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Pursuant to Rule 424b3
Registration No. 333-34475
PROSPECTUS
VENTURE HOLDINGS TRUST VENTURE LOGO
OFFER TO EXCHANGE
SERIES B 9 1/2% SENIOR NOTES DUE 2005
FOR ALL OF ITS OUTSTANDING
9 1/2% SENIOR NOTES DUE 2005
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., NEW YORK CITY TIME, ON DECEMBER 3, 1997, UNLESS EXTENDED.
Venture Holdings Trust (the "Trust") and each of its wholly owned
subsidiaries, other than Venture Industries Canada Ltd. ("Venture Canada"),
(each an "Issuer" and, together with the Trust, the "Issuers") hereby offer 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 $205,000,000 of Series B 9 1/2% Senior
Notes due 2005 (the "Series B Notes") for up to an aggregate principal amount of
$205,000,000 of outstanding 9 1/2% Senior Notes due 2005 (the "Original Notes").
When used herein, the Company refers to the Issuers and Venture Canada, taken as
a whole. The Issuers operate for the benefit of Larry J. Winget ("Mr. Winget"),
as the sole beneficiary of the Trust. Mr. Winget has control of the Issuers and
exercises control over their affairs, subject only to limitations contained in
certain agreements related to the indebtedness of the Company, including the
Series B Notes. See "Risk Factors -- Control; Affiliated Transactions."
The terms of the Series B Notes are substantially identical in all material
respects to those of the Original Notes, except for certain transfer
restrictions, registration rights and liquidated damages relating to the
Original Notes. The Series B Notes will be issued pursuant to, and entitled to
the benefit of, the Indenture (as defined herein) governing the Original Notes.
In the event that the Exchange Offer is consummated, any Original Notes which
remain outstanding after the Exchange Offer and all outstanding Series B Notes
will vote together as a single class for purposes of taking action under the
Indenture. The Series B Notes and the Original Notes are sometimes referred to
collectively as the "Notes". Future subsidiaries of the Issuers may, and under
certain circumstances shall, jointly and severally guarantee, irrevocably and
unconditionally, on a senior unsecured basis, full payment of the Series B
Notes. See "Description of Notes -- Certain Covenants -- Future Subsidiary
Guarantors."
Interest on the Series B Notes will accrue from the date of issuance thereof
and will be payable semi-annually on January 1 and July 1 of each year,
commencing January 1, 1998. Original Notes that are exchanged for Series B Notes
will accrue interest until the date of issuance of the Series B Notes. Original
Notes that are exchanged for Series B Notes will cease to accrue interest as of
the date of issuance of the Series B Notes. The Series B Notes will be
redeemable at the option of the Issuers, in whole or in part, at any time on or
after July 1, 2001 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, on or prior to July 1, 2000, the Issuers may redeem up
to 35% of the aggregate principal amount of Series B Notes originally issued at
a redemption price of 109.500% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, to the date of redemption, with
the net cash proceeds of a Public Equity Offering (as defined); provided that at
least 65% of the originally issued principal amount of Series B Notes remain
outstanding immediately after the occurrence of such redemption.
The Series B Notes will be senior unsecured, joint and several obligations
of the Issuers, ranking pari passu in right of payment to all senior
indebtedness of the Issuers. However, the Series B Notes will be effectively
subordinated to all future and existing secured indebtedness of the Issuers and
to all future and existing indebtedness of the Company's subsidiaries that are
not Issuers of the Series B Notes. The Senior Credit Facility (as defined) is
secured by substantially all of the assets of the Issuers, including all of the
capital stock of the Issuers (other than the Trust) and 65% of the stock of
Venture Canada. As of June 30, 1997, the Company had approximately $203 million
outstanding under the Senior Credit Facility. On a pro forma basis after giving
effect to the sale of the Original Notes and the application of the net proceeds
therefrom, the Company had $4.0 million of borrowings under the Senior Credit
Facility, a maximum of $193.2 million of availability for borrowings thereunder
and $9.0 million of additional senior Indebtedness (as defined) outstanding. As
of June 30, 1997, the Company's pro forma ratio of indebtedness to total capital
was 80%. As of such date, Venture Canada had no debt other than trade payables
of $15,966. See "Description of Certain Indebtedness -- Senior Credit Facility"
and "Description of Notes."
Upon the occurrence of a Change of Control (as defined), the Issuers 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.
There can be no assurance that the Issuers will have adequate financial
resources to pay all of their obligations under the Series B Notes upon the
occurrence of a Change of Control. In addition, the Issuers will be obligated to
repurchase the Series B Notes at 100% of their principal amount plus accrued
interest to the date of repurchase in the event of certain asset sales. See
"Risk Factors -- Change of Control," "Capitalization" and "Description of
Notes."
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SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN DECIDING WHETHER TO EXCHANGE ORIGINAL NOTES IN THE
EXCHANGE OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is October 29, 1997
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The Issuers will accept for exchange any and all Original Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time,
on December 3, 1997, unless extended by the Issuers in their sole discretion
(the "Expiration Date"). Tenders of Original 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
Issuers terminate the Exchange Offer and do not accept for exchange any Original
Notes with respect to the Exchange Offer, the Issuers will promptly return the
Original Notes to the holders thereof. The Exchange Offer is not conditioned
upon any minimum principal amount of Original Notes being tendered for exchange,
but is otherwise subject to certain customary conditions. The Original 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 Issuers contained in the Registration Rights Agreement dated
as of July 9, 1997 (the "Registration Rights Agreement") among the Issuers and
First Chicago Capital Markets, Inc., as the initial purchaser (the "Initial
Purchaser"), with respect to the initial sale of the Original 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 Issuers, the Series B Notes issued pursuant to the Exchange
Offer in exchange for Original Notes may be offered for resale, resold and
otherwise transferred by the respective holders thereof (other than any such
holder which is an "affiliate" of the Issuers 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. However, any holder of Original Notes who is an "affiliate" of the
Issuers or who intends to participate in the Exchange Offer for the purpose of
distributing Series B Notes, or any broker-dealer who purchased Original Notes
from the Issuers to resell pursuant to Rule 144A under the Securities Act ("Rule
144A") or any other available exemption under the Securities Act, (a) will not
be able to rely on the interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in the above-mentioned
interpretive letters, (b) will not be permitted or entitled to tender such
Original Notes in the Exchange Offer and (c) must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any sale or other transfer of such Original Notes unless such sale is made
pursuant to an exemption from such requirements. In addition, as described
below, if any broker-dealer holds Original Notes acquired for its own account as
a result of market-making or other trading activities and exchanges such
Original Notes for Series B Notes, then such broker-dealer must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of such Series B Notes.
Each holder of Original Notes who wishes to exchange Original Notes for
Series B Notes in the Exchange Offer will be required to represent that (i) it
is not an "affiliate" of the Issuers, (ii) any Series B Notes to be received by
it are being acquired in the ordinary course of its business, (iii) it has no
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of such Series B Notes, and (iv) if
such holder is not a broker-dealer, such holder is not engaged in, and does not
intend to engage in, a distribution (within the meaning of the Securities Act)
of such Series B Notes. In addition, the Issuers may require such holder, as a
condition to such holder's eligibility to participate in the Exchange Offer, to
furnish to the Issuers (or an agent thereof) in writing information as to the
number of "beneficial owners" (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) on behalf of
whom such holder holds the Original Notes to be exchanged in the Exchange Offer.
Each broker-dealer that receives Series B Notes for its own account pursuant to
the Exchange Offer must acknowledge that it acquired the Original Notes for its
own account as the result of market-making activities or other trading
activities and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such Series
B Notes. Any broker-dealer that resells Series B Notes that were received by it
for its own account in connection with 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
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and any commissions or concessions received by any such persons may be deemed to
be underwriting compensation under the Securities Act. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. Based on the position taken by the staff of the Division of
Corporation Finance of the Commission in the interpretive letters referred to
above, the Issuers believe that broker-dealers who acquired Original Notes for
their own accounts, as a result of market-making activities or other trading
activities ("Participating Broker-Dealers"), may fulfill their prospectus
delivery requirements with respect to the Series B Notes received upon exchange
of such Original Notes with a prospectus meeting the requirements of the
Securities Act, which may be the prospectus prepared for the Exchange Offer so
long as it contains a description of the plan of distribution with respect to
the resale of such Series B Notes.
Accordingly, this Prospectus, as it may be amended or supplemented from
time to time, may be used by a Participating Broker-Dealer during the period
referred to below in connection with resales of Series B Notes received in
exchange for Original Notes where such Original Notes were acquired by such
Participating Broker-Dealer for its own account as a result of market-making or
other trading activities. Subject to certain provisions set forth in the
Registration Rights Agreement, the Issuers have agreed that this Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of Series B Notes for a
period ending 180 days after the Expiration Date (as defined herein) (subject to
extension under certain limited circumstances described below) or, if earlier,
when all such Series B Notes have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution -- Exchange Offer." However, a
Participating Broker-Dealer who intends to use this Prospectus in connection
with the resale of Series B Notes received in exchange for Original Notes
pursuant to the Exchange Offer must notify the Issuers, or cause the Issuers to
be notified, on or prior to the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space provided for that purpose
in the Letter of Transmittal or may be delivered to the Exchange Agent at one of
the addresses set forth herein under "The Exchange Offer -- Exchange Agent." Any
Participating Broker-Dealer who is an "affiliate" of the Issuers may not rely on
such interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. See "The Exchange Offer -- Resales of Series B Notes."
Each Participating Broker-Dealer who surrenders Original Notes pursuant to
the Exchange Offer will be deemed to have agreed, by execution of the Letter of
Transmittal, that, upon receipt of notice from the Issuers of the occurrence of
any event or the discovery of any fact which makes any statement contained or
incorporated by reference in this Prospectus untrue in any material respect or
which causes this Prospectus to omit to state a material fact necessary in order
to make the statements contained or incorporated by reference herein, in light
of the circumstances under which they were made, not misleading or of the
occurrence of certain other events specified in the Registration Rights
Agreement, such Participating Broker-Dealer will suspend the sale of Series B
Notes pursuant to this Prospectus until the Issuers have amended or supplemented
this Prospectus to correct such misstatement or omission and has furnished
copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Issuers have given notice that the sale of the Series B
Notes may be resumed, as the case may be. If the Issuers give such notice to
suspend the sale of the Series B Notes they shall extend the 180 day period
referred to above during which Participating Broker-Dealers are entitled to use
this Prospectus in connection with the resale of Series B Notes by the number of
days during the period from and including the date of the giving of such notice
to and including the date when Participating Broker-Dealers shall have received
copies of the amended or supplemented Prospectus necessary to permit resales of
the Series B Notes or to and including the date on which the Issuers have given
notice that the sale of Series B Notes may be resumed, as the case may be.
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF ORIGINAL NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE
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DECIDING WHETHER TO TENDER THEIR ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER.
Prior to the Exchange Offer, there has been no public market for the Series
B Notes. The Original 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 Purchaser has advised the Issuer that it currently
intends to make a market in the Series B Notes offered hereby. However, the
Initial Purchaser is not obligated to do so and any market making may be
discontinued at any time without notice.
The Original Notes were initially purchased by accredited investors and
"qualified institutional buyers" (as such term is defined in Rule 144A under the
Securities Act). The Original Notes purchased by qualified institutional buyers
were initially represented by global notes in fully registered form (the "Global
Original Notes"), registered in the name of a nominee of The Depository Trust
Company ("DTC"), as depositary. The Series B Notes exchanged for Original Notes
represented by the Global Original Notes will be represented by global notes in
fully registered form (the "Global Series B Notes") registered in the name of a
nominee of DTC. The Global Series B Notes will be exchangeable for Series B
Notes in registered form, in denominations of $1,000 and integral multiples
thereof as set forth in the Indenture.
The Issuer will not receive any proceeds from the Exchange Offer. See "Use
of Proceeds." The Issuer has agreed to pay the expenses incident to the Exchange
Offer.
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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, constitute
"forward-looking statements". 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 different 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; the ability of the
Company to sustain, manage or forecast its growth; the size, timing and mix of
purchases of the Company's products; new product development and introduction;
existing government regulations and changes in, or the failure to comply with,
government regulations; adverse publicity; dependence upon original equipment
manufacturers; 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 use of proceeds from the sale of the Notes; retention of
earnings; control and the level of affiliated transactions; 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," "Business" and "Certain Transactions."
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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ADDITIONAL INFORMATION
The Issuers have filed with the Securities and Exchange Commission (the
"Commission") a registration statement (together with any amendments thereto,
the "Registration Statement") under the Securities Act with respect to the
Series B Notes being offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
For further information with respect to the Company and the Exchange Offer,
reference is made to the Registration Statement, including the exhibits and
schedules thereto, copies of which may be obtained upon payment of the
prescribed fees or examined without charge at the public reference facilities of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission at 7 World Trade Center, 13th Floor, New
York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. The Registration Statement may also be obtained through the Commission's
electronic data gathering, analysis and retrieval system via electronic means,
including the Commission's web site on the Internet (http://www.sec.gov).
Statements contained in the Prospectus as to the contents of any contract or
other document referred to herein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
As a result of the Exchange Offer, the Issuers will become subject to the
informational requirements of the Exchange Act, and in accordance therewith will
be required to file periodic reports with the Commission. In addition, pursuant
to the terms of the Indenture, the Trust shall deliver to the Trustee and, to
each holder of the Notes within 15 days after it is or would have been (if it
were subject to such reporting obligations) required to file such with the
Commission, annual and quarterly financial statements substantially equivalent
to financial statements that would have been included in reports filed with the
Commission, if the Trust were subject to the requirements of Section 13 or 15(d)
of the Exchange Act, including, with respect to annual information only, a
report thereon by the Trust's certified independent public accountants as such
would be required in such reports to the Commission, and, in each case, a
management's discussion and analysis of financial condition and results of
operations which would be so required. The Issuers have also agreed that, for so
long as any Series B Notes remain outstanding, from and after the time the Trust
files a registration statement with the Commission with respect to the Series B
Notes, they will file such reports with the Commission, provided that the
Commission will accept such filings.
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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. Prospective investors 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 notes that EBITDA, while commonly used, is not
calculated uniformly by all companies and should not be used as a comparative
measure without further analysis.
THE COMPANY
The Company is a leading systems integrator, designer and manufacturer of
high quality molded and painted parts for automotive original equipment
manufacturers ("OEMs") and other direct, or "Tier 1," suppliers to the OEMs. The
Company's products include both exterior and interior plastic components.
Exterior components include such items as front and rear bumper fascias, body
side moldings, claddings, fenders, grille opening panels and reinforcements,
farings, wheel lips, spoilers, and large body panels such as hoods, sunroofs,
doors and lift gates. Interior components include instrument panel systems,
airbag covers, side wall trim, garnishment molding systems, door panels and
consoles. The Company's principal customers include various divisions of General
Motors Corporation ("General Motors" or "GM"), Ford Motor Company ("Ford"),
Chrysler Corporation ("Chrysler") and a number of their various Tier 1
suppliers, such as Autoliv S.A., TRW Automotive Company, Textron Automotive
division of Textron Corporation and Lear Corporation. The Company's net sales,
income from operations and net income (loss) were $351.8 million, $21.6 million
and $(0.7) million, respectively, for the year ended December 31, 1996, and
$320.1 million, $28.9 million and $13.3 million, respectively, for the six
months ended June 30, 1997. For the twelve months ended June 30, 1997, the
Company's net sales, income from operations and net income were $546.1 million,
$37.2 million and $6.7 million, respectively. The Company's EBITDA was $44.9
million for the year ended December 31, 1996, $45.9 million for the six months
ended June 30, 1997 and $67.5 million for the twelve months ended June 30, 1997.
The Company is a full-service supplier and an industry leader in providing
plastic components and in applying new design and engineering technology to
reduce product development time. The Company has purchase orders to supply an
aggregate of over 1,000 components to be included on approximately 100 models of
cars, minivans, light trucks and sport utility vehicles for the 1997 model year
and currently expects to manufacture over 1,100 components to be included on a
similar number of models to be produced for the 1998 model year, as compared to
supplying 399 components on 47 models for the 1994 model year. In recent years,
the Company has placed particular emphasis on designing and manufacturing airbag
covers and supplying components for higher growth sport utility, light truck,
minivan and high volume car segments of the market, which the Company believes
are less subject to the automotive industry's historical cyclicality. As a
result of this emphasis, the Company supplies certain components on a number of
models, such as the Buick LeSabre; Cadillac Seville, S5S and STS; Chrysler "LH"
cars (Chrysler LHS and Concorde, Dodge Intrepid and Eagle Vision), Dakota trucks
and "JA" cars (Cirrus, Stratus and Breeze); Ford F-series truck, Explorer,
Expedition, Mustang, Escort and Windstar; Oldsmobile Bravada, Intrigue and
Eighty-Eight; and Chevrolet Corvette, General Motors "M" vans (Astro and
Safari), Yukon, Tahoe, Suburban, GMX 130 and redesigned GMC and Chevrolet full
size vans (Express and Savana). In addition, the Company has been selected as a
sole-source supplier for certain components on the General Motors GMC Yukon
sport utility truck; Honda Accord and Civic; Jaguar; and Isuzu Rodeo. The
Company was awarded the engineering and design for the 1998 Chrysler "LH"
interior components, Chrysler "B" vans, the new "JR" program and the 2001 Jeep
Cherokee. The Company is also on the development team for the 1998 Chevrolet
"CK" full size truck, 2000 Ford Explorer and 2001 GM small truck sport utility
vehicle.
The Company believes that it is enhancing its competitive position to the
OEMs and other Tier 1 suppliers by moving away from positioning itself
exclusively as a component supplier to being a provider of
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complete interior and exterior systems, consisting of rapid design, engineering,
prototyping, manufacturing and assembly expertise. The Company continuously
strives to maintain what it believes to be an industry leading position,
applying state-of-the-art design and engineering technology, including
computer-aided design/computer-aided manufacturing ("CAD/CAM") and optical-based
design techniques. The Company believes that early involvement in the design and
engineering of new components affords the Company a competitive advantage in
securing new business and provides its customers with innovative cost reduction
opportunities through the Company's involvement in the coordination of the
design, development and just-in-time manufacturing processes. The Company
believes this competitive advantage is further enhanced by the Company's
adoption of "lean manufacturing" and "Kaizen" philosophies that seek continuous
improvement by identifying and eliminating waste, not only in the Company's
operations, but also in those of its customers and suppliers.
The Company has benefited from many of the changes occurring in the
automotive industry. As OEMs continue to consolidate suppliers, the Company is
well-positioned to remain a leader since the OEMs favor large, multi-dimensional
suppliers with global strategic relationships. In recent years, Ford and
Chrysler have increasingly transferred primary responsibility for design and
engineering of automotive components to full-service suppliers. The automotive
industry has increased the use of plastics in both interior and exterior
components of a vehicle to (i) reduce vehicle weight and cost; (ii) enhance
design flexibility; and (iii) shorten development time and improve quality. As
molding and painting technologies continue to improve, the use of plastics for
exterior trim is expected to increase.
In 1996, the Company expanded its customer base and technology capabilities
through strategic acquisitions. The acquisition of Bailey Corporation ("Bailey")
allowed the Company to expand its relationship into a Tier 1 supplier to Ford in
North America. The acquisition of certain assets from AutoStyle Plastics, Inc.
("AutoStyle" or "Venture Grand Rapids") enhanced the Company's relationship with
General Motors. Moreover, these acquisitions (the "Bailey and Venture Grand
Rapids Acquisitions") offered the Company the ability to expand into compression
molding technologies and to enhance its reaction injection molding ("RIM")
capabilities, as well as the ability to leverage and provide new outlets for the
Company's existing design, engineering and tooling capabilities.
Venture Industries Corporation, the initial business which became part of
the Company, was founded in 1973 by a group of individuals including Larry J.
Winget ("Mr. Winget"). Mr. Winget is the only founder still involved with the
Company and is the sole beneficiary of the Trust. Since its inception, the
Company has experienced significant growth. The Company's net sales, income from
operations and net income (loss) have gone from $174.8 million, $15.4 million
and $5.0 million, respectively, for the year ended December 31, 1992 to $351.8
million, $21.6 million and $(0.7) million, respectively, for the year ended
December 31, 1996. The Company's EBITDA has increased from $26.2 million for the
year ended December 31, 1992 to $44.9 million for the year ended December 31,
1996. Contributing to the growth in net sales were $111.5 million of net sales
in the year ended December 31, 1996 attributable to the Bailey and Venture Grand
Rapids Acquisitions.
The Company's principal executive offices are located at 33662 James J.
Pompo Drive, Fraser, Michigan 48026, and its telephone number is (810) 294-1500.
BUSINESS STRATEGY
The Company's business strategy is to capitalize on current conditions and
anticipate future automotive industry trends in order to supply an increasing
number of components to its existing OEM and Tier 1 supplier customers, as well
as to expand its customer base. The Company believes that the principal sources
for continued growth and increased market share lie in (i) capitalizing on its
engineering and design capabilities; (ii) expanding its capabilities to provide
integrated interior and exterior systems; and (iii) emphasizing its status as a
manufacturer of high quality components for North American OEMs. The Company
believes the key elements of achieving this strategy are the following:
Provide Full-Service Program Capability. In response to the evolving
purchasing and manufacturing policies of its OEM customers, the Company has
developed comprehensive full-service capabilities, including
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component research, design and engineering, prototype production, tooling,
manufacturing and assembly. As the OEMs have focused increasingly on shortening
vehicle design and production cycles and reducing design and production costs,
suppliers who have the ability to take an idea or design from concept to mass
production ("art to part") are being involved earlier in the process and are
being selected as sole-source suppliers for vehicle components. This evolution
of the OEM relationship into strategic partnerships provides a significant
advantage to strong existing suppliers, such as the Company, in retaining
existing contracts as well as participating during the design phase for new
vehicles, which is integral to becoming a supplier to such new platforms.
In the past several years, the Company has made a substantial commitment to
product technology and product design, including establishing an Advanced
Engineering Center, integrating the use of CAD/CAM, and utilizing the latest
optical design technology to rapidly and cost-effectively replicate and modify
existing designs (using a proprietary reverse engineering process, licensed from
Mr. Winget, called reverse engineering automated process for rapid prototyping
("REAP")) as well as to design new prototypes. The Company believes its
participation with customers in the early phases of product design has enabled
it to provide better product quality at a lower cost in a shortened development
period.
Supply Highly Engineered, High Value-Added Components. The Company has,
over the past several years, changed its marketing emphasis to include its
advanced engineering capabilities to supply more highly engineered components.
These components are more difficult for a customer to produce in-house and are
difficult for a competitor to replicate due to the substantial up-front
investment and the specialized design and engineering required. The Company
believes that the number of companies that have the ability to participate in
the concept and design of a component and have efficient manufacturing
operations to competitively manufacture complex components, such as instrument
and door panel assemblies, is limited. This affords the Company the opportunity
to supply an increasing number of components to existing customers and to expand
its customer base.
Enhance Position as a Full Service Provider of Exterior and Interior
Plastic Trim. The Company believes that it is one of only a small number of
companies that can provide its customers with not only a full-service program
capability (as described above) but also a wide array of alternative plastic
molding technologies. The Company possesses the latest technologies associated
with thermoplastic injection molding, compression molding and RIM. With the
purchase of Bailey, the Company further completed its line of exterior
technologies by obtaining expertise pertaining to sheet molding compounds, which
are being increasingly utilized as a substitute for steel. By possessing a wide
range of plastic design and manufacturing technologies, the Company is able to
distinguish itself from its competition by offering the process that will best
meet the customers' needs, while often lowering design and production costs and
shortening the product development cycle.
Develop and Manufacture High Quality Products. The Company believes it
maintains an excellent reputation with the OEMs for providing world class
quality and customer service at competitive prices. The Company's reputation as
a high-quality, full-service supplier is exemplified by its receipt of major
quality awards from its OEM customers. Both the Company's Harper and Groesbeck
facilities are recipients of General Motors' highest quality award, the Mark of
Excellence. The Groesbeck facility has received the Chrysler Pentastar quality
award and several of the Company's facilities have also obtained Ford's Q-1
status. Quality levels are currently being standardized across OEMs through the
QS-9000 program which is expected to lower the cost of maintaining separate
quality programs. As of the date hereof, the Company's Harper, Groesbeck,
Hillsdale, Grand Blanc, Canada and Malyn facilities have received or have been
recommended for QS-9000 certification. The Company is in the process of
obtaining QS-9000 certification for the remainder of the facilities and expects
certification to be completed by the end of 1997.
Emphasize Continuous Improvement. The Company follows "lean manufacturing"
and "Kaizen" philosophies that seek continuous improvement by identifying and
eliminating waste in its own operations and in those of its customers and
suppliers. These philosophies emphasize employee involvement in all phases of
the Company's operations by (i) empowering employees at all levels with
responsibility for their work, which leads to the identification of
opportunities for improvement and cost reduction; (ii) forming cross-functional
3
<PAGE> 10
teams to investigate opportunities for process improvements; and (iii) rewarding
employee participation and involvement through financial incentives.
Provide Just-in-Time Delivery/Sequential Shipping. As OEMs have moved to
just-in-time inventory management, the timeliness and reliability of shipments
by their suppliers have become increasingly important. To service its customers
more effectively, the Company utilizes just-in-time manufacturing and sourcing
systems, which enable it to meet its customers' requirements for on-time
deliveries while minimizing the carrying levels of inventory. The Company is
connected to General Motors, Ford, Chrysler and other Tier 1 suppliers through
computer-linked electronic data interchange, which facilitates communication of
customer demand and delivery requirements. The Company also offers its customers
sequential shipping, in which components are sent to automotive OEMs in the
specific order in which the vehicles are assembled, based on as little as two
hours' lead time. The Company believes it has established a reputation as a
highly reliable and timely supplier able to meet its customers' demanding
delivery requirements.
Increase its Global Presence. The Company and affiliated companies have
established a presence in Canada, Australia, Asia, Africa and Europe in order to
serve customers on a global basis. Although the affiliated companies are outside
of the Trust, they are owned by Mr. Winget and use the Venture name. This global
presence has allowed the Company to leverage the Venture name as General Motors,
Chrysler, Ford and other Tier 1 suppliers make sourcing decisions to award
purchase orders to companies with world-wide capabilities. Through these
relationships, the Company has also established relationships with new
customers, such as BMW and Mercedes. The affiliated companies, in turn, have
provided and are expected to continue to provide, significant new outlets for
the Company's existing design, engineering and tooling capabilities. The Company
intends to continue to expand in foreign markets to meet the OEMs' evolving
global needs, either directly or as a supplier of design services and molds to
its affiliated companies.
Make Strategic Acquisitions. In recent years, OEMs have instituted tighter
quality, manufacturing, delivery and systems requirements which have resulted in
consolidation of the automotive supplier industry. Through strategic
acquisitions, the Company believes it can further leverage its capabilities and
relationships with existing customers by adding complementary products and
manufacturing processes. The Company also intends to pursue acquisitions which
offer an entree to new customers and to expand or enhance its customer base.
Consistent with this strategy, the recent Bailey acquisition in August 1996 has
provided the Company with new opportunities to win business with Ford while
expanding into new technologies such as compression molding. The Company
believes that the continuing supplier consolidation may provide attractive
opportunities to acquire companies which can be improved economically through
cost cutting, lean manufacturing techniques and use of existing tooling and
design capabilities. The Company believes that, as of the date hereof, it has
improved profitability at the Bailey facilities through labor rationalization,
raw materials savings and the elimination of administrative redundancies.
Historically, the Company has financed acquisitions with debt and would expect
to do so in the future. As such, this aspect of the Company's business strategy
may be limited by provisions of current or future indebtedness. See "Risk
Factors -- Significant Leverage." As of the date of this Prospectus, the Company
does not have any agreements or understandings with respect to specific
acquisitions.
4
<PAGE> 11
THE EXCHANGE OFFER
The Exchange Offer applies to up to $205 million aggregate principal amount
of the Issuers' Series B Notes. The Series B Notes will be obligations of the
Issuers evidencing the same debt as the Original Notes and will be entitled to
the benefits of the same Indenture. To the extent that any Original Notes remain
outstanding after the Exchange Offer, the Original 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 substantially identical to the form and
terms of the Original Notes in all material respects except that the
distribution of the Series B Notes has been registered under the Securities Act
and, hence, the Series B Notes do not include certain rights to registration
thereunder and do not contain transfer restrictions or terms with respect to
liquidated damages applicable to the Original Notes. See "Description of Notes."
THE SERIES B NOTES............ The form and terms of the Series B Notes are
substantially identical in all material
respects to the form and terms of the Original
Notes for which they may be exchanged pursuant
to the Exchange Offer, except for certain
transfer restrictions and registration rights
relating to the Original Notes and except for
certain liquidated damages provisions relating
to the Original Notes described below under
"The Series B Notes."
THE EXCHANGE OFFER............ The Issuers are offering to exchange up to
$205,000,000 aggregate principal amount of
Series B Notes for up to $205,000,000 aggregate
principal amount of outstanding Original Notes.
Original 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 December 3, 1997 or such
later date and time to which it is extended by
the Issuers. The tender of Original Notes
pursuant to the Exchange Offer may be withdrawn
at any time prior to the Expiration Date. Any
Original 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.
EXCHANGE OFFER, REGISTRATION
RIGHTS, LIQUIDATED DAMAGES.... Pursuant to a Registration Rights Agreement
(the "Registration Rights Agreement") among the
Issuers and the Initial Purchaser, the Issuers
agreed to file a registration statement (the
"Exchange Offer Registration Statement") with
respect to an offer to exchange the Original
Notes for Series B Notes, registered under the
Securities Act with terms substantially
identical to those of the Original Notes. In
the event that applicable interpretations of
the staff of the Commission do not permit the
Issuers to effect the Exchange Offer, or if for
any other reason the Exchange Offer is not
consummated within 165 days after July 9, 1997
(the "Closing Date"), the Issuers will be
required to provide a shelf registration
statement (the "Shelf Registration Statement"),
to cover resales of the Series B Notes by the
holders thereof. If the Issuers fail to satisfy
these registration obligations, they may be
required to pay Liquidated Damages ("Liquidated
Damages") to the holders of the Original Notes
under certain circumstances. See "Description
of Notes -- Registration Rights; Liquidated
Damages."
5
<PAGE> 12
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 Issuers to
proceed with the Exchange Offer, changes in
statutory or other law which could impair the
Issuer's ability to proceed with the Exchange
Offer or the failure to obtain a governmental
approval which the Issuers may deem necessary
to consummate the Exchange Offer. Such
conditions may be waived by the Issuers. See
"The Exchange Offer -- Certain Conditions to
the Exchange Offer."
PROCEDURES FOR TENDERING
ORIGINAL NOTES................ Brokers, dealers, commercial banks, trust
companies and other nominees who hold Original
Notes through DTC (as defined herein) may
effect tenders by book-entry transfer in
accordance with DTC's Automated Tender Offer
Program ("ATOP"). Holders of such Original
Notes registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee are urged to contact such person
promptly if they wish to tender Original Notes.
In order for Original Notes to be tendered by a
means other than by book-entry transfer, a
Letter of Transmittal must be completed and
signed in accordance with the instructions
contained herein. The Letter of Transmittal and
any other documents required by the Letter of
Transmittal must be delivered to the Exchange
Agent by mail, facsimile, hand delivery or
overnight courier and either such Original
Notes must be delivered to the Exchange Agent
or specified procedures for guaranteed delivery
must be complied with. See "The Exchange Offer
-- Procedures for Tendering Original Notes."
Letters of Transmittal and certificates
representing Original Notes should not be sent
to the Issuers. Such documents should only be
sent to the Exchange Agent. See "The Exchange
Offer -- Exchange Agent."
RESALES OF SERIES B NOTES..... Based on interpretations by the staff of the
Commission contained in certain no-action
requests from third parties unrelated to the
Issuers, the Series B Notes issued pursuant to
the Exchange Offer in exchange for Original
Notes may be offered for resale, resold and
otherwise transferred by respective holders
thereof (other than any such holder which is an
"affiliate" of the Issuers 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 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. However,
any holder of Original Notes who is an
"affiliate" of the Issuers or who intends to
participate in the Exchange Offer for the
purpose of distributing Series B Notes, or any
broker-dealer who purchased Original Notes from
the Issuers to resell pursuant to Rule 144A or
any other available exemption under the
Securities Act, (a) will not be able to rely on
the interpretations of the staff of the
Division of Corporation Finance of the
Commission set forth in the
6
<PAGE> 13
above-mentioned interpretive letters, (b) will
not be permitted or entitled to tender such
Original Notes in the Exchange Offer and (c)
must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any sale or
other transfer of such Original Notes unless
such sale is made pursuant to an exemption from
such requirements. In addition, as described
below, if any broker-dealer holds Original
Notes acquired for its own account as a result
of market-making or other trading activities
and exchanges such Original Notes for Series B
Notes, then such broker-dealer must deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resales
of such Series B Notes. Each holder of Original
Notes who wishes to exchange Original Notes for
Series B Notes in the Exchange Offer will be
required to represent that (i) it is not an
"affiliate" of the Issuers, (ii) any Series B
Notes to be received by it are being acquired
in the ordinary course of its business, (iii)
it has no arrangement or understanding with any
person to participate in a distribution (within
the meaning of the Securities Act) of such
Series B Notes, and (iv) if such holder is not
a broker-dealer, such holder is not engaged in,
and does not intend to engage in, a
distribution (within the meaning of the
Securities Act) of such Series B Notes. In
addition, the Issuers may require such holder,
as a condition to such holder's eligibility to
participate in the Exchange Offer, to furnish
to the Issuers (or an agent thereof) in writing
information as to the number of "beneficial
owners" (within the meaning of Rule 13d-3 under
the Exchange Act) on behalf of whom such holder
holds the Original Notes to be exchanged in the
Exchange Offer. Each broker-dealer that
receives Series B Notes for its own account
pursuant to the Exchange Offer must acknowledge
that it acquired the Original Notes for its own
account as the result of market-making
activities or other trading activities and must
agree that it will deliver a prospectus meeting
the requirements of the Securities Act in
connection with any resale of such Series B
Notes. Any broker-dealer that resells Series B
Notes that were received by it for its own
account in connection with 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
of any such resale of Series B Notes and any
commissions or concessions received by any such
persons may be deemed to be underwriting
compensation under the Securities Act. The
Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of
the Securities Act. Based on the position taken
by the staff of the Division of Corporation
Finance of the Commission in the interpretive
letters referred to above, the Issuers believe
that broker-dealers who acquired Original Notes
for their own accounts, as a result of
market-making activities or other trading
activities ("Participating Broker-Dealers"),
may fulfill their prospectus delivery
requirements with respect to the Series B Notes
received upon exchange of such Original Notes
with a prospectus meeting the requirements of
the Securities Act, which may be the
7
<PAGE> 14
prospectus prepared for an exchange offer so
long as it contains a description of the plan
of distribution with respect to the resale of
such Series B Notes. Accordingly, this
Prospectus, as it may be amended or
supplemented from time to time, may be used by
a Participating Broker-Dealer during the period
referred to below in connection with resales of
Series B Notes received in exchange for
Original Notes where such Original Notes were
acquired by such Participating Broker-Dealer
for its own account as a result of
market-making or other trading activities.
Subject to certain provisions set forth in the
Registration Rights Agreement, the Issuers have
agreed that this Prospectus, as it may be
amended or supplemented from time to time, may
be used by a Participating Broker-Dealer in
connection with resales of Series B Notes for a
period ending 180 days after the Expiration
Date (subject to extension under certain
limited circumstances described below) or, if
earlier, when all such Series B Notes have been
disposed of by such Participating
Broker-Dealer. See "Plan of Distribution --
Exchange Offer." However, a Participating
Broker-Dealer who intends to use this
Prospectus in connection with the resale of
Series B Notes received in exchange for
Original Notes pursuant to the Exchange Offer
must notify the Issuers, or cause the Issuers
to be notified, on or prior to the Expiration
Date, that it is a Participating Broker-Dealer.
Such notice may be given in the space provided
for that purpose in the Letter of Transmittal
or may be delivered to the Exchange Agent at
one of the addresses set forth herein under
"The Exchange Offer -- Exchange Agent." Any
Participating Broker-Dealer who is an
"affiliate" of the Issuers may not rely on such
interpretive letters and must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with any resale transaction. See
"The Exchange Offer -- Resales of Series B
Notes." Each Participating Broker-Dealer who
surrenders Original Notes pursuant to the
Exchange Offer will be deemed to have agreed,
by execution of the Letter of Transmittal,
that, upon receipt of notice from the Issuers
of the occurrence of any event or the discovery
of any fact which makes any statement contained
or incorporated by reference in this Prospectus
untrue in any material respect or which causes
this Prospectus to omit to state a material
fact necessary in order to make the statements
contained or incorporated by reference herein,
in light of the circumstances under which they
were made, not misleading or of the occurrence
of certain other events specified in the
Registration Rights Agreement, such
Participating Broker-Dealer will suspend the
sale of Series B Notes pursuant to this
Prospectus until the Issuers have amended or
supplemented this Prospectus to correct such
misstatement or omission and has furnished
copies of the amended or supplemented
Prospectus to such Participating Broker-Dealer
or the Issuers have given notice that the sale
of the Series B Notes may be resumed, as the
case may be. If the Issuers give such notice to
suspend the sale of the Series B Notes they
shall extend the 180 day period referred to
above during which Participating Broker-Dealers
are entitled to use this Prospectus in
connection with the resale of Series B Notes by
the number of days during the period from and
including the
8
<PAGE> 15
date of the giving of such notice to and
including the date when Participating
Broker-Dealers shall have received copies of
the amended or supplemented Prospectus
necessary to permit resales of the Series B
Notes or to and including the date on which the
Issuers have given notice that the sale of
Series B Notes may be resumed, as the case may
be.
GUARANTEED DELIVERY
PROCEDURES.................... Holders of Original Notes who wish to tender
their Original Notes and whose Original Notes
are not immediately available or who cannot
deliver their Original 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 Original 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 Original Notes, see
"Certain Federal Income Tax Considerations."
EXCHANGE AGENT................ The Huntington National Bank is the Exchange
Agent. The address and telephone number of the
Exchange Agent are set forth in "The Exchange
Offer -- Exchange Agent."
9
<PAGE> 16
THE SERIES B NOTES
SECURITIES OFFERED............ $205,000,000 aggregate principal amount of
Series B 9 1/2% Senior Notes due 2005.
ISSUERS....................... Venture Holdings Trust and each of the
following wholly owned subsidiaries of the
Trust: Vemco, Inc.; Vemco Leasing, Inc.;
Venture Industries Corporation; Venture
Holdings Corporation; Venture Leasing Company;
Venture Mold & Engineering Corporation; and
Venture Service Company.
INTEREST RATE; PAYMENT
DATES......................... Interest on the Series B Notes will accrue at
the rate of 9 1/2% per annum, payable
semiannually in arrears on January 1 and July 1
of each year, commencing January 1, 1998.
MATURITY DATE................. July 1, 2005.
OPTIONAL REDEMPTION........... The Series B Notes are redeemable, in whole or
in part, at the option of the Issuers at any
time on or after July 1, 2001, at the declining
redemption prices set forth herein, plus
accrued and unpaid interest, if any, thereon,
plus Liquidated Damages, if any, to the date of
redemption. In addition, notwithstanding the
foregoing, on or prior to July 1, 2000, the
Issuers may redeem up to 35% of the aggregate
principal amount of the Series B Notes
originally issued at a redemption price of
109.500% of the principal amount thereof, plus
accrued and unpaid interest, if any, thereon,
plus Liquidated Damages, if any, to the date of
redemption, with the net cash proceeds of a
Public Equity Offering; provided, that at least
65% in aggregate principal amount of the Series
B Notes remain outstanding following such
redemption. See "Description of Notes --
Optional Redemption."
CHANGE OF CONTROL............. In the event of a Change of Control, Holders of
the Series B Notes will have the right to
require that the Issuers repurchase the Series
B Notes in whole or in part at a redemption
price of 101% of the principal amount thereof
plus accrued and unpaid interest, if any,
thereon, plus Liquidated Damages, if any, to
the date of repurchase. There can be no
assurance that the Issuers will have adequate
financial resources to pay all of their
obligations under the Series B Notes upon the
occurrence of a Change of Control. See "Risk
Factors -- Change of Control," "Description of
Notes -- Certain Covenants -- Repurchase of
Notes at the Option of the Holder Upon a Change
of Control."
RANKING....................... The Series B Notes will constitute senior
unsecured, joint and several obligations of the
Issuers and will be pari passu in right of
payment to all future and existing senior
indebtedness of the Issuers. However, the
Series B Notes will be effectively subordinated
to all future and existing senior secured
indebtedness of the Issuers and to all future
and existing indebtedness of subsidiaries that
are not Issuers. As of June 30, 1997, the
Company had approximately $203 million
outstanding under the Senior Credit Facility.
On a pro forma basis after giving effect to the
sale of the Original Notes and the application
of the net proceeds therefrom, as of June 30,
1997 the Company had $4.0 million of borrowings
under the Senior Credit Facility, a maximum of
$193.2 million of
10
<PAGE> 17
availability for borrowings thereunder and $9.0
million of additional senior Indebtedness
outstanding. As of such date, Venture Canada
had no debt other than trade payables of
$15,966. See "Capitalization," "Description of
Certain Indebtedness -- Senior Credit Facility"
and "Description of Notes."
FUTURE SUBSIDIARY
GUARANTEES.................... Future subsidiaries of the Issuers may, and
under certain circumstances shall, jointly and
severally guarantee, irrevocably and
unconditionally (a "Guarantee"), on a senior
unsecured basis, full payment of the Series B
Notes (each such future subsidiary, a
"Guarantor"). See "Description of Notes --
Certain Covenants -- Future Subsidiary
Guarantors."
CERTAIN COVENANTS............. The Indenture contains certain covenants,
including limitations on the ability of the
Issuers to: (i) incur additional Indebtedness;
(ii) incur certain liens; (iii) engage in
certain transactions with affiliates; (iv) make
certain restricted payments; (v) agree to
payment restrictions affecting Subsidiaries;
(vi) engage in unrelated lines of business; or
(vii) engage in mergers, consolidations or the
transfer of all or substantially all of the
assets of the Issuers to another person. In
addition, in the event of certain Asset Sales
(as defined herein), the Issuers will be
required to use the proceeds to reinvest in the
Issuers' business, to repay certain debt or to
offer to purchase Series B Notes at 100% of the
principal amount thereof, plus accrued and
unpaid interest, if any, thereon, plus
Liquidated Damages, if any, to the date of
purchase. See "Description of Notes -- Certain
Covenants."
RELEASE OF GUARANTORS AND
CERTAIN ISSUERS............... The Indenture provides that upon the sale or
disposition (whether by merger, stock purchase,
asset sale or otherwise) of a Guarantor or
Issuer (other than the Trust) of all or
substantially all of its assets to an entity
which is not a Guarantor or Issuer or the
designation of a Subsidiary to become an
Unrestricted Subsidiary, which transaction is
otherwise in compliance with the Indenture
(including, without limitation, the provisions
of the covenant "Limitations on Sale of Assets
and Subsidiary Stock"), such Guarantor will be
deemed released from its obligations under its
Guarantee of the Series B Notes or such Issuer
will be deemed released from its obligations
under the Series B Notes, as the case may be;
provided, however, that any such termination
shall occur only to the extent that all
obligations of such Guarantor or Issuer under
all of its guarantees of, and under all of its
pledges of assets or other security interests
which secure any other Indebtedness of the
Trust or any other Subsidiary shall also
terminate upon such sale, disposition or
designation.
USE OF PROCEEDS............... The Issuers will receive no cash proceeds from
the issuance of the Series B Notes. Proceeds to
the Issuers from the sale of the Original Notes
were used to repay certain amounts outstanding
under the Senior Credit Facility. See "Use of
Proceeds."
RISK FACTORS
For a discussion of certain factors that should be considered in deciding
whether to exchange Original Notes for Series B Notes in the Exchange Offer, see
"Risk Factors."
11
<PAGE> 18
SUMMARY FINANCIAL AND OPERATING DATA
The following table sets forth summary financial and operating data of the
Company for the five years ended December 31, 1996, the six months ended June
30, 1996 and the six and twelve months ended June 30, 1997. The summary
historical financial data for the five years ended December 31, 1996 have been
derived from the audited consolidated financial statements of the Company. The
summary historical financial data for the six months ended June 30, 1996, and
for the six and twelve months ended June 30, 1997, have been derived from the
Company's unaudited condensed consolidated financial statements. The following
table should be read in conjunction with "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the consolidated financial statements of the Company and of Bailey,
including the notes thereto, and the "Unaudited Pro Forma Condensed Statement of
Income and Operations" presented elsewhere in this Offering Memorandum.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30, TWELVE MONTHS
---------------------------------------------------- ------------------- ENDED JUNE 30,
1996 1995 1994 1993 1992 1997 1996 1997
---- ---- ---- ---- ---- ---- ---- --------------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1)(2):
Net sales........................... $351,777 $251,142 $244,112 $205,567 $174,771 $320,115 $125,795 $546,097
Cost of products sold............... 302,940 211,262 199,717 163,521 146,157 262,160 102,131 462,969
Gross profit...................... 48,837 39,880 44,395 42,046 28,614 57,955 23,664 83,128
Selling, general and administrative
expense........................... 26,588 20,130 19,200 15,523 13,180 28,563 9,725 45,426
Payments to beneficiary in lieu of
taxes(3).......................... 666 576 3,405 1,177 -- 472 666 472
Income from operations............ 21,583 19,174 21,790 25,346 15,434 28,920 13,273 37,230
Interest expense.................... 19,248 15,032 14,345 11,158 10,390 14,208 7,409 26,047
Net income before extraordinary
items and taxes................. 2,335 4,142 7,445 14,188 5,044 14,712 5,864 11,183
Net extraordinary loss on early
retirement of debt................ 2,738 -- -- 4,066 -- -- -- 2,738
Net income after extraordinary
items........................... (403) 4,142 7,445 10,122 5,044 14,712 5,864 8,445
Tax provision(4).................... 336 -- -- -- -- 1,413 -- 1,749
Net income (loss)................. (739) 4,142 7,445 10,122 5,044 13,299 5,864 6,696
Ratio of earnings to fixed
charges(5)........................ 1.2x 1.3x 1.7x 2.2x 1.4 2.0x 1.8x 1.4x
Pro forma ratio of earnings to fixed
charges(5)........................ 1.9x 1.2x
OTHER FINANCIAL DATA:
EBITDA(6)........................... $ 44,877 $ 35,818 $ 39,265 $ 38,611 $ 26,154 $ 45,942 $ 23,302 $ 67,517
Depreciation and amortization....... 22,628 16,068 14,070 12,088 10,720 16,550 9,363 29,815
Capital expenditures................ 67,533 20,339 22,798 19,413 12,769 18,777 23,311 62,999
Net cash (used in) provided by:
Operating activities................ 37,943 10,950 (3,066) 19,422 11,413 12,634 4,715 45,862
Investing activities................ (124,486) (20,339) (22,798) (19,413) (12,769) (18,777) (23,311) (119,952)
Financing activities................ 82,977 (655) 53,643 (4,487) (1,586) (8,946) 4,951 78,982
BALANCE SHEET DATA
(AT END OF PERIOD):
Working capital..................... $ 83,404 $ 74,354 $ 85,258 $ 32,291 $ 29,556 $ 88,166 $ 57,455 $ 88,166
Property, plant and equipment --
net............................... 203,975 116,299 111,472 102,277 94,501 208,016 130,534 208,016
Total assets........................ 498,067 231,602 234,435 166,578 148,618 483,803 256,696 483,803
Total debt.......................... 299,996 152,463 153,118 94,957 94,064 290,710 157,414 290,710
Warrants............................ -- -- -- -- 2,673 -- -- --
Trust principal(3).................. 52,759 53,498 49,356 41,911 31,789 66,058 59,362 66,058
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
ADJUSTED EBITDA AND CREDIT RATIOS:
Adjusted EBITDA(6)(7)....................................... $79,557
Cash interest expense(8).................................... 28,020
Ratio of adjusted EBITDA to cash interest expense........... 2.8x
Ratio of net debt to adjusted EBITDA(9)..................... 3.7x
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
---------------------------
ACTUAL AS ADJUSTED(10)
------ ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 348 $ 304
Total assets................................................ 483,803 490,028
Total debt.................................................. 290,710 296,935
Trust principal............................................. 66,058 66,058
</TABLE>
(see footnotes on following page)
12
<PAGE> 19
- ------------
(1) The Trust operates as a holding company and has no independent operations
of its own. Separate financial statements of the Issuers have not been
presented because the Issuers do not believe that such information would be
material to a decision to invest in the Notes.
(2) The results for 1996 include the operations of Bailey from August 26, 1996,
and of Venture Grand Rapids from June 3, 1996.
(3) The Company made distributions to the beneficiary of the Trust in amounts
generally equal to taxes incurred by the beneficiary as a result of the
activities of the Trust's subsidiaries that have elected "S" corporation
status under the Internal Revenue Code of 1986, as amended (the "Code"), of
approximately $0.9 million, for the year ended December 31, 1992. For the
years ended December 31, 1993, 1994, 1995 and 1996, and in the six months
ended June 30, 1996 and 1997, the Company paid the beneficiary compensation
in lieu of a distribution of Trust principal for such purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(4) This provision relates solely to Bailey and its subsidiaries (see Note 2
above). Other significant subsidiaries of the Trust have elected "S"
corporation status under the Code and, consequently, the Company does not
incur liability for federal and certain state income taxes for these
subsidiaries. Upon termination of the Trust, the S elections may terminate
and the corporation succeeding the Trust according to the terms of the
Trust may be subject to income tax.
(5) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of net income before extraordinary items and fixed
charges. Fixed charges consist of (i) interest, whether expensed or
capitalized; (ii) amortization of debt discount and debt financing costs;
and (iii) the portion of rental expense that management believes is
representative of the interest component of rental expense. Pro forma ratio
of earnings to fixed charges gives effect to the sale of the Original Notes
and the application of the net proceeds therefrom as if the same had
occurred on the first day of each period. Earnings are inadequate to cover
fixed charges on a pro forma basis for the year ended December 31, 1996 in
the amount of approximately $6.5 million. This is primarily due to the
increase in fixed charges as if they had occurred at the beginning of the
year without any increase in earnings. Earnings are adequate to cover the
fixed charges on a pro forma basis for the six months ended June 30, 1997
and the twelve months ended June 30, 1997.
(6) EBITDA represents income from operations before deducting taxes,
depreciation, amortization, interest and Trust Tax Distributions (as
defined in the Indenture). EBITDA is not presented as an alternative to net
income, as a measure of operating results or as an indicator of the
Company's performance, nor is it presented as an alternative to cash flow
or as a measure of liquidity, but rather to provide additional information
related to debt service capacity. 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. EBITDA, while commonly used, is not calculated
uniformly by all companies and should not be used as a comparative measure
without further analysis, nor does EBITDA necessarily represent funds
available for discretionary use. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" for a discussion of
liquidity and operating results.
(7) Adjusted EBITDA is calculated by multiplying actual EBITDA for the nine
months ended June 30, 1997 by 1.33x, in order to give full effect, on an
annualized basis, to the Bailey and Venture Grand Rapids Acquisitions.
(8) Cash interest expense represents total interest expense, less amortization
of deferred financing costs and other non-cash interest charges, for the
twelve months ended June 30, 1997 on a pro forma basis giving effect to the
sale of the Original Notes and the application of the net proceeds
therefrom as if the same had occurred on July 1, 1996.
(9) Net debt represents total debt less cash and cash equivalents and was
calculated based on the pro forma net debt as of June 30, 1997 of $296.6
million.
(10) Gives effect to the application of the net proceeds of the sale of the
Original Notes. See "Use of Proceeds" and "Capitalization."
13
<PAGE> 20
RISK FACTORS
An investment in the Series B Notes offered hereby involves a high degree
of risk. In addition to the other information contained in this Prospectus, the
following factors should be carefully considered by prospective investors in
connection with the Exchange Offer and the Series B Notes. 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
The Company has indebtedness which is substantial in relation to trust
principal, as well as interest and debt service requirements which are
significant compared to its cash flow from operations. As of June 30, 1997, on a
pro forma basis after giving effect to the sale of the Original Notes and the
application of net proceeds therefrom, the Company had approximately $296.9
million of debt outstanding, including the Notes, and a maximum availability
under the Company's bank credit facility as amended contemporaneously with the
closing of the sale of the Original Notes (the "Senior Credit Facility") of
$193.2 million. For the twelve months ended June 30, 1997, the Company's ratio
of EBITDA to cash interest expense and ratio of earnings to fixed charges and
ratio of Indebtedness to total capital were approximately 2.4x, 1.2x and 0.8x,
respectively, on a pro forma basis after giving effect to the sale of the
Original Notes and the application of the net proceeds therefrom.
The level and terms of the Company's indebtedness could have important
consequences to holders of the Series B Notes, including, but not limited to,
the following: (i) a substantial portion of the Company's cash flow from
operations (approximately 63% for the twelve months ended June 30, 1997 on a pro
forma basis after giving effect to the sale of the Original Notes and the
application of the net proceeds therefrom) 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 is and 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 the Notes. The Senior Credit Facility requires that the Company comply with
various financial covenants in order to borrow thereunder. The failure to comply
with such financial covenants could preclude the Company from borrowing under
the Senior Credit Facility at a time when no other source of financing is
available. Such inability to obtain financing could have a material adverse
effect on the business and financial condition of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Description of Certain
Indebtedness -- Senior Credit Facility" and "Description of the Notes."
INABILITY TO SERVICE OUTSTANDING DEBT
The Company's ability to pay interest on the Series B Notes and to satisfy
its other obligations will depend upon its future operating performance, which
will be affected by prevailing economic conditions and financial, business and
other factors, many of which are beyond its control. The Company anticipates
that its operating cash flow, together with available borrowings under the
Senior Credit Facility, will be sufficient to meet its operating expenses, to
service interest requirements on its debt obligations as they become due and to
implement its business strategy. There can be no assurance, however, that the
Company's business will generate sufficient cash flow from operations or that
future borrowings will be available in an amount sufficient to enable the
Company to service its indebtedness, including the Series B Notes, to make
anticipated capital expenditures or to implement its business strategy. The
Company may be required to refinance the Series B Notes at or prior to maturity.
Further, the Company's 9 3/4% Senior Subordinated Notes due 2004 (the "Senior
Subordinated Notes") will mature on April 1, 2004, and the Senior Credit
Facility will require refinancing before the Series B Notes mature. It is the
Company's intention to refinance the Senior Subordinated Notes
14
<PAGE> 21
and the Senior Credit Facility prior to maturity. No assurance can be given
that, if required, the Company will be able to refinance the Senior Subordinated
Notes, the Senior Credit Facility or the Series B Notes 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. The Company has entered into interest rate swap
agreements in order to mitigate risk associated with fluctuating interest rates
on certain debt. These agreements are used by the Company solely to hedge risk,
and are not entered into for speculative or profit seeking purposes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
RANKING: EFFECT OF SECURED INDEBTEDNESS IN THE EVENT OF BANKRUPTCY, LIQUIDATION
OR REORGANIZATION
The Series B Notes are senior unsecured, joint and several obligations of
the Issuers, ranking senior in right of payment to all existing and future
subordinated indebtedness of the Issuers. The Series B Notes are not secured,
primarily or secondarily, by any assets of the Issuers. The Series B Notes rank
pari passu in right of payment with all other existing and future senior
indebtedness of the Issuers. However, the Series B Notes will be effectively
subordinated to all future and existing secured indebtedness of the Issuers,
including the Senior Credit Facility, and to all existing and future
indebtedness of the Issuers' subsidiaries that are not Issuers of the Notes. As
of June 30, 1997, the Company had approximately $203 million outstanding under
the Senior Credit Facility. On a pro forma basis as of June 30, 1997, after
giving effect to the sale of the Original Notes and the application of the net
proceeds therefrom, the Company had $4.0 million of borrowings under the Senior
Credit Facility and a maximum of $193.2 million remained available for
borrowings thereunder. As of June 30, 1997, Venture Canada, the only subsidiary
which is not an Issuer, had no debt, other than trade payables of $15,966. See
"Description of Notes" and "Description of Certain Indebtedness -- Senior Credit
Facility." The Senior Credit Facility is secured by liens on substantially all
of the assets of the Company, including all of the capital stock of the Issuers
and 65% of the stock of Venture Canada. In the event of the bankruptcy,
liquidation or reorganization of the Issuers, the assets of the Issuers will be
available to pay obligations on the Series B Notes only after all secured
indebtedness has been paid in full and sufficient assets may not remain to pay
amounts due on any or all of the Series B Notes then outstanding. Subject to
certain limitations, the Issuers, from time to time, may incur additional
secured indebtedness, which secured indebtedness will effectively rank senior to
the Series B Notes to the extent of the value of the assets securing such
indebtedness. See "Description of Notes -- Certain Covenants -- Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock."
RELIANCE ON MAJOR CUSTOMERS; THE OEM SUPPLIER INDUSTRY
The Company competes in the global OEM supplier industry, which is
characterized by a small number of OEMs which are able to exert considerable
pressure on OEM suppliers. The Company's sales to major OEM customers, General
Motors, Ford and Chrysler, were approximately 41%, 16% and 12% of the Company's
net sales, respectively, for the year ended December 31, 1996, and 45%, 27% and
8%, respectively, for the six months ended June 30, 1997 (which give full effect
to the Bailey and Venture Grand Rapids Acquisitions). Sales to these customers
consist of a large number of different parts, tooling and other services, which
are sold to separate divisions and operating groups within each customer's
organization. Although the Company has purchase orders from such customers, such
purchase orders generally provide for supplying the customer's requirements for
a particular model or model year rather than for manufacturing a specific
quantity of products and the purchase orders may be cancelled by the OEMs.
However, the Company believes that cancellation of purchase orders is rare, due,
in part, to the OEM production interruptions likely to be caused by changing
suppliers. The loss of any one of such customers or purchase orders, or a
significant decrease in demand for certain models or a group of related models
sold by any of its major customers could have a material adverse effect on the
Company. The failure of the Company to obtain new business for new models or to
retain or increase business on redesigned existing models could adversely affect
the Company. OEM customers are also able to exert considerable pressure on
component and system suppliers to reduce costs, finance tooling, improve quality
and provide additional design and engineering capabilities. There can be no
15
<PAGE> 22
assurance that the additional costs of increased quality standards, price
reductions or additional engineering capabilities required by OEMs will not have
a material adverse effect on the financial condition or results of operations of
the Company.
Further, many of the Company's OEM and other Tier 1 supplier customers, and
other suppliers to the Company's customers, are unionized, and work stoppages,
slow-downs or other labor disputes experienced by, and the labor relations
policies of, OEMs and other Tier 1 suppliers, could have an adverse effect on
the Company's results of operations.
CYCLICAL NATURE OF THE OEM 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 substantially leveraged
companies such as the Company more than similarly situated companies with less
leverage. A decrease in overall consumer demand for motor vehicles, in general,
or specific segments, could have a material adverse effect on the Company's
financial condition and results of operations.
COMPETITION
The industry in which the Company competes is highly competitive. 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. In addition, the Company's business is increasingly
competitive due to supplier consolidations resulting from OEM supplier
optimization policies and the spin-off by OEMs of formerly in-house plastics
manufacturing facilities. 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, broad
product offerings, product testing capability and its ability to reduce the time
from concept to mass production. The Company believes that as OEMs continue to
strive to reduce new model development cost and timing, innovation and design
and engineering capabilities will become more important as a basis for
distinguishing competitors, and the Company believes that it is well positioned
to compete in these areas. There can be no assurance, however, that the Company
will be able to continue to compete successfully in this environment. See
"Business -- Competition."
RAW MATERIALS
The principal raw materials used by the Company are engineered plastic
resins such as nylon, polypropylene (including thermoplastics), polycarbonate,
acrylonitrile-butadiene-styrene, fiberglass reinforced polyester, polyethylene
terephthalate ("PET") and thermoplastic polyurethane ("TPU"); a variety of
ingredients used in compounding materials used in the compression molding
process; paint related products; and steel for production molds. Although all of
these materials are available from one or more suppliers, the Company's
customers generally specify materials and suppliers to be used by the Company in
connection with a specific program. The Company procures most of its raw
materials by issuing purchase orders against one-year supply agreements under
which the Company's annual needs for such materials are estimated. Releases
against such purchase orders are made only upon the Company's receipt of
corresponding orders from its customers. The Company has not experienced raw
material shortages, although there can be no assurance the Company will not
experience raw material shortages in the future.
CONTROL; AFFILIATED TRANSACTIONS
The Trust, directly or indirectly, owns all of the capital stock of the
other Issuers and Venture Canada. Mr. Winget is the Trustee, Special Advisor and
sole beneficiary of the Trust. As such, Mr. Winget has control of the Company.
As a result of such control, Mr. Winget is able to elect or remove the directors
of each Issuer and to exercise control over the Company's affairs, subject only
to limitations contained in certain agreements related to indebtedness of the
Company. See "Description of Certain Indebtedness." In addition to making
16
<PAGE> 23
distributions to Mr. Winget as sole beneficiary of the Trust and compensating
him in his capacity as an Executive Manager of the Company, the Company has
entered into numerous transactions with Mr. Winget personally and with entities
he owns or controls, as more fully described under "Certain Transactions." The
Company also relies upon these entities to provide facilities, machinery,
equipment, technology and services to the Company which are necessary for it to
provide full service to its customers and to allow the Company to promote a
global presence. Since the Company operates for the benefit of Mr. Winget as
sole beneficiary of the Trust, the terms of these transactions are not the
result of arms'-length bargaining; however, the Company believes that such
transactions are on terms no less favorable to the Company than would be
obtained if such transactions or arrangements were arms'-length transactions
with non-affiliated persons. Pursuant to the Indenture and the indenture
relating to the Senior Subordinated Notes, the Trust and each other Issuer is
required to maintain a Fairness Committee (as defined), at least one of whose
members is independent, which will approve the terms and conditions of certain
transactions between the Company and its affiliates and which participates in
decisions concerning whether certain corporate opportunities will be pursued by
the Company. The Company has complied with such requirement since the date of
the issuance of the Senior Subordinated Notes for transactions initiated after
such date. The indentures also contain other restrictions on transactions with
affiliates, including the Corporate Opportunity Agreement (as defined), and
distributions to Mr. Winget. The Corporate Opportunity Agreement, entered into
in connection with the issuance of the Senior Subordinated Notes, requires Mr.
Winget to offer to the Company certain corporate opportunities which relate to
the Company's business before he may pursue such opportunities outside the
Company. See "Description of Notes."
CONTROL; DEATH, DISABILITY OR UNAVAILABILITY OF MR. WINGET
Upon the death, disability or unavailability of Mr. Winget, except for its
administrative duties in connection with the holding of the assets of the Trust
and receiving income from those assets, the successor Trustee may not take
action with respect to the assets of the Trust without the prior written consent
of a Successor Special Advisor Group. The Successor Special Advisor Group, which
jointly assumes the rights, duties and powers of the Special Advisor to the
Trust in such circumstances, consists of four Successor Special Advisors and
Alicia Winget, Mr. Winget's wife, who serves solely in the capacity of an
arbitrator in the event that a majority of the Successor Special Advisors are
unable to agree on a matter. The initial Successor Special Advisors are Michael
G. Torakis, President and Chief Financial Officer of the Company; A. James
Schutz, Executive Vice President of the Company; Larry J. Winget, Jr., Executive
Vice President -- Manufacturing Engineering of the Company; and Adelicia Jo Jean
Tignanelli, Mr. Winget's daughter. Actions that may not be taken without the
prior written consent of the Successor Special Advisor Group include (i)
borrowing money or incurring other obligations; (ii) disposing of the Trust
assets; (iii) making loans to the subsidiaries of the Trust; (iv) making
investments, except investment of funds in specified money-market funds; and (v)
exercising any of its rights as a shareholder in the subsidiaries of the Trust.
Upon Mr. Winget's death, the beneficiary of the Trust shall be the Larry J.
Winget Living Trust, which may not amend the agreement governing the Trust to
remove or change the members of the Successor Special Advisor Group. The Company
believes that the background and experience of the members of the Successor
Special Advisor Group qualifies those individuals to assume the duties of the
Special Advisor and manage the business and affairs of the Issuers. See
"Management -- Executive Management" and "The Trust."
RISKS ASSOCIATED WITH ACQUISITIONS
To expand its markets and take advantage of the consolidation trend in the
automotive supplier industry, the Company's business strategy includes growth
through selected acquisitions. The ability of the Company to successfully
implement its acquisition strategy depends on a number of factors, some of which
are beyond the Company's control. There can be no assurance that the Company
will be able to consummate acquisitions in the future on terms acceptable to it.
Also, there can be no assurance that the acquisitions will perform as expected,
will be successfully integrated into the Company's operations, or that
identified cost savings from operations can be achieved. The full benefits of a
business combination require integration of each company's administrative,
finance, sales and marketing organizations, coordination of each company's sales
efforts and
17
<PAGE> 24
the implementation of appropriate operations, financial and management systems
and controls in order to capture the efficiencies that are expected to result
from the acquisition.
In certain instances, a consummated acquisition may adversely affect the
Company's financial condition and reporting results, including capital
requirements and the accounting treatment of such acquisitions. Furthermore,
there can be no assurances that acquisitions will not result in significant
unexpected liabilities after the consummation of such acquisition.
Historically, the Company has financed acquisitions with debt and would
expect to do so in the future. As such, this aspect of the Company's business
strategy may be limited by provisions of current or future indebtedness. See
"Risk Factors -- Significant Leverage." As of the date of this Prospectus, the
Company does not have any agreements or understandings with respect to specific
acquisitions.
CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control,
the Company will be required to make an offer to purchase all of the Notes then
outstanding at a purchase price equal to 101% of the principal amount thereof
plus accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase. If a Change of Control were to occur, provisions contained in the
Senior Credit Facility could prohibit the Company from satisfying its obligation
to repurchase the Notes until all electing indebtedness under the Senior Credit
Facility is repaid. The indenture governing the Senior Subordinated Notes
contains provisions similar to those of the Series B Notes which would require
compliance by the Issuers with the provisions of the instruments governing the
issuance of both notes. In addition, each of the instruments defining the
referenced indebtedness provides for events of default to occur upon the default
of certain other indebtedness. There can be no assurance that the Company would
have adequate financial resources to repay all of its obligations under the
Series B Notes upon the occurrence of a Change of Control. As of the date of
this Prospectus, approximately $79 million principal amount of the Senior
Subordinated Notes and $205 million principal amount of the Original Notes is
outstanding. See "Description of Notes -- Certain Covenants -- Repurchase of
Notes at the Option of the Holders upon a Change of Control."
FRAUDULENT CONVEYANCE
The Series B Notes are joint and several obligations of the Issuers. Under
federal or state fraudulent conveyance statutes or other legal principles, the
Series B Notes might be subordinated to existing or future indebtedness of the
Issuers, voided or found not to be enforceable in accordance with their terms.
Accordingly, under such fraudulent conveyance statutes, if a court in a lawsuit
on behalf of an unpaid creditor of any Issuer or a representative of creditors,
such as a trustee in bankruptcy, were to find that any of the Issuers incurred
the indebtedness represented by the Series B Notes with actual intent to hinder,
delay or defraud creditors, or received less than a reasonably equivalent value
or fair consideration for any of such indebtedness and at the time of such
incurrence (i) was insolvent; (ii) was rendered insolvent by reason of such
incurrence; (iii) was engaged or about to engage in a business or transaction
for which its remaining assets constituted unreasonably small capital to carry
on its business; (iv) intended to incur, or believed that it would incur, debts
(including contingent obligations) beyond its ability to pay such debts as they
matured; or (v) was a defendant in an action for money damages, or had a
judgment for money damages docketed against it, if, in either case, after final
judgment, the judgment was unsatisfied, such court might permit such
indebtedness, and prior payments thereon, to be voided by such creditor or
representative and permit such prior payments to be recovered from the holders
of such indebtedness (including holders of the Series B Notes), as the case may
be. Similar tests could be applied to the issuance of Guarantees, if hereafter
issued.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the jurisdiction which is being applied. Generally, however, any
Issuer or any Guarantor would be considered insolvent if, at the time it
incurred such indebtedness or issued the Guarantees, either the fair market
value (or fair saleable value) of its assets was less than the amount required
to pay its total debts and liabilities (including the Series B Notes and
contingent liabilities) as they become absolute and mature or it had incurred
debts (including the Series B Notes and contingent obligations) beyond its
ability to repay such debts
18
<PAGE> 25
as they mature. Among other things, a legal challenge to the issuance of the
Series B Notes with respect to any particular Issuer on fraudulent conveyance
grounds may focus on the benefits, if any, realized by such Issuer as a result
of the issuance of the Series B Notes and the fact that each Issuer (other than
the Trust itself) is potentially liable for amounts in excess of its individual
assets. To the extent the issuance of the Series B Notes by a particular Issuer
is voided as a fraudulent conveyance or held unenforceable for any reason, the
holders of the Series B Notes would cease to have any claim in respect of such
Issuer and would be solely creditors of the other Issuers and the Guarantors,
and may be required to return all amounts received from such Issuer. Similarly,
a legal challenge to any Guarantees, if hereafter issued, on fraudulent
conveyance grounds may focus on the benefits, if any, realized by a Guarantor as
a result of the issuance of the Series B Notes by the Issuers. To the extent any
Guarantee is voided as a fraudulent conveyance or held unenforceable for any
reason, the holders of the Series B Notes would cease to have any claim in
respect of such Guarantee and would be solely creditors of the Issuers, and may
be required to return all amounts received pursuant to such Guarantee. Each of
the Issuers believe that the indebtedness represented by the Series B Notes is
being incurred for proper purposes and in good faith, and that neither the
issuance of the Series B Notes nor the Guarantees, if hereafter issued, involve
a fraudulent conveyance. There can be no assurance, however, that a court would
reach the same conclusions.
ENVIRONMENTAL
The Company's operations are subject to numerous federal, state and local
laws and regulations pertaining to the generation and discharge of materials
into the environment. The Company has taken steps related to such matters in
order to minimize the risks of potentially harmful aspects of its operations on
the environment. However, from time to time, the Company has been subject to
claims asserted against it by regulatory agencies for environmental matters
relating to the generation and disposal of hazardous substances and wastes. Some
of these claims relate to properties or business lines acquired by the Company
after a release had occurred. In each known instance, however, the Company
believes that the claims asserted against it, or obligations incurred by it,
will not result in a material adverse effect upon the Company's financial
position or results of operations. Nonetheless, there can be no assurance that
activities at these facilities or facilities acquired in the future, or changes
in environmental laws and regulations, will not result in additional
environmental claims being asserted against the Company or additional
investigations or remedial actions being required. Below is a brief description
of those properties that have been subject to local, state or federal inquiry or
investigation. See "Business -- Environmental Matters" for a more complete
discussion.
The Company is involved in discussions with the Michigan Department of
Environmental Quality concerning emissions from its Grand Blanc paint facility
and is currently evaluating emissions levels. It is not anticipated that any
required improvements will result in substantial expenditures, although there
can be no assurance that this will be the case.
Bailey has been notified of its status as a potentially responsible party
("PRP") at five Superfund sites. Bailey is jointly and severally liable with
other PRPs for all remediation costs at these sites; therefore, the Company's
proportionate share is subject to increase upon the insolvency of other PRPs. At
the ReSolve Superfund site in North Dartmouth, Massachusetts, Bailey and its
immediate predecessor, USM Corporation's Bailey division (in the name of Emhart
Corporation) ("Emhart") have been named PRPs for wastes sent to the site during
the 1970s. Recent estimates indicate that Bailey's potential liability for
clean-up at this site is approximately $321,396, for which the Company is fully
reserved and has posted a letter of credit in favor of the PRP group. There has
been a recent discovery of certain contaminants at the site that could possibly
result in the ultimate cost of remediation being higher than previously
estimated. With respect to the Solvents Recovery Services of New England Site in
Southington, Connecticut, the waste allocated to Bailey represented 0.11593% of
the total identified waste at the site. The total cost of initial removal action
is currently estimated at approximately $4 million, with the cost of long-term
remediation not yet known. Both Bailey and Emhart received notices of potential
liability for the Old Southington Landfill Superfund Site in Southington,
Connecticut. Pursuant to a settlement agreement, Emhart agreed to assume sole
responsibility for all cleanup costs at that site allocated to USM Corporation
(Amesbury, Massachusetts). At the Spectron, Inc. site located in Elkton,
Maryland, Bailey paid approximately $8,100 in 1989 as its share of a settlement
for
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<PAGE> 26
past costs and removal activities, providing the Company with protection against
contribution claims from third parties for the first phase of site cleanup.
Investigation has been conducted and additional design work will be commenced
soon regarding the second phase of clean-up activity. Participants in phase one
activities have not been asked to contribute to phase two until other customers
have paid out an amount per gallon equal to that paid by the phase one parties.
In 1995, Bailey was notified that it has liability for conducting a Remedial
Investigation/Feasibility Study at the Spectron site. Terms of a possible de
minimis party cash out settlement are being negotiated, which Bailey may have an
opportunity to enter into. No estimate is currently possible as to the Company's
liability at this site. With respect to the Hazardous Waste Disposal, Inc. site
in Farmingdale, New York, it appears that Bailey's involvement is related to the
shipment of two drums of waste materials to the site, and consequently minimal.
The Company has demanded that Emhart assume defense of this claim, which Emhart
has taken under advisement.
Bailey faces potential successor liability with respect to waste generated
and disposed of by TransPlastics at the Millcreek site in Millcreek Township,
Pennsylvania, the New Lyme site in Dodgeville, Ohio and the Huth Oil site in
Cleveland, Ohio. TransPlastics has accepted Bailey's claims for indemnification
for these matters; however, there can be no assurance that TransPlastics and its
parent companies will have sufficient assets to satisfy the Company's potential
liability for remediation and any associated damage or cost caused by
contamination.
The Company faces potential liability in connection with contamination at
its Hilldale facility and waste disposal at a number of off-site locations that
occurred prior to the acquisition of that facility by Bailey. Pursuant to the
Contour Acquisition Purchase and Sale Agreement, The Boler Company ("Boler") has
agreed to indemnify Bailey for environmental liabilities arising in connection
with use of the property prior to closing and has agreed to remediate the
identified contamination at the Hillsdale facility. If Boler has insufficient
resources to complete remediation of any contamination for which it has
indemnified Bailey or otherwise become insolvent, the Company could incur
successor liability for the costs of remediation and any damages to third
parties.
The Company also has potential lability in connection with contamination at
certain property previously leased by Bailey in Cuba, Missouri. The landlord has
undertaken to remediate the property at its own expense and the Company has
negotiated the termination of all of its obligations with respect to the lease.
Estimates of the costs of future compliance with environmental laws are
necessarily imprecise due to numerous uncertainties, including the enactment of
new laws and regulations, the development and application of new technologies,
the identification of new sites for which the Company may have remediation
responsibility and the apportionment and collectibility of remediation costs
among responsible parties. The Company establishes reserves for these
environmental matters when the loss is probable and reasonably estimable. At
June 30, 1997, the Company had a reserve of approximately $1.0 million to
address the known issues briefly discussed above, and more fully described under
"Business -- Environmental Matters," and for known compliance monitoring
activities that may be incurred. It is possible that final resolution of some of
these matters may require the Company to make expenditures in excess of
established reserves, over an extended period of time and in a range of amounts
that cannot be reasonably estimated. Although the final resolution of any such
matters could have a material effect on the Company's consolidated operating
results for the particular reporting period in which an adjustment of the
reserve is recorded, the Company believes that any resulting adjustment should
not materially affect its consolidated financial position. See "Business --
Environmental Matters."
CONSEQUENCES OF FAILURE TO EXCHANGE; POSSIBLE ADVERSE EFFECT ON TRADING MARKET
FOR ORIGINAL NOTES
Holders of Original Notes who do not exchange their Original Notes for
Series B Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Original Notes as set forth in the legend
thereon as a consequence of the issuance of the Original 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 Original 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 of the Issuers to file a
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<PAGE> 27
shelf registration statement covering resales of Original Notes in certain
limited circumstances, the Issuers do not intend to register the Original Notes
under the Securities Act and, after consummation of the Exchange Offer, will not
be obligated to do so. In addition, any holder of Original 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 Original Notes
outstanding will occur. As a result, it is unlikely that a liquid trading market
will exist for the Original Notes at any time. This lack of liquidity will make
transactions more difficult and may reduce the trading price of the Original
Notes. See "The Exchange Offer" and "Description of 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 Issuers do not intend to list the Series B Notes
on any national securities exchange or to seek the admission thereof to trading
in The Nasdaq Stock Market's National Market. The Issuers have been advised by
the Initial Purchaser that the Initial Purchaser currently intends to make a
market in the Series B Notes. It is 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
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 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.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Pursuant to the Registration Rights Agreement, the Issuers agreed (i) to
file a registration statement with respect to a registered offer to exchange the
Original Notes for the Series B Notes, which will have terms substantially
identical in all material respects to the Original Notes (except that the Series
B Notes will not contain terms with respect to transfer restrictions), within 60
days after the date of original issuance of the Original Notes and (ii) to use
reasonable best efforts to cause such registration statement to become effective
under the Securities Act at the earliest possible time but in any event no later
than 120 days after the date of original issuance of the Original Notes. In the
event that applicable interpretations of the staff of the Commission do not
permit the Issuers to file the registration statement to effect the Exchange
Offer, or if for any other reason the Exchange Offer is not consummated within
165 days of the Closing Date, the Company will use its reasonable best efforts
to cause to become effective a shelf registration statement with respect to the
resale of the Original Notes and to keep the shelf registration statement
effective until the earlier of two years following the date of original issue
and such time as all the Original Notes have been sold thereunder or are
otherwise not restricted securities. See "Description of Notes -- Registration
Rights, Liquidated Damages."
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<PAGE> 28
Each holder of the Original Notes who wishes to exchange such Original
Notes for Series B Notes in the Exchange Offer will be required to make certain
representations, including representations that (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 Issuers. 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 Issuers believe that, except as
described below, Series B Notes issued pursuant to the Exchange Offer in
exchange for Original Notes may be offered for resale, resold and otherwise
transferred by any holder thereof (other than a holder which is an "affiliate"
of the Issuers 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 Original Notes, where such Original
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 Issuers will accept for exchange any and
all Original Notes properly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. The Issuers will issue $1,000 principal
amount of Series B Notes in exchange for each $1,000 principal amount of
outstanding Original Notes surrendered pursuant to the Exchange Offer. Original
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 the form and terms of the Original Notes
except the distribution of the Series B Notes will be registered under the
Securities Act and hence the Series B Notes will not bear legends restricting
the transfer thereof. The Series B Notes will evidence the same debt as the
Original Notes. The Series B Notes will be issued under and entitled to the
benefits of the Indenture, which also authorized the issuance of the Original
Notes, such that both the Original Notes and the Series B Notes 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 Original Notes being tendered for exchange.
As of the date of this Prospectus, $205,000,000 aggregate principal amount
of the Original Notes are outstanding. This Prospectus, together with the Letter
of Transmittal, is being sent to all registered holders of Original Notes. There
will be no fixed record date for determining registered holders of Original
Notes entitled to participate in the Exchange Offer.
The Issuers intend 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.
Original 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.
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<PAGE> 29
The Issuers shall be deemed to have accepted for exchange properly tendered
Original Notes when, as and if, the Issuers 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
Issuers. The Issuers expressly reserve the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Original Notes not
theretofore accepted for exchange, upon the occurrence of any of the conditions
specified below under "The Exchange Offer -- Certain Conditions to the Exchange
Offer."
Holders who tender Original 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
Original Notes pursuant to the Exchange Offer. The Issuers will pay all charges
and expenses, 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
December 3, 1997, unless the Issuers, in their sole discretion, extend 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 Issuers 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 Original Notes an announcement
thereof.
The Issuers reserve the right, in their sole discretion, (i) to delay
accepting for exchange any Original Notes, to extend the Exchange Offer or to
terminate the Exchange Offer if any of the conditions set forth below under "The
Exchange Offer -- Certain Conditions to the Exchange Offer" 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 Original Notes. If the Exchange Offer is amended in
a manner determined by the Issuers to constitute a material change, the Issuers
will promptly disclose such amendment in a manner reasonably calculated to
inform the holders of the Original Notes of such amendment and the Issuers 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.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other terms of the Exchange Offer, the Issuers will not
be required to accept for exchange, or exchange any Series B Notes for, any
Original Notes, and may terminate the Exchange offer as provided herein before
the acceptance of any Original 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 Issuers' reasonable judgment, might materially impair the
ability of the Issuers 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 Issuers' reasonable judgment,
might materially impair the ability of the Issuers to proceed with the
Exchange Offer, or
(c) any governmental approval has not been obtained, which approval
the Issuers shall, in their reasonable discretion, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
The Issuers expressly reserve 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 Original Notes,
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<PAGE> 30
by giving written notice of such extension to the holders thereof. During any
such extensions, all Original Notes previously tendered will remain subject to
the Exchange Offer and may be accepted for exchange by the Issuers. Any Original
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 Issuers expressly reserve the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Original Notes not theretofore
accepted for exchange, upon the occurrence of any of the conditions of the
Exchange Offer specified above under "The Exchange Offer -- Certain Conditions
to the Exchange Offer." The Issuers will give written notice of any extension,
amendment, non-acceptance or termination to the holders of the Original 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 Issuers and may be
asserted by the Issuers regardless of the circumstances giving rise to any such
condition or may be waived by the Issuers in whole or in part at any time and
from time to time, subject to their reasonable discretion. The failure by the
Issuers 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 Issuers will not accept for exchange any Original Notes
tendered, and no Series B Notes will be issued in exchange for any such Original
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 Original Notes may tender such Original 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) Original 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 Original 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
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 ORIGINAL 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 ORIGINAL NOTES SHOULD BE SENT TO THE ISSUERS. HOLDERS
MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
OR OTHER NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Original 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
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<PAGE> 31
and instruct such registered holder of Original 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 Original Notes, either make
appropriate arrangements to register ownership of the Original Notes in such
owner's name or obtain a properly completed bond power from the registered
holder of Original 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 Original 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 Original Notes listed therein, such Original 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 Original
Notes with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Original Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Issuers, evidence satisfactory to the Issuers 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 Original Notes and withdrawal of tendered
Original Notes will be determined by the Issuers in their sole discretion, which
determination will be final and binding. The Issuers reserve the absolute right
to reject any and all Original Notes not properly tendered or any Original Notes
the Issuers' acceptance of which would, in the opinion of counsel for the
Issuers, be unlawful. The Issuers also reserve the right to waive any defects,
irregularities or conditions of tender as to particular Original Notes. The
Issuers' 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 Original Notes must be cured within such time as the
Issuers shall determine. Although the Issuers intend to notify holders of
defects or irregularities with respect to tenders of Original Notes, neither the
Issuers, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Original Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Original 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 Original 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 Original 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 Original Notes are
not accepted for exchange for any reason set forth in the terms and conditions
of the Exchange Offer or if Original Notes are submitted for a greater principal
amount than the holder desires to exchange, such unaccepted or non-exchanged
Original Notes will be returned without expense to the tendering holder thereof
(or, in the case of Original 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 Original
Notes will be credited to an account maintained
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<PAGE> 32
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 and DTC have confirmed that any Direct Participant (as
defined in "Description of Notes -- Book-Entry, Delivery and Form") in DTC's
book-entry transfer facility system may utilize DTC's ATOP procedures to tender
Original Notes. The Exchange Agent will establish an account with respect to the
Original Notes at DTC for purposes of the Exchange Offer within two business
days after the date of this Prospectus. Any Participant may make a book-entry
delivery of the Original Notes by causing DTC to transfer such Original Notes
into the Exchange Agent's account at DTC in accordance with DTC's ATOP
procedures for transfer. However, although delivery of Original Notes may be
effected through book-entry transfer into the Exchange Agent's account at DTC,
an Agent's Message or a completed and signed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees and any other documents
required by the Letter of Transmittal must in any case be delivered to and
received by the Exchange Agent at one of its addresses set forth under "The
Exchange Offer -- Exchange Agent" on or prior to the Expiration Date, or the
guaranteed delivery procedure set forth below must be complied with.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (i) whose Original
Notes are not immediately available or (ii) who cannot deliver their Original
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 Original Notes and the principal amount of Original 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 Original
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 Original 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 Original Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn 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 "The
Exchange Offer -- Exchange Agent." Any such notice of withdrawal must specify
the name of the person having tendered the Original Notes to be withdrawn,
identify the Original Notes to be withdrawn (including the principal amount of
such Original Notes), and (where certificates for Original Notes have been
transmitted) specify the name in which such Original Notes were registered, if
different from that of the withdrawing holder. If certificates for Original
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
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<PAGE> 33
Eligible Institution. If Original 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 Original 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 Issuers, whose determination shall be final and binding on all parties. Any
Original Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Original 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
Original 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 Original Notes will be credited to an account
maintained with such Book-Entry Transfer Facility for the Original Notes) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Original Notes may be retendered by following
one of the procedures described under "Procedures for Tendering Original Notes"
above at any time on or prior to the Expiration Date.
EXCHANGE AGENT
The Huntington National 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:
<TABLE>
<CAPTION>
By Mail, Overnight Courier or Hand Delivery: By Facsimile:
- -------------------------------------------- -------------
<S> <C>
The Huntington National Bank The Huntington National Bank
41 South High Street-HC1112 Attention: Corporate Trust Department
Columbus, Ohio 43215 (614) 480-5223
Attention: Corporate Trust Department (For Eligible Institutions Only)
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Issuers. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telephone, telecopy or in person by officers and directors of the
Issuers and their affiliates.
The Issuers have 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 Issuers, 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 Issuers. 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.
The Issuers will pay all transfer taxes, if any, applicable to the exchange
of Original Notes pursuant to the Exchange Offer. If, however, certificates
representing Original 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 Original Notes tendered, or if tendered Original Notes
are registered in the name of any person other than the person signing the
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Original 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 Original Notes for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct the Issuers to register Series B Notes in the name of, or
27
<PAGE> 34
request that Original 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 Original Notes who do not exchange their Original Notes for
Series B Notes pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Original Notes, as set forth in the legend
thereon as a consequence of the issuance of the Original 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 Original 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
Issuers do not currently anticipate registering the Original 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 Issuers 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 Issuers have 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.
28
<PAGE> 35
USE OF PROCEEDS
SERIES B NOTES
The Issuers will not receive any cash proceeds from the Exchange Offer. The
Exchange Offer is being made to satisfy the Issuers' obligations under the
Registration Rights Agreement.
ORIGINAL NOTES
The Issuers received approximately $198.7 million in net proceeds from the
sale of the Original Notes, after deducting the Initial Purchaser's discount and
estimated fees and expenses of such offering. The Issuers used such net proceeds
to repay certain amounts outstanding under the Senior Credit Facility. See
"Description of Certain Indebtedness -- Senior Credit Facility." Amounts thereby
made available under the Senior Credit Facility will be utilized by the Issuers
for working capital and other general corporate purposes.
CAPITALIZATION
The following table sets forth cash and cash equivalents and the
capitalization of the Company at June 30, 1997, and as adjusted to give effect
to (i) the sale of the Original Notes and the application of the net proceeds
therefrom, as if the sale had occurred on June 30, 1997; and (ii) consummation
of the Exchange Offer (assuming that all Original Notes are exchanged for Series
B Notes pursuant thereto). This information should be read in conjunction with
the Company's consolidated financial statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 348 $ 304
======== ========
Long-term debt (including current portion)
Senior credit facility (1):
Revolving credit portion............................... $ 87,000 $ 4,000
Term loan "A".......................................... 71,450 --
Term loan "B".......................................... 44,325 --
9 3/4% Senior Subordinated Notes.......................... 78,940 78,940
Capital leases............................................ 5,216 5,216
Installment notes payable................................. 3,779 3,779
9 1/2% Series B Notes..................................... -- 205,000
-------- --------
Total long-term debt................................... $290,710 $296,935
Trust principal............................................. 66,058 66,058
-------- --------
Total capitalization................................... $356,768 $362,993
======== ========
</TABLE>
- ------------
(1) The Senior Credit Facility provides for borrowings of up to $200 million for
working capital, capital expenditures and general corporate purposes and is
secured by substantially all of the assets of the Issuers, including all of
the capital stock of the Issuers (other than the Trust) and 65% of the stock
of Venture Canada. See "Description of Certain Indebtedness -- Senior Credit
Facility."
29
<PAGE> 36
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated balance sheet data and income statement data
presented below as of December 31, 1995 and 1996 and for the years ended
December 31, 1994, 1995 and 1996, are derived from the Company's consolidated
financial statements, audited by Deloitte & Touche LLP, independent auditors,
and should be read in conjunction with the Company's audited financial
statements and notes thereto included elsewhere herein. The selected
consolidated income statement data and balance sheet data presented below as of
December 31, 1992, 1993 and 1994 and for the years ended December 31, 1992 and
1993, are derived from the Company's audited consolidated financial statements
not included herein. The selected consolidated income statement data and balance
sheet data as of June 30, 1996 and 1997 and for the six months then ended, are
derived from unaudited financial statements but, in the opinion of management,
reflect all adjustments, consisting of only normal recurring adjustments,
necessary for a fair statement of the results for such periods and as of such
dates. The results for the six months ended June 30, 1997 are not necessarily
indicative of the results to be expected for the full fiscal year.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------------------- -------------------
1996 1995 1994 1993 1992 1997 1996
---- ---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1)(2):
Net sales........................................ $ 351,777 $251,142 $244,112 $205,567 $174,771 $320,115 $125,795
Cost of products sold............................ 302,940 211,262 199,717 163,521 146,157 262,160 102,131
Gross profit................................... 48,837 39,880 44,395 42,046 28,614 57,955 23,664
Selling, general and administrative expense...... 26,588 20,130 19,200 15,523 13,180 28,563 9,725
Payments to beneficiary in lieu of taxes(3)...... 666 576 3,405 1,177 -- 472 666
Income from operations........................... 21,583 19,174 21,790 25,346 15,434 28,920 13,273
Interest expense................................. 19,248 15,032 14,345 11,158 10,390 14,208 7,409
Net income before extraordinary items and
taxes........................................ 2,335 4,142 7,445 14,188 5,044 14,712 5,864
Net extraordinary loss on early retirement of
debt........................................... 2,738 -- -- 4,066 -- -- --
Net income after extraordinary items........... (403) 4,142 7,445 10,122 5,044 14,712 5,864
Tax provision(4)................................. 336 -- -- -- -- 1,413 --
Net income (loss).............................. (739) 4,142 7,445 10,122 5,044 13,299 5,864
Ratio of earnings to fixed charges(5)............ 1.2x 1.3x 1.7x 2.2x 1.4x 2.0x 1.8x
Pro forma ratio of earnings to fixed
charges(6)..................................... 1.9x
OTHER FINANCIAL DATA:
EBITDA(7)........................................ $ 44,877 $ 35,818 $ 39,265 $ 38,611 $ 26,154 $ 45,942 $ 23,302
Depreciation and amortization.................... 22,628 16,068 14,070 12,088 10,720 16,550 9,363
Capital expenditures............................. 67,533 20,339 22,798 19,413 12,769 18,777 23,311
Net cash provided by (used in):
Operating activities........................... 37,943 10,950 (3,066) 19,422 11,413 12,634 4,715
Investing activities........................... (124,486) (20,339) (22,798) (19,413) (12,769) (18,777) (23,311)
Financing activities........................... 82,977 (655) 53,643 (4,487) (1,586) (8,946) 4,951
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital.................................. $ 83,404 $ 74,354 $ 85,258 $ 32,291 $ 29,556 $ 88,166 $ 57,455
Property, plant and equipment -- net............. 203,975 116,299 111,472 102,277 94,501 208,016 130,534
Total assets..................................... 498,067 231,602 234,435 166,578 148,618 483,803 256,696
Total debt....................................... 299,996 152,463 153,118 94,957 94,064 290,710 157,414
Warrants......................................... -- -- -- -- 2,673 -- --
Trust principal(3)............................... 52,759 53,498 49,356 41,911 31,789 66,058 59,362
</TABLE>
- ------------
(1) The Trust operates as a holding company and has no independent operations of
its own. Separate financial statements of the Issuers have not been
presented because the Issuers do not believe that such information would be
material to a decision to invest in the Notes.
(2) The results for 1996 include the operations of Bailey from August 26, 1996,
and of Venture Grand Rapids from June 3, 1996.
30
<PAGE> 37
(3) The Company made distributions to the beneficiary of the Trust in amounts
generally equal to taxes incurred by the beneficiary as a result of the
activities of the Trust's subsidiaries that have elected "S" corporation
status under the Code, of approximately $0.9 million, for the year ended
December 31, 1992. For the years ended December 31, 1993, 1994, 1995 and
1996, and the six months ended June 30, 1996 and 1997, the Company paid the
beneficiary compensation in lieu of a distribution of Trust principal for
such purposes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(4) This provision relates solely to Bailey and its subsidiaries (see Note 2
above). Other significant subsidiaries of the Trust have elected "S"
corporation status under the Code and, consequently, the Company does not
incur liability for federal and certain state income taxes for these
subsidiaries. Upon termination of the Trust, the S elections may terminate
and the corporation succeeding the Trust according to the terms of the Trust
would be subject to income tax.
(5) For purposes of calculating the ratio of earnings to fixed charges, earnings
consist of net income before extraordinary items and fixed charges. Fixed
charges consist of (i) interest, whether expensed or capitalized; (ii)
amortization of debt discount and debt financing costs; and (iii) the
portion of rental expense that management believes is representative of the
interest component of rental expense.
(6) Earnings are inadequate to cover fixed charges on a pro forma basis for the
year ended December 31, 1996 in the amount of approximately $6.5 million.
This is primarily due to the increase in fixed charges as if they had
occurred at the beginning of the year without any increase in earnings.
Earnings are adequate to cover the fixed charges on a pro forma basis for
the six months ended June 30, 1997.
(7) EBITDA represents income from operations before deducting taxes,
depreciation, amortization, interest and Trust Tax Distributions (as defined
in the Indenture). EBITDA is not presented as an alternative to net income,
as a measure of operating results or as an indicator of the Company's
performance, nor is it presented as an alternative to cash flow or as a
measure of liquidity, but rather to provide additional information related
to debt service capacity. 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. EBITDA, while commonly used, is not calculated uniformly by
all companies and should not be used as a comparative measure without
further analysis, nor does EBITDA necessarily represent funds available for
discretionary use. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of liquidity and
operating results.
31
<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the Company's
consolidated statements of income expressed as a percentage of net sales. This
table and the subsequent discussion should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
-------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- ----------------
1996 1995 1994 1997 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of products sold............................... 86.1 84.1 81.8 81.2 81.9
----- ----- ----- ----- -----
Gross profit........................................ 13.9 15.9 18.2 18.8 18.1
Selling, general and administrative expenses........ 7.6 8.0 7.9 7.7 8.9
Payments to beneficiary in lieu of Trust
distributions..................................... 0.2 0.2 1.4 0.5 0.2
----- ----- ----- ----- -----
Income from operations.............................. 6.1 7.7 8.9 10.6 9.0
Interest expense.................................... 5.4 6.0 5.9 5.9 4.4
----- ----- ----- ----- -----
Income before extraordinary items and taxes......... 0.7 1.7 3.0 4.7 4.6
Extraordinary loss on retirement of debt............ 0.8 -- -- -- --
----- ----- ----- ----- -----
Income before taxes................................. (0.1) 1.7 3.0 4.7 4.6
Tax provision....................................... 0.1 -- -- -- 0.4
----- ----- ----- ----- -----
Net income (loss)................................... (0.2)% 1.7% 3.0% 4.7% 4.2%
===== ===== ===== ===== =====
</TABLE>
On June 3, 1996, the Company acquired certain assets from AutoStyle and
entered into a capital lease for all of AutoStyle's plant, property and
equipment located in Grand Rapids, Michigan and Hopkinsville, Kentucky.
Simultaneously, the Company entered into a long-term supply agreement with
General Motors for substantially all of AutoStyle's former business at revised
prices. This business includes General Motors U-Van (Transport, Venture,
Silhouette) fascias and side moldings, Cadillac (STS, Seville and Eldorado)
fascias, H-Car (LeSabre) fascias and F-Car (Camaro, Firebird) fenders, window
appliques and knee bolsters.
On August 26, 1996, the Company purchased all of the outstanding stock of
Bailey, an OEM supplier to General Motors, Ford and Chrysler.
In connection with the sale of the Original Notes, the subsidiaries of the
Trust that had conducted the business of AutoStyle and Bailey were merged or
otherwise consolidated with the Issuers and such subsidiaries' separate
existence ceased.
THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1997 COMPARED TO THE THREE AND SIX
MONTH PERIODS ENDED JUNE 30, 1996.
The period to period comparisons are substantially effected by the
acquisitions of Bailey and AutoStyle. The operations of these acquisitions have
been and continue to be rationalized among the various manufacturing facilities
to optimize plant capacity and utilization.
Net sales for the three and six months ended June 30, 1997 increased $85.8
million and $194.3 million, respectively, compared to the three and six months
ended June 30, 1996. This is a 115.1% increase to $160.4 million for the three
months ended June 30, 1997 and a 154.5% increase to $320.1 million for the six
months ended June 30, 1997, compared to $74.6 million and $125.8 million,
respectively, for the same periods of 1996. The substantial increase in net
sales during 1997 is primarily the result of the Bailey and Venture Grand Rapids
Acquisitions which generated additional net sales of approximately $82.9 million
and $173.5 million for the three and six month periods ended June 30, 1997,
respectively. The remainder of the increase in sales of $2.9 million and $20.8
million relate to increased volumes in the core comparable business offset by
planned
32
<PAGE> 39
reduction in the selling price mandated by customers to offset expected annual
productivity improvements. Strikes at the OEMs during the second quarter of 1997
did not have a significant impact on net sales.
Gross profit for the three months ended June 30, 1997 increased $11.7
million, or 81.8% to $26.0 million compared to $14.3 for the three months ended
June 30, 1996. Gross profit for the six months ended June 30, 1997 increased
$34.3 million, or 144.7% to $58.0 million, compared to $23.7 million for the six
months ended June 30, 1996. The increase in gross profit for the quarter and
first six months is due primarily to the increase in sales. However, gross
profit as a percentage of sales decreased 2.9% and 0.7% for the three and six
months ended June 30, 1997, respectively, as compared to the same periods in
1996. The decrease in gross profit as a percentage of sales is attributable to
launch cost and selling price reductions, which have become industry practice in
recent years, as OEM customers continue to expect annual productivity
improvements on the part of the supplier. As anticipated, tooling sales
decreased in the three months ended June 30, 1997 compared to the three months
ended March 31, 1997, principally due to the timing of revenue recognition under
the completed contract method. The Company expects to realize revenue under
these contracts, which generally account for higher margins than sales of
components, in the second half of the year, principally in the last three months
of the year.
Selling, general and administrative expenses increased $7.8 million, or
144.4% for the three months ended June 30, 1997 to $13.2 million, compared to
$5.4 million in the same period of 1996. During the six months ended June 30,
1997, selling, general and administrative expenses increased $18.9 million, or
194.8% to $28.6 million, compared to $9.7 million for the six months ended June
30, 1996. As a percentage of net sales, selling, general and administrative
expenses increased to 8.2% for the second quarter and increased to 8.9% for the
six months ended June 30, 1997, compared to 7.2% and 7.7%, respectively, in the
corresponding periods of 1996. The increase in selling, general and
administrative expenses are directly related to the Bailey and Venture Grand
Rapids Acquisitions, which accounted for $16.4 million of the increase for the
six months ended June 30, 1997. These costs represent engineering, design, sales
and administrative support that was assumed as part of the acquisitions. The
balance of the increase, or $2.5 million, is associated with increased labor,
travel and professional fees which are indirectly related to the acquisitions.
Payments to the beneficiary of the Trust, in the amounts generally equal to
taxes incurred by the beneficiary as a result of the activities of the Trust's
subsidiaries which have elected S Corporation status, totaled $0.3 million and
$0.4 million in the three months ended June 30, 1997 and 1996, respectively.
During the six months ended June 30, 1997 and 1996, $0.5 million and $0.7
million, respectively, were paid to the beneficiary. These amounts were paid as
compensation rather than as distributions of Trust principal. As a result of
state tax law changes, the Company may pay such amounts to the beneficiary as
distributions of Trust principal in the future, rather than as compensation.
As a result of the foregoing, income from operations in the six months
ended June 30, 1997 increased $15.6 million, or 117.3%, to $28.9 million,
compared to $13.3 million in the same period of 1996. Income from operations
increased $4.0 million, or 47.1% to $12.5 million for the three months ended
June 30, 1997, compared to $8.5 million in the same period of 1996. As a
percentage of net sales, income from operations decreased to 7.8% in the three
months ended June 30, 1997 from 11.4% in the three months ended June 30, 1996.
For the first six months ended June 30, 1997 and 1996, income from operations as
a percentage of net sales was decreased to 9.0% from 10.6%, respectively.
Interest expense increased $3.6 million and $6.8 million to $7.3 million
and $14.2 million, respectively, in the three and six months ended June 30,
1997, compared to $3.7 million and $7.4 million, respectively, in the same
periods of 1996. The increase resulted from financing of the acquisitions and
increased working capital needs.
As a result of the foregoing, net income for the three months ended June
30, 1997 decreased $0.3 million, to $4.5 million compared to $4.8 million for
the three months ended June 30, 1996. Net income for the six months ended June
30, 1997 increased $7.4 million, to $13.3 million; compared to $5.9 million in
the six months ended June 30, 1996.
33
<PAGE> 40
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales for the year ended December 31, 1996 increased $100.7 million, or
40.1%, to $351.8 million, compared to net sales of $251.1 million for the year
ended December 31, 1995. The increase in net sales was primarily the result of
the acquisition of Bailey, from August 26, 1996, and AutoStyle, from June 3,
1996. Specifically, Bailey accounted for $72.6 million and AutoStyle for $38.9
million of the increase offset by a $10.8 million decrease in comparable
operating sales. These increases offset reductions in net sales resulting from
the discontinuance of the Chrysler ZJ fascias after the second quarter of 1995,
Buick LeSabre fascias in December of 1995 and fascias for the GM "G" Body
(Oldsmobile Aurora and Buick Riviera) during the first quarter of 1996 which
were not otherwise offset due to the delay in new model start ups.
Gross profit for the year ended December 31, 1996 increased $9.0 million,
or 22.5%, to $48.8 million compared to $39.9 million for the year ended December
31, 1995. The increase in gross profit for the year is attributable to the
increase in sales arising from the Bailey and Venture Grand Rapids Acquisitions.
Without the impact of these acquisitions, gross profit would have decreased
approximately $3.8 million. As a percentage of comparable operating sales, gross
profit would have decreased from 15.9% to 15.0% for the year ended December 31,
1996, which was due to the delay in launching of the GM "M" vans (Astro and
Safari) side molding program and GM full size vans (Express and Savana). Full
production of these vehicles did not begin until late June 1996. Gross profit
pressures are also attributable to selling price reductions, which have become
industry practice in recent years, as OEMs continue to expect annual
productivity improvements on the part of their suppliers. Gross profit margins
fell from the third quarter of 1996 due to lower margins attributable to net
sales from former Bailey operations.
Selling, general and administrative expenses increased $6.5 million, or
32.1%, for fiscal 1996 to $26.6 million, compared to $20.1 million in fiscal
1995. As a percentage of net sales, selling, general and administrative expenses
decreased to 7.6% for the year ended December 31, 1996, compared to 8.0% in
1995.
Payments to the beneficiary of the Trust, in the amounts generally equal to
taxes incurred by the beneficiary as a result of the activities of the Trust's
subsidiaries which have elected S corporation status, totaled $0.7 million and
$0.6 million in fiscal 1996 and 1995, respectively. These amounts were paid as
compensation rather than as distributions of Trust principal.
As a result of the foregoing, income from operations in the year ended
December 31, 1996 increased $2.4 million, or 12.6%, to $21.6 million, compared
to $19.2 million in fiscal 1995. As a percentage of net sales, income from
operations decreased to 6.1% in fiscal 1996 from 7.7% in fiscal 1995.
Interest expense increased $4.2 million to $19.2 million in fiscal 1996
compared to $15.0 million in fiscal 1995. The increase is the result of the new
credit agreement entered into on August 26, 1996. As a result of the
refinancing, the Company incurred an extraordinary loss in the amount of $2.7
million during the third quarter of 1996.
Due to the foregoing, net income for the year ended December 31, 1996
decreased $4.8 million, to $(0.7) million compared to $4.1 million for the year
ended December 31, 1995.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales in fiscal 1995 increased $7.0 million, or 2.9%, to $251.1 million
compared to $244.1 million in fiscal 1994. The increase in sales in 1995 results
from an increase in air bag cover sales, increased sales of interior components
for the Chrysler LH and JA cars, and the General Motors J-Car (Sunfire and
Cavalier). In addition, the Company had increased sales of fascias for the GM
Oldsmobile Aurora, Buick Riviera, and GM "M" van (Astro and Safari). Sales of
Chrysler ZJ fascias were discontinued after the second quarter of 1995. As
scheduled, the last shipments of Buick LeSabre fascias were sent in December
1995.
Gross profit for fiscal 1995 decreased by $4.5 million, or 10.2%, to $39.9
million compared to $44.4 million in fiscal 1994. As a percentage of net sales,
gross profit decreased from 18.2% in fiscal 1994 to 15.9% in fiscal 1995. The
decrease in gross profit is partially explained by the reduction in car
production from the prior year which occurred during the month of June 1995 and
through the fourth quarter. This is in addition to the
34
<PAGE> 41
delay in launching of the GM "M" van (Astro and Safari) side molding program and
GM full size vans (Express and Savana). The decrease is further explained by the
continuing shift in sales to interior components as opposed to exterior painted
components, such as fascias and side moldings. Exterior components involve
additional value added activities and typically have higher margins than
interior components. The decrease in gross profit is also attributable to
selling price reductions, which have become industry practice in recent years,
as OEM customers continue to expect annual productivity improvements on the part
of their suppliers. The Company believes these price reductions will continue to
be a feature of the OEM supplier marketplace for the foreseeable future. Raw
material prices increased during the first part of 1995; however, the Company
experienced a slight reduction late in the fourth quarter. In order to maintain
profitability, the Company has sought price reductions on purchases from its
suppliers and has improved production efficiency.
Selling, general and administrative expenses increased by $0.9 million, or
4.8%, to $20.1 million in fiscal 1995, compared to $19.2 million in fiscal 1994.
As a percentage of net sales, selling, general and administrative expenses
increased by only 0.1%, to 8.0% in fiscal 1995, compared to 7.9% in fiscal 1994.
This increase resulted from the payment of bonuses to a number of key employees
during fiscal 1995, in recognition of past service. After isolating the effect
of the bonuses, selling, general and administrative expenses as a percentage of
net sales were 7.4%, which represents a 0.5% decrease when compared to 1994.
Payments to the beneficiary of the Trust, in amounts generally equal to
taxes incurred by the beneficiary as a result of the activities of the Trust's
subsidiaries which have elected S corporation status, totaled $0.6 million in
1995 and $3.4 million in 1994. These amounts were paid as compensation rather
than as distributions of Trust principal. As a result of state tax law changes,
the Company may pay such amounts to the beneficiary as distributions of Trust
principal in the future, rather than as compensation.
Interest expense increased $0.7 million in fiscal 1995, to $15.0 million,
compared to $14.3 million in fiscal 1994. This is due primarily to the issuance
of the Senior Subordinated Notes on February 16, 1994.
As a result of the foregoing, income from operations in fiscal 1995
decreased $2.6 million, or 12.0%, to $19.2 million compared to $21.8 million in
fiscal 1994. Net income for fiscal 1995 decreased $3.3 million, or 44.4%, to
$4.1 million compared to $7.4 million in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated working capital was $83.4 million at December
31, 1996, compared to $74.4 million at December 31, 1995, an increase of $9.0
million. The Company's working capital ratio decreased to 1.7x at December 31,
1996 from 3.2x at December 31, 1995, as a result of the growth of the Company's
balance sheet attributable to the Bailey and Venture Grand Rapids Acquisitions
and increased current liabilities attributable to the Bailey operations. At June
30, 1997, working capital was $88.2 million, and the Company's working capital
ratio increased to 1.8x.
The Company's principal sources of liquidity are internally generated
funds, cash equivalent investments and borrowings under the Senior Credit
Facility. Net cash flows provided by (used in) operating activities were $37.9
million, $11.0 million and $(3.1) million for the years 1996, 1995 and 1994,
respectively, and $12.6 million for the six months ended June 30, 1997. The
Company's cash flow from operating activities was higher in 1996 than in 1995 as
a result of increases in non-cash charges, such as depreciation, and current
liabilities that resulted from significant acquisitions. Accounts receivable
increased $62.7 million from 1995 to 1996. Approximately $40.4 million is
related to the Bailey and Venture Grand Rapids Acquisitions. The balance of
$22.3 million relates to increased tooling and engineering sales. Accounts
receivable were higher than expected due to pricing difficulties with a customer
which were resolved and paid in 1997. Increases in prepaids and other assets
were the result of the acquisition of Bailey.
Net cash flows used in investing activities were $124.5 million, $20.3
million and $22.8 million in 1996, 1995 and 1994 respectively, and $18.8 million
for the six months ended June 30, 1997. The 1996 amount is primarily for the
acquisition of Bailey. Capital expenditures for 1995 and 1994 aggregated $43.1
million, for the purchase of machinery and equipment, leasehold improvements and
the expansion of facilities to
35
<PAGE> 42
accommodate increased volumes. The Company believes that it has sufficient
capacity to meet current manufacturing production needs through the 1999 model
year.
In the ordinary course of business, the Company seeks additional business
with existing and new customers. The Company continues to compete for the right
to supply new components which could be material to the Company and require
substantial capital investment in machinery, equipment, tooling and facilities.
As of the date hereof, however, the Company has no formal commitments with
respect to any such material business and there is no assurance that the Company
will be awarded any such business.
In addition, the Company expects that its investment in molds will increase
as OEMs increasingly require the Company to finance the molds for new components
and defer receipt of revenue for such tooling over the production life of the
related manufactured component. Historically, OEMs paid for molds upon
completion of the tool.
In 1996 and 1994, net cash flows from financing activities were $83.0
million and $53.6 million, respectively. The increase in 1996 was the result of
the Senior Credit Facility to facilitate the acquisition of Bailey and the
refinancing of certain obligations resulting from this acquisition. The increase
in 1994 was due to the Company's issuance of $100 million of Senior Subordinated
Notes on February 16, 1994, net of debt retirements and principal reductions.
During 1995, net cash flows from financing activities were $(0.7) million,
principally for repayment of indebtedness.
The Senior Credit Facility contains various covenants that require the
Company to maintain stipulated financial ratios, including (a) minimum
consolidated net worth (adjusted yearly) of not less than the sum of $51 million
plus 75% of consolidated net income (after taxes); (b) fixed charge ratio of at
least (i) 1.15 to 1.0 as of the end of each fiscal quarter ending in 1997 and
1998, (ii) 1.20 to 1.0 as of the end of each fiscal quarter ending in 1999 and
2000 and (iii) 1.25 to 1.0 as of the end of each fiscal quarter thereafter; (c)
interest coverage ratio of at least (i) 2.25 to 1.0 as of June 30, 1997 and as
of the end of each fiscal quarter thereafter through the fiscal quarter ending
September 30, 1999, and (ii) 2.50 to 1.0 as of December 31, 1999 and as of the
end of each fiscal quarter thereafter; and (d) leverage ratio (ratio of
consolidated Indebtedness (as defined) to EBITDA (as defined)) of not more than
(i) 4.25 to 1.0 at any time to and including December 30, 1999, (ii) 4.0 to 1.0
at any time from and including December 31, 1999 to and including December 30,
2001 and (iii) 3.75 to 1.0 on December 30, 2001 and any time thereafter. As of
December 31, 1996 and June 30, 1997, the Company was in compliance with all debt
covenants.
The Senior Credit Facility permits the Company to borrow up to the lesser
of a borrowing base computed as a percentage of accounts receivable and
inventory, or $200 million less the amount of any letter of credit issued
against the Senior Credit Facility. At June 30, 1997, the Company had no
availability thereunder. On July 9, 1997, the Company issued the Original Notes,
the proceeds from which (approximately $198.7 million) were used to prepay
certain amounts under the Senior Credit Facility. On a pro forma basis at June
30, 1997, the Company would have had a maximum availability of $193.2 million,
and, pursuant to the borrowing base formula, could have borrowed $95.0 million
under the Senior Credit Facility. See "Use of Proceeds" and "Capitalization."
The Company believes that existing cash balances, cash flows from
operations, borrowings available under the bank credit facility and other
short-term arrangements will be sufficient to meet its anticipated capital
expenditures and debt obligations through the end of 1999.
NEW ACCOUNTING STANDARDS
In June, 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," effective for fiscal years beginning after December 15, 1997. This
statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This statement also requires that an entity display an
amount representing total comprehensive income for the period in that financial
statement. In addition, this statement requires that an entity classify items of
other comprehensive income by their nature in a financial statement. For
example, other comprehensive income may include
36
<PAGE> 43
foreign currency items, minimum pension liability adjustments and unrealized
gains and losses on certain investments in debt and equity securities.
Reclassification of financial statements for earlier periods, provided for
comparative purposes, is required. This new accounting statement is not expected
to have a material impact on the Company's consolidated financial statements.
The Company will adopt this accounting standard on January 1, 1998, as required.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," effective for fiscal years beginning
after December 15, 1997. This statement establishes standards for reporting
information about operating segments in annual financial statements and requires
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. This statement requires reporting segment profit or loss, certain
specific revenue and expense items and segment assets. It also requires
reconciliations of total segment revenues, total segment profit or loss, total
segment assets, and other amounts disclosed for segments to corresponding
amounts reported in the consolidated financial statements. Restatement of
comparative information for earlier periods presented is required in the initial
year of application. Interim information is not required until the second year
of application, at which time comparative information is required. The Company
has not determined the impact that the adoption of this new accounting standard
will have on its consolidated financial statement disclosures. The Company will
adopt this accounting standard on January 1, 1998, as required.
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<PAGE> 44
BUSINESS
GENERAL
The Company is a leading systems integrator, designer and manufacturer of
high quality molded and painted parts for OEMs and other Tier 1 suppliers. The
Company's products include both exterior and interior plastic components.
Exterior components include such items as front and rear bumper fascias, body
side moldings, claddings, fenders, grille opening panels and reinforcements,
farings, wheel lips, spoilers, and large body panels such as hoods, sunroofs,
doors and lift gates. Interior components include instrument panel systems,
airbag covers, side wall trim, garnishment molding systems, door panels and
consoles. The Company's principal customers include various divisions of General
Motors, Ford, Chrysler and a number of their various Tier 1 suppliers, such as
Autoliv S.A., TRW Automotive Company, Textron Automotive division of Textron
Corporation and Lear Corporation.
The table below sets forth information regarding the products produced and
relative contribution to the Company's consolidated net sales for the six months
ended June 30, 1997 and total assets as of such date by each Issuer and Venture
Canada:
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
CONSOLIDATED TOTAL
NET SALES FOR JUNE 30,
SIX MONTHS ENDED 1997
COMPANY PRODUCTS OR SERVICES JUNE 30, 1997 ASSETS
------- -------------------- ---------------- -------------
<S> <C> <C> <C>
Vemco, Inc. .......................... exterior products, airbag 26% 22%
covers
Venture Holdings Corporation.......... exterior products 37% 38%
Venture Canada........................ exterior products <1% <1%
Venture Industries Corporation........ interior products 22% 14%
Venture Mold & Engineering
Corporation......................... design/build mold tooling for 10% 12%
Company and outside customers
Venture Service Company............... administrative services, mold 5% 13%
tooling repair to Issuers and
related parties
Venture Leasing, Inc. ................ leases mold machines and other -- <1%
equipment to other Issuers
Vemco Leasing, Inc. .................. leases mold machines and other -- <1%
equipment to other Issuers
</TABLE>
The Company is a full-service supplier and an industry leader in providing
plastic components and in applying new design and engineering technology to
reduce product development time. The Company has purchase orders to supply an
aggregate of over 1,000 components to be included on approximately 100 models of
cars, minivans, light trucks and sport utility vehicles for the 1997 model year
and currently expects to manufacture over 1,100 components to be included on a
comparable number of models to be produced for the 1998 model year, as compared
to supplying 399 components on 47 models for the 1994 model year. In recent
years, the Company has placed particular emphasis on designing and manufacturing
airbag covers and supplying components for higher growth sport utility, light
truck, minivan and high volume car segments of the market, which the Company
believes are less subject to the automotive industry's historical cyclicality.
As a result of this emphasis, the Company supplies certain components on a
number of models, such as the Buick LeSabre; Cadillac Seville, S5S and STS;
Chrysler "LH" cars (Chrysler LHS and Concorde, Dodge Intrepid and Eagle Vision),
Dakota trucks and "JA" cars (Cirrus, Stratus and Breeze); Ford F-series truck,
Explorer, Expedition, Mustang, Escort and Windstar; Oldsmobile Bravada, Intrigue
and Eighty-Eight; and Chevrolet
38
<PAGE> 45
Corvette, General Motors "M" vans (Astro and Safari), Yukon, Tahoe, Suburban,
GMX 130 and redesigned GMC and Chevrolet full size vans (Express and Savana). In
addition, the Company has been selected as a sole-source supplier for certain
components on the General Motors GMC Yukon sport utility truck; Honda Accord and
Civic; Jaguar; and Isuzu Rodeo. The Company was awarded the engineering and
design for the 1998 Chrysler "LH" interior components, Chrysler "B" vans, the
new "JR" program and the 2001 Jeep Cherokee. The Company is also on the
development team for the 1998 Chevrolet "CK" full size truck, 2000 Ford Explorer
and 2001 GM small truck sport utility vehicle.
The Company believes that it is enhancing its competitive position to the
OEMs and other Tier 1 suppliers by moving away from positioning itself
exclusively as a component supplier to being a provider of complete interior and
exterior systems, consisting of rapid design, engineering, prototyping,
manufacturing and assembly expertise. The Company continuously strives to
maintain what it believes to be an industry leading position, applying
state-of-the-art design and engineering technology, including CAD/CAM and
optical-based design techniques. The Company believes that early involvement in
the design and engineering of new components affords the Company a competitive
advantage in securing new business and provides its customers with innovative
cost reduction opportunities through the Company's involvement in the
coordination of the design, development and just-in-time manufacturing
processes. The Company believes this competitive advantage is further enhanced
by the Company's adoption of "lean manufacturing" and "Kaizen" philosophies that
seek continuous improvement by identifying and eliminating waste, not only in
the Company's operations, but also in those of its customers and suppliers.
The Company has benefited from many of the changes occurring in the
automotive industry. As OEMs continue to consolidate suppliers, the Company is
well-positioned to remain a leader since the OEMs favor large, multi-dimensional
suppliers with global strategic relationships. In recent years, Ford and
Chrysler have increasingly transferred primary responsibility for design and
engineering of automotive components to full-service suppliers. The automotive
industry has increased the use of plastics in both interior and exterior
components of a vehicle to (i) reduce vehicle weight and cost; (ii) enhance
design flexibility; and (iii) shorten development time and improve quality. As
molding and painting technologies continue to improve, the use of plastics for
exterior trim is expected to increase.
In 1996, the Company expanded its customer base and technology capabilities
through strategic acquisitions. The acquisition of Bailey allowed the Company to
expand its relationship into a Tier 1 supplier to Ford in North America. The
acquisition of certain assets from AutoStyle enhanced the Company's relationship
with General Motors. Moreover, the Bailey and Venture Grand Rapids Acquisitions
offered the Company the ability to expand into compression molding technologies
and to enhance its RIM capabilities as well as the ability to leverage and
provide new outlets for the Company's existing design, engineering and tooling
capabilities.
Venture Industries Corporation, the initial business which became part of
the Company, was founded in 1973 by a group of individuals, including Mr.
Winget. Mr. Winget is the only founder still involved with the Company and is
the sole beneficiary of the Trust. Since its inception, the Company has
experienced significant growth. The Company's net sales, income from operations
and net income (loss) have gone from $174.8 million, 15.4 million and $5.0
million, respectively, for the year ended December 31, 1992 to $351.8 million,
$21.6 million and $(0.7) million, respectively, for the year ended December 31,
1996. The Company's EBITDA has increased from $26.2 million for the year ended
December 31, 1992 to $44.9 million for the year ended December 31, 1996.
Contributing to the growth in net sales were $111.5 million of net sales in the
year ended December 31, 1996 attributable to the Bailey and Venture Grand Rapids
Acquisitions.
INDUSTRY TRENDS
The Company's business is providing systems integration and plastic trim
components to the OEM market. Although the Company sells replacement or service
components to OEMs, it does not participate in the automotive aftermarket. The
OEM market to which the Company sells its products consists of the design,
engineering, development and production of exterior and interior plastic
components to be used in the manufacture of new motor vehicles. The Company's
inception, performance, growth, and strategy have been
39
<PAGE> 46
directly related to trends in the OEM market. Since the 1980s, Chrysler, Ford
and GM have each outsourced an increasing percentage of their production
requirements. The OEMs have also reduced the number of suppliers that may bid
for new awards while insisting that the remaining participants assist OEMs in
their attempts to accelerate new platform developments. Currently, OEMs are
focusing on the development of long-term, sole-source relationships with more
capable full-service suppliers. The criteria for supplier selection now includes
not only cost, quality and responsiveness, but also certain full-service
capabilities including design, research, engineering and project management
support. For capable suppliers, this changing environment should continue to
create the opportunity to grow by obtaining business previously awarded to
competing suppliers.
Competition for business within the Company's industry generally consists
of a competitive selection process in which the OEM approaches one or several
suppliers for an intended component with a conceptual design of the component as
well as estimated production volumes and, in some instances, target prices.
Discussions are held with each potential supplier concerning its ability to
manufacture, engineer and design the component at a unit price quoted by the
supplier. OEMs also have rigorous programs for evaluating and rating suppliers
which encompass quality, cost control, reliability of delivery, new technology
implementation and overall management leadership and structure which have
resulted in a sharply reduced number of component suppliers. The supplier is
generally selected to manufacture a component two to four years in advance of
production. Once selected, a supplier works with the OEM's design team to design
and develop a component which will satisfy the OEM's standards. The supplier is
typically responsible for the design, production and necessary tooling, at
negotiated fixed prices, required to manufacture the component on a sole source
basis to meet requirements for a model year. In practice, model year purchase
orders are typically renewed until the component is redesigned or eliminated due
to a model change, which normally occurs every two to six years for cars and
five to ten years for sport utility vehicles, light trucks and minivans. In
recent years, there has been a change to award sole source life of the program
contracts that cover components supplied for a particular model for the entire
product life cycle in exchange for annual price reductions. Consequently, a
supplier's ability to improve operating performance is somewhat dependent on its
ability to reduce costs and operate more efficiently over the life of the
program. The supplier is also at risk that the OEM will produce fewer units of
the model than anticipated. In addition, the supplier must compete for new
business to supply components for successor models, and as such, there is a risk
that the OEM will not select the supplier to produce components on a successor
model.
As a result of ever-increasing global competition, OEMs are continually
upgrading their supplier policies. The OEMs are requiring suppliers to meet
increasingly strict standards of quality, overall cost reductions and increased
support for up-front design, engineering, project management and the ability to
supply on a global basis. These requirements are continually accelerating the
trend towards consolidation of the OEM supplier base which also involves a shift
in capital investment requirements from the OEMs to the suppliers.
The decision of OEMs to outsource an increasing number of components is
another area of potential growth for component suppliers. Domestic OEMs have
continued to increase the outsourcing of components and subassemblies from
internal divisions to outside suppliers. OEMs benefit from outsourcing because
outside suppliers generally have significantly lower cost structures and shorter
development periods, thus allowing the OEMs to focus on overall vehicle design,
assembly and consumer marketing.
The combined pressures of cost reduction, fuel economy enhancement,
durability, design flexibility and environmental concerns have caused automotive
manufacturers to concentrate their efforts on developing and employing lower
cost, lighter materials, which can be recycled. As a result, plastic content in
motor vehicles has grown significantly. This trend towards the use of plastic in
exterior and functional components has been driven by innovations in molding and
painting technologies, which have improved the performance and appearance of
molded plastic components, and improvements in materials and manufacturing
technologies which have a lower cost. In addition, because plastic components
can be more readily redesigned than steel components, OEMs are able to rapidly
and less expensively alter a vehicle's appearance through the use of plastics.
Due to lower up front tooling costs, plastic generally has an advantage over
steel for low volume production runs. Coupled with the industry trend towards
short production runs, this should lead to increased plastic content per
vehicle. Plastics are now commonly used in structural components such as grille
opening
40
<PAGE> 47
reinforcements and in such nonstructural components as interior and exterior
trim, door panels, instrument panels, grilles, bumpers, duct systems, tail
lights and fluid reservoirs. Increasingly, automobile designs require large,
plastic, molded assemblies for both the interior and exterior. Although, for
interior trim applications, substitution of plastic for other materials is
largely complete, interior applications which allow OEMs to enhance a vehicle's
appearance in cost-effective ways may grow. The use of plastics continues to
increase for exterior applications. As an example, compression molding, compared
to steel, is gaining favor for its light weight, lower-cost tooling and its
ability to consolidate a number of parts into one piece. Trucks, both pick-up
and heavy-duty models, represent a potential area for significant growth for
compression molding.
BUSINESS STRATEGY
The Company's business strategy is to capitalize on current conditions and
anticipate future automotive industry trends in order to supply an increasing
number of components to its existing OEM and Tier 1 supplier customers as well
as to expand these customer bases. The Company believes that the principal
sources for continued growth and increased market share lie in (i) capitalizing
on its engineering and design capabilities; (ii) expanding its capabilities to
provide integrated interior and exterior systems; and (iii) emphasizing its
status as a manufacturer of high quality components for North American OEMs. The
Company believes the key elements of achieving this strategy are the following:
Provide Full-Service Program Capability. In response to the evolving
purchasing and manufacturing policies of its OEM customers, the Company has
developed comprehensive full-service capabilities, including component research,
design and engineering, prototype production, tooling, manufacturing and
assembly. As the OEMs have focused increasingly on shortening vehicle design and
production cycles and reducing design and production costs, suppliers who have
the ability to take an idea or design from concept to mass production ("art to
part") are being involved earlier in the process and are being selected as
sole-source suppliers for vehicle components. This evolution of the OEM
relationship into strategic partnerships provides a significant advantage to
strong existing suppliers, such as the Company, in retaining existing contracts
as well as participating during the design phase for new vehicles, which is
integral to becoming a supplier to such new platforms.
In the past several years, the Company has made a substantial commitment to
product technology and product design, including establishing an Advanced
Engineering Center, integrating the use of CAD/CAM, and utilizing the latest
optical design technology to rapidly and cost-effectively replicate and modify
existing designs (using a proprietary reverse engineering process, licensed from
Mr. Winget, called reverse engineering automated process for rapid prototyping
("REAP")) as well as develop new prototypes. The Company believes its
participation with customers in the early phases of product design has enabled
it to provide better product quality at a lower cost in a shortened development
period.
Supply Highly Engineered, High Value-Added Components. The Company has,
over the past several years, changed its marketing emphasis to include its
advanced engineering capabilities to supply more highly engineered components.
These components are more difficult for a customer to produce in-house and are
difficult for a competitor to replicate due to the substantial up-front
investment and the specialized design and engineering required. The Company
believes that the number of companies that have the ability to participate in
the concept and design of a component and have efficient manufacturing
operations to competitively manufacture complex components, such as instrument
and door panel assemblies, is limited. This affords the Company the opportunity
to supply an increasing number of components to existing customers and will
offer it opportunities to expand its customer base.
Enhance Position as a Full Service Provider of Exterior and Interior
Plastic Trim. The Company believes that it is one of only a small number of
companies that can provide its customers with not only a full-service program
capability (as described above) but also a wide array of alternative plastic
molding technologies. The Company possesses the latest technologies associated
with thermoplastic injection molding, compression molding and RIM. With the
purchase of Bailey, the Company further completed its line of exterior
technologies by obtaining expertise pertaining to sheet molding compounds, which
are being increasingly utilized as a substitute for steel. By possessing a wide
range of plastic design and manufacturing technologies, the Company is able to
distinguish itself from its competition by offering the process that will
41
<PAGE> 48
best meet the customers' needs, while often lowering design and production costs
and shortening the product development cycle.
Develop and Manufacture High Quality Products. The Company believes it
maintains an excellent reputation with the OEMs for providing world class
quality and customer service at competitive prices. The Company's reputation as
a high-quality, full-service supplier is exemplified by its receipt of major
quality awards from its OEM customers. Both the Company's Harper and Groesbeck
facilities are recipients of General Motors' highest quality award, the Mark of
Excellence. The Groesbeck facility has received the Chrysler Pentastar quality
award and several of the Company's facilities have also obtained Ford's Q-1
status. Quality levels are currently being standardized across OEMs through the
QS-9000 program, which is expected to lower the cost of maintaining separate
quality programs. As of the date hereof, the Company's Harper, Groesbeck,
Hillsdale, Grand Blanc, Canada and Malyn facilities have received or have been
recommended for QS-9000 certification. The Company is in the process of
obtaining QS-9000 certification for the remainder of the facilities and expects
certification to be completed by the end of 1997.
Emphasize Continuous Improvement. The Company follows "lean manufacturing"
and "Kaizen" philosophies that seek continuous improvement by identifying and
eliminating waste in its own operations and in those of its customers and
suppliers. These philosophies emphasize employee involvement in all phases of
the Company's operations by (i) empowering employees at all levels with
responsibility for their work, which leads to the identification of
opportunities for improvement and cost reduction; (ii) forming cross-functional
teams to investigate opportunities for process improvements; and (iii) rewarding
employee participation and involvement through financial incentives.
Provide Just-in-Time Delivery/Sequential Shipping. As OEMs have moved to
just-in-time inventory management, the timeliness and reliability of shipments
by their suppliers have become increasingly important. To service its customers
more effectively, the Company utilizes just-in-time manufacturing and sourcing
systems, which enable it to meet its customers' requirements for on-time
deliveries while minimizing the carrying levels of inventory. The Company is
connected to General Motors, Ford, Chrysler and other Tier 1 suppliers through
computer-linked electronic data interchange, which facilitates communication of
customer demand and delivery requirements. The Company also offers its customers
sequential shipping, in which components are sent to automotive OEMs in the
specific order in which the vehicles are assembled, based on as little as two
hours' lead time. The Company believes it has established a reputation as a
highly reliable and timely supplier able to meet its customers' demanding
delivery requirements.
Increase its Global Presence. The Company and affiliated companies have
established a presence in Canada, Australia, Asia, Africa and Europe in order to
serve customers on a global basis. Although the affiliated companies are outside
of the Trust, they are owned by Mr. Winget and use the Venture name. This global
presence has allowed the Company to leverage the Venture name as General Motors,
Chrysler, Ford and other Tier 1 suppliers make parts sourcing decisions to award
purchase orders to companies with world-wide capabilities. Through these
relationships, the Company has also established relationships with new
customers, such as BMW or Mercedes. The affiliated companies, in turn, have
provided, and are expected to provide, significant new outlets for the Company's
existing design, engineering and tooling capabilities. The Company or other
affiliated companies intend to continue to expand in foreign markets to meet the
OEMs' evolving global needs, either directly or as a supplier of design services
and molds to its affiliated companies.
Make Strategic Acquisitions. In recent years, OEMs have instituted tighter
quality, manufacturing, delivery and systems requirements which have resulted in
consolidation of the automotive supplier industry. Through strategic
acquisitions, the Company believes it can further leverage its capabilities and
relationships with existing customers by adding complementary products and
manufacturing processes. The Company also intends to pursue acquisitions which
offer an entree to new customers and to expand or enhance its customer base.
Consistent with this strategy, the recent Bailey acquisition in August 1996 has
provided the Company with new opportunities to win business with Ford while
expanding into new technologies such as compression molding. The Company
believes that the continuing supplier consolidation may provide attractive
opportunities to acquire companies which can be improved economically through
cost cutting, lean manufacturing techniques and use of existing tooling and
design capabilities. The Company believes that, as of the date hereof, it has
improved profitability at the Bailey facilities through labor rationalization,
raw materials savings
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<PAGE> 49
and the elimination of administrative redundancies. Historically, the Company
has financed acquisitions with debt and would expect to do so in the future. As
such, this aspect of the Company's business strategy may be limited by
provisions of current or future indebtedness. See "Risk Factors -- Significant
Leverage." As of the date of this Prospectus, the Company does not have any
agreements or understandings with respect to specific acquisitions.
PRINCIPAL PRODUCTS
The Company produces thermoplastic injection molded, compression molded and
RIM plastic parts primarily for OEMs and other Tier 1 suppliers. The production
of many of the Company's components requires sophisticated technology and
considerable manufacturing expertise. The Company utilizes two component paint
technology, including soft-touch paints for interior applications (principally
air bag covers and interior consoles), as well as base coat and clear coat
paints applied to exterior components including fascias, fenders, lift gates,
wheel lips, spoilers and side moldings. The Company's side wall hard trim
components, scuff plates and seat back trims are molded in color. Vinyl and
cloth wrapping techniques are used to manufacture the Company's instrument
panels, side wall hard trim components and door panels. The Company also
emphasizes complex products, such as instrument panels, which require the
integration of multiple components, including ash trays and glove compartments,
into complete sub-assemblies.
43
<PAGE> 50
The Company's primary exterior and interior products are detailed and
illustrated below:
DIAGRAM OF EXTERIOR PRODUCTS
DIAGRAM OF INTERIOR PRODUCTS
44
<PAGE> 51
The following sets forth information about the Company's automotive
products and vehicle models on which they are used or for which the Company has
been awarded business.
<TABLE>
<CAPTION>
AWARDED BUSINESS ON
COMPONENT OEM/CUSTOMER 1997 PRODUCTION(A) FUTURE PRODUCTION(B)
--------- ------------ ------------------ --------------------
<S> <C> <C> <C>
Interior Trim General Motors Achieva, Blazer, Cadillac S5S, Cavalier, Century, Regal, Skylark,
Century, Express/Savana Van, Lumina, Park GM Small Sport Utility
Avenue, Regal, Skylark, Sunfire
Ford Continental, Escort, Mountaineer, Taurus,
Thunderbird
Chrysler B Van, Breeze, Cirrus, Concorde, Grand B Van, LHS, Vision,
Cherokee, LHS, Intrepid, Stratus, Wrangler Intrepid, Jeep, Breeze,
Cirrus, Stratus
DEPCO Bonneville, LeSabre, Olds 88
Finley Beauville
Industries
Lear Chrysler Ram 150/350 Pickup, Viper, Windstar
Prince/Ford Continental
Instrument and General Motors Corvette, Olds 88
Door Panels/
Assemblies
Ford Continental
Chrysler Jeep Cherokee, B Van
Airbag Covers Morton Breeze, Caravan, Cirrus, Mazda 626, Sable, Accord, Cobra, Dodge
Taurus, Town Car, Stratus, Town & Country, Ram, GMX130, GM S5S,
Voyager Mustang, Mazda MX6,
Mercedes, PACCAR, Probe,
Subaru, Volkswagen
TRW Continental, Cougar, Mark VIII, PN96, Ranger,
Ram Pickup, Thunderbird, Windstar
Cladding/ General Motors Achieva, Achieva GT, Astro Van, Beretta, Cutlass, Malibu, Yukon
Exterior Blazer, Bonneville, Camaro, Cavalier, Century,
Corvette, Firebird, Grand Am, Grand-Am GT,
Grand Prix, DeVille, Eldorado, Seville, STS,
Intrigue, Lumina, Monte Carlo, Olds 88, Opel,
Regal, Safari, Saturn, Silhouette, Skylark,
Sunfire, Transport, Yukon, Express/Savana Van,
Venture
Ford Econoline Van, Escort, Explorer, F-Series Mustang
Pickups, Mark VIII, Mustang, Navigator, Nissan
Quest, Ranger, Thunderbird, Villager, Windstar
Chrysler B Van, Dakota, Durango, Eclipse, Minivan, Viper Dakota, Prowler, Viper
Dott Camaro, Firebird
Evart Intrepid, LHS
Freightliner Truck
Libraltar Bravada
Fascias General Motors DeVille, Eldorado, STS, Seville, LeSabre, Yukon
Safari, Transport, Opel, Venture
Ford Expedition, F-Series
Pickup, Ranger
Isuzu Rodeo Rodeo, Honda
</TABLE>
45
<PAGE> 52
<TABLE>
<CAPTION>
AWARDED BUSINESS ON
COMPONENT OEM/CUSTOMER 1997 PRODUCTION(A) FUTURE PRODUCTION(B)
--------- ------------ ------------------ --------------------
<S> <C> <C> <C>
Functional General Motors Blazer, Delphi-AC Spark Plug, G Van,
Components Express/Savana Van, Seville, Skylark
Ford Escort, Mustang, Mystique, Navigator Econoline Van, F-Series
Pickups, PHN131-Sport
Utility
Miscellaneous Bombardier Sea Doo, Ski Doo
Non-Automotive Club Car Golf Cart bodies
Larson Mfg. Screen Door
</TABLE>
- ------------
(a) Represents models for which the Company will produce products in 1997.
(b) The amount of products produced under these awards is dependent on the
number of vehicles manufactured by the OEMs. Many of the models are versions
of vehicles not yet in production. See "Risk Factors -- Reliance on Major
Customers; The OEM Supplier Industry." There can be no assurance that any of
these vehicles will be produced or that the Company will generate certain
revenues under these awards even if the models are produced.
For the year ended December 31, 1996 and the six month period ended June
30, 1997, interior components accounted for approximately 35% and 30%,
respectively, of net sales; exterior components accounted for 55% and 59%,
respectively, of net sales; and tooling accounted for 10% and 11%, respectively,
of net sales. No single component accounted for in excess of 5% of net sales
during such periods.
CUSTOMERS AND MARKETING
The North American automotive market is dominated by General Motors, Ford
and Chrysler, although foreign OEMs have achieved significant market share. The
Company's principal customers are General Motors, Ford and Chrysler and other
Tier 1 suppliers, such as Autoliv, S.A., TRW Automotive Company, Textron
Automotive division of Textron Corporation and Lear Corporation. While a large
percentage of the Company's sales are derived from General Motors, Ford and
Chrysler, the Company maintains a diversity of volume among the various
divisions of the OEMs, and is further diversified by its position as a supplier
for a number of high volume vehicle platforms manufactured by those divisions.
The Company has purchase orders to supply an aggregate of over 1,000 components
to be included on approximately 100 models of cars, minivans, light trucks and
sport utility vehicles for the 1997 model year and currently expects to
manufacture over 1,100 components to be included on a comparable number of
models to be produced for the 1998 model year. Such purchase orders generally
provide for supplying the customer's requirements for a particular model or
model year rather than for manufacturing a specific quantity of products, and
the purchase orders may be cancelled by the OEMs. The acquisition of Bailey
allowed the Company to expand its relationship into a Tier 1 supplier to Ford in
North America. This gives the company a strong portfolio of sales among all
three of the U.S. OEMs. The Company continues to pursue opportunities with
foreign-based OEMs with North American operations and now supplies air dams to
Isuzu Motors for the Isuzu Rodeo. Beginning with the 1998 model, the Company
will also supply fascias on the Rodeo along with a companion vehicle assembled
in the United States for Honda. In addition, the Company will supply air bag
covers for the Honda Accord and Civic. The Company's non-automotive customers
include Club Car, Inc. (golf cart bodies and cowls) and Bombardier, Inc. (Ski
Doo and Sea Doo bodies).
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<PAGE> 53
The approximate net sales and percentage of net sales to the Company's
principal customers and customer categories for the years ended December 31,
1993 through 1996 and six months ended June 30, 1996 and 1997 are shown below
(dollars in millions):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------- -----------------------
1996 1995 1994 1993 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
CUSTOMER $ % $ % $ % $ % $ % $ %
-------- - - - - - - - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
General Motors........ $145 41% $123 49% $139 57% $118 57% $143 45% $ 60 47%
Ford(1)............... 57 16 -- -- -- -- -- -- 87 27 1 1
Chrysler.............. 41 12 56 22 48 20 53 26 27 8 24 19
Tier 1 Suppliers to
OEMs................ 81 23 62 25 50 20 21 11 53 17 35 28
Other Non-Automotive.. 28 8 10 4 7 3 13 6 10 3 6 5
---- --- ---- --- ---- --- ---- --- ---- --- ---- ---
Total............ $352 100% $251 100% $244 100% $205 100% $320 100% $126 100%
==== === ==== === ==== === ==== === ==== === ==== ===
</TABLE>
- ------------
(1) Prior to 1996, sales to Ford were not significant and are included under
sales to Tier 1 suppliers.
The Company's sales are made directly to the OEMs with marketing and
customer support assistance provided by an affiliated company, wholly owned by
Mr. Winget, and by other unaffiliated entities. See "Certain Transactions."
ENGINEERING AND DESIGN
The Company believes that its state-of-the-art technology, experienced
engineering and technical staff and reputation for product innovation are major
factors contributing to its market position.
Technology. The Company utilizes state-of-the-art technology to improve
product quality, increase price competitiveness and reduce product development
time. The Company's design and manufacturing technologies include integrated
CAD/CAM; computer-aided optical scanning and proprietary manufacturing systems;
gas-aided injection molding technology ("GAIN"); and two component paint
technology, including soft-touch paints for interior applications (principally
air bag covers and consoles). With the aid of its integrated computer design
systems and the introduction of optical scanning prototyping equipment, the
Company has significantly reduced the amount of time required to create a
prototype part and ultimately a production component. This process not only
reduces development time but also improves the accuracy of product and mold
tolerances. Further, the Company's advanced systems allow hundreds of design
solutions to be visualized and ergonomically tested quickly and easily,
facilitating product design and manufacturing.
Engineering and Technical Staff. The Company maintains an advanced
engineering center and quality assurance center, along with an engineering and
technical staff which generates ideas for new parts and extensions of existing
lines. The Company's engineering and technical staff work closely with the
Company's OEM customers to help design and develop new products, to ensure high
quality and coordinate development with the manufacture of new vehicles. The
design and engineering staff also provides suggested design and material changes
to the OEMs.
The Company maintains laboratories dedicated to product development, tryout
and production certification issues. The Company does not conduct research and
development activities in the experimental or laboratory sense, and any costs
for these activities are expensed as incurred. These laboratories are certified
for use by General Motors and Chrysler. In its tryout facility, five molding
machines are dedicated to simulate the manufacturing environment.
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<PAGE> 54
PRODUCTION CONTROL, MANUFACTURING AND QUALITY
Due to the evolving purchasing and manufacturing policies of the OEMs,
production control has emerged as the critical factor for coordinating and
integrating the customers' requirements with the Company's scheduling and
manufacturing processes.
Responding to these changes, the Company has developed and incorporated the
principles of "lean manufacturing" and "Kaizen" into its manufacturing
operations. These programs establish a work environment which encourages
employee involvement in identifying and eliminating waste. The Company's
operations are structured flexibly to respond to the demands of different
product runs and changing product delivery requirements while increasing
production efficiency. Additionally, the Company relies on the quality and
training of its work force and, when appropriate, automation, to reduce costs.
The Company attempts to minimize its investment in inventory by
coordinating its purchasing and production activities with anticipated customer
demands. Based upon their production forecasts, the OEMs generally provide the
Company with weekly releases four to thirteen weeks prior to actual delivery. To
facilitate the exchange of this information, the Company is connected to General
Motors, Ford and Chrysler and other Tier 1 suppliers through an electronic data
interchange system. To service its customers more effectively, the Company has
implemented "pull systems" at each of its manufacturing locations, to help it
meet its customers' requirements for on-time deliveries while reducing the
carrying levels of inventory. Pursuant to the "pull system," production is based
primarily upon demand rather than on forecasted need.
The Company believes it maintains an excellent reputation with the OEMs for
timely delivery and customer service and for providing world class quality at
competitive prices. The Company's reputation as a high-quality, full-service
supplier is exemplified by its receipt of major quality awards from its OEM
customers. Both the Company's Harper and Groesbeck facilities are recipients of
General Motors' highest quality award, the Mark of Excellence. The Groesbeck
facility has received the Chrysler Pentastar quality award and several of the
Company's facilities have also obtained Ford's Q-1 status. Quality levels are
currently being standardized across OEMs through the QS-9000 program, which is
expected to lower the cost of maintaining separate quality programs. As of the
date hereof, the Company's Harper, Groesbeck, Hillsdale, Grand Blanc, Canada and
Malyn facilities have received, or have been recommended for, QS-9000
certification. The Company is in the process of obtaining QS-9000 certification
for the remainder of the facilities and expects this to be completed by the end
of 1997.
The Company's plastic components have sophisticated tooling requirements,
the costs of which are generally billed to the customer at pre-authorized
levels. Development of the tooling typically begins approximately two to three
years before production, after being 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 is ordered generally one year prior to
production. The Company supplies substantially all of its tooling requirements
from its own tooling operations.
RAW MATERIALS
The principal raw materials used by the Company are engineered plastic
resins such as nylon, polypropylene (including thermoplastics), polycarbonate,
acrylonitrile-butadiene-styrene, fiberglass reinforced polyester, PET and TPU; a
variety of ingredients used in the compression molding process; paint related
products; and steel for production molds. Although all of these materials are
available from one or more suppliers, the Company's customers generally specify
materials and suppliers to be used by the Company in connection with a specific
program. The Company procures most of its raw materials by issuing purchase
orders against one-year supply agreements under which the Company's annual needs
for such materials are estimated. Releases against such purchase orders are made
only upon the Company's receipt of corresponding orders from its customers. The
Company has not experienced raw material shortages, although there can be no
assurance that the Company will not experience raw material shortages in the
foreseeable future.
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<PAGE> 55
COMPETITION
The industry in which the Company competes 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 Magna
International, Cambridge Industries, Inc., Buckeye Plastics, a division of
Worthington Industries, Textron Automotive division of Textron Corporation, The
Becker Group, Inc., Lear Corporation, Findley Industries, The Budd Company
plastic division, the Prince division of Johnson Controls, Inc., and United
Technologies Automotive division, plus a large number of smaller competitors. In
addition, the Company's business is increasingly competitive due to supplier
consolidations resulting from OEM supplier optimization policies and the
spin-off by OEMs of formerly in-house plastics manufacturing facilities.
However, these consolidations and divestitures should benefit the Company's
product pricing in the future as former marginal competitors are removed and the
former in-house facilities must now compete independently.
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, product testing
capability and its ability to reduce the time from concept to mass production
("art-to-part"). The Company believes that as OEMs continue to strive to reduce
new model development cost and timing, innovation and design and engineering
capabilities will become more important as a basis for distinguishing
competitors. Both are areas where the Company believes it has an outstanding
reputation.
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. The Company is such a
supplier to Chrysler and to Ford.
EMPLOYEES
The Company believes that its future success will continue to be enhanced
by rewarding and empowering employees. At December 31, 1996, the Company
employed approximately 4,300 persons. The Company has 680 hourly persons at the
Seabrook, New Hampshire and Lancaster, Ohio facilities, who are covered by
collective bargaining agreements with the United Auto Workers. The Lancaster
contract, representing about 8% of the workforce, was recently renewed for a
four year term, ending June 2001, and the Seabrook contract expires in 1999. In
1996, there was a union election at Vemco, Inc. The results of that election are
being held pending resolution of challenged ballots and election objections. The
Company has not experienced any work stoppages and considers its relations with
its employees to be good. However, many of the Company's OEM and Tier 1 supplier
customers and other suppliers to the Company's customers are unionized, and work
stoppages, slow-downs or other labor disputes experienced by, and the labor
relations policies of, OEMs and other Tier 1 suppliers could have an adverse
effect on the Company's results of operations. Strikes at the OEMs during 1997
have not had a significant impact on the Company's net sales.
PATENTS
The Company has the right to use various patents which aid in maintaining
its competitive position. These patents begin to expire in the next 15 years.
The expiration of such patents are not expected to have a material adverse
effect on the Company's operations. See "Certain Transactions."
PROPERTIES
The Company's executive offices are located in Fraser, Michigan. Molding
operations are conducted at fourteen facilities in Michigan, Ohio, Kentucky,
Indiana and New Hampshire. The utilization and capacity of the Company's
facilities may fluctuate based upon the mix of components the Company produces
and the vehicle models for which they are being produced by the Company. The
Company believes that substantially all of its property and equipment is in good
condition and that it has sufficient capacity to meet its current and projected
manufacturing and distribution needs through the 1999 model year.
49
<PAGE> 56
The following table sets forth certain information concerning the Company's
facilities.
<TABLE>
<CAPTION>
SQUARE TYPE OF DESCRIPTION
LOCATION FOOTAGE INTEREST OF USE
-------- ------- -------- -----------
<S> <C> <C> <C>
MICHIGAN
Masonic Facility................... 178,000 Leased(1) Molding, Mold Fabrication and Repair
Malyn Complex...................... 23,000 Leased(1) Molding
22,000 Leased(1) Molding
18,000 Owned Warehouse
Technical Center................... 56,000 Owned Headquarters, Laboratory, Tryout, Mold
Fabrication
Commerce Facility.................. 24,000 Leased(1) Mold Fabrication and Repair
Doreka Center...................... 6,000 Leased Design and Engineering
Dearborn Center.................... 6,000 Leased Design and Engineering
Grand Blanc Facility............... 365,000 Owned Molding, Painting, Assembly
Grand Rapids Complex............... 440,000 Leased Molding, Painting, Assembly
125,000 Leased Assembly Warehouse
85,000 Leased Warehouse, Shipping
Harper Facility.................... 180,000 Leased(1) Molding, Painting, Assembly
Groesbeck Facility................. 128,000 Owned Molding
Design Center...................... 20,000 Leased Design and Engineering
Almont Facility.................... 10,000 Leased(1) Mold Fabrication and Repair
Troy Center........................ 10,000 Leased Mold Fabrication
Hillsdale Facility................. 119,000 Owned Molding, Painting, Assembly
Redford Facility................... 22,000 Leased(1) Mold Fabrication
Allen Park Center.................. 26,000 Leased Sales, Design, Engineering
KENTUCKY
Hopkinsville Complex............... 104,000 Leased Molding, Painting, Assembly
80,000 Leased Warehouse
NEW HAMPSHIRE
Seabrook Facility.................. 390,000 Owned Molding, Painting, Assembly
WALLACEBURG, ONTARIO, CANADA
Venture Canada Facility............ 35,000 Owned Painting and Assembly
OHIO
Conneaut Facility.................. 183,000 Leased Molding, Painting, Assembly
Lancaster Facility................. 156,000 Owned Molding, Painting, Assembly
INDIANA
Madison Facility................... 71,000 Owned Painting and Assembly
Hartford City Facility............. 116,000 Owned Molding and Assembly
Portland Facility.................. 120,000 Owned Molding and Painting (inactive)
</TABLE>
- ------------
(1) Leased from an affiliate of the Company. See "Certain Transactions."
In addition to the above facilities, the Company relies upon certain
affiliated companies, which are owned or controlled by Mr. Winget, to provide
facilities, machinery and equipment, technology or services to the Company that
are necessary for it to be a full service supplier. Deluxe Pattern Company
("Deluxe"), a company wholly owned by Mr. Winget's living trust, makes available
to the Company a 30,000 square foot advanced design and model building facility
under a usage agreement. In addition, Venture Automotive Corp. ("VAC"), a
company wholly owned by Mr. Winget's living trust, operates a 208,000 square
foot facility in Flint, Michigan at which it performed services for the Company
which included sequencing and value-added assembly of parts. Some of the
services previously performed by VAC have now been contracted to MAST Services,
LLC, in which N. Matthew Winget, Mr. Winget's son, owns a minority interest. In
addition, the
50
<PAGE> 57
Company has subcontracted certain work to Nova Corporation ("Nova"), a business
in which Mr. Winget has a significant equity interest. See "Certain
Transactions."
ENVIRONMENTAL MATTERS
The Company's operations are subject to numerous federal, state and local
laws and regulations pertaining to the generation and discharge of materials
into the environment. The Company has taken steps related to such matters in
order to minimize the risks of potentially harmful aspects of its operations on
the environment. However, from time to time, the Company has been subject to
claims asserted against it by regulatory agencies for environmental matters
relating to the generation and disposal of hazardous substances and wastes. Some
of these claims relate to properties or business lines acquired by the Company
after a release had occurred. In each known instance, however, the Company
believes that the claims asserted against it, or obligations incurred by it,
will not result in a material adverse effect upon the Company's financial
position or results of operations. Nonetheless, there can be no assurance that
activities at these facilities or facilities acquired in the future, or changes
in environmental laws and regulations, will not result in additional
environmental claims being asserted against the Company or additional
investigations or remedial actions being required. The agreement pursuant to
which the Company acquired Bailey does not contain indemnification provisions in
favor of the Company with respect to environmental matters. Bailey did, however,
have certain indemnifications in their favor with respect to environmental
matters, as discussed below.
The Company is currently involved in discussions with the Michigan
Department of Environmental Quality concerning the emissions from the Company's
Grand Blanc paint facility. Emissions levels are being evaluated, and it is
possible that the Company will be required to improve its systems to meet
applicable requirements. Although it is not anticipated that the improvements
will require substantial expenditures by the Company, there can be no assurances
that such will be the case.
Bailey has been notified of its status as a potentially responsible party
("PRP") at the ReSolve Superfund site in North Dartmouth, Massachusetts, the
Solvents Recovery Services site in Southington, Connecticut, the Old Southington
Landfill Superfund site in Southington, Connecticut, the Spectron, Inc. site in
Elkton, Maryland, and the Hazardous Waste Disposal Inc. site in Farmingdale, New
York. At all five sites, Bailey and all other PRPs are jointly and severally
liable for all remediation costs under applicable hazardous waste laws.
Therefore, the Company's proportionate share is subject to increase upon the
insolvency of other PRPs.
With respect to the ReSolve site, Bailey and its immediate predecessor, USM
Corporation's Bailey division (in the name of Emhart Corporation), have been
named as PRPs for wastes sent to the site during the 1970s. Recent estimates
provided by the PRP group responsible for the site's remediation indicate that
Bailey's potential liability for clean-up efforts at the site is approximately
$321,396 for which the Company is fully reserved and has posted a letter of
credit in favor of the PRP group. The recent discovery of the presence of
contaminants in a form not currently susceptible of short-term remediation,
however, has created uncertainty about the future scope and cost of clean-up
efforts at this site, and a possibility that the ultimate cost of remediation
may be higher than previously estimated. The Company is unable to predict what,
if any, effect this recent discovery may have on the Company.
On June 18, 1992, Bailey received notice from the EPA that it was a PRP
under the federal Superfund law with respect to the Solvents Recovery Services
of New England Site in Southington, Connecticut (the "SRSNE Site"). Based upon a
volumetric ranking dated July 7, 1993, the waste allocated to Bailey represented
0.11593% of the total identified waste at the SRSNE Site. Under the terms of a
settlement with Emhart, Bailey agreed to assume liability for wastes sent to the
SRSNE Site by the Seabrook, New Hampshire facility and Emhart agreed to assume
liability for wastes sent by USM's Amesbury, Massachusetts facility. The
identified PRPs have organized a group to negotiate with the EPA, and Bailey has
joined that group. The group has successfully negotiated with the EPA to reduce
the total estimated cost of the initial removal action at the SRSNE Site from an
original estimate of $14 million down to a current estimate of approximately $4
million. The total estimated cost of long-term remediation at the SRSNE Site is
not yet known.
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<PAGE> 58
In January 1994, Bailey received a Notice of Potential Liability for the
Old Southington Landfill Superfund Site (the "OSL Site") located in Southington,
Connecticut. Both Bailey and USM/Emhart received notices of liability for the
share of OSL Site costs allocated to USM Corporation (Amesbury, Massachusetts).
Bailey and Emhart entered into a settlement agreement under which Emhart will
assume sole responsibility for all cleanup costs, imposed by the EPA, arising
out of the alleged liabilities of USM Corporation's Bailey division (Amesbury,
Massachusetts) for the OSL Site.
In June 1989, the EPA notified Bailey that it was a PRP under the federal
Superfund law for the Spectron, Inc. site located in Elkton, Maryland. A group
of PRPs ("Steering Committee") entered into agreements with the EPA to fund and
conduct a $2.8 million emergency response action to remove stored wastes at the
site and pay the government's past costs associated with the site, approximately
$635,000. There are several thousand PRPs at this site, with most being small
generators with low dollar exposure. In December 1989, nearly 800 entities,
including Bailey, that sent small quantities of waste to the site participated
on a cash-out basis in the settlement for past costs and the removal action, and
Bailey's allocated share was approximately $8,100. Participation in the cash-out
settlement gives the Company protection against contribution claims from third
parties for the first phase of the site cleanup ("Phase 1").
In August 1990, a separate PRP group ("Phase II PRP Group") was formed and
negotiated an agreement with the EPA to remediate contaminated seeps on the site
and perform a limited privately-funded remedial investigation/feasibility study
for the site (the so-called Phase II activities). Bailey was not asked to join
the Phase II PRP Group because that group determined that the companies that
paid for Phase I of the cleanup would not be asked to make any financial
contributions toward Phase II until the other customers have paid out an amount
per gallon equal to that paid by the Phase I parties. An additional
investigation was conducted as part of the Phase II activities to determine the
nature and extent of a new form of contamination discovered on the site;
additional design work will be commenced soon.
In October 1995, Bailey received a notice from the EPA that it was a PRP
that has liability for conducting a Remedial Investigation/Feasibility Study
("RI/FS") at the Spectron site. In connection with this, Bailey may have an
opportunity to enter into a de minimis party cash out settlement with the EPA
and the other PRPs, the terms of which currently are being negotiated. No
estimate can be made at this time as to the amount of the Company's liability at
the Spectron site.
In 1995, the New York Department of Environmental Conservation ("DEC")
notified Bailey, as well as a number of other parties, that it was named a
responsible party under the Environmental Conservation Law of the State of New
York with respect to the Hazardous Waste Disposal, Inc. site located in
Farmingdale, New York. Based on available information, Bailey's involvement at
the site appears to be related to the shipment of two drums of waste materials
to the site, and consequently minimal. Additional investigations have been
undertaken to determine: (1) whether there are any other entities that shipped
wastes to the site; and (2) whether any of the named parties actually shipped
more than was originally attributed to them. The results to date do not suggest
that the Company's ranking at the site will change significantly. The Company
has demanded that Emhart Corporation assume the defense of this claim. Emhart
Corporation has taken the Company's demand for a defense and indemnification
under advisement. In doing so, Emhart Corporation has taken the position that it
did not receive "prompt written notice" of the claim.
Bailey also faces the possibility of liability if it is deemed a successor
to TransPlastics with respect to wastes generated and disposed of by
TransPlastics when it owned the Conneaut property. TransPlastics has been
identified as a PRP at the Millcreek site in Millcreek Township, Pennsylvania,
and at the New Lyme Site located in Dodgeville, Ashtabula County, Ohio, and at
the Huth Oil Site in Cleveland, Ohio, three sites currently undergoing
remediation. Bailey also received notices from third parties regarding potential
claims in connection with the Huth Oil Site and the Millcreek site. Bailey did
not agree to assume any environmental liabilities of TransPlastics and, as a
result, submitted claims for indemnification for these matters to TransPlastics,
which liabilities TransPlastics has accepted. Under the terms of the Conneaut
Acquisition agreement, TransPlastics and its parent companies must indemnify
Bailey for any liability arising out of any such claim. Nevertheless, there can
be no assurance that TransPlastics and its parent companies will have
52
<PAGE> 59
sufficient assets to satisfy the Company's potential liability for the
remediation and any associated damage or cost caused by the contamination.
The Company also faces potential liability in connection with the Contour
Acquisition (Hillsdale facility). An environmental site assessment completed by
The Boler Company ("Boler") determined that the ground water at the Hillsdale
facility was contaminated with chlorinated solvents as a result of Boler's past
site activities. The ground water contamination plume has migrated onto adjacent
properties. In addition, Contour is listed as a PRP for a number of off-site
disposal locations. The Contour Acquisition Purchase and Sale Agreement requires
Boler to indemnify Bailey for any environmental liabilities which arise in
connection with use of the property prior to closing. In addition, Boler has
executed a remediation agreement in which it agreed to remediate, at its own
expense, the identified ground water contamination at the Hillsdale facility.
Boler is currently conducting the remediation at that facility. If Boler has
insufficient resources to complete remediation of any contamination for which it
has indemnified Bailey or otherwise becomes insolvent, the Company could incur
successor liability for the costs of remediation and any damages to third
parties.
The Company also has potential liability in connection with contamination
at certain property in Cuba, Missouri, which had been leased by Bailey from 1985
to 1992. The landlord has undertaken to remediate this property at its own
expense. The Company has negotiated the termination of all obligations of the
Company with respect to the lease.
As a result of the environmental investigation, conducted as part of its
due diligence during the acquisition of the three Premix/E.M.S. Inc. facilities,
Bailey identified a number of environmental concerns. Premix/E.M.S. Inc., as
part of the acquisition agreement, agreed to pursue and address these concerns,
most of which it has completed. Pursuant to the acquisition agreement, Bailey
performed certain post-acquisition investigations which appeared to confirm the
presence of subsurface contamination, of which it has informed Premix/E.M.S.
Inc. Under the acquisition agreement, Premix/E.M.S. Inc. is obligated to
undertake necessary remediation of this problem, if in fact any is required.
Premix/E.M.S. Inc. is currently conducting the remediation at the Portland,
Indiana facility. Premix/E.M.S. Inc. has entered into an Environmental
Indemnification Agreement for the benefit of Bailey. The shareholders of
Premix/E.M.S. Inc. have also severally undertaken to reimburse Bailey in certain
limited circumstances, to the extent of distributions received by them from
Premix/E.M.S. Inc., and to the extent that Premix/E.M.S. Inc. does not directly
satisfy its indemnification obligations.
Estimates of the future cost of such environmental matters are necessarily
imprecise due to numerous uncertainties, including the enactment of new laws and
regulations, the development and application of new technologies, the
identification of new sites for which the Company may have remediation
responsibility and the apportionment and collectibility of remediation costs
among responsible parties. The Company establishes reserves for these
environmental matters when the loss is probable and reasonably estimable. At
June 30, 1997, the Company had a reserve of approximately $1.0 million to
address the issues discussed above and for known compliance monitoring
activities that may be incurred. It is possible that final resolution of some of
these matters may require the Company to make expenditures in excess of
established reserves, over an extended period of time and in a range of amounts
that cannot be reasonably estimated. Although the final resolution of any such
matters could have a material effect on the Company's consolidated operating
results for the particular reporting period in which an adjustment of the
reserve is recorded, the Company believes that any resulting adjustment should
not materially affect its consolidated financial position.
LEGAL PROCEEDINGS
In addition to the environmental matters described above, the Company is a
party to several legal proceedings incidental to the conduct of its business.
The Company believes that none of these actions, individually or in the
aggregate, will have a material adverse effect on the financial condition or
results of operations of the Company.
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<PAGE> 60
MANAGEMENT
EXECUTIVE MANAGEMENT
The following individuals are the Executive Managers of the Company, having
the operational titles set forth opposite their names. Because of its trust
structure, the Trust does not have executive officers or directors, although the
Special Advisor to the Trust, acting through the Trustee, has the authority to
designate individuals from time-to-time to act as officers as to particular
matters. Messrs. Winget, Schutz and Torakis serve as the directors of each
Issuer. Mr. Winget and Stephen M. Cheifetz serve as the directors of Venture
Canada. Mr. Butler is a director of Venture Holdings Corporation only.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Larry J. Winget................ 54 Chairman of the Board and Chief Executive Officer
Michael G. Torakis............. 40 President and Chief Financial Officer
A. James Schutz................ 51 Executive Vice President
Robert Wedge................... 59 President of Mold & Engineering Operations
Philip J. Kusky................ 52 President of Operations-Bailey
James E. Butler, Jr. .......... 44 Executive Vice President-Finance and Secretary
Charles Hunter................. 41 Executive Vice President-Design Engineering
Michael Juras.................. 55 Executive Vice President-Advanced Engineering and Marketing
Patricia A. Stephens........... 50 Executive Vice President-Purchasing
Joseph R. Tignanelli........... 35 Executive Vice President-Customer Service Operations
Larry J. Winget, Jr. .......... 36 Executive Vice President-Manufacturing Engineering
Warren Brown................... 53 Vice President-Exterior Operations
Larry R. Marshall.............. 49 Vice President-Engineering
</TABLE>
Larry J. Winget was one of the five original founders and shareholders of
Venture Industries Corporation and is the only one still involved with the
Company. Since 1987 he has owned 100% of the Company and is currently the sole
beneficiary of the Trust.
Michael G. Torakis joined the Company in 1985 and has been President,
Secretary, Treasurer and Chief Financial Officer of the Trust since 1995. Prior
to his appointment to his current position, he served in various other
capacities at the Company, including Executive Vice President.
A. James Schutz has been Executive Vice President since 1987, and has been
in the injection molding business for 23 years.
Robert Wedge joined the Company in November 1984 as Plant Manager, became
Vice President and General Manager of Venture Mold & Engineering in December
1993 and assumed his present position in April of 1995. Mr. Wedge has 34 years
of mold building experience.
Philip Kusky joined the Bailey Corporation in 1994 and assumed his current
role in 1995. Prior to that, he was, from 1988 to 1994, employed by Rockwell
International, his last position being Director of Sales, Marketing and
Engineering. Mr. Kusky has over 15 years in various senior management positions
for product engineering, sales and marketing.
James E. Butler joined the Company in 1994 and assumed his current position
in April of 1995. From 1981 until joining the Company, he was employed by
Coopers & Lybrand L.L.P., a certified public accounting firm.
Charles Hunter has been with the Company since 1989 and has held a number
of different positions in the Company involving mold building, design
engineering and prototype operations. He currently oversees world-wide design
and advanced engineering operations.
Michael Juras joined the Company in his current position in January 1997.
Prior to joining the Company, Mr. Juras had spent 30 years in various product
and manufacturing positions with General Motors, with his last position as
Director of Engineering Mid-Size Cars.
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<PAGE> 61
Patricia A. Stephens joined the Company in 1993 and has held positions
involving program management, contract administration and purchasing. She
previously had been employed for 23 years with General Motors, her last position
being purchasing agent.
Joseph R. Tignanelli, Larry J. Winget's son-in-law, has been employed by
the Company in several positions since 1980, including Molding Manager for
Venture Industries Corporation -- Groesbeck plant from 1985 until 1990,
Assistant Manager of Venture Industries Corporation from 1990 until 1993, and
Vice President of Venture Industries until being named to his current position
in October of 1995.
Larry J. Winget, Jr., Larry J. Winget's son, has been employed by the
Company in various positions since 1976, including Molding Plant Manager of
Vemco, Inc. from 1988 until 1990, Assistant Manager of Vemco, Inc. from 1990
until 1993, and Vice President and General Manager of Vemco, Inc. until being
named to his present position in April of 1995.
Warren Brown joined the Company in 1993 as Vice President-Mergers and
Acquisitions and assumed his current position in 1996. Prior to joining the
Company, Mr. Brown was employed for eight years as Chief Operating Officer of
Autodie Corporation. He has over 30 years experience in the automotive supplier
industry.
Larry R. Marshall joined the Company in 1985 and in April of 1995, assumed
his current position as Vice President Engineering. Prior to his current
position, he had been General Manager Sales and Estimating.
Stephen M. Cheifetz, 41, is a partner of Wilson, Walker, Hochberg, Slopen,
a Windsor, Ontario law firm, and has served as a partner of such firm for over
five years.
EXECUTIVE COMPENSATION
The following Summary Compensation Tables sets forth compensation paid for
the years ended December 31, 1996, 1995 and 1994, respectively, to those persons
who were, at such date, the chief executive officer of the Company and four
other executive officers who received more than $100,000 in compensation during
such year (collectively, the "Named Officers") for services in all capacities to
the Company.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE(1)
----------------------------------------------------------------------
NAME AND OTHER ANNUAL ALL OTHER
PRINCIPAL POSITION YEAR SALARY($)(2) BONUS($) COMPENSATION(3) COMPENSATION(4)
------------------ ---- ------------ -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Larry J. Winget.................... 1996 $513,820 -- $ 675,799 $250,807
Chairman of the Board and 1995 509,779 -- 576,905 253,271
Chief Executive Officer 1994 550,105 -- 3,405,445 15,747
Michael G. Torakis................. 1996 $257,615 $250,000 -- $ 4,800
President and 1995 216,039 250,000 -- 4,800
Chief Financial Officer 1994 183,339 -- -- 2,740
A. James Schutz.................... 1996 $231,491 $ 41,760 -- $ 4,800
Executive Vice President 1995 210,444 141,760 -- 4,800
1994 191,260 41,760 -- 2,836
Larry J. Winget, Jr................ 1996 $216,034 -- -- $ 3,950
Executive Vice President 1995 189,562 125,000 -- 1,600
1994 165,297 -- -- 1,500
Joseph R. Tignanelli............... 1996 189,084 -- -- $ 4,800
Executive Vice President 1995 166,426 120,000 -- 4,800
1994 142,958 -- -- 4,011
</TABLE>
- ------------
(1) The compensation described in this table does not include benefits under
group plans which do not discriminate in scope, terms or operation in favor
of the Named Officers and that are generally available to all salaried
employees, and certain perquisites and personal benefits received by the
Named Officers, where such perquisites do not exceed the lesser of $50,000
or 10% of such officer's salary and bonus.
(2) Includes salary reductions made under the Company's 401(k) Plan and the
Company's Cafeteria Benefit Plan.
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<PAGE> 62
(3) The amount indicated for Mr. Winget represents compensation in lieu of a
distribution of Trust Principal equal to taxes incurred by the beneficiary
as a result of activities of the subsidiaries of the Trust. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(4) "All Other Compensation" is comprised of: (i) a contribution made by the
Company to the accounts of each of the Named Officers under the Company's
401(k) Plan; (ii) the incremental cost to the Company of additional premiums
for term life insurance benefits for the Named Officers which are not
generally available to the other salaried employees of the Company, and
(iii) with respect to Mr. Winget, the portion of the premium paid by the
Company under a life insurance policy (the "Reverse Split Dollar Policy")
attributable to the build-up of the cash surrender value of the policy,
which aggregated $1,039,195, $793,188 and $544,717 at December 31, 1996,
1995 and 1994, respectively, and is owned by Mr. Winget. The beneficiary of
the term insurance portion of the Reverse Split Dollar Policy is the
Company, which pays all premiums due under the policy and is entitled to
receive a $20 million benefit in the event of Mr. Winget's death. Mr. Winget
has the right to designate the distribution of the cash surrender value and
may, prior to his death, surrender the policy in cancellation thereof and
receive the benefit of the cash surrender value.
See the table below for complete details concerning all other compensation.
<TABLE>
<CAPTION>
NAME AND YEAR 401(K) TERM LIFE INSURANCE REVERSE SPLIT DOLLAR POLICY TOTAL
- ------------- ------ ------------------- --------------------------- -----
<S> <C> <C> <C> <C>
Winget
1996 $4,500 $300 246,007 250,807
1995 4,500 300 248,471 253,271
1994 2,312 325 13,110 15,747
Torakis
1996 $4,500 $300 -- $4,800
1995 4,500 300 -- 4,800
1994 2,415 325 -- 2,740
Schutz
1996 $4,500 $300 -- $4,800
1995 4,500 300 -- 4,800
1994 2,511 325 -- 2,836
Winget Jr.
1996 $3,650 $300 -- $3,950
1995 1,300 300 -- 1,600
1994 1,175 325 -- 1,500
Tignanelli
1996 $4,500 $300 -- $4,800
1995 4,500 300 -- 4,800
1994 3,686 325 -- 4,011
</TABLE>
COMPENSATION OF DIRECTORS
Messrs. Winget, Schutz, Torakis and Butler serve as the directors of the
Issuers and do not receive any additional compensation or fees for their service
to the Issuers in such capacities. Mr. Cheifetz does not receive compensation
for acting as a director of Venture Canada; however, the law firm of which he is
a partner acts as counsel to Venture Canada.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
All of the Named Officers' compensation for the year ended December 31,
1996 was paid by Venture Service. Messrs. Winget and Torakis, in their
capacities as directors of Venture Service, participated in the deliberations
concerning executive compensation. In addition, some of the Named Officers have
engaged in certain transactions with the Company. See "Certain Transactions."
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<PAGE> 63
STOCK OWNERSHIP
All of the capital stock of the subsidiaries of the Trust is owned by the
Trust., of which Mr. Winget is the sole beneficiary. Mr. Winget's address is c/o
Venture Holdings Trust, 33662 James J. Pompo Drive, Fraser, Michigan 48026.
CERTAIN TRANSACTIONS
In addition to making distributions to Mr. Winget as sole beneficiary of
the Trust and compensating him in his capacity as an Executive Manager of the
Company, the Company has maintained business relationships and engaged in
certain transactions with Mr. Winget and certain companies owned or controlled
by him (each an "affiliate" and collectively, the "affiliates") as described
below. Since the Company operates for the benefit of Mr. Winget as sole
beneficiary of the Trust, the terms of these transactions are not the result of
arms'-length bargaining; however, the Company believes that such transactions
are on terms no less favorable to the Company than would be obtained if such
transactions or arrangements were arms'-length transactions with non-affiliated
persons.
Pursuant to the Indenture and the indenture relating to the Senior
Subordinated Notes, the Trust, each Issuer and each Guarantor is required to
maintain a Fairness Committee, at least one of whose members is independent,
which approves the terms and conditions of certain transactions between the
Company and its affiliates and participates in decisions concerning whether
certain corporate opportunities will be pursued by the Company. The Company has
complied with such requirement since the date of the issuance of the Senior
Subordinated Notes for transactions initiated after such date. The indentures
also contain other restrictions on transactions with affiliates, including the
Corporate Opportunity Agreement, and distributions to Mr. Winget. The Corporate
Opportunity Agreement, entered into in connection with the issuance of the
Senior Subordinated Notes, requires Mr. Winget to offer to the Company certain
corporate opportunities which relate to the Company's business before he may
pursue such opportunities outside the Company. See "Description of Notes."
FACILITIES AND EQUIPMENT
The Company leases, or has arranged for the usage of, certain facilities,
machinery and equipment that are owned by affiliates, as set forth below. The
Company believes that the lease and usage agreements are based on the fair
market value of the facilities, machinery and equipment at the inception of the
agreements. The Company has made significant capital improvements to these
properties. Such improvements are accounted for as leasehold improvements by the
Company. At the conclusion of the applicable lease or usage agreement, the
benefits of such improvements inure to the benefit of the lessor.
Venture Real Estate, Inc., a corporation wholly owned by Mr. Winget's
living trust since 1988, leases to the Company two separate injection molding
buildings in the Company's Malyn Complex, and its Commerce Mold Shop. Starting
in 1996, the Redford facility was leased to the Company. Monthly rental charges
under these leases are $49,650 through July 1996, and $84,567 beginning in
August 1996. Amounts paid to Venture Real Estate, Inc. and a predecessor
affiliate were approximately $440,800, $595,800 and $770,383 for the years ended
December 31, 1994, 1995 and 1996, respectively.
Deluxe Pattern Company ("Deluxe"), a corporation wholly owned by Mr.
Winget's living trust since 1989, provides an advanced design, model and
tool-building facility, and is engaged in the business of providing design and
model and tool-building services to the Company and to customers unaffiliated
with the Company. Since July, 1992, the Company has occupied and staffed the
Deluxe facility pursuant to a usage agreement. The Company paid Deluxe usage
fees of $396,000 for each of the years ended December 31, 1994, 1995 and 1996.
Such fees are based upon the amount of time the facility and advanced equipment
housed there are made available to the Company. In addition to the usage fees,
the Company paid Deluxe $879,419, $1,153,286 and $5,870,780 for the years ended
December 31, 1994, 1995 and 1996, respectively, for the purchase of goods and
services and equipment at net book value. The increase in 1996 relates primarily
to design services provided for 1998 model year production. Deluxe does not
directly employ its own workforce,
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<PAGE> 64
but rather, employees of the Company are made available to Deluxe on an as
needed basis, for which Deluxe pays the Company a fee. During the years ended
December 31, 1994, 1995 and 1996, the Company made sales to Deluxe of
$1,083,780, $1,080,000 and $1,080,000 respectively, and Deluxe paid the Company
$2,075,266, $3,286,861 and $9,632,131, respectively, for time spent by the
Company's employees on Deluxe business.
Harper Properties of Clinton Township Limited Partnership ("Harper
Properties") and Realven Corporation ("Realven") lease to the Company its Harper
facility (the "Harper Lease") and the machinery and equipment located at such
facility (the "Realven Lease"), respectively, pursuant to operating leases which
terminate on June 7, 1999. Harper Properties is a limited partnership in which
the living trusts of Mr. Winget and his wife, Alicia, and an affiliated company
are the general partners and Mr. Winget, members of his family, A. James Schutz,
an Executive Manager of the Company, and Michael G. Torakis, an Executive
Manager of the Company, are the limited partners. Realven is a corporation
wholly owned by Mr. Winget and his wife, Alicia. The Harper Lease provides for
semi-annual lease payments of $872,000, and the Realven Lease provides for
semi-annual lease payments of $218,000. Harper Properties and Realven have the
right to require the Company to enter into negotiations regarding an increase in
the lease payments under the Harper Lease and the Realven Lease, so that lease
payments under these leases will reflect all expenses to Harper Properties,
Realven and their owners. The Company has made several improvements to the
Harper facility and the machinery and equipment leased from Realven, and has
accounted for them as leasehold improvements. At the termination of the Harper
and Realven Leases, Harper Properties and Realven, respectively, will retain the
value, if any, of the leasehold improvements. The Company paid Harper Properties
$1,744,000 in each of the years ended December 31, 1994, 1995 and 1996,
respectively, under the Harper Lease. The Company paid Realven $436,000 in each
of the years ended December 31, 1994, 1995 and 1996, respectively, under the
Realven Lease.
Mr. Winget has since 1991 allowed the Company to use approximately 12
molding machines pursuant to the terms of usage agreements. In January of 1994,
Mr. Winget leased 28 additional injection molding machines to the Company as
part of the expansions of the Harper and Groesbeck facilities. Mr. Winget also
leases to the Company certain injection molding equipment. In February of 1995,
Mr. Winget contributed and assigned his interests in the leases to the various
injection molding machines and equipment to a new entity, Venture Heavy
Machinery Limited Liability Company. The Company paid Mr. Winget and/or Venture
Heavy Machinery Limited Liability Company $1,765,800 in each of the years ended
December 31, 1994, 1995 and 1996, respectively, under the usage agreements.
Venture Real Estate Acquisition Company and Venture Equipment Acquisition
Company, each wholly owned by Mr. Winget's living trust, acquired a 176,000
square foot injection molding facility and the machinery and equipment located
therein (including 35 molding machines), on February 4, 1994. The Company
entered into usage agreements for such facility (the Masonic facility),
machinery and equipment, the terms of which were reviewed and approved by the
Fairness Committee. During 1994, 1995 and 1996 the Company paid $728,570,
$584,075 and $1,277,431, respectively, to Venture Real Estate Acquisition
Company and Venture Equipment Acquisition Company pursuant to these agreements.
During 1994, 1995 and 1996 the Company purchased machinery and equipment
from VAC for a total cash purchase price of $717,242, $82,185 and $49,161,
respectively. In each of the equipment purchases, the price paid by the Company
was the affiliated seller's net book value of such assets.
BUSINESS RELATIONSHIPS
The Company maintains ongoing business relationships with affiliates, as
set forth below.
Nova Corporation ("Nova") is a corporation in which Windall Industries, a
corporation in which Mr. Winget owns a significant equity interest, owns 49% and
a former Executive Manager of the Company owns the controlling 51% interest.
Nova is a successor to Windall Industries' business. Nova supplies the Company
with certain small parts or components of large assemblies that are sold to the
Company's customers. The Company paid Nova $3,147,372, $3,651,666 and $2,286,308
for the years ended December 31, 1994, 1995 and 1996, respectively. In
connection with this relationship, the Company has provided Nova with
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<PAGE> 65
various raw materials at cost and receives commission income, for which Nova
paid the Company $1,937,061, $1,381,575 and $811,659 in the years ended December
31, 1994, 1995 and 1996. Nova sells products to customers other than the
Company, and has and will compete with the Company for certain contracts. Nova
paid the Company $131,760, $162,300 and $162,300 pursuant to machinery and
equipment operating leases for the years ended December 31, 1994, 1995 and 1996,
respectively. The Company paid Windall Industries usage fees of $84,000 in each
of the years ended December 31, 1994, 1995 and 1996.
Venture Sales and Engineering ("VS&E") and Venture Foreign Sales
Corporation ("VFS"), corporations wholly owned by Mr. Winget, serve as the
Company's outside sales agencies for sales of products manufactured at the
Company's Vemco, Inc., Venture Industries and Venture Grand Rapids facilities.
Currently, the Company pays VS&E and VFS, in the aggregate, a sales commission
of 3% on all production sales. The Company paid VS&E, $5,926,653, $6,071,627 and
$6,391,229 in the years ended December 31, 1994, 1995 and 1996, respectively.
During 1994, VFS was established to handle foreign sales and the Company paid
VFS $258,000, $0 and $0 in 1994, 1995 and 1996, respectively.
VAC has, since 1991, performed sequencing and value-added assembly of parts
manufactured at the Company's Grand Blanc facility. The Company paid VAC
$10,909,874, $8,040,717 and $3,268,109 in the years ended December 31, 1994,
1995 and 1996, respectively, under this arrangement. During the years ended
December 31, 1994, 1995 and 1996, the Company made sales to VAC of $136,709,
$56,782 and $68,743 respectively. Beginning October 1, 1996 the manufacturing
services previously provided by VAC have been contracted to MAST Services LLC, a
company in which N. Matthew Winget, Mr. Winget's son, owns a minority interest.
Services for the period ending December 31, 1996 were $265,386.
MANAGEMENT SERVICES
Venture Service Company ("Venture Service") provides administrative
services and insurance to Deluxe, Windall Industries, VS&E and VAC. Deluxe,
Windall Industries, VS&E and VAC paid the Company $896,838, $652,093 and
$1,787,112 in the years ended December 31, 1994, 1995 and 1996, respectively.
Venture Asia Pacific Pty. Ltd. and its subsidiaries ("VAP") were provided
with management and sales services by the Company and paid the Company
$2,356,702 and $5,097,688 for 1995 and 1996, respectively. In addition, VAP also
reimbursed the Company for certain other expenditures made on its behalf and
assigned certain tooling contracts to the Company.
Pompo Insurance & Indemnity Company Ltd. ("Pompo"), a Barbados corporation
indirectly wholly owned by Mr. Winget, was incorporated in 1992 under the
Barbados Exempt Insurance Act. The Company purchases insurance from Pompo to
cover certain medical claims by the Company's employees, certain workers
compensation claims and a portion of a litigation claim. The Company has
accounted for this arrangement using the deposit method wherein the full amount
of the estimated liability for such claims is recorded in other liabilities and
the premiums paid to Pompo are recorded in other assets until such time that the
claims are settled. The Company remains primarily liable for any amounts in
excess of insurance coverage or any amounts not paid by Pompo under these
coverages. If a liability is settled for less than the amount of the premium
paid to Pompo, a portion of the excess is available as a premium credit on
future insurance. The Company paid Pompo premiums in the amounts of $500,000 in
the year ended December 31, 1994 for insurance coverage. No additional amounts
were paid in 1995 and 1996, however, the Company received and utilized a premium
credit of $651,100 and $210,910, respectively. In 1994, the litigation claim
insured by Pompo was settled and paid. As a result, the Company received and
utilized a premium credit for $560,000 in 1994.
OTHER
From time to time, the Company pays certain expenses on behalf of Mr.
Winget which he is obligated to repay to the Company. Such amounts payable by
Mr. Winget do not bear interest and are payable on demand. Mr. Winget's
indebtedness to the Company for such expenses was $90,276, $105,872 and $0 at
December 31,
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<PAGE> 66
1994, 1995, and 1996, respectively. The highest amount of such indebtedness
outstanding at any one time during such periods was $105,872.
Mr. Winget and his wife, Alicia, own the Acropolis Resort, which consists
of several separate units and a lodge near Gaylord, Michigan, a resort community
north of Detroit. The Company leases this facility from Mr. Winget primarily for
use by the Company's employees, who are permitted to use the facility on an
availability basis. Cumulative leasehold improvements to this facility through
December 31, 1996 aggregate $135,700. The Company's lease obligation to Mr.
Winget is based upon the actual utilization of the facility by the Company's
employees, provided that the Company is required to pay for the use of 500 room
nights per calendar year (approximately $25,000) whether or not such rooms are
rented. The Company paid Mr. Winget $90,121, $76,371 and $76,670 in the years
ended December 31, 1994, 1995 and 1996, respectively, under this arrangement.
Farm and Country Real Estate Company ("Farm and Country"), a corporation
wholly owned by Mr. Winget, leases to the Company approximately 84 acres of raw
land adjacent to the Company's Grand Blanc facility on a month-to-month basis.
This lease provides for monthly rental payments of $16,100. Rent paid in 1994,
1995 and 1996 was $95,200 (including $15,000 of prepaid rent), $178,200 and
$193,200, respectively.
Mr. Winget and Patent Holdings, Inc., a corporation wholly owned by Mr.
Winget, have granted to the Company non-exclusive, royalty free licenses to
certain patents which have been issued under applications filed by Mr. Winget,
as assignee. Mr. Winget and the affiliated companies also generally permit the
Company to utilize proprietary technologies or processes, such as REAP, which
are developed by Deluxe and the affiliated companies. The licenses are
perpetual, but provide that the licensor may negotiate a reasonable royalty in
the event that Mr. Winget or an Excluded Person (as defined in the Indenture) no
longer owns at least 80% of the beneficial interest of the Trust.
On July 1, 1996, Venture Industries Corporation and its affiliated
companies (not including the Trust or Venture Canada) (the "Venture
Guarantors"), along with VIC Management, L.L.C. ("VIC"), a limited liability
company wholly owned, directly or indirectly, by Mr. Winget, entered into an
agreement guaranteeing up to $3.5 million of the obligations of Atlantic
Automotive Components, L.L.C. ("Atlantic") to RIC Management Corp. ("RIC"). This
guarantee is one of a series of transactions whereby VIC acquired RIC's minority
interest in Atlantic. Deluxe agreed to fully indemnify the Venture Guarantors
for all amounts paid under the guarantee.
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THE TRUST
Venture Holdings Trust was established December 28, 1987 by Mr. Winget by
agreement (the "Trust Agreement") with a financial institution as Trustee.
Effective October 19, 1993, Mr. Winget assumed the duties of sole Trustee (the
"Trustee"). The Trust owns, directly or indirectly, all of the outstanding
capital stock of, or equity interests in, each of the Issuers.
Mr. Winget is the sole beneficiary of the Trust. He has the power to
terminate the Trust, but the Trust may only terminate upon his death, when
certain obligations specified in the Trust Agreement are no longer outstanding
or when the capital stock has been transferred to Venture Holdings Corporation
in accordance with the terms of the Trust Agreement. Upon a termination of the
Trust, the stock of the Issuers (other than Venture Holdings Corporation) will
be distributed in accordance with the Trust Agreement. Mr. Winget may not
transfer his beneficial interest in the Trust except in connection with a
termination of the Trust or upon his death. Mr. Winget has limited authority to
amend the Trust Agreement. The Trust cannot engage in any business or activity,
except for agreements related to the outstanding indebtedness of the Company.
See "Capitalization" and "Description of Certain Indebtedness."
Upon the death, disability, or unavailability of Mr. Winget, except for its
administrative duties in connection with the holding of the assets of the Trust
and receiving income on those assets, the successor Trustee may not take action
with respect to the assets of the Trust without the prior consent of the
"Special Advisor." Actions that the Trustee may not take without the prior
consent of the Special Advisor include (i) borrowing money or incurring other
obligations; (ii) disposing of the Trust assets; (iii) making loans to the
subsidiaries of the Trust; (iv) making investments, except investment of funds
in specified money-market funds; and (v) exercising any of its rights as a
shareholder in the subsidiaries of the Trust.
The following sets forth the organizational structure of the Company.
ORGANIZATIONAL GRAPH
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summarizes the material terms of certain of the Company's
debt agreements. Such summary does not purport to be complete and is subject to,
and qualified in its entirety by reference to, such agreements, including the
definitions therein of terms not defined herein.
SENIOR CREDIT FACILITY
General. The Senior Credit Facility provides for up to $200 million of
revolving credit availability (the "Commitment Amount"), including the issuance
of letters of credit. The Issuers are parties to the Senior Credit Facility. The
obligations under the Senior Credit Facility are secured by substantially all
the assets of the Issuers, including all of the capital stock of the Issuers
(other than the Trust) and 65% of the stock of Venture Canada. As such, the
Notes are effectively subordinated to indebtedness incurred under the Senior
Credit Facility. The Senior Credit Facility permits the Company to borrow up to
the lesser of a borrowing base or $200 million less the amount of any letter of
credit issued against the Senior Credit Facility. The borrowing base is equal to
the sum of (a) an amount equal to a percentage of Eligible Accounts Receivable
(as defined), plus (b) an amount equal to a percentage of Eligible Inventory (as
defined), plus (c) an amount equal to a percentage of the amount of Eligible
Unbilled Receivables (as defined).
Interest Rates. Interest on outstanding borrowings under the Senior Credit
Facility is payable quarterly and accrues at an annual rate equal to either (i)
the Alternate Prime Rate (as defined in the Senior Credit Facility) plus the
Applicable Margin (as defined in the Senior Credit Facility), or (ii) the London
Interbank Offered Rate plus the Applicable Margin (a "LIBOR-based Rate"). The
Applicable Margin will be based upon the Company's Ratio of Total Debt to
trailing four quarter EBITDA (as defined in the Senior Credit Facility) as
follows:
<TABLE>
<CAPTION>
RATIO OF TOTAL
FUNDED APPLICABLE MARGIN
DEBT TO EBITDA PRIME/LIBOR
- -------------- -----------------
<S> <C>
$3.75 1.00% / 2.25%
$3.50 .75% / 2.00%
$3.25 .50% / 1.75%
$2.875 .25% / 1.50%
$2.50 0% / 1.25%
,2.50 0% / 1.00%
</TABLE>
During the year ended December 31, 1996, the average interest rate under
the Senior Credit Facility was approximately 8.4%.
Maturity and Optional Prepayments. All borrowings under the Senior Credit
Facility mature in June, 2003, except that the aggregate principal amount
outstanding may not exceed the Commitment Amount at any time. Borrowings under
the Senior Credit Facility are prepayable at any time without premium or
penalty, except that any prepayment of a LIBOR-based Rate loan that is made
prior to the end of the applicable interest period shall be subject to
reimbursement of breakage costs.
Covenants. The Senior Credit Facility contains various covenants that
require the Company to maintain stipulated financial ratios, including (a)
minimum consolidated net worth (adjusted yearly) of not less than the sum of $51
million plus 75% of consolidated net income (after taxes); (b) fixed charge
ratio of at least (i) 1.15 to 1.0 as of the end of each fiscal quarter ending in
1997 and 1998, (ii) 1.20 to 1.0 as of the end of each fiscal quarter ending in
1999 and 2000 and (iii) 1.25 to 1.0 as of the end of each fiscal quarter
thereafter; (c) interest coverage ratio of at least (i) 2.25 to 1.0 as of June
30, 1997 and as of the end of each fiscal quarter thereafter through the fiscal
quarter ending September 30, 1999, and (ii) 2.50 to 1.0 as of December 31, 1999
and as of the end of each fiscal quarter thereafter; and (d) leverage ratio
(ratio of consolidated Indebtedness (as defined) to EBITDA (as defined)) of not
more than (i) 4.25 to 1.0 at any time to and including December 30, 1999, (ii)
4.0 to 1.0 at any time from and including December 31, 1999 to and including
December 30, 2001 and (iii) 3.75 to 1.0 on December 30, 2001 and any time
thereafter. As of December 31, 1996 and June 30, 1997, the Company was in
compliance with all debt covenants. The Senior Credit Facility also contains
negative covenants, including restrictions on incurrence of other indebtedness,
payment of cash dividends and other distributions, liens in favor of parties
other than the lenders under the Senior Credit
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Facility, certain guaranties of obligations of or advances to others, sales of
material assets not in the ordinary course of business, and restrictions on
mergers and acquisitions.
Events of Default. The Senior Credit Facility contains customary events of
default including non-payment of principal, interest or fees; violation of
covenants; inaccuracy of representations or warranties; cross-defaults to
certain other indebtedness; and bankruptcy.
SENIOR SUBORDINATED NOTES
The Issuers are jointly and severally liable under an indenture relating to
the 9 3/4% Senior Subordinated Notes. Venture Canada is also a guarantor under
the indenture relating to the Senior Subordinated Notes. As of June 30, 1997,
approximately $79 million was outstanding under the Senior Subordinated Notes.
Interest on the Senior Subordinated Notes is payable semi-annually. The
indenture for the Senior Subordinated Notes contains covenants with respect to
the following matters: (i) limitations on additional indebtedness; (ii)
limitations on restricted payments; (iii) limitations on transactions with
affiliates; (iv) corporate opportunities; (v) the application of the proceeds of
certain asset sales; (vi) limitations on liens; (vii) limitations on issuance of
guarantees of and pledges for indebtedness; (viii) limitation on equity
interests of subsidiaries; (ix) limitations on dividends and other payment
restrictions affecting subsidiaries; (x) limitations on other senior
subordinated indebtedness; (xi) limitations on new lines of business; and (xii)
restrictions on mergers, consolidations and transfers of all or substantially
all of the assets of the issuers to another person.
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DESCRIPTION OF NOTES
The Original Notes were issued pursuant to an indenture (the "Indenture")
dated as of July 1, 1997, by and among the Trust, Vemco, Inc., Vemco Leasing,
Inc., Venture Industries Corporation, Venture Holdings Corporation, Venture
Leasing Company, Venture Mold & Engineering Corporation and Venture Service
Company, as co-Issuers (the "Issuers") and The Huntington National Bank, as
trustee (the "Trustee"). The terms of the Indenture apply to the Original Notes
and to the Series B Notes to be issued therefor pursuant to the Exchange Offer
(all such Notes are referred to herein collectively as the "Notes"). Set forth
below is a summary of certain provisions of the Notes. The following summarizes
the material terms of the Notes, but it does not purport to be complete and is
qualified in its entirety by reference to all of the provisions of the
Indenture. Capitalized terms used herein and not otherwise defined shall have
the meanings assigned to them in the Indenture. Wherever particular provisions
of the Indenture are referred to in this summary, such provisions are
incorporated by reference as a part of the statements made and such statements
are qualified in their entirety by such reference. A copy of the form of
Indenture is available upon request. For purposes of this summary, the term
"Trust" refers only to Venture Holding Trust and not to any of its subsidiaries.
The term "Subsidiaries" as used herein, however, does not include Unrestricted
Subsidiaries.
GENERAL
The Notes are senior unsecured, joint and several obligations of the
Issuers, ranking pari passu in right of payment with all other senior
obligations of the Issuers. The Notes are limited in aggregate principal amount
to $205 million. The Notes may, and under certain circumstances shall, be
jointly and severally irrevocably and unconditionally guaranteed on a senior
basis by each of the future Subsidiaries of the Issuers, other than Foreign
Subsidiaries (the "Guarantors"). The guarantees will rank pari passu in right of
payment with all other senior obligations of the Guarantors. The obligations of
each Guarantor under its guarantee and each Issuer under the Notes (other than
the Trust) will be limited in a manner intended to avoid it being deemed a
fraudulent conveyance under applicable law. The Notes will be issued only in
fully registered form, without coupons, in denominations of $1,000 and integral
multiples thereof. The Indenture will designate the Notes Designated Senior
Indebtedness and the Guarantees Designated Guarantor Senior Indebtedness for
purposes of the indenture governing the Senior Subordinated Notes.
The Notes will mature on July 1, 2005. The Notes bear interest at the rate
per annum stated on the cover page hereof from the date of issuance or from the
most recent Interest Payment Date to which interest has been paid or provided
for, payable semi-annually on January 1 and July 1 of each year, commencing
January 1, 1998, to the persons in whose names such Notes are registered at the
close of business on the December 15 or June 15 immediately preceding such
Interest Payment Date. Interest will be calculated on the basis of a 360-day
year consisting of twelve 30-day months.
Principal of, premium, if any, and interest and Liquidated Damages, if any,
on the Notes are payable, and the Notes may be presented for registration of
transfer or exchange, at the office or agency of the Issuers maintained for such
purpose, which office or agency shall be maintained in the Borough of Manhattan,
The City of New York, except as set forth below. At the option of the Issuers,
payment of interest may be made by check mailed to the Holders of the Notes at
the addresses set forth upon the registry books of the Issuers; provided that
all payments with respect to Global Notes and Certificated Notes the holders of
which have given wire transfer instructions to the Issuers and the Paying Agent,
will be required to be made by wire transfer of immediately available funds to
the accounts specified by the holders thereof. No service charge will be made
for any registration of transfer or exchange of Notes, but the Issuers may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. Until otherwise designated by the
Issuers, the Issuers' office or agency will be the corporate trust office of the
Trustee presently located at the office of the Trustee in the Borough of
Manhattan, The City of New York.
CERTAIN BANKRUPTCY AND FRAUDULENT CONVEYANCE MATTERS
The Notes are co-issued by the Issuers. Under federal and state fraudulent
conveyance statutes or other legal principles, the Notes or the Guarantees may
be subordinated to existing or future indebtedness of the
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Issuers or the Guarantors, or voided or found not to be enforceable in
accordance with their terms. Among other things, such obligations may be avoided
if a court concludes that such obligations were incurred with intent to hinder,
delay or defraud creditors or for less than reasonably equivalent value or fair
consideration at a time when the Guarantor or Issuer was insolvent, was rendered
insolvent, or was left with inadequate capital to conduct its business. As such,
the obligations of each Issuer (other than the Trust) and Guarantor will be
limited in a manner intended to cause it not to be a fraudulent conveyance under
applicable law, although there can be no assurance that a court would give the
Holder the benefit of such provisions. See "Risk Factors -- Fraudulent
Conveyance."
OPTIONAL REDEMPTION
The Issuers do not have the right to redeem any Notes prior to July 1, 2001
(other than out of the Net Cash Proceeds of a Public Equity Offering, as
described in the next following paragraph). The Notes will be redeemable for
cash at the option of the Issuers, in whole or in part, at any time on or after
July 1, 2001, upon not less than 30 days nor more than 60 days notice to each
Holder of Notes, at the following redemption prices (expressed as percentages of
the principal amount) if redeemed during the 12-month period commencing July 1
of the years indicated below, in each case (subject to the right of Holders of
record on a Record Date to receive interest due on an Interest Payment Date that
is on or prior to such Redemption Date) together with accrued and unpaid
interest and Liquidated Damages, if any, thereon to the Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001........................................................ 104.750%
2002........................................................ 102.375%
2003 and thereafter......................................... 100.000%
</TABLE>
Until July 1, 2000, upon a Public Equity Offering, up to 35% of the
aggregate principal amount of the Notes originally issued may be redeemed at the
option of the Issuers within 120 days of such Public Equity Offering, on not
less than 30 days, but not more than 60 days, notice to each Holder of the Notes
to be redeemed, with cash from the Net Cash Proceeds of such Public Equity
Offering, at 109.500% of principal (subject to the right of Holders of record on
a Record Date to receive interest due on an Interest Payment Date that is on or
prior to such Redemption Date), together with accrued and unpaid interest and
Liquidated Damages, if any, to the date of redemption; provided, however, that
immediately following such redemption not less than 65% aggregate principal
amount of the Notes originally issued are outstanding.
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The Notes may be redeemed in part in
multiples of $1,000 only.
The Notes do not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first class mail, at least 30
days and not more than 60 days prior to the date fixed for redemption, to the
Holder of each Note to be redeemed to such Holder's last address as then shown
upon the registry books of the Registrar. Any notice which relates to a Note to
be redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that on and after the date of
redemption, upon surrender of such Note, a new Note or Notes in a principal
amount equal to the unredeemed portion thereof will be issued. On and after the
date of redemption, interest will cease to accrue on the Notes or portions
thereof called for redemption, unless the Issuers default in the payment
thereof.
CERTAIN COVENANTS
Repurchase of Notes at the Option of the Holder Upon a Change of Control
The Indenture provides that in the event that a Change of Control has
occurred, each Holder of Notes will have the right, at such Holder's option,
pursuant to an irrevocable and unconditional offer by the Issuers
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(the "Change of Control Offer"), to require the Issuers to repurchase all or any
part of such Holder's Notes (provided, that the principal amount of such Notes
must be $1,000 or an integral multiple thereof) on a date (the "Change of
Control Purchase Date") that is no later than 55 Business Days after the
occurrence of such Change of Control, at a cash price equal to 101% of the
principal amount thereof (the "Change of Control Purchase Price"), together with
accrued and unpaid interest and Liquidated Damages, if any, to the Change of
Control Purchase Date. The Change of Control Offer shall be made within 20 days
following a Change of Control and shall remain open for at least 20 Business
Days following its commencement (the "Change of Control Offer Period"). Upon
expiration of the Change of Control Offer Period, the Issuers promptly shall
purchase all Notes properly tendered in response to the Change of Control Offer.
As used herein, a "Change of Control" means (i) any merger or consolidation
of the Trust with or into any person or any sale, transfer or other conveyance,
whether direct or indirect, of all or substantially all of the assets of the
Trust, on a consolidated basis, in one transaction or a series of related
transactions, if, immediately after giving effect to such transaction(s), any
"person" or "group" (as such terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act, whether or not applicable) other than an Excluded
Person is or becomes the "beneficial owner," directly or indirectly, of more
than 40% of the total voting power in the aggregate normally entitled to vote in
the election of directors, managers, or trustees, as applicable, of the
transferee(s) or surviving entity or entities and the Excluded Persons
"beneficially own" a lesser percentage and do not have the right or ability by
voting power, contract or otherwise to elect or designate for election a
majority of such directors, managers or trustees, as applicable, (ii) any
"person" or "group" (as such terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act, whether or not applicable) other than an Excluded
Person is or becomes the "beneficial owner," directly or indirectly, of more
than 40% of the total voting power in the aggregate of all classes of Capital
Stock of the Trust then outstanding normally entitled to vote in elections of
directors, managers or trustees and the Excluded Persons "beneficially own" a
lesser percentage and do not have the right or ability by voting power, contract
or otherwise to elect or designate for election a majority of such directors,
managers or trustees, as applicable, or (iii) during any period of 12
consecutive months after the Issue Date, individuals who at the beginning of any
such 12-month period constituted the Board of Directors of the Trust (together
with any new directors whose election by such Board or whose nomination for
election by the equity holders of the Trust, (A) with respect to Venture
Holdings Trust was made pursuant to the terms of the Venture Trust Instrument,
and (B) with respect to Venture Holdings Corporation or another successor to the
Trust, or their respective successors, after the occurrence of a Trust
Contribution, (x) was approved by the Beneficiary of Venture Holdings Trust on
or before the date of the Trust Contribution, or (y) was approved by a majority
of the directors of the Trust whose appointment, election or nomination to the
Board of Directors was approved in accordance with the preceding clause (x) or
by this clause (y)) cease for any reason to constitute a majority of the Board
of Directors of the Trust then in office. Notwithstanding anything in this
definition to the contrary, a "Change of Control" shall not be deemed to have
occurred solely as a result of a transaction pursuant to which the Trust is
reorganized or reconstituted as a corporation or a Trust Contribution occurs in
accordance with the provisions described under "Limitation on Merger, Sale or
Consolidation" and no event which is otherwise a "Change of Control" shall have
occurred. By providing that certain transactions involving an Excluded Person
are excluded, it is possible that certain recapitalizations of the Company or
other transactions with Excluded Persons will not trigger a Change of Control
Offer.
On or before the Change of Control Purchase Date, the Issuers will (i)
accept for payment Notes or portions thereof properly tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent cash sufficient to
pay the Change of Control Purchase Price (together with accrued and unpaid
interest and Liquidated Damages, if any) of all Notes so tendered and (iii)
deliver to the Trustee Notes so accepted together with an Officers' Certificate
listing the Notes or portions thereof being purchased by the Issuers. The Paying
Agent promptly will pay the Holders of Notes so accepted an amount equal to the
Change of Control Purchase Price (together with accrued and unpaid interest plus
Liquidated Damages, if any), and the Trustee promptly will authenticate and
deliver to such Holders a new Note equal in principal amount to any unpurchased
portion of the Note surrendered. Any Notes not so accepted will be delivered
promptly by the Issuers to the Holder thereof. The Issuers publicly will
announce the results of the Change of Control Offer on or as soon as practicable
after the Change of Control Purchase Date.
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The phrase "all or substantially all" of the assets of the Trust will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or substantially
all" of the assets of the Trust has occurred.
No assurances can be given that the Issuers will have available sufficient
funds to acquire Notes tendered upon the occurrence of a Change of Control. In
the event that the Issuers are required to purchase outstanding Notes upon the
occurrence of a Change of Control, the Issuers expect that they would seek third
party financing to the extent that they do not have available funds to meet
their purchase obligations. There can be no assurance that the Issuers would be
able to obtain such financing on a timely basis. See "Risk Factors -- Change of
Control."
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable Federal and state
securities laws. To the extent that the provisions of any securities laws or
regulations conflict with the terms hereof, the Issuers shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached their obligations under the Indenture or the Notes by virtue thereof.
Neither the Issuers nor the Indenture Trustee may waive the requirement to
commence a Change of Control Offer.
Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock
The Indenture provides that, except (x) as set forth in this covenant or
(y) by merger or consolidation by and among or between any Issuer or Guarantor,
the Issuers and the Guarantors will not, and will not permit any of their
Subsidiaries to, directly or indirectly, issue, assume, guaranty, incur, become
directly or indirectly liable with respect to (including as a result of an
Acquisition), or otherwise become responsible for, contingently or otherwise
(individually and collectively, to "incur" or, as appropriate, an "incurrence"),
any Indebtedness (including Acquired Indebtedness) or any Disqualified Capital
Stock other than Permitted Indebtedness. Notwithstanding the foregoing, if (i)
no Default or Event of Default shall have occurred and be continuing at the time
of, or would occur after giving effect on a pro forma basis to, such incurrence
of Indebtedness or Disqualified Capital Stock and (ii) on the date of such
incurrence (the "Incurrence Date"), the Consolidated Coverage Ratio of the Trust
for the Reference Period immediately preceding the Incurrence Date, after giving
effect on a Pro Forma Basis to such incurrence of such Indebtedness or
Disqualified Capital Stock and the use of proceeds thereof, would be at least
2.0 to l (the "Debt Incurrence Ratio"), then the Trust may incur such
Indebtedness (including Acquired Indebtedness) or Disqualified Capital Stock,
the Issuers (other than the Trust) and the Guarantors may incur such
Indebtedness (including Acquired Indebtedness) and any other Subsidiaries may
incur Acquired Indebtedness.
Indebtedness or Disqualified Capital Stock of any person which is
outstanding at the time such person becomes a Subsidiary of the Trust (including
upon designation of any subsidiary or other person as a Subsidiary) or is merged
with or into or consolidated with the Trust or a Subsidiary of the Trust shall
be deemed to have been incurred at the time such person becomes such a
Subsidiary of the Trust or is merged with or into or consolidated with the Trust
or a Subsidiary of the Trust, as applicable, and such incurrence is subject to
the immediately preceding paragraph.
Accrual of interest, the accretion of accreted 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.
For purposes of determining any particular amount of Indebtedness under
this covenant, guarantees, Liens, or obligations with respect to letters of
credit supporting Indebtedness otherwise included in the determination of such
particular amount shall not be included.
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Limitation on Restricted Payments
The Indenture provides that the Issuers and the Guarantors will not, and
will not permit any of their Subsidiaries to, directly or indirectly, make any
Restricted Payment if, after giving effect to such Restricted Payment on a pro
forma basis, (1) a Default or an Event of Default shall have occurred and be
continuing, (2) the Trust is not permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Debt Incurrence Ratio in the first paragraph of the
covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock," on a Pro Forma Basis or (3) the aggregate amount of all
Restricted Payments made by the Trust and its Subsidiaries, including after
giving effect to such proposed Restricted Payment, from and after the Issue
Date, would exceed the sum of (a) $10 million, plus (b) 50% of the aggregate
Consolidated Net Income of the Trust and its Consolidated Subsidiaries for the
period (taken as one accounting period), commencing on the first day of the
first fiscal quarter ending after the Issue Date, to and including the last day
of the fiscal quarter ended immediately prior to the date of each such
calculation (or, in the event Consolidated Net Income for such period is a
deficit, then minus 100% of such deficit), plus (c) the aggregate Net Cash
Proceeds received by the Trust from a contribution by the holders of its Capital
Stock (other than by the Subsidiaries of the Trust) or the sale of its Qualified
Capital Stock (other than (i) to a Subsidiary of the Trust and (ii) to the
extent applied in connection with a Qualified Exchange), after the Issue Date,
plus (d) the Net Cash Proceeds from the sale of Investments by the Issuers
(other than Permitted Investments) made after the Issue Date, plus the total
Investments, net, without duplication, of any Indebtedness, in any Unrestricted
Subsidiaries designated Subsidiaries, provided that such amounts, taken with all
other amounts distributed on or realized from such Investments or designations,
does not exceed the original aggregate amount of such Investments.
The immediately preceding paragraph, however, will not prohibit:
(i) a Qualified Exchange;
(ii) the payment of any dividend or distribution on Qualified Capital
Stock within 60 days after the date of its declaration if such dividend
could have been made on the date of such declaration in compliance with the
foregoing provisions, provided the full amount of any Restricted Payment
made pursuant to clause (ii) will be deducted, without duplication, in the
calculation of the aggregate amount of Restricted Payments available to be
made referred to in clause (3) of the immediately preceding paragraph; or
(iii) (a) so long as the Trust is an entity described in Section
1361(a)(1), 1361(c)(2) or 1361(d) of the Code or any similar provision of
state or local law, (x) the Trust shall be permitted to distribute to the
Beneficiary of the Trust (or pay compensation to the Beneficiary of the
Trust in lieu of such distributions) all amounts distributed to the Trust
pursuant to the following clause (y), and (y) the Issuers (other than the
Trust) in the aggregate shall be permitted to make payments to the Trust in
cash as follows, calculated before giving effect to such payments (such
payments to be referred to hereinafter as "Trust Tax Distributions"):
(1) on (or within 15 days prior to) each April 15, June 15,
September 15 and January 15 an amount equal to the minimum federal and
state estimated quarterly income and intangible tax payments required to
be made on such date by the Beneficiary of the Trust in order to prevent
underpayment of estimated income tax pursuant to the rules set forth in
Sections 6654(b) and 6654(d)(1) of the Code or their successors or
supplements and any similar provision of applicable state income and
intangible tax law for any state with respect to which the Issuers
qualify as S corporations for state law purposes, such amount to be
calculated as though such Beneficiary's only income and loss in each
such quarter was an amount equal to the sum of the taxable income and
loss of the Issuers which are S corporations. The foregoing amounts may
be paid so long as (I) such Issuer is and was an S corporation for such
quarter, as defined in Section 1361 of the Code or its successors and
supplements, (II) no Default or Event of Default exists and is
continuing or would thereby occur, (III) special tax counsel to the
Issuers delivers to the Trustee, prior to the payment in respect of such
quarter, an opinion substantially in the form attached to the Indenture
(or, if the Beneficiary of the Trust is disabled or unavailable as
described in Section 3 of the Venture
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Trust Instrument, such special tax counsel delivers to the Trustee,
prior to the payment in respect of such quarter, an opinion
substantially in the form attached to the Indenture), (IV) the Issuers
have not received a private ruling or a National Office Technical Advice
Memorandum from the Internal Revenue Service or, in respect of
distributions made for state income tax purposes, a similar ruling from
any applicable state or local taxing authority, that the Trust is not an
entity described in Section 1361(a)(1), 1361(c)(2) or 1361(d) of the
Code, or their successors and supplements, or any similar provision of
state or local law or there has been a final "determination" (as used in
Section 1313 of the Code) or similar state determination to the same
effect, and (V) the Issuers have complied with the terms of clauses (b),
(c) and (d) below. The amount that is distributable pursuant to clause
(y) by each Issuer which is an S corporation in respect of each of the
quarters described above shall be that proportion of the amount of the
Trust Tax Distribution for each such quarter which such Issuer's Tax
Income for such quarter bears to the aggregate Tax Income of all the
Issuers which are S corporations in such quarter. For purposes of the
foregoing, "Tax Income" shall mean one-quarter of an Issuer's actual
taxable income for the year prior to that with respect to which the
calculations described above are being made; and
(2) no later than September 15 of each year, the Issuers shall
cause their tax advisors, which shall be a nationally recognized
accounting firm, to determine the actual amount of federal and state
income tax liability of the Beneficiary of the Trust for the previous
calendar year computed as if the only income and loss of the Beneficiary
in such year was an amount equal to the sum of the taxable income and
loss of the Issuers which are S corporations (the "Actual Tax Amount").
The computation of the Actual Tax Amount made by the Issuers' tax
advisors shall be reviewed and reported on by a nationally recognized
accounting firm, which may be the Issuers' tax advisors. If (A) the
Actual Tax Amount, as determined by such tax advisor, is less than the
aggregate estimated amounts paid pursuant to clause (1) above in respect
of such year (the "Distributed Amounts") and/or (B) if the Actual Tax
Amount is at any time finally determined by the Internal Revenue Service
or a court of competent jurisdiction to be less than that determined by
such tax advisors, the Issuers shall cause the Beneficiary to the Trust,
within 75 days after such difference is determined, to reimburse to the
Trust, with no obligation on the part of the Trust to such Beneficiary
with respect to such reimbursement, the excess of the Distributed
Amounts over the Actual Tax Amount, as finally determined by the tax
advisors, the Internal Revenue Service or court of competent
jurisdiction, as the case may be, or the excess of the Actual Tax
Amount, as determined by the tax advisors, over the Actual Tax Amount as
determined by the Internal Revenue Service or court, as the case may be
(in either case, which excess amount may be offset by any amounts then
or subsequently owed to the Beneficiary by reason of clause (1) above).
If the excess of the Distributed Amounts over the Actual Tax Amount, as
finally determined by the tax advisors, is reimbursed to the Trust after
June 14 of such year, such excess shall bear interest from June 15 to
the date preceding the date it is paid at an interest rate equal to the
overpayment rate established under Section 6621(a)(1) of the Code or its
successor and supplements. Such reimbursed amount (if any) shall then be
reimbursed by the Trust to each of the Issuers that first distributed
such amounts to the Trust. If the Actual Tax Amount, as determined by
the tax advisors, the Internal Revenue Service or court, as the case may
be, is greater than the Distributed Amounts, each of the Issuers which
are S corporations shall distribute to the Trust, and the Trust shall
distribute to the Beneficiary, its share of the excess of the Actual
Amount over the Distributed Amounts, within 75 days after such
difference is determined, provided that no such distribution shall be
made by any of the Issuers unless a nationally recognized accounting
firm shall have reviewed and reported on the computation of the Actual
Tax Amount made by the tax advisors, which may be the same nationally
recognized accounting firm that acts as the Issuers' tax advisors. If
any payment is made (i) in contravention of clause (1) above and paid to
the Beneficiary of the Trust pursuant to clause (x) above or (ii) in
contravention of the proviso to the immediately preceding sentence and
paid to the Beneficiary of the Trust pursuant to the immediately
preceding sentence, the Issuers shall cause the Beneficiary of the Trust
to reimburse to each of the Issuers making such prohibited payment the
amount of such prohibited payment;
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(b) in the event of the disability or unavailability of Larry J.
Winget as provided in the Venture Trust Instrument if the Trust remains a
trust (such date, an "S Trust Commencement Date"), (1) the Issuers shall
apply for a private ruling from the Internal Revenue Service to the effect
that each of the Issuers which was an S corporation immediately prior to
such disability or unavailability, as the case may be, qualifies, despite
such disability or unavailability, as an S corporation under Section
1361(a)(1) of the Code and that the Trust is an entity described in Section
1361(c)(2) or 1361(d) of the Code, or their successors and supplements; (2)
the Trust shall not take any action that would cause it to have income (as
defined in Section 643(b) of the Code, or its successors and supplements,
and Act 340 of Michigan Compiled Acts, 1965, or its successors and
supplements, except for corporate distributions provided for in such act),
for any period beginning on the S Trust Commencement Date and continuing
for the duration of such disability or unavailability in excess of the
amount of cash the Trust would be permitted to distribute in respect of its
Equity Interests pursuant to this "-- Limitation on Restricted Payments",
provided, however, that if the Trust shall have received a private letter
ruling from the Internal Revenue Service that it is an entity described in
Section 1361(c)(2) of the Code, or its successors and supplements, the
foregoing limitation shall not apply for the period such ruling is in
effect; and (3) the Issuers shall notify the Trustee of the occurrence of
such S Trust Commencement Date no later than 10 days following such date;
(c) if at any time the Issuers receive notification from the Internal
Revenue Service that any Issuer does not qualify as an S corporation under
Section 1361(a)(1) of the Code, (x) no further distributions shall be made
pursuant to clause (a)(1) above by such Issuer, and (y) the Issuers shall
cause the Beneficiary of the Trust either (A) to reimburse the Trust all
amounts paid by that Issuer pursuant to clause (a)(1) and clause (a)(2)
above with respect to all periods as to which that Issuer did not qualify
as an S corporation, with no obligation on the part of the Trust to such
Beneficiary with respect to such reimbursement, and the Trust shall then
pay such reimbursement to that Issuer, or (B) to reimburse such Issuer such
payments directly, within 75 days after such requirement for reimbursement
is determined; provided that no such reimbursement shall be required to the
extent to which such distribution would otherwise have been permitted,
after taking into account interest, penalties and additions to tax imposed
on such Issuer as a result of its failure to qualify as an S corporation
under Section 1361(a)(1) of the Code, or its successors and supplements. If
the Issuers at any time receive notification from the Internal Revenue
Service that the Trust is not an entity described in Section 1361(a)(1),
1361(c)(2) or 1361(d), or their successors and supplements, as the case may
be, of the Code, or if the Issuers fail to receive a favorable response to
a ruling request described in clause (b) within 360 days after the
disability or unavailability of Larry J. Winget, the Issuers shall take the
actions described in clauses (x) and (y) of the preceding sentence; and
(d) no Trust Tax Distribution may be made to the extent such
distribution would cause the aggregate cumulative amount of Trust Tax
Distributions to exceed the aggregate cumulative Tax Distribution Amounts
for periods completed since the date of the Indenture.
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Issuers and the Guarantors will not, and
will not permit any of their Subsidiaries to, directly or indirectly, create,
assume or suffer to exist any consensual restriction on the ability of any
Subsidiary of the Trust to pay dividends or make other distributions to or on
behalf of, or to pay any obligation to or on behalf of, or otherwise to transfer
assets or property to or on behalf of, or make or pay loans or advances to or on
behalf of, the Trust or any Subsidiary of the Trust, except (a) restrictions
imposed by the Notes or the Indenture, (b) restrictions imposed by applicable
law, (c) existing restrictions under Indebtedness outstanding on the Issue Date
specified on an exhibit to the Indenture, (d) restrictions under any Acquired
Indebtedness not incurred in violation of the Indenture or any agreement
relating to any property, asset, or business acquired by the Trust or any of its
Subsidiaries, which restrictions in each case existed at the time of
Acquisition, were not put in place in connection with or in anticipation of such
Acquisition and are not applicable to any person, other than the person
acquired, or to any property, asset or business, other than the property, assets
and business so acquired, (e) any such restriction or requirement imposed by
Indebtedness
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incurred under paragraph (b) of the definition of "Permitted Indebtedness"
provided such restriction or requirement is not materially less favorable than
that imposed by the Credit Agreement as of the Issue Date, (f) restrictions with
respect solely to a Subsidiary of the Trust imposed pursuant to a binding
agreement which has been entered into for the sale or disposition of all or
substantially all of the Equity Interests or assets of such Subsidiary, provided
such restrictions apply solely to the Equity Interests or assets of such
Subsidiary which are being sold, and (g) in connection with and pursuant to
permitted Refinancing Indebtedness, replacements of restrictions imposed
pursuant to clauses (a), (c) or (d) of this paragraph that are not materially
less favorable than those being replaced and do not apply to any other person or
assets than those that would have been covered by the restrictions in the
Indebtedness so refinanced. Notwithstanding the foregoing, neither (a) customary
provisions restricting subletting or assignment of any lease entered into in the
ordinary course of business, consistent with industry practice, nor (b) Liens
permitted under the terms of the Indenture on assets securing the Indebtedness
under the Credit Agreement incurred in accordance with the covenant "Limitation
on Incurrence of Additional Indebtedness and Disqualified Capital Stock" shall
in and of themselves be considered a restriction on the ability of the
applicable Subsidiary to transfer such agreement or assets, as the case may be.
Limitation on Liens Securing Indebtedness
The Issuers and the Guarantors will not, and will not permit any of their
Subsidiaries to, create, incur, assume or suffer to exist any Lien of any kind,
other than Permitted Liens, upon any of their respective assets owned on the
date of the Indenture or upon any income or profits therefrom, unless the
Issuers or the Guarantors provide, and cause their Subsidiaries to provide,
concurrently therewith, that the Notes are equally and ratably so secured,
provided that, if such Indebtedness is Subordinated Indebtedness, the Lien
securing such Subordinated Indebtedness shall be subordinate and junior to the
Lien securing the Notes with the same relative priority as such Subordinated
Indebtedness shall have with respect to the Notes.
Limitation on Sale of Assets and Subsidiary Stock
The Indenture provides that the Issuers and the Guarantors will not, and
will not permit any of their Subsidiaries to, in one or a series of related
transactions, convey, sell, transfer, assign or otherwise dispose of, directly
or indirectly, any of its property, business or assets, including by merger or
consolidation (in the case of a Guarantor or a Subsidiary of an Issuer), and
including any sale or other transfer or issuance of any Equity Interests of any
Subsidiary of the Trust, whether by the Trust or a Subsidiary of either or
through the issuance, sale or transfer of Equity Interests by a Subsidiary of
the Trust, and including any sale and leaseback transaction, other than
surrender of any reverse split dollar insurance policy (any of the foregoing, an
"Asset Sale"), unless (1)(a) within 395 days after the date of such Asset Sale,
the Net Cash Proceeds therefrom (the "Asset Sale Offer Amount") are applied to
the optional redemption of the Notes in accordance with the terms of the
Indenture or to the repurchase of the Notes and any other Pari Passu
Indebtedness which by its terms requires such repurchase pursuant to an
irrevocable, unconditional cash offer (the "Asset Sale Offer") to repurchase
Notes and such Pari Passu Indebtedness at a purchase price of 100% of principal
amount (the "Asset Sale Offer Price") together with accrued and unpaid interest
and Liquidated Damages, if any, to the date of payment, made within 360 days of
such Asset Sale or (b) within 360 days following such Asset Sale, the Asset Sale
Offer Amount is (i) invested (or committed, pursuant to a binding commitment
subject only to reasonable, customary closing conditions, to be invested, and in
fact is so invested, within an additional 90 days) in assets and property (other
than notes, bonds, obligation and securities, except in connection with the
acquisition of a wholly owned Subsidiary) which in the good faith reasonable
judgment of the Board of Directors of the Trust will immediately constitute or
be a part of a Related Business of the Trust or such Subsidiary (if it continues
to be a Subsidiary) immediately following such transaction or (ii) used to
permanently reduce the amount of any Indebtedness permitted pursuant to
paragraph (b) of the definition "Permitted Indebtedness" (including that in the
case of a revolver or similar arrangement that makes credit available, such
commitment is also permanently reduced by such amount), or (c) the Asset Sale
Offer Amount is applied in a combination of (a) and (b), (2) at least 85% of the
total consideration received for such Asset Sale or series of related Asset
Sales consists of cash or Cash Equivalents, provided, however, that more than
15% of the total consideration may consist of consideration other than cash or
Cash Equivalents if
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(A) the portion of such consideration that does not consist of cash or Cash
Equivalents consists of assets of a type ordinarily used in the operation of a
Related Business to be used by the Issuers or a Subsidiary in the conduct of a
Related Business, (B) the terms of such Asset Sale have been approved by a
majority of the members of the Board of Directors of the Trust and (C) if the
value of the assets being disposed of by the Issuers or such Subsidiary in such
transaction (as determined in good faith by such members of the Board of
Directors) is at least $3 million, the Board of Directors of the Trust has
received a written opinion of a nationally recognized investment banking firm to
the effect that such Asset Sale is fair, from a financial point of view, to the
Trust and the Trust has delivered a copy of such opinion to the Trustee, (3) no
Default or Event of Default shall have occurred and be continuing at the time
of, or would occur after giving effect, on a pro forma basis, to, such Asset
Sale, and (4) the Board of Directors of the Trust determines in good faith that
the Trust or such Subsidiary, as applicable, receives fair market value for such
Asset Sale.
For purposes of this covenant, "Asset Sale" shall not include a transaction
or series of related transactions for which the Company or its Subsidiaries
receive aggregate consideration of less than $250,000.
The Indenture provides that an acquisition of Notes pursuant to an Asset
Sale Offer may be deferred until the accumulated Net Cash Proceeds from Asset
Sales not applied to the uses set forth in (l) above (the "Excess Proceeds")
exceeds $5 million and that each Asset Sale Offer shall remain open for 20
Business Days following its commencement (the "Asset Sale Offer Period"). Upon
expiration of the Asset Sale Offer Period, the Trust shall apply the Asset Sale
Offer Amount plus an amount equal to accrued and unpaid interest and Liquidated
Damages, if any, to the purchase of all Notes and Pari Passu Indebtedness
properly tendered (on a pro rata basis if the Asset Sale Offer Amount is
insufficient to purchase all Notes and Pari Passu Indebtedness so tendered, such
pro rata basis determined so that the amount of Notes and Pari Passu
Indebtedness purchased bears the same ratio to each other that the total
principal amount of Notes tendered bears to the total Pari Passu Indebtedness
tendered) at the Asset Sale Offer Price (together with accrued interest). To the
extent that the aggregate amount of Notes and Pari Passu Indebtedness tendered
pursuant to an Asset Sale Offer is less than the Asset Sale Offer Amount, the
Trust may use any remaining Net Cash Proceeds for general corporate purposes as
otherwise permitted by the Indenture and following each Asset Sale Offer the
Excess Proceeds amount shall be reset to zero. For purposes of (2) above, total
consideration received means the total consideration received for such Asset
Sale minus the amount of (a) Indebtedness which is not Subordinated Indebtedness
assumed by a transferee which assumption permanently reduces the amount of
Indebtedness outstanding on the Issue Date or permitted pursuant to paragraph
(b), (c) or (d) of the definition "Permitted Indebtedness" (including that in
the case of a revolver or similar arrangement that makes credit available, such
commitment is so reduced by such amount) and (b) property that within 60 days of
such Asset Sale is converted into cash or Cash Equivalents).
Notwithstanding the foregoing provisions of the prior paragraphs, the
following actions shall not constitute Asset Sales:
(i) the Trust and its Subsidiaries may, in the ordinary course of
business, convey, sell, transfer, assign or otherwise dispose of inventory
acquired and held for resale in the ordinary course of business;
(ii) the Trust and its Subsidiaries may convey, sell, transfer, assign
or otherwise dispose of assets in accordance with the covenant "Limitation
on Merger, Sale or Consolidation";
(iii) the Trust and its Subsidiaries may sell or dispose of damaged,
worn out or other obsolete property in the ordinary course of business so
long as such property is no longer necessary for the proper conduct of the
business of the Trust or such Subsidiary, as applicable;
(iv) the Trust and its Subsidiaries may convey, sell, transfer, assign
or otherwise dispose of assets to the Trust or any of its other
Subsidiaries; and
(v) the Trust may contribute all of the Equity Interests of all
Subsidiaries of the Trust (other than any Equity Interests of the
Subsidiary which is to receive such contribution from the Trust) to Venture
Holdings Corporation or other successor to the Trust (a "Trust
Contribution").
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All Net Cash Proceeds from an Event of Loss shall be invested, used for
prepayment of Indebtedness, or used to repurchase Notes, all of the foregoing
within the periods and as otherwise provided above in clause 1(a) or 1(b) of the
first paragraph of this covenant.
In addition to the foregoing, the Trust will not, and will not permit any
Subsidiary to, directly or indirectly make any Asset Sale of any of the Equity
Interests of any Subsidiary except:
(i) pursuant to an Asset Sale of all the Equity Interests of such
Subsidiary; or
(ii) pursuant to an Asset Sale of shares of common stock with no
preferences or special rights or privileges and with no redemption or
prepayment provisions, provided that after such sale the Trust or its
Subsidiaries own at least 50.1% of the voting and economic interests of the
Capital Stock of such Subsidiary.
Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable, Regulation 14E of the Exchange
Act and the rules and regulations thereunder and all other applicable Federal
and state securities laws. To the extent that the provisions of any securities
laws or regulations conflict with the terms hereof, the Trust shall comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations hereunder by virtue thereof.
Limitation on Transactions with Affiliates
(a) The Indenture provides that the Issuers and Guarantors will not, and
will not permit any of their Subsidiaries to, on or after the Issue Date, enter
into any contract, agreement, arrangement or transaction with any Affiliate (an
"Affiliate Transaction"), or any series of related Affiliate Transactions (other
than Exempted Affiliate Transactions), (i) unless it is determined that the
terms of such Affiliate Transaction are fair and reasonable to the Issuer,
Guarantor or Subsidiary, and no less favorable to the Issuer, Guarantor or
Subsidiary than could have been obtained in an arm's-length transaction with a
non-Affiliate.
(b) In addition, the Issuers and Guarantors will not, and will not permit
any of their Subsidiaries to, enter into an Affiliate Transaction, or any series
of related Affiliate Transactions, unless (i) with respect to such Transaction
or Transactions involving or having a fair value of more than $250,000 the Trust
has (x) obtained the approval of majorities of the Board of Directors of the
Issuer, Guarantor or Subsidiary, as the case may be, or the Trust in the case of
Venture Canada, and the Fairness Committee of the Issuer, Guarantor or
Subsidiary, as the case may be, or the Trust in the case of Venture Canada, in
the exercise of their fiduciary duties and (y) either (1) obtained the approval
of majorities of the disinterested directors of the Issuer, Guarantor or
Subsidiary, as the case may be, or the Trust in the case of Venture Canada, if
any, and Independent members of the Fairness Committee or (2) obtained an
opinion of a qualified independent financial advisor to the effect that such
Transaction or Transactions are fair to the Issuer, Guarantor or Subsidiary, as
the case may be, from a financial point of view and (ii) with respect to such
Transaction or Transactions involving or having a fair value of more than $3.0
million, the Trust has (x) obtained the approval of majorities of the Board of
Directors of the Issuer, Guarantor or Subsidiary, as the case may be, or the
Trust in the case of Venture Canada, and the Fairness Committee of the Issuer,
Guarantor or Subsidiary, as the case may be, or the Trust in the case of Venture
Canada, in the exercise of their fiduciary duties, including majorities of the
disinterested directors of the Issuer, Guarantor or Subsidiary, as the case may
be, if any, and the Independent members of the Fairness Committee, and (y)
delivered to the Trustee an opinion of a qualified independent financial advisor
to the effect that such Transaction or Transactions are fair to the Issuer,
Guarantor or such Subsidiary, as the case may be, from a financial point of
view.
(c) Each Issuer, Guarantor and each of their Subsidiaries (other than
Venture Canada) will establish and maintain a Fairness Committee, at least one
of whose members shall be independent.
Corporate Opportunities
Larry J. Winget agreed pursuant to the Corporate Opportunity Agreement for
the benefit of the Holders of the Notes that if any corporate opportunity,
business opportunity, proposed transaction, acquisition, disposition,
participation, interest, or other opportunity to acquire an interest in any
business or prospect in the
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same business or in any business reasonably related to the business of the Trust
or any of its Subsidiaries or in any machinery or equipment useful in the
business of the Trust or any of its Subsidiaries (a "Business Opportunity")
comes to his attention or shall be made available to him or any of his
Affiliates, a complete and accurate description of such Business Opportunity,
including all of the terms and conditions thereof and the identity of all other
Persons involved in the Business Opportunity, shall be promptly presented in
writing to the Board of Directors of each of the Issuers and the Fairness
Committee of each of the Issuers and each Issuer shall be entitled to pursue and
take advantage of such Business Opportunity, either directly or through a wholly
owned Subsidiary, and Larry J. Winget shall not, nor shall any of his Affiliates
(other than the Trust or any wholly owned Subsidiary of the Trust), pursue or
take advantage of a Business Opportunity unless majorities of the Board of
Directors of each of the Issuers and the Fairness Committee of each of the
Issuers (including majorities of each Issuer's disinterested directors, if any,
and Independent members of the Fairness Committee) have determined that it is
not in the interests of such Issuer to pursue or take advantage of such Business
Opportunity.
Notwithstanding the foregoing, Business Opportunities (1) relating to the
purchase of machinery and equipment or real estate and not constituting a
business within the meaning of Section 11.01(d) of Regulation S-X of the
Commission or (2) relating to the sale of goods and services by an Affiliate in
the ordinary course of business as conducted as of the Issue Date shall not be
subject to the Corporate Opportunity Agreement.
Limitation on Merger, Sale or Consolidation
The Indenture provides that the Trust will not consolidate with or merge
with or into another person or sell, lease, convey or transfer all or
substantially all of its assets (computed on a consolidated basis), whether in a
single transaction or a series of related transactions, to another person or
group of affiliated persons or adopt a plan of liquidation, unless (i) either
(a) the Trust is the continuing entity or (b) the resulting, surviving or
transferee entity or, in the case of a plan of liquidation, the entity which
receives the greatest value from such plan of liquidation is a corporation
organized under the laws of the United States, any state thereof or the District
of Columbia and expressly assumes by supplemental indenture all of the
obligations of the Trust in connection with the Notes and the Indenture; (ii) no
Default or Event of Default shall exist or shall occur immediately after giving
effect on a pro forma basis to such transaction; (iii) immediately after giving
effect to such transaction on a pro forma basis, the Consolidated Net Worth of
the consolidated surviving or transferee entity or, in the case of a Plan of
Liquidation, the entity which receives the greatest value from such plan of
liquidation is at least equal to the Consolidated Net Worth of the Trust
immediately prior to such transaction; and (iv) immediately after giving effect
to such transaction on a Pro Forma Basis, the consolidated resulting, surviving
or transferee entity or, in the case of a plan of liquidation, the entity which
receives the greatest value from such plan of liquidation would immediately
thereafter be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Debt Incurrence Ratio set forth in the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock."
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Trust or consummation of a plan of liquidation in
accordance with the foregoing, the successor corporation formed by such
consolidation or into which the Trust is merged or to which such transfer is
made or, in the case of a plan of liquidation, the entity which receives the
greatest value from such plan of liquidation shall succeed to, and be
substituted for, and may exercise every right and power of, the Trust under the
Indenture with the same effect as if such successor corporation had been named
therein as an Issuer, and the Trust shall be released from the obligations under
the Notes and the Indenture except with respect to any obligations that arise
from, or are related to, such transaction.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Trust's interest in which constitutes all or
substantially all of the properties and assets of the Trust shall be deemed to
be the transfer of all or substantially all of the properties and assets of the
Trust.
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Notwithstanding anything contained in the Indenture to the contrary, the
Trust is permitted to contribute all of the Equity Interests of the Subsidiaries
then held by the Trust (other than the Equity Interests of the Subsidiary which
is to receive such contribution from the Trust) to Venture Holdings Corporation
or other successor to the Trust (a "Trust Contribution"), provided that (A) any
successor or surviving corporation is organized and existing under the laws of
the United States, any state thereof or the District of Columbia, (B) such
contribution or reorganization is not materially adverse to Holders of the
Notes; it being understood, however, that such contribution or reorganization
shall not be considered materially adverse to Holders of the Notes solely
because the successor or surviving corporation is subject to income taxation as
a corporate entity, (C) immediately after giving effect to such transaction, no
Default or Event of Default exists, (D) the actions comprising such contribution
or reorganization (e.g., the contribution of stock of the Subsidiaries, or the
issuance of stock of the corporation in exchange for assets of or Equity
Interests in the Trust or in exchange for stock of a corporation holding such
Equity Interests, or the merger or consolidation of such corporations) will not
themselves directly result in material income tax liability to the successor or
surviving corporation, (E) the successor or surviving corporation has assumed
all obligations of the Trust, pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee, under the Notes and the Indenture and
(F) Holders of the Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such contribution or reorganization and will
be subject to federal income tax on the same amounts, in the same manner, and at
the same time as would have been the case if such contribution or reorganization
had not occurred. If the successor or surviving corporation after a Trust
Contribution is not a corporation described in Section 1361(a)(1) of the Code,
the Trust's ability to make Trust Tax Distributions must terminate prior to such
contribution or reorganization (except with respect to tax distributions in
respect of taxable periods ending on or prior to the date such contribution or
reorganization is effective for relevant tax purposes), other than tax
distributions in respect of Beneficiaries' income tax liability that results
from the actions comprising such contribution or reorganization. The Trust shall
deliver to the Trustee prior to such contribution or reorganization an officers'
certificate covering clauses (A) through (F) and the preceding sentence of this
paragraph, stating that such contribution or reorganization and such
supplemental indenture comply with the Indenture, and an opinion of counsel
covering clauses (A), (D), (E) and (F) above and the preceding sentence of this
paragraph.
The Indenture provides that no Guarantor or Issuer (other than the Trust)
shall consolidate or merge with or into (whether or not such Guarantor or Issuer
is the surviving person) another person (other than an Issuer or Guarantor)
unless (i), subject to the provisions of "Release of Guarantors and Certain
Issuers", the person formed by or surviving any such consolidation or merger (if
other than such Guarantor or Issuer) assumes all the obligations of such
Guarantor or Issuer pursuant to a supplemental indenture in form reasonably
satisfactory to the Trustee, pursuant to which such person shall unconditionally
guarantee or assume, on a senior basis, all of such Guarantor's or Issuer's
obligations under the Indenture on the terms set forth in the Indenture; and
(ii) immediately before and immediately after giving effect to such transaction
on a pro forma basis, no Default or Event of Default shall have occurred or be
continuing and, if there is an incurrence of Indebtedness as a result of such
transaction, no Default or Event of Default shall have occurred on a Pro Forma
Basis.
Limitation on Lines of Business
The Indenture provides that the Issuers and Guarantors will not, and will
not permit any of their Subsidiaries to, directly or indirectly engage to any
substantial extent in any line or lines of business activity other than that
which, in the reasonable good faith judgment of the Board of Directors of the
Trust, is a Related Business.
Future Subsidiary Guarantors
The Indenture provides that all future Subsidiaries of the Issuers, other
than Foreign Subsidiaries, may, and after the Senior Subordinated Notes are no
longer outstanding shall, jointly and severally guarantee, irrevocably and
unconditionally, all principal, premium, if any, and interest and Liquidated
Damages, if any, on the Notes on a senior basis.
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Release of Guarantors and Certain Issuers
The Indenture provides that upon the sale or disposition (whether by
merger, stock purchase, asset sale or otherwise) of a Guarantor or Issuer (other
than the Trust) of all or substantially all of its assets to an entity which is
not a Guarantor or Issuer or the designation of a Subsidiary to become an
Unrestricted Subsidiary, which transaction is otherwise in compliance with the
Indenture (including, without limitation, the provisions of the covenant
"Limitations on Sale of Assets and Subsidiary Stock"), such Guarantor will be
deemed released from its obligations under its Guarantee of the Notes or such
Issuer will be deemed released from its obligations under the Notes, as the case
may be; provided, however, that any such termination shall occur only to the
extent that all obligations of such Guarantor or Issuer under all of its
guarantees of, and under all of its pledges of assets or other security
interests which secure, any other Indebtedness of the Trust or any other
Subsidiary shall also terminate upon such sale, disposition or designation.
Limitation on Status as Investment Company
The Indenture prohibits the Trust, the Guarantors and their Subsidiaries
from being required to register as an "investment company" (as that term is
defined in the Investment Company Act of 1940, as amended), or from otherwise
becoming subject to regulation under the Investment Company Act.
Payments for Consent
None of the Issuers, the Guarantors or any of their Subsidiaries shall,
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, the Notes or the Guarantees unless such consideration is
offered to be paid or agreed to be paid to all Holders of the Notes who so
consent, waive or agree to amend in the time frame set forth in solicitation
documents relating to such consent, waiver or agreement.
Limitation on Amendments to Agreements
The Trust shall not permit to be amended, modified or changed in any manner
the Venture Trust Instrument except that the Trust may make amendments,
modifications or changes which individually or in the aggregate are not adverse
to the interests of the Holders of the Notes. Without limiting the foregoing,
amendments to the Venture Trust Instrument reasonably necessary to conform to
the requirements of Section 1361(c)(2) or 1361(d) of the Code, or their
successors or supplements, shall not be deemed adverse to the interests of the
Holders of the Notes. The Trust will not amend, modify or in any way alter the
Corporate Opportunity Agreement in any manner adverse to the Trust or any of its
Subsidiaries.
REPORTS
The Indenture provides that whether or not the Trust is subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Trust
shall deliver to the Trustee and, to each Holder within 15 days after it is or
would have been (if it were subject to such reporting obligations) required to
file such with the Commission, annual and quarterly financial statements
substantially equivalent to financial statements that would have been included
in reports filed with the Commission, if the Trust were subject to the
requirements of Section 13 or 15(d) of the Exchange Act, including, with respect
to annual information only, a report thereon by the Trust's certified
independent public accountants as such would be required in such reports to the
Commission, and, in each case, a management's discussion and analysis of
financial condition and results of operations which would be so required. In
addition, the Issuers have agreed that, for so long as any Notes remain
outstanding, from and after the time the Trust files a registration statement
with the Commission with respect to the Notes, they will file such reports with
the Commission, provided that the Commission will accept such filings.
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EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as:
(i) the failure by the Issuers to pay any installment of interest on
the Notes as and when the same becomes due and payable and the continuance
of any such failure for 30 days,
(ii) the failure by the Issuers to pay all or any part of the
principal, or premium, if any, on the Notes when and as the same becomes
due and payable at maturity, redemption, by acceleration or otherwise,
including, without limitation, payment of the Change of Control Purchase
Price or the Asset Sale Offer Price, or otherwise,
(iii) the failure by any Issuer, Guarantor or Subsidiary to observe or
perform any other covenant or agreement contained in the Notes or the
Indenture or by Larry J. Winget to observe and perform any covenant or
agreement contained in the Corporate Opportunity Agreement and the
continuance of such failure for a period of 30 days after written notice is
given to the Trust by the Trustee or to the Trust and the Trustee by the
Holders of at least 25% in aggregate principal amount of the Notes
outstanding,
(iv) certain events of bankruptcy, insolvency or reorganization in
respect of the Issuers or any of their Material Subsidiaries,
(v) a default in Indebtedness of any Issuer, Guarantor or any of their
Subsidiaries with an aggregate principal amount in excess of $5 million
which is either a default in payment of principal or as a result of which
the maturity of such Indebtedness has been accelerated prior to its stated
maturity,
(vi) final unsatisfied judgments not covered by insurance aggregating
in excess of $5 million, at any one time rendered against any Issuer,
Guarantor or any of their Subsidiaries and not stayed, bonded or discharged
within 60 days, and
(vii) any Guarantee shall for any reason cease to be, or be asserted
in writing by any Material Subsidiary or any Issuer not to be, in full
force and effect, enforceable in accordance with its terms, except to the
extent contemplated by the Indenture.
The Indenture provides that if a Default occurs and is continuing, the Trustee
must, within 90 days after the occurrence of such Default, give to the Holders
notice of such Default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv), above, relating to the Issuers or any Material
Subsidiary), then in every such case, unless the principal of all of the Notes
shall have already become due and payable, either the Trustee or the Holders of
25% in aggregate principal amount of the Notes then outstanding, by notice in
writing to the Trust (and to the Trustee if given by Holders) (an "Acceleration
Notice"), may declare all principal and premium, if any, determined as set forth
below, and accrued interest and Liquidated Damages, if any, thereon to be due
and payable immediately. If an Event of Default specified in clause (iv) above,
relating to the Trust or any Material Subsidiary occurs, all principal and
premium, if any, and accrued interest and Liquidated Damages, if any, thereon
will be immediately due and payable on all outstanding Notes without any
declaration or other act on the part of Trustee or the Holders. The Holders of a
majority in aggregate principal amount of Notes generally are authorized to
rescind such acceleration if all existing Events of Default have been cured or
waived.
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 Issuers with
the principal intention of avoiding payment of the premium that the Issuers
would have had to pay if the Issuers 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 July 1, 2001 by reason of any willful action (or inaction) taken
(or not taken) by or on behalf of the Issuers with the principal intention of
avoiding the prohibition on redemption of the Notes prior to July 1, 2001, 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.
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Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all the Holders any default, except a default
in the payment of principal of or interest on any Note not yet cured or a
default with respect to any covenant or provision which cannot be modified or
amended without the consent of the Holder of each outstanding Note affected.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, the Trustee will be under no obligation to exercise any of its rights
or powers under the Indenture at the request, order or direction of any of the
Holders, unless such Holders have offered to the Trustee reasonable security or
indemnity. Subject to all provisions of the Indenture and applicable law, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee.
The Issuers are required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Issuers are 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.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that the Issuers may, at their option and at any
time, elect to have their obligations and the obligations of the Guarantors
discharged with respect to the outstanding Notes ("Legal Defeasance"). Such
Legal Defeasance means that the Issuers shall be deemed to have paid and
discharged the entire indebtedness represented by, and the Indenture shall cease
to be of further effect as to, all outstanding Notes and Guarantees, except as
to (i) rights of Holders to receive payments in respect of the principal of,
premium, if any, and interest on such Notes when such payments are due from the
trust funds; (ii) the Issuers' obligations with respect to such 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, trust, duties,
and immunities of the Trustee, and the Issuers' obligations in connection
therewith; and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Issuers may, at their option and at any time, elect to have the
obligations of the Issuers and the Guarantors 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 nonpayment, nonpayment of
guarantees, 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 Issuers must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, U.S. legal tender, U.S. Government Obligations or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such Notes on the stated date for
payment thereof or on the redemption date of such principal or installment of
principal of, premium, if any, or interest and Liquidated Damages, if any, on
such Notes, and the Holders of Notes must have a valid, perfected, exclusive
security interest in such trust; (ii) in the case of the Legal Defeasance, the
Issuers shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to Trustee confirming that (A) the Issuers have
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 such Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been the
case if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Issuers shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to such Trustee confirming
that the Holders of such 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
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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 occur and
be continuing on the date of 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 shall not result in a breach or violation of, or constitute a default
under, the Indenture or any other material agreement or instrument to which the
Issuers or any of their Subsidiaries is a party or by which the Issuers or any
of their Subsidiaries is bound; (vi) the Issuers shall have delivered to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Issuers with the intent of preferring the Holders of such Notes over any other
creditors of the Issuers or with the intent of defeating, hindering, delaying or
defrauding any other creditors of the Issuers or others; and (vii) the Issuers
shall have delivered to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that the conditions precedent provided for in, in the case
of the Officers' Certificate, (i) through (vi) and, in the case of the opinion
of counsel, clauses (i) (with respect to the validity and perfection of the
security interest), (ii), (iii) and (v) of this paragraph have been complied
with.
If the funds deposited with the Trustee to effect Legal Defeasance or
Covenant Defeasance are insufficient to pay the principal of, premium, if any,
and interest and Liquidated Damages, if any, on the Notes when due, then the
obligations of the Issuers under the Indenture will be revived and no such
defeasance will be deemed to have occurred, provided, however, that if such
insufficiency is as to amount only, the Issuers will have 5 Business Days after
notice of the same from the Trustee to make up such insufficiency before the
Indenture is revived.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting the Issuers, the Guarantors
and the Trustee to enter into a supplemental indenture for certain limited
purposes without the consent of the Holders. With the consent of the Holders of
not less than a majority in aggregate principal amount of the Notes at the time
outstanding, the Issuers, the Guarantors and the Trustee are permitted to amend
or supplement the Indenture or any supplemental indenture or modify the rights
of the Holders; provided that no such modification may, without the consent of
each Holder affected thereby: (i) change the Stated Maturity on any Note, or
reduce the principal amount thereof or the rate (or extend the time for payment)
of interest thereon or any premium payable upon the redemption thereof, or
change the place of payment where, or the coin or currency in which, any Note or
any premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption, on or after the Redemption Date), or
reduce the Change of Control Purchase Price or the Asset Sale Offer Price or
alter the provisions (including the defined terms used therein) regarding the
right of the Issuers to redeem the Notes in a manner adverse to the Holders, or
(ii) reduce the percentage in principal amount of the outstanding Notes, the
consent of whose Holders is required for any such amendment, supplemental
indenture or waiver provided for in the Indenture, or (iii) modify any of the
waiver provisions, except to increase any required percentage or to provide that
certain other provisions of the Indenture cannot be modified or waived without
the consent of the Holder of each outstanding Note affected thereby, or (iv)
cause the Notes or any Guarantee to become subordinate in right of payment to
any other Indebtedness.
NO PERSONAL LIABILITY
The Indenture provides that neither the trustee, grantor, Beneficiaries or
special advisors to the Trust, nor any direct or indirect shareholder, employee,
officer, director or agent (including independent members of the Fairness
Committees) of the Issuers and the Subsidiaries shall have any personal
liability in respect of the obligations of the Issuers or the Subsidiaries under
the Indenture, the Notes or the Guarantees by reason of his, her or its status
as such.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness or Disqualified Capital Stock of
any person existing at the time such person becomes a Subsidiary of the Trust,
including by designation, or is merged or consolidated into or with the Trust or
one of its Subsidiaries; provided, however, that Indebtedness of such person
that is
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redeemed, defeased, retired or otherwise repaid at the time of or immediately
upon consummation of the transaction by which such person becomes or merges with
or into a Subsidiary of the Company shall not be Acquired Indebtedness.
"Acquisition" means the purchase or other acquisition of any person or
substantially all the assets of any person or line of business of such person by
any other person, whether by purchase, merger, consolidation, or other transfer,
and whether or not for consideration.
"Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Trust. For
purposes of this definition, the term "control" means the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by contract,
or otherwise, provided, that, with respect to an ownership interest in the Trust
and its Subsidiaries a Beneficial Owner of 10% or more of the total voting power
normally entitled to vote in the election of directors, managers or trustees, as
applicable, shall for such purposes be deemed to constitute control.
"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (i) the sum of the
products (a) of the number of years from the date of determination to the date
or dates of each successive scheduled principal payment of such security or
instrument and (b) the amount of each such respective principal payment by (ii)
the sum of all such principal payments.
"Beneficial Owner" or "beneficial owner" has the meaning attributed to it
in Rules 13d-3 and 13d-5 under the Exchange Act (as in effect on the Issue
Date), whether or not applicable, except that a "person" shall be deemed to have
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time.
"Beneficiary" means (i) any beneficiary of the Trust while it is a trust or
(ii) any shareholder of a successor corporation to the Trust after a Trust
Contribution.
"Board of Directors" means (A) either the board of directors or managers of
any Issuer or Subsidiary, as the case may be, or any duly authorized committee
of either such board and (B), in the case of the Trust, the Special Advisor of
the Trust; provided that (i), in the event the Special Advisor's rights, duties
and powers are assumed by the Successor Special Advisor Group, "Board of
Directors" means the Successor Special Advisor Group of the Trust and (ii), in
the event the Trust is reorganized as a corporation or a Trust Contribution
shall occur, "Board of Directors" means the board of directors of the successor
corporation.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capital Stock" means, with respect to any person, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that person or any trust
beneficiary interests.
"Capitalized 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 the balance sheet in
accordance with GAAP.
"Cash Equivalent" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), or (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation of
any domestic commercial bank of recognized standing having capital and surplus
in excess of $250 million, or (iii) commercial paper issued by others rated at
least A-1 or the equivalent thereof by Standard & Poor's Corporation or at least
P-1 or the equivalent thereof by Moody's Investors Service, Inc., or (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clause (i) above entered into with any bank
meeting the qualifications specified in clause (ii) above, or (v) any money
market deposit accounts including those of the
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Trustee issued or offered by a domestic commercial bank having capital and
surplus in excess of $250 million, or (vi) investments in money market funds
which invest substantially all their assets in securities of the type described
in clauses (i), (ii) and (iii) above and in the case of (i), (ii), and (iii)
maturing within one year after the date of acquisition.
"Code" means the Internal Revenue Code of 1986, as amended.
"Compensation" means any compensation which would be required to be
disclosed pursuant to Item 402 of Regulation S-K of the Commission, but
excluding the granting of restricted stock awards, stock options and SARs
required to be disclosed in columns (f) and (g) of the Summary Compensation
Table of such Item.
"Consolidated Coverage Ratio" of any person on any date of determination
(the "Transaction Date") means the ratio, on a Pro Forma Basis, of (a) the
aggregate amount of Consolidated EBITDA of such person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
Reference Period to (b) the aggregate Consolidated Fixed Charges of such person
(exclusive of amounts attributable to operations and businesses permanently
discontinued or disposed of, but only to the extent that the obligations giving
rise to such Consolidated Fixed Charges would no longer be obligations
contributing to such person's Consolidated Fixed Charges subsequent to the
Transaction Date) during the Reference Period.
"Consolidated EBITDA" means, with respect to any person, for any period,
the Consolidated Net Income of such person for such period adjusted to add
thereto (to the extent deducted from revenues in determining Consolidated Net
Income), without duplication, the sum of (i) consolidated income and Michigan
single business tax expense, (ii) consolidated depreciation and amortization
expense, provided that consolidated depreciation and amortization of a
Subsidiary that is a less than wholly owned Subsidiary shall only be added to
the extent of the equity interest of such person in such Subsidiary, (iii) other
non-cash charges of such person and its Subsidiaries reducing Consolidated Net
Income for such period, (iv) Consolidated Fixed Charges and (v) Trust Tax
Distributions.
"Consolidated Fixed Charges" of any person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled
to be paid or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations) of such person and its
Consolidated Subsidiaries for such period, including (i) original issue discount
and non-cash interest payments or accruals on any Indebtedness, (ii) the
interest portion of all deferred payment obligations, and (iii) all commissions,
discounts and other fees and charges owed with respect to bankers' acceptances
and letters of credit financings and currency and Interest Swap and Hedging
Obligations, in each case to the extent attributable to such period, and (b) the
product of (x) the amount of dividends accrued or payable (or guaranteed) by
such person or any of its Consolidated Subsidiaries in respect of preferred
stock (other than by Subsidiaries of such person to such person or such person's
wholly owned Subsidiaries) and (y) one minus the then current effective
consolidated federal, state and local tax rate, of such person, expressed as a
decimal. For purposes of this definition, interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
in good faith by such person to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP.
"Consolidated Net Income" means, with respect to any person for any period,
the net income (or loss) of such person and its Consolidated Subsidiaries
(determined on a consolidated basis in accordance with GAAP) for such period,
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication): (a) all gains and losses, net of taxes,
which are extraordinary (as determined in accordance with GAAP) and any gains or
losses, net of taxes and fees and expenses, from the sale or other disposition
of assets outside the ordinary course of business or from the issuance or sale
of any capital stock, (b) the net income of any person, other than a wholly
owned Consolidated Subsidiary, in which such person or any of its Consolidated
Subsidiaries has an interest, except to the extent of the amount of any
dividends or distributions actually paid in cash to such person or a wholly
owned Consolidated Subsidiary of such person during such period, but in any case
not in excess of such person's pro rata share of such person's net income for
such period, (c) the net income or loss of any person acquired in a pooling of
interests transaction for any
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period prior to the date of such acquisition, (d) the net income, if positive,
of any of such person's Consolidated Subsidiaries to the extent that the
declaration or payment of dividends or similar distributions is not at the time
permitted by operation of the terms of its charter or bylaws or any other
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Consolidated Subsidiary, (e) any gain or loss, net
of taxes, realized upon the termination of any employee benefit plan, or (f)
Trust Tax Distributions to the extent not already deducted.
"Consolidated Net Worth" of any person at any date means the aggregate
consolidated stockholders' equity or trust principal of such person (plus
amounts of equity attributable to preferred stock) and its Consolidated
Subsidiaries, as would be shown on the consolidated balance sheet of such person
prepared in accordance with GAAP, adjusted to exclude (to the extent included in
calculating such equity), (a) the amount of any such stockholders' equity
attributable to Disqualified Capital Stock or treasury stock of such person and
its Consolidated Subsidiaries, (b) all upward revaluations and other write-ups
in the book value of any asset of such person or a Consolidated Subsidiary of
such person, other than in connection with its acquisition, subsequent to the
Issue Date, and (c) all investments in Subsidiaries that are not Consolidated
Subsidiaries and in persons that are not Subsidiaries.
"Consolidated Subsidiary" means, for any person, each Subsidiary of such
person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting purposes
with the financial statements of such person in accordance with GAAP.
"Credit Agreement" means the credit agreement dated August 26, 1996, as
amended, by and among the Trust, certain of its subsidiaries, certain financial
institutions and NBD Bank, as agent, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, as such credit agreement and/or related documents may be amended,
restated, supplemented, restructured, renewed, replaced or otherwise modified
from time to time whether or not with the same agent, trustee, representative
lenders or holders, and, subject to the following provisos, irrespective of any
changes in the terms and conditions thereof, provided that the aggregate
principal amount of Indebtedness outstanding thereunder at any time does not
exceed the greater of (i) $200 million or (ii) the sum of 85% of the net book
value of accounts receivable and 60% of the net book value of inventories, in
each case measured in accordance with GAAP, plus accrued interest and such
additional amounts as may be deemed to be outstanding in the form of Interest
Swap and Hedging Obligations with lenders party to the Credit Agreement, minus
the amount of any such Indebtedness retired with Net Cash Proceeds from any
Asset Sale or assumed by a transferee in an Asset Sale, provided that an
incurrence under the Credit Agreement in excess of the greater of clause (i) or
(ii) may be made pursuant to the Debt Incurrence Ratio. Without limiting the
generality of the foregoing, the term "Credit Agreement" shall include any
amendment, amendment and restatement, renewal, extension, restructuring,
supplement or modification to any Credit Agreement and all refundings,
refinancings and replacements of any Credit Agreement, including any agreement
(i) extending the maturity of any Indebtedness incurred thereunder or
contemplated thereby, (ii) adding or deleting borrowers or guarantors
thereunder, so long as borrowers and issuers include one or more of the Trust
and its Subsidiaries and their respective successors and assigns or (iii)
otherwise altering the terms and conditions thereof in a manner not prohibited
by the terms hereof.
"Disqualified Capital Stock" means (a) with respect to a person, except as
to any Subsidiary of such person, any Equity Interest of such person that, by
its terms or by the terms of any security into which it is convertible,
exercisable or exchangeable, is, or upon the happening of an event or the
passage of time would be, required to be redeemed or repurchased (including at
the option of the holder thereof) by such person or any of its Subsidiaries, in
whole or in part, on or prior to the Stated Maturity of the Notes and (b) with
respect to any Subsidiary of such person (including with respect to any
Subsidiary of the Trust), any Equity Interests other than any common equity with
no preference, privileges, or redemption or repayment provisions.
"Equity Interest" of any person means any shares, interests, participations
or other equivalents (however designated) in such person's equity (including any
trust beneficiary interests), and shall in any event include any Capital Stock
issued by, or partnership or membership interests in, such person.
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"Event of Loss" means, with respect to any property or asset, any (i) loss,
destruction or damage of such property or asset or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
"Excess Compensation" means the aggregate Compensation paid by the Trust
and its Subsidiaries in any fiscal year to Larry J. Winget and Family Members to
the extent such aggregate Compensation exceeds the sum of (a) Trust Tax
Distributions paid in such fiscal year as Compensation to the Beneficiary of the
Trust in lieu of distributions and (b) the greater of (i) $1.5 million
multiplied by one plus the percentage increase in the Consumer Price Index from
July 1, 1997 to the first day of such fiscal year and (ii) 5% of the sum of,
without duplication, (A) Consolidated Net Income of the Trust for the preceding
fiscal year, plus (B) Trust Tax Distributions in the preceding fiscal year, plus
(C) the aggregate amount of Compensation paid by the Trust and its Subsidiaries
to Larry J. Winget and Family Members during the preceding fiscal year.
"Excluded Person" means Larry J. Winget, his estate or legal
representative, members of his immediate family, all lineal descendants of Larry
J. Winget and all spouses of such lineal descendants (or any trust or entity
whose sole beneficiaries or Equity Interest holders are any one or more of the
foregoing).
"Exempted Affiliate Transaction" means (a) any transaction with an officer
or director in the ordinary course of business, including employee or director
compensation arrangements, (b) payments permitted under the terms of the
covenant discussed above under "Limitation on Restricted Payments" above, (c)
transactions solely between the Trust and any of its Subsidiaries or solely
among Subsidiaries of the Trust and (d) performance of any agreement in
existence on the Issue Date.
"Fairness Committee" means a committee duly established pursuant to the
Venture Trust Instrument and the bylaws of each other Issuer, Guarantor and
Subsidiary without whose approval (and without the approval of a majority of its
Independent members) the Trust, an Issuer, a Guarantor or a Subsidiary shall not
be authorized to enter into any transaction or take any action which pursuant to
the terms of this Indenture requires approval of the Fairness Committee.
"Family Members" means (i) Larry J. Winget's spouse and (ii) each of Larry
J. Winget's parents, children, grandchildren, siblings, mothers and
fathers-in-law, sons and daughters-in-law and brothers and sisters-in-law who
(a) shares the same principal residence as Larry J. Winget and (b) is an officer
or director of the Trust or any of its Subsidiaries or among the five most
highly compensated employees of the Trust or any of its Subsidiaries.
"Foreign Subsidiary" means a Subsidiary not organized under the laws of the
United States or any political subdivision thereof.
"GAAP" means United States 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 approved by a significant segment of the
accounting profession in the United States as in effect on the Issue Date.
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of such person, except for
accrued current liabilities incurred in the ordinary course of business, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such person or only to a portion thereof), (ii) evidenced
by bonds, notes, debentures or similar instruments, (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except those incurred in the ordinary course of its business that would
constitute ordinarily a trade payable to trade creditors, (iv) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (v)
Capitalized Lease Obligations, or (vi) evidenced by a letter of credit or a
reimbursement obligation of such person with respect to any letter of credit;
(b) all net obligations of such person under Interest Swap and Hedging
Obligations; (c) all liabilities and obligations of others of the kind described
in the preceding clause (a) or (b) that such person has guaranteed or that is
otherwise its legal liability or which are secured by any assets or property of
such person; and (d) any and all deferrals, renewals, extensions, refinancing
and refundings (whether direct or indirect) of, or amendments, modifications or
supplements to, any liability of
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the kind described in any of the preceding clauses (a), (b) or (c), or this
clause (d), whether or not between or among the same parties, and (e) all
Disqualified Capital Stock of such person (measured at the greater of its
voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid
dividends). For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock, such fair market value to be determined in good faith by the
board of directors of the issuer (or managing general partner of the issuer) of
such Disqualified Capital Stock.
"Independent" means, with respect to any Issuer, Guarantor or any of their
Subsidiaries, a person who would qualify as an "independent director" within the
meaning of the rules of the New York Stock Exchange and who (i) shall not
receive any payment or other fees for services to the Trust or any of its
Affiliates (other than for serving as a member of the Fairness Committee of the
Trust or of a Subsidiary of the Trust) and (ii) shall not be an Affiliate,
officer, member or employee of any firm, company or other entity that has
performed services for the Trust or any of its Affiliates during the preceding
three fiscal years or that the Trust or any of its Affiliates proposes to have
perform services if the amount of compensation for such services during any
fiscal year exceeded or would exceed 5% of such firm's gross revenues during any
of its three preceding fiscal years.
"Interest Swap and Hedging Obligation" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any person in any other person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such person (whether for cash, property, services, securities or otherwise) of
capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
person; (b) the making by such person of any deposit with, or advance, loan or
other extension of credit to, such other person (including the purchase of
property from another person subject to an understanding or agreement,
contingent or otherwise, to resell such property to such other person) or any
commitment to make any such advance, loan or extension (but excluding accounts
receivable or deposits arising in the ordinary course of business); (c) other
than guarantees of Indebtedness of the Issuers or any Guarantor to the extent
the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock" is not violated, the entering into by such person of
any guarantee of, or other credit support or contingent obligation with respect
to, Indebtedness or other liability of such other person; (d) the making of any
capital contribution by such person to such other person; and (e) the
designation by the Board of Directors of the Trust of any person to be an
Unrestricted Subsidiary. The Issuers shall be deemed to make an Investment in an
amount equal to the fair market value of the net assets of any subsidiary (or,
if none of the Issuers or their Subsidiaries has theretofore made an Investment
in such subsidiary, in an amount equal to the Investments being made), at the
time that such subsidiary is designated an Unrestricted Subsidiary, and any
property transferred to an Unrestricted Subsidiary from an Issuer or a
Subsidiary shall be deemed an Investment valued at its fair market value at the
time of such transfer, provided, however, if in any such case such fair market
value exceeds $3 million, such determination of fair market value shall be based
upon an opinion or appraisal by an accounting, appraisal or investment banking
firm of national standing.
"Issue Date" means the date of first issuance of the Notes under the
Indenture.
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
security interest, hypothecation or other encumbrance upon or with respect to
any property of any kind, real or personal, movable or immovable, now owned or
hereafter acquired.
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"Liquidated Damages" means all liquidated damages owing pursuant to the
Registration Rights Agreement.
"Material Subsidiary" means any Subsidiary of the Trust that is a
"significant subsidiary" of the Trust as defined in Rule 1-02 of Regulation S-X
of the Commission.
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by the Trust in the case of a sale of Qualified Capital Stock and by
the Trust and its Subsidiaries in respect of an Asset Sale plus, in the case of
an issuance of Qualified Capital Stock upon any exercise, exchange or conversion
of securities (including options, warrants, rights and convertible or
exchangeable debt) of the Trust that were issued for cash on or after the Issue
Date, the amount of cash originally received by the Trust upon the issuance of
such securities (including options, warrants, rights and convertible or
exchangeable debt) less, in each case, the sum of all payments, fees,
commissions and expenses (including, without limitation, the fees and expenses
of legal counsel and investment banking fees and expenses) incurred in
connection with such Asset Sale or sale of Qualified Capital Stock, and, in the
case of an Asset Sale only, less (a) the amount (estimated reasonably and in
good faith by the Trust) of income, franchise, sales and other applicable taxes
required to be paid by the Trust Beneficiary or any of its respective
Subsidiaries in connection with such Asset Sale, (b) repayment of Indebtedness
that is required to be repaid in connection with such Asset Sale and (c)
appropriate amounts to be provided by the Trust or any Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and reserved by the Trust or any Subsidiary, as
the case may be after such Asset Sale, including, without limitation, pension
and other post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification obligations
associated with such Asset Sale.
"Operating Expense or Cost Reduction" means, with respect to the
calculation of a Consolidated Coverage Ratio on a Pro Forma Basis, an operating
expense or cost reduction with respect to an Acquisition, which, in the good
faith estimate of management, will be realized as a result of such Acquisition,
provided that the foregoing eliminations of operating expenses and realizations
of cost reductions shall be of the types permitted to be given effect to in
accordance with Article 11 of Regulation S-X under the Exchange Act as in effect
on the Issue Date and such reduction is subject to negative comfort by the
Trust's independent public accountants.
"Pari Passu Indebtedness" means any Indebtedness of any Issuer that is pari
passu in right of payment to the Securities.
"Permitted Indebtedness" means any of the following:
(a) the Issuers and the Guarantors may incur Indebtedness evidenced by
the Notes and represented by the Indenture up to the amounts specified
therein as of the date thereof;
(b) the Issuers and the Guarantors may incur Indebtedness pursuant to
the Credit Agreement;
(c) the Issuers or any Guarantor may guarantee any Indebtedness of any
other Issuer or any Guarantor that was permitted to be incurred under the
Debt Incurrence Ratio test of the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Stock" or under any other clause
of this definition or Indebtedness existing on the Issue Date;
(d) the Issuers or any Subsidiary may incur Indebtedness under
Interest Swap and Hedging Obligations (provided (i) that such Interest Swap
and Hedging Obligations are designed to protect the Issuers and their
Subsidiaries from fluctuations in interest rates on Indebtedness incurred
in accordance with the Indenture (and are used for bona fide hedging, and
not speculative, purposes), and (ii) the notional principal amount of such
Interest Swap and Hedging Obligations does not exceed the principal amount
of the Indebtedness to which such Interest Swap and Hedging Obligations
relate;
(e) the Issuers or any Subsidiary may incur Indebtedness represented
by letters of credit for the account of the Issuers or such Subsidiary, as
the case may be, in order to provide security for workers'
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compensation claims and payment obligations in connection with
self-insurance, that, taken together do not in the aggregate exceed $5.0
million at any time outstanding.
(f) the Issuers or any Subsidiary may incur Indebtedness arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred in connection with the
disposition of any business, assets or Subsidiary, other than guarantees of
Indebtedness incurred by any person acquiring all or any portion of such
business, assets or Subsidiary for the purpose of financing such
acquisition; provided that the maximum aggregate liability in respect of
all such Indebtedness shall at no time exceed the gross proceeds actually
received by the Issuers and the Subsidiary in connection with such
dispositions;
(g) the Issuers and the Guarantors, as applicable, may incur
Refinancing Indebtedness with respect to any Indebtedness or Disqualified
Capital Stock, as applicable, described in clause (a) of this definition,
incurred under the Debt Incurrence Ratio test of the covenant "Limitation
on Incurrence of Additional Indebtedness and Disqualified Capital Stock,"
or which is outstanding on the Issue Date so long as such Refinancing
Indebtedness is secured only by the assets that secured the Indebtedness so
refinanced or assets acquired after the Issue Date or the Notes are equally
and ratably secured;
(h) the Issuers and the Guarantors may incur Indebtedness in an
aggregate amount outstanding at any time (including any Indebtedness issued
to refinance, replace, or refund such Indebtedness) of up to $5.0 million,
minus the amount of any such Indebtedness retired with Net Cash Proceeds
from any Asset Sale or assumed by a transferee in an Asset Sale;
(i) the Issuers and the Subsidiaries may incur Indebtedness solely in
respect of bankers acceptances and performance bonds (to the extent that
such incurrence does not result in the incurrence of any obligation to
repay any obligation relating to borrowed money of others), all in the
ordinary course of business in accordance with customary industry
practices, in amounts and for the purposes customary in the Issuers'
industry; provided that the aggregate principal amount outstanding of such
Indebtedness (including any Indebtedness issued to refinance, refund or
replace such Indebtedness) shall at no time exceed $1.0 million; and
(j) The Issuers may incur Indebtedness to each other or to any wholly
owned Subsidiary, and any wholly owned Subsidiary may incur Indebtedness to
any other wholly owned Subsidiary or to any Issuer; provided that, in the
case of Indebtedness of an Issuer, such obligations shall be unsecured and
subordinated in all respects to such Issuer's obligations pursuant to the
Notes and the date of any event that causes a Subsidiary to no longer be a
wholly owned Subsidiary shall be an Incurrence Date.
"Permitted Investment" means (a) Investments in any of the Notes and any
Permitted Indebtedness which is otherwise an Investment; (b) Investments in Cash
Equivalents; (c) any Investment in the Trust or a person in a Related Business,
which is, or as a result of such Investment becomes, a wholly owned Subsidiary
of the Trust; (d) other Investments not to exceed $5.0 million; (e) Investments
in non-cash proceeds taken in connection with an Asset Sale otherwise complying
with "Limitation on Sales of Asset and Subsidiary Stock"; (f) loans or advances
to employees and officers of the Issuers and their Subsidiaries in the ordinary
course of business for bona fide business purposes; (g) Investments in
securities of trade creditors or customers received pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or insolvency of such
trade creditors or customers; and (h) a Qualified Exchange.
"Permitted Lien" means (a) Liens incurred in connection with the Credit
Agreement; (b) Liens existing on the Issue Date; (c) Liens imposed by
governmental authorities for taxes, assessments or other charges not yet subject
to penalty or which are being contested in good faith and by appropriate
proceedings, if adequate reserves with respect thereto are maintained on the
books of the company in accordance with GAAP; (d) statutory liens of carriers,
warehousemen, mechanics, materialmen, landlords, repairmen or other like Liens
arising by operation of law in the ordinary course of business provided that (i)
the underlying obligations are not overdue for a period of more than 60 days, or
(ii) such Liens are being contested in good faith and by appropriate proceedings
and adequate reserves with respect thereto are maintained on the books of the
Trust in accordance with GAAP; (e) Liens securing the performance of bids, trade
contracts (other than borrowed
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money), leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature incurred in the ordinary course of
business; (f) easements, rights-of-way, zoning, similar restrictions and other
similar encumbrances or title defects which, singly or in the aggregate, do not
in any case materially detract from the value of the property subject thereto
(as such property is used by the Trust or any of its Subsidiaries) or interfere
with the ordinary conduct of the business of the Trust or any of its
Subsidiaries; (g) Liens arising by operation of law in connection with
judgments, only to the extent, for an amount and for a period not resulting in
an Event of Default with respect thereto; (h) pledges or deposits made in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security legislation; (i) Liens
securing the Notes; (j) Liens securing Indebtedness of a person existing at the
time such person becomes a Subsidiary or is merged with or into the Trust or a
Subsidiary, provided that such Liens were in existence prior to the date of such
acquisition, merger or consolidation, were not incurred in anticipation thereof,
and do not extend to any other assets; (k) leases or subleases granted to other
persons in the ordinary course of business not materially interfering with the
conduct of the business of the Trust or any of its Subsidiaries or materially
detracting from the value of the relative assets of the Trust or any Subsidiary;
(l) Liens arising from precautionary Uniform Commercial Code financing statement
filings regarding operating leases entered into by the Trust or any of its
Subsidiaries in the ordinary course of business; (m) Liens to secure payment of
a portion of the purchase price of any tangible fixed asset acquired by any
Issuer or any Guarantor if the outstanding principal amount of the Indebtedness
is secured by any such Lien does not at any time exceed the purchase price paid
for such fixed asset, provided that such Lien does not encumber any other asset
at any time owned by any Issuer or any Guarantor, and provided, further, that
not more than one such Lien shall encumber such fixed asset at any one time; and
(n) Liens securing Refinancing Indebtedness incurred to refinance any
Indebtedness that was previously so secured in a manner no more adverse to the
Holders of the Notes than the terms of the Liens securing such refinanced
Indebtedness, provided that the Indebtedness secured is not increased and the
lien is not extended to any additional assets or property unless the Notes are
equally and ratably secured by such additional assets or the additional assets
were acquired after the Issue Date.
"Pro Forma Basis" means, for purposes of calculating the Consolidated
Coverage Ratio, giving pro forma effect to certain transactions such that, (i)
Acquisitions which occurred during the Reference Period or subsequent to the
Reference Period and on or prior to the Transaction Date shall be assumed to
have occurred on the first day of the Reference Period and any Operating Expense
or Cost Reduction with respect to such Acquisition shall be deducted from such
calculation, (ii) transactions giving rise to the need to calculate the
Consolidated Coverage Ratio shall be assumed to have occurred on the first day
of the Reference Period, (iii) the incurrence of any Indebtedness or issuance of
any Disqualified Capital Stock during the Reference Period or subsequent to the
Reference Period and on or prior to the Transaction Date (and the application of
the proceeds therefrom, including to refinance or retire other Indebtedness)
shall be assumed to have occurred on the first day of such Reference Period
(except that, in making such computation, the amount of Indebtedness under any
revolving credit facility shall be computed based on the average daily balance
during the Reference Period), and (iv) the Consolidated Fixed Charges of such
person attributable to interest on any Indebtedness or dividends on any
Disqualified Capital Stock bearing a floating interest (or dividend) rate shall
be computed on a pro forma basis as if the average rate in effect from the
beginning of the Reference Period to the Transaction Date had been the
applicable rate for the entire period, unless such person or any of its
Subsidiaries is a party to an Interest Swap or Hedging Obligation (which shall
remain in effect for the 12-month period immediately following the Transaction
Date) that has the effect of fixing the interest rate on the date of
computation, in which case such rate (whether higher or lower) shall be used.
"Public Equity Offering" means an underwritten offering of common stock of
the Trust for cash pursuant to an effective registration statement under the
Securities Act.
"Qualified Capital Stock" means any Capital Stock of the Trust that is not
Disqualified Capital Stock.
"Qualified Exchange" means any legal defeasance, redemption, retirement,
repurchase or other acquisition of Indebtedness of any Issuer or Capital Stock
of the Trust issued on or after the Issue Date with the Net Cash Proceeds
received by the Trust from the substantially concurrent sale of Qualified
Capital Stock or any
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exchange of Qualified Capital Stock for any Capital Stock or Indebtedness of the
Trust issued on or after the Issue Date.
"Reference Period" with regard to any person means the four full fiscal
quarters ended immediately preceding any date upon which any determination is to
be made pursuant to the terms of the Notes or the Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of which
are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, restatement, modification, restructuring, replacement
or supplement to, or a deferral or renewal of ((a) and (b) above are,
collectively, a "Refinancing"), any Indebtedness or Disqualified Capital Stock
in a principal amount or, in the case of Disqualified Capital Stock, liquidation
preference, not to exceed (after deduction of reasonable and customary fees and
expenses incurred in connection with the Refinancing) the lesser of (i) the
principal amount or, in the case of Disqualified Capital Stock, liquidation
preference, of the Indebtedness or Disqualified Capital Stock so Refinanced and
(ii) if such Indebtedness being Refinanced was issued with an original issue
discount, the accreted value thereof (as determined in accordance with GAAP) at
the time of such Refinancing; provided, that (A) such Refinancing Indebtedness
of any Subsidiary of the Trust shall only be used to Refinance outstanding
Indebtedness or Disqualified Capital Stock of such Subsidiary, (B) such
Refinancing Indebtedness shall (x) not have an Average Life shorter than the
Indebtedness or Disqualified Capital Stock to be so refinanced at the time of
such Refinancing and (y) in all respects, be no less subordinated or junior, if
applicable, to the rights of Holders of the Notes than was the Indebtedness or
Disqualified Capital Stock to be refinanced and (C) such Refinancing
Indebtedness shall have a final stated maturity or redemption date, as
applicable, no earlier than the final stated maturity or redemption date, as
applicable, of the Indebtedness or Disqualified Capital Stock to be so
refinanced.
"Related Business" means the business conducted (or proposed to be
conducted) by the Issuers and their Subsidiaries as of the Issue Date and any
and all businesses that in the good faith judgment of the Board of Directors of
the Trust are reasonably related businesses in the automotive industry.
"Restricted Payment" means, with respect to any person, (a) the declaration
or payment of any dividend or other distribution in respect of Equity Interests
of such person or any parent or Subsidiary of such person, (b) any payment on
account of the purchase, redemption or other acquisition or retirement for value
of Equity Interests of such person or any Subsidiary or parent of such person,
(c) other than with the proceeds from the substantially concurrent sale of, or
in exchange for, Refinancing Indebtedness any purchase, redemption, or other
acquisition or retirement for value of, any payment in respect of any amendment
of the terms of or any defeasance of, any Subordinated Indebtedness, directly or
indirectly, by such person or a parent or Subsidiary of such person prior to the
scheduled maturity, any scheduled repayment of principal, or scheduled sinking
fund payment, as the case may be, of such Indebtedness, (d) any Investment by
such person, other than a Permitted Investment and (e) the payment of any Excess
Compensation; provided, however, that the term "Restricted Payment" does not
include (i) any dividend, distribution or other payment on or with respect to
Equity Interests of an issuer to the extent payable solely in shares of
Qualified Capital Stock of such issuer (and in order to eliminate fractional
shares otherwise created thereby); or (ii) any dividend, distribution or other
payment to the Issuers, or to any of the Guarantors, by the Issuers or any of
their Subsidiaries.
"Stated Maturity," when used with respect to any Note, means July 1, 2005.
"Subordinated Indebtedness" means Indebtedness of an Issuer or a Guarantor
that is subordinated in right of payment to the Notes or Guarantees, as
applicable, in any respect.
"Subsidiary," with respect to any person, means (i) a corporation a
majority of whose Equity Interests with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such person, by such person and one or more Subsidiaries of such person or by
one or more Subsidiaries of such person, (ii) any other person (other than a
corporation) in which such person, one or more Subsidiaries of such person, or
such person and one or more Subsidiaries of such person, directly or indirectly,
at the date of determination thereof has at least majority ownership interest,
or (iii) a partnership in which such person or
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a Subsidiary of such person is, at the time, a general partner. Notwithstanding
the foregoing, an Unrestricted Subsidiary shall not be a Subsidiary of the Trust
or of any Subsidiary of the Trust. Unless the context requires otherwise,
Subsidiary means each direct and indirect Subsidiary of the Trust.
"Tax Distribution Amount" means, in respect of any period after the Issue
Date during which the Trust is an entity described in Section 1361(a)(1),
1361(c)(2) or Section 1361(d) of the Code, an amount, described in good faith by
such Issuers' independent public accountants, which shall be a nationally
recognized accounting firm, equal to the sum of (x) the amount of intangibles
tax actually imposed on the Beneficiary of the Trust in respect of Trust Tax
Distributions for such period and (y)(a) the sum of the highest marginal federal
income tax rate and highest state and local income tax rate applicable to the
Beneficiary of the Trust on income of the Issuers which are S Corporations for
federal, state or local income tax purposes for such period, expressed as a
percentage, multiplied by (b) such Issuers' taxable income for such period
computed taking into account, without limitation, the deduction for single
business and franchise tax actually imposed on such Issuers; provided that (i)
the foregoing shall be determined by giving effect to the deduction of relevant
state and local income and intangibles taxes for purposes of determining federal
income taxes, such deduction to be computed based on the state and local income
tax rates applicable in clause (y)(a) hereof and the amount of intangibles tax
determined under clause (x) hereof, and (ii) the foregoing shall be reduced by
the amount of cumulative tax losses of such Issuers from any previous period (to
the extent not previously utilized in computing the Tax Distribution Amounts)
since the Closing Date and any investment tax credits and other tax credits
generated by such Issuers.
"Trust" means (1) Venture Holdings Trust, a grantor trust organized under
the laws of the State of Michigan, (2) Venture Holdings Corporation after the
occurrence of a Trust Contribution or (3) any successor Person to Venture
Holdings Trust or Venture Holdings Corporation (after the occurrence of a Trust
Contribution) in accordance with the provisions under "Consolidation, Merger,
Sale of Assets."
"Unrestricted Subsidiary" means any subsidiary of the Trust that does not
own any Capital Stock of, or own or hold any Lien on any property of, the Trust
or any other Subsidiary of the Trust and that shall be designated an
Unrestricted Subsidiary by the Board of Directors of the Trust; provided that
(i) such subsidiary shall not engage, to any substantial extent, in any line or
lines of business activity other than a Related Business, (ii) neither
immediately prior thereto nor after giving pro forma effect to such designation
would there exist a Default or Event of Default and (iii) immediately after
giving effect thereto on a Pro Forma Basis, the Company could incur at least
$1.00 of Indebtedness pursuant to the Debt Incurrence Ratio contained in the
covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock." The Board of Directors of the Trust may designate any
Unrestricted Subsidiary to be a Subsidiary, provided, that (i) no Default or
Event of Default is existing or will occur as a consequence thereof and (ii)
immediately after giving effect to such designation, on a Pro Forma Basis, the
Trust could incur at least $1.00 of Indebtedness pursuant to the Debt Incurrence
Ratio contained in the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock." Each such designation shall be
evidenced by filing with the Trustee a certified copy of the resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions.
"Venture Trust Instrument" means the Agreement, dated December 28, 1987, as
amended, among Larry J. Winget, as Trustee, and Larry J. Winget, as Settlor,
Beneficiary and Special Advisor, as such agreement may be amended in accordance
with the terms of the Indenture.
"wholly owned Subsidiary" means a Subsidiary all the Equity Interests of
which are owned by the Trust or one or more wholly owned Subsidiaries of the
Trust.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Original Notes have been issued and the
Series B Notes will initially be issued in the form of fully registered Global
Notes, which will be deposited with or on behalf of the Depository and
registered in the name of a nominee of the Depository.
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Series B Notes issued in exchange for Original Notes that were originally
issued to or transferred to institutional "accredited investors" as defined in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act or to any other persons
who are not qualified institutional buyers will be issued as Certificated Notes.
Upon the transfer to a qualified institutional buyer of Certificated Notes, such
Certificated Notes will be exchanged for an interest in the Global Notes
representing the principal amount of the Notes being transferred.
The Depository has advised the Issuers that the Depository intends to
follow the procedures described below:
The Depository will act as securities depository for the Global Notes.
The Global Notes will be issued as a fully registered security registered
in the name of Cede & Co. (the Depository's nominee).
The Depository is a limited-purpose trust company organized under the
New York Banking Law, a banking organization within the meaning of the New
York Banking Law a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. The Depository holds securities that its
participants ("Participants") deposit with the Depository. The Depository
also facilitates the settlement among Participants of securities
transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in Participants'
accounts, thereby eliminating the need for physical movement of securities
certificates. Direct Participants include securities brokers and dealers,
banks, trust companies, clearing corporations, and certain other
organizations ("Direct Participants"). The Depository is owned by a number
of its Direct Participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the Depository's system is also available to others
such as securities brokers and dealers, banks, and trust companies that
clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The
Rules applicable to the Depository and its Participants are on file with
the Commission.
Purchase of Notes must be made by or through Direct Participants,
which will receive a credit for the Notes on the Depository's records. The
ownership interest of each actual purchaser of each Note represented by the
Global Notes ("Beneficial Owner") is in turn recorded on the Direct and
Indirect Participants' records. Transfers of ownership interests in the
Notes are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in the Notes, except in
the event that use of the book-entry system for the Notes is discontinued.
Conveyance of Notes and other communications by the Depository to
Direct Participants, by Direct Participants to Indirect Participants, and
by Direct Participants and Indirect Participants to Beneficial Owners are
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Notes are being redeemed, the Depository's practice is to determine by lot
the amount of the interest of each Direct Participant in such issue to be
redeemed.
Neither the Depository nor Cede & Co. will consent or vote with
respect to the Global Notes. Under its usual procedures, the Depository
mails an Omnibus Proxy to the issuer as soon as possible after the record
date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to
those Direct Participants to whose accounts the Notes are credited on the
record date (identified in a listing attached to the Omnibus Proxy).
Principal of, premium and Liquidated Damages, if any, and interest
payments on the Notes will be made to the Depository. The Depository's
practice is to credit Direct Participants' accounts on the payable date in
accordance with their respective holdings shown on the Depository's records
unless the Depository has reason to believe that it will not receive
payment on the payable date. Payments by Participants to Beneficial Owners
will be governed by standing instructions and customary practices, as is
the case with securities held for the accounts of customers in bearer form
or registered in "street name",
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and will be the responsibility of such Participant and not of the
Depository, the Paying Agent or the Issuers, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payment to
the Depository of principal of, premium and Liquidated Damages, if any, and
interest on the Notes are the responsibility of the Issuers or the Paying
Agent, disbursement of such payments to Direct Participants shall be the
responsibility of the Depository, and disbursement of such payments to the
Beneficial Owners shall be the responsibility of Direct and Indirect
Participants.
The information in this section concerning the Depository and the
Depository's book-entry system has been obtained from sources that the Issuers
believe to be reliable, but the Issuers take no responsibility for the accuracy
thereof.
If the Depository is at any time unwilling, unable or ineligible to
continue as Depository and a successor Depository is not appointed by the
Issuers within 90 days, the Issuers will issue Certificated Notes in exchange
for the Global Notes. In addition, the Issuers may at any time and in their sole
discretion determine not to have any Notes in registered form represented by the
Global Notes and, in such event, will issue Certificated Notes in exchange for
the Global Notes. In any such instance, an owner of a beneficial interest in a
Global Note will be entitled to physical delivery of Certificated Notes
registered in its name. Upon the exchange of the Global Notes for Certificated
Notes, the Global Notes will be cancelled by the Trustee.
EXCHANGE OFFER; REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Issuers and the Initial Purchaser entered into the Registration Rights
Agreement pursuant to which the Issuers agreed, for the benefit of the Holders
of the Original Notes, that they would, at their cost, (i) within 60 days after
the Closing Date file a registration statement under the Securities Act (an
"Exchange Offer Registration Statement") with the Commission with respect to a
registered offer to exchange the Original Notes for the Series B Notes, which
have terms substantially identical in all material respects to the Original
Notes (except that the Series B Notes do not contain terms with respect to
transfer restrictions) and (ii) use their best efforts to cause such Exchange
Offer Registration Statement to be declared effective under the Securities Act
within 120 days after the Closing Date. Upon such Exchange Offer Registration
Statement being declared effective, the Issuers have agreed to offer Series B
Notes in exchange for properly tendered Original Notes. The Issuers also agreed
to keep the Exchange Offer open for not less than 20 business days (or longer if
required by applicable law) after the date notice of such Exchange Offer is
mailed to the Holders of the Original Notes. For each Original Note surrendered
pursuant to such Exchange Offer, the Holder of such Original Notes will receive
the Series B Notes having a principal amount equal to that of the surrendered
Original Notes. Under existing Commission interpretations, the Series B Notes
would in general be freely transferable after the Exchange Offer without further
registration under the Securities Act; provided that in the case of
broker-dealers a prospectus meeting the requirements of the Securities Act must
be delivered as required. The Issuers have agreed for a period of at least 180
days after consummation of the Exchange Offer to make available a prospectus
meeting the requirements of the Securities Act to any broker-dealer for use in
connection with any resale of any such Series B Notes so acquired. A
broker-dealer that delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act and will be bound by the provisions of the Registration
Rights Agreement (including, without limitation, certain indemnification and
contribution rights and obligations).
Each Holder of the Original Notes who wishes to exchange such Original
Notes for Series B Notes in the Exchange Offer will be required to make certain
representations, including representations that (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 any of the Issuers, or if it is an affiliate of any of them,
it will comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable. In addition, if the Holder is not a
broker-dealer, it will be required to represent that it is not engaged in, and
does not intend to engage in, the distribution of the Series B Notes. If the
Holder is a broker-dealer that will receive Series B Notes for its own account
in exchange for the Original Notes that were acquired as a result of
market-making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such Series B Notes.
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<PAGE> 98
In the event that applicable interpretations of the staff of the Commission
do not permit the Issuers to effect an Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 165 days of the Closing
Date, the Issuers agreed, at their own expense, to (a) as promptly as
practicable, file a shelf registration statement covering resales of the
Original Notes (a "Shelf Registration Statement"), (b) use their best efforts to
cause such Shelf Registration Statement to be declared effective under the
Securities Act as promptly as practicable after the filing of such Shelf
Registration Statement and (c) use their best efforts to keep effective such
Shelf Registration Statement until the earlier of 24 months following the
Closing Date and such time as all of the Original Notes have been sold
thereunder, or otherwise cease to be a Transfer Restricted Security (as defined
in the Registration Rights Agreement). The Issuers agreed, in the event a Shelf
Registration Statement is required to be filed, to provide to each Holder of the
Original Notes copies of the prospectus which is a part of such Shelf
Registration Statement, notify each such Holder when such Shelf Registration
Statement for the Original Notes has become effective and take certain other
actions that are required to permit unrestricted resales of the Original Notes.
A Holder of the Original Notes who sells such Original Notes pursuant to the
Shelf Registration Statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
Holder (including certain indemnification and contribution rights and
obligations).
If (a) neither of the registration statements described above is filed on
or before the 60th day following the Closing Date, (b) neither of such
registration statements is declared effective by the Commission on or prior to
the 120th day after the Closing Date (the "Effectiveness Target Date"), (c) an
Exchange Offer Registration Statement becomes effective, and the Issuers fail to
consummate the Exchange Offer within 45 days of the earlier of the effectiveness
of such registration statement or the Effectiveness Target Date, or (d) the
Shelf Registration Statement is declared effective but thereafter ceases to be
effective or usable in connection with resales of Original Notes during the
period specified in the Registration Rights Agreement (each such event referred
to in clauses (a) through (d) above a "Registration Default"), then the Issuers
will pay to each Holder of the Original Notes, accruing from the date of the
first such Registration Default (or if such Registration Default has been cured,
from the date of the next Registration Default), liquidated damages ("Liquidated
Damages") in an amount equal to one-half of one percent (0.5%) per annum of the
principal amount of the Original Notes held by such Holder during the first
90-day period immediately following the occurrence of such Registration Default,
increasing by an additional one-half of one percent (0.5%) per annum of the
principal amount of such Original Notes during each subsequent 90-day period, up
to a maximum amount of Liquidated Damages equal to two percent (2.0%) per annum
of the principal amount of such Original Notes, which provision for Liquidated
Damages will continue until such Registration Default has been cured. Liquidated
Damages accrued as of any interest payment date will be payable on such date.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material United States federal
income tax consequences of the Exchange Offer to a holder of the Original Notes
that is an individual citizen or resident of the United States or a United
States corporation (a "U.S. Holder"). It is based on the Internal Revenue Code
of 1986, as amended to the date hereof (the "Code"), existing and proposed
Treasury regulations, and judicial and administrative determinations, all of
which are subject to change at any time, possibly on a retroactive basis. The
following relates only to the Original Notes, and the Series B Notes received
therefor, that are held as "capital assets" within the meaning of Section 1221
of the Code by U.S. Holders. It does not discuss state, local or foreign tax
consequences, nor does it discuss tax consequences to categories of holders that
are subject to special rules, such as foreign persons, tax-exempt organizations,
insurance companies, banks, and dealers in stocks and securities. Tax
consequences may vary depending on the particular status of an investor. No
rulings will be sought from the Internal Revenue Service with respect to the
federal income tax consequences of the Exchange Offer.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO AN INVESTOR'S DECISION TO
92
<PAGE> 99
EXCHANGE ORIGINAL NOTES FOR SERIES B NOTES. EACH INVESTOR SHOULD CONSULT WITH
ITS OWN TAX ADVISOR CONCERNING THE APPLICATION OF THE FEDERAL INCOME TAX LAWS
AND OTHER TAX LAWS TO ITS PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO
EXCHANGE ORIGINAL NOTES FOR SERIES B NOTES.
The Exchange Offer
The exchange of Original Notes pursuant to the Exchange Offer should be
treated as a continuation of the corresponding Original Notes because the terms
of the Series B Notes are not materially different from the terms of the
Original Notes. Accordingly, such exchange should not constitute a taxable event
to U.S. Holders and, therefore, (i) no gain or loss should be realized by a U.S.
Holder upon receipt of a Series B Note; (ii) the holding period of the Series B
Note should include the holding period of the Original Note exchanged therefor
and (iii) the adjusted tax basis of the Series B Note should be the same as the
adjusted tax basis of the Original Note exchanged therefor immediately before
the exchange.
Stated Interest
Stated interest on a Note will be taxable to a U.S. Holder as ordinary
interest income at the time that such interest accrues or is received, in
accordance with the U.S. Holder's regular method of accounting for federal
income tax purposes.
Original Issue Discount
The Original Notes were issued with original issue discount ("OID") in an
amount equal to the excess of the stated principal amount due at maturity over
the issue price of the Notes. As a result, holders who held Original Notes as
part of the initial issuance thereof will be required to include OID in ordinary
income over the period that they hold the Series B Notes. The amount of OID to
be included in income will be determined using a constant yield method, which
will result in a greater portion of such discount being included in income in
the later part of the term of the Series B Notes.
Market Discount
A U.S. Holder of a Note, other than an initial Holder, will be treated as
holding the Note at a market discount (a "Market Discount Note") if the amount
for which such U.S. Holder purchased the Note is less than the Note's principal
amount, subject to a de minimus rule.
In general, any partial payment of principal on, or gain recognized on the
maturity or disposition of, a Market Discount Note will be treated as ordinary
income to the extent that such gain does not exceed the accrued market discount
on such Note. Alternatively, a U.S. Holder of a Market Discount Note may elect
to include market discount in income currently over the life of the Market
Discount Note. Such an election applies to all debt instruments with market
discount acquired by the electing U.S. Holder on or after the first day of the
first taxable year to which the election applies and may not be revoked without
the consent of the Internal Revenue Service.
Market discount accrues on a straight-line basis, unless the U.S. Holder
elects to accrue such discount on a constant yield to a maturity basis. Such
election is applicable only to the Note with respect to which it is made and it
is irrevocable. A U.S. Holder of a Market Discount Note that does not elect to
include market discount in income currently, generally will be required to defer
deductions for interest on borrowings allocable to such Note, in an amount not
exceeding the accrued market discount on such Note, until the maturity or
disposition of such Note.
Sale, Exchange or Retirement of the Notes
A U.S. Holder's tax basis in a Note generally will be its cost plus any
stated interest, market discount or OID that has been recognized as income, but
not yet received in cash. A U.S. Holder generally will recognize gain or loss on
the sale, exchange or retirement of a Note in an amount equal to the difference
between the
93
<PAGE> 100
amount realized on the sale, exchange or retirement and the tax basis of the
Note. Gain or loss recognized on the sale, exchange or retirement of a Note
(excluding amounts received in respect of accrued interest, which will be
taxable as ordinary interest income) generally will be capital gain or loss and
will be long-term capital gain or loss if the Note was held for more than a
year.
Backup Withholding
Under certain circumstances, a U.S. Holder of a Note may be subject to
"backup withholding" at a 31% rate with respect to payments of interest thereon
or the gross proceeds from the disposition thereof. This withholding generally
applies if the U.S. Holder fails to furnish his or her social security number or
other taxpayer identification number in the specified manner and in certain
other circumstances. Any amount withheld from a payment to a U.S. Holder under
the backup withholding rules is allowable as a credit against such U.S. Holder's
federal income tax liability, provided that the required information is
furnished to the IRS. Corporations and certain other entities described in the
Code and Treasury regulations are exempt from backup withholding if their exempt
status is properly established.
94
<PAGE> 101
PLAN OF DISTRIBUTION
EXCHANGE OFFER
Each broker-dealer that receives Series B Notes for its own account in
connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Series B Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by Participating Broker-Dealers during the period referred to below in
connection with resales of Series B Notes received in exchange for Original
Notes if such Original Notes were acquired by such Participating Broker-Dealers
for their own accounts as a result of market-making activities or other trading
activities. The Issuers have agreed that this Prospectus, as it may be amended
or supplemented from time to time, may be used by a Participating Broker-Dealer
in connection with resales of such Series B Notes for a period ending 180 days
after the Expiration Date (subject to extension under certain limited
circumstances described herein) or, if earlier, when all such Series B Notes
have been disposed of by such Participating Broker-Dealer. However, a
Participating Broker-Dealer who intends to use this Prospectus in connection
with the resale of Series B Notes received in exchange for Original Notes
pursuant to the Exchange Offer must notify the Issuers, or cause the Issuers to
be notified, on or prior to the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space provided for that purpose
in the Letter of Transmittal or may be delivered to the Exchange Agent at one of
the addresses set forth herein under "The Exchange Offer -- Exchange Agent." See
"The Exchange Offer -- Resales of Series B Notes."
The Issuers will not receive any cash proceeds from the issuance of the
Series B Notes offered hereby. Series B Notes received by broker-dealers for
their own accounts in connection with 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 at negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such Series
B Notes.
Any broker-dealer that resells Series B Notes that were received by it for
its own account in connection with 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 or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
is an "underwriter" within the meaning of the Securities Act.
95
<PAGE> 102
LEGAL MATTERS
Certain legal matters in connection with the Series B Notes offered hereby
will be passed upon for the Company by Dykema Gossett PLLC, Detroit, Michigan.
EXPERTS
The consolidated financial statements of Venture Holdings Trust as of
December 31, 1996 and 1995, and for the years ended December 31, 1996, 1995 and
1994, and the consolidated financial statements of Bailey Corporation and
Subsidiaries as of July 28, 1996, and for the year then ended, included in this
Prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and have been so included in reliance
upon their authority as experts in accounting and auditing.
The consolidated financial statements of Bailey Corporation and
Subsidiaries as of July 30, 1995 and the two years in the period ended July 30,
1995 included in this Prospectus have been audited by KPMG Peat Marwick LLP,
independent auditors, as stated in their report appearing herein, and have been
so included in reliance upon their authority as experts in accounting and
auditing.
96
<PAGE> 103
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
VENTURE HOLDINGS TRUST
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets -- December 31, 1996 and 1995
and June 30, 1997 (unaudited)............................. F-3
Consolidated Statements of Income and Trust Principal --
Years Ended December 31, 1996, 1995 and 1994 and Six
Months Ended June 30, 1997 and 1996 (unaudited)........... F-4
Consolidated Statements of Cash Flows -- Years Ended
December 31, 1996, 1995 and 1994 and Six Months Ended June
30, 1997 and 1996 (unaudited)............................. F-5
Notes to Consolidated Financial Statements.................. F-6
</TABLE>
NOTE: Separate financial statements for the Trust and each Subsidiary are not
included herein because each entity (other than Venture Canada) is jointly and
severally liable for the Senior Credit Facility and the Series B Notes, and each
entity (including Venture Canada) is jointly and severally liable for the
Company's Senior Subordinated Notes either as a co-issuer or as a guarantor. In
addition, the aggregate total assets, net earnings and net equity of the
Subsidiaries of the Trust (with or without Venture Canada) are substantially
equivalent to the total assets, net earnings and net equity of the Company on a
consolidated basis. Venture Canada represents less than 1% of total assets, net
earnings, net trust principal and operating cash flow.
<TABLE>
<CAPTION>
BAILEY CORPORATION
<S> <C>
Independent Auditors' Report................................ F-19
Independent Auditor's Report................................ F-20
Consolidated Balance Sheets -- July 28, 1996, and July 30,
1995...................................................... F-21
Consolidated Statements of Operations -- Fiscal Years Ended
July 28, 1996, July 30, 1995 and July 31, 1994............ F-22
Consolidated Statements of Stockholders' Equity (Deficit) --
Fiscal Years Ended July 28, 1996, July 30, 1995 and July
31, 1994.................................................. F-23
Consolidated Statements of Cash Flows -- Fiscal Years Ended
July 28, 1996, July 30, 1995 and July 31, 1994............ F-24
Notes to Consolidated Financial Statements.................. F-25
</TABLE>
F-1
<PAGE> 104
INDEPENDENT AUDITORS' REPORT
Trustee of Venture Holdings Trust
Fraser, Michigan
We have audited the accompanying consolidated balance sheets of Venture
Holdings Trust as of December 31, 1996 and 1995, and the related consolidated
statements of income and trust principal 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 that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of Venture Holdings Trust as of
December 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
March 27, 1997
Detroit, MI
F-2
<PAGE> 105
VENTURE HOLDINGS TRUST
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- JUNE 30,
1996 1995 1997
---- ---- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents........................ $ 15,436,391 $ 19,003,585 $ 348,188
Accounts receivable, net (Notes 2 & 7)........... 129,668,405 66,942,383 136,723,315
Inventories (Notes 3 & 7)........................ 51,100,052 21,836,388 48,957,732
Prepaid expenses and other (Note 11)............. 14,212,797 761,506 11,371,026
------------ ------------ ------------
Total current assets.......................... 210,417,645 108,543,862 197,400,261
Property, Plant and Equipment, Net (Notes 4 & 7)... 203,974,613 116,298,903 208,015,824
Intangible Assets (Note 5)......................... 51,748,220 0 50,837,775
Other Assets (Notes 1 & 7)......................... 17,587,284 6,759,592 14,110,146
Deferred Tax Asset (Note 11)....................... 14,339,459 0 13,439,102
------------ ------------ ------------
Total Assets....................................... $498,067,221 $231,602,357 $483,803,108
============ ============ ============
LIABILITIES AND TRUST PRINCIPAL
Current Liabilities:
Accounts payable (Note 7)........................ $ 84,821,496 $ 17,638,670 $ 78,461,650
Accrued payroll & taxes.......................... 7,351,941 1,649,174 6,421,948
Accrued interest................................. 4,954,352 3,893,528 6,062,320
Other accrued expenses (Note 5).................. 19,254,872 179,975 12,804,547
Current portion of long-term debt (Note 6)....... 10,631,599 10,828,444 5,484,029
------------ ------------ ------------
Total current liabilities..................... 127,014,260 34,189,791 109,234,494
Other Liabilities (Note 10)........................ 15,911,578 2,280,000 9,993,082
Deferred Tax Liabilities (Note 11)................. 13,017,827 0 13,291,779
Long Term Debt (Note 6)............................ 289,364,393 141,634,574 285,225,752
Commitments and Contingencies (Note 8).............
Trust Principal.................................... 52,759,163 53,497,992 66,058,001
------------ ------------ ------------
Total Liabilities and Trust Principal.............. $498,067,221 $231,602,357 $483,803,108
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 106
VENTURE HOLDINGS TRUST
CONSOLIDATED STATEMENTS OF INCOME AND TRUST PRINCIPAL
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------------------------- ---------------------------
1996 1995 1994 1997 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales (Notes 7 &
9)..................... $351,776,672 $251,142,038 $244,111,750 $320,115,012 $125,794,724
Cost of Products Sold
(Note 7)............... 302,939,580 211,261,596 199,716,270 262,159,858 102,130,560
------------ ------------ ------------ ------------ ------------
Gross Profit............. 48,837,092 39,880,442 44,395,480 57,955,154 23,664,164
Selling General and
Administrative Expense
(Note 7)............... 26,587,618 20,129,152 19,199,871 28,563,233 9,724,678
Payments to Beneficiary
in Lieu of Taxes
(Note 7)............... 666,400 576,905 3,405,445 471,597 666,400
------------ ------------ ------------ ------------ ------------
Income from Operations... 21,583,074 19,174,385 21,790,164 28,920,324 13,273,086
Interest Expense......... 19,248,276 15,032,351 14,345,300 14,207,773 7,408,878
------------ ------------ ------------ ------------ ------------
Net Income Before
Extraordinary Items and
Taxes.................. 2,334,798 4,142,034 7,444,864 14,712,551 5,864,208
Tax Provision (Note
11).................... 335,977 0 0 1,413,713 0
------------ ------------ ------------ ------------ ------------
Net Income Before
Extraordinary Items.... 1,998,821 4,142,034 7,444,864 13,298,838 5,864,208
------------ ------------ ------------ ------------ ------------
Net Extraordinary Loss on
Early Retirement of
Debt (Note 12)......... 2,737,650 0 0 0 0
------------ ------------ ------------ ------------ ------------
Net Income (Loss)........ (738,829) 4,142,034 7,444,864 13,298,838 5,864,208
Trust Principal,
Beginning of Period.... 53,497,992 49,355,958 41,911,094 52,759,163 53,497,992
------------ ------------ ------------ ------------ ------------
Trust Principal, End of
Period................. $ 52,759,163 $ 53,497,992 $ 49,355,958 $ 66,058,001 $ 59,362,200
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 107
VENTURE HOLDINGS TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------ ------------------------------
1996 1995 1994 1997 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows From Operating
Activities:
Net income (loss).............. $ (738,829) $ 4,142,034 $ 7,444,864 $ 13,298,838 $ 5,864,208
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and
amortization............... 22,628,168 16,068,043 14,069,959 16,550,335 9,362,858
Change in accounts
receivable................. (35,789,237) (2,405,872) (22,346,639) (7,054,910) (13,412,358)
Change in inventories........ (4,298,241) (371,462) (7,047,565) 2,142,320 (8,097,363)
Change in prepaid expenses... (4,116,190) (218,460) (68,774) 2,841,771 (1,453,987)
Change in other assets....... (3,504,790) 55,570 1,260,735 2,572,628 (1,827,106)
Change in accounts payable... 32,400,256 (5,728,211) 5,099,807 (6,359,845) 10,790,596
Change in accrued expenses... 21,220,398 (591,459) (1,478,615) (6,272,350) 3,487,688
Change in other
liabilities................ 8,725,068 0 0 (6,258,820) 0
Change in deferred taxes..... (1,321,632) 0 0 1,174,309 0
Net loss on early
extinguishment of debt..... 2,737,650 0 0 0 0
------------ ------------ ------------ ------------ ------------
Net cash (used in)
provided by operating
activities............ 37,942,621 10,950,183 (3,066,228) 12,634,276 4,714,536
Cash Flows From Investing
Activities:
Capital expenditures........... (67,532,784) (20,338,683) (22,798,411) (18,776,591) (23,311,333)
Purchase of Bailey, net of cash
acquired..................... (56,953,593) 0 0 0 0
------------ ------------ ------------ ------------ ------------
Net cash (used in)
investing
activities............ (124,486,377) (20,338,683) (22,798,411) (18,776,591) (23,311,333)
Cash Flows From Financing
Activities:
Net borrowings under revolving
credit agreement............. 91,000,000 0 (5,000,000) (4,000,000) 9,300,000
Net proceeds from issuance of
debt......................... 69,249,007 0 95,656,765 0 6,205,561
Principal payments on debt..... (14,534,795) (655,255) (37,014,105) (4,945,888) (10,554,132)
Payment for early
extinguishment of debt....... (62,737,650) 0 0 0 0
------------ ------------ ------------ ------------ ------------
Net cash (used in)
provided by financing
activities............ 82,976,562 (655,255) 53,642,660 (8,945,888) 4,951,429
------------ ------------ ------------ ------------ ------------
Net Increase (Decrease) in
Cash........................... (3,567,194) (10,043,755) 27,778,021 (15,088,203) (13,645,368)
Cash and Cash Equivalents at
Beginning of Period............ 19,003,585 29,047,340 1,269,319 15,436,391 19,003,585
------------ ------------ ------------ ------------ ------------
Cash and Cash Equivalents at End
of Period...................... $ 15,436,391 $ 19,003,585 $ 29,047,340 $ 348,188 $ 5,358,217
============ ============ ============ ============ ============
Supplemental Cash Flow
Information
Cash paid during the period for
interest..................... $ 18,187,455 $ 15,073,170 $ 12,595,446 $ 13,099,805 $ 4,951,690
============ ============ ============ ============ ============
Income taxes paid (refunded)... $ (2,179,055) $ 0 $ 0 $ 124,000 $ 0
============ ============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 108
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
Organization -- In 1987, the sole shareholder of the Venture Group of
companies contributed all the common stock of the companies to Venture Holdings
Trust (the Trust). Simultaneously, certain property, plant, and equipment was
contributed by the sole shareholder to certain companies owned by the Trust. In
exchange, the shareholder was named the sole beneficiary of the Trust.
The companies included in the Trust are Venture Industries Corporation,
Venture Mold and Engineering Corporation, Venture Industries Canada, Ltd.,
Vemco, Inc., Venture Leasing Company, Vemco Leasing, Inc., Venture Holdings
Corporation, Venture Service Company, Venture Western Michigan LTD., Venture
Grand Rapids L.L.C. and Bailey Corporation and its wholly owned subsidiaries,
Bailey Manufacturing Corporation and Bailey Transportation Products, Inc. Bailey
refers to Bailey Corporation and its wholly owned subsidiaries. The companies
included in the Trust are involved in the design and manufacturing of molded
parts and systems integration for North American automotive original equipment
manufacturers.
The Trust has been established as a grantor trust. The Trust received a
private letter ruling from the Internal Revenue Service confirming that the
Trust meets the requirements of a grantor trust under Section 1361(c)(2)(A)(i)
of the Internal Revenue Code.
Principles of Consolidation -- The consolidated financial statements
include the accounts of Venture Holdings Trust and its wholly owned subsidiaries
(collectively the "Company"). All intercompany accounts and transactions have
been eliminated.
The consolidated financial statements include only those assets and
liabilities which relate to the business of Venture Holdings Trust. These
statements do not include any assets or liabilities attributable to the
beneficiary's individual activities. However, the Company does enter into
various transactions with companies in which the sole beneficiary has an
interest. These transactions are summarized in Note 7-Related Party
Transactions.
Estimates -- The preparation of the Company's financial statements in
conformity with generally accepted accounting principals requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents -- Highly liquid investments with an initial
maturity of three months or less are classified as cash equivalents.
Inventories -- Manufactured parts inventories are stated at the lower of
cost or market using the first-in, first-out method. Inventory also includes
costs associated with building molds under contract. Molds owned by the Company
and used in the Company's manufacturing operations are transferred to tooling,
in property, plant and equipment, when the molds are operational.
Property and Depreciation -- Property, plant, and equipment are recorded at
cost. Depreciation is computed by the straight-line method over the estimated
useful lives of the various classes of assets. Tooling is amortized on a piece
price or straight line basis over the related production contract, generally 3
to 7 years. The principal estimated useful lives are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Building and improvements................................... 10-40
Machinery and equipment, and automobiles.................... 3-20
</TABLE>
Leasehold improvements are amortized over the useful life or the term of
the lease. Expenditures for maintenance and repairs are charged to expense as
incurred.
F-6
<PAGE> 109
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Intangible Assets -- The purchase price of companies in excess of the fair
value of net identifiable assets acquired ("goodwill") is amortized over 30
years using the straight-line method. The amount reported at December 31, 1996
and June 30, 1997 (unaudited) was $51.7 million and $50.8 million respectively,
which is net of accumulated amortization.
Long-Lived Assets and for Long-Lived Assets to be Disposed of -- Effective
January 1, 1996, the Statement of Financial Accounting Standards ("SFAS") No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" was adopted. This Statement establishes accounting
standards for the impairment of long-lived assets, and certain identifiable
intangibles, and goodwill related to those assets to be held and used and
long-lived and certain identifiable intangibles to be disposed of. The statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In addition, the Statement requires that certain long-lived assets
and identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. The Company periodically
evaluates the carrying value for impairment, such evaluations are based
principally on the undiscounted cash flows of the operations to which the
goodwill is related.
Revenue Recognition -- Revenue from the sale of manufactured parts is
recognized when the parts are shipped. Revenue from mold sales is recognized
using the completed contract method due to the reasonably short build cycle.
Accounts receivable include unbilled receivables for mold contracts that are
substantially complete. The amounts are billed when final approval has been
received from the customer or in accordance with contract terms. Provision for
estimated losses on uncompleted contracts, if any, is made in the period such
losses are identified.
Other Assets -- Deferred financing costs are included in other assets and
are amortized over the life of the related financing arrangement.
Debt Discount -- The debt discount related to notes payable is amortized
using the interest method over the life of the notes.
Design Cost -- Certain costs incurred for the design of components to be
built for customers are recorded as deferred design costs which are included in
other assets. These costs are recovered based on units produced in each year
over the term of production contracts.
Income Taxes -- Amounts in the financial statements relating to income
taxes relate to Bailey and are calculated using the Statement of Financial
Accounting Standards Board No. 109, "Accounting for Income Taxes" (SFAS 109).
Other significant subsidiaries have elected to be taxed as S corporations
under the Internal Revenue Code. The beneficiary is required to report all
income, gains, losses, deductions, and credits of the S corporations included in
the Trust on his individual tax returns.
Separate Financial Statements -- Separate financial statements for the
Trust and each Subsidiary are not included in this report because each entity
(other than Venture Canada) is jointly and severally liable for the Company's
senior credit agreement and each entity (including Venture Canada) is jointly
and severally liable for the Company's senior subordinated notes either as a
co-issuer or as a guarantor. In addition, the aggregate total assets, net
earnings and net equity of the Subsidiaries of the Trust (with or without
Venture Canada) are substantially equivalent to the total assets, net earnings
and net equity of the Company on a consolidated basis. Venture Canada represents
less than 1% of total assets, net earnings, net trust principal and operating
cash flow.
Derivative Financial Instruments -- Interest rate swaps are utilized to
reduce the sensitivity of earnings to various market risk and manage funding
costs. The primary market risk include fluctuations in interest rates and
variability in spread relationships (i.e. Prime vs. LIBOR spreads). Interest
rate swaps are used to change
F-7
<PAGE> 110
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
the characteristics of its variable rate exposures. Interest rate differentials
resulting from interest rate swap agreements used to change the interest rate
characteristics are recorded on an accrual basis as an adjustment to interest
expense as part of operating activities. In the event of early termination of an
interest rate swap agreement designated as a hedge, the gain or loss is
deferred, and recognized as an adjustment to interest expense over the remaining
term of the underlying debt.
Unaudited Interim Information. The information as of and for the six month
periods ended June 30, 1996 and 1997 is unaudited but, in the opinion of
management, reflect all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of the financial position, results
of operations and cash flows for such periods. The results for the six-month
period ended June 30, 1997 are not necessarily indicative of the results
expected for the full year.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30,
----------------------------- 1997
1996 1995 (UNAUDITED)
---- ---- -----------
<S> <C> <C> <C>
Accounts receivable (including related parties).... $115,469,546 $51,946,462 $124,742,924
Unbilled mold contract receivables................. 16,980,014 16,674,544 15,032,667
------------ ----------- ------------
132,449,560 68,621,006 139,775,591
Allowance for doubtful accounts.................... (2,781,155) (1,678,623) (3,052,276)
------------ ----------- ------------
Net accounts receivable............................ $129,668,405 $66,942,383 $136,723,315
============ =========== ============
</TABLE>
Substantially all of the receivables are from companies operating in the
domestic automobile industry.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30,
---------------------------- 1997
1996 1995 (UNAUDITED)
---- ---- -----------
<S> <C> <C> <C>
Raw material....................................... $23,405,983 $ 8,823,687 $22,589,268
Work-in-process -- manufactured parts.............. 4,573,119 664,612 2,928,407
Work-in-process -- molds........................... 12,347,086 8,697,744 12,337,569
Finished goods..................................... 10,773,864 3,650,345 11,102,488
----------- ----------- -----------
Total......................................... $51,100,052 $21,836,388 $48,957,732
=========== =========== ===========
</TABLE>
F-8
<PAGE> 111
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 JUNE 30,
------------------------------ 1997
1996 1995 (UNAUDITED)
---- ---- -----------
<S> <C> <C> <C>
Land.............................................. $ 2,613,981 $ 1,510,164 $ 2,480,578
Building and improvements......................... 47,365,371 40,075,679 46,806,904
Leasehold Improvements............................ 17,519,210 17,452,009 18,199,562
Machinery and equipment........................... 205,279,067 113,940,827 226,538,397
Tooling/Design.................................... 11,274,812 7,205,940 12,106,242
Office and transportation equipment............... 5,547,270 3,736,289 6,038,299
Construction in progress.......................... 4,785,003 2,234,312 991,323
------------ ------------ ------------
294,384,714 186,155,220 313,161,305
Less accumulated depreciation and amortization.... 90,410,101 69,856,317 105,145,481
------------ ------------ ------------
Total........................................ $203,974,613 $116,298,903 $208,015,824
============ ============ ============
</TABLE>
Included in property, plant and equipment is equipment and buildings held
under capitalized leases. These assets have a cost basis of $12,699,099 and
accumulated depreciation relating to these assets of $2,999,027 at December 31,
1996 and $4,084,557 at June 30, 1997 (unaudited).
5. BUSINESS ACQUISITIONS
Effective August 26, 1996, the Trust acquired Bailey Corporation and its
subsidiaries, a manufacturer of high quality molded plastic exterior components
for sale to automobile manufacturers for an aggregate purchase price of $57
million. This acquisition price was the cost to acquire all of the outstanding
shares of the company at $8.75 per share including all of the outstanding
options and warrants. The acquisition was accounted for as a purchase with the
purchase price allocated over the estimated fair value of the assets and
liabilities assumed, resulting in goodwill of $50 million. The goodwill is being
amortized over 30 years using the straight-line method. Bailey's assets and
liabilities are included in the accompanying consolidated balance sheet at
values representing a preliminary allocation of the purchase price. Management
of the Company completed the final allocation of the purchase price during the
third quarter of 1997. The final allocation of the purchase price will be
reflected in the September 30, 1997 financial statements and is not materially
different from the preliminary purchase price allocation.
Effective June 3, 1996, the Company acquired certain assets from AutoStyle
Plastics, Inc. for a purchase price of $6.7 million and entered into a capital
lease for all property, plant and equipment. The acquisition was accounted for
as a purchase with the purchase price allocated over the estimated fair value of
the assets and liabilities assumed, resulting in goodwill of $2.6 million. The
goodwill is being amortized over 30 years using the straight-line method.
The consolidated earnings includes the operations of Bailey from August 26,
1996 and the operations for AutoStyle Plastics, Inc. from June 3, 1996.
F-9
<PAGE> 112
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Unaudited pro forma results of operations represent the consolidation of
historical results for the twelve months ended December 31, 1996 and 1995,
assuming the acquisition of Bailey had occurred at January 1, are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
NUMBERS IN THOUSANDS
<S> <C> <C>
Net sales................................................ $471,118 $413,724
Net (loss) before extraordinary item..................... (887) (22,085)
Net (loss)............................................... (3,402) (22,085)
</TABLE>
The transaction had the following non-cash impact on the Company's balance
sheet at August 26, 1996 (in millions of dollars):
<TABLE>
<S> <C>
Current assets.............................................. $ 62
Non-current assets.......................................... 143
Current liabilities......................................... 159
Non-current liabilities..................................... 46
</TABLE>
6. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------- JUNE 30, 1997
1996 1995 (UNAUDITED)
---- ---- -------------
<S> <C> <C> <C>
Revolving credit agreement......................... $ 91,000,000 $ 0 $ 87,000,000
Term loan A with fluctuating interest rate
currently at 8.375%.............................. 74,450,000 0 71,450,000
Term loan B with fluctuating interest rate
currently at 8.875%.............................. 44,550,000 0 44,325,000
Senior secured notes payable to financial
institutions with interest at 9.89%.............. 0 50,000,000 0
Registered senior subordinated notes payable with
interest at 9.75%................................ 78,940,000 100,000,000 78,940,000
Capital leases with interest at 8.25% to 11.5%..... 6,193,784 0 5,215,547
Installment notes payable with interest at 5.85% to
11.75%........................................... 4,862,208 2,463,018 3,779,234
------------ ------------ ------------
Total......................................... 299,995,992 152,463,018 290,709,781
Less current portion of debt..................... 10,631,599 10,828,444 5,484,029
------------ ------------ ------------
Total......................................... $289,364,393 $141,634,574 $285,225,752
============ ============ ============
</TABLE>
In connection with the acquisition of Bailey Corporation on August 26,
1996, the Company entered into a senior credit agreement with NBD Bank, as
Agent, which includes two term loans, term loan A for $75 million and term loan
B for $45 million and a new revolving loan facility discussed below. The term
loans are payable in quarterly payments of principal and interest beginning
December 31, 1996 and extending through June 30, 2002 and September 30, 2003,
respectively. The annual interest rate is fluctuating for borrowings under these
agreements based upon LIBOR or the bank's prime rate.
The new revolving credit agreement provides up to $94 million through June
30, 2002. The annual interest rate for borrowings under this agreement is a
floating rate based upon LIBOR or the banks prime rate which averaged 8.25% at
December 31, 1996 and 8.5% at June 30, 1997 (unaudited). The Company must pay a
fee of up to .5% of the unused portion of the commitment . The Company has
issued letters of credit of
F-10
<PAGE> 113
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
approximately $2.8 million at December 31, 1996, and June 30, 1997 (unaudited)
against this agreement thereby reducing the amount of the unused credit to $91.2
million at December 31, 1996 and June 30, 1997 (unaudited). Availability is
based upon the sum of the accounts receivable and inventory borrowing bases as
those terms are defined in the agreement. See Subsequent Event Note 14.
Effective June 3, 1996, the Company entered into a $6.2 million capital
lease for plant property and equipment. The lease runs through May of 1998, and
requires monthly payments of principal and interest.
The trust has agreed to guarantee up to $3.5 million of obligations of a
related party. In a separate transaction, a different related party agreed to
fully indemnify the trust for all amounts paid under the guarantee.
See also Note 12. Extraordinary Items for information related to the early
retirement of debt.
The senior credit agreement, and the senior subordinated notes contain
certain restrictive covenants relating to cash flow, capital expenditures, debt,
trust principal, trust distributions, leases, and liens on assets.
Scheduled maturities of debt at December 31, 1996 were as follows:
<TABLE>
<S> <C>
1997........................................................ $ 10,631,599
1998........................................................ 13,557,750
1999........................................................ 15,855,657
2000........................................................ 17,388,223
2001........................................................ 21,195,889
Remaining years............................................. 221,366,874
------------
Total.................................................. $299,995,992
============
</TABLE>
To mitigate risk associated with changing interest rates on certain debt,
the Company entered into interest rate swap agreements. The notional amounts are
used to measure the volume of these agreements and do not represent exposure to
credit loss. The impact of interest rate swap agreements resulted in $177,863 of
additional interest expense for 1996 and $294,040 for six months ended June 30,
1997 (unaudited).
<TABLE>
<CAPTION>
NOTIONAL AMOUNTS NOTIONAL AMOUNTS
OUTSTANDING OUTSTANDING
VARIABLE AND WEIGHTED AND WEIGHTED
RATE MATURING AVERAGE RATES AVERAGE RATES
UNDERLYING FINANCIAL INSTRUMENT INDEX THROUGH DECEMBER 31, 1996 JUNE 30, 1997
------------------------------- -------- -------- ----------------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Pay Fixed Interest Rate Swaps Term Loans... LIBOR 2001 $55,000,000 $55,000,000
Weighted average pay rate................ FIXED 2001 6.75% 6.75%
Weighted average receive rate............ LIBOR 2001 5.64% 5.75%
</TABLE>
7. RELATED PARTY TRANSACTIONS
The Company has entered into various transactions with entities that the
sole beneficiary owns or controls. These transactions include leases of real
estate, usage of machinery, equipment, and facilities, purchases and sales of
inventory, performance of manufacturing related services, administrative
services, insurance activities and the receipt and payment of sales commissions.
Since the Company operates for the benefit of the sole beneficiary, the terms of
these transactions are not the result of arms'-length bargaining; however, the
Company believes that such transactions are on terms no less favorable to the
Company than would be obtained if such transactions or arrangements were
arms'-length transactions with non-affiliated persons.
F-11
<PAGE> 114
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The Company provides or arranges for others to provide certain related
parties with various administrative and professional services, including
employee group insurance and benefit coverage, property and other insurance,
financial and cash management and administrative services such as data
processing. The related parties are charged fees and premiums for these
services. Administrative services were allocated to the entity for which they
were incurred and certain entities were charged a management fee.
In connection with the above mentioned cash management services, the
Company pays the administrative and operating expenses on behalf of certain
related parties and charges them for the amounts paid which results in
receivables from these related parties.
The Company purchased from Pompo Insurance & Indemnity Company Ltd.
("Pompo"), a corporation indirectly owned by the sole beneficiary, insurance to
cover certain medical claims by the Company's covered employees and certain
workers compensation claims. The Company remains an obligor for any amounts in
excess of insurance coverage or any amounts not paid by Pompo under these
coverages. If a liability is settled for less than the amount of the premium a
portion of the excess is available as a premium credit on future insurance. The
Company has accounted for this arrangement using the deposit method wherein the
full amount of the estimated liability for such claims is recorded in other
liabilities and the premiums paid to Pompo are recorded in other assets until
such time that the claims are settled. The Company made no payments to Pompo in
1996 or for the six month period ended June 30, 1997 (unaudited). At December
31, 1996 and June 30, 1997 (unaudited) the Company had $2,784,500 on deposit
with Pompo. This amount was invested on a short term basis with a related party.
In accordance with the terms of the insurance agreement, in 1996, 1995 and
1994 the Company received and utilized premium credits of $210,910, $651,100 and
$560,000, respectively. For the six month period ended June 30, 1997
(unaudited), no credit was received or utilized.
During 1996, 1995 and 1994, the Company purchased machinery and equipment
for $49,161, $82,185 and $717,242 respectively, from Venture Automotive
Corporation (VAC), an entity wholly owned by the sole beneficiary of the
Company. No machinery or equipment was purchased for the six month periods ended
June 30, 1997 and 1996. VAC provided certain manufacturing related services on
behalf of the Trust for 1994, 1995 and until October 1, 1996. Inventory included
$405,463 and $307,567 at December 31, 1995 and 1994, respectively, that was on
consignment to VAC. As of June 30, 1997 VAC held no inventory.
Beginning October 1, 1996 the manufacturing services previously provided by
VAC were contracted to MAST, Services Inc., a company related to the sole
beneficiary of the Trust but not owned or controlled by him. Services for the
period ending December 31, 1996 and for the six months ended June 30, 1997
(unaudited) were $265,386 and $2,858,072, respectively.
During, 1995 and 1994, the Company purchased machinery and equipment for
$104,005 and, $742,256, respectively from Deluxe Pattern Corporation (Deluxe),
an entity wholly owned by the sole beneficiary of the Company. Deluxe provided
design, model and tool-building services to the Company of $4,279,796, and
$1,049,281 in 1996 and 1995, and $1,882,261 and $4,197,524 for the six months
ended June 30, 1996 and 1997, respectively. The Company received $1,080,000,
$1,080,000 and $1,083,780 from Deluxe in 1996, 1995 and 1994 for equipment
rentals and services. For the six month periods ended June 30, 1997 and 1996
(unaudited), the Company received $540,000 in each period for equipment rentals
and services.
The Company leases buildings and machinery and equipment that have a book
value of approximately $626,000 to an entity in which the sole beneficiary owns
a significant equity interest. During 1996, 1995, 1994, the Company received
$162,300, $162,300, and $131,760, respectively, in connection with this
agreement. For the six month periods ended June 30, 1997 and 1996 (unaudited)
the Company received $81,150 in each period related to these leases.
F-12
<PAGE> 115
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Venture Sales and Engineering and Venture Foreign Sales Corporation,
corporations wholly owned by the sole beneficiary, serve as the Company's sales
representatives. The Company pays Venture Sales and Engineering and Venture
Foreign Sales Corporation, in the aggregate, a sales commission of 3% on all
production sales.
The Company provided management services to Venture Asia Pacific Pty. Ltd.
(VAP) and its subsidiaries and corporations wholly owned by the sole
beneficiary. The Company received management fees and commissions totaling
$5,097,688 and $2,356,702 from VAP in 1996 and 1995, respectively. For the six
month periods ended June 30, 1997 and 1996 (unaudited) the Company received
$2,029,345 and $2,798,638, respectively. In addition, VAP also reimbursed the
Company for certain other expenditures made on its behalf and assigned certain
tooling contracts to the Company.
The following is a summary of transactions with all related parties at
December 31, 1996, 1995 and 1994 and for the years then ended and at June 30,
1996 and 1997 for the six month periods then ended (unaudited):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31 JUNE 30
--------------------------------------- -------------------------
1996 1995 1994 1997 1996
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue received for:
Materials sold, sales
commission and rent
charged..................... $ 2,122,703 $ 2,680,566 $ 3,289,310 $ 775,592 $ 791,798
Providing administrative
services.................... 149,136 149,136 362,811 0 77,675
Insurance and benefit
premiums.................... 420,237 502,957 534,027 90,623 209,343
Management Fees................ 5,097,688 2,356,702 0 2,029,345 2,798,638
Subcontracted services........... 9,632,131 3,286,861 2,075,266 5,434,931 2,814,013
Manufacturing related services
and inventory purchased........ 11,682,790 12,741,663 14,501,977 5,626,681 4,077,943
Rent expense paid................ 2,950,383 2,775,800 2,775,800 1,590,000 1,590,000
Machine and facility usage fees
paid........................... 3,397,101 2,703,446 3,257,692 1,562,114 1,536,338
Commission expense paid.......... 6,391,229 6,071,627 6,184,653 4,621,094 2,607,747
Litigation, workers compensation
and medical insurance
premiums....................... 0 0 500,000 0 0
Property, Plant and Equipment
purchased...................... 49,161 186,190 1,459,498 0 0
Beneficiary receivable........... 0 105,872 90,276 0 0
</TABLE>
The result of these related party transactions is a net receivable, which
is included in accounts receivable as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------- JUNE 30,
1996 1995 1994 1997
---- ---- ---- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Amounts Receivable...................... $14,975,942 $11,216,805 $7,091,345 $16,837,506
Net Amounts Payable......................... 2,268,615 1,407,752 2,121,701 2,376,750
----------- ----------- ---------- -----------
Net Amounts Receivable...................... $12,707,327 $ 9,809,053 $4,969,644 $14,460,756
=========== =========== ========== ===========
</TABLE>
In accordance with the Company's debt agreements, payments are permitted to
be made to the Company's sole beneficiary for income tax payments and may be
made as a bonus payment or distribution of Trust Principal. The payments for the
years ended December 31, 1996, 1995 and 1994, and for the six month periods
ended June 30, 1997 and 1996, were recorded as expense.
F-13
<PAGE> 116
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
8. COMMITMENTS AND CONTINGENCIES
Operating Leases -- The Trust leases certain machinery and equipment under
operating leases which have initial or remaining terms of one year or more at
December 31, 1996. Future minimum lease commitments, including related party
leases, are as follows:
<TABLE>
<CAPTION>
RELATED PARTY OTHER
OPERATING OPERATING
LEASES LEASES
------------- ---------
<S> <C> <C>
Years:
1997.................................................. 2,180,000 4,215,563
1998.................................................. 2,180,000 2,471,316
1999.................................................. 1,090,000 539,230
2000.................................................. 185,999
2001.................................................. 24,677
Remaining years....................................... 0 0
---------- ----------
Total............................................ $5,450,000 $7,436,785
========== ==========
</TABLE>
Rent expense for operating leases and other agreements with a term of
greater than one month, including amounts paid to related parties, was
$4,973,043, $3,346,962, and $3,717,006 for the years ended December 31, 1996,
1995, and 1994, respectively. For the six month periods ended June 30, 1997 and
1996 (unaudited), $3,204,419 and $1,588,217, respectively, were paid for rent
expense. Usage fees paid based on monthly usage of certain machinery and
equipment and facilities, all of which were paid to related parties, were
$3,397,101, $2,703,446 and $3,257,692 for the years ended December 31, 1996,
1995 and 1994, respectively. For the six months ended June 30, 1997 and 1996
(unaudited), $1,562,114 and $1,536,338 were paid to related parties,
respectively for usage fees.
Litigation -- Suits and counter suits were filed by the Company and the
contractor that built the paint line at Vemco Inc. involving its construction.
The parties were in arbitration and on July 12, 1993 the Company was awarded
approximately $3.1 million which was confirmed by the Federal Court on November
10, 1993. The contractor appealed this decision to the Federal Appeals Court and
prevailed in having the award overturned. The Company has appealed part of the
decision to the U. S. Supreme Court and is awaiting a decision. In addition, the
Company is preparing for a new arbitration hearing. Management and its legal
counsel believe that the likelihood of an unfavorable outcome associated with
arbitrating the case is remote. The final settlement of this matter may result
in an adjustment to the carrying value of the paint line; however, management
does not anticipate that this adjustment, if any, would be material to the
Company's results of operations.
Environmental Costs -- The Company is subject to potential liability under
government regulations and various claims and legal actions which are pending or
may be asserted against the Company concerning environmental matters. Estimates
of future costs of such environmental matters are necessarily imprecise due to
numerous uncertainties, including the enactment of new laws and regulations, the
development and application of new technologies, the identification of new sites
for which the Company may have remediation responsibility and the apportionment
and collectibility of remediation costs among responsible parties. The Company
establishes reserves for these environmental matters when a loss is probable and
reasonably estimable. The Company's reserves for these environmental matters
totaled $1,321,391 at December 31, 1996 and $988,799 at June 30, 1997
(unaudited).
The Company is party to various contractual, legal and environmental
proceedings, some which assert claims for large amounts. Although the ultimate
cost of resolving these matters could not be precisely determined at December
31, 1996 and at June 30, 1997 (unaudited), management believes, based on
F-14
<PAGE> 117
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
currently known facts and circumstances, that the disposition of these matters
will not have a material adverse effect on the Company's consolidated financial
position and results of operations. These matters are subject to many
uncertainties, and the outcome of individual matters is not predictable with
assurance. It is more than remote but less than likely that the final resolution
of these matters many require the Company to make expenditures, in excess of
established reserves, over an extended period of time and in a range of amounts
that cannot be reasonably estimated. The Company's reserves have been set based
upon a review of costs that may be incurred after considering the
creditworthiness of guarantors and/or indemnification from third parties which
the Company has received. The Company is not covered by insurance for any
unfavorable environmental outcomes, but relies on the established reserves,
guarantees and indemnifications it has received.
9. CONCENTRATIONS
The Company's sales to General Motors Corporation ("GM") and Chrysler
Corporation ("Chrysler"), expressed as a percentage of sales, were 57% and 20%
in 1994, 49% and 22% in 1995 and 47% and 19% for the six months ended June 30,
1996 (unaudited), respectively. For 1996, the percentage of sales to GM, Ford
Motor Company ("Ford") and Chrysler were 41%, 16% and 12%, respectively. For the
six months ended June 30, 1997 (unaudited), the percentages were 45% and 27% for
GM and Ford, respectively, and less than 10% for Chrysler. Many of the Company's
automotive industry customers are unionized and work stoppages, slow-downs
experienced by them, and their employee relations policies could have an adverse
effect on the Company's results of operations. Approximately 8% of the workforce
is covered by a collective bargaining agreement which will expire within one
year.
10. PENSIONS, PROFIT-SHARING AND SALARY REDUCTION PLAN
The Company sponsors profit-sharing and salary reduction 401(k) plans which
covers substantially all employees. The plans provide for the Company to
contribute a discretionary amount each year. Contributions were $1,315,972,
$1,309,727 and $924,670, for the years ended December 31, 1996, 1995 and 1994,
respectively; and $624,779 and $853,797 for the six month periods ended June 30,
1996 and 1997 (unaudited), respectively.
Bailey Corporation has various retirement plans covering substantially all
Bailey employees, including five defined benefit pension plans covering
full-time hourly and salaried employees. The benefits payable under the plans
are generally determined based on the employees' length of service and earnings.
For all plans, Bailey Corporation's funding policy is to make at least the
minimum annual contributions required by Federal law and regulation.
The funded status of the defined benefit plans at December 31, 1996 was as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
ASSETS EXCEED ACCUMULATED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
-------------------- --------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested Benefits........................................ $4,891,678 $ 8,632,823
Nonvested benefits..................................... 53,637 64,788
---------- -----------
Accumulated benefit obligation........................... 4,945,315 8,697,611
Projected benefit obligation............................. 6,163,154 8,697,611
Market value of plan assets.............................. 5,576,048 5,389,333
---------- -----------
Excess (deficiency) of assets over projected benefit
obligation............................................. (587,106) (3,308,278)
Unrecognized net (gain)/loss............................. (77,100) (115,260)
---------- -----------
Prepaid (accrued) pension cost........................... $ (664,206) $(3,423,538)
========== ===========
</TABLE>
F-15
<PAGE> 118
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The date used to measure plan assets and liabilities is as of September 30
each year.
The weighted-average assumed discount rate was 7.5%. The assumed rate of
return on plan assets was 8.5%. For salary based plans, the expected rate of
increase in compensation levels was 5.5%.
Plan assets consist principally of cash and cash equivalents, listed common
stocks, debentures, and fixed income securities.
Bailey Corporation and the Union agreed to temporarily freeze benefit
accruals of the Bailey Hourly Pension Plan in consideration for providing an
increasing schedule of benefit levels during the course of the bargaining
agreement. A salaried pension plan is frozen and no further service liability
will accrue under the plan. The schedule of increasing monthly benefit levels
for each year of service is as follows for retirements occurring on or after:
June 8, 1997.....................................$21
June 8, 1998.....................................$22
11. INCOME TAXES
Amounts in the financial statements related to income taxes are for the
operations of Bailey Corporation and its subsidiaries. The other significant
Subsidiaries have elected S corporation status under the Internal Revenue Code.
The beneficiary is required to report all income, gains, losses, deductions, and
credits of the S corporations included in the Trust on his individual tax
returns.
The provision for income tax expense (benefit) for the period ended:
<TABLE>
<CAPTION>
DECEMBER 31, SIX MONTHS ENDED
1996 JUNE 30, 1997
------------ ----------------
(UNAUDITED)
<S> <C> <C>
Currently Payable
United States................................... $ 0 $ 0
State and Local................................. 0 239,404
-------- ----------
Total........................................ $ 0 $ 239,404
======== ==========
Deferred
United States................................... $292,724 $1,022,552
State and Local................................. 43,253 151,757
-------- ----------
Total........................................ $335,977 $1,174,309
======== ==========
</TABLE>
The Company does not provide for U.S. income taxes or foreign withholding
taxes on cumulative undistributed earnings of foreign subsidiaries as these
earnings are all taxed currently to the beneficiary of the Trust.
The effective tax rate on pretax income was 232.7% for the year ended
December 31, 1996, of which 192.5% relates to permanent differences not
deductible for income taxes and 5.2% for state and local income taxes, net of
the federal tax benefit.
The effective tax rate on pretax income was 73.0% for the six months ended
June 30, 1997, of which 32.8% relates to permanent differences not deductible
for income taxes and 5.2% for state and local income taxes, net of the federal
tax benefit.
F-16
<PAGE> 119
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The tax-effected temporary differences and carryforwards which comprised
deferred assets and liabilities were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ --------
(UNAUDITED)
<S> <C> <C>
Deferred tax assets:
Accrued expenses and reserves............................. $17,759,012 $12,140,940
Net Operating Loss carryforward........................... 5,180,628 9,893,324
Minimum tax credit carryforward........................... 763,827 763,827
Other..................................................... 557,274 562,293
----------- -----------
Total deferred tax assets.............................. 24,260,741 23,360,384
Deferred tax liabilities:
Depreciation.............................................. 12,191,084 12,407,777
Other..................................................... 826,743 884,002
----------- -----------
Total deferred tax liabilities......................... 13,017,827 13,291,779
----------- -----------
Net deferred tax asset................................. $11,242,914 $10,068,605
=========== ===========
</TABLE>
The current portion of deferred tax assets, $9,921,282, is included in
prepaid expense and others at December 31, 1996 and at June 30, 1997
(unaudited). Bailey Corporation's U.S. net operating loss carryforwards totaled
$14,152,441 at December 31, 1996 and 25,875,564 at June 30, 1997 (unaudited)
which expire in the year 2011. Alternative minimum tax credit carryforward
totaled $763,827 and have no expiration date.
12. EXTRAORDINARY ITEMS
The senior secured notes payable to financial institutions required
semiannual interest payments at 9.89% and annual principal payments of
$10,000,000 each year commencing March 15, 1996. The outstanding balance of
$40,000,000 was refinanced on August 26, 1996 which resulted in an extraordinary
loss of $3,425,721 ($2,546,630 prepayment penalty plus unamortized deferred
financing costs of $879,091) in the quarter ended September 30, 1996.
On September 23, 1996 the Company redeemed $21,060,000 of the senior
subordinated bonds at 95% of par in conjunction with the refinancing under the
new credit agreement for acquisition of Bailey Corporation as required by the
First Supplement Indenture. The early extinguishment resulted in an
extraordinary gain of $688,071 (net of unamortized deferred financing costs of
$364,929).
13. FINANCIAL INSTRUMENTS
The estimated fair values of the Company's debt instruments have been
determined using available market information. However, considerable judgment is
required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein may not be indicative of the amounts
that the Company could realize in a current market exchange. The use of
different assumptions or valuation methodologies may have a material effect on
the estimated fair value amounts. The fair value of long-term debt was estimated
using quoted market prices or market prices or similar debt.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995 JUNE 30, 1997 (UNAUDITED)
---------------------------- ---------------------------- ----------------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Debt................. $197,940,000 $191,230,100 $150,000,000 $133,500,000 $194,715,000 $192,700,000
</TABLE>
F-17
<PAGE> 120
VENTURE HOLDINGS TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The fair values of interest rate swaps were estimated by discounting
expected cash flows using quoted market interest rates. Interest rate swaps are
also discussed in Note 1.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995 JUNE 30, 1997 (UNAUDITED)
------------------------------- ---------------------------- -------------------------------
NOTIONAL UNREALIZED GAIN/ NOTIONAL UNREALIZED GAIN/ NOTIONAL UNREALIZED GAIN/
AMOUNT (LOSSES) AMOUNT (LOSSES) AMOUNT (LOSSES)
-------- ---------------- -------- ---------------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Interest Rate
swaps.............. $55,000,000 ($1,036,131) 0 0 $55,000,000 (954,719)
</TABLE>
The carrying values of cash and cash equivalents, accounts receivables and
accounts payable approximate fair market value due to the short term maturities
of these instruments.
14. SUBSEQUENT EVENTS (UNAUDITED)
The Trust issued $205 million senior unsecured notes due 2005. $116 million
of the net proceeds was used to repay Term Loans "A and B" under the senior
credit facility (the Facility, Note 6). In addition, approximately $83 million
will be used to pay down the amount outstanding under the revolving credit
portion of the facility. Any net proceeds remaining after such payments will be
used for working capital and other general corporate purposes. In connection
with the senior unsecured notes certain subsidiaries will be merged and or
liquidated into other subsidiaries.
The senior credit facility was amended and will provide for borrowings of
up to $200 million under the revolving credit agreement.
F-18
<PAGE> 121
INDEPENDENT AUDITORS' REPORT
Trustee of Venture Holdings Trust
Fraser, Michigan
We have audited the accompanying consolidated balance sheet of Bailey
Corporation and subsidiaries (a wholly owned subsidiary of Venture Holdings
Trust since August 26, 1996) as of July 28, 1996 and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The consolidated financial statements
of Bailey Corporation for each of the years ended July 30, 1995 and July 31,
1994, were audited by other auditors whose report, dated October 25, 1995,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Bailey Corporation
as of July 28, 1996 and the results of their operations and their cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Detroit, Michigan
June 26, 1997
F-19
<PAGE> 122
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
BAILEY CORPORATION AND SUBSIDIARIES:
We have audited the accompanying consolidated balance sheet of Bailey
Corporation and subsidiaries as of July 30, 1995 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years
ended July 30, 1995 and July 31, 1994. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Bailey
Corporation and subsidiaries as of July 30, 1995 and the results of their
operations and their cash flows for the years July 30, 1995 and July 31, 1994 in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
October 25, 1995
F-20
<PAGE> 123
BAILEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 28, 1996 AND JULY 30, 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,079 $ 313
Restricted cash........................................... 0 817
Accounts receivable, net of allowances of $1,225 in 1996
and $763 in 1995....................................... 21,208 13,751
Inventories (Note 3)...................................... 20,797 18,325
Prepaid expenses and other current assets (Note 4)........ 4,082 4,026
Deferred income taxes (Note 11)........................... 14,217 3,709
-------- --------
Total current assets................................. 61,383 40,941
Property, plant and equipment, net (Notes 2, 5 and 8)....... 49,646 50,391
Other assets, net (Note 6).................................. 8,799 9,389
-------- --------
$119,828 $100,721
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft............................................ $ 814 $ 1,585
Short-term debt (Note 7).................................. 14,292 9,360
Current portion of long-term debt (Note 8)................ 9,829 7,765
Accounts payable.......................................... 31,426 18,611
Loss contracts reserve.................................... 11,790
Accrued liabilities and other current liabilities......... 6,627 5,535
Income taxes payable (Note 11)............................ 357 167
-------- --------
Total current liabilities............................ 75,135 43,023
Long-term debt, less current portion (Note 8)............... 31,020 33,136
Loss contracts reserve, less current portion (Note 9)....... 6,546
Other long-term liabilities................................. 4,150 2,245
Deferred income taxes (Note 11)............................. 4,907 3,437
Commitments and contingencies (Note 15)..................... -- --
Total liabilities.................................... 121,758 81,841
-------- --------
Stockholders' equity (Note 12):
Common stock, $.10 par value, 20,000,000 shares
authorized; 5,393,558 shares issued and outstanding in
1996 and 1995.......................................... 539 539
Additional paid-in capital................................ 13,805 13,805
Retained earnings......................................... (14,523) 5,202
Minimum pension liability adjustment (Note 10)............ (1,488) (403)
Treasury stock, 40,000 shares, at cost.................... (263) (263)
-------- --------
Total stockholders' equity........................... (1,930) 18,880
-------- --------
$119,828 $100,721
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE> 124
BAILEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales (Note 13)...................................... $ 172,880 $ 168,228 $ 108,313
Cost and expenses:
Cost of products sold.................................. 183,230 151,414 92,379
Selling, general and administrative expenses........... 15,653 15,300 9,313
---------- ---------- ----------
Operating (loss) income........................... (26,003) 1,514 6,621
Interest expense (net)................................... 4,806 3,871 1,648
---------- ---------- ----------
Income (loss) before income taxes................. (30,809) (2,357) 4,973
Income tax provision (benefit) (Note 11)................. (11,084) (778) 2,207
---------- ---------- ----------
Net income (loss)................................. $ (19,725) $ (1,579) $ 2,766
========== ========== ==========
Net income (loss) per common share:
Primary................................................ $ (3.66) $ (.29) $ .52
========== ========== ==========
Fully diluted.......................................... $ (3.66) $ (.29) $ .52
========== ========== ==========
Weighted average shares outstanding:
Primary................................................ 5,394,000 5,444,000 5,313,000
---------- ---------- ----------
Fully diluted.......................................... 5,394,000 5,444,000 5,356,000
---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE> 125
BAILEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE FISCAL YEARS ENDED 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
MINIMUM
COMMON STOCK ADDITIONAL RETAINED PENSION
--------------- PAID-IN EARNINGS LIABILITY TREASURY
SHARES AMOUNT CAPITAL (DEFICIT) ADJUSTMENT STOCK TOTAL
------ ------ ---------- --------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance July 31, 1993................. 4,071 407 2,566 4,015 -- -- 6,988
Public offering of common stock
(Note 12)........................ 1,076 108 10,488 -- -- -- 10,596
Exercise of stock options (Note
12).............................. 119 12 439 -- -- -- 451
Exercise of warrants (Note 12)...... 116 11 (11) -- -- -- --
Tax benefit from exercise of stock
options.......................... -- -- 105 -- -- -- 105
Minimum pension liability
adjustment....................... -- -- -- -- (306) -- (306)
Net income.......................... -- -- -- 2,766 -- -- 2,766
----- ---- ------- -------- ------- ----- --------
Balance July 31, 1994................. 5,382 538 13,587 6,781 (306) -- 20,600
Purchase of treasury stock.......... -- -- -- -- -- (263) (263)
Exercise of stock options (Note
12).............................. 12 1 25 -- -- -- 26
Tax benefit from exercise of stock
options.......................... -- -- 193 -- -- -- 193
Minimum pension liability adjustment
(Note 10)........................ -- -- -- -- (97) -- (97)
Net loss............................ -- -- -- (1,579) -- -- (1,579)
===== ==== ======= ======== ======= ===== ========
Balance at July 30, 1995.............. 5,394 $539 $13,805 $ 5,202 $ (403) $(263) $ 18,880
Exercise of stock options (Note
12).............................. -- -- -- -- -- -- --
Tax benefit from exercise of stock
options (Note 11)................ -- -- -- -- -- -- --
Minimum pension liability adjustment
(Note 10)........................ (1,085) (1,085)
Net loss............................ -- -- -- (19,725) -- -- (19,725)
----- ---- ------- -------- ------- ----- --------
Balance at July 28, 1996.............. 5,394 $539 $13,805 $(14,523) $(1,488) $(263) $ (1,930)
===== ==== ======= ======== ======= ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE> 126
BAILEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(19,725) $(1,579) $ 2,766
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization.......................... 5,699 5,268 3,120
Loss contracts reserve................................. 18,336 -- --
Loss (gain) on disposal of property, plant and
equipment............................................ -- 2 (23)
Deferred income taxes.................................. (9,038) (1,433) 1,010
Gain on early payment of debt.......................... -- -- (165)
Change in assets and liabilities, net of effects of
acquisitions:
(Increase) decrease in accounts receivable........... (7,457) 6,058 (1,146)
(Increase) decrease in inventory..................... (2,472) (2,825) 158
(Increase) decrease in prepaid expenses and other
current assets.................................... (56) (2,607) (208)
Decrease (increase) in other assets -- net........... 442 (3,035) (1,724)
Increase in accounts payable......................... 12,815 57 2,390
Increase (decrease) in accrued liabilities and other
current liabilities............................... 1,092 (453) (561)
Increase (decrease) in income taxes payable.......... 190 234 (1,107)
Increase (decrease) in other liabilities............. 956 (227) 278
-------- ------- --------
Net cash (used in) provided by operating
activities...................................... 782 (540) 4,788
-------- ------- --------
Cash flows from investing activities:
Capital expenditures...................................... (4,942) (7,506) (4,333)
Acquisition of businesses, net of cash acquired........... -- (723) (9,375)
Decrease in restricted cash............................... 817 -- --
Proceeds from sale of property and equipment.............. -- 36 77
-------- ------- --------
Net cash used in investing activities............. (4,125) (8,193) (13,631)
-------- ------- --------
Cash flows from financing activities:
Increase (decrease) in short-term debt (including bank
overdrafts), net....................................... 4,161 6,778 (3,800)
Proceeds from long-term borrowings........................ 1,908 4,000 8,000
Payments on long-term debt and capital leases............. (1,960) (1,696) (6,459)
Proceeds from issuance of common stock.................... -- -- 10,596
Proceeds from exercise of stock options................... 26 451
Purchase of Treasury Stock................................ -- (263) --
-------- ------- --------
Net cash provided by financing activities......... 4,109 8,845 8,788
-------- ------- --------
Net increase (decrease) in cash................... 766 112 (55)
Cash, beginning of year..................................... 313 201 256
-------- ------- --------
Cash, end of year........................................... $ 1,079 $ 313 $ 201
======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE> 127
BAILEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For Fiscal Years Ended 1996, 1995 and 1994
(1) SIGNIFICANT ACCOUNTING POLICIES
Business Operations
Bailey Corporation (the "Company") is a manufacturer of high quality
compression molded plastic exterior/interior components for sale to automobile
manufacturers. Customers include original equipment manufacturers and other
suppliers to the automobile industry in the United States and Canada.
Fiscal Year
The fiscal year of the Company ends on the nearest Sunday prior to or at
July 31. All references herein to 1996, 1995, and 1994 mean the fiscal years
ended July 28, 1996, July 30, 1995, and July 31, 1994, respectively.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions and
balances are eliminated in consolidation.
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market (net realizable value).
Depreciation and Amortization
Depreciation and amortization is provided on a straight-line basis over the
estimated useful lives of owned assets. Assets held under capital leases are
depreciated over their respective lease term. The following is a summary of
estimated useful lives:
<TABLE>
<S> <C>
Land improvements........................................... 5 years
Buildings and improvements.................................. 15-30 years
Machinery and equipment..................................... 3 -11 years
</TABLE>
Goodwill
Goodwill consists principally of excess purchase price over fair market
value of net assets acquired, and is being amortized over 40 years using the
straight-line method.
Deferred Tooling, Design and Pre-production Costs
Unreimbursed costs incurred for customer-owned tooling are recorded as
deferred tooling costs. Costs incurred for the design of components to be built
for customers are recorded as deferred design, engineering and pre-production
costs. These costs are to be recovered over the term of production contracts to
which the tooling, design and pre-production costs relate determined based on
units produced.
Reimbursable Deferred Automation
In connection with production programs, the Company purchases automation
equipment for which it is reimbursed by the customer on a per piece shipped
basis. Amounts estimated to be reimbursed in the succeeding twelve months are
classified as current. Reimbursements estimated to be received beyond one year
are included in other assets. Title to the equipment reverts to the customer
upon completion of the production program.
F-25
<PAGE> 128
BAILEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
Earnings per Share
Earnings per share are calculated by dividing net income (loss) by the
weighted average common shares outstanding during each period, including the
dilutive effect of warrants and options outstanding during the period. Fully
diluted earnings per share also include the assumed conversion of convertible
debt. In fiscal 1996 and 1995 warrants, options and convertible debt were
anti-dilutive, and accordingly, have not been included in the calculation.
Income Taxes
Amounts in the financial statements related to income taxes are calculated
using the principles of Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes" (FAS 109). Prepaid and deferred taxes reflect the
impact of temporary differences between the amounts of assets and liabilities
recognized for financial reporting purposes and the amounts recognized for tax
purposes. These deferred balances are measured by applying currently enacted tax
rates. A valuation allowance reduces deferred tax assets when it is "more likely
than not" that some portion or all of the deferred tax assets will not be
recognized.
Revenue Recognition
Sales are recognized upon shipment of products to customers.
Long-Term Production Contracts
The Company evaluates its long-term production contracts for loss on a
vehicle program basis. Contracts are evaluated periodically utilizing forecasted
production and contracted sales prices. Losses are recognized when management
estimates the anticipated cost of production will exceed the contracted sales
price. During 1996, $24,840,000 was accrued for contracts deemed to be in a loss
position. At July 28, 1996, the Company had $18,336,000 in accrued liabilities
for existing long-term production contracts in a loss position.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
(2) BUSINESS ACQUISITIONS
Effective July 31, 1994, the Company acquired substantially all of the
assets of Premix/EMS Inc. (the "Premix/EMS Acquisition"), a manufacturer of
automotive molded plastic exterior components, for an aggregate purchase price
of $34,484,000, subject to post-closing adjustments. Payment consisted of a
secured five year promissory note in the principal amount of $7,000,000, bearing
interest annually at a floating prime rate; a five-year convertible debenture in
principal amount of $9,000,000, bearing interest at a fixed rate of 8% per
annum, and convertible into Bailey Corporation common stock at $10 per share;
cash of $9,855,000 less $480,000 held pending satisfaction of certain conditions
(in fiscal 1995, this amount was fully paid); and assumption of certain
liabilities totaling $8,629,000. The acquisition has been accounted for as a
purchase with the purchase price allocated over the estimated fair value of the
assets and liabilities assumed, resulting in goodwill of $3,227,000 at July 31,
1994.
The determination of the final purchase price was subject to a post-closing
audit which was completed in fiscal year 1995. As a result of the audit and
receipt of final appraisals of the fair market value of the net assets
F-26
<PAGE> 129
BAILEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
acquired, the entire amount of goodwill was reclassified to machinery and
equipment in the fourth quarter. The Company unsuccessfully sought recovery of a
portion of the purchase price and instituted arbitration procedures with the
sellers in the second quarter of 1996. The Company completed the arbitration
procedures which resulted in the company having the price reduced by $1,000,000
and the postponement, with interest, of certain principal payment for one year.
The following unaudited pro forma summary presents the consolidated results
of operations assuming that the Premix/EMS Acquisition occurred at the beginning
of fiscal 1994, after giving effect to certain adjustments, including interest
expense on the acquisition debt and related income tax effects. The pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of what would have occurred had the Premix/EMS Acquisition been
made as of that date or of results which may occur in the future.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JULY 1, 1994
-----------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C>
Net sales................................................. $166,894
Net income (loss)......................................... $ (1,573)
Net income (loss) per share............................... $ (.29)
</TABLE>
(3) INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw materials............................................ $ 7,770 $ 7,424
Work-in-process.......................................... 2,799 2,555
Finished goods........................................... 2,649 2,745
Tooling 7,579 5,601
------- -------
$20,797 $18,325
======= =======
</TABLE>
(4) PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Prepaid insurance......................................... $ 669 $ 595
Prepaid expenses.......................................... 430 430
Miscellaneous receivables................................. 24 614
Other..................................................... 6 99
Reimbursable deferred automation (Note 1)................. 446 1,240
Income taxes receivable................................... 2,507 1,048
------ ------
$4,082 $4,026
====== ======
</TABLE>
F-27
<PAGE> 130
BAILEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost and consists of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land and improvements....................................... $ 1,104 $ 1,098
Buildings and improvements.................................. 17,584 16,557
Machinery and equipment..................................... 55,700 51,791
-------- --------
Total.................................................. 74,388 69,446
Less accumulated depreciation.......................... (24,742) (19,055)
-------- --------
Net.................................................... $ 49,646 $ 50,391
======== ========
</TABLE>
Included in property, plant and equipment is equipment held under
capitalized leases. This equipment has a cost basis of $6,494,000 and $5,685,000
at July 28, 1996, and July 30, 1995, respectively. Accumulated depreciation
relating to this equipment amounted to $2,163,000 and $1,874,000 at July 28,
1996 and July 30, 1995, respectively.
Depreciation expense, including amortization of capitalized leases, was
$5,687,000, $5,256,000, $3,108,000 in fiscal 1996, 1995, and 1994, respectively.
Portland Plant Shutdown
On August 3, 1995, the Company announced its intention to temporarily
curtail operations in its Portland, Indiana, manufacturing facility. The Company
does not expect any material costs to be incurred relating to this curtailment.
Losses to be recognized in connection with the curtailment were recognized in
the first quarter of fiscal 1996.
(6) OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Goodwill, net of accumulated amortization of $60 and $48 in
1996 and 1995, respectively (Note 2)...................... $ 265 $ 410
Deferred tooling, design, and pre-production costs (Note
1)........................................................ 6,181 4,782
Reimbursable deferred automation, net of current portion of
$1,240 (Note 1)........................................... 2,144
Pension intangible assets and prepaid costs (Note 10)....... 1,741 1,446
Other assets, net........................................... 612 607
------ ------
$8,799 $9,389
====== ======
</TABLE>
Amortization of goodwill amounted to $12,000 in each of the fiscal years
1996, 1995, and 1994.
(7) SHORT-TERM DEBT
The Company maintains a revolving credit facility with a maximum
availability of $24,000,000, subject to certain limitations based on the levels
of accounts receivable and inventory.
Short-term debt consists of the revolving credit facility which carried a
balance of $14,292,000 and $9,360,000 at July 28, 1996 and July 30, 1995,
respectively.
On July 28, 1995, the Company elected to issue a $4,000,000 Fixed Maturity
Carve Out Note under the existing credit agreement which reclassified $4,000,000
of outstanding borrowings under the revolving credit
F-28
<PAGE> 131
BAILEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
facility to long term debt. The Fixed Maturity Carve Out Note is due in its
entirety on August 1, 1998, provided that no event of default has occurred prior
to the due date.
Obligations to the bank are secured by substantially all assets of the
Company. The term note bears interest at the bank's prime rate (8.25% at July
28, 1996) plus 0.5%. The revolving credit facility and the Fixed Maturity Carve
Out Note bear interest at the bank's prime rate. The credit agreement includes,
among other provisions, restrictive covenants relating to the maintenance of
certain financial and earnings ratios, prohibits the payment of cash dividends,
and restricts the incurrence of additional debt, except with approval of the
bank. As of July 31, 1996 as to certain of these covenants there were conditions
of non-compliance by the Company. As part of the acquisition of Bailey by
Venture Holdings Trust (see Note 18) the debt was refinanced, therefore waivers
were not obtained from the banks.
(8) LONG-TERM DEBT
Long term debt outstanding consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Term note payable to bank (Note 7).......................... $ 6,533 $ 7,333
Fixed Maturity Carve Out Note (Note 7)...................... 4,000 4,000
Ohio Bond Fund(a)........................................... 2,193 2,476
Fixed asset note(b)......................................... 5,047 5,047
Secured promissory note(c).................................. 7,667 7,000
8% convertible debenture(d)................................. 9,000 9,000
Industrial Revenue Bonds at various rates from 5% to 7% and
due in varying amounts to 2003............................ 776 975
Capital lease obligations, at various rates from 8.5% to
13.0% and due in varying amounts to 2003.................. 4,383 3,820
------- -------
Total secured debt..................................... 39,599 39,651
9% convertible subordinated notes(e)........................ 1,250 1,250
------- -------
40,849 40,901
Less current portion........................................ 9,829 7,765
------- -------
$31,020 $33,136
======= =======
</TABLE>
- ---------------
(a) This funding was received from the Director of Development of the State of
Ohio in the form of a long term lease. Ten percent or $317,000 was withheld
to reduce the amount of the final payment and an additional $500,000 was
withheld as additional security for payments under the lease. Both are
reflected as restricted cash under current assets. In August 1995, the
Company filed an application with the Director of Development for the State
of Ohio requesting conversion of both restricted cash amounts ($817,000) to
letters of credit, which was granted in fiscal year 1996.
(b) This note relates to a prior acquisition and was payable by July 1, 1996
(the "Fixed Asset Note Extension Date"). The note bears interest at the rate
of 8% and is secured by the acquired equipment and by mortgages on each of
the Hillsdale and Madison properties. The Company failed to pay the entire
principal on or prior to the Fixed Asset Note Extension Date, however, the
Company was granted an extension and repaid the note in full on August 26,
1996 (Note 18).
(c) This note relates to the Premix/EMS Acquisition (Note 2). Principal payments
of $625,000 are due bi-annually beginning on January 31, 1996, with a final
installment of $2,625,000 due on July 31, 1999. The note bears interest at a
floating prime rate and is secured by the acquired property, plant and
equipment. An additional secured promissory note was established with Premix
in January 1996 to cover the interest
F-29
<PAGE> 132
BAILEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
obligation. This note bears interest at a floating prime rate and is also
secured by the acquired property, plant and equipment. The entire obligation
is classified as current.
(d) This note relates to the Premix/EMS Acquisition (Note 2) and matures on July
31, 1999. The note is convertible into Bailey Corporation common stock at
$10 per share and requires the Company to obtain an effective registration
statement to register the "convertible shares."
(e) These notes were issued through a private placement during April 1993. The
notes are convertible into common stock in the Company at $10 per share, and
mature in the year 2000.
Aggregate principal payments due over the next five years (and thereafter)
are as follows for the fiscal years ending (in thousands):
<TABLE>
<S> <C>
July 27, 1997............................................... $ 9,829
July 26, 1998............................................... 5,486
July 25, 1999............................................... 18,902
July 31, 2000............................................... 1,449
July 30, 2001............................................... 3,460
Thereafter.................................................. 1,723
-------
$40,849
=======
</TABLE>
See Note 18 -- Subsequent Events
(9) OTHER LONG-TERM LIABILITIES
Other long-term liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Additional minimum pension liability (Note 10).............. $2,796 $1,848
Deferred gain on sale of equipment.......................... -- 108
Environmental liability (Note 15)........................... 1,322 289
Other....................................................... 32 --
------ ------
$4,150 $2,245
====== ======
</TABLE>
(10) PENSION PLANS
The Company has various retirement plans covering substantially all
employees. The Company maintains five defined benefit pension plans covering
certain full-time hourly and salaried employees. After meeting certain
qualifications, an employee acquires a vested right to future benefits. The
benefits payable under the plans are generally determined on the basis of the
employees' length of service and earnings. For all plans, the Company's funding
policy is to make at least the minimum annual contributions required by Federal
law and regulation.
The components of net pension cost are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Service costs -- benefits earned during the period.... $ 341 $ 316 $ 108
Interest cost on projected benefit obligations........ 939 873 505
Return on assets...................................... (818) (1,001) (108)
Net amortization and deferral......................... 141 450 (85)
----- ------- -----
Net pension cost................................. $ 603 $ 638 $ 420
===== ======= =====
</TABLE>
F-30
<PAGE> 133
BAILEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
The funded status of the defined benefit plans was as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
-------------------------- --------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits.............................. $4,788 $ 8,543 $3,865 $ 6,231
Nonvested benefits........................... 51 64 181 346
------ ------- ------ -------
Accumulated benefit obligation................. 4,839 8,607 4,046 6,577
====== ======= ====== =======
Projected benefit obligation................... 5,653 8,607 4,770 6,968
Market value of plan assets.................... 5,901 5,165 5,181 4,438
Excess (deficiency) of assets over projected
benefit obligation........................... 248 (3,442) 411 (2,530)
Unrecognized net loss.......................... 455 1,759 330 674
Unrecognized prior service costs............... -- 785 -- 879
Unrecognized net transition obligation......... -- 252 -- 294
------ ------- ------ -------
Prepaid (accrued) pension cost................. $ 703 $ (646) $ 741 $ (683)
====== ======= ====== =======
</TABLE>
An additional liability of $2,796,000 and $1,848,000 related to certain
plans has been included in other long-term liabilities at July 28, 1996 and July
30, 1995, respectively, to reflect the required minimum liability for
unrecognized prior service costs. As a result of recording this additional
liability the Company recorded a reduction to stockholders' equity of
$1,488,000, at July 28, 1996 and $403,000 at July 30, 1995, respectively. In
addition, an intangible asset in the amount of $1,038,000 and $1,173,000 has
been included in other assets at July 28, 1996 and July 30, 1995, respectively,
to reflect the allowable asset recognizable up to the amount of unrecognized
prior service costs.
The weighted-average assumed discount rate and rate of return on plan
assets was 7.5% and 8% in 1996 and 1995, respectively. The expected rate of
increase in compensation levels used was 4.5% for 1996 and 1995.
Plan assets consist principally of cash and cash equivalents, listed common
stocks, debentures, and fixed income securities.
The Company has a defined contribution plan whereby eligible employees may
contribute up to 10% of their salary, with a dollar-for-dollar match by the
Company of up to 2% of an employee's salary. The Company recorded expense under
this plan of $294,000, $286,000 and $220,000 for 1996, 1995 and 1994,
respectively.
During fiscal year 1994 the Company and the Union agreed to temporarily
freeze benefit accruals of the Bailey Hourly Pension Plan in consideration for
providing an increasing schedule of benefit levels during the course of the
bargaining agreement. The schedule of increasing benefit levels for years of
service is as follows for retirements occurring on or after:
<TABLE>
<S> <C>
June 8, 1996................................................ $20.00
June 8, 1997................................................ $21.00
June 8, 1998................................................ $22.00
</TABLE>
F-31
<PAGE> 134
BAILEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
(11) INCOME TAXES
Income tax expense (benefit) from operations consists of (in thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Year ended July 28, 1996:
U.S. Federal.............................................. $(2,324) $(7,698) $(10,022)
State and local........................................... 278 (1,340) (1,062)
------- ------- --------
$(2,046) $(9,038) $(11,084)
======= ======= ========
Year ended July 30, 1995:
U.S. Federal.............................................. $ 513 $(1,218) $ (705)
State and local........................................... 142 (215) (73)
------- ------- --------
$ 655 $(1,433) $ (778)
======= ======= ========
Year ended July 31, 1994:
U.S. Federal.............................................. $ 1,001 $ 698 $ 1,699
State and local........................................... 355 153 508
------- ------- --------
$ 1,356 $ 851 $ 2,207
======= ======= ========
</TABLE>
The reconciliation between the U.S. Federal statutory rate and the
Company's effective rate is:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------
JULY 30, JULY 31, JULY 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Statutory Federal income tax rate........................... 34.0% 34.0% 34.0%
State taxes (benefit), net.................................. 5.9 (3.1) 6.9
Environmental settlement.................................... -- 2.1
Benefit of net operating loss carryback..................... (7.5)
Other, net.................................................. 3.6 2.1 1.4
---- ---- ----
36.0% 33.0% 44.4%
==== ==== ====
</TABLE>
F-32
<PAGE> 135
BAILEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at July 28,
1996 and July 30, 1995 are presented below (in thousands):
<TABLE>
<CAPTION>
JULY 28, JULY 31,
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets:
Accounts receivable....................................... $ 543 $ 450
Inventories............................................... 647 414
Accrued Expenses and Reserves............................. 8,612 979
Minimum pension adjustment................................ 271 271
Alternative minimum tax credit carryforwards.............. 764 1,329
Net operating loss carryforwards.......................... 2,860 160
Environmental Liability................................... 520 106
------- -------
Total deferred tax assets.............................. 14,217 3,709
------- -------
Deferred tax liabilities:
Property, plant and equipment............................. (3,973) (2,732)
Deferred tooling, design and pre-production costs......... (872) (640)
Other..................................................... (62) (65)
------- -------
Total deferred tax liabilities......................... (4,907) (3,437)
------- -------
Net deferred tax assets................................ $ 9,310 $ 272
======= =======
</TABLE>
The Company's net operating loss carryforwards totaled $8,500,496 at July
28, 1996 and will expire in the year 2011. Alternative minimum tax credit
carryforwards totaled $763,827 and have no expiration date.
Management believes the Company will obtain the full benefit of net
operating loss carryforwards and other temporary differences recorded as
deferred tax assets on the basis of its evaluation of the Company's anticipated
profitability over the years that the temporary difference are expected to be
tax deductions. Management believes that sufficient book and taxable income will
be generated to realize the benefit of these assets. This assessment takes into
account the acquisition by Venture Holdings Trust (see Note 18) and the
Company's expected future earnings based on automotive supply contracts for
parts to be produced beginning with the 1997 model year.
(12) STOCKHOLDERS' EQUITY
Public Offering
In September, 1993, the Company completed a public offering of 1,076,600
shares of its $.10 par value common stock. The net proceeds from the offering of
$10,596,000 were used to reduce short-term borrowings, pay down certain
long-term debt, retire the subordinated debentures payable to related parties,
and to fund working capital requirements.
Stockholder Rights Plan
On September 28, 1995, the Board of Directors of the Company adopted a
stockholder rights plan. Under the plan, the Company declared a dividend of one
Right for each outstanding share of common stock, par value $.10 per share. The
Rights will be issued to the holders of record of shares of Common Stock
outstanding on September 28, 1995, and with respect to shares of Common Stock
issued thereafter until the Distribution Date (as defined in the Rights
Agreement) and, in certain circumstances, with respect to shares of Common Stock
issued after the Distribution Date. Each Right, when it becomes exercisable as
defined in the Rights Agreement , will entitle the registered holder to purchase
from the Company one share of Common Stock at a price of $28. The description
and terms of the Rights are set forth in a Rights Agreement dated as
F-33
<PAGE> 136
BAILEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
of September 28, 1995 between the Company and State Street Bank and Trust
Company, as Rights Agent. In connection with the purchase of Bailey by Venture
Holdings Trust (Note 18) these rights were terminated.
Common Stock Warrants
In addition to warrants issued with subordinated debentures issued in June
1992, the Company, in connection with a financing agreement in 1988, issued a
warrant to a lender to purchase 115,794 shares of common stock at $.0033 per
share. The estimated value of this warrant at the time of issuance was $175,000,
which was recorded as a liability. The warrant was subject to certain put and
call provisions, which expired on June 30, 1992. Therefore the amount of the
expired put option was transferred to additional paid-in capital in 1992. On
August 5, 1993, 115,794 shares of common stock were issued pursuant to the
exercise of these warrants. At July 30, 1995, 62,500 warrants remain outstanding
relating to the subordinated debentures issued in June 1992 (Note 18).
Stock Option Plans
In April 1986, the Company adopted an incentive stock option plan ("the
1986 plan"). The Company has reserved 200,000 shares of common stock for
distribution under the 1986 plan. Options to purchase common stock under the
1986 plan will be exercisable during a period not to exceed ten years from the
date the options are granted with option prices of not less than 100% of the
fair market value of the stock on the respective date of grant, or 110% of the
fair market value if granted to persons owning more than 10% of the outstanding
stock.
On November 2, 1994, 10,000 options were granted under the 1986 plan at
equivalent exercise prices and vesting periods as the non-qualified stock
options.
On November 2, 1994, the Company granted 293,000 non-qualified stock
options to key employees at an exercise price equivalent to the fair market
value on the date of grant ($7.18). Up to 25% of the options were exercisable
effective on the grant date with all remaining options vesting ratably over
three years. Subsequent to November 2, 1994, 55,000 options were cancelled as a
result of termination of the employees' employment.
In connection with a four-year employment agreement with an officer of a
subsidiary, on June 26, 1992 the Company granted options to purchase 120,000
shares of the Company's common stock, exercisable for 30,000 shares immediately
and an additional 30,000 shares on each anniversary of the employment agreement.
The options are exercisable at $4.75 per share as determined by the agreement.
In fiscal year 1994, 60,000 shares were exercised.
During 1994 the Company granted two option agreements to two officers of
the Corporation. The first agreement granted options to purchase 50,000 shares
of the Company's common stock at $6.125 per share (market value on date of
issuance), exercisable for 12,500 shares immediately and an additional 12,500
shares on each anniversary of the agreement. The second agreement granted
options to purchase 100,000 shares of the Company's common stock at $11 per
share (market value on date of issuance), exercisable for 25,000 shares
immediately and an additional 25,000 shares on each anniversary of the
agreement.
Subsequent to year end in connection with the acquisition (Note 18), all
options, both vested and non-vested, were rescinded. In exchange for the
options, Venture Holdings Trust agreed to settle these obligations for
approximately $5.1 million which represents the difference between the purchase
price ($8.75 per share) and the option exercise price. This represents
approximately 1.7 million option shares.
F-34
<PAGE> 137
BAILEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
(13) MAJOR CUSTOMERS
Sales to third parties are concentrated in a few major customers and
consisted of the following percentages of the Company's total net sales:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Ford Motor Company.......................................... 59% 57% 83%
General Motors Corporation.................................. 24% 28% 5%
Freightliner Corporation.................................... 2% 5% 5%
Other....................................................... 15% 10% 7%
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
(14) RELATED PARTY TRANSACTIONS
Certain nonemployee directors provided consulting services to the Company
totaling $248,000, $288,000 and $298,000 in 1996, 1995, and 1994, respectively.
Interest payments made to related parties on subordinated debentures which
were retired in the first quarter of fiscal 1994 amounted to $15,000 in fiscal
year 1994.
(15) COMMITMENTS AND CONTINGENCIES
The Company is subject to a variety of legal proceedings, contractual
obligations and environmental issues, arising out of the conduct of its
business, which are pending or threatened.
Environmental Costs
The Company and its immediate predecessor, USM's Bailey Division, have been
named as potentially responsible parties ("PRP") at the Resolve Superfund site
and at the Solvents Recovery Services site. At both sites, the Company and all
other PRP's are jointly and severally liable for all remediation costs under
applicable environmental laws. The Company is pursuing indemnification from USM
and/or USM's insurers for some of its costs associated with the remediation
efforts at both sites.
The Company also faces potential environmental liability relating to the
Conneaut, Contour and Premix/EMS Acquisitions if the former owners cannot
fulfill the environmental obligations relating to their ownership. For each
acquisition the Company has been indemnified for environmental obligations
arising prior to its ownership as part of the acquisition agreements.
Additionally, part of the purchase consideration for the Conneaut Acquisition
was escrowed and the right to offset debt issued by the Company in connection
with the Contour and Premix/EMS Acquisitions exists to specifically cover
environmental obligations of the former owners.
The Company's policy is to accrue environmental costs of a non-capital
nature when it is both probable that a liability has been incurred and the
amount can be reasonably estimated. On-going costs of compliance with
environmental laws are charged to expense when incurred. Where the estimate is a
range and no amount within the range is a better estimate than any other amount,
the Company accrues the minimum amount in the range. The reliability and
precision of the environmental accruals are affected by numerous factors, such
as different stages of site evaluation, the allocation of responsibility among
PRP's and the assertion of additional claims. The Company adjusts its accruals
as new remediation requirements are defined, as information becomes available
permitting reasonable estimates to be made, and to reflect new and changing
facts. At July 28, 1996, and July 30, 1995, the Company's environmental accruals
totaled $1,322,000 and $289,000, respectively and related to its share of
mandated payments as a PRP for remediation of the Resolve site. The Company
believes it has identified and accrued for its material likely environmental
exposures and that any
F-35
<PAGE> 138
BAILEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
additional liability relating to identified sites is immaterial to its
liquidity, financial position and results of operations and liquidity.
During fiscal 1995 and 1994, the Company paid approximately $33,000 and
$370,000, respectively, for mandated payments as a PRP for remediation of the
Resolve site which was charged against previously accrued liabilities.
Additionally, in May 1994, the Company settled alleged waste handling violations
through payment of a $300,000 fine. The settlement resolved all claims by the
state of New Hampshire arising out of a 1990 review.
Litigation
In June 1994, the Company was served with a summons and complaint with
respect to a purported class action suit brought in the United States District
Court for the District of New Hampshire. The complaint alleged that the Company
violated Rule 10b-5 of the Securities Exchange Act of 1934 by a purported
dissemination of misleading information as to its financial position in
connection with the purchase and sale of its securities. The Company was
successful in having the complaint dismissed, and second amended complaint
dismissed with prejudice. The plaintiff subsequently appealed this decision to
the First Circuit Court of Appeals. Subsequent to year end, the Appeals Court
affirmed the District Court dismissal. Although an appeal to the U.S. Supreme
Court is possible, legal counsel believes it is unlikely given the nature of the
case. If the plaintiff is successful, Bailey intends to vigorously assert
defenses which it believes to be meritorious.
The Company is also involved in other litigation arising in the normal
course of business. Management does not believe that such litigation will have a
material impact on its financial position or results of operations or liquidity.
Development Joint Venture
The Company has entered into a joint venture for the development of certain
non-automotive plastic products. The joint venture, a limited liability company
named Rail Pak, LLC (the Venture), is 60% owned by the Company and 40% by an
unrelated third party corporation. Under the agreement, the Company has
committed to providing limited technical support and to funding initial product
development up to $300,000 (Phase I) and at the option of the Company, at its
sole discretion, may either elect to continue funding for production (Phase II)
or may surrender its interests in the venture with no remaining liability.
During the fiscal year ended July 30, 1995, the Company funded the venture in
the cash amount of $240,000 and is committed to an additional $60,000 of funding
to the Venture for Phase I. Due to the uncertainty of continuation of the
Venture on the part of the Company, Phase I costs are expensed as engineering
costs in the Company's financial accounts. In the event that the Company elects
to proceed with funding Phase II (the production phase), the accounts of the
Venture will be included in the Company's consolidated financial statements.
Nonemployee Directors' Retirement Agreements
In October 1994, four nonemployee directors rescinded existing agreements
issued during fiscal 1994 in exchange for new retirement agreements, the terms
of which were under negotiation. The new agreements are expected to provide a
maximum benefit of $60,000 per year for five years after retirement from the
board, plus lifetime participation in the Company's healthcare plan. On June 5,
1996 the directors entered into non-compete agreements, which will take effect
upon their termination of services. The agreements provide $60,000 per year for
five years and other fringe benefits.
F-36
<PAGE> 139
BAILEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
Leases
The Company leases certain office facilities, machinery and equipment and
automobiles under operating leases with unexpired terms ranging from one to four
years. Payments due under operating leases over the next five years are as
follows for the fiscal years ending (in thousands):
<TABLE>
<CAPTION>
<S> <C>
July 28, 1997............................................... $484
July 27, 1998............................................... 155
July 26, 1999............................................... 62
July 25, 2000............................................... 22
----
$723
====
</TABLE>
Rent expense under operating leases was $1,335,000, $911,000 and $589,000
for the fiscal years ended 1996, 1995 and 1994, respectively.
Letters of Credit
At July 28, 1996 and July 30, 1995, the Company was contingently liable for
$2,300,000 and $1,096,000 related to letters of credit outstanding which
guarantee various trade activities.
(16) SUPPLEMENTAL CASH FLOW INFORMATION
Selected cash payments and noncash activities were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for:
Interest.................................................. $4,738 $3,061 $ 1,716
Income taxes.............................................. 55 1,206 2,680
Net assets acquired through issuance of debt in the
Premix/EMS Acquisition (Notes 2 and 8).................... -- -- 16,480
Minimum pension liability charge to equity (Note 10)........ 1,085 97 306
Gain on debt extinguishment (Note 8)........................ -- -- 165
Tax benefit from exercise of stock options.................. -- 193 105
Assets acquired under capitalized leases.................... 809 1,469 212
</TABLE>
F-37
<PAGE> 140
BAILEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements -- Continued
(17) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
1995
Net sales..................................... $45,177 $41,057 $47,729 $34,265 $168,228
Gross profit (loss)........................... 6,740 5,479 5,798 (1,203) 16,814
Operating income (loss)....................... 3,355 1,777 1,964 (5,582) 1,514
Net income (loss)............................. 1,473 522 588 (4,162) (1,579)
Net income (loss) per share -- primary........ $.27 $.10 $.11 $(.77) $(.29)
Net income (loss) per share -- fully
diluted..................................... $.25 $.10 $.11 $(.77) $(.29)
1994
Net sales..................................... 26,903 26,653 30,677 24,080 108,313
Gross profit (loss)........................... 4,058 3,958 4,834 3,084 15,934
Operating income (loss)....................... 2,076 1,853 2,098 594 6,621
Net income (loss)............................. 940 867 894 65 2,766
Net income (loss) per share -- primary(1)..... $.19 $.16 $.16 $.01 $.52
Net income (loss) per share -- fully
diluted..................................... $.18 $.16 $.16 $.01 $.52
</TABLE>
- ------------
(1) Note: Due to rounding, the sum of quarterly figures do not equal full year
net income per share
(18) SUBSEQUENT EVENTS
On August 26, 1996 all of the Company's stock was acquired by Venture
Holdings Trust, a privately held company, for an aggregate purchase price of $57
million. The purchase price reflects a per share price of $8.75 for each of the
outstanding shares of the Company including all of the outstanding options and
warrants. As a result of the acquisition, the Company is no longer required to
publicly file its financial statements with the Securities and Exchange
Commission. In connection with the acquisition, the following debt was
refinanced:
<TABLE>
<S> <C>
Revolving Credit Facility................................... $18,024
Capital Leases.............................................. 1,534
9% Convertible Subordinated notes........................... 1,250
Term note payable to bank................................... 6,467
Fixed asset note............................................ 5,047
Secured promissory note..................................... 7,667
8% convertible debenture.................................... 9,000
Fixed Maturity carve out note............................... 4,000
-------
$52,989
=======
</TABLE>
F-38
<PAGE> 141
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME AND OPERATIONS
The following unaudited pro forma condensed consolidated statement of
income and operating data of the Company, for the year ended December 31, 1996,
gives effect to the acquisition of Bailey as if it occurred on January 1, 1996.
The unaudited pro forma condensed consolidated financial information does not
purport to represent what the Company's results of operations would actually
have been had the acquisition of Bailey occurred on the date indicated above or
to project the Company's results of operations for any future date or period.
This unaudited pro forma condensed consolidated financial information should be
read in conjunction with the accompanying notes and with the historical
financial statements of the Company and the financial statement of Bailey,
including, in each case, the notes thereto, and the information set forth in
"Summary Financial and Operating Data," "Selected Consolidated Financial Data"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations," all included elsewhere herein.
P-1
<PAGE> 142
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF INCOME AND OPERATING DATA
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
UNAUDITED
BAILEY CORPORATION VENTURE HOLDINGS PRO FORMA PRO FORMA
AND SUBSIDIARIES(1) TRUST(2) ADJUSTMENTS TOTAL
------------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales.............................. $119,341 $351,777 $ 0 $471,118
Cost of Sales.......................... 112,273 302,940 (8,607)A 406,129
(477)B
Gross Profit........................... 7,068 48,837 9,084 64,989
Selling & Administrative............... 10,240 26,588 (474)A 38,784
1,148 C
1,428 D
786 E
(932)F
Payments to Beneficiaries.............. 0 666 0 666
Income from Operations................. (3,172) 21,583 7,128 25,539
Interest Expense....................... 3,048 19,248 4,130 G 26,426
Income before Extraordinary Loss....... (6,220) 2,335 2,998 (887)
Extraordinary Loss..................... 0 2,738 0 2,738
Income After Extraordinary Loss........ (6,220) (403) 2,998 (3,625)
Income Taxes........................... (1,759) 336 1,200 H (223)
Net Income............................. $ (4,461) $ (739) $ 1,798 $ (3,402)
Other Financial Data:
Depreciation & Amortization............ 4,595 22,628 3,362 30,585
EBITDA................................. 1,423 44,877 10,490 56,790
</TABLE>
- ---------------
(1) Financial information presented includes Bailey Corporation and Subsidiaries
for the period from January 1, 1996 through August 25, 1996.
(2) Financial information presented includes Venture Holding Trust for the
twelve months ended December 31, 1996 and Bailey Corporation and
Subsidiaries for the period from August 26, 1996 through December 31, 1996.
A The pro forma adjustment represents the savings related to headcount
reductions subsequent to the acquisition of Bailey Corporation and
Subsidiaries of approximately 300 employees, that resulted from the
consolidation of certain functions. The majority of the headcount reductions
occurred in November 1996.
B The pro forma adjustment represents volume pricing discounts related to
combining the individual entities procurement of raw materials with respect
to an existing supplier.
C The pro forma adjustment represents the amortization of the goodwill that
resulted from the Bailey Corporation and Subsidiaries acquisition over a
thirty year period, net of amortization previously recognized on goodwill
related to Bailey Corporation and Subsidiaries (pre-acquisition) from 1/1/96
to 8/25/96.
D The pro forma adjustment represents the depreciation expense related to the
revaluation of acquired fixed assets. The write-up of machinery and
equipment is depreciated over a range of 5 to 20 years and the write-up of
buildings is depreciated over a range of 10 to 40 years.
E The pro forma adjustment represents the amortization of transaction and
financing costs resulting from the acquisition over the term of the
additional debt, net of amortization previously recognized on deferred
financing costs related to Bailey Corporation and Subsidiaries
(pre-acquisition) from 1/1/96 to 8/25/96.
F The pro forma adjustment represents the elimination of redundant general and
administrative expenses.
G The pro forma adjustment represents the incremental interest expense
necessary to reflect the total interest expense on the outstanding debt of
the combined entity.
H The pro forma adjustment represents the income tax effect of pro forma
adjustments A thru G at the applicable statutory rates of approximately 40%.
P-2
<PAGE> 143
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING
CONTAINED HEREIN OTHER THAN THOSE 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 ISSUERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN
THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION IS NOT AUTHORIZED, OR WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. 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 ISSUERS
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................. 1
Risk Factors............................ 14
Exchange Offer.......................... 21
Use of Proceeds......................... 29
Capitalization.......................... 29
Selected Consolidated Financial Data.... 30
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 32
Business................................ 38
Management.............................. 54
Stock Ownership......................... 57
Certain Transactions.................... 57
The Trust............................... 61
Description of Certain Indebtedness..... 62
Description of Notes.................... 64
Certain Federal Income Tax
Considerations........................ 92
Plan of Distribution.................... 95
Legal Matters........................... 96
Experts................................. 96
Index to Consolidated Financial
Statements............................ F-1
Unaudited Pro Forma Condensed Statement
of Income and Operations.............. P-1
</TABLE>
UNTIL JANUARY 27, 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
$205,000,000
VENTURE LOGO
VENTURE HOLDINGS TRUST
SERIES B 9 1/2% SENIOR
NOTES DUE 2005
------------------------------
PROSPECTUS
OCTOBER 29, 1997
------------------------------
======================================================
