<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 1994
SEC REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
INTERNATIONAL CONTROLS CORP.
(Exact name of registrant as specified in its Charter)
<TABLE>
<S> <C> <C>
FLORIDA 3715 54-0698116
(State or other (Primary Standard (I.R.S. Employer
jurisdiction Industrial Identification
of incorporation) Code Classification) No.)
</TABLE>
2016 NORTH PITCHER STREET
KALAMAZOO, MICHIGAN 49007
(616) 343-6121
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
DAVID R. MARKIN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
INTERNATIONAL CONTROLS CORP.
2016 NORTH PITCHER STREET
KALAMAZOO, MICHIGAN 49007
(616) 343-6121
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
--------------
COPIES TO:
<TABLE>
<S> <C>
Paulette Kendler, Esq. Valerie Ford Jacob, Esq.
Hutton Ingram Yuzek Gainen Fried, Frank, Harris, Shriver &
Carroll & Bertolotti Jacobson
530 Fifth Avenue One New York Plaza
New York, New York 10036 New York, New York 10004
(212) 642-0810 (212) 820-8000
</TABLE>
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
--------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PRICE PER UNIT (1) OFFERING PRICE FEE
<S> <C> <C> <C> <C>
% Senior Secured Notes due 2004 $225,000,000 $1,000 $225,000,000 $77,586.00
<FN>
(1) Estimated solely for the purposes of calculating the registration fee in
accordance with Rule 457(a).
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INTERNATIONAL CONTROLS CORP.
FORM S-1 CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING LOCATION IN PROSPECTUS
- ------------------------------------------------------------- --------------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front Cover and Outside Back Cover Pages
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors; Selected Consolidated
Financial Information
4. Use of Proceeds................................... Prospectus Summary; Use of Proceeds; Capitalization
5. Determination of Offering Price................... Inapplicable
6. Dilution.......................................... Inapplicable
7. Selling Security Holders.......................... Inapplicable
8. Plan of Distribution.............................. Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered........ Description of the Notes
10. Interests of Named Experts and Counsel............ Inapplicable
11. Information with Respect to the Registrant........ Outside Front Cover Page; Prospectus Summary; Risk
Factors; The Company; Selected Consolidated Financial
Data; Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Management; Security Ownership of Certain Beneficial
Owners and Management; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Inapplicable
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION
FEBRUARY 14, 1994
$225,000,000
INTERNATIONAL CONTROLS CORP.
% SENIOR SECURED NOTES DUE 2004
-----------
The % Senior Secured Notes due 2004 (the "Notes") offered hereby are
being issued by International Controls Corp. (the "Company" or "ICC").
Interest on the Notes is payable in cash semi-annually on and of
each year, commencing , 1994. The Notes will be redeemable at the
option of the Company, in whole or in part, at any time on or after
, 1999, at the redemption prices set forth herein, together with
accrued and unpaid interest, if any, to the date of redemption. In addition, at
any time prior to , 1997, up to 25% of the aggregate principal
amount of the Notes will be redeemable at the option of the Company from the net
proceeds of a Public Offering (as defined) at a redemption price equal to %
of the principal amount of the Notes thereof, together with accrued and unpaid
interest, if any, to the date of redemption, provided that $ in aggregate
principal amount
(CONTINUED ON THE FOLLOWING PAGE)
--------------
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES.
--------------
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.
<TABLE>
<CAPTION>
PRICE PROCEEDS
TO UNDERWRITING TO
PUBLIC(1) DISCOUNTS(2) THE COMPANY(3)
<S> <C> <C> <C>
Per Note........................................... % % %
Total.............................................. $ $ $
<FN>
(1) Plus accrued interest, if any, from , 1994.
(2) See "Underwriting" for information regarding the indemnification of the
Underwriters.
(3) Before deducting expenses payable by the Company estimated at $ .
</TABLE>
--------------
The Notes are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by them and subject to various prior
conditions, including the right of the Underwriters to reject any order in whole
or in part. It is expected that delivery of the Notes will be made at the
offices of Alex. Brown & Sons Incorporated, New York, New York 10019 on or about
, 1994.
--------------
ALEX. BROWN & SONS SPP HAMBRO & CO.
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1994
<PAGE>
(CONTINUED FROM THE PREVIOUS PAGE)
of the Notes remains outstanding immediately following such redemption. Upon a
Change of Control (as defined), holders of the Notes may require the Company to
repurchase the Notes at a redemption price equal to 101% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
repurchase.
The Notes will be senior secured obligations of the Company, and as such,
will rank PARI PASSU in right of payment to all other existing and future senior
indebtedness of the Company and senior in right of payment to all subordinated
indebtedness of the Company. The Notes will be secured by a pledge of all of the
outstanding capital stock of Great Dane Trailers, Inc. ("Great Dane") and
Checker Motors Corporation ("Motors"), on an equal and ratable basis with the
indebtedness incurred under the New Credit Facility (as defined). The Company's
indebtedness under the New Credit Facility, however, will be guaranteed by
certain of the Company's subsidiaries (the "Subsidiary Guarantors"), including
Great Dane and Motors, and will be secured by substantially all of the assets of
the Company and the Subsidiary Guarantors, and, accordingly, will effectively
rank senior to the Notes. After giving effect to the application of the
estimated net proceeds of the offering of the Notes (the "Offering") and the
other transactions contemplated hereby, the Company would have had outstanding
consolidated indebtedness of $347.8 million at September 30, 1993, including
$94.8 million of secured indebtedness estimated to be drawn under the New Credit
Facility, and $28.0 million (net of unamortized discount) of indebtedness which
would have been subordinated in right of payment to the Notes.
The Company is a holding company whose only assets are the stock of Great
Dane and Motors. Therefore, the Notes will be effectively subordinated to all
liabilities, including trade payables and capitalized lease obligations, of
Great Dane, Motors and their subsidiaries. After giving effect to the Offering
and the other transactions contemplated hereby, the subsidiaries of the Company
would have had total liabilities (including trade payables) of $271 million at
September 30, 1993.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT A
LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all amendments
and exhibits thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Notes. This
Prospectus does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Statements made in this Prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete; with respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matters involved, and each such statement
shall be deemed qualified in its entirety by this reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder, and in accordance therewith files reports,
proxy statements (if required) and other information with the Commission. Such
reports, proxy statements and other information, including the Registration
Statement, may be inspected and copied (at prescribed rates) at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and at the Commission's Regional Offices
located at Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New York, New
York 10048. The Company's 12 3/4% Senior Subordinated Debentures due 2001 and
its Subordinated Discount Debentures due January 1, 2006 are listed on the
American Stock Exchange. Reports, proxy statements, and other information can be
inspected at the office of the American Stock Exchange, 86 Trinity Place, New
York, New York 10006-1881.
The Company will furnish holders of the Notes with copies of reports, proxy
statements or other information as specified in "Description of the
Notes--Provision of Financial Statements."
2
<PAGE>
PROSPECTUS 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. UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS
PROSPECTUS TO THE COMPANY AND ICC ARE TO INTERNATIONAL CONTROLS CORP. AND ITS
CONSOLIDATED SUBSIDIARIES. FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CAREFULLY CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS."
THE COMPANY
OVERVIEW
ICC is a holding company and its business is conducted by its operating
subsidiaries. Through its subsidiaries, the Company is engaged in four major
lines of business. Through Great Dane, the Company manufactures a full line of
truck trailers for the over-the-road tractor trailer long and short haul market
and containers and chassis for intermodal shipping. Motors and its subsidiary,
South Charleston Stamping & Manufacturing Company ("SCSM"), are major
manufacturers of sheet metal stampings for automotive and light truck and van
components and subassemblies, primarily for General Motors Corporation ("GM").
The Company, through its Yellow Cab Company division ("Yellow Cab") is currently
the largest owner of taxicabs and provider of taxi-related services in Chicago,
Illinois. American Country Insurance Company ("Country") underwrites property
and casualty insurance, including taxicab insurance, workers' compensation and
other commercial and personal lines.
TRUCK TRAILER MANUFACTURING
Great Dane, which generated approximately 78% of the Company's revenues and
67% of the Company's gross profits for the nine months ended September 30, 1993,
designs, manufactures and distributes a full line of truck trailers and
containers and chassis. In 1993, Great Dane, the largest truck trailer
manufacturer in the United States, accounted for approximately 12.7% of the new
truck trailer market, 11.4% of the new van market, 11.3% of the new platform
trailer market, 38.6% of the new refrigerated van ("reefer") market and 23.4% of
the market for intermodal containers and chassis. Great Dane primarily sells its
trailers through a nationwide network of branches and independent dealers to
gain access to smaller, less price sensitive customers. The Company believes it
offers the largest line of trailers in the industry and works closely with
customers to customize products to their specific needs. Great Dane strives to
stay at the forefront of the industry in the design and development of new and
improved products.
During late 1991, Great Dane hired new operating management to implement
several important strategies designed to position Great Dane to take advantage
of both expected industry growth in the trailer market and the expansion of the
intermodal container and chassis market. As part of this strategy, Great Dane
adapted certain of its manufacturing facilities to enable it to fill orders for
high-volume purchasers without sacrificing its ability to cater to the special
needs of its many smaller customers. In addition, Great Dane broadened its
network of distributors and branches, initially focused on the Southeast, to
develop a nationwide presence and to expand Great Dane's businesses into Canada
and Mexico, thereby increasing its access to trailer customers, as well as
providing new outlets for its parts and services business, which is less
vulnerable to economic downturns and produces higher margins. Great Dane
believes it currently has the largest marketing organization in the trailer
industry.
Furthermore, during 1992, Great Dane's engineering department, working in
conjunction with J.B. Hunt Transport, one of the largest truckload carriers in
the United States ("J.B. Hunt"), developed a unique line of intermodal
containers and matching ultra lightweight chassis, which allow Great Dane's
customers to take advantage of new double stack intermodal shipping methods, the
most economical method of hauling freight over long and intermediate distances.
Great Dane's intermodal containers are designed for use on rail but may also be
transported over the road on chassis to and from rail yards. In connection with
an approximately $125 million initial purchase order from J.B. Hunt for these
new intermodal products, Great Dane installed new assembly lines within three
existing factories and initiated production for the order in early 1993. Great
Dane has, subsequently, received an additional order of approximately $47
million from J.B. Hunt. Although J.B. Hunt's requirements for these containers
and
3
<PAGE>
chassis will level off, Great Dane believes that intermodal transportation will
provide growth opportunities as other carriers replace some or all of their
trailers with containers and chassis. The Company believes that Great Dane,
which has also manufactured refrigerated containers for others, is well-
positioned to maintain a substantial share of the new and growing intermodal
market.
AUTOMOTIVE PRODUCTS OPERATIONS
Through SCSM and Checker Motors Co., L.P. ("Checker L.P."), the Company is
currently engaged in the fabrication of various sheet metal components and
subassemblies, including automotive doors, roofs and hoods, primarily for light
trucks and vans, which tend to have longer model lives and less frequent design
changes than passenger cars. These operations generated approximately 14% of the
Company's revenues and 18% of the Company's gross profits for the nine-month
period ended September 30, 1993. Through the purchase of SCSM in 1989 and the
expansion of that facility's press lines, the Company acquired a modernized
stamping facility covering an area of more than 900,000 square feet. SCSM
presently has the capability to produce virtually any automotive stamping
product, carrying out substantially all phases of the project under one roof.
SCSM holds GM's "Mark of Excellence" award and The Chrysler Corporation's
"Quality of Excellence" designation.
The automotive operations' primary customer is GM, which has, historically,
accounted for more than 95% of this segment's revenues. Management is, however,
increasing its efforts to broaden its customer base. The effect of that effort
is evidenced by the expansion of the customer base to include Freightliner Corp.
("Freightliner"), Ford Motor Company ("Ford"), and The Chrysler Corporation
("Chrysler"). In addition, the automotive segment recently received a letter of
intent from Mercedes-Benz for products which, subject to the execution of final
documentation, are currently scheduled for shipment commencing in 1997.
VEHICULAR OPERATIONS
Yellow Cab, which generated approximately 5% of the Company's revenues and
9% of the Company's gross profits during the nine-month period ended September
30, 1993, is the largest taxicab fleet owner in the City of Chicago ("Chicago")
and, as of February 1, 1994, owned approximately 2,370 of the 5,400 taxicab
licenses ("medallions") available in Chicago. Yellow Cab's primary business is
the leasing of its medallions and vehicles to independent taxi operators through
two programs: the owner-operator program and the daily lease program. The
owner-operator program relieves Yellow Cab of vehicle maintenance and repair
costs, as well as the cost of housing and storing a large fleet. The Company
also provides a variety of other services to taxi drivers and non-affiliated
medallion holders, including insurance coverage and repair and maintenance
services.
INSURANCE OPERATIONS
Country, which generated approximately 3% of the Company's revenues during
the nine-month period ended September 30, 1993, historically concentrated solely
on underwriting affiliated taxi liability and collision and workers'
compensation insurance in the State of Illinois and is one of the few voluntary
providers of taxi liability insurance in the insurance industry. Most other
insurers which have previously written taxi insurance coverage on a voluntary
basis experienced poor underwriting results and have withdrawn from the
business. The Company believes that Country's longstanding relationship with
Yellow Cab has provided it with a stable market for this type of coverage and
has enabled it to develop a comprehensive understanding of the business and to
assess more properly the associated risk.
During the past seven years, Country has expanded its operating focus to
include underwriting non-affiliated personal and commercial property/casual
lines. During 1993, 67% of Country's total premium revenue was attributable to
non-affiliated property and casualty lines.
BACKGROUND AND RECENT DEVELOPMENTS
ICC, through its subsidiaries, historically engaged in various engineering
and manufacturing operations in the fields of aerospace/defense, electronics and
energy and, with the acquisition of Transway International Corporation in 1985,
the distribution of liquified petroleum gas, freight transportation and truck
trailer manufacturing. Following a leveraged buyout in 1987, ICC continued a
program of divestiture which had commenced in 1986, using the proceeds to pay
down bank debt. In January 1989, with
4
<PAGE>
Great Dane its only remaining business, ICC purchased the stock of Motors, the
general partner of Checker L.P. Immediately thereafter, four of the five former
shareholders of Motors purchased, through Checker Holding Corp. ("Holding"), all
of the outstanding common stock of ICC (the "Holding Buyout"). The Holding
Buyout was accounted for as a reverse acquisition and, as such, the net assets
of Motors acquired in the acquisition could not be revalued to fair market
value.
Following the acquisition of Motors, ICC's new management (formerly
shareholders of Motors) began to address the Company's financial condition and
prospects. During March 1990, Great Dane obtained a loan commitment of $80
million. A substantial portion of the loan proceeds was utilized to repurchase,
in the open market, a portion of the Company's outstanding 12 3/4% Senior
Debentures due 2001 (the "12 3/4% Debentures") and Subordinated Discount
Debentures due January 1, 2006 (the "14 1/2% Debentures"). During September
1992, Checker L.P. entered into a Loan and Security Agreement with a bank
pursuant to which the bank provided a $30 million term loan. Approximately $18
million of the proceeds from the loan was used to repay certain indebtedness of
a subsidiary of Motors, which debt had been guaranteed by Checker L.P., and to
pay certain costs associated with the financing and repayments.
The Company was hampered in its efforts to achieve a refinancing of its debt
in recent years, in part because of certain litigation arising out of alleged
groundwater contamination at a location where three prior subsidiaries of the
Company formerly conducted business. That lawsuit has now been settled. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Legal Proceedings--Boeing Litigation." The Company
was also engaged in litigation with the Insurance Commissioner of California, as
conservator (the "Conservator") of Executive Life Insurance Company ("ELIC"), a
limited partner in Checker L.P., seeking, among other things, a declaratory
judgment regarding ELIC's rights in Checker L.P. See "Business--Legal
Proceedings--Executive Life Litigation." The Company has offered the Conservator
$32 million in redemption of ELIC's interest in Checker L.P. and its minority
interest in SCSM. The Conservator has not yet responded to the offer.
THE REFINANCING
Simultaneously with the consummation of the Offering, the Company and the
Subsidiary Guarantors will enter into the New Credit Facility, which will
consist of a $60 million term loan and a revolving credit facility which will
provide up to $115 million, subject to the Company's ability to meet certain
financial tests. See "Description of the New Credit Facility." The Company will
apply the net proceeds from the Offering to retire ICC debt and, if the
Conservator accepts the Company's offer, redeem the minority interest in Checker
L.P. and SCSM. See "Use of Proceeds" and "Business--Legal Proceedings--
Executive Life Litigation." The proceeds of the New Credit Facility, together
with Company cash, will be used to retire debt at the subsidiary level. As a
result of these refinancing transactions, the Company expects to achieve
increased liquidity from reduced principal amortization requirements, the
removal of certain restrictions on the use of cash from the Company's
subsidiaries and more flexible and efficient cash management at the holding
company level.
The following chart sets forth, in summary fashion, the estimated sources
and uses of funds. For a more complete description, see "Use of Proceeds."
<TABLE>
<CAPTION>
SOURCES OF FUNDS:
(IN THOUSANDS)
<S> <C>
Notes Offered Hereby............. $ 225,000
New Credit Facility.............. 94,776
Company Cash..................... 20,955
-----------
Total............................ $ 340,731
-----------
-----------
USES OF FUNDS:
(IN THOUSANDS)
Retire Subsidiary Debt........... $ 99,636
Redeem Senior Notes.............. 30,000
Redeem 12 3/4% Debentures........ 136,238
Redeem 14 1/2% Debentures........ 30,000
Redeem Minority Interest......... 32,000
Pay Accrued Interest............. 4,857
Transaction Fees and Expenses.... 8,000
-----------
Total............................ $ 340,731
-----------
-----------
</TABLE>
5
<PAGE>
ORGANIZATION
The chart below sets forth the corporate structure of the Company:
See Appendix 1 for a description of the organizational chart.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered................ $225,000,000 principal amount of % Senior Secured
Notes Due 2004.
Interest Payment Dates............ and of each year, commencing , 1994.
Optional Redemption............... The Notes are redeemable at the option of the Company,
in whole or in part, at any time on or after ,
1999, at the redemption prices set forth herein, plus
accrued and unpaid interest, if any, to the date of
redemption. In addition, on or prior to , 1997,
the Company may, at its option, redeem up to 25% of the
aggregate principal amount of the Notes with the
proceeds of a Public Offering at a price of % of their
principal amount, plus accrued and unpaid interest, if
any, to the date of redemption, provided that $ in
aggregate principal amount of the Notes remains
outstanding immediately following such redemption. See
"Description of the Notes -- Optional Redemption."
Mandatory Redemption.............. None.
Change of Control................. Upon a Change of Control (as defined in the indenture
governing the Notes (the "Indenture")), each holder of
the Notes may 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.
See "Description of the Notes -- Change of Control."
Security.......................... The Notes will be secured by a pledge of all of the
outstanding capital stock of Great Dane and Motors, on
an equal and ratable basis with the indebtedness
incurred under the New Credit Facility.
Ranking........................... The Notes will be senior secured obligations of the
Company, and as such, will rank PARI PASSU in right of
payment with all other existing and future senior
indebtedness of the Company and senior in right of
payment to all subordinated obligations of the Company.
The Company's indebtedness under the New Credit
Facility, however, will be guaranteed by the Subsidiary
Guarantors and secured by substantially all of the
assets of the Company and the Subsidiary Guarantors.
After giving effect to the sale of the Notes and the
initial borrowings under the New Credit Facility and the
application of the estimated net proceeds therefrom, the
Company would have had outstanding consolidated
indebtedness of $347.8 million at September 30, 1993,
including $94.8 million of secured indebtedness estimat-
ed to be drawn under the New Credit Facility and $28.0
million (net of unamortized discount) of indebtedness
which would have been subordinated in right of payment
to the Notes.
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Certain Restrictions.............. The Indenture will contain covenants with respect to the
following matters: (i) limitations on additional
indebtedness; (ii) limitations on restricted payments;
(iii) limitations on transactions with affiliates; (iv)
the application of the proceeds of certain asset sales
(including the obligation under certain circumstances to
repurchase the Notes with such proceeds); (v)
limitations on liens; (vi) limitations on guarantees of
subsidiaries; (vii) limitations on the issuance and sale
of capital stock of subsidiaries; (viii) limitations on
dividends and other payment restrictions affecting
subsidiaries; and (ix) restrictions on mergers,
consolidations and transfers of all or substantially all
of the assets of the Company to another person. See
"Description of the Notes -- Certain Covenants."
Use of Proceeds................... The Company will use the net proceeds from the sale of
the Notes together with proceeds of an estimated $94.8
million of initial borrowings under the New Credit
Facility and approximately $21 million of its cash to
(i) redeem all of the Company's 12 3/4% Debentures, (ii)
redeem $30 million in principal amount of the Company's
14 1/2% Debentures, (iii) redeem certain senior notes
held by the shareholders of the Company, (iv) retire
substantially all of the indebtedness of the Company's
subsidiaries, and (v) assuming an agreement is reached
with the Conservator of ELIC, redeem the minority
interest held by ELIC in Checker L.P. and SCSM. See "Use
of Proceeds" and "Business-Legal Proceedings --
Executive Life Litigation."
Risk Factors...................... The following factors, among others, should be
considered by prospective investors in the Notes: (i)
substantial leverage of the Company; (ii) ranking of the
Notes; holding company structure; (iii) competition;
(iv) cyclical businesses; (v) government regulation of
truck trailers; (vi) reliance on major customers; (vii)
control of the Company; (viii) environmental matters;
(ix) City of Chicago regulations and taxi medallion
limits; (x) fraudulent conveyance risk; and (xi) absence
of a public market for the Notes.
</TABLE>
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The summary consolidated financial information set forth below is derived
from the audited consolidated financial statements of the Company for the years
ended December 31, 1988, 1989, 1990, 1991 and 1992 and from the unaudited
consolidated financial statements of the Company for the nine-month periods
ended September 30, 1992 and 1993. The results of interim periods may not be
indicative of results for the full year.
The following summary information should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto, "Selected
Consolidated Financial Data," and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1988(1) 1989 1990 1991 1992 1992 1993
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Trailer Manufacturing.............. $ -- $ 575,793 $ 491,532 $ 400,196 $ 536,336 $ 394,687 $ 514,087
Automotive Products................ 85,784 99,886 133,401 84,401 112,631 82,867 95,182
Vehicular Operations............... 47,037 44,404 45,006 43,527 40,580 30,566 31,607
Insurance Operations............... 15,992 18,304 23,272 27,142 27,186 20,482 20,119
--------- --------- --------- --------- --------- --------- ---------
Total.............................. $ 148,813 $ 738,387 $ 693,211 $ 555,266 $ 716,733 $ 528,602 $ 660,995
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Segment Operating Profit (Loss)(2):
Trailer Manufacturing.............. $ -- $ 26,508 $ 13,109 $ 7,059 $ 17,590 $ 12,100 $ 21,699
Automotive Products................ 10,644 10,561 9,669 (4,237) 11,622 7,671 12,037
Vehicular Operations............... 8,027 9,437 9,751 7,139 5,727 5,632 4,450
Insurance Operations............... 229 (190) (980) (2,872) (1,557) (975) (1,890)
--------- --------- --------- --------- --------- --------- ---------
Total.............................. 18,900 46,316 31,549 7,089 33,382 24,428 36,296
Corporate Expenses................... -- (7,457) (8,115) (4,398) (4,396) (3,212) (3,198)
Interest Expense..................... (2,807) (57,879) (61,596) (47,425) (42,726) (32,253) (31,400)
Interest Income...................... 4,780 15,494 14,696 11,634 8,895 6,739 5,652
Other Income (Expense)............... 4,975 4,704 (941) (1,078) (2,023) (2,145) (26)
Special Charge(3).................... -- -- -- -- -- -- (7,500)
--------- --------- --------- --------- --------- --------- ---------
Income (Loss) Before Minority Equity,
Income Taxes, Extraordinary Items
and Accounting Changes.............. 25,848 1,178 (24,407) (34,178) (6,868) (6,443) (176)
Minority Equity...................... (11,889) (2,424) (2,296) 1,931 -- -- --
Extraordinary Items(4)............... (1,862) 4,799 27,749 31,188 -- -- --
Accounting Changes(5)................ -- -- -- -- -- -- (46,626)
Income Tax Benefit (Expense)......... 225 (610) 6,429 5,241 (687) (644) 246
--------- --------- --------- --------- --------- --------- ---------
Net Income (Loss).................... $ 12,322 $ 2,943 $ 7,475 $ 4,182 $ (7,555) $ (7,087) $ (46,556)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER DATA:
Depreciation and Amortization
Expenses(6)......................... $ 11,931 $ 48,149 $ 49,791 $ 26,401 $ 26,506 $ 19,887 $ 20,767
Capital Expenditures................. 17,402 20,513 21,564 16,457 17,549 12,494 16,862
EBITDA(7)............................ 38,971 80,200 61,940 38,304 60,889 44,607 50,761
Ratio of EBITDA to Cash Interest
Expense(8).......................... 32.7x 2.6x 1.7x 0.8x 1.5x -- 1.7x
Ratio of Earnings to Fixed
Charges(9).......................... 10.2x 1.0x 0.6x 0.3x 0.8x -- 1.0x
Pro Forma Ratio of EBITDA to Cash
Interest Expense(10)................ -- -- -- -- 1.7x -- 2.0x
Pro Forma Ratio of Earnings to Fixed
Charges(10)......................... -- -- -- -- 1.0x -- 1.2x
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1988(1) 1989 1990 1991 1992 1992 1993
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Working Capital...................... $ 12,137 $ 68,829 $ 81,111 $ 48,559 $ 51,091 $ 45,844 $ 53,970
Property, Plant and Equipment --
Net................................. 27,734 134,691 133,116 125,681 119,492 120,818 125,605
Total Assets......................... 130,105 533,448 530,776 469,691 493,763 472,403 500,639
Long-Term Debt (Including Current
Maturities)......................... 9,149 405,167 376,692 312,324 305,368 301,824 300,006
Shareholders' Equity (Deficit)....... 9,443 (111,799) (104,745) (98,374) (106,296) (105,249) (152,611)
</TABLE>
- ------------------
(1) Amounts shown for 1988 are based on the consolidated financial statements
of Checker Motors Corporation. See Note A to Notes to Consolidated
Financial Statements--December 31, 1992.
(2) Operating profit is gross profit less selling, general and administrative
expenses.
(3) Represents management's estimate, as of September 30, 1993, of the
potential cost to the Company of the Boeing litigation. See
"Business--Legal Proceedings--Boeing Litigation" and Note F to Notes to
Consolidated Financial Statements-- September 30, 1993.
(4) Extraordinary items in all years relate to the gain or loss on the
repurchase of indebtedness. See Notes to Consolidated Financial
Statements--December 31, 1992.
(5) The Accounting Changes represent the cumulative effect of a change in
accounting principle as a result of the adoption, as of January 1, 1993, of
the provisions of Statement of Financial Accounting Standards ("SFAS") No.
106, "Employers Accounting for Postretirement Benefits Other Than
Pensions," and SFAS No. 109, "Accounting for Income Taxes." See Note E to
Notes to Consolidated Financial Statements-- September 30, 1993.
(6) Depreciation and amortization expenses include (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1988 1989 1990 1991 1992 1992 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Depreciation and amortization..... $ 10,316 $ 18,186 $ 20,784 $ 20,931 $ 21,054 $ 15,640 $ 17,192
Amortization of cost in excess of
net assets acquired.............. -- 1,252 1,250 1,250 1,250 938 937
Amortization of debt discount..... 1,615 26,638 24,690 1,045 1,181 869 1,010
Amortization of debt expense...... -- 368 350 299 294 221 220
Other amortization................ -- 1,705 2,717 2,876 2,727 2,219 1,408
--------- --------- --------- --------- --------- --------- ---------
$ 11,931 $ 48,149 $ 49,791 $ 26,401 $ 26,506 $ 19,887 $ 20,767
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
(7) EBITDA represents income from operations before deducting interest expense,
income taxes, depreciation and amortization, amortization of cost in excess
of net assets acquired and other amortization. The Company believes that
EBITDA provides useful information regarding the Company's ability to
service its debt; however, EBITDA does not represent cash flow from
operations and should not be considered as a substitute for net income as
an indicator of the Company's operating performance or for cash flow as a
measure of liquidity.
10
<PAGE>
(8) Interest expense includes (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1988 1989 1990 1991 1992 1992 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash interest expense.......... $ 1,192 $ 30,873 $ 36,556 $ 46,081 $ 41,251 $ 31,163 $ 30,170
Amortization of debt
discount...................... 1,615 26,638 24,690 1,045 1,181 869 1,010
Amortization of debt expense... -- 368 350 299 294 221 220
--------- --------- --------- --------- --------- --------- ---------
Interest Expense............... $ 2,807 $ 57,879 $ 61,596 $ 47,425 $ 42,726 $ 32,253 $ 31,400
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
(9) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before minority equity, income taxes,
extraordinary items, accounting changes and fixed charges. Fixed charges
consist of (i) interest expense, (ii) amortization of debt discount and
debt expense, and (iii) that portion of operating lease rental expense
which is representative of the interest factor (deemed by management to be
one-third of rental expense). The Company's earnings were insufficient to
cover fixed charges by (in thousands) $24,407, $34,178, $6,868 and $176 for
the years ended December 31, 1990, 1991 and 1992, and for the nine months
ended September 30, 1993, respectively.
(10) The only adjustments made to the historical ratios of earnings to fixed
charges and EBITDA to cash interest expense to arrive at the respective
pro forma ratios were to give effect to the net decrease in interest
expense resulting from the refinancing of certain indebtedness of the
Company and its subsidiaries from the net proceeds of the sale of the
Notes and the other transactions contemplated hereby.
11
<PAGE>
RISK FACTORS
Prospective purchasers of the Notes should evaluate the following factors,
as well as the other information set forth in this Prospectus, before making an
investment in the Notes.
SUBSTANTIAL LEVERAGE
The Company currently is and, following the completion of the Offering, will
continue to be substantially leveraged. After giving effect to the sale of the
Notes and the initial borrowings under the New Credit Facility and the
application of the net proceeds therefrom, the Company's consolidated
indebtedness would have been $347.8 million at September 30, 1993. See
"Capitalization," "Use of Proceeds," and "Selected Consolidated Financial Data."
In addition, the Company anticipates that the revolving credit portion of the
New Credit Facility will provide approximately $47.5 million of available
additional funds, as determined by a formula based on accounts receivable and
inventory, subject to the Company's ability to meet certain financial tests.
Based upon its current level of operations and anticipated growth, the
Company believes that available cash flow, together with available borrowings
under the New Credit Facility, will be adequate to meet the Company's
anticipated requirements for working capital, capital expenditures, interest
payments and amortization of the New Credit Facility. There can be no assurance,
however, that the Company's businesses will continue to generate cash flow at or
above current levels or otherwise in sufficient amounts to pay the principal and
interest on the Notes or to satisfy the Company's obligations to repurchase the
Notes in the event of a Change of Control.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including, but not limited to, the
following: (i) the Company's ability to obtain additional financing for working
capital, capital expenditures, acquisitions, general corporate purposes,
refinancing of indebtedness or other purposes may be impaired; (ii) a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of the principal of and interest on its indebtedness, thereby
reducing the funds available to the Company for its operations; (iii) the
Company is more highly leveraged than certain of its competitors, which may
place the Company at a competitive disadvantage; (iv) certain of the Company's
borrowings are and will continue to be at variable rates of interest, which
could result in higher interest expenses in the event of increases in interest
rates; and (v) the Company's high degree of leverage may make it more vulnerable
to economic downturns and may limit its ability to withstand competitive
pressures.
RANKING OF THE NOTES; HOLDING COMPANY STRUCTURE
The Notes will be senior secured obligations of the Company and, as such,
will rank PARI PASSU in right of payment with all other existing and future
senior indebtedness of the Company and senior in right of payment to all
subordinated obligations of the Company. Notwithstanding the Notes' senior
ranking, the Company will have the right to redeem annually at least $5 million,
(plus, under certain circumstances, up to an additional $5 million in any year)
in principal amount of the 14 1/2% Debentures, subject to compliance with the
Indenture and the New Credit Facility. After giving effect to the sale of the
Notes and the application of the estimated net proceeds of the Offering and the
other transactions contemplated hereby, the Company would have had $94.8 million
of indebtedness ranking PARI PASSU in right of payment with the Notes and $28.0
million (net of unamortized discount) of subordinated indebtedness outstanding
at September 30, 1993. See "Description of New Credit Facility" and "Description
of the Notes."
The Company is a holding company and, accordingly, the Notes will
effectively be subordinated to all existing and future liabilities (including
trade payables) of the Company's subsidiaries, including the guarantees by the
Subsidiary Guarantors of the Company's obligations under the New Credit
Facility. All of the Company's operations are conducted, substantially all of
the tangible assets of the Company are held by, and all of the Company's
operating revenues were derived from, operations of the subsidiaries. Therefore,
the Company's ability to make interest and principal payments when due to
holders of the Notes, or to repurchase the Notes in the event of a Change in
Control, is entirely dependent upon the
12
<PAGE>
receipt of sufficient funds from its subsidiaries. The Company's subsidiaries
are separate and distinct legal entities and have no obligations, contingent or
otherwise, to pay any amounts due pursuant to the Notes or to make any funds
available therefor, whether in the form of loans, dividends or otherwise. After
giving effect to the Offering and the other transactions contemplated hereby,
the subsidiaries of the Company would have had total liabilities (including
trade payables) of $271 million at September 30, 1993.
As a result of ICC's holding company structure, the creditors of ICC,
including the holders of the Notes, will effectively be subordinated to all
creditors of ICC's subsidiaries, including, but not limited to, trade creditors.
In addition, because the Company's obligations under the New Credit Facility are
guaranteed by the Subsidiary Guarantors and are secured by all of the assets of
the Subsidiary Guarantors, the Notes will be effectively subordinated to the
Company's obligations under the New Credit Facility. In the event of the
dissolution, bankruptcy, liquidation or reorganization of ICC, the holders of
the Notes may not receive any payments with respect to the Notes until after the
payment in full of the claims of the creditors of the Company's subsidiaries.
The Notes will be secured by a pledge of all of the outstanding capital
stock of Great Dane and Motors (the "Collateral"), on an equal and ratable basis
with the indebtedness incurred under the New Credit Facility. There can be no
assurance that the proceeds of any sale of Collateral pursuant to the Indenture
and the pledge agreement with respect thereto would be sufficient to satisfy
payments due on the Notes. In addition, the ability of the holders of the Notes
to realize upon the Collateral may be subject to certain bankruptcy limitations
in the event of a bankruptcy of the Company. See "Description of the Notes --
Security" and "-- Certain Bankruptcy Limitations."
COMPETITION
Two of the Company's primary businesses, truck trailer manufacturing and
automotive products manufacturing, are highly competitive. The Company competes
with other truck trailer manufacturers and automotive stamping companies of
varying sizes (including the in-house capabilities of certain automotive
manufacturers), some of which may have greater financial resources than the
Company. In addition, barriers to entry in the truck trailer manufacturing
industry are low and, therefore, it is possible that additional competitors
could enter the market at any time. Although the Company is the largest
manufacturer in the truck trailer industry, there can be no assurance that it
will be able to maintain or increase its market share.
CYCLICAL BUSINESS
The truck trailer industry is dependent on the trucking industry in general
and the automotive parts industry is dependent on the automotive industry. Poor
economic conditions in either industry could have a material adverse effect on
the Company. Unit sales of new truck trailers have historically been subject to
cyclical variations based both on general economic conditions and a seven year
replacement cycle. The poor economic conditions in the United States in 1990 and
1991 had an adverse effect on industry-wide demand for new truck trailers,
causing industry shipments of new truck trailers to fall to their lowest level
since 1983. The most recent peak in truck trailer sales occurred in 1988.
GOVERNMENT REGULATIONS OF TRUCK TRAILERS
The federal government regulates certain safety features incorporated in the
design of truck trailers. Changes or anticipation of changes in these
regulations can have a material impact on the cost of manufacturing truck
trailers and on the Company's customers and may adversely affect the financial
condition of the Company.
RELIANCE ON MAJOR CUSTOMERS
Great Dane has entered the container manufacturing business in reliance on a
large order from J.B. Hunt. There can be no assurance that Great Dane will be
able to attract other substantial customers for these products. During the nine
months ended September 30, 1993, J.B. Hunt accounted for approximately 10.9% of
Great Dane's revenues.
13
<PAGE>
The Company's automotive products operations rely heavily on sales to GM.
For the year ended December 31, 1992 and the nine months ended September 30,
1993, sales to GM accounted for approximately 97% and 96%, respectively, of the
automotive products operations' revenues and approximately 15% and 14% of the
Company's revenues, respectively. The automotive products industry has
experienced increased pricing pressure from GM which is taking aggressive
measures to reduce its operating costs, including significant price reductions
from suppliers. Although opportunities for new business may arise as a result of
GM's pressure on other suppliers, future earnings of this segment of the
Company's business may be materially adversely affected by the price reductions
required or requested by GM or by decisions by GM to utilize its own facilities
to manufacture these products. Although the Company has begun to expand its
customer base, there can be no assurance that its reliance on GM will decrease
significantly in the foreseeable future.
CONTROL OF THE COMPANY
David R. Markin owns 32.5% of the common stock of the Company (the "Common
Stock") and each of three other individuals owns 22.5% of the Common Stock.
Therefore, Mr. Markin, together with any one of the three other stockholders,
effectively has control of the Company and would have sufficient voting power to
determine the outcome of any corporate transaction or other matter requiring
stockholder approval.
ENVIRONMENTAL MATTERS
The Company's operations are subject to numerous federal, state and local
laws and regulations pertaining to the discharge of materials into the
environment. The Company has taken steps related to such matters in order to
minimize the risks of potentially harmful aspects of its operations on the
environment. From time to time, the Company has incurred expenses to improve its
facilities in accordance with applicable laws. Great Dane has changed its
manufacturing process to comply with new regulations controlling the emission of
chlorofluorocarbons.
The Company also remains obligated to indemnify purchasers of prior
subsidiaries for environmental contamination, if any, of properties owned by
such subsidiaries. The Company's expenditures related to the foregoing
environmental matters and indemnification obligations have not had, and the
Company does not currently anticipate that such expenditures will have, a
material adverse effect on the Company's financial condition.
IMPACT OF CITY REGULATION AND EXPIRATION OF ANNUAL LIMIT ON NEW MEDALLION
ISSUANCE
The City of Chicago regulates Yellow Cab's operations through rates of fare,
maintenance, lease rates, insurance and inspection requirements, as well as
taxes, license fees and other means. Although management is not aware of any
pending regulatory changes that would have a material adverse effect on the
Company's operations, there can be no assurance as to the effect of future
regulatory changes, if any, or the ability of the Company to pass through any
increased costs through lease rate increases or by other means.
The agreement between Yellow Cab and the City of Chicago, pursuant to which
increases in the total number of outstanding medallions in Chicago are limited
to a maximum of 100 annually, expires on December 31, 1997. There can be no
assurance as to how many medallions the City of Chicago will issue after the
expiration of the agreement, nor as to the effect, if any, on the Company, of
such issuance, including the effect on medallion values. Although Yellow Cab has
sold medallions this past year at selling prices of approximately $38,000 per
medallion, there can be no assurance that such values will continue to prevail
in the market, especially after December 31, 1997.
FRAUDULENT CONVEYANCE RISK
The incurrence by the Company of indebtedness under the Notes may be subject
to review under federal and state fraudulent conveyance laws if a bankruptcy,
reorganization or rehabilitation case or similar proceeding is commenced or a
lawsuit is commenced by or on behalf of unpaid creditors of the Company. Under
these laws, if a court were to find that, at the time the indebtedness under the
New Credit Facility was incurred or the Notes were issued, (a) the Company
incurred such indebtedness or
14
<PAGE>
issued the Notes with the intent of hindering, delaying or defrauding current or
future creditors or (b)(i) the Company received less than reasonably equivalent
value or fair consideration for incurring such indebtedness or issuing the
Notes, and (ii) the Company (A) was insolvent or was rendered insolvent by
reason of the incurrence of such indebtedness, (B) was engaged, or about to
engage, in a business or transaction for which its assets constituted
unreasonably small capital, (C) intended to incur, or believed that it would
incur, debts beyond its ability to pay as such debts matured (as all of the
foregoing terms are defined in or interpreted under relevant fraudulent
conveyance laws) or (D) was a defendant in an action for money damages or had a
judgment for money damages docketed against it (if, in either case, after final
judgment the judgment is unsatisfied), such court could avoid or subordinate the
Notes to presently existing and future indebtedness of the Company and take
other action detrimental to the holders of the Notes, including, under certain
circumstances, invalidating the Notes.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law of the jurisdiction which is being applied in any
such proceeding. Generally, however, the Company would be considered insolvent
if, at the time it incurred the indebtedness under the New Credit Facility or
incurred the indebtedness constituting the Notes either (i) the fair market
value (or fair saleable value) of its assets is less than the amount required to
pay the probable liability on its total existing debts and liabilities
(including contingent liabilities) as they become absolute and matured or (ii)
it is incurring debt beyond its ability to pay as such debt matures. The Company
believes that it is receiving fair consideration for its incurrence of
indebtedness under the New Credit Facility and its issuance of the Notes and
that it will not be rendered insolvent thereby.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
There is no existing trading market for the Notes and there can be no
assurance as to the liquidity of any market that may develop for the Notes, the
ability of holders of the Notes to sell their Notes, or the prices at which
holders of the Notes would be able to sell their Notes. If such markets were to
exist, the Notes could trade at prices higher or lower than their initial public
offering price depending on many factors, including prevailing interest rates,
the Company's operating results and the market for similar securities. The
Underwriters have advised the Company that they currently intend to make a
market in the Notes. The Underwriters are not obligated to do so, however, and
any market making with respect to the Notes may be discontinued at any time
without notice. The Company does not intend to apply for listing of the Notes on
any securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System.
15
<PAGE>
USE OF PROCEEDS
The estimated sources of funds required in connection with this Offering and
the New Credit Facility and the expected use of such proceeds is as follows:
SOURCES OF FUNDS
<TABLE>
<CAPTION>
AMOUNT
---------------
(IN THOUSANDS)
<S> <C>
Notes Offered Hereby............................................................................. $ 225,000
New Credit Facility
Term........................................................................................... 60,000
Revolver....................................................................................... 34,776
Company Cash..................................................................................... 20,955
---------------
Total Sources of Funds......................................................................... $ 340,731
---------------
---------------
</TABLE>
USE OF FUNDS
<TABLE>
<CAPTION>
09-30-93 USE OF
BALANCE DUE FUNDS
RATE (A) (IN THOUSANDS) DATE (IN THOUSANDS)
---------- --------------- --------- -----------------
<S> <C> <C> <C> <C>
Repay Existing Debt: (b)
Great Dane term loan
payable.................... 7.50% $ 22,536 Mar. 1995 $ 22,536
Great Dane revolving credit
line....................... 7.50% 24,583 Mar. 1995 24,583
Partnership term loan
payable.................... 7.25% 24,000 Sep. 1997 24,000
Economic Development term
loan....................... 5.00% 11,036 Apr. 2008 11,036
Equipment term loan......... 7.25% 6,000 Jul. 1996 6,000
SCSM credit line............ 7.00% 5,000 Sep. 1994 5,000
Other debt.................. Various 6,481 Various 6,481
Redeem Existing Obligations:
Senior Notes (c)............ 9.50% 30,000 (d) 30,000
12.75% Senior Subordinated
Debentures................. 12.75% 132,040 Aug. 2001 136,238
Less Debt Discount........ (11,443) 0
14.5% Subordinated Discount
Debentures................. 14.50% 30,000 Jan. 2006 30,000
Less Debt Discount........ (3,221) 0
Redeem Minority Interest...... 7.00% 40,361 (e) 32,000
Payment of Accrued Interest... 4,857 4,857
Transaction Fees.............. 0 8,000(f)
--------------- -----------------
Total....................... $ 322,230 $ 340,731
--------------- -----------------
--------------- -----------------
<FN>
- --------------
(a) Certain of these loans are at variable interest rates. The rates in the
table are as of September 30, 1993.
(b) The obligations of the Subsidiary Guarantors will be repaid out of the
proceeds of the New Credit Facility and Company cash.
(c) The senior notes are payable to the shareholders of the Company.
(d) September 30, 1997, or 30 days after the earlier payment in full of loans
to certain of the Company's subsidiaries (which loans are being repaid
with the proceeds of the New Credit Facility).
(e) Represents the interest of ELIC in Checker L.P. and SCSM. The interest of
ELIC in Checker L.P. is being amortized over 25 years with a final
maturity in December 2013. Redemption assumes that an agreement is reached
with the Conservator. See "Business--Legal Proceedings--Executive Life
Litigation."
(f) Includes estimated Underwriters fees, financial advisory fees and other
transaction expenses.
</TABLE>
The 12 3/4% Debentures and the 14 1/2% Debentures require at least 30 days'
prior notice of redemption to the holders thereof. Accordingly, the Company will
deposit into escrow that portion of the proceeds of the Offering until such
notice periods have expired and payment can be made.
16
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated short-term debt
and consolidated capitalization of the Company and its subsidiaries as of
September 30, 1993, and as adjusted to give effect to the application of the
estimated net proceeds of the Offering and the other transactions contemplated
hereby as described under "Use of Proceeds." The table should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993
-----------------------------
HISTORICAL AS ADJUSTED
----------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash.............................................. $ 31,844 $ 10,889(1)
----------- ---------------
----------- ---------------
Debt:
Great Dane term loan payable.................... $ 22,536 $ 0(2)
Great Dane revolving credit line................ 24,583 0(2)
Partnership term loan payable................... 24,000 0(2)
Economic Development term loan.................. 11,036 0(2)
Equipment term loan............................. 6,000 0(2)
SCSM credit line................................ 5,000 0(2)
Other debt...................................... 6,481 0(2)
New Credit Facility--Term....................... 0 60,000(3)
--Revolver..................... 0 34,776(3)
Notes........................................... 0 225,000(4)
Senior Notes.................................... 30,000 0(2)
12 3/4% Senior Subordinated Debentures (net of
unamortized discount).......................... 120,597 0(2)
14 1/2% Subordinated Discount Debentures (net of
unamortized discount).......................... 54,773 27,994(5)
----------- ---------------
305,006 347,770
Minority Interest................................. 40,361 0(6)
Shareholders' Deficit:
Common Stock, par value $0.01................... 90 90
Additional paid-in capital...................... 14,910 14,910
Retained-earnings deficit....................... (39,509) (46,440)(7)
Notes receivable from shareholders.............. (625) (625)
Amounts paid in excess of Motors' net assets.... (127,748) (127,748)
Unrealized appreciation on Insurance
Subsidiary's investments in equity
securities..................................... 271 271
----------- ---------------
(152,611) (159,542)
----------- ---------------
Total Capitalization.............................. $ 192,756 $ 188,228
----------- ---------------
----------- ---------------
<FN>
- --------------
(1) Reflects the use of Company cash in connection with the refinancing.
(2) Reflects the repayment of outstanding indebtedness of the Company.
(3) Reflects the borrowing under the New Credit Facility.
(4) Reflects the sale of the Notes.
(5) Reflects the repurchase of $30 million principal amount of 14 1/2%
Debentures at par value and adjustment of the related debt discount.
(6) Reflects redemption of minority interest in Checker L.P. and SCSM and
assumes an agreement is reached with the Conservator. See "Business--Legal
Proceedings--Executive Life Litigation."
(7) The charge to retained-earnings deficit results from an extraordinary
charge to earnings from:
Write off debt discount on 12 3/4% Debentures............................ $ (11,443)
Write off debt discount on 14 1/2% Debentures............................ (3,221)
Premium paid on repurchase of 12 3/4% Debentures......................... (4,198)
Gain on retirement of minority interest.................................. 8,361
Tax effect of above adjustments.......................................... 3,570
---------
Charge to historical retained-earnings deficit........................... $ (6,931)
---------
---------
</TABLE>
17
<PAGE>
THE COMPANY
ICC is a holding company which, in 1989, purchased all of the outstanding
common stock of Motors (which is the general partner of and has the controlling
interest in Checker L.P.). Through its subsidiaries, the Company is engaged in
four major lines of business. Through Great Dane, the Company manufactures truck
trailers for the over-the-road tractor trailer long and short haul market and
containers and chassis for intermodal shipping. Motors and its 90%-owned
subsidiary, SCSM, are major manufacturers of sheet metal stampings for
automotive and light truck and van components and subassemblies, primarily for
General Motors Corporation. The Company, through Yellow Cab, is currently the
largest owner of taxicabs and provider of taxi-related services in Chicago,
Illinois. American Country Insurance Company, a subsidiary of Checker L.P.,
underwrites property and casualty insurance, including taxicab insurance,
workers' compensation and other commercial and personal lines.
Simultaneously with the consummation of this Offering and the initial
borrowings under the New Credit Facility and, assuming an agreement is reached
with the Conservator, the Company will redeem the minority interest in Checker
L.P. and SCSM. See "Use of Proceeds" and "Business-Legal Proceedings-Executive
Life Litigation."
The Company was incorporated in 1959 under the laws of the State of Florida.
The Company currently maintains its principal executive offices at Checker
L.P.'s facility at 2016 North Pitcher Street, Kalamazoo, Michigan 49007 and its
phone number is (616) 343-6121.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data derived
from the audited consolidated financial statements of International Controls
Corp. and subsidiaries for the five years ended December 31, 1992. The selected
consolidated financial data for the nine-month periods ended September 30, 1992
and 1993 were derived from the unaudited financial statements of the Company,
which reflect all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of such data. The operating results for the
nine months ended September 30, 1993 are not necessarily indicative of the
operating results for the full year. The following financial data should be read
in conjunction with the Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1988(1) 1989 1990 1991 1992 1992 1993
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues........................ $ 148,813 $ 738,387 $ 693,211 $ 555,266 $ 716,733 $ 528,602 $ 660,995
Cost of Revenues................ 112,462 624,138 584,680 480,543 610,870 450,499 566,759
--------- --------- --------- --------- --------- --------- ---------
Gross Profit.................... 36,351 114,249 108,531 74,723 105,863 78,103 94,236
Selling, General and
Administrative Expense......... 17,452 75,390 77,597 72,032 76,877 56,887 61,138
Plant Restructuring Costs....... -- -- 7,500 -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Income from Operations.......... 18,899 38,859 23,434 2,691 28,986 21,216 33,098
Interest Expense................ (2,807) (57,879) (61,596) (47,425) (42,726) (32,253) (31,400)
Interest Income................. 4,780 15,494 14,696 11,634 8,895 6,739 5,652
Other Income (Expense).......... 4,976 4,704 (941) (1,078) (2,023) (2,145) (26)
Special Charge(2)............... -- -- -- -- -- -- (7,500)
--------- --------- --------- --------- --------- --------- ---------
Income (Loss) Before Minority
Equity, Income Taxes,
Extraordinary Items and
Accounting Changes............. 25,848 1,178 (24,407) (34,178) (6,868) (6,443) (176)
Minority Equity................. (11,889) (2,424) (2,296) 1,931 -- -- --
Extraordinary Items(3).......... (1,862) 4,799 27,749 31,188 -- -- --
Accounting Changes(4)........... -- -- -- -- -- -- (46,626)
Income Tax Benefit (Expense).... 225 (610) 6,429 5,241 (687) (644) 246
--------- --------- --------- --------- --------- --------- ---------
Net Income (Loss)............... $ 12,322 $ 2,943 $ 7,475 $ 4,182 $ (7,555) $ (7,087) $ (46,556)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
OTHER DATA:
Depreciation and Amortization
Expenses(5).................... $ 11,931 $ 48,149 $ 49,791 $ 26,401 $ 26,506 $ 19,887 $ 20,767
EBITDA(6)....................... 38,971 80,200 61,940 38,304 60,889 44,607 50,761
Ratio of EBITDA to Cash Interest
Expense(7)..................... 32.7x 2.6x 1.7x 0.8x 1.5x -- 1.7x
Ratio of Earnings to Fixed
Charges(8)..................... 10.2x 1.0x 0.6x 0.3x 0.8x -- 1.0x
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------- --------------------
1988(1) 1989 1990 1991 1992 1992 1993
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital................. $ 12,137 $ 68,829 $ 81,111 $ 48,559 $ 51,091 $ 45,844 $ 53,970
Property, Plant and Equipment --
Net............................ 27,734 134,691 133,116 125,681 119,492 120,818 125,605
Total Assets.................... 130,105 533,448 530,776 469,691 493,763 472,403 500,639
Long-Term Debt (Including
Current Maturities)............ 9,149 405,167 376,692 312,324 305,368 301,824 300,006
Shareholders' Equity
(Deficit)...................... 9,443 (111,799) (104,745) (98,374) (106,296) (105,249) (152,611)
<FN>
- ------------------
(1) Amounts shown for 1988 are based on the consolidated financial statements of
Checker Motors Corporation. See Note A to Notes to Consolidated Financial
Statements--December 31, 1992.
</TABLE>
19
<PAGE>
(2) Represents management's estimate, as of September 30, 1993, of the
potential cost to the Company of the Boeing litigation. See
"Business--Legal Proceedings--Boeing Litigation" and Note F to Notes to
Consolidated Financial Statements--September 30, 1993.
(3) Extraordinary items in all years relate to the gain or loss on the
repurchase of indebtedness. See Notes to Consolidated Financial
Statements--December 31, 1992.
(4) The Accounting changes represent the cumulative effect of a change in
accounting principle as a result of the adoption, as of January 1, 1993, of
the provisions of Statement of Financial Accounting Standards ("SFAS") No.
106, "Employers Accounting for Postretirement Benefits Other Than
Pensions," and SFAS No. 109, "Accounting for Income Taxes." See Note E to
Notes to Consolidated Financial Statements--September 30, 1993.
(5) Depreciation and amortization expenses include (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- --------------------
1988(1) 1989 1990 1991 1992 1992 1993
----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Depreciation and amortization..... $ 10,316 $ 18,186 $ 20,784 $ 20,931 $ 21,054 $ 15,640 $ 17,192
Amortization of cost in excess of
net assets acquired.............. -- 1,252 1,250 1,250 1,250 938 937
Amortization of debt discount..... 1,615 26,638 24,690 1,045 1,181 869 1,010
Amortization of debt expense...... -- 368 350 299 294 221 220
Other amortization................ -- 1,705 2,717 2,876 2,727 2,219 1,408
----------- --------- --------- --------- --------- --------- ---------
$ 11,931 $ 48,149 $ 49,791 $ 26,401 $ 26,506 $ 19,887 $ 20,767
----------- --------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- --------- ---------
</TABLE>
(6) EBITDA represents income from operations before deducting interest, income
taxes, depreciation and amortization. The Company believes that EBITDA
provides useful information regarding the Company's ability to service its
debt; however, EBITDA does not represent cash flow from operations and
should not be considered as a substitute for net income as an indicator of
the Company's operating performance or for cash flow as a measure of
liquidity.
(7) Interest expense includes (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- --------------------
1988(1) 1989 1990 1991 1992 1992 1993
----------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Interest expense............. $ 1,192 $ 30,873 $ 36,556 $ 46,081 $ 41,251 $ 31,163 $ 30,170
Amortization of debt discount..... 1,615 26,638 24,690 1,045 1,181 869 1,010
Amortization of debt expense...... -- 368 350 299 294 221 220
----------- --------- --------- --------- --------- --------- ---------
Interest Expense.................. $ 2,807 $ 57,879 $ 61,596 $ 47,425 $ 42,726 $ 32,253 $ 31,400
----------- --------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- --------- ---------
</TABLE>
(8) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before minority equity, income taxes,
extraordinary items, accounting changes and fixed charges. Fixed charges
consist of (i) interest, (ii) amortization of debt discount and expense,
and (iii) that portion of operating lease rental expense which is
representative of the interest factor (deemed by management to be one-third
of rental expense). The Company's earnings were insufficient to cover fixed
charges by (in thousands) $24,407, $34,178, $6,868 and $176 for the years
ended December 31, 1990, 1991 and 1992, and the nine months ended September
30, 1993, respectively.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL.
In January 1989, the Company purchased all of the outstanding common stock
of Motors, the general partner of Checker L.P., for a purchase price of $138.8
million (the "Checker Acquisition"). Immediately thereafter, four of the five
former shareholders of Motors purchased, through Holding, all of the outstanding
common stock of the Company for $45 million. Holding was created solely for the
purpose of acquiring the stock of the Company and was subsequently merged into
the Company. Holding was capitalized with an equity contribution of $15 million
and loans aggregating $30 million from the former Motors shareholders. The
Holding Buyout has been accounted for as if Motors had acquired the Company (a
"reverse acquisition"), since there has been no significant change in control of
Motors.
Under generally accepted accounting principles for reverse acquisitions, the
net assets of Motors acquired in the Checker Acquisition could not be revalued
to estimated fair value. Accordingly, the $127.7 million excess of the amount
paid over the historical book value of Motors' net assets has been accounted for
as a separate component reducing shareholders' equity and is not subject to
amortization.
In August 1989, Motors acquired all of the outstanding common stock of SCSM
for a purchase price of $19.9 million (including expenses of $0.3 million) in
cash for SCSM's stock and $4 million in cash for a noncompete agreement. The
acquisition was funded with proceeds from a new bank loan. In connection with
the acquisition, Motors also assumed, and Checker L.P. guaranteed, $12.7 million
of the seller's obligation to the State of West Virginia. In addition, both
Motors and Checker L.P. guaranteed loans aggregating $5.6 million made by the
State of West Virginia and Volkswagen of America, Inc., to SCSM.
RESULTS OF OPERATIONS.
NINE MONTHS ENDED SEPTEMBER 30, 1993 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1992:
Revenues increased $132.4 million during the nine months ended September 30,
1993, as compared to the same period of 1992. The higher revenues are
principally attributed to higher trailer manufacturing revenues ($119.4
million), primarily associated with sales of containers and chassis which were
introduced in late 1992 (and are principally sold to one customer) and a higher
volume of trailer sales. Automotive products revenues increased $12.3 million
during the nine months ended September 30, 1993, as compared to the same period
in 1992. General increases in volumes to accommodate automotive customers'
demands were the principal reason for the revenue increases.
The Company's operating profit (gross profit less selling, general and
administrative expenses) increased $11.9 million in the 1993 period compared to
the 1992 period. This increase is attributed to an increase of trailer
manufacturing operating profits ($9.6 million) and an increase of automotive
products operating profits ($4.4 million), both of which were principally due to
higher volumes of sales. These increases were offset by lower vehicular and
insurance operations operating profits.
Although the Boeing litigation was not concluded, as a result of increased
activity during the nine months ended September 30, 1993, the Company recorded a
$7.5 million pre-tax special charge which represented management's estimate of
the potential cost to the Company if it were determined that the Company was
liable.
Other expense decreased $2.1 million principally as a result of income from
the settlement of a dispute in 1993.
Income tax expense is higher for financial statement purposes than would be
computed if the statutory rate were used because of state income taxes as well
as the impact of the reporting of certain income and expense items in the
financial statements which are not taxable or deductible for income tax
purposes.
21
<PAGE>
1992 COMPARED TO 1991:
During 1992, revenues increased $161.5 million and gross profit increased
$31.1 million as compared to 1991. The truck trailer manufacturing and the
automotive products segment operations were positively impacted by increased
demand for their products. Truck trailer manufacturing revenues increased to
$136.1 million as compared to 1991, primarily resulting from a higher volume of
truck trailer sales. Automotive products revenues increased $28.2 million as
compared to 1991. Increased production of the General Motors Blazer and Suburban
models and crew cab products for the 1993 model year and other general increases
in volumes to accommodate automotive customers' demands were partly offset by a
$6.1 million decrease in revenues associated with the coordination of tooling
programs for GM. Vehicular operations revenues decreased $2.5 million as
compared to 1991. The decrease in revenues is principally attributed to a
continuing downturn in taxicab leasing in the City of Chicago, as well as a
decrease in the number of cabs available for lease from Yellow Cab as a result
of the settlement agreement reached with the City of Chicago in 1988. The
negative trend to revenue changes for this segment could continue if the
economic environment does not improve and if the segment is not successful in
continuing to develop new sources of revenue as the settlement agreement
requires the tendering of 100 additional licenses to the City of Chicago in each
of the next five years.
The factors impacting sales, as discussed previously, had the effect of
increasing the Company's 1992 operating profit by $26.3 million as compared to
1991. Truck trailer manufacturing operating profit increased by $10.5 million as
compared to 1991. This increase is principally due to higher volumes, partly
offset by higher selling, general and administrative expenses ("S G & A").
Higher volumes were also the principal reason for an increase of $15.9 million
of automotive products operating profits as compared to 1991. Automotive
products operations' S G & A expenses were only slightly higher in 1992 as
compared to 1991. Vehicular operations operating profits decreased $1.4 million
in 1992 compared to 1991 due to lower revenues. While efforts were made to
reduce vehicular operations' operating costs through the combination of the two
taxicab operations in late 1991, the decrease in revenues previously discussed
was not fully offset by decreased operating and sales, general and
administrative costs.
S G & A expenses were $4.9 million higher in 1992 as compared to 1991, but
as a percentage of sales, S G & A expense is 2.2 percentage points lower in 1992
as compared to 1991.
Other expenses increased $0.9 million in 1992 as compared to 1991. Higher
gains realized on investment transactions during 1992 compared to 1991 were
offset by costs associated with Motors' debt financing in 1992 and lower gains
on sale of assets in 1992 as compared to 1991.
Interest expense was $4.7 million lower in 1992 than in 1991. The decrease
can be attributed to lower interest rates during 1992 compared to 1991 as well
as lower levels of debt outstanding during 1992 compared to 1991.
There is no minority equity expense in 1992 because ELIC was placed into
conservatorship in 1991 and, as a result, ELIC's interest in Checker L.P. and
rights under the Amended and Restated Partnership Agreement dated March 5, 1986
between Checker L.P., as general partner, and ELIC, as a limited partner (the
"Partnership Agreement"), became limited to the right to receive the balance of
its capital account as of April 11, 1991 (see discussion below in the 1991
compared to 1990 section).
1991 COMPARED TO 1990:
During 1991, revenues decreased $137.9 million and gross profit decreased
$33.8 million as compared to 1990. The truck trailer manufacturing and the
automotive products segment operations were adversely impacted by the economic
recession. Truck trailer manufacturing revenues decreased by $91.3 million,
primarily resulting from a lower volume of truck trailer sales. Automotive
products revenues decreased $49 million, partly as a result of the completion of
the tooling program for the General Motors Blazer and Suburban models and crew
cabs for the 1992 model year ($33.4 million), with the balance of the decrease
due to lower contract sales volumes due to the economic recession and lower sale
prices to
22
<PAGE>
the major automotive products operations customer. Revenues derived by the
Company from its vehicular operations were $1.5 million lower in 1991 compared
to 1990. The decrease in revenues is principally due to the lower number of
medallions owned in 1991. The revenue decreases were partly offset by an
increase in insurance operations revenues ($3.9 million).
The economic recession and the factors impacting sales as discussed
previously had the effect of reducing the Company's 1991 operating profit (gross
profit less selling, general and administrative expenses) by $20.7 million as
compared to 1990. Lower truck trailer sales and lower truck trailer margins
reduced truck trailer operating profit by $6.1 million. Lower volumes,
completion of the GM tooling project and price concessions granted to the
automotive operations' major customer resulted in lowering automotive operations
operating profits by $13.9 million. Lower revenues and increased operating costs
resulted in a decrease of the vehicular operations operating profit by $2.6
million. Insurance operations operating profits were adversely affected by
higher losses and higher operating costs in 1991. These operating profit
decreases were partly offset by lower corporate office costs ($3.7 million).
Interest expense was $14.2 million lower in 1991 than in 1990. The decrease
can be attributed to lower total indebtedness during 1991, as well as lower
interest rates which occurred during 1991.
On April 11, 1991, ELIC was placed in conservatorship. In accordance with
the provisions of the Partnership Agreement, Checker L.P. continues, but ELIC's
interest in the Partnership and rights under the Partnership Agreement are
limited to the right to receive the balance of its capital account as calculated
and on the terms set forth in the Partnership Agreement. For financial reporting
purposes, partnership earnings had previously been allocated to ELIC's account
based on book income and the minority equity amount was calculated accordingly
(the "GAAP Capital Account Amount"). The Partnership Agreement, however,
provides for allocations of partnership earnings to ELIC's capital account on a
basis that differs from book income and calculation of the minority equity
amount thereunder is to be made accordingly (the "Partnership Agreement Capital
Account Amount"). Because the provisions of the Partnership Agreement require
that ELIC's capital account be fixed and calculated as of April 11, 1991,
minority equity for 1991 includes a $2.3 million credit representing the
adjustment of ELIC's capital account from the GAAP Capital Account Amount as of
April 11, 1991, to the Partnership Agreement Capital Account Amount as of the
same date. ELIC is disputing Checker L.P.'s right to limit its rights under the
Partnership Agreement. If ELIC is successful, this adjustment will be reversed.
The extraordinary net gain of $31.2 million in 1991 resulted from the
repurchase of $66.2 million face value ($58.7 million net carrying value) of the
14 1/2% Debentures at an average cost of 36% of face value and the repurchase of
$7.6 million face value ($6.8 million net carrying value) of the 12 3/4%
Debentures at an average cost of 40% of face value.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES.
Available cash and cash equivalents, cash flow generated from operations
($44.1 million, $66.9 million, $12.4 million, $37.8 million and $25.2 million
for the years ended December 31, 1988, 1989, 1990, 1991 and 1992, respectively),
proceeds from borrowings and proceeds from disposal of assets have provided
sufficient liquidity and capital resources for the Company to conduct its
operations.
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
The impact of adopting SFAS No. 106 was a charge to net income of $29.7 million
(net of taxes of $16.5 million) which was recorded as a cumulative effect
adjustment in the quarter ended March 31, 1993.
The Company also adopted the provisions of SFAS No. 109, "Accounting for
Income Taxes," effective January 1, 1993. The impact of adopting SFAS No. 109
was a charge to net income of $16.9 million which was recorded as a cumulative
effect adjustment in the quarter ended March 31, 1993.
During the quarter ended March 31, 1993, the Company adopted the provisions
of SFAS No. 113, "Accounting and Reporting for Reinsurance of Short Duration and
Long Duration Contracts." Because of the type of insurance contracts Country
provides, the adoption of this statement had no impact on
23
<PAGE>
earnings; however, it requires the disaggregation of various balance sheet
accounts. For financial reporting purposes, the 1992 balance sheet and statement
of cash flows have been restated as if SFAS No. 113 were adopted as of the
beginning of the earliest period presented.
While the adoption of the above SFAS's has a significant effect on the
Company's financial position, it does not adversely affect liquidity and capital
resources.
The Company is a holding company and is, therefore, dependent on cash flow
from its subsidiaries in order to meet its obligations.
Purchases of property, plant and equipment have averaged approximately $18.5
million per year over the past three years and have been funded principally by
cash flow generated from operations as well as proceeds from disposals of
assets. Purchases of property, plant and equipment for 1994 are anticipated to
be approximately $26.0 million and are expected to be funded principally by cash
flow generated from operations.
During the fourth quarter of 1993, the Company entered into a settlement of
the Boeing litigation (see "Business--Legal Proceedings--Boeing Litigation"). It
is anticipated that the settlement ($12.5 million over five years) will be paid
by the Company through recoveries from insurance carriers, the sale of assets of
certain of the subsidiaries, cash currently on hand and cash flow generated from
operations. This settlement may result in a further adjustment (in the fourth
quarter of 1993) to the special charge recorded in the second quarter of 1993.
GM, a major customer of the Company's automotive products segment, is
resorting to many measures, including obtaining significant price reductions
from its suppliers, in an effort to reduce its operating costs. Management of
the Company's automotive products segment is currently engaged in discussions
with GM concerning future pricing of parts presently being manufactured.
Automotive products segment management believes that it has adequately provided
in its near-term financial plans for any price reductions which may result from
its current discussions with GM. However, price reductions in excess of those
anticipated could have a material adverse effect on the automotive products
operations.
IMPACT OF INFLATION.
Recently, due to competitive market conditions, the Company has been unable
to factor all cost increases into selling prices for its products and services.
The Company does not believe, however, that the impact of inflation affects the
Company any more than it affects the Company's competitors.
24
<PAGE>
BUSINESS
GENERAL
ICC is a holding company and its business is conducted by its operating
subsidiaries. Through its subsidiaries, the Company is engaged in four major
lines of business. Through Great Dane, the Company manufactures a full line of
truck trailers for the over-the-road tractor trailer long and short haul market
and containers and chassis for intermodal shipping. Checker L.P. and Motors'
subsidiary, SCSM, are major manufacturers of sheet metal stampings for
automotive and light truck and van components and subassemblies, primarily for
GM. The Company, through Yellow Cab is currently the largest owner of taxicabs
and provider of taxi-related services in Chicago, Illinois. Country underwrites
property and casualty insurance, including taxicab insurance, workers'
compensation and other commercial and personal lines.
TRUCK TRAILER MANUFACTURING OPERATIONS
INDUSTRY OVERVIEW
The new truck trailer industry, with annual revenues of approximately $3.5
billion is highly cyclical and competitive. Truck trailer industry performance
is closely tied to the state of the economy and the industry experienced a
severe downturn in 1990 and 1991 due to the recession in the United States.
Revenues recovered in 1992 due in large part to the general improvement in the
U.S. economy and, to a lesser extent, new regulations in certain states
permitting longer truck lengths, and the replacement of a large number of truck
trailers sold in the mid-1980's. In addition, new truck trailers have
traditionally had a seven-year replacement cycle, with the latest peak in 1988.
Recently, the transportation industry began shifting toward intermodal
railroad containers and chassis. "Intermodal" refers to the transition from one
mode of transportation to another. Intermodal containers are designed to travel
by rail, but once removed from the rail car the containers can be placed on a
chassis for transportation to and from a rail yard. The emphasis on intermodal
transportation is being led by J.B. Hunt, which is integrating rail and truck
support of goods for its end customers on a more cost-effective basis. J.B. Hunt
is converting its trailer fleet to intermodal containers and chassis and is
expecting to have nearly 15,000 containers in operation by the end of 1994.
The national truck trailer market is fragmented and competitive due to the
relative ease of entrance (with the exception of the higher technology
refrigerated trailers). There are approximately 180 companies in the truck
trailer manufacturing industry. In 1993 the two largest companies, Great Dane
and Wabash National Corporation, accounted for approximately 23% of the market
and the ten largest companies accounted for approximately 60% of sales. The
basis of competition in the truck trailer industry is quality, durability,
price, warranties, service and relationships. Due in large part to the quality
of its products and its strong distribution system, the Company believes that
Great Dane has built sustainable competitive advantages in each of these
important areas.
BUSINESS STRATEGIES
During late 1991, Great Dane brought in new operating management to
implement several important new strategies designed to position the Company to
take advantage of both expected industry growth and the expansion of the
intermodal market. Through a realignment of management, the corporate structure
was reduced from nine levels to six and management accountabilities were more
clearly defined. Great Dane explored product cost reduction programs to improve
its competitive position and implemented management accountability within its
branch operations (new truck trailer sales, used truck trailer sales, parts
sales and service).
During 1992, Great Dane, working in conjunction with J.B. Hunt, developed a
new line of double stack intermodal containers and matching ultra lightweight
chassis, which will allow its customers to take advantage of new double stack
intermodal shipping methods, the most economical method of hauling freight over
long distances. In connection with an approximately $125 million initial
purchase order from J.B. Hunt for these new intermodal products, the Company
installed new assembly lines in three existing factories and initiated
production for the order during the first and second quarters of 1993,
25
<PAGE>
which will continue through 1994. Great Dane has recently received an additional
order of approximately $47 million from J.B. Hunt. Although J.B. Hunt's
requirements for these containers and chassis will level off, Great Dane
believes that J.B. Hunt's success may lead other carriers to replace some or all
of their trailers with containers and chassis. Great Dane has also manufactured
reefer containers for a customer and believes it is well-positioned to take
advantage of the new and growing intermodal market.
During the next five years, Great Dane intends to seek to reduce costs and
increase production capacity and flexibility through plant reconfiguration and
consolidation, allocation of production between plants and certain key capital
expenditures within its current plants to enable Great Dane to be equally
efficient in filling large or small orders. Great Dane is also altering its
manufacturing facilities to allow it to build either intermodal containers or
trailers on the same assembly line. Great Dane believes that capital
expenditures during 1994 and 1995 relating to this program will be approximately
$11.3 million which will include a computer system upgrade. Great Dane believes
that, to contain cost, for the short term, plant expansion and reconfiguration
are preferable to the acquisition of new facilities. Cost reduction is critical
if Great Dane is to maintain and increase its position in this very competitive
market. Manufacturing flexibility, also, will be crucial to Great Dane's success
in continuing to capture new container and chassis sales while at the same time
continuing to grow its well-established truck trailer business.
The Company believes that the development of high quality proprietary
products will also be important to enable it to sustain its competitive
position. To that end, Great Dane maintains a corporate engineering department
consisting of 36 employees working on the development of new products. This
research and development team strives to develop the most efficient method of
producing the lightest weight and most cost effective trailer.
PRODUCTS
GENERAL. Great Dane assembles and markets a full line of new trailer
models, with four major trailer product lines and three other business units.
The products include vans, reefers, platform trailers (flats) and containers and
chassis. During 1992 and 1993, the sale of these products accounted for 79% and
82% of Great Dane's revenues, respectively. Great Dane's trailers and containers
are assembled in sizes ranging from 28 to 57 feet with a variety of different
materials, features and finishes to serve the entire spectrum of trailer users.
Great Dane offers eleven versions of its various trailers and sells virtually
all of these versions on a regular basis. In addition to this standard line of
products, its flexible assembly operations enable the Company to customize
products for its customers at premium prices, without substantially decreasing
operational efficiencies.
Set forth below is a description of Great Dane's share of the market for
each segment of its truck trailer business, as well as the container and chassis
market during 1993. All figures are based on estimated shipments.
<TABLE>
<CAPTION>
PRODUCT TYPE GREAT DANE UNIT SALES INDUSTRY UNIT SALES GREAT DANE SHARE
- ------------------------------------------------- ---------------------- ------------------- ---------------------
<S> <C> <C> <C>
Van.............................................. 14,132 123,500 11.4%
Refrigerated Van................................. 8,034 20,800 38.6%
Platform Trailer................................. 1,767 15,600 11.3%
Container and Chassis............................ 10,301 44,035 23.4%
------- -------- ---
Total........................................ 34,234 203,935 16.8%
------- --------
------- --------
</TABLE>
VANS. Vans are enclosed trailers, used for predominantly dry freight. Great
Dane offers the greatest variety of vans in the industry with four primary
styles: sheet and post, aluminum plate, ThermaCube and Fiberglass Reinforced
Plywood ("FRP"). Great Dane sells vans primarily to for-hire truckload carriers,
private carriers and leasing companies.
Great Dane's highest volume van product is the sheet and post van. These
trailers haul general non-refrigerated freight. The Company's models offer
premium features to improve their appearance, durability and resale value when
compared to competitors' models.
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Great Dane's aluminum plate vans were developed in late 1991. These vans are
made primarily of aluminum and, with no liners, offer significantly more
interior space than sheet and post vans. The plate version is considered a
premium product and, due to the current low price of aluminum, Great Dane is
able to produce a plate van as a cost efficient alternative to the sheet and
post van.
Great Dane's unique ThermaCube van was developed and brought to market in
late 1990. The ThermaCube van currently uses a proprietary technology licensed
to Great Dane by Graaff KG ("Graaff"), a German limited partnership. Since it
has completed the maximum royalty payment under its agreement with Graaff, Great
Dane's current and future usage of this technology for trailers is royalty free.
ThermaCube is a single panel consisting of two thin skins of aluminum or other
suitable material with high density foam separating and bonding them into a
single panel. ThermaCube vans are lightweight and offer superior width, space,
strength and thermal properties. These vans are difficult to damage, but when
damaged, the cost of repair exceeds that for sheet and post vans. Great Dane is
working to reduce both the cost of manufacture and the cost of repair for the
ThermaCube van.
FRP vans account for only a small percentage of Great Dane's van sales. They
offer increased inside width, but are 300 pounds heavier than sheet and post
vans, resulting in a durability that accounts for their continued sale almost
exclusively in large metropolitan areas.
REEFERS. Great Dane's reefers are specialized products that command premium
pricing. The Company believes that it is the largest supplier of reefers in the
industry and the only company to offer more than one type of reefer. Great Dane
currently sells three types of reefers: Classic (either aluminum or stainless
steel), Superseal and ThermaCube. Classic trailers are sold either with an
aluminum or stainless steel construction.
The Classic reefer, which is made from aluminum or steel, is essentially a
sheet and post reefer and is the workhorse of the line. It is particularly
suitable for the food distribution market because it has been engineered to
accept numerous structural modifications (such as side doors and
multi-temperature refrigeration compartments). Classic reefers are sold
primarily to private carriers and truck leasing companies.
The Superseal reefer, a product line purchased by Great Dane in late 1988,
is Great Dane's lightweight, lower-priced trailer priced competitively against
major reefer competition. The product offers fewer options than the Classic
reefer and is most popular with for-hire carriers. Since its purchase by Great
Dane, its market share has steadily increased due to product improvements and
the use of Great Dane's national distribution network.
Great Dane believes the ThermaCube reefer is the most efficient,
technologically advanced reefer offered. It offers the best thermal efficiency
in the industry, large cubic capacity, inside width and side wall strength.
Since its introduction in the late 1980s, its share of the market has also
steadily increased. It is the flagship of two of the largest reefer carriers in
the U.S. and it is gaining popularity among medium-sized carriers.
Great Dane is currently developing a new floor for its truck trailers,
initially intended for the ThermaCube and certain Classic reefers, which will
eliminate wood components, thereby increasing the life of the floor and
simplifying the manufacturing process. The floor will allow Great Dane to
increase capacity and reduce the cost of the ThermaCube reefers.
PLATFORM TRAILERS (FLATS). Platform trailers, which are flat beds or open
deck trailers, constitute a smaller portion of Great Dane's sales. Great Dane
offers a full line of platform trailers, consisting of drop frame, extendible,
curtained and straight frame trailers. Drop frame flats are designed for heavy
duty hauling where low deck heights are required. Extendible flats are used for
self-supporting loads (i.e., pre-stressed concrete). Curtainside flats are used
where side loading and cover is required. The primary customers for Great Dane's
platform trailers are for-hire material haulers, which would include steel
haulers, pre-stressed concrete carriers and builders. Great Dane is developing
and testing a new line of ultra lightweight flatbeds intended to increase
substantially its market share.
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<PAGE>
CONTAINERS AND CHASSIS. Recently, the transportation industry, led by J.B.
Hunt, one of the largest truck load carriers in the United States, began
shifting toward intermodal transport and the Company expects this market to
provide the greatest opportunity for growth in the future. This mode of
transport uses a hub and spoke transportation strategy of short hauling to and
from rail yards with trucks and long hauling by rail. In conjunction with this
shift toward intermodal transport, Great Dane's engineers developed a
specialized railroad container and chassis which allows the trucking company to
haul containerized loads which are similar in size and weight to conventional
trailers. These containers, which are currently being produced for J.B. Hunt,
use either aluminum plate or the sandwich panel technology licensed from Graaff
and Great Dane's unique composite wall construction to offer greater inside
width, higher cubic capacity, lighter weight and greater strength than can be
obtained by conventional sheet and post construction. Further, the containers
are 500 to 1,000 pounds lighter and the chassis are 1,000 to 1,500 pounds
lighter than similar products now in use.
The containers and chassis are designed by Great Dane, utilizing
computer-aided techniques ("CAD") to minimize weight and maximize strength.
During 1993 the Company was the first to produce a line of refrigerated
containers and sold approximately 500 units to five customers. The use of the
reefer container and double stack intermodal applications is an emerging market.
The Company also expects to produce and sell limited quantities of conventional
sheet and post containers during 1994. Great Dane is expecting to produce, for
J.B. Hunt and others, a total of 4,058 containers and a total of 4,881 chassis
in 1994.
SERVICES
GENERAL. Great Dane's business includes a parts sales operation, sales of
used trailers acquired mainly in trade-in transactions, and retail services
(including repair and maintenance) which enable it to be a full service
provider. The parts and service operations are less sensitive to the economic
environment and tend to produce higher margins thereby increasing profits and
mitigating the impact of the cyclical product lines.
PARTS SALES. Sales of replacement parts and accessories are an important
source of higher margin revenues, and provide a value-added service to attract
and maintain Great Dane's client base. Service parts are marketed through 51
full-line dealers, 19 parts-only dealers and the 17 Great Dane-owned branch
operations. Dealers and branches in turn sell parts either over-the-counter or
through their respective service and repair operations. Gross profits from parts
sales during 1992 and 1993 were $17,691,000 and $19,662,000, respectively.
USED TRAILERS. To be competitive in the sale of new trailers, it is often
necessary to accept used trailers in trade. Larger branches maintain used
trailer managers responsible for trade-in appraisals and sales of used trailers.
Some sales are accomplished directly by the national Used Trailer Manager with a
majority of sales by the branch commissioned salesmen. Gross profits for used
trailer sales during 1992 and 1993 were $2,449,000 and $3,093,000, respectively.
RETAIL SERVICES. Great Dane owns and operates 17 full-service retail
branches, which also maintain a shop or service operation. Service shops provide
warranty support to Great Dane customers and sell maintenance or repair services
for both Great Dane trailers and competitive trailers. Gross profit from service
sales during 1992 and 1993 were $7,899,000 and $8,741,000, respectively.
The chart below sets forth the percentage of Great Dane's total sales and
gross profit represented by each product or service category.
<TABLE>
<CAPTION>
% OF % OF GROSS
SALES PROFITS
-------------------- --------------------
PRODUCT OR SERVICE CATEGORY 1992 1993 1992 1993
- ----------------------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
New truck trailers and containers and chassis...................................... 79.5 82.5 59.2 63.5
Parts Sales........................................................................ 10.9 9.1 25.1 22.1
Used Trailers...................................................................... 6.6 6.0 3.5 3.5
Retail Services.................................................................... 2.7 2.2 11.2 9.8
</TABLE>
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<PAGE>
MARKETING, DISTRIBUTION AND SALES
Great Dane's marketing strategy is to provide high quality trailers tailored
to the needs of truckload for-hire carriers, leasing companies and medium-sized
less than truck load ("LTL") carriers and to provide the support services to
satisfy and maintain its customer base. Great Dane uses a "grass roots" approach
to sell its products whereby it attempts to solicit every potential customer in
a given territory. This approach affords Great Dane access to less price
sensitive, smaller customers. At the same time, in order to attract a broad
customer base, Great Dane believes it offers the largest line of trailers in the
industry and works closely with its customers to tailor its products to their
specific requests. According to an independent survey of customers, Great Dane
is the preferred choice of manufacturers for reefers and dry freight vans.
Great Dane's target markets consist of: for-hire carriers (all except the
largest LTL carriers), private carriers (grocery, food service, manufacturing
and all other companies) and leasing companies (Ryder, Penske, Rollins, XTRA,
Ruan and numerous smaller companies). Great Dane provides full service to its
customers through what it believes to be the leading national trailer
distribution network in the industry. With the exception of a small percentage
of used trailer sales, all sales take place through Great Dane's distribution
system. Sales and distribution functions are implemented through 17
Company-owned branches (accounting for 51% of unit sales excluding J.B. Hunt)
and 51 independent dealers throughout the United States, Canada and Mexico
(accounting for 49% of unit sales excluding J.B. Hunt).
Great Dane has a total of 169 sales representatives (approximately 126 in
dealerships and 43 in its branches) who actively solicit orders. Virtually all
of Great Dane's sales are made to order. Great Dane's five district managers
coordinate and provide sales support to Great Dane's dealers. Great Dane's
Executive Vice President of Sales oversees and coordinates the sales effort and
Great Dane's top management participates in the selling efforts to most major
accounts. The Company's sales force is compensated and given incentives to meet
both revenue and profitability targets. Dealers are given incentive compensation
based on exceeding revenue targets set with district managers at the beginning
of the year.
Since many trucking companies are located in the Southeastern U.S., Great
Dane has concentrated its branch operations in that region. To increase its
market share and broaden its presence, Great Dane has increased its sales
efforts across the United States and into Canada and Mexico, through the use of
independent dealers.
Great Dane participates in its dealers' floor plan financing. Since
virtually all of Great Dane's products are made to order, however, dealers and
branches maintain very little inventory. Under an agreement with Associates
Corporation of North America ("Associates"), Associates has the right of first
refusal to finance Great Dane's retail customers until the last quarter of 1996
and Great Dane has guaranteed 50% of Associates' losses if a trailer is
repossessed. Great Dane has not experienced any material losses under this
agreement.
Great Dane provides five year warranties to its customers. As evidence of
the high quality of its products, Great Dane estimates its warranty costs are
only 0.9% of its sale price.
Great Dane maintains parts distribution facilities in each of Savannah,
Georgia; Memphis, Tennessee; Indianapolis, Indiana; and Sparks, Nevada.
Distribution centers carry inventory and distribute parts to dealers and
branches and sell parts at retail. A small retail parts operation is also
maintained in Little Rock, Arkansas to support particular customers in that
area. Parts are delivered to dealers and branches from the distribution centers
or directly from vendors. Three traveling regional parts managers sell parts to
and implement retail programs through the independent dealer organization.
MANUFACTURING AND OPERATIONS
MANUFACTURING. Great Dane's four manufacturing facilities, located in
Savannah, Georgia; Memphis, Tennessee; Wayne, Nebraska; and Brazil, Indiana, are
designed to provide efficient assembly line manufacturing of its products. Great
Dane runs two 8-10 hour shifts in each of its plants which it believes
29
<PAGE>
is the most cost-effective manufacturing method. Great Dane's manufacturing
operations are characterized by a high engineering content and assembly lines
that allow Great Dane to customize almost every trailer in a cost-efficient
manner. In its manufacturing process, Great Dane stresses both the design and
quality of its products.
Great Dane exercises strict quality control by screening suppliers, and
conducting inspections throughout the production line. Great Dane is
implementing a total quality management program that endorses employee
involvement, empowerment and continuous improvement.
RESEARCH AND DEVELOPMENT. Great Dane makes extensive use of CAD technology
with local area PC networks supporting production engineering. Through complex
three-dimensional computer modeling of product options and structures, design
and production engineers generate solutions which are placed on drawings and
electronically downloaded to generate instructions for plant floor automated
machine tools. Using this technology, Great Dane continually innovates, improves
its products, and streamlines the manufacturing process. Great Dane is the only
manufacturer with its own on-site road simulation testing equipment and all new
products must pass strenuous road simulation test procedures. This equipment
allows Great Dane to accelerate significantly its development programs and
assures reliable, high-quality products. Great Dane currently employs a
corporate engineering department with 36 employees, which is higher than the
industry average.
SUPPLIES AND RAW MATERIALS. Purchased materials represent approximately 80%
of trailer direct cost of goods sold. Great Dane purchases a variety of raw
materials and sub-assemblies from various vendors with short-term contracts. Due
to the high content of materials and supplies, Great Dane emphasizes its
materials acquisition and has centralized its purchases. Aluminum, wood, tires
and steel account for a significant portion of raw material costs. The Company
has not experienced and has no reason to believe it will experience major
shortages in these materials, but prices for these materials have fluctuated. To
minimize price fluctuation, Great Dane generally orders aluminum in advance to
cover its backlog.
Just-in-time inventory ("JIT") systems are used to order components and
certain raw materials several weeks in advance for weekly and daily deliveries.
Due to use of JIT, manufacturing raw materials inventory turns 11.5 times
annually.
ENVIRONMENTAL. Certain of Great Dane's manufacturing processes involve the
emission of chlorofluorocarbons, but Great Dane is changing that process to
comply with new regulations and does not believe that this change will have a
material adverse effect on its operations. The manufacturing process does not
require a large quantity of any material classified as hazardous.
Great Dane is involved in a small number of environmental matters. In all
cases, management believes that the expenses associated with Great Dane's
involvement are not material.
BACKLOG
Truck trailer and container backlog at December 31, 1993 and December 31,
1992 was approximately $365 million and $259 million, respectively. Great Dane's
backlog of truck trailer orders was approximately $70 million at December 31,
1991. The significant increase during 1992 is attributed to container and
chassis orders. The increase during 1993 is attributed to improving business
conditions.
PATENTS, LICENSES AND TRADEMARKS
The Company believes its "Great Dane" trademark, which identifies all of its
products, to be of value and to contribute significantly to the wide acceptance
of its product.
AUTOMOTIVE PRODUCTS OPERATIONS
OVERVIEW
Through Checker L.P. and SCSM, the Company operates two automotive parts
stamping facilities, one in Kalamazoo, Michigan and a larger, more modern
facility, in South Charleston, West Virginia, which was acquired in 1989 through
the purchase of SCSM. These facilities fabricate various sheet metal
30
<PAGE>
components and subassemblies, primarily truck and van components, including
tailgates, fenders, cowl panels, pickup box panels, wheelhouse panels, doors,
hoods and roofs. They also supply several parts for GM's and Ford's service
parts organizations as well as body parts for Freightliner. Presently,
approximately 96% of the Company's automotive products revenues are generated
through sales to GM, with the balance represented principally by sales to
Chrysler, Ford and Freightliner. The Company has also received a letter of
intent from Mercedes-Benz for products that, subject to the execution of final
documentation, are currently scheduled for shipment commencing in 1997. Although
Checker L.P. and SCSM manufacture certain components which are used in passenger
car applications, the major portion of their products are incorporated into
light truck and van applications. Although these tend to be lower volume
products, light trucks and vans also tend to be subject to less frequent design
changes and longer model lives. The automotive products operations generated
approximately 14% of the Company's revenues and 18% of gross profits for the
nine months ended September 30, 1993.
PRODUCTION
SCSM currently processes 8000 tons of steel per month (from domestic
suppliers) for 400 part numbers and currently ships between 45,000 and 50,000
pieces per day to its customers from 940 dies. SCSM produces approximately 150
products at an over 900,000 square foot modernized facility. Its principal
products include tailgate and liftgate assemblies, door assemblies, hood
assemblies, fender assemblies, wheelhouses, pillars, back panels, floor panels,
deck lids, body side panels, roof outer panels and related parts, mainly for the
van and truck segment of the automotive industry.
SCSM currently utilizes approximately 55% of its production capacity in
terms of equipment load. Volume fluctuations are managed by use of overtime and
temporary manpower. Management is actively pursuing new long-term commitments to
utilize SCSM's high volume capacity. SCSM, unlike certain of its smaller
competitors, has the equipment and versatility to produce virtually any
automotive stamping product, carrying out substantially all phases of a project
under one roof.
The major portion of tooling design, build and prototype is performed by
selected suppliers under close direction of SCSM. Die maintenance and
engineering changes are completed in SCSM's own 60,000 square foot die room
facility which houses approximately 60 tool and die makers. The tool room
handles all die maintenance and engineering changes in-house, including all
serious die trouble such as major breaks.
Checker L.P.'s Kalamazoo facility, as a just-in-time deliverer to its
customers, also fabricates and assembles automotive products for those jobs
whose end product must be delivered in the surrounding Midwest region, since
transportation is a growing cost in this industry.
Shipments of customer orders from both facilities are made on a daily or
weekly basis as required by the customer. GM provides an estimated 13 week
forecast for material and fabrication planning purposes. Nevertheless, changes
in production by the customer may be reflected in increases or decreases of
these forecasts.
CUSTOMERS
SCSM and Checker L.P. are committed to customer satisfaction by producing
parts and providing the necessary support systems to assure conformity to
customer requirements. As evidence of its success in these areas, SCSM holds
GM's "Mark of Excellence" Award and Chrysler's "Quality of Excellence"
designation.
Currently, this segment's major automotive customer is GM which accounts for
approximately 96% of production. It supplies parts for the following models:
Suburban, Blazer, Crew Cab, Astro Van, and Extended Cab. The Company has been
advised that GM plans to begin production of a four-door version of the Blazer.
SCSM has supplied the roof module for the two-door model for two years and is
expecting to continue as GM's supplier for the four-door version.
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<PAGE>
In recent years, GM has resorted to many measures in an effort to reduce its
operating costs, including attempts to negotiate significant price reductions
from its suppliers. In recent discussions with GM, SCSM has, for instance,
lowered its pricing by 5% on certain jobs for 1994 as compared to 1993.
SCSM and Checker L.P. continue their efforts to diversify their customer
base. SCSM currently supplies sheet metal stampings to Freightliner for certain
of its truck bodies and management anticipates that its relationship with
Freightliner will grow. SCSM also produces parts for Saturn Corporation's
station wagon, rocker panels for Ford's new Mustang, and various parts for
Chrysler. In addition, SCSM has signed a letter of intent with Mercedes-Benz to
produce parts for its new sport utility vehicle. The Company is currently
discussing with the State of West Virginia the possibility of obtaining funding,
at subsidized rates, for approximately $8 million of equipment and tooling
required if this contract is finalized. Preparation for production is expected
to start in the spring of 1994 and the first job out of assembly is scheduled
for 1997.
COMPETITION
The fabrication business is highly competitive and SCSM and Checker L.P.
compete with numerous other industrial manufacturers, as well as with the
in-house capabilities of its customers (I.E., GM). The failure to obtain future
orders from GM could have a material adverse impact on SCSM and/or Checker L.P.
despite the fact that the Company is expanding its customer base. The automotive
products industry is experiencing increased pricing pressure from GM which is
continuing its aggressive measures to reduce its operating costs, including
obtaining significant price reductions from suppliers. Although opportunities
for new business may arise as a result of GM's pressure on other suppliers and
the Company believes that it has adequately provided for any price reductions
which may result from discussions with GM in near-term financial plans, future
earnings of the automotive products operations may be materially adversely
affected by additional price reductions requested or required by GM.
VEHICULAR OPERATIONS
OVERVIEW
The Yellow Cab Company division of Checker L.P., which generated
approximately 5% of the Company's revenues and 9% of the Company's gross profits
for the nine months ended September 30, 1993, is the largest taxicab fleet owner
in the City of Chicago and as of February 1, 1994, owned approximately 2,370 of
the roughly 5,400 taxicab licenses ("licenses" or "medallions") available in
Chicago. Yellow Cab leases its medallions and its owned vehicles to independent,
non-employee taxi operators pursuant to two programs: the owner-operator program
and the daily lease program. Checker L.P. and affiliated entities also provide a
variety of other services to taxi drivers and non-affiliated medallion holders,
including insurance coverage, repair and maintenance services, and
installment-sale financing of vehicles sold by Yellow Cab to independent license
holders.
Prior to a merger on October 1, 1991, the operations of Yellow Cab had been
conducted by two separate divisions within Checker L.P.: Checker Taxi Company
("Taxi") and Yellow Cab Company ("Old Yellow Cab"). Except where specifically
noted below, the following business description of Yellow Cab refers to
post-merger organization and operations.
THE OWNER-OPERATOR AND DAILY LEASE PROGRAMS
In 1982, the Company implemented its owner-operator program pursuant to
which an independent, non-employee taxi operator leases a license and vehicle,
generally for a five-year period, with an option to purchase the vehicle
beginning at the end of the second year. During the lease term, Yellow Cab
receives, in advance, a weekly lease payment for the vehicle as well as a flat
weekly fee to cover the use of Yellow Cab's license as well as other services
provided by Yellow Cab and its affiliates, including use of its colors and
tradename, liability insurance coverage, and radio dispatch, repair and
maintenance services. Most also purchase the required collision insurance from
Country. See "Business-Insurance Operations."
Despite the name of the Yellow Cab "owner-operator program," taxi drivers
participating in the program do not take ownership of the vehicles, unless they
exercise their option to purchase the vehicle
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at the end of the initial lease term. Nevertheless, independent operators take
responsibility for the maintenance and storage of their vehicles and are
responsible for compliance with all City of Chicago and Yellow Cab regulations.
Thus, Yellow Cab is relieved of these maintenance and repair costs as well as
the cost of housing and storing this significant portion of its large fleet.
And, even though the operators may take ownership of the vehicle, Yellow Cab
retains ownership of the medallion.
As Yellow Cab has increased its emphasis on the more profitable
owner-operator program, its daily lease program has been used largely as a
source and training operation for new owner-operators. Through a "new licensee
introductory offer," recipients of new chauffeurs' licenses may lease a vehicle
and a car from Yellow Cab at reduced rates for the first five days following
their receipt of a license. Management believes that its greater than 90% share
of this market would be even larger, except that Yellow Cab will not lease to
persons under 23 years old even though individuals as young as 18 years old are
eligible to acquire chauffeur's licenses. Management believes that Yellow Cab
holds a greater than 75% share of the total "off-the-street" taxi leasing
market. The Company's goal has been, and continues to be, to maintain and, when
possible, increase the number of medallions leased under owner-operator
arrangements.
THE MEDALLIONS
As of February 1, 1994, Yellow Cab owned approximately 2,370 of the roughly
5,400 medallions available in the City of Chicago. In order to retain these
licenses, the Company must comply with the regulations of Chapter 9-112 of the
Municipal Code of Chicago (governing public passenger vehicles), including the
payment of annual taxicab license fees, currently $500 per vehicle.
Pursuant to a 1988 agreement with the City of Chicago to settle various
lawsuits, Yellow Cab is required to relinquish to the City of Chicago and not
renew 100 taxicab licenses on January 1 of each year through 1997 (the
"Agreement"). In addition, the Agreement limits to 100 per year the number of
new licenses that the City of Chicago may add to the total outstanding through
1997, bringing the total number of available licenses to a maximum of 5,700 on
December 31, 1997. At the required surrender rate, assuming no additional
medallions are sold by Yellow Cab, Yellow Cab would hold approximately 2,070
medallions after January 1, 1997, or approximately 36% of the maximum total
then-to-be outstanding.
The scheduled decline in the number of licenses allowed to be held by Yellow
Cab pursuant to the Agreement has had, and will continue to have, a negative
effect on the revenue-generating capability of the taxi leasing operations.
Yellow Cab has been able to offset these declines to some extent through
increases in the average lease rates charged to its customers. At the same time,
as the number of medallions held by Yellow Cab declines, Yellow Cab will require
fewer new vehicles to support its taxi leasing operations and, consequently, a
lower level of capital spending.
The Agreement has also had the effect of allowing the Company to purchase
and sell licenses in the open market for the first time since 1982. In 1993,
sales of these licenses have been recorded at prices of approximately $38,000
per medallion, and the prices realized by Yellow Cab have been consistent with
the prices realized in license sales by other, non-affiliated, medallion
holders. Although the value of Yellow Cab's fleet of vehicles is reflected on
the Company's balance sheet, the significant value of its medallions is not.
THE VEHICLE FLEET
At any given time, the number of vehicles owned by Yellow Cab is somewhat
higher than the number of medallions held because some vehicles are newly
acquired and being prepared for service or have been removed from service and
are being held for disposition or as a source of spare parts. Under Chicago
regulations, no medallion holder may operate a vehicle older than seven model
years. Each year, Yellow Cab orders new vehicles to replace those that are
expected to be removed from service during the next year. Yellow Cab has given
increased emphasis to selling its older used cars during the past several years.
Recent efforts have included a program of increased advertising and marketing,
and the development of this segment of business beyond the immediate region.
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<PAGE>
COMPETITION
Although Yellow Cab is the largest provider of taxicab related services in
Chicago, it faces competition from a number of other medallion owners who lease
medallions and vehicles to independent operators. The most significant of these
competitors are Flash Cab Company, American United and Abernathy. Yellow Cab
management believes that each of these competitors owns approximately 150 to 200
medallions although each competitor operates under a variety of individual cab
service names and logos.
LIABILITY INSURANCE
Yellow Cab currently maintains liability insurance coverage for losses of up
to $350,000 per occurrence as well as an "excess layer" of coverage for losses
over $600,000 and up to $29,000,000. The initial $350,000 layer of insurance is
issued by Country. See "Business-Insurance Operations." During several periods
in the past, Taxi and Old Yellow Cab did not maintain the level of coverage that
Yellow Cab currently maintains for any losses over $350,000 per occurrence. As a
result, there are currently nine outstanding claims against Yellow Cab for which
it is not fully covered by third-party insurance. Yellow Cab maintains balance
sheet reserves totalling $3,050,000 (estimated as of December 31, 1993) for
these claims. Management believes that these reserves will be sufficient to
cover its outstanding claims.
REGULATORY ISSUES
Yellow Cab's operations are regulated extensively by the Department of
Consumer Services of the City of Chicago which regulates Chicago taxicab
operations with regard to certain requirements including vehicle maintenance,
insurance and inspections, among others. The City Council of Chicago has
authority for setting taxicab rates of fare. Effective January 18, 1994, rates
of fare increased by 10%. However, lessors may increase the rates paid by lessee
drivers by not more than 2.8% until April 1, 1994, and thereafter may not raise
such rates at all without the consent of the City of Chicago. The City of
Chicago is required to establish rules before April 1, 1994 pursuant to which
they will hold hearings on any proposed rate increase. Yellow Cab is reviewing
the legislation with its counsel.
ENVIRONMENTAL ISSUES
Yellow Cab owns ten parcels of real estate, all situated in the City of
Chicago. Some of these sites have previously been used for the storage and
servicing of taxicabs and some of the sites continue to be so used. These sites,
therefore, involve gasoline and oil underground storage tanks which may create a
hazardous waste product if the tanks on any parcel now leak or have in the past
leaked.
Yellow Cab has registered all of its underground tanks with the Office of
the State Fire Marshall for the State of Illinois pursuant to Ill. Admin. Code
tit. 41, Part 170, and has secured site assessments from environmental engineers
and consultants concerning the nature and extent of any hazardous discharge.
Under the Illinois Underground Storage Tank Fund Law, Ill. Rev. Stat. ch.
111-1/2, para. 1022.13, virtually all clean-up costs associated with leaking
tanks are covered by a guaranty fund, which is administered by the Illinois
Environmental Protection Agency and reimburses these costs except for the first
$10,000 per site. Even assuming reimbursement is denied or unavailable from this
guaranty fund, the Company believes that the liability for clean-up expenses on
sites which have not already been cleaned up will not be material.
INSURANCE OPERATIONS
American Country Insurance Company, a wholly-owned subsidiary of Checker,
L.P., historically concentrated solely on underwriting affiliated taxi
liability, collision and workers' compensation insurance. During the past seven
years, however, Country has expanded its operating focus to include underwriting
non-affiliated personal and commercial property/casualty lines. During 1993 and
1992, 67% of Country's total premium revenue was attributable to nonaffiliated
property and casualty lines.
Country is one of the few voluntary providers of taxi liability insurance in
the industry. Most insurers which have previously written taxi insurance
coverage on a voluntary basis experienced poor underwriting results and have
withdrawn from the business. Management believes that Country's longstanding
34
<PAGE>
relationship with Yellow has provided it with a stable market for this type of
coverage and has enabled it to develop a comprehensive understanding of the
business and to assess more properly the associated risk.
The taxicab liability coverage which Country writes carries a $350,000 limit
of liability for each driver. In addition, Country makes collision insurance
available to licensees and owner-operators at premium rates which are favorable
relative to the rates charged by competitors for equivalent coverage. Country
also writes full lines of commercial and personal property and casualty
insurance for risks located in the City of Chicago and the surrounding
metropolitan area. With the exception of a specialty public transportation
program, which program policies are reinsured for amounts above $350,000, all
non-affiliate policies are reinsured for amounts above $150,000.
During 1993, new management was brought into Country to review and manage
its lines of business with a view to dropping or reducing its exposure in
certain lines, to focus on expanding Country's operations within its geographic
region, and to review its investment portfolio. Country intends to limit its
exposure by not writing in excess of twice the amount of its statutory surplus,
which the Company believes to be a conservative approach.
Country is domiciled in the State of Illinois and is a licensed carrier in
Michigan as well as being admitted as an excess and surplus lines carrier in 36
other states. To the best of management's knowledge, Country is in compliance
with all applicable statutory requirements and regulations.
INFORMATION CONCERNING INDUSTRY SEGMENTS
Certain financial data with respect to the Company's industry segments
appear in Note O of Notes to Consolidated Financial Statements -- December 31,
1992 and are incorporated herein by reference.
The table below sets forth the amount and approximate percentage share of
the Company's operating profit (loss) by each of the four business segments, for
the nine months ended September 30, 1993. Operating profit is gross profit less
selling, general and administrative expenses.
<TABLE>
<CAPTION>
APPROXIMATE %
OF TOTAL
OPERATING PROFIT COMPANY
BUSINESS SEGMENT (IN THOUSANDS) OPERATING PROFIT
- ------------------------------ ---------------- ----------------
<S> <C> <C>
Truck Trailer Operations...... $ 21,699 65.6
Automotive Operations......... 12,037 36.4
Vehicular Operations.......... 4,450 13.4
Insurance Operations.......... (1,890) (5.7)
-------- -----
Subtotal...................... $ 36,296 109.7
Corporate Expenses............ (3,198) (9.7)
-------- -----
Total......................... $ 33,098 100.0
-------- -----
-------- -----
</TABLE>
EMPLOYEES AND LABOR RELATIONS
As of December 31, 1993, the Company employed a total of approximately 5,055
people. The chart below details the number of persons employed as of that date
in each of the Company's industry segments:
<TABLE>
<CAPTION>
ADMINISTRATIVE
HOURLY AND EXECUTIVE
----------- -----------------
<S> <C> <C>
Truck Trailer Manufacturing Operations.................................................. 3,265 546
Automotive Products Operations.......................................................... 697 142
Vehicular Operations.................................................................... 228 21
Insurance Operations.................................................................... 8 148
</TABLE>
Approximately 286 employees in the Company's automotive products operations,
295 in the Company's truck trailer manufacturing operations and 63 in the
Company's vehicular operations are covered by collective bargaining agreements.
During 1993, Checker L.P. entered into a new contract with the
35
<PAGE>
Allied Industrial Workers of America, AFL-CIO, Local 682 in Kalamazoo, currently
known as Local Union No. 7682 of The United Paperworkers International Union,
AFL-CIO, which expires in May 1996. Checker L.P. is party to a contract with
D.U.O.C. Local 777, a division of National Production Workers of Chicago and
Vicinity, Local 777, which expires in November 1995. During February 1993, Great
Dane Trailers, Tennessee, Inc., a subsidiary of Great Dane, negotiated a new
contract (expiring in January 1996) with Talbot Lodge NO. 61 of the
International Association of Machinists and Aerospace Workers. In general, the
Company believes its relationship with its employees to be satisfactory.
Although there have been attempts to unionize various of the Company's divisions
in the past few years, including SCSM and the Great Dane plant in Brazil,
Indiana, such attempts have, to date, been unsuccessful.
PROPERTIES
The Company, a Florida corporation, currently maintains its principal
executive offices at Checker L.P.'s facility at 2016 North Pitcher Street,
Kalamazoo, Michigan 49007.
The location and general description of the principal properties owned or
leased by the Company are as follows:
<TABLE>
<CAPTION>
OWNED OR LEASED;
IF LEASED,
LOCATION TYPE OF FACILITY AREA EXPIRATION YEAR
- ----------------------------- ------------------------------- ----------------------------- ------------------
<S> <C> <C> <C>
TRUCK TRAILER MANUFACTURING
OPERATIONS:
Savannah, Georgia............ Manufacturing Plant and Office 61 acres (including 455,000 Owned
sq. ft. mfg./ office bldg.)
Brazil, Indiana.............. Manufacturing Plant and Office 80 acres (including 564,000 Owned
sq. ft. mfg./ office bldg.)
Memphis, Tennessee........... Manufacturing Plant 8 acres (including 107,000 Leased; 2003
sq. ft. mfg.)
3.5 acres (including 13,000 Owned
sq. ft. mfg.)
Wayne, Nebraska.............. Manufacturing Plant and Office 35 acres (including 179,000 Owned
sq. ft. mfg./ office bldg.)
14 Locations in 10 States.... Sales and Service Branches 98 acres (including buildings Owned
aggregating 303,000 sq. ft.)
13 Locations in 8 States..... Sales and Service Branches 28 acres (including buildings Leases expiring
aggregating 198,000 sq. ft.) 1994 to 2015
AUTOMOTIVE PRODUCTS OPERATIONS:
Kalamazoo, Michigan.......... Manufacturing Plant and Office 71 acres (including 750,000 Owned
sq. ft. mfg./ office bldg.)
South Charleston, Manufacturing Plant and Office 922,000 sq. ft. (mfg./ office Leased; 2028
West Virginia bldg.)
VEHICULAR OPERATIONS:
Chicago, Illinois(13 Garages, Parking Lots and Approximately 735,000 sq. ft. Owned
Locations).................. Offices (including garage/ office
facilities)
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
OWNED OR LEASED;
IF LEASED,
LOCATION TYPE OF FACILITY AREA EXPIRATION YEAR
- ----------------------------- ------------------------------- ----------------------------- ------------------
<S> <C> <C> <C>
INSURANCE OPERATIONS:
Chicago, Illinois (3 Offices/Storage Facility 33,000 sq. ft. Leased; 2002
Locations)..................
</TABLE>
One of the properties owned by Yellow Cab is under contract for sale at a
price of $400,000, subject to the completion of due diligence by the purchaser.
The closing is currently scheduled for April 1, 1994.
The principal facilities owned by the Company and its subsidiaries are
considered by the Company to be well maintained, in good condition and suitable
for their intended use.
LEGAL PROCEEDINGS
EXECUTIVE LIFE LITIGATION
By order of the Superior Court of Los Angeles County on April 11, 1991 (the
"California Order"), the California State Insurance Commissioner was appointed
Conservator for ELIC, a limited partner in Checker L.P. By letter dated May 20,
1991, Motors and Checker L.P. advised ELIC and the Conservator that the
appointment of the Conservator pursuant to the California Order constituted an
"Event of Default" under the Partnership Agreement, and that, therefore, ELIC's
rights under the Partnership Agreement and interest in Checker L.P. were
altered. More specifically, Motors and Checker L.P. asserted that ELIC's rights,
as of April 11, 1991, were limited to the right to receive a payout of its
capital account, calculated as of that date, in quarterly installments over
approximately a 23-year period. By letter dated June 28, 1991, the Conservator
notified Motors and Checker L.P. that he did not accept the position set forth
in the May 20 letter.
The Checker entities and the Conservator have been in litigation for almost
three years, each seeking, among other things, a declaration of its rights under
the Partnership Agreement. The Company has offered to redeem ELIC's interest in
Checker L.P. and SCSM for $32,000,000, to be paid upon consummation of this
Offering. The Conservator has not yet responded to this offer.
BOEING LITIGATION
On February 8, 1989, the Boeing Company ("Boeing") filed a lawsuit naming
the Company, together with three prior subsidiaries of the Company, as
defendants in Case No. CV89-119MA, United States District Court for the District
of Oregon. In that lawsuit, Boeing sought damages and declaratory relief for
past and future costs resulting from alleged groundwater contamination at a
location in Gresham, Oregon, where the three prior subsidiaries of the Company
formerly conducted business operations. On December 22, 1993, the Company
entered into a settlement with Boeing, settling all claims asserted by Boeing in
the lawsuit. Pursuant to the settlement terms, the Company will pay Boeing $12.5
million over the course of five years, a portion of which is expected to be
provided by certain insurance companies. In accordance with the settlement
agreement, Boeing will move to dismiss its claims against the Company and the
three former subsidiaries and will release and indemnify the Company with
respect to certain claims.
37
<PAGE>
CERTAIN ENVIRONMENTAL MATTERS
Within the past five years, Great Dane and Motors have entered into certain
consent decrees with federal and state governments relating to the cleanup of
waste materials. The aggregate obligations of Great Dane and Motors pursuant to
these consent decrees are not material.
In May 1988, the Company sold all of the stock of its subsidiaries, Datron
Systems, Inc. ("Datron") and All American Industries, Inc., and in connection
therewith agreed to indemnify the purchaser for, among other things, certain
potential environmental liabilities. The purchaser has asserted various claims
for indemnification and commenced litigation in Connecticut with respect to
alleged contamination at a manufacturing facility owned by a former second-tier
subsidiary. The court denied certain of the purchaser's claims and others were
dismissed with prejudice. The balance of the claims for reimbursement of
monitoring and clean up costs were dismissed without prejudice and the Company
is discussing with the purchaser the resolution of approximately $625,000 in
claims previously submitted by the purchaser for cleanup and monitoring costs at
the facility, as well as its responsibility for future costs. The Company does
not believe that its obligations will be material. The purchaser has also put
the Company on notice of certain other alleged environmental and other matters
for which it intends to seek indemnification as costs are incurred. The Company
does not believe that its obligations, if any, to pay these claims will be
material.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the name, age and principal position or
occupation of the executive officers and directors of the Company as of February
10, 1994:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------------------------- ----------- --------------------------------------
<S> <C> <C>
David R. Markin............................................... 62 President, Chief Executive Officer and
Director
Allan R. Tessler.............................................. 57 Chairman of the Board
Martin L. Solomon............................................. 57 Vice Chairman and Secretary
Wilmer J. Thomas, Jr.......................................... 67 Vice Chairman
Jay H. Harris................................................. 57 Executive Vice President and Chief
Operating Officer
Marlan R. Smith............................................... 50 Treasurer
Willard R. Hildebrand......................................... 54 President and Chief Executive Officer
of Great Dane
Larry D. Temple............................................... 47 Group Vice President of Motors
Jeffrey M. Feldman............................................ 43 President of Yellow
</TABLE>
BIOGRAPHICAL INFORMATION
David R. Markin, President and Chief Executive Officer of the Company since
January 11, 1989, has been President and Chief Executive Officer of Motors since
1970. Mr. Markin serves on the Boards of Directors of Jackpot Enterprises, Inc.,
an operator of gaming machines, Enhance Financial Services Group, Inc., a
reinsurance company, and Data Broadcasting Corp., a provider of market data
services to the investment community.
Allan R. Tessler, Chairman of the Board of the Company since January 11,
1989, is also Chairman of the Boards of Directors of International Financial
Group, Inc., a merchant banking firm ("IFG"), Enhance Financial Services Group,
Inc., a reinsurance company, and Allis-Chalmers Corporation, a manufacturer of
miscellaneous fabricated textile products ("Allis-Chalmers"), and is Chief
Executive Officer of IFG and Allis-Chalmers. Mr. Tessler serves on the Boards of
Directors of Jackpot Enterprises, Inc., an operator of gaming machines, and The
Limited, Inc., a manufacturer and retailer of apparel. Mr. Tessler is also an
38
<PAGE>
attorney and from 1976 through 1988, he was a member of the Executive Committee
of the law firm of Shea & Gould; from 1989 through March 1, 1993, he was of
counsel to that firm. Beginning in 1990, Mr. Tessler and another person were
retained by Infotechnology, Inc. and Financial News Network Inc. as a
restructuring team and to serve as Co-Chief Executive Officers during the
restructuring of those companies. As part of the plan implemented by the
restructuring team, those companies were placed in bankruptcy, from which they
emerged in 1992 as Data Broadcasting Corp., a provider of market data services
to the investment community. Mr. Tessler continues to serve as Co-Chairman of
the Board and Co-Chief Executive Officer of the restructured company.
Martin L. Solomon, Vice Chairman and Secretary of the Company since January
11, 1989, is a private investor. Mr. Solomon was employed as a securities and
portfolio analyst at Steinhardt Partners, an investment firm, from 1985 through
1987. From 1988 through September 1990, he was the Managing Partner and Director
at Value Equity Associates I, Limited Partnership, an investment firm. Mr.
Solomon serves on the Board of Directors of Xtra Corporation, a truck leasing
company.
Wilmer J. Thomas, Jr., Vice Chairman of the Company since January 11, 1989,
is a private investor. Mr. Thomas served as Treasurer of the Company from
January 1989 to January 1994. Mr. Thomas serves on the Boards of Directors of
Moore Medical Corp., a pharmaceutical and surgical supply company, and Oak Hills
Sportswear Corp., a clothing company.
The executive officers of the Registrant, in addition to Messrs. Markin,
Tessler, Solomon and Thomas, are:
Jay H. Harris has been Executive Vice President and Chief Operating Officer
of the Company for more than the past five years and a Vice President of Motors
since May 1991. Mr. Harris was a director of the Company from 1978 until January
11, 1989.
Marlan R. Smith has been Treasurer of the Company since January 1994 and
Vice President and Treasurer of Motors since March 1988. Prior to being elected
Treasurer of the Company, he served as Assistant Treasurer since January 1989.
Willard R. Hildebrand, was elected as President and Chief Executive Officer
of Great Dane effective January 1, 1992. Mr. Hildebrand had served as President
and Chief Operating Officer of Fiatallis North America, Inc., a manufacturer of
heavy construction and agricultural equipment, for more than five years prior
thereto.
Larry D. Temple, has been Group Vice President of Motors since September
1989. Mr. Temple served as Vice President of Manufacturing from 1988 to 1989
and, prior thereto, as Assistant Vice President of Manufacturing.
Jeffrey M. Feldman, nephew of David R. Markin, has been President of Yellow
Cab since 1983.
All directors of the Company hold office until the next annual meeting of
stockholders of the Company or until their successors are elected and qualified.
The Company's officers are elected annually by the Board and hold office until
their successors are qualified and chosen.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Each of Messrs. Markin, Solomon, Tessler and Thomas is an executive officer
of the Company and participates, as a director, in the deliberations concerning
executive officer compensation. During 1993 Mr. Markin served on the
compensation committee of Enhance Financial Services Group, Inc., Ameriscribe
Corp. and Data Broadcasting Corp. and Mr. Tessler served as an executive officer
of each of these companies.
As of December 31, 1993, Country holds $0.9 million principal amount of
Enhance Financial Services Group, Inc., 7% Notes due December 1, 1996.
39
<PAGE>
During 1993, 1992 and 1991, the Company used, on a month-to-month basis, an
airplane owned by a corporation of which Mr. Tessler is the sole shareholder.
The Company paid $60,000 per month for such use.
Each of Messrs. Markin, Solomon, Tessler and Thomas provides consulting
services to Yellow Cab and each receives for such services (commencing in
January 1988) $10,000 per month. Messrs. Solomon, Thomas and Tessler also
provide consulting services (a) to Motors for which they each receive monthly
fees of $5,000 (commencing in January 1988) and (b) to Country for which they
each received monthly fees of approximately $18,300 in each of 1993, 1992 and
1991. Mr. Markin serves as a consultant to Chicago AutoWerks, a division of
Checker L.P., for which he receives monthly fees of approximately $1,200
(commencing in January 1988), and to Country, for which he receives monthly fees
of approximately $4,600.
During 1991, 1992, and until March 1, 1993, Mr. Tessler was of counsel to
Shea & Gould, a law firm retained by the Company for certain matters.
Frances Tessler, the wife of Allan R. Tessler, is employed by Smith Barney
Shearson which executes trades for Country's investment portfolio. During 1993
and 1992, Mrs. Tessler received for her services approximately $78,000 and
$69,000, respectively, of the commissions paid to Smith Barney Shearson.
On September 24, 1992, American Country Financial Services Corp. ("AFSC"), a
subsidiary of Country, purchased from The Mid City National Bank of Chicago the
promissory note dated July 30, 1992, made by King Cars, Inc. ("King Cars") in
the principal amount of $381,500 plus accrued interest in the amount of $3,560.
On September 24, 1992, the King Cars note purchased by AFSC was paid and a new
note dated September 24, 1992 and payable on January 30, 1993, in the principal
amount of $398,482 bearing interest at the rate of 6.5% per annum was executed
and delivered by King Cars to AFSC. On January 30, 1993, the note was renewed in
the principal amount of $407,691 with a maturity date of May 30, 1993. On
November 30, 1993 the note, then in the principal amount of $416,524, was once
again renewed, with a maturity date of December 31, 1994. King Cars is owned by
Messrs. Markin, Tessler, Solomon, Thomas and Feldman. King Cars is a party to an
agreement dated December 15, 1992, with Yellow Cab pursuant to which Yellow Cab
purchases from King Cars display frames for installation in its taxicabs and
King Cars furnishes Yellow Cab advertising copy for insertion into the frames.
King Cars receives such advertising copy as an agent in Chicago for an unrelated
company which is in the business of selling and arranging for local and national
advertising. Of the revenues generated from such advertising, 30% will be
retained by King Cars and the balance will be delivered to Yellow Cab until such
time as Yellow Cab has recovered costs advanced by it for the installation of
advertising frames in 500 of its taxicabs (approximately $78,000). The terms to
Yellow Cab are the same or more favorable than those offered by King Cars to
unrelated third parties.
Each of Messrs. Markin, Solomon, Tessler and Thomas received interest
payments of $704,795 in 1993, $733,356 in 1992 and $897,637 in 1991 pursuant to
the terms of the Company's senior notes held by them (See Note G of the Notes to
Consolidated Financial Statements -- December 31, 1992).
40
<PAGE>
COMPENSATION
The following table sets forth the 1993 annual compensation for the
Company's Chief Executive Officer and the five highest paid executive officers,
as well as the total compensation paid to each individual for the Company's two
previous fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION
- -------------------------------------------- --------- ------------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C>
David R. Markin, ........................... 1993 $ 1,230,000 $ 250,000 $ 246,519(1) $ 2,249(4)
President, Chief Executive 1992 1,230,000 150,000 239,594(1) 2,182(4)
Officer and Director 1991 1,230,000 0 258,072(1) 915(4)
Jay H. Harris, ............................. 1993 350,000 250,000 0 2,249(4)
Executive Vice President and 1992 326,016 125,000 0 2,182(4)
Chief Operating Officer 1991 302,032 50,000 0 915(4)
Jeffrey M. Feldman, ........................ 1993 210,000 150,000 85,008(2) 2,249(4)
President of Yellow 1992 186,667 150,000 77,755(2) 2,182(4)
1991 138,906 150,000 53,328(2) 659(4)
Martin L. Solomon, ......................... 1993 0 0 400,000(3) 0
Vice Chairman and Secretary 1992 0 0 400,000(3) 0
1991 0 0 405,000(3) 0
Allan R. Tessler, .......................... 1993 0 0 400,000(3) 0
Chairman of the Board 1992 0 0 400,000(3) 0
1991 0 0 405,000(3) 0
Wilmer J. Thomas, Jr., ..................... 1993 0 0 400,000(3) 0
Vice Chairman and 1992 0 0 400,000(3) 0
Treasurer 1991 0 0 405,000(3) 0
<FN>
- --------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
(1) Other compensation
for Mr. Markin includes: 1993 1992 1991
-------- -------- --------
Consulting Fees........... $190,000 $190,000 $195,000
Life Insurance.......... 41,027 37,023 40,527
Automobile.............. 8,125 5,100 15,400
Club dues............... 7,367 7,471 7,145
-------- -------- --------
$246,519 $239,594 $258,072
-------- -------- --------
-------- -------- --------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
(2) Other compensation
for Mr. Feldman includes: 1993 1992 1991
--------- --------- ---------
Consulting Fees................ $ 57,000 $ 57,000 $ 40,000
Life Insurance............... 11,253 10,739 7,861
Automobile................... 1,748 1,537 1,481
Club dues.................... 15,007 8,479 3,986
--------- --------- ---------
$ 85,008 $ 74,755 $ 53,328
--------- --------- ---------
--------- --------- ---------
(3) Consulting fees.
(4) Matching contributions under the Partnership 401(k) plan.
</TABLE>
41
<PAGE>
EMPLOYMENT AGREEMENTS
Checker L.P., as the assignee of Motors, is party to an Amended and Restated
Employment Agreement dated as of November 1, 1985, as further amended, with
David R. Markin pursuant to which Mr. Markin is to serve as President, Chief
Executive Officer and Chief Operating Officer of Checker L.P. until March 31,
1996, subject to extension, at a minimum salary of $600,000 per annum, together
with the payment of certain insurance premiums, the value of which have been
included in the Summary Compensation Table above, and the beneficiaries of which
have been designated by Mr. Markin. Mr. Markin continues to be eligible to
participate in profit sharing, pension or other bonus plans of Checker L.P.
Pursuant to the Amended and Restated Employment Agreement, in the event of Mr.
Markin's death, the Company shall pay Mr. Markin's estate the compensation which
would otherwise be payable to him for the period ending on the last day of the
month in which death occurs. In addition, the Company shall pay to Mr. Markin's
beneficiaries deferred compensation from the date of his death through March 31,
1996, in an annual amount equal to one-third of his base salary at the date of
his death. In the event of termination of the Amended and Restated Employment
Agreement for any reason other than cause, disability or death, Mr. Markin shall
continue to serve as a consultant to the Company for a period of five years, for
which he shall receive additional compensation in the amount of $50,000 per
annum. Checker L.P. has agreed to indemnify Mr. Markin from certain liabilities
arising out of his service to Checker L.P., except for liabilities resulting
from his gross negligence or willful misconduct. Effective January 1, 1994, Mr.
Markin and the Company memorialized in writing their agreement, pursuant to
which Mr. Markin has been compensated by the Company since January 11, 1989, on
substantially the same terms as are set forth above.
The Company entered into an employment agreement as of July 1, 1992, with
Jay H. Harris pursuant to which Mr. Harris serves as Executive Vice President
and Chief Operating Officer of the Company until June 30, 1994, subject to
extension, at a minimum salary of $350,000 per annum, an incentive bonus to be
determined by the Board of Directors, and such other fringe benefits and plans
as are available to other executives of the Company. Upon the happening of
certain events, including a change in control (as defined therein) of ICC or
retirement after June 30, 1994, Mr. Harris is entitled to compensation in an
amount equal to the greater of (a) five percent of the increase in the Company's
retained earnings, subject to certain adjustments, during the period commencing
on March 31, 1992, and ending on the last day of the month preceding the event
which triggers the payment (the "Termination Payment") and (b) 2.99 times his
then base. If Mr. Harris were to leave the Company before July 1, 1994, or if he
were to die or become disabled, he or his estate would receive the greater of
(a) one year's base compensation or (b) the Termination Payment. Payments in
either case would be made over a period of time, the length of which would be
dependent on the amount due to Mr. Harris. Mr. Harris has agreed to serve as a
consultant to the Company during the first year after termination for no
compensation beyond his expenses incurred in connection with rendering such
services. The Company has agreed to indemnify Mr. Harris to the full extent
allowed by law. Motors has guaranteed the Company's obligations.
[Description of Mr. Feldman's employment agreement to be added]
COMPENSATION PURSUANT TO PLANS
GREAT DANE PENSION PLAN
Great Dane has in effect a defined benefit employee pension plan entitled
Retirement Plan For Great Dane Trailers, Inc. (the "Retirement Plan") covering
substantially all of its employees. Pension benefits are subject to limitations
imposed by the Internal Revenue Code of 1986, as amended, and the Employee
Retirement Income Security Act of 1974, as amended, with respect to the annual
amount of benefits provided by employer contributions.
Effective as of July 1, 1988, the assets and the liabilities attributable to
active and former employees under the Amended and Restated International
Controls Corp. Pension Plan as of June 30, 1988 were transferred to the
Retirement Plan and the Company adopted the Retirement Plan for the benefit of
its employees. With respect to benefits accruing after June 30, 1984, to a
participant who was a participant under the Amended and Restated International
Controls Corp. Pension Plan as of June 30, 1988, the
42
<PAGE>
following table shows the estimated annual benefits payable upon retirement at
age 65 under the plan to specified average annual compensation and years of
benefit service classifications. The following amounts would be reduced by a
Social Security offset:
<TABLE>
<CAPTION>
YEARS OF BENEFIT SERVICE
-----------------------------------------------------------
AVERAGE ANNUAL COMPENSATION 1 5 10 15 20
- ---------------------------------------------------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$100,000............................................ $ 2,000 $ 10,000 $ 20,000 $ 30,000 $ 40,000
150,000............................................ 3,000 15,000 30,000 45,000 60,000
200,000............................................ 4,000 20,000 40,000 60,000 80,000
250,000............................................ 5,000 25,000 50,000 75,000 100,000
300,000............................................ 5,000 25,000 60,000 90,000 115,641*
400,000............................................ 5,000 25,000 80,000 115,641* 115,641*
500,000............................................ 5,000 25,000 100,000 115,641* 115,641*
<FN>
- --------------
* Maximum permitted in 1993
</TABLE>
Mr. Harris has an aggregate of 24 years of benefit service under the Retirement
Plan (8 years) and the Amended and Restated International Controls Corp. Pension
Plan (16 years) and will receive benefits of approximately $74,000 per year at
age 65.
PARTNERSHIP PENSION AND EXCESS BENEFIT PLANS
Checker L.P. maintains a defined benefit employee pension plan entitled
Checker Motors Pension Plan (the "Pension Plan") covering substantially all of
its non-union employees, and, effective January 1, 1992, the employees of the
Company.
Checker L.P. also maintains the Checker Motors Co., L.P. Excess Benefit
Retirement Plan (the "Excess Benefit Plan"). An employee of Checker L.P. will
become a participant in the Excess Benefit Plan if the benefits which would be
payable under the Pension Plan are not fully provided thereunder because of the
annual maximum benefit limitations of Section 415 of the Internal Revenue Code
of 1986, as amended. The amount that the participant is entitled to receive
under the Excess Benefit Plan is an amount equal to the amount that would have
been payable under the Pension Plan if Section 415 did not apply, minus the
amount that is actually payable under the Pension Plan. At the present time,
David R. Markin and Jeffrey M. Feldman are the only individuals named above who
would receive benefits under the Excess Benefit Plan. Considered compensation
under the Excess Benefit Plan is limited to $300,000.
Set forth below are the estimated annual benefits for participants in the
Pension Plan (including benefits payable under the Excess Benefit Plan) who have
been employed by Checker L.P. and its predecessors for the indicated number of
years prior to retirement, assuming retirement at age 65 in 1993:
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFITS FOR YEARS OF SERVICE INDICATED
-----------------------------------------------------------
AVERAGE COMPENSATION (AS DEFINED IN PLAN) 10 20 30 40 45
- --------------------------------------------------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$100,000........................................... $ 13,950 $ 28,756 $ 47,024 $ 66,159 $ 75,870
150,000........................................... 21,450 46,256 74,524 103,659 118,370
200,000........................................... 28,950 63,756 102,024 141,159 160,870
250,000........................................... 36,450 81,256 129,524 178,659 203,370
300,000........................................... 43,950 98,756 157,024 216,159 245,870
400,000........................................... 43,950 98,756 157,024 216,159 245,870
500,000........................................... 43,950 98,756 157,024 216,159 245,870
</TABLE>
The above benefit projections were prepared on the assumption that the
participant made participant contributions to the Pension Plan for all years in
which he was eligible to contribute, and that Social Security covered
compensation is $1,750. The benefit projection would be reduced by a Social
Security offset.
43
<PAGE>
For those executive officers named above, the following are credited years
of service under the Pension and Excess Benefit Plans and 1993 salary covered by
the Pension Plan:
<TABLE>
<CAPTION>
CREDITED YEARS OF EXPECTED CREDITED YEARS OF 1993 SALARY COVERED
SERVICE SERVICE AT 65 BY PENSION PLAN
------------------- ----------------------------- --------------------
<S> <C> <C> <C>
David R. Markin................................. 39 41 $ 235,840
Jay H. Harris................................... 2 10 235,840
Jeffrey M. Feldman.............................. 15 37 235,840
</TABLE>
SALARY CONTINUATION PLAN
Motors entered into Stated Benefit Salary Continuation Agreements (the
"Agreements") with certain officers and employees (the "Salary Plan") pursuant
to which such participants will receive benefits upon attaining age 65 (or their
beneficiaries will receive benefits upon their death prior to or within 120
months after such executives or employees attain age 65). Motors' obligations
pursuant to the Salary Plan were assumed by Checker L.P. in 1986.
For those executive officers named above, the following table sets forth the
benefits payable pursuant to the Salary Plan:
<TABLE>
<CAPTION>
ANNUAL SURVIVOR
ANNUAL BENEFIT BENEFIT PAYABLE TOTAL
PAYABLE UPON TOTAL BENEFIT UPON DEATH PRIOR SURVIVORSHIP
ATTAINING AGE PAYABLE OVER TO ATTAINING AGE BENEFIT PAYABLE
65 THE YEARS 65 OVER THREE YEARS
--------------- -------------- ---------------- -----------------
<S> <C> <C> <C> <C>
David R. Markin........................... $ 240,000 $ 2,400,000 $ 368,000 $ 1,104,000
Jeffrey M. Feldman........................ $ 19,950 $ 199,500 $ 79,800 $ 239,400
</TABLE>
COMPENSATION OF DIRECTORS
The directors did not receive any fees for their services as directors in
1993. See "Compensation Committee Interlocks and Insider Participation."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Jeffrey M. Feldman is the nephew of David R. Markin.
An officer of Motors owns the stock of Checker Taxi Association, an
independent affiliation of medallion owners including approximately 1100
independent owners. The Company received revenues of approximately $4.4 million
in 1993, $3.3 million in 1992 and $2.6 million in 1991 from Checker Taxi
Association, which amount includes reimbursement of certain management, general
and administrative costs. The officer received $5,100 as a director's fee from
Checker Taxi Association but did not receive any dividends or other compensation
therefrom.
Motors has guaranteed certain of Checker Taxi Association's obligations. The
outstanding principal balance of these obligations was approximately $0.7
million, as of December 31, 1993.
Checker L.P. has borrowed $2.5 million from Country, which loan is secured
by certain of Checker L.P.'s property.
See also "Compensation Committee Interlocks and Insider Participation."
44
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Common Stock, which is the only class of stock of the Company, is owned
as follows:
<TABLE>
<CAPTION>
NO. OF SHARES OF COMMON
STOCK OF RECORD AND PERCENT OF
NAME BENEFICIALLY OWNED CLASS
- ------------------------------ ----------------------- ----------
<S> <C> <C>
David R. Markin............... 2,936,927.5 32.5
Martin L. Solomon............. 2,033,257.5 22.5
Allan R. Tessler.............. 2,033,257.5 22.5
Wilmer J. Thomas, Jr.......... 2,033,257.5 22.5
-----
100.0%
-----
-----
</TABLE>
The address of each of the shareholders is c/o International Controls Corp.,
2016 North Pitcher Street, Kalamazoo, Michigan 49007.
DESCRIPTION OF NEW CREDIT FACILITY
GENERAL
The following is a summary of the anticipated material terms and conditions
of the New Credit Facility. This summary does not purport to be a complete
description of the New Credit Facility and is subject to the detailed provisions
of the Loan and Security Agreement (the "Loan Agreement") and the various
related documents to be entered into in connection with the New Credit Facility.
A draft copy of the Loan Agreement will be filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The completion of the
offering of the Notes is subject to the simultaneous consummation of the New
Credit Facility.
Concurrently with the issuance of the Notes, the Company and the Subsidiary
Guarantors will enter into the New Credit Facility. The New Credit Facility will
consist of a five-year term loan facility (the "Term Facility") of $60,000,000
and a five-year revolving credit facility (the "Revolving Facility") of up to
$115,000,000 (including a $15,000,000 subfacility for letters of credit, subject
to the Company's ability to meet certain financial tests). The New Credit
Facility will be guaranteed by the Subsidiary Guarantors and such guarantees
will be secured by substantially all of the assets of the Subsidiary Guarantors.
In connection with the New Credit Facility, NBD Bank, N.A. intends to form a
syndicate of one or more additional lenders (the "Lenders") for which NBD will
serve as agent ("Agent").
Permissible levels of borrowing under the Revolving Facility will be
determined based on monthly amounts of eligible inventory and accounts
receivable (collectively, "Borrowing Base Requirements"). It is anticipated
that, upon consummation of the New Credit Facility, the Term Facility will be in
the full principal amount of $60,000,000 and the initial borrowings under the
Revolving Facility will be approximately $34,776,000. All of the initial
borrowings under the New Credit Facility will be concurrently loaned by the
Company to the Subsidiary Guarantors to provide for repayment of existing
indebtedness. Management estimates that, upon consummation of the New Credit
Facility, Borrowing Base Requirements would permit additional borrowings under
the Revolving Facility of at least $47,500,000, subject to the Company's ability
to meet certain financial tests.
AMORTIZATION; PREPAYMENTS
The Term Facility will require quarterly amortization payments based on a
seven-year amortization schedule, commencing three months from the closing date
and continuing until maturity, at which time all amounts outstanding under the
New Credit Facility become due and payable.
INTEREST RATES; FEES
During the first 180 days after the closing of the New Credit Facility,
amounts outstanding under the New Credit Facility will bear interest at a rate
per annum equal to the lower of the LIBO Rate of interest ("LIBOR") plus 3.00%
or the Bank's prime rate (the "Prime Rate") of interest plus .50%. Thereafter,
amounts outstanding under the New Credit Facility will bear interest at a
fluctuating rate per annum
45
<PAGE>
equal, at the option of the Company, to LIBOR plus the Applicable Margin or the
Prime Rate plus the Applicable Margin. The Applicable Margin will be determined
on the basis of the Company's ratio of EBIT to Interest Expense. With respect to
the Term Facility, the Applicable Margin will range from 0% to 0.75% above the
Prime Rate and 2.25% to 3.00% above LIBOR. With respect to the Revolving Credit
Facility, the Applicable Margin will range from 0% to .50% above the Prime Rate
and from 2.00% to 2.75% above LIBOR.
In connection with the New Credit Facility, the Company will pay an unused
revolving credit fee of .375% to .50% (depending upon the achievement of certain
operating targets) per annum of the averaged unused commitments under the
Revolving Facility, an agency fee of $100,000 per annum, commencing during the
second year of the New Credit Facility, closing fees of 1.00% of the commitments
under the New Credit Facility and an arrangement fee of .50% of the commitments
under the New Credit Facility payable at closing to the Agent.
GUARANTEES AND COLLATERAL
The Company's obligations under the New Credit Facility will be guaranteed
by the Subsidiary Guarantors and secured by substantially all of the assets of
the Company and the Subsidiary Guarantors. The collateral will include
inventories, receivables, certain property, plant, equipment and other assets,
including medallions. In addition, a negative pledge will prohibit liens (with
certain exceptions) on all of the assets of the Subsidiary Guarantors.
COVENANTS
The Loan Agreement will contain certain restrictive covenants, including
various reporting requirements and financial covenants requiring levels of cash
flow, specified fixed charges coverage ratios, limits on subsidiary
indebtedness, and restrictions on the payment of dividends to the shareholders
of the Company. Other restrictive covenants will limit the incurrence of
additional indebtedness, the incurrence of liens, the acquisition or disposition
of assets outside of the ordinary course of business, in each case with certain
exceptions, or subject to the prior approval of the Lenders. After giving effect
to the transactions contemplated hereby, the Company expects to be in compliance
with the financial and other covenants described above.
EVENTS OF DEFAULT
Events of default under the Loan Agreement will include (i) any failure by
the Company to pay when due amounts owing under the New Credit Facility, (ii)
any failure to meet certain covenants in the Loan Agreement (subject, in certain
circumstances, to materiality standards and cure periods), (iii) the breach of
any representations or warranties in the Loan Agreement (subject, in certain
circumstances, to materiality standards and cure periods), (iv) any failure to
pay amounts due under certain other agreements or defaults that result in or
permit the acceleration of certain other indebtedness (including the Notes), (v)
a Change of Ownership or Control, as defined in the Loan Agreement and (vi)
certain events of bankruptcy, insolvency or dissolution.
46
<PAGE>
DESCRIPTION OF THE NOTES
The Notes offered hereby will be issued under an Indenture to be dated as of
, 1994 (the "Indenture") among International Controls Corp., a Florida
corporation and as trustee (the "Trustee"), a copy of the form of which
is filed as an exhibit to the Registration Statement of which this Prospectus is
a part. The Indenture is subject to and is governed by the Trust Indenture Act.
The following summary of the material provisions of the Indenture does not
purport to be complete, and where reference is made to particular provisions of
the Indenture, such provisions, including the definitions of certain terms, are
qualified in their entirety by reference to all of the provisions of the
Indenture and those terms made a part of the Indenture by the Trust Indenture
Act. For definitions of certain capitalized terms used in the following summary,
see "-- Certain Definitions." For purposes of this Section of the Prospectus,
the "Company" shall mean International Controls Corp. without its Subsidiaries.
GENERAL
The Notes will mature on , 2004, will be limited to $225 million
aggregate principal amount, and will be senior secured obligations of the
Company. See "-- Security," below. Each Note will bear interest from ,
1994 or from the most recent interest payment date to which interest has been
paid, payable semiannually on and , each year, commencing
, 1994, to the Person in whose name the Note (or any predecessor Note)
is registered at the close of business on the or next
preceding such interest payment date.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes will be exchangeable and transferable at the office or agency of
the Company in The City of New York maintained for such purposes; PROVIDED,
HOWEVER, that payment of interest may be made at the option of the Company by
check mailed to the Person entitled thereto as shown on the security register.
(Sections 301, 305, 1002) The Notes will be issued only in fully registered form
without coupons, in denominations of $1,000 and any integral multiple thereof.
(Section 302) No service charge will be made for any registration of transfer,
exchange or redemption of Notes, except in certain circumstances for any tax or
other governmental charge that may be imposed in connection therewith. (Section
305)
RANKING
The Notes will be senior secured obligations of the Company and, as such,
will rank PARI PASSU in right of payment with all other existing and future
senior indebtedness of the Company and senior in right of payment to all
subordinated obligations of the Company. Notwithstanding the Notes' senior
ranking, the Company will have the right to redeem annually at least $5 million,
(plus, under certain circumstances, up to an additional $5 million in any year)
in principal amount of the 14 1/2% Debentures, subject to compliance with the
Indenture and the New Credit Facility. After giving effect to the sale of the
Notes and the application of the estimated net proceeds of the Offering and the
other transactions contemplated hereby, the Company would have had $94.8 million
of indebtedness ranking PARI PASSU in right of payment with the Notes and $28.0
million (net of unamortized discount) of subordinated indebtedness outstanding
at September 30, 1993.
The Company is a holding company and, accordingly, the Notes will
effectively be subordinated to all existing and future liabilities (including
trade payables) of the Company's subsidiaries, including the guarantees by the
Subsidiary Guarantors of the Company's obligations under the New Credit
Facility. All of the Company's operations are conducted, substantially all of
the tangible assets of the Company are held by, and all of the Company's
operating revenues were derived from, operations of the subsidiaries. Therefore,
the Company's ability to make interest and principal payments when due to
holders of the Notes, or to repurchase the Notes in the event of a Change in
Control, is entirely dependent upon the receipt of sufficient funds from its
subsidiaries. The Company's subsidiaries are separate and distinct legal
entities and have no obligations, contingent or otherwise, to pay any amounts
due pursuant to the Notes or to make any funds available therefor, whether in
the form of loans, dividends or otherwise. After giving effect to the Offering
and the other transactions contemplated hereby, the subsidiaries of the Company
would have had total liabilities (including trade payables) of $271 million at
September 30, 1993.
47
<PAGE>
As a result of ICC's holding company structure, the creditors of ICC,
including the holders of the Notes, will effectively be subordinated to all
creditors of ICC's subsidiaries, including, but not limited to, trade creditors.
In addition, because the Company's obligations under the New Credit Facility are
guaranteed by the Subsidiary Guarantors and are secured by all of the assets of
the Subsidiary Guarantors, the Notes will be effectively subordinated to the
Company's obligations under the New Credit Facility. In the event of the
dissolution, bankruptcy, liquidation or reorganization of ICC, the holders of
the Notes may not receive any payments with respect to the Notes until after the
payment in full of the claims of the creditors of the Company's subsidiaries.
SECURITY
Pursuant to the Pledge Agreement, the Company will assign and pledge to the
Collateral Agent for the benefit of the holders of the Notes and the lenders
under New Credit Facility on an equal and ratable basis, a security interest in
all of the shares of capital stock of Great Dane and Motors owned by the Company
on the date of the Indenture or thereafter acquired by the Company and all
dividends, interest, cash, instruments and other property and proceeds from time
to time received, receivable or otherwise distributed in respect of or in
exchange for any of the foregoing and any account, instrument or security in
which any of the foregoing is deposited or invested, including any earnings
therein (collectively, the "Collateral").
OPTIONAL REDEMPTION
The Notes will be subject to redemption at any time on or after ,
1999, at the option of the Company, in whole or in part, on not less than 30 nor
more than 60 days' prior notice in amounts of $1,000 or an integral multiple
thereof at the following redemption prices (expressed as percentages of the
principal amount), if redeemed during the 12-month period beginning of the years
indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- --------- ---------------
<S> <C>
1999 %
2000 %
2001 %
</TABLE>
and thereafter at 100% of the principal amount, in each case together with
accrued and unpaid interest, if any, to the redemption date (subject to the
right of holders of record on relevant record dates to receive interest due on
an interest payment date).
In addition, up to 25% of the aggregate principal amount of the Notes
outstanding on the date of the Indenture will be redeemable prior to ,
1997, at the option of the Company, within 120 days of a Public Offering from
the net proceeds of such sale, in amounts of $1,000 or an integral multiple
thereof, at a redemption price equal to % of the principal amount, together with
accrued and unpaid interest, if any, to the date of redemption (subject to the
right of holders of record on relevant record dates to receive interest due on
an interest payment date), provided that $ in aggregate principal amount of
the Notes remains outstanding immediately following such redemption.
If less than all of the Notes are to be redeemed in the case of any of the
foregoing redemptions, the Trustee shall select the Notes or the portion thereof
to be redeemed pro rata, by lot or by any other method the Trustee shall deem
fair and reasonable. (See Sections 203, 1101, 1105 and 1107).
SINKING FUND
The Notes will not be entitled to the benefit of any sinking fund.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON INDEBTEDNESS. The Company will not, and will not permit any
of its Subsidiaries to, create, issue, assume, guarantee, or otherwise in any
manner become directly or indirectly liable for or with respect to or otherwise
incur (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness but including any Acquired Indebtedness) unless (i) such
Indebtedness is Indebtedness of the
48
<PAGE>
Company, Permitted Subsidiary Indebtedness or Acquired Indebtedness of a
Subsidiary and (ii) at the time of such incurrence the Consolidated Fixed Charge
Coverage Ratio for the Company for the four full fiscal quarters immediately
preceding such incurrence reflected on the Company's historical financial
statements is at least equal to 2.0:1.0 (after giving PRO FORMA effect to (a)
the incurrence of such Indebtedness and (if applicable) the application of the
net proceeds therefrom, including to refinance other Indebtedness, as if such
Indebtedness was incurred, and the application of such proceeds occurred, at the
beginning of such four-quarter period; (b) the incurrence, repayment or
retirement of any other Indebtedness by the Company and its Subsidiaries since
the first day of such four-quarter period as if such Indebtedness was incurred,
repaid or retired at the beginning of such four-quarter period (except that, in
making such computation, the amount of Indebtedness under any revolving credit
facility shall be computed based upon the average daily balance of such
Indebtedness during such four-quarter period); (c) in the case of Acquired
Indebtedness, the related acquisition (as if such acquisition had been
consummated on the first day of such four-quarter period); and (d) any
acquisition or disposition by the Company and its Subsidiaries of any company or
any business or any assets out of the ordinary course of business, whether by
merger, stock purchase or sale, or asset purchase or sale, or any related
repayment of Indebtedness, in each case since the first day of such four-quarter
period, as if such acquisition or disposition had been consummated on the first
day of such four-quarter period). (Section 1008).
LIMITATION ON RESTRICTED PAYMENTS. (a) The Company will not, and will not
permit any Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to holders
of, the Company's Capital Stock (other than dividends or distributions
payable in shares of the Company's Qualified Capital Stock or in options,
warrants or other rights to acquire such Qualified Capital Stock);
(ii) purchase, redeem or otherwise acquire or retire for value, directly
or indirectly, any Capital Stock of the Company or any Capital Stock of any
Affiliate of the Company (other than Capital Stock of any Wholly Owned
Subsidiary) or options, warrants or other rights to acquire such Capital
Stock;
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to any scheduled principal
payment, any sinking fund payment or maturity, any Subordinated
Indebtedness;
(iv) declare or pay any dividend or distribution on any Capital Stock of
any Subsidiary to any Person (other than with respect to any Capital Stock
held by the Company or any of its Wholly Owned Subsidiaries) or purchase,
redeem or otherwise acquire or retire for value any Capital Stock of any
Subsidiary held by any Person (other than the Company or any of its Wholly
Owned Subsidiaries);
(v) incur, create or assume any guarantee of Indebtedness of any
Affiliate of the Company (other than a Wholly Owned Subsidiary of the
Company); or
(vi) make any Investment in any Person (other than any Permitted
Investments);
(any of the foregoing payments described in paragraphs (i) through (vi) above,
other than any such action that is a Permitted Payment (as defined below),
collectively, "Restricted Payments") unless at the time of and after giving
effect to the proposed Restricted Payment (the amount of any such Restricted
Payment, if other than cash, as determined by the Board of Directors, whose
determination shall be conclusive and evidenced by a board resolution), (1) no
Default or Event of Default shall have occurred and be continuing and such
Restricted Payment shall not be an event which is, or after notice or lapse of
time or both, would be, an "event of default" under the terms of any
Indebtedness of the Company or its Subsidiaries; (2) immediately before and
immediately after giving effect to such transaction on a PRO
49
<PAGE>
FORMA basis, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the provisions described under "-- Limitation
on Indebtedness"; and (3) the aggregate amount of all such Restricted Payments
declared or made after the date of the Indenture does not exceed the sum of:
(A) 50% of the aggregate cumulative Consolidated Net Income of the
Company accrued on a cumulative basis during the period beginning on the
first day of the Company's fiscal quarter commencing after the date of the
Indenture and ending on the last day of the Company's last fiscal quarter
ending prior to the date of the Restricted Payment (or, if such aggregate
cumulative Consolidated Net Income shall be a loss, minus 100% of such
loss);
(B) the aggregate Net Cash Proceeds, including the Fair Market Value of
property other than cash (as determined by the Board of Directors of the
Company whose good faith determination shall be conclusive), received after
the date of the Indenture by the Company from the issuance or sale (other
than to any of its Subsidiaries) of its Qualified Capital Stock or any
options, warrants or rights to purchase such Qualified Capital Stock of the
Company (except, in each case, to the extent such proceeds are used to
purchase, redeem or otherwise retire Capital Stock or Subordinated
Indebtedness as set forth below);
(C) the aggregate Net Cash Proceeds, including the Fair Market Value of
property other than cash (as determined by the Board of Directors of the
Company whose good faith determination shall be conclusive), received after
the date of the Indenture by the Company (other than from any of its
Subsidiaries) upon the exercise of any options or warrants to purchase
Qualified Capital Stock of the Company; and
(D) the aggregate Net Cash Proceeds, including the Fair Market Value of
property other than cash (as determined by the Board of Directors of the
Company whose good faith determination shall be conclusive), received after
the date of the Indenture by the Company from debt securities or Redeemable
Capital Stock that have been converted into or exchanged for Qualified
Capital Stock of the Company to the extent such debt securities or
Redeemable Capital Stock are originally sold for cash plus the aggregate Net
Cash Proceeds, including the Fair Market Value of property other than cash
(as determined by the Board of Directors of the Company whose good faith
determination shall be conclusive), received by the Company at the time of
such conversion or exchange.
(b) Notwithstanding the foregoing, and in the case of paragraphs (ii),
(iii), (iv) and (v) below, so long as there is no Default or Event of Default
continuing, the foregoing provisions shall not prohibit the following actions
(paragraphs (i) through (iv) being referred to as a "Permitted Payment"):
(i) the payment of any dividend or distribution within 60 days after the
date of declaration thereof, if at such date of declaration such payment
would be permitted by the provisions of paragraph (a) of this Section and
such payment shall be deemed to have been paid on such date of declaration
for purposes of the calculation required by paragraph (a) of this Section;
(ii) the repurchase, redemption or other acquisition or retirement of
any shares of Capital Stock of the Company in exchange for (including any
such exchange pursuant to the exercise of a conversion right or privilege
which in connection therewith cash is paid in lieu of the issuance of
fractional shares or scrip), or out of the Net Cash Proceeds of, a
substantially concurrent issue and sale for cash (other than to a
Subsidiary) of other Qualified Capital Stock of the Company; PROVIDED that
the Net Cash Proceeds from the issuance of such shares of Qualified Capital
Stock are excluded from clause (3)(B) of paragraph (a) of this Section;
(iii) any repurchase, redemption, defeasance, retirement or acquisition
for value or payment of principal of any Subordinated Indebtedness in
exchange for, or out of the net proceeds of, a substantially concurrent
issuance and sale for cash (other than to a Subsidiary) of any Qualified
Capital Stock of the Company; PROVIDED that the Net Cash Proceeds from the
issuance of such Qualified Capital Stock are excluded from clause (3)(B) of
paragraph (a) of this Section;
50
<PAGE>
(iv) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) (a "refinancing") through
the issuance of new Subordinated Indebtedness of the Company; PROVIDED that
any such new Subordinated Indebtedness (1) shall be in a principal amount
that does not exceed the principal amount so refinanced (or, if such old
Subordinated Indebtedness provides for an amount less than the principal
amount thereof to be due and payable upon a declaration or acceleration
thereof, then such lesser amount as of the date of determination), plus the
lesser of (I) the stated amount of any premium or other payment required to
be paid in connection with such a refinancing pursuant to the terms of the
Subordinated Indebtedness being refinanced or (II) the amount of premium or
other payment actually paid at such time to refinance the Indebtedness,
plus, in either case, the amount of expenses of the Company incurred in
connection with such refinancing; (2) has an Average Life to Stated Maturity
greater than the remaining Average Life to Stated Maturity of the Notes; (3)
has a Stated Maturity for its final scheduled principal payment later than
the Stated Maturity for the final scheduled principal payment of the Notes;
and (4) such new Subordinated Indebtedness is expressly subordinated in
right of payment to the Notes at least to the same extent as the
Subordinated Indebtedness to be refinanced; and
(v) the repurchase, redemption, defeasance, retirement, refinancing or
acquisition for value (collectively, a "repurchase") of the Company's 14 1/2
Subordinated Discount Debentures due 2006 in the aggregate principal amount
of $5 million in any fiscal year; PROVIDED that (1) at the time of such
repurchase, the Company's Consolidated Fixed Charge Coverage Ratio for the
four fiscal quarters immediately preceding such repurchase reflected on the
Company's historical financial statements is at least equal to :1.0 and
(2) in the event the Company incurs Indebtedness in a transaction or series
of related transactions for the purpose of financing such repurchase, such
Indebtedness (and any refinancing thereof) has an effective interest rate,
at the time of such incurrence, not in excess of 10% per annum. (Section
1009)
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any of its Subsidiaries to, directly and indirectly, make any loan,
advance, guarantee or capital contribution to, or for the benefit of, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
for the benefit of, or purchase or lease any property or assets from, or enter
into or amend, or increase the payments by the Company or any of its
Subsidiaries under or otherwise alter the terms of, any contract, agreement or
understanding with, or for the benefit of, any Affiliate of the Company,
including pay any compensation paid to Affiliates of the Company that are
officers or employees of the Company (each, an "Affiliate Transaction") unless
(i) such Affiliate Transaction is in writing and on terms which are fair and
reasonable to the Company or such Subsidiary, as the case may be, and are at
least as favorable to the Company or such Subsidiary as the terms which could be
obtained by the Company or such Subsidiary, as the case may be, in a comparable
transaction made on an arm's-length basis with a Person who is not such an
Affiliate of the Company, (ii) with respect to any Affiliate Transaction
involving aggregate payments in excess of $2 million, the Company delivers an
officer's certificate to the Trustee certifying that such Affiliate Transaction
complies with clause (i) above and that either (A) such Affiliate Transaction
has been approved by a majority of the Disinterested Directors of the Board of
Directors who shall have determined in good faith that such Affiliate
Transaction is on terms which are fair and reasonable to the Company or such
Subsidiary, as the case may be, and are at least as favorable to the Company or
such Subsidiary as the terms which could be obtained by the Company or such
Subsidiary, as the case may be, in a comparable transaction made on an
arm's-length basis with a Person who is not such an Affiliate of the Company, or
(B) the Company has received an opinion from a qualified independent financial
adviser to the Company to the effect that such Affiliate Transaction is fair to
the Company or such Subsidiary, as the case may be, from a financial point of
view, and (iii) with respect to any Affiliate Transaction involving aggregate
payments in excess of $5 million, the Company delivers an officers' certificate
to the Trustee certifying that such Affiliate Transaction complies with clause
(i) above and both clauses (ii)(A) and (ii)(B) above; PROVIDED, HOWEVER, that
Affiliate Transactions shall not include (i) any transaction with an officer
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or member of the Board of Directors of the Company or any Subsidiary entered
into in the ordinary course of business or (ii) performance of any agreement or
arrangement in existence (written or oral) on the date of the Indenture in
accordance with its terms as in effect on such date. (Section 1010)
LIMITATION ON SALE OF ASSETS. (a) The Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, consummate an Asset Sale
unless (i) at least 75% of the proceeds from such Asset Sale are received in
cash and (ii) the Company or such Subsidiary receives consideration at the time
of such Asset Sale at least equal to the Fair Market Value of the shares or
assets sold (as determined by the Board of Directors of the Company and
evidenced in a board resolution).
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale is not
required to be applied to repay permanently any outstanding Indebtedness
outstanding under the New Credit Facility, or the Company determines not to
apply such Net Cash Proceeds to the permanent prepayment of any Indebtedness
outstanding under the New Credit Facility or such New Credit Facility
Indebtedness is no longer outstanding, then the Company may within one year of
the Asset Sale either invest or enter into a legally binding agreement to invest
the Net Cash Proceeds in properties and assets that (as determined by the Board
of Directors) replace the properties and assets that were the subject of the
Asset Sale or in properties and assets that will be used in the businesses of
the Company or its Subsidiaries existing on the date of the Indenture or
reasonably related thereto. The amount of such Net Cash Proceeds neither used to
permanently repay or prepay New Credit Facility Indebtedness nor used or
invested as set forth in this paragraph constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals $10 million or more,
the Company shall apply the Excess Proceeds to the repayment of the Notes and
any Pari Passu Indebtedness (other than Indebtedness outstanding under the New
Credit Facility) required to be repurchased under the instrument governing such
Pari Passu Indebtedness as follows: (i) the Company shall make an offer to
purchase (an "Offer") from all holders of the Notes in accordance with the
procedures set forth in the Indenture in the maximum principal amount (expressed
as a multiple of $1,000) of Notes that may be purchased out of an amount (the
"Note Amount") equal to the product of such Excess Proceeds multiplied by a
fraction, the numerator of which is the outstanding principal amount of the
Notes, and the denominator of which is the sum of the outstanding principal
amount of the Notes and such Pari Passu Indebtedness (subject to proration in
the event such amount is less than the aggregate Offered Price (as defined
herein) of all Notes tendered) and (ii) to the extent required by such Pari
Passu Indebtedness to permanently reduce the principal amount of such Pari Passu
Indebtedness, the Company shall make an offer to purchase or otherwise
repurchase or redeem Pari Passu Indebtedness (a "Pari Passu Offer") out of an
amount (the "Pari Passu Debt Amount") equal to the excess of the Excess Proceeds
over the Note Amount; PROVIDED that in no event shall the Pari Passu Debt Amount
exceed the principal amount of such Pari Passu Indebtedness plus the amount of
any premium required to be paid to repurchase such Pari Passu Indebtedness. The
Offer price shall be payable in cash in an amount equal to 100% of the principal
amount of the Notes plus accrued and unpaid interest, if any, to the date (the
"Offer Date") such Offer is consummated (the "Offered Price"), in accordance
with the procedures set forth in the Indenture. Upon completion of the purchase
of all the Notes tendered pursuant to an Offer or repurchase of the Pari Passu
Indebtedness pursuant to a Pari Passu Offer, the amount of Excess Proceeds shall
be reset at zero. To the extent that the aggregate amount of Notes tendered and
Pari Passu Indebtedness repurchased pursuant to an Offer and Pari Passu Offer,
respectively, is less than the amount of Excess Proceeds, the Company may use
such deficiency, or portion thereof, for general corporate purposes.
(d) Whenever the Excess Proceeds received by the Company exceed $10 million,
such Excess Proceeds shall, prior to the purchase of Notes or any Pari Passu
Indebtedness described in paragraph (c) above, be set aside by the Company in a
separate account pending (i) deposit with the depositary or a paying agent of
the amount required to purchase the Notes or the repurchase or redemption price
of Pari Passu Indebtedness tendered in an Offer or a Pari Passu Offer, (ii)
delivery by the Company of the Offered Price to the holders of the Notes
tendered in an Offer or Pari Passu Indebtedness tendered in a Pari Passu Offer
and (iii) application, as set forth above, of Excess Proceeds in the business of
the Company and its Subsidiaries; PROVIDED that in no event shall the Company be
required to set aside an amount in excess of
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the sum of the Note Amount and the Pari Passu Debt Amount. Such Excess Proceeds
may be invested in Temporary Cash Investments, PROVIDED that the maturity date
of any such investment made after the amount of Excess Proceeds exceeds $10
million shall not be later than the Offer Date. The Company shall be entitled to
any interest or dividends accrued, earned or paid on such Temporary Cash
Investments, PROVIDED that the Company shall not be entitled to such interest if
an Event of Default has occurred and is continuing.
(e) If the Company becomes obligated to make an Offer pursuant to clause (c)
above, the Notes shall be purchased by the Company, at the option of the holders
thereof, in whole or in part in integral multiples of $1,000, on a date that is
not earlier than 45 days and not later than 60 days from the date the notice of
the Offer is given to holders, or such later date as may be necessary for the
Company to comply with the requirements under the Exchange Act, subject to
proration in the event the Note Amount is less than the aggregate Offered Price
of all Notes tendered.
(f) The Company shall comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable securities
laws or regulations in connection with an Offer.
(g) The Company will not, and will not permit any Subsidiary to, create or
permit to exist or become effective any restriction (other than restrictions
existing under Indebtedness as in effect on the date of the Indenture as such
Indebtedness may be refinanced or replaced from to time; PROVIDED that such
restrictions are not less favorable to the holders of Notes than those existing
on the date of the Indenture) that would materially impair the ability of the
Company to make an Offer to purchase the Notes or, if such Offer is made, to pay
for the Notes tendered for purchase. (Section 1011)
LIMITATION ON LIENS. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create, incur, affirm or suffer to exist
any Lien (other than Permitted Liens) of any kind upon any of its property or
assets (including any intercompany notes) or any income or profits therefrom,
except if the Notes (or a Guarantee, in the case of Liens of a Guarantor) are
directly secured equally and ratably with (or prior to in the case of Liens with
respect to Subordinated Indebtedness or Indebtedness of a Guarantor subordinated
in right of payment to any Guarantee) the obligation or liability secured by
such Lien. (Section 1012)
LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY SUBSIDIARIES. (a)
The Company will not permit any Subsidiary, directly or indirectly, to
guarantee, assume or in any other manner become liable with respect to any
Indebtedness of the Company other than Permitted Guarantees or guarantees of the
Notes unless (i) such Subsidiary simultaneously executes and delivers a
supplemental indenture to the Indenture providing for a guarantee of the Notes
and if such Indebtedness is by its terms expressly subordinated to the Notes,
any such assumption, guarantee or other liability of such Subsidiary with
respect to such Indebtedness shall be subordinated to such Subsidiary's
assumption, guarantee or other liability with respect to the Notes to the same
extent as such Indebtedness is subordinated to the Notes and (ii) such
Subsidiary waives and will not in any manner whatsoever claim, or take the
benefit or advantage of, any rights of reimbursement, indemnity or subrogation
or any other rights against the Company or any other Subsidiary as a result of
any payment by such Subsidiary.
(b) Each guarantee created pursuant to the provisions described in the
foregoing paragraph is referred to as a "Guarantee" and the issuer of each such
Guarantee is referred to as a "Guarantor." Notwithstanding the foregoing, any
Guarantee by a Subsidiary of the Notes shall provide by its terms that it shall
be automatically and unconditionally released and discharged upon any sale,
exchange or transfer, to any Person not an Affiliate of the Company, of all of
the Company's Capital Stock in, or all or substantially all the assets of, such
Subsidiary, which sale, exchange or transfer is in compliance with the
Indenture. (Section 1013)
PURCHASE OF NOTES UPON A CHANGE OF CONTROL. If a Change of Control shall
occur at any time, then each holder of Notes shall have the right to require
that the Company purchase such holder's Notes in whole or in part in integral
multiples of $1,000, at a purchase price (the "Change of Control Purchase
Price") in cash in an amount equal to 101% of the principal amount of such
Notes, plus accrued and
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unpaid interest, if any, to the date of purchase (the "Change of Control
Purchase Date"), pursuant to the offer described below (the "Change of Control
Offer") and the other procedures set forth in the Indenture.
Within 30 days following any Change of Control, the Company shall notify the
Trustee thereof and give written notice of such Change of Control to each holder
of Notes, by first-class mail, postage prepaid, at his address appearing in the
security register, stating, among other things, the Change of Control Purchase
Price and that the Change of Control Purchase Date shall be a business day no
earlier than 30 days or later than 60 days from the date such notice is mailed,
or such later date as is necessary to comply with requirements under the
Exchange Act; that any Note not tendered will continue to accrue interest; that,
unless the Company defaults in the payment of the purchase price, any Notes
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Purchase Date; and certain other
procedures that a holder of Notes must follow to accept a Change of Control
Offer or to withdraw such acceptance. (Section 1014)
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for any or all of the Notes that might be delivered by holders of
the Notes seeking to accept the Change of Control Offer and, accordingly, none
of the holders of the Notes may receive the Change of Control Purchase Price for
their Notes in the event of a Change of Control. The failure of the Company to
make or consummate the Change of Control Offer or pay the Change of Control
Purchase Price when due will give the Trustee and the holders of the Notes the
rights described under "-- Events of Default."
The term "all or substantially all" as used in the definition of "Change of
Control" has not been interpreted under New York law (which is the governing law
of the Indenture) to represent a specific quantitative test. As a consequence,
in the event the holders of the Notes elected to exercise their rights under the
Indenture and the Company elected to contest such election, there could be no
assurance as to how a court interpreting New York law would interpret the
phrase.
The existence of a holder's right to require the Company to repurchase such
holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction which constitutes a Change of Control.
The provisions of the Indenture may not afford holders of Notes the right to
require the Company to repurchase the Notes in the event of a highly leveraged
transaction or certain transactions with the Company's management or its
affiliates, including a reorganization, restructuring, merger or similar
transaction (including, in certain circumstances, an acquisition of the Company
by their respective managements or affiliates) involving the Company that may
adversely affect holders of the Notes, if such transaction is not a transaction
defined as a Change of Control. Reference is made to "Certain Definitions" for
the definition of "Change of Control." A transaction involving the Company's
management or its affiliates, or a transaction involving a recapitalization of
the Company, may result in a Change of Control if it is the type of transaction
specified by such definition.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer. (Section 1014)
LIMITATION ON ISSUANCE AND SALE OF CAPITAL STOCK OF SUBSIDIARIES. The
Company will not permit (a) any Subsidiary to issue any Capital Stock (other
than to the Company or any Wholly Owned Subsidiary) or (b) any Person (other
than the Company or a Wholly Owned Subsidiary) to acquire any Capital Stock of
any Subsidiary from the Company or any Wholly Owned Subsidiary except upon the
sale of all of the outstanding Capital Stock of such Subsidiary owned by the
Company or a Wholly Owned Subsidiary except in either case if (i) the Subsidiary
whose Capital Stock is issued or sold guarantees all obligations of the Company
under the Indenture and the Notes (the terms of which guarantee (x) shall be the
same as the terms of the Permitted Guarantees on the date on which the Notes
were initially issued and (y) shall rank PARI PASSU in right of payment to the
Permitted Guarantees) (provided that this clause
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(i) shall not be applicable in the case of the issuance or sale of the Capital
Stock of American Country Insurance Company to the extent such guarantee is
prohibited by law), (ii) after giving effect to the sale or issuance of such
Capital Stock, the Company beneficially owns in excess of 50% of the outstanding
Capital Stock of such subsidiary on a fully diluted basis and (iii) the Capital
Stock is issued or sold in an underwritten public offering pursuant to a
registration statement that has been declared effective by the Commission
pursuant to the Securities Act. (Section 1015)
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Subsidiary
to (a) pay dividends or make any other distribution on its Capital Stock to the
Company or any other Subsidiary, (b) pay any Indebtedness owed to the Company or
any Subsidiary, (c) make any Investment in the Company or any other Subsidiary
or (d) transfer any of its properties or assets to the Company or any
Subsidiary, except (i) any encumbrance or restriction pursuant to an agreement
in effect on the date of the Indenture and listed on a schedule thereto, (ii)
any encumbrance or restriction, with respect to a Subsidiary that is not a
Subsidiary of the Company on the date of the Indenture, in existence at the time
such Person becomes a Subsidiary of the Company and not incurred in connection
with, or in contemplation of, such Person becoming a Subsidiary and (iii) any
encumbrance or restriction existing under any agreement that extends, renews,
refinances or replaces the agreements containing the encumbrances or
restrictions in the foregoing clauses (i) and (ii), PROVIDED that the terms and
conditions of any such encumbrances or restrictions are not materially less
favorable to the holders of the Notes than those under or pursuant to the
agreement evidencing the Indebtedness so extended, renewed, refinanced or
replaced. (Section 1016)
PROVISION OF FINANCIAL STATEMENTS. Whether or not the Company is subject to
Section 13(a) or 15(d) of the Exchange Act, the Company will, to the extent
permitted under the Exchange Act, file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to such Sections 13(a) or 15(d) if the
Company were so subject, such documents to be filed with the Commission on or
prior to the respective dates (the "Required Filing Dates") by which the Company
would have been required so to file such documents if the Company were so
subject. The Company will also in any event (x) within 15 days of each Required
Filing Date (i) transmit by mail to all holders of Notes, as their names and
addresses appear in the security register, without cost to such holders of Notes
and (ii) file with the Trustee copies of the annual reports, quarterly reports
and other documents which the Company would have been required to file with the
Commission pursuant to Sections 13(a) or 15(d) of the Exchange Act if the
Company were subject to such Sections and (y) if filing such documents by the
Company with the Commission is not permitted under the Exchange Act, promptly
upon written request and payment of the reasonable cost of duplication and
delivery, supply copies of such documents to any prospective holder of Notes at
the Company's cost. (Section 1017)
IMPAIRMENT OF SECURITY INTEREST. The Company shall not, and shall not
permit any of its Subsidiaries to, take or knowingly or negligently omit to take
any action which action or omission might or would have the result of affecting
or impairing the security interest in favor of the Trustee, on behalf of itself
and the holders of the Notes, with respect to the Collateral, and the Company
shall not, and shall not permit any of its Subsidiaries to, grant to any Person
(other than the Trustee on behalf of itself and the holders of the Notes) any
interest whatsoever in the Collateral other than Liens permitted by the Pledge
Agreement. (Section 1018)
ADDITIONAL COVENANTS. The Indenture also contains covenants with respect to
the following matters: (i) payment of principal, premium and interest; (ii)
maintenance of an office or agency in The City of New York; (iii) arrangements
regarding the handling of money held in trust; (iv) maintenance of corporate and
Company existence; (v) payment of taxes and other claims; (vi) maintenance of
properties; (vii) maintenance of insurance; and (viii) the Collateral.
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CONSOLIDATION, MERGER, SALE OF ASSETS
The Company shall not, in a single transaction or a series of related
transactions, consolidate with or merge with or into any other Person or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets to any Person or group of affiliated Persons, or
permit any of its Subsidiaries to enter into any such transaction or
transactions if such transaction or series of related transactions, in the
aggregate, would result in a sale, assignment, conveyance, transfer, lease or
disposition of all or substantially all of the properties and assets of the
Company and its Subsidiaries on a Consolidated basis to any other Person or
group of affiliated Persons, unless at the time and after giving effect thereto:
(i) either (a) the Company shall be the continuing corporation or (b) the Person
(if other than the Company) formed by such consolidation or into which the
Company is merged or the Person which acquires by sale, assignment, conveyance,
transfer, lease or disposition all or substantially all of the properties and
assets of the Company and its Subsidiaries on a Consolidated basis (the
"Surviving Entity") shall be a corporation duly organized and validly existing
under the laws of the United States of America, any state thereof or the
District of Columbia and such Person assumes by a supplemental indenture in a
form reasonably satisfactory to the Trustee, all the obligations of the Company
under the Notes and the Indenture, and the Indenture shall remain in full force
and effect; (ii) immediately before and immediately after giving effect to such
transaction on a PRO FORMA basis, no Default or Event of Default shall have
occurred and be continuing; (iii) immediately after giving effect to such
transaction on a PRO FORMA basis, the Consolidated Net Worth of the Company (or
the Surviving Entity if the Company is not the continuing obligor under the
Indenture) is equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction; (iv) immediately before and immediately
after giving effect to such transaction on a PRO FORMA basis (on the assumption
that the transaction occurred on the first day of the four-quarter period
immediately prior to the consummation of such transaction with the appropriate
adjustments with respect to the transaction being included in such PRO FORMA
calculation), the Company (or the Surviving Entity if the Company is not the
continuing obligor under the Indenture) could incur $1.00 of additional
Indebtedness under the provisions of "-- Certain Covenants -- Limitation on
Indebtedness" (other than Permitted Indebtedness); (v) each Guarantor, if any,
unless it is the other party to the transactions described above, shall have by
supplemental indenture confirmed that its Guarantee shall apply to such Person's
obligations under the Indenture and the Notes; (vi) if any of the property or
assets of the Company or any of its Subsidiaries would thereupon become subject
to any Lien, the provisions of "-- Certain Covenants -- Limitation on Liens" are
complied with; (vii) the Company or the Surviving Entity shall have delivered,
or caused to be delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an officers' certificate and an opinion of counsel,
each to the effect that such consolidation, merger, transfer, sale, assignment,
lease or other transaction and the supplemental indenture in respect thereto
comply with the provisions described herein and that all conditions precedent
herein provided for relating to such transaction have been complied with.
(Section 801)
Each Guarantor shall not, and the Company will not permit a Guarantor to, in
a single transaction or series of related transactions, merge or consolidate
with or into any other corporation (other than the Company or any other
Guarantor) or other entity, or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets on a
Consolidated basis to any entity (other than the Company or any other Guarantor)
unless at the time and after giving effect thereto: (i) either (a) such
Guarantor shall be the continuing corporation or (b) the entity (if other than
such Guarantor) formed by such consolidation or into which such Guarantor is
merged or the entity which acquires by sale, assignment, conveyance, transfer,
lease or disposition the properties and assets of such Guarantor shall be a
corporation duly organized and validly existing under the laws of the United
States, any state thereof or the District of Columbia and shall expressly assume
by a supplemental indenture, executed and delivered to the Trustee, in a form
reasonably satisfactory to the Trustee, all the obligations of such Guarantor
under the Notes and the Indenture; (ii) immediately before and immediately after
giving effect to such transaction on a PRO FORMA basis, no Default or Event of
Default shall have occurred and be continuing; and (iii) such Guarantor shall
have delivered to the Trustee, in form and substance reasonably satisfactory to
the Trustee, an officers' certificate and an opinion of counsel, each stating
that such
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consolidation, merger, sale, assignment, conveyance, transfer, lease or
disposition and such supplemental indenture comply with the Indenture, and
thereafter all obligations of the predecessor shall terminate. (Section 801)
In the event of any transaction described in and complying with the
conditions listed in the immediately preceding paragraphs in which the Company
or any Guarantor is not the continuing corporation, the successor Person formed
or remaining shall succeed to, and be substituted for, and may exercise every
right and power of, the Company or such Guarantor, as the case may be, and the
Company or such Guarantor, as the case may be, shall be discharged from all
obligations and covenants under the Indenture, the Notes or such Guarantee, as
the case may be; PROVIDED that in the case of a transfer by lease, the
predecessor shall not be released from the payment of principal and interest on
the Notes or such Guarantee, as the case may be.
EVENTS OF DEFAULT
An Event of Default will occur under the Indenture if:
(i) there shall be a default in the payment of any interest on any Note
when it becomes due and payable, and such default shall continue for a
period of 30 days;
(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) any Note when and as the same shall become due and
payable at maturity (upon acceleration, optional or mandatory redemption,
required repurchase or otherwise);
(iii) (a) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company or any Guarantor under the Pledge
Agreement or the Indenture (other than a default in the performance, or
breach, of a covenant or agreement which is specifically dealt with in
paragraphs (i) or (ii) or in clauses (b), (c) and (d) of this paragraph
(iii)) and such default or breach shall continue for a period of 60 days
after written notice has been given, by certified mail, (x) to the Company
by the Trustee or (y) to the Company and the Trustee by the holders of at
least 25% in aggregate principal amount of the outstanding Notes; (b) there
shall be a default in the performance or breach of the provisions described
in "-- Consolidation, Merger, Sale of Assets"; (c) the Company shall have
failed to make or consummate a Change of Control Offer in accordance with
the provisions of "-- Certain Covenants -- Purchase of Notes Upon a Change
of Control"; or (d) the Company shall have failed to make or consummate an
Offer in accordance with the provisions of "-- Certain Covenants --
Limitation on Sale of Assets";
(iv) (a) any default in the payment of principal, premium, if any, or
interest on any Indebtedness shall have occurred under any agreements,
indentures or instruments under which the Company or any Subsidiary then has
outstanding Indebtedness which aggregate in excess of $5 million when the
same shall become due and payable and continuation of such default after any
applicable grace period and, if such Indebtedness has not already matured at
its final maturity in accordance with its terms, the holder of such
Indebtedness shall have the right to accelerate such Indebtedness or (b) an
event of default as defined in any of the agreements, indentures or
instruments described in clause (a) of this paragraph (iv) shall have
occurred and the Indebtedness thereunder, if not already matured at its
final maturity in accordance with its terms, shall have been accelerated;
(v) one or more judgments, orders or decrees for the payment of money in
excess of $5 million, either individually or in the aggregate, shall be
entered against the Company or any Subsidiary or any of their respective
properties and shall not be discharged and either (a) enforcement
proceedings shall have been commenced upon such judgment, order or decree or
(b) there shall have been a period of 60 consecutive days during which a
stay of enforcement of such judgment or order, by reason of an appeal or
otherwise, shall not be in effect;
(vi) the Pledge Agreement shall for any reason cease to be, or be
asserted in writing by the Company not to be, in full force and effect and
enforceable in accordance with its terms, or any security interest purported
to be created by the Pledge Agreement shall cease to be a valid and
perfected security interest in any Collateral;
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(vii) there shall have been the entry by a court of competent
jurisdiction of (a) a decree or order for relief in respect of the Company
or any Material Subsidiary in an involuntary case or proceeding under any
applicable Bankruptcy Law or (b) a decree or order adjudging the Company or
any Subsidiary bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company or
any Material Subsidiary under any applicable Federal or state law, or
appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Material
Subsidiary or of any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and any such decree or order for
relief shall continue to be in effect, or any such other decree or order
shall be unstayed and in effect, for a period of 60 consecutive days; or
(viii) (a) the Company or any Material Subsidiary commences a voluntary
case or proceeding under any applicable Bankruptcy Law or any other case or
proceeding to be adjudicated bankrupt or insolvent, (b) the Company or any
Material Subsidiary consents to the entry of a decree or order for relief in
respect of the Company or such Material Subsidiary in an involuntary case or
proceeding under any applicable Bankruptcy Law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, (c) the Company or
any Material Subsidiary files a petition or answer or consent seeking
reorganization or relief under any applicable Federal or state law, (d) the
Company or any Material Subsidiary (x) consents to the filing of such
petition or the appointment of, or taking possession by, a custodian,
receiver, liquidator, assignee, trustee, sequestrator or similar official of
the Company or such Material Subsidiary or of any substantial part of its
property, (y) makes an assignment for the benefit of creditors or (z) admits
in writing its inability to pay its debts generally as they become due or
(e) the Company or any Material Subsidiary takes any corporate action in
furtherance of any such actions in this paragraph (viii).
If an Event of Default (other than as specified in paragraphs (vii) and
(viii) of the prior paragraph) shall occur and be continuing, the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding may declare the Notes due and payable immediately at their principal
amount together with accrued and unpaid interest, if any, to the date the Notes
shall have become due and payable and thereupon the Trustee may, at its
discretion, proceed to protect and enforce the rights of the holders of Notes by
appropriate judicial proceeding. If an Event of Default specified in paragraph
(vii) or (viii) of the prior paragraph occurs and is continuing, then all the
Notes shall IPSO FACTO become and be immediately due and payable, in an amount
equal to the principal amount of the Notes, together with accrued and unpaid
interest, if any, to the date the Notes become due and payable, without any
declaration or other act on the part of the Trustee or any holder.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of at
least a majority in aggregate principal amount of Notes outstanding, by written
notice to the Company and the Trustee, may rescind and annul such declaration
and its consequences if (a) the Company has paid or deposited with the Trustee a
sum sufficient to pay (i) all sums paid or advanced by the Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all overdue interest on all Notes,
(iii) the principal of and premium, if any, on any Notes which have become due
otherwise than by such declaration of acceleration and interest thereon at the
rate borne by the Notes, and (iv) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate borne by the Notes; and (b)
all Events of Default, other than the non-payment of principal of the Notes
which have become due solely by such declaration of acceleration, have been
cured or waived. (Section 502)
The holders of not less than a majority in aggregate principal amount of the
Notes outstanding may on behalf of the holders of all the Notes waive any past
defaults under the Indenture and their consequences, except a default in the
payment of the principal of, premium, if any, or interest on any Note, or in
respect of a covenant or provision which under the Indenture cannot be modified
or amended without the consent of the holder of each Note outstanding affected
thereby. (Section 513)
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The Company is also required to notify the Trustee within five business days
of the occurrence of any Default.
The Trust Indenture Act contains limitations on the rights of the Trustee,
should it become a creditor of the Company or any Guarantor, to obtain payment
of claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in such other transactions, PROVIDED that if it acquires any
conflicting interest it must eliminate such conflict upon the occurrence of an
Event of Default or else resign.
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company and any Guarantor discharged with respect to the
outstanding Notes ("defeasance"). Such defeasance means that the Company and any
Guarantor shall be deemed to have paid and discharged the entire Indebtedness
represented by the outstanding Notes, and the Collateral would be released from
the Lien in favor of the holders of the Notes, except for (i) the rights of
holders of outstanding Notes to receive payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due, (ii) the
Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes, and
the maintenance of an office or agency for payment and money for security
payments held in trust, (iii) the rights, powers, trusts, duties and immunities
of the Trustee and (iv) the defeasance provisions of the Indenture. In addition,
the Company may, at its option and at any time, elect to have the obligations of
the Company and any Guarantor released with respect to certain covenants
(PROVIDED that the Company's obligations to pay interest, premium, if any, and
principal on the Notes under the Indenture shall remain in full force and effect
as long as the Notes are outstanding), that are described in the Indenture
("covenant defeasance") and any omission to comply with such obligations shall
not constitute a Default or an Event of Default with respect to the Notes. In
the event covenant defeasance occurs, certain events (not including non-payment,
enforceability of any Guarantee, bankruptcy and insolvency events) described
under "Events of Default" will no longer constitute an Event of Default with
respect to the Notes. (Sections 401, 402 and 403)
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Notes, cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay and discharge the principal of, premium,
if any, and interest on the outstanding Notes on the Stated Maturity of such
principal or installment of principal (or on any date after , 1999
(such date being referred to as the "Defeasance Redemption Date"), if when
exercising either defeasance or covenant defeasance, the Company has delivered
to the Trustee an irrevocable notice to redeem all of the outstanding Notes on
the Defeasance Redemption Date); (ii) in the case of defeasance, the Company
shall have delivered to the Trustee an opinion of independent counsel in the
United States stating that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that the holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred; (iii) in the case of covenant defeasance, the
Company shall have delivered to the Trustee an opinion of independent counsel in
the United States to the effect that the holders of the outstanding Notes will
not recognize income, gain or loss for federal income tax purposes as a result
of such covenant defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such covenant defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit or
insofar as clause (vii) or (viii) under the first paragraph under "-- Events of
Default" is concerned, at any time during the period ending on the 91st day
after the date of deposit; (v) such defeasance or covenant defeasance shall not
cause the Trustee for the Notes to have a conflicting interest with respect to
any
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securities of the Company or any Guarantor; (vi) such defeasance or covenant
defeasance shall not result in a breach or violation of, or constitute a Default
under, the Indenture or any other material agreement or instrument to which the
Company or any Guarantor is a party or by which it is bound; (vii) the Company
shall have delivered to the Trustee an opinion of independent counsel in the
United States to the effect that (A) the trust funds will not be subject to any
rights of holders of Indebtedness, including, without limitation, those arising
under the Indenture and (B) after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (viii) the Company shall have delivered to the Trustee an officers'
certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of the Notes or any Guarantee over the other creditors
of the Company or any Guarantor with the intent of defeating, hindering,
delaying or defrauding creditors of the Company, any Guarantor or others; (ix)
no event or condition shall exist that would prevent the Company from making
payments of the principal of, premium, if any, and interest on the Notes on the
date of such deposit or at any time ending on the 91st day after the date of
such deposit; and (x) the Company shall have delivered to the Trustee an
officers' certificate and an opinion of independent counsel, each stating that
all conditions precedent provided for relating to either the defeasance or the
covenant defeasance, as the case may be, have been complied with. (Section 404)
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Trustee to repossess and dispose of the Collateral upon the
occurrence of an Event of Default is likely to be significantly impaired by
applicable Bankruptcy Law if a bankruptcy proceeding were to be commenced by or
against the Company prior to the Collateral Agent having repossessed and
disposed of the Collateral. Under the United States Bankruptcy Code, a secured
creditor such as the Collateral Agent on behalf of the holders of the Notes and
the lenders under the New Credit Facility is prohibited from repossessing its
security from a debtor in a bankruptcy case, or from disposing of security
repossessed from such debtor, without bankruptcy court approval. Moreover, the
United States Bankruptcy Code permits the debtor to continue to retain and to
use collateral even though the debtor is in default under the applicable debt
instruments, provided that the secured creditor is given "adequate protection."
The meaning of the term "adequate protection" may vary according to
circumstances, but it is intended in general to protect the value of the secured
creditor's interest in the collateral and may include cash payments or the
granting of additional security, if and at such times as the court in its
discretion determines, for any diminution in the value of the Collateral as a
result of the stay of repossession or disposition or any use of the Collateral
by the debtor during the pendency of the bankruptcy case. In view of the lack of
a precise definition of the term "adequate protection" and the broad
discretionary powers of a bankruptcy court, it is impossible to predict how long
payments under the Notes could be delayed following commencement of a bankruptcy
case, whether or when the Collateral Agent could repossess or dispose of the
Collateral or whether or to what extent holders of the Notes would be
compensated for any delay in payment or loss of value of the Collateral through
the requirement of "adequate protection."
SATISFACTION AND DISCHARGE
The Indenture will cease to be of further effect (except as to surviving
rights of registration of transfer or exchange of the Notes, as expressly
provided for in the Indenture) as to all outstanding Notes when (i) either (a)
all the Notes theretofore authenticated and delivered (except lost, stolen or
destroyed Notes which have been replaced or paid and Notes for whose payment
funds have been deposited in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation (x) have become due and payable, (y) will become due and payable at
their Stated Maturity within one year, or (z) are to be called for redemption
within one year under arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the expense, of the
Company, and either the Company or any Guarantor has irrevocably deposited or
caused to be deposited with the Trustee as trust funds in trust an amount
sufficient to pay and discharge the entire indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, including principal of,
premium, if
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any, and accrued interest on such Notes, at such Maturity, Stated Maturity or
redemption date; (ii) the Company and any Guarantor have paid or caused to be
paid all other sums payable under the Indenture by the Company or any Guarantor;
and (iii) the Company and any Guarantor have delivered to the Trustee an
officers' certificate and an opinion of counsel in the United States each
stating that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with, and that
such satisfaction and discharge will not result in a breach or violation of, or
constitute a default under, the Indenture or any other material agreement or
instrument to which the Company is a party or by which the Company is bound.
(Section 1201)
MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the Indenture and the Pledge Agreement may
be made by the Company, any Guarantor, if any, and the Trustee with the consent
of the holders of not less than a majority in aggregate outstanding principal
amount of the Notes; PROVIDED, HOWEVER, that no such modification or amendment
may, without the consent of the holder of each outstanding Note affected
thereby: (i) change the Stated Maturity of the principal of, or any installment
of interest on, any Note or waive a default in the payment of the principal of,
or interest on any Note or reduce the principal amount thereof or the rate of
interest thereon or any premium payable upon the redemption thereof, or change
the coin or currency in which the principal of any Note or any premium or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment after the Stated Maturity thereof; (ii) amend,
change or modify the obligation of the Company to make and consummate a Change
of Control Offer in the event of a Change of Control in accordance with "--
Certain Covenants -- Purchase of Notes Upon a Change of Control" or make and
consummate an Offer in accordance with "-- Certain Covenants -- Limitation on
Sale of Assets", including, in each case, amending, changing or modifying any of
the definitions with respect thereto; (iii) reduce the percentage in principal
amount of outstanding Notes, the consent of whose holders is required for any
such supplemental indenture, or the consent of whose holders is required for any
waiver; (iv) modify any of the provisions relating to supplemental indentures
requiring the consent of holders or relating to the waiver of past defaults or
relating to the waiver of certain covenants, except to increase the percentage
of outstanding Notes required for such actions or to provide that certain other
provisions of the Indenture cannot be modified or waived without the consent of
the holder of each Note affected thereby; (v) except as otherwise permitted
under "-- Consolidation, Merger, Sale of Assets," consent to the assignment or
transfer by the Company or any Guarantor of any of its rights and obligations
under the Indenture; (vi) amend or modify any of the provisions of the Indenture
in any manner which subordinates the Notes in right of payment to other
Indebtedness of the Company or which subordinates any Guarantee in right of
payment to other Indebtedness of such Guarantor; or (vii) consent to the release
of any Collateral from the Lien created by the Pledge Agreement or permit the
creation of any Lien on the Collateral except in each case in accordance with
the terms of the Indenture and the Pledge Agreement. (Section 902)
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture. (Section 1020)
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in accordance
with, the laws of the State of New York, without giving effect to the conflicts
of law principles thereof.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Subsidiary or (ii) assumed in connection with the
acquisition of assets from such Person, in each case, other than Indebtedness
incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary or such acquisition. Acquired Indebtedness shall be deemed to be
incurred on the date of the related acquisition of assets from any Person or the
date the acquired Person becomes a Subsidiary.
"Affiliate" means, with respect to any specified Person, (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person (or
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any partner of such Person) or (ii) any other Person that owns, directly or
indirectly, 5% or more of such Person's (or any partner of such Person's) equity
ownership or Voting Stock or any officer or director of either of such Persons.
For the purposes of this definition, "control" when used with respect to any
specified Person means the power to direct the management and policies of such
Person directly or indirectly, whether through ownership of voting securities,
by contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer"), directly or
indirectly, in one or a series of related transactions, of (i) any Capital Stock
of any Subsidiary; (ii) all or substantially all of the properties and assets of
any division or line of business of the Company or its Subsidiaries; or (iii)
any other properties or assets of the Company or any Subsidiary, other than in
the ordinary course of business. For the purposes of this definition, the term
"Asset Sale" shall not include any transfer of properties and assets (A) that is
governed by the provisions described under "Consolidation, Merger, Sale of
Assets" or (B) that are of the Company to any Wholly Owned Subsidiary, or of any
Subsidiary to the Company or any Wholly Owned Subsidiary in accordance with the
terms of the Indenture.
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from the date of determination to the
date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by (ii)
the sum of all such principal payments.
"Bankruptcy Law" means Title 11 of the United States Code, as amended, or
any similar United States Federal or state law relating to bankruptcy,
insolvency, receivership, winding-up, liquidation, reorganization or relief of
debtors or any amendment to, succession to or change in any such law.
"Capital Lease Obligation" of any Person means any obligation of such Person
and its subsidiaries on a Consolidated basis under any capital lease of real or
personal property which, in accordance with GAAP, has been recorded as a
capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock.
"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 the Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have beneficial ownership of all shares
that such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 45% of the Voting Stock of all classes of Voting Stock of the Company; (ii)
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 to such Board of Directors or whose nomination for election by
the stockholders of the Company, was approved by a vote of 66 2/3% of the
members of the Board of Directors then still in office who were either members
of the Board of Directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute at least two-thirds of such Board of Directors then in office; (iii)
the Company consolidates with or merges with or into any Person or conveys,
transfers or leases all or substantially all of its assets to any Person, or any
corporation consolidates with or into the Company, in any such event pursuant to
a transaction in which the outstanding Voting Stock of the Company is changed
into or exchanged for cash, securities or other property, other than any such
transaction (X) where the outstanding Voting Stock of the Company is not changed
or exchanged at all (except to the extent necessary to reflect a change in the
jurisdiction of incorporation of the Company) or (Y) where (A) the outstanding
Voting Stock of the Company is changed into or exchanged for (x) Voting Stock of
the surviving corporation or the Company which is not Redeemable Capital Stock
or (y) cash, securities and other property (other than Capital Stock of the
surviving corporation) in an amount which
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could be paid by the Company as a Restricted Payment as described under "--
Certain Covenants -- Limitation on Restricted Payments" (and such amount shall
be treated as a Restricted Payment subject to the provisions in the Indenture
described under "Certain Covenants -- Limitation on Restricted Payments") and
(B) no "person" or "group" other than the Permitted Holders owns immediately
after such transaction, directly or indirectly, more than 45% of the total
outstanding Voting Stock of the surviving corporation; or (iv) the Company is
liquidated or dissolved or adopts a plan of liquidation or dissolution other
than in a transaction which complies with the provisions described under "--
Consolidation, Merger, Sale of Assets."
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral Agent" means .
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if, at any time after the
execution of the Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, for any
period, the ratio of (a) the sum of Consolidated Net Income, Consolidated
Interest Expense, Consolidated Income Tax Expense and Consolidated Non-Cash
Charges deducted in computing Consolidated Net Income (Loss), in each case for
such period, of such Person and its Consolidated Subsidiaries on a Consolidated
basis, all determined in accordance with GAAP to (b) the sum of (I) Consolidated
Interest Expense of such Person for such period and (II) the product of (x) all
cash dividends (including the payment of accreted or accumulated dividends) paid
on any Preferred Stock of such Person during such period times (y) a fraction,
the numerator of which is one and the denominator of which is one minus the then
current combined federal, state and local statutory income tax rate (but not
less than zero) of such Person, expressed as a decimal, in each case, on a
Consolidated basis and in accordance with GAAP; PROVIDED that (i) in making such
computation, the Consolidated Interest Expense attributable to interest on any
Indebtedness computed on a pro forma basis and (A) bearing a floating interest
rate shall be computed as if the rate in effect on the date of computation had
been the applicable rate for the entire period and (B) which was not outstanding
during the period for which the computation is being made but which bears, at
the option of the Company, a fixed or floating rate of interest, shall be
computed by applying, at the option of such Person, either the fixed or floating
rate, and (ii) in making such computation, the Consolidated Interest Expense of
such Person attributable to interest on any Indebtedness under a revolving
credit facility computed on a pro forma basis shall be computed based upon the
average daily balance of such Indebtedness during the applicable period.
"Consolidated Income Tax Expense" means for any period, as applied to any
Person, the provision for federal, state, local and foreign income taxes of such
Person and its Consolidated Subsidiaries for such period as determined in
accordance with GAAP.
"Consolidated Interest Expense" of any Person means, without duplication,
for any period, as applied to any Person, the sum of (a) the interest expense of
such Person and its Consolidated Subsidiaries for such period, on a Consolidated
basis, including, without limitation, (i) amortization of debt discount, (ii)
the net cost under Interest Rate Agreements (including amortization of
discounts), and (iii) the interest portion of any deferred payment obligation
plus (b) the interest expense attributable to Capital Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such Person during such period
in each case as determined in accordance with GAAP.
"Consolidated Net Income (Loss)" of any Person means, for any period, the
Consolidated net income (loss) of such Person and its Consolidated Subsidiaries
for such period as determined in accordance with GAAP, adjusted, to the extent
included in calculating such Consolidated net income (or loss), by excluding,
without duplication, (i) all extraordinary gains and losses, (ii) the portion of
net income (or loss) of such Person and its Consolidated Subsidiaries allocable
to minority interests in unconsolidated Persons to the extent that cash
dividends or distributions have not actually been received
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by such Person or one of its Consolidated Subsidiaries, (iii) net income (or
loss) of any Person combined with such Person or any of its Subsidiaries on a
"pooling of interests" basis attributable to any period prior to the date of
combination, (iv) any gain or loss, net of taxes, realized upon the termination
of any employee pension benefit plan, (v) aggregate net gains (less all fees and
expenses relating thereto) in respect of dispositions of assets other than in
the ordinary course of business, (vi) the net income of any Subsidiary to the
extent that the declaration of dividends or similar distributions by that
Subsidiary of that income is not at the time permitted, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulations applicable to that
Subsidiary or its stockholders and (vii) any gain arising from the acquisition
of any securities, or the extinguishment, under GAAP, of any Indebtedness of
such Person.
"Consolidated Net Worth" means, with respect to any Person, the Consolidated
stockholders' equity (excluding Redeemable Capital Stock) of such Person and its
Subsidiaries, as determined in accordance with GAAP.
"Consolidated Non-cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such Person
and its Consolidated Subsidiaries for such period, as determined in accordance
with GAAP (excluding any non-cash charge which requires an accrual or reserve
for cash charges for any future period).
"Consolidation" means, with respect to any Person, the consolidation of the
accounts of such Person and each of its subsidiaries if and to the extent the
accounts of such Person and each of its subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP. The term
"Consolidated" shall have a similar meaning.
"Default" means any event which is, or after notice or passage of any time
or both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series of
related transactions, a member of the Board of Directors who does not have any
material direct or indirect financial interest in or with respect to such
transaction or series of related transactions.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length transaction between an informed
and willing seller under no compulsion to sell and an informed and willing
buyer.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United States,
consistently applied, which are in effect on the date of the Indenture.
"Guarantee" means the guarantee by any Guarantor of the Indenture
Obligations.
"Guaranteed Debt" of any Person means, without duplication, all Indebtedness
of any other Person referred to in the definition of Indebtedness contained in
this Section guaranteed directly or indirectly in any manner by such Person, or
in effect guaranteed directly or indirectly by such Person through an agreement
(i) to pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to assure
the holder of such Indebtedness against loss, (iii) to supply funds to, or in
any other manner invest in, the debtor (including any agreement to pay for
property or services without requiring that such property be received or such
services be rendered), (iv) to maintain working capital or equity capital of the
debtor, or otherwise to maintain the net worth, solvency or other financial
condition of the debtor or (v) otherwise to assure a creditor against loss;
PROVIDED that the term "guarantee" shall not include endorsements for collection
or deposit, in either case in the ordinary course of business.
"Guarantor" means any guarantor of the Indenture Obligations.
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"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities arising in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit issued under letter of credit facilities,
acceptance facilities or other similar facilities and in connection with any
agreement to purchase, redeem, exchange, convert or otherwise acquire for value
any Capital Stock of such Person, or any warrants, rights or options to acquire
such Capital Stock, now or hereafter outstanding, (ii) all obligations of such
Person evidenced by bonds, notes, debentures or other similar instruments, (iii)
all indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even if
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property), but
excluding trade payables arising in the ordinary course of business, (iv) all
obligations under Interest Rate Agreements of such Person (except for
obligations which have been included in the Consolidated Net Income of such
Person other than as Consolidated Interest Expense), (v) all Capital Lease
Obligations of such Person, (vi) all Indebtedness referred to in clauses (i)
through (v) above of other Persons and all dividends of other Persons, the
payment of which is secured by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien, upon or
with respect to property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness, (vii) all Guaranteed Debt of such
Person, (viii) all Redeemable Capital Stock valued at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid
dividends, and (ix) any amendment, supplement, modification, deferral, renewal,
extension, refunding or refinancing of any Indebtedness of the types referred to
in clauses (i) through (viii) above. For purposes hereof, the "maximum fixed
repurchase price" of any Redeemable Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Redeemable Capital Stock as if such Redeemable Capital Stock were purchased on
any date on which Indebtedness shall be required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by, the Fair Market
Value of such Redeemable Capital Stock, such fair market value to be determined
in good faith by the Board of Directors of such Person.
"Indenture Obligations" means the obligations of the Company and any other
obligor under the Indenture or under the Notes, including any Guarantor, to pay
principal of, premium, if any, and interest when due and payable, and all other
amounts due or to become due under or in connection with the Indenture, the
Notes and the performance of all other obligations to the Trustee and the
holders of the Notes under the Indenture and the Notes, according to the terms
thereof.
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest rate
protection agreements (including, without limitation, interest rate swaps, caps,
floors, collars and similar agreements) and/or other types of interest rate
hedging agreements from time to time.
"Investment" means, with respect to any Person, directly or indirectly, any
advance, loan (including guarantees), or other extension of credit 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, acquisition or ownership by such Person of any Capital Stock, bonds,
notes, debentures or other securities issued or owned by, any other Person and
all other items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
security interest, hypothecation or other encumbrance upon or with respect to
any property of any kind, real or personal, movable or immovable, now owned or
hereafter acquired.
"Material Subsidiary" means any Subsidiary of the Company (a) revenues
attributable to which for the then most recently completed four fiscal quarters
constituted 2% or more of the Consolidated revenues of the Company or (b) the
assets of which at the end of such period constituted 2% of the Consolidated
assets of the Company at the end of such period.
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"Maturity" when used with respect to any Note means the date on which the
principal of such Note becomes due and payable as therein provided or as
provided in the Indenture, whether at Stated Maturity, the "Offer Date" or any
redemption date and whether by declaration of acceleration, Change of Control
Offer in respect of a Change of Control Offer, in respect of an Asset Sale, call
for redemption or otherwise.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale by any Person,
the proceeds thereof in the form of cash or cash equivalents including payments
in respect of deferred payment obligations when received in the form of, or
stock or other assets when disposed for, cash or cash equivalents (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Subsidiary) net of (i) brokerage commissions and other reasonable fees
and expenses (including fees and expenses of counsel and investment bankers)
related to such Asset Sale, (ii) provisions for all taxes payable as a result of
such Asset Sale, (iii) payments made to retire Indebtedness where payment of
such Indebtedness is secured by the assets or properties the subject of such
Asset Sale, (iv) amounts required to be paid to any Person (other than the
Company or any Subsidiary) owning a beneficial interest in the assets subject to
the Asset Sale and (v) appropriate amounts to be provided by the Company or any
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an officers'
certificate delivered to the Trustee and (b) with respect to any issuance or
sale of Capital Stock or options, warrants or rights to purchase Capital Stock,
or debt securities or Capital Stock that have been converted into or exchanged
for Capital Stock, as referred to under "-- Certain Covenants -- Limitation on
Restricted Payments," the proceeds of such issuance or sale in the form of cash
or cash equivalents, net of attorney's fees, accountant's fees and brokerage,
consultation, underwriting and other fees and expenses actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"New Credit Facility" means the Credit Agreement, dated as of ,
1994, among International Controls Corp., , as
agent, and the lenders party thereto, as such agreement may be amended, renewed,
extended, substituted, refinanced, restructured, replaced, supplemented or
otherwise modified from time to time (including, without limitation, any
successive renewals, extensions, substitutions, refinancings, restructurings,
replacements, supplementations or other modifications of the foregoing).
"Pari Passu Indebtedness" means any Indebtedness of the Company that is PARI
PASSU in right of payment to the Notes.
"Permitted Guarantees" means guarantees issued by the Company's Subsidiaries
on the date of the Indenture of the Company's Indebtedness under the New Credit
Facility.
"Permitted Holders" means (i) David R. Markin, Martin L. Solomon, Allan R.
Tessler and Wilmer J. Thomas, Jr. or any one of them, (ii) any trusts created
for the benefit of the persons described in clause (i) or members of such
persons immediate family; and (iii) in the event of the incompetence or death of
any of the persons described in clause (i), such person's estate, executor,
administrator, committee or other personal representatives or beneficiaries.
"Permitted Indebtedness" means the following:
(i) Indebtedness of the Company under the New Credit Facility in an
aggregate principal amount not to exceed (i) $60 million under any term loan
portion thereof less the amount of any permanent repayment of Indebtedness
thereunder plus (ii) $115 million under any revolving credit agreement
portion thereof;
(ii) Indebtedness of the Company pursuant to the Notes;
66
<PAGE>
(iii) Indebtedness of the Company or any Subsidiary outstanding on the
date of the Indenture and listed on a schedule thereto;
(iv) Indebtedness (a) of the Company owing to a Subsidiary or (b) of a
Wholly Owned Subsidiary owing to the Company or another Wholly Owned
Subsidiary; PROVIDED that any such Indebtedness is made pursuant to an
intercompany note in the form attached as an exhibit to the Indenture and,
in the case of Indebtedness of the Company owing to a Subsidiary, is
subordinated in right of payment from and after such time as the Notes shall
become due and payable (whether at Stated Maturity, upon acceleration or
otherwise) to the payment and performance of the Company's obligations under
the Notes; PROVIDED, FURTHER, that (x) any disposition, pledge or transfer
of any such Indebtedness to a Person (other than the Company or a Wholly
Owned Subsidiary) shall be deemed to be an incurrence of such Indebtedness
by the obligor not permitted by this clause (iv) and (y) any transaction
pursuant to which any Wholly Owned Subsidiary, which has Indebtedness owing
to the Company or any other Wholly Owned Subsidiary, ceases to be a Wholly
Owned Subsidiary shall be deemed to be the incurrence of Indebtedness by the
Company or such other Wholly Owned Subsidiary that is not permitted by this
clause (iv);
(v) any renewals, extensions, substitutions, refundings, refinancings or
replacements (collectively, a "refinancing") of any Indebtedness described
in clauses (ii) and (iii) of this definition of "Permitted Indebtedness,"
including any successive refinancings so long as the aggregate principal
amount of Indebtedness represented thereby is not increased by such
refinancing plus the lesser of (I) the stated amount of any premium or other
payment required to be paid in connection with such a refinancing pursuant
to the terms of the Indebtedness being refinanced or (II) the amount of
premium or other payment actually paid at such time to refinance the
Indebtedness, plus, in either case, the amount of expenses of the Company
incurred in connection with such refinancing and such refinancing does not
reduce the Average Life to Stated Maturity or the Stated Maturity of such
Indebtedness;
(vi) the Permitted Guarantees;
(vii) guarantees of any Subsidiary made in accordance with the provisions
of "-- Certain Covenants -- Limitation on Issuances of Guarantees of
Indebtedness by Subsidiaries;"
(viii) guarantees by Subsidiaries of Indebtedness of third parties
incurred in the ordinary course of business up to an aggregate amount
outstanding at any time of $ ; and
(ix) Indebtedness of the Company and any Subsidiary in addition to that
described in paragraphs (i) through (viii) of this definition of "Permitted
Indebtedness" in an aggregate principal amount outstanding at any given time
not to exceed $10 million.
"Permitted Investment" means (i) Investments in any Wholly Owned Subsidiary
or Investments by the Company or any Subsidiary in a Person, if as a result of
such Investment (a) such Person becomes a Wholly Owned Subsidiary or (b) such
Person is merged or consolidated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or any
Wholly Owned Subsidiary; (ii) Investments in the Notes; (iii) Indebtedness of
the Company or a Subsidiary described under clause (iv) of the definition of
"Permitted Indebtedness"; (iv) Temporary Cash Investments; (v) Investments in
existence on the date of the Indenture; and (vi) Investments in the Company's
14 1/2% Subordinated Discount Debentures due 2006.
"Permitted Liens" means the following:
(i) any Lien existing, or provided for under arrangements existing, as
of the date of the Indenture;
(ii) any Lien arising by reason of (1) any judgment, decree or order of
any court or other governmental authority, if appropriate legal proceedings
which may have been duly initiated for the review of such judgment, decree
or order shall not have been finally terminated or the period within which
such proceedings may be initiated shall not have expired; (2) taxes,
assessments or similar
67
<PAGE>
charges not yet delinquent or which are being contested in good faith; (3)
security for the payment of workers' compensation, unemployment insurance,
other social security benefits or other insurance-related obligations
(including but not limited to in respect of deductibles, self-insured
retention amounts and premiums and adjustments thereto); (4) deposits or
pledges in connection with bids, tenders, leases and contracts (other than
contracts for the payment of money); (5) zoning restrictions, easements,
licenses, reservations, provisions, covenants, conditions, waivers,
restrictions on the use of property or minor irregularities of title (and
with respect to leasehold interests, mortgages, obligations, liens and other
encumbrances incurred, created, assumed or permitted to exist and arising
by, through or under a landlord or owner of the leased property, with or
without consent of the lessee), none of which materially impairs the use of
any parcel of property material to the operation of the business of the
Company and its Subsidiaries taken as a whole or the value of such property
for the purpose of such business; (6) deposits or pledges to secure public
or statutory obligations, progress payments, surety and appeal bonds or
other obligations of like nature incurred in the ordinary course of
business; (7) certain surveys, exceptions, title of defects, encumbrances,
easements, reservations of, or rights of others for, rights of way, sewers,
electric lines, telegraph or telephone lines or other similar purposes or
zoning or other restrictions as to the use of real property not materially
interfering with the ordinary conduct of the business of the Company and its
Subsidiaries taken as a whole; or (8) operation of law in favor of
landlords, mechanics, carriers, warehousemen, materialmen, laborers,
employees, suppliers or the like, incurred in the ordinary course of
business for sums which are not yet delinquent or are being contested in
good faith by negotiations or by appropriate proceedings which suspend the
collection thereof;
(iii) any Lien securing Acquired Indebtedness created prior to (and not
created in connection with or in contemplation of) the incurrence of such
Indebtedness by the Company or any Subsidiary, which Indebtedness is
permitted under the provisions of "-- Certain Covenants -- Limitation on
Indebtedness";
(iv) any Lien securing Indebtedness incurred under the New Credit
Facility;
(v) any Lien created by Subsidiaries to secure Indebtedness of such
Subsidiaries to the Company; and
(vi) any Lien securing Purchase Money Obligations and Capital Lease
Obligations incurred pursuant to the provisions of "-- Certain Covenants
--Limitation on Indebtedness";
(vii) any extension, renewal, refinancing or replacement, in whole or in
part, of any Lien described in the foregoing clauses (i), (iii) and (iv) so
long as (1) the amount of security is not increased thereby, (2) the
aggregate amount of Indebtedness or other obligations secured by the Lien
after such extension, renewal, refinancing or replacement does not exceed
the aggregate amount of the Indebtedness or other obligations secured by the
existing Lien prior to such extension, renewal, refinancing or replacement
plus an amount equal to the lesser of (a) the stated premium required to be
paid in connection with such an extension, renewal, refinancing or
replacement pursuant to the terms of the Indebtedness or (b) the amount of
any premium actually paid by the Company to accomplish such extension,
renewal, refinancing or replacement and (3) the Indebtedness secured by such
Lien (other than Permitted Indebtedness) is permitted under the provisions
of "-- Certain Covenants -- Limitation on Indebtedness."
"Permitted Subsidiary Indebtedness" means (i) Indebtedness of the
Subsidiaries of the Company in the aggregate principal amount outstanding not to
exceed $15 million at any given time and (ii) Indebtedness of the Subsidiaries
of the Company in the aggregate principal amount outstanding not to exceed $25
million at any given time under any agreement providing for subsidized financing
from any federal or state governmental agency.
"Person" means any individual, corporation, limited liability company,
limited or general partnership, joint venture, association, joint-stock company,
trust, unincorporated organization or government or any agency or political
subdivisions thereof.
68
<PAGE>
"Pledge Agreement" means the pledge agreement dated the date of the
Indenture among the Company, the Collateral Agent, the Trustee and the lenders
under the New Credit Facility.
"Preferred Stock" means, with respect to any Person, any Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over Capital
Stock of any other class in such Person.
"Public Offering" means an underwritten initial public offering of Qualified
Capital Stock (other than Preferred Stock) of the Company pursuant to a
registration statement that has been declared effective by the Commission
pursuant to the Securities Act which results in gross cash proceeds to the
Company of not less than $30 million.
"Purchase Money Obligation" means any Indebtedness secured by a Lien on
assets related to the business of the Company or its Subsidiaries, and any
additions and accessions thereto, which are purchased by the Company or any
Subsidiary at any time after the Notes are issued; PROVIDED, that (i) the
security agreement or conditional sales or other title retention contract
pursuant to which the Lien on such assets is created (collectively, a "Purchase
Money Security Agreement") shall be entered into within 90 days after the
purchase or substantial completion of the construction of such assets and shall
at all times be confined solely to the assets so purchased or acquired, any
additions and accessions thereto and any proceeds therefrom, (ii) at no time
shall the aggregate principal amount of the outstanding Indebtedness secured
thereby be increased, except in connection with the purchase of additions and
accessions thereto and except in respect of fees and other obligations in
respect of such Indebtedness and (iii)(A) the aggregate outstanding principal
amount of Indebtedness secured thereby (determined on a per asset basis in the
case of any additions and accessions) shall not at the time such Purchase Money
Security Agreement is entered into exceed 100% of the purchase price to the
Company or any Subsidiary of the assets subject thereto or (B) the Indebtedness
secured thereby shall be with recourse solely to the assets so purchased or
acquired, any additions and accessions thereto and any proceeds therefrom.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that, either by its terms
or by the terms of any security into which it is convertible or exchangeable or
otherwise, is, or upon the happening of an event or passage of time would be,
required to be redeemed prior to any Stated Maturity of the principal of the
Notes or is redeemable at the option of the holder thereof at any time prior to
any such Stated Maturity, or is convertible into or exchangeable for debt
securities at any time prior to any such Stated Maturity at the option of the
holder thereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means Indebtedness of the Company other than
Subordinated Indebtedness.
"Stated Maturity" when used with respect to any Indebtedness or any
installment of interest thereon, means the dates specified in such Indebtedness
as the fixed date on which the principal of such Indebtedness or such
installment of interest, as the case may be, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company subordinated
in right of payment to the Notes.
"Subsidiary" means any Person a majority of the equity ownership or the
Voting Stock of which is at the time owned, directly or indirectly, by the
Company or by one or more other Subsidiaries, or by the Company and one or more
other Subsidiaries.
"Temporary Cash Investments" means (i) any evidence of Indebtedness,
maturing not more than one year after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof, and
guaranteed fully as to principal, premium, if any, and interest by the United
States of
69
<PAGE>
America, (ii) any certificate of deposit or money market deposit, maturing not
more than one year after the date of acquisition, issued by, or time deposit of,
a commercial banking institution that is a member of the Federal Reserve System
and that has combined capital and surplus and undivided profits of not less than
$250,000,000, whose debt has 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. ("Moody's") or any successor rating agency, or "A-1" or higher according to
Standard & Poor's Corporation ("S&P") or any successor rating agency (iii)
commercial paper, maturing not more than 180 days after the date of acquisition,
issued by a corporation (other than an Affiliate or Subsidiary of the Company)
organized and existing under the laws of 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 or any successor rating agency or "A-1" (or higher)
according to S&P or any successor rating agency, and (iv) any repurchase
obligation with a term of not more than 90 days for direct obligations of the
United States of America entered into with a bank meeting the qualifications
described in clause (ii) above.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Voting Stock" means stock of the class or classes pursuant to which the
holders thereof have in respect of a corporation, the general voting power under
ordinary circumstances to elect at least a majority of the board of directors,
managers or trustees of a corporation (irrespective of whether or not at the
time stock of any other class or classes shall have or might have voting power
by reason of the happening of any contingency).
"Wholly Owned Subsidiary" means a Subsidiary all the outstanding Capital
Stock (other than directors' qualifying shares) of which are owned by the
Company or another Wholly Owned Subsidiary.
70
<PAGE>
UNDERWRITING
Subject to certain terms and conditions of the Underwriting Agreement, Alex.
Brown & Sons Incorporated and SPP Hambro & Co. (the "Underwriters") have agreed
to purchase from the Company the following respective principal amounts of the
Notes:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Alex. Brown & Sons Incorporated................................................................ $
SPP Hambro & Co................................................................................
-----------------
Total.......................................................................................... $ 225,000,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent.
The Underwriting Agreement also provides that the Company will indemnify the
Underwriters against certain liabilities and expenses, including liabilities
under the Securities Act, or will contribute to payments that the Underwriters
may be required to make in respect thereof. The nature of the Underwriters'
obligations is such that they are committed to purchase all of the Notes if any
Notes are purchased.
The Underwriters propose to offer the Notes directly to the public initially
at the public offering price set forth on the cover page of this Prospectus.
After the initial public offering of the Notes, the offering price and other
selling terms may be changed by the Underwriters.
There is no existing trading market for the Notes and there can be no
assurance as to the liquidity of any market that may develop for the Notes. The
Underwriters have advised the Company that they currently intend to make a
market in the Notes. However, the Underwriters are not obligated to do so, and
any market making with respect to the Notes may be discontinued at any time
without notice.
NBD Bank, N.A. will receive a fee from the Company for acting as the
Company's financial advisor in connection with the offering.
LEGAL MATTERS
The validity of the Notes will be passed upon for the Company by Hutton
Ingram Yuzek Gainen Carroll & Bertolotti, New York, New York. Certain legal
matters will be passed upon for the Underwriters by Fried, Frank, Harris,
Shriver & Jacobson (a partnership including professional corporations), New
York, New York. As to certain matters concerning the laws of the State of
Florida, Hutton Ingram Yuzek Gainen Carroll & Bertolotti and Fried, Frank,
Harris, Shriver & Jacobson will rely upon the opinions of Greenberg, Traurig,
Hoffman, Lipoff, Rosen & Quentel, P.A.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1992
and 1991, and for each of the three years in the period ended December 31, 1992,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young, independent auditors, as set forth in their report thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
71
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
International Controls Corp. and Subsidiaries
Report of Independent Auditors.......................................................................... F-2
Consolidated Balance Sheets as of December 31, 1992 and 1991............................................ F-3
Consolidated Statements of Shareholders' Deficit for the Years Ended December 31, 1992, 1991 and 1990... F-4
Consolidated Statements of Operations for the Years Ended December 31, 1992, 1991 and 1990.............. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1992, 1991 and 1990.............. F-6
Notes to Consolidated Financial Statements -- December 31, 1992......................................... F-7
Consolidated Balance Sheets at September 30, 1993 (unaudited) and December 31, 1992..................... F-23
Consolidated Statements of Operations for the Three Months Ended September 30, 1993 and September 30,
1992 (unaudited)....................................................................................... F-24
Consolidated Statements of Operations for the Nine Months Ended September 30, 1993 and September 30,
1992 (unaudited)....................................................................................... F-25
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1993 and September 30,
1992 (unaudited)....................................................................................... F-26
Notes to Consolidated Financial Statements -- September 30, 1993 (unaudited)............................ F-27
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
International Controls Corp.
We have audited the accompanying consolidated balance sheets of
International Controls Corp. and subsidiaries as of December 31, 1992 and 1991,
and the related consolidated statements of operations, shareholders' deficit and
cash flows for each of the three years in the period ended December 31, 1992.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
International Controls Corp. and subsidiaries at December 31, 1992 and 1991, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1992, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG
Kalamazoo, Michigan
March 5, 1993
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1992 1991
--------- ---------
<S> <C> <C>
Cash and cash equivalents................................................................... $ 42,199 $ 41,057
Accounts receivable, less allowance for doubtful accounts of $623
(1991 -- $606) (Note G).................................................................... 64,115 51,897
Current portion of finance lease receivables................................................ 2,352 3,996
Inventories (Notes D and G)................................................................. 71,861 64,041
Other current assets........................................................................ 8,897 9,995
--------- ---------
TOTAL CURRENT ASSETS.................................................................... 189,424 170,986
Property, plant and equipment, net (Notes E, G and H)....................................... 119,492 125,681
Insurance Subsidiary's investments (Note F)................................................. 84,616 76,792
Noncurrent finance lease receivables (Notes C and G)........................................ 2,863 6,402
Cost in excess of net assets acquired, net of accumulated amortization of $5,002 (1991 --
$3,752).................................................................................... 44,993 46,243
Trademark, net of accumulated amortization of $1,400
(1991 -- $1,050)........................................................................... 12,046 12,396
Other assets (Note H)....................................................................... 22,963 31,461
--------- ---------
TOTAL ASSETS............................................................................ $ 476,397 $ 469,961
--------- ---------
--------- ---------
</TABLE>
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1992 1991
--------- ---------
<S> <C> <C>
Accounts payable........................................................................... $ 58,081 $ 50,280
Notes payable (Note G)..................................................................... 5,000 4,000
Income taxes payable (Note K).............................................................. 6,739 2,250
Accrued compensation....................................................................... 13,729 10,311
Accrued interest........................................................................... 11,596 12,789
Other accrued liabilities.................................................................. 30,833 23,481
Current portion of long-term debt.......................................................... 15,752 19,316
--------- ---------
TOTAL CURRENT LIABILITIES............................................................ 141,730 122,427
Long-term debt, excluding current portion (Note G):
Shareholders............................................................................. 30,000 30,000
Other.................................................................................... 259,616 263,008
--------- ---------
289,616 293,008
Insurance Subsidiary's unpaid losses and loss adjustment expenses.......................... 61,892 56,846
Unearned insurance premiums................................................................ 10,177 11,286
Other noncurrent liabilities............................................................... 38,252 42,707
Minority interest (Notes H and J).......................................................... 41,026 42,061
--------- ---------
TOTAL LIABILITIES.................................................................... 582,693 568,335
Shareholders' deficit (Notes A, F and G):
Common stock, par value $0.01:
Authorized 15,000,000 shares
Outstanding 9,036,700 shares........................................................... 90 90
Additional paid-in capital............................................................... 14,910 14,910
Retained earnings........................................................................ 7,045 14,600
Unrealized appreciation on Insurance Subsidiary's investments in equity securities....... 32 399
Notes receivable from shareholders....................................................... (625) (625)
Amount paid in excess of Checker's net assets............................................ (127,748) (127,748)
--------- ---------
TOTAL SHAREHOLDERS' DEFICIT.......................................................... (106,296) (98,374)
Commitments and contingencies (Note H).....................................................
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT.......................................... $ 476,397 $ 469,961
--------- ---------
--------- ---------
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
APPRECIATION AMOUNT PAID
(DEPRECIATION) NOTES IN EXCESS OF
ADDITIONAL ON INVESTMENTS RECEIVABLE CHECKER'S
COMMON PAID-IN RETAINED IN EQUITY FROM NET ASSETS
STOCK CAPITAL EARNINGS SECURITIES SHAREHOLDERS (NOTE A)
------------- ----------- ----------- --------------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1990.......... $ 90 $ 14,910 $ 2,943 $ (1,369) $ (625) $ (127,748)
Unrealized depreciation on investment
in equity securities................ -- -- -- (421) -- --
Net income........................... -- -- 7,475 -- -- --
--- ----------- ----------- ------- ------ ------------
BALANCES AT DECEMBER 31, 1990........ 90 14,910 10,418 (1,790) (625) (127,748)
Unrealized depreciation on investment
in equity securities................ -- -- -- 2,189 -- --
Net income........................... -- -- 4,182 -- -- --
--- ----------- ----------- ------- ------ ------------
BALANCES AT DECEMBER 31, 1991........ 90 14,910 14,600 399 (625) (127,748)
Unrealized appreciation on investment
in equity securities................ -- -- -- (367) -- --
Net loss............................. -- -- (7,555) -- -- --
--- ----------- ----------- ------- ------ ------------
BALANCES AT DECEMBER 31, 1992........ $ 90 $ 14,910 $ 7,045 $ 32 $ (625) $ (127,748)
--- ----------- ----------- ------- ------ ------------
--- ----------- ----------- ------- ------ ------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1992 1991 1990
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Trailer manufacturing and distribution................................ $ 536,336 $ 400,196 $ 491,532
Automotive products manufacturing..................................... 112,631 84,401 133,401
Vehicular operations including rental income of $37,382 (1991 --
$39,946; 1990 -- $41,614)........................................... 40,580 43,527 45,006
Insurance premiums earned............................................. 27,186 27,142 23,272
------------ ------------ ------------
716,733 555,266 693,211
COST OF REVENUES:
Cost of sales......................................................... (561,546) (428,949) (537,445)
Cost of vehicular operations.......................................... (30,120) (30,801) (29,937)
Cost of insurance operations.......................................... (19,204) (20,793) (17,298)
------------ ------------ ------------
(610,870) (480,543) (584,680)
------------ ------------ ------------
GROSS PROFIT............................................................ 105,863 74,723 108,531
Operating expenses:
Selling, general and administrative expense........................... (76,877) (72,032) (77,597)
Plant restructuring costs (Note M).................................... -- -- (7,500)
Interest expense........................................................ (42,726) (47,425) (61,596)
Interest income......................................................... 8,895 11,634 14,696
Other expense, net...................................................... (2,023) (1,078) (941)
------------ ------------ ------------
LOSS BEFORE MINORITY EQUITY, INCOME TAXES AND EXTRAORDINARY ITEMS....... (6,868) (34,178) (24,407)
Minority equity (Note J)................................................ -- 1,931 (2,296)
------------ ------------ ------------
LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEMS........................ (6,868) (32,247) (26,703)
Income tax benefit (expense) (Note K)................................... (687) 5,241 6,429
------------ ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEMS......................................... (7,555) (27,006) (20,274)
Extraordinary items (Note L)............................................ -- 31,188 27,749
------------ ------------ ------------
NET INCOME (LOSS)....................................................... $ (7,555) $ 4,182 $ 7,475
------------ ------------ ------------
------------ ------------ ------------
WEIGHTED AVERAGE NUMBER OF SHARES USED IN PER SHARE COMPUTATIONS........ 9,037 9,037 9,037
------------ ------------ ------------
------------ ------------ ------------
INCOME (LOSS) PER SHARE:
Loss before extraordinary items....................................... $ (0.84) $ (2.99) $ (2.24)
Extraordinary items (Note L).......................................... -- 3.45 3.07
------------ ------------ ------------
NET INCOME (LOSS)..................................................... $ (0.84) $ 0.46 $ 0.83
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1992 1991 1990
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................................... $ (7,555) $ 4,182 $ 7,475
Adjustment to reconcile net income (loss) to net cash provided by
operating activities:
Extraordinary gain...................................................... -- (31,188) (27,749)
Depreciation and amortization........................................... 21,054 20,931 20,784
Deferred income tax expense (benefit)................................... (4,311) 3,288 (3,610)
Amortization of cost in excess of net assets acquired................... 1,250 1,250 1,250
Amortization of debt discount........................................... 1,181 1,045 24,690
Net loss (gain) on sale of property, plant and equipment................ 217 275 (456)
Investment losses (gains)............................................... (690) 1,646 1,477
Increase (decrease) in minority equity.................................. -- (1,992) 2,150
Provision for plant restructuring....................................... -- -- 7,500
Other noncash charges................................................... 6,386 3,980 8,587
Changes in operating assets and liabilities:
Accounts receivable................................................... (12,401) 8,034 6,228
Finance lease receivables............................................. 5,131 7,213 9,308
Inventories........................................................... (7,820) (784) 2,020
Unbilled tooling charges.............................................. -- 35,181 (35,181)
Other assets.......................................................... -- 536 (2,679)
Accounts payable...................................................... 7,801 (3,007) 4,204
Income taxes.......................................................... 4,489 (17,398) (10,744)
Unpaid losses and loss adjustment expenses............................ 5,046 7,320 6,263
Unearned insurance premiums........................................... (1,109) (347) 3,156
Other liabilities..................................................... 6,529 (2,354) (12,305)
---------- ---------- ----------
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES.............................. 25,198 37,811 12,368
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment................................ $ (17,549) $ (16,457) $ (21,564)
Proceeds from disposal of property, plant and equipment and other
productive assets....................................................... 2,783 2,685 12,762
Purchase of investments................................................... (32,190) (19,228) (22,695)
Proceeds from sale of investments......................................... 31,617 18,732 16,227
---------- ---------- ----------
NET CASH FLOW USED IN INVESTING ACTIVITIES.................................. (15,339) (14,268) (15,270)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings.................................................. 32,090 20,530 35,300
Repayments of borrowings.................................................. (39,772) (43,610) (42,569)
Return of limited partner's capital....................................... (1,035) (821) (490)
---------- ---------- ----------
NET CASH FLOW USED IN FINANCING ACTIVITIES.................................. (8,717) (23,901) (7,759)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............................ 1,142 (358) (10,661)
Beginning cash and cash equivalents......................................... 41,057 41,415 52,076
---------- ---------- ----------
ENDING CASH AND CASH EQUIVALENTS............................................ $ 42,199 $ 41,057 $ 41,415
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
DECEMBER 31, 1992
NOTE A -- ORGANIZATION
The Company has two operating subsidiaries, Great Dane Trailers, Inc.
("Great Dane") and Checker Motors Corporation ("Checker"). During 1989, the
Company purchased all of the common stock of Checker, the general partner of
Checker Motors Co., L.P. ("Partnership"), a Delaware limited partnership (the
"Checker acquisition").
Immediately after the Checker acquisition, substantially all of Checker's
former shareholders purchased, through Checker Holding Corp. ("Holding"), all of
the outstanding common stock of the Company (the "Holding buyout"). Holding was
created solely for the purpose of acquiring the stock of the Company and was
subsequently merged into the Company. The Holding buyout has been accounted for
as if Checker acquired the Company (a "reverse acquisition"), since there was no
significant change in control of Checker.
Under generally accepted accounting principles for reverse acquisitions, the
net assets of Checker acquired in the Checker acquisition cannot be revalued to
estimated fair value. Accordingly, the $127.7 million excess of the amount paid
over the historical book value of Checker's net assets has been accounted for as
a separate component reducing shareholders' equity and is not subject to
amortization. The fair value of Checker's net assets, as estimated by
management, is significantly greater than historical book value, but no
appraisal of fair value is available.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of International Controls Corp. and its subsidiaries, including a
wholly-owned trailer leasing company, other greater than 50% owned companies,
the Partnership and the Partnership's wholly-owned subsidiaries, including
American Country Insurance Company ("Insurance Subsidiary"). All significant
intercompany accounts and transactions have been eliminated.
CASH EQUIVALENTS: The Company considers all highly liquid investments,
other than Insurance Subsidiary investments, with a maturity of three months or
less when purchased to be cash equivalents.
INVENTORIES: Inventories are stated at the lower of cost or market. The
cost of inventories is determined principally on the last-in, first-out ("LIFO")
method.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost. Depreciation is provided based on the assets' estimated useful lives,
principally by the straight-line method.
Estimated depreciable lives are as follows:
<TABLE>
<S> <C>
Buildings...................................................... 10-40 years
Transportation equipment....................................... 2-6 years
Machinery, equipment, furniture and fixtures................... 3-12 years
</TABLE>
INTANGIBLE ASSETS: Intangible assets, principally cost in excess of net
assets acquired, noncompete agreements and a trademark, are being amortized on
the straight-line basis over periods of 4 to 40 years.
MINORITY INTEREST: Minority interest represents the limited partner's
allocable share of the Partnership's net assets (see Notes H and J) and the
limited partner's allocable share of net assets of South Charleston Stamping and
Manufacturing Company ("SCSM").
REVENUE RECOGNITION: Revenues from sales of trailers that are manufactured
in response to customers' orders are recorded when such products are completed
and invoiced. Finance income is recognized as other income over the term of the
finance leases by applying the simple interest method to scheduled monthly
collections. Rental income from vehicle leases is recognized as earned. Vehicles
are generally leased on a daily or weekly basis to unaffiliated operators.
Insurance Subsidiary premiums are recognized
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
DECEMBER 31, 1992
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
as income ratably over the period covered by the policies. Unearned premium
reserves are calculated on the monthly pro-rata basis. Realized gains (losses)
on investments are determined on a specific identification basis and are
included in the determination of net income.
INCOME TAXES: Provision is made for deferred income taxes which arise from
differences between financial reporting and tax recognition of certain revenue
and expense items.
DEBT ISSUE EXPENSE: Expenses incurred in connection with the issuance of
debt are capitalized and amortized as interest expense over the life of the
debt.
LOSSES AND LOSS ADJUSTMENT EXPENSES: The Insurance Subsidiary's liability
for unpaid losses and loss adjustment expenses represents an estimate of the
ultimate net costs of all losses which are unpaid at the balance sheet dates,
and is determined using case-basis evaluations and statistical analysis. These
estimates are continually reviewed and any adjustments which become necessary
are included in current operations. Since the liability is based on estimates,
the ultimate settlement of losses and the related loss adjustment expenses may
vary from the amounts included in the consolidated financial statements.
RECLASSIFICATION: Certain 1991 amounts have been reclassified to conform to
the 1992 classifications.
NOTE C -- TRAILER LEASING OPERATIONS
Great Dane, through a wholly-owned leasing subsidiary, leases trailers under
operating and sales-type leases ("finance lease receivables"). The following is
a summary of the components of the subsidiary's net investment in finance lease
receivables (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1992 1991
--------- ---------
<S> <C> <C>
Minimum lease payments receivable...................................... $ 6,563 $ 12,757
Less: Unearned income.................................................. (669) (1,415)
Allowance for doubtful accounts.................................... (679) (944)
--------- ---------
5,215 10,398
Less amounts reflected as current...................................... (2,352) (3,996)
--------- ---------
Noncurrent portion..................................................... $ 2,863 $ 6,402
--------- ---------
--------- ---------
</TABLE>
Minimum lease payments are receivable as follows: $3.4 million in 1993, $1.7
million in 1994, $1.4 million in 1995.
Trailers subject to operating leases are included in transportation
equipment in the accompanying consolidated balance sheets. The cost and
accumulated depreciation of such trailers were $1.5 million and $0.6 million,
respectively, at December 31, 1992, and $2.6 million and $0.8 million,
respectively, at December 31, 1991.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
DECEMBER 31, 1992
NOTE D -- INVENTORIES
Inventories are summarized below (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1992 1991
--------- ---------
<S> <C> <C>
Raw materials.......................................................... $ 44,005 $ 39,975
Work-in-process........................................................ 8,803 8,355
Finished goods......................................................... 19,053 15,711
--------- ---------
$ 71,861 $ 64,041
--------- ---------
--------- ---------
</TABLE>
Inventories would not differ materially if the first-in, first-out costing
method were used for inventories costed by the LIFO method.
NOTE E -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized below (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1992 1991
----------- -----------
<S> <C> <C>
Land and buildings.................................................. $ 46,131 $ 44,874
Transportation equipment............................................ 37,392 36,700
Machinery, equipment, furniture and fixtures........................ 106,261 101,177
----------- -----------
189,784 182,751
Less accumulated depreciation and amortization...................... (70,292) (57,070)
----------- -----------
$ 119,492 $ 125,681
----------- -----------
----------- -----------
</TABLE>
NOTE F -- INVESTMENTS
Insurance Subsidiary investments, which are generally reserved for Insurance
Subsidiary operations, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1992 1991
--------- ---------
<S> <C> <C>
Fixed maturities (bonds and notes)--at cost, adjusted for amortization
of premium or discount and other than temporary declines in market
value................................................................. $ 75,950 $ 72,943
Equity securities (common and non-redeemable preferred stocks)--at
current market value (cost--$8,634 in 1992 and $3,450 in 1991)........ 8,666 3,849
--------- ---------
$ 84,616 $ 76,792
--------- ---------
--------- ---------
</TABLE>
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
DECEMBER 31, 1992
NOTE F -- INVESTMENTS (CONTINUED)
The amortized cost, gross unrealized gains and losses and estimated market
values of fixed-maturity investments held by the Insurance Subsidiary are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1992
-----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies..................... $ 3,039 $ 163 $ -- $ 3,202
Obligations of states and political subdivisions.......... 11,633 479 22 12,090
Mortgage-backed securities................................ 3,292 42 -- 3,334
Corporate and other debt securities....................... 57,986 2,475 264 60,197
----------- ------------ ----- -----------
$ 75,950 $ 3,159 $ 286 $ 78,823
----------- ------------ ----- -----------
----------- ------------ ----- -----------
<CAPTION>
DECEMBER 31, 1991
-----------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies..................... $ 3,005 $ 180 $ -- $ 3,185
Obligations of states and political subdivisions.......... 11,004 366 36 11,334
Mortgage-backed securities................................ 157 5 -- 162
Corporate and other debt securities....................... 58,777 2,540 528 60,789
----------- ------------ ----- -----------
$ 72,943 $ 3,091 $ 564 $ 75,470
----------- ------------ ----- -----------
----------- ------------ ----- -----------
</TABLE>
The amortized cost and estimated market value of fixed-maturity investments
at December 31, 1992, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED MARKET
COST VALUE
----------- -----------
<S> <C> <C>
Due in one year or less................................................................. $ 10,019 $ 10,086
Due after one year through five years................................................... 27,087 28,176
Due after five years through ten years.................................................. 18,212 16,278
Due after ten years..................................................................... 17,340 20,949
----------- -----------
72,658 75,489
Mortgage-backed securities.............................................................. 3,292 3,334
----------- -----------
$ 75,950 $ 78,823
----------- -----------
----------- -----------
</TABLE>
Proceeds from sales of fixed-maturity investments were $21.7 million for
1992 and $13.6 million for 1991. Gross gains of $0.6 million and no gross losses
were realized during 1992 and gross gains of $0.1 million and gross losses of $1
million were realized on those sales during 1991.
Bonds with an amortized cost of $1.2 million at December 31, 1992, were on
deposit to meet certain regulatory requirements.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
DECEMBER 31, 1992
NOTE F -- INVESTMENTS (CONTINUED)
Realized gains (losses) for 1992, 1991 and 1990 including other than
temporary declines in market value, and unrealized appreciation (depreciation)
on fixed maturity and equity security investments of the Insurance Subsidiary
are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
FIXED EQUITY
MATURITIES SECURITIES TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
1992
Realized gains............................................................. $ 34 $ 656 $ 690
Unrealized depreciation.................................................... -- (367) (367)
----------- ----------- ---------
$ 34 $ 289 $ 323
----------- ----------- ---------
----------- ----------- ---------
1991
Realized losses............................................................ $ (897) $ (730) $ (1,627)
Unrealized appreciation.................................................... -- 1,847 1,847
----------- ----------- ---------
$ (897) $ 1,117 $ 220
----------- ----------- ---------
----------- ----------- ---------
1990
Realized losses............................................................ $ (1,031) $ (446) $ (1,477)
Unrealized depreciation.................................................... -- (502) (502)
----------- ----------- ---------
$ (1,031) $ (948) $ (1,979)
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
NOTE G -- BORROWINGS
Long-term debt is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1992 1991
----------- -----------
<S> <C> <C>
12 3/4% Senior Subordinated Debentures less debt discount of $12,330 (1991--$13,158).... $ 119,710 $ 117,032
14 1/2% Subordinated Discount Debentures less debt discount of $6,697 (1991--$6,840).... 54,650 54,507
Notes payable to shareholders........................................................... 30,000 30,000
Great Dane term loan payable............................................................ 26,167 30,267
Great Dane revolving credit line........................................................ 17,620 16,530
Partnership term loan payable........................................................... 28,500 --
Equipment term loan..................................................................... 7,300 8,450
SCSM term loan payable.................................................................. -- 21,000
Economic Development term loan.......................................................... 11,389 11,802
Installment notes....................................................................... 5,079 9,342
Industrial revenue bonds................................................................ -- 6,670
Other debt.............................................................................. 4,953 6,724
----------- -----------
305,368 312,324
Less current portion.................................................................... (15,752) (19,316)
----------- -----------
$ 289,616 $ 293,008
----------- -----------
----------- -----------
</TABLE>
Interest on the $132 million face value of 12 3/4% Senior Subordinated
Debentures is payable semiannually at the stated rate. The recorded debt
discount is being amortized as interest expense over the expected life of the
debentures using an imputed interest rate of approximately 15% compounded
semiannually. Under the terms of the debentures, the Company's payment of
dividends is limited to,
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
DECEMBER 31, 1992
NOTE G -- BORROWINGS (CONTINUED)
among other things, 50% of consolidated net income subsequent to June 30, 1986,
plus $12 million. At December 31, 1992, the Company was restricted from paying a
dividend. The debentures are redeemable at the option of the Company in whole or
in part at a decreasing premium. The debentures are subject to redemptions
through a sinking fund whereby the Company is required to make five annual
sinking fund payments of $18 million commencing August 1, 1996, with the final
payment due August 1, 2001.
Interest on the $61 million face value of 14 1/2% Subordinated Discount
Debentures is payable semiannually at the stated rate. The recorded debt
discount is being amortized as interest expense over the expected life of the
debentures using an imputed interest rate of approximately 16.7% compounded
semiannually. The 14 1/2% debentures are subject to redemption through a sinking
fund whereby the Company is required to redeem, at their face value, on January
1 in each of the years 1997 through 2005, 7 1/2% of the principal amount of the
debentures outstanding on January 1, 1997. The balance of debentures are due
January 1, 2006. The debentures are callable any time at their face value and
are subordinated to all present or future indebtedness of the Company not
expressly subordinated to, or on a parity with, the debentures.
The notes payable to shareholders are due September 30, 1997, or upon the
earlier payment in full of obligations under both the 1992 Partnership Loan and
Guaranty Agreement and the 1990 Great Dane loan and security agreement and bear
interest payable quarterly in arrears at an annual rate equal to the prime rate
of a New York bank (6% at December 31, 1992) plus 3 1/2%.
In March 1990, Great Dane entered into a five year loan and security
agreement ("Agreement") with certain banks. The Agreement made available to
Great Dane a $33 million five-year term loan and a $47 million revolving credit
line. The amount available under the revolving credit line is based upon the
amount of Great Dane's eligible trade accounts receivable and inventory as
defined in the Agreement. The additional amount available under the revolving
credit line under the borrowing base terms of the Agreement totaled $24.5
million at December 31, 1992. In February 1993, the maximum revolving line of
credit was increased to $65 million. The term loan is payable in equal monthly
installments of $0.34 million plus interest at the bank's prime interest rate
(6% at December 31, 1992) plus 1 1/2%, with the balance due in March 1995. The
revolving credit line is due in 1995 and requires interest payments at the
bank's prime rate (6% at December 31, 1992) plus 1 1/2%.
All borrowings under the Agreement are fully secured by substantially all of
the Great Dane assets not pledged elsewhere. The Agreement requires Great Dane
to, among other things, comply with certain financial covenants, and limits
additional loans to the Company, limits additions to and sales of Great Dane's
fixed assets and limits additional Great Dane borrowings. Under the most
restrictive covenant, no additional transfer of funds to the Company are
available until after December 31, 1992.
During September 1992, the Partnership entered into a Loan and Guaranty
Agreement with a bank pursuant to which the bank provided a $30 million term
loan to the Partnership. The proceeds from the term loan were used to repay the
amount outstanding on the SCSM term loan payable, which indebtedness had been
guaranteed by the Partnership, and to pay certain costs associated with the
financing. The remainder of the proceeds are available for other corporate
purposes. The term loan requires twenty quarterly principal payments of $1.5
million, plus interest at the bank's prime rate (6% at December 31, 1992) plus
1 1/4%, which payments commenced December 31, 1992. The term loan is secured by
substantially all of the Partnership's assets, excluding the stock of the
Insurance Subsidiary. The term loan agreement, which is guaranteed by Checker,
requires Checker to, among other things, comply with certain financial covenants
and limits additional loans to Checker.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
DECEMBER 31, 1992
NOTE G -- BORROWINGS (CONTINUED)
The equipment term loan requires quarterly payments of $0.3 million plus
interest at the bank's prime rate (6% at December 31, 1992) plus 1 1/4%.
Quarterly principal payments increase to $0.5 million in April 1993. The
obligation is secured by certain machinery and equipment with a net carrying
amount of $7.1 million at December 31, 1992.
In connection with the Partnership term loan and the equipment term loan,
Checker is required to comply with certain financial covenants. Under the most
restrictive covenant, no additional transfers of funds to the Company are
available until after December 31, 1992.
The economic development term loan, which is guaranteed by Motors, is
payable by SCSM to the West Virginia Economic Development Authority, and
requires monthly payments of $0.1 million, including interest at 6.6875% with
the unpaid balance due 2008. The interest rate will be adjusted in April 1993,
1998 and 2003, so as to remain equal to 75% of the base rate, as defined, plus
1/2%. The loan is secured by certain machinery and equipment with a net carrying
amount of $27.8 million at December 31, 1992.
The installment notes are secured by the Company's finance lease receivables
and by the Company's rights under certain operating leases. The notes bear
interest at various fixed rates averaging approximately 10.3% and are payable in
varying monthly installments through 1995.
Maturities of long-term debt for the four years subsequent to 1993 are as
follows: $14.4 million in 1994, $45.2 million in 1995, $8.4 million in 1996 and
$53.4 million in 1997.
Interest paid totaled $42.4 million in 1992, $43.3 million in 1991 and $36.6
million in 1990.
SCSM has a line of credit with a bank totaling $5 million at December 31,
1992. Borrowing under the line ($5 million at December 31, 1992) bears interest
at the bank's prime rate (6% at December 31, 1992) plus 1%.
NOTE H -- COMMITMENTS AND CONTINGENCIES
The Company has been served by the Boeing Company ("Boeing") with a
complaint for clean up costs resulting from groundwater contamination to a site
where former subsidiaries of the Company conducted business operations. The
Company has been advised by Boeing's counsel that Boeing has estimated a 90%
probability that the costs of remediation for the first aquifer would total
between $20 million and $50 million. There has, as yet, been no determination of
the amount of the Company's liability, if any. The Company has given written
notice to certain insurance carriers advising them of the complaint and
notifying them that the Company may be insured by them under certain insurance
policies then in effect. Further, the Company has served notice to a third party
that the third party may have been a contributor to the groundwater
contamination. The insurance carriers have continued to fund the Company's
defense while expressly reserving the right to deny a duty to indemnify the
Company should it be found liable.
On March 4, 1992, Checker received notice that the Insurance Commissioner of
the State of California, as Conservator and Rehabilitator of Executive Life
Insurance Company of California ("ELIC"), a limited partner of the Partnership,
had filed an Amendment to the Application for Order of Conservation filed in
Superior Court of the State of California for the County of Los Angeles. The
amendment seeks to add to the Order, dated April 11, 1991, Checker, the
Partnership and Checker Holding Corp. III, a limited partner of the Partnership.
The amendment alleges that the action by Checker invoking provisions of the
Partnership Agreement that alter ELIC's rights in the Partnership upon the
occurrence of certain events is improper and constitutes an impermissible
forfeiture of ELIC's interest in the Partnership and a breach of fiduciary duty
to ELIC. The amendment seeks (a) a declaration of the rights of the parties in
the Partnership and (b) damages in an unspecified amount. The Partnership
believes that it has
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
DECEMBER 31, 1992
NOTE H -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
meritorious defenses to the claims of ELIC and intends to defend this action
vigorously. If ELIC's rights under the Partnership Agreement had not been
altered, net income for 1992 and 1991 would have been reported at $0.7 million
less and $3.3 million less, respectively, than the amount reported (see Note J).
In 1988, Great Dane entered into an operating agreement with the purchaser
of a previously wholly-owned finance company ("Finance"). Under the terms of the
agreement, the purchaser is given the opportunity to finance certain sales of
Great Dane. The 1988 operating agreement requires that Great Dane, among other
things, (i) not materially alter the sale and/or distribution of its products
for the first five years, (ii) not finance the sale of its products for the
first eight years and (iii) maintain a minimum net worth as defined in the
agreement. In addition, under this operating agreement, Great Dane is liable to
the purchaser for 50% of losses incurred in connection with the realization of
certain new receivables financed by the purchaser subsequent to the sale of
Finance. Failure to comply with these requirements of the agreement would result
in Great Dane having to repay the purchaser varying amounts reducing to $5
million during the year ending September 8, 1996. At December 31, 1992, Great
Dane was in compliance with the provisions of the operating agreement.
In addition, the Company's installment notes are payable to Finance. At
December 31, 1992, the Company was directly liable for the installment notes and
has guaranteed the realization of receivables of approximately $10.6 million in
connection with the sale of Finance and is partially responsible for the
realization of new receivables of approximately $104.6 million financed by the
purchaser under the operating agreement. In addition to Great Dane's guarantee,
these receivables are also collateralized by a security interest in the
respective trailers originally sold by Great Dane. A loss reserve of $2.2
million, for potential losses that may be incurred on the ultimate realization
of these receivables, is included in other accrued liabilities in the December
31, 1992 consolidated balance sheet.
To secure certain obligations, the Company and its subsidiaries had
outstanding letters of credit aggregating approximately $9.3 million at December
31, 1992, and $15.7 million at December 31, 1991, which letters of credit were
fully secured by cash deposits included in other assets in the consolidated
balance sheets.
The Company and its subsidiaries lease real estate and equipment. Certain
leases are renewable and provide for monthly rentals, real estate taxes and
other operating expenses. The Company believes that, in the normal course of
business, leases that expire will be renewed or replaced by other leases. Rental
expense under operating leases was approximately $3.8 million in 1992, $3.6
million in 1991 and $3.6 million in 1990. Minimum rental obligations for all
noncancelable operating leases at December 31, 1992 are as follows: $2.7 million
in 1993, $2.4 million in 1994, $2.2 million in 1995, $2.2 million in 1996, $2.1
million in 1997 and $15.8 million thereafter.
Management believes that none of the above legal actions, guarantees or
commitments will have a material adverse effect on the Company's financial
position.
NOTE I -- RETIREMENT PLANS
The Company and its subsidiaries have defined benefit pension plans
applicable to substantially all employees. The contributions to these plans are
based on computations by independent actuarial consultants. The Company's
general funding policy is to contribute amounts required to maintain funding
standards in accordance with the Employee Retirement Income Security Act.
Employees' benefits are based on years of service and the employees' final
average earnings, as defined by the plans.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
DECEMBER 31, 1992
NOTE I -- RETIREMENT PLANS (CONTINUED)
Net periodic pension cost includes the following components (dollars in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1992 1991 1990
--------- --------- ---------
<S> <C> <C> <C>
Service cost -- benefits earned (normal cost)................................... $ 1,473 $ 1,527 $ 1,702
Interest on projected benefit obligation........................................ 3,565 3,404 3,060
Return on investments........................................................... (2,718) (2,761) (2,776)
Net amortization and deferral................................................... 129 322 561
Curtailment loss................................................................ -- 456 --
--------- --------- ---------
Net periodic pension cost charged to expense.................................... $ 2,449 $ 2,948 $ 2,547
--------- --------- ---------
--------- --------- ---------
</TABLE>
As a result of the effect of the continued economic recession on the
automotive industry, the number of active pension plan participants in one of
the subsidiaries' defined benefit plans was substantially reduced during 1991,
resulting in a $0.5 million curtailment loss.
Gains and losses and prior service cost are amortized over periods ranging
from seven to fifteen years. Other assumptions used in the calculation of net
periodic pension cost were as follows:
<TABLE>
<S> <C>
Discount rate................. 8 1/4% - 9%
Rate of increase in
compensation levels.......... 4% - 5%
Long-term rate of return on
assets....................... 5% - 9 1/2%
</TABLE>
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheets (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1992 1991
---------- ----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations......................................... $ 37,181 $ 33,211
---------- ----------
---------- ----------
Accumulated benefit obligation..................................... $ 39,503 $ 35,047
---------- ----------
---------- ----------
Plan assets (principally guaranteed investment contracts with
insurance companies)................................................ $ 33,191 $ 31,953
Projected benefit obligation......................................... 46,771 42,296
---------- ----------
Projected benefit obligation in excess of plan assets................ (13,580) (10,343)
Unrecognized prior service cost...................................... 963 1,175
Unrecognized net loss (gain)......................................... 1,046 (972)
Minimum liability.................................................... (1,722) (1,138)
Unrecognized net obligation at transition............................ 2,048 2,277
---------- ----------
Pension liability recognized in the balance sheets................... (11,245) (9,001)
Less noncurrent liability............................................ 6,857 6,273
---------- ----------
Current pension liability............................................ $ (4,388) $ (2,728)
---------- ----------
---------- ----------
</TABLE>
Relative positions and undertakings in multiemployer pension plans covering
certain of the Partnership's employees are not presently determinable.
Expense related to defined contribution plans, which is based on a
stipulated contribution for hours worked or employee contributions, approximated
$0.5 million in 1992, $0.4 million in 1991 and $0.4 million in 1990.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
DECEMBER 31, 1992
NOTE I -- RETIREMENT PLANS (CONTINUED)
The Company and its subsidiaries provide health care and life insurance
benefits for certain retirees. The costs of retiree health care and life
insurance benefits are recognized as claims are paid. The amount charged to
expense for these benefits was approximately $2.5 million in 1992, $2 million in
1991 and $1.9 million in 1990.
In December 1990, the Financial Accounting Standards Board issued new rules
that require that the projected future cost of providing postretirement
benefits, such as health care and life insurance, be recognized as an expense as
employees render service instead of when the benefits are paid. Companies can
elect to record the cumulative effect of the accounting change as a charge
against income in the year the rules are adopted, or alternatively, on a
prospective basis as a part of the future annual benefit cost.
The Company is required to comply with the new rules in 1993. Although the
Company has not yet finalized the complex analyses required, tentative estimates
indicate that the cumulative pre-tax charge of adopting these new rules will be
approximately $46.4 million. The Company anticipates that, upon adoption, the
adjustment will be recorded as a cumulative adjustment.
NOTE J -- MINORITY EQUITY
On April 11, 1991, ELIC was placed in conservatorship. In accordance with
the provisions of the Partnership Agreement, the Partnership continues, but
ELIC's interest in the Partnership and rights under the Partnership Agreement
are limited to the right to receive the balance of its capital account as
calculated and on the terms set forth in the Partnership Agreement. For
financial reporting purposes, partnership earnings had previously been allocated
to ELIC's capital account based on book income and the minority equity amount
was calculated accordingly (the "GAAP Capital Account Amount"). The Partnership
Agreement, however, provides for allocations of the partnership earnings to
ELIC's capital account on a basis that differs from book income and calculation
of the minority equity amount thereunder is to be made accordingly (the
"Partnership Agreement Capital Account Amount"). Because the provisions of the
Partnership Agreement require that ELIC's capital account be fixed and
calculated as of April 11, 1991, minority equity for the year ended December 31,
1991, includes a $2.3 million credit representing the adjustment of ELIC's
capital account from the GAAP Capital Account Amount as of April 11, 1991, to
the Partnership Agreement Capital Account Amount as of the same date (the "Final
Capital Account"). The Final Capital Account, which totaled $41 million at
December 31, 1992, is being paid out in level quarterly installments of $0.9
million, including interest at 7% per annum, through the year 2013.
Prior to ELIC being placed in conservatorship, Checker, as general partner
of the Partnership, had an income allocation agreement with ELIC. Net earnings
were generally allocated to the partners as follows:
During the initial period (commencing with the date of formation of the
Partnership, March 5, 1986, and terminating on the earlier to occur of
December 31, 1990, or the date at which the limited partner's excess capital
account, as defined, equals at least $40 million) net earnings were
generally allocated 90% to the limited partner and 10% to the general
partner.
During 1988, the $40 million threshold was achieved and net earnings
were subsequently allocated 90% to the general partner and 10% to the
limited partner, as provided by the partnership agreement.
Generally, during the initial period, the Partnership Agreement also
provided for distributions of an amount sufficient to pay federal, state and
local income taxes of the general partner, and state and local taxes of the
Limited Partner, based on each partner's distributive share of partnership
earnings.
Effective January 1, 1989 through April 10, 1991, distributions accrued to
the limited partner were increased to also provide for payment of federal income
taxes.
F-16
<PAGE>
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1992
NOTE K -- INCOME TAXES
The components of income tax benefit (expense) before extraordinary items
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1992 1991 1990
--------- --------- ---------
<S> <C> <C> <C>
Current taxes:
Federal............................................................. $ (3,296) $ 9,261 $ 4,066
State............................................................... (1,702) (732) (1,247)
--------- --------- ---------
(4,998) 8,529 2,819
Deferred taxes........................................................ 4,311 (3,288) 3,610
--------- --------- ---------
Income tax benefit (expense).......................................... $ (687) $ 5,241 $ 6,429
--------- --------- ---------
--------- --------- ---------
</TABLE>
The components of the deferred tax benefit (expense) are as follows (dollars
in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1992 1991 1990
--------- --------- ---------
<S> <C> <C> <C>
Tax depreciation less than (in excess of) book depreciation............. $ 1,742 $ (2,215) $ (3,036)
Finance leases.......................................................... (37) (17) (573)
Deferred compensation................................................... (1) (4) --
Inventory reserves...................................................... 505 15 449
Financing costs......................................................... (75) (22) 370
Warranty reserves....................................................... 22 17 935
Other reserves.......................................................... 602 (660) 2,999
Partnership allocation.................................................. 1,469 1,485 197
Alternative minimum tax................................................. -- (2,223) 2,223
Other................................................................... 84 336 46
--------- --------- ---------
Deferred tax benefit (expense).......................................... $ 4,311 $ (3,288) $ 3,610
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income tax benefit (expense) differs from the amount computed by applying
the statutory federal income tax rate to loss before income taxes and
extraordinary items. The reasons for these differences are as follows (dollars
in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1992 1991 1990
--------- --------- ---------
<S> <C> <C> <C>
Computed expected tax benefit......................................... $ 2,335 $ 10,964 $ 9,079
(Increase) decrease in taxes resulting from:
State income taxes, net of federal income tax benefit............... (1,123) (483) (823)
Appraisal depreciation.............................................. (1,024) (1,033) (1,168)
Amortization of goodwill and other items............................ (530) (530) (496)
Investment tax credit recapture..................................... -- -- (100)
Nontaxable Partnership income....................................... 574 1,400 169
Increase in tax accruals............................................ (319) (4,527) --
Other............................................................... (600) (550) (232)
--------- --------- ---------
Actual tax benefit (expense).......................................... $ (687) $ 5,241 $ 6,429
--------- --------- ---------
--------- --------- ---------
</TABLE>
In February 1992, the Financial Accounting Standards Board issued Statement
No. 109, "Accounting for Income Taxes." The Company is required to adopt the
provisions of this statement in 1993. Although
F-17
<PAGE>
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE K -- INCOME TAXES (CONTINUED)
the Company has not yet finalized the complex analyses, tentative estimates
indicate that the cumulative adjustment of adopting these new rules will be a
charge of approximately $6.4 million. The Company anticipates that, upon
adoption, the adjustment will be recorded through a cumulative effect
adjustment.
Income taxes paid totaled $3.9 million in 1992, $8.6 million in 1991 and
$11.5 million in 1990.
NOTE L -- EXTRAORDINARY ITEMS
During 1991, the Company repurchased $66.2 million face value ($58.7 million
net carrying value) of the 14 1/2% Subordinated Discount Debentures at an
average cost of 36% of face value. Additionally, the Company repurchased $7.6
million face value ($6.8 million net carrying value) of the 12 3/4% Senior
Subordinated Debentures at an average cost of 40% of face value. The resulting
gain of $31.2 million on these repurchases, net of taxes of $6.8 million, has
been classified as an extraordinary item. Upon the completion of the Company's
1990 federal income tax return, management elected to treat certain
extraordinary gains under an alternative election available under the Internal
Revenue Code, which resulted in these gains, on which deferred income taxes had
been provided in prior periods, not being subject to tax. This change in
estimate had the effect of increasing the extraordinary gain and net income by
$8 million in the year ended December 31, 1991.
During 1990, the Company repurchased $78.7 million face value ($67.1 million
net carrying value) of the 14 1/2% Subordinated Discount Debentures at an
average cost of 33% of face value. Additionally, the Company repurchased $10.4
million face value ($9.3 million net carrying value) of the 12 3/4% Senior
Subordinated Debentures at an average cost of 45% of face value. The resulting
gain of $27.7 million on these repurchases, net of taxes of $17.7 million, has
been classified as an extraordinary item.
NOTE M -- PLANT RESTRUCTURING COSTS
In December 1990, a $7.5 million provision for plant restructuring expenses
was recorded in connection with a cost reduction and downsizing effort at a
Great Dane manufacturing facility. During a temporary suspension of production
at this facility, the manufacturing process was revamped in layout and work flow
and the production capacity was reduced. The downsizing also necessitated a
reduction in the Great Dane work force at this facility. The provision for
restructuring costs is composed mainly of estimated accruals for termination
benefits, moving and rearrangement costs.
NOTE N -- RELATED PARTY TRANSACTIONS
An officer of the Insurance Subsidiary is the owner of a taxicab association
established in 1988 in the City of Chicago to which both Company affiliated and
independent taxi drivers may belong for a fee, and through which the members may
obtain automobile liability insurance from the Insurance Subsidiary and other
maintenance and rental services. The association purchases services from various
Checker operations and reimburses the operations for certain management, general
and administrative costs. Amounts received from the association totaled $3.3
million in 1992, $2.6 million in 1991 and $1.9 million in 1990. At December 31,
1992, Checker has guaranteed certain of the association's obligations totaling
$2.5 million.
The Company leases an airplane owned by a corporation of which a director is
the sole shareholder. Lease expenses totaled $0.7 million each year in 1992,
1991 and 1990.
Each of the Company's directors provides consulting services. Annual
expenses incurred relating to these consulting services totaled $1.4 million.
NOTE O -- INDUSTRY SEGMENT INFORMATION
The Company operates in four principal segments:
TRAILER MANUFACTURING SEGMENT: Manufacturing and distribution of
highway truck trailers.
F-18
<PAGE>
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE O -- INDUSTRY SEGMENT INFORMATION (CONTINUED)
AUTOMOTIVE PRODUCTS SEGMENT: Manufacturing metal stampings and
assemblies and coordination of related tooling production for motor vehicle
manufacturers.
VEHICULAR OPERATIONS SEGMENT: Leasing taxicabs.
INSURANCE OPERATIONS SEGMENT: Providing property and casualty insurance
coverage to the Partnership and to outside parties.
Automotive product net sales to General Motors Corporation totaled
approximately $109.1 million in 1992, $80.3 million in 1991 and $119.9 million
in 1990 (includes accounts receivable and unbilled tooling charges of $8.9
million and $5.7 million at December 31, 1992 and 1991, respectively).
Industry segment data is summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
TRAILER AUTOMOTIVE VEHICULAR INSURANCE
MANUFACTURING PRODUCTS OPERATIONS OPERATIONS ELIMINATIONS CONSOLIDATED
-------------- ----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1992
- ------------------------------------
Revenues:
Outside customers............... $ 536,336 $ 112,631 $ 40,580 $ 27,186 $ -- $ 716,733
Intersegment sales.............. -- 1 4,043 13,161 (17,205) --
-------------- ----------- ----------- ----------- ------------- -------------
$ 536,336 $ 112,632 $ 44,623 $ 40,347 $ (17,205) $ 716,733
-------------- ----------- ----------- ----------- ------------- -------------
-------------- ----------- ----------- ----------- ------------- -------------
Operating profit (loss)........... $ 17,590 $ 11,622 $ 5,727 $ (1,557) $ 33,382
Corporate expenses................ (4,396)
Interest income:
Segment......................... 1,168 6,321 7,489
Corporate....................... 1,406
Interest expense:
Segment......................... (5,852) (5,852)
Corporate....................... (36,874)
Other expenses, net............... (2,023)
-------------
Loss before income taxes and
extraordinary items.............. $ (6,868)
-------------
-------------
Identifiable assets............... $ 230,465 $ 66,561 $ 25,516 $ 100,594 $ 423,136
Partnership assets................ 38,712
Corporate assets.................. 14,549
-------------
Total assets at December 31,
1992............................. $ 476,397
-------------
-------------
</TABLE>
F-19
<PAGE>
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE O -- INDUSTRY SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
TRAILER AUTOMOTIVE VEHICULAR INSURANCE
MANUFACTURING PRODUCTS OPERATIONS OPERATIONS ELIMINATIONS CONSOLIDATED
-------------- ----------- ----------- ----------- ------------- -------------
Depreciation and amortization:
<S> <C> <C> <C> <C> <C> <C>
Segment......................... $ 6,303 $ 4,148 $ 10,099 $ 462 $ 21,012
Other........................... 42
Capital expenditures.............. 4,996 1,889 10,412 252 17,549
1991
- ------------------------------------
Revenues:
Outside customers............... $ 400,196 $ 84,401 $ 43,527 $ 27,142 $ -- $ 555,266
Intersegment sales.............. -- 5 3,635 12,735 (16,375) --
-------------- ----------- ----------- ----------- ------------- -------------
$ 400,196 $ 84,406 $ 47,162 $ 39,877 $ (16,375) $ 555,266
-------------- ----------- ----------- ----------- ------------- -------------
-------------- ----------- ----------- ----------- ------------- -------------
Operating profit (loss)........... $ 7,059 $ (4,237) $ 7,139 $ (2,872) $ 7,089
Corporate expenses................ (4,398)
Interest income:
Segment......................... 2,255 6,917 9,172
Corporate....................... 2,462
Interest expense:
Segment......................... (8,061) (8,061)
Corporate....................... (39,364)
Other expenses, net............... (1,078)
Minority equity................... 1,931
-------------
Loss before income taxes and
extraordinary items.............. $ (32,247)
-------------
-------------
Identifiable assets............... $ 227,551 $ 67,258 $ 28,357 $ 100,672 $ 423,838
Partnership assets................ 31,531
Corporate assets.................. 14,592
-------------
Total assets at December 31,
1991............................. $ 469,961
-------------
-------------
Depreciation and amortization:
Segment......................... $ 5,910 $ 4,237 $ 10,369 $ 367 $ 20,883
Other........................... 48
Capital expenditures.............. 3,208 1,190 10,181 1,878 16,457
1990
Revenues:
Outside customers............... $ 491,532 $ 133,401 $ 45,006 $ 23,272 $ -- $ 693,211
Intersegment sales.............. -- 13 3,788 13,456 (17,257) --
-------------- ----------- ----------- ----------- ------------- -------------
$ 491,532 $ 133,414 $ 48,794 $ 36,728 $ (17,257) $ 693,211
-------------- ----------- ----------- ----------- ------------- -------------
-------------- ----------- ----------- ----------- ------------- -------------
</TABLE>
F-20
<PAGE>
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE O -- INDUSTRY SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
TRAILER AUTOMOTIVE VEHICULAR INSURANCE
MANUFACTURING PRODUCTS OPERATIONS OPERATIONS ELIMINATIONS CONSOLIDATED
-------------- ----------- ----------- ----------- ------------- -------------
Operating profit (loss)........... $ 13,109 $ 9,669 $ 9,751 $ (980) $ 31,549
<S> <C> <C> <C> <C> <C> <C>
Corporate expenses................ (8,115)
Interest income:
Segment......................... 5,788 6,061 11,849
Corporate....................... 2,847
Interest expense:
Segment......................... (7,265) (7,265)
Corporate....................... (54,331)
Other expenses, net............... (941)
Minority equity................... (2,296)
-------------
Loss before income taxes and
extraordinary items.............. $ (26,703)
-------------
-------------
Identifiable assets............... $ 271,385 $ 106,452 $ 29,453 $ 91,871 $ 499,161
Partnership assets................ 16,653
Corporate assets.................. 14,962
-------------
Total assets at December 31,
1990............................. $ 530,776
-------------
-------------
Depreciation and amortization:
Segment......................... $ 6,212 $ 4,563 $ 9,788 $ 162 $ 20,725
Other........................... 59
Capital expenditures:.............
Segment......................... 2,040 4,949 14,499 55 21,543
Other........................... 21
</TABLE>
Intersegment sales are accounted for at prices comparable to normal unaffiliated
customer sales. Corporate and Partnership assets consist of short-term
investments, savings deposits and certain other assets.
NOTE P -- FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
the fair value of financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.
FINANCE LEASE RECEIVABLES: The fair values of the Company's finance lease
receivables are estimated using discounted cash flow analyses based on current
market rates for similar types of financing.
INDEBTEDNESS: The carrying amounts of the Company's notes payable to
shareholders, Great Dane term loan payable, Great Dane revolving credit line,
Partnership term loan payable, equipment term loan and line of credit
approximate their fair value. The fair values of the Company's 12 3/4% Senior
Subordinated Debentures and 14 1/2% Subordinated Discount Debentures are based
on quoted market prices. The fair values of the Company's other indebtedness is
estimated using discounted cash flow analyses based on current market rates.
F-21
<PAGE>
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE P -- FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and fair values of the Company's finance lease
receivables and indebtedness at December 31, 1992, are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
----------------- -----------
<S> <C> <C>
Finance lease receivables......................................................... $ 5,215 $ 5,388
Long-term debt.................................................................... $ 310,368 $ 302,079
</TABLE>
NOTE Q -- SELECTED QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
1992 1991
QUARTER ENDED QUARTER ENDED
----------------------------------------------------- -----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- --------- -------------- ------------- ----------- --------- -------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............ $ 166,079 $ 185,070 $ 177,453 $ 188,131 $ 131,742 $ 126,891 $ 141,004 $ 155,629
Gross profit........ 24,437 27,551 26,115 27,760 16,519 17,616 17,783 22,805
Income (loss) before
extraordinary
items.............. (2,885) 105 (4,307) (468) (9,386) (5,139) (5,710) (6,771)
Extraordinary
items.............. -- -- -- -- 23,214 -- 7,974 --
Net income (loss)... (2,885) 105 (4,307) (468) 13,828 (5,139) 2,264 (6,771)
Income (loss) per
share:
Income (loss)
before
extraordinary
items............ $ (0.32) $ 0.01 $ (0.48) $ (0.05) $ (1.04) $ (0.57) $ (0.63) $ (0.75)
Extraordinary
items............ -- -- -- -- 2.57 -- 0.88 --
Net income
(loss)........... (0.32) 0.01 (0.48) (0.05) 1.53 (0.57) 0.25 (0.75)
</TABLE>
F-22
<PAGE>
CONSOLIDATED BALANCE SHEETS
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1993 DECEMBER 31,
(UNAUDITED) 1992
-------------- --------------
<S> <C> <C>
Cash and cash equivalents...................................................... $ 31,844 $ 42,199
Accounts receivable, less allowance for doubtful accounts of $453 (1992 --
$623)......................................................................... 85,211 64,115
Current portion of finance lease receivables................................... 998 2,352
Inventories.................................................................... 82,435 71,861
Other current assets........................................................... 6,458 8,897
-------------- --------------
TOTAL CURRENT ASSETS......................................................... 206,946 189,424
Property, plant and equipment, net............................................. 125,605 119,492
Insurance Subsidiary's investments............................................. 87,277 84,616
Noncurrent finance lease receivables........................................... 1,021 2,863
Insurance Subsidiary's reinsurance receivable.................................. 10,249 17,366
Cost in excess of net assets acquired, net of accumulated amortization of
$5,939 (1992 -- $5,002)....................................................... 44,056 44,993
Trademark, net of accumulated amortization of $1,663 (1992 -- $1,400).......... 11,783 12,046
Other assets................................................................... 13,702 22,963
-------------- --------------
TOTAL ASSETS................................................................... $ 500,639 $ 493,763
-------------- --------------
-------------- --------------
</TABLE>
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<S> <C> <C>
Accounts payable................................................................. $ 66,565 $ 56,684
Notes payable.................................................................... 5,000 5,000
Income taxes payable............................................................. 6,056 6,739
Accrued compensation............................................................. 16,718 13,729
Accrued interest................................................................. 5,994 11,596
Other accrued liabilities........................................................ 38,320 28,833
Current portion of long-term debt................................................ 14,323 15,752
-------------- --------------
TOTAL CURRENT LIABILITIES.................................................... 152,976 138,333
Long-term debt, excluding current portion:
Shareholders................................................................. 30,000 30,000
Other........................................................................ 255,683 259,616
-------------- --------------
285,683 289,616
Insurance Subsidiary's unpaid losses and loss adjustment expenses................ 70,393 75,780
Unearned insurance premiums...................................................... 10,174 10,463
Deferred income taxes............................................................ 7,887 11,187
Postretirement benefits other than pensions...................................... 48,900 --
Other noncurrent liabilities..................................................... 36,876 33,654
Minority interest................................................................ 40,361 41,026
-------------- --------------
TOTAL LIABILITIES............................................................ 653,250 600,059
Shareholders' deficit:
Common stock, par value $0.01:
Authorized 15,000,000 shares
Outstanding 9,036,700 shares................................................. 90 90
Additional paid-in capital..................................................... 14,910 14,910
Retained earnings (deficit).................................................... (39,509) 7,045
Unrealized appreciation on Insurance Subsidiary's investments in equity
securities.................................................................... 271 32
Notes receivable from shareholders............................................. (625) (625)
Amount paid in excess of Checker's net assets.................................. (127,748) (127,748)
-------------- --------------
TOTAL SHAREHOLDERS' DEFICIT.................................................. (152,611) (106,296)
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT...................................... $ 500,639 $ 493,763
-------------- --------------
-------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1993 1992
------------ ------------
<S> <C> <C>
Revenues.............................................................................. $ 230,655 $ 177,453
Cost of revenues...................................................................... (199,529) (151,338)
------------ ------------
GROSS PROFIT.......................................................................... 31,126 26,115
Selling, general and administrative expense........................................... (20,826) (20,149)
Interest expense...................................................................... (10,395) (10,296)
Interest income....................................................................... 1,775 1,872
Other expense, net.................................................................... (340) (1,761)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES..................................................... 1,340 (4,219)
Income tax expense.................................................................... (1,876) (88)
------------ ------------
NET LOSS.............................................................................. $ (536) $ (4,307)
------------ ------------
------------ ------------
Weighted average number of shares used in
per share computations............................................................... 9,037 9,037
------------ ------------
------------ ------------
NET LOSS PER SHARE.................................................................... $ (0.06) $ (0.48)
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1993 1992
------------ ------------
<S> <C> <C>
Revenues.............................................................................. $ 660,995 $ 528,602
Cost of revenues...................................................................... (566,759) (450,499)
------------ ------------
GROSS PROFIT.......................................................................... 94,236 78,103
Selling, general and administrative expense........................................... (61,138) (56,887)
Interest expense...................................................................... (31,400) (32,253)
Interest income....................................................................... 5,652 6,739
Other expense, net.................................................................... (26) (2,145)
Special charge -- Note F.............................................................. (7,500) --
------------ ------------
LOSS BEFORE INCOME TAXES AND ACCOUNTING CHANGES....................................... (176) (6,443)
Income tax benefit (expense).......................................................... 246 (644)
------------ ------------
INCOME (LOSS) BEFORE ACCOUNTING CHANGES............................................... 70 (7,087)
Accounting changes, net of income taxes............................................... (46,626) --
------------ ------------
NET LOSS.............................................................................. $ (46,556) $ (7,087)
------------ ------------
------------ ------------
Weighted average number of shares used in per share computations...................... 9,037 9,037
------------ ------------
------------ ------------
INCOME (LOSS) PER SHARE:
Before accounting changes........................................................... $ 0.01 $ (0.78)
Accounting changes.................................................................. (5.16) --
------------ ------------
NET LOSS PER SHARE.................................................................. $ (5.15) $ (0.78)
------------ ------------
------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1993 1992
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................................... $ (46,556) $ (7,087)
Adjustments to reconcile net loss to net cash provided by operating activities:
Accounting changes................................................................... 46,626 --
Depreciation and amortization........................................................ 17,192 15,640
Deferred income tax benefit.......................................................... (8,717) (2,667)
Amortization of cost in excess of net assets acquired................................ 937 938
Amortization of debt discount........................................................ 1,010 869
Net (gain) loss on sale of property, plant and equipment............................. 82 (1)
Investment gains..................................................................... (317) (106)
Other noncash charges................................................................ 5,491 5,011
Changes in operating assets and liabilities:
Accounts receivable................................................................ (21,203) (22,570)
Finance lease receivables.......................................................... 3,482 4,209
Inventories........................................................................ (10,574) (3,402)
Insurance Subsidiary's reinsurance receivable...................................... 7,117 (3,414)
Other assets....................................................................... (653) 434
Accounts payable................................................................... 9,882 13,528
Income taxes....................................................................... (846) 1,647
Unpaid losses and loss adjustment expenses......................................... (5,387) 8,439
Unearned insurance premiums........................................................ (289) (580)
Other liabilities.................................................................. 9,918 590
---------- ----------
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES........................................... 7,195 11,478
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment............................................. (16,862) (12,494)
Proceeds from disposal of property, plant and equipment and other productive assets.... 2,434 1,718
Purchases of investments............................................................... (44,820) (23,095)
Proceeds from sale of investments...................................................... 48,614 24,254
Other.................................................................................. 121 360
---------- ----------
NET CASH FLOW USED IN INVESTING ACTIVITIES............................................... (10,513) (9,257)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings............................................................... 6,963 30,500
Repayments of borrowings............................................................... (13,335) (41,914)
Return of limited partner's capital.................................................... (665) (821)
---------- ----------
NET CASH FLOW USED IN FINANCING ACTIVITIES............................................... (7,037) (12,235)
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS.................................................... (10,355) (10,014)
Beginning cash and cash equivalents...................................................... 42,199 41,057
---------- ----------
ENDING CASH AND CASH EQUIVALENTS......................................................... $ 31,844 $ 31,043
---------- ----------
---------- ----------
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
SEPTEMBER 30, 1993
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying consolidated financial statements of International Controls
Corp. and Subsidiaries (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information, the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In Management's
opinion, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
nine months ended September 30, 1993, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1993. For further
information, refer to the audited consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1992.
NOTE B -- PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of International
Controls Corp. and its subsidiaries, including a wholly-owned trailer leasing
company, Checker Motors Co., L.P. ("Partnership") and the Partnership's
wholly-owned subsidiaries, including American Country Insurance Company
("Insurance Subsidiary").
NOTE C -- INVENTORIES
Inventories are summarized below (dollars in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1993 1992
-------------- --------------
<S> <C> <C>
Raw materials and supplies....................................................... $ 53,184 $ 44,005
Work-in-process.................................................................. 14,093 8,803
Finished goods................................................................... 15,158 19,053
-------------- --------------
$ 82,435 $ 71,861
-------------- --------------
-------------- --------------
</TABLE>
NOTE D -- INCOME TAXES
The Company's estimated effective tax rate differs from the statutory rate
because of state income taxes as well as the impact of the reporting of certain
income and expense items in the financial statements which are not taxable or
deductible for income tax purposes. The values of assets and liabilities
acquired in a transaction accounted for as a purchase are recorded at estimated
fair values which result in an increase in the net asset value over the tax
basis for such net assets.
During the quarter ended September 30, 1992, the income tax rate used to
calculate income taxes was changed. The change was required by, among other
things, the impact on income of the slowdown of the business recovery. The
change in rate had the effect of decreasing net loss by $1.0 million ($0.11 per
share).
NOTE E -- ACCOUNTING CHANGES
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The Company recorded a charge of
$29.7 million (net of taxes of $16.5 million), or $3.29 per share, during the
quarter ended March 31, 1993 to reflect the cumulative effect of this change in
accounting principle. The accumulated postretirement benefit obligation at
January 1, 1993 approximates $49.8 million. The health care cost trend rate
ranges from 14% down to 5.5% over the next 14 years and remains level
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. For example, increasing the assumed health care cost
trend rates by one percentage
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
SEPTEMBER 30, 1993
(UNAUDITED)
NOTE E -- ACCOUNTING CHANGES (CONTINUED)
point in each year would increase the accumulated postretirement benefit
obligation as of January 1, 1993 by $3.7 million. The weighted-average discount
rate used in determining the accumulated postretirement benefit obligation was
8% at January 1, 1993.
The effect of adopting SFAS No. 106 decreased 1993 pre-tax income by $0.5
million for the three months ended September 30, 1993, and $1.5 million for the
nine months ended September 30, 1993, as compared to the similar periods in
1992.
Effective January 1, 1993, the Company adopted the provisions of SFAS No.
109, "Accounting for Income Taxes." The Company recorded a charge of $16.9
million, or $1.87 per share, during the quarter ended March 31, 1993, to reflect
the cumulative effect of this change in accounting principle.
During the quarter ended March 31, 1993, the Company adopted the provisions
of SFAS No. 113, "Accounting and Reporting for Reinsurance of Short Duration and
Long Duration Contracts". Because of the type of insurance contracts the
Company's Insurance Subsidiary provides, the adoption of this statement had no
impact on earnings; however, it requires the disaggregation of various balance
sheet accounts. For financial reporting purposes, the 1992 balance sheet and
statement of cash flows have been restated as if this statement were adopted as
of the beginning of the earliest period presented.
NOTE F -- CONTINGENCIES
The Company has been served by the Boeing Company ("Boeing") with a
complaint for clean up costs resulting from groundwater contamination to a site
where former subsidiaries of the Company conducted business operations. The
Company has been advised by Boeing that the costs of remediation for the first
aquifer would total between $18 million and $25 million. Boeing has indicated
that it has incurred response costs totalling approximately $14 million as of
July 1993 for the site. There has, as yet, been no determination of the amount
of the Company's liability, if any. Although the litigation is in its early
stages, as a result of increased activity during the quarter ended June 30,
1993, the Company recorded a $7.5 million pre-tax special charge which
represents management's current estimate of the potential cost to the Company,
if it is determined that the Company is liable. The Company is currently engaged
in settlement discussions with Boeing. The Company has given written notice to
certain insurance carriers advising them of the complaint and notifying them
that the Company may be insured by them under certain insurance policies then in
effect. Further, the Company has served notice to a third party that the third
party may have been a contributor to the groundwater contamination. The
insurance carriers have continued to fund the Company's defense while expressly
reserving the right to deny a duty to indemnify the Company should it be found
liable. The special charge has not been offset by a provision for potential
recovery, if any, from the insurance carriers or the third party.
On March 4, 1992, Checker received notice that the Insurance Commissioner of
the State of California, as Conservator and Rehabilitator of Executive Life
Insurance Company of California ("ELIC"), a limited partner of the Partnership,
had filed an Amendment to the Application for Order of Conservation filed in
Superior Court of the State of California for the County of Los Angeles. The
amendment adds to the Order, dated April 11, 1991, Checker, the Partnership and
Checker Holding Corp. III ("Holding III"), a limited partner of the Partnership.
The amendment alleges that the action by Checker invoking provisions of the
Partnership Agreement that alter ELIC's rights in the Partnership upon the
occurrence of certain events is improper and constitutes an impermissible
forfeiture of ELIC's interest in the Partnership and a breach of fiduciary duty
to ELIC. The amendment seeks (a) a declaration of the rights of
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
SEPTEMBER 30, 1993
(UNAUDITED)
NOTE F -- CONTINGENCIES (CONTINUED)
the parties in the Partnership and (b) damages in an unspecified amount.
Checker, the Partnership and Holding III have replied, believe that they have
meritorious defenses to the claims of ELIC and are defending this action
vigorously.
F-29
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY EITHER
ISSUER OR THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF EITHER ISSUER SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information.......................... 2
Prospectus Summary............................. 3
Risk Factors................................... 12
Use of Proceeds................................ 16
Capitalization................................. 17
The Company.................................... 18
Selected Consolidated Financial Data........... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 21
Business....................................... 25
Management..................................... 38
Certain Relationships and Related
Transactions.................................. 44
Security Ownership of Certain Beneficial Owners
and Management................................ 45
Description of New Credit Facility............. 45
Description of the Notes....................... 47
Underwriting................................... 71
Legal Matters.................................. 71
Experts........................................ 71
Index to Financial Statements.................. F-1
</TABLE>
--------------
UNTIL , 1994 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NOTES OR THE UNITS, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS AND
SUBSCRIPTIONS.
$225,000,000
INTERNATIONAL
CONTROLS CORP.
% SENIOR SECURED NOTES
DUE 2004
-------------
PROSPECTUS
-------------
ALEX. BROWN & SONS
INCORPORATED
SPP HAMBRO & CO.
, 1994
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Registration Fee................................................... $ 77,586
NASD Filing Fee.................................................... 23,000
Legal Fees and Expenses*........................................... **
Blue Sky Fees and Expenses*........................................ **
Accounting Fees and Expenses*...................................... **
Printing*.......................................................... **
Trustees' Fees and Expenses*....................................... **
Rating Agency Fees*................................................ **
Transfer Agent Fees*............................................... **
Miscellaneous...................................................... **
---------
Total.......................................................... $ **
---------
---------
<FN>
- --------------
* Estimated
** To be completed by amendment
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is a Florida corporation. Section 607.0850 of the Business
Corporation Act ("Act") provides that a Florida corporation has the power to
indemnify its officers and directors in certain circumstances.
Subsection (1) of Section 607.0850 of the Act empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party to any proceeding (other than an action by or in the right of the
corporation), by reason of the fact that he was a director or officer of the
corporation, against liability incurred in connection with such action, suit or
proceeding provided that such director or officer acted in good faith in a
manner reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, provided
that such director or officer had no cause to believe his conduct was unlawful.
Subsection (2) of Section 607.0850 empowers a corporation to indemnify any
director or officer, or former director or officer who was or is a party to any
proceeding by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that such person acted in any of the capacities set
forth above, against certain expenses paid in settlement of such action or suit
provided that such director or officer acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect of any claim,
issue or matter as to which such director or officer shall have been adjudged to
be liable to the corporation, and only to the extent that the court in which
such action was brought shall determine that despite the adjudication of
liability such director or officer is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
Section 607.0850 further provides that to the extent a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to in subsections (1) and (2) or in the defense of any
claim, issue or matter therein, he shall be indemnified against expenses
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 607.0850 shall not be deemed exclusive
of any other rights to which the indemnified party may be entitled; and that the
corporation shall have the power to purchase and maintain insurance on behalf of
a director or officer of the corporation against any liability asserted against
him or incurred by him in any such capacity or arising out of his status as such
whether or not the corporation would have the power to indemnify him against
such liability under Section 607.0850.
II-1
<PAGE>
Article V of the By-Laws of the Company provides for indemnification of the
officers and directors of the Company as follows:
"Section 1. The corporation shall indemnify any person made a party or
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding:
(a) Whether civil, criminal, administrative, or investigative, other
than one by or in the right of the corporation to procure a judgment in
its favor, brought to impose a liability or penalty on such person for an
act alleged to have been committed by such person in his capacity of
director, officer, employee or agent of the corporation, or of any other
corporation, partnership, joint venture, trust or other enterprise which
he served as such at the request of the corporation, against judgments,
fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees, actually and necessarily incurred as a result of such
action, suit or proceeding, or any appeal therein, if such person acted
in good faith in the reasonable belief that such action was in the best
interests of the corporation, and in criminal actions or proceedings,
without reasonable ground for belief that such action was unlawful. The
termination of any such action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not in itself create a presumption that any such
director or officer did not act in good faith in the reasonable belief
that such action was in the best interests of the corporation or that he
had reasonable grounds for belief that such action was unlawful.
(b) By or in the right of the corporation to procure a judgment in
its favor by reason of his being or having been a director, officer,
employee, or agent of the corporation, or of any other corporation,
partnership, joint venture, trust or other enterprise which he served as
such at the request of the corporation, against the reasonable expenses,
including attorneys' fees, actually and necessarily incurred by him in
connection with the defense or settlement of such action, or in
connection with an appeal therein, if such person acted in good faith in
the reasonable belief that such action was in the best interests of the
corporation. Such person shall not be entitled to indemnification in
relation to matters as to which such person has been adjudged to have
been guilty of negligence or misconduct in the performance of his duty to
the corporation unless and only to the extent that the court,
administrative agency, or investigative body before which such action,
suit or proceeding is held shall determine upon application that despite
the adjudication of liability but in view of all circumstances of the
case, such person is fairly and reasonably entitled to indemnification
for such expense which such tribunal shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in paragraph (a) or (b), or in
any defense of any claim, issue or matter therein, he shall be
indemnified against the reasonable expenses, including attorney's fees,
actually and necessarily incurred by him in connection therewith.
(d) In order for indemnification to be made under paragraph (a) or
(b), a determination must first be made that indemnification of the
director, officer, employee or agent is proper in the circumstances
because such person has met the applicable standard of conduct set forth
in paragraph (a) or (b), unless indemnification is ordered by the
tribunal before which such action, suit or proceeding is held. Such
determination shall be made either (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (2) by the stockholders who were not
parties to such action, suit or proceeding.
Section 2. The corporation shall pay expenses incurred in defending any
action, suit or proceeding in advance of the final disposition of such
action, suit or proceeding as authorized in the manner provided in paragraph
(d) of Section 1 of this Article upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount
unless it shall ultimately be determined that he is entitled to be
indemnified by the corporation as authorized in Sections 1 through 4 of this
Article.
II-2
<PAGE>
Section 3. The corporation shall indemnify any person, if the
requirements of Sections 1 and 2 of this Article are met, without affecting
any other rights to which those indemnified may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in such person's official capacity and as to action in
another capacity while holding such office, and shall continue as to a
person who has ceased to be director, officer, employee or agent of the
corporation and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 4. The corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the
corporation is obligated to indemnify him against such liability under the
provisions of Section 1 of this Article."
Reference is made to Section 7 of the Underwriting Agreement, a copy of
which is filed as Exhibit 1.1 hereto, which provides for indemnification of the
directors and officers of the Registrant who sign the Registration Statement by
the Underwriters against certain liabilities, including those arising under the
Securities Act, in certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement among Alex. Brown & Sons Incorporated, SPP Hambro & Co. and
International Controls Corp. (the "Registrant") with respect to the % Senior Secured Notes due
2004 of the Registrant (the "Debentures").*
3.1 Restated Articles of Incorporation of Registrant**
3.2 By-Laws of Registrant as effective May 13, 1991 (incorporated herein by reference to Exhibit 3.3 of
the 1992 10-K).
4.1 Form of Indenture between Registrant and First Fidelity Bank, National Association, New Jersey, as
Trustee, relating to the 12 3/4% Senior Subordinated Debentures due August 1, 2001 of Registrant
(incorporated herein by reference to Exhibit 4.1 to Registration Statement No. 33-7212 filed with
the Securities and Exchange Commission on July 15, 1986).
4.2 Form of Indenture between Registrant and Midlantic National Bank, as Trustee, relating to the
14 1/2% Subordinated Discount Debentures due January 1, 2006 of Registrant (incorporated herein by
reference to Exhibit 4.1 to Registration Statement No. 33-1788 filed with the Securities and
Exchange Commission on November 26, 1985).
4.3 Indenture between Registrant and , as Trustee, relating to the % Senior
Secured Notes due 2004.*
4.4 Agreement to furnish additional documents upon request by the Securities and Exchange Commission
(incorporated herein by reference to Exhibit 4.3 to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1989 (the "1989 10-K")).
5.1 Opinion of Hutton Ingram Yuzek Gainen Carroll & Bertolotti regarding the legality of certain of the
securities being registered.*
10.1 Amended and Restated Agreement of Limited Partnership of the Partnership (incorporated herein by
reference to Exhibit 10.17 to the 1989 10-K).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
10.2 Amendment, dated July 28, 1989, to Amended and Restated Agreement of Limited Partnership of the
Partnership (incorporated herein by reference to Exhibit 19.1 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1991 (the "1991 10-K")).
10.3 Amendment, dated June 25, 1991, to Amended and Restated Agreement of Limited Partnership of the
Partnership (incorporated herein by reference to Exhibit 19.2 to the 1991 10-K).
10.4 Amended and Restated Employment Agreement, dated as of November 1, 1985, between Motors and David R.
Markin ("Markin Employment Agreement") (incorporated herein by reference to Exhibit 10.17 to the
1989 10-K).
10.5 Amendment, dated as of March 4, 1992, to Markin Employment Agreement (incorporated herein by
reference to Exhibit 10.3 to the 1991 10-K).
10.6 Extension, dated March 4, 1992, of Amended and Restated Employment Agreement Between Checker and
David R. Markin (incorporated herein by reference to Exhibit 10.1 of the Registrant's Quarterly
Report on Form 10-Q for the Quarter ending September 30, 1993).
10.7 Amended and Restated Employment Agreement, dated as of June 1, 1992, between Yellow and Jeffrey
Feldman (incorporated herein by reference to Exhibit 28.2 of the Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1992 (the "June 1992 10-Q").
10.8 Form of Stated Benefit Salary Continuation Agreement (incorporated herein by reference to Exhibit
10.17 to the 1989 10-K).
10.9 Employment Agreement, dated as of July 1, 1992, between Registrant and Jay H. Harris (incorporated
herein by reference to Exhibit 28.1 to the June 1992 10-Q).
10.10 Loan and Guaranty Agreement, dated September 17, 1992, by and among the Partnership, Motors, SCSM
and NBD Bank, N.A. (incorporated herein by reference to Exhibit 28.1 to Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1992 (the "September 1992 10-Q").
10.11 First Amendment, dated as of November 1, 1993, to Loan and Guaranty Agreement.**
10.12 Credit and Guaranty Agreement, dated as of August 1, 1989, by and among SCSM, Motors, the
Partnership and NBD Bank, N.A. (the "Credit Agreement") (incorporated herein by reference to
Exhibit 10.10 to the 1992 10-K).
10.13 First Amendment, dated as of June 1, 1990, to the Credit Agreement (incorporated herein by reference
to Exhibit 10.11 of the 1992 10-K).
10.14 Second Amendment, dated as of January 2, 1991, to the Credit Agreement (incorporated herein by
reference to Exhibit 10.12 of the 1992 10-K).
10.15 Third Amendment, dated as of November 1, 1993, to the Credit Agreement.**
10.16 Supplemental Agreement, dated as of April 20, 1992, among SCSM, Motors, the Partnership and NBD
Bank, N.A. (incorporated herein by reference to Exhibit 10.13 of the 1992 10-K).
10.17 Second Supplemental Agreement, dated as of September 17, 1992, among SCSM, Motors, the Partnership
and NBD Bank, N.A. (incorporated herein by reference to Exhibit 28.2 of the June 1991 10-Q).
10.18 Lease, dated December 1, 1988, between SCSM and Park Corporation (incorporated herein by reference
to Exhibit 10.17 to the 1989 10-K).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
10.19 Loan and Security Agreement dated as of March 21, 1990, by and among Great Dane, Great Dane Trailers
Indiana, Inc., Great Dane Trailers Nebraska, Inc., Great Dane Trailers Tennessee, Inc., certain
lending institutions and Security Pacific Business Credit Inc., as Agent (the "Security Pacific
Agreement") (incorporated herein by reference to Exhibit 10.17 to the 1989 10-K).
10.20 First Amendment, dated as of March 30, 1990, to the Security Pacific Agreement (incorporated herein
by reference to Exhibit 19.3 to the 1991 10-K).
10.21 Second Amendment, dated as of April 30, 1990, to the Security Pacific Agreement (incorporated herein
by reference to Exhibit 19.4 to the 1991 10-K).
10.22 Third Amendment, dated as of August 14, 1990, to the Security Pacific Agreement (incorporated herein
by reference to Exhibit 19.5 to the 1991 10-K).
10.23 Fourth Amendment, dated as of February 28, 1991, to the Security Pacific Agreement (incorporated
herein by reference to Exhibit 19.6 to the 1991 10-K).
10.24 Waiver and Fifth Amendment, dated as of September 3, 1991, to the Security Pacific Agreement
(incorporated herein by reference to Exhibit 19.7 to the 1991 10-K).
10.25 Waiver, Consent and Sixth Amendment, dated April 30, 1992, to the Security Pacific Agreement
(incorporated herein by reference to Exhibit 28 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1992).
10.26 Seventh Amendment, dated as of July 10, 1992, to the Security Pacific Agreement (incorporated herein
by reference to the June 1992 10-Q).
10.27 Eighth Amendment, dated as of February 19, 1993, to the Security Pacific Agreement (incorporated
herein by reference to Exhibit 10.24 of the 1992 10-K).
10.28 Waiver, Consent and Ninth Amendment, dated March 26, 1993, to the Security Pacific Agreement
(incorporated herein by reference to Exhibit 10.29 of the 1992 10-K).
10.29 Tenth Amendment, dated as of November 1, 1993, to the Security Pacific Agreement.**
10.30 Assumption Agreement dated as of August 1, 1989, by and between Motors and the West Virginia
Economic Development Authority (incorporated herein by reference to Exhibit 10.12 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1990).
10.31 Agreement, dated as of September 1, 1991, between the Partnership and Jerry E. Feldman (incorporated
herein by reference to Exhibit 10.12 to the 1991 10-K).
10.32 Form of Checker Motors Corporation Excess Benefit Retirement Plan, effective January 1, 1983
(incorporated herein by reference to Exhibit 19.9 to the 1991 10-K).
10.33 Amended and Restated License Agreement, dated December 30, 1992, between Checker Motors Corporation
and Checker Taxi Association, Inc. (incorporated herein by reference to Exhibit 10.28 of the 1992
10-K).
10.34 Employment Agreement, dated as of January 1, 1994 between Registrant and David R. Markin.**
12.1 Statements regarding computation of ratios**
21.1 Subsidiaries of Registrant.**
23.1 Consent of Ernst & Young**
23.2 Consent of Hutton Ingram Yuzek Gainen Carroll & Bertolotti--see Exhibit 5.1.
24.1 Power of Attorney**
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
25.1 Statement of eligibility of Trustee*
<FN>
- --------------
* To be filed by amendment
** Filed herewith
</TABLE>
(b) Financial Statement Schedules
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes as follows:
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
(b) (1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of West Palm Beach, State of
Florida, on February 5, 1994.
INTERNATIONAL CONTROLS CORP.
By: /s/ DAVID R. MARKIN
------------------------------------
David R. Markin
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------------------ ----------------------------------- --------------------
<C> <S> <C>
/s/ ALLAN R. TESSLER Chairman of the Board February 14, 1994
-------------------------------------------
Allan R. Tessler
/s/ DAVID R. MARKIN President, Chief Executive Officer February 5, 1994
------------------------------------------- and Director
David R. Markin
/s/ JAY H. HARRIS Executive Vice President and Chief February 14, 1994
------------------------------------------- Operating Officer
Jay H. Harris
/s/ MARLAN R. SMITH Treasurer (Principal Financial February 14, 1994
------------------------------------------- Officer and Principal Accounting
Marlan R. Smith Officer)
/s/ MARTIN L. SOLOMON Vice Chairman of the Board and February 7, 1994
------------------------------------------- Secretary
Martin L. Solomon
/s/ WILMER J. THOMAS, JR. Vice Chairman of the Board February 14, 1994
-------------------------------------------
Wilmer J. Thomas, Jr.
</TABLE>
II-7
<PAGE>
The following consolidated financial schedules of International Controls
Corp. and subsidiaries are submitted herewith:
<TABLE>
<C> <C> <S> <C>
Schedule I -- Marketable Securities -- Other Investments......................... S-3
Schedule II -- Amounts Receivable from Related Parties and Underwriters, Promoters
and Employees Other Than Related Parties........................... S-7
Schedule III -- Condensed Financial Information of Registrant...................... S-8
Schedule IV -- Indebtedness of and to Related Parties -- Not Current.............. S-11
Schedule V -- Property, Plant and Equipment...................................... S-12
Schedule VI -- Accumulated Depreciation, Depletion and Amortization of Property,
Plant and Equipment................................................ S-13
Schedule VIII -- Valuation and Qualifying Accounts.................................. S-14
Schedule IX -- Short-Term Borrowings.............................................. S-15
Schedule X -- Supplementary Income Statement Information......................... S-16
Schedule XIV -- Supplemental Information Concerning Property-Casualty Insurance
Operations......................................................... S-17
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore, have been omitted.
S-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
International Controls Corp.
We have audited the consolidated financial statements of International
Controls Corp. and subsidiaries as of December 31, 1992 and 1991, and for each
of the three years in the period ended December 31, 1992, and have issued our
report thereon dated March 5, 1993 (included elsewhere in this Registration
Statement). Our audits also included the financial statement schedules listed in
Item 16(b) of this Registration Statement. These schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG
Kalamazoo, Michigan
March 5, 1993
S-2
<PAGE>
SCHEDULE I -- MARKETABLE SECURITIES -- OTHER INVESTMENTS
INTERNATIONAL CONTROLS CORP.
DECEMBER 31, 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ----------------------------------------------------------- ----------------- ----------- ----------- ----------------
AMOUNT AT WHICH
EACH PORTFOLIO
OF EQUITY
NUMBER OF SHARES MARKET SECURITY ISSUES
OR UNITS -- VALUE OF AND EACH OTHER
PRINCIPAL AMOUNT EACH ISSUE SECURITY ISSUE
OF BONDS AND COST OF AT BALANCE CARRIED IN THE
NAME OF ISSUER AND TITLE OF EACH ISSUE NOTES EACH ISSUE SHEET DATE BALANCE SHEET
- ----------------------------------------------------------- ----------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
FIXED MATURITIES:
U.S. Government obligations................................ $ 6,321 $ 6,326 $ 6,536 $ 6,331
Obligations of various state and territorial possessions... 670 656 671 665
Obligations of political subdivisions of states............ 4,620 4,324 4,564 4,348
Special revenue obligations of political subdivisions of
states.................................................... 6,615 6,637 6,855 6,620
Public utility obligations:
American Telephone & Telegraph........................... 1,625 1,550 1,646 1,561
Bell Atlantic Corporation................................ 500 508 515 502
Bell South Telecom, Inc.................................. 500 493 500 493
Chesapeake & Potomac Telephone & Telegraph............... 532 450 515 453
Citizen Utilities........................................ 500 499 515 499
Coastal Corporation...................................... 400 404 412 402
Consolidated Edison...................................... 1,150 1,151 1,160 1,151
Duke Power Company....................................... 300 288 303 289
General Electric Corporation............................. 400 511 419 462
General Telephone of California.......................... 470 462 487 465
General Telephone of Indiana............................. 300 306 312 305
Illinois Bell Telephone Company.......................... 600 588 618 588
Kentucky Utilities....................................... 350 355 366 354
Mountain States Telephone & Telegraph.................... 400 405 411 405
National Rural Utilities................................. 650 656 667 651
New England Telephone & Telegraph........................ 450 439 467 440
New Jersey Bell Telephone Company........................ 416 435 432 435
New York Telephone Company............................... 1,050 1,041 1,061 1,042
Oklahoma Gas & Electric.................................. 525 514 542 519
Pacific Gas & Electric................................... 330 327 349 327
Pacific Telephone & Telegraph............................ 524 504 549 506
Potomac Electric Power Company........................... 350 343 381 345
South Central Bell Telephone............................. 600 597 623 599
Southern Bell Telephone & Telegraph...................... 325 313 330 313
Southern California Edison............................... 450 447 475 445
Southwestern Bell Telephone Company...................... 400 406 422 406
Miscellaneous other public utility obligations........... 4,198 4,069 4,349 4,084
----------- ----------- -------
Total public utility obligations....................... $ 18,061 $ 18,826 $ 18,041
----------- ----------- -------
</TABLE>
S-3
<PAGE>
SCHEDULE I -- MARKETABLE SECURITIES -- OTHER INVESTMENTS -- CONTINUED
INTERNATIONAL CONTROLS CORP.
DECEMBER 31, 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ----------------------------------------------------------- ----------------- ----------- ----------- ----------------
AMOUNT AT WHICH
EACH PORTFOLIO
OF EQUITY
MARKET SECURITY ISSUES
NUMBER OF SHARES VALUE OF AND EACH OTHER
OR UNITS -- PRIN- EACH ISSUE SECURITY ISSUE
CIPAL AMOUNT OF COST OF AT BALANCE CARRIED IN THE
NAME OF ISSUER AND TITLE OF EACH ISSUE BONDS AND NOTES EACH ISSUE SHEET DATE BALANCE SHEET
- ----------------------------------------------------------- ----------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
FIXED MATURITIES -- Continued:
Industrial and miscellaneous corporate obligations:
American General Corp.................................... $ 250 $ 253 $ 270 $ 252
Anheuser Busch Company, Inc.............................. 450 462 488 462
Associates Corporation of North America.................. 505 517 530 509
Atlantic Richfield Company............................... 250 265 282 265
B P America Inc.......................................... 550 566 605 564
Banc One Corporation..................................... 340 343 376 342
Bank America Corporation................................. 500 518 512 517
Bankers Trust of New York................................ 500 496 527 496
Cargill Insurance Euro Bd................................ 300 302 303 301
Chevron Capital USA, Inc................................. 350 339 382 342
Coca Cola Enterprises.................................... 700 695 703 697
Comerica Bank -- Detroit................................. 500 500 489 500
Corning Corporation...................................... 250 242 270 243
Dow Capital Corporation.................................. 450 450 442 450
Dow Chemical Company..................................... 400 399 428 399
E. I. DuPont DeNemours & Company......................... 700 658 730 664
Eastman Kodak Company.................................... 450 451 492 451
Enhance Financial Services............................... 1,200 1,200 1,200 1,200
Exxon Shipping Corporation............................... 500 491 510 492
First Interstate Bank.................................... 250 250 252 250
Ford Motor Credit Corporation............................ 250 247 256 249
General Electric Capital Corporation..................... 550 549 550 549
General Motors Acceptance Corporation.................... 900 888 932 895
General Motors Corporation............................... 300 300 306 300
H. J. Heinz Company...................................... 500 499 485 499
Hertz Corporation........................................ 300 300 321 300
Holiday Inns, Inc........................................ 250 250 250 250
IBM Credit Corporation................................... 250 250 257 250
IBM Corporation.......................................... 500 496 500 496
ICI Wilmington, Inc...................................... 300 309 312 308
Ireland Republic......................................... 250 248 243 248
ITT Financial Corporation................................ 400 404 422 402
J. P. Morgan & Co........................................ 1,200 1,221 1,273 1,215
Jackpot Enterprises, Inc................................. 500 500 500 500
Joseph Seagram & Sons.................................... 750 768 810 760
The Limited Corporation.................................. 650 653 709 652
Loews Corporation........................................ 500 514 500 507
Marathon Oil Company..................................... 600 602 624 600
Marriott Corporation..................................... 400 397 392 399
Matsushita Electric Inc., Ltd............................ 400 400 400 400
</TABLE>
S-4
<PAGE>
SCHEDULE I -- MARKETABLE SECURITIES -- OTHER INVESTMENTS -- CONTINUED
INTERNATIONAL CONTROLS CORP.
DECEMBER 31, 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ----------------------------------------------------------- ----------------- ----------- ----------- ----------------
AMOUNT AT WHICH
EACH PORTFOLIO
OF EQUITY
MARKET SECURITY ISSUES
NUMBER OF SHARES VALUE OF AND EACH OTHER
OR UNITS -- PRIN- EACH ISSUE SECURITY ISSUE
CIPAL AMOUNT OF COST OF AT BALANCE CARRIED IN THE
NAME OF ISSUER AND TITLE OF EACH ISSUE BONDS AND NOTES EACH ISSUE SHEET DATE BALANCE SHEET
- ----------------------------------------------------------- ----------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
FIXED MATURITIES -- Continued:
Industrial and miscellaneous corporate obligations --
Continued
MBIA..................................................... 450 443 446 443
Merrill Lynch & Co....................................... 300 296 318 299
MGM UA Communications.................................... 400 403 292 401
Morgan Guaranty Trust Co., New York...................... 250 243 253 243
Motorola, Inc............................................ 300 300 324 300
Natwest Capital Corporation.............................. 300 320 336 319
Pepsico, Inc............................................. 950 944 992 945
Phillip Morris & Co., Inc................................ 1,250 1,252 1,336 1,251
Pitney Bowes Credit Corporation.......................... 377 379 407 375
Ralston Purina Company................................... 500 501 535 501
Republic National Bank, New York......................... 600 597 591 598
Rockwell International Corporation....................... 250 250 245 250
Salomon, Inc............................................. 500 502 518 501
Sears Roebuck & Co....................................... 650 682 688 657
Security Pacific Corp.................................... 250 243 250 250
Shearson Lehman Hutton................................... 500 499 510 500
Shell Oil Company........................................ 500 492 505 495
Standard Oil............................................. 250 248 258 250
Suntrust Bank, Inc....................................... 300 304 318 302
Texaco Capital, Inc...................................... 450 451 491 450
The Funding Corporation.................................. 400 409 428 404
Transamerica Financial Corporation....................... 250 250 250 250
Union Pacific Corporation................................ 700 698 716 693
Unisys Corporation....................................... 500 493 499 499
United States Banknote Corporation....................... 300 300 300 300
United Technologies...................................... 300 303 330 302
USX Corporation.......................................... 400 405 356 405
Wal Mart Stores, Inc..................................... 500 498 555 499
Wells Fargo & Company.................................... 600 593 609 596
Witco Corporation........................................ 500 489 525 489
Xerox Credit Corporation................................. 439 422 471 426
Miscellaneous other industrial and miscellaneous
corporate obligations................................... 8,310 6,581 6,886 6,577
----------- ----------- -------
TOTAL INDUSTRIAL AND MISCELLANEOUS CORPORATE OBLIGA-
TIONS................................................. 39,982 41,371 39,945
----------- ----------- -------
TOTAL FIXED MATURITIES..................................... $ 75,986 $ 78,823 $ 75,950
</TABLE>
S-5
<PAGE>
SCHEDULE I -- MARKETABLE SECURITIES -- OTHER INVESTMENTS -- CONTINUED
INTERNATIONAL CONTROLS CORP.
DECEMBER 31, 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ----------------------------------------------------------- ----------------- ----------- ----------- ----------------
AMOUNT AT WHICH
EACH PORTFOLIO
OF EQUITY
MARKET SECURITY ISSUES
NUMBER OF SHARES VALUE OF AND EACH OTHER
OR UNITS -- PRIN- EACH ISSUE SECURITY ISSUE
CIPAL AMOUNT OF COST OF AT BALANCE CARRIED IN THE
NAME OF ISSUER AND TITLE OF EACH ISSUE BONDS AND NOTES EACH ISSUE SHEET DATE BALANCE SHEET
- ----------------------------------------------------------- ----------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
Equity Securities:
Banks, trusts and insurance companies preferred stock.... 49,000 shares $ 1,225 $ 1,254 $ 1,254
Public utilities preferred stock......................... 22,940 shares 1,051 1,136 1,136
Miscellaneous other preferred stock...................... 50,000 shares 1,485 1,463 1,463
Public utilities common stock............................ 540,400 shares 1,421 1,530 1,530
Industrial and miscellaneous common stock................ 80,162 shares 3,452 3,283 3,283
----------- ----------- -------
TOTAL EQUITY SECURITIES................................ 8,634 8,666 8,666
----------- ----------- -------
TOTAL INVESTMENTS.......................................... $ 84,620 $ 87,489 $ 84,616
----------- ----------- -------
----------- ----------- -------
</TABLE>
S-6
<PAGE>
SCHEDULE II
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS,
AND EMPLOYEES OTHER THAN RELATED PARTIES
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------- ------------- ----------- ------------------------------ --------------------------
DEDUCTIONS BALANCE AT END OF PERIOD
------------------------------
BALANCE AT (1) (2) --------------------------
BEGINNING AMOUNTS AMOUNTS WRITTEN (1) (2)
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED OFF CURRENT NOT CURRENT
- ------------------------------------------- ------------- ----------- ------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1992
David R. Markin(1)....................... $ 124 $ 0 $ 0 $ 0 $ 124
Allan R. Tessler(1)...................... 167 0 0 0 167
Wilmer J. Thomas, Jr.(1)................. 167 0 0 0 167
Martin L. Solomon(1)..................... 167 0 0 0 167
King Cars, Inc.(2)....................... 0 398 0 0 $ 398
-- --
----- ----- ----- -----
$ 625 $ 398 $ 0 $ 0 $ 398 $ 625
-- --
-- --
----- ----- ----- -----
----- ----- ----- -----
YEAR ENDED DECEMBER 31, 1991
David R. Markin(1)..................... $ 124 $ 0 $ 0 $ 0 $ 124
Allan R. Tessler(1).................... 167 0 0 0 167
Wilmer J. Thomas, Jr.(1)............... 167 0 0 0 167
Martin L. Solomon(1)................... 167 0 0 0 167
-- --
----- ----- -----
$ 625 $ 0 $ 0 $ 0 $ 625
-- --
-- --
----- ----- -----
----- ----- -----
YEAR ENDED DECEMBER 31, 1990
David R. Markin(1)..................... $ 124 $ 0 $ 0 $ 0 $ 124
Allan R. Tessler(1).................... 167 0 0 0 167
Wilmer J. Thomas, Jr.(1)............... 167 0 0 0 167
Martin L. Solomon(1)................... 167 0 0 0 167
-- --
----- ----- -----
$ 625 $ 0 $ 0 $ 0 $ 625
-- --
-- --
----- ----- -----
----- ----- -----
<FN>
- --------------
(1) Obligation is non-interest bearing demand obligation.
(2) Obligation is a promissory note due on May 30, 1993, bearing a 6.5%
interest rate.
</TABLE>
S-7
<PAGE>
SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
INTERNATIONAL CONTROLS CORP.
CONDENSED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1992 1991
---------- ----------
<S> <C> <C>
Assets:
Cash and cash equivalents............................................................... $ 4,930 $ 4,953
Accounts receivable..................................................................... 107 633
Other current assets.................................................................... 3,734 3,303
---------- ----------
Total current assets.................................................................. 8,771 8,889
Property, plant and equipment, net...................................................... -- 42
Intercompany accounts with subsidiaries................................................. 9,657 --
Investments in subsidiaries............................................................. 110,308 216,459
Other assets............................................................................ 12,430 11,890
---------- ----------
Total Assets.............................................................................. $ 141,166 $ 237,280
---------- ----------
---------- ----------
Liabilities and Shareholders' Deficit:
Accounts payable........................................................................ $ 143 $ 54
Income taxes payable (recoverable)...................................................... 8,442 (2,726)
Accrued compensation.................................................................... 256 254
Accrued interest........................................................................ 11,467 11,467
Other accrued liabilities............................................................... 3,340 3,364
---------- ----------
Total current liabilities............................................................. 23,648 12,413
Long-term debt.......................................................................... 204,360 203,179
Other noncurrent liabilities............................................................ 19,486 22,320
Intercompany accounts with subsidiaries................................................. -- 98,141
Shareholders' deficit:
Common stock.......................................................................... 90 90
Paid-in capital....................................................................... 14,910 14,910
Retained earnings..................................................................... 7,045 14,600
Amount paid in excess of Checker's net assets......................................... (127,748) (127,748)
Notes receivable from shareholders.................................................... (625) (625)
---------- ----------
Total shareholders' deficit......................................................... (106,328) (98,773)
---------- ----------
Total Liabilities and Shareholders' Deficit............................................... $ 141,166 $ 237,280
---------- ----------
---------- ----------
</TABLE>
S-8
<PAGE>
SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT--CONTINUED
INTERNATIONAL CONTROLS CORP.
CONDENSED STATEMENTS OF OPERATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1992 1991 1990
----------- ----------- -----------
<S> <C> <C> <C>
Selling, general and administrative expenses............................... $ (4,396) $ (4,398) $ (8,115)
Interest expense........................................................... (30,138) (32,018) (48,044)
Equity in earnings of subsidiaries......................................... 14,959 166 11,997
Other income (expense)..................................................... (99) 857 1,191
Intercompany income:
Corporate charges........................................................ 1,008 1,008 6,002
Interest................................................................. 305 394 452
----------- ----------- -----------
Loss before income taxes and extraordinary items........................... (18,361) (33,991) (36,517)
Income tax benefit......................................................... 10,806 6,985 16,243
----------- ----------- -----------
Loss before extraordinary items............................................ (7,555) (27,006) (20,274)
Extraordinary items, net of income taxes................................... -- 31,188 27,749
----------- ----------- -----------
NET INCOME (LOSS).......................................................... $ (7,555) $ 4,182 $ 7,475
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
S-9
<PAGE>
SCHEDULE III
CONDENSED FINANCIAL INFORMATION OF REGISTRANT--CONTINUED
INTERNATIONAL CONTROLS CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1992 1991 1990
----------- ----------- -----------
<S> <C> <C> <C>
NET CASH FLOW USED IN OPERATING ACTIVITIES................................. $ (20,973) $ (25,202) $ (23,386)
CASH FLOWS FROM INVESTING ACTIVITIES:
Other.................................................................... (334) (1,456) 1,407
----------- ----------- -----------
NET CASH FLOW PROVIDED BY (USED IN) INVESTING ACTIVITIES................... (334) (1,456) 1,407
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt....................................................... -- (27,187) (30,429)
Advances from subsidiaries............................................... 21,284 52,630 37,094
----------- ----------- -----------
NET CASH FLOW PROVIDED BY FINANCING ACTIVITIES............................. 21,284 25,443 6,665
----------- ----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS...................................... (23) (1,215) (15,314)
Beginning cash and cash equivalents........................................ 4,953 6,168 21,482
----------- ----------- -----------
ENDING CASH AND CASH EQUIVALENTS........................................... $ 4,930 $ 4,953 $ 6,168
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The Registrant's subsidiaries declared dividends totaling $120.9 million in
1992, $13.1 million in 1991 and $107.5 million in 1990. These dividends were
declared to offset certain intercompany account balances at the respective
dates.
S-10
<PAGE>
SCHEDULE IV--INDEBTEDNESS OF AND TO RELATED PARTIES--NOT CURRENT
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
(dollars in thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H COL. I
- ------------------------------ ---------- --------- ---------- ------- ---------- --------- ---------- -------
--INDEBTEDNESS OF-- --INDEBTEDNESS TO--
------------------------------------------ ------------------------------------------
BALANCE AT BALANCE BALANCE AT BALANCE
NAMES OF PERSON BEGINNING ADDITIONS DEDUCTIONS AT END BEGINNING ADDITIONS DEDUCTIONS AT END
- ------------------------------ ---------- --------- ---------- ------- ---------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1992
David R. Markin............. $ -- $ -- $ -- $ -- $ 7,500 $ -- $ -- $ 7,500
Martin L. Solomon........... -- -- -- -- 7,500 -- -- 7,500
Allan R. Tessler............ -- -- -- -- 7,500 -- -- 7,500
Wilmer J. Thomas, Jr........ -- -- -- -- 7,500 -- -- 7,500
---------- --------- ---------- ------- ---------- --------- ---------- -------
$ -- $ -- $ -- $ -- $ 30,000 $ -- $ -- $30,000
---------- --------- ---------- ------- ---------- --------- ---------- -------
---------- --------- ---------- ------- ---------- --------- ---------- -------
YEAR ENDED DECEMBER 31, 1991
David R. Markin............. $ -- $ -- $ -- $ -- $ 7,500 $ -- $ -- $ 7,500
Martin L. Solomon........... -- -- -- -- 7,500 -- -- 7,500
Allan R. Tessler............ -- -- -- -- 7,500 -- -- 7,500
Wilmer J. Thomas, Jr........ -- -- -- -- 7,500 -- -- 7,500
---------- --------- ---------- ------- ---------- --------- ---------- -------
$ -- $ -- $ -- $ -- $ 30,000 $ -- $ -- $30,000
---------- --------- ---------- ------- ---------- --------- ---------- -------
---------- --------- ---------- ------- ---------- --------- ---------- -------
YEAR ENDED DECEMBER 31, 1990
David R. Markin............. $ -- $ -- $ -- $ -- $ 7,500 $ -- $ -- $ 7,500
Martin L. Solomon........... -- -- -- -- 7,500 -- -- 7,500
Allan R. Tessler............ -- -- -- -- 7,500 -- -- 7,500
Wilmer J. Thomas, Jr........ -- -- -- -- 7,500 -- -- 7,500
---------- --------- ---------- ------- ---------- --------- ---------- -------
$ -- $ -- $ -- $ -- $ 30,000 $ -- $ -- $30,000
---------- --------- ---------- ------- ---------- --------- ---------- -------
---------- --------- ---------- ------- ---------- --------- ---------- -------
</TABLE>
NOTE: The above amounts relate to amounts loaned to the Company to complete
the Holding buyout as described in Note A of the notes to consolidated financial
statements.
S-11
<PAGE>
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
INTERNATIONAL CONTROLS CORP.
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. B COL. C COL. D COL. E COL. F
---------- -------- ------------ -------------- ---------
BALANCE AT OTHER CHANGES BALANCE
BEGINNING ADDITIONS ADD/DEDUCT AT END
COL. A OF PERIOD AT COST RETIREMENTS DESCRIBE OF PERIOD
- -------------------------------------------------- ---------- -------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1992:
Land and buildings.............................. $ 44,874 $ 1,269 $ -- $ (12) $ 46,131
Transportation equipment........................ 36,700 9,565 (8,750) (123) 37,392
Machinery, equipment, furniture and fixtures.... 101,177 6,715 (1,643) 12 106,261
---------- -------- ------------ ----- ---------
$ 182,751 $17,549 $ (10,393) $ (123) $ 189,784
---------- -------- ------------ ----- ---------
---------- -------- ------------ ----- ---------
YEAR ENDED DECEMBER 31, 1991:
Land and buildings.............................. $ 43,493 $ 1,180 $ (218) $ 419 $ 44,874
Transportation equipment........................ 38,962 10,249 (12,524) 13 36,700
Machinery, equipment, furniture and fixtures.... 98,250 5,028 (1,667) (434) 101,177
---------- -------- ------------ ----- ---------
$ 180,705 $16,457 $ (14,409) $ (2) $ 182,751
---------- -------- ------------ ----- ---------
---------- -------- ------------ ----- ---------
YEAR ENDED DECEMBER 31, 1990:
Land and buildings.............................. $ 42,998 $ 1,780 $ (877) $ (408) $ 43,493
Transportation equipment........................ 35,735 13,346 (10,034) (85) 38,962
Machinery, equipment, furniture and fixtures.... 92,450 6,438 (1,047) 409 98,250
---------- -------- ------------ ----- ---------
$ 171,183 $21,564 $ (11,958) $ (84) $ 180,705
---------- -------- ------------ ----- ---------
---------- -------- ------------ ----- ---------
</TABLE>
S-12
<PAGE>
SCHEDULE VI
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT
AND EQUIPMENT
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. B COL. C COL. D COL. E COL. F
---------- --------------- ------------ -------------- ---------
BALANCE AT ADDITIONS OTHER CHANGES BALANCE
BEGINNING CHARGED TO COST ADD/DEDUCT AT END
COL. A OF PERIOD AND EXPENSE(1) RETIREMENTS DESCRIBE OF PERIOD
- -------------------------------------------------- ---------- --------------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1992:
Land and buildings.............................. $ 5,639 $ 2,016 $ -- $ -- $ 7,655
Transportation equipment........................ 19,246 9,473 (6,744) (1) 21,974
Machinery, equipment, furniture and fixtures.... 32,185 9,565 (1,088) 1 40,663
---------- ------- ------------ ------ ---------
$ 57,070 $ 21,054 $ (7,832) $ 0 $ 70,292
---------- ------- ------------ ------ ---------
---------- ------- ------------ ------ ---------
YEAR ENDED DECEMBER 31, 1991:
Land and buildings.............................. $ 4,588 $ 1,791 $ (187) $ (553) $ 5,639
Transportation equipment........................ 20,138 9,676 (10,289) (279) 19,246
Machinery, equipment, furniture and fixtures.... 22,863 9,464 (991) 849 32,185
---------- ------- ------------ ------ ---------
$ 47,589 $ 20,931 $ (11,467) $ 17 $ 57,070
---------- ------- ------------ ------ ---------
---------- ------- ------------ ------ ---------
YEAR ENDED DECEMBER 31, 1990:
Land and buildings.............................. $ 3,395 $ 1,914 $ (718) $ (3) $ 4,588
Transportation equipment........................ 18,899 9,252 (8,022) 9 20,138
Machinery, equipment, furniture and fixtures.... 14,198 9,618 (947) (6) 22,863
---------- ------- ------------ ------ ---------
$ 36,492 $ 20,784 $ (9,687) $ 0 $ 47,589
---------- ------- ------------ ------ ---------
---------- ------- ------------ ------ ---------
<FN>
- --------------
(1) To compute the annual provisions for depreciation and amortization, the
following estimated useful lives are used: a) Buildings, 10-40 years; b)
Transportation equipment, 2-6 years; c) Machinery, equipment, furniture and
fixtures, 3-12 years.
</TABLE>
S-13
<PAGE>
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ------------------------------------------------- ----------- -------------------------- ------------- -----------
ADDITIONS CHARGED TO:
BALANCE AT -------------------------- BALANCE AT
BEGINNING COST AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
- ------------------------------------------------- ----------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1992:
Deducted from assets:
Allowance for doubtful accounts-- trade...... $ 606 $ 183 $ -- $ (166 ) $ 623
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Allowance for doubtful accounts-- finance
lease receivables........................... $ 944 $ 52 $ -- $ (317 ) $ 679
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Contract and warranty reserves................. $ 8,263 $ 3,564 $ -- $ (3,452 ) $ 8,375
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Workers' compensation.......................... $ 265 $ 4,584 $ -- $ (3,008 ) $ 1,841
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Claims......................................... $ 2,717 $ 783 $ -- $ (168 ) $ 3,332
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
YEAR ENDED DECEMBER 31, 1991:
Deducted from assets:
Allowance for doubtful accounts-- trade...... $ 808 $ 210 $ -- $ (412 ) $ 606
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Allowance for doubtful accounts-- finance
lease receivables........................... $ 842 $ (7 ) $ 292 $ (183 ) $ 944
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Contract and warranty reserves................. $ 10,796 $ 1,274 $ -- $ (3,807 ) $ 8,263
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Workers' compensation.......................... $ 242 $ 836 $ -- $ (813 ) $ 265
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Claims......................................... $ 2,500 $ 1,047 $ -- $ (830 ) $ 2,717
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
YEAR ENDED DECEMBER 31, 1990:
Deducted from assets:
Allowance for doubtful accounts-- trade...... $ 878 $ 593 $ (256 ) $ (407 ) $ 808
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Allowance for doubtful accounts-- finance
lease receivables........................... $ 955 $ -- $ 77 $ (190 ) $ 842
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Contract and warranty reserves................. $ 12,602 $ 4,077 $ (3 ) $ (5,880 ) $ 10,796
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Workers' compensation.......................... $ 605 $ 999 $ -- $ (1,362 ) $ 242
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
Claims......................................... $ 3,025 $ 1,492 $ 63 $ (2,080 ) $ 2,500
----------- ------ ----- ------------- -----------
----------- ------ ----- ------------- -----------
<FN>
- --------------
(1) Reclassification to other reserves and utilization of reserves.
</TABLE>
S-14
<PAGE>
SCHEDULE IX--SHORT-TERM BORROWINGS
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
- ----------------------------------------------- ----------- ------------- ----------- ----------- ------------
WEIGHTED
MAXIMUM AVERAGE AVERAGE
AMOUNT AMOUNT INTEREST
BALANCE AT WEIGHTED OUTSTANDING OUTSTANDING RATE DURING
END OF AVERAGE DURING THE DURING THE THE
CATEGORY OF AGGREGATE SHORT-TERM BORROWINGS PERIOD INTEREST RATE PERIOD PERIOD(1) PERIOD(2)
- ----------------------------------------------- ----------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BANK BORROWINGS:
Year ended December 31, 1992................. $ 5,000 7% $ 5,000 $ 4,350 6.71%
Year ended December 31, 1991................. $ 4,000 7% $ 4,000 $ 2,053 8.38%
Year ended December 31, 1990................. $ 0 -- $ 874 $ 62 10.00%
<FN>
- --------------
(1) Amount of loan divided by number of days in year, times the number of days
outstanding during the year.
(2) Total interest expense during the period divided by the average amount
outstanding during the period.
</TABLE>
S-15
<PAGE>
SCHEDULE X--SUPPLEMENTAL INCOME STATEMENT INFORMATION
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B
- -------------------------------------------------------- -------------------------------------------------------
CHARGED TO CONTINUING OPERATIONS' COST AND EXPENSES
-------------------------------------------------------
DECEMBER 31, 1992 DECEMBER 31, 1991 DECEMBER 31, 1990
----------------- ----------------- -----------------
<S> <C> <C> <C>
Maintenance and repairs................................. $ 9,646 $ 9,543 $ 11,838
Depreciation and amortization of intangible assets,
pre-operating costs and similar deferrals(1)........... $ -- $ -- $ --
Taxes other than payroll and income taxes(1)............ $ -- $ -- $ --
Royalties(1)............................................ $ -- $ -- $ --
Advertising costs(1).................................... $ -- $ -- $ --
<FN>
- --------------
(1) Amounts for these expenses are not presented as such amounts are less than
1% of total revenues in the year indicated.
</TABLE>
S-16
<PAGE>
SCHEDULE XIV
SUPPLEMENTAL INFORMATION CONCERNING PROPERTY--CASUALTY INSURANCE OPERATIONS
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
(dollars in thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H
- --------------------------- ----------- ----------- ----------- ---------- ------------ -------------- ---------------------
CLAIMS AND CLAIM
RESERVES ADJUSTMENT EXPENSES
FOR UNPAID INCURRED RELATED TO
DEFERRED CLAIMS AND DISCOUNT IF ---------------------
POLICY CLAIM ANY, (1) (2)
AFFILIATION WITH ACQUISITION ADJUSTMENT DEDUCTED IN UNEARNED UNEARNED NET INVESTMENT CURRENT PRIOR
REGISTRANT COSTS EXPENSE COLUMN C PREMIUMS PREMIUMS(1) INCOME YEAR YEARS
- --------------------------- ----------- ----------- ----------- ---------- ------------ -------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WHOLLY-OWNED INSURANCE SUBSIDIARY:
Year Ended:
December 31, 1992........ $ 1,832 $ 61,892 $ -- $ 10,177 $ 40,347 $ 8,227 $ 30,322 $ 2,043
----------- ----------- ----------- ---------- ------------ ------- ---------- ---------
----------- ----------- ----------- ---------- ------------ ------- ---------- ---------
December 31, 1991........ $ 2,073 $ 56,846 $ -- $ 11,286 $ 39,877 $ 7,061 $ 31,852 $ 1,676
----------- ----------- ----------- ---------- ------------ ------- ---------- ---------
----------- ----------- ----------- ---------- ------------ ------- ---------- ---------
December 31, 1990........ $ 2,414 $ 49,526 $ -- $ 11,633 $ 36,728 $ 6,445 $ 27,248 $ 3,505
----------- ----------- ----------- ---------- ------------ ------- ---------- ---------
----------- ----------- ----------- ---------- ------------ ------- ---------- ---------
<CAPTION>
COL. A COL. I COL. J COL. K
- --------------------------- ------------ ----------- ---------
AMORTIZATION
OR DEFERRED PAID CLAIMS
POLICY AND CLAIM
AFFILIATION WITH ACQUISITION ADJUSTMENT PREMIUM
REGISTRANT COSTS EXPENSES WRITTEN
- --------------------------- ------------ ----------- ---------
<S> <C> <C> <C>
WHOLLY-OWNED INSURANCE SUBS
Year Ended:
December 31, 1992........ $ (241) $ 27,319 $ 39,238
------------ ----------- ---------
------------ ----------- ---------
December 31, 1991........ $ (341) $ 26,208 $ 39,530
------------ ----------- ---------
------------ ----------- ---------
December 31, 1990........ $ 424 $ 24,490 $ 39,884
------------ ----------- ---------
------------ ----------- ---------
</TABLE>
- --------------
(1) Includes premiums earned of $13,161, $12,735 and $13,456 in 1992, 1991 and
1990, respectively, in connection with coverage provided to other entities
in the consolidated group which have been eliminated in consolidation.
S-17
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement among Alex. Brown & Sons Incorporated, SPP Hambro &
Co. and International Controls Corp. (the "Registrant") with respect to the %
Senior Secured Notes due 2004 of the Registrant (the "Debentures").*
3.1 Restated Articles of Incorporation of Registrant**
3.2 By-Laws of Registrant as effective May 13, 1991 (incorporated herein by reference
to Exhibit 3.3 of the 1992 10-K).
4.1 Form of Indenture between Registrant and First Fidelity Bank, National
Association, New Jersey, as Trustee, relating to the 12 3/4% Senior Subordinated
Debentures due August 1, 2001 of Registrant (incorporated herein by reference to
Exhibit 4.1 to Registration Statement No. 33-7212 filed with the Securities and
Exchange Commission on July 15, 1986).
4.2 Form of Indenture between Registrant and Midlantic National Bank, as Trustee,
relating to the 14 1/2% Subordinated Discount Debentures due January 1, 2006 of
Registrant (incorporated herein by reference to Exhibit 4.1 to Registration
Statement No. 33-1788 filed with the Securities and Exchange Commission on
November 26, 1985).
4.3 Indenture between Registrant and , as Trustee, relating to the
% Senior Secured Notes due 2004.*
4.4 Agreement to furnish additional documents upon request by the Securities and
Exchange Commission (incorporated herein by reference to Exhibit 4.3 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1989 (the
"1989 10-K")).
5.1 Opinion of Hutton Ingram Yuzek Gainen Carroll & Bertolotti regarding the legality
of certain of the securities being registered.*
10.1 Amended and Restated Agreement of Limited Partnership of the Partnership
(incorporated herein by reference to Exhibit 10.17 to the 1989 10-K).
10.2 Amendment, dated July 28, 1989, to Amended and Restated Agreement of Limited
Partnership of the Partnership (incorporated herein by reference to Exhibit 19.1
to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1991 (the "1991 10-K")).
10.3 Amendment, dated June 25, 1991, to Amended and Restated Agreement of Limited
Partnership of the Partnership (incorporated herein by reference to Exhibit 19.2
to the 1991 10-K).
10.4 Amended and Restated Employment Agreement, dated as of November 1, 1985, between
Motors and David R. Markin ("Markin Employment Agreement") (incorporated herein
by reference to Exhibit 10.17 to the 1989 10-K).
10.5 Amendment, dated as of March 4, 1992, to Markin Employment Agreement (incorporated
herein by reference to Exhibit 10.3 to the 1991 10-K).
10.6 Extension, dated March 4, 1992, of Amended and Restated Employment Agreement
Between Checker and David R. Markin (incorporated herein by reference to Exhibit
10.1 of the Registrant's Quarterly Report on Form 10-Q for the Quarter ending
September 30, 1993).
10.7 Amended and Restated Employment Agreement, dated as of June 1, 1992, between
Yellow and Jeffrey Feldman (incorporated herein by reference to Exhibit 28.2 of
the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1992 (the "June 1992 10-Q").
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------- ---------
<C> <S> <C>
10.8 Form of Stated Benefit Salary Continuation Agreement (incorporated herein by
reference to Exhibit 10.17 to the 1989 10-K).
10.9 Employment Agreement, dated as of July 1, 1992, between Registrant and Jay H.
Harris (incorporated herein by reference to Exhibit 28.1 to the June 1992 10-Q).
10.10 Loan and Guaranty Agreement, dated September 17, 1992, by and among the
Partnership, Motors, SCSM and NBD Bank, N.A. (incorporated herein by reference to
Exhibit 28.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1992 (the "September 1992 10-Q").
10.11 First Amendment, dated as of November 1, 1993, to Loan and Guaranty Agreement.**
10.12 Credit and Guaranty Agreement, dated as of August 1, 1989, by and among SCSM,
Motors, the Partnership and NBD Bank, N.A. (the "Credit Agreement") (incorporated
herein by reference to Exhibit 10.10 to the 1992 10-K).
10.13 First Amendment, dated as of June 1, 1990, to the Credit Agreement (incorporated
herein by reference to Exhibit 10.11 of the 1992 10-K).
10.14 Second Amendment, dated as of January 2, 1991, to the Credit Agreement
(incorporated herein by reference to Exhibit 10.12 of the 1992 10-K).
10.15 Third Amendment, dated as of November 1, 1993, to the Credit Agreement.**
10.16 Supplemental Agreement, dated as of April 20, 1992, among SCSM, Motors, the
Partnership and NBD Bank, N.A. (incorporated herein by reference to Exhibit 10.13
of the 1992 10-K).
10.17 Second Supplemental Agreement, dated as of September 17, 1992, among SCSM, Motors,
the Partnership and NBD Bank, N.A. (incorporated herein by reference to Exhibit
28.2 of the June 1991 10-Q).
10.18 Lease, dated December 1, 1988, between SCSM and Park Corporation (incorporated
herein by reference to Exhibit 10.17 to the 1989 10-K).
10.19 Loan and Security Agreement dated as of March 21, 1990, by and among Great Dane,
Great Dane Trailers Indiana, Inc., Great Dane Trailers Nebraska, Inc., Great Dane
Trailers Tennessee, Inc., certain lending institutions and Security Pacific
Business Credit Inc., as Agent (the "Security Pacific Agreement") (incorporated
herein by reference to Exhibit 10.17 to the 1989 10-K).
10.20 First Amendment, dated as of March 30, 1990, to the Security Pacific Agreement
(incorporated herein by reference to Exhibit 19.3 to the 1991 10-K).
10.21 Second Amendment, dated as of April 30, 1990, to the Security Pacific Agreement
(incorporated herein by reference to Exhibit 19.4 to the 1991 10-K).
10.22 Third Amendment, dated as of August 14, 1990, to the Security Pacific Agreement
(incorporated herein by reference to Exhibit 19.5 to the 1991 10-K).
10.23 Fourth Amendment, dated as of February 28, 1991, to the Security Pacific Agreement
(incorporated herein by reference to Exhibit 19.6 to the 1991 10-K).
10.24 Waiver and Fifth Amendment, dated as of September 3, 1991, to the Security Pacific
Agreement (incorporated herein by reference to Exhibit 19.7 to the 1991 10-K).
10.25 Waiver, Consent and Sixth Amendment, dated April 30, 1992, to the Security Pacific
Agreement (incorporated herein by reference to Exhibit 28 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1992).
10.26 Seventh Amendment, dated as of July 10, 1992, to the Security Pacific Agreement
(incorporated herein by reference to the June 1992 10-Q).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ----------- ---------------------------------------------------------------------------------- ---------
<C> <S> <C>
10.27 Eighth Amendment, dated as of February 19, 1993, to the Security Pacific Agreement
(incorporated herein by reference to Exhibit 10.24 of the 1992 10-K).
10.28 Waiver, Consent and Ninth Amendment, dated March 26, 1993, to the Security Pacific
Agreement (incorporated herein by reference to Exhibit 10.29 of the 1992 10-K).
10.29 Tenth Amendment, dated as of November 1, 1993, to the Security Pacific
Agreement.**
10.30 Assumption Agreement dated as of August 1, 1989, by and between Motors and the
West Virginia Economic Development Authority (incorporated herein by reference to
Exhibit 10.12 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990).
10.31 Agreement, dated as of September 1, 1991, between the Partnership and Jerry E.
Feldman (incorporated herein by reference to Exhibit 10.12 to the 1991 10-K).
10.32 Form of Checker Motors Corporation Excess Benefit Retirement Plan, effective
January 1, 1983 (incorporated herein by reference to Exhibit 19.9 to the 1991
10-K).
10.33 Amended and Restated License Agreement, dated December 30, 1992, between Checker
Motors Corporation and Checker Taxi Association, Inc. (incorporated herein by
reference to Exhibit 10.28 of the 1992 10-K).
10.34 Employment Agreement, dated as of January 1, 1994 between Registrant and David R.
Markin.**
12.1 Statements regarding computation of ratios**
21.1 Subsidiaries of Registrant.**
23.1 Consent of Ernst & Young**
23.2 Consent of Hutton Ingram Yuzek Gainen Carroll & Bertolotti--see Exhibit 5.1.
24.1 Power of Attorney**
25.1 Statement of eligibility of Trustee*
<FN>
- --------------
* To be filed by amendment
** Filed herewith
</TABLE>
<PAGE>
EXPLANATION OF CORPORATE STRUCTURE CHART
The following is an explanation of the corporate
structure chart which appears on page 6 of the Prospectus. The
purpose of the chart is to illustrate the basic corporate
structure of the Company and its subsidiaries. That chart shows
the following:
Checker Motors Corporation ("Motors") and Great Dane
Trailers, Inc. ("Great Dane") are 100%-owned subsidiaries of
International Controls Corp. ("ICC").
Motors is the general partner of Checker Motors Co.,
L.P. ("Checker L.P."). Checker Holding Corp. III, a wholly-owned
subsidiary of Motors, is a limited partner in Checker L.P. and
Executive Life Insurance Company ("ELIC") is a defaulting limited
partner in Checker L.P. South Charleston Stamping & Manufacturing
Company ("SCSM") is 90%-owned by Motors and 10%-owned by ELIC.
American Country Insurance Company is 100%-owned
by Checker L.P. Yellow Cab Company, Chicago AutoWerks and CMC
Kalamazoo are divisions of Checker L.P.
<PAGE>
EXHIBIT 3.1
RESTATED
ARTICLES OF INCORPORATION
OF
INTERNATIONAL CONTROLS CORP.
The following restated articles of incorporation of INTERNATIONAL CONTROLS
CORP., originally incorporated as Cryogenics, Inc. on May 9, 1959, only restate
and integrate and do not amend the provisions of the corporations' articles of
incorporation. There are no discrepancies between the corporation's articles of
incorporation as heretofore amended and the provisions of these restated
articles of incorporation other than of the omission of matters of historical
interest.
FIRST: The name of the corporation shall be "INTERNATIONAL CONTROLS CORP."
SECOND: The general nature of the business and objects and purposes to be
transacted, promoted or carried on are to do, as fully and to the same extent as
natural persons might or could do, all things hereinafter mentioned:
1. To engage in all types of services with respect to Cryogenics and in the
analysis, service, sales, distribution and manufacture of any chemical or
physical substance in connection therewith and to handle in the foregoing manner
any and all other types of service, sale or manufacture of chemical and physical
products in the utilization of chemical and physical matter in civilian and
military applications and in the service, sale, use and manufacture of all tools
and equipment in connection with the foregoing and to patent devices with
respect thereto and to purchase and acquire equipment and test facilities
concerning all of the foregoing.
2. To create, manufacture, produce, process, assemble, import, purchase and
otherwise acquire, sell, transfer, export, and otherwise dispose of, trade, deal
in and with, controls, valves, regulators, switches, motors, devices,
components, appliances, fixtures, equipment, tools, instruments and mechanisms,
and goods, wares, merchandise, and property of every class and description, and
any and all materials or articles required for or useful in connection with all
or any of the foregoing objects.
3. To develop, manufacture, assemble, fabricate, import, lease, purchase,
or otherwise acquire, invest in, hold, use, license the use of, install, handle,
maintain, service or repair, sell, pledge, mortgage, exchange, export,
distribute, lease, assign, and otherwise dispose of, and generally to trade and
deal in and with, as principal or agent, at wholesale, retail, on commission, or
otherwise, electronic systems, equipment and components, and electrical,
mechanical, and electro-mechanical apparatus and equipment of every kind and
description, electronic, telecommunication, communication, transmitting,
receiving, recording, reproducing, and similar equipment of every description,
microwave devices and equipment, radio, sonar, radar, television, and related
devices and equipment, and similar goods, wares, merchandise, commodities,
articles of commerce, and property of every kind and description, and any and
all products, machinery, equipment and supplies used or useful in connection
therewith.
4. To manufacture, buy, sell and deal in goods, wares, merchandise and
personal property of every kind.
5. To the same extent as natural persons could do, to acquire, construct,
maintain, develop, improve, rent, use, mortgage and dispose of real property and
interests, estates and rights therein.
6. To act as agent or representative, in any capacity; and to perform
services for others.
7. To acquire, develop, improve, use, grant licenses in respect of,
mortgage, dispose of and deal in letters patent of the United States or any
foreign country, patent rights, licenses and privileges, inventions,
improvements and processes, copyrights, trademarks and trade names.
1
<PAGE>
8. To acquire, own and dispose of rights, privileges, permits and
franchises convenient for any of the purposes of its business.
9. To acquire, own, pledge, dispose of and deal in shares of capital stock,
rights, bonds debentures, notes, trust receipts, and other securities,
obligations, choses in action and evidences of indebtedness or interest issued
or created by any corporations, associations, firms, trusts or persons, public
or private, or by the government of the United States of America, or by any
foreign government or by any state, territory, province, municipality or other
political subdivision or by any governmental agency, domestic or foreign, and as
owner thereof to possess and exercise all the rights, powers and privileges
ownership, including the right to execute consents and vote thereon and to do
any and all acts and things necessary or advisable for the preservation,
protection, improvement and enhancement in value thereof.
10. To aid in any manner any corporation, association, firm or individual,
any of whose securities, evidences of indebtedness, obligations or stock are
held by the corporation directly or indirectly, or in which, or in the welfare
of which, the corporation shall have any interest, and to guarantee securities,
evidences of indebtedness and obligations of other persons, firms associations
and corporations.
11. To acquire, and pay for in cash, stock, bonds or other securities of the
corporation or otherwise, the good will, rights, assets and property and to
undertake and assume the whole or any part of the obligations or liabilities of
any person, firm, association or corporation.
12. To enter into, make and perform contracts of every kind.
13. To borrow moneys and, from time to time without limit as to amount, to
issue, accept, endorse and execute promissory notes, drafts, bills of exchange,
warrants, bonds, debentures and other negotiable or non-negotiable instruments
and evidences of indebtedness and to secure the payment of any thereof and of
the interest thereon by mortgage upon or pledge, conveyance or assignment in
trust of the whole or any part of the property of the corporation, whether at
the time owned or thereafter acquired, and to sell, pledge or otherwise dispose
of such bonds or other obligations of the corporation for its corporate
purposes.
14. To lend any of its funds, either with or without security.
15. To acquire, hold and dispose of shares of its own capital stock and
rights thereto.
16. To carry on any other business in connection with any of the aforesaid
purposes for which a corporation may be formed under the laws of the State of
Florida.
17. To carry out all of part of the foregoing objects as principal or agent,
or in conjunction with any other person, firm, association or corporation, or as
a partner or member of a partnership, syndicate or joint venture or otherwise,
and in any part of the world to the same extent and as fully as natural persons
might or could do.
18. To do all such things as are necessary and incidental to the attainment
of the above objects.
19. To have and exercise all the powers conferred by the laws of the State
of Florida upon corporations formed under the laws of such State.
20. The objects and purposes specified in the foregoing clauses shall,
except where otherwise expressed, be in nowise limited or restricted by
reference to, or inference from, the terms of any other clause in this
certificate of incorporation, but the objects and purposes specified in each of
the foregoing clauses of this article shall be regarded as independent objects
and purposes.
The foregoing clauses shall be construed as objects, purposes and powers,
and it is hereby expressly provided that the foregoing enumeration of specific
powers shall not be held to limit or restrict in any manner the powers of the
corporation.
2
<PAGE>
THIRD: The authorized capital stock of the Corporation shall consist of
fifteen million (15,000,000) shares of common stock, par value $.01 per share.
Each holder of such common stock shall be entitled to notice of all meetings of
stockholders and shall be entitled to one vote for each share of common stock
held.
FOURTH: The corporation is to have perpetual existence.
FIFTH: The number of directors which shall constitute the entire Board of
Directors shall be no less than three nor more than nine directors, the number
thereof to be determined from time to time by resolution of the Board of
Directors. Directors shall be elected at the annual meeting of stockholders, or
if there be none, by unanimous written consent of stockholders of the
Corporation. To be qualified as a director, a person shall be a citizen of the
United States.
SIXTH: Both stockholders and directors shall have power, if the By-laws so
provide, to hold their meetings either within or without the State of Florida,
to have one or more offices and to keep the books of the corporation, subject to
the provisions of the laws of the State of Florida, within or without the State
of Florida, at such places as may from time to time be designated by Board of
Directors.
SEVENTH: No contract or other transaction between the corporation and any
other corporation in the absence of fraud, shall be affected or invalidated by
the fact that any one or more of the Directors of the corporation is or are
interested in, or is a Director or officer or are the Directors or officers of
such other corporation, and any Director or Directors, individually or jointly
may be a party or parties to, or may be interested in any such contract or
transaction of the corporation or in which the corporation is interested, and no
contract, act or transaction of the corporation with any person or persons, firm
or corporation in the absence of fraud, shall be affected or invalidated by the
fact that any Director or Directors of the corporation is a party or are parties
to or interested in such contract, act or transaction, or in any connected with
such person or persons, firm or corporation, and each and every person who may
become a Director of the corporation is hereby relieved from any liability that
might otherwise exist from this contracting with the corporation for the benefit
of himself or any firm, a association or corporation in which he may be anywise
interested. Any Director of the corporation may vote upon any contract or other
transaction between the corporation and any subsidiary or controlled company
without regard to the fact that he is also a Director of such subsidiary or
controller company.
EIGHTH: In furtherance and not in limitation of the powers conferred by
statute the Board of Directors is expressly authorized:
(a) Subject to the By-laws, if any, adopted by the stockholders, to
make, alter, amend or repeal the By-laws of the corporation;
(b) If the By-laws so provide, to designate by resolution two or more of
their number to constitute an Executive Committee, which Committee, to the
extent provided in the resolution or in the By-laws of the corporation,
shall have and may exercise any or all of the powers of the Board of
directors in the management of the business, affairs and property of the
corporation during the intervals between the meetings of the Board of
Directors, so far as may be permitted by law.
(c) From time to time to determine whether and to what extent and at
which times and place and under what conditions and regulations the accounts
and books of the corporation (other than the stock ledger) or any of them
shall be open to inspection of stockholders; and no stockholder shall have
any right of inspecting any account, book or document of the corporation
except as conferred by statute, unless authorized by a resolution of the
stockholders or Directors.
(d) To fix the amount to be reserved as working capital and to authorize
and cause to be executed, mortgage liens upon the property and franchises of
this corporation.
The corporation may at any meeting of its Board of Directors, sell, lease or
exchange all of its property and assets, including its good will, and its
corporate franchise or any property or assets essential to its corporate
business, upon such terms and conditions, either for cash for the securities of
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<PAGE>
any other corporation or corporations, or for such other consideration as its
Board of Directors may deem expedient and for the best interest of the
corporation when as authorized by the affirmative vote of the holders of record
of at least two-thirds of the stock of each class issued and outstanding given
at a stockholders' meeting duly called for that purpose, or when authorized by
the written consent of the holders of record of at least two-thirds of the stock
of each class issued and outstanding.
NINTH: The highest amount of indebtedness or liability to which this
corporation can at any time subject itself is unlimited.
4
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EXHIBIT 10.11
FIRST AMENDMENT TO LOAN AND GUARANTY
AGREEMENT, CONFIRMATION OF SECURITY
AGREEMENT AND CONFIRMATION OF GUARANTY
THIS FIRST AMENDMENT TO LOAN AND GUARANTY AGREEMENT, CONFIRMATION OF
SECURITY AGREEMENT AND CONFIRMATION OF GUARANTY, dated as of November 1, 1993
(this "Amendment"), is among CHECKER MOTORS CO., L.P., a Delaware limited
partnership (the "Company"), CHECKER MOTORS CORPORATION, a New Jersey
corporation ("CMC"), SOUTH CHARLESTON STAMPING & MANUFACTURING COMPANY, a West
Virginia corporation ("SCSM", and CMC and SCSM may each be referred to herein as
a "Guarantor" or collectively as the "Guarantors"), and NBD BANK, N.A., a
national banking association formerly named National Bank of Detroit (the
"Bank").
RECITALS
A. The Company, the Guarantors and the Bank have entered into a Loan
and Guaranty Agreement, dated as of September 17, 1992 (the "Loan Agreement"),
pursuant to which the Bank provided to the Company a $30,000,000 term loan and
the Guarantors guaranteed the indebtedness of the Company.
B. The Company, the Guarantors and the Bank now desire that the Loan
Agreement be amended to provide for an additional uncommitted line of credit in
the amount of $5,000,000 payable by the Company and guaranteed by the
Guarantors.
C. The Company and the Bank further desire to confirm the
effectiveness of the Security Agreement and all other agreements and documents
executed in connection with the Loan Agreement and the Guarantors further desire
to confirm their obligations under the Guaranty and the collateral granted by
them and all other agreements and documents executed in connection with the Loan
Agreement.
NOW THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO LOAN AGREEMENT
Effective upon the date that the conditions precedent set forth in
Section 3 hereof are satisfied, which date shall be determined by the Bank in
its reasonable discretion (the "Amendment Date"), the Loan Agreement is hereby
amended as follows:
<PAGE>
1.1 The recital paragraph on the first page is deleted and the
following is substituted in place thereof:
WHEREAS, the Company desires to obtain a term loan in the aggregate
principal amount of $30,000,000 in order to refund existing
indebtedness owed by CMC and SCSM to the Bank and for other
partnership purposes allowed hereunder and the Company desires to
obtain an uncommitted line of credit in aggregate amount not to exceed
$5,000,000 for working capital purposes, the Guarantors, in
consideration of $10.00 and other valuable consideration, the amount
and sufficiency of which is hereby acknowledged, are willing to
guaranty such term loan and line of credit, and the Bank is willing to
make a term loan and provide such a line of credit on the terms and
conditions herein set forth;
1.2 The definition of "FLOATING RATE" contained in Section 1.1 is
deleted and the following is substituted in place thereof:
"FLOATING RATE" shall mean the per annum rate equal to the sum of
(a)(i) with respect to Line of Credit Loans, one percent (1%) per
annum (ii) with respect to the Term Loan, one and one quarter
percent (1-1/4%) per annum plus (b) the Prime Rate in effect from
time to time; such Floating Rate shall change simultaneously with
any change in such Prime Rate.
1.3 The definition of "LOAN" shall be deleted and the following is
substituted in the place thereof:
"LOAN" shall mean any Line of Credit Loan or the Term Loan, and
"Loans" shall mean all Line of Credit Loans and the Term Loan.
1.4 The definition of "NOTES" contained in Section 1.1. is deleted
and the following is substituted in the place thereof:
"NOTES" shall mean the Term Note and the Line of Credit Note, and
each shall be a "Note".
1.5 The following definitions are inserted in Section 1.1 in
appropriate alphabetical order:
"EXPIRY DATE" shall mean the earlier of (a) November 30, 1994, or
(b) the date on which the Line of Credit Note is accelerated
under Section 7.2(a).
"FIRST AMENDMENT" shall mean the First Amendment to Loan and
Guaranty Agreement, Confirmation of Security
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<PAGE>
Agreement and Confirmation of Guaranty, dated as of November 1,
1993, among the Company, the Guarantors and the Bank.
"FIRST AMENDMENT DATE" shall mean the Amendment Date, as defined
in Section 1 of the First Amendment.
"LINE OF CREDIT LOANS" shall mean the borrowings under Section
2.1A evidenced by the Line of Credit Note and made pursuant to
Section 2.1A.
"LINE OF CREDIT NOTE" shall mean any promissory note of the
Company evidencing the Line of Credit Loans, substantially in the
form annexed hereto as Exhibit A-1, as amended or modified from
time to time and together with any promissory note or notes
issued in exchange or replacement therefor.
"TERM LOAN" shall mean the borrowing under Section 2.2 evidenced
by the Term Note and made pursuant to Section 2.1. Such Loan
shall be denominated as a Floating Rate Loan.
"TERM NOTE" shall mean the promissory note of the Company
evidencing the Term Loan, in substantially the form annexed
hereto as Exhibit A, as amended or modified from time to time and
together with any promissory note or notes issued in exchange or
replacement therefor.
1.6 A new Section 2.1A is hereby added after existing Section 2.1 to
read as follows:
2.1A LINE OF CREDIT. The Bank agrees, subject to the terms and
conditions of this Agreement, to extend a line of credit to the
Company from time to time from the First Amendment Date through
the Expiry Date, in such amounts as the Company shall from time
to time request, not to exceed $5,000,000 in aggregate principal
amount at any time outstanding. Notwithstanding any provisions
of this Agreement or any other agreements, it is understood and
agreed that (a) the Bank shall at no time be obligated to make
any Line of Credit Loan, despite compliance with any express
conditions precedent thereto, and (b) the aggregate outstanding
principal amount of all loans by the Bank to the Company and the
Guarantors, whether under this Agreement or any other agreement,
shall not exceed $45,000,000.
1.7 A new Section 2.2A is hereby added after existing Section 2.2 to
read as follows:
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<PAGE>
2.2A DISBURSEMENT OF LINE OF CREDIT LOANS. All Line of Credit
Loans shall be made as Floating Rate Loans, the proceeds of which
shall be made available to the Company by depositing the proceeds
thereof, in immediately available funds, in an account maintained
and designated by the Company at the Bank.
(b) All Line of Credit Loans made under this Section 2.2A shall
be evidenced by the Line of Credit Note, and shall be due and
payable and bear interest as provided in Article III. The Bank
is hereby authorized by the Company to record on the schedule
attached to the Line of Credit Note, or in its books and records,
the date and amount of each Line of Credit Loan, the amount of
each payment or prepayment of principal thereon, and the other
information provided for on such schedule, which schedule or
books and records, as the case may be, shall constitute prima
facie evidence of the information so recorded, PROVIDED, HOWEVER,
that failure of the Bank to record, or any error in recording,
any such information shall not relieve the Company of its
obligation to repay the outstanding principal amount of the Line
of Credit Loans, all accrued interest thereon and other amounts
payable with respect thereto in accordance with the terms of the
Line of Credit Note and this Agreement.
1.8 A new Section 2.7 is hereby added after Section 2.6 to read as
follows:
2.7 LINE OF CREDIT FEE. The Company further agrees to pay to the
Bank a fee during the period from the First Amendment Date to but
excluding the Expiry Date at a rate equal to three-eighths of one
percent (3/8 of 1%) per annum of the daily average of the
difference between $5,000,000 and the Line of Credit Loans,
payable quarterly in arrears on the last Business Day of each
March, June, September and December, commencing on such Business
Day in December, 1993, and on the Expiry Date.
1.9 A new Section 3.1(d) is hereby added after Section 3.1(c) to read
as follows:
(d) The Company shall pay to the Bank the outstanding principal
amount of the Line of Credit Loans on the Expiry Date.
1.10 Reference in the introductory paragraph to Section 5.2 to
"Maturity Date" shall be deleted and "later of the Maturity Date or the Expiry
Date" should be substituted in place thereof.
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<PAGE>
1.11 Section 5.2(b) is hereby deleted and the following is substituted
in place thereof:
(b) CONSOLIDATED TANGIBLE NET WORTH. Permit or suffer
Consolidated Tangible Net Worth of CMC to be less than
$45,000,000 at any time from the Effective Date to and including
December 30, 1995, provided that such minimum required amount
shall increase by $1,000,000 on December 31, 1995 and on each
December 31st thereafter.
1.12 Section 5.2(d) is amended by deleting reference therein to "3.50
to 1.0" and substituting "4.0 to 1.0" in place thereof.
1.13 Section 5.2(g) is amended by deleting the period at the end of clause
(ii) thereof and substituting "; and" in place thereof and adding the following
new clause (iii) to the the end of Section 5.2(g):
(iii) Notwithstanding anything contained in this Agreement to the
contrary, and in accordance with the letter from the Bank dated
September 21, 1993, the proceeds of the sale of not more than 100
taxi medallions may be paid to ICC (which payments are in
addition to those allowed under Section 5.2(i) hereof and are not
subject to any other covenants of this Agreement) to be used
solely to settle litigation with Boeing.
1.14 Section 5.2(i) is hereby deleted and the following is substituted
in place thereof:
(i) PAYMENTS TO ICC. Other than the payment to ICC permitted by
Section 5.2(g)(iii), any payments or transfers of any kind,
directly or indirectly from the Company, any of the Guarantors or
any Subsidiary of the Company or any Guarantor to ICC shall not
exceed in the aggregate, (i) for 1992, the lesser of (x)
$26,000,000 or (y) $21,000,000 plus the Maximum Contingent
Amount; (ii) for 1993, the sum of $25,000,000 plus the difference
between the Maximum Contingent Amount and all Contingent Payments
made in 1992; and (iii) for 1994 and each year thereafter, the
sum of $20,000,000 plus the difference between the Maximum
Contingent Amount and all Contingent Payments made in prior
years, plus, for 1994, the lesser of $5,000,000 or the amount, if
any, by which payments to ICC permitted under this Section 5.2(i)
for 1993 were less than $25,000,000 and plus, for all years after
1994, the lesser of $5,000,000 or the amount, if any, by which
payments to ICC permitted under this Section 5.2(i) for the
immediately previous year were less than $20,000,000. As used
herein, "Maximum Contingent Amount" shall mean the lesser of (i)
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<PAGE>
$5,000,000 or (ii) the actual tax payments and other liabilities
paid to the Internal Revenue Service arising from the settlement
of tax audits of federal tax returns of ICC for years prior to
1992 plus payments with respect to certain contingent liabilities
set forth on Schedule 5.2(i) (payments described in this clause
(ii) are defined as the "Contingent Payments"). Notwithstanding
any provision of this Agreement, (i) the Company shall not be
restricted from making additional distributions to its partners
out of funds legally available therefor, and (ii) the Guarantors
shall not be restricted from paying dividends out of a pool
smaller than one equal to one hundred percent of the amount
legally available under the corporate law of its state of
incorporation for such payments or distributions. Prior to any
such additional distribution or payment, the Company shall make a
prepayment to the Bank in an amount equal to one-half of the then
outstanding balance of the Loans, which prepayment shall be
applied to installments of principal of the Loans in the inverse
order of their maturities. The Company agrees that the amount of
payments allowed under this Section 5.2(i) will be adjusted
downward if ICC restructures its debt to the extent allowed under
such restructuring.
1.15 Section 7.1(k) is hereby deleted and the following is substituted
in place thereof:
(k) The occurrence of any Event of Default under the Credit and
Guaranty Agreement, dated as of August 1, 1989, as amended or
modified from time to time (the "SCSM Credit Agreement"), among
SCSM, as the borrower, the Company and CMC, as guarantors, and
the Bank.
1.16 Each reference in Sections 2.1, 2.2 and 2.3 to "a Loan" or "the
Loan" shall be deleted and "the Term Loan" shall be substituted in each place
thereof and each reference in Sections 2.2 and 2.3(e) to "Note" shall be deleted
and "Term Note" shall be substituted in place thereof.
1.17 Each reference in Section 2.4 (except as set forth in Section
1.18) and the first reference in Section 3.1(b) to "the Loan" shall be deleted
and "any Loan" shall be substituted in each place thereof.
1.18 Each reference in the last paragraph of Section 2.4 and in
Section 3.2 to "the Loan" shall be deleted and "each Loan" shall be substituted
in each place thereof.
1.19 Each reference in Section 3.1(a) and 3.1(c) to "Loan" shall be
deleted and "Term Loan" shall be substituted in each thereof.
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<PAGE>
1.20 Each reference in Sections 3.4, 3.5, Article IV, Section 5.2(i),
Article VI, Section 7.2 and Article VIII to "Loan" shall be deleted and "Loans"
shall be substituted in each place thereof.
1.21 Each reference in Article IV, Article V, Article VI, Section 7.2
and Article VIII to "Note" shall be deleted and "Notes" shall be substituted in
each place thereof.
1.22 The form of Line of Credit Note annexed hereto as Exhibit A-1 is
hereby added to the Credit Agreement as Exhibit A-1.
1.23 Any schedules attached hereto are substituted for the
corresponding schedules attached to the Credit Agreement.
SECTION 2. REPRESENTATIONS AND WARRANTIES
Each of the Company and each Guarantor represents and warrants that:
2.1 It has all requisite power and authority, corporate or otherwise,
to execute and deliver this Amendment and to engage in the transactions
contemplated by the Loan Agreement, as amended by this Amendment (the "Amended
Loan Agreement"), and to perform its obligations under the Amended Loan
Agreement and the Line of Credit Note to which it is a party. The execution and
delivery by it of this Amendment and the Line of Credit Note to which it is a
party, and the performance by it of the Amended Loan Agreement and the Line of
Credit Note to which it is a party have been duly authorized by all necessary
action, corporate or otherwise, and do not and will not (a) require any consent
or approval of its stockholders, if any, (b) violate any provision of any law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award presently in effect having applicability to it or of its Articles of
Incorporation, By-Laws or Partnership Agreement, as applicable, or (c) result in
a breach or constitute a default under any indenture or loan or credit agreement
or other agreement, lease or instrument to which it is a party or by which it or
its properties may be bound or affected.
2.2 No authorization, consent, approval, license, exemption of or
filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, is or will be
necessary to the valid execution or delivery by it of this Amendment or the Line
of Credit Note to which it is a party, or the performance by it of the Amended
Loan Agreement or the Line of Credit Note to which it is a party.
2.3 The Amended Loan Agreement and the Line of Credit Note to which
it is a party constitute its legal, valid and binding obligations enforceable
against it in accordance with their terms.
2.4 After giving effect to the amendments contained in this
Amendment, its representations and warranties contained in Article IV of the
Loan Agreement, Section 2 of the Security Agreement and in Article IV the SCSM
Credit are true on and as of the date hereof with the same force and effect as
if made on and as of the date hereof.
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<PAGE>
2.5 After giving the effect to the amendments contained in this
Amendment, there is no Event of Default or event or condition which may become
an Event of Default with notice or lapse of time, or both, as of the date
hereof.
2.6 CMC represents and warrants that, other than the capital stock of
SCSM and Checker Holding Corp. III and its partnership interest in the Company,
the only assets owned by it are those described in the Security Agreement, that
the Bank has a lien and security interest in all such assets of CMC described in
the Security Agreement, such liens and security interests are of a first
priority other than as described in Schedule 2.6 hereto and CMC will promptly
notify the Bank if it acquires any other assets and execute such further
agreements and other documents to grant a first priority lien and security
interest thereon as requested by the Bank.
SECTION 3. CONDITION PRECEDENT
3.1 CONDITIONS OF EFFECTIVENESS. This Amendment shall not become
effective until the Company and the Guarantors furnish to the Bank the following
documents and complete the following matters, each in form and substance
satisfactory to the Bank:
(a) Certified copies of such corporate and partnership documents of
the Company and each Guarantor, including those evidencing necessary corporate
action with respect to this Agreement, the Line of Credit Note and any other
documents executed in connection herewith as the Bank may request.
(b) The Line of Credit Note duly executed on behalf of each Borrower.
(c) Payment of facility fee to the Bank in amount of $50,000.
(d) The favorable written opinion of counsel for the Company and the
Guarantors, in form and substance satisfactory to the Bank and its counsel.
(e) Such other documents and agreements requested by the Bank,
including without limitation a solvency certificate.
SECTION 4. MISCELLANEOUS
4.1 All references to the Loan Agreement or the Note in the Security
Agreement, any Note, any certificate or instrument or any other document, shall
hereafter be deemed references to the Loan Agreement as amended hereby and to
the Notes as defined in the Loan Agreement after giving effect to this
Amendment, respectively.
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<PAGE>
4.2 Capitalized terms used but not defined herein shall have the
respective meanings ascribed to them in the Loan Agreement or the Security
Agreement, as the case may be.
4.3 This Amendment may be executed upon any number of counterparts
with the same effect as if the signatures thereto were upon the same instrument.
4.4 The Company agrees to pay the reasonable fees and expenses of
Dickinson, Wright, Moon, Van Dusen & Freeman, counsel for the Bank, in
connection with the preparation of this Amendment, the Line of Credit Note and
related documents and the consummation of the transactions contemplated hereby.
4.5 The Company and each Guarantor hereby ratify and confirm the Loan
Agreement, the Notes, the Security Agreement and all other agreements and
documents executed at any time pursuant to the Loan Agreement (all the foregoing
referred to collectively as the "Loan Documents") and agree that each shall
remain in full force and effect and acknowledge that they have no defense,
offset or counterclaim with respect thereto. Each Borrower agrees that all
collateral granted by it, including without limitation pursuant to the Security
Agreement, are cross collateralized and secure all present and future
indebtedness, obligations and liabilities of the Company and each Guarantor now
or hereafter owing to the Bank, including without limitation pursuant to the
Line of Credit Note, the Term Note and the SCSM Credit Agreement. The
Guarantors acknowledge and confirm that they jointly and severally and
unconditionally guarantee all present and future indebtedness, obligations and
liabilities of the Company to the Bank, including without limitation those
pursuant to the Line of Credit Note and the Term Note, and each Guarantor
further acknowledges and confirms that any collateral granted by either
Guarantor, including without limitation any collateral granted pursuant to the
SCSM Credit Agreement and the security agreement and other documents executed
pursuant thereto, (the "SCSM Loan Documents"), are cross collateralized and
secure all present and future indebtedness, obligations and liabilities of the
Company and each Guarantor now or hereafter owing to the Bank, including without
limitation pursuant to the Line of Credit Note and the Term Note, the Loan
Agreement and the SCSM Credit Agreement. The Company and each Guarantor
represent and warrant that the Bank has a first priority (subject only to such
Liens permitted by Section 5.2(e) of the Loan Agreement), perfected and
enforceable lien and security interest on all collateral described in the Loan
Documents and in the SCSM Loan Documents.
4.6 Each Guarantor and the Company represent and warrant that they
are aware of no claims or causes of action by the Company or any Guarantor
against the Bank. Notwithstanding this representation and as further
consideration for the agreements and understandings herein, each Guarantor and
the Company, individually and jointly and severally, for themselves and for
their respective heirs, successors and assigns, hereby release the Bank and its
officers, directors, employees, agents, attorneys, affiliates, subsidiaries,
successors and assigns from any liability, claim, right or cause of action which
now exists or hereafter arises, whether known or unknown, arising from or in any
way related to facts in existence as of the date hereof.
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<PAGE>
4.7 This Amendment constitutes the entire understanding of the
parties with respect to the subject matter hereof and may only be modified or
amended in a writing signed by all parties hereto. Each party hereto
acknowledges that it has been given an opportunity to consult with counsel and
after such consultation or opportunity, knowingly, voluntarily and without
duress enter into this Agreement and each party hereto acknowledges that they
have carefully and completely read all of the terms and provisions hereof.
4.8 This Amendment shall be governed by and construed in accordance
with the laws of the State of Michigan applicable to contracts made and to be
performed entirely within such State without giving effect to choice of law
principles of such State.
WITNESS the due execution hereof, effective as of the 1st day of
November, 1993, which shall be the Effective Date of this Amendment.
CHECKER MOTORS CORPORATION
By: /s/ Jay Harris
-----------------------------------
Its: Vice President
-----------------------------
CHECKER MOTORS CO., L.P.
By: CHECKERS MOTORS CORPORATION,
general partner
By: /s/ Jay Harris
----------------------------------
Its: Vice President
-----------------------------
SOUTH CHARLESTON STAMPING &
MANUFACTURING COMPANY
By: /s/ Marlan R. Smith
----------------------------------
Its: Assistant Treasurer
-----------------------------
NBD BANK, N.A.
By: /s/ Randy Balluff
----------------------------------
Its: Vice President
-----------------------------
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EXHIBIT A-1
LINE OF CREDIT NOTE
$5,000,000 November 1, 1993
Detroit, Michigan
FOR VALUE RECEIVED, the undersigned, CHECKER MOTORS CO., L.P., a
Delaware limited partnership (the "Company"), hereby unconditionally promises to
pay to the order of NBD BANK, N.A., a national banking association (the "Bank"),
at the principal banking office of the Bank in lawful money of the United States
of America and in immediately available funds, the principal sum of Five Million
Dollars ($5,000,000), or such lesser amount as is noted on the schedule attached
hereto, on the Expiry Date; and to pay interest on the unpaid principal balance
hereof from time to time outstanding, in like money and funds, for the period
from the date hereof until the Loans evidenced hereby shall be paid in full, at
the rates per annum and on the dates provided in the Loan Agreement referred to
below.
The Bank is hereby authorized by the Company to note on the schedule
attached to this Line of Credit Note the date and amount of each Loan, the
amount of each payment or prepayment of principal thereon and other information
provided for on such schedule, which schedule shall constitute prima facie
evidence of the information so noted, PROVIDED that any failure by the Bank to
make any such notation shall not relieve the Company of its obligation to repay
the outstanding principal amount of this Line of Credit Note, all accrued
interest hereon and any amount payable with respect hereto in accordance with
the terms of this Line of Credit Note and the Loan Agreement.
The Company and each endorser or guarantor hereof waives presentment,
protest, diligence, notice of dishonor, demand, and any other formality in
connection with this Line of Credit Note. Should the indebtedness evidenced by
this Line of Credit Note or any part thereof be collected in any proceeding or
be placed in the hands of attorneys for collection, the Company agrees to pay,
in addition to the principal and interest due and payable hereon, all costs of
collecting this Line of Credit Note, including attorneys' fees and expenses.
This Line of Credit Note evidences one or more Loans made under a Loan
and Guaranty Agreement, dated as of September 17, 1992 among the Company, South
Charleston Stamping & Manufacturing Company, a West Virginia corporation,
Checker Motors Corporation, a New Jersey corporation, and the Bank, as amended
or modified through the date hereof and as further amended or modified from time
to time (the "Loan Agreement"), to which reference is hereby made for a
statement of the circumstances under which this Line of Credit Note is subject
to prepayment and under which its due date applicable in the absence of demand
may be accelerated and for a description of the collateral and security securing
<PAGE>
payment hereof. Capitalized terms used but not defined in this Line of Credit
Note shall have the respective meanings assigned to them in the Loan Agreement.
CHECKER MOTORS CO., L.P.
By: CHECKER MOTORS CORPORATION,
its general partner
By: __________________________________
Its:_____________________________
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Schedule to Line of Credit Note, dated
November 1, 1993, made by Checker Motors Co., L.P.
in favor of NBD Bank, N.A.
Principal Principal Principal
Date Loan Amount of Interest Amount Paid Balance Notation
Made Loan Rate or Pre-paid Outstanding Made by
- --------- --------- -------- ----------- ----------- --------
<PAGE>
EXHIBIT 10.15
THIRD AMENDMENT TO CREDIT AND GUARANTY
AGREEMENT, CONFIRMATION OF SECURITY
AGREEMENT AND CONFIRMATION OF GUARANTY
THIS THIRD AMENDMENT TO CREDIT AND GUARANTY AGREEMENT,
CONFIRMATION OF SECURITY AGREEMENT AND CONFIRMATION OF GUARANTY, dated as of
November 1, 1993 (this "Amendment"), is among SOUTH CHARLESTON STAMPING &
MANUFACTURING COMPANY, a West Virginia corporation (the "Company"), CHECKER
MOTORS CORPORATION, a New Jersey corporation (the "Corporate Guarantor"), and
CHECKER MOTORS CO., L.P., a Delaware limited partnership (the "Partnership
Guarantor" and, together with the Corporate Guarantor, the "Guarantors"), and
NBD BANK, N.A., a national banking association formerly named National Bank of
Detroit (the "Bank").
RECITALS
A. The Company, the Guarantors and the Bank have entered into a
Credit and Guaranty Agreement, dated as of August 1, 1989, as amended by that
certain First Amendment to Credit Agreement (the "First Amendment") dated as of
June 1, 1990, that certain Second Amendment to Credit and Guarantee Agreement,
Confirmation of Security Agreement, and Confirmation of Guaranty (the "Second
Amendment") dated as of January 2, 1991, and as modified by a Supplemental
Agreement dated as of April 20, 1992 (the "First Supplemental Agreement") and a
Second Supplemental Agreement (the "Second Supplemental Agreement") dated as of
September 17, 1992 (the "Credit Agreement"), pursuant to which (a) the Bank
provided to the Company (i) a revolving credit facility in an aggregate
principal amount outstanding at any one time not to exceed $9,500,000, which
credit facility was converted to a term loan on July 31, 1990 and (ii) a line of
credit in an aggregate principal amount outstanding at any one time not to
exceed the lesser of (1) the Borrowing Base and (2) $5,000,000, payable on
demand, and (b) the Guarantors guaranteed the indebtedness of the Company under
such revolving credit facility and such line of credit.
B. The Company, the Guarantors and the Bank now desire that the
Credit Agreement be amended to provide for (a) the continuation and increase of
such line of credit from the Bank to the Company to an aggregate principal
amount outstanding at any one time not to exceed the lesser of (i) the Borrowing
Base and (ii) $7,500,000, and expiring on November 30, 1994, to support the
sales growth of the Company, and (b) an additional five year secured term loan
in aggregate principal amount of $2,500,000 to purchase certain equipment.
C. The Company and the Bank further desire to confirm the
effectiveness of the Security Agreement and all other agreements and documents,
and the Guarantors further desire to confirm their obligations under the
Guaranty and the collateral granted by them and all other agreements and
documents.
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NOW THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT
Effective upon the date that the conditions precedent set forth
in Section 5 hereof are satisfied, which date shall be determined by the Bank in
its reasonable discretion (the "Amendment Date"), the Credit Agreement is hereby
amended as follows:
1.1 The first two recital paragraphs on the first page are
deleted and the following is substituted in place thereof:
WHEREAS, the Company desires (a) to obtain a revolving
credit facility in aggregate principal amount not to exceed
$9,500,000 in order to provide funds for the purchase and
installation of five stamping presses, and its other
corporate purposes, which credit facility shall be
convertible into a term loan, (b) for the Bank to grant a
line of credit to the Company in an aggregate principal
amount outstanding any one time not to exceed $7,500,000 for
working capital purposes, and (c) to obtain a term loan in
the amount of $2,500,000 for the purpose of purchasing a
used Danly press; and
WHEREAS, the Guarantors are willing to guarantee the
indebtedness of the Company under such revolving credit
facility and the term loan to which it converts, such line
of credit and such term loan, and the Bank is willing to
provide such a revolving credit facility, line of credit and
term loan on the terms and the conditions herein set forth.
1.2 The definition of "BORROWING BASE" contained in Section 1.1
is deleted and the following is substituted in place thereof:
"BORROWING BASE" shall mean, as of any date, an amount equal
to the sum of (a) 80% of the value of Eligible Accounts
Receivable, plus (b) the lesser of (i) 50% of the value of
Eligible Inventory or (ii) $1,000,000.
1.3 The definition of "EXPIRY DATE FOR LINE OF CREDIT" contained
in Section 1.1 is deleted and the following is substituted in place thereof:
"EXPIRY DATE FOR LINE OF CREDIT"
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1.4 The definition of "FLOATING RATE" contained in Section 1.1
is deleted and the following is substituted in place thereof:
"FLOATING RATE" shall mean the per annum rate equal to the
sum of (a)(i) with respect to Line of Credit Loans, one
percent (1%) per annum (ii) with respect to the Term Loan
and the $2,500,000 Term Loan, one and one quarter percent
(1-1/4%) per annum plus (b) the Prime Rate in effect from
time to time; such Floating Rate shall change simultaneously
with any change in such Prime Rate.
1.5 The definition of "LOAN" shall be deleted and the following
is substituted in the place thereof:
" LOAN" shall mean any Revolving Credit Loan, the Term Loan,
any Line of Credit Loan or the $2,500,000 Term Loan, and
"Loans" shall mean all the Revolving Credit Loans, the Term
Loan, all Line of Credit Loans and the $2,500,000 Term Loan.
1.6 The definition of "NOTES" contained in Section 1.1. is
deleted and the following is substituted in the place thereof:
"NOTES" shall mean the Revolving Credit Note, the Term Note,
the Line of Credit Note and the $2,500,000 Term Note, and
each shall be a "Note".
1.7 The following definitions are inserted in Section 1.1 in
appropriate alphabetical order:
"EBIT" means, as of the last day of any fiscal quarter,
Net Income PLUS all amounts deducted in determining
such Net Income on account of (a) Interest Expense and
(b) taxes, all as determined for the Company in
accordance with generally accepted accounting
principles.
"ELIGIBLE INVENTORY" shall mean, as of any date, that
inventory owned by the Company that constitutes raw
materials or finished goods in which the Company has
granted to the Bank a first-priority perfected security
interest pursuant to the Security Agreement, valued at
the lower of cost or market on a FIFO basis, but shall
not include any such inventory (a) that does not
constitute raw materials or finished goods readily
salable or usable in the business of the Company (b)
that is located outside the United States (which shall
be not deemed to include any territories of the United
States), (c) that is subject to, or any accounts or
other proceeds resulting from the sale or other
disposition thereof could be subject to, any Lien
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(except those in favor of the Bank under the Security
Agreement), including any sale on approval or sale or
return transaction or any consignment, (d) that is not
in the possession of the Company or if such inventory
is covered by documents of title, instruments or
chattel paper and the Company is not the owner and
holder of all such documents, instruments and chattel
paper, free of any Lien (except those in favor of the
Bank under the Security Agreement), (e) that is held
for lease or is the subject of any lease, (f) that is
subject to any trademark, trade name or licensing
arrangement, or any law, rule or regulation, that could
limit or impair the ability of the Bank to promptly
exercise all rights of the Bank under the Security
Agreement, (g) if such inventory is located on premises
not owned by the Company and the landlord or other
owner of such premises shall not have waived its
distraint, lien and similar rights with respect to such
inventory and shall not have agreed to permit the bank
to enter such premises pursuant to a wavier and
agreement to such person in favor of and in form and
substance acceptable to the Bank (h) with respect to
which any insurance proceeds are not payable to the
Bank as a loss payee or are payable to any loss payee
other than the bank or the Company, and (i) that for
any other reason is at any time reasonably deemed by
the Bank to be ineligible.
"INTEREST EXPENSE" means, as of the last day of any
fiscal quarter of the Company, total interest and
related expense of the Company with respect to all
outstanding Indebtedness of the Company (including,
without limitation, the interest component of any
payments in respect to any capital lease) accrued or
capitalized (whether or not actually paid during the
relative period) plus the amount payable (or minus the
net amount receivable) under any interest rate hedging,
cap or similar agreement or arrangement (whether or not
actually paid or received during the relevant period)
for the fiscal quarter then ending and the three
immediately preceding fiscal quarters of the Company,
determined for the Company in accordance with generally
accepted accounting principles, except as modified by
this definition.
"NET INCOME" means, as of the last day of any fiscal
quarter of the Company, the net income (or loss) of the
Company for fiscal quarter then ending and the three
immediately preceding fiscal quarters of the Company,
taken as a single accounting period, determined in
accordance with generally accepted accounting
principles; MINUS to the extent included in determining
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such Net Income, without duplication: (a) the proceeds
of any insurance policy, (b) gains (or PLUS losses)
from the sale, exchange, transfer or other disposition
of property or assets not in the ordinary course of
business of the Company and related tax effects in
accordance with generally accepted accounting
principles, and (c) any extraordinary or non-recurring
gains of the Company, or other gains recognized by the
Company outside of the normal operations of the
Company, and related tax effects, in accordance with
generally accepted accounting principles.
"THIRD AMENDMENT" shall mean the Third Amendment to
Credit and Guaranty Agreement, Confirmation of Security
Agreement and Confirmation of Guaranty, dated as of
November 1, 1993, among the Company, the Guarantors and
NBD Bank, N.A., a national banking association,
formerly named National Bank of Detroit.
"THIRD AMENDMENT DATE" shall mean the Amendment Date,
as defined in Section 1 of the Third Amendment.
"TERM LOANS" shall mean the Term Loan and the
$2,500,000 Term Loan.
"$2,500,000 TERM LOAN" shall mean the borrowing under
Section 2.2A evidenced by the $2,500,000 Term Note and
made pursuant to Section 2.2A.
"$2,500,000 TERM NOTE" shall mean any promissory note
of the Company evidencing the $2,500,000 Term Loan,
substantially in the form annexed hereto as Exhibit B-
1, as amended or modified from time to time and
together with any promissory note or notes issued in
exchange or replacement therefor.
1.8 The words "SECOND AMENDMENT DATE" contained in Section 2.2
are deleted and the words "THIRD AMENDMENT DATE" are substituted in place
thereof, and the amount "$5,000,000" contained in Section 2.2 is deleted and the
amount "$7,500,000" is substituted in place thereof.
1.9 A new Section 2.2A is hereby added after existing Section
2.2 to read as follows:
2.2A $2,500,000 TERM LOAN. The Bank agrees, subject to
terms and conditions of this Agreement, to make a
single term loan to the Company on or within three days
after the Third Amendment Date in the amount of
$2,500,000.
1.10 Section 2.4(b) is deleted in its entirety and the following
new Section 2.4(b) is substituted in place thereof:
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(b) The Company further agrees to pay to the Bank a fee
during the period from the Third Amendment Date to but
excluding the Expiry Date for Line of Credit at a rate equal
to three-eighths of one percent (3/8 of 1%) per annum of the
daily average of the difference between $7,500,000 and the
Line of Credit Loans, payable quarterly in arrears on the
last Business Day of each January, April, July and October,
commencing on such Business Day in January, 1994, and on the
Expiry Date for Line of Credit.
1.11 A new Section 2.6A is hereby added after existing Section
2.6 to read as follows:
2.6A DISBURSEMENT OF $2,500,000 TERM LOAN. (a) The
$2,500,000 Term Loan shall bear interest at the applicable
Floating Rate, and the proceeds thereof shall be made
available to the Company, subject to the terms and
conditions of this Agreement, by depositing the proceeds
thereof, in immediately available funds, in an account
maintained and designated by the Company at the Bank.
(b) The $2,500,000 Term Loan under this Section 2.6A shall
be evidenced by the $2,500,000 Term Note, and shall be due
and payable and bear interest as provided in Article III.
The Bank is hereby authorized by the Company to record on
the scheduled attached to the $2,500,000 Term Note, or on
its books and records, the amount of $2,500,000 Term Loan,
the amount of each payment or prepayment of principal
thereon, and the other information provided for on such
schedule, which schedule or books and records, as the case
may be, shall constitute prima facie evidence of the
information so recorded, PROVIDED, HOWEVER, that the failure
of the Bank to record, or any error in recording, any such
information shall not relieve the Company of its obligation
to repay the outstanding principal amount of the $2,500,000
Term Loan, all accrued interest thereon and other amounts
payable with respect thereto in accordance with the terms of
the $2,500,000 Term Note of this Agreement.
1.12 Sections 2.9, 2.10 and 2.11 are each deleted.
1.13 Section 3.1(c) is deleted in its entirety and the following
new Section 3.1(c) is substituted in place thereof:
(c) Unless earlier payment is required under this
Agreement, the Company shall pay to the Bank the
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outstanding principal amount of the Line of Credit Loans on
the Expiry Date for Line of Credit.
1.14 Clauses (i) and (ii) of Section 3.1(d) and Sections 3.6(a)
and 3.8 are hereby deleted.
1.15 Section 3.2 is hereby deleted and the following is
substituted in place thereof:
INTEREST PAYMENTS. The Company shall pay interest to
the Bank on the unpaid principal amount of any portion
of the Loans, for the period commencing on the date
such Loan is made until such Loan is paid in full, on
each Interest Payment Date and at maturity (whether at
stated maturity, by acceleration or otherwise), and
thereafter on demand, at the Floating Rate.
Notwithstanding the foregoing, the Company shall pay
interest on demand at the Overdue Rate on the
outstanding principal amount of the Loans and any other
amount payable by the Company hereunder (other than
interest) which is not paid in full when due (whether
at stated maturity, by acceleration or otherwise) for
the period commencing on the due date thereof until the
same is paid in full.
1.16 A new Section 3.1(g) is hereby added after Section 3.1(f) to
read as follows:
(g) Unless earlier payment is required under this
Agreement, the Company shall pay to the Bank the outstanding
principal amount of the $2,500,000 Term Loan in twenty
equal, consecutive quarterly principal installments each in
the amount of $125,000 and payable on the last Business Day
of each January, April, July and October, commencing with
the last Business Day in January, 1994, and until the last
Business Day of October, 1998, when the entire outstanding
principal amount of the $2,500,000 Term Loan shall be due
and payable.
1.17 Reference in Section 3.1(e) to "Term Loan" shall be deleted
and "Term Loans" shall be substituted in place thereof.
1.18 A new Section 5.1(c) (which new Section describes a new
covenant which is an addition to all other existing covenants) is hereby added
after existing Section 5.1(b) to read as follows:
(c) EBIT TO INTEREST EXPENSE. The Company will not permit
or suffer the ratio of EBIT to Interest Expense to be less
than 2.0 to 1.0 as of the last day of any fiscal quarter of
the Company.
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1.19 Section 7.1(i) is modified by adding the phrase "or
International Controls Corp. ("ICC")" after each place the word "Guarantors"
appears in Section 7.1(i).
1.20 A new Section 7.1(l) is hereby added after existing Sections
7.1(k) to read as follows:
(l) ICC or any of its shareholders shall fail to perform or
observe any term, covenant or agreement contained in the
side letters delivered pursuant to Section 2.3(k) of the
Loan and Guaranty Agreement dated as of September 17, 1992
by and among the Partnership Guarantor, as borrower, and the
Corporate Guarantor and the Company, as guarantors.
1.21 The form of Line of Credit Note annexed hereto as Exhibit C
(the "New Line of Credit Note") is substituted for the form of Demand Note
annexed to the Credit Agreement as Exhibit C.
1.22 The form of $2,500,000 Term Note annexed hereto as Exhibit
B-1 is hereby added to the Credit Agreement as Exhibit B-1.
1.23 Any schedules attached hereto are substituted for the
corresponding schedules attached to the Credit Agreement.
1.24 All references to the Demand Note contained in the Credit
Agreement of in any other agreement or document shall be deemed references to
the Line of Credit Note and any promissory note or notes issued in exchange or
replacement therefor.
SECTION 4. REPRESENTATIONS AND WARRANTIES
Each of the Company and each Guarantor represents and warrants
that:
4.1 It has all requisite power and authority, corporate,
partnership or otherwise, to execute and deliver this Amendment and to engage in
the transactions contemplated by the Credit Agreement, as amended by this
Amendment (the "Amended Credit Agreement"), and to perform its obligations under
the Amended Credit Agreement and the New Line of Credit Note and $2,500,000 Term
Note to which it is a party. The execution and delivery by it of this Amendment
and the New Line of Credit Note and $2,500,000 Term Note to which it is a party,
and the performance by it of the Amended Credit Agreement and the New Line of
Credit Note and $2,500,000 Term Note to which it is a party have been duly
authorized by all necessary action, corporate or otherwise, and do not and will
not (a) require any consent or approval of its stockholders, if any, (b) violate
any provision of any law, rule, regulation, order, writ, judgment, injunction,
decree, determination or award presently in effect having applicability to it or
of its Articles of Incorporation, By-Laws or Partnership Agreement, as
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applicable, or (c) result in a breach or constitute a default under any
indenture or loan or credit agreement or other agreement, lease or instrument to
which it is a party or by which it or its properties may be bound or affected.
4.2 No authorization, consent, approval, license, exemption of
or filing or registration with any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, is or will be
necessary to the valid execution or delivery by it of this Amendment or the New
Line of Credit Note or $2,500,000 Term Note to which it is a party, or the
performance by it of the Amended Credit Agreement or the New Line of Credit Note
or $2,500,000 Term Note to which it is a party.
4.3 The Amended Credit Agreement and the New Line of Credit Note
and $2,500,000 Term Note to which it is a party constitute its legal, valid and
binding obligations enforceable against it in accordance with their terms.
4.4 After giving effect to the amendments contained in this
Amendment, its representations and warranties contained in Article IV of the
Credit Agreement, Section 2 of the Security Agreement and in the Loan and
Guaranty Agreement, dated as of September 17, 1992 by and among the Partnership
Guarantor, as borrower, and the Corporate Guarantor and the Company, as
guarantors (the "Partnership Guarantor Loan Agreement") are true on and as of
the date hereof with the same force and effect as if made on and as of the date
hereof.
4.5 After giving the effect to the amendments contained in this
Amendment, there is no Event of Default or event or condition which may become
an Event of Default with notice or lapse of time, or both, as of the date
hereof.
4.6 The Company has purchased the Danly press for approximately
$2,620,000, free and clear of all Liens other than in favor of the Bank and
other than subordinated liens to the State of West Virginia and Volkswagon,
subordinated in form and substance satisfactory to the Bank.
SECTION 5. CONDITION PRECEDENT
5.1 CONDITIONS OF EFFECTIVENESS. This Amendment shall not
become effective until the Company and the Guarantors furnish to the Bank the
following documents and complete the following matters, each in form and
substance satisfactory to the Bank:
(a) Certified copies of such corporate and partnership documents
of the Company and each Guarantor, including those evidencing necessary
corporate action with respect to this Agreement, the New Line of Credit Note and
the $2,500,000 Term Note as the Bank may request.
(b) The New Line of Credit Note and the $2,500,000 Term Note,
each duly executed on behalf of the Company.
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(c) Payment of facility fee to the Bank in amount of $50,000.
(d) The favorable written opinion of counsel for the Company and
the Guarantors, in form and substance satisfactory to the Bank and its counsel.
(e) The Company shall execute and deliver such documents with
respect to the Danly press purchased by the Company, including all appraisals
and all documents, if any, required to perfect the lien and security interest of
the Bank therein, as requested by the Bank.
(f) The Company shall have delivered such subordination
agreements and other documentation in form and substance satisfactory to the
Bank showing that the Bank has a first priority lien and security interest on
the Danly press and that the Liens of the State of West Virginia and Volkswagon
are subordinated to the Bank's Liens in form and substance satisfactory to the
Bank.
(g) Such other documents and agreements requested by the Bank,
including without limitation a solvency certificate.
SECTION 6. MISCELLANEOUS
6.1 All references to the Credit Agreement or the Notes in the
Security Agreement, any Note, any certificate or instrument or any other
document, shall hereafter be deemed references to the Credit Agreement as
amended hereby and to the Notes as defined in the Credit Agreement after giving
effect to this Amendment, respectively.
6.2 Capitalized terms used but not defined herein shall have the
respective meanings ascribed to them in the Credit Agreement or the Security
Agreement, as the case may be.
6.3 This Amendment may be executed upon any number of
counterparts with the same effect as if the signatures thereto were upon the
same instrument.
6.4 The Company agrees to pay the reasonable fees and expenses
of Dickinson, Wright, Moon, Van Dusen & Freeman, counsel for the Bank, in
connection with the preparation of this Amendment, the New Line of Credit Note,
the $2,500,000 Term Note and related documents and the consummation of the
transactions contemplated hereby.
6.5 The Company and each Guarantor hereby ratify and confirm the
Credit Agreement, the Notes, the Security Agreement, the First Amendment the
Second Amendment, the First Supplemental Agreement, the Second Supplemental
Agreement and all other agreements and documents executed at any time pursuant
to the Credit Agreement (all the foregoing referred to collectively as the "Loan
Documents") and agree that each shall remain in full force and effect and
acknowledge that they have no defense, offset or counterclaim with respect
thereto. The Company agrees that all collateral granted by it, including
without limitation pursuant to the Security Agreement, are cross collateralized
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and secure all present and future indebtedness, obligations and liabilities of
the Company and each Guarantor now or hereafter owing to the Bank, including
without limitation pursuant to the New Line of Credit Note, the Term Note, the
$2,500,000 Term Note and the Partnership Guarantor Loan Agreement. The
Guarantors acknowledge and confirm that they jointly and severally and
unconditionally guarantee all present and future indebtedness, obligations and
liabilities of the Company, including without limitation those pursuant to the
New Line of Credit Note, the Term Note and $2,500,000 Term Note, and each
Guarantor further acknowledges and confirms that any collateral granted by
either Guarantor, including without limitation any collateral granted pursuant
to the Partnership Guarantor Loan Agreement and the security agreement and other
documents executed pursuant thereto, (the "Partnership Loan Documents"), are
cross collateralized and secure all present and future indebtedness, obligations
and liabilities of the Company and each Guarantor now or hereafter owing to the
Bank, including without limitation pursuant to the New Line of Credit Note, the
Term Note, the $2,500,000 Term Note, the Credit Agreement and the Partnership
Guarantor Loan Agreement. The Company and each Guarantor represent and warrant
that the Bank has a first priority, perfected and enforceable lien and security
interest on all collateral described in the Loan Documents and in the
Partnership Loan Documents, subject only to such liens as are permitted under
Section 5.2(e) of the Partnership Guarantor Loan Agreement. Without limiting
the foregoing, the Company agrees that the Security Agreement is amended by
adding the phrase "and/or any of the Guarantors" after the word "Company" in
each place it appears in the first paragraph of Section 1 of the Security
Agreement.
6.6 Notwithstanding any provisions of the Credit Agreement or
any other agreement, it is understood and agreed that (a) the Bank shall at no
time be obligated to make any Line of Credit Loan, despite compliance with any
express conditions precedent thereto, and the Bank shall be privileged at any
time to make demand for payment of the New Line of Credit Note and all amounts
owing thereunder, despite the fact that there may not then exist an Event of
Default, and (b) the aggregate outstanding principal amount of all Loans by the
Bank to the Company and the Guarantors, whether under the Credit Agreement or
any other agreement, shall not exceed $45,000,000.
6.7 Each Guarantor and the Company represent and warrant that
they are aware of no claims or causes of action by the Company or any Guarantor
against the Bank. Notwithstanding this representation and as further
consideration for the agreements and understandings herein, each Guarantor and
the Company, individually and jointly and severally, for themselves and for
their respective heirs, successors and assigns, hereby release the Bank and
their officers, directors, employees, agents, attorneys, affiliates,
subsidiaries, successors and assigns from any liability, claim, right or cause
of action which now exists or hereafter arises, whether known or unknown,
arising from or in any way related to facts in existence as of the date hereof.
6.8 This Amendment constitutes the entire understanding of the
parties with respect to the subject matter hereof and may only be modified or
amended in writing signed by all parties hereto. Each party hereto acknowledges
that they have been given an opportunity to consult with counsel and after such
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consultation or opportunity, knowingly, voluntarily and without duress enter
into this Agreement and each party hereto acknowledges that they have carefully
and completely read all of the terms and provisions hereof.
6.9 This Amendment shall be governed by and construed in
accordance with the laws of the State of Michigan applicable to contracts made
and to be performed entirely within such State without giving effect to choice
of law principles of such State.
6.10 Notwithstanding anything contained in this Amendment or any
Loan Document to the contrary, is acknowledged and agreed that any
unenforceability of the guaranty by the Partnership Guarantor of the $2,500,000
Term Loan or the increase in the Line of Credit Loans implemented by this
Amendment shall not be an Event of Default, provided that it is acknowledged and
agreed by all parties that any such unenforceability shall not terminate,
impair, or otherwise affect in any manner any of the existing guaranty
obligations or other obligations of the Partnership Guarantor or any of the
obligations of the Company or the Corporate Guarantor.
WITNESS the due execution hereof, effective as of the 1st day of
November, 1993, which shall be the Effective Date of this Amendment.
SOUTH CHARLESTON STAMPING &
MANUFACTURING COMPANY
By: /s/ Marlan R. Smith
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Its: Assistant Treasurer
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CHECKER MOTORS CORPORATION
By: /s/ Jay Harris
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Its: Vice President
--------------------------------
CHECKER MOTORS CO., L.P.
By: CHECKERS MOTORS CORPORATION,
general partner
By: /s/ Jay Harris
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Its: Vice President
--------------------------------
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NBD BANK, N.A.
By: /s/ Randy Balluff
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Its: Vice President
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EXHIBIT B-1
$2,500,000 TERM NOTE
$2,500,000 November 1, 1993
Detroit, Michigan
FOR VALUE RECEIVED, the undersigned, SOUTH CHARLESTON STAMPING &
MANUFACTURING COMPANY a West Virginia corporation (the "Company"), hereby
unconditionally promises to pay to the order of NBD Bank, N.A. (formerly known
as National Bank of Detroit), a national banking association (the "Bank"), at
the principal banking office of the Bank in lawful money of the United States of
America and in immediately available funds, the principal sum of Two Million
Five Hundred Thousand Dollars ($2,500,000), in twenty equal consecutive
quarterly installments of $125,000 each, payable on the last day of each
January, April, July and October, commencing on January 31, 1994 and continuing
until October 31, 1998, when all principal shall be due and payable; and to pay
interest on the unpaid principal balance hereof from time to time outstanding,
in like money and funds, for the period from the date hereof until such Loan
shall be paid in full, at the rates per annum and on the dates provided in the
Credit Agreement referred to below.
The Bank is hereby authorized by the Company to note on the schedule
attached to this Note the date of the Loan, the interest rate, the amount of
each payment or prepayment of principal thereon and the other information
provided for on such schedule, which schedule shall constitute prima facie
evidence of the information so noted, PROVIDED that any failure by the Bank to
make any such notation shall not relieve the Company of its obligation to repay
the outstanding principal amount of this Note, all accrued interest hereon and
any amount payable with respect hereto in accordance with the terms of this Note
and the Credit Agreement.
The Company and each endorser or guarantor hereof waives demand,
presentment, protest, diligence, notice of dishonor and any other formality in
connection with this Note. Should the indebtedness evidenced by this Note or
any part thereof be collected in any proceeding or be placed in the hands of
attorneys for collection, the Company agrees to pay, in addition to the
principal and interest due and payable hereon, all costs of collecting this
Note, including attorneys' fees and expenses.
This Note evidences the $2,500,000 Term Loan made under a Credit and
Guaranty Agreement, dated as of August 1, 1989 as amended or modified through
the date hereof and as further amended or modified from time to time (the
"Credit Agreement"), by and among the Company, Checker Motors Corporation,
Checker Motors Co., L.P. and the Bank, to which reference is hereby made for a
statement of the circumstances under which this Note is subject to prepayment
and under which its due date may be accelerated and for a description of the
<PAGE>
collateral and security securing payment hereof. Capitalized terms used but not
defined in this Note shall have the respective meanings assigned to them in the
Credit Agreement.
SOUTH CHARLESTON STAMPING & MANUFACTURING COMPANY
By:______________________________________________
Its:________________________________________
-2-
<PAGE>
Schedule to $2,500,000 Term Note, dated
November 1, 1993, made by
South Charleston Stamping & Manufacturing Company
in favor of NBD Bank, N.A.
Principal
Principal Amount Principal
Date Loan Amount of Interest Paid, or Balance Notation
Made Loan Rate Prepaid Outstanding Made by
- --------- --------- -------- --------- ----------- --------
-3-
<PAGE>
EXHIBIT C
LINE OF CREDIT NOTE
$7,500,000 November 1, 1993
Detroit, Michigan
FOR VALUE RECEIVED, the undersigned, SOUTH CHARLESTON STAMPING &
MANUFACTURING COMPANY, a West Virginia corporation (the "Company"), hereby
unconditionally promises to pay to the order of NBD BANK, N.A., a national bank-
ing association (the "Bank"), at the principal banking office of the Bank in
lawful money of the United States of America and in immediately available funds,
the principal sum of Seven Million Five Hundred Thousand Dollars ($7,500,000),
or such lesser amount as is noted on the schedule attached hereto, on the Expiry
Date for Line of Credit; and to pay interest on the unpaid principal balance
hereof from time to time outstanding, in like money and funds, for the period
from the date hereof until the Loans evidenced hereby shall be paid in full, at
the rates per annum and on the dates provided in the Credit Agreement referred
to below.
The Bank is hereby authorized by the Company to note on the schedule
attached to this Note the date and amount of each Loan, the amount of each
payment or prepayment of principal thereon and other information provided for on
such schedule, which schedule shall constitute prima facie evidence of the
information so noted, PROVIDED that any failure by the Bank to make any such
notation shall not relieve the Company of its obligation to repay the outstand-
ing principal amount of this Note, all accrued interest hereon and any amount
payable with respect hereto in accordance with the terms of this Note and the
Credit Agreement.
The Company and each endorser or guarantor hereof waives presentment,
protest, diligence, notice of dishonor and, with respect to any principal and
interest due hereon and outstanding on the Expiry Date for Line of Credit,
demand, and any other formality in connection with this Note. Should the
indebtedness evidenced by this Note or any part thereof be collected in any
proceeding or be placed in the hands of attorneys for collection, the Company
agrees to pay, in addition to the principal and interest due and payable hereon,
all costs of collecting this Note, including attorneys' fees and expenses.
This Note evidences one or more Loans made under a Credit and Guaranty
Agreement, dated as of August 1, 1989, by and among the Company, Checker Motors
Corporation, a New Jersey corporation, Checker Motors Co., L.P., a Delaware
limited partnership, and the Bank, as amended or modified through the date
hereof and as further amended or modified from time to time (the "Credit
Agreement"), to which reference is hereby made for a statement of the
circumstances under which this Note is subject to prepayment and under which its
<PAGE>
due date applicable in the absence of demand may be accelerated and for a
description of the collateral and security securing payment hereof. Capitalized
terms used but not defined in this Note shall have the respective meanings
assigned to them in the Credit Agreement. This Note is issued in exchange and
replacement for a Demand Note dated January 2, 1991 in the face amount of
$5,000,000 (the "Previous Note"), and evidences the same indebtedness and other
liabilities evidenced by the Previous Note and shall not be deemed a novation or
to have satisfied the Previous Note, and shall be secured in the same priority
by, among other collateral, the collateral securing the Previous Note.
SOUTH CHARLESTON STAMPING & MANUFACTURING COMPANY
By: _____________________________________________
Its: _______________________________________
-2-
<PAGE>
Schedule to Line of Credit Note, dated
November 1, 1993, made by South Charleston Stamping & Manufacturing Company
in favor of NBD Bank, N.A.
Principal Principal Principal
Date Loan Amount of Interest Amount Paid Balance Notation
Made Loan Rate or Pre-paid Outstanding Made by
- --------- --------- -------- ----------- ----------- --------
<PAGE>
TENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Tenth Amendment to Loan and Security Agreement, dated
as of November 29, 1993 ("Tenth Amendment"), amends in certain
respects the terms of a certain Loan and Security Agreement,
dated as of March 21, 1990, by and between and among Great Dane
Trailers, Inc., a Georgia corporation, Great Dane Trailers
Nebraska, Inc., a Nebraska corporation and Great Dane Trailers
Tennessee, Inc., a Tennessee corporation (each of the foregoing
individually, a "Borrower" and collectively, "Borrower") the
Lenders from time to time parties thereto, and Security Pacific
Business Credit Inc., a Delaware corporation, as agent ("Agent"),
(the Loan and Security Agreement, as amended, modified, and
supplemented prior to the date hereof being hereinafter referred
to as "Loan Agreement").
WITNESSETH
WHEREAS, Great Dane Trailers Indiana, Inc., an Indiana
corporation was merged into Great Dane Trailers, Inc. on April 3,
1990;
WHEREAS, Great Dane Trailers, Inc. has acquired and now owns
all of the issued and outstanding voting stock of Great Dane Los
Angeles, Inc. ("GDTLA") and desires that GDTLA become a co-
borrower under the Loan Agreement;
WHEREAS, Borrowers have requested that the Lenders agree to
amend the provisions of the Loan Agreement to provide for an
increase in the Term Loan Commitment and to permit a portion of
the Revolving Credit Commitment to be used for banker's
acceptances, and to amend the Loan Agreement in certain respects;
WHEREAS, the Lenders are willing to make such amendments on
the condition that certain other amendments be made to the Loan
Agreement, and otherwise on the terms and conditions herein set
forth.
NOW, THEREFORE, in consideration of the mutual conditions
and agreements set forth in this Tenth Amendment, and for good
and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, each of Borrower, GDTLA, the Agent, and
the Lenders hereby agrees as follows.
SECTION 1. DEFINED TERMS. For purposes of this Tenth
Amendment, "AMENDMENT DOCUMENTS" means all documents executed by
the parties to this Tenth Amendment in connection with the
execution of this Tenth Amendment, including all agreements,
certificates, instruments, amendments, and other related
documents.
-1-
<PAGE>
Terms capitalized herein and not otherwise defined herein shall
have the respective meanings ascribed to them in the Loan
Agreement.
SECTION 2. AMENDMENT OF SECTION 1.1
2.1 Section 1.1 of the Loan Agreement is amended by adding
the following definitions:
"'BORROWERS' means, collectively, Great Dane Trailers,
Inc., a Georgia corporation; Great Dane Trailers
Nebraska, Inc., a Nebraska corporation; Great Dane
Trailers Tennessee, Inc., a Tennessee corporation; and
Great Dane Los Angeles, Inc., a Georgia corporation,
and `BORROWER' means each of the foregoing,
individually.
'CAPITAL EXPENDITURE LOAN COMMITMENT' means, with
respect to each Lender, the amount set forth beside
such Lender's name under the heading Capital
Expenditure Loan Commitment on the signature pages of
this Agreement or, after an assignment pursuant to
SECTION 14.3, shown for such Lender in the Register,
and 'Capital Expenditure Loan Commitments' shall,
collectively, mean the aggregate amount of the Capital
Expenditure Loan Commitments of all the Lenders, the
maximum amount of which shall not exceed $2,800,000.
'CAPITAL EXPENDITURE TERM NOTE' has the meaning
specified in Section 2.5.
'CAPITAL EXPENDITURE TERM LOAN' has the meaning
specified in Section 2.5.
'GDTLA' means Great Dane Los Angeles, Inc., a Georgia
corporation.
'QUALIFIED CAPITAL EXPENDITURE' means the lesser of (i)
the amount of the Lenders' advance under the Capital
Expenditure Loan Commitment and (ii) a Capital
Expenditure, less taxes, freight, and capitalized
interest attributable thereto and such other exclusions
as Lenders may reasonably consider not to comprise
Capital Expenditures, made for the purpose of acquiring
and installing two new presses to be used in the
manufacture of truck trailers, containers, and related
products, one press to be installed at GDTN's Premises
located in Wayne, Nebraska, and the second to be
installed at GDT's Premises located in Brazil,
Indiana."
2.2 The definition of Adjusted Net Earnings from Operations
set forth in Section 1.1 of the Loan Agreement is amended by
-2-
<PAGE>
deleting at the end of the definition the words "determined in
accordance with GAAP; and (h) LIFO reserve changes." and
inserting in lieu thereof the following "determined in accordance
with GAAP; (h) LIFO reserve changes; and (i) the $27,128,000
effect of the accounting change in 1993."
2.3 The definition of "L/C SUBFACILITY" set forth in
Section 1.1 of the Loan Agreement is amended by deleting such
definition and inserting in lieu thereof the following:
"`L/C SUBFACILITY' means that portion of the Aggregate
Maximum Revolver Amount available for the issuance of
Letters of Credit, other than banker's acceptances, in
an aggregate amount not to exceed $20,000,000, and for
the issuance of banker's acceptances in an aggregate
amount not to exceed $10,000,000."
2.4 The definition of "LETTER OF CREDIT" set forth in
Section 1.1 of the Loan Agreement is amended by deleting such
definition and inserting in lieu thereof the following:
"'LETTER OF CREDIT' means a standby letter of credit, a
merchandise letter of credit, and a banker's acceptance
issued in connection with a letter of credit issued or
caused to be issued for the account of a Borrower
pursuant to Article 3."
2.5 The definition of "BORROWER PLEDGE AGREEMENT" set forth
in Section 1.1 of the Loan Agreement is amended by deleting such
definition and inserting in lieu thereof the following:
"'BORROWER PLEDGE AGREEMENT' means the Pledge
Agreement dated as of the Closing Date, in form and
substance satisfactory to the Lenders, executed and
delivered by GDT, pursuant to which (i) all of the
issued and outstanding capital stock of GDTLA, GDTN,
and GDTT shall be pledged to the Agent for the benefit
of the Secured Creditors as additional security for the
Obligations, and (ii) certain promissory notes payable
to GDT shall be pledged to the Agent for the benefit of
the Secured Creditors as additional security for the
Obligations."
2.6 The definitions of "COMMITMENT" and "COMMITMENTS" set
forth in Section 1.1 of the Loan Agreement are amended by
deleting such definitions and inserting in lieu thereof the
following:
"`COMMITMENT' means, at any time with respect to a
Lender, such Lender's Term Loan Commitment, Revolving
Credit Commitment, and Capital Expenditure Loan
Commitment and `COMMITMENTS' means, collectively, the
-3-
<PAGE>
Term Loan Commitments, Capital Expenditure Loan
Commitments, and Revolving Credit Commitments of all of
the Lenders, the maximum amount of which shall not
exceed $90,400,000."
2.7 The definition of "LOAN" set forth in Section 1.1 of
the Loan Agreement is amended by deleting such definition and
inserting in lieu thereof the following:
"`LOAN' means a Term Loan, a Revolving Loan (including
an SP Revolving Loan), or the Capital Expenditure Term
Loan."
2.8 The definition of "MAXIMUM REVOLVER AMOUNT" set forth
in Section 1.1 of the Loan Agreement is amended by deleting part
(a)(ii)(C)(1) of such definition and inserting in lieu thereof
the following:
"(1) $30,000,000 or (w) if such Borrower is GDT,
$25,000,000, or (x) if such Borrower is GDTN,
$3,000,000, or (y) if such Borrower is GDTT,
$2,000,000, or (z) if such Borrower is GDTLA,
$2,000,000 or"
2.9 Section 2 of the Loan Agreement is amended by the
addition of a new paragraph number 2.5, which shall read in its
entirety as follows:
"2.5 CAPITAL EXPENDITURE TERM LOANS.
(a) AMOUNT OF CAPITAL EXPENDITURE TERM LOANS.
Upon the request of GDTN relating to the press to be
installed in Wayne, Nebraska, and of GDT relating to
the press to be installed in Brazil, Indiana, , each
Lender severally agrees to make available to GDT and
GDTN from time to time capital expenditure advances in
an amount equal to such Lender's Pro Rata Share of
$2,800,000 or such lesser amount requested (the
`CAPITAL EXPENDITURE TERM LOAN') for the purpose of
funding Qualified Capital Expenditures in accordance
with the procedures specified in this section. Funds
paid to the Lenders in repayment of a Capital
Expenditure Term Loan, when repaid or prepaid, whether
by voluntary or mandatory prepayment or otherwise, may
not be reborrowed. Each capital expenditures advance
shall only be against Qualified Capital Expenditures
and shall be in a minimum amount of $100,000. Each
capital expenditure advance shall not exceed, when
added to all amounts previously advanced under the
Capital Expenditure Term Loan, an amount equal to the
lesser of:
-4-
<PAGE>
(i) $2,800,000; or
(ii) an amount equal to the actual, out-of-
pocket cost of Qualified Capital Expenditures.
(b) NOTICE OF BORROWING. (i) When GDT and GDTN
desire to borrow under Section 2.5, GDT and GDTN, as
appropriate, shall deliver to Agent a Notice of
Borrowing signed by an authorized officer of GDT or
GDTN no later than 11:00 a.m. (New York time) at least
one (1) Business Day in advance of each capital
expenditure advance. The Notice of Borrowing shall (1)
be in writing and shall be submitted, together with a
schedule and copies of invoices for such purchases and
any other documents required by Agent to support the
request, (2) specify the requested funding date of the
capital expenditure advance, and (3) shall specify the
amount of the requested capital expenditure advance.
(ii) Any Notice of Borrowing made pursuant to
this Section 2.5(b) shall be irrevocable.
(c) MAKING OF CAPITAL EXPENDITURE ADVANCES.
Promptly after receipt of a Notice of Borrowing under
Section 2.5(b), the Agent shall notify each Lender by
telex, telecopy, telegram, telephone, or other similar
means of transmission, of the proposed Borrowing. Each
Lender shall make the amount of such Lender's capital
expenditure advance available to the Agent as the Agent
may designate, not later than 12:00 noon (New York
time) on the capital expenditure advance funding date.
After Agent's receipt of the proceeds of such loan,
upon satisfaction of the applicable conditions
precedent set forth in Article 11, the Agent shall make
the proceeds of such loan available to GDT or GDTN by
transferring same day funds equal to the proceeds of
all such loans received by the Agent to an account of
GDT and GDTN designated in writing by GDT or GDTN or as
they shall otherwise instruct in writing.
(d) CAPITAL EXPENDITURE TERM NOTES. GDT and GDTN
shall execute and deliver to the Agent for the benefit
of each Lender, prior to the first capital expenditure
advance, promissory notes (the `Capital Expenditure
Term Notes') substantially in the form attached hereto
as Exhibit 2.5, to evidence such Lender's Capital
Expenditure Term Loan, in an original principal amount
equal to such Lender's Pro Rata Share of the $2,800,000
and with other appropriate insertions. Advances under
the Capital Expenditure Term Loan (the `capital
expenditure advance(s)') will be separately noted on
and evidenced
-5-
<PAGE>
by, repayable in accordance with, and subject to the
terms, conditions, and limitations of, the Capital
Expenditure Term Notes. Each of the Capital
Expenditure Term Notes delivered to the Agent for the
benefit of each Lender shall be dated as of the date on
or prior to the first advance thereunder, and each
advance thereunder shall be payable in 36 equal monthly
installments of principal, with the first such
installment being due and payable on the first day of
the first month immediately following the month in
which the advance is made, and all other payments
thereof shall be due and payable on the first day of
each month thereafter; provided, however, the entire
unpaid balance of the Capital Expenditure Term Loan, if
not sooner due and payable by reason of the provisions
of this Agreement, shall be due and payable in full on
March 21, 1995. Each such installment shall be payable
to the Agent for the account of such Lender.
(e) NOTATION AND ENDORSEMENT. The Agent
shall record in the Register the principal amount of
the Capital Expenditure Term Loan owing to each Lender
from time to time. In addition, each Lender is
authorized, to note the date and amount of each such
payment or prepayment of principal of such Lender's
Capital Expenditure Term Loan in its books and records,
such books and records constituting rebuttably
presumptive evidence of the accuracy of the information
contained therein. Prior to the transfer to a Capital
Expenditure Term Note, the Lender shall indorse on the
note the outstanding principal balance of the Capital
Expenditure Term Loan evidenced thereby. Failure of
such Lender to make such notation or endorsement shall
not affect the obligations of the Borrower under such
Capital Expenditure Term Note or any of the other Loan
Documents."
2.10 The Loan Agreement is amended by the attachment of an
Exhibit 2.5 which shall read in accordance with such exhibit
attached hereto and incorporated herein.
2.11 Subsection 3.2(b) of the Loan Agreement is amended by
deleting such subsection and inserting in lieu thereof the
following:
"(b) (i) which has a term of longer than one
(1) calendar year or an expiration date after the
Business Day prior to the Termination Date, or (ii)
with respect to banker's acceptance which has a payment
date of more than 180 days from the date of its
issuance or which has a payment date which is after the
Business Day prior to the Termination Date, or (iii)
with respect to
-6-
<PAGE>
a merchandise letter of credit which has a tenor of not
more than 180 days from the date of its issuance."
2.12 Subsection 4.1 (a) of the Loan Agreement is amended by
deleting such subsection and inserting in lieu thereof the
following:
"4.1 INTEREST. (a) The Borrowers agree, jointly
and severally, to pay the Lenders interest on the
unpaid principal balance of the Revolving Loans, the
Term Loans, and the Capital Expenditure Term Loans at a
fluctuating per annum rate equal to one and one-half
percent (1.5%) PLUS the Reference Rate. Each change in
the Reference Rate shall be reflected in the foregoing
interest rate as of the effective date of such change.
Interest charges shall be computed on the basis of a
year of 360 days and actual days elapsed and will be
payable to the Lenders, in the case of Revolving Loans,
monthly in arrears on the first day of each month
hereafter, in the case of Term Loans, monthly in
arrears on the first day of each month after the Term
Funding, in the case of Capital Expenditures Term
Loans, monthly in arrears on the first day of each
month after the initial funding of the Capital
Expenditures Term Loan, and, in each case, as otherwise
provided herein."
2.13 AMENDMENT OF SECTION 4.4. The Letter of Credit Fees
imposed under Section 4.4 of the Loan Agreement shall apply to
all Letters of Credit, other than banker's acceptances.
2.14 AMENDMENT OF ARTICLE 4. Article 4 of the Loan
Agreement is amended by the addition of a new section, Section
4.4A, which shall read in its entirety as follows:
"4.4A ACCEPTANCE FEES. In connection with the
establishment of the subfacility for banker's
acceptances, the Borrowers jointly and severally agree
to pay to the Agent monthly, for the ratable benefit of
the Lenders, for each banker's acceptance, a fee
("Acceptance Fee"), equal to (a) two and one-half
percent (2.50 %) per annum of the undrawn face amount
of each banker's acceptance created pursuant to this
Agreement and all associated charges incurred by
Lenders in connection therewith. All Acceptance Fees
which have accrued in each month shall be charged to
the Loan at the end of each month. The Acceptance Fee
shall be computed on the basis of a 360-day year for
the actual number of days elapsed."
-7-
<PAGE>
2.15 AMENDMENT OF SECTION 4.7. Section 4.7 of the Loan
Agreement is amended by deleting such section and inserting in
lieu thereof the following:
"4.7 FEES NOT INTEREST; FULLY EARNED. All fees
are for compensation for services and are not, and
shall not be deemed to be, interest or a charge for the
use of money. The fees provided for in Sections 4.3,
4.4, 4.4A, and 4.5 shall be fully earned when due and
payable, and no such fee shall be refundable or
rebatable by reason of any prepayment, acceleration
upon an Event of Default or any other circumstance."
2.16 AMENDMENT OF SECTION 8.2(D). Section 8.2(d) is amended
by inserting the words "or his designee" following the words
'chief financial officer."
2.17 AMENDMENT OF ARTICLE 10. Article 10 of the Loan
Agreement is amended by the addition of a new Section, number
10.7A, which shall read in its entirety as follows:
"10.7A. ENVIRONMENTAL QUESTIONNAIRE AND TESTING.
By no later than December 31, 1993, the Borrowers shall
deliver to the Agent a completed environmental
questionnaire and disclosure statement (which shall be
on a form provided by the Agent) for each of the
Premises."
2.18 AMENDMENT OF SUBSECTION 10.15A(G)(I)(C). Part
10.15A(g)(i)(C) of the Loan Agreement is amended by deleting such
part and inserting in lieu thereof the following:
"(C) the aggregate amount of (1) all Intercompany
Loans made during Fiscal Year 1993, is less than or
equal to the following amounts on or after the
following dates:
<TABLE>
<CAPTION>
Aggregate Amount of Intercompany
Loans in Fiscal Year 1993 Dates in 1993
------------------------- -------------
<S> <C>
$ 1,000,000 January 1
$ 2,000,000 February 1
$ 4,000,000 March 1
$ 5,000,000 May 1
$ 6,000,000 June 1
$ 7,000,000 July 1
$ 8,000,000 August 1
$ 9,000,000 September 1
$10,000,000 October 1
$11,000,000 November 1
$16,000,000 December 1"
</TABLE>
-8-
<PAGE>
2.19 The negative number (500) as shown as the "Required
Minimum Cumulative Amount" for December, 1993, and Year 1993, in
Exhibit B to the Eighth Amendment to Loan and Security Agreement,
is amended by deleting such number and inserting in lieu thereof
the number zero.
2.20 AMENDMENT OF SECTION 10.12. Section 10.12(d) is
amended by deleting such subsection and inserting in lieu thereof
the following:
"(d) Guaranties by GDT of the trade accounts
payable of its Subsidiaries and its dealers; PROVIDED,
HOWEVER, that the aggregate liability of GDT under all
such guaranties permitted by this clause (d) shall not
exceed $500,000 at any one time outstanding."
2.21 AMENDMENT OF SECTION 10.22. Qualified Capital
Expenditures shall not be considered Capital Expenditures for
purposes of Section 10.22 of the Loan Agreement, and shall be
excluded from the "purchase of fixed assets" amount listed on the
statement of cash flows included as part of Exhibit B attached to
the Eighth Amendment to Loan and Security Agreement dated March
21, 1990, which is utilized to compute the amount of Intercompany
Loans; provided, however, payments of principal and interest in
connection with such Qualified Capital Expenditures shall be
included.
2.22 AMENDMENT OF SECTION 10.26. Section 10.26 of the Loan
Agreement is amended by deleting such section and inserting in
lieu thereof the following:
"10.26 CURRENT RATIO. The Borrowers will not permit
the ratio of (a) Current Assets less cash to (b)
Current Liabilities less (i) current maturities of
long-term Debt and (ii) federal income taxes payable,
to be less than (a) 1.50 to 1.00 at the end of any
fiscal quarter, ending with the fiscal quarter ending
on June 30, 1993, and (b) 1.40 to 1.00 at the end of
any fiscal quarter thereafter."
2.23 AMENDMENT OF SECTION 10.27. Section 10.27 of the Loan
Agreement is amended by deleting the amounts "97,000,000,"
"98,000,000," "99,000,000," "100,000,000," and "101,000,000" and
inserting in lieu thereof the amounts "69,872,000," "70,872,000,"
"71,872,000," "72,872,000," and "73,872,000," respectively.
2.24 AMENDMENT OF SIGNATURE PAGES. The signature page of
the Loan Agreement is amended by inserting next to each Lender
the following:
-9-
<PAGE>
<TABLE>
<CAPTION>
Capital Expenditure
Lender Loan Commitment
------ ---------------
<S> <C>
Security Pacific
Business Credit Inc. $1,363,600
Sanwa Business
Credit Corporation $ 420,000
NationsBank of
Georgia, N. A. $1,016,400
</TABLE>
SECTION 3.
3.1 CONDITIONS TO EFFECTIVENESS. This Tenth Amendment
shall be effective as of the date first written above upon
satisfaction of the following conditions precedent in a manner
satisfactory to the Agent:
(a) In connection with the increase in the Commitments
and the creation of a banker's acceptance subfacility and to
compensate the Lenders for costs and expenses (other than
expenses for which the Borrowers will otherwise reimburse the
Agent or the Lenders), the Agent shall have received a fee of
$75,000 for the benefit of the Lenders;
(b) The Agent shall have received counterparts of this
Tenth Amendment executed by the Borrowers and the Lenders;
(c) The Agent shall have received First Amendment to
Pledge Agreement executed by GDT;
(d) The Agent shall have received a borrowing
resolution from GDTLA in form and content satisfactory to the
Agent;
(e) The Agent shall have received a certificate dated
as of the date hereof and signed by the president or a vice
president and the treasurer or comptroller of each of the
Borrowers certifying that the representations and warranties
contained in the Loan Agreement are true and correct as of the
date hereof and that no Default or Event of Default has occurred
and is continuing as of the date hereof, or would result from
giving effect to this Tenth Amendment;
(f) The Agent shall have received an opinion of
Hunter, Maclean, Exley & Dunn, P.C., counsel to the Borrowers
(including GDTLA) in form and substance satisfactory to counsel
for the Agent;
-10-
<PAGE>
(g) All proceedings taken in connection with the
execution of this Tenth Amendment and all documents and papers
related thereto shall be satisfactory to the Lenders; and
(h) The Agent shall have received UCC-1 financing
statements, in proper form, for filing with the California
Secretary of State and with the Clerk of Chatham County, Georgia,
executed by GDTLA as the debtor, and referencing the Agent, on
behalf of the Lenders, as the secured party.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrowers
(as herein defined) hereby each represent and warrant to the
Lenders and the Agent that (i) the execution, delivery, and
performance of this Tenth Amendment by each of the Borrowers are
within their respective corporate powers, and have been duly
authorized by all necessary corporate action, (ii) no consent,
approval, authori-zation of, or declaration or filing with, any
Public Authority, and no consent of any other Person, is required
in connection with the execution, delivery and performance of
this Tenth Amendment and the Amendment Documents, (iii) this
Tenth Amendment and the Amendment Documents have been duly
executed by each of the Borrowers and constitute the legal,
valid, and binding obligation of such of the Borrower,
enforceable against them in accordance with their terms, (v) the
execution, delivery, and performance by each of the Borrowers of
this Tenth Amendment and the Amendment Documents does not and
will not conflict with, or constitute a violation or breach of,
constitute a default under, or result in the creation or
imposition of any Lien upon the property of any Borrower or any
of its Subsidiaries by reason of the terms of (a) any contract,
mortgage, Lien, lease, agreement, indenture, or instrument to
which such Borrower or such Subsidiary is a party or which is
binding upon it, (b) any Requirement of Law applicable to such
Borrower or such Subsidiary, or (c) the Certificate of Articles
of Incorporation or By-Laws of such Borrower or such Subsidiary.
GDTLA hereby accepts, adopts, and agrees to be bound by all of
the terms and conditions of the Loan Agreement. All Obligations
of GDTLA, GDT, GDTN, and GDTT under the Loan Agreement are joint
and several.
Borrower agrees to pay on demand all costs and expenses
reasonably incurred by Agent in connection with the preparation,
negotiation, and execution of this Tenth Amendment and the other
documents executed pursuant thereto and any and all subsequent
amendments, modifications, and supplements hereto or thereto,
including, without limitation, the costs and fees of Agent's
legal counsel and the allocated cost of staff counsel.
SECTION 6. REFERENCE TO AND EFFECT ON LOAN DOCUMENTS.
6.1 On and after the date hereof, each reference in the
Loan Agreement to "this Agreement", "hereunder", "hereof",
"herein", or
-11-
<PAGE>
words of like import, and each reference in the other Loan
Documents to the Loan Agreement, shall mean and be a reference to
the Loan Agreement as amended hereby.
6.2 Except as expressly amended above, all of the terms of
the Loan Agreement shall remain unchanged and in full force and
effect.
6.3 The execution, delivery, and effectiveness of this
Tenth Amendment shall not operate as a waiver of any right,
power, or remedy of any Lender or the Agent under the Loan
Agreement or any of the other Loan Documents, nor constitute a
waiver of any provision of the Loan Agreement or any of the other
Loan Documents.
SECTION 7. EXECUTION IN COUNTERPARTS. This Tenth Amendment
may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so
executed and delivered shall constitute one and the same
instrument.
SECTION 8. GOVERNING LAW. This Tenth Amendment shall be
governed by, shall be construed under, and enforced in accordance
with the laws of the state of New York.
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-12-
<PAGE>
SECTION 9. HEADINGS. Section headings in this Tenth
Amendment are included for convenience of reference only and
shall not constitute a part of this Tenth Amendment or be given
any substantive effect.
IN WITNESS WHEREOF, the parties have executed this Tenth
Amendment as of the date first written above.
"BORROWERS"
Great Dane Trailers, Inc., Great Dane Trailer Nebraska,
a Georgia corporation Inc., a Nebraska corporation
by by
------------------------------ -----------------------
Thomas W. Horan, Thomas W. Horan,
Chief Financial Officer Chief Financial Officer
Great Dane Trailers Great Dane Los Angeles,, Inc.,
Tennessee, Inc., a Tennessee a Georgia corporation
corporation
by by
------------------------------ -----------------------
Thomas W. Horan, Thomas W. Horan,
Chief Financial Officer Chief Financial Officer
"LENDERS"
Security Pacific Business Credit NationsBank of Georgia, N.A.
Inc., a Delaware corporation
by by
------------------------------ -----------------------
Ira Mermelstein, Robert B. H. Moore,
Vice President Senior Vice President
Sanwa Business Credit Corporation
by
------------------------------
John J. McKenna, Vice President
"AGENT"
Security Pacific Business Credit
Inc., a Delaware corporation
by
------------------------------
Ira Mermelstein, Vice President
-13-
<PAGE>
EXHIBIT 2.5 TO TENTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
CAPITAL EXPENDITURE TERM NOTE
$_____________________ ______________, 19___
FOR VALUE RECEIVED, Great Dane Trailers, Inc., a Georgia
corporation; and Great Dane Trailers Nebraska, Inc., a Nebraska
corporation (individually and collectively "the Borrower"),
HEREBY JOINTLY AND SEVERALLY UNCONDITIONALLY PROMISE TO PAY to
the order of ___________________, a ____________ corporation
("the Lender"), the principal sum of _________________
($________________), or so much as may be advanced and
outstanding hereunder, together with interest on the unpaid
principal balance hereof at the rate provided below from the date
such principal is advanced until payment in full thereof.
Unless otherwise required to be paid sooner pursuant to the
provisions of Section or 13.1 of the Loan Agreement, the
principal amount of each capital expenditure advance evidenced by
this Note shall be payable in consecutive monthly installments
each in an amount equal to one thirty-sixth (1/36th) of each
advance, commencing on the first day of the first calendar month
following the date of such advance and continuing on the first
day of each successive calendar month thereafter, provided,
however, the entire, unpaid balance of the Capital Expenditure
Term Loan, if not sooner paid, shall be due and payable in full
on March 21, 1995. Accrued interest on the aggregate unpaid
balance of all capital expenditure advances hereunder shall be
due and payable monthly on the first day of each calendar month
commencing on the first day of the month following the date of
the first capital expenditure advance, and continuing on the
first day of each month thereafter, and at maturity. All past
due interest shall bear interest from the date due and payable at
the rate of interest herein specified.
This Capital Expenditure Term Note ("Note") is issued
pursuant to, and is entitled to the benefits of a certain Loan
and Security Agreement (the Loan and Security Agreement, as
amended, modified, and supplemented prior to the date hereof
being hereinafter referred to as "Loan Agreement"), dated as of
March 21, 1990, by and between the Borrower, Great Dane Trailers
Los Angeles, Inc., Great Dane Trailers Tennessee, Inc., the
financial institutions named therein as lenders (collectively
"the Lenders"), and Security Pacific Business Credit Inc., as
agent for the Lenders (in such capacity, the "Agent").
The unpaid principal amount hereof from time to time
outstanding shall bear interest from the date hereof (calculated
on the basis of a year of 360 days and the actual days elapsed)
at a fluctuating per annum rate ("Annual Rate") equal to the
Reference
-1-
<PAGE>
Rate, PLUS one and one-half percent (1.5%); PROVIDED, HOWEVER,
that if any Default or Event of Default occurs, Lenders may elect
to charge interest under this Note at the Default Rate. Any
change in the Annual Rate shall become effective immediately,
without notice or demand of any kind, upon the announcement of
any change in the Reference Rate.
All payments of principal and interest in respect of this
Note shall be made to the Agent at such account and place in New
York, New York, as the Agent may from time to time designate in
writing to Borrower or at such other location as the Agent may
from time to time designate in writing to Borrower, in lawful
currency of the United States in same day funds.
This Note may be repaid at the option of Borrower as
provided in Section 5.4 of the Loan Agreement and must be prepaid
as provided in Section 5.5 of the Loan Agreement.
If less than the full amount of principal and accrued
interest is prepaid, the amount paid shall be applied first to
any applicable prepayment premium and then in the following order
of priority: (a) first on all accrued, unpaid interest herein,
and (b) second on principal installments hereunder, including the
final payment, in the inverse order of their maturity.
Upon the occurrence of any one or more of certain Events of
Default, the unpaid balance of the principal amount of this Note
may become, and upon the occurrence and continuance of any one or
more of certain other Events of Default, such unpaid balance may
be declared to be, due and payable in the manner, upon the
conditions, and with the effect provided in the Loan Agreement.
THE LOAN AGREEMENT AND THIS NOTE SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
No reference herein to the Loan Agreement and no provision
of this Note, the Loan Agreement or any of the other Loan
Documents shall alter or impair the obligation of Borrower, which
is absolute and unconditional, to pay the principal of and
interest on this Note at the place, at the respective times, and
in the currency herein prescribed.
Borrower promises to pay all costs and expenses, including
reasonable attorneys' fees and disbursements, incurred in the
collection and enforcement of this Note or any appeal of a
judgment rendered thereon, all in accordance with the provisions
of the Loan Agreement. Borrower hereby waives diligence,
presentment, protest, demand, and notice of every kind except as
required pursuant to the
-2-
<PAGE>
Loan Agreement and waives, to the fullest extent permitted by
law, the right to plead any statute of limitations as a defense
to any demands hereunder.
IN WITNESS WHEREOF, Borrower has caused this Note to be
executed and delivered by its duly authorized officer, as of the
day and year and at the place first above written.
"BORROWER"
Great Dane Trailers, Inc., Great Dane Trailer Nebraska,
a Georgia corporation Inc., a Nebraska corporation
by by
------------------------------ -----------------------
Thomas W. Horan, Thomas W. Horan,
Chief Financial Officer Chief Financial Officer
-3-
<PAGE>
Draw Schedule Attached to Capital Expenditure Term Note, dated
____________, 19___, of Borrower Payable to the Order of Security
Pacific Business Credit Inc.
- -----------------------------------------------------------------
LOAN AND PRINCIPAL BALANCES
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Loan Balance Undisbursed
Available Amount of Principal Notation
Date for Advance Advances Made Balance Made by
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
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- -----------------------------------------------------------------
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- -----------------------------------------------------------------
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- -----------------------------------------------------------------
</TABLE>
-1-
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of January 1, 1994
between INTERNATIONAL CONTROLS CORP., a New Jersey corporation, having its
principal place of business at 2016 North Pitcher Street, Kalamazoo, Michigan
49007 ("ICC") and DAVID R. MARKIN, residing at 70 Blossom Way, Palm Beach,
Florida 33480 ("Markin").
W I T N E S S E T H:
WHEREAS, Markin is now and has been employed by ICC as President and
Chief Executive Officer since January 11, 1989; and
WHEREAS, ICC wishes to continue to employ Markin as President and
Chief Executive Officer of ICC and Markin is willing to continue his employment
by ICC in such capacities;
WHEREAS, it is desirable to set forth in writing all of the terms and
conditions of said Employment Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. ICC agrees to employ Markin, and Markin agrees to be employed by
ICC, as President and Chief Executive Officer by ICC, for a term which commenced
on January 11, 1989 and expires on March 31, 1996 (the "Termination Date"). On
April 1, 1994 and on the first day of each month thereafter, the Termination
Date
<PAGE>
shall be automatically extended for an additional month until either party gives
the other notice of its or his desire to terminate the Employment Agreement as
of the Termination Date then in effect.
2. Markin shall serve ICC as President and Chief Executive Officer,
and Markin shall have the right to perform the duties of his employment
hereunder and to have his office and headquarters in Michigan or Florida, at his
option, all subject to the reasonable direction of the Board of Directors of
ICC.
3. During the term of this Agreement, Markin shall receive as cash
compensation (exclusive of any profit sharing or pension or other fringe benefit
to which he now may be entitled or which he may receive) the amount of $600,000
per annum. Markin shall be eligible to receive any future profit sharing or
pension or other bonus compensation approved by the Board of Directors of ICC
and implemented by ICC. When deemed appropriate by the Board of Directors of
ICC, the Board shall review Markin's rate of compensation and fringe benefits
taking into account, without limiting the generality of the review, any
increases in the cost of living, compensation paid by competing companies
comparable to ICC to executives of similar rank and the results of operations of
ICC during the preceding years.
4. Markin's employment under this Agreement shall terminate upon his
death or disability and may be terminated for
2
<PAGE>
cause, in any one of which events Markin shall have no further rights and ICC
shall have no further obligations under this Agreement, except as set forth in
Paragraphs 5 and 14 herein. For purposes of this Paragraph 4, the term "cause"
shall mean gross misconduct or dishonesty and the term "disability" shall mean a
physical or mental condition which, in the reasonable opinion of the Board of
Directors of ICC, shall have prevented Markin from performing his customary
duties at his customary standard for a period of at least six consecutive months
and which can reasonably be expected to continue indefinitely.
5. The death of Markin shall forthwith terminate this Agreement. In
such event, ICC shall pay the Estate of Markin the compensation which would
otherwise be payable to Markin for the period ending on the last day of the
month in which death occurs. In addition, ICC shall pay deferred compensation
from the date of Markin's death through the Termination Date in an annual amount
equal to one-third of Markin's base salary at the date of his death. Such
deferred compensation shall be payable in bi-monthly installments on the 15th
and last day of each month and in accordance with the terms of the Last Will and
Testament of David R. Markin, or if no such Last Will and Testament exists upon
the death of Markin, to the Estate of Markin.
6. Markin shall be entitled to a paid vacation of six weeks per year
and to accountable allowances, charges and reimbursements like those now
prevailing at ICC to cover
3
<PAGE>
entertainment, travel and other expenses incurred in connection with the
business of ICC.
7. Markin shall devote his best efforts and substantially all his
business time to his employment hereunder. During the term of his employment
pursuant to this Agreement, Markin shall not become an officer, director or
employee or act in an advisory or other capacity for any individual, firm, or
corporation or other person not affiliated with ICC which is engaged in any
business which is being conducted in the same geographic area and which is the
same or substantially similar to the business then being conducted by ICC or any
of its divisions, subsidiaries or affiliated companies, or have any interest as
owner, partner, stockholder or other proprietary interest in such business, but
this provision shall not prohibit Markin from purchasing in the public market
not more then 5% of the outstanding stock or other class of securities of any
such corporation if such stock or other securities are listed on a national
securities exchange or are regularly quoted in the over-the-counter market.
8. Neither this Agreement nor the rights of Markin hereunder shall
be assignable or otherwise transferable by Markin except as expressly provided
herein, without the prior written consent of ICC, and any purported assignment
or other transfer by Markin of this Agreement or such rights, whether
voluntarily or involuntarily, except as expressly provided herein, shall not
4
<PAGE>
vest in the purported assignee or transferee any interest or right herein
whatsoever and any such purported assignment shall be void.
9. Neither this Agreement nor any provision hereof can be changed,
modified, amended, discharged, terminated or waived orally or by any course or
purported course of dealing, but only by an agreement signed by ICC and Markin.
No such agreement in writing shall extend to or affect any provision of this
Agreement not expressly changed, modified, amended, discharged, terminated or
waived or impair any right consequent on such a provision. The waiver or
failure to enforce any provision of this Agreement shall not be deemed to be a
waiver or acquiescence in any other breach thereof.
10. Every notice relating to or required by this Agreement shall be
in writing and shall be given in person or by registered mail return receipt
requested. All notices to ICC and Marking shall be addressed to their
respective addresses shown in this Agreement. Either party may designate a
different address to which notices shall be addressed by giving the other party
due notice hereunder of such different address. Any notice given by ICC to
Markin at his last designated address shall be effective to bind any other
person who may acquire rights hereunder.
5
<PAGE>
11. This Agreement shall be governed by and construed in accordance
with the laws of the State of Florida without giving effect to conflict of laws.
12. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in Florida
before three arbitrators in accordance with the Rules of the American
Arbitration Association, and judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereto.
13. The covenants, agreements, representation and warranties
contained in or made pursuant to this Agreement shall survive Markin's
termination of employment.
14. In the event that this Agreement is terminated by either ICC or
Markin for any reason (including without limitation, retirement by Markin) other
than "cause" or "disability", as defined in Paragraph 4 hereinabove, or death,
then Markin shall continue to service as a consultant to ICC for a period of
five years from the date of such termination and ICC shall pay to Markin $50,000
per annum for such services as may be reasonably requested plus actual traveling
and other expenses incurred by him in performing such services. In performing
such services, Marking may be required to devote the equivalent of up to one day
per week to the business of ICC and shall not be
6
<PAGE>
required to render such services except at the offices of ICC in Michigan or
Florida. Markin may terminate this arrangement at any time upon 60 days notice
to ICC.
To the extent permitted by law, ICC shall indemnify and hold Markin
harmless from and against all expenses (including attorneys' fees), liabilities,
damages and amounts paid in settlement incurred by him in any threatened,
pending or completed action, suit or proceeding to which he becomes a party by
reason of any status, service, action or failure to act on his part in his
capacity as consultant hereunder or otherwise on behalf of ICC, except if such
expense, liability, damage or amount results directly from Markin's gross
negligence or willful misconduct.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
INTERNATIONAL CONTROLS CORP.
By__________________________
Name:
Title:
___________________________
David R. Markin
7
<PAGE>
EXHIBIT 12.1
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
9 MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------------- SEPTEMBER 30,
1988 1989 1990 1991 1992 1993
--------- --------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Income (Loss) from Operations Before Minority
Equity, Income Taxes, Extraordinary Items and
Accounting Changes............................ $ 25,848 $ 1,178 $ (24,407) $ (34,178) $ (6,868) $ (176)
Add:
Interest expense............................. 2,807 57,879 61,596 47,425 42,726 31,400
Portion of rents representative of interest
factor (1).................................. 0 1,300 1,200 1,200 1,267 1,267
--------- --------- ---------- ---------- --------- -------------
Income As Adjusted............................. $ 28,655 $ 60,357 $ 38,389 $ 14,447 $ 37,125 $ 32,491
--------- --------- ---------- ---------- --------- -------------
--------- --------- ---------- ---------- --------- -------------
Fixed Charges:
Interest expense............................. $ 2,807 $ 57,879 $ 61,596 $ 47,425 $ 42,726 $ 31,400
Portion of rent representative of interest
factor (1).................................. 0 1,300 1,200 1,200 1,267 1,267
--------- --------- ---------- ---------- --------- -------------
Fixed Charges.................................. $ 2,807 $ 59,179 $ 62,796 $ 48,625 $ 43,993 $ 32,667
--------- --------- ---------- ---------- --------- -------------
--------- --------- ---------- ---------- --------- -------------
Ratio of Earnings to Fixed Charges............. 10.2x 1.0x 0.6x 0.3x 0.8x 1.0x
</TABLE>
- ------------------------
(1) That portion of operating lease rental expense which is representative of
the interest factor (deemed by management to be one-third of rental
expense).
<PAGE>
EXHIBIT 12.1 -- (CONTINUED)
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
COMPUTATION OF PRO FORMA RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
The following computations for the year ended December 31, 1992, and nine
months ended September 30, 1993, reflect, on a pro forma basis, earnings
available for fixed charges, fixed charges and resultant ratios. The
computations give effect to the refinancing indicated in the document.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, NINE MONTHS ENDED
1992 SEPTEMBER 30, 1993
------------ ------------------
<S> <C> <C>
Income (Loss) from Operations Before Minority Equity, Income Taxes,
Extraordinary Items and Accounting Changes................................. $ (442) $ 4,397
Add:
Interest expenses......................................................... 35,500 26,227
Annual amortization of debt expenses arising from the offering............ 800 600
Portion of rents representative of interest factor (1).................... 1,267 1,267
------------ --------
Income As Adjusted.......................................................... $ 37,125 $ 32,491
------------ --------
------------ --------
Fixed Charges:
Interest expense.......................................................... $ 35,500 $ 26,227
Annual amortization of debt expenses arising from the offering............ 800 600
Portion of rent representative of interest factor (1)..................... 1,267 1,267
------------ --------
Fixed Charges............................................................... $ 37,567 $ 28,094
------------ --------
------------ --------
Pro Forma Ratio of Earnings to Fixed Charges................................ 1.0x 1.2x
</TABLE>
- ------------------------
(1) That portion of operating lease rental expense which is representative of
the interest factor (deemed by management to be one-third of rental
expense).
<PAGE>
EXHIBIT 12.1 -- (CONTINUED)
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EBITDA TO CASH INTEREST EXPENSE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
9 MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------------------------------------- SEPTEMBER 30,
1988 1989 1990 1991 1992 1993
--------- --------- ---------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Income (Loss) from Operations Before Minority
Equity, Income Taxes, Extraordinary Items and
Accounting Changes............................ $ 25,848 $ 1,178 $ (24,407) $ (34,178) $ (6,868) $ (176)
Add:
Interest expense............................. 2,807 57,879 61,596 47,425 42,726 31,400
Depreciation and amortization................ 10,316 18,186 20,784 20,931 21,054 17,192
Amortization of cost in excess of net assets
acquired.................................... 0 1,252 1,250 1,250 1,250 937
Other amortization........................... 0 1,705 2,717 2,876 2,727 1,408
--------- --------- ---------- ---------- --------- -------------
EBITDA......................................... $ 38,971 $ 80,200 $ 61,940 $ 38,304 $ 60,889 $ 50,761
--------- --------- ---------- ---------- --------- -------------
--------- --------- ---------- ---------- --------- -------------
Cash Interest Expense:
Interest expense............................. $ 2,807 $ 57,879 $ 61,596 $ 47,425 $ 42,726 $ 31,400
Less noncash interest:
Amortization of debt discount.............. (1,615) (26,638) (24,690) (1,045) (1,181) (1,010)
Amortization of debt expense............... 0 (368) (350) (299) (294) (220)
--------- --------- ---------- ---------- --------- -------------
Cash Interest Expense.......................... $ 1,192 $ 30,873 $ 36,556 $ 46,081 $ 41,251 $ 30,170
--------- --------- ---------- ---------- --------- -------------
--------- --------- ---------- ---------- --------- -------------
Ratio of EBITDA to Cash Interest Expense....... 32.7x 2.6x 1.7x 0.8x 1.5x 1.7x
</TABLE>
<PAGE>
EXHIBIT 12.1 -- (CONTINUED)
INTERNATIONAL CONTROLS CORP. AND SUBSIDIARIES
COMPUTATION OF PRO FORMA RATIO OF EBITDA TO CASH INTEREST EXPENSE
(DOLLARS IN THOUSANDS)
The following computations for the year ended December 31, 1992, and nine
months ended September 30, 1993, reflect, on a pro forma basis, EBITDA, cash
interest expense and the resultant ratios. The computations give effect to the
refinancing of certain indebtedness as identified herein.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, NINE MONTHS ENDED
1992 SEPTEMBER 30, 1993
------------ ------------------
<S> <C> <C>
Income (Loss) from Operations Before Minority Equity, Income Taxes,
Extraordinary Items and Accounting Changes................................. $ (442) $ 4,397
Add:
Interest expense.......................................................... 35,500 26,227
Depreciation and amortization............................................. 21,054 17,192
Amortization or cost in excess of net assets acquired..................... 1,250 937
Other amortization........................................................ 3,527 2,008
------------ --------
EBITDA...................................................................... $ 60,889 $ 50,761
------------ --------
------------ --------
Cash Interest Expense:
Interest expense.......................................................... $ 35,500 $ 26,227
Less noncash interest:....................................................
Amortization of debt discount........................................... (73) (63)
Amortization of debt expense............................................ (294) (220)
------------ --------
Cash Interest Expense....................................................... $ 35,133 $ 25,944
------------ --------
------------ --------
Pro Forma Ratio of EBITDA to Cash Interest Expense.......................... 1.7x 2.0x
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF
INTERNATIONAL CONTROLS CORP.
Jurisdiction of
Company Name(1) Incorporation
--------------- ---------------
Checker Motors Corporation New Jersey
Checker Motors Co., L.P. Delaware
American Country Insurance Company Illinois
American Country Financial Services Corp. Illinois
Parmelee Transportation Company Illinois
City Wide Towing, Inc. Illinois
Southern Charleston Stamping & Manufacturing West Virginia
Company West Virginia
Checker Holding Corp. III Delaware
Great Dane Trailers, Inc. Georgia
Great Dane Trailers Nebraska, Inc. Nebraska
Great Dane Trailers Tennessee, Inc. Tennessee
Los Angeles Great Dane, Inc. Georgia
Trailer Rental Company, Inc. Georgia
(1) The voting securities of each company whose name is indented are owned by
the company set forth immediately above whose name is not indented.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 5, 1993, in the Registration Statement (Form
S-1) and related Prospectus of International Controls Corp. dated February 14,
1994.
/s/ Ernst & Young
Kalamazoo, Michigan
February 14, 1994
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below, hereby constitutes and appoints Allan R. Tessler, David R. Markin, Jay H.
Harris, Marlan R. Smith, Martin L. Solomon and Wilmer J. Thomas, Jr., and each
of them, as his attorney-in-fact and agent, with full power of substitution and
revocation, for such person and in such person's name, place and stead, in any
and all capacities, to sign any or all amendments or post-effective amendments
to International Control Corp.'s (the "Company") Registration Statement on Form
S-1 in connection with the registration of up to $240,000,000 in principal
amount of Senior Secured Notes of the Company (the "Notes"), and to file the
same, with exhibits thereto and other documents in connection therewith with the
Securities and Exchange Commission, and to enable the Company to comply with the
Securities Act of 1933, as amended and the requirements of the Securities and
Exchange Commission in connection with the registration of the Notes, granting
unto said attorney-in-fact and agent full power and authority to do and perform
each and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes may do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has signed his name as of the
date set forth below.
/s/ ALLAN R. TESSLER February 9, 1994
- -----------------------------------
Allan R. Tessler
/s/ DAVID R. MARKIN February 9, 1994
- -----------------------------------
David R. Markin
/s/ JAY H. HARRIS February 14, 1994
- -----------------------------------
Jay H. Harris
/s/ MARLAN R. SMITH February 14, 1994
- -----------------------------------
Marlan R. Smith
/s/ MARTIN L. SOLOMON February 9, 1994
- -----------------------------------
Martin L. Solomon
/s/ WILMER J. THOMAS, JR. February 14, 1994
- -----------------------------------
Wilmer J. Thomas, Jr.
