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Filed Pursuant To Rule 424(b)(3)
Registration Statement No. 333-26729
PROSPECTUS
$125,000,000
KEY PLASTICS, INC.
OFFER TO EXCHANGE
10 1/4% SENIOR SUBORDINATED NOTES DUE 2007, SERIES B
FOR ALL OUTSTANDING
10 1/4% SENIOR SUBORDINATED NOTES DUE 2007
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON AUGUST 8, 1997, UNLESS EXTENDED
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THE NOTES ARE GUARANTEED BY
KEY PLASTICS INTERNATIONAL LLC
KEY PLASTICS AUTOMOTIVE LLC
KEY PLASTICS TECHNOLOGY LLC
KEY MEXICO A, L.L.C.
KEY MEXICO B, L.L.C.
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Key Plastics, Inc., a Michigan company (the "Company"), hereby offers
upon the terms and subject to conditions set forth in this Prospectus (the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal," together with the Prospectus, the "Exchange Offer"), to exchange
up to an aggregate principal amount of $125,000,000 of its 10 1/4% Senior
Subordinated Notes due 2007, Series B (the "Series B Notes") for up to an
aggregate principal amount of $125,000,000 of its outstanding 10 1/4% Senior
Subordinated Notes Due 2007 (the "Series A Notes"). The terms of the Series B
Notes are substantially identical in all material respects to those of the
Series A Notes, except for certain transfer restrictions, registration rights
and liquidated damages relating to the Senior A Notes. The Series B will be
issued pursuant to, and entitled to the benefit of, the Indenture (as defined
herein) governing the Series A Notes. The Series B Notes and the Series A Notes
are sometimes referred to collectively as the "Notes". Interest on the Series B
Notes will accrue from the date of issuance thereof and will be payable
semi-annually on March 15 and September 15 of each year commencing September 15,
1997.
The Series B Notes will be redeemable at the option of the Company, in
whole or in part, at any time on or after March 15, 2002, at the redemption
prices set forth herein, plus accrued and unpaid interest and Liquidated Damages
(as defined), if any, to the date of redemption. In addition, in the event that
the Company consummates a public offering of its Common Stock on or before March
15, 2000, the Company may redeem up to 35% of the originally issued principal
amount of Series B Notes at a redemption price of 109 1/4% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any,
to the date of redemption; provided that at least 65% of the originally issued
principal amount of Notes remain outstanding immediately after the occurrence of
such redemption. Upon the occurrence of a Change of Control (as defined), the
Company will be required, subject to certain conditions, to make an offer to
purchase the Notes at a price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase. See "Description of Notes."
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The Series B Notes will be general unsecured obligations of the
Company, subordinated in right of payment to all existing and future Senior Debt
(as defined), including all borrowings of the Company and its subsidiaries under
the Senior Credit Facility (as defined). The Notes will be guaranteed on a
senior subordinated basis by the Guarantors (as defined herein). As of March 31,
1997, the Company and its Subsidiaries (as defined) had $64.0 million of Senior
Debt outstanding. See "Description of Certain Indebtedness -- Senior Credit
Facility" and "Description of Notes."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN
FACTORS WHICH HOLDERS OF THE SERIES A NOTES SHOULD CONSIDER IN CONNECTION WITH
THE EXCHANGE OFFER.
THE 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 INADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Company will accept for exchange of any and all Series A Notes
which are properly tendered in the Exchange Offer prior to 5:00 p.m., New York
City time, on August 8, 1997, unless extended by the Company in its sole
discretion (the "Expiration Date"). The Expiration Date will not in any event be
extended to a date later than August 22, 1997. Tenders of Series A Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date. In the event the Company terminates the Exchange Offer and does not accept
for exchange any Series A Notes with respect to the Exchange Offer, the Company
will promptly return the Series A Notes to the holders thereof. The Exchange
Offer is not conditioned upon any minimum principal amount of Series A Notes
being tendered for exchange, but is otherwise subject to certain customary
conditions. The Series A Notes may be tendered only in integral multiples of
$1,000.
The Series B Notes are being offered hereunder in order to satisfy
certain obligations of the Company contained in the Registration Rights
Agreement dated March 24, 1997 (the "Registration Rights Agreement") by and
among the Company, the Guarantors (as defined herein) and Lehman Brothers, Inc.
and First Chicago Capital Markets, Inc., as the initial purchasers (the "Initial
Purchasers"), with respect to the initial sale of the Series A Notes. Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission") contained in certain no- action requests from third parties
unrelated to the Company, the Series B Notes issued pursuant to the Exchange
Offer in exchange for Series A Notes may be offered for resale, resold and
otherwise transferred by respective holder thereof (other than any such holder
which is an "affiliate") of the Company within the meaning of Rule 405 under the
Securities Act, without compliance with the registration and prospectus delivery
provisions of the Securities Act of 1933, as amended (the "Securities Act"),
provided that the Series B Notes are acquired in the ordinary course of such
holder's business and such holder has no arrangement with any person to
participate in the distribution of such Series B Notes and is not engaged in and
does not intend to engage in a distribution of the Series B Notes. Each
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of the Series B Notes received in exchange for Series A Notes if
such Series B Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 365 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution." EXCEPT AS DESCRIBED IN THIS PARAGRAPH, THIS
PROSPECTUS MAY NOT BE USED FOR AN OFFER TO RESELL, RESALE OR OTHER TRANSFER OF
NOTES.
Prior to the Exchange Offer, there has been no public market for the
Series B Notes. The Series A Notes are not, and the Series B Notes are not
expected to be, listed on any securities exchange or authorized for trading on
The Nasdaq Stock Market. There can be no assurances as to the liquidity of any
markets that may develop for the Series B Notes, the ability of holders to sell
the Series B Notes, or the price at which holders would be able to sell the
Series B Notes. Future trading prices of the Series B Notes will depend on many
factors, including among other things, prevailing interest rates, the Company's
operating results and the market for similar securities. Historically, the
market for securities similar to the Series B Notes, including non-investment
grade debt, has been subject to disruptions that have caused substantial
volatility in the prices of such securities. There can be no assurance that any
market for the Series B Notes, if such market develops, will not be subject to
similar disruptions. The Initial Purchasers have advised the Company that they
currently intend to make a market in the Series B Notes offered hereby. However,
the Initial Purchasers are not obligated to do so and any market making may be
discontinued at any time without notice.
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The Series A Notes were initially purchased by accredited investors and
"qualified institutional buyers" (as such term is defined in Rule 144A under the
Securities Act) and by certain persons who are not U.S. Persons (as such term is
defined in Regulation S under the Securities Act). The Series A Notes were
initially represented only in book-entry form and in the form of global notes in
fully registered form (the "Global Series A Notes"), registered in the name of a
nominee of The Depository Trust Company ("DTC"), as depositary. The Series B
Notes exchanged for Series A Notes represented by the Global Series A Notes will
be represented by global notes in fully registered form (the "Global Series B
Notes") registered in the name of the nominee of DTC. The Global Series B Notes
will be exchangeable for Series B Notes in registered form, denominations of
$1,000 and integral multiples thereof as set forth in the Indenture. The Series
B Notes in global form will trade in DTC's Same-Day Funds Settlement System, and
secondary market trading activity in such Series B Notes will therefore settle
in immediately available funds. See "Description of Notes -- Book-Entry;
Delivery and Form."
The Company will not receive any proceeds from the Exchange Offer. See
"Use of Proceeds." The Company has agreed to pay the expenses incident to the
Exchange Offer.
The date of this Prospectus is July 7, 1997.
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ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on
Form S-4 (the "Exchange Offer Registration Statement," which term shall
encompass all amendments, exhibits, annexes and schedules thereto) pursuant to
the Securities Act, and the rules and regulations promulgated thereunder,
covering the Exchange Notes being offered hereby. This Prospectus does not
contain all the information set forth in the Exchange Offer Registration
Statement. For further information with respect to the Company and the Exchange
Offer, reference is made to the Exchange Offer Registration Statement.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the Exchange
Offer Registration Statement, reference is made to the exhibit for a more
complete description of the document or matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.
The Company is subject to the informational requirements of Section 15
of the Exchange Act, and in accordance therewith files reports and other
information with the Securities and Exchange Commission (the "Commission").
Periodic reports and other information filed by the Company can be inspected and
copied at the public reference facilities of the Commission's principal office
at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
and the regional offices of the Commission at Seven World Trade Center, 13th
Floor, New York, New York 10048 and 500 West Madison Street, 14th Floor,
Chicago, Illinois 60661. Copies of such material can be obtained from the public
reference facilities of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, at prescribed rates. In addition, the
Commission maintains a Website (http://www.sec.gov) that also contains such
reports and other information filed by the Company.
In addition, the Company has agreed that, whether or not it is required
to do so by the rules and regulations of the Commission, for so long as any
Notes remain outstanding, it will furnish to the holders of the Notes and, to
the extent permitted by applicable law or regulation, file with the Commission
(i) all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
was required to file such Forms, including for each a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and, with respect
to the annual information only, a report thereof by the Company's independent
certified public accountants and (ii) all reports that would be required to be
filed on Form 8-K if it were required to file such reports. In addition, for so
long as any of the Notes remain outstanding, the Company has agreed to make
available to any prospective purchaser of the Notes or beneficial owner of the
Notes, in connection with any sale thereof, the information required by Rule
144A(d)(4) under the Securities Act.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. The Company will provide without charge
to each person, including any beneficial owner, to whom a prospectus is
delivered a copy of any and all of the information that has been incorporated by
referenced in this Prospectus (not including exhibits to the information
incorporated by reference into the information that the Prospectus incorporates)
upon written or oral request to Mark Abbo, Secretary, Key Plastics, Inc., 21333
Haggerty Road, Novi, Michigan 48375, telephone: (810) 449-6100. In order to
ensure timely delivery of the documents, any request should be made by August 1,
1997 (five business days prior to the Expiration Date).
The following documents heretofore filed with the Commission pursuant
to the Exchange Act are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, excluding the financial statements included therein.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997.
All reports and other documents filed by the Company pursuant to
Sections 15(d) of the Exchange Act after the date of this Prospectus and prior
to the Expiration Date, shall be deemed to be incorporated by reference herein
and to be a part hereof from the date of the filing of such reports and
documents.
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Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
(or in any other subsequently filed document which also is incorporated or
deemed to be incorporated by reference herein) modifies or supersedes such
previous statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constituted a part of this Registration
Statement.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this
Prospectus, including, without limitation, statements containing the words
"believes," "anticipates," "expects," and words of similar import, constitutes
"forward- looking statements" within the meaning of the Private Securities
Reform Act of 1995. Such statements include all discussions concerning
anticipated future revenues or sales. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievements of the Company, or industry results,
to be materially difference from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: international, national and local general economic
and market conditions; demographic changes; the size and growth of the
automobile market or the plastic automobile component market; consumer demand
for the particular models or lines that use the Company's parts; the size,
timing and mix of purchases of the Company's products; new product development
and introduction; existing government regulations and change sin, or the failure
to comply with, government regulations; adverse publicity; dependence upon OEMs
(as defined); liability and other claims asserted against the Company;
competition; the loss of significant customers or suppliers; fluctuations and
difficulty in forecasting operating results; changes in business strategy or
development plans; business disruptions; product recalls; warranty costs; the
ability to attract and retain qualified personnel; the ability to protect
technology; the ability to realize planned cost savings in its acquisitions; the
use of proceeds from the Offering; retention of earnings; and other factors
referenced in this Prospectus. Certain of these factors are discussed in more
detail elsewhere in this Prospectus, including, without limitation, under the
captions "Risk Factors," "Use of Proceeds," "Capitalization," "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
condition and Results of Operations" and "Business." Given these uncertainties,
prospective investors are cautioned not to place undue reliance on such
forward-looking statements. The Company disclaims any obligation to update any
such factors or to publicly announce the result of any revisions to any of the
forward-looking statements contained or incorporated by reference herein to
reflect future events or developments.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Holders should carefully consider the information
set forth under the heading "Risk Factors" and elsewhere in this Prospectus.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
Key Plastics, Inc. (the "Company") was formed in January 1986 to
acquire the plastics manufacturing operations of Key International
Manufacturing, Inc., which operations had been involved in plastics
manufacturing for over 20 years. In 1995, the Company established operations in
Chihuahua, Chihuahua, Mexico.
In May 1996, the Company, through its subsidiary Key Plastics, U.K.,
acquired substantially all of those assets and the business of Clearplas, a U.K.
plastic parts supplier (the "Clearplas Acquisition"). In addition, in November
1996, the Company acquired control of Materias Plastics, S.A. ("MaP"), a
Portuguese plastic parts supplier (the "MaP Acquisition"), by acquiring 38% of
its voting stock with an option to acquire the remaining voting stock. The
Clearplas Acquisition and the MaP Acquisition enabled the Company to establish a
European manufacturing presence as a part of its globalization strategy, to
leverage its engineering and manufacturing expertise and to enhance its existing
customer relationships. In March 1997, the Company acquired the assets of three
manufacturing facilities of Aeroquip, a division of TRINOVA Corporation (the
"Aeroquip Acquisition").
The Company is a global supplier of highly engineered plastic
components and assemblies to automotive original equipment manufacturers and
Tier I suppliers. The Company believes it is the largest independent supplier of
plastic door handle assemblies, decorative bezels and pressurized bottles in
North America for the automotive industry. Other products manufactured by the
Company include interior trim components, precision molded parts, instrument
cluster components, electrical connector covers, air louvers, speaker grilles
and underhood functional components.
The Company provides the automotive industry with comprehensive
plastics manufacturing capabilities, including design and engineering,
high-precision injection molding, automated manufacturing and assembly, plastic
painting and material and product testing. The Company operates its world
headquarters and technical center, thirteen manufacturing and three paint
facilities in North America and two facilities in Europe with painting and
manufacturing capabilities. The Company also has extensive tool making
capabilities and designs and builds approximately one-third of the tooling used
in the manufacturing of its principal products.
Management believes that the Company has achieved its current
leadership position and is well positioned to benefit from emerging trends in
the global automotive markets as a result of several key competitive strengths,
including: (i) demonstrated technological expertise and innovation in developing
highly engineered systems and components; (ii) strong relationships with major
OEMs; (iii) an emphasis on quality management; (iv) the ability to supply its
customers globally; and (v) state of the art equipment and facilities.
Since 1992, the Company has invested over $93.8 million to upgrade its
existing facilities and to acquire and build new facilities. Since that time,
the Company has established its world headquarters and technical center, has
constructed a new paint facility in Hartford City, Indiana, has brought on line
four molding facilities in Grand Rapids, Michigan, York, Pennsylvania, South
Bend, Indiana and Chihuahua, Mexico, has acquired the assets and business of
Clearplas and has acquired control of MaP.
The Company is privately owned by management and employees. Since its
incorporation in 1986, the Company has elected to be taxed as a corporation
under Subchapter S (a "Subchapter S corporation") of the Internal Revenue Code
of 1986, as amended (the "Code"). The Company has made, and intends to continue
to make, distributions to its shareholders to pay their income tax obligations
as a result of the Company's status as a Subchapter S corporation.
The principal executive offices of the Company are located at 21333
Haggerty Road, Novi, Michigan, 48375 and its telephone number is (810) 449-6100.
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BUSINESS STRATEGY
The automotive industry is currently characterized by a number of factors
which affect the Company and its business strategy. These factors include (i)
OEMs' demand for suppliers with efficient, comprehensive research and
development, design and manufacturing capabilities, (ii) consolidation of
suppliers as a result of increasing OEM demands, and (iii) the globalization of
the OEM supplier base. As a result of these factors, suppliers must (i)
continually demonstrate the ability to satisfy, in cost efficient ways, the
OEMs' design and manufacturing demands and (ii) establish international
positions which can effectively supply and service the OEMs.
The Company seeks to maintain its leadership position in the industry and
maximize its revenues and net income by employing its operating strategy, which
has the following principal components.
Focus on Highly Engineered, Value-added Products. The Company believes
highly engineered, value-added components are typically more difficult for a
customer to produce in-house or a competitor to replicate due to the substantial
investment required in specialized engineering, design and manufacturing
capabilities. Management believes such products have strong worldwide growth
potential and high margins. Further, the Company capitalizes on the specialized
design and manufacturing expertise it has developed for one customer by
marketing such expertise across its customer base.
Emphasize Quality Management. Among the most important factors in
maintaining preferred supplier status with OEMs is product quality. The Company
has a strong quality assurance program and has made substantial investments in
technology to monitor and improve quality. Included among these investments are
CAD/CAM equipment, statistical process control systems, failure mode and effect
systems, process-controlled molding machines and automated assembly equipment.
In addition, the Company has material and product test laboratories that monitor
product reliability and which are accredited by its major OEM customers.
Provide Comprehensive Manufacturing and Engineering Capabilities while
Improving Cost Competitiveness. In response to increasingly rigorous OEM
purchasing and manufacturing policies, the Company has developed comprehensive
plastics manufacturing capabilities, including design and engineering, automated
manufacturing and assembly, painting and materials and product testing,
prototype production and tooling. In addition to requiring comprehensive
manufacturing capabilities, OEMs are demanding market-driven pricing and
long-term productivity commitments, which demands are forcing suppliers to
eliminate waste and optimize productivity. The Company has invested in and
successfully implemented lean manufacturing methodologies, including the use of
cell-based manufacturing and automation through state of the art "poke-yoked"
(fail safed) devices which have made significant contributions to the Company's
product quality and have assisted in the reduction of labor costs and
work-in-progress inventory.
Establish a Global Position. The Company has acquired strategic positions
in Europe in order to serve its customers on a global basis. Several OEMs have
announced certain models designed for the world automobile market. As a result,
certain domestic and European OEMs have encouraged their existing suppliers to
establish foreign production support for World Car programs.
Enhance Tier I Relationships. The OEMs continue to give more responsibility
for total program management to large Tier I suppliers. These suppliers are
evaluating the available supply of parts and whether the manufacturers who are
currently supplying them are qualified. As Tier I suppliers shift to more
qualified automotive parts manufacturers, the Company believes that it is well
positioned to take advantage of such change.
Make Selected Acquisitions. In recent years, OEMs have instituted policies
which have resulted in the consolidation of the automotive supplier industry.
Through strategic acquisitions, the Company believes it can leverage off of its
existing engineering and manufacturing capabilities, quality focus and
relationships with its customers by adding complementary product lines and
achieving greater economies of scale.
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THE EXCHANGE OFFER
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The Series B Notes............................... The forms and terms of the Series B Notes are substantially
identical in all material respects to the terms of the Series A
Notes for which they may be exchanged pursuant to the
Exchange Offer, except for certain transfer restrictions and
registration rights relating to the Senior Notes and except
for certain liquidated damages provisions relating to the
Senior Notes described below under "Terms of Series B
Notes."
The Exchange Offer............................... The Company is offering to exchange up to $125,000,000
aggregate principal amount of 10 1/4% Senior Subordinated
Notes due 2007, Series B (the "Series B Notes") for up to
$125,000,000 aggregate principal amount of its outstanding
10 1/4% Senior Subordinated Notes due 2007 (the "Series A
Notes"). Series A Notes may be exchanged only in integral
multiples of $1,000.
Expiration Date; Withdrawal of Tender............ The Exchange Offer will expire at 5:00 p.m., New York
City time, on August 8, 1997 or such later date and time to
which it is extended by the Company. The tender of Series
A Notes pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date. Any Series A
Notes not accepted for exchange for any reason will be
returned without expense to the tendering holder thereof as
promptly as practicable after the expiration or termination
of the Exchange Offer.
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TERMS OF SERIES B NOTES
The Exchange Offer applies to up to $125.0 million aggregate principal
amount of the Company's Series B Notes. The Series B Notes will be obligations
of the Company evidencing the same debt as the Series A Notes and will be
entitled to the benefits of the same Indenture. To the extent that any Series A
Notes remain outstanding after the Exchange Offer, the Series A Notes will rank
pari passu in right of payment with the Series B Notes. See "Description of
Notes." The form and terms of the Series B Notes are the same as the form and
terms of the Series A in all material respect except that the Series B Notes
have been registered under the Securities Act and hence do not include certain
rights to registration thereunder and do not contain transfer restrictions or
terms with respect to liquidated damages applicable to the Series A Notes. See
"Description of Notes."
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Securities Offered............................... $125 million aggregate principal amount of 10 1/4% Senior
Subordinated Notes, Series B (the "Series B Notes").
Maturity Date.................................... March 15, 2007.
Interest Payment Dates........................... March 15 and September 15, commencing September 15,
1997.
Mandatory Redemption............................. None.
Optional Redemption.............................. The Series B Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after March
15, 2002, at the redemption prices set forth herein, plus
accrued and unpaid interest and Liquidated Damages (as
defined), if any, to the date of redemption. In addition, in
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the event that the Company consummates a public offering of its Common
Stock on or before March 15, 2000, the Company may redeem up to 35% of the
originally issued principal amount of Series B Notes at a redemption price
of 109 1/4% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of redemption;
provided that at least 65% of the originally issued principal amount of
Series B Notes remain outstanding immediately after the occurrence of such
redemption. See "Description of Notes -- Optional Redemption."
Change of Control................................ Upon the occurrence of a Change of Control (as defined),
the Company will be required, subject to certain conditions,
to make an offer to purchase the Series B Notes at a price
equal to 101% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, to the
date of purchase. See "Description of Notes -- Repurchase
at Option of Holders -- Change of Control."
Ranking.......................................... The Series B Notes will be general unsecured obligations of
the Company, subordinated in right of payment to all
existing and future Senior Debt (as defined), including all
borrowings of the Company and its subsidiaries under the
Senior Credit Facility. As of March 31, 1997, the Company
and its Subsidiaries (as defined) had $64.0 million Senior
Debt outstanding. See "Description of Certain Indebtedness
-- Senior Credit Facility." The indenture pursuant to which
the Series B Notes will be issued (the "Indenture") will
permit the Company to incur additional Senior Debt, subject
to certain limitations. See "Description of Notes."
Guarantees....................................... The Series B Notes will be jointly and severally guaranteed
on a senior subordinated basis by all current Subsidiaries
other than Foreign Restricted Subsidiaries (as defined). As
of the date hereof, MaP, Key Plastics U.K. and Clearplas
Ltd. will be Unrestricted Subsidiaries (as defined), and will
not be required to issue a Subsidiary Guarantee (as defined)
with respect to the Notes. The Company will be able to
designate other current or future subsidiaries to be
Unrestricted Subsidiaries under certain circumstances.
Unrestricted Subsidiaries will not be required to issue a
Subsidiary Guarantee with respect to the Notes and will not
be subject to many of the restrictive covenants set forth in
the Indenture. See "Description of Notes -- Certain
Covenants" and "--Certain Definitions."
Certain Covenants................................ The Indenture contains certain covenants that, among other
things, limit the ability of the Company and certain of its
subsidiaries to (i) incur additional Indebtedness (as defined)
and issue Disqualified Stock (as defined) and Preferred
Stock (as defined) of Subsidiaries, (ii) pay dividends or
make other distributions, repurchase Equity Interests (as
defined) or subordinated Indebtedness or make certain
investments, (iii) create certain liens, (iv) enter into certain
transactions with affiliates, (v) sell assets of the Company or
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certain of its subsidiaries or (vi) enter into certain mergers and
consolidations. In addition, under certain circumstances, the Company
will be required to offer to purchase the Series B Notes at a price
equal to 100% of the principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase, with
the proceeds of certain Asset Sales (as defined). See "Description of
Notes -- Certain Covenants -- Repurchase at Option of Holders -- Asset
Sales."
Exchange Offer, Registration Rights,
Liquidated Damages............................... Pursuant to a Registration Rights Agreement (the
"Registration Rights Agreement") by and among the
Company, the Guarantors and the Initial Purchasers, the
Company agreed to file a registration statement (the
"Exchange Offer Registration Statement") with respect to
an offer to exchange the Notes for a new issue of debt
securities of the Company (the "New Notes") registered
under the Securities Act with terms substantially identical to
those of the Notes. If (i) the Exchange Offer is not
permitted by applicable law or (ii) any holder of Transfer
Restricted Securities (as defined) notifies the Company that
(A) it is prohibited by law or policy of the Securities and
Exchange Commission (the "Commission") from
participating in the Exchange Offer, (B) it may not resell the
New Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the prospectus
contained in the Exchange Offer Registration Statement is
not appropriate or available for such resales or (C) it is a
broker-dealer and holds Notes acquired directly from the
Company or an affiliate of the Company, the Company will
be required to provide a shelf registration statement (the
"Shelf Registration Statement"), to cover resales of the
Notes by the holders thereof. If the Company fails to satisfy
these registration obligations, it may be required to pay
Liquidated Damages ("Liquidated Damages") to the holders
of the Notes under certain circumstances. See "Description
of Notes -- Registration Rights; Liquidated Damages."
Conditions to the Exchange Offer................. The Exchange Offer is subject to certain customary
conditions, including, the institution of any action or
proceeding which might materially impair the ability of the
Company to proceed with the Exchange Offer, changes in
statutory or other law which could impair the Company's
ability to proceed with the Exchange Offer or the failure to
obtain a governmental approval which the Company may
deem necessary to consummate the Exchange Offer. Such
conditions may be waived by the Company. See "The
Exchange Offer - Certain Conditions to the Exchange
Offer."
Procedures for Tendering Series A Notes.......... Each holder of Series A Notes wishing to accept the
Exchange Offer must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in accordance with the
instructions contained herein and therein, and mail or
</TABLE>
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<TABLE>
<S> <C>
otherwise deliver such Letter of Transmittal, or such facsimile,
together with such Series A Notes and any other required
documentation to the Exchange Agent (as defined) at the address
set forth herein. By executing the Letter of Transmittal, each
holder will represent to the Company that, among other things,
(i) any Series B Notes to be received by it will be acquired in
the ordinary course of its business, (ii) it has no arrangement
with any person to participate in the distribution of the Series
B Notes and (iii) it is not an "affiliate," as defined in Rule
405 of the Securities Act, of the Company.
Special Procedures for Beneficial Owners......... Any beneficial owner whose Series A Notes are registered
in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender such
Series A Notes in the Exchange Offer should contact such
registered holder promptly and instruct such registered to
tender on such beneficial owner's behalf. If such beneficial
owner wishes to tender on such owner's own behalf, such
owner must, prior to completing and executing the Letter of
transmittal and delivering his Series A Notes, either make
appropriate arrangements to register ownership of the Series
A Notes in such owner's name or obtain a properly
completed bond power from the registered holder. The
transfer of registered ownership may take considerable time
and may not be completed prior to the Expiration Date.
Guaranteed Delivery Procedures................... Holders of Notes who wish to tender their Series A Notes
and whose Series A Notes are not immediately available or
who cannot deliver their Series A Notes, the Letter of
Transmittal or any other documents required by the Letter
of Transmittal to the Exchange Agent, prior to the
Expiration Date, must tender their Senior Notes according
to the guaranteed delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures."
Certain Federal Income Tax Considerations........ For a discussion of certain federal income tax
considerations relating to the exchange of the Series B
Notes for the Series A Notes, see "Certain Federal Income
Tax Considerations."
Exchange Agent................................... Marine Midland Bank is the Exchange Agent. The address
and telephone number of the Exchange Agent are set forth
in "The Exchange Offer -- Exchange Agent."
RISK FACTORS..................................... FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY HOLDERS OF THE SERIES A NOTES IN
CONNECTION WITH THE EXCHANGE OFFER, SEE "RISK FACTORS."
</TABLE>
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<PAGE> 12
RISK FACTORS
An investment in the Series B Notes involves a high degree of risk. In
connection with the Exchange Offer, prospective investors should carefully
consider the following risk factors in addition to the other information set
forth elsewhere in this Prospectus. This Prospectus contains forward-looking
statements which involve known and unknown risks, uncertainties and other
factors including, without limitation, those set forth in the following Risk
Factors and elsewhere in this Prospectus that may cause the actual results of
the Company to be materially different from the results expressed or implied in
such forward-looking statements.
SIGNIFICANT LEVERAGE AND ABILITY TO SERVICE OUTSTANDING DEBT
The Company has, and, upon consummation of the Exchange Offer, will
continue to have, indebtedness which is substantial in relation to its
shareholders' deficit, as well as interest and debt service requirements which
are significant compared to its cash flow from operations. As of March 31, 1997,
the Company had indebtedness consisting of $149.9 million in long term notes,
$24.9 million of 14% Series Notes due 1999 and $33.0 million under the Senior
Credit Facility. The level of the Company's indebtedness could have important
consequences, including, but not limited to, the following: (i) a substantial
portion of the Company's cash flow from operations must be dedicated to debt
service and will not be available for other purposes; (ii) the Company's ability
to obtain additional debt financing in the future for working capital, capital
expenditures, acquisitions and general corporate or other purposes may be
limited; (iii) certain of the Company's borrowings may be at variable rates of
interest, which could result in higher interest expense in the event of
increases in interest rates; and (iv) the Company will be subject to a variety
of restrictive covenants, the failure to comply with which could result in
events of default that, if not cured or waived, could restrict the Company's
ability to make payments of principal, interest and liquidated damages, if any,
on its indebtedness.
The Company's ability to pay interest, and to satisfy its obligations under
the Notes will depend upon its future operating performance, which will be
affected by prevailing economic conditions and financial, business and other
factors, many of which are beyond its control. The Company anticipates that its
operating cash flow, together with available borrowings under its Credit
Agreement (the "Senior Credit Facility") dated March 24, 1997 will be sufficient
to meet its operating expenses, to service interest requirements on its debt
obligations as they become due and to implement its business strategy. There can
be no assurance, however, that the Company's business will generate sufficient
cash flow from operations or that future borrowings will be available in an
amount sufficient to enable the Company to service its indebtedness, to make
anticipated capital expenditures or to implement its business strategy. The
Company may be required to refinance portions of its indebtedness at or prior to
maturity. No assurance can be given that, if required, the Company will be able
to refinance such indebtedness on terms acceptable to it, if at all. If the
Company is unable to service its indebtedness, it will be forced to adopt an
alternative strategy that may include actions such as reducing or delaying
capital expenditures, selling assets, restructuring or refinancing its
indebtedness or seeking additional equity capital. There can be no assurance
that any of these strategies could be effected on terms acceptable to the
Company, if at all. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."
RESTRICTIONS IN DEBT INSTRUMENTS ON COMPANY'S OPERATIONS
The Indenture contains certain restrictive covenants which will affect, and
in many respects significantly limit or prohibit, among other things, the
ability of the Company to incur indebtedness, make prepayments of certain
indebtedness, make investments, engage in transactions with affiliates, create
liens, sell assets and engage in mergers and acquisitions. The Senior Credit
Facility contains similar and more restrictive covenants and also requires the
Company to meet certain financial ratios and tests. These covenants may
significantly limit the operating and financial flexibility of the Company and
may limit its ability to respond to changes in its business or competitive
activities. The ability of the Company to comply with such provisions may be
affected by events beyond its control. In the event of any default under the
Senior Credit Facility, the lenders thereunder could elect to declare all
amounts borrowed under the Senior Credit Facility, together with accrued
interest, to be due and payable. If the Company were unable to repay such
borrowings, the lenders thereunder could proceed against the collateral securing
the Senior Credit Facility, which consists of substantially all of the assets of
the Company. If the indebtedness under the Senior Credit Facility were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay such indebtedness and the Notes in full. See "Description of
Certain Indebtedness--Senior Credit Facility."
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<PAGE> 13
SUBORDINATION AND COMPANY STRUCTURE
The Notes are unsecured and subordinated in right of payment to all Senior
Debt (as defined in the Indenture) of the Company, including, borrowings under
the Senior Credit Facility. Further, the Senior Credit Facility is secured by
liens on substantially all of the assets of the Company. In the event of the
bankruptcy, liquidation or reorganization of the Company, the assets of the
Company will be available to pay obligations on the Notes only after all Senior
Debt, including borrowings under the Senior Credit Facility, has been paid in
full and sufficient assets may not remain to pay amounts due on any or all of
the Notes then outstanding. In certain circumstances, provisions of the Senior
Debt could prohibit payments of amounts due to holder of the Notes. See
"Description of Notes--Subordination." Subject to certain limitations, the
Company, from time to time, may incur additional Senior Debt, including secured
indebtedness, which secured indebtedness will effectively rank senior to the
Notes to the extent of the value of the assets securing such indebtedness. See
"Description of Notes--Certain Covenants--Incurrence of Indebtedness and
Issuance of Disqualified Stock and Preferred Stock of Subsidiaries."
The Indenture requires that all domestic subsidiaries become guarantors of
the Notes unless such subsidiaries are Unrestricted Subsidiaries (as defined in
the Indenture). None of the Company's foreign subsidiaries are required to
become guarantors of the Notes. As of June 30, 1997, Key Plastics International
LLC, Key Plastics Automotive LLC, Key Plastics Technology, LLC, Key Mexico A,
L.L.C. and Key Mexico B, L.L.C. are Guarantors. Any right of the holders of the
Notes to participate in the assets of an international subsidiary of the Company
upon any liquidation or reorganization of such subsidiary will be subject to the
prior claims of such subsidiary's creditors, including trade creditors.
Accordingly, the Notes will be structurally subordinated to all liabilities,
including trade payables, of the international subsidiaries of the Company with
respect to the assets of such subsidiaries. The Company's Mexican subsidiary
will be a restricted subsidiary for purposes of the Indenture. The Indenture
limits the ability of the Company's subsidiaries which are not guarantors to
borrow money.
Three of the Company's subsidiaries, MaP, Key Plastics U.K. and Clearplas
Ltd., will be Unrestricted Subsidiaries for purposes of the Indenture and,
therefore, will not be subject to the restrictive covenants which will be
contained in the Indenture. The Company derived approximately 13.6 % of its
fiscal year 1996 net sales, from these subsidiaries. Accordingly, the Company
will be able to incur additional indebtedness at the Unrestricted Subsidiary
level, which could have a material adverse effect on the cash flow, if any, to
the Company. In addition, under certain circumstances, the Company may be able
to designate current and future subsidiaries as Unrestricted Subsidiaries.
INTERNATIONAL OPERATIONS
The Company derived approximately 13.6 % of its fiscal year 1996 net sales,
from its operations in the United Kingdom and Portugal. The Company's
international operations are subject to risks inherent in international business
activities, including, in particular, compliance with a variety of foreign laws
and regulations, unexpected changes in regulatory requirements, overlap of
different tax structures, foreign currency exchange rate fluctuations and
general economic conditions.
The Company prices its products in the United Kingdom and Portugal in the
currency of the country in which the product is sold and, in the United States
and Mexico, in United States dollars. To the extent that prices are in the
currency of the country in which the products are sold, the prices of such
products in dollars will vary as the value of the dollar fluctuates against such
currencies. There can be no assurance that there will not be increases in the
value of the dollar against such currencies that will reduce the dollar return
to the Company on the sale of its products in such countries. The Company is
presently engaged in limited currency hedging transactions in Mexico, involving
the purchase of Mexican pesos to make local payments. There can be no assurance
that such hedging transactions will protect the Company against losses in the
event of fluctuations in the value of the dollar.
THE OEM SUPPLIER INDUSTRY
The Company competes in the global automotive original equipment
manufacturer supplier industry. The OEM supplier industry is highly cyclical
and, in large part, dependent upon the overall strength of consumer demand for
light trucks and passenger cars. There can be no assurance that the automotive
industry for which the Company supplies components and systems will not
experience downturns in the future. An economic recession typically impacts
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<PAGE> 14
substantially leveraged companies such as the Company more than similarly
situated companies with less leverage. A decrease in overall consumer demand for
light trucks or passenger cars could have a material adverse effect on the
Company's financial condition and results of operations.
The automotive industry is characterized by a small number of OEM customers
that are able to exert considerable pressure on component and system suppliers
to reduce costs, improve quality and provide additional design and engineering
capabilities. In the past, OEMs have generally demanded and received price
reductions and measurable increases in quality by implementing competitive
selection processes, rating programs and various other arrangements. Also,
through increased partnering on platform work, OEMs have generally required
component and system suppliers to provide more design engineering input at
earlier stages of the product development process, the costs of which have, in
some cases, been absorbed by the suppliers. Although the Company historically
has regained the loss caused by price reductions to the OEMs through cost
reduction initiatives and assistance from the OEMs, there can be no assurance
that future price reductions, increased quality standards or additional
engineering capabilities required by OEMs will not have a material adverse
effect on the financial condition or results of operations of the Company.
Many of the Company's OEM customers and their Tier I suppliers are
unionized. Work stoppages and slow downs experienced by OEMs and their Tier I
suppliers, as a result of labor disputes, could have a material adverse effect
on the Company's financial condition or results of operations.
RAW MATERIALS
The principal raw materials used by the Company are engineered plastic
resins such as nylon, polypropylene and ABS, all of which are available from
several suppliers, except that the customer generally specifies a single
supplier to be used by the Company in connection with a specific program. The
Company has no reason to believe that there will not be an ample supply of its
raw materials for the reasonably foreseeable future, but the Company cannot make
any prediction as to the future price of such raw materials. The Company is
generally not able to pass on to its customers any increase in raw material
costs; however, the Company, in the past two years, has not experienced any
significant increases in the prices of its raw materials as result of the
consolidation of procurement and supply of raw materials. A substantial
interruption in the Company's supply of plastic resins, or a material increase
in the price thereof, could have a material adverse effect on the Company's
financial condition or results of operation.
RELIANCE ON PRINCIPAL CUSTOMERS
The Company's direct sales to its principal customers, Ford Automotive
Operations ("Ford"), Chrysler Corporation ("Chrysler") and General Motors
Corporation ("GM"), accounted for approximately 58.4%, 9.2% and 8.2%,
respectively, of the Company's consolidated net sales in fiscal year 1996. If
sales to such OEMs' Tier 1 suppliers are included, the Company's sales to Ford,
Chrysler and GM accounted for 63.9%, 11.9% and 9.1%, respectively, of the
Company's consolidated net sales in fiscal year 1996. Although the Company has
ongoing supply relationships with its principal customers, and is considered by
Ford and Chrysler to be a preferred supplier of door handles and pressurized
bottles, there can be no assurance that sales to Ford, Chrysler and GM will
continue at the same level. Furthermore, continuation of these relationships is
dependent upon the customers' satisfaction with the price, quality and delivery
of the Company's products. In addition, the Company's agreements to produce
parts are fixed to specific models or product lines of its customers.
Accordingly, the Company's business, and estimates for future business, are
dependent upon consumer demand for the specific models and product lines that
incorporate the Company's parts. The Company's arrangements with its OEMs are
typically in the form of purchase orders that may be canceled by the OEMs.
However, the Company believes that cancellation of purchase orders is rare, due,
in part, to the OEM production interruption likely to be caused by changing
suppliers. While management believes the Company's relationships with its
customers are mutually satisfactory, if any of these customers were to reduce
substantially or discontinue their purchases from the Company, the financial
condition and results of operations of the Company would be materially adversely
affected. See "Business-Customers, Marketing and Engineering Support."
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<PAGE> 15
COMPETITION
The Company operates in an industry which is highly competitive. The
Company competes on the basis of quality, cost, timely delivery and customer
service and, increasingly, on the basis of design and engineering capability,
painting capability, new product innovation and product testing capability.
There can be no assurance that the Company's products will continue to compete
successfully with the products of competitors, including the automotive OEMs
themselves, many of which are significantly larger and have greater financial
and other resources than the Company. Management believes that the Company's
experience in design engineering and its ability to control manufacturing and
development costs should allow the Company's product prices to remain
competitive. However, there can be no assurance that the Company will be able to
improve or maintain its profit margins on sales to OEM customers. See
"Business-Competition."
UNCERTAINTY OF FUTURE ACQUISITIONS; INTEGRATION OF ACQUIRED COMPANIES AND
POTENTIAL EFFECT OF ACQUISITIONS
In fiscal 1996, the Company completed the MaP Acquisition and the Clearplas
Acquisition, and, in the first quarter of 1997, completed the Aeroquip
Acquisition. Further, the Company has designated a portion of availability under
its Senior Credit Facility for use by the Company to make future acquisitions.
There can no assurance that the Company will be able to locate and acquire
additional businesses to enable it to so utilize that portion of the Senior
Credit Facility. To the extent that any future acquisitions require the
incurrence or assumption of additional indebtedness, a waiver of certain
covenants in its new Indenture or an amendment of the Senior Credit Facility may
be required. There can be no assurance that any acquisition will be permissible
under these loan agreements or that waivers of any such covenants could be
obtained. See "Description of Notes--Certain Covenants."
In certain instances, a consummated acquisition may adversely affect the
Company's financial condition and reported results, depending on many factors,
including capital requirements and the accounting treatment of such
acquisitions. There can be no assurance that recent acquisitions, or future
acquisitions, if completed, will perform as expected, will not result in
significant unexpected liabilities or will contribute significant revenues or
profits to the Company. Further, integration of the acquired businesses is
subject to numerous contingencies, some of which are beyond management's
control. Accordingly, no assurance can be given that the Company will be able to
successfully integrate any business it acquires. Further, as the Company
continues to grow, the increasing size of its operations will place additional
demands on existing management resources, which will require the Company to
effectively redeploy such resources and, at times, to hire new personnel. If the
Company is unable to manage growth effectively, the Company's financial
condition or operating results could be materially adversely affected.
CONTROL BY PRINCIPAL SHAREHOLDERS
Joel D. Tauber, George Mars and David C. Benoit, directors and shareholders
of the Company (the "Shareholders"), hold beneficially 67.4% of the outstanding
capital stock of the Company. Circumstances may occur in which the interests of
the Shareholders could be in conflict with the interests of the holders of the
Notes. For example, if the Company encounters financial difficulties or is
unable to pay certain of its debts as they mature, the interests of the
Shareholders might conflict with those of the holders of the Company's
indebtedness. In addition, the Shareholders may have an interest in pursuing
acquisitions, divestitures or other transactions that, in their judgment, could
enhance their equity investment, even though such transactions might involve
risks to the holders of the Company's indebtedness.
CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control (as
defined in the Indenture), the Company will be required to make an offer to
purchase all of the Senior Subordinated Notes then outstanding at a purchase
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest and liquidated damages thereon, if any, to the date of purchase. Such a
Change of Control constitutes an event of default under the Senior Credit
Facility. Accordingly, if a Change of Control were to occur, the subordination
provisions contained in the Indenture could prohibit the Company from satisfying
its obligation to repurchase the Senior Subordinated Notes until all Senior Debt
(as defined in Indenture), including all indebtedness under the Senior Credit
Facility, is repaid. There can be no assurance that the Company would have
adequate financial resources to repay all of its obligations under the Senior
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Subordinated Notes upon the occurrence of a Change of Control. See "Description
of Notes--Repurchase at the Option of Holders--Change of Control."
FRAUDULENT CONVEYANCE
The incurrence by the Company or the Guarantors of indebtedness, such as
the Series B Notes or the Subsidiary Guarantees (as defined in the Indenture),
as applicable, may be subject to review under relevant state and federal
fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on
behalf of unpaid creditors of the Company or the Guarantors. Under these laws,
if a court were to find that, after giving effect to the issuance of the Series
B Notes or the Subsidiary Grantees, as the case may be, and the application of
the net proceeds therefrom, either (a) the Company or any Guarantor incurred
such indebtedness with the intent of hindering, delaying or defrauding creditors
or (b) the Company or any Guarantor received less than reasonably equivalent
value or consideration for incurring such indebtedness and (i) was insolvent or
was rendered insolvent by reason of such transaction, (ii) was engaged in a
business or transaction for which the property remaining with the Company or any
Guarantor constituted unreasonably small capital or (iii) intended to incur, or
believed that it would incur, debts beyond its ability to pay as they matured,
such court may subordinate such indebtedness to presently existing and future
indebtedness of the Company or any Guarantor, as the case may be, avoid the
issuance of such indebtedness and direct repayment of any amounts paid
thereunder to the Company's or the Guarantor's creditors, as the case may be, or
take other action detrimental to the holders of the Series B Notes and the
Subsidiary Guarantees.
The definition of insolvency for purposes of determining whether a transfer
is avoidable as a fraudulent transfer varies depending upon the law of the
jurisdiction which is being applied. Generally, however, a debtor would be
considered insolvent if the sum of all of its liabilities, including contingent
liabilities, were greater than the value of all of its property at a fair
valuation, or if the present saleable value of the debtor's assets were less
than the amount required to repay its probable liabilities on its debt,
including contingent liabilities as they become absolute and matured. There can
be no assurance as to what standard a court would apply in order to determine
solvency.
The Company and the guarantors believe that they will receive reasonably
equivalent value at the time the indebtedness under the Notes and the Subsidiary
Guarantees is incurred. In addition, neither the Company nor the Guarantors
believe, that after giving effect to the offering of Senior Subordinated Notes
and the application of the net proceeds therefrom, they (i) were or will be
insolvent or rendered insolvent, (ii) were or will be engaged in a business or
transaction for which their respective remaining property constituted
unreasonably small capital or (iii) intend or intended to incur, or would incur
debts beyond their respective ability to pay such debts as they mature. There
can be no assurance, however, that a court determining the merits of these
issues would reach the same conclusion.
ENVIRONMENTAL MATTERS
The Company and its operations are subject to comprehensive and frequently
changing federal, state and local environmental and occupational health and
safety laws and regulations, including laws and regulations governing emissions
of air pollutants, discharges of waste and storm water, and the disposal of
hazardous wastes. The Company is also subject to liability for the investigation
and remediation of environmental contamination (including contamination caused
by other parties) at the properties it owns or operates and at other properties
where the Company or predecessors have arranged for the disposal of hazardous
substances. As a result, the Company is involved, from time to time, in
administrative and judicial proceedings and inquiries relating to environmental
matters. The Ohio Environmental Protection Agency has raised questions about the
air permit status of the Company's facility in Montpelier, Ohio. The Company
expects to resolve these questions without making significant financial
expenditures, although there can be no assurance thereof. The Company does not
believe there are any other pending investigations at the Company's plants or
sites relating to environmental matters. However, there can be no assurance that
the Company will not be involved in other such proceedings in the future and
that the aggregate amount of future clean-up costs and other environmental
liabilities will not be material.
Federal, state and local governments could enact laws or regulations
concerning environmental matters that increase the cost of producing, or
otherwise adversely affect the demand for, the Company's products. The Company
cannot predict the environmental liabilities that may result from legislation or
regulations adopted in the future. Nor can the Company predict how existing or
future laws and regulations will be administered or interpreted or what
environmental
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conditions may be found to exist. The enactment of more stringent laws or
regulations or stricter interpretation of existing laws and regulations could
require additional expenditures by the Company, some of which could be material.
CONSEQUENCES OF FAILURE TO EXCHANGE; POSSIBLE ADVERSE EFFECT ON TRADING MARKET
FOR SERIES A NOTES
Holders of Series A Notes who do not exchange their Series A Notes for
Series B Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Series A Notes as set forth in the legend
thereon as a consequence of the issuance of the Series A Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Series A Notes may not be offered or sold unless registered under
the Securities Act and applicable state laws, or pursuant to an exemption
therefrom. Subject to the obligation by the Company to file a shelf registration
statement covering resales of Series A Notes in certain limited circumstances,
the Company does not intend to register the Series A Notes under the Securities
Act and, after consummation of the Exchange Offer, will not be obligated to do
so. In addition, any holder of Series A Notes who tenders in the Exchange Offer
for the purpose of participating in a distribution of the Series B Notes may be
deemed to have received restricted securities and, if so, will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Additionally, as a
result of the Exchange Offer, it is expected that a substantial decrease in the
aggregate principal amount of Series A Notes outstanding will occur. As a
result, it is unlikely that a liquid trading market will exist for the Series A
Notes at any time. This lack of liquidity will make transactions more difficult
and may reduce the trading price of the Series A Notes. See "The Exchange Offer"
and "Description Notes - Registration Rights; Liquidated Damages."
ABSENCE OF PUBLIC MARKET
The Series B Notes will constitute a new class of securities with no
established trading market. The Company does not intend to list the Series B
Noes on any national securities exchange or to seek the admission thereof to
trading in The Nasdaq Stock Market's National Market. The Company has been
advised by the Initial Purchasers that the Initial Purchasers currently intend
to make a market in the Series B Notes. They are not obligated to do so,
however, and any market-making activities with respect to the Notes may be
discontinued at any time without notice. In addition, such market-making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act, and may be limited during the Exchange Offer and the pendency of
any Shelf Registration Statement. See "Description of Notes -- Registration
Rights; Liquidated Damages." Accordingly, no assurance can be given that an
active public or other market will develop for the Series B Notes or as to the
liquidity of the trading market for the Series B Notes.
If the trading market does not develop or is not maintained, holders of
the Series B Notes may experience difficulty in reselling the Series B Notes or
may be unable to sell them at all. If a market for the Series B Notes does
develop, any such market may be discontinued at any time. If a public trading
market develops for the Notes, future trading prices of such Series B Notes
will depend upon many factors, including, among other things, prevailing
interest rates, the Company's financial condition and results of operations,
and the market for similar notes. Depending upon those and other factors, the
Series B Notes may trade at a discount from their principal amount.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of such
securities. There can be no assurance that the market for the Series B Notes
will not be subject to similar disruptions. Any such disruptions may have an
adverse effect on holders of the Series B Notes.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Pursuant to the Registration Rights Agreement, the Company agreed (i)
to file a registration statement with respect to a registered offer to exchange
the Series A Notes for the Series B Notes, which will have with terms
substantially identical in all material respects to the Series A Notes (except
that the Series B Notes will not contain terms with respect to transfer
restrictions) within 45 days after the date of original issuance of the Series A
Notes and (ii) to use reasonable best efforts to cause such registration
statement to become effective under the Securities Act at the earliest possible
time but in any event no later than 105 days after the filing with the
Commission. In the event that applicable law or interpretations of the staff of
the Commission do not permit the Company to file the registration statement
containing this Prospectus or to effect the Exchange Offer, or if certain
holders of the Series A Notes notify the Company that they are prohibited by law
or Commission policy from participating in the Exchange Offer, or subject to
certain other restrictions the Company will use its reasonable best efforts to
cause to become effective the shelf registration statement with respect to the
resale of the Series A Notes and to keep the shelf registration statement
effective until the earlier of three years following the date of original issue
and such time as all the Series A Notes have been sold thereunder or are
otherwise not restricted securities. See "Description of Notes--Registration
Rights, Liquidated Damages."
Each holder of the Series A Notes who wishes to exchange such Series A
Notes for Series B Notes in the Exchange Offer will be required to make certain
representations, including representations that (i) any Exchange Notes to be
received by it will be acquired in the ordinary course of its business, (ii) it
has no arrangement with any person to participate in the distribution of the
Series B Notes, and (iii) it is not an "affiliate," as defined in Rule 405 of
the Securities Act, of the Company. See "Description of Notes--Registration
Rights."
RESALE OF SERIES B NOTES
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that, except as
described below, Series B Notes issued pursuant to the Exchange Offer in
exchange for Series A Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than a holder which is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Series B Notes are acquired in the ordinary
course of such holder's business and such holder does not intend to participate
and has no arrangement or understanding with any person to participate in the
distribution of such Series B Notes. Any holder who tenders in the Exchange
Offer with the intention or for the purpose of participating in a distribution
of the Series B Notes cannot rely on such interpretation by the staff of the
Commission and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Unless an exemption from registration is otherwise available, any
such resale transaction should be covered by an effective registration statement
containing the information required by the Securities Act. This Prospectus may
be used for an offer to resell, resale or other retransfer of Series B Notes
only as specifically set forth herein. Each broker-dealer that receives Series B
Notes for its own account in exchange for Series A Notes, where such Series A
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Series B Notes. See "Plan of
Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal, the Company will accept for
exchange any and all Series A Notes properly tendered and not withdrawn prior to
5:00 p.m., New York City time, on the Expiration Date. The Company will issue
$1,000 principal amount of Series B Notes in exchange for each $1,000 principal
amount of outstanding Series A Notes surrendered pursuant to the Exchange Offer.
Series A Notes may be tendered only in integral multiples of $1,000.
The form and terms of the Series B Notes will be the substantially
identical in all material respects to as the form and terms of the Series A
Notes except the Series B Notes will be registered under the Securities Act and
hence will not bear legends restricting the transfer thereof. The Series B Notes
will evidence the same debt as the Series A
13
<PAGE> 19
Notes. The Series B Notes will be issued under and entitled to the benefits of
the Indenture, which also authorized the issuance of the Series A Notes, such
that both series will be treated as a single class of debt securities under the
Indenture.
The Exchange Offer is not conditioned upon any minimum aggregate
principal amount of Series A Notes being tendered for exchange.
As of the date of this Prospectus, $125,000,000 aggregate principal
amount of the Series A Notes are outstanding. This Prospectus, together with the
Letter of Transmittal, is being sent to all registered holders of Series A
Notes. There will be no fixed record date for determining registered holders of
Series A Notes entitled to participate in the Exchange Offer.
The Company intends to conduct the Exchange Offer in accordance with
the provisions of the Registration Rights Agreement and the applicable
requirements of the Exchange Act, and the rules and regulations of the
Commission thereunder. Series A Notes which are not tendered for exchange in the
Exchange Offer will remain outstanding and continue to accrue interest and will
be entitled to the rights and benefits such holders have under the Indenture and
the Registration Rights Agreement.
The Company shall be deemed to have accepted for exchange properly
tendered Series A Notes when, as and if, the Company shall have given written
notice thereof to the Exchange Agent and complied with the provisions of the
Registration Rights Agreement. The Exchange Agent will act as agent for the
tendering holders for the purpose of receiving the Series B Notes from the
Company. The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Series A Notes not
theretofore accepted for exchange, upon the occurrence of any of the conditions
specified below under "-- Certain Conditions to the Exchange Offer."
Holders who tender Series A Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Series
A Notes pursuant to the Exchange Offer. The Company will pay all charges and
expense, other than certain applicable taxes described below, in connection with
the Exchange Offer. See "The Exchange Offer -- Fees and Expenses."
EXPIRATION DATE, EXTENSIONS; AMENDMENTS
The term "Expiration Date," shall mean 5:00 p.m., New York City time on
August 8, 1997, unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the
Exchange Agent of any extension by written notice, prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date, and will mail to the registered holders of Series A Notes an announcement
thereof.
The Company reserves the right, in its sole discretion, (i) to delay
accepting for exchange any Series A Notes, to extend the Exchange Offer or to
terminate the Exchange Offer if any of the conditions set forth below under "The
Exchange Offer -- Conditions" shall not have been satisfied, by giving oral or
written notice of such delay, extension or termination to the Exchange Agent or
(ii) to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by written notice thereof to the registered holders of Series A
Notes. If the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such amendment
in a manner reasonably calculated to inform the holders of the Series A Notes of
such amendment and the Company will extend the Exchange Offer as necessary to
provide the holders with a period of five to ten business days, after such
amendment, depending upon the significance of the amendment and the manner of
disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such period.
14
<PAGE> 20
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will
not be required to accept for exchange, or exchange any Series B Notes for, any
Series A Notes, and may terminate the Exchange offer as provided herein before
the acceptance of any Series A Notes for exchange, if.
(a) any action or proceeding is instituted or threatened in
any court or by or before any governmental agency with respect to the
Exchange Offer which, in the Company's reasonable judgment, might ht
materially impair the ability of the Company to proceed with the
Exchange Offer, or
(b) any law, statute, rule or regulation is proposed, adopted
or enacted, or any existing law, statute, rule or regulation is
interpreted by the staff of the Commission, which, in the Company's
reasonable judgment, might materially impair the ability of the Company
to proceed with the Exchange Offer, or
(c) any governmental approval has not been obtained, which
approval the Company shall, in its reasonable discretion, deem
necessary for the consummation of the Exchange Offer as contemplated
hereby.
The Company expressly reserves the right, at any time or from time to
time, to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Series A Notes, by giving written
notice of such extension to the holders thereof. During any such extensions, all
Series A Notes previously tendered will remain subject to the Exchange Offer and
may be accepted for exchange by the Company. Any Series A Notes not accepted for
exchange for any reason will be returned without expense to the tendering holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept (for exchange any Series A Notes not
theretofore accepted for exchange, upon the occurrence of any of the conditions
of the Exchange Offer specified above under "-- Certain Conditions to the
Exchange Offer." The Company will give written notice of any extension,
amendment, non-acceptance or termination to the holders of the Series A Notes as
promptly as practicable, such notice in the case of any extension to be issued
no later 'than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
The foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company regardless of the circumstances giving rise to
any such condition or may be waived by the Company in whole or in part at any
time and from time to time in its sole discretion. The failure by the Company at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Series A
Notes tendered, and no Series B Notes will be issued in exchange for any such
Series A Notes, if at such time any stop order shall be threatened or in effect
with respect to the Registration Statement of which this Prospectus constitutes
a part or the qualification of the Indenture under the Trust Indenture Act of
1939 (the "TIA").
PROCEDURES FOR TENDERING
Only a holder of Series A Notes may tender such Series A Notes in the
Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign
and date the Letter of Transmittal, or facsimile thereof, have the signature
thereon guaranteed if required by the Letter of Transmittal, and mail or
otherwise deliver such Letter of Transmittal or such facsimile to the Exchange
Agent prior to 5:00 p.m., New York City time, on the Expiration Date. In
addition, either (i) Series A Notes must be received by the Exchange Agent along
with the Letter of Transmittal, or (ii) a timely confirmation of book-entry
transfer (a "Book-Entry Confirmation") of such Series A Notes, if such procedure
is available, into the Exchange Agent's account at the Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described below. To be tendered effectively, the Letter of
Transmittal and other required documents must be received by the Exchange Agent
15
<PAGE> 21
at the address set forth below under "The Exchange Offer -- Exchange Agent"
prior to 5:00 p.m., New York City time, on the Expiration Date.
The tender by a holder which is not withdrawn prior to the Expiration
Date will constitute an agreement between such holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
THE METHOD OF DELIVERY OF SERIES A NOTES, THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR SERIES A NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS
MAY REQUEST THEIR RESPEC TIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Series A Notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder of Series A Notes to tender on such beneficial owner's behalf.
If such beneficial owner wishes to tender on such owner's own behalf, such owner
must, prior to completing and executing the Letter of Transmittal and delivering
such owner's Series A Notes, either make appropriate arrangements to register
ownership of the Series A Notes in such owner's name or obtain a properly
completed bond power from the registered holder of Series A Notes. The transfer
of registered ownership may take considerable time and may not be able to be
completed prior to the Expiration Date.
Signatures on a Letter of Transmittal or a notice of withdrawal
described below, as the case be, must be guaranteed by an Eligible Institution
(as defined below) unless the Series A Notes tendered pursuant thereto are
tendered (i) by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the Letter
of Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter Transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, such guarantor must be a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of
the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Series A Notes listed therein, such Series A Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Series A
Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Series A Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorney-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Series A Notes and withdrawal of tendered
Series A Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Series A Notes not properly tendered or any Series A Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Series A Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Series A Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Series A Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to
16
<PAGE> 22
give such notification. Tenders of Series A Notes will not be deemed to have
been made until such defects or irregularities have been cured or waived. Any
Series A Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
In all cases, issuance of Series B Notes for Series A Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of Notes or a timely Book-Entry
Confirmation of such Series A Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Series A Notes are
not accepted for exchange for any reason set forth in the terms and conditions
of the Exchange Offer or if Series A Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non- exchanged
Series A Notes will be returned without expense to the tendering holder thereof
(or, in the case of Series A Notes tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described below, such non-exchanged Notes will be
credited to an account maintained with such Book-Entry Transfer Facility) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with
respect to the Series A Notes at the Book- Entry Transfer Facility for purposes
of the Exchange Offer within two business days after the date of this
Prospectus, and any financial institution that is a participant in the
Book-Entry Transfer Facility's system may make book-entry delivery of Series A
Notes by causing the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Notes may be effected through book-entry at the Book- Entry Transfer
Facility, the Letter of Transmittal or facsimile thereof, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received by the Exchange Agent at the address set forth below
under "The Exchange Offer - Exchange Agent" on or prior to the Expiration Date
or, if the guaranteed delivery procedures described below are to be complied
with, within the time period provided under such procedures. Delivery of
documents to the Book-Entry Transfer Facility does not constitute delivery to
the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Series A Notes and (i) whose Series A
Notes are not immediately available or (h) who cannot deliver their Series A
Notes, the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent
received from such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission,
mail or hand delivery) setting forth the name and address of the
holder, the registered number(s) of such Series A Notes and the
principal amount of Series A Notes tendered, stating that the tender
is being made thereby and guaranteeing that, within three (3) New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof) together with the Series A Notes or
a Book-Entry Confirmation, as the case may be, and any other documents
required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of
Transmittal (or facsimile thereof), as well as all tendered Notes in
proper form for transfer or a Book-Entry Confirmation, as the case
may be, and all other documents required by the Letter of Transmittal,
are received by the Exchange Agent within three (3) New York Stock
Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery
will be sent to holders who wish to tender their Series A Notes according to the
guaranteed delivery procedures set forth above.
17
<PAGE> 23
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Series A Notes may be
drawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
For a withdrawal to be effective, a written notice of withdrawal must
be received by the Exchange Agent at the address set forth below under "Exchange
Agent." Any such notice of withdrawal must specify the name of the person having
tendered the Series A Notes to be withdrawn, identify the Series A Notes to be
withdrawn (including the principal amount of such Series A Notes), and (where
certificates for Series A Notes have been transmitted) specify the name in which
such Series A Notes were registered, if different from that of the withdrawing
holder. If certificates for Series A Notes have been delivered or otherwise
identified to the Exchange Agent, then, prior to the release of such
certificates the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Series A Notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at the Book-Entry Transfer Facility
to be credited with the withdrawn Series A Notes and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Series A Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Series A Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Series A Notes tendered by book-entry transfer into the Exchange Agent's account
at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such Series A Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Series A Notes) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Series A Notes may be retendered by following
one of the procedures described under "Procedures for Tendering Series A Notes"
above at any time on or prior to the Expiration Date.
EXCHANGE AGENT
Marine Midland Bank has been appointed as Exchange Agent of the
Exchange Offer. Questions and requests for assistance, request for additional
copies of this Prospectus or of the Letter of Transmittal and requests for
Notice of Guaranteed Delivery should be directed to the Exchange Agent addressed
as follows:
By Mail, Overnight Courier or Hand Delivery: By Facsimile:
Marine Midland Bank Marine Midland Bank
140 Broadway Attention: Paulette Shaw
New York, New York 10004 (212) 659-2292
Attention: Paulette Shaw (For Eligible Institutions Only)
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telephone, telephone or in person by officers and of the Company
and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to broker-dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer
will be paid by the Company and are estimated in the aggregate to be
approximately $99,000. Such expenses include registration fees, fees and
expenses of the Exchange Agent and Trustee, accounting and legal fees and
printing costs, and related fees and expenses.
18
<PAGE> 24
The Company will pay all transfer taxes, if any, applicable to the
exchange of Notes pursuant to the Exchange Offer. If, however, certificates
representing Series A Notes for principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be issued in the name of, any person
other than the holder of Notes tendered, or if tendered Notes are registered in
the name of any person other than signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Notes pursuant
to the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
TRANSFER TAXES
Holders who tender their Series A Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that holders
who instruct the Company to register Series B Notes in the name of, or request
that Series A Notes not tendered or not accepted in the Exchange Offer be
returned to, a person other than the registered tendering holder will be
responsible for the payment of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Series A Notes who do not exchange their Series A Notes for
Series B Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Series A Notes, as set forth in the legend
thereon as a consequence of the issuance of the Series A Notes pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Series A Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. The
Company does not currently anticipate that it will register the Series A Notes
under the Securities Act. Based on interpretations by the staff of the
Commission, Series B Notes issued pursuant to the Exchange Offer may be offered
for resale, resold or otherwise transferred by holders thereof (other than any
such holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such Series
B Notes are acquired in the ordinary course of such holders' business and such
holders have no arrangement or understanding with respect to the distribution of
the Series B Notes to be acquired pursuant to the Exchange Offer. Any holder who
tenders in the Exchange Offer for the purpose of participating in a distribution
of the Series B Notes (i) could not rely on the applicable interpretations of
the staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. In addition, to comply with the securities laws of
certain jurisdictions, if applicable, the Series B Notes may not be offered or
sold unless they have been registered or complied with. The Company has agreed,
pursuant to the Registration Rights Agreement and subject to certain specified
limitations therein, to register or qualify the Series B Notes for offer or sale
under the securities or blue sky laws of such jurisdictions as are necessary to
consummate the Exchange Offer.
19
<PAGE> 25
USE OF PROCEEDS
USE OF PROCEEDS OF SERIES B NOTES
This Exchange Offer is intended to satisfy certain obligations of the
Company under the Registration Rights Agreement. The Company will not receive
any proceeds from the issuance of the Series B Notes offered hereby. In
consideration for issuing the Series B Notes as contemplated in the Prospectus,
the Company will receive, in exchange, Series A Notes in like principal amount.
The form terms of the Series B Notes are substantially identical in all material
respects to the form and terms of the Series A Notes, except as otherwise
described herein under "The Exchange Offer--Terms of Exchange Offer." The Series
A Notes surrendered in exchange for the Series B Notes will be retired and
canceled and cannot be reissued. Accordingly, issuance of the Series B Notes
will not result any increase in the outstanding debt of the Company.
USE OF PROCEEDS OF SERIES A NOTES
The Company used the net proceeds, together of the offering of the
Series A Notes, together with borrowings under the Senior Credit Facility, (i)
to repurchase a portion of its 14% Series Notes due 1999, (ii) to repay
indebtedness under its prior credit facility, (iii) to repay certain other
obligations, (iv) to repay certain obligations to its shareholders and (v) for
general corporate purposes.
CAPITALIZATION
The following table set forth the capitalization of the Company at
March 31, 1997, on a historical basis, and of the Company, on an as adjusted
basis, giving effect to the Exchange Offer. The historical and as adjusted data
should be read in conjunction with the historical consolidated financial
statements of the Company included elsewhere herein.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-------------------------------
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash............................................................ $ 1,966 $ 1,867
========== ==========
Long-term debt, including current portion:
Senior Credit Facility....................................... 32,969 32,969
14% Series A Notes due 1999................................... 24,865 24,865
10-1/4% Senior Subordinated Notes due 2007.................... 125,000 --
10-1/4% Senior Subordinated Notes due 2007, Series B.......... -- 125,000
Other Debt.................................................... 15,001 15,001
---------- --------
Total Debt................................................. 197,835 197,835
---------- --------
Shareholders' equity (deficit)(a)............................... (17,863) (17,863)
Total capitalization............................................ $ 179,972 $ 179,972
========== =========
</TABLE>
- --------------
(a) Shareholders' deficit results primarily from a distribution in 1988 to
the Company's shareholders of approximately $57 million as a dividend
and a repurchase of stock held by persons who were not employees of the
Company at the time offset by the Company's cumulative net income,
dividends and other capital transactions.
20
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated
financial data of Key Plastics, Inc. for the five year period ended December 31,
1996 and the three months ended March 31, 1997. The selected consolidated
financial data for such fiscal years were derived from the audited consolidated
financial statements of the Company. The audited consolidated financial
statements of the Company for each of the three years in the period ended
December 31, 1996 are included elsewhere in this Prospectus together with the
report thereon of Coopers & Lybrand, L.L.P., independent accountants. The
following table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the historical
consolidated financial statements of the Company presented elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
QUARTER
YEAR ENDED DECEMBER 31, ENDED
--------------------------------------------------------- MARCH
1992 1993 1994(a) 1995(a) 1996(b) 31, 1997
--------
(DOLLARS IN THOUSANDS) (UNAUDITED)
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C> <C>
Net sales .................................. $ 119,600 $ 149,658 $ 194,112 $ 179,251 $ 217,087 $ 66,742
Cost of sales .............................. 95,646 120,902 1 58,052 141,707 177,635 54,125
-------- -------- -------- -------- -------- --------
Gross profit ............................ 23,954 28,756 36,060 37,544 39,452 12,617
Selling, general and administrative
expenses ................................ 9,721 10,362 13,955 15,531 16,532 6,367
Amortization ............................... 1,841 899 784 641 658 195
-------- -------- -------- -------- -------- --------
Operating income ........................ 12,392 17,495 21,321 21,372 22,262 6,055
Interest expense ........................... 10,553 11,575 12,752 14,292 15,211 4,978
Extraordinary item-loss on early retirement
of debt (c) ............................. 5,840 -- -- -- -- 5,471
Cumulative effect of accounting change (d) . 354 -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net income .............................. $ (4,355) $ 5,920 $ 8,569 $ 7,080 $ 7,051 ($ 4,244)
======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges (e) ..... -- 1.5x 1.6x 1.5x 1.4x 1.3x
OTHER FINANCIAL DATA:
EBITDA (f) ................................. $ 18,370 $ 23,305 $ 27,588 $ 28,984 $ 32,095 $ 9,278
Depreciation and amortization .............. 5,978 5,810 6,267 7,612 9,833 3,223
Capital expenditures:
Acquisitions of property, plant and
equipment, net ...................... 6,911 16,816 16,819 14,047 16,738 3,241
Property, plant and equipment from
acquired business ................... -- -- -- -- 23,109 10,300
BALANCE SHEET DATA:
Total assets ............................... $ 74,625 $ 96,556 $ 121,853 $ 126,900 $ 193,204 $ 230,444
Total debt ................................. 92,748 102,859 111,060 119,640 149,062 197,835
Long-term debt ............................. 87,168 85,818 103,522 102,467 84,5781 92,132
Total shareholders' equity (deficit) (g) ... (42,504) (29,841) (23,427) (20,875) (15,563) (17,863)
</TABLE>
- ---------------
(a) The Company's financial statements for the years ended December 31, 1994
and 1995 have been restated to reflect errors in previously reported
amounts. See Note 11 of Notes to Consolidated Financial Statements.
21
<PAGE> 27
(b) The income statement data and other financial data for 1996 reflect the
results of the Clearplas Acquisition as of May 1, 1996 and the MaP
Acquisition as of November 1, 1996.
(c) Reflects a non-cash charge representing unamortized original issue
discount on certain subordinated notes of the Company which were retired
in 1992 at their fair value.
(d) Reflects the adoption of the requirements of Statement of Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions."
(e) For purposes of this computation, earnings consist of income (loss)
before income taxes plus fixed charges. Fixed charges consist of interest
on indebtedness plus that portion of lease rental expense representative
of the interest factor. The Company's earnings were insufficient to cover
fixed charges for the fiscal year ended December 31, 1992 by
approximately $4.4 million. Net income for 1992 includes a $5.8 million
non-cash extraordinary loss item which reflects unamortized original
issue discount on certain subordinated notes of the Company which were
retired at their face value.
(f) EBITDA is defined as operating income plus depreciation and amortization.
EBITDA is presented because it is widely accepted financial indicator of
a company's ability to incur and service debt. However, EBITDA should not
be considered in isolation or as a substitute for net income or cash flow
data prepared in accordance with generally accepted accounting principles
or as a measure of a company's profitability or liquidity.
(g) Shareholders' deficit results primarily from a distribution in 1988 to
the Company's shareholders of approximately $57 million as a dividend and
a repurchase of stock held by persons who were not employees of the
Company at such time, partially offset by the Company's cumulative net
income, dividends and other capital transactions.
22
<PAGE> 28
BUSINESS
THE COMPANY
The Company is a global supplier of highly engineered plastic
components and assemblies to automotive original equipment manufacturers and
Tier I suppliers. The Company believes it is the largest independent supplier of
plastic door handle assemblies, decorative bezels and pressurized bottles in
North America for the automotive industry. Other products manufactured by the
Company include interior trim components, precision molded parts, instrument
cluster components, electrical connector covers, air louvers, speaker grilles
and underhood functional components.
The Company provides the automotive industry with comprehensive
plastics manufacturing capabilities, including design and engineering,
high-precision injection molding, automated manufacturing and assembly, plastic
painting and material and product testing. The Company operates its world
headquarters and technical center, thirteen manufacturing and three paint
facilities in North America and two facilities in Europe with painting and
manufacturing capabilities. The Company also has extensive tool making
capabilities and designs and builds approximately one-third of the tooling used
in the manufacturing of its principal products.
Management believes that the Company has achieved its current
leadership position and is well positioned to benefit from emerging trends in
the global automotive markets as a result of several key competitive strengths,
including: (i) demonstrated technological expertise and innovation in developing
highly engineered systems and components; (ii) strong relationships with major
OEMs; (iii) an emphasis on quality management; (iv) the ability to supply its
customers globally; and (v) state of the art equipment and facilities.
Since 1992, the Company has invested over $93.8 million to upgrade its
existing facilities and to acquire and build new facilities. Since that time,
the Company has established its world headquarters and technical center, has
constructed a new paint facility in Hartford City, Indiana, has brought on line
four molding facilities in Grand Rapids, Michigan, York, Pennsylvania, South
Bend, Indiana and Chihuahua, Mexico, has acquired the assets and business of
Clearplas and has acquired control of MaP.
BUSINESS STRATEGY
The automotive industry is currently characterized by a number of
factors which affect the Company and its business strategy. These factors
include (i) OEMs' demand for suppliers with efficient, comprehensive research
and development, design and manufacturing capabilities, (ii) consolidation of
suppliers as a result of increasing OEM demands, and (iii) the globalization of
the OEM supplier base. As a result of these factors, suppliers must (i)
continually demonstrate the ability to satisfy, in cost efficient ways, the
OEMs' design and manufacturing demands and (ii) establish international
positions which can effectively supply and service the OEMs.
The Company seeks to maintain its leadership position in the industry
and maximize its revenues and net income by employing its operating strategy,
which has the following principal components.
Focus on Highly Engineered, Value-added Products. The Company believes
highly engineered, value-added components are typically more difficult for a
customer to produce in-house or a competitor to replicate due to the substantial
investment required in specialized engineering, design and manufacturing
capabilities. Management believes such products have strong worldwide growth
potential and high margins. Further, the Company capitalizes on the specialized
design and manufacturing expertise it has developed for one customer by
marketing such expertise across its customer base. For example, the Company has
recently utilized its CAD/CAM systems, including finite element analysis, to
verify the Dodge Dakota door handle design, eliminating the need for prototype
tools, and thereby saving one year of product development time and the
corresponding required investment. The Company expects to be able to utilize
this expertise as more OEMs move away from tooling in designing prototypes.
Emphasize Quality Management. Among the most important factors in
maintaining preferred supplier status with OEMs is product quality. The Company
has a strong quality assurance program and has made substantial investments in
technology to monitor and improve quality. Included among these investments are
CAD/CAM equipment, statistical process control systems, failure mode and effect
systems, process-controlled molding machines and automated assembly
23
<PAGE> 29
equipment. In addition, the Company has material and product test laboratories
that monitor product reliability and which are accredited by its major OEM
customers, and the Company's engineering functions are ISO 9001 certified. The
Company has exceeded the supplier criteria established by Ford and, since
January 1996, the Company has experienced a monthly average of only twenty-eight
rejects per million parts. Under Ford's criteria for the Company's parts, Ford
requires less than 300 rejects per million parts. Because the Company has
substantially exceeded such goals, it considers itself to be a world class
supplier.
Provide Comprehensive Manufacturing and Engineering Capabilities while
Improving Cost Competitiveness. In response to increasingly rigorous OEM
purchasing and manufacturing policies, the Company has developed comprehensive
plastics manufacturing capabilities, including design and engineering, automated
manufacturing and assembly, painting and materials and product testing,
prototype production and tooling. For example, the Company has developed a
manufacturing process which eliminates work-in-progress inventory for its door
handle assemblies. Door handle assemblies move directly from the paint line to a
work station where they are assembled and packaged as finished products. The
Company produces 36 different door handles in 98 different colors for five OEMs.
The Company expects to produce approximately 7 million door handle assemblies,
consisting of approximately 14 million molded- and painted parts, in 1997 at its
Hartford, Indiana facility. In addition to requiring comprehensive manufacturing
capabilities, OEMs are demanding market-driven pricing and long-term
productivity commitments, which demands are forcing suppliers to eliminate waste
and optimize productivity. The Company has invested in and successfully
implemented lean manufacturing methodologies, including the use of cell-based
manufacturing and automation through state of the art "poke-yoked" (fail safed)
devices which have made significant contributions to the Company's product
quality and have assisted in the reduction of labor costs and work-in-progress
inventory. Cell-based manufacturing utilizes machine vision, robotics and a
pelletized approach in the production of components. Conversion of a work cell
from one application to another is easily accomplished through reprogramming and
the installation of new pallets at significantly less cost than a traditional
approach to manufacturing products. The Company utilizes a work cell approach to
produce pressurized bottles for Ford's F-Series pickup trucks and Taurus/Sable
models and to assemble air louvers. To produce pressurized bottles, two halves
of the pressurized bottles are molded by two injection molding machines and then
fed into fully automated, computerized and "poke-yoked" (fail safed) work cells,
which, at the end of the process, assign a serial number to each bottle to allow
for lot traceability. In addition, the use of these work cells has enabled the
Company to reduce manpower required to assemble air louvers by approximately 50%
to 15 people per shift and reduce the number of operators in the production of
pressurized bottles from 5 to 1.
Establish a Global Position. The Company has acquired strategic
positions in Europe in order to serve its customers on a global basis. Several
OEMs have announced certain models designed for the world automobile market. As
a result, certain domestic and European OEMs have encouraged their existing
suppliers to establish foreign production support for World Car programs. During
1996, the Company acquired a manufacturing presence in the UK and Portugal. The
ability to produce product in both locations has resulted in the award of new
programs from the existing customer base in North America and Europe. This
expansion has also resulted in the addition of new customers such as Rover. The
Company will use its presence in Europe as a base to establish opportunities for
further expansion through acquisition.
Enhance Tier I Relationships. The OEMs continue to give more
responsibility for total program management to large Tier I suppliers. These
suppliers are evaluating the available supply of parts and whether the
manufacturers who are currently supplying them are qualified. As Tier I
suppliers shift to more qualified automotive parts manufacturers, the Company
believes that it is well positioned to take advantage of such change. The
Company has recently received programs from TRW Inc., Lear Corp., United
Technologies Automotive, Magna International, Inc., and Johnson Controls, Inc.
which represent an expansion of the Company's traditional customer base of OEMs
and transplants.
Make Selected Acquisitions. In recent years, OEMs have instituted
policies which have resulted in the consolidation of the automotive supplier
industry. Through strategic acquisitions, the Company believes it can leverage
off of its existing engineering and manufacturing capabilities, quality focus
and relationships with its customers by adding complementary product lines and
achieving greater economies of scale. In 1996, the Company acquired Clearplas
and MaP. The Clearplas Acquisition resulted in the Company adding Rover to its
customer base and enhanced the Company's global position. The MaP Acquisition
furthered the globalization of the Company's decorative bezel business. In 1997,
the Company consummated the Aeroquip Acquisition, which resulted in the Company
expanding its operations in Mexico.
24
<PAGE> 30
PRODUCTS
The Company manufactures the variety of highly engineered plastic
components described below. In 1996, revenues from door handle assemblies,
pressurized bottles and decorative bezels represented approximately 45% of the
Company's net sales. No other product represented more than 10% of the Company's
sales.
Door Handle Assemblies (22.0% of 1996 net sales). The Company's
principal products are interior and exterior door handle assemblies. The Company
is the largest independent manufacturer of plastic door handles in North
America. The Company estimates that it currently supplies approximately 57% of
all plastic door handles used by Ford, approximately 50% of the outside plastic
door handles used by Chrysler and approximately 31% of the door handle
assemblies used by GM.
Pressurized Bottles (13.5% of 1996 net sales). Since 1990, the Company
has produced underhood pressurized coolant bottles and remote power steering
reservoirs with integral filters and assembled caps. The manufacture of these
products require newly engineered plastic resins, automated assembly machines
and special testing equipment. The pressurized coolant bottles are replacing
blow molded coolant bottles on new aluminum overhead cam engines.
Decorative Bezels (9.2% of 1996 net sales). Decorative bezels consist
of the face plate and speaker button assembly. The Company's decorative bezel
components, also introduced in 1990, utilize its plastic molding, painting,
robotic assembly and laser etch marking capabilities for high-volume production
and a near zero-defect rate. Laser etch marking technology is more cost
efficient than traditional marking techniques for imprinting decorative bezel
push buttons.
Interior Trim Components. The Company's interior trim components
include seat shields, seat track covers, seat belt trim and switch housing.
Precision Molded Parts. The Company's precision molded parts consist
of mass airflow housing units, throttle bobbins and cam assemblies.
Instrument Cluster Components. Instrument clusters consist of
backplates, trim masks, and clear plastic lenses which house the vehicle's
odometer, oil, temperature and other gauges.
Electrical Connector Covers. These components are used as the casing
for multiple electrical connector systems and are supplied to wire harness
system manufacturers for automotive and communication applications.
Air Louvers. Air louvers provide directional air control for automotive
heating and cooling systems and are supplied as subsystems to instrument panel
and door system manufacturers. The Company continues to make substantial
improvements in the design and development of intricate new tooling and robotic
assembly equipment used in the manufacture of its air louver products.
Speaker Grilles. The Company uses advanced manufacturing technology to
mold decorative speaker grilles which are thin, highly contoured and have
intricate hole patterns. These characteristics provide clear sound transmission
and enable the Company to market its plastic speaker grilles as a lower cost
alternative to metal ones.
Underhood Functional Components. The Company's underhood functional
products consist of various sophisticated electronic and fuel delivery
components including speed control housings, remote anti-skid brake system
modules, and distributorless ignition systems. OEMs are increasingly
substituting plastic for metal in the underhood components and systems in an
effort to reduce cost, noise, weight, to improve airflow and to increase
aesthetic appeal.
Other Products: The Company also manufacturers a variety of other
automotive components, such as shift knobs, air dams, insulators, light
housings, fuel shields and hood latches. Plastic components manufactured for
non-automotive use include electrical and office supply products.
25
<PAGE> 31
CUSTOMERS, MARKETING AND ENGINEERING SUPPORT
The Company's principal customers are Ford, Chrysler, GM, Rover, Honda and
their respective Tier I suppliers. The approximate net sales and percentage of
net sales to the Company's principal customers, including respective Tier I
suppliers, for the year ended December 31, 1996 are shown below:
<TABLE>
SALES % 1996 SALES
------------ -------------
(IN MILLIONS)
<S> <C> <C>
Ford ............................... $ 138.8 63.9%
Chrysler ........................... 25.9 11.9
GM ................................. 19.9 9.2
Rover .............................. 16.0 7.4
Honda .............................. 3.2 1.5
Other .............................. 13.3 6.1
-------- -----
Total ......................... $ 217.1 100.0%
</TABLE>
Sales to OEMs and Tier I suppliers are made directly by the Company's
sales staff, consisting of 31 individuals, of which 8 were added through the MaP
Acquisition and Clearplas Acquisition and 3 have been added in 1997. In North
America, the Company is expanding its sales effort to Tier 1 suppliers and
domestic transplant customers and, in Europe, is augmenting its sales efforts to
capture opportunities available in Europe. The Company's engineering personnel
are an integral part of the Company's sales effort because of the need to be
involved in the early stages of product design and development.
Because OEMs demand early involvement of suppliers in the design and
engineering aspects of product development, the Company, in recent years, has
substantially increased its design, engineering and tooling capabilities. The
Company maintains a 67-person mold building operation for construction of
complex production tooling and, in 1996, the Company established a new technical
center which is ISO 9000 certified and which houses its engineering and design
group. The Company has 74 product engineers and 34 CAD/CAM engineers, in
addition to the manufacturing engineers located at the Company's facilities. The
Company has an advanced computer aided design and computer aided manufacturing
(CAD/CAM) system with multiple work stations and a product test laboratory which
supports its engineering and manufacturing operations. The Company provides
complete black box (in which the Company has principal design responsibility)
and gray box (in which the customer has principal design responsibility)
engineering capabilities for door handles, power steering reservoirs, air
louvers, pressurized coolant bottles and decorative bezels. The Company's
engineering staff works closely with customers' engineers in designing the
specifications of the product material, the part to be produced and the tooling
required to produce the finished product. The Company's engineering functions
have been ISO 9000 certified and the Company believes its design, engineering
and tooling expertise has been an important factor in its ability to broaden its
product lines, maintain its existing customer base, and attract a new customer
base.
The Company obtains most of its new orders through a presourcing
process by which the customer invites one or a few preferred suppliers to
manufacture and design a component or assembly that meets certain price, timing
and functional parameters. Upon selection at the development stage, the Company
and the customer typically agree to cooperate in developing the product to meet
the specified parameters. Upon completion of the development stage and the award
of the manufacturing business, the Company receives a blanket purchase order
that covers parts to be supplied for a particular car model. Such supply
arrangements normally extend over the life of the model, which is generally four
to seven years. In addition, the Company competes to supply parts for successor
models even though the Company may currently supply parts on the predecessor
model.
Products under development are assigned a target sale price which is
reevaluated from time to time during the product development cycle. Prior to the
Company's commitment for full production, the Company and the customer must
agree on a final price, which, in some instances, may be subject to negotiated
price reductions over the term of the project. Consequently, the Company's
ability to improve operating performance is dependent primarily on its ability
to reduce costs and operate more efficiently. Although the Company historically
has regained the loss caused by price reductions to the OEMs through cost
reduction initiatives and assistance from the OEMs, there can be no assurance
that future price
26
<PAGE> 32
reductions, increased quality standards or additional engineering capabilities
required by OEMs will not have a material adverse effect on the financial
condition or results of operations of the Company.
MANUFACTURING OPERATIONS
Product Manufacturing. The Company's core manufacturing technologies
are small press injection molding, automated assembly, pad printing, painting,
laser etching, sonic welding and hot plate welding. As part of its strategy to
supply highly engineered, value-added components, the Company has substantially
expanded the use of automation and robotics in its assembly operations. For
example, robotics are used in the assembly of door handle latching systems and
decorative bezels, and the Company's "poke-yoked" (fail safed) system is
utilized in the production of air louvers. These capabilities enhance quality
and reliability and reduce labor costs.
The Company has organized its production process to minimize the number
of manufacturing functions and the frequency of material handling, thereby
reducing labor costs. In addition, the Company utilizes, where practical, a
flexible manufacturing process which uses cellular manufacturing to allow a
continuous flow of parts with minimal set-up time. Such cellular manufacturing
utilizes machine vision, robotics and a pelletized approach and can be easily
converted from one product application to the other with re-programming and new
pallets at a cost lower than traditional work cell approach. The Company also
utilizes just-in-time manufacturing and sourcing systems in an attempt to meet
its customers' requirements for faster deliveries while minimizing inventory
levels.
The Company believes, its broad base of class A paint application
capabilities positions it well for supplying the domestic and foreign exterior
trim market. The Company is able to provide both high-bake, high solids
painting, which is traditionally preferred by domestic OEMs, and low-bake, two
component painting, which is preferred by foreign OEMs. The Company has also
developed paint application technology utilizing innovative robotic applications
which has enabled the Company to reduce costs by improving paint transfer
efficiency.
Tooling and CAD/CAM Design. The Company's plastic components have
sophisticated tooling requirements, the costs for which are generally billed to
the customer at preauthorized levels. Development of the tooling typically
begins approximately two to three years before production, after the Company is
selected by the customer to develop a particular component or assembly At that
time, the Company commences its tooling design and development work and
accumulates in inventory the costs incurred. The production tooling and gauges
are ordered generally one year prior to production. Upon completion of the
development stage and delivery of the tooling, the customer is billed. The
Company supplies approximately one-third of its tooling requirements from its
own advanced tooling operation. The remaining tooling requirements are purchased
from other tool makers.
Although tooling costs are preauthorized by the customer pursuant to
specified guidelines, such costs are subject to audit and acceptance by the
customer. In addition, tooling cost guidelines are subject to interpretation by
the OEMs and are changed from time to time without prior notice to the Company.
Recently, OEMs have begun the process to eliminate tooling because of
the high costs and long lead time the tooling process involves in the
development of new products. To assist OEMs in this need and to further
strengthen its customer relationships, the Company is utilizing more CAD/CAM
systems in product design. For example, the Company utilized its CAD/CAM
systems, including finite element analysis, to design and verify prototypes for
Chrysler's Dodge Dakota door handle program. Management believes that additional
opportunities exist to utilize its CAD/CAM expertise.
Product Quality. Among the most important factors in maintaining
preferred supplier status with OEMs is product quality. The Company has a strong
quality assurance program and has made substantial investments in technology to
monitor and improve quality. Included among these investments are CAD/CAM
equipment, statistical process control systems, failure made and effect systems
and Process-controlled molding machines. The Company encourages employee
participation in quality improvement through the use of quality circles and
team-oriented problem solving techniques.
In addition, the Company has material and product test laboratories
accredited by its major OEM customers, which monitor production efficiency and
product reliability. In cooperation with its customers, the Company regularly
conducts tests on its raw materials to reduce variability and inconsistencies in
properties such as melt flow, filler content,
27
<PAGE> 33
moisture and tensile strength to meet the requirements of the Company's major
OEM customers. The Company also conducts a variety of engineering specification
and climate testing on new and existing products.
RAW MATERIALS
The principal raw materials used by the Company are engineered plastic
resins such as nylon, polypropylene and ABS, all of which are available from
several suppliers, except that the customer generally specifies a single
supplier to be used by the Company in connection with a specific program. The
Company has no reason to believe that there will not be an ample supply of its
raw materials for the reasonably foreseeable future, but the Company cannot make
any prediction as to the future price of such raw materials. The Company is
generally not able to pass on to its customers any increase in raw material
costs; however, the Company, in the past two years, has not experienced any
significant increases in the prices of its raw materials as result of the
consolidation of procurement and supply of raw materials. A substantial
interruption in the Company's supply of plastic resins, or a material increase
in the price thereof, could have a material adverse effect on the Company.
EMPLOYEES
At March 31, 1997, the Company employed approximately 3,300 persons in
North America and Europe. The Company believes that relations with its employees
are good. Hourly employees at the Company's Plymouth, Michigan facility
(approximately 12% of all employees) and Key U.K. (approximately 11% of all
employees) are the only employees represented by collective bargaining units.
The Plymouth employees are represented by Local 7639 International Union of
United Paper Workers pursuant to a collective bargaining agreement which expires
on December 7, 2000. The workforce at Key's Coventry facility is represented by
two unions: Amalgamated Electrical and Engineering Union ("AEEU") and
Manufacturing, Scientific and Finance Union ("MSF"). Both AEEU and MSF follow
the traditional negotiation patterns seen in Great Britain by renegotiating
terms and conditions on an annual basis. The AEEU contract is generally
re-negotiated in January/February of each year. Those negotiations are currently
being conducted and are expected to conclude without incident. The Company began
renegotiation of the MSF contract in April and expects to conclude such
negotiation without incident.
ENVIRONMENTAL MATTERS
The Company and its operations are subject to comprehensive and
frequently changing federal, state and local environmental and occupational
health and safety laws and regulations, including laws and regulations governing
emissions of air pollutants, discharges of waste and storm water, and the
disposal of hazardous wastes. The Company is also subject to liability for the
investigation and remediation of environmental contamination (including
contamination caused by other parties) at the properties it owns or operates and
at other properties where the Company or predecessors have arranged for the
disposal of hazardous substances. As a result, the Company is involved, from
time to time, in administrative and judicial proceedings and inquiries relating
to environmental matters. The Ohio Environmental Protection Agency has raised
questions about the air permit status of the Company's facility in Montpelier.
The Company expects to resolve these questions without making significant
financial expenditures, although there can be no assurance thereof. The Company
does not believe there are any other pending investigations at the Company's
plants or sites relating to environmental matters. However, there can be no
assurance that the Company will not be involved in other such proceedings in the
future and that the aggregate amount of future clean-up costs and other
environmental liabilities will not be material.
Federal, state and local governments could enact laws or regulations
concerning environmental matters that increase the cost of producing, or
otherwise adversely affect the demand for, the Company's products. The Company
cannot predict the environmental liabilities that may result from legislation or
regulations adopted in the future. Nor can the Company predict how existing or
future laws and regulations will be administered or interpreted or what
environmental conditions may be found to exist. The enactment of more stringent
laws or regulations or stricter interpretation of existing laws and regulations
could require additional expenditures by the Company, some of which could be
material.
28
<PAGE> 34
COMPETITION
The Company's business is highly competitive. Competition generally
occurs on the basis of product groups. A large number of actual or potential
competitors exist, including the internal component operations of the OEMs as
well as independent suppliers, many of which are larger than the Company. Some
of the Company's competitors include Donnelly Corporation, Lear Corp., TRINOVA
Corporation, Summit Plastic Co., LDM Technologies, Inc., Fawn Industries, Inc.,
Lacks Industries, Inc., United Technologies, Inc., and Geiger Technik., although
none of these competitors compete with the Company along all product lines. In
addition, the Company's business is increasingly competitive due to the supplier
consolidation resulting from changing OEM policies. The Company principally
competes for new business both at the beginning of the development of new models
and upon the redesign of existing models by its major customers. New model
development generally begins two to four years prior to the marketing of such
models to the public. Because of the large investment by OEMs in tooling and the
long lead time required to commence production, OEMs generally do not change a
supplier during a program.
The Company competes on the basis of quality, cost, timely delivery and
customer service and, increasingly, on the basis of design and engineering
capability, painting capability, new product innovation and product testing
capability.
Some of the OEMs have adopted supplier management policies designed to
strengthen their supply base. These policies include designating only some of
the suppliers as preferred future suppliers and, in some cases, encouraging new
suppliers to begin to supply selected product groups.
PROPERTIES
All of the Company's facilities are owned by the Company, except for
the Company's world headquarters and the Company's facilities in Grand Rapids,
Michigan and Coventry, U.K., which are leased. Management believes that its
facilities are adequate for its present needs. The Company's operations are
located in the following communities.
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE DESCRIPTION OF USE
- -------- -------------- ------------------
<S> <C> <C>
Novi, MI............................ 29,000 World Headquarters and
Technical Center
Plymouth, MI........................ 168,000 Manufacturing
Felton, PA (Plant 1)................ 53,000 Manufacturing
Felton, PA (Plant 2)................ 39,060 Manufacturing
Hamilton, IN........................ 54,000 Manufacturing
York, PA (Plant 1).................. 22,000 Manufacturing
York PA (Plant 2)................... 40,000 Manufacturing
Montpelier, OH...................... 79,000 Painting
Hartford City, IN................... 50,000 Painting and Assembly
Chihuahua, MX ...................... 65,000 Manufacturing
Chihuahua, MX ...................... 2,000 Manufacturing
Grand Rapids, MI ................... 56,000 Manufacturing
South Bend, IN...................... 80,000 Manufacturing
Port Huron, MI...................... 52,000 Manufacturing
Chesterfield, MI.................... 44,000 Painting and Assembly
Kendalville, IN..................... 25,000 Manufacturing
Ashley, IN.......................... 20,000 Manufacturing
Coventry, UK ....................... 100,000 Manufacturing and Painting
Leiria, Portugal.................... 84,000 Manufacturing and Painting
</TABLE>
29
<PAGE> 35
LEGAL PROCEEDINGS
The Company is, from time to time, involved in routine litigation
arising out of the ordinary course of its business. The Company believes
currently pending or threatened litigation will not have a material adverse
effect on the consolidated financial condition or results of operations of the
Company.
30
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of financial
condition and results of operations should be read in conjunction with the
Company's Consolidated Financial Statements (including the notes thereto)
appearing elsewhere in this Prospectus. The Company's financial statements for
the years ended December 31, 1994 and 1995 have been restated to reflect errors
in previously reported amounts. See Note 11 of Notes to Consolidated Financial
Statements.
FIRST QUARTER ENDED MARCH 31, 1997 COMPARED TO FIRST QUARTER ENDED MARCH 31,
1996
Net sales for the three month period ended March 31, 1997 were $66.7
million; an increase of approximately $21.4 million or 47% over the same period
last year. Approximately $15 million of the increase relates to the Company's
European subsidiaries, Key U.K. and Materias Plasticas (MaP) which were acquired
in 1996 (Key U.K. was acquired May 1, 1996 and a controlling interest in MaP was
acquired on November 1, 1996). Sales of injection molded parts and assemblies in
the Company's existing businesses were up $6.6 or approximately 17% due to
increases in related vehicle production by the Company's customers as well as
increased sales related to newly launched vehicle programs during 1996. First
quarter revenues related to customer tooling programs year-over-year were flat
at about $6.2 million.
Gross profit increased $3.4 million in the first quarter of 1997
compared to the first quarter of 1996 as a result of the aforementioned sales
increases. The degradation of the gross profit percentage of 1.5% from 1997 to
1996 is primarily attributable to operations in the United Kingdom where factory
productivity is much lower than other Company facilities.
Selling, general and administrative expenses increased $3.1 million in
1997 as compared to the same period last year. Approximately $1.9 million of the
increase is due to costs incurred in facilities owned by the Company for less
than one year as of March 31, 1997, primarily in Europe. The remainder of the
increase relates to staff and facility costs necessary to support the Company's
expansion.
Operating income increased by $.2 million as a result of the foregoing.
Interest expense in the first quarter of 1997 increased by about $1.5
million over the same 1996 period because of higher average debt outstanding.
The increase in debt stemmed primarily from acquisitions made during the course
of 1996 including Clearplas, Ltd. in the United Kingdom and Materias Plasticas,
S.A. in Portugal, and a plastic injection molding company in South Bend,
Indiana.
The extraordinary item of $5.5 million represents the amount paid for
the tender offer and related consent fees for the retirement of $40.1 million of
the 14% Senior Notes due 1999 and the write-off of related unamortized discount
related to the notes tendered.
1996 FISCAL YEAR COMPARED TO 1995 FISCAL YEAR
Net sales of the fiscal year ended December 31, 1996 (the "1996 Fiscal
Year") increased by $37.8 million, or 21.1%, over net sales for the fiscal year
ended December 31, 1995 (the "1995 Fiscal Year"). The increase is primarily
attributable to the Clearplas Acquisition, which accounted for $24.2 million of
the increase in net sales of the Company from the 1995 Fiscal Year, and to the
MaP Acquisition, which accounted for $5.3 million of the increase in net sales
of the Company from the 1995 Fiscal Year. In addition, North American product
sales increased by $10.2 million, or 6.6%, primarily due to new program
launches. Tooling sales declined by $1.9 million, or $7.3%. This decline,
however, is not indicative of future program activity in that tooling related
inventory at December 31, 1996 increased by $7.4 million to $17.6 million from
$10.2 million at December 31, 1995.
Gross profit for the 1996 Fiscal Year increased by $1.9 million, or
5.1%, over gross profit for the 1995 Fiscal Year. Gross profit margin decreased
by 2.7%, from 20.9% in the 1995 Fiscal Year to 18.2% in the 1996 Fiscal Year.
This decrease stemmed primarily from increased price concessions (1.4%) and
lower European margins compared to North American Margins (1.3%).
31
<PAGE> 37
Selling, general and administrative expenses (SG&A) for the 1996 Fiscal
Year increased by $1.0 million, or 6.4%. The increase results from addition SG&A
resulting from the MaP Acquisition and the Clearplas Acquisition or $2.3
million, partially offset by lower North American SG&A. As a percent of net
sales, SG&A decreased from 8.7% in the 1995 Fiscal Year to 7.6% in the 1996
Fiscal Year. The percentage point reduction relates primarily to increased 1996
Fiscal Year sales.
Interest expense increased from $14.3 million in the 1995 Fiscal Year
to $15.2 in the 1996 Fiscal Year as a result of higher average debt, resulting
primarily from borrowings related to acquisitions and capital asset purchases.
Net income for the 1996 Fiscal Year remained substantially unchanged
from the 1995 Fiscal Year as a result of the foregoing.
1995 FISCAL YEAR COMPARED TO 1994 FISCAL YEAR
Net sales for the 1995 Fiscal Year decreased by $14.9 million, or 7.7%,
over net sales for the fiscal year ended December 31, 1994 (the "1994 Fiscal
Year"). The decrease is attributable to a $18.4 million, or 10.7%, decrease in
the sales of injection molded plastic parts partially offset by a $3.6 million,
or 16.2%, increase in tooling revenues. The decrease in injection-molded plastic
part revenues resulted primarily from related vehicle production decreases.
Gross profit for the 1995 Fiscal Year increased by $1.5 million, or
4.1%, from gross profit for the 1994 Fiscal Year. Gross profit margin for the
1995 Fiscal Year increased by 2.3 percentage points, from 18.6% in the 1994
Fiscal Year to 20.9% in the 1995 Fiscal Year. Gross margin improvement resulted
primarily from the Hartford City, Indiana, Grand Rapids, Michigan and Chihuahua,
Mexico facilities which were launched in 1994, and became fully operational in
the 1995 Fiscal Year.
SG&A expenses for the 1995 Fiscal Year increased by $1.6 million, or
11.3%, over the same period in the 1994 Fiscal Year. As a percent of net sales.
SG&A increased to 8.6% from 7.2% in the 1994 Fiscal Year. This increase is
primarily attributable to the aforementioned start-up facilities.
Interest expense increased from $12.8 million to $14.3 million in the
1995 Fiscal Year as a result of higher average debt, resulting primarily from
$14.0 million of capital asset purchases and a $2.9 million increase in net
working capital, excluding debt obligations.
Net income for the 1995 Fiscal Year decreased by $1.5 million, or
17.4%, from net income for the 1994 Fiscal Year as a result of the foregoing.
LIQUIDITY AND CAPITAL RESOURCES
During March 1997 the Company refinanced its existing debt as follows:
(i) pursuant to a tender offer for all of its 14% Senior Notes due
1999, repaid $40.1 million of such notes and $24.9 million remain
outstanding; (ii) pursuant to a private placement, issued $125.0
million of 10 1/4 % Senior Subordinated Notes due 2007; and (iii)
entered into a new $140.0 million Senior Credit Facility, under which
$23.5 million was outstanding as of March 31, 1997.
The proceeds of the private placement were principally used to fund the
tender and replace existing bank debt. Borrowings on the Senior Credit Facility
were for general corporate purposes, including an acquisition, discussed more
fully below. The net impact of the refinancing was to increase the Company's
debt at March 31, 1997 by $48.8 million dollars from December 31, 1996.
The Company believes its existing sources of liquidity are adequate to
meet its operating requirements in fiscal 1997. At March 31, 1997 the Company
had $43.5 million of availability under the Senior Credit Facility.
On March 28, 1997, the Company acquired three injection molding and
assembly operations owned by Aeroquip corporation, a subsidiary of TRINOVA
Corporation. The acquired business represents an expansion of the Company's
32
<PAGE> 38
existing decorative bezel business. Due to the timing of the acquisition and the
immaterial impact on operating results, the investment has been accounted for in
these statements using the purchase method.
Accounts receivable increased by $14.1 million comparing March 31, 1997
to December 31, 1996. $6.5 million is due to increased parts sales and timing
within the quarter. The acquisition of three Aeroquip factories added $5.7
million of accounts receivable at March 31, 1997. Customer tooling relating
receivables increased by $1.9 million over the prior quarter primarily as a
result of increased tooling programs.
The inventory increase of $5.3 million from December 31, 1996 to March
31, 1997 was due in part to the inventory acquired from Aeroquip of $3.5 million
and $1.8 million to increases in customer tooling inventory related to the
design and build of tooling for programs expected to launch in 1998.
Accrued liabilities decreased by $7.4 million from December 31, 1996
due primarily to the $5.9 million payout of all accrued interest for the debt
refinanced.
33
<PAGE> 39
DIRECTORS AND OFFICERS
The following are the directors and executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
Joel D. Tauber .................................. 61 Director
George Mars ..................................... 59 Director
David C. Benoit ................................. 48 Chief Executive Officer and a Director
Leonard R. Griffin .............................. 45 President and Chief Operating Officer
A.E. "Gene" Stull ............................... 49 Vice President, Sales and Marketing
Calvin A. Saur .................................. 45 Vice President, Engineering
Douglas C. Chapple .............................. 45 Vice President, Eastern Group
Henry J. Wojtaszek .............................. 53 Vice President, Western Group
E.R. "Skip" Autry ............................... 42 Chief Financial Officer
William J. Luka ................................. 50 Vice President, Quality
Richard J. Blough ............................... 50 Vice President, Administration and Human Resources
Mark J. Abbo .................................... 44 Treasurer
</TABLE>
Joel D. Tauber formed the Company with Messrs. Mars and Benoit in 1986
and has been a director and Chairman of the Board since that time. The Company
was formed to acquire the assets of the plastics division of Key International
Manufacturing, Inc. ("KIMI"), a company involved in plastics manufacturing for
over twenty years and in which Mr. Tauber served as President. Mr. Tauber is a
manufacturing executive, business consultant and investor. Mr. Tauber is
President of Keyco Bond Fund, Inc. and serves as Chairman of the Board of
Complex Tooling & Molding, Inc., Keywell Corporation and KMGl, Inc.
George Mars formed the Company with Messrs. Tauber and Benoit in 1986,
has been a director since that time and Co-Chairman of the Board since 1995.
Prior to his retirement, Mr. Mars served as President of the Company from 1986
to 1995. Mr. Mars was a General Manager of the plastics division of KIMI.
David C. Benoit formed the Company with Messrs. Tauber and Mars and has
been a director since the Company's formation in 1986. Mr. Benoit was Executive
Vice President of the Company from 1986 to 1995, when he was appointed to his
current position of Chief Executive Officer. Mr. Benoit was Chief Financial
Officer of KIMI and has 16 years experience in the automotive industry.
Leonard R. Griffin, President and Chief Operating Officer of the
Company, joined the Company in April 1995. Prior to joining the Company, Mr.
Griffin served for five years as President of Woodbridge Inoac, Inc., a joint
venture partnership formed by Woodbridge Group, a Canadian plastics company and
Inoac, Ltd., a Japanese automotive parts supplier. Prior to serving as President
of Woodbridge, Mr. Griffin was General Manager of Rockwell International's
Automotive Plastics Products Operations. Mr. Griffin's business experience
consists of over 27 years in the automotive industry, including the foregoing,
and years spent in management, manufacturing and quality control capacities at
Libbey Owens Ford (now known as TRINOVA Corporation) and Allen Industries.
A.E. Stull has been Vice President, Sales and Marketing of the Company
since November 1991, and has served in various other capacities at the Company
since 1988. Mr. Stull joined the Company in November 1988 and served as Vice
President, Sales and Marketing of the Company's Plymouth Division until November
1991 when he became Vice President, Sales and Marketing for all Company
operations. Prior to joining the Company, Mr. Stull was Director of Sales for
Magna International, Inc., Tesma Group, an automotive supplier.
Calvin A. Saur has been employed at the Company since 1986 and, since
May 1995, has been Vice President, Engineering of the Company. Prior to
attaining his present position, Mr. Saur held various other positions at the
Company, including Vice President, Research and Development. Mr. Saur has been
employed in the automotive industry for 26 years.
Douglas C. Chapple has been Vice President, Eastern Group of the
Company since November 1996. Prior to joining the Company, Mr. Chapple was, from
1994 to 1996, Vice President, Manufacturing of Dott Industries, Inc., a
34
<PAGE> 40
privately owned finisher and decorator of plastic products, including painted
interior components, exterior grilles and encapsulated assemblies. Before
joining Dott Industries, Inc., Mr. Chapple was employed, for over 17 years, by
General Motors Corporation in a variety of manufacturing and engineering
capacities, including Director of Engineering at GM's Inland Fisher Guide
Division.
Henry J. Wojtaszek has been employed at the Company for 11 years in
various manufacturing capacities, and since 1996, has been Vice President,
Western Group. Mr. Wojtaszek has been employed in the automotive industry for 34
years and has been a president of the Society of Plastics Engineers.
E.R. "Skip" Autry, Vice President, Finance and Procurement, is the
Chief Financial Officer of the Company and joined the Company in 1995. Prior to
joining the Company, Mr. Autry held various finance positions at Chrysler
Corporation from 1986 to 1995, including, Director, Corporate Accounting,
Manager, Corporate Investments and Analysis and Controller, Corporate Staff.
From 1976 to 1986, Mr. Autry held various positions at Coopers & Lybrand,
specializing in manufacturing and publicly held companies.
William J. Luka has been Vice President, Quality of the Company since
1993. Prior to joining the Company, Mr. Luka was employed at Ford Motor Company
for three years as a Supplier Quality Engineer Auditor, where he was actively
involved in the development of Ford's QOS Methodology. Among his various duties,
Mr. Luka is responsible for implementing ISO-9000 throughout the Company. Mr.
Luka has been employed in the automotive industry for 26 years and has been
certified as a QS Auditor by the QS 9000 Registration Accreditation Board.
Richard J. Blough has been Vice President, Administration and Human
Resources of the Company since 1996. Prior to joining the Company, Mr. Blough
was Vice President, Human Resources at Electro-Wire Products, Inc., for two
years, Electro-Wire Products supplies wiring and electrical components to the
automotive and heavy truck industries. Prior to joining the Company, from 1989
to 1994, Mr. Blough was Director of Human Resources for the corporate office at
American Brass Company Incorporated. Mr. Blough has 27 years experience in the
automotive industry.
Mark J. Abbo has been Treasurer of the Company since 1993. Mr. Abbo
joined the Company in 1988 as Corporate Controller and held that position until
he was appointed Treasurer in 1993.
35
<PAGE> 41
EXECUTIVE COMPENSATION
The following table sets forth certain information as to the cash
compensation earned by each of the Company's five most highly paid current
executive officers who earned more than $100,000 for services rendered to the
Company during the three years ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ALL OTHER
NAME AND TITLE YEAR SALARY BONUS COMPENSATION
- -------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
David C. Benoit ........................ 1996 $275,000 $125,000 $ 1,300(a)
Chief Executive Officer 1995 361,000 37,500 1,500(a)
1994 306,000 50,000 16,509(b)
Leonard R. Griffin ..................... 1996 240,000 106,000 700(a)
President (c) 1995 156,125 76,042 ----
1994 ---- ---- ----
A.E. Stull ............................. 1996 137,000 39,200 1,300(a)
Vice President, Sales & Marketing 1995 137,000 35,000 1,500(a)
1994 130,000 20,000 1,500(a)
Calvin A. Saur ......................... 1996 117,000 24,250 1,300(a)
Vice President, Engineering 1995 110,000 20,000 1,500(a)
1994 110,000 10,000 1,500(a)
Henry J. Wojtaszek ..................... 1996 96,500 40,950 1,300(a)
Vice President, Western Group 1995 90,000 21,042 1,500(a)
1994 85,000 54,438 1,500(a)
</TABLE>
- -------------
(a) Represents profit sharing amounts paid to the named executive officers.
(b) Represents fees earned in capacity as a director of the Company and/or
amounts contributed to the Company's retirement savings plan on behalf
of the named executive officer.
(c) Joined the Company in 1995.
1996 FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED EXERCISABLE
UNEXERCISED EXERCISABLE OPTIONS IN-THE-MONEY OPTIONS
NAME AT 1996 FISCAL YEAR-END AT 1996 FISCAL YEAR-END(A)
- ---- ------------------------------- --------------------------
<S> <C> <C>
David C. Benoit .............................. --- $---
Leonard R. Griffin ........................... 1,250 26,000
A. E. Stull .................................. 5,500 318,550
Calvin A. Saur ............................... --- ---
Henry J. Wojtaszek ........................... --- ---
</TABLE>
(a) The dollar values in this column are calculated by determining the
difference between the fair market value of the securities underlying
the options and the exercise price of the options at December 31, 1996.
The Company is privately held and no public market exists for the
Company's Common Stock. Fair market value has been determined by the
Company's Board of Directors.
36
<PAGE> 42
CHANGE OF CONTROL ARRANGEMENTS - LONG TERM INCENTIVE PLAN
The Company's Long Term Incentive Plan (the "LTIP") is intended to
provide additional incentive to officers, including the executive officers named
in the Summary Compensation Table, and other eligible key employees of the
Company. The LTIP provides compensation to the employees who are included in the
LTIP and who remain employees as of the date of the occurrence of a Third Party
Transaction (as defined) of the Company. A Third Party Transaction is defined as
an initial public offering of the Company's Common Stock, a sale of all or
substantially all of the Company's Common Stock or a sale of all or
substantially all of the Company's assets. In the event that a Third Party
Transaction occurs, each eligible employee will be entitled to payment based on
a formula equal to the Total Incentive Pool (as defined) multiplied by the
result obtained by multiplying a factor assigned to each employee at the time
such employee is included in the LTIP times the employee's Cumulative Base
Compensation. Cumulative Base Compensation means the total base compensation
earned by such employee from the date of inclusion in the LTIP to the date of
occurrence of a Third Party Transaction. The factor assigned to each employee is
based upon the level of management in which the employee is included. Total
Incentive Pool means the total of all Cumulative Base Compensation of every
eligible employee. The LTIP will fund upon the occurrence of a Third Party
Transaction and terminates as of the date of such occurrence.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the
Company's Common Stock as of March 31, 1997 owned by the directors of the
Company, the named executive officers, and all directors and officers as a
group, and by other holders known to the Company as having beneficial ownership
of more than 5% of the Common Stock. Each person exercises sole investment and
voting rights with respect to the shares of Common Stock shown in the table
below unless otherwise stated. The address of each of the following persons is
Suite 200, 21333 Haggerty Road, Novi, Michigan 48375.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
OF COMMON STOCK OUTSTANDING
DIRECTORS, OFFICERS AND FIVE PERCENT HOLDERS OWNED BENEFICIALLY SHARES(A)
- -------------------------------------------- ------------------ ---------
<S> <C> <C>
Joel D. Tauber ................................................ 90,828 26.3%
David C. Benoit ............................................... 79,833(b) 23.1%
George Mars ................................................... 62,065 18.0%
Kenneth A. Dishell ............................................ 18,700 5.4%
Henry A. Wotjaszek ............................................ 11,578 3.4%
Calvin A. Saur ................................................ 8,924 2.6%
A.E. Stull .................................................... 6,000(c) 1.7%
Leonard R. Griffin ............................................ 5,100(d) 1.5%
All directors and officers as a group (12 persons) ............ 269,695(a) 78.2%
</TABLE>
(a) Includes 2,898 shares of Common Stock and options to acquire an
aggregate of 2,468 shares of Common Stock of the Company held by the
executive officers not otherwise included in the table.
(b) 79,833 shares are held by the David C. Benoit Trust, of which
Mr. Benoit is the Trustee and beneficiary.
(c) Includes options to acquire 5,500 shares of Common Stock of the
Company, which options are exercisable within 60 days of January 31,
1997.
(d) Includes options to acquire 2,500 shares of Common Stock of the
Company, which options are exercisable within 60 days of January 31,
1997.
Messrs. Tauber, Mars and Benoit, if they vote their shares in a
combination which exceeds 50% of the outstanding Common Stock, have the ability
to elect the entire Board of Directors of the Company and determine the outcome
of any other matter submitted to shareholders for approval. There are no
arrangements, however, among any of the shareholders
37
<PAGE> 43
of the Company, including such persons, with respect to the voting or
disposition of the Common Stock and there are no arrangements between the
shareholders and the Company, except that shareholders may not make any
dispositions which could result in the termination of the Company's S-
Corporation status.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Shareholder Agreement. Each Shareholder, including Messrs. Tauber, Mars
and Benoit, has entered into a shareholder agreement with the Company. Pursuant
to such agreement, a shareholder may not transfer shares of the Company's Common
Stock without the written consent of the Company, except that no consent is
required for transfers to a decedent shareholder's beneficiaries, but only if
such transfers would not result in the disqualification of the Company as a
Subchapter S corporation.
Tax Allocation Agreement. The Company has entered into a Tax Allocation
Agreement with each of its shareholders relating to federal and certain state
and local income tax liabilities of the Company. This agreement generally
provides that (i) in any fiscal year in which the Company has a net operating
loss for tax purposes, each shareholder will pay to the Company an amount equal
to the net tax benefit realized by the shareholder as a result of the allocation
to the shareholder of such net operating loss incurred by the Company, up to the
amount of dividends received by the shareholders and not previously repaid to
the Company, (ii) if in any fiscal year the Company distributes dividends
relating to the shareholders' tax liability which exceed the actual liability at
the highest marginal tax rate based on the Company's net taxable income for such
fiscal year, each shareholder will pay to the Company, as a contribution to
capital, an amount equal to the difference between the dividends paid to the
shareholder during such fiscal year and the actual liability at the highest
marginal tax rate based on the net taxable income allocated to the shareholder
for such fiscal year, and (iii) if the Company's election is disallowed or
revoked for any taxable year for which such election was in effect, each
shareholder will pay to the Company the full amount of any distribution made to
the shareholder with respect to such taxable year for payment of taxes for
income of the Company allocated to the shareholder. Each shareholder has pledged
the shareholder'S common stock in the Company to secure any debt that the
shareholder may owe to the Company pursuant to the Tax Allocation Agreement. In
addition, the Company has the right to set off any amounts owed to the Company
by the shareholder under the Tax Allocation Agreement against any future
dividends or redemption payments payable by the Company to the shareholder.
Consulting Arrangements. The Company has a consulting arrangements with
each of Messrs. Tauber and Mars. Mr. Tauber and Mr. Mars are each paid $10,000
per month for services provided to the Company. In addition, Mr. Mars receives
compensation at a rate of $1,000 per diem, plus out-of-pocket expenses, for each
day of services provided, which services are not compensated for by the $10,000.
In 1996, Mr. Tauber and Mr. Mars earned $120,000 and $178,000, respectively.
38
<PAGE> 44
DESCRIPTION OF NOTES
GENERAL
The Notes are issued pursuant to an Indenture (the "Indenture") by and
among the Company, the Guarantors and Marine Midland Bank, as trustee (the
"Trustee"). The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(the "Trust Indenture Act"). The Notes are subject to all such terms, and
Holders of Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following summary of the material provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the Indenture, including the definitions therein of certain terms
used below. The definitions of certain terms used in the following summary are
set forth below under "-Certain Definitions." For purposes of this summary, the
term "Company" refers only to Key Plastics, Inc. and not to any of its
subsidiaries.
The Notes are jointly and severally guaranteed on a senior subordinated
basis by all current Subsidiaries other than Foreign Restricted Subsidiaries. As
of the date here of, MaP, Key Plastics U.K., and Clearplas Ltd. will be
Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be subject to many
of the restrictive covenants set forth in the Indenture and will not be required
to become Guarantors. Moreover, under certain circumstances, the Company will be
able to designate current or future subsidiaries as Unrestricted Subsidiaries.
As used herein, the term "Subsidiary" shall exclude any subsidiary that is an
Unrestricted Subsidiary. The Indenture will require Subsidiaries created or
designated as a Subsidiary after the date of the Indenture, other than Foreign
Restricted Subsidiaries, to become Guarantors. As of March 31, 1997, Key
Plastics Automotive, Key Plastics Technology, Key Plastics International, Key
Mexico A, L.L.C. and Key Mexico B, L.L.C. are Guarantors. Any Series A Notes
that remain outstanding after the completion of the Exchange Offer, together
with the Series B Notes issued in connection with the Exchange Offer, will be
treated as a single class of securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $125.0 million
and will mature on March 15, 2007. Interest on the Notes will accrue at the rate
of 10 1/4% per annum and will be payable semi-annually in arrears on March 15
and September 15, commencing on September 15, 1997, to Holders of record on the
immediately preceding March 1 and September 1. Interest on the Notes will accrue
from the most recent date to which interest has been paid or, if no interest has
been paid, from the date of original issuance. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months. Principal, premium,
and interest and Liquidated Damages, if any, on the Notes will be payable at the
office or agency of the Company maintained for such purpose within the City and
State of New York or, at the option of the Company, payment of interest and
Liquidated Damages, if any, may be made by check mailed to the Holders of the
Notes at their respective addresses set forth in the register of Holders of
Notes; provided that all payments of principal, premium, interest and Liquidated
Damages, if any, with respect to Notes the Holders of which have given wire
transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof. Until otherwise designated by the Company, the Company's office or
agency in New York will be the office of the Trustee maintained for such
purpose. The Notes will be issued in denominations of $1,000 and integral
multiples thereof.
SUBORDINATION
The payment of principal of, premium, if any, interest on and all other
Obligations in connection with, the Notes, are subordinated in right of payment,
as set forth in the Indenture, to the prior payment, in full, of all Senior
Debt, including, without limitation, all borrowings, letters of credit, other
advances and all other Obligations of the Company under the Senior Credit
Facility, whether outstanding on the date of the Indenture or thereafter
incurred.
Upon any payment or distribution of assets of the Company of any kind
or character, whether in cash, property, or securities to creditors of the
Company in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, an assignment for the benefit of creditors or any
marshaling of the Company's assets and liabilities, the holders of Senior Debt
will be entitled to receive payment in full of all Obligations due in respect of
such Senior Debt (including, without limitation, interest after the commencement
of any such proceeding at the rate specified in the applicable Senior Debt
whether or not such interest is
39
<PAGE> 45
an allowable claim under applicable law) before the Holders of Notes will be
entitled to receive any payment or distribution of assets of the Company or any
Guarantors of any kind or character with respect to the Notes, and until all
Obligations with respect to Senior Debt are paid in full, any distribution to
which the Holders of Notes would be entitled shall be made to the holders of
Senior Debt (except that Holders of Notes may receive Permitted Junior
Securities and payments made from the trust described under "-Legal Defeasance
and Covenant Defeasance," provided that such payments are made in accordance
with the provisions described therein).
Neither the Company nor any Subsidiary shall make any payment or any
distribution of any kind upon or in respect of the Notes or any other Obligation
in connection with the Notes, including, without limitation, for the acquisition
or defeasance of any of the Notes (except in Permitted Junior Securities or from
the trust described under "-Legal Defeasance and Covenant Defeasance," provided
that such payments are made in accordance with the provisions described therein)
if (i) a default in the payment, whether at stated maturity, by acceleration, by
declaration or otherwise, of the principal of, premium, if any, interest on,
unpaid drawings for letters of credit issued in respect of, or any regularly
accruing fees with respect to, any Designated Senior Debt occurs and is
continuing beyond any applicable period of grace (a "payment default") or (ii)
any other default occurs and is continuing with respect to Designated Senior
Debt that permits holders of the Designated Senior Debt as to which such default
relates to accelerate its maturity (a "nonpayment default") and, with respect to
nonpayment defaults, the Trustee receives a notice of such default (a "Payment
Blockage Notice") from the Company or the holders of any Designated Senior Debt.
Payments on the Notes, may and shall be resumed (a) in the case of a payment
default, upon the date on which such default is cured or waived and (b) in case
of a nonpayment default, the earlier of the date on which such nonpayment
default is cured or waived or 179 days after the date on which the applicable
Payment Blockage Notice is received, unless the maturity of any Designated
Senior Debt has been accelerated. No new period of payment blockage based on a
nonpayment default may be commenced unless and until 360 days have elapsed since
the date that the immediately prior Payment Blockage Notice was received. No
nonpayment default that existed or was continuing on the date of delivery of any
Payment Blockage Notice to the Trustee shall be, or be made, the basis for a
subsequent Payment Blockage Notice unless such default was cured or waived for
90 days.
The Indenture further requires that the Company promptly notify holders
of Senior Debt if payment of the Notes is accelerated because of an Event of
Default (as defined in the Indenture).
As a result of the subordination provisions described above, in the
event of a liquidation or insolvency, Holders of Notes may recover less ratably
than creditors of the Company who are holders of Senior Debt. As of March 31,
1997, the Company and its Subsidiaries had $64.0 million of Senior Debt
outstanding. The Indenture will permit the Company to incur additional Senior
Debt, subject to certain limitations. See "-Certain Covenants-Incurrence of
Indebtedness and Issuance of Disqualified Stock and Preferred Stock of
Subsidiaries."
OPTIONAL REDEMPTION
The Notes are not be redeemable at the Company's option prior to March
15, 2002. Thereafter, the Notes will be subject to redemption, at any time, at
the option of the Company, in whole or in part, upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on March 15 of the years
indicated below:
<TABLE>
<S> <C>
YEAR..................................................................... PERCENTAGE
2002..................................................................... 105.125%
2003..................................................................... 103.417
2004..................................................................... 101.708
2005..................and thereafter..................................... 100.000%
</TABLE>
Notwithstanding the foregoing, prior to March 15, 2000, the Company may
redeem up to 35% of the aggregate principal amount, of the Notes initially
issued at a redemption price of 1091/4% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the
redemption date, with the net cash proceeds of a public equity offering of
Common Stock of the Company; provided that at least 65% of the aggregate
principal amount of the Notes originally issued under the Indenture remain
outstanding immediately after the occurrence of such
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<PAGE> 46
redemption; and provided, further, that such redemption shall occur within 60
days of the date of the closing of such public equity offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection
of Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $ 1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of Notes to be redeemed at its
registered address. Notices of redemption may not be conditional. If any Note is
to be redeemed in part only, the notice of redemption that relates to such Note
shall state the portion of the principal amount thereof to be redeemed. A new
Note in principal amount equal to the unredeemed portion thereof will be issued
in the name of the Holder thereof upon cancellation of the original Note. Notes
called for redemption become due on the date fixed for redemption. On and after
the redemption date, interest ceases to accrue on Notes or portions of them
called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in cash
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase (the
"Change of Control Payment"). Within ten days following any Change of Control,
the Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures required by the
Indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes as a result of a
Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture will provide
that, prior to complying with the provisions of this covenant, but in any event
within 90 days following a Change of Control, the Company will either repay all
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of Notes
required by this covenant. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above will be applicable
whether or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the Holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
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<PAGE> 47
The Company will not be required to make a Change of Control Offer upon
a Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the
sale, lease, transfer, conveyance or other disposition of "all or substantially
all" of the assets of the Company and its Subsidiaries taken as a whole.
Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a Holder of Notes to require
the Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
ASSET SALES
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, consummate an Asset Sale or issue Equity Interests
in any of its Subsidiaries or sell Equity Interests in any of its Subsidiaries,
unless (i) the Company (or the Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 80% of the
consideration therefor received by the Company or such Subsidiary is in the form
of cash; provided that the amount of (x) any liabilities (as shown on the
Company's or such Subsidiary's most recent balance sheet), of the Company or any
Subsidiary (other than contingent liabilities and liabilities that are by their
terms subordinated to the Notes or any guarantee thereof) that are assumed by
the transferee of any such assets such that the Company or such Subsidiary have
no further liability and (y) any securities, notes or other obligations received
by the Company or any such Subsidiary from such transferee that are immediately
converted by the Company or such Subsidiary into cash (to the extent of the cash
received), shall be deemed to be cash for purposes of this provision.
Within 180 days after the receipt of any Net Proceeds from an Asset
Sale, the Company may apply such Net Proceeds, at its option, (a) to repay
Indebtedness under the Senior Credit Facility or Senior Debt (and to
correspondingly permanently reduce commitments with respect thereto), or (b) to
the acquisition of a controlling interest in another business, the making of a
capital expenditure or the acquisition of other long-term assets, in each case,
in a Permitted Business. Pending the final application of any such Net Proceeds,
the Company may temporarily reduce revolving Indebtedness under the Senior
Credit Facility or other-wise invest such Net Proceeds in any manner that is not
prohibited by the Indenture. Any Net Proceeds from Asset Sales that are not
applied or invested as provided in the first sentence of this paragraph will be
deemed to constitute "Excess Proceeds." When the aggregate amount of Excess
Proceeds exceeds $5.0 million, the Company will be required to make an offer to
all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes that may be purchased out of the Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages thereon, if any, to the date
of purchase, in accordance with the procedures set forth in the Indenture. To
the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other payment or distribution on account of the Company's
or any of its Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving the Company) or
to the direct or indirect holders of the Company's or any of its Subsidiaries'
Equity Interests in their capacity as such (other than (a) dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company or (b) the payment of any dividend or distribution by a Subsidiary of
the Company to the holders of a class of its Equity Interests, which include the
Company or a Subsidiary, on a pro rata basis); (ii)
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<PAGE> 48
purchase, redeem or other-wise acquire or retire for value (including without
limitation, in connection with any merger or consolidation involving the
Company) any Equity Interests of the Company or any direct or indirect parent of
the Company; (iii) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated to the Notes, except a payment of interest or principal at Stated
Maturity; (iv) make any payment in respect of any Non-Competition Agreement; or
(v) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (v) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant described
below under caption "-Incurrence of Indebtedness and Issuance of Disqualified
Stock and Preferred Stock of Subsidiaries;" and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Subsidiaries after the
date of the Indenture (excluding Restricted Payments permitted by clauses (ii),
(iii), (vi) and (vii) of the next succeeding paragraph), is less than the sum of
(i) 50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first fiscal quarter commencing
after the date of the Indenture to the end of the Company's most recently ended
fiscal quarter for which internal financial statements are available at the time
of such Restricted Payment (or, if such Consolidated Net Income for such period
is a deficit, less 100% of such deficit) less the amount paid or to be paid in
respect of such period pursuant to clause (vii) of the next following paragraph,
plus (h) 100% of the aggregate net cash proceeds received by the Company from
the issue or sale since the date of the Indenture of Equity Interests of the
Company (other than (x) proceeds from the sale of Disqualified Stock, (y)
proceeds received by the Company from its stockholders pursuant to Paragraph I
of the Tax Allocation Agreement or proceeds from contributions or payments
received by the Company from any stockholder of the Company as compensation for,
or in connection with, the net tax benefit realized by such stockholder as a
result of the allocation to such stockholder of the net loss of the Company for
income tax purposes and (z) proceeds received by the Company which are used by
the Company to make a substantially concurrent restricted Payment pursuant to
clause (ii) or (vi) below) or of Disqualified Stock or debt securities of the
Company that have been converted into such Equity Interests (other than Equity
Interests (or Disqualified Stock or convertible debt securities) sold to a
Subsidiary of the Company and other than Disqualified Stock or convertible debt
securities that have been converted into Disqualified Stock), plus (iii) to the
extent that any Restricted Investment that was made after the date of the
Indenture is sold for cash or otherwise liquidated or repaid for cash, the
lesser of (A) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (B) the initial amount of
such Restricted Investment, plus (iv) $2.5 million.
The foregoing provisions will not prohibit (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any pari passu or subordinated Indebtedness or Equity Interests
of the Company in exchange for, or out of the net cash proceeds of the
substantially concurrent sale or issuance (other than to a Subsidiary of the
Company) of, other Equity Interests of the Company (other than any Disqualified
Stock); provided that the amount of any such net cash proceeds that are utilized
for any such redemption, repurchase, retirement, defeasance or other acquisition
shall be excluded from clause (c) (ii) of the preceding paragraph; (iii) the
defeasance, redemption, repurchase or other acquisition of pari passu or
subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness; (iv) the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company or
any Subsidiary of the Company held by any employee of the Company or any of its
Subsidiaries upon termination of employment; provided that the aggregate price
paid for all such repurchased, redeemed, acquired or retired Equity Interests
shall not exceed $1.0 million in any twelve-month period and no Default or Event
of Default shall have occurred and be continuing immediately after such
transaction; (v) the purchase of the remaining outstanding Equity Interests in
Materias Plastics, S.A. not owned by the Company pursuant to the Purchase and
Sale of Shares Promissory Agreement; (vi) make any Restricted Payment by
exchange for, or out of the proceeds of the substantially concurrent sale of, or
capital contribution in respect of, Capital Stock of the
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<PAGE> 49
Company (other than Disqualified Stock and other Capital Stock issued or sold to
a Subsidiary or an employee stock ownership plan or to a trust established by
the Company or any of its Subsidiaries for the benefit of their employees);
provided that if such transaction is permitted pursuant to this clause (vi),
then the net proceeds received by the Company shall not be included in the
calculation of net proceeds received by the Company referred to in clause (c)
(ii) of the preceding paragraph; and (vii) the payment of Permitted Quarterly
Tax Distributions to the holders of Common Stock of the Company as described
below.
For so long as the Company is an S-Corporation or a substantially
similar pass-through entity for Federal income tax purposes, the Company may
make cash distributions to its members, during each Quarterly Payment Period, in
an aggregate amount not to exceed the Permitted Quarterly Tax Distribution in
respect of the related Estimation Period. If any portion of a Permitted
Quarterly Tax Distribution is not distributed during such Quarterly Payment
Period, the Permitted Quarterly Tax Distribution payable during the immediately
following Quarterly Payment Period shall be increased by such undistributed
portion.
Within 10 days following the Company's filing of Internal Revenue
Service Form 1120S for the immediately preceding taxable year, the Tax Amounts
CPA shall file with the Trustee a written statement indicating in reasonable
detail the calculation of the True-up Amount. In the case of a True-up Amount
due to the members, the Permitted Quarterly Tax Distribution payable during the
immediately following Quarterly Payment Period shall be increased by such
True-up Amount. In the case of a True-up Amount due to the Company, the
Permitted Quarterly Tax Distribution payable during the immediately following
Quarterly Payment Period shall be reduced by such True-up Amount and the excess,
if any, of the True-up Amount over such Permitted Quarterly Tax Distribution
shall be applied to reduce the immediately following Permitted Quarterly Tax
Distributions until such True-up Amount is entirely offset.
The amount of all Restricted Payments (other than cash) shall be the
fair market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined by the Board
of Directors whose resolution with respect thereto shall be delivered to the
Trustee, such determination to be based upon an opinion or appraisal issued by
an accounting, appraisal or investment banking firm of national standing if such
fair market value exceeds $1.0 million. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant "Restricted
Payments" were computed, together with a copy of any fairness opinion or
appraisal required by the Indenture.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF DISQUALIFIED STOCK AND PREFERRED
STOCK OF SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and that the Company will not issue any
Disqualified Stock and will not permit any of its Subsidiaries to issue any
shares of preferred stock; provided, however, that the Company or any Guarantor
may incur Indebtedness (including Acquired Debt) or issue shares of Disqualified
Stock if the Fixed Charge Coverage Ratio for the Company's most recently ended
four full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 2 to 1, if such
Indebtedness is incurred or such Disqualified Stock is issued prior to March 15,
1998, or 2.25 to 1 thereafter, in each case determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period;
The provisions of the first paragraph of this covenant will not apply to the
incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company of Indebtedness represented by the
Notes and the Indenture and the guarantee by any Subsidiary of such
Indebtedness;
(ii) the incurrence by the Company or any Guarantor of term
Indebtedness under the Term Facility Tranche of the Senior Credit Facility (the
"Term Facility Tranche"), letters of credit (with letters of credit being deemed
to have
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<PAGE> 50
a principal amount equal to the maximum potential ability of the Company and the
Guarantors thereunder) and related Guarantees (with the amount of such Guarantee
not being duplicatively counted) under the Term Facility Tranche; provided that
the aggregate principal amount of all Indebtedness outstanding under the Term
Facility Tranche after giving effect to such incurrence, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any other
Indebtedness incurred pursuant to this clause (ii), does not exceed an amount
equal to $15.0 million less the aggregate amount of Net Proceeds from Asset
Sales applied to permanently reduce the Indebtedness under the Term Facility
Tranche and less the amount of any permanent reductions in commitments under the
Term Facility Tranche subsequent to the date of the Indenture;
(iii) the incurrence by the Company or any Guarantor of revolving
credit Indebtedness under the revolving portion of the Senior Credit Facility
(the "Revolving Credit Facility"), letters of credit (with letters of credit
being deemed to have a principal amount equal to the maximum potential liability
of the Company and the Guarantors thereunder) and related Guarantees (with the
amount of such Guarantee not being duplicatively counted) under the Revolving
Credit Facility; provided that the aggregate principal amount of all
Indebtedness (with letters of credit being deemed to have a principal amount
equal to the maximum potential liability of the Company and the Guarantors
thereunder) outstanding under the Revolving Credit Facility after giving effect
to such incurrence, including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any other Indebtedness incurred pursuant to this
clause (iii), does not exceed the greater of the Borrowing Base at the time
incurred or $125.0 million, in each case, less the sum of (a) the mandatory
permanent reductions in commitments under the Revolving Credit Facility, up to
$55 million, and (b) the aggregate amount of Net Proceeds from Asset Sales
applied to permanently reduce the availability of revolving credit Indebtedness
under the Revolving Credit Facility;
(iv) the incurrence by the Company and the Guarantors of the Existing
Indebtedness;
(v) the incurrence by the Company or any Subsidiary of Hedging
Obligations that are incurred for the purpose of fixing or hedging currency rate
risk or interest rate risk with respect to any floating rate or fixed rate
Indebtedness or otherwise swapping fixed rate to floating rate or floating rate
to fixed rate Indebtedness for the purpose of hedging against interest rate risk
that, in each case, is permitted by the terms of this Indenture to be
outstanding;
(vi) the incurrence by the Company or any Subsidiary of intercompany
Indebtedness between or among the Company and any Subsidiary; provided, however,
that any sale or other transfer of any such Indebtedness to a Person that is not
either the Company or a Subsidiary shall be deemed, in each case, to constitute
an incurrence of such Indebtedness by the Company or such Subsidiary, as the
case may be;
(vii) the guarantee by the Company or any Guarantor of Indebtedness of
the Company or a Guarantor of the Company that was permitted to be incurred by
another provision of this covenant;
(viii) surety bonds and appeal bonds required in the ordinary course of
business or in connection with the enforcement of rights or claims of the
Company or any Guarantor in connection with judgements which do not result. in
an Event of Default;
(ix) the incurrence by the Company or the Guarantor of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are used
to extend, refinance, renew, replace, defease or refund Indebtedness that was
permitted by the Indenture to be incurred;
(x) the incurrence of Indebtedness to a holder of Common Stock of the
Company; provided, however, that (a) such Indebtedness is expressly subordinated
to the prior payment in full in cash of all Obligations with respect the Notes,
(b) such Indebtedness does not, upon the happening of any event or otherwise,
mature or become mandatorily redeemable, pursuant to a sinking fund obligation
or other-wise, or become redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature, (c) such Indebtedness does not require any cash interest
payments with respect such Indebtedness prior to 91 days after the date on which
the Notes mature and (d) any sale or other transfer of any such Indebtedness to
a Person that is not holder of Common Stock of the Company shall be deemed to
constitute an incurrence of such Indebtedness by the Company;
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<PAGE> 51
(xi) the incurrence by a Foreign Restricted Subsidiary of Indebtedness;
provided, however, that the aggregate amount of outstanding Indebtedness
incurred pursuant to this clause (xi) does not exceed $2.5 million at any time
or such Indebtedness is incurred or guaranteed, directly or indirectly, as part
of the Senior Credit Facility; and
(xii) the incurrence by the Company or any Guarantor of additional
Indebtedness in an aggregate principal amount (or accredit value, as applicable)
at any time outstanding, including all Permitted Refinancing Indebtedness
incurred to refund, refinance or replace any other Indebtedness incurred
pursuant this clause (xii), not to exceed $15.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xii) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest, the accretion of accredit
value and the payment of interest in the form of additional Indebtedness will
not be deemed to be an incurrence of Indebtedness for purposes of this covenant.
DESIGNATION OF UNRESTRICTED SUBSIDIARIES
Any designation of an Unrestricted Subsidiary by the Board of Directors
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that any Investments in such entity, after giving effect
to such designation, comply with the terms of the Indenture governing the
designation of Unrestricted Subsidiaries and are permitted by the covenant
described above under the caption "Certain Covenants-Restricted Payments." If,
at any time, any Unrestricted Subsidiary fails to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such subsidiary shall be deemed to be incurred by a Subsidiary of the Company as
of such date (and, if such Indebtedness is not permitted to be incurred as of
such date under the covenant described under the caption "Incurrence of
Indebtedness and Issuance of Disqualified Stock and Preferred Stock of
Subsidiaries," the Company shall be in default of such covenant). The Board of
Directors of the Company may at any time designate any Unrestricted Subsidiary
to be a Subsidiary; provided that such designation shall be deemed to be an
incurrence of Indebtedness by a Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant described
under the caption "Certain Covenants-Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock of Subsidiaries," calculated on a pro
forma basis as if such designation had occurred at the beginning of the
four-quarter reference period, and (ii) no Default or Event of Default would be
in existence following such designation.
LIENS
The Indenture provides that the Company will not and will not permit
any of its Subsidiaries to, create, incur, assume or otherwise cause or suffer
to exist or become effective any Lien of any kind upon any of their property or
assets, now owned or hereafter acquired, securing (i) Indebtedness incurred in
violation of the Indenture, (ii) Indebtedness of the Company to any Subsidiary
or Unrestricted Subsidiary or (iii) Indebtedness which by its terms is
subordinate or junior in the right of payment to any other Indebtedness unless
all payments due under the Indenture and the Notes are secured on an equal and
ratable basis with the obligations so secured until such time as such
obligations are no longer secured by a Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that 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 (i) (a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) existing agreements as in effect on the date of the
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Indenture, (b) the Senior Credit Facility as in effect as of the date of the
Indenture, and any amendments, modifications, extensions, restatements,
renewals, increases, supplements, refundings, replacements or refinancings
thereof, provided that such amendments, modifications, restatements, renewals,
increases, supplements, refundings, replacement, extensions or refinancings are
no more restrictive with respect to such dividend and other payment restrictions
than those contained in the Senior Credit Facility as in effect on the date of
the Indenture, (c) the Indenture and the Notes, (d) applicable law, (e) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided that,
in the case of Indebtedness, such Indebtedness was permitted by the terms of the
Indenture to be incurred, (f) by reason of customary non-assignment provisions
in leases or agreements entered into in the ordinary course of business and
consistent with past practices, (g) purchase money obligations for property
acquired in the ordinary course of business that impose restrictions of the
nature described in clause (iii) above on the property so acquired, (h)
Indebtedness of Guarantors or Foreign Restricted Subsidiaries, provided that
such Indebtedness was permitted to be incurred pursuant to the Indenture, or (i)
Permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive than those contained in the agreements governing the Indebtedness
being refinanced.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Notes and the Indenture pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) except in the case
of a merger of the Company with or into a Guarantor, the Company or the entity
or Person formed by or surviving any such consolidation or merger (if other than
the Company), or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made (A) will have Consolidated Net Worth
immediately after the transaction equal to or greater than the Consolidated Net
Worth of the Company immediately preceding the transaction and (B) will, at the
time of such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter period,
be permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "-Incurrence of Indebtedness and
Issuance of Disqualified Stock and Preferred Stock of Subsidiaries."
The Indenture provides that no Guarantor may consolidate with or merge
with or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions related to the release of a Subsidiary
Guarantor as set forth under the caption "Subsidiary Guarantees," the Person
formed by or surviving any such consolidation or merger (if other than such
Guarantor or the Company) assumes all the obligations of such Guarantor pursuant
to a supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the Notes, the Indenture (unless released as provided in the
Indenture) and (ii) immediately after giving effect to such transaction, no
Default or Event of Default exists.
SUBSIDIARY GUARANTEES
The Indenture provides that if the Company or any of its Subsidiaries
shall acquire or create another Subsidiary after the date of the Indenture or
designate an Unrestricted Subsidiary to be a Subsidiary, then such newly
acquired, created or designated Subsidiary shall execute a Subsidiary Guarantee
pursuant to which such Subsidiary shall become a Guarantor on a senior
subordinated basis (pursuant to the subordination provisions substantially
similar to those described above under the caption "-Subordination") of the
Company's payment obligations under the Notes and the Indenture, and deliver
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an opinion of counsel, in accordance with the terms of the Indenture, provided,
that this covenant shall not apply to (i) any Subsidiary that has been properly
designated as an Unrestricted Subsidiary in accordance with the Indenture for so
long as it continues to constitute an Unrestricted Subsidiary and (ii) any
Foreign Restricted Subsidiary. The Company has two domestic subsidiaries whose
sole assets are the equity interests of Key Plastics, U.K. The Company has two
other domestic Subsidiaries whose sole assets are the equity interests of Key
Plastics de Mexico 2 S.A. del. C.V. Such subsidiaries are Guarantors as provided
herein.
The Indenture provides that in the event of a sale or other disposition
of all of the assets of any Guarantor, by way of merger, consolidation or
otherwise, or a sale or other disposition of all of the capital stock of any
Guarantor, then such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the capital stock of
such Guarantor) or the corporation acquiring the property (in the event of a
sale or other disposition of all of the assets of such Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee and the
Trustee shall provide the Company with a certificate certifying that such
Guarantor has been so released and relieved of its obligations; provided that
the Net Proceeds of such sale or other disposition are applied in accordance
with the applicable provisions of the Indenture. See "Repurchase at Option of
Holders-Asset Sales."
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit
any of its Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make, or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Subsidiary than those that would have been obtained
in a comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee (a) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $1.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors and (b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5.0
million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing; provided that (v) any employment
or consulting agreement or arrangement entered into by the Company or any of its
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Subsidiary, (w) transactions between or among
the Company and/or its Subsidiaries and (x) Restricted Payments that are
permitted by the provisions of the -Indenture described above under the caption
"-Restricted Payments," (y) Permitted Quarterly Tax Distributions and (z)
Permitted Investments, in each case, shall not be deemed Affiliate Transactions.
NO SENIOR SUBORDINATED DEBT
The Indenture provides that the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
subordinate or junior in right of payment to any Senior Debt and senior in any
respect in right of payment to the Notes.
BUSINESS ACTIVITIES
The Company will not, and will not permit any Subsidiary to, engage in
any business other than Permitted Businesses, except to such extent as would not
be material to the Company and its Subsidiaries taken as a whole.
PAYMENTS FOR CONSENT
The Indenture provides that neither the Company nor any of its
Subsidiaries or Unrestricted Subsidiaries will, directly or indirectly, pay or
cause to be paid any consideration, whether by way of interest, fee or
otherwise, to any Holder of any Notes for or as an inducement to any consent,
waiver or amendment of any of the terms or provisions of the Indenture or the
Notes unless such consideration is offered to be paid or is paid to all Holders
of the Notes that consent,
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waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will furnish to the Holders of
Notes (i) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations" that describes
the financial condition and results of operations of the Company and its
consolidated Subsidiaries (showing in reasonable detail, either on the face of
the financial statements or in the footnotes thereto and in Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
financial condition and results of operations of the Company and its
Subsidiaries separate from the financial condition and results of operations of
the Unrestricted Subsidiaries of the Company) and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed with
the Commission on Form 8-K if the Company were required to file such reports. In
addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request. In addition, the Company has agreed
that, for so long as any Notes remain outstanding, it will furnish to the
Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d) (4)
under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by the
subordination provisions of the Indenture); (ii) default in payment when due of
the principal of or premium, if any, on the Notes (whether or not prohibited by
the subordination provisions of the Indenture); (iii) failure by the Company to
comply with the provisions described under the captions "-Change of Control," or
"-Asset Sales"; (iv) failure by the Company for 60 days after notice to comply
with any of its other agreements in the Indenture or the Notes, (v) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Subsidiaries (or the payment of which is guaranteed
by the Company or any of its Subsidiaries) whether such Indebtedness or
guarantee now exists, or is created after the date of the Indenture, which
default (a) is caused by a failure to pay principal of or premium, if any, or
interest on such Indebtedness prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $2.5 million or more; (vi) failure by the Company or any
of its Subsidiaries to pay final judgments aggregating in excess of $2.5
million, which judgments are not paid, discharged or stayed for a period of 60
days; (vii) except as permitted by the Indenture, any Subsidiary Guarantee by a
Significant Subsidiary shall be held in any judicial proceeding to be
unenforceable or invalid or shall cease for any reason to be in full force and
effect or any Guarantor that is a Significant Subsidiary, or any Person acting
on behalf of any Guarantor that is a Significant Subsidiary, shall deny or
disaffirm its obligations under its Subsidiary Guarantee; and (viii) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company or any Subsidiary, all
outstanding Notes will become due and payable without further action or notice.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding Notes may direct the Trustee in its
exercise of any trust or power. The Trustee may withhold from Holders of the
Notes notice of any continuing Default or Event of Default
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(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to March
15, 2002 by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to March 15, 2002, then the premium specified in
the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes
then outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes, the Indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of Notes by accepting
a Note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the Notes. Such waiver may not be effective
to waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of
its obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages on such Notes when such payments are due from the trust
referred to below, (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 the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) the Company must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders of the Notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably acceptable to
the Trustee confirming that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
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Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that the Holders 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 (other than a Default or Event of Default resulting from the
borrowing of funds to be applied to such deposit) or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (v) such Legal
Defeasance or Covenant Defeasance will not result in a breach or violation of,
or constitute a default under any material agreement or instrument (other than
the Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company must
have delivered to the Trustee an opinion of counsel to the effect that after the
91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; (vii) the Company must deliver to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and (viii) the Company must
deliver to the Trustee an Officers' Certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Note selected for redemption. Also, the Company is not required to transfer
or exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered Holder of a Note will be treated as the owner of it for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture
or the Notes may be amended or supplemented with the consent of the Holders of
at least a majority in principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"-Repurchase at the Option of Holders"), (iii) reduce the rate of or change the
time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note payable
in money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "-Repurchase at the Option of Holders") or (viii) make any change in the
foregoing amendment and waiver provisions. In addition, any amendment to the
provisions of Article 10 of the Indenture (which relate to subordination) will
require the consent of the Holders of at least 75% in aggregate principal amount
of the Notes then outstanding if such amendment would adversely affect the
rights of Holders of Notes.
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Notwithstanding the foregoing, without the consent of any Holder of
Notes, the Company and the Trustee may amend or supplement the Indenture or the
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of the Company's obligations to Holders of Notes in
the case of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of Notes or that does not adversely
affect the legal rights under the Indenture of any such Holder, or to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The Holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent person in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any Holder of Notes, unless such Holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
BOOK-ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Notes initially will be
represented by one or more permanent global certificates in definitive, fully
registered form (the "Global Notes"). The Global Notes will be deposited on the
date of issuance with, or on behalf of, The Depository Trust Company, New York,
New York ("DTC") and registered in the name of a nominee of DTC.
Notes (i) originally purchased by or transferred to "foreign
purchasers" or institutional "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) ("Accredited Investors")
who are not "qualified institutional buyers" (as defined in Rule 144A
promulgated under the Securities Act) ("QIBS") or (ii) held by QIBs or
institutional Accredited Investors who are not QIBs who elect to take physical
delivery of their certificates instead of holding their interest through a
Global Note (and which are thus ineligible to trade through DTC) (collectively
referred to herein as the "Non-Global Purchasers") will be issued in registered
form (the "Certificated Security"). Upon the transfer to a QIB or another
institutional Accredited Investor who is not a QIB of any Certificated Security
initially issued to a Non-Global Purchaser, such Certificated Security will,
unless the transferee requests otherwise or the Global Certificates have
previously been exchanged in whole for Certificated Securities, be exchanged for
an interest in a Global Note.
The Global Notes. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Notes, DTC or its
custodian will credit, on its internal system, the principal amount of Notes of
the individual beneficial interests represented by such Global Notes to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in the Global Notes will be shown on, and the
transfer of such ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants (with respect to interests of persons other than participants).
Such accounts initially will be designated by or on behalf of the Initial
Purchasers and ownership of beneficial interests in the Global Notes will be
limited to persons who have accounts with DTC ("participants") or persons who
hold interests through participants. QIBs and institutional Accredited Investors
who are not QIBs may hold their interests in the Global Note directly through
DTC if they are participants in such system, or indirectly through organizations
which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of
the Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Notes for all purposes
under
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the Indenture. No beneficial owner of an interest in any of the Global Notes
will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture with respect
to the Notes.
Payments of the principal of, premium (if any) and interest on the
Global Notes will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of the Company, the Trustee or any Paying Agent
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global
Notes or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any
payment of principal, premium, if any, or interest in respect of the Global
Notes, will credit participants' accounts with payments in amounts proportionate
to their respective beneficial interests in the principal amount of the Global
Notes as shown on the records of DTC or its nominee. The Company also expects
that payments by participants to owners of beneficial interests in the Global
Notes held through such participants will be governed by standing instructions
and customary practice, as is now the case with securities held for the accounts
of customers registered in the names of nominees for such customers. Such
payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary
way through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states which require physical delivery of the Notes, or to pledge such
securities, such holder must transfer its interest in a Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised the Company that it will take any action permitted to
be taken by a holder of Notes (including the presentation of Notes for exchange
as described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global Notes
for Certificated Securities, which it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities transactions between participants through electronic book-entry
changes in accounts in participants, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Notes among participants of DTC,
it is under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Notes and a successor depositary is not
appointed by the Company within 90 days, Certificated Securities will be issued
in exchange for the Global Notes.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchasers entered into the Registration
Rights Agreement. Pursuant to the Registration Rights Agreement, the Company
agreed to file with the Commission the Exchange Offer Registration Statement on
the appropriate form under the Securities Act with respect to the New Notes.
Upon the effectiveness of the Exchange Offer Registration Statement, the Company
will offer to the Holders of Transfer Restricted Securities pursuant
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to the Exchange Offer who are able to make certain representations the
opportunity to exchange their Transfer Restricted Securities for New Notes. If
(i) the Company is not required to file the Exchange Offer Registration
Statement or permitted to consummate the Exchange Offer because the Exchange
Offer is not permitted by applicable law or Commission policy or (ii) any Holder
of Transfer Restricted Securities notifies the Company prior to the 20th day
following consummation of the Exchange Offer that (A) it is prohibited by law or
Commission policy from participating in the Exchange Offer or (B) that it may
not resell the New Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales or
(C) that it is a broker-dealer and owns Notes acquired directly from the Company
or an affiliate of the Company, the Company will file with the Commission a
Shelf Registration Statement to cover resales of the Notes by the Holders
thereof who satisfy certain conditions relating to the provision of information
in connection with the Shelf Registration Statement. The Company will use its
best efforts to cause the applicable registration statement to be declared
effective as promptly as possible by the Commission. For purposes of the
foregoing, "Transfer Restricted Securities" means each Note until (i) the date
on which such Note has been exchanged by a person other than a broker-dealer for
a New Note in the Exchange Offer, (ii) following the exchange by a broker-dealer
in the Exchange Offer of a Note for a New Note, the date on which such New Note
is sold to a purchaser who receives from such broker-dealer on or prior to the
date of such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement, (iii) the date on which such Note has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (iv) the date on which such Note is distributed to the
public pursuant to Rule 144 under the Act.
The Registration Rights Agreement provides that (i) the Company will
file an Exchange Offer Registration Statement with the Commission on or prior to
45 days after the Closing Date, (ii) the Company will use its best efforts to
have the Exchange Offer Registration Statement declared effective by the
Commission on or prior to 105 days after the Closing Date, (iii) unless the
Exchange Offer would not be permitted by Applicable law or Commission policy,
the Company will commence the Exchange Offer and use its best efforts to issue
on or prior to 30 business days after the date on which the Exchange Offer
Registration Statement was declared effective by the Commission, New Notes in
exchange for all Notes tendered prior thereto in the Exchange Offer and (iv) if
obligated to file the Shelf Registration Statement, the Company will use its
best efforts to file the Shelf Registration Statement with the Commission on or
prior to 45 days after such filing obligation arises and to cause the Shelf
Registration to be declared effective by the Commission on or prior to 105 days
after such obligation arises. If (a) the Company fails to file any of the
Registration Statements required by the Registration Rights Agreement on or
before the date specified for such filing, (b) any of such Registration
Statements is not declared effective by the Commission on or prior to the date
specified for such effectiveness (the "Effectiveness Target Date"), or (c) the
Company fails to consummate the Exchange Offer within 30 business days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement, or (d) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Transfer Restricted Securities
during the periods specified in the Registration Rights Agreement (each such
event referred to in clauses (a) through (d) above a "Registration Default"),
then the Company will pay Liquidated Damages to each Holder of Notes, with
respect to the first 90-day period immediately following the occurrence of the
first Registration Default in an amount equal to $.05 per week per $1,000
principal amount of Notes held by such Holder. The amount of the Liquidated
Damages will increase by an additional $.05 per week per $1,000 principal amount
of Notes with respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of Liquidated Damages of $.50
per week per $1,000 principal amount of Notes. All accrued Liquidated Damages
will be paid by the Company on each Damages Payment Date to the Global Note
Holder by wire transfer of immediately available funds or by federal funds check
and to Holders of Certificated Securities by wire transfer to the accounts
specified by them or by mailing checks to their registered addresses if no such
accounts have been specified. Following the cure of all Registration Defaults,
the accrual of Liquidated Damages will cease.
Holders of Notes will be required to make certain representations to
the Company (as described in the Registration Rights Agreement) in order to
participate in the Exchange Offer and will be required to deliver information to
be used in connection with the Shelf Registration Statement and to provide
comments on the Shelf Registration Statement within the time periods set forth
in the Registration Rights Agreement in order to have their Notes included in
the Shelf Registration Statement and benefit from the provisions regarding
Liquidated Damages set forth above.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness any other Person existing at the time such other Person is merged
with or into or became a subsidiary of such specified Person, including, without
limitation, Indebtedness incurred in connection with, or in contemplation of,
such other Person merging with or into or becoming a subsidiary of such
specified Person, and (ii) Indebtedness secured by a Lien encumbering any asset
acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition
of any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory, goods and services in the ordinary
course of business (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company 'and its
Subsidiaries taken as a whole will be governed by the provisions of the
Indenture described above under the caption "-Change of Control" and/or the
provisions described above under the caption "-Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sale covenant), and (ii) the
issue or sale by the Company or any of its Subsidiaries of Equity Interests of
any of the Company's Subsidiaries, in the case of either clause (i) or (ii),
whether in a single transaction or a series of related transactions (a) that
have a fair market value in excess of $1.0 million or (b) for net proceeds in
excess of $1.0 million. Notwithstanding the foregoing: (i) a transfer of assets
by the Company to a Subsidiary; or by a Subsidiary to the Company or to another
Subsidiary (ii) an issuance of Equity Interests by a Subsidiary to the Company
or to another Subsidiary, and (iii) any Restricted Payment, Permitted Investment
or dividend or distribution that is permitted by the covenant described above
under the caption "-Restricted Payments" will not be deemed to be Asset Sales.
"Borrowing Base" means, as of any date, an amount equal to the sum of
(a) $55.0 million, (b) 90% of the face amount of all accounts receivable owned
by the Company, its Subsidiaries and Key Plastics U.K. as of such date and (c)
60% of the book value on a FIFO basis of all inventory owned by the Company, its
Subsidiaries and Key Plastics U.K. as of such date, all calculated on a
consolidated basis and in accordance with GAAP. To the extent that information
is not available as to the amount of accounts receivable or inventory as of a
specific date, the Company may utilize the most recent available information for
purposes of calculating the Borrowing Base.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, (iii) in the case of a partnership or limited
liability company, partnership or membership., interests (whether general or
limited) and (iv) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than six months from the date of acquisition, (iii) marketable direct
obligations issued by any state of the United States of America or any political
subdivision of any such state or any public instrumentality thereof maturing
within one year from the date of acquisition thereof and, at the time of
acquisition, having one of the two highest ratings obtainable from either
Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc.
("Moody's "), (iv) certificates of deposit and eurodollar
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time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any lender party to the Senior Credit
Facility or with any domestic commercial bank having capital and surplus in
excess of $250.0 million and a Keefe Bank Watch Rating of "B" or better, (v)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii), (iii). and (iv) above entered
into with any financial institution meeting the qualifications specified in
clause (iv) above, (vi) commercial paper having one of the two highest ratings
obtainable from Moody's or S&P and in each case maturing within six months after
the date of acquisition and (vii) investments in money market funds which invest
substantially all their assets in securities of the types described in clauses
(i) through (vi) above.
"Change of Control" means the occurrence of any of the following: (i)
the adoption of a plan relating to the liquidation or dissolution of the
Company, (ii) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that (a) prior
to an Initial Public Offering, any "person" (as defined above), other than the
Principals and their Related Parties, (1) becomes the "beneficial owner" (as
such term is defined in Rule 13d- 3 and Rule l3d-5 under the Exchange Act,
except that a person shall be deemed to have "beneficial ownership" of all
securities that such person has the right to acquire, whether such right is
currently exercisable or is exercisable only upon the occurrence of a subsequent
condition), directly or indirectly, of more than 50% of the Voting Stock of the
Company (measured by voting power rather than number of shares), (2) becomes a
shareholder of the Company with the right to appoint or remove directors of the
Company holding 50% or more of the voting rights at meetings of the Board of
Directors on all, or substantially all, matters or (3) becomes able to exercise
the right to give directions with respect to the operating and financial
policies of the Company with which the relevant directors are obligated to
comply by reason of (A) provisions contained in the organization documents of
the Company, or (B) the existence of any contract permitting such person to
exercise control over the Company, or (b) after an Initial Public Offering, any
"person" (as defined above), other than the Principals and their Related
Parties, becomes the "beneficial owner" (as such term is defined in Rule 13d-3
and Rule l3d-5 under the Exchange Act, except that a person shall be deemed to
have "beneficial ownership" of all securities that such person has the right to
acquire, whether such right is currently exercisable or is exercisable only upon
the occurrence of a subsequent condition), directly or indirectly, of more than
30% of the total of the Voting Stock of the Company (measured by voting power
rather than number of shares), and, the Principals, collectively, are the
"beneficial owners" of a lesser percentage of the Voting Stock of the Company
than such other "person" and do not have the right or ability by voting power,
contract or otherwise, to elect or designate for election, a majority of the
Board of Directors of the Company, (iii) the first day on which a majority of
the members of the Board of Directors of the Company are not Continuing
Directors, (iv) the Company consolidates with, or merges with or into, any
Person or sells, assigns, conveys, transfers, leases or otherwise disposes of
all or substantially all of its assets to any Person, or any Person consolidates
with, or merges with or into, the Company, in any such event pursuant to a
transaction in which any of the outstanding Voting Stock of the Company is
converted into or exchanged for cash, securities or other property, other than
any such transaction where the Voting Stock of the Company outstanding
immediately prior to such transaction is converted into or exchanged for Voting
Stock (other than Disqualified Stock) of the surviving or transferee Person
constituting a majority of the outstanding shares of such Voting Stock of such
surviving or transferee Person (immediately after giving effect to such
issuance) or (v) the Company sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets to any Person
pursuant to a transaction in which none of the outstanding Voting Stock of the
Company is converted into or exchanged for cash, securities or other property.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (i) an
amount equal to any extraordinary loss plus any net loss realized in connection
with an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) if the Company is not an S-Corporation or
substantially similar pass-through entity for Federal income tax purposes, any
provision for taxes based on income or profits of such Person and its
Subsidiaries for such period, to the extent that such provision for taxes was
included in computing such Consolidated Net Income, plus (iii) consolidated
interest expense of such Person and its Subsidiaries for such period, whether
paid or accrued and whether or not capitalized (including, without limitation,
amortization of debt issuance costs and original issue discount, non-cash
interest payments, the interest component of any deferred payment obligations,
the interest component of all payments associated with Capital Lease
Obligations, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Hedging Obligations), to the extent that any such expense
was deducted in computing such Consolidated Net Income, plus (iv) depreciation,
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) and other non-cash expenses (excluding any such non-cash expense to the
extent that it represents an accrual of or reserve
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for cash expenses in any future period or amortization of a prepaid cash expense
that was paid in a prior period) of such Person and its Subsidiaries for such
period to the extent that such depreciation, amortization and other noncash
expenses were deducted in computing such Consolidated Net Income, minus (v)
non-cash items increasing such Consolidated Net Income for such period, in each
case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges of,
a Subsidiary of a Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that the
Net Income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person and only if a corresponding amount would be permitted at
the date of determination to be dividended to the Company by such Subsidiary
without prior approval (that has not been obtained), pursuant to the terms of
its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Subsidiary or
its stockholders.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid in
cash to the referent Person or a Subsidiary thereof, (h) the Net Income of any
Subsidiary that is not a Guarantor shall be excluded to the extent that the
declaration or payment of dividends or similar distributions by that Subsidiary
of that Net Income is not at the date of determination permitted without any
prior governmental approval (that has not been obtained) or, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary or its stockholders, (iii) the Net Income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded, (iv) the cumulative effect of a
change in accounting principles shall be excluded and (v) the Net Income (or
loss) of any Unrestricted Subsidiary shall be excluded, whether or not
distributed to the Company or one of its Subsidiaries.
"Consolidated Net Worth " means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, (y)
all investments as of such date in unconsolidated Subsidiaries and in Persons
that are not Subsidiaries (except, in each case, Permitted Investments), and (z)
all unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of the Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) any Indebtedness outstanding under
the Senior Credit Facility and (ii) any other Senior Debt permitted under the
Indenture the principal amount of which is $25.0 million or more and that has
been designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
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"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Estimation Period" means the period for which a stockholder who is an
individual is required to estimate for Federal income tax purposes his
allocation of taxable income from a calendar year in connection with determining
his estimated federal income tax liability for such period.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Senior Credit Facility) in
existence on the date of the Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person and its Subsidiaries
for any period, the sum, without duplication, of (i) the consolidated interest
expense of such Person and its Subsidiaries for such period, whether paid or
accrued and (ii) the consolidated interest of such Person and its Subsidiaries
that was capitalized during such period, and (iii) any interest expense on
Indebtedness of another Person that is Guaranteed by such Person or one of its
Subsidiaries or secured by a Lien on assets of such Person or one of its
Subsidiaries (whether or not such Guarantee or Lien is called upon) and (iv) the
product of (a) all dividend payments, whether or not in cash, on any series of
preferred stock of such Person or any of its Subsidiaries, other than dividend
payments on Equity Interests payable solely in Equity Interests of the Company,
times (b) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local statutory tax
rate of such Person, expressed as a decimal, in each case, on a consolidated
basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person and its
Subsidiaries for any period, the ratio of the Consolidated Cash Flow of such
Person and its Subsidiaries for such period to the Fixed Charges of such Person
for such period. In the event that the Company or any of its Subsidiaries
incurs, assumes, Guarantees or redeems any Indebtedness (other than revolving
credit borrowings) or issues preferred stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, Guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions that have been made
by the Company or any of its Subsidiaries, including through mergers or
consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Subsidiaries following
the Calculation Date.
"Foreign Restricted Subsidiary" means a Subsidiary that is not formed
under the laws of the United States of America or of a state or territory
thereof.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
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"Guarantors" means (i) each of Key Plastics International LLC, Key
Plastics Automotive LLC and Key Plastics Technology, LLC and (ii) any other
Subsidiary that executes a Subsidiary Guarantee in accordance with the
provisions of the Indenture, and their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, (ii) foreign exchange
contracts and currency swap agreements, or (iii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or currency values.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or banker's acceptances
or representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable, if
and to the extent any of the foregoing indebtedness (other than letters of
credit and Hedging Obligations) would appear as a liability upon a balance sheet
of such Person prepared in accordance with GAAP, as well as all indebtedness of
others secured by a Lien on any asset of such Person (whether or not such
indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be (i) the
accredit value thereof, in the case of any Indebtedness that does not require
current payments of interest, and (ii) the principal amount thereof, together
with any interest thereon that is more than 30 days past due, in the case of any
other Indebtedness.
"Initial Public Offering" means the sale of capital stock of the
Company pursuant to (a) a registration statement under the Securities Act that
has been declared effective by the Commission or (b) a public offering outside
the United States and which results, in either case, in an active trading market
for such shares. An active trading market shall be deemed to exist if such
shares are listed on the New York Stock Exchange, the American Stock Exchange or
the Nasdaq National Market System or any major international trading market
exchange.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates), in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP,
provided that the deferral of existing royalty and management fees owing by any
Unrestricted Subsidiary to the Company consistent with the past practice of the
Company shall not be "Investments" provided that any such amounts are not
included as revenues of the Company and the Subsidiaries during such deferral
period for purposes of calculating any amounts under the Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
" Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Subsidiaries and
(ii) any extraordinary or nonrecurring gain (but not loss), together with any
related provision for taxes on such extraordinary or nonrecurring gain (but not
loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation,
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legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance with
GAAP.
"Non-Competition Agreement" means, collectively, the provisions
contained in the Employment and Noncompetition Agreements, each dated August 5,
1988, between the Company and certain shareholders of the Company, and in the
Consulting and Noncompetition Agreement, dated August 9, 1990, between the
Company and a certain shareholder of the Company, whereby such shareholders
agreed not to compete with the Company on the terms and conditions set forth
therein, as amended on November 17, 1992, and as amended subsequent to the date
of the Indenture.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the
Company nor any of its Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender-, (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Subsidiaries; provided, however, that Indebtedness that
would otherwise be NonRecourse Debt but for the reason that the Company or a
Subsidiary may be directly or indirectly liable as a guarantor or otherwise,
such Indebtedness will be considered Non-Recourse Debt if the guarantee of such
Indebtedness or other obligation with respect to such Indebtedness was not
prohibited at the time of its incurrence by the covenants described under the
captions "-Restricted Payments" and "-Incurrence of Indebtedness and Issuance of
Disqualified Stock and Preferred Stock of Subsidiaries" (with the amount of the
Restricted Payment or Indebtedness, as the case may be, being equal to the
principal amount of the Indebtedness so guaranteed, directly or indirectly, by
the Company or any Subsidiary or for which the Company or any Subsidiary may be,
directly or indirectly, obligated).
"Obligations" means any principal, premium, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Businesses" means (a) any business in which the Company and
its Subsidiaries are engaged on the date of the Indenture or any reasonable
extension or expansion of such businesses and (b) any business similar or
related to the manufacture, design, marketing, distribution or resale of
automotive parts or plastic products, parts, components or assemblies.
"Permitted Investments" means (a) any Investment in the Company or in a
Subsidiary; (b) any Investment in Cash Equivalents; (c) any Investments existing
on the date of the Indenture after giving effect to the intended use of proceeds
set forth and transactions referred to under the caption "Use of Proceeds" of
the offering memorandum pursuant to which the Series A Notes were issued and any
amendment, modification, restatement, supplement, extension, renewal, refunding,
replacement, refinancing, in whole or in part, thereof; provided that the
aggregate amount of such Investments under this clause (c) do not at any time
exceed, in the aggregate, the amount of such Investments outstanding on the date
of the Indenture (d) any Investment by the Company or any Subsidiary of the
Company, if as a result of such Investment (i) such Person becomes a Subsidiary
of the Company or (ii) such Person is merged, consolidated or amalgamated with
or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Subsidiary of the Company; (e) any Restricted
Investment made as a result of the receipt of non-cash consideration from an
Asset Sale that was made pursuant to and in compliance with the covenant
described above under the caption "-Repurchase at the Option of Holders- Asset
Sales;" (f) any acquisition of assets in exchange for the issuance of Equity
Interests (other than Disqualified Stock) of the Company; (g) loans and advances
to employees and officers of the Company and its Subsidiaries in the ordinary
course of business for bona fide business purposes not in excess of $1,000,000
at any one time outstanding; and (h) other Investments in any Person having an
aggregate fair market value (measured on the date each such Investment was made
and without giving effect to subsequent changes in value), when taken to ether
with all other Investments made pursuant to this clause (h) that are at the time
outstanding, not to exceed $12.5 million.
60
<PAGE> 66
"Permitted Junior Securities" means Equity Interests in the Company or
debt securities that are subordinated to all Senior Debt (and any debt
securities issued in exchange for Senior Debt) to substantially the same extent
as, or to a greater extent than, the Notes are subordinated to Senior Debt
pursuant to Article 10 of the Indenture.
"Permitted Quarterly Tax Distributions" means quarterly distributions
of Tax Amounts determined on the basis of the estimated taxable income of the
Company, for the related Estimation Period, provided, however, that, (A) prior
to any distributions of Tax Amounts the Company shall deliver an officers'
certificate certifying that the Tax Amounts to be distributed were determined
pursuant to the terms of the Indenture and stating to the effect that the
Company qualifies as an S-Corporation or substantially similar pass-through
entity for Federal income tax purposes and (B) at the time of such
distributions, the most recent audited financial statements of the Company
reflect that the Company was treated as an S- Corporation or substantially
similar pass-through entity for Federal income tax purposes for the period
covered by such financial statements.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of the Company or any of its Subsidiaries; provided that: (i) the
principal amount (or accredit value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount of (or accredit
value, if applicable), plus accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith, including any premiums on
principal); (ii) such Permitted Refinancing Indebtedness has a final maturity
date later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded; and (iii) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the Notes,
such Permitted Refinancing Indebtedness has a final maturity date later than the
final maturity date of, and is subordinated in right of payment to, the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded.
"Principals" mean (i) any or all of David Benoit, George Mars and Joel
Tauber and (ii) any trust established by any of the foregoing provided that the
beneficiaries of the trust are members of such person's immediate family and
such person maintains sole voting power over the shares held by such trust.
"Purchase and Sale of Shares Promissory Agreement" means the Purchase
and Sale of Shares Promissory Agreement, dated October 21, 1996, by and between
the Company and the other parties named therein.
"Quarterly Payment Period" means the period commencing on the tenth day
and ending on and including the twentieth day of each month in which Federal
individual estimated tax payments are due provided that payments in respect of
estimated state income taxes due in January may instead, at the option of the
Company, be paid during the last 20 days of the immediately preceding December.
"Related Party" with respect to any Principal means (A) any controlling
stockholder, 80% (or more) owned Subsidiary, or spouse or immediate family
member (in the case of an individual) of such Principal or (B) or trust,
corporation, partnership or other entity, the beneficiaries, stockholders,
partners, owners or Persons beneficially holding an 80% or more controlling
interest of which consist of such Principal and/or such other Persons referred
to in the immediately preceding clause (A).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Senior Credit Facility" means that certain Credit Agreement, dated as
of March 24, 1997, by and among the Company, the lenders party thereto from time
to time and NBD Bank, as agent for such lenders, providing for up to $140.0
million of credit borrowings, including any related notes, guarantees, letters
of credit, collateral documents, instruments and agreements executed in
connection therewith, and in each case as amended, modified, restated,
supplemented, extended, renewed, refunded, replaced, refinanced or defeased from
time to time.
"Senior Debt" means (i) all Indebtedness and other obligations and
liabilities outstanding at any time tinder the Senior Credit Facility permitted
under clauses (ii) and (iii) of the second paragraph of the covenant described
above under
61
<PAGE> 67
the caption "-Incurrence of Indebtedness and Issuance of Disqualified Stock and
Preferred Stock of Subsidiaries," (ii) any other Indebtedness permitted to be
incurred by the Company or any Subsidiary under the terms of the Indenture,
unless the instrument under which such Indebtedness is incurred expressly
provides that it is on parity with or subordinated in right of payment to the
Notes including, without limitation, any Indebtedness of any Subsidiary to the
Company unless such intercompany Indebtedness expressly provides that it is
subordinated to the Notes and (iii) all Obligations with respect to the
foregoing as described in clauses (i) and (ii) above, and in all cases whether
now outstanding or hereafter created, assumed or incurred and including, without
limitation, interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided in the relevant document, whether or not an
allowed claim. Notwithstanding anything to the contrary in the foregoing, Senior
Debt will not include (w) any liability for federal, state, local or other taxes
owed or owing by the Company, (x) any Indebtedness of the Company to any of its
Subsidiaries or other Affiliates, (y) any trade payables or (z) any Indebtedness
that is incurred in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of in
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to' repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof). Notwithstanding the
foregoing, a "Subsidiary" shall: (x) include, with respect to any Person, any
corporation, association or other business entity in which Such Person or a
Subsidiary of such Person holds at least 35% of the equity and has the ability
to direct the policies and business decisions of such corporation, association
or other business entity, whether by control of the Board of Directors, contract
or otherwise; and (y) not include, with respect to any Person, any Unrestricted
Subsidiary of such Person.
"Subsidiary Guarantee" means a Guarantee by a Subsidiary on a senior
subordinated basis of the Company's payment obligations under the Notes and the
Indenture.
"Tax Amounts" with respect to any taxable period shall not exceed an
amount equal to (A) the product of (x) the taxable income of the Company for
such period as determined by the Tax Amounts CPA and (y) the Tax Percentage
reduced by (B) to the extent not previously taken into account, any income tax
benefit attributable to the Company which could be realized (without regard to
the actual realization) by its stockholders in the current or any prior taxable
year, or portion thereof, commencing on or after the Issue Date (including any
tax losses or tax credits), computed at the applicable Tax Percentage for the
year that such benefit is taken into account for purposes of this computation.
"Tax Amounts CPA " means a nationally recognized certified public
accounting firm.
"Tax Percentage" means, for a particular taxable year, the highest
effective marginal combined rate of Federal and state income tax, imposed on an
individual taxpayer, as certified by the Tax Amounts CPA in a certificate filed
with the Trustee. The rate of "state income tax" to be taken into account for
purposes of determining the Tax Percentage for a particular taxable year shall
be deemed to be the highest state marginal tax rate applicable to any
stockholder.
"True-up Amount" means, in respect of a particular taxable year, an
amount determined by the Tax Amounts CPA equal to the difference between (i) the
aggregate Permitted Quarterly Tax Distributions actually distributed in respect
of such taxable year and (ii) the actual Tax Amounts for such year. For purposes
of this Agreement, the amount equal to the excess, if any, of the amount
described in clause (i) over the amount described in clause (ii) above shall be
referred to as the "True-up Amount due to the Company" and the excess, if any,
of the amount described in clause (ii) over the amount described in clause (i)
above shall be referred to as the "True-up Amount due to the stockholders."
62
<PAGE> 68
"True-up Determination Date" means the date on which the Tax Amounts
CPA delivers a statement to the Trustee indicating the True-up Amount.
"Unrestricted Subsidiary" means any Person who would otherwise be a
Subsidiary, but for the fact that such Person is designated by the Board of
Directors as an Unrestricted Subsidiary pursuant to a Board Resolution; but only
to the extent that such Person: (a) has no Indebtedness other than Non-Recourse
Debt; (b) is not party to any agreement, contract, arrangement or understanding
with the Company or any Subsidiary of the Company unless the terms of any such
agreement, contract, arrangement or understanding are no less favorable to the
Company or such Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity Interests or (y) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results, other than to the extent permitted in
the definition of Non-Recourse Debt; and (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of the
Company or any of its Subsidiaries;
"Voting Stock" of any Person as of any date means the Capital Stock of
such Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the sum
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
63
<PAGE> 69
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is based on the current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
regulations, judicial authority and administrative rulings and practice. There
can be no assurance that the Internal Revenue Service (the "Service") will not
take a contrary view, and no ruling from the Service has been or will be sought.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conditions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to holders. Certain holders (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
below. The Company recommends that each holder consult such holder's own tax
advisor as to the particular tax consequences of exchanging such holder's Series
A Notes for Series B Notes, including the applicability and effect of any state,
local or foreign tax laws.
The Company believes that the exchange of Series A Notes for Exchange
Notes pursuant to the Exchange Offer will not be treated as an "exchange" for
federal income tax purposes because the Series B Notes will not be considered to
differ materially in kind or extent from the Series A Notes. Rather, the Series
B Notes received by a holder will be treated as a continuation of the Series A
Notes in the hands of such holder. As a result, there will be no federal income
tax consequences to holders exchanging Series A Notes for Exchange Notes
pursuant to the Exchange Offer.
PLAN OF DISTRIBUTION
Based on interpretations by the Staff set forth in no-action letters
issued to third parties, the Company believes that Series B Notes issued
pursuant to the Exchange Offer in exchange for the Series A Notes may be offered
for resale, resold and otherwise transferred by holders thereof (other than any
holder which is (i) an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act, (ii) a broker dealer who acquired Notes directly from
the Company or (iii) broker-dealers who acquired Notes as a result of
market-making or other trading activities) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such Series B Notes are acquired in the ordinary course of such holders'
business, and such holders are not engaged in, and do not intend to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of such Series B Notes; provided that broker-dealers
("Participating Broker-Dealers") receiving Series B Notes in the Exchange Offer
will be subject to a prospectus delivery requirement with respect to resales of
such Series B Notes. To date, the Staff has taken the position that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to transactions involving an exchange of securities such as the
exchange pursuant to the Exchange Offer (other than a resale of an unsold
allotment from the sale of the Series A Notes to the Initial Purchasers) with
the Prospectus contained in the Registration Statement. Pursuant to the
Registration Rights Agreement, the Company has agreed to permit Participating
Broker-Dealers and other persons, if any, subject to similar prospectus delivery
requirements to use this Prospectus in connection with the resale of such Series
B Notes. The Company has agreed that, for a period of 365 days after the
Expiration Date, it will make this Prospectus, and any amendment or supplement
to this Prospectus, available to any broker-dealer that requests such documents
in the Letter of Transmittal.
Each holder of the Series A Notes who wishes to exchange its Series A
Notes for Series B Notes in the Exchange Offer will be required to make certain
representations to the Company as set forth in "The Exchange Offer - Terms and
Conditions of the Letter of Transmittal." In addition, each holder who is a
broker-dealer and who receives Series B Notes for its own account in exchange
for Series A Notes that were acquired by it as a result of market-making
activities or other trading activities, will be required to acknowledge that it
will deliver a prospectus in connection with any resale by it of such Series B
Notes.
The Company will not receive any proceeds from any sale of Series B
Notes by broker-dealers. Series B Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Series B Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or a negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer
64
<PAGE> 70
and/or the purchasers of any such Series B Notes. Any brokered dealer that
resells Series B Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such Series B Notes may be deemed to be an "underwriter" within the meaning
of the Securities Act and any profit on any such resale of Series B Notes and
any commissions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange
Offer other than commissions and concession of any brokers or dealers and will
indemnify holders of the Series A Notes (including any broker-dealers) against
certain liabilities, including liabilities under the Securities act, as set
forth in the Registration Rights Agreement.
LEGAL MATTERS
Certain legal matters with respect to the Notes will passed upon for
the Company by Dykema Gossett PLLC, Detroit, Michigan.
EXPERTS
The consolidated balance sheets as of December 31, 1996 and 1995, and
the consolidated statements of income, shareholders' deficit and cash flows for
each of the three years in the period ended December 31, 1996, included in this
prospectus, have been included herein in reliance on the report of Coopers &
Lybrand, L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing.
65
<PAGE> 71
KEY PLASTICS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets -- December 31, 1996 and 1995... F-3
Consolidated Statements of Income -- Years Ended December
31, 1996, 1995, and 1994.................................. F-4
Consolidated Statements of Shareholders' Deficit -- Years
Ended December 31, 1996, 1995,
and 1994.................................................. F-5
Consolidated Statements of Cash Flows -- Years Ended
December 31, 1996, 1995 and 1994.......................... F-6
Notes to Consolidated Financial Statements.................. F-7-15
</TABLE>
F-1
<PAGE> 72
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of Key Plastics, Inc.:
We have audited the accompanying consolidated balance sheets of Key
Plastics, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholder's equity, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Key
Plastics, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
As discussed in Note 11, the accompanying financial statements for the
years ended December 31, 1995 and 1994 have been revised.
Coopers & Lybrand Sig.
Detroit, Michigan
March 3, 1997, except as to the information
presented in paragraph 2 in Note 12,
for which the date is March 19, 1997.
F-2
<PAGE> 73
KEY PLASTICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable, net.................................. $ 43,131,344 $ 29,406,392
Inventories............................................... 35,634,636 22,063,953
Prepaid expenses.......................................... 2,075,589 1,169,835
------------ ------------
Total current assets................................. 80,841,569 52,640,180
Property, plant and equipment, net.......................... 98,908,150 68,183,780
Intangibles, net............................................ 8,516,123 2,844,297
Other assets................................................ 4,938,500 2,421,728
------------ ------------
Total assets......................................... $193,204,342 $126,089,985
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt...................... $ 64,484,121 $ 17,172,590
Accounts payable.......................................... 35,706,663 19,189,716
Outstanding checks in excess of cash balances............. 5,371,686 1,017,869
Accrued interest.......................................... 5,275,094 3,771,017
Accrued payroll........................................... 3,527,258 1,570,546
Other accrued liabilities................................. 6,699,633 865,009
------------ ------------
Total current liabilities............................ 121,064,455 43,586,747
Capital lease obligation.................................... 2,057,059 2,669,133
Long-term debt.............................................. 82,520,618 99,797,587
Other long-term obligations................................. 3,124,779 911,332
Shareholders' equity (deficit):
Common stock, par value $.30 per share; 450,000 shares
authorized and 315,908 and 316,834 shares issued and
outstanding for 1996 and 1995, respectively............ 94,772 95,050
Additional paid-in capital................................ 9,786,603 10,002,725
Accumulated deficit....................................... (25,703,244) (30,972,589)
Currency translation...................................... 259,300 --
------------ ------------
Total shareholders' equity (deficit)................. (15,562,569) (20,874,814)
------------ ------------
Total liabilities and shareholders' equity
(deficit)......................................... $193,204,342 $126,089,985
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 74
KEY PLASTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales.......................................... $217,086,635 $179,250,924 $194,111,889
Cost of sales...................................... 177,634,483 141,707,160 158,051,681
------------ ------------ ------------
Gross profit.................................. 39,452,152 37,543,764 36,060,208
Selling, general and administrative expenses....... 16,532,360 15,531,393 13,955,313
Amortization....................................... 657,495 640,811 783,686
------------ ------------ ------------
Operating income.............................. 22,262,297 21,371,560 21,321,209
Interest expense................................... 15,211,183 14,292,010 12,752,054
------------ ------------ ------------
Net income.................................... $ 7,051,114 $ 7,079,550 $ 8,569,155
============ ============ ============
Net income per common share and common share
equivalents...................................... $21.33 $21.18 $25.42
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 75
KEY PLASTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------- PAID-IN ACCUMULATED CURRENCY
SHARES AMOUNT CAPITAL DEFICIT TRANSLATION TOTAL
------ ------ ---------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994............ 326,781 $98,035 $10,557,995 $(40,497,359) $(29,841,329)
Issuance of common stock............. 1,694 508 82,498 83,006
Dividend distributions, $6.45 per
share.............................. (2,098,745) (2,098,745)
Purchase and constructive retirement
of common stock.................... (3,074) (923) (138,257) (139,180)
Net income........................... 8,569,155 8,569,155
------- ------- ----------- ------------ -------- ------------
Balances, December 31, 1994.......... 325,401 97,620 10,502,236 (34,026,949) (23,427,093)
Dividend distributions, $6.54 per
share.............................. (4,025,190) (4,025,190)
Purchase and constructive retirement
of common stock.................... (8,567) (2,570) (499,511) (502,081)
Net income........................... 7,079,550 7,079,550
------- ------- ----------- ------------ -------- ------------
Balances, December 31, 1995.......... 316,834 95,050 10,002,725 (30,972,589) (20,874,814)
Dividend distributions, $5.63 per
share.............................. (1,781,769) (1,781,769)
Purchase and constructive retirement
of common stock.................... (926) (278) (216,122) (216,400)
Currency translation................. $259,300 259,300
Net income........................... 7,051,114 7,051,114
------- ------- ----------- ------------ -------- ------------
Balances, December 31, 1996.......... 315,908 $94,772 $ 9,786,603 $(25,703,244) $259,300 $(15,562,569)
======= ======= =========== ============ ======== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 76
KEY PLASTICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 1996, 1995, AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................ $ 7,051,114 $ 7,079,550 $ 8,569,155
------------ ------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................... 9,174,944 6,971,368 5,483,469
Amortization................................... 657,495 640,811 783,686
Decrease (increase) in assets:
Accounts receivable............................ (13,724,952) (737,030) (7,940,450)
Inventories.................................... (13,570,683) 4,784,426 (4,540,689)
Prepaid expenses............................... (905,754) (35,551) 315,762
Increase (decrease) in liabilities:
Accounts payable............................... 16,516,947 (7,317,872) 9,804,905
Other accrued liabilities...................... 9,295,413 309,973 780,468
------------ ------------ ------------
Total adjustments............................ 7,443,410 4,616,125 4,687,151
------------ ------------ ------------
Net cash provided by operating
activities.............................. 14,494,524 11,695,675 13,256,306
------------ ------------ ------------
Cash flows from investing activities:
Acquisitions of property, plant and equipment,
net............................................ (16,738,353) (14,046,654) (16,189,222)
Property, plant and equipment from acquired
businesses..................................... (23,108,961) -- --
Increase in other assets, net..................... (8,102,038) (1,814,835) (261,969)
------------ ------------ ------------
Net cash used in investing activities..... (47,949,352) (15,861,489) (16,451,191)
------------ ------------ ------------
Cash flows from financing activities:
Net borrowings under debt agreements.............. 45,464,204 14,124,549 8,644,378
Principal payments under debt agreements and
capital lease obligations...................... (16,041,717) (5,546,172) (3,228,038)
Long-term agreements to finance acquisitions...... 1,676,693 -- --
Purchase of common stock.......................... (216,400) (502,081) (139,179)
Dividend distributions............................ (1,781,769) (4,025,190) (2,098,746)
Change in outstanding checks...................... 4,353,817 114,708 16,470
------------ ------------ ------------
Net cash provided by financing
activities.............................. 33,454,828 4,165,814 3,194,885
------------ ------------ ------------
Net increase in cash................................ 0 0 0
Cash, beginning of year............................. 0 0 0
------------ ------------ ------------
Cash, end of year................................... $ 0 $ 0 $ 0
============ ============ ============
Supplemental disclosure of cash flow information --
Cash paid during the year for interest............ $ 13,888,749 $ 13,209,030 $ 12,722,511
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 77
KEY PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION -- The consolidated financial statements include the accounts of
Key Plastics, Inc. and its majority-owned or controlled subsidiaries (the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
INVENTORIES -- Inventories are stated at the lower of cost or market with cost
determined using the FIFO (first-in, first-out) method.
REVENUE RECOGNITION:
Manufactured Parts -- Sales are recognized on manufactured parts when the
parts are shipped to the customer. Returns and allowances are recorded as a
reduction of sales in the period they occur.
Tooling -- Costs of tooling purchased or produced are included in
work-in-progress inventory. Generally, such tooling is owned by the customer and
used by the Company for the production of parts for the respective customer.
Income from contracts for the manufacture of customer tooling is accounted for
under the completed-contract method of accounting, which recognizes revenue upon
completion of contracts or identifiable segments. Costs in excess of customer
reimbursement are capitalized and amortized over the related part's production
period. Such capitalized costs, net of amortization, are included in other
assets.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at
cost. Depreciation is determined using the straight-line method over the
estimated useful lives of the assets.
The general ranges of lives are as follows:
<TABLE>
<S> <C>
Building and improvements................................... 25 to 30 years
Machinery and equipment..................................... 3 to 15 years
Furniture and fixtures...................................... 3 to 10 years
</TABLE>
Maintenance and repairs are expensed; renewals and betterments are
capitalized. Upon retirement, replacement, or sale, gains or losses are included
in income. The costs of major refurbishments and improvements to tools, utilized
in the manufacturing process, are capitalized in property, plant and equipment
and amortized over the lesser of three years or the remaining useful life of the
tool.
INTANGIBLES:
Goodwill -- Goodwill represents the excess of amounts paid and liabilities
assumed over the fair value of identifiable tangible and intangible assets
acquired. This amount is amortized using the straight-line method over a period
of 15 years. The company evaluates the carrying value of goodwill for potential
impairment on an ongoing basis. Such evaluations compare operating income before
amortization of goodwill to the amortization recorded for the operations to
which the goodwill relates. The company also considers projected future
operating results, trends and other circumstances in making such estimates and
evaluations.
Deferred Financing Costs -- Deferred financing costs represent costs
incurred in connection with obtaining financing. These costs are amortized over
the period the loans are outstanding.
Other Intangibles -- Other intangibles are amortized using the
straight-line method over five to 10 years.
Preproduction Costs -- Preproduction costs associated with the start-up of
manufacturing activities related to new parts are included in the cost of sales
in the period incurred.
INCOME TAXES -- The Company has elected to be taxed as an S-Corporation. Under
the provisions of this election, the Company is not subject to federal income
taxes. The Company's policy is to pay dividends to shareholders for the income
taxes due on the shareholders' share of the Company's taxable income. Under the
terms of a shareholder tax allocation agreement, the shareholders are required
to make additional capital
F-7
<PAGE> 78
KEY PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
1. SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED
contributions to the Company equivalent to the income tax benefit resulting from
their share of the Company's taxable losses. The additional capital
contributions are recorded when received.
EARNINGS PER COMMON SHARE AND COMMON SHARE EQUIVALENTS -- Earnings per share is
based on the weighted average number of shares of common stock outstanding and,
to the extent dilutive, common stock equivalents (relating to stock options and
warrants) outstanding during the period.
MAJOR CUSTOMER AND CONCENTRATION OF CREDIT RISK -- The Company manufactures
injection molded plastic parts for sale primarily to domestic automobile
manufacturers and their suppliers. Substantially all of the Company's net sales
and accounts receivable are with three domestic automobile manufacturers and
their suppliers. Net sales to one of these customers accounted for approximately
58 percent of net sales in 1996, approximately 57 percent of 1995 sales and
approximately 62 percent in 1994. Net sales to a second one of these customers
accounted for approximately 9 percent of sales in 1996, approximately 10 percent
in 1995 and approximately 11 percent in 1994.
ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the period.
Actual results could differ from those estimates.
RECLASSIFICATIONS -- Certain reclassifications have been made to the 1995
financial statements to conform with classifications used in 1996.
2. INVENTORIES
The components of inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Raw materials....................................... $ 7,859,701 $ 5,645,958
Work in process..................................... 2,584,080 1,975,308
Finished goods...................................... 7,586,917 4,217,179
Customer tooling in process......................... 17,603,938 10,225,508
----------- -----------
Total.......................................... $35,634,636 $22,063,953
=========== ===========
</TABLE>
F-8
<PAGE> 79
KEY PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Land........................................................ $ 2,159,746 $ 1,563,585
Building and improvements................................... 35,182,494 19,994,952
Machinery and equipment..................................... 102,724,181 69,984,842
Furniture and fixtures...................................... 4,641,092 2,961,868
Construction-in-progress.................................... 1,844,632 5,546,328
------------ ------------
Total.................................................. 146,552,145 100,051,575
Less accumulated depreciation............................... 47,643,995 31,867,795
------------ ------------
Total.................................................. $ 98,908,150 $ 68,183,780
============ ============
</TABLE>
4. INTANGIBLES
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
---- ----
<S> <C> <C>
Goodwill.................................................... $6,592,469 $ 498,965
Deferred financing costs.................................... 4,164,458 3,831,958
Other intangibles........................................... 836,002 916,002
---------- ----------
Total....................................................... 11,592,929 5,246,925
Less accumulated amortization............................... 3,076,806 2,402,628
---------- ----------
Total....................................................... $8,516,123 $2,844,297
========== ==========
</TABLE>
F-9
<PAGE> 80
KEY PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Senior Notes due November 1999 requiring semiannual interest
payments at the rate of 14%............................... $ 65,000,000 $ 65,000,000
Revolving credit loan, bank, due May 1, 1997 requiring
monthly interest payments at prime (8.25% at December 31,
1996)..................................................... 28,988,307 16,260,684
Demand note, bank requiring monthly interest payments at
prime plus .5% (8.75% at December 31, 1996)............... 9,000,000 9,000,000
Installment financing, payable in monthly installments of
$250,000 plus interest at prime (8.25% at December 31,
1996)..................................................... 7,500,000 10,500,000
Industrial Development Revenue Bond, due August 1999,
requiring semiannual interest payments at rates ranging
from 6.9% to 7.2% and annual principal payments of
$465,000 to $1,000,000.................................... 2,465,000 3,265,000
Economic Development Revenue Bonds, payable on demand and
due July 1, 2004, requiring monthly interest payments at a
floating interest rate (3.8% at December 31, 1996)........ 3,600,000 4,050,000
Installment notes, due from January 1995 to April 1997,
requiring monthly principal payments plus interest at
prime plus 1.5% (9.25% at December 31, 1996).............. 64,809 359,405
Bank note payable, due April 1997, requiring monthly
interest payments at prime (8.25% at December 31, 1996)... 5,500,000 --
Installment notes, due from June 1998 to December 2003,
requiring semiannual principal payments plus interest of
8% or 11.64%, payable in Portuguese Escudos............... 895,761 --
1992 & 1994 series bonds, requiring semiannual principal
payments plus interest of 11.75%, payable in Portuguese
Escudos................................................... 2,903,226 --
Working capital loan collateralized by accounts receivable
of MaP (Portugal) operation. Interest for these loans
averages 12%.............................................. 2,721,548 --
Term loan and revolving credit facility, bearing interest at
LIBOR plus 2.5% (8.75% at December 31, 1996), payable in
British Pounds Sterling................................... 9,831,000 --
Subordinated Shareholders' Notes due August 2000, requiring
semiannual interest payment at the rate of 12%............ 8,535,088 8,535,088
------------ ------------
Total.................................................. 147,004,739 116,970,177
Less current maturities..................................... 64,484,121 17,172,590
------------ ------------
Total.................................................. $ 82,520,618 $ 99,797,587
============ ============
</TABLE>
Principal payments of long-term debt for each of the next five years is as
follows:
<TABLE>
<S> <C>
Current maturities.......................................... $64,484,121
1998........................................................ 4,955,736
1999........................................................ 67,759,452
2000........................................................ 9,329,540
2001........................................................ 475,890
</TABLE>
The Company's financing agreements contain many restrictive loan covenants,
some of which require the Company to maintain minimum levels of working capital,
require the maintenance of specified financial ratios,
F-10
<PAGE> 81
KEY PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
LONG-TERM DEBT -- (CONTINUED)
and restrict specified payments, including dividends. Under the most restrictive
covenant, the Company can only distribute dividends to shareholders equal to
their respective tax liabilities generated from the Company.
Substantially all of the Company's assets are pledged as collateral for
long-term debt.
The Economic Development Revenue Bonds are classified within current
maturities of long-term debt because the bonds are redeemable at the option of
the bondholders. Management believes the bonds can be remarketed in the event
the bondholders require redemption. The Bonds are collateralized by a $3.6
million letter of credit issued by a bank.
At December 31, 1996, the Company had the following additional open letters
of credit. The Industrial Development Revenue Bond is collateralized by a $2.5
million bank letter of credit. The Company is self-insured in the State of
Michigan for workers' compensation. As such, the Company has a bank letter of
credit in the amount of $815,000 to serve as collateral for any potential
claims. The Company pays commitment fees on the above letters of credit in the
amount of 1.5 percent per year of the committed amount.
The Company has a $41.0 million working capital line of credit. Interest
under the facility is at prime. Additional available borrowings under the
facility are limited primarily to a percentage of accounts receivable and
inventory and were approximately $1.0 million on December 31, 1996.
The Subordinated Shareholders' Notes are uncollateralized and subordinate
to all present and future bank indebtedness of the Company. Payments of
principal or interest to shareholders are subject to certain restrictions under
the terms of the Company's Senior Notes. If an employee-shareholder breaches the
terms of certain noncompete provisions, that person may forfeit any amount due
and owing to him or her under the Subordinated Shareholders' Notes. Interest
expense includes $1,024,000 in 1996, $1,099,000 in 1995 and $1,200,000 in 1994
related to the Subordinated Shareholders' Notes.
On February 19, 1997 the Company commenced an offer to repurchase the
Senior Notes at an expected 11% premium. As such, the Company estimates the fair
value of those notes at $72.2 million from February 19, 1997 until the offer
expires on March 18, 1997. See Note 12, Subsequent Events, for a more detailed
discussion of the transaction.
The carrying amount of the bank debt and the remaining other long-term debt
instruments approximate fair value as the floating rates inherent in this debt
reflect changes in overall market interest rates. The estimated fair value of
the Industrial Revenue Bond is approximately the book value of $3,265,000 as
estimated by discounting future cash flows based on the Company's incremental
borrowing rate for similar types of debt instruments. The carrying amount of the
Company's Subordinated Shareholders' Notes approximates fair value.
F-11
<PAGE> 82
KEY PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
6. LEASES
During 1994, the Company entered into four capital leases for a production
plant and various equipment in Mexico. The assets recorded under the capital
leases as included in property plant and equipment in the accompanying
consolidated balance sheets consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land........................................................ $ 406,965 $ 406,965
Production facility......................................... 2,170,914 2,170,914
Equipment................................................... 207,567 207,567
---------- ----------
Total.................................................. 2,785,446 2,785,446
---------- ----------
Less accumulated amortization............................... 130,373 35,917
---------- ----------
Total....................................................... $2,655,073 $2,749,529
========== ==========
</TABLE>
Present value of net minimum lease payments under the capital leases is
$1,894,640.
During 1995, the Company entered into a 10 year operating lease for Novi,
Michigan. The executive, engineering and sales departments moved to this
location. The Company also holds a renewable 4 year operating lease for the
Grand Rapids, Michigan plant that expires in 1998. The rental expense related to
these leases amounted to $530,454 in 1996 and $405,536 in 1995. Rental expense
for the Company's subsidiary in the United Kingdom was $617,000 in 1996.
Minimum future lease obligations on capital and operating leases in effect
at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
1997........................................................ $865,084 $1,607,263
1998........................................................ 865,084 1,531,914
1999........................................................ 648,813 1,415,674
2000........................................................ 0 1,300,231
2001........................................................ 0 901,022
Thereafter.................................................. 0 2,262,155
</TABLE>
7. EMPLOYEE BENEFITS AND COMPENSATION COMMITMENTS
PENSION AND PROFIT-SHARING PLAN - The Company has a profit-sharing plan
covering a majority of its employees who are not covered by the defined
contribution plan. The plan provides for contributions determined at the Board
of Directors' discretion from current or accumulated net income. Contributions
are allocated on the basis of salaries and are funded as accrued.
STOCK OPTIONS - During 1995, the Company issued options to employees to
purchase shares of common stock at an exercise price of $61. No new options were
issued in 1996. The exercise price represents management's estimate of fair
market value of the shares at the date of issuance of the option. At December
31, 1996, options outstanding and exercisable totaled 22,668 shares.
F-12
<PAGE> 83
KEY PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
7. EMPLOYEE BENEFITS AND COMPENSATION COMMITMENTS -- (CONTINUED)
The following table summarizes the activity related to the Company's stock
option plans:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Outstanding at January 1, 1994.............................. 20,812 $24.01
====== ======
Granted................................................... 1,000 $49.00
------ ------
Exercised................................................. --
Forfeited................................................. --
Outstanding at December 31, 1994............................ 21,812 $25.15
====== ======
Granted................................................... 5,556 $61.10
Exercised................................................. --
Forfeited................................................. --
Outstanding at December 31, 1995............................ 27,368 $32.45
====== ======
Granted................................................... --
Exercised................................................. 4,700 24.40
Forfeited................................................. --
Outstanding at December 31, 1996............................ 22,668 $34.12
====== ======
</TABLE>
CHANGE IN CONTROL AGREEMENT -- LONG TERM INCENTIVE PLAN
Certain key management are included in a long term incentive plan. The plan
provides for payments upon the occurrence of an initial public offering, sale of
all or substantially all of the Company's stock or sale of all or substantially
all of the Company's assets. Payment is based upon a formula specified in the
plan.
8. LITIGATION AND CLAIMS
The Company is subject to various legal and regulatory proceedings and
claims which arise in the ordinary course of business. In the opinion of
management, the amount of any liability which may result with respect to these
actions will not materially affect the financial position of the Company.
Additionally, the Company is under investigation by the Ohio Environmental
Protection Agency ("OEPA") for possible violations of environmental emission
standards and permitting regulations at its Ohio facility. The Company is in the
process of providing the information requested by the OEPA and is taking the
necessary steps to comply with the regulations. At this point, no fines and
penalties have been assessed against the Company. However, based on current
information, management believes that the results of the investigation will not
materially affect the financial position of the Company.
9. ACQUISITIONS
During 1996, the Company acquired Clearplas, Ltd. (Clearplas) and Materias
Plasticas, S.A. (MaP). Both companies are automotive suppliers specializing in
injection molding, painting and assembly. The results of operations for
Clearplas and MaP are included in the Consolidated Statement of Income beginning
May 1 and November 1, respectively. These acquisitions were accounted for using
the purchase method. At December 31, 1996, Other Long-Term Obligations include
$1.7 million, representing the present value of deferred payments for the
acquired shares from one of these acquisitions.
F-13
<PAGE> 84
KEY PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
9. ACQUISITIONS -- (CONTINUED)
The Company acquired MaP pursuant to an agreement which provided for the
Company's acquisition of 38% of the voting stock of the Company and an option to
purchase all of the remaining shares of MaP. Commencing in 1996, the agreement
gives the Company significant operational control, including the appointment of
a majority of the Board of Directors, appointment of the general manager and the
ability to influence significant operational decisions. The option is subject to
MaP meeting certain performance criteria during 1998, with payment of the
purchase price for the option and the 38% to occur in 1999.
Prior to the acquisition, the Company had operated a joint venture with MaP
which began during 1993. The joint venture allowed the Company to establish a
base in Europe and transfer certain technologies it had developed to MaP. During
1995 the Company loaned MaP approximately $300,000 in cash. Additionally, during
1996 and 1995, the Company recognized royalties related to the provision of
technical, sales and management support of approximately $1,600,000 and
$400,000, respectively. During 1996 and 1995, the Company sold products totaling
approximately $1,400,000 and $400,000, respectively, of products to MaP for
finishing and sale to customers in Portugal.
10. SEGMENT DATA
The Company is a global supplier of highly engineered plastic components
for the automotive industry. Its comprehensive plastics manufacturing
capabilities include design and engineering, high-precision injection molding,
automated manufacturing and assembly, plastic painting and material and product
testing. The Company conducts manufacturing and painting operations from eleven
facilities in North America and two facilities in Europe. All of these
activities constitute a single business segment. Prior to 1996, nearly all of
the Company's operations and assets were within North America.
Financial information summarized by geographic area is as follows:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Net Sales:
North America............................................. $187,636,306
Europe.................................................... 29,450,329
------------
$217,086,635
============
Operating Income:
North America............................................. $ 21,706,703
Europe.................................................... 555,594
------------
$ 22,262,297
============
Identifiable Assets:
North America............................................. $150,147,448
Europe.................................................... 43,056,894
------------
$193,204,342
============
</TABLE>
F-14
<PAGE> 85
KEY PLASTICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
11. FINANCIAL STATEMENT REVISIONS RELATED TO PRIOR YEAR'S
Certain adjustments have been made to prior periods to correct errors in
previously reported amounts.
The balance sheet at December 31, 1994 had previously included at full
value, approximately $900,000 of uncollectible accounts receivable for which no
provision was established and excluded certain accrued liabilities totaling
approximately $200,000. A portion of the uncollectible accounts receivable had
been subsequently written off in 1995. Previously issued financial statements
for 1995 and 1994 have been restated to reflect the above matters, as follows:
<TABLE>
<CAPTION>
RESTATED PREVIOUSLY
AMOUNT ADJUSTMENT PRESENTED
-------- ---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
1995:
Accounts receivable, net.................................. $ 29,406 $ (300) $ 29,706
Total current assets...................................... 52,640 (300) 52,940
Total assets.............................................. 126,090 (300) 126,390
Accrued liabilities....................................... 865 200 665
Total current liabilities................................. 43,587 200 43,387
Total shareholders' deficit............................... 20,875 500 20,375
Total liabilities and shareholders' deficit............... 126,090 (300) 126,390
Cost of sales............................................. 141,707 (600) 142,307
Net income................................................ 7,080 600 6,480
Net income per common share............................... $21.18 $1.79 $19.39
1994:
Accounts receivable, net.................................. 28,669 (900) 29,569
Accrued liabilities....................................... 682 200 482
Total shareholders' deficit............................... 23,427 1,100 22,327
Cost of sales............................................. 158,052 1,100 156,952
Net income................................................ 8,569 (1,100) 9,669
Net income per common share............................... $25.42 $(3.26) $28.68
</TABLE>
12. SUBSEQUENT EVENTS
On February 19, 1997 the Company commenced an offer to purchase its 14%
Senior Notes due 1999 (the "Old Notes"). Concurrently, the Company is in the
process of offering, in a private placement, New Senior Subordinated Notes with
a face amount of $125 million (the "New Notes"). Simultaneously, the Company
expects to enter into a new $140 million Senior Credit Facility. The proceeds
from the New Notes are expected to approximate $121 million. The Company expects
that proceeds from the New Notes together with borrowings under the Senior
Credit Facility will be used to repurchase a portion of the Old Notes and repay
indebtedness under its existing credit facility and certain other obligations.
On March 19, 1997, $40,135,000 of the Old Notes had been validly tendered
and not withdrawn pursuant to the Tender Offer. The premium related to the
repurchase of the Old Notes and the consent fees in the aggregate will be
$4,436,650 and the write-off of unamortized debt issuance costs related to the
Tender Offer will be $1,167,000.
During January 1997, the Company declared and paid approximately $733,000
in dividends to satisfy shareholders' income tax obligations.
* * * * * *
F-15
<PAGE> 86
No person has been authorized to give any information or to make any
representations not contained in this Prospectus, and, if given or made, such
other information or representations must not be relied upon as having been
authorized by the Company. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company 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 any securities other than the securities to which it relates.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy any securities other than the securities to which it relates. This
Prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy such securities in any jurisdiction in which such offer or solicitation
is unlawful.
TABLE OF CONTENTS
Page
Prospectus Summary............................... 1
Risk Factors..................................... 7
The Exchange Offer............................... 13
Use of Proceeds.................................. 20
Capitalization................................... 20
Selected Consolidated Financial Data............. 21
Business......................................... 23
Management's Discussion
and Analysis of Financial Condition
and Results of Operations..................... 31
Security Ownership of Certain
Beneficial Owners and
Management..................................... 37
Description of Notes............................. 39
Plan of Distribution............................. 64
Legal Matters.................................... 65
Experts ........................................ 65
Index to Consolidated Financial Statements....... F-1
$125,000,000
KEY PLASTICS, INC.
10 1/4% SENIOR SUBORDINATED
NOTES DUE 2007, SERIES B
--------------
PROSPECTUS
July 7, 1997
--------------
