize plant production; (iv) maximize
its raw material purchasing power; (v) spread its selling, administrative and
product development expenses over a large base of net sales; and (vi) develop
and maintain state-of-the-art production facilities.
Strong Relationships with Diverse Customer Base. The Company has an
established position as a Tier 1 supplier of towing and/or rack systems to most
of the OEMs manufacturing in North America and Europe including Chrysler,
General Motors, Toyota, Opel, Volvo, Isuzu, Ford, Mercedes, BMW, Subaru, Fiat,
Mitsubishi, Nissan, Volkswagen, SEAT, Skoda and Kia. The Company supplies
Chrysler with substantially
4
<PAGE> 7
all its towing systems and rack systems and accessories. The Company also
supplies approximately 50% of the towing and rack system requirements of General
Motors. Tier 1 status and strong customer relationships are important elements
in achieving continued profitable growth because, as OEMs narrow their supplier
bases, well regarded, existing suppliers have an advantage in gaining new
contracts. The evolution of OEM relationships into strategic partnerships
provides a significant advantage to Tier 1 suppliers with system integration
capabilities (such as the Company) in retaining existing contracts as well as in
participating during the design phase for new vehicles, which is integral to
becoming a supplier for such new platforms. The Company is also a leading
supplier of towing and rack systems to automotive aftermarket wholesalers,
retailers and installers, such as U-Haul, Pep Boys, Balkamp, Advance Auto Parts,
Coast Distribution Systems, Discount Auto Parts, Ace Hardware and Canadian Tire.
Comprehensive Product Line. The Company continues to position itself as a
leading supplier to its customers for a growing range of products and services.
Through its offering of over 2,000 towing system models, the Company's products
fit virtually every light vehicle produced in North America and Europe. The
Company is one of a limited number of European manufacturers with such a broad
product line that also satisfies European Community ("EC") regulatory safety
standards, even though such standards have not yet been adopted by each EC
member country. Competitors whose products do not satisfy such standards face
substantial design and testing costs to offer a comparable product line that
meets these safety standards. The Company has provided OEMs with fixed rack
systems for approximately half of the light truck models produced in North
America that utilize vehicle-specific fixed racks. The Company's innovative
Mondial(R) product line of detachable rack systems, which consists of only 14
stock keeping units ("SKUs"), is able to fit substantially all the light
vehicles produced in North America and Europe, while some competitors'
comparable product lines consist of more than 200 SKUs. The Company believes
that its broad product offerings also facilitate strategic partnerships with
automotive aftermarket wholesalers, retailers and installers.
Design and Engineering Expertise. The Company has an engineering and
research and development staff that develops new products and processing
technologies. The Company works directly with OEM designers to create innovative
solutions that simplify vehicle assembly and reduce vehicle cost and weight. For
example, the Company developed a roll formed, aluminum cross rail which
substantially reduced the weight of the Chrysler minivan rack at a competitive
cost. Additionally, the Company is responsible for many industry innovations,
including lighter, less obtrusive, round tube towing hitches as well as push
button and pull lever stanchions on fixed rack systems. The Company believes its
design and engineering capabilities provide significant value to its customers
by (i) shortening OEM new product development cycles; (ii) lowering OEM
manufacturing costs; (iii) providing technical expertise; and (iv) permitting
aftermarket customers to maintain lower inventory levels. The Company also
believes that its design innovations have created value for end users by
providing products that are durable and easy to install and that enhance vehicle
utility and appearance.
High Quality, Low Cost Manufacturing Position. The Company believes that it
is one of the highest quality, lowest cost suppliers of towing and rack systems
in North America and Europe. The Company has received numerous quality and
performance awards, including Chrysler's Gold Pentastar Award, Ford's Q-1 Award,
Toyota's Distinguished Supplier Award and Nissan's Superior Supplier Performance
Award. Supplier quality systems are currently being standardized across OEMs
through the ISO-9000 and QS-9000 programs. The Company has achieved ISO-9000 or
QS-9000 certification for ten of its 17 manufacturing and engineering facilities
and is in the process of obtaining certification for the rest of its facilities.
The Company's low cost position is a result of its strict cost controls and
continuous improvement programs designed to enhance productivity. OEMs typically
prefer stable suppliers who can generate productivity gains that can be shared
to reduce OEM costs. The Company's cost controls are closely integrated with its
quality driven manufacturing operations, thereby allowing it to profitably
deliver high quality, easy to install and competitively priced components on a
just-in-time basis. The Company's focus on low cost manufacturing also provides
benefits when selling products to the less price sensitive aftermarket.
5
<PAGE> 8
BUSINESS STRATEGY
The Company's objective is to strengthen its position as a leading global
supplier of automotive exterior accessories, thereby increasing revenue and cash
flow. In order to accomplish its goal, the Company intends to pursue the
following strategies.
Increase Global Market Share. The Company intends to capitalize on its
expanded presence in North America and Europe by marketing products to its
global automotive OEM customers. Through its past acquisitions of complementary
product lines, the Company is able to offer an expanded range of products and
services to its extended customer base. The Company also expects to secure new
customers by virtue of its expanded market presence and broad product and
service offerings. The Company believes its continued emphasis on new technology
(both product and process), will result in the development of more innovative,
high margin towing and rack system products which it expects to market to its
expanding customer base.
Maintain and Enhance Strong Customer Relationships. The Company intends to
strengthen and expand its relationships with global automotive OEMs and
aftermarket customers by (i) continuing its commitment to innovative design and
development of products during the early stages of vehicle design and redesign;
(ii) building on its position as a low cost supplier of quality accessory
products; (iii) offering new products in existing and new geographic areas by
taking advantage of existing OEM relationships; and (iv) working with
aftermarket customers to develop new products and marketing strategies. The
Company has recently obtained orders from Mercedes Benz, BMW, SEAT and Chrysler
to supply products for new SUVs.
Increase Operating Efficiencies. The Company believes there are significant
opportunities for improvement in margins and cash flow through intercompany
cooperation among its various acquired business units, including (i) realizing
economies of scale from the combined purchasing power of a larger company; (ii)
achieving production and other operating efficiencies through the implementation
of a "best practices" program; (iii) reducing certain selling, administrative
and product development expenses; and (iv) reducing capital and operating
expenditures from coordinated use of manufacturing resources.
Pursue Strategic Acquisitions. In response to the trend in the OEM market
toward systems suppliers, the Company is focused on making strategic
acquisitions that will enhance its ability to provide integrated systems (such
as a towing or rack system) or otherwise leverage its existing business by
providing additional product, manufacturing and service capabilities. The
Company also intends to pursue acquisitions which will expand its customer base
by providing an entree to new customers, including expansion into selected
geographic areas. The Company believes that such acquisitions should provide
additional opportunities for increased net sales and cash flow by enhancing the
Company's manufacturing and marketing capabilities.
INDUSTRY OVERVIEW
In 1996, the North American exterior accessories market for light vehicles
was approximately $3.3 billion. In 1996, in the first year of ownership, North
American consumers spent approximately $1.4 billion on exterior accessories for
their light trucks as compared to approximately $0.8 billion in 1986,
representing a compound annual growth rate of 5.9%. The Company's research
indicates that growth in this market, and in towing systems and rack systems in
particular, resulted in large part from the increased production and sale of
light trucks, which in 1996 accounted for approximately 46% of total light
vehicle production in North America as compared to 32% in 1986. According to
DRI/McGraw-Hill Ward's Global Automotive Group, production of light trucks in
North America and Western Europe has outpaced overall production in the light
vehicle market (ten-year compound annual growth rate of 1.3% in North America
and 1.4% in Western Europe), resulting primarily from the growth in minivans
(ten-year compound annual growth rate of 8.6% in North America and 30.8% in
Western Europe) and SUVs (ten-year compound annual growth rate of 11.6% in North
America and 13.7% in Western Europe), although no assurance can be given that
such production rates of light trucks will continue or will continue to outpace
overall production.
The strong growth in production of light trucks is attributable to several
factors, including (i) the more sizable and comfortable interiors and
aesthetically pleasing modern designs offered by light trucks; (ii) the changing
lifestyle of the population, which is aging and therefore devoting more time to
recreational activities;
6
<PAGE> 9
(iii) the versatile product offerings targeted toward both the luxury and
economy market sectors; (iv) the increasing acceptance of light truck use for
everyday transportation; and (v) the durability and special performance
capabilities (e.g. four-wheel drive) of light trucks.
As automobile and light truck manufacturers have faced increased global
competition, they have sought to significantly improve quality, reduce costs and
shorten the development time required for new vehicle models. These changes have
altered the OEM/supplier relationship and benefited larger suppliers that have
strong product engineering and development capabilities, superior quality
products, lower unit costs and the ability to deliver products on a timely
basis. As a result, the Company believes that it will continue to benefit from
the following automotive OEM and aftermarket trends: (i) consolidation of
supplier base by OEMs; (ii) emergence of EC safety standards; (iii) increased
levels of manufacturing in North America by transplants; and (iv) increased
outsourcing by OEMs.
MANAGEMENT AND OWNERSHIP
Chase Capital Partners ("CCP") and certain members of the Company's
management formed the Company in September 1995, to make strategic acquisitions
of automotive exterior accessory manufacturers and to integrate those
acquisitions into a global enterprise that would be a preferred supplier to the
automotive industry. The Company's senior management team has an average of over
20 years of experience in manufacturing and marketing automotive-related
products. The Company believes that members of its management team have strong
and successful track records in the operation of their respective businesses.
Members of the Company's senior management own, in the aggregate, approximately
23.0% of the issued and outstanding voting securities of the Company on a fully
diluted basis.
CCP is the private equity group of The Chase Manhattan Corporation, the
largest bank holding company in the United States, and is one of the largest
private equity organizations in the United States, with over $4.0 billion under
management. Through its affiliates, CCP invests in leveraged buyouts,
recapitalizations and venture capital opportunities by providing equity and
mezzanine debt capital. Since its inception in 1984, CCP has closed over 450
direct investments in a variety of industries. Affiliates of CCP own
approximately 48.1% of the issued and outstanding voting securities of the
Company on a fully diluted basis.
ACQUISITION HISTORY
In September 1995, the Company, through its SportRack subsidiary, acquired
substantially all of the net assets of the MascoTech Accessories division (the
"MascoTech Division") of MascoTech, Inc. ("MascoTech"). The MascoTech Division
was a North American supplier of rack systems and accessories to the automotive
OEM market and aftermarket.
In October 1996, the Company acquired (the "Brink Acquisition") all of the
capital stock of Brink B.V., a private company with limited liability
incorporated under the laws of The Netherlands and a European supplier of towing
systems to the automotive OEM market and aftermarket. In December 1996,
ownership of Brink B.V. and its subsidiaries was transferred to a newly formed
subsidiary of the Company, Brink International B.V.
In August 1997, the Company formed Valley to acquire (the "Valley
Acquisition") the net assets of Valley Industries, Inc. ("Valley Industries"), a
North American supplier of towing systems to the automotive OEM market and
aftermarket.
Two smaller acquisitions were completed in July 1997 by a subsidiary of
SportRack, SportRack International. SportRack International acquired from Bell
Sports Corporation ("Bell") the net assets of its SportRack division, a Canadian
supplier of rack systems and accessories to the automotive aftermarket. CCP is a
significant equity investor in Bell. SportRack International also acquired the
capital stock of Nomadic Sports, Inc. ("Nomadic"), a Canadian supplier of rack
systems and accessories to the automotive OEM market and aftermarket. The
acquisitions of the SportRack division of Bell and Nomadic are collectively
referred to in this Prospectus as the "SportRack International Acquisition."
7
<PAGE> 10
In January 1998, the Company formed Ellebi to acquire the net assets of a
division of Ellebi S.p.A. (the "Ellebi Acquisition"). Ellebi is an Italian
manufacturer and distributor of towing systems to the European automotive OEM
market and aftermarket.
In February 1998, the Company through SportRack International, Inc.,
acquired the net assets of Transfo-Rakzs, Inc. (the "Transfo-Rakzs
Acquisition"), a designer, manufacturer and distributor of rear hitch rack
carrying systems and related products to Canada and the U.S.
The Ellebi Acquisition and the Transfo-Rakzs Acquisition are referred to
herein collectively as the "1998 Transactions."
------------------------
Capital Corp. is a newly formed Delaware corporation and is a wholly owned
subsidiary of the Company. The New Notes will be the joint and several
obligations of the Company and Capital Corp. Capital Corp. has no assets, no
liabilities other than with respect to the Notes and does not conduct any
operations.
The principal executive offices of the Company are located at 12900 Hall
Road, Suite 200, Sterling Heights, Michigan 48313 and its telephone number is
(810) 997-2900.
8
<PAGE> 11
THE EXCHANGE OFFER
Registration Rights
Agreement..................... The Old Notes were sold by the Issuers on
September 25, 1997 to CSI and First Chicago
Capital Markets, Inc. (the "Initial
Purchasers"), who resold the Old Notes to
qualified institutional investors in reliance
on Rule 144A under the Securities Act. In
connection therewith, the Issuers, the
Guarantors and the Initial Purchasers executed
and delivered for the benefit of the holders of
the Old Notes a registration rights agreement
(the "Registration Rights Agreement")
providing, among other things, for the Exchange
Offer.
The Exchange Offer............ New Notes are being offered in exchange for a
like principal amount of Old Notes. As of the
date hereof, $125,000,000 aggregate principal
amount of Old Notes are outstanding. The
Issuers will issue the New Notes to Holders
promptly following the Expiration Date. See
"Risk Factors -- Consequences of Failure to
Exchange."
Expiration Date............... 5:00 p.m., New York City time, on ,
1998, unless the Exchange Offer is extended as
provided herein, in which case the term
"Expiration Date" means the latest date and
time to which the Exchange Offer is extended.
Interest...................... Each New Note will bear interest from April 1,
1998. Interest will be payable on the Old Notes
accepted for exchange to, but not including,
April 1, 1998.
Conditions to the Exchange
Offer......................... The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Issuers. The Issuers reserve the right to
amend, terminate or extend the Exchange Offer
at any time prior to the Expiration Date upon
the occurrence of any such condition. See "The
Exchange Offer -- Conditions."
Procedures for Tendering Old
Notes......................... Each Holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof,
in accordance with the instructions contained
herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Old Notes and any
other required documentation to the exchange
agent (the "Exchange Agent") at the address set
forth herein. By executing the Letter of
Transmittal, each Holder will represent to the
Issuers, among other things, that (i) the New
Notes acquired pursuant to the Exchange Offer
by the Holder and any beneficial owners of Old
Notes are being obtained in the ordinary course
of business of the person receiving such New
Notes, (ii) neither the Holder nor such
beneficial owner has an arrangement with any
person to participate in the distribution of
such New Notes, (iii) neither the Holder nor
such beneficial owner nor any such other person
is engaging in or intends to engage in a
distribution of such New Notes and (iv) neither
the Holder nor such beneficial owner is an
"affiliate," as defined under Rule 405
promulgated under the Securities Act, of the
Issuers. Each broker-dealer that receives New
Notes for its own account in exchange for Old
Notes, where such Old Notes
9
<PAGE> 12
were acquired by such broker-dealer as a result
of marketmaking activities or other trading
activities (other than Old Notes acquired
directly from the Issuers), may participate in
the Exchange Offer but may be deemed an
"underwriter" under the Securities Act and,
therefore, must acknowledge in the Letter of
Transmittal that it will deliver a prospectus
in connection with any resale of such New
Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the
meaning of the Securities Act. See "The
Exchange Offer - Procedures for Tendering" and
"Plan of Distribution."
Special Procedures for
Beneficial Owners............. Any beneficial owner whose Old Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered Holder promptly and instruct such
registered Holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such beneficial owner's own
behalf, such beneficial owner must, prior to
completing and executing the Letter of
Transmittal and delivering his Old Notes,
either make appropriate arrangements to
register ownership of the Old Notes in such
beneficial owner's name or obtain a properly
completed bond power from the registered
Holder. The transfer of registered ownership
may take considerable time. See "The Exchange
Offer -- Procedures for Tendering."
Guaranteed Delivery
Procedures.................... Holders of Old Notes who wish to tender their
Old Notes and whose Old Notes are not
immediately available or who cannot deliver
their Old Notes, the Letter of Transmittal or
any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Old Notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer -- Guaranteed
Delivery Procedures."
Withdrawal Rights............. Tenders may be withdrawn as provided herein at
any time prior to 5:00 p.m., New York City
time, on the Expiration Date. See "The Exchange
Offer -- Withdrawal of Tenders."
Acceptance of Old Notes and
Delivery of New Notes......... The Issuers will accept for exchange any and
all Old Notes which are properly tendered in
the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The New
Notes issued pursuant to the Exchange Offer
will be delivered promptly following the
Expiration Date. See "The Exchange Offer --
Terms of the Exchange Offer."
Exchange Agent................ First Union National Bank is serving as
Exchange Agent in connection with the Exchange
Offer. See "The Exchange Offer -- Exchange
Agent."
Use of Proceeds............... There will be no cash proceeds to the Issuers
from the exchange pursuant to the Exchange
Offer.
10
<PAGE> 13
Consequences of Failure to
Exchange.................... Holders of Old Notes who do not exchange their
Old Notes for New Notes pursuant to the
Exchange Offer will continue to be subject to
the restrictions on transfer of such Old Notes
as set forth in the legend thereon as a
consequence of the issuance of the Old Notes
pursuant to exemptions from, or in transactions
not subject to, the registration requirements
of the Securities Act and applicable state
securities laws. In general, Old Notes may not
be offered or sold unless registered under the
Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws.
11
<PAGE> 14
SUMMARY DESCRIPTION OF THE NEW NOTES
The Exchange Offer applies to $125,000,000 aggregate principal amount of
Old Notes. The terms of the New Notes are identical in all material respects to
the Old Notes except that the New Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting their transfer
and will not contain certain provisions providing for the payment of liquidated
damages to the holders of the Old Notes under certain circumstances relating to
the Registration Rights Agreement, which provisions will evidence the same debt
as the Old Notes and, except as set forth in the immediately preceding sentence,
will be entitled to the benefits of the Indenture, under which both the Old
Notes were, and the New Notes will be, issued. See "Description of Notes."
Securities Offered............ $125,000,000 aggregate principal amount of
9 3/4% Series B Senior Subordinated Notes due
2007.
Maturity...................... October 1, 2007.
Interest Payment Dates........ April 1 and October 1, commencing October 1,
1998.
Sinking Fund.................. None.
Optional Redemption........... Except as described below, the Issuers may not
redeem the Notes prior to October 1, 2002. On
or after such date, the Issuers may redeem the
Notes, in whole or in part, at the redemption
prices set forth herein, together with accrued
and unpaid interest, if any, to the date of
redemption. In addition, at any time and from
time to time on or prior to October 1, 2000,
the Issuers may redeem up to 35% of the
aggregate principal amount of the Notes with
the net cash proceeds of one or more Public
Equity Offerings by the Company, at a
redemption price equal to 109.750% of the
principal amount to be redeemed, together with
accrued and unpaid interest, if any, to the
date of redemption, provided that at least 65%
of the aggregate principal amount of the Notes
originally issued remain outstanding after each
such redemption. See "Description of the Notes
-- Optional Redemption."
Change of Control............. Upon the occurrence of a Change of Control, the
Issuers will be required to make an offer to
repurchase the Notes at a price equal to 101%
of the principal amount thereof, together with
accrued and unpaid interest, if any, to the
date of purchase. See "Description of the Notes
-- Change of Control."
Subsidiary Guarantees......... The New Notes will be fully and unconditionally
guaranteed (the "Guarantees"), jointly and
severally on a senior subordinated basis, by
the Guarantors. The Guarantors also guarantee
all obligations of the Company under the
Amended and Restated Credit Agreement. The
obligations of each Guarantor under its
Guarantee will be subordinated in right of
payment to the prior payment in full of all
existing and future Guarantor Senior
Indebtedness (as defined) of such Guarantor to
substantially the same extent as the Notes are
subordinated to all existing and future Senior
Indebtedness of the Issuers. See "Description
of the Notes -- Guarantees of the Notes."
Ranking....................... The New Notes will be unsecured and will be
subordinated in right of payment to all
existing and future Senior Indebtedness of the
Issuers. The New Notes will rank pari passu in
right of payment with any future senior
subordinated Indebtedness (as defined) of
12
<PAGE> 15
the Issuers and will rank senior to all
Subordinated Indebtedness (as defined) of the
Issuers. As of March 31, 1998, including the
1998 Transactions, the aggregate principal
amount of the Issuers' outstanding Senior
Indebtedness was approximately $70.0 million
(excluding unused commitments). See
"Description of the Notes -- Ranking" and "--
Subordination of the Notes."
Certain Covenants............. The indenture under which the Old Notes were,
and the New Notes will be, issued (the
"Indenture") contains certain covenants that,
among other things, limit (i) the incurrence of
additional indebtedness by the Company and its
Restricted Subsidiaries, (ii) the payment of
dividends on, and redemption of, capital stock
of the Company and its Restricted Subsidiaries
and the redemption of certain subordinated
obligations of the Company and its Restricted
Subsidiaries, (iii) investments, (iv) sales of
assets and Restricted Subsidiary stock, (v)
transactions with affiliates and (vi)
consolidations, mergers and transfers of all or
substantially all of the Company's assets. The
Indenture also prohibits certain restrictions
on distributions from Restricted Subsidiaries.
However, all of these limitations and
prohibitions are subject to a number of
important qualifications and exceptions. See
"Description of the Notes -- Certain
Covenants."
13
<PAGE> 16
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents summary historical financial data of the
MascoTech Division ("Predecessor") for the years ended December 31, 1993 and
1994 and the period from January 1, 1995 through September 27, 1995 (the period
prior to the acquisition of the net assets of the MascoTech Division by the
Company). The data as of and for the years ended December 31, 1993 and 1994 have
been derived from the unaudited financial statements of the MascoTech Division
and the data for the period from January 1, 1995 through September 27, 1995 have
been derived from the audited financial statements included elsewhere in this
Prospectus. The historical data as of and for the period from September 28, 1995
through December 31, 1995 and for the years ended December 31, 1996 and 1997
represent consolidated financial data of the Company subsequent to the
acquisition of the MascoTech Division, and include (i) the operations of Brink
subsequent to the Brink Acquisition on October 30, 1996; (ii) the operations of
Bell and Nomadic subsequent to the SportRack International Acquisition on July
2, 1997 and July 24, 1997, respectively, and (iii) the operations of Valley
subsequent to the Valley Acquisition on August 5, 1997. The historical data for
the Company through December 31, 1997 have been derived from the audited
financial statements of the Company included elsewhere in this Prospectus. The
data as of and for the three months ended March 31, 1997 present consolidated
financial information for the Company, including Brink. The data as of and for
the three months ended March 31, 1998 present consolidated financial information
for the Company, including Brink, Sport Rack International, Valley, Ellebi and
Transfo-Rakzs. The interim data as of and for the three months ended March 31,
1998 and 1997 have been derived from unaudited financial statements that, in the
opinion of management, contain all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation. The results of
operations for the interim periods are not necessarily indicative of those to be
expected for a full year. The summary pro forma statement of operations data and
other financial data for the year ended December 31, 1997 were prepared to
illustrate the effect of (i) the offering of the Old Notes (the "Offering");
(ii) the Valley Acquisition and the SportRack International Acquisition; and
(iii) the 1998 Transactions, as if all of such transactions had occurred on
January 1, 1997. Pro forma data as of and for the three months ended March 31,
1998 have not been presented because such data are substantially the same as the
historical data for such period because Ellebi was acquired on January 2, 1998
and Transfo-Rakzs, acquired in February 1998, is not significant. The pro forma
data do not purport to be indicative of the results of operations or the
financial position of the Company that would have been obtained if the
acquisitions and Offering had been completed as of such dates or to project the
results of operations or the financial position of the Company for any future
date or period. The following table should be read in conjunction with the
financial statements of the Company, Valley Industries and Ellebi, "Selected
Historical Financial Data," "Unaudited Pro Forma Financial Information" and, in
each case, the related notes, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
14
<PAGE> 17
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
COMPANY
------------------------------------------------
PREDECESSOR HISTORICAL PRO FORMA
--------------------------------- ------------------------------------ ---------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED
DECEMBER 31, JANUARY 1 TO SEPTEMBER 28 DECEMBER 31,
----------------- SEPTEMBER 27, TO DECEMBER 31, ------------------------------
1993 1994 1995 1995 1996(1) 1997(2) 1997
---- ---- ------------- --------------- ------- ------- ----
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................... $59,081 $60,882 $48,698 $16,299 $81,466 $188,678 $268,489
Cost of sales............... 48,369 47,716 38,645 12,458 53,607 135,556 194,173
------- ------- ------- ------- ------- -------- --------
Gross profit.............. 10,712 13,166 10,053 3,841 27,859 53,122 74,316
Selling, administrative and
product development
expenses.................. 6,585 7,313 6,107 1,472 13,413 31,350 46,728
Amortization of intangible
assets.................... -- -- -- 546 2,475 2,336 3,448
------- ------- ------- ------- ------- -------- --------
Operating income.......... 4,127 5,853 3,946 1,823 11,971 19,436 24,140
Other (income) expense
Interest expense(4)....... -- -- -- 975 4,312 12,627 19,627
Foreign currency
loss(5)................. -- -- -- -- 1,330 6,097 6,097
Other, net................ 665 (105) 65 (22) (80) -- 125
------- ------- ------- ------- ------- -------- --------
Income (loss) before
minority interest,
extraordinary charge and
income taxes............ 3,462 5,958 3,881 870 6,409 712 (1,709)
Provision (benefit) for
income taxes(6)........... 1,247 2,114 1,324 -- (491) (2,856) (2,561)
------- ------- ------- ------- ------- -------- --------
Income (loss) before
minority interest and
extraordinary charge.... 2,215 3,844 2,557 870 6,900 3,568 852
Minority interest........... -- -- -- 9 69 97 97
------- ------- ------- ------- ------- -------- --------
Income (loss) before
extraordinary
charge.................. 2,215 3,844 2,557 861 6,831 3,471 755
Extraordinary charge(7)..... -- -- -- -- 1,970 7,416 --
------- ------- ------- ------- ------- -------- --------
Net income (loss)......... $ 2,215 $ 3,844 $ 2,557 $ 861 $ 4,861 $ (3,945) $ 755
======= ======= ======= ======= ======= ======== ========
OTHER DATA:
Cash flows from operating
activities................ $ 8,683 $ 1,165 $ 3,741 $ 1,390 $ 9,917 $ 6,982 $ 10,374
Cash flows used for
investing activities...... 2,213 1,392 2,079 46,538 57,463 79,733 11,199
Cash flows provided by (used
for) financing
activities................ (6,259) 289 (1,661) 46,785 48,605 97,080 (4,126)
EBITDA(8)................... 4,890 6,773 4,334 2,651 16,448 27,916 36,291
Depreciation................ 763 920 789 282 2,002 6,144 8,703
Capital expenditures........ 2,213 1,392 2,079 491 3,124 7,751 10,272
Ratio of EBITDA to interest expense............................ 2.72x 3.81x 2.21x 1.85x
Ratio of earnings to fixed charges(9).......................... 1.89x 2.43x 1.06x --
BALANCE SHEET DATA
(AT END OF PERIOD):
Cash........................ $ 10 $ 8 $ 3 $ 1,637 $ 2,514 $ 27,348 $ --
Working capital............. (672) 3,518 4,002 3,960 14,368 64,375 --
Total assets................ 15,070 21,743 24,698 59,979 148,359 265,483 --
Total debt, including
current maturities........ -- -- -- 34,900 93,142 197,126 --
Mandatorily redeemable
warrants.................. -- -- -- 200 3,498 3,507 --
Equity...................... 8,940 13,664 15,794 14,221 18,463 16,444 --
<CAPTION>
COMPANY
-------------------
HISTORICAL
-------------------
THREE MONTHS ENDED
MARCH 31,
-------------------
1997 1998(3)
---- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................... $ 34,516 $ 74,027
Cost of sales............... 23,767 53,978
-------- --------
Gross profit.............. 10,749 20,049
Selling, administrative and
product development
expenses.................. 6,423 12,350
Amortization of intangible
assets.................... 511 785
-------- --------
Operating income.......... 3,815 6,914
Other (income) expense
Interest expense(4)....... 2,158 4,936
Foreign currency
loss(5)................. 3,514 1,042
Other, net................ -- --
-------- --------
Income (loss) before
minority interest,
extraordinary charge and
income taxes............ (1,857) 936
Provision (benefit) for
income taxes(6)........... (1,078) (1,171)
-------- --------
Income (loss) before
minority interest and
extraordinary charge.... (779) 2,107
Minority interest........... 21 --
-------- --------
Income (loss) before
extraordinary
charge.................. (800) 2,107
Extraordinary charge(7)..... -- --
-------- --------
Net income (loss)......... $ (800) $ 2,107
======== ========
OTHER DATA:
Cash flows from operating
activities................ $ (1,743) $ 4,261
Cash flows used for
investing activities...... 742 24,218
Cash flows provided by (used
for) financing
activities................ 1,352 (2,796)
EBITDA(8)................... 5,633 10,226
Depreciation................ 1,307 2,527
Capital expenditures........ 742 2,444
Ratio of EBITDA to interest expense........... 2.61x 2.07x
Ratio of earnings to fixed charges(9)......... -- 1.18x
BALANCE SHEET DATA
(AT END OF PERIOD):
Cash........................ $ 809 $ 4,926
Working capital............. 15,704 54,923
Total assets................ 147,588 278,028
Total debt, including
current maturities........ 94,431 194,542
Mandatorily redeemable
warrants.................. 3,498 3,582
Equity...................... 17,105 18,494
</TABLE>
(footnotes on following page)
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<PAGE> 18
- -------------------------
(1) In October 1996, the Company acquired Brink. The Brink Acquisition has been
accounted for in accordance with the purchase method of accounting.
Accordingly, the operating results of Brink are included in the consolidated
operating results of the Company subsequent to October 30, 1996.
(2) The Company acquired the SportRack division of Bell on July 2, 1997, Nomadic
on July 24, 1997, and Valley on August 5, 1997. The Valley Acquisition and
the SportRack International Acquisition have been accounted for in
accordance with the purchase method of accounting. Accordingly, the
operating results of Valley and SportRack International are included in the
consolidated operating results of the Company subsequent to the respective
acquisition dates.
(3) The Company acquired Ellebi on January 2, 1998 and Transfo-Rakzs in February
1998. Such acquisitions have been accounted for in accordance with the
purchase method of accounting. Accordingly, the operating results of Ellebi
and Transfo-Rakzs are included in the consolidated operating results of the
Company subsequent to their respective acquisition dates.
(4) Prior to its acquisition by the Company on September 28, 1995, the
Predecessor was a division of MascoTech and, accordingly, had no outstanding
indebtedness.
(5) Represents net currency loss on indebtedness, incurred in connection with
the Brink Acquisition, which is currently denominated in U.S. dollars.
(6) The Predecessor, as a division of MascoTech, was allocated a portion of the
consolidated income tax provision, which approximated the division's federal
income tax provision on a stand alone basis. The Company is a limited
liability company and, as such, the earnings of the Company and its domestic
subsidiaries are included in the taxable income of the Company's unitholders
and no federal income tax provision is required. The Company's foreign
subsidiaries provide for income taxes on their results of operations.
(7) In connection with the indebtedness extinguished as a result of the Brink
Acquisition, a prepayment penalty of $220,000 and unamortized deferred debt
issuance costs of $1.8 million were charged to operations during 1996. In
connection with indebtedness extinguished as a result of issuing the Old
Notes, a prepayment penalty of $1.4 million, unamortized debt discount of
$3.1 million, and unamortized deferred debt issuance costs of $3.2 million
were charged to operations during 1997. The debt extinguishment charges in
1997 were reduced by $365,000 representing the income tax benefit recognized
by Brink.
(8) EBITDA is defined as operating income plus depreciation and amortization,
which definition may not be comparable to similarly titled measures reported
by other companies. EBITDA is presented because it is generally accepted as
providing useful information regarding a company's ability to service and/or
incur indebtedness. However, EBITDA should not be considered in isolation
from or as an alternative to net income, cash flows from operating
activities and other consolidated income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as a
measure of profitability or liquidity. In addition, funds depicted by the
EBITDA measurement are not fully available for discretionary use because of
debt service requirements, expenditures for capital replacement and
expansion, and the need to conserve funds for other commitments and
uncertainties. See "Description of the Notes -- Certain Definitions" for the
definition of EBITDA for purposes of the Indenture.
(9) For purposes of determining the ratio of earnings to fixed charges,
"earnings" are defined as income (loss) before minority interest,
extraordinary charge and income taxes, plus fixed charges. "Fixed charges"
consist of interest expense on all indebtedness (including amortization of
deferred debt issuance costs) and the component of operating lease rental
expense that management believes is representative of the interest component
of rent expense. The Company's pro forma earnings were insufficient to cover
pro forma fixed charges by $1.6 million for the year ended December 31,
1997. The Company's earnings were insufficient to cover fixed charges by
$1.8 million for the three months ended March 31, 1997.
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<PAGE> 19
RISK FACTORS
In addition to the other matters set forth in this Prospectus, the
following factors should be considered carefully by holders of Old Notes before
making a decision to tender their Old Notes in the Exchange Offer.
LEVERAGE AND LIQUIDITY
As a result of the Transactions, the Company is highly leveraged. As of
March 31, 1998, the Company's indebtedness and its ratio of indebtedness to
total capital was $194.5 million and 0.9 to 1.0, respectively. The Company's pro
forma earnings were insufficient to cover pro forma fixed charges by $1.6
million for the year ended December 31, 1997. The Company's earnings were
insufficient to cover fixed charges by $1.8 million for the three months ended
March 31, 1997. In addition, subject to the restrictions in the Amended and
Restated Credit Agreement and the Indenture, the Company and its subsidiaries
may incur additional indebtedness (including additional Senior Indebtedness)
from time to time to finance acquisitions or capital expenditures or for other
purposes. See "Pro Forma Capitalization," "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources," "Description of the Credit Facilities" and "Description of the
Notes."
The Company's high degree of leverage may have important consequences for
the Company, including (i) the ability of the Company to obtain additional
financing for acquisitions, working capital, capital expenditures or other
purposes, if necessary, may be impaired or such financing may not be available
on terms favorable to the Company; (ii) a substantial portion of the Company's
cash flow will be used to pay the Company's interest expense and debt
amortization, which will reduce the funds that would otherwise be available to
the Company for its operations and future business opportunities (the Company's
currently existing capital structure requires cash interest and debt
amortization payments of approximately $22.3 million in 1998 and payments
ranging from approximately $22.8 million to $28.6 million in 1999 through 2002);
(iii) a substantial decrease in net operating cash flows or an increase in
expenses of the Company could make it difficult for the Company to meet its debt
service requirements and force it to modify its operations; (iv) the Company may
be more highly leveraged than its competitors, which may place it at a
competitive disadvantage; and (v) the Company's high degree of leverage may make
it more vulnerable to a downturn in its business or the economy generally. Any
inability of the Company to service its indebtedness or obtain additional
financing, as needed, would have a material adverse effect on the Company.
The Company's ability to pay principal and interest on the Notes and to
satisfy its other debt obligations will depend upon its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond its control
as well as the availability of revolving credit borrowings under the Amended and
Restated Credit Agreement or a successor facility. The Company anticipates that,
based on current and expected levels of operations, its operating cash flow,
together with borrowings under the Amended and Restated Credit Agreement, should
be sufficient to meet its debt service, working capital and capital expenditure
requirements for the foreseeable future, although no assurances can be given in
this regard, including as to the ability to increase revenues or profit margins.
If the Company is unable to service its indebtedness, it will be forced to take
actions such as reducing or delaying acquisitions and/or capital expenditures,
selling assets, restructuring or refinancing its indebtedness (which could
include the Notes), or seeking additional equity capital. There is no assurance
that any of these remedies can be effected on satisfactory terms, if at all,
including, whether, and on what terms, the Company could raise equity capital.
RESTRICTIVE DEBT COVENANTS
The Amended and Restated Credit Agreement and the Indenture contain a
number of significant covenants that, among other things, restrict the ability
of the Company to (i) declare dividends or redeem or repurchase capital stock;
(ii) prepay, redeem or purchase debt, including the Notes; (iii) incur liens;
(iv) make loans and investments; (v) incur additional indebtedness; (vi) amend
or otherwise alter debt and other material agreements; (vii) make capital
expenditures; (viii) engage in mergers, acquisitions and asset sales; (ix) enter
into transactions with affiliates; and (x) alter the business it conducts. The
indebtedness
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<PAGE> 20
outstanding under the Amended and Restated Credit Agreement is guaranteed by all
of the Company's domestic subsidiaries and is secured by a first priority lien
on substantially all of the properties and assets of the Company and its
respective domestic subsidiaries, now owned or acquired later, including a
pledge of all of the shares of the Company's respective existing and future
domestic subsidiaries, and up to 65% of the shares of the Company's existing and
future foreign subsidiaries which are owned by the Company or one of its
domestic subsidiaries and certain of the tangible and intangible assets of the
Company's existing and future foreign subsidiaries. In addition, under the
Amended and Restated Credit Agreement, the Company is required to comply with
financial covenants with respect to (i) a maximum leverage ratio; (ii) a minimum
fixed charge coverage ratio; (iii) a minimum net worth; (iv) capital
expenditures; and (v) rentals. If the Company were unable to borrow under the
Amended and Restated Credit Agreement due to a default or failure to meet
certain specified borrowing base prerequisites for borrowing, it could be left
without sufficient liquidity.
SUBORDINATION OF NEW NOTES AND THE GUARANTEES; NON-GUARANTOR SUBSIDIARIES
The New Notes and the Guarantees will be unsecured and subordinated to the
prior payment in full of all Senior Indebtedness of the Company and the
Guarantors, respectively. As of March 31, 1998, the aggregate outstanding
principal amount of all Senior Indebtedness was approximately $70.0 million. In
the event of a bankruptcy, liquidation or reorganization of the Company, the
assets of the Company or the Guarantors will be available to pay obligations on
the New Notes only after all Senior Indebtedness of the Company or the
Guarantors, as the case may be, has been paid in full, and there may not be
sufficient assets remaining to pay amounts due on any or all of the New Notes.
In addition, the Company may not pay principal or premium, if any, or interest
on the New Notes if any Senior Indebtedness is not paid when due or any other
default on any Senior Indebtedness occurs and the maturity of such Senior
Indebtedness is accelerated in accordance with its terms, unless, in either
case, such amount has been paid in full or the default has been cured or waived
and such acceleration has been rescinded. In addition, if any default occurs
with respect to certain Senior Indebtedness and certain other conditions are
satisfied, the Company may not make any payments on the New Notes for a
designated period of time. Finally, if any judicial proceeding is pending with
respect to any such default in payment on any Senior Indebtedness, or other
default with respect to certain Senior Indebtedness, or if the maturity of the
New Notes is accelerated because of a default under the Indenture and such
default constitutes a default with respect to any Senior Indebtedness, the
Company may not make any payment on the New Notes.
The New Notes will not be guaranteed by any of the Company's foreign
subsidiaries. See "Description of the Notes." On a pro forma basis,
approximately 35% of the Company's net sales were made by non-Guarantor
subsidiaries in 1997. For the three months ended March 31, 1998, approximately
31% of the Company's net sales were made by non-Guarantor subsidiaries.
INTEREST RATE FLUCTUATIONS
A significant portion of the indebtedness of the Company to be outstanding
following the Offering will bear interest at variable rates. While the Company
may enter interest rate protection agreements to limit its exposure to increases
in such interest rates, such agreements will not eliminate the exposure to
variable rates. Any increase in the interest rates on the Company's indebtedness
will reduce funds available to the Company for its operations and future
business opportunities.
INTEGRATION OF ACQUISITIONS
The Company seeks to grow through acquisitions. No assurance can be given
that the integration of any future acquisitions will be successful or that the
anticipated strategic benefits of any such future acquisitions will be realized.
Acquisitions may involve a number of special risks, including, but not limited
to, adverse short-term effects on the Company's reported operating results,
diversion of management's attention, standardization of accounting systems,
dependence on retaining, hiring and training key personnel, and unanticipated
problems or legal liabilities. The ability of the Company to successfully
implement its acquisition strategy depends on a number of factors, some of which
are beyond the Company's control. There
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<PAGE> 21
can be no assurance that the Company will be able to consummate acquisitions in
the future on terms acceptable to it.
POTENTIAL RISKS RELATED TO SIGNIFICANT OPERATIONS IN FOREIGN COUNTRIES
The Company manufactures and sells certain of its products in Europe,
Canada and Mexico. In 1997, on a pro forma basis, approximately 35% of the
Company's net sales were derived from operations conducted outside the United
States. For the three months ended March 31, 1998 and 1997, approximately 31%
and 41%, respectively, of the Company's net sales were derived from operations
outside the United States. Such sales are principally in currencies other than
U.S. dollars. Foreign operations are subject to certain risks that can
materially affect the sales, profits, cash flows and financial position of the
Company, such as currency exchange rate fluctuations, inflation, changes in
import duties, exchange controls and variable political conditions. In
particular, currency exchange rate fluctuations may impact the revenues and
gross margins of the Company's foreign operations. Moreover, most of the
Company's indebtedness is denominated in U.S. dollars and exchange rate
fluctuations and other factors may affect the amount and availability of dollars
to service such debt. The Company is currently not a party to any currency
hedging agreements. In addition, a highly inflationary economy may also give
rise to increased production costs without correspondingly increased prices,
especially if products are exported to countries with low inflation rates. See
Note 11 of the notes to the Company's consolidated financial statements.
OWNERSHIP OF THE COMPANY
CCP and its affiliates in the aggregate own approximately 48.1% of the
Company's issued and outstanding voting securities on a fully diluted basis. In
addition, pursuant to the Members' Agreement (as defined), affiliates of CCP
have the ability to appoint a majority of the members of the Company's Board of
Managers. See "Management -- Members' Agreement." Accordingly, CCP will be able
to exert substantial influence on the direction and future operations of the
Company. See "Security Ownership of Certain Beneficial Owners and Management"
and "Plan of Distribution."
THE OEM SUPPLIER INDUSTRY
The Company competes in the global OEM supplier industry which is
characterized by a small number of OEMs which are able to exert considerable
pressure on OEM suppliers, including the Company. On a pro forma basis, sales to
OEM customers were approximately 65% of the Company's aggregate net sales in
1997. For the three months ended March 31, 1998 and 1997, sales to OEM customers
were approximately 74% and 81%, respectively, of the Company's net sales. In
addition, on a pro forma basis, sales to Chrysler and General Motors were
approximately 27% and 16%, respectively, of the Company's aggregate net sales in
1997. For the three months ended March 31, 1998, sales to Chrysler and General
Motors were approximately 34% and 16%, respectively, of the Company's net sales.
Sales to these customers consist of a large number of different parts, tooling
and other services, which are sold to separate divisions and operating groups
within each customer's organizations. Although the Company has purchase orders
from such customers, such purchase orders generally provide for supplying the
customer's requirements for a particular model or model year rather than for
manufacturing a specific quantity of products. The loss of either of such
customers or any of such purchase orders, or a significant decrease in demand
for certain models or a group of related models sold by any of its major
customers could have a material adverse effect on the Company. The failure of
the Company to obtain new business for new models or to retain or increase
business on redesigned existing models could adversely affect the Company. OEM
customers are also able to exert considerable pressure on component and system
suppliers to reduce costs, provide integrated systems (as opposed to just
parts), finance tooling, improve quality and provide additional design and
engineering capabilities. There can be no assurance that the additional costs of
increased quality standards, price reductions or additional engineering or
systems integration capabilities required by OEMs will not have a material
adverse effect on the financial condition or results of operations of the
Company. In addition, the Company may not be able to pass on increases in the
cost of raw materials to its OEM customers.
The OEM supplier industry is highly cyclical and, in large part, dependent
upon the overall strength of consumer demand for light trucks and passenger
cars. There can be no assurance that the automotive industry for which the
Company supplies components and systems, will not experience downturns in the
future. An
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economic recession typically impacts substantially leveraged companies such as
the Company more than similarly situated companies with less leverage. A
decrease in overall consumer demand for motor vehicles in general or specific
types of vehicles could have a material adverse effect on the Company's
financial condition and results of operations.
LABOR RELATIONS
Approximately 150 of the Company's employees in the United States at the
Company's Port Huron, Michigan facility are represented by the Teamsters Union.
Collective bargaining agreements with the Teamsters Union affecting these
employees expire in April 1999. As is common in many European jurisdictions,
substantially all of the Company's employees in Europe are covered by
country-wide collective bargaining agreements. While the Company believes that
its relations with its employees are satisfactory, a dispute between the Company
and its employees could have a material adverse effect on the Company.
Many of the Company's OEM and other Tier 1 supplier customers, and other
suppliers to the Company's customers, are unionized, and work stoppages,
slowdowns or other labor disputes experienced by, and the labor relations
policies of, OEMs and other Tier 1 suppliers could have an adverse effect on the
Company's results of operations.
PURCHASE OF THE NOTES UPON CHANGE OF CONTROL
Upon a Change of Control, the Company is required to offer to purchase all
outstanding New Notes at 101% of the principal amount thereof plus accrued and
unpaid interest to the date of purchase. The source of funds for any such
purchase will be the Company's available cash or cash generated from operations
or other sources, including borrowing, sales of assets, sales of equity or funds
provided by a new controlling person. However, there can be no assurance that
sufficient funds will be available at the time of any Change of Control to make
any required repurchases of New Notes tendered, or that, if applicable,
restrictions in the Amended and Restated Credit Agreement will allow the Company
to make such required repurchases. See "Description of the Notes -- Change of
Control."
COMPETITION
The Company's industry is highly competitive. A large number of actual or
potential competitors exist, some of which are larger than the Company and have
substantially greater resources than the Company. See "Business -- Competition."
There can be no assurance that the Company's business will not be adversely
affected by increased competition in the markets in which it currently operates
or in markets in which it will operate in the future, or that the Company will
be able to improve or maintain its profit margins. In addition, the Company
principally competes for new business both at the beginning of the development
of new models and upon the redesign of existing models by its major customers.
New model development generally begins two to four years prior to the marketing
of such models to the public.
OEMs have increasingly stressed the need for suppliers with global
capabilities. There can be no assurance that by further expanding into
international markets the Company will be successful either in competing with
other suppliers, domestic or foreign, or in maintaining its relationship with
various OEMs, such that its international operations will be profitable.
ENVIRONMENTAL MATTERS
The Company's operations are subject to various foreign, federal, state and
local environmental laws, and regulations, including, but not limited to, those
governing discharges into the air and water, the storage, handling and disposal
of solid and hazardous wastes, the remediation of soil and groundwater
contaminated by petroleum products or hazardous substances or wastes, and the
health and safety of employees. Compliance with environmental laws, stricter
interpretations of or amendments to such laws, or more vigorous enforcement
policies by regulatory agencies may require material expenditures by the
Company. The nature of the Company's current and former operations and the
history of industrial uses at some of its facilities expose the
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<PAGE> 23
Company to the risk of liabilities or claims with respect to environmental and
worker health and safety matters.
In addition, under certain environmental laws, a current or previous owner
or operator of property may be jointly and severally liable for the costs of
investigation, removal or remediation of certain substances on, under or in such
property, without regard to negligence or fault. The presence of, or failure to
remediate properly such substances may adversely affect the ability to sell or
rent such property or to borrow using such property as collateral. In addition,
persons who generate, arrange for the disposal or treatment of, or dispose of
hazardous substances may be jointly and severally liable for the costs of
investigation, remediation or removal of such hazardous substances at or from
the disposal or treatment facility, regardless of whether the such facility is
owned or operated by such person. Responsible parties also may be subject to
common law claims by third parties based on damages and costs resulting from
environmental contamination emanating from a site. See
"Business -- Environmental Regulation."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange the Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not currently anticipate that
it will register the Old Notes under the Securities Act. Based on
interpretations by the staff of the Commission set forth in no-action letters
issued to third parties, the Company believes that the New Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold or otherwise transferred by any holder thereof (other than any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
promulgated under the Securities Act) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such New
Notes are acquired in the ordinary course of such holder's business, such holder
has no arrangement with any person to participate in the distribution of such
New Notes and neither such holder nor any such other person is engaging in or
intends to engage in a distribution of such New Notes. Notwithstanding the
foregoing, each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with any resale of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from the Issuers). The Issuers have agreed that, for a period of 180 days after
the date of this Prospectus, they will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution." However, the ability of any Holder to resell the New Notes is
subject to applicable state securities laws as described in "-- Blue Sky
Restrictions on Resale of New Notes" below.
NECESSITY TO COMPLY WITH EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer, and to avoid the restrictions on
transfer of the Old Notes, Holders of Old Notes must transmit a properly
completed Letter of Transmittal, including all other documents required by such
Letter of Transmittal, to the Exchange Agent at one of the addresses set forth
below under "The Exchange Offer -- Exchange Agent" on or prior to the Expiration
Date. In addition, either (i) certificates for such Old Notes must be received
by the Exchange Agent along with the Letter of Transmittal or (ii) a timely
confirmation of a book-entry transfer for such Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
pursuant to the procedure for book-entry transfer described herein, must be
received by the Exchange Agent prior to the Expiration Date or
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<PAGE> 24
(iii) the Holder must comply with the guaranteed delivery procedures described
herein. See "The Exchange Offer."
BLUE SKY RESTRICTIONS ON RESALE OF NEW NOTES
In order to comply with the securities laws of certain jurisdictions, the
New Notes may not be offered or resold by any Holder unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and the requirements of such
exemption have been satisfied. The Issuers do not currently intend to register
or qualify the resale of the New Notes in any such jurisdictions. However, an
exemption is generally available for sales to registered broker-dealers and
certain institutional buyers. Other exemptions under applicable state securities
laws may also be available.
LACK OF A PUBLIC MARKET FOR THE NEW NOTES
The New Notes will constitute a new class of securities with no established
trading market. The Company does not intend to list the New Notes on any
national securities exchange or to seek the admission thereof to trading in the
Nasdaq National Market. The Old Notes are designated for trading in the Private
Offerings, Resale and Trading through Automatic Linkages ("PORTAL") market. The
Company has been advised by CSI that CSI currently intends to make a market in
the New Notes. CSI is not obligated to do so, however, and any market-making
activities with respect to the New Notes may be discontinued at any time without
notice. In addition, such market-making activity will be subject to the limits
imposed by the Securities Act and the Exchange Act, and may be limited during
the Exchange Offer and the pendency of any Shelf Registration Statement (as
defined). Accordingly, no assurance can be given that an active public or other
market will develop for the New Notes or as to the liquidity of the trading
market for the New Notes. If a trading market does not develop or is not
maintained, holders of the New Notes may experience difficulty in reselling the
New Notes or may be unable to sell them at all. If a market develops for the New
Notes, future trading prices of the New Notes will depend on many factors,
including among other things, prevailing interest rates, the Company's financial
condition and results of operations, and the market for similar notes. Depending
on those and other factors, the New Notes may trade at a discount from their
principal amount.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Issuers on September 25, 1997 to the Initial
Purchasers, who resold the Old Notes to qualified institutional investors in
reliance on Rule 144A under the Securities Act. In connection therewith, the
Issuers, the Guarantors and the Initial Purchasers entered into the Registration
Rights Agreement, which provides that (i) the Issuers will file an Exchange
Offer Registration Statement with the Commission within 210 days after the date
of the original issuance of the Old Notes (the "Issue Date"), (ii) the Issuers
will use their best efforts to have the Exchange Offer Registration Statement
declared effective by the Commission within 270 days after the Issue Date (the
"Target Effectiveness Date"), (iii) the Issuers will consummate the Exchange
Offer within 300 days after the Issue Date (the "Target Consummation Date") and
(iv) if obligated to file the Shelf Registration Statement (as described below),
the Issuers will use their best efforts to file the Shelf Registration Statement
with the Commission promptly after such filing obligation arises and to cause
the Shelf Registration Statement to become effective by the Commission as
promptly as possible after such obligation arises. Promptly after the
effectiveness of the Registration Statement, the Issuers will offer, pursuant to
this Prospectus, to the Holders of the Old Notes the opportunity to exchange
their Old Notes for a like principal amount of New Notes, to be issued without a
restrictive legend and which may, generally, be reoffered and resold by the
holder without restrictions or limitations under the Securities Act. The term
"Holder" with respect to the Exchange Offer means any person in whose name Old
Notes are registered on the books of the Company or any other person who has
obtained a properly completed bond power from the registered holder.
The Issuers have not requested, and do not intend to request, an
interpretation by the staff of the Commission with respect to whether the New
Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Instead, based on interpretations by the staff of the Commission
set forth in no-action letters issued to Exxon Capital Holdings Corporation
(available April 13, 1989), Morgan Stanley & Co. Incorporated (available June 5,
1991) and Shearman & Sterling (available July 2, 1993), the Issuers believe that
New Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by any holder of such New
Notes (other than any such holder that is an "affiliate" of the Issuers within
the meaning of Rule 405 promulgated under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
Holder's business, such Holder has no arrangement or understanding with any
person to participate in the distribution of such New Notes and neither such
Holder nor any other such person is engaging in or intends to engage in a
distribution of such New Notes. Because the Commission has not considered the
Exchange Offer in the context of a no-action letter, there can be no assurance
that the staff of the Commission would make a similar determination with respect
to the Exchange Offer. Any Holder who is an affiliate of the Issuers or who
tenders in the Exchange Offer for the purpose of participating in a distribution
of the New Notes cannot rely on such interpretations by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a resale transaction.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Old Notes where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities (other than Old Notes acquired directly from the Issuers). The
Issuers have agreed that, for a period of 180 days after the date of this
Prospectus, they will make this Prospectus available to any broker-dealer for
use in connection with any such resale. See "Plan of Distribution."
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If (i) because of any change in law or in currently prevailing
interpretations of the staff of the Commission, the Company reasonably
determines in good faith, after consultation with counsel, that it is not
permitted to effect the Exchange Offer, (ii) the Exchange Offer is not commenced
on or prior to the Target Effectiveness Date, (iii) the Exchange Offer is, for
any reason, not consummated on or prior to the fifth day after the Target
Consummation Date, (iv) any Holder of Private Exchange Securities (as defined)
so requests, or (v) in the case of any Holder that participates in the Exchange
Offer, such Holder does not receive New Notes on the date of the exchange that
may be sold without restriction under state and federal securities laws (the
occurrence of any such event set forth in the foregoing clauses (i) through (v),
a "Shelf Registration Event"), then, in the case of such events, the Company
shall promptly deliver to the Holders and the Trustee notice thereof (the "Shelf
Notice") and thereafter the Issuers shall file an Initial Shelf Registration
Statement (as defined) pursuant to the Registration Rights Agreement.
SHELF REGISTRATION. If a Shelf Registration Event has occurred (and whether
or not an Exchange Offer Registration Statement has been filed with the
Commission or has become effective, or the Exchange Offer has been consummated),
then:
Initial Shelf Registration Statement. The Issuers shall promptly
prepare and file with the Commission a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 covering all
of the Old Notes (the "Initial Shelf Registration Statement"). The Issuers
shall file with the Commission the Initial Shelf Registration Statement on
or prior to the Filing Date. The Initial Shelf Registration Statement shall
be on Form S-1 or another appropriate form, if available, permitting
registration of such Registrable Securities for resale by such holders in
the manner designated by them (including, without limitation, in one or
more underwritten offerings). The Issuers shall not permit any securities
other than the Registrable Securities to be included in the Initial Shelf
Registration Statement or any Subsequent Shelf Registration Statement (as
defined below). Each of the Issuers shall use their best efforts to cause
the Initial Shelf Registration Statement to be declared effective under the
Securities Act on or prior to the Effectiveness Date, and to keep the
Initial Shelf Registration Statement continuously effective under the
Securities Act until the date which is 24 months from the Closing Date, or
such shorter period ending when (i) all Registrable Securities covered by
the Initial Shelf Registration Statement have been sold in the manner set
forth and as contemplated in the Initial Shelf Registration Statement or
(ii) a Subsequent Shelf Registration Statement covering all of the
Registrable Securities has been declared effective under the Securities Act
(such 24 month or shorter period, the "Effectiveness Period").
Subsequent Shelf Registration Statements. If the Initial Shelf
Registration Statement or any Subsequent Shelf Registration Statement
ceases to be effective for any reason at any time during the Effectiveness
Period (other than because of the sale of all of the securities registered
thereunder), each of the Issuers shall use their best efforts to obtain the
prompt withdrawal of any order suspending the effectiveness thereof, and in
any event the Issuers shall within 30 days of such cessation of
effectiveness amend the Shelf Registration Statement in a manner reasonably
expected to obtain the withdrawal of the order suspending the effectiveness
thereof, or file an additional "shelf" Registration Statement pursuant to
Rule 415 covering all of the Registrable Securities (a "Subsequent Shelf
Registration Statement"). If a Subsequent Shelf Registration Statement is
filed, each of the Issuers shall use their best efforts to cause the
Subsequent Shelf Registration Statement to be declared effective as soon as
reasonably practicable after such filing and to keep such Registration
Statement continuously effective until the end of the Effectiveness Period.
As used herein the term "Shelf Registration Statement" means the Initial
Shelf Registration Statement and any Subsequent Shelf Registration
Statement.
Supplements and Amendments. The Issuers shall promptly supplement and
amend the Shelf Registration Statement if required by the rules,
regulations or instructions applicable to the registration form used for
such Shelf Registration Statement, if required by the Securities Act, or if
reasonably requested by the Holders of a majority in aggregate principal
amount of the Registrable Securities covered by such Registration Statement
or by any underwriter of such Registrable Securities.
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<PAGE> 27
ADDITIONAL INTEREST
(a) The Issuers agree to pay, as liquidated damages, additional interest on
the Notes ("Additional Interest") under the circumstances and to the extent set
forth below (each of which shall be given independent effect): if either the
Exchange Offer Registration Statement or the Initial Shelf Registration
Statement has not been filed on or prior to the Filing Date (unless, with
respect to the Exchange Offer Registration Statement, a Shelf Registration Event
described in clause (i) of the last paragraph of "-- Purpose and Effect of the
Exchange Offer" shall have occurred prior to the Filing Date), Additional
Interest shall accrue on the Notes over and above the stated interest in an
amount equal to $0.192 per week (or any part thereof) per $1,000 principal
amount of Old Notes:
(i) if either the Exchange Offer Registration Statement or the Initial
Shelf Registration Statement is not declared effective by the Commission on
or prior to the Effectiveness Date (unless, with respect to the Exchange
Offer Registration Statement, a Shelf Registration Event described in
clause (i) of the last paragraph of "-- Purpose and Effect of the Exchange
Offer" shall have occurred), Additional Interest shall accrue on the Notes
over and above the stated interest in an amount equal to $0.192 per week
(or any part thereof) per $1,000 principal amount of Old Notes; and
(ii) if (A) the Issuers have not exchanged New Notes for all Old Notes
validly tendered and not withdrawn in accordance with the terms of the
Exchange Offer on or prior to the fifth day after the Expiration Date, or
(B) the Exchange Offer Registration Statement ceases to be effective at any
time prior to the Expiration Date, or (C) if applicable, any Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time during the
Effectiveness Period, then Additional Interest shall accrue on the Old
Notes over and above the stated interest in an amount equal to $0.192 per
week (or any part thereof) per $1,000 principal amount of the Old Notes for
the first 90 days commencing on (x) the sixth day after the Expiration
Date, in the case of (A) above, or (y) the day the Exchange Offer
Registration Statement ceases to be effective in the case of (B) above, or
(z) the day such Shelf Registration Statement ceases to be effective in the
case of (C) above;
provided, however, that (1) upon the filing of the Exchange Offer Registration
Statement or a Shelf Registration Statement as required hereunder (in the case
of clause (i) of this paragraph), (2) upon the effectiveness of the Exchange
Offer Registration Statement or the Shelf Registration Statement as required
hereunder (in the case of clause (ii) of this paragraph) or (3) upon the
exchange of New Notes for all Old Notes validly tendered and not withdrawn (in
the case of clause (ii)(A) of this paragraph), or upon the effectiveness of the
Exchange Offer Registration Statement which had ceased to remain effective (in
the case of clause (ii)(B) of this paragraph), or upon the effectiveness of the
Shelf Registration Statement which had ceased to remain effective (in the case
of clause (ii)(C) of this paragraph, Additional Interest on the Old Notes as a
result of such clause (or the relevant subclause thereof), as the case may be,
shall cease to accrue (but any accrued amount shall be payable).
Holders of Old Notes will be required to make certain representations to
the Issuers (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Old Notes included
in the Shelf Registration Statement and benefit from the provisions set forth
above.
The summary herein of the material provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all of 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.
The Old Notes are designated for trading in the PORTAL market. To the
extent Old Notes are tendered and accepted in the Exchange Offer, the principal
amount of outstanding Old Notes will decrease with a resulting decrease in the
liquidity in the market therefor. Following the consummation of the Exchange
Offer,
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<PAGE> 28
Holders of Old Notes who were eligible to participate in the Exchange Offer but
who did not tender their Old Notes will not be entitled to certain rights under
the Registration Rights Agreement and such Old Notes will continue to be subject
to certain restrictions on transfer. Accordingly, the liquidity of the market
for the Old Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuers will accept any and all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time on the
Expiration Date. The Issuers will issue $1,000 principal amount of New Notes in
exchange for each $1,000 principal amount of outstanding Old Notes accepted in
the Exchange Offer. Holders may tender some or all of their Old Notes pursuant
to the Exchange Offer. However, Old Notes may be tendered only in integral
multiples of $1,000.
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that the New Notes have
been registered under the Securities Act and therefore will not bear legends
restricting their transfer and will not contain certain provisions providing for
the payment of additional interest on the Old Notes under certain circumstances
relating to the Registration Rights Agreement, which provisions will terminate
upon the consummation of the Exchange Offer. The New Notes will evidence the
same debt as the Old Notes and will be entitled to the benefits of the Indenture
under which the Old Notes were, and the New Notes will be, issued.
As of the date of this Prospectus, $125,000,000, aggregate principal amount
of the Old Notes are outstanding. The Issuers have fixed the close of business
on , 1998 as the record date for the Exchange Offer for purposes of
determining the persons to whom this Prospectus, together with the Letter of
Transmittal, will initially be sent. As of such date, there were
registered Holders of the Old Notes.
Holders of the Old Notes do not have any appraisal or dissenters' rights
under the Delaware General Corporation Law (the "DGCL") or the Indenture in
connection with the Exchange Offer. The Issuers intend to conduct the Exchange
Offer in accordance with the applicable requirements of the Exchange Act and the
rules and regulations of the Commission promulgated thereunder.
The Issuers shall be deemed to have accepted validly tendered Old Notes
when, as and if the Issuers have given oral notice (confirmed in writing) or
written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering Holders for the purpose of the exchange of Old Notes.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, any such unaccepted Old Notes will be returned, without expense, to
the tendering Holder thereof as promptly as practicable after the Expiration
Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Issuers will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998 unless the Issuers, in their sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended, which shall in no event
be later than , 1998.
In order to extend the Exchange Offer, the Issuers will notify the Exchange
Agent of any extension by oral notice (confirmed in writing) or written notice
and will make a public announcement thereof prior to 9:00 a.m., New York City
time, on the next business day after each previously scheduled expiration date.
The Issuers reserve the right, in their sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or, if any of the
conditions set forth below under "The Exchange Offer -- Conditions" shall
26
<PAGE> 29
not have been satisfied, to terminate the Exchange Offer, by giving oral notice
(confirmed in writing) or written notice of such delay, extension or termination
to the Exchange Agent or (ii) to amend the terms of the Exchange Offer in any
manner. Any such delay in acceptance, extension, termination or amendment will
be followed as promptly as practicable by a public announcement thereof. If the
Exchange Offer is amended in a manner determined by the Issuers to constitute a
material change, the Issuers will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered Holders, and
the Issuers will extend the Exchange Offer for a period of five to 10 business
days, depending upon the significance of the amendment and the manner of
disclosure to the registered Holders, if the Exchange Offer would otherwise
expire during such five- to 10-business-day period.
Without limiting the manner in which the Issuers may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, the Issuers shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from April 1, 1998. Interest will be paid
on the Old Notes accepted for exchange to, but not including, April 1, 1998.
PROCEDURES FOR TENDERING
The tender of Old Notes by a holder thereof pursuant to one of the
procedures set forth below and the acceptance thereof by the Issuers will
constitute a binding agreement between such Holder and the Issuers in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal. This Prospectus, together with the Letter of Transmittal, will
first be sent on or about , 1998, to all Holders of Old Notes known
to the Issuers and the Exchange Agent.
Only a Holder of the Old Notes may tender such Old Notes in the Exchange
Offer. A Holder who wishes to tender any Old Notes for exchange pursuant to the
Exchange Offer must transmit a properly completed and duly executed Letter of
Transmittal, or a facsimile thereof, including any other required documents, to
the Exchange Agent prior to 5:00 p.m, New York City time, on the Expiration
Date. In addition, either (i) certificates for such Old Notes must be received
by the Exchange Agent along with the Letter of Transmittal or (ii) a timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Old
Notes, if such procedure is available, into the Exchange Agent's account at The
Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the Holder must comply with
the guaranteed delivery procedures described below. To be tendered effectively,
the Old Notes, Letter of Transmittal and other required documents must be
received by the Exchange Agent at the address set forth below under "Exchange
Agent" prior to 5:00 p.m., New York City time, on the Expiration Date.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IF SENT BY MAIL, IT IS RECOMMENDED THAT
REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED AND PROPER INSURANCE BE
OBTAINED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO
THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD
NOTES SHOULD BE SENT TO THE COMPANY.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such beneficial owner's own behalf, such
beneficial owner must, prior to completing and executing the Letter of
Transmittal and delivering such beneficial owner's Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such
beneficial owner's name or obtain a properly completed bond power from the
registered Holder. The transfer of registered ownership may take considerable
time.
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<PAGE> 30
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined herein)
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
Holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 promulgated under the Exchange Act (an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered Holder as such registered Holder's name appears on such Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Issuers,
evidence satisfactory to the Issuers of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Issuers in their sole discretion, which determination will be final and
binding. The Issuers reserve the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Issuers' acceptance of which would,
in the opinion of counsel for the Issuers, be unlawful. The Issuers also reserve
the right to waive any defects, irregularities or conditions of tender as to
particular Old Notes. The interpretation by the Issuers of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Issuers shall determine. Although the Issuers intend to
notify Holders of defects or irregularities with respect to tenders of Old
Notes, neither the Issuers, the Exchange Agent nor any other person shall incur
any liability for failure to give such notification. Tenders of Old Notes will
not be deemed to have been made until such defects or irregularities have been
cured or waived. Any Old Notes received by the Exchange Agent that the Issuers
determine are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
By tendering, each Holder will represent to the Issuers, among other
things, that (i) the New Notes acquired by the Holder and any beneficial owners
of Old Notes pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such New Notes, (ii) neither the
Holder nor such beneficial owner has an arrangement with any person to
participate in the distribution of such New Notes, (iii) neither the Holder nor
such beneficial owner nor any such other person is engaging in or intends to
engage in a distribution of such New Notes and (iv) neither the Holder nor any
such other person is an "affiliate," as defined under Rule 405 promulgated under
the Securities Act, of the Issuers. Each broker-dealer that receives New Notes
for its own account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities (other than Old Notes acquired directly from the Issuers),
may participate in the Exchange Offer but may be deemed an "underwriter" under
the Securities Act and, therefore, must acknowledge in the Letter of Transmittal
that it will deliver a prospectus in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. See "Plan of
Distribution."
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of
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<PAGE> 31
this Prospectus, and any financial institution that is a participant in the
Book-Entry Transfer Facility's system may make book-entry delivery of Old Notes
by causing the Book-Entry Transfer Facility to transfer such Old Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof,
with any required signature guarantees and any other required documents, must,
in any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "-- Exchange Agent" on or prior to the
Expiration Date or the guaranteed delivery procedures described below must be
complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Old Notes and the principal amount of Old Notes tendered, stating
that the tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal (or facsimile thereof) together with the certificate(s)
representing the Old Notes, or a Book-Entry Confirmation, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old 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 five New York Stock Exchange
trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "Depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) be signed by the Holder
in the same manner as the original signature on the Letter of Transmittal by
which such Old Notes were tendered (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee with
respect to the Old Notes register the transfer of such Old Notes into the name
of the persons withdrawing the tender and (iv) specify the name in which any
such Old Notes are to be registered, if different from that of the Depositor. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the withdrawing
Holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such Holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of such facility. All questions as to
the validity, form and eligibility (including time of receipt) of such notices
will be determined by the Issuers in their sole discretion, which determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange
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<PAGE> 32
Offer and no New Notes will be issued with respect thereto unless the Old Notes
so withdrawn are validly retendered. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the Expiration Date.
Any Old Notes which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the Exchange
Offer will be returned as soon as practicable to the Holder thereof without cost
to such Holder (or, in the case of Old Notes tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant
to the book-entry transfer procedures described above, such Old Notes will be
credited to an account maintained with such Book-Entry Transfer Facility for the
Old Notes).
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Issuers shall not
be required to accept for exchange, or exchange New Notes for, any Old Notes,
and may terminate the Exchange Offer as provided herein before the acceptance of
such Old Notes, if:
(a) the Exchange Offer shall violate applicable law or any applicable
interpretation of the staff of the Commission; or
(b) any action or proceeding is instituted or threatened in any court
or by any governmental agency that might materially impair the ability of
the Issuers to proceed with the Exchange Offer or any material adverse
development has occurred in any existing action or proceeding with respect
to the Issuers; or
(c) any governmental approval has not been obtained, which approval
the Issuers shall deem necessary for the consummation of the Exchange
Offer.
If the Issuers determine in their sole discretion that any of the
conditions are not satisfied, the Issuers may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering Holders (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility), (ii) extend the Exchange Offer and retain
all Old Notes tendered prior to the expiration of the Exchange Offer, subject,
however, to the rights of Holders to withdraw such Old Notes (see "-- Withdrawal
of Tenders") or (iii) waive such unsatisfied conditions with respect to the
Exchange Offer and accept all properly tendered Old Notes which have not been
withdrawn. If such waiver constitutes a material change to the Exchange Offer,
the Issuers will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered Holders, and the Issuers
will extend the Exchange Offer for a period of five to 10 business days,
depending upon the significance of the waiver and the manner of disclosure to
the registered Holders, if the Exchange Offer would otherwise expire during such
five- to 10-business-day period.
EXCHANGE AGENT
First Union National Bank has been appointed as Exchange Agent for the
Exchange Offer. Questions and requests for assistance, requests for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notices of Guaranteed Delivery should be directed to the Exchange Agent
addressed as follows:
First Union National Bank
230 S. Tryon Street, 9th Floor
Charlotte, North Carolina 28288-1179
Attention: Corporate Trust Administration
Telecopier: (704) 383-7316
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FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, facsimile telephone or in person by officers and
regular employees of the Issuers and their affiliates.
The Issuers have not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Issuers, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Issuers. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
The Issuers will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
Holder or any other persons) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is face value less unamortized discount, as reflected in the Company'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 and
the unamortized expenses related to the issuance of the Old Notes will be
amortized over the term of the New Notes.
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer, because
it will be an even exchange of the Old Notes. The net proceeds to the Company
from the Old Notes were approximately $119.6 million, after deducting the
Initial Purchasers' discounts and fees and expenses of the Offering. The Company
used such net proceeds to (i) repay approximately $90.0 million outstanding
under the Amended and Restated Credit Agreement (the "Credit Agreement Debt"),
(ii) repay approximately $20.0 million of senior subordinated indebtedness (the
"Senior Subordinated Debt") incurred in connection with the Brink Acquisition
and to refinance then existing debt, (iii) repay approximately $6.3 million of
subordinated indebtedness incurred in connection with the Brink Acquisition (the
"Junior Subordinated Guilder Note"), (iv) pay approximately $1.9 of accrued
interest and (v) pay prepayment penalties of $1.4 million on the Senior
Subordinated Debt.
31
<PAGE> 34
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of March 31, 1998 and includes the 1998 Transactions. The information set forth
below should be read in conjunction with the "Summary Consolidated Historical
and Pro Forma Financial Data," "Unaudited Pro Forma Financial Information,"
"Management Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company, and the
notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1998
--------------
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents................................... $ 4,926
========
Long-term debt (including current maturities):
Amended and Restated Credit Agreement(1):
Revolving Credit Facility(2)........................... $ --
Tranche A Term Loan.................................... 16,624
Tranche B Term Loan.................................... 15,810
Acquisition Facility(3)................................ 21,000
Canadian Credit Agreement(1)(2)...........................
Term Note.............................................. 13,741
Revolving Note......................................... 2,824
Notes (4)................................................. 124,543
--------
Total long-term debt................................... 194,542
Mandatorily redeemable warrants(5).......................... 3,582
Members' equity............................................. 18,494
--------
Total capitalization................................... $216,618
========
</TABLE>
- -------------------------
(1) See "Description of the Credit Facilities."
(2) The Company has up to $25.0 million available under the Revolving Credit
Facility. Borrowings by SportRack International under the revolving note of
the Canadian Credit Agreement (as defined) are counted against availability
under the Revolving Credit Facility.
(3) On December 31, 1997, the Company borrowed $21.0 million under its
Acquisition Facility. On January 2, 1998, the proceeds of such borrowing
were used to make the Ellebi Acquisition.
(4) The principal amount of the Notes is $125.0 million. The Notes are presented
net of unamortized discount of $457,000.
(5) Represents the value assigned to certain warrants associated with the Senior
Subordinated Debt. The Senior Subordinated Debt was repaid with proceeds
from the Notes. The warrants are being accreted to their redemption value
through periodic charges to members' equity.
32
<PAGE> 35
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information of the Company is
based on the audited financial statements of the Company, Valley Industries, and
Ellebi S.p.A. included elsewhere in this Prospectus, and the unaudited financial
statements of the Sport Rack division of Bell, Nomadic and Transfo-Rakzs. The
unaudited pro forma statement of operations for the year ended December 31, 1997
gives effect to the Valley Acquisition, the SportRack International Acquisition,
the 1998 Transactions and the Offering as if such transactions had occurred on
January 1, 1997. Pro forma data as of and for the three months ended March 31,
1998 have not been presented because such data are substantially the same as the
historical data for the period because Ellebi was acquired on January 2, 1998
and Transfo-Rakzs, acquired in February 1998, is not significant. The Exchange
Offer has no effect on the unaudited pro forma financial information.
The pro forma financial information gives effect to pro forma adjustments
that are based upon available information and certain assumptions that the
Company believes are reasonable. The Ellebi Acquisition and the Transfo-Rakzs
Acquisition have been accounted for using the purchase method of accounting. The
purchase price in excess of the fair value of net assets acquired for Ellebi and
Transfo-Rakzs has been allocated to goodwill. The pro forma financial
information should be read in conjunction with the historical financial
statements of the Company, Valley Industries, Ellebi S.p.A. and, in each case,
the related notes thereto, included elsewhere in this Prospectus.
The pro forma financial information does not purport to be indicative of
the results that would have been obtained had such transactions been completed
as of the assumed dates and for the periods presented or that may be obtained in
the future.
33
<PAGE> 36
ADVANCED ACCESSORY SYSTEMS, LLC
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
ADJUSTMENTS
------------------------------------------------
VALLEY
AND ELLEBI
SPORTRACK INITIAL AND
INTERNATIONAL OFFERING OF TRANSFO-RAKZS
COMPANY ACQUISITIONS(1) OLD NOTES(2) ACQUISITIONS(3) PRO FORMA
------- --------------- ------------ --------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales.......................... $188,678 $57,991 $ -- $21,820 $268,489
Cost of sales...................... 135,556 45,003 -- 13,614 194,173
-------- ------- ------- ------- --------
Gross profit..................... 53,122 12,988 -- 8,206 74,316
Selling, administrative and product
development expenses............. 31,350 11,169 -- 4,209 46,728
Amortization of intangible
assets........................... 2,336 973 -- 139 3,448
-------- ------- ------- ------- --------
Operating income................. 19,436 846 -- 3,858 24,140
Interest expense................... 12,627 3,570 1,160 2,270 19,627
Foreign currency loss.............. 6,097 -- -- -- 6,097
Other (income) expense, net........ -- 103 -- 22 125
-------- ------- ------- ------- --------
Income (loss) before minority
interest and income taxes..... 712 (2,827) (1,160) 1,566 (1,709)
Provision (benefit) for income
taxes............................ (2,856) (575) -- 870 (2,561)
-------- ------- ------- ------- --------
Income (loss) before minority
interest...................... 3,568 (2,252) (1,160) 696 852
Minority interest.................. 97 -- -- -- 97
-------- ------- ------- ------- --------
Net income (loss)................ $ 3,471 $(2,252) $(1,160) $ 696 $ 755
======== ======= ======= ======= ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Statement of Operations.
34
<PAGE> 37
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(1) Pro forma adjustments to reflect the operations of Valley for the seven
month period ended August 5, 1997, the SportRack division of Bell Sports
Corporation ("Bell") for the six month period through July 2, 1997 and
Nomadic for the seven month period through July 24, 1997 (together SportRack
International). Subsequent to August 5, 1997, the operating results of
Valley are included in the Company's historical results. Subsequent to July
2, 1997 for Bell and July 24, 1997 for Nomadic, the operating results of
SportRack International are included in the Company's historical results.
<TABLE>
<CAPTION>
HISTORICAL
------------------------
SPORTRACK
VALLEY INTERNATIONAL ADJUSTMENTS PRO FORMA
------ ------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales................................... $53,510 $4,481 $ -- $57,991
Cost of sales............................... 41,630 3,225 148(a) 45,003
------- ------ ------- -------
Gross profit.............................. 11,880 1,256 (148) 12,988
Selling, administrative and product
development expenses...................... 9,598 1,571 -- 11,169
Amortization of intangible assets........... -- 171 802(a) 973
------- ------ ------- -------
Operating income (loss)................... 2,282 (486) (950) 846
Interest expense............................ 587 25 2,958(b) 3,570
Foreign currency loss....................... -- -- -- --
Other (income) expense, net................. 125 (22) -- 103
------- ------ ------- -------
Income (loss) before minority interest and
income taxes........................... 1,570 (489) (3,908) (2,827)
Provision (benefit) for income taxes........ (11) -- (564)(c) (575)
------- ------ ------- -------
Income (loss) before minority interest.... 1,581 (489) (3,344) (2,252)
Minority interest........................... -- -- -- --
------- ------ ------- -------
Net income (loss)......................... $ 1,581 $ (489) $(3,344) $(2,252)
======= ====== ======= =======
</TABLE>
- -------------------------
(a) Adjustments reflect the estimated increase in depreciation expense
after giving effect to an approximate $2.5 million increase in fair
value over historical cost and providing depreciation over periods
based upon management's assessment of the remaining economic life of
property and equipment, amortization expense related to approximately
$34.5 million of goodwill (over 30 years) and approximately $3.3
million of other intangible assets (over 5-10 years) for the Valley
Acquisition and the SportRack International Acquisition. The estimated
increases are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Depreciation of property and equipment...................... $148
====
Amortization of goodwill.................................... $660
Amortization of other intangible assets..................... 142
----
Amortization of intangible assets........................... $802
====
</TABLE>
35
<PAGE> 38
(b) Adjustment reflects the increase in interest expense for borrowings
outstanding under the Tranche B Term Loan and the Canadian Term Note
after completion of the Valley Acquisition and the SportRack
International Acquisition as if the borrowings had been outstanding at
the beginning of the period. Historical and pro forma interest expense
are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Tranche B Term Loan -- $55.0 million at 8.90% (7 months).... $2,855
Canadian Term Note -- $14.5 million at 7.25% (6 months)..... 523
Amortization of debt issuance costs......................... 192
------
3,570
Elimination of historical interest expense.................. (612)
------
Net increase in interest expense............................ $2,958
======
</TABLE>
(c) Adjustment reflects the pro forma income tax benefit of adjustments
made above. No benefit for federal income tax has been included for
Valley because, for federal income tax purposes, Valley's results of
operations accrue to the unitholders.
(2) Adjustment reflects the net impact on interest expense as if the issuance of
the Old Notes had been consummated on January 1, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Issuance of Old Notes(a) -- $124.5 million at 9.75%......... $ 9,141
Repayment of:
Revolving Credit Facility -- $7.5 million at 6.10%........ (341)
Tranche A Term Loan(b) -- $43.5 million at 8.00%.......... (2,682)
Tranche B Term Loan(b) -- $39.0 million at 8.87%.......... (2,656)
Senior Subordinated Debt(c) -- $16.8 million at 12.50%.... (2,210)
Junior Subordinated Guilder Note -- $6.4 million at
7.00%.................................................. (336)
Amortization of discount and debt issuance cost (over 10
years)(d)................................................. 244
-------
Net increase in interest expense............................ $ 1,160
=======
</TABLE>
- -------------------------
(a) The Notes are reflected net of discount of $471,000. Interest is
calculated on the principal amount of $125.0 million.
(b) Includes amortization of debt issuance cost for Tranche A Term Loan and
Tranche B Term Loan of $76,000 and $62,000, respectively.
(c) The Senior Subordinated Debt is reflected net of discount of
approximately $3.2 million and pro forma interest includes $335,000 of
amortization. Interest is calculated on the principal amount of $20.0
million.
(d) Adjustment reflects the amortization of discount and deferred debt
issuance costs associated with the Old Notes as if the Offering had
been consummated as of the beginning of the period. These costs are
amortized over the term of the Old Notes using the effective interest
method.
36
<PAGE> 39
(3) Pro forma adjustments to reflect the operations of Ellebi and Transfo-Rakzs
for the year ended December 31, 1997 translated at the average month end
exchange rate for the year, or 1,706 and 1.37 Italian lira and Canadian
dollars, respectively, to one United States dollar. Ellebi was acquired on
January 2, 1998 and Transfo-Rakzs was acquired on February 7, 1998.
<TABLE>
<CAPTION>
HISTORICAL
-----------------------
ELLEBI TRANSFO-RAKZS ADJUSTMENTS PRO FORMA
------ ------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales..................................... $21,322 $498 $ -- $21,820
Cost of sales................................. 12,414 239 961(a) 13,614
------- ---- ------- -------
Gross profit................................ 8,908 259 (961) 8,206
Selling, administrative and product
development expenses........................ 4,096 113 -- 4,209
Amortization of intangible assets............. -- -- 139(a) 139
------- ---- ------- -------
Operating income (loss)..................... 4,812 146 (1,100) 3,858
Interest expense.............................. -- 8 2,262(b) 2,270
Foreign currency loss......................... -- -- -- --
Other (income) expense, net................... 22 -- -- 22
------- ---- ------- -------
Income (loss) before minority interest and
income taxes............................. 4,790 138 (3,362) 1,566
Provision (benefit) for income taxes.......... 2,614 24 (1,768)(c) 870
------- ---- ------- -------
Income (loss) before minority interest...... 2,176 114 (1,594) 696
Minority interest............................. -- -- -- --
------- ---- ------- -------
Net income (loss)........................... $ 2,176 $114 $(1,594) $ 696
======= ==== ======= =======
</TABLE>
- -------------------------
(a) Adjustments reflect the estimated increase in depreciation expense
after giving effect to an approximate $4.6 million increase in fair
value over historical cost and providing depreciation over periods
based upon management's assessment of the remaining economic life of
property and equipment, amortization expense related to approximately
$4.2 million of goodwill (over 30 years) assuming the Ellebi
Acquisition and Transfo-Rakzs Acquisition had been consummated on
January 1, 1997. The estimated increases are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Depreciation of property and equipment...................... $961
====
Amortization of goodwill.................................... $139
====
</TABLE>
(b) Adjustment reflects the increase in interest expense for borrowings
outstanding under the Acquisition Facility and the increase in the
Canadian revolving line of credit note after completion of the Ellebi
Acquisition and the Transfo-Rakzs Acquisition as if the borrowings had
been outstanding at the beginning of the period. Historical and pro
forma interest expense are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Acquisition Facility -- $21.0 million at 10.25%............. $2,153
Canadian revolving line of credit -- $.8 million at 7.50%... 62
Amortization of debt issuance costs......................... 55
------
2,270
Elimination of historical interest expense.................. (8)
------
Net increase in interest expense............................ $2,262
======
</TABLE>
(c) Adjustment reflects the pro forma income tax benefit of adjustments
made above.
37
<PAGE> 40
SELECTED HISTORICAL FINANCIAL DATA
The information below presents historical financial data of the MascoTech
Division ("Predecessor") for the years ended December 31, 1993 and 1994 and the
period from January 1, 1995 through September 27, 1995 (the period prior to the
acquisition of the net assets of MascoTech Division by the Company). The data as
of and for the years ended December 31, 1993 and 1994 have been derived from the
unaudited financial statements of the MascoTech Division and the data for the
period from January 1, 1995 through September 27, 1995 have been derived from
the audited financial statements included elsewhere in this Prospectus. The data
as of and for the period from September 28, 1995 through December 31, 1995 and
for the years ended December 31, 1996 and 1997 represent consolidated financial
data of the Company subsequent to the acquisition of the MascoTech Division, and
include (i) the operations of Brink subsequent to the Brink Acquisition on
October 30, 1996; (ii) the operations of the SportRack division of Bell and
Nomadic subsequent to the SportRack International Acquisition on July 2, 1997
and July 24, 1997, respectively, (iii) the operations of Valley subsequent to
the Valley Acquisition on August 5, 1997, and have been derived from the audited
financial statements included elsewhere in this Prospectus. The data as of and
for the three months ended March 31, 1997 present consolidated financial
information for the Company, including Brink. The data as of and for the three
months ended March 31, 1998 present consolidated financial information for the
Company, including Brink, SportRack International, Valley, Ellebi and
Transfo-Rakzs. The interim data as of and for the three months ended March 31,
1998 and 1997 have been derived from unaudited financial statements that, in the
opinion of management, contain all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation. The results of
operations for the interim periods are not necessarily indicative of those to be
expected for a full year. The following table should be read in conjunction with
the financial statements of the Company and notes thereto, "Unaudited Pro Forma
Financial Information", and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------------- ------------------------------------------------------------
YEAR ENDED PERIOD FROM PERIOD FROM YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, JANUARY 1 TO SEPTEMBER 28, TO DECEMBER 31, MARCH 31,
----------------- SEPTEMBER 27, DECEMBER 31, ------------------- -------------------
1993 1994 1995 1995 1996(1) 1997(2) 1997(1) 1998(3)
---- ---- ------------- ---------------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $59,081 $60,882 $48,698 $16,299 $ 81,466 $188,678 $ 34,516 $ 74,027
Cost of sales.................. 48,369 47,716 38,645 12,458 53,607 135,556 23,767 53,978
------- ------- ------- ------- -------- -------- -------- --------
Gross profit................. 10,712 13,166 10,053 3,841 27,859 53,122 10,749 20,049
Selling, administrative and
product development
expenses..................... 6,585 7,313 6,107 1,472 13,413 31,350 6,423 12,350
Amortization of intangible
assets....................... -- -- -- 546 2,475 2,336 511 785
------- ------- ------- ------- -------- -------- -------- --------
Operating income............. 4,127 5,853 3,946 1,823 11,971 19,436 3,815 6,914
Other (income) expense
Interest expense(4).......... -- -- -- 975 4,312 12,627 2,158 4,936
Foreign currency loss(5)..... -- -- -- -- 1,330 6,097 3,514 1,042
Other, net................... 665 (105) 65 (22) (80) -- -- --
------- ------- ------- ------- -------- -------- -------- --------
Income (loss) before minority
interest, extraordinary
charge and income taxes.... 3,462 5,958 3,881 870 6,409 712 (1,857) 936
Provision (benefit) for income
taxes(6)..................... 1,247 2,114 1,324 -- (491) (2,856) (1,078) (1,171)
------- ------- ------- ------- -------- -------- -------- --------
Income (loss) before minority
interest and extraordinary
charge..................... 2,215 3,844 2,557 870 6,900 3,568 (779) 2,107
Minority interest.............. -- -- -- 9 69 97 21 --
------- ------- ------- ------- -------- -------- -------- --------
Income (loss) before
extraordinary charge....... 2,215 3,844 2,557 861 6,831 3,471 (800) 2,107
Extraordinary charge(7)........ -- -- -- -- 1,970 7,416 -- --
------- ------- ------- ------- -------- -------- -------- --------
Net income (loss)............ $ 2,215 $ 3,844 $ 2,557 $ 861 $ 4,861 $ (3,945) $ (800) $ 2,107
======= ======= ======= ======= ======== ======== ======== ========
OTHER DATA:
Cash flows from operating
activities................... $ 8,683 $ 1,165 $ 3,741 $ 1,390 $ 9,917 $ 6,982 $ (1,743) $ 4,261
Cash flows used for investing
activities................... 2,213 1,392 2,079 46,538 57,463 79,733 742 24,218
Cash flows from financing
activities................... (6,259) 289 (1,666) 46,785 48,605 97,080 1,352 (2,796)
EBITDA(8)...................... 4,890 6,773 4,334 2,651 16,448 27,916 5,633 10,226
Depreciation................... 763 920 789 282 2,002 6,144 1,307 2,527
Capital expenditures........... 2,213 1,392 2,079 491 3,124 7,751 742 2,444
Ratio of EBITDA to interest expense............................... 2.72x 3.81x 2.21x 2.61x 2.07x
Ratio of earnings to fixed charges(9)............................. 1.89x 2.43x 1.06x -- 1.18x
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash........................... $ 10 $ 8 $ 3 $ 1,637 $ 2,514 $ 27,348 $ 809 $ 4,926
Working capital................ (612) 3,518 4,002 3,960 14,368 64,375 15,704 54,923
Total assets................... 15,070 21,743 24,698 59,979 148,359 265,483 147,588 278,028
Total debt, including current
maturities................... -- -- -- 34,900 93,142 197,126 94,431 194,542
Mandatorily redeemable
warrants..................... -- -- -- 200 3,498 3,507 3,498 3,582
Equity......................... 8,940 13,664 15,794 14,221 18,463 16,444 17,105 18,494
</TABLE>
(footnotes on following page)
38
<PAGE> 41
- -------------------------
(1) In October 1996, the Company acquired Brink. The Brink Acquisition has been
accounted for in accordance with the purchase method of accounting.
Accordingly, the operating results of Brink are included in the consolidated
operating results of the Company subsequent to October 30, 1996.
(2) The Company acquired Bell on July 2, 1997, Nomadic on July 24, 1997, and
Valley on August 5, 1997. The SportRack International Acquisition and Valley
Acquisition have been accounted for in accordance with the purchase method
of accounting. Accordingly, the operating results of SportRack International
and Valley are included in the consolidated operating results of the Company
subsequent to the respective acquisition dates.
(3) The Company acquired Ellebi on January 2, 1998 and Transfo-Rakzs in February
1998. Such acquisitions have been accounted for in accordance with the
purchase method of accounting. Accordingly, the operating results of Ellebi
and Transfo-Rakzs are included in the consolidated operating results of the
Company subsequent to the respective acquisition dates.
(4) Prior to its acquisition by the Company on September 28, 1995, the
Predecessor was a division of MascoTech and, accordingly, had no outstanding
indebtedness.
(5) Represents net currency loss on indebtedness, incurred in connection with
the Brink Acquisition, which is currently denominated in U.S. dollars.
(6) The Predecessor, as a division of MascoTech, was allocated a portion of the
consolidated income tax provision, which approximated the division's federal
income tax provision on a stand-alone basis. The Company is a limited
liability corporation and, as such, the earnings of the Company and its
domestic subsidiaries are included in the taxable income of the Company's
unitholders and no federal income tax provision is required. The Company's
foreign subsidiaries provide for income taxes on their results of
operations.
(7) In connection with the indebtedness extinguished as a result of the Brink
Acquisition, a prepayment penalty of $220,000 and unamortized deferred debt
issuance costs of $1.8 million were charged to operations during 1996. In
connection with indebtedness extinguished as a result of issuing the Old
Notes, a prepayment penalty of $1.4 million, $3.1 million of unamortized
debt discount, and unamortized deferred debt issuance costs of $3.2 million
were charged to operations during 1997. The debt extinguishment charges in
1997 were reduced by $365,000 representing the income tax benefit recognized
by Brink.
(8) EBITDA is defined as operating income plus depreciation and amortization,
which definition may not be comparable to similarly titled measures reported
by other companies. EBITDA is presented because it is generally accepted as
providing useful information regarding a company's ability to service and/or
incur indebtedness. However, EBITDA should not be considered in isolation
from or as an alternative to net income, cash flows from operating
activities and other consolidated income or cash flow statement data
prepared in accordance with generally accepted accounting principles or as a
measure of profitability or liquidity. In addition, funds depicted by the
EBITDA measurement are not fully available for discretionary use because of
debt service requirements, expenditures for capital replacement and
expansion, and the need to conserve funds for other commitments and
uncertainties. See "Description of the Notes -- Certain Definitions" for the
definition of EBITDA for purposes of the Indenture.
(9) For purposes of determining the ratio of earnings to fixed charges,
"earnings" are defined as income (loss) before minority interest,
extraordinary charge and income taxes, plus fixed charges. "Fixed charges"
consist of interest expense on all indebtedness (including amortization of
deferred debt issuance costs) and the component of operating lease rental
expense that management believes is representative of the interest component
of rent expense. The Company's earnings were insufficient to cover fixed
charges by $1.8 million for the three months ended March 31, 1997.
39
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
CCP and certain members of the Company's management formed the Company in
September 1995 to make strategic acquisitions of automotive exterior accessory
manufacturers and to integrate those acquisitions into a global enterprise that
would be a preferred supplier to the automotive industry. In September 1995, the
Company, through its SportRack subsidiary, acquired substantially all of the net
assets of the MascoTech Division, a North American supplier of rack systems and
accessories to the automotive OEM market and aftermarket. The MascoTech Division
was a division of MascoTech. For comparative purposes, the financial information
for the year ended December 31, 1995 represents the combination of the results
of operations of the MascoTech Division for the period from January 1, 1995 to
September 27, 1995 together with the results of operations of the Company from
September 28, 1995 to December 31, 1995 (the period subsequent to the
acquisition of the MascoTech Division by the Company). The financial statements
of the MascoTech Division and the Company in the two combined periods are not
comparable in certain respects due to differences between the cost bases of
certain assets held by the Company versus that of the MascoTech Division,
changes in accounting policies at the acquisition date, and certain incremental
costs, such as interest expense, that the Company incurred as a stand-alone
company subsequent to September 27, 1995.
ACQUISITIONS
In October 1996, the Company consummated the Brink Acquisition by acquiring
the outstanding capital stock of Brink B.V., a European supplier of towing
systems to the automotive OEM and aftermarket.
In July 1997, the Company consummated the SportRack International
Acquisition by acquiring from Bell substantially all of the net assets of its
SportRack division, a Canadian supplier of rack systems and accessories to the
automotive aftermarket, and acquiring the capital stock of Nomadic, a Canadian
supplier of rack systems and accessories to the automotive OEM and aftermarket.
In August 1997, the Company consummated the Valley Acquisition by acquiring
substantially all of the net assets of Valley Industries, Inc., a North American
supplier of towing systems to the automotive OEM market and aftermarket.
In January 1998, the Company through Brink International B.V., acquired the
net assets of the towbar segment of Ellebi S.p.A. for an aggregate purchase
price of approximately $22 million including estimated costs of the transaction.
The towbar segment of Ellebi S.p.A. is a manufacturer and distributor of towing
systems to the automotive OEM market and aftermarket. The acquisition was
financed primarily through the Company's Acquisition revolving note. Total
revenue for the towbar segment of Ellebi S.p.A. was $21.3 million for the year
ended December 31, 1997.
In February 1998, the Company through SportRack International, Inc.,
acquired the net assets of Transfo-Rakzs for an aggregate purchase price of
approximately $1.1 million, including estimated costs of the transaction.
Transfo-Rakzs is a designer, manufacturer and distributor of rear hitch rack
carrying systems and related products to Canada and the U.S. The acquisition was
financed primarily through borrowings under the Company's revolving credit
facility. Total revenue for Transfo-Rakzs, Inc. was $498,000 for the year ended
December 31, 1997.
In each instance, the acquisition was accounted for in accordance with the
purchase method of accounting and the operating results of the acquired company
have been included in the Company's consolidated financial statements since the
date of the respective acquisition.
40
<PAGE> 43
SUMMARY RESULTS OF OPERATIONS
The following table presents the major components of the statement of
operations together with percentages of each component as a percentage of net
sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
------------------------------------------------------ ----------------------------------
1995(1) 1996 1997 1997 1998
------- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $64,997 100.0% $81,466 100.0% $188,678 100.0% $34,516 100.0% $74,027 100.0%
Gross profit............. 13,894 21.4% 27,859 34.2% 53,122 28.2% 10,749 31.1% 20,049 27.1%
Selling, administrative and
product development
expenses................. 7,579 11.7% 13,413 16.5% 31,350 16.6% 6,423 18.6% 12,350 16.7%
Amortization of intangible
assets................... 546 .8% 2,475 3.0% 2,336 1.2% 511 1.5% 785 1.1%
Operating income......... 5,769 8.9% 11,971 14.7% 19,436 10.3% 3,815 11.1% 6,914 9.3%
Interest expense........... 975 1.5% 4,312 5.3% 12,627 6.7% 2,158 6.2% 4,936 6.7%
Foreign currency loss...... -- -- 1,330 1.6% 6,097 3.2% 3,514 10.2% 1,042 1.4%
Income (loss) before
minority interest,
extraordinary charge and
income taxes............. 4,751 7.3% 6,409 7.9% 712 .4% (1,857) (5.4%) 936 1.3%
Extraordinary charge....... -- -- 1,970 2.4% 7,416 3.9% -- -- -- --
Net income (loss).......... 3,418 5.3% 4,861 6.0% (3,945) (2.1%) (800) (2.3%) 2,107 2.8%
</TABLE>
- -------------------------
(1) Represents the combination of the historical results of operations for the
MascoTech Division for the period January 1, 1995 to September 27, 1995
together with the results of operations of the Company from September 28,
1995 to December 31, 1995 (the period subsequent to the acquisition of the
MascoTech Division by the Company).
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1997
Net Sales. Net sales for the three months ended March 31, 1998 were $74.0
million, representing an increase of $39.5 million, or 114.5%, over net sales
for the three months ended March 31, 1997. This increase resulted primarily from
the acquisitions of Valley, SportRack International, Ellebi and Transfo-Rakzs
which had combined net sales totaling $30.7 during the three months ended March
31, 1998. The remaining increase of $8.8 million is attributable to continued
net sales growth of the Company's SportRack and Brink subsidiaries. Recently,
Chrysler, which represented approximately 34% and 37% of the Company's net sales
for the first quarters of 1998 and 1997, respectively, announced plans to merge
with Daimler-Benz. Based on publicly available information, the Company does not
believe that the proposed merger will have a material adverse impact on its
sales or results of operations.
Gross Profit. Gross profit for the three months ended March 31, 1998 was
$20.0 million, representing an increase of $9.3 million, or 86.5%, over the
gross profit for the three months ended March 31, 1997. This increase resulted
primarily from the increase in net sales, partially offset by a decrease in the
gross margin percentage. Gross profit as a percentage of net sales was 27.1% for
the three months ended March 31, 1998 compared to 31.1% for the three months
ended March 31, 1997. This decrease in gross profit margin resulted from lower
gross profit margins of newly acquired businesses, particularly at SportRack
International, which had high development costs and a significant weather
related disruption in operations in January 1998.
Selling, administrative and product development expenses. Selling,
administrative and product development expenses for the three months ended March
31, 1998 were $12.4 million, representing an increase of $5.9 million, or 92.3%,
over the selling, administrative and product development expenses for the three
months ended March 31, 1997, reflecting the increase in net sales. Selling,
administrative and product development expenses as a percentage of net sales
decreased to 16.7% for the three months ended March 31, 1998 from 18.6% for the
three months ended March 31, 1997. This decrease relative to net sales reflects
the impact of
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<PAGE> 44
spreading certain fixed costs over a higher sales base, offset partially by
higher selling, administrative and product development expenses as a percentage
of net sales for newly acquired businesses.
Operating income. Operating income for the three months ended March 31,
1998 was $6.9 million, an increase of $3.1 million, or 81.2%, over operating
income for the three months ended March 31, 1997, reflecting the increase in net
sales. Operating income as a percentage of net sales decreased to 9.3% for the
three months ended March 31, 1998 from 11.1% for the three months ended March
31, 1997, reflecting a decrease in gross margins, offset partially by a decrease
in selling, general and product development expenses as a percentage of net
sales.
Interest expense. Interest expense for the three months ended March 31,
1998 was $4.9 million, an increase of $2.8 million, or 128.7%, over interest
expense for the three months ended March 31, 1997. The increase was primarily
due to additional borrowings to finance (i) the SportRack Acquisition in July
1997, (ii) the Valley Acquisition in August 1997, (iii) the Ellebi Acquisition
in January 1998, (iv) the Transfo-Rakzs Acquisition in February 1998 and (v) the
effect of the issuance of the Notes in October 1997, the proceeds of which were
used to repay debt from the Valley Acquisition and other then existing debt.
Foreign currency loss. Foreign currency loss for the three months ended
March 31, 1998 was $1.0 million, compared to a foreign currency loss of $3.5
million for the three months ended March 31, 1997. The Company's foreign
currency loss is primarily related to Brink, which has indebtedness denominated
in U.S. dollars. During the three months ended March 31, 1997, the U.S. dollar
began to strengthen significantly in relation to the Dutch Guilder, the
functional currency of Brink. At December 31, 1996, the exchange rate of the
Dutch Guilder to the U.S. dollar was 1.75:1, whereas at March 31, 1997 the
exchange rate was 1.88:1, or a 7.4% decline in the relative value of the Dutch
Guilder. At December 31, 1997, the exchange rate of the Dutch Guilder to the
U.S. dollar was 2.02:1, whereas at March 31, 1998, the exchange rate was 2.05:1,
or a 1.5% decline in the relative value of the Dutch Guilder during the quarter.
Net income (loss). Net income for the three months ended March 31, 1998 was
$2.1 million, as compared to a net loss of $800,000 for the three months ended
March 31, 1997, an increase of $2.9 million. The increase in net income is
attributable to increased operating income and decreased foreign currency loss
offset by increased interest expense related to the Valley, SportRack
International, Ellebi and Transfo-Rakzs Acquisitions.
1997 COMPARED TO 1996
Net sales. Net sales for 1997 were $188.7 million, representing an increase
of $107.2 million, or 131.6% over net sales for 1996. The increase was due
primarily to the Valley Acquisition in August 1997 ($37.9 million), the
SportRack International Acquisition in July 1997 ($2.5 million), and the full
year sales of Brink in 1997 as compared to two months in 1996 ($54.8 million).
In addition, sales for SportRack increased $12.0 million because of increased
sales of rack systems to OEM's for installation on new light truck models and
increased OEM production of certain light truck models which use SportRack's
systems. On a pro forma basis, if the net sales of Valley and Sportrack
International were included with those of the Company for 1996 and 1997, and
Brink sales were included with those of the Company for 1996, net sales for 1997
would have been $246.7 million, as compared to net sales of $233.5 million for
1996, an increase of $13.2 million, or 5.7%.
Gross profit. Gross profit for 1997 was $53.1 million, representing an
increase of $25.3 million, or 90.7%, over the gross profit for 1996. This
increase resulted from the increase in net sales offset by a decrease in the
gross margin. Gross profit as a percentage of net sales was 28.2% in 1997
compared to 34.2% in 1996. The decrease in gross margin resulted from a lower
gross margin on sales contributed by Valley and a lower gross margin on sales of
rack systems to the OEM's due to (i) launch costs related to new programs, (ii)
lower margins on certain newly launched programs, and (iii) price rebates on
certain OEM programs.
Selling, administrative and product development expenses. Selling,
administrative and product development expenses for 1997 were $31.4 million,
representing an increase of $17.9 million, or 133.7% over selling,
administrative and product development expenses for 1996, reflecting the
increase in net sales. Selling,
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<PAGE> 45
administrative and product development expenses as a percentage of net sales
increased to 16.6% in 1997 from 16.5% in 1996. Certain selling, administrative
and product development expenses are relatively fixed and do not increase
proportionately with sales. The effect of these fixed expenses has been offset
by higher expenses associated with the Company's European expansion and new
corporate headquarters. In addition, selling, administrative and product
development expenses are higher as a percentage of net sales for Brink, which
was acquired in October 1996, and SportRack International, which was acquired in
July 1997, than for the Company.
Operating income. Operating income for 1997 was $19.4 million, an increase
of $7.5 million, or 62.4%, over operating income for 1996. The increase was due
primarily to inclusion of Brink operating results for the full year in 1997 as
compared to two months in 1996 together with the increases from the SportRack
International and Valley Acquisitions in July and August of 1997, respectively.
Operating income as a percentage of net sales decreased to 10.3% in 1997 from
14.7% in 1996 reflecting a decrease in gross margins offset by reduced
amortization of intangible assets as a result of changing the goodwill
amortization period from 15 years to 30 years in 1997.
Interest expense. Interest expense for 1997 was $12.6 million, an increase
of $8.3 million, or 192.8%, over interest expense for 1996. The increase was
primarily due to additional borrowings to finance (i) the Brink Acquisition in
October 1996, (ii) the Sportrack International Acquisition in July 1997, (iii)
the Valley Acquisition in August 1997, and (iv) the effect of the issuance of
the Old Notes, of which a portion of the proceeds were used to repay debt from
the Valley Acquisition and the Brink Acquisition.
Foreign currency loss. Foreign currency loss in 1997 was $6.1 million. The
Company acquired Brink in October 1996 and the related Brink Acquisition
indebtedness is denominated in U.S. dollars. During 1997, the U.S. dollar
strengthened significantly in relation to the Dutch Guilder, the functional
currency of Brink. At December 31, 1996, the exchange rate of the Dutch Guilder
to the U.S. dollar was 1.75:1, whereas at December 31, 1997 the exchange rate
was 2.02:1, or a 15.4% decline in the relative value of the Dutch Guilder.
Extraordinary charge. The extraordinary charge resulting from debt
extinguishment in 1997 was $7.4 million. In connection with the issuance of the
Old Notes, the Company repaid, in full, its Senior Subordinated Debt and Junior
Subordinated Guilder Note and repaid a portion of certain term notes under the
Amended and Restated Credit Agreement. In connection with such debt
extinguishments, the Company recorded an extraordinary charge comprised of $1.4
million in prepayment penalties, $3.1 million of unamortized debt discount and
$3.2 million of unamortized debt issuance costs, less $400,000 of tax benefit.
Net income (loss). The net loss for 1997 was $3.9 million, as compared to
net income of $4.9 in 1996, a decrease of $8.8 million. Operating income for
1997 was $19.4 million, representing an increase of $7.5 million, or 62.4% over
operating income for 1996. The increased operating income, resulting from
inclusion of Brink's operating results for a full year in 1997 as compared to
two months in 1996, the Valley Acquisition in August 1997, and the SportRack
International Acquisition in July 1997, was offset by increased interest costs
associated with such acquisitions ($8.3 million), increased foreign currency
loss related to Brink Acquisition debt denominated in U.S. dollars ($4.8
million), and an increase in an extraordinary charge resulting from debt
extinguishment ($5.4 million), collectively offset by an increase in the related
income tax benefit ($2.4 million).
1996 COMPARED TO 1995
Net sales. Net sales for 1996 were $81.5 million, representing an increase
of $16.5 million, or 25.3% over net sales for 1995. The increase was due to the
Brink Acquisition in October 1996 ($7.6 million) and increased sales of rack
systems to OEM's for installation on new light truck models and increased OEM
production of certain light truck models which use the Company's rack systems.
Gross profit. Gross profit for 1996 was $27.9 million, representing an
increase of $14.0 million, or 100.5% over gross profit for 1995. This increase
resulted from the increase in net sales and an increase in the gross margin.
Gross profit as a percentage of net sales was 34.2% in 1996 compared to 21.4% in
1995. The increase
43
<PAGE> 46
was primarily a result of (i) increased sales of higher margin rack systems for
installation on new light truck models, (ii) expanded margins on certain rack
systems resulting from engineering changes and manufacturing improvements, and
(iii) the effect of higher net sales on fixed overhead costs.
Selling, administrative and product development costs. Selling,
administrative and product development expenses for 1996 were $13.4 million,
representing an increase of $5.8 million, or 77.0%, over selling,
\administrative and product development costs for 1995. Selling, administrative
and product development costs as a percentage of net sales increased to 16.5% in
1996 compared to 11.7% in 1995. These increases resulted primarily from the
Brink Acquisition in October 1996 and increased costs associated with the
MascoTech Division becoming a stand-alone company in September 1995.
Operating income. Operating income for 1996 was $12.0 million, an increase
of $6.2 million, or 107.5%, over operating income for 1995. Operating income as
a percentage of net sales increased to 14.7% in 1996 from 8.9% in 1995 primarily
as a result of higher gross margins partially offset, as a percentage of net
sales, by increased selling, administrative and product development costs and
increased amortization of intangible assets.
Interest expense. Interest expense for 1996 was $4.3 million, an increase
of $3.3 million, or 342.3%, over interest expense for 1995 representing, in
1996, a full year of interest cost associated with the acquisition of the
MascoTech Division in September 1995. The MascoTech Division, as a matter of
policy, was not charged interest on intercompany balances by MascoTech, Inc.
during 1995.
Foreign currency loss. Foreign currency loss in 1996 was $1.3 million. The
Company acquired Brink in October 1996 and the related Brink Acquisition debt
($65.0 million) was denominated in U.S. dollars whereas the functional currency
of Brink is the Dutch Guilder. During 1996, the U.S. dollar strengthened in
relation to the Dutch Guilder, the functional currency of Brink. On October 31,
1996 (the Brink Acquisition date) the exchange rate of the Dutch Guilder to the
U.S. dollar was 1.70:1, whereas, at December 31, 1996 the exchange rate was
1.75:1 or a 2.9% decline in the relative value of the Dutch Guilder.
Extraordinary charge. The extraordinary charge resulting from debt
extinguishment in 1996 was $2.0 million. In connection with the Brink
Acquisition, the Company repaid, in full, borrowings under a credit agreement
and senior subordinated loan agreement. In connection with such debt
extinguishments, the Company recorded an extraordinary charge comprised of $1.6
million in prepayment penalties, $220,000 of unamortized debt discount and
$150,000 of unamortized debt issuance costs.
Net income (loss). The net income for 1996 was $4.9 million as compared to
net income of $3.4 in 1995, an increase of $1.5 million. Operating income for
1996 was $12.0 million, representing an increase of $6.2 million, or 107.5% over
operating income for 1995. The increased operating income, resulting from
increased gross margins and inclusion of Brink's operating results for two
months in 1996, was offset by increased interest costs associated with such
acquisition ($3.3 million), increased foreign currency loss related to Brink
Acquisition debt denominated in U.S. dollars ($1.3 million), and an increase in
an extraordinary charge resulting from debt extinguishment ($2.0 million),
collectively offset by an increase in the related income tax benefit ($1.8
million).
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal liquidity requirements are to service its debt
under its existing credit facilities and meet its working capital and capital
expenditure needs. The Company's indebtedness at March 31, 1998 and December 31,
1997 was $194.5 million and $197.1 million, respectively.
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<PAGE> 47
WORKING CAPITAL AND CASH FLOWS
Working capital and key elements of the consolidated statement of cash
flows are:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------ ------------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Working capital.................................. $ 3,960 $ 14,368 $ 64,375 $15,704 $ 54,923
Cash flows provided by (used for) operating
activities(1).................................. 5,131 9,917 6,982 (1,743) 4,261
Cash flows used for investing activities(1)...... (48,617) (57,463) (79,733) (742) (24,218)
Cash flows provided by (used for) financing
activities(1).................................. 45,119 48,605 97,080 1,352 (2,796)
</TABLE>
- -------------------------
(1) Represents the combination of the historical cash flows for the Predecessor
for the period January 1, 1995 to September 27, 1995 together with the cash
flows of the Company from September 28, 1995 to December 31, 1995 (the
period subsequent to the acquisition of the Predecessor by the Company).
Operating Activities
December 31, 1997
Cash flows from operating activities reflect the Company's net income,
adjusted for non-cash items and changes in working capital. Non-cash charges for
depreciation and amortization were $1.7 million, $4.7 million, and $9.4 million
for 1995, 1996, and 1997, respectively. Working capital increased $10.4 million
and $50.0 million in 1996 and 1997, respectively, primarily as a result of the
Brink, Valley, and SportRack International acquisitions.
Cash increased to $27.3 million at December 31, 1997 from $2.5 million at
December 31, 1996 primarily as a result of borrowings of $21.0 million on
December 31, 1997 which were used to acquire Ellebi on January 2, 1998. Accounts
receivable and inventories increased $24.7 million and $13.8 million,
respectively, at December 31, 1997 as compared to December 31, 1996 of which
$18.0 million and $14.6 million, respectively, relate to the Valley and
SportRack International acquisitions. The remaining increase in accounts
receivable at December 31, 1997 results from the timing of collections from
large customers, primarily OEM's. During 1998 management will focus on reducing
inventory levels, primarily within its foreign operations. Accounts payable and
accrued expenses increased $9.8 million and $7.6 million, respectively, at
December 31, 1997 as compared to December 31, 1996 of which $10.5 million and
$3.5 million, respectively, relate to the Valley and SportRack International
acquisitions.
The Company's European and Canadian subsidiaries have income tax net
operating loss carryforwards ("NOLs") of approximately $8.0 million and $1.1
million, respectively, at December 31, 1997. The European NOLs have no
expiration date and the Canadian NOLs expire primarily in 2004.
March 31, 1998
Working capital at March 31, 1998 was $54.9 million, a decrease of $9.5
million as compared to December 31, 1997. Cash decreased to $4.9 million at
March 31, 1998 from $27.3 million at December 31, 1997 primarily as a result of
the purchase of Ellebi in January 1998 for approximately $21.0 million. Accounts
receivable, inventories and accounts payable at March 31, 1998 increased $11.6
million, $11.7 million and $8.0 million, respectively, as compared to December
31, 1997; the Ellebi and Transfo-Rakzs Acquisitions resulted in $4.2 million,
$11.3 million and $2.3 million, respectively of such increases. Increased sales
for the three months ended March 31, 1998 as compared to the three months ended
December 31, 1997, attributable to seasonal activity in the European towing
systems aftermarket and continued growth in the U.S. OEM light truck market,
caused increases in accounts receivable of approximately $7.4 million. Accounts
payable increased by approximately $5.7 million during the three months ended
March 31, 1998 as a result of the timing of payments to suppliers and increased
business activity.
45
<PAGE> 48
Cash flows from operating activities reflect the Company's net income,
adjusted for non-cash items and changes in working capital. Non-cash charges for
depreciation and amortization were $3.5 million and $2.2 million for the three
months ended March 31, 1998 and 1997, respectively.
Investing Activities
December 31, 1997
Investing cash flows include acquisitions of property and equipment of $2.6
million, $3.1 million, and $7.8 million in 1995, 1996, and 1997, respectively.
On a pro forma basis for 1997, capital expenditures were $10.3 million and are
limited to $10.0 million for 1998 under the terms of the Amended and Restated
Credit Agreement. The Company estimates that capital expenditures for 1998 will
be primarily for the expansion of capacity, productivity and process
improvements and maintenance. The Company's 1998 capital expenditures are
anticipated to include approximately $4.0 million for replacing and upgrading
existing equipment. The Company's ability to make capital expenditures is
subject to restrictions in the Amended and Restated Credit Agreement. See
"Description of the Credit Facilities."
Investing cash flows also include $46.0 million, $54.3 million, and $70.9
million in 1995, 1996, and 1997, respectively for the acquisition of the
Predecessor (September 1995), Brink (October 1996), SportRack International and
Valley (July and August 1997, respectively).
March 31, 1998
Investing cash flows include acquisitions of property and equipment of $2.4
million and $742,000 during the three months ended March 31, 1998 and 1997,
respectively. Increased acquisitions of property and equipment reflect greater
volume of equipment replacement and upgrades for Valley and SportRack
International, which were acquired during the third quarter of 1997. The
Company's ability to make capital expenditures is subject to restrictions under
the Credit Agreement.
Investing cash flows also include $21.8 million for the three months ended
March 31, 1998 for the Ellebi and Transfo-Rakzs Acquisitions. The Company
expects to make an additional payment to the sellers of Ellebi totaling $1.1
million during the second quarter of 1998, representing the final installment
for the purchase of Ellebi.
Financing Activities
December 31, 1997
Financing cash flows include borrowings of $31.0 million, $46.1 million,
and $90.5 million in 1995, 1996 and 1997, respectively for the acquisition of
the Predecessor (September 1995), Brink (October 1996), SportRack International
and Valley (July and August 1997, respectively), and Ellebi (January 1998). Debt
issuance costs in connection with such borrowings were $1.8 million, $2.6
million and $2.6 million in 1995, 1996, and 1997, respectively. In October 1997
the Company issued the Notes. Proceeds from the issuance, which totaled $124.5
million, were used to reduce or eliminate certain of the Company's outstanding
senior and subordinated debt and to pay $4.7 million in offering costs. Proceeds
from the issuance of membership units were $13.5 million, $4.6 million, and $5.0
million in 1995, 1996, and 1997, respectively. Distributions to members, in
amounts sufficient to meet the tax liability on the Company's domestic taxable
income which accrues to individual members, were $3.7 million in 1996 and $2.9
million in 1997.
March 31, 1998
Financing cash flows for the three months ended March 31, 1998 and 1997
included (i) scheduled principal repayments under the Company's term notes of
$888,000 and $1.3 million, respectively, (ii) net repayments of $1.9 million in
1998 and net borrowings of $2.8 million in 1997 under the Company's revolving
credit facilities and (iii) distributions to members in amounts sufficient to
meet their tax liabilities with respect to the Company's domestic taxable income
which accrues to individual members.
46
<PAGE> 49
Capital expenditures for the three months ended March 31, 1998 were $2.4
million. The Company expects that capital expenditures for 1998 will be
approximately $10.0 million, the maximum amount permitted under the Credit
Agreement for 1998, and that such expenditures will be adequate for normal
growth and replacement.
DEBT AND CREDIT SOURCES
Borrowings under the Company's existing credit facilities bear interest at
floating rates which require interest payments on varying dates depending on the
interest rate option selected by the Company. Under the terms of the Company's
existing credit facilities, the Company will be required to make principal
payments totaling approximately $3.7 million in 1998, $4.7 million in 1999,
$11.2 million in 2000, and $11.9 million in 2001. The Company is also required
to purchase and maintain interest rate protection with respect to a portion of
the term loans for three years. The Notes bear interest at 9.75% which is
payable semiannually in arrears. See "Description of Credit Facilities" and
"Note 3" to the Company's "Consolidated Financial Statements" for additional
information regarding the credit facilities.
The Company is exposed to interest rate volatility with regard to variable
rate debt. The Company uses interest rate swaps to reduce interest rate
volatility. At December 31, 1996 and 1997 and March 31, 1998 the notional value
of interest rate swaps was $18,500. Under the terms of the interest rate swap
agreements, the Company pays a fixed interest rate on debt equal to the notional
value. The effects of interest rate swaps are reflected in interest expense and
are not material.
The Company expects that its primary sources of cash will be from operating
activities and borrowings under the Revolving Credit Facility. As of March 31,
1998, the Company has borrowed $2.8 million under the Revolving Credit Facility
and Canadian Revolving Note and has $22.2 million of available borrowing
capacity. As part of the Amended and Restated Credit Agreement, Chase and NBD
committed to provide a $22.0 million Acquisition Revolving Note to finance
acquisitions. On December 31, 1997, the Company borrowed $21.0 million under the
Acquisition Revolving Note and used such proceeds to acquire the net operating
assets of the towbar segment of Ellebi S.p.A. on January 2, 1998. Future
acquisitions, if any, may require additional third party financing and there can
be no assurances that such funds would be available on terms satisfactory to the
Company, if at all.
The Company's ability to pay principal and interest on the Notes and to
satisfy its other debt obligations will depend upon its future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond its control,
as well as the availability of revolving credit borrowings under the Amended and
Restated Credit Agreement or a successor facility. The Company anticipates that,
based on current and expected levels of operations, its operating cash flow,
together with borrowings under the Amended and Restated Credit Agreement, should
be sufficient to meet its debt service, working capital and capital expenditure
requirements for the foreseeable future, although no assurances can be given in
this regard, including as to the ability to increase revenues or profit margins.
If the Company is unable to service its indebtedness, it will be forced to take
actions such as reducing or delaying acquisitions and/or capital expenditures,
selling assets, restructuring or refinancing its indebtedness (which could
include the Notes), or seeking additional equity capital. There is no assurance
that any of these remedies can be effected on satisfactory terms, if at all,
including, whether, and on what terms, the Company could raise equity capital.
See "Forward Looking Statements" and "Risk Factors" for more information that
may effect the Company's results of operations.
INTERNATIONAL OPERATIONS
The Company conducts operations in several foreign countries including
Canada, The Netherlands, Denmark, the United Kingdom, Sweden, France, Germany,
and, with the Ellebi Acquisition in January 1998, Italy. On a pro forma basis,
net sales from international operations during 1997 were approximately $92.7
million, or 34.5% of the Company's net sales. For the three months ended March
31, 1998 and 1997, net sales from international operations were approximately
$22.8 million and $14.3 million, respectively (or 30.8% and 41.4%, respectively,
of the Company's net sales). At December 31, 1997, and at March 31, 1998 assets
47
<PAGE> 50
associated with these operations were approximately 43.2% and 44.8%,
respectively, of total assets, and the Company had indebtedness denominated in
currencies other than the U.S. dollar of approximately $16.7 million and $16.6
million, respectively.
The Company's international operations may be subject to volatility because
of currency fluctuations, inflation and changes in political and economic
conditions in these countries. Most of the revenues and costs and expenses of
the Company's operations in these countries are denominated in the local
currencies. The financial position and results of operations of the Company's
foreign subsidiaries are measured using the local currency as the functional
currency.
The Company may periodically use foreign currency forward option contracts
to offset the effects of exchange rate fluctuations on cash flows denominated in
foreign currencies. The balance of these contracts as of March 31, 1998 was not
material, and the Company does not use derivative financial instruments for
trading or speculative purposes.
YEAR 2000
The Company has established an internal task force at each significant
operating subsidiary to develop and implement a plan to address Year 2000
issues, including relationships with customers and suppliers. While the
assessment is ongoing, based on currently available information the Company
believes that it will be able to resolve Year 2000 issues in a timely manner
through modification, upgrading or replacement of certain externally purchased
software to Year 2000 compliant versions and upgrading or replacing certain
machinery and equipment through normal, or in some cases accelerated,
replacement programs. The Company does not believe that the incremental cost to
resolve the Year 2000 issues will have a material impact on capital expenditures
or results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standard Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosure about Segments of an
Enterprise and Related Information," and No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits," which require a change in the
method for determining and reporting business segment information and revise
employer's disclosures about pension and other postretirement benefit plans.
Although, the Company operates in one business segment, SFAS No. 131 will
require the Company to report revenues and long-lived assets on a country level.
SFAS No. 132 will standardize the Company's disclosure requirements for pensions
and other postretirement benefits and requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures. These statements will be
adopted by the Company in fiscal 1998 as required and, because such statements
relate to matters of disclosure, they will not have an effect upon the Company's
operating results.
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BUSINESS
THE COMPANY
The Company is one of the world's largest designers, manufacturers and
suppliers of towing and rack systems and related accessories for the automotive
original equipment manufacturer ("OEM") market and the automotive aftermarket.
The Company's products include a complete line of towing systems including
accessories such as trailer balls, ball mounts, electrical harnesses, safety
chains and locking hitch pins. The Company's broad offering of rack systems
includes fixed and detachable racks and accessories which can be installed on
vehicles to carry items such as bicycles, skis, luggage, surfboards and
sailboards. The Company's products are sold as standard accessories or options
for a variety of light vehicles. In 1997, on a pro forma basis, the Company
estimates that approximately 49% of its net sales were generated from products
sold for light trucks. The Company is the sole Tier 1 OEM supplier of towing or
rack systems for eight of the top ten light trucks produced in North America,
including the GM C/K Pickup and Blazer, the Chrysler Grand Cherokee (towing
systems and rack systems), T-3000 Pickup and Caravan and the Ford Explorer,
Ranger and Windstar. On a pro forma basis for the year ended December 31, 1997,
the Company's net sales and EBITDA would have been $268.5 million and $36.3
million, respectively. For the three months ended March 31, 1998 and 1997, the
Company's net sales were $74.0 million and $34.5 million, respectively, and
EBITDA was $10.2 million and $5.6 million, respectively.
COMPETITIVE ADVANTAGES
Leading Global Market Position. The Company believes that it is the world's
largest designer, manufacturer and supplier of towing systems and one of the
world's largest designers, manufacturers and suppliers of rack systems. The
Company also believes that it is the largest supplier of towing systems in
Europe, the largest supplier of towing systems to automotive OEMs in North
America and the second largest supplier of towing systems to the aftermarket in
North America. The Company is also one of the two largest suppliers of rack
systems sold to automotive OEMs in the North America. The Company has 19
engineering, manufacturing and distribution facilities strategically located in
the United States, Canada, The Netherlands, Denmark, Germany, the United
Kingdom, Sweden, Italy and France. By virtue of its size and global presence,
the Company believes it benefits from several competitive advantages, including
the ability to (i) satisfy local design, production, quality and timing
requirements of global OEMs; (ii) provide "one-stop shopping" for customers'
product and service requirements; (iii) optimize plant production; (iv) maximize
its raw material purchasing power; (v) spread its selling, administrative and
product development expenses over a large base of net sales; and (vi) develop
and maintain state-of-the-art production facilities.
Strong Relationships with Diverse Customer Base. The Company has an
established position as a Tier 1 supplier of towing and/or rack systems to most
of the OEMs manufacturing in North America and Europe including Chrysler,
General Motors, Toyota, Opel, Volvo, Isuzu, Ford, Mercedes, BMW, Subaru, Fiat,
Mitsubishi, Nissan, Volkswagen, SEAT, Skoda and Kia. The Company supplies
Chrysler with substantially all its towing systems and rack systems and
accessories. The Company also supplies approximately 50% of the towing and rack
system requirements of General Motors. Tier 1 status and strong customer
relationships are important elements in achieving continued profitable growth
because, as OEMs narrow their supplier bases, well regarded, existing suppliers
have an advantage in gaining new contracts. The evolution of OEM relationships
into strategic partnerships provides a significant advantage to Tier 1 suppliers
with system integration capabilities (such as the Company) in retaining existing
contracts as well as in participating during the design phase for new vehicles,
which is integral to becoming a supplier for such new platforms. The Company is
also a leading supplier of towing and rack systems to automotive aftermarket
wholesalers, retailers and installers, such as U-Haul, Pep Boys, Balkamp,
Advance Auto Parts, Coast Distribution System, Discount Auto Parts, Ace Hardware
and Canadian Tire.
Comprehensive Product Line. The Company continues to position itself as a
leading supplier to its customers for a growing range of products and services.
Through its offering of over 2,000 towing system models, the Company's products
fit virtually every light vehicle produced in North America and Europe. The
Company is one of a limited number of European manufacturers with such a broad
product line that also
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<PAGE> 52
satisfies European Community ("EC") regulatory safety standards, even though
such standards have not yet been adopted by each EC member country. Competitors
whose products do not satisfy such standards face substantial design and testing
costs to offer a comparable product line that meets these safety standards. The
Company has provided OEMs with fixed rack systems for approximately half of the
light truck models produced in North America that utilize vehicle-specific fixed
racks. The Company's innovative Mondial(R) product line of detachable rack
systems, which consists of only 14 SKUs, is able to fit substantially all the
light vehicles produced in North America and Europe, while some competitors'
comparable product lines consist of more than 200 SKUs. The Company believes
that its broad product offerings also facilitate strategic partnerships with
automotive aftermarket wholesalers, retailers and installers.
Design and Engineering Expertise. The Company has an engineering and
research and development staff that develops new products and processing
technologies. The Company works directly with OEM designers to create innovative
solutions that simplify vehicle assembly and reduce vehicle cost and weight. For
example, the Company developed a roll formed, aluminum cross rail which
substantially reduced the weight of the Chrysler minivan rack at a competitive
cost. Additionally, the Company is responsible for many industry innovations,
including lighter, less obtrusive, round tube towing hitches as well as push
button and pull lever stanchions on fixed rack systems. The Company believes its
design and engineering capabilities provide significant value to its customers
by (i) shortening OEM new product development cycles; (ii) lowering OEM
manufacturing costs; (iii) providing technical expertise; and (iv) permitting
aftermarket customers to maintain lower inventory levels. The Company also
believes that its design innovations have created value for end users by
providing products that are durable and easy to install and that enhance vehicle
utility and appearance.
High Quality, Low Cost Manufacturing Position. The Company believes that it
is one of the highest quality, lowest cost suppliers of towing and rack systems
in North America and Europe. The Company has received numerous quality and
performance awards, including Chrysler's Gold Pentastar Award, Ford's Q-1 Award,
Toyota's Distinguished Supplier Award and Nissan's Superior Supplier Performance
Award. Supplier quality systems are currently being standardized across OEMs
through the ISO-9000 and QS-9000 programs. The Company has achieved ISO-9000 or
QS-9000 certification for ten of its 17 manufacturing and engineering facilities
and is in the process of obtaining certification for the rest of its facilities.
The Company's low cost position is a result of its strict cost controls and
continuous improvement programs designed to enhance productivity. OEMs typically
prefer stable suppliers who can generate productivity gains that can be shared
to reduce OEM costs. The Company's cost controls are closely integrated with its
quality driven manufacturing operations, thereby allowing it to profitably
deliver high quality, easy to install and competitively-priced components on a
just-in-time basis. The Company's focus on low cost manufacturing also provides
benefits when selling products to the less price sensitive aftermarket.
BUSINESS STRATEGY
The Company's objective is to strengthen its position as a leading global
supplier of automotive exterior accessories, thereby increasing revenue and cash
flow. In order to accomplish its goal, the Company intends to pursue the
following strategies.
Increase Global Market Share. The Company intends to capitalize on its
expanded presence in North America and Europe by marketing products to its
global automotive OEM customers. Through its past acquisitions of complementary
product lines, the Company is able to offer an expanded range of products and
services to its extended customer base. The Company also expects to secure new
customers by virtue of its expanded market presence and broad product and
service offerings. The Company believes its continued emphasis on new technology
(both product and process), will result in the development of more innovative,
high margin towing and rack system products which it expects to market to its
expanding customer base.
Maintain and Enhance Strong Customer Relationships. The Company intends to
strengthen and expand its relationships with global automotive OEMs and
aftermarket customers by (i) continuing its commitment to innovative design and
development of products during the early stages of vehicle design and redesign;
(ii) building on its position as a low cost supplier of quality accessory
products; (iii) offering new products in
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existing and new geographic areas by taking advantage of existing OEM
relationships; and (iv) working with aftermarket customers to develop new
products and marketing strategies. The Company has recently obtained orders from
Mercedes Benz, BMW, SEAT and Chrysler to supply products for new SUVs.
Increase Operating Efficiencies. The Company believes there are significant
opportunities for improvement in margins and cash flow through intercompany
cooperation among its various acquired business units, including (i) realizing
economies of scale from the combined purchasing power of a larger company; (ii)
achieving production and other operating efficiencies through the implementation
of a "best practices" program; (iii) reducing certain selling, general and
administrative and product development expenses; and (iv) reducing capital and
operating expenditures from coordinated use of manufacturing resources.
Pursue Strategic Acquisitions. In response to the trend in the OEM market
toward systems suppliers, the Company is focused on making strategic
acquisitions that will enhance its ability to provide integrated systems (such
as a towing or rack system) or otherwise leverage its existing business by
providing additional product, manufacturing and service capabilities. The
Company also intends to pursue acquisitions which will expand its customer base
by providing an entree to new customers, including expansion into selected
geographic areas. The Company believes that such acquisitions should provide
additional opportunities for increased net sales and cash flow by enhancing the
Company's manufacturing and marketing capabilities.
INDUSTRY OVERVIEW
In 1996, the North American exterior accessories market for light vehicles
was approximately $3.3 billion. In 1996, North American consumers spent
approximately $1.4 billion on exterior accessories for their light trucks as
compared to approximately $0.8 billion in 1986, representing a compound annual
growth rate of 5.9%. Growth in this market, and in towing systems and rack
systems in particular, resulted in large part from the increased production and
sale of light trucks, which in 1996 accounted for approximately 46% of total
light vehicle production in North America as compared to 32% in 1986. According
to DRI/McGraw-Hill Ward's Global Automotive Group, production of light trucks in
North America and Western Europe has outpaced overall production in the light
vehicle market (ten-year compound annual growth rate of 1.3% in North America
and 1.4% in Western Europe), resulting primarily from the growth in minivans
(ten-year compound annual growth rate of 8.6% in North America and 30.8% in
Western Europe) and SUVs (ten-year compound annual growth rate of 11.6% in North
America and 13.7% in Western Europe), although no assurance can be given that
such production rates of light trucks will continue or will continue to outpace
overall production.
Strong growth in production of light trucks is attributable to several
factors, including (i) the more sizable and comfortable interiors and
aesthetically pleasing modern designs offered by light trucks; (ii) the changing
lifestyle of the population, which is aging and therefore devoting more time to
recreational activities; (iii) the versatile product offerings targeted toward
both the luxury and economy market sectors; (iv) the increasing acceptance of
light truck use for everyday transportation; and (v) the durability and special
performance capabilities (e.g. four-wheel drive) of light trucks.
Automotive OEM and Aftermarket Trends
As automobile and light truck manufacturers have faced increased global
competition, they have sought to significantly improve quality, reduce costs and
shorten the development time required for new vehicle models. These changes have
altered the OEM/supplier relationship and benefited larger suppliers that have
strong product engineering and development capabilities, superior quality
products, lower unit costs and the ability to deliver products on a timely
basis. As a result, the Company believes that it has benefited and will continue
to benefit from the following automotive OEM and aftermarket trends:
Consolidation of Supplier Base by OEMs. Since the 1980's, OEMs have
significantly consolidated their supplier base in an effort to reduce their
procurement-related costs, ensure high quality and accelerate new model
development. As a result, many smaller, poorly capitalized suppliers with
limited product lines and engineering and design capabilities have either been
eliminated as suppliers to OEMs or tiered (i.e., they supply other suppliers).
Consequently, larger suppliers with broad product lines, in-house design and
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engineering capabilities and the ability to effectively manage their own
supplier bases, have been able to significantly increase their market share.
The consolidation by OEMs has altered the typical structure of supplier
contracts. In the past, OEMs supplied all design, development and manufacturing
expertise for accessory parts and were responsible for consistency of quality
and reliability of delivery. On newer models, however, there has been a trend
toward involving potential suppliers earlier in the design and development
process to encourage suppliers to share design and development responsibility.
In some cases, sole-source supply contracts which cover the life of a vehicle or
platform are awarded. Both OEMs and suppliers benefit from the consolidation
trend. Suppliers are able to devote the resources necessary for proprietary
product development with the expectation that they will have the opportunity to
profit on such investment over the multi-year life of a contract. OEMs benefit
from shared manufacturing cost savings attributable to long, multi-year
production runs at high capacity utilization levels.
Emergence of European Community Safety Standards. Trends within the
European towing systems market result primarily from emerging EC safety
standards and the corresponding legislative framework. Such standards provide
that a towing system must fit all the vehicle manufacturer's recommended fitting
points, must not interfere with the vision of the number plate when not in use
and must meet strict testing criteria for durability and safety. These standards
have been adopted by The Netherlands, Germany, Sweden, Italy and Scandinavia.
Other EC countries are expected to adopt the legislation within two years. All
of the Company's approximately 2,000 towing systems sold in Europe currently
undergo rigorous safety testing in order to satisfy these EC regulatory
standards. In addition, all of the Company's detachable roof rack systems are
designed and tested to meet and exceed strict German standards.
Increased Levels of Manufacturing in North America by Transplants. As a
result of the relative cost advantage of producing vehicles in North America,
many foreign automobile manufacturers with manufacturing operations in the
United States ("transplants") have increased their share of North American
vehicle production from approximately 6% in 1986 to approximately 20% in 1996.
Industry sources forecast that this trend will continue. For example, both
Mercedes Benz and BMW commenced manufacturing in the U.S. in 1996. In addition,
Toyota has announced plans to build its T-100 pickup truck in Indiana by 1998,
Honda has announced plans to build its Odyssey minivan in North America by 1999,
and BMW has announced plans to build its E-53 SUV in North America by 1999. The
Company believes that increased levels of manufacturing of light trucks in North
America by transplants will benefit full service, high quality suppliers with
North American operations such as the Company.
Outsourcing by OEMs. In an effort to facilitate and enhance product design,
reduce costs and simplify manufacturing processes, automotive OEMs are
increasingly outsourcing the manufacture of many components that were previously
manufactured internally. This trend results from independent suppliers being
generally able to design, manufacture and deliver components at a lower cost
than OEMs as a result of (i) their significantly lower direct labor, fringe
benefit and overhead costs; (ii) their ability to spread research and
development and engineering costs over products provided to multiple OEMs; and
(iii) the economies of scale inherent in product specialization. Independent
suppliers such as the Company have benefited from outsourcing because the
aggregate number, complexity and value of components that they manufacture have
increased dramatically. OEMs, in turn, have benefited because outsourcing has
allowed them to reduce costs and to focus on overall vehicle design and consumer
marketing.
PRODUCTS
The principal product lines of the Company are towing systems and rack
systems and accessories. On a pro forma basis in 1997, towing systems
constituted approximately 62% and rack systems and accessories constituted
approximately 38% of the Company's net sales, respectively. For the three months
ended March 31, 1998 and 1997, towing systems constituted approximately 61% and
59%, respectively, and rack systems and accessories constituted 39% and 41%,
respectively, of the Company's net sales. The Company believes it offers a more
comprehensive product line than any of its competitors. The Company has devoted
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considerable resources to the engineering and designing of its products and, as
a result, considers itself a market leader in the research and new product
development of towing systems and rack systems.
Towing Systems. The Company designs, manufactures and supplies towing
systems to automotive OEMs and the automotive aftermarket which fit virtually
every light vehicle produced in North America and Europe. In the aggregate, the
Company supplies over 2,000 different towing systems, including a complete line
of towing accessories.
The Company's towing systems sold in Europe are installed primarily on
passenger cars. The Company's primary product within the European market is the
fixed ball towbar that is specifically designed to be mounted on a particular
car model in accordance with the OEM's specified mounting points. The Company
also markets sophisticated detachable ball systems which are popular with owners
of more expensive cars or cars on which the license plate would otherwise be
blocked by a fixed ball towbar. All of the Company's towing system products sold
in Europe currently undergo rigorous safety testing in order to satisfy EC
regulatory standards. Competitors whose products do not satisfy such standards
face substantial design and testing costs to offer a comparable product line
that meets the safety standards.
The Company's towing systems sold in North America are installed primarily
on light trucks. Two of the Company's most innovative product designs have been
the tubular trailer hitch which is lighter in weight, less obtrusive and
stronger than the conventional hitch, and a device which ensures secure
attachment of a towing product to the vehicle. These product innovations have
enabled the Company to improve the functionality and safety of towing systems
while, at the same time, enhancing the overall appearance of vehicles utilizing
these towing products.
The Company offers a complete line of towing accessories, including trailer
balls, ball mounts, electrical harnesses, safety chains and locking hitch pins.
To capitalize on the strong growth trend in light trucks, the Company has
recently expanded its product line to include other products designed
specifically for this market, such as grille guards, brush guards and tire
carriers.
Fixed Rack Systems. The Company designs, manufactures and supplies fixed
roof rack systems for individual vehicle models that are generally sold to the
automotive OEMs for installation at the factory or dealership. These rack
systems typically remain on a model for the life of its design, which generally
ranges from four to six years. The Company has been an industry leader in
developing designs which not only complement the styling themes of a particular
vehicle, but also increase the utility and functionality of the rack system.
Most of the fixed rack systems sold by the Company are composed of side rails
which run along both sides of the vehicle's roof, feet which mount the side
rails to the vehicle's roof, and cross rails which run between the side rails.
Cross rails, which are attached to the side rails with stanchions, are typically
movable and can be used to carry a load. The Company uses advanced materials
such as lightweight, high strength plastics and roll formed aluminum to develop
durable rack systems that optimize vehicle performance. Many of these products
incorporate innovative features such as push button and pull lever stanchions,
which allow easy movement of the cross rails to accommodate various size loads.
These rack systems are utilized on a large number of light trucks, including
Jeep Grand Cherokee and Cherokee, Chrysler minivans, GM Suburban, Tahoe and
Yukon and Mercedes Benz ML320.
Detachable Rack Systems. The Company designs, manufactures and supplies
detachable roof and rear mount rack systems for distribution in both the
automotive and sporting accessory aftermarkets. A detachable rack system
typically consists of cross rails which are attached to the roof of a vehicle by
removable mounting clips. The Company offers a full line of detachable rack
systems, including the SportRack(R), SnapRack(TM) and Mondial(R) rack systems.
The Company's innovative Mondial(R) product line of detachable rack systems
consists of only 14 SKUs that are able to fit substantially all passenger
vehicles sold in North America and Europe while some competitors' comparable
product lines consist of more than 200 SKUs. In addition, the Mondial(R) line of
detachable rack systems is designed to meet and exceed strict international
performance standards, and is noted for its flexibility, ease of attachment and
minimal SKU requirements.
Rack System Accessories. The Company designs and manufactures lifestyle
accessories for distribution in both the automotive and sporting accessory
aftermarkets. These accessories typically attach to the
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Company's rack systems and are used for carrying items such as bicycles, skis,
luggage, surfboards and sailboards.
CUSTOMERS AND MARKETING
Management believes that the Company's strong and diverse industry
relationships are based on its reputation for high service levels, strong
technical support, innovative product development, high quality and competitive
pricing. On a pro forma basis, sales to OEM and aftermarket customers
represented approximately 65% and 35% of the Company's net sales, respectively,
in 1997. For the three months ended March 31, 1998 and 1997, sales to OEM
customers were 74% and 81%, respectively, and sales to aftermarket customers
were 26% and 19%, respectively, of the Company's net sales. In addition, on a
pro forma basis, sales to Chrysler and General Motors were approximately 27% and
16%, respectively, of the Company's aggregate net sales in 1997. For the three
months ended March 31, 1998, sales to Chrysler and General Motors were
approximately 34% and 16%, respectively, of the Company's net sales. Recently,
Chrysler and Daimler-Benz have announced plans to merge. Based on publicly
available information, the Company does not believe that the proposed merger
between Chrysler and Daimler-Benz will have a material adverse impact on its
sales or results of operations.
Automotive OEMs. The Company obtains most of its new orders through a
presourcing process by which the customer invites one or a few preferred
suppliers to manufacture and design a component or system that meets certain
price, timing, functional and aesthetic parameters. Upon selection at the
development stage, the Company and the customer typically agree to cooperate in
developing the product to meet the specified parameters. Upon completion of the
development stage and the award of the manufacturing business, the Company
receives a purchase order that covers parts to be supplied for a particular car
model. Such supply arrangements typically involve annual renewals of the
purchase order over the life of the model, which is generally four to six years.
In addition, the Company enters into long-term contracts with certain OEM
customers which require the Company to make annual price reductions. The Company
also competes to supply parts for successor models even though the Company may
currently supply parts on the predecessor model. Sales to OEMs and Tier 1
suppliers are made directly by the Company's internal sales staff of 29
individuals and 23 outside sales representatives.
The Company sells its products to most of the automotive OEMs selling light
vehicles in North America and Europe, including Chrysler, General Motors,
Toyota, Opel, Volvo, Isuzu, Ford, Mercedes, BMW, Subaru, Fiat, Mitsubishi,
Nissan, Volkswagen, SEAT, Skoda and Kia. The Company supplies Chrysler with
substantially all of its towing systems and rack systems and accessories. The
Company also supplies approximately 50% of the towing system and rack system
requirements of General Motors, for which it has been a supplier for over 20
years. The following chart sets forth information regarding vehicle models on
which the Company's automotive products are used or for which the Company has
been awarded business (including Ellebi, which was acquired on January 2, 1998).
<TABLE>
<CAPTION>
AWARDED BUSINESS ON
PRODUCT OEM CUSTOMER 1997 PRODUCTION(A) FUTURE PRODUCTION(B)
------- ------------ ------------------ --------------------
<S> <C> <C> <C>
Towing Systems Chrysler Cherokee, Grand Cherokee, Caravan, Cherokee, Grand Cherokee, Plymouth
Voyager, Town & Country, Ram Pick-up, Prowler, Ram Van
Dakota, Wrangler, Durango
General Motors Suburban, Yukon, Tahoe, Astro, Frontera, Corsa, Arena (van)
Safari, CK Pick-up, ML Van, S-10
Blazer, APV Vans, Bravada Jimmy, Geo
Tracker, Blazer, Corsa, Astra
(hatchback), Astra (Sedan), Astra
(Station wagon), Calibra, Vectra
(Hatchback), Vectra (Sedan), Vectra
(Station wagon), Omega (Sedan), Omega
(Station wagon), Campo, Frontera,
Monterey, Zafira
Ford Expedition, Explorer, Ranger, Escort, Explorer
Aerostar Minivan, Mercury Villager,
Windstar Minivan, Navigator, Fiesta,
Escort (all models), Mondeo, Mondeo
(Wagon), Scorpio (Sedan), Scorpio
(Wagon), Maverick, Transit
</TABLE>
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<PAGE> 57
<TABLE>
<CAPTION>
AWARDED BUSINESS ON
PRODUCT OEM CUSTOMER 1997 PRODUCTION(A) FUTURE PRODUCTION(B)
------- ------------ ------------------ --------------------
<S> <C> <C> <C>
Towing Systems
(cont.)
Renault Laguna (Station wagon), Laguna, Twingo, Laguna, Clio
Megane, Twingo, Espace
Isuzu Rodeo, Trooper
Toyota 4-Runner, Land Cruiser, RAV4, Lexus, Corolla, Lexus LS200, Carina,
646T, 477T, 860T, Corolla, Carina, Carina Wagon, Yaris
Camry, Hi-Lux, Picnic, Previa,
Hi-Ace, Celica
Nissan Pathfinder, Pick-up, Quest, Infiniti Almera, Primera Wagon, Micra,
vehicle, QW Truck, Micra, Sunny, Patrol
Almera, Primera, Maxima, King Cab,
Terrano, Patrol
Mazda 121, MPV, Xedos-9, Xedos-6, 626, 323 626 Wagon, 323
Honda Passport PF Van, CRV
Mitsubishi Montero Spacestar, Challenger
FIAT Almost all models
Alpha Romeo Almost all models
Lancia Almost all models
Subaru Outback 79V
Range Rover Range Rover, Land Rover
Volvo 900 series (Sedan), 900 series 900 series, S/V 70 series
(Station wagon), 850 (Sedan), 850
(Station wagon)
SAAB 9000 series, 900 series 900 series, 9000 series, 9000
station wagon, small car 9-3,
small car 9-5, small station wagon
Peugeot 106, 306, 406 (Sedan), 406 (Station 206 Sport, 306 Break
wagon), 406 (Coupe), 605, 806, J5
(Van), Boxer (Van)
Suzuki Wagon R. Grand Vitara
Daihatsu Sirion, More, Charade
SEAT Toledo
Skoda SK240
Volkswagen Gold Combi, Vento
Daewoo LD100
Rack Systems Chrysler Cherokee, Grand Cherokee, Caravan, Cherokee, Grand Cherokee, Caravan,
Voyager, Town & Country, Durango Voyager, Town & Country, Neon PT,
BW 72
General Motors Suburban, Yukon, Tahoe, Astro, Safari Suburban, Yukon, Tahoe, Jimmy,
Blazer, Bravada
Honda Accord
Mitsubishi Montero
Mercedes ML320
Subaru Outback, Impreza, Legacy
KIA Sportage
SEAT Vario GP99
Opel Astra
BMW E-53 (SUV)
</TABLE>
- -------------------------
(a) Represents models for which the Company produced products in 1997.
(b) The amount of products produced under these awards is dependent on the
number of vehicles manufactured by the OEMs. Many of the models are versions
of vehicles not yet in production. See "Risk Factors -- The OEM Supplier
Industry." There can be no assurance that any of these vehicles will be
produced or that the Company will generate certain revenues under these
awards even if the models are produced.
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Automotive Aftermarket. The Company sells its products directly into the
automotive aftermarket through a number of channels, including wholesalers,
retailers and installers, through its internal sales force and outside sales
representatives. The largest of the Company's aftermarket customers include
U-Haul, Pep Boys, Balkamp, Advance Auto Parts, Coast Distribution System,
Discount Auto Parts, Ace Hardware and Canadian Tire. The Company believes that
it has established a reputation as a highly reliable aftermarket supplier able
to meet its customers' requirements for on-time deliveries while minimizing the
carrying levels of inventory. For example, the Company began supplying towing
systems to U-Haul (the largest installer of towing systems in the United States)
in 1994 and for the year ended December 31, 1997, supplied approximately 50% of
U-Haul's towing system requirements. The Company believes aftermarket customers
such as U-Haul represent opportunities to cross-sell existing products such as
rack systems and accessories.
MANUFACTURING PROCESS
The Company's manufacturing operations are directed toward achieving
ongoing quality improvements, reducing manufacturing and overhead costs,
realizing efficiencies and adding flexibility. The manufacturing operations
utilized by the Company include metal cutting, bending, cold forming, roll
forming, stamping, welding, plastic injection molding, painting, assembly and
packaging. The Company performs most manufacturing operations in-house but
outsources certain processes depending on the capabilities and capacities of
individual plants and cost considerations. For example, while some of the
Company's towing systems manufacturing facilities have painting capabilities,
the Company has chosen to outsource the painting of its rack systems.
The Company develops new tooling used in the manufacture of its products.
Once a customer accepts such tooling, the tooling becomes the property of the
customer and the Company is reimbursed by the customer for the cost of the
tooling, or in certain instances, recovers all or a portion of such costs
through incremental increases in unit selling prices.
In some cases, the Company has also developed special machinery to meet its
particular needs. For example, the hardware that accompanies certain towing
systems is selected automatically by special equipment and is then weighed and
transferred into the final package without human intervention. The Company has
developed specialized, computer operated machinery to enable it to efficiently
perform this operation. The Company has organized its production process to
minimize the number of manufacturing functions and the frequency of material
handling, thereby improving quality and reducing costs. In addition, the Company
uses cellular manufacturing which improves scheduling flexibility, productivity
and quality while reducing work in process and costs.
The Company has established quality procedures at each of its facilities
and strives to manufacture the highest quality product possible. The Company has
achieved ISO-9000 or QS-9000 certification for ten of its seventeen
manufacturing and engineering facilities and is in the process of obtaining
certification for the rest of its facilities. The Company has received numerous
quality and performance awards from its OEM customers, including Chrysler's Gold
Pentastar Award, Ford Q-1 Award, Toyota's Distinguished Supplier Award and the
Nissan Superior Supplier Performance Award.
PRODUCT DESIGN, DEVELOPMENT AND TESTING
The Company believes that it is a leader in the design of towing systems
and rack systems and accessories. The Company believes it offers products that
possess greater quality, reliability and performance than the products sold by
many of its competitors. The 84 members of the Company's engineering and design
staff possess strong technical skills. The Company currently holds more than 150
U.S. and foreign patents, and has numerous patent applications pending. The
expiration of such patents are not expected to have a material adverse effect on
the Company's operations.
On a pro forma basis, the Company spent $6.9 million on research and
development in 1997. The Company works closely with OEMs to constantly improve
design and manufacturing technology and product functionality. When an OEM is in
the process of developing a new model, it typically approaches an established or
incumbent supplier with a request to supply the required towing system or rack
system. The
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<PAGE> 59
Company is typically contacted two to four years prior to the start of
production of the new model. The Company's product development engineers then
work closely with the OEM to develop a product that satisfies the OEM's
aesthetic and functional requirements. This relationship also provides the
Company with a competitive advantage in the aftermarket because the Company
already possesses the knowledge to create a system compatible with new model
vehicles prior to release.
The Company has extensive testing capabilities which enable it to test and
certify its products. The Company subjects its products to tests which it
believes are more demanding than conditions which would occur during normal use.
The Company has specialized equipment which it has purchased or developed for
use in its testing laboratories.
Since May 1994, six European countries enacted the new EC regulatory
standards which require that towing systems undergo significant safety testing
prior to gaining approval for sale. This safety testing requires that a towing
system be extensively tested for fatigue and includes subjecting a towing system
to upwards of two million high load pulses. The Company does its testing in its
own laboratory under the control of an independent institute that is authorized
by the EC to approve the towing systems for sale. The quality assurance system
is regularly audited by an independent institute and by the automotive OEMs
themselves. The Company has continually been awarded the highest distinction of
achievement by the independent institute.
RAW MATERIALS
The principal raw material used in the Company's products is steel, which
is purchased in sheets, rolls, bars or tubes and represents approximately 50% of
the Company's raw material costs. The Company also purchases significant amounts
of aluminum and plastics. The Company has various suppliers globally and has not
had difficulties in procuring raw materials nor does it expect to have any
problems in the future. The Company is committed to supplier development and
long-term supplier relationships. However, most of the Company's raw material
demands are for commodities and, as such, can be purchased on the open market on
an as needed basis. The Company selects among available suppliers by comparing
cost, consistent quality and timely delivery as well as compliance with QS-9000
and ISO-9000 standards.
The Company customarily obtains its supplies through individual purchase
orders. In some instances, the Company will enter into short-term contracts with
its suppliers which generally run one year or less. However, in the Company's
sole outsourcing relationship, it has signed a long-term supply agreement which
terminates in 2004 with one of its painting suppliers, Crown Group, Inc.
("Crown"), under which Crown opened a state-of-the-art paint line in a facility
adjacent to the Company's Port Huron facility.
COMPETITION
The Company's industry is highly competitive. A large number of actual or
potential competitors exist, some of which are larger than the Company and have
substantially greater resources than the Company. The Company competes primarily
on the basis of product quality, cost, timely delivery, customer service,
engineering and design capabilities and new product innovation in both the OEM
market and the automotive aftermarket. The Company believes that as OEMs
continue to strive to reduce new model development cost and time, innovation and
design and engineering capabilities will become more important as a basis for
distinguishing competitors. The Company believes it has an outstanding
reputation in both of these areas. In the automotive aftermarket, the Company
believes that its wide range of product applications is a competitive advantage.
For example, the Company has developed towing systems to fit substantially all
the light vehicles produced in North America and Europe. The Company believes
its competitive advantage in the aftermarket is enhanced by its close
relationship with OEMs, allowing the Company access to automobile design at an
earlier time than its competitors.
In the towing systems market, the Company competes with Draw-Tite Inc. and
Reese Products Inc., both of which are subsidiaries of TriMas Corp., Bosal
Holding B.V., The Oris Group, Production Stamping Inc. and numerous smaller
competitors.
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<PAGE> 60
In the rack systems and accessories market, the Company's competitors
include JAC Holding Corp., Thule, which is a wholly-owned subsidiary of Eldon AB
(a Swedish company), Yakima Products Inc., Barrecrafters, Graber Products Inc.
and several smaller competitors.
EMPLOYEES
At March 31, 1998, the Company had approximately 1,800 employees of whom
approximately 1,275 are hourly employees and approximately 525 are salaried
personnel. Approximately 150 of the Company's employees in the United States at
the Port Huron, Michigan facility are represented by the Teamsters Union.
Collective bargaining agreements with the Teamsters Union affecting these
employees expire in April 1999. As is common in many European jurisdictions,
substantially all of the Company's employees in Europe are covered by
country-wide collective bargaining agreements. The Company believes that its
relations with its employees are good.
FACILITIES
The Company's executive offices are located in approximately 14,550 square
feet of leased space in Sterling Heights, Michigan. The Company has 19
engineering, manufacturing and distribution facilities with a total of
approximately 1,973,350 square feet of space. The Company believes that
substantially all of its property and equipment is in good condition and that it
has sufficient capacity to meet its current and projected manufacturing and
distribution needs.
The Company's facilities are as follows:
<TABLE>
<CAPTION>
SQUARE OWNED/ LEASE
LOCATION FUNCTION FEET LEASED EXPIRATION**
-------- -------- ------ ------ ------------
<S> <C> <C> <C> <C>
North America
Shelby Township, Michigan* Manufacturing 42,800 Owned --
Port Huron, Michigan* Manufacturing 200,000 Owned --
Sterling Heights, Michigan* Administration and engineering 14,550 Leased 2003
Mt. Clemens, Michigan Warehousing 25,000 Leased 1998
Lodi, California Administration, manufacturing and 150,000 Owned --
engineering
Auburn Hills, Michigan Warehousing 49,000 Leased 2006
Madison Heights, Michigan* Administration and manufacturing 90,000 Leased 2002
Madison Heights, Michigan* Engineering 18,000 Leased 2002
Granby, Quebec Administration, manufacturing and 62,000 Leased 2001
warehousing
Bromptonville, Quebec Manufacturing 2,000 Leased 1999
Europe
Sandhausen, Germany Administration and engineering 5,000 Leased Month to Month
Staphorst, The Netherlands* Administration, manufacturing, 405,000 Owned --
warehousing and engineering
Hoogeveen, The Netherlands* Manufacturing and warehousing 185,000 Owned --
Fensmark, Denmark* Manufacturing and warehousing 95,000 Owned --
Nuneaton, United Kingdom* Manufacturing and warehousing 75,000 Owned --
Vanersborg, Sweden* Manufacturing, warehousing and 160,000 Leased 2004
engineering
Reims, France Manufacturing and warehousing 115,000 Owned --
Reggio Emilia, Italy Administration, manufacturing, 170,000 Leased 2003
warehousing and engineering
Reggio Emilia, Italy Manufacturing and warehousing 110,000 Leased 2003
</TABLE>
- -------------------------
* QS 9000 and/or ISO 9000 certification.
** Gives effect to all renewal options.
ENVIRONMENTAL REGULATION
The Company's operations are subject to foreign federal, state and local
environmental laws and regulations that limit the discharges into the
environment and establish standards for the handling, generation, emission,
release, discharge, treatment, storage and disposal of certain materials,
substances and wastes. In many jurisdictions, these laws are complex, change
frequently, and have tended to become stronger over time.
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<PAGE> 61
In jurisdictions such as the United States, such obligations, including but not
limited to those under the Comprehensive Environmental Response, Compensation &
Liability Act ("CERCLA") may be joint and several and may apply to conditions at
properties presently or formerly owned or operated by an entity or its
predecessors, as well as to conditions at properties at which waste or other
contamination attributable to an entity or its predecessors have been sent or
otherwise come to be located. The Company believes that its operations are in
substantial compliance with the terms of all applicable environmental laws and
regulations as currently interpreted. In addition, to the best of the Company's
knowledge, there are no existing or potential environmental claims against the
Company nor has the Company received any notification or have any current
investigation regarding, the disposal, release, or threatened release at any
location of any hazardous substance generated or transported by the Company.
However, the Company cannot predict with any certainty that it will not in the
future incur liability under environmental laws and regulations with respect to
contamination of sites currently or formerly owned or operated by the Company
(including contamination caused by prior owners and operators of such sites), or
the off-site disposal of hazardous substances.
While historically the Company has not had to make significant capital
expenditures for environmental compliance, the Company cannot predict with any
certainty its future capital expenditures for environmental compliance because
of continually changing compliance standards and technology. Future events, such
as changes in existing environmental laws and regulations or unknown
contamination of sites owned or operated by the Company (including contamination
caused by prior owners and operators of such sites), may give rise to additional
compliance costs which could have a material adverse effect on the Company's
financial condition. Furthermore, actions by foreign, federal, state and local
governments concerning environmental matters could result in laws or regulations
that could increase the cost of producing the products manufactured by the
Company or otherwise adversely affect the demand for its products. Additionally,
the Company does not currently have any insurance coverage for environmental
liabilities and does not anticipate obtaining such coverage in the future. See
"Risk Factors -- Environmental Matters."
LEGAL PROCEEDINGS
From time to time, the Company is subject to legal proceedings and other
claims arising in the ordinary course of its business. The Company believes that
it is not presently a party to any litigation the outcome of which would have a
material adverse effect on its financial condition or results of operations. The
Company maintains insurance coverage against claims in an amount which it
believes to be adequate.
MANAGEMENT
BOARD OF MANAGERS, EXECUTIVE OFFICERS AND OTHER SIGNIFICANT EMPLOYEES
The following table sets forth the names and ages of each of the
individuals that currently serves as a member (each, a "Board Member") of the
Company's board of managers (the "Board of Managers"), executive officer and
other significant employee of the Company. The Board Members are designated
pursuant to the Members Agreement and serve at the pleasure of the Members (as
defined). See "Limited Liability Company Agreement." The officers of the Company
are chosen by the Board of Managers and serve at the pleasure of the Board of
Managers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
F. Alan Smith........................ 66 Chairman of the Board of Managers of the Company
Marshall D. Gladchun................. 50 President and Chief Executive Officer of the Company and
SportRack; Board Member
Roger T. Morgan...................... 53 President and Chief Executive Officer of Valley; Board
Member
Gerrit de Graaf...................... 34 General Manager and Chief Executive Officer of Brink
Terence C. Seikel.................... 41 Vice President of Finance and Administration and Chief
Financial Officer of the Company
</TABLE>
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<PAGE> 62
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard E. Borghi.................... 51 Executive Vice President and Chief Operating Officer of
SportRack
Jean M. Maynard...................... 43 President of SportRack International
J. Wim Rengelink..................... 43 Managing Director of Brink
Gary K. Houston...................... 44 Vice President of OEM Operations of Valley
Bryan A. Fletcher.................... 38 Vice President of Aftermarket Operations of Valley
Donald J. Hofmann, Jr................ 40 Board Member, Vice President and Secretary of the
Company
Barry Banducci....................... 62 Board Member
Gerard J. Brink...................... 54 Board Member
</TABLE>
F. Alan Smith has served in the automotive industry for 36 years and has
been Chairman of the Board of Managers of the Company since its formation in
September 1995. He served in various assignments at General Motors from 1956 to
1992, including President of GM Canada from 1978 to 1980. He was a member of the
Board of Directors of General Motors from 1981 to 1992 and Chief Financial
Officer of General Motors from 1981 to 1988. Mr. Smith is a director of The
Minnesota Mining and Manufacturing Corporation ("3M") and TransPro, Inc.
("TransPro"), a supplier of automotive components.
Marshall D. Gladchun has served in the automotive industry for 24 years and
has been President and Chief Executive Officer of the Company and SportRack
since September 1995. From 1986 to 1995, he held various senior management
positions with MascoTech, and was President and Chief Operating Officer of the
MascoTech Division at the time of its acquisition by the Company.
Roger T. Morgan has served in the automotive industry for 35 years and has
been President and Chief Executive Officer of Valley since June 1990. Prior to
joining Valley, he worked for General Motors for 12 years and Rockwell
International Automotive Group as Vice President -- Operations for 14 years.
Gerrit de Graaf has been General Manager and Chief Executive Officer of
Brink since November 1996. From 1989 to 1996, Mr. de Graaf worked for Philips
Medical Systems as a consultant and most recently as Philips' Marketing Manager
in the United States.
Terence C. Seikel has served in the automotive industry for 14 years and
has been Vice President of Finance and Administration and Chief Financial
Officer of the Company since January 1996. From 1985 to 1996, Mr. Seikel was
employed by Larizza Industries, a publicly held supplier of interior trim to the
automotive industry, in various capacities including Chief Financial Officer.
Richard E. Borghi has served in the automotive industry for 30 years and
has been Executive Vice President of Operations and Chief Operating Officer of
SportRack since 1995. From 1988 to 1995, Mr. Borghi held various senior
management positions with MascoTech, and was the Executive Vice President of
Operations of the MascoTech Division at the time of its acquisition by the
Company.
Jean M. Maynard has served in the automotive industry for 18 years and has
been President of SportRack International or its predecessor since prior to
1992.
J. Wim Rengelink has served in the automotive industry for 11 years and has
been Managing Director of Brink since 1995. From 1988 to 1995 he worked in
Brink's internal audit department.
Gary K. Houston has served in the automotive industry for 24 years and has
been Vice President of OEM Operations of Valley since 1995. From 1991 to 1995 he
was Vice President of Manufacturing of Valley. Prior thereto, Mr. Houston worked
for Rockwell International for 18 years, most recently as a manufacturing
manager.
Bryan A. Fletcher has served in the automotive industry for 9 years and has
been Vice President of Aftermarket Operations of Valley since 1991.
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<PAGE> 63
Donald J. Hofmann, Jr. has been a Board Member, Vice President and
Secretary of the Company since October 1995. Mr. Hofmann has been a General
Partner of CCP since 1992.
Barry Banducci has been a Board Member of the Company since October 1995.
Since September 1995, Mr. Banducci has been the Chairman of TransPro. Prior
thereto, Mr. Banducci served in various capacities at Equion Corporation, a
supplier of automotive components, from 1983 to 1995, including President, Chief
Executive Officer and Vice Chairman. Mr. Banducci is a director of TransPro and
Aristotle Corporation.
Gerard J. Brink has been a Board Member of the Company since October 1996.
Mr. Brink was General Manager of Brink from 1965 to 1996.
BOARD MEMBER COMPENSATION
The Board Members do not currently receive compensation for their service
on the Board of Managers or any committee thereof but are reimbursed for their
out-of-pocket expenses.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Managers has an Audit Committee consisting of Messrs. Banducci
and Brink, and a Compensation Committee consisting of Messrs. Hofmann and Smith.
The Audit Committee reviews the scope and results of audits and internal
accounting controls and all other tasks performed by the independent public
accountants of the Company. The Compensation Committee determines compensation
for executive officers of the Company and administers the Company's 1995 Option
Plan.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning the compensation for
1997 for the chief executive officer of the Company and the four next most
highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------------- ------------
OTHER
ANNUAL SECURITIES ALL OTHER
FISCAL SALARY BONUS COMPENSATION UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS(#) ($)
--------------------------- ------ ------ ----- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
F. Alan Smith........................... 1997 200,000 100,000 -- -- --
Chairman of the Company
Marshall D. Gladchun.................... 1997 362,500 195,000 -- -- --
President and Chief Executive
Officer of the Company and SportRack
Terence C. Seikel....................... 1997 200,600 94,000 -- -- --
Vice President of Finance and
Administration and Chief
Financial Officer of the Company
Roger T. Morgan*........................ 1997 107,220 73,000 -- 178 --
President and Chief Executive
Officer of Valley
Richard E. Borghi....................... 1997 206,500 94,000 -- -- --
Executive Vice President and Chief
Operating Officer of SportRack
</TABLE>
- -------------------------
* August 5, 1997 to December 31, 1997
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<PAGE> 64
OPTION GRANTS IN 1997
The following table sets forth information with respect to stock options
pursuant to the 1995 Option Plan granted to the named executive officers of the
Company during 1997. All options were granted at an exercise price equal to the
fair market value per share of Common Stock on the date of grant.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
----------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF OF STOCK PRICE
SECURITIES PERCENT OF TOTAL EXERCISE APPRECIATION FOR OPTION
UNDERLYING OPTIONS GRANTED OR BASE TERM($)(1)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION --------------------------
NAME GRANTED(#) 1997(%) ($/SH) DATE 5% 10%
---- ---------- ---------------- -------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
F. Alan Smith....................... -- -- -- -- -- --
Marshall D. Gladchun................ -- -- -- -- -- --
Terence C. Seikel................... -- -- -- -- -- --
Roger T. Morgan..................... 178 47.1 5,610 8/5/12 $1,077,000 $3,173,000
Richard E. Borghi................... -- -- -- -- -- --
</TABLE>
- -------------------------
(1) Potential realizable value is based on the assumption that the price of the
Company's common stock appreciates at the annual rate shown, compounded
annually, from the date of grant until the end of the 15-year option term.
The values are calculated in accordance with rules promulgated by the
Securities and Exchange Commission and do not reflect the Company's estimate
of future common stock price appreciation.
EMPLOYMENT AGREEMENTS
Each of Marshall D. Gladchun, Roger T. Morgan, Terence C. Seikel, Richard
E. Borghi and Gerrit de Graaf has entered into an employment agreement
(collectively, the "Employment Agreements") with the Company. Mr. Gladchun's
Employment Agreement provides for an annual base salary of $277,304, subject to
increases at the sole discretion of the Board of Managers, a bonus in the range
of 50-70% of his base salary, and a one-time bonus of $400,000 on the earlier of
(i) September 20, 2002, (ii) his termination date, and (iii) a sale of the
Company (any such bonus an "Ending Bonus"). Mr. Morgan's Employment Agreement
provides for an annual base salary of $250,000, subject to increases at the sole
discretion of the Board of Managers, and a bonus in the range of 50% to 70% of
his base salary. Mr. Seikel's Employment Agreement provides for an annual base
salary of $165,000 and a bonus in the range of 30-50% of his base salary. Mr.
Borghi's Employment Agreement provides for an annual base salary of $161,200,
subject to increases at the sole discretion of the Board of Managers, a bonus in
the range of 30-50% of his base salary, and an Ending Bonus of $100,000. Mr. de
Graaf's Employment Agreement provides for an annual base salary of NLG 170,000,
subject to increases at the sole discretion of the Board of Managers, and a
bonus in the range of 30% to 50% of his base salary. The Employment Agreements
also provide for twelve months of severance pay to the executive officer in the
event such officer is terminated without cause (as defined in the Employment
Agreement.)
The Employment Agreements expire at various times between June 30, 2000 and
December 31, 2000 (except that Gerrit de Graaf's Employment Agreement may be
terminated by either party upon three month's prior written notice) but
automatically extend for successive two-year terms unless terminated by the
Company upon 30 days notice prior to the expiration of the current term. Each
Employment Agreement prohibits the executive officer from disclosing non-public
information about the Company. The Employment Agreements also require the
executive officers to assign to the Company any designs, inventions and other
related items and intellectual property rights developed or acquired by the
executive officer during the term of his employment. In addition, for a period
of five years after termination of employment (two years if the termination is
without cause) each executive officer has agreed, in his respective Employment
Agreement, not to (i) engage in any Competitive Business (as defined in the
Employment Agreements), (ii) interfere with or disrupt any relationship between
the Company and its customers, suppliers and employees and (iii) induce any
employee of the Company to terminate his or her employment with the Company or
engage in any Competitive Business.
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<PAGE> 65
CONSULTING AGREEMENTS
F. Alan Smith and Barry Banducci have each entered into consulting
agreements (the "Consulting Agreements") with the Company dated as of September
28, 1995. Mr. Smith's Consulting Agreement provides for an annual consulting fee
of $150,000 subject to increases at the sole discretion of the Board of
Managers, and a performance based bonus in the range of 30-50% of the annual
consulting fee. Mr. Banducci's Consulting Agreement provides for an annual
consulting fee of $50,000. The initial term of the Consulting Agreements expired
on March 28, 1997. The Consulting Agreements automatically extend for successive
six-month periods unless terminated by the Company upon 30 days notice prior to
the expiration of the then current term. The Consulting Agreements prohibit
Messrs. Smith and Banducci from disclosing non-public information about the
Company.
MEMBERS' AGREEMENT
Pursuant to the Second Amended and Restated Members' Agreement dated as of
August 5, 1997 (the "Members' Agreement") among the Company and certain of the
holders of outstanding units (the "Units") of the Company, affiliates of CCP
have the ability to appoint a majority of the members of the Company's Board of
Managers.
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<PAGE> 66
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of April 30, 1998, the outstanding membership interests of the Company
consisted of 16,411 Units. The following table sets forth certain information
regarding the beneficial ownership of the Units by (i) each person known by the
Company to own more than 5% of the Units, (ii) each named director, (iii) each
named executive officer and (iv) all of the Company's directors and executive
officers treated as a group. To the knowledge of the Company, each of such
holders of Units has sole voting and investment power as to the Units owned
unless otherwise noted.
<TABLE>
<CAPTION>
PERCENTAGE
NAME AND ADDRESS(1) UNITS OWNED OWNERSHIP(2)
------------------- ----------- ------------
<S> <C> <C>
CB Capital Investors, Inc.(3)......................... 10,251 60.61%
380 Madison Avenue, 12th Floor
New York, New York 10017
MascoTech, Inc........................................ 1,500 9.14
275 Rex Boulevard
Auburn Hills, Michigan 48326
Celerity Partners..................................... 1,500 9.14
c/o Mark Benham
300 Sand Hill Road
Building 4, Suite 230
Menlo Park, California 94025
F. Alan Smith(4)...................................... 429 2.59
Marshall D. Gladchun(5)............................... 915 5.44
Roger T. Morgan....................................... 89 0.54
c/o Valley Industries, LLC
32501 Dequindre
Madison Heights, Michigan 48071
Terence C. Seikel(6).................................. 360 2.17
Richard E. Borghi(7).................................. 366 2.18
Barry Banducci(8)..................................... 357 2.16
59 Old Quarry Road
Guildford, Connecticut 06437
Gerard J. Brink....................................... 410 2.50
Lijsterbeslaan 10
B-2950 Kapellen
Belgium
All directors and executive officers as a group
(9 persons).......................................... 2,926 16.83
</TABLE>
- -------------------------
(1) Unless otherwise indicated, address is c/o Advanced Accessory Systems, LLC,
12900 Hall Road, Suite 200, Sterling Heights, Michigan 48313.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and includes voting and investment power with respect to the
Units. Units subject to options or warrants currently exercisable or
exercisable within 60 days of April 30, 1998 are deemed outstanding for
purposes of computing the percentage ownership of the person holding such
options or warrants, but are not deemed outstanding for purposes of
computing the percentage of any other person.
(3) CB Capital Investors, Inc. is an affiliate of CCP. Includes 501 Units
subject to warrants exercisable within 60 days.
(4) Includes 129 Units subject to options exercisable within 60 days. 300 Units
are owned by the F. Alan Smith Family Limited Partnership.
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<PAGE> 67
(5) Includes 415 Units subject to options exercisable within 60 days.
(6) Includes 160 Units subject to options exercisable within 60 days.
(7) Includes 166 Units subject to options exercisable within 60 days.
(8) Includes 107 Units subject to options exercisable within 60 days. All Units
are owned by the Banducci Family, LLC.
LIMITED LIABILITY COMPANY AGREEMENT
The Company, Valley and SportRack are each limited liability companies
organized under the Delaware Limited Liability Company Act (the "LLC Act").
Valley's equity securities are held 99% by the Company and 1% by SportRack.
SportRack's equity securities are held 100% by the Company. The Company controls
the policies and operations of Valley and SportRack. The Company's operations
are governed by a Second Amended and Restated Operating Agreement (the "LLC
Agreement") among the Company, CBC, certain members of the Company's management
and the investors defined therein (each a "Member" and collectively the
"Members"). The LLC Agreement governs the relative rights and duties of the
Members.
Units. The Company is authorized to issue up to 25,000 Class A Units and up
to 2,000 Class B Units. As of March 15, 1998, 16,271 Class A Units are issued
and outstanding, 4,200 Class A Units have been duly reserved for issuance to
employees, directors and independent consultants and contractors of the Company
or any subsidiary thereof pursuant to the 1995 Option Plan of the Company, and
no Class B Units have been issued or reserved for issuance.
Management. The Board of Managers of the Company consists of up to 11
members as designated pursuant to the Members Agreement. The Board of Managers
is selected by a majority of the Members holding Class A units (each a "Class A
Member"). Under the Members Agreement, CBC is entitled at all times to hold a
seat on the Board of Managers and has the ability to appoint a majority of the
Members of the Board of Managers. A majority of the Chase Members (as defined in
the Members Agreement) may hold a seat on the Board of Managers through their
representative. Any Board Member of the Company may be removed without cause by
the vote of a majority of the Class A Members so long as the Members entitled to
appoint such Board Member have consented.
If a vacancy on the Board of Managers is not filled by a majority of the
Class A Members within 60 days after such vacancy occurs such vacancy may be
filled by a vote of the majority of the Board Members then in office or, if
none, by a vote of all Members.
Distributions. Both the Amended and Restated Credit Agreement and the
Indenture generally limit the Company's ability to make cash distributions to
Members other than distributions to cover the income tax liabilities of the
Members. Specifically, within 90 days of the end of each fiscal year, the
Company will distribute to each Member an amount (if any) equal to 44% of the
excess of Net Profits over Net Losses (each as defined in the LLC Agreement) to
such Member's capital account less any distributions previously made in that
year.
Restriction on Transfer. No Member may transfer its interest without having
obtained the prior written consent of a majority of the Board Members who hold
in the aggregate more than 50% of the profits and capital interest of the
Company, which consent may be withheld in their sole discretion.
Dissolution. The Company will be dissolved upon the earliest to occur of
(a) December 31, 2025; (b) the determination of the Board of Managers and a
majority of Class A Members to dissolve the Company; or (c) the occurrence of an
event of withdrawal of a Board Member or any other dissolution event under
Section 18-801 of the LLC Act. An event of withdrawal of any Member will not
dissolve the Company if within 90 days of such event the business of the Company
is continued by a majority of its remaining Members.
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<PAGE> 68
CERTAIN TRANSACTIONS
Chase Securities Inc. ("CSI"), The Chase Manhattan Bank ("Chase"), The
Chase Manhattan Bank of Canada ("Chase Canada") and CCP are affiliates of CB
Capital Investors, Inc., which owns approximately 48.1% of the Company's issued
and outstanding voting securities on a fully diluted basis. CSI acted as an
Initial Purchaser in connection with the Offering, for which it received
customary fees. Chase is agent bank and a lender to the Company under the
Amended and Restated Credit Agreement and has received customary fees and
reimbursement of expenses in such capacities. Chase Canada is agent bank and a
lender to the Company under the Canadian Credit Agreement and has received
customary fees and reimbursement of expenses in such capacities. Chase received
its proportionate share, $6.0 million, of the repayment by the Company of $90.0
million under the Amended and Restated Credit Agreement from the proceeds of the
Offering. An affiliate of CCP and CSI held a portion of the Senior Subordinated
Debt and received its proportionate share, $10.7 million, including prepayment
penalties of $700,000, of the repayment by the Company of such debt from the
proceeds of the Offering. As a result of the Offering, such affiliate was
relieved of its obligation to provide up to an additional $20.0 million of
senior subordinated debt financing. In addition, an affiliate of CSI and CCP
purchased a portion of the Old Notes in connection with the Offering and will
not be participating in the Exchange Offer. Donald J. Hofmann, Jr., a general
partner of CCP, is a member of the Board of Managers of the Company. In
addition, CSI, Chase and their affiliates participate on a regular basis in
various investment banking and commercial banking transactions for the Company
and its affiliates.
The Company is a party to the Consulting Agreements with F. Alan Smith, the
Chairman of the Company, and Barry Banducci, a Board Member of the Company. See
"Management -- Consulting Agreements."
In connection with the acquisition of the MascoTech Division by the
Company, the Company loaned Messrs. Gladchun and Borghi $400,000 and $100,000,
respectively, to enable them to make their initial equity investments in the
Company. The loans bear interest at 6.2% and mature in September 2002.
DESCRIPTION OF THE CREDIT FACILITIES
The following information relating to the Credit Facilities is qualified in
its entirety by reference to the complete text of the documents entered into in
connection therewith. The following is a description of the material terms of
the Credit Facilities:
CANADIAN CREDIT AGREEMENT
To finance the SportRack International Acquisition and provide working
capital financing in Canada, Chase Canada, First Chicago NBD Bank, Canada, and
Bank of Nova Scotia (collectively, the "Canadian Lenders") have provided to
SportRack International a C$20 million (approximately $14.5 million) term loan
and a C$4.0 million (approximately $2.8 million) working capital revolving
credit facility under a First Amended and Restated Credit Agreement dated as of
March 19, 1998 (the "Canadian Credit Agreement"). The Canadian Credit Agreement
is scheduled to mature on October 31, 2003 and the term loan portion amortizes
in quarterly installments. The Canadian Credit Agreement is guaranteed by the
Company and SportRack and is secured by a pledge of 100% of the stock and assets
of SportRack International. The guarantees of the Company and SportRack are
secured by substantially the same collateral that secures the obligations of
those companies under the Amended and Restated Credit Agreement described below.
The interest margins under the Canadian Credit Agreement are comparable to those
under the Revolving Credit Facility and the Tranche A Term Loan described below.
AMENDED AND RESTATED CREDIT AGREEMENT
In connection with the Valley Acquisition, the Company entered into the
Second Amended and Restated Credit Agreement, dated as of August 5, 1997 (as
amended, the "Amended and Restated Credit Agreement"), with certain of its
subsidiaries, the lenders party thereto, Chase as Co-Administrative Agent and
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Syndication Agent and First Chicago NBD Bank ("NBD") as Administrative Agent,
Documentation Agent and Collateral Agent. The Amended and Restated Credit
Agreement amended the Company's existing credit agreement and provided for (i) a
Tranche A Term Loan in the aggregate principal amount of $65 million (the
"Tranche A Term Loan"), (ii) a Tranch B Term Loan in the aggregate principal
amount of $55 million (the "Tranche B Term Loan" and together with the Tranche A
Term Loan, collectively, the "Term Loan Facilities") and (iii) a revolving
credit facility in the aggregate principal amount of $25 million (the "Revolving
Credit Facility"), which includes a $2 million swing line sub facility and a $10
million letter of credit sub facility. Borrowings by SportRack International
under the revolving credit facility of the Canadian Credit Agreement count
against availability under the Revolving Credit Facility. The outstanding
principal amounts of the Tranche A Term Loan and the Tranche B Term Loan were
reduced to $17.5 million and $16.0 million through prepayments from the proceeds
of the sale of the Old Notes. Subsequent to the sale of the Old Notes, the
Amended and Restated Credit Agreement was further amended to provide a $22
million acquisition facility to finance future acquisitions (the "Acquisition
Facility"). The Tranche A Term Loan, the Tranche B Term Loan, the Revolving
Credit Facility and the Acquisition Facility are referred to collectively as the
"Domestic Facilities".
Use of Proceeds; Maturity. The proceeds of the Term Loan Facilities were
used to finance the Valley Acquisition and to refinance existing debt. The
proceeds of the Revolving Credit Facility were used to refinance existing debt,
pay fees and expenses of the Valley Acquisition and for general corporate
purposes. The proceeds of a $21.0 million borrowing under the Acquisition
Facility were used to finance the acquisition of the assets of Ellebi. Prior to
December 31, 1999 the Acquisition Facility may be repaid and reborrowed to
finance future acquisitions. The Term Loan Facilities have maturity schedules as
follows: (i) the Tranche A Term Loan matures on October 30, 2003 and amortizes
in quarterly installments; and (ii) the Tranche B Term Loan matures on October
30, 2004 and amortizes in quarterly installments. The Revolving Credit Facility
matures on October 30, 2003. The Acquisition Facility matures on October 30,
2003 and amortizes in quarterly installments commencing on December 31, 1999.
Revolving Credit Facility. The availability of the commitments under the
Revolving Credit Facility is subject to a borrowing base which generally equals
specified percentages of the then Eligible Receivables or Eligible Inventory
(each as defined in the Amended and Restated Credit Agreement) of the Company
and certain of its Subsidiaries. As of March 31, 1998, $22.2 million of
commitments under the Revolving Credit Facility is available to the Company.
Prepayments; Reduction of Commitments. The Term Loan Facilities are
required to be prepaid with (i) 100% of the net proceeds of any sale or issuance
of equity or any incurrence of indebtedness for borrowed money, subject to
certain exceptions; (ii) 100% of the net proceeds of any sale or other
disposition of any material assets, except for the sale of inventory in the
ordinary course of business, subject to certain exceptions; and (iii) 50% of
excess cash flow for each fiscal year. Such mandatory prepayments are applied
pro rata between the Tranche A Term Loans and the Tranche B Term Loans and, in
each case, in the inverse order of maturity. Any Tranche B Term Loan lender may
decline any mandatory prepayment prescribed in subsections (i) through (iii)
above, in which case the amounts declined are applied as a mandatory prepayment
pro rata to the Term Loan A Lenders in the inverse order of maturity.
Interest. The Domestic Facilities bear interest at a rate per annum, at the
option of the Company, equal to the adjusted eurocurrency base rate (the
"Eurocurrency Base Rate") or the rate which is equal to the higher of (i) NBD's
prime rate and (ii) the federal funds rate plus 1/2 of 1% ("ABR"), in each case
plus an applicable margin based on the leverage ratio from time to time in
effect. The applicable margins range from .50% to 1.75% for ABR Revolving Credit
Facility advances and Tranche A Term Loans and from 1.00% to 2.25% for ABR
Tranche B Term Loans. For Revolving Credit Facility advances and Tranche A Term
Loans bearing interest based on the Eurocurrency Base Rate, the applicable
margins range from 1.50% to 2.75%. For Tranche B Term Loans bearing interest at
the Eurocurrency Base Rate, the applicable margins range from 2.00% to 3.25%.
The rates for letter of credit fees are the same as the applicable margins for
Eurocurrency Revolving Credit advances.
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Collateral and Guarantees. The Domestic Facilities are guaranteed by the
Company and substantially all of its existing U.S. subsidiaries. The Domestic
Facilities are secured by a first priority lien on (i) all of the capital stock
(or partnership or other membership interest) of the Company, SportRack and each
of the material direct and indirect U.S. subsidiaries of the Company and 65% of
the capital stock of first tier non-U.S. subsidiaries and (ii) substantially all
tangible and intangible assets of the Company and each material direct and
indirect U.S. subsidiary. With respect to certain of the loans made to non-U.S.
subsidiaries, it is currently contemplated that all of the capital stock of
certain non-U.S. subsidiaries and, to the extent permitted by applicable law,
liens on the receivables and inventory of certain of the non-U.S. subsidiaries
and mortgage liens of certain real estate owned by Brink will be pledged to
secure the loans to Brink. The collateral also secures interest rate swaps,
currency or other hedge obligations owning to any lender.
Covenants. The Amended and Restated Credit Agreement contains covenants
restricting the ability of the Company and its subsidiaries to, among other
things, (i) declare dividends or redeem or repurchase capital stock; (ii)
prepay, redeem or purchase debt; (iii) incur liens; (iv) make loans and
investments; (v) issue additional debt; (vi) amend or otherwise alter debt and
other material agreements; (vii) engage in mergers, acquisitions and asset
sales; (viii) engage in transactions with affiliates; and (ix) alter the
business it conducts. The Company has also provided certain customary
indemnification of the Agents, lenders and their respective agents and is
required to comply with financial covenants with respect to (i) maximum leverage
ratio; (ii) minimum fixed charge coverage ratio; (iii) a minimum net worth; and
(iv) capital expenditures; and (v) rentals. The Company must also comply with
certain customary affirmative covenants.
Events of Default. Events of default under the Amended and Restated Credit
Agreement include but are not limited to (i) the Company's failure to pay
principal when due or interest within three business days of the date when due;
(ii) the Company's breach of certain covenants, representations or warranties
contained in the loan documents; (iii) customary cross-default provisions; (iv)
events of bankruptcy, insolvency or dissolution of the Company or its
subsidiaries; (v) the levy of certain judgements against the Company, its
subsidiaries, or their assets; (vi) the actual or asserted invalidity of
security documents or guarantees of the Company or its subsidiaries; (vii) a
Change of Control (as defined in the Amended and Restated Credit Agreement) of
the Company; (viii) the occurrence of certain ERISA events; (ix) the
subordination provisions evidencing subordinated debt shall cease to be valid or
in full force and effect.
DESCRIPTION OF THE NOTES
The Old Notes were, and the New Notes will be, issued under an Indenture
(the "Indenture") among the Company, Capital Corp., the Guarantors and First
Union National Bank, as trustee (the "Trustee"). The terms of the New Notes are
identical in all respects to the Old Notes, except that the New Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting their transfer and will not contain provisions providing for the
payment of liquidated damages under certain circumstances relating to the
Registration Rights Agreement, which provisions will terminate upon the
consummation of the Exchange Offer. The following summary of the material
provisions of the Indenture does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"), and to all of the provisions of
the Indenture, including the definitions of certain terms therein and those
terms made a part of the Indenture by reference to the Trust Indenture Act, as
in effect on the date of the Indenture. The definitions of certain capitalized
terms used in the following summary are set forth below under "Certain
Definitions." References in this "Description of the Notes" section to "the
Company" mean only Advanced Accessory Systems, LLC and not any of its
Subsidiaries.
GENERAL
The Notes are joint and several obligations of the Company and Capital
Corp. The Notes are issued only in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. The Issuers have
appointed the Trustee to serve as registrar and paying agent under the Indenture
at its offices at 40 Broad Street, 5th Floor, Suite 550, New York, New York
10004. No service charge will be made for any registration
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of transfer or exchange of the Notes, except for any tax or other governmental
charge that may be imposed in connection therewith.
RANKING
The Notes rank junior to, and subordinate in right of payment to, all
existing and future Senior Indebtedness of the Issuers, pari passu in right of
payment with all senior subordinated Indebtedness of the Issuers and senior in
right of payment to all Subordinated Indebtedness of the Issuers. At March 31,
1998, the Company had approximately $70.0 million of Senior Indebtedness
outstanding (exclusive of unused commitments). All debt incurred under the
Credit Facilities will be Senior Indebtedness of the Company, will be guaranteed
by each of the Guarantors on a senior basis and will be secured by substantially
all of the assets of the Company and the Guarantors.
MATURITY, INTEREST AND PRINCIPAL OF THE NOTES
The Notes are limited to $125,000,000 aggregate principal amount and will
mature on October 1, 2007. Interest on the Notes accrues at a rate of 9 3/4% per
annum and is payable in cash semi-annually in arrears on each April 1 and
October 1, commencing on October 1, 1998, to the holders of record of Notes at
the close of business on March 15 and September 15, respectively, immediately
preceding such interest payment date. Interest accrues from the most recent
interest payment date to which interest has been paid or, if no interest has
been paid, from April 1, 1998. Interest will be computed on the basis of a
360-day year of twelve 30-day months.
OPTIONAL REDEMPTION
The Notes are redeemable at the option of the Issuers, in whole or in part,
at any time on or after October 1, 2002, at the redemption prices (expressed as
a percentage of principal amount) set forth below, plus accrued and unpaid
interest thereon, 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
beginning on October 1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2002........................................................ 104.875%
2003........................................................ 103.250%
2004........................................................ 101.625%
2005 and thereafter......................................... 100.000%
</TABLE>
In addition, at any time and from time to time on or prior to October 1,
2000, the Issuers may redeem in the aggregate up to 35% of the originally issued
aggregate principal amount of the Notes with the net cash proceeds of one or
more Public Equity Offerings by the Company at a redemption price in cash equal
to 109.750% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the date of redemption (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 65% of the aggregate
principal amount of the Notes originally issued must remain outstanding
immediately after giving effect to each such redemption (excluding any Notes
held by the Company or any of its Affiliates). Notice of any such redemption
must be given within 60 days after the date of the closing of the relevant
Public Equity Offering of the Company.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any time
pursuant to an optional redemption, selection of such Notes for redemption will
be made by the Trustee in compliance with the requirements of the principal
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not then listed on a national securities exchange, on a pro rata
basis, by lot or by such method as the
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Trustee shall deem fair and appropriate; provided, however, that no Notes of a
principal amount of $1,000 or less shall be redeemed in part; provided further,
however, that if a partial redemption is made with the net cash proceeds of a
Public Equity Offering by the Company, selection of the Notes or portions
thereof for redemption shall be made by the Trustee only on a pro rata basis or
on as nearly a pro rata basis as is practicable (subject to the procedures of
The Depository Trust Company), unless such method is otherwise prohibited.
Notice of redemption shall be mailed by first-class mail at least 30 but not
more than 60 days before the redemption date to each Holder of Notes to be
redeemed at its registered address. If any Note is to be redeemed in part only,
the notice of redemption that relates to such Note shall state the portion of
the principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Notes or portions thereof called for
redemption as long as the Company has deposited with the paying agent for the
Notes funds in satisfaction of the applicable redemption price pursuant to the
Indenture.
SUBORDINATION OF THE NOTES
The payment of the principal of, premium, if any, and interest on the Notes
is subordinated in right of payment, to the extent and in the manner provided in
the Indenture, to the prior payment in full in cash of all Senior Indebtedness.
Upon any payment or distribution of assets or securities of the Issuers of
any kind or character, whether in cash, property or securities (excluding any
payment or distribution of Permitted Junior Securities and excluding any payment
from the trust described under "Satisfaction and Discharge of Indenture;
Defeasance" (a "Defeasance Trust Payment")), upon any dissolution or winding-up
or total liquidation or reorganization of the Issuers, whether voluntary or
involuntary or in bankruptcy, insolvency, receivership or other proceedings, all
Senior Indebtedness then due shall first be paid in full in cash before the
Holders of the Notes or the Trustee on behalf of such Holders shall be entitled
to receive any payment by the Issuers of the principal of, premium, if any, or
interest on the Notes, or any payment by the Issuers to acquire any of the Notes
for cash, property or securities, or any distribution by the Issuers with
respect to the Notes of any cash, property or securities (excluding any payment
or distribution of Permitted Junior Securities and excluding any Defeasance
Trust Payment). Before any payment may be made by, or on behalf of, the Issuers
of the principal of, premium, if any, or interest on the Notes upon any such
dissolution or winding-up or total liquidation or reorganization, or in
bankruptcy, insolvency or receivership any payment or distribution of assets or
securities of the Issuers of any kind or character, whether in cash, property or
securities (excluding any payment or distribution of Permitted Junior Securities
and excluding any Defeasance Trust Payment), to which the Holders of the Notes
or the Trustee on their behalf would be entitled, but for the subordination
provisions of the Indenture, shall be made by the Issuers or by any receiver,
trustee in bankruptcy, liquidation trustee, agent or other Person making such
payment or distribution, directly to the holders of the Senior Indebtedness (pro
rata to such holders on the basis of the respective amounts of Senior
Indebtedness held by such holders) or their representatives or to the trustee or
trustees or agent or agents under any agreement or indenture pursuant to which
any of such Senior Indebtedness may have been issued, as their respective
interests may appear, to the extent necessary to pay all such Senior
Indebtedness then due in full in cash after giving effect to any prior or
concurrent payment, distribution or provision therefor to or for the holders of
such Senior Indebtedness.
No direct or indirect payment (excluding any payment or distribution of
Permitted Junior Securities and excluding any Defeasance Trust Payment) by or on
behalf of the Issuers of principal of, premium, if any, or interest on the
Notes, whether pursuant to the terms of the Notes, upon acceleration, pursuant
to an Offer to Purchase or otherwise, will be made if, at the time of such
payment, there exists a default in the payment of all or any portion of the
obligations on any Senior Indebtedness, whether at maturity, on account of
mandatory redemption or prepayment, acceleration or otherwise, and such default
shall not have been cured or waived or the benefits of this sentence waived by
or on behalf of the holders of such Senior Indebtedness. In addition, during the
continuance of any non-payment event of default with respect to any Designated
Senior Indebtedness pursuant to which the maturity thereof may, in accordance
with the terms of the agreement or other instrument under which such Designated
Senior Indebtedness was created, be immediately accelerated,
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and upon receipt by the Trustee of written notice (a "Payment Blockage Notice")
from the holder or holders of such Designated Senior Indebtedness or the trustee
or agent acting on behalf of the holders of such Designated Senior Indebtedness,
then, unless and until such event of default has been cured or waived or has
ceased to exist or such Designated Senior Indebtedness has been discharged or
repaid in full in cash or the benefits of these provisions have been waived by
the holders of such Designated Senior Indebtedness, no direct or indirect
payment (excluding any payment or distribution of Permitted Junior Securities
and excluding any Defeasance Trust Payment) will be made by or on behalf of the
Issuers of principal of, premium, if any, or interest on the Notes, to such
Holders, during a period (a "Payment Blockage Period") commencing on the date of
receipt of such notice by the Trustee and ending 179 days thereafter.
Notwithstanding anything in the subordination provisions of the Indenture or the
Notes to the contrary, (x) in no event will a Payment Blockage Period extend
beyond 179 days from the date the Payment Blockage Notice in respect thereof was
given, (y) there shall be a period of at least 181 consecutive days in each
360-day period when no Payment Blockage Period is in effect and (z) not more
than one Payment Blockage Period may be commenced with respect to the Notes
during any period of 360 consecutive days. No event of default that existed or
was continuing on the date of commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period (to the extent the holder of Designated Senior Indebtedness, or trustee
or agent, giving notice commencing such Payment Blockage Period had knowledge of
such existing or continuing event of default) may be, or be made, the basis for
the commencement of any other Payment Blockage Period by the holder or holders
of such Designated Senior Indebtedness or the trustee or agent acting on behalf
of such Designated Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such event of default has been cured or waived for a
period of not less than 90 consecutive days.
The failure to make any payment or distribution for or on account of the
Notes by reason of the provisions of the Indenture described under this
"Subordination of the Notes" heading will not be construed as preventing the
occurrence of any Event of Default in respect of the Notes. See "Events of
Default" below.
By reason of the subordination provisions described above, in the event of
insolvency of the Issuers, funds which would otherwise be payable to Holders of
the Notes will be paid to the holders of Senior Indebtedness to the extent
necessary to pay the Senior Indebtedness in full in cash, and the Issuers may be
unable to meet fully their obligations with respect to the Notes.
As of March 31, 1998 the United States/Canadian Credit Facility is the only
outstanding Senior Indebtedness. Subject to the restrictions set forth in the
Indenture, in the future the Company may issue additional Senior Indebtedness to
refinance existing Indebtedness or for other corporate purposes.
GUARANTEES OF THE NOTES
The Indenture provides that each of the Guarantors fully and
unconditionally guarantees on a joint and several basis (the "Guarantees") all
of the Issuers' obligations under the Notes, including its obligations to pay
principal, premium, if any, and interest with respect to the Notes. The
Guarantees are general unsecured obligations of the Guarantors. The obligations
of each Guarantor under its Guarantee is subordinated and junior in right of
payment to the prior payment in full of all existing and future Guarantor Senior
Indebtedness of such Guarantor substantially to the same extent as the Notes are
subordinated to all existing and future Senior Indebtedness of the Company. The
Guarantors also guarantee all obligations under the Credit Facilities, and each
Guarantor has granted a security interest in all or substantially all of its
assets to secure the obligations under the Credit Facilities. The obligations of
each Guarantor are limited to the maximum amount which, after giving effect to
all other contingent and fixed liabilities of such Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Guarantor in respect of the obligations of such other Guarantor under its
Guarantee or pursuant to its contribution obligations under the Indenture, will
result in the obligations of such Guarantor under its Guarantee not constituting
a fraudulent conveyance or fraudulent transfer under Federal or state law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in a pro rata amount, based
on the net assets of each Guarantor determined in accordance with GAAP.
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The Indenture provides that the Company shall cause each Restricted
Subsidiary issuing a Guarantee after the Issue Date pursuant to "Certain
Covenants -- Limitation on Guarantees by Restricted Subsidiaries" to (i) execute
and deliver to the Trustee a supplemental indenture in form reasonably
satisfactory to the Trustee pursuant to which such Restricted Subsidiary shall
become a party to the Indenture and thereby unconditionally guarantee all of the
Issuers' Obligations under the Notes and the Indenture on the terms set forth
therein and (ii) deliver to the Trustee an Opinion of Counsel that such
supplemental indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a valid, binding and enforceable
obligation of such Restricted Subsidiary (which opinion may be subject to
customary assumptions and qualifications). Thereafter, such Restricted
Subsidiary shall (unless released in accordance with the terms of this
Indenture) be a Guarantor for all purposes of the Indenture.
Each Guarantee is a continuing guarantee and will (a) remain in full force
and effect until payment in full of all of the obligations covered thereby, (b)
be binding upon each Guarantor and (c) inure to the benefit of and be
enforceable by the Trustee, the Holders and their successors, transferees and
assigns.
The Indenture provides that if the Notes are defeased in accordance with
the terms of the Indenture, or if, subject to the requirements of the first
paragraph under "-- Certain Covenants -- Merger, Sale of Assets, etc." all or
substantially all of the assets of any Guarantor or all of the Equity Interests
of any Guarantor are sold (including by issuance or otherwise) by the Company in
a transaction constituting an Asset Sale, and if (x) the Net Cash Proceeds from
such Asset Sale are used in accordance with the covenant described under
"Certain Covenants-Disposition of Proceeds of Asset Sales" or (y) the Company
delivers to the Trustee an Officers' Certificate to the effect that the Net Cash
Proceeds from such Asset Sale shall be used in accordance with the covenant
described under "Certain Covenants -- Disposition of Proceeds of Asset Sales"
and within the time limits specified by such covenant, then such Guarantor (in
the event of a sale or other disposition of all of the Equity Interests of such
Guarantor) or the corporation acquiring such assets (in the event of a sale or
other disposition of all or substantially all of the assets of such Guarantor)
shall be released and discharged of its Guarantee obligations in respect of the
Indenture and the Notes. In addition, if no Default or Event of Default has
occurred and is continuing, upon the release of the guarantees of any Guarantor
of amounts outstanding under the Credit Facilities, the Guarantee of such
Guarantor shall be automatically released.
Any Guarantor that is designated an Unrestricted Subsidiary pursuant to and
in accordance with "Designation of Unrestricted Subsidiaries" below shall upon
such Designation be released and discharged of its Guarantee obligations in
respect of the Indenture and the Notes and any Unrestricted Subsidiary whose
Designation is revoked pursuant to "Designation of Unrestricted Subsidiaries"
below will be required to become a Guarantor in accordance with the procedure
described in the third preceding paragraph.
OFFER TO PURCHASE UPON CHANGE OF CONTROL
Following the occurrence of a Change of Control (the date of such
occurrence being the "Change of Control Date"), the Company shall notify the
Holders of the Notes of such occurrence in the manner prescribed by the
Indenture and shall, within 20 days after the Change of Control Date, make an
Offer to Purchase all Notes then outstanding at a purchase price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the Purchase 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 a Change of Control occurs which also constitutes an event of default
under the Credit Facilities, the lenders under the Credit Facilities would be
entitled to exercise the remedies available to a secured lender under applicable
law and pursuant to the terms of the Credit Facilities. Accordingly, any claims
of such lenders with respect to the assets of the Issuers will be prior to any
claim of the Holders of the Notes with respect to such assets.
Neither the Board of Managers of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company and
its Restricted Subsidiaries to incur additional Indebtedness, to grant Liens on
their property, to make Restricted Payments and to make Asset Sales may also
make more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of
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any such transaction in certain circumstances may require redemption or
repurchase of the Notes, and there can be no assurance that the Company or the
acquiring party will have sufficient financial resources to effect such
redemption or repurchase. Such restrictions and the restrictions on transactions
with Affiliates may, in certain circumstances, make more difficult or discourage
any leveraged buyout of the Company or any of its Restricted Subsidiaries by the
management of the Company. While such restrictions cover a wide variety of
arrangements which have traditionally been used to effect highly leveraged
transactions, the Indenture may not afford the Holders of Notes protection in
all circumstances from the adverse aspects of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders of the Notes to
require that the Company repurchase or redeem the Notes in the event of a
takeover, recapitalization or similar transaction.
CERTAIN COVENANTS
Limitation on Indebtedness. The Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, Incur any
Indebtedness (including Acquired Indebtedness), except for Permitted
Indebtedness; provided, however,that the Company and any Domestic Restricted
Subsidiary may Incur Indebtedness if, at the time of and immediately after
giving pro forma effect to such Incurrence of Indebtedness and the application
of the proceeds therefrom, the Consolidated Coverage Ratio would be greater than
2.0 to 1.0 if the Indebtedness is Incurred prior to December 31, 1999 and 2.25
to 1.0 if the Indebtedness is Incurred thereafter; and provided further, that
any Foreign Restricted Subsidiary may incur Indebtedness in accordance with "--
Limitation on Foreign Indebtedness" below.
Limitation on Foreign Indebtedness. The Company shall not cause or permit
any Foreign Restricted Subsidiary of the Company to, directly or indirectly,
Incur any Indebtedness (including Acquired Indebtedness) other than Permitted
Indebtedness set forth in clauses (a) through (m) of the definition thereof
unless (i) the Indebtedness is Incurred, denominated and payable in U.S. dollars
or the local currencies of the jurisdictions of the operations of the Foreign
Restricted Subsidiary Incurring such Indebtedness or of the business or the
location of assets being acquired with the proceeds of such Indebtedness;
provided, however, that any Indebtedness permitted to be Incurred in a Western
European currency pursuant to this clause (i) may be Incurred in such Western
European currency or, any other Western European currency, (ii) after giving
effect to the Incurrence of such Indebtedness and the receipt of the application
of the proceeds therefrom, (A) if, as a result of the Incurrence of such
Indebtedness, such Restricted Subsidiary will be or become subject to any
restriction or limitation on the payment of dividends or the making of other
distributions, (I) the ratio of Foreign EBITDA to Foreign Interest Expense
(determined on a pro forma basis for the last four fiscal quarters for which
financial statements are available at the date of determination) is greater than
3.0 to 1.0 and (II) the Company's Consolidated Coverage Ratio (determined on a
pro forma basis for the last four fiscal quarters of the Company for which
financial statements are available at the date of determination) is greater than
2.0 to 1.0 if the Indebtedness is Incurred prior to December 31, 1999 and 2.25
to 1.0 if the Indebtedness is Incurred thereafter and (B) in any other case, the
Company's Consolidated Coverage Ratio (determined on a pro forma basis for the
last four fiscal quarters of the Company for which financial statements are
available at the date of determination) is greater than 2.0 to 1.0 if the
Indebtedness is Incurred prior to December 31, 1999 and 2.25 to 1.0 if the
Indebtedness is Incurred thereafter, and (iii) no Default or Event of Default
shall have occurred and be continuing at the time or as a consequence of the
Incurrence of such Indebtedness.
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Limitation on Senior Subordinated Indebtedness. The Company shall not,
directly or indirectly, Incur any Indebtedness that by its terms would expressly
rank senior in right of payment to the Notes and subordinate in right of payment
to any other Indebtedness of the Company.
The Company shall not permit any Guarantor to, and no Guarantor shall,
directly or indirectly, Incur any Indebtedness that by its terms would expressly
rank senior in right of payment to the Guarantee of such Guarantor and
subordinate in right of payment to any Indebtedness of such Guarantor.
Limitation on Restricted Payments. The Company shall not, and shall not
cause or permit any Restricted Subsidiary to, directly or indirectly,
(i) declare or pay any dividend or any other distribution on any
Equity Interests of the Company or any Restricted Subsidiary or make any
payment or distribution to the direct or indirect holders (in their
capacities as such) of Equity Interests of the Company or any Restricted
Subsidiary (other than any dividends, distributions and payments made to
the Company or any Restricted Subsidiary and dividends or distributions
payable to any Person solely in Qualified Equity Interests of the Company
or in options, warrants or other rights to purchase Qualified Equity
Interests of the Company);
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any Restricted Subsidiary (other than
any such Equity Interests owned by the Company or any Restricted
Subsidiary);
(iii) make any Investment in any Person (other than Permitted
Investments); or
(iv) designate any Subsidiary of the Company as an "Unrestricted
Subsidiary" under the Indenture (a "Designation"); provided, however, that
the Designation of a Subsidiary of the Company as an Unrestricted
Subsidiary shall be deemed to include the Designation of all of the
Subsidiaries of such Subsidiary.
(any such payment or any other action (other than any exception thereto)
described in (i), (ii), (iii) or (iv) each, a "Restricted Payment"), unless
(a) no Default or Event of Default shall have occurred and be continuing at
the time of or immediately after giving effect to such Restricted Payment;
(b) immediately after giving effect to such Restricted Payment, the Company
would be able to Incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the "Limitation on Indebtedness" covenant above; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate amount of all Restricted Payments declared or made on or after the
Issue Date does not exceed an amount equal to the sum of (1) 50% of cumulative
Consolidated Net Income determined for the period (taken as one period) from the
beginning of the first fiscal quarter commencing on the Issue Date and ending on
the last day of the most recent fiscal quarter immediately preceding the date of
such Restricted Payment for which consolidated financial information of the
Company is available (or if such cumulative Consolidated Net Income shall be a
loss, minus 100% of such loss), plus (2) 100% of the aggregate net cash proceeds
received by the Company either (x) as capital contributions to the Company after
the Issue Date or (y) from the issue and sale (other than to a Restricted
Subsidiary) of its Qualified Equity Interests after the Issue Date (excluding
the net proceeds from any issuance and sale of Qualified Equity Interests
financed, directly or indirectly, using funds borrowed from the Company or any
Restricted Subsidiary until and to the extent such borrowing is repaid), plus
(3) the principal amount (or accreted amount (determined in accordance with
GAAP), if less) of any Indebtedness of the Company or any Restricted Subsidiary
Incurred after the Issue Date which has been converted into or exchanged for
Qualified Equity Interests of the Company (minus the amount of any cash or
property distributed by the Company or any Restricted Subsidiary upon such
conversion or exchange), plus (4) so long as the Designation thereof was treated
as a Restricted Payment made after the Issue Date, with respect to any
Unrestricted Subsidiary that has been redesignated as a Restricted Subsidiary
after the Issue Date in accordance with "Designation of Unrestricted
Subsidiaries" below, the Company's proportionate interest in an amount equal to
the Fair Market Value of such Subsidiary, plus (5) in the case of the
disposition or
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repayment of any Investment constituting a Restricted Payment made after the
Issue Date (including the sale of an Unrestricted Subsidiary) or dividends,
distributions or interest payments received in cash, an amount equal to 100% of
the net cash proceeds received by the Company or its Restricted Subsidiaries
therefrom.
The foregoing provisions will not prevent (i) the payment of any dividend
or distribution on, or redemption of, Equity Interests within 60 days after the
date of declaration of such dividend or distribution or the giving of formal
notice of such redemption, if at the date of such declaration or giving of such
formal notice such payment or redemption would comply with the provisions of the
Indenture; (ii) the purchase, redemption, retirement or other acquisition of any
Equity Interests of the Company or its Restricted Subsidiaries that are not
owned by the Company or its Restricted Subsidiaries in exchange for, or out of
the net cash proceeds of the substantially concurrent issue and sale (other than
to a Restricted Subsidiary) of, Qualified Equity Interests of the Company;
provided, however, that any such net cash proceeds and the value of any
Qualified Equity Interests issued in exchange for such retired Equity Interests
are excluded from clause (c)(2) of the preceding paragraph (and were not
included therein at any time) and are not used to redeem the Notes pursuant to
"-- Optional Redemption" above; (iii) the purchase, redemption or other
acquisition for value of Equity Interests of the Company (other than
Disqualified Capital Stock) or options on such Equity Interests held by officers
or employees or former officers or employees (or their estates or beneficiaries
under their estates) upon the death, disability, retirement or termination of
employment of such current or former officers or employees pursuant to the terms
of an employee benefit plan or any other agreement pursuant to which such shares
of capital stock or options were issued or pursuant to a severance, buy-sell or
right of first refusal agreement with such current or former officer or
employee; provided, however, that the aggregate cash consideration paid, or
distributions made, pursuant to this clause (iii) does not exceed $5.0 million;
(iv) Investments constituting Restricted Payments made as a result of the
receipt of non-cash consideration from any Asset Sale made pursuant to and in
compliance with "-- Disposition of Proceeds of Asset Sales" below; (v) Tax
Distributions; (vi) the payment of dividends on the Company's Common Stock,
following the first Public Equity Offering of the Company's Common Stock after
the Issue Date, of up to 6% per annum of the net proceeds received by the
Company in such public offering; and (vii) the purchase, redemption, retirement
or other acquisition prior to June 30, 1999 of Equity Interests of the Company
from unaffiliated third parties; provided, however, that the aggregate cash
consideration paid pursuant to this clause (vii) does not exceed $7.5 million;
provided, however, that in the case of each of clauses (ii), (iii), (iv), (vi)
and (vii) no Default or Event of Default shall have occurred and be continuing
or would arise therefrom.
In determining the amount of Restricted Payments permissible under this
covenant, amounts expended pursuant to clauses (i), (iii), (iv), (vi) and (vii)
of the immediately preceding paragraph shall be included as Restricted Payments.
The amount of any non-cash Restricted Payment shall be deemed to be equal to the
Fair Market Value thereof at the date of the making of such Restricted Payment.
In determining the amount of any Restricted Payment made under clause (iv) of
the first paragraph of this covenant, the amount of such Restricted Payment (the
"Designation Amount") shall be equal to the Fair Market Value of the Company's
proportionate interest in such Subsidiary on such date. Any such Designation
shall be evidenced by a Board Resolution.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company shall not, and shall not cause or permit any
Restricted Subsidiary to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions to the Company or any other Restricted Subsidiary on its Equity
Interests or with respect to any other interest or participation in, or measured
by, its profits, or pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (b) make loans or advances to, or guarantee any
Indebtedness or other obligations of, or make any Investment in, the Company or
any other Restricted Subsidiary or (c) transfer any of its properties or assets
to the Company or any other Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (i) the Credit
Facilities, or any other agreement of the Company or the Restricted Subsidiaries
outstanding on the Issue Date, in each case as in effect on the Issue Date, and
any amendments, restatements, renewals, replacements or refinancings thereof;
provided, however, that any such amendment, restatement, renewal, replacement or
refinancing is no more restrictive in the aggregate with respect to such
encumbrances or
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restrictions than those contained in the agreement being amended, restated,
reviewed, replaced or refinanced; (ii) applicable law; (iii) any instrument
governing Indebtedness or Equity Interests of an Acquired Person acquired by the
Company or any Restricted Subsidiary as in effect at the time of such
acquisition (except to the extent such Indebtedness was Incurred by such
Acquired Person in connection with, as a result of or in anticipation or
contemplation of such acquisition); provided, however, that such encumbrances
and restrictions are not applicable to the Company or any Restricted Subsidiary,
or the properties or assets of the Company or any Restricted Subsidiary, other
than the Acquired Person; (iv) customary non-assignment provisions in contracts
or leases entered into in the ordinary course of business and consistent with
past practices; (v) Purchase Money Indebtedness for property acquired in the
ordinary course of business that only imposes encumbrances and restrictions on
the property so acquired; (vi) any agreement for the sale or disposition of the
Equity Interests or assets of any Restricted Subsidiary; provided, however, that
such encumbrances and restrictions described in this clause (vi) are only
applicable to such Restricted Subsidiary or assets, as applicable, and any such
sale or disposition is made in compliance with Disposition of Proceeds of Asset
Sales" below to the extent applicable thereto; (vii) secured Indebtedness
otherwise permitted to be incurred pursuant to the covenants described under
"Limitation on Indebtedness" and "Limitation on Liens" that limit the right of
the debtor to dispose of the assets securing such Indebtedness; (viii) customary
provisions in joint venture agreements and other similar agreements entered into
in the ordinary course of business; (ix) an agreement governing Indebtedness
incurred to refinance the Indebtedness issued, assumed or incurred pursuant to
an agreement referred to in clauses (i) through (viii) above; provided, however,
that the provisions relating to such encumbrance or restriction contained in any
such Indebtedness are no less restrictive in the aggregate than the provisions
relating to such encumbrance or restriction contained in agreements referred to
in such clauses; (x) an agreement governing Senior Indebtedness permitted to be
incurred pursuant to the "Limitation on Indebtedness" covenant; provided,
however, that the provisions relating to such encumbrance or restriction
contained in such Indebtedness are no less favorable to the Company in any
material respect as determined by the Board of Managers of the Company in its
reasonable and good faith judgment than the provisions contained in the Amended
and Restated Credit Agreement as in effect on the Issue Date; or (xi) the
Indenture.
Designation of Unrestricted Subsidiaries. The Company shall not and shall
not cause or permit any Restricted Subsidiary at any time to (x) provide credit
support for, subject any of its property or assets (other than the Equity
Interests of any Unrestricted Subsidiary) to the satisfaction of, or guarantee,
any Indebtedness of any Unrestricted Subsidiary (including any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be
directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon or cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary, except for any non-recourse
guarantee given solely to support the pledge by the Company or any Restricted
Subsidiary of the capital stock of any Unrestricted Subsidiary.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") only if:
(i) no Default or Event of Default shall have occurred and be
continuing at the time of and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if Incurred at
such time, be permitted to be Incurred for all purposes of the Indenture.
All Designations and Revocations must be evidenced by resolutions of the
Board of Managers of the Company, delivered to the Trustee certifying compliance
with the foregoing provisions.
Limitation on Liens. The Company shall not, and shall not cause or permit
any Restricted Subsidiary to, directly or indirectly, Incur any Liens of any
kind against or upon any of their respective properties or assets now owned or
hereafter acquired, or any proceeds therefrom or any income or profits
therefrom, to secure any Indebtedness unless contemporaneously therewith
effective provision is made, in the case of the Company, to
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secure the Notes and all other amounts due under the Indenture, and in the case
of a Restricted Subsidiary which is a Guarantor, to secure such Restricted
Subsidiary's Guarantee of the Notes and all other amounts due under the
Indenture, equally and ratably with such Indebtedness (or, in the event that
such Indebtedness is subordinated in right of payment to the Notes or such
Restricted Subsidiary's Guarantee, prior to such Indebtedness) with a Lien on
the same properties and assets securing such Indebtedness for so long as such
Indebtedness is secured by such Lien, except for (i) Liens securing Senior
Indebtedness and Guarantor Senior Indebtedness and (ii) Permitted Liens.
Disposition of Proceeds of Asset Sales. The Company shall not, and shall
not cause or permit any Restricted Subsidiary to, directly or indirectly, make
any Asset Sale, unless (i) the Company or such Restricted Subsidiary, as the
case may be, receives consideration at the time of such Asset Sale at least
equal to the Fair Market Value of the assets sold or otherwise disposed of and
(ii) at least 75% of such consideration consists of (A) cash or Cash
Equivalents; provided, however, that the amount of (x) any liabilities (as shown
on the Company's or such Restricted Subsidiary's most recent balance sheet) of
the Company or any Restricted Subsidiary (other than liabilities that are by
their terms subordinated to the Notes) that are assumed by the transferee of any
such assets, and (y) any notes or other obligations received by the Company or
any such Restricted Subsidiary from such transferee that are immediately
converted by the Company or such Restricted Subsidiary into cash (to the extent
of the cash received) shall be deemed to be cash for the purposes of this clause
(A), or (B) properties and capital assets that replace the properties and assets
that were the subject of such Asset Sale or in properties and capital assets
that will be used in a Related Business ("Replacement Assets"); provided,
however, that if such property or assets subject to such Asset Sale were
directly owned by the Company or a Guarantor, such Replacement Assets shall also
be directly owned by the Company or a Guarantor. The amount of any Indebtedness
(other than any Subordinated Indebtedness) of the Company or any Restricted
Subsidiary that is actually assumed by the transferee in such Asset Sale and
from which the Company and the Restricted Subsidiaries are fully and
unconditionally released shall be deemed to be cash for purposes of determining
the percentage of cash consideration received by the Company or the Restricted
Subsidiaries.
The Company or such Restricted Subsidiary, as the case may be, may (i)
apply the Net Cash Proceeds of any Asset Sale within 180 days of receipt thereof
to repay Senior Indebtedness and permanently reduce any related commitment, or
(ii) make an Investment in Replacement Assets; provided, however, that such
Investment occurs or the Company or a Restricted Subsidiary enters into
contractual commitments to make such Investment, subject only to customary
conditions (other than the obtaining of financing), on or prior to the 180th day
following the receipt of such Net Cash Proceeds and Net Cash Proceeds
contractually committed are so applied within 270 days following the receipt of
such Net Cash Proceeds.
To the extent all or part of the Net Cash Proceeds of any Asset Sale are
not applied as described in clause (i) or (ii) of the immediately preceding
paragraph within the time periods set forth therein (the "Net Proceeds
Utilization Date") (such Net Cash Proceeds, the "Unutilized Net Cash Proceeds"),
the Company shall, within 20 days after such Net Proceeds Utilization Date, make
an Offer to Purchase all outstanding Notes up to a maximum principal amount
(expressed as a multiple of $1,000) of Notes equal to such Unutilized Net Cash
Proceeds, at a purchase price in cash equal to 100% of the principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the Purchase Date;
provided, however, that the Offer to Purchase may be deferred until there are
aggregate Unutilized Net Cash Proceeds equal to or in excess of $5 million, at
which time the entire amount of such Unutilized Net Cash Proceeds, and not just
the amount in excess of $5 million, shall be applied as required pursuant to
this paragraph.
With respect to any Offer to Purchase effected pursuant to this covenant,
among the Notes, to the extent the aggregate principal amount of Notes tendered
pursuant to such Offer to Purchase exceeds the Unutilized Net Cash Proceeds to
be applied to the repurchase thereof, such Notes shall be purchased pro rata
based on the aggregate principal amount of such Notes tendered by each Holder.
To the extent the Unutilized Net Cash Proceeds exceed the aggregate amount of
Notes tendered by the Holders of the Notes pursuant to such Offer to Purchase,
the Company may retain and utilize any portion of the Unutilized Net Cash
Proceeds not applied to repurchase the Notes for any purpose consistent with the
other terms of the Indenture and such
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Unutilized Net Cash Proceeds shall no longer be counted in determining the
available amount of Unutilized Net Cash Proceeds for purposes of this covenant.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to an Offer to Purchase. To the extent that the
provisions of any securities laws or regulations conflict with the "Asset Sale"
provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
Each Holder shall be entitled to tender all or any portion of the Notes
owned by such Holder pursuant to the Offer to Purchase, subject to the
requirement that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount and subject to any proration among tendering
Holders as described above.
Merger, Sale of Assets, etc. The Indenture provides that neither of the
Issuers may consolidate with or merge with or into any other entity and the
Company shall not and shall not cause or permit any Restricted Subsidiary to,
sell, convey, assign, transfer, lease or otherwise dispose of all or
substantially all of the Company's and the Restricted Subsidiaries' properties
and assets (determined on a consolidated basis for the Company and the
Restricted Subsidiaries) to any entity in a single transaction or series of
related transactions, unless: (i) either (x) the Company shall be the Surviving
Person or (y) the Surviving Person (if other than the Company) shall be a
corporation or limited liability company organized and validly existing under
the laws of the United States of America or any State thereof or the District of
Columbia or, if any such Restricted Subsidiary was a Foreign Restricted
Subsidiary, under the laws of the United States of America or any state thereof
or the District of Columbia or the jurisdiction under which such Foreign
Restricted Subsidiary was organized, and shall, in any such case, expressly
assume by a supplemental indenture, the due and punctual payment of the
principal of, premium, if any, and interest on all the Notes and the performance
and observance of every covenant of the Indenture and the Registration Rights
Agreement to be performed or observed on the part of the Company; (ii)
immediately thereafter, no Default or Event of Default shall have occurred and
be continuing; and (iii) immediately after giving effect to any such transaction
involving the Incurrence by the Company or any Restricted Subsidiary, directly
or indirectly, of additional Indebtedness (and treating any Indebtedness not
previously an obligation of the Company or any Restricted Subsidiary in
connection with or as a result of such transaction as having been Incurred at
the time of such transaction), the Surviving Person could Incur at least $1.00
of additional Indebtedness (other than Permitted Indebtedness) under the
Consolidated Coverage Ratio of the first paragraph of "Limitation on
Indebtedness" covenant described above.
Notwithstanding the foregoing clause (iii) of the immediately preceding
paragraph, any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company or any
Restricted Subsidiary that is a Guarantor.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all the properties and assets of one or more Restricted
Subsidiaries the Equity Interest of which constitutes all or substantially all
the properties and assets of the Company shall be deemed to be the transfer of
all or substantially all the properties and assets of the Company.
No Guarantor (other than a Guarantor whose Guarantee is to be released in
accordance with the terms of its Guarantee and the Indenture as provided in the
third paragraph under "Guarantees of the Notes" above) shall consolidate with or
merge with or into another Person, whether or not such Person is affiliated with
such Guarantor and whether or not such Guarantor is the Surviving Person, unless
(i) the Surviving Person (if other than such Guarantor) is a corporation or
limited liability company organized and validly existing under the laws of the
United States, any State thereof or the District of Columbia; (ii) the Surviving
Person (if other than such Guarantor) expressly assumes by a supplemental
indenture all the obligations of such Guarantor under its Guarantee of the Notes
and the performance and observance of every covenant of the Indenture and the
Registration Right Agreement to be performed or observed by such Guarantor;
(iii) at the
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time of and immediately after such Disposition, no Default or Event of Default
shall have occurred and be continuing; and (iv) immediately after giving effect
to any such transaction involving the Incurrence by such Guarantor, directly or
indirectly, of additional Indebtedness (and treating any Indebtedness not
previously an obligation of such Guarantor in connection with or as a result of
such transaction as having been Incurred at the time of such transaction), the
Company could Incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the Consolidated Coverage Ratio of the first
paragraph of the "Limitation of Indebtedness" covenant described above;
provided, however, that this paragraph shall not be a condition to a merger or
consolidation of a Guarantor if such merger or consolidation only involves the
Company and/or one or more other Guarantors.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraphs in
which the Company or a Guarantor, as the case may be, is not the Surviving
Person and the Surviving Person is to assume all the Obligations of the Company
under the Notes, the Indenture and the Registration Rights Agreement or of such
Guarantor under its Guarantee, the Indenture and the Registration Rights
Agreement, as the case may be, pursuant to a supplemental indenture, such
Surviving Person shall succeed to, and be substituted for, and may exercise
every right and power of, the Company or such Guarantor, as the case may be, and
the Company, as the case may be, shall be discharged from its Obligations under
the Indenture and the Notes or such Guarantor shall be discharged from its
Obligations under the Indenture and its Guarantee.
Transactions with Affiliates. The Company shall not, and shall not cause or
permit any Restricted Subsidiary to, directly or indirectly, conduct any
business or enter into any transaction (or series of related transactions) with
or for the benefit of any of their respective Affiliates (including, without
limitation, any Unrestricted Subsidiary) or any officer, director or employee of
the Company or any Subsidiary (each an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms which are no less favorable to the Company or
such Restricted Subsidiary, as the case may be, than could be available in a
comparable transaction with an unaffiliated third party and (ii) if such
Affiliate Transaction (or series of related Affiliate Transactions) involves
aggregate payments or other consideration having a Fair Market Value in excess
of $1.0 million, such Affiliate Transaction is in writing and a majority of the
disinterested members of the Board of Managers of the Company shall have
approved such Affiliate Transaction and determined that such Affiliate
Transaction complies with the foregoing provisions. In addition, any Affiliate
Transaction involving aggregate payments or other consideration having a Fair
Market Value in excess of $5.0 million will also require a written opinion from
an Independent Financial Advisor (filed with the Trustee) stating that the terms
of such Affiliate Transaction are fair, from a financial point of view, to the
Company or the Restricted Subsidiary involved in such Affiliate Transaction, as
the case may be.
Notwithstanding the foregoing, the restrictions set forth in this covenant
shall not apply to (i) transactions with or among the Company and any Restricted
Subsidiary or between or among Restricted Subsidiaries; (ii) reasonable fees and
compensation paid to, and indemnity provided on behalf of, officers, directors,
employees, consultants or agents of the Company or any Restricted Subsidiary of
the Company as determined in good faith by the Company's Board of Managers;
(iii) any transactions undertaken pursuant to any contractual obligations in
existence on the Issue Date (as in effect on the Issue Date); (iv) any
Restricted Payments made in compliance with "Limitation on Restricted Payments"
above; (v) the provision by Persons who may be deemed Affiliates or stockholders
of the Company of investment banking, commercial banking, trust, lending or
financing, investment, underwriting, placement agent, financial advisory or
similar services to the Company or its Subsidiaries; (vi) reasonable and
customary loans to employees of the Company and its Subsidiaries which are
approved by the Board of Managers of the Company in good faith; and (vii)
transactions with customers, clients, suppliers or purchasers or sellers of
goods or services, in each case in the ordinary course of business and otherwise
in compliance with the terms of the Indenture, which are fair to the Company or
its Restricted Subsidiaries, in the reasonable determination of the Board of
Managers of the Company or the senior management thereof, or are on terms at
least as favorable as might reasonably have been obtained at such time from an
unaffiliated party.
Limitation on the Sale or Issuance of Equity Interests of Restricted
Subsidiaries. The Company shall not sell any Equity Interest of a Restricted
Subsidiary, and shall not cause or permit any Restricted Subsidiary,
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directly or indirectly, to issue or sell or have outstanding any Equity
Interests, except: (i) to the Company or a Wholly Owned Restricted Subsidiary;
or (ii) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary.
Notwithstanding the foregoing, the Company is permitted to sell all the Equity
Interests of a Restricted Subsidiary as long as the Company is in compliance
with the terms of the covenants described under "Disposition of Proceeds of
Asset Sales" and, if applicable, "Merger, Sale of Assets, etc." above.
Guarantees by Restricted Subsidiaries. The Indenture provides that the
Company will not create or acquire, nor cause or permit any of the Restricted
Subsidiaries, directly or indirectly, to create or acquire, any Subsidiary other
than (A) an Unrestricted Subsidiary in accordance with the other terms of the
Indenture, (B) a Foreign Restricted Subsidiary or (C) a Domestic Restricted
Subsidiary that, simultaneously with such creation or acquisition, executes and
delivers a supplemental indenture to the Indenture pursuant to which it will
become a Guarantor under the Indenture in accordance with "Guarantees of the
Notes" above.
Provision of Financial Information. Whether or not the Company is subject
to Section 13(a) or 15(d) of the Exchange Act, or any successor provision
thereto, the Company shall file with the SEC (if permitted by SEC practice and
applicable law and regulations) the annual reports, quarterly reports and other
documents which the Issuers would have been required to file with the SEC
pursuant to such Section 13(a) or 15(d) or any successor provision thereto if
the Company were so subject, such documents to be filed with the SEC on or prior
to the respective dates (the "Required Filing Dates") by which the Company would
have been required so to file such documents if the Company were so subject. The
Company shall also in any event (a) within 15 days of each Required Filing Date
(whether or not permitted or required to be filed with the SEC) (i) transmit (or
cause to be transmitted) by mail to all Holders, as their names and addresses
appear in the Note register, without cost to such Holders, and (ii) file with
the Trustee, copies of the annual reports, quarterly reports and other documents
which the Company is required to file with the SEC pursuant to the preceding
sentence, or, if such filing is not so permitted, information and data of a
similar nature, and (b) if, notwithstanding the preceding sentence, filing such
documents by the Issuers with the SEC is not permitted by SEC practice or
applicable law or regulations, promptly upon written request supply copies of
such documents to any Holder. In addition, for so long as any Notes remain
outstanding and prior to the later of the consummation of the Exchange Offer and
the filing of the Initial Shelf Registration Statement, if required, the Company
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act, and, to any beneficial holder of
Notes, if not obtainable from the SEC, information of the type that would be
filed with the SEC pursuant to the foregoing provisions, upon the request of any
such holder.
EVENTS OF DEFAULT
The occurrence of any of the following is defined as an "Event of Default"
under the Indenture: (a) failure to pay principal of (or premium, if any, on)
any Note when due (whether or not prohibited by the provisions of the Indenture
described under "Subordination of the Notes" above); (b) failure to pay any
interest on any Note when due, which failure continues for 30 days or more
(whether or not prohibited by the provisions of the Indenture described under
"Subordination of the Notes" above); (c) default in the payment of principal of
or interest on any Note required to be purchased pursuant to any Offer to
Purchase required by the Indenture when due and payable or failure to pay on the
Purchase Date the Purchase Price for any Note validly tendered pursuant to any
Offer to Purchase (whether or not prohibited by the provisions of the Indenture
described under "Subordination of the Notes" above); (d) failure to perform any
other covenant or agreement of the Company under the Indenture or in the Notes
or of the Guarantors under the Indenture or in the Guarantees which failure
continues for 30 days or more after written notice to the Company by the Trustee
or Holders of at least 25% in aggregate principal amount of the outstanding
Notes; (e) default or defaults under the terms of one or more instruments
evidencing or securing Indebtedness of the Company or any of its Restricted
Subsidiaries having an outstanding principal amount of $5.0 million or more
individually or in the aggregate that has resulted in the acceleration of the
payment of such Indebtedness or failure by the Company or any of its Restricted
Subsidiaries to pay principal when due at the stated maturity of any such
Indebtedness and such default or defaults shall have continued after any
applicable grace period and shall not
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have been cured or waived; (f) the rendering of a final judgment or judgments
(not subject to appeal) against the Company or any of its Restricted
Subsidiaries in an amount of $5.0 million or more (net of any amounts covered by
insurance) which remains undischarged or unstayed for a period of 60 days after
the date on which the right to appeal has expired; (g) certain events of
bankruptcy, insolvency or reorganization affecting the Company or any of its
Significant Restricted Subsidiaries; or (h) other than as provided in or
pursuant to any Guarantee or the Indenture, any Guarantee of a Significant
Restricted Subsidiary ceases to be in full force and effect or is declared null
and void and unenforceable or found to be invalid or any Guarantor denies in
writing its liability under its Guarantee (other than by reason of a release of
such Guarantor from its Guarantee in accordance with the terms of the Indenture
and such Guarantee).
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders of Notes, unless
such Holders shall have offered to the Trustee reasonable indemnity. Subject to
such provisions for the indemnification of the Trustee, the Holders of a
majority in aggregate principal amount of the outstanding Notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
such Trustee.
If an Event of Default with respect to the Notes (other than an Event of
Default with respect to the Company described in clause (g) of the preceding
paragraph) occurs and is continuing, the Trustee or the Holders of at least 25%
in aggregate principal amount of the outstanding Notes, by notice in writing to
the Company may declare the unpaid principal of (and premium, if any) and
accrued interest to the date of acceleration on all the outstanding Notes to be
due and payable immediately and, upon any such declaration, such principal
amount (and premium, if any) and accrued interest, notwithstanding anything
contained in the Indenture or the Notes to the contrary will become immediately
due and payable. If an Event of Default specified in clause (g) of the preceding
paragraph with respect to the Company occurs under the Indenture, the Notes will
ipso facto become immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder of the Notes.
Any such declaration with respect to the Notes may be annulled by the
Holders of a majority in aggregate principal amount of the outstanding Notes
upon the conditions provided in the Indenture. For information as to waiver of
defaults, see "Modification and Waiver" below.
The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the Notes
outstanding, give the Holders of the Notes thereof notice of all uncured
Defaults or Events of Default thereunder known to it; provided, however, that,
except in the case of a Default or an Event of Default in payment with respect
to the Notes or a Default or Event of Default in complying with "Certain
Covenants -- Merger, Sale of Assets, etc." above, the Trustee shall be protected
in withholding such notice if and so long as a committee of its trust officers
in good faith determines that the withholding of such notice is in the interest
of the Holders of the Notes.
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default thereunder and unless the Holders of at least 25% of the aggregate
principal amount of the outstanding Notes shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as the
Trustee, and the Trustee shall have not have received from the Holders of a
majority in aggregate principal amount of such outstanding Notes a direction
inconsistent with such request and shall have failed to institute such
proceeding within 60 days. However, such limitations do not apply to a suit
instituted by a Holder of such a Note for enforcement of payment of the
principal of and premium, if any, or interest on such Note on or after the
respective due dates expressed in such Note.
The Company is required to furnish to the Trustee annually a statement as
to the performance by the Issuers of certain of their obligations under the
Indenture and as to any default in such performance.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATOR, MEMBERS,
MANAGERS AND STOCKHOLDERS
No director, officer, employee, incorporator, member, manager or
stockholder of either of the Issuers or any of their Affiliates, as such, shall
have any liability for any obligations of either of the Issuers or any of their
Affiliates under the Notes or the Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each holder of
Notes by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the outstanding Notes, except for (i) the rights of Holders to
receive payments in respect of the principal of, premium, if any, and interest
on the Notes when such payments are due, (ii) the Company's obligations with
respect to the Notes concerning issuing temporary Notes, registration of Notes,
mutilated, destroyed, lost or stolen Notes and the maintenance of an office or
agency for payments, (iii) the rights, powers, trust, duties and immunities of
the Trustee and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or an Event of Default with respect
to the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, reorganization and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, non-callable United States Government
Obligations, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the Notes on the
stated date for payment thereof or on the applicable redemption date, as the
case may be; (ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from, or
there has been published by, the Internal Revenue Service a ruling or (B) since
the date of the Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon such
opinion of counsel shall confirm that, the Holders will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit or, insofar as
Events of Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of deposit; (v) such
Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under, the Indenture or any other material
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound; (vi) the
Company shall have delivered to the Trustee an officers' certificate stating
that the deposit was not made by the Company with the intent of preferring the
Holders over any other creditors of the Company or with the intent of defeating,
hindering, delaying or defrauding any other creditors of the Company or others;
(vii) the Company shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent provided
for or relating to the Legal Defeasance
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or the Covenant Defeasance have been complied with; (viii) the Company shall
have delivered to the Trustee an opinion of counsel to the effect that (A) the
trust funds will not be subject to any rights of holders of Senior Indebtedness,
including, without limitation, those arising under the Indenture, and (B)
assuming no intervening bankruptcy of the Company between the date of deposit
and the 91st day following the date of the deposit and that no Holder is an
insider of the Company, after the 91st day following the date of the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; and (ix) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the opinion of counsel required by clause (ii)
above need not be delivered if all Notes not theretofore delivered to the
Trustee for cancellation (x) have become due and payable, (y) will become due
and payable on the maturity date within one year or (z) are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name, and at the
expense, of the Company.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration or transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
GOVERNING LAW
The Indenture, the Notes and the Guarantees are governed by the laws of the
State of New York without regard to principles of conflicts of laws.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Issuers,
the Guarantors, and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the outstanding Notes (including consents obtained
in connection with a tender offer or exchange offer for the Notes); provided,
however, that no such modification or amendment to the Indenture may, without
the consent of the Holder of each Note affected thereby, (a) change the maturity
of the principal of or any installment of interest on any such Note or alter the
optional redemption or repurchase provisions of any such Note or the Indenture
in a manner adverse to the Holders of the Notes; (b) reduce the principal amount
(or the premium) of any such Note; (c) reduce the rate of or extend the time for
payment of interest on any such Note; (d) change the place or currency of
payment of principal of (or premium) or interest on any such Note; (e) modify
any provisions of the Indenture relating to the waiver of past defaults (other
than to add sections of the Indenture or the Notes subject thereto) or the right
of the Holders of Notes to institute suit for the enforcement of any payment on
or with respect to any such Note or any Guarantee in respect thereof or the
modification and amendment provisions of the Indenture and the Notes (other than
to add sections of the Indenture or the Notes which may not be amended,
supplemented or waived without the consent of each Holder affected); (f) reduce
the percentage of the principal amount of outstanding Notes necessary for
amendment to or waiver of compliance with any provision of the Indenture or the
Notes or for waiver of any Default in respect thereof;
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(g) waive a default in the payment of principal of, interest on, or redemption
payment with respect to, the Notes (except a rescission of acceleration of the
Notes by the Holders thereof as provided in the Indenture and a waiver of the
payment default that resulted from such acceleration); (h) modify the ranking or
priority of any Note or the Guarantee in respect thereof of any Guarantor or
modify the definition of Senior Indebtedness or Guarantor Senior Indebtedness or
amend or modify the subordination provisions of the Indenture in any manner
adverse to the Holders of the Notes; (i) modify the provisions of any covenant
(or the related definitions) in the Indenture requiring the Company to make an
Offer to Purchase in a manner materially adverse to the Holders of Notes
affected thereby otherwise than in accordance with the Indenture; or (j) release
any Guarantor from any of its obligations under its Guarantee or the Indenture
otherwise than in accordance with the Indenture.
The Holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all Holders of Notes, may waive compliance by the Issuers
and the Guarantors with certain restrictive provisions of the Indenture. Subject
to certain rights of the Trustee, as provided in the Indenture, the Holders of a
majority in aggregate principal amount of the Notes, on behalf of all Holders,
may waive any past default under the Indenture (including any such waiver
obtained in connection with a tender offer or exchange offer for the Notes),
except a default in the payment of principal, premium or interest or a default
arising from failure to purchase any Notes tendered pursuant to an Offer to
Purchase, or a default in respect of a provision that under the Indenture cannot
be modified or amended without the consent of the Holder of each Note that is
affected.
THE TRUSTEE
Except during the continuance of a Default, the Trustee will perform only
such duties as are specifically set forth in the Indenture. During the existence
of a Default, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent person would exercise under the circumstances in the conduct of such
person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of either of the Issuers, any Guarantor or any other obligor
upon the Notes, to obtain payment of claims in certain cases or to realize on
certain property received by it in respect of any such claim as security or
otherwise. The Trustee is permitted to engage in other transactions with the
Issuers or an Affiliate of the Issuers; provided, however, that if it acquires
any conflicting interest (as defined in the Indenture or in the Trust Indenture
Act), it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Acquisition from such Person or (b) existing at the time such
Person becomes a Restricted Subsidiary or is merged or consolidated with or into
the Company or any Restricted Subsidiary.
"Acquired Person" means, with respect to any specified Person, any other
Person which merges with or into or becomes a Subsidiary of such specified
Person.
"Acquisition" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Restricted
Subsidiary to any other Person, or any acquisition or purchase of Equity
Interests of any other Person by the Company or any Restricted Subsidiary, in
either case pursuant to which such Person shall become a Restricted Subsidiary
or shall be consolidated with or merged into the Company or any Restricted
Subsidiary or (ii) any acquisition by the Company or any Restricted Subsidiary
of the assets of any Person which constitute substantially all of an operating
unit or line of business of such Person or which is otherwise outside of the
ordinary course of business.
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"Acquisition Facility" means a credit facility entered into by the Company
and one or more commercial banks or other lenders pursuant to which the Company
and/or its Restricted Subsidiaries may incur Indebtedness for the purpose of
financing one or more acquisitions of assets or equity securities of any Related
Business and paying related fees and expenses.
"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 purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
(that has the effect of a disposition) or other disposition (including, without
limitation, any merger, consolidation or sale-leaseback transaction) to any
Person other than the Company or a Wholly Owned Restricted Subsidiary, in one
transaction or a series of related transactions, of (i) any Equity Interest of
any Restricted Subsidiary (other than directors' qualifying shares, to the
extent mandated by applicable law); (ii) any assets of the Company or any
Restricted Subsidiary which constitute substantially all of an operating unit or
line of business of the Company or any Restricted Subsidiary; or (iii) any other
property or asset of the Company or any Restricted Subsidiary outside of the
ordinary course of business (including the receipt of proceeds paid on account
of the loss of or damage to any property or asset and awards of compensation for
any asset taken by condemnation, eminent domain or similar proceedings). For the
purposes of this definition, the term "Asset Sale" shall not include (a) any
transaction consummated in compliance with "Certain Covenants -- Merger, Sale of
Assets, etc." above and the creation of any Lien not prohibited by "Certain
Covenants -- Limitation on Liens" above; (b) sales of property or equipment that
has become worn out, obsolete or damaged or otherwise unsuitable for use in
connection with the business of the Company or any Restricted Subsidiary, as the
case may be; (c) any transaction consummated in compliance with "Certain
Covenants -- Limitation on Restricted Payments" above; and (d) any transfers of
properties and assets to the Company, between the Company and Wholly Owned
Restricted Subsidiaries that are Guarantors or between Wholly Owned Restricted
Subsidiaries. In addition, solely for purposes of "Certain
Covenants -- Disposition of Proceeds of Asset Sales" above, any sale,
conveyance, transfer, lease or other disposition of any property or asset,
whether in one transaction or a series of related transactions, involving assets
with a Fair Market Value not in excess of $1.0 million in any fiscal year shall
be deemed not to be an Asset Sale.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the present value (discounted according
to GAAP at the cost of indebtedness implied in the lease) of the total
obligations of the lessee for rental payments during the remaining term of the
lease included in such Sale and Lease-Back Transaction (including any period for
which such lease has been extended).
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Managers of such Person or a duly authorized
committee of such Board of Managers.
"Capitalized Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on the balance sheet in
accordance with GAAP.
"Cash Equivalents" means: (a) securities issued or directly and fully
guaranteed or insured by the U.S. government or any agency or instrumentality
thereof, the government of Canada or the government of any member of the
European Union, in each case having maturities of not more than one year from
the date of acquisition; (b) domestic and Eurocurrency certificates of deposit,
time deposits and base rate certificates of deposit with maturities of six
months or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any commercial bank incorporated under the laws of the United States, any
state thereof, the District of Columbia or its branches or agencies or under the
laws of Canada or the laws of any member of the European Union and having
capital and surplus in excess of $250 million and whose long-term debt is rated
at least "A" (or such similar equivalent rating) or higher by at least one
nationally recognized statistical rating organization (as defined in Rule 436
under the
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Act); (c) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (a) and (b) above
entered into with any financial institution meeting the qualifications specified
in clause (b) above; (d) commercial paper rated P-1, A-1 or the equivalent
thereof by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's
Ratings Group ("S&P"), respectively, and in each case maturing within six months
after the date of acquisition; (e) marketable direct obligations issued by any
state of the United States of America or any political subdivision of any such
state or any public instrumentality thereof maturing within one year from the
date of acquisition thereof and, at the time of acquisition, having one of the
two highest ratings obtainable from either S&P or Moody's; (f) investments in
money market funds which invest substantially all their assets in securities of
the types described in clauses (a) through (e) above; and (g) in the case of any
Foreign Restricted Subsidiary, Investments: (i) in direct obligations of the
sovereign nation (or any agency thereof) in which such Foreign Restricted
Subsidiary is organized and is conducting business or in obligations fully and
unconditionally guaranteed by such sovereign nation (or any agency thereof) or
(ii) of the type and maturity described in clauses (a) and (b) above of foreign
obligors, which Investments or obligors (of the parents of such obligors) have
ratings described in such clauses or equivalent ratings from comparable foreign
rating agencies.
"Change of Control" means the occurrence of any of the following events
(whether or not approved by the Board of Managers of the Company): (i) any
Person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act,
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other
than one or more Permitted Holders, is or becomes the "beneficial owner" (as
defined in Rule 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all shares that any such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time, upon the happening of an event or otherwise),
directly or indirectly, of more than 35% of the total voting power of the then
outstanding Voting Equity Interests of the Company; (ii) the Company
consolidates with, or merges with or into, another Person (other than a Wholly
Owned Restricted Subsidiary) or the Company or any of its Subsidiaries sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of the assets of the Company and its Subsidiaries (determined
on a consolidated basis) to any Person (other than the Company or any Wholly
Owned Restricted Subsidiary), other than any such transaction where immediately
after such transaction the Person or Persons that "beneficially owned" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have "beneficial ownership" of all securities that such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time) immediately prior to such transaction,
directly or indirectly, a majority of the total voting power of the then
outstanding Voting Equity Interests of Holdings or the Company, as the case may
be, "beneficially own" (as so determined), directly or indirectly, a majority of
the total voting power of the then outstanding Voting Equity Interests of the
surviving or transferee Person; (iii) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Managers of the Company (together with any new directors whose election by such
Board of Managers or whose nomination for election by the members of the Company
was approved by a vote of a majority of the directors of the Company 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 Managers of the Company then in
office; or (iv) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution other than in a transaction which complies with the
provisions described under "--Merger, Sale of Assets, etc."
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of Consolidated EBITDA for the four quarter
period of the most recent four consecutive fiscal quarters ending prior to the
date of such determination (the "Four Quarter Period") to (ii) Consolidated
Fixed Charges for such Four Quarter Period; provided, however, that (1) if the
Company or any Restricted Subsidiary has incurred any Indebtedness since the
beginning of such Four Quarter Period that remains outstanding on such date of
determination or if the transaction giving rise to the need to calculate the
Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated
EBITDA and Consolidated Fixed Charges for such Four Quarter 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 Four Quarter Period
and the
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discharge of any other Indebtedness repaid, repurchased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had occurred on
the first day of such Four Quarter Period, (2) if since the beginning of such
Four Quarter Period the Company or any Restricted Subsidiary shall have made any
Asset Sale described in clauses (i) or (ii) of the definition thereof, the
Consolidated EBITDA for such Four Quarter Period shall be reduced by an amount
equal to the Consolidated EBITDA (if positive) directly attributable to the
assets that are the subject of such Asset Sale for such Four Quarter Period or
increased by an amount equal to the Consolidated EBITDA (if negative) directly
attributable thereto for such Four Quarter Period and Consolidated Fixed Charges
for such Four Quarter Period shall be reduced by an amount equal to the
Consolidated Fixed Charges directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased or otherwise discharged
with respect to the Company and its continuing Restricted Subsidiaries in
connection with such Asset Sale for such Four Quarter Period (or, if the Equity
Interests of any Restricted Subsidiary are sold, the Consolidated Fixed Charges
for such Four Quarter Period directly attributable to the Indebtedness of such
Restricted Subsidiary to the extent the Company and its continuing Restricted
Subsidiaries are no longer liable for such Indebtedness after such sale), (3) if
since the beginning of such Four Quarter Period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person that becomes a Restricted Subsidiary) or an
acquisition of assets, including any acquisition of assets occurring in
connection with a transaction causing a calculation to be made hereunder, which
constitutes all or substantially all of an operating unit of a business,
Consolidated EBITDA and Consolidated Fixed Charges for such Four Quarter 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 Four Quarter Period and (4) if since the beginning of such
Four Quarter Period any Person (that subsequently became a Restricted Subsidiary
or was merged with or into the Company or any Restricted Subsidiary since the
beginning of such Four Quarter Period) shall have made any Asset Sale or any
Investment or acquisition of assets that would have required an adjustment
pursuant to clause (2) or (3) above if made by the Company or a Restricted
Subsidiary during such Four Quarter Period, Consolidated EBITDA and Consolidated
Fixed Charges for such Four Quarter Period shall be calculated after giving pro
forma effect thereto as if such Asset Sale, Investment or acquisition of assets
occurred on, with respect to any Investment or acquisition, the first day of
such Four Quarter Period and, with respect to any Asset Sale, the day prior to
the first day of such Four Quarter 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 Fixed
Charges 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 Company in accordance with Regulation S-X
under the Securities Act as in effect on the Issue Date. 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 agreement under which Interest Rate Protection
Obligations are outstanding applicable to such Indebtedness if such agreement
under which such Interest Rate Protection Obligations are outstanding has a
remaining term as at the date of determination in excess of 12 months);
provided, however, that the Consolidated Fixed Charges of the Company
attributable to interest on any Indebtedness Incurred under a revolving credit
facility computed on a pro forma basis shall be computed based upon the average
daily balance of such Indebtedness during the Four Quarter Period.
"Consolidated EBITDA" means, for any period, the Consolidated Net Income
for such period, plus the following to the extent deducted in calculating such
Consolidated Net Income: (i) Consolidated Income Tax Expense for such period;
(ii) Consolidated Interest Expense for such period; and (iii) Consolidated
Non-cash Charges for such period less (A) all non-cash items increasing
Consolidated Net Income for such period and (B) all cash payments during such
period relating to non-cash charges that were added back in determining
Consolidated EBITDA in any prior period.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense and
(ii) the product of (x) the amount of all dividends on any series of Preferred
Equity Interest (other than Qualified Equity Interests) of such Person and its
Restricted Subsidiaries (other than dividends paid solely in Qualified Equity
Interests) paid, accrued or
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scheduled to be paid or accrued during such period times (y) a fraction, the
numerator of which is one and the denominator of which is one minus the then
current effective consolidated federal, state and local tax rate of such Person,
expressed as a decimal.
"Consolidated Income Tax Expense" means, with respect to the Company for
any period, the provision for federal, state, local and foreign income taxes
payable by the Company and the Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, with respect to the Company for any
period, without duplication, the sum of (i) the interest expense of the Company
and the Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP, including, without limitation, (a) any
amortization of debt discount and amortization or write-off of deferred
financing costs, (b) the net cost or benefit under Interest Rate Protection
Obligations (including any amortization of discounts), (c) the interest portion
of any deferred payment obligation, (d) all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing, (e) all capitalized interest and all accrued interest, (f) non-cash
interest expense and (g) interest on Indebtedness of another Person that is
guaranteed by the Company or any Restricted Subsidiary actually paid by the
Company or any Restricted Subsidiary and (ii) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company and the Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, for any period, the consolidated net
income (loss) of the Company and the Restricted Subsidiaries; provided, however,
that there shall not be included in such Consolidated Net Income: (i) any net
income (loss) of any Person if such person is not a Subsidiary, except (A) to
the extent of cash actually distributed by such Person during such period to the
Company or a Restricted Subsidiary as a dividend or other distribution and (B)
the Company's equity in a net loss of any such Person (other than an
Unrestricted Subsidiary) for such period shall be included in determining such
Consolidated Net Income; (ii) any net income (loss) of any person acquired by
the Company or a Restricted Subsidiary in a pooling of interests transaction for
any period prior to the date of such acquisition; (iii) any net income (but not
loss) 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
Company to the extent of such restrictions; (iv) any gain or loss realized upon
the sale or other disposition of any asset of the Company or the Restricted
Subsidiaries (including pursuant to any sale/leaseback transaction) outside of
the ordinary course of business (including, without limitation, on or with
respect to Investments) and there shall not be included dividends, distributions
or interest thereon; (v) any extraordinary gain or loss and any foreign currency
gains or losses; (vi) the cumulative effect of a change in accounting principles
after the Issue Date; and (vii) any restoration to income of any contingency
reserve of an extraordinary, non-recurring or unusual nature, except to the
extent that provision for such reserve was made out of Consolidated Net Income
accrued at any time following the Issue Date.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period the sum of (A) depreciation, (B) amortization and (C) other non-cash
expenses of such Person and its Restricted Subsidiaries reducing Consolidated
Net Income of such Person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP (excluding, for
purposes of clause (C) only, such charges which require an accrual of or a
reserve for cash charges or payments for any future period and excluding
minority interest).
"Credit Facilities" means (i) the Second Amended and Restated Credit
Agreement, dated as of August 5, 1997, among the Company, the Subsidiaries of
the Company identified on the signature pages thereof and any Restricted
Subsidiary that is later added thereto, the lenders named therein, NBD Bank, as
Administrative Agent and Documentation and Collateral Agent, and The Chase
Manhattan Bank, as Co-Administrative Agent and Syndication Agent, (ii) the
Credit Agreement, dated as of July 2, 1997, among Advanced Accessory Systems
Canada Inc., First Chicago NBD Bank, Canada, as Agent, First Chicago NBD Bank,
Canada and The Chase Manhattan Bank of Canada, as lenders and the guarantors
identified on the signature pages thereof and (iii) an Acquisition Facility, in
each case, as amended, including any deferrals,
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renewals, extensions, replacements, refinancings or refundings thereof, or
amendments, modifications or supplements thereto and any agreement providing
therefor, whether by or with the same or any other lender, creditor, group of
lenders or group of creditors, and including related notes, guarantee and note
agreements and other instruments and agreements executed in connection
therewith.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Designated Senior Indebtedness" means (a) any Indebtedness outstanding
under the Credit Facilities and (b) any other Senior Indebtedness which, at the
time of determination, has an aggregate principal amount outstanding, together
with any commitments to lend additional amounts, of at least $25.0 million, if
the instrument governing such Senior Indebtedness expressly states that such
Indebtedness is "Designated Senior Indebtedness" for purposes of the Indenture.
"Disposition" means, with respect to any Person, any merger, consolidation
or other business combination involving such Person (whether or not such Person
is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or
other disposition of all or substantially all of such Person's assets.
"Disqualified Equity Interest" means any Equity Interest which, by its
terms (or by the terms of any security into which it is convertible or for which
it is exchangeable at the option of the holder thereof), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable, at the option of the holder thereof
(except, in each case, upon the occurrence of a Change of Control), in whole or
in part, or exchangeable into Indebtedness on or prior to the final maturity
date of the Notes.
"Domestic" with respect to any Person shall mean a Person whose
jurisdiction of incorporation or formation is the United States, any state
thereof or the District of Columbia.
"Equity Interest" in any Person means any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any Preferred Equity Interests.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Existing Management Holder" means each of F. Alan Smith, Marshall D.
Gladchun, Roger T. Morgan, Terence C. Seikel, Richard E. Borghi, Barry Banducci
and Gerard J. Brink.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length free market transaction, for cash, between a
willing seller and a willing and able buyer, neither of which is under any
compulsion to complete the transaction; provided, however, that the Fair Market
Value of any such asset or assets shall be determined conclusively by the Board
of Managers of the Company acting in good faith, and shall be evidenced by
resolutions of the Board of Managers of the Company delivered to the Trustee.
"Foreign EBITDA" means, for any period, the aggregate of the Consolidated
EBITDA of each of the Company's Foreign Restricted Subsidiaries.
"Foreign Interest Expense" means, for any period, the aggregate of the
Consolidated Interest Expense of each of the Company's Foreign Restricted
Subsidiaries.
"Foreign Restricted Subsidiary" means a Restricted Subsidiary other than a
Domestic Restricted Subsidiary.
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"GAAP" means, at any date of determination, generally accepted accounting
principles in effect in the United States which are applicable at the date of
determination and which are consistently applied for all applicable periods.
"Guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Guarantee" means the guarantee of the Notes by each Guarantor under the
Indenture.
"Guarantor" means (i) each Domestic Subsidiary of the Company existing on
the Issue Date and (ii) each other Domestic Restricted Subsidiary, formed,
created or acquired before or after the Issue Date, required to become a
Guarantor after the Issue Date.
"Guarantor Senior Indebtedness" means, with respect to any Guarantor, at
any date, (a) all Obligations of such Guarantor under the Credit Facilities; (b)
all Interest Rate Protection Obligations of such Guarantor; (c) all Obligations
of such Guarantor under letters of credit; and (d) all other Indebtedness of
such Guarantor, including principal, premium, if any, and interest (including
Post-Petition Interest) on such Indebtedness unless the instrument under which
such Indebtedness of such Guarantor is Incurred expressly provides that such
Indebtedness is not senior or superior in right of payment to such Guarantor's
Guarantee of the Notes, and all renewals, extensions, modifications, amendments
or refinancings thereof. Notwithstanding the foregoing, Guarantor Senior
Indebtedness shall not include (a) to the extent that it may constitute
Indebtedness, any Obligation for federal, state, local or other taxes; (b) any
Indebtedness among or between such Guarantor and any Subsidiary of such
Guarantor or any Affiliate of such Guarantor or any of such Affiliate's
Subsidiaries; (c) to the extent that it may constitute Indebtedness, any
Obligation in respect of any trade payable Incurred for the purchase of goods or
materials, or for services obtained, in the ordinary course of business; (d)
Indebtedness evidenced by such Guarantor's Guarantee of the Notes; (e)
Indebtedness of such Guarantor that is expressly subordinate or junior in right
of payment to any other Indebtedness of such Guarantor; (f) to the extent that
it may constitute Indebtedness, any obligation owing under leases (other than
Capitalized Lease Obligations) or management agreements; and (g) any obligation
that by operation of law is subordinate to any general unsecured obligations of
such Guarantor.
"Holders" means the registered holders of the Notes.
"Income Tax Liabilities" means with respect to any member or, in the event
such member is a flow-through entity, such direct or indirect owner or owners of
such member as is or are subject to income taxes on income of the Company or any
of its Restricted Subsidiaries that are limited liability companies for any
calendar year, an amount determined by multiplying (a) such Person's allocable
share of all taxable income and gains of such limited liability company by (b)
forty four percent (44%).
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have meanings
correlative to the foregoing). Indebtedness of any Acquired Person or any of its
Subsidiaries existing at the time such Acquired Person becomes a Restricted
Subsidiary (or is merged into or consolidated with the Company or any Restricted
Subsidiary), whether or not such Indebtedness was Incurred in connection with,
as a result of, or in contemplation of, such Acquired Person becoming a
Restricted Subsidiary (or being merged into or consolidated with the Company or
any Restricted Subsidiary), shall be deemed Incurred at the time any such
Acquired Person becomes a Restricted Subsidiary or merges into or consolidates
with the Company or any Restricted Subsidiary.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and whether
or not contingent, (a) every obligation of such Person for
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money borrowed; (b) every obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments; (c) every reimbursement
obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such Person; (d)
every obligation of such Person issued or assumed as the deferred purchase price
of property or services (but excluding trade accounts payable incurred in the
ordinary course of business and payable in accordance with industry practices,
or other accrued liabilities arising in the ordinary course of business); (e)
every Capital Lease Obligation of such Person; (f) every net obligation under
Interest Rate Protection Obligations or similar agreements or Currency
Agreements of such Person; (g) Attributable Indebtedness; (h) every obligation
of the type referred to in clauses (a) through (g) of another Person the payment
of which, in either case, such Person has guaranteed or is responsible or liable
for, directly or indirectly, as obligor, guarantor or otherwise; and (i) any and
all deferrals, renewals, extensions and refundings of, or amendments,
modifications or supplements to, any liability of the kind described in any of
the preceding clauses (a) through (h) above. Indebtedness (i) shall not include
obligations of any Person (x) arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
drawn against insufficient funds in the ordinary course of business, provided
that such obligations are extinguished within five Business Days of their
incurrence, (y) resulting from the endorsement of negotiable instruments for
collection in the ordinary course of business and consistent with past business
practices and (z) under stand-by letters of credit to the extent collateralized
by cash or Cash Equivalents; (ii) which provides that an amount less than the
principal amount thereof shall be due upon any declaration of acceleration
thereof shall be deemed to be incurred or outstanding in an amount equal to the
accreted value thereof at the date of determination; (iii) shall include the
liquidation preference and any mandatory redemption payment obligations in
respect of any Disqualified Equity Interests of the Company or any Restricted
Subsidiary; and (iv) shall not include obligations under performance bonds,
performance guarantees, surety bonds and appeal bonds, letters of credit or
similar obligations, incurred in the ordinary course of business.
"Independent Financial Advisor" means a nationally recognized, accounting,
appraisal or investment banking firm or consultant (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Managers of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Insolvency or Liquidation Proceeding" means, with respect to any Person,
any liquidation, dissolution or winding up of such Person, or any bankruptcy,
reorganization, insolvency, receivership or similar proceeding with respect to
such Person, whether voluntary or involuntary.
"interest" means, with respect to the Notes, the sum of any cash interest
and any Additional Interest (as defined under "Registration Rights" below) on
the Notes.
"Interest Rate Protection Obligations" means, with respect to any Person,
the Obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
loan, advance, guarantee or other extension of credit or capital contribution to
(by means of transfers of cash or other property or assets to others or payments
for property or services for the account or use of others, or otherwise), or
purchase or acquisition of capital stock, bonds, notes, debentures or other
securities or evidences of Indebtedness issued by, any other Person. For
purposes of the "Limitation on Restricted Payments" covenant above, the amount
of any Investment shall be the original cost of such Investment, plus the cost
of all additions thereto, but without any other adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such
Investment; reduced by the payment of dividends or distributions in connection
with such Investment or any other amounts received in respect of such
Investment; provided, however, that no such payment of dividends or
distributions or receipt of any such other amounts shall reduce the amount of
any Investment if such payment of dividends or distributions or receipt of any
such amounts would be included in Consolidated Net Income. In determining the
amount of any Investment involving a transfer of any property or asset other
than cash, such property shall be valued at its Fair Market Value at the time of
such transfer, as determined in
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good faith by the Board of Managers (or comparable body) of the Person making
such transfer. If the Company or any Restricted Subsidiary sells or otherwise
disposes of any Voting Equity Interests of any direct or indirect Restricted
Subsidiary such that, after giving effect to any such sale or disposition, the
Company no longer owns, directly or indirectly, greater than 50% of the
outstanding Voting Equity Interests of such Restricted Subsidiary, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of Voting Equity Interests of such
former Restricted Subsidiary not sold or disposed of.
"Issue Date" means the original issue date of the Notes.
"Lien" means any lien, mortgage, charge, security interest, hypothecation,
assignment for security or encumbrance of any kind (including any conditional
sale or capital lease or other title retention agreement, any lease in the
nature thereof, and any agreement to give any security interest).
"Maturity Date" means the date, which is set forth on the face of the
Notes, on which the Notes will mature.
"Net Cash Proceeds" means the aggregate proceeds in the form of cash or
Cash Equivalents received by the Company or any Restricted Subsidiary in respect
of any Asset Sale, including all cash or Cash Equivalents received upon any
sale, liquidation or other exchange of proceeds of Asset Sales received in a
form other than cash or Cash Equivalents, net of (a) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof; (b) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements); (c) amounts required to be applied to the repayment of
Indebtedness secured by a Lien on the asset or assets that were the subject of
such Asset Sale (including payments made to obtain or avoid the need for the
consent of any holder of such Indebtedness); (d) amounts deemed, in good faith,
appropriate by the Board of Managers of the Company to be provided as a reserve,
in accordance with GAAP, against any liabilities associated with such assets
which are the subject of such Asset Sale; including, without limitation, pension
and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale, all as reflected in an officers' certificate
delivered to the Trustee (provided that the amount of any such reserves shall be
deemed to constitute Net Cash Proceeds at the time such reserves shall have been
reversed or are not otherwise required to be retained as a reserve); and (e)
with respect to Asset Sales by Restricted Subsidiaries, the portion of such cash
payments attributable to Persons holding a minority interest in such Restricted
Subsidiary.
"Obligations" means any principal, interest (including, without limitation,
Post-Petition Interest), penalties, fees, indemnifications, reimbursement
obligations, damages and other liabilities payable under the documentation
governing any Indebtedness.
"Offer to Purchase" means a written offer (the "Offer") sent by or on
behalf of the Company by first-class mail, postage prepaid, to each holder at
his address appearing in the register for the Notes on the date of the Offer
offering to purchase up to the principal amount of Notes specified in such Offer
at the purchase price specified in such Offer (as determined pursuant to the
Indenture). Unless otherwise required by applicable law, the Offer shall specify
an expiration date (the "Expiration Date") of the Offer to Purchase, which shall
be not less than 30 days nor more than 60 days after the date of such Offer, and
a settlement date (the "Purchase Date") for purchase of Notes to occur no later
than five Business Days after the Expiration Date. The Company shall notify the
Trustee at least 15 days (or such shorter period as is acceptable to the
Trustee) prior to the mailing of the Offer of the Company's obligation to make
an Offer to Purchase, and the Offer shall be mailed by the Company or, at the
Company's request, by the Trustee in the name and at the expense of the Company.
The Offer shall also contain information concerning the business of the Company
and its Subsidiaries which the Company in good faith believes will enable such
Holders to make an informed decision with respect to the Offer to Purchase
(which at a minimum will include (i) the most recent annual and quarterly
financial statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in the documents required to be
filed with the Trustee pursuant to the Indenture (which requirements may be
satisfied by delivery of such documents together with the Offer), (ii) a
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description of material developments in the Company's business subsequent to the
date of the latest of such financial statements referred to in clause (i)
(including a description of the events requiring the Company to make the Offer
to Purchase), (iii) if applicable, appropriate pro forma financial information
concerning the Offer to Purchase and the events requiring the Company to make
the Offer to Purchase and (iv) any other information required by applicable law
to be included therein). The Offer shall contain all instructions and materials
necessary to enable such Holders to tender Notes pursuant to the Offer to
Purchase. The Offer shall also state: (1) the Section of the Indenture pursuant
to which the Offer to Purchase is being made; (2) the Expiration Date and the
Purchase Date; (3) the aggregate principal amount of the outstanding Notes
offered to be purchased by the Company pursuant to the Offer to Purchase
(including, if less than 100%, the manner by which such amount has been
determined pursuant to the Section of the Indenture requiring the Offer to
Purchase) (the "Purchase Amount"); (4) the purchase price to be paid by the
Company for each $1,000 aggregate principal amount of Notes accepted for payment
(as specified pursuant to the Indenture) (the "Purchase Price"); (5) that the
Holder may tender all or any portion of the Notes registered in the name of such
Holder and that any portion of a Note tendered must be tendered in an integral
multiple of $1,000 principal amount; (6) the place or places where Notes are to
be surrendered for tender pursuant to the Offer to Purchase; (7) that interest
on any Note not tendered or tendered but not purchased by the Company pursuant
to the Offer to Purchase will continue to accrue; (8) that on the Purchase Date
the Purchase Price will become due and payable upon each Note being accepted for
payment pursuant to the Offer to Purchase and that interest thereon shall cease
to accrue on and after the Purchase Date; (9) that each Holder electing to
tender all or any portion of a Note pursuant to the Offer to Purchase will be
required to surrender such Note at the place or places specified in the Offer
prior to the close of business on the Expiration Date (such Note being, if the
Company or the Trustee so requires, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or his attorney duly authorized in
writing); (10) that each Holder will be entitled to withdraw all or any portion
of any Notes tendered by such Holder if the Company (or its Paying Agent)
receives, not later than the close of business on the fifth Business Day next
preceding the Expiration Date, a telegram, telex, facsimile transmission or
letter setting forth the name of such Holder, the principal amount of the Note
such Holder tendered, the certificate number of the Note such Holder tendered
and a statement that such Holder is withdrawing all or a portion of his tender;
(11) that (a) if Notes in an aggregate principal amount less than or equal to
the Purchase Amount are duly tendered and not withdrawn pursuant to the Offer to
Purchase, the Company shall purchase all such Notes and (b) if Notes in an
aggregate principal amount in excess of the Purchase Amount are tendered and not
withdrawn pursuant to the Offer to Purchase, the Company shall purchase Notes
having an aggregate principal amount equal to the Purchase Amount on a pro rata
basis (with such adjustments as may be deemed appropriate so that only Notes in
denominations of $1,000 principal amount or integral multiples thereof shall be
purchased); and (12) that in the case of any Holder whose Note is purchased only
in part, the Company shall execute and the Trustee shall authenticate and
deliver to the Holder of such Note without service charge, a new Note or Notes,
of any authorized denomination as requested by such Holder, in an aggregate
principal amount equal to and in exchange for the unpurchased portion of the
Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee.
"Permitted Holder" means each of (i) CCP and its affiliates, (ii) the
Existing Management Holders and (iii) any corporation, a majority of the
outstanding Voting Equity Interests of which are owned, directly or indirectly,
by persons listed in clauses (i) and (ii) of this definition, and no more than
35% of the outstanding Voting Equity Interests of which are beneficially owned,
directly or indirectly, by any Person (other than Permitted Holders) or group
acting for the purpose of acquiring, holding or disposing of securities within
the meaning of Rule 13d-15d(b)(1) under the Exchange Act.
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"Permitted Indebtedness" means the following, each of which shall be given
independent effect:
(a) Indebtedness under the Notes;
(b) Indebtedness of the Company or any Restricted Subsidiary Incurred
under the Credit Facilities in an aggregate principal amount at any one
time outstanding not to exceed the greater of (i) $25.0 million and (ii)
the sum of 85% of the total book value of accounts receivable and 50% of
the total book value of inventory, in each case as reflected on the
Company's most recent consolidated financial statements prepared in
accordance with GAAP;
(c) Indebtedness of any Restricted Subsidiary owed to and held by the
Company or any other Restricted Subsidiary, and Indebtedness of the Company
owed to and held by any Restricted Subsidiary which is unsecured and
subordinated in right of payment to the payment and performance of the
Company's obligations under any Senior Indebtedness, the Indenture and the
Notes; provided, however, that an Incurrence of Indebtedness that is not
permitted by this clause (c) shall be deemed to have occurred upon (i) any
sale or other disposition of any Indebtedness of the Company or any
Restricted Subsidiary referred to in this clause (c) to a Person (other
than the Company or a Restricted Subsidiary), (ii) any sale or other
disposition of Equity Interests of any Restricted Subsidiary which holds
Indebtedness of the Company or another Restricted Subsidiary such that such
Restricted Subsidiary ceases to be a Subsidiary and (iii) the Designation
of a Restricted Subsidiary that holds Indebtedness of the Company or any
other Restricted Subsidiary as an Unrestricted Subsidiary;
(d) the Guarantees and guarantees by any Guarantor of Indebtedness of
the Company or its Restricted Subsidiaries and the guarantees by the
Company of Indebtedness of the Restricted Subsidiaries; provided, however,
that if such guarantee is of Subordinated Indebtedness, then the Guarantee
of such Guarantor or the Company's obligations under the Notes, as the case
may be; shall be senior to such Guarantor's or the Company's, as the case
may be, guarantee of such Subordinated Indebtedness;
(e) Interest Rate Protection Obligations relating to Indebtedness of
the Company (which Indebtedness (i) bears interest at fluctuating interest
rates and (ii) is otherwise permitted to be Incurred under the "Limitation
on Indebtedness" covenant); provided, however, that (i) such Interest Rate
Protection Obligations have been entered into for bona fide business
purposes and not for speculation and (ii) the notional principal amount of
such Interest Rate Protection Obligations, at the time of the incurrence
thereof, does not exceed the principal amount of the Indebtedness to which
such Interest Rate Protection Obligations relate;
(f) Purchase Money Indebtedness and Capitalized Lease Obligations
which, at the time of the incurrence thereof, do not, in the aggregate with
all such other Indebtedness incurred pursuant to this clause (f), exceed
5.0% of the total assets of the Company and its Restricted Subsidiaries, on
a consolidated basis determined consistent with the Company's most recent
balance sheet prepared in accordance with GAAP at any one time outstanding;
(g) Indebtedness under Currency Agreements; provided, however, that in
the case of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the principal amount of Indebtedness of the
Company and its Restricted Subsidiaries outstanding other than as a result
of fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(h) Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the Issue Date, reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereof;
(i) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business
in an amount not to exceed $3.0 million in the aggregate at any time
outstanding;
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(j) Indebtedness arising from agreements of the Company or a
Restricted Subsidiary of the Company providing for indemnification,
adjustment of purchase price or similar obligations, in each case incurred
or assumed in connection with the disposition of any business, assets or a
Subsidiary, other than guarantees of Indebtedness incurred by any Person
acquiring all or any portion of such business, assets or Subsidiary for the
purpose of financing such acquisition; provided, however, that (i) such
Indebtedness is not reflected on the balance sheet of the Company or any
Restricted Subsidiary of the Company (contingent obligations referred to in
a footnote to financial statements and not otherwise reflected on the
balance sheet will not be deemed to be reflected on such balance sheet for
purposes of this clause (i)) and (ii) the maximum assumable liability in
respect of all such Indebtedness shall at no time exceed the gross proceeds
including noncash proceeds (the fair market value of such noncash proceeds
being measured at the time it is received and without giving effect to any
subsequent changes in value) actually received by the Company and its
Restricted Subsidiaries in connection with such disposition;
(k) Obligations in respect of performance and surety bonds and
completion guarantees provided by the Company or any Restricted Subsidiary
of the Company in the ordinary course of business;
(l) Indebtedness of the Company or any Restricted Subsidiary Incurred
under an Acquisition Facility in an aggregate principal amount at any one
time outstanding not to exceed $22.0 million, reduced by any required
permanent repayments (which are accompanied by corresponding permanent
commitment reduction thereunder);
(m) Indebtedness to the extent representing a replacement, renewal,
defeasance, refinancing or extension (collectively, a "refinancing") of
outstanding Indebtedness Incurred in compliance with the "Limitation on
Indebtedness" covenant or clauses (a), (h) or (l) of this definition;
provided, however, that (i) any such refinancing shall not exceed the sum
of the principal amount (or accreted amount (determined in accordance with
GAAP), if less) of the Indebtedness being refinanced, plus the amount of
accrued interest thereon, plus the amount of any reasonably determined
prepayment premium necessary to accomplish such refinancing and such
reasonable fees and expenses incurred in connection therewith, (ii)
Indebtedness representing a refinancing of Indebtedness other than Senior
Indebtedness shall have a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of the Indebtedness
being refinanced; and (iii) Indebtedness that is pari passu with the Notes
may only be refinanced with Indebtedness that is made pari passu with or
subordinate in right of payment to the Notes and Subordinated Indebtedness
may only be refinanced with Subordinated Indebtedness; and
(n) in addition to the items referred to in clauses (a) through (m)
above, Indebtedness of the Company (including any Indebtedness under the
Credit Facilities that utilizes this clause (m)) having an aggregate
principal amount not to exceed $10.0 million at any one time outstanding.
"Permitted Investments" means (a) cash and Cash Equivalents; (b)
Investments in prepaid expenses, negotiable instruments held for collection and
lease, utility and workers' compensation, performance and other similar
deposits; (c) Interest Rate Protection Obligations and Currency Agreements; (d)
Investments received in connection with the bankruptcy or reorganization of
suppliers and customers and in settlement of delinquent obligations of, and
other disputes with, customers and suppliers, in each case arising in the
ordinary course of business; (e) Investments in the Company and Investments in
Restricted Subsidiaries or Persons that, as a result of or in connection with
any such Investment, become Restricted Subsidiaries or are merged with or into
or consolidated with the Company or another Restricted Subsidiary; (f)
Investments paid for in Qualified Equity Interests of the Company; (g) loans or
advances to officers or employees of the Company and its Restricted Subsidiaries
in the ordinary course of business for bona fide business purposes of the
Company and its Restricted Subsidiaries (including, but not limited to, travel
and moving expenses) not in excess of $1 million in the aggregate at any one
time outstanding; (h) Investments in Replacement Assets made in compliance with
the "Limitation on Asset Sales" covenant; (i) Investments of a Person or any of
its Subsidiaries existing at the time such Person becomes a Restricted
Subsidiary of the Company or at the time such Person merges or consolidates with
the Company or any of its Restricted Subsidiaries, in either case in compliance
with the Indenture; provided that such Investments were not made by such Person
in connection
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with, or in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of the Company or such merger or consolidation; and (j) Investments
(including, without limitation, in the form of joint ventures with unaffiliated
third parties) in Related Businesses not in excess of $10 million in the
aggregate at any one time outstanding.
"Permitted Junior Securities" means any securities of the Company or any
other Person that are (i) equity securities without special covenants or (ii)
debt securities expressly subordinated in right of payment to all Senior
Indebtedness that may at the time be outstanding, to substantially the same
extent as, or to a greater extent than, the Notes are subordinated as provided
in the Indenture, in any event pursuant to a court order so providing and as to
which (a) the rate of interest on such securities shall not exceed the effective
rate of interest on the Notes on the date of the Indenture, (b) such securities
shall not be entitled to the benefits of covenants or defaults materially more
beneficial to the holders of such securities than those in effect with respect
to the Notes on the date of the Indenture and (c) such securities shall not
provide for amortization (including sinking fund and mandatory prepayment
provisions) commencing prior to the date six months following the final
scheduled maturity date of the Senior Indebtedness (as modified by the plan of
reorganization of readjustment pursuant to which such securities are issued).
"Permitted Liens" means (a) Liens on property of a Person existing at the
time such Person is merged into or consolidated with the Company or any
Restricted Subsidiary; provided, however, that such Liens were in existence
prior to the contemplation of such merger or consolidation and do not secure any
property or assets of the Company or any Restricted Subsidiary other than the
property or assets subject to the Liens prior to such merger or consolidation;
(b) Liens imposed by law such as carriers', warehousemen's, mechanics',
suppliers', materialmen's, landlords' and repairmen's Liens and other similar
Liens arising in the ordinary course of business which secure payment of
obligations not more than 30 days past due or which are being contested in good
faith and by appropriate proceedings; (c) Liens existing on the Issue Date; (d)
Liens securing only the Notes or the Guarantees; (e) Liens in favor of the
Company or any Restricted Subsidiary; (f) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested in good faith by appropriate proceedings; provided, however, that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor; (g) easements, reservation of rights of way,
restrictions (including, but not limited to, zoning and building restrictions)
and other similar easements, licenses, restrictions on the use of properties, or
minor imperfections of title that in the aggregate are not material in amount
and do not in any case materially detract from the properties subject thereto or
interfere with the ordinary conduct of the business of the Company and the
Restricted Subsidiaries; (h) Liens resulting from the deposit of cash or notes
in connection with contracts, bids, sales or tenders or expropriation
proceedings, or to secure workers' compensation, unemployment insurance and
other types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practices in
connection therewith, surety, appeal and performance bonds, costs of litigation
when required by law and public and statutory obligations or obligations under
franchise arrangements entered into in the ordinary course of business; (i)
Liens securing Indebtedness consisting of Capitalized Lease Obligations,
Purchase Money Indebtedness, mortgage financings, industrial revenue bonds or
other monetary obligations, in each case incurred solely for the purpose of
financing all or any part of the purchase price or cost of construction or
installation of assets used in the business of the Company or the Restricted
Subsidiaries, or repairs, additions or improvements to such assets, provided,
however, that (I) such Liens secure Indebtedness in an amount not in excess of
the original purchase price or the original cost of any such assets or repair,
addition or improvement thereto (plus an amount equal to the reasonable fees and
expenses in connection with the incurrence of such Indebtedness), (II) such
Liens do not extend to any other assets of the Company or the Restricted
Subsidiaries (and, in the case of repair, addition or improvements to any such
assets, such Lien extends only to the assets (and improvements thereto or
thereon) repaired, added to or improved), (III) the Incurrence of such
Indebtedness is permitted by "Certain Covenants -- Limitation on Indebtedness"
above and (IV) such Liens attach within 120 days of such purchase, construction,
installation, repair, addition or improvement; (j) any interest or title of a
lessor under any Capitalized Lease Obligation; provided, however, that such
Liens do not extend to any property or assets which are not leased property
subject to such Capitalized Lease Obligation; (k) Liens upon specific items of
inventory or other goods and proceeds of any Person securing such Person's
obligations in respect of bankers'
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acceptances issued or created for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or other goods; (l) Liens
securing reimbursement obligations with respect to commercial letters of credit
which encumber documents and other property relating to such letters of credit
and products and proceeds thereof; (m) Liens encumbering deposits made to secure
obligations arising from statutory, regulatory, contractual or warranty
requirements of the Company or any of its Restricted Subsidiaries, including
rights of offset and set-off; (n) Liens securing Interest Swap Obligations and
Currency Agreements which Obligations and agreements are otherwise permitted
under the Indenture; (o) Liens by reason of judgments, attachments or decree not
otherwise resulting in an Event of Default; (p) Liens securing Indebtedness of
non-Guarantor Restricted Subsidiaries Incurred in compliance with the Indenture;
and (q) Liens to secure any refinancings, renewals, extensions, modifications or
replacements (collectively, "refinancing") (or successive refinancings), in
whole or in part, of any Indebtedness secured by Liens referred to in the
clauses above so long as such Lien does not extend to any other property (other
than improvements thereto).
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited liability company, limited liability
partnership, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Post-Petition Interest" means, with respect to any Indebtedness of any
Person, all interest accrued or accruing on such Indebtedness after the
commencement of any Insolvency or Liquidation Proceeding against such Person in
accordance with and at the contract rate (including, without limitation, any
rate applicable upon default) specified in the agreement or instrument creating,
evidencing or governing such Indebtedness, whether or not, pursuant to
applicable law or otherwise, the claim for such interest is allowed as a claim
in such Insolvency or Liquidation Proceeding.
"Preferred Equity Interest," in any Person, means an Equity Interest 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 Equity
Interests of any other class in such Person.
"principal" of a debt security means the principal of the security plus,
when appropriate, the premium, if any, on the security.
"Public Equity Offering" means, with respect to the Company, an
underwritten public offering of Qualified Equity Interests of the Company
pursuant to an effective registration statement filed under the Securities Act
(excluding registration statements filed on Form S-8).
"Purchase Money Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary Incurred for the purpose of financing all or any part of
the purchase price or the cost of installation, construction or improvement of
any property; provided, however, that the aggregate principal amount of such
Indebtedness does not exceed the lesser of the fair market value of such
property or such purchase price or cost, including any refinancing of such
Indebtedness that does not increase the aggregate principal amount (or accreted
amount, if less) thereof as of the date of refinancing.
"Qualified Equity Interest" in any Person means any Equity Interest in such
Person other than any Disqualified Equity Interest.
"Related Business" means any business related, ancillary or complementary
(as determined in good faith by the Board of Managers) to the business of the
Company and the Restricted Subsidiaries on the Issue Date.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Managers of the Company, by a resolution of the
Board of Managers of the Company delivered to the Trustee, as an Unrestricted
Subsidiary pursuant to "Certain Covenants -- Designation of Unrestricted
Subsidiaries" above. Any such designation may be revoked by a resolution of the
Board of Managers of the Company delivered to the Trustee, subject to the
provisions of such covenant.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal Property, which
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property has been or is to be sold or transferred by the Company or such
Restricted Subsidiary to such Person in contemplation of such leasing.
"SEC" means the Securities and Exchange Commission.
"Senior Indebtedness" means, at any date, (a) all Obligations under the
Credit Facilities; (b) all Interest Rate Protection Obligations of the Company;
(c) all Obligations of the Company under letters of credit; and (d) all other
Indebtedness of the Company, including principal, premium, if any, and interest
(including Post-Petition Interest) on such Indebtedness, unless the instrument
under which such Indebtedness of the Company is Incurred expressly provides that
such Indebtedness is not senior or superior in right of payment to the Notes,
and all renewals, extensions, modifications, amendments or refinancings thereof.
Notwithstanding the foregoing, Senior Indebtedness shall not include (a) to the
extent that it may constitute Indebtedness, any Obligation for Federal, state,
local or other taxes; (b) any Indebtedness among or between the Company and any
Subsidiary of the Company; (c) to the extent that it may constitute
Indebtedness, any Obligation in respect of any trade payable Incurred for the
purchase of goods or materials, or for services obtained, in the ordinary course
of business; (d) Indebtedness evidenced by the Notes; (e) Indebtedness of the
Company that is expressly subordinate or junior in right of payment to any other
Indebtedness of the Company; (f) to the extent that it may constitute
Indebtedness, any obligation owing under leases (other than Capitalized Lease
Obligations) or management agreements; and (g) any obligation that by operation
of law is subordinate to any general unsecured obligations of the Company.
"Significant Restricted Subsidiary" means, at any date of determination,
(a) any Restricted Subsidiary that, together with its Subsidiaries that
constitute Restricted Subsidiaries (i) for the most recent fiscal year of the
Company accounted for more than 10.0% of the consolidated revenues of the
Company and the Restricted Subsidiaries or (ii) as of the end of such fiscal
year, owned more than 10.0% of the consolidated assets of the Company and the
Restricted Subsidiaries, all as set forth on the consolidated financial
statements of the Company and the Restricted Subsidiaries for such year prepared
in conformity with GAAP, and (b) any Restricted Subsidiary which, when
aggregated with all other Restricted Subsidiaries that are not otherwise
Significant Restricted Subsidiaries and as to which any event described in
clause (h) of "Events of Default" above has occurred, would constitute a
Significant Restricted Subsidiary under clause (a) of this definition.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable.
"Subordinated Indebtedness" means, with respect to the Issuers or any
Guarantor, any Indebtedness of the Issuers or such Guarantor, as the case may
be, which is expressly subordinated in right of payment to the Notes or such
Guarantor's Guarantee, as the case may be.
"Subsidiary" means, with respect to any Person, (a) any corporation of
which the outstanding Voting Equity Interests having at least a majority of the
votes entitled to be cast in the election of directors shall at the time be
owned, directly or indirectly, by such Person, or (b) any other Person of which
at least a majority of Voting Equity Interests are at the time, directly or
indirectly, owned by such first named Person.
"Surviving Person" means, with respect to any Person involved in or that
makes any Disposition, the Person formed by or surviving such Disposition or the
Person to which such Disposition is made.
"Tax Distribution" means, as of the time of determination thereof, any
distribution by the Company and any of its Restricted Subsidiaries that are
limited liability companies to their respective members (or in each case, if
such member is a flow-through entity, such direct or indirect owner or owners of
such member as is or are subject to income taxes on income of such limited
liability company) which (i) with respect to quarterly estimated tax payments
due in each calendar year shall be equal to twenty-five percent (25%) of the
relevant member's Income Tax Liabilities for such calendar year as estimated in
writing by the chief financial officer of the Company and (ii) with respect to
tax payments to be made with income tax returns filed for a full calendar year
or with respect to adjustments to such returns imposed by the Internal Revenue
Service or other taxing authority, shall be equal to the Income Tax Liabilities
of such member for such calendar year minus the aggregate amount distributed to
such member for such calendar year as provided in clause (i) above. In the
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event the amount determined under clause (ii) is negative amount, the amount of
any distributions to the relevant member in the succeeding calendar year (or, if
necessary, any subsequent calendar years) shall be reduced by such negative
amount.
"United States Government Obligations" means direct non-callable
obligations of the United States of America for the payment of which the full
faith and credit of the United States is pledged.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to the "Designation of Unrestricted Subsidiaries" covenant. Any
such designation may be revoked by a resolution of the Board of Managers of the
Company delivered to the Trustee, subject to the provisions of such covenant.
"Voting Equity Interests" means Equity Interests in a corporation or other
Person with voting power under ordinary circumstances entitling the holders
thereof to elect the Board of Managers or other governing body of such
corporation or Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required scheduled payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
aggregate principal amount of such Indebtedness.
"Western Europe" means, with respect to any jurisdictional matter, any of
the twelve current member states of the European Community and Switzerland,
Norway, Sweden, Finland, Austria and the Czech Republic (and "Western European"
shall have a meaning correlative to the foregoing).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
which at least 99.0% of the outstanding Voting Equity Interests (other than
qualifying shares or other Equity Interests owned by directors or other members
of any comparable governing body) of which are owned, directly or indirectly, by
the Company and/or one or more Wholly Owned Restricted Subsidiaries.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following are the material federal income tax consequences of
participating in the Exchange Offer. The exchange of Old Notes for New Notes in
the Exchange Offer should not constitute a taxable event to holders for United
States federal income tax purposes. Consequently, no gain or loss should be
recognized by a holder upon receipt of a New Note, the holding period of the New
Note will include the holding period of the Old Note and the basis of the New
Note will be the same as the basis of the Old Note immediately before the
exchange.
Notwithstanding the foregoing, the IRS might attempt to treat the Exchange
Offer as an "exchange" for federal income tax purposes. In such event the
Exchange Offer could be treated as a taxable transaction in which case a holder
would be required to recognize gain or loss equal to the difference between such
holder's tax basis in the Old Notes and the issue price of the New Notes and, in
some cases, a holder could be required to recognize original issue discount,
taxable as ordinary income.
PERSONS CONSIDERING THE EXCHANGE OF OLD NOTES FOR NEW NOTES SHOULD CONSULT
THEIR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN THE EXCHANGE OFFER IN LIGHT OF THEIR PARTICULAR
SITUATIONS AS WELL AS ANY CONSEQUENCES OF PARTICIPATING IN THE EXCHANGE OFFER
ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Issuers believe that the New
Notes issued pursuant to the Exchange Offer in exchange for Old
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Notes may be offered for resale, resold and otherwise transferred by any holder
thereof (other than any such holder that is an "affiliate" of the Issuers within
the meaning of Rule 405 promulgated under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holder's business, such holder has no arrangement with any person to participate
in the distribution of such New Notes and neither such holder nor any such other
person is engaging in or intends to engage in a distribution of such New Notes.
Accordingly, any holder who is an affiliate of the Issuers or any holder using
the Exchange Offer to participate in a distribution of the New Notes will not be
able to rely on such interpretations by the staff to the Commission and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a resale transaction. Notwithstanding the
foregoing, each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with any resale of New Notes received in exchange
for Old Notes where such Old Notes were acquired as a result of market-making
activities or other trading activities (other than Old Notes acquired directly
from the Issuers.) The Issuers have agreed that, for a period of 180 days from
the date of this Prospectus, 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 , 1998 (90 days from the date of
this Prospectus), all dealers effecting transactions in the New Notes may be
required to deliver a prospectus.
The Issuers will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker-dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver, and by delivering, a
prospectus as required, 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 from the date of this Prospectus, the Issuers will
send a reasonable number of 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 Issuers will pay all the
expenses incident to the Exchange Offer (which shall not include the expenses of
any holder in connection with resales of the New Notes). The Issuers have agreed
to indemnify the Initial Purchasers and any broker-dealers participating in the
Exchange Offer against certain liabilities, including liabilities under the
Securities Act.
This Prospectus has been prepared for use in connection with the Exchange
Offer and may be used by CSI in connection with offers and sales related to
market-making transactions in the Notes. CSI may act as principal or agent in
such transactions. Such sales will be made at prices related to prevailing
market prices at the time of sale. The Company will not receive any of the
proceeds of such sales. CSI has no obligation to make a market in the Notes and
may discontinue its market-making activities at any time without notice, at its
sole discretion. The Company has agreed to indemnify CSI against certain
liabilities, including liabilities under the Securities Act of 1933, and to
contribute to payments which CSI might be required to make in respect thereof.
For a description of certain relationships between the Company and CSI and
its affiliates, see "Certain Transactions."
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LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Issuers by O'Sullivan Graev & Karabell, LLP, New York, New York.
EXPERTS
The financial statements of the Predecessor for the period from January 1,
1995 through September 27, 1995, included in this Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of the Company as of and for the
period from September 28, 1995 through December 31, 1995 and as of and for the
years ended December 31, 1996 and 1997, included in this Prospectus, have been
so included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated financial statements of Brink B.V. as of and for the year
ended December 31, 1995 and as of and for the period from January 1, 1996
through October 30, 1996, included in this Prospectus have been so included in
reliance on the report of Coopers & Lybrand N.V., independent accountants, given
on the authority of said firm as experts in auditing and accounting.
The financial statements of Valley Industries, Inc. as of and for the
period from December 29, 1996 through August 5, 1997, included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The financial statements of Valley Industries, Inc. at December 28, 1996
and December 31, 1995, and for each of two years in the period ended December
28, 1996, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of the towbar segment of Ellebi S.p.A. as of and
for the years ended December 31, 1995, 1996 and 1997, included in this
Prospectus, have been so included in reliance on the report of AXIS S.r.l.,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
101
<PAGE> 104
ADVANCED ACCESSORY SYSTEMS, LLC
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ADVANCED ACCESSORY SYSTEMS, LLC AND SUBSIDIARIES
Reports of Independent Accountants.......................... F-2
Consolidated Balance Sheets -- December 31, 1996 and 1997
and March 31, 1998 (unaudited)............................ F-4
Consolidated Statements of Operations -- Period from January
1, 1995 through September 27, 1995 for the Predecessor and
Period from September 28, 1995 through December 31, 1995,
Years Ended December 31, 1996 and 1997, and Three Months
Ended March 31, 1997 and 1998 (unaudited) for the
Company................................................... F-5
Consolidated Statements of Cash Flows -- Period from January
1, 1995 through September 27, 1995 for the Predecessor and
Period from September 28, 1995 through December 31, 1995,
Years Ended December 31, 1996 and 1997, and Three Months
Ended March 31, 1997 and 1998 (unaudited) for the
Company................................................... F-6
Consolidated Statements of Changes in Divisional and
Members' Equity -- Period from January 1, 1995 through
September 27, 1995 for the Predecessor and Period from
September 28, 1995 through December 31, 1995, Years Ended
December 31, 1996 and 1997 and Three Months ended March
31, 1998 (unaudited) for the Company...................... F-7
Notes to Consolidated Financial Statements.................. F-8
BRINK B. V.
Report of Independent Accountants........................... F-33
Consolidated Balance Sheets -- December 31, 1995 and October
31, 1996.................................................. F-34
Consolidated Profit and Loss Account -- Year Ended December
31, 1995 and Ten Months Ended October 30, 1996............ F-34
Consolidated Cash Flows Statement -- Year Ended December 31,
1995 and Ten Months Ended October 31, 1996................ F-35
Notes to Consolidated Financial Statements.................. F-38
VALLEY INDUSTRIES, INC.
Report of Independent Accountants........................... F-45
Report of Independent Auditors.............................. F-46
Balance Sheets -- December 31, 1995, December 28, 1996 and
August 5, 1997............................................ F-47
Statements of Operations -- Years Ended December 31, 1995,
December 28, 1996 and the Period Ended August 5, 1997..... F-48
Statements of Shareholders' Equity -- Years Ended December
31, 1995, December 28, 1996 and the Period Ended August 5,
1997...................................................... F-49
Statements of Cash Flows -- Years Ended December 31, 1995,
December 28, 1996 and the Period Ended August 5, 1997..... F-50
Notes to Financial Statements............................... F-51
ELLEBI S.P.A.
Report of Independent Accountants........................... F-57
Balance Sheets -- December 31, 1995, 1996 and 1997.......... F-58
Statements of Operations -- Years Ended December 31, 1995,
1996 and 1997............................................. F-59
Statements of Cash Flows -- Years ended December 31, 1995,
1996 and 1997............................................. F-60
Statements of Changes in Ellebi S.p.A. Investment -- Years
ended December 31, 1995, 1996 and 1997.................... F-61
Notes to Financial Statements............................... F-62
</TABLE>
F-1
<PAGE> 105
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers
and Members of
Advanced Accessory Systems, LLC
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of cash flows and of changes in
members' equity present fairly, in all material respects, the financial position
of Advanced Accessory Systems, LLC (formerly AAS Holdings, LLC) and its
subsidiaries (the "Company") at December 31, 1996 and 1997 and the results of
their operations and their cash flows for the period from September 28, 1995
through December 31, 1995 and for the years ended December 31, 1996 and 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Bloomfield Hills, Michigan
March 15, 1998
F-2
<PAGE> 106
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Managers
and Members of
Advanced Accessory Systems, LLC
In our opinion, the accompanying statements of income, of cash flows and of
changes in divisional equity of MascoTech Accessories (the "Predecessor"), a
division of MascoTech, Inc. present fairly, in all material respects, the
results of its operations and its cash flows for the period from January 1, 1995
through September 27, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Predecessor's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
The Predecessor was a division of MascoTech, Inc. and, as disclosed in Note
5 to the financial statements, had extensive transactions and relationships with
affiliated entities. Because of these relationships, the terms of these
transactions may differ from those that would result from transactions among
wholly unrelated parties.
As discussed in Note 1, on September 28, 1995, certain of the net assets of
the Predecessor were purchased by Advanced Accessory Systems, LLC (formerly AAS
Holdings, LLC). The accompanying financial statements for the period from
January 1, 1995 through September 27, 1995 do not give effect to the purchase
transaction.
Price Waterhouse LLP
Bloomfield Hills, Michigan
August 25, 1997
F-3
<PAGE> 107
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1996 1997 1998
---- ---- ---------
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS
EXCEPT UNIT-RELATED DATA)
<S> <C> <C> <C>
ASSETS
Current assets
Cash.................................................. $ 2,514 $ 27,348 $ 4,926
Accounts receivable, less reserves of $605, $1,699 and
$1,841, respectively............................... 18,807 43,523 55,140
Inventories........................................... 20,652 34,408 46,066
Other current assets.................................. 4,083 6,469 7,451
-------- -------- --------
Total current assets............................. 46,056 111,748 113,583
Property and equipment, net............................. 41,828 55,928 62,612
Goodwill, net........................................... 56,799 85,889 89,499
Intangible assets, net.................................. 2,635 7,595 6,992
Deferred income taxes................................... 856 3,626 4,435
Other noncurrent assets................................. 185 697 907
-------- -------- --------
$148,359 $265,483 $278,028
======== ======== ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Current maturities of long-term debt.................. $ 5,500 $ 3,746 $ 3,875
Accounts payable...................................... 13,668 23,479 31,459
Accrued liabilities................................... 11,228 18,815 21,994
Deferred income taxes................................. 1,292 1,333 1,332
-------- -------- --------
Total current liabilities........................ 31,688 47,373 58,660
-------- -------- --------
Noncurrent liabilities
Deferred income taxes................................. 4,613 3,545 3,215
Other noncurrent liabilities.......................... 2,271 1,234 3,410
Long-term debt, less current maturities............... 87,642 193,380 190,667
-------- -------- --------
Total noncurrent liabilities..................... 94,526 198,159 197,292
-------- -------- --------
Commitments and contingencies (Note 10)
Mandatorily redeemable warrants......................... 3,498 3,507 3,582
-------- -------- --------
Minority interest....................................... 184 -- --
-------- -------- --------
Members' equity
Class A Units 25,000 authorized, 15,369 issued at
December 31, 1996, and 16,411 issued at December
31, 1997 and March 31, 1998........................ 17,922 23,163 23,088
Class B Units, 2,000 units authorized, no Units issued
at December 31, 1996 and 1997 and March 31, 1998... -- -- --
Currency translation adjustment....................... (89) (490) (464)
Retained earnings (deficit)........................... 630 (6,229) (4,130)
-------- -------- --------
18,463 16,444 18,494
-------- -------- --------
$148,359 $265,483 $278,028
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 108
ADVANCED ACCESSORY SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------ -------------------------------------------------------------------
PERIOD FROM PERIOD FROM YEAR ENDED THREE MONTHS ENDED
JANUARY 1, 1995 SEPTEMBER 28, 1995 DECEMBER 31, MARCH 31,
THROUGH THROUGH ------------------ -------------------------
SEPTEMBER 27, 1995 DECEMBER 31, 1995 1996 1997 1997 1998
------------------ ------------------ ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales.............. $48,698 $16,299 $81,466 $188,678 $34,516 $74,027
Cost of sales.......... 38,645 12,458 53,607 135,556 23,767 53,978
------- ------- ------- -------- ------- -------
Gross profit......... 10,053 3,841 27,859 53,122 10,749 20,049
Selling, administrative
and product
development
expenses............. 6,107 1,472 13,413 31,350 6,423 12,350
Amortization of
intangible assets.... -- 546 2,475 2,336 511 785
------- ------- ------- -------- ------- -------
Operating income..... 3,946 1,823 11,971 19,436 3,815 6,914
------- ------- ------- -------- ------- -------
Other (income) expense
Interest expense..... -- 975 4,312 12,627 2,158 4,936
Foreign currency
loss.............. -- -- 1,330 6,097 3,514 1,042
Other (income)
expense........... 65 (22) (80) -- -- --
------- ------- ------- -------- ------- -------
Income (loss) before
minority interest,
extraordinary charge
and income taxes..... 3,881 870 6,409 712 (1,857) 936
Provision (benefit) for
income taxes......... 1,324 -- (491) (2,856) (1,078) (1,171)
------- ------- ------- -------- ------- -------
Income before minority
interest and
extraordinary
charge............... 2,557 870 6,900 3,568 (779) 2,107
Minority interest...... -- 9 69 97 21 --
Extraordinary charge
resulting from debt
extinguishment....... -- -- 1,970 7,416 -- --
------- ------- ------- -------- ------- -------
Net income (loss)...... $ 2,557 $ 861 $ 4,861 $ (3,945) $ (800) $ 2,107
======= ======= ======= ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 109
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------- ----------------------------------------------------------------
PERIOD FROM PERIOD FROM
JANUARY 1, SEPTEMBER 28, YEAR ENDED THREE MONTHS ENDED
1995 THROUGH 1995 THROUGH DECEMBER 31, MARCH 31,
SEPTEMBER 27, DECEMBER 31, -------------------- -------------------------
1995 1995 1996 1997 1997 1998
------------- ------------- ---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)..................... $ 2,557 $ 861 $ 4,861 $ (3,945) $ (800) $ 2,107
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities
Depreciation and amortization....... 789 890 4,689 9,360 2,171 3,496
Deferred taxes...................... -- -- (363) (3,146) (1,164) (1,183)
Foreign currency loss............... -- -- 1,118 5,500 3,572 1,023
Loss on disposal of assets.......... -- -- 10 -- -- --
Extraordinary charge resulting from
debt extinguishment............... -- -- 1,970 7,416 -- --
Changes in assets and liabilities
Accounts receivable............... 947 488 (118) (8,661) (6,117) (7,668)
Inventories....................... 133 412 (3,736) 582 (544) (2,831)
Other current assets.............. (569) (193) (1,742) 378 (72) 871
Other noncurrent assets........... (13) -- (67) (482) (128) (52)
Accounts payable.................. 467 (1,679) 1,995 (2,719) 302 6,049
Accrued liabilities............... (653) 484 3,144 2,819 885 1,986
Other noncurrent liabilities...... 83 118 (1,913) (217) 131 463
Minority interest in consolidated
subsidiaries.................... -- 9 69 97 21 --
------- -------- -------- --------- ------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES................... 3,741 1,390 9,917 6,982 (1,743) 4,261
------- -------- -------- --------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of machinery and
equipment........................... (2,079) (491) (3,124) (7,751) (742) (2,444)
Amount due from sellers of Valley
Industries, Inc..................... -- -- -- (1,150) -- --
Acquisition of subsidiaries, net of
cash acquired....................... -- (46,047) (54,339) (70,832) -- (21,774)
------- -------- -------- --------- ------- --------
NET CASH USED FOR INVESTING
ACTIVITIES................... (2,079) (46,538) (57,463) (79,733) (742) (24,218)
------- -------- -------- --------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt........ -- 30,800 88,842 215,050 -- --
Proceeds from issuance of warrants.... -- 200 3,498 -- -- --
Increase in revolving loan............ -- 4,100 4,300 504 2,800 (1,900)
Extinguishment of warrants............ -- -- (1,600) -- -- --
Repayment of debt..................... -- -- (44,628) (113,248) (1,250) (888)
Divisional activity................... (1,666) -- -- -- -- --
Debt issuance costs................... -- (1,815) (2,643) (7,280) -- --
Issuance of membership units.......... -- 13,500 4,562 4,999 -- --
Distributions to members.............. -- -- (3,726) (2,945) (198) (8)
------- -------- -------- --------- ------- --------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES......... (1,666) 46,785 48,605 97,080 1,352 (2,796)
------- -------- -------- --------- ------- --------
Effect of exchange rate changes....... -- -- (182) 505 (572) 331
Net increase (decrease) in cash....... (4) 1,637 877 24,834 (1,705) (22,422)
Cash at beginning of period........... 7 -- 1,637 2,514 2,514 27,348
------- -------- -------- --------- ------- --------
Cash at end of period................. $ 3 $ 1,637 $ 2,514 $ 27,348 $ 809 $ 4,926
======= ======== ======== ========= ======= ========
Cash paid for interest................ $ -- $ 746 $ 4,215 $ 8,302 $ 675 $ 1,255
======= ======== ======== ========= ======= ========
Cash paid for income taxes............ $ -- $ -- $ -- $ 581 $ 145 $ 471
======= ======== ======== ========= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 110
ADVANCED ACCESSORY SYSTEMS, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN DIVISIONAL AND MEMBERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSOR
-----------
DIVISIONAL
EQUITY
----------
<S> <C>
Balance at January 1, 1995.................................. $14,903
Net income for the period from January 1, 1995 through
September 27, 1995........................................ 2,557
Divisional activity......................................... (1,666)
-------
Balance at September 27, 1995............................... $15,794
=======
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPANY
------------------------------------------------
CURRENCY RETAINED TOTAL
MEMBERS' TRANSLATION EARNINGS MEMBERS'
CAPITAL ADJUSTMENT (DEFICIT) EQUITY
-------- ----------- --------- --------
<S> <C> <C> <C> <C>
Sale of membership interest on September 28, 1995..... $13,860 $ -- $ -- $13,860
Notes receivable for unit purchase.................... (500) -- -- (500)
------- ----- ------- -------
13,360 -- -- 13,360
Net income for the period from September 28, 1995
through December 31, 1995........................... -- -- 861 861
------- ----- ------- -------
Balance at December 31, 1995.......................... 13,360 -- 861 14,221
Comprehensive income:
Net income for 1996................................. -- -- 4,861 --
Currency translation adjustment..................... -- (89) -- --
Total comprehensive income....................... -- -- -- 4,772
Issuance of additional units.......................... 4,562 -- -- 4,562
Accretion of membership warrants...................... -- -- (1,400) (1,400)
Distributions to members, net of minority interest.... -- -- (3,692) (3,692)
------- ----- ------- -------
Balance at December 31, 1996.......................... 17,922 (89) 630 18,463
Comprehensive income (loss):
Net (loss) for 1997................................. -- -- (3,945) --
Currency translation adjustment..................... -- (401) -- --
Total comprehensive (loss)....................... -- -- -- (4,146)
Issuance of additional units.......................... 5,250 -- -- 5,250
Accretion of membership warrants...................... (9) -- -- (9)
Distributions to members, net of minority interest.... -- -- (2,914) (2,914)
------- ----- ------- -------
Balance at December 31, 1997.......................... 23,163 (490) (6,229) 16,444
Comprehensive income:
Net income for three months ended March 31, 1998.... -- -- 2,107 --
Currency translation adjustment..................... -- 26 -- --
Total comprehensive income....................... -- -- -- 2,133
Accretion of membership warrants...................... (75) -- -- (75)
Distributions to members.............................. -- -- (8) (8)
------- ----- ------- -------
Balance at March 31, 1998 (unaudited)................. $23,088 $(464) $(4,130) $18,494
======= ===== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 111
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT UNIT RELATED DATA)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITIES
Advanced Accessory Systems, LLC (formerly AAS Holdings, LLC) (the
"Company") is engaged in the design, manufacture and supply of towing and rack
systems and accessories for the automotive original equipment manufacturer
("OEM") market and the automotive aftermarket. The Company's business commenced
on September 28, 1995, with the acquisition of certain of the net assets of
MascoTech Accessories (the "Predecessor"), a division of MascoTech, Inc.,
through the Company's majority-owned subsidiary, SportRack, LLC. As described in
Note 2, in October 1996 the Company acquired Brink B.V. and in July and August
of 1997 acquired the SportRack division of Bell Sports Corporation, Nomadic
Sports, Inc. and Valley Industries, Inc.
The Company has two significant customers in the automotive OEM industry.
Sales to these customers represented 62% and 22%, for the period from January 1,
1995 through September 27, 1995 for the Predecessor; 72% and 22% for the period
from September 28, 1995 through December 31, 1995, 60% and 21% for the year
ended December 31, 1996 and 29% and 13% for the year ended December 31, 1997 for
the Company. Accounts receivable from these customers represented 57% and 24% of
the Company's trade accounts receivable at December 31, 1996, and 33% and 8% at
December 31, 1997, respectively.
Although the Company is directly affected by the economic well being of the
industries and customers referred to above, management does not believe
significant credit risk exists at December 31, 1997. Consistent with industry
practice, the Company does not require collateral to reduce such credit risk.
BASIS OF PRESENTATION
The financial statements for the period from January 1, 1995 through
September 27, 1995 are those of the Predecessor.
The consolidated financial statements as of December 31, 1996 and 1997, for
the period from September 28, 1995 through December 31, 1995 and for the years
ended December 31, 1996 and 1997 are those of the Company and its subsidiaries.
The financial statements of the Company and the Predecessor are not comparable
in certain respects due to differences between the cost bases of certain assets
held by the Company versus that of the Predecessor, resulting in increased
depreciation and amortization charges subsequent to September 27, 1995, changes
in accounting policies and the recording of certain liabilities at the date of
acquisition in connection with the purchase of the Predecessor by the Company,
as well as the Company's acquisitions as discussed further in Note 2.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments, which are normal and recurring in
nature, necessary to present fairly its financial position as of March 31, 1998
and the results of operations, of cash flows and of changes in members' equity
for the three months ended March 31, 1997 and 1998.
F-8
<PAGE> 112
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The Company includes the accounts of the following:
<TABLE>
<S> <C>
SportRack, LLC............................ 100% owned by Advanced Accessory Systems, LLC
SportRack Automotive GmbH............... A German corporation, 100% owned by SportRack, LLC
SportRack International, Inc............ A Canadian corporation, 100% owned by SportRack, LLC
AAS Holdings, Inc......................... 100% owned by Advanced Accessory Systems, LLC
Brink International B.V................. A Dutch corporation, 100% owned by AAS Holdings,
Inc.
Valley Industries, LLC.................... 99% owned by Advanced Accessory Systems, LLC and 1%
owned by SportRack, LLC
Valtek, LLC............................... 99% owned by Advanced Accessory Systems, LLC and 1%
owned by SportRack, LLC
AAS Capital Corporation................... 100% owned by Advanced Accessory Systems, LLC
</TABLE>
All intercompany transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue and related cost of goods sold are recognized upon shipment of the
product to the customer. Sales allowances, discounts, rebates and other
adjustments are recorded or accrued in the period of the sale.
SIGNIFICANT 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 at the
date of the financial statements and the reported amounts of revenues and
expenses during the fiscal period. Actual results could differ from those
estimates.
CHANGE IN ESTIMATE
On a periodic basis, the Company reviews the estimated useful lives of its
long-lived assets. In connection with the Company's most recent review, the
Company determined that the remaining period of benefit relating to its goodwill
from the SportRack, LLC and Brink acquisitions was 29 years. Based upon the
Company's assessment of the period of benefit as well as the amortization
periods utilized by other companies operating within the automotive industry,
the Company began amortizing the unamortized value of its goodwill at January 1,
1997 over a remaining 29 year period. The changes in the amortization period
resulted in a decrease in amortization expense of approximately $2,080 for the
year ended December 31, 1997.
FINANCIAL INSTRUMENTS
Financial instruments at December 31, 1996 and 1997, including cash,
accounts receivable and accounts payable, are recorded at cost, which
approximates fair value due to the short-term maturities of these assets and
liabilities. The carrying value of the obligations under the bank agreements are
considered to approximate fair value as the agreements provide for interest rate
revisions based on changes in prevailing market rates or were entered into at
rates that approximate market rates at December 31, 1996 and 1997.
The Company is exposed to certain market risks which exist as a part of its
ongoing business operations. Primary exposures include fluctuations in the value
of foreign currency investments in subsidiaries, volatility in the translation
of foreign currency earnings to U.S. Dollars and movements in Federal Funds
rates and the
F-9
<PAGE> 113
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
London Interbank Offered Rate (LIBOR). The Company uses derivative financial
instruments, where appropriate, to manage these risks. The Company, as a matter
of policy, does not engage in trading or speculative transactions.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly-liquid investments with a maturity of three months or less from the date
of purchase to be cash equivalents.
CURRENCY TRANSLATION
The functional currency for the Company's foreign subsidiaries is the
applicable local currency. Assets and liabilities of foreign subsidiaries are
translated into U.S. dollars at the exchange rates in effect at the balance
sheet date; translation adjustments are reported as a separate component of
members' equity. Revenues, expenses and cash flows for foreign subsidiaries are
translated at average exchange rates during the period; foreign currency
transaction gains and losses are included in current earnings. The accompanying
consolidated statement of operations for the years ended December 31, 1996 and
1997 includes net currency losses of $1,330 and $6,097 relating primarily to
debt at Brink International B.V., which is denominated in U.S. dollars.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost being
determined on the first-in, first-out (FIFO) method. Inventories are
periodically reviewed and reserves established for excess and obsolete items.
CUSTOMER TOOLING
The Company incurs costs to develop new tooling used in the manufacture of
products sold to OEM's. In certain instances, the tooling becomes the property
of the OEM and the Company is reimbursed by the OEM for the cost of the tooling,
or in certain instances, recovers all or a portion of such costs through
incremental increases in unit selling prices. Management makes periodic
estimates of the total costs to be incurred for customer tooling projects and
makes provisions for tooling costs which will not be recovered, if any, when
such amounts are known. Actual costs have not been materially different from
estimated amounts. Customer tooling in-process is included in other current
assets in the accompanying consolidated balance sheets.
PROPERTY AND EQUIPMENT
Property and equipment is stated at acquisition cost, which reflects the
fair market value of assets acquired at the acquisition date for all
subsidiaries. Property and equipment purchased other than through the
acquisitions described in Note 2 is stated at cost. Expenditures for normal
repairs and maintenance are charged to operations as incurred. Depreciation is
computed using the straight-line method over the following estimated useful
lives:
<TABLE>
<CAPTION>
YEARS
----------------------
PREDECESSOR COMPANY
----------- -------
<S> <C> <C>
Buildings and improvements................................ 10-40 5-50
Machinery, equipment and tooling.......................... 3-15 2-10
Furniture and fixtures.................................... 10 5-7
</TABLE>
F-10
<PAGE> 114
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
GOODWILL AND INTANGIBLE ASSETS
Goodwill of $56,799 and $85,889 (net of accumulated amortization of $3,021
and $5,251) at December 31, 1996 and 1997, respectively, represents the costs in
excess of net assets acquired and was amortized using the straight line method
over 15 years in 1996. Due to a change in accounting estimate, the Company began
amortizing goodwill over a remaining 29 year period in 1997.
Debt issuance costs of $2,635 and $6,467, net of accumulated amortization
at December 31, 1996 and 1997, respectively, are amortized over the terms of the
loan agreements, which are six to ten years. Debt issuance cost amortization of
$60, $212 and $551 for 1995, 1996 and 1997, respectively, has been included in
interest expense.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for long-lived assets in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This Statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by the company be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be fully
recoverable. The Company determines the impairment of long-lived assets by
comparing the undiscounted future cash flows to be generated by the assets to
their carrying value. Management believes that there are no impairments as of
December 31, 1996 and 1997.
INCOME TAXES
The Company and certain of its domestic subsidiaries have elected to be
taxed as limited liability companies for federal income tax purposes. As a
result of this election, the Company's domestic taxable income accrues to the
individual members. Distributions are made to the members in amounts sufficient
to meet the tax liability on the Company's domestic taxable income accruing to
the individual members. No distributions were made in the period from September
28, 1995 through December 31, 1995. Distributions to members, net of minority
interest, of $3,692 and $2,914 were made during 1996 and 1997, respectively.
Certain of the Company's domestic subsidiaries and foreign subsidiaries are
subject to income taxes in their respective jurisdictions. Income tax provisions
for these entities are based on the U.S. Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes". Deferred tax assets and
liabilities are provided for the expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of such entities'
assets and liabilities. The Company does not provide for U.S. income taxes or
foreign withholding taxes on the undistributed earnings of foreign subsidiaries
because of management's intent to permanently reinvest in such operations.
The Company and certain subsidiaries are subject to taxes, including
Michigan Single Business Tax and Canadian capital tax, which are based primarily
on factors other than income. As such, these amounts are included in selling,
administrative and product development expenses in the accompanying consolidated
statements of income. Deferred taxes related to Michigan Single Business Tax are
provided on the temporary differences resulting from capital acquisitions and
depreciation.
Prior to September 28, 1995, the Predecessor was a division of a C
corporation. In preparing its financial statements, the Predecessor has
determined its tax provision substantially on a separate return basis in
accordance with the provisions of Statement of Accounting Standards No. 109,
"Accounting for Income Taxes".
F-11
<PAGE> 115
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering costs are expensed as incurred and
aggregated approximately $1,993 for the period from January 1, 1995 through
September 27, 1995 for the Predecessor, $672 for the period from September 28,
1995 through December 31, 1995 and $3,548 and $5,860 for the years ended
December 31, 1996 and 1997, respectively, for the Company.
RECLASSIFICATIONS
Certain amounts from the 1996 financial statements have been reclassified
to conform with the 1997 financial statement presentation.
2. ACQUISITIONS
Acquisitions of the Company from inception through December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
PURCHASE GOODWILL
ACQUIRED COMPANY ACQUISITION DATE PRICE RECORDED
---------------- ---------------- -------- --------
<S> <C> <C> <C>
Predecessor............................. September 28, 1995 $46,050 $32,781
Brink B.V............................... October 30, 1996 54,339 27,730
SportRack Division of Bell Sports....... July 2, 1997 13,505 1,198
Nomadic Sports, Inc..................... July 24, 1997 849 433
Valley Industries, Inc.................. August 5, 1997 56,478 32,891
</TABLE>
The above acquisitions have each been accounted for in accordance with the
purchase method of accounting. Accordingly, the respective purchase price of
each acquisition has been allocated to assets acquired and liabilities assumed
based upon their estimated fair values at the acquisition date. The excess of
the aggregate purchase price over the estimated fair market value of the net
assets acquired has been recorded as goodwill. The operating results of these
entities have been included in the Company's consolidated financial statements
since the date of each acquisition.
Predecessor
SportRack, LLC (formerly "Predecessor") is a designer, manufacturer and
distributor of rack systems and accessories to the automotive OEM market and
aftermarket. The Company was acquired from MascoTech, Inc. through an Asset
Purchase Agreement (the "Agreement") which contains indemnification provisions
relating to certain business activities prior to September 28, 1995.
Brink B.V.
The Company acquired all of the outstanding shares of Brink B.V. ("Brink"),
a designer, manufacturer and distributor of towing systems and related products
in Europe. The purchase price of $54,339, including acquisition costs, was
comprised of $45,801 of cash and a 12,500 Junior Subordinated Note ($7,340),
denominated in Dutch guilders, to Brink Holdings, B.V. Through a statutory
reorganization, the operations of Brink B.V. were transferred to Brink
International B.V.
SportRack Division of Bell Sports and Nomadic Sports, Inc.
The Company acquired the nets assets of the SportRack Division of Bell
Sports and the outstanding shares of Nomadic Sports, Inc. (together SportRack
International, Inc.), which are designers, manufacturers
F-12
<PAGE> 116
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS -- (CONTINUED)
and distributors of rack systems and accessories to the OEM market and
automotive aftermarket in Canada and the U.S.
Valley Industries, Inc.
The Company acquired the net assets of Valley Industries, Inc. ("Valley"),
which is a North American supplier of towing systems and related products to the
automotive OEM market and aftermarket.
Pro Forma Data
The following unaudited pro forma consolidated results of operations have
been prepared as if the Valley and SportRack International, Inc. acquisitions
had occurred on January 1, 1996.
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Net sales................................................ $233,480 $246,669
Income before extraordinary charge....................... 2,724 1,319
Net income (loss)........................................ 754 (6,097)
</TABLE>
The pro forma data is not intended to be a projection of future results.
The pro forma data included above includes adjustments to historical
results of operations for increased depreciation expense, intangible asset
amortization and interest expense, net of the related tax benefits.
3. LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
OUTSTANDING AT
---------------------------------
INTEREST RATE AT DECEMBER 31,
DECEMBER 31, ------------------- MARCH 31,
1997 1996 1997 1998
---------------- ---- ---- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Senior Subordinated Notes, less discount of $464
and $457 at December 31, 1997 and March 31,
1998, respectively............................ 9.75% $ -- $124,536 $124,543
Second Amended and Restated Credit Agreement
(U.S. Credit Facility)
Term note A................................ 8.66% 65,000 17,065 16,624
Term note B................................ 9.02% -- 15,883 15,810
Revolving line of credit note.............. 9.50% 4,300 1,900 --
Acquisition revolving note................. 10.25% -- 21,000 21,000
First Amended and Restated Credit Agreement
(Canadian Credit Facility)
Canadian term note......................... 7.50% -- 13,952 13,741
Canadian revolving line of credit note..... 7.50% -- 2,790 2,824
Senior Subordinated Loans, less discount of
$3,498........................................ 16,502 -- --
Junior Subordinated Note........................ 7,340 -- --
-------- -------- --------
93,142 197,126 194,542
Less -- current portion......................... 5,500 3,746 3,875
-------- -------- --------
$ 87,642 $193,380 $190,667
======== ======== ========
</TABLE>
F-13
<PAGE> 117
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT -- (CONTINUED)
In connection with the acquisition of Valley on August 5, 1997, as
described in Note 2, the Company borrowed $55,000, under its Second Amended and
Restated Credit Agreement ("U.S. Credit Facility"), Term note B. In July 1997,
the Company borrowed C$20,000 ($13,952 at December 31, 1997) under its First
Amended and Restated Credit Agreement ("Canadian Credit Facility") to purchase
SportRack International, Inc.
On October 1, 1997 the Company together with its subsidiary, AAS Capital
Corporation, issued $125,000 in Senior Subordinated Notes (the "Notes"). The
proceeds of the offering totaling $124,529, net of discount, were used to reduce
or repay outstanding debt including borrowings under the U.S. Credit Facility,
the Senior Subordinated Loans and the Junior Subordinated Note, and to pay costs
of the transaction totaling $4,950.
SENIOR SUBORDINATED NOTES
Borrowings under the Notes, due October 1, 2007, are unsecured and are
subordinated in right of payment to all existing and future senior indebtedness
of the Company, including the loans under the U.S. and Canadian Credit
Agreements described below. The Company, at its option, may redeem the Notes, in
whole or in part, together with accrued and unpaid interest subsequent to
October 1, 2002 at certain redemption prices as set forth by the indenture,
under which the Notes have been issued. In addition, at any time the Company may
redeem up to 35% of the aggregate principal amount of the Notes with the net
cash proceeds of one or more public equity offerings at a redemption price equal
to 109.75% of the principal amount to be redeemed. Upon the occurrence of a
change of control of the Company, as defined by the indenture, the Company is
required to make an offer to repurchase the Notes at a price equal to 101% of
the principal amount of the notes. The indenture places certain limits on the
Company, the most restrictive of which include, the incurrence of additional
indebtedness by the Company, the payment of dividends on, and redemption of
capital of the Company, the redemption of certain subordinated obligations,
investments, sales of assets and stock of certain subsidiaries, transactions
with affiliates, consolidations, mergers and transfers of all or substantially
all of the Company's assets. The indenture also requires the Company to file a
registration statement during 1998 with respect to an offer to exchange the
Notes for a series of notes of the Company with terms substantially identical to
the Notes. Interest on the Notes is payable semi-annually in arrears on April 1
and October 1 of each year.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT (U.S. CREDIT FACILITY)
The company's U.S. Credit Facility, which is administrated by the First
Chicago NBD Bank ("NBD") and The Chase Manhattan Bank ("Chase"), is secured by
substantially all the assets of the Company and places certain restrictions on
the Company related to indebtedness, sales of assets, investments, capital
expenditures, dividend payments, management fees, and members' equity
transactions. In addition, the agreement subjects the Company to certain
restrictive covenants, including the attainment of designated operating ratios
and minimum net worth levels. The Company, at its election, may make prepayments
of the term notes under the credit agreement on a pro-rata basis. A mandatory
prepayment of the term notes was made on October 1, 1997 as a result of the
issuance of the Company's Notes. Additionally, mandatory prepayments of the term
notes are required in the event of sales of assets meeting certain criteria, as
set forth by the agreement, or based upon periodic calculations of excess cash
flows, as defined by the agreement.
The agreement provides for two term notes (Term note A and Term note B), a
revolving line of credit note and an acquisitions revolving note. Loans under
each of the term notes and the revolving note can be converted, at the election
of the Company, in whole or in part, into Base Rate Loans or Eurocurrency Loans.
Interest is payable in arrears quarterly on Base Rate Loans, and in arrears in
one, two, three or six months on Eurocurrency Loans, as determined by the length
of the Eurocurrency Loan, as selected by the Company. Interest is charged at an
adjustable rate plus the applicable margin. The applicable margin is based upon
the
F-14
<PAGE> 118
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT -- (CONTINUED)
Company's Senior Debt Ratio, as defined by the Credit Agreement. Eurocurrency
Loans can be made in U.S. dollars or certain other currencies, at the option of
the Company. The agreement also provides for a Letter of Credit Facility. At
December 31, 1997, no letters of credit were outstanding.
Term note A
On October 30, 1996 the Company borrowed $65,000 under Term note A. The
applicable margin for Term note A ranges from .5% to 1.75% for Base Rate Loans
and from 1.5% to 2.75% for Eurocurrency Loans. Repayments under the note, after
giving effect to the mandatory prepayment totaling $43,475 made on October 1,
1997 as discussed above, are required in the following installments:
<TABLE>
<CAPTION>
QUARTERLY
---------
<S> <C>
March 31, 1998 through September 30, 1998................... $441
December 31, 1998 through September 30, 1999................ 552
December 31, 1999 through September 30, 2000................ 736
December 31, 2000 through June 30, 2003..................... 883
Final installment on October 30, 2003....................... 877
</TABLE>
Term note B
On August 5, 1997, the Company borrowed $55,000 under Term note B. The
applicable margin for Term B note ranges from 1.0% to 2.25% for Base Rate Loans
and from 2.0% to 3.25% for Eurocurrency Loans. Repayments under Term note B,
after giving effect to the mandatory prepayment totaling $39,044 made on October
1, 1997, as discussed above, are required in the following installments:
<TABLE>
<S> <C>
March 31, 1998 through September 30, 2003 (quarterly)....... $ 73
December 31, 2003........................................... 2,912
March 30, 2004, June 30, 2004 and October 30, 2004.......... 3,764
</TABLE>
Revolving line of credit note
The Company has the ability to borrow up to $25,000 under the revolving
line of credit which expires on October 30, 2003. Available borrowings, however,
are limited to a defined borrowing base amount equal to 85% eligible domestic
accounts receivables and 80% of certain eligible foreign accounts receivables.
The base borrowing amount is increased by the lesser of the sum of 50% of
domestic eligible inventory and 40% to 50% of certain eligible foreign inventory
or $10,000. Available borrowings are reduced by amounts outstanding under the
Canadian revolving line of credit note described below. A commitment fee of
.375% to .5% is charged on the unused balance based on the Company's Senior
Leverage Ratio, as defined. At December 31, 1997, $20,300 was available under
the facility.
Acquisition revolving note
On December 31, 1997, the Company borrowed $21,000 under its $22,000
acquisition revolving note. The proceeds are included in cash at December 31,
1997 and were used to acquire the assets of the towbar segment of Ellebi S.p.A
on January 2, 1998, as discussed further in Note 12. The note is available to
the Company on a revolving credit basis until September 24, 1999 at which time
the outstanding principal balance will convert to a term loan which will
amortize in sixteen equal quarterly installments with a final maturity of
October 30, 2003. The applicable margin for the acquisition revolving note
ranges from .5% to 1.75% for Base Rate Loans and from 1.0% to 2.75% for
Eurocurrency Loans. A commitment fee of .375% to .5% is charged on the unused
balance based on the Company's Senior Leverage Ratio, as defined. At December
31, 1997, the acquisition
F-15
<PAGE> 119
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT -- (CONTINUED)
revolving note was a Base Rate Loan with interest accruing at the rate of 10.25%
per annum. On January 1, 1998, the Company converted the Loan to a Eurocurrency
Loan with an interest rate of 8.46%.
FIRST AMENDED AND RESTATED CREDIT AGREEMENT (CANADIAN CREDIT FACILITY)
The Company's First Amended and Restated Credit Agreement, which is
administered by the NBD and Chase, is secured by substantially of all the assets
of the Company's Canadian subsidiaries.
The agreement provides for a C$20,000 term note and a C$4,000 revolving
note, (U.S. $13,952 and U.S. $2,790) at December 31, 1997, respectively. Loans
under each of the notes can be converted at the election of the company, in
whole or in part, into Floating Rate advances, U.S. Base Rate advances or LIBOR
advances. Floating rate advances are denominated in Canadian dollars and bear
interest at a variable rate based on the bank's prime lending rate plus a
variable margin. U.S. Base Rate advances are denominated in U.S. dollars and
bear interest at the bank's prime lending rate plus a variable margin. LIBOR
advances are denominated in U.S. dollars and bear interest at LIBOR plus a
variable margin. The variable margin is based upon the Company's Senior Debt
Ratio, as defined by the agreement and ranges from .5% to 1.75% for U.S. Base
Rate advances and from 1.5% to 2.75% for LIBOR advances.
Canadian term note
Repayments under the Canadian term note are required in the following
installments:
<TABLE>
<CAPTION>
QUARTERLY
---------
<S> <C>
March 31, 1998 through September 30, 1998................... $373
December 31, 1998 through September 30, 1999................ 459
December 31, 1999 through September 30, 2000................ 602
December 31, 2000 through June 30, 2003..................... 716
Final installment on October 30, 2003....................... 717
</TABLE>
Canadian revolving line of credit note
A commitment fee of .5% is charged on the unused balance of the Canadian
revolving line of credit note. At December 31, 1997, no additional borrowings
were available under the facility.
SENIOR SUBORDINATED LOANS
On October 30, 1996, the Company borrowed $20,000 under its Senior
Subordinated Note Purchase Agreement ("Senior Subordinated Loans") with CB
Capital and International Mezzanine. The Senior Subordinated Loans were repaid
in full on October 1, 1997 with the proceeds of the Notes discussed above.
Interest on the Senior Subordinated Loans was payable in arrears semiannually
and accrued at a rate of 12.5% per annum. The Senior Subordinated Loans provided
for a prepayment penalty if the Senior Subordinated Loans were paid prior to
October 30, 2002. Under this provision, a prepayment penalty totaling $1,400 was
paid in 1997 and is included in the extraordinary charge resulting from debt
extinguishment.
In connection with the issuance of the Senior Subordinated Loans, the
Company issued warrants to purchase 1,002 membership units. The warrants have an
exercise price of one cent per warrant, are exercisable immediately, and expire
October 30, 2004. As provided in the Warrant Agreement, the warrant holder can
put the warrants and membership Units acquired through the exercise of the
warrants back to the Company after October 30, 2001 or upon occurrence of a
Triggering Event, as defined, but prior to the earlier of October 30, 2004 or
the consummation of a Qualified Public Offering for an amount equal to Fair
Market Value, as defined. Additionally, as provided in the Warrant Agreement,
the Company may call the warrants and
F-16
<PAGE> 120
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT -- (CONTINUED)
membership Units acquired through the exercise of the warrants at any time after
the sixth anniversary of the Closing Date, but prior to the earlier of October
30, 2004 or a Qualified Public Offering for an amount equal to Fair Market
Value, as defined.
At the date of issuance, the proceeds from the Senior Subordinated Loans
were allocated between the Senior Subordinated Loans and the warrants based upon
their estimated relative fair market value; accordingly, the Senior Subordinated
Loans were recorded at a discount of $3,498, which was partially amortized prior
to repayment on October 1, 1997. The remaining unamortized balance of $3,145 was
charged to 1997 operations as part of the extraordinary charge resulting from
debt extinguishment.
The warrants are being accreted to their redemption value through periodic
charges against Members' Equity through the earlier of October 30, 2001 or the
time redemption first becomes available. Thereafter the warrants will be
recorded at redemption value. The aforementioned warrants have been presented as
mandatorily redeemable warrants in the accompanying balance sheets.
JUNIOR SUBORDINATED NOTE
On October 30, 1996, the Company issued a 12,500 Junior Subordinated Note
("Junior Note"), denominated in Dutch guilders, to Brink Holdings B.V. as part
of the consideration paid for the purchase of Brink B.V. The Junior Note was due
April 30, 2005, but was repaid in full on October 1, 1997 with the proceeds of
the Notes discussed above. The Junior Note accrued interest at a rate of 7% per
annum, payable semi-annually in arrears.
EXTINGUISHMENT OF DEBT
1997 Extinguishments
As discussed above, on October 1, 1997 the Company repaid, in full, its
Senior Subordinated Loans and Junior Note and prepaid a portion of the term
notes under the U.S. Credit Facility. In connection with this extinguishment,
the Company recorded an extraordinary charge of $7,416, net of a tax benefit of
$365. The extinguishment charge is comprised of $1,400 prepayment penalties,
$3,145 of unamortized debt discount and $3,236 of unamoritized debt issuance
costs.
1996 Extinguishments
On October 30, 1996, the Company prepaid all amounts outstanding under a
$30,000 credit agreement and a prior $11,000 senior subordinated loan agreement.
In connection with these extinguishments, the Company recorded an extraordinary
charge of $1,970. The extinguishment charge is comprised of prepayment penalties
totaling $220, unamortized debt discount totaling $150 and debt issuance costs
of $1,600.
In connection with the issuance of the prior senior subordinated loan, the
Company issued warrants to purchase 617 membership units. The proceeds from the
issuance were allocated based on the estimated relative fair market values;
accordingly, the notes were recorded at a discount of $200. As part of the
extinguishment of the prior senior subordinated loan, the Company paid $1,600 to
redeem the warrants.
INTEREST RATE RISK
The Company is exposed to interest rate volatility with regard to variable
rate debt. The Company uses interest rate swaps to reduce interest rate
volatility. At December 31, 1996 and 1997, the notional value of interest rate
swaps was $18,500. Under the terms of the interest rate swap agreements, the
Company pays a fixed interest rate on debt equal to the notional value. The
effects of interest rate swaps are reflected in interest expense.
F-17
<PAGE> 121
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT -- (CONTINUED)
SCHEDULED MATURITIES
The aggregate scheduled annual principal payments due in each of the years
ending December 31, is as follows:
<TABLE>
<S> <C>
1998........................................................ $ 3,746
1999........................................................ 4,661
2000........................................................ 11,153
2001........................................................ 11,938
2002 and thereafter......................................... 166,092
--------
197,590
Less -- discount............................................ 464
--------
$197,126
========
</TABLE>
4. INCOME TAXES
The Company's C corporation subsidiaries, taxable foreign subsidiaries and
the Predecessor account for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". The
Company and certain domestic subsidiaries are limited liability corporations; as
such, the Company's earnings are included in the taxable income of the Company's
members. Income (loss) before minority interest, income taxes and the pre-tax
charge resulting from debt extinguishment were attributable to the following
sources:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------- --------------------------------------------------------
PERIOD FROM PERIOD FROM THREE MONTHS
JANUARY 1, SEPTEMBER 28, YEAR ENDED ENDED
1995 THROUGH 1995 THROUGH DECEMBER 31, MARCH 31,
SEPTEMBER 27, DECEMBER 31, ----------------- ------------------
1995 1995 1996 1997 1997 1998
------------- ------------- ------ ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
United States.................... $3,881 $870 $6,283 $ 2,872 $ 1,819 $ 3,312
Foreign.......................... -- -- (1,844) (9,941) (3,676) (2,376)
------ ---- ------ ------- ------- -------
$3,881 $870 $4,439 $(7,069) $(1,857) $ 936
====== ==== ====== ======= ======= =======
</TABLE>
F-18
<PAGE> 122
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES -- (CONTINUED)
The provision (benefit) for income taxes, including $365 of income tax
benefit allocated to the extraordinary charge in 1997, is comprised of the
following:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------ ------------------ THREE MONTHS
PERIOD FROM YEAR ENDED ENDED
JANUARY 1, 1995 DECEMBER 31, MARCH 31
THROUGH ------------------ --------------------
SEPTEMBER 27, 1995 1996 1997 1997 1998
------------------ ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Currently payable (refundable)
United States......................... $1,234 $ -- $ -- $ -- $ --
Foreign............................... -- (128) 290 86 12
------ ----- ------- ------- -------
1,234 (128) 290 86 12
------ ----- ------- ------- -------
Deferred
United States......................... 90 -- -- -- --
Foreign............................... -- (363) (3,511) (1,164) (1,183)
------ ----- ------- ------- -------
90 (363) (3,511) (1,164) (1,183)
------ ----- ------- ------- -------
$1,324 $(491) $(3,221) $(1,078) $(1,171)
====== ===== ======= ======= =======
</TABLE>
The effective tax rates differ from the U.S. federal income tax rate as
follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------ ---------------------------------------- THREE MONTHS
PERIOD FROM PERIOD FROM YEAR ENDED ENDED
JANUARY 1, SEPTEMBER 28, DECEMBER 31, MARCH 31,
1995 THROUGH 1995 THROUGH -------------------- --------------------
SEPTEMBER 27, 1995 DECEMBER 31, 1995 1996 1997 1997 1998
------------------ ----------------- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Income tax provision
(benefit) at U. S.
statutory rate (35%)..... $1,358 $ 305 $ 1,554 $(2,474) $ (650) $ 328
U. S. income taxes
attributable to
members.................. -- (305) (2,200) (1,005) (637) (1,159)
Nondeductible foreign
goodwill................. -- -- 102 229 57 65
Other, net................. (34) -- 53 29 152 (405)
------ ----- ------- ------- ------- -------
$1,324 $ -- $ (491) $(3,221) $(1,078) $(1,171)
====== ===== ======= ======= ======= =======
</TABLE>
F-19
<PAGE> 123
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INCOME TAXES -- (CONTINUED)
Deferred tax assets and liabilities, related primarily to the Company's
foreign subsidiaries, comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
------- ------- ---------
(UNAUDITED)
<S> <C> <C> <C>
DEFERRED TAX ASSETS
Net operating loss carryforwards................. $ 608 $ 3,255 $ 4,007
Fixed assets..................................... 248 296 334
Other............................................ -- 75 94
------- ------- -------
856 3,626 4,435
------- ------- -------
DEFERRED TAX LIABILITIES
Fixed assets..................................... (4,282) (3,296) (3,145)
Inventory........................................ (1,292) (1,244) (1,039)
Employee benefits and other...................... (331) (176) (292)
Other............................................ -- (162) (71)
------- ------- -------
(5,905) (4,878) (4,547)
------- ------- -------
Net deferred tax (liability)..................... $(5,049) $(1,252) $ (112)
======= ======= =======
</TABLE>
The net operating loss carryforwards of the Company's European subsidiaries
approximate $8,000 at December 31, 1997 and have no expiration date. The net
operating loss carryforwards of the Company's Canadian subsidiaries approximate
$1,100 at December 31, 1997 and expire primarily in 2004. Management believes
that it is more likely than not that the related deferred tax assets will be
realized and no valuation allowance has been provided against such amounts as of
December 31, 1997. If certain substantial changes in the Company's ownership
should occur, there could be an annual limit on the amount of the carryforwards
which can be utilized.
5. RELATED PARTY TRANSACTIONS AND ALLOCATIONS
In connection with the acquisition of Brink B.V., the Company entered into
the Junior Note Agreement, with Brink Holdings B.V., as described in Note 3 to
the financial statements. Concurrent with this acquisition, owners of Brink
Holdings B.V. purchased 1,230 membership units of the Company for cash of $4,286
($3,485 per unit).
A portion of the Company's U.S. Credit Facility and $20,000 Senior
Subordinated Loans, as described in Note 3, is with Chase and CB Capital
Investors, Inc., respectively, affiliates of certain members of the Company.
Effective December 31, 1997 Chase Capital Partners, a majority owner of the
Company, exchanged its one percent interest of SportRack, LLC for a one percent
interest of the Company.
Charges to operations related to consulting services provided to the
Company by certain members of the Company aggregated approximately $70 for the
period from September 28, 1995 through December 31, 1995, $243 and $350 for the
years ended December 31, 1996 and 1997, respectively.
Certain employees of the Company are also members of the Company.
The Predecessor was a division of MascoTech, Inc. Accordingly, certain
corporate and divisional general and administrative costs were allocated to the
Predecessor from MascoTech, Inc. and certain of its subsidiaries. Allocated
costs include insurance, pensions, profit sharing, accounting and finance,
information
F-20
<PAGE> 124
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. RELATED PARTY TRANSACTIONS AND ALLOCATIONS -- (CONTINUED)
systems and corporate overhead costs. Corporate overhead costs relate to such
functions as the corporate office, executive management, investor relations and
legal. Allocated costs, other than corporate overhead, were charged to the
division generally using an effort-based approach or based on the division's
actual experience or headcount, depending upon the nature of the cost. Allocated
corporate overhead costs were charged to the division based primarily on
divisional sales. Corporate overhead costs allocated to the Predecessor
aggregated approximately $1,000 for the period from January 1, 1995 through
September 27, 1995.
It was MascoTech, Inc.'s policy not to charge the Predecessor interest on
the intercompany balance.
Management believes that the methods utilized to allocate costs to the
division, as discussed above, are reasonable. However, the terms of transactions
between the division and MascoTech, Inc., including allocated costs, may differ
from those that would result from transactions with unrelated parties.
6. OPTION PLAN
At September 28, 1995, the Company adopted the 1995 Option Plan (the
"Plan"). Under the Plan, certain directors and employees of the Company and its
subsidiaries may be granted options to purchase membership units (limited to up
to a total of 3,525 units as of December 31, 1996 and 3,903 units as of December
31, 1997). Of the options granted, 2,925 were granted in 1995, 600 were granted
in January 1996 and 378 were granted in 1997. All options granted in 1995 and
the January 1996 options were granted at an exercise price of $1,000, which
equaled the fair value of a membership unit on the date of grant. Of the options
granted in 1997, 178 were granted at an exercise price of $5,610 and 200 were
granted at an exercise price of $5,000, both of which exceeded the fair value of
a membership unit on the date of grant. Of the total options granted, 275 vest
based upon the results of a Liquidity Event, as defined in the plan, and 739
vest based upon the achievement of certain operating results of the Company. The
remaining options granted under the Plan vest over periods, generally up to ten
years, as determined by the Option Committee. The vesting can be accelerated in
certain instances based on the future operating results of the Company, or the
occurrence of a Liquidity Event, as defined in the Plan. At December 31, 1996
and 1997, 480 units and 938 units, respectively, were exercisable by their
terms. There were no options available for future grant at December 31, 1997. No
options were exercised, cancelled or expired during the period from September
28, 1995 through December 31, 1995 or for the years ended December 31, 1996 and
1997.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25) in accounting for stock options.
Compensation cost was $332 and $263 for the years ended December 31, 1996 and
1997, respectively. If compensation cost had been determined based upon the fair
value method in accordance with Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation", the pro forma net income (loss)
from September 28, 1995 through December 31, 1995 and for the years ended
December 31, 1996 and 1997 would not have been materially different than that
calculated under the provisions of APB 25. For pro forma purposes, the fair
value of each stock option grant was estimated using the Black-Scholes option
pricing model with the following assumptions: weighted average risk free
interest rates of 6.33%, 6.21%, and 6.12% for the period from September 28, 1995
through December 31, 1995 and the years ended December 31, 1996 and 1997,
respectively, an expected option life of eight years and no cash dividends.
7. PENSION PLAN
The Company has a defined benefit pension plan covering substantially all
of SportRack, LLC's domestic employees covered under a collective bargaining
agreement. An employee's monthly pension benefit is determined by multiplying a
defined dollar amount by the years of credited service earned. Plan assets are
F-21
<PAGE> 125
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. PENSION PLAN -- (CONTINUED)
comprised principally of marketable equity securities and short-term
investments. The Company's funding policy is to contribute annually the amounts
necessary to comply with ERISA funding requirements.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheet at December 31, 1996 and
1997.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
---- ----
<S> <C> <C>
Actuarial present value of:
Vested benefit............................................. $ 1,417 $ 1,731
Nonvested benefit obligation............................... 220 198
------- -------
Accumulated benefit obligation............................. $ 1,637 $ 1,929
======= =======
Projected benefit obligation............................... $ 1,637 $ 1,929
Plan assets at fair value.................................. (1,308) (1,586)
Unrecognized net gain...................................... 166 122
------- -------
Unfunded pension liability................................. $ 495 $ 465
======= =======
</TABLE>
The components of the Company's domestic pension expense are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
---- ----
<S> <C> <C>
Benefits earned during the year............................. $ 76 $ 76
Interest on projected benefit obligation.................... 118 124
Actual return on plan assets................................ (100) (303)
Net amortization, deferral, and other....................... (13) 174
----- -----
Net periodic domestic pension cost.......................... $ 81 $ 71
===== =====
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the accumulated benefit obligation was 7.75% and 7.00% at
December 31, 1996 and 1997, respectively. The expected long-term rate of return
on plan assets was 9.00% at December 31, 1996 and 1997.
Net periodic pension cost for 1995 was approximately $100, of which $75 was
included in the operations of the Predecessor for the period from January 1,
1995 through September 27, 1995.
The Company has various defined contribution retirement plans for its
domestic and certain foreign subsidiaries, including 401(k) plans, whereby
participants can contribute a portion of their salary up to certain maximums
established by the related plan documents. The Company makes matching
contributions, which are based upon the amounts contributed by employees. The
Company's matching contributions charged to operations aggregated $130 and $229
in 1996 and 1997, respectively.
Substantially all of the employees of Brink International B.V. are covered
by a union-sponsored, collectively-bargained, multi-employer defined benefit
plan. Pension expense was $118 and $660 for the two-month period from November
1, 1996 through December 31, 1996 and for the year ended December 31, 1997,
respectively.
F-22
<PAGE> 126
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. OPERATING LEASES
The Company leases certain equipment under leases expiring on various dates
through 2004. Future minimum annual lease payments required under leases that
have a noncancellable lease term in excess of one year at December 31, 1997 are
as follows:
<TABLE>
<S> <C>
1998........................................................ $1,996
1999........................................................ 1,500
2000........................................................ 1,066
2001........................................................ 770
2002........................................................ 474
2003 and thereafter......................................... 118
------
$5,924
======
</TABLE>
Rental expense charged to operations was approximately $434 for the period
from January 1, 1995 through September 27, 1995 for the Predecessor and $34 for
the period September 28, 1995 through December 31, 1995 and $669 and $2,252 for
the years ended December 31, 1996 and 1997, respectively for the Company.
9. ACCOUNT BALANCES
Account balances included in the consolidated balance sheets are comprised
of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------- -----------
1996 1997 1998
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
INVENTORIES
Raw materials.................................... $ 3,474 $13,744 $15,233
Work-in-process.................................. 7,715 5,040 13,984
Finished goods................................... 9,463 15,624 16,849
------- ------- -------
$20,652 $34,408 $46,066
======= ======= =======
PROPERTY AND EQUIPMENT
Land, buildings and improvements................. $18,531 $20,966 $21,737
Furniture, fixtures and computer hardware........ 3,417 8,930 9,931
Machinery, equipment and tooling................. 20,565 32,458 40,622
Construction-in-progress......................... 1,582 1,985 1,260
------- ------- -------
44,095 64,339 75,550
Less -- accumulated depreciation................. (2,267) (8,411) (10,938)
------- ------- -------
$41,828 $55,928 $62,612
======= ======= =======
ACCRUED LIABILITIES
Compensation and benefits........................ $ 5,398 $ 8,900 $ 6,949
Interest......................................... 60 3,154 6,068
Income taxes..................................... 1,300 646 266
Other taxes...................................... 417 478 2,501
Other............................................ 4,053 5,637 6,210
------- ------- -------
$11,228 $18,815 $21,994
======= ======= =======
</TABLE>
F-23
<PAGE> 127
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES
The Company is party to various claims, lawsuits and administrative
proceedings related to matters arising out of the normal course of business.
Management believes that the resolution of these matters will not have a
material adverse effect on the financial position, results of operations or cash
flows of the Company.
11. SEGMENT INFORMATION
The Company operates in one industry segment and all sales are to
unaffiliated customers. Revenues and operating income by geographic area,
accumulated by the geographic area where the revenue originated, and
identifiable assets by geographic area are as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------- -----------------------------------------------------------
PERIOD FROM PERIOD FROM THREE MONTHS
JANUARY 1, SEPTEMBER 28, YEAR ENDED ENDED
1995 THROUGH 1995 THROUGH DECEMBER 31, MARCH 31,
SEPTEMBER 27, DECEMBER 31, -------------------- ------------------
1995 1995 1996 1997 1997 1998
------------- ------------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues
United States and Canada.... $48,698 $16,299 $ 73,895 $124,769 $20,231 $52,703
Europe...................... -- -- 7,571 63,909 14,285 21,324
------- ------- -------- -------- ------- -------
$48,698 $16,299 $ 81,466 $188,678 $34,516 $74,027
======= ======= ======== ======== ======= =======
Operating income
United States and Canada.... $ 3,946 $ 1,823 $ 12,383 $ 14,422 $ 2,984 $ 5,402
Europe...................... -- -- (412) 5,014 831 1,512
------- ------- -------- -------- ------- -------
$ 3,946 $ 1,823 $ 11,971 $ 19,436 $ 3,815 $ 6,914
======= ======= ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------- -----------
1996 1997 1998
---- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
Identifiable assets
United States and Canada.................................. $ 62,011 $169,065 $171,250
Europe.................................................... 86,348 96,418 106,778
-------- -------- --------
$148,359 $265,483 $278,028
======== ======== ========
</TABLE>
12. SUBSEQUENT EVENT (UNAUDITED)
In January 1998, the Company through Brink International B.V., acquired the
net assets of the towbar segment of Ellebi S.p.A. for an aggregate purchase
price of approximately $22,000, including estimated costs of the transaction.
Ellebi S.p.A. is a manufacturer and distributor of towing systems to the
automotive OEM market and aftermarket. The acquisition will be accounted for
under the purchase method of accounting. The excess of the aggregate purchase
price over the estimated fair market value of the net assets acquired was
approximately $3,250. The acquisition was financed primarily through the
Company's Acquisition revolving note.
In February 1998, the Company through SportRack International, Inc.,
acquired the net assets of Transfo-Rakzs, Inc. for an aggregate purchase price
of approximately $1,100, including estimated costs of the transaction.
Transfo-Rakzs is a designer, manufacturer and distributor of rear hitch rack
carrying systems and related products to Canada and the U.S. The acquisition
will be accounted for under the purchase method of
F-24
<PAGE> 128
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENT (UNAUDITED) -- (CONTINUED)
accounting. The excess of the aggregate purchase price over the estimated fair
market value of the net assets acquired was approximately $900.
13. CONDENSED CONSOLIDATING INFORMATION
The Notes have been issued by the Company and its wholly-owned subsidiary,
AAS Capital Corporation and are guaranteed on a full and unconditional and joint
and several basis, by all of the Company's direct and indirect wholly-owned
domestic subsidiaries. The following condensed consolidating financial
information for 1997 presents the financial position, results of operations and
cash flows of (i) the Company as parent, as if it accounted for its subsidiaries
on the equity method, and AAS Capital Corporation as issuers; (ii) guarantor
subsidiaries which are domestic, wholly-owned subsidiaries and include SportRack
LLC, AAS Holdings, Inc., Valley Industries, LLC, and Valtek, LLC; and (iii) the
non-guarantor subsidiaries which are foreign, wholly-owned subsidiaries and
include Brink International B.V., SportRack International, Inc., and SportRack
Automotive GmbH. The financial position and operating results of the
non-guarantor subsidiaries do not include any allocation of overhead or similar
charges except that certain foreign subsidiaries are charged interest on their
intercompany debt balance. Separate financial statements of the guarantor
subsidiaries are not presented because management has determined that the
separate financial statements are not material to investors. Since its formation
in September 1997, AAS Capital Corporation has had no operations and has no
assets or liabilities at December 31, 1997.
Guarantor subsidiaries for 1995 include SportRack LLC and AAS Holdings,
Inc. and their financial statements are those of the Company and the
Predecessor. Guarantor subsidiaries for 1996 include SportRack LLC and AAS
Holdings, Inc. and their financial statements are substantially those of the
Company and include Brink, a non-guarantor subsidiary acquired October 30, 1996.
The 1996 consolidated results of operations include Brink for the two months
ended December 31, 1996 and reflect Brink's net sales $7,571 and a net loss of
$1,353. At December 31, 1996, Brink's total assets and total liabilities were
$86,348 and $75,574, respectively.
The financial statements of Valley Industries, Inc., the predecessor of
Valley Industries, LLC, as of and for the fiscal years 1995 and 1996 and the
period ended August 5, 1997 are included elsewhere in this Registration
Statement. Valtek, LLC was formed in November 1997 and is not significant.
INTERIM PERIODS ENDING MARCH 31, 1998 AND 1997 (UNAUDITED)
The condensed consolidating financial information as of and for the three
months ended March 31, 1998 presents the financial position, results of
operations and cash flows of (i) the Company as parent, as if it accounted for
its subsidiaries on the equity method, and AAS Capital Corporation as issuers;
(ii) guarantor subsidiaries which are domestic, wholly-owned subsidiaries and
include SportRack LLC, AAS Holdings, Inc., Valley Industries, LLC, and ValTek,
LLC; and (iii) the non-guarantor subsidiaries which are foreign, wholly-owned
subsidiaries and include Brink International B.V. and its subsidiaries including
Ellebi which was acquired on January 2, 1998, SportRack International, Inc.
including Transfo-Rakzs acquired in February 1998, and SportRack Automotive
GmbH. The guarantor and non-guarantor subsidiaries for the three months ended
March 31, 1998 have been allocated a portion of certain corporate overhead costs
on a basis consistent with each subsidiary's relative business activity,
including interest on intercompany debt balances. Separate financial statements
of the guarantor subsidiaries are not presented because management has
determined that the separate financial statements are not material to investors.
Since its formation in September 1997, AAS Capital Corporation has had no
operations and has no assets or liabilities (other than with respect to the
Notes) at March 31, 1998.
F-25
<PAGE> 129
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
The condensed consolidating financial information for the three months
ended March 31, 1997 presents the results of operations and cash flows of (i)
the Company as parent and issuer, as if it accounted for its subsidiaries on the
equity method; (ii) guarantor subsidiaries which are domestic, wholly-owned
subsidiaries and include SportRack LLC and AAS Holdings, Inc.; and (iii) the
only non-guarantor subsidiary, Brink International B.V. which is a foreign,
wholly-owned subsidiary. During the three month period ended March 31, 1997 the
foreign subsidiary was charged interest on intercompany balances. Separate
financial statements of the guarantor subsidiaries are not presented because
management has determined that the separate financial statements are not
material to investors.
F-26
<PAGE> 130
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash................................... $ -- $ 2,217 $ 25,131 $ -- $ 27,348
Accounts receivable.................... -- 31,649 11,874 -- 43,523
Inventories............................ -- 14,835 19,573 -- 34,408
Other current assets................... -- 4,912 1,557 -- 6,469
-------- -------- -------- --------- --------
Total current assets.............. -- 53,613 58,135 -- 111,748
-------- -------- -------- --------- --------
Property and equipment, net.............. -- 28,009 27,919 -- 55,928
Goodwill, net............................ 1,145 61,431 23,313 -- 85,889
Intangible assets, net................... 5,558 722 1,315 -- 7,595
Deferred income taxes and other
noncurrent assets...................... -- 384 3,939 -- 4,323
Investment in subsidiaries............... 26,500 10,022 -- (36,522) --
Intercompany notes receivable............ 115,056 -- -- (115,056) --
-------- -------- -------- --------- --------
Total Assets...................... $148,259 $154,181 $114,621 $(151,578) $265,483
======== ======== ======== ========= ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Current maturities of long-term debt... $ -- $ -- $ 3,746 $ -- $ 3,746
Accounts payable....................... -- 19,053 4,426 -- 23,479
Accrued liabilities and deferred income
taxes............................... 4,202 7,180 8,766 -- 20,148
-------- -------- -------- --------- --------
Total current liabilities......... 4,202 26,233 16,938 -- 47,373
-------- -------- -------- --------- --------
Deferred income taxes and other non
current liabilities.................... -- 1,318 3,461 -- 4,779
Long-term debt, less current
maturities............................. 126,436 -- 66,944 -- 193,380
Intercompany debt........................ -- 89,218 25,838 (115,056) --
Mandatorily redeemable warrants.......... 3,507 -- -- -- 3,507
Members' equity.......................... 14,114 37,412 1,440 (36,522) 16,444
-------- -------- -------- --------- --------
Total liabilities and members'
equity......................... $148,259 $154,181 $114,621 $(151,578) $265,483
======== ======== ======== ========= ========
</TABLE>
F-27
<PAGE> 131
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales........................... $ -- $122,294 $66,384 $ -- $188,678
Cost of sales....................... -- 89,647 45,909 -- 135,556
------- -------- ------- ------- --------
Gross profit...................... -- 32,647 20,475 -- 53,122
Selling, administrative and product
development expenses.............. 721 14,685 15,944 -- 31,350
Amortization of intangible assets... 53 1,571 712 -- 2,336
------- -------- ------- ------- --------
Operating income (loss)........... (774) 16,391 3,819 -- 19,436
Interest expense.................... 3,348 3,760 5,519 -- 12,627
Equity in income (loss) of
subsidiaries...................... 5,169 -- -- (5,169) --
Foreign currency (gain) loss........ (1,041) -- 7,138 -- 6,097
------- -------- ------- ------- --------
Income (loss) before minority
interest and income taxes......... 2,088 12,631 (8,838) (5,169) 712
Provision (benefit) for income
taxes............................. -- -- (2,856) -- (2,856)
------- -------- ------- ------- --------
Income (loss) before minority
interest....................... 2,088 12,631 (5,982) (5,169) 3,568
Minority interest................... -- 97 -- -- 97
Extraordinary charge resulting from
debt extinguishment............... 6,153 525 738 -- 7,416
------- -------- ------- ------- --------
Net income (loss)................... $(4,065) $ 12,009 $(6,720) $(5,169) $ (3,945)
======= ======== ======= ======= ========
</TABLE>
F-28
<PAGE> 132
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities............. $ 3,522 $ 5,092 $ (1,632) $ -- $ 6,982
-------- -------- -------- ------- ---------
Cash flows from investing
activities:
Acquisition of machinery and
equipment..................... -- (6,005) (1,746) -- (7,751)
Amount due from sellors of Valley
Industries, Inc............... -- (1,150) -- -- (1,150)
Acquisition of subsidiaries, net
of cash acquired.............. -- (56,478) (14,354) -- (70,832)
-------- -------- -------- ------- ---------
Net cash used for investing
activities....................... -- (63,633) (16,100) -- (79,733)
-------- -------- -------- ------- ---------
Cash flows from financing
activities
Change in intercompany debt...... (99,971) 76,412 23,559 -- --
Proceeds from issuance of debt... 124,529 55,000 35,521 -- 215,050
Increase (decrease) in revolving
loan.......................... 1,900 (4,300) 2,904 -- 504
Repayment of debt................ (27,699) (63,500) (22,049) -- (113,248)
Debt issuance costs.............. (7,280) -- -- -- (7,280)
Issuance of membership units..... 4,999 -- -- -- 4,999
Distributions from
subsidiaries.................. 2,915 -- -- (2,915) --
Distributions to members......... (2,915) (2,945) -- 2,915 (2,945)
-------- -------- -------- ------- ---------
Net cash provided by financing
activities....................... (3,522) 60,667 39,935 -- 97,080
-------- -------- -------- ------- ---------
Effect of exchange rate changes.... -- -- 505 -- 505
Net increase (decrease) in cash.... -- 2,126 22,708 -- 24,834
Cash at beginning of period........ -- 91 2,423 -- 2,514
-------- -------- -------- ------- ---------
Cash at end of period.............. $ -- $ 2,217 $ 25,131 $ -- $ 27,348
======== ======== ======== ======= =========
</TABLE>
F-29
<PAGE> 133
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash.............................. $ -- $ 521 $ 4,405 $ -- $ 4,926
Accounts receivable............... -- 35,552 19,588 -- 55,140
Inventories....................... -- 16,001 30,065 -- 46,066
Other current assets.............. -- 5,193 2,258 -- 7,451
-------- -------- -------- --------- --------
Total current assets........... -- 57,267 56,316 -- 113,583
-------- -------- -------- --------- --------
Property and equipment, net......... -- 27,813 34,799 -- 62,612
Goodwill, net....................... 1,135 60,887 27,477 -- 89,499
Intangible assets, net.............. 5,439 681 872 -- 6,992
Deferred income taxes and other
noncurrent assets................. -- 122 5,220 -- 5,342
Investment in subsidiaries.......... 29,641 10,022 -- (39,663) --
Intercompany notes receivable....... 115,096 -- -- (115,096) --
-------- -------- -------- --------- --------
Total Assets................... $151,311 $156,792 $124,684 $(154,759) $278,028
======== ======== ======== ========= ========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Current maturities of long-term
debt........................... $ -- $ -- $ 3,875 $ -- $ 3,875
Accounts payable.................. -- 20,995 10,464 -- 31,459
Accrued liabilities and deferred
income taxes................... 6,349 6,388 10,589 -- 23,326
-------- -------- -------- --------- --------
Total current liabilities...... 6,349 27,383 24,928 -- 58,660
-------- -------- -------- --------- --------
Deferred income taxes and other
noncurrent liabilities............ 691 1,167 4,767 -- 6,625
Long-term debt, less current
maturities........................ 124,543 -- 66,124 -- 190,667
Intercompany debt................... -- 86,816 28,280 (115,096) --
Mandatorily redeemable warrants..... 3,582 -- -- -- 3,582
Members' equity..................... 16,146 41,426 585 (39,663) 18,494
-------- -------- -------- --------- --------
Total liabilities and
members' equity........... $151,311 $156,792 $124,684 $(154,759) $278,028
======== ======== ======== ========= ========
</TABLE>
F-30
<PAGE> 134
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ -- $51,217 $22,810 $ -- $74,027
Cost of sales........................ -- 38,436 15,542 -- 53,978
------ ------- ------- ------- -------
Gross profit....................... -- 12,781 7,268 -- 20,049
Selling, administrative and product
development expenses............... 171 5,973 6,206 -- 12,350
Amortization of intangible assets.... 10 543 232 -- 785
------ ------- ------- ------- -------
Operating income (loss)............ (181) 6,265 830 -- 6,914
Interest expense..................... 853 1,919 2,164 -- 4,936
Equity in income (loss) of
subsidiaries....................... 3,141 -- -- (3,141) --
Foreign currency (gain) loss......... -- -- 1,042 -- 1,042
------ ------- ------- ------- -------
Income (loss) before income taxes.... 2,107 4,346 (2,376) (3,141) 936
Provision (benefit) for income
taxes.............................. -- -- (1,171) -- (1,171)
------ ------- ------- ------- -------
Net income (loss).................... $2,107 $ 4,346 $(1,205) $(3,141) $ 2,107
====== ======= ======= ======= =======
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............................. $ -- $20,231 $14,285 $ -- $34,516
Cost of sales......................... -- 13,913 9,854 -- 23,767
----- ------- ------- ---- -------
Gross profit........................ -- 6,318 4,431 -- 10,749
Selling, administrative and product
development expenses................ 188 2,852 3,383 -- 6,423
Amortization of intangible assets..... 20 274 217 -- 511
----- ------- ------- ---- -------
Operating income (loss)............. (208) 3,192 831 -- 3,815
Interest expense...................... 215 908 1,035 -- 2,158
Equity in income (loss) of
subsidiaries........................ (354) -- -- 354 --
Foreign currency (gain) loss.......... 2 40 3,472 -- 3,514
----- ------- ------- ---- -------
Income (loss) before minority interest
and income taxes.................... (779) 2,244 (3,676) 354 (1,857)
Provision (benefit) for income
taxes............................... -- -- (1,078) -- (1,078)
Income (loss) before minority
interest......................... (779) 2,244 (2,598) 354 (779)
Minority interest..................... -- -- -- 21 21
----- ------- ------- ---- -------
Net income (loss)..................... $(779) $ 2,244 $(2,598) $333 $ (800)
===== ======= ======= ==== =======
</TABLE>
F-31
<PAGE> 135
ADVANCED ACCESSORY SYSTEMS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. CONDENSED CONSOLIDATING INFORMATION -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used for)
operating activities.................. $ 1,940 $ 3,562 $ (1,241) $ -- $ 4,261
------- ------- -------- ---- --------
Cash flows from investing activities:
Acquisition of property and
equipment.......................... -- (1,938) (506) -- (2,444)
Acquisitions, net of cash acquired.... -- -- (21,774) -- (21,744)
------- ------- -------- ---- --------
Net cash used for investing
activities............................ -- (1,938) (22,280) -- (24,218)
------- ------- -------- ---- --------
Cash flows from financing activities:
Change in intercompany debt........... (32) (2,863) 2,903 (8) --
Increase (decrease) in revolving
loan............................... (1,900) -- -- -- (1,900)
Repayment of debt..................... -- -- (888) -- (888)
Distributions to members.............. (8) (8) -- 8 (8)
------- ------- -------- ---- --------
Net cash provided by financing
activities............................ (1,940) (2,871) 2,015 -- (2,796)
------- ------- -------- ---- --------
Effect of exchange rate changes......... -- -- 331 -- 331
Net increase (decrease) in cash......... -- (1,247) (21,175) -- (22,422)
Cash at beginning of period............. -- 2,761 24,587 -- 27,348
------- ------- -------- ---- --------
Cash at end of period................... $ -- $ 1,514 $ 3,412 $ -- $ 4,926
======= ======= ======== ==== ========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR ELIMINATIONS/
ISSUERS SUBSIDIARIES SUBSIDIARIES ADJUSTMENTS CONSOLIDATED
------- ------------ ------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used for)
operating activities.............. $ -- $ 324 $(2,067) $ -- $(1,743)
------- ------- ------- ------- -------
Cash flows from investing
activities:
Acquisition of property and
equipment...................... -- (369) (373) -- (742)
------- ------- ------- ------- -------
Net cash used for investing
activities........................ -- (369) (373) -- (742)
------- ------- ------- ------- -------
Cash flows from financing
activities:
Change in intercompany debt....... 196 (2,414) 2,414 (196) --
Increase in revolving loan........ -- 2,800 -- -- 2,800
Repayment of debt................. -- (162) (1,088) -- (1,250)
Distributions to members.......... (196) (198) -- 196 (198)
------- ------- ------- ------- -------
Net cash provided by financing
activities........................ -- 26 1,326 -- 1,352
------- ------- ------- ------- -------
Effect of exchange rate changes..... -- -- (572) -- (572)
Net increase (decrease) in cash..... -- (19) (1,686) -- (1,705)
Cash at beginning of period......... -- 91 2,423 -- 2,514
------- ------- ------- ------- -------
Cash at end of period............... $ -- $ 72 $ 737 $ -- $ 809
======= ======= ======= ======= =======
</TABLE>
F-32
<PAGE> 136
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of Brink B.V.:
We have audited the accompanying consolidated balance sheets of Brink B.V.
as of October 31, 1996 and December 31, 1995, and the related statements of
consolidated income and cash flows for the ten month period ended October 31,
1996 and the year ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The financial
statements have been prepared in accordance with accounting principles generally
accepted in The Netherlands.
We conducted our audits in accordance with auditing standards generally
accepted in The Netherlands, which are substantially similar to those followed
in the United States. These 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, 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 Brink B.V. at
October 31, 1996 and December 31, 1995, and the consolidated results of their
operations and their cash flows for the ten month period ended October 31, 1996
and the year ended December 31, 1995 in conformity with accounting principles
generally accepted in The Netherlands.
Accounting principles generally accepted in The Netherlands vary in certain
respects from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of net income
for the ten months ended October 31, 1996 and the year ended December 31, 1995
and the shareholders' equity as of October 31, 1996 and December 31, 1995 to the
extent summarized in Note 1.7 to the consolidated financial statements.
Coopers & Lybrand N.V.
Zwolle, The Netherlands
September 4, 1997
F-33
<PAGE> 137
BRINK B.V.
1.1 CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995 AND OCTOBER 31, 1996
(AFTER PROFIT APPROPRIATION)
<TABLE>
<CAPTION>
DECEMBER 31, 1995 OCTOBER 31, 1996
--------------------- ---------------------
NLG 1,000 NLG 1,000 NLG 1,000 NLG 1,000
<S> <C> <C> <C> <C>
FIXED ASSETS
Tangible fixed assets............................... 30,099 30,662
Financial fixed assets.............................. 141 --
------ ------
30,240 30,662
CURRENT ASSETS
Stocks.............................................. 29,233 25,087
Accounts receivable................................. 14,532 22,107
Cash on hand and at bank............................ 657 3,517
------ ------
44,422 50,711
------ ------
Total assets...................................... 74,662 81,373
------ ------
GROUP EQUITY........................................ 28,039 33,294
DEFERRED INVESTMENT GRANTS.......................... 1,335 1,334
PROVISIONS.......................................... 3,056 3,395
LONG-TERM LIABILITIES............................... 18,487 20,118
CURRENT LIABILITIES................................. 23,745 23,232
------ ------
74,662 81,373
------ ------
</TABLE>
1.2 CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE TEN MONTHS ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
FOR THE TEN MONTHS
FOR THE YEAR ENDED ENDED
DECEMBER 31, 1995 OCTOBER 31, 1996
--------------------- ---------------------
NLG 1,000 NLG 1,000 NLG 1,000 NLG 1,000
<S> <C> <C> <C> <C>
NET TURNOVER........................................ 102,527 98,393
Costs of raw materials and supplies................. 38,031 36,872
Work contracted out and other external costs........ 4,695 5,082
Personnel expenses.................................. 29,346 28,088
Depreciation........................................ 5,321 4,363
Other operating expenses............................ 13,288 14,090
------ ------
TOTAL OF OPERATING EXPENSES......................... 90,681 88,495
------ ------
OPERATING RESULT.................................... 11,846 9,898
Interest income..................................... 44 17
Interest expense.................................... (2,782) (1,788)
------ ------
Financial income and expense........................ (2,738) (1,771)
------ ------
Result from ordinary activities before income tax... 9,108 8,127
Income tax.......................................... 3,292 2,871
------ ------
GROUP RESULT........................................ 5,816 5,256
------ ------
</TABLE>
F-34
<PAGE> 138
BRINK B.V. -- (CONTINUED)
1.3 CONSOLIDATED CASH FLOWS STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1995 AND
THE TEN MONTHS ENDED OCTOBER 31, 1996
<TABLE>
<CAPTION>
FOR THE TEN MONTHS
FOR THE YEAR ENDED ENDED
DECEMBER 31, 1995 OCTOBER 31, 1996
--------------------- ---------------------
NLG 1,000 NLG 1,000 NLG 1,000 NLG 1,000
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net result.......................................... 5,816 5,256
Depreciation........................................ 5,425 4,394
------ ------
11,241 9,650
Changes in:
Stocks............................................ (4,276) 4,146
Accounts receivable............................... (2,864) (7,575)
Current liabilities............................... 688 2,669
Provisions and other changes...................... 580 337
------ ------
(5,872) (423)
------ ------
Cash flows from operating activities................ 5,369 9,227
CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to tangible fixed assets.............. 2,977 4,957
------ ------
Cash flows from investing activities................ (2,977) (4,957)
CASH FLOWS FROM FINANCING ACTIVITIES
Change in loans..................................... (2,169) 1,631
Change in credit institutions....................... (1,711) (3,182)
Change in financial assets.......................... -- 141
------ ------
Cash flows from financing activities................ (3,880) (1,410)
------ ------
Total cash flows.................................... (1,488) 2,860
Cash on hand and at bank January 1.................. 2,145 657
------ ------
CASH ON HAND AND AT BANK AT END OF PERIOD........... 657 3,517
------ ------
</TABLE>
1.4 GENERAL NOTES
1.4.1 General
Activities
The activities of Brink B.V. and its subsidiaries mainly comprise the
development, manufacture and sale of towbars and accessories.
Group structure
Brink B.V. forms part of the Brink Group. The ultimate parent company of
the group is Brink Holding B.V. As of November 1, 1996 Brink Holding B.V. sold
the shares in Brink B.V. to Advanced Accessory Systems, LLC, (formerly AAS
Holdings, LLC), in the United States of America. Advanced Accessory Systems, LLC
subsequently established Brink International B.V. in The Netherlands. The shares
of Brink B.V. have been transferred from Advanced Accessory Systems, LLC to
Brink International B.V. in December 1996. At that time, Brink B.V. transferred
the shares of its foreign subsidiaries to Brink International B.V.
F-35
<PAGE> 139
BRINK B.V. -- (CONTINUED)
The consolidated financial statements for the year ended December 31, 1995
and for the ten month period ended October 31, 1996 comprise the financial
information of Brink B.V. and the following wholly-owned subsidiaries:
<TABLE>
<S> <C>
- - Brink Trekhaken B.V. Hoogeveen, The Netherlands
- - Nordisk Komponent Holding A/S Naestved, Denmark
- - Brink A/S Naestved, Denmark
- - Brink UK Ltd. Nuneaton, England
- - Brink Sverige AB Vanersborg, Sweden
- - Brink France Sarl Paris, France
- - SCI l'Elmontaise Aiglemont, France
- - Societe de Fabrication
d'Equipements
et d'Accessoires SA (SFEA) Betheny, France
</TABLE>
The information stated in the financial statements of the consolidated
investments are included for 100% in the consolidation.
Outstanding intercompany accounts between group companies, as well as
intercompany supplies and other costs charged between group companies have been
eliminated in the consolidation. Profits on intercompany supplies which have not
yet been delivered to third parties are eliminated in the consolidation.
1.4.2 Accounting principles and determination of result
Comparison with the previous year
The accounting principles and determination of result remained unchanged
compared with the previous year.
General
Assets and liabilities are carried at face value, unless indicated
otherwise. If deemed necessary, a provision is deducted from accounts
receivable.
Foreign currency translation
a. Transactions in foreign currencies
Assets and liabilities denominated in foreign currencies are
translated at the rate of exchange prevailing on the balance sheet
date.
The resulting translation differences are included in the profit and
loss account, except for those on long-term loans, which relate to
the financing of foreign investments.
The exchange differences on these loans are directly added to or
charged against equity.
Transactions in foreign currencies during the reporting period have
been processed in the financial statements at the rate at transaction
date.
b. Investments in group companies
The financial statements denominated in foreign currencies are
translated at the rates prevailing on the balance sheet date.
The exchange difference on the opening balance of investments and the
changes during the year are directly added to or charged against
shareholders' equity.
F-36
<PAGE> 140
BRINK B.V. -- (CONTINUED)
Tangible fixed assets
Valuation occurs at historical cost less depreciation, being a fixed
percentage of cost in accordance with the estimated useful life. The
depreciation period commences at the moment the asset is put into use.
In connection with the acquisition of Brink B.V. by Advanced Accessory
Systems, LLC, the fair value of the tangible fixed assets of Brink B.V. and its
subsidiaries was required to be determined. The fair value of such assets at
November 1997 was approximately NLG 50,000.
Stocks
Stocks consist of raw materials and supplies, work in progress and finished
goods and trade goods.
- Raw materials and supplies are valued at purchase prices.
- Work in progress is valued at the processed raw materials and
supplies, direct labor costs incurred as well as an uplift for
indirect manufacturing costs.
- Installments invoiced to customers are deducted from work in progress.
- Foreseeable losses are provided for and deducted from work in
progress.
- Finished goods and trade goods are valued at manufacturing cost
(direct costs of materials and labor, with an uplift for indirect
costs) and the last known purchase price respectively.
A provision is included for possible obsolescence.
Deferred investment grants
The rights to investment grants are recognized in the year in which they
arise as deferred income. The grants are amortized in the result over the
depreciation period of the assets concerned.
PROVISIONS
Deferred tax liabilities:
This concerns liabilities resulting from the differences in valuation of
assets and liabilities for the financial statements and those for tax purposes.
They are included at nominal value, based on the prevailing tax rate in the
countries concerned.
Deferred tax debits are carried if it can reasonably be assumed that
realization will take place in due course.
Long-term liabilities
Long-term liabilities are debts with a remaining term of more than one
year.
Determination of result
The result represents the difference between the proceeds from goods
supplied or services rendered and the costs and other charges for the year.
Results on transactions are recognized in the year in which they are
realized; losses are taken when foreseeable.
F-37
<PAGE> 141
BRINK B.V. -- (CONTINUED)
Depreciation takes place according to the straight-line method on the basis
of the estimated useful lives.
a. Net turnover
Net turnover represents the amounts charged to third parties for the
goods, supplies and services rendered less discounts and excluding
VAT, as well as the changes in the added value in the stock of work
in progress and of finished goods.
b. Costs of raw materials and supplies
Costs of raw materials and supplies represent the use of raw
materials and supplies in the production by the manufacturing
companies.
c. Work contracted out and other external costs
Costs of work contracted out and other external costs represent the
costs, except for the use of raw materials and supplies, that can
directly be allocated to the manufactured goods and services rendered
in the current financial year.
d. Other operating expenses
Costs are allocated to the reporting year to which they relate.
e. Taxation
Deferred tax assets and liabilities are recognized for the expected
future tax consequences of events that have been included in the
financial statements or tax returns, and are determined annually
based on the difference between financial statement and tax bases
using enacted tax laws and rates in effect for the year in which the
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amounts expected to be realized. The provision for
taxes on income is the tax payable for the year plus the change in
deferred tax assets and liabilities during the year.
1.5 NOTES TO THE CONSOLIDATED BALANCE SHEET
1.5.1 Tangible fixed assets
The changes in tangible fixed assets can be summarized as follows (x NLG
1,000):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
BALANCE JANUARY 1
Cost..................................................... 60,999 62,847
Cumulative depreciation.................................. (28,452) (32,748)
-------- --------
Book value............................................... 32,547 30,099
-------- --------
CHANGE IN BOOK VALUE
Additions................................................ 4,245 5,120
Disposals................................................ (1,100) (550)
Depreciation............................................. (5,425) (4,394)
Exchange rate adjustments................................ (168) 387
-------- --------
(2,448) 563
-------- --------
BALANCE DECEMBER 31, 1995/OCTOBER 31, 1996
Cost..................................................... 62,847 67,804
Cumulative depreciation.................................. (32,748) (37,142)
-------- --------
Book value............................................... 30,099 30,662
-------- --------
</TABLE>
F-38
<PAGE> 142
BRINK B.V. -- (CONTINUED)
Tangible fixed assets can be specified by category as follows:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31, DEPRECIATION
1995 1996 RATES
------------ ----------- ------------
<S> <C> <C> <C>
Land and buildings.......................... 20,069 19,892 0-10%
Machinery and equipment..................... 9,750 7,564 20-25%
Other....................................... 280 3,206 20-50%
------ ------
30,099 30,662
------ ------
</TABLE>
Tangible fixed assets also include the investment commitments of NLG
237,000 (1995: NLG 203,000).
Tangible fixed assets contain land and buildings, machinery and equipment
with a book value of NLG 1,550,000 (1995: NLG 510,000), financed by means of
financial lease. The lease commitments for the buildings run until 2000, after
which year the buildings will be in the group's ownership.
1.5.2 Stocks
The stocks of raw materials and supplies, work in progress, finished goods
and trade goods within the group can be detailed as follows (x NLG 1,000):
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
<S> <C> <C>
Towbars and accessories................................ 29,156 24,749
Other stock............................................ 77 338
------ ------
29,233 25,087
------ ------
</TABLE>
On account of article 410 sub 2, Book 2 of the Dutch Civil Code, Title 9,
stocks are not broken down.
1.5.3 Accounts receivable
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
NLG 1,000 NLG 1,000
<S> <C> <C>
Trade debtors.......................................... 12,752 18,334
Group companies........................................ 6 --
Taxes and social security premiums..................... 974 274
Other debtors, prepayments and accrued income.......... 800 3,499
------ ------
14,532 22,107
------ ------
</TABLE>
1.5.4 Group equity; shareholders' equity
a. Issued and paid-up capital
The authorized capital amounts to NLG 50,000. The issued and paid-up
capital at October 31, 1996 amounts to NLG 50,000, consisting of 200
shares of NLG 250 nominal each. There were no changes during the ten
month period ended October 30, 1996.
b. Share premium reserve
This concerns the share premium received upon the share issue in
1985. No changes took place during the ten months' period ended
October 31, 1996.
F-39
<PAGE> 143
BRINK B.V. -- (CONTINUED)
c. Legal reserve
A statutory reserve has been formed for income from investments, the
payment of which income cannot be realized without restriction. At
October 31, 1996, this reserve amounted to NLG 0 (1995: NLG 450,000).
d. Other reserves
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
NLG 1,000 NLG 1,000
<S> <C> <C>
Balance as of January 1................................ 21,824 28,039
Profit appropriation................................... 5,816 5,256
Equity movement investment............................. 359 --
Exchange rate adjustments.............................. 40 (1)
------ ------
Balance at end of period............................... 28,039 33,294
------ ------
</TABLE>
1.5.5 Deferred investment grants
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
NLG 1,000 NLG 1,000
<S> <C> <C>
Balance as of January 1................................ 1,082 1,335
Exchange rate adjustments.............................. (18) 30
Received grants to be offset........................... 375 --
Release to the result.................................. (104) (31)
----- -----
Balance at end of period............................... 1,335 1,334
----- -----
</TABLE>
1.5.6 Provisions
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
<S> <C> <C>
Deferred tax liabilities............................... 3,056 3,395
----- -----
</TABLE>
The provisions are mainly of a long-term nature.
1.5.7 Long-term liabilities
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
NLG 1,000 NLG 1,000
<S> <C> <C>
Medium-term credits.................................... 4,710 --
Mortgage loan.......................................... 2,069 --
Roll-over loan......................................... 2,300 --
Private loan credit institution........................ 4,309 --
Loan from parent....................................... 4,400 19,588
Lease commitments...................................... 699 530
------ ------
18,487 20,118
------ ------
</TABLE>
Redemption liabilities due within 12 months after year end have not been
included in the above amounts but are accounted for under current liabilities.
F-40
<PAGE> 144
BRINK B.V. -- (CONTINUED)
Foreign currencies
a. Medium-term credits have been raised in Dutch guilders. The other
long-term liabilities have been raised in the local currencies, being
DKK, GBP and FFR.
b. The medium-term credits were raised with credit institutions; the
interest rate ranges from 8.75% to 9.5%. As collateral for the loans
granted, the real estate in The Netherlands has been mortgaged up to
an amount of NLG 13.5 million.
c. The mortgage loan concerns a loan denominated in DKK at a 7% interest
rate. As collateral for the credit granted, the real estate in
Denmark has been mortgaged up to an amount of DKK 7.5 million (NLG
2.2 million).
d. The roll-over loan concerns a loan originally amounting to GBP 1.5
million. As collateral, a credit guarantee of Brink B.V. has been
given and a negative pledge regarding the assets of Brink UK Ltd. The
interest on the loan is 6.9375%.
e. The private loan of the credit institution concerns a loan for an
amount of FFR 14.5 million. No redemption commitments or securities
have been agreed. The interest rate is 7.25%.
f. This concerns a loan from Advanced Accessory Systems LLC at an
average interest rate of 6.5%. No redemption schedules or securities
have been agreed.
g. Lease commitments: this concerns the capitalized financial lease
agreements, denominated in FFR. The assets concerned have been given
as collateral for the lease commitments.
1.5.8 Current liabilities
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
NLG 1,000 NLG 1,000
<S> <C> <C>
Redemptions on long-term loans......................... 2,230 175
Credit institutions.................................... 4,187 1,005
Creditors.............................................. 8,962 12,271
Group companies........................................ 1,075 --
Income tax............................................. 177 297
Other taxes and social premiums........................ 2,805 2
Other debts, accruals and deferred income.............. 4,309 9,482
------ ------
23,745 23,232
------ ------
</TABLE>
In addition to the securities given for credits received, recognized under
long-term liabilities, a chattel mortgage has been given to credit institutions
by the Swedish subsidiary.
1.5.9 Contingent liabilities
Liability
The company and its Dutch subsidiary are severally liable for each other's
total commitments vis-a-vis the Dutch credit institution.
Lease commitments
The annual amount of lease commitments entered into with third parties
totals approximately NLG 2,400,000.
The operating lease commitments have a term of two to four years.
F-41
<PAGE> 145
BRINK B.V. -- (CONTINUED)
1.6 NOTES TO THE CONSOLIDATED PROFIT AND LOSS ACCOUNT
1.6.1 Net turnover
The turnover can be broken down into geographical area as follows (x NLG
1,000):
<TABLE>
<CAPTION>
TEN MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
<S> <C> <C>
The Netherlands....................................... 31,750 22,816
Foreign countries..................................... 70,777 75,577
------- ------
102,527 98,393
------- ------
</TABLE>
1.6.2 Personnel expenses (x NLG 1,000)
<TABLE>
<CAPTION>
TEN MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Wages and salaries.................................... 24,635 23,838
Social charges........................................ 4,316 3,920
Pension charges....................................... 1,204 1,067
------ ------
30,155 28,825
Charged on by maintenance service..................... (809) (737)
------ ------
29,346 28,088
------ ------
</TABLE>
Pension Plan
Approximately 98% of the Company's employees are covered by a union
sponsored collective bargaining, multiemployer defined benefit pension plan.
1.6.3 Employees
During the year, the group employed on average 563 persons (1995: 551),
spread over geographical areas as follows:
<TABLE>
<CAPTION>
TEN MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
<S> <C> <C>
The Netherlands....................................... 293 277
Other European countries.............................. 258 286
--- ---
551 563
--- ---
</TABLE>
F-42
<PAGE> 146
BRINK B.V. -- (CONTINUED)
1.6.4 Depreciation (x NLG 1,000)
<TABLE>
<CAPTION>
TEN MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Buildings............................................. 726 629
Plant, machinery and equipment........................ 4,498 3,375
Other fixed assets.................................... 201 390
----- -----
5,425 4,394
Release of investment grants.......................... (104) (31)
----- -----
5,321 4,363
----- -----
</TABLE>
1.6.5 Income taxes (x NLG 1,000)
The income tax for the period ended October 31, 1996 consists of the
following:
<TABLE>
<S> <C>
Deferred taxes.............................................. 339
Current taxes............................................... 2,532
-----
2,871
-----
</TABLE>
1.7 SUMMARY OF DIFFERENCES BETWEEN DUTCH AND U.S. GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
Brink's consolidated financial statements have been prepared in accordance
with Dutch GAAP which differs in certain significant respects from U.S. GAAP.
These differences relate principally to the following items, and the effect of
the adjustments to group result and group equity which would be required under
U.S. GAAP are set out in the tables below.
1.7.1 Purchase accounting
Under Dutch GAAP, goodwill arising upon acquisition represents the
difference between the book value of assets acquired and consideration paid, and
is immediately written off against reserves. Under U.S. GAAP, goodwill
represents the difference between fair value of assets acquired and
consideration paid. Resulting goodwill is held as an intangible asset in the
balance sheet and amortized over its estimated useful life, not to exceed 40
years.
Group Result
<TABLE>
<CAPTION>
TEN MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, OCTOBER 31,
1995 1996
------------ ------------
NLG 1,000 NLG 1,000
<S> <C> <C>
Group result reported under Dutch GAAP................ 5,816 5,256
----- -----
U.S. GAAP adjustments
Depreciation........................................ (361) (301)
Amortization of goodwill............................ (262) (218)
----- -----
Pre-tax effect of U.S. GAAP adjustments............... (623) (519)
Tax effect of U.S. GAAP adjustments................... 125 105
----- -----
Net effect of U.S. GAAP adjustments................... (498) (414)
----- -----
Group result under U.S. GAAP.......................... 5,318 4,842
----- -----
</TABLE>
F-43
<PAGE> 147
BRINK B.V. -- (CONTINUED)
Group equity
<TABLE>
<CAPTION>
YEAR TEN MONTHS
ENDED ENDED
DECEMBER 31, OCTOBER 31,
1995 1996
------------ -----------
NLG 1,000 NLG 1,000
<S> <C> <C>
Group equity under Dutch GAAP.......................... 28,039 33,294
------ ------
U.S. GAAP adjustments:
Goodwill............................................. 3,929 3,929
Accumulated amortization............................. (262) (480)
Fixed assets......................................... 2,563 2,563
Accumulated depreciation............................. (805) (1,106)
Deferred tax......................................... (611) (506)
------ ------
Net U.S. GAAP adjustments......................... 4,814 4,400
------ ------
Group equity under U.S. GAAP........................... 32,853 37,694
------ ------
</TABLE>
2 OTHER INFORMATION
2.1 REPORT OF INDEPENDENT ACCOUNTANTS
The report of the independent accountants is enclosed on page F-29 of this
report.
2.2 PROVISIONS IN THE ARTICLES OF ASSOCIATION RE PROFIT APPROPRIATION
Article 19
The profit available for distribution is at the disposal of the general
meeting of shareholders. The general meeting of shareholders can allocate this
profit in full or in part to the (general) reserves or other reserves, for the
payment of bonuses and/or distribution of dividend.
The company is only allowed to make payments to shareholders and other
persons entitled to the profit available for distribution, insofar as the
shareholders' equity exceeds the paid-up and called-in capital increased by the
statutory reserves.
2.3 PROPOSED PROFIT APPROPRIATION
It is proposed to the general meeting of shareholders that the profit for
the period January 1 - October 31, 1996 of NLG 5,256 be added to the other
reserves.
In anticipation of the approval of the general meeting of shareholders,
this proposal has already been processed in the financial statements.
2.4 EVENTS OCCURRED AFTER BALANCE SHEET DATE
In August 1997, the Company executed a nonbinding letter of intent to
acquire a manufacturer of towing systems.
F-44
<PAGE> 148
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Valley Industries, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations and shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of Valley Industries, Inc. at August
5, 1997 and the results of its operations and its cash flows for the period then
ended in conformity with generally accepted accounting principles. Those
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
As discussed in Note 7, on August 5, 1997, Valley Industries, Inc. sold
certain net operating assets to Advanced Accessory Systems, LLC. The
accompanying financial statements do not give effect to this transaction.
Price Waterhouse LLP
Bloomfield Hills, Michigan
December 5, 1997
F-45
<PAGE> 149
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Valley Industries, Inc.
We have audited the accompanying balance sheets of Valley Industries, Inc.
as of December 31, 1995 and December 28, 1996, and the related statements of
operations, shareholders' equity, and cash flows for each of the two years in
the period ended December 28, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 financial position of Valley Industries, Inc. at
December 31, 1995, and December 28, 1996, and the results of its operations and
its cash flows for each of the two years in the period ended December 28, 1996,
in conformity with generally accepted accounting principles.
Ernst & Young LLP
Sacramento, California
March 10, 1997
F-46
<PAGE> 150
VALLEY INDUSTRIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 28, AUGUST 5,
1995 1996 1997
------------ ------------ ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash..................................................... $ 6 $ 34 $ 2,328
Accounts and notes receivable, less allowance of $216,
$288 and $246, respectively........................... 8,271 13,304 12,673
Receivable from shareholders............................. -- -- 93
Inventories:
Raw materials......................................... 5,904 5,007 5,599
Work in progress...................................... 1,382 2,463 1,965
Finished products..................................... 4,145 4,038 4,823
------- ------- -------
11,431 11,508 12,387
Less LIFO reserve..................................... 853 706 706
------- ------- -------
10,578 10,802 11,681
Prepaid expenses and other current assets................ 753 849 1,151
------- ------- -------
Total current assets................................ 19,608 24,989 27,926
Property, plant and equipment:
Land..................................................... 428 428 428
Buildings and improvements............................... 2,470 2,588 2,596
Machinery and equipment.................................. 8,396 10,245 11,218
Furniture and office equipment........................... 1,777 2,221 2,654
Construction in progress................................. 1,477 701 901
------- ------- -------
14,548 16,183 17,797
Less accumulated depreciation and amortization........... 7,690 8,707 9,300
------- ------- -------
6,858 7,476 8,497
Other assets............................................... 638 621 871
------- ------- -------
$27,104 $33,086 $37,294
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank..................................... $ 6,815 $ 8,709 $13,721
Accounts payable......................................... 8,494 9,996 11,952
Accrued compensation..................................... 447 1,174 959
Other accrued liabilities................................ 701 749 860
Current portion of long-term debt........................ 691 777 692
------- ------- -------
Total current liabilities........................... 17,148 21,405 28,184
Long-term debt............................................. 2,523 1,500 1,480
Note payable to shareholder................................ 5,046 5,046 5,046
Commitments (Note 6)
Shareholders' equity:
Common stock, no par value; 1,000 shares authorized, 555
shares issued and outstanding......................... 443 443 --
Class A voting common stock, no par value; 2,775 shares
authorized, issued and outstanding.................... -- -- 22
Class B non-voting common stock, no par value; 52,725
shares authorized, issued and outstanding............. -- -- 421
Shareholder note receivable................................ (200) (117) --
Retained earnings.......................................... 2,144 4,809 2,141
------- ------- -------
Total shareholders' equity.......................... 2,387 5,135 2,584
------- ------- -------
$27,104 $33,086 $37,294
======= ======= =======
</TABLE>
See accompanying notes to the financial statements.
F-47
<PAGE> 151
VALLEY INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED YEAR ENDED DECEMBER 29,
DECEMBER 31, DECEMBER 28, 1996 TO
1995 1996 AUGUST 5, 1997
------------ ------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales.............................................. $65,277 $85,721 $53,510
Cost of products sold.................................. 54,605 68,876 41,630
Selling and distribution expenses...................... 4,828 5,559 4,560
General and administrative expenses.................... 5,422 6,453 4,686
Product development costs.............................. 479 301 352
------- ------- -------
Operating income (loss)................................ (57) 4,532 2,282
Other income (expense):
Interest expense..................................... (897) (892) (587)
Other, net........................................... (9) (5) (125)
------- ------- -------
Income (loss) before provision (benefit) for income
taxes................................................ (963) 3,635 1,570
Provision (benefit) for income taxes................... (163) 133 (11)
------- ------- -------
Net income (loss)...................................... $ (800) $ 3,502 $ 1,581
======= ======= =======
</TABLE>
See accompanying notes to the financial statements.
F-48
<PAGE> 152
VALLEY INDUSTRIES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, DECEMBER 28, 1996,
AND THE PERIOD FROM DECEMBER 29, 1996 TO AUGUST 5, 1997
<TABLE>
<CAPTION>
SHAREHOLDER TOTAL
COMMON NOTE RETAINED SHAREHOLDERS'
STOCK RECEIVABLE EARNINGS EQUITY
------ ----------- -------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at December 31, 1994........................ $151 $ -- $ 3,867 $ 4,018
Issuance of common stock for note receivable........ 292 (292) -- --
Dividends........................................... -- -- (923) (923)
Payments received on note receivable................ -- 92 -- 92
Net loss............................................ -- -- (800) (800)
---- ----- ------- -------
Balance at December 31, 1995........................ 443 (200) 2,144 2,387
Dividends........................................... -- -- (837) (837)
Payments received on note receivable................ -- 83 -- 83
Net income.......................................... -- -- 3,502 3,502
---- ----- ------- -------
Balance at December 28, 1996........................ 443 (117) 4,809 5,135
Dividends........................................... -- -- (4,249) (4,249)
Payments received on note receivable................ -- 117 -- 117
Net income.......................................... -- -- 1,581 1,581
---- ----- ------- -------
Balance at August 5, 1997........................... $443 $ -- $ 2,141 $ 2,584
==== ===== ======= =======
</TABLE>
See accompanying notes to the financial statements.
F-49
<PAGE> 153
VALLEY INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED YEAR ENDED DECEMBER 29,
DECEMBER 31, DECEMBER 28, 1996 TO
1995 1996 AUGUST 5, 1997
------------ ------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)...................................... $ (800) $ 3,502 $ 1,581
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................ 929 1,153 775
Deferred income tax expense (benefit)................ (167) 135 (23)
Net changes in operating assets and liabilities:
Accounts, notes and shareholder receivable........ (550) (5,033) 538
Inventories....................................... (386) (224) (879)
Prepaid expenses and other current assets......... (160) (231) (529)
Accounts payable.................................. 1,815 1,502 1,956
Accrued compensation.............................. 59 727 (215)
Other accrued liabilities......................... 53 48 111
------- ------- -------
Net cash provided by operating activities......... 793 1,579 3,315
------- ------- -------
INVESTING ACTIVITIES
Purchases of property, plant and equipment............. (2,262) (1,771) (1,844)
Other, net............................................. 5 17 48
------- ------- -------
Net cash used in investing activities............. (2,257) (1,754) (1,796)
------- ------- -------
FINANCING ACTIVITIES
Net proceeds from notes payable to bank................ 2,616 1,894 5,012
Proceeds of long-term debt............................. -- 2,650 251
Payments of long-term debt............................. (327) (3,587) (356)
Payments received on note receivable from
shareholder.......................................... 92 83 117
Dividends paid......................................... (923) (837) (4,249)
------- ------- -------
Net cash provided by financing activities.............. 1,458 203 775
------- ------- -------
Net increase (decrease) in cash........................ (6) 28 2,294
Cash at beginning of period............................ 12 6 34
------- ------- -------
Cash at end of period.................................. $ 6 $ 34 $ 2,328
======= ======= =======
</TABLE>
See accompanying notes to the financial statements.
F-50
<PAGE> 154
VALLEY INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Valley Industries, Inc. (the "Company") is engaged in the manufacture and
marketing of automotive vehicle products (primarily trailer hitches and towing
products) and sells to original equipment manufacturers and automotive
aftermarket customers principally within the United States.
FISCAL YEAR
The Company operates with a 52/53 week fiscal year ending on the last
Saturday in December. The fiscal years ended December 28, 1996 and December 31,
1995 included 52 and 53 weeks, respectively.
INVENTORIES
Inventories for the Company's Western division are carried at the lower of
cost, as determined by the last-in, first-out (LIFO) method, or market. The
current costs of LIFO inventories exceed their balance sheet carrying amount by
$853, $706 and $706 at December 31, 1995, December 28, 1996, and August 5, 1997,
respectively. In 1996, inventory quantities at the Western division were
reduced. This reduction resulted in a liquidation of LIFO inventory quantities
carried at lower costs prevailing in prior years as compared with current year
costs. The effect of this liquidation was to increase net income by
approximately $80 for the year ended December 28, 1996.
Inventories for the Company's Eastern division are carried at the lower of
cost, as determined by the first-in, first-out (FIFO) method, or market.
RECEIVABLE FROM SHAREHOLDERS
Shareholder receivables represent costs associated with the sale of Valley
Industries, Inc. of $93 which the Shareholders have agreed to pay.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and depreciated or
amortized on a straight-line basis over the estimated useful lives of the assets
or the capital lease term, whichever is less. The estimated useful lives range
from 5 to 20 years. Amortization of equipment recorded under capital leases is
included in depreciation expense.
INCOME TAXES
The Company has elected S corporation status for federal and state income
tax purposes except for California income tax purposes for which the Company
files its tax return as a C corporation. No provision has been made for federal
income taxes in the accompanying financial statements because the federal income
tax consequences of the Company's operations are the responsibility of the
individual shareholders. The Company provided for income taxes in California and
is subject to the Michigan Single Business Tax (MSBT). MSBT is based primarily
on factors other than income, and accordingly, is classified as general and
administrative expense.
The liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
F-51
<PAGE> 155
VALLEY INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
REVENUE RECOGNITION
Revenues are recognized when the product is shipped to the customer.
ADVERTISING COSTS
The Company accounts for advertising costs as expense in the period in
which incurred. Advertising expense for the years ended December 31, 1995 and
December 28, 1996 was $499 and $622, respectively. Advertising expense for the
period ended August 5, 1997 was $428.
CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS
The Company manufactures and sells automotive vehicle products to companies
in the automotive industry. The Company performs periodic credit evaluations of
its customers and generally does not require collateral. At December 31, 1995,
December 28, 1996, and August 5, 1997, primarily all of the Company's accounts
receivable were from customers in the automotive industry. The Company believes
that adequate provision for uncollectible accounts receivable has been made in
the accompanying financial statements.
Three customers accounted for approximately 21%, 15% and 11% of net sales
for fiscal 1995, and approximately 22%, 16% and 14% of net sales for fiscal
1996. Three customers accounted for approximately 21%, 17% and 17% of net sales
for the period ended August 5, 1997.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. FINANCING ARRANGEMENTS
NOTE PAYABLE TO BANK
The Company has a revolving credit agreement with a bank that expires in
April 1998. Pursuant to an amendment on March 10, 1997, the agreement provides
for borrowings of up to $14,000 based upon specified percentages of eligible
accounts receivable and inventory. Under the agreement, borrowings bear interest
at either the bank's prime rate or a defined Eurodollar-based rate. At August 5,
1997, the outstanding borrowings of $13,721 bear interest at the bank's prime
rate of 8.5%. The Company is subject to certain restrictive covenants under the
revolving credit agreement, including, among other things, the maintenance of
certain financial ratios, and restrictions on repayment of the note payable to
shareholder, payment of dividends (except for tax distributions to the Company's
shareholders), the sale or redemption of the Company's common stock and the
incurrence of additional indebtedness. Substantially all of the Company's assets
are pledged as collateral for borrowings under the revolving credit agreement.
The term note payable to a bank (see "Long-Term Debt" below) is subject to
the restrictive covenants and security arrangements discussed above. As
explained in Note 7, the Company's outstanding debt at August 5, 1997 was repaid
from the proceeds of the sale of certain of the Company's net operating assets.
NOTE PAYABLE TO SHAREHOLDER
The note payable to shareholder is secured by the Company's Lodi facilities
including land and building with a net book value at August 5, 1997 of
approximately $1,365. Payments of principal on the note payable to
F-52
<PAGE> 156
VALLEY INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
2. FINANCING ARRANGEMENTS -- (CONTINUED)
shareholder were not made through August 4, 1997 due to the restrictive
covenants under the Company's current and former revolving credit agreements.
While the agreements with the Company's principal bank permit the payment of
interest on the note payable to shareholder, the Company and the note holder
have agreed to forego the payment or accrual of interest.
LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 28, AUGUST 5,
1995 1996 1997
------------ ------------ ---------
<S> <C> <C> <C>
Term note payable to a bank due in quarterly installments
of principal of $194 through March 1998, and quarterly
installments of principal of $113 from June 1998 to April
2001; with interest at the bank's prime rate (8.5% at
August 5, 1997).......................................... $ -- $2,107 $2,032
Term note payable to a bank (refinanced in 1996)........... 1,800 -- --
Refinancing of previous revolving credit agreement......... 850 -- --
Capitalized lease obligation due in monthly installments of
$6, including principal and interest imputed at 10.6%,
through December 1999.................................... 221 170 140
Other notes payable and capitalized lease obligations...... 343 -- --
------ ------ ------
3,214 2,277 2,172
Less current portion....................................... 691 777 692
------ ------ ------
$2,523 $1,500 $1,480
====== ====== ======
</TABLE>
On March 10, 1997, the Company executed an amendment to the term note
payable to a bank with an outstanding balance of $2,032 at August 5, 1997. In
addition, the Company obtained a new term credit facility which provides for
borrowings of up to $900 to fund a portion of certain planned capital
expenditures. Borrowings under the new term equipment note are due in eight
equal quarterly installments commencing September 1997. No borrowings have been
made under the new term equipment note through August 5, 1997. The term note
payable of $2,032 was repaid from the proceeds of the sale of certain of the
Company's net operating assets as described in Note 7.
Interest paid during 1995 and 1996 was $881 and $889, respectively.
Interest paid during the period ended August 5, 1997 was $628.
3. SHAREHOLDERS' EQUITY
On January 1, 1995, the Company sold 55 shares of common stock to its
President in exchange for a note receivable in the amount of $292. The note
receivable is due in ten annual installments of $29 commencing January 1, 2000,
and bears interest payable annually at a variable rate of interest
(approximately 6% at December 28, 1996). In addition, any cash dividend
distributions on the related common stock are to be applied as a reduction of
the note receivable balance. For 1995, 1996 and 1997, cash dividends of $92, $83
and $117, respectively, were applied against the note receivable balance.
In connection with the issuance of common stock, the Company and the
President have entered into an agreement which provides the Company the right of
first refusal in the event the President attempts to sell or dispose of such
shares. The Company's purchase option allows the Company to acquire the shares
at the lesser of adjusted book value or a bona fide offer from a third party.
Adjusted book value is defined as book value per
F-53
<PAGE> 157
VALLEY INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
3. SHAREHOLDERS' EQUITY -- (CONTINUED)
share adjusted for the per share difference, if any, between the net book value
and fair value of certain of the Company's real estate.
In July 1997, the Company's Board of Directors approved an amendment to the
Company's certificate of incorporation to create two new classes of common
stock. Pursuant to the amendment, each existing share of common stock was
exchanged for five shares of Class A voting common stock and ninety-five shares
of Class B nonvoting common stock.
4. INCOME TAXES
The income tax provision (benefit), which relates solely to California
state taxes, consists of the following components (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED PERIOD
--------------------------- ENDED
DECEMBER 31, DECEMBER 28, AUGUST 5,
1995 1996 1997
------------ ------------ ---------
<S> <C> <C> <C>
Current expense.............................. $ 4 $ (2) $103
Deferred expense (benefit) before benefit of
net operating loss and California
manufacturers' investment tax credit....... (8) 215 (23)
Benefit of net operating loss carryforward... (30) -- --
California manufacturers' investment tax
credit..................................... (129) (80) (91)
----- ---- ----
$(163) $133 $(11)
===== ==== ====
</TABLE>
The components of deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 28, AUGUST 5,
1995 1996 1997
------------ ------------ ---------
<S> <C> <C> <C>
Inventory.................................... $ 53 $ 50 $ 82
Accounts receivable.......................... 20 14 12
California manufacturers' investment tax
credit..................................... 128 23 --
Net operating loss carryforward.............. 30 -- --
Accrued liabilities and other................ 12 21 40
---- ---- ----
$243 $108 $134
==== ==== ====
</TABLE>
Cash paid for income taxes was $92 in 1995. There were no tax payments made
during the year ended December 28, 1996, or the period ended August 5, 1997.
5. PENSION PLANS
DEFINED BENEFIT PENSION PLAN
Effective December 31, 1995, the Company terminated its Defined Benefit
Pension Plan (the "Benefit Plan") and settled the Benefit Plan's obligations
through the purchase of annuity contracts and lump sum payments. The Benefit
Plan was previously amended in August 1993 to freeze benefit accruals and
restrict further participation in the Benefit Plan. The net effect of the
termination of the Benefit Plan in 1995 was not significant, as a settlement
gain of $56 was substantially offset by estimated special benefit distributions
and
F-54
<PAGE> 158
VALLEY INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
5. PENSION PLANS -- (CONTINUED)
expected plan expenses. In addition, the termination of the Benefit Plan did not
have a significant effect on the Company's results of operations for the year
ended December 28, 1996.
Net pension income recognized for 1995, excluding the settlement gain
described above, included the following components:
<TABLE>
<S> <C>
Service cost (benefits earned during the year).............. $ --
Interest cost on projected benefit obligation............... 70
Actual (return) on plan assets.............................. (327)
Net amortization and deferral............................... 242
-----
Net pension (income)........................................ $ (15)
=====
</TABLE>
The expected long-term rate of return used in determining net pension
income was 8.5% for 1995.
DEFINED CONTRIBUTION PLAN
Effective January 1, 1993, substantially all employees became eligible to
participate in a tax deferred investment plan (the "401(k) Plan") established by
the Company. Effective November 1, 1995, the Company's former profit sharing
plan was merged into the 401(k) Plan. The 401(k) Plan permits each participant
to contribute up to 15% of compensation on a pre-tax basis, to a specified
maximum amount per year. The Company, at its discretion, may make matching
contributions. Matching contributions were approximately $31, $32 and $16 for
1995, 1996 and 1997 respectively.
6. LEASE COMMITMENTS
In May 1993, the Company sold the land and building relating to its
principal operating facility in Michigan for $1,450 cash to Valley Industries
Realty, L.P. (the "Partnership"), a related party. Concurrent with the sale, the
Company leased the facilities back from the Partnership through December 31,
2002. The lease requires minimum monthly rentals of approximately $15, with
escalations in certain circumstances. At August 5, 1997, the Company is
obligated to pay minimum lease payments of approximately $84 for the remaining
period of 1997, and approximately $180 in each of the five years ending December
31, 2002. The lease arrangement has been accounted for as an operating lease.
The Company also leases certain machinery, equipment and facilities under
agreements which expire at various dates through 2002. At August 5, 1997, annual
minimum lease and rental payments for all capital leases and noncancellable
operating leases are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1997........................................................ $ 28 $ 274
1998........................................................ 68 634
1999........................................................ 64 527
2000........................................................ -- 473
2001........................................................ -- 401
Thereafter.................................................. -- 290
---- ------
160 $2,599
======
Less amount representing interest........................... (20)
----
Present value of net minimum lease payments................. $140
====
</TABLE>
F-55
<PAGE> 159
VALLEY INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
6. LEASE COMMITMENTS -- (CONTINUED)
During 1995, the Company capitalized equipment of $88, which represents the
present value of the net minimum lease payments on capitalized lease obligations
(none in 1996 or 1997).
Rental expense for 1995 and 1996 was approximately $468 and $453,
respectively. Rental expense for the period ended August 5, 1997 was $295.
7. SUBSEQUENT EVENTS
On August 5, 1997, the net operating assets of the Company were acquired by
Advanced Accessory Systems, LLC. The Company's outstanding debt at August 5,
1997 was repaid from the proceeds of the sale. In conjunction with the sale of
the Company, in July 1997 management and other bonuses aggregating approximately
$900 were paid. The associated expense is included within general and
administrative expenses for the period ended August 5, 1997.
F-56
<PAGE> 160
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Ellebi S.p.A.
In our opinion, the accompanying balance sheets and the related statements
of operations and of cash flows present fairly, in all material respects, the
financial position of the towbar segment of Ellebi S.p.A. (the Company), at
December 31, 1997, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with U.S. generally accepted accounting principles. These financial
statements are the responsibility of the management of the Company; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with U.S.
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free from material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
The Company, as disclosed in Note 1 to the accompanying financial
statements, is a division of Ellebi S.p.A. and has extensive transactions and
relationships with Ellebi S.p.A. Because of these relationships, it is possible
that the terms of these transactions are not the same as those that would result
from transactions among wholly unrelated parties.
As discussed in Note 9, on January 2, 1998, Ellebi S.p.A. sold certain net
assets of the Company to Brink International B.V. The accompanying financial
statements do not give effect to this purchase transaction.
AXIS S.r.1.
Reggio Emilia, Italy
March 13, 1998
F-57
<PAGE> 161
TOWBAR SEGMENT OF ELLEBI S.P.A.
BALANCE SHEETS
(AMOUNTS IN MILLIONS OF ITALIAN LIRA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. 1,781 558 10
Trade receivables, less allowance of 147, 248 and 248 at
December 31, 1995, 1996 and 1997, respectively......... 6,471 6,337 7,113
Other receivables, less allowance of 142 at December 31,
1995, 1996 and 1997, respectively...................... 554 482 627
Inventories............................................... 14,308 17,015 15,926
------ ------ ------
Total current assets................................... 23,114 24,392 23,676
Property, plant and equipment, net.......................... 3,221 4,632 4,733
Receivables from associated company......................... -- 71 71
Other receivables........................................... 4 4 113
Intangible assets........................................... 22 103 57
------ ------ ------
TOTAL ASSETS........................................... 26,361 29,202 28,650
====== ====== ======
LIABILITIES AND ELLEBI S.P.A. INVESTMENT
Current liabilities
Trade payables............................................ 8,281 5,913 3,876
Tax payable............................................... 1,336 1,796 2,707
Social Security payable................................... 300 311 345
Other payables............................................ 1,603 1,104 1,237
------ ------ ------
Total current liabilities.............................. 11,520 9,124 8,165
Agents severance fund....................................... 421 462 380
Termination indemnity....................................... 1,551 1,780 1,769
------ ------ ------
TOTAL LIABILITIES...................................... 13,492 11,366 10,314
------ ------ ------
Ellebi S.p.A. investment.................................... 12,869 17,836 18,336
------ ------ ------
TOTAL LIABILITIES AND ELLEBI S.P.A. INVESTMENT......... 26,361 29,202 28,650
====== ====== ======
</TABLE>
See accompanying notes to the financial statements.
F-58
<PAGE> 162
TOWBAR SEGMENT OF ELLEBI S.P.A.
STATEMENTS OF OPERATIONS
(AMOUNTS IN MILLIONS OF ITALIAN LIRA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net sales................................................... 31,301 32,541 36,378
Cost of sales............................................... 20,521 20,547 21,180
------ ------ ------
Gross profit.............................................. 10,780 11,994 15,198
Selling, general and product development expenses........... 6,517 6,187 6,988
------ ------ ------
Operating income.......................................... 4,263 5,807 8,210
Other income (expense)...................................... 2 (173) (37)
------ ------ ------
Income before provision for income taxes.................. 4,265 5,634 8,173
Taxes on income............................................. 2,270 3,130 4,460
------ ------ ------
Net income................................................ 1,995 2,504 3,713
====== ====== ======
</TABLE>
See accompanying notes to the financial statements.
F-59
<PAGE> 163
TOWBAR SEGMENT OF ELLEBI S.P.A.
STATEMENTS OF CASH FLOWS
(AMOUNTS IN MILLIONS OF ITALIAN LIRA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net income.................................................. 1,995 2,504 3,713
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization............................. 1,306 1,141 823
Termination indemnity provision........................... 330 322 323
Changes in assets and liabilities
Trade receivables...................................... 74 134 (776)
Other receivables...................................... 146 72 (145)
Inventories............................................ (5,432) (2,707) 1,089
Trade, tax and social security payables................ 1,335 (1,897) (1,092)
Other payables......................................... 282 (499) 133
Agents severance fund.................................. (40) 41 (82)
Other, net............................................. (87) (93) (282)
------ ------ ------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.... (91) (982) 3,704
------ ------ ------
CASH FLOW FROM INVESTING ACTIVITIES
Intangible asset additions.................................. -- (147) (22)
Property, plant and equipment additions..................... (2,658) (2,486) (909)
Other....................................................... -- (71) (108)
------ ------ ------
NET CASH USED IN INVESTING ACTIVITIES.................. (2,658) (2,704) (1,039)
------ ------ ------
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid.............................................. (797) (227) --
Increase (decrease) in Ellebi S.p.A. investment............. 707 2,690 (3,213)
------ ------ ------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES....... (90) 2,463 (3,213)
------ ------ ------
Net decrease in cash........................................ (2,839) (1,223) (548)
Cash at beginning of year................................... 4,620 1,781 558
------ ------ ------
Cash at end of year......................................... 1,781 558 10
====== ====== ======
</TABLE>
See accompanying notes to the financial statements.
F-60
<PAGE> 164
TOWBAR SEGMENT OF ELLEBI S.P.A.
STATEMENT OF CHANGES IN ELLEBI S.P.A. INVESTMENT
(AMOUNTS IN MILLIONS OF ITALIAN LIRA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
BEGINNING ELLEBI S.P.A. INVESTMENT.......................... 10,964 12,869 17,836
Net income.................................................. 1,995 2,504 3,713
Intercompany activity....................................... 707 2,690 (3,213)
Dividends paid.............................................. (797) (227) --
------ ------ ------
ENDING ELLEBI S.P.A. INVESTMENT............................. 12,869 17,836 18,336
====== ====== ======
</TABLE>
See accompanying notes to the financial statements.
F-61
<PAGE> 165
TOWBAR SEGMENT OF ELLEBI S.P.A.
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN MILLIONS OF ITALIAN LIRA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The towbar segment of Ellebi S.p.A. (the "Company"), is a manufacturer and
distributor of trailers, towbars, accessories and spare parts. The financial
statements have been prepared on a carve-out basis and present the historical
financial position, results of operations and cash flows of the Company
previously included in the financial statements of Ellebi S.p.A. The Company's
financial information included herein is not necessarily indicative of its
financial position, results of operations and cash flows in the future, or of
the results which would have been reported if the Company had operated as an
unaffiliated enterprise.
SIGNIFICANT ESTIMATES
The preparation of combined financial statements on a carve-out basis in
conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates.
REVENUE RECOGNITION
Revenue from product sales is recognized at the time of shipment to the
customer, which represents the moment when ownership passes.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially expose the Company to a
concentration of credit risk, consist primarily of accounts receivable. The
Company does not require collateral from its customers. To minimize this risk,
ongoing credit evaluations of customers' financial condition are performed. At
December 31, 1995, 1996 and 1997, approximately 29%, 41% and 41%, respectively,
of trade accounts receivable were from the Company's ten major customers. For
the same years the major customer (Fiat Auto S.p.A.) represented 19%, 28% and
25%, respectively, of trade accounts receivable.
FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, comprising cash,
accounts receivable, accounts payable and accrued liabilities, approximate their
fair values.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and on deposit.
RECEIVABLES
Receivables are stated at face value reduced to their estimated realizable
value by the allowance for doubtful accounts.
INVENTORIES
Inventories are carried at the lower of cost, as determined per item by the
last-in-first-out (LIFO) method, or market. Inventories are periodically
reviewed and reserves established for excess and obsolete items.
F-62
<PAGE> 166
TOWBAR SEGMENT OF ELLEBI S.P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful trade receivables is provided for based on
specific identification.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost and depreciated using
estimated useful lives. Depreciation is computed on the straight-line method.
Maintenance and repairs costs are charged to expense as incurred. Plant and
equipment additions and improvements are capitalized. Yearly depreciation rates
are as follows:
<TABLE>
<S> <C>
Plant and machinery......................................... 10%
Equipment and tools (molds)................................. 25%
Cars........................................................ 25%
Furniture................................................... 12%
Computers................................................... 20%
Vans........................................................ 20%
</TABLE>
Management believes that there are no impairments of property, plant and
equipment or other long-lived assets at December 31, 1997.
INTANGIBLE ASSETS
Intangible assets are carried at cost and amortized on the straight-line
method over their estimated useful lives.
RESEARCH, DEVELOPMENT AND ENGINEERING
Research, development and engineering costs are charged to expense as
incurred. These costs for the years ended December 31, 1995, 1996 and 1997 were
1,110, 1,150 and 1,350, respectively.
DEFERRED COMPENSATION
All employees are covered by a plan required under Italian law and labor
contracts which grants a termination indemnity based on compensation and years
of service. The Company accrues the amount due to each employee, based on the
relevant factors at year-end.
TRANSACTIONS IN FOREIGN CURRENCIES
Transactions in foreign currencies are recorded using the exchange rates in
effect at the transaction dates. Exchange gains or losses realized during the
year are included in the statement of income. The effect of translation of
foreign currency receivables and payables using year-end rates are reported as
other payables in the balance sheet.
INCOME TAXES
The Company is included in the income tax return of Ellebi S.p.A. In
preparing its financial statements, the Company has determined its tax provision
on a separate return basis and the resulting liability is settled on an
intercompany basis. There are no temporary differences that give rise to
deferred taxes.
F-63
<PAGE> 167
TOWBAR SEGMENT OF ELLEBI S.P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
2. INTERCOMPANY TRANSACTIONS AND ALLOCATIONS
The profit and loss accounts are prepared based upon an allocation of costs
between Ellebi S.p.A. and the Company. The allocation of costs has been prepared
taking into account the activities of the Company and of Ellebi S.p.A. and also
under the assumption that the segments were separate and that each segment
should carry its own direct operating costs.
Management believes that the methods utilized to allocate costs to the
Company, as discussed above, are reasonable. However, the terms of transactions
between the Company and Ellebi S.p.A., including allocated costs, may differ
from those that would result from transactions with unrelated parties.
3. NET SALES
Classification of net sales is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Towbars -- aftermarket................................ 13,915 15,610 16,946
Towbars -- OEM........................................ 3,876 4,844 5,939
Trailers.............................................. 10,126 9,381 10,894
Accessories and spare parts........................... 3,769 3,178 3,106
Other................................................. 287 96 233
Bonuses to customer................................... (672) (568) (740)
------ ------ ------
31,301 32,541 36,378
====== ====== ======
</TABLE>
4. TAXES ON INCOME
Current income tax expense for the three years ended December 31, 1997 was
calculated at a rate of 53.2% on taxable income. Current income tax expense
included in the statements of operations are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Income before taxes...................................... 4,265 5,634 8,173
Non deductible costs..................................... -- 252 207
----- ----- -----
4,265 5,886 8,380
----- ----- -----
Tax charge............................................... 2,270 3,130 4,460
===== ===== =====
</TABLE>
5. INVENTORIES
The difference between LIFO and current valuation as of December 31, 1997,
1996 and 1995 is 2,770, 3,670 and 3,690, respectively.
F-64
<PAGE> 168
TOWBAR SEGMENT OF ELLEBI S.P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. ACCOUNT BALANCES
Account balances included in the balance sheet are comprised of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS
Banks and postal deposit.................................... 1,761 550 --
Cash on hand................................................ 20 8 10
------- ------- -------
1,781 558 10
======= ======= =======
OTHER RECEIVABLES
Due from personnel.......................................... 4 20 6
Due from sales agents....................................... 329 266 397
Due from freight forwarders................................. 214 167 209
Due from suppliers.......................................... 7 23 10
Other....................................................... 142 148 147
Allowance for doubtful accounts............................. (142) (142) (142)
------- ------- -------
554 482 627
======= ======= =======
INVENTORIES VALUED AT LIFO
Raw materials and supplies.................................. 5,561 4,664 2,846
Work-in-process............................................. 4,052 6,133 6,491
Finished goods and merchandise.............................. 4,965 6,425 6,793
Allowance for obsolescence and slow-moving items............ (270) (207) (204)
------- ------- -------
14,308 17,015 15,926
======= ======= =======
PROPERTY, PLANT AND EQUIPMENT
Plant and machinery......................................... 7,966 9,198 10,050
Molds, jigs and other tools................................. 8,738 9,282 9,476
Other fixed assets.......................................... 2,137 2,180 2,283
Assets under construction and advances...................... 136 44 8
Accumulated depreciation.................................... (15,756) (16,072) (17,084)
------- ------- -------
3,221 4,632 4,733
======= ======= =======
TAXES PAYABLE
Income taxes................................................ 1,107 1,483 2,325
Tax on equity............................................... 63 57 30
V.A.T. tax.................................................. -- 55 150
Withholding tax............................................. 166 201 202
------- ------- -------
1,336 1,796 2,707
======= ======= =======
OTHER PAYABLES
Due to customers............................................ 671 567 740
Due to workers.............................................. 440 478 444
Other....................................................... 492 59 53
------- ------- -------
1,603 1,104 1,237
======= ======= =======
</TABLE>
7. ELLEBI S.P.A. INVESTMENT
The Ellebi S.p.A. investment balance represents the cumulative activity
from transactions between the Company and Ellebi S.p.A.
F-65
<PAGE> 169
TOWBAR SEGMENT OF ELLEBI S.P.A.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
8. LEASE COMMITMENTS
The Company leases certain buildings under operating lease agreements. Rent
charged from Ellebi S.p.A. to the Company approximates 750 annually.
9. SUBSEQUENT EVENT (UNAUDITED)
On January 2, 1998, Ellebi S.p.A. sold substantially all of the net assets
of the Company to Brink International B.V. for approximately 35,000, subject to
certain post-closing adjustments. The accompanying financial statements do not
give effect to this transaction.
F-66
<PAGE> 170
=========================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUERS SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................... 3
Prospectus Summary...................... 4
Risk Factors............................ 17
The Exchange Offer...................... 23
Use of Proceeds......................... 31
Capitalization.......................... 32
Unaudited Pro Forma Financial
Information........................... 33
Selected Historical Financial Data...... 38
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 40
Business................................ 49
Management.............................. 59
Security Ownership of Certain Beneficial
Owners and Management................. 64
Limited Liability Company Agreement..... 65
Certain Transactions.................... 66
Description of the Credit Facilities.... 66
Description of the Notes................ 68
Certain United States Federal Income Tax
Consequences.......................... 99
Plan of Distribution.................... 99
Legal Matters........................... 101
Experts................................. 101
Index to Financial Statements........... F-1
</TABLE>
=========================================================
=========================================================
$125,000,000
ADVANCED ACCESSORY SYSTEMS, LLC
AAS CAPITAL CORPORATION
9 3/4% SERIES B SENIOR
SUBORDINATED NOTES DUE 2007
------------------------
PROSPECTUS
------------------------
, 1998
=========================================================
<PAGE> 171
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware
provides for the indemnification of officers and directors under certain
circumstances against expenses incurred in successfully defending against a
claim and authorizes Delaware corporations to indemnify their officers and
directors under certain circumstances against expenses and liabilities incurred
in legal proceedings involving such persons because of their being or having
been an officer or director. Pursuant to Section 102(b)(7) of the General
Corporation Law of the State of Delaware, the Certificate of Incorporation of
Capital Corp and AAS Holdings, Inc. provide that the directors of Capital Corp
and AAS Holdings, Inc., individually or collectively, shall not be held
personally liable to Capital Corp or AAS Holdings, Inc. (as the case may be) or
their respective stockholders for monetary damages for breaches of fiduciary
duty as directors, except that any director shall remain liable (1) for any
breach of the director's fiduciary duty of loyalty to Capital Corp or AAS
Holdings, Inc. (as the case may be) or their respective stockholders, (2) for
acts or omissions not in good faith or involving intentional misconduct or a
knowing violation of law, (3) for liability under Section 174 of the General
Corporation Law of the State of Delaware or (4) for any transaction from which
the director derived an improper personal benefit. The by-laws of Capital Corp
and AAS Holdings, Inc. provide for indemnification of their respective officers
and directors to the full extent authorized by law.
Section 18-108 of the Delaware Limited Liability Company Act (the "Act")
provides that, subject to such standards and restrictions, if any, as are set
forth in a limited liability company's operating agreement, a limited liability
company may, and shall have the power to, indemnify and hold harmless any member
or manager or other person from and against any and all claims and demands
whatsoever. The Bylaws of AAS, SportRack, LLC and Valley Industries, LLC provide
that AAS, SportRack, LLC and Valley Industries, LLC shall, to the fullest extent
authorized under the Act, indemnify and hold harmless against all expense,
liability and loss (including attorneys' fees, judgments, fines, excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered, any
manager or officer of AAS, SportRack, LLC or Valley Industries, LLC, as the case
may be, including indemnification for negligence or gross negligence but
excluding indemnification (i) for acts or omissions involving actual fraud or
willful misconduct or (ii) with respect to any transaction from which the
indemnitee derived an improper personal benefit.
II-1
<PAGE> 172
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS.
<TABLE>
<S><C>
3.1 Amended and Restated Certificate of Formation of AAS
3.2 Second Amended and Restated Operating Agreement of AAS
3.3 Amended Bylaws of AAS
3.4 Certificate of Incorporation of Capital Corp.
3.5 Bylaws of Capital Corp.
4.1 Indenture dated as of October 1, 1997 for the Notes
(including the form of New Note attached as Exhibit B
thereto) among the Issuers, the Guarantors named therein and
First Union National Bank, as Trustee
5.1 Opinion of O'Sullivan Graev & Karabell, LLP
10.1 Asset Purchase Agreement among MascoTech Automotive Systems
Group, Inc., MascoTech Accessories, Inc. and Advanced
Accessory Systems, LLC dated as of September 28, 1995
10.2 Agreement for the Sale and Purchase of Shares in Brink BV
dated October 30, 1996 among AAS Holdings, Inc., AAS
Holdings, LLC, Brink Holding BV and Brink BV
10.3 Asset Purchase Agreement among Bell Sports Corp., Bell
Sports Canada, Inc. and Advanced Accessory Systems Canada
Inc./Les Systemes d'Accessoire Advanced Canada Inc. dated as
of July 2, 1997
10.4 Stock Purchase Agreement dated July 24, 1997 among Robert
Boulard and Alan Hamer and Advanced Accessory Systems Canada
Inc. / Les Systems d'Accessoire Advanced Canada Inc.
10.5 Asset Purchase Agreement among Valley Industries, LLC,
Valley Industries, Inc., certain affiliates of Valley
Industries, Inc., Robert L. Fisher and Roger T. Morgan dated
as of August 5, 1997
10.6 Preliminary Agreement for the Transfer of a Business dated
December 16, 1997 between Ellebi S.p.A. and Brink Italia
S.r.1. and Brink International B.V.
10.7 Second Amended and Restated Credit Facility among AAS,
SportRack, LLC, Brink International BV, Brink BV and Valley
Industries, LLC, as Borrowers, NBD Bank as Administrative
Agent and Documentation and Collateral Agent and The Chase
Manhattan Bank as Co-Administrative Agent and Syndication
Agent dated August 5, 1997.
10.8 First Amended and Restated Credit Agreement among SportRack
International, Inc. and First Chicago NBD Bank, Canada, The
Chase Manhattan Bank of Canada and The Bank of Nova Scotia
dated as of March 19, 1998.
10.9 Employment Agreement between AAS and Richard Borghi dated
September 28, 1995.
10.10 Employment Agreement between AAS and Marshall Gladchun dated
September 28, 1995.
10.11 Management Consulting Agreement between AAS and Barry
Banducci dated September 28, 1995.
10.12 Management Consulting Agreement between AAS and F. Alan
Smith dated September 28, 1995.
10.13 Employment Agreement between AAS and Terence C. Seikel dated
January 22, 1996.
10.14 Employment Agreement between AAS and Roger T. Morgan dated
August 5, 1997.
10.15 Employment Agreement between Brink B.V. and Gerrit de Graaf
dated November 1, 1996.
10.16 Management Consulting Agreement between AAS and Les
Placements Jean Maynard Inc. dated July 2, 1997.
10.17 Lease dated as of January 24, 1997 between Valley Industries
Realty, L.P. and Valley Industries, Inc.
10.18 Addendum to Sublease dated as of July 2, 1997 between Bell
Sports Canada, Inc. and SportRack International, Inc.
(formerly known as Advanced Accessory Systems Canada
Inc./Les Systems d'Accessoire Advanced Canada Inc.).
</TABLE>
II-2
<PAGE> 173
<TABLE>
<S><C>
10.19 Lease dated May 25, 1994 between VBG Towbars AB and VBG
Produkter AB.
10.20 Lease Agreement for commercial use between Ellebi S.p.A. and
Brink Italia S.r.l.
10.21 Registration Rights Agreement dated September 25, 1997 by
and among Advanced Accessory Systems, LLC, AAS Capital
Corporation, the Guarantors named therein and Chase
Securities, Inc. and First Chicago Capital Markets, Inc.
*12.1 Statement re: computation of ratios
21.1 Subsidiaries of the Registrant
23.1 Consent of O'Sullivan Graev & Karabell, LLP (included in
Exhibit 5.1)
*23.2 Consent of Price Waterhouse LLP
*23.3 Consent of Price Waterhouse LLP
*23.4 Consent of Price Waterhouse LLP
*23.5 Consent of Coopers & Lybrand N.V.
*23.6 Consent of Ernst & Young LLP
*23.7 Consent of AXIS S.r.l.
24.1 Powers of Attorney (included on the signature pages)
25.1 Statement of Eligibility and Qualifications under the Trust
Indenture Act of 1939 of First Union National Bank as
Trustee
*27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees
99.4 Form of Letter to Clients
</TABLE>
- -------------------------
* Filed herewith.
(B) FINANCIAL STATEMENT SCHEDULES:
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions, are inapplicable or not material, or the information called for
thereby is otherwise included in the financial statements and therefore have
been omitted.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
II-3
<PAGE> 174
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrants pursuant to the DGCL, the Act, the
Certificate of Incorporation and Bylaws of Capital Corp., the Certificate of
Formation, Operating Agreement and Bylaws of AAS, or otherwise, the registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrants of expenses
incurred or paid by a director, officer or controlling person of any registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
(c) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 175
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 1st day of June, 1998.
ADVANCED ACCESSORY SYSTEMS, LLC
By: /s/ TERENCE C. SEIKEL
------------------------------------
Name: Terence C. Seikel
Title: Vice President of Finance and
Administration
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-4 has been signed as of the 1st
day of June, 1998 by the following persons in the capacity indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* President and Manager (principal executive
- ----------------------------------------------------- officer)
Marshall D. Gladchun
/s/ TERENCE C. SEIKEL Vice President of Finance and Administration
- ----------------------------------------------------- and Chief Financial Officer (principal
Terence C. Seikel financial and accounting officer)
* Chairman of the Board of Managers
- -----------------------------------------------------
F. Alan Smith
* Manager
- -----------------------------------------------------
Barry Banducci
* Manager
- -----------------------------------------------------
Gerard Jacobus Brink
* Manager
- -----------------------------------------------------
Donald J. Hofmann
* Manager
- -----------------------------------------------------
Roger T. Morgan
*By: /s/ TERENCE C. SEIKEL
------------------------------------------------
Terence C. Seikel, Attorney-in-Fact
</TABLE>
II-5
<PAGE> 176
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 1st day of June, 1998.
AAS CAPITAL CORPORATION
By: /s/ TERENCE C. SEIKEL
-----------------------------------
Name: Terence C. Seikel
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-4 has been signed as of the 1st
day of June, 1998 by the following persons in the capacity indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* President (principal executive officer)
- -----------------------------------------------------
Donald J. Hofmann
/s/ TERENCE C. SEIKEL Treasurer and Director (principal financial
- ----------------------------------------------------- and accounting officer)
Terence C. Seikel
* Director
- -----------------------------------------------------
John J. Daileader
*By: /s/ TERENCE C. SEIKEL
-------------------------------------------------
Terence C. Seikel, Attorney-in-Fact
</TABLE>
II-6
<PAGE> 177
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 1st day of June, 1998.
AAS HOLDINGS, INC.
By: /s/ TERENCE C. SEIKEL
-----------------------------------
Name: Terence C. Seikel
Title: Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-4 has been signed as of the 1st
day of June, 1998 by the following persons in the capacity indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* President and Director (principal executive
- ----------------------------------------------------- officer)
Marshall D. Gladchun
/s/ TERENCE C. SEIKEL Chief Financial Officer (principal financial
- ----------------------------------------------------- and accounting officer)
Terence C. Seikel
* Chairman of the Board of Managers
- -----------------------------------------------------
F. Alan Smith
* Director
- -----------------------------------------------------
Barry Banducci
* Director
- -----------------------------------------------------
Donald J. Hofmann
By: /s/ TERENCE C. SEIKEL
--------------------------------------------------
Terence C. Seikel, Attorney-in-Fact
</TABLE>
II-7
<PAGE> 178
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 1st day of June, 1998.
SPORTRACK, LLC
By: /s/ TERENCE C. SEIKEL
-----------------------------------
Name: Terence C. Seikel
Title: Vice President of Finance
and Administration
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-4 has been signed as of the 1st
day of June, 1998 by the following persons in the capacity indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* President (principal executive officer)
- -----------------------------------------------------
Marshall D. Gladchun
/s/ TERENCE C. SEIKEL Vice President of Finance and Administration
- ----------------------------------------------------- Chief Financial Officer (principal financial
Terence C. Seikel and accounting officer)
* Chairman of the Board of Managers
- -----------------------------------------------------
F. Alan Smith
* Manager
- -----------------------------------------------------
Barry Banducci
* Manager
- -----------------------------------------------------
Donald J. Hofmann
*By: /s/ TERENCE C. SEIKEL
-------------------------------------------------
Terence C. Seikel, Attorney-in-Fact
</TABLE>
II-8
<PAGE> 179
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 1st day of June, 1998.
VALLEY INDUSTRIES, LLC
By: /s/ TERENCE C. SEIKEL
-----------------------------------
Name: Terence C. Seikel
Title: Vice President of Finance
and Administration
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-4 has been signed as of the 1st
day of June, 1998 by the following persons in the capacity indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* President (principal executive officer)
- -----------------------------------------------------
Roger T. Morgan
/s/ TERENCE C. SEIKEL Vice President of Finance and Administration
- ----------------------------------------------------- and Chief Financial Officer (principal
Terence C. Seikel financial and accounting officer)
* Chairman of the Board of Managers
- -----------------------------------------------------
F. Alan Smith
* Manager
- -----------------------------------------------------
Barry Banducci
* Manager
- -----------------------------------------------------
Gerard Jacobus Brink
* Manager
- -----------------------------------------------------
Marshall Gladchun
* Manager
- -----------------------------------------------------
Donald J. Hofmann
* Manager
- -----------------------------------------------------
Roger T. Morgan
*By: /s/ TERENCE C. SEIKEL
-------------------------------------------------
Terence C. Seikel, Attorney-in-Fact
</TABLE>
II-9
<PAGE> 180
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrants
have duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 1st day of June, 1998.
VALTEK, LLC
By: /s/ TERENCE C. SEIKEL
-----------------------------------
Name: Terence C. Seikel
Title: Vice President of Finance
and Administration and
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS TERENCE C. SEIKEL, AND EACH OF THEM, HIS TRUE AND
LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND ALL
CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS)
TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO,
AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS AND EACH OF THEM
FULL POWER AND AUTHORITY TO DO AN PERFORM EACH AND EVERY ACT AND THING REQUISITE
AND NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND
PURPOSES AS HE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL
THAT SAID ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM, OR THEIR OR HIS
SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement on Form S-4 has been signed as of the 1st
day of June, 1998 by the following persons in the capacity indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ MARSHALL D. GLADCHUN Chief Executive Officer and Manager
- ----------------------------------------------------- (principal executive officer)
Marshall D. Gladchun
/s/ TERENCE C. SEIKEL Vice President of Finance and Administration
- ----------------------------------------------------- and Chief Financial Officer (principal
Terence C. Seikel financial and accounting officer)
/s/ F. ALAN SMITH Chairman of the Board of Managers
- -----------------------------------------------------
F. Alan Smith
/s/ BARRY BANDUCCI Manager
- -----------------------------------------------------
Barry Banducci
/s/ GERARD JACOBUS BRINK Manager
- -----------------------------------------------------
Gerard Jacobus Brink
/s/ DONALD J. HOFMANN Manager
- -----------------------------------------------------
Donald J. Hofmann
/s/ ROGER T. MORGAN Manager
- -----------------------------------------------------
Roger T. Morgan
</TABLE>
II-10
<PAGE> 181
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S><C>
3.1 Amended and Restated Certificate of Formation of AAS
3.2 Second Amended and Restated Operating Agreement of AAS
3.3 Amended Bylaws of AAS
3.4 Certificate of Incorporation of Capital Corp.
3.5 Bylaws of Capital Corp.
4.1 Indenture dated as of October 1, 1997 for the Notes
(including the form of New Note attached as Exhibit B
thereto) among the Issuers, the Guarantors named therein and
First Union National Bank, as Trustee
5.1 Opinion of O'Sullivan Graev & Karabell, LLP
10.1 Asset Purchase Agreement among MascoTech Automotive Systems
Group, Inc., MascoTech Accessories, Inc. and Advanced
Accessory Systems, LLC dated as of September 28, 1995
10.2 Agreement for the Sale and Purchase of Shares in Brink BV
dated October 30, 1996 among AAS Holdings, Inc., AAS
Holdings, LLC, Brink Holding BV and Brink BV
10.3 Asset Purchase Agreement among Bell Sports Corp., Bell
Sports Canada, Inc. and Advanced Accessory Systems Canada
Inc./Les Systemes d'Accessoire Advanced Canada Inc. dated as
of July 2, 1997
10.4 Stock Purchase Agreement dated July 24, 1997 among Robert
Boulard and Alan Hamer and Advanced Accessory Systems Canada
Inc. / Les Systems d'Accessoire Advanced Canada Inc.
10.5 Asset Purchase Agreement among Valley Industries, LLC,
Valley Industries, Inc., certain affiliates of Valley
Industries, Inc., Robert L. Fisher and Roger T. Morgan dated
as of August 5, 1997
10.6 Preliminary Agreement for the Transfer of a Business dated
December 16, 1997 between Ellebi S.p.A. and Brink Italia
S.r.1. and Brink International B.V.
10.7 Second Amended and Restated Credit Facility among AAS,
SportRack, LLC, Brink International BV, Brink BV and Valley
Industries, LLC, as Borrowers, NBD Bank as Administrative
Agent and Documentation and Collateral Agent and The Chase
Manhattan Bank as Co-Administrative Agent and Syndication
Agent dated August 5, 1997.
10.8 First Amended and Restated Credit Agreement among SportRack
International, Inc. and First Chicago NBD Bank, Canada, The
Chase Manhattan Bank of Canada and The Bank of Nova Scotia
dated as of March 19, 1998.
10.9 Employment Agreement between AAS and Richard Borghi dated
September 28, 1995.
10.10 Employment Agreement between AAS and Marshall Gladchun dated
September 28, 1995.
10.11 Management Consulting Agreement between AAS and Barry
Banducci dated September 28, 1995.
10.12 Management Consulting Agreement between AAS and F. Alan
Smith dated September 28, 1995.
10.13 Employment Agreement between AAS and Terence C. Seikel dated
January 22, 1996.
10.14 Employment Agreement between AAS and Roger T. Morgan dated
August 5, 1997.
10.15 Employment Agreement between Brink B.V. and Gerrit de Graaf
dated November 1, 1996.
10.16 Management Consulting Agreement between AAS and Les
Placements Jean Maynard Inc. dated July 2, 1997.
10.17 Lease dated as of January 24, 1997 between Valley Industries
Realty, L.P. and Valley Industries, Inc.
</TABLE>
<PAGE> 182
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S><C>
10.18 Addendum to Sublease dated as of July 2, 1997 between Bell
Sports Canada, Inc. and SportRack International, Inc.
(formerly known as Advanced Accessory Systems Canada Inc./
Les Systems d'Accessoire Advanced Canada Inc.).
10.19 Lease dated May 25, 1994 between VBG Towbars AB and VBG
Produkter AB.
10.20 Lease Agreement for commercial use between Ellebi S.p.A. and
Brink Italia S.r.l.
10.21 Registration Rights Agreement dated September 25, 1997 by
and among Advanced Accessory Systems, LLC, AAS Capital
Corporation, the Guarantors named therein and Chase
Securities, Inc. and First Chicago Capital Markets, Inc.
*12.1 Statement re: computation of ratios
21.1 Subsidiaries of the Registrant
23.1 Consent of O'Sullivan Graev & Karabell, LLP (included in
Exhibit 5.1)
*23.2 Consent of Price Waterhouse LLP
*23.3 Consent of Price Waterhouse LLP
*23.4 Consent of Price Waterhouse LLP
*23.5 Consent of Coopers & Lybrand N.V.
*23.6 Consent of Ernst & Young LLP
*23.7 Consent of AXIS S.r.l.
24.1 Powers of Attorney (included on the signature pages)
25.1 Statement of Eligibility and Qualifications under the Trust
Indenture Act of 1939 of First Union National Bank as
Trustee
*27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees
99.4 Form of Letter to Clients
</TABLE>
- -------------------------
* Filed herewith.
<PAGE> 183
ADVANCED ACCESSORY SYSTEMS, LLC
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996,
AND FOR THE PERIOD FROM SEPTEMBER 28, 1995 THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT
YEAR EXPENSES ACCOUNTS(1) WRITE-OFFS END OF YEAR
------------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
For the year ended December 31,
1997............................. $ 605,000 $458,000 $ 734,000 $ 98,000 $1,699,000
1996............................. 368,000 54,000 268,000 85,000 605,000
For the period from September 28,
1995 through December 31, 1995... 354,000 14,000 -- -- 368,000
ALLOWANCE FOR INVENTORY OBSOLESCENCE
AND LOWER OF COST OR MARKET RESERVE
For the year ended December 31,
1997............................. $1,579,000 $423,000 $1,303,000 $715,000 $2,590,000
1996............................. 564,000 70,000 1,173,000 228,000 1,579,000
For the period from September 28,
1995 through December 31, 1995... 456,000 108,000 -- -- 564,000
ALLOWANCE FOR REIMBURSABLE TOOLING
For the year ended December 31,
1997............................. $ 368,000 $195,000 $ 493,000 $166,000 $ 890,000
1996............................. 257,000 300,000 -- 189,000 368,000
For the period from September 28,
1995 through December 31, 1995... 257,000 134,000 -- 134,000 257,000
</TABLE>
- -------------------------
(1) Charges to other accounts includes amounts related to acquired companies and
the effects of changing foreign currency exchange rates for the Company's
foreign subsidiaries.
<PAGE> 1
ADVANCED ACCESSORY SYSTEMS, LLC
EXHIBIT 12.1 -- STATEMENT REGARDING COMPUTATION OF RATIOS --
FIXED CHARGE COVERAGE RATIO
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996, AND THE PERIOD FROM SEPTEMBER
28, 1995 THROUGH DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERIOD FROM
SEPTEMBER 28,
TO DECEMBER 31, YEAR ENDED DECEMBER 31, PRO FORMA
1995 1996 1997 1997 (2)
--------------- ---- ---- ---------
<S> <C> <C> <C> <C>
Pre-tax income (loss) from continuing operations..... $ 870,000 $ 6,409,000 $ 712,000 $(1,709,000)
Minority interest in the income of subsidiary with
fixed charges...................................... 9,000 69,000 97,000 97,000
---------- ----------- ----------- -----------
879,000 6,478,000 809,000 1,612,000
---------- ----------- ----------- -----------
Fixed charges:
Interest expense and amortization of debt discount
and premium on all indebtedness................. 975,000 4,312,000 12,627,000 19,627,000
Rentals(1)........................................... 11,000 223,000 751,000 1,040,000
---------- ----------- ----------- -----------
Total fixed charges.................................. 986,000 4,535,000 13,378,000 20,667,000
---------- ----------- ----------- -----------
Earnings before income taxes, minority interest and
fixed charges...................................... $1,865,000 $11,013,000 $14,187,000 $22,279,000
========== =========== =========== ===========
Ratio of earnings to fixed charges................... 1.89x 2.43x 1.06x 0.92x
========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1997(3) 1998
------ -----
<S> <C> <C>
Pre-tax income (loss) from continuing operations..... $(1,857,000) $ 936,000
Minority interest in the income of subsidiary with
fixed charges...................................... 21,000 --
---------- -----------
(1,836,000) 936,000
---------- -----------
Fixed charges:
Interest expense and amortization of debt discount
and premium on all indebtedness................. 2,158,000 4,936,000
Rentals(1)........................................... 119,000 267,000
---------- -----------
Total fixed charges.................................. 2,277,000 5,203,000
---------- -----------
Earnings before income taxes, minority interest and
fixed charges...................................... $ 441,000 $ 6,139,000
========== ===========
Ratio of earnings to fixed charges................... 0.19x 1.18x
========== ===========
</TABLE>
- -------------------------
(1) Amount included in fixed charges for rentals is considered by management to
be a reasonable approximation of the interest factor.
(2) The Company's pro forma earnings were insufficient to cover pro forma fixed
charges by $1.6 million for the year ended December 31, 1997.
(3) The Company's earnings were insufficient to cover fixed charges by $1.8
million for the three months ended March 31, 1997.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Advanced Accessory Systems, LLC and AAS
Capital Corporation of our report dated March 15, 1998 relating to the financial
statements of Advanced Accessory Systems, LLC, which appears in such Prospectus.
We also consent to the application of such report to the Financial Statement
Schedules for the period from September 28, 1995 through December 31, 1995 and
for the two years ended December 31, 1997 listed under Item 21(b) of this
Registration Statement when such schedules are read in conjunction with the
financial statements referred to in our report. The audits referred to in such
report also included these schedules. We also consent to the reference to us
under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Bloomfield Hills, Michigan
May 29, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Advanced Accessory Systems, LLC and AAS
Capital Corporation of our report dated August 25, 1997 relating to the
financial statements of MascoTech Accessories (the "Predecessor"), a division of
MascoTech, Inc., which appears in such Prospectus. We also consent to the
reference to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Bloomfield Hills, Michigan
May 29, 1998
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Advanced Accessory Systems, LLC and AAS
Capital Corporation of our report dated December 5, 1997 relating to the
financial statements of Valley Industries, Inc., which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/Price Waterhouse LLP
Price Waterhouse LLP
Bloomfield Hills, Michigan
May 29, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Advanced Accessory Systems, LLC and AAS
Capital Corporation of our report dated September 4, 1997 relating to the
financial statements of Brink International B.V., which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ COOPERS & LYBRAND N.V.
Zwolle, The Netherlands
May 29, 1998
<PAGE> 1
EXHIBIT 23.6
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 10, 1997, with respect to the financial
statements of Valley Industries Inc. included in Amendement No. 2 to the
Registration Statement (Form S-4 No. 333-49011) and related Prospectus of
Advanced Accessory Systems, LLC and AAS Capital Corporation for the
registration of $125,000,000 of their 9 3/4% Series B Senior Subordinated
Notes due 2007.
/s/ ERNST & YOUNG LLP
Detroit, Michigan
May 28, 1998
<PAGE> 1
EXHIBIT 23.7
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Advanced Accessory Systems, LLC and AAS
Capital Corporation of our report dated March 13, 1998 relating to the financial
statements of the towbar segment of Ellebi S.p.A., which appears in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
/s/ AXIS S.r.l.
Reggio Emelia, Italy
May 29, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001057836
<NAME> ADVANCED ACCESSORY SYSTEMS LLC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 27,348
<SECURITIES> 0
<RECEIVABLES> 43,523
<ALLOWANCES> 1,699
<INVENTORY> 34,408
<CURRENT-ASSETS> 111,748
<PP&E> 55,928
<DEPRECIATION> 8,411
<TOTAL-ASSETS> 265,483
<CURRENT-LIABILITIES> 47,373
<BONDS> 197,126
0
0
<COMMON> 0
<OTHER-SE> 16,444
<TOTAL-LIABILITY-AND-EQUITY> 265,483
<SALES> 188,678
<TOTAL-REVENUES> 188,678
<CGS> 135,556
<TOTAL-COSTS> 135,556
<OTHER-EXPENSES> 57,067
<LOSS-PROVISION> 321
<INTEREST-EXPENSE> 12,627
<INCOME-PRETAX> 712
<INCOME-TAX> (2,856)
<INCOME-CONTINUING> 3,471
<DISCONTINUED> 0
<EXTRAORDINARY> 7,416
<CHANGES> 0
<NET-INCOME> (3,945)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
