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Filed Pursuant to
Rule 424(b)(3)
Registration No.
333-32975
PROSPECTUS
OFFER FOR ALL OUTSTANDING 10 1/8% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR 10 1/8% SENIOR SUBORDINATED
NOTES DUE 2007 OF
Oxford Automotive, Inc. [OXFORD AUTOMOTIVE, INC. LOGO]
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON NOVEMBER 21, 1997, UNLESS EXTENDED
Oxford Automotive, Inc. (the "Company"), hereby offers to exchange an
aggregate principal amount of up to $125,000,000 of its 10 1/8% Senior
Subordinated Notes Due 2007 (the "New Notes") for a like principal amount of
its 10 1/8% Senior Subordinated Notes Due 2007 (the "Old Notes") outstanding on
the date hereof upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"). The New Notes and the Old Notes are
collectively hereinafter referred to as the "Notes." The terms of the New Notes
are identical in all material respects to those of the Old Notes, except for
certain transfer restrictions, registration rights and certain interest rate
step-up provisions. The New Notes will be issued pursuant to, and entitled to
the benefits of, the Indenture (as defined herein) governing the Old Notes. The
New Notes will mature on June 15, 2007. The New Notes will bear interest from
and including the date of consummation of the Exchange Offer. Interest on the
New Notes will be payable semi-annually on June 15 and December 15 of each
year, commencing December 15, 1997. Additionally, interest on the New Notes
will accrue from the last interest payment date on which interest was paid on
the Old Notes surrendered in exchange therefor or, if no interest has been paid
on the Old Notes, from the date of original issue of the Old Notes. The New
Notes will be redeemable at the option of the Company, in whole or in part, at
any time on or after June 15, 2002, at the redemption prices set forth herein,
plus accrued and unpaid interest, if any, to the date of redemption. In
addition, at any time and from time to time prior to June 15, 2000, the Company
may redeem in the aggregate up to 35% of the original principal amount of the
Notes with the net proceeds of one or more Public Equity Offerings (as defined)
following which there is a Public Market (as defined), at a redemption price of
110.125% of the principal amount to be redeemed, plus accrued and unpaid
interest, if any, to the redemption date, provided that at least 65% of the
original principal amount of the Notes remains outstanding after each such
redemption. Upon a Change of Control (as defined), each holder of Notes
("Holder") will have the right to require the Company to repurchase all or a
portion of such Holder's Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of repurchase. However, there may be significant limitations on the ability of
the Company to make any repurchases required in connection with a Change of
Control. See "Risk Factors -- Change of Control" and "Description of the Notes
- -- Change of Control."
The New Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Indebtedness
(as defined) of the Company. The New Notes will rank pari passu with or senior
to all subordinated indebtedness of the Company. The Company is a holding
company that will derive all of its operating income and cash flow from its
subsidiaries. The New Notes will be fully and unconditionally guaranteed
(collectively, the "Subsidiary Guaranties") on a joint and several basis, and
on an unsecured, senior subordinated basis by certain Restricted Subsidiaries
(as defined) (collectively, the "Subsidiary Guarantors") of the Company. See
"Description of the Notes -- Subsidiary Guaranties."
As of June 30, 1997, after giving effect to the offering of the Old
Notes (the "Offering"), and the application of the net proceeds thereof, the
Company had no outstanding Senior Indebtedness and the
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Subsidiary Guarantors' outstanding Senior Indebtedness was approximately $17.9
million. See "Description of the Notes -- Subordination." In addition, the
Company had available approximately $101.0 million of undrawn borrowings under
its Senior Credit Facility. The Indenture governing the Notes (the "Indenture")
permits the Company and the Subsidiary Guarantors to incur additional
indebtedness, including Senior Indebtedness and indebtedness that will rank
pari passu with the New Notes.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company and the Subsidiary Guarantors contained in the
Registration Agreement dated June 24, 1997 (the "Registration Agreement"),
among the Company, the Subsidiary Guarantors and Salomon Brothers Inc., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, McDonald & Company Securities,
Inc., First Chicago Capital Markets, Inc., and Schroder Wertheim & Co.
Incorporated (the last five named entities collectively referred to herein as
the "Initial Purchasers"), with respect to the initial sale of the Old Notes.
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of
Old Notes pursuant to the Exchange Offer may be withdrawn at any time prior to
the Expiration Date (as defined) for the Exchange Offer. In the event the
Company terminates the Exchange Offer and does not accept for exchange any Old
Notes with respect to the Exchange Offer, the Company will promptly return such
Old Notes to the holders thereof. See "The Exchange Offer."
Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act of 1933, as amended (the "Securities Act").
This Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. Each of
the Company and the Subsidiary Guarantors has agreed that, starting on the
Expiration Date, and ending on the close of business on the first anniversary
of the Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
Prior to the Exchange Offer, there has been no public market for the
Old Notes. If a market for the New Notes should develop, such New Notes could
trade at a discount from their principal amount. The Company currently does not
intend to list the New Notes on any securities exchange or to seek approval for
quotation through any automated quotation system and no active public market
for the New Notes is currently anticipated. There can be no assurance that an
active public market for the New Notes will develop.
The Exchange Offer will expire at 5:00 p.m., New York City time, on November 21,
1997, or such later date and time to which it may be extended by the Company,
which in no event shall be later than December 5, 1997. The Exchange Offer
is not conditioned upon any minimum principal amount of Old Notes being
tendered for exchange pursuant to the Exchange Offer.
SEE "RISK FACTORS" BEGINNING ON PAGE 14, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS OF THE NOTES IN CONNECTION WITH THE
EXCHANGE OFFER.
THESE SECURITIES 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 PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is October 21, 1997.
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AVAILABLE INFORMATION
The Company and the Subsidiary Guarantors have filed with the
Securities and Exchange Commission (the "Commission") a Registration Statement
on Form S-4 (the "Exchange Offer Registration Statement," which term shall
encompass all amendments, exhibits, annexes and schedules thereto) pursuant to
the Securities Act, and the rules and regulations promulgated thereunder,
covering the New Notes being offered hereby. This Prospectus does not contain
all the information set forth in the Exchange Offer Registration Statement. For
further information with respect to the Company, the Subsidiary Guarantors and
the Exchange Offer, reference is made to the Exchange Offer Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to accurately describe the
material terms so referred to, but are not necessarily a complete description
of the contents of any such contract, agreement or other document. With respect
to each such contract, agreement or other document filed as an exhibit to the
Exchange Offer Registration Statement, reference is made to the exhibit for a
more complete description of the document or matter involved, and each such
statement shall be deemed qualified in its entirety by such reference. The
Exchange Offer Registration Statement, including the exhibits thereto, can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Regional Offices of the Commission at Seven World Trade Center, Suite 1300,
New York, New York 10048 and at Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. 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. In addition, the
Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of such Web site is: http://www.sec.gov.
As a result of the Exchange Offer, the Company will become subject
to the informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith will be
required to file periodic reports and other information with the Commission. In
the event the Company ceases to be subject to the informational requirements of
the Exchange Act, the Company will be required under the Indenture to continue
to file with the Commission the annual and quarterly reports, information,
documents or other reports, including, without limitation, reports on Forms
10-K, 10-Q and 8-K, which would be required pursuant to the informational
requirements of the Exchange Act. The Company will also furnish such other
reports as may be required by law. In addition, for so long as any of the
Notes are restricted securities within the meaning of Rule 144(a)(3) under the
Securities Act, the Company has agreed to make available to any prospective
purchaser of the Notes or beneficial owner of the Notes, in connection with any
sale thereof, the information required by Rule 144A(d)(4) under the Securities
Act.
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SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements and notes thereto appearing
elsewhere in this Prospectus. For purposes of this Prospectus, the "Company"
shall refer to Oxford Automotive, Inc. ("Oxford Automotive") and all of its
consolidated subsidiaries, unless the context otherwise requires.
THE COMPANY
GENERAL
The Company is a leading Tier 1 or direct supplier of high-quality,
engineered metal components, assemblies and modules used by original equipment
automotive manufacturers ("OEMs"). The Company's core products are complex,
high value-added products, primarily assemblies containing multiple stamped
parts and various welded, hemmed or fastened components. These products which
range from large structural stampings and assemblies, including exposed ("Class
A") surfaces, to smaller complex welded assemblies, are used in manufacturing a
variety of sport utility vehicles ("SUVs"), light and medium trucks, mini-vans,
vans and passenger cars. The Company is the sole source supplier of these
products to its customers. On a pro forma basis, assuming the acquisition of
Lobdell Emery Corporation ("Lobdell") (described below) had occurred on April
1, 1996, the Company would have had net sales of $330.2 million and Adjusted
EBITDA (as defined herein) of $18.8 million for the fiscal year ended March 31,
1997. On a pro forma basis for the fiscal year ended March 31, 1997, assuming
the acquisitions of Lobdell and Howell Industries, Inc., a Michigan corporation
("Howell") (described below) had occurred on April 1, 1996, net sales and
Adjusted EBITDA for the Company would have been $421.7 million and $22.3
million, respectively. The Company had net sales of $92.0 million and Adjusted
EBITDA of $12.0 million for the three months ended June 30, 1997. On a pro
forma basis, assuming the acquisition of Howell had occurred on April 1, 1997,
the Company would have had net sales of $116.6 million and Adjusted EBITDA of
$13.8 million for the three months ended June 30, 1997. Based on pro forma net
sales of $330.2 million, management believes the Company is one of the ten
largest suppliers of stampings to the North American automotive market.
The Company's four largest customers, General Motors Corporation ("GM"), Ford
Motor Company ("Ford"), CAMI (a joint venture of GM and Suzuki Motor Corporation
("Suzuki")) and The Saturn Corporation ("Saturn"), accounted for approximately
56.0%, 33.0%, 3.0%, and 2.8%, respectively of the Company's net sales for the
fiscal year ended March 31, 1997, on a pro forma basis for the Lobdell
acquisition, and 55.4%, 31.0%, 2.7%, and 2.8%, respectively, of the Company's
net sales for the three months ended June 30, 1997. The Company has been
providing products directly to GM and Ford for more than 50 years and has earned
outstanding commercial ratings for its high-quality standards, including GM's
Supplier of the Year and Mark of Excellence Awards, Ford's Q1 Award and CAMI's
President's Award. The Company also sells its products to other Tier 1
suppliers. For the fiscal year ended March 31, 1997, approximately 72.0% of the
Company's net sales, on a pro forma basis assuming the acquisition of Lobdell
occurred on April 1, 1996, were derived from sales of its products manufactured
for SUVs, mini-vans, vans and light trucks. For the three months ended June 30,
1997, approximately 73.0% of the Company's net sales were derived from sales in
this sector. In recent years, SUVs, mini-vans, vans and light trucks have
experienced stronger growth in vehicle production as compared to the passenger
car sector, with a compound annual growth rate ("CAGR") from 1991 to 1996 of
approximately 8.7% as compared to (0.1%) for the passenger car sector. This
sector includes those platforms and models which have strong consumer demand,
such as GM's popular C/K platform (full-size pickups and the
Yukon/Tahoe/Suburban models) and the Ford Ranger, Explorer and Windstar.
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Prior to the acquisition of Howell (described below), the Company
conducted its business through two principal operations, BMG North America
Limited ("BMG") and Lobdell. Since acquiring BMG in October 1995, management of
the Company has implemented significant cost reductions and achieved
manufacturing efficiencies, including manpower reductions consisting of 49
salaried positions (121 to 72) and 78 hourly employees (570 to 492) and
improved materials cost management, which includes purchasing cost savings,
reduction of scrap and inventory costs, and improved scheduling of production.
These actions resulted in a $4.6 million improvement in Adjusted EBITDA from
the fiscal year ended March 31, 1996 to the fiscal year ended March 31, 1997.
The same strategy utilized at BMG was implemented at Lobdell immediately
following its acquisition in January 1997. Since its acquisition of Lobdell,
the Company has achieved cost reductions totaling approximately $13.6 million
on an annual basis. In addition to the cost reductions, the Company has been
able to implement a number of manufacturing policies that have improved
productivity and quality, notwithstanding overall staff reductions.
The strategic combination of BMG, Lobdell, and Howell significantly
strengthens the Company's position as a leading Tier 1 supplier of assemblies
and modules to the OEMs. This combination provides the Company with the
critical mass and capabilities in the areas of design and engineering, sales
and marketing, and product expertise which provide the basis for the Company's
strategy of becoming a fully-integrated, global systems supplier. The Company
has already implemented a successful, focused sales and marketing initiative,
which commenced concurrently with the operational improvements at BMG. As a
result, the Company has been awarded the door assemblies and the side panel
package for the new Saturn Innovate Program (the "Innovate Program"), the new
vehicle which Saturn is launching in 1999 based upon the current Opel Vectra.
Management believes these awards from Saturn will generate approximately $60.0
million of annual net sales beginning with the 1999 model year.
The Company currently operates ten manufacturing facilities which offer the
latest technologies in metal stamping, welding and assembly production
equipment, including fully-automated hydraulic and wide-bed press lines (up to
180 inches), robotic welding cells, robotic hemming and autophoretic corrosion
resistant coating. Since 1992, the Company has invested in excess of $93.0
million in capital investments to support sales growth, expand production
capabilities and improve efficiency and flexibility. The Company's diverse line
of over 300 presses that range up to 2,500 tons and state-of-the-art robotic
weld assembly and hemming equipment are capable of manufacturing a broad
assortment of parts and assemblies ranging from simple stampings to full-size,
Class A door and closure panels. The Company is one of a few independent
suppliers that has the ability to produce large, complex stampings, as well as
the technical expertise and automated assembly capabilities that provide high
value-added modules such as door apertures and assemblies, A-pillars, Class A
surface products and control arms.
The principal executive offices of the Company are located at 2365 Franklin
Road, Bloomfield Hills, Michigan 48302, and its telephone number is (248)
745-9600.
BUSINESS STRATEGY
The principal objective of the Company is to be a leading, full-service,
global Tier 1 supplier of integrated systems based on metal forming and related
manufacturing technologies. Management believes that the Company is well
positioned to benefit from two significant trends in the stamping and metal
forming segments of the automotive industry: outsourcing and consolidation.
Outsourcing of metal stamping has increased in response to competitive
pressures on OEMs to improve quality and reduce capital requirements, labor
costs, overhead and inventory. Consolidation among automotive industry
suppliers has occurred as OEMs have more frequently awarded long-term sole
source contracts to the most capable global suppliers. In addition, OEMs are
increasingly seeking systems suppliers who can provide a complete package of
design, engineering, manufacturing and project management support for an
integrated system (such as a front-end system). The Company intends
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to capitalize on these trends through internal development and strategic
acquisitions. The key elements of the Company's strategy include the following:
(i) provide full-service program capability, (ii) supply complex, high
value-added systems, (iii) focus on high growth vehicle categories, (iv)
establish a global presence, and (v) pursue strategic acquisitions.
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RECENT DEVELOPMENTS
On August 13, 1997, the Company acquired Howell (the "Merger")
pursuant to an Agreement and Plan of Merger (the "Merger Agreement"). Howell
is a Tier 1 manufacturer of high-quality welded subassemblies and detailed
stampings used primarily in suspension system applications in the production of
SUVs, light trucks, mini-vans, vans and passenger cars. Pursuant to the Merger
Agreement, the shareholders of Howell received approximately $23.0 million in
cash. Pursuant to the terms of a supplement to the Indenture, dated as of
August 13, 1997, Howell, a Restricted Subsidiary as defined in the Indenture,
became an additional Subsidiary Guarantor.
For the nine months ended April 30, 1997, Howell had net sales of
$72.4 million and Adjusted EBITDA of $4.2 million. Howell's net sales have
grown from $39.4 million for the fiscal year ended July 31, 1992 to $79.2
million for the fiscal year ended July 31, 1996. On a pro forma basis for the
fiscal year ended March 31, 1997, assuming the acquisitions of Lobdell and
Howell had occurred on April 1, 1996, net sales and Adjusted EBITDA for the
Company would have been $421.7 million and $22.3 million, respectively. On a
pro forma basis for the three months ended June 30, 1997, net sales and
Adjusted EBITDA for the Company would have been $116.6 million and $13.8
million, respectively.
The acquisition of Howell is consistent with the strategic objectives
of the Company. Howell has a significant relationship with Chrysler Corporation
("Chrysler") and has developed a niche in designing, engineering and
manufacturing suspension control arms in a variety of configurations and
variations depending on drive-train and suspension application. Approximately
54.0% of Howell's net sales for the nine months ended April 30, 1997, were
derived from products used in the control arm suspension applications. On a pro
forma basis, assuming the acquisitions of Lobdell and Howell had occurred on
April 1, 1996, the Company would have derived approximately 23.0% of its net
sales from control arm applications for fiscal 1997.
Howell's expertise in this area is complementary to the Company's and
will enhance its ability to develop key suspension system components. Further,
Howell's sales are principally in the high-growth vehicle categories of SUVs,
light trucks, mini-vans and vans, the same market targeted by the Company. The
acquisition of Howell has also provided the Company with an entree to Chrysler
and will strengthen the Company's existing relationship with Ford. Sales to
Chrysler and Ford represented 47.0% and 53.0%, respectively, of Howell's net
sales for the nine months ended April 30, 1997. On a pro forma basis for fiscal
1997, assuming the acquisitions of Lobdell and Howell had occurred on April 1,
1996, (i) the SUV, mini-van, van and light truck segment represented
approximately 75.0% of net sales and (ii) the Company's net sales by major
customers would have been approximately as follows: GM 44.0%; Ford 37.0%;
Chrysler 11.0%; CAMI 2.0%, and Saturn 2.0%. On a pro forma basis for the three
months ended June 30, 1997, assuming the acquisition of Howell had occurred
April 1 1997, (i) the SUV, mini-van and light truck segment represented
approximately 78.2% of net sales and (ii) the Company's net sales by major
customers would have been approximately as follows: GM 43.9%, Ford 36.2%,
Chrysler 9.5%, CAMI 2.1%, and Saturn 2.2%.
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Howell's two manufacturing facilities, located in Masury, Ohio and
Lapeer, Michigan, have received Chrysler's Gold Pentastar Award for the 1996
model year and Ford's Q1 rating. In addition, Howell has achieved certification
as a registrant under the QS-9000 for its facilities.
THE EXCHANGE OFFER
Securities Offered .............. Up to $125.0 million aggregate principal
amount of 10 1/8% Senior Subordinated
Notes Due 2007 (the "New Notes"). The
terms of the New Notes and Old Notes
(collectively, the "Notes") are identical
in all material respects, except for
certain transfer restrictions,
registration rights and certain interest
rate step-up provisions. See "The New
Notes" and "The Exchange Offer."
The Exchange Offer .............. The New Notes are being offered in
exchange for a like principal
amount of Old Notes. Old Notes
may be exchanged only in integral
multiples of $1,000. The issuance of the
New Notes is intended to satisfy
obligations of the Company and the
Subsidiary Guarantors contained in the
Registration Agreement.
Expiration Date; Withdrawal
of Tender....................... The Exchange Offer will expire at 5:00
p.m. New York City time, on November 21,
1997, or such later date and time to
which it may be extended by the Company,
which in no event shall be later than
December 5, 1997. The tender of Old
Notes pursuant to the Exchange Offer
may be withdrawn at any time prior to
the Expiration Date. Any Old Notes not
accepted for exchange for any reason
will be returned without expense to
the tendering holder thereof as
promptly as practicable after the
expiration or termination of the
Exchange Offer. The Company will
provide written notice of any extension,
amendment, non-acceptance or termination
to the holders of Old Notes, including
those holders who have previously
tendered their Old Notes. See "The
Exchange Offer -- Terms of the Exchange
Offer; Period for Tendering Old Notes"
and "-- Withdrawal Rights."
Certain Conditions to the
Exchange Offer.................. The Company's obligation to accept for
exchange, or to issue New Notes in
exchange for, any Old Notes is subject
to certain customary conditions relating
to compliance with any applicable law,
or order of any governmental agency or
any applicable interpretation by the
Staff of the Commission, which may be
waived by the Company in its reasonable
discretion. The Company currently
expects that each of the conditions will
be
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satisfied and that no waivers
will be necessary. See "The
Exchange Offer -- Certain
Conditions to the Exchange
Offer."
Procedures for Tendering Old Notes....... Each holder of Old Notes
wishing to accept the Exchange
Offer must complete, sign and
date the Letter of Transmittal,
or a facsimile thereof, in
accordance with the
instructions contained herein
and therein, and mail or
otherwise deliver such Letter
of Transmittal, or such
facsimile, together with such
Old Notes and any other
required documentation, to the
Exchange Agent (as defined) at
the address set forth herein.
See "The Exchange Offer --
Procedures for Tendering Old
Notes."
Special Procedures for Beneficial Owners.... Any beneficial owner whose Old
Notes are registered in the
name of a broker, dealer,
commercial bank, trust company
or other nominee and who
wishes to tender such Old
Notes in the Exchange Offer
should contact such registered
holder promptly and instruct
such registered holder to
tender on such beneficial
owner's behalf. If such
beneficial owner wishes to
tender on such owner's own
behalf, such owner must, prior
to completing and executing
the Letter of Transmittal and
delivering his or her Old
Notes, either make appropriate
arrangements to register
ownership of the Old Notes in
such owner's name or obtain a
properly completed bond power
from the registered holder.
The transfer of registered
ownership may take
considerable time and may not
be completed prior to the
Expiration Date.
Guaranteed Delivery Procedures ............ Holders of Old Notes who wish
to tender their Old Notes and
whose Old Notes are not
immediately available or who
cannot deliver their Old Notes,
the Letter of Transmittal or
any other documents required by
the Letter of Transmittal to
the Exchange Agent, prior to
the Expiration Date, must
tender their Notes according to
the guaranteed delivery
procedures set forth in "The
Exchange Offer -- Guaranteed
Delivery Procedures."
Use of Proceeds............................ There will be no proceeds to
the Company from the exchange
of Notes pursuant to the
Exchange Offer.
Exchange Agent............................. First Trust National
Association, is serving as
the Exchange Agent in
connection with the Exchange
Offer.
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Federal Income Tax Consequences................. The Company belives that
the exchange of Notes pursuant
to the Exchange Offer will
not be a taxable event for
federal income tax purposes.
See "Certain Federal Income
Tax Considerations."
CONSEQUENCES OF EXCHANGING OLD NOTES PURSUANT TO THE EXCHANGE OFFER
Based on certain interpretive letters issued by the staff of the
Commission to third parties in unrelated transactions, the Company is of the
view that holders of Old Notes (other than any holder who is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act) who
exchange their Old Notes for New Notes pursuant to the Exchange Offer generally
may offer such New Notes for resale, resell such New Notes, and otherwise
transfer such New Notes without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided such New Notes are acquired
in the ordinary course of the holders' business and such holders have no
arrangement with any person to participate in a distribution of such New Notes.
Any holder who tenders in the Exchange Offer with the intention or for the
purpose of participating in a distribution of the New Notes cannot rely on such
interpretation by the Staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction. Unless an exemption from
registration is otherwise available, any such resale transaction should be
covered by an effective registration statement containing the information
required by the Securities Act. This Prospectus may be used for an offer to
resell, resale or other retransfer of New Notes only as specifically set forth
herein. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities, must acknowledge that
it will deliver a prospectus in connection with any resale of such New Notes.
See "Plan of Distribution." In addition, to comply with the securities laws of
certain jurisdictions, if applicable, the New Notes may not be offered or sold
unless they have been registered or qualified for sale in such jurisdiction or
in compliance with an available exemption from registration or qualification.
The Company has agreed, pursuant to the Registration Agreement and subject to
certain specified limitations therein, to register or qualify the New Notes for
offer or sale under the securities or blue sky laws of such jurisdictions as
any holder of the Notes reasonably requests in writing. If a holder of Old
Notes does not exchange such Old Notes for New Notes pursuant to the Exchange
Offer, such Old Notes will continue to be subject to the restrictions on
transfer contained in the legend thereon. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. See "The Exchange Offer -- Consequences of
Failure to Exchange; Resales of New Notes."
The Old Notes are currently eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market.
Following commencement of the Exchange Offer but prior to its consummation, the
Old Notes may continue to be traded in the PORTAL market. Following
consummation of the Exchange Offer, the New Notes will not be eligible for
PORTAL trading.
THE NEW NOTES
The terms of the New Notes are identical in all material respects to
the Old Notes, except for certain transfer restrictions, registration rights
and certain interest rate step-up provisions.
Unlike the New Notes, the Old Notes were not registered under the
Securities Act and were offered in a transaction not involving any public
offering within the meaning of the Securities Act, and are therefore subject to
certain transfer restrictions under the Securities Act.
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The Old Notes also included certain registration rights relating to
the Exchange Offer Registration Statement that are not applicable to the New
Notes. Pursuant to the Registration Agreement, the Company agreed to, (i) not
later than 45 days after the closing of the sale of the Old Notes on June 24,
1997 (the "Closing Date"), file the Exchange Offer Registration Statement with
the Commission and (ii) cause the Exchange Offer Registration Statement to be
declared effective under the Securities Act not later than 120 days after the
Closing Date. In addition, in the event that applicable interpretations of the
staff of the Commission do not permit the Company to effect the Exchange Offer,
or if for any other reason the Exchange Offer is not consummated within 150
days after the Closing Date, or if the Initial Purchasers request with respect
to Old Notes not eligible to be exchanged for New Notes in the Exchange Offer,
or if any holder of Old Notes is not eligible to participate in the Exchange
Offer or participates in but does not receive freely tradeable (except for
prospectus delivery requirements) New Notes in the Exchange Offer, the
Company has agreed to file a shelf registration statement ("Shelf Registration
Statement") covering resales of the Old Notes or the New Notes, as the case may
be, to use its best efforts to cause the Shelf Registration Statement to be
declared effective under the Securities Act, and to keep the Shelf Registration
Statement effective until three years after its effective date (or shorter
period that will terminate when all Old Notes or New Notes, as the case may be,
covered by the Shelf Registration Statement have been sold pursuant to the
Shelf Registration Statement).
The Old Notes have interest rate step-up provisions which primarily
become effective in the event certain registration requirements are not
satisfied by specified dates. However, the New Notes will only have the
benefit of the step-up provisions in the limited circumstance described in
clause (iii) below. The interest rate step-up provisions provide in part as
follows: if (i) within 120 days after the Closing Date, the Exchange Offer
Registration Statement has not been declared effective; (ii) within 150 days
after the Closing Date, neither the Exchange Offer has been consummated nor the
Shelf Registration Statement has been declared effective; or (iii) after either
the Exchange Offer Registration Statement or the Shelf Registration Statement
has been declared effective, such Registration Statement thereafter ceases to
be effective or usable (subject to certain exceptions) in connection with
resales of Old Notes or New Notes (each such event referred to in clauses (i)
through (iii), a "Registration Default"), interest ("Special Interest") will
accrue on the Old Notes and the New Notes, as applicable, (in addition to the
stated interest on the Old Notes and the New Notes) from and including the date
on which any such Registration Default shall occur to but excluding the date on
which all Registration Defaults have been cured. Special Interest will accrue
at a rate of 0.25% per annum during the 90-day period immediately following the
occurrence of any Registration Default and shall increase by 0.25% per annum at
the end of each subsequent 90-day period, but in no event shall such rate
exceed 1.00% per annum.
Issuer .................................. Oxford Automotive, Inc.
Notes .................................. $125.0 million in aggregate
principal amount of 10 1/8%
Senior Subordinated Notes
Due 2007.
Maturity ................................ June 15, 2007.
Interest Payment Dates................... Each June 15 and December
15, commencing December 15,
1997.
9
<PAGE> 12
Subsidiary Guaranties ............. Like the Old Notes, the New
Notes will be fully and
unconditionally guaranteed on
a joint and several basis, and
on a senior subordinated basis
by each Restricted Subsidiary
of the Company (other than
certain foreign subsidiaries)
that is an obligor or
guarantor of any Bank Credit
Agreement (the "Subsidiary
Guaranties"). See
"Description of the Notes --
Subsidiary Guaranties."
Subordination of Notes and
Subsidiary Guaranties ............. Like the Old Notes, the New
Notes and the Subsidiary
Guaranties will be general
unsecured senior subordinated
obligations of the Company and
the Subsidiary Guarantors, as
applicable. The New Notes and
the Subsidiary Guaranties will
be subordinated in right of
payment to the prior payment
in full of all existing and
future Senior Indebtedness (as
defined) and will rank pari
passu with or senior to all
present and future
subordinated indebtedness of
the Company or the relevant
Subsidiary Guarantors, as
applicable. As of June 30,
1997, the Company had no
outstanding Senior
Indebtedness and the
Subsidiary Guarantors'
outstanding Senior
Indebtedness was approximately
$17.9 million. See
"Description of the Notes --
Subordination."
Sinking Fund ...................... None.
Optional Redemption ............... Like the Old Notes, the New Notes will
be redeemable at the option of the
Company, in whole or in part at any
time on or after June 15, 2002,
at the redemption prices set forth
herein plus accrued and unpaid interest,
if any, to the redemption date. In
addition, at any time prior to June 15,
2000, the Company may redeem, at its
option, up to an aggregate amount of 35%
of the original principal amount of the
Notes with the proceeds of one or more
Public Equity Offerings following which
there is a Public Market at a redemption
price of 110.125% of the principal
amount thereof plus accrued and unpaid
interest, if any, to the redemption
date, provided that at least 65% of the
original aggregate principal amount of
the Notes remains outstanding after each
such redemption. See "Description of
the Notes -- Optional Redemption."
10
<PAGE> 13
Change of Control ................... Upon the occurrence of a
Change of Control, each Holder
of Notes will have the right
to require the Company to
purchase all or a portion of
such Holder's Notes at a price
in cash equal to 101% of the
aggregate principal amount
thereof plus accrued and
unpaid interest, if any, to
the date of purchase. In the
event of a Change of Control,
there can be no assurance that
the Company will have the
financial resources or be
permitted under the terms of
its other indebtedness to
repurchase or redeem the
Notes. See "Description of the
Notes -- Change of Control."
Certain Covenants; Defaults.......... The Indenture contains certain
covenants that, among other things,
limit the ability of the Company
and its Restricted Subsidiaries to
(i) incur additional indebtedness,
(ii) pay dividends or make other
distributions with respect to
Capital Stock (as defined) of the
Company and its Restricted
Subsidiaries, (iii) create certain
liens, (iv) sell material assets of
the Company or its Restricted
Subsidiaries, (v) enter into
certain mergers and consolidations
and (vi) make capital expenditures.
The Indenture also contains certain
events of default including payment
defaults and a default arising upon
an acceleration by the holders of
certain other Indebtedness (as
defined), including the Senior
Credit Facility, because of a
default. See "Description of the
Notes -- Certain Covenants and --
Defaults."
Risk Factors........................ See "Risk Factors" for a
discussion of certain factors that
should be considered in connection
with the Exchange Offer.
SENIOR CREDIT FACILITY
On June 24, 1997, concurrently with the Offering, the Company entered into a
credit agreement with NBD Bank, on behalf of itself and as agent for a
syndicate of other lenders, pursuant to which availability under such facility
is $110.0 million (such credit facility being referred to herein as the "Senior
Credit Facility"). The facility is in the form of a revolving credit line.
Approximately $101.0 million was available under the revolver at June 30, 1997,
reduced for the effect of a Letter of Credit issued for the IRBs (as defined).
The obligations under the Senior Credit Facility are secured by substantially
all the assets of the Subsidiary Guarantors and the Company.
The Senior Credit Facility contains certain customary covenants, including
reporting and other affirmative covenants, financial covenants, and negative
covenants, as well as customary events of default, including non-payment of
principal, violation of covenants, and cross-defaults to certain other
indebtedness, including the indebtedness evidenced by the Notes. See
"Description of Certain Indebtedness and Preferred Stock -- Senior Credit
Facility."
As of June 30, 1997, after giving effect to the Offering, there were no
borrowings under the Senior Credit Facility. See "Capitalization" and
"Description of Certain Indebtedness and Preferred Stock."
11
<PAGE> 14
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth (i) summary historical financial data of BMG
(the "Predecessor") for the year ended March 31, 1995 and the period from April
1, 1995 through October 27, 1995, (ii) summary historical financial data of the
Company from October 28, 1995 through March 31, 1996, for the year ended March
31, 1997, and for the three months ended June 30, 1996 and 1997, and (iii)
summary pro forma financial data for the year ended March 31, 1997 and for the
three months ended June 30, 1997. The summary historical financial data for
the year ended March 31, 1995, the period April 1, 1995 through October 27,
1995 and the period October 28, 1995 through March 31, 1996 was derived from
the audited consolidated financial statements of the Predecessor and the
Company, which are included elsewhere in this Prospectus, together with
the report of Deloitte & Touche, independent accountants. The summary
historical financial data for the year ended March 31, 1997 was derived from
the audited consolidated financial statements of the Company, which are
included elsewhere in this Prospectus, together with the report of Price
Waterhouse LLP, independent accountants. The summary historical financial data
for the three months ended June 30, 1996 and 1997 were derived from unaudited
interim financial statements, which, in the opinion of management, have been
prepared on the same basis as the audited financial statements and include all
adjustments (all of which are of a normal recurring nature) that are necessary
for a fair presentation of the results for the period. The summary pro forma
statement of operations data and other financial data for the fiscal year ended
March 31, 1997 were prepared to illustrate the effect of the Offering and the
acquisitions of Lobdell and Howell as if each had occurred on April 1, 1996.
The summary pro forma balance sheet data at March 31, 1997 was prepared to
illustrate the effect of the Offering and the acquisition of Howell as if each
had occurred on March 31, 1997. The summary pro forma statement of operations
data and other data for the three months ended June 30, 1997 were prepared to
illustrate the effect of the Offering and the acquisition of Howell, as if they
had occurred on April 1, 1996 and the summary pro forma balance sheet data at
June 30, 1997 was prepared to illustrate the effect of the acquisition of
Howell as if it had occurred on June 30, 1997. The pro forma data does not
purport to be indicative of the results of operations or the financial position
of the Company that would have been obtained if the acquisitions and Offering
had in fact been completed as of such dates or to project the results of
operations or the financial position of the Company for any future date or
period. The following table should be read in conjunction with the "Selected
Consolidated Historical Financial Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Pro Forma Combined
Financial Data," and the Consolidated Financial Statements of the Company and
the related notes and other financial information presented elsewhere in this
Prospectus.
12
<PAGE> 15
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
----------------------------------------------------------------------------- -----------
PREDECESSOR COMPANY
-------------------------- --------------------------------------------
FISCAL YEAR PERIOD PERIOD FISCAL YEAR THREE MONTHS FISCAL YEAR
ENDED APRIL 1, 1995 - OCTOBER 28, 1995 - ENDED ENDED JUNE 30 ENDED
MARCH 31, OCTOBER 27, MARCH 31, MARCH 31, MARCH 31,
1995 1995 1996 1997 1996 1997 1997
----------- ------------- ---------------- ----------- ---- ---- -----------
AUDITED AUDITED AUDITED AUDITED UNAUDITED UNAUDITED UNAUDITED
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales . . . . . . . . . . . . $75,097 $49,043 $35,572 $136,861 $21,709 $ 91,960 $421,707
Gross profit . . . . . . . . . . 4,206 2,148 3,948 11,773 1,257 9,298 23,768
Equipment impairment and non-
recurring charges(a) . . . . . -- -- -- 287 -- -- 5,247
Operating income (loss) . . . . . (348) (1,774) 1,713 3,801 554 7,606 (6,183)
Interest expense . . . . . . . . 1,267 1,048 1,096 3,388 592 1,798 13,727
Other income (expense) . . . . . -- -- -- 2,201 587 37 3,274
Income (loss) before income (1,615) (2,822) 617 2,614 549 5,845 (16,636)
taxes
Provision (benefit) for income
taxes . . . . . . . . . . . . . . (349) (938) 202 1,065 220 2,338 (6,334)
Net income (loss) . . . . . . . . $(1,266) $(1,884) $ 415 $ 1,549 $329 $3,507 $ (10,302)
Balance Sheet Data (end of
period):
Cash and cash equivalents . . . . $ -- $ -- $ -- $ 9,671 $ -- $ 58,883 $ 24,370
Trade accounts receivable,
net . . . . . . . . . . . . . . 9,835 13,312 8,338 47,626 11,335 41,511 61,841
Inventories . . . . . . . . . . . 4,170 4,429 3,719 13,411 2,459 14,623 20,681
Total assets . . . . . . . . . . 41,523 59,770 49,200 243,694 50,303 286,653 306,351
Total debt. . . . . . . . . . . . 12,907 23,233 26,758 99,829 25,833 142,678 141,524
Redeemable preferred stock -- -- -- 39,300 -- 39,635 39,300
Total shareholders' equity 10,833 9,329 935(b) 2,341 1,006 5,459 2,341
Financial Ratios and Other Data:
Depreciation and amortization 1,413 $ 919 $ 687 $ 5,041 772 4,308 19,916
Capital expenditures . . . . . . 4,384 5,111 3,466 3,326 1,203 3,577 19,674
Ratio of earnings to fixed
charges(c) . . . . . . . . . . -- -- 1.5x 1.7x 1.8x 3.6x --
Adjusted EBITDA(d) . . . . . . . 1,065 (855) 2,400 11,330 1,913 11,951 22,254
Gross margin(e) . . . . . . . . 5.60% 4.38% 11.10% 8.60% 5.79% 10.11% 5.64%
Adjusted EBITDA margin(f) . . . . 1.42 NM 6.75 8.28 8.81 13.00 5.28
Ratio of Adjusted EBITDA to
interest expense(g) . . . . . 0.8x NM 2.2x 3.3x 3.2x 6.6x 1.6x
Ratio of net debt to Adjusted
EBITDA(h) . . . . . . . . . . . 12.1 NM 4.7 7.6 3.4 1.7 5.1
<CAPTION>
PRO FORMA
-----------
THREE MONTHS
ENDED JUNE 30,
1997
-------------
UNAUDITED
(DOLLARS IN THOUSANDS)
<S> <C>
Statement of Operations Data:
Net sales . . . . . . . . . . . . $116,616
Gross profit . . . . . . . . . . . 11,547
Equipment impairment and non-
recurring charges(a) . . . . . . --
Operating income (loss) . . . . . 8,592
Interest expense . . . . . . . . . 3,404
Other income (expense) . . . . . . 333
Income (loss) before income 5,521
taxes . . . . . . . . . . . . . .
Provision (benefit) for income
taxes . . . . . . . . . . . . . . 2,128
Net income (loss) . . . . . . . . $3,393
Balance Sheet Data (end of
period):
Cash and cash equivalents . . . . 35,638
Trade accounts receivable,
net . . . . . . . . . . . . . . . 56,024
Inventories . . . . . . . . . . . 22,419
Total assets . . . . . . . . . . . 308,034
Total debt . . . . . . . . . . . . 142,678
Redeemable preferred stock . . . . 39,635
Total shareholders' equity . . . . 5,459
Financial Ratios and Other Data:
Depreciation and amortization 4,900
Capital expenditures . . . . . . . 4,493
Ratio of earnings to fixed
charges(c) . . . . . . . . . . . 2.4x
Adjusted EBITDA(d) . . . . . . . . 13,825
Gross margin(e) . . . . . . . . . 9.90%
Adjusted EBITDA margin(f) . . . . 11.86
Ratio of Adjusted EBITDA to
interest expense(g) . . . . . . 4.1x
Ratio of net debt to Adjusted
EBITDA(h) . . . . . . . . . . . 1.9
</TABLE>
13
<PAGE> 16
See accompanying Notes to Summary Consolidated Historical and Pro Forma
Financial Data.
__________________________________
(a) The provision for equipment impairment and non-recurring charges includes:
(i) on a pro forma basis, for the year ended March 31, 1997, a $3.0 million
impairment reserve against certain long-lived assets of Laserweld
International L.L.C. ("Laserweld") a wholly owned indirect subsidiary of
the Company (substantially all of the assets of Laserweld were inactive
at December 31, 1996 and the recorded value exceeded the fair value of such
assets), a $0.5 million provision for liability under the WARN Act, $0.5
million of excess legal and professional fees associated with the marketing
and sale of Lobdell and $1.2 million related to the loss before income
taxes for the discontinuance of the Laserweld and Parallel Group
International ("Parallel") operations and (ii) for the year ended March 31,
1997, the loss before income taxes for the discontinuance of the Laserweld
and Parallel operations of $0.3 million. Management does not anticipate
that these costs will be a part of future operations.
(b) The reduction in equity of $8.4 million from October 27, 1995 to March 31,
1996 is primarily a result of the elimination of Predecessor equity as a
part of the purchase accounting adjustments made upon the acquisition of
the Predecessor.
(c) For purposes of this computation, earnings consist of income (loss)
before income taxes plus fixed charges. Fixed charges consist of
interest on indebtedness plus that portion of rental expense representative
of the interest factor. For fiscal 1995, the Company's earnings were
insufficient to cover fixed charges by $1.6 million. For the period April
1, 1995 to October 27, 1995, the Company's earnings were insufficient to
cover fixed charges by $2.8 million. On a pro forma basis for fiscal 1997,
earnings were insufficient to cover fixed charges by $14.6 million.
(d) Adjusted EBITDA is defined as income (loss) before interest, income taxes,
depreciation and amortization and equipment impairment and non-recurring
charges. For the fiscal year ended March 31, 1997, equipment impairment and
non-recurring charges aggregated $0.3 million and on a pro forma basis, for
the fiscal year ended March 31, 1997, equipment impairment and
non-recurring charges aggregated $5.2 million, as described in Note (a)
above. Adjusted EBITDA should not be construed as a substitute for income
from operations, net income or cash flow from operating activities for the
purpose of analyzing the Company's operating performance, financial
position and cash flows.
(e) Gross margin is defined as gross profit as a percent of net sales for each
of the applicable periods.
(f) Adjusted EBITDA margin is defined as Adjusted EBITDA as a percent of net
sales for each of the applicable periods.
(g) Defined as the ratio of Adjusted EBITDA to total interest expense.
(h) Defined as the ratio of net debt to Adjusted EBITDA with net debt consisting
of total debt less cash and cash equivalents and unexpended bond proceeds.
14
<PAGE> 17
RISK FACTORS
In evaluating the Exchange Offer, Holders of the Old Notes should carefully
consider the following risk factors, as well as the other information set forth
elsewhere in this Prospectus. The risk factors set forth below are generally
applicable to the Old Notes as well as the New Notes.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE OBLIGATIONS
The Company has, and upon consummation of the Exchange Offer will have,
indebtedness which is substantial in relation to the shareholders' equity, as
well as interest and debt service requirements which are significant compared
to its cash flow from operations. At June 30, 1997, the Company's total
indebtedness was $142.7 million (exclusive of unused commitments under the
Senior Credit Facility of approximately $101.0 million) and the Company had
$39.6 million of preferred stock and $5.5 million of common shareholders'
equity. In addition, to the extent that the Company is required to incur or
assume additional indebtedness in connection with its acquisition strategy, the
Company's interest and debt service requirements will increase. See "Risk
Factors -- Risk Relating to Acquisitions." The degree to which the Company is
leveraged could have important consequences to Holders of the Notes, including
the following: (i) the Company's ability to obtain additional financing for
working capital, capital expenditures, acquisitions or general corporate
purposes may be impaired; (ii) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of interest on the Notes and
its other existing indebtedness, thereby reducing the funds available to the
Company for other purposes; (iii) the agreements governing the Company's
long-term indebtedness contain certain restrictive financial and operating
covenants; (iv) certain indebtedness under the Senior Credit Facility will be
at variable rates of interest, which will cause the Company to be vulnerable to
increases in interest rates; (v) all of the indebtedness outstanding under the
Senior Credit Facility is secured by substantially all the assets of the
Subsidiary Guarantors and the Company and will become due prior to the time the
principal on the Notes will become due; (vi) the Company may be hindered in its
ability to adjust rapidly to changing market conditions; and (vii) the
Company's substantial degree of leverage could make it more vulnerable in the
event of a downturn in general economic conditions or in its business. The
Indenture permits the Company and the Subsidiary Guarantors to incur additional
indebtedness, including Senior Indebtedness and indebtedness that will rank
pari passu with the Notes.
The Company's ability to pay interest on the Notes and to satisfy its other
obligations will depend upon its future operating performance, which will be
affected by prevailing economic conditions and financial, business and other
factors, many of which are beyond its control. The Company anticipates that its
operating cash flow, together with available borrowings under the Senior Credit
Facility, will be sufficient to meet its operating expenses, to service
interest requirements on its debt obligations as they become due and to
implement its business strategy. There can be no assurance, however, that the
Company's business will generate sufficient cash flow from operations or that
future borrowings will be available in an amount sufficient to enable the
Company to service its indebtedness, including the Notes, to make anticipated
capital expenditures or to implement its business strategy. Further, the
Company is required to redeem the Lobdell Preferred Stock (as defined) prior to
the time the principal on the Notes will become due and the maximum aggregate
redemption price for such preferred stock, assuming the Company does not
commence a public offering of its common stock prior to June 30, 2000, is $40.9
million, plus any accrued and unpaid dividends to the date of redemption. The
Company's predecessor experienced a net loss of $1.3 million for the year ended
March 31, 1995, experienced a net loss of $1.9 million during the period from
April 1, 1995 through October 27, 1995 and, on a pro forma basis for fiscal
1997, the Company's net loss is $10.3 million. In addition, for fiscal 1995,
the Company's earnings were insufficient to cover fixed charges by $1.6
million. For the period April 1, 1995 to October 27, 1995, the Company's
earnings were insufficient to cover fixed charges by $2.8 million. For fiscal
1997, the Company's earnings exceeded fixed charges by $2.6 million; however,
on a pro forma basis for fiscal 1997, earnings were insufficient to cover fixed
charges by $14.6 million. See "Management's Discussion and Analysis
15
<PAGE> 18
of Financial Condition and Results of Operations -- Liquidity, Capital
Resources and Financial Condition" and "Description of Certain Indebtedness and
Preferred Stock."
The Senior Credit Facility contains certain customary covenants, including
without limitation, reporting and other affirmative covenants; financial
covenants, including ratio of total debt to EBITDA, net worth, fixed charge
coverage ratio, interest coverage ratio (each as defined in and calculated
pursuant to the Senior Credit Facility); and negative covenants, including
restrictions on incurrence of other indebtedness, payment of cash dividends and
other distributions to shareholders, liens in favor of parties other than the
lenders under the Senior Credit Facility, certain guaranties of obligations of
or advances to others, sales of material assets not in the ordinary course of
business, restrictions on mergers and acquisitions, and capital expenditures.
There can be no assurance that these requirements will be met in the future. If
they are not, the holders of the indebtedness under the Senior Credit Facility
would be entitled to declare such indebtedness immediately due and payable or,
if the Company were unable to repay such indebtedness, the holders thereunder
could proceed against the collateral securing the Senior Credit Facility, which
consists of substantially all of the assets of the Company and the Subsidiary
Guarantors. In addition, the Senior Credit Facility contains customary events
of default including non-payment of principal, violation of covenants and
cross-defaults to certain other indebtedness, including the indebtedness
evidenced by the Notes. See "Description of Certain Indebtedness and Preferred
Stock -- Senior Credit Facility."
SUBORDINATION OF NOTES AND THE SUBSIDIARY GUARANTIES; ASSET ENCUMBRANCES;
HOLDING COMPANY STRUCTURE
Like the Old Notes, the New Notes will be subordinated in right of payment
to all present and future Senior Indebtedness of the Company and the Subsidiary
Guarantors, including the principal, premium (if any) and interest with respect
to the obligations outstanding under the Senior Credit Facility. In addition,
the Subsidiary Guaranties will be subordinated in right of payment to all
existing and future Senior Indebtedness of the Subsidiary Guarantors. As of
June 30, 1997, the Company did not have any Senior Indebtedness outstanding
(excluding unused commitments under the Senior Credit Facility) and the
Subsidiary Guarantors had approximately $17.9 million of Senior Indebtedness
outstanding. Consequently, in the event of a bankruptcy, liquidation,
dissolution, reorganization or similar proceeding with respect to the Company
or any Subsidiary Guarantor, assets of the Company or such Subsidiary Guarantor
will be available to pay obligations of the Notes only after all Senior
Indebtedness of the Company or such Subsidiary Guarantor has been paid in full,
and there can be no assurance that there will be sufficient assets to pay
amounts due on all or any of the Notes. See "Description of the Notes --
Subordination."
Like the Old Notes, the New Notes are unsecured and will be effectively
subordinated to any secured indebtedness of the Company or any Subsidiary
Guarantor. The indebtedness outstanding under the Senior Credit Facility will
be secured by liens on substantially all of the assets of the Subsidiary
Guarantors and the Company. The ability of the Company to comply with the
provisions of the Senior Credit Facility may be affected by events beyond the
Company's control. The breach of any such provisions could result in a default
under the Senior Credit Facility, in which case, depending upon the actions
taken by the lenders thereunder or their successors or assignees, such lenders
could elect to declare all amounts borrowed under the Senior Credit Facility,
together with accrued interest, to be due and payable, and the Company could be
prohibited from making payments of interest and principal on the Notes until
the default is cured or all Senior Indebtedness is paid or satisfied in full.
If the Company were unable to repay such borrowings, such lenders could proceed
against the collateral. If the indebtedness under the Senior Credit Facility
were accelerated, there can be no assurance that the assets of the Company and
the Subsidiary Guarantors would be sufficient to repay in full such
indebtedness and the other indebtedness of the Company, including the Notes.
See "Description of Certain Indebtedness and Preferred Stock -- Senior Credit
Facility" and "Description of the Notes -- Subordination."
The Company is a holding company which derives all of its operating income
from its subsidiaries. The Holders of the Notes will have no direct claim
against such subsidiaries other than the claim created by the Subsidiary
Guaranties, which
16
<PAGE> 19
may be subject to legal challenge in the event of the bankruptcy of a
subsidiary. See "Risk Factors -- Fraudulent Conveyance." If such a challenge
were upheld with respect to any such Subsidiary Guarantee, such Subsidiary
Guarantee would be invalidated and unenforceable. To the extent that the
Subsidiary Guarantee is not enforceable, the rights of Holders of the Notes to
participate in any distribution of assets of the Subsidiary Guarantor upon
liquidation, bankruptcy, reorganization or otherwise may, as is the case with
other unsecured creditors of the Company, be subject to prior claims of
creditors of that Subsidiary Guarantor. The Company must rely on dividends and
other payments from its subsidiaries to generate the funds necessary to meet
its obligations, including the payment of principal and interest on the Notes.
The Indenture contains covenants that restrict the ability of the Company's
subsidiaries to enter into any agreement limiting distributions and transfers,
including dividends to the Company. Further, the ability of the Company's
subsidiaries to pay dividends and make other payments are, and may in the
future be, subject to certain statutory, contractual and other restrictions.
See "Description of Certain Indebtedness and Preferred Stock."
CYCLICALITY; THE OEM SUPPLIER INDUSTRY
The OEM supplier industry is highly cyclical and, in large part, impacted by
the strength of the economy generally, by prevailing interest rates and by
other factors which may have an effect on the level of sales of automotive
vehicles. There can be no assurance that the automotive industry for which the
Company supplies components will not experience downturns in the future. An
economic recession may impact substantially leveraged companies, such as the
Company, more than similarly situated companies with less leverage. A decrease
in overall consumer demand for SUVs, light trucks, mini-vans, vans or passenger
cars could have a material adverse effect on the Company's financial condition
and results of operations.
The automotive industry is characterized by a small number of OEMs that are
able to exert considerable pressure on component and system suppliers to reduce
costs, improve quality and provide additional design and engineering
capabilities. In the past, OEMs have generally demanded and received price
reductions and measurable increases in quality by implementing competitive
selection processes, rating programs and various other arrangements. Also,
through increased partnering on platform work, OEMs have generally required
component and system suppliers to provide more design engineering input at
earlier stages of the product development process, the costs of which have, in
some cases, been absorbed by the suppliers. Although the Company, historically,
has regained the loss caused by price reductions to the OEMs through cost
reduction initiatives and assistance from the OEMs, there can be no assurance
that future price reductions, increased quality standards or additional
engineering capabilities required by OEMs will not have a material adverse
effect on the financial condition or results of operations of the Company.
Further, although the general trend of the OEMs is to outsource component
manufacturing, the OEMs have, from time to time, brought their stamping work
back in-house. There can be no assurance that the OEMs may not in-source some
of the jobs currently performed by the Company.
Many OEMs and their Tier 1 suppliers are unionized. Work stoppages and
slowdowns experienced by OEMs and their Tier 1 suppliers, as a result of labor
disputes, could have a material adverse effect on the Company's financial
condition or results of operations.
DEPENDENCE ON PRINCIPAL CUSTOMERS
Substantially all of the Company's sales for fiscal 1997 and the three
months ended June 30, 1997 were to GM and Ford. Although the Company has
ongoing supply relationships with its principal customers and is a long-term
supplier to GM and Ford, there can be no assurance that sales to GM and Ford
will continue at the same level. Furthermore, continuation of these
relationships is dependent upon the customers' satisfaction with the price,
quality and delivery of the Company's products. In addition, the Company's
agreements to produce parts are assigned to specific models or product lines of
its customers. Accordingly, the Company's business, and estimates for future
business, are dependent upon consumer demand for the specific models and
product lines that incorporate the Company's parts. The Company's arrangements
with the OEMs are
17
<PAGE> 20
typically in the form of purchase orders that may be canceled by the OEMs.
However, the Company believes that cancellation of purchase orders is rare,
due, in part, to the OEM production interruptions likely to be caused by
changing suppliers. A significant decrease in sales of vehicles using the
Company's products or the loss by the Company of the right to supply any of
such products to its customers would have a material adverse effect on the
Company's financial condition and results of operations. The loss of GM,
Ford, or with the acquisition of Howell, Chrysler as a customer would have a
material adverse effect on the Company. In addition, the delay or cancellation
of material orders from, or design, development, delivery or product projects
at, GM, Ford, or Chrysler could have a material adverse effect on the Company.
UNIONIZED WORKFORCE
Substantially all employees of the Company are covered by collective
bargaining agreements with either the International Union, United Automobile,
Aerospace and Agricultural Implement Workers of America ("UAW"), United
Steelworkers of America ("USW"), International Brotherhood of Teamsters
("Teamsters") or the National Automobile Aerospace, Transportation and General
Workers Union of Canada ("CAW"). The Company has not experienced any work
stoppages in the last ten years and considers its relationship with its
employees to be good. Strikes or work stoppages and the resultant adverse
impact on its relationship with the OEMs could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company recently negotiated a new agreement with the CAW at the Cambridge,
Ontario facility which will expire on September 30, 2000. The Company's
agreement with the UAW at the Argos, Indiana facility will expire on March 31,
1998. While the outcome, including the terms of the new UAW contract and its
impact on the future results of the Company's operations cannot be predicted,
management does not believe that the financial terms of the new contract will
have a material adverse effect on the Company. However, there can be no
assurance that the Company will be successful in its contract negotiations.
FRAUDULENT CONVEYANCE
If a court in a lawsuit brought by an unpaid creditor or representative of
creditors, such as a trustee in bankruptcy or the Company as a
debtor-in-possession, were to find under relevant federal or state fraudulent
conveyance statutes that the Company did not receive fair consideration or
reasonably equivalent value for incurring the indebtedness, including the
Notes, and that, at the time of such incurrence, the Company (i) was insolvent,
(ii) was rendered insolvent by reason of such incurrence or grant, (iii) was
engaged in a business or transaction for which the assets remaining with the
Company constituted unreasonably small capital or (iv) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as
they matured, then such court, subject to applicable statutes of limitation,
could void the Company's obligations under the Notes, recover payments made
under the Notes, subordinate the Notes to other indebtedness of the Company or
take other action detrimental to the Holders of the Notes.
The measure of insolvency for these purposes will depend upon the governing
law of the relevant jurisdiction. Generally, however, a company will be
considered insolvent for these purposes if the sum of that company's debts is
greater than the fair value of all of that company's property or if the present
fair salable value of that company's assets is less than the amount that will
be required to pay its probable liability on its existing debts as they become
absolute and matured or if the Company is not able to pay its debts as they
become due. Moreover, regardless of solvency, a court could void an incurrence
of indebtedness, including the Notes, if it determined that such transaction
was made with the intent to hinder, delay or defraud creditors. In addition, a
court could subordinate the indebtedness, including the Notes, to the claims of
all existing and future creditors on similar grounds. The Company believes
that, after giving effect to the Offering, the Company (i) has not been
rendered insolvent by the incurrence of indebtedness in connection with the
Offering, (ii) is in possession of sufficient capital to run its business
effectively and (iii) is incurring debts within its ability to pay as the same
mature or become due.
18
<PAGE> 21
There can be no assurance as to what standard a court would apply in order
to determine whether the Company was "insolvent" upon the sale of the Old Notes
or that, regardless of the method of valuation, a court would not determine
that the Company was insolvent upon consummation of the sale of the Old Notes.
In addition, the Subsidiary Guaranties may be subject to review under
relevant federal and state fraudulent conveyance and similar statutes in a
bankruptcy or reorganization case or a lawsuit brought by or on behalf of
creditors of any of the Subsidiary Guarantors. In such a case, the analysis set
forth above would generally apply, except that the Subsidiary Guaranties could
also be subject to the claim that, since the Subsidiary Guaranties were
incurred for the benefit of the Company (and only indirectly for the benefit of
the Subsidiary Guarantors), the obligations of the Subsidiary Guarantors
thereunder were incurred for less than reasonably equivalent value or fair
consideration. A court could void the Subsidiary Guarantors' obligation under
the Subsidiary Guaranties, recover payments made under the Subsidiary
Guaranties, subordinate the Subsidiary Guaranties to other indebtedness of a
Subsidiary Guarantor or take other action detrimental to the Holders of the
Notes.
CONTROL BY PRINCIPAL SHAREHOLDER
Selwyn Isakow (the "Principal Shareholder") beneficially owns 48.9% of the
Company's outstanding shares and exercises voting control over those shares not
owned by him, including shares held by the directors and officers of the
Company. Circumstances may occur in which the interests of the Principal
Shareholder could be in conflict with the interests of the Holders of the
Notes. For example, if the Company encounters financial difficulties or is
unable to pay certain of its debts as they mature, the interests of the
Principal Shareholder might conflict with those of the Holders of the Notes. In
addition, the Principal Shareholder may have an interest in pursuing
acquisitions, divestitures or other transactions that, in his judgment, could
enhance his equity investment, even though such transactions might involve
risks to the Holders of the Notes. See "Principal Shareholders."
RISK RELATING TO ACQUISITIONS
To expand its markets and take advantage of the consolidation trend in the
automotive parts industry, the Company's business strategy includes growth
through acquisitions. The ability of the Company to successfully implement its
acquisition strategy depends upon a number of factors. There can be no
assurance that the Company will be able to consummate acquisitions in the
future on terms acceptable to the Company or to integrate any new acquisitions
(including Howell) successfully into its operations and achieve cost savings
from such integration. To the extent that any future acquisitions require the
incurrence or assumption of additional indebtedness, the Company's interest and
debt service requirements will increase, and the Company's increased leverage
could have important consequences to Holders of the Notes. In addition, the
Company is pursuing acquisitions and strategic alliances in Europe and intends
to pursue such acquisitions and alliances in South America, Asia and other
markets. The Company is also continually investigating opportunities for
domestic acquisitions of other OEM suppliers. There can be no assurance that
these acquisitions or strategic alliances will be successful. See "Risk Factors
- -- Substantial Leverage and Debt Service Obligations," and "Business --
Business Strategy."
COMPETITION
The motor vehicle parts industry in which the Company operates is fragmented
and competitive. The Company's competitors include divisions or subsidiaries of
companies that are larger and have substantially greater resources than the
Company as well as divisions of OEMs with internal stamping and assembly
operations. There can be no assurance that the Company's products will be able
to compete successfully with those of its competitors. See "Business --
Competition."
ENVIRONMENTAL RISKS
19
<PAGE> 22
The Company's operations and properties are subject to federal, state,
local and foreign laws, regulations and ordinances relating to the use, storage,
handling, generation, treatment, emission, release, discharge and disposal of
certain materials, substances and wastes. In many jurisdictions these laws are
complex and change frequently. Such laws, including but not limited to the
Comprehensive Environmental Response, Compensation & Liability Act ("CERCLA" or
"Superfund") may impose joint and several liability and apply to remediation of
contamination at properties presently or formerly owned or operated by an entity
or its predecessors, as well as to conditions at properties at which wastes or
other contamination attributable to an entity or its predecessors have been sent
or otherwise come to be located. The nature of the Company's operations exposes
it to the risk of liabilities or claims with respect to environmental matters,
including off-site disposal matters, and there can be no assurance that material
costs will not be incurred in connection with such liabilities or claims.
Based upon the Company's experience to date, the Company believes that the
future cost of compliance with existing environmental laws, regulations and
ordinances (or liability for known environmental claims) will not have a
material adverse effect on the Company's business, financial condition and
results of operations. However, future events, such as changes in existing laws
and regulations or their interpretation, may give rise to additional compliance
costs or liabilities that could have a material adverse effect on the Company's
business, financial condition and results of operations. Compliance with more
stringent laws or regulations, as well as more vigorous enforcement policies of
regulatory agencies or stricter or different interpretations of existing laws,
may require additional expenditures by the Company that may be material. See
"Business -- Regulatory Matters and -- Legal Proceedings."
CHANGE OF CONTROL
Upon a Change of Control, each Holder of the Notes will have the right
to require the Company to repurchase all or any part of such Notes at a price
equal to 101% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase. The occurrence of a Change of
Control may constitute a default under the Senior Credit Facility. In addition,
the Senior Credit Facility will prohibit the purchase of the Notes by the
Company in the event of a default thereunder, unless and until such time as the
indebtedness under the Senior Credit Facility is repaid in full. The Company's
failure to purchase the Notes would result in a default under the Indenture.
The inability to repay the indebtedness under the Senior Credit Facility, if
accelerated, would also constitute an event of default under the Indenture,
which could have adverse consequences for the Company and the Holders of the
Notes. In the event of a Change of Control, there can be no assurance the
Company would have sufficient financial resources available to satisfy all of
its obligations under the Senior Credit Facility and the Notes. In addition,
the Company could engage in a highly leveraged transaction, with certain
adverse consequences to Holders of the Notes, which would not constitute a
Change of Control. See "Description of the Notes -- Change of Control" and
"Description of Certain Indebtedness and Preferred Stock -- Senior Credit
Facility."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemption from, or in
transactions not subject to, the registration requirements of, the Securities
Act and applicable state laws, or pursuant to an exemption therefrom. Subject
to the obligation by the Company to file a shelf registration statement covering
resales of Old Notes in certain limited circumstances, the Company does not
intend to register the Old Notes under the Securities Act and, after
consummation of the Exchange Offer, will not be obligated to do so. In
addition, any holder of Old Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the New Notes may be deemed to
have received restricted securities and, if so, will be required to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Additionally, as a result of the
Exchange Offer, it is expected that a substantial decrease in the aggregate
principal amount of Old Notes outstanding will occur. As a result, it is
unlikely that a liquid trading market will exist for the Old Notes at any time.
This lack of liquidity will make transactions more difficult and may reduce the
trading price of the Old Notes. See "The Exchange Offer."
20
<PAGE> 23
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES
The New Notes are new securities and there is currently no established
market for the New Notes. Accordingly, there can be no assurance as to the
liquidity of any markets that may develop for the New Notes, the ability of
holders to sell the New Notes or the price at which holders would be able to
sell the New Notes. Future trading prices of the New Notes will depend on many
factors, including, among other things, prevailing interest rates, the
Company's operating results and the market for similar securities.
Historically, the market for securities similar to the New Notes, including
non-investment grade debt, has been subject to disruptions that have caused
substantial volatility in the prices of such securities. There can be no
assurance that any market for the New Notes, if such market develops, will not
be subject to similar disruptions. The Initial Purchasers have advised the
Company that they currently intend to make a market in the New Notes offered
hereby. However, the Initial Purchasers are not obligated to do so and any
market making may be discontinued at any time without notice. The Old Notes
currently are eligible for trading by qualified buyers in the Private
Offerings, Resale and Trading through Automated Linkages (PORTAL) Market. The
Company and the Subsidiary Guarantors do not intend to apply for listing of the
New Notes on any national securities exchange or for their quotation through
the National Association of Securities Dealers Automated Quotation System.
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's and the
Subsidiary Guarantors' obligations under the Registration Agreement. The
Company will not receive any cash proceeds from the issuance of the New Notes
in the Exchange Offer. In consideration for issuing the New Notes as
contemplated in this Prospectus, the Company will receive Old Notes in like
principal amount. The form and terms of the New Notes are identical in all
material respects to the form and terms of the Old Notes, except for certain
transfer restrictions and registration rights relating to the Old Notes and
except for certain provisions providing for an increase in the interest rate on
the Old Notes under certain circumstances relating to the timing of the
Exchange Offer. The Old Notes surrendered in exchange for the New Notes will
be retired and canceled and cannot be reissued. Accordingly, issuance of the
New Notes will not result in any increase in the outstanding debt of the
Company. The net proceeds to the Company from the sale of the Old Notes were
approximately $120.7 million (after the deduction of the discount to the
Initial Purchasers and estimated expenses incurred in connection with the
Offering and related transactions of approximately $4.1 million). The Company
used approximately $83.1 million of the net proceeds to refinance existing
indebtedness and approximately $23.2 million in connection with the acquisition
of Howell with the remaining $14.4 million for working capital and general
corporate purposes, which may include other acquisitions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity, Capital Resources and Financial Condition."
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1997. This table should be read in conjunction with the unaudited
"Pro Forma Combined Consolidated Financial Data," "Selected Consolidated
Historical Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and related notes thereto included elsewhere in this Prospectus. See also
"Description of Certain Indebtedness and Preferred Stock."
21
<PAGE> 24
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------
(IN THOUSANDS)
<S> <C>
Cash and cash equivalents (a) $ 58,883
========
Long-term debt (including current portion):
Senior Credit Facility (b) --
Lewis Emery 2,441
Industrial Revenue Bonds 8,200
EDC Tooling 4,325
IRDP Loan 457
Mortgage-BMG 2,441
10 1/8% Senior Subordinated Notes Due 2007 (c) 124,814
--------
Total debt 142,678
--------
Redeemable preferred stock (d)
Series A 36,305
Series B 3,330
--------
Total redeemable preferred stock 39,635
--------
Shareholders' equity:
Common stock (400,000 shares authorized; 309,750 issued
and outstanding) 1,050
Foreign currency translation adjustment (82)
Reduction in equity for minimum pension liability (253)
Retained earnings 4,744
--------
Total shareholders' equity 5,459
--------
Total capitalization $187,772
========
</TABLE>
- -------------
(a) Effective August 13, 1997, the Company acquired all of the issued and
outstanding shares of common stock of Howell Industries, Inc.
Approximately $23.2 million of bond proceeds were used to fund the
acquisition.
(b) Concurrently with the issuance of the Old Notes, the Company entered into
the Senior Credit Facility pursuant to which up to $110.0 million is
available. On June 30, 1997, the Company had no borrowings under the
Senior Credit Facility and availability was approximately $101.0 million.
See "Description of Certain Indebtedness and Preferred Stock."
(c) Notes subject to the Exchange Offer.
stock was issued with a face value of $50.7 million, of which $10.0
million was placed in escrow pending final determination of the purchase
price. The Company and the preferred shareholders of Lobdell
have settled certain claims relating to the acquisition which has
resulted in the cancellation of 60,002 shares of Lobdell Series A
Preferred Stock and 49,938 shares of Lobdell Series B Preferred Stock,
which represented all of the outstanding Lobdell Series B Preferred
Stock. See Notes 3 and 17 of the "Oxford Automotive, Inc. Notes to
Consolidated Financial Statements" for further discussion regarding the
carrying value of the redeemable preferred stock and additional terms
and conditions.
PRO FORMA COMBINED FINANCIAL DATA
(UNAUDITED)
(DOLLARS IN THOUSANDS)
The unaudited pro forma combined balance sheet as of June 30, 1997 (the
"Unaudited Pro Forma Balance Sheet") gives pro forma effect to the acquisition
of Howell as if it had occurred on June 30, 1997. The acquisition of Howell is
22
<PAGE> 25
accounted for by the purchase method of accounting pursuant to which the
purchase price is allocated among the acquired tangible and intangible assets
and assumed liabilities in accordance with estimates of their fair values on
the date of acquisition. The pro forma adjustments represent management's
preliminary determination of purchase accounting adjustments and are based upon
available information and certain assumptions that the Company believes to be
reasonable under the circumstances. Consequently, the amounts reflected in the
Unaudited Pro Forma Balance Sheet are subject to change and the final values
may differ substantially from these amounts. Management does not expect that
differences between the preliminary and final purchase price allocation will
have a material impact on the Company's financial position. The Unaudited Pro
Forma Balance Sheet does not purport to be indicative of the financial position
of the Company had such transactions actually been completed as of the assumed
dates and for the periods presented, or which may be obtained in the future.
The unaudited pro forma combined statement of operations for the year
ended March 31, 1997 gives pro forma effect to the Offering and the
acquisitions of Lobdell and Howell as if they had occurred on April 1, 1996.
The unaudited pro forma combined statement of operations for the three months
ended June 30, 1997 gives pro forma effect to the Offering and the acquisition
of Howell as if they had occurred on April 1, 1996. The unaudited pro forma
combined statements of operations for the year ended March 31, 1997 and for the
three months ended June 30, 1997 are collectively referred to as the "Unaudited
Pro Forma Statements of Operations." The Unaudited Pro Forma Statements of
Operations do not purport to be indicative of the results of operations of the
Company had such transactions actually been completed as of the assumed dates
and for the periods presented, or which may be obtained in the future.
23
<PAGE> 26
UNAUDITED PRO FORMA COMBINED BALANCE SHEET AS OF THE PERIOD ENDED
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1997 PRO FORMA PRO FORMA
COMPANY HOWELL (a) ADJUSTMENTS COMBINED
------- ------------ ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents................. $ 58,883 $ 1,163 ($24,408)(b)(c) $ 35,638
Trade accounts receivable, net............ 41,511 14,513 -- 56,024
Inventories............................... 14,623 6,290 1,506(c) 22,419
Reimbursable tooling...................... 5,545 2,224 -- 7,769
Refundable income taxes................... 1,212 -- -- 1,212
Prepaid expenses and other current
assets.................................. 794 1,266 (185)(c) 1,875
Deferred income taxes..................... 4,364 59 875 (c) 5,298
-------- ------- --------- --------
Total current assets.................... 126,932 25,515 (22,212) 130,235
Unexpended bond proceeds.................. 3,991 -- -- 3,991
Deferred income taxes..................... 4,057 -- -- 4,057
Property, plant and equipment,
net...................................... 146,291 9,761 6,425(c) 162,477
Goodwill.................................. -- -- 1,042(c) 1,042
Other noncurrent assets................... 5,382 -- 850(c) 6,232
-------- ------- --------- --------
Total assets............................ $286,653 $35,276 ($13,895) $308,034
======== ======= ========= ========
Trade accounts payable.................... $ 27,398 $ 8,726 $ -- $ 36,124
Accrued expenses and other
liabilities............................. 14,287 4,858 -- 19,145
Restructuring reserve..................... 6,303 47 3,519(c) 9,869
Current portion of long-term debt......... 4,761 -- -- 4,761
-------- ------- --------- --------
Total current liabilities............... 52,749 13,631 3,519 69,899
Deferred income taxes..................... 10,488 124 3,172(c) 13,784
Pension liability......................... 4,205 -- 425(c) 4,630
Postretirement medical benefits........... 34,013 -- -- 34,013
Restructuring reserve..................... -- 120 -- 120
Other noncurrent liabilities.............. 2,187 390 -- 2,577
Long-term debt............................ 137,917 -- -- 137,917
-------- ------- --------- --------
Total liabilities....................... 241,559 14,265 7,116 262,940
-------- ------- --------- --------
Redeemable Series A preferred
stock................................... 36,290 -- -- 36,290
Redeemable Series B preferred
stock................................... 3,345 -- -- 3,345
Total shareholders' equity ............. 5,459 21,011 (21,011) 5,459
-------- ------- --------- --------
Total liabilities and
shareholders' equity.................... $286,653 $35,276 ($13,895) $308,034
======== ======= ========= ========
</TABLE>
- --------------
See accompanying Notes to Unaudited Pro Forma Combined Balance Sheet.
24
<PAGE> 27
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
(a) Represents the adjustments for the Howell acquisition as if it had
occurred on June 30, 1997. The June 30, 1997 balance sheet for Howell was
derived from Howell's internal financial statements.
(b) Reflects the estimated sources and uses of funds for the Offering and the
acquisition of Howell as if the acquisition had occurred on June 30, 1997:
<TABLE>
<S> <C>
Use of Funds:
Acquisition of Howell:
Utilization of Bond Proceeds...................................... $23,245
Utilization of Howell Cash and Equivalents........................ 1,163
-------
Total Uses ....................................................... $24,408
=======
</TABLE>
(c) The acquisition of Howell will be accounted for by the purchase method of
accounting, pursuant to which the purchase price is allocated among the
acquired tangible and intangible assets and assumed liabilities in
accordance with their estimated fair market values on the date of
acquisition. The estimated purchase price and preliminary adjustments to
historical book value of Howell as a result of the transaction are as
follows:
<TABLE>
<S> <C>
Decrease in cash for payments made at closing............... $ (1,163)
Write off of LIFO inventory reserve......................... 1,506
Write off of prepaid assets................................. (185)
Increase in deferred tax asset for restructuring and pension
reserves.................................................. 875
Increase in property plant and equipment to estimated fair
value..................................................... 6,425
Estimated goodwill.......................................... 1,042
Provision for acquisition fees and expenses................. 850
--------
Net increase in assets...................................... $ 9,350
========
Reserve for plant restructuring............................. $ 3,519
Increase in deferred tax liability.......................... 3,172
Increase in pension reserve................................. 425
Proceeds from Offering used to finance acquisition.......... 23,245
Elimination of retained earnings as a result of purchase
accounting................................................ (21,011)
--------
Net increase in liabilities and shareholders' equity........ $ 9,350
========
</TABLE>
25
<PAGE> 28
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
ADJUSTMENTS FOR LOBDELL ACQUISITION
-----------------------------------
PRO FORMA COMPANY
COMPANY(a) LOBDELL(b) ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
PERIOD
APRIL 1, 1996
YEAR ENDED THROUGH YEAR ENDED YEAR ENDED
MARCH 31, 1997 JANUARY 10, 1997 MARCH 31, 1997 MARCH 31, 1997
-------------- ---------------- -------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales........................................ $ 136,861 $ 193,303 $ -- $ 330,164
Cost of sales.................................... 125,088 186,707 349(d) 312,144
--------- --------- -------- ---------
Gross profit..................................... 11,773 6,596 (349) 18,020
Selling, general and
administrative................................. 7,685 12,398 39(f) 20,122
Equipment impairment and
non-recurring charges.......................... 287 4,960 -- 5,247(h)
--------- --------- -------- ---------
Operating Income (loss).......................... 3,801 (10,762) (388) (7,349)
Interest expense................................. 3,388 2,729 5,251(i) 11,368
Other Income (expense)........................... 2,201 674 -- 2,875
--------- --------- -------- ---------
Income (loss) before income
taxes.......................................... 2,614 (12,817) (5,639) (15,842)
Provision (benefit) for income
taxes.......................................... 1,065 (4,728) (2,255)(k) (5,918)
--------- --------- -------- ---------
Net income (loss)................................ $ 1,549 $ (8,089) $ (3,384) $ (9,924)
Financial Ratios and Other Data:
Depreciation and amortization.................... $ 5,041 $ 11,635 $ 1,322 $ 17,998
Capital expenditures............................. 3,326 12,862 -- 16,188
Ratio of earnings to fixed
charges(m)..................................... 1.7x NM NM --
Adjusted EBITDA(n)............................... 11,330 6,507 934 18,771
Ratio of Adjusted EBITDA to
interest expense(o)............................ 1.7x
Ratio of net debt to Adjusted
EBITDA(p)...................................... 4.8
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Statement of Operations.
<TABLE>
<CAPTION>
ADJUSTMENTS FOR HOWELL ACQUISITION
--------------------------------------------
PRO FORMA HOWELL PRO FORMA
HOWELL(c) ADJUSTMENTS PRO FORMA COMBINED
--------- ----------- ------------ --------
PERIOD
MAY 1, 1996
THROUGH YEAR ENDED YEAR ENDED YEAR ENDED
APRIL 30, 1997 MARCH 31, 1997 MARCH 31, 1997 MARCH 31, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales................................... $ 91,543 $ -- $91,543 $ 421,707
Cost of sales............................... 85,477 318 (e) 85,795 397,939
-------- ------- ------- ---------
Gross profit................................ 6,066 (318) 5,748 23,768
Selling, general and
administrative............................ 4,440 142 (g) 4,582 24,704
Equipment impairment and
non-recurring charges..................... -- -- -- 5,247
-------- ------- ------- ---------
Operating Income (loss)..................... 1,626 (460) 1,166 (6,183)
Interest expense............................ 5 2,354 (j) 2,359 13,727
Other Income (expense)...................... 399 -- 399 3,274
-------- ------- ------- ---------
Income (loss) before income
taxes..................................... 2,020 (2,814) (794) (16,636)
Provision (benefit) for income
taxes..................................... 710 (1,126)(l) (416) (6,334)
-------- ------- ------- ---------
Net income (loss)........................... $ 1,310 $(1,688) $ (378) $ (10,302)
======== ======= ======= =========
Financial Ratios and Other Data:
Depreciation and amortization............... $ 1,458 $ 460 $ 1,918 $ 19,916
Capital expenditures........................ 3,486 -- 3,486 19,674
Ratio of earnings to fixed
charges(m)................................ 16.9x NM NM --
Adjusted EBITDA(n).......................... 3,483 -- 3,483 22,254
Ratio of Adjusted EBITDA to
interest expense(o)....................... 1.6x
Ratio of net debt to Adjusted
EBITDA (p) ............................... 5.1
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
ADJUSTMENTS FOR HOWELL ACQUISITION
------------------------------------------------
PRO FORMA COMPANY PRO FORMA
COMPANY ADJUSTMENTS PRO FORMA HOWELL ADJUSTMENTS
------------- ----------- --------- ------------ -------------
THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED
JUNE 30, 1997 JUNE 30, 1997 JUNE 30, 1997
------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $91,960 $91,960 $24,656 $ --
Cost of sales 82,662 82,662 22,327 80 (e)
------- ------- ------- ------- ------
Gross profit 9,298 9,298 2,329 (80)
Selling, general and administrative 1,692 $ 92 (q) 1,784 1,135 36 (g)
Equipment impairment and non-recurring
charges -- -- -- -- --
------- ------- ------- ------- ------
Operating Income (loss) 7,606 (92) 7,514 1,194 (116)
Interest expense 1,798 1,037 (i) 2,835 (19) 588 (j)
Other Income (expense) 37 -- 37 296 --
------- ------- ------- -------- -----
Income (loss) before income taxes 5,845 (1,129) 4,716 1,509 (704)
Provision (benefit) for income taxes 2,338 (452) 1,886 524 (282)
------- ------- ------- -------- -----
Net income (loss) $ 3,507 $ (677) $ 2,830 $ 985 $(422)
Financial Ratios and Other Data:
Depreciation and amortization $ 4,308 $ 92 $ 4,400 $ 384 $ 116
Capital expenditures 3,577 -- 3,577 916
Ratio of earnings to fixed charges (m) 3.6x NM NM 151.9x NM
Adjusted EBITDA (n) 11,951 -- 11,951 1,874
Ratio of Adjusted EBITDA to interest
expense (o) 6.6x
Ratio of net debt to Adjusted
EBITDA (p) 1.7
</TABLE>
<TABLE>
<CAPTION>
HOWELL PRO FORMA
PRO FORMA COMBINED
-------------- ------------
THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Net sales $24,656 $116,616
Cost of sales 22,407 105,069
-------- --------
Gross profit 2,249 11,547
Selling, general and administrative 1,171 2,955
Equipment impairment and non-recurring
charges -- --
------- --------
Operating Income (loss) 1,078 8,592
Interest expense 569 3,404
Other Income (expense) 296 333
------ --------
Income (loss) before income taxes 805 5,521
Provision (benefit) for income taxes 242 2,128
------ --------
Net income (loss) $ 563 $ 3,393
Financial Ratios and Other Data:
Depreciation and amortization $ 500 $ 4,900
Capital expenditures 916 4,493
Ratio of earnings to fixed charges (m) NM 2.4
Adjusted EBITDA (n) 1,874 13,825
Ratio of Adjusted EBITDA to interest
expense (o) 4.1x
Ratio of net debt to Adjusted
EBITDA (p) 1.9
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Statement of Operations.
27
<PAGE> 30
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
(a) Statement of Operations Data for the Company for the year ended March 31,
1997 includes operating data for Lobdell for the period subsequent to
acquisition (January 11, 1997 to March 31, 1997).
(b) Statement of Operations Data for Lobdell for the period prior to
acquisition (April 1, 1996 to January 10, 1997).
(c) Represents the adjustments for the Howell acquisition as if it had
occurred on April 1, 1996. For purposes of the Unaudited Pro Forma
Statement of Operations, it has been assumed that the results of
operations of Howell for the twelve months ended April 30, 1997 would have
been comparable to the twelve months ended March 31, 1997. The Statement
of Operations Data for the twelve months ended April 30, 1997 was derived
from Howell's filings with the SEC under the Exchange Act.
(d) Represents the following cost changes as they relate to cost of sales:
28
<PAGE> 31
In accordance with the purchase method of accounting, the
Company recognized Lobdell's unfunded Accumulated
Postretirement Benefit Obligation ("APBO"), which included
Lobdell's unrecognized transition obligation of
approximately $11,500, at January 10, 1997. Accordingly,
this adjustment reflects the decrease in net periodic
postretirement benefit cost, from April 1, 1996 through
January 10, 1997, had Lobdell's unfunded APBO been
recognized at the beginning of the fiscal year.............. (564)
Increased depreciation expense as a result of the write up
of property, plant and equipment to fair market value as a
part of the acquisition of Lobdell.......................... 913
-------
$ 349
=======
(e) Represents increased depreciation expense as a result of the write up of
property, plant and equipment to fair market value as a part of the
purchase accounting adjustments relating to the acquisition of
Howell.
(f) Represents the following changes as they relate to selling, general and
administrative expenses:
Elimination of commissions paid by Lobdell to Grace Emery
Sales Corporation ("GESC"), a related Domestic International
Sales Corporation. These amounts ultimately represented
dividends paid to the prior shareholders of Lobdell. On a
pro forma basis, assuming the acquisition of Lobdell on
April 1, 1996, GESC was dissolved thereby eliminating the
commission payment.......................................... (370)
Amortization of bond acquisition fees ...................... 409
-------
$ 39
=======
(g) Represents amortization of acquisition expenses and goodwill generated by
the acquisition.
(h) The provision for equipment impairment and non-recurring charges
includes: (i) on a pro forma basis, for the year ended March 31, 1997, a
$3,000 impairment reserve against certain long-lived assets of Laserweld,
a $540 provision for liability under the WARN Act, $500 of excess legal
and professional fees associated with the marketing and sale of Lobdell
and $1,207 related to the loss before income tax for the discontinuance of
the Laserweld and Parallel operations and (ii) for the year ended March
31, 1997, the loss before income tax for the discontinuance of the
Laserweld and Parallel operations of $287. Management does not anticipate
that these costs will be a part of future operations.
(i) Represents the net effect on interest expense as a result of (1) the
elimination of historical interest expense after the repayment of the
existing senior bank credit facilities and other outstanding debt, using
proceeds from the Offering and
29
<PAGE> 32
(2) the Offering, using an interest rate of 10.125% per annum. This amount
excludes interest on the portion of the proceeds of the Offering used for
the Howell acquisition. See Note (j).
(j) Represents the net effect on interest expense as a result of the use of
proceeds from the Offering for the acquisition of Howell of $23,245.
Interest expense is calculated using an interest rate of 10.125% per
annum. See Note (i).
(k) Represents the estimated income tax effect of the Company's pro forma
adjustments using an effective tax rate of 40%.
(l) Represents the estimated income tax effect of the Howell pro forma
adjustment using an effective rate of 40%.
(m) For purposes of this computation, earnings consist of income (loss)
before income taxes plus fixed charges. Fixed charges consist of
interest on indebtedness plus that portion of rental expense representative
of the interest factor. For fiscal 1995, the Company's earnings were
insufficient to cover fixed charges by $1.6 million. For the period April
1, 1995 to October 27, 1995, the Company's earnings were insufficient to
cover fixed charges by $2.8 million. On a pro forma basis, for the Lobdell
acquisition only, for fiscal 1997, earnings were insufficient to cover
fixed charges by $15.8 million. On a pro forma basis for the Lobdell and
Howell acquisitions for fiscal 1997, earnings were insufficient to cover
fixed charges by $14.6 million.
(n) Adjusted EBITDA is defined as income (loss) before interest, income
taxes, depreciation and amortization and equipment impairment and
non-recurring charges. For the fiscal year ended March 31, 1997, equipment
impairment and non-recurring charges aggregated $287 and on a pro forma
basis, for the fiscal year ended March 31, 1997, equipment impairment and
non-recurring charges aggregated $5,247, as described in Note (i) above.
Adjusted EBITDA should not be construed as a substitute for income from
operations, net income or cash flow from operating activities for the
purpose of analyzing the Company's operating performance, financial
position and cash flows.
(o) Defined as the ratio of Adjusted EBITDA to total interest expense.
(p) Ratio of net debt to Adjusted EBITDA with net debt consisting of total
debt less cash and cash equivalents and unexpended bond proceeds.
(q) Represents amortization of bond acquisition fees ............... $ 92
=====
30
<PAGE> 33
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table sets forth (i) the selected consolidated historical
financial data of the Predecessor for the years ended March 31, 1993 and 1994
which were derived from the audited consolidated financial statements of the
Predecessor, (ii) selected consolidated historical financial data of the
Predecessor for the year ended March 31, 1995 and the period from April 1, 1995
through October 27, 1995, (iii) selected consolidated historical financial data
of the Company from October 28, 1995 through March 31, 1996 and the year ended
March 31, 1997, and (iv) selected consolidated historical financial data of the
Company for the three months ended June 30, 1996 and 1997. The selected
consolidated historical financial data for the year ended March 31, 1995; the
period April 1, 1995 through October 27, 1995; and the period October 28, 1995
through March 31, 1996 was derived from the audited consolidated financial
statements of the Predecessor and the Company, which are included elsewhere in
this Prospectus, together with the report of Deloitte & Touche, independent
accountants. The selected consolidated historical financial data for the year
ended March 31, 1997 was derived from the audited consolidated financial
statements of the Company, which are included elsewhere in this Prospectus,
together with the report of Price Waterhouse LLP, independent accountants. The
selected consolidated historical financial data for the three months ended June
30, 1996 and 1997 were derived from unaudited interim financial statements
which, in the opinion of management, have been prepared on the same basis as
the audited financial statements and include all adjustments (all of which are
of a normal recurring nature) that are necessary for a fair presentation of the
results for the period. The following table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Pro Forma Combined Financial Data," and the Consolidated
Financial Statements of the Company and the related notes and other financial
information presented elsewhere in this Prospectus.
31
<PAGE> 34
<TABLE>
<CAPTION>
HISTORICAL
----------
PREDECESSOR
----------------------------------------------------
APRIL 1,
1995 -
MARCH 31, MARCH 31, MARCH 31, OCTOBER 27,
1993(a) 1994(a) 1995 1995
---------- ----------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales . . . . . . . . . . . . . . . $ 65,169 $ 65,182 $ 75,097 $ 49,043
Gross profit . . . . . . . . . . . . . 5,970 5,955 4,206 2,148
Selling, general and
administrative . . . . . . . . . . . 1,889 2,164 4,554 3,922
Equipment impairment and non-
recurring charges(b) . . . . . . . . -- -- -- --
-------- ------- ------- --------
Operating income (loss) . . . . . . . . 4,081 3,791 (348) (1,774)
Interest expense . . . . . . . . . . . 1,904 1,658 1,267 1,048
Other income (expense) . . . . . . . . -- -- -- --
Income (loss) before income
taxes . . . . . . . . . . . . . . . . 2,177 2,133 (1,615) (2,822)
Provision (benefit) for income
taxes . . . . . . . . . . . . . . . . 56 706 (349) (938)
-------- ------- ------- --------
Net income (loss) . . . . . . . . . . . $ 2,121 $ 1,427 $(1,266) $(1,884)
======== ======= ======= =======
Balance Sheet Data (end of period):
Cash and cash equivalents . . . . . . . $ 1,683 $ 4,261 $ -- $ --
Accounts receivable . . . . . . . . . . 10,256 7,936 9,835 13,312
Inventories . . . . . . . . . . . . . . 3,205 3,542 4,170 4,429
Total assets . . . . . . . . . . . . . 39,727 36,127 41,523 59,770
Total debt . . . . . . . . . . . . . . 15,595 13,396 12,907 23,233
Redeemable preferred stock . . . . . . -- -- -- --
Total shareholders equity . . . . . . . 12,590 12,406 10,833 9,329
Other Data:
Depreciation and amortization . . . . . $ 1,825 $ 1,747 $ 1,413 $ 919
Capital expenditures . . . . . . . . . 870 920 4,384 5,111
Ratio of earnings to fixed
charges(d). . . . . . . . . . . . . . 2.1x 2.2x -- --
Adjusted EBITDA(e) . . . . . . . . . . 5,906 5,538 1,065 (855)
Gross margin(f) . . . . . . . . . . . . 9.16% 9.14% 5.60% 4.38%
Adjusted EBITDA margin(g) . . . . . . . 9.06 8.50 1.42 NM
<CAPTION>
HISTORICAL
----------
COMPANY
--------------------------------------------------------
OCTOBER 28, THREE MONTHS
1995 - ENDED JUNE 30
MARCH 31, MARCH 31, ----------------
1996 1997 1996 1997
----------- ----------- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net sales . . . . . . . . . . . . . . . $ 35,572 $ 136,861 $ 21,709 $ 91,960
Gross profit . . . . . . . . . . . . . 3,948 11,773 1,257 9,298
Selling, general and
administrative . . . . . . . . . . . 2,235 7,685 703 1,692
Equipment impairment and non-
recurring charges(b) . . . . . . . . -- 287 -- --
-------- --------- -------- ---------
Operating income (loss) . . . . . . . . 1,713 3,801 554 7,606
Interest expense . . . . . . . . . . . 1,096 3,388 592 1,798
Other income (expense) . . . . . . . . -- 2,201 587 37
Income (loss) before income
taxes . . . . . . . . . . . . . . . . 617 2,614 549 5,845
Provision (benefit) for income
taxes . . . . . . . . . . . . . . . . 202 1,065 220 2,338
-------- --------- -------- ---------
Net income (loss) . . . . . . . . . . . $ 415 $ 1,549 $ 329 $ 3,507
======== ========= ======== =========
Balance Sheet Data (end of period):. .
Cash and cash equivalents . . . . . . . $ -- $ 9,671 $ -- $ 58,883
Accounts receivable . . . . . . . . . . 8,338 47,626 11,335 41,511
Inventories . . . . . . . . . . . . . . 3,719 13,411 2,459 14,623
Total assets . . . . . . . . . . . . . 49,200 243,694 50,304 286,653
Total debt . . . . . . . . . . . . . . 26,758 99,829 25,833 142,678
Redeemable preferred stock . . . . . . -- 39,300 -- 39,635
Total shareholders equity . . . . . . . 935(c) 2,341 1,006 5,459
Other Data:
Depreciation and amortization . . . . . $ 687 $ 5,041 $ 772 $ 4,308
Capital expenditures . . . . . . . . . 3,466 3,326 1,203 3,577
Ratio of earnings to fixed
charges(d). . . . . . . . . . . . . . 1.5x 1.7x 1.8x 3.6x
Adjusted EBITDA(e) . . . . . . . . . . 2,400 11,330 1,913 11,951
Gross margin(f) . . . . . . . . . . . . 11.10% 8.60% 5.79% 10.11%
Adjusted EBITDA margin(g) . . . . . . . 6.75 8.28 8.81% 13.00%
</TABLE>
See Notes to Selected Consolidated Historical Financial Data.
32
<PAGE> 35
_______________________________
(a) Reflects the audited financial statements of the Predecessor
prepared in accordance with Canadian generally accepted accounting
principals, with Canadian dollars being converted to a U.S. dollar
equivalent using average Canadian to U.S. foreign currency exchange
rates of 1.2326 and 1.3810, respectively, for the periods ended March
31, 1993 and March 31, 1994.
(b) This provision includes income before taxes for the discontinuance of
Laserweld and Parallel. Management does not anticipate that these costs
will be a part of future operations.
(c) The reduction in equity of $8.4 million from October 27, 1995 to
March 31, 1996, is primarily a result of the elimination of
the Predecessor's equity as a part of the purchase accounting
adjustments made upon the acquisition of the Predecessor on October 27,
1995.
(d) For purposes of this computation, earnings consist of income (loss)
before income taxes plus fixed charges. Fixed charges consist of
interest on indebtedness plus that portion of rental expense
representative of the interest factor. For fiscal 1995, the Company's
earnings were insufficient to cover fixed charges by $1.6 million. For
the period April 1, 1995 to October 27, 1995, the Company's earnings
were insufficient to cover fixed charges by $2.8 million.
(e) Adjusted EBITDA is defined as income (loss) before interest, income
taxes, depreciation and amortization and equipment impairment and non-
recurring charges. For the fiscal year ended March 31, 1997, equipment
impairment and non-recurring charges aggregated $0.3 million. Adjusted
EBITDA should not be construed as a substitute for income from
operations, net income or cash flow from operating activities for the
purpose of analyzing the Company's operating performance, financial
position and cash flows.
(f) Gross margin is defined as gross profit as a percent of net sales for
each of the applicable periods.
(g) Adjusted EBITDA margin is defined as Adjusted EBITDA as a percent of net
sales for each of the applicable periods.
33
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition
and results of operations should be read in conjunction with the "Pro Forma
Combined Financial Data" and the Consolidated Financial Statements of the
Company and notes thereto included elsewhere in this Prospectus. The historical
information for the fiscal year ended March 31, 1997 includes the Lobdell
results of operations for the period subsequent to its acquisition. For
comparative purposes, the financial information for the fiscal year ended March
31, 1996 represents the combination of the results of operations for the
Predecessor for the period from April 1, 1995 to October 27, 1995 together with
the results of operations of the Company from October 28, 1995 through March 31,
1996 (the period subsequent to the acquisition of the Predecessor by the
Company). The financial statements of the Predecessor and the Company in the two
combined periods are not comparable in certain respects due to differences
between the cost basis of certain assets held by the Company versus that of the
Predecessor, resulting in reduced depreciation and amortization charges
subsequent to October 27, 1995, changes in accounting policies and the recording
of certain liabilities at the date of acquisition in connection with the
purchase of the Predecessor by the Company. Accordingly, the combination of
these two periods does not purport to represent what the results of operations
of the Company would have been on a pro forma basis had it acquired the
Predecessor on April 1, 1995.
The June 30, 1997, financial information includes the results of operations
for Lobdell, which was acquired on January 10, 1997 and accounted for using the
purchase method of accounting. Therefore, the statement of operations for the
three months ended June 30, 1996 does not include the operating results of
Lobdell or its subsidiaries.
Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Net Sales -- Net sales were $92.0 million for the three months ended
June 30, 1997, an increase of $70.3 million as compared to $21.7 million for
the same period during the prior year. The increase primarily reflects the
Lobdell acquisition, as Lobdell's net sales for the three months ended June 30,
1997 were $68.9 million.
Gross Profit -- Gross profit increased to $9.3 million or 10.1% of net
sales for the three months ended June 30, 1997 as compared to $1.3 million or
5.8% of net sales for the prior year. The increase in margins was the result
of higher margins on the incremental Lobdell sales as well as extensive cost
reduction programs and operational efficiencies implemented since the
acquisition of Lobdell. These programs included significant reductions in both
hourly and salaried employees, elimination of excessive overtime and premium
freight and improvements in material handling, production scheduling, and
maintenance programs.
Operating Income -- Operating Income increased to $7.6 million or 8.3%
of net sales for the three months ended June 30, 1997 as compared to $0.6
million or 2.6% of net sales for the prior year. The increase is a direct
result of the Lobdell acquisition and improved gross margin as explained above,
the leveraging of administrative costs over a much larger sales base and a
focus on efficient management.
Net Interest Expense -- Net interest expense was $1.8 million for the
three months ended June 30, 1997, an increase of $1.2 million, as compared to
$0.6 million for the same period last year. The increase was primarily due to
the financing of the Lobdell acquisition on January 10, 1997 ($54.0 million
term debt and assumption of additional subsidiary debt) and the effect of the
issuance of the Notes on June 24, 1997. While the amount of expense increased
from last year, interest expense as a percentage of net sales actually
decreased to 2.0% from the prior year's 2.7%. Interest income increased because
of the investment of unused Note proceeds after issuance and the inclusion of
income on the unexpended IRBs (as defined) proceeds.
Net Income -- Net income was $3.5 million for the three months ended June
30, 1997, an increase of $3.2 million as compared to $0.3 million for the
same period during the prior year. This is the result of the increased margins
on greater net sales and the overall effectiveness of the Company's
34
<PAGE> 37
operational, procedural and management policies. Income taxes for each of the
three month ending periods were computed using an effective income tax rate of
40%.
Adjusted EBITDA -- Adjusted EBITDA was $12.0 million for the three
months ended June 30, 1997, an increase of $10.1 million as compared to $1.9
million for the same period during the prior year. The increase reflects the
operating income improvements discussed above, combined with the Company's
absorption of higher depreciation associated with the Lobdell operations.
Including the three months ended June 30, 1997 for Howell, Adjusted EBITDA would
increase to $13.8 million.
Fiscal Year Ended March 31, 1997 Compared to Fiscal Year Ended March 31, 1996
Net Sales -- Net sales for the year ended March 31, 1997 were $136.9
million, including the net sales of Lobdell from January 10, 1997 (the
"Acquisition Date") through March 31, 1997. This was an increase of $52.3
million or 61.8% as compared to net sales for the fiscal year ended March 31,
1996 of $84.6 million. The increase was due principally to the acquisition of
Lobdell and was partially offset by lower sales volume due to model changeovers.
On a pro forma basis, if Lobdell net sales were included with that of the
Company for the entire fiscal year ended March 31, 1997, net sales would have
been $330.2 million, an increase of $245.6 million as compared to the prior
year, and if Howell net sales were also included for fiscal 1997, net sales
would have been $421.7 million, an increase of $337.1 million as compared to the
prior year.
Gross Profit -- Gross profit was $11.8 million or 8.6% of net sales for the
year ended March 31, 1997 as compared to $6.1 million or 7.2% of net sales for
the year ended March 31, 1996. This represents an increase of $5.7 million, or
93.4% as compared to the prior year. The increase was primarily a result of
higher margins on Lobdell sales for the eighty day period from the Acquisition
Date through March 31, 1997. Gross profit also increased due to (i) workforce
reductions, (ii) improved materials cost management which resulted in lower raw
material costs and (iii) strong sales in the light truck and SUV markets, the
Company's largest sales segments and those which produce its highest margins.
The increased gross profit was partially offset by costs associated with the
production launch of the Saturn Coupe stampings.
On a pro forma basis with Lobdell and Howell included for the entire
fiscal year, gross profit for the fiscal year ended March 31, 1997 would have
been $18.0 million or 5.5% on net sales of $330.2 million and $23.8 million or
5.6% on net sales of $421.7 million, respectively. On a pro forma basis, the
Company's gross margin was lower due to operational inefficiencies existing at
Lobdell prior to acquisition and lower margins experienced by Howell.
Subsequent to the acquisition, actions taken to correct those inefficiencies
improved the Company's gross margin as reflected in the historical results for
the year ended March 31, 1997 where the acquisition of Lobdell is included only
for the period subsequent to the Acquisition Date.
Selling, General and Administrative Expenses ("SG&A") -- SG&A expenses were
$7.7 million or 5.6% of net sales for the year ended March 31, 1997 as compared
to $6.2 million or 7.3% of net sales for the year ended March 31, 1996. The
decrease as a percentage of net sales was a result of efficiencies and cost
reduction programs undertaken by Company management. Specifically, the reduction
in SG&A expenses as a percentage of net sales resulted from a restructuring of
the sales and product engineering functions into customer focused business
units.
Operating Income -- Income from operations was $3.8 million or 2.8% of net
sales for the year ended March 31, 1997 as compared to a deficit of $0.1 million
for the year ended March 31, 1996. The improvement of $3.9 million was a result
of improved gross profit of $5.7 million, partially offset by increased SG&A
expenses of $1.5 million.
Other Income -- Other income for the year ended March 31, 1997 was $2.2
million or 1.6% of net sales due primarily to foreign currency exchange
transactions. No significant other income was earned for the year ended March
31, 1996.
Interest Expense -- Interest expense for the year ended March 31, 1997 was
$3.4 million or 2.5% of net sales, an increase of $1.3 million over the interest
expense for the year ended March 31, 1996. While interest expense for both
periods remained constant at 2.5% of net sales, the increase of $1.3 million was
a result of variations in base lending rates and additional borrowings resulting
from the acquisition of Lobdell.
35
<PAGE> 38
Income Tax -- Income tax expense was $1.1 million or 0.8% of net sales for
the period ended March 31, 1997 as compared to a benefit of $0.7 million or 0.8%
of net sales for the year ended March 31, 1996. The increased income tax expense
of $1.8 million is a result of the $4.8 million increase in income before taxes
for the year ended March 31, 1997 as compared to the previous year.
Net Income -- Net income was $1.5 million or 1.1% of net sales for the year
ended March 31, 1997 as compared to a loss of $1.5 million or 1.8% of net sales
for the year ended March 31, 1996. The improvement of $3.0 million was a result
of improved operating income of $3.9 million and increased other income of $2.2
million. The increase in net income was partially offset by increased interest
expense and income taxes of $1.3 million and $1.8 million, respectively.
Adjusted EBITDA -- Adjusted EBITDA was $11.3 million or 8.3% of net sales
for the year ended March 31, 1997. This represented an increase of $9.8 million
over Adjusted EBITDA of $1.5 million or 1.8% of net sales for the year ended
March 31, 1996. The increase was a result of: (i) a $5.7 million improvement in
gross profit, (ii) an increase in other income of $2.2 million and (iii) $3.4
million in additional depreciation. This increase was partially offset by a
$1.5 million increase in SG&A expenses. On a pro forma basis with Lobdell
included for the entire fiscal year, Adjusted EBITDA for the year ended March
31, 1997 was $18.8 million or 5.7% of net sales, an increase of $17.3 million as
compared to the prior year. On a pro forma basis with Lobdell and Howell
included for the entire fiscal year, Adjusted EBITDA for the year ended March
31, 1997 was $22.3 million or 5.3% of net sales, an increase of $20.8 million as
compared to the prior year.
Fiscal Year Ended March 31, 1996 Compared to Fiscal Year Ended March 31, 1995
Net Sales -- Net sales for the year ended March 31, 1996 were $84.6
million, an increase of $9.5 million or 12.6% from $75.1 million in the year
ended March 31, 1995. The increase was due principally to the continued growth
of the light truck and SUV market segments, specifically the production launch
of the K-truck control arm for GM's full size, four wheel drive light trucks and
SUVs.
Gross Profit -- Gross profit was $6.1 million, or 7.2% of net sales, for
the year ended March 31, 1996 as compared to $4.2 million, or 5.6% of net sales,
for the year ended March 31, 1995. This represented an increase of $1.9 million,
or 45.2% as compared to the prior year. The increase in gross profit was a
result of actions taken by management subsequent to the acquisition of the
Predecessor pursuant to which certain manufacturing processes were implemented
to improve efficiency in the production of the GM light truck and SUV control
arms. The improvement in manufacturing was combined with a reduction in the
salary and hourly workforce based upon the implementation of a comprehensive
business plan designed to reduce costs.
Selling, General and Administrative Expenses -- SG&A expenses were $6.2
million or 7.3% of net sales for the year ended March 31, 1996 as compared to
$4.6 million, or 6.1% of net sales, for the year ended March 31, 1995. The
increase was a result of the creation of an in-house sales and engineering team
dedicated to the development of new business. The Predecessor's sales were
primarily handled by a manufacturer's representative firm.
Operating Income -- Income from operations was a deficit of $0.1 million
for the year ended March 31, 1996 as compared to a deficit of $0.3 million for
the year ended March 31, 1995. The improvement of $0.2 million was a result of
increased gross profit and continued strong sales of light trucks and SUVs. The
increase was partially offset by increased SG&A expenses related to the creation
of an in-house sales and engineering group.
Interest Expense -- Interest expense was $2.1 million or 2.5% of net sales
for the year ended March 31, 1996 as compared to $1.3 million or 1.7% of net
sales for the year ended March 31, 1995. The increase of $0.8 million was a
result of increased debt related to the acquisition of the Predecessor by the
Company.
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Income Tax -- Income tax was a benefit of $0.7 million or 0.8% of net sales
for the period ended March 31, 1996 as compared to a benefit of $0.3 million or
0.4% of net sales for the year ended March 31, 1995. The increased benefit of
$0.4 million was primarily the result of the increased loss before taxes for the
year ended March 31, 1996 and changes in the effective tax rate.
Net Income -- The Company had a net loss of $1.5 million or 1.8% of net
sales for the period ended March 31, 1996 as compared to a net loss of $1.3
million or 1.7% of net sales for the year ended March 31, 1995. The increased
loss of $0.2 million was a result of increased SG&A and interest expense of $1.6
million and $0.8 million, respectively, and was partially offset by improved
gross profit.
Adjusted EBITDA -- Adjusted EBITDA was $1.5 million or 1.8% of net sales
for the year ended March 31, 1996 as compared to $1.1 million, or 1.5% of net
sales for the year ended March 31, 1995. The increase of $0.4 million as
compared to the prior year was primarily a result of improved gross profit of
$1.9 million and $0.2 million in additional depreciation. The increase was
partially offset by increased SG&A expenses of $1.6 million.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Net income adjusted for non-cash charges generated approximately $8.5
million of cash for the year ended March 31, 1997 and $8.1 million for the three
months ended June 30, 1997. Offsetting the increase in cash for fiscal 1997 was
a net increase in accounts receivable, customer tooling and other noncurrent
assets of $7.0 million, a decrease in accrued employee compensation of $6.0
million and other working capital requirements of $3.3 million, resulting in a
use of cash from operating activities of $7.8 million for the year ended March
31, 1997. During fiscal 1997, the Company used approximately $12.3 million for
investing activities including transaction related expenses incurred in
connection with the acquisition of Lobdell and the purchase of property and
equipment. These cash requirements were funded by approximately $29.8 million in
borrowings.
For the three months ended June 30, 1997, cash increased $49.2 million.
Excluding the net proceeds of the Notes, cash increased by $11.6 million during
the period. The increase was substantially a result of increased net income
exclusive of depreciation and amortization, and a level working capital position
resulting from decreases in both accounts receivable and trade accounts payable.
Cash of $3.5 million was used for capital expenditures during the period,
primarily to fulfill existing commitments from the prior year.
The Company has $110.0 million available under the Senior Credit Facility.
At June 30, 1997, the Company had no borrowings outstanding under this line and
$8.5 million in outstanding letters of credit to support the IRBs.
During the quarter, the Company received net proceeds from the Notes, after
payment of approximately $83.1 million to refinance existing indebtedness and
approximately $4.3 million in issuance costs, of $37.6 million. The Company
used approximately $23.2 million toward the acquisition of Howell and related
expenses. The Company neither incurred nor assumed any indebtedness in
addition to the Notes in connection with the acquisition of Howell. The
remainder of the proceeds will be used for general corporate purposes, which
may include other acquisitions.
The Company believes that Howell's operations are complementary to the
Company's and will enhance the Company's ability to develop key suspension
system components. Further, Howell's sales are principally in the high-growth
vehicle categories of SUVs, light trucks, mini-vans and vans, the same market
targeted by the Company. The acquisition of Howell has also provided the
Company with an entree to Chrysler and due to its prior Ford business is
expected to strengthen the Company's existing relationship with Ford. The
Company intends to take actions to integrate Howell into its operations and
implement cost reductions through the elimination of duplicative functions and
the implementation of manufacturing efficiencies. The Company believes that
the Howell acquisition will have a positive impact on the Company's results of
operations for the fiscal year ending March 31, 1998 and thereafter and, as the
Company did not incur or assume any indebtedness in addition to the Notes in
connection with the acquisition of Howell, the Howell acquisition will not
require additional debt service beyond that relating to the Notes. See
"Business -- Recent Developments."
Capital expenditures were $3.3 million, or 2.4% of net sales for the year
ending March 31, 1997 as compared to $8.6 million, or 10.2% of net sales for the
year ending March 31, 1996. The decrease of $5.3 million or 61.6%, was due
primarily to the timing of capital expenditures relating to major production
launches, specifically the production launch of the Saturn Coupe stampings in
fiscal 1996. On a pro forma basis including Lobdell for the full year, capital
expenditures were $16.2 million or 4.9% of net sales for fiscal 1997 and
principally consisted of investments to support new business (primarily the
press line for the Saturn Coupe and expansion of K-truck control arm capacity),
laser welding equipment, press equipment, safety and maintenance equipment,
robotic automation and other productivity improvement expenditures, and other
items including computers, welding equipment, vehicles and paint equipment. In
addition, on a pro forma basis for Lobdell and the acquisition of Howell the
Company would have had capital expenditures of $19.6 million or 4.6% of net
sales for fiscal 1997.
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<PAGE> 40
Capital expenditures were $3.5 million, or 3.8% of net sales for the
three months ended June 30, 1997 as compared to $1.2 million, or 5.5% of net
sales for the three months ended June 30, 1996. The increase was primarily the
result of expenditures relating to the final payments on certain laser
welding equipment acquired the prior year.
For the remainder of fiscal 1998, the Company's capital expenditures are
expected to be $16.4 million; consisting of a $6.2 million investment to support
new business (primarily the Innovate Program); $3.0 million related to the start
up of the Mexican operations; $2.0 million for the purchase of scrap handling
systems; $0.7 million for robotic automation upgrades; $1.2 million for press
rebuilds; $1.8 million in productivity automation equipment; and $1.5 million in
other expenditures including health and maintenance items, welders and water
pre-treatment system.
The Company has available net operating loss carry forwards at March 31,
1997 and June 30, 1997 for Canadian income taxes. These net operating loss carry
forwards have future Canadian tax benefits of approximately $2.9 million. The
Canadian net operating losses can be carried forward indefinitely. The Company
also has Alternative Minimum Tax Credit carry forwards at March 31, 1997 and
June 30, 1997 applicable to U.S. taxes for $3.0 million, which can be carried
forward indefinitely.
The net proceeds to the Company from the sale of the Notes, after
refinancing existing indebtedness, issuance costs and the acquisition of
Howell, are approximately $14.4 million. The Company expects to use these
remaining proceeds for working capital and general corporate purposes, which
may include other acquisitions, to further the Company's business strategy.
See "Use of Proceeds" and "Business -- Business Strategy." The Company
believes that the Note proceeds will enhance its ability to complete its
business objectives. However, interest payments on the Notes will represent a
significant liquidity requirement for the Company. The Company will be
required to make scheduled semi-annual interest payments on the Notes of
approximately $6.3 million on June 15 and December 15 of each year, commencing
December 15, 1997 and continuing until their maturity on June 15, 2007 or until
the Notes are redeemed. See "Risk Factors -- Substantial Leverage and Debt
Service Obligations" and "Description of the Notes."
The Company believes that cash generated from operations, together with
amounts available under the Senior Credit Facility and unused portions of the
proceeds from the Offering, will be adequate to meet its debt service
requirements, capital expenditures and working capital needs for the foreseeable
future, although no assurance can be given in this regard. The Company's future
operating performance and ability to service or refinance the Notes and to
extend or refinance its other indebtedness will be subject to future economic
conditions and to financial, business and other factors that are beyond the
Company's control.
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<PAGE> 41
THE EXCHANGE OFFER
Pursuant to the Registration Agreement, the Company agreed (i) to file
a registration statement with respect to a registered offer to exchange the Old
Notes for the New Notes, which will have terms substantially identical in all
material respects to the Old Notes (except that the New Notes will not contain
terms with respect to transfer restrictions, certain registration rights and
certain interest rate step-up provisions) within 45 days after the date of
original issuance of the Old Notes, and (ii) to use reasonable best efforts to
cause such registration statement to become effective under the Securities Act
at the earliest possible time but in any event no later than 120 days after
issuance of the Old Notes. The interest rate step-up provisions provide that
special interest will accrue on the Notes (in addition to the stated interest
on the Notes) at a rate of 0.25% per annum during the 90-day period immediately
following the occurrence of any Registration Default, and shall increase by
0.25% per annum at the end of each subsequent 90- day period, but in no event
shall such rate exceed 1.00% per annum. See "Summary -- The New Notes." In the
event that applicable law or interpretations of the Staff of the Commission do
not permit the Company to file the registration statement containing this
Prospectus or to effect the Exchange Offer, or if certain holders of the Old
Notes notify the Company that they are prohibited by law or Commission policy
from participating in the Exchange Offer, or subject to other restrictions, the
Company will use its reasonable best efforts to cause to become effective the
shelf registration statement with respect to the resale of the Notes and to
keep the shelf registration statement effective until the earlier of three
years following the date the shelf registration statement is declared effective
by the Commission and such time as all the Notes have been sold thereunder.
Holders of Old Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer.
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on November 21, 1997; provided, however, that if the
Company has extended the period of time for which the Exchange Offer is open,
which in no event shall be later than December 5, 1997, the term "Expiration
Date" means the latest time and date to which the Exchange Offer is extended.
As of the date of this Prospectus, $125.0 million aggregate principal
amount of the Old Notes are outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about October 22, 1997
to all holders of Old Notes known to the Company. The Company's obligation
to accept Old Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions as set forth under "-- Certain Conditions to the Exchange
Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for any exchange of any Old Notes, by giving written
notice of such extension to the holders thereof, including those holders who
have previously tendered their Old Notes. During any such extension, all
Old Notes previously tendered will remain subject to the Exchange Offer and may
be accepted for exchange by the Company. Any Old Notes not accepted for exchange
for any reason will be returned without expense to the tendering holder thereof
as promptly as practicable after the expiration or termination of the Exchange
Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted for
exchange, upon the occurrence of any of the conditions of the Exchange Offer
specified below under "-- Certain Conditions to the Exchange Offer." The Company
will give written notice of any extension, amendment, non-acceptance or
termination to the holders of the Old Notes, including those holders who have
previously tendered their Old Notes, as promptly as practicable, such
notice in the case of any extension to be issued no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date.
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PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, including all other documents
required by such Letter of Transmittal, to First Trust National Association,
(the "Exchange Agent") at one of the addresses set forth below under "Exchange
Agent" on or prior to the Expiration Date. In addition, either (i) certificates
for such Old Notes must be received by the Exchange Agent along with the Letter
of Transmittal, or (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Old Notes, if such procedure is available,
into the Exchange Agent's account at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, THE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF
TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE COMPANY.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder of Old Notes to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such owner's own behalf, such owner
must, prior to completing and executing the Letter of Transmittal and delivering
such owner's Old Notes, either make appropriate arrangements to register
ownership of the Old Notes in such owner's name or obtain a properly completed
bond power from the registered holder of Old Notes. The transfer of registered
ownership may take considerable time and may not be able to be completed prior
to the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instruction" or "Special
Delivery Instructions" on the Letter of Transmittal, or (ii) for the account of
an Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantees must be by a firm which is a member
of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States or an eligible guarantor
institution within the meaning of Rule 17Ad-15 under the Exchange Act which is a
member of one of the recognized signature guarantee programs identified in the
Letter of Transmittal (collectively, "Eligible Institutions"). If Old Notes are
registered in the name of a person other than a signer of the Letter of
Transmittal, the Old Notes surrendered for exchange must be endorsed by, or be
accompanied by a written instrument or instruments of transfer or exchange, in
satisfactory form as determined by the Company in its sole discretion, duly
executed by, the registered holder with the signature thereon guaranteed by an
Eligible Institution. If the Letter of Transmittal or any Old Notes or powers
of attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to waive
any defects or irregularities or conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who
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<PAGE> 43
seeks to tender Old Notes in the Exchange Offer). The interpretation of the
terms and conditions of the Exchange Offer as to any particular Old Notes either
before or after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of Old
Notes for exchange must be cured within such reasonable period of time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall any
of them incur any liability for failure to give such notification.
In connection with the tender of the Old Notes, each broker-dealer holder
will represent to the Company in writing that, among other things, the New Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the holder and any beneficial holder, that neither the
holder nor any such beneficial holder has an arrangement or understanding with
any person to participate in the distribution of such New Notes and that neither
the holder nor any such other person is an "affiliate," as defined under Rule
405 of the Securities Act, of the Company. If the holder is not a broker-dealer,
the holder must represent that it is not engaged in nor does it intend to engage
in a distribution of the New Notes.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. For purposes of the Exchange Offer, the Company shall be deemed to
have accepted properly tendered Old Notes for exchange when, as and if the
Company has given oral and written notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described below, such non-exchanged Old Notes will be credited to an account
maintained with such Book-Entry Transfer Facility) as promptly as practicable
after the expiration of the Exchange Offer.
BOOK-ENTRY TRANSFER
Any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal or facsimile thereof
with any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "Exchange Agent" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book- entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, and (ii) prior to the Expiration Date, the
Exchange Agent received from such Eligible Institution a properly competed and
duly executed Notice of Guaranteed Delivery, substantially in the form provided
by the
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<PAGE> 44
Company (by telegram, telex, facsimile, mail or hand delivery), setting forth
the name and address of the holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within three New York Stock Exchange ("NYSE") trading days after the Expiration
Date, the certificates for all physically tendered Old Notes, in proper form
for transfer, or a confirmation of book- entry transfer of such Old Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-Entry
Confirmation"), as the case may be, a properly completed and duly executed
Letter of Transmittal and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the business day prior to the Expiration Date. For a
withdrawal to be effective, a written notice of withdrawal must be received by
the Exchange Agent at one of the addresses set forth below under "Exchange
Agent." Any such notice of withdrawal must specify the name of the person having
tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn
(including the principal amount of such Old Notes), and (where certificates for
Old Notes have been transmitted) specify the name in which such Old Notes are
registered, if different from that of the withdrawing holder. If certificates
for Old Notes have been delivered or otherwise identified to the Exchange Agent,
then, prior to the release of such certificates, the withdrawing holder must
also submit the serial numbers of the particular certificates to be withdrawn
and a signed notice of withdrawal with signatures guaranteed by an Eligible
Institution unless such holder is an Eligible Institution. If Old Notes have
been tendered pursuant to the procedure for book-entry transfer described above,
any notice of withdrawal must specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and
otherwise comply with the procedures of such facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any Old Notes which
have been tendered for exchange but which are not exchanged for any reason will
be returned to the holder thereof without cost to such holder (or, in the case
of Old Notes tendered by book-entry transfer into the Exchange Agent's account
at the Book-Entry Transfer Facility pursuant to the book entry transfer
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described under "-- Procedures for Tendering Old Notes" above at any
time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Old Notes and may terminate or amend the Exchange Offer if, at any time
before the acceptance of such Old Notes for exchange or the exchange of New
Notes for such Old Notes, the Company determines that the Exchange Offer
violates applicable law, any applicable interpretation of the Staff of the
Commission or any order of any governmental agency or court of competent
jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its reasonable discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of
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<PAGE> 45
1939, as amended (the "TIA"). In any such event the Company is required to use
every reasonable effort to obtain the withdrawal of any stop order at the
earliest possible time.
EXCHANGE AGENT
First Trust National Association, has been appointed as the Exchange Agent
for the Exchange Offer. All executed Letters of Transmittal should be directed
to the Exchange Agent at one of the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or of
the Letter of Transmittal and requests for Notices of Guaranteed Delivery should
be directed to the Exchange Agent addressed as follows.
<TABLE>
<S><C>
By Hand (New York depository only) By Hand (all others) By Registered, Certified or Overnight Mail:
First Trust of New York First Trust National Association First Trust National Association
100 Wall Street, 20th Floor Fourth Floor - Bond Drop Window Attn.: Specialized Finance
New York, NY 10005 180 East Fifth Street 180 East Fifth Street
Attn.: Cathy Donohue St. Paul, MN 55101 St. Paul, MN 55101
By First Class Mail: By Facsimile: By Telephone
First Trust National Association (612) 244-1537 (800) 934-6802 Bondholder Services
P.O. Box 64485 (For Eligible Institutions Only)
St. Paul, MN 55101
</TABLE>
DELIVERY OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The expenses to be incurred in connection with the Exchange Offer will be
paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old
Notes, which is the principal amount as reflected in the Company's accounting
records on the date of the exchange. Accordingly, no gain or loss for
accounting purposes will be recognized. The expenses of the Exchange Offer will
be capitalized for accounting purposes.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith, except that holders who
instruct the Company to register New Notes in the name of, or request that Old
Notes not tendered or not accepted in the Exchange Offer be returned to, a
person other than the registered tendering holder will be responsible for the
payment of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance
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<PAGE> 46
of the Old Notes pursuant to the exemptions from, or in transactions not
subject to, the registration requirements of, the Securities Act and applicable
state securities law. Old Notes not exchanged pursuant to the Exchange Offer
will continue to accrue interest at 10 1/8% per annum and will otherwise remain
outstanding in accordance with their terms. In general, the Old Notes may not
be offered or sold unless registered under the Securities Act, except pursuant
to an exemption from, or in a transaction not subject to, the Securities Act
and applicable state securities laws. The Company does not currently anticipate
that it will register the Old Notes under the Securities Act. However if (i)
the Initial Purchasers so request with respect to Old Notes held by them
following consummation of the Exchange Offer, or (ii) any holder of Old Notes
is not eligible to participate in the Exchange Offer because, for example, such
holder is an affiliate of the Company, does not acquire the New Notes in the
ordinary course of business or has an arrangement to participate in the
distribution of the New Notes, or (iii) any holder of Old Notes that
participates in the Exchange Offer does not receive freely tradable New Notes
in exchange for Old Notes, the Company is obligated to file a shelf
registration statement on the appropriate form under the Securities Act
relating to the Notes held by such persons.
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company is of the view that New
Notes issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, or (ii) any broker-dealer that purchases Notes from the Company
to resell pursuant to Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such New Notes. If any
holder has any arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such holder (i)
could not rely on the applicable interpretations of the staff of the Commission,
and (ii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction. A
broker-dealer who holds Old Notes that were acquired for its own account as a
result of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of New Notes. Each such broker-dealer that receives
New Notes for its own account in exchange for Old Notes, where such Old Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge in the Letter of Transmittal that it
will deliver a prospectus in connection with any resale of such New Notes. See
"Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Agreement and subject to certain specified
limitations therein, to register or qualify the New Notes for offer or sale
under the securities or blue sky laws of such jurisdictions as any holder of the
Notes reasonably requests in writing.
BUSINESS
GENERAL
The Company is a leading Tier 1 or direct supplier of high-quality,
engineered metal components, assemblies and modules used by OEMs. The Company's
core products are complex, high value-added products, primarily assemblies
containing multiple stamped parts and various welded, hemmed or fastened
components. These products which range from large structural stampings and
assemblies, including exposed Class A surfaces, to smaller complex welded
assemblies, are used in manufacturing of a variety of SUVs, light and medium
trucks, mini-vans, vans and passenger cars. The Company is the sole source
supplier of these products to its customers. On a pro forma basis, assuming the
acquisition of Lobdell had occurred on April 1, 1996, the Company would have had
net sales of $330.2 million and Adjusted EBITDA of $18.8 million (adjusted for
non- recurring items) for the fiscal year ended March 31, 1997. On a pro forma
basis for the fiscal year ended March 31, 1997, assuming the acquisitions of
Lobdell and Howell had occurred on April 1, 1996, net sales and Adjusted EBITDA
for the Company would have been $421.7 million and $22.3 million, respectively.
The Company had net sales of $92.0 million and
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<PAGE> 47
Adjusted EBITDA of $12.0 million for the three months ended June 30, 1997. On
a pro forma basis, assuming the acquisition of Howell had occurred on April 1,
1997, the Company would have had net sales of $116.6 million and Adjusted
EBITDA of $13.8 million for the three months ended June 30, 1997. Based on pro
forma net sales of $330.2 million, management believes the Company is one of
the ten largest suppliers of stampings to the North American automotive market.
The Company's four largest customers, GM, Ford, CAMI and Saturn, accounted
for approximately 56.0%, 33.0%, 3.0%, and 2.8%, respectively, of the Company's
net sales for the fiscal year ended March 31, 1997, on a pro forma basis for the
Lobdell acquisition, and 55.4%, 31.0%, 2.7%, and 2.8%, respectively, of the
Company's net sales for the three months ended June 30, 1997. The Company has
been providing products directly to GM and Ford for more than 50 years and has
earned outstanding commercial ratings for its high-quality standards, including
GM's Supplier of the Year and Mark of Excellence Awards, Ford's Q1 Award, and
CAMI's President's Award. The Company also sells its products to other Tier 1
suppliers. For the fiscal year ended March 31, 1997, approximately 72.0% of the
Company's net sales, on a pro forma basis, were derived from sales of its
products manufactured for SUVs, mini-vans, vans and light trucks. For the three
months ended June 30, 1997, approximately 73.0% of the Company's net sales were
derived from sales in this sector. In recent years, SUVs, mini-vans, vans and
light trucks have experienced stronger growth in vehicle production as compared
to the passenger car sector, with a CAGR from 1991 to 1996 of approximately 8.7%
as compared to (0.1%) for the passenger car sector. This sector includes those
platforms and models which have strong consumer demand, such as GM's popular C/K
platform (full-size pickups and the Yukon/Tahoe/Suburban models) and the Ford
Ranger, Explorer and Windstar. See Note 15 of the Oxford Automotive, Inc. Notes
to Consolidated Financial Statements for a description of the Company's domestic
and export sales.
Prior to the acquisition of Howell, the Company conducted its business
through two principal operations, BMG and Lobdell. Since acquiring BMG in
October 1995, management of the Company has implemented significant cost
reductions and achieved manufacturing efficiencies, including manpower
reductions consisting of 49 salaried positions (121 to 72) and 78 hourly
employees (570 to 492) and improved materials cost management, which includes
purchasing cost savings, reduction of scrap and inventory costs, and improved
scheduling of production. These actions resulted in a $4.6 million improvement
in Adjusted EBITDA from the fiscal year ended March 31, 1996 to the fiscal year
ended March 31, 1997. The same strategy utilized at BMG was implemented at
Lobdell immediately following its acquisition in January 1997. Since its
acquisition of Lobdell, the Company has achieved cost reductions totaling $13.6
million on an annual basis. In addition to the cost reductions, the Company has
been able to implement a number of manufacturing policies that have improved
productivity and quality, notwithstanding overall staff reductions.
The strategic combination of BMG, Lobdell, and Howell significantly
strengthens the Company's position as a leading Tier 1 supplier of assemblies
and modules to the OEMs. This combination provides the Company with the critical
mass and capabilities in the areas of design and engineering, sales and
marketing, and product expertise which provide the basis for the Company's
strategy of becoming a fully-integrated, global systems supplier. The Company
has already implemented a successful, focused sales and marketing initiative,
which commenced concurrently with the operational improvements at BMG. As a
result, the Company has been awarded the door assemblies and the side panel
package for the Innovate Program. Management believes these awards from Saturn
will generate approximately $60.0 million of annual net sales beginning with the
1999 model year.
The Company currently operates ten manufacturing facilities which offer the
latest technologies in metal stamping, welding and assembly production
equipment, including fully-automated hydraulic and wide-bed press lines (up to
180 inches), robotic welding cells, robotic hemming and autophoretic corrosion
resistant coating. Since 1992, the Company has invested in excess of $93.0
million in capital investments to support sales growth, expand production
capabilities and improve efficiency and flexibility. The Company's diverse line
of over 300 presses that range up to 2,500 tons and state-of-the-art robotic
weld assembly and hemming equipment are capable of manufacturing a broad
assortment of parts and assemblies ranging from simple stampings to full-size,
Class A door and closure panels. The Company is one of a few independent
suppliers that has the ability to produce large, complex stampings, as well as
the technical expertise and automated assembly capabilities that provide high
value-added modules such as door apertures and assemblies, A-pillars, Class A
surface products and control arms.
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<PAGE> 48
BUSINESS STRATEGY
The principal objective of the Company is to be a leading, full-service,
global Tier 1 supplier of integrated systems based on metal forming and related
manufacturing technologies. Management believes that the Company is well
positioned to benefit from two significant trends in the stamping and metal
forming segments of the automotive industry: outsourcing and consolidation.
Outsourcing of metal stamping has increased in response to competitive pressures
on OEMs to improve quality and reduce capital requirements, labor costs,
overhead and inventory. Consolidation among automotive industry suppliers has
occurred as OEMs have more frequently awarded long-term sole source contracts to
the most capable global suppliers. In addition, OEMs are increasingly seeking
systems suppliers who can provide a complete package of design, engineering,
manufacturing and project management support for an integrated system (such as a
front-end system). The Company intends to capitalize on these trends through
internal development and strategic acquisitions. The key elements of the
Company's strategy include the following:
Provide Full-Service Program Capability. The Company is focused on
developing full-service program capabilities. The Company works with OEMs
throughout the product development process from concept and prototype
development through the design and implementation of manufacturing processes.
The Company believes that its ability to provide the package of design,
engineering, prototyping, tooling, blanking, stamping, assembly, corrosion
resistant coating and custom shipping rack fabrication to its customers creates
a unique capability present in only a limited number of suppliers. The Company
believes this capability will enable it to manage large programs, assist it in
reducing customer program launch time, lower customer costs and increase its
margins.
Supply Complex, High Value-Added Systems. As a result of the Company's
technical design and engineering capabilities and its reputation for
highly-efficient manufacturing operations, the Company is able to secure supply
relationships for complex, high value-added products, primarily assemblies and
modules that contain multiple stamped parts and various welded, hemmed or
fastened components. For example, the Company produces the rear door for GM's
Yukon/Tahoe/Suburban vehicles, the lower control arm for GM's four wheel drive
C/K vehicles, the control arm assemblies for Ford's F-Series pickups and
Chrysler's T-300, the radiator support assembly for GM's W-car (Grand Prix,
Century, Lumina, Monte Carlo and Intrigue), and complex A-pillar assemblies for
the Ford Mustang and the Ford Ranger pickup. These complex products typically
generate higher dollar content per vehicle as well as higher margins for the
Company as compared to simple, individual stampings. The Company plans to
capitalize on its ability to develop and provide integrated modules and
assemblies to deliver to the OEMs an integrated product such as a complete door
or front-end system. In addition to doors, radiator supports and Class A surface
components, the Company believes it has unique expertise with respect to control
arms, which will be further developed as a component part of the entire drive
control system.
Focus on High Growth Vehicle Categories. The Company's sales and marketing
efforts have been, and will continue to be, directed toward sectors of the
automotive market that have experienced strong consumer demand. For the fiscal
year ended March 31, 1997, approximately 72.0% of the Company's net sales on a
pro forma basis for the acquisition of Lobdell were derived from sales of
products manufactured for SUVs, mini-vans, vans and light trucks. For the three
months ended June 30, 1997, approximately 73.0% of the Company's net sales were
derived from sales in this sector. The SUV market alone has been the fastest
growing segment in the North American new automotive sales market with 1991 to
1996 vehicle production growth at a CAGR of approximately 18.3%. Similarly, the
Company's sales to the passenger car market have been, and will continue to be,
directed to the segments with stronger sales growth, including Saturn cars. For
example, the growth in vehicle production in the passenger car sector has been
flat during the past five years while production of Saturn cars grew from 1992
to 1996 at a CAGR of approximately 9.2%.
Establish a Global Presence. The Company is actively pursuing strategic
acquisitions and joint-venture opportunities in Europe and intends to pursue
opportunities which will allow the Company to establish a presence in South
America, Asia and other markets in order to serve its customers on a global
basis. Several OEMs have announced certain models designed for the world
automobile market ("World Car"). As a result, the OEMs have encouraged their
existing suppliers to establish foreign production support for
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<PAGE> 49
World Car programs. This globalization provides access to new customers
and technology, as well as economic cycle diversification. At the request of GM
de Mexico, the Company is in the process of establishing a presence in Mexico.
The Company is currently assembling components for business recently awarded
by GM de Mexico at the Company's leased facility in Saltillo, Mexico. The
Company expects to have a new leased facility in Silao, Mexico operational by
February 1, 1998.
Pursue Strategic Acquisitions. In response to the trend in the OEM market
toward "systems suppliers," the Company is focused on making strategic
acquisitions that will enhance the Company's ability to provide integrated
systems (such as a door or front end systems) or otherwise leverage its existing
business by providing additional product, manufacturing and service
capabilities. The Company also intends to pursue acquisitions which will expand
its customer base by providing an entree to new customers, including the North
American operations of Asian and European based OEMs. Consistent with this
strategy, the recent acquisition of Howell provides an entree to Chrysler. The
Company believes that the continuing supplier consolidation in the stamping and
metal forming segments may also provide attractive opportunities to acquire
high- quality companies at favorable prices, including businesses which can be
improved financially through overhead elimination, organizational restructuring,
plant reconfiguration, labor contract negotiations and management changes. The
Company will also pursue acquisitions that enable it to achieve a global
presence.
RECENT DEVELOPMENTS
On August 13, 1997, the Company acquired Howell pursuant to the Merger
Agreement. Howell is a Tier 1 manufacturer of high-quality welded subassemblies
and detailed stampings used primarily in suspension system applications in the
production of SUVs, light trucks, mini-vans, vans and passenger cars. Pursuant
to the Merger Agreement, the shareholders of Howell received approximately $23.2
million in cash. Pursuant to the terms of a supplement to the Indenture, dated
as of August 13, 1997, Howell, a Restricted Subsidiary as defined in the
Indenture, became an additional Subsidiary Guarantor.
For the nine months ended April 30, 1997, Howell had net sales of $72.4
million and Adjusted EBITDA of $4.2 million. Howell's net sales have grown from
$39.4 million for the fiscal year ended July 31, 1992 to $79.2 million for the
fiscal year ended July 31, 1996. On a pro forma basis for fiscal 1997, assuming
the acquisitions of Lobdell and Howell had occurred on April 1, 1996, net sales
and Adjusted EBITDA for the Company would have been $421.7 million and $22.3
million, respectively. On a pro forma basis for the three months ended June 30,
1997, net sales and Adjusted EBITDA for the Company would have been $116.6
million and $13.8 million, respectively.
The acquisition of Howell is consistent with the strategic objectives of
the Company. Howell has a significant relationship with Chrysler and has
developed a niche in designing, engineering and manufacturing suspension control
arms in a variety of configurations and variations depending on drive-train and
suspension application. Approximately 54.0% of Howell's net sales for the nine
months ended April 30, 1997, were derived from acquisitions products used in the
control arm suspension applications. On a pro forma basis assuming the
acquisitions of Lobdell and Howell had occurred on April 1, 1996, the Company
would have derived approximately 23.0% of its net sales from suspension
applications for fiscal 1997.
Howell's expertise in this area is complementary to the Company's and will
enhance its ability to develop key suspension system components. Further,
Howell's sales are principally in the high-growth vehicle categories of SUVs,
light trucks, mini-vans and vans, the same market targeted by the Company. The
acquisition of Howell has also provided the Company an entree to Chrysler and
will strengthen the Company's existing relationship with Ford. Sales to Chrysler
and Ford represented 47.0% and 53.0%, respectively, of Howell's net sales for
the nine months ended April 30, 1997. On a pro forma basis for fiscal 1997,
including the full year effect of Lobdell and Howell, (i) the SUV, mini-van, van
and light truck segment represented approximately 75.0% of net sales and (ii)
the Company's net sales by major customers would have been approximately as
follows: GM 44.0%; Ford 37.0%; Chrysler 11.0%; CAMI 2.0%, and Saturn 2.0%. On a
pro forma basis for the three months ended June 30, 1997, assuming the
acquisition of Howell had occurred April 1 1997, (i) the SUV, mini-van and light
truck
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<PAGE> 50
segment represented approximately 78.2% of net sales and (ii) the Company's net
sales by major customers would have been approximately as follows: GM 43.9%,
Ford 36.2%, Chrysler 9.5%, CAMI 2.1%, and Saturn 2.2%.
Howell's two manufacturing facilities, located in Masury, Ohio and Lapeer,
Michigan, have received Chrysler's Gold Pentastar Award for the 1996 model year
and Ford's Q1 rating. In addition, Howell has achieved certification as a
registrant under the QS-9000 program for its facilities.
INDUSTRY TRENDS
The OEM market to which the Company sells its products consists of the
design, engineering, development, production and sale of parts, components,
assemblies and modules or systems (several components assembled together) for
use in the manufacture of new motor vehicles. The Company's performance, growth
and strategic plan are directly related to certain trends within the OEM market.
Since the 1980s, Chrysler, Ford and GM have each been substantially reducing the
number of suppliers that may bid for awards and outsourcing an increasing
percentage of their production requirements. As a result of these trends, the
OEMs are focusing on the development of long-term, sole source relationships
with suppliers who can provide more complex parts, as well as complete
subassemblies and modules on a just-in-time basis while at the same time meeting
strict quality requirements. These requirements are accelerating the trend
toward consolidation of the OEMs supplier base as those suppliers who lack the
capital and production expertise to meet the OEMs needs, either cease to operate
or are merged with larger suppliers. OEMs benefit from outsourcing because
outside suppliers generally have significantly lower cost structures and, as
described below, suppliers can assist in shortening development periods for new
products.
In addition to consolidation and outsourcing, suppliers are participating
earlier in the design and engineering process, providing research, as well as
product development, product testing/validation, prototyping and tooling. OEMs
generally expect Tier 1 suppliers to (i) participate in the design and
engineering of complex assemblies, (ii) develop the required manufacturing
process to deliver these assemblies on a just-in-time basis, and (iii) assume
responsibility for quality control. This results in shorter development times
for new products, as well as higher quality and lower parts costs.
While the focus today by the OEMs is on quality, cost and service, the
Company believes that the focus for the future will be on global capabilities,
innovation and ability to provide value-added products and systems. The OEMs
have been very successful in making high-quality and low cost a minimum
requirement to remain in the industry, as opposed to a competitive advantage for
certain suppliers.
These evolving requirements can best be addressed by suppliers with
sufficient resources to meet such demands. For full-service suppliers such as
the Company, this environment provides an opportunity to grow by obtaining
business previously provided by other suppliers who can no longer meet the
current or future requirements and expectations of the OEMs and by acquisitions
that further enhance product manufacturing and service capabilities. Although
the requirements of the OEMs have already resulted in significant consolidation
of component suppliers in many product segments, the Company believes that many
opportunities exist for further consolidation within the Company's stamping and
metal forming segment.
PRODUCTS
The Company generates the majority of its net sales from large, complex,
high value-added products, primarily assemblies that generally consist of
multiple parts, which the Company stamps and combines with various welded or
fastened components. The Company is the sole source supplier of these complex
modules and assemblies. These products include unexposed components and
assemblies that are intrinsic to the structural integrity of the vehicle such as
A-pillars, radiator supports, floor pans, toe-to-dash panels, frame and
suspension components and reinforcements. In addition to unexposed components
and assemblies, the Company has the capability and expertise to produce Class A
surfaces such as door assemblies, door apertures, rocker panels, fuel filler
doors, and box side outers, which require virtually flawless finishes and more
stringent customer requirements than unexposed assemblies. These products
require superior engineering and automated manufacturing and assembly
capabilities due to their complexity and high volume requirements.
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While the Company has the capability to produce small stampings, such as
brackets and braces, it focuses on more complex and larger components and
assemblies which typically generate higher dollar content per vehicle as well as
higher margins for the Company. These assemblies, such as the A, B and C
pillars, control arms, door assemblies, door apertures, deck lids and radiator
supports require larger, high tonnage, wide-bed, fully-automated press
capabilities, complex automated weld and hemming assembly, autophoretic
corrosion resistant coating, machining, and automated assembly of purchased
components. The Company was recently awarded the door assembly and side panel
packages for the Innovate Program that are expected to generate approximately
$60.0 million per annum in net sales over a four to five year model life cycle
beginning in 1999. In addition, the Company has been awarded approximately $3.4
million in new business from GM de Mexico providing blanks and assembling floor
assemblies. The floor assemblies program commenced in September and the Company
expects to begin providing blanks starting in the fourth quarter of fiscal 1998.
In addition to these products and services, the Company designs,
fabricates, paints and assembles custom shipping containers and racks for the
automotive industry. These custom racks and containers are typically designed
for specific components and assemblies and are sold both to OEMs as well as Tier
1 and Tier 2 suppliers. Rack sales for fiscal 1997 were approximately $7.8
million on a pro forma basis for the acquisition of Lobdell. Rack sales for the
three months ended June 30, 1997 were approximately $0.5 million.
The chart below details by major customer the Company's major products, the
type of vehicle and the model/platform for which they are produced:
<TABLE>
<CAPTION>
CUSTOMER COMPONENT TYPE MODEL/PLATFORM
-------- --------- ---- --------------
<S> <C> <C> <C>
General Motors Door Assemblies Sport Utility Suburban/Yukon/Tahoe
Door Apertures Suburban/Yukon/Tahoe
Rocker Panels Suburban/Yukon/Tahoe
Lower Control Arms Suburban/Yukon/Tahoe
Door Apertures Light Trucks C/K Full Size Crewcab
Pickup
Lower Control Arms C/K Full Size Four Wheel
Drive
Rocker Panels C/K Full Size Crewcab
Pickup
A-Pillar Inners Mini-Vans Safari/Astro
Struts Safari/Astro
Lower Control Arms Safari/Astro
Toe-to-Dash Panel Medium Duty Commercial Chassis
Floor Assembly Kodiak
Fuel Straps Kodiak
Raised Roof Panel Kodiak
Radiator Supports Passenger Grand Prix, Regal,
Intrigue, Monte
Carlo, Lumina
Floor Panels Corvette/EVI
Wheel Houses EVI
Door Beams Grand Am, Achieva
Sun Roof Assembly Malibu, Cutlass
Saturn Deck Lid Passenger Sport Coupe
Pillar Reinforcement Sport Coupe
Inner Door Panel Sport Coupe
Window Frame
Reinforcement Sport Coupe
Body Side Inners Innovate (1999 Launch)
Door Assemblies Innovate (1999 Launch)
Shelf Panel Innovate (1999 Launch)
Wheel House Inner Innovate (1999 Launch)
</TABLE>
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<PAGE> 52
<TABLE>
<S> <C> <C> <C>
Ford Rear Floor Reinforcement Sport Utility Explorer/Mountaineer
Reinforced Center Body
Pillar Explorer/Mountaineer
Rear Seat Back/Floor
Assembly Explorer/Mountaineer
B-Pillar Assembly Explorer/Mountaineer
Control Arms Expedition/Navigator
A-Pillar Assemblies Light Trucks Ranger/Mazda
Upper/Lower Back Panels Ranger/Mazda
Back Panel Inside Upper Ranger/Mazda
Roof Panel Assembly Ranger/Mazda
Windshield Header Ranger/Mazda
Box Side Outers Mazda
Control Arms F-Series
Load Floors F-Series (250/350
Supercab)
Rear Floor Cargo Vans/Mini-Vans Windstar
Assemblies
Dash Panels Windstar
Rear Crossmembers Econoline
Cowl Side Windstar/Econoline/Aerostar
Radiator Supports Windstar (1999 Model)
Roof Rails Econoline
A-Pillar Inners Econoline
Floor Pans Econoline/Windstar
Shock Towers Econoline
Fuel Filler Doors Econoline
Ford Control Arms-Front Passenger Cars Contour/Mystique/Mondeo
& Rear (Europe)
Rear Suspension Bar Contour/Mystique/Mondeo
Assembly (Europe)
A-Pillar Assemblies Mustang/Thunderbird/Cougar/
Mark VIII
Pillar Inners Town Car
Frame Rails Mustang
CAMI Rear Bumper Sport Utility Geo Tracker/Suzuki Sidekick
Side Frame Member Geo Tracker/Suzuki Sidekick
(Front/Rear)
Door Inner Reinforcement Geo Tracker/Suzuki Sidekick
Floor Bar Geo Tracker/Suzuki Sidekick
Various Underbody Geo Tracker/Suzuki Sidekick
Components
Rear Cross Members Passenger Cars Geo Metro/Suzuki Swift
Side Sill Geo Metro/Suzuki Swift
Dash Panel Geo Metro/Suzuki Swift
Chrysler Control Arms Sport Utility Jeep Cherokee
Control Arms Light Trucks T-300
</TABLE>
The Company has received purchase orders for production commencing after the
current model year, which production typically continues through the products
lifecycle and is subject to the volume requirements of customers, for the
following major products: (i) the new Saturn Innovate Program, which management
believes will generate approximately $60.0 million of annual net sales beginning
with the 1999 model year; and (ii) the 1999 Ford Windstar-radiator support,
which management believes will generate approximately $7.2 million of annual
net sales.
DESIGN AND ADVANCED ENGINEERING
The Company strives to maintain a technological advantage through investment in
product development and advanced engineering capabilities that utilize
structured program management techniques in an effort to exceed the customer's
expectations for value and service. The Company's engineering staff encompasses
such disciplines as program
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<PAGE> 53
management, computer aided design ("CAD"), advanced engineering, manufacturing
feasibility, and tooling and process development. Responsibilities of the
Company's engineers include (i) design, (ii) initial prototype development,
(iii) design and implementation of manufacturing processes, (iv) production
feasibility and improvement, and (v) data management.
As the Company's customers continue to outsource larger assembled systems
which must be designed at earlier stages of vehicle development rather than the
smaller parts which are attached to them, the Company is increasingly required
to utilize advanced engineering resources early in the planning process.
Advanced engineering resources create improved engineering design, CAD
feasibility studies, working prototypes and testing programs to meet customer
specifications. Given this increased demand for early involvement in the design
and engineering aspects of production development, the Company established a
new technical center which houses its engineering and design group. The Company
utilizes structured program management based on the Automotive Industry Action
Group sanctioned Advanced Part Quality Planning principles to ensure part
quality in all phases of design and manufacturing. The Company has established
a data management and CAD department which is able to support all major
customer systems. The Company provides "gray box" engineering capabilities in
which the customer has principal design responsibility while the Company's
engineers work closely with the customer in designing the specifications of the
product material, the part to be produced and the tooling required to produce
the finished product. The Company is also on-line with all major customers
which accelerates the process of design changes.
The Company's design and advanced engineering expertise is an important
differentiating factor in maintaining its relationships with and obtaining new
business from Ford and GM and, in management's judgment, was an essential
factor in winning the Innovate Program business.
CUSTOMERS AND MARKETING
The Company supplies its products on a long-term preferred and sole
source basis, primarily to GM (56.0%), Ford (33.0%), CAMI (3.0%), and Saturn
(2.8%) (percentages are approximates of net sales for the fiscal year ended as
of March 31, 1997 on a pro forma basis for the Lobdell acquisition), with the
remaining net sales comprised of sales primarily to other automotive
suppliers. Through the acquisition of Howell, Chrysler has also become a
significant customer of the Company. The Company has been providing products
directly to GM and Ford for more than 50 years. The Company has been shipping
products to GM de Mexico from its operations in the United States for several
years, and, at the request of GM de Mexico, the Company has begun assembling
and will begin manufacturing components for GM de Mexico from existing
facilities and facilities to be established in Mexico. The Company believes its
presence in Mexico is strategically important and may lead to several
significant new opportunities with GM de Mexico and other OEMs doing business
in Mexico. The Company maintains very strong relationships with its customers
and continually strives to exceed customer expectations and anticipate customer
needs. This approach has enabled the Company to maintain its status as a
long-term supplier with each of its major customers and as part of a limited
group of preferred suppliers invited to bid for platform work.
With the efforts by the OEMs to reduce the product development cycle time,
top suppliers are increasingly included in the early design and development
stages. For example, the Company obtains many of its new orders through a
presourcing process by which the customer invites one or a few preferred
suppliers to manufacture and design a component, assembly or module that meets
certain price, timing and functional parameters. Upon selection at the
development stage, the Company and the customer typically agree to cooperate in
developing the product to meet the specified parameters. Upon completion of the
development stage and the award of the manufacturing business, the Company
receives a blanket purchase order for those components, assemblies or modules
for the life of a vehicle model or platform, which typically range from five to
seven years. Consequently, the key success factors for OEM suppliers now
include total program management that encompasses state-of-the-art design,
manufacture and delivery of high quality products at competitive prices.
The Company believes that the advanced engineering and sales organization at
the Company's technical center offers services few other suppliers have
available for their customers. The group's primary activities are: (i)
Quoting/Cost
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Estimating; (ii) Assembly/Automation; (iii) CAD Design and Data Control; (iv)
Tool Process/Design; and (v) Program Management. The sales group is divided
into customer oriented business units, each with a business unit manager
responsible for all facets of customer needs, as well as strategies for growing
their particular customer base. The entire group is dedicated to advanced
technical development and servicing a multitude of customers' needs as one
team.
MANUFACTURING AND FACILITIES
The Company's corporate headquarters, engineering, technical center and
sales offices are currently located in Bloomfield Hills, a suburb of Detroit,
Michigan, close to its core of automotive customers. The Company's ten
manufacturing plants are strategically located in Michigan, Ohio, Indiana,
Tennessee, and Ontario, Canada near OEM manufacturing sites. These
manufacturing plants aggregate approximately 2.1 million square feet in size
and are all Company-owned. In addition, the Company currently leases and
intends to lease additional manufacturing and assembly facilities in Mexico in
connection with the recent award of business from GM de Mexico.
The Company operates over 300 presses ranging from under 100 ton to 2,500
ton capabilities. The Company is capable of producing components and assemblies
from the smallest brackets to full-size, Class A door and closure panels with
its unique wide-bed (180 inch), automated press lines. Production systems
include oil feeders, welding robots, pick and place robots and other
state-of-the-art automation, as well as autophoretic corrosion resistant
coating systems.
As OEMs have increased quality standards and implemented just-in-time and
sequenced delivery/inventory management methods, the consistency of quality, as
well as the timeliness and reliability of shipments by OEM suppliers, have
become crucial in meeting logistical demands of the OEMs and reducing operating
costs of the supplier. The Company has responded by developing and adopting
manufacturing practices that seek to maximize quality and eliminate waste and
inefficiency in its own operations and in those of its customers. The Company's
manufacturing and engineering capabilities enable it to design and build
high-quality, efficient manufacturing systems, processes and equipment. The
Company has invested heavily in its commitment to quality through education of
employees and implementation of cost management and control systems from the
plant floor up.
All suppliers are required to meet numerous quality standards in order to
qualify as a preferred and long-term supplier to the OEM's. The QS-9000
standards were developed by international and domestic automobile and truck
manufacturers to ensure that their suppliers meet consistent quality standards
that can be independently audited. The QS-9000 standards provided for the
standardization and documentation of a suppliers's policies and procedures to
improve supplier efficiencies. Ford, GM and Chrysler require that all suppliers
be certified QS-9000 by the end of 1997 and the Company is scheduled to meet
that requirement.
In addition to the QS-9000 standard, each OEM maintains its own
certification or award system for preferred suppliers based on the supplier's
demonstrated quality, delivery and certain commercial considerations. Ford
requires that all suppliers receive its Q1 rating in order to quote for new
business. GM's Supplier of the Year Award provides certain competitive
advantages to the recipients but is not a requirement for current GM suppliers
to bid on new business. Chrysler allows suppliers who have received its Gold
Pentastar Award to retain any current business when it is replaced by a new
model without competitive bidding. Other OEM's maintain various award programs
for their suppliers that recognize outstanding performance by the supplier.
The Company has received Chrysler's Gold Pentastar Award for each of its
facilities that have Chrysler as a customer. The Company has the Q1 rating
from Ford at 6 of the 7 plants that have Ford as a customer. Since the
acquisition of Lobdell, the Company has initiated steps necessary to obtain the
Q1 rating at the seventh plant. The Company believes that the plant has met
the minimum standards, has demonstrated this over the time period required for
a Q1 rating and is in the final phase for approval. The Company expects that
the plant will be QS-9000 certified by the end of October with the Q1 rating
awarded by the end of November. If this plant does not obtain the Q1 rating,
it would be precluded from quoting on new Ford business and the Company would
likely consolidate its Ford production in its other Q1 rated plants.
As part of its full-service supplier development program, the Company is
also undergoing the process of becoming certified by Ford as a Full-Service
Supplier. This certification process, conducted by Ford, ensures that a
Full-Service Supplier meets various Ford requirements relating to quality
standards. The Company expects to be certified by Ford during 1997.
A summary of the Company's major facilities is set forth below:
<TABLE>
<CAPTION>
SIZE
FACILITY (SQ. FT.) EXPERTISE PRIMARY PRODUCTS
- -------- --------- --------- ----------------
<S> <C> <C> <C>
Alma, Michigan 389,000 Class A surfaces, large Radiator Supports,
stampings and complex A-Pillars, Floor Pans, Frame
stampings and assemblies Rails, Deck Lids
Argos, Indiana 386,000 Class A surfaces, large Door Assemblies, Apertures,
panels, complex stampings Floor Panels, Roofs,
</TABLE>
52
<PAGE> 55
<TABLE>
<S> <C> <C> <C>
and assemblies A-Pillars
Corydon, Indiana 200,000 Difficult draw forming Radiator Supports,
and complex stampings A-Pillars, Cowl Sides
and assemblies
Greencastle, 214,000 Large stampings, complex Radiator Supports,
Indiana stampings and A-Pillars, Seat Backs,
assemblies, Control Arms
autophoretic corrosion
resistant coating
Winchester, 185,000 High strength, low-alloy Rocker Panels, various
Indiana material, deep draw structural components
forming and complex
stampings and
assemblies
Cambridge, 290,000 Complex assemblies and Radiator Supports,
Ontario large stampings Control Arms, Door Inners,
A-Pillars
Delhi, Ontario 115,000 High strength, low-alloy Rocker Panels, Control
material, complex Arms, Cross Members
stampings
and assemblies
Athens, Tennessee 100,000 Welding, painting and Structural steel
assembly shipping racks and
containers
Masury, Ohio 150,000 Complex assemblies and Control Arms, Cross
stampings Members, various structural
components
Lapeer, Michigan 85,000 Complex assemblies and Control Arms, Cross
stampings Members, various structural
components
Bloomfield Hills, Executive Offices,
Michigan(1) Sales, Marketing and
Advanced Engineering
</TABLE>
_________________
(1) All properties above are owned, with the exception of the Bloomfield Hills
office. This office is leased for a five-year term ending July 31, 2000 and
requires a monthly rent of $8,580. The Company expects to relocate its
Executive, Sales, Marketing and Engineering Staffs to approximately 22,700
square feet of office space located in Troy, Michigan. This office will be
leased for a five-year term commencing when certain leasehold improvements
are completed and will require a monthly rent of $23,646. The Company
expects to complete this relocation by November 1997. In addition, certain
of the Company's management staff is located at leased office space in
Southfield, Michigan.
RAW MATERIALS
The cost of raw materials represented approximately 53.0% of net sales of
the Company for the fiscal year ended March 31, 1997 on a pro forma basis for
the Lobdell acquisition and approximately 51.8% of net sales of the Company for
the three months ended June 30, 1997. On an annual basis, steel represents
approximately 77.0% of total raw materials purchases. The Company expects to
purchase nearly 378,000 tons of steel in fiscal 1998 for use in its
production. The remaining 23.0% of raw materials purchases is represented by
various purchased parts such as forgings, bushings, ball joints, isolators,
corrosion resistant coating, and various fasteners.
The Company participates in steel purchase programs through Ford, GM and
Chrysler wherein the steel is purchased by the OEM from the steel mill and sold
to the Company at a negotiated price. These purchase programs effectively
neutralize the exposure to steel price increases, as any price increases from
the steel mills are either absorbed by the OEM prior to the Company's purchase
of the steel or such increases are reflected in the Company's purchase of the
steel and passed back to the OEM in the product pricing. The Company currently
participates in such a steel purchase program with Ford and Chrysler for
substantially all of its Ford and Chrysler steel requirements and its Canadian
operations participate in such a program with GM. The Company expects that
substantially all of its additional GM steel requirements, which are currently
covered by
53
<PAGE> 56
annual steel contracts that expire upon the consummation of the GM steel
purchase program, will be covered by the GM steel purchase program by December
1997.
COMPETITION
The market for the Company's products is characterized by strong competition
from both captive OEM suppliers and external, non-captive suppliers. The
Company competes with a limited number of competitors that have the physical
assets and technical resources to produce large bed stampings, complex parts
and subassemblies of multiple parts. The Company's largest competitors include
The Budd Company, a subsidiary of Thyssen AG; Magna International Inc.; Tower
Automotive, Inc.; Aetna Industries, Inc.; Ogihara America Corp., a subsidiary
of Marubeni Corp.; Midway Products Corporation; Active Tool & Manufacturing
Co., Inc.; A.G. Simpson Automotive, Inc.; Mayflower Vehicle Systems Inc.; L&W
Engineering; National Automotive Radiator Manufacturing Company; and divisions
of OEMs with internal stamping and assembly operations.
The Company competes for business at the beginning of the development for
new model platforms, as well as the redesign of current models. This process
can begin from two to five years prior to the introduction of the new model.
After the customer awards a program, that supplier is generally designated as
the sole source supplier for the life of that program, which typically lasts 4
to 5 years for passenger cars and up to 10 years for trucks (particularly for
unexposed structural components and assemblies).
EMPLOYEES
At August 30, 1997, the Company employed approximately 2,600 persons in the
United States and Canada, approximately 560 of whom are employed on a salaried
basis and the balance of whom are hourly employees. Substantially all of the
hourly employees are represented by unions. In the United States, substantially
all of the Company's hourly workers are represented by the UAW, USW and
Teamsters through collective bargaining agreements with eight local unions.
These individual agreements which are from three to five years in length expire
over the period March 1998 through September 2000. The agreement with the UAW
for the Argos, Indiana facility is currently scheduled to expire on March 31,
1998 and the Company expects to enter into early negotiations regarding the UAW
contract at the Argos plant. As of June 30, 1997, substantially all of the
Company's hourly Canadian employees were represented by the CAW. The Company
recently negotiated a new agreement with the CAW for the Cambridge, Ontario
facility which is scheduled to expire on September 30, 2000.
The Company has not experienced any organized work stoppages at any time
during the past ten years. At the present time, the Company believes that its
relations with its employees are good.
REGULATORY MATTERS
The Company's facilities and operations are subject to a wide variety of
federal, state, local, and foreign environmental laws, regulations, and
ordinances, including those related to air emissions, wastewater discharges,
and chemical and hazardous waste management and disposal ("Environmental
Laws"). The Company's operations also are governed by laws relating to
workplace safety and worker health, primarily the Occupational Safety and
Health Act, and foreign counterparts to such laws. In many jurisdictions, these
laws are complex and change frequently. The nature of the Company's operations
exposes it to risks of liabilities or claims with respect to environmental and
worker health and safety matters. At March 31, 1997, the Company has a
liability of approximately $880,000 recorded for estimated costs of known
environmental matters. There can be no assurance that material costs will not
be incurred in connection with such liabilities or claims. See Note 14 to
Oxford Automotive, Inc. Notes to Consolidated Financial Statements.
Based on the Company's experience to date, the Company believes that the
future cost of compliance with existing Environmental Laws (or liability for
known environmental claims) will not have a material adverse effect on the
Company's
54
<PAGE> 57
business, financial condition or results of operations. However, future events,
such as changes in existing Environmental Laws or their interpretation, may
give rise to additional compliance costs or liabilities that could have a
material adverse effect on the Company's business, financial condition or
results of operations. Compliance with more stringent Environmental Laws, as
well as more vigorous enforcement policies of regulatory agencies or stricter
or different interpretations of existing Environmental Laws, may require
additional expenditures by the Company that may be material.
Certain Environmental Laws hold current owners or operators of land or
businesses liable for their own and for previous owners' or operators' releases
of hazardous or toxic substances, materials or wastes, pollutants or
contaminants, including petroleum and petroleum products ("Hazardous
Substances"). Certain laws, including but not limited to CERCLA, may impose
joint and several liability on responsible parties. Because of the Company's
operations, the long history of industrial uses at some of its facilities, the
operations of predecessor owners or operators of certain of the businesses, and
the use, production, and releases of Hazardous Substances at these sites, the
Company is affected by such liability provisions of the Environmental Laws.
Several of the Company's facilities have experienced some level of regulatory
scrutiny in the past and are or may be subject to further regulatory
inspections, future requests for investigation or liability for past disposal
practices.
The Company's Alma, Michigan plant is listed on the Michigan Department of
Environmental Quality ("MDEQ") list of Michigan Sites of Environmental
Contamination. Based on filings with the MDEQ by the current owner of the
petroleum refinery which adjoins the Alma plant property, the refinery has been
determined by the MDEQ to be the source of certain contamination existing in
the eastern area of the Alma plant property. While the Company is currently
conducting certain remedial activity at its Alma plant in connection with this
contamination, the Company may have claims against the refinery owner relating
to this contamination. While the Company does not expect to incur significant
future costs in connection with this matter, the Company cannot guarantee that
such future costs will not be material.
The Resource Conservation and Recovery Act and the regulations thereunder
("RCRA") regulates the generation, treatment and disposal of hazardous wastes.
In the mid-1980s, the Company, through Lobdell, entered into a Consent
Agreement and Final Order with the United States Environmental Protection
Agency (the "EPA") relating to the final closure of a surface water impoundment
area at the Alma plant under RCRA. The Company has remediated the impoundment
soils and sediments and is now implementing a groundwater monitoring program
with EPA approval under RCRA. In addition, the Company is conducting
groundwater monitoring in a separate section of the Alma plant at which
contaminants have been detected by the Company's consultants. Both of these
programs may be affected by the suspected contamination from the petroleum
refinery described above. While future groundwater remediation costs, if any,
are not expected to be material, the Company cannot predict such costs with
certainty and no guarantee can be made that these costs will not be material.
The Company has been named as a potentially responsible party, along with
several other companies, in connection with a former disposal facility located
in the St. Louis, Michigan area. The Company and certain other named parties,
in cooperation with the State of Michigan, currently are undertaking a remedy
for which they are sharing costs. Groundwater at the site is currently being
monitored and while the costs of groundwater remediation, if any, are not
expected to be material, the Company cannot accurately estimate such costs at
this time. See "Risk Factors -- Environmental Risks and -- Legal Proceedings."
LEGAL PROCEEDINGS
In June 1994, Wilkie Brothers Conveyors, Inc. ("Wilkie") filed a civil
action against Howell in the Michigan Circuit Court for the County of St. Clair
to recover past and future response costs and for declaratory relief in
connection with alleged environmental contamination at a plant formerly owned
by Howell in Marysville, Michigan. Howell sold the plant to plaintiff in 1984.
In September 1995, the City of Marysville filed a civil action against Howell
and Wilkie in the Michigan Circuit Court for the County of St. Clair to require
Howell and Wilkie to take certain clean-up and remediation actions in
connection with contamination at the plant. In 1996, Howell agreed to pay
$575,000 in settlement of the litigation relating to this facility, subject to
governmental approvals. The settlement has been approved and the required
consent decree was filed on September 18, 1997.
55
<PAGE> 58
The Company is also subject to various claims, lawsuits and administrative
proceedings related to matters arising in the normal course of business. In the
opinion of management, after reviewing the information which is currently
available with respect to such matters and consulting with legal counsel, any
liability which may ultimately be incurred with respect to these matters will
not materially affect the financial position of the Company.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of the
directors and executive officers of Oxford Automotive. Each director of Oxford
Automotive will hold office until the next annual meeting of shareholders or
until his successor has been elected and qualified. Officers of Oxford
Automotive serve at the discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Selwyn Isakow................ 45 Chairman of the Board of Directors
Rex E. Schlaybaugh, Jr....... 48 Vice Chairman of the Board of Directors
and Secretary
Steven M. Abelman............. 46 Director, President and Chief Executive
Officer
Manfred J. Walt............... 44 Director
Donald C. Campion............. 49 Senior Vice President-Chief Financial
Officer
Larry C. Cornwall............. 50 Senior Vice President-Sales and
Engineering
John H. Ferguson.............. 49 Vice President-Financial Operations and
Assistant Secretary
</TABLE>
Selwyn Isakow, Chairman of the Board of Directors. Mr. Isakow has been the
President and a director of Oxford Automotive since its inception in 1995 and
was appointed Chairman of the Board in May 1997. Since 1985, Mr. Isakow has
been the President of The Oxford Investment Group, Inc. ("Oxford Investment"),
a private investment and corporate development company that acquires majority
equity positions on behalf of its principals in industrial products
manufacturing, financial services, niche distribution and other selected
companies. Mr. Isakow generally serves as Chairman of the Board and a director
of all such portfolio companies. Mr. Isakow is also a director of Champion
Enterprises, Inc. and Ramco Gershenson Properties Trust, and serves on the
boards of numerous community organizations. From 1982 to 1985, Mr. Isakow was
the Executive Vice President of Comerica Incorporated, a regional bank holding
company, and from 1978 to 1982, was a principal at Booz, Allen and Hamilton,
management consultants.
Rex E. Schlaybaugh, Jr., Vice Chairman of the Board of Directors and
Secretary. Mr. Schlaybaugh has been the Secretary and a director of Oxford
Automotive since its inception in 1995 and was appointed Vice Chairman of the
Board in May 1997. Mr. Schlaybaugh was appointed the Vice Chairman of Oxford
Investment in May 1997. Mr. Schlaybaugh has been a member of the firm of Dykema
Gossett PLLC since 1985. Mr. Schlaybaugh is also a director of certain other
portfolio companies of Oxford Investment. Mr. Schlaybaugh is currently the
Chairman of the Board of Trustees of Oakland University.
Steven M. Abelman, Director, President and Chief Executive Officer. Mr.
Abelman was appointed President and Chief Executive Officer of Oxford
Automotive in May 1997. Prior to joining Oxford Automotive, Mr. Abelman was
Deputy Chief
56
<PAGE> 59
Executive Officer of Bundy North America ("Bundy"), an automotive supplier of
brake and fuel delivery systems, from February 1996 until May 1997 and prior to
that he was President of Bundy from September 1995 until February 1996. From
December 1991 to September 1995, Mr. Abelman was Vice President and General
Manager of Augat Wiring Systems, a manufacturer of automotive wiring systems
and components.
Manfred J. Walt, Director. Mr. Walt has been a director of Oxford Automotive
since May 1997. Mr. Walt has been the Managing Partner-Financial Services of
the Edper Group Limited ("Edper"), a diversified Canadian Merchant Bank with
operations in natural resources, power generating, financial services and real
estate, since 1989. From 1980 to 1989, Mr. Walt served in various capacities
with Edper. Mr. Walt is the Chairman of Consolidated Canadian Express Limited
and Consolidated Enfield Limited, merchant banking affiliates of Edper.
Donald C. Campion, Senior Vice President-Chief Financial Officer. Mr.
Campion was appointed Senior Vice President- Chief Financial Officer of Oxford
Automotive in July 1997. From June 1996 to March 1997, Mr. Campion was the
Senior Vice President and Chief Financial Officer at Delco Electronics
Corporation. From November 1993 to May 1996, Mr. Campion was the Chief
Financial Officer for the services parts division of GM, and from August 1992
to October 1993 was the Financial Director of Performance Analysis for the
North American Operations of GM.
Larry C. Cornwall, Senior Vice President-Sales and Engineering. Mr. Cornwall
was appointed Vice President-Sales and Engineering of Oxford Automotive
in May 1997. From October 1995 to May 1997, Mr. Cornwall was the Senior Vice
President-Sales and Engineering at BMG. From 1991 to 1995, Mr. Cornwall was
Vice President of Sales and Engineering at Veltri International, an automotive
stamper.
John H. Ferguson, Vice President-Financial Operations and Assistant
Secretary. Mr. Ferguson was appointed as a Vice President-Financial Operations
and Assistant Secretary of Oxford Automotive in May 1997. Mr. Ferguson is also
the Chief Financial Officer of BMG, a position he has held since April 1996.
Prior to that time, Mr. Ferguson was with Bundy, where he acted as Group Plant
Manager from 1994 to 1996 and as Corporate Controller from 1992 to 1994. From
1984 to 1992, Mr. Ferguson held several positions with GenCorp. Inc., an
automotive tire supplier, including Controller of the Automotive Products
Group.
Certain of the officers and directors of Oxford Automotive are also
directors or officers of Oxford Automotive subsidiaries.
BOARD COMMITTEES
In the past, the Company has not maintained any committees of the Board of
Directors. On August 4, 1997, the Board of Directors established an Audit
Committee and a Compensation Committee.
The Audit Committee will be responsible for reviewing with management the
financial controls and accounting and reporting activities of the Company. The
Audit Committee will review the qualifications of the Company's independent
auditors, make recommendations to the Board of Directors regarding the
selection of independent auditors, review the scope, fees and results of any
audit and review non-audit services and related fees. The Audit Committee
consists of Messrs. Schlaybaugh and Walt.
The Compensation Committee will be responsible for the administration of
all salary and incentive compensation plans for the officers and key employees
of the Company, including bonuses. Salaries and bonuses will be reviewed by
the Compensation Committee and will be adjusted in light of performance of the
Company, the responsibilities of each of the Company's officers in meeting
corporate performance objectives and other factors, such as length of service
and subjective assessments. The Compensation Committee consists of Messrs.
Isakow and Walt.
DIRECTOR COMPENSATION AND ARRANGEMENTS
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<PAGE> 60
Directors do not currently receive compensation for their services as
directors. However, the Company intends to pay fees to its non-employee
directors and to reimburse the out-of-pocket expenses related to directors'
attendance at each Board and committee meeting. In addition, the Company may
elect to adopt a non-employee director option plan or other similar plan to
provide for grants of stock options or other benefits as a means of attracting
and retaining highly qualified independent directors for the Company. Members
of the Board of Directors are elected pursuant to certain shareholder
agreements by and among the Company and certain of its shareholders. See
"Principal Shareholders -- Shareholder Agreements."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee prior to August 4, 1997.
Accordingly, all determinations with respect to executive compensation were
made by the Board of Directors. Pursuant to the terms of the Indenture, the
Company is not permitted to enter into any transaction (including employee
compensation arrangements) with any Affiliate (as defined) unless the
transaction is arm's length and, if the transaction involves amounts in excess
of $1 million in any one year, the terms of the transaction are set forth in
writing and approved by a majority of the disinterested members of the Board of
Directors. For similar transactions in excess of $5 million in any one year,
an opinion of a recognized investment banking firm that such transaction is
fair, from a financial standpoint, is also required. See "Description of the
Notes -- Certain Covenants." During the last completed fiscal year, Messrs.
Isakow and Schlaybaugh participated in deliberations of the Company's Board of
Directors concerning executive officers compensation. See "Certain
Transactions."
EXECUTIVE COMPENSATION
The following table sets forth certain information as to the compensation
earned by the Company's Chief Executive Officer and the Company's four other
most highly paid officers (the "Named Executive Officers") for the last three
fiscal years.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION(1)
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME AND TITLE YEAR SALARY BONUS COMPENSATION COMPENSATION
-------------- ---- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Selwyn Isakow, Chairman(2).... 1997 $ ---- $ ---- $ ---- $ ----
Donald C. Campion, Senior
Vice President-Chief
Financial Officer (3)........ 1997 ---- ---- ---- ----
Larry C. Cornwall,
Senior Vice President-Sales
and Engineering (4).......... 1997 124,196 ---- ---- ----
1996 31,504 24,200
John H. Ferguson, Vice
President-Financial Operations
and Assistant Secretary (5).. 1997 101,250 ---- ---- ----
</TABLE>
- ----------
(1) The Company was formed in October 1995 and, other than as disclosed in the
table above, executive officers of the Company have not received any
compensation.
58
<PAGE> 61
(2) Mr. Isakow was the President of the Company from its inception until May
1997, during which time he did not receive any compensation from the
Company. Steven M. Abelman was appointed President and Chief Executive
Officer in May 1997. See "-- Employment Agreements."
(3) Mr. Campion was appointed Senior Vice President-Chief Financial Officer of
Oxford Automotive in July 1997. See "--Employment Agreements."
(4) Mr. Cornwall joined the Company in October 1995 and received compensation
from the Company for a full fiscal year only in 1997.
(5) Mr. Ferguson joined the Company in April 1996 and thus did not receive
compensation from the Company for the full 1997 fiscal year.
EMPLOYMENT AGREEMENTS
As of May 1, 1997, Oxford Automotive and Steven M. Abelman entered into an
Employment and Noncompetition Agreement. The agreement provides that Mr.
Abelman will serve as President and Chief Executive Officer of Oxford
Automotive on an "at-will" basis. The agreement provides that Mr. Abelman will
receive an annual salary of $250,000, will be eligible to receive a bonus of up
to 60% of his salary as determined by the Board of Directors of Oxford
Automotive, and will be entitled to certain fringe benefits. Mr. Abelman has
also agreed not to compete with the Company during the period of his employment
and for two years following the termination of his employment. Upon the
termination of his employment without cause, Mr. Abelman is entitled to
severance payments equal to (a) his annual base salary, if such termination is
prior to May 1, 1999 or (b) 1.5 times his annual base salary, if such
termination is after May 1, 1999.
On November 24, 1995, BMG and Larry C. Cornwall entered into an Employment
Agreement. The agreement provides that Mr. Cornwall will serve as Senior Vice
President-Sales and Marketing of BMG on an "at-will" basis. Mr. Cornwall has
subsequently been appointed as Senior Vice President-Sales and Engineering of
Oxford Automotive. The agreement provides that Mr. Cornwall will receive an
annual salary of $120,000, will be eligible to receive a bonus of up to 50% of
his salary as determined by the Board of Directors of BMG, will be eligible to
participate in the Company's profit sharing plan, and will be entitled to
certain fringe benefits. Upon the termination of the agreement, Mr. Cornwall
will be entitled to continue to receive his base salary for the longer of three
months or the Canadian statutory requirement.
As of July 21, 1997, Oxford Automotive and Donald C. Campion entered into an
Employment and Noncompetition Agreement. The agreement provides that Mr.
Campion will serve as Senior Vice President-Chief Financial Officer of Oxford
Automotive on an "at-will" basis. The agreement provides that Mr. Campion will
receive an annual salary of $210,000, will be eligible to receive a bonus of up
to 50% of his salary as determined by the Board of Directors of Oxford
Automotive, and will be entitled to certain fringe benefits. Mr. Campion has
also agreed not to compete with the Company during the period of his employment
and for two years following the termination of his employment. Upon
termination of his employment without cause, Mr. Campion is entitled to a
severance payment of 50% of his annual base salary, payable over six months,
plus the continuation of certain benefits during this six-month period.
See also "Certain Transactions -- Management Agreements."
PRINCIPAL SHAREHOLDERS
As of August 31, 1997, there were 309,750 issued and outstanding shares of
the Common Stock, without par value, of the Company (the "Common Stock"). The
following table sets forth information as of August 31, 1997 with respect to
the Common Stock beneficially owned by each director of the Company, the Named
Executive Officers, all directors and executive officers of the Company as a
group, and by other holders known to the Company as having beneficial ownership
59
<PAGE> 62
of more than 5% of the Common Stock. Selwyn Isakow and the Company's other
shareholders have entered into certain agreements, each of which contain
substantially identical terms, the result of which gives Mr. Isakow voting
control of 100% of the Company's Common Stock, except under certain
circumstances. See "-- Shareholder Agreements." Unless otherwise specified, the
address for each person is 2000 North Woodward Avenue, Suite 130, Bloomfield
Hills, Michigan 48304.
<TABLE>
<CAPTION>
NUMBER PERCENT
NAME AND ADDRESS OF BENEFICIAL OF OF
OWNER SHARES CLASS
----- ------ -----
<S> <C> <C>
Selwyn Isakow (1) . . . . . . . . . 151,474 48.9%
Robert H. Orley . . . . . . . . . . 23,180 7.5%
Rex E. Schlaybaugh, Jr. . . . . . . 12,900 4.2%
Steven M. Abelman (2) . . . . . . . 12,326 4.0%
2365 Franklin Road
Bloomfield Hills, MI 48302
Manfred J. Walt . . . . . . . . . . 1,500 *
Suite 4440 BCE Place
181 Bay Street
Toronto, Ontario, Canada M5J 2T3
Donald C. Campion (2) . . . . . . 4,000 1.3%
2365 Franklin Road
Bloomfield Hills, MI 48302
John H. Ferguson . . . . . . . . . 6,180 2.0%
2365 Franklin Road
Bloomfield Hills, MI 48302
Larry C. Cornwall . . . . . . . . . 7,000 2.3%
2365 Franklin Road
Bloomfield Hills, MI 48302
Gregg L. Orley . . . . . . . . . . 21,840 7.1%
All directors and officers as
a group (7 persons) (1)(2). . . . . 195,380 63.1%
</TABLE>
- ------------------------------
*Less than 1.0%
(1) Includes 135,874 shares owned by Hilsel Investment Company Limited
Partnership, of which Tridec Management, Inc. is General Partner. Mr.
Isakow is the President and a shareholder of Tridec Management, Inc. In
addition, Mr. Isakow may be deemed to be the beneficial owner of all of the
outstanding shares of Common Stock as a result of certain voting power over
such shares pursuant to the shareholder agreements described below and
certain purchase options that may be exercised by Mr. Isakow with respect
to 60,470 outstanding shares of Common Stock.
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<PAGE> 63
(2) Each of Mr. Abelman's and Mr. Campion's Employment and Noncompetition
Agreement with Oxford Automotive provides Oxford Automotive with the right
to repurchase their respective shares of Common Stock if their employment
is terminated for any reason.
SHAREHOLDER AGREEMENTS
Each holder of Common Stock is a party to a shareholder agreement which
provides for certain restrictions on transfer by shareholders and grants
certain other shareholders the option to purchase the shares of a shareholder
upon his death. Each surviving shareholder has the right to exercise this
option within 30 days of the death of a shareholder. The exercising
shareholders will divide the deceased shareholder's shares as they agree or, if
they are not able to agree, pro rata. If the exercising shareholders are not
able to agree on a purchase price with the estate of the deceased shareholder,
then the per share purchase price shall be the per share value of the Company
based on the greater of the value of the Company as a going concern or on a
liquidation basis, as determined by an independent appraisal. The purchase
price shall be paid by an initial cash payment of up to 20% of the purchase
price with the balance paid pursuant to a five-year, unsecured promissory note
bearing interest at the prime rate. The agreements also provide that each
shareholder will grant a proxy to Mr. Isakow to vote all of the shareholder's
shares at any meeting of the Company; provided, however, that if holders of
shares having a majority in interest of the shares of Common Stock determine
that it is in the best interest of all of the shareholders to sell all or
substantially all of the assets of the Company or to cause the Company to merge
or consolidate with or into another corporation, Mr. Isakow shall exercise the
proxies provided to him consistent with that decision. As a result, except as
described above, Mr. Isakow has voting control of 100% of the Company's Common
Stock.
CERTAIN TRANSACTIONS
MANAGEMENT AGREEMENTS
Oxford Investment is a private investment and corporate development company
which is controlled by Mr. Isakow. At the time the Company acquired Lobdell,
Oxford Investment and Lobdell entered into an agreement (the "Lobdell
Agreement") whereby Oxford Investment agreed to perform various consulting,
management, and advisory services on behalf of Lobdell with respect to all
matters relating to or affecting Lobdell's business. Lobdell paid Oxford
Investment an investment banking fee of $300,000 on the date the Company
acquired Lobdell and paid Oxford Investment a management fee of $300,000 per
year. This agreement was terminated upon completion of the Offering. At the
time the Company acquired BMG, Oxford Investment and BMG entered into an
agreement (the "BMG Agreement") whereby Oxford Investment agreed to perform
certain management services for BMG. BMG paid Oxford Investment an investment
banking fee of $200,000 on the date the Company acquired BMG and paid Oxford
Investment a management fee of $200,000 per year. This agreement was also
terminated upon completion of the Offering. Mr. Schlaybaugh is the Vice
Chairman of Oxford Investment.
The Company entered into a new management agreement with Oxford Investment
upon the termination of the Lobdell Agreement and the BMG Agreement. Pursuant
to the terms of this management agreement, Oxford Investment will perform
various consulting, management and financial advisory services on behalf of the
Company. The Company will pay Oxford Investment a monthly management fee of
$83,334 and will pay an investment banking fee, for acquisitions of $2.5
million or more, of 1.0% or 1.25% (for acquisitions outside of North America)
of the aggregate acquisition cost for advice and assistance in connection with
such acquisition, with a minimum fee of $200,000. No investment banking fee
will be paid to Oxford Investment in connection with acquisitions for aggregate
consideration of less than $2.5 million. The initial term of the agreement will
end on December 31, 2001, but will automatically extend for additional one-year
periods thereafter unless either party terminates the agreement. In addition,
pursuant to the management agreement, Oxford Investment will license to the
Company the name "Oxford Automotive" which is owned by Oxford Investment.
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OTHER TRANSACTIONS
As of March 31, 1997, Mr. Abelman issued a note to the Company in connection
with his acquisition of shares of the Company's Common Stock. The principal
amount of the note was $130,000 and the note bears interest at the prime rate
plus 1.0%, which rate is adjusted on March 31 of each year to reflect the then
current prime rate. Principal and interest on the note is payable in equal
annual installments with interest on the unpaid principal, with the final
payment due May 31, 2002.
As of March 31, 1997, the Company issued a subordinated demand note to Mr.
Robert H. Orley in connection with the redemption of certain shares of the
Company's Common Stock. The principal amount of the note was $108,203 and was
paid in full subsequent to March 31, 1997.
RPI, Inc. ("RPI"), a Michigan corporation controlled by the shareholders of
the Company, issued demand notes to Lobdell in the principal amounts of
$250,000, $100,000, $150,000, $200,000, and $300,000, respectively, on May 2,
1997, May 21, 1997, June 6, 1997, June 30, 1997, and July 11, 1997, each
bearing interest at the prime rate plus 1.0% per annum. The notes were issued
in connection with ongoing discussions between RPI and the Company regarding a
possible merger or other similar transaction in consideration for which RPI has
agreed to deal exclusively with the Company and its affiliates until December
31, 1997. This agreement to deal exclusively with the Company will allow the
Company to negotiate a possible transaction with RPI without undue interference
from a third party. The Company has no immediate plans to demand payment under
these notes. The Company has agreed to extend credit to RPI up to a maximum of
$1.7 million, including the notes referenced above, in accordance with the
restrictions on affiliate transactions set forth in the Indenture.
LEGAL
Rex E. Schlaybaugh, Jr. is a shareholder, the Vice Chairman of the Board and
a director of the Company. Dykema Gossett PLLC, of which Mr. Schlaybaugh is a
member, has performed legal services for the Company since its inception,
including services performed in connection with the Offering and this Exchange
Offer. The Company expects to continue to retain the firm as general counsel
after the Exchange Offer.
DESCRIPTION OF CERTAIN
INDEBTEDNESS AND PREFERRED STOCK
SENIOR CREDIT FACILITY
General. In connection with the Offering, on June 24, 1997, the Company
entered into a credit agreement with NBD Bank, on behalf of itself and as agent
for a syndicate of other lenders, providing for up to $110.0 million (the
"Commitment Amount") of revolving credit availability including the issuance of
letters of credit (the "Senior Credit Facility"). The Company and each
principal operating subsidiary (the "Senior Credit Obligors") are parties to or
guarantors of the Senior Credit Facility. The obligations under the Senior
Credit Facility (the "Obligations") are secured by a first lien on
substantially all the assets of the Senior Credit Obligors. The Obligations and
guaranties of the Senior Credit Obligors (the "Senior Credit Guaranties") will
rank senior to all other indebtedness of the Company, including the Notes.
Availability under the revolver at June 30, 1997 was approximately $101.0
million, reduced for the effect of a Letter of Credit issued for the IRB's (as
defined). Funds under the Senior Credit Facility are available for general
corporate purposes (including acquisitions) and letters of credit.
Interest Rates. Interest on outstanding borrowings under the Senior Credit
Facility is payable monthly and accrues at an annual rate equal to (a) the
Applicable Margin (as defined in the Senior Credit Facility) plus either (i)
the higher of the Prime Rate (as defined in the Senior Credit Facility) or 0.5%
over the Federal Funds Rate or (ii) with respect to Canadian based borrowings,
the higher of the prime rate of First Chicago NBD Bank, Canada or 0.5% over the
BA Rate (the one month bankers' acceptance rates, as further defined in the
Senior Credit Facility), or (b) the London Interbank Offered Rate plus
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the Applicable Margin (a "LIBOR-based Rate") or, with respect to Canadian based
borrowings, the BA Rate. The Applicable Margin will be based upon the Company's
trailing four quarter Ratio of Total Debt to EBITDA (as defined in the Senior
Credit Facility) as follows:
<TABLE>
<CAPTION>
RATIO OF TOTAL APPLICABLE
FUNDED MARGIN
DEBT TO EBITDA PRIME/LIBOR
-------------- -----------------
<S> <C>
> 5.00 .75% / 2.25%
4.51 -- 5.00 .50% / 2.00%
3.76 -- 4.50 .25% / 1.75%
3.01 -- 3.75 0% / 1.50%
<= 3.00 0% / 1.25%
</TABLE>
Maturity and Optional Prepayments. All borrowings under the Senior Credit
Facility mature in June 2003, and the aggregate principal amount outstanding
may not exceed the Commitment Amount at any time. Borrowings under the Senior
Credit Facility may be prepaid at any time without premium or penalty, except
that any prepayment of a LIBOR-based Rate loan that is made prior to the end of
the applicable interest period shall be subject to reimbursement of breakage
costs.
Covenants. The Senior Credit Facility contains certain customary covenants,
including without limitation, reporting and other affirmative covenants;
financial covenants including: ratios of total debt to EBITDA beginning at not
greater than 5.50 to 1.00 and decreasing to not greater than 4.50 to 1.00
after June 30, 1999; net worth of not less than $35.4 million plus a percentage
of the Company's net income plus any proceeds from the issuance of capital
stock; fixed charge coverage ratio beginning at not less than 1.45 to 1.00 and
increasing to not less than 1.60 to 1.00 after March 31, 1998; and interest
coverage ratio beginning at not less than 2.00 to 1.00 and increasing to not
less than 2.25 to 1.00 after March 31, 1999 (each as defined in and calculated
pursuant to the Senior Credit Facility); and negative covenants, including:
restrictions on incurrence of indebtedness (other than as provided for in the
Senior Credit Facility, purchase money debt, the Notes, tooling debt, and
guaranties of certain other debt not to exceed $30.0 million), payment of cash
dividends and other distributions to shareholders, liens in favor of parties
other than the lenders under the Senior Credit Facility, certain guaranties of
obligations of or advances to others, sales of material assets not in the
ordinary course of business, restrictions on mergers and acquisitions, and
capital expenditures (each as defined in and calculated pursuant to the Senior
Credit Facility). The Company remained in compliance with its covenants
following the acquisition of Howell.
Events of Default. The Senior Credit Facility contains customary events of
default including non-payment of principal, interest or fees; violation of
covenants; inaccuracy of representations or warranties; cross-defaults to
certain other indebtedness, including the indebtedness evidenced by the Notes,
and bankruptcy.
Fees. The Company will pay, on a quarterly basis, a per annum fee on the
unused Commitment Amount ranging from 0.25% to 0.50% and letter of credit fees
ranging from 1.25% to 2.25%, in each case based on certain financial ratios of
the Company.
BMG INDEBTEDNESS
The Canadian Department of Regional Industrial Expansion has provided a term
loan (the "IRDP Loan") to BMG, bearing interest at 6% with a final maturity
date of September 1, 2002. The IRDP Loan is unsecured. As of June 30, 1997,
$0.5 million was outstanding with respect to the IRDP Loan.
The Export Development Corporation of Canada ("EDC") has provided a tooling
line facility to BMG (the "EDC Facility"), bearing interest at a fixed rate of
7.36%. The EDC Facility is secured by tooling at BMG relating to specific
Saturn contracts and has a final maturity of September 30, 1999. As of June
30, 1997, $4.3 million was outstanding with respect to the EDC Facility.
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LOBDELL INDEBTEDNESS
Lobdell, through Lewis Emery Capital Corporation, its wholly-owned
subsidiary, has been provided with a term loan facility from NBD Bank (the "LE
Loan"), bearing interest at 0.625% over 90-day LIBOR with a final maturity date
of October 1, 1998. This loan is collateralized by a purchase order from Ford,
which allows for recovery of the term-debt principal and interest,
administrative costs and a predetermined markup. As of June 30, 1997, $2.4
million was outstanding with respect to the LE Loan.
Lobdell, through its subsidiary Creative Fabrication Corporation
("Creative"), is financially obligated to the County of McMinn, Tennessee
pursuant to certain revenue bonds issued on behalf of Creative. On September
27, 1995, the Industrial Development Board of the County of McMinn issued $8.5
million of its Industrial Development Revenue Bonds ("IRBs") for the purpose of
lending the proceeds from the sale of the IRBs to Creative. The IRBs bear
interest at a variable rate which was 5.55% at June 30, 1997. The IRBs are
collateralized by a letter of credit issued by NBD Bank for the benefit of the
trustee under the indenture relating to the IRBs and by a mortgage on the
Creative facilities located in Tennessee and are guaranteed by Lobdell.
Creative is prohibited from paying, declaring or authorizing any dividend if
there is an event of default under the IRB documents. The IRBs mature in
September 2010. As of June 30, 1997, $8.2 million principal amount of IRBs
were outstanding.
PREFERRED STOCK OF LOBDELL
In connection with the Company's acquisition of Lobdell, Lobdell issued
457,541 shares of its Series A $3.00 Cumulative Preferred Stock ( the "Series A
Preferred Stock") and 49,938 shares of its Series B Preferred Stock (the
"Series B Preferred Stock" and together with the Series A Preferred Stock the
"Lobdell Preferred Stock"), each having a stated value of $100 per share, of
which only 397,539 shares of Series A Preferred Stock are currently
outstanding. All of the Series B Preferred Stock has been cancelled, as
described below. Generally, except as required by law, the holders
of Lobdell Preferred Stock have no voting rights. However, the holders of
Series A Preferred Stock, voting as a separate class, are entitled to elect (i)
one director of Lobdell, and (ii) if Lobdell fails to pay three consecutive
semi-annual dividend payments to the holders of Series A Preferred Stock, one
additional director until the payment default is cured. Dividends on the Series
A Preferred Stock accrue annually at the rate of $3.00 per share and are
cumulative, whether or not earned or declared. Lobdell may not declare or pay
any dividend or other distribution, other than in Lobdell Common Stock or other
stock junior to the Lobdell Preferred Stock ("Junior Stock"), with respect to
any Junior Stock unless all accrued, unpaid and current dividends with respect
to the Series A Preferred Stock have either been paid or sufficient funds have
been set apart for such payment. The Series A Preferred Stock also has certain
liquidation preferences.
The Series A Preferred Stock is mandatorily redeemable by Lobdell on
December 31, 2006 at a price per share of $100, plus accrued and unpaid
dividends to the date of redemption. However, if the Company does not commence
a public offering of its common stock pursuant to a firm commitment
underwritten offering prior to June 30, 2006, the payment for the shares of
Series A Preferred Stock to be redeemed will be $103 per share, plus accrued
and unpaid dividends to the date of redemption. In addition, at the option of
the holders of Series A Preferred Stock, if the Company does not commence such
a public offering of its common stock on or before December 31, 2001, Lobdell
must redeem on December 31 of each year commencing with 2002 up to 20% of the
aggregate number of shares of Series A Preferred Stock held by any such holder
immediately prior to December 31, 2002. The Subsidiary Guaranty of Lobdell
ranks senior to the Lobdell Preferred Stock. See "Description of the Notes --
Subsidiary Guaranties."
In connection with the acquisition of Lobdell by the Company, the Company
has agreed to exchange its common stock for the shares of Series A Preferred
Stock upon the initial public offering ("Initial Public Offering") of its
common stock to the public which is exclusively for cash, subject to an
effective registration statement and underwritten on a firm commitment basis by
one or more underwriters. The holders of Series A Preferred Stock have the
right to exchange up to 50% or some lesser portion of their shares of Series A
Preferred Stock (the "Election Amount") for a number of shares of Company
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common stock equal to (i) the Election Amount, multiplied by (ii) the Exchange
Ratio (the number equal to the redemption value of a share of Series A
Preferred Stock, divided by the price per share to the public of Company common
stock in the Initial Public Offering); provided, however, that, in the
aggregate, holders of Series A Preferred Stock may not receive more than 25% of
the number of shares of Company common stock registered pursuant to the Initial
Public Offering.
Pursuant to the acquisition of Lobdell, the Company obtained various
indemnities for certain purchase price adjustments arising out of a closing
balance sheet and for claims relating to representations and warranties made by
the former common shareholders of Lobdell in connection with the acquisition.
At the closing of such acquisition, 100,000 shares of Series A Preferred Stock
were placed with an escrow agent to fund indemnification claims of the Company.
The Company and the preferred shareholders of Lobdell have settled certain
purchase price adjustments relating to the difference between the shareholder's
equity reflected on the closing balance sheet and the amount that had
previously been projected by Lobdell, which has resulted in the cancellation of
60,002 shares of the escrowed Series A Preferred Stock and 49,938 shares of
Series B Preferred Stock, which represented all of the outstanding Series B
Preferred Stock. The remaining 39,998 shares of escrowed Series A Preferred
Stock were released to the preferred shareholders of Lobdell.
DESCRIPTION OF THE NOTES
GENERAL
The Old Notes were issued under an Indenture (the "Indenture") dated as of
June 15, 1997, among the Company, the Subsidiary Guarantors and First Trust
National Association, as Trustee (the "Trustee"). The terms of the Indenture
apply to the Old Notes and to the New Notes to be issued in exchange therefor
pursuant to the Exchange Offer (all such Notes are referred to herein
collectively as the "Notes").
The following is a summary of certain provisions of the Indenture and the
Notes, a copy of which Indenture and the form of Notes is available upon
request to the Company. The following summary of certain provisions of the
Indenture does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Indenture, including
the definitions of certain terms therein and those terms made a part thereof by
the Trust Indenture Act of 1939, as amended. Capitalized terms used herein and
not otherwise defined have the meanings set forth in the section "-- Certain
Definitions." As used in this section, the term "Company" refers to Oxford
Automotive, Inc.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company, which, unless otherwise provided by the Company, will be the offices
of the Trustee. At the option of the Company, payment of interest may be made
by check mailed to the addresses of the Holders as such addresses appear in the
Note register.
The Notes are issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Notes are unsecured senior subordinated obligations of the Company,
limited to $160.0 million aggregate principal amount (of which $125.0 million
were issued in the Offering), and will mature on June 15, 2007. The Notes bear
interest at the rate per annum shown on the cover page hereof from June 24,
1997, or from the most recent date to which interest has been paid or provided
for, payable semi-annually to Holders of record at the close of business on the
June 1 or December 1 immediately preceding the interest payment date on June 15
and December 15 of each year, commencing December 15, 1997. The Company will
pay interest on overdue principal at 1% per annum in excess of such rate, and
it will pay interest on overdue installments of interest at such higher rate to
the extent lawful.
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OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes are not redeemable
at the option of the Company prior to June 15, 2002. Thereafter, the Notes are
redeemable, at the Company's option, in whole or in part, at any time or from
time to time, upon not less than 30 nor more than 60 days' prior notice mailed
by first-class mail to each Holder's registered address, at the following
redemption prices (expressed in percentages of principal amount), plus accrued
and unpaid interest to the redemption date (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), if redeemed during the 12-month period commencing on
June 15 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
------ ----------
<S> <C>
2002 . . . . . 105.063%
2003 . . . . . 103.375
2004 . . . . . 101.688
2005 and 100.000
thereafter
</TABLE>
In addition, at any time and from time to time prior to June 15, 2000, the
Company may redeem in the aggregate up to 35% of the original principal amount
of the Notes with the proceeds of one or more Public Equity Offerings following
which there is a Public Market, at a redemption price (expressed as a
percentage of principal amount) of 110.125% plus accrued and unpaid interest,
if any, to the redemption date (subject to the right of Holders of record on
the relevant record date to receive interest due on the relevant interest
payment date); provided, however, that at least 65% of the original aggregate
principal amount of the Notes must remain outstanding after each such
redemption.
SELECTION
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other method
as the Trustee in its sole discretion shall deem to be fair and appropriate,
although no Note of $1,000 in original principal amount or less will be
redeemed in part. If any Note is to be redeemed in part only, the notice of
redemption relating to such Note shall state the portion of the principal
amount thereof to be redeemed. A new Note in principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
SUBSIDIARY GUARANTIES
Each of BMG, BMG Holdings, Inc., an Ontario corporation, Lobdell, Howell,
Winchester Fabrication Corporation, a Michigan corporation, Creative
Fabrication Corporation, a Tennessee corporation, Parallel Group International,
Inc., an Indiana corporation, Laserweld International, L.L.C., an Indiana
limited liability company, Concept Management Corporation, a Michigan
corporation, and Lewis Emery Capital Corporation, a Michigan corporation (each
a "Subsidiary Guarantor"), irrevocably and unconditionally Guarantee, jointly
and severally, as primary obligors and not merely as sureties, on an unsecured
senior subordinated basis the performance and punctual payment when due,
whether at Stated Maturity, by acceleration or otherwise, of all obligations of
the Company under the Indenture and the Notes, whether for payment of principal
of or interest on the Notes, expenses, indemnification or otherwise (all such
obligations guaranteed by the Subsidiary Guarantors being herein called the
"Guaranteed Obligations"). The Subsidiary Guarantors agree to pay, in addition
to the amount stated above, any and all expenses (including reasonable counsel
fees and expenses) incurred by the Trustee or the Holders in enforcing any
rights under the Subsidiary Guaranties. Each Subsidiary Guaranty will be
limited in amount to an amount not to exceed the maximum amount that can be
guaranteed by the applicable Subsidiary Guarantor without rendering such
Subsidiary Guaranty voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally. After the Issue Date, the Company will cause each
Restricted Subsidiary that becomes an obligor or guarantor with respect to any
of the obligations under one or more of the Bank Credit
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Agreements to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Restricted Subsidiary will Guarantee payment of the
Notes. See "Certain Covenants -- Future Subsidiary Guarantors" below.
Each Subsidiary Guaranty is a continuing guarantee and shall (a) remain in
full force and effect until payment in full of all the Guaranteed Obligations,
(b) be binding upon each Subsidiary Guarantor and (c) inure to the benefit of
and be enforceable by the Trustee, the Holders and their successors,
transferees and assigns. A Subsidiary Guaranty will be released upon the sale
of all the capital stock, or all or substantially all of the assets, of the
applicable Subsidiary Guarantor if such sale is made in compliance with the
Indenture.
SUBORDINATION
The indebtedness evidenced by the Notes and the Subsidiary Guaranties
represents senior subordinated obligations of the Company and the Subsidiary
Guarantors, as the case may be. The payment of the principal of, premium (if
any) and interest on the Notes, the payment of any Subsidiary Guaranty and all
other Obligations under or in connection with the Notes, the Subsidiary
Guaranties, the Indenture and/or any related agreements, documents or
instruments are subordinate in right of payment, as set forth in the Indenture,
to the prior payment in full of all Senior Indebtedness of the Company or the
relevant Subsidiary Guarantor, as the case may be, whether outstanding on the
Issue Date or thereafter incurred, including all Obligations of the Company and
such Subsidiary Guarantor under the Senior Credit Facility. The Notes and the
Subsidiary Guaranties are also effectively subordinated to any Secured
Indebtedness of the Company and the Subsidiary Guarantors to the extent of the
value of the assets securing such Indebtedness and to any liabilities of
Subsidiaries other than the Subsidiary Guarantors.
As of June 30, 1997, (i) the Company had no outstanding Senior Indebtedness
(excluding unused commitments under the Senior Credit Facility) and (ii) Senior
Indebtedness of the Subsidiary Guarantors was approximately $17.9 million.
Although the Indenture contains limitations on the amount of additional
Indebtedness that the Company and its Restricted Subsidiaries may incur, under
certain circumstances the amount of such Indebtedness could be substantial and,
in any case, such Indebtedness may be Senior Indebtedness. See "Certain
Covenants -- Limitation on Indebtedness."
Only Indebtedness of the Company or a Subsidiary Guarantor that is Senior
Indebtedness will rank senior to the Notes and the relevant Subsidiary Guaranty
in accordance with the provisions of the Indenture. The Notes and each
Subsidiary Guaranty will in all respects rank pari passu with all other senior
subordinated Indebtedness of the Company and the relevant Subsidiary Guarantor,
respectively. The Company and each Subsidiary Guarantor has agreed in the
Indenture that it will not Incur, directly or indirectly, any Indebtedness that
is subordinate or junior in ranking in right of payment to its Senior
Indebtedness unless such Indebtedness is pari passu with or is expressly
subordinated in right of payment to the Notes. Unsecured Indebtedness is not
deemed to be subordinated or junior merely because it is unsecured.
The Company may not pay, directly or indirectly, principal of, premium (if
any) or interest on, the Notes or any other Obligations under or in connection
with the Notes, the Indenture and/or any related agreements, documents or
instruments or make any deposit pursuant to the provisions described under "--
Defeasance" below and may not repurchase, redeem or otherwise retire any Notes
(collectively, "pay the Subordinated Debt") if (i) any Senior Indebtedness is
not paid when due or (ii) any other default on any such Senior Indebtedness
occurs and the maturity of such Senior Indebtedness is accelerated in
accordance with its terms unless, in either case, the default has been cured or
waived and any such acceleration has been rescinded or such Senior Indebtedness
has been paid in full in cash. However, the Company may pay the Subordinated
Debt without regard to the foregoing if the Company and the Trustee receive
written notice approving such payment from the Representative of the Senior
Indebtedness with respect to which either of the events set forth in clause (i)
or (ii) of the immediately preceding sentence has occurred and is continuing.
During the continuance of any default (other than a default described in
clauses (i) and (ii) of the second preceding sentence) with respect to any
Senior Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods,
the Company may not pay the Subordinated Debt for a period (a "Payment Blockage
Period") commencing upon the receipt by the Trustee (with a copy to the
Company) of written
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notice (a "Blockage Notice") of such default from the Representative of the
holders of such Designated Senior Indebtedness specifying an election to effect
a Payment Blockage Period and ending 180 days thereafter (or earlier if such
Payment Blockage Period is terminated (i) by written notice to the Trustee and
the Company from the Person or Persons who gave such Blockage Notice, (ii)
because the default giving rise to such Blockage Notice has been waived in
writing or (iii) because such Designated Senior Indebtedness has been repaid in
full in cash). Notwithstanding the provisions described in the immediately
preceding sentence, unless the holders of such Designated Senior Indebtedness
or the Representative of such holders has accelerated the maturity of such
Designated Senior Indebtedness, the Company may resume payments on the Notes
after the end of such Payment Blockage Period. The Notes shall not be subject
to more than one Payment Blockage Period in any consecutive 360-day period,
irrespective of the number of such nonpayment defaults with respect to
Designated Senior Indebtedness during such period.
Upon any payment or distribution of the assets of the Company of any kind or
character, whether in cash, property or securities, to creditors upon a total
or partial liquidation or dissolution or reorganization of or similar
proceeding relating to the Company or its property or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding, the holders of
Senior Indebtedness will be entitled to receive payment in full in cash of such
Senior Indebtedness before the Noteholders are entitled to receive any payment,
and, until the Senior Indebtedness is paid in full in cash, any payment or
distribution to which Noteholders would be entitled but for the subordination
provisions of the Indenture will be made to holders of such Senior Indebtedness
as their interests may appear. If a payment or distribution is made to
Noteholders that, due to the subordination provisions, should not have been
made to them, such Noteholders are required to hold it in trust for the holders
of Senior Indebtedness and pay it over to them as their interests may appear.
The obligations of a Subsidiary Guarantor under its Subsidiary Guaranty are
senior subordinated obligations. As such, the rights of Noteholders to receive
payment by a Subsidiary Guarantor pursuant to its Subsidiary Guaranty will be
subordinated in right of payment to the rights of holders of Senior
Indebtedness of such Subsidiary Guarantor. The terms of the subordination
provisions described above with respect to the Company's obligations under the
Notes apply equally to a Subsidiary Guarantor and the obligations of such
Subsidiary Guarantor under its Subsidiary Guaranty.
By reason of the subordination provisions contained in the Indenture, in the
event of insolvency, creditors of the Company or a Subsidiary Guarantor who are
holders of Senior Indebtedness of the Company or a Subsidiary Guarantor, as the
case may be, may recover more, ratably, than the Noteholders, and creditors of
the Company who are not holders of Senior Indebtedness may recover less,
ratably, than holders of Senior Indebtedness and may recover more, ratably,
than the Noteholders.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in
trust by the Trustee for the payment of principal of and interest on the Notes
pursuant to and in accordance with the provisions described under "--
Defeasance."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder shall have the right
to require that the Company repurchase all or a portion of such Holder's Notes
at a purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of repurchase (subject to the
right of Holders of record on the relevant record date to receive interest due
on the relevant interest payment date), in accordance with the provisions of
the next paragraph.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at a purchase price in cash equal to 101% of
the principal amount outstanding at the repurchase date plus accrued and unpaid
interest, if any, to the date of repurchase (subject to the right of Holders of
record on the relevant record date to receive interest on the relevant interest
payment date); (2) the circumstances and relevant facts and relevant financial
information regarding such Change of Control; (3) the repurchase date (which
shall be no earlier than 30 days nor
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later than 60 days from the date such notice is mailed); and (4) the
instructions determined by the Company, consistent with the covenant described
hereunder, that a Holder must follow in order to have its Notes repurchased.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to the covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations
and shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the Senior Credit Facility. Future
Senior Indebtedness of the Company may contain prohibitions of certain events
which would constitute a Change of Control or require such Senior Indebtedness
to be repurchased upon a Change of Control. Moreover, the exercise by the
Holders of their right to require the Company to repurchase the Notes could
cause a default under such Senior Indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on the Company.
Finally, the Company's ability to pay cash to the Holders upon a repurchase may
be limited by the Company's then existing financial resources. There can be no
assurance that sufficient funds will be available when necessary to make any
repurchases required in connection with a Change of Control. The Company's
failure to purchase the Notes in connection with a Change in Control would
result in a default under the Indenture which would, in turn, constitute a
default under the Senior Credit Facility. In such circumstances, the
subordination provisions in the Indenture would likely restrict payment to the
Holders of the Notes.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Old Notes have been issued and the New Notes
will initially be issued in the form of a Global Note. The Global Note will be
deposited with, or on behalf of, the Depository and registered in the name of
the Depository or its nominee. Except as set forth below, the Global Note may
be transferred, in whole and not in part, only to the Depository or another
nominee of the Depository. Investors may hold their beneficial interests in
the Global Note directly through the Depository if they have an account with
the Depository or indirectly through organizations which have accounts with the
Depository.
New Notes issued in exchange for Old Notes that were (i) originally issued
to institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3)
or (7) under the Securities Act) who are not qualified institutional buyers
("QIBs") or (ii) issued as described below under "-- Certificated Notes" will
be issued in definitive form. Upon the transfer of a Note in definitive form,
such Note will, unless the Global Note has previously been exchanged for Notes
in definitive form, be exchanged for an interest in the Global Note
representing the principal amount of Notes being, transferred.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934 (the "Exchange Act"). The Depository was created to hold securities
of institutions that have accounts with the Depository ("participants") and to
facilitate the clearance and settlement of securities transactions among its
participants in such securities through electronic book-entry changes in
accounts of the participants, thereby eliminating the need for physical
movement of securities certificates. The Depository's participants include
securities brokers and dealers (which may include the Initial Purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to the Depository's book-entry system is also available to others such
as banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, whether directly or indirectly.
Upon the issuance of a Global Note, the Depository will credit, on its
book-entry registration and transfer system, the principal amount of the Notes
represented by such Global Note to the accounts of participants. The accounts
to be credited
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shall be designated by the Initial Purchasers of such Notes. Ownership of
beneficial interests in the Global Note will be limited to participants or
persons that may hold interests through participants. Ownership of beneficial
interests in the Global Note will be shown on, and the transfer of those
ownership interests will be effected only through, records maintained by the
Depository (with respect to participants' interest) and such participants (with
respect to the owners of beneficial interests in the Global Note other than
participants). The laws of some jurisdictions may require that certain
purchasers of securities take physical delivery of such securities in
definitive form. Such limits and laws may impair the ability to transfer or
pledge beneficial interests in a Global Note.
So long as the Depository, or its nominee, is the registered holder and
owner of such Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and holder of the related Notes for all
purposes of such Notes and the Indenture. Except as set forth below, owners of
beneficial interests in a Global Note will not be entitled to have the Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of certificated Notes in definitive
form and will not be considered to be the owners or holders of any Notes under
such Global Note. The Company understands that under existing industry
practice, in the event an owner of a beneficial interest in a Global Note
desires to take any action that the Depository, as the holder of a Global Note,
is entitled to take, the Depository would authorize the participants to take
such action, and that the participants would authorize beneficial owners owning
through such participants to take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
Payment of principal of and interest on Notes represented by a Global Note
registered in the name of and held by the Depository or its nominee will be
made to the Depository or its nominee, as the case may be, as the registered
owner and holder of such Global Note.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on a Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note as shown on the records
of the Depository or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in a Global Note held through
such participants will be governed by standing instructions and customary
practices and will be the responsibility of such participants. The Company will
not have any responsibility or liability for any aspect of the records relating
to, or payments made on account of, beneficial ownership interests in a Global
Note for any Note or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests or for any other aspect of the
relationship between the Depository and its participants or the relationship
between such participants and the owners of beneficial interests in such Global
Note owned through such participants.
Unless and until it is exchanged in whole or in part for certificated Notes
in definitive form, a Global Note may not be transferred except as a whole by
the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in a Global Note among participants of the
Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by the
Depository or its participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
CERTIFICATED NOTES
The Notes represented by a Global Note are exchangeable for certificated
Notes in definitive form of like tenor as such Notes in denominations of
U.S.$1,000 and integral multiples thereof if (i) the Depository notifies the
Company that it is unwilling or unable to continue as Depository for such
Global Note or if at any time the Depository ceases to be a clearing agency
registered under the Exchange Act, (ii) the Company in its discretion at any
time determines not to have all of the
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Notes represented by a Global Note or (iii) a default entitling the holders of
the Notes to accelerate the maturity thereof has occurred and is continuing.
Any Note that is exchangeable pursuant to the preceding sentence is
exchangeable for certificated Notes issuable in authorized denominations and
registered in such names as the Depository shall direct. Subject to the
foregoing, a Global Note is not exchangeable, except for a Global Note of the
same aggregate denomination to be registered in the name of the Depository or
its nominee.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness
unless, immediately after giving effect to such Incurrence, the Consolidated
Coverage Ratio exceeds 2.00 to 1 if such Indebtedness is Incurred prior to June
15, 1999 or 2.25 to 1 if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur any or all of the following Indebtedness: (1)
Indebtedness and other Obligations Incurred pursuant to the Bank Credit
Agreements; provided, however, that, after giving effect to any such
Incurrence, the aggregate principal amount of such Indebtedness and other
Obligations then outstanding does not exceed the greater of (i) $110 million
and (ii) the sum of (x) 60% of the net book value of the inventory of the
Company and its Restricted Subsidiaries, and (y) 90% of the net book value of
the accounts receivable of the Company and its Restricted Subsidiaries, in each
case determined in accordance with GAAP, and (z) $70 million; (2) Indebtedness
represented by the Notes issued in the Offering (and the New Notes); (3)
Indebtedness outstanding on the Issue Date (other than Indebtedness described
in clause (1) of this paragraph), including, without limitation, the Existing
Preferred Stock; (4) Indebtedness of the Company owed to and held by any Wholly
Owned Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by
the Company or a Wholly Owned Subsidiary; provided, however, that any
subsequent issuance or transfer of any Capital Stock which results in any such
Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company or a Wholly
Owned Subsidiary) shall be deemed, in each case, to constitute the Incurrence
of such Indebtedness by the issuer thereof; (5) Refinancing Indebtedness in
respect of Indebtedness Incurred pursuant to paragraph (a) or pursuant to
clause (1), (2), (3) or this clause (5); (6) Indebtedness in respect of
performance bonds, bankers' acceptances, letters of credit and surety or appeal
bonds entered into by the Company and the Restricted Subsidiaries in the
ordinary course of their business; (7) Hedging Obligations consisting of
Interest Rate Agreements and Currency Agreements entered into in the ordinary
course of business and not for the purpose of speculation; provided, however,
that, in the case of Currency Agreements and Interest Rate Agreements, such
Currency Agreements and Interest Rate Agreements do not increase the
Indebtedness of the Company outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by reason
of fees, indemnities and compensation payable thereunder; (8) Purchase Money
Indebtedness and Capital Lease Obligations Incurred to finance the acquisition
or improvement by the Company or a Restricted Subsidiary of any assets in the
ordinary course of business and which do not exceed $15 million in the
aggregate at any time outstanding; (9) Indebtedness and other Obligations
represented by the Subsidiary Guaranties and Guarantees of Indebtedness
Incurred pursuant to the Bank Credit Agreements; (10) Indebtedness arising from
the honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently (except in the case of daylight overdrafts)
drawn against insufficient funds in the ordinary course of business, provided
that such Indebtedness is extinguished within five business days of Incurrence;
(11) Indebtedness of the Company and its Restricted Subsidiaries arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, in any case Incurred in connection with the disposition of
any assets of the Company or any Restricted Subsidiary (other than Guarantees
of Indebtedness Incurred by any Person acquiring all or any portion of such
assets for the purpose of financing such acquisition), in a principal amount
not to exceed the gross proceeds actually received by the Company or any
Restricted Subsidiary in connection with such disposition; (12) Tooling
Indebtedness; and (13) Indebtedness in an aggregate principal amount which,
together with all other Indebtedness of the Company and its Restricted
Subsidiaries outstanding on the date of such Incurrence (other than
Indebtedness permitted by clauses (1) through (12) above or paragraph (a)),
does not exceed $20 million.
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(c) Notwithstanding the foregoing, the Company shall not, and shall not
permit any Restricted Subsidiary to, Incur any Indebtedness pursuant to the
foregoing paragraph (b) if the proceeds thereof are used, directly or
indirectly, to Refinance (i) any Subordinated Obligations unless such
Indebtedness shall be subordinated to the Notes and the Subsidiary Guaranties,
as applicable, to at least the same extent as such Subordinated Obligations or
(ii) any Senior Subordinated Indebtedness unless such Indebtedness shall be
Senior Subordinated Indebtedness or shall be subordinated to the Notes and the
Subsidiary Guaranties, as applicable.
(d) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one
of the types of Indebtedness described above, the Company, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses
and (ii) an item of Indebtedness may be divided and classified in more than one
of the types of Indebtedness described above.
(e) Notwithstanding paragraphs (a) and (b) above, the Company shall not, and
shall not permit any Subsidiary Guarantor to, Incur (i) any Indebtedness if
such Indebtedness is subordinate or junior in ranking in any respect to any
Senior Indebtedness of the Company or such Subsidiary Guarantor, as applicable,
unless such Indebtedness is Senior Subordinated Indebtedness or is expressly
subordinated in right of payment to Senior Subordinated Indebtedness or (ii)
any Secured Indebtedness that is not Senior Indebtedness of the Company or such
Subsidiary Guarantor, as applicable, unless contemporaneously therewith
effective provision is made to secure the Notes or the Subsidiary Guaranty, as
applicable, equally and ratably with such Secured Indebtedness for so long as
such Secured Indebtedness is secured by a Lien.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the Company is not able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described under
"-- Limitation on Indebtedness"; or (3) the aggregate amount of such Restricted
Payment together with all other Restricted Payments (the amount of any payments
made in property other than cash to be valued at the fair market value of such
property, as determined in good faith by the Board of Directors) declared or
made since the Issue Date would exceed the sum of: (A) 50% of the Consolidated
Net Income accrued during the period (treated as one accounting period) from
the beginning of the fiscal quarter immediately following the fiscal quarter
during which the Notes are originally issued to the end of the most recent
fiscal quarter prior to the date of such Restricted Payment for which financial
statements are available (or, in case such Consolidated Net Income accrued
during such period (treated as one accounting period) shall be a deficit, minus
100% of such deficit); (B) the aggregate Net Cash Proceeds received by the
Company from the issuance or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale to a
Subsidiary of the Company); (C) the amount by which Indebtedness of the Company
or its Restricted Subsidiaries is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Issue Date, of any Indebtedness of the Company or its
Restricted Subsidiaries convertible or exchangeable for Capital Stock (other
than Disqualified Stock) of the Company (less the amount of any cash, or the
fair value of any other property, distributed by the Company or any Restricted
Subsidiary upon such conversion or exchange); (D) an amount equal to the sum of
(i) the net reduction in Investments in Unrestricted Subsidiaries resulting
from dividends, repayments of loans or advances or other transfers of assets
subsequent to the Issue Date, in each case to the Company or any Restricted
Subsidiary from Unrestricted Subsidiaries, and (ii) the portion (proportionate
to the Company's equity interest in such Subsidiary) of the fair market value
of the net assets of an Unrestricted Subsidiary at the time such Unrestricted
Subsidiary is designated a Restricted Subsidiary; provided, however, that the
foregoing sum shall not exceed, in the case of any Unrestricted Subsidiary, the
amount of Investments previously made (and treated as a Restricted Payment) by
the Company or any Restricted Subsidiary in such Unrestricted Subsidiary; and
(E) $5 million.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of the
Company or any Restricted Subsidiary made in exchange for, or out of the
proceeds of the
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substantially concurrent sale of, Capital Stock of the Company (other than
Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary
of the Company); provided, however, that (A) such purchase or redemption shall
be excluded from the calculation of the amount of Restricted Payments and (B)
the Net Cash Proceeds from such sale shall be excluded from the calculation of
amounts under clause (3)(B) of paragraph (a) above; (ii) any purchase or
redemption of (A) Subordinated Obligations of the Company made in exchange for,
or out of the proceeds of the substantially concurrent sale of, Indebtedness of
the Company which is permitted to be Incurred pursuant to paragraphs (b) and
(c) of the covenant described under "-- Limitation on Indebtedness" or (B)
Subordinated Obligations of a Restricted Subsidiary made in exchange for, or
out of the proceeds of the substantially concurrent sale of, Indebtedness of
such Restricted Subsidiary or the Company which is permitted to be Incurred
pursuant to paragraphs (b) and (c) of the covenant described under "--
Limitation on Indebtedness"; provided, however, that such purchase or
redemption shall be excluded from the calculation of the amount of Restricted
Payments; (iii) any purchase or redemption of (A) Disqualified Stock of the
Company made in exchange for, or out of the proceeds of the substantially
concurrent sale of, Disqualified Stock of the Company or (B) Disqualified Stock
of a Restricted Subsidiary made in exchange for, or out of the proceeds of the
substantially concurrent sale of, Disqualified Stock of such Restricted
Subsidiary or the Company; provided, however, that (1) at the time of such
exchange, no Default or Event of Default shall have occurred and be continuing
or would result therefrom and (2) such purchase or redemption will be excluded
from the calculation of the amount of Restricted Payments; (iv) dividends paid
within 60 days after the date of declaration thereof if at such date of
declaration such dividend would have complied with this covenant; provided,
however, that at the time of payment of such dividend, no other Default shall
have occurred and be continuing (or would result therefrom); provided, further,
however, that such dividend shall be included in the calculation of the amount
of Restricted Payments; (v) the repurchase of shares of, or options to purchase
shares of, Capital Stock of the Company or any of its Subsidiaries from
officers, former officers employees, former employees, directors or former
directors of the Company or any of its Subsidiaries (or permitted transferees
of such employees, former employees, directors or former directors), pursuant
to the terms of the agreements (including employment agreements) or plans (or
amendments thereto) approved by the Board of Directors under which such
individuals purchase or sell, or are granted the option to purchase or sell,
shares of such common stock; provided, however, that the aggregate amount of
such repurchases shall not exceed $2.5 million in any one year and $5.0 million
in the aggregate; provided, further, however, that (1) at the time of such
repurchase, no Default or Event of Default shall have occurred and be
continuing or would result therefrom and (2) all such repurchases shall be
included in the calculation of the amount of Restricted Payments; or (vi)
dividends and redemptions required to be made with respect to the Existing
Preferred Stock; provided, however, that (1) at the time of any such dividend
or redemption, no Default or Event of Default shall have occurred and be
continuing or would result therefrom and (2) all such dividends and redemptions
shall be included in the calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual
encumbrance or consensual restriction on the ability of any Restricted
Subsidiary (a) to pay dividends or make any other distributions on its Capital
Stock to the Company or a Restricted Subsidiary or pay any Indebtedness owed to
the Company, (b) to make any loans or advances to the Company or (c) transfer
any of its property or assets to the Company, except: (i) any encumbrance or
restriction pursuant to an agreement in effect at or entered into on the Issue
Date; (ii) any encumbrance or restriction with respect to a Restricted
Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by
such Restricted Subsidiary which was entered into on or prior to the date on
which such Restricted Subsidiary was acquired by the Company (other than as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a Restricted
Subsidiary or was acquired by the Company) and outstanding on such date; (iii)
any encumbrance or restriction pursuant to an agreement effecting a Refinancing
of Indebtedness Incurred pursuant to an agreement referred to in clause (i) or
(ii) of this covenant (or effecting a Refinancing of such Refinancing
Indebtedness pursuant to this clause (iii)) or contained in any amendment to an
agreement referred to in clause (i) or (ii) of this covenant or this clause
(iii); provided, however, that the encumbrances and restrictions with respect
to such Restricted Subsidiary contained in any such refinancing agreement or
amendment are no more restrictive in any material respect than the encumbrances
and restrictions with respect to such Restricted Subsidiary contained in such
agreements; (iv) any such encumbrance or restriction consisting of customary
non-assignment provisions in leases governing leasehold interests to the extent
such provisions restrict the transfer of the lease or the property leased
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thereunder; (v) in the case of clause (c) above, restrictions contained in
security agreements or mortgages securing Indebtedness (other than Tooling
Indebtedness) of a Restricted Subsidiary to the extent such restrictions
restrict the transfer of the property subject to such security agreements or
mortgages; (vi) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; and (vii) any restriction
imposed by applicable law.
Limitation on Sales of Assets and Subsidiary Stock. The Company shall not,
and shall not permit any Restricted Subsidiary to, consummate any Asset
Disposition unless the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Disposition at least equal to the fair
market value (including as to the value of all non-cash consideration), as
determined in good faith by the Board of Directors, of the shares and assets
subject to such Asset Disposition and at least 75% of the consideration
therefor received by the Company or such Restricted Subsidiary is in the form
of cash or cash equivalents. For the purposes of this covenant, the following
are deemed to be cash and cash equivalents: (x) the assumption of Indebtedness
of the Company or any Restricted Subsidiary and the release of the Company or
such Restricted Subsidiary from all liability on such Indebtedness in
connection with such Asset Disposition and (y) securities received by the
Company or any Restricted Subsidiary from the transferee that are immediately
converted by the Company or such Restricted Subsidiary into cash.
With respect to any Asset Disposition occurring on or after the Issue Date
from which the Company or any Restricted Subsidiary receives Net Available
Cash, the Company or such Restricted Subsidiary shall (i) within 360 days after
the date such Net Available Cash is received and to the extent the Company or
such Restricted Subsidiary elects (or is required by the terms of any Senior
Indebtedness) to (A) apply an amount equal to such Net Available Cash to
prepay, repay or purchase Senior Indebtedness of the Company or such Restricted
Subsidiary, in each case owing to a Person other than the Company or any
Affiliate of the Company, or (B) invest an equal amount, or the amount not so
applied pursuant to clause (A), in Additional Assets (including by means of an
Investment in Additional Assets by a Restricted Subsidiary with Net Available
Cash received by the Company or another Restricted Subsidiary) and (ii) apply
such excess Net Available Cash (to the extent not applied pursuant to clause
(i)) as provided in the following paragraphs of the covenant described
hereunder; provided, however, that in connection with any prepayment, repayment
or purchase of Senior Indebtedness pursuant to clause (A) above, the Company or
such Restricted Subsidiary shall retire such Senior Indebtedness and shall
cause the related loan commitment (if any) to be permanently reduced in an
amount equal to the principal amount so prepaid, repaid or purchased. The
amount of Net Available Cash required to be applied pursuant to clause (ii)
above and not theretofore so applied shall constitute "Excess Proceeds."
Pending application of Net Available Cash pursuant to this provision, such Net
Available Cash shall be invested in Temporary Cash Investments.
If at any time the aggregate amount of Excess Proceeds not theretofore
subject to an Excess Proceeds Offer (as defined below) totals at least $5
million, the Company shall, not later than 30 days after the end of the period
during which the Company is required to apply such Excess Proceeds pursuant to
clause (i) of the immediately preceding paragraph (or, if the Company so
elects, at any time within such period), make an offer (an "Excess Proceeds
Offer") to purchase from the Holders on a pro rata basis an aggregate principal
amount of Notes equal to the Excess Proceeds (rounded down to the nearest
multiple of $1,000) on such date, at a purchase price equal to 100% of the
principal amount of such Notes, plus, in each case, accrued interest (if any)
to the date of purchase (the "Excess Proceeds Payment"). Upon completion of an
Excess Proceeds Offer the amount of Excess Proceeds remaining after application
pursuant to such Excess Proceeds Offer, (including payment of the purchase
price for Notes duly tendered) may be used by the Company for any corporate
purpose (to the extent not otherwise prohibited by the Indenture).
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
thereunder in the event that such Excess Proceeds are received by the Company
under the covenant described hereunder and the Company is required to
repurchase Notes as described above. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the
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Company shall comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction or series of related transactions (including the purchase, sale,
lease or exchange of any property, employee compensation arrangements or the
rendering of any service) with any Affiliate of the Company (an "Affiliate
Transaction") unless the terms thereof (1) are no less favorable to the Company
or such Restricted Subsidiary than those that could be obtained at the time of
such transaction in arm's-length dealings with a Person who is not such an
Affiliate, (2) if such Affiliate Transaction (or series of related Affiliate
Transactions) involve aggregate payments in an amount in excess of $1 million
in any one year, (i) are set forth in writing, (ii) comply with clause (1) and
(iii) have been approved by a majority of the disinterested members of the
Board of Directors and (3) if such Affiliate Transaction (or series of related
Affiliate Transactions) involve aggregate payments in an amount in excess of $5
million in any one year, (i) comply with clause (2) and (ii) have been
determined by a nationally recognized investment banking firm to be fair, from
a financial standpoint, to the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described
under "-- Limitation on Restricted Payments," (ii) any issuance of securities,
or other payments, awards or grants in cash, securities or otherwise, pursuant
to, or the funding of, employment arrangements, stock options and stock
ownership plans in the ordinary course of business and approved by the Board of
Directors, (iii) the grant of stock options or similar rights to employees and
directors of the Company in the ordinary course of business and pursuant to
plans approved by the Board of Directors, (iv) loans or advances to employees
in the ordinary course of business of the Company or its Restricted
Subsidiaries, (v) fees, compensation or employee benefit arrangements paid to
and indemnity provided for the benefit of directors, officers or employees of
the Company or any Subsidiary in the ordinary course of business, (vi) payments
made to The Oxford Investment Group, Inc. for (x) management and consulting
services in an aggregate amount not to exceed $1,000,000 in any one year and
(y) investment banking services in connection with acquisition of assets or
businesses, by the Company or any Subsidiary not to exceed the greater of (A)
1.25% of the purchase price paid by the Company or such Subsidiary for the
assets or business acquired (including Indebtedness assumed by the Company or
such Subsidiary as part of such acquisition) and (B) $200,000; or (vii) any
Affiliate Transaction between the Company and a Restricted Subsidiary or
between Restricted Subsidiaries in the ordinary course of business (so long as
the other stockholders of any participating Restricted Subsidiaries which are
not Wholly Owned Restricted Subsidiaries are not themselves Affiliates of the
Company).
Limitation on the Issuance or Sale of Capital Stock of Restricted
Subsidiaries. The Company shall not (i) sell, pledge, hypothecate or otherwise
dispose of any shares of Capital Stock of a Restricted Subsidiary (other than
pledges of Capital Stock securing Senior Indebtedness) or (ii) permit any
Restricted Subsidiary, directly or indirectly, to issue or sell or otherwise
dispose of any shares of its Capital Stock other than (A) to the Company or a
Wholly Owned Subsidiary, (B) directors' qualifying shares, (C) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary or (D) the issuance of Preferred
Stock by any Subsidiary Guarantor as partial payment for the acquisition by
such Subsidiary Guarantor of Additional Assets. Notwithstanding the foregoing,
the Company may sell, and may permit a Restricted Subsidiary to issue and sell,
up to 20% of the outstanding Common Stock of a Restricted Subsidiary to
officers and employees of such Restricted Subsidiary. The proceeds of any sale
of such Capital Stock permitted hereby will be treated as Net Available Cash
from an Asset Disposition and must be applied in accordance with the terms of
the covenant described under "-- Limitation on Sales of Assets and Subsidiary
Stock."
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien of any nature whatsoever on any property of the Company or any Restricted
Subsidiary (including Capital Stock of a Restricted Subsidiary), whether owned
at the Issue Date or thereafter acquired, which secures Indebtedness that ranks
pari passu with or is subordinated to the Notes or the Subsidiary Guaranties
unless (i) if such Lien secures Indebtedness that ranks pari passu with the
Notes and the Subsidiary Guaranties, the Notes are secured on an equal and
ratable basis with the obligation so secured until such time as such obligation
is no longer secured by a Lien or (ii) if such Lien
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secures Indebtedness that is subordinated to the Notes and the Subsidiary
Guaranties, such Lien shall be subordinated to a Lien granted to the Holders on
the same collateral as that securing such Lien to the same extent as such
subordinated Indebtedness is subordinated to the Note and the Subsidiary
Guaranties.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
related transactions, all or substantially all its assets to, any Person,
unless: (i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia and the
Successor Company (if not the Company) shall expressly assume, by an indenture
supplemental thereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the Notes
and the Indenture; (ii) immediately after giving effect to such transaction on
a pro forma basis (and treating any Indebtedness which becomes an obligation of
the Successor Company or any Subsidiary as a result of such transaction as
having been Incurred by such Successor Company or such Subsidiary at the time
of such transaction), no Default shall have occurred and be continuing; (iii)
except in the case of a merger the sole purpose of which is to change the
Company's jurisdiction of incorporation, immediately after giving effect to
such transaction on a pro forma basis, the Successor Company would be able to
Incur an additional $1.00 of Indebtedness pursuant to paragraph (a) of the
covenant described under "-- Limitation on Indebtedness"; (iv) immediately
after giving effect to such transaction on a pro forma basis, the Successor
Company shall have Consolidated Net Worth in an amount that is not less than
the Consolidated Net Worth of the Company immediately prior to such
transaction; and (v) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture. Notwithstanding the foregoing clauses (ii), (iii)
and (iv), any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes.
The Company shall not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a
series of transactions, all or substantially all its assets to, any Person,
unless: (i) the resulting, surviving or transferee Person (if not such
Subsidiary) shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and the
Successor Company (if not such Subsidiary) shall expressly assume, by a
Guaranty Agreement, in form satisfactory to the Trustee, all the obligations of
such Subsidiary under its Subsidiary Guaranty; (ii) immediately after giving
effect to such transaction on a pro forma basis (and treating any Indebtedness
which becomes an obligation of the resulting, surviving or transferee Person as
a result of such transaction as having been Incurred by such Person at the time
of such transaction), no Default shall have occurred and be continuing; and
(iii) the Company shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger or
transfer and such Guaranty Agreement comply with the Indenture. The provisions
of clauses (i) and (iii) above shall not apply to any transactions which
constitute an Asset Disposition if the Company has complied with the applicable
provisions of the covenant described under "-- Limitation on Sales of Assets
and Subsidiary Stock" above.
Future Guarantors. The Company shall cause each Restricted Subsidiary that
at any time becomes an obligor or guarantor with respect to any obligations
under one or more Bank Credit Agreements to execute and deliver to the Trustee
a supplemental indenture pursuant to which such Restricted Subsidiary will
Guarantee payment of the Notes on the same terms and conditions as those set
forth in the Indenture. Each Subsidiary Guaranty will be limited in amount to
an amount not to exceed the maximum amount that can be Guaranteed by the
applicable Subsidiary Guarantor without rendering such Subsidiary Guaranty
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfer or similar laws affecting the rights of creditors generally.
SEC Reports. Until such time as the Company shall become subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
shall provide the Trustee, the Initial Purchasers, the Noteholders and
prospective
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Noteholders (upon request) with such annual reports and such information,
documents and other reports as are specified in Sections 13 and 15(d) of the
Exchange Act and applicable to a U.S. corporation subject to such Sections,
such information, documents and other reports to be so provided at the times
specified for the filing of such information, documents and reports under such
Sections. Thereafter, notwithstanding that the Company may not be required to
remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the SEC and provide the Trustee and
Noteholders and prospective Noteholders (upon request) with such annual reports
and such information, documents and other reports as are specified in such
Sections and applicable to a U.S. corporation subject to such Sections, such
information, documents and other reports to be so filed and provided at the
times specified for the filing of such information, documents and reports under
such Sections; provided, however, that the Company shall not be required to
file any report, document or other information with the SEC if the SEC does not
permit such filing.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due (whether or not such payment is
prohibited by the provisions described under "Subordination" above), continued
for 30 days, (ii) a default in the payment of principal of any Note when due at
its Stated Maturity, upon optional redemption, upon required repurchase, upon
declaration or otherwise (whether or not such payment is prohibited by the
provisions described under "Subordination" above), (iii) the failure by the
Company, to comply for 30 days after notice with any of its obligations under
the covenants described under "-- Limitation on Indebtedness," "-- Limitation
on Restricted Payments," "Limitation on Sales of Assets and Subsidiary Stock,"
and "Merger, Consolidation and Sale of Assets", (iv) the failure by the Company
to comply for 60 days after notice with its other agreements contained in the
Indenture, (v) Indebtedness of the Company or any Restricted Subsidiary is not
paid within any applicable grace period after final maturity or is accelerated
by the holders thereof because of a default and the total amount of such
Indebtedness unpaid or accelerated exceeds $5 million (the "cross-acceleration
provision"), (vi) certain events of bankruptcy, insolvency or reorganization of
the Company or a Significant Subsidiary (the "bankruptcy provisions"), (vii)
any judgment or decree for the payment of money in excess of $5 million is
rendered against the Company or a Restricted Subsidiary, remains outstanding
following such judgment and is not discharged, waived or stayed within 60 days
after entry of such judgment or decree (the "judgment default provision"), or
(viii) a Subsidiary Guaranty ceases to be in full force and effect (other than
in accordance with the terms of such Subsidiary Guaranty) or a Subsidiary
Guarantor denies or disaffirms its obligations under its Subsidiary Guaranty.
However, a default under clause (iii) or (iv) will not constitute an Event of
Default until the Trustee or the Holders of 25% in principal amount of the
outstanding Notes notify the Company of the default and the Company does not
cure such default within the time specified in clauses (iii) and (iv) hereof
after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in principal amount of the outstanding Notes may declare the
principal of and accrued but unpaid interest on all the Notes to be due and
payable. Upon such a declaration, such principal and interest shall be due and
payable immediately. If an Event of Default relating to certain events of
bankruptcy, insolvency or reorganization of the Company occurs and is
continuing, the principal of and interest on all the Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holders of the Notes. Under certain
circumstances, the Holders of a majority in principal amount of the outstanding
Notes may rescind any such acceleration with respect to the Notes and its
consequences.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will
be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
have offered to the Trustee reasonable indemnity or security against any loss,
liability or expense. Except to enforce the right to receive payment of
principal, premium (if any) or interest when due, no Holder may pursue any
remedy with respect to the Indenture or the Notes unless (i) such Holder has
previously given the Trustee notice that an Event of Default is continuing,
(ii) Holders of at least 25% in principal amount of the outstanding Notes have
requested the Trustee to pursue the remedy, (iii) such Holders have offered the
Trustee reasonable security or indemnity against any loss, liability or
expense, (iv) the Trustee has not complied with such request within 60 days
after the receipt thereof and the offer of security or indemnity and (v) the
Holders of a majority in principal amount of the outstanding
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Notes have not given the Trustee a direction inconsistent with such request
within such 60-day period. Subject to certain restrictions, the Holders of a
majority in principal amount of the outstanding Notes are given the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or of exercising any trust or power conferred on the
Trustee. The Trustee, however, may refuse to follow any direction that
conflicts with law or the Indenture or that the Trustee determines is unduly
prejudicial to the rights of any other Holder or that would involve the Trustee
in personal liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder notice of the
Default within 90 days after it occurs. Except in the case of a Default in the
payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the Holders. In addition,
the Company is required to deliver to the Trustee, within 120 days after the
end of each fiscal year, a certificate indicating whether the signers thereof
know of any Default that occurred during the previous year. The Company also is
required to deliver to the Trustee, within 30 days after the occurrence
thereof, written notice of any event which would constitute certain Defaults,
their status and what action the Company is taking or proposes to take in
respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange for
the Notes) and any past default or compliance with any provisions may also be
waived with the consent of the Holders of a majority in principal amount of the
Notes then outstanding. However, without the consent of each Holder of an
outstanding Note affected thereby, no amendment may, among other things, (i)
reduce the amount of Notes whose Holders must consent to an amendment, (ii)
reduce the rate of or extend the time for payment of interest on any Note,
(iii) reduce the principal of or extend the Stated Maturity of any Note, (iv)
reduce the premium payable upon the redemption of any Note or change the time
at which any Note may be redeemed as described under "-- Optional Redemption"
above, (v) make any Note payable in money other than that stated in the Note,
(vi) impair the right of any Holder to institute suit for the enforcement of
any payment on or with respect to such Holder's Notes or any Subsidiary
Guaranty, (vii) make any change in the amendment provisions which require each
Holder's consent or in the waiver provisions or (viii) make any change to the
subordination provisions of the Indenture that would adversely affect the
Noteholders.
Without the consent of any Holder, the Company and Trustee may amend the
Indenture to cure any ambiguity, omission, defect or inconsistency, to provide
for the assumption by a successor corporation of the obligations of the Company
under the Indenture, to provide for uncertificated Notes in addition to or in
place of certificated Notes (provided that the uncertificated Notes are issued
in registered form for purposes of Section 163(f) of the Code, or in a manner
such that the uncertificated Notes are described in Section 163(f)(2)(B) of the
Code), to add guarantees with respect to the Notes, to release Subsidiary
Guarantors when permitted by the Indenture, to secure the Notes, to add to the
covenants of the Company for the benefit of the Holders or to surrender any
right or power conferred upon the Company, to make any change that does not
adversely affect the rights of any Holder or to comply with any requirement of
the SEC in connection with the qualification of the Indenture under the Trust
Indenture Act. However, no amendment may be made to the subordination
provisions of the Indenture that adversely affects the rights of any holder of
Senior Indebtedness then outstanding unless the holders of such Senior
Indebtedness (or their Representative) consents to such change.
The consent of the Holders is not necessary under the Indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders a notice briefly describing such amendment.
However, the failure to give such notice to all Holders, or any defect therein,
will not impair or affect the validity of the amendment.
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TRANSFER
Certificated Notes will be issued in registered form and will be
transferable only upon the surrender of the Notes being transferred for
registration of transfer. The Company may require payment of a sum sufficient
to cover any tax, assessment or other governmental charge payable in connection
with certain transfers and exchanges.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register the
transfer or exchange of the Notes, to replace mutilated, destroyed, lost or
stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under "-- Change
of Control" and under the covenants described under "-- Certain Covenants"
(other than the covenant described under "-- Merger and Consolidation"), the
operation of the cross-acceleration provision, the bankruptcy provisions with
respect to Significant Subsidiaries and the judgment default provision
described under "-- Defaults" above and the limitations contained in clauses
(iii) and (iv) under "Certain Covenants -- Merger and Consolidation" above
("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because of
an Event of Default with respect thereto. If the Company exercises its covenant
defeasance option, payment of the Notes may not be accelerated because of an
Event of Default specified in clause (iii) (but only with respect to clauses
(iii) or (iv) under "Certain Covenants -- Merger and Consolidation as it
relates to the failure to comply with such covenants), (iv), (v), (vi) or (vii)
under "-- Defaults" above or because of the failure of the Company to comply
with clause (iii) or (iv) under "Certain Covenants -- Merger and Consolidation"
above. If the Company exercises its legal defeasance option or its covenant
defeasance option, each Subsidiary Guarantor will be released from all of its
obligations with respect to its Subsidiary Guaranty.
In order to exercise either defeasance option, (a) such defeasance must not
result in a breach of, or otherwise constitute a default under any agreement or
investment with respect to any Senior Indebtedness, and no default may exist
under any Indebtedness and (b) the Company must irrevocably deposit in trust
(the "defeasance trust") with the Trustee money or U.S. Government Obligations
for the payment of principal and interest on the Notes to redemption or
maturity, as the case may be, and must comply with certain other conditions,
including delivery to the Trustee of an Opinion of Counsel to the effect that
holders of the Notes will not recognize income, gain or loss for Federal income
tax purposes as a result of such deposit and defeasance and will be subject to
Federal income tax on the same amount and in the same manner and at the same
times as would have been the case if such deposit and defeasance had not
occurred.
CONCERNING THE TRUSTEE
First Trust National Association is the Trustee under the Indenture and has
been appointed by the Company as Registrar and Paying Agent with regard to the
Notes.
The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that if an Event of Default occurs
(and is not cured), the Trustee will be required, in the exercise of its power,
to use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any Holder of
Notes, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense and then
only to the extent required by the terms of the Indenture.
GOVERNING LAW
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The Indenture provides that it and the Notes are governed by, and construed
in accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; or (ii) the Capital
Stock of a Person that becomes a Restricted Subsidiary as a result of the
acquisition of such Capital Stock by the Company or another Restricted
Subsidiary; provided, however, that any such Restricted Subsidiary is primarily
engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the provisions described under "Certain Covenants -- Limitation on
Restricted Payments," "Certain Covenants -- Limitation on Affiliate
Transactions" and "Certain Covenants -- Limitations on Sales of Assets and
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of this
definition as a "disposition"), of (i) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares and, to the
extent required by local ownership laws in foreign countries, shares owned by
foreign shareholders), (ii) all or substantially all the assets of any
division, business segment or comparable line of business of the Company or any
Restricted Subsidiary or (iii) any other assets of the Company or any
Restricted Subsidiary outside of the ordinary course of business of the Company
or such Restricted Subsidiary. Notwithstanding the foregoing, the term "Asset
Disposition" shall not include (x) a disposition by a Restricted Subsidiary to
the Company or by the Company or a Restricted Subsidiary to a Wholly Owned
Subsidiary, (y) for purposes of the covenant described under "Certain Covenants
- -- Limitation on Sales of Assets and Subsidiary Stock", a disposition that
constitutes a Permitted Investment or a Restricted Payment permitted by the
covenant described under "Certain Covenants -- Limitation on Restricted
Payments", and (z) a disposition of assets having a fair market value of less
than $1 million.
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations of the lessee
for rental payments during the remaining term of the lease included in such
Sale/Leaseback Transaction (including any period for which such lease has been
extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (ii) the sum of all such payments.
"Bank Credit Agreements" means the Senior Credit Facility and any other bank
credit agreement or similar facility entered into in the future by the Company
or any Restricted Subsidiary as any of the same may be amended, waived,
modified, Refinanced or replaced from time to time (except to the extent that
any such amendment, waiver, modification, replacement or Refinancing would be
prohibited by the terms of the Indenture).
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"Bank Indebtedness" means any and all present and future amounts payable
under or in respect of the Bank Credit Agreements, including principal, premium
(if any), interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization, whether or not a claim for
post-filing interest is allowed in such proceedings), fees, charges, expenses,
reimbursement obligations, Guarantees and all other amounts and other
Obligations payable thereunder or in respect thereof at any time.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined
in accordance with GAAP; and the Stated Maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease prior to the
first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
"Change of Control" means the occurrence of any of the following events:
(i) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that for purposes of this clause such person or group
shall be deemed to have "beneficial ownership" of all shares that any such
person or group has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 40% of the total voting power of the Voting Stock of the Company;
provided, however, that such event shall not be deemed to be a Change of
Control so long as the Permitted Holders beneficially own, directly or
indirectly, in the aggregate a greater percentage of the total voting power of
the Voting Stock of the Company than such other person or group;
(ii) after the first public offering of common stock of the Company, during
any period of two consecutive years, individuals who at the beginning of such
period constituted the Board of Directors (together with any new directors
whose election by such Board of Directors or whose nomination for election by
the shareholders of the Company was approved by a majority vote of the
directors of the Company then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors then in office; or
(iii) the merger or consolidation of the Company with or into another Person
or the merger of another Person with or into the Company, or the sale of all or
substantially all the assets of the Company to another Person (other than a
Person that is controlled by the Permitted Holders), and, in the case of any
such merger or consolidation, the securities of the Company that are
outstanding immediately prior to such transaction and which represent 100% of
the aggregate voting power of the Voting Stock of the Company are changed into
or exchanged for cash, securities or property, unless pursuant to such
transaction such securities are changed into or exchanged for, in addition to
any other consideration, securities of the surviving corporation that represent
immediately after such transaction, at least a majority of the aggregate voting
power of the Voting Stock of the surviving corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
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"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days (or, if less, the
number of days after the end of such fiscal quarter as the consolidated
financial statements of the Company shall be available) prior to the date of
such determination (determined, for the first three fiscal quarters ending
subsequent to the Issue Date, by annualizing such quarters to the extent
completed) to (ii) Consolidated Interest Expense for such four fiscal quarters;
provided, however, that (1) if the Company or any Restricted Subsidiary has
Incurred any Indebtedness since the beginning of such period that remains
outstanding on such date of determination or if the transaction giving rise to
the need to calculate the Consolidated Coverage Ratio is an Incurrence of
Indebtedness, or both, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving effect on a pro forma basis to such
Indebtedness as if such Indebtedness had been Incurred on the first day of such
period and the discharge of any other Indebtedness repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new Indebtedness as
if such discharge had occurred on the first day of such period (except that, in
the case of Indebtedness used to finance working capital needs incurred under a
revolving credit or similar arrangement, the amount thereof shall be deemed to
be the average daily balance of such Indebtedness during such
four-fiscal-quarter period), (2) if since the beginning of such period the
Company or any Restricted Subsidiary shall have made any Asset Disposition, the
EBITDA for such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to the
EBITDA (if negative) directly attributable thereto for such period, and
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased,
defeased, assumed by a third person (to the extent the Company and its
Restricted Subsidiaries are no longer liable for such Indebtedness) or
otherwise discharged with respect to the Company and its continuing Restricted
Subsidiaries in connection with such Asset Disposition for such period (or, if
the Capital Stock of any Restricted Subsidiary is sold, the Consolidated
Interest Expense for such period directly attributable to the Indebtedness of
such Restricted Subsidiary to the extent the Company and its continuing
Restricted Subsidiaries are no longer liable for such Indebtedness after such
sale), (3) if since the beginning of such period the Company shall have
consummated a Public Equity Offering following which there is a Public Market,
Consolidated Interest Expense for such period shall be reduced by an amount
equal to the Consolidated Interest Expense directly attributable to any
Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased,
defeased or otherwise discharged with respect to the Company and its Restricted
Subsidiaries in connection with such Public Equity Offering for such period,
(4) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or
an acquisition of assets, which acquisition constitutes all or substantially
all of an operating unit of a business, including any such Investment or
acquisition occurring in connection with a transaction requiring a calculation
to be made hereunder, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto (including the
Incurrence of any Indebtedness) as if such Investment or acquisition occurred
on the first day of such period and (5) if since the beginning of such period
any Person (that subsequently became a Restricted Subsidiary or was merged with
or into the Company or any Restricted Subsidiary since the beginning of such
period) shall have made any Asset Disposition, any Investment or acquisition of
assets that would have required an adjustment pursuant to clause (3) or (4)
above if made by the Company or a Restricted Subsidiary during such period,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving pro forma effect thereto as if such Asset Disposition, Investment
or acquisition occurred on the first day of such period. For purposes of this
definition, whenever pro forma effect is to be given to an acquisition of
assets, the amount of income, earnings or expense relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, the pro forma calculations shall be prepared
in accordance with Article 11 of Regulation S-X promulgated by the Commission
as determined in good faith by a responsible financial or accounting Officer of
the Company. If any Indebtedness bears a floating rate of interest and is being
given pro forma effect, the interest of such Indebtedness shall be calculated
as if the rate in effect on the date of determination had been the applicable
rate for the entire period (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, to
the extent not included in such total interest expense, and to the extent
incurred by the
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Company or its Restricted Subsidiaries, (i) interest expense attributable
to Capital Lease Obligations, (ii) amortization of debt discount, (iii)
capitalized interest, (iv) non-cash interest expenses, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit and
bankers' acceptance financing, (vi) net costs associated with Hedging
Obligations (including amortization of fees), (vii) Preferred Stock dividends
in respect of all Preferred Stock held by Persons other than the Company or a
Wholly Owned Subsidiary, and (viii) interest actually paid on any Indebtedness
of any other Person that is Guaranteed by the Company or any Restricted
Subsidiary. Notwithstanding the foregoing, net interest expense attributable to
Tooling Indebtedness shall not be included in Consolidated Interest Expense
except to the extent such expense would be included in interest expense in
accordance with GAAP.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income (or loss)
of any Person if such Person is not a Restricted Subsidiary, except that
subject to the exclusion contained in clause (iv) below, the Company's equity
in the net income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Person during such period to the Company or a Restricted Subsidiary as
a dividend or other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained in
clause (iii) below); (ii) for purposes of subclause (a)(3)(A) of the covenant
described under "Certain Covenants -- Limitation on Restricted Payments" only,
any net income (or loss) of any Person acquired by the Company or a Subsidiary
in a pooling of interests transaction for any period prior to the date of such
acquisition; (iii) any net income of any Restricted Subsidiary if such
Restricted Subsidiary is subject to restrictions, directly or indirectly, on
the payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject to
the exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash that could have
been distributed by such Restricted Subsidiary consistent with such restriction
during such period to the Company or another Restricted Subsidiary as a
dividend or other distribution (subject, in the case of a dividend or other
distribution paid to another Restricted Subsidiary, to the limitation contained
in this clause) and (B) the Company's equity in a net loss of any such
Restricted Subsidiary for such period shall be included in determining such
Consolidated Net Income; (iv) any gain (or loss) realized upon the sale or
other disposition of any assets of the Company or its consolidated Subsidiaries
(including pursuant to any sale-and-leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of business and any gain (or loss)
realized upon the sale or other disposition of any Capital Stock of any Person;
(v) extraordinary gains or losses; and (vi) the cumulative effect of a change
in accounting principles. Notwithstanding the foregoing, for the purposes of
the covenant described under "Certain Covenants--Limitation on Restricted
Payments" only, there shall be excluded from Consolidated Net Income any
dividends, repayments of loans or advances or other transfers of assets from
Unrestricted Subsidiaries to the Company or a Restricted Subsidiary to the
extent such dividends, repayments or transfers increase the amount of
Restricted Payments permitted under such covenant pursuant to clause (a)(3)(D)
thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of
any action for the purpose of which the determination is being made, as (i) the
par or stated value of all outstanding Capital Stock of the Company plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii)
any retained earnings or earned surplus less (A) any accumulated deficit and
(B) any amounts attributable to Disqualified Stock.
"Currency Agreement" means, with respect to any Person, any foreign
exchange contract, currency swap agreement or other similar agreement to which
such Person is a party or a beneficiary.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and (ii)
any other Senior Indebtedness of the Company which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of
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determination, the holders thereof are committed to lend up to, at least $10
million and is specifically designated by the Company in the instrument
evidencing or governing such Senior Indebtedness as "Designated Senior
Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable, at the option of the holder
thereof, for Indebtedness or Disqualified Stock or (iii) is redeemable at the
option of the holder thereof, in whole or in part, in each case on or prior to
the first anniversary of the Stated Maturity of the Notes.
"EBITDA" for any period means the sum of Consolidated Net Income plus
Consolidated Interest Expense plus, without duplication, the following to the
extent deducted in calculating such Consolidated Net Income: (i) income tax
expense (including Michigan Single Business Tax expense), (ii) depreciation
expense, (iii) amortization expense and (iv) all other non-cash items reducing
Consolidated Net Income (other than items that will require cash payments and
for which an accrual or reserve is, or is required by GAAP to be, made), less
all non-cash items increasing Consolidated Net Income, in each case for such
period. Notwithstanding the foregoing, the provision for taxes based on the
income or profits of, and the depreciation and amortization of, a Subsidiary of
the Company shall be added to Consolidated Net Income to compute EBITDA only to
the extent (and in the same proportion) that the net income of such Subsidiary
was included in calculating Consolidated Net Income.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Preferred Stock" means the Series A $3.00 cumulative Preferred
Stock issued by Lobdell and the Series B Preferred Stock issued by Lobdell in
the aggregate amount of $50.7 million, less any shares of such preferred stock
repurchased, redeemed or canceled subsequent to the Issue Date, as the terms of
such preferred stock shall exist as of the Issue Date.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board and (iii) such other
statements by such other entity as approved by a significant segment of the
accounting profession.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of any
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such Person (whether
arising by virtue of partnership arrangements, or by agreements to keep-well,
to purchase assets, goods, securities or services, to take-or-pay or to
maintain financial statement conditions or otherwise) or (ii) entered into for
the purpose of assuring in any other manner the obligee of such Indebtedness or
other obligation of the payment thereof or to protect such obligee against loss
in respect thereof (in whole or in part); provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing
any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary; provided,
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further, however, that in the case of a discount security, neither the accrual
of interest nor the accretion of original issue discount shall be considered an
Incurrence of Indebtedness, but the entire face amount of such security shall
be deemed Incurred upon the issuance of such security. The term "Incurrence"
when used as a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which such Person is responsible or liable; (ii) all Capital
Lease Obligations of such Person and all Attributable Debt in respect of
Sale/Leaseback Transactions entered into by such Person; (iii) all obligations
of such Person issued or assumed as the deferred purchase price of property or
services, all conditional sale obligations of such Person and all obligations
of such Person under any title retention agreement (but excluding trade
accounts payables arising in the ordinary course of business and which are not
more than 90 days past due and not in dispute), which purchase price or
obligation is due more than six months after the date of placing such property
in service or taking delivery and title thereto or the completion of such
services (provided that, in the case of obligations of an acquired Person
assumed in connection with an acquisition of such Person, such obligations
would constitute Indebtedness of such Person); (iv) all obligations of such
Person for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction (other than obligations with respect
to letters of credit securing obligations (other than obligations described in
(i) through (iii) above) entered into in the ordinary course of business of
such Person to the extent such letters of credit are not drawn upon or, if and
to the extent drawn upon, such drawing is reimbursed no later than the tenth
Business Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit); (v) the amount of all obligations
of such Person with respect to the redemption, repayment or other repurchase of
any Disqualified Stock or, with respect to any Subsidiary of such Person, any
Preferred Stock (but excluding, in each case, any accrued dividends); (vi) all
obligations of the type referred to in clauses (i) through (v) of other Persons
and all dividends of other Persons for the payment of which, in either case,
such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or otherwise, including by means of any Guarantee; (vii) all
obligations of the type referred to in clauses (i) through (vi) of other
Persons secured by any Lien on any property or asset of such Person (whether or
not such obligation is assumed by such Person), the amount of such obligation
being deemed to be the lesser of the value of such property or assets or the
amount of the obligation so secured; and (viii) to the extent not otherwise
included in this definition, Hedging Obligations of such Person. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations as described above at such date;
provided, however, that the amount outstanding at any time of any Indebtedness
issued with original issue discount shall be deemed to be the face amount of
such Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary," the definition of "Restricted Payment" and the
covenant described under "Certain Covenants -- Limitation on Restricted
Payments," (i) "Investment" shall include the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of any Subsidiary of the Company at the time that such Subsidiary is
designated an Unrestricted Subsidiary; provided, however, that upon a
redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall
be deemed to continue to have a permanent "Investment" in an Unrestricted
Subsidiary equal to an amount (if positive) equal to (x) the Company's
"Investment" in such Subsidiary at the time of such redesignation less (y) the
portion (proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of such Subsidiary at the time of such
redesignation; and (ii) any property transferred to or from an
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Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer, in each case as determined in good faith by the Board of
Directors.
"Issue Date" means the date on which the Notes are originally issued.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Available Cash" from an Asset Disposition means cash payments
received by the Company or any of its Subsidiaries therefrom (including any
cash payments received by way of deferred payment of principal pursuant to a
note or installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring Person of Indebtedness or other obligations relating to such
properties or assets or received in any other noncash form) in each case net of
(i) all legal, title and recording tax expenses, commissions and other fees and
expenses incurred, and all Federal, state, provincial, foreign and local taxes
required to be paid or accrued as a liability under GAAP, as a consequence of
such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon or other security agreement of any kind with respect to
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law, be repaid out of the
proceeds from such Asset Disposition, (iii) all distributions and other
payments required to be made to minority interest holders in Subsidiaries or
Joint Ventures as a result of such Asset Disposition and (iv) the deduction of
appropriate amounts provided by the seller as a reserve, in accordance with
GAAP, against any liabilities associated with the property or other assets
disposed in such Asset Disposition and retained by the Company or any
Restricted Subsidiary after such Asset Disposition, including without
limitation liabilities under any indemnification obligations associated with
such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital
Stock, means the cash proceeds of such issuance or sale net of attorneys fees,
accountants fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Obligations" means all present and future obligations for principal,
premium, interest (including, without limitation, any interest accruing
subsequent to the filing of a petition of bankruptcy at the rate provided for
in the documentation with respect thereto, whether or not such interest is an
allowed claim under applicable law), penalties, fees, indemnifications,
reimbursements (including, without limitation, all reimbursement and other
obligation pursuant to any letters of credit, bankers acceptances or similar
instruments or documents), damages and other liabilities payable under the
documentation at any time governing any indebtedness.
"Permitted Holders" means (i) any of Selwyn Isakow, his spouse and any of
his lineal descendants and their respective spouses (collectively, the "Isakow
Family") whether acting in their own name or as one or as a majority of persons
having the power to exercise the voting rights attached to, or having
investment power over, shares held by others, (ii) any controlled Affiliate of
any member of the Isakow Family, and (iii) any trust solely for the benefit of
one or more members of the Isakow Family (whether or not any member of the
Isakow Family is a trustee of such trust).
"Permitted Investment" means an Investment by the Company or any
Restricted Subsidiary in (i) the Company, (ii) a Restricted Subsidiary or a
Person that will, upon the making of such Investment, become a Restricted
Subsidiary; provided, however, that the primary business of such Restricted
Subsidiary is a Related Business; (iii) another Person if as a result of such
Investment such other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all its assets to, the Company or a
Restricted Subsidiary; provided, however, that such Person's primary business
is a Related
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Business; (iv) Temporary Cash Investments; (v) receivables owing to the Company
or any Restricted Subsidiary if created or acquired in the ordinary course of
business and payable or dischargeable in accordance with customary trade terms;
provided, however, that such trade terms may include such concessionary trade
terms as the Company or any such Restricted Subsidiary deems reasonable under
the circumstances; (vi) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course of
business; (vii) loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary; (viii) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Company or
any Restricted Subsidiary or in satisfaction of judgments; (ix) Persons other
than Restricted Subsidiaries that are primarily engaged in a Related Business,
in an aggregate amount not to exceed $15 million (to the extent utilized for an
Investment, such amount will be reinstated to the extent that the Company or
any Restricted Subsidiary receives dividends, repayments of loans or other
transfers of assets as a return of such Investment); (x) any Person to the
extent such Investment is received in exchange for the transfer to such Person
of the assets owned as of the Issue Date by Laserweld International L.L.C.; and
(xi) any Person to the extent such Investment represents the non-cash portion
of the consideration received for an Asset Disposition as permitted pursuant to
the covenant described under "Certain Covenants -- Limitation on Sales of
Assets and Subsidiary Stock."
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"Preferred Stock," as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company pursuant to an effective registration statement
under the Securities Act.
"Public Market" means any time after (i) a Public Equity Offering has been
consummated and (ii) at least 10% of the total issued and outstanding common
stock of the Company has been distributed by means of an effective registration
statement under the Securities Act or sales pursuant to Rule 144 under the
Securities Act.
"Purchase Money Indebtedness" mean Indebtedness (i) consisting of the
deferred purchase price of property, conditional sale obligations, obligations
under any title retention agreement, other purchase money obligations and
obligations in respect of industrial revenue bonds or similar Indebtedness, in
each case where the maturity of such Indebtedness does not exceed the
anticipated useful life of the asset being financed, and (ii) incurred to
finance the acquisition by the Company or a Restricted Subsidiary of such
asset, including additions and improvements; provided, however, that any Lien
arising in connection with any such Indebtedness shall be limited to the
specified asset being financed or, in the case of real property or fixtures,
including additions and improvements, the real property on which such asset is
attached; and provided, further, however, that such Indebtedness is Incurred
within 90 days after such acquisition of such asset by the Company or
Restricted Subsidiary.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced"
and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture; provided, however, that (i)
such Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced,
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(ii) such Refinancing Indebtedness has an Average Life at the time such
Refinancing Indebtedness is Incurred that is equal to or greater than the
Average Life of the Indebtedness being Refinanced and (iii) such Refinancing
Indebtedness has an aggregate principal amount (or if Incurred with original
issue discount, an aggregate issue price) that is equal to or less than the
aggregate principal amount (or if Incurred with original issue discount, the
aggregate accreted value) then outstanding or committed (plus fees and
expenses, including any premium and defeasance costs) under the Indebtedness
being Refinanced; provided further, however, that Refinancing Indebtedness
shall not include (x) Indebtedness of a Subsidiary that Refinances Indebtedness
of the Company or (y) Indebtedness of the Company or a Restricted Subsidiary
that Refinances Indebtedness of an Unrestricted Subsidiary.
"Related Business" means any business related, ancillary or complementary
(as determined in good faith by the Board of Directors) to the businesses of
the Company and the Restricted Subsidiaries on the Issue Date.
"Representative" means any trustee, agent or representative (if any) for
an issue of Senior Indebtedness of the Company.
"Restricted Payment" means, with respect to any Person, (i) the
declaration or payment of any dividends or any other distributions on or in
respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving such Person) or similar payment to the
holders of its Capital Stock, except dividends or distributions payable solely
in its Capital Stock (other than Disqualified Stock) and except dividends or
distributions payable solely to the Company or a Restricted Subsidiary (and, if
such Restricted Subsidiary is not wholly owned, to its other shareholders on a
pro rata basis or on a basis that results in the receipt by the Company or a
Restricted Subsidiary of dividends or distributions of greater value than it
would receive on a pro rata basis), (ii) the purchase, redemption or other
acquisition or retirement for value of any Capital Stock of the Company held by
any Person or of any Capital Stock of a Restricted Subsidiary held by any
Affiliate of the Company (other than a Restricted Subsidiary), including the
exercise of any option to exchange any Capital Stock (other than into Capital
Stock of the Company that is not Disqualified Stock), (iii) the purchase,
repurchase, redemption, defeasance or other acquisition or retirement for
value, prior to scheduled maturity, scheduled repayment or scheduled sinking
fund payment of any Subordinated Obligations (other than the purchase,
repurchase or other acquisition of Subordinated Obligations purchased in
anticipation of satisfying a sinking fund obligation, principal installment or
final maturity, in each case due within one year of the date of acquisition) or
(iv) the making of any Investment in any Person (other than a Permitted
Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary. As of the Issue Date, the following Subsidiaries of
the Company were Restricted Subsidiaries: Lobdell Emery Corporation, BMG North
America Limited, Winchester Fabrication Corporation, Creative Fabrication
Corporation, Parallel Group International, Inc., Laserweld International,
L.L.C., Concept Management Corporation, Lewis Emery Capital Corporation and BMG
Holdings, Inc.
"Sale/Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien. "Secured Indebtedness" of any Subsidiary Guarantor has a correlative
meaning.
"Senior Credit Facility" means the credit agreement dated as of the Issue
Date, between the Company, the lenders and other persons party thereto and NBD
Bank, as Agent, together with the related documents thereto executed at any
time (including, without limitation, any guarantee agreements, security
agreements and other collateral documents) and the credit facilities
thereunder, in each case as such documents may be amended (including, without
limitation, any amendment and restatement thereof), supplemented or otherwise
modified from time to time, including any agreement extending the maturity of,
refinancing, replacing or otherwise restructuring (including, without
limitation, increasing the amount of available
88
<PAGE> 91
borrowings thereunder (provided that such increase in borrowings is permitted
by the covenant described under "Certain Covenants -- Limitation on
Indebtedness") or adding subsidiaries as additional borrowers or guarantors
thereunder).
"Senior Indebtedness" of the Company means (i) all Bank Indebtedness of
the Company, whether outstanding on the Issue Date or thereafter Incurred,
including the Guarantees by the Company of all Bank Indebtedness, and (ii)
accrued and unpaid interest (including interest accruing on or after the filing
of any petition in bankruptcy or for reorganization relating to the Company
whether or not a claim for post-filing interest is allowed in such proceeding)
in respect of (A) indebtedness of the Company for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar instruments
for the payment of which the Company is responsible or liable unless, in the
instrument creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are subordinate in right of
payment to the Notes; provided, however, that Senior Indebtedness shall not
include (1) any obligation of the Company to any Subsidiary, (2) any liability
for Federal, state, local or other taxes owed or owing by the Company, (3) any
accounts payable or other liability to trade creditors arising in the ordinary
course of business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness of the Company (and any accrued and unpaid
interest in respect thereof) which is subordinate or junior in any respect
(other than as a result of the Indebtedness being unsecured) to any other
Indebtedness or other obligation of the Company, including any Senior
Subordinated Indebtedness and any Subordinated Obligations, (5) any obligations
with respect to any Capital Stock or (6) that portion of any Indebtedness which
at the time of Incurrence is Incurred in violation of the Indenture. "Senior
Indebtedness" of any Subsidiary Guarantor has a correlative meaning.
"Senior Subordinated Indebtedness" of the Company means the Notes and any
other Obligations under or in connection with the Notes, the Indenture and/or
any related agreements, documents or instruments, whether now owing or
hereafter incurred or owing and any other Indebtedness of the Company that
specifically provides that such Indebtedness is to rank pari passu with the
Notes in right of payment and is not subordinated by its terms in right of
payment to any Indebtedness or other obligation of the Company which is not
Senior Indebtedness. "Senior Subordinated Indebtedness" of any Subsidiary
Guarantor has a correlative meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to that
effect. "Subordinated Obligation" of any Subsidiary Guarantor has a correlative
meaning.
"Subsidiary" means, in respect of any Person, any corporation,
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
"Subsidiary Guaranty" means the Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes.
"Subsidiary Guarantor" means each Subsidiary designated as such on the
signature pages of the Indenture and any other Subsidiary that has issued a
Subsidiary Guaranty.
89
<PAGE> 92
"Temporary Cash Investments" means any of the following: (i) any
investment in direct obligations of the United States of America or any agency
thereof or obligations guaranteed by the United States of America or any agency
thereof, (ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50,000,000 (or the
foreign currency equivalent thereof) and has outstanding debt which is rated
"A" (or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by an registered broker
dealer or mutual fund distributor, (iii) repurchase obligations with a term of
not more than 30 days for underlying securities of the types described in
clause (i) above entered into with a bank meeting the qualifications described
in clause (ii) above, (iv) investments in commercial paper, maturing not more
than 90 days after the date of acquisition, issued by a corporation (other than
an Affiliate of the Company) organized and in existence under the laws of the
United States of America, any State thereof or the District of Columbia or any
foreign country recognized by the United States of America with a rating at the
time as of which any investment therein is made of "P-1" (or higher) according
to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard
and Poor's Ratings Group, and (v) investments in securities with maturities of
six months or less from the date of acquisition issued or fully guaranteed by
any state, commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A" by
Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc.
"Tooling Indebtedness" means all present and future Indebtedness of the
Company or any Restricted Subsidiary the proceeds of which are utilized to
finance dies, molds, tooling and similar items (collectively "Tooling") for
which the sales of such Tooling is covered under specific written purchase
orders or agreements between the Company or any Restricted Subsidiary and the
purchaser of such Tooling.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of
the Company (including any newly acquired or newly formed Subsidiary) to be an
Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns
any Capital Stock or Indebtedness of, or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided, however, that either (A) the
Subsidiary to be so designated has total assets of $1,000 or less or (B) if
such Subsidiary has assets greater than $1,000, such designation would be
permitted under the covenant described under "Certain Covenants -- Limitation
on Restricted Payments." The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided, however, that immediately
after giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under paragraph (a) of the covenant described under
"Certain Covenants -- Limitation on Indebtedness" and (y) no Default shall have
occurred and be continuing. Any such designation by the Board of Directors
shall be notified by the Company to the Trustee by promptly filing with the
Trustee a copy of the board resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States of
America (including any agency or instrumentality thereof) for the payment of
which the full faith and credit of the United States of America is pledged and
which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the
Company and/or one or more Wholly Owned Subsidiaries.
90
<PAGE> 93
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the certain United States federal
income tax consequences of the Exchange Offer to a holder of Old Notes that is
an individual citizen or resident of the United States or a United States
corporation that purchased the Old Notes pursuant to their original issue (a
"U.S. Holder"). It is based on the Internal Revenue Code of 1986, as amended to
the date hereof (the "Code"), existing and proposed Treasury regulations, and
judicial and administrative determinations, all of which are subject to change
at any time, possibly on a retroactive basis. The following relates only to the
Old Notes, and the New Notes received therefor, that are held as "capital
assets" within the meaning of Section 1221 of the Code by U.S. Holders. It does
not discuss state, local, or foreign tax consequences, nor does it discuss tax
consequences to categories of holders that are subject to special rules, such
as foreign persons, tax-exempt organizations, insurance companies, banks, and
dealers in stocks and securities. Tax consequences may vary depending on the
particular status of an investor. No rulings will be sought from the Internal
Revenue Service with respect to the federal income tax consequences of the
Exchange Offer.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO EXCHANGE OLD NOTES
FOR NEW NOTES. EACH INVESTOR SHOULD CONSULT WITH ITS OWN TAX ADVISOR CONCERNING
THE APPLICATION OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX LAWS TO ITS
PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO EXCHANGE OLD NOTES FOR NEW
NOTES.
MARKET DISCOUNT
A U.S. Holder of a Note, other than an initial Holder, will be
treated as holding the Note at a market discount (a "Market Discount Note")
if the amount for which such U.S. Holder purchased the Note is less than the
Note's principal amount, subject to a de minimis rule.
In general, any partial payment of principal on, or gain recognized
on the maturity or disposition of, a Market Discount Note will be treated as
ordinary income to the extent that such gain does not exceed the accrued
market discount on such Note. Alternatively, a U.S. Holder of a Market
Discount Note may elect to include market discount in income currently over the
life of the Market Discount Note. Such an election applies to all debt
instruments with market discount acquired by the electing U.S. Holder on or
after the first day of the first taxable year to which the election applies and
may not be revoked without the consent of the Internal Revenue Service.
Market discount accrues on a straight-line basis, unless the U.S.
Holder elects to accrue such discount on a constant yield to maturity basis.
Such an election is applicable only to the Note with respect to which it is
made and is irrevocable. A U.S. Holder of a Market Discount Note that does not
elect to include market discount in income currently, generally will be
required to defer deductions for interest on borrowings allocable to such Note,
in an amount not exceeding the accrued market discount on such Note, until the
maturity or disposition of such Note.
THE EXCHANGE OFFER
The exchange of Old Notes pursuant to the Exchange Offer should be treated
as a continuation of the corresponding Old Notes because the terms of the New
Notes are not materially different from the terms of the Old Notes.
Accordingly, it is the Company's belief that such exchange will not constitute
a taxable event to U.S. Holders and, therefore, (i) no gain or loss should be
realized by a U.S. Holder upon receipt of a New Note, (ii) the holding period
of the New Note should include the holding period of the Old Note exchanged
therefor and (iii) the adjusted tax basis of the New Note should be the same as
the adjusted tax basis of the Old Note exchanged therefor immediately before
the exchange.
STATED INTEREST
91
<PAGE> 94
Stated interest on a Note will be taxable to a U.S. Holder as ordinary
interest income at the time that such interest accrues or is received, in
accordance with the U.S. Holder's regular method of accounting for federal
income tax purposes. The Notes are not considered to have been issued with
original issue discount for federal income tax purposes.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
A U.S. Holder's tax basis in a Note generally will be its cost. A U.S.
Holder generally will recognize gain or loss on the sale, exchange or
retirement of a Note in an amount equal to the difference between the amount
realized on the sale, exchange or retirement and the tax basis of the Note.
Gain or loss recognized on the sale, exchange or retirement of a Note
(excluding amounts received in respect of accrued interest, which will be
taxable as ordinary interest income) generally will be capital gain or loss and
will be long-term capital gain or loss if the Note was held for more than one
year.
BACKUP WITHHOLDING
Under certain circumstances, a U.S. Holder of a Note may be subject to
"backup withholding" at a 31% rate with respect to payments of interest thereon
or the gross proceeds from the disposition thereof. This withholding generally
applies if the U.S. Holder fails to furnish his or her social security number
or other taxpayer identification number in the specified manner and in certain
other circumstances. Any amount withheld from a payment to a U.S. Holder under
the backup withholding rules is allowable as a credit against such U.S.
Holder's federal income tax liability, provided that the required information
is furnished to the IRS. Corporations and certain other entities described in
the Code and Treasury regulations are exempt from backup withholding if their
exempt status is properly established.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. Each of the Company and the Subsidiary Guarantors has
agreed that, starting on the Expiration Date and ending on the close of
business on the first anniversary of the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until January 19, 1998 (90
days after the date of this Prospectus), all dealers effecting transactions in
the New Notes may be required to deliver a prospectus.
Neither the Company nor any of the Subsidiary Guarantors will receive any
proceeds from any sale of New Notes by broker-dealers. New Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market,
in negotiated transactions, through the writing of options on the New Notes or
a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer or the purchasers of any
such New Notes. Any broker-dealer that resells New Notes that were received by
it for its own account pursuant to the Exchange Offer and any broker or dealer
that participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that, by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
92
<PAGE> 95
For a period of one year after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company and each of the Subsidiary Guarantors
have agreed to pay all expenses incident to the Exchange Offer (including the
expenses of one counsel for the holders of the Old Notes) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the Old Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Dykema Gossett PLLC, Bloomfield Hills, Michigan. Rex E. Schlaybaugh,
Jr. is a shareholder, the Vice Chairman of the Board and a director of the
Company. Mr. Schlaybaugh is a member of Dykema Gossett PLLC. Certain matters
relating to the Subsidiary Guaranties and the application of Ontario law to
them will be passed upon for the Company by Fasken Campbell Godfrey, Toronto,
Ontario.
EXPERTS
On March 28, 1997, Price Waterhouse LLP, independent auditors, were
selected by the Board of Directors to audit the financial statements of the
Company for the fiscal year ended March 31, 1997. On March 28, 1997, the
Company dismissed its principal accountant, Deloitte & Touche, upon the
recommendation of the Company's Board of Directors. There were no
disagreements with Deloitte & Touche and the Company during the two most recent
fiscal years and subsequent interim periods preceding such dismissal on any
matter of accounting principles or practices, financial statement disclosures
or auditing scope or procedure. The reports of Price Waterhouse LLP and
Deloitte & Touche on the financial statements for each of the past two years
have not contained an adverse opinion, disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.
The consolidated financial statements of the Company as of and for the
year ended March 31, 1997 included in this Prospectus have been so included in
reliance on the report of Price Waterhouse LLP, independent auditors, given on
the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of the Company as of March 31, 1996
and for the period from October 28, 1995 through March 31, 1996 appearing in
this Prospectus and the related financial statement schedule included in the
Exchange Offer Registration Statement have been audited by Deloitte & Touche,
independent auditors, as stated in their report appearing herein, and are
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
The consolidated financial statements of BMG North America Limited
(Predecessor) for the period from April 1, 1995 through October 27, 1995 and
for the year ended March 31, 1995 appearing in this Prospectus and the related
financial statement schedule included in the Exchange Offer Registration
Statement have been audited by Deloitte & Touche, independent auditors, as
stated in their report appearing herein, and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements of Lobdell Emery Corporation as of
December 31, 1996 and 1995 and for each year in the three-year period ended
December 31, 1996 included in this Prospectus have been so included in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
93
<PAGE> 96
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
OXFORD AUTOMOTIVE, INC.
Report of Independent Accountants................................... F-2
Independent Auditors' Report........................................ F-3
Consolidated Balance Sheets as of March 31, 1997, 1996 and
June 30, 1997 (Unaudited)......................................... F-4
Consolidated Statements of Operations for the year ended
March 31, 1997, the period from October 28, 1995
through March 31, 1996 and the three months ended June 30,
1997 and 1996 (Unaudited) for the Company; and for the period from
April 1, 1995 through October 27, 1995 and for the
year ended March 31, 1995 for the Predecessor..................... F-5
Consolidated Statement of Changes in Shareholders' Equity
for the year ended March 31, 1997, the period from
October 28, 1995 through March 31, 1996 and the three
months ended June 30, 1997 (Unaudited) for the Company; and for the
period from April 1, 1995 through October 27, 1995 and the
year ended March 31, 1995 for the Predecessor.................... F-6
Consolidated Statements of Cash Flows for the year ended
March 31, 1997, the period from October 28, 1995 through
March 31, 1996 and the three months ended June 30, 1997 and 1996
(Unaudited) for the Company; and for the period from
April 1, 1995 through October 27, 1995 and for the year
ended March 31, 1995 for the Predecessor.......................... F-7
Notes to Consolidated Financial Statements.......................... F-8
LOBDELL EMERY CORPORATION
Report of Independent Accountants................................... F-24
Consolidated Balance Sheets as of December 31, 1996 and
1995.............................................................. F-25
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994.................................. F-26
Consolidated Statement of Changes in Shareholders' Equity
for the years ended December 31, 1996, 1995 and 1994.............. F-27
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994.................................. F-28
Notes to Consolidated Financial Statements.......................... F-29
</TABLE>
F-1
<PAGE> 97
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Oxford Automotive, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Oxford Automotive, Inc. and its subsidiaries (the Company) at March 31, 1997 and
the result of their operations and their cash flows for the year ended March 31,
1997 in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
The financial statements of the Company as of March 31, 1996 and for the
period from October 28, 1995 through March 31, 1996 and the financial statements
of BMG North America Limited (the Predecessor) for the period from April 1, 1995
through October 27, 1995 and for the year ended March 31, 1995 were audited by
other independent accountants whose report dated May 21, 1996 expressed an
unqualified opinion on those statements.
PRICE WATERHOUSE LLP
Detroit, Michigan
May 19, 1997, except as to Note 17
which is as of July 15, 1997
F-2
<PAGE> 98
INDEPENDENT AUDITORS' REPORT
To the Directors of
Oxford Automotive, Inc. and BMG North America Limited
We have audited the consolidated balance sheet of Oxford Automotive, Inc.
as at March 31, 1996 and the consolidated statements of operations, changes in
shareholders' equity and cash flows for the period from October 28, 1995 to
March 31, 1996 for Oxford Automotive, Inc. and the consolidated statements of
operations, changes in shareholders' equity and cash flows for the period from
April 1, 1995 to October 27, 1995 and for the year ended March 31, 1995 for BMG
North America Limited. These financial statements are the responsibility of the
management of Oxford Automotive Inc. and BMG North America Limited. 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 an audit to obtain
reasonable assurance 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, these consolidated financial statements present fairly, in
all material respects, the financial position of Oxford Automotive, Inc., as at
March 30, 1996 and the results of its operations and its cash flows for the
period from October 28, 1995 to March 31, 1996 and the results of BMG North
America Limited's operations and its cash flows for the period from April 1,
1995 to October 27, 1995 and for the year ended March 31, 1995 in accordance
with U.S. generally accepted accounting principles.
DELOITTE & TOUCHE
Chartered Accountants
Kitchener, Ontario
May 21, 1996
F-3
<PAGE> 99
OXFORD AUTOMOTIVE, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE-RELATED DATA)
<TABLE>
<CAPTION>
MARCH 31,
JUNE 30, -------------------
1997 1997 1996
-------- ---- ----
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 58,883 $ 9,671 $ --
Trade receivables -- less allowance of $1,272 at June 30,
1997 and March 31, 1997 and $39 at March 31, 1996....... 41,511 47,626 8,338
Inventories............................................... 14,623 13,411 3,719
Refundable income taxes................................... 1,212 1,641
Reimbursable tooling...................................... 5,545 4,968 3,298
Deferred income taxes..................................... 4,364 4,633
Prepaid expenses and other current assets................. 794 1,354 1,181
-------- -------- -------
Total current assets................................. 126,932 83,304 16,536
Unexpended bond proceeds.................................... 3,991 3,937
Other noncurrent assets..................................... 5,382 4,588 6,734
Deferred income taxes....................................... 4,057 5,087 6,139
Property, plant and equipment, net.......................... 146,291 146,778 19,791
-------- -------- -------
Total Assets......................................... $286,653 $243,694 $49,200
======== ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable.................................... $ 27,398 $ 31,421 $14,570
Employee compensation..................................... 7,336 4,986 1,883
Restructuring reserve..................................... 6,303 7,050 608
Accrued expenses and other current liabilities............ 6,951 9,040 3,299
Current portion of borrowings............................. 4,761 24,274 11,258
-------- -------- -------
Total current liabilities............................ 52,749 76,771 31,618
Pension liability........................................... 4,205 3,631 1,080
Postretirement medical benefits liability................... 34,013 33,467
Deferred income taxes....................................... 10,488 10,442
Other noncurrent liabilities................................ 2,187 2,187 67
Long-term borrowings -- less current portion................ 137,917 75,555 15,500
-------- -------- -------
Total liabilities.................................... 241,559 202,053 48,265
-------- -------- -------
Commitments and contingent liabilities (Note 14) Redeemable
Series A $3.00 Cumulative Preferred Stock, $100 stated
value -- 457,541 shares authorized, issued and outstanding
(Notes 3 and 12).......................................... 36,305 36,012
-------- -------- -------
Redeemable Series B Preferred Stock, $100 stated value --
49,938 shares authorized, issued and outstanding (Notes 3
and 12)................................................... 3,330 3,288
-------- -------- -------
Shareholders' equity
Common stock, 400,000 shares authorized; 309,750 issued
and outstanding at June 30, 1997 and March 31, 1997 and
75,000 issued and outstanding at March 31, 1996......... 1,050 1,050 750
Foreign currency translation adjustment................... (82) (28) 5
Retained earnings......................................... 4,744 1,572 415
Equity adjustment for minimum pension liability........... (253) (253) (235)
-------- -------- -------
5,459 2,341 935
-------- -------- -------
Total Liabilities and Shareholders' Equity........... $286,653 $243,694 $49,200
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 100
OXFORD AUTOMOTIVE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE-RELATED DATA)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------------------- -----------------------------
THREE MONTHS PERIOD FROM PERIOD FROM
ENDED JUNE 30 YEAR ENDED OCTOBER 28, 1995 APRIL 1, 1995 YEAR ENDED
----------------- MARCH 31, THROUGH THROUGH MARCH 31,
1997 1996 1997 MARCH 31, 1996 OCTOBER 27, 1995 1995
---- ---- ---------- ---------------- ---------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................... $91,960 $21,709 $136,861 $35,572 $49,043 $75,097
Cost of sales................ 82,662 20,452 125,375 31,624 46,895 70,891
------- ------- -------- -------- -------- -------
Gross profit........... 9,298 1,257 11,486 3,948 2,148 4,206
Selling, general and
administrative............. 1,692 703 7,685 2,235 3,922 4,554
------- ------- -------- -------- -------- -------
Operating income
(loss).............. 7,606 554 3,801 1,713 (1,774) (348)
Other income (expense)
Interest expense........... (1,798) (592) (3,388) (1,096) (1,048) (1,267)
Other income............... 37 587 2,201
------- ------- -------- -------- -------- -------
Income (loss) before
(provision) benefit for
income taxes............... 5,845 549 2,614 617 (2,822) (1,615)
(Provision) benefit for
income taxes............... 2,338 220 (1,065) (202) 938 349
------- ------- -------- -------- -------- -------
Net income (loss)............ 3,507 329 1,549 415 $(1,884) $(1,266)
======== =======
Accrued dividends and
accretion on redeemable
preferred stock............ 335 -- 300 --
------- ------- -------- --------
Net income applicable to
common stock............... $ 3,172 $ 329 $ 1,249 $ 415
======= ======= ======== ========
Net income per share......... $ 10.24 $ 4.34 $ 9.37 $ 9.10
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 101
OXFORD AUTOMOTIVE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
<TABLE>
<CAPTION>
PREDECESSOR
-----------------------------------------------------------------
FOREIGN EQUITY
CURRENCY RETAINED ADJUSTMENT FOR
COMMON TRANSLATION EARNINGS MINIMUM PENSION
STOCK ADJUSTMENT (DEFICIT) LIABILITY TOTAL
------ ----------- --------- --------------- -----
<S> <C> <C> <C> <C> <C>
Balances at April 1, 1994............... $14,609 $ -- $(2,203) $-- $12,406
Net (loss).............................. (1,266) (1,266)
Foreign currency translation
adjustments........................... (186) 40 (146)
Issuance of common stock, net of
redemptions........................... (161) (161)
------- ----- ------- --- -------
Balances at March 31, 1995.............. 14,262 40 (3,469) -- 10,833
Net (loss).............................. (1,884) (1,884)
Foreign currency translation
adjustments........................... 575 (155) 420
Issuance of common stock, net of
redemptions........................... (40) (40)
------- ----- ------- --- -------
Balances at October 27, 1995............ $14,797 $(115) $(5,353) $-- $ 9,329
======= ===== ======= === =======
</TABLE>
<TABLE>
<CAPTION>
COMPANY
---------------------------------------------------------------
FOREIGN EQUITY
CURRENCY RETAINED ADJUSTMENT FOR
COMMON TRANSLATION EARNINGS MINIMUM PENSION
STOCK ADJUSTMENT (DEFICIT) LIABILITY TOTAL
------ ----------- --------- --------------- -----
<S> <C> <C> <C> <C> <C>
Balances at October 28, 1995............. $ 750 $ -- $ -- $ -- $ 750
Net income............................. 415 415
Foreign currency translation
adjustments......................... 5 5
Equity adjustment for minimum pension
liability........................... (235) (235)
------ ---- ------ ----- ------
Balances at March 31, 1996............... 750 5 415 (235) 935
Net income............................. 1,549 1,549
Foreign currency translation
adjustments......................... (33) (33)
Equity adjustment for minimum pension
liability........................... (18) (18)
Accrued dividends and accretion of
redeemable preferred stock.......... (300) (300)
Issuance of common stock, net of
redemptions......................... 300 (92) 208
------ ---- ------ ----- ------
Balances at March 31, 1997............... 1,050 (28) 1,572 (253) 2,341
Net income............................... 3,507 3,507
Foreign currency translation
adjustment............................. (54) (54)
Accrued dividends and accretion of
redeemable preferred stock............. (335) (335)
------ ---- ------ ----- ------
Balances at June 30, 1997 (unaudited).... $1,050 $(82) $4,744 $(253) $5,459
====== ==== ====== ===== ======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 102
OXFORD AUTOMOTIVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
------------------------------------------------------ ---------------------------------
THREE MONTHS PERIOD FROM PERIOD FROM
ENDED JUNE 30, OCTOBER 28, 1995 APRIL 1, 1995
------------------ YEAR ENDED THROUGH THROUGH YEAR ENDED
1997 1996 MARCH 31, 1997 MARCH 31, 1996 OCTOBER 27, 1995 MARCH 31, 1995
---- ---- -------------- ---------------- ---------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating activities
Net income (loss)............. $ 3,507 $ 329 $ 1,549 $ 415 $ (1,884) $(1,266)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities
Depreciation and
amortization.............. 4,308 772 5,041 687 919 1,413
Deferred income taxes....... 315 (324) 2,136 230 (1,036) (385)
Gain on sale of equipment... (62) (195) (2) (14)
Changes in operating assets
and liabilities affecting
cash Trade receivables.... 6,115 (3,045) (8,953) 6,617 (3,311) (2,286)
Inventories............... (1,212) 1,260 (299) (277) (259) (635)
Reimbursable tooling...... (577) (525) (1,601) 1,824 (760) (3,170)
Prepaid expenses and other
assets.................. 498 1,808 129 1,592 (1,768) (553)
Other noncurrent assets... 3,544
Trade accounts payable.... (4,023) 1,799 (605) (6,501) 6,417 7,314
Employee compensation..... (6,072) 309 (493) (25)
Restructuring reserve..... (747) (196) (398)
Accrued expenses and other
liabilities............. 261 (127) (1,885) (1,716) 3,504 110
Income taxes
payable/refundable...... 429 (199)
Other noncurrent
liabilities............. 1,120 193 (39)
-------- ------- -------- -------- -------- -------
Net cash provided by
(used in) operating
activities............ 9,932 1,944 (7,847) 3,178 1,329 503
-------- ------- -------- -------- -------- -------
Investing activities
Purchase of business, net of
cash acquired............... (9,309) (1,983)
Purchase of property, plant
and equipment............... (3,515) (1,203) (3,326) (3,466) (5,111) (4,384)
Proceeds from sale of
equipment................... 341 33 11 26
-------- ------- -------- -------- -------- -------
Net cash used in investing
activities................ (3,515) (1,203) (12,294) (5,416) (5,100) (4,358)
-------- ------- -------- -------- -------- -------
Financing activities
Issuance of share capital..... 300 750
Proceeds from borrowing
arrangements................ 124,814 78,823 23,814 921
Principal payments on
borrowing arrangements...... (81,965) (483) (49,186) (16,482) (7,477) (1,182)
Redemption and retirement of
common stock................ (92) (40) (161)
Obligation under capital lease
-- net...................... (6) (3) 76
-------- ------- -------- -------- -------- -------
Net cash provided by (used
in) financing
activities................ 42,849 (483) 29,845 8,076 (6,599) (1,267)
-------- ------- -------- -------- -------- -------
Effect of exchange rate
changes on cash............. (54) (258) (33)
-------- ------- -------- -------- -------- -------
Net increase (decrease) in
cash and cash equivalents... 49,212 -- 9,671 5,838 (10,370) (5,122)
Cash and cash equivalents at
beginning of period......... 9,671 -- (11,238) (868) 4,254
-------- ------- -------- -------- -------- -------
Cash and cash equivalents at
end of period............... $ 58,883 $ -- $ 9,671 $ (5,400) $(11,238) $ (868)
======== ======= ======== ======== ======== =======
Cash paid for interest........ $ 1,800 $ 276 $ 3,033 $ 1,096 $ 1,048 $ 1,267
======== ======= ======== ======== ======== =======
Cash paid for income taxes.... $ 383 $ 39 $ -- $ 42 $ 79 $ 113
======== ======= ======== ======== ======== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 103
OXFORD AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements
(dollar amounts in thousands, except share related data)
NOTE 1. NATURE OF OPERATIONS
Oxford Automotive, Inc. (the Company) is a full-service supplier of metal
stampings and welded assemblies used as original equipment components primarily
by North American original equipment automotive manufacturers. The Company's
products are used in a wide variety of sport utility vehicles, light and medium
trucks, vans and passenger cars. The Company primarily operates from seven
plants located in the United States and Canada. The Company's hourly workforce
is represented by various locals of the United Auto Workers.
Net sales to the Company's two primary customers as a percentage of total
sales are as follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
--------------------------------- ---------------------------------
PERIOD FROM PERIOD FROM
OCTOBER 28, 1995 APRIL 1, 1995
YEAR ENDED THROUGH THROUGH YEAR ENDED
MARCH 31, 1997 MARCH 31, 1996 OCTOBER 27, 1995 MARCH 31, 1995
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Ford Motor Company........... 17% -- -- --
General Motors Corporation... 62% 67% 69% 70%
</TABLE>
Accounts receivable from Ford Motor Company and General Motors Corporation
represent approximately 30% and 60%, respectively, of the March 31, 1997
accounts receivable balance.
Although the Company is directly affected by the economic well being of the
automotive industry and customers referred to above, management does not believe
significant credit risk exists at March 31, 1997. The Company does not require
collateral to reduce such risk and historically has not experienced significant
losses related to receivables from individual customers or groups of customers
in the automotive industry.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements for the period from April 1, 1995 through October
27, 1995 and for the year ended March 31, 1995 are those of BMG North America
Limited (the Predecessor), which was acquired by Oxford Automotive, Inc.
(formerly BMG-MI, Inc.) on October 28, 1995, as discussed further in Note 3.
The consolidated financial statements as of March 31, 1997 and 1996 and for
the year ended March 31, 1997 and for the period from October 28, 1995 through
March 31, 1996 are those of the Company and its subsidiaries. The financial
statements of the Company and Predecessor are not comparable in certain respects
due to differences between the cost bases of certain assets held by the Company
versus that of the Predecessor, resulting in reduced depreciation and
amortization charges subsequent to October 27, 1995, changes in accounting
policies and the recording of certain liabilities at the date of acquisition in
connection with the purchase of the Predecessor by the Company, as well as the
Company's acquisition of Lobdell Emery Corporation and its wholly-owned
subsidiaries on January 10, 1997, as discussed further in Note 3.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts
of Oxford Automotive, Inc. and its wholly-owned subsidiaries, BMG Holdings, Inc.
and Lobdell Emery Corporation. The accounts of BMG Holdings, Inc. (BMGH) consist
of BMGH and its wholly-owned subsidiaries, BMG North America Limited (BMGNA) and
BMGNA's two wholly-owned subsidiaries, 829500 Ontario Limited and 976459 Ontario
Limited. The accounts of Lobdell Emery Corporation (Lobdell) consist of Lobdell
and its wholly-owned subsidiaries, Lewis Emery Capital Corporation (Lewis),
Concept Management Corporation and subsidiaries (Concept), Laserweld
International (Laserweld) and Parallel Group International (Parallel). Concept
Management Corporation also includes the accounts of its wholly-owned
subsidiaries, Winchester
F-8
<PAGE> 104
OXFORD AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements -- Continued
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES -- Continued
Fabrication Corporation (Winchester) and Creative Fabrication Corporation
(Creative). Intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue is recognized by the Company upon shipment of product to the
customer.
FINANCIAL INSTRUMENTS
At March 31, 1997 and 1996, the carrying amount of financial instruments
such as cash and cash equivalents, trade receivables and payables and unexpended
bond proceeds, approximated their fair values. The carrying amount of the
long-term customer receivables and borrowings at March 31, 1997 and 1996,
approximated their fair values based on the variable interest rates available to
the Company for similar arrangements.
CASH EQUIVALENTS
The Company considers all highly-liquid investments with maturity of three
months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is principally
determined by the last-in, first-out (LIFO) method for the Company's United
States operations and by the first-in first-out (FIFO) method for the Company's
Canadian operations.
REIMBURSABLE TOOLING
Reimbursable tooling represents net costs incurred on tooling projects for
which the Company expects to be reimbursed by customers. Ongoing estimates of
total costs to be incurred on each tooling project are made by management and
losses, if any, are recorded when known. Under certain tooling projects,
billings exceed costs incurred and the related tooling gain is recognized upon
acceptance of the tooling by the customer. Certain of the Company's tooling
costs are financed through lending institutions and are reimbursed by vendors on
a piece price basis. These tooling assets are classified as either accounts
receivable ($3,695 and $1,809 at March 31, 1997 and 1996, respectively), other
noncurrent assets ($3,800 and $6,734 at March 31, 1997 and 1996, respectively)
or equipment depending upon the ultimate title holder of the tooling assets.
UNEXPENDED BOND PROCEEDS
Unexpended bond proceeds in the accompanying consolidated balance sheet
represent unexpended proceeds from the issuance of industrial development
revenue bonds by Creative as discussed in Note 7, and are invested in allowable
money market accounts and commercial paper with a maturity of 30 days or less.
F-9
<PAGE> 105
OXFORD AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements -- Continued
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES -- Continued
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of cost and include
expenditures for improvements which materially increase the useful lives of
existing assets. Expenditures for normal repair and maintenance are charged to
operations as incurred. For federal income tax purposes, depreciation is
computed using accelerated and straight-line methods. For financial reporting
purposes, depreciation is computed principally using the straight-line method
over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Land improvements........................................... 15
Buildings................................................... 30-40
Machinery and equipment..................................... 3-20
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for long-lived assets in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". This Statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by the Company be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be fully
recoverable. The Company recognizes impairment losses for assets or groups of
assets where the sum of the estimated future cash flows (undiscounted and
without interest charges) is less than the carrying amount of the related asset
or group of assets. The amount of the impairment loss recognized is the excess
of the carrying amount over the fair value of the asset or group of assets being
measured.
ENVIRONMENTAL COMPLIANCE AND REMEDIATION
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations which do not contribute to current or future revenue
generation are expensed. Liabilities are recorded when environmental assessments
and/or remedial efforts are probable and the costs can be reasonably estimated.
Estimated costs are based upon enacted laws and regulations, existing technology
and the most probable method of remediation. The costs determined are not
discounted and exclude the effects of inflation and other social and economic
factors.
INCOME TAXES
Deferred taxes are provided to give recognition to the effect of expected
future tax consequences of temporary differences between the carrying amounts
for financial reporting purposes and the tax bases for income tax purposes of
assets and liabilities.
FOREIGN EXCHANGE CONTRACTS
Gains and losses of foreign currency firm commitment hedges are deferred
and included in the basis of the transactions underlying the commitments. During
fiscal 1997, the Company recognized a gain of approximately $2,000 related to
certain foreign currency exchange transactions terminated during the year. The
gain is included as a component of other income in the accompanying March 31,
1997 statement of operations. Had the foreign currency exchange transactions not
been terminated, the recognized gain would normally have been recorded as a
component of sales.
F-10
<PAGE> 106
OXFORD AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements -- Continued
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES -- Continued
FOREIGN CURRENCY TRANSLATION
The foreign currency financial statements of BMGH, where the local currency
is the functional currency, are translated using exchange rates in effect at
period end for assets and liabilities and at weighted average exchange rates
during the period for operating statement accounts. The resulting foreign
currency translation adjustments are recorded as a separate component of
shareholders' equity. Exchange gains and losses resulting from foreign currency
transactions are included in operating results during the period in which they
occur.
PER SHARE AMOUNTS
Predecessor period per share amounts have not been presented as the
Company's capital structure is not comparable to that of the Predecessor.
RECLASSIFICATIONS
Certain amounts from the prior year have been reclassified to conform with
the current year presentation.
NOTE 3. ACQUISITIONS
On October 28, 1995, the Company acquired all of the outstanding common
stock of the Predecessor for $700 Canadian. The acquisition was financed through
three promissory notes aggregating $600 Canadian. The acquisition has been
recorded in accordance with the purchase method of accounting. Accordingly, the
purchase price plus direct cost of the acquisition have been allocated to the
assets acquired and liabilities assumed based on their estimated fair values at
the date of acquisition.
On January 10, 1997, pursuant to an Agreement and Plan of Merger among
Lobdell Emery Corporation, certain shareholders of Lobdell Emery Corporation,
BMG-MI, Inc. and L-E Acquisition, Inc. as amended (the Agreement), certain
Lobdell Emery Corporation shareholders and option holders had their respective
shares and options redeemed for cash of approximately $8,500 and all outstanding
shares of common stock of Lobdell Emery Corporation (Oldco) were exchanged for
shares of preferred stock of L-E Acquisition, Inc. with a face value of
approximately $40,700. In addition, approximately $3,500 of expenses incurred by
Oldco were reimbursed by L-E Acquisition, Inc. Subsequent to the exchange of
Oldco's common stock for preferred stock, L-E Acquisition, Inc. was merged with
and into Lobdell Emery Corporation (Newco).
The acquisition was financed through the issuance of preferred stock
described in Note 12 and the term loan described in Note 7. The acquisition has
been recorded in accordance with the purchase method of accounting. Accordingly,
the purchase price plus direct cost of the acquisition have been allocated to
the assets acquired and liabilities assumed based on their estimated fair values
at the date of acquisition.
The fair market value of assets acquired and liabilities assumed, without
giving effect to the settlement described in Note 17, is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Current assets.............................................. $ 56,993
Property, plant and equipment............................... 128,893
Noncurrent assets........................................... 9,953
Current liabilities......................................... (50,028)
Long-term liabilities....................................... (106,811)
--------
Fair value of preferred stock............................... 39,000
Discount on preferred stock................................. 1,700
--------
Stated value of preferred stock............................. $ 40,700
========
</TABLE>
F-11
<PAGE> 107
OXFORD AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements -- Continued
NOTE 3. ACQUISITIONS -- Continued
In accordance with the purchase method of accounting, Lobdell's operating
results have been included with those of the Company since the date of
acquisition.
The Agreement provides for a purchase price adjustment, depending on net
worth on January 10, 1997, to the face value of Series A Preferred Stock, not to
exceed $10,000, issued by the Company to the former shareholders of Lobdell in
connection with the acquisition. The Company and former shareholders of Lobdell
are currently in negotiations as to the purchase price adjustment related to net
worth with 100,000 shares of issued Series A Preferred Stock held in escrow. The
Company expects the entire 100,000 shares ($10,000) will be returned to the
Company and canceled in accordance with the Agreement. Any adjustment to the
purchase price resulting from the aforementioned negotiations will be allocated
to the assets acquired or goodwill.
The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisition of Lobdell had occurred at the beginning of
fiscal 1997 and 1996.
<TABLE>
<CAPTION>
PERIOD FROM
OCTOBER 28, 1995
YEAR ENDED THROUGH
MARCH 31, 1997 MARCH 31, 1996
-------------- ----------------
<S> <C> <C>
Net sales................................................. $330,164 $150,776
Net loss.................................................. $ (7,090) $ (938)
Net loss applicable to common stock....................... $ (8,460) $ (2,308)
Net loss per share from continuing operations............. $ (27.32) $ (7.45)
</TABLE>
The pro forma information is not intended to be a projection of future
results.
The pro forma information included above includes adjustments for increased
depreciation expense, net of the related tax benefit of $550 and $290 for the
year ended March 31, 1997 and for the period from October 28, 1995 through March
31, 1996, respectively.
NOTE 4. INVENTORIES
Inventories are comprised of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Raw materials............................................... $ 5,688 $1,557
Finished goods and work-in-process.......................... 7,994 2,162
------- ------
13,682 3,719
LIFO and other reserves..................................... (271)
------- ------
$13,411 $3,719
======= ======
</TABLE>
The Company does not separately identify finished goods from
work-in-process.
F-12
<PAGE> 108
OXFORD AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements -- Continued
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are comprised of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land and land improvements.................................. $ 5,073 $ 779
Buildings................................................... 24,697 3,171
Machinery and equipment..................................... 117,535 7,394
Construction-in-process..................................... 4,393 8,914
-------- -------
151,698 20,258
Less -- accumulated depreciation............................ (4,920) (467)
-------- -------
$146,778 $19,791
======== =======
</TABLE>
NOTE 6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities are comprised of the
following at March 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accrued workers' compensation............................... $3,071 $ 544
Accrued property taxes...................................... 2,350
Accrued medical benefits.................................... 1,827
Foreign exchange gain....................................... 1,975
Other....................................................... 1,792 780
------ ------
$9,040 $3,299
====== ======
</TABLE>
NOTE 7. BORROWING ARRANGEMENTS
Borrowings consist of the following at March 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
BANK SYNDICATE -- TERM LOAN, LOBDELL EMERY CORPORATION
Interest at variable spread over prime (7.44% at March 31,
1997). Quarterly principal payments ranging from
$1,250-$2,750 plus interest, with $13,750 due December 31,
2001...................................................... $ 52,750 $ --
BANK SYNDICATE -- REVOLVING CREDIT LINE, LOBDELL EMERY
CORPORATION
Interest at variable spread over prime (9% at March 31,
1997), matures January 10, 2002........................... 1,250
INDUSTRIAL DEVELOPMENT REVENUE BONDS, CREATIVE
$8,500 issued September 27, 1995, floating rate interest
(3.6% at March 31, 1997). Quarterly principal payments
based on graduated maturity schedule. Backed by NBD Bank
letter of credit.......................................... 8,300
BANK SYNDICATE -- TERM LOAN, BMGNA
Interest at prime rate plus 1.25% (6% at March 31, 1997).
Quarterly payments of $755 plus interest, matures February
28, 2002.................................................. 14,447
REVOLVING CREDIT LINE, BMGNA
Interest at prime rate plus 1.25% (6% at March 31, 1997),
matures February 28, 2002................................. 10,376
</TABLE>
F-13
<PAGE> 109
OXFORD AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements -- Continued
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
NOTE 7. BORROWING ARRANGEMENTS -- CONTINUED
BANK -- TERM LOAN, LEWIS
Interest at .625% over 90-day LIBOR (6.19% at March 31,
1997). Quarterly principal payments of approximately $400,
matures October 1, 1998................................... 2,833
NATIONS BANK -- SATURN TOOLING, BMGNA
Interest at a variable spread over prime (8.71% at March 31,
1997). Payments based on parts shipped, matures November
30, 1998.................................................. 1,380 7,047
EDC TOOLING LOAN, BMGNA
Interest at a fixed rate of 7.36%. Payments based on parts
shipped, matures September 30, 1999....................... 5,110
CCFL LOAN, BMGNA
Interest at 11.11%. Monthly principal payments of $21,
matures October 31, 2000.................................. 2,475 2,768
IRDP LOAN, BMGNA
Interest at 6%. Monthly principal payments of $7 to October
31, 2000 and $11 thereafter, matures September 1, 2002.... 467 534
TERM LOAN, BMGNA
Interest at Canadian Index Rate plus 3% or Canadian Banker's
Acceptance Rate plus 3.95%. Quarterly principal payments
based on graduated schedule, repaid in full during fiscal
1997...................................................... 7,765
REVOLVING CREDIT LINE, BMGNA
Interest at Canadian Banker's Acceptance Rate plus 3.7%,
repaid in full during fiscal 1997......................... 2,803
BANK LOAN, BMGNA
Interest at either the Canadian Index Rate plus 2.5% or BA
rate plus 3.45%, repaid in full during fiscal 1997........ 2,650
TOOLING LINE, BMGNA
Interest at the Canadian Index Rate plus 3% or the Canadian
Banker's Acceptance Rate plus 3.95%, repaid in full during
fiscal 1997............................................... 2,750
SERIES A PROMISSORY NOTE, BMGH
Interest at 7%, matures October 26, 2001.................... 441 441
-------- --------
Total..................................................... 99,829 26,758
Less -- current portion of long-term borrowings............. (24,274) (11,258)
-------- --------
Long-term borrowings -- less current portion................ $ 75,555 $ 15,500
======== ========
</TABLE>
On January 10, 1997, Lobdell entered into a credit agreement with a
syndicate of banks (the Lobdell Credit Agreement), under which Lobdell may
borrow up to $110,000, including a term loan of $54,000, a revolving credit line
of $38,000, a capital expenditure note of $18,000 and a swingline note of
$3,000. At March 31, 1997, no borrowings were outstanding under the capital
expenditure note or swingline note.
The terms of the Lobdell Credit Agreement contain, among other provisions,
requirements for maintaining defined levels of tangible net worth, funded debt
to cash flows and cash flow coverage. The Lobdell Credit Agreement also contains
certain restrictions on the payment of dividends. Quarterly commitment fees
ranging from .25% to .40% are required to be paid on the unused amounts of the
revolving credit line and the capital expenditure note. Borrowings are secured
by substantially all assets of Lobdell. At
F-14
<PAGE> 110
OXFORD AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements -- Continued
NOTE 7. BORROWING ARRANGEMENTS -- CONTINUED
March 31, 1997, borrowings supported by the combined lines of credit totaled
$1,250, leaving $54,750 unused and available.
The proceeds of the industrial development revenue bonds were used to
finance the real and personal property of Creative. These bonds are backed by an
NBD letter of credit, which carries a rate of 1.50% and is collateralized by
substantially all assets of Creative. The letter of credit reimbursement
agreement includes covenants requiring minimum tangible capital, debt service
coverage and limitations on other indebtedness.
On February 11, 1997, BMGNA entered into a credit agreement with a
syndicate of banks (the BMGNA Credit Agreement) under which BMGNA may borrow up
to $46,000, including a term loan of $20,000, a revolving credit line of
$23,000, a capital expenditure note of $3,000 and a swingline note of $3,000. At
March 31, 1997, no borrowings were outstanding under the revolving credit line,
capital expenditure note or swingline note.
The terms of the BMGNA Credit Agreement contain, among other provisions,
requirements for maintaining defined levels of tangible net worth, funded debt
to cash flows and cash flow coverage. The BMGNA Credit Agreement also contains
certain restrictions on the payment of dividends. Quarterly commitment fees
ranging from .35% to .50% are required to be paid on the unused amounts of the
revolving credit line and the capital expenditure note. Borrowings are secured
by substantially all assets of BMGNA.
The Bank -- term loan, Lewis, Nations Bank -- Saturn tooling, BMGNA and EDC
tooling loan, BMGNA are used to finance customer tooling. These loans are
collateralized by either a customer purchase order or the tooling assets.
The CCFL loan represents a term loan payable through October 31, 2000 which
is secured by substantially all the assets of BMGNA.
Aggregate maturities of long-term borrowings at March 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998........................................................ $24,274
1999........................................................ 14,886
2000........................................................ 13,687
2001........................................................ 16,975
2002........................................................ 27,206
Thereafter.................................................. 2,801
-------
$99,829
=======
</TABLE>
F-15
<PAGE> 111
OXFORD AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements -- Continued
NOTE 8. INCOME TAXES
The Company's income tax provision (benefit) consists of the following:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
---------------------------------- ----------------------------------
PERIOD FROM PERIOD FROM
OCTOBER 28, 1995 APRIL 1, 1995
YEAR ENDED THROUGH THROUGH YEAR ENDED
MARCH 31, 1997 MARCH 31, 1996 OCTOBER 27, 1995 MARCH 31, 1995
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Current
Federal.................... $ (821) $ -- $ -- $ --
State...................... (124)
Foreign.................... 34 46 49
------ ------ ------- -----
(945) 34 46 49
------ ------ ------- -----
Deferred
Federal.................... 899
State...................... 137
Foreign.................... 974 168 (984) (398)
------ ------ ------- -----
2,010 168 (984) (398)
------ ------ ------- -----
$1,065 $202 $(938) $(349)
====== ====== ======= =====
</TABLE>
The difference between the statutory rate and the Company's effective rate
was as follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
--------------------------------- ---------------------------------
PERIOD FROM PERIOD FROM
OCTOBER 28, 1995 APRIL 1, 1995
YEAR ENDED THROUGH THROUGH YEAR ENDED
MARCH 31, 1997 MARCH 31, 1996 OCTOBER 27, 1995 MARCH 31, 1995
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Statutory rate................ 34.0% 36.0% 36.0% 36.0%
Foreign rates varying from
34%......................... 1.8
Large corporation tax......... (2.8) (1.6) (3.1)
State taxes, net of federal
benefit..................... .3
Nondeductible items........... 4.1 (.5) (1.2) (11.3)
Other......................... .5
---- ----- ----- -----
Effective income tax rate..... 40.7% 32.7% 33.2% 21.6%
==== ===== ===== =====
</TABLE>
F-16
<PAGE> 112
OXFORD AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements -- Continued
NOTE 8. INCOME TAXES -- Continued
Significant components of the Company's deferred tax assets and
(liabilities) are as follows at March 31:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax liabilities
Tax depreciation in excess of book........................ $(30,065) $ --
Inventory reserve......................................... (1,292)
-------- ------
Gross deferred tax liabilities.............................. (31,357)
-------- ------
Deferred tax assets
Postretirement medical benefits........................... 13,387
Impairment reserve........................................ 1,200
Workers' compensation..................................... 1,089
Medical benefits accrual.................................. 702
Allowance for bad debts................................... 502
AMT credit carryforward................................... 3,000
Pension benefits.......................................... 1,606 498
Net operating loss carryforwards.......................... 2,905 3,066
Book depreciation in excess of tax........................ 989
Restructuring reserve..................................... 3,927 311
Foreign exchange.......................................... 46 696
Other..................................................... 2,471 579
-------- ------
Gross deferred tax assets................................. 30,835 6,139
Valuation allowance......................................... (200)
-------- ------
Net deferred tax asset (liability).......................... $ (722) $6,139
======== ======
</TABLE>
A valuation allowance is provided on the tax benefits otherwise associated
with certain tax attributes unless it is considered more likely than not that
the benefit will be realized.
The Company has net operating loss carryforwards for Canadian income tax
purposes with potential future tax benefits of approximately $2,900 at March 31,
1997. The Canadian net operating losses have the ability to be carried forward
indefinitely. In addition, the Company has Alternative Minimum Tax credit
carryforwards aggregating $3,000 at March 31, 1997, which can be carried forward
indefinitely.
The Company has net operating loss carryforwards with a potential future
tax benefit of approximately $150 for state income tax purposes and Tennessee
Jobs Tax Credit carryforwards of approximately $200 at March 31, 1997, both of
which expire during the years 2010 and 2011.
NOTE 9. RESTRUCTURING RESERVES
In connection with the acquisition of Lobdell described in Note 3,
management began to formulate and assess a plan to exit certain activities of
Lobdell and accordingly established certain restructuring reserves aggregating
$7,050 in Lobdell's opening balance sheet. Currently, management's restructuring
plan includes the sale of certain subsidiaries, closure of a Lobdell owned
manufacturing facility and sale of the current Lobdell owned corporate offices.
Included in the restructuring reserves at March 31, 1997 are severance and
benefits for employees to be relocated and terminated ($5,052) and other
restructuring related costs ($1,998). The effect of these initiatives is
currently expected to result in the termination of approximately 250 employee
positions.
F-17
<PAGE> 113
OXFORD AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements -- Continued
NOTE 9. RESTRUCTURING RESERVES -- Continued
Management continues to assess the future manufacturing capacity and
corporate office requirements of the Company and expects to complete its
assessment and finalization of the restructuring plan within one year of the
acquisition date of Lobdell.
As noted above, in connection with the Company's restructuring activities,
certain employees of Lobdell were terminated. The termination of certain of
these employees resulted in a postretirement medical benefit curtailment gain of
$957 which, in accordance with the purchase method of accounting, was treated as
a reduction in liabilities assumed at the acquisition date. Accordingly, no
postemployment medical benefit curtailment gain has been recognized in the
Company's statement of operations for the year ended March 31, 1997.
NOTE 10. BENEFIT PLANS
The Company sponsors eight noncontributory plans and one contributory
defined benefit pension plan covering substantially all employees meeting the
age and length of service requirements as specified in the plans. The plan
covering salaried employees provides pension benefits that are based on a
percentage of the employee's average monthly compensation during the five
highest consecutive years out of their last ten years, and their years of
credited service up to a maximum of 30 years. The hourly plans do not provide
for increases in future compensation levels. The Company's funding policy for
this plan is to make contributions in amounts sufficient to annually fund the
plan's current service cost and the initial past service cost, plus interest,
over a period of 30 years. Plans covering hourly employees generally provide
benefits of stated amounts based on their unique labor agreements for each year
of service. The Company's funding policy for these plans is to make at least the
minimum annual contributions required by applicable regulations.
The following table sets forth the plans' funded status and amounts
recognized on the Company's balance sheets at March 31:
<TABLE>
<CAPTION>
OVERFUNDED PLANS UNDERFUNDED PLANS
------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligation
Vested benefits............................ $ 17,573 $ 2,376 $ 34,106 $ 11,539
Nonvested benefits......................... 1,170 74 1,853 356
-------- ------- -------- --------
18,743 2,450 35,959 11,895
Effect of projected future compensation
levels..................................... 4,060 1,285
-------- ------- -------- --------
Projected benefit obligation for service
rendered................................... 22,803 3,735 35,959 11,895
Plan assets at fair value (primarily U.S.
government securities, bonds and notes and
mutual funds).............................. (22,854) (4,155) (32,280) (10,525)
-------- ------- -------- --------
Plan assets less (greater) than projected
benefit obligation......................... (51) (420) 3,679 1,370
Unrecognized net loss, including asset
gains/losses not yet reflected in market
values..................................... 10 (21)
Unrecognized prior service cost.............. (20)
Unrecognized net obligation being recognized
over 15-20 years........................... 15
Experience gains (losses).................... (61) 125 (392) (363)
Adjustment required to recognize minimum
liability.................................. 472 368
-------- ------- -------- --------
(Prepaid) accrued pension cost............... $ (87) $ (295) $ 3,718 $ 1,375
======== ======= ======== ========
</TABLE>
F-18
<PAGE> 114
OXFORD AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements -- Continued
NOTE 10. BENEFIT PLANS -- Continued
The minimum pension liability in excess of the allowable intangible asset
has been recorded as a separate component of equity, net of tax.
Net periodic pension cost for each year and the actuarial assumptions used
in determining the projected benefit obligation were as follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
---------------------------------- ----------------------------------
PERIOD FROM PERIOD FROM
OCTOBER 28, 1995 APRIL 1, 1995
YEAR ENDED THROUGH THROUGH YEAR ENDED
MARCH 31, 1997 MARCH 31, 1996 OCTOBER 27, 1995 MARCH 31, 1995
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Service cost................. $ 1,074 $ 266 $ 344 $ 519
Interest cost................ 2,127 530 697 1,005
Expected return on assets.... (2,138) (425) (533) (847)
Net amortization and
deferral................... 15 60 36
------- ------- ------- ------
Net periodic pension cost.... $ 1,078 $ 371 $ 568 $ 713
======= ======= ======= ======
Discount rate
Lobdell.................... 7.75% -- -- --
BMGH....................... 8.00% 8.50% 8.75% 9.50%
Expected return on assets
Lobdell.................... 9.00% -- -- --
BMGH....................... 8.50% 8.50% 7.50% 7.50%
Salary progression
Lobdell.................... 4.50% -- -- --
BMGH....................... 5.50% 5.50% 5.50% 5.50%
</TABLE>
The Company sponsors five defined contribution 401(k) plans. The Salaried
Employees' Retirement Savings Plan covers all salaried employees of Lobdell and
Winchester. The Alma Hourly Employees' Retirement Savings Plan, the Argos Hourly
Employees' Retirement Savings Plan, the Creative Fabrication Corporation and the
Greencastle Hourly Employees' Plan cover all eligible hourly employees at the
respective locations. The Company generally contributes 25% of the first 6% of
the base compensation that a participant contributes to the plans.
NOTE 11. POSTRETIREMENT MEDICAL BENEFITS
In addition to the Company's defined benefit pension plans, Lobdell
sponsors unfunded defined benefit medical plans that provide postretirement
medical benefits to certain full-time employees meeting the age, length of
service and contractual requirements as specified in the plans. The plan
covering salaried employees is a contributory plan providing medical benefits to
those hired before July 1, 1993. The percentage of cost paid by the retiree
currently ranges from 10% for 30 or more years of service at retirement to 55%
for 15 years of service at retirement, with Company contributions commencing
upon attainment of age 62. Those retiring with less than 15 years of service and
those hired after June 30, 1993 may participate in the plan at their own cost.
The plan is currently noncontributory for those employees who retired prior to
July 1, 1993. The plans covering hourly employees provide medical benefit plan
options that are similar to those offered to active hourly employees, with
Lobdell contributions limited either to that available under traditional
coverage for Alma hourly retirees or to 87% of the total applicable premium for
Greencastle retirees.
F-19
<PAGE> 115
OXFORD AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements -- Continued
NOTE 11. POSTRETIREMENT MEDICAL BENEFITS -- Continued
The following table presents the plan's funded status reconciled with
amounts recognized in the Company's balance sheet.
<TABLE>
<CAPTION>
MARCH 31,
1997
---------
<S> <C>
Accumulated postretirement benefit obligation
Retirees.................................................. $14,479
Full eligible active plan participants.................... 4,287
Other active plan participants............................ 13,510
-------
Total unfunded obligation................................... 32,276
Unrecognized gain........................................... 1,191
-------
Postretirement medical benefits liability................... $33,467
=======
</TABLE>
Net periodic postretirement benefit cost for the period from January 10,
1997 to March 31, 1997 included the following components:
<TABLE>
<CAPTION>
<S> <C>
Service cost -- benefits earned during the period........... $ 272
Interest cost on the accumulated postretirement benefit
obligation................................................ 623
-------
Net periodic postretirement benefit cost.................... $ 895
=======
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.75%. The weighted average annual assumed
rate of increase in the per capita cost of covered benefits (i.e., healthcare
cost trend rate) is 8.8% in 1997 trending to 6.5% in 2008 and thereafter for
retirees less than 65 years of age. For retirees 65 years of age and over, the
rate is 8.5% in 1997 trending to 6.5% in 2008 and thereafter. The healthcare
cost trend rate assumption has a significant effect on the amounts reported. For
example, increasing the assumed healthcare cost trend rates by one percentage
point in each year would increase the accumulated postretirement benefit
obligation as of March 31, 1997 by approximately $4,624 and net periodic
postretirement benefit cost for the period from January 10, 1997 to March 31,
1997 by approximately $140.
NOTE 12. REDEEMABLE PREFERRED STOCK
In connection with the acquisition of Lobdell described in Note 3,
redeemable preferred stock with a face value of $50,748 was issued. Redeemable
preferred stock with a face value of $40,748 was delivered to the former
shareholders of Lobdell on January 10, 1997. The remaining redeemable preferred
stock with a face value of $10,000 was placed in escrow pending final
determination of the purchase price. The preferred stock issuance consisted of
457,541 shares of Series A $3.00 Cumulative Preferred Stock (Series A Preferred)
and 49,938 shares of Series B Preferred Stock (Series B Preferred). The annual
dividend on the Series A Preferred is $3.00 per share, payable semi-annually.
Dividends on the Series A Preferred are cumulative, but do not bear interest.
The Series B Preferred does not provide for dividends or interest.
Under the terms of the issuance of the Series A Preferred and the Series B
Preferred (Stock Agreement), the holders of the Series A Preferred and Series B
Preferred maintain limited voting rights. Holders are entitled to vote on any
provisions that would adversely affect the rights or privileges of the Series A
Preferred or Series B Preferred holders or management's plans to issue any
equity securities that would rank prior to the Series A Preferred. Holders of
the Series A Preferred are entitled to elect at least one director of Lobdell,
which, under certain provisions of the Stock Agreement, may increase to two.
Lobdell is required to redeem all shares of Series A Preferred and Series B
Preferred on December 31, 2006 at a price of $100 per share, plus all declared
or accumulated but unpaid dividends on the Series A
F-20
<PAGE> 116
OXFORD AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements -- Continued
NOTE 12. REDEEMABLE PREFERRED STOCK -- Continued
Preferred. If Oxford does not commence an initial public offering of common
stock (IPO) prior to June 30, 2006, then the redemption price of the Series A
Preferred is $103 per share. If an IPO does not occur by December 31, 2001, each
holder of Series A Preferred has the option to redeem annually a maximum of 20
percent of the shares held at a price of $100 per share on each December 31,
beginning in 2002.
Series A Preferred and Series B Preferred holders are not allowed to
transfer, sell or assign the shares prior to February 1, 1999. Subsequent to
that date, Lobdell has the right of first refusal to purchase any of the shares
transferred, sold or assigned by a holder of Series A Preferred or Series B
Preferred.
Holders of Series A Preferred are entitled to convert their shares to
Oxford common stock issued in connection with an IPO. Individual Series A
Preferred holders may convert a maximum of 50% of their shares, but the total of
all Series A Preferred shares converted may not exceed 25% of the total Series A
Preferred shares outstanding.
The Series B Preferred shares have been discounted, as the redemption price
of $100 per share was greater than the fair value of the shares at issuance. The
recorded value will be accreted to the redemption value at the time redemption
first becomes available.
The Series A Preferred and Series B Preferred have been included in the
accompanying consolidated balance sheet at their respective fair values at the
date of issuance of $35,754 and $3,246, respectively, and have been adjusted for
accrued dividends and accretion of $258 and $42 respectively.
NOTE 13. RELATED PARTY TRANSACTIONS
The Company is charged a fee by a related party, The Oxford Investment
Group, Inc., for consulting, finance and management services. Fees charged to
the Company by The Oxford Investment Group, Inc. approximated $275 for the year
ended March 31, 1997. In connection with the acquisitions of BMGNA and Lobdell,
investment banking fees of $200 and $300, respectively, were paid to The Oxford
Investment Group, Inc.
NOTE 14. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
As of March 31, 1997, the Company had long-term operating leases covering
certain machinery and equipment. The minimum rental commitments under
noncancellable operating leases with lease terms in excess of one year are as
follows as of March 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
1998........................................................ $ 4,695
1999........................................................ 2,813
2000........................................................ 3,159
2001........................................................ 1,140
2002........................................................ 3,088
-------
$14,895
=======
</TABLE>
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws and regulations
which govern environmental matters. These laws regulate the discharge of
materials into the environment and may require the Company to remove or mitigate
the environmental effects of the disposal or release of petroleum or chemical
substances.
F-21
<PAGE> 117
OXFORD AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements -- Continued
NOTE 14. COMMITMENTS AND CONTINGENCIES -- Continued
The Company has identified several environmental matters resulting from
prior operations. Due to the relatively early stage of investigation of certain
of these identified matters as well as potential indemnification by other
potentially responsible parties, management is unable to reasonably estimate the
ultimate cost of remediating certain of these identified environmental matters.
At March 31, 1997, the Company has a liability of approximately $880 recorded
for estimated costs of known environmental matters.
GENERAL
The Company is subject to various claims, lawsuits and administrative
proceedings related to matters arising out of the normal course of business. In
the opinion of management, after reviewing the information which is currently
available with respect to such matters and consulting with legal counsel, any
liability which may ultimately be incurred with respect to these matters will
not materially affect the financial position, results of operations or cash
flows of the Company.
NOTE 15. SEGMENT INFORMATION
The Company operates in one industry segment and all sales are to
unaffiliated customers. Net sales represent all sales to unaffiliated customers.
Net export sales represent sales to unaffiliated customers outside of the
enterprise's home country. The Company's home country is the United States and
the Predecessor's home country was Canada. Accordingly, for the year ended March
31, 1995 and for the period from April 1, 1995 through October 27, 1995, net
export sales represent sales to unaffiliated customers outside of Canada. For
the period from October 28, 1995 through March 31, 1996 and for the year ended
March 31, 1997, net
F-22
<PAGE> 118
OXFORD AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements -- Continued
NOTE 15. SEGMENT INFORMATION -- Continued
export sales represent sales to unaffiliated customers outside of the United
States. Net sales by geographic area, identifiable assets by geographic area and
net export sales by geographic area are as follows:
<TABLE>
<CAPTION>
COMPANY PREDECESSOR
--------------------------------- ---------------------------------
PERIOD FROM PERIOD FROM
OCTOBER 28, 1995 APRIL 1, 1995
YEAR ENDED THROUGH THROUGH YEAR ENDED
MARCH 31, 1997 MARCH 31, 1996 OCTOBER 27, 1995 MARCH 31, 1995
-------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
NET SALES
United States................ $ 54,660 $ -- $ -- $ --
Canada....................... 82,201 35,572 49,043 75,097
-------- ------- ------- -------
$136,861 $35,572 $49,043 $75,097
======== ======= ======= =======
OPERATING INCOME (LOSS)
United States................ $ 1,101 $ -- $ -- $ --
Canada....................... 2,700 1,713 (1,774) (348)
-------- ------- ------- -------
$ 3,801 $ 1,713 $(1,774) $ (348)
======== ======= ======= =======
IDENTIFIABLE ASSETS
United States................ $189,308 $ --
Canada....................... 57,153 49,200
-------- -------
$246,461 $49,200
======== =======
NET EXPORT SALES
United States................ $ -- $ -- $25,397 $37,620
Canada....................... 41,846 16,476
Mexico....................... 13,573 1,366 664 33
Other........................ 2,120
-------- ------- ------- -------
$ 57,539 $17,842 $26,061 $37,653
======== ======= ======= =======
</TABLE>
NOTE 16. SUBSEQUENT EVENT
On May 21, 1997, the Company signed a definitive Agreement and Plan of
Merger (the Merger Agreement) pursuant to which it will acquire (the Merger)
Howell Industries, Inc., a Michigan corporation (Howell).
Howell is a manufacturer of high-quality welded subassemblies and detailed
stampings used as OEM components, primarily in suspension system applications,
in the production of light trucks, SUVs, mini-vans, vans and passenger cars.
Pursuant to the Merger Agreement, the shareholders of Howell will receive
approximately $23,400 in cash. The Company also executed a Shareholder Agreement
pursuant to which it has received from the principal shareholder an option to
purchase its shares, which constitute approximately 32.6% of the issued and
outstanding shares of common stock of Howell (the Shares), at any time prior to
December 31, 1997, together with its agreement to vote all such Shares in favor
of the Merger.
The acquisition will be accounted for by the purchase method. Accordingly,
the results of operations of the acquired company will be included with those of
the Company for periods subsequent to the date of acquisition. Howell had net
sales of $79,211 and net income of $475 for the year ended July 31, 1996.
F-23
<PAGE> 119
OXFORD AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements -- Continued
NOTE 16. SUBSEQUENT EVENT -- Continued
The unaudited pro forma combined condensed balance sheet of the Company and
Howell as of March 31, 1997 after giving effect to certain pro forma adjustments
is as follows:
<TABLE>
<S> <C>
ASSETS
Current assets.............................................. $108,419
Property and equipment, net................................. 162,664
Other assets................................................ 14,462
Goodwill.................................................... 2,013
--------
$287,558
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities......................................... $ 94,097
Other liabilities........................................... 151,820
Redeemable preferred stock.................................. 39,300
Shareholders' equity........................................ 2,341
--------
$287,558
========
</TABLE>
The unaudited pro forma combined results of operations of the Company
(including Lobdell from January 11, 1997 through March 31, 1997) and Howell for
the year ended March 31, 1997 after giving effect to certain pro forma
adjustments are as follows:
<TABLE>
<S> <C>
Net sales................................................... $228,404
========
Net income.................................................. $ 1,158
========
Net income applicable to common shares...................... $ 858
========
Net income per common share................................. $ 6.44
========
</TABLE>
The foregoing unaudited pro forma results of operations reflect adjustments
for additional interest expense related to the financing of the acquisition and
the additional depreciation expense, as a result of the write-up of property,
plant and equipment, net of the related tax benefit.
NOTE 17. EVENTS SUBSEQUENT TO MAY 19, 1997
On July 15, 1997, the Company entered into a Settlement Agreement and
Mutual Release with the preferred shareholders of Lobdell (the Settlement
Agreement). Pursuant to the Settlement Agreement, 60,002 shares of escrowed
Series A Preferred Stock and 49,938 shares of Series B Preferred Stock, which
represented all of the outstanding Series B Preferred Stock, were canceled. The
remaining 39,998 shares of escrowed Series A Preferred Stock were released to
the preferred shareholders of Lobdell.
The effect of the aforementioned settlement will be recorded by the Company
in the second quarter of fiscal 1998 and will increase property, plant and
equipment $956, increase noncurrent deferred tax liabilities $319, increase
Redeemable Series A $3.00 Cumulative Preferred Stock $4,000 and decrease
Redeemable Series B Preferred Stock $3,363.
In June 1997, the Company issued $125,000 of 10 1/8% Senior Subordinated
Notes (the "Notes"). The Notes mature on June 15, 2007 and require semi-annual
interest payments of approximately $6,300. The proceeds from the Notes were
primarily used to repay certain of the Company's indebtedness and finance the
Company's acquisition of Howell Industries, Inc. described in Note 16. The Notes
are unsecured and are guaranteed by each of the Company's Restricted
Subsidiaries, as defined. The guarantors of the Notes are wholly owned and any
non-guarantors are inconsequential, individually and in the aggregate, to the
F-24
<PAGE> 120
OXFORD AUTOMOTIVE, INC.
Notes to Consolidated Financial Statements -- Continued
NOTE 17. EVENTS SUBSEQUENT TO MAY 19, 1997 -- Continued
consolidated financial statements. The guarantees are full, unconditional, and
joint and several, and separate financial statements of the guarantors are not
presented because management has determined that they would not be material to
investors.
NOTE 18. INTERIM DATA (UNAUDITED)
The accompanying unaudited balance sheet as of June 30, 1997 and the
unaudited consolidated statements of operations and cash flows for the three
month periods ended June 30, 1997 and 1996 include all adjustments, consisting
of normal recurring adjustments, which in the opinion of management are
necessary for the fair presentation of the financial position, results of
operations and cash flows. The results of operations for any interim period are
not necessarily indicative of the results of operations for a full year.
Inventories are stated at lower of cost or market and consist of the following
at June 30, 1997:
<TABLE>
<S> <C>
Raw materials............................................... $ 5,403
Finished goods and work-in-process.......................... 9,491
-------
14,894
LIFO and other reserves..................................... (271)
-------
$14,623
=======
</TABLE>
F-25
<PAGE> 121
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Lobdell Emery Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of changes in shareholders'
equity and of cash flows after the restatement discussed in Note 16 present
fairly, in all material respects, the financial position of Lobdell Emery
Corporation and its subsidiaries (the Corporation) at December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Corporation's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
As described in Note 15, on January 10, 1997 all of the outstanding shares
of common stock of the Corporation were sold to L-E Acquisition, Inc.
Price Waterhouse LLP
Detroit, Michigan
May 19, 1997
F-26
<PAGE> 122
LOBDELL EMERY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE-RELATED DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 278 $ 716
Trade receivables -- less allowance of $1,254 and $500,
respectively........................................... 28,769 32,514
Inventories............................................... 6,083 10,212
Income taxes receivable................................... 1,282
Reimbursable tooling...................................... 47 407
Deferred income taxes..................................... 3,081 3,038
Prepaid expenses and other current assets................. 191 827
-------- --------
Total current assets................................... 39,731 47,714
-------- --------
Advance under shareholders' redemption agreement............ 1,542
Unexpended bond proceeds.................................... 3,886 4,508
Intangible pension asset.................................... 3,216 2,113
Other noncurrent assets..................................... 2,483 3,825
Deferred income taxes....................................... 2,531
Property, plant and equipment, net.......................... 72,804 72,503
-------- --------
Total Assets........................................... $126,193 $130,663
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Trade accounts payable.................................... $ 15,114 $ 11,627
Employee compensation..................................... 5,156 4,614
Accrued expenses and other current liabilities............ 6,511 6,516
Current portion of long-term borrowings................... 2,200 7,169
-------- --------
Total current liabilities.............................. 28,981 29,926
-------- --------
Pension liability........................................... 1,855 1,627
Postretirement medical benefits liability................... 19,639 16,889
Deferred income taxes....................................... 1,180
Other noncurrent liabilities................................ 1,950 1,739
-------- --------
23,444 21,435
-------- --------
Long-term borrowings -- less current portion................ 41,134 39,097
-------- --------
Total liabilities...................................... 93,559 90,458
-------- --------
Commitments and contingent liabilities (Note 13) Redeemable
Common stock, Class B nonvoting, $1 par value, outstanding
137,112 shares (Note 11).................................. 1,800 1,297
-------- --------
Shareholders' equity
Common stock, Class A voting, $1 par value, authorized
540,000 shares, outstanding 478,255 shares............. 478 478
Common stock, Class B nonvoting, $1 par value authorized
5,400,000 shares; outstanding 3,430,623 shares......... 3,431 3,431
Retained earnings......................................... 27,376 35,730
Equity adjustment for minimum pension liability........... (451) (731)
-------- --------
30,834 38,908
-------- --------
Total liabilities and shareholders' equity............. $126,193 $130,663
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE> 123
LOBDELL EMERY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales................................................... $253,997 $269,260 $270,062
Cost of sales............................................... 244,129 252,671 252,275
-------- -------- --------
Gross profit................................................ 9,868 16,589 17,787
Selling, general and administrative......................... 16,395 14,949 14,438
Equipment impairment........................................ 3,000
-------- -------- --------
Operating income (loss)................................... (9,527) 1,640 3,349
Other income (expense)
Interest expense............................................ (3,557) (3,448) (2,799)
Other income.............................................. 664 744 366
-------- -------- --------
Income (loss) before benefit (provision) for income taxes... (12,420) (1,064) 916
Benefit (provision) for income taxes........................ 4,569 264 (442)
-------- -------- --------
Income (loss) before cumulative effect of accounting
change.................................................... (7,851) (800) 474
Cumulative effect of accounting change -- post-employment
benefits, net of income tax benefit ($.12 per share)...... (510)
-------- -------- --------
Net loss.................................................... $ (7,851) $ (800) $ (36)
======== ======== ========
Net loss per share.......................................... $ (1.94) $ (.19) $ (.01)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE> 124
LOBDELL EMERY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
<TABLE>
<CAPTION>
EQUITY
ADJUSTMENT
FOR MINIMUM
CLASS A CLASS B RETAINED PENSION
VOTING NONVOTING EARNINGS LIABILITY TOTAL
------- --------- -------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balances at January 1, 1994.................. $478 $3,427 $36,715 $ -- $40,620
Net loss for 1994.......................... (36) (36)
Stock option activity...................... 4 70 74
Dividends ($.06 per share)................. (257) (257)
Accretion of redeemable common stock....... (63) (63)
Minimum pension liability adjustment....... (492) (492)
---- ------ ------- ----- -------
Balances at December 31, 1994................ 478 3,431 36,429 (492) 39,846
Net loss for 1995.......................... (800) (800)
Stock option activity...................... 213 213
Dividends ($.03 per share)................. (124) (124)
Accretion of redeemable common stock....... 12 12
Minimum pension liability adjustment....... (239) (239)
---- ------ ------- ----- -------
Balances at December 31, 1995................ 478 3,431 35,730 (731) 38,908
Net loss for 1996.......................... (7,851) (7,851)
Accretion of redeemable common stock....... (503) (503)
Minimum pension liability adjustment....... 280 280
---- ------ ------- ----- -------
Balances at December 31, 1996................ $478 $3,431 $27,376 $(451) $30,834
==== ====== ======= ===== =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-29
<PAGE> 125
LOBDELL EMERY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating activities
Net loss.................................................... $ (7,851) $ (800) $ (36)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation........................................... 13,746 12,486 12,045
Deferred income taxes.................................. (3,922) (1,332) (1,395)
Pension liability...................................... (2,230) 657 159
Postretirement medical benefits liability.............. 2,750 2,245 2,923
Equipment impairment................................... 3,000
Loss (Gain) on sale of equipment....................... (23) (34) 68
Changes in operating assets and liabilities affecting cash
Trade receivables...................................... 3,745 (644) (4,397)
Inventories............................................ 4,129 (1,594) (66)
Income taxes receivable/payable........................ (1,601) 290 (1,569)
Reimbursable tooling................................... 360 (386) (483)
Prepaid expenses and other current assets.............. 635 (649) 60
Advance under shareholders' redemption agreement....... (1,542) 500 113
Other noncurrent assets................................ 3,456 (2,948) 1,619
Trade accounts payable................................. 3,487 (1,769) (961)
Employee compensation.................................. 542 554 72
Accrued expenses and other current liabilities......... (5) 1,241 219
Other noncurrent liabilities........................... 220 9 850
-------- -------- --------
Net cash provided by operating activities......... 18,896 7,826 9,221
-------- -------- --------
Investing activities
Acquisitions of property, plant and equipment............... (16,439) (14,917) (8,696)
Proceeds from sale of equipment............................. 37 276 175
-------- -------- --------
Net cash used in investing activities............. (16,402) (14,641) (8,521)
Financing activities
Proceeds from long-term borrowing arrangements.............. 25,000 8,500 27,020
Principal payments on long-term borrowing arrangements...... (23,932) (5,618) (32,831)
Net borrowings (payments) under lines of credit............. (4,000) 5,350 5,550
Proceeds from exercise of stock options..................... 213 74
Dividends................................................... (124) (257)
Redemption and retirement of redeemable common stock........ (1,581) (903)
-------- -------- --------
Net cash used in financing activities............. (2,932) 6,740 (1,347)
-------- -------- --------
Net decrease in cash and cash equivalents................... (438) (75) (647)
Cash and cash equivalents at beginning of year.............. 716 791 1,438
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 278 $ 716 $ 791
======== ======== ========
Cash paid for interest...................................... $ 3,774 $ 3,411 $ 2,732
======== ======== ========
Cash paid for income taxes.................................. $ 963 $ 291 $ 3,067
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE> 126
LOBDELL EMERY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996, 1995 and 1994
(dollar amounts in thousands)
NOTE 1. NATURE OF OPERATIONS
Lobdell Emery Corporation (the Corporation) is a full-service supplier of
metal stampings and welded assemblies used as original equipment components
primarily by North American original equipment automotive manufacturers. The
Corporation's products are used in a wide variety of sport utility vehicles,
light and medium trucks, vans and passenger cars. The Corporation primarily
operates from five plants located in the Midwest which account for approximately
98% of the Corporation's sales for the year ended December 31, 1996. The
Corporation's hourly workforce is represented by various locals of the United
Auto Workers.
Sales to the Corporation's two primary customers as a percentage of total
sales approximated the following for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Ford Motor Company.......................................... 43% 52% 64%
General Motors Corporation.................................. 49% 40% 29%
</TABLE>
Accounts receivable from Ford Motor Company and General Motors Corporation
represent approximately 47% and 49%, respectively, of the December 31, 1996
accounts receivable balance.
Although the Corporation is directly affected by the economic well being of
the automotive industry and customers referred to above, management does not
believe significant credit risk exists at December 31, 1996. The Corporation
does not require collateral to reduce such risk and historically has not
experienced significant losses related to receivables from individual customers
or groups of customers in the automotive industry.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated balance sheets include the accounts of Lobdell Emery
Corporation and its wholly-owned subsidiaries, Lewis Emery Capital Corporation
(Lewis), Concept Management Corporation and subsidiaries (Concept), Laserweld
International (Laserweld) and Parallel Group International (Parallel). Concept
Management Corporation also includes the accounts of its wholly-owned
subsidiaries, Winchester Fabrication Corporation (Winchester) and Creative
Fabrication Corporation (Creative). Intercompany accounts and transactions have
been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Revenue is recognized by the Corporation upon shipment of product to the
customer.
FINANCIAL INSTRUMENTS
At December 31, 1996, the carrying amount of financial instruments such as
cash and cash equivalents, trade receivables and payables and unexpended bond
proceeds, approximated their fair values. The carrying
F-31
<PAGE> 127
LOBDELL EMERY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
December 31, 1996, 1995 and 1994
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES -- Continued
amount of the long-term customer receivables and borrowings at December 31,
1996, approximated their fair values based on the variable interest rates
available to the Corporation for similar arrangements.
CASH EQUIVALENTS
The Corporation considers all highly-liquid investments with maturity of
three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is principally
determined by the last-in, first-out (LIFO) method.
UNEXPENDED BOND PROCEEDS
Unexpended bond proceeds in the accompanying consolidated balance sheets
represent unexpended proceeds from the issuance of industrial development
revenue bonds by Creative as discussed in Note 6, and are invested in allowable
money market accounts and commercial paper with a maturity of 90 days or less.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated on the basis of historical cost
and include expenditures for improvements which materially increase the useful
lives of existing assets. Expenditures for normal repair and maintenance are
charged to operations as incurred. For federal income tax purposes, depreciation
is computed using accelerated and straight-line methods. For financial reporting
purposes, depreciation is computed principally using the straight-line method
over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Land improvements........................................... 15
Buildings................................................... 30
Machinery and equipment..................................... 3-10
</TABLE>
At December 31, 1996, the Corporation had a machine in process at a vendor
location. The aggregate cost of the machine will be $5,300, for which the
Corporation has recorded approximately $2,700 in the accompanying consolidated
balance sheet. The remaining $2,600 will be recorded by the Corporation upon
final technical approval of the machine.
In accordance with the provisions of Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," the Corporation established an impairment
reserve against certain of the assets of Laserweld in the amount of $3,000 at
December 31, 1996. The reserve represents the difference between the fair value
of the Laserweld assets, based primarily on a recent independent appraisal, and
the cost of such assets.
ENVIRONMENTAL COMPLIANCE AND REMEDIATION
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations which do not contribute to current or future revenue
generation are expensed. Liabilities are recorded when environmental assessments
and/or remedial efforts are probable and the costs can be reasonably estimated.
Estimated costs are based upon
F-32
<PAGE> 128
LOBDELL EMERY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
December 31, 1996, 1995 and 1994
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES -- Continued
enacted laws and regulations, existing technology and the most probable method
of remediation. The costs determined are not discounted and exclude the effects
of inflation and other social and economic factors.
INCOME TAXES
Deferred taxes are provided to give recognition to the effect of expected
future tax consequences of temporary differences between the carrying amounts
for financial reporting purposes and the tax bases for income tax purposes of
assets and liabilities.
REIMBURSABLE TOOLING
Reimbursable tooling represents net costs incurred on tooling projects for
which the Corporation expects to be reimbursed by customers. Ongoing estimates
of total costs to be incurred on each tooling project are made by management and
losses, if any, are recorded when known. Under certain tooling projects,
billings exceed costs incurred and the related tooling gain is recognized upon
acceptance of the tooling by the customer.
At December 31, 1996, approximately $2,800 of reimbursable tooling was in
process at various vendor locations. These amounts, which have not been recorded
in the accompanying consolidated balance sheet, will be recorded and paid upon
the Corporation's receipt of payment from the owners of the tooling.
NET LOSS PER SHARE
Net loss per share is determined by dividing net loss by the weighted
average number of common shares outstanding during the period.
RECLASSIFICATIONS
Certain amounts from the prior year have been reclassified to conform with
the current year presentation.
NOTE 3. INVENTORIES
Inventories are comprised of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw materials............................................... $ 3,851 $ 3,861
Finished goods and work-in-process.......................... 5,278 10,177
------- -------
9,129 14,038
LIFO reserve................................................ (3,046) (3,826)
------- -------
$ 6,083 $10,212
======= =======
</TABLE>
The Corporation does not separately identify finished goods from
work-in-process.
During 1996, inventory quantities were reduced. This reduction resulted in
a liquidation of LIFO inventory quantities carried at lower costs prevailing in
prior years as compared with the cost of 1996 purchases, the effect of which
increased net income by approximately $300.
F-33
<PAGE> 129
LOBDELL EMERY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
December 31, 1996, 1995 and 1994
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are comprised of the following at December
31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land and land improvements.................................. $ 11,130 $ 10,760
Buildings................................................... 33,515 32,801
Machinery and equipment, net of impairment reserve of $3,000
in 1996................................................... 137,914 127,389
Construction-in-process..................................... 6,495 5,216
--------- ---------
189,054 176,166
Less -- accumulated depreciation............................ (116,250) (103,663)
--------- ---------
$ 72,804 $ 72,503
========= =========
</TABLE>
NOTE 5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities are comprised of the
following at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accrued workers' compensation............................... $2,438 $2,438
Accrued property taxes...................................... 1,950 1,622
Accrued medical benefits.................................... 1,816 1,615
Other....................................................... 307 841
------ ------
$6,511 $6,516
====== ======
</TABLE>
NOTE 6. BORROWING ARRANGEMENTS
Borrowings consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
BANK SYNDICATE -- TERM LOAN, LOBDELL EMERY CORPORATION
Interest at variable spread over prime (8.25% at December
31, 1996). Quarterly principal payments of $893 plus
interest, matures September 12, 1999...................... $24,107 $21,230
BANK -- TERM LOAN, LEWIS
Interest at .625% over 90-day LIBOR (6.19% at December 31,
1996). Quarterly principal payments of approximately $400,
matures October 1, 1998................................... 3,227 4,936
BANK SYNDICATE -- REVOLVING CREDIT LINE, LOBDELL EMERY
CORPORATION
Interest at variable spread over prime (8.25% at December
31, 1996)................................................. 7,600 11,600
INDUSTRIAL DEVELOPMENT REVENUE BONDS -- CREATIVE
$8,500 issued September 27, 1995, floating rate interest
(4.35% at December 31, 1996). Quarterly principal payments
based on graduated maturity schedule. Backed by NBD Bank
letter of credit.......................................... 8,400 8,500
------- -------
Total..................................................... 43,334 46,266
Less -- current portion of long-term borrowings............. (2,200) (7,169)
------- -------
Long-term borrowings -- less current portion................ $41,134 $39,097
======= =======
</TABLE>
F-34
<PAGE> 130
LOBDELL EMERY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
December 31, 1996, 1995 and 1994
NOTE 6. BORROWING ARRANGEMENTS -- Continued
Subsequent to December 31, 1996, the Bank syndicate term loan and revolving
credit line were paid in full, with accrued interest, in connection with the
merger described in Note 15. These borrowings were replaced with a $54,000 term
loan, $38,000 revolving line of credit and $3,000 swing line of credit, each
expiring on January 10, 2002. Accordingly, these amounts are classified as
long-term borrowings at December 31, 1996. The term loan bears interest at a
variable spread over 90-day LIBOR, and the revolving and swing lines of credit
bear interest at a variable spread over the prime rate. The Corporation also
entered into an $18,000 capital expenditure line of credit that expires on
January 10, 2002. The agreements contain various financial and other covenants.
Borrowings are secured by substantially all of the assets of the Corporation.
The proceeds of the Lewis term debt were used to finance customer tooling.
The debt is collateralized by a customer purchase order which allows for
recovery of the term-debt principal and interest, administrative cost and a
predetermined markup.
The proceeds of the industrial development revenue bonds were used to
finance the real and personal property of Creative. These bonds are backed by an
NBD Bank letter of credit, which carries a rate of .8% and is collateralized by
substantially all assets of Creative. The letter of credit reimbursement
agreement includes covenants requiring minimum tangible capital, debt service
coverage and limitations on other indebtedness.
NOTE 7. STOCK OPTION PLAN
The Corporation adopted a stock option plan in 1990 which provides for the
granting of discretionary and nondiscretionary options, alternative stock
appreciation rights, cash payment rights, incentive stock options, or a
combination thereof. Each option granted under the plan is for a unit consisting
of one share of Class A and ten shares of Class B common stock. During the years
ended December 31, 1995 and 1994 the Corporation recorded compensation expense
of $213 and $70, respectively. No options were granted or exercised during the
year ended December 31, 1996. Subsequent to December 31, 1996 and in connection
with the merger described in Note 15, all of the outstanding stock options were
canceled. The costs incurred by the Corporation in connection with the
cancellation of the outstanding stock options were reimbursed by L-E
Acquisition, Inc. at close. The Corporation has treated the reimbursement as a
credit to compensation expense recognized in connection with the cancellation of
the aforementioned stock options. The disclosures required under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," have been omitted as all outstanding stock options were canceled
subsequent to December 31, 1996. Because the acquiring company (see Note 15) has
no stock option plan, the Corporation's management does not believe such
disclosure to be relevant to the users of the consolidated financial statements.
F-35
<PAGE> 131
LOBDELL EMERY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
December 31, 1996, 1995 and 1994
NOTE 8. INCOME TAXES
The Corporation's benefit for income taxes consists of the following for
the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current
Federal................................................ $ (647) $ 399 $ 1,425
State.................................................. 371 375
------- ------- -------
(647) 770 1,800
------- ------- -------
Deferred
Federal................................................ (3,405) (869) (1,206)
State.................................................. (517) (165) (152)
------- ------- -------
(3,922) (1,034) (1,358)
------- ------- -------
$(4,569) $ (264) $ 442
======= ======= =======
</TABLE>
A reconciliation between the Corporation's income tax provision (benefit)
and the amount computed by applying the statutory income tax rate to income
before income taxes is as follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory rate.............................................. $(4,223) $(362) $311
State taxes, net of federal benefit......................... (517) 136 147
Nondeductible items......................................... 212 104 76
Other....................................................... (41) (142) (92)
------- ----- ----
Provision (benefit) for income taxes........................ $(4,569) $(264) $442
======= ===== ====
</TABLE>
Significant components of the Corporation's deferred tax assets and
(liabilities) are as follows at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax liabilities
Tax depreciation in excess of book........................ $(8,312) $(8,619)
Prepaid pension asset..................................... (427) (574)
------- -------
Gross deferred tax liabilities.............................. (8,739) (9,193)
------- -------
Deferred tax assets
Postretirement medical benefits........................... 7,463 6,418
Equipment impairment reserve.............................. 1,140
Workers' compensation..................................... 926 927
Medical benefits accrual.................................. 687 611
Allowance for bad debts................................... 477 190
Environmental reserves.................................... 334 334
Postemployment benefits................................... 323 323
AMT credit carryforward................................... 1,871 1,708
Other..................................................... 1,330 540
------- -------
Gross deferred tax assets................................... 14,551 11,051
------- -------
Valuation allowance......................................... (200)
------- -------
Net deferred tax asset...................................... $ 5,612 $ 1,858
======= =======
</TABLE>
F-36
<PAGE> 132
LOBDELL EMERY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
December 31, 1996, 1995 and 1994
NOTE 8. INCOME TAXES -- Continued
A valuation allowance is provided on the tax benefits otherwise associated
with certain tax attributes unless it is considered more likely than not that
the benefit will be realized.
The Corporation has net operating loss carryforwards for state income tax
purposes with potential future tax benefits of approximately $150 at December
31, 1996, which expire during the years 2010 and 2011.
The Corporation has Tennessee Jobs Tax Credit carryforwards of
approximately $200 at December 31, 1996, which expire during the years 2010 and
2011.
NOTE 9. BENEFIT PLANS
The Corporation sponsors six noncontributory-defined benefit pension plans
covering substantially all employees meeting the age and length of service
requirements as specified in the plans. The plan covering salaried employees
provides pension benefits that are based on a percentage of the employee's
average monthly compensation during the five highest consecutive years out of
their last ten years, and their years of credited service up to a maximum of 30
years. The Corporation's hourly pension plans do not provide for increases in
future compensation levels. The Corporation's funding policy for this plan is to
make contributions in amounts sufficient to annually fund the plan's current
service cost and the initial past service cost, plus interest, over a period of
30 years. Plans covering hourly employees generally provide benefits of stated
amounts based on their unique labor agreements for each year of service. The
Corporation's funding policy for these plans is to make at least the minimum
annual contributions required by applicable regulations.
The following table sets forth the plans' funded status and amounts
recognized on the Corporation's balance sheet at December 31:
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED
PLANS PLANS PLANS PLANS
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligation:
Vested benefits........................ $ 14,784 $ 21,270 $ 13,718 $ 18,926
Nonvested benefits..................... 1,174 1,468 1,143 1,597
-------- -------- -------- --------
15,958 22,738 14,861 20,523
Effect of projected future compensation
levels................................. 3,278 2,866
-------- -------- -------- --------
Projected benefit obligation for service
rendered............................... 19,236 22,738 17,727 20,523
Plan assets at fair value (primarily U.S.
government securities, bonds and notes
and mutual funds)...................... (18,857) (19,656) (17,092) (17,477)
-------- -------- -------- --------
Plan assets less than projected benefit
obligation............................. 379 3,082 635 3,046
Unrecognized net loss.................... (2,080) (865) (2,612) (1,353)
Unrecognized prior service cost.......... 174 (2,757) 227 (1,572)
Unrecognized net obligation being
recognized over 15-20 years............ 300 (346) 350 (426)
Adjustment required to recognize minimum
liability.............................. 3,968 3,332
-------- -------- -------- --------
(Prepaid) accrued pension cost........... $ (1,227) $ 3,082 $ (1,400) $ 3,027
======== ======== ======== ========
</TABLE>
F-37
<PAGE> 133
LOBDELL EMERY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
December 31, 1996, 1995 and 1994
NOTE 9. BENEFIT PLANS -- Continued
The minimum pension liability in excess of the allowable intangible asset
of $751 and $1,218 at December 31, 1996 and 1995, respectively, has been
recorded as a separate component of equity, net of tax.
Net periodic pension cost included the following components for the year
ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost.............................................. $1,100 $ 857 $ 1,142
Interest cost............................................. 2,800 2,641 2,418
Actual return on plan assets.............................. (4,322) (5,867) (232)
Net amortization and deferral............................. 1,560 3,606 (1,993)
------ ------- -------
Net periodic pension cost................................. $1,138 $ 1,237 $ 1,335
====== ======= =======
</TABLE>
Actuarial assumptions used in determining the projected benefit obligation
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate............................................... 7.5% 7.5% 8.5%
Rate of increase in future compensation..................... 4.5% 4.5% 4.5%
Expected long-term rate of return on assets................. 9.0% 9.0% 8.0%
</TABLE>
The Corporation sponsors a Supplemental Employee Retirement Plan (SERP)
which covers three key officers of the Corporation. At December 31, 1996, the
Corporation has accrued a liability of $217 related to the SERP.
The Corporation sponsors five defined contribution 401(k) plans. The
Salaried Employees' Retirement Savings Plan covers all salaried employees of the
Corporation and Winchester. The Alma Hourly Employees' Retirement Savings Plan,
the Argos Hourly Employees' Retirement Savings Plan, the Creative Fabrication
Corporation and the Greencastle Hourly Employees' Plan cover all eligible hourly
employees at the respective locations. The Corporation generally contributes 25%
of the first 6% of the base compensation that a participant contributes to the
plans.
NOTE 10. POSTRETIREMENT MEDICAL BENEFITS
In addition to the Corporation's defined benefit pension plans, the
Corporation sponsors unfunded defined benefit medical plans that provide
postretirement medical benefits to certain full-time employees meeting the age,
length of service and contractual requirements as specified in the plans. The
plan covering salaried employees is a contributory plan providing medical
benefits to those hired before July 1, 1993. The percentage of cost paid by the
retiree currently ranges from 10% for 30 or more years of service at retirement
to 55% for 15 years of service at retirement, with Corporation contributions
commencing upon attainment of age 62. Those retiring with less than 15 years of
service and those hired after June 30, 1993 may participate in the plan at their
own cost. The plan is currently noncontributory for those employees who retired
prior to July 1, 1993. The plans covering hourly employees provide medical
benefit plan options that are similar to those offered to active hourly
employees, with Corporation contributions limited either to that available under
traditional coverage for Alma hourly retirees or to 87% of the total applicable
premium for Greencastle retirees.
F-38
<PAGE> 134
LOBDELL EMERY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
December 31, 1996, 1995 and 1994
NOTE 10. POSTRETIREMENT MEDICAL BENEFITS -- Continued
The following table presents the plans' funded status reconciled with
amounts recognized in the Corporation's balance sheets at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees.................................................. $ 14,420 $ 13,132
Full eligible active plan participants.................... 4,767 4,408
Other active plan participants............................ 14,613 12,931
-------- --------
Total unfunded obligation.............................. 33,800 30,471
Unrecognized loss........................................... (2,618) (1,481)
Unrecognized transition obligation.......................... (11,543) (12,101)
-------- --------
Postretirement medical benefits liability................... $ 19,639 $ 16,889
======== ========
</TABLE>
Net periodic postretirement benefit cost included the following components
for the year ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service cost................................................ $ 947 $ 785 $1,088
Interest cost............................................... 2,216 2,010 2,238
Amortization of transition obligation prior losses.......... 722 643 997
------ ------ ------
Net periodic postretirement benefit cost.................... $3,885 $3,438 $4,323
====== ====== ======
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% in 1996 and 1995. The weighted
average annual assumed rate of increase in the per capita cost of covered
benefits (i.e., healthcare cost trend rate) is 9.2% in 1997 trending to 6.5% in
2008 and thereafter for retirees less than 65 years of age. For retirees 65
years of age and over, the rate is 8.9% in 1997 trending to 6.5% in 2008 and
thereafter. The healthcare cost trend rate assumption has a significant effect
on the amounts reported. For example, increasing the assumed healthcare cost
trend rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1996 and net periodic
postretirement benefit cost for the year then ended by approximately $4,861 and
$496, respectively.
NOTE 11. SHAREHOLDERS' REDEMPTION AGREEMENT AND REDEEMABLE COMMON STOCK
Due to the death of a major shareholder, the Corporation entered into an
agreement in December, 1988, providing for the redemption from the estate of any
class of common stock. The Corporation shall purchase for cash certain shares of
common stock as required each year, for the payment by the estate of federal and
state taxes and other miscellaneous expenses allowed by Internal Revenue Code
Section 6166. The redemption price is based upon the fair value, as previously
determined by an independent appraisal at the date of death, adjusted for
subsequent increases or decreases in book value as defined in the agreement.
Subsequent to December 31, 1996 and in connection with the merger as described
in Note 15, a portion of the common stock owned by the estate will be redeemed
to cover payment of remaining taxes and administrative expenses. Prior to the
merger, $1,542 was advanced to the estate to effectuate a release of an Internal
Revenue Service lien. Common shares that are redeemable under that terms of the
agreement have been recorded in the consolidated balance sheets as Redeemable
Common Stock. During the years ended December 31, 1995 and 1994, the Company
redeemed 165,555 shares and 96,597 shares, respectively, at a per share price of
$9.55 and
F-39
<PAGE> 135
LOBDELL EMERY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
December 31, 1996, 1995 and 1994
NOTE 11. SHAREHOLDERS' REDEMPTION AGREEMENT AND REDEEMABLE COMMON STOCK --
Continued
$9.34, respectively. The redeemable common stock has been accreted to its
redemption value in each of the accompanying consolidated balance sheets.
NOTE 12. LEWIS EMERY CAPITAL CORPORATION
Lewis was established in order to facilitate the financing of a tooling
project for Ford Motor Company (Ford). In 1993, Lewis signed a contract to
finance $8,500 of tooling. The transaction was financed with proceeds from the
term loan described in Note 6. The receivable from Ford is due in 20 quarterly
installments through October 1998.
NOTE 13. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
As of December 31, 1996, the Corporation had long-term operating leases
covering certain machinery and equipment. The minimum rental commitments under
noncancellable operating leases with lease terms in excess of one year are as
follows as of December 31, 1996:
<TABLE>
<S> <C>
1997........................................................ $ 4,690
1998........................................................ 3,241
1999........................................................ 3,367
2000........................................................ 1,178
2001........................................................ 3,355
-------
$15,831
=======
</TABLE>
ENVIRONMENTAL MATTERS
The Corporation is subject to federal, state and local laws and regulations
which govern environmental matters. These laws regulate the discharge of
materials into the environment and may require the Corporation to remove or
mitigate the environmental effects of the disposal or release of petroleum or
chemical substances. The Corporation has identified several environmental
matters resulting from prior operations. Due to the relatively early stage of
investigation of certain of these identified matters as well as potential
indemnification by other potentially responsible parties, management is unable
to reasonably estimate the ultimate cost of remediating certain of these
identified environmental matters. At December 31, 1996 and 1995, the Corporation
has a liability of approximately $880 recorded for estimated costs of known
environmental matters.
GENERAL
The Corporation is subject to various claims, lawsuits and administrative
proceedings related to matters arising out of the normal course of business. In
the opinion of management, after reviewing the information which is currently
available with respect to such matters and consulting with legal counsel, any
liability which may ultimately be incurred with respect to these matters will
not materially affect the financial position of the Corporation.
NOTE 14. RELATED-PARTY TRANSACTION
During 1996, the Corporation paid sales commissions, based upon qualified
foreign sales to Grace Emery Sales Corporation, a Domestic International Sales
Corporation (DISC) owned by the shareholders of the
F-40
<PAGE> 136
LOBDELL EMERY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
December 31, 1996, 1995 and 1994
NOTE 14. RELATED-PARTY TRANSACTION -- Continued
Corporation. Commissions payable to the DISC are subject to certain
restrictions. Commissions were $369, $521 and $772 in 1996, 1995 and 1994,
respectively.
NOTE 15. SUBSEQUENT EVENT
On January 10, 1997, pursuant to an Agreement and Plan of Merger among
Lobdell Emery Corporation, certain shareholders of Lobdell Emery Corporation,
BMG-MI, Inc. and L-E Acquisition, Inc. as amended, certain Lobdell Emery
Corporation shareholders and option holders had their respective shares and
options redeemed for cash of approximately $8,500 and all outstanding shares of
common stock of Lobdell Emery Corporation (Oldco) were exchanged for shares of
preferred stock of L-E Acquisition, Inc. with a face value of approximately
$40,800. In addition, approximately $3,500 of expenses incurred by the
Corporation were reimbursed by L-E Acquisition, Inc. Subsequent to the exchange
of Oldco's common stock for preferred stock, L-E Acquisition, Inc. was merged
with and into Lobdell Emery Corporation (Newco).
NOTE 16. RESTATEMENT OF PRIOR YEAR FINANCIAL STATEMENTS
The Corporation's management has restated the consolidated financial
statements for periods prior to December 31, 1996. The consolidated financial
statements have been restated to correct the misstatement of certain assets and
liabilities including accounts receivable, accrued employee benefit related
costs and accrued environmental costs, net of related tax benefits. The effect
of the restatement was to decrease retained earnings at January 1, 1994 by
$1,987, decrease net loss by $36 ($.01 per share) for the year ended December
31, 1995, and increase net loss by $647 ($.15 per share) for the year ended
December 31, 1994.
F-41
<PAGE> 137
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE AS OF WHICH INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 1
Summary............................... 2
Risk Factors.......................... 14
Use of Proceeds....................... 20
Capitalization........................ 21
Pro Forma Combined Financial Data..... 22
Selected Consolidated Historical
Financial Data...................... 29
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 32
The Exchange Offer.................... 37
Business.............................. 42
Management............................ 54
Principal Shareholders................ 58
Certain Transactions.................. 60
Description of Certain Indebtedness
and Preferred Stock................. 61
Description of the Notes.............. 64
Certain Federal Income Tax
Considerations...................... 90
Plan of Distribution.................. 91
Legal Matters......................... 92
Experts............................... 92
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
======================================================
======================================================
$125,000,000
OXFORD AUTOMOTIVE, INC.
OXFORD AUTOMOTIVE LOGO
10 1/8% SENIOR SUBORDINATED
NOTES DUE 2007
------------------------------
PROSPECTUS
------------------------------
OFFER TO EXCHANGE
10 1/8% SENIOR SUBORDINATED
NOTES DUE 2007
DATED OCTOBER 21, 1997
======================================================
