<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1999
REGISTRATION NO. 333-89061
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HOLLEY PERFORMANCE PRODUCTS INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 336399 61-1291482
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
</TABLE>
1801 RUSSELLVILLE ROAD
BOWLING GREEN, KENTUCKY 42101
(270) 782-2900
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
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ROBERT L. WINELAND
1801 RUSSELLVILLE ROAD
BOWLING GREEN, KENTUCKY 42101
(270) 782-2900
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
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FOR INFORMATION REGARDING ADDITIONAL REGISTRANTS, SEE "INFORMATION REGARDING
ADDITIONAL REGISTRANTS."
COPIES TO:
DANIEL O. KENNEDY, ESQ.
HUNTON & WILLIAMS
BANK OF AMERICA PLAZA
SUITE 4100
600 PEACHTREE ST., N.E.
ATLANTA, GA 30308-2216
(404) 888-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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 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 REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNDER SECTION 8 OF THE
SECURITIES ACT OF 1933. THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR
UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE
COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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INFORMATION REGARDING ADDITIONAL REGISTRANTS
The following additional registrants are wholly owned, direct and indirect
subsidiaries of Holley Performance Products Inc. and guarantors of the Notes and
exchange Notes.
<TABLE>
<CAPTION>
PRIMARY S.I.C. IRS EMPLOYER
JURISDICTION OF CODE IDENTIFICATION
NAME ORGANIZATION NUMBER NUMBER
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<S> <C> <C> <C>
Holley Performance Systems, Inc....................... Delaware 336399 61-1338014
Lunati Cams, Inc...................................... Tennessee 336399 62-0869631
Weiand Automotive Industries, Inc..................... California 336399 95-2040701
LMT Motor Sports Corporation.......................... Mississippi 336399 62-1716079
Lunati & Taylor Pistons............................... Mississippi 336399 58-2047484
Hooker Industries, Inc................................ California 336399 95-2421847
Nitrous Oxide Systems, Inc............................ California 336399 95-3382481
Earl's Supply Company, Inc............................ California 336399 95-2662422
Biggs Manufacturing, Inc.............................. Arizona 336399 86-0751111
</TABLE>
The address and telephone number of the principal executive offices and the
agent for service for each of the additional registrants are the same as for
Holley Performance Products Inc., as set forth on the facing page of this
Registration Statement.
<PAGE> 3
PROSPECTUS
$150,000,000
HOLLEY PERFORMANCE PRODUCTS INC.
Offer to Exchange all Outstanding
$150,000,000 12 1/4% Senior Notes due 2007
for $150,000,000 12 1/4% Senior Notes due 2007, Series B
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- We are offering to exchange the outstanding notes described above for an
equal amount of new notes that are registered under the Securities Act of
1933.
- The exchange offer will expire at 5:00 P.M., New York City time, on
, 2000, unless extended.
- We do not intend to list the exchange notes on any national securities
exchange or Nasdaq.
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YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE 14 OF THIS
PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER OR INVESTING IN THE
EXCHANGE NOTES ISSUED IN THE EXCHANGE OFFER.
We are not making this exchange offer in any state or jurisdiction where it
is not permitted.
Neither the U.S. Securities and Exchange Commission nor any other federal
or state securities commission has approved or disapproved the notes to be
distributed in the exchange offer, nor have any of these organizations
determined that this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
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The date of this prospectus is , 1999.
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PROSPECTUS SUMMARY
Throughout this prospectus, the words "Holley," "we" and "our" refer to
Holley Performance Products Inc. and all of its subsidiaries, unless the context
otherwise requires. The following summary contains basic information about
Holley and this offering. It likely does not contain all the information that is
important to you. For a more complete understanding of this offering, we
encourage you to read this entire document and the documents to which we have
referred you. For purposes of this prospectus, when we describe information as
being on a "pro forma" basis, unless otherwise indicated, we are assuming that
our acquisitions of Lunati, Weiand, Hooker, FlowTech, NOS and Earl's and the
original notes issuance had been completed on the first day of the period
indicated, in the case of sales or other income statement information, or as of
the day indicated, in the case of assets, liabilities or other balance sheet
information. In this prospectus, we rely on and refer to information regarding
the specialty/performance products market and its segments in the United States
provided by Specialty Equipment Market Association market research reports and
other publicly available sources. Although we believe this information is
reliable, we cannot guarantee the accuracy and completeness of the information
and have not independently verified it.
SUMMARY OF THE EXCHANGE OFFER
The Exchange Offer......... We are offering to exchange $1,000 principal amount
of our 12 1/4% Senior Notes due 2007, Series B,
which have been registered under the Securities
Act, for each $1,000 principal amount of our
outstanding unregistered 12 1/4% Senior Notes due
2007, which were issued by us on September 20, 1999
in a private offering. In order for your
outstanding notes to be exchanged, you must
properly tender them prior to the expiration of the
exchange offer. All outstanding notes that are
validly tendered and not validly withdrawn will be
exchanged. We will issue the exchange notes on or
promptly after the expiration of the exchange
offer. Outstanding notes may be tendered for
exchange in whole or in part in integral multiples
of $1,000 principal amount.
Registration Rights
Agreement................ We sold the outstanding notes on September 20, 1999
to the initial purchasers of the outstanding notes.
Simultaneously with that sale we signed a
registration rights agreement with the initial
purchasers which requires us to conduct this
exchange offer. You have the right pursuant to the
registration rights agreement to exchange your
outstanding notes for exchange notes with
substantially identical terms. This exchange offer
is intended to satisfy these rights. After the
exchange offer is complete, you will no longer be
entitled to any exchange or registration rights
with respect to your outstanding notes. For a
description of the procedures for tendering
outstanding notes, please refer to "The Exchange
Offer" on page 20.
Consequences of Failure to
Exchange Your Outstanding
Notes.................... If you do not exchange your outstanding notes for
exchange notes pursuant to the exchange offer, you
will continue to be subject to the restrictions on
transfer provided in the outstanding notes and the
indenture. In general, the outstanding notes may
not be offered or sold unless registered under the
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Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws. We do not currently plan to register the
outstanding notes under the Securities Act. To the
extent that outstanding notes are tendered and
accepted in the exchange offer, the trading market
for untendered and tendered but unaccepted
outstanding notes will be adversely affected.
Expiration Date............ The exchange offer will expire at 5:00 p.m., New
York City time, on , 2000 unless
extended by us, in which case the term "expiration
date" shall mean the latest date and time to which
the exchange offer is extended.
Conditions to the Exchange
Offer.................... The exchange offer is subject to conditions that we
may waive at our reasonable discretion. The
exchange offer is not conditioned upon any minimum
principal amount of outstanding notes being
tendered for exchange. We reserve the right to
terminate the exchange offer if specified
conditions have not been satisfied and to waive any
condition or otherwise amend the terms of the
exchange offer in any respect.
Procedures for Tendering
Outstanding Notes........ If you wish to tender outstanding notes for
exchange, you must:
- complete and sign a letter of transmittal in
accordance with the instructions contained in the
letter of transmittal; and
- forward the letter of transmittal by mail,
facsimile transmission or hand delivery, together
with any other required documents, to the
exchange agent, either with the outstanding notes
to be tendered or in compliance with the
specified procedures for guaranteed delivery of
such outstanding notes.
Certain brokers, dealers, commercial banks, trust
companies and other nominees may also effect
tenders by book-entry transfer.
Please do not send your letter of transmittal or
certificates representing your outstanding notes to
us. Those documents should only be sent to the
exchange agent. Questions regarding how to tender
and requests for information should be directed to
the exchange agent.
Special Procedures for
Beneficial Owners........ If your outstanding notes are registered in the
name of a broker, dealer, commercial bank, trust
company or other nominee, we urge you to contact
such person promptly if you wish to tender your
outstanding notes pursuant to the exchange offer.
Withdrawal Rights.......... You may withdraw the tender of your outstanding
notes at any time prior to the expiration date by
delivering a written notice of your withdrawal to
the exchange agent in accordance with the
withdrawal procedures set forth in this prospectus.
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Consequences of Not
Complying with Exchange
Offer Procedures......... You are responsible for complying with all exchange
offer procedures. You will only receive exchange
notes in exchange for your outstanding notes if,
prior to the expiration date, you:
- deliver to the exchange agent the letter of
transmittal, properly completed and duly
executed, along with any other documents or
signature guarantees required by the letter of
transmittal, as well as certificates for the
outstanding notes or a book-entry confirmation of
a book-entry transfer of the outstanding notes
into the exchange agent's account at the
Depository Trust Company; or
- comply with the guaranteed delivery procedures
set forth in this prospectus.
Any outstanding notes you hold and do not tender,
or which you tender but which are not accepted for
exchange, will remain outstanding. You will not
have any appraisal or dissenters' rights in
connection with the exchange offer. You should
allow sufficient time to ensure that the exchange
agent receives all required documents before the
expiration of the exchange offer. Neither we nor
the exchange agent has any duty to inform you of
defects or irregularities with respect to the
tender of your outstanding notes for exchange.
Resales of Exchange Notes We believe that you will be able to resell exchange
notes issued in the exchange offer without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that:
- you are acquiring the exchange notes in the
ordinary course of your business;
- you are not participating, and have no
arrangement or understanding with any person to
participate, in the distribution of the exchange
notes; and
- you are not an insider or a related party of
Holley.
Our belief is based on interpretations by the staff
of the SEC, as set forth in no-action letters
issued to third parties unrelated to us. If our
belief is not accurate and you transfer an exchange
note without delivering a prospectus meeting the
requirements of the Securities Act or without an
exemption from such requirements, you may incur
liability under the Securities Act. We do not and
will not assume or indemnify you against such
liability.
Each broker-dealer that receives exchange notes for
its own account in the exchange offer must
acknowledge that it will deliver a prospectus in
connection with any resale of those exchange notes.
This prospectus, as it may be amended or
supplemented from time to time, may be used by a
broker-dealer in connection with those resales.
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Exchange Agent............. The exchange agent for the exchange offer is State
Street Bank and Trust Company. The address,
telephone number and facsimile number of the
exchange agent are set forth in "The Exchange
Offer -- Exchange Agent" and in the letter of
transmittal.
Use of Proceeds............ We will not receive any cash proceeds from the
issuance of the exchange notes offered hereby. We
used the net proceeds from the original notes
issuance, together with $5 million of new equity
invested in Holley and borrowings under our
revolving credit facility (a) to repay
approximately $122.0 million of borrowings under
our bank credit facility, (b) to fund approximately
$33.0 million for the acquisitions of FlowTech, NOS
and Earl's described in this prospectus and (c) for
general corporate purposes. Please refer to "Use of
Proceeds" for a description of such uses.
Federal Income Tax
Consequences............. Your acceptance of the exchange offer and the
related exchange of your outstanding notes for
exchange notes will not be a taxable exchange for
United States federal income tax purposes. You
should not recognize any taxable gain or loss or
any interest income as a result of the exchange.
Please refer to "The Exchange Offer" section of
this prospectus for more detailed information
concerning the exchange offer. However, because the
notes were issued with an original issue discount,
there will be income tax consequences associated
with the exchange notes. Please refer to the
"Federal Income Tax Consequences" section of this
prospectus for a description of the income tax
consequences associated with the exchange notes.
SUMMARY TERMS OF THE EXCHANGE NOTES
The exchange offer relates to the exchange of up to $150 million principal
amount of exchange notes for an equal principal amount of outstanding notes. The
form and terms of the exchange notes are substantially identical to the form and
terms of the outstanding notes, except the exchange notes will be registered
under the Securities Act. Therefore, the exchange notes will not bear legends
restricting their transfer and will not be entitled to registration under the
Securities Act. The exchange notes will evidence the same debt as the
outstanding notes, which they replace, and both the outstanding notes and the
exchange notes are governed by the same indenture.
Issuer..................... Holley Performance Products Inc.
Notes Offered.............. $150.0 million aggregate principal amount of
12 1/4% Senior Notes due 2007, Series B.
Maturity................... September 15, 2007.
Issue Price................ 96.346%.
Interest................... Annual rate: 12 1/4%.
Payment frequency: every six months on March 15 and
September 15, commencing March 15, 2000.
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Guarantors................. All of our existing domestic restricted
subsidiaries will fully and unconditionally
guarantee the exchange notes on a joint and several
basis. Future wholly owned domestic restricted
subsidiaries will also be required to guarantee the
exchange notes. Our present and future foreign
subsidiaries and future less than wholly owned
domestic restricted subsidiaries acquired by us
will not be required to guarantee the exchange
notes. If we cannot make payments on the exchange
notes when they are due, the guarantors must make
them instead.
Ranking and Subsidiary
Guarantees............... The exchange notes will be senior unsecured
obligations of ours and will effectively rank
junior to our secured obligations to the extent of
the value of the assets securing those debts and to
all existing and future debts and other liabilities
of our foreign subsidiaries and our future less
than wholly owned domestic restricted subsidiaries
that do not guarantee the exchange notes. They will
rank equally with all of our existing and future
unsubordinated, unsecured debts that do not
expressly provide that they are subordinated to the
exchange notes, and will rank ahead of all of our
future debts that expressly provide that they are
subordinated to the exchange notes. Please refer to
"Description of the Exchange Notes" for a
description of the exchange notes' ranking status.
All of our existing domestic restricted
subsidiaries and all future wholly owned domestic
restricted subsidiaries will guarantee our
obligation to pay principal, premium, if any, and
interest on the exchange notes. The subsidiary
guarantees will be senior unsecured obligations of
the guarantors and will effectively rank junior to
all the secured obligations of the guarantors to
the extent of the value of the assets securing
those debts. Please refer to "Description of the
Exchange Notes -- Brief Description of the Notes
and the Subsidiary Guarantees" for a description of
the subsidiary guarantees.
After giving pro forma effect to this offering, $5
million of new equity invested in Holley and the
application of the net proceeds as intended, as of
October 3, 1999, we and our guarantors would have
had approximately $152.4 million of senior
indebtedness outstanding, consisting of the
exchange notes offered hereby and approximately
$7.9 million of secured indebtedness outstanding
under our revolving credit facility.
Optional Redemption........ We may redeem some or all of the exchange notes at
our option at any time on or after September 15,
2003 at the redemption prices listed in
"Description of the Exchange Notes -- Optional
Redemption."
In addition, on or before September 15, 2002, we
may, at our option, use the net cash proceeds from
one or more public equity offerings to redeem up to
35% of the aggregate principal amount of the
exchange notes originally issued at the price
listed in "Description of the Exchange
Notes -- Optional Redemption."
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Mandatory Offer to
Repurchase............... If we experience specific kinds of changes of
control or asset sales, we must offer to repurchase
the exchange notes at the prices listed in
"Description of the Exchange Notes -- Repurchase at
the Option of Holders -- Change of Control" and
"-- Asset Sales."
Basic Covenants of the
Indenture................ We will issue the exchange notes under an indenture
with State Street Bank and Trust Company. The
indenture will limit our ability and the ability of
certain of our subsidiaries to:
- incur more debt;
- pay dividends, redeem stock or make other
distributions;
- issue capital stock;
- make investments;
- use assets as security in other transactions;
- enter into transactions with affiliates; and
- merge or consolidate.
These covenants are subject to a number of
important qualifications and limitations. See
"Description of the Exchange Notes -- Covenants"
for a list of such items.
THE COMPANY
GENERAL
Founded in 1903, Holley is a leading manufacturer and marketer of specialty
products for the performance automotive, marine and powersports aftermarkets.
Powersports vehicles include motorcycles, jet-skis, snowmobiles and go-carts.
Holley designs, manufactures and markets a diversified line of automotive
performance and racing products that include fuel, air, spark and internal
engine management systems. Our products include:
- - throttle body and multi-port fuel injection systems;
- - performance and remanufactured carburetors;
- - digital ignition systems;
- - distributors;
- - fuel pumps;
- - camshafts;
- - crankshafts;
- - intake manifolds;
- - pistons;
- - super chargers;
- - exhaust systems;
- - headers, mufflers and motorcycle exhaust pipes;
- - cylinder heads;
- - water pumps;
- - throttle bodies;
- - nitrous oxide injection systems; and
- - performance plumbing products.
In the performance automotive aftermarket, we have the most widely
recognized brand name and believe we have the broadest distribution network,
which includes:
- - specialized retailers;
- - performance wholesale distributors;
- - mail order retailers; and
- - original equipment manufacturers.
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For the twelve months ended October 3, 1999, Holley generated pro forma
revenue of $167.5 million, pro forma EBITDA of $25.9 million and net loss of
$4.3 million.
We believe that our focus on the performance sector of the automotive
aftermarket, our dedication to quality and our commitment to the Holley brand
name have positioned Holley as a market leader. We believe we have the leading
market share of at least 60% in performance carburetors and an approximate 41%
market share in performance fuel injection systems. As fuel injection is
becoming an increasingly important part of the performance market, we have used
our strong brand name to enter this new and growing market segment. We have
expanded our fuel injection business to include broad coverage for both throttle
body and multi-port systems for four, six and eight cylinder applications, and
today we are the market leader in performance fuel injection systems.
We are committed to providing superior products and services to our
customers and believe that our comprehensive quality control and consumer
support programs position Holley as the industry leader in quality and service.
We perform computer controlled tests on all our products prior to shipment to
ensure maximum reliability and "out of the box race readiness" -- meaning each
product is 100% tested and tuned for maximum performance and is ready for
installation. Additionally, we have a significant focus on research and
development to continually advance our technology and introduce new products.
Our R&D resources include a 14,000 square foot laboratory staffed by 24 degreed
engineers who are supported by highly trained technicians. In 1999, we
introduced over 1,100 new products numbers, leveraging the Holley name and
capitalizing on our superior R&D capability.
Our commitment to quality and reputation for superior performance is widely
recognized by performance enthusiasts and racers at all levels. For example,
since 1969, every race-car on the NASCAR circuit has been equipped with a Holley
carburetor.
INDUSTRY OVERVIEW
Holley competes in the automotive specialty/performance products market,
which has been more stable and faster growing than the overall automotive
aftermarket. From 1988 to 1997, the specialty/performance products market grew
at a compound annual growth rate of 7.8%, while the overall automotive
aftermarket grew by an average of 3.4% during the same period. The customer base
for specialty/performance products can be divided into three categories: street,
circle track and drag racers. The street category includes street rods, muscle
cars and sport utility vehicles. The average customer is between 30 and 50 years
old with annual income in excess of $57,000 and purchases approximately $1,200
of performance automotive parts annually.
Sales in the specialty/performance products market in the United States
were approximately $6.9 billion in 1997, according to the Specialty Equipment
Marketing Association. Holley primarily competes in the performance (or
underhood) segment of this market which had sales of approximately $750 million
in 1997. This segment is projected to be the fastest growing segment of the
specialty/performance products market, with a compound annual growth rate of
approximately 9.5% from 1997 through 2002.
One of the primary catalysts of growth in the specialty/performance
products market has been the growth in motorsports as a whole. Over the past ten
years, the growth rate of motorsports attendance has substantially outpaced that
of other professional sports. In addition, major motorsports attendance is
expected to increase 5.1% annually from 15.4 million in 1996 to 18.8 million in
2000. Attendance at NASCAR's major events has grown for 17 consecutive years.
NASCAR's attendance growth from 1990 to 1996 of approximately 66% equals the
attendance growth of the NBA, NHL, NFL and MLB combined.
We also compete in the remanufactured carburetor market, which provides
replacement parts to older vehicles. While the oldest vehicles in this market
are slowly being retired and this
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market is in decline, there were still approximately 51 million carbureted
vehicles in operation on the road in 1997. We have recently introduced a line of
remanufactured fuel injectors for this marketplace and believe that this line
will offset over time the decline in remanufactured carburetor sales.
BUSINESS STRATEGY
As a leading manufacturer of underhood performance products, Holley is well
positioned to take advantage of the projected growth in our marketplace. Our
growth strategy includes both internal expansion and acquisitions. The primary
components of our business strategy are as follows:
- - Leverage the Holley Brand Name Through New Product Introductions. The Holley
name is widely recognized for superior performance. We believe that we can
leverage our strong brand name recognition and our reputation for quality
through new product introductions. Additionally, we believe we can leverage the
Holley name with new products obtained through acquisitions.
- - Market Our Products As Systems. We currently offer the most comprehensive
line of fuel, air, spark and internal engine management systems and components
in the industry. To address the growing complexity of modern engines and to
simplify the selling process with the retail consumer, we have begun to market
consumer friendly, fully integrated power systems. These systems are comprised
of integrated Holley products designed to enhance performance for specific
vehicle applications. This strategy enables us to aggressively introduce
complementary products and to increase our market share in existing and new
products.
- - Continue to Diversify Product and System Offerings. We are committed to
diversifying our product offerings away from our historical focus on carburetors
and associated components. Since 1997, we have targeted our new product and
business development efforts on non-carburetor market segments through
developing comprehensive underhood power packages for late model fuel-injected
vehicles.
- - Improve Manufacturing Efficiency. We are committed to reducing operating
costs and improving manufacturing efficiency. In 1997, we implemented a program
to reduce manufacturing costs by changing our manufacturing operations from a
traditional inventory-intensive batch process to a productive and flexible "pull
through" cellular manufacturing system. Additionally, we implemented a process
to design our new products to maximize manufacturing efficiency.
- - Leverage Distribution Channels. We have a diverse and broad distribution
network that encompasses retail chains, performance wholesale distributors, mail
order retailers and original equipment manufacturers. Given our strong
relationship with our customers and the importance of our brands to our key
customers, we believe that we are well positioned to benefit from the
consolidation occurring in the distribution channels.
- - Pursue Strategic Acquisitions. The specialty/performance products market is
highly fragmented, and as a leader in our market, we are well positioned to make
strategic acquisitions. We intend to pursue acquisition opportunities that
expand our manufacturing capabilities, leverage our extensive distribution
network and enhance the Holley family of quality brand names.
OUR ACQUISITIONS
As part of our acquisition strategy, we have acquired the following
performance product companies:
- Hooker Industries, Inc. In July 1999, we acquired Hooker, a leading
manufacturer of performance exhaust systems, headers, mufflers and
Harley-Davidson(R) exhaust pipes under the well known brand "Hooker Headers."
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- Lunati Companies. In October 1998, we acquired Lunati, which
manufactures and distributes internal engine systems including performance
camshafts, crank shafts, pistons, rods and other automotive products to the
racing market under the "Lunati" brand name.
- Weiand Automotive Industries. In August 1998, we acquired Weiand, a
leading manufacturer of induction systems components including intake manifolds,
super chargers and water pumps.
- FlowTech. In October 1999, we acquired FlowTech, a leading manufacturer
of performance exhaust systems, headers, mufflers and exhaust accessories.
- Nitrous Oxide Systems, Inc. In October 1999, we acquired Nitrous Oxide
Systems, Inc., the leading manufacturer of nitrous oxide injection systems to
the performance aftermarket.
- Earl's Performance Products. In October 1999, we acquired Earl's Supply
Company, Inc., also known as Earl's Performance Products, a provider of
underhood performance fittings, brake lines and hoses.
COMPANY INFORMATION
Holley was founded in 1903 and incorporated in Delaware in October 1995. In
May 1998, affiliates of Kohlberg & Co., L.L.C., together with certain members of
our management, acquired Holley for $100.0 million. In connection with the
Lunati acquisition, Kohlberg increased its equity investment to approximately
$41.0 million. Kohlberg and its management invested an additional $5.0 million
in connection with the Hooker acquisition, and $5 million in connection with the
original notes issuance, bringing their total equity investment to approximately
$51.0 million. Our principal executive offices are located at 1801 Russellville
Road, Bowling Green, Kentucky 42101, and our telephone number is 270-782-2900.
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SUMMARY PRO FORMA AND HISTORICAL FINANCIAL INFORMATION
We have derived the historical financial data included in the following
summary financial data from Holley's audited Consolidated Financial Statements
which are included elsewhere herein and unaudited Consolidated Financial
Statements of Holley and the Predecessor (as defined in the notes hereto). The
selected historical consolidated financial information for the years ended
December 31, 1996 and 1997 and the periods from January 1, 1998 to May 15, 1998
and from May 16, 1998 to December 31, 1998 are derived from the Consolidated
Financial Statements, which have been audited by Arthur Andersen LLP,
independent public accountants. The selected historical consolidated financial
information for the years ended December 31, 1994 and 1995 and the period from
May 16, 1998 to September 27, 1998 and the nine months ended October 3, 1999 are
derived from the unaudited Consolidated Financial Statements of the Predecessor
and Holley, which in the opinion of management, reflect all adjustments
necessary for a fair presentation of such data. Results for the nine months
ended October 3, 1999 are not necessarily indicative of results to be expected
for the full year.
We have derived the pro forma financial data from Holley's audited and
unaudited Consolidated Financial Statements, audited Financial Statements of
Hooker and FlowTech for the year ended June 30, 1999, audited Financial
Statements of NOS for the year ended December 31, 1998 as well as unaudited
financial statements of Lunati, Weiand, Hooker, FlowTech, NOS and Earl's for the
remaining respective periods presented.
The pro forma consolidated financial data are presented as if the original
notes issuance had been completed, our acquisitions of Weiand, Lunati, Hooker,
FlowTech, NOS, and Earl's had occurred and the additional equity contribution of
$5 million had been contributed as of the beginning of the period presented. The
pro forma balance sheet data are presented as if the acquisitions of NOS and
Earl's, the additional equity contribution of $5 million and the use of proceeds
therefrom had occurred on October 3, 1999.
The selected pro forma consolidated financial data are not necessarily
indicative of results of operations Holley would have obtained had this offering
been completed, our acquisitions of Weiand, Lunati, Hooker, FlowTech, NOS, and
Earl's occurred or the additional equity contributions been contributed as of
the beginning of the period presented. You should read the following information
in conjunction with Holley's Consolidated Financial Statements and the Notes
thereto, the Consolidated Financial Statements of Hooker and the Notes thereto,
the Financial Statements of FlowTech and the notes thereto, the Financial
Statements of NOS and the notes thereto, the information contained in "Unaudited
Pro Forma Consolidated Financial Information," and the information contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," all of which are included elsewhere in this prospectus.
10
<PAGE> 14
SUMMARY PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS TWELVE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, OCTOBER 3, OCTOBER 3,
1998 1999 1999
------------ ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales............................................. $161,350 $131,661 $167,499
Cost of sales......................................... 107,174 83,776 107,730
-------- -------- --------
Gross profit.......................................... 54,176 47,885 59,769
Selling, general and administrative expenses(a)....... 34,944 29,360 37,681
Non-recurring charge(h)............................... 452 755 1,207
Amortization expense.................................. 4,523 3,709 4,838
-------- -------- --------
Income from operations................................ 14,257 14,061 16,043
Interest expense(b)................................... 21,445 16,084 21,445
Other income (expense), net........................... (424) 65 220
Provision (benefit) for income taxes.................. (1,795) 78 (874)
-------- -------- --------
Net income (loss)........................... $ (5,817) $ (2,036) $ (4,308)
======== ======== ========
OTHER FINANCIAL DATA:
EBITDA(c)............................................. $ 24,114 $ 21,793 $ 25,877
EBITDA margin(d)...................................... 15.0% 16.6% 15.4%
Cash interest expense................................. $ 19,572 $ 14,679 $ 19,572
Depreciation and amortization......................... 9,857 7,732 9,834
Capital expenditures.................................. 5,121 1,464 4,695
Ratio of EBITDA to cash interest expense(b)........... 1.2x 1.5x 1.3x
Ratio of net debt to EBITDA(e)........................ 6.4x -- 6.0x
Ratio of earnings to fixed charges(f)................. 1.0x 0.9x 0.8x
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 3, 1999
-----------------------
ACTUAL PRO FORMA
--------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 14,487 $ --
Total assets................................................ 233,309 249,618
Total debt.................................................. 147,441 155,369
Stockholder's equity........................................ 46,513 51,513
</TABLE>
11
<PAGE> 15
SUMMARY HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THE PREDECESSOR(G) THE COMPANY(G)
-------------------------------------------------- -------------------------------------------
JANUARY 1, MAY 16, MAY 16, NINE MONTHS
YEAR ENDED DECEMBER 31, 1998 TO 1998 TO 1998 TO ENDED
------------------------------------- MAY 15, DECEMBER 31, SEPTEMBER 27, OCTOBER 3,
1994 1995 1996 1997 1998 1998 1998 1999
------- ------- ------- ------- ---------- ------------ -------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of Income Data:
Net sales............. $91,535 $96,322 $96,290 $98,803 $36,632 $64,731 $39,156 $94,739
Cost of sales......... 65,676 66,499 65,368 69,192 25,728 44,269 26,085 62,610
------- ------- ------- ------- ------- ------- ------- -------
Gross profit.......... 25,859 29,823 30,922 29,611 10,904 20,462 13,071 32,129
Selling, general and
administrative
expenses(a)......... 15,443 18,558 18,868 22,759 7,616 11,795 7,108 18,851
Non-recurring
charge(h)........... -- -- -- -- -- 452 -- 755
Amortization expense.. -- -- 113 113 45 1,626 846 2,936
------- ------- ------- ------- ------- ------- ------- -------
Income from
operations.......... 10,416 11,265 11,941 6,739 3,243 6,589 5,117 9,587
Interest expense(b)... -- -- -- -- -- 4,705 2,649 7,412
Other income
(expense), net(i)... 23 13 (183) 45 (1,395) (231) (81) (9)
------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes............... 10,439 11,278 11,758 6,784 1,848 1,653 2,387 2,166
Provision for income
taxes(j)............ -- -- 4,514 2,520 797 1,034 1,045 2,038
------- ------- ------- ------- ------- ------- ------- -------
Income before
extraordinary
item................ 10,439 11,278 7,244 4,264 1,051 619 1,342 128
Extraordinary Item.... -- -- -- -- -- -- -- 1,654
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)..... $10,439 $11,278 $ 7,244 $ 4,264 $ 1,051 $ 619 $ 1,342 $(1,526)
======= ======= ======= ======= ======= ======= ======= =======
Other Financial Data:
EBITDA(c)............. $11,505 $12,299 $13,091 $ 7,802 $ 3,819 $10,136 $ 6,259 $16,172
EBITDA margin(d)...... 12.6% 12.8% 13.6% 7.9% 10.4% 15.7% 16.0% 17.1%
Depreciation and
amortization........ $ 1,089 $ 1,034 $ 1,150 $ 1,063 $ 576 $ 3,547 $ 1,142 $ 6,585
Capital
expenditures........ 2,414 532 466 942 1,188 2,819 1,353 3,024
Ratio of earnings to
fixed charges(f).... 37.9x 63.4x 61.4x 34.8x 26.8x 1.3x 1.9x 1.3x
</TABLE>
- ---------------
(a) Selling, general and administrative expenses include management fees Holley
paid to Coltec Industries Inc. ("Coltec") and KHPP Holdings, Inc. totaling
$2.1 million, $2.2 million, $2.3 million, $2.3 million, $0.8 million, $0.4
million, $0.2 million and $0.7 million for the fiscal years ended December
31, 1994, 1995, 1996 and 1997 and the periods from January 1, 1998 to May
15, 1998, from May 16, 1998 to December 31, 1998, and from May 16, 1998 to
September 27, 1998 and the nine month period ended October 3, 1999,
respectively. For the year ended December 31, 1997, selling, general and
administrative expenses also include a provision for doubtful accounts of
$1.9 million, increased marketing spending of $1.0 million, additional cash
discounts of $0.5 million and additional R&D spending of $0.5 million. The
provision for doubtful accounts resulted from the Super Shops bankruptcy and
the recognition of the uncertain collectability of certain accounts
receivable at December 31, 1997.
(b) Interest expense includes amortization of deferred financing costs. However,
deferred financing costs are excluded from interest expense in calculating
the ratio of EBITDA to cash interest expense.
(c) EBITDA represents income from operations plus depreciation and amortization
expense. EBITDA should not be considered as an alternative measure of net
income or cash provided
12
<PAGE> 16
by operating activities (both as determined in accordance with generally
accepted accounting principles), but is presented to provide additional
information related to Holley's debt service capability. EBITDA should not
be considered in isolation or as a substitute for other measures of
financial performance or liquidity. The primary difference between EBITDA
and cash flows provided by operating activities relates primarily to changes
in working capital requirements and payments made for interest and income
taxes. Our use of EBITDA may not be comparable to similarly titled measures
due to the use by other companies of different financial statement
components in calculating EBITDA. The definition of EBITDA under the
indenture could differ from the definition described herein.
(d) EBITDA margin is defined as EBITDA divided by net sales.
(e) Ratio of net debt to EBITDA is defined as pro forma net long-term debt as of
October 3, 1999 divided by pro forma EBITDA for the year ended December 31,
1998 and the twelve months ended October 3, 1999. Pro forma net long-term
debt equals long-term debt less cash and cash equivalents.
(f) For the purpose of determining the ratio of earnings to fixed charges,
"earnings" consist of income before provision for income taxes,
extraordinary item and fixed charges. "Fixed charges" consist of interest
expense including amortization of deferred financing costs and one-third of
rental expense, representing that portion of rental expense representative
of the interest factor.
(g) Effective May 15, 1998, all outstanding shares of Holley common stock were
purchased by KHPP Acquisition Corporation, a wholly owned subsidiary of KHPP
Holdings, Inc., for $100.0 million, in a transaction which was accounted for
as a purchase. At the time of the acquisition of Holley, KHPP Acquisition
Corporation was merged into Holley. Financial information prior to May 16,
1998, is for Holley when it was a wholly owned subsidiary of Coltec and for
periods prior to January 1, 1996 for Holley when it was a division of
Coltec. For periods in which Holley was either a wholly owned subsidiary or
division of Coltec, Holley is referred to herein as the "Predecessor". For
periods in which Holley is a wholly owned subsidiary of Holdings, Holley is
referred to as "Holley." The acquisition by KHPP Holdings, Inc. and the
related application of purchase accounting resulted in changes to the
capital structure of the Predecessor and the historical basis of various
assets and liabilities. The effect of such changes significantly impairs the
comparability of the financial position and results of operations of Holley
and the Predecessor.
(h) Non-recurring costs include (1) costs incurred in 1998 and 1999 associated
with the movement of inventory and fixed assets to Holley's facility in
Bowling Green, Kentucky from two Weiand facilities which were closed
subsequent to the acquisition and (2) costs incurred in 1999 associated with
the movement of fixed assets from a research and development facility which
was not acquired in the acquisition of Holley. EBITDA has not been adjusted
for these amounts.
(i) Other expense for the period from January 1, 1998 to May 15, 1998 includes
$1.0 million in fees paid to Coltec under a licensing agreement. The
agreement was established on December 31, 1997 and expired on May 15, 1998
in connection with the acquisition of Holley.
(j) The Predecessor did not record a tax provision in 1994 and 1995 as it was a
division of Coltec.
13
<PAGE> 17
RISK FACTORS
Before tendering your outstanding notes for exchange notes or investing in
the exchange notes, you should be aware that your investment involves a high
degree of risk. There are a number of factors, including those specified below,
which may adversely affect our ability to make payments on the exchange notes.
You could therefore lose a substantial portion or all of your investment in the
exchange notes. Consequently, an investment in the exchange notes should only be
considered by persons who can assume such risk. The risk factors described below
represent the most significant factors that make this investment speculative,
but are not necessarily exhaustive.
OUR SUBSTANTIAL INDEBTEDNESS AND THE RESULTING SIGNIFICANT DEMANDS ON OUR
CASH RESOURCES COULD MAKE IT DIFFICULT FOR US TO REPAY SUCH DEBT AND RESTRICT
OUR OPERATIONS
As a result of the offering, we will have incurred a substantial amount of
debt which requires significant interest payments. As of October 3, 1999, on a
pro forma basis, we would have had total consolidated debt of $155.4 million.
The demands on our cash resources related to our debt could:
- make it more difficult for us to satisfy our obligations with respect to
the exchange notes and our other indebtedness;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the amount
of our cash flow available for acquisitions, working capital, capital
expenditures and other general corporate purposes;
- limit our flexibility in planning for, or reacting to, changes in our
industry including the pursuit of our growth strategy;
- place us at a competitive disadvantage compared to our competitors that
have fewer debts and significantly greater operating and financing
flexibility than we do;
- limit, along with the financial and other restrictive covenants
applicable to our indebtedness, among other things, our ability to borrow
additional funds even when necessary to maintain adequate liquidity;
- increase our vulnerability to general adverse economic and industry
conditions because our sales revenue will likely stagnate or decrease
under such conditions, and therefore our ability to make payments on the
exchange notes will be impaired; and
- result in an event of default upon a failure to comply with these
covenants which, if not cured or waived, could have a material adverse
effect on our business, financial condition or results of operations.
Our ability to pay principal and interest on the exchange notes, to repay
our secured indebtedness and to satisfy our other debt obligations will depend
upon our future operating performance and the availability of refinancing
indebtedness, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond our control.
If we are unable to service our indebtedness and fund our business, we may
be forced to reduce or delay capital expenditures, seek additional debt
financing or equity capital, restructure or refinance our indebtedness or sell
assets. We cannot assure you that any such strategy could be effected on terms
satisfactory to us or at all.
14
<PAGE> 18
THE INDENTURE AND OUR BANK CREDIT FACILITY CONTAIN SEVERAL RESTRICTIVE
COVENANTS THAT RESTRICT OUR OPERATIONS AND SET FINANCIAL BENCHMARKS THAT, IF NOT
MET, CAN RESULT IN ACCELERATION OF OUR DEBT.
The indenture and our bank credit facility each contains a number of
restrictive covenants. Our ability to meet the maintenance and financial
covenants under our bank credit facility can be affected by events beyond our
control, and, in any event, there can be no assurance that we will meet such
covenants and requirements. Our failure to comply with the obligations in the
indenture or bank credit facility could result in an event of default under the
indenture or our bank credit facility that, if not cured or waived, could permit
acceleration of the exchange notes and/or bank credit facility debt and
acceleration of debt under other instruments.
THE EXCHANGE NOTES AND SUBSIDIARY GUARANTEES WILL BE EFFECTIVELY
SUBORDINATED TO THE SECURED INDEBTEDNESS OF HOLLEY AND THE GUARANTORS AND TO ALL
LIABILITIES OF NON-GUARANTOR SUBSIDIARIES
The indebtedness evidenced by the exchange notes will be a senior unsecured
obligation of Holley, and the indebtedness evidenced by each subsidiary
guarantee will be a senior unsecured obligation of the relevant guarantor. Our
bank credit facility indebtedness is also senior debt, but is secured by liens
on our inventory, accounts receivable and capital stock. The payment of
principal, premium (if any) and interest on the exchange notes and any payment
with respect to a subsidiary guarantee therefore will be effectively
subordinated in right of payment to any secured indebtedness of Holley or the
relevant guarantor, to the extent of the assets serving as collateral for the
applicable indebtedness. Accordingly, there may be insufficient assets remaining
after payment of prior secured claims to pay amounts due on the exchange notes.
As of October 3, 1999, after giving pro forma effect to the offering, $5
million of new equity and our intended use of such proceeds, Holley would have
had approximately $17.1 million of undrawn revolving loan capacity available
under the bank credit facility. Subject to restrictions under the bank credit
facility and the indenture, Holley may incur additional indebtedness, including
additional secured indebtedness, from time to time. Please refer to "Description
of Notes" for a more detailed description of our indenture restrictions.
THE SUBSIDIARY GUARANTEES COULD IN SOME CIRCUMSTANCES BE CONSIDERED FRAUDULENT
TRANSFERS UNDER BANKRUPTCY LAWS WHICH WOULD VOID THE SUBSIDIARY GUARANTEE
Under the U.S. bankruptcy law and comparable provisions of state fraudulent
transfer laws, a court could subordinate or void any subsidiary guarantee if it
found that the subsidiary guarantee was incurred with actual intent to hinder,
delay or defraud creditors or the guarantor did not receive fair consideration
or reasonably equivalent value for the subsidiary guarantee and the guarantor
was any of the following:
- insolvent or was rendered insolvent because of the subsidiary guarantee;
- engaged in a business or transaction for which its remaining assets
constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay at maturity.
If a court voided a subsidiary guarantee as a result of fraudulent
conveyance, or held it unenforceable for any other reason, noteholders would
cease to have a claim against the guarantor and would be solely creditors of
Holley and any other guarantors.
THE ORIGINAL ISSUE DISCOUNT MAY PRESENT UNFAVORABLE TAX AND OTHER LEGAL
CONSEQUENCES TO YOU
The exchange notes will be deemed to have been issued to you at a discount
for federal income tax purposes. Original issue discount, which is the
difference between the stated
15
<PAGE> 19
redemption price of the exchange notes at maturity and the issue price of the
exchange notes, will accrue from the issue date of the exchange notes and be
includable in a holder's gross income as it accrues. Thus, you will be required
to include the original issue discount in your income prior to actual receipt of
cash representing that income. Please refer to "Federal Income Tax
Considerations" for further details.
If a bankruptcy case under the U.S. Bankruptcy Code were commenced by or
against us after the issuance of the exchange notes, the claim of a holder of
exchange notes could be limited to exclude the amount of unamortized original
issue discount, as of the relevant date, if the bankruptcy court determined that
it was "unmatured interest."
WE ARE DEPENDENT UPON OUR SUPPLIERS AND INTERRUPTIONS IN OUR SUPPLY OF METAL
CASTINGS OR SIGNIFICANT COST INCREASES COULD ADVERSELY AFFECT OUR BUSINESS
Our operations are dependent on the supply of metal castings, made
typically of zinc or aluminum, from one significant and several other suppliers.
We obtain substantially all of our supply through purchase orders and do not
typically enter into long-term supply contracts relating to these castings.
Although to date our supply of metal castings has been uninterrupted and we have
been able to obtain these materials in sufficient quantities, supply
interruptions or cost increases, to the extent we are unable to pass these costs
on to our customers, could adversely affect our future results of operations.
FAILURE TO IMPLEMENT OUR ACQUISITION STRATEGY OR SUCCESSFULLY INTEGRATE ACQUIRED
COMPANIES COULD LIMIT OUR GROWTH AND ADVERSELY AFFECT OUR BUSINESS
One of our business strategies is to pursue select strategic acquisitions
of other companies that we believe can expand our manufacturing capabilities,
leverage our extensive distribution network and enhance the Holley family of
quality brand names. Any failure by us to acquire companies or integrate
acquired companies without substantial costs, delays or other difficulties could
have a material adverse effect on our business, results of operations or
financial condition. Additionally, our ability to grow by acquisition is
dependent upon, and may be limited by, the availability of suitable acquisition
candidates and capital, and the restrictions contained in our bank credit
facility, the indenture and any future financing arrangements.
THE "YEAR 2000" PROBLEM MAY ADVERSELY AFFECT OUR BUSINESS
We have conducted a review of our business systems, including our computer
systems for Year 2000 (or Y2K) compliance, and are querying our customers and
vendors about their progress in identifying and addressing problems that their
computer systems may face. However, we can give no assurance that we will
identify all such Year 2000 problems in our computer systems or those of our
customers and vendors in advance of their occurrence or that we will be able to
successfully remedy any problems that are discovered. If we do not succeed, our
computer systems could experience failure or significant problems. If this
happens, one or more elements of our operations could be impaired or cease
temporarily, thereby reducing our sales revenue. Similar Y2K-related failures in
our significant customer or vendor computer systems could also impair our
operations and reduce sales revenue. Our expenses in identifying and addressing
such problems, or the expenses or liabilities to which we may become subject as
a result of such problems, could have a material adverse effect on Holley's
business, financial condition and results of operations, and thus our ability to
repay the exchange notes.
WE MAY NOT HAVE SUFFICIENT FUNDS TO PURCHASE NOTES UPON A CHANGE OF CONTROL
Upon a change of control of Holley, we will be required to make an offer to
purchase all outstanding exchange notes. However, we can not assure you that we
will have or will be able to acquire sufficient funds at the time of any change
of control to make any required repurchases of
16
<PAGE> 20
exchange notes. In such case, we will not be able to fulfill this obligation and
your exchange notes will not be repurchased by us. Such events constituting a
change of control will also constitute an event of default under the bank credit
facility.
THE DEFINITION OF CHANGE OF CONTROL IN THE INDENTURE IS UNCERTAIN, AND THEREFORE
SO IS OUR REQUIREMENT TO REPURCHASE THE NOTES
The definition of "change of control" in the notes indenture includes a
phrase relating to the sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the assets of Holley and its subsidiaries taken as
a whole. Although there is limited body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of notes to require
Holley to repurchase such notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of Holley and its
subsidiaries taken as a whole to another person or group may be uncertain.
ONE PERSON EFFECTIVELY CONTROLS HOLLEY
All of our issued and outstanding capital stock is owned by KHPP Holdings,
Inc., and approximately 97% of its voting common stock is indirectly controlled
by James A. Kohlberg, a member of our Board of Directors. This control enables
him, through our Company's Board of Directors, to control our affairs, and to
preclude or consummate mergers, acquisitions, changes in Holley's capital
structure, assumptions of control and changes of incumbent management.
THE LOSS OF TWO CUSTOMERS COULD SIGNIFICANTLY REDUCE OUR NET SALES
We utilize two principal customers, Jeg's and Summit Racing, for product
distribution through mail order. Approximately 21% of 1998 pro forma net sales
came from our mail order business, and we derive substantially all of our mail
order revenue from these two customers. The loss of these two mail order
customers could temporarily but significantly reduce our net sales. However, in
such event, we believe we could replace substantially all of such sales in the
short term. If we did not replace such net sales revenue promptly, our ability
to repay the exchange notes could be impaired.
THERE IS NO ESTABLISHED TRADING MARKET FOR THE NOTES AND THEY CONTAIN
RESTRICTIONS ON TRANSFER, AND THEREFORE YOU MAY NOT BE ABLE TO SELL YOUR NOTES
There is currently no established trading market for the exchange notes and
we do not intend to have the exchange notes listed for trading on any securities
exchange or in any automated dealer quotation system. The initial purchasers
have advised us that they presently intend to make a market in the exchange
notes. However, the initial purchasers are not obligated to do so and any such
market making may be discontinued at any time, without notice, at the sole
discretion of the initial purchasers. Accordingly, no assurance can be given as
to whether an active trading market will develop or be maintained for the
exchange notes. The exchange notes have not been registered under the Securities
Act or any state securities laws. Therefore, absent such registration, the
exchange notes may be offered or sold only in transactions that are not subject
to or are exempt from the registration requirements of the Securities Act or
applicable state securities laws.
17
<PAGE> 21
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements that are subject to a
number of risks and uncertainties, including those described under "Risk
Factors," many of which are beyond our control. Forward-looking statements are
typically identified by words such as "believe," "expect," "anticipate,"
"intend," "estimate" and similar expressions, and include (among others)
statements concerning:
- our strategy;
- our liquidity and capital expenditures;
- our debt levels and ability to obtain financing and service debt;
- competitive pressures and trends in the performance automotive products
industry;
- cyclicality and economic condition of the industries we currently serve;
- acquisitions which have not been consummated and our ability to
successfully integrate acquired companies;
- prevailing levels of interest rates;
- legal proceedings and regulatory matters;
- general economic conditions; and
- costs associated with Year 2000 issues.
Actual results could differ materially from those contemplated by these
forward-looking statements as a result of factors ("cautionary statements") such
as those described in "Risk Factors." In light of these risks and uncertainties,
there can be no assurance that the results and events contemplated by the
forward-looking information contained in this prospectus will in fact transpire.
You are cautioned not to place undue reliance on these forward-looking
statements. We undertake no obligation to update or revise any forward-looking
statements. All subsequent written or oral forward-looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by the cautionary statements.
18
<PAGE> 22
WHERE YOU CAN GET MORE INFORMATION
This prospectus is part of a registration statement on Form S-4 that we
have filed with the SEC. This prospectus does not contain all of the information
set forth in the registration statement. For further information about us and
the exchange notes, you should refer to the registration statement. This
prospectus summarizes material provisions of contracts and other documents.
Since these summaries may not contain all of the information that you may find
important, you should review the full text of these documents. We have filed
certain of these documents as exhibits to our registration statement.
You should direct any request for information to Robert L. Wineland, our
corporate Secretary, at least 10 business days before you tender your exchange
notes in the exchange offer. Our mailing address and telephone number are:
Holley Performance Products Inc.
1801 Russellville Road
Bowling Green, Kentucky 42101
(502) 782-2900
As a result of the exchange offer, we will be subject to the periodic
reporting and other informational requirements of the Securities Exchange Act of
1934. In addition, under the indenture governing the outstanding notes and the
exchange notes, we have agreed that until we are subject to the reporting and
informational requirements of the Exchange Act and during any other period in
which we are not subject to those requirements, so long as the outstanding notes
or the exchange notes remain outstanding, we will distribute to the holders of
the notes, copies of the financial information that we would have been required
to file with the SEC pursuant to the Exchange Act. This financial information
shall include annual reports containing consolidated financial statements and
notes thereto, together with an opinion thereon expressed by an independent
public accounting firm, management's discussion and analysis of financial
condition and results of operations, as well as quarterly reports containing
unaudited condensed consolidated financial statements for the first three
quarters of each fiscal year. We have also agreed to furnish to holders of
outstanding notes and prospective purchasers of the exchange notes upon their
request, the information required to be delivered pursuant to Rule 144(d)(4)
under the Securities Act during any period in which we are not subject to the
reporting and informational requirements of the Exchange Act.
The registration statement, as well as such reports, exhibits and other
information filed by us with the SEC can be inspected and copied, at prescribed
rates, at:
- the public reference facilities maintained by the Public Reference
Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549;
- the regional office of the SEC at 7 World Trade Center, 13th Floor, New
York, New York 10048; and
- the regional office of the SEC at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Please call the SEC at 1-800-SEC-0330 for additional information about its
public reference room. Our SEC filings are also available without charge on the
SEC's Internet site at http://www.sec.gov.
19
<PAGE> 23
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the sale of the outstanding notes, we agreed to register
the exchange notes and exchange them for the outstanding notes. The exchange
offer is being made to satisfy this contractual obligation.
By tendering outstanding notes in exchange for exchange notes, each holder
represents to us that:
- any exchange notes to be received by a holder are being acquired in the
ordinary course of that holder's business;
- it has no arrangement or understanding with any person to participate in
a "distribution" of exchange notes under the Securities Act;
- it is not an "affiliate" of Holley, as defined in Rule 405 under the
Securities Act, or, if it is an affiliate, that it will comply with the
registration and prospectus delivery requirements of the Securities Act
to the extent applicable;
- it has full power and authority to tender, exchange, sell, assign and
transfer the tendered outstanding Notes;
- Holley will acquire good, marketable and unencumbered title to the
tendered outstanding notes, free and clear of all liens, restrictions,
charges and encumbrances; and
- the outstanding notes tendered for exchange are not subject to any
adverse claims or proxies.
Each tendering holder also will warrant and agree that it will, upon
request, execute and deliver any additional documents that Holley or the
exchange agent deems to be necessary or desirable to complete the exchange,
sale, assignment, and transfer of the outstanding notes tendered pursuant to the
exchange offer.
Each broker-dealer that receives exchange notes for its own account in
exchange for outstanding notes pursuant to the exchange offer, where the
outstanding notes were acquired by such broker-dealer as a result of
market-making or other trading activities, must acknowledge that it will deliver
a prospectus in connection with any resale of exchange notes received in this
exchange offer.
The exchange offer is not being made to, nor will Holley accept tenders for
exchange from, holders of outstanding notes in any jurisdiction in which the
exchange offer or the acceptance of the exchange notes would be in violation of
the securities or blue sky laws of that jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to
the exchange offer means any person in whose name the outstanding notes are
registered on the books of Holley or any other person who has obtained a
properly completed bond power from the registered holder, or any participant in
DTC whose name appears on a security position listing as a holder of outstanding
notes (which, for purposes of the exchange offer, include beneficial interests
in the outstanding notes held by direct or indirect participants in DTC and
outstanding notes held in definitive form).
TERMS OF THE EXCHANGE OFFER
Holley hereby offers, upon the terms and subject to the conditions shown in
this prospectus and in the accompanying letter of transmittal, to exchange
$1,000 principal amount of 12 1/4% Senior Notes due 2007, Series B, for each
$1,000 principal amount of outstanding 12 1/4% Senior Notes due 2007 properly
tendered before the expiration date and not properly withdrawn
20
<PAGE> 24
according to the procedures described below. Holders may tender their
outstanding notes in whole or in part in integral multiples of $1,000 principal
amount.
The form and terms of the exchange notes are the same as the form and terms
of the outstanding notes except that:
- the exchange notes have been registered under the Securities Act and
therefore are not subject to the restrictions on transfer applicable to
the outstanding notes; and
- holders of the exchange notes will not be entitled to some of the rights
of holders of the outstanding notes under the registration rights
agreement.
The exchange notes evidence the same indebtedness as the outstanding notes
and will be issued pursuant to and entitled to the benefits of the indenture
that governs the outstanding notes.
The exchange offer is not conditioned upon any minimum principal amount of
outstanding notes being tendered for exchange. Holley reserves the right in its
sole discretion to purchase or make offers for any outstanding notes that remain
outstanding after the expiration date or, as discussed under "-- Conditions to
the Exchange Offer," to terminate the exchange offer and, to the extent
permitted by applicable law, purchase outstanding notes in the open market, in
privately negotiated transactions or otherwise. The terms of any such purchases
or offers could differ from the terms of the exchange offer. As of the date of
this prospectus, $150 million principal amount of 12 1/4% Senior Notes due 2007
was outstanding.
Holders of outstanding notes do not have any appraisal or dissenters'
rights in connection with the exchange offer. Outstanding notes that are not
tendered for, or are tendered but not accepted in connection with, the exchange
offer will remain outstanding. See "Summary of the Exchange
Offer -- Consequences of Not Complying with Exchange Offer Procedures" for a
detailed description of the consequences of not exchanging your notes.
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender, the occurrence of particular other events discussed herein or
otherwise, certificates for any such unaccepted outstanding notes will be
returned, without expense, to the tendering holder thereof promptly after the
expiration date.
Holders who tender outstanding notes in connection with 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 the outstanding notes in connection with the exchange offer. Holley
will pay all charges and expenses, other than specified applicable taxes. See
"-- Fees and Expenses" for more information regarding fees and expenses.
NEITHER HOLLEY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO
HOLDERS OF THE OUTSTANDING NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OUTSTANDING NOTES IN THE EXCHANGE OFFER.
IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS
OF THE OUTSTANDING NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT
TO THE EXCHANGE OFFER, AND, IF SO, THE AGGREGATE AMOUNT OF OUTSTANDING NOTES TO
TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND
CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON THEIR FINANCIAL POSITION AND
REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date for the exchange offer is 5:00 p.m., New York City
time, on , 2000 unless the exchange offer is extended by Holley. If
Holley does extend the exchange offer, the expiration date will be the latest
date and time to which the exchange offer is extended.
21
<PAGE> 25
Holley expressly reserves the right in its sole and absolute discretion,
subject to applicable law, at any time and from time to time:
- to delay the acceptance of the outstanding notes for exchange;
- to terminate the exchange offer, whether or not any outstanding notes
have already been accepted for exchange, if Holley determines, in its
sole and absolute discretion, that any of the events or conditions
referred to under "-- Conditions to the Exchange Offer" has occurred or
exists or has not been satisfied with respect to the exchange offer;
- to extend the expiration date of the exchange offer and retain all
outstanding notes tendered pursuant to the exchange offer, subject,
however, to the right of holders of outstanding notes to withdraw their
tendered outstanding notes as described under "-- Withdrawal Rights;" and
- to waive any condition or otherwise amend the terms of the exchange offer
in any respect.
If the exchange offer is amended in a manner determined by Holley to
constitute a material change, or if Holley waives a material condition of the
exchange offer, Holley will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders of the
affected outstanding notes, and Holley will extend the exchange offer to the
extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, termination, extension or amendment will be
followed promptly by oral or written notice thereof to the exchange agent for
the exchange offer (any such oral notice to be promptly confirmed in writing)
and by making a public announcement, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date. Without limiting
the manner in which Holley may choose to make any public announcement, and
subject to applicable laws, Holley shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a release to an appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE NOTES
Upon the terms and subject to the conditions of the exchange offer,
promptly after the expiration date, Holley will exchange, and will issue to the
exchange agent, exchange notes for outstanding notes validly tendered and not
withdrawn pursuant to the withdrawal rights described under "-- Withdrawal
Rights."
In all cases, delivery of exchange notes in exchange for outstanding notes
tendered and accepted for exchange pursuant to the exchange offer will be made
only after timely receipt by the exchange agent of:
- outstanding notes or a book-entry confirmation of a book-entry transfer
of outstanding notes into the exchange agent's account at DTC;
- the letter of transmittal (or facsimile thereof), properly completed and
duly executed, with any required signature guarantees; and
- any other documents required by the letter of transmittal.
Accordingly, the delivery of exchange notes might not be made to all
tendering holders at the same time, and will depend upon when outstanding notes,
book-entry confirmations with respect to outstanding notes and other required
documents are received by the exchange agent.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of outstanding notes into the exchange agent's account at
DTC. Subject to the terms and conditions of the exchange offer, Holley will be
deemed to have accepted for exchange, and thereby exchanged, outstanding notes
validly tendered and not withdrawn as, if and when Holley gives
22
<PAGE> 26
oral or written notice to the exchange agent (any such oral notice to be
promptly confirmed in writing) of Holley's acceptance of such outstanding notes
for exchange pursuant to the exchange offer. Holley's acceptance for exchange of
outstanding notes tendered pursuant to any of the procedures described above
will constitute a binding agreement between the tendering holder and Holley upon
the terms and subject to the conditions of the exchange offer. The exchange
agent will act as agent for Holley for the purpose of receiving tenders of
outstanding notes, letters of transmittal and related documents, and as agent
for tendering holders for the purpose of receiving outstanding notes, letters of
transmittal and related documents and transmitting exchange notes to holders who
validly tendered outstanding notes. Such exchange will be made promptly after
the expiration date of the exchange offer. If for any reason the acceptance for
exchange or the exchange of any outstanding notes tendered pursuant to the
exchange offer is delayed (whether before or after Holley's acceptance for
exchange of outstanding notes), or Holley extends the exchange offer or is
unable to accept for exchange or exchange outstanding notes tendered pursuant to
the exchange offer, then, without prejudice to Holley's rights set forth herein,
the exchange agent may, nevertheless, on behalf of Holley and subject to Rule
14e-1(c) under the Exchange Act, retain tendered outstanding notes and such
outstanding notes may not be withdrawn except to the extent tendering holders
are entitled to withdrawal rights as described under "-- Withdrawal Rights."
PROCEDURES FOR TENDERING OUTSTANDING NOTES
Valid Tender. Except as set forth below, in order for outstanding notes to
be validly tendered pursuant to the exchange offer, either:
- a properly completed and duly executed letter of transmittal (or
facsimile thereof), with any required signature guarantees and any other
required documents, must be received by the exchange agent at the address
set forth under "-- Exchange Agent" prior to the expiration date and
tendered outstanding notes must be received by the exchange agent, or
such outstanding notes must be tendered pursuant to the procedures for
book-entry transfer set forth below and a book-entry confirmation must be
received by the exchange agent, in each case prior to the expiration
date; or
- the guaranteed delivery procedures described below must be complied with.
If less than all of the outstanding notes are tendered, a tendering Holder
should fill in the amount of outstanding notes being tendered in the appropriate
box on the letter of transmittal. The entire amount of outstanding notes
delivered to the exchange agent will be deemed to have been tendered unless
otherwise indicated.
If any letter of transmittal, endorsement, bond power, power of attorney,
or any other document required by the letter of transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing. Unless waived by Holley, evidence
satisfactory to Holley of such person's authority to so act must also be
submitted.
Any beneficial owner of outstanding notes that are held by or registered in
the name of a broker, dealer, commercial bank, trust company or other nominee or
custodian is urged to contact such entity promptly if such beneficial Holder
wishes to participate in the exchange offer.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER. DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY AND PROPER INSURANCE SHOULD BE OBTAINED. NO
LETTER OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO HOLLEY. HOLDERS MAY
23
<PAGE> 27
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THESE TRANSACTIONS FOR THEM.
Book-Entry Transfer. The exchange agent will request the establishment of
an account with respect to the outstanding notes at DTC for purposes of the
exchange offer within two business days after the date of this prospectus. Any
financial institution that is a participant in DTC's book-entry transfer
facility system may make a book-entry delivery of the outstanding notes by
causing DTC to transfer such outstanding notes into the exchange agent's account
at DTC in accordance with DTC's procedures for transfers. However, although
delivery of outstanding notes may be effected through book-entry transfer into
the exchange agent's account at DTC, the letter of transmittal (or facsimile
thereof), properly completed and duly executed, with any required signature
guarantees and any other required documents, must in any case be delivered to
and received by the exchange agent at its address set forth under "-- Exchange
Agent" prior to the expiration date, or the guaranteed delivery procedure set
forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
Signature Guarantees. Certificates for outstanding notes need not be
endorsed and signature guarantees on a letter of transmittal or a notice of
withdrawal, as the case may be, are unnecessary unless:
- a certificate for outstanding notes is registered in a name other than
that of the person surrendering the certificate; or
- a registered holder completes the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" in the letter of
transmittal.
In the case of (a) or (b) above, such certificates for outstanding notes must be
duly endorsed or accompanied by a properly executed bond power, with the
endorsement or signature on the bond power and on the letter of transmittal or
the notice of withdrawal, as the case may be, guaranteed by a firm or other
entity identified in Rule 17Ad-15 under the Exchange Act as an "eligible
guarantor institution," including (as such terms are defined and each an
"Eligible Institution"):
- a bank;
- a broker, dealer, municipal securities broker or dealer or government
securities broker or dealer;
- a credit union;
- a national securities exchange, registered securities association or
clearing agency; or
- a savings association that is a participant in a Securities Transfer
Association,
unless surrendered on behalf of such Eligible Institution. See Instruction 1 to
the letter of transmittal.
Guaranteed Delivery. If a holder desires to tender outstanding notes
pursuant to the exchange offer and the certificates for such outstanding notes
are not immediately available or time will not permit all required documents to
reach the exchange agent before the expiration date, or the procedures for
book-entry transfer cannot be completed on a timely basis, such outstanding
notes may nevertheless be tendered, provided that all of the following
guaranteed delivery procedures are complied with:
(1) such tenders are made by or through an Eligible Institution;
(2) prior to the expiration date, the exchange agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery,
24
<PAGE> 28
substantially in the form accompanying the letter of transmittal, setting
forth the name and address of the holder of outstanding notes and the
amount of outstanding notes tendered, stating that the tender is being made
thereby and guaranteeing that within three New York Stock Exchange trading
days after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered outstanding notes, in proper form
for transfer, or a book-entry confirmation, as the case may be, and any
other documents required by the letter of transmittal will be deposited by
the Eligible Institution with the exchange agent. The Notice of Guaranteed
Delivery may be delivered by hand, or transmitted by facsimile or mail to
the exchange agent and must include a guarantee by an Eligible Institution
in the form set forth in the Notice of Guaranteed Delivery; and
(3) the certificates (or book-entry confirmation) representing all
tendered outstanding notes, in proper form for transfer, together with a
properly completed and duly executed letter of transmittal, with any
required signature guarantees and any other documents required by the
Letter of Transmittal, are received by the exchange agent within three New
York Stock Exchange trading days after the date of execution of the Notice
of Guaranteed Delivery.
Determination of Validity. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered outstanding notes will be determined by Holley, in its sole
discretion, which determination shall be final and binding on all parties.
Holley reserves the absolute right, in its sole and absolute discretion, to
reject any and all tenders it determines not to be in proper form or the
acceptance for exchange of which may, in the view of counsel to Holley, be
unlawful. Holley also reserves the absolute right, subject to applicable law, to
waive any of the conditions of the exchange offer as set forth under
"-- Conditions to the Exchange Offer" or any defect or irregularity in any
tender of outstanding notes of any particular holder whether or not similar
defects or irregularities are waived in the case of other holders.
Holley's interpretation of the terms and conditions of the exchange offer
(including the letter of transmittal and the instructions thereto) will be final
and binding on all parties. No tender of outstanding notes will be deemed to
have been validly made until all defects or irregularities with respect to such
tender have been cured or waived. None of Holley, any affiliates of Holley, the
exchange agent or any other person shall be under any duty to give any
notification of any defects or irregularities in tenders or incur any liability
for failure to give any such notification.
RESALES OF EXCHANGE NOTES
Based on interpretations by the staff of the SEC, as set forth in no-action
letters issued to third parties unrelated to Holley, Holley believes that
holders of outstanding notes who exchange their outstanding notes for exchange
notes may offer for resale, resell and otherwise transfer such exchange notes
without compliance with the registration and prospectus delivery provisions of
the Securities Act. This would not apply, however, to any holder that is a
broker-dealer that acquired outstanding notes as a result of market-making
activities or other trading activities or directly from Holley for resale under
an available exemption under the Securities Act. Also, resale would only be
permitted for exchange notes that are acquired in the ordinary course of a
holder's business, where such holder has no arrangement or understanding with
any person to participate in the distribution of such exchange notes and such
holder is not an "affiliate" of Holley. The staff of the SEC has not considered
our exchange offer in the context of a no-action letter, and there can be no
assurance that the staff of the SEC would make a similar determination with
respect to our exchange offer. Each broker-dealer that receives exchange notes
for its own account in exchange for outstanding notes under the exchange offer,
where such outstanding notes were acquired by such broker-dealer as a result of
market-making or other trading activities, must acknowledge that it will deliver
a prospectus meeting the requirements of the Securities Act in connection with
any resale of such exchange notes. See
25
<PAGE> 29
"Plan of Distribution" for information regarding the initial purchasers of the
notes and their distribution.
WITHDRAWAL RIGHTS
Except as otherwise provided, tenders of outstanding notes may be withdrawn
at any time prior to the expiration date of the exchange offer. In order for a
withdrawal to be effective, such withdrawal must be in writing and timely
received by the exchange agent at its address set forth under "-- Exchange
Agent" prior to the expiration date. Any such notice of withdrawal must specify
the name of the person who tendered the outstanding notes to be withdrawn, the
principal amount of outstanding notes to be withdrawn, and (if certificates for
such outstanding notes have been tendered) the name of the registered holder of
the outstanding notes as set forth on the outstanding notes, if different from
that of the person who tendered such outstanding notes. If certificates for
outstanding notes have been delivered or otherwise identified to the exchange
agent, the notice of withdrawal must specify the serial numbers on the
particular certificates for the outstanding notes to be withdrawn and the
signature on the notice of withdrawal must be guaranteed by an Eligible
Institution, except in the case of outstanding notes tendered for the account of
an Eligible Institution. If outstanding notes have been tendered pursuant to the
procedures for book-entry transfer set forth in "-- Procedures for Tendering
Outstanding Notes," the notice of withdrawal must specify the name and number of
the account at DTC to be credited with the withdrawal of outstanding notes and
must otherwise comply with the procedures of DTC. Withdrawals of tenders of
outstanding notes may not be rescinded. Outstanding notes properly withdrawn
will not be deemed validly tendered for purposes of the exchange offer, but may
be retendered at any subsequent time prior to the expiration date of the
exchange offer by following any of the procedures described above under
"-- Procedures for Tendering Outstanding Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by Holley, in its sole
discretion, which determination shall be final and binding on all parties. None
of Holley, any affiliates of Holley, the exchange agent or any other person
shall be under any duty to give any notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification. Any outstanding notes which have been tendered but
which are withdrawn will be returned to the holder promptly after withdrawal.
INTEREST ON THE EXCHANGE NOTES
Interest on the exchange notes will be payable every six months on March 15
and September 15 of each year at a rate of 12 1/4% per annum, commencing March
15, 2000. The exchange notes will mature on September 15, 2007.
CONDITIONS TO THE EXCHANGE OFFER
If any of the following conditions has occurred or exists or has not been
satisfied prior to the expiration date, Holley will not be required to accept
for exchange any outstanding notes and will not be required to issue exchange
notes in exchange for any outstanding notes. In addition, Holley may, at any
time and from time to time, terminate or amend the exchange offer, whether or
not any outstanding notes have already been accepted for exchange, or may waive
any conditions to or amend the exchange offer.
- A change in the current interpretation by the staff of the SEC that
permits resales of exchange notes as described above under "-- Resales of
Exchange Notes;"
- The institution or threat of an action or proceeding in any court or by
or before any governmental agency or body with respect to the exchange
offer that, in Holley's
26
<PAGE> 30
judgment, would reasonably be expected to impair the ability of Holley to
proceed with the exchange offer;
- The adoption or enactment of any law, statute, rule or regulation that,
in Holley's judgment, would reasonably be expected to impair the ability
of Holley to proceed with the exchange offer;
- Any change or development involving a prospective change in the business
or financial affairs of Holley that Holley believes might materially
impair its ability to proceed with the exchange offer.
If Holley determines in its reasonable discretion that any of the foregoing
events or conditions has occurred or exists or has not been satisfied at any
time prior to the expiration date, Holley may, subject to applicable law,
terminate the exchange offer, whether or not any outstanding notes have already
been accepted for exchange, or may waive any such condition or otherwise amend
the terms of the exchange offer in any respect. If such waiver or amendment
constitutes a material change to the exchange offer, Holley will promptly
disclose such waiver or amendment by means of a prospectus supplement that will
be distributed to the registered holders of the outstanding notes. In this case,
Holley will extend the exchange offer to the extent required by Rule 14e-1 under
the Exchange Act.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as the exchange
agent for the exchange offer. Delivery of the letters of transmittal and any
other required documents, questions, requests for assistance, and requests for
additional copies of this prospectus or of the letter of transmittal should be
directed to the exchange agent as follows:
By Mail
State Street Bank and Trust Company
Corporate Trust Department
P.O. Box 778
Boston, MA 02102-0778
Attention: Ralph Jones
OR: By Overnight Delivery or By Hand (9:00 a.m. to 5:00 p.m. local time)
State Street Bank and Trust Company
Corporate Trust Department -- 5th Floor
2 Avenue de Lafayette
Boston, MA 02111-1724
Attention: Ralph Jones
By Facsimile (617) 662-1452
Attention: Ralph Jones
Confirm by telephone: (617) 662-1548
DELIVERY TO OTHER THAN THE ABOVE ADDRESSES OR FACSIMILE NUMBER WILL NOT
CONSTITUTE A VALID DELIVERY.
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by Holley. The principal
solicitation is being made by mail. Additional solicitation may be made
personally or by telephone or other means by officers, directors or employees of
Holley.
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<PAGE> 31
Holley has not retained any dealer-manager or similar agent in connection
with the exchange offer and will not make any payments to brokers, dealers or
others soliciting acceptances of the exchange offer. Holley has agreed to 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.
Holley will also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this prospectus and related documents to the beneficial owners of
outstanding notes, and in handling or tendering for their customers.
Holders who tender their outstanding notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that if
exchange notes are to be delivered to, or are to be issued in the name of, any
person other than the registered holder of the outstanding notes tendered, or if
a transfer tax is imposed for any reason other than the exchange of outstanding
notes in connection with the exchange offer, then the amount of any such
transfer tax (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such transfer tax or exemption therefrom is not submitted with the letter of
transmittal, the amount of such transfer tax will be billed directly to such
tendering holder.
USE OF PROCEEDS
We are making the exchange offer to satisfy our obligation under the
registration rights agreement we entered into with the initial purchasers when
we first issued the outstanding notes. We will not receive any cash proceeds
from the issuance of the exchange notes. In consideration for issuing the
exchange notes, we will receive an equal principal amount of outstanding notes.
The outstanding notes surrendered in exchange for the exchange notes will be
retired and canceled.
We received approximately $140 million in net proceeds from our original
issuance of the notes. The proceeds from the offering of the outstanding notes,
together with $5 million of additional equity contributed by Kohlberg & Co.,
L.L.C. and borrowings under our revolving credit facility are being used (1) to
repay approximately $122.0 million of borrowings under our bank credit facility,
(2) to fund approximately $33.0 million for the acquisitions of FlowTech, NOS
and Earl's, and (3) for general corporate purposes. The borrowings under our
bank credit facility that we repaid with notes proceeds were bearing interest at
a variable rate equal to the current LIBOR rate plus a margin ranging from
approximately 2.5% to 3.5%.
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<PAGE> 32
CAPITALIZATION
The following table sets forth our unaudited historical capitalization at
October 3, 1999, and our unaudited capitalization at October 3, 1999 as adjusted
to give pro forma effect to our acquisitions of NOS and Earl's, and the
contribution of $5 million of new equity. This table should be read in
conjunction with the Consolidated Financial Statements and the notes thereto and
the Unaudited Pro Forma Consolidated Financial Information and the notes thereto
included elsewhere herein.
<TABLE>
<CAPTION>
OCTOBER 3, 1999
-----------------------
ACTUAL PRO FORMA(1)
-------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 14,487 $ --
======== ========
Long-term debt, including current portion:
Revolving credit facility(2).............................. $ -- $ 7,928
Term loans................................................ -- --
KEDFA Note................................................ 527 527
Long-term lease obligation................................ 2,395 2,395
12 1/4% Senior Notes due 2007(3).......................... 144,519 144,519
-------- --------
Total long-term debt.............................. 147,441 155,369
Stockholder's equity........................................ 46,513 51,513
-------- --------
Total capitalization.............................. $193,954 $206,882
======== ========
</TABLE>
- ---------------
(1) For an explanation of the pro forma assumptions and adjustments, see
"Unaudited Pro Forma Consolidated Financial Information."
(2) Our bank credit facility consists of a $25.0 million revolving credit
facility which bears a variable rate of interest. Aggregate borrowings under
the revolving credit facility will be limited to the lesser of $25.0 million
or 85% of the eligible accounts receivable and 55% of the eligible inventory
of Holley and its subsidiaries. Please refer to "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" for further detail about our bank credit facility.
(3) Represents the Notes issued at 96.346% of their face amount.
29
<PAGE> 33
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Set forth below is certain selected unaudited consolidated financial
information showing the pro forma effects of the original notes issuance,
certain acquisitions by Holley and the $5 million of additional equity
contribution. We have derived the pro forma financial data from Holley's audited
and unaudited Consolidated Financial Statements, audited Financial Statements of
Hooker and FlowTech for the year ended June 30, 1999, audited Financial
Statements of NOS for the year ended December 31, 1998 as well as unaudited
Financial Statements of Lunati, Weiand, Hooker, FlowTech, NOS and Earl's for the
remaining respective periods presented.
The pro forma consolidated financial data are presented as if the notes had
been issued, the acquisitions of Weiand, Lunati, Hooker, FlowTech, NOS, and
Earl's had occurred and the $5 million of additional equity had been contributed
as of the beginning of the period presented. The pro forma balance sheet data
are presented as if the acquisitions of NOS and Earl's, the contribution of $5
million additional equity and the use of proceeds therefrom had occurred on
October 3, 1999.
The selected pro forma consolidated financial data are not necessarily
indicative of the results of operations Holley would have obtained had the
original notes issuance been completed, acquisitions of Weiand, Lunati, Hooker,
FlowTech, NOS, and Earl's occurred or the $5 million of additional equity been
contributed as of the beginning of the period presented. Accordingly, actual
results will differ from the pro forma results, and the differences may be
material. The pro forma consolidated financial data should be read in
conjunction with the consolidated financial statements included elsewhere
herein.
30
<PAGE> 34
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS
OF INCOME AND RELATED DATA
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM PERIOD FROM
MAY 16, 1998 TO JANUARY 1, 1998
DECEMBER 31, TO MAY 15, PRO FORMA
1998 1998(A) ACQUISITIONS(B) ADJUSTMENTS PRO FORMA
--------------- --------------- --------------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Statements of Income Data:
Net sales.................. $64,731 $36,632 $59,987 $ -- $161,350
Cost of sales.............. 44,269 25,728 35,450 2,102(c)
(375)(d) 107,174
------- ------- ------- --------
Gross profit............... 20,462 10,904 24,537 54,176
Selling, general and
administrative
expenses................. 11,795 7,616 20,060 (447)(e) 34,944
(4,080)(f)
Non-recurring charge....... 452 -- -- 452
Amortization expense....... 1,626 45 -- 2,852(g) 4,523
------- ------- ------- --------
Income from operations..... 6,589 3,243 4,477 14,257
Interest and amortization
of debt expense.......... 4,705 -- 515 16,225(h) 21,445
Other income (expense), net
(includes interest
income).................. (231) (1,395) 148 (1,054)(i) (424)
------- ------- ------- --------
Income (loss) before income
taxes.................... 1,653 1,848 4,110 (7,612)
Provision (benefit) for
income taxes............. 1,034 797 617 (4,243)(j) (1,795)
------- ------- ------- --------
Net income (loss).......... $ 619 $ 1,051 $ 3,493 $ (5,817)
======= ======= ======= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Financial
Information.
31
<PAGE> 35
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS
OF INCOME AND RELATED DATA
FOR THE NINE MONTHS ENDED OCTOBER 3, 1999
<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM
JANUARY 1, 1999
TO OCTOBER 3, PRO FORMA
1999 ACQUISITIONS(B) ADJUSTMENTS PRO FORMA
--------------- --------------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Statements of Income Data:
Net sales............................ $94,739 $36,922 $ -- $131,661
Cost of sales........................ 62,610 21,449 (283) (d) 83,776
------- ------- --------
Gross profit........................... 32,129 15,473 47,885
Selling, general and
administrative
expenses............................. 18,851 16,363 (5,854) (f) 29,360
Non-recurring charge................... 755 -- -- 755
Amortization expense................... 2,936 -- 773(g) 3,709
------- ------- --------
Income from operations................. 9,587 (890) 14,061
Interest and amortization
of debt expense...................... 7,412 366 8,306(h) 16,084
Other income (expense), net (includes
interest income)..................... (9) 74 -- 65
------- ------- --------
Income (loss) before income taxes and
extraordinary item................... 2,166 (1,182) (1,958)
Provision for income taxes............. 2,038 295 (2,255) (j) 78
------- ------- --------
Income (loss) before extraordinary
item................................. 128 (1,477) (2,036)
Extraordinary item..................... 1,654 -- (1,654) (h) --
------- ------- --------
Net income (loss)............ $(1,526) $(1,477) $ (2,036)
======= ======= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Financial
Information.
32
<PAGE> 36
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS
OF INCOME AND RELATED DATA
FOR THE TWELVE MONTHS ENDED OCTOBER 3, 1999
<TABLE>
<CAPTION>
HISTORICAL
PERIOD FROM
JULY 1, 1998
TO OCTOBER 3, PRO FORMA
1999 ACQUISITIONS(B) ADJUSTMENTS PRO FORMA
------------- --------------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Statements of Income Data:
Net sales............................. $120,314 $47,185 $ -- $167,499
Cost of sales.........................
80,794 27,287 (351)(d) 107,730
-------- ------- --------
Gross profit............................ 39,520 19,898 59,769
Selling, general and administrative
expenses.............................. 23,538 20,749 (6,606)(f) 37,681
Non-recurring charge.................... 1,207 -- 1,207
Amortization expense.................... 3,716 -- 1,122(g) 4,838
-------- ------- --------
Income from operations.................. 11,059 (851) 16,043
Interest and amortization of debt
expense............................... 9,468 456 11,521(h) 21,445
Other income (expense), net (includes
interest income)...................... (159) 379 220
-------- ------- --------
Income (loss) before income taxes and
extraordinary item.................... 1,432 (928) (5,182)
Provision (benefit) for income taxes.... 2,027 358 (3,189)(j) (874)
-------- ------- --------
Income (loss) before extraordinary
item.................................. (595) (1,286) (4,308)
Extraordinary item...................... 1,654 -- (1,654)(h) --
-------- ------- --------
Net income (loss)............. $ (2,249) $(1,286) $ (4,308)
======== ======= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Financial
Information.
33
<PAGE> 37
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
BALANCE SHEET
AS OF OCTOBER 3, 1999
<TABLE>
<CAPTION>
HISTORICAL
AS OF
OCTOBER 3, PRO FORMA
1999 ACQUISITIONS(K) ADJUSTMENTS PRO FORMA
---------- --------------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash..................................... $ 14,487 $ -- $(14,487)(l) $ --
-- --
Receivables.............................. 21,899 3,212 -- 25,111
Inventory................................ 25,460 6,392 -- 31,852
Deferred income taxes.................... 3,049 -- -- 3,049
Other current assets..................... 4,951 495 -- 5,446
-------- ------- --------
Total current assets................ 69,846 10,099 65,458
Property, plant and equipment, net....... 31,995 1,052 -- 33,047
Intangible assets, net................... 131,468 294 19,302(l) 151,064
Other assets............................. -- 49 -- 49
-------- ------- --------
Total assets........................ $233,309 $11,494 $249,618
======== ======= ========
Accounts payable......................... $ 7,432 $ 2,578 -- $ 10,010
Accrued expenses......................... 13,009 803 -- 13,812
Current portion of long-term debt........ -- -- -- --
-------- ------- --------
Total current liabilities........... 20,441 3,381 23,822
Long-term debt........................... 147,441 115 7,813(l) 155,369
Deferred income taxes.................... 18,173 -- -- 18,173
Other noncurrent liabilities............. 741 -- -- 741
Stockholder's equity..................... 46,513 7,998 (2,998)(l) 51,513
-------- ------- --------
Total liabilities and stockholder's
equity............................ $233,309 $11,494 $249,618
======== ======= ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Financial
Information.
34
<PAGE> 38
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(a) Adjustment to include the Predecessor historical operating activity for the
period from January 1, 1998 to May 15, 1998.
(b) Adjustment to include the historical operating results for the periods prior
to acquisition of Weiand in August 1998, Lunati in October 1998, Hooker in
July 1999, FlowTech in October 1999, NOS in October 1999 and Earl's in
October 1999.
(c) Adjustment to reflect a full year of depreciation expense for the
adjustments of property, plant and equipment to fair value in the
acquisitions Holley, Weiand and Lunati as if the acquisitions had occurred
on January 1, 1998.
(d) Adjustment to eliminate rent associated with equipment purchased in the
acquisition of Earl's. This equipment was formerly leased by Earl's from a
related party.
(e) Adjustment to management fee to reflect the management fee charged by KHPP
Holdings, Inc. to Holley
(f) Adjustment to reduce/eliminate salaries and benefits of former shareholders
net of the salaries of the incremental personnel that will be required to
perform their responsibilities subsequent to the acquisitions.
(g) Adjustment to reflect a full year of amortization expense on goodwill and
other identifiable intangibles resulting from the acquisitions as if the
acquisitions had occurred at the beginning of the period presented.
(h) Adjustment to reflect a full year of interest and finance cost amortization
expense resulting from the original notes and additional debt incurred for
the acquisitions of NOS and Earl's as if the acquisitions had occurred at
the beginning of the period presented and to eliminate the extraordinary
charge incurred in 1999 to writeoff finance costs associated with term notes
repaid with proceeds from the original notes.
(i) Adjustment to eliminate royalty fees paid to Coltec Industries Inc. under a
licensing agreement which expired on May 15, 1998.
(j) Adjustment to reflect income tax provision (benefit) using a tax rate of
38.0%.
(k) Adjustment to include the historical financial position of NOS and Earl's as
if their acquisitions had occurred on October 3, 1999.
(l) Adjustment to record goodwill and purchase accounting adjustments resulting
from the acquisitions of NOS and Earl's as if they occurred on October 3,
1999 as well as the contribution of $5.0 million of additional equity. The
estimated purchase price allocations are as follows:
<TABLE>
<CAPTION>
NOS EARL'S
------- --------
<S> <C> <C>
Purchase price.............................................. $12,500 $ 14,300
Transaction costs........................................... 250 250
------- --------
Total purchase price.............................. 12,750 14,550
------- --------
Current assets.............................................. 2,629 7,470
Property, plant and equipment............................... 106 946
Other assets................................................ 26 317
Long-term debt.............................................. (11) (104)
Current liabilities......................................... (486) (2,895)
------- --------
2,264 5,734
------- --------
Goodwill.......................................... 10,486 8,816
======= ========
</TABLE>
35
<PAGE> 39
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION -- (CONTINUED)
The acquisitions of Weiand in August 1998, Lunati in October 1998, Hooker
in July 1999 and FlowTech in October 1999 each occurred prior to October 3,
1999 and as a result are reflected in Holley's historical balance sheet as
of that date. The purchase price allocations for Lunati and Weiand are
presented in footnote 3 of Holley's financial statements for the year ended
December 31, 1998. The preliminary purchase price allocations for Hooker
and FlowTech are presented in footnote 7 of Holley's financial statements
for the nine months ended October 3, 1999.
(m) In addition to the cost savings included in pro forma adjustments (d), (e),
(f) and (i) above, management's plans for the integration of the acquired
companies include additional discretionary actions which they believe will
further reduce operating costs. These actions and their estimated operating
cost reductions in each period presented are as follows:
<TABLE>
<CAPTION>
NINE TWELVE
MONTHS MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, OCTOBER 3, OCTOBER 3,
1998 1999 1999
------------ ---------- ----------
<S> <C> <C> <C>
1. One of the acquired companies sold its product to a
related party distributor who then sold the products to
outside customers. By selling direct to customers,
Holley will gain additional sales price that was
previously realized by the related party distributor.... $ 140 $ 105 $ 140
2. Management plans to close several manufacturing
facilities purchased in the acquisitions. Closure
of these facilities will result in the
elimination of rent and other facility costs..... 1,041 629 784
3. In connection with the closure of the facilities
discussed above, management plans to eliminate or
consolidate administrative positions which will
result in estimated net payroll reductions....... 2,544 1,927 2,588
4. Several of the acquired companies paid
commissions to their sales personnel in excess of
the commission rates paid by Holley.............. 449 201 236
5. Some advertising costs incurred by Weiand and
Lunati duplicate marketing programs already in
place at Holley. Management plans to eliminate
these duplicate programs......................... 250 -- 15
------ ------ ------
$4,424 $2,862 $3,763
====== ====== ======
</TABLE>
36
<PAGE> 40
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected historical consolidated financial information for the years
ended December 31, 1996 and 1997 and the periods from January 1, 1998 to May 15,
1998 and from May 16, 1998 to December 31, 1998 are derived from the
Consolidated Financial Statements, which have been audited by Arthur Andersen
LLP, independent public accountants. The selected historical consolidated
financial information for the years ended December 31, 1994 and 1995 and the
period from May 16, 1998 to September 27, 1998 and the nine months ended October
3, 1999 are derived from unaudited consolidated financial statements of the
Predecessor and Holley, which in the opinion of management, reflect all
adjustments necessary for a fair presentation of such data. The results for the
nine months ended October 3, 1999 are not necessarily indicative of the results
to be expected for the full year. The selected historical consolidated financial
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto included elsewhere in this prospectus.
<TABLE>
<CAPTION>
THE PREDECESSOR(A) THE COMPANY(A)
-------------------------------------------------- ------------------------------------------
JANUARY 1, MAY 16, MAY 16, NINE MONTHS
YEAR ENDED DECEMBER 31, 1998 TO 1998 TO 1998 TO ENDED
------------------------------------- MAY 15, DECEMBER 31, SEPTEMBER 27, OCTOBER 3,
1994 1995 1996 1997 1998 1998 1998 1999
------- ------- ------- ------- ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statements of Income Data:
Net sales...................... $91,535 $96,322 $96,290 $98,803 $36,632 $64,731 $39,156 $94,739
Cost of sales.................. 65,676 66,499 65,368 69,192 25,728 44,269 26,085 62,610
------- ------- ------- ------- ------- ------- ------- -------
Gross profit................... 25,859 29,823 30,922 29,611 10,904 20,462 13,071 32,129
Selling, general and
administrative expenses(b)... 15,443 18,558 18,868 22,759 7,616 11,795 7,108 18,851
Non-recurring charge(c)........ -- -- -- -- -- 452 -- 755
Amortization expense........... -- -- 113 113 45 1,626 846 2,936
------- ------- ------- ------- ------- ------- ------- -------
Income from operations......... 10,416 11,265 11,941 6,739 3,243 6,589 5,117 9,587
Interest and amortization of
deferred financing costs..... -- -- -- -- -- 4,705 2,649 7,412
Other income (expense),
net(d)....................... 23 13 (183) 45 (1,395) (231) (81) (9)
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes and
extraordinary item........... 10,439 11,278 11,758 6,784 1,848 1,653 2,387 2,166
Provision for income
taxes(e)..................... -- -- 4,514 2,520 797 1,034 1,045 2,038
------- ------- ------- ------- ------- ------- ------- -------
Income before extraordinary
item......................... 10,439 11,278 7,244 4,264 1,051 619 1,342 128
Extraordinary item............. -- -- -- -- -- -- -- 1,654
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)........ $10,439 $11,278 $ 7,244 $ 4,264 $ 1,051 $ 619 $ 1,342 $(1,526)
======= ======= ======= ======= ======= ======= ======= =======
Other Financial Data:
EBITDA(f)...................... $11,505 $12,299 $13,091 $ 7,802 $ 3,819 $10,136 $ 6,259 $16,172
EBITDA margin(g)............... 12.6% 12.8% 13.6% 7.9% 10.4% 15.7% 16.0% 17.1%
Depreciation and
amortization................. $ 1,089 $ 1,034 $ 1,150 $ 1,063 $ 576 $ 3,547 $ 1,142 $ 6,585
Capital expenditures........... 2,414 532 466 942 1,188 2,819 1,353 3,024
Ratio of earnings to fixed
charges(h)................... 37.9x 63.4x 61.4x 34.8x 26.8x 1.3x 1.9x 1.3x
</TABLE>
<TABLE>
<CAPTION>
AS OF
-----------------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, MAY 15, DECEMBER 31, OCTOBER 3,
1994 1995 1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ ------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ -- $ -- $ -- $ -- $ -- $ 2,013 $ 14,487
Working capital(i)....... 13,387 13,657 15,166 14,637 12,855 19,562 49,405
Total assets............. 32,407 31,675 36,718 33,884 35,813 178,072 233,309
Total debt(j)............ -- -- 13,428 9,081 5,707 93,088 147,441
Stockholder's
equity(j).............. 19,820 20,179 7,244 11,509 12,559 43,039 46,513
</TABLE>
37
<PAGE> 41
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(a) Effective May 15, 1998, all outstanding shares of Holley common stock were
purchased by KHPP Acquisition Corp., a wholly owned subsidiary of KHPP
Holdings, Inc., for $100.0 million, in a transaction which was accounted for
as a purchase. At the time of the acquisition of Holley, KHPP Acquisition
Corp. was merged into Holley. Financial information prior to May 16, 1998,
is for Holley when it was a wholly owned subsidiary of Coltec and for
periods prior to January 1, 1996 for Holley when it was a division of
Coltec. For periods in which Holley was either a wholly owned subsidiary or
division of Coltec, Holley is referred to herein as the "Predecessor". For
periods in which Holley is a wholly owned subsidiary of KHPP Holdings, Inc.,
Holley is referred to as "Holley". This acquisition and the related
application of purchase accounting resulted in changes to the capital
structure of the Predecessor and the historical basis of various assets and
liabilities. The effect of such changes significantly impairs the
comparability of the financial position and results of operations of Holley
and the Predecessor.
(b) Selling, general and administrative expenses include management fees Holley
paid to Coltec (as the Predecessor) and KHPP Holdings, Inc. (as Holley)
totaling $2.1 million, $2.2 million, $2.3 million, $2.3 million, $0.8
million, $0.4 million, $0.2 million and $0.7 million for the fiscal years
ended December 31, 1994, 1995, 1996 and 1997 and the periods from January 1,
1998 to May 15, 1998 and from May 16, 1998 to December 31, 1998, and the
period from May 16, 1998 to September 27, 1998 and the nine month period
ended October 3, 1999, respectively. For the year ended December 31, 1997,
selling, general and administrative expenses also include a provision for
doubtful accounts of $1.9 million, increased marketing spending of $1.0
million, additional cash discounts of $0.5 million and additional R&D
spending of $0.5 million. The provision for doubtful accounts resulted from
the Super Shops bankruptcy and the recognition of the uncertain
collectability of certain accounts receivable at December 31, 1997.
(c) Non-recurring costs include (1) costs incurred in 1998 and 1999 associated
with the movement of inventory and fixed assets to Holley's facility in
Bowling Green, Kentucky from two Weiand facilities which were closed
subsequent to the acquisition and (2) costs incurred in 1999 associated with
the movement of fixed assets from a research and development facility which
was not acquired in the acquisition of Holley. EBITDA has not been adjusted
for these amounts.
(d) Other expense for the period from January 1, 1998 to May 15, 1998 includes
$1.0 million in fees paid to Coltec under a licensing agreement. The
agreement was established on December 31, 1997 and expired on May 15, 1998
in connection with the acquisition of Holley.
(e) The Predecessor did not record a tax provision in 1994 and 1995 as it was a
division of Coltec.
(f) EBITDA represents income from operations plus depreciation and amortization
expense. EBITDA should not be considered as an alternative measure of net
income or cash provided by operating activities (both as determined in
accordance with generally accepted accounting principles), but is presented
to provide additional information related to Holley's debt service
capability. EBITDA should not be considered in isolation or as a substitute
for other measures of financial performance or liquidity. The primary
difference between EBITDA and cash flows provided by operating activities
relates primarily to changes in working capital requirements, and payments
made for interest and income taxes. Our use of EBITDA may not be comparable
to similarly titled measures due to the use by other companies of different
financial statement components in calculating EBITDA. The definition of
EBITDA under the indenture could differ from the definition described
herein.
38
<PAGE> 42
NOTES TO SELECTED HISTORICAL CONSOLIDATED
FINANCIAL INFORMATION -- (CONTINUED)
(g) EBITDA margin is defined as EBITDA divided by net sales.
(h) For the purpose of determining the ratio of earnings to fixed charges,
"earnings" consist of income before provision for income taxes,
extraordinary item and fixed charges. "Fixed charges" consist of interest
expense including amortization of deferred financing costs and one-third of
rental expense, representing that portion of rental expense representative
of the interest factor.
(i) Working capital is defined as current assets minus current liabilities.
(j) Stockholder's equity includes advances from Coltec at December 31, 1994 and
1995, as Holley operated as a division of Coltec during each of the years
then ended. On January 1, 1996, Holley became a wholly-owned subsidiary of
Coltec, therefore, advances from Coltec are included in long-term debt at
December 31, 1996 and 1997, May 15, 1998.
39
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
our Consolidated Financial Statements and the notes thereto and our Unaudited
Pro Forma Consolidated Financial Information and the notes thereto attached to
this prospectus.
GENERAL
In early 1997, a new management team was recruited by our former parent
Coltec to formulate a new growth strategy and to rationalize the operational
structure of Holley. Since that time, we have significantly reduced our cost
structure, focused on the performance market and introduced many new products.
Historically, Holley focused on the remanufacturing business. In connection with
the management change, the new management team shifted Holley's focus to the
higher margin, faster growing performance market. Some of the steps taken in
1997 included: (a) consolidation of our warehouse operation into our production
facilities (saving $800,000 annually); (b) a headcount reduction of 48
administrative personnel (saving approximately $2.3 million annually); (c) an
approximate 57% reduction in performance product part numbers, thereby
streamlining production, eliminating excess inventory and reducing working
capital needs relating thereto; and (d) the refurbishment of the factory
infrastructure and the establishment of a cellular manufacturing process, which
improved productivity and work flow. Externally, we revamped our entire
marketing strategy and introduced the concept of "pull" marketing emphasizing
the end consumer and targeting most promotional and advertising programs toward
that end consumer. In the past, Holley had relied on "push" marketing wherein
distributors were enticed to make large purchases through various pricing and
promotional programs. In connection with this change, we eliminated all rebate
and co-op advertising programs that were ineffective, off-market or not
necessary. Our new philosophy stresses premium product quality, name brand
recognition and service and as a result, expects to achieve premium pricing for
our products.
In May 1998, Holley was acquired from Coltec by KHPP Holdings, Inc.,
Holley's parent company, which is owned by senior management and an affiliate of
Kohlberg & Co., L.L.C., a merchant banking firm located in Mt. Kisco, New York.
In August 1998, we acquired Weiand. In October 1998, we acquired Lunati. The
Lunati companies we acquired include Lunati Cams, Inc., Lunati & Taylor Pistons,
Inc. and LMT Motorsports Corporation. In July 1999, we acquired Hooker and in
October 1999, we acquired FlowTech, NOS and Earl's.
Holley's results of operations for fiscal 1998 (as defined below) and the
nine months ended September 27, 1998 have been affected by the acquisition of
Holley and the acquisitions of Weiand and Lunati. In addition, fiscal 1998
results include the results of operations from the Weiand and Lunati
acquisitions subsequent to their acquisition dates. Consequentially, comparisons
of 1998 results with earlier years will not be meaningful without a
comprehensive understanding of the information provided under "Results of
Operations." For the purposes hereof, "fiscal 1998" refers to the twelve-month
period ended December 31, 1998 and reflects the sum of Holley's results of
operations for the five months ended May 15, 1998 (before the allocation of
purchase price relating to the acquisition by Holdings) and the results of
operations for the seven months ended December 31, 1998 (after the allocation of
the purchase price). Similarly, results of operations for the nine months ended
September 27, 1998 reflect the sum of Holley's results of operations for the
five months ended May 15, 1998 (before the allocation of the purchase price
relating to the acquisition by Holdings) and the results of operations for the
period including May 16, 1998 to September 27, 1998 (after the allocation of the
purchase price). See also "Selected Historical Consolidated Financial
Information" included in this prospectus.
40
<PAGE> 44
When Coltec owned Holley, Coltec funded all the company's working capital
requirements and corporate expenses. Also, Coltec withdrew all of the excess
cash from Holley. Thus, Holley did not utilize debt to fund such needs, and
therefore, Holley's financial statements do not reflect any interest expense
during such period.
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED OCTOBER 3, 1999 AND SEPTEMBER 27, 1998
Net Sales. Net sales equals gross revenues less provisions for volume
rebates, co-op advertising allowances and freight-out expenses. Net sales for
the nine months ended October 3, 1999 totaled $94.7 million compared to $75.8
million for the same period in 1998, an increase of $18.9 million or 25.0%. The
increase was largely attributable to additional sales from the Weiand, Lunati
and Hooker acquisitions of $17.8 million and increased sales of $1.1 million in
the base business (the business owned in both periods). Within the base
business, sales to performance customers increased by $6.7 million or 16.7% over
the same period in 1998. However, this increase was offset by reduced sales in
our remanufacturing business of $1.2 million or 6.0%, reduced original equipment
manufacturer and bulk sales of $3.0 million or 23.2%, and reduced sales from a
product line that was sold of $1.4 million or 64.3%. Remanufacturing sales were
down due to general market declines. The reduced sales from a product line that
was sold reflects the sale of part of our industrial ignition business in May
1998. The reduced original equipment and bulk sales primarily resulted from the
final phasing out of component supply to the former automotive operations of
Coltec Industries that were acquired by Borg Warner in 1996 and substantial
price increases on components that were sold in bulk to assemblers who would
then compete with our products.
Gross Profits. Gross profits for the nine months ended October 3, 1999
totaled $32.1 million or 33.9% of net sales compared to $24.0 million or 31.6%
of sales for the same period in 1998. This is an increase of $8.1 million or
33.8%. The increase is attributable to gross profits contributed by our acquired
companies of $5.1 million and additional gross profit in the base business of
$3.0 million. Of the base business increase, $0.4 million is attributable to
increased volume and the remaining $2.6 million reflects productivity gains and
the changing product sales mix as more profitable performance sales increase
while less profitable segments decline.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended October 3, 1999 totaled $18.9
million or 20.0% of sales compared to $14.7 million or 19.4% for the same period
in 1998. The increase is primarily attributable to increased marketing spending
of $2.7 million, increased payroll costs of $0.7 million, increased depreciation
of $0.7 million associated with a new computer system, and increased management
fees of $0.1 million.
Non-recurring charges. Non-recurring charges for the nine months ended
October 3, 1999 totaled $0.8 million resulting from one-time expenses incurred
in the integration of the Weiand and Lunati acquisitions and the initial setup
of employee benefits plans.
Amortization expense. Amortization expense for the nine months ended
October 3, 1999 totaled $2.9 million compared to $0.9 million for the same
period in 1998. These expenses reflect the amortization of goodwill, transaction
fees, and other intangible assets associated with the purchase of Holley by
Holdings, the subsequent acquisitions of Weiand, Lunati, and Hooker, and the
valuation of intellectual property.
Income from Operations. Income from operations for the nine months ended
October 3, 1999 totaled $9.6 million compared to $8.4 million for the same
period in 1998, an increase of $1.2 million or 14.7%. The increase is primarily
due to the increased sales and increased gross margins.
41
<PAGE> 45
Interest Expense. Interest expense was $7.4 million for the nine months
ended October 3, 1999 compared to $2.6 million for the same period in 1998. The
expenses resulted from interest on our Company's term loans, revolving credit
facility, and the initial accrual of interest associated with our 12 1/4% senior
notes due 2007 issued in September 1999. The term loans were incurred in May
1998, October 1998, and July 1999 in connection with the purchase of Holley from
Coltec and the subsequent acquisitions of Weiand, Lunati and Hooker. The
revolving letter of credit is used to finance general business and working
capital needs. The proceeds from the sale of our senior notes were used to pay
back the existing term loans and to finance upcoming acquisitions.
Other Income/(Expense). Other income/(expense) was -0- for the nine months
ended October 3, 1999 compared to $1.5 million in expense for the same period in
1998. The 1998 expense includes $1.0 million in fees paid to Coltec under a
licensing agreement.
Provision for Income Taxes. Provision for income taxes for the nine months
ended October 3, 1999 was $2.0 million compared to $1.8 million for the same
period in 1998. The effective tax rate was 94.1% for the period. The effective
tax rate is unfavorably impacted by the relatively high amount of amortization
expense which represents a reduction of accounting net income as presented
herein, but is not deductible for tax purposes.
Extraordinary Item. An extraordinary item was booked to reflect the write
off of $1.7 million (net of tax) of unamortized financing and transaction fees
associated with our bank term debt. This bank debt was paid off in full in
September 1999 with the proceeds of our senior notes offering.
Net Income/(Loss). Net loss for the nine months ended October 3, 1999 was
$(1.5) million compared with $2.4 million for the same period last year, a
decrease of $3.9 million. The decrease reflects increased interest expense of
$4.8 million and increased amortization expense of $2.0 million, expense items
associated with the acquisitions that were not incurred prior to the
acquisitions. In addition, net income was reduced by the extraordinary item of
$1.7 million reflecting the write-off of financing fees.
SEVEN MONTHS ENDED DECEMBER 31, 1998
Net Sales. Net sales for the seven months ended December 31, 1998 totaled
$64.7 million.
Gross Profits. Gross profits for the seven months ended December 31, 1998
totaled $20.5 million or 31.7% of net sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the seven months ended December 31, 1998 totaled
$11.8 million.
Income from Operations. Income from operations for the seven months ended
December 31, 1998 totaled $6.6 million.
Interest Expense. Interest expense was $4.7 million for the seven months
resulting from interest on our term loans and revolving credit facility. This
debt was incurred in 1998 in connection with the purchase of Holley from Coltec,
the subsequent acquisitions of Weiand and Lunati, and general business and
working capital needs.
Provision for Income Taxes. Provision for income taxes for the seven
months ended December 31, 1998 was $1.0 million. The effective tax rate was
62.6% for the period. The effective tax rate is unfavorably impacted by the
relatively high amount of amortization expense which represents a reduction of
accounting net income as presented herein, but is not deductible for tax
purposes.
Net Income. Net income for the seven months ended December 31, 1998 was
$0.6 million.
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COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
Net Sales. Net sales for fiscal 1998 increased to $101.4 million from
$98.8 million in fiscal 1997, an increase of $2.6 million or 2.6%. The increase
was due primarily to increased performance products sales of $6.6 million
including post-acquisition sales from Weiand and Lunati of $2.9 million, offset
by reduced sales in remanufacturing of $1.8 million, reduced sales from product
lines that were sold of $2.0 million, and reduced original equipment
manufacturer and bulk sales of $0.5 million. The increased performance products
sales reflected the successful introduction of our new line of polished
carburetors, increased sales of fuel pumps, and a fivefold increase in the sales
of SysteMax power systems and components. Remanufacturing sales were down due to
general market declines. The reduced sales due to product lines that were sold
reflect the sale of part of our industrial ignition business which is being
de-emphasized as it is not part of our business strategy or growth plan. We are
actively engaged in trying to sell the remainder of this product line. Original
equipment manufacturer and bulk business includes our sales to automotive,
marine and industrial original equipment manufacturers and bulk as well as
engine builders and modifiers who are active in the racing markets. The reduced
sales in this segment reflected the final phasing out of component supply to the
former Coltec automotive operations that were acquired by Borg Warner in 1996.
Gross Profits. Gross profits for fiscal 1998 increased to $31.4 million or
31.0% of net sales from $29.6 million or 30.0% of net sales in fiscal 1997, an
increase of $1.8 million. The increase was due to increased sales volume and
manufacturing productivity improvements resulting from our restructuring
initiatives.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1998 decreased $3.4 million to $19.4 million
from $22.8 million for fiscal 1997. For fiscal 1998 and 1997, as a percentage of
net sales, these expenses were 19.1% and 23.0%, respectively. The decrease was
primarily attributable to reduced provision for doubtful accounts of $1.5
million, savings arising from our restructuring initiatives of $1.0 million,
reduced corporate office costs of $1.0 million, reduced customer acquisition
costs of $0.5 million, reduced R&D costs of $0.4 million and other general
expense reductions of $0.2 million, offset by increased marketing expenses of
$1.2 million. The reduced corporate office costs reflected the elimination of
the allocation of corporate office costs charged by Coltec equal to 2.3% of net
sales.
Non-recurring Charge. Non-recurring charges totaling $0.5 million were
booked in fiscal 1998 reflecting relocation costs associated with our internal
restructuring initiatives and the acquisitions of Weiand and Lunati. No such
corresponding expense was incurred in fiscal 1997.
Amortization Expense. Amortization expense increased by $1.6 million to
$1.7 million in fiscal 1998. The increase reflected the amortization of goodwill
and transaction costs associated with the purchase of Holley by Holdings and the
subsequent acquisitions of Weiand and Lunati.
Income from Operations. Income from operations for fiscal 1998 increased
to $9.8 million from $6.7 million in fiscal 1997, an increase of $3.1 million or
46.3%. The increase was due primarily to an increase in sales volume and
manufacturing productivity improvements and administrative cost savings
resulting from our restructuring initiatives.
Interest Expense. Interest expense for fiscal 1998 increased to $4.7
million. We had no interest expense in 1997 because Coltec funded all our
working capital needs. These expenses reflected the interest on our term loans
and revolving credit facility. This debt was incurred in 1998 in connection with
the purchase of Holley from Coltec, the subsequent acquisitions of Weiand and
Lunati and general business and working capital needs.
Provision For Income Taxes. Provision for income taxes for fiscal 1998
decreased to $1.8 million from $2.5 million for fiscal 1997, a decrease of $0.7
million or 28.0%. The effective tax rates were 52.3% and 37.1% for fiscal 1998
and 1997, respectively. The effective tax rate is
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unfavorably impacted by the relatively high amount of amortization expense which
represents a reduction of accounting net income as presented herein, but is not
deductible for tax purposes.
Net Income. As a result of the factors described above, net income for
fiscal 1998 was $1.7 million, a decrease of $2.6 million from fiscal 1997. The
decrease reflected increased interest expense of $4.7 million and increased
amortization expense of $1.6 million, expense items associated with the
acquisitions of Weiand and Lunati.
COMPARISON OF YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
Net Sales. Net sales increased $2.5 million or 2.6% from $96.3 million to
$98.8 million. The primary cause of the increase was the transfer to Holley of
the industrial ignition business from another Coltec operating unit. This
business contributed $4.8 million in sales in fiscal 1997. The move of the
business was part of an initiative by Coltec to reduce the number of business
units and associated administrative costs by combining smaller business units
with large ones. Prior management believed there existed some synergy between
this business and Holley's other product lines. However, we are now exiting this
business and sold a portion of the business in 1998. We are now focused on
selling the remaining assets related to this business. The additional sales from
the industrial ignition business obscured certain factors affecting Holley's
core business. Approximately $3.2 million in sales were lost as Super Shops, a
large retailer specializing in performance and racing products, declared
bankruptcy in September 1997. In addition, sales were impacted by $2.1 million
of increased rebate and co-op advertising costs resulting from programs
instituted by prior management in 1996. These programs were significantly more
generous than those of competitors as they did not require increased sales
levels by the retailers in order to achieve higher discounts and co-op and were
therefore ineffective. As stated above, we discontinued all promotional programs
that were ineffective and changed our marketing mix. Rebates and co-op
advertising allowances are netted against sales on our income statement.
Finally, sales were reduced by $0.5 million due to the cessation of our
automotive air conditioner remanufacturing business. Partially offsetting these
losses were increased sales of remanufactured products of $1.8 million resulting
from the addition of CSK as a customer and $0.7 million of sales of our
Annihilator(TM) ignition system which was introduced in early 1997.
Gross Profits. Our gross profit decreased $1.3 million from $30.9 million
or 32.1% of net sales to $29.6 million or 30.0% of net sales. Gross profit was
hurt by increased rebate and co-op expenses discussed above and the lost sales
to Super Shops. When we took a charge for the former rebate programs, the result
was a decline in sales with no offset to cost of goods sold, further reducing
margins (we account for rebates as a contra-revenue adjustment). Accordingly,
for this reduction in sales, we experienced a dollar for dollar reduction in
gross profit. Additionally, the Annihilator(TM) product line broke even given
the start-up costs with respect to the product launch.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1997 increased $3.9 million to $22.8 million
from $18.9 million for fiscal 1996. For fiscal years 1997 and 1996, as a
percentage of net sales, these expenses were 23.0% and 19.6%, respectively. The
increase was due primarily to provision for doubtful accounts of $1.9 million,
increased marketing spending of $1.1 million, additional cash discounts of $0.5
million and additional R&D spending of $0.5 million. The provision for doubtful
accounts was related to the Super Shops bankruptcy and the recognition of the
uncertain collectability of certain accounts receivable at December 31, 1997.
Income from Operations. Income from operations for fiscal 1997 decreased
to $6.7 million from $11.9 million in fiscal 1996, a decrease of $5.2 million or
43.6%. The decrease was due primarily to a decrease in gross profits of $1.3
million and the increase in selling, general and administrative expenses of $3.9
million.
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Provision For Income Taxes. Provision for income taxes for fiscal 1997
decreased to $2.5 million from $4.5 million for fiscal 1996, a decrease of $2.0
million or 44.4%. The effective tax rates were 37.1% and 38.4% for fiscal 1997
and 1996, respectively. The effective tax rate is unfavorably impacted by the
relatively high amount of amortization expense which represents a reduction of
accounting net income as presented herein, but is not deductible for tax
purposes.
Net Income. Net income for fiscal 1997 was $4.3 million, a decrease of
$3.0 million from fiscal 1996. The decrease in gross profit of $1.3 million and
the increase in selling, general and administrative expenses of $3.9 million
were partially offset by the reduced provision for income taxes of $2.0 million.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities. Net cash provided by operating activities for fiscal
1998, 1997 and 1996 was $4.6 million, $5.7 million and $7.2 million,
respectively. The increase in net income and changes in working capital
requirements contributed primarily to the increase in net cash provided by
operating activities in fiscal 1998. Net cash used by operating activities for
the nine months ended October 3, 1999 equaled $(3.8) million. Inflows from net
income, deferred taxes, and depreciation & amortization of $8.0 million were
offset by increased working capital of $11.8 million. The increase in working
capital was primarily attributable to higher accounts receivable of $2.2 million
due to higher sales volume; increased inventories of $1.0 million; increased
prepaid assets of $3.0 million due to tax refunds receivable, the timing of
insurance premium billings, customer acquisition costs, and advertising;
decreased accounts payable of $1.6 million; and decreased accrued liabilities of
$4.0 million composed of declines in accrued income taxes of $0.9 million,
accrued payroll-related costs of $1.0 million, accrued marketing costs of $1.1
million, and accrued legal and professional fees of $0.7 million.
Investing Activities. Net cash used in investing activities for fiscal
1998, 1997 and 1996 were $133.3 million, $0.6 million and $0.5 million,
respectively. The primary use of cash during fiscal 1998 was to fund the
acquisitions of Holley, Weiand and Lunati. In addition, we spent $4.0 million in
capital in 1998. The largest capital projects were $2.5 million for a new
software system, $0.6 million for a new R&D facility, and $0.5 million for
marketing displays. Net cash used in investing activities for the nine months
ended October 3, 1999 totaled $32.6 million. The increase in 1999 is primarily
attributable to cash paid for acquisitions of $29.5 million and capital
expenditures of $3.1 million.
We anticipate expenditures of $4.6 million for capital improvement projects
in fiscal 1999.
Management anticipates building a new distribution center near Bowling
Green during 1999 under a capital lease arrangement. The new facility will be
leased through the local Economic Development Authority, allowing us to take
advantage of certain state and local tax incentives given for generating new
employment. The new facility (which was financed by the Economic Development
Authority) was completed in the third quarter of fiscal 1999 at a cost of
approximately $3 million.
Financing Activities. Net cash provided by/(used in) financing activities
for fiscal 1998, 1997 and 1996 was $130.8 million, $(5.1) million and $(6.8)
million, respectively. Cash provided in 1998 was primarily due to the proceeds
from the issuance of equity of $42.4 million and borrowings under our bank
credit facility of $94.4 million. Such amounts were primarily used to pay for
acquisitions and to fund working capital requirements, as discussed above. Net
cash provided by financing activities for the nine months ended October 3, 1999
totaled $48.9 million. Cash inflows consisted of the net proceeds from our
senior notes offering of $144.5 million, additional bank debt incurred for
acquisitions and working capital needs of $30.3 million, additional equity
contribution of $5.0 million, and the debt associated with our new distribution
center of $0.5 million. Cash outflows included retirement of bank debt equal to
$125.9 million and fees associated with debt issuance, stock issuance, and
acquisitions of $5.5 million.
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The primary sources of liquidity for Holley are funds generated by
operations and borrowings under our bank credit facility.
We historically have expanded our business through the acquisition of other
related and complementary businesses, and we continue to seek and evaluate
acquisition opportunities. We anticipate that our existing capital resources and
cash flow generated from future operations, proceeds from the offering, and
drawings under our bank credit facility will enable us to maintain our planned
operations, capital expenditures and debt service for the foreseeable future. We
also anticipate that implementing our acquisition strategy will require us to
incur additional indebtedness. However, our current indenture and bank credit
facility terms, as well as our current level of indebtedness, would
significantly limit or prevent incurrence of any substantial additional
indebtedness.
Bank Credit Facility. In May 1998, we established a senior secured credit
facility with a group of banks led by Credit Agricole Indosuez, which after
certain amendments consists of a $25.0 million revolving credit facility and
term loans totaling $115.0 million which were utilized in part to acquire
Weiand, Lunati and Hooker.
Concurrent with the closing of the original notes issuance, we applied a
portion of the proceeds to permanently repay all of our indebtedness under the
term loans and temporarily repay all amounts outstanding under the revolving
credit facility. Therefore, our bank credit facility consists of only the
revolving credit facility thereunder.
We may borrow from time to time under the revolving credit facility for
working capital purposes, and all outstanding borrowings thereunder must be
repaid in full by June 2003. Loans under our bank credit facility bear interest,
at our option, at one of two floating rates (which can be changed at our option
from time to time): either Base Rate (based on Credit Agricole Indosuez'
announced "prime rate" or 1/2% per annum in excess of the Federal Funds Rate),
plus an additional 1.0% per annum, or the reserve adjusted London Interbank
Offered Rate plus an additional 2.5%. The bank credit facility contains various
covenants made by Holley, including covenants prohibiting or limiting our
ability to: (i) incur additional debt, (ii) grant liens or (iii) sell our
assets, together with financial covenants and information reporting requirements
we must meet.
During the term of the bank credit facility, Holley (on a consolidated
basis) will be required to maintain a minimum EBITDA level as well as certain
financial ratios, including: (1) a ratio of debt to EBITDA (net income before
provision for interest, tax, depreciation or amortization expense) and (2) a
ratio of EBITDA to interest expense, in each case, on a trailing four-quarter
basis. Any borrowings under the revolving credit facility will be limited to the
lesser of $25.0 million or 85% of the eligible accounts receivable and 55% of
the eligible inventory of Holley and its subsidiaries.
Our bank credit facility is guaranteed by all of Holley's subsidiaries, and
is secured by a first priority security interest in favor of the bank lenders in
the capital stock of Holley and its subsidiaries and in each of their accounts
receivable and inventory.
ENVIRONMENTAL AND LEGAL MATTERS
In May 1999, Union Pacific Railroad Company ("Union Pacific") initiated
litigation against Weiand and others in federal district court for the Central
District of California alleging that certain soil and groundwater contamination
discovered on the Union Pacific property in Los Angeles migrated from the
adjacent Weiand facility and, therefore, Weiand is responsible for costs related
to investigation and remediation. The complaint seeks costs in the amount of
$4.5 million already incurred and at least an additional $800,000 in future
response costs, as well as an injunction directing Weiand to abate the alleged
contamination. At this time, we are unable to assess the likelihood of an
unfavorable outcome or, in the event of such an outcome, the amount
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of any resulting liability. We are investigating the claims of Union Pacific and
the property owner and intend to defend them vigorously. Recently, we discovered
possible significant soil contamination on the Weiand property, which has not
yet been confirmed or assessed. The property owner may assert claims for damage
to the property. Holley intends to defend any such claims vigorously.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of our computer
programs or hardware that have data-sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
This is known generally as the "Y2K problem," and we refer to computers and
computer systems that do not experience these problems generally as "Y2K
compliant" or "Y2K capable."
We have taken several steps to upgrade our computer systems to be Y2K
compliant, including converting our main computer system to a new computer
software package(BPCS) in May 1998, which was represented by its maker as being
Y2K compliant. This new software has been tested for Y2K problems and has not
encountered any failures. In July 1999, we finished upgrading our PC network LAN
to be Y2K compliant. Our manufacturing processes have been thoroughly tested,
and we believe that they should have no significant Y2K problems. We have also
thoroughly tested our products for Y2K compliance, none of which should be
affected by Y2K problems.
Holley's operating subsidiaries are either Y2K compliant or are in the
process of implementing changes to become Y2K compliant. Regarding our
recently-acquired subsidiaries, Hooker, FlowTech and Earl's each are not
currently utilizing our Y2K compliant BPCS software, but their respective
computer systems are Y2K compliant. NOS's computer system is not currently Y2K
compliant; however, we are in the process of converting its computer systems to
our main BPCS system, which we expect to complete by December 31, 1999. We will
convert Hooker, FlowTech and Earl's to our BPCS system in the first quarter of
2000.
We have contacted our major customers, suppliers and utility providers
regarding their Y2K compliance. Based on the written responses we have received
to date from our major customers and suppliers, we believe that most will be Y2K
compliant on or before December 31, 1999. We are currently working with our EDI
customers that link directly to our computer systems to ensure that such
computer links are Y2K capable. Our portion of the computer link is Y2K capable,
but a small portion of such customers do not have a Y2K capable link to our
system. Although we believe these links will be fully Y2K capable by December
31, 1999, it is likely that such links will not be fully Y2K capable until at or
near the end of the year and that a small portion will not be Y2K capable by
such time. Our utility suppliers have assured us that they are fully Y2K
compliant.
In 1998, we spent approximately $2.5 million on our new BPCS computer
systems project and approximately $0.1 million on our LAN and PC upgrades. In
1999, we have budgeted $0.1 million to complete our LAN and PC upgrades and $0.1
million to integrate the Lunati operations into our BPCS system and improve our
EDI systems. These computer system upgrades and enhancements provide both Y2K
compliance as well as other non-Y2K related benefits for our company.
Holley has not formally determined a most reasonably likely worst case
scenario regarding the impact of Y2K problems in our business. However, we
believe the most likely Y2K-related risks faced by Holley are business
interruptions by our suppliers and significant customers. Such interruptions
could include manufacturing or assembly plant shutdowns and the related
reduction
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in our supply of raw materials and/or demand for our products by such entities
until their Y2K problems are remedied. As a result, our revenues could
temporarily decrease. In our survey process, we have attempted to identify and
assess any such risks and to follow up with any significant suppliers and
customers that have indicated less than full Y2K compliance.
Holley has not developed a formal contingency plan for any such
interruptions nor have we identified any specific secondary suppliers or vendors
in the event any of our current group experience Y2K-related business
interruptions.
As a result of our computer system upgrades and enhancements, we believe
that our computer systems and those of our significant suppliers and customers
will be Y2K compliant on or before December 31, 1999. However, we cannot control
the actions or representations of our suppliers and customers, nor can we
anticipate and test every aspect of Y2K compliance throughout all our systems.
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INDUSTRY OVERVIEW
OVERVIEW
The automotive aftermarket is comprised of three segments: traditional
repair parts (original equipment replacement), service and maintenance, and
specialty/performance products. We compete primarily in the
specialty/performance products segment. The specialty/performance products
segment has enjoyed one of the highest growth rates in the automotive industry,
growing from approximately $3.5 billion in 1988 to approximately $6.9 billion in
1997, a compound annual growth rate of 7.8%. During this same timeframe, the
overall automotive aftermarket grew by an average of 3.4% and U.S. gross
domestic product grew by a compound annual growth rate of 2.4%. This rapid
growth is being driven by many positive structural characteristics, including
the growing enthusiasm for auto racing, particularly NASCAR style racing, the
popularity of light trucks and sports utility vehicles, which are often
accessorized by their owners, and a resurgence in the popularity of hotrodding
and building or restoring street rods and muscle cars.
The specialty/performance segment of the automotive aftermarket has been
considerably less sensitive to fluctuations in GDP than the total aftermarket or
the original equipment manufacturer vehicle market. This reflects the passion
that enthusiasts have for racing and for their vehicles. The following chart
illustrates how the specialty/performance products segment consistently
outperformed the total aftermarket industry and GDP.
SPECIALTY AUTOMOTIVE PRODUCTS GROWTH COMPARISON
(annual percentage change)
<TABLE>
<CAPTION>
SPECIALITY
AUTOMOTIVE TOTAL
YEAR PRODUCTS AFTERMARKET GDP
- ---- ---------- ----------- ----
<S> <C> <C> <C>
1997........................................................ 8.4% 5.5% 3.7%
1996........................................................ 6.0 4.3 2.8
1995........................................................ 9.0 3.7 2.0
1994........................................................ 6.4 10.2 3.5
1993........................................................ 12.2 6.8 2.2
1992........................................................ 9.3 7.6 2.7
1991........................................................ (3.9) (8.1) (1.0)
1990........................................................ 9.6 5.5 1.3
</TABLE>
- ---------------
Source: Specialty Equipment Market Association -- 1998 Market Study
The specialty/performance automotive market segment is unique in that our
consumers readily identify with and derive significant satisfaction from support
of our industry. These consumers are long time customers, averaging 20 years of
involvement in the industry. The tie to this industry is strong as many
enthusiasts were introduced to the industry by their fathers, and in some cases,
by their grandfathers. The customer base for specialty/performance products can
be divided into three categories: street, circle track and drag racers. The
street category includes of street rods, muscle cars and sport utility vehicles.
The average customer is between 30 and 50 years old with annual income in excess
of $57,000 and purchases approximately $1,200 of performance automotive parts
annually. These customers are passionate about their vehicles and view enhancing
the performance and appearance of their vehicles as more than a hobby. We
believe that many of these customers derive their primary source of income from
building, refurbishing, both for personal use and for resale, and racing their
vehicles.
The rapid increase in the popularity of car racing, particularly NASCAR,
and the recent addition of NASCAR truck racing have been large factors in the
growth of the specialty/ performance products market. Over the past ten years,
the growth rate of motorsports
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attendance has substantially outpaced that of other professional sports.
Attendance at NASCAR's major events has grown for 17 consecutive years. NASCAR's
attendance growth from 1990 to 1996 of approximately 66% equals the attendance
growth of the NBA, NHL, NFL and MLB combined. Raceways are experiencing record
attendance with over 15.4 million fans visiting a track in 1996. Motorsports
attendance is expected to increase 5.1% annually from 15.4 million in 1996 to
18.8 million in 2000. Motorsports television ratings and advertising revenues
are at record levels. Motorsports companies such as Speedway Motorsports,
International Speedway and Penske Motorsports have also built several
state-of-the-art superspeedways over the past 10 years, which have greatly
increased the visibility of sponsors and suppliers to the racing market.
Accordingly, this growth in motorsports interest is a significant driver of
the "do-it-yourself" performance aftermarket and a key part of our marketing
strategy.
PERFORMANCE AUTOMOTIVE PRODUCTS
The performance segment of the specialty/performance products market
consists of products and equipment that are designed to enhance street,
off-road, recreational and competitive vehicle performance through increased
horsepower, torque and acceleration. The performance automotive market (also
known as the "underhood" performance market) is a subsection of the
approximately $6.9 billion specialty/performance products market. The
performance automotive market has grown from approximately $565 million in 1992
to approximately $750 million in 1997, a compound annual growth rate of
approximately 5.9%, and it is expected to grow at a compound annual growth rate
of approximately 9.5% from 1997 through 2002. The performance automotive market
is typically grouped into the following six categories:
Induction Components. Induction components are products that transfer
gasoline, mix gasoline and air, and route or force the fuel/air mixture gases to
the cylinders. They include carburetors, fuel injection systems, intake
manifolds, forced induction products (super chargers, turbochargers and nitrous
oxide kits) as well as fuel pumps and regulators. Importantly, the induction
segment has grown from approximately $187 million in sales in 1992 to
approximately $247 million in 1997, and is expected to be the fastest growing
segment of the performance automotive market, growing from approximately $247
million in 1997 to an expected $410 million in 2002 (a compound annual growth
rate of 10.7%).
Ignition Components. Ignition components are designed to ignite the
fuel/air mixture at the optimal moment. They include distributors, ignition
coils, spark plugs and wires, performance computer chips as well as power
modules and ignition control boxes. The ignition component segment has grown
from approximately $101 million in sales in 1990 to approximately $136 million
in 1997.
Internal Engine Components. Internal engine components are hard parts that
make up the engine. They include cylinder heads, camshafts and valvetrain
components, timing sets, pistons, piston rings, engine bearings, oil pumps and
gaskets. The internal engine component segment has grown from approximately $452
million in sales in 1990 to approximately $526 million in 1997.
Performance Chemicals. Performance chemicals are proprietary formulations
of fuel system cleaning and octane boosting chemicals, packaged and distributed.
Performance chemicals are designed to boost performance by cleaning carbon and
varnish deposits and improving fuel economy and acceleration. The performance
chemicals segment has grown from approximately $45 million in sales in 1990 to
approximately $69 million in 1997.
Cooling Systems Products. Cooling system products are designed to cool the
engine block through the circulation of fluid through the block and the transfer
of heat through the radiator. Due to the high rpm and continuous use nature of
racing engines, performance cooling systems
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are designed to circulate more water at faster speeds than standard systems. The
cooling systems products segment has grown from approximately $11 million in
sales in 1990 to approximately $13 million in 1997.
Exhaust Products. Performance exhaust products are designed to reduce or
eliminate exhaust gas back pressure to improve engine efficiency and power.
Performance muffler systems are designed for reduced back pressure and for
specific sound tuning. The exhaust products segment has grown from approximately
$81 million in sales in 1990 to approximately $108 million in 1997.
CARBURETOR/FUEL INJECTION MARKET
Carburetors and fuel injection systems are the principal forms of fuel
management systems in the induction segment. A carburetor is a mechanical
apparatus used to supply internal combustion engines with a precise vaporized
fuel mixture. Fuel injection systems, which electronically monitor and deliver
the fuel-air mixture to engines in the correct ratios, have essentially replaced
carburetors (which are mechanical devices) in the original equipment market. For
the past eight years, all new vehicles have been manufactured with fuel
injection systems. As a result, carburetors are used primarily in the
aftermarket segment of the automotive parts industry, principally in the
performance market and in the original equipment replacement market where
remanufactured products are used for older vehicles.
The performance carburetor market is driven by automotive enthusiasts who
want to enhance the speed and performance of their vehicles. Through proper
mechanical adjustment and matching air and fuel delivery ratios, maximum
horsepower can be achieved. As a result, the racing market and the classic
hot-rod and muscle car market prefer carburetors to fuel injection systems for
speed, tunability and cost reasons. At the highest level of competition, NASCAR
and NHRA Pro Stock drag racing, every vehicle uses a carburetor.
The performance carburetor market grew in terms of both units and revenue
from 1992 through 1997. Units increased from approximately 462,000 to
approximately 524,000 -- a compound annual growth rate of approximately 2.6%.
Revenues increased from approximately $61 million to approximately $83
million -- a CAGR of approximately 6.4%, and these revenues are expected to
increase from approximately $83 million in 1997 to approximately $94 million in
2002. We believe the potential exists that over the long term the performance
carburetor market will decline given the move from carbureted vehicles to fuel
injected vehicles in certain niche markets. However, we are well positioned to
benefit from the forecasted short term growth of the carburetor market, given
our leading brand name and market share as well as the fact that our carburetors
are the only carburetion systems allowed in NASCAR racing.
An additional factor that may have a positive impact upon growth trends in
the performance carburetor market is new legislation in California, which may or
may not be implemented in other states which exempts vehicles manufactured
before 1974 from emissions testing. Recently, California amended its emission
laws to exempt owners of vehicles manufactured before 1974 from periodic
emission testing and certification requirements. The laws previously had
exempted only vehicles made before 1968. While this legislation did not change
requirements for approval of aftermarket parts associated with anti-tampering
laws, it is likely to make use of approved after-market parts more attractive by
allowing owners to avoid the inconvenience of emission testing and
certification, a process that can be especially burdensome for users of
aftermarket parts. Since the years 1968 through 1972 were the peak of Detroit
muscle car production, this legislative change is likely to have a positive
impact on our industry by removing a significant disincentive to use aftermarket
parts for those vehicles.
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REMANUFACTURED CARBURETOR MARKET
Remanufactured carburetors are repaired and reconditioned
previously-manufactured carburetors that are sold typically at lower prices than
new carburetors. Remanufactured carburetors are not part of the performance
market. Primary purchasers of remanufactured carburetors are consumers driving
older cars. The market for remanufactured carburetors is in decline as older
vehicles are replaced by newer, fuel injected vehicles; however, in 1997, there
were still approximately 51 million carbureted vehicles in operation on the
road. We have also recently introduced a line of remanufactured fuel injectors
that we believe will gain in popularity as the fleet of fuel injected vehicles
begins to reach maturity.
DISTRIBUTION
In recent years, the automotive aftermarket has undergone a significant
consolidation as distribution of aftermarket parts has shifted from traditional
"mom and pop" and three-step distributors to high-growth, large retailers and
mass merchandisers. This distribution evolution has been brought about primarily
by a substantial increase in consumers installing their own accessories and the
rise of large, efficient "category killer" retailers. Traditional distributors
relied primarily on dealer installers to reach the primary customer base for its
high-turn products. These repair outlets utilized local "jobber" stores to order
parts which were in turn supplied by regional warehouse distributors that
carried large supplies of parts, generally over 100,000 part numbers. The
decline of service stations as primary repair outlets combined with the rise of
"do-it-yourselfers" have left the traditional multi-tiered distribution network
vulnerable to more efficient, lower-cost distributors and retailers who purchase
directly from manufacturers and sell directly to professional installers or
consumers. As a result, jobber stores have experienced a significant
consolidation and have had to make a transition from being
wholesale/mini-warehouse outlets to full-service auto parts stores. This has
forced the traditional market into direct competition with highly sophisticated
retailers, some of whom also offer installation such as Pep Boys. We are well
positioned to capitalize on this consolidation as we believe we offer the
broadest product coverage and the ability to customize marketing and
distribution programs for our large retail customers.
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BUSINESS
GENERAL
Founded in 1903, Holley is a leading manufacturer and marketer of specialty
products for the performance automotive, marine and powersports aftermarkets.
Powersports vehicles include motorcycles, jet-skis, snowmobiles and go-carts.
Holley designs, manufactures and markets a diversified line of automotive
performance and racing products that include fuel, air, spark and internal
engine management systems. We design our products to enhance vehicle performance
through generating increased horsepower, torque and acceleration. Our products
include:
- - throttle body and multi-port fuel injection systems;
- - performance and remanufactured carburetors;
- - digital ignition systems;
- - distributors;
- - fuel pumps;
- - camshafts
- - crankshafts;
- - intake manifolds;
- - pistons;
- - super chargers;
- - exhaust systems;
- - headers, mufflers and motorcycle exhaust pipes;
- - cylinder heads;
- - water pumps;
- - throttle bodies;
- - nitrous oxide injection systems; and
- - performance plumbing products
In the performance automotive aftermarket, we have the most widely
recognized brand name and believe we have the broadest distribution network,
which includes:
- - specialized retailers;
- - performance wholesale distributors;
- - mail order retailers; and
- - original equipment manufacturers.
We have developed strong relationships with our customers in each
distribution channel, including leading companies such as:
- - Advance Auto Parts;
- - AutoZone;
- - CSK Auto;
- - Keystone;
- - O'Reilly;
- - Summit Racing;
- - Jeg's mail order;
- - GM Service Parts;
- - Volvo-Penta; and
- - Mercury Marine
For the twelve months ended October 3, 1999, we generated pro forma revenue
of $167.5 million, EBITDA of $25.9 million and net loss of $4.3 million.
We believe that our focus on the performance sector of the automotive
aftermarket, our dedication to quality and our commitment to the Holley brand
name have positioned Holley as a market leader. We believe we have the leading
market share of at least 60% in performance carburetors and an approximate 41%
market share in performance fuel injection systems. Additionally, we are a
market leader in remanufactured carburetors. The Holley name is one of the best
known automotive brands in the United States. According to a recent independent
marketing survey, the Holley name has 99% brand name recognition with
performance automotive consumers. This very high level of name recognition has
created significant brand equity and has established a strong platform from
which we can leverage our brand and expand our product offerings. For example,
as fuel injection is becoming an increasingly important part of the performance
market, we have used our strong brand name to enter this new and growing market
segment. In November 1988, Holley introduced its first performance throttle body
fuel injection system. Since that time, we have expanded our fuel injection
business to include broad
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coverage for both throttle body and multi-port systems for four, six and eight
cylinder applications, and today we are the market leader in performance fuel
injection systems.
We are committed to providing superior products and services to our
customers and believe that our comprehensive quality control and consumer
support programs position Holley as the industry leader in quality and service.
We are vertically integrated and endeavor to manufacture all critical components
and systems. We perform computer controlled tests on all our products prior to
shipment to ensure maximum reliability and "out of the box race
readiness"-- meaning each product is 100% tested and tuned for maximum
performance and is ready for installation. Additionally, we have a significant
focus on R&D to continually advance our technology and introduce new products.
Our R&D resources include a 14,000 square foot laboratory staffed by 24 degreed
engineers who are supported by highly trained technicians. In 1998, we
introduced 475 new products, leveraging the Holley name and capitalizing on our
superior R&D capability. Our commitment to quality and reputation for superior
performance is widely recognized by performance enthusiasts and racers at all
levels. For example, since 1969, every race-car on the NASCAR circuit has been
and continues to be equipped with a Holley carburetor. Another testament to our
quality is the many awards that we have won over the years, including NHRA 30
year achievement award, five-time IHRA Sportsman Sponsor of the Year award, Ford
Q1 award and numerous other industry and racing association awards.
BUSINESS STRATEGY
In 1997, Holley recruited a new management team that has successfully
embarked on a strategy to expand our product line and reposition Holley as a
diversified manufacturer and marketer of underhood performance systems, while
continuing to leverage Holley's historical strength in performance and
remanufactured carburetors. As a leading manufacturer of underhood performance
products, Holley is now well positioned to take advantage of the projected
growth in our marketplace. Our growth strategy includes both internal expansion
and acquisitions. The primary components of our business strategy are as
follows:
- Leverage the Holley Brand Name Through New Product Introductions. The
Holley name is widely recognized for superior performance. We believe that we
can leverage our strong brand name recognition and our reputation for quality
through new product introductions. In 1998, we introduced 475 new part numbers
and we have introduced over 1,100 new part numbers in 1999. Our new product
introductions will focus on the growing late model fuel injected domestic and
import performance markets. We will also continue to introduce new and
innovative products for the growing motorsports marketplace. For example, at the
SEMA trade show in November 1998 we introduced 353 new parts including a high
volume racing fuel pump that was selected the Best New Racing Product for 1999.
At the PRI (Racing) trade show the following month, we introduced an additional
122 new parts. Additionally, we believe we can leverage the Holley name with new
products we obtained through acquisitions.
- Market Our Products As Systems. We currently offer the most
comprehensive line of fuel, air, spark and internal engine management systems
and components in the industry. To address the growing complexity of modern
engines and to simplify the selling process with the retail consumer, we have
begun to market consumer friendly, fully integrated power systems. These systems
are comprised of integrated Holley products designed to enhance performance for
specific vehicle applications. This systems approach positions Holley to be a
category manager of the performance market at retail and simplifies the
consumer's buying decision process. We currently offer fully integrated power
systems and also sell separately the individual components that make up these
systems. This provides the consumer with maximum financial flexibility to either
buy the system incrementally or to acquire the system all at one time. This
strategy enables us to aggressively introduce complementary products and to
increase our market share in existing and new products.
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- Continue to Diversify Product and System Offerings. We are committed to
diversifying our product offerings away from our historical focus on carburetors
and associated components. Since 1997, we have targeted our new product and
business development efforts on non-carburetor market segments through
developing comprehensive underhood power packages for late model fuel-injected
vehicles. Overall, this strategy has been successful as our mix of performance
carburetor sales to total net sales has declined from 37.2% in 1997 to a pro
forma 25.6% in 1998, while our total dollar sales of performance carburetors
have increased by $5.0 million during this same time period.
- Improve Manufacturing Efficiency. We are committed to reducing operating
costs and improving manufacturing efficiency. In 1997, we implemented a program
to reduce manufacturing costs by changing our manufacturing operations from a
traditional inventory-intensive batch process to a productive and flexible "pull
through" cellular manufacturing system. In connection with this effort, we
introduced initiatives to consolidate manufacturing and warehousing operations
and reduce inventory levels. Additionally, we implemented a process to design
our new products to maximize manufacturing efficiency. These initiatives,
together with our acquisitions of Lunati and Weiand, have contributed to
increasing EBITDA margins to 13.8% in 1998 and 13.5% in the third quarter of
1999. We are currently a low cost producer in the industry. We believe that
there are still opportunities to reduce costs, particularly in our recently
acquired businesses, and we will continually evaluate our operations to improve
manufacturing efficiency.
- Leverage Distribution Channels. We have a diverse and broad distribution
network that encompasses retail chains, performance wholesale distributors, mail
order retailers and original equipment manufacturers. Given our strong
relationship with our customers and the importance of our brands to our key
customers, we believe that we are well positioned to benefit from the
consolidation occurring in the distribution channels. As our customers pursue
vendor consolidation and expanded services, Holley is well positioned to address
these needs. While we are a major supplier of performance products to most major
automotive parts distributors in all four distribution channels, we continually
seek to expand our customer base. We have recently been selected to be the
performance induction system category manager for Advance Auto Parts and have
recently started selling our performance products to CSK Auto and PACCAR. We are
also working to expand our distribution base both internationally and into new
markets such as marine and powersports aftermarkets.
- Pursue Strategic Acquisitions. The specialty/performance products market
is highly fragmented, and as a leader in our market, we are well positioned to
make strategic acquisitions. We intend to pursue acquisition opportunities that
expand our manufacturing capabilities, leverage our extensive distribution
network and enhance the Holley family of quality brand names. As part of this
strategy, we have completed three important acquisitions and have three
acquisitions pending. In July 1999, we acquired Hooker, a leading manufacturer
of performance exhaust systems, headers, mufflers and Harley-Davidson(R) exhaust
pipes. This acquisition complements Holley's existing product lines and enhances
our position as a leader in the underhood performance market. In October 1998,
we acquired Lunati, which manufactures and distributes internal engine systems
including performance camshafts, crankshafts, pistons, rods, and other
automotive products to the racing and street performance market under the well
known Lunati brand name. In August 1998, we acquired Weiand, a leading
manufacturer of induction systems components including intake manifolds, super
chargers and water pumps. In October 1999, we acquired FlowTech, NOS and Earl's,
as described below.
ACQUISITIONS
Hooker Industries, Inc. In July 1999, we acquired Hooker, a leading
manufacturer of performance exhaust systems, headers, mufflers and
Harley-Davidson(R) exhaust pipes under the well known brand "Hooker Headers."
The Hooker brand is the leading brand in racing exhaust headers and is the most
widely recognized brand in street performance headers. The addition of
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the Hooker business to our other air management products establishes Holley as
the only company to offer a comprehensive and integrated air intake and exhaust
management system. The newly introduced Hooker Header systems for the
Harley-Davidson(R) motorcycle market represents a significant growth
opportunity.
Lunati Companies. In October 1998, we acquired Lunati, which manufactures
and distributes internal engine systems including performance camshafts, crank
shafts, pistons, rods and other automotive products to the racing market under
the Lunati brand name. The Lunati acquisition added a well known name in the
performance aftermarket to the Holley family of brand names while broadening our
internal engine management product lines. The Lunati acquisition also enabled us
to enter the growing performance go-cart market and significantly increases our
exposure to the junior dragster market.
Weiand Automotive Industries. In August 1998, we acquired Weiand, a
leading manufacturer of induction systems components including intake manifolds,
super chargers and water pumps. Historically, Holley purchased and then resold
intake manifolds. The Weiand acquisition expanded our manufacturing capabilities
to include intake manifolds. Weiand is vertically integrated, manufacturing its
own castings at its aluminum foundry, which significantly increases our margins
on this product. Additionally, we consolidated all of Weiand's manufacturing
operations (other than the foundry) into our Bowling Green, Kentucky operation,
which has reduced costs and increased efficiency.
FlowTech. In October 1999, we acquired Biggs Manufacturing, Inc. (also
known as FlowTech), a leading manufacturer of performance exhaust systems,
headers, mufflers and exhaust accessories. The addition of the FlowTech business
to our Hooker exhaust and other air management products further complements and
completes our comprehensive air intake and exhaust management system offerings.
Also, this acquisition also provides us with immediate entry into the
performance muffler segment of the underhood performance market. FlowTech has
recently introduced its AIRMASS(TM) exhaust header for the growing import
performance market.
Nitrous Oxide Systems, Inc. In October 1999, we acquired NOS, the leading
manufacturer of nitrous oxide injection systems to the performance aftermarket.
Nitrous oxide injection systems significantly increase engine horsepower by
increasing the amount of air/fuel mixture delivered to the cylinders. NOS has a
strong position in the import performance market as well as in the drag racing
market. NOS complements our ability to offer a range of systems under the hood
which substantially increase horsepower and engine performance.
Earl's Performance Products. In October 1999, we acquired Earl's, a
provider of underhood performance fittings, brake lines and hoses. The Earl's
business completes our fuel management systems product offerings and expand our
cooling system business.
PRODUCTS
Our product line is broadly divided into two segments: (a) a full line of
performance products including induction components, internal engine components
and ignition components; and (b) remanufactured products.
Performance Products
We are a leading manufacturer of a diversified line of performance
automotive products that are designed to enhance street, off-road, recreational
and competitive vehicle performance through increased horsepower, torque and
acceleration. We hold a strong position in the performance segment due to our
brand preferences among car enthusiasts and racers. Our performance product
line, accounting for 83.4% of net sales for the twelve months ended October 3,
1999, is made up predominately of induction, internal engine and ignition
components.
Induction Components. Induction components are products that transfer
gasoline, mix gasoline and oxygen and route or force the mixed gases to the
cylinders. Induction components
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represent 61.3% of net sales for the twelve months ended October 3, 1999. The
induction components that we manufacture are as follows:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------- -----------
<S> <C>
Carburetors............................ Mechanical apparatus used to supply internal
combustion engines with a precise vaporized fuel
mixture and currently our largest single product
offering. We manufacture a broad range of
performance, remanufactured and specialty
carburetors.
Fuel Injection Systems................. Electronic apparatus which provides the engine
with a precise vaporized fuel mixture. We
manufacture a line of throttle body and multi-port
fuel injection systems for popular automotive and
marine applications.
Fuel Pumps............................. Transfer fuel from the fuel tank to the engine. We
manufacture, market and distribute a full line of
in-tank, external, mechanical and electronic fuel
pumps.
Intake Manifolds....................... Collect and direct air to the engine and are
designed to provide greater engine performance
through increasing torque and horsepower by better
directing the fuel-air mixture to the cylinders.
We manufacture a full line of aluminum performance
intake manifolds for both the automotive and
marine markets.
Cylinder Heads......................... Mounted on top of the engine, they house the
valves that control the fuel/air mixture flowing
in and the exhaust flowing out of the engine.
Performance cylinder heads can increase engine
performance through increased throttle response,
torque and acceleration.
</TABLE>
Exhaust Systems. Exhaust systems convey exhaust gases from the engine and
reduce the level of environmental pollutants. Hooker and FlowTech are leading
manufacturers of exhaust systems components, which represent 14.4% of net sales
for the twelve months ended October 3, 1999. The exhaust system components that
we manufacture as a result of acquiring Hooker and FlowTech are as follows:
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------- -----------
<S> <C>
Headers................................ Highly tuned exhaust manifolds which collect
exhaust gases from each cylinder and route the gas
to a central collection point. Headers are
designed to decrease back pressure and thus
enhance engine performance.
Mufflers............................... Sound deadening devices that use mechanical
dampers to suppress engine exhaust sound.
Performance mufflers are designed to either
enhance performance by reducing exhaust gas back
pressure or to produce particular sound patterns.
Exhaust Fittings....................... Cosmetic and performance tips that are either
welded or mechanically attached to the muffler or
exhaust pipe to improve vehicle cosmetics.
</TABLE>
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Internal Engine Components. Internal engine components are the mechanical
parts within an engine that transfer power generated from internal combustion to
the vehicle's transmission. With the acquisition of Lunati, we successfully
entered the internal engine components segment of the market with a line of
performance camshafts, crankshafts, pistons and rods that are sold under the
well known "Lunati" brand name. Internal engine components represented 7.7% of
net sales for the twelve months ended October 3, 1999.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------- -----------
<S> <C>
Camshafts.............................. Operate the engine valves and can improve vehicle
performance by optimizing vehicle torque for both
street and competition use.
Crankshafts............................ Connected to the piston rods, they transmit power
to the vehicle's transmission.
Pistons................................ Moving in the cylinders, they capture the energy
of the internal combustion and transmit it to the
piston rods and crankshaft.
Rods................................... Transmit power from the pistons to the crankshaft.
</TABLE>
Ignition Components. Ignition components ignite and cause combustion of
the fuel/air mixture in the cylinders at the optimal moment. In 1997, we
successfully entered the ignition components segment of the market with our
Annihilator(TM) ignition system, a complete digital ignition system. Even though
ignition systems accounted for less than 0.3% of 1998 pro forma net sales, we
believe that this segment provides an attractive growth opportunity and should
increase as a percentage of our net sales in the future.
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION
- ------- -----------
<S> <C>
Digital Control Module................. Microprocessor controlled, fully programmable
(engine rpm based) ignition control system that
enables the user to specify engine timing
parameters. These parameters can include spark
timing, spark retard, establishing engine rpm
maximum ("rev limits") and other signals.
Coils.................................. Electrical charge collection and relay device
designed to amplify the electrical impulse being
sent to each spark plug to deliver a higher
current signal/spark.
Wire Sets.............................. Engine specific and universal fit wire bundles
designed to relay the spark signal from the
distributor to the spark plug with a minimum loss
in energy.
Billet Distributors.................... Precision machined electromechanical device that
controls the distribution of ignition spark signal
to each of the engines spark plugs.
</TABLE>
Performance Chemicals and Cooling Systems. We recently introduced a line
of specialty chemicals which are effective in the internal cleansing of an
engine's fuel system. This line is being manufactured and distributed by a
private label chemical manufacturer but sold under the Holley brand name. As a
result of the Weiand acquisition, we entered the cooling systems segment of the
performance market with Weiand's performance water pumps. We view performance
chemicals and cooling systems as areas of growth and we have seen demand for
Weiand water pumps increase fivefold since acquiring Weiand.
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Remanufactured Carburetors/Fuel Injectors
We manufacture and market a line of remanufactured carburetors and fuel
injection components. Remanufacturing is the process of repairing,
reconditioning, recalibrating and cleaning used products. Our remanufactured
product line accounted for 15.8% of net sales for the twelve months ended
October 3, 1999. We are a leader in the remanufactured carburetors segment of
the automotive aftermarket, and we believe there is opportunity for growth from
the outsourcing of corporate fleet maintenance by companies with large fleets of
carbureted trucks. We recently introduced a line of remanufactured fuel
injectors for this marketplace and believe that this line will offset, over
time, the decline in remanufactured carburetor sales.
RESEARCH AND DEVELOPMENT
We constantly develop new products to respond to consumer demand, to
increase the performance characteristics of existing product lines and to expand
into new product lines. Over the course of our history, we have expanded our
business operations by developing and adapting product lines in response to
changing engine technology, such as our development of the Annihilator(TM)
ignition system and our performance throttle body and multi-port fuel injection
systems. The success of our R&D effort is evident from our introduction of over
475 new part numbers in 1998 (including 353 new part numbers at the SEMA trade
show in November 1998) and our winning the 1999 SEMA Best New Racing Product
Award for our 500 gallon per hour electric fuel pump. Focusing primarily on fuel
injected vehicles, we have introduced over 1,100 new part numbers in 1999.
We recently completed the construction and installation of a 14,000 square
foot R&D laboratory at our Bowling Green facility. Operated by 24 degreed
engineers who are supported by highly trained technicians, this R&D facility has
a full complement of engineering and testing equipment including five state of
the art dynamometers used for full scale engine analysis, 12 computer modeling
stations and a full range of environmental testing capabilities. We believe that
this facility is unmatched in the performance automotive market. In 1997, we
spent approximately $2.7 million on R&D, in 1998 we spent approximately $2.3
million, and we anticipate total expenditures of approximately $2.5 million on
R&D in 1999.
DISTRIBUTION
We believe we have the broadest distribution network in the industry and
sell through retail, wholesale, mail order and original equipment manufacturer
segments. Our products are sold in all 50 states and Canada and to a lesser
degree to other export markets. Although we believe we have the broadest
distribution in the industry, we are continually trying to expand our customer
base. Our largest and fastest growing distribution channel is mail order which
includes our two largest customers, Summit Racing and Jeg's. On a pro forma
basis for 1998, our single largest customer accounted for 13.8% of net sales,
and our second largest customer accounted for approximately 7%. The retail
channel includes mass merchandisers and auto parts retailers with the majority
of our retail sales through auto parts retailers which include Advance Auto
Parts, AutoZone, CSK Auto and Pep Boys. We have recently been selected to be the
performance induction system category manager for Advance Auto Parts and have
recently started selling our performance products to CSK Auto and PACCAR.
Wholesale distribution is the industry's traditional channel and a major outlet
for our performance products. Significant customers include Keystone, O'Reilly
and The 3-Star, AAM and USP buying groups.
We manufacture performance products for and sell directly to original
equipment manufacturers including the "Big Three" automakers as well as
manufacturers of marine applications, material handling and stationary power
equipment. Approximately 9.2% of our 1998 pro forma net sales came from direct
performance product sales to original equipment manufacturers, and our largest
original equipment manufacturer accounts are with the marine inboard engine
manufactur-
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ers -- Volvo/Penta, Mercury Marine and others. We see an opportunity to expand
our high margin original equipment manufacturer business through applications
such as personal watercraft, go-carts, snowmobiles and motorcycles.
While not a specific distribution channel, we export products to several
U.S.-based suppliers that have worldwide distribution capabilities. Export
products are used for American-made automobiles throughout Europe, Australia,
Asia, South America and Central America and represented approximately 4.5% of
our 1998 pro forma net sales. We believe that the export market represents a
significant growth opportunity for us to leverage Holley's racing brand
awareness and capitalize on the current trend of increasing interest in the
performance market overseas.
MARKETING
We have an experienced sales force of 18 outside and 15 in-house
salespersons, and we support our sales efforts with extensive advertising and
promotional programs. We focus our advertising and promotional efforts on NASCAR
because of its importance in the motorsports industry and influence on the
performance aftermarket. In addition, we sponsor many of the nation's other
leading racing sanctioning bodies, including the IHRA and the NHRA, as well as
key motor sports associations including the National Street Rod Association, the
World Karting Association and the National Muscle Car Association. We also
sponsor different national events including the Holley Spring Nationals drag
racing event, Hot Rod Magazine East and West Coast Power Tours, the Rod and
Custom Americruise and the Hot Rod Magazines' Power Club.
To ensure that we understand and appreciate the needs of our customers, we
operate three touring display trailers carrying our products and catalogs and
personnel. These trailers, one of which is a 64 foot -- 18 wheel trailer and two
of which are 35 foot -- 5th wheel trailers, travel to approximately 125 events
nationally including automotive racing events, specialty automotive shows,
retail store openings and distributor open houses. This visible presence at
these events enables us to elicit customer comments regarding their preferences
and suggestions for new or modified products. We also maintain a technical
hotline, e-mail address and web page to assist consumers with installation and
application questions. A total of 22 qualified technicians handle approximately
53,000 inquiries per year.
RAW MATERIALS
Holley has one significant supplier of raw materials, which is
Gerrity-Schultz, a zinc foundry operator that supplies us with zinc castings for
our performance carburetors. We buy the zinc castings, which are essentially
blocks of zinc-based metal roughly in the dimensions of our carburetors, which
we further machine and customize into our finished carburetors. We buy the
castings in bulk on prices that are negotiated to be firm for six months,
regardless of change in the price of the zinc and other base materials during
that period. The materials we buy from this supplier account for approximately
12% of our total raw material purchases. Other than Gerrity-Schultz, there are
few other zinc foundries in the country, and the tooling we own for the zinc
castings are specifically designed for the Gerrity-Schultz equipment.
TRADEMARKS AND PATENTS
Holley and its subsidiaries have registered or are in the process of
registering approximately 90 trademarks on the names and logos of the various
companies and their products in the U.S. and other countries. We utilize our
trademarks to establish our brand position, to distinguish the Holley products
from others in the marketplace and to establish brand loyalty to the Holley
family of products. We actively seek to register and protect our trademark and
related rights. None of our important trademarks are scheduled to expire in the
near term, and can be renewed at Holley's discretion.
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Holley and its subsidiaries have approximately 43 patents on various
products registered in the U.S. and other countries. We utilize our patents to
protect our proprietary designs in the marketplace, to distinguish Holley
products from others in the marketplace and to establish brand loyalty to the
Holley family of products. We expect to register additional patents for future
products and to actively protect our patent and related rights. None of Holley's
important patents are scheduled to expire in the near term.
FACILITIES
We have eight manufacturing facilities located in Bowling Green, Kentucky,
Springfield, Tennessee, Los Angeles and Ontario, California, Memphis, Tennessee,
Phoenix, Arizona and Ciudad Industrial and Sonoita, Sonora, Mexico and we
believe that each is well maintained and suitable for its purpose. As part of
our business strategy, we endeavor to manufacture in our facilities all critical
components and systems. However, to complete certain products, we outsource
certain processes to third parties. Our approximately 220,000 square foot
manufacturing and distribution facility in Bowling Green, Kentucky sits on 15.4
acres and also is our headquarters. At this location, we manufacture, package
and distribute carburetors, intake manifolds, electric fuel pumps and fuel
injection systems. In connection with the management change in 1997, we focused
on reducing costs and increasing our manufacturing efficiency. As part of this
program, we transformed the manufacturing process at our Bowling Green facility
from an inventory intensive batch process to a pull-through cellular
manufacturing operation with 45 manufacturing cells managed by employee
self-directed teams. The implementation of the cellularized operation resulted
in a productivity increase of 17.3% (as measured by net sales per employee), and
our management believes that there are still opportunities for productivity
improvements within the system. In the third quarter of 1999, we completed
construction of a new approximately 110,000 square foot distribution facility in
Bowling Green, Kentucky. We will move all of our performance products
distribution functions to this facility, allowing us to expand our manufacturing
operations at our current facilities.
Our remanufactured carburetor operation is located in Springfield,
Tennessee. This approximately 95,000 square foot facility is also completely
cellularized with seven manufacturing cells that are managed by employee
self-directed teams. We lease the Springfield facility on a year to year basis
from the local industrial authority at a rate of one hundred dollars ($100) per
year. The Springfield local industrial authority financed the building's
construction with an industrial revenue bond, and in turn leases the building to
Holley at sub-market rates in order to attract Holley to Springfield. We can
purchase the building at any time for $100, but would then become subject to
property taxes on the building. The lease expires in November 2001, and we
currently intend to continue leasing this property through such term.
In connection with the Weiand acquisition, we acquired a leasehold interest
in an approximately 30,000 square foot aluminum foundry located in Los Angeles,
California. The other manufacturing operations of Weiand were moved to our
Bowling Green facility. The foundry ensures a reliable supply of quality
castings on a cost-effective basis. We employ over forty employees at the
foundry which operates four pouring stations and four mold machines to produce
components used in the manufacture of manifolds and other performance parts. In
connection with the Lunati acquisition, we acquired a leasehold interest in an
approximately 30,000 square foot manufacturing facility located in Memphis,
Tennessee. This location manufactures, packages and distributes camshafts,
crankshafts, pistons and rods. During the third quarter of 1999, the Memphis
facility completed a transition of its manufacturing operations from a
traditional batch and queue manufacturing operation to a cellularized system.
Hooker has a manufacturing facility in Ciudad Industrial, Mexico and an
administrative office in Ontario, California. Hooker leases the land and
buildings in Ontario, California from H & S Properties, Inc. pursuant to various
lease agreements, which expire August 31, 2003. The lease agreements do not
provide for any renewal options upon completion of the current lease term.
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The monthly rent payments are subject to adjustment based upon the consumer
price index. Hooker leases the land and buildings in Ciudad Industrial, Mexico
from a third-party. The lease was recently renewed for a term ending July 31,
2004. The lease does not provide for rent escalations during this period.
SEASONALITY
Our operations experience slight seasonal trends which generally affect the
overall automotive aftermarket industry. Historically, our revenues are highest
in the spring (our second fiscal quarter), which marks the beginning of the
racing season and when the weather is better suited for outdoor automotive
repair activity. Seasonality has a more prevalent effect on our remanufacturing
facility in Springfield, and accordingly, we occasionally hire temporary
employees to respond to peak demand.
COMPETITION
There is significant competition in the performance automotive products
segment, and we compete with many other companies and individuals in the
manufacture and sale of performance automotive parts. We compete primarily on
the basis of product performance, brand name, quality, service and price. Some
of our competitors are substantially larger and have greater financial resources
than we do. Within our performance products line, we primarily compete with
Edelbrock Corporation, a public company, though we also compete against smaller,
specialized producers of performance automotive products. Holley and Edelbrock
are the only two companies that currently provide products for nearly all
product segments of the performance market. We view this situation as a
significant opportunity for Holley, and accordingly, we seek to capitalize on
this opportunity by making strategic acquisitions in this fragmented industry.
COMPLIANCE WITH ENVIRONMENTAL LAWS
Holley is subject to environmental laws affecting several aspects of our
operations, including principally automobile emissions and soil and water
protective laws. State and federal laws govern automobile exhaust emissions,
which directly affect the design of and our ability to sell many of our
products, including our carburetors and exhaust products. For example,
increasingly restrictive automotive emission laws are continually reducing the
use of carburetors in vehicles, and thus are reducing the market for carburetors
that we sell. Thus, because some of our products are affected by various
emissions laws, our product sales are partially dependent upon such laws. Also,
our real estate properties are subject to all applicable federal, state and
local environmental laws protecting the air, soil and groundwater. Our
manufacturing plants and other locations must remain in compliance with such
environmental laws, which requires us to maintain, monitor and upgrade our
physical properties and equipment, and take remedial cleanup actions in the
event of any discharges in violation of applicable laws.
EMPLOYEES
As of September 30, 1999, we had approximately 938 employees, approximately
44 of whom are part-time, 704 are hourly and 198 are full-time/salaried. None of
our employees are represented by labor unions, and we provide a comprehensive
benefits program to all full-time employees. Our commitment to our employees has
led to high levels of employee loyalty, low turnover and a positive working
relationship between management and the employees. In Bowling Green our
employees average 57 years of age and 32 years of service with Holley, while our
employees in Springfield average 38 years of age and seven years of service.
Hooker has approximately 362 employees, including approximately 315 in Mexico
and 47 in California.
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LEGAL PROCEEDINGS
In May 1999, Union Pacific Railroad Company initiated litigation against
Weiand and others in federal district court for the Central District of
California alleging that certain soil and groundwater contamination discovered
on the Union Pacific property in Los Angeles migrated from the adjacent Weiand
facility and, therefore, Weiand is responsible for costs related to
investigation and remediation. The complaint seeks costs in the amount of $4.5
million already incurred and at least an additional $800,000 in future response
costs, as well as an injunction directing Weiand to abate the alleged
contamination. At this time, we are unable to assess the likelihood of an
unfavorable outcome or, in the event of such an outcome, the amount of any
resulting liability. We are investigating the claims of Union Pacific and the
property owner and intend to defend them vigorously. Recently, we discovered
possible significant soil contamination on the Weiand property, which has not
yet been confirmed or assessed. The property owner may assert claims for damage
to the property. Holley intends to defend any such claims vigorously.
We have been named as defendants in a number of legal actions arising from
normal business activities. Although the amount of any ultimate liability with
respect to such matters cannot be precisely determined, we do not expect any
such liability to have a material adverse effect on our overall operations.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each person
who is an executive officer or a member of the Board of Directors (a "Director")
of Holley.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- ------------------------------------------
<S> <C> <C>
Jeffrey G. King........................... 37 Chief Executive Officer, President and
Director
James R. Vance............................ 39 Executive Vice President and Chief
Operating Officer
Robert L. Wineland........................ 44 Vice President, Chief Financial Officer
and Secretary
John H. Nickoloff......................... 47 Vice President and General Manager --
Remanufacturing Business
William H. Bass........................... 50 Vice President -- Marketing and Sales
Christopher Lacovara...................... 34 Vice President, Treasurer, Assistant
Secretary and Director
Evan D. Wildstein......................... 28 Assistant Secretary and Director
James A. Kohlberg......................... 41 Director
Marion H. Antonini........................ 68 Director
William F. Andrews........................ 67 Director
James D. Wiggins.......................... 51 Director
Samuel P. Frieder......................... 34 Director
</TABLE>
Jeffrey G. King. Chief Executive Officer, President and Director. Mr. King
joined Holley as Chief Executive Officer in 1997. Prior to joining Holley, Mr.
King was Executive Vice President and Chief Operating Officer of Lincoln Brass
Works, where he began in 1994 as Vice President of Sales and Marketing. From
1984 to 1994, he held positions with increasing responsibility at Arvin
Industries, an automotive systems and components company, ultimately becoming
the manager of new business development for its electronics unit, director of
sales and marketing and business unit manager for Arvin's Gabriel Ride Control
Products.
James R. Vance. Executive Vice President and Chief Operating Officer. Mr.
Vance joined Holley as Chief Operating Officer in 1997. Prior to joining Holley,
Mr. Vance served as Vice President of Operations at U.S. Industries, Inc., a
lighting manufacturer, from 1994 to 1997, where he had total operational
responsibility for four manufacturing facilities with total annual revenues
exceeding $70 million. Prior to 1994, Mr. Vance worked at Cooper Industries,
Inc. from 1989 to 1994, where he served as a plant manager in a 350 person
florescent lighting products facility.
Robert L. Wineland. Vice President, Chief Financial Officer and Secretary.
Mr. Wineland joined Holley as Chief Financial Officer in 1997. From 1993 to
1997, Mr. Wineland served as Vice President of Finance at the France Compressor
Products division of Coltec, a multiplant, international manufacturer of sealing
components and valves for industrial compressors.
John H. Nickoloff. Vice President and General Manager -- Remanufacturing
Business. Mr. Nickoloff joined Holley as Vice President in 1994. Prior to
joining Holley, Mr. Nickoloff served as a Plant Manager for Frigidaire (White
Consolidated Industries) from 1975 to 1994, and was a manager of JIT
manufacturing systems in other Frigidaire plants.
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William H. Bass. Vice President Marketing and Sales. Mr. Bass joined
Holley in February 1999. From 1988 to January 1999, Mr. Bass was employed with
Petersen Publishing Company (publisher of Hot Rod, Motor Trend and Car Craft and
50 other magazines and publications) in various positions, including Southern
Regional Advertising Sales Manager. Mr. Bass has been involved in advertising
and marketing in the specialty automotive aftermarket industry for over 30
years.
Christopher Lacovara. Vice President, Treasurer, Assistant Secretary and
Director. Since 1995, Mr. Lacovara has been a Principal of Kohlberg & Company.
Prior to that, he was an associate at Kohlberg & Company, which he joined in
1988. Mr. Lacovara is also a director of Northwestern Steel and Wire Company.
Evan D. Wildstein. Assistant Secretary and Director. Mr. Wildstein is an
associate with Kohlberg & Company, which he joined in 1994. Mr. Wildstein is
also a director of Magnavision Corp.
James A. Kohlberg. Director. Mr. Kohlberg is the Managing Principal of
Kohlberg & Company, which he co-founded in 1987. Mr. Kohlberg is also a director
of Northwestern Steel and Wire Company.
Marion H. Antonini. Director. Mr. Antonini joined Kohlberg & Company as a
Principal in 1998. Prior to joining the firm, since 1990 Mr. Antonini was
Chairman, President and Chief Executive Officer of Welbilt Corporation, a
diversified manufacturer and distributor of commercial foodservice equipment and
kitchen appliances. Mr. Antonini is also a director of Vulcan Materials Company,
Engelhard Corporation and Scientific-Atlanta.
William F. Andrews. Director. Mr. Andrews has been Chairman of Scovill
Fasteners, Inc. since 1995. From 1993 to 1995, Mr. Andrews was Chairman and
Chief Executive Officer of Amdura Corporation, a manufacturer of hardware and
industrial equipment. Mr. Andrews is also a director of Black Box Corporation,
Corrections Corporation of America, Johnson Controls, Inc., Katy Industries,
Navistar International Corp., Northwestern Steel and Wire Co., Dayton Superior
Corp. and Southern New England Telephone Company.
James D. Wiggins. Director. Since 1996, Mr. Wiggins has been the Group
President of the Stant/Schrader Group of The Gates Rubber Co., a manufacturer of
automobile tire valves and accessories. Prior to that time, Mr. Wiggins was
President and Chief Executive Officer of Bridge Products, Inc. from 1987 through
its acquisition by Schrader, Inc. in 1996.
Samuel P. Frieder. Director. Mr. Frieder has been a Principal of Kohlberg
& Company since 1995. Prior to that, he was an associate at Kohlberg & Company,
which he joined in 1989.
EXECUTIVE COMPENSATION
Compensation of Directors. Directors who are officers or employees of
Holley receive no additional compensation for serving on the Board of Directors.
Our non-employee members of the Board of Directors receive reimbursement for
expenses incurred in attending meetings.
Compensation of Executive Officers. The following table shows, for the
fiscal year ended on December 31, 1998, the compensation paid to or earned by
our Chief Executive Officer and four other most highly compensated executive
officers who were serving at the end of fiscal 1998.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(2)
- --------------------------- ---- -------- -------- ----------
<S> <C> <C> <C> <C>
Jeffrey G. King(1)................................... 1998 $112,241 $250,000 1,467,304
Chief Executive Officer
James R. Vance(1).................................... 1998 68,571 103,500 1,024,216
Chief Operating Officer
Robert L. Wineland(1)................................ 1998 59,249 75,000 733,725
Chief Financial Officer
John H. Nickoloff(1)................................. 1998 64,316 74,025 440,235
Vice President -- Remanufacturing
</TABLE>
- ---------------
(1) Each of the executives participates in Holley's 401(k) plan. Under the plan,
Holley matches contributions 100% up to a maximum of 6% of the participant's
total salary and bonus for that year. In 1998, Holley paid the following
amounts in 401(k) matches: James R. Vance -- $4,025; Robert L.
Wineland -- $3,500; John H. Nickoloff -- $3,603. Each of the executives also
participates in Holley's group health and dental insurance plan.
(2) Options to buy stock of Holdings, the direct parent of Holley, granted in
1998.
<TABLE>
<CAPTION>
POTENTIAL
OPTION GRANTS IN LAST FISCAL YEAR REALIZABLE VALUE AT
----------------------------------------- ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE OF FOR OPTION TERM
OPTIONS EMPLOYEES BASE PRICE EXPIRATION -----------------------
NAME GRANTED IN FISCAL YEAR ($/SH) DATE 5% 10%
- ---- ---------- -------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey G. King -- C.E.O.............. 1,467,304 40.03% $1.50 05/15/2008 $1,384,169 $3,507,757
James R. Vance -- C.O.O............... 1,024,216 27.94 1.50 05/15/2008 966,186 2,448,505
Robert L. Wineland -- C.F.O........... 733,725 20.02 1.50 05/15/2008 692,154 1,754,053
John H. Nickoloff -- V.P. (Reman)..... 440,235 12.01 1.50 05/15/2008 415,292 1,052,432
--------- ------ ---------- ----------
Total......................... 3,665,480 100.00% $3,457,801 $8,762,747
========= ====== ========== ==========
</TABLE>
RETIREMENT AND SEVERANCE PLANS
401(k) Plans. Holley maintains two 401(k) savings plans, one of which is
for salaried employees and one of which is for hourly employees. Under the
401(k) plans, participating employees can make pre-tax deferrals. The 401(k)
plans have a matching feature pursuant to which Holley may make a discretionary
contribution from its own funds to match some or all of a participating
employee's pre-tax contributions. The 401(k) plans do not permit participating
employees to make after-tax contributions. Both of the 401(k) plans are designed
to be qualified under Section 401(a) of the Internal Revenue Code of 1986 and
exempt from tax under Section 501(a).
Pension Plans. Holley also maintains a qualified defined benefit pension
plan. Holley provides benefits to participating employees based on the
employment status of each participant as an hourly or salaried employee. Holley
makes all contributions to fund the benefits that the pension plan provides. The
pension plan is designed to be qualified under tax code Section 401(a) and
exempt from tax under code section 501(a). Under the pension plan, normal
retirement age is 65, though participants may retire as early as age 55 with ten
years of credited service and receive a reduced benefit. The estimated annual
benefits payable upon retirement at normal retirement age for each of the Named
Executive Officers is as follows: Mr. King $65,000; Mr. Vance $61,000; Mr.
Nickoloff $51,000; and Mr. Wineland $76,000.
Severance Plan. Mr. King, Mr. Vance, Mr. Wineland and Mr. Nickoloff each
are covered by the Company's 1998 Severance Policy. The policy provides for a
severance payment equal to the greater of six months of such persons' annual
salary or one month's salary for every year of employment in the event his
employment is involuntarily terminated.
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CERTAIN TRANSACTIONS
RELATIONSHIP WITH KOHLBERG
Pursuant to a fee arrangement, Holley pays Kohlberg & Co., L.L.C. an annual
management fee (plus expenses) of $850,000 for certain management and advisory
services, which is subject to increase if Kohlberg invests additional capital in
Holley. The management fee agreement terminates on the earlier of Kohlberg &
Co., L.L.C. terminating the agreement by written notice to Holley, April 1, 2009
or the end of the fiscal year in which Kohlberg & Co., L.L.C. beneficially owns
less than 25% of Holley's outstanding common stock. In 1998, we paid Kohlberg &
Co., L.L.C. an aggregate of $405,000 under this management fee agreement. We
believe these terms are as favorable to Holley as those that could have been
obtained from independent third parties and arms-length negotiations.
SECURITY OWNERSHIP
The following table sets forth the ownership of Holley's common stock as of
December 31, 1998 by our directors, executive officers, persons known by us to
own more than 5.0% of our common stock and all our directors and executive
officers as a group.
<TABLE>
<CAPTION>
AGGREGATE
NUMBERS OF SHARES PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OWNED
- ------------------------------------ ------------------ ----------
<S> <C> <C>
KHPP Holdings, Inc.(1)...................................... 1,000 100%
Directors and executive officers as a group (12
persons)(2)............................................... -- --
</TABLE>
- ---------------
(1) KHPP Holdings, Inc.'s business address is: c/o Kohlberg & Co., LLC, 111
Radio Circle, Mt. Kisco, New York, 10549. The voting common stock of KHPP
Holdings, Inc. is owned beneficially and of record as follows: KHPP
Acquisition Co., L.P. -- 97.1%; Jeffrey G. King -- 0.4%; Robert L.
Wineland -- 0.2%; James R. Vance -- 0.3%; John Nickoloff -- 0.1%; and other
unaffiliated investors -- 1.9%. James A. Kohlberg indirectly owns 100% of
KHPP Acquisition Co., L.P. Mr. King, Mr. Wineland, Mr. Vance and Mr.
Nickoloff also hold the same officer positions with KHPP Holdings, Inc. as
they hold with Holley. The business address of each such persons is: c/o
Holley Performance Products Inc., 1801 Russellville Rd., Bowling Green,
Kentucky 42101.
(2) The directors and officers of Holley do not own (beneficially or of record)
common stock of Holley, but own common stock of KHPP Holdings, Inc., which
owns all of the common stock of Holley. See footnote (1) above.
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DESCRIPTION OF THE EXCHANGE NOTES
You can find the definitions of various terms used in this description
under the subheading "-- Definitions." In this description, the word "Holley"
refers only to Holley Performance Products Inc. and not to any of its
subsidiaries. When we refer to notes in this section, we mean the exchange notes
and also the outstanding notes.
The Company issued the notes and will issue the exchange notes under an
indenture among itself, the Guarantors and State Street Bank and Trust Company,
as trustee. The terms of the exchange notes include those stated in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939.
The following description is a summary of the material provisions of the
indenture. It does not restate that agreement in its entirety. We urge you to
read the indenture because it, and not this description, defines your rights as
holders of these notes. You can obtain a copy of the indenture from the trustee.
BRIEF DESCRIPTION OF THE NOTES AND THE SUBSIDIARY GUARANTEES
The Notes
These notes:
- are general unsecured obligations of Holley;
- are equal in right of payment to all existing and future senior
Indebtedness of Holley;
- are senior in right of payment to all future subordinated Indebtedness of
Holley; and
- are unconditionally guaranteed by the Guarantors.
The Subsidiary Guarantees
These notes are guaranteed by all of Holley's existing Domestic Restricted
Subsidiaries.
The subsidiary guarantees:
- are general unsecured obligations of each Guarantor;
- are equal in right of payment to all existing and future senior
Indebtedness of each Guarantor; and
- are senior in right of payment to all future subordinated Indebtedness of
each Guarantor.
The exchange notes will be issued solely in exchange for an equal principal
amount of outstanding notes pursuant to the exchange offer. The form and terms
of the exchange notes will be identical in all material respects to the form and
terms of the outstanding notes except that (a) the exchange notes will have been
registered under the Securities Act and (b) the registration rights and
contingent liquidated damages provisions applicable to the outstanding notes are
not applicable to the exchange notes.
The notes and each Subsidiary Guarantee will be effectively subordinated in
right of payment to all existing and future secured Indebtedness of Holley and
the applicable Guarantor, respectively, with respect to the assets securing such
Indebtedness. Assuming completion of the offering of these notes and application
of the net proceeds as intended and that $5 million of new equity was invested
by Kohlberg & Co., L.L.C., as of October 3, 1999, Holley and the Guarantors
would have had total senior Indebtedness of approximately $152.4 million
(consisting of the notes offered hereby and approximately $7.9 million of
secured Indebtedness outstanding under our revolving credit facility). The
indenture will permit us and the Guarantors to incur additional secured
Indebtedness.
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As of the date of the indenture, all of our subsidiaries will be
"Restricted Subsidiaries." However, under the circumstances described below
under the subheading "Covenants -- Designation of Restricted and Unrestricted
Subsidiaries," we will be permitted to designate some of our subsidiaries as
"Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to
many of the restrictive covenants in the Indenture. Unrestricted Subsidiaries
will not guarantee these notes.
Our Foreign Restricted Subsidiaries and our future Domestic Restricted
Subsidiaries that are not Wholly Owned Restricted Subsidiaries will not be
required to guarantee these notes. In the event of a bankruptcy, liquidation or
reorganization of a non-guarantor subsidiary, the non-guarantor subsidiary will
pay the holders of its debt and its trade creditors before it will be able to
distribute any of its assets to us.
PRINCIPAL, MATURITY AND INTEREST
The indenture will permit Holley to issue Notes with a maximum aggregate
principal amount of $250.0 million, of which $150.0 million will be issued in
this exchange offer. The Company will issue notes in denominations of $1,000 and
integral multiples of $1,000. The notes will mature on September 15, 2007.
Interest on these notes will accrue at the rate of 12 1/4% per annum and
will be payable semi-annually in arrears on March 15 and September 15,
commencing on March 15, 2000. Holley will make each interest payment to the
holders of record of these notes on the immediately preceding March 1 and
September 1.
Interest on these notes will accrue from the date of original issuance or,
if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder has given wire transfer instructions to Holley, Holley will
make all principal, premium and interest payments on those notes in accordance
with those instructions. All other payments on these notes will be made at the
office or agency of the Paying Agent and Registrar within the City and State of
New York unless Holley elects to make interest payments by check mailed to the
holders at their address set forth in the register of holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee will initially act as Paying Agent and Registrar. The Company
may change the Paying Agent or Registrar without prior notice to the holders of
the notes, and Holley or any of its Subsidiaries may act as Paying Agent or
Registrar.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the Indenture.
The Registrar and the trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and Holley may require a
holder to pay any taxes and fees required by law or permitted by the indenture.
Holley is not required to transfer or exchange any note selected for redemption.
Also, the Company is not required to transfer or exchange any note for a period
of 15 days before a selection of notes to be redeemed. The registered holder of
a note will be treated as the owner of it for all purposes.
BOOK-ENTRY; DELIVERY AND FORM
The exchange notes will be issued in the form of a global note. The global
note will be deposited with, or on behalf of, DTC and registered in the name of
DTC or its nominee. Except
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<PAGE> 73
as set forth below, the global note may be transferred in whole or in part, only
to DTC or another nominee of DTC. Investors may hold their beneficial interests
in the global note directly through DTC if they have an account with DTC or
indirectly through organizations which have accounts with DTC.
Exchange notes that are issued as described below under "-- Certificated
Exchange Notes" will be issued in definitive form. Upon the transfer of an
exchange note in definitive form, such exchange note will, unless the global
note has previously been exchanged for exchange notes in definitive form, be
exchanged for an interest in the global note representing the principal amount
of exchange notes being transferred.
Certain Book-Entry Procedures for the Global Note
The descriptions of the operations and procedures of DTC, Euroclear and
Cedel Bank set forth below are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to change by them from time to time. We take
no responsibility for these operations or procedures, and investors are urged to
contact the relevant system or its participants directly to discuss these
matters.
DTC has advised us that it is:
- a limited purpose trust company organized under the laws of the State of
New York;
- a "banking organization" within the meaning of the New York Banking Law;
- a member of the Federal Reserve System;
- a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended; and
- a "clearing agency" registered pursuant to Section 17A of the Exchange
Act.
DTC was created to hold securities for its participants (collectively, the
"Participants") and facilitates the clearance and settlement of securities
transactions between Participants through electronic book-entry changes to the
accounts of its Participants, thereby eliminating the need for physical transfer
and delivery of certificates. DTC's Participants include securities brokers and
dealers (including the initial purchasers of the outstanding notes), banks and
trust companies, clearing corporations and other organizations. Indirect access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies (collectively, the "Indirect Participants"), that
clear through or maintain a custodial relationship with a Participant, either
directly or indirectly. Investors who are not Participants may beneficially own
securities held by or on behalf of DTC only through Participants or Indirect
Participants.
We expect that pursuant to procedures established by DTC:
- upon deposit of the global note, DTC will credit the accounts of
Participants with an interest in the global note; and
- ownership of the exchange notes will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by
DTC (with respect to the interests of Participants) and the records of
Participants and the Indirect Participants (with respect to the interests
of persons other than Participants).
The laws of some jurisdictions may require that purchasers of securities
take physical delivery of such securities in definitive form. Accordingly, the
ability to transfer interests in the notes represented by a global note to such
persons may be limited. In addition, because DTC can act only on behalf of its
Participants, who in turn act on behalf of persons who hold interests through
Participants, the ability of a person having an interest in exchange notes
represented by
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a global note to pledge or transfer such interest to persons or entities that do
not participate in DTC's system, or to otherwise take actions in respect of such
interest, may be affected by the lack of a physical definitive security in
respect of such interest.
So long as DTC or its nominee is the registered owner of the global note,
DTC or such nominee, as the case may be, will be considered the sole owner or
holder of the exchange notes represented by the global note for all purposes
under the indenture. Except as provided below, owners of beneficial interests in
the global note will not be entitled to have exchange notes represented by such
global note registered in their names, will not receive or be entitled to
receive physical delivery of certificated notes, and will not be considered the
owners or holders thereof under the indenture for any purpose, including with
respect to the giving of any direction, instruction or approval to the trustee
thereunder. Accordingly, each holder owning a beneficial interest in the global
note must rely on the procedures of DTC and, if such holder is not a Participant
or an Indirect Participant, on the procedures of the Participant through which
such holder owns its interest, to exercise any rights of a holder of exchange
notes under the Indenture or such global note. We understand that under existing
industry practice, in the event that we request any action of holders of
exchange notes, or a holder that is an owner of a beneficial interest in the
global note desires to take any action that DTC, as the holder of such global
note, is entitled to take, DTC would authorize the Participants to take such
action and the Participants would authorize holders owning through such
Participants to take such action or would otherwise act upon the instruction of
such holders. Neither we nor the trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of exchange notes by DTC, or for maintaining, supervising or reviewing any
records of DTC relating to such exchange notes.
We expect that DTC or its nominee, upon receipt of any payment of principal
of or interest on the global note, will credit participants' accounts with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of the global note as shown on the records of DTC or its
nominee. We also expect that payments by participants to owners of beneficial
interests in the global note held through such participants will be governed by
standing instructions and customary practices and will be the responsibility of
such participants. We will not have any responsibility or liability for any
aspect of the records relating to, or payments made on account of, beneficial
ownership interests in the global note for any note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests or for any other aspect of the relationship between such participants
and the owners of beneficial interests in the global note owning through such
participants.
Transfers between the Participants in DTC will be effected in accordance
with DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear or Cedel Bank will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Cross-market transfers between the Participants in DTC, on the one hand,
and Euroclear or Cedel Bank participants, on the hand, will be effected through
DTC in accordance with DTC's rules on behalf of Euroclear or Cedel Bank, as the
case may be, by its respective depositary; however, such cross-market
transactions will require delivery of instructions to Euroclear or Cedel Bank,
as the case may be, by the counterparty in such system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
such system. Euroclear or Cedel Bank, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant global notes in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Euroclear participants and Cedel Bank
participants may not deliver instructions directly to the depositaries for
Euroclear or Cedel Bank.
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Because of time zone differences, the securities account of a Euroclear or
Cedel Bank participant purchasing an interest in a global note from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Cedel Bank participant, during the securities
settlement processing day (which must be a business day for Euroclear and Cedel
Bank) immediately following the settlement date of DTC. Cash received in
Euroclear or Cedel Bank as a result of sales of interest in a Global Security by
or through a Euroclear or Cedel Bank participant to a Participant in DTC will be
received with value on the settlement date of DTC but will be available in the
relevant Euroclear or Cedel Bank cash account only as of the business day for
Euroclear or Cedel Bank following DTC's settlement date.
DTC, Euroclear and Cedel Bank are under no obligation to perform or to
continue to perform the foregoing procedures to facilitate transfers of
interests in the global note among participants in DTC, Euroclear and Cedel, and
such procedures may be discontinued at any time. Neither we nor the trustee will
have any responsibility for the performance by DTC, Euroclear or Cedel Bank or
their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
The information in this prospectus concerning DTC, Euroclear and Cedel and
their book-entry systems has been obtained from sources that we believe to be
reliable, but we have not independently verified this information.
Certified Exchange Notes
If
- we notify the Trustee in writing that DTC is no longer willing or able to
act as a depositary or DTC ceases to be registered as a clearing agency
under the Exchange Act and a successor depositary is not appointed within
90 days of such notice or cessation;
- we, at our option, notify the trustee in writing that we elect to cause
the issuance of exchange notes in definitive form under the Indenture; or
- upon the occurrence of certain other events as provided in the indenture,
then, upon surrender by DTC of the global note, certificated exchange notes in
definitive form in denominations of U.S. $1,000 and integral multiples thereof
will be issued to each person that DTC identifies as the beneficial owner of the
notes represented by the global note. Upon any such issuance, the trustee is
required to register such certificated exchange notes in the name of such person
or persons (or the nominee of any thereof) and cause the same to be delivered
thereto.
Subject to the foregoing, the global note is not exchangeable, except for a
global note of the same aggregate denomination to be registered in the name of
DTC or its nominee.
Neither we nor the trustee shall be liable for any delay by DTC or any
Participant or Indirect Participant in identifying the beneficial owners of the
related exchange Notes and we and the trustee may conclusively rely on, and
shall be protected in relying on, instructions from DTC for all purposes,
including with respect to the registration and delivery, and the respective
principal amounts, of the exchange notes to be issued.
DTC management is aware that some computer applications, systems and
similar functions for processing data that are dependent upon calendar dates,
including dates before, on, and after January 1, 2000, may encounter "Year 2000
problems." DTC has informed its participants and other members of the financial
community that it has developed and is implementing a program so that its
systems, as the same relate to the timely payment of distributions (including
principal and income payments) to securityholders, book-entry deliveries and
settlement of trades within DTC, continue to function appropriately. This
program includes a technical
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assessment and a remediation plan, each of which is complete. Additionally,
DTC's plan includes a testing phase, which is expected to be completed within
appropriate time frames.
However, DTC's ability to perform properly its services is also dependent
upon other parties, including but not limited to issuers and their agents, as
well as third-party vendors from whom DTC licenses software and hardware, and
third-party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed the financial industry that it is contacting (and
will continue to contact) third-party vendors from whom DTC acquires services
to: (a) impress upon them the importance of such services being Year 2000
compliant and (b) determine the extent of their efforts for Year 2000
remediation (and, as appropriate, testing) of their services. In addition, DTC
is in the process of developing such contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to the Industry for informational purposes only and is not intended to
serve as a representation, warranty, or contract modification of any kind.
SUBSIDIARY GUARANTEES
The Guarantors will jointly and severally guarantee Holley's obligations
under these exchange notes. The obligations of each Guarantor under its
Subsidiary Guarantee will be limited as necessary to prevent that Subsidiary
Guarantee from constituting a fraudulent conveyance under applicable law. See
"Risk Factors -- The Subsidiary Guarantees Could in Some Circumstances be
Considered Fraudulent Transfers Under Bankruptcy Law, Which Would Void the
Subsidiary Guarantee".
A Guarantor may not sell or otherwise dispose of all or substantially all
of its assets, or consolidate with or merge with or into, whether or not such
Guarantor is the surviving Person, another Person unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists;
(2) either:
(a) the Person acquiring the property in any such sale or
disposition or the Person formed by or surviving any such consolidation
or merger assumes all the obligations of that Guarantor pursuant to a
supplemental indenture satisfactory to the trustee; or
(b) the Net Proceeds of such sale or other disposition are applied
in accordance with the applicable provisions of the indenture; and
(3) If the Guarantor is merging or consolidating with or transferring
its assets to a Person other than Holley and/or other Guarantors, Holley
will, on the date of such transaction after giving pro forma effect thereto
and any related financing transactions as if the same had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock".
The Subsidiary Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor, including by way of
merger or consolidation, if Holley applies the Net Proceeds of that sale or
other disposition in accordance with the applicable provisions of the
indenture;
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(2) in connection with any sale of all of the Capital Stock of a
Guarantor, if Holley applies the Net Proceeds of that sale in accordance
with the applicable provisions of the indenture; or
(3) if Holley designates any Restricted Subsidiary that is a Guarantor
as an Unrestricted Subsidiary in accordance with the indenture.
OPTIONAL REDEMPTION
During the first 36 months after the Issue Date, Holley may on any one or
more occasions redeem up to 35% of the aggregate principal amount of notes
issued under the indenture at a redemption price of 112.25% of the principal
amount thereof, plus accrued and unpaid interest to the redemption date, with
the net cash proceeds of one or more Public Equity Offerings; provided that:
(1) at least 65% of the principal amount of notes issued remains
outstanding immediately after the occurrence of such redemption (excluding
notes held by Holley and its Subsidiaries); and
(2) the redemption occurs within 180 days of the date of the closing
of such Public Equity Offering.
Except pursuant to the preceding paragraph, the notes will not be
redeemable at Holley's option prior to September 15, 2003.
After September 15, 2003, Holley may redeem all or a part of these notes
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest thereon, if any, to, but not including the applicable redemption
date, if redeemed during the twelve-month period beginning on September 15 of
the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---- ----------
<S> <C>
2003........................................................ 106.125%
2004........................................................ 104.083%
2005........................................................ 102.042%
2006 and thereafter......................................... 100.000%
</TABLE>
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
If a Change of Control occurs, each Holder of notes will have the right to
require Holley to repurchase all or any part (equal to $1,000 or an integral
multiple thereof) of that Holder's notes pursuant to the Change of Control
Offer. In the Change of Control Offer, Holley will offer a Change of Control
Payment in cash equal to 101% of the aggregate principal amount of notes
repurchased plus accrued and unpaid interest thereon, if any, to the date of
purchase. Within thirty days following any Change of Control, Holley will mail a
notice to each Holder describing the transaction or transactions that constitute
the Change of Control and offering to repurchase notes on the Change of Control
Payment Date specified in such notice, pursuant to the procedures required by
the indenture and described in such notice. 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 the notes as a result of a
Change of Control.
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On the Change of Control Payment Date, Holley will, to the extent lawful:
(1) accept for payment all notes or portions thereof properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the Paying Agent an amount equal to the Change of
Control Payment in respect of all notes or portions thereof so tendered;
and
(3) deliver or cause to be delivered to the trustee the notes so
accepted together with an Officers' Certificate stating the aggregate
principal amount of notes or portions thereof being purchased by Holley.
The Paying Agent will promptly mail to each Holder of notes so tendered the
Change of Control Payment for such notes, and the trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new note equal in principal amount to any unpurchased portion of the notes
surrendered, if any; provided that each such new note will be in a principal
amount of $1,000 or an integral multiple thereof.
The provisions described above that require Holley to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether or not any other provisions of the indenture are applicable. 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 Holley
repurchase or redeem the notes in the event of a takeover, recapitalization or
similar transaction.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control Offer made by Holley and
purchases all notes validly tendered and not withdrawn under such Change of
Control Offer.
Notwithstanding the foregoing, Holley shall not be required to make a
Change of Control Offer, as provided above, if, in connection with or in
contemplation of any Change of Control, it has made an offer to purchase (an
"Alternate Offer") any and all notes validly tendered at a cash price equal to
or higher than the Change of Control Payment and has purchased all notes
properly tendered in accordance with the terms of such Alternate Offer.
Asset Sales
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) Holley (or the 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 or Equity Interests issued or sold or otherwise
disposed of;
(2) such fair market value is determined by Holley's Board of
Directors and evidenced by a resolution of the Board of Directors set forth
in an Officers' Certificate delivered to the trustee; and
(3) at least 75% of the consideration therefor received by Holley or
such Restricted Subsidiary is in the form of cash or Cash Equivalents. For
purposes of this provision, each of the following shall be deemed to be
cash:
(a) any liabilities (as shown on Holley's or such Restricted
Subsidiary's most recent balance sheet) of Holley or any Restricted
Subsidiary (other than contingent liabilities and liabilities that are
by their terms subordinated to the notes or any Subsidiary Guarantee)
that are assumed by the transferee of any such assets pursuant
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to a customary novation agreement that releases Holley or such
Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by Holley
or any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted by
Holley or such Restricted Subsidiary into cash (to the extent of the
cash received in that conversion).
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
Holley or the applicable Restricted Subsidiary may apply such Net Proceeds at
its option:
(1) to permanently repay Indebtedness secured by assets or Equity
Interests owned by Holley or any Restricted Subsidiary;
(2) to acquire Replacement Assets; or
(3) to the extent the Net Proceeds are derived from assets or Equity
Interests sold by a Foreign Restricted Subsidiary, to repay Indebtedness of
such Foreign Restricted Subsidiary.
Pending the final application of any such Net Proceeds, Holley or the applicable
Restricted Subsidiary may temporarily reduce revolving credit borrowings or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
indenture.
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $5.0 million, Holley will make an
Asset Sale Offer to all Holders of notes to purchase the maximum principal
amount of notes that may be purchased out of the Excess Proceeds. The offer
price in any Asset Sale Offer will be equal to 100% of principal amount plus
accrued and unpaid interest, if any, to the date of purchase, and will be
payable in cash. If any Excess Proceeds remain after consummation of an Asset
Sale Offer, Holley may use such Excess Proceeds for any purpose not otherwise
prohibited by the indenture. If the aggregate principal amount of notes tendered
into such Asset Sale Offer exceeds the amount of Excess Proceeds, the trustee
shall select the notes to be purchased on a pro rata basis to the extent
practicable. Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds shall be reset at zero.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed, in compliance with the requirements of
the principal national securities exchange on which the notes are listed;
or
(2) if the notes are not so listed, on a pro rata basis, by lot or by
such method as the trustee shall deem fair and appropriate.
No notes of $1,000 or less shall be redeemed in part. Notices 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. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note shall state the portion of the principal amount thereof to
be redeemed. A new note in principal amount equal to the unredeemed portion of
the original note will be issued in the name of the Holder thereof upon
cancellation of the original note. Notes called for redemption become due on the
date fixed for redemption. On and after the redemption date, interest ceases to
accrue on notes or portions of them called for redemption.
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COVENANTS
Restricted Payments
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of Holley's or any of its Restricted Subsidiaries'
Equity Interests (including, without limitation, any payment in connection
with any merger or consolidation involving Holley or any of its Restricted
Subsidiaries) or to the direct or indirect holders of Holley's or any of
its Restricted Subsidiaries' Equity Interests in their capacity as such
(other than dividends or distributions payable solely in Equity Interests
(other than Disqualified Stock) of Holley or dividends or distributions
payable to Holley or a Restricted Subsidiary of Holley);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving Holley) any Equity Interests of Holley or any
direct or indirect parent of Holley or any Restricted Subsidiary of Holley
(other than any such Equity Interests owned by Holley or any Restricted
Subsidiary of Holley);
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the notes or the Subsidiary Guarantees, except a payment of
interest or principal at the Stated Maturity thereof; or
(4) make any Restricted Investment (all such payments and other
actions set forth in clauses (1) through (4) above being collectively
referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof; and
(2) Holley would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Holley and its Restricted Subsidiaries
after the date of the indenture (excluding Restricted Payments permitted by
clauses (2) and (3) of the succeeding paragraph), is less than the sum,
without duplication, of
(a) 50% of the Consolidated Net Income of Holley for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of the indenture to the end of
Holley's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus
(b) 100% of the aggregate net cash proceeds received by Holley
since the date of the indenture as a contribution to its common equity
capital or from the issue or sale of Equity Interests of Holley (other
than Disqualified Stock) or from the issue or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable debt
securities of Holley that have been converted into or exchanged for such
Equity Interests (other than Equity Interests (or Disqualified Stock or
debt securities) sold to a
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Subsidiary of Holley), excluding, in each case, net cash proceeds from a
Public Equity Offering to the extent used to redeem notes, plus
(c) an amount equal to the lesser of (A) the sum of the fair market
value of the Equity Interests of an Unrestricted Subsidiary owned by
Holley and/or the Restricted Subsidiaries and aggregate amount of all
Indebtedness of such Unrestricted Subsidiary owed to Holley and each
Restricted Subsidiary on the date of redesignation of such Unrestricted
Subsidiary as a Restricted Subsidiary in accordance with the covenant
described under "-- Designation of Restricted and Unrestricted
Subsidiaries" or (B) the Designation Amount with respect to such
Unrestricted Subsidiary on the date of the designation of such
Subsidiary as an Unrestricted Subsidiary in accordance with the covenant
described under "-- Designation of Restricted and Unrestricted
Subsidiaries"; plus
(d) to the extent that any Restricted Investment that was made
after the date of the indenture is sold for cash or otherwise liquidated
or repaid for cash, the lesser of (i) the cash return of capital with
respect to such Restricted Investment (less the cost of disposition, if
any) and (ii) the initial amount of such Restricted Investment, in each
case, to the extent Consolidated Net Income is not already increased
thereby.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of Holley or any Guarantor or
of any Equity Interests of Holley or any Restricted Subsidiary in exchange
for, or out of the net cash proceeds of the substantially concurrent sale
(other than to a Subsidiary of Holley) of, Equity Interests of Holley
(other than Disqualified Stock); provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause
(3) (b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of Holley or any Guarantor with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend by a Restricted Subsidiary of Holley
to the holders of its common Equity Interests on a pro rata basis;
(5) repurchases of Equity Interests of Holley or Holdings from
officers, directors, employees or consultants of Holley or any of its
Restricted Subsidiaries or of Holdings pursuant to equity ownership or
compensation plans or stockholders agreements not to exceed $1.0 million in
the aggregate;
(6) the payment of management fees to Kohlberg in aggregate amount not
to exceed for any calendar year the sum of (a) $850,000 plus (b) 2.0% of
the aggregate net cash proceeds in excess of $5.0 million received by
Holley from Kohlberg and/or its controlled Affiliates from (I) the issuance
to Kohlberg and/or such controlled Affiliates of Equity Interests of the
Company (other than Disqualified Stock) after the Issue Date and (II)
without duplication of any amounts included in the immediately preceding
clause (I), any contribution to the common equity capital of Holley; or
(7) the payment of dividends and distributions to Holdings to (a) fund
payments for taxes attributable to the business and operations of Holley
and its Subsidiaries and (b) other expenses of Holdings not to exceed
$250,000 in any calendar year.
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The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by Holley or such Restricted Subsidiary, as
the case may be, pursuant to the Restricted Payment. The fair market value of
any assets or securities that are required to be valued by this covenant shall
be determined by the Board of Directors whose resolution with respect thereto
shall be delivered to the trustee.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and Holley will not issue any Disqualified Stock and will not permit any
of its Restricted Subsidiaries to issue any shares of preferred stock; provided
that Holley and any Guarantor may incur Indebtedness (including Acquired Debt),
and Holley may issue Disqualified Stock, if the Fixed Charge Coverage Ratio for
Holley's most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is issued would
have been at least 2.0 to 1, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional
Indebtedness had been incurred, or the Disqualified Stock had been issued, as
the case may be, at the beginning of such four-quarter period.
So long as no Default shall have occurred and be continuing or would be
caused thereby, the first paragraph of this covenant will not prohibit the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(1) the incurrence by Holley and the Guarantors of Indebtedness
represented by the notes, and the Subsidiary Guarantees thereof, not to
exceed $150.0 million at any one time outstanding;
(2) the incurrence by Holley or any of its Restricted Subsidiaries of
Indebtedness incurred pursuant to a revolving credit facility under the
Credit Facility in an aggregate principal amount at any time outstanding
not to exceed the greater of:
(a) $25.0 million (reduced by any required permanent repayments or
prepayments with the proceeds of Asset Sales actually made (which are
accompanied by a corresponding permanent commitment reduction)
thereunder); or
(b) the sum of (I) 85% of the net book value of the accounts
receivable of Holley and the Restricted Subsidiaries and (II) 55% of the
net book value of the inventory of Holley and the Restricted
Subsidiaries, less the amount of Indebtedness outstanding pursuant to
clause (14) below;
(3) the incurrence by Holley or any of its Restricted Subsidiaries of
Indebtedness incurred pursuant to an Acquisition Facility under the Credit
Facility in an aggregate principal amount not to exceed $30.0 million
(reduced by any permanent repayments or prepayments with the proceeds of
Asset Sales actually made thereunder);
(4) other Indebtedness of Holley and the 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 thereon;
(5) the incurrence by Holley or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment
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or Purchase Money Indebtedness, in an aggregate principal amount not to
exceed $5.0 million at any time outstanding;
(6) the incurrence by Holley or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace, Indebtedness (other than
intercompany Indebtedness) that was permitted by the indenture to be
incurred under the first paragraph of this covenant or clauses (1) (without
limitation as to principal amount outstanding), (4) or (5) of this
paragraph;
(7) the incurrence by Holley or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Holley and any of its Wholly
Owned Restricted Subsidiaries; provided that:
(a) if Holley or any Guarantor is the obligor on such Indebtedness,
such Indebtedness must be unsecured and expressly subordinated to the
prior payment in full in cash of all Obligations with respect to the
notes, in the case of Holley, or the Subsidiary Guarantee of such
Guarantor, in the case of a Guarantor; and
(b)(i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than
Holley or a Wholly Owned Restricted Subsidiary thereof and (ii) any sale
or other transfer of any such Indebtedness to a Person that is not
either Holley or a Wholly Owned Restricted Subsidiary thereof; shall be
deemed, in each case, to constitute an incurrence of such Indebtedness
by Holley or such Restricted Subsidiary, as the case may be, that was
not permitted by this clause (7);
(8) the incurrence by Holley or any of its Restricted Subsidiaries of
Hedging Obligations;
(9) the guarantee by Holley or any of the Guarantors of Indebtedness
of Holley or a Restricted Subsidiary of Holley that was permitted to be
incurred by another provision of this covenant;
(10) the incurrence by Holley or any of the Guarantors of additional
Indebtedness in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred pursuant to this clause (10), not to exceed $10.0 million at any
one time outstanding;
(11) the accrual of interest, accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends
on Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock; provided, in each such case, that the amount thereof is
included in Fixed Charges of Holley as accrued;
(12) the incurrence by Holley of Indebtedness arising from the
honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary course of
business; provided that such Indebtedness is extinguished within five
business days of incurrence;
(13) the incurrence by Holley or any of its Restricted Subsidiaries of
Indebtedness represented by letters of credit for the account of Holley 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; and
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(14) the incurrence by Foreign Restricted Subsidiaries of Indebtedness
in an aggregate principal amount at any one time outstanding not to exceed
the greater of $5.0 million or the sum of (a) 85% of the net book value of
accounts receivable of the Foreign Restricted Subsidiaries and (b) 55% of
the net book value of the inventory of the Foreign Restricted Subsidiaries.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (14) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, Holley
will be permitted to classify such item of Indebtedness on the date of its
incurrence in any manner that complies with this covenant.
The Company will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any other Indebtedness of Holley unless such Indebtedness is equally
subordinate or junior in right of payment to the notes. No Guarantor will incur,
create, issue, assume, guarantee or otherwise become liable for any Indebtedness
that is subordinate or junior in right of payment to any other Indebtedness of
such Guarantor unless such Indebtedness is equally subordinate or junior in
right of payment to such Guarantor's Subsidiary Guarantee.
Limitation on Liens
The Company will not, and will not permit any Guarantor to, incur or suffer
to exist any Lien on or with respect to any property or assets now owned or
hereafter acquired by Holley or any Guarantor to secure any Indebtedness without
making, or causing such Guarantor to make, effective provision for securing the
notes or such Guarantor's Subsidiary Guarantee, as the case may be, (x) equally
and ratably with (or prior to) such Indebtedness as to such property for so long
as such Indebtedness will be so secured or (y) in the event such Indebtedness is
subordinate in right of payment to the notes or such Guarantor's Subsidiary
Guarantee, as the case may be, prior to such Indebtedness as to such property
for so long as such Indebtedness will be so secured.
The foregoing restrictions on Holley and the Guarantors shall not apply to:
(1) Liens existing on the Issue Date and securing Indebtedness
outstanding on the Issue Date or Liens securing the notes or the Subsidiary
Guarantees;
(2) Liens securing Indebtedness incurred pursuant to the Credit
Facility in an aggregate principal amount not to exceed amounts permitted
to be incurred pursuant to clauses (2) and (3) under the second paragraph
of the covenant described under "-- Incurrence of Indebtedness and Issuance
of Preferred Stock" above;
(3) Liens in favor of Holley or any Guarantor that is a Wholly Owned
Restricted Subsidiary of Holley;
(4) Liens on real or personal property of Holley or a Restricted
Subsidiary of Holley acquired, constructed or constituting improvements
made after the Issue Date to secure Capital Lease Obligations or Purchase
Money Indebtedness, provided, however, that: (a) the Incurrence of such
Indebtedness was permitted under the covenant described under
"-- Incurrence of Indebtedness and Issuance of Preferred Stock" above; (b)
the principal amount of any Indebtedness secured by such a Lien does not
exceed 100% of such purchase price or cost of construction or improvement
of the property subject to such Lien; (c) such Lien attaches to such
property prior to, at the time of or within 180 days after the acquisition,
completion of construction or commencement of operation of such property;
and (d) such Lien does not extend to or cover any property other than the
property (or
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identifiable portions thereof) acquired, constructed or constituting
improvements made with the proceeds of such Purchase Money Indebtedness;
(5) Liens to secure Acquired Debt; provided, however, that (a) such
Lien attaches to the acquired asset prior to the time of the acquisition of
such asset and (b) such Lien does not extend to or cover any other asset;
(6) Liens to secure Indebtedness incurred to extend, renew, refinance
or refund (or successive extensions, renewals, refinancings or refundings),
in whole or in part, Indebtedness secured by any Lien referred to in the
foregoing clauses (1), (2), (4) and (5) so long as such Lien does not
extend to any other property and the principal amount of Indebtedness so
secured is not increased except as otherwise permitted under clause (6) of
the second paragraph of the covenant described under "-- Incurrence of
Indebtedness and Issuance of Preferred Stock";
(7) Liens on Equity Interests issued by a Restricted Subsidiary that
is not a Guarantor securing Indebtedness of such Restricted Subsidiary;
provided however, that the Liens may not extend to any other property owned
by Holley or any Guarantor;
(8) Lien securing Hedging Obligations; and
(9) Permitted Liens.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to Holley or any of Holley's Restricted Subsidiaries, or with respect to
any other interest or participation in, or measured by, its profits, or pay
any Indebtedness owed to Holley or any of Holley's Restricted Subsidiaries;
(2) make loans or advances to Holley or any of Holley's Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to Holley or any of
Holley's Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) the Credit Facility and Existing Indebtedness, in each case, as in
effect on the date of the indenture and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacements or
refinancings thereof, provided that such amendments, modifications,
restatements, renewals, increases, supplements, refundings, replacement or
refinancings are no more restrictive, taken as a whole, with respect to
such dividend and other payment restrictions than those contained in the
Credit Facility or such Existing Indebtedness, as the case may be, as in
effect on the date of the indenture, provided, further, however that
restrictions under the Credit Facility may provide for more restrictive
limitations on the ability of Holley to make Investments in Restricted
Subsidiaries or on the ability of Guarantors to make Investments in
non-Guarantor Restricted Subsidiaries;
(2) the indenture and the notes;
(3) applicable law;
(4) any instrument governing Indebtedness of a Person acquired by
Holley or any of its Restricted Subsidiaries as in effect at the time of
such acquisition (except to the extent such Indebtedness was incurred in
connection with or in contemplation of such acquisition), which
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encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, provided that such Indebtedness was
permitted by the terms of the indenture to be incurred;
(5) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(6) Purchase Money Indebtedness that imposes restrictions on the
property so acquired of the nature described in clause (3) of the preceding
paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by such Restricted Subsidiary
pending its sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being refinanced;
(9) Liens securing Indebtedness otherwise permitted to be incurred
pursuant to the provisions of the covenant described above under the
caption "-- Limitations on Liens" that limit the right of Holley or any
Guarantor to dispose of the assets subject to such Lien;
(10) any instrument governing Indebtedness of a Foreign Restricted
Subsidiary;
(11) provisions with respect to the disposition or distribution of
assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business; and
(12) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business.
Merger, Consolidation or Sale of Assets
The Company may not, directly or indirectly: (1) consolidate or merge with
or into another Person (whether or not Holley is the surviving corporation); or
(2) sell, assign, transfer, convey or otherwise dispose of (or cause or permit
any of its Restricted Subsidiaries to sell, assign, transfer, convey or
otherwise dispose of) all or substantially all of Holley's properties or assets
(determined on a consolidated basis for Holley and its Restricted Subsidiaries),
in one or more related transactions, to another Person; unless:
(1) either: (a) Holley is the surviving corporation; or (b) the Person
formed by or surviving any such consolidation or merger (if other than
Holley) or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made is a corporation organized or existing
under the laws of the United States, any state thereof or the District of
Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than Holley) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all
the obligations of Holley under the notes, the indenture and the Exchange
and Registration Rights Agreement pursuant to agreements reasonably
satisfactory to the trustee;
(3) immediately after such transaction no Default or Event of Default
exists (including, without limitation, after giving effect to any Liens
incurred, assumed or granted in connection with or in respect of such
transaction); and
(4) Holley or the Person formed by or surviving any such consolidation
or merger (if other than Holley) will, on the date of such transaction
after giving pro forma effect thereto and any related financing
transactions as if the same had occurred at the beginning of the
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applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant described above under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock."
In addition, Holley may not, directly or indirectly, lease all or substantially
all of its properties or assets, in one or more related transactions, to any
other Person. This "Merger, Consolidation or Sale of Assets" covenant will not
apply to a sale, assignment, transfer, conveyance or other disposition of assets
between or among Holley and any Guarantors which are Wholly Owned Restricted
Subsidiaries.
Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each, an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable
to Holley or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by Holley or such Restricted
Subsidiary with an unrelated Person; and
(2) Holley delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$1.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate certifying that such Affiliate Transaction
complies with this covenant and that such Affiliate Transaction has been
approved by a majority of the disinterested members of the Board of
Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing.
The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement entered into by Holley or any of its
Restricted Subsidiaries in the ordinary course of business and consistent
with the past practice of Holley or such Restricted Subsidiary or are
approved by a majority of the disinterested directors of Holley;
(2) transactions between or among Holley and/or its Restricted
Subsidiaries;
(3) payment of reasonable directors fees to Persons who are not
otherwise Affiliates of Holley; and
(4) Restricted Payments and Permitted Investments that are permitted
by the provisions of the indenture described above under the caption
"-- Restricted Payments."
Additional Subsidiary Guarantees
If Holley or any of its Restricted Subsidiaries creates another Domestic
Restricted Subsidiary after the date of the indenture or acquires another
Domestic Restricted Subsidiary that is a Wholly Owned Restricted Subsidiary
after the date of the indenture, then that newly acquired or created Domestic
Restricted Subsidiary must become a Guarantor and shall (a) execute and deliver
to the trustee a supplemental indenture in form reasonably satisfactory to the
trustee
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pursuant to which such Domestic Restricted Subsidiary shall unconditionally
guarantee all of Holley's obligations under the notes and the indenture on the
terms set forth in the indenture and (b) 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 legal, valid, binding
and enforceable obligation of such Restricted Subsidiary, subject to normal
exceptions. Thereafter, such Domestic Restricted Subsidiary shall be a Guarantor
for all purposes of the indenture.
In addition, if Holley or any of its Restricted Subsidiaries acquires a
Domestic Restricted Subsidiary that is not a Wholly Owned Restricted Subsidiary
at the time of acquisition, but shall thereafter become a Wholly Owned
Restricted Subsidiary, such Domestic Restricted Subsidiary shall comply with the
provisions of clauses (a) and (b) of the immediately preceding paragraph, and
shall thereafter be a Guarantor for all purposes of the indenture. The Company,
at its option, may cause a Domestic Restricted Subsidiary that is not a Wholly
Owned Restricted Subsidiary to become a Guarantor in accordance with the
provisions of clauses (a) and (b) of the immediately preceding paragraph.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if:
(1) that designation would not cause a Default;
(2) Holley will, on the date of such designation after giving pro
forma effect thereto as if the same had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock";
(3) such Subsidiary has no Indebtedness other than Non-Recourse Debt;
(4) such Subsidiary is not party to any agreement, contract,
arrangement or understanding with Holley or any Restricted Subsidiary of
Holley unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to Holley or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of Holley;
(5) such Subsidiary is a Person with respect to which neither Holley
nor any of its Restricted Subsidiaries has any direct or indirect
obligation to subscribe for additional Equity Interests or to maintain or
preserve such Person's financial condition or to cause such Person to
achieve any specified levels of operating results; and
(6) such Subsidiary has not guaranteed or otherwise directly or
indirectly provided credit support for any Indebtedness of Holley or any of
its Restricted Subsidiaries.
Any designation of a Subsidiary of Holley as an Unrestricted Subsidiary
shall be evidenced to the trustee by filing with the trustee a certified copy of
the board resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the preceding
conditions and was permitted by the covenant described above under the caption
"-- Restricted Payments."
If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, all
outstanding Investments owned by Holley and its Restricted Subsidiaries in the
Subsidiary so designated will be deemed to be a Restricted Investment made as of
the time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of the covenant described above under the
caption "-- Restricted Payments" or Permitted Investments, as applicable. All
such outstanding Investments will be valued at their fair market value at the
time
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of such designation (the amount of such Investments, the "Designation Amount").
That designation will only be permitted if such Restricted Payment would be
permitted at that time.
If, at any time, any Unrestricted Subsidiary would fail to meet any of the
requirements set forth in clause (3) through (6) of the first paragraph of this
covenant, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the indenture and any Indebtedness and Liens of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of Holley as of such
date and, if any such Indebtedness or Lien is not permitted to be incurred as of
such date under the indenture, Holley shall be in default of the applicable
covenant(s). The Board of Directors of Holley may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness and Liens by a
Restricted Subsidiary of Holley of any outstanding Indebtedness and Liens of
such Unrestricted Subsidiary and such designation shall only be permitted if:
(1) such Indebtedness is permitted under the covenant described under
the caption "-- Incurrence of Indebtedness and Issuance of Preferred
Stock," calculated on a pro forma basis as if such designation had occurred
at the beginning of the four-quarter reference period;
(2) such Liens are permitted under the covenant described under the
caption "-- Limitation on Liens"; and
(3) no Default or Event of Default would be in existence following
such designation.
Limitation on Issuances and Sales of Equity Interests in Restricted
Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any
Equity Interests in any Restricted Subsidiary of Holley to any Person (other
than Holley or a Restricted Subsidiary of Holley), unless:
(1) such transfer, conveyance, sale, lease or other disposition is of
all the Equity Interests in such Restricted Subsidiary; and
(2) the cash Net Proceeds from such transfer, conveyance, sale, lease
or other disposition are applied in accordance with the covenant described
above under the caption "-- Repurchase at the Option of Holders -- Asset
Sales."
In addition, Holley will not permit any Restricted Subsidiary of Holley to issue
any of its Equity Interests (other than, if necessary, shares of its Capital
Stock constituting directors' qualifying shares) to any Person other than to
Holley or a Restricted Subsidiary of Holley.
Limitations on Issuances of Guarantees of Indebtedness
The Company will not permit any of its Restricted Subsidiaries that are not
Guarantors to, directly or indirectly, Guarantee or pledge any assets to secure
the payment of any other Indebtedness of Holley or any Guarantor unless such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture providing for the Guarantee of the payment of the notes by such
Restricted Subsidiary, which Guarantee shall be senior to or pari passu with
such Restricted Subsidiary's Guarantee of or pledge to secure such other
Indebtedness.
Payments for Consent
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any Holder of notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the indenture or the notes unless
such consideration is offered to be paid and is paid to all Holders of the notes
that consent, waive or agree to amend in the time frame set forth in the
solicitation documents relating to such consent, waiver or agreement.
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Reports
Whether or not required by the Commission, so long as any notes are
outstanding, Holley will furnish to the Holders of notes, within the time
periods specified in the Commission's rules and regulations:
(1) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and
10-K if Holley were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and, with respect to the annual information only, a report on the annual
financial statements by Holley's certified independent accountants; and
(2) all current reports that would be required to be filed with the
Commission on Form 8-K if Holley were required to file such reports.
In addition, whether or not required by the Commission, Holley will file a
copy of all of the information and reports referred to in clauses (1) and (2)
above with the Commission for public availability within the time periods
specified in the Commission's rules and regulations (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on the notes;
(2) default in payment when due of the principal of or premium, if any, on
the notes;
(3) failure by Holley or any of its Subsidiaries to comply with the
provisions described under the captions "-- Repurchase at the Option of
Holders -- Change of Control," "-- Repurchase at the Option of
Holders -- Asset Sales," "-- Covenants -- Restricted Payments" or
"-- Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock";
(4) failure by Holley or any of its Restricted Subsidiaries for 30 days
after notice to comply with any of the other agreements in the
indenture;
(5) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Holley or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by Holley or any of
its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the indenture, if that default:
(a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness after the expiration of the grace
period provided in such Indebtedness on the date of such default (a
"Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its Stated
Maturity,
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $10.0 million or more;
(6) failure by Holley or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $10.0 million, which judgments are
not paid, discharged or stayed for a period of 60 days;
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(7) except as permitted by the indenture, any Guarantor's Subsidiary
Guarantee shall be held in any judicial proceeding to be unenforceable
or invalid or shall cease for any reason to be in full force and effect
or any Guarantor, or any Person acting on behalf of any Guarantor,
shall deny or disaffirm in writing its obligations under its Subsidiary
Guarantee; and
(8) certain events of bankruptcy or insolvency with respect to Holley or
any of its Restricted Subsidiaries.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to Holley, any Restricted Subsidiary that
is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding notes will
become due and payable immediately without further action or notice. If any
other Event of Default occurs and is continuing, the trustee or the Holders of
at least 25% in principal amount of the then outstanding notes may declare all
the notes to be due and payable immediately.
At any time after a declaration of acceleration with respect to the notes
as described in the preceding paragraph, the Holders of a majority in principal
amount of the then outstanding notes may rescind and cancel such declaration and
its consequences:
(1) if the rescission would not conflict with any judgment or decree;
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
the acceleration;
(3) to the extent the payment of such interest is lawful, if interest
on overdue installments of interest and overdue principal, which has become
due otherwise than by such declaration of acceleration, has been paid;
(4) if Holley has paid the trustee its reasonable compensation and
reimbursed the trustee for its expenses, disbursements and advances; and
(5) in the event of the cure or waiver of an Event of Default
regarding certain events of bankruptcy or insolvency, the trustee shall
have received an Officers' Certificate and an Opinion of Counsel that such
Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding notes may direct the trustee in its
exercise of any trust or power. The trustee may withhold from Holders of the
notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest) if it
determines that withholding notice is in their interest.
The Holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the Holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the notes.
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of Holley with the
intention of avoiding payment of the premium that Holley would have had to pay
if Holley then had elected to redeem the notes pursuant to the optional
redemption provisions of the indenture, an equivalent premium shall also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of the notes. If an Event of Default occurs prior to September 15,
2003, by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of Holley with the intention of avoiding the
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prohibition on redemption of the notes prior to September 15, 2003, then the
premium specified in the indenture shall also become immediately due and payable
to the extent permitted by law upon the acceleration of the notes.
The Company is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, Holley is required to deliver to the trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Holley or
any Guarantor, as such, shall have any liability for any obligations of Holley
or the Guarantors under the notes, the indenture, the Guarantors' Subsidiary
Guarantees 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. The waiver may not be effective to
waive liabilities under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding notes and all obligations
of the Guarantors discharged with respect to their Guarantees ("Legal
Defeasance") except for:
(1) the rights of Holders of outstanding notes to receive payments in
respect of the principal of, premium, if any, and interest on such notes
when such payments are due from the trust referred to below;
(2) Holley'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 payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee,
and Holley's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, Holley may, at its option and at any time, elect to have the
obligations of Holley and the Guarantors released with respect to certain
covenants that are described in the indenture ("Covenant Defeasance") and
thereafter any omission to comply with those covenants shall not constitute a
Default or Event of Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation 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:
(1) Holley must irrevocably deposit with the trustee, in trust, for
the benefit of the Holders of the notes, cash in U.S. dollars, non-callable
Government Securities, 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 outstanding notes on the Stated Maturity or on the applicable
redemption date, as the case may be, and Holley must specify whether the
notes are being defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, Holley shall have delivered to
the trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that (a) Holley 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
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income tax law, in either case to the effect that, and based thereon such
Opinion of Counsel shall confirm that, the Holders of the outstanding notes
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;
(3) in the case of Covenant Defeasance, Holley shall have delivered to
the trustee an Opinion of Counsel reasonably acceptable to the trustee
confirming that the Holders of the outstanding notes 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;
(4) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit);
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which Holley or any
of its Restricted Subsidiaries is a party or by which Holley or any of its
Restricted Subsidiaries is bound;
(6) Holley must have delivered to the trustee an Opinion of Counsel to
the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally;
(7) Holley must deliver to the trustee an Officers' Certificate
stating that the deposit was not made by Holley with the intent of
preferring the Holders of notes over the other creditors of Holley with the
intent of defeating, hindering, delaying or defrauding creditors of Holley
or others; and
(8) Holley must deliver to the trustee an Officers' Certificate and an
Opinion of Counsel, each stating that all conditions precedent relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change or have the effect of changing
the Stated Maturity of any note or alter the provisions with respect to the
redemption of the notes (other than provisions relating to the covenants
described above under the caption "-- Repurchase at the Option of
Holders");
(3) reduce the rate of or change the time for payment of interest on
any note;
(4) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on the notes (except a rescission of
acceleration of the notes by the Holders of at least a majority in
aggregate principal amount of the notes and a waiver of the payment default
that resulted from such acceleration);
(5) make any note payable in currency other than that stated in the
notes;
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(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of Holders of notes to receive
payments of principal of or premium, if any, or interest on the notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the caption
"-- Repurchase at the Option of Holders");
(8) amend, change or modify in any material respect the obligation of
Holley to make and consummate a Change of Control Offer in the event that a
Change of Control has already occurred or make and consummate an Asset Sale
Offer with respect to any Asset Sale that has been consummated or modify
any of the provisions or definitions with respect thereto;
(9) release any Guarantor from any of its obligations under its
Subsidiary Guarantee or the indenture otherwise than in accordance with the
terms of the indenture;
(10) adversely affect the ranking of the notes or any Subsidiary
Guarantee; or
(11) make any change in the preceding amendment and waiver provisions.
Without the consent of any Holder of notes, Holley and the trustee may
amend or supplement the indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of Holley's obligations to Holders
of notes in the case of a merger or consolidation or sale of all or
substantially all of Holley's assets;
(4) to make any change that would provide any additional rights or
benefits to the Holders of notes or that does not adversely affect the
legal rights under the indenture of any such Holder; or
(5) to comply with requirements of the Commission in order to effect
or maintain the qualification of the indenture under the Trust indenture
Act.
Any other amendment or waiver may be effected with the consent of a
majority in aggregate principal amount of the outstanding notes.
GOVERNING LAW
The indenture, the notes and the Guarantors' Subsidiary Guarantees are
governed by the laws of the State of New York.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of Holley or any Guarantor, the indenture
limits its right to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as security or otherwise.
The trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the Commission for permission to continue or resign.
The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur and be continuing, the trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers
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under the indenture at the request of any Holder of notes, unless such Holder
shall have offered to the trustee security and indemnity satisfactory to it
against any loss, liability or expense.
DEFINITIONS
Set forth below are some of the defined terms used in the indenture.
Reference is made to the indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Restricted Subsidiary of such
specified Person, whether or not such Indebtedness is incurred in
connection with, or in contemplation of, such other Person merging with or
into, or becoming a Restricted Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset existing at
the time acquired by such specified Person.
"Acquisition Facility" means one or more credit facilities or
subfacilities, the proceeds from which are used to make Asset Acquisitions,
acquire Replacement Assets, repay Acquired Debt, and/or pay related fees and
expenses or other reasonably related uses.
"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,"
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; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" shall have correlative meanings.
"Asset Acquisition" means (a) an Investment by Holley or any Restricted
Subsidiary in any other Person pursuant to which such Person shall become a
Restricted Subsidiary, or shall be merged with or into Holley or any Restricted
Subsidiary, or (b) the acquisition by Holley or any Restricted Subsidiary of the
assets of any Person (other than a Restricted Subsidiary) which constitute all
or substantially all of the assets of such Person or comprises any division or
line of business of such Person or any other properties or assets of such Person
other than in the ordinary course of business.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any property,
assets or rights, other than sales of inventory in the ordinary course of
business consistent with past practices; provided that the sale, conveyance
or other disposition of all or substantially all of the assets of Holley
and its Restricted Subsidiaries taken as a whole will be governed by the
provisions of the indenture described above under the caption
"-- Repurchase at the Option of Holders -- Change of Control" and/or the
provisions described above under the caption "-- Covenants -- Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset
Sale covenant; and
(2) the issuance of Equity Interests by any of Holley's Restricted
Subsidiaries or the sale of Equity Interests in any of its Subsidiaries.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that: (a)
involves assets having a fair market value of less than $1.0 million; or
(b) results in net proceeds to Holley and its Restricted Subsidiaries of
less than $1.0 million;
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(2) a transfer of assets between or among Holley and its Restricted
Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary to
Holley or to another Restricted Subsidiary;
(4) disposals or replacements of obsolete equipment in the ordinary
course of business; and
(5) a Restricted Payment or a Permitted Investment that is permitted
by the covenant described above under the caption "-- Restricted Payments."
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable other than a Capital Lease Obligation, and at any
date as of which the amount thereof is to be determined, the total net amount of
rent required to be paid by such Person under such lease during the initial term
thereof as determined in accordance with generally accepted accounting
principles, discounted from the last date of such initial term to the date of
determination at a rate per annum equal to the discount rate which would be
applicable to a Capital Lease Obligation with like term in accordance with
generally accepted accounting principles. The net amount of rent required to be
paid under any such lease for any such period shall be the aggregate amount of
rent payable by the lessee with respect to such period after excluding amounts
required to be paid on account of insurance, taxes, assessments, utility
operating and labor costs and similar charges. In the case of any lease which is
terminable by the lessee upon the payment of a penalty, such net amount shall
also include the lesser of the amount of such penalty (in which case no rent
shall be considered as required to be paid under such lease subsequent to the
first date upon which it may be so terminated) or the rent which would otherwise
be required to be paid if such lease is not so terminated.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire, whether such
right is currently exercisable or is exercisable only upon the occurrence of a
subsequent condition.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
"Capital 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 that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means:
(1) in the case of a corporation, all corporate stock (however
designated);
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof
(provided that the full faith and credit of
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the United States is pledged in support thereof) having maturities of not
more than twelve months from the date of acquisition;
(3) certificates of deposit and eurodollar time deposits 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 domestic commercial bank having capital
and surplus in excess of $500 million and a Thompson Bank Watch Rating of
"B" or better;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing within twelve months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the sale, transfer, conveyance or other disposition (other than by
way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of Holley and its
Subsidiaries taken as a whole to any "person" or "group" (as such terms are
used in Section 13(d)(3) of the Exchange Act);
(2) the adoption of a plan relating to the liquidation or dissolution
of Holley;
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" or "group" (as defined above), other than one or more Permitted
Holders, becomes the Beneficial Owner, directly or indirectly, of more than
50% of the Voting Stock of Holley, measured by voting power rather than
number of shares;
(4) the first day on which a majority of the members of the Board of
Directors of Holley are not Continuing Directors; or
(5) Holley consolidates with, or merges with or into, any Person, or
any Person consolidates with, or merges with or into, Holley, in any such
event pursuant to a transaction in which any of the outstanding Voting
Stock of Holley is converted into or exchanged for cash, securities or
other property, other than any such transaction where the Voting Stock of
Holley outstanding immediately prior to such transaction is converted into
or exchanged for Voting Stock (other than Disqualified Stock) of the
surviving or transferee Person constituting a majority of the outstanding
shares of such Voting Stock of such surviving or transferee Person
immediately after giving effect to such issuance.
"Commission" means the Securities and Exchange Commission.
"Consolidated EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus:
(1) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net Income;
plus
(2) Consolidated Interest Expense of such Person; plus
(3) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and
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other non-cash expenses (excluding any such non-cash expense to the extent
that it represents an accrual of or reserve for cash expenses in any future
period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Restricted Subsidiaries for such period to
the extent that such depreciation, amortization and other non-cash expenses
were deducted in computing such Consolidated Net Income; minus
(4) non-cash items increasing such Consolidated Net Income for such
period, other than items that were accrued in the ordinary course of
business, in each case, on a consolidated basis and determined in
accordance with GAAP.
Notwithstanding the preceding, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges of,
a Restricted Subsidiary of Holley shall be added to Consolidated Net Income to
compute Consolidated EBITDA of Holley only to the extent that a corresponding
amount would be permitted at the date of determination to be dividended to
Holley by such Restricted Subsidiary without prior approval (that has not been
obtained), pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to that Subsidiary or its stockholders.
"Consolidated Interest Expense" of any Person for any period means the
aggregate interest expense of such Person and its Restricted Subsidiaries
(whether paid or accrued and whether or not capitalized) determined on a
consolidated basis in accordance with GAAP, including, without limitation or
duplication, amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest expense with respect to Attributable Value
in Sale and Leaseback Transactions, interest on Indebtedness Guaranteed by (or
secured by a Lien on any assets of) such Person or any of its Restricted
Subsidiaries, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
pursuant to Hedging Obligations.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends
or distributions received in cash by the specified Person or a Restricted
Subsidiary thereof;
(2) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders;
(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) the Net Income (but not loss) of any Unrestricted Subsidiary shall
be excluded, whether or not distributed to the specified Person or one of
its Subsidiaries;
(5) the cumulative effect of a change in accounting principles shall
be excluded;
(6) any restoration to income of any contingency reserve of an
extraordinary, non-recurring or unusual nature shall be excluded, except to
the extent that provision for such reserve was made out of Consolidated Net
Income accrued at any time following the Issue Date;
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(7) any gain or loss, together with any related provision for taxes on
such gain or loss, realized in connection with: (a) any Asset Sale; or (b)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or
any of its Restricted Subsidiaries shall be excluded;
(8) any extraordinary gain or loss, together with any related
provision for taxes on such extraordinary gain or loss shall be excluded;
(9) any income or loss attributable to discontinued operations shall
be excluded; and
(10) in the case of a successor to the specified Person by
consolidation or merger or as a transferee of the specified Person's
assets, any earnings of the successor corporation prior to such
consolidation, merger or transfer of assets shall be excluded.
"Continuing Director" means, as of any date of determination, any member of
the Board of Directors of Holley who:
(1) was a member of such Board of Directors on the date of the
indenture; or
(2) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.
"Credit Facility" means the amended and restated Credit Agreement dated as
of September 20, 1999, among Holley, the Guarantors, the lenders party thereto
in their capacities as lenders thereunder and Credit Agricole Indosuez, as
agent, together with the related documents thereto (including, without
limitation, any guarantee agreements and security documents), in each case as
such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including (a) adding an Acquisition Facility, (b) increasing the
amount of available borrowings thereunder (provided that such increase in
borrowings is permitted by the covenant described under
"-- Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock" as
evidenced by an Officers' Certificate delivered to the trustee, which shall be
conclusive) or (c) adding Subsidiaries as additional borrowers or guarantors
thereunder) all or any portion of the Indebtedness under such agreement or any
successor or replacement agreements and whether by the same or any other agent,
lender or group of lenders.
"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.
"Designation Amount" has the meaning ascribed to that term under
"-- Covenants -- Designation of Restricted and Unrestricted Subsidiaries."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case 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, in whole or in part, on or prior to the date on which the notes mature.
Notwithstanding the preceding sentence, any Capital Stock that would constitute
Disqualified Stock solely because the holders thereof have the right to require
Holley to repurchase such Capital Stock upon the occurrence of a change of
control or an asset sale shall not constitute Disqualified Stock if the terms of
such Capital Stock provide that Holley may not repurchase or redeem any such
Capital Stock pursuant to such provisions unless such repurchase or redemption
complies with the covenant described above under the caption
"-- Covenants -- Restricted Payments."
"Domestic Restricted Subsidiary" means a Restricted Subsidiary incorporated
or otherwise organized under the laws of the United States, any State thereof or
the District of Columbia.
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"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means the Obligations of Holley and its Restricted
Subsidiaries in existence on the date of the indenture, until such amounts are
repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of:
(1) the Consolidated Interest Expense of such Person; plus
(2) the product of (a) all dividend payments, whether or not in cash,
on any series of Disqualified Stock of such Person and on any series of
preferred stock of any of its Restricted Subsidiaries, other than dividend
payments on Equity Interests payable solely in Equity Interests of Holley
(other than Disqualified Stock) or payable to Holley or a Restricted
Subsidiary of Holley, times (b) a fraction, the numerator of which is one
and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any specified Person
for any period, the ratio of the Consolidated EBITDA of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person for
such period. In the event that the specified Person or any of its Restricted
Subsidiaries incurs, assumes, Guarantees, redeems or repays any Indebtedness
(other than borrowings under working capital facilities in the ordinary course
of business) or issues or redeems preferred stock subsequent to the commencement
of the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee, redemption or repayment of Indebtedness, or such issuance
or redemption of preferred stock, as if the same had occurred at the beginning
of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of
its Restricted Subsidiaries, including through mergers or consolidations
and including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior to
the Calculation Date shall be deemed to have occurred on the first day of
the four-quarter reference period and Consolidated EBITDA for such
reference period shall be calculated without giving effect to clause (3) of
the proviso set forth in the definition of Consolidated Net Income;
(2) the Consolidated EBITDA attributable to operations or businesses
disposed of prior to the Calculation Date shall be excluded; and
(3) the Fixed Charges attributable to operations or businesses
disposed of prior to the Calculation Date shall be excluded, but only to
the extent that the obligations giving rise to such Fixed Charges will not
be obligations of the specified Person or any of its Restricted
Subsidiaries following the Calculation Date.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary that is
organized and existing under the laws of a jurisdiction other than the United
States, any State thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public
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Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as have been
approved by a significant segment of the accounting profession, which are in
effect from time to time.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Guarantors" means each of:
(1) Holley Performance Systems, Inc., Weiand Automotive Industries,
Inc., Lunati Cams, Inc., Lunati & Taylor Pistons, Inc., LTM Motor Sports
Corporation and Hooker Industries, Inc.; and
(2) any other Subsidiary that executes a Subsidiary Guarantee in
accordance with the provisions of the indenture;
and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements entered into in the ordinary course of
business relating to Indebtedness permitted to be incurred under the
indenture; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates or foreign currency exchange rates
entered into in the ordinary course of business.
"Holder" means the registered holder of a note.
"Holdings" means KHPP Holdings, Inc., a Delaware corporation.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price
of any property, except any such balance that constitutes an accrued
expense or trade payable;
(6) representing any Hedging Obligations; or
(7) representing any Disqualified Stock of such Person and any
preferred stock issued by a Restricted Subsidiary of such Person,
if and to the extent any of the preceding items (other than letters of credit,
Hedging Obligations, Disqualified Stock and preferred stock of a Restricted
Subsidiary) would appear as a liability upon a balance sheet of the specified
Person prepared in accordance with GAAP. In addition, the term "Indebtedness"
includes (a) all Indebtedness of others secured by a Lien on any asset of the
specified Person (whether or not such Indebtedness is assumed by the specified
Person), (b) any sale of receivables of such Person, other than in connection
with a disposition of the business operations of such Person relating thereto or
a disposition of defaulted receivables for
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purpose of collection and not as a financing arrangement, and (c) to the extent
not otherwise included, the Guarantee by such Person of any indebtedness of any
other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount;
(2) the amount of the unrecovered capital or principal investment of
the purchaser (other than Holley or a Restricted Subsidiary of Holley)
excluding amounts representative of yield or interest earned on such
investment, in the case of any sale of receivables;
(3) the maximum fixed redemption or repurchase price, in the case of
Disqualified Stock of such Person;
(4) the maximum voluntary or involuntary liquidation preferences plus
accrued and unpaid dividends, in the case of preferred stock of a
Restricted Subsidiary of such Person; and
(5) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions, purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"Issue Date" means the date of original issuance of notes.
"Kohlberg" means Kohlberg & Co., L.L.C., a Delaware limited liability
company, and its affiliates.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person and its Restricted Subsidiaries, determined in accordance with GAAP
and before any reduction in respect of preferred stock dividends and
Disqualified Stock dividends.
"Net Proceeds" means the aggregate cash proceeds received by Holley or any
of its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of 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, taxes paid or payable as a result thereof, in each case after
taking into account any available tax credits or deductions and any tax sharing
arrangements and net of appropriate amounts to be provided by Holley or any
Restricted Subsidiary, as the case may be, as a reserve, in accordance with
GAAP, against any liabilities associated with such Asset Sale and retained by
Holley or any Restricted Subsidiary, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale.
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"Non-Recourse Debt" means Indebtedness:
(1) as to which neither Holley nor any of its Restricted Subsidiaries
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the notes) of Holley or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its Stated
Maturity; and
(3) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of Holley or any of its
Restricted Subsidiaries.
"notes" means Holley's 12 1/4% Senior notes due 2007 issued pursuant to the
indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the Board, the
Chief Executive Officer, the President, any Vice President, the Chief Financial
Officer, the Controller or the Secretary of such Person.
"Officers' Certificate" means a certificate signed by two Officers of
Holley.
"Opinion of Counsel" means a written opinion from legal counsel who are
reasonably acceptable to the trustee.
"Permitted Holders" means KHPP Holdings, Inc., a Delaware corporation and
Kohlberg, & Co., L.L.C. a Delaware limited liability company (and any of their
controlled Affiliates), Jeffrey G. King, Robert L. Wineland, James R. Vance and
John H. Nickoloff.
"Permitted Investments" means:
(1) any Investment in Holley or in a Restricted Subsidiary of Holley;
(2) any Investment in Cash Equivalents;
(3) any Investment by Holley or any Restricted Subsidiary of Holley in a
Person, if as a result of such Investment;
(a) such Person becomes a Restricted Subsidiary of Holley; or
(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, Holley or a Restricted Subsidiary of Holley;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales";
(5) any acquisition of assets solely in exchange for the issuance of
Equity Interests (other than Disqualified Stock) of Holley;
(6) loans and advances to employees and officers of Holley and its
Restricted Subsidiaries in the ordinary course of business for bona
fide business purposes not in excess of $1.0 million at any one time
outstanding;
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(7) Investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon
the bankruptcy or insolvency of such trade creditors or customers;
(8) other Investments in any Person having an aggregate fair market
value (measured on the date each such Investment was made and
without giving effect to subsequent changes in value), when taken
together with all other Investments made pursuant to this clause (8)
since the date of the indenture, not to exceed $1.0 million at any
one time outstanding;
(9) Investments in Hedging Obligations; and
(10) Investments in the notes.
"Permitted Liens" means:
(1) Liens for taxes, assessments, governmental charges or claims which
are not yet delinquent or which are being contested in good faith by
appropriate proceedings, if a reserve or other appropriate provision, if
any, as shall be required in conformity with generally accepted accounting
principles shall have been made therefor;
(2) pledges and deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of statutory obligations (including to secure government contracts);
(3) deposits made to secure the performance of tenders, bids, leases,
and other obligations of like nature incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money);
(4) zoning restrictions, servitudes, easements, rights-of-way,
restrictions and other similar charges or encumbrances incurred in the
ordinary course of business which, in the aggregate, do not materially
detract from the value of the property subject thereto or interfere with
the ordinary conduct of the business of Holley or the Guarantors;
(5) Liens arising out of judgments or awards against Holley or any
Guarantor with respect to which Holley or such Guarantor is prosecuting an
appeal or proceeding for review and Holley or such Guarantor is maintaining
adequate reserves in accordance with generally accepted accounting
principles;
(6) any interest or title of a lessor in the property subject to any
lease other than a Capital Lease Obligation; and
(7) any statutory warehousemen's, materialmen's or other similar Liens
for sums not then due and payable (or which, if due and payable, are being
contested in good faith and with respect to which adequate reserves are
being maintained to the extent required by generally accepted accounting
principles).
"Permitted Refinancing Indebtedness" means any Indebtedness of Holley or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of Holley or any of its Restricted Subsidiaries (other than
intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount of
(or accreted value, if applicable), plus accrued interest on, and any
reasonable prepayment premium with respect to, the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the
amount of reasonable expenses incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, or has a Weighted Average Life to
Maturity equal to or greater than the
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Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes or a
Subsidiary Guarantee, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the notes or such Subsidiary Guarantee, as the case
may be, on terms at least as favorable to the Holders of notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by Holley or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a governmental
agency or political subdivision thereof.
"Public Equity Offering" means any underwritten public offering of common
stock of Holley or of Holdings pursuant to a registration statement filed with
the Commission in accordance with the Securities Act; provided that in the event
of a Public Equity Offering by Holdings, Holdings contributes to the common
equity capital of Holley (other than Disqualified Stock of Holley) the portion
of the net cash proceeds of such Public Equity Offering necessary to pay the
aggregate redemption price (plus accrued and unpaid interest and Additional
Interest, if any, thereon to the redemption date) of the notes to be so
redeemed.
"Purchase Money Indebtedness" means Indebtedness of Holley or any
Restricted Subsidiary incurred for the purpose of financing all or any part of
the purchase price or the cost of an Asset Acquisition or construction or
improvement of any property; provided that the aggregate principal amount of
such Indebtedness does not exceed such purchase price or cost.
"Replacement Assets" means assets and property that will be used in the
business of Holley and/or its Restricted Subsidiaries as existing on the Issue
Date or in a business the same, similar or reasonably related thereto (including
Equity Interests of a Person which becomes a Restricted Subsidiary).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 365 days after the
later of the acquisition thereof or the completion of construction or
commencement of operation thereof to such lender or investor or to any Person to
whom funds have been or are to be advanced by such lender or investor on the
security of such property or asset. The Stated Maturity of such arrangement
shall be the date of the last payment of rent or any other amount due under such
arrangement prior to the first date on which such arrangement may be terminated
by the lessee without payment of a penalty.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be
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paid in the original documentation governing such Indebtedness, and shall not
include any contingent obligations to repay, redeem or repurchase any such
interest or principal prior to the date originally scheduled for the payment
thereof.
"Subsidiary" means, with respect to any Person:
(1) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means a Guarantee of the notes issued by a Guarantor
pursuant to the indenture.
"Unrestricted Subsidiary" means any Subsidiary of Holley that is designated
by the Board of Directors as an Unrestricted Subsidiary in accordance with the
covenant described under the caption "-- Covenants -- Designation of Restricted
and Unrestricted Subsidiaries."
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such
payment; by
(2) the then outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person and/or by one or more Wholly Owned Restricted
Subsidiaries of such Person.
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FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following discussion is a summary of the material United States federal
income tax considerations relevant to the purchase, ownership and disposition of
the notes by persons acquiring notes on original issuance for cash at the
initial issue price and does not purport to be a complete analysis of all of the
potential tax considerations relating thereto. This summary is based on the
Internal Revenue Code of 1986, Treasury regulations, court decisions, published
positions of the Internal Revenue Service and other applicable authorities, all
as in effect on the date of this prospectus and all of which are subject to
change or differing interpretation, possibly on a retroactive basis. This
summary is limited to persons who will hold the notes as capital assets
(generally, assets held for investment). This summary does not address all of
the tax consequences that may be relevant to investors that may be subject to
special tax treatment (such as financial institutions, tax-exempt organizations,
real estate investment companies, regulated investment companies, insurance
companies, dealers in securities or currencies, non-United States persons or
expatriates). Holders considering the exchange of outstanding notes for exchange
notes should consult their own tax advisors concerning the U.S. federal income
tax consequences in light of their particular situations, as well as any
consequences arising under state, local or foreign income tax or other tax law.
All references to notes in this section apply equally to exchange notes as to
outstanding notes.
TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of outstanding notes for exchange notes pursuant to the
exchange offer will not be considered a taxable exchange for U.S. federal income
tax purposes because the exchange notes will not differ materially in kind or
extent from the outstanding notes and because the exchange will occur by
operation of the terms of the outstanding notes. Accordingly, such exchange will
have no U.S. federal income tax consequences to holders of outstanding notes. A
Holder's adjusted tax basis and holding period in an exchange note will be the
same as such Holder's adjusted tax basis and holding period, respectively, in
the outstanding notes exchange therefor. However, because the notes were issued
with an original issue discount, there will be income tax consequences
associated with the exchange notes.
UNITED STATES HOLDERS
As used herein, the term "United States Holder" means the beneficial owner
of a note that for United States federal income tax purposes is:
- a citizen or resident of the United States,
- a corporation created or organized in or under the laws of the United
States or any state thereof,
- a partnership or other business entity created or organized in or under
the laws of the United States or any state thereof and that, is properly
treated as a United States person for tax purposes,
- an estate the income of which is includable in gross income for United
States federal income tax purposes regardless of its source, or
- a trust the administration of which is subject to the primary supervision
of a United States court and with respect to which one or more United
States persons have the authority to control all substantial decisions.
An individual may, subject to exceptions, be deemed to be a United States
resident, as opposed to a non-resident alien, by virtue of being present in the
United States on at least 31
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days in the calendar year and for an aggregate of at least 183 days during a
three-year period ending in the current calendar year, counting for such
purposes all of the days present in the current year, one-third of the days
present in the immediately preceding year, and one-sixth of the days present in
the second preceding year. Resident aliens are subject to United States federal
income tax as if they were United States citizens.
Payment of Interest and Original Issue Discount
Interest on a note generally will be includable in the income of a United
States Holder as ordinary income at the time such interest is received or
accrued, in accordance with such Holder's method of accounting for United States
federal income tax purposes.
The notes will be issued with original issue discount (the "original issue
discount") from their stated principal amount. The amount of the original issue
discount will be equal to the excess of the stated redemption price at maturity
of the notes (i.e., the principal amount) over their issue price. A Holder must
include the original issue discount in gross income as ordinary interest income
as it accrues on a constant yield method, without regard to the Holder's regular
method of accounting. The original issue discount must, therefore, be included
in income in advance of the receipt of the cash representing that income.
Sale, Exchange or Redemption of notes
Upon the sale, exchange or redemption of a note, a United States Holder
generally will recognize capital gain or loss equal to the difference between
(a) the amount of cash proceeds and the fair market value of any property
received on the sale, exchange or redemption, except to the extent such amount
is attributable to accrued interest income, which is taxable as ordinary income,
and (b) such Holder's adjusted tax basis in the note. A United States Holder's
adjusted tax basis in a note generally will equal the cost of the note to such
Holder increased by the original issue discount previously included in income
and decreased by any principal payments received by such Holder. Such capital
gain or loss will be long-term if the United States Holder's holding period is
more than 12 months and will be short-term if the holding period is equal to or
less than 12 months. Long-term capital gains recognized by individuals are
generally taxed at a maximum federal tax rate of 20.0%, and short-term capital
gains are generally taxed at a maximum federal tax rate of 39.6%.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to same
noncorporate United States Holders with respect to payments of principal and
interest on a note, and to payments of the proceeds of the sale of a note. The
receipt of such payments may be subject, under certain circumstances, to "backup
withholding" at a 31.0% rate. Backup withholding generally applies only if the
Holder (a) fails to furnish his or her Social Security or other taxpayer
identification number ("TIN") within a reasonable time after the request
therefor, (b) furnishes an incorrect TIN, (c) is notified by the IRS that he or
she has failed to report properly interest, dividends or original issue
discount, or (d) fails, under certain circumstances, to provide a certified
statement, signed under penalties of perjury, that the TIN provided is the
correct number and that he or she is not subject to backup withholding. Any
amounts withheld under the backup withholding rules from a payment to a United
States Holder will be allowed as a credit against such Holder's United States
federal income tax and may entitle the Holder to a refund, provided that the
required information is furnished to the Internal Revenue Service.
NON-U.S. HOLDERS
The following discussion is a summary of the material United States federal
income tax consequences to a Non-U.S. Holder that holds a note. A "Non-U.S.
Holder" is a holder that is not a U.S. Holder.
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A Non-U.S. Holder generally will not be subject to United States tax on
interest on a note, provided that such interest is not effectively connected
with a U.S. trade or business of the holder and that
- such Non-U.S. Holder does not actually or constructively own 10% or more
of the total combined voting power of all classes of stock of the issuer
entitled to vote;
- such Non-U.S. Holder is not a controlled foreign corporation with respect
to which the issuer is a "related person" for United States federal
income tax purposes; and
- such Non-U.S. Holder certifies, under penalty of perjury, that it is a
Non-U.S. Holder and provides its name and address.
A Non-U.S. Holder that does not qualify for the exception from tax
described above would generally be subject to United States withholding tax at a
flat rate of 30% (or a lower applicable treaty rate) on payments of interest,
unless the Non-U.S. Holder's income from the notes is effectively connected with
a U.S. trade or business of the holder and the holder timely furnishes two duly
executed copies of IRS Form 4224 (or any successor form) to the withholding
agent, in which case such income would be taxed on a net basis as though the
holder were a United States person.
In addition, gain recognized by a Non-U.S. Holder upon the sale, exchange
or redemption of a note will not be subject to United States federal income tax
unless
- the gain is effectively connected with the conduct of a trade or business
within the United States by the Non-U.S. Holder; or
- the Non-U.S. Holder is an individual present in the United States for 183
days or more during the taxable year in which the note is sold, exchanged
or redeemed, and certain other requirements are met.
A note held by an individual who at the time of his or her death is not a
citizen or resident of the United States will not be includable in such
individual's gross estate subject to United States federal estate tax as a
result of such individual's death, provided that
- the individual did not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of the issuer
entitled to vote; and
- the interest on the note would not have been United States trade or
business income if it had been received by such individual at the time of
his or her death.
BACKUP WITHHOLDING
A holder of a note may be subject to backup withholding at a 31% rate with
respect to interest and gross proceeds received with respect to the note. Backup
withholding will not apply, however, to a holder who furnishes a correct
taxpayer identification number or certificate of foreign status and makes any
other required certification, or who is otherwise exempt from backup
withholding. Generally, a holder of a note that is a United States person will
provide such certification on IRS Form W-9 (Request for Taxpayer Identification
Number and Certification) and a Non-U.S. Holder will provide such certification
on IRS Form W-8 (Certificate of Foreign Status).
Backup withholding is not an additional tax. Amounts withheld under the
backup withholding rules may be credited against a holder's tax liability, and a
holder may obtain a refund of any excess amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS
(generally, a United States federal income tax return).
The IRS has issued Treasury regulations, generally effective for payments
made after December 31, 2000, concerning the withholding of tax and reporting
for certain amounts paid to
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non-resident individuals and foreign corporations. Among other things, these
Treasury regulations may require Non-U.S. Holders to furnish new certification
of their foreign status. Prospective purchasers of notes should consult their
tax advisors concerning the applicability and effect of these Treasury
regulations on an investment in notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for outstanding notes where such outstanding notes were acquired as a
result of market-making activities or other trading activities. Holley has
agreed that, starting on the expiration date and ending on the close of business
one year after the expiration date, it will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale. In addition, until [XXX], 1999, all dealers effecting transactions in
the exchange notes may be required to deliver a prospectus.
Holley will not receive any proceeds from the issuance of the exchange
notes offered hereby or any sale of exchange notes by broker-dealers. Exchange
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 exchange 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 exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit from any
such resale of exchange notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The letter of transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period of one year after the expiration date, Holley will promptly
send additional copies of this prospectus and any amendment or supplement to
this prospectus to any broker-dealer that requests such documents in the letter
of transmittal. Holley has agreed to pay all expenses incident to the exchange
offer, including the expenses of one counsel for the holders of the outstanding
notes, other than dealers' and brokers' discounts, commissions and counsel fees
and will indemnify the holders of the outstanding notes, including any
broker-dealers, against certain liabilities, including liabilities under the
Securities Act.
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LEGAL MATTERS
The validity of the exchange notes offered hereby will be passed upon for
Holley by Hunton & Williams, Atlanta, Georgia.
INDEPENDENT PUBLIC ACCOUNTANTS
The audited consolidated financial statements of Holley Performance
Products Inc. and Subsidiaries for the years ended December 31, 1996 and 1997
and the periods from January 1, 1998 to May 15, 1998 and May 16, 1998 to
December 31, 1998; and the consolidated financial statements of Hooker
Industries, Inc. for the years ended June 30, 1999 and 1998, all included in
this prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their reports appearing herein.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HOLLEY PERFORMANCE PRODUCTS, INC.
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998................................................... F-3
Consolidated Statements of Income for each of the years
ended December 31, 1996 and 1997, the period from
January 1, 1998 to May 15, 1998 and the period from
Inception, May 16, 1998, to December 31, 1998.......... F-4
Consolidated Statements of Stockholder's Equity for each
of the years ended December 31, 1996 and 1997, the
period from January 1, 1998 to May 15, 1998 and the
period from Inception, May 16, 1998, to December 31,
1998................................................... F-5
Consolidated Statements of Cash Flows for each of the
years ended December 31, 1996 and 1997, the period from
January 1, 1998 to May 15, 1998 and the period from
Inception, May 16, 1998, to December 31, 1998.......... F-6
Notes to Consolidated Financial Statements................ F-7
HOLLEY PERFORMANCE PRODUCTS, INC.
Consolidated Balance Sheets as of December 31, 1998 and
October 3, 1999........................................ F-22
Consolidated Statements of Income for the periods from
January 1, 1998 to May 15, 1998 and May 16, 1998 to
September 27, 1998 and the nine months ended October 3,
1999................................................... F-23
Consolidated Statements of Stockholder's Equity for the
nine months ended October 3, 1999...................... F-24
Consolidated Statements of Cash Flows for the periods from
January 1, 1998 to May 15, 1998 and May 16, 1998 to
September 27, 1998 and the nine months ended October 3,
1999................................................... F-25
Notes to Consolidated Financial Statements................ F-26
HOOKER INDUSTRIES, INC.
Report of Independent Public Accountants.................. F-31
Consolidated Balance Sheets as of June 30, 1999 and
1998................................................... F-32
Consolidated Statements of Income for the years ended June
30, 1999 and 1998...................................... F-33
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1999 and 1998..................... F-34
Consolidated Statements of Cash Flows for the years ended
June 30, 1999 and 1998................................. F-35
Notes to Consolidated Financial Statements................ F-36
FLOWTECH
Report of Independent Public Accountants.................. F-
Consolidated Balance Sheets as of June 30, 1999 and
1998................................................... F-
Consolidated Statements of Income for the years ended June
30, 1999 and 1998...................................... F-
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1999 and 1998..................... F-
Consolidated Statements of Cash Flows for the years ended
June 30, 1999 and 1998................................. F-
Notes to Consolidated Financial Statements................ F-
NITROUS OXIDE SYSTEMS, INC.
Report of Independent Public Accountants.................. F-
Consolidated Balance Sheet as of December 31, 1998........ F-
Consolidated Statement of Income for the year ended
December 31, 1998...................................... F-
Consolidated Statement of Stockholders' Equity for the
year ended December 31, 1998........................... F-
Consolidated Statement of Cash Flows for the year ended
December 31, 1998...................................... F-
Notes to Consolidated Financial Statements................ F-
</TABLE>
F-1
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Holley Performance Products Inc.:
We have audited the accompanying consolidated balance sheet of HOLLEY
PERFORMANCE PRODUCTS INC. (a Delaware corporation) AND SUBSIDIARIES (the
"Company") as of December 31, 1998 and the related consolidated statements of
income, stockholder's equity and cash flows for the period from inception, May
16, 1998, to December 31, 1998. We have also audited the accompanying balance
sheet of the Predecessor (businesses identified in Note 1) as of December 31,
1997, and the related statements of income, stockholder's equity and cash flows
for the years ended December 31, 1996 and 1997 and the period from January 1,
1998 to May 15, 1998. 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 Holley Performance Products
Inc. and subsidiaries as of December 31, 1998 and the results of their
operations and cash flows for the period from inception, May 16, 1998, to
December 31, 1998 and the financial position of the Predecessor as of December
31, 1997 and its results of operations and cash flows for the years ended
December 31, 1996 and 1997 and the period from January 1, 1998 to May 15, 1998
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 23, 1999
F-2
<PAGE> 114
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE
PREDECESSOR ARE NOT COMPARABLE IN CERTAIN RESPECTS.
<TABLE>
<CAPTION>
THE PREDECESSOR THE COMPANY
DECEMBER 31, DECEMBER 31,
1997 1998
--------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ -- $ 2,013
Accounts receivable, net of reserves for doubtful accounts
of $1,118 and $1,686, respectively..................... 10,529 15,174
Inventories............................................... 11,216 22,673
Deferred income taxes..................................... 2,791 4,151
Other current assets...................................... 2,540 845
------- --------
Total current assets.............................. 27,076 44,856
PROPERTY, PLANT AND EQUIPMENT, net.......................... 6,511 26,771
INTANGIBLE ASSETS, net...................................... 297 106,445
------- --------
Total assets...................................... $33,884 $178,072
======= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Bank overdraft............................................ $ 172 $ --
Current portion of long-term debt......................... -- 3,200
Accounts payable.......................................... 3,305 6,923
Accrued liabilities....................................... 8,962 15,171
------- --------
Total current liabilities......................... 12,439 25,294
------- --------
PAYABLE TO PARENT........................................... 9,081 --
------- --------
LONG-TERM DEBT, net of current portion...................... -- 89,888
------- --------
DEFERRED INCOME TAXES....................................... 41 19,099
------- --------
OTHER....................................................... 814 752
------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1.00 and $0.01 par value; authorized 1,000
and 50,000,000; issued and outstanding 1,000 and
24,966,667, respectively............................... 1 250
Paid-in capital........................................... -- 42,170
Retained earnings......................................... 11,508 619
------- --------
Total stockholder's equity........................ 11,509 43,039
------- --------
Total liabilities and stockholder's equity........ $33,884 $178,072
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 115
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE
PREDECESSOR ARE NOT COMPARABLE IN CERTAIN RESPECTS.
<TABLE>
<CAPTION>
THE PREDECESSOR THE COMPANY
------------------------------ ------------
YEAR ENDED JANUARY 1, MAY 16, 1998
DECEMBER 31, 1998 TO TO
----------------- MAY 15, DECEMBER 31,
1996 1997 1998 1998
------- ------- ---------- ------------
<S> <C> <C> <C> <C>
NET SALES.......................................... $96,290 $98,803 $36,632 $64,731
COST OF SALES...................................... 65,368 69,192 25,728 44,269
------- ------- ------- -------
Gross profit............................. 30,922 29,611 10,904 20,462
------- ------- ------- -------
SELLING EXPENSES................................... 8,538 9,654 4,018 6,895
GENERAL AND ADMINISTRATIVE EXPENSES................ 8,045 10,836 2,756 4,495
MANAGEMENT FEES TO RELATED PARTY................... 2,285 2,269 842 405
NON-RECURRING CHARGE............................... -- -- -- 452
AMORTIZATION EXPENSE............................... 113 113 45 1,626
------- ------- ------- -------
Operating income......................... 11,941 6,739 3,243 6,589
------- ------- ------- -------
INTEREST EXPENSE................................... -- -- -- 4,705
OTHER INCOME (EXPENSE)............................. (183) 45 (1,395) (231)
------- ------- ------- -------
INCOME BEFORE TAXES................................ 11,758 6,784 1,848 1,653
PROVISION FOR INCOME TAXES......................... 4,514 2,520 797 1,034
------- ------- ------- -------
NET INCOME......................................... $ 7,244 $ 4,264 $ 1,051 $ 619
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 116
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE
PREDECESSOR ARE NOT COMPARABLE IN CERTAIN RESPECTS.
<TABLE>
<CAPTION>
COMMON PAID-IN DIVISIONAL RETAINED
STOCK CAPITAL EQUITY EARNINGS TOTAL
------- ------- ---------- -------- --------
THE PREDECESSOR
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995................ $ -- $ -- $ 20,185 $ -- $ 20,185
Elimination of divisional equity........ -- -- (20,185) -- (20,185)
Issuance of common stock................ 1 -- -- -- 1
Net income.............................. -- -- -- 7,244 7,244
------- ------- -------- -------- --------
BALANCE, December 31, 1996................ 1 -- -- 7,244 7,245
Net income.............................. -- -- -- 4,264 4,264
------- ------- -------- -------- --------
BALANCE, December 31, 1997................ 1 -- -- 11,508 11,509
Net income.............................. -- -- -- 1,051 1,051
------- ------- -------- -------- --------
BALANCE, May 15, 1998..................... $ 1 $ -- $ -- $ 12,559 $ 12,560
======= ======= ======== ======== ========
THE COMPANY
----------------------------------------------------
Acquisition -- elimination of Predecessor
equity (see Note 1)..................... $ (1) $ -- $ -- $(12,559) $(12,560)
Issuance of common stock................ 250 42,170 -- -- 42,420
Net income.............................. -- -- -- 619 619
------- ------- -------- -------- --------
BALANCE, December 31, 1998................ $ 250 $42,170 $ -- $ 619 $ 43,039
======= ======= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 117
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE
PREDECESSOR ARE NOT COMPARABLE IN CERTAIN RESPECTS.
<TABLE>
<CAPTION>
THE PREDECESSOR THE COMPANY
-------------------------------- ------------
YEAR ENDED JANUARY 1, MAY 16, 1998
DECEMBER 31, 1998 TO TO
------------------- MAY 15, DECEMBER 31,
1996 1997 1998 1998
--------- ------- ---------- ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................. $ 7,244 $ 4,264 $ 1,051 $ 619
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............ 1,150 1,063 576 3,547
(Gain) loss on disposal of fixed
assets................................. 188 (85) -- --
Deferred income taxes.................... (2,292) (458) (919) (959)
Changes in assets and liabilities, net of
assets purchased:
Accounts receivable.................... (4,279) 4,094 (3,686) 1,401
Inventories............................ 491 1,439 1,198 (3,464)
Other current assets................... 166 (1,870) 501 (770)
Bank overdraft......................... -- (853) (131) --
Accounts payable....................... 314 623 2,719 265
Accrued liabilities.................... 4,236 (2,562) 1,704 936
--------- ------- --------- --------
Net cash provided by operating
activities........................ 7,218 5,655 3,013 1,575
--------- ------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................ (466) (942) (1,188) (2,819)
Proceeds on disposal of fixed assets........ -- 347 -- 1,053
Cash paid for acquisitions.................. -- -- -- (130,380)
--------- ------- --------- --------
Net cash used in investing
activities........................ (466) (595) (1,188) (132,146)
--------- ------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
obligations.............................. -- -- -- 94,376
Principal payments on long-term
obligations.............................. -- -- -- (2,362)
Elimination of divisional equity............ (20,185) -- -- --
Changes in payable to parent................ 13,433 (5,060) (1,825) --
Financing costs............................. -- -- -- (1,850)
Proceeds from issuance of equity............ -- -- -- 42,420
--------- ------- --------- --------
Net cash provided by (used in)
financing activities.............. (6,752) (5,060) (1,825) 132,584
--------- ------- --------- --------
NET CHANGE IN CASH............................ -- -- -- 2,013
BALANCE AT BEGINNING OF PERIOD................ -- -- -- --
========= ======= ========= ========
BALANCE AT END OF PERIOD...................... $ -- $ -- $ -- $ 2,013
========= ======= ========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest...................... $ -- $ -- $ -- $ 3,818
========= ======= ========= ========
Cash paid for income taxes.................. $ -- $ -- $ -- $ 2,350
========= ======= ========= ========
Transfer of assets from (to) Parent......... $ -- $ 704 $ (1,594) $ --
========= ======= ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 118
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION AND BASIS OF PRESENTATION
Holley Performance Products Inc. (a Delaware corporation and "Holley"),
based in Bowling Green, Kentucky, is a leading manufacturer of a diversified
line of performance automotive products, including carburetors, fuel pumps, fuel
injection systems, ignition systems and remanufactured carburetors. The products
are designed to enhance street, off-road, recreational and competitive vehicle
performance through increased horsepower, torque and driveability. In addition
to its automotive performance line, Holley manufactures performance marine,
mobile and stationary industrial engine components and markets a new line of
performance in-tank fuel pumps as well as a recently introduced specialty
chemical line.
Effective May 15, 1998, all outstanding shares of Holley common stock were
purchased by KHPP Acquisition Corporation ("KHPP"), a wholly-owned subsidiary of
KHPP Holdings Corporation ("Holdings"), for $100,000 (the "Acquisition"). At the
time of the Acquisition, KHPP was merged into Holley. The consolidated balance
sheet as of December 31, 1998 and the consolidated statements of income,
stockholder's equity and cash flows for the period from May 16 to December 31,
1998 reflect the accounts of Holley subsequent to the change in ownership which
resulted from the Acquisition. The Acquisition was accounted for using the
purchase method of accounting. The allocation of purchase price has been
tentatively allocated based upon preliminary estimates of the fair value of the
net assets acquired (Note 3).
Prior to January 1, 1996, Holley was a division of Coltec Industries, Inc.
("Coltec"). Effective January 1, 1996, Holley was incorporated, and from January
1, 1996 to May 15, 1998, Holley was a wholly-owned subsidiary of Coltec. The
balance sheet as of December 31, 1997 and the statements of income,
stockholder's equity and cash flows for the years ended December 31, 1996 and
1997 and the period from January 1, 1998 through May 15, 1998, are the financial
statements of Holley when it was a wholly-owned subsidiary of Coltec (referred
to herein as the "Predecessor"). The Acquisition and the related application of
purchase accounting (Note 3) resulted in changes to the capital structure of the
Predecessor and the historical basis of various assets and liabilities. The
effect of such changes significantly impairs the comparability of the financial
position and results of operations of Holley and the Predecessor.
In August and October of 1998, respectively, Holley purchased the
outstanding common stock of Weiand Automotive Industries, Inc. ("Weiand") and a
group of companies under common ownership, Lunati Cams, Inc., Lunati & Taylor
Pistons, Inc., and LMT Motor Sports Corporation (referred to collectively as
"Lunati"). Weiand is a manufacturer and distributor of induction systems, and
Lunati is a manufacturer of camshafts, crankshafts, pistons and automotive
specialty parts. Both Weiand and Lunati sell their products to automotive parts
retailers throughout the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Holley and
its wholly-owned subsidiaries -- Weiand and Lunati (collectively referred to as
the "Company"). All significant intercompany transactions and balances between
Holley and its subsidiaries have been eliminated in consolidation.
F-7
<PAGE> 119
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments, purchased
with an original maturity of three months or less.
REVENUES AND ACCOUNTS RECEIVABLE
The Company's customers operate primarily in the automotive parts and
specialty automotive equipment parts industries. The Company generally grants
credit to customers on an unsecured basis. Revenues from sales are recognized at
the time products are shipped. Sales returns and allowances are recorded as a
charge against revenue in the period in which the related sales are recognized.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method for 100% and 75% of inventory,
respectively, as of December 31, 1997 and 1998. Cost for the remaining inventory
as of December 31, 1998, is determined using the first-in, first-out (FIFO)
method. The percentage decrease in inventory accounted for by the LIFO method as
of December 31, 1998, resulted from the Weiand and Lunati acquisitions. Cost
elements included in inventory are material, labor and factory overhead.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment purchased in the Acquisition, as well as the
acquisitions of Weiand and Lunati, are stated at estimated fair market value as
prescribed by the purchase method of accounting. Subsequent purchases of
property, plant and equipment are stated at cost, net of accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which are as follows (in years):
<TABLE>
<CAPTION>
THE PREDECESSOR THE COMPANY
--------------- -----------
<S> <C> <C>
Buildings and improvements.............................. 10-45 10-45
Machinery and equipment................................. 3-20 3-10
Furniture and fixtures.................................. 3-20 3
Computer equipment...................................... 3 3
</TABLE>
Expenditures for maintenance and repairs are generally charged to expense
as incurred, whereas expenditures for improvements and replacements are
capitalized.
The cost and accumulated depreciation of assets sold or otherwise disposed
of are removed from the accounts and the resulting gain or loss is reflected in
the consolidated statements of income.
INTANGIBLE ASSETS
Financing costs are amortized over the term of the related outstanding debt
using the effective interest method. The excess of the aggregate purchase price
over the fair value of assets of businesses acquired (goodwill) is being
amortized on a straight-line basis over a period of 40 years. Trade names are
being amortized on a straight-line basis over their estimated useful lives of 40
years. In connection with acquisitions, the Company has entered into various
noncompete agreements with certain individuals. The estimated values allocated
to such agreements are amortized on a straight-line basis over the terms of the
respective agreements.
F-8
<PAGE> 120
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Subsequent to an acquisition, the Company continually evaluates whether
events and circumstances have occurred that indicate the remaining estimated
useful life of its intangible assets may warrant revision or that the remaining
balance of such assets may not be recoverable. When factors indicate that such
assets should be evaluated for possible impairment, the Company uses an estimate
of the acquired operation's undiscounted cash flows over the remaining life of
the asset in measuring whether the asset is recoverable.
INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", ("SFAS 109"). Under
the asset and liability method of SFAS 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
fiscal years in which those temporary differences are expected to be recovered
or settled. Under SFAS 109, the effect on the deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
Prior to the Acquisition, the Predecessor was included in the consolidated
Federal income tax return of Coltec. For financial reporting purposes, the
Predecessor provided income taxes as if it filed separately from Coltec while it
was a subsidiary of Coltec. Subsequent to the Acquisition, the Company will be
included in the consolidated Federal income tax return of Holdings.
ACCRUED CLAIMS AND LITIGATION
The Company is partially self-insured for claims arising from employee
health benefits and, prior to May 16, 1998, was partially self-insured for
claims arising from workers' compensation. Excess insurance coverage is
maintained for per-incident and cumulative liability losses for these risks in
amounts management considers adequate. Amounts are currently accrued for the
estimated cost of claims incurred, including related expenses. Management
considers the accrued liabilities for unsettled claims to be adequate; however,
there is no assurance that the amounts accrued will not vary from the ultimate
amounts incurred upon final disposition of all outstanding claims. As a result,
periodic adjustments to the reserves will be made as events occur which indicate
that changes are necessary.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", ("SFAS 123"), encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has chosen to continue to account for employee
stock-based compensation using the intrinsic value method as prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", ("APB Opinion No. 25"), and related Interpretations. As of December
31, 1998, no options to purchase common stock of the Company have been granted.
F-9
<PAGE> 121
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
NON-RECURRING CHARGE
The non-recurring charge includes expenses related to the closure of a
manufacturing facility and the related movement of inventory and fixed assets to
the Company's manufacturing facility in Bowling Green, Kentucky.
RESEARCH AND DEVELOPMENT COSTS
Research, development, pre-production and start-up costs related to both
present and future products are expensed as incurred. Such costs amounted to
$2,133, $2,688, $884 and $1,387 for the years ended December 31, 1996 and 1997,
and the periods from January 1, 1998 to May 15, 1998, and from May 16, 1998 to
December 31, 1998, respectively, and are classified as a component of general
and administrative expenses in the accompanying consolidated statements of
income.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
LONG-LIVED ASSETS
When factors are present which indicate the cost of assets may not be
recovered, the Company evaluates the realizability of its long-lived assets
based upon the anticipated future undiscounted cash flows generated by the
asset.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of financial instruments using quoted
or estimated market prices based upon the current interest rate environment and
the remaining term to maturity. At December 31, 1998, there were no material
differences between the book values of the Company's financial instruments and
their related fair values.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective May 16, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131"). SFAS 131 establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. SFAS 131 also
establishes standards for related disclosures about products and services,
geographic areas, and major customers.
Effective May 16, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"),
which establishes standards for reporting and displaying comprehensive income
and its components in a full set of general purpose financial statements.
Comprehensive income encompasses all changes in stockholder's equity (except
those arising from transactions with owners) and includes net income, net
unrealized capital gains or losses on available for sale securities and foreign
currency translation
F-10
<PAGE> 122
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
adjustments. Adoption of this pronouncement has not had a material impact on the
Company's results of operations, as comprehensive income for 1998 was the same
as net income for the Company.
3. ACQUISITIONS
HOLLEY
The Acquisition was accounted for as a purchase. Accordingly, the
consolidated financial statements of the Company include the results of
operations of Holley subsequent to May 15, 1998. The purchase price was
$100,000, excluding certain costs related to financing and consummating the
Acquisition. The purchase price was funded from the sale of common stock and the
proceeds from three term notes and a revolving line of credit.
The allocation of the purchase price to the underlying net assets acquired
was based on estimates of the fair value of the net assets as follows:
<TABLE>
<S> <C>
Purchase price.............................................. $100,000
Financing and other transaction costs....................... 5,511
--------
Total purchase price.............................. 105,511
--------
Less: value assigned to assets and liabilities:
Current assets............................................ 26,266
Property, plant and equipment............................. 17,686
Financing costs........................................... 1,700
Trade name................................................ 23,180
Deferred tax liability, net............................... (10,179)
Current liabilities....................................... (16,867)
Non-current liabilities................................... (814)
--------
40,972
--------
Goodwill.......................................... $ 64,539
========
</TABLE>
As of the Acquisition date the Predecessor had net working capital of
$9,179 and property, plant and equipment of $5,773. The tradename, finance costs
and deferred tax liability shown above resulted from the allocation of purchase
price and the resulting deferred tax effect.
F-11
<PAGE> 123
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
WEIAND
Effective August 21, 1998, Holley acquired 100% of the outstanding stock of
Weiand for cash of $5,607 excluding certain costs related to consummating the
transaction. The transaction has been accounted for as a purchase. The principal
stockholders of Weiand also entered into agreements not to compete with the
Company. The consolidated financial statements include the results of operations
of Weiand subsequent to August 21, 1998. The purchase price has been tentatively
allocated to the assets acquired and liabilities assumed based on their
estimated fair values as follows:
<TABLE>
<S> <C>
Purchase price.............................................. $5,607
Financing and other transaction costs....................... 115
------
Total purchase price.............................. 5,722
------
Less: value assigned to assets and liabilities:
Current assets............................................ 1,958
Property, plant and equipment............................. 3,957
Covenants not to compete.................................. 500
Deferred tax liability, net............................... (1,078)
Long-term debt............................................ (1,074)
Current liabilities....................................... (873)
------
3,390
------
Goodwill.......................................... $2,332
======
</TABLE>
F-12
<PAGE> 124
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
LUNATI
Effective October 29, 1998, Holley acquired 100% of the outstanding stock
of Lunati. The transaction has been accounted for as a purchase. The
consolidated financial statements include the results of operations of Lunati
subsequent to October 29, 1998. The purchase price was $20,000, excluding
certain costs related to financing and consummating the transaction. The
principal stockholders of Lunati also entered agreements not to compete with the
Company. The purchase price has been tentatively allocated to the assets
acquired and liabilities assumed based on their estimated fair values as
follows:
<TABLE>
<S> <C>
Purchase price.............................................. $20,000
Financing and other transaction costs....................... 997
-------
Total purchase price.............................. 20,997
-------
Less: value assigned to assets and liabilities:
Current assets............................................ 5,683
Property, plant and equipment............................. 5,076
Financing costs........................................... 150
Other assets.............................................. 65
Trade name................................................ 5,290
Covenants not to compete.................................. 4,000
Deferred tax liabilities, net............................. (4,650)
Current liabilities....................................... (386)
Non-current liabilities................................... (441)
-------
14,787
-------
Goodwill.......................................... $ 6,210
=======
</TABLE>
The purchase prices of Holley, Weiand and Lunati have been allocated to the
assets acquired and liabilities assumed based on information currently available
as to estimated fair values. An evaluation of the acquired assets and
liabilities assumed is in progress. Upon completion of the evaluation, net
additions or reductions in the fair values currently assigned will be credited
to or charged against amounts allocated to goodwill.
The following unaudited pro forma information combines the consolidated
results of the Company as if the acquisitions of Holley, Weiand and Lunati had
occurred on January 1, 1997. While the Company believes it will realize certain
long-term synergies through the integration of certain operating functions,
there can be no assurances that such synergies can be realized.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales.................................................. $117,323 $118,702
======== ========
Net income (loss).......................................... $ (1,725) $ 1,273
======== ========
</TABLE>
F-13
<PAGE> 125
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
4. INVENTORIES
Inventories as of December 31, 1997 and 1998 consisted of the following:
<TABLE>
<CAPTION>
THE THE
PREDECESSOR COMPANY
1997 1998
----------- -------
<S> <C> <C>
Raw materials............................................... $ 6,954 $14,032
Work-in-progress............................................ 1,309 3,877
Finished goods.............................................. 2,953 4,092
Other....................................................... -- 672
------- -------
$11,216 $22,673
======= =======
</TABLE>
If the FIFO method had been used to value all inventories, inventories
would have been $4,131 higher as of December 31, 1997. As a result of the
Acquisition, inventories were revalued to fair value at May 16, 1998, which
approximates the FIFO method of determining inventory value as of December 31,
1998.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1997 and 1998 consisted of
the following:
<TABLE>
<CAPTION>
THE THE
PREDECESSOR COMPANY
1997 1998
----------- -------
<S> <C> <C>
Buildings and improvements.................................. $11,112 $ 3,882
Machinery and equipment..................................... 17,969 19,560
Computer equipment.......................................... 742 3,106
Furniture and fixtures...................................... 114 874
Construction in process..................................... 1,135 906
------- -------
31,072 28,328
Less: accumulated depreciation.............................. (24,561) (1,557)
------- -------
$ 6,511 $26,771
======= =======
</TABLE>
Depreciation expense was $1,037, $950, $531 and $1,921 for the years ended
December 31, 1996 and 1997 and the periods from January 1, 1998 to May 15, 1998
and from May 16, 1998 to December 31, 1998, respectively.
F-14
<PAGE> 126
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
6. INTANGIBLE ASSETS
Intangible and other assets as of December 31, 1997 and 1998 consisted of
the following:
<TABLE>
<CAPTION>
THE THE
PREDECESSOR COMPANY
1997 1998
----------- --------
<S> <C> <C>
Costs in excess of net assets acquired...................... $ 450 $ 73,081
Trade names................................................. -- 28,470
Covenants not to compete.................................... -- 4,500
Financing costs............................................. -- 1,704
Other....................................................... 5 316
----- --------
455 108,071
Less: accumulated amortization.............................. (158) (1,626)
----- --------
$ 297 $106,445
===== ========
</TABLE>
Amortization expense was $113, $113, $45 and $1,626 for the years ended
December 31, 1996 and 1997 and the periods from January 1, 1998 to May 15, 1998
and from May 16, 1998 to December 31, 1998, respectively.
7. ACCRUED LIABILITIES
Accrued liabilities as of December 31, 1997 and 1998 consisted of the
following:
<TABLE>
<CAPTION>
THE THE
PREDECESSOR COMPANY
1997 1998
----------- -------
<S> <C> <C>
Wages and benefits.......................................... $2,379 $ 4,620
Reserve for product returns................................. 3,706 3,894
Allowance for outstanding rebate programs................... 467 1,434
Other....................................................... 2,410 5,223
------ -------
$8,962 $15,171
====== =======
</TABLE>
8. LONG-TERM DEBT
Long-term debt as of December 31, 1997 and 1998 consisted of the following:
<TABLE>
<CAPTION>
THE THE
PREDECESSOR COMPANY
1997 1998
----------- -------
<S> <C> <C>
Revolving line of credit, maturing June 30, 2003............ $ -- $ 4,375
Term note "A," maturing June 30, 2003....................... -- 19,000
Term note "B," maturing June 30, 2005....................... -- 29,850
Term note "C," maturing June 30, 2006....................... -- 14,925
Term note "D," maturing December 31, 2006................... -- 24,938
Payable to parent........................................... 9,081 --
------ -------
9,081 93,088
Less current portion........................................ -- (3,200)
------ -------
$9,081 $89,888
====== =======
</TABLE>
To finance the Acquisition, the Company entered into a credit agreement
(the "Credit Agreement") with a group of lenders on May 16, 1998. The Credit
Agreement provides for term
F-15
<PAGE> 127
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
notes of $20,000, $30,000 and $15,000, as well as a revolving line of credit of
up to $15,000. In connection with the acquisition of Lunati in October 1998, the
Company entered into an amendment to the Credit Agreement (the "Amendment"). The
Amendment provides for an additional term loan of $25,000 and increases the
maximum borrowings available under the revolving line of credit to $20,000.
Borrowing availability under the revolving line of credit is subject to
limitations based on eligible accounts receivable and inventory as defined in
the Credit Agreement. As of December 31, 1998, the Company had borrowings of
$93,088 outstanding under the Credit Agreement including $4,375 of borrowings
under the revolving line of credit and $15,092 of unused credit availability.
Both the Credit Agreement and the Amendment allow the Company to choose
among interest rate options as follows:
<TABLE>
<CAPTION>
INTEREST RATE AT
PRIME OPTION LIBOR OPTION DECEMBER 31, 1998
------------ ------------ -----------------
<S> <C> <C> <C>
Revolving line of credit.............. Prime + 1.0% LIBOR + 2.5% 8.75%
Term note "A"......................... N/A LIBOR + 2.5% 7.53%
Term note "B"......................... N/A LIBOR + 3.0% 8.03%
Term note "C"......................... N/A LIBOR + 3.5% 8.53%
Term note "D"......................... N/A LIBOR + 3.5% 8.78%
</TABLE>
Interest rates for the term notes and the revolving line of credit ranged
from 8.75% to 9.5% during the period from Inception through December 31, 1998.
The weighted average interest rate was 8.13% during the period from Inception
through December 31, 1998. Both the Credit Agreement and the Amendment require
an annual commitment fee of 0.5% of the total commitment, less letters of credit
and amounts borrowed, and require the Company to make quarterly payments of
accrued interest outstanding on the term notes and the revolving line of credit.
Both the term notes and the revolving line of credit are secured by
substantially all assets of the Company.
Both the Credit Agreement and the Amendment require the Company to meet
certain covenants which, among other things, require the maintenance of ratios
related to leverage and cash flow, and limit the level of capital expenditures
and payments of dividends. The Credit Agreement and Amendment also require
mandatory principal prepayments from any proceeds of sales of the Company's
assets or common stock as well as 75% of excess cash flow, as defined. At
December 31, 1998, the Company was in compliance with these covenants.
Future maturities of long-term debt for the years following December 31,
1998 are as follows:
<TABLE>
<S> <C>
1999........................................................ $ 3,200
2000........................................................ 4,200
2001........................................................ 5,200
2002........................................................ 6,200
2003........................................................ 15,050
Thereafter................................................ 59,238
-------
$93,088
=======
</TABLE>
The payable to parent was used to transfer cash between the Predecessor and
Coltec. There was no formal credit arrangement in place, and no interest was
charged.
F-16
<PAGE> 128
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
9. INCOME TAXES
The provision for income tax expense consisted of the following:
<TABLE>
<CAPTION>
THE PREDECESSOR THE COMPANY
------------------------------ ------------
YEAR ENDED MAY 16, 1998
DECEMBER 31, JANUARY 1, TO
--------------- 1998 TO DECEMBER 31,
1996 1997 MAY 15, 1998 1998
------ ------ ------------ ------------
<S> <C> <C> <C> <C>
Current tax expense........................ $4,054 $2,978 $1,716 $1,993
Deferred tax expense (benefit)............. 460 (458) (919) (959)
------ ------ ------ ------
Income tax expense............... $4,514 $2,520 $ 797 $1,034
====== ====== ====== ======
</TABLE>
A reconciliation of the U.S. Federal statutory rate to the effective rate
is as follows:
<TABLE>
<CAPTION>
THE PREDECESSOR THE COMPANY
--------------------------- ------------
YEAR ENDED MAY 16, 1998
DECEMBER 31, JANUARY 1, TO
------------ 1998 TO DECEMBER 31,
1996 1997 MAY 15, 1998 1998
---- ---- ------------ ------------
<S> <C> <C> <C> <C>
U.S. Federal statutory rate................ 34.0% 34.0% 34.0% 34.0%
State taxes on income, net of Federal
benefit.................................. 4.0 4.0 4.0 4.0
Expenses not deductible.................... 0.4 0.4 3.1 3.4
Other...................................... -- (1.3) 2.0 --
Non-deductible amortization................ -- -- -- 21.2
---- ---- ---- ----
Income tax expense............... 38.4% 37.1% 43.1% 62.6%
==== ==== ==== ====
</TABLE>
Significant components of deferred tax liabilities and assets are as
follows:
<TABLE>
<CAPTION>
THE THE
PREDECESSOR COMPANY
1997 1998
----------- -----------
<S> <C> <C>
Reserve on assets.......................................... $ 597 $ 410
Liabilities not yet deductible............................. 2,194 3,741
------ --------
Total current assets............................. 2,791 4,151
------ --------
Other...................................................... 456 283
Trade name................................................. -- (10,681)
Covenants not to compete................................... -- (1,654)
Fixed assets............................................... (497) (7,047)
------ --------
Total noncurrent liabilities, net................ (41) (19,099)
------ --------
Total deferred tax asset (liability)............. $2,750 $(14,948)
====== ========
</TABLE>
As of December 31, 1998, the Company had no net operating loss
carryforwards for income tax purposes.
10. BENEFIT PLANS
HOLLEY 401(K) PLAN
Effective May 16, 1998, Holley established 401(k) savings plans for
salaried and non-salaried employees. Participation in the plans is optional.
Employer contributions to the plans are
F-17
<PAGE> 129
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
discretionary. During the period from May 16, 1998 to December 31, 1998, the
Company contributed $375 to these plans.
LUNATI 401(K) PLAN
Lunati maintains a profit sharing and a 401(k) savings plan for its
employees. Employer contributions to the plan are discretionary. During the
period from May 16, 1998 to December 31, 1998, the Company did not make
contributions to this plan.
DEFINED BENEFIT PENSION PLAN
Effective May 16, 1998, the Company established a defined benefit pension
plan for its employees. The Projected Unit Credit Actuarial Cost Method is used
to determine the normal cost of the pension plan and estimate pension benefit
obligations.
<TABLE>
<S> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at May 16, 1998.......................... $ --
Service cost................................................ 560
Interest cost............................................... 75
Actuarial loss.............................................. 835
Acquisition................................................. 1,650
-------
Benefit obligation at December 31, 1998........... $ 3,120
=======
FAIR VALUE OF PLAN ASSETS
Fair value of plan assets at May 16,1998.................... $ --
Employer contributions...................................... --
-------
Fair value of plan assets at December 31, 1998.............. $ --
=======
FUNDED STATUS
Funded status at December 31, 1998.......................... $(3,120)
Unrecognized actuarial loss................................. 835
-------
Net accrued benefit liability recognized.................... $(2,285)
=======
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost................................................ $ 560
Interest cost............................................... 75
-------
Net periodic benefit cost......................... $ 635
=======
</TABLE>
The actuarial assumptions include a discount rate of 6.5% and an annual
rate of compensation increase of 4% for 1998.
Prior to May 16, 1998, the Predecessor participated in the defined benefit
pension plan of Coltec. Under this plan, eligible retired employees were
provided certain health care and life insurance benefits, with some of those
retirees paying a portion of the related costs. The Company's liability under
this plan was not separately calculated; therefore, expense is reflected based
on cash funding requirements. Company contributions to the plan totaled $532,
$496 and $0 for the years ended December 31, 1996 and 1997 and the period from
January 1, 1998 to May 15, 1998, respectively.
F-18
<PAGE> 130
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
11. LEASE COMMITMENTS
The aggregate future minimum fixed lease obligations under operating leases
for the Company as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
----------------
<S> <C>
1999........................................................ $ 716
2000........................................................ 300
2001........................................................ 211
2002........................................................ 87
2003........................................................ 18
Thereafter.................................................. 4
------
Total minimum lease payments...................... $1,336
======
</TABLE>
Total rent expense for the Company's operating leases was approximately
$584, $603, $215 and $444 for the years ended December 31, 1996 and 1997 and the
periods from January 1, 1998 to May 15, 1998 and from May 16, 1998 to December
31, 1998, respectively.
12. MAJOR CUSTOMERS
The Company's customers include many large and well-known automotive parts
retailers and distributors. One customer, Auto Sales, Inc., represented 13.8% of
total sales from May 16, 1998 to December 31, 1998. Approximately 1% of the
Company's accounts receivable at December 31, 1997 and 1998 were from this
customer. Management believes the credit risk associated with this customer is
minimal.
13. COMMITMENTS AND CONTINGENCIES
The Company is a party to various lawsuits and claims in the normal course
of business. While the outcome of the lawsuits and claims against the Company
cannot be predicted with certainty, management believes that the ultimate
resolution of the matters will not have a material effect on the financial
position or results of operations of the Company.
The Company, like others in similar businesses, is subject to extensive
federal, state and local environmental laws and regulations. Although Company
environmental policies and practices are designed to ensure compliance with
these laws and regulations, future developments and increasingly stringent
regulation could require the Company to make unforeseen environmental
expenditures.
The Company has established a severance plan for certain members of
management. Under the terms of the severance plan, the participants are entitled
to certain severance benefits which include salary continuation in the event the
participant is terminated by the Company without cause.
14. RELATED-PARTY TRANSACTIONS
The Company paid a fee of $2,000 to Kohlberg & Co., L.L.C. (the majority
shareholder of Holdings and "Kohlberg") in conjunction with the Acquisition. In
August and October of 1998, the Company paid fees totaling $750 to Kohlberg in
conjunction with the acquisitions of Weiand and Lunati (Note 3). These fees have
been capitalized along with other acquisition costs incurred in the
transactions.
F-19
<PAGE> 131
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
Pursuant to a management agreement, Kohlberg provides the Company with
general corporate administrative services. Kohlberg receives a management fee to
recover its operating expenses based upon an allocation of time devoted to the
Company.
Prior to May 15, 1998, Coltec's staff and management provided certain
operating, corporate and management services to the Predecessor in exchange for
a management fee. Management believes the fees were fair based on the services
provided.
Subsequent to the Acquisition, Holdings issued 3,668,481 stock options to
buy common stock of Holdings to certain members of management of the Company.
The options are exercisable at $1.50 per share, which represented estimated fair
value at the date of grant, and vest at the end of nine years or at an
accelerated rate if certain performance measurements are met. As of December 31,
1998, all options remained unvested and outstanding.
15. ROYALTY AGREEMENT
Effective December 31, 1997, the Predecessor entered into a License
Agreement (the "Agreement") with Coltec. Under the terms of the Agreement,
Coltec granted the Predecessor the use of certain intellectual property,
including but not limited to copyrights, patents, and trademarks, in exchange
for a fee. Fees paid to Coltec under this Agreement from January 1, 1998 to May
15, 1998 totaled $1,054 and are included in other expense in the accompanying
statements of income. The agreement terminated on May 15, 1998 in connection
with the Acquisition.
16. SEGMENT DATA
The Company's reportable segments have a common management team and
infrastructure, however, due to the different nature of the products sold by
each segment, the Company monitors each segment's revenues and gross margin on a
standalone basis when making strategic decisions regarding the allocation of
Company resources.
The Company has two reportable segments: Performance Parts and
Remanufactured Parts. The Company manufactures high performance aftermarket
automotive parts through its Performance Parts segment. Under its Remanufactured
Parts segment, the Company refurbishes used automotive part cores and then
resells the parts as remanufactured products. Both segments sell primarily to
automotive parts distributors throughout the United States.
The accounting policies of the reportable segments are the same as those
described in Note 2. The Company evaluates the performance of its reportable
segments based on gross margin. Intersegment sales and transfers are not
significant.
Summarized financial information concerning the Company's operating
measures for the reportable segments are shown in the following table:
THE COMPANY
<TABLE>
<CAPTION>
HIGH PERFORMANCE REMANUFACTURED
PARTS PARTS TOTAL
---------------- -------------- -------
<S> <C> <C> <C>
MAY 16, 1998 TO DECEMBER 31, 1998
Revenues............................................ $47,032 $17,699 $64,731
Gross Margin........................................ 15,339 5,123 20,462
</TABLE>
F-20
<PAGE> 132
HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
THE PREDECESSOR
<TABLE>
<CAPTION>
HIGH PERFORMANCE REMANUFACTURED
PARTS PARTS TOTAL
---------------- -------------- -------
<S> <C> <C> <C>
JANUARY 1, 1998 TO MAY 15, 1998
Revenues............................................ $26,651 $ 9,981 $36,632
Gross Margin........................................ 8,901 2,003 10,904
YEAR ENDED DECEMBER 31, 1997
Revenues............................................ $69,293 $29,510 $98,803
Gross Margin........................................ 23,942 5,669 29,611
YEAR ENDED DECEMBER 31, 1996
Revenues............................................ $68,427 $27,863 $96,290
Gross Margin........................................ 26,316 4,606 30,922
</TABLE>
Summary balance sheet data for inventory and fixed assets for each of the
Company's reportable segments as of December 31, 1998 and 1997 are shown in the
following table:
THE COMPANY
<TABLE>
<CAPTION>
HIGH PERFORMANCE REMANUFACTURED
PARTS PARTS TOTAL
---------------- -------------- -------
<S> <C> <C> <C>
AS OF DECEMBER 31, 1998
Inventory........................................... $18,405 $ 4,268 $22,673
Fixed Assets........................................ 23,937 2,834 26,771
THE PREDECESSOR
AS OF DECEMBER 31, 1997
Inventory........................................... $ 7,798 $ 3,418 $11,216
Fixed Assets........................................ 6,084 427 6,511
</TABLE>
F-21
<PAGE> 133
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 3,
1998 1999
----------------- ---------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,013 $ 14,487
Accounts receivable, net of reserves for doubtful accounts
of $1,686 and $1,581, respectively..................... 15,174 21,899
Inventories............................................... 22,673 25,460
Deferred income taxes..................................... 4,151 3,049
Other current assets...................................... 845 4,951
-------- --------
Total current assets.............................. 44,856 69,846
PROPERTY, PLANT AND EQUIPMENT, net.......................... 26,771 31,995
INTANGIBLE ASSETS, net...................................... 106,445 131,468
-------- --------
Total assets...................................... $178,072 $233,309
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 3,200 $ --
Accounts payable.......................................... 6,923 7,432
Accrued liabilities....................................... 15,171 13,009
-------- --------
Total current liabilities......................... 25,294 20,441
-------- --------
LONG-TERM DEBT, net of current portion...................... 89,888 147,441
-------- --------
DEFERRED INCOME TAXES....................................... 19,099 18,173
-------- --------
OTHER....................................................... 752 741
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $0.01 par value; 1,000 authorized, issued
and outstanding........................................ 250 250
Paid-in capital........................................... 42,170 47,170
Retained earnings (deficit)............................... 619 (907)
-------- --------
Total stockholder's equity........................ 43,039 46,513
-------- --------
Total liabilities and stockholder's equity........ $178,072 $233,309
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-22
<PAGE> 134
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE
PREDECESSOR ARE NOT COMPARABLE IN CERTAIN RESPECTS.
<TABLE>
<CAPTION>
THE
PREDECESSOR THE COMPANY
----------- --------------------------
JANUARY 1, MAY 16, JANUARY 1,
1998 TO 1998 TO 1999 TO
MAY 15, SEPTEMBER 27, OCTOBER 3,
1998 1998 1999
----------- ------------- ----------
<S> <C> <C> <C>
NET SALES............................................... $36,632 $39,156 $94,739
COST OF SALES........................................... 25,728 26,085 62,610
------- ------- -------
Gross profit.......................................... 10,904 13,071 32,129
------- ------- -------
SELLING EXPENSES........................................ 4,018 4,067 11,629
GENERAL AND ADMINISTRATIVE EXPENSES..................... 2,756 2,852 6,572
MANAGEMENT FEES TO RELATED PARTY........................ 842 189 650
NONRECURRING CHARGE..................................... -- -- 755
AMORTIZATION EXPENSE.................................... 45 846 2,936
------- ------- -------
Operating income...................................... 3,243 5,117 9,587
------- ------- -------
INTEREST EXPENSE........................................ -- 2,649 7,412
OTHER INCOME (EXPENSE).................................. (1,395) (81) (9)
------- ------- -------
INCOME BEFORE TAXES AND EXTRAORDINARY ITEM.............. 1,848 2,387 2,166
PROVISION FOR INCOME TAXES.............................. 797 1,045 2,038
------- ------- -------
INCOME BEFORE EXTRAORDINARY ITEM........................ 1,051 1,342 128
EXTRAORDINARY ITEM, NET................................. -- -- 1,654
------- ------- -------
NET INCOME (LOSS)....................................... $ 1,051 $ 1,342 $(1,526)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE> 135
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT) TOTAL
------------ ------- --------- -------
THE COMPANY
<S> <C> <C> <C> <C>
BALANCE, December 31, 1998........................ $250 $42,170 $ 619 $43,039
Net loss........................................ -- -- (1,526) (1,526)
Capital contribution............................ -- 5,000 -- 5,000
---- ------- ------- -------
BALANCE, October 3, 1999.......................... $250 $47,170 $ (907) $46,513
==== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE> 136
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE
PREDECESSOR ARE NOT COMPARABLE IN CERTAIN RESPECTS.
<TABLE>
<CAPTION>
THE
PREDECESSOR THE COMPANY
------------ --------------------------
JANUARY 1, MAY 16, JANUARY 1,
1998 TO 1998 TO 1999 TO
MAY 15, SEPTEMBER 27, OCTOBER 3,
1998 1998 1999
------------ ------------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $ 1,051 $ 1,342 $(1,526)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization....................... 576 2,088 6,585
Deferred income taxes............................... (919) 778 1,277
Writeoff of existing finance costs.................. -- -- 1,654
Changes in assets and liabilities, net of assets
purchased:
Accounts receivable............................... (3,686) 138 (2,223)
Inventories....................................... 1,198 493 (1,006)
Other current assets.............................. 501 (2,074) (3,022)
Bank overdraft.................................... (131) 58 --
Accounts payable.................................. 2,719 (587) (1,550)
Accrued liabilities............................... 1,704 4,055 (4,004)
------- --------- -------
Net cash provided by (used in) operating
activities................................... 3,013 6,233 (3,815)
------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions.............................. -- (111,224) (29,527)
Capital expenditures................................... (1,188) (1,606) (3,024)
Proceeds from the sale of fixed assets................. -- 1,080 10
Loss on the disposal of fixed assets................... -- -- (59)
------- --------- -------
Net cash used in investing activities.......... (1,188) (111,750) (32,600)
------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments/proceeds on long-term obligations... -- 73,926 49,389
Changes in payable to parent........................... (1,825) 168 --
Financing costs........................................ -- (1,098) (5,500)
Proceeds from the issuance of equity................... -- 37,420 5,000
------- --------- -------
Net cash provided by (used in) financing
activities................................... (1,825) 110,416 48,889
------- --------- -------
NET CHANGE IN CASH....................................... $ -- $ 4,899 $12,474
BALANCE AT BEGINNING OF PERIOD........................... -- -- 2,013
------- --------- -------
BALANCE AT END OF PERIOD................................. $ -- $ 4,899 $14,487
======= ========= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................................. $ -- $ -- 6,673
======= ========= =======
Cash paid for income taxes............................. $ -- $ -- 2,884
======= ========= =======
Transfer of assets from (to) Parent.................... $(1,594) $ -- $ --
======= ========= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE> 137
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The consolidated balance sheets as of December 31, 1998 and October 3, 1999
and the consolidated statements of operations and cash flows for the periods
from January 1, 1998 to May 15, 1998, May 16, 1998 to September 27, 1998 and the
nine months ended October 3, 1999 have been prepared by the Company in
accordance with the accounting policies described in its annual financial
statements and should be read in conjunction with the notes thereto.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and changes in cash flows at May 15, 1998, September 27,
1998 and October 3, 1999 and for all periods presented have been made. The
results of operations for the nine months ended October 3, 1999 are not
necessarily indicative of the operating results to be expected for the full
year.
Holley Performance Products, Inc. (a Delaware corporation and "Holley"),
based in Bowling Green, Kentucky, is a leading manufacturer of a diversified
line of performance automotive products, including carburetors, fuel pumps, fuel
injection systems, ignition systems and remanufactured carburetors. The products
are designed to enhance street, off-road, recreational and competitive vehicle
performance through increased horsepower, torque and driveability. In addition
to its automotive performance line, Holley manufactures performance marine,
mobile and stationary industrial engine components and markets a new line of
performance in-tank fuel pumps as well as a recently introduced specialty
chemical line.
Effective May 15, 1998, all outstanding shares of Holley common stock were
purchased by KHPP Acquisition Corporation ("KHPP"), a wholly-owned subsidiary of
KHPP Holdings Corporation ("Holdings"), for $100,000 (the "Acquisition"). At the
time of the Acquisition, KHPP was merged into Holley. The consolidated balance
sheets as of December 31, 1998 and October 3, 1999 and the consolidated
statements of operations, stockholder's equity and cash flows for the period
from May 16, 1998 to September 27, 1998 and the nine months ended October 3,
1999 reflect the accounts of Holley subsequent to the change in ownership which
resulted from the Acquisition. The Acquisition was accounted for using the
purchase method of accounting.
Prior to January 1, 1996, Holley was a division of Coltec Industries, Inc.
("Coltec"). On January 1, 1996, Holley was incorporated, and from January 1,
1996 to May 15, 1998, Holley was a wholly-owned subsidiary of Coltec. The
consolidated statements of operations and cash flows for the period from January
1, 1998 to May 15, 1998 are the financial statements of Holley when it was a
wholly-owned subsidiary of Coltec (referred to herein as the "Predecessor"). The
Acquisition and the related application of purchase accounting resulted in
changes to the capital structure of the Predecessor and the historical basis of
various assets and liabilities. The effect of such changes significantly impairs
the comparability of the financial position and results of operations of Holley
and the Predecessor.
In August and October of 1998, respectively, Holley purchased the
outstanding common stock of Weiand Automotive Industries, Inc. ("Weiand") and a
group of companies under common ownership, Lunati Cams, Inc., Lunati & Taylor
Pistons, Inc., and LMT Motor Sports Corporation (referred to collectively as
"Lunati"). Weiand is a manufacturer and distributor of induction systems, and
Lunati is a manufacturer of camshafts, crankshafts, pistons and automotive
specialty parts. Both Weiand and Lunati sell their products to automotive parts
retailers throughout the United States.
F-26
<PAGE> 138
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
2. INVENTORIES
Inventories of the Company consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 OCTOBER 3, 1999
----------------- ---------------
<S> <C> <C>
Raw materials........................................ $14,032 $ 8,172
Work-in-progress..................................... 3,877 3,639
Finished goods....................................... 4,092 12,084
Other................................................ 672 1,565
------- -------
$22,673 $25,460
======= =======
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment of the Company consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 OCTOBER 3, 1999
----------------- ---------------
<S> <C> <C>
Land................................................. $ -- $ 380
Buildings and improvements........................... 3,882 10,532
Machinery and equipment.............................. 19,560 18,643
Computer equipment................................... 3,106 2,397
Furniture and fixtures............................... 874 816
Construction in process.............................. 906 4,118
------- -------
28,328 36,886
Less: accumulated depreciation..................... (1,557) (4,891)
------- -------
$26,771 $31,995
======= =======
</TABLE>
Depreciation expense was $259, $1,625 and $3,649 for the periods from
January 1, 1998 to May 15, 1998, May 16, 1998 to September 27, 1998 and the nine
months ended October 3, 1999, respectively.
4. ACCRUED LIABILITIES
Accrued liabilities of the Company consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 OCTOBER 3, 1999
----------------- ---------------
<S> <C> <C>
Wages and benefits................................... $ 4,620 $ 4,835
Reserve for product returns.......................... 3,894 3,894
Allowance for outstanding rebate programs............ 1,434 770
Other................................................ 5,223 3,510
------- -------
$15,171 $13,009
======= =======
</TABLE>
F-27
<PAGE> 139
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
5. LONG-TERM DEBT
Long-term debt of the Company consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, OCTOBER 3,
1998 1999
------------ ---------------
<S> <C> <C>
Revolving line of credit, maturing June 27, 2003......... $ 4,375 $ --
Term note "A", maturing June 27, 2003.................... 19,000 --
Term note "B", maturing June 27, 2005.................... 29,850 --
Term note "C", maturing June 27, 2006.................... 14,925 --
Term note "D", maturing December 31, 2006................ 24,938 --
Senior notes, maturing September 15, 2007, net of debt
discount of $5,481..................................... -- 144,519
KEDFA note, maturing September 24, 2009.................. -- 527
Long-term lease obligation............................... -- 2,395
------- --------
93,088 147,441
Less current portion..................................... (3,200) --
------- --------
$89,888 $147,441
======= ========
</TABLE>
On September 20, 1999, the Company issued $150,000 of 12 1/4% Senior Notes
due 2007 at a discount of 3.7%. The debt discount will be amortized as a
non-cash charge to interest expense using the effective interest method over the
term of the debt. The notes are unsecured and subordinate to the Company's other
indebtedness. The proceeds from the notes were used to repay existing
indebtedness and to fund the acquisitions of NOS and Earl's in October 1999.
6. NON-RECURRING CHARGE
The non-recurring charge includes expenses related to the closure of a
manufacturing facility and the related movement of inventory and fixed assets to
the Company's manufacturing facility in Bowling Green, Kentucky.
7. ACQUISITIONS
In May 1999, the Company acquired a super charger product line from
Automoco Corporation for a total purchase price of approximately $2.3 million in
a transaction which was accounted for as a purchase.
F-28
<PAGE> 140
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
In July 1999, the Company completed the acquisition of Hooker Industries,
Inc., ("Hooker") for a net purchase price of approximately $21.5 million. Hooker
is a manufacturer of performance exhaust systems, headers, mufflers and
Harley-Davidson exhaust pipes. The purchase price has been tentatively allocated
to the net assets acquired based on their estimated fair value as follows:
<TABLE>
<S> <C>
Purchase price.............................................. $21,504
Financing and other transaction costs....................... 1,137
-------
Total purchase price.............................. 22,641
-------
Less: value assigned to assets and liabilities
Current assets............................................ 4,920
Property, plant and equipment............................. 574
Financing costs........................................... 887
Current liabilities....................................... (1,899)
-------
4,482
-------
Goodwill.......................................... $18,159
=======
</TABLE>
On October 1, 1999, the Company completed the acquisition of Biggs
Manufacturing, Inc. (also known as "FlowTech") for a net purchase price of
approximately $4.0 million. FlowTech is a leading manufacturer of performance
exhaust systems, headers, mufflers and exhaust accessories. The purchase price
has been tentatively allocated to the net assets acquired based on their
estimated fair value as follows:
<TABLE>
<S> <C>
Purchase price.............................................. $4,000
Transaction costs........................................... 226
------
Total purchase price.............................. 4,226
------
Less: value assigned to assets and liabilities
Current assets............................................ 3,588
Property, plant and equipment............................. 908
Other assets.............................................. 90
Current liabilities....................................... (1,343)
Non-current liabilities................................... (2,569)
Deferred tax liabilities.................................. (52)
------
622
------
Goodwill.......................................... $3,604
======
</TABLE>
Subsequent to October 3, 1999, the Company completed the acquisition of
Nitrous Oxide Systems, Inc. ("NOS") for a net purchase price of approximately
$12.5 million. NOS is a leading manufacturer of nitrous oxide injection systems
to the performance aftermarket.
Subsequent to October 3, 1999, the Company completed the acquisition of
Earl's Supply Company, Inc. (also known as Earl's Performance Products,
"Earl's") for a net purchase price of approximately $14.3 million. Earl's is a
provider of underhood performance fittings, brake lines and hoses.
F-29
<PAGE> 141
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
In the second quarter of 1999, the Company finalized its purchase price
allocation for the Acquisition. In the third quarter of 1999, the Company
finalized its purchase price allocations for the acquisitions of Lunati and
Weiand.
8. SEGMENT DATA
The Company's reportable segments have a common management team and
infrastructure, however, due to the different nature of the products sold by
each segment, the Company monitors each segment's revenues and gross margin on a
standalone basis when making strategic decisions regarding the allocation of
Company resources.
The Company has two reportable segments: Performance Parts and
Remanufactured Parts. The Company manufactures high performance after market
automotive parts through its Performance Parts segment. Under its Remanufactured
Parts segment, the Company refurbishes used automotive part cores and then
resells the parts as remanufactured products. Both segments sell primarily to
automotive parts distributors throughout the United States.
The accounting policies of the reportable segments are the same as those
described in Note 2 of the Company's annual Financial Statements. The Company
evaluates the performance of its reportable segments based on gross margin.
Intersegment sales and transfers are not significant.
Summarized financial information concerning the Company's operating
measures for the reportable segments is shown in the following table:
THE COMPANY
<TABLE>
<CAPTION>
HIGH PERFORMANCE REMANUFACTURED
PARTS PARTS TOTAL
---------------- -------------- -------
<S> <C> <C> <C>
NINE MONTHS ENDED OCTOBER 3, 1999
Revenues.................................... $75,488 $19,251 $94,739
Gross Margin................................ 27,322 4,807 32,129
MAY 16 TO SEPTEMBER 27, 1998
Revenues.................................... $28,655 $10,501 $39,156
Gross Margin................................ 9,680 3,391 13,071
</TABLE>
THE PREDECESSOR
<TABLE>
<CAPTION>
HIGH PERFORMANCE REMANUFACTURED
PARTS PARTS TOTAL
---------------- -------------- -------
<S> <C> <C> <C>
JANUARY 1, 1998 TO MAY 15, 1998
Revenues.................................... $26,651 $ 9,981 $36,632
Gross Margin................................ 8,901 2,003 10,904
</TABLE>
F-30
<PAGE> 142
HOLLEY PERFORMANCE PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Summary balance sheet data for inventory and fixed assets for each of the
Company's reportable segments as of October 3, 1999 and December 31, 1998 is
shown in the following table:
THE COMPANY
<TABLE>
<CAPTION>
HIGH PERFORMANCE REMANUFACTURED
PARTS PARTS TOTAL
---------------- -------------- -------
<S> <C> <C> <C>
AS OF OCTOBER 3, 1999
Inventory................................... $21,649 $ 3,811 $25,460
Fixed Assets................................ 29,276 2,719 31,995
AS OF DECEMBER 31, 1998
Inventory................................... $18,405 $ 4,268 $22,673
Fixed Assets................................ 23,937 2,834 26,771
</TABLE>
9. LITIGATION
In May 1999, the Union Pacific Railroad Company ("Union Pacific") initiated
litigation against the Company alleging that certain soil and groundwater
contamination found on Union Pacific's property had migrated from an adjacent
facility owned by Weiand. The complaint seeks costs totaling in excess of $5
million. At this time, the Company is unable to assess the likelihood of an
unfavorable outcome, or in the event of such an outcome, the amount of any
resulting liability. The Company is investigating Union Pacific's claims and
intends to defend them vigorously. Recently, the Company discovered possible
soil contamination on the Weiand property, which has not yet been confirmed or
assessed. The property owner may assert claims for damage to the property. The
Company intends to defend any such claims vigorously.
F-31
<PAGE> 143
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Holley Performance Products Inc.:
We have audited the accompanying consolidated balance sheets of Hooker
Industries, Inc. and subsidiary as of June 30, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Hooker
Industries, Inc. and subsidiary as of June 30, 1999 and 1998, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
August 5, 1999
F-32
<PAGE> 144
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 4,434,203 $3,893,159
Accounts receivable, net of allowance for doubtful
accounts of $58,000.................................... 3,168,225 2,735,114
Inventories............................................... 1,873,987 1,454,345
Prepaid expenses.......................................... 25,875 14,354
Deferred tax benefit...................................... 217,355 111,638
----------- ----------
Total current assets.............................. 9,719,645 8,208,610
PROPERTY AND EQUIPMENT, net of accumulated depreciation..... 611,465 662,115
NONCURRENT ASSETS:
Deposits.................................................. 24,496 23,038
Cash surrender value of life insurance.................... -- 9,332
Other assets.............................................. -- 565
Deferred tax benefit...................................... 315,032 249,761
----------- ----------
Total noncurrent assets........................... 339,528 282,696
----------- ----------
Total assets...................................... $10,670,638 $9,153,421
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 246,721 $ 292,745
Accrued expenses.......................................... 1,726,827 1,270,315
----------- ----------
Total current liabilities......................... 1,973,548 1,563,060
DEFERRED COMPENSATION....................................... 869,349 648,161
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.10 par value per share, 2,000,000 shares
authorized; 330,354 and 330,454 shares issued and
outstanding, respectively.............................. 33,035 33,045
Retained earnings......................................... 7,794,706 6,909,155
----------- ----------
Total stockholders' equity........................ 7,827,741 6,942,200
----------- ----------
Total liabilities and stockholders' equity........ $10,670,638 $9,153,421
=========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
F-33
<PAGE> 145
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
NET SALES................................................... $12,107,745 $10,513,114
COST OF GOODS SOLD.......................................... 5,533,668 4,992,227
----------- -----------
Gross profit.............................................. 6,574,077 5,520,887
OPERATING EXPENSES:
Selling expenses.......................................... 412,034 369,479
Administrative expenses................................... 3,259,745 2,826,479
Shipping expenses......................................... 812,440 679,169
Marketing expenses........................................ 959,311 955,859
----------- -----------
Total operating expenses.......................... 5,443,530 4,830,986
----------- -----------
INCOME FROM OPERATIONS...................................... 1,130,547 689,901
OTHER INCOME (EXPENSE):
Interest expense.......................................... (48,645) (53,023)
Interest income........................................... 204,345 166,548
Other income, net......................................... 43,591 21,329
Gain on sale of assets.................................... 16,887 10,426
----------- -----------
Total other income................................ 216,178 145,280
INCOME BEFORE PROVISION FOR INCOME TAXES.................... 1,346,725 835,181
PROVISION FOR INCOME TAXES.................................. 462,576 302,552
----------- -----------
NET INCOME.................................................. $ 884,149 $ 532,629
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-34
<PAGE> 146
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
COMMON COMMON RETAINED
SHARES STOCK EARNINGS TOTAL
------- ------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, June 30, 1997........................... 330,454 $33,045 $6,404,655 $6,437,700
Foreign currency loss.......................... -- -- (28,129) (28,129)
Net income..................................... -- -- 532,629 532,629
------- ------- ---------- ----------
Total comprehensive income............. -- -- 504,500 504,500
------- ------- ---------- ----------
BALANCE, June 30, 1998........................... 330,454 33,045 6,909,155 6,942,200
Foreign currency gain.......................... -- -- 3,621 3,621
Net income..................................... -- -- 884,149 884,149
------- ------- ---------- ----------
Total comprehensive income............. -- -- 887,770 887,770
------- ------- ---------- ----------
Repurchase of common stock..................... (100) (10) (2,219) (2,229)
------- ------- ---------- ----------
BALANCE, June 30, 1999........................... 330,354 $33,035 $7,794,706 $7,827,741
======= ======= ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-35
<PAGE> 147
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 884,149 $ 532,629
Depreciation.............................................. 179,549 171,058
Deferred income taxes..................................... (170,988) (38,031)
Deferred compensation..................................... 221,188 194,556
Decrease in cash surrender value-life insurance in lieu of
premium payments....................................... 2,982 --
Gain on sale of fixed assets.............................. (16,887) (10,426)
Adjustments to reconcile net income to net cash provided
by operating activities:
Accounts receivable.................................... (433,111) 253,936
Inventories............................................ (419,642) (106,387)
Prepaid expenses....................................... (11,521) 23,843
Deposits............................................... (1,458) 14,787
Other assets........................................... 565 19,627
Accounts payable....................................... (46,024) 16,210
Accrued expenses....................................... 456,512 (222,694)
---------- ----------
Net cash provided by operating activities......... 645,314 849,108
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets.................................. (130,612) (206,896)
Proceeds from sale of fixed assets........................ 18,600 12,700
Proceeds from redemption of life insurance (cash surrender
value)................................................. 6,350 (2,337)
---------- ----------
Net cash used by investing activities............. (105,662) (196,533)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments to repurchase and retire common stock............ (2,229) --
Payments on notes payable to related parties.............. -- (198,000)
---------- ----------
Net cash used by financing activities............. (2,229) (198,000)
---------- ----------
EFFECT OF TRANSLATION RATE CHANGES.......................... 3,621 (28,129)
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 541,044 426,446
CASH AND CASH EQUIVALENTS, beginning of year................ 3,893,159 3,466,713
---------- ----------
CASH AND CASH EQUIVALENTS, end of year...................... $4,434,203 $3,893,159
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-36
<PAGE> 148
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1. GENERAL
Hooker Industries, Inc. (the "Company") develops, manufactures and
wholesales after market motor vehicle accessories and related products. The
Company operates manufacturing facilities and administrative offices in Ontario,
California and Ciudad Industrial, Mexico.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and Casler de Mexico, S.A. de C. V. ("Casler"), a wholly owned subsidiary. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
REVENUE RECOGNITION
The Company recognizes revenue upon shipment of the product to the
customer.
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with an original maturity
date of six months or less to be cash equivalents.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The allowance for doubtful accounts represents an estimate by the Company's
management of specific accounts deemed uncollectable. The estimated allowance
considers prior bad debt experience and customer receivables outstanding beyond
established credit terms.
INVENTORIES
Inventories are stated at the lower of cost or market, determined by the
first-in, first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost, less accumulated depreciation.
Depreciation expense is computed under the straight-line method over the
estimated useful lives of the assets.
The following estimated useful lives are used by the Company:
<TABLE>
<CAPTION>
TYPE OF ASSET ESTIMATED USEFUL LIFE
- ------------- ---------------------
<S> <C>
Machinery and equipment..................................... 5 years
Vehicles.................................................... 3 years
Office equipment............................................ 5 years
Leasehold improvements...................................... 5-20 years
</TABLE>
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in income for the period. The cost of maintenance and repairs
is charged against income as incurred, whereas significant renewals or
betterments are capitalized. Included in the accompanying statements of income
are provisions for depreciation and amortization in the amount of $179,547 and
$171,058 in 1999 and 1998, respectively.
F-37
<PAGE> 149
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOREIGN CURRENCY TRANSLATION
Assets and liabilities accounted for in foreign currencies are translated
into dollars at the rates prevailing at the balance sheet date. Expenses are
translated at average monthly rates throughout the year. No revenues are
accounted for in foreign currencies. The realized exchange differences resulting
from these translations are included as components of comprehensive income in
the accompanying consolidated statements of stockholders' equity. The foreign
currency translation gain (loss) amounted to $3,621 in 1999 and $(28,129) in
1998, respectively.
PRODUCT DEVELOPMENT COSTS
Research and development costs are charged to operations when incurred and
are included in operating expenses. The Company incurred $227,428 and $236,837
in product development costs in fiscal 1999 and 1998, respectively.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes". This
standard requires, among other things, recognition of future tax benefits,
measured by enacted tax rates, attributable to deductible temporary differences
between financial statement and income tax bases of assets and liabilities and
to net operating loss carryforwards, to the extent that realization of such
benefits is more likely than not.
ENVIRONMENTAL MATTERS
Environmental expenditures are expensed or capitalized as appropriate,
depending on their future economic benefit. Environmental accruals are
established for sites where it is probable that a loss has been incurred and the
amount of the loss can be reasonably estimated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
LONG-LIVED ASSETS
When factors are present which indicate the carrying value of assets may
not be recovered, the Company evaluates the realizability of its long-lived
assets based upon the anticipated future undiscounted cash flows generated by
the asset.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates the fair value of financial instruments using quoted
or estimated market prices based upon current interest rates and the remaining
term to maturity. At June 30, 1999, there were no material differences in the
book values of the Company's financial instruments and their related fair
values.
F-38
<PAGE> 150
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130")
and Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," ("SFAS No. 133").
SFAS No. 130 established standards for reporting and display of
comprehensive income and its components. Comprehensive income encompasses all
changes in stockholders' equity, except those arising from transaction with
owners, including foreign currency translation adjustments. The Company opted
for early adoption of the provisions of this pronouncement. The Company has
elected to disclose comprehensive income, which includes net income and foreign
currency translation gains (losses), in the consolidated statements of
stockholders' equity.
SFAS No. 133 establishes standards for the way companies account for and
report information about derivative instruments and hedging activities in annual
financial statements. The statement was originally effective for financial
statement periods beginning after June 15, 1999, but was later amended to be
effective for financial statement periods beginning after June 15, 2000. The
Company will adopt the provisions of this statement in association with its
consolidated financial statements issued for the required period. The Company
does not expect the adoption of this standard to have a material effect on the
Company's consolidated financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 consolidated financial
statements in order to conform with the 1999 presentation.
3. INVENTORIES
Inventories at June 30, 1999 and 1998 consisted of:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Raw materials............................................... $ 374,985 $ 449,500
Work in process............................................. 514,578 242,316
Finished goods.............................................. 984,424 762,529
---------- ----------
$1,873,987 $1,454,345
========== ==========
</TABLE>
F-39
<PAGE> 151
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1999 and 1998 consisted of:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Land..................................................... $ 20,113 $ 20,113
Machinery and equipment.................................. 2,596,444 2,571,591
Vehicles................................................. 270,851 250,958
Office equipment......................................... 158,361 150,032
Leasehold improvements................................... 402,078 416,420
Property and equipment at Casler......................... 312,257 295,298
----------- -----------
3,760,104 3,704,412
Accumulated depreciation................................. (3,148,639) (3,042,297)
----------- -----------
Net book value........................................... $ 611,465 $ 662,115
=========== ===========
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses as of June 30, 1999 and 1998 consisted of:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Allowance for outstanding rebate program.................... $ 515,721 $ 471,844
Wages and benefits.......................................... 929,308 567,925
Other....................................................... 281,798 230,546
---------- ----------
$1,726,827 $1,270,315
========== ==========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
LEASE OF FACILITIES
The Company leases the land and buildings in Ontario, California from H & S
Properties, Inc., a related party, pursuant to various operating lease
agreements, which expire August 31, 2004. The lease agreements do not provide
for any renewal options upon completion of the current lease term. The monthly
rent payments are subject to an annual adjustment based upon the consumer price
index.
The Company leases the land and buildings in Ciudad Industrial, Tijuana,
Mexico from a third-party. The lease term is from August 1, 1994 through July
31, 1999. A renewal option is available covering the succeeding five year period
ending July 31, 2004. The lease does not provide for rent escalations during the
initial lease term or renewal period.
Rental expense for the years ended June 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Related party rental expense................................ $261,401 $249,292
Third party rental expense.................................. 87,253 85,316
-------- --------
$348,654 $334,608
======== ========
</TABLE>
F-40
<PAGE> 152
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum future lease payments under the above operating leases are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING JUNE 30,
- ---------------------
<S> <C>
2000........................................................ $ 344,801
2001...................................................... 344,801
2002...................................................... 344,801
2003...................................................... 344,801
2004...................................................... 344,801
Thereafter.................................................. 28,733
----------
Total minimum future lease payments............... $1,752,738
==========
</TABLE>
CONSULTING AGREEMENT
The Company has entered into a consulting agreement with Primos Computer
Services, S.A. ("Primos") dated July 27, 1993, with an effective date of August
1, 1994. Pursuant to the terms of the agreement, Primos has been contracted to
assist in connection with the development and operation of commercial business
ventures within Mexico. Primos fulfills its commitment by providing advice and
consultation to the Company on international trade, identification, evaluation,
and negotiation of suitable business opportunities, importation and exportation
matters, personnel recruitment and training, material supply sources and
purchases, sales, and similar activities in Mexico agreed upon between the
parties. The agreement originally provided for monthly compensation in the
amount of $8,564 and was amended on March 3, 1999 to provide monthly
compensation of $9,356 effective August 1, 1999. The agreement remains in effect
until terminated by the Company.
EMPLOYMENT AGREEMENTS
The Company entered into employment agreements with its president and
chairman of the board of directors dated September 6, 1994, with an effective
date of July 1, 1994 and continuing through June 30, 2004 or upon death of the
employee named in the agreement, whichever comes first. Subject to provisions
regarding termination, the agreements provide for automatic extensions on a
daily basis, commencing July 1, 2001, so that a remaining term of at least three
years exists at all times. The agreements provide for minimum base salaries,
incentive bonuses and other fringe benefits. The minimum base salaries are
subject to adjustment annually on July 1. The adjusted minimum salary, which is
based upon the consumer price index, may in no instance decrease. In the event
employment is terminated by the Company for reasons other than disability, or by
the employee for reasons as defined in the agreement, the agreement shall
terminate requiring payment to the employee within 30 days of termination a lump
sum including, but not limited to, an amount equal to the total remaining salary
that would have been paid to the employee over the term of the agreement.
Terminations occurring as a result of death or disability require continued
payment of salaries for a period of 12 months following the date of death or
disability.
Notwithstanding any other benefits described in the agreement, the
president may become entitled to a post-employment benefit at a rate of 20
percent applied to a comparison of the market value (as defined in the
agreement) of the Company on June 30, 1994 with that of the June 30th following
his termination subject to proration and income aggregation guidelines as set
forth in the agreement. In the event employment is terminated by the Company, or
by the employee for reasons as defined in the agreement, the post-employment
benefit is payable within 30 days after publication of the Company's financial
statements following termination. Termina-
F-41
<PAGE> 153
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tion for other reasons permit the Company to pay post-employment benefits in
equal quarterly payments with 10 percent compounded interest for a period of
five years. The liability under this agreement is being accrued over the
officer's remaining period of employment so that, on the date of his retirement,
the present value of the estimated payment will be accrued.
CONTINGENCIES
The Company is subject to various legal proceedings and claims that arise
in the ordinary course of business. In the opinion of management, the amount of
any ultimate liability with respect to these actions will not materially affect
the Company's financial statements.
The Internal Revenue Service ("IRS") is in the process of examining the
Company's federal income tax return for the 1998 fiscal year. At this time it is
too early to determine the amount of adjustments, if any, which may be proposed.
7. STOCK PURCHASE AGREEMENT
In accordance with a corporate stock redemption and cross purchase
agreement adopted September 6, 1994, the Company is obligated, upon the death of
the chairman of the board or the president, to purchase not less than one
hundred (100%) percent of the decedent's shares of the Company's capital stock.
The Company, at the request of the decedent's personal representative may,
through Board of Directors' resolution and unanimous vote of the remaining
shareholders party to this agreement, waive its obligation to purchase said
shares and allow the decedent's spouse or heir to retain decedent's stock
interest in the Company.
In addition, the agreement provides that, upon termination of employment of
the minority stockholder, the Company is obligated to purchase one hundred
(100%) percent of the terminated shareholder's shares of the Company's capital
stock.
At June 30, 1999, these shareholders owned 327,170 shares of the common
stock outstanding.
8. INCOME TAXES
Income tax expense consisted of the following:
<TABLE>
<CAPTION>
1999 1998
--------- --------
<S> <C> <C>
CURRENT PROVISION:
Federal................................................... $ 499,379 $264,562
State..................................................... 134,185 76,021
--------- --------
633,564 340,583
DEFERRED PROVISION (BENEFIT)................................ (170,988) (38,031)
--------- --------
$ 462,576 $302,552
========= ========
</TABLE>
F-42
<PAGE> 154
HOOKER INDUSTRIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes differs from that computed at the Federal
statutory corporate tax rate. A reconciliation of income tax computed at the
U.S. Federal statutory rate to the Company's effective tax rate is as follows at
June 30:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
U.S. Federal statutory tax provision........................ $457,887 $274,397
State income taxes, net of Federal taxes.................... 80,803 50,174
Other....................................................... (76,114) (22,019)
-------- --------
$462,576 $302,552
======== ========
</TABLE>
The components of the deferred tax asset are as follows as of June 30:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Depreciation................................................ $ 25,846 $ 25,276
Accounts receivable reserve................................. 23,177 23,177
Inventories................................................. 19,826 27,174
Accrued expenses............................................ 159,266 58,916
Deferred compensation....................................... 304,272 226,856
--------- ---------
Total deferred tax assets......................... 532,387 361,399
Less current portion.............................. (217,355) (111,638)
--------- ---------
$ 315,032 $ 249,761
========= =========
</TABLE>
9. CASH FLOW INFORMATION
Cash paid for interest and income taxes was as follows as of June 30:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Interest.................................................... $ 33 $ 20,653
Income taxes................................................ 670,181 367,270
</TABLE>
10. ECONOMIC DEPENDENCY
A material part of the Company's business is dependent upon three
customers, the loss of whom would have an adverse effect on the Company. During
the years ended June 30, 1999 and 1998, these three customers accounted for
approximately 57 percent of revenues in each year. Although there are no
executed continuing contracts with these customers, the Company feels that any
reduction in sales to any one customer would result in corresponding increases
in sales to the other customers.
11. CONCENTRATION OF CREDIT RISK FOR CASH HELD AT BANKS
The Company maintains cash balances at several banks. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation up to
$100,000.
12. SUBSEQUENT EVENT
In July 1999, the outstanding stock of the Company was acquired by Holley
Performance Products, Inc. ("Holley").
F-43
<PAGE> 155
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information or
to represent anything not contained in this Prospectus. You must not rely on any
unauthorized information or representations. This Prospectus is an offer to sell
only the Notes offered hereby, but only under circumstances and in jurisdictions
where it is lawful to do so. The information contained in this Prospectus is
current only as of its date.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 14
Forward-Looking Statements............ 18
Where You Can Get More Information.... 19
The Exchange Offer.................... 20
Use of Proceeds....................... 28
Capitalization........................ 29
Unaudited Pro Forma Consolidated
Financial Information............... 30
Selected Historical Consolidated
Financial Information............... 37
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 40
Industry Overview..................... 48
Business.............................. 52
Management............................ 62
Certain Transactions.................. 65
Security Ownership.................... 65
Description of the Exchange Notes..... 66
Federal Income Tax Consequences....... 102
Plan of Distribution.................. 105
Legal Matters......................... 106
Independent Public Accountants........ 106
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$150,000,000
HOLLEY PERFORMANCE
PRODUCTS INC.
Offer to Exchange its 12 1/4%
Senior Notes due 2007,
Series B, for any and all
outstanding 12 1/4%
Senior Notes due 2007
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 156
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Holley Performance Products Inc.
The Bylaws of Holley Performance Products Inc. ("Holley") provide for the
indemnification of Holley's directors and officers. Insofar as indemnification
for liabilities under the Securities Act may be permitted to directors, officers
or controlling persons of Holley pursuant to Holley's by-laws and the Delaware
General Corporation Law ("DGCL"), Holley is aware that it is the opinion of the
SEC that such indemnification is against public policy as expressed in the
Securities Act of 1933, as amended and is therefore unenforceable.
Holley's Bylaws provide for indemnification of the Company's directors and
officers against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by them in
connection with any action, suit or proceeding if they acted in good faith and
in a manner they reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful;
except that, in the case of an action, suit or proceeding by or in the right of
the Company, there shall be no indemnification in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of such person's duties unless, and
then only to the extent that, a court of proper jurisdiction shall determine
that despite such adjudication such person is fairly and reasonably entitled to
indemnification.
The Directors and officers of Holley may also be indemnified against
liability incurred in their capacity as officers and/or directors pursuant to
Section 145 of the DGCL.
Holley maintains insurance covering expenditures that may be incurred in
connection with the lawful indemnification of the Company's directors and
officers for their liabilities and expenses.
Biggs Manufacturing, Inc.
The Articles of Incorporation provide that no director of Biggs
Manufacturing, Inc. ("Biggs") shall be personally liable for money damages in
any action brought by or in the right of Biggs for breach of the Directors'
duties to Biggs and its Shareholders, except for any liability of the Director
for actual omissions that involve intentional misconduct or a knowing or
culpable violation of any corporate law, for acts or omissions that a Director
believes to be contrary to the best interest of the Corporation or its
Shareholders or involve the absence of good faith on the part of the Director,
for any transaction from which a Director derived an improper personal benefit,
for acts or omissions that show a reckless disregard for the Director's duty to
Biggs or its Shareholders in circumstances in which the Director was aware, or
should have been aware, in the ordinary course in performing the Director's
duties, of a risk of serious injury to Biggs or its Shareholders, or for acts or
omissions that constitute an unexcused pattern or an inattention that amounts to
an abdication of the Director's duty to the Corporation or its Shareholders.
The Directors and officers of Biggs may also be indemnified against
liability incurred in their capacity as officers and/or directors pursuant to
Article 5 of the Arizona Business Corporation Act.
LMT Motor Sports, Inc.
The Bylaws of LMT Motor Sports, Inc. ("LMT") provide that any person made a
party to any action by reason of the fact that he, his testator, or intestate
representative, is or was a Director, Officer or employee of LMT, or of any
corporation in which he served as such at the
II-1
<PAGE> 157
request of LMT, shall be indemnified by LMT against the reasonable expenses,
including attorney's fees, actually and necessarily incurred by him in
connection with the defense of such action, suit or proceedings, or in
connection with any appeal therein, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding, or in connection with any
appeal therein that such Officer, Director or employee is liable for negligence
or misconduct in the performance of his duties. The foregoing rights of
indemnification are not deemed exclusive of any rights which any Officer,
Director or employee may be entitled. The amount of indemnification to which any
Officer or any Director may be entitled shall be fixed by the Board of
Directors, except that in any case where there is no disinterested majority of
the Board available, the amount shall be fixed by arbitration pursuant to the
then existing rules of the American Arbitration Association.
The Directors and officers of LMT may also be indemnified against liability
incurred in their capacity as officers and/or directors pursuant to Article 8,
Subarticle E of the Mississippi Business Corporation Act.
Lunati & Taylor Pistons Inc.
The Bylaws of Lunati & Taylor Pistons, Inc. provide that LTP shall
indemnify its directors and officers to the full extent of the Mississippi
Business Corporation Act ("MBCA") and consistent with the provisions of the
MBCA. Article 8, Subarticle E of the MBCA sets forth the provisions in
connection with the indemnification of officers and directors.
Lunati Cams, Inc.
The Bylaws of Lunati Cams, Inc. ("Lunati") provides that any person made a
party to any action by reason of the fact that he is or was a director or
officer of Lunati, shall be indemnified by Lunati against the reasonable
expenses, including attorney's fees, actually and necessarily incurred by him in
connection with the defense of such action, suit or proceedings, or in
connection with any appeal therein, except in relation to matters as to which it
shall be adjudges in such action, suit or proceeding, or in connection with any
appeal therein that such officer or director is liable for negligence or
misconduct in the performance of his duties. The Bylaws provide that the
foregoing rights of indemnification are not deemed to be exclusive. The Bylaws
provide that the amount of indemnity to which any officer or any director may be
entitled shall be fixed by the Board of Directors, except that in the case where
there is no disinterested majority of the Board available, the amount shall be
fixed by arbitration pursuant to the then existing rules of the American
Arbitration Association.
The Directors and officers of Lunati may also be indemnified against
liability incurred in their capacity as officers and/or directors pursuant to
Chapter 18, Part 5 of the Tennessee Business Corporation Act.
Holley Performance Systems, Inc.
The Certificate of Incorporation ("Charter") and the Bylaws of Holley
Performance Systems, Inc. ("HPS") provide for the indemnification of HPS's
directors and officers to the fullest extent permitted under the DGCL. As
permitted by the DGCL, the Charter provides that directors of HPS shall not be
personally liable to HPS or its shareholders for monetary damages for breach of
fiduciary duty as a director, except for those specific breaches and acts or
omissions with respect to which the DGCL expressly provides shall not eliminate
or limit such personal liability. The Bylaws of HPS may require HPS, among other
things, to reimburse or advance expenses to a director or officer entitled to
indemnification as a result of any threatened claims or proceedings brought
against them as to which they could be indemnified.
II-2
<PAGE> 158
Hooker Industries, Inc.
The Directors and officers of Hooker Industries, Inc. may be indemnified
against liability incurred in their capacity as officers and/or directors
pursuant to Section 317 of the California General Corporation Law.
Weiand Automotive Industries, Inc.
The Directors and officers of Weiand Automotive Industries, Inc. may be
indemnified against liability incurred in their capacity as officers and/or
directors pursuant to Section 317 of the California General Corporation Law.
Nitrous Oxide Systems, Inc.
The Bylaws of Nitrous Oxide Systems, Inc. provide that the company shall
both indemnify its agents against expenses, judgments, fees, settlements and
other amounts and shall advance expenses reasonably expected to be incurred by
such agents to the fullest extent permitted under Section 317 of the California
General Corporation Law.
Earl's Supply Company, Inc.
The Articles of Incorporation and Bylaws of Earl's Supply Company, Inc. do
not expressly provide for indemnification of the company's directors and
officers. However, the directors and officers are covered by and subject to the
applicable indemnification provisions of the California General Corporation Law.
II-3
<PAGE> 159
ITEM 21. EXHIBITS AND FINANCIAL SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
3.1a -- Certificate of Incorporation of Holley Performance Products
Inc., as amended
3.1b -- Bylaws of Holley Performance Products Inc.
3.2a -- Certificate of Incorporation of Holley Performance Systems,
Inc.
3.2b -- Bylaws of Holley Performance Systems, Inc.
3.3a -- Articles of Incorporation of Weiand Automotive Industries,
Inc., as amended
3.3b -- Bylaws of Weiand Automotive Industries, Inc.
3.4a -- Articles of Incorporation of Lunati Cams, Inc., as amended
3.4b -- Bylaws of Lunati Cams, Inc.
3.5a -- Articles of Incorporation of LMT Motor Sports Corporation
3.5b -- Bylaws of LMT Motor Sports Corporation
3.6a -- Articles of Incorporation of Lunati & Taylor Pistons
3.6b -- Bylaws of Lunati & Taylor Pistons
3.7a -- Articles of Incorporation of Hooker Industries, Inc.
3.7b -- Bylaws of Hooker Industries, Inc., as amended
3.8a -- Articles of Incorporation of Biggs Manufacturing, Inc.
3.8b -- Bylaws of Biggs Manufacturing, Inc.
3.9a* -- Articles of Incorporation of Nitrous Oxide Systems, Inc.
3.9b* -- Bylaws of Nitrous Oxide Systems, Inc.
3.10a* -- Articles of Incorporation of Earl's Supply Company, Inc.
3.10b* -- Bylaws of Earl's Supply Company, Inc.
4.1 -- Indenture for the 12 1/4% Senior Notes due 2007, dated as of
September 20, 1999, between Holley Performance Products
Inc., the Guarantors and State Street Bank and Trust
Company, as Trustee
4.2 -- Form of Global Note for 12 1/4% Senior Note due 2007
4.3 -- Form of Global Note for 12 1/4% Senior Note due 2007, Series
B
5* -- Legal Opinion of Hunton & Williams
10 -- Amended and Restated Credit Agreement dated as of September
20, 1999, by and among KHPP Holdings, Inc., Holley, Credit
Agricole Indosuez as Administrative Agent and Comerica Bank
as Co-Agent
12.1 -- Calculation of Ratio of Earnings to Fixed Charges
12.2* -- Calculation of Ratio of EBITDA to Cash Interest Expense
12.3* -- Calculation of Ratio of Net Debt to EBITDA
21* -- Subsidiaries
23.1* -- Consent of Arthur Andersen LLP
23.2 -- Consent of Hunton & Williams (included in Exhibit 5)
24 -- Power of attorney is contained in the signature page of this
Registration Statement
25 -- Statement of the eligibility and qualification on Form T-1
of State Street Bank and Trust Company, as Trustee under the
Indenture
27 -- Financial Data Schedule (for SEC use only)
99.1 -- Form of Letter of Transmittal
</TABLE>
II-4
<PAGE> 160
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
99.2 -- Form Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees
99.3 -- Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------
* Filed herewith.
ITEM 22. UNDERTAKINGS.
A. The undersigned registrant hereby undertakes:
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 the volume of securities offered (if the total
dollar value of the 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; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this 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 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the 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 registrant 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 Act and will be governed by the final adjudication of
such issue.
C. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11, or 13 of this
II-5
<PAGE> 161
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 this Registration Statement through the date of responding to the
request.
D. The undersigned registrant hereby undertakes 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 this Registration Statement when it became effective.
II-6
<PAGE> 162
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 1 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 10th day of December, 1999.
HOLLEY PERFORMANCE PRODUCTS INC.
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
Executed pursuant to Power of Attorney granted to Robert L. Wineland:
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
/s/ EVAN D. WILDSTEIN Assistant Secretary and Director
- -----------------------------------------------------
Evan D. Wildstein
/s/ JAMES A. KOHLBERG Director
- -----------------------------------------------------
James A. Kohlberg
/s/ MARION H. ANTONINI Director
- -----------------------------------------------------
Marion H. Antonini
/s/ WILLIAM F. ANDREWS Director
- -----------------------------------------------------
William F. Andrews
/s/ JAMES D. WIGGINS Director
- -----------------------------------------------------
James D. Wiggins
/s/ SAMUEL P. FRIEDER Director
- -----------------------------------------------------
Samuel P. Frieder
</TABLE>
II-7
<PAGE> 163
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 1 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 10th day of December, 1999.
HOLLEY PERFORMANCE SYSTEMS, INC.
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
Executed pursuant to Power of Attorney granted to Robert L. Wineland:
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
</TABLE>
II-8
<PAGE> 164
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 1 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 10th day of December, 1999.
WEIAND AUTOMOTIVE INDUSTRIES, INC.
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
Executed pursuant to Power of Attorney granted to Robert L. Wineland:
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
</TABLE>
II-9
<PAGE> 165
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 1 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 10th day of December, 1999.
LUNATI CAMS, INC.
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
Executed pursuant to Power of Attorney granted to Robert L. Wineland:
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
</TABLE>
II-10
<PAGE> 166
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 1 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 10th day of December, 1999.
LMT MOTOR SPORTS CORPORATION
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
Executed pursuant to Power of Attorney granted to Robert L. Wineland:
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
</TABLE>
II-11
<PAGE> 167
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 1 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 10th day of December, 1999.
LUNATI & TAYLOR PISTONS
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
Executed pursuant to Power of Attorney granted to Robert L. Wineland:
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
</TABLE>
II-12
<PAGE> 168
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 1 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 10th day of December, 1999.
HOOKER INDUSTRIES, INC.
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
Executed pursuant to Power of Attorney granted to Robert L. Wineland:
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
/s/ EVAN D. WILDSTEIN Vice President, Assistant Secretary and
- ----------------------------------------------------- Director
Evan D. Wildstein
</TABLE>
II-13
<PAGE> 169
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 1 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 10th day of December, 1999.
BIGGS MANUFACTURING, INC.
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
Executed pursuant to Power of Attorney granted to Robert L. Wineland:
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
</TABLE>
II-14
<PAGE> 170
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 1 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 10th day of December, 1999.
NITROUS OXIDE SYSTEMS, INC.
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Each person whose individual signature appears below hereby authorizes and
appoints Robert L. Wineland with full power of substitution and resubstitution
and full power to act as his true and lawful attorney-in-fact and agent to act
in his name, place and stead and to execute in the name and on behalf of each
person, individually and in each capacity stated below, and to file, any and all
amendments to this Registration Statement, including any and all post-effective
amendments and any registration statement relating to the same offering as this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agents full power and authority to do and perform each and every act and thing,
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
</TABLE>
II-15
<PAGE> 171
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused Amendment No. 1 to this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Bowling
Green, State of Kentucky, on this 10th day of December, 1999.
EARL'S SUPPLY COMPANY, INC.
By: /s/ ROBERT L. WINELAND
------------------------------------
Robert L. Wineland
Chief Financial Officer
Each person whose individual signature appears below hereby authorizes and
appoints Robert L. Wineland with full power of substitution and resubstitution
and full power to act as his true and lawful attorney-in-fact and agent to act
in his name, place and stead and to execute in the name and on behalf of each
person, individually and in each capacity stated below, and to file, any and all
amendments to this Registration Statement, including any and all post-effective
amendments and any registration statement relating to the same offering as this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, as amended, and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agents full power and authority to do and perform each and every act and thing,
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes, may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated above:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JEFFREY G. KING Chief Executive Officer, President and
- ----------------------------------------------------- Director (principal executive officer)
Jeffrey G. King
/s/ ROBERT L. WINELAND Vice President, Chief Financial Officer and
- ----------------------------------------------------- Secretary (principal financial and
Robert L. Wineland accounting officer)
/s/ CHRISTOPHER LACOVARA Vice President, Treasurer, Assistant Secretary
- ----------------------------------------------------- and Director
Christopher Lacovara
/s/ EVAN D. WILDSTEIN Vice President, Assistant Secretary and
- ----------------------------------------------------- Director
Evan D. Wildstein
</TABLE>
II-16
<PAGE> 172
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Holley Performance Products Inc.:
We have audited the accompanying consolidated balance sheet of HOLLEY
PERFORMANCE PRODUCTS INC. (a Delaware corporation) AND SUBSIDIARIES as of
December 31, 1998 and the related consolidated statements of income,
stockholder's equity and cash flows for the period from inception, May 16, 1998,
to December 31, 1998. We have also audited the accompanying balance sheet of the
Predecessor (businesses identified in Note 1) as of December 31, 1997, and the
related statements of income, stockholder's equity and cash flows for the years
ended December 31, 1996 and 1997 and the period from January 1, 1998 to May 15,
1998 included in this registration statement and have issued our report thereon
dated February 23, 1999.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying schedule of valuation
and qualifying accounts is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. The information presented in this schedule as of and for
the periods ended December 31, 1996, December 31, 1997, May 15, 1998 and
December 31, 1998 has been subjected to the auditing procedures applied in the
audit of the basic financial statements and, in our opinion, fairly states in
all material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Nashville, Tennessee
February 23, 1999
S-1
<PAGE> 173
FINANCIAL STATEMENT SCHEDULE
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND DEDUCTIONS END OF
CLASSIFICATION PERIOD EXPENSES FROM RESERVES PERIOD
-------------- ------------ ---------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
VALUATION AND QUALIFYING ACCOUNTS DEDUCTED
FROM THE ASSETS TO WHICH THEY APPLY:
Allowance for doubtful accounts:
For the period from May 16, 1998 to
December 31, 1998...................... $1,575 $ 397 $ (286) $1,686
For the period from January 1, 1998 to
May 15, 1998........................... 1,118 457 -- 1,575
For the year ended December 31, 1997..... 14 1,104 -- 1,118
For the year ended December 31, 1996..... 12 54 (52) 14
Allowance for outstanding rebate programs:
For the period from May 16, 1998 to
December 31, 1998...................... $1,071 $1,940 $(1,577) $1,434
For the period from January 1, 1998 to
May 15, 1998........................... 467 1,193 (589) 1,071
For the year ended December 31, 1997..... 383 2,855 (2,771) 467
For the year ended December 31, 1996..... -- 608 (225) 383
Reserve for product returns:
For the period from May 16, 1998 to
December 31, 1998...................... $3,629 $ 265 $ -- 3,894
For the period from January 1, 1998 to
May 15, 1998........................... 3,706 -- (77) 3,629
For the year ended December 31, 1997..... 4,292 334 (920) 3,706
For the year ended December 31, 1996..... 3,811 481 -- 4,292
</TABLE>
S-2
<PAGE> 174
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <C> <S>
3.1a -- Certificate of Incorporation of Holley Performance Products
Inc., as amended
3.1b -- Bylaws of Holley Performance Products Inc.
3.2a -- Certificate of Incorporation of Holley Performance Systems,
Inc.
3.2b -- Bylaws of Holley Performance Systems, Inc.
3.3a -- Articles of Incorporation of Weiand Automotive Industries,
Inc., as amended
3.3b -- Bylaws of Weiand Automotive Industries, Inc.
3.4a -- Articles of Incorporation of Lunati Cams, Inc., as amended
3.4b -- Bylaws of Lunati Cams, Inc.
3.5a -- Articles of Incorporation of LMT Motor Sports Corporation
3.5b -- Bylaws of LMT Motor Sports Corporation
3.6a -- Articles of Incorporation of Lunati & Taylor Pistons
3.6b -- Bylaws of Lunati & Taylor Pistons
3.7a -- Articles of Incorporation of Hooker Industries, Inc.
3.7b -- Bylaws of Hooker Industries, Inc., as amended
3.8a -- Articles of Incorporation of Biggs Manufacturing, Inc.
3.8b -- Bylaws of Biggs Manufacturing, Inc.
3.9a* -- Articles of Incorporation of Nitrous Oxide Systems, Inc.
3.9b* -- Bylaws of Nitrous Oxide Systems, Inc.
3.10a* -- Articles of Incorporation of Earl's Supply Company, Inc.
3.10b* -- Bylaws of Earl's Supply Company, Inc.
4.1 -- Indenture for the 12 1/4% Senior Notes due 2007, dated as of
September 20, 1999, between Holley Performance Products
Inc., the Guarantors and State Street Bank and Trust
Company, as Trustee
4.2 -- Form of Global Note for 12 1/4% Senior Note due 2007
4.3 -- Form of Global Note for 12 1/4% Senior Note due 2007, Series
B
5* -- Legal Opinion of Hunton & Williams
10 -- Amended and Restated Credit Agreement as of September 20,
1999, by and among KHPP Holdings, Inc., Holley Credit
Agricole Indosuez as Administrative Agent and Comerica Bank
as Co-Agent
12.1 -- Calculation of Ratio of Earnings to Fixed Charges
12.2* -- Calculation of Ratio of EBITDA to Cash Interest Expense
12.3* -- Calculation of Ratio of Net Debt to EBITDA
21* -- Subsidiaries
23.1* -- Consent of Arthur Andersen LLP
23.2 -- Consent of Hunton & Williams (included in Exhibit 5)
24 -- Power of attorney is contained in the signature page of this
Registration Statement
25 -- Statement of the eligibility and qualification on Form T-1
of State Street Bank and Trust Company, as Trustee under the
Indenture
27 -- Financial Data Schedule (for SEC use only)
99.1 -- Form of Letter of Transmittal
</TABLE>
<PAGE> 175
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <C> <S>
99.2 -- Form Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees
99.3 -- Form of Notice of Guaranteed Delivery
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
EXHIBIT 3.9a
ARTICLES OF INCORPORATION
ONE: The name of this corporation is NITROUS OXIDE SYSTEMS, INC.
TWO: The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the general Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
THREE: The name and address in this state of the corporation's initial
agent for service of process is:
Michael E. Deitch
3220 W. Sepulveda Blvd.
Suite A
Torrance, California 90505
FOUR: This corporation is authorized to issue only one class of shares
of stock which shall be designated common stock. The total number of shares it
is authorized to issue is one hundred (100).
FIVE: This corporation is a close corporation. All of the corporation's
issued shares of all classes shall be held of record by not more than ten (10)
persons.
SIX: The names and addresses of the persons who are appointed to act as
the initial directors of this corporation are:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Michael Thermos 740 W. 24th Street
San Pedro, California 90731
Dale Vaznaian 9702 Verde Mar Drive
Huntington Beach, California 92646
Charles Mulcahy 1113 Lakme Ave.
Wilmington, California 90744
</TABLE>
<PAGE> 2
IN WITNESS WHEREOF, the undersigned, being all the persons named above
as the initial directors, have executed these Articles of Incorporation.
DATED: Sept. 11, 1978 /s/ Michael Thermos
---------------------------------
/s/ Dale Vaznaian
---------------------------------
/s/ Charles Mulcahy
---------------------------------
The undersigned, being all the persons named above as the initial
directors, declare that they are the persons who executed the foregoing Articles
of Incorporation, which execution is their act and deed.
DATED: Sept. 11, 1978 /s/ Michael Thermos
---------------------------------
/s/ Dale Vaznaian
---------------------------------
/s/ Charles Mulcahy
---------------------------------
<PAGE> 1
EXHIBIT 3.9b
BYLAWS
OF
NITROUS OXIDE SYSTEMS, INC.
ARTICLE I.
OFFICES
SECTION 1. PRINCIPAL EXECUTIVE OFFICE
The principal executive office of the corporation shall be in the City
of Long Beach, County of Los Angeles, State of California
The corporation may also have offices at such other places as the Board
of Directors may from time to time designate, or as the business of the
corporation may require.
ARTICLE II.
SHAREHOLDERS' MEETING
SECTION 1. PLACE OF MEETINGS
All meetings of the shareholders shall be held at the principal
executive office of the corporation or at such other place as may be determined
by the Board of Directors.
SECTION 2. ANNUAL MEETINGS
The annual meeting of the shareholders shall be held on the 14th day of
December in each year, if not a holiday, at 6:00 p.m., at which time the
shareholders shall elect a Board of Directors and transact any other proper
business. If this date falls on a holiday, then the meeting shall be held on the
following business day at the same hour.
SECTION 3. SPECIAL MEETINGS
Special meetings of the shareholders may be called by the Board of
Directors, the Chairman of the Board of Directors, the President or by one or
more shareholders holding at least 10 percent of the voting power of the
corporation.
SECTION 4. NOTICE OF MEETINGS
Notice of meetings, annual or special, shall be given in writing to
shareholders entitled to vote at the meeting by the Secretary or an Assistant
Secretary, or, if there be no such officer, or in the case of his neglect or
refusal, by any Director or shareholder.
Such notices shall be given either personally or by mail or other means
of written communication, addressed to the shareholder at the address of such
shareholder appearing on the books of the corporation or given by the
shareholder to the corporation for the purpose of notice. Notice shall be given
not less than ten (10) nor more than sixty (60) days before the date of the
meeting.
<PAGE> 2
Such notice shall state the place, date and hour of the meeting and
(1), in the case of a special meeting, the general nature of the business to be
transacted, and that no other business may be transacted, or (2), in the case of
an annual meeting, those matters which the Board at the time of the mailing of
the notice, intends to present for action by the shareholders, but subject to
the provisions of Section 6 of this Article that any proper matter may be
presented at the meeting for such action. The notice of any meeting at which
Directors are to be elected shall include the names of nominees which at the
time of the notice, management intends to present for election. Notice of any
adjourned meeting need not be given unless a meeting is adjourned for forty-five
(45) days or more from the date set for the original meeting.
SECTION 5. WAIVER OF NOTICE
The transactions of any meeting of shareholders, however called and
noticed, and wherever held, are as valid as though had at a meeting duly held
after regular call and notice, if a quorum is present, whether in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote, not present in person or by proxy, signs a written waiver of notice or
a consent to the holding of the meeting or an approval of the minutes thereof.
All such waivers or consents and approvals shall be filed with the corporate
records or made a part of the minutes of the meeting. Neither the business to be
transacted at the meeting, nor the purpose of any regular or special meeting of
shareholders need be specified in any written waiver of notice, except as
provided in Section 6 of this Article.
SECTION 6. SPECIAL NOTICE AND WAIVER OF NOTICE REQUIREMENT
Except as provided below, any shareholder approval at a meeting, with
respect to the following proposals, shall be valid only if the general nature of
the proposal so approved was stated in the notice of meeting, or in any written
waiver of notice:
1. Approval of a contractor other transaction between the
corporation and one or more of its Directors or between the corporation and any
corporation, firm or association in which one or more of the directors has a
material financial interest, pursuant to Section 310 of the California
Corporations Code;
2. Amendment of the Articles of Incorporation after any shares
have been issued pursuant to Section 902 of the California Corporations Code;
3. Approval of the principal terms of a reorganization pursuant
to Section 1201 of the California Corporations Code;
4. Election to voluntarily wind up and dissolve the corporation
pursuant to Section 1900 of the California Corporations Code; and
5. Approval of a plan of distribution of shares as part of the
winding up of the corporation pursuant to Section 2007 of the California
Corporations Code.
Approval of the above proposals at a meeting shall be valid with or
without such notice, if by the unanimous approval of those entitled to vote at
the meeting.
SECTION 7. ACTION WITHOUT MEETING
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice if a
consent, in writing, setting forth the action so taken, shall
<PAGE> 3
be signed by the holders of outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action
authorized by such approval:
1. Approval of a contract or other transaction between the
corporation and one or more of its Directors or another corporation, firm or
association in which one or more of its directors has a material financial
interest, pursuant to Section 310 of the Corporations Code;
2. To indemnify an agent of the corporation pursuant to Section
317 the California Corporations Code;
3. To approve the principal terms of a reorganization, pursuant
to Section 1201 of the California Corporations Code, or
4. Approval of a plan of distribution as part of the winding up
of the corporation pursuant to Section 2007 of the California Corporations Code
Prompt notice shall be given of the taking of any other corporate
action approved by shareholders without a meeting by less than a unanimous
written consent to those shareholders entitled to vote who have not consented in
writing.
Notwithstanding any of the foregoing provisions of this section,
Directors may not be elected by written consent except by the unanimous written
consent of all shares entitled to vote for the election of Directors.
A written consent may be revoked by a writing received by the
corporation prior to the time that written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary of
the corporation, but may not be revoked thereafter. Such revocation is effective
upon its receipt by the Secretary of the corporation.
SECTION 8. QUORUM
A majority of the shareholders entitled to vote, represented in person
or by proxy, shall constitute a quorum at a meeting of shareholders. If a quorum
is present, the affirmative vote of the majority of shareholders represented at
the meeting and entitled to vote on any matter shall be the act of the
shareholders, unless the vote of a greater number is required by law and except
as provided in the following provisions of this section.
The shareholders present at a duly called or held meeting at which a
quorum is present may continue to transact business until adjournment
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action is approved by at least a majority of the shares required
to constitute a quorum.
In the absence of a quorum, any meeting of shareholders may be
adjourned from time to time by the vote of a majority of the shares represented
either in person or by proxy, but no other business may be transacted except as
provided in the foregoing provisions of this section.
<PAGE> 4
SECTION 9. VOTING
Only persons in whose names shares entitled to vote stand on the record
date for voting purposes fixed by the Board of Directors pursuant to Article
VIII, Section 3 of these Bylaws, or, if there be no such date so fixed, on the
record dates given below, shall be entitled to vote at such meeting.
If no record date is fixed:
1. The record date for determining shareholders entitled to
notice of, or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
2. The record date for determining the shareholders entitled to
give consent to corporate actions in writing without a meeting, when no prior
action by the Board is necessary, shall be the day on which the first written
consent is given.
3. The record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board adopts
the resolution relating thereto, or the 60th day prior to the date of such other
action, whichever is later.
Every shareholder entitled to vote shall be entitled to one vote for
each share held, except that for the election of Directors, every shareholder
entitled to vote at any election of Directors, if a candidate's name has been
placed in nomination prior to the voting, and one or more shareholders has given
notice at the meeting prior to the voting of the shareholder's intent to
cumulate the shareholder's votes, shall be entitled to cumulate his votes and
give one candidate a number of votes equal to the number of Directors to be
elected multiplied by the number of shares which he is entitled to vote, or
distribute his vote on the same principle among as candidates as the shareholder
thinks fit. The candidates receiving the highest number of votes up to the
number of Directors to be elected shall be elected. Upon the demand of any
shareholder made before the voting begins, the election of Directors shall be by
ballot.
SECTION 10. PROXIES
Every person entitled to vote shares may authorize another person or
persons to act by proxy with respect to such shares by filing a written proxy
executed by such person or his duly authorized agent, with the Secretary of the
corporation.
A proxy shall not be valid after the expiration of eleven (11)months
from the date thereof unless otherwise provided in the proxy. Every proxy
continues in full force and effect until revoked by the person executing it
prior to the vote pursuant thereto, except as otherwise provided in Section 705
of the California Corporations Code.
ARTICLE III.
DIRECTORS, MANAGEMENT
SECTION 1. POWERS
Subject to any limitations in the Articles of Incorporation and to the
provisions of the California Corporations Code, and further subject to any
shareholders' agreement relating to any of the affairs of this corporation so
long as it remains a close corporation, the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised by, or
under the direction, of the Board of Directors.
<PAGE> 5
SECTION 2. NUMBER
The authorized number of Directors shall be three (3) until changed by
amendment to this Article of these Bylaws.
After issuance of shares, this Bylaw may only be amended by approval of
a majority of the outstanding shares entitled to vote; provided, however, that a
Bylaw reducing the number of Directors cannot be adopted unless in accordance
with the provisions of Section 212 of the Corporations Code.
SECTION 3. ELECTION AND TENURE OF OFFICE
The Directors shall be elected at the annual meeting of the
shareholders and hold office until the next annual meeting and until their
successors have been elected and qualified.
SECTION 4. VACANCIES
A vacancy in the Board of Directors shall exist in the case of death,
resignation or removal of any Director, or in case the authorized number of
Directors is increased, or in case the share-holders fail to elect the full,
authorized number of Directors at any annual or special meeting of the
shareholders at which any Director is elected, or in case the authorized number
of Directors is increased. The Board of Directors may declare vacant the office
of a Director who has been declared of unsound mind by an order of court, or who
has been convicted of a felony.
Except for a vacancy created by the removal of a Director, vacancies on
the Board of Directors may be filled by a majority vote of the Directors then in
office, whether or not less than a quorum, or by a sole remaining Director, and
each Director so elected shall hold office until the next annual meeting of the
shareholders and until his successor has been elected and qualified. The
shareholders may elect a Director at any time to fill a vacancy not filled by
the Director. Any such election by written consent requires the consent of a
majority of the outstanding shares entitled to vote. Any Director may resign
effective upon giving written notice to the Chairman of the Board of Directors,
the President, the Secretary of the Board of Directors of the corporation unless
the notice specifies a later time for the effectiveness of such resignation. If
the resignation is effective at a further time, a successor may be elected to
take office when the resignation becomes effective. Any reduction of the
authorized number of Directors does not remove any Director prior to the
expiration of such Director's term in office.
SECTION 5. REMOVAL
Any or all of the Directors may be removed without cause if such
removal is approved by a majority of the outstanding shares entitled to vote,
subject to the provisions of Section 303 of the California Corporations Code.
Except as provided in Sections 302, 303, and 304 of the California
Corporations Code, a Director may not be removed prior to the expiration of such
Director's term of office.
The Superior Court of the proper county may, on the suit of
shareholders holding at least 10 percent of the number of outstanding shares of
any class , remove from office any Director in case of fraudulent or dishonest
acts or gross abuse of authority or discretion with reference to the corporation
and may bar from re-election any Director so removed for a period prescribed by
the court. The corporation shall be made a party to such action.
<PAGE> 6
SECTION 6. PLACE OF MEETINGS
Meetings of the Board of Directors shall be held at any place, within
or without the State of California which has been designated in the notice of
the meeting, or, if not stated in the notice or there is no notice, at the
principal executive office of the corporation or as designated from time to time
by resolution of the Board of Directors.
SECTION 7. CALL AND NOTICE OF MEETINGS
Meetings of the Board of Directors may be called by the Chairman of the
Board, or the President, or Vice President, or Secretary or any two Directors.
Regular annual meetings of the Board of Directors shall be held without
notice immediately after and at the same place as the annual meeting of
shareholders. Special meetings of the Board of Directors shall be held upon four
(4) days' notice by mail, or 48 hours' notice delivered personally or by
telephone or telegraph. A notice or waiver of notice need not specify the
purpose of any special meeting of the Board of Directors.
SECTION 8. QUORUM
A quorum of all meetings of the Board of Directors shall be two (2) of
the authorized number of Directors.
Every act or decision done or made by a majority of the Directors
present at a meeting duly held at which a quorum is present is the act of the
Board, subject to the provisions of Section 310 and subdivision (e) of Section
317 of the California Corporations Code. A meeting at which a quorum is
initially present may continue to transact business notwithstanding the
withdrawal of Directors, if any action taken is approved by at least a majority
of the required quorum of such meeting.
SECTION 9. WAIVER OF NOTICE
The transactions of any meeting of the Board, however called and
noticed or wherever held, are as valid as though had at a meeting duly held
after regular call and notice if a quorum is present and if, either before or
after the meeting, each of the Directors not present signs a written waiver of
notice, a consent to holding the meeting or an approval of the minutes thereof.
All such waivers, consents and approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
SECTION 10. ACTION WITHOUT MEETING
Any action required or permitted to be taken by the Board may be taken
without a meeting, if all members of the Board shall individually or
collectively consent in writing to such action. Such written consent or consents
shall be filed with the minutes of the proceedings of the Board. Such action
written consent shall have the same force and effect as a unanimous vote of such
Directors.
SECTION 11. COMPENSATION
No salary shall be paid Directors, as such, for their services, but, by
resolution, the Board of Directors may allow a fixed sum and expenses to be paid
for attendance at regular or special meetings. Nothing contained herein shall
prevent a Director from serving the corporation in any other capacity and
<PAGE> 7
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attendance at meets.
ARTICLE IV.
OFFICERS
SECTION 1. OFFICERS
The officers of the corporation shall be a President, a Secretary and a
Treasurer, who shall be the chief financial officer of the corporation. The
corporation may also have such other officers with such titles and duties as
shall be determined by the Board of Directors. Any number of offices may be held
by the same person, but no officer shall execute, acknowledge or verify any
instrument in more than one capacity.
SECTION 2. ELECTION
All officers of the corporation shall be chosen by the Board. Each
officer shall hold office until his death, resignation or removal or until his
successor shall be chosen and qualified. A vacancy in any office because of
death, resignation or removal or other cause shall be filled by the Board.
SECTION 3. REMOVAL AND RESIGNATION
An officer may be removed at any time, either with or without cause, by
the Board. An officer may resign at any time upon written notice to the
corporation given to the Board, the President, or the Secretary of the
corporation. Any such resignation shall take effect at the day of receipt of
such notice or at any other time specified therein. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 4. PRESIDENT
The President shall be the chief executive officer of the corporation
and shall, subject to the direction and control of the Board of Directors, have
general supervision, direction and control of the business and affairs of the
corporation. He shall preside at all meetings of the shareholders and Directors
and be an ex-officio member of all the standing committees, including the
executive committee, if any, and shall have the general powers and duties of
management usually vested in the office of President of a corporation, and shall
have such other powers and duties as may from time to time be prescribed by the
Board of Directors or by Bylaws.
SECTION 5. VICE-PRESIDENT
In the absence or disability of the President, the Vice-Presidents, in
order of their rank as fixed by the Board of Directors, or if not ranked, the
Vice-President designated by the Board, shall perform all the duties of the
President, and when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the President. Each Vice-President shall have such
other powers and perform such other duties as may from time to time be
prescribed by the Board of Directors or the Bylaws.
SECTION 6. SECRETARY
The Secretary shall keep, or cause to be kept, at the principal
executive office of the corporation, a book of minutes of all meetings of
Directors and shareholders, with the time and place of holding,
<PAGE> 8
whether regular or special, and, if special, how authorized, the notice thereof
given, the names of those present at Directors' meetings, the number of shares
present or represented at shareholders' meetings and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal
executive office of the corporation, or at the office of the corporation's
transfer agent, a share register, showing the names of the shareholders and
their addresses, the number and classes of shares held by each, the number and
date of certificates issued for shares, and the number and date of cancellation
of every certificate surrendered for cancellation.
The Secretary shall keep, or cause to be kept, at the principal
executive office of .the corporation, the original or a copy of the Bylaws as
amended or otherwise altered to date, certified by him.
The Secretary shall give, or cause to be given, notice of all meetings
of shareholders and Directors required to be given by law or the Bylaws.
The Secretary shall have charge of the seal of the corporation and have
such other powers and perform such other duties as may from time to time be
prescribed by the Board or the Bylaws.
SECTION 7. TREASURER
The Treasurer shall keep and maintain or cause to be kept and
maintained, adequate and correct books and records of accounts of the properties
and business transactions of the corporation.
The Treasurer shall deposit moneys and other valuables in the name and
to the credit of the corporation with such depositaries as may be designated by
the Board of Directors. He shall disburse the funds of the corporation in
payment of the just demands against the corporation or as may be ordered by the
Board of Directors; shall render to the President and Directors, whenever they
request it, an account of all his transactions as Treasurer and of the financial
condition of the corporation, and shall have such other powers and perform such
other duties as may from time to time be prescribed by the Board of Directors or
the Bylaws.
In the absence or disability of the Treasurer, the Assistant
Treasurers, if any, in order of their rank as fixed by the Board of Directors or
if not ranked, the Assistant Treasurer designated by the Board of Directors,
shall perform all the duties of the Treasurer, and when so acting, shall have
all the powers of, and be subject to, all the restrictions upon the Treasurer.
The Assistant Treasurers, if any, shall have such other powers and perform such
other duties as may from time to time be prescribed by the Board of Directors or
the Bylaws.
ARTICLE V.
EXECUTIVE COMMITTEES
SECTION 1.
The Board may, by resolution adopted by a majority of the authorized
number of Directors, designate one or more committees, each consisting of two or
more Directors, to serve at the pleasure of the Board. Any such committee, to
the extent provided in the resolution of the Board, shall have all the authority
of the Board, except with respect to:
<PAGE> 9
a. The approval of any action for which this division also
requires shareholders' approval or approval of the outstanding shares.
b. The filling of vacancies on the Board or in any committee.
c. The fixing of compensation of the Directors for serving on the
Board or on any committee.
d. The amendment or repeal of Bylaws or the adoption of new
Bylaws.
e. The amendment or repeal of any resolution of the Board which
by its express terms is not so amendable or repealable.
f. A distribution to the shareholders of the corporation, except
at a rate or in a periodic amount or within a price range determined by the
Board.
g. The appointment of other committees of the Board or the
members thereof.
SECTION 2. COMPENSATION
The salaries of the officers shall be fixed, from time to time, by the
Board of Directors.
ARTICLE VI.
CORPORATE RECORDS AND REPORTS
SECTION 1. INSPECTION BY SHAREHOLDERS
The share register shall be open to inspection and copying by any
shareholder or holder of a voting trust certificate at any time during usual
business hours upon written demand on the corporation, for a purpose reasonably
related to such holder's interest as a shareholder or holder of a voting trust
certificate. Such inspection and copying under this section may be made in
person or by agent or attorney.
The accounting books and records and minutes of proceedings of the
shareholders and the Board and committees of the Board also shall be open to
inspection upon the written demand on the corporation of any shareholder or
holder of a voting trust certificate at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's interests as a
shareholder or as the holder of such voting trust certificate. Such inspection
by a shareholder or holder of voting trust certificate may be made in person or
by agent or attorney, and the right of inspection includes the right to copy and
make extracts.
Shareholders shall also have the right to inspect the original or copy
of these Bylaws, as amended to date, kept at the corporation's principal
executive office, at all reasonable times during business hours.
SECTION 2. INSPECTION BY DIRECTORS
Every Director shall have the absolute right at any reasonable time to
inspect and copy all books, records and documents of every kind and to inspect
the physical properties of the corporation, domestic
<PAGE> 10
for foreign, of which such person is a Director. Such inspection by a Director
may be made in person or by agent or attorney and the right of inspection
includes the right to copy and make extracts.
SECTION 3. RIGHT TO INSPECT WRITTEN RECORDS
If any record subject to inspection pursuant to this chapter is not
maintained in written form, a request for inspection is not complied with unless
and until the corporation at its expense makes such record available in written
form.
SECTION 4. WAIVER OF ANNUAL REPORT
The annual report to shareholders, described in Section 1501 of the
California Corporations Code, is hereby expressly waived.
SECTION 5. CONTRACTS, ETC.
The Board of Directors, except as otherwise provided in the Bylaws, may
authorize any officer or officers, agent or agents, to enter into any contract
or execute any instrument in the name and on behalf of the corporation. Such
authority may be general or confined to specific instances. Unless so authorized
by the Board of Directors, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement, or to pledge
its credit, or to render it liable for any purpose or to any amount.
ARTICLE VII.
INDEMNIFICATION OF CORPORATE AGENTS
SECTION 1.
The corporation shall indemnify each of its agents against expenses,
judgments, fines, settlements and other amounts, actually and reasonably
incurred by such person by reason of such person's having been made or having
been threatened to be made a party to a proceeding, to the fullest extent
permissible by the provisions of Section 317 of the California Corporations
Code. The corporation shall advance the expenses reasonably expected to be
incurred by such agent in defending any such proceeding upon receipt of the
undertaking required by subdivision (f) of such section. The terms "agent",
"proceeding" and "expenses" used in this Section 1 shall have the same meaning
as such terms in said Section 317 of the California Corporations Code.
ARTICLE VIII.
SHARES
SECTION 1. CERTIFICATES
The corporation shall issue certificates for its shares when fully
paid. Certificates of stock shall be issued in numerical order, and state the
name of the recordholder of the shares represented thereby; the number,
designation, if any, and class or series of shares represented thereby; and
contain any statement or summary required by an applicable provision of the
California Corporations Code.
Every certificate for shares shall be signed in the name. of the
corporation by the Chairman or Vice-Chairman of the Board or the President or
Vice-President, and the Treasurer, the Secretary or an Assistant Secretary.
<PAGE> 11
SECTION 2. TRANSFER OF SHARES
Upon surrender to the Secretary or transfer agent of the corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
Secretary of the corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its share
register.
SECTION 3. RECORD DATE AND CLOSING OF TRANSFER BOOKS
The Board of Directors may fix a time in the future as a record date
for the determination of the shareholders entitled to notice of and to vote at
any meeting of shareholders or entitled to receive payment of any dividend or
distribution, or any allotment' of rights, or to exercise rights in respect to
any other lawful action. The record date so fixed shall not be more than sixty
(60) nor less than ten (10) days prior to the date of the meeting or event for
the purpose of which it is fixed. When a record date is so fixed, only
shareholders of record on that date are entitled to notice of and to vote at the
meeting or to receive the dividend, distribution, or allotment of rights, or to
exercise the rights as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date.
The Board of Directors may close the books of the corporation against
transfers of shares during the whole or any part of a period of not more than
sixty (60) days prior to the date of a shareholders' meeting, the date when the
right to any dividend, distribution, or allotment of rights vests, or the
effective date of any change, conversion or exchange of shares.
ARTICLE IX.
AMENDMENT OF BYLAWS
SECTION 1. SHAREHOLDERS
Bylaws may be adopted, amended or repealed by the vote or the written
consent of shareholders entitled to exercise a majority of the voting power of
the corporation.
SECTION 2. BY DIRECTORS
Subject to the right of shareholders to adopt, amend or repeal Bylaws,
Bylaws may be adopted, amended or repealed by the Board of Directors, except
that a Bylaw amendment thereof changing the authorized number of Directors may
be adopted by the Board of Directors only if prior to the issuance of shares.
<PAGE> 1
EXHIBIT 3.10a
ARTICLES OF INCORPORATION
OF
EARL'S SUPPLY COMPANY
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, for the purpose of forming a corporation
under the laws of the State of California, do certify:
FIRST: That the name of the corporation is
EARL'S SUPPLY COMPANY
SECOND: The corporation's purposes are:
(a) That the specific business in which the corporation
is primarily to engage is the sale and distribution of surplus aircraft parts
for profit.
(b) To generally engage in the business of owning and
operating a surplus aircraft parts business and in the buying, selling,
manufacturing, using, leasing and otherwise dealing in goods, wares, merchandise
and real and personal property of all kinds.
(c) To engage in any business related or unrelated to
those described in clauses (a) and (b) by this Article SECOND and from time to
time authorized or approved by the directors of this corporation.
(d) To act as partner or joint venturer or in any other
legal capacity in any transaction.
(e) To do business anywhere in the world; and
<PAGE> 2
(f) To have and exercise all rights and powers from time
to time granted to a corporation by law.
The above purpose clauses shall not be limited by reference to or
inference from one another, but each such purpose clause shall be construed as a
separate statement conferring independent purposes and powers upon the
corporation.
THIRD: The County in this State where the principal office for the
transaction of the business of the corporation is located is the County of Los
Angeles.
FOURTH: (a) That the number of directors of the corporation is
three (3).
(b) That the names and addresses of the persons who are
appointed to act as first directors are:
EARL J. FOUTS 15312 Gerkin Avenue
Lawndale, California 90260
WANDA L. FOUTS 15312 Gerkin Avenue
Lawndale, California 90260
ROBERT E. FOUTS 21002 South Menlo
Torrance, California
FIFTH: (a) The total number of shares which the corporation is
authorized to issue is Twenty Thousand (20,000) shares of common stock.
(b) The aggregate par value of said shares is Two Hundred
Thousand Dollars ($200,000.00), and the par value of each share is Ten Dollars
($10.00).
-2-
<PAGE> 3
IN WITNESS WHEREOF, the undersigned and above-named incorporators and
first directors of this corporation have executed these Articles of
Incorporation this 15th day of September, 1970.
/s/ EARL J. FOUTS
-------------------------
/s/ WANDA L. FOUTS
-------------------------
/s/ ROBERT E. FOUTS
-------------------------
STATE OF CALIFORNIA )
) SS
COUNTY OF LOS ANGELES )
On September 15, 1970, before me the undersigned, a Notary Public in
and for said County and State, personally appeared EARL J. FOUTS, WANDA L.
FOUTS, and ROBERT E. FOUTS, known to me to be the persons whose names are
subscribed to the foregoing Articles of Incorporation and acknowledged to me
that they executed the same.
WITNESS my hand and official seal.
/s/ Edward Trabin
----------------------------------------------
Notary Public in and for said County and State
(Seal)
-3-
<PAGE> 1
EXHIBIT 3.10b
BY -LAWS
OF
EARL'S SUPPLY COMPANY
A CALIFORNIA CORPORATION
------------------------
ARTICLE I
SHAREHOLDERS' MEETING
SECTION 1. Place of Meetings.
All meetings of the shareholders shall be held at the office of the
corporation, in the State of California, as may be designated for that purpose
from time to time by the Board of Directors.
Section 2. Annual Meetings.
The annual meeting of the shareholders shall be held, each year, at the
time and on the day following:
Time of Meeting: 10:00 A.M.
Date of Meeting: December 15th
If this day shall be a legal holiday, then the meeting shall be held on the next
succeeding business day, at the same hour. At the annual meeting, the
shareholders shall elect a Board of Directors, consider reports of the affairs
of the corporation and transact such other business as may properly be brought
before the meeting.
Section 3. Special Meetings.
Special meetings of the shareholders for any purpose or purposes may be
called at any time by the president, a vice-president, the secretary, an
assistant secretary, or by the Board of Directors, or by one or more
shareholders holding not less than one-fifth (1/5) of the voting power of the
corporation. Upon request in writing by registered mail to the president, a
vice-president, the secretary or an assistant secretary, directed to such
officers at the principal office of the corporation, in California, or delivered
to such officer in person by any person entitled to call a meeting of
shareholders, it shall be the duty of such officer forthwith to cause notice to
be given to the shareholders entitled to vote of a meeting to be held at such
time as such officer may fix not less than ten nor more than sixty days after
the receipt of such request. If such notice shall not be given within seven days
after the date of mailing or date of delivery of such request,
<PAGE> 2
the person or persons calling the meeting may fix the time of meeting and give
notice thereof in the manner provided by these By-laws.
Section 4. Notice of Meetings.
Notices of meetings, annual or special, shall be given in writing to
shareholders entitled to vote by the secretary or the assistant secretary, or if
there be no such officer, or in the case of his neglect or refusal, by any
director or shareholder.
Such notices shall be sent to the shareholder's address appearing on
the books of the corporation, or supplied by him to the corporation for the
purpose of notice, but not less than seven days before such meeting.
Notice of any meeting of shareholders shall specify the place, the day
and the hour of meeting, and in case of special meeting, as provided by the
Corporations Code of California, the general nature of the business to be
transacted.
If a shareholder supplies no address, notice shall be deemed to have
been given to him if mailed to the place where the principal office of the
company, in California, is situated, or published at least once in some
newspaper of general circulation in the County of said principal office. Such
notice shall specify the place, the day and hour of the meeting, and in the case
of special meetings, the general nature of the business to be transacted.
When a meeting is adjourned for thirty days or more, notice of the
adjourned meeting shall be given as in case of an original meeting. Save, as
aforesaid, it shall not be necessary to give any notice of the adjournment or of
the business to be transacted at an adjourned meeting other than by announcement
at the meeting at which such adjournment is taken.
Section 5. Consent to Shareholders' Meetings.
The transactions of any meeting of shareholders, however called and
noticed, shall be valid as though had at a meeting duly held after regular call
and notice, if a quorum be present either in person or by proxy, and if, either
before or after the meeting, each of the shareholders entitled to vote, not
present in person or by proxy, sign a written waiver of notice, or a consent to
the holding of such meeting, or an approval of the minutes thereof. All such
waivers, consents or approvals shall be filed with the corporate records or made
a part of the minutes of the meeting.
Section 6. Shareholders Acting Without A Meeting.
Any action which may be taken at a meeting of the shareholders, may be
taken without a meeting if authorized by a writing signed by all of the
shareholders entitled to vote at a meeting for such purpose, and filed with the
secretary of the corporation.
Section 7. Quorum.
The holders of a majority of the shares entitled to vote thereat,
present in person, or represented by proxy, shall be requisite and shall
constitute a quorum at all meetings of the
2
<PAGE> 3
shareholders for the transaction of business except as otherwise provided by
law, by the Articles of Incorporation, or by these By-laws. If, however, such
majority shall not be present or represented at any meeting of the
shareholders., the shareholders entitled to vote thereat, present in person, or
by proxy, shall have the power to adjourn the meeting from time to time, until
the requisite amount of voting shares shall be present. At such adjourned
meeting at which the requisite amount of voting shares shall be represented, any
business may be transacted which might have been transacted at the meeting as
originally notified.
Section 8. Voting Rights; Cumulative Voting.
Only persons in whose names shares entitled to vote stand on the stock
records of the corporation on the day of any meeting of shareholders, unless
some other day be fixed by the Board of Directors for the determination of
shareholders of record, and then on such other day, shall be entitled to vote at
such meeting.
Every shareholder entitled to vote at any election for directors of any
corporation for profit may cumulate his votes and give one candidate a number of
votes equal to the number of directors to be elected multiplied by the number of
votes to which his shares are entitled, or distribute his votes on the same
principle among as many candidates as he thinks fit.
The candidates receiving the highest number of votes up to the number
of directors to be elected are elected.
The Board of Directors may fix a time in the future not exceeding
thirty days preceding the date. of any meeting of shareholders or the date fixed
for the payment of any dividend or distribution, or for the allotment of rights,
or when any change or conversion or exchange of shares shall go into effect, as
a record date for the determination of the shareholders entitled to notice of
and to vote at any such meeting, or entitled to receive any such dividend or
distribution, or any allotment of rights, or to exercise the rights in respect
to any such change, conversion or exchange of shares. In such case only
shareholders of record on the date so fixed shall be entitled to notice of and
to vote at such meeting, or to receive such dividends, distribution or allotment
of rights, or to exercise such rights, as the case may be, notwithstanding any
transfer of any share on the books of the company after any record date fixed as
aforesaid. The Board of Directors may close the books of the company against
transfers of shares during the whole or any part of such period.
Section 9. Proxies.
Every shareholder entitled to vote, or to execute consents, may do so,
either in person or by written proxy, executed in accordance with the provisions
of Section 2225 of the Corporations Code of California and filed with the
secretary of the corporation.
Section 10. Organization.
The president, or in the absence of the president, any vice-president,
shall call the meeting of the shareholders to order, and shall act as chairman
of the meeting. In the absence of
3
<PAGE> 4
the president and all of the vice-presidents, shareholders shall appoint a
chairman for such meeting. The secretary of the company shall act as secretary
of all meetings of the shareholders, but in the absence of the secretary at any
meeting of the shareholders, the presiding officer may appoint any person to act
as secretary of the meeting.
Section 11. Inspectors of Election.
In advance of any meeting of shareholders the Board of Directors may,
if they so elect, appoint inspectors of election to act at such meeting or any
adjournments thereof. If inspectors of election be not so appointed, the
chairman of any such meeting may, and on the request of any shareholder or his
proxy shall, make such appointment at the meeting. The number of inspectors
shall be either one or three.
ARTICLE II
DIRECTORS; MANAGEMENT
Section 1. Powers.
Subject to the limitation of the Articles of Incorporation, of the
By-laws, and of the laws of the State of California as to action to be
authorized or approved by the shareholders, all corporate powers shall be
exercised by or under authority of, and the business and affairs of this
corporation shall be controlled by, a Board of Directors.
Section 2. Number and Qualification.(1)
The authorized number of directors of the corporation shall be as
follows: Three (3).
This number may be changed by amendment to the Articles of
Incorporation or by an amendment to this Section 2., ARTICLE II, of these
By-laws, adopted by the vote or written assent of the shareholders entitled to
exercise majority voting power.
Section 3. Election and Tenure of Office.
The directors shall be elected by ballot at the annual meeting of the
shareholders, to serve for one year or. until their successors are elected and
have qualified. Their term of office shall begin immediately after election.
Section 4. Vacancies.
Vacancies in the Board of Directors may be filled by a majority of the
remaining directors, though less than a quorum, or by a sole remaining director,
and each director so elected shall hold office until his successor is elected at
an annual meeting of shareholders or at a special meeting called for that
purpose.
- --------
(1) Article II, section 2 amended on 7/14/81 to provide for four (4) directors;
Article III, Section 2 amended on 10/28/99 to provide for one or more directors.
(see attached).
4
<PAGE> 5
The shareholders may at any time elect a director to fill any vacancy
not filled by the directors, and may elect the additional directors at the
meeting at which an amendment of the By-laws is voted authorizing an increase in
the number of directors.
A vacancy or vacancies shall be deemed to exist in case of the death,
resignation or removal of any director, or if the shareholders shall increase
the authorized number of directors but shall fail at the meeting at which such
increase is authorized, or at an adjournment thereof, to elect the additional
director so provided for, or in case the shareholders fail at any time to elect
the full number of authorized directors.
If the Board of Directors accepts the resignation of a Director
tendered to take effect at a future time, the Board, or the shareholders, shall
have power to elect a successor to take office when the resignation shall become
effective.
No reduction of the number of directors shall have the effect of
removing any director prior to the expiration of his term of office.
Section 5. Removal of Directors.
The entire Board of Directors or any individual director may be removed
from office as provided by Section 810 of the Corporations Code of the State of
California.
Section 6. Place of Meetings.
Meetings of the Board of Directors shall be held at the office of the
corporation in the State of California, as designated for that purpose, from
time to time, by resolution of the Board of Directors or written consent of all
of the members of the Board. Any meeting shall be valid, wherever held, if held
by the written consent of all members of the Board of Directors, given either
before or after the meeting and filed with the Secretary of the corporation.
Section 7. Organization Meetings.
The organization meetings of the Board of Directors shall be held
immediately following the adjournment of the annual meetings of the
shareholders.
Section 8. Other Regular Meetings.
Regular meetings of the Board of Directors shall be held at the
corporate offices, or such other place as may be designated by the Board of
Directors, as follows:
Time of Regular Meeting: 10:30 A.M.
Date of Regular Meeting: December 15th
If said day shall fall upon a holiday, such meetings shall be held on the next
succeeding business day thereafter. No notice need be given of such regular
meetings.
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<PAGE> 6
Section 9. Special Meetings - Notices.
Special meetings of the Board of Directors for any purpose or purposes
shall be called at any time by the president or if he is absent or unable or
refuses to act, by any vice-president or by any two directors.
Written notice of the time and place of special meetings shall be
delivered personally to the directors or sent to each director by letter or by
telegram, charges prepaid, addressed to him at his address as it is shown upon
the records of the corporation, or if it is not so shown on such records or is
not readily ascertainable, at the place in which the meetings of the directors
are regularly held. In case such notice is mailed or telegraphed, it shall be
deposited in the United States mail or delivered to the telegraph company in the
place in which the principal office of the corporation is located at least
forty-eight (48) hours prior to the time of the holding of the meeting. In case
such notice is delivered as above provided, it shall be so delivered at least
twenty-four (24) hours prior to the. time of the holding of the meeting. Such
mailing, telegraphing or delivery as above provided shall be due, legal and
personal notice to such director.
Section 10. Waiver of Notice.
When all of the directors are present at any directors' meeting,
however called or noticed, and sign a written consent there-to on the records of
such meeting, or, if a majority of the directors are present, and if those not
present sign in writing a waiver of notice of such meeting, whether prior to or
after the holding of such meeting, which said waiver shall be filed with the
Secretary of the corporation, the transactions thereof are as valid as if had at
a meeting regularly called and noticed.
Section 11. Directors Acting Without a Meeting by Unanimous
Written Consent.
Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting and with the same force and effect as if taken by
a unanimous vote of directors, if authorized by a writing signed by all members
of the board. Such consent shall be filed with the regular minutes of the board.
Section 12. Notice of Adjournment.
Notice of the time and place of holding an adjourned meeting need not
be given to absent directors if the time and place be fixed at the meeting
adjourned.
Section 13. Quorum.
A majority of the number of directors as fixed by the Articles of
Incorporation or By-laws shall be necessary to constitute a quorum for the
transaction of business, and the action of a majority of the directors present
at any meeting at which there is a quorum, when duly assembled, is valid as a
corporate act; provided that a minority of the directors, in the absence of a
quorum, may adjourn from time to time, but may not transact any business.
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<PAGE> 7
Section 14. Compensation of Directors.
Directors, as such, shall not receive any stated salary for their
services, but by resolution of the Board a fixed sum and expense of attendance,
if any, may be allowed for attendance at each regular and special meeting of the
Board; provided that nothing herein contained shall be construed to preclude any
director from serving the company in any other capacity and receiving
compensation therefor.
Section 15. Executive Committee.
An executive committee may be appointed by resolution passed by a
majority of the whole Board. The executive committee shall be composed of
members of the Board, and shall have such powers as may be expressly delegated
to it by resolution of the Board of Directors. It shall act only in the
intervals between meetings of the Board and shall be subject at all times to the
control of the Board of Directors.
ARTICLE III
OFFICERS
Section 1. Officers.
The officers of the corporation shall be a president, a vice-president,
a secretary and a treasurer. The corporation may also have, at the discretion of
the Board of Directors, a chairman of the board, one or more additional
vice-presidents, one or more assistant secretaries, one or more assistant
treasurers, and such other officers as may be appointed in accordance with the
provisions of Section 3 of this Article. One person may hold two or more
offices, except those of president and secretary.
Section 2. Election.
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 3 or Section 5 of this
Article shall be chosen annually by the Board of Directors, and each shall hold
his office until he shall resign or shall be removed or otherwise disqualified
to serve, or his successor shall be elected and qualified.
Section 3. Subordinate Officers, Etc.
The Board of Directors may appoint such other officers as the business
of the corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in the By-laws or as
the Board of Directors may from time to time determine.
Section 4. Removal and Resignation.
Any officer may be removed, either with or without cause, by a majority
of the directors at the time in office, at any regular or special meeting of the
Board, or, except in case of an
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<PAGE> 8
officer chosen by the Board of Directors, by any officer upon whom such power of
removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
Board of Directors, or to the president, or to the secretary of the corporation.
Any such resignation shall take effect at the date of the receipt of such notice
or at any later time specified therein; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
Section 5. Vacancies.
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
the By-laws for regular appointments to such office.
Section 6. Chairman of the Board.
The Chairman of the Board, if there shall be such an officer, shall, if
present, preside at all meetings of the Board of Directors, and exercise and
perform such other powers and duties as may be from time to time assigned to him
by the Board of Directors or prescribed by the By-laws.
Section 7. President.
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the Chairman of the Board, if there be such an officer,
the president shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. He shall
preside at all meetings of the shareholders and in the absence of the Chairman
of the Board, or if there be none, at all meetings of the Board of Directors. He
shall be ex officio a member of all the standing committees, including the
executive committee, if any, and shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed by the Board of Directors
or the By-laws.
Section 8. Vice-President.
In the absence or disability of the president, the vice-presidents, in
order of their rank as fixed by the Board of Directors, or if not ranked, the
vice-president designated by the Board of Directors, shall perform all the
duties of the president, and when so acting shall have all the powers of, and be
subject to, all the restrictions upon, the president. The vice-presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board of Directors or the By-laws.
8
<PAGE> 9
Section 9. Secretary.
The secretary shall keep, or cause to be kept, a book of minutes at the
principal office or such other place as the Board of Directors may order, of all
meetings of Directors and Shareholders, with the time and place of holding,
whether regular or special, and if special, how authorized, the notice thereof
given, the names of those present at directors' meetings, the number of shares
present or represented at shareholders' meetings and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal office
or at the office of the corporation's transfer agent, a share register, or
duplicate share register, showing the names of the shareholders and their
addresses; the number and classes of shares held by each; the number and date of
certificates issued for the same; and the number and date of cancellation of
every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all the
meetings of the shareholders and of the Board of Directors required by the
By-laws or by law to be given, and he shall keep the seal of the corporation in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or by the By-laws.
Section 10. Treasurer.
The treasurer shall keep and maintain, or cause to be kept and
maintained, adequate and correct accounts of the properties and business
transactions of the corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, surplus and shares. Any
surplus, including earned surplus, paid-in surplus and surplus arising from a
reduction of stated capital, shall be classified according to source and shown
in a separate account. The books of account shall at all reasonable times be
open to inspection by any director.
The treasurer shall deposit all moneys and other valuables in the name
and to the credit of the corporation with such depositories as may be designated
by the Board of Directors. He shall disburse the funds of the corporation as may
be ordered by the Board of Directors, shall render to the president and
directors, whenever they request it, an account of all of his transactions as
treasurer and of the financial condition of the corporation, and shall have such
other powers and perform such other duties as may be prescribed by the Board of
Directors or the By-laws.
ARTICLE IV
CORPORATE RECORDS AND REPORTS -- INSPECTION
Section 1. Records.
The corporation shall maintain adequate and correct accounts, books and
records of its business and properties. All of such books, records and accounts
shall be kept at its principal place of business in the State of California, as
fixed by the Board of Directors from time to time.
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<PAGE> 10
Section 2. Inspection of Books and Records.
All books and records provided for in Section 3003 of the Corporations
Code of California shall be open to inspection of the directors and shareholders
from time to time and in the manner provided in said Section 3003.
Section 3. Certification and Inspection of By-laws.
The original or a copy of these By-laws, as amended or otherwise
altered to date, certified by the Secretary, shall be open to inspection by the
shareholders of the company, as provided in Section 502 of the Corporations Code
of California.
Section 4. Checks, Drafts, Etc.
All checks, drafts or other orders for payment of money, notes or other
evidences of indebtedness, issued in the name of or payable to the corporation,
shall be signed or endorsed by such person or persons and in such manner as
shall be determined from time to time by resolution of the Board of Directors.
Section 5. Contracts, Etc. -- How Executed.
The Board of Directors, except as in the By-laws otherwise provided,
may authorize any officer or officers, agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation. Such authority may be general or confined to specific instances.
Unless so authorized by the Board of Directors, no officer, agent or employee
shall have any power or authority to bind the corporation by any contract or
engagement, or to pledge its credit, or to render it liable for any purpose or
to any amount.
Section 6. Annual Report.
The Board of Directors shall cause an annual report or statement to be
sent to the shareholders of this corporation not later than 120 days after the
close of the fiscal or calendar year in accordance with the provisions of
Sections 3006 - 3010 of the Corporations Code of the State of California.
ARTICLE V
CERTIFICATES AND TRANSFER OF SHARES
Section 1. Certificates for Shares.
Certificates for shares shall be of such form and device as the Board
of Directors may designate and shall state the name of the record holder of the
shares represented thereby; its number; date of issuance; the number of shares
for which it is issued; the par value, if any, or a statement that such shares
are without par value; a statement of the rights, privileges, preferences and
restrictions, if any; a statement as to the redemption or conversion, if any; a
statement of
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<PAGE> 11
liens or restrictions upon transfer or voting, if any; if the shares be
assessable or, if assessments are collectible by personal action, a plain
statement of such facts.
Every certificate for shares must be signed by the President or a
Vice-President and the Secretary or an Assistant Secretary or must be
authenticated by facsimiles of the signatures of the President and Secretary or
by a facsimile of the signature of its President and the written signature of
its Secretary or an Assistant Secretary. Before it becomes effective every
certificate for shares authenticated by a facsimile of a signature must be
countersigned by a transfer agent or transfer clerk and must be registered by an
incorporated bank or trust company, either domestic or foreign, as registrar of
transfers.
Section 2. Transfer on the Books.
Upon surrender to the Secretary or transfer agent of the corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 3. Lost or Destroyed Certificates.
Any person claiming a certificate of stock to be lost or destroyed
shall make an affidavit or affirmation of that fact and advertise the same in
such manner as the Board of Directors may require, and shall if the directors so
require give the corporation a bond of indemnity, in form and with one or more
sureties satisfactory to the Board, in at least double the value of the stock
represented by said certificate, whereupon a new certificate may be issued in
the same tenor and for the same number of shares as the one alleged to be lost
or destroyed.
Section 4. Transfer Agents and Registrars.
The Board of Directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, which shall be an incorporated bank
or trust company -- either domestic or foreign, who shall be appointed at such
times and places as the requirements of the corporation may necessitate and the
Board of Directors may designate
Section 5. Closing Stock Transfer Books.
The Board of Directors may close the transfer books in their discretion
for a period not exceeding thirty days preceding any meeting, annual or special,
of the shareholders, or the day appointed for the payment of a dividend.
Section 6. Legend Condition.
In the event any shares of this corporation are issued pursuant to a
permit or exemption therefrom requiring the imposition of a legend condition the
person or persons issuing or transferring said shares shall make sure said
legend appears on the certificate and on the stub relating thereto in the stock
record book and shall not be required to transfer any shares free of
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<PAGE> 12
such legend unless an amendment to such permit or a new permit be first issued
so authorizing such a deletion.
ARTICLE VI
CORPORATE SEAL
The corporate seal shall be circular in form, and shall have inscribed
thereon the name of the corporation, the date of its incorporation, and the word
California.
ARTICLE VII
AMENDMENTS TO BY-LAWS
Section 1. By Shareholders.
New By-laws may be adopted or these By-laws may be repealed or amended
at their annual meeting, or at any other meeting of the shareholders called for
that purpose, by a vote of shareholders entitled to exercise a majority of the
voting power of the corporation, or by written assent of such shareholders.
Section 2. Powers of Directors.
Subject to the right of the shareholders to adopt, amend or repeal
By-laws, as provided in Section 1 of this Article VII, the Board of Directors
may adopt, amend or repeal any of these By-laws other than a By-law or amendment
thereof changing the authorized number of directors.
Section 3. Record of Amendments.
Whenever an amendment or new By-law is adopted, it shall be copied in
the book of By-laws with the original By-laws, in the appropriate place. If any
By-law is repealed, the fact of repeal with the date of the meeting at which the
repeal was enacted or written assent was filed shall be stated in said book.
ARTICLE VIII
Section 1. TRANSFER OF SHARES.
Before there can be a valid sale or transfer of any of the shares of
the corporation by any holder thereof, he shall first offer said shares to the
corporation and then to the other holders of the common shares in the following
manner:
(a) Such offering shareholder shall deliver a notice in
writing by mail or otherwise to the secretary of the corporation stating the
price, terms and conditions of such proposed sale or transfer, the number of
shares to be sold or transferred, and his intention so to sell or transfer such
shares. Within fifteen (15) days thereafter, the corporation shall have the
prior right to purchase all or any full number of such shares so offered at the
price and upon the
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<PAGE> 13
terms and conditions stated in such notice. Should the corporation fail to
purchase all of said shares, at the expiration of said fifteen (15) day period,
or prior thereto upon the determination of the corporation to purchase none or
only a portion of such shares so offered, the secretary of the corporation
shall, within five (5) days thereafter, mail or deliver to each of the other
shareholders a notice setting forth the particulars concerning said shares not
so purchased by the corporation described in the notice received from the
offering shareholder. The other shareholders shall have the right to purchase
all of the shares specified in said secretary's notice by delivering to the
secretary by mail or otherwise a written offer or offers to purchase all or any
specified number of such shares upon the terms so described in the secretary's
notice if such offer or offers are so delivered to the secretary within ten (10)
days after mailing or delivering such secretary's notice to such other
shareholders. If the total number of shares specified in such offers so received
within such period by the secretary exceeds the number of shares referred to in
such secretary's notice, each offering shareholder shall be entitled to purchase
such proportion of the shares referred to in said notice to the secretary, as
the number of shares which he holds bears to the total number of shares held by
all such shareholders desiring to purchase the shares referred to in said notice
to the secretary.
(b) If all of the shares referred to in said notice to
the secretary are not disposed of under such apportionment, each shareholder
desiring to purchase shares in a number in excess of his proportionate share, as
provided above, shall be entitled to purchase such proportion of those shares
which remain thus undisposed of, subject to the provision of subparagraph (c)
below, as the total number of shares which he holds bears to the total number of
shares held by all of the shareholders desiring to purchase shares in excess of
those to which they are entitled under such apportionment.
(c) If none or only a part of the shares referred to in
said notice to the secretary is purchased, as aforesaid, by the corporation or
in accordance with offers made by other shareholders within said ten (10) day
period, the shareholder desiring to sell or transfer may accept any
subscriptions proffered or reject any or all such subscriptions only if such
subscriptions are for less than all of the shares offered in the notice to the
secretary. The offering shareholder thereafter may dispose of all shares of
stock referred to in said notice to the secretary to any person or persons he
may so desire; provided however, that he shall not sell or transfer such shares
at a lower price or on terms more favorable to the purchaser or transferee than
those specified in said notice to the secretary.
(d) Within the limitations herein provided, this
corporation may purchase the shares of this corporation from any offering
shareholder, provided however, that at no time shall this corporation be
permitted to purchase all of its outstanding voting shares. Any sale or transfer
or purported sale or transfer of the shares of this corporation shall be null
and void unless the terms, conditions and provisions of this ARTICLE VIII are
strictly observed and followed.
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<PAGE> 1
EXHIBIT 5
[Letterhead of Hunton & Williams]
December 10, 1999
Holley Performance Products Inc.
1801 Russellville Road
Bowling Green, Kentucky 42101
HOLLEY PERFORMANCE PRODUCTS INC.
12 1/4% SENIOR NOTES DUE 2007, SERIES B
Ladies and Gentlemen:
We have acted as counsel to Holley Performance Products Inc., a
Delaware corporation (the "Company"), in connection with the registration by the
Company of $150,000,000 in aggregate principal amount of the Company's 12 1/4%
Senior Notes due 2007, Series B (the "Exchange Notes"), pursuant to a
Registration Statement on Form S-4 (as amended and supplemented, the
"Registration Statement") filed with the Securities and Exchange Commission (the
"SEC") under the securities Act of 1933, as amended (the "Securities Act"), for
the purpose of effecting an exchange offer (the "Exchange Offer") for the
Company's outstanding 12 1/4% Senior Notes due 2007 (the "Old Notes"). The
Exchange Notes are to be issued in the Exchange Offer pursuant to the Indenture
(the "Indenture"), dated as of September 20, 1999, between the Company as
issuer, Holley Performance Systems, Inc., a Delaware corporation, Lunati Cams,
Inc., a Tennessee corporation, Weiand Automotive Industries, Inc., a California
corporation, LMT Motor Sports Corporation, a Mississippi corporation, Lunati &
Taylor Pistons, Incorporated and Hooker Industries, Inc., a California
corporation (collectively, the "Guarantors") and State Street Bank and Trust
Company, as Trustee, in exchange for the Old Notes, of which $150,000,000 in
aggregate principal amount is outstanding.
In connection with the foregoing, we have examined the following
documents:
(i) the Registration Statement, including the Prospectus
contained therein, together with all amendments thereto;
(ii) the Indenture;
(iii) the global security representing the Old Notes;
(iv) a specimen of the global security representing the
Exchange Notes; and
(v) the originals (or copies identified to our satisfaction)
of such documents and records of the Company, together with certificates of
public officials and officers of the
<PAGE> 2
Holley Performance Products Inc.
December 10, 1999
Page 2
Company, and such other documents, certificates, records and papers as we have
deemed necessary for purposes of the opinions set forth in this letter.
For purposes of the opinions expressed below, we have assumed (i) the
authenticity of all documents submitted to us as originals, (ii) the conformity
to originals of all documents submitted to us as certified or photostatic copies
and the authenticity of the originals, and (iii) the genuineness of all
signatures (other than the signatures of current officers or directors of the
Company) not witnessed by us.
We are members of the Bar of the State of New York, and we do not
express an opinion on any laws other than those of such state. We do not purport
to cover herein and do not express an opinion with respect to the application of
the securities or "Blue Sky" laws of the various states to issuance of the
Exchange Notes.
Based upon the foregoing and such other information and documents as we
have considered necessary for the purposes hereof, we are of the opinion that:
When, as and if (i) the Registration Statement has become effective
pursuant to the provisions of the Securities Act, (ii) the indenture has been
qualified pursuant to the provisions of the Trust Indenture Act of 1939, as
amended, (iii) the Old Notes are validly tendered to the Company in the Exchange
Offer, (iv) the Exchange Notes are issued pursuant to the Exchange Offer and in
the form and containing the terms described in the Registration Statement and
the Indenture, (v) the Exchange Notes are duly authenticated by the Trustee, and
(vi) all legally required consents, approvals and authorizations of governmental
regulatory authorities have been obtained, including without limitation the
order of effectiveness from the SEC, the Exchange Notes will constitute the
legally binding obligations of the Company, except to the extent that such
enforceability may be limited by applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws affecting
creditors' rights generally and by general equitable principles (whether
considered in a proceeding in equity or at law).
We hereby consent to the filing of this opinion as Exhibit 5 to the
Registration Statement. We also consent to the reference to our firm under the
heading "Legal Matters" in the Registration Statement.
This opinion may not be delivered to or filed with any governmental
agency or other person, without our prior written consent.
<PAGE> 3
Holley Performance Products Inc.
December 10, 1999
Page 3
Sincerely,
/s/ Hunton & Williams
----------------------------------------
Hunton & Williams
<PAGE> 1
EXHIBIT 12.2
CALCULATION OF RATIO OF EBITDA TO CASH INTEREST EXPENSE
(Dollars in thousands)
<TABLE>
<CAPTION>
Proforma Proforma Proforma
Year ended Nine Months Twelve Months
December 31, Ended Ended
1998 October 3, 1999 October 3, 1999
------------ --------------- ---------------
<S> <C> <C> <C>
EBITDA (A) $24,114 $21,793 $25,877
Cash interest expense (B) $19,572 $14,679 $19,572
Ratio of EBITDA to cash
interest expense (A)/(B) 1.2 1.5 1.3
</TABLE>
<PAGE> 1
EXHIBIT 12.3
CALCULATION OF RATIO OF NET DEBT TO EBITDA
(Dollars in thousands)
<TABLE>
<CAPTION>
PROFORMA
PROFORMA TWELVE MONTHS
YEAR ENDED ENDED
DECEMBER 31, OCTOBER 3,
1998 1999
------------ -------------
<S> <C> <C>
Net debt, as Defined:
Long-term debt as of October 3, 1999................... $155,369 $155,369
Cash and cash equivalents as of October 3, 1999........ -- --
Net Debt(A)....................................... 155,369 155,369
EBITDA(B)................................................... $ 24,114 $ 25,877
Ratio of net debt to EBITDA(A)(B)........................... 6.4 6.0
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF HOLLEY PERFORMANCE PRODUCTS INC.
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
- ---------------------------------- ---------------
<S> <C>
Holley Performance Systems, Inc. Delaware
Weiand Automotive Industries, Inc. California
Lunati Cams, Inc. Tennessee
LMT Motor Sports Corporation Mississippi
Lunati & Taylor Pistons Mississippi
Hooker Industries, Inc. California
Biggs Manufacturing, Inc. Arizona
Nitrous Oxide Systems, Inc. California
Earl's Supply Company, Inc. California
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
on the consolidated financial statements of Holley Performance Products Inc. and
Hooker Industries, Inc., and to all references to our firm included in or made a
part of this registration statement (No. 333-89061) of Holley Performance
Products Inc., relating to the registration of its 12 1/4% Senior Notes due
2007, Series B.
/s/ Arthur Andersen
Nashville, Tennessee
December 8, 1999
