<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON November
9, 1995 -----------------------------------REGISTRATION NO. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
ECHLIN INC.
(Exact name of registrant as specified in its charter)
Connecticut 3714 06-0330448
- ----------- ---- ----------
(State of incorporation) (Primary (I.R.S.
Standard Employer
Industrial Identification
Classification Number)
Code Number)
100 DOUBLE BEACH ROAD
BRANFORD, CONNECTICUT 06405
(203-481-5751)
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive office)
--------------------------
JON P. LECKERLING
VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY
100 DOUBLE BEACH ROAD
BRANFORD, CONNECTICUT 06405
(203-481-5751)
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the effective date of this
Registration Statement.
If the only 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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
=================================================================
<TABLE>
<CAPTION>
Proposed Proposed
Title of maximum maximum Amount
each class Amount offering aggregate of
of securities to be price offering registration
to be registered registered per unit <F1> price <F1> fee
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, 1,866,666 $ 36.375 $67,899,976 $ 23,414
par value $1.00 per share
================================================================
<FN>
<F1>
(1) Estimated solely for the purpose of determining the
registration fee in accordance with Rule 457(c) under the
Securities Act of 1933.
</FN>
</TABLE>
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL 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.
=================================================================
<PAGE>
ECHLIN INC.
<TABLE>
CROSS REFERENCE SHEET
<CAPTION>
Registration Statement Item Caption in Prospectus
--------------------------- ---------------------
<S> <S>
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus Facing Page of
Registration Statement;
Cross Reference Sheet;
Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus Available Information;
Incorporation of Certain
Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information Summary Information; The
Meeting; Comparative
Stock Market Data;
Selected Consolidated
Financial Data; Selected
Comparative Per Share
Data; Comparison of
Shareholder Rights
4. Terms of the Transaction Summary Information;
Merger of the Company;
Comparison of Shareholder
Rights
5. Pro Forma Financial Information Not Applicable
6. Material Contacts with the Company
Being Acquired Merger of the Company
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters Not Applicable
8. Interests of Named Experts and
Counsel Legal Opinions; Experts
9. Disclosure of Commission Position
On Indemnification for Securities
Act Liabilities Undertakings
10. Information with Respect to S-3
Registrants Available Information;
Incorporation of Certain
Documents by Reference
11. Incorporation of Certain
Information by Reference Available Information;
Incorporation of Certain
Documents by Reference
12. Information with Respect to S-2
or S-3 Registrants Not Applicable
13. Incorporation of Certain
Information by Reference Not Applicable
14. Information with Respect to
Registrants Other Than S-3 or S-2
Registrants Not Applicable
15. Information with Respect to S-3
Companies Not Applicable
16. Information with Respect to S-2
or S-3 Companies Not Applicable
17. Information with Respect to
Companies Other Than S-3 or S-2
Companies The Company; Comparative
Stock Market Data;
Selected Consolidated
Financial Data; Selected
Comparative Per Share
Data; Management's
Discussion and Analysis
of Results of Operations
and Financial Condition;
Appendix C; Appendix D
18. Information if Proxies, Consents
or Authorizations are to be
Solicited The Meeting; Merger of
the Company;
Incorporation of Certain
Documents by Reference;
Principal Holders of
Company Shares
19. Information if Proxies, Consents
or Authorizations are not to be
Solicited or in an Exchange Offer Not Applicable
</TABLE>
<PAGE>
DRAFT OF 10/25/95
( AEC LETTERHEAD )
__________, 1995
Dear Shareholder:
You are cordially invited to attend a Special Meeting of
Shareholders of American Electronic Components, Inc. (the "Company").
The Meeting will be held on __________, 1995 at 8:00 a.m. local time
in the Atrium of the American Electronic Components Sales and
Engineering Building located at 1010 North Main Street, Elkhart,
Indiana.
At the Meeting, Shareholders will be asked to consider and vote
upon the acquisition of the Company by means of the merger of the
Company into a wholly-owned subsidiary of Echlin Inc. In the merger,
the outstanding shares of common stock of the Company will be
converted into a right to receive Echlin common stock. The amount of
Echlin stock to be exchanged for each share of common stock of the
Company will be determined by dividing $13.625 by the lesser of $40.00
or the average of the closing prices on the New York Stock Exchange of
Echlin common stock for the 20 trading days prior to completion of the
merger, all as more fully described in the accompanying Joint Proxy
Statement/Prospectus.
The Board of Directors of the Company has approved the merger and
recommends that you vote for approval as well.
It is important that your shares be represented at the Meeting,
whether or not you plan to attend in person. Therefore, we ask that
you please sign, date and return the enclosed proxy card in the
postage paid envelope provided. If you attend the Meeting, you may
vote in person if you wish, even if you have previously mailed in your
proxy card.
Sincerely,
David D. Webster
<PAGE>
AMERICAN ELECTRONIC COMPONENTS, INC.
1010 North Main Street
Elkhart, Indiana 46515
(219) 264-1116
-------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held __________, 1995
-------------------------
To the Shareholders of AMERICAN ELECTRONIC COMPONENTS, INC.
A Special Meeting of Shareholders of American Electronic
Components, Inc. (the "Company") will be held on __________,
__________, 1995, at 8:00 a.m., local time, at the Atrium of the Sales
and Engineering Building of American Electronic Components, Inc., 1010
North Main Street, Elkhart, Indiana, for the following purposes:
1. To consider and vote upon the acquisition of the Company
pursuant to an Agreement and Plan of Reorganization, dated
as of October 6, 1995, and an Agreement and Plan of Merger
among the Company, Echlin Inc., a Connecticut corporation
("Echlin") and Echlin Acquisition, Inc., a Delaware
corporation and wholly owned subsidiary of Echlin
("Subsidiary"), under which the Company will merge into
Subsidiary (the "Merger"), with the Company thereby becoming
a wholly owned subsidiary of Echlin and the outstanding
shares of common stock of the Company thereby being
converted into a right to receive an amount of common stock
of Echlin determined by dividing $13.625 by the lesser of
$40 or the average of the closing prices on the New York
Stock Exchange of Echlin common stock for the 20 trading
days prior to the closing of the Merger, all as more fully
described in the accompanying Joint Proxy
Statement/Prospectus.
2. To take action on all matters that may properly come before
the meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on
November 1, 1995, as the record date for determination of shareholders
entitled to notice of and to vote at this meeting and any adjournments
thereof. A list of shareholders entitled to vote at the meeting will
be available for examination for any purpose germane to the meeting in
the office of the Secretary of the Company for a period of at least
five business days prior to the meeting.
By Order of the Board of Directors.
Richard J. Van Es, Secretary
__________ , 1995
SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL THEY
RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS FOR SUBMITTING
SUCH CERTIFICATES
-------------------------
YOUR VOTE IS IMPORTANT
Please sign, date, and return your proxy card
in the postage paid envelope provided
<PAGE>
ECHLIN INC.
and
AMERICAN ELECTRONIC COMPONENTS, INC.
JOINT PROXY STATEMENT/PROSPECTUS
-------------------------
AMERICAN ELECTRONIC COMPONENTS, INC.
PROXY STATEMENT
-------------------------
ECHLIN INC.
PROSPECTUS
-------------------------
This Joint Proxy Statement/Prospectus (the "Proxy Statement") is
being furnished to shareholders of American Electronic Components,
Inc., an Indiana corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for
use at a Special Meeting of Shareholders (the "Meeting") to be held at
8:00 a.m., local time, on __________, __________, 1995, at the Atrium
of the Sales and Engineering Building of American Electronic
Components, Inc., 1010 North Main Street, Elkhart, Indiana, and any
adjournments thereof.
At the Meeting, shareholders of the Company will consider and
vote upon the acquisition of the Company pursuant to an Agreement and
Plan of Reorganization, dated as of October 6, 1995, and an Agreement
and Plan of Merger (collectively, the "Merger Agreement"), among the
Company, Echlin Inc., a Connecticut corporation ("Echlin") and Echlin
Acquisition, Inc., a Delaware corporation and wholly owned subsidiary
of Echlin ("Subsidiary"), under which the Company will merge into
Subsidiary (the "Merger"), with the Company thereby becoming a wholly
owned subsidiary of Echlin and the outstanding shares of common stock
of the Company (the "Shares") thereby being converted into a right to
receive an amount of common stock of Echlin determined by dividing
$13.625 by the lesser of $40 or the average of the closing prices on
the New York Stock Exchange of Echlin common stock for the 20 trading
days prior to the closing of the Merger, all as set forth in the
Merger Agreement and described in this Proxy Statement. See "Merger
of the Company - Summary of the Merger Agreement - Merger
Consideration".
This Proxy Statement also constitutes a prospectus of Echlin with
respect to up to 1,866,666 shares of Echlin common stock issuable in
the Merger to the holders of Shares. The Proxy Statement has been
filed with the United States Securities and Exchange Commission as
part of a Registration Statement on Form S-4 relating to such shares.
All information contained in this Proxy Statement relating to the
Company has been supplied by the Company, and all information relating
to Echlin has been supplied by Echlin.
The outstanding shares of Echlin common stock are, and the shares
of Echlin common stock to be issued in the Merger will be, listed on
the New York Stock Exchange.
The Proxy Statement and the accompanying form of proxy are first
being mailed to shareholders of the Company on or about __________,
1995.
THE SHARES OF ECHLIN COMMON STOCK HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is __________, 1995
<PAGE>
AVAILABLE INFORMATION
Echlin and the Company are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and in accordance therewith file reports, proxy
statements and other information with the Securities and Exchange
Commission (the "Commission"). The reports, proxy statements and
other information filed by Echlin and the Company can be inspected and
copied at the public reference facilities of the Commission, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at 7 World Trade Center,
New York, New York 10048, and Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661, and copies of such materials can be obtained
from the public reference section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Echlin
also files such reports and other information with the New York Stock
Exchange ("NYSE"), on which its common stock is traded. Copies of
such material can be inspected at the offices of the NYSE, 20 Broad
Street, New York, NY 10005. The Company also files such reports and
other information with the National Association of Securities Dealers
("NASD") in connection with the trading of the Shares on the Nasdaq
Stock Market's National Market System. Copies of such material can be
inspected at the offices of the NASD, 1735 K Street, Washington, D.C.
20006.
Echlin has filed with the Commission a Registration Statement on
Form S-4 (together with any amendments thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Echlin common stock to be
issued pursuant to the Merger described herein. This Proxy Statement
does not contain all the information set forth in the Registration
Statement and the exhibits thereto. Such additional information may
be obtained from the Commission's principal office in Washington, D.C.
Statements contained in this Proxy Statement or in any document
incorporated in this Proxy Statement by reference as to the contents
of any contract or other document referred to herein or therein are
not necessarily complete, and in each instance where reference is made
to the copy of such contract or other document filed as an exhibit to
the Registration Statement or such other documents, each such
statement is qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Echlin (File
No. 1-4651) pursuant to the Exchange Act are incorporated by reference
in this Proxy Statement:
1. Echlin's Annual Report on Form 10-K for the year ended
August 31, 1994;
2. Echlin's Quarterly Reports on Form 10-Q for the quarters
ended November 30, 1994, February 28, 1995 and May 31, 1995;
3. Echlin's Current Reports on Form 8-K dated November 16,
1994, and dated January 3, 1995, as amended by Form 8-K/A
dated February 28, 1995;
4. The description of the common stock of Echlin contained in
Echlin's Registration Statement on Form S-4 under the
Securities Act (S.E.C. File No. __________).
All documents and reports filed by Echlin pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement and prior to the date of the Meeting shall be deemed
to be incorporated by reference in this Proxy Statement and to be a
part hereof from the dates of filing of such documents or reports.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement to the extent that a
statement contained herein or in any other subsequently filed document
which also is deemed to be incorporated by reference herein modifies
or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Proxy Statement.
This Joint Proxy Statement/Prospectus incorporates documents relating
to Echlin by reference which are not presented herein or delivered
herewith. These documents (excluding unincoporated exhibits) are
available, without charge upon written or oral request, to any person,
including any beneficial owner, to whom this Proxy Statement is
delivered, from Jon P. Leckerling, Corporate Secretary, Echlin, Inc.,
100 Double Beach Road, Branford, Connecticut 06405 (telephone (203)
481-5751). In order to ensure timely delivery of the documents, any
request should be made by __________, 1995.
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
<S> <C>
SUMMARY INFORMATION . . . . . . . . . . . . . . . . . . . . . . 1
Parties. . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Meeting. . . . . . . . . . . . . . . . . . . . . . . . 1
The Merger . . . . . . . . . . . . . . . . . . . . . . . . 1
Comparison of Shareholder Rights . . . . . . . . . . . . . 4
COMPARATIVE STOCK MARKET DATA . . . . . . . . . . . . . . . . . 4
SELECTED CONSOLIDATED FINANCIAL DATA. . . . . . . . . . . . . . 6
SELECTED COMPARATIVE PER SHARE DATA . . . . . . . . . . . . . . 8
THE MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . 9
General Information. . . . . . . . . . . . . . . . . . . . 9
Purpose of the Meeting . . . . . . . . . . . . . . . . . . 9
Voting Information . . . . . . . . . . . . . . . . . . . . 9
PRINCIPAL HOLDERS OF COMPANY SHARES . . . . . . . . . . . . . 10
MERGER OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . 11
Introduction . . . . . . . . . . . . . . . . . . . . . . . 11
Background of the Merger . . . . . . . . . . . . . . . . . 11
Reasons for the Merger; Recommendation of
the Company's Board of Directors . . . . . . . . . . . . 12
Opinion of the Company's Financial Advisor . . . . . . . . 13
Interest of Certain Persons. . . . . . . . . . . . . . . . 17
Summary of the Merger Agreement. . . . . . . . . . . . . . 17
The Merger. . . . . . . . . . . . . . . . . . . . . . 18
Merger Consideration. . . . . . . . . . . . . . . . . 18
Representations and Warranties. . . . . . . . . . . . 18
Certain Covenants . . . . . . . . . . . . . . . . . . 19
Conditions to Closing . . . . . . . . . . . . . . . . 20
Termination; Termination Fees . . . . . . . . . . . . 21
Accounting Treatment . . . . . . . . . . . . . . . . . . . 21
Certain Federal Income Tax Consequences. . . . . . . . . . 22
Required Filings . . . . . . . . . . . . . . . . . . . . . 22
Federal Securities Law Consequences. . . . . . . . . . . . 23
Stock Exchange Listing . . . . . . . . . . . . . . . . . . 23
Prior Relationships Between the Company and Echlin . . . . 23
Absence of Dissenters' Rights of Appraisal . . . . . . . . 23
Board of Directors Recommendation. . . . . . . . . . . . . 23
COMPARISON OF SHAREHOLDER RIGHTS. . . . . . . . . . . . . . . . 23
The Company. . . . . . . . . . . . . . . . . . . . . . . . 23
Echlin . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(i)
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . 25
General Development. . . . . . . . . . . . . . . . . . . . 25
Products . . . . . . . . . . . . . . . . . . . . . . . . . 26
Sales, Marketing and Engineering Services. . . . . . . . . 29
Research and Development . . . . . . . . . . . . . . . . . 30
Raw Materials and Manufacturing. . . . . . . . . . . . . . 29
Properties . . . . . . . . . . . . . . . . . . . . . . . . 30
Employees. . . . . . . . . . . . . . . . . . . . . . . . . 30
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . 31
Financial Information. . . . . . . . . . . . . . . . . . . 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . 31
General. . . . . . . . . . . . . . . . . . . . . . . . . . 31
Results of Operations. . . . . . . . . . . . . . . . . . . 32
Liquidity and Capital Resources. . . . . . . . . . . . . . 34
New Accounting Standards . . . . . . . . . . . . . . . . . 35
Seasonality. . . . . . . . . . . . . . . . . . . . . . . . 35
Inflation. . . . . . . . . . . . . . . . . . . . . . . . . 35
LEGAL OPINIONS. . . . . . . . . . . . . . . . . . . . . . . . . 35
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY . . . . . . . . . 35
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . 36
APPENDICES
Merger Agreement (excluding exhibits). . . . . . . . . . . . .A-1
Fairness Opinion of The Chicago Corporation. . . . . . . . . .B-1
American Electronic Components, Inc. Audited
Consolidated Financial Statements as of
September 25, 1993 and September 24, 1994
and for the Three-Year Period Ended
September 24, 1994. . . . . . . . . . . . . . . . . . . . .C-1
American Electronic Components, Inc. Quarterly Report
on Form 10-Q for the quarter ended June 24, 1995. . . . . .D-1
</TABLE>
(ii)
<PAGE>
SUMMARY INFORMATION
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement. The following summary is not
intended to be complete and is qualified in all respects by the
information appearing elsewhere herein or incorporated by reference
herein, the Appendices hereto and the documents referred to herein.
Shareholders are urged to read this Proxy Statement and the Appendices
hereto in their entirety.
Parties
Echlin. Echlin is a Connecticut corporation. Subsidiary, which
was formed for purposes of the Merger, is a Delaware corporation and a
wholly-owned subsidiary of Echlin. Echlin is a world-wide supplier of
products which maintain or improve the efficiency and safety of motor
vehicles with operations on six continents. Echlin's principal
products are brake system parts, engine system parts, other vehicle
parts and non-vehicular products. Echlin and Subsidiary have their
principal executive offices at 100 Double Beach Road, Branford,
Connecticut 06405 (telephone (203) 481-5751).
The Company. The Company, an Indiana corporation, is a designer,
manufacturer and marketer of motor vehicle electronic components,
including Hall effect, variable reluctance and inertia sensors used in
braking, ignition, drive train and on-board diagnostic systems. It
also produces a wide range of automotive switches, relays and other
electromechanical products. The Company's principal executive office
is at 1010 N. Main Street, Elkhart, Indiana 46515 (telephone (219)
264-1116).
The Meeting
Date, Time and Place of Meeting. The Meeting will be held at the
Atrium of the Sales and Engineering Building of American Electronic
Components, Inc., 1010 North Main Street, Elkhart, Indiana on
__________, 1995 at 8:00 a.m., local time.
Purpose of the Meeting. At the Meeting, holders of Shares will
consider and vote upon approval and adoption of the Merger Agreement
providing for the Merger of the Company into Subsidiary, with the
Company thereby becoming a wholly-owned subsidiary of Echlin, and the
Shares being converted into a right to receive Echlin common stock.
Record Date. The record date for the Meeting is November 1,
1995.
Vote Required. Approval and adoption of the Merger and the
Merger Agreement will require the affirmative vote of a majority of
the outstanding Shares. Holders of Shares are entitled to one vote
per Share.
Revocation of Proxies. A proxy may be revoked by a shareholder
of record at any time with respect to any proposal before it is
exercised by giving written notice of its revocation to the Secretary
of the Company, by filing with the Secretary a subsequently dated
proxy, or by attending the Meeting or any adjournments thereof and
voting in person.
Security Ownership of Company Management. As of the record date,
executive officers and directors of the Company and their affiliates
have the power to vote a total of 2,096,889 Shares (52.7%), all of
which are expected by management of the Company to be voted in favor
of the Merger Agreement.
The Merger
The following summary is qualified in its entirety by reference
to the full text of the Merger Agreement, which is attached as
Appendix A hereto (excluding exhibits) and incorporated by reference
herein.
Exchange Ratio. At the time the Merger becomes effective (the
"Effective Time"), the Company will merge into Subsidiary and each
Share will automatically be canceled in exchange for an amount of
Echlin common stock determined by rounding to the nearest thousandth
(0.001) the quotient of $13.625 divided by the Base Price of Echlin
common stock (the "Merger Consideration"). For these purposes, the
"Base Price" of Echlin common stock shall equal the lesser of $40 or
the average of the closing prices on the New York Stock Exchange of
Echlin common stock as reported by The Wall Street Journal for the 20
trading days prior to the closing date of the Merger. Each
outstanding option to purchase common stock of the Company (the
"Options") will be canceled in exchange for Echlin common stock
determined as set forth above, except that, in lieu of $13.625 there
shall be used the difference between $13.625 and the per share
exercise price provided for the exercise of such Option, but only if
the exchange of Echlin common stock for Options does not prevent
pooling of interests treatment for the Merger transaction.
Fractional Shares. No fractional shares of Echlin common stock
will be issued in the Merger. Each shareholder of the Company
entitled to receive a fractional share will, in lieu of such
fractional share, receive an amount equal to the result of multiplying
the Base Price by the fractional share to which such shareholder would
otherwise have been entitled pursuant to the Merger.
Effective Time of Merger. The Company and Echlin intend to file
the required documents to make the Merger effective with the Secretary
of State of Delaware and the Secretary of State of Indiana as soon as
practicable following the approval of the Merger by the Company
shareholders.
Reasons for Merger. The Company's Board believes that the Merger
with Echlin will present growth opportunities that would not otherwise
be available as an independent entity, including internal expansion
programs that require the resources of a larger organization, and the
pursuit of acquisition candidates that offer synergistic and accretive
benefits. In particular, the Company's Board believes that after the
Merger the Company will be in a strong position to pursue a more
aggressive worldwide expansion program and introduce new products
either developed internally or obtained through acquisitions.
Additionally, the Company's Board believes that the Merger will
provide its shareholders with a financially attractive opportunity for
continued equity participation in a larger and more diversified
enterprise with a generally more active trading market.
Opinion of Financial Advisor. The Company has received an
opinion of The Chicago Corporation ("Chicago Corp") that, based upon
the assumptions made and matters considered as set forth therein, the
Merger Consideration is fair, from a financial point of view, to the
holders of Shares. In arriving at its opinion, Chicago Corp (i)
reviewed the Merger Agreement; (ii) met with senior management of the
Company to discuss the business and prospects of the Company; (iii)
met with senior management of Echlin to discuss the business and
prospects of Echlin; (iv) reviewed certain publicly available business
and financial information relating to the Company and Echlin; (v)
reviewed financial forecasts of the Company that were provided to
Chicago Corp by the Company, which information is not publicly
available; and (vi) considered certain financial and stock market data
of the Company and Echlin and compared that data with similar data for
other publicly held companies which Chicago Corp deemed relevant, the
financial terms of certain other business combinations which have
recently been effected, and such other information, financial studies,
analyses and investigations and financial, economic and market
criteria which Chicago Corp deemed relevant.
In preparing its opinion to the Board of Directors of the
Company, Chicago Corp also performed a variety of financial and
comparative analyses, including those described in this Proxy
Statement. In arriving at its opinion, Chicago Corp did not attribute
any particular weight to any analysis considered by it, but rather
made qualitative judgments as to the significance and relevance of
each analysis.
For additional information regarding the opinion of Chicago Corp
and the fees paid by the Company to Chicago Corp, see "Merger of the
Company - Opinion of the Company's Financial Advisor" and the opinion
of Chicago Corp attached hereto as Appendix B and incorporated herein
by reference.
Recommendation of Board of Directors of the Company. THE
COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE IN FAVOR OF THE MERGER.
Conditions to Merger; Regulatory Approvals. The Merger is
subject to various conditions including, among other things, approval
of the Merger Agreement by the requisite majority vote of the
shareholders of the Company and receipt of all required regulatory
approvals, the shares of Echlin stock to be issued in the Merger shall
have been approved for listing on the New York Stock Exchange subject
to official notice of issuance, there shall not have occurred any
decline in the Dow Jones Industrial Average by an amount in excess of
20%, and there shall not have occurred any decline in the market price
of Echlin stock by an amount in excess of 20%.
Under the Hart-Scott-Rodino Antitrust Improvement Act (the "HSR
Act") and the rules promulgated thereunder by the Federal Trade
Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been
furnished to the FTC and the Antitrust Division of the Department of
Justice (the "Antitrust Division") and specific waiting period
requirements have been satisfied. The Company and Echlin filed their
respective notification and report forms under the HSR Act with the
FTC and the Antitrust Division.
Termination of Merger Agreement; Termination Fees. The Merger
Agreement may be terminated (i) by mutual written consent of the
parties; or (ii) by the Company or Echlin if a material default or
breach shall be made by the other with respect to the due and timely
performance of such other party's covenants and agreements contained
in the Merger Agreement, or with respect to the due compliance with
such other party's representations and warranties and such default
cannot promptly be cured and has not been waived.
If the Company fails to consummate the transactions described in
the Merger Agreement, and if the Company does not have the right to
terminate the Merger Agreement pursuant to clause (ii) of the
preceding paragraph, and, if the Board of Directors of the Company
withdraws or modifies in a manner adverse to Echlin or Subsidiary its
approval of the Merger Agreement or recommends or approves an
acquisition proposal by a third party or within a period of one year
from the date of the Merger Agreement the Company shall sell
substantially all of its assets, or the Company shall merge with
another company, or if another person shall have made a tender or
exchange offer for more than 50% of the stock of the Company for a
price in excess of $13.625 per share or if another person shall
acquire more than 35% of the stock of the Company, then the Company
shall pay to Echlin a sum equal to 2.5% times $13.625 times the number
of shares of stock of the Company currently issued and outstanding
(including, for this purpose, the number of shares of stock of the
Company which would be issued and outstanding if all options to
purchase stock of the Company were exercised, regardless of whether
said options are currently exercisable). If Echlin should elect not
to consummate the transactions contemplated by the Merger Agreement,
and Echlin does not have the right to terminate the Merger Agreement
pursuant to clause (ii) of the preceding paragraph, then it shall pay
to the Company an amount equivalent to 2.5% times $13.625 times the
number of shares of stock of the Company currently issued and
outstanding (including, for this purpose, the number of shares of
stock of the Company which would be issued and outstanding if all
options to purchase stock of the Company were exercised, regardless of
whether said options are currently exercisable).
Accounting Treatment. The Merger will be accounted for as a
pooling of interests if it meets certain specified criteria, which the
Company and Echlin believe will be satisfied. Under pooling of
interests accounting, for financial accounting purposes all of the
attributes of the businesses being combined are merged into one
financial reporting system. This results in the recorded assets and
liabilities of each such business becoming the recorded assets and
liabilities of the combined enterprise. The stockholders' equities of
the separate businesses are also combined.
Federal Income Tax Consequences. Assuming that the Merger and
related transactions take place as described in the Merger Agreement,
it is anticipated that, for federal income tax purposes: (i) the
Merger will constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and Echlin, Subsidiary and the Company will each be a party to the
reorganization within the meaning of Section 368(b) of the Code; (ii)
no gain or loss will be recognized by the Company in the Merger; (iii)
no gain or loss will be recognized by the shareholders of Company upon
their receipt of Echlin common stock in exchange for their Shares,
except that shareholders who receive cash proceeds in lieu of
fractional interests in Echlin common stock will recognize gain or
loss equal to the difference between such proceeds and the tax basis
allocated to their fractional share interests, and such gain or loss
will constitute capital gain or loss if their Shares are held as a
capital asset at the Effective Time; (iv) the aggregate tax basis of
the shares of Echlin common stock received by the shareholders of the
Company will be the same as the tax basis of the Shares exchanged
therefor; (v) the holding period of the Echlin common stock in the
hands of the Company shareholders will include the holding period of
their Shares exchanged therefor, provided such Shares are held as a
capital asset at the Effective Time; and (vi) the exchange by persons
holding incentive stock options ("ISO's") of their ISO's for stock of
Echlin pursuant to the Merger Agreement upon a basis whereby the ISO's
are valued at the difference between $13.625 per share and the
exercise price of the ISO's will be treated as resulting in taxable
income to such person in an amount equal to such difference. There
can be no assurance that the Internal Revenue Service will not take a
contrary view to these matters. Neither the Company nor Echlin
intends to seek a ruling from the Internal Revenue Service with
respect to the tax consequences of the Merger.
THE FOREGOING IS A GENERAL SUMMARY OF ALL OF THE MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO SHAREHOLDERS OF THE COMPANY
WITHOUT REGARD TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH
SHAREHOLDER'S TAX SITUATION AND STATUS. EACH SHAREHOLDER OF THE
COMPANY SHOULD CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING THE
APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN LAWS AND
THE POSSIBLE EFFECT OF CHANGES IN FEDERAL AND OTHER TAX LAWS.
Absence of Dissenters' Rights. Indiana law governs the rights
of the Company's shareholders in connection with the Merger. Under
the applicable provisions of Indiana law, the Company's shareholders
will have no right of appraisal or similar rights of dissenters with
respect to the Merger. See "Merger of the Company - Absence of
Dissenters' Rights of Appraisal."
Comparison of Shareholder Rights
The rights of the holders of Shares and Echlin common stock
differ in certain respects. The rights of the shareholders of the
Company who receive shares of Echlin in the Merger will be governed by
the corporate law of Connecticut, the state in which Echlin is
incorporated, and by Echlin's Articles of Incorporation and Bylaws, as
amended, and other corporate documents. The rights of holders of
Shares are presently governed by Indiana Law and the Company's
Articles of Incorporation and Bylaws. See "Comparison of Shareholder
Rights."
COMPARATIVE STOCK MARKET DATA
The Shares are listed on the Nasdaq Stock Market's National
Market System ("Nasdaq") under the symbol AECI, and Echlin common
stock is listed on the New York Stock Exchange, the Pacific Stock
Exchange, and the International Stock Exchange in London, under the
symbol ECH. The following table sets forth, for the fiscal periods
indicated, the high and low reported sales prices of the Shares on
Nasdaq and Echlin common stock on the New York Stock Exchange.
<TABLE>
<CAPTION>
Company Echlin
Shares<F1> Common Stock<F2>
----------- -----------
High Low High Low
----- ----- ----- ------
<S> <C> <C> <C> <C>
1993 First Quarter $ - $ - $ 20-7/8 $ 18
Second Quarter - - 27-3/8 20-5/8
Third Quarter - - 27-1/4 22-1/2
Fourth Quarter - - 31-1/8 26
1994 First Quarter $ - $ - $ 33-7/8 $ 27-3/4
Second Quarter - - 35-1/4 29-3/8
Third Quarter 8-1/2 8 32-1/8 24-1/2
Fourth Quarter 9 8 33-5/8 27
1995 First Quarter $ 10-1/4 $ 7-1/4 $ 31-3/4 $ 27
Second Quarter 9-1/2 7-1/2 35-3/8 26-3/4
Third Quarter 8-1/2 7-1/4 38-3/4 32-7/8
Fourth Quarter 10-1/2 7-1/2 39-5/8 34
<FN>
<F1>
* Information for the Shares is not available for periods prior to its
initial inclusion on Nasdaq in June, 1994.
<F2>
** Echlin fiscal year ends on August 31st.
</FN>
</TABLE>
- -------------------------
On October 6, 1995, the business day before Echlin and the Company
announced they had agreed to merge, the closing sale price of the Shares on
Nasdaq was $10.50 per share, and the closing sale price of Echlin stock, as
reported on the New York Stock Exchange, was $35.50 per share. For purposes
of computing the Exchange Ratio, the Shares are valued at $13.625 each,
which would result in an Exchange Ratio on October 6, 1995 of .384
shares of Echlin for each Share (assuming the Exchange Ratio was calculated
with a Base Price equal to the closing sale price of Echlin stock on such date;
see "Merger of the Company - Summary of the Merger Agreement - Merger
Consideration").
On __________ , 1995, the latest practicable date prior to the printing of
this Proxy Statement, the closing sale prices of the Shares and Echlin common
stock were $__________ per share and $__________ per share, respectively.
For purposes of computing the Exchange Ratio, the Shares are valued at
$13.625 each, which would result in an Exchange Ratio on __________, 1995
of __________ shares of Echlin for each Share (assuming the Exchange Ratio was
calculated with a Base Price equal to the closing sale price of Echlin stock on
such date; see "Merger of the Company - Summary of the Merger Agreement -
Merger Consideration").
On __________, 1995 there were approximately __________ and __________
common stockholders of record of the Company and Echlin, respectively.
The foregoing information is summarized below:
<TABLE>
<CAPTION>
Per Share Closing Price
----------------------- Equivalent Per Share
Company Echlin Price for the Shares
------- ------- --------------------
<S> <C> <C> <C>
October 6, 1995 $ 10.50 $ 35.50 $ 13.625
__________ , 1995
</TABLE>
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands, Except Share Data)
The following selected historical financial information for each of the five
years ended September 24, 1994 has been derived from the financial statements
examined by McGladrey & Pullen, independent certified public accountants,
certain of which have been included elsewhere herein. The amounts for the
thirty-nine week periods ended June 25, 1994 and June 24, 1995 have been
derived from the accounting records of the Company, without audit. Such data
includes all adjustments necessary, in the opinion of management, for a fair
presentation thereof. Historical results are not necessarily indicative of
future operating results. The selected financial data set forth below should
be read in conjunction with and is qualified by reference to the Consolidated
Financial Statements and the Related Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included elsewhere in this Proxy Statement.
During March 1992, the Company effected a reorganization pursuant to which the
Company acquired all of the shares of the operating subsidiaries of AEC-UK.
See "The Company - General Development". As part of the reorganization, the
Company sold its Electronic Devices, Inc. ("EDI") subsidiary. The results of
operations from EDI are included in net income (loss) below as a discontinued
operation through fiscal 1992.
<PAGE>
<TABLE>
<CAPTION>
Thirty-nine Week
Year Ended Period Ended
------------------------------------------------- -------------------
September September September September September June 25 June 24
29, 1990 28, 1991 26, 1992 25, 1993 24, 1994 1994 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(In Thousands)
Income Statement Data:
Net sales $ 25,055 $ 19,658 $ 24,504 $ 29,744 $ 35,456 $ 26,900 $ 29,685
Cost of sales 19,930 15,445 17,761 21,097 25,028 19,014 21,385
--------- --------- --------- --------- --------- --------- ---------
Gross profit 5,125 4,213 6,743 8,647 10,428 7,886 8,300
Operating expenses 5,272 4,398 4,458 5,292 6,152 4,653 5,086
Amortization of intangibles 1,950 8,241<F1> - - - - -
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss) (2,097) (8,426) 2,285 3,355 4,276 3,233 3,214
Interest expense 3,657 3,509 2,428 1,605 1,280 1,095 620
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes (5,754) (11,935) (143) 1,750 2,996 2,138 2,594
Income tax expense <F2> - - 320 695 1,193 861 1,025
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from con-
tinuing operations (5,754) (11,935) (463) 1,055 1,803 1,277 1,569
Income (loss) from
discontinued operations 289 (1,805) (3,151) - - - -
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) $ (5,465) $(13,740) $ (3,614) $ 1,055 $ 1,803 $ 1,277 $ 1,569
========= ========= ========= ========= ========= ========= =========
Earnings Per Common Share<F3> .60 .46 .41
===== ===== =====
<CAPTION>
As of As of
------------------------------------------------ --------
September September September September September June 24
29, 1990 28, 1991 26, 1992 25, 1993 24, 1994 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $ 2,338 $ 3,856 $ 3,573 $ 3,957 $ 3,948 $ 4,720
Total assets 38,176 27,278 27,348 30,226 33,010 35,879
Long-term debt 27,789 31,880 18,317 17,665 10,528 11,286
Total shareholders' equity 6,918 (6,822) 5,635 8,709 17,066 19,048
<FN>
<F1>
(1) Includes a $6.3 million charge for unamortized goodwill and a noncompete agreement arising from
the 1989 acquisition of the Company by AEC-UK. The charge was taken at September 28, 1991 as a
result of the substantial decline in sales and profitability of the Company's electromechanical
products business in fiscal years 1990 and 1991.
<F2>
(2) The Company has substantial net operating loss carryforwards available to be applied against
future taxable income. As part of the reorganization in March 1992, the Company is required to
account for the benefit of the utilization of the net operating loss carryforwards as a credit
to additional paid-in capital for financial reporting purposes.
<F3>
(3) Historical per share amounts for years prior to the year ended September 24, 1994 have not been
presented, as the Company's historical capital structure is not comparable to its structure
after the Initial Public Offering.
</FN>
</TABLE>
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in Thousands, Except Per Share Data)
The following selected consolidated financial data of Echlin Inc. for the five
years ended August 31, 1994 has been derived from the financial statements
audited by Price Waterhouse LLP. The amounts for the nine months ended May
31, 1995 and 1994 are derived from Echlin's unaudited Form 10-Q for the
quarter ended May 31, 1995. In the opinion of management, the results for the
nine months include all adjustments, consisting of normal recurring
adjustments, necessary for the fair presentation of the results. The results
for the nine months are not necessarily indicative of what actual earnings
will be for the year ended August 31, 1995. The selected financial data set
forth below should be read in conjunction with the consolidated financial
statements and notes thereto of Echlin Inc. which are incorporated by
reference in this Proxy Statement.
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended August 31, May 31,
--------------------------------------------- ---------------
1990 1991 1992 1993 1994 1994 1995
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:<F1>
Net sales $1,601,254$1,685,876$1,783,362$1,944,463$2,229,474$1,606,451$1,993,811
Cost of goods sold 1,147,940 1,232,726 1,287,041 1,377,954 1,571,256 1,134,949 1,418,944
--------- --------- --------- --------- --------- --------- ---------
Gross profit 453,314 453,150 496,321 566,509 658,218 471,502 574,867
Selling & administrative exp. 368,380 371,980 389,470 420,460 468,511 338,913 396,180
--------- --------- --------- --------- --------- --------- ---------
Income from operations 84,934 81,170 106,851 146,049 189,707 132,589 178,687
Interest expense, net 15,983 19,960 12,359 8,473 11,661 7,811 16,668
--------- --------- --------- --------- --------- --------- --------
Income before taxes 68,951 61,210 94,492 137,576 178,046 124,778 162,019
Provision for taxes 21,746 19,557 30,237 44,025 56,975 39,929 53,466
--------- --------- --------- --------- --------- --------- ---------
Income before cumulative
effect of accounting
change 47,205 41,653 64,255 93,551 121,071 84,849 108,553
Cumulative effect of
accounting change <F2> 2,583 2,583
--------- --------- --------- --------- --------- --------- ---------
Net Income $ 47,205 $ 41,653 $ 64,255 $ 93,551 $ 123,654 $ 87,432 $ 108,553
========= ========= ========= ========= ========= ========= =========
Earnings per share:
Income before cumulative
effect of accounting
change <F2> $0.85 $0.75 $1.15 $1.60 $2.06 $1.44 $1.83
Net income $0.85 $0.75 $1.15 $1.60 $2.10 $1.48 $1.83
Dividends per share $0.70 $0.70 $0.70 $0.70 $0.73 $0.54 $0.585
<CAPTION>
As of
As of August 31, May 31,
--------------------------------------------- --------
1990 1991 1992 1993 1994 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working Capital $ 509,260$ 479,174$ 417,407$ 381,989$ 487,548 $ 618,702
Total Assets $1,192,496$1,191,793$1,241,193$1,263,261$1,577,406 $1,946,461
Long-term debt $ 235,524$ 252,724$ 200,878$ 157,540$ 297,307 $ 520,469
Total shareholders' equity $ 662,430$ 649,416$ 693,948$ 713,822$ 798,971 $ 873,242
<FN>
<F1>
(1) In December 1994, Echlin completed the acquisition of Preferred Technical Group International,
Inc. This transaction was accounted for as a purchase. The following pro forma information
reflects the acquisition as if it had occurred on September 1, 1993:
<CAPTION>
Nine Months Ended
Year Ended May 31,
August 31, --------------------
1994 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Net Sales $2,476,439 $1,781,947$2,071,745
Income before cumulative
effect of accounting change $126,552 $88,006 $112,174
Net Income $129,135 $90,589 $ 112,174
Earnings per share:
Income before cumulative
effect of accounting change $2.15 $1.49 $1.89
Net Income $2.19 $1.53 $1.89
<F2>
(2) In fiscal 1994, the provisions of Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes", were adopted resulting in a one-time gain in net income of $2.6
million or four cents per share.
[/FN]
</TABLE>
<PAGE>
SELECTED COMPARATIVE PER SHARE DATA
(unaudited)
The following summary presents unaudited comparative
historical and pro forma per share data for Echlin and the
Company.
The amounts designated "Historical" represent, for Echlin,
the historical results and give effect to a separate transaction,
completed after August 31, 1994 and before the date of this Proxy
Statement, which was accounted for as a purchase ("Recent
Acquisition"). The amounts presented as "Combined Pro Forma
Data" were developed by adding the Company's results for the
years ended September 26, 1992, September 25, 1993, September 24,
1994 and the thirty-nine weeks ended June 24, 1995 to Echlin's
reported results for the fiscal years ended August 31, 1992,
1993, 1994 and the nine months ended May 31, 1995, respectively.
The pro forma amounts assume that the Merger occurred as of
September 1, 1991 and that the Recent Acquisition occurred as of
September 1, 1993. The amounts shown as "Equivalent Combined Pro
Forma Data" are computed by multiplying the Combined Pro Forma
Data by the Exchange Ratio of .373 shares of Echlin common stock
for each Company share. (The Exchange Ratio is based upon $36.50
which represents the closing price of Echlin stock on November 3,
1995.)
The data presented should be read in conjunction with the
more detailed information and financial statements included
herein or incorporated by reference in this Proxy Statement. See
"Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
Thirty-Nine
Year Ended Weeks Ended
------------------------- ---------
September September September June
26, 1992 25, 1993 24, 1994 24, 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
American Electronics Components, Inc. Historical Data:
- -----------------------------------------------------
Earnings per share <F1> - - $0.60 $0.41
Dividends per share - - - -
Shareholder's equity
per share - - $4.58 $5.10
<CAPTION>
Nine Months
Year Ended August 31, Ended
------------------------- May 31,
1992 1993 1994 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Echlin Inc. Historical Data:
- ---------------------------
Earnings per share:
Income before cumulative
effect of accounting
change $1.15 $1.60 $2.06 $1.83
Net income $1.15 $1.60 $2.10 $1.83
Dividends per share $0.70 $0.70 $0.73 $.585
Shareholders' equity
per share - - $13.52 $14.66
Combined Pro Forma Data:
- -----------------------
Earnings per share:
Income before cumulative
effect of accounting
change <F1> - - $2.12 $1.87
Net income <F1> - - $2.17 $1.87
Dividends per share $0.70 $0.70 $0.73 $.585
Shareholders' equity
per share - - $13.48 $14.62
Equivalent Combined Pro Forma Data:
- ----------------------------------
Earnings per share <F1> - - $0.81 $0.70
Dividends per share - - - -
Shareholders' equity per share - - $5.03 $5.45
<FN>
<F1>
(1) Historical per share amounts for years prior to the year
ended September 24, 1994 have not been presented, as the
Company's historical capital structure is not comparable to
its structure after the Initial Public Offering. As a
result, Combined and Equivalent Combined Pro Forma per share
amounts for the periods prior to August 31, 1994 have not
been presented.
</FN>
</TABLE>
<PAGE>
THE MEETING
General Information
This Joint Proxy Statement/Prospectus (the "Proxy
Statement") is furnished in connection with the solicitation by
the Board of Directors of American Electronic Components, Inc.
(the "Company") of proxies to be voted at a Special Meeting of
Shareholders to be held on __________ , __________ , 1995, at
8:00 a.m., local time, at the Atrium of the Sales and Engineering
Building of American Electronic Components, Inc., 1010 North Main
Street, Elkhart, Indiana (the "Meeting"), and at any adjournments
thereof. This Proxy Statement and proxy card were first mailed
to shareholders on or about __________ , 1995.
Purpose of Meeting
The Meeting has been called to consider and vote upon the
acquisition of the Company pursuant to an Agreement and Plan of
Reorganization, dated as of October 6, 1995, and an Agreement and
Plan of Merger, to be dated as of or prior to the effective date
of the Merger (collectively, the "Merger Agreement"), among the
Company, Echlin Inc., a Connecticut corporation ("Echlin") and
Echlin Acquisition, Inc., a Delaware corporation and wholly owned
subsidiary of Echlin ("Subsidiary"), under which the Company will
merge into Subsidiary (the "Merger"), with the Company thereby
becoming a wholly owned subsidiary of Echlin and the outstanding
shares of common stock of the Company (the "Shares") thereby
being converted into a right to receive an amount of common stock
of Echlin determined by dividing $13.625 by the lesser of $40 or
the average of the closing prices on the New York Stock Exchange
of Echlin common stock for the 20 trading days prior to the
completion of the Merger. For more information, see "Merger of
the Company - Summary of the Merger Agreement - Merger
Consideration".
Voting Information
The Shares constitute the only voting securities of the
Company. A majority of all outstanding Shares is necessary for a
quorum. Under Indiana law, once a Share is represented for any
purpose at a meeting it is deemed present for quorum purposes for
the remainder of the meeting. The affirmative vote of the
holders of a majority of the outstanding Shares entitled to vote
thereon is required for the approval of the Merger. Abstentions
and broker non-votes will have the same effect as a vote against
approval of the Merger.
A proxy may be revoked by a shareholder of record at any
time with respect to any proposal before it is exercised by
giving written notice of its revocation to the Secretary of the
Company, by filing with the Secretary a subsequently dated proxy,
or by attending the Meeting or any adjournments thereof and
voting in person. All Shares represented by the accompanying
proxy will be voted as directed by the shareholder if the proxy
is executed and returned and if the Shares are eligible to vote.
IF NO INSTRUCTIONS ARE INDICATED IN THE PROXY, SUCH SHARES WILL
BE VOTED FOR APPROVAL OF THE MERGER.
THE COMPANY'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE IN FAVOR OF THE MERGER.
The principal shareholders (Baker, Fentress & Company;
Second Consolidated Trust plc; and North Atlantic Smaller
Companies Investment Trust plc) and the executive officers of the
Company have agreed to vote their Shares FOR approval of the
Merger Agreement. Upon the vote of such Shares, in accordance
with the agreements stated above, both the quorum and vote
required for approval of the Merger Agreement at the Meeting
would be satisfied.
At the close of business on November 1, 1995, the record
date for the Meeting, 3,731,871 Shares were outstanding, all of
which are entitled to be voted. Each shareholder is entitled to
one vote for each Share held.
The cost of soliciting proxies will be borne by the Company.
The solicitation of proxies will be limited to the use of the
mails. The Company will reimburse banks, brokerage firms, and
other custodians, nominees and fiduciaries for reasonable
expenses incurred by them in sending proxy material to the
beneficial owners of Shares.
PRINCIPAL HOLDERS OF COMPANY SHARES
The respective number of the Shares and percentages of the
Shares beneficially owned by (i) each Director of the Company;
(ii) each Executive Officer of the Company who is not a Director;
(iii) the Directors and Executive Officers of the Company as a
group, and (iv) all persons beneficially owning more than five
percent of the Shares, are set forth on the following table:
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of Total
of Beneficial Owner Beneficially Owned Shares Outstanding
- ------------------- ------------------ ------------------
<S> <C> <C>
Baker, Fentress & Company <F1> 1,511,372 40.5%
Suite 3510, 200 West Madison Street
Chicago, Illinois 60606
Second Consolidated Trust plc <F2> 329,513 8.8%
Exchange House, Primrose Street
London, EC2A2NY England
David D. Webster <F3> 179,148 4.7%
1010 North Main Street
Elkhart, Indiana 46515
John F. Howard <F4> 128,115 3.4%
1010 North Main Street
Elkhart, Indiana 46515
Richard J. Van Es <F5> 102,759 2.7%
1010 North Main Street
Elkhart, Indiana 46515
James P. Gorter <F1> 1,511,372 40.5%
Suite 3510, 200 West Madison Street
Chicago, Illinois 60606
David D. Peterson <F1> 1,511,372 40.5%
Suite 3510, 200 West Madison Street
Chicago, Illinois 60606
Leo L. Weber 2,700 *
38000 Hills Tech Drive
Farmington Hills, Michigan 48331-3417
William H. Lawson <F6> 2,700 *
400 East Spring Street
Bluffton, Indiana 46714
Christopher H. B. Mills <F7> 170,095 4.6%
30 Queen Anne's Gate
London, SW1H9AL England
All directors and executive
officers as a group (8 persons) <F8> 2,096,889 52.7%
* Less than 1%.
<FN>
<F1>
(1) Baker, Fentress is a registered investment company under the Investment Company Act
of 1940. Mr. Gorter is the Chairman of the Board, and Mr. Peterson is the President,
Chief Executive Officer and a director, of Baker, Fentress. Mr. Gorter and Mr.
Peterson each disclaim beneficial ownership of the 1,511,372 shares shown as owned by
Baker, Fentress.
<F2>
(2) Second Consolidated Trust plc is an investment trust quoted on the London Stock
Exchange.
<F3>
(3) Consists of 94,148 issued shares and options to purchase 85,000 shares, all of which
are currently exercisable. 93,148 issued shares are held in a trust as to which Mr.
Webster has sole voting and investment power.
<F4>
(4) Includes options to purchase 82,200 shares, all of which are currently exercisable.
<F5>
(5) Includes options to purchase 82,200 shares, all of which are currently exercisable.
<F6>
(6) All 2,000 shares are held in a trust as to which Mr. Lawson has sole voting and
investment power.
<F7>
(7) Includes 162,431 shares owned by North Atlantic Smaller Companies Investment Trust
plc ("North Atlantic"), a closed-end mutual fund quoted on the London Stock Exchange.
Mr. Mills is Chief Executive of North Atlantic, and disclaims beneficial ownership of
the 162,431 shares owned by North Atlantic.
<F8>
(8) Includes 1,511,372 shares owned by Baker, Fentress, as to which Messrs. Gorter and
Peterson disclaim beneficial ownership, and 162,431 shares owned by North Atlantic,
as to which Mr. Mills disclaims beneficial ownership.
</FN>
</TABLE>
<PAGE>
MERGER OF THE COMPANY
Introduction
On October 6, 1995, the Company, Echlin and Subsidiary
entered into an Agreement and Plan of Reorganization pursuant to
which the Company will merge with and into Subsidiary and the
Company will become a wholly-owned subsidiary of Echlin. Echlin
and Subsidiary have their principal executive offices at 100
Double Beach Road, Branford, Connecticut (telephone (203) 481-
5751). Echlin is a Connecticut corporation. Subsidiary, which
was formed for purposes of the Merger, is a Delaware corporation
and a wholly-owned subsidiary of Echlin. Echlin is a world-wide
supplier of products which maintain or improve the efficiency and
safety of motor vehicles with operations on six continents.
Echlin's principal products are brake system parts, engine system
parts, other vehicle parts and non-vehicular products.
The terms of the Merger Agreement, and the amount and nature
of the consideration to be provided pursuant thereto, were
determined as a result of arms-length negotiation between the
Company and Echlin. See "Merger of the Company - Reasons for the
Merger; Recommendation of the Company's Board of Directors" for
information regarding the factors considered by the Company's
Board of Directors in determining that the terms of the Merger
are fair to the shareholders of the Company.
The principal shareholders (Baker, Fentress & Company;
Second Consolidated Trust plc; and North Atlantic Smaller
Companies Investment Trust plc) and the executive officers of the
Company have agreed to vote their Shares FOR approval of the
Merger Agreement. Upon the vote of such Shares, in accordance
with the agreements stated above, both the quorum and vote
required for approval of the Merger Agreement at the Meeting
would be satisfied.
Background of the Merger
Since the development of its sensor products in 1988, the
Company's sales mix has evolved to be substantially influenced by
its sales of sensor products to the automotive sector. In fiscal
1994, sales of sensor products comprised approximately 34% of
total sales for the Company.
After an internal strategic review was performed by the
Company early in 1995, management determined that trends in the
automotive industry would continue to place substantial capital
and other resource requirements on suppliers to original
equipment manufacturers ("OEMs"). In light of the Company's
limited access to capital and lack of international
infrastructure, management determined that it should explore ways
to position the Company to capitalize on growth opportunities,
particularly within its sensor product line. Therefore, on March
10, 1995, the Company engaged the investment banking firm of The
Chicago Corporation ("Chicago Corp") as its exclusive financial
advisor to assist in a review of strategic and financial
alternatives, including a possible business combination or other
transaction involving the Company or any of its subsidiaries or
businesses.
From April to June, Chicago Corp, on a confidential basis,
contacted potentially interested parties, including Echlin.
Based upon indications of interest, several parties were invited
to perform a review of the Company, including discussions with
management of the Company. Echlin entered into a confidentiality
agreement, dated May 16, 1995, with Chicago Corp, acting on
behalf of the Company, pursuant to which Echlin agreed, among
other things, to keep confidential certain non-public
confidential and proprietary information of the Company furnished
to Echlin. During June and July, Echlin representatives, Chicago
Corp and management of the Company had numerous meetings and
discussions.
On July 27, 1995, Echlin indicated it placed a non-binding,
preliminary range of value between $13.50 and $15.00 per share on
the Company. The indication, according to Echlin, was based on
limited information and any firm proposal would require extensive
due diligence, approval by Echlin's Board of Directors and
negotiation of a definitive agreement.
During the month of August, Echlin and other interested
parties conducted due diligence. On September 1, 1995, Echlin
submitted a letter refining its evaluation to $14.00 per share,
based on acquiring the shares of the Company in an exchange for
Echlin shares in a tax free reorganization. The letter indicated
that any formal proposal was subject to specific due diligence
items, including environmental surveys and reviews, approval of
Echlin's Board of Directors and execution of a definitive
agreement.
After consulting with the Company's Board of Directors,
Chicago Corp advised Echlin that the Company would work with
Echlin on due diligence to confirm the valuation for the Company.
Chicago Corp further indicated that (i) there had been no
decision by the Company's Board to sell the Company and (ii) the
Company was willing to proceed on a non-exclusive basis.
During the month of September, Echlin completed its due
diligence and the Merger Agreement was negotiated. Upon further
negotiation, Echlin reduced its proposal from $14.00 per share to
$13.625 per share. Inquiries made by Chicago Corp to other
interested parties determined that there was no other proposal
competitive with the Echlin proposal.
On October 6, 1995, Echlin's Board of Directors approved the
Merger Agreement. In the evening of October 6, 1995, the Board
of Directors of the Company met to consider the final terms of
the Merger Agreement. At this meeting, representatives of
Chicago Corp reviewed financial analyses and delivered Chicago
Corp's opinion to the Company's Board of Directors to the effect
that, as of such date, the consideration proposed to be received
by the shareholders of the Company in the Merger was fair to
such holders from a financial point of view. The Board of
Directors of the Company then determined that the terms of the
Merger Agreement were fair to, and in the best interests of, the
Company and its shareholders, approved the Merger Agreement and
resolved to recommend that the Company's shareholders approve the
Merger Agreement.
At approximately 9:00 a.m., New York City time, on October
9, 1995, Echlin and the Company issued a joint press release
announcing the execution of the Merger Agreement.
Reasons for the Merger; Recommendation of the Company's Board of
Directors
By a unanimous vote at a meeting held on October 6, 1995,
the Company's Board of Directors determined the Merger to be in
the best interests of the Company and its shareholders and
approved the Merger and the Merger Agreement. The Board of
Directors of the Company believes that the Merger will permit
holders of Shares to receive a substantial premium in the form of
Echlin common stock. The Board based its conclusion, in part, on
the relative trading prices of the Shares and shares of Echlin
common stock to be received by shareholders of the Company.
Additionally, the Company's Board believes that the Merger will
provide its shareholders with a financially attractive
opportunity for continued equity participation in a larger and
more diversified enterprise with a generally more active trading
market.
During the course of its deliberations, the Company's Board
of Directors considered a number of factors, including, among
other things, (i) the terms of the Merger and the Merger
Agreement generally, including the amount and form of
consideration to be received; (ii) the results of operations,
financial condition, business and competitive position of the
Company and Echlin, both on an historical and prospective basis;
(iii) the historical market price of the Shares and Echlin common
stock; (iv) reports of selected investment analysts concerning
Echlin; (v) the structure of the Merger permitting the holders of
Shares to exchange their Shares for Echlin common stock on a tax-
free basis; (vi) the views of the Company's management; (vii) an
assessment of the Company's strategic alternatives; (viii) the
presentations by Chicago Corp given to the Board of Directors;
and (ix) the Merger Agreement provisions permitting the Company
to accept an alternative offer from a party other than Echlin to
the extent required by law, including pursuant to the fiduciary
duties of directors and officers (recognizing, however, that the
effect of the expense provisions of the Merger Agreement may
increase the cost of any such alternative offer to the offeror).
The Company's Board believes that the Merger with Echlin
will present growth opportunities that would not otherwise be
available as an independent entity, including internal expansion
programs that require the resources of a larger organization, and
the pursuit of acquisition candidates that offer synergistic and
accretive benefits. In particular, the Company's Board believes
that after the Merger the Company will be in a strong position to
pursue a more aggressive worldwide expansion program and
introduce new products either developed internally or obtained
through acquisitions.
In view of the variety of factors considered by the
Company's Board of Directors in connection with its evaluation of
the Merger, the Board did not find it practicable to, and did
not, quantify or otherwise assign relative weights to such
factors. Individual members of the Company's Board may have
given different weights to different factors.
Opinion of the Company's Financial Advisor
The Company retained Chicago Corp to act as its exclusive
financial advisor to assist in a review of strategic and
financial alternatives, including a possible business combination
or other transaction involving the Company or any of its
subsidiaries or businesses. At the meeting of the Company's
Board of Directors on October 6, 1995, Chicago Corp delivered its
opinion to the Company's Board that, as of such date, the
consideration to be received by the shareholders of the Company
in the Merger was fair to such shareholders from a financial
point of view. The full text of the written opinion of Chicago
Corp dated October 6, 1995, which sets forth the assumptions
made, matters considered and limitations on the review
undertaken, is attached hereto as Appendix B to this Proxy
Statement and is incorporated herein by reference. Shareholders
of the Company are urged to read this opinion carefully in its
entirety. Chicago Corp's opinion is directed only to the
fairness of the consideration to be received by the shareholders
of the Company in the Merger from a financial point of view and
has been provided pursuant to Chicago Corp's engagement for the
purpose of assisting the Company in its evaluation of the Merger.
Chicago Corp's opinion does not address any other aspect of the
Merger and does not constitute a recommendation to any
shareholder of the Company as to how such shareholder should vote
at the Meeting. The summary of the opinion of Chicago Corp set
forth in this Proxy Statement is qualified in its entirety by
reference to the full text of such opinion. The Company does not
expect to ask Chicago Corp to issue a later-dated opinion, and it
is not a condition to consummation of the Merger that it do so.
In arriving at its opinion, Chicago Corp (i) reviewed the
Merger Agreement; (ii) met with senior management of the Company
to discuss the business and prospects of the Company; (iii) met
with senior management of Echlin to discuss the business and
prospects of Echlin; (iv) reviewed certain publicly available
business and financial information relating to the Company and
Echlin; (v) reviewed financial forecasts of the Company that were
provided to Chicago Corp by the Company, which information is not
publicly available; and (vi) considered certain financial and
stock market data of the Company and Echlin and compared that
data with similar data for other publicly held companies which
Chicago Corp deemed relevant, the financial terms of certain
other business combinations which have recently been effected,
and such other information, financial studies, analyses and
investigations and financial, economic and market criteria which
Chicago Corp deemed relevant.
In rendering its opinion, Chicago Corp did not assume any
responsibility for independent verification of any of the
foregoing information and, with the Company's consent, relied on
its being complete and accurate in all material respects. With
respect to financial forecasts, it assumed, with the Company's
consent, that such forecasts were reasonably prepared on bases
reflecting the best currently available estimates and judgments
of the Company's management as to future financial performance of
the Company. Chicago Corp has not made or been furnished with an
independent evaluation or appraisal of the assets of the Company.
In preparing its opinion to the Board of Directors of the
Company, Chicago Corp performed a variety of financial and
comparative analyses, including those described below. The
summary of such analyses set forth below does not purport to be a
complete description of the analyses underlying Chicago Corp's
opinion. The preparation of a fairness opinion is a complex
analytical process involving various determinations as to the
most appropriate and relevant methods of financial analyses and
the application of those methods to particular circumstances and,
therefore, such an opinion is not readily susceptible to summary
description. In arriving at its opinion, Chicago Corp did not
attribute any particular weight to any analysis considered by it,
but rather made qualitative judgments as to the significance and
relevance of each analysis. Accordingly, Chicago Corp believes
that its analyses must be considered as a whole and that
selecting portions of its analyses and factors, without
considering all analyses and factors, could create a misleading
or incomplete view of the processes underlying such analyses and
its opinion. In its analyses, Chicago Corp made numerous
assumptions with respect to the Company, industry performance,
general business, economic, market and financial conditions and
other matters, many of which are beyond the control of the
Company. The estimates contained in such analyses are not
necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less
favorable than those suggested by such analyses. In addition,
analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, such
analyses and estimates are inherently subject to substantial
uncertainty.
Comparable Company Analysis
Chicago Corp reviewed and analyzed selected current and
historical financial and stock market information concerning the
Company, including the Company's revenue, earnings before
interest and taxes ("EBIT"), earnings before interest, taxes,
depreciation and amortization ("EBITDA"), net income, book value
and assets for the latest twelve months ("LTM") ended June 30,
1995 and the fiscal years ended September 1992, 1993, 1994 and
anticipated results for the fiscal year ended September 30, 1995,
as well as the Company's market capitalization as of October 5,
1995, prior to an announcement of a transaction. Chicago Corp
also reviewed selected financial ratios, including EBIT, EBITDA
and net margins; three year historical compounded average growth
rates for sales, EBIT and net income; and debt to total
capitalization ratios. Chicago Corp compared this information to
similar publicly available information with respect to other
publicly traded companies engaged primarily in supplying
electrical and other parts to automotive OEMs including Breed
Technologies, Inc., Gentex Corporation, Hilite Industries, Inc.,
Littelfuse, Inc., Superior Industries International, Arvin
Industries, Borg-Warner Automotive, CTS Corporation, MascoTech,
Inc., Masland Corporation, Simpson Industries, Inc., A.O. Smith
Corporation and Varity Corp. In this comparative analysis
Chicago Corp noted several significant factors. The Company was
the smallest of these companies, with significantly lower market
capitalization, revenues, EBIT, EBITDA, net income and assets
than any of the other comparable companies. However, Chicago
Corp also noted that the Company's EBIT, EBITDA and net margins
for the latest twelve month period were comparable to those of
certain higher margin and higher growth automotive OEM suppliers
including Breed Technologies, Gentex, Hilite, Littelfuse and
Superior Industries. Furthermore, although no company or
business used in the comparable company analysis is identical to
the Company, Chicago Corp noted that within this group, the
Company's market capitalization, leverage and profitability
statistics and growth characteristics were most similar to
comparable data for Hilite. Therefore, Chicago Corp concluded
that Hilite is the company most comparable to the Company.
Accordingly, for valuation purposes, Chicago Corp placed
emphasis on Hilite's market multiples in addition to giving
consideration to market multiples of the other comparable
companies in arriving at an implied valuation of the Company.
Chicago Corp calculated multiples of market price to LTM net
earnings per share ("EPS"), 1995 estimated calendar EPS and 1996
estimated calendar EPS as estimated by Zack's Investment
Research, and tangible book value as of the end of the most
recent fiscal quarter. Chicago Corp also calculated multiples of
adjusted market capitalization (defined as the market value of
common equity plus book value of total debt and preferred stock,
less cash) to LTM EBIT, LTM EBITDA and LTM revenues.
Hilite Industries' market multiples were 10.4x LTM EPS, 9.8x
1995 estimated calendar EPS, 2.7x tangible book value, 7.4x LTM
EBIT, 6.5x LTM EBITDA and 0.8x LTM revenues. These market
multiples were calculated as of October 5, 1995, and were pro
forma for the acquisition of North American Spring and Stamping
Company on July 21, 1995. Based on these multiples and giving
consideration to the market multiples of the other comparable
companies, Chicago Corp arrived at a range of multiples to apply
to the Company's respective performance parameters.
Chicago Corp reviewed the Company's operating results for
the fiscal year ended September 24, 1994, the LTM ended June 30,
1995, as well as for the fiscal year ended September 30, 1995, as
estimated by the Company, and determined that the estimated
results for the fiscal year ended September 30, 1995, were the
most appropriate for the valuation analysis. A control premium
of 30%, which was determined through a study of control premiums
for publicly announced 100% stock for stock transactions from
January 1, 1994, to September 30, 1995, was applied to the range
of multiples selected by Chicago Corp. This resulted in a value
of $7.91 to $12.79 per Share as compared with consideration
valued at $13.625 in the Echlin transaction.
Comparable Transaction Analysis
Using publicly available information, Chicago Corp compared
the valuation of the Company implied by the Merger using the
Company's LTM performance ended June 30, 1995, and management's
estimates of results for the fiscal year ended September 30,
1995, with those of 16 completed and pending transactions
involving automotive OEM suppliers which have taken place since
August, 1992. These transactions included but were not limited
to Varity Corp.'s pending acquisition of the remaining interest
in Hayes Wheels Int'l, Inc., Collins & Aikman Corporation's
pending acquisition of Larizza Industries, Inc., Hilite's
acquisition of North American Spring and Stamping Company, Lear
Seating Corporation's acquisition of Automotive Industries
Holdings, Inc., Douglas & Lomason Company's acquisition of
Bestop, Inc., Echlin's acquisition of Preferred Technical Group
Int'l, Breed Technologies, Inc.'s acquisition of Hamlin, Inc. and
Echlin's acquisition of Sprague Devices, Inc.
Chicago Corp analyzed purchase prices and transaction values
(purchase price plus debt, preferred stock and capital leases,
less cash), and considered these as multiples of LTM EPS, book
value, LTM EBIT, LTM EBITDA and LTM revenues. The transaction
values of the comparable transactions as a multiple of LTM
revenues ranged from 0.5x to 1.5x with a median of 0.9x. The
value of the Echlin transaction represents a multiple of 1.7x the
Company's LTM revenues, and 1.6x the Company's estimated 1995
revenues. As a multiple of the LTM EBIT, the transaction value
of the comparable transactions ranged from 6.4x to 15.7x with a
median ratio of 11.0x. The value of the Echlin transaction
represents 15.6x the Company's LTM EBIT and 13.3x estimated 1995
EBIT. As a multiple of the LTM EBITDA, the transaction value of
the comparable transactions ranged from 4.8x to 11.7x with a
median ratio of 7.0x. The Echlin transaction represents a
multiple of 10.4x the Company's LTM EBITDA and 9.4x the Company's
estimated 1995 EBITDA.
As a multiple of book value, the purchase price of the
comparable transactions ranged from 1.9x to 10.3x, with a median
ratio of 3.5x. The Echlin transaction is valued at 2.9x the
Company's book value as of June 30, 1995, and 2.7x the Company's
estimated book value as of September 30, 1995. The purchase
price of the comparable transactions ranged from 9.6x to 32.0x
LTM net income, with a median value of 17.9x. The Echlin
transaction represents a multiple of 26.0x the Company's LTM EPS,
and 22.7x the Company's estimated 1995 fiscal year EPS.
Control Premium Analysis
Chicago Corp calculated the potential premium to the Company
shareholders represented by consideration of Echlin common stock
equal to $13.625 relative to the Company's average daily closing
stock for the 60 day period ended October 5, 1995. Based on the
60-day average closing price of the Shares of $9.60 and
consideration of $13.625 in Echlin common stock per Share,
Chicago Corp calculated a premium of 41.9% to the 60-day average
closing price of the Shares.
Chicago Corp also analyzed average merger premiums paid in
other 100% stock for stock transactions from January 1, 1994, to
September 30, 1995, and found average premiums ranging from 30%
to 40% over closing stock prices ranging from 1 day to 4 weeks
prior to public announcement of selected transactions. Chicago
Corp observed that the potential premiums to the Company
shareholders compared favorably with average premiums received in
recent 100% stock for stock merger transactions.
Contribution Analysis
Chicago Corp reviewed certain historical and projected
operating information, including sales, operating profit and net
income for the Company and Echlin and the pro forma combined
entity resulting from the Merger, excluding any of the potential
cost savings and synergies that may be realized. This analysis
indicated that based on Echlin's performance for fiscal 1995 and
estimated results for fiscal 1996 as reflected in recent
analyst's reports, the Company would contribute to the pro forma
combined entity about 1.4% and 1.3% of revenue for 1995 and 1996,
respectively, 1.8% and 1.9% of operating profit for fiscal 1995
and 1996, respectively, and 1.5% and 1.6% of net income for
fiscal 1995 and 1996, respectively, as compared to the
approximately 2.5% ownership interest (based on average closing
prices of Echlin common stock for the 20 days preceding
October 5, 1995 of $35.45) of current holders of the Shares that
will result from Echlin providing consideration valued at $13.625
in Echlin common stock to Company shareholders pursuant to the
Merger.
Discounted Cash Flow
Chicago Corp prepared a discounted cash flow ("DCF")
analysis of the Company based on the Company's financial
statement forecasts for fiscal years 1996 through 1999. Chicago
Corp discounted the Company's projected future cash flows to
present value utilizing various discount rates and estimated the
terminal value of the Company by applying a terminal, or exit,
multiple to the Company's projected EBITDA in 1999. The terminal
value was also discounted to present value using the various
discount rates. Discount rates and exit multiples were chosen to
reflect growth prospects, relative risks and market valuation
considerations. In preparing the DCF analysis, Chicago Corp
applied discount rates ranging from 15.5% to 18.5%. Chicago Corp
advised the Company's Board of Directors to focus on the values
generated by those discount rates that the directors deemed to
appropriately reflect the probabilities of the Company's
achievement of its projections. Also, in preparing the DCF
analysis, Chicago Corp used exit multiples of EBITDA of 5.0x,
5.5x and 6.0x, which were consistent with those indicated in the
comparable company analyses. Based on this DCF analysis, the
range of per Share values as indicated by the projected cash
flows was estimated to be $12.50 to $14.01.
Historical Stock Trading Ranges
Chicago Corp also prepared and considered several charts and
graphs relating to the historical trading prices and volumes of
the Company, Echlin, the comparable companies and the S&P 400
Industrial Index.
Other Analyses
Chicago Corp also undertook such other studies, analyses and
investigations and considered such other factors as it deemed
necessary or appropriate for the purpose of rendering its
opinion. Chicago Corp assessed the consideration to be provided
to the Company shareholders pursuant to the Merger Agreement in
relation to the financial condition, results and prospects of the
Company.
The Company engaged Chicago Corp as its advisor because Chicago
Corp has experience in the evaluation of businesses in connection
with mergers, acquisitions and other transactions, and is
knowledgeable about the Company through past involvement with the
Company. No limitations were imposed by the Company upon the
scope of the investigation or otherwise with respect to the
opinion rendered by Chicago Corp.
Chicago Corp will receive a financial advisory fee upon
consummation of the Merger equal to the excess of 1.5% of the
"Transaction Value" of the Merger over retainer fees of $50,000
and an opinion fee of $100,000. For purposes of computing the
financial advisory fee, the Transaction Value shall be the market
value of the Echlin common stock to be issued in the Merger
(including the value of Echlin common stock issued pursuant to
options to purchase common stock of the Company less the exercise
price for such options) as of the closing date of the
transaction, in addition to the unpaid principal amount of any
funded-debt obligation assumed, discharged or existing at the
time of the closing of the transaction. The total fees payable
to Chicago Corp will be approximately $950,000. Such amount,
other than the retainer and opinion fees aggregating $150,000, is
contingent upon the consummation of the Merger. The Company has
also agreed to reimburse Chicago Corp for its reasonable travel,
legal and other out-of-pocket expenses and to indemnify Chicago
Corp against certain liabilities, including liabilities under
federal securities laws arising out of or relating to Chicago
Corp's engagement.
In the ordinary course of business, Chicago Corp and its
affiliates may actively trade the equity securities of the
Company and Echlin for its own account or for the account of its
customers and, accordingly, may at any time hold a long or short
position in such securities. Chicago Corp provided investment
banking services to the Company in connection with the Company's
initial public offering in June 1994 and received fees for the
rendering of such services in the amount of approximately
$440,000. In addition, Chicago Corp and its affiliates may
maintain business relationships with the Company and Echlin.
Interest of Certain Persons
Directors Gorter and Peterson are associated with Baker,
Fentress & Company, a registered investment company. Baker,
Fentress & Company is the largest holder of the Shares. See
"Principal Holders of Company Shares."
Summary of the Merger Agreement
The following summary of the Merger Agreement does not
purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, a copy of which is Appendix A
to this Proxy Statement (excluding exhibits) and which is
incorporated herein by reference.
The Merger
In accordance with the provisions of the Merger Agreement,
at the time the Merger becomes effective (the "Effective Time")
(which is anticipated to follow as soon as practicable the
receipt of shareholder and regulatory approvals), the Company
will be merged with and into Subsidiary, with Subsidiary as the
surviving corporation. Each Share issued and outstanding
immediately prior to the Effective Time will automatically be
converted into a right to receive Echlin common stock equal to
the Merger Consideration (as defined below). As a result, the
Company will become a wholly-owned subsidiary of Echlin. After
the Effective Time, each certificate evidencing Shares will
evidence only the right to receive the Merger Consideration.
Merger Consideration
Exchange Ratio. Pursuant to the Merger Agreement, at the
Effective Time, without any action on the part of the
shareholders of the Company, each Share will automatically be
canceled in exchange for an amount of Echlin common stock (except
for fractional shares, as described below) determined by rounding
to the nearest thousandth (0.001) the quotient of $13.625 divided
by the Base Price of Echlin common stock (the "Merger
Consideration"). For these purposes, the "Base Price" of Echlin
common stock shall equal the lesser of $40 or the average of the
closing prices on the New York Stock Exchange of Echlin common
stock as reported by The Wall Street Journal for the 20 trading
days prior to the closing date of the Merger. Each outstanding
option to purchase common stock of the Company (the "Options")
will be canceled in exchange for Echlin common stock determined
as set forth above, except that, in lieu of $13.625 there shall
be used the difference between $13.625 and the per share exercise
price provided for the exercise of such Option, but only if the
exchange of Echlin common stock for Options does not prevent
pooling of interests treatment for the Merger transaction. See
"Merger of the Company - Accounting Treatment."
Fractional Shares. No fractional shares of Echlin common
stock will be issued in the Merger. Each shareholder of the
Company entitled to receive a fractional share will, in lieu of
such fractional share, receive an amount equal to the result of
multiplying the Base Price by the fractional share to which such
shareholder would otherwise have been entitled pursuant to the
Merger.
Exchange of Stock Certificates. The conversion of Shares
into Echlin common stock will occur by operation of law at the
Effective Time. After the Effective Time, certificates
theretofore evidencing Shares will be deemed, for all corporate
purposes other than the payment of dividends and other
distributions on such shares, to evidence ownership of and
entitlement to receive such Echlin common stock.
At or prior to the Effective Time, Echlin will deposit, or
cause to be deposited, with The First National Bank of Boston,
the exchange agent in the Merger (the "Exchange Agent"), the
Merger Consideration for the benefit of the Company shareholders.
As soon as reasonably practicable after the Effective Time, the
Exchange Agent will send a transmittal letter and instructions to
each record holder of certificates for Shares converted into the
right to receive the Merger Consideration, advising such holder
of the procedures for surrendering such certificates in exchange
for a certificate for the number of whole shares of Echlin such
holder is entitled to receive pursuant to the Merger, and a check
for the cash amount (if any) such holder is entitled to receive
in lieu of a fractional share. The letter of transmittal will
also specify that delivery will be effected, and risk of loss and
title to the certificates for Shares will pass, only upon proper
delivery of the certificates for Shares to the Exchange Agent and
will be in such form and have such other provisions as Echlin may
reasonably specify. Shareholders of the Company are requested
not to surrender their certificates for exchange until such
letter of transmittal and instructions are received. The shares
of Echlin into which Shares will be converted in the Merger will
be deemed to have been issued at the Effective Time.
Prior to presentation and surrender of certificates
representing Shares together with a duly executed letter of
transmittal and any other required documents, the holders of
Shares will not be entitled to receive any dividend or other
distribution payable to holders of shares of the Echlin common
stock or interest upon cash which has been withheld; provided,
upon surrender of such certificates, such holders will be paid,
without interest, an amount equal to the dividends and other
distributions withheld with respect to the shares of Echlin
common stock into which such Shares have been converted. All
Shares presented and surrendered will be canceled.
Representations and Warranties
The Merger Agreement contains representations and warranties
by the parties including, but not limited to, representations and
warranties regarding their organization, capitalization and
authority to enter into the Merger Agreement. In addition, the
Company has made certain representations and warranties
concerning, without limitation, its subsidiaries, properties,
legal matters, compliance with laws, employee benefit plans,
insurance, financial statements, contracts, tax matters,
environmental matters, relationships with customers and
suppliers, the absence of certain adverse changes and the net
worth of the Company as of the end of the fiscal year ending
September 30, 1995. None of the representations and warranties
contained in the Merger Agreement and any schedule or exhibit
thereto shall survive the closing of the Merger.
Certain Covenants
The Company has agreed, prior to closing, among other
things, (i) to carry on its business in the ordinary course
consistent with prior practice; (ii) not to: amend its Articles
of Incorporation or By-Laws; acquire outside the ordinary course
of business consistent with prior practice any business or any
corporation, partnership, association or other business
organization or division thereof, or make any investment in or
acquisition of any entity in an amount in excess of $250,000;
declare, set aside, make or pay any dividend or other
distribution in respect of any shares of its capital stock;
except in connection with the exercise of options to purchase its
stock, issue or sell or purchase or redeem, directly or
indirectly, any shares of its capital stock or any options,
warrants, conversion or other rights to purchase any such shares
or any securities convertible into or exchangeable for such
shares; except as disclosed in the Merger Agreement, incur any
indebtedness for borrowed money or issue or sell any debt
securities except such indebtedness or debt securities which are
incurred under agreements in effect on the date of the Merger
Agreement or which have a maturity of less than one year and are,
in either case, incurred, issued or sold in the ordinary course
of business consistent with prior practice; grant to any officer
or director any increase in compensation or benefits or in
severance or termination pay, or enter into any employment
agreement with any officer or director, other than in the
ordinary course of business consistent with prior practice;
except as contemplated by or disclosed in the Merger Agreement,
adopt or amend in any material respect any collective bargaining,
bonus, profit-sharing, compensation, stock option, pension,
retirement, insurance, incentive compensation, deferred
compensation, severance, vacation, employment or other plan,
agreement, trust, fund or arrangement for the benefit of
employees, other than in the ordinary course of business
consistent with prior practice; or make any changes in accounting
principles or practices except such changes as are, in the
opinion of McGladrey & Pullen, required to be made in order to
comply with generally accepted accounting principles; (iii)
promptly to advise Echlin orally and in writing of: any
agreement, transaction or expenditure which it intends to enter
into which is likely to involve more than $250,000 in the
aggregate; the occurrence of any fact, circumstance or change in
the condition of the Company or any of its subsidiaries, which
fact, circumstance or change is or may be materially adverse or
may interfere with the consummation of the transactions
contemplated by the Merger Agreement; any inquiry or proposal
which it reasonably expects may lead to any proposal for a merger
or other business combination involving the Company or any of its
subsidiaries or for the acquisition of a substantial equity
interest in or a substantial portion of the assets of the Company
or any of its subsidiaries; and receipt by it of certain
notification of any purchase or proposed purchase of any
securities of the Company by any person or entity other than
Echlin or Subsidiary; and (iv) to use its best efforts to comply
promptly with all filing requirements applicable to the Company
or any of its subsidiaries with respect to the Merger and to
cooperate with and promptly to furnish information to Echlin in
connection with all such filing requirements imposed upon Echlin
or any subsidiary of Echlin, and to use its best efforts to
obtain all necessary consents, authorizations or approvals of, or
exemptions by, any government or governmental authority
applicable to the Company or any of its subsidiaries in
connection with the Merger.
Echlin has agreed, prior to closing, among other things, to
use its best efforts to comply promptly with all filing
requirements applicable to it or any of its subsidiaries with
respect to the Merger and to cooperate with and promptly to
furnish information to the Company in connection with all such
filing requirements imposed upon the Company or any of its
subsidiaries, and to use its best efforts to obtain all necessary
consents, authorizations or approvals of, or exemptions by, any
government or governmental authority applicable to Echlin or any
of its subsidiaries in connection with the Merger. Echlin and
Subsidiary have jointly and severally agreed to indemnify and
hold harmless the officers and directors of the Company for any
and all liability which they may have incurred, including
attorney fees and expenses incurred by them, in connection with
their actions as officers and directors for and on behalf of the
Company, to the fullest extent permitted by the laws of the State
of Indiana.
Echlin and the Company have agreed, among other things, to
coordinate and cooperate with one another in exchanging such
information and supplying such assistance as may be reasonably
requested by each other in connection with fulfilling their
respective obligations under the Merger Agreement, and to
execute, or cause to be executed, such documents and other
papers, and take, or cause to be taken, such further actions, as
may be reasonably required to carry out the provisions of the
Merger Agreement and the transactions contemplated thereby.
Conditions to Closing
The obligation of Echlin and Subsidiary to close the Merger
is subject to the following conditions, among others: (i) the
accuracy of the Company's representations and warranties in all
material respects; (ii) the Company and its subsidiaries shall
have performed and complied in all material respects with all
agreements, covenants and conditions required by the Merger
Agreement; (iii) all applicable waiting periods, including any
extensions thereof, under the Hart-Scott-Rodino Antitrust
Improvement Act (the "HSR Act") applicable to the purchase of the
Shares shall have expired or been terminated; each party to the
Merger Agreement shall have obtained all required third party
authorizations, approvals, consents and waivers required to be
obtained, and made all required filings with third parties, the
lack of which, prior to the closing of the Merger, would render
legally impermissible, or would materially adversely affect, the
consummation of the transactions contemplated by the Merger
Agreement; and on the closing date of the Merger there shall
exist no injunction or other order issued by a court of competent
jurisdiction which would make consummation of the Merger
unlawful, and there shall be no suit, action, proceeding or
governmental investigation pending or, to the knowledge of any
party, threatened which seeks to restrain or prohibit the
consummation of the Merger, or which might, directly or
indirectly, interfere with the Merger; (iv) the registration
statement of which this Proxy Statement is a part shall be
effective and no proceedings by the Commission or any state
securities authority to revoke or stay such effectiveness shall
be pending or threatened; (v) the shares of Echlin stock to be
issued in the Merger shall have been approved for listing on the
New York Stock Exchange subject to official notice of issuance;
(vi) all necessary state securities and blue sky permits and
approvals required to carry out the Merger shall have been
obtained; (vii) all corporate action necessary to authorize the
execution, delivery and performance of the Merger Agreement by
the Company and the consummation of the transactions contemplated
in the Merger Agreement (including the adoption by the requisite
vote of shareholders of the Company) shall have been duly and
validly taken, and the Company shall have full power and right to
merge on the terms provided in the Merger Agreement; (viii) there
shall have been delivered to Echlin, not less than ten calendar
days prior to the closing date of the Merger, the audited
consolidated financial statements of the Company for the fiscal
year ended September 30, 1995, certified by its certified public
accountants; and (ix) there shall not have occurred any decline
in the Dow Jones Industrial Average by an amount in excess of
20%.
The obligation of the Company to close the Merger is subject
to the following conditions, among others, (i) the accuracy in
all material respects of Echlin's and Subsidiary's
representations and warranties; (ii) Echlin and Subsidiary shall
have performed and complied in all material respects with all
agreements, covenants, and conditions required by the Merger
Agreement; (iii) all applicable waiting periods, including any
extensions thereof, under the HSR Act shall have expired or been
terminated; each party to the Merger Agreement shall have
obtained all required third party authorizations, approvals,
consents and waivers required to be obtained, and made all
required filings with third parties, the lack of which, prior to
the closing of the Merger, would render legally impermissible, or
would materially adversely affect, the consummation of the
transactions contemplated by the Merger Agreement; and on the
closing date of the Merger, there shall exist no injunction or
other order issued by a court of competent jurisdiction which
would make consummation of the Merger unlawful, and there shall
be no suit, action, proceeding or governmental investigation
pending or, to Echlin's knowledge, threatened which seeks to
restrain or prohibit the consummation of the Merger, or which
might, directly or indirectly, interfere with the Merger; (iv)
the registration statement of which this Proxy Statement is a
part shall be effective and no proceedings by the Commission or
any state securities authority to revoke or stay such
effectiveness shall be pending or threatened; (v) the shares of
Echlin stock to be issued in the Merger shall have been approved
for listing on the New York Stock Exchange subject to official
notice of issuance; (vi) all necessary state securities and blue
sky permits and approvals required to carry out the Merger shall
have been obtained; (vii) all corporate action necessary to
authorize the execution, delivery and performance of the Merger
Agreement by Echlin and Subsidiary and the consummation of the
transactions contemplated in the Merger Agreement (including the
adoption by the requisite vote of stockholders of Subsidiary)
shall have been duly and validly taken, and Echlin and Subsidiary
shall have full power and right to merge on the terms provided in
the Merger Agreement; and (viii) there shall not have occurred
any decline in the market price of Echlin stock by an amount in
excess of 20%.
Pursuant to the terms of the Merger Agreement, the Company
and Echlin have the ability to waive any of the conditions
precedent to their respective obligations to complete the Merger.
Termination; Termination Fees
The Merger Agreement may be terminated (i) by mutual written
consent of the parties; or (ii) by the Company or Echlin if a
material default or breach shall be made by the other with
respect to the due and timely performance of such other party's
covenants and agreements contained in the Merger Agreement, or
with respect to the due compliance with such other party's
representations and warranties and such default cannot promptly
be cured and has not been waived.
If the Company fails to consummate the transactions
described in the Merger Agreement, and if the Company does not
have the right to terminate the Merger Agreement pursuant to
clause (ii) of the preceding paragraph, and, if the Board of
Directors of the Company withdraws or modifies in a manner
adverse to Echlin or Subsidiary its approval of the Merger
Agreement or recommends or approves an acquisition proposal by a
third party or within a period of one year from the date of the
Merger Agreement the Company shall sell substantially all of its
assets, or the Company shall merge with another company, or if
another person shall have made a tender or exchange offer for
more than 50% of the stock of the Company for a price in excess
of $13.625 per share or if another person shall acquire more than
35% of the stock of the Company, then the Company shall pay to
Echlin a sum equal to 2.5% times $13.625 times the number of
shares of stock of the Company currently issued and outstanding
(including, for this purpose, the number of shares of stock of
the Company which would be issued and outstanding if all options
to purchase stock of the Company were exercised, regardless of
whether said options are currently exercisable). If Echlin
should elect not to consummate the transactions contemplated by
the Merger Agreement, and Echlin does not have the right to
terminate the Merger Agreement pursuant to clause (ii) of the
preceding paragraph, then it shall pay to the Company an amount
equivalent to 2.5% times $13.625 times the number of shares of
stock of the Company currently issued and outstanding (including,
for this purpose, the number of shares of stock of the Company
which would be issued and outstanding if all options to purchase
stock of the Company were exercised, regardless of whether said
options are currently exercisable).
Subject to the Company"s obligations to pay the fee
described in the preceding paragraph, nothing in the Merger
Agreement shall prevent the Company or its Board of Directors
from taking such action, including the consideration of bids or
offers in competition with that of Echlin and Subsidiary, to the
extent to which such action may be required by law, including
such action as may be imposed upon the Company and its directors
and officers in their fiduciary capacities as such.
Accounting Treatment
The Merger will be accounted for as a pooling of interests
if it meets certain specified criteria, which the Company and
Echlin believe will be satisfied. Under pooling of interests
accounting, for financial accounting purposes all of the
attributes of the businesses being combined are merged into one
financial reporting system. This results in the recorded assets
and liabilities of each such business becoming the recorded
assets and liabilities of the combined enterprise. The
stockholders' equities of the separate businesses are also
combined.
Certain Federal Income Tax Consequences
The following discussion includes information regarding the
possible federal income tax consequences arising from the
exchange of Shares for shares of Echlin common stock in the
Merger. There can be no assurance that the Internal Revenue
Service will not take a contrary view to the matters discussed
below. Neither the Company nor Echlin intends to seek a ruling
from the Internal Revenue Service with respect to the tax
consequences of the Merger.
Assuming that the Merger and related transactions take place
as described in the Merger Agreement, it is anticipated that, for
federal income tax purposes:
(i) The Merger will constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"), and Echlin,
Subsidiary and the Company will each be a party to the
reorganization within the meaning of Section 368(b) of the
Code;
(ii) No gain or loss will be recognized by the
Company in the Merger;
(iii) No gain or loss will be recognized by the
shareholders of Company upon their receipt of Echlin common
stock in exchange for their Shares, except that shareholders
who receive cash proceeds in lieu of fractional interests in
Echlin common stock will recognize gain or loss equal to the
difference between such proceeds and the tax basis allocated
to their fractional share interests, and such gain or loss
will constitute capital gain or loss if their Shares are
held as a capital asset at the Effective Time;
(iv) The aggregate tax basis of the shares of
Echlin common stock received by the shareholders of the
Company will be the same as the tax basis of the Shares
exchanged therefor;
(v) The holding period of the Echlin common stock
in the hands of the Company shareholders will include the
holding period of their Shares exchanged therefor, provided
such Shares are held as a capital asset at the Effective
Time; and
(vi) The exchange by persons holding incentive
stock options ("ISO's") of their ISO's for stock of Echlin
pursuant to the Merger Agreement upon a basis whereby the
ISO's are valued at the difference between $13.625 per share
and the exercise price of the ISO's will be treated as
resulting in taxable income to such person in an amount
equal to such difference.
Required Filings
Under the HSR Act and the rules promulgated thereunder by
the Federal Trade Commission (the "FTC"), the Merger may not be
consummated until notifications have been given and certain
information has been furnished to the FTC and the Antitrust
Division of the Department of Justice (the "Antitrust Division")
and specific waiting period requirements have been satisfied.
The Company and Echlin filed their respective notification and
report forms under the HSR Act with the FTC and the Antitrust
Division as of October 17, 1995. The Company has been notified
by the FTC that the waiting period will expire at 11:59 p.m. on
November 16, 1995, unless extended pursuant to a request for
additional information or unless early termination of the waiting
period is granted. To date, no request for additional
information extending the waiting period, and no notice of early
termination of the waiting period, has been received by the
Company or Echlin.
Except as described in the preceding paragraph, consummation
of the Merger will not require any action by or in respect of, or
filing with, any federal or state governmental body, agency or
official, other than the filing of this Proxy Statement and the
related registration statement with the Commission and the filing
of applicable merger documents with the Secretary of State of
Delaware and the Secretary of State of Indiana. The Company and
Echlin have made all required filings with the Commission and
will file the required merger documents with the Secretary of
State of Delaware and the Secretary of State of Indiana as soon
as practicable following the approval of the Merger by the
Company shareholders.
Federal Securities Law Consequences
All shares of Echlin common stock received by Company
shareholders in the Merger will be freely transferable, except
that shares of Echlin common stock received by persons who are
deemed to be affiliates of the Company prior to the Merger may be
resold by them only in transactions permitted by the resale
provisions of Rule 145 promulgated under the Securities Act of
1933, as amended (or Rule 144 in the case of such persons who are
or become affiliates of Echlin) or as otherwise permitted under
the Securities Act. Persons who may be deemed to be affiliates
of a party generally include individuals or entities that
control, are controlled by or are under common control with such
party and may include certain officers and directors of such
party as well as principal shareholders of such party.
Upon the Merger becoming effective, the Shares will no
longer be quoted on Nasdaq, and it is anticipated the Company
will file for termination of the registration of the Shares under
the Securities Exchange Act of 1934. Thereafter, the Company
will no longer be required to file periodic reports and other
filings required by that Act.
Stock Exchange Listing
It is a condition to the Company's obligations to consummate
the Merger that the shares of Echlin common stock to be issued
pursuant to the Merger Agreement be approved for listing on the
New York Stock Exchange, subject to official notice of issuance.
Echlin will file an application for listing the shares of Echlin
common stock on the New York Stock Exchange. See "Merger of the
Company - Summary of the Merger Agreement - Conditions."
Prior Relationships Between the Company and Echlin
There have been no material contracts, arrangements,
understandings, relationships, negotiations or transactions
between Echlin or its affiliates and the Company or its
affiliates, except in connection with the Merger Agreement.
Absence of Dissenters' Rights of Appraisal
Indiana law governs the rights of the Company's shareholders
in connection with the Merger. Under the applicable provisions
of Indiana law, the Company's shareholders will have no right of
appraisal or similar rights of dissenters with respect to the
Merger since the Shares are traded on Nasdaq.
Board of Directors Recommendation
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER.
COMPARISON OF SHAREHOLDER RIGHTS
The Company
Under the Indiana Business Corporation Law ("IBCL") and the
corporate documents of the Company, holders of Shares have no
pre-emptive rights to acquire additional shares of common stock
of the Company. Holders of the Shares possess exclusive voting
power in the Company and each shareholder is entitled to one vote
for each Share held on matters voted upon by shareholders.
Shareholders have no cumulative voting rights. While the Board
of Directors may authorize the payment of dividends to
shareholders, the Company has never declared or paid any
dividends on the Shares, and is restricted by its bank loan
agreement from paying dividends unless certain financial tests
are satisfied. In the event of liquidation or dissolution of the
Company, the holders of the Shares will be entitled to receive,
after payment or provision for payment of all debts and
liabilities of the Company, all assets of the Company available
for distribution in cash or in kind.
Chapter 43 of the IBCL prohibits certain business
combinations, including mergers, sales of assets,
recapitalizations, and reverse stock splits, between corporations
such as the Company with over 100 shareholders and an interested
shareholder, defined as the beneficial owner of 10% or more of
the voting power of the outstanding voting shares, for five years
following the date on which the shareholder obtained 10%
ownership unless the business combination or the purchase of the
shares was approved in advance of that date by the board of
directors. If prior approval were not obtained, several price
and procedural requirements must be met before the business
combination can be completed.
The IBCL also contains provisions designed to assure that
minority shareholders have a voice in determining their future
relationship with Indiana corporations in the event that a person
made a tender offer for, or otherwise acquired, shares giving the
acquiror more than 20%, 33-1/3%, and 50% of the outstanding
voting securities of corporations having 100 or more shareholders
(the "Control Share Acquisitions Statute"). Under the Control
Share Acquisitions Statute, if an acquiror purchases those shares
at a time that the corporation is subject to the Control Share
Acquisitions Statute, then until each class or series of shares
entitled to vote separately on the proposal approves, by a
majority of all votes entitled to be cast by that group
(excluding shares held by officers of the corporation, by
employees of the corporation who are directors thereof and by the
acquiror), the rights of the acquiror to vote the shares that
take the acquiror over each level of ownership as stated in the
statute, the acquiror cannot vote these shares.
The IBCL requires directors to discharge their duties, based
on the facts then known to them, in good faith, with the care an
ordinary, prudent person in a like position would exercise under
similar circumstances and in a manner the director reasonably
believes to be in the best interests of the corporation. The
director is not liable for any action taken as a director, or any
failure to take any action, unless the director has breached, or
failed to perform the duties of the director's office in
compliance with, the foregoing standard and the breach or failure
to perform constitutes willful misconduct or recklessness.
The IBCL specifically authorizes directors, in considering
the best interest of a corporation, to consider the effects of
any action on shareholders, employees, suppliers, and customers
of the corporation, and communities in which offices or other
facilities of the corporation are located, and any other factors
the directors consider pertinent. Under the IBCL, directors are
not required to approve a proposed business combination or other
corporate action if the directors determine in good faith that
such approval is not in the best interest of the corporation.
The IBCL explicitly provides that the different or higher degree
of scrutiny imposed in Delaware and certain other jurisdictions
upon director actions taken in response to potential changes in
control will not apply.
Echlin
Echlin's authorized capital stock consists of 150,000,000
shares of common stock, par value $1 per share, and 1,000,000
shares of preferred stock, without par value. None of the shares
of the preferred stock has been issued. The preferred stock may
be issued in series from time to time as determined by the Board
of Directors of Echlin, which is empowered, for each series, to
fix the dividend rate, redemption provisions, liquidation
privileges, sinking fund provisions, voting powers and any
conversion rights. When any shares of preferred stock are
outstanding, dividends may be payable thereon at a fixed dividend
rate before dividends can be paid on outstanding shares of
Echlin's common stock. On dissolution, liquidation or winding-up
of Echlin, holders of preferred stock may be entitled to receive
a stipulated liquidation price before any distribution could be
made to the holders of the common stock. Echlin presently has no
plans, arrangements or understandings with respect to the
issuance of any of the preferred stock (other than pursuant to
the preferred stock purchase rights described below).
Each share of common stock is entitled to one vote and to
dividends as declared by the Board of Directors. Upon
liquidation, each share of common stock is entitled to an equal
share in all of the assets of Echlin, after payment of creditors
and holders of preferred stock, if any. There are no preemptive
rights and no conversion, redemption or sinking fund privileges
and all shares of common stock outstanding are fully paid and
non-assessable.
Under the terms of a shareholder rights plan approved by
Echlin's Board of Directors in June 1989 ("Echlin's Shareholder
Rights Plan"), a preferred stock purchase right ("Right") is
attached to and automatically trades with each outstanding share
of common stock.
The Rights, which are redeemable, will become exercisable
only in the event that any person or group becomes a holder of 20
percent or more of Echlin's common stock, or commences a tender
or exchange offer which, if consummated, would result in that
person or group owning at least 20 percent of the common stock.
Once the Rights become exercisable they entitle all other
shareholders to purchase, by payment of a $65 exercise price,
common stock (or, in certain circumstances, other consideration)
with a value of twice the exercise price. In addition, at any
time after a 20 percent position is acquired, the Board of
Directors may, at its option, require each outstanding Right
(other than Rights held by the acquiring person or group) to be
exchanged for one share of common stock or its equivalent. The
Rights will expire on June 30, 1999 unless redeemed or exchanged
earlier.
The transfer agent and registrar for the common stock and
Rights Agent under Echlin's Shareholder Rights Plan is The First
National Bank of Boston, Boston, Massachusetts.
Echlin's common stock is listed on the New York Stock
Exchange, The Pacific Stock Exchange and the International Stock
Exchange in London.
THE COMPANY
General Development
The Company designs and manufactures a broad line of
specialized electronic and electrical components, including
highly engineered sensors which it has developed with patented
and other proprietary technologies. In addition, it designs and
manufactures high performance industrial relays and switches, and
electromechanical and plastic products. The Company's products
are sold to major North American automotive OEMs, including
Chrysler Corporation, Ford Motor Company and General Motors
Corporation, major OEM component manufacturers, including Borg-
Warner Automotive Corporation ("Borg-Warner"), ITT Teves and
Cummins Engine Company, Inc. ("Cummins"), and to diverse
industrial and consumer products manufacturers.
Relays and switches have historically constituted the
Company's core business. While the Company anticipates that
relays and switches will continue to contribute significantly to
net sales and operating income, the Company's strategy is to
focus resources on its sensor products, which management believes
offer significantly higher growth potential. Virtually all of
the current and potential uses for the Company's sensors relate
to reduction of fuel emissions, improving efficiency, safety and
reliability and reducing OEM's warranty costs. The Company's
strategy is to focus on customized, highly engineered sensors
predominantly for automotive applications; to produce high
quality products that reduce total system costs; to provide
comprehensive design and engineering services; and to provide
reliable and timely delivery of its products at a lower delivered
cost. As a result of implementing this strategy, the Company has
received top quality awards and has become a long-term preferred
supplier to several of its key customers. The Company intends
to continue to capitalize on trends in the automotive industry,
including single sourcing, that favor high quality, reliable
suppliers who provide full service capabilities, including design
and testing.
The Company's operating subsidiaries were owned from 1985 to
1989 by various publicly-owned holding companies in the United
Kingdom. In 1989, ownership was transferred in a leveraged
acquisition to a privately-owned entity, American Electronic
Components Limited, a United Kingdom company ("AEC-UK"). In the
fiscal years 1990 and 1991, a significant downturn in general
economic conditions and a substantial decline in sales and
profitability in the Company's electromechanical products
business were experienced. The resulting financial impairment
resulted in loan covenant violations, and the Company operated
under a series of forebearance agreements with its bank lender.
Effective March 31, 1992, holders of ordinary shares of AEC-UK
exchanged their shares for an equal number of shares of common
stock of the Company, and the ownership of the operating
subsidiaries was transferred to the Company. The bank debt of
the operating subsidiaries was restructured, subordinated debt of
AEC-UK was exchanged for common stock of the Company, and accrued
but unpaid interest on subordinated debt was exchanged for Series
B Senior Common Stock. Additionally, $3,554,000 of new capital
was raised through the issuance of Series A Senior Common Stock,
in conjunction with which warrants to acquire shares of common
stock were issued. Also in 1992, the Company sold a subsidiary,
which was a separate business segment, which manufactured silicon
diodes and rectifiers.
The Company currently conducts business at five facilities
in Elkhart, Indiana. The operating subsidiaries are: Durakool,
Inc., incorporated on March 14, 1985 as an Indiana corporation;
Alliance Plastics, Inc., incorporated on December 24, 1980 as an
Indiana corporation; and Electromation, Inc., incorporated on
February 28, 1977 as an Indiana corporation. The Company
controls 100% of the stock of the operating subsidiaries through
a wholly-owned subsidiary, American Oil Fields, Inc., a Delaware
corporation.
Concurrent with the Company's initial public offering of
1,125,000 shares of common stock, effective June 16, 1994 (the
"Initial Public Offering"), the Company's Articles of
Incorporation were amended so that the entire authorized capital
stock consists of 15,552,000 shares of common stock. Also
concurrent with the Initial Public Offering and pursuant to a
plan of recapitalization, all of the outstanding shares of Series
A Senior Common Stock were converted into shares of common stock,
all of the Series B Senior Common Stock, together with
accumulated dividends, was redeemed, and each outstanding warrant
to purchase common stock was exchanged for shares of common
stock.
Products
Sensor Products
The Company's sensors respond to physical stimuli, such as a
rotating gear in an automobile engine, and transmit an electrical
voltage signal for use by computerized control systems. The
Company's sensors are divided into three major groups, Hall
effect sensors, variable reluctance sensors and acceleration
sensors. Hall effect sensors accounted for approximately 64% of
sensor sales for the nine month period ended June 24, 1995.
Sensors are designed and manufactured to detailed customer
specifications. The chart below summarizes the groups of sensors
and their applications, as described more fully in the following
sections:
<TABLE>
<CAPTION>
Variable
Hall Effect Reluctance Acceleration
Applications Sensors Sensors Sensors
- ----------- --------- --------- ---------
<S> <S> <S> <S>
Distributorless Ignition Systems X X
Throttle Position X
Anti-Skid Braking Systems X X X
On-Board Diagnostics X
Electronic Four-Wheel Drive X
Cruise Control X X
Ride Control X X
</TABLE>
Hall Effect Sensors. Hall effect sensors are electronic
devices with solid state transducers coupled with integrated
control circuits that produce electronic switching capability.
The transducer senses a changing magnetic field strength and
converts it into a digital electrical signal. The output signal
is fed directly into electronic logic control circuits unlike
other sensors which must have their analog signals digitized and
require shielded cable to prevent spurious information that might
be communicated to the microprocessor resulting in less accurate
data and a higher system cost. Hall effect technology is
superior to the traditional electromechanical switch in life
expectancy, hostile environment applications, and the ability to
withstand vibration. The Company's products are finished
components containing the Hall effect sensor and integrated
control circuits, complete with magnetic and protection
circuitry, encapsulated in a plastic or stainless steel housing
with mounting and termination points.
The Company's zero speed, power up recognition Hall effect
sensor was granted a 17-year patent in 1990. The claims
protected by the patent include zero speed gear tooth RPM sensing
and proximity sensing even on circuit "power-up" which
facilitates the reduction of emissions. In addition, the Company
received in July, 1994, a 17-year patent for its contactless
throttle position sensors.
Automobile applications for the Company's Hall effect
sensors include anti-skid braking systems ("ABS"),
distributorless ignition systems ("DIS"), throttle position
sensors ("TPS"), on-board diagnostics ("OBD") and electronic
four-wheel drive systems ("4WD"), among other uses. The
Company's sensors are designed into applications for use by
automakers in DIS, OBD and 4WD. The Company is currently the
preferred supplier of Hall effect sensors to Chrysler for its LH
line of vehicles known as Eagle Vision, Chrysler Concorde,
Chrysler New Yorker, Chrysler LHS and Dodge Intrepid. Hall
effect sensors are also sold to Cummins, Borg-Warner and to
Chrysler for application in Jeep Cherokees and Grand Cherokees.
Competition is limited in the Hall effect sensor market.
The Company's principal competitors in this market are Airpax, a
division of N.A. Philips, and the Honeywell Micro Switch division
of Honeywell, Inc. Suppliers compete on the basis of technology,
quality and reliability, and responsiveness.
Variable Reluctance ("VR") Sensors. VR sensors use a wire
wound coil and magnet which respond to motion in the close
proximity of a steel gear tooth by providing an analog output
pulse. The analog pulse must be converted into a digital pulse
by circuits remote from the sensor, to make it compatible with
computer logic. In 1993, the Company applied for a patent for
its Magnetic Bobbin VR sensor, which uses one less part and fewer
winds on its coil than competing products, thus lowering
manufacturing costs and improving reliability. Applications for
VR sensors include ABS systems, cruise control and electronically
controlled transmissions.
Acceleration Sensors. Acceleration sensors detect movement
on an inclined plane in an artificial gravitational field. They
are based on the Company's mercury switching technology and have
no moving fabricated internal parts, and they thus work well in
hostile environments and provide an inexpensive solution compared
to other technologies. These sensors are incorporated in ABS and
active ride control systems. The Company is the sole supplier of
acceleration sensors for application in Jeep Cherokee, Jeep Grand
Cherokee, Ford Explorer and several General Motors models.
New Product Development. The Company, in conjunction with
customers, is currently developing more than twenty new products.
In some cases, the development costs are partially funded by the
customers. Some of the products are linear TPS, VR diesel
tachometer sensor, top dead center sensors (for diesel engines),
transmission speed sensor, brake pedal sensor, torque and misfire
detection sensor, antilock brake sensor, engine fuel pump sensor,
speed sensor for electric nail gun, quadrature sensor for
gasoline station pumps, and out-of balance sensor.
Relay and Switch Products
In general, the relay and switch market is characterized as
mature and fragmented. The Company participates in the high end
segment of this market where its engineering expertise and
quality systems are competitive advantages. Although the Company
has no independent verification, it estimates that it has a
majority of this market. While the Company has determined to
focus the majority of its resources on its sensor products, it
believes the relay and switch group will continue to be a
significant contributor to the operating results of the Company.
The Company has a complete line of high performance
industrial relay and contactor products ranging from 10 amps to
150 amps, with one, two or three pole, normally open or normally
closed contacts, in some cases with time delays. The Company's
relays are rated for Class I, Division 2, hazardous applications
by Underwriters Laboratories and the Canadian Standards
Association. These relays are used in industrial ovens, street
lighting, food processing equipment, the plastics equipment
industry, as well as industrial, commercial and residential
resistance heating applications.
The Company's mercury switches are hermetically sealed and
offer reduced cost and superior performance as compared to
mechanical switches. They are sold in many standard sizes and
load capacities from microamps to 65 amps. Tilt and tip-over
switches are used in automatic shut-off hand irons, trunk and
hood lighting assemblies, space heaters and gas meter tamper
alarm switches, among others. Relays and switches are provided
either in standard off the shelf configurations or adapted to the
customer's specific needs.
Competition in the relay market is primarily based on price,
but the Company is able to compete based on product quality. The
Company's principal competitors for relays and switches do not
offer the full range of products, the high volume manufacturing
capability or the quality and level of customer support that the
Company offers.
Electromechanical Products
The Company's electromechanical products include passive
restraint solenoids manufactured for use by General Motors
Corporation, standard solenoids, a newly developed air intake
relay for Chrysler, float controls for sump pumps, and other
electromechanical switches. The markets served include
automotive, marine, sump pump and outdoor power equipment
manufacturers. The Company's passive restraint solenoids will
soon reach the end of their product life as airbag technology
replaces belted passive restraint systems.
Electromechanical products are manufactured to customer
specifications. The Company's flexible manufacturing systems can
be reconfigured easily to accommodate redesigned or newly-
developed products.
There are many participants in the electromechanical market.
The market is driven by price, quality and service. The
Company's greatest competitive assets are design talent, quality
and flexible manufacturing systems.
Plastic Products
The Company produces precision, injection molded,
thermoplastic parts. Approximately one-half of these parts is
used within the Company for housings and other piece parts for
acceleration sensors, Hall effect sensors and many other
components of the Company's products. Sales to third parties of
plastic products include custom-designed components such as
lenses for courtesy lights in automobiles, window tracks,
electrical connectors and various other products.
The Company's custom injected plastic parts permit
specialization in connectors that require close tolerances. It
offers maximum flexibility in the choice of molding techniques,
from using single or multiple cavity molds that produce parts to
the most exacting tolerances, in a wide choice of materials.
Matrix molding permits running parts of different configurations
but similar size and material in the same multi-cavity mold. All
plastic products are manufactured to customers' specifications
and in fiscal 1994, five customers accounted for approximately
50% of sales to third parties.
The plastics industry is highly competitive. The Company
intends to use more of its plastics production capacity to
support its other products.
Sales, Marketing and Engineering Services
Approximately 60% of the Company's total sales in fiscal
1994 were to automotive OEMs or suppliers to automotive OEMs,
with remaining sales of the Company to diverse industrial and
consumer products manufacturers. The table below lists the
largest customers of the Company measured by gross sales:
<TABLE>
<CAPTION>
% of
Customer Fiscal 1994 Gross Sales
-------- ----------------------
<S> <C>
Chrysler 22.8
Takata 11.5
</TABLE>
Chrysler purchased sensors and Takata purchased solenoids
used in passenger restraint systems it sells to General Motors.
The Company expects to end production of the solenoids it sells
to Takata within the next two years, as the passive restraint
system in which these solenoids are used is replaced by air bags.
See "--Products -- Electromechanical Products".
Because sensors need to be designed at an early stage in the
development of new automobiles or model revisions, the Company is
increasingly given the opportunity to participate earlier in the
product planning process. In recent years, the Company has
significantly increased its capacity to provide complete
engineering, design and testing services to support its product
lines. Sales of the Company's products to OEMs are generated by
the Company's sales and engineering staff working in conjunction
with its customers' advanced engineering staffs. Through the
sales and engineering office, the Company serves its OEM
customers and manages its continuing programs of product design
and development.
The Company's automotive customers typically award blanket
purchase orders that normally cover parts to be supplied for a
particular car model, engine or system. The Company then
receives releases from the customer to ship the product. These
purchase orders are rarely cancelled during the model, engine or
system life. The primary risk to the Company is that an OEM will
produce fewer units of a model, engine or system than
anticipated.
The Company relies on stocking distributors in the sales of
its relays and switches. Distributors often work with the
Company's engineering staff to provide customized products when
needed.
Research and Development
The Company's investment in research and development during
the fiscal years 1992, 1993 and 1994 was $639,000, $734,000 and
$904,000, respectively. Its current emphasis is on development
of additional uses for its Hall effect sensors as well as its new
Magnetic Bobbin VR sensor. In addition, the Company is working
to develop application specific integrated circuits that add more
intelligence to its sensors.
The Company has a patent relating to its zero speed, power
up recognition capability Hall effect sensor patent, and a patent
applying Hall effect technology to contactless throttle position
sensors. It is intended that these Hall effect products will
replace mechanical contacting rotary position sensors, technology
that causes failures and requires replacement under warranty by
automobile manufacturers. In addition, the Company has a patent
pending on its Magnetic Bobbin VR sensor. The Company's advanced
processing techniques reduce the number of parts in this VR
sensor, reduce the manufacturing costs, increase the reliability
and improve the output signal.
While the Company follows the practice of pursuing patent
protection on new developments whenever reasonably practicable,
the Company also relies on unpatented know-how, trade secrets and
improvements in connection with its design and manufacturing
processes. The Company requires all salaried employees to sign a
confidentiality agreement.
Raw Materials and Manufacturing
The primary raw materials used by the Company include
magnets, integrated circuit chips, mercury and wire. There has
been no difficulty in obtaining raw materials and, except as
noted below, management believes that the inability of any one
supplier to meet the Company's requirements will not result in a
material diminution in its ability to manufacture because there
are other suppliers of essentially the same raw materials.
Due to its exacting standards, the Company currently
purchases an important component for its Hall effect sensors from
a single supplier, with whom relations are excellent. The
Company does not have a long-term supply agreement with this
supplier, and operates under purchase orders calling for periodic
release of product.
The Company's manufacturing facilities include a modern tool
and die fabrication facility, injection and insert molding
capabilities, a stamping operation, a press room, chemical
cleaning facilities, and glass to metal sealing capabilities.
The Company uses, and in some cases develops, sophisticated
software in its design, manufacturing and product testing
functions, and has completed one and is installing another
highly-automated, robotic Hall effect sensor assembly line. The
Company's laboratory is equipped to provide automotive design
validation, production validation and continuous conformance
testing, and is one of the few laboratories in the United States
that is accredited by the American Association for Laboratory
Accreditation for both mechanical and electrical testing. The
Company manufactures many of the components used in its products,
thereby retaining a degree of control over price, quality and
timeliness of delivery of these components.
Properties
All of the Company's manufacturing and administrative
offices are owned by the Company and are located in Elkhart,
Indiana. In addition, the Company leases a small sales office in
Detroit, Michigan to serve the automotive industry. The Company
believes that its facilities are adequate to meet current and
projected needs. The facilities owned by the Company in Elkhart,
Indiana are described below
<TABLE>
<CAPTION>
Location Description Square Feet
<S> <S> <C>
1010 North Main Street - Office, manufacturing, engineering,
sales, and R&D 51,052
1101 Lafayette Street - Manufacturing and toolroom 43,864
913 10th Street - Manufacturing 21,285
23590 County Road 6 - Manufacturing 143,070
--------
Total 259,271
========
</TABLE>
Employees
As of September 24, 1994, the Company had 546 employees, of
which 397 are direct or indirect manufacturing support and the
remainder work in the administrative, engineering, and sales
areas. There are 252 employees subject to collective bargaining
agreements. The Company's employees are represented by the
Chauffeurs, Teamsters, and Helpers Local Union 364; the
International Union United Automobile, Aerospace and Agricultural
Implement Workers of America UAW, and its Durakool Unit of
Amalgamated 428; and the United Paperworkers, International Union
AFL, CIO-CLC, Local 1056. The Company has not experienced a work
stoppage in 15 years, and management believes that its employee
relations are good.
Legal Proceedings
The Company has been identified by the United States
Environmental Protection Agency ("EPA") as one of nine
potentially responsible parties ("PRPs") in the contamination of
Elkhart, Indiana's Main Street Well Field. In 1981, a chemical
cleaning compound, Trichloroethylene ("TCE"), was found in the
soil and ground water of one of the Company's properties that is
adjacent to the Main Street Well Field.
In February 1992, the EPA issued an Order requiring the
Company and another PRP to perform the selected remedy related to
the east side of the Well Field, on which the Company's property
is located. The Company has installed the equipment necessary to
implement its portion of this remedy pursuant to agreement with
the other PRP. The Order also requires all PRPs, including the
Company, to operate and maintain the groundwater treatment and
monitoring system at the Well Field. The Company has reached an
agreement with the other PRPs regarding these future operating
costs. The Company's allocable share of the costs of operating
the treatment system is not material.
On February 22, 1993, the United States filed a lawsuit in
the United States District Court for the Northern District of
Indiana, South Bend Division, against eight of the PRPs,
including the Company. The lawsuit seeks recovery of
unreimbursed response costs for remedial activity by the EPA of
$6 million, plus interest, and a declaration that the eight
defendant PRPs are liable for any future costs incurred by the
EPA in connection with the site. On June 22, 1993, the Indiana
Department of Environmental Management ("IDEM") filed a motion to
intervene, which has been granted, seeking reimbursement of
unreimbursed response costs claimed as exceeding $440,000, plus
interest. Each of the PRPs, including the Company, is
potentially jointly and severally liable for the entire amount of
the EPA and IDEM costs as ultimately determined to be properly
incurred. The Company is unable to determine the amount of its
ultimate liability.
The EPA has also asked the Company for information about
contamination at another site in Elkhart County, Indiana. EPA
has completed a Remedial Investigation/Feasibility Study at the
site and has selected a remedy for its clean up. The EPA has not
issued an Order requiring any PRP to implement the selected
remedy. No demand has been received from EPA for reimbursement
of any costs. The EPA has identified approximately 40 PRPs in
connection with this dump site. The Company believes it has not
contributed any known hazardous waste to this site. However, the
Company is unable to determine the range of reasonably possible
loss with respect to this site.
Financial Information
Financial information about the Company, including its
latest audited consolidated financial statements, and a copy of
the Company's Quarterly Report on Form 10-Q for the interim
period ended June 24, 1995 is attached to this Proxy Statement as
Appendix C and Appendix D, respectively, and is incorporated
herein by reference.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
General
The Company designs and manufactures a broad line of
specialized electronic and electrical components. A majority of
the Company's net sales are to the automotive industry. Products
sold to the automotive industry are typically part of specific
programs related to a model, engine or system and, therefore,
have a product life generally ranging from three to fifteen
years. Over the past several years, the Company, through
execution of its strategy, has been successful at having its
products incorporated in a number of major automotive programs.
Results of Operations
The following table sets forth the percentage relationship
to net sales of certain items in the Company's statements of
operations.
<PAGE>
<TABLE>
<CAPTION>
Three Month Nine Month
Year Ended Period Ended Period Ended
----------------------- ---------------- ---------------
September September September June June June June
24, 1994 25, 1993 26, 1992 24, 1995 25, 1994 24, 1995 25, 1994
--------- --------- --------- --------- ------------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margin 29.4 29.1 27.5 30.3 29.7 28.0 29.3
Operating expenses 17.4 17.8 18.2 18.3 17.6 17.1 17.3
Operating income 12.1 11.3 9.3 11.9 12.1 10.8 12.0
Net income (loss) 5.1 3.5 (14.7) 6.4 4.9 5.3 4.7
</TABLE>
Three-Month Period Ended June 24, 1995 Compared to Three-Month
Period Ended June 25, 1994
Net Sales. Net sales increased by $439,000, or 4.8 %, from
$9.2 million for the three-month period ended June 25, 1994 to
$9.7 million for the three-month period ended June 24, 1995. Of
the increase in net sales, approximately $1.0 million was
attributable to increased sales of the Company's Hall effect
sensors. This was partially offset by approximately $500,000 by
reduced sales of the lower margin electromechanical products.
Approximately $800,000 of the $1.0 million increase in Hall
effect sensor sales is due to sales of the Company's electronic
four-wheel drive sensor for application on Ford's new Explorer.
The balance of the increase is due to a strong automotive market.
The Company is the preferred supplier of Hall effect sensors to
Chrysler for use in the LH series of vehicles which has been very
well received in the consumer market. The decrease in sales of
electromechanical products was due mainly to reduced demand for
sump pump floats.
Gross Profit. Gross profit increased by $187,000, or 6.8%,
from $2.7 million for the three-month period ended June 25, 1994,
to $2.9 million for the three-month period ended June 24, 1995.
As a percent of sales, gross profit increased from 29.7% for the
three-month period ended June 25, 1994 to 30.3% for the three-
month period ended June 24, 1995. This decrease is due mainly to
sales mix.
Operating Expenses. Operating expenses increased by
$152,000, or 9.4%, from $1.6 million for the three-month period
ended June 25, 1994 to $1.8 million for the three-month period
ended June 24, 1995. This increase is due to cost of living
adjustments and the addition of engineering and related staff
needed to support the increased sales and new programs. As a
percentage of sales, operating expenses increased from 17.6% in
the 1994 period to 18.3% in the 1995 period.
Interest Expense. Interest expense decreased $158,000 in the
three-month period ended June 24, 1995. The decrease is due to
the retirement of bank debt with proceeds of the Initial Public
Offering and a lower negotiated interest rate.
Income Taxes. Income tax expense for the two periods
approximates the federal and state statutory rate.
Nine-Month Period ended June 24, 1995 Compared to Nine-Month
Period Ended June 25, 1994.
Net Sales. Net sales increased by $2.8 million, or 10.4 %,
from $26.9 million for the nine-month period ended June 25, 1994
to $29.7 million for the nine-month period ended June 24, 1995.
Of the increase in sales, approximately $3.1 million was
attributable to increased sales of the Company's Hall effect
sensors. This increase was partially offset by reduced sales of
approximately $100,000 each in relays and switches,
electromechanical and plastic products. Approximately $2.1
million of the $3.1 million increase in Hall effect sensor sales
is due to sales of the Company's electronic four-wheel drive
sensor for application on Ford's new Explorer. The balance of
the increase is due to a strong automotive market. The Company
is the preferred supplier of Hall effect sensors to Chrysler for
use in the LH series of vehicles which has been very well
received in the consumer market.
Gross Profit. Gross profit increased by $414,000, or 5.2%,
from $7.9 million for the nine-month period ended June 25, 1994,
to $8.3 million for the nine-month period ended June 24, 1995.
As a percent of sales, gross profit decreased from 29.3% for the
nine-month period ended June 25, 1994 to 28.0% for the nine-month
period ended June 24, 1995. This decrease is due mainly to sales
mix.
Operating Expenses. Operating expenses increased by
$433,000, or 9.3%, from $4.7 million for the nine-month period
ended June 25, 1994 to $5.1 million for the nine-month period
ended June 24, 1995. This increase is due to cost of living
adjustments and the addition of engineering and related staff
needed to support the increased sales and new programs. As a
percentage of sales, operating expenses decreased from 17.3% in
the 1994 period to 17.1% in the 1995 period.
Interest Expense. Interest expense decreased $475,000 in the
nine-month period ended June 24, 1995. The decrease is due to
the retirement of bank debt with proceeds of the Initial Public
Offering and a lower negotiated interest rate.
Income Taxes. Income tax expense for the two periods
approximates the federal and state statutory rate.
Year Ended September 24, 1994 Compared to Year Ended September
25, 1993.
Net Sales. Net sales increased by $5.8 million, or 19.2%,
from $29.7 million for the fiscal year ended September 25, 1993,
to $35.5 million for the fiscal year ended September 24, 1994.
The increased sales is attributed to an increase of $2.3 million
of Hall effect sensors, $1.9 million of electromechanical
products, $900,000 of relays, and $500,000 of tooling sales. The
Company is the preferred supplier of Hall effect sensors to
Chrysler for use in the LH series of vehicles known as Dodge
Intrepid, Eagle Vision, Chrysler Concorde, Chrysler New Yorker
and Chrysler LHS. These sensor programs reached full production
levels in 1994, whereas production volumes were only beginning to
increase in 1993. Additionally, the LH series of vehicles was
very well received in the consumer market, which resulted in
increased demand for the Company's sensor products. The
increase in electromechanical products was due to a strong
automotive market in 1994 versus 1993. Increased demand for
relays from manufacturers of food service equipment as well as
sales of relays for use in street lighting in the Far East
account for the increase in relay sales. Tooling sales increased
over the previous year as the Company was establishing the
capacity to manufacture new sensor programs for the 1995 model
year.
Gross Profit. Gross profit increased by $1.8 million, or
20.6%, from $8.6 million for the fiscal year ended September 25,
1993, to $10.4 million for the fiscal year ended September 24,
1994. The gross margin increased from 29.1% in the 1993 period
to 29.4% in the 1994 period. The increase in gross margin
resulted from the increase in sensor sales. In addition, the
Company benefitted from its operating leverage as the fixed
component of overhead expenses was spread over a larger sales
volume.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses increased by $860,000, or
16.3%, from $5.3 million for the fiscal year ended September 25,
1993 to $6.2 million for the year ended September 24, 1994. As a
percentage of sales, selling, general and administrative expenses
decreased from 17.8% in the 1993 period to 17.4% in the 1994
period.
Interest Expense. Interest expense decreased by $325,000 to
$1.3 million in the fiscal year ended September 24, 1994. A
lower interest rate on the Company's bank indebtedness decreased
interest expense by $150,000, while a reduction in outstanding
debt reduced interest expense by $175,000.
Income Taxes. Income tax expense is deferred and
approximates the federal and state statutory rates for the year
ended September 24, 1994. The Company does not pay federal
income taxes, other than a small amount of alternative minimum
tax, due to the utilization of net operating loss carryforwards.
Year Ended September 25, 1993 Compared to Year Ended September
26, 1992.
Net Sales. Net sales increased by $5.2 million, or 21.4%,
from $24.5 million for the year ended September 26, 1992, to
$29.7 million for the year ended September 25, 1993. This
increase was attributable to the significant growth in the
Company's sensor product sales. Approximately one-half of the
increase in sensor sales was attributable to sales of
acceleration sensors for use in the Jeep Cherokees, Jeep Grand
Cherokees and Ford Explorers. The remaining increase in sales of
sensors was due to programs on Chrysler's LH line of vehicles,
referred to as Dodge Intrepid, Eagle Vision, Chrysler Concorde,
Chrysler New Yorker and Chrysler LHS. These sensor programs were
increasing in fiscal 1992 and reached full production at the end
of fiscal 1993.
Gross Profit. Gross profit increased by $1.9 million, or
28.2%, from $6.7 million for the year ended September 26, 1992,
to $8.6 million for the year ended September 25, 1993. Gross
margin increased from 27.5% for fiscal 1992 to 29.1% for fiscal
1993. The increase in gross profit resulted from the increased
sales of sensor products. The increase in gross margin resulted
from the higher margins associated with increased sales of the
sensor product line and the spreading of the fixed portion of
overhead expenses over a larger sales volume.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses increased by $833,000, or
18.7%, from $4.5 million for the year ended September 26, 1992 to
$5.3 million for the year ended September 25, 1993. The increase
is due to cost of living adjustments and the addition of
engineering and related staff needed as sales increased. As a
percentage of sales, selling, general and administrative expenses
decreased from 18.2% for the 1992 period to 17.8% for the 1993
period. The percentage decrease was primarily attributable to
the increased sales volume.
Interest Expense. Interest expense decreased $823,000, or
33.9%, from $2.4 million for the year ended September 26, 1992 to
$1.6 million for the year ended September 25, 1993. This
decrease primarily resulted from the conversion of the Company's
subordinated debt to equity, effective March, 1992.
Income Taxes. Income tax expense is deferred and
approximates the federal and state statutory rates for the year
ended September 25, 1993. The Company does not pay federal
income taxes, other than a small amount of alternative minimum
tax, due to the utilization of net operating loss carryforwards.
Net Income. Net income for the year ended September 26,
1992, reflects a loss of $3.2 million on the discontinued
operations of a former subsidiary of the Company that was sold.
Liquidity and Capital Resources
Cash provided by operating activities was $4.5 million for
the fiscal year ended September 24, 1994. The Company acquired
property and equipment of $3.3 million during that period.
The Company acquired property and equipment of $4.0 million
for the nine-month period ended June 24, 1995. It funded those
acquisitions by a combination of cash provided from operations
and net borrowings under its bank credit facility. Cash provided
by operating activities was $3.3 million for this same period.
The Company applies available cash to its bank credit
facility in order to minimize the interest cost of those
borrowings. At September 24, 1994 and June 24, 1995, the Company
had availability under its credit facility of $2.4 million and
$2.0 million, respectively.
With the proceeds of the Initial Public Offering, the
Company refinanced all of the remaining bank indebtedness with
Society National Bank, Indiana (the "Credit Facility"). The
Credit Facility includes a $9.0 million line of credit maturing
May 31, 1997, bearing interest at Libor plus 1.25%, or the prime
rate, at the option of the Company, and a $6.0 million term loan
payable over seven years and bearing interest at Libor plus
1.50%, or the prime rate plus 0.25%, at the option of the
Company. The Credit Facility is collateralized by accounts
receivable, inventory, and equipment.
The Credit Facility contains various restrictive and
financial covenants which, among other things, relate to net
worth, leverage, and cash flow coverage ratios. The Company is
permitted to make capital expenditures and to pay cash dividends
if it is within its cash flow coverage ratio. The Company is in
compliance with these covenants and does not believe that these
covenants will impose material restrictions on the Company's
operations.
New Accounting Standards
The Company is not aware of any Accounting Standards which
have been issued but not yet adopted by the Company which would
have a material impact on its financial position or results of
operations.
Seasonality
Although the automotive industry is typically shut down for
retooling in July and is slow in December, in the past several
years the Company has not experienced any material seasonality in
the sale of its products.
Inflation
The Company does not believe that inflation had a material
effect on the results of operations for the periods presented.
LEGAL OPINIONS
Legal matters in connection the issuance of the Echlin
common stock offered pursuant to the Merger are being passed upon
for Echlin by in-house counsel.
EXPERTS
The financial statements incorporated in this Prospectus by
reference to the Annual Report on Form 10-K of Echlin Inc. for
the year ended August 31, 1994 and by reference to Echlin Inc.'s
Form 8-K/A dated February 28, 1995, for the June 25, 1994
consolidated financial statements of the Preferred Technical
Group, have been so incorporated in reliance on the reports of
Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The audited consolidated financial statements of the Company
included with this Proxy Statement have been examined by
McGladrey & Pullen, independent auditors, for the periods
indicated in their reports thereon which appear herein. The
financial statements examined by McGladrey & Pullen have been
included herein in reliance upon the authority of said firm as
experts in accounting and auditing.
INDEPENDENT PUBLIC ACCOUNTANTS OF THE COMPANY
McGladrey & Pullen, Elkhart, Indiana, audited the financial
statements of the Company for its 1994 fiscal year and has been
selected to audit the financial statements of the Company for its
1995 fiscal year. A representative of that firm will be present
at the Meeting, will have the opportunity to make a statement and
will be available to respond to questions.
OTHER MATTERS
As of the date of this Proxy Statement, the management of
the Company has no knowledge of any matters to be presented for
consideration at the Meeting other than those set forth herein.
If any other matters properly come before the Meeting, the
persons named in the accompanying form of proxy intend to vote
such proxy to the extent entitled in accordance with their best
judgment.
By Order of the Board of Directors,
Richard J. Van Es, Secretary
Dated: __________ , 1995
All shareholders are cordially invited to attend the Meeting in
person. TO INSURE YOUR REPRESENTATION AT THE MEETING, PLEASE
COMPLETE AND PROMPTLY MAIL YOUR PROXY IN THE RETURN ENVELOPE
PROVIDED. This will not prevent you from voting in person,
should you so desire.
<PAGE>
APPENDIX A
Merger Agreement
(excluding exhibits)
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this
"Agreement"), dated October 6, 1995, is by and among ECHLIN INC.,
a Connecticut corporation ("ECHLIN"), ECHLIN ACQUISITION, INC., a
Delaware corporation ("SUB") and AMERICAN ELECTRONIC COMPONENTS,
INC., an Indiana corporation ("the Company").
RECITALS
A. ECHLIN is a corporation with one class of issued and
outstanding common stock, which stock is listed on the New York
Stock Exchange, the Pacific Stock Exchange, and the International
Stock Exchange.
B. SUB is a corporation all of the outstanding capital
stock of which is owned directly by ECHLIN.
C. The Company is a corporation with one class of issued
and outstanding common stock, which stock is publicly traded on
the over the counter market.
D. ECHLIN, SUB and the Company desire to complete a Merger
by which the shares of the Company will be exchanged for ECHLIN
shares in a transaction structured to be tax-free (for federal
income tax purposes), and by which SUB shall be the surviving
corporation.
E. It is contemplated that ECHLIN will file a registration
statement on Form S-4 with the SEC under the Act for registration
of the ECHLIN shares (the "Registration Statement") into which
the Company Shares will be exchanged in the Merger.
THEREFORE, ECHLIN, SUB and the Company hereby agree as
follows:
ARTICLE I
Definitions
1.1 Definitions. The terms defined in this Article I,
whenever used in this Agreement, shall have the following
meanings for all purposes of this Agreement.
"Act" is the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Affiliate" means a Person that directly or indirectly,
through one or more intermediaries, controls, or is controlled
by, or is under common control with, another specified Person.
"Audited Statements" are defined in Section 3.5.
"Base Price" is defined in Section 11.3.
"Business" means the business of the Company and its
Subsidiaries as described in the Registration Statement.
"Business Day" means any day that is not a Saturday, Sunday
or other day on which banking institutions in New York, New York
are authorized or required by law or executive order to close.
"Closing" means the completion of the transaction specified
in Article II.
"Closing Date" is defined in Section 2.5.
"Company Shares" means the issued and outstanding shares of
stock of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Financial Statements" is defined in Section 3.5.
"GAAP" means generally accepted accounting principles
consistently applied with the Financial Statements.
"HSR Act" means the Hart Scott Rodino Antitrust Improvement
Act of 1976, as amended, and regulations thereunder.
"Merger" means the transaction described in Article II.
"Options" means the rights of certain persons to purchase
stock of the Company.
"Person" means any individual, corporation, partnership,
trust, joint venture or other entity.
"Proxy Statement" is defined in Section 8.5.
"Unaudited Statements" are defined in Section 3.5.
ARTICLE II
Merger and Exchange
2.1 Merger. Upon the terms and subject to the conditions
contained herein, at the Closing, the Company shall merge into
SUB, with SUB as the surviving entity, pursuant to the "Agreement
and Plan of Merger" attached hereto and incorporated herein by
this reference as Exhibit 2.1.
2.2 Exchange. Pursuant to the Merger, each shareholder of
the Company, shall receive ECHLIN stock for shares of the stock
in the Company owned by said shareholder of the Company,
determined in accordance with the Exchange Ratio described in
Section 11.3 of this Agreement.
2.3 Fractional Shares. No fractional shares of ECHLIN
stock will be issued in the Merger. Any shareholder of the
Company entitled to a fractional share of ECHLIN stock pursuant
to the Merger shall receive an amount equal to the Base Price
times the fraction of a share to which said shareholder of the
Company would otherwise have been entitled.
2.4 Termination of Options. The Company agrees that it
will take all such actions, as may be necessary to cause each
Option to terminate as of and at the Closing. It is further
agreed that SUB will exchange ECHLIN stock for such Options of
the Company determined in accordance with the Exchange Ratio
described in Section 11.03 of this Agreement, except that, in
lieu of $13.625 there shall be used the difference between
$13.625 and the per share exercise price (the "Strike Price")
provided for the exercise of such Option, but only if the
exchange of ECHLIN stock for Options as described in this Section
2.4 does not prevent pooling of interests treatment for the
merger transaction described in this Agreement.
2.5 Closing. The Closing shall take place at the offices
of Barnes & Thornburg, South Bend, Indiana at 10:00 a.m., local
time, on the third business day following the date on which all
of the conditions to each party"s obligations hereunder have been
satisfied or waived, or, at such other date, place or time as the
parties hereto may agree (the "Closing Date").
ARTICLE III
Representation and Warranties of the Company
The Company represents and warrants to ECHLIN and SUB as
follows:
3.1 Common Stock.
(a) The total number of issued and outstanding Company
Shares and the options existing to purchase such
Company Shares are as set forth in Exhibit 3.1.
(b) All of the Company Shares as listed in Exhibit 3.1,
have been duly and validly issued, are fully paid and
nonassessable.
(c) The Company Shares represent all of the shares of
Common Stock outstanding on the date of Closing. The
Company has no other issued and outstanding equity
security, other than the Common Stock as of the date of
Closing.
(d) Other than the options, the Company has not issued, nor
does there exist, any option, warrant or other right to
acquire shares of Common Stock, or any other equity
security from the Company or any security convertible
into shares of Common Stock, or any other equity
security of the Company.
3.2 Authority.
(a) The Company has all requisite corporate power and
authority to enter into and perform this Agreement and
to consummate the transactions contemplated herein,
subject to the adoption of this Agreement by the
stockholders of the Company, and this Agreement has
been duly executed and delivered by the Company,
pursuant to all necessary corporate authorization, and,
subject to such stockholder adoption, constitutes a
valid and binding agreement of the Company enforceable
against the Company in accordance with its terms. The
Board of Directors at the meeting at which it approved
this Agreement and the Merger adopted a resolution
having the effect of causing the Company not to be
subject, to the extent permitted by applicable law, to
any state takeover law that may purport to be
applicable to the Merger and the transactions
contemplated by this Agreement.
(b) Except as set forth in Exhibit 3.2 and as has been
heretofore disclosed to ECHLIN or SUB by the Company,
the Company is not aware that the execution, delivery
and performance by the Company of this Agreement and
the consummation of transactions contemplated hereby
require any action by or in respect of, or filing with,
any governmental or quasi-governmental body, agency,
official or authority.
(c) The Company is not aware that the execution and
delivery of this Agreement by the Company or the
consummation of the transactions contemplated herein
will (i) conflict with, result in a breach of, or
constitute a default under the certificate of
incorporation or by-laws of the Company; (ii)
contravene or conflict with, or result in a breach of,
or constitute a default under any material court or
administrative order or process to which the Company is
a party or by which it (or any of its properties or
assets) is subject or bound; or (iii) require the
Company to obtain any authorization, consent, approval
or waiver from, nor to make any filing with, any public
body, or authority, or any third party, other than the
consent, approval or filing as shall have been
completed as of the Closing Date.
3.3 Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws
of Indiana and has all requisite corporate power and authority to
own, lease and operate its properties and assets in the manner in
which such properties and assets are now owned, leased and
operated and to carry on the business in which it is now engaged.
3.4 Subsidiaries of the Company. The Company does not own
any equity interest, directly or indirectly, in any corporation,
partnership, joint venture, firm or other entity except those
entities described on Exhibit 3.4 (individually, a "Subsidiary"
and collectively the "Subsidiaries"). The Company owns 100% of
the issued and outstanding stock, directly or through another
Subsidiary, if each Subsidiary, and no person has any rights to
acquire, by option or otherwise, any interest in any Subsidiary
the number of shares of each Subsidiary's authorized issued and
outstanding capital stock, all of which are owned either directly
or indirectly by the Company. The Subsidiaries are corporations
duly organized, validly existing and in good standing under their
respective jurisdictions of incorporation, and have all requisite
corporate power and authority to own, lease and operate their
respective properties and assets in the manner in which such
properties and assets are now owned, leased and operated and to
carry on the business in which they are now engaged.
3.5 Financial Statements and Reports. There has been
delivered to ECHLIN complete copies of (1) the Company"s
unaudited quarterly consolidated financial statements for the
periods since the last audited financial statements of the
Company and its Subsidiaries (the "Unaudited Statements"); and
(2) its audited consolidated financial statements (the "Audited
Statements") for the last two fiscal years, and the related
statements of operations and cash-flows for the period, together
with McGladrey & Pullen's report thereon (the Unaudited
Statements and the Audited Statements are herein collectively
referred to as the "Financial Statements"). Each of the
Financial Statements were prepared in accordance with GAAP
(except, with respect to interim financial statements, for
normal, non-material year-end adjustments), applied on a
consistent basis. The Financial Statements are in accordance
with the books and records of the Company and its Subsidiaries,
which books and records of the Company and its Subsidiaries are
complete and correct and fully and fairly reflect all of the
transactions of the Company and its Subsidiaries, and the
Financial Statements present fairly, in all material respects,
the financial position of the Company and its Subsidiaries as of
such dates and their results of operations for the periods then
ended (except, with respect to interim financial statements, for
normal, non-material year-end adjustments). Since September 24,
1994 the Company and its Subsidiaries have not incurred or become
subject to any obligations or liabilities of any nature (net of
offsetting related asset increases) whether absolute, accrued,
contingent or otherwise, other than obligations and liabilities
incurred in or as a result of the ordinary course of business
consistent with past practice which do not, in the aggregate,
have a materially adverse effect on the financial condition of
the Company or any Subsidiary.
3.6 Material Absence of Adverse Changes. Except as
otherwise disclosed in the Agreement, the Schedules or Exhibits
to this Agreement or in any documents or instruments referred to
herein or executed in connection herewith, there has not been
since the last audited financial statement, any material adverse
change in the business, financial condition, results of operation
or prospects of the Company and its Subsidiaries, taken as a
whole. Since the date of the last audited financial statement,
the Company and its Subsidiaries have been operated in the
ordinary course consistent with their historical practices.
3.7 Taxes. The Company and each Subsidiary, as the case
may be, have prepared and filed all required federal, state,
local and other governmental entity tax returns required to be
filed, all such tax returns are true, correct and complete. All
taxes have been either paid in full or properly accrued for, in
accordance with GAAP, on the Financial Statements.
3.8 Litigation; Compliance with Laws.
(a) Except as disclosed in Exhibit 3.8 to this Agreement,
neither the Company nor any Subsidiary is a party to
any material litigation or administrative action nor,
is any such material litigation or administrative
action threatened against the Company, any Subsidiary
or any of their respective officers or directors in
their capacities as officers or directors of the
Company or any Subsidiary.
(b) Except as disclosed in Exhibit 3.8 to this Agreement,
neither the Company nor any Subsidiary is in violation
of any federal, state, or local law, ordinance, rule or
regulation, including those relating to the
environment, which violation would result in a material
adverse effect upon the financial performance of the
Company and its Subsidiaries, taken as a whole.
(c) Without limiting the generality or effect of the
preceding paragraphs (a) and (b) or any other provision
hereof, all material claims or allegations asserted in
writing against the Company or any Subsidiary within
the past two years that any product was defective, in
any material respect, or caused any injury or harm to
any person, including, without limitation, all such
claims and allegations in writing against the Company
or any Subsidiary relating to failure to warn, breach
of warranties or merchantability or fitness for any
purposes or use or similar matters are described in
Exhibit 3.8.
3.9 Ownership of Properties. Except as disclosed on
Exhibit 3.9 to this Agreement or in the Financial Statements, the
Company and each Subsidiary has marketable title to, or valid
leasehold interests in, as the case may be, all of their
respective properties and assets, including all intellectual
property and technology used by the Company or its Subsidiaries
in the ordinary course of their respective businesses, in each
case free of all liens.
3.10 Insurance. Exhibit 3.10 to this Agreement contains a
complete list of all policies of fire, liability, workers'
compensation and other forms of insurance owned or held by the
Company and each Subsidiary in connection with the operation of
their respective businesses.
3.11 Contracts. Exhibit 3.11 to this Agreement and the
Registration Statement contain a complete list of each contract
or agreement under which the Company or any Subsidiary is
obligated and which involves more than $100,000.
3.12 Employee Benefit Plans. Exhibit 3.12 to this
Agreement contains a complete list of all of the bonus, deferred
compensation, pension, profit sharing and retirements plans and
arrangements and all health, life insurance, severance and other
welfare plans and other plan or arrangement as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as
amended to which the Company or any Subsidiary is bound and each
such plan or arrangement is in compliance with all laws, other
than such laws the violation of which would not result in a
material adverse effect upon the financial performance of the
Company or its Subsidiaries, taken as a whole.
3.13 Brokers. The Company has not paid or become obligated
to pay any fee or commission to any broker, finder, investment
banker or other intermediary in connection with the transactions
contemplated by this Agreement, except that the Company has
become obligated to pay such a fee to The Chicago Corporation.
3.14 Customers and Suppliers. There has not been any
material adverse change in the business relationship between the
Company or any of its Subsidiaries and any customer or supplier
on which the Company's or any of its Subsidiaries' businesses are
dependent.
3.15 Disclosure. No statement, representation or warranty
made by the Company in this Agreement, the Exhibits or
attachments to this Agreement, the registration statement filed
by the Company with the SEC in 1994 in connection with the
initial public offering by it of its common stock or any proxy
statement or report filed with the SEC since the filing of such
registration statement, contains any untrue statement of any
material fact or omits a material fact necessary to make the
statements contained herein or therein, in light of the
circumstances in which they were made, not misleading.
3.16 Environmental. Except as set forth in Exhibit 3.16.
(a) Compliance with Environmental Laws. The Company and
each of its Subsidiaries is in compliance with all
Environmental Laws. "Environmental Laws" shall mean all
federal, state and local laws, rules, regulations,
ordinances and orders which purport to regulate the
release of hazardous substances or other materials to
the environment, or impose requirements relating to
environmental protection or public or employee health
and safety, including, without limitation, the
Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), as amended, 42 U.S.C. sect. 9601
et seq., the Resource Conservation and Recovery Act of
1976 ("RCRA"), as amended, 42 U.S.C. sect. 6901 et seq.,
the Emergency Planning and Community Right-to-Know Act
("Right-to-Know Act"), as amended, 42 U.S.C. sect. 11001 et
seq., the Clean Air Act ("CAA"), as amended, 42 U.S.C.
sect. 7401 et seq., the Federal Water Pollution Control Act
("Clean Water Act"), as amended, 33 U.S.C. sect. 1251 et
seq., the Toxic Substances Control Act ("TSCA"), as
amended, 15 U.S.C. sect. 2601 et seq., the Safe Drinking
Water Act, as amended, 42 U.S.C. sect. 300f et seq., and
the occupational Safety and Health Act ("OSHA"), as
amended, 29 U.S.C. sect. 651 et seq. The Company has in
effect, or applications pending for, all permits,
licenses and authorizations required by the
Environmental Laws for the ownership, use and operation
of the Business, and the Company has complied with all
of the terms and conditions of such permits, licenses
and authorizations.
(b) Enforcement. Neither the Company nor any Subsidiary is
aware of any pending or threatened litigation, charge,
complaint, action, suit, proceeding, hearing,
investigation, claim, demand, notice or proceeding
before any court or administrative agency in which any
person alleges: (i) the presence, release, threat of
release or placement of any hazardous substance in
connection with the Business; (ii) the generation,
transportation, storage, treatment or disposal of any
hazardous substance, hazardous waste, pollutant,
contaminant or other substance listed or regulated
under the Environmental Laws in connection with the
Business; or (iii) any failure to comply with any of
the Environmental Laws;
(c) Governmental Determinations Communications and
Agreements. Neither the Company nor any Subsidiary has
received notice or has knowledge that any government
entity or any employee or agency thereof has determined
or threatens to determine that there is a presence,
release, threat of release or placement of any
hazardous substance in connection with the Business, or
the generation, transportation, storage, treatment or
disposal of any hazardous waste at any location where
the Company or any Subsidiary conducts the Business and
there have been no communications or agreements
involving the Company or any Subsidiary from or with
any government entity having jurisdiction over the use
and operation of the Business relating to the presence,
release, threat of release or placement of any
hazardous substance in connection with the Business, or
the generation, transportation, storage, treatment or
disposal of any hazardous waste in connection with the
Business;
(d) No Basis for Liability. Neither the Company nor any
Subsidiary has liability or obligation and there is no
basis related to the past or present operations,
properties, or facilities of the Company, any
Subsidiary or their respective predecessors (with
respect to the use and operation of the Business), for
any present or future charge, compliant, action, suit,
proceeding, hearing, investigation, claim, or demand
against the Company or any Subsidiary giving rise to
any liability or obligation (i) under the Environmental
Laws or (ii) under the common law for damage or cleanup
to any site, property, location, or body of water
(surface or subsurface) or for illness or personal
injury. In connection with any employee of the Company
or any Subsidiary (with respect to the ownership, use
or operation of the Business), neither the Company nor
any Subsidiary has liability or obligation for any
illness of or personal injury to any such employee, and
has not exposed any such employee to any substance or
condition that could form the basis for any present or
future charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand (under the
common law or pursuant to statute) against the Company
or any Subsidiary (with respect to the ownership, use
or operation of the Business).
3.17 Information in Proxy Statement and Registration
Statement. None of the Information with respect to the Company
or its Subsidiaries or the Merger to be included in the Proxy
Statement or the Registration Statement will, in the case of the
Proxy Statement or any amendments thereof or supplements thereto,
at the time of the mailing of the Proxy Statement and any
amendments or supplements thereto, and at the time of the meeting
of stockholders of the Company to be held in connection with the
Merger, or, in the case of the Registration Statement, at the
time it becomes effective and at the effective time of the
Merger, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The
Proxy Statement will comply as to form in all material respects
with the provisions of the Exchange Act.
3.18 Business Operated by the Company. The Company operates
at least one significant, historic line of business, or owns at
least a significant portion of its historic business assets, in
each case within the meaning of Treasury Regulation Section
1.368-1(d).
3.19 Minimum Net Worth. As of the Company"s fiscal year
ending September 30, 1995, the Company"s net worth, computed in
accordance with GAAP, and as disclosed by the Audited Statements
of the Company certified by its certified public accountants,
shall be not less than Nineteen Million Dollars ($19,000,000.00),
exclusive of adjustment to the net operating loss carry forward
asset.
ARTICLE IV
Conditions Precedent to Obligations of Echlin and Sub
The obligations of ECHLIN and SUB under this Agreement to
consummate the transactions contemplated in this Agreement at the
Closing shall be subject to the satisfaction, at the Closing, of
all of the following conditions, any one or more of which may be
waived by ECHLIN and SUB.
4.1 Representations and Warranties Accurate. All
representations and warranties contained in Article III hereof
shall be true and accurate in all material respects at and as of
the Closing Date as if such representations and warranties were
made at and as of the Closing Date.
4.2 Performance. The Company and its Subsidiaries shall
have performed and complied in all material respects with all
agreements, covenants and conditions required by this Agreement
to be performed and complied with by it or them prior to or on
the Closing Date, including the deliveries to be made by them or
its pursuant to this Agreement.
4.3 HSR Act; Authorizations; Legal Prohibition.
(a) All applicable waiting periods, including any
extensions thereof, under the HSR Act, applicable to
the purchase of the shares shall have expired or been
terminated.
(b) Each party hereto shall have obtained all required
third party authorizations, approvals, consents and
waivers required to be obtained, and made all required
filings with third parties, the lack of which, prior to
the Closing, would render legally impermissible, or
would materially adversely affect, the consummation of
the transactions contemplated by this Agreement;
provided, however, that neither ECHLIN nor SUB shall be
excused from performing its obligations hereunder by
virtue of ECHLIN"s or SUB"s failure to use its best
efforts to obtain or make any such authorization,
approval, consent, waiver or filing.
(c) On the Closing Date there shall exist no injunction or
other order issued by a court of competent jurisdiction
which would make unlawful the consummation of the
transactions contemplated by this Agreement, and there
shall be no suit, action, proceeding or governmental
investigation pending or, to the knowledge of any
party, threatened which seeks to restrain or prohibit
the consummation of the transactions contemplated by
this Agreement, or which might directly or indirectly,
interfere with such transactions.
4.4 Effectiveness of Registration Statement. The
Registration Statement shall be effective and no proceedings by
the SEC or any state securities authority to revoke or stay such
effectiveness shall be pending or threatened.
4.5 Listing of Shares. The shares of ECHLIN stock to be
issued in the Merger shall have been approved for listing on the
New York Stock Exchange subject to official notice of issuance.
4.6 Blue Sky. All necessary state securities and blue sky
permits and approvals required to carry out the Merger shall have
been obtained.
4.7 Authorization of Merger. All corporate action
necessary to authorize the execution, delivery and performance of
this Agreement by the Company and the consummation of the
transactions contemplated in this Agreement (including the
adoption by the requisite vote of stockholders of the Company)
shall have been duly and validly taken, and the Company shall
have full power and right to merge on the terms provided in this
Agreement.
4.8 Completion of Fiscal 1995 Audit. There shall have been
delivered to ECHLIN, not less than ten calendar days prior to the
Closing Date, the Audited Statements of the Company for the
fiscal year ended September 30, 1995, certified by its certified
public accountants.
4.9 Market Decline. There shall not have occurred any
decline in the Dow Jones Industrial Average by an amount in
excess of 20%.
ARTICLE V
Representations and Warranties of Echlin
ECHLIN and SUB jointly and severally represent and warrant
to the Company as follows:
5.1 Organization. Each of ECHLIN and SUB is a corporation
duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation.
5.2 Authority.
(a) Each of ECHLIN and SUB has all requisite corporate
power and authority to enter into and perform this
Agreement and to consummate the transactions
contemplated herein, and this Agreement has been duly
executed and delivered by ECHLIN and SUB, pursuant to
all necessary corporate authorization, and constitutes
a valid and binding agreement of ECHLIN and SUB
enforceable against ECHLIN and SUB in accordance with
its terms.
(b) Except as set forth in Exhibit 5.2 and as has been
heretofore disclosed to the Company by ECHLIN or SUB,
neither ECHLIN nor SUB is aware that the execution,
delivery and performance by ECHLIN or SUB of this
Agreement and the consummation of transactions
contemplated hereby require any action by or in respect
of, or filing with, any governmental or quasi-
governmental body, agency, official or authority.
(c) Neither ECHLIN nor SUB is aware that the execution and
delivery of this Agreement by ECHLIN or SUB or the
consummation of the transactions contemplated herein
will (i) conflict with, result in a breach of, or
constitute a default under the certificate of
incorporation or by-laws of ECHLIN or SUB; (ii)
contravene or conflict with, or result in a breach of,
or constitute a default under any material court or
administrative order or process to which ECHLIN or SUB
is a party or by which either (or any of their
properties or assets) is subject or bound; or (iii)
require ECHLIN or SUB to obtain any authorization,
consent, approval or waiver from, nor to make any
filing with, any public body, or authority, or any
third party, other than the consent, approval or filing
as shall have been completed as of the Closing Date.
5.3 Classes of Securities. ECHLIN represents and
warranties that the ECHLIN stock to be exchanged pursuant to this
Agreement shall be shares of the only class of equity securities
of ECHLIN issued and outstanding, and that, as of August 31,
1995, ECHLIN had (exclusive of the ECHLIN shares to be exchanged
pursuant to this Agreement) 150,000,000 authorized and 59,876,954
issued and outstanding shares of ECHLIN stock.
5.4 Disclosure. No statement representation or warranty
made by ECHLIN or SUB in this Agreement, the Exhibits or
attachments to this Agreement, or any registration statement,
proxy statement or report filed with the SEC within the preceding
12 months contains any untrue statement of any material fact or
omits a material fact necessary to make the statements contained
herein or therein, in light of the circumstances in which they
were made, not misleading.
5.5 Information in Proxy Statement and Registration
Statement. None of the information with respect to ECHLIN or SUB
or the Merger to be included in the Proxy Statement or the
Registration Statement will, in the case of the Proxy Statement
or any amendments thereof or supplements thereto, at the time of
the mailing of the Proxy Statement and any amendments or
supplements thereto, and at the time of the meeting of
stockholders of the Company to be held in connection with the
Merger, or, in the case of the Registration Statement, at the
time it becomes effective and at the effective time of the
Merger, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The
Registration Statement will comply as to form in all material
respects with the provisions of the Act.
5.6 Continued Operation of Business. The present intention
of ECHLIN and SUB is to continue at least one significant,
historic line of business of the Company, or to use at least a
significant portion of the Company"s historic business assets in
a business, in each case within the meaning of Treasury
Regulation Section 1.368-1(d).
ARTICLE VI
Conditions Precedent to Obligations of the Company
The obligations of the Company under this Agreement to
consummate, or cause the consummation of, the transactions
contemplated in Article II hereof at the Closing shall be subject
to the fulfillment, at or prior to the Closing, of all of the
following conditions, any one or more of which may be waived by
the consent of the Company:
6.1 Representations and Warranties Accurate. All
representations and warranties contained in Article V shall be
true in all material respects at and as of the Closing Date as if
such representations and warranties were made at and as of the
Closing Date.
6.2 Performance by Buyer. ECHLIN and SUB shall have
performed and complied in all material respects with all
agreements, covenants, and conditions required by this Agreement
to be performed and complied with by each of them prior to or on
the Closing Date.
6.3 HSR Act; Authorizations; Legal Prohibition.
(a) All applicable waiting periods, including any
extensions thereof, under the HSR Act shall have
expired or been terminated.
(b) Each party hereto shall have obtained all required
third party authorizations, approvals, consents and
waivers required to be obtained, and made all required
filings with third parties, the lack of which, prior to
the Closing, would render legally impermissible, or
would materially adversely affect, the consummation of
the transactions contemplated by this Agreement;
provided, however, that the Company shall not be
excused from performing its obligations hereunder by
virtue of the Company's failure to use its best efforts
to obtain or make any such authorizations, approval,
consent, waiver or filing.
(c) on the Closing Date, there shall exist no injunction or
other order issued by a court of competent jurisdiction
which would make unlawful the consummation of the
transactions contemplated by this Agreement, and there
shall be no suit, action, proceeding or governmental
investigation pending or, to Buyer's knowledge,
threatened which seeks to restrain or prohibit the
consummation of the transactions contemplated by this
Agreement, or which might, directly or indirectly,
interfere with such transactions.
6.4 Effectiveness of Registration Statement. The
Registration Statement shall be effective and no proceedings by
the SEC or any state securities authority to revoke or stay such
effectiveness shall be pending or threatened.
6.5 Listing of Shares. The shares of ECHLIN stock to be
issued in the Merger shall have been approved for listing on the
New York Stock Exchange subject to official notice of issuance.
6.6 Blue Sky. All necessary state securities and blue sky
permits and approvals required to carry out the Merger shall have
been obtained.
6.7 Authorization of Merger. All corporate action
necessary to authorize the execution, delivery and performance of
this Agreement by ECHLIN and SUB and the consummation of the
transactions contemplated in this Agreement (including the
adoption by the requisite vote of stockholders of SUB) shall have
been duly and validly taken, and ECHLIN and SUB shall have full
power and right to merge on the terms provided in this Agreement.
6.8 Echlin Stock Decline. There shall not have occurred
any decline in the market price of ECHLIN stock by an amount in
excess of 20%.
ARTICLE VII
Covenants
7.1 Covenants by the Company. During the period from the
date of this Agreement to the effective time of the Merger,
except as otherwise consented to by ECHLIN or SUB in writing, the
Company agrees, and agrees to cause each of its Subsidiaries:
(a) to carry on its business in, and only in, the ordinary
course consistent with prior practice and use all
reasonable efforts to preserve intact its present
properties, and its present business organizations,
keep available the services of its present officers and
employees, and preserve its relationships with
customers, suppliers and others having business
dealings with it to the end that its goodwill and
ongoing business shall be unimpaired at the effective
time of the Merger;
(b) not to amend its Articles of Incorporation or By-Laws;
(c) not to (i) acquire outside the ordinary course of
business consistent with prior practice, by merger or
consolidation with, or agreement to merge or
consolidate with, or purchase all or substantially all
the assets of, or otherwise acquire, any business or
any corporation, partnership, association or other
business organization or division thereof, or (ii) make
any investment in or acquisition of any entity (other
than the Subsidiaries) in an amount in excess of
$250,000;
(d) not to declare, set aside, make or pay any dividend or
other distribution in respect of any shares of its
capital stock of any class;
(e) except in connection with the exercise of options to
purchase its stock, not to issue or sell or purchase or
redeem, directly or indirectly, any shares of its
capital stock of any class or any options, warrants,
conversion or other rights to purchase any such shares
or any securities convertible into or exchangeable for
such shares;
(f) except as disclosed on Exhibit 7.1, not to incur any
indebtedness for borrowed money or issue or sell any
debt securities except (i) such indebtedness or debt
securities which are incurred under agreements in
effect on the date of this Agreement or (ii) which have
a maturity of less than one year and are, in either
case, incurred, issued or sold, as the case may be, in
the ordinary course of business consistent with prior
practice;
(g) not to grant to any officer or director any increase in
compensation or benefits or in severance or termination
pay, and not to enter into any employment agreement
with any officer or director, other than in the
ordinary course of business consistent with prior
practice;
(h) except as contemplated by this Agreement, and except as
disclosed on Exhibit 7.1, not to adopt or amend in any
material respect any collective bargaining, bonus,
profit-sharing, compensation, stock option, pension,
retirement, insurance, incentive compensation, deferred
compensation, severance, vacation, employment or other
plan, agreement, trust, fund or arrangement for the
benefit of employees (whether or not legally binding)
other than in the ordinary course of business
consistent with prior practice;
(i) promptly to advise ECHLIN orally and in writing of (i)
any agreement, transaction or expenditure which it
intends to enter into which is likely to involve more
than $250,000 in the aggregate, and (ii) the occurrence
of any fact, circumstance or change in the condition of
the Company or any of its Subsidiaries which fact,
circumstance or change (A) is or may be materially
adverse, or (B) may interfere with the consummation of
the transactions contemplated by this Agreement;
(j) promptly to advise ECHLIN orally and in writing of (i)
any inquiry or proposal which it reasonably expects may
lead to any takeover proposal (as used herein,
"takeover proposal" shall mean any proposal for a
merger or other business combination involving the
Company or any of its Subsidiaries or for the
acquisition of a substantial equity interest in the
Company or any of its Subsidiaries or a substantial
portion of the assets of the Company or any of its
Subsidiaries, other than as contemplated by this
Agreement) and (ii) receipt by it of any notification
pursuant to the HSR Act of any purchase or proposed
purchase of any securities of the Company by any person
or entity other than ECHLIN or SUB;
(k) to use its best efforts to comply promptly with all
filing requirements of United States Federal, state and
local laws (and foreign laws to the extent requested by
ECHLIN or SUB) applicable to the Company or any of its
Subsidiaries with respect to the transactions
contemplated by this Agreement and to cooperate with
and promptly to furnish information to ECHLIN in
connection with all such filing requirements imposed
upon ECHLIN or SUB or any other subsidiary of ECHLIN in
connection with the transactions contemplated by this
Agreement;
(l) to use its best efforts to obtain all necessary
consents, authorizations or approvals of, or exemptions
by, any United States Federal, state or local
government or governmental authority (and that of any
foreign government or governmental authority to the
extent requested by ECHLIN or SUB) applicable to the
Company or any of its Subsidiaries in connection with
the transactions contemplated by this Agreement or the
taking of any action in connection with the
consummation thereof;
(m) not to make any changes in accounting principles or
practices except such changes as are, in the opinion of
McGladrey & Pullen, required to be made in order to
comply with generally accepted accounting principles;
and
(n) not to enter into any agreement, commitment or
transaction obligating it to take any action prohibited
by this Section 7.1 or obligating it to refrain from
taking any action required to be taken pursuant to this
Section 7.1, and not to otherwise take any action
authorizing any such agreement, commitment or
transaction.
(o) as promptly as practicable, the Company shall call a
meeting of its stockholders to be held for the purpose
of voting upon this Agreement and the Merger. The
Company will, through its Board of Directors, recommend
to its stockholders adoption of this Agreement, subject
to the fiduciary obligation of each of the members of
the Company"s Board of Directors.
(p) the Company will deliver to ECHLIN and SUB on or before
the date the Proxy Statement is mailed to the Company"s
stockholders an opinion of The Chicago Corporation as
to the fairness of the Merger to the Company"s
stockholders from a financial point of view.
7.2 Covenants by Echlin.
(a) ECHLIN will use its best efforts to comply promptly
with all filing requirements of United States Federal,
state and local laws applicable to it or any of its
Subsidiaries with respect to the transactions
contemplated by this Agreement and to cooperate with
and promptly to furnish information to the Company in
connection with all such filing requirements imposed
upon the Company or any of its Subsidiaries in
connection with the transactions contemplated by this
Agreement; and
(b) ECHLIN will use its best efforts to obtain all
necessary consents, authorizations or approvals of, or
exemptions by, any United States Federal, state or
local government or governmental authority applicable
to ECHLIN or any of its Subsidiaries in connection with
the transactions contemplated by this Agreement or the
taking of any action in connection with the
consummation thereof.
ARTICLE VIII
Mutual Covenants
8.1 Filings and Authorizations. Each party hereto will, as
promptly as practicable, file or supply, or cause to be filed or
supplied, all notifications and information required to be filed
or supplied pursuant to the HSR Act in connection with the
transactions described in this Agreement. Except as otherwise
provided herein, each party hereto, as promptly as practicable,
(i) will make, or cause to be made, all such other filings and
submissions under laws, rules and regulations applicable to it,
or to its subsidiaries and Affiliates, as may be required for it
to consummate the transactions described in this Agreement; (ii)
will use its best efforts to obtain, or cause to be obtained, all
authorizations, approvals, consents and waivers from all persons
and governmental authorities necessary to be obtained by it, or
its subsidiaries or Affiliates in order for it to consummate such
transfer; and (iii) will use its best efforts to take, or cause
to be taken, all other actions necessary, proper or advisable in
order for it to fulfill its obligations hereunder. Each party
hereto will coordinate and cooperate with one another in
exchanging such information and supplying such assistance as may
be reasonably requested by each other in connection with the
foregoing.
8.2 Access and Information. Between the date of this
Agreement and the Closing Date, the parties hereto will cause the
Company and its Subsidiaries, during all business hours and other
mutually agreeable times, to (i) give ECHLIN and ECHLIN's
representatives reasonable access to all officers and employees,
offices and other facilities and properties of the Company and
its Subsidiaries, (ii) permit ECHLIN to make such inspections
thereof as ECHLIN may reasonably request, and (iii) furnish
ECHLIN with such financial and operating data and other
information with respect to the business, operations and
properties of the Company and its Subsidiaries as ECHLIN may from
time to time reasonably request; provided, however, that any
investigation by ECHLIN shall be conducted in such a manner as
not to interfere unreasonably with the business operations of the
Company and its Subsidiaries. Until and unless the Merger is
consummated, ECHLIN shall continue to be bound by the
confidentiality and nondisclosure agreement previously signed by
ECHLIN.
8.3 Further Assurances. Each party hereto shall execute,
or cause to be executed, such documents and other papers, and
take, or cause to be taken, such further actions as may be
reasonably required, to carry out the provisions hereof and the
transactions contemplated hereby.
8.4 Public Announcements. Each party hereto shall consult
with each other before issuing any press release or otherwise
making any public statement with respect to this Agreement and
the transactions contemplated hereby and, except as required by
law upon advice of counsel, shall not issue any such press
release or make any such public statement prior to such
consultation and without the prior written agreement of the other
parties hereto.
8.5 Proxy Statement and Registration Statement. ECHLIN,
SUB and the Company will, cooperate in the preparation of the
proxy materials under the Exchange Act relating to the meeting of
the Company"s stockholders for the purpose of voting upon this
Agreement and the Merger (the "Proxy Statement") and the
Registration Statement and in their filing as soon as practicable
with the SEC and all applicable state securities authorities, and
will use their best efforts to have the Registration Statement
declared effective by the SEC and state securities authorities as
soon as practicable.
ARTICLE IX
Limitation of Remedies
9.1 Survival of Representations and Warranties. None of
the representations and warranties contained in this Agreement
and any Schedule or Exhibit hereto, and no related claims for
indemnification, shall survive the Closing.
ARTICLE X
Termination
10.1 Termination Events. This Agreement may, by written
notice given at or prior to the Closing in the manner hereinafter
provided, be terminated and abandoned:
(a) if a material default or breach shall be made by
another with respect to the due and timely performance
of such other party's covenants and agreements
contained herein, or with respect to the due compliance
with such other party's representations and warranties
and such default cannot promptly be cured and has not
been waived,
(b) by the mutual written consent of the parties.
10.2 Effect of Termination. In the event this Agreement is
terminated pursuant to Section 10.1, all further obligations of
the parties hereunder shall be terminated, except that the
obligations set forth in Section 11.1 and the nondisclosure and
confidentiality obligation of ECHLIN described in Section 7.2,
shall survive; provided, however, that if this Agreement is so
terminated by one party because one or more of the conditions to
such party's obligations hereunder is not satisfied as a result
of the other party's failure to comply with its obligations under
any provision of this Agreement, it is expressly agreed and
understood that the terminating party's right to pursue all legal
remedies for breach of contract and damages shall also survive
such termination unimpaired.
ARTICLE XI
Other Terms
11.1 Break-Up Fee. If the Company fails to consummate the
transactions described in this Agreement, and if the Company does
not have the right to terminate this Agreement pursuant to
Section 10.1(a), and, if the Board of Directors of the Company
withdraws or modifies in a manner adverse to ECHLIN or SUB its
approval of this Agreement of Merger or recommends or approves an
acquisition proposal by a third party or within a period of one
(1) year from the date of this Agreement the Company shall sell
substantially all of its assets, or the Company shall merge with
another company, or if another person shall have made a tender or
exchange offer for more than 50% of the stock of the Company for
a price in excess of $13.625 per share or if another person shall
acquire more than 35% of the stock of the Company, then the
Company shall pay to ECHLIN a sum equal to 2.5% times $13.625
times the number of shares of stock of the Company currently
issued and outstanding (including, for this purpose, the number
of shares of stock of the Company which would be issued and
outstanding if all options to purchase stock of the Company were
exercised, regardless of whether said options are currently
exercisable). The parties hereby agree that the payments
hereunder shall be in full and complete payment for all amounts
to which ECHLIN and SUB shall be entitled hereunder. ECHLIN
hereby agrees that, should it elect not to consummate the
transactions contemplated by this Agreement, and ECHLIN does not
have the right to terminate this Agreement pursuant to Section
10.1(a), then it shall pay to the Company an amount equivalent to
2.5% times $13.625 times the number of shares of stock of the
Company currently issued and outstanding (including, for this
purpose, the number of shares of stock of the Company which would
be issued and outstanding if all options to purchase stock of the
Company were exercised, regardless of whether said options are
currently exercisable). The payment by ECHLIN to the Company
shall be in complete and full satisfaction for any and all
obligations to which the Company shall be entitled from ECHLIN
and SUB.
11.2 Indemnification. ECHLIN and SUB hereby jointly and
severally agree to indemnify and hold harmless the officers and
directors of the Company for any and all liability which they may
have incurred, including attorney fees and expenses incurred by
them, in connection with their actions as officers and directors
for and on behalf of the Company, to the fullest extent permitted
by the laws of the State of Indiana.
11.3 Exchange Ratio. Each outstanding share of the stock of
the Company shall be exchanged for an amount of ECHLIN stock
determined by rounding to the nearest thousand (0.001) the
quotient of $13.625 divided by the Base Price of ECHLIN stock;
provided, however, the Exchange Ratio shall be subject to
equitable adjustment to take into account and fully reflect the
effect of any stock split, stock dividend or other
recapitalization. For these purposes, the "Base Price" of ECHLIN
stock shall equal the lesser of $40 or the average of the closing
prices on the New York Stock Exchange of ECHLIN stock as reported
by The Wall Street Journal for the 20 trading days prior to the
Closing.
11.4 Fiduciary Obligation. Subject to the Company"s
obligations under Section 11.1, nothing herein shall prevent the
Company or its Board of Directors from taking such action,
including the consideration of bids or offers in competition with
that of ECHLIN and SUB, to the extent to which such action may be
required by law, including such action as may be imposed upon the
Company and its directors and officers in their fiduciary
capacities as such.
ARTICLE XII
Miscellaneous
12.1 Expenses. Each party to this Agreement shall pay its
own costs and expenses (including all legal, accounting, broker,
finder and investment banker fees) relating to this Agreement,
the negotiations leading up to this Agreement and the
transactions contemplated by this Agreement.
12.2 Amendment; Waiver. Any provision of this Agreement
may be amended or waived prior to the Closing if, and only if,
such amendment or waiver is in writing and signed, in the case of
an amendment (except as provided below), by the Company and by
ECHLIN and SUB, or in the case of a waiver or an amendment
adversely affecting the interests of any party hereto, then by
the party against whom the waiver or amendment is to be
effective.
12.3 Entire Agreement. This Agreement, including the
Schedules and Exhibits hereto and the agreements referred to
herein, contains all of the terms, conditions and representations
and warranties agreed upon by the parties relating to the subject
matter of this Agreement and supersedes all prior and
contemporaneous agreements, negotiations, correspondence,
undertakings and communications of the parties, oral or written,
respecting such subject matter.
12.4 Headings. The headings contained in this Agreement
are intended solely for convenience of reference and shall not
effect the rights of the parties to this Agreement.
12.5 Notices. All notices, requests, demands and other
communications made in connection with this Agreement shall be in
writing and shall be deemed to have been duly given on the date
of delivery, if delivered by hand or by facsimile, transmission
to the persons identified below, or three days after mailing if
mailed by certified or registered mail, postage prepaid, return
receipt requested, addressed as follows:
If to the Company:
American Electronic Components, Inc.
1010 North Main Street
Elkhart, Indiana 46514
Attention: President
Facsimile No. (219) 264-4845
With a copy to:
Barnes & Thornburg
c/o Ernest J. Szarwark, Esq.
600 1st Source Bank Center
100 North Michigan Street
South Bend, Indiana 46601-1632
Facsimile No. (219) 237-1125
If to ECHLIN or SUB:
Echlin Inc.
100 Double Beach Road
Branford, Connecticut 06405
Attention: Secretary
Facsimile No. (203) 481-6485
Such addresses may be changed, from time to time, by means of a
notice given in the manner provided in this Section.
12.6 Severability. If any provision of this Agreement is
held to be unenforceable for any reason, it shall be adjusted
rather than voided, if possible, in order to achieve the intent
of the parties to this Agreement to the extent possible. In any
event, all other provisions of this Agreement shall be deemed
valid and enforceable to the full extent possible.
12.7 Binding Effect; Assignment. This Agreement is binding
upon the parties hereto, and no party to this Agreement or any
such other Person may assign or delegate, by operation of law or
otherwise, all or any portion of its rights, obligations or
liabilities under this Agreement without the prior written
consent of the other parties to this Agreement, which it may
withhold in its absolute discretion.
12.8 No Third Party Beneficiaries. Nothing in this
Agreement shall confer any rights upon any person or entity which
is not a party or any assignee of a party to this Agreement.
12.9 Counterparts. This Agreement may be signed in any
number of counterparts with the same effect as if the signatures
to each counterpart were upon a single instrument, and all such
counterparts together shall be deemed an original of this
Agreement.
12.10 Governing Law and Jurisdiction. This Agreement shall
be governed by and construed in accordance with the laws of the
State of Delaware applicable to contracts made and to be wholly
performed in such state.
12.11 Cost of Litigation. If any legal action or other
proceeding is brought for the enforcement of this Agreement, or
because of an alleged dispute, breach, default or
misrepresentation in connection with this Agreement or the
transactions contemplated hereby, the successful or prevailing
party or parties shall be entitled to recover reasonable
attorneys' fees and other reasonable costs incurred in any such
action or proceeding, in addition to any other relief to which it
or they may be entitled.
12.12 Alternate Structure. Notwithstanding anything to the
contrary herein, prior to the time when this Agreement is
submitted to the stockholders of the Company, the parties to this
Agreement may, by mutual consent, elect in lieu of merging the
Company into and with SUB as hereinabove provided, to merge SUB
into and with the Company. In such event, the parties agree to
execute an appropriate amendment to this Agreement in order to
reflect the foregoing change.
AMERICAN ELECTRONIC
COMPONENTS, INC.
By: /s/
----------------
David D. Webster
Its:
Chairman and CEO
ECHLIN INC.
By: /s/
---------------
Jon P. Leckerling
Its:
Vice President and
General Counsel
ECHLIN ACQUISITION, INC.
By: /s/
---------------
Jon P. Leckerling
Its:
Vice President
<PAGE>
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger ("Agreement") dated as of
________________, 1995, by and among ECHLIN INC., a Connecticut
corporation ("ECHLIN"), ECHLIN ACQUISITION, INC., a Delaware
corporation and a wholly-owned subsidiary of ECHLIN ("SUB"), and
AMERICAN ELECTRONIC COMPONENTS, INC., an Indiana corporation (the
"Company"), evidences that, in consideration of the mutual
obligations and covenants set forth herein, the parties hereto
agree as follows:
ARTICLE I
Surviving Corporation, Name,
Certificate of Incorporation, Bylaws,
Directors and Officers
1.1 SUB and the Company are sometimes hereinafter
collectively referred to as the "Constituent Corporations."
1.2 In accordance with the provisions of the Delaware
General Corporation Law and the Indiana Business Corporation Law,
the Company will, at the Effective Time (as hereinafter defined),
be merged into SUB, which will be the surviving corporation
("Surviving Corporation"). SUB will continue to exist under and
to be governed by the laws of Delaware. Such transaction is
hereinafter referred to as the "Merger." Except as herein
specifically set forth, the identity, existence, purposes,
powers, objectives, franchises, privileges, rights and immunities
of SUB will continue unaffected and unimpaired by the Merger, and
the corporate franchises, existence and rights of the Company
will be merged with and into SUB, which, as the Surviving
Corporation, will be fully vested therewith. The separate
existence and corporate organization of the Company, except
insofar as they may be continued by statute, will cease when the
Merger becomes effective.
1.3 At the Effective Time, the name of the Surviving
Corporation will be American Electronic Components, Inc.
1.4 Except as amended to reflect the name change
contemplated by Section 1.3, the certificate of incorporation of
SUB as in effect immediately prior to the Effective Time will,
until further amended as provided by law, be the certificate of
incorporation of the Surviving Corporation.
1.5 Except as amended to reflect the name change
contemplated by Section 1.3, the bylaws of SUB in effect
immediately prior to the Effective Time will be the bylaws of the
Surviving Corporation until altered, amended or rescinded.
1.6 Jon P. Leckerling will be the sole director of the
Surviving Corporation and, unless he sooner resigns or is
removed, will hold office from the Effective Time until his
successor is elected and qualifies.
1.7 David D. Webster, John F. Howard, Richard J. Van Es,
Jon P. Leckerling, Richard A. Wisot, Joseph A. Onorato, Charles
W. O"Connor, Edward C. Shalagan and Edward D. Toole will be the
officers of the Surviving Corporation and, unless they sooner
resign or are removed, will hold their respective offices from
the Effective Time until their respective successors are elected
or appointed.
ARTICLE II
Capitalization, Conversion and Exchange
of Capital Stock
2.1 The shares of common stock of the Surviving
Corporation, outstanding at the Effective Time, will continue to
be the outstanding shares of common stock of the Surviving
Corporation.
2.2 Without any action on the part of the shareholders of
the Company, each outstanding share of the no par value per share
common stock of the Company (the "Company Shares"), will
automatically be canceled in exchange for an amount of ECHLIN
stock determined by rounding to the nearest thousand (0.001) the
quotient of $13.625 divided by the Base Price of ECHLIN stock.
For these purposes, the "Base Price" of ECHLIN stock shall equal
the lesser of $40 or the average of the closing prices on the New
York Stock Exchange of ECHLIN stock as reported by The Wall
Street Journal for the 20 trading days prior to the Closing Date
(as hereinafter defined). Each outstanding Option to purchase
stock of the Company (the "Options") will be canceled in exchange
for ECHLIN stock determined as set forth above, except that, in
lieu of $13.625 there shall be used the difference between
$13.625 and the per share exercise price provided for the
exercise of such Option, but only if the exchange of ECHLIN stock
for Options does not prevent pooling of interests treatment for
the Merger transaction described in this Agreement.
2.3 No fractional shares of ECHLIN stock will be issued.
Each person or entity entitled to receive a fractional share
will, in lieu of such fractional share, receive an amount equal
to the result of multiplying the Base Price by the fractional
share to which such person or entity would otherwise have been
entitled pursuant to the Merger.
2.4 Prior to presentation and surrender of certificates
representing Company Shares, the holders of Company Shares will
not be entitled to receive any dividend or other distribution
payable to holders of shares of the ECHLIN stock or interest upon
cash which has been withheld; provided, upon surrender of such
certificates, such holders will be paid, without interest, an
amount equal to the dividends and other distributions withheld
with respect to the shares of ECHLIN stock into which such
Company Shares have been converted.
2.5 To the extent holders of the outstanding Company Shares
have the right and exercise appraisal rights with respect to
their shares pursuant to the Indiana Business Corporation Law,
such shares will continue to be held subject to the rights of
such holders under the Indiana Business Corporation Law and will
not be deemed to be outstanding or converted into shares of
ECHLIN stock.
2.6 All Company Shares presented and surrendered will be
canceled.
ARTICLE III
Shareholders" Meeting, Filings"
Relating to the Effective Date
3.1 This Agreement will be submitted to the shareholders of
the Constituent Corporations for their approval and adoption at
meetings to be duly called and held or by unanimous written
consent of shareholders in lieu of such meetings. The
Constituent Corporations will proceed expeditiously and cooperate
fully in the procurement of any other consents and approvals, the
taking of any other action, and the satisfaction of all other
requirements prescribed by law or otherwise necessary for the
consummation of the Merger.
3.2 The appropriate officers of the Constituent
Corporations will execute and verify, and cause to be filed, the
Merger Agreement and officers' certificates required by the
Indiana Business Corporation Law and the Certificate of Merger
required by the Delaware General Corporation Law.
3.3 The Merger will become effective on the date Articles
of Merger have been executed and filed with the Secretary of
State of Indiana and a Certificate of Merger has been executed
and filed with the Secretary of State of Delaware. The Closing
Date is defined in Section 2.5 of the Agreement and Plan of
Reorganization dated October 6, 1995 by and among ECHLIN, SUB and
the Company.
ARTICLE IV
Certain Effects of the Merger
4.1 When the Merger becomes effective, the separate
existence of the Company will cease and SUB, as the Surviving
Corporation, will possess all the rights, privileges, powers and
franchises, of a public as well as of a private nature, and will
be subject to all the restrictions, disabilities, duties and
obligations of each of the Constituent Corporations. The rights,
privileges, powers and franchises of each of the Constituent
Corporations, and all property, real, personal and mixed, and all
debts due to the Constituent Corporations on whatever accounts,
as well as for stock subscriptions and all other things in
action, or belongs to such corporations will be vested in the
Surviving Corporation. All property, rights, privileges, powers
and franchises, and all and every other interest will be
thereafter as effectively the property of the Surviving
Corporation as they were of the Constituent Corporations, and the
title to any real estate vested by deed or otherwise, under the
laws of any jurisdiction, in the Constituent Corporations, will
not revert or be in any way impaired. All rights of creditors
and all liens upon any property of the Constituent Corporations
will be preserved unimpaired, and all debts, liabilities, duties
and obligations of the Constituent Corporations will attach to
the Surviving Corporation and may be enforced against it to the
same extent as if said debts, liabilities and duties have been
incurred or contracted by it. No liability or obligation due or
to become due at the Effective Time, or any claim or demand for
any cause then existing against the Constituent Corporations or
any shareholder, officer or director thereof, will be released or
impaired by the Merger.
4.2 At the time, or from time to time, after the Effective
Time, the last acting officers and directors of the Company will,
as and when requested by the Surviving Corporation or its
successors or assigns, execute and deliver all such deeds,
assignments and other instruments and take or cause to be taken
all such further or other reasonable action as the Surviving
Corporation deems reasonably necessary or desirable in order to
vest, perfect or confirm in the Surviving Corporation title to
and possession of all of the properties, rights, privileges,
powers, franchises, immunities and interests of the Company and
otherwise to carry out the purpose of this Agreement.
ARTICLE V
Closing Date, Termination, Amendments,
Supplements, Etc.
5.1 This Agreement will be closed at the time and date as
may be mutually agreed upon by the Constituent Corporations.
5.2 This Agreement may be executed in multiple
counterparts, each of which will be deemed an original and all of
which together will constitute one agreement.
In order to evidence the foregoing, ECHLIN, SUB and the
Company have caused this Agreement to be signed by their duly
authorized officers as of the date above written first.
ECHLIN INC.
By:
______________
Name
______________
Title
______________
ATTEST:
By:
________________________, Secretary
ECHLIN ACQUISITION, INC.
By:
______________
Name
______________
Title
______________
ATTEST:
By:
________________________, Secretary
AMERICAN ELECTRONIC
COMPONENTS, INC.
By:
______________
Name
______________
Title
______________
ATTEST:
By:
________________________, Secretary
<PAGE>
APPENDIX B
Fairness Opinion of The Chicago Corporation
October 6, 1995
Board of Directors
American Electronic Components, Inc.
1010 North Main Street
Elkhart, Indiana 46514
Members of the Board:
You have asked us to advise you with respect to the fairness,
from a financial point of view, to the holders of shares of
Common Stock, no par value of American Electronic Components,
Inc., an Indiana corporation (the "Company") of the consideration
to be received by such holders in the merger (the "Merger")
pursuant to an Agreement and Plan of Reorganization
("Reorganization Agreement"), dated as of October 6, 1995, by and
among, the Company, Echlin Inc., a Connecticut corporation
("Echlin"), and Echlin Acquisition, Inc., a Delaware corporation
("Sub") and a direct wholly owned subsidiary of Echlin.
The Reorganization Agreement provides that each share of the
Company's Common Stock issued and outstanding immediately prior
to the consummation of the Merger shall be exchanged for an
amount of Echlin Common Stock, $1 par value, to be determined by
the quotient of $13.625 divided by the Base Price (as defined in
the Reorganization Agreement) of Echlin Common Stock (the
"Consideration").
In arriving at our opinion, we have reviewed certain publicly
available business and financial information relating to the
Company and Echlin. In addition to the Reorganization Agreement,
we have also reviewed certain other information, including
financial forecasts for the Company, provided to us by the
Company, and have met with the Company's and Echlin's senior
management to discuss the business and prospects of the Company
and Echlin. We have also considered: (i) certain financial and
stock market data of the Company and Echlin and compared that
data with similar data for other publicly held companies which we
deemed relevant; (ii) the financial terms of certain other
business combinations which have recently been effected; and
(iii) such other information, financial studies, analyses and
investigations and financial, economic and market criteria which
we deemed relevant.
In connection with our review, we have not assumed any
responsibility for independent verification of any of the
foregoing information and have relied on its being complete and
accurate in all material respects. With respect to the financial
forecasts, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available
estimates and judgments of the Company's management as to the
future financial performance of the Company. In addition, we
have not made an independent evaluation or appraisal of the
assets of the Company, nor have we been furnished with any such
evaluations or appraisals. There has been no public solicitation
of indications of interest in a possible acquisition of the
Company. However, in connection with our engagement, we have
made several inquiries of third parties concerning their possible
interest in a transaction with the Company.
We have acted as financial advisor to the Company in connection
with the Merger and will receive a fee for our services,
including rendering this opinion, a significant portion of which
is contingent upon the consummation of the Merger.
In the past, The Chicago Corporation has separately performed
certain investment banking services for the Company and received
customary fees for such services. In the ordinary course of our
business, The Chicago Corporation and its affiliates may actively
trade securities of both the Company and Echlin for their own
account and for the accounts of customers and, accordingly, may
at any time hold a long or short position in such securities.
It is understood that this letter is for the benefit and use of
the Board of Directors of the Company in its consideration of
the Merger and may not be relied upon by any other person, used
for any other purpose or reproduced, disseminated, quoted or
referred to at any time, in any manner or for any purpose without
our prior written consent except as set forth in the
Reorganization Agreement and except that the Company is
authorized to include this letter in its entirety in the Merger
documents and, if applicable, the proxy materials contemplated by
the Reorganization Agreement. This letter does not constitute a
recommendation to any stockholder with respect to whether to vote
in favor of the Merger. Furthermore, we express no opinion as to
the price or trading range at which shares of Echlin Common Stock
will trade in the future.
Based upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Consideration to be received by the
shareholders of the Company in the Merger is fair to such
shareholders from a financial point of view.
Very truly yours,
THE CHICAGO CORPORATION
<PAGE>
APPENDIX C
American Electronic Components, Inc. Audited Consolidated
Financial Statements
as of September 25, 1993 and September 24, 1994 and for the
Three-Year Period Ended September 24, 1994
<TABLE>
INDEX TO FINANCIAL STATEMENTS
Page
<S> <S>
REPORT OF INDEPENDENT ACCOUNTANTS C-2
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
September 25, 1993 and September
24, 1994 C-3
Consolidated Statements of Income
for the years ended September
26, 1992, September 25, 1993 and
September 24, 1994 C-4
Consolidated Statements of Shareholders'
Equity for the years ended September
26, 1992, September 25, 1993 and
September 24, 1994 C-5
Consolidated Statements of Cash Flows for
the years ended September 26, 1992,
September 25, 1993 and September 24,
1994 C-6
Notes to Financial Statements C-7 - C-13
</TABLE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
American Electronic Components, Inc.
Elkhart, Indiana
We have audited the accompanying consolidated balance sheets of American
Electronic Components, Inc. and subsidiaries ("Company") as of September
25, 1993 and September 24, 1994, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the years in the
three-year period ended September 24, 1994. 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
American Electronic Components, Inc. and sub- sidiaries as of September 25,
1993 and September 24, 1994, and the results of their operations and their
cash flows for each of the years in the three-year period ended September
24, 1994, in conformity with generally accepted accounting principles.
McGLADREY & PULLEN
Elkhart, Indiana
October 21, 1994
<PAGE>
AMERICAN ELECTRONIC COMPONENTS, INC.
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<CAPTION>
September September
ASSETS 25, 1993 24, 1994
--------- ---------
<S> <C> <C>
CURRENT ASSETS
Cash $ 13 $ 9
Trade receivables 4,404 4,542
Inventories 3,329 4,723
Prepaid expenses 63 90
--------- ---------
Total current assets 7,809 9,364
PROPERTY AND EQUIPMENT, at
depreciated cost 20,067 21,296
DEFERRED TAX ASSET 2,350 2,350
--------- ---------
$ 30,226 $ 33,010
========= =========
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term debt $ 300 $ 857
Accounts payable, trade 1,102 2,055
Accrued expenses 2,450 2,504
--------- ---------
Total current liabilities 3,852 5,416
--------- ---------
LONG-TERM DEBT, less current maturities 17,665 10,528
--------- ---------
CONTINGENCIES
SHAREHOLDERS' EQUITY
Common Stock, no par value; authorized
15,552,000 shares; issued 1993 1,460,883
shares; 1994 3,729,771 shares 59 11,054
Series A Senior Common Stock 3,554 -
Series B Senior Common Stock 1,488 -
Additional paid-in capital 2,019 3,188
Retained earnings, since March 29,
1992 ($24,083 deficit eliminated
on March 28, 1992) 1,589 2,824
--------- ---------
8,709 17,066
--------- ---------
$ 30,226 $ 33,010
========= =========
</TABLE>
See Notes to Financial Statements.
<PAGE>
AMERICAN ELECTRONIC COMPONENTS, INC.
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
<CAPTION>
Year Ended
---------------------------
September September September
26, 1992 25, 1993 24, 1994
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 24,504 $ 29,744 $ 35,456
Cost of goods sold 17,761 21,097 25,028
--------- --------- ---------
Gross profit 6,743 8,647 10,428
--------- --------- ---------
Operating expenses:
Selling expenses 1,106 1,503 1,774
General and administrative
expenses 3,352 3,789 4,378
--------- --------- ---------
4,458 5,292 6,152
Operating income 2,285 3,355 4,276
Interest expense 2,428 1,605 1,280
--------- --------- ---------
Income (loss) before income taxes (143) 1,750 2,996
Federal and state income taxes 320 695 1,193
--------- --------- ---------
Income (loss) from continuing
operations (463) 1,055 1,803
--------- --------- ---------
Loss on discontinued operations:
Loss from operations (426) - -
Loss on disposition (2,725) - -
(3,151) - -
Net income (loss) $ (3,614) $ 1,055 $ 1,803
========= ========= =========
Earnings per Common and Common Equivalent share $ .60
=========
Weighted average number of Common and
Common Equivalent shares outstanding 3,026,080
==========
</TABLE>
See Notes to Financial Statements.
<PAGE>
AMERICAN ELECTRONIC COMPONENTS, INC.
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
<CAPTION>
Series Series
A Senior B Senior Additional Retained
Common Common Common Paid-In Earnings
Stock Stock Stock Capital (Deficit) Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 28, 1991 $ 1,343 $ - $ - $ 11,770 $(19,935) $ (6,822)
Net (loss) - - - - (3,614) (3,614)
Issuance of Series A Senior
Common Stock - 3,554 - - - 3,554
Exchange of subordinated debt
for Common Stock and Series
B Senior Common Stock 9,734 - 1,488 - - 11,222
Cumulative effect of change in
accounting for income taxes - - - 1,295 - 1,295
Deficit reclassification (11,018) - - (13,065) 24,083 -
--------- --------- --------- --------- --------- ---------
Balance, September 26, 1992 59 3,554 1,488 - 534 5,635
Net income - - - - 1,055 1,055
Reduction in pre quasi-reorgan-
ization deferred tax asset
valuation allowance - - - 2,019 - 2,019
--------- --------- --------- --------- --------- ---------
Balance, September 25, 1993 59 3,554 1,488 2,019 1,589 8,709
Net income - - - - 1,803 1,803
Conversion of Series A Senior
Common Stock into Common
Stock 3,554 (3,554) - - - -
Redemption of Series B Senior
Common Stock, plus accumulated
dividends - - (1,488) - (568) (2,056)
Issuance of 1,125,000 shares
of Common Stock 7,441 - - - - 7,441
Reduction in pre quasi-reorgan-
ization deferred tax asset
valuation allowance - - - 1,169 - 1,169
--------- --------- --------- --------- --------- ---------
Balance, September 24, 1994 $ 11,054 $ - $ - $ 3,188 $ 2,824 $ 17,066
========= ========= ========= ========= ========= =========
</TABLE>
See Notes to Financial Statements.
<PAGE>
AMERICAN ELECTRONIC COMPONENTS, INC.
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Year Ended
------------------------------------
September 26, September 25, September 24,
1992 1993 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (3,614) $ 1,055 $ 1,803
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 1,981 1,894 2,063
Loss on sale of subsidiary 2,725 - -
Deferred income taxes 314 650 1,169
Changes in assets and liabilities:
Decrease (increase) in:
Receivables (770) (661) (138)
Inventories (96) (210) (1,394)
Prepaid expenses 11 (25) (27)
Increase in accounts payable
and accrued expenses (75) 160 1,007
--------- --------- ---------
Net cash provided by operating
activities 476 2,863 4,483
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment - 22 10
Purchase of property and equipment (1,286) (2,584) (3,302)
Net proceeds from sale of subsidiary 1,100 - -
--------- --------- ---------
Net cash (used in) investing activities (186) (2,562) (3,292)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on revolving credit agreement 18,600 300 11,404
Principal payments on long-term borrowings (21,819) (635) (17,984)
Net proceeds from issuance of Common Stock 2,886 - 7,441
Redemption of Series B Senior Common Stock - - (2,056)
--------- --------- ---------
Net cash (used in) financing activities (333) (335) (1,195)
--------- --------- ---------
(Decrease) in cash (43) (34) (4)
Cash, beginning 90 47 13
--------- --------- ---------
Cash, ending $ 47 $ 13 $ 9
========= ========= =========
</TABLE>
See Notes to Financial Statements.
<PAGE>
AMERICAN ELECTRONIC COMPONENTS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(in thousands)
Note 1. Nature of Business and Significant Accounting Policies
Nature of business:
American Electronic Components, Inc. (the "Company") is engaged in the
manufacture and sale of sensors, relays and switches, electromechanical
products, and plastic components throughout the United States, generally
on terms of 30 days. The Company has a business concentration in the
automotive industry.
Basis of presentation:
American Electronic Components, Inc. currently conducts business at five
manufacturing facilities in Elkhart, Indiana. The operating subsidiaries
are: Durakool, Inc.; Alliance Plastics, Inc. and Electromation, Inc. The
Company controls 100% of the stock of the operating subsidiaries through
a wholly-owned subsidiary, American Oil Fields, Inc. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
On May 17, 1989, ownership of the subsidiaries was transferred in a
leveraged acquisition to a privately-owned entity, American Electronic
Components Limited, a United Kingdom Company ("AEC-UK"). In March 1992,
AEC-UK was reorganized. As part of the reorganization, the ownership of
the operating subsidiaries was transferred to the Company. Assets and
liabilities were recorded by the Company at historical cost since the two
companies had common ownership. In the reorganization, holders of the
Common Stock of AEC-UK exchanged those shares for an equal number of
Common Stock of the Company. Subordinated debt of AEC-UK was exchanged
for Series B Senior Common Stock. Additionally, $3,600 of new capital
was raised through the issuance of Series A Senior Common Stock and
warrants to acquire Common Stock.
On March 29, 1992, in connection with the reorganization, the Company
adopted a plan to sell its Electronic Devices, Inc. subsidiary which
manufactured silicon diodes and rectifiers. All assets were sold and
income and revenues from the measurement date to the disposal date were
not material. The disposal has been presented as a disposal of segment
of the Company's business in the accompanying financial statements.
As part of the reorganization, the Company, with the approval of the
Board of Directors, transferred the accumulated deficit to additional
paid-in capital and Common Stock in accordance with quasi-reorganization
accounting principles.
As discussed in Note 4, on June 16, 1994, the Company completed an
initial public offering and issued 1,125,000 shares of Common Stock.
Concurrently, Series A Senior Common Stock was exchanged for Common
Stock and Series B Senior Common Stock was redeemed, leaving the Company
with only one outstanding class of stock.
Significant accounting policies:
Trade receivables and major customers. Trade receivables in the
accompanying balance sheets at September 25, 1993 and September 24, 1994
are stated net of an allowance for doubtful accounts of $50.
The percentage of total Company sales to Chrysler Corporation was 12.6%,
18.9% and 22.8% and to Takata, Inc. of 13.1%, 11.3% and 11.5% for its
1992, 1993 and 1994 fiscal years, respectively.
Inventories. Inventories are stated at the lower of cost (first-in,
first-out method) or market.
<PAGE>
AMERICAN ELECTRONIC COMPONENTS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(in thousands)
Depreciation and amortization. Depreciation of property and equipment is
computed principally by the straight-line method applied to individual
items based on estimated useful lives. Estimated useful lives generally
range from 25 to 50 years for buildings and improvements and from 3 to 15
years for machinery and equipment and furniture and fixtures.
Expenditures for nonreimbursed tooling are capitalized and amortized over
3 to 10 years.
Research and development. Research and development expenditures of
approximately $639, $734 and $904 were charged to operations as incurred
for the years ended September 26, 1992, September 25, 1993 and September
24, 1994 respectively.
Product warranties. The Company follows the policy of accruing estimated
liabilities for product warranties at the time the warranted products are
sold.
Fiscal year-end. The Company's fiscal year ends on the last Saturday of
September. The years ended September 26, 1992, September 25, 1993 and
September 24, 1994 each contained 52 weeks.
Note 2. Balance Sheet Data
Inventories. Inventories are composed of the following:
<TABLE>
<CAPTION>
September 25, September 24,
1993 1994
--------- ---------
<S> <C> <C>
Raw material $ 1,613 $ 2,117
Work in process 1,399 2,116
Finished goods 317 490
--------- ---------
$ 3,329 $ 4,723
========= =========
</TABLE>
Property and Equipment. The composition of property and equipment and the
related accumulated depreciation are as follows:
<TABLE>
<CAPTION>
September 25, September 24,
1993 1994
--------- ---------
<S> <C> <C>
Land, buildings and improvements $ 7,781 $ 8,197
Machinery and equipment 12,978 14,569
Furniture and fixtures 2,531 2,456
Tooling 3,189 3,402
Construction in progress 1,508 2,555
--------- ---------
27,987 31,179
Less accumulated depreciation 7,920 9,883
--------- ---------
$ 20,067 $ 21,296
========= =========
</TABLE>
<PAGE>
AMERICAN ELECTRONIC COMPONENTS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share data)
Accrued Expenses. Accrued expenses are as follows:
<TABLE>
<CAPTION>
September 25, September 24,
1993 1994
--------- ---------
<S> <C> <C>
Payroll and related expenses $ 1,201 $ 1,640
Property taxes 265 275
Interest 644 155
Other 340 434
--------- ---------
$ 2,450 $ 2,504
========= =========
</TABLE>
Note 3. Pledged Assets and Long-Term Debt
Long-term debt and related collateral at September 24, 1994 consist of the
following:
<TABLE>
<S> <C>
Term loan agreement, bank, due in monthly
installments of $71,429 plus interest,
final payment due June 30, 2001 $ 5,785
Revolving credit agreement not to exceed
$8,000,000, due May 31, 1997 5,600
---------
11,385
Less current maturities 857
---------
$ 10,528
=========
</TABLE>
Borrowings under these agreements bear interest at prime (7.75% at
September 24, 1994) for the revolving credit agreement and prime plus
.25% for the term loan agreement or, at the Company's option, LIBOR plus
1.25% on the revolving credit agreement and LIBOR plus 1.5% on the term
loan. In addition, the Company has agreed to, among other things,
maintain certain levels of tangible net worth and to meet certain cash
flow coverage ratios as defined in the agreements. All covenants have
been complied with as of September 24, 1994. These agreements are
collateralized by accounts receivable, inventories and equipment.
Aggregate maturities of long-term debt for the years ending September
1996 through 1999 are as follows: 1996 $857; 1997 $6,457; 1998 $857 and
1999 $857.
Note 4. Shareholders' Equity
Common Stock. The Company has authorized 15,552,000 shares of no par
value Common Stock, of which 3,729,771 shares were issued and outstanding
at September 24, 1994.
On June 16, 1994, the Company completed its initial public offering and
issued 1,125,000 shares of Common Stock for $7,441, net of fees paid of
$1,559. Prior to the public offering, the Company had 4,665,000 shares
of Series A Senior Common Stock and 1,144,615 shares of Series B Senior
Common Stock issued and outstanding. Concurrent with the public
offering, the Series A Senior Common Stock was converted into 933,000
shares of Common Stock and all of the outstanding warrants were exchanged
for 210,938 shares of Common Stock. The Series B Senior Common Stock was
redeemed for $1,488 along with payment of accreted dividends of $568.
Share data reflects a 1-for-5 reverse stock split of the Company's Common
Stock on March 28, 1994.
<PAGE>
AMERICAN ELECTRONIC COMPONENTS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share data)
Earnings per share. Net income per share is computed on the average
number of Common and Common Equiv- alent shares outstanding during the
period. Common Equivalent shares include the dilutive effect of the
stock options and the Common Stock which would have been outstanding if
the Series A Senior Common Stock and shares issuable for warrants had
been converted into Common Stock as of the beginning of the current
period. For the year ended September 24, 1994, earnings per Common and
Common Equivalent share have not been reduced by divi- dends accreted on
the Series B Senior Common Stock of $204 ($.07 per share) in computing
net income available to Common Stock shareholders. The Series B Senior
Common Stock plus accumulated dividends was fully redeemed with the
proceeds from the public offering.
Historical per share amounts for years prior to the year ended September
24, 1994 have not been presented, as the Company's historical capital
structure is not comparable to its structure after the offering.
Stock option plans. The Company has three stock option plans: a
Retention Option Plan, a Performance Award Option Plan and a 1994
Employee Stock Option Plan.
Under the Retention and Performance plans, employees may purchase stock
at $5 per share through September 2003. No further grants may be made
under these two plans.
Effective with the public offering, the Company implemented the 1994
Employee Stock Option Plan. Under the plan, participants may be granted
incentive stock options and non-qualified stock options at the discretion
of the Board of Directors to purchase stock at market value on the date
of grant. Pursuant to the plan, 300,000 shares of Common Stock have been
reserved for issuance under options, of which 100,000 shares were granted
subsequent to year-end.
The following is a summary of options at September 26, 1992, September
25, 1993 and September 24, 1994:
<TABLE>
<CAPTION>
September September September
26, 1992 25, 1993 24, 1994
--------- --------- ---------
<S> <C> <C> <C>
Outstanding, beginning of period - 248,832 295,488
Granted 248,832 46,656 -
Outstanding, end of period 248,832 295,488 295,488
========= =========
Granted subsequent to year-end 100,000
---------
Outstanding 395,488
=========
Exercisable 124,416 171,072 271,072
========= ========= =========
</TABLE>
Note 5. Income Taxes
Deferred income taxes represent the tax effects of differences in the book
and tax reporting at the statutory tax rates expected to be in effect when
such differences reverse. Valuation allowances are established to reduce
deferred tax assets to the amount expected to be realized.
<PAGE>
AMERICAN ELECTRONIC COMPONENTS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(in thousands)
Temporary differences and carryforwards which gave rise to a significant
portion of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
September 25, September 24,
1993 1994
--------- ---------
<S> <C> <C>
Gross deferred tax liability,
depreciation $ (4,327) $ (4,163)
--------- ---------
Gross deferred tax asset:
Nondeductible accruals 194 287
Inventory reserves 244 70
Amortization 404 -
Net operating loss carryforward 7,305 6,508
Other - 44
--------- ---------
Gross deferred tax asset 8,147 6,909
--------- ---------
Valuation allowance (1,470) (396)
--------- ---------
Net deferred tax assets $ 2,350 $ 2,350
========= =========
</TABLE>
At September 24, 1994, the Company had unused net operating loss
carryforwards of $17,000 available to be applied against future taxable
income. These carryforwards expire in varying amounts through 2008. Net
operating loss availability may be subject to limitations as a result of
changes in ownership and line-of-business requirements.
Effective with the quasi-reorganization, the Company adopted FASB Statement
No. 109, Accounting for Income Taxes, and the Company recorded a deferred
tax asset of $1,295 which was credited to additional paid-in capital. The
ultimate realization of this deferred income tax asset depends on the
Company's ability to generate sufficient taxable income in the future and
utilize tax planning opportunities. Since the quasi-reorganization, the
Company has undergone substantial restructuring of interest expense, the
divesture of its unprofitable subsidiary and has increased net income as a
result of an increased market strength in the industries it serves.
Management believes that it will realize the net deferred tax asset as a
result of future profitable operations.
The provisions for income taxes are different from amounts that would
otherwise be computed by applying a federal statutory rate of 34% to income
before income taxes. A reconciliation of the differences is as follow:
<TABLE>
<CAPTION>
Year Ended
------------------------------
September September September
26, 1992 25, 1993 24, 1994
--------- --------- ---------
<S> <C> <C> <C>
Tax based on pre-tax income $ (49) $ 595 $ 1,019
State tax, net of
federal benefit (6) 100 174
Net operating loss carryforwards
pre quasi-reorganization 375 - -
--------- --------- ---------
$ 320 $ 695 $ 1,193
========= ========= =========
</TABLE>
The Company does not have a current liability for federal income tax. As a
result of the quasi-reorganization, the benefit of the tax loss
carryforward is recognized as a credit to additional paid-in capital for
financial reporting purposes.
<PAGE>
AMERICAN ELECTRONIC COMPONENTS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(in thousands)
Note 6. Employee Retirement and Bonus Plan
Employee retirement plans. The Company maintains a 401(k) plan and two
separate defined-contribution plans. Employees that participate in the
payroll deduction of the 401(k) plan are eligible for matching
contributions from the Company. Those employees eligible to participate
in the profit-sharing part of the 401(k) plan may receive discretionary
contributions from the Company.
Contributions to the defined-contribution plans are made semi-annually
based upon the number of hours worked by each participant employee. The
defined-contribution plans are provided to employees at two of the
Company's facilities that do not participate in the 401(k) plan.
The total expense included in the income statements for the profit-
sharing plans for the years ended September 26, 1992, September 25, 1993
and September 24, 1994 is $130, $205 and $237 respectively.
Bonus plan. The Company pays bonuses to certain administrative
personnel. Historically, bonuses are determined annually according to
achievement as compared to a forecast prepared at the beginning of the
year. The total expense included in the income statements for the bonus
plan for the years ended September 26, 1992, September 25, 1993 and
September 24, 1994 is $350, $158 and $375 respectively.
Note 7. Cash Flows Information
Supplemental information relative to the statements of cash flows is as
follows:
<TABLE>
<CAPTION>
Year Ended
------------------------------
September September September
26, 1992 25, 1993 24, 1994
--------- --------- ---------
<S> <C> <C> <C>
Supplemental disclosures of
cash flows information:
Cash payments for interest $ 1,512 $ 1,176 $ 1,636
========= ========= =========
</TABLE>
For the year ended September 26, 1992, the exchange of subordinated debt
for Series B Senior Common Stock was a noncash financing transaction.
Note 8. Contingencies
The Company has been identified by the United States Environmental
Protection Agency (EPA) as one of nine potentially responsible parties
(PRPs) in the contamination of Elkhart, Indiana's Main Street Well
Field. In 1981, a chemical cleaning compound, Trichloroethylene (TCE)
was found in the soil and ground water of one of the Company's
properties that is adjacent to the Main Street Well Field.
In February 1992, the EPA issued an Order requiring the Company and
another PRP to perform the selected remedy related to the east side of
the Well Field, on which the Company's property is located. The
Company has installed the equipment necessary to implement its portion
of this remedy pursuant to agreement with the other PRP. The Order
also requires all PRPs, including the Company, to operate and maintain
the groundwater treatment and monitoring system at the Well Field.
The Company has reached an agreement with the other PRPs regarding
these future operating costs. The Company's allocable share of the
costs of operating the treatment system is not material.
<PAGE>
AMERICAN ELECTRONIC COMPONENTS, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(in thousands, except share data)
On February 22, 1993, the United States filed a lawsuit in the United
States District Court for the Northern District of Indiana, South Bend
Division, against eight of the PRPs, including the Company. The lawsuit
seeks recovery of unreimbursed response costs for remedial activity by
the EPA of $6,000, plus interest, and a declaration that the eight
defendant PRPs are liable for any future costs incurred by the EPA in
connection with the site. On June 22, 1993, the Indiana Department of
Environmental Management ("IDEM") filed a motion to intervene, which has
been granted, seeking reimbursement of unreimbursed response costs
claimed as exceeding $440, plus interest. Each of the PRPs, including
the Company, is jointly and severally liable for the entire amount of EPA
and IDEM costs as ultimately determined to be properly incurred. The
Company is unable to determine the amount of its ultimate liability.
The EPA has asked the Company for information about contamination at
another site in Elkhart County, Indiana. The EPA has completed a
Remedial Investigation/Feasibility Study at the site and has selected a
remedy for its clean up. The EPA has not issued an order requiring any
PRP to implement the selected remedy. No demand has been received from
EPA for reimbursement of any costs. The EPA has identified approximately
40 PRPs in connection with this dump site. The Company believes it has
not contributed any known hazardous substances to this site. However, the
Company is unable to determine the range of reasonable possible loss with
respect to this site.
Note 9. Unaudited Interim Financial Information
Presented below is certain unaudited quarterly financial information for
the periods ended September 25, 1993 and September 24, 1994:
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------
December March June September
26, 1992 27, 1993 26, 1993 25, 1993
--------- ------------------- ---------
<S> <C> <C> <C> <C>
Net sales $ 6,495 $ 7,716 $ 8,169 $ 7,364
Gross profit 1,662 2,295 2,413 2,277
Net income (loss) (19) 358 396 320
<CAPTION>
Quarter Ended
----------------------------------------
December March June September
25, 1993 26, 1994 25, 1994 24, 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 8,042 $ 9,623 $ 9,235 $ 8,556
Gross profit 2,277 2,867 2,742 2,542
Net income 338 490 449 526
Earnings per share <F1> .12 .18 .16 .14
<FN>
<F1>
(1) As described in Note 4.
</FN>
</TABLE>
<PAGE>
APPENDIX D
American Electronic Components, Inc. Quarterly Report
on Form 10-Q for the Quarter Ended June 24, 1995
<TABLE>
INDEX
<CAPTION>
Page No.
<S> <S>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Statements of Income for the
three months and nine months ended
June 24, 1995 and June 25, 1994 3
Consolidated Balance Sheets at
June 24, 1995 and September 24, 1994 4
Consolidated Statements of Cash Flows
for the nine months ended June 24, 1995
and June 25, 1994 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Part 2. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote
of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
<PAGE>
American Electronic Components, Inc.
<TABLE>
Consolidated Statements of Income
(Thousands Except Share and Per Share Amounts)
(Unaudited)
<CAPTION>
Third Quarter Ended Nine Months Ended
------------------ ------------------
June 24, June 25, June 24, June 25,
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 9,674 $ 9,235 $ 29,685 $ 26,900
Cost of Goods Sold 6,745 6,493 21,385 19,014
--------- --------- --------- ---------
Gross Profit 2,929 2,742 8,300 7,886
Operating Expenses 1,773 1,621 5,086 4,653
--------- --------- --------- ---------
Operating Income 1,156 1,121 3,214 3,233
Interest Expense 205 363 620 1,095
--------- --------- --------- ---------
Income before Income Taxes 951 758 2,594 2,138
Federal and State Income Taxes 332 309 1,025 861
--------- --------- --------- ---------
Net Income $ 619 $ 449 $ 1,569 $ 1,277
========= ========= ========= =========
Weighted Average Number of
Common and Common
Equivalent Shares
Outstanding 3,836,080 2,826,843 3,851,497 2,752,667
========= ========= ========= =========
Earnings per Common Share $ 0.16 $ 0.16 $ 0.41 $ 0.46
Earnings Attributable to
Series B Senior
Common Stock - 0.03 - 0.07
--------- --------- --------- ---------
Earnings Available to Common
Shareholders $ 0.16 $ 0.13 $ 0.41 $ 0.39
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3
<PAGE>
American Electronic Components, Inc.
<TABLE>
Consolidated Balance Sheet
(Thousands, except share data)
<CAPTION>
June 24, September 24,
1995 1994
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 18 $ 9
Trade Receivables 5,026 4,542
Inventories 5,107 4,723
Prepaid Expenses 114 90
--------- ---------
Total Current Assets 10,265 9,364
Noncurrent Assets:
Property and Equipt.
at depreciated cost 23,820 21,296
Deferred Tax Asset 1,794 2,350
--------- ---------
Total Assets $ 35,879 $ 33,010
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current Maturities of Long-term Debt $ 857 $ 857
Accounts Payable, Trade 2,089 2,055
Accrued Expenses 2,599 2,504
--------- ---------
Total Current Liabilities 5,545 5,416
Long-Term Debt,
less current maturities 11,286 10,528
--------- ---------
Total Liabilities 16,831 15,944
--------- ---------
Shareholders' Equity:
Common Stock, no par value;
authorized 15,552,000
shares; issued 1993 - 1,460,833
shares; 1994 - 3,729,771 shares 11,072 11,054
Additional Paid-in Capital 3,584 3,188
Retained Earnings, since March 29,
1992 ($24,083 deficit eliminated
on March 28,1992) 4,392 2,824
--------- ---------
Total Shareholders' Equity 19,048 17,066
--------- ---------
Total Liabilities and
Shareholders' Equity $ 35,879 $ 33,010
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4
<PAGE>
American Electronic Components, Inc.
<TABLE>
Consolidated Statements of Cash Flows
(Thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
June 24, June 25,
1995 1994
--------- ---------
<S> <C> <C>
Cash Flow From Operating Activities
Net Income $ 1,569 $ 1,277
Adjustments to Reconcile Net Income
to Net Cash provided by
Operating Activities:
Depreciation 1,510 1,458
Deferred Income Taxes 952 830
Change in assets and liabilities:
Decrease (increase) in:
Receivables (483) (156)
Inventories (617) (420)
Customer Tooling 232 (33)
Other Assets (24) (57)
Increase (decrease) in:
Accounts Payable and
Accrued Expenses 129 1,070
--------- ---------
Net Cash provided by
Operating Activities 3,268 3,969
--------- ---------
Cash Flow From Investing Activities
Purchase of Property and Equipment (4,033) (2,329)
Proceeds from Disposals 0 6
--------- ---------
Net Cash (used in) Investing
Activities (4,033) (2,323)
--------- ---------
Cash Flows From Financing Activities
Net Borrowings/(payments) on
Revolving Credit Agreement 1,400 10,505
Principal Payments on Long-term
Borrowings (643) (17,769)
Net Proceeds from Issuance of
Common Stock 18 7,688
Redemption of Series B common stock 0 (2,056)
--------- ---------
Net Cash provided by Financing
Activities 775 (1,632)
--------- ---------
Increase (decrease) in Cash 10 14
Cash, beginning 9 13
--------- ---------
Cash, ending $ 19 $ 27
========= =========
Supplemental Disclosures
Of Cash Flow Information
Cash Payments for Interest $ 699 $ 1,754
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 5
<PAGE>
American Electronic Components, Inc.
Notes To Consolidated Financial Statements
(Thousands)
Note 1. Interim Financial Statements
The accompanying consolidated financial statements of American
Electronic Components, Inc. (the company) have not been audited except
for the balance sheet at September 24, 1994. In the opinion of the
company's management, the financial statements reflect all adjustments
necessary to present fairly the results of operations for the
three-month and nine-month periods ended June 24, 1995 and June 25,
1994, the company's financial position at June 24, 1995 and September
24, 1994, and the cash flows for the nine-month periods ended June 24,
1995 and June 25, 1994. These adjustments are of a normal recurring
nature.
Certain notes and other information have been condensed or omitted
from the interim financial statements presented in this Quarterly
Report on Form 10-Q. Therefore, these financial statements should be
read in conjunction with the company's 1994 Annual Report on Form 10K.
Note 2. Accounts Receivable
Accounts receivable at June 24, 1995 and September 24, 1994 are net of
allowance for doubtful accounts of $63 and $50 respectively.
Note 3. Inventories
Inventories at June 24, 1995 and September 24, 1994 are composed of
the following:
<TABLE>
<CAPTION>
06/24/95 09/24/94
--------- ---------
<S> <C> <C>
Raw material $2,289 $2,117
Work in process 2,288 2,116
Finished goods 530 490
--------- ---------
$5,107 $4,723
========= =========
</TABLE>
Note 4. Property, Plant and Equipment
Property, plant and equipment is valued at cost less accumulated
depreciation. Accumulated depreciation at June 24, 1995 and September
24, 1994 was $11,392 and $9,883 respectively.
6
<PAGE>
American Electronic Components, Inc.
Notes To Consolidated Financial Statements
(Thousands)
Note 5. Equity Transaction
The weighted number of shares outstanding increased in the quarter
ended June 24, 1995 versus June 25, 1994 due to the completion of an
initial public offering on June 17, 1994. The proceeds net of
underwriting fees were $8.3 million from the sale of 1,125,000 shares
of common stock. The proceeds were used to retire bank debt and
redeem all of the Series B Senior Common Stock together with
accumulated dividends. In connection with the offering, all of the
outstanding Series A Senior Common Stock was converted into 933,000
shares of common stock and all of the outstanding warrants were
exchanged for 210,938 shares of common stock.
Net income per share is computed on the average number of common and
common equivalent shares outstanding during the period. Common
equivalent shares include the dilutive effect of stock options. For
the quarter ended June 25, 1994, common shares include those which
would have been outstanding if the Series A Senior Common Stock and
shares issuable for warrants had been converted into common stock as
of the beginning of all periods presented. Dividends accumulated on
the Series B Senior Common Stock of $568 are deducted from income in
computing net income per share.
7
<PAGE>
American Electronic Components, Inc.
Management's Discussion and Analysis of Results
of Operations and Financial Condition
General
The Company designs and manufactures a broad line of specialized
electronic and electrical components. A majority of the Company's net
sales are to the automotive industry. Products sold to the automotive
industry are typically part of specific programs related to a model,
engine, or system and, therefore, have a product life generally
ranging from three to fifteen years. Over the past several years, the
Company, through execution of its strategy, has been successful at
having its products incorporated in a number of major automotive
programs.
The Company has substantial net operating loss carry forwards
available to be applied against future taxable income with a resulting
favorable impact on cash flow. As a part of the reorganization in
March 1992, the Company is required to account for the benefit from
the utilization of these net operating loss carry forwards as a credit
to paid-in capital for financial reporting purposes.
Results of Operations
The following table sets forth the percentage relationship to net
sales of certain items in the Company's statements of operations.
<TABLE>
<CAPTION>
Three-Month Period Nine-Month Period
Ended Ended
06/24/95 06/25/94 06/24/95 06/25/94
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Gross Margin 30.3 29.7 28.0 29.3
Operating Expenses 18.3 17.6 17.1 17.3
Operating Income 11.9 12.1 10.8 12.0
Net Income 6.4 4.9 5.3 4.7
</TABLE>
8
<PAGE>
American Electronic Components, Inc.
Management's Discussion and Analysis of Results
of Operations and Financial Condition
(Continued)
Results of Operations (continued)
Three Month Period ended June 24, 1995, compared to Three Month Period
ended June 25, 1994.
Net Sales. Net sales increased by $439,000, or 4.8%,
from $9.2 million for the three month period ended June 25, 1994, to
$9.7 million for the three month period ended June 24, 1995. Of the
increase in sales, approximately $1.0 million was attributable to
increased sales of the Company's hall effect sensors. This was
partially offset by approximately $500,000 by reduced sales of the
lower margin electromechanical products. Approximately $800,000 of
the $1.0 million increase in hall effect sensor sales is due to sales
of the Company's electronic four wheel drive sensor for application on
Ford's new Explorer. The balance of the increase is due to a strong
automotive market. The Company is the preferred supplier of hall
effect sensors to Chrysler for use in the LH series of vehicles which
has been very well received in the consumer market. The decrease in
sales of electromechanical products was due mainly to reduced demand
for sump pump floats.
Gross Profit. Gross profit increased by $187,000, or 6.8%,
from $2.7 million for the three month period ended June 25, 1994, to
$2.9 million for the three month period ended June 24, 1995. As a
percent of sales, gross profit increased from 29.7% for the three
month period ended June 25, 1994, to 30.3% for the three month period
ended June 24, 1995. This increase is due mainly to sales mix.
Operating Expenses. Operating expenses increased by $152,000, or
9.4%, from $1.6 million for the three month period ended June 25,
1994, to $1.8 million for the three month period ended June 24, 1995.
This increase is due to cost of living adjustments and the addition of
engineering and related staff needed to support the increased sales
and new programs . As a percentage of sales, operating expenses
increased from 17.6% in the 1994 period to 18.3% in the 1995 period.
Interest Expense. Interest expense decreased $158,000 in the
three month period ended June 24, 1995. The decrease is due to the
retirement of bank debt with proceeds of the IPO and a lower
negotiated interest rate.
Income Taxes. Income tax expense for the two periods
approximates the federal and state statutory rate.
9
<PAGE>
American Electronic Components, Inc.
Management's Discussion and Analysis of Results
of Operations and Financial Condition
(Continued)
Results of Operations (continued)
Nine Month Period ended June 24, 1995, compared to Nine Month Period
ended June 25, 1994.
Net Sales. Net sales increased by $2.8 million, or
10.4%, from $26.9 million for the nine month period ended June 25,
1994, to $29.7 million for the nine month period ended June 24, 1995.
Of the increase in sales, approximately $3.1 million was attributable
to increased sales of the Company's hall effect sensors. This
increase was partially offset by reduced sales of approximately
$100,000 each in relays and switches, electromechanical and plastic
products. Approximately $2.1 million of the $3.1 million increase in
hall effect sensor sales is due to sales of the Company's electronic
four wheel drive sensor for application on Ford's new Explorer. The
balance of the increase is due to a strong automotive market. The
Company is the preferred supplier of hall effect sensors to Chrysler
for use in the LH series of vehicles which has been very well received
in the consumer market.
Gross Profit. Gross profit increased by $414,000, or 5.2%,
from $7.9 million for the nine month period ended June 25, 1994, to
$8.3 million for the nine month period ended June 24, 1995. As a
percent of sales, gross profit decreased from 29.3% for the nine month
period ended June 25, 1994, to 28.0% for the nine month period ended
June 24, 1995. This decrease is due mainly to sales mix.
Operating Expenses. Operating expenses increased by $433,000, or
9.3%, from $4.7 million for the nine month period ended June 25, 1994,
to $5.1 million for the nine month period ended June 24, 1995. This
increase is due to cost of living adjustments and the addition of
engineering and related staff needed to support the increased sales
and new programs. As a percentage of sales, operating expenses
decreased from 17.3% in the 1994 period to 17.1% in the 1995 period.
Interest Expense. Interest expense decreased $475,000 in the
nine month period ended June 24, 1995. The decrease is due to the
retirement of bank debt with proceeds of the IPO and a lower
negotiated interest rate.
Income Taxes. Income tax expense for the two periods
approximates the federal and state statutory rate.
10
<PAGE>
American Electronic Components, Inc.
Management's Discussion and Analysis of Results
of Operations and Financial Condition
(Continued)
Liquidity and Capital Resources
The Company has acquired property and equipment of $4.0 million for
the nine month period ended June 24, 1995. It has funded those
acquisitions by a combination of cash provided from operations and net
borrowings under credit facilities. Cash provided by operating
activities was $3.3 million for this same period.
The Company applies available cash to its bank credit facility in
order to minimize the interest cost of those borrowings. At June 24,
1995, the Company had an availability under its credit facility of
$2.0 million.
The Credit Facility contains various restrictive and financial
covenants which the Company is in compliance with.
New Accounting Standard
The Company is not aware of any Accounting Standards which have been
issued but not yet adopted by the Company which would have a material
impact on its financial position or results of operations.
Seasonality
Although the automotive industry is typically shut down for retooling
in July and is slow in December, in the past several years the Company
has not experienced any material seasonality in the sale of its
products.
Inflation
The Company does not believe that inflation had a material effect on
the results of operations for the periods presented.
11
<PAGE>
American Electronic Components, Inc.
Item 1. Legal Proceedings
None
Item 2. Changes In Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security
Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on From 8-K
A. Exhibits
None.
B. Reports on Form 8-K
None.
12
<PAGE>
American Electronic Components, Inc.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
American Electronic Components, Inc.
(Registrant)
Date: August 1, 1995
David D. Webster
Chairman and Chief Executive
Officer
Date: August 1, 1995
Richard J. Van Es
Chief Financial Officer and
Secretary
13
<PAGE>
No person has been authorized to give any
information or to make any representation, other than those contained
or incorporated by reference in this Joint Proxy Statement/
Prospectus, in connection with this offer and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Company or Echlin. This Joint Proxy Statement/
Prospectus does not constitute an offer to sell, or a solicitation of
any offer to buy, any of the securities covered by this Joint Proxy
Statement/Prospectus in any jurisdiction or to any person to whom it
is unlawful to make such offer or solicitation. The delivery of this
Joint Proxy Statement/Prospectus does not imply that the information
contained herein is correct as of any time subsequent to the date
hereof.
<TABLE>
TABLE OF CONTENTS
<S> <C>
Page
Summary Information . . . . . . . . . . . . . . . . . . . . . 1
Comparative Stock Market Data . . . . . . . . . . . . . . . . 4
Selected Consolidated Financial Data. . . . . . . . . . . . . 6
Selected Comparative Per Share Data . . . . . . . . . . . . . 8
The Meeting . . . . . . . . . . . . . . . . . . . . . . . . . 9
Principal Holders of Company Shares . . . . . . . . . . . . .10
Merger of the Company. . . . . . . . . . . . . . . . . . . .11
Comparison of Shareholder Rights . . . . . . . . . . . . . .23
The Company . . . . . . . . . . . . . . . . . . . . . . . . .25
Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . . .31
Legal Opinions. . . . . . . . . . . . . . . . . . . . . . . .35
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . .35
Independent Public Accountants of the Company . . . . . . . .35
Other Matters . . . . . . . . . . . . . . . . . . . . . . . .36
Appendices. . . . . . . . . . . . . . . . . . . . . . . . . A-1
</TABLE>
<PAGE>
1,866,666 Shares
ECHLIN INC.
Common Stock
JOINT PROXY STATEMENT/
PROSPECTUS
__________ , 1995
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Connecticut by statute provides for indemnification of directors,
officers, shareholders, employees and agents of a corporation. Under
Sec. 33-320a of the Connecticut Stock Corporation Act (the "Act"), a
corporation is required to indemnify a director against judgments and
other expenses of litigation when he is sued by reason of his being a
director in any proceeding brought, other than on behalf of the
corporation, if the director:
(1)is successful on the merits in defense, or
(2)acted in good faith and in a manner reasonably believed to be in
the best interests of the corporation, or
(3)in a criminal action or proceeding, has no reasonable cause to
believe his conduct was unlawful.
In a proceeding brought on behalf of a corporation (a derivative
action), a director is entitled to be indemnified by the corporation
for reasonable expenses of litigation, if the director is finally
adjudged not to have breached his duty to the corporation. In
addition, a director is entitled to indemnification for both
derivative and non-derivative actions, if a court determines, upon
application, that the director is fairly and reasonably entitled to be
indemnified.
A Connecticut corporation may not provide for indemnification in any
manner inconsistent with the statutory indemnification provisions
(which, however, expressly allow a corporation to procure insurance
providing greater indemnification.)
- ---------------------------
The Registrant maintains a directors and officers liability insurance
policy which insures the Registrant's directors and officers against
claims and liabilities arising out of negligent errors or omissions in
the course of the performance of their official duties, including
claims and liabilities arising under the securities laws of the United
States and states of applicable jurisdiction. Fraudulent and willful
acts are excluded.
- --------------------------
The Registrant's Certificate of Incorporation provides by amendment
that a person who is or was a director of the corporation shall have
no personal liability to the corporation or its shareholders for
monetary damages for any breach of duty in such capacity in excess of
the compensation received by the director for serving the corporation
during the year of violation.
The amendment was adopted to implement changes to Section 33-290 of
the Act, effective October 1, 1989. Under this change in the law, a
Connecticut corporation may amend its Certificate of Incorporation to
limit the personal liability of directors to the corporation or its
shareholders for monetary damages for breach of duty in their capacity
as directors.
<PAGE>
The limitation may not be to an amount less than the compensation
received by the director for serving the corporation during the year
of the violation and director liability cannot be limited if the
violation:
(1)involved a knowing and culpable violation of law by the director;
(2)enabled the director or an associate to receive an improper
personal economic gain;
(3)showed a lack of good faith and a conscious disregard for the duty
of the director to the corporation under circumstances in which the
director was aware that his conduct or omission created an
unjustifiable risk of serious injury to the corporation;
(4)constituted a sustained and unexcused pattern of inattention that
amounted to an abdication of the director's duty to the corporation;
or
(5)created a liability under Section 33-321, which relates to
directors who vote for any distribution of assets of a corporation to
its shareholders in violation of the Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
2.-Agreement and Plan of Reorganization between Echlin, Echlin
Acquisition, Inc. and American Electronic Components, Inc., dated
October 6, 1995. (Included as Appendix A to the Joint Proxy
Statement/Prospectus hereto).
4(a)-By-Laws, as amended, filed as Exhibit 3(i) to Echlin's Annual
Report on Form 10-K for the fiscal year ended August 31, 1991, is
incorporated herein by reference.
4(b)-Certificate of Incorporation, filed as Exhibit 3(3)(ii) to
Echlin's Annual Report on Form 10-K for the fiscal year ended August
31, 1987, is incorporated herein by reference.
4(c)-Certificate of Amendment amending the Certificate of
Incorporation to Establish Series A Cumulative Participating Preferred
Stock, filed as Exhibit 3(3)(iii) to Echlin's Annual Report on Form
10-K for the fiscal year ended August 31, 1989, is incorporated herein
by reference.
4(d)-Certificate of Amendment, amending the Certificate of
Incorporation, to limit the liability of directors for monetary
damages under certain circumstances, filed as Item 2 to Echlin's 1989
Annual Proxy Statement, is incorporated herein by reference.
4(e)-Rights Agreement, dated as of June 21, 1989, between Echlin and
the Connecticut Bank and Trust Company, N.A., as Rights Agent, which
includes the form of Amendment to the company's Certificate of
Incorporation as Exhibit A, the form of Rights Certificate as Exhibit
B and the Summary of Rights to Purchase Preferred Stock as Exhibit C,
filed as Exhibit 1 to Echlin's Current Report on Form 8-K dated June
21, 1989, is incorporated herein by reference.
II-2
<PAGE>
4(f)-Successor Rights Agent Agreement between Echlin and The First
National Bank of Boston appointing The First National Bank of Boston
as successor Rights Agent to replace the Connecticut Bank and Trust
Company, N.A. as Rights Agent, filed as Exhibit 3(3)(iv) to Echlin's
Annual Report on Form 10-K for the fiscal year ended August 31, 1990,
is incorporated herein by reference.
5. -Opinion of Jon P. Leckerling, Esq. as to the legality of the
Common Stock being offered under this Registration Statement.
24(a) -Consents of Price Waterhouse LLP.
24(b) -Consent of Counsel. (Included in Exhibit 5 hereto).
25.-Powers of Attorney. (Included on the signature page hereto).
II-3
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(a) (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, as amended (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
by the Registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that
are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities which remain unsold at the termination
of the offering.
(b) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant
to Section 13(a) or Section 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the Registration Statement 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.
II-4
<PAGE>
(c) 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 Securities 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 Securities Act and
will be governed by the final adjudication of such issue.
(d)The 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 form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the Registration Statement through the date of responding to
the request.
(e)The 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 the Registration Statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Branford,
Connecticut, on the 8th day of November, 1995.
ECHLIN INC.
By: /s/ Frederick J. Mancheski
- -----------------------
Frederick J. Mancheski
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
The undersigned directors and officers of Echlin Inc. do hereby
constitute and appoint Jon P. Leckerling and Edward D. Toole or either
of them, our true and lawful attorneys-in-fact and agents to do any
and all acts and things in our name and behalf in our capacities as
directors and officers, and to execute any and all instruments for us
and in our names in the capacities indicated below which such person
or persons may deem necessary or advisable to enable Echlin Inc. to
comply with the Securities Act of 1933, as amended, and any rules,
regulations and requirements of the Securities and Exchange
Commission, in connection with this Registration Statement, including
specifically, but not limited to, power and authority to sign for us,
or any of us, in the capacities indicated below any and all amendments
(including post-effective amendments) hereto and we do hereby ratify
and confirm all that such person or persons shall do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities* indicated on the 8th day of November, 1995.
Name Title
---------
Principal Executive Officer:
/s/ Frederick J. Mancheski
- --------------------------
Frederick J. Mancheski Chairman of the Board and Chief
Executive Officer; Director
Principal Accounting Officer:
/s/ Richard A. Wisot
- --------------------------
Richard A. Wisot Vice President And Controller
II-6
<PAGE>
/s/ C. Scott Greer
- --------------------------
C. Scott Greer President and Director
/s/ D. Allan Bromley
- --------------------------
D. Allan Bromley Director
/s/ John F. Creamer, Jr.
- --------------------------
John F. Creamer, Jr. Director
/s/ Milton P. DeVane
- --------------------------
Milton P. DeVane Director
/s/ John E. Echlin, Jr.
- --------------------------
John E. Echlin, Jr. Director
/s/ John F. Gustafson
- --------------------------
John F. Gustafson Director
/s/ Donald C. Jensen
- --------------------------
Donald C. Jensen Director
/s/ Trevor O. Jones
- --------------------------
Trevor O. Jones Director
/s/ Phillip S. Myers
- --------------------------
Phillip S. Myers Director
/s/ Jerome G. Rivard
- --------------------------
Jerome G. Rivard Director
*The position of Chief Financial Officer of the Company is presently
vacant.
II-7
<PAGE>
EXHIBIT INDEX
Exhibit
No.Description
- ------------------
2.-Agreement and Plan of Reorganization between
Echlin, Echlin Acquisition, Inc. and American
Electronic Components, Inc., dated
October 6, 1995. (Included as Appendix A to
the Join Proxy Statement/Prospectus hereto).
4(a) -By-Laws, as amended, filed as Exhibit 3(1) to
Echlin's Annual Report on Form 10-K for the
fiscal year ended August 31, 1991, is incorporated
herein by reference.
4(b)-Certificate of Incorporation, filed as Exhibit
3(3)(ii) to Echlin's Annual Report on Form 10-K
for the fiscal year ended August 31, 1987, is
incorporated herein by reference.
4(c)-Certificate of Amendment amending the Certificate
of Incorporation to Establish Series A Cumulative
Participating Preferred Stock, filed as Exhibit
3(3)(iii) to Echlin's Annual Report on Form 10-K
for the fiscal year ended August 31, 1989, is
incorporated herein by reference.
4(d)-Certificate of Amendment, amending the
Certificate of Incorporation, to limit the
liability of directors for monetary damages
under certain circumstances, filed as Item 2 to
Echlin's 1989 Annual Proxy Statement, is incorporated herein by
reference.
4(e)-Rights Agreement, dated as of June 21, 1989, between Echlin and
the Connecticut Bank and Trust Company, N.A., as Rights Agent, which
includes the form of Amendment to the company's Certificate of
Incorporation as Exhibit A, the form of Rights Certificate as Exhibit
B and the Summary of Rights to Purchase Preferred Stock as Exhibit C,
filed as Exhibit 1 to Echlin's Current Report on Form 8-K dated June
21, 1989, is incorporated herein by reference.
4(f)-Successor Rights Agent Agreement between Echlin and The First
National Bank of Boston appointing The First National Bank of Boston
as successor Rights Agent to replace the Connecticut Bank and Trust
Company, N.A. as Rights Agent, filed as Exhibit 3(3)(iv) to Echlin's
Annual Report on Form 10-K for the fiscal year ended August 31, 1990,
is incorporated herein by reference.
II-8
<PAGE>
5.-Opinion of Jon P. Leckerling, Esq. as to the legality of the Common
Stock being offered under this Registration Statement.
24(a) -Consent of Independent Accountants
24(b) -Consent of Counsel. (Included in Exhibit 5 hereto).
25.-Powers of Attorney. (Included on the signature page
hereto).
II-9
<PAGE>
EXHIBIT 5
ECHLIN INC. [LOGO]
100 Double Beach Road
Branford, CT 06405
November 8, 1995
Echlin Inc.
100 Double Beach Road
Branford, CT 06405
Gentlemen:
In connection with the registration under the Securities Act of 1933,
as amended, of 1,866,666 shares of common stock, one dollar ($1.00)
par value, of Echlin Inc., a Connecticut corporation ("Echlin"), I
have examined such corporate records and other documents, including
the registration statement on Form S-4, to be filed with the
Securities and Exchange Commission, relating to such shares (the
"Registration Statement"), and have reviewed such matters of law as I
have deemed necessary for this opinion. Based on such examination, I
advise you that in my opinion:
1.Echlin is a corporation duly organized and existing under the laws
of the State of Connecticut.
2.All necessary corporate action on the part of Echlin has been taken
to authorize the registration of shares of common stock by Echlin, and
when issued as contemplated in the Registration Statement, such shares
will be legally issued, fully paid and nonassessable.
I consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Jon P. Leckerling
- -------------------------
Jon P. Leckerling
Vice President and General Counsel
:jeh
<PAGE>
EXHIBIT 24 (a)
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Echlin
Inc. of our report dated September 23, 1994, which appears on page 33
of Echlin Inc.'s 1994 Annual Report, which is incorporated by
reference in its Annual Report on Form 10-K for the year ended August
31, 1994. We also consent to the incorporation by reference of our
report on the Financial Statement Schedules, which appears on page 13
of such Annual Report on Form 10-K. We also consent to the reference
to us under the heading "Selected Consolidated Financial Data" in such
Prospectus. However, it should be noted that Price Waterhouse LLP has
not prepared or certified such "Selected Consolidated Financial Data."
/s/
- -------------------
PRICE WATERHOUSE LLP
Stamford, Connecticut
November 8, 1995
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Echlin
Inc. of our report dated August 3, 1994 on the June 25, 1994
consolidated financial statements of the Preferred Technical Group
included in Echlin Inc.'s Form 8-K/A dated February 25, 1995.
/s/
- -------------------
PRICE WATERHOUSE LLP
Detroit, Michigan
November 8, 1995
