<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file Number: 333-34475
---------
VENTURE HOLDINGS TRUST
(Exact name of registrant as specified in its charter)
Michigan 3714 38-6530870
(Primary standard industrial classification code number)
VEMCO, INC.
Michigan 38-2737797
VENTURE INDUSTRIES CORPORATION
Michigan 38-2034680
VENTURE MOLD & ENGINEERING CORPORATION
Michigan 38-2556799
VENTURE LEASING COMPANY
Michigan 38-2777356
VEMCO LEASING, INC.
Michigan 38-2777324
VENTURE HOLDINGS CORPORATION
Michigan 38-2793543
VENTURE SERVICE COMPANY
Michigan 38-3024165
(State or other (Exact name of registrant as (I.R.S. Employer
jurisdiction of specified in its charter) Identification
incorporation or Number)
organization)
------------------
33662 James J. Pompo
Fraser, Michigan 48026
(810) 294-1500
(Address, including zip code, and telephone number,
including area code, of registrants' principal
executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The common stock of each of the registrants, except for Venture Holdings Trust,
is owned by Venture Holdings Trust.
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VENTURE HOLDINGS TRUST
FORM 10-K
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE #
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PART I
<S> <C> <C>
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to Vote of Security Holders 8
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholders Matters 9
Item 6. Selected Consolidated Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of 10
Operations
Item 7a. Quantitative and Qualitative Disclosures about Market Risks 15
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 32
PART III.
Item 10. Directors and Executive Officers of Registrant 32
Item 11 Executive Compensation 33
Item 12 Security Ownership of Certain Beneficial Owners and Management 34
Item 13 Certain Relationships and Related Transactions 34
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 37
SIGNATURES 38
</TABLE>
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PART 1
ITEM 1. BUSINESS
GENERAL
Venture Holdings Trust (the "Trust") together with its wholly owned
subsidiaries (each a "Subsidiary" and, collectively, the "Subsidiaries") 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. As used herein, the "Company" refers
to the Trust and the Subsidiaries taken as a whole. 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,
sidewall 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"),
DaimlerChrysler Corporation ("DaimlerChrysler") and a number of their various
Tier 1 suppliers, such as Autoliv S.A., and TRW Automotive Company.
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 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 and systems 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 design, development and just-in-time manufacturing processes.
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.
Venture Holdings Trust was established December 28, 1987 by Larry J. Winget
("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 Subsidiaries.
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.
RECENT DEVELOPMENTS
On March 8, 1999, the Trust's subsidiary, Venture Beteiligungs GmbH, entered
into an agreement to acquire Peguform GmbH ("Peguform"), a leading European
supplier of high performance interior and exterior plastic modules, systems and
components to European OEMs (the "Peguform Acquisition"). Interior components
include dashboards and door panels, which it supplies to a wide range of
European OEMs, including Volkswagen("VW"), Audi, Seat, Skoda, Porsche, Opel and
Daimler-Benz. Exterior components include bumpers and hatchback doors, which are
supplied to VW, Audi, Seat, Skoda, Porsche, BMW, PSA, Renault, Volvo,
Daimler-Benz, and Opel.
Peguform's headquarters and engineering facilities are located in Botzingen,
Germany. It has manufacturing facilities in Germany, France, Spain, the Czech
Republic, and Mexico. During the quarter ending June 30, 1999, Peguform plans to
begin manufacturing operations at a new facility in Brazil.
The aggregate purchase price for Peguform is approximately DEM 850 million
(approximately $466 million based upon the published United States Dollar
exchange rate on March 30, 1999), subject to certain post-closing adjustments.
Consummation of the Peguform Acquisition is subject to only limited conditions,
including approval of the shareholders of Klockner-Werke AG, the parent of
Peguform, and receipt of regulatory approvals. The purchase agreement does not
permit the Company to terminate the transaction, even if there has been a
material adverse change in the business of Peguform from the date of signing the
purchase agreement to closing, which is currently expected to occur no later
than May 31, 1999.
The Company has executed commitment letters with BankOne Corporation, and
its affiliates, pursuant to which BankOne Corporation has committed, subject to
certain conditions, to provide financing for the Peguform Acquisition.
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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 sidewall 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, sidewall hard trim components and door panels. The Company also
emphasizes complex products, such as instrument panels, which require the
integration of multiple components, including ashtrays and glove compartments,
into complete sub-assemblies.
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>
------------------- --------------------------------------------------------------- ---------------------------------------
COMPONENT OEM/CUSTOMER 1999 PRODUCTION(A) AWARDED BUSINESS ON FUTURE PRODUCTION(B)
------------------- --------------- ----------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
Interior Trim General Motors Achieva, Blazer, Cadillac S5S, Camero, Bravada, Blazer Century, Jimmy,
Cavalier, Century, Express/Savana Van, Regal, Envoy, GMT 370, GMT 560
Lumina, Park Avenue, Regal, STS Skylark,
Sunfire, Suburban, TransAm, Tahoe
--------------- ----------------------------------------------- ---------------------------------------
Ford Continental, Escort, Mountaineer, Taurus
--------------- ----------------------------------------------- ---------------------------------------
Chrysler B Van, Breeze, Cirrus, Concorde, Eagle, B Van, Breeze, Cherokee, Cirrus,
Grand Cherokee, LHS, 300M, Intrepid, Neon, Neon, Stratus, PT
Stratus, Wrangler, Viper
--------------- ----------------------------------------------- ---------------------------------------
DEPCO Bonneville
--------------- ----------------------------------------------- ---------------------------------------
Finley Beauville
Industries
--------------- ----------------------------------------------- ---------------------------------------
Lear Chrysler Ram 150/350 Pickup, Windstar
------------------- --------------- ----------------------------------------------- ---------------------------------------
Instrument and General Motors Corvette
Door Panels/ --------------- ----------------------------------------------- ---------------------------------------
Assemblies Chrysler B Van B Van, Jeep Cherokee
------------------- --------------- ----------------------------------------------- ---------------------------------------
Airbag Covers Autoliv Accord, Alero Cobra, Caravan, Grand Am, Grand
Cherokee, Mazda 626, Mustang, Mercedes,
Navigator, S5S, Sable, Subaru, Taurus Town &
Country, Volkswagen Voyager
--------------- ----------------------------------------------- ---------------------------------------
Breed Suzuki Tracker, Wrangler Chrysler RS
--------------- ----------------------------------------------- ---------------------------------------
TRW Breeze, Cirrus, Mustang, Neon, Stratus,
PN96, Town Car, Ranger
------------------- --------------- ----------------------------------------------- ---------------------------------------
Cladding/Exterior General Motors Achieva, Achieve GT, Astro Van, Blazer, Malibu
Bonneville, Cavalier, Century,
Corvette, Denali, DeVille, Eldorado,
Escalade, Express/Savana Van, Grand
Am, Grand Am GT, Grand Prix,
Intrigue, Lumina, Monte Carlo, Opel,
Regal, Safari, Saturn, Silhouette,
Skylark, Sunfire, Transport, Yukon,
Venture
--------------- ----------------------------------------------- ---------------------------------------
Ford Econoline Van, Escort, Expedition, Explorer, Navigator
F-Series Pickups, Mustang, Navigator,
Nissan, Quest, Ranger, Villager, Windstar
--------------- ----------------------------------------------- ---------------------------------------
Chrysler B Van, Dakota, Durango, Eclipse, Minivan, Dakota, Mercedes M Class
Viper
--------------- ----------------------------------------------- ---------------------------------------
Freightliner Truck
------------------- --------------- ----------------------------------------------- ---------------------------------------
Fascias General Motors Astro, DeVille, Denali, Escalade, Eldorado,
LeSabre, Seville, Safari, Transport, Tahoe,
Opel, STS, Venture, Yukon
--------------- ----------------------------------------------- ---------------------------------------
Ford Expedition, F-Series Pickup, Explorer, Ranger
--------------- ----------------------------------------------- ---------------------------------------
Isuzu Honda, Rodeo Rodeo
------------------- --------------- ----------------------------------------------- ---------------------------------------
Functional General Motors Blazer, Delphi-AC Spark Plug, G Van,
Components Express/Savana Van, Seville, Skylark
--------------- ----------------------------------------------- ---------------------------------------
Ford Contour, Escort, F-Series Pick up, Jaguar, Econoline Van, Thunderbird
Lincoln LS, Mustang, Mystique, Navigator
------------------- --------------- ----------------------------------------------- ---------------------------------------
Miscellaneous Club Car Golf Cart bodies
Non-Automotive
------------------- --------------- ----------------------------------------------- ---------------------------------------
</TABLE>
(a) Represents models for which the Company will produce products in 1999.
(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. 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, 1998 and 1997, as a percentage of net sales,
interior components accounted for approximately - 18% and 15%, exterior
components accounted for 68% and 70%, and tooling accounted for 14% and 15%,
respectively.
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CUSTOMERS AND MARKETING
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. 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. 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. 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 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.
General Motors, Ford and DaimlerChrysler dominate the North American
automotive market, although foreign OEMs have achieved significant market share.
The Company's principal customers are General Motors, Ford and DaimlerChrysler
and other Tier 1 suppliers, such as Autoliv, S.A. and TRW Automotive Company.
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 continues to pursue opportunities with foreign-based OEMs with North
American operations. The Company's non-automotive customers include Club Car,
Inc. (golf cart bodies and cowls).
The approximate net sales and percentage of net sales to the Company's
customers for the years ended December 31, 1996 through 1998 are shown below
(dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
-------------- -------------- ---------------
CUSTOMER
---------------------
<S> <C> <C> <C> <C> <C> <C>
General Motors....... $ 246 38% $ 248 40% $ 145 41%
Ford................. 150 23 170 27 57 16
DaimlerChrysler...... 98 15 47 8 41 12
Foreign OEM's........ 31 5 44 7 -- --
Tier 1 Suppliers to
OEMs............... 97 15 81 13 81 23
Other Non-Automotive. 23 4 34 5 28 8
------ ------ ------ ------ ------ ------
Total........... $ 645 100% $ 624 100% $ 352 100%
====== ====== ====== ====== ====== ======
</TABLE>
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."
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 annual purchase orders 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.
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., LDM Technologies, Textron Automotive
division of Textron Corporation, Lear Corporation, The Budd Company plastic
division, Johnson Controls, Inc., and United Technologies Automotive division,
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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 former 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, 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.
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, 1998, the Company employed
approximately 3,890 persons. The Company has 624 hourly persons at the Seabrook,
New Hampshire and Lancaster, Ohio facilities, who are covered by collective
bargaining agreements with the United Auto Workers. The Seabrook contract,
representing about 11% of the workforce, expires June 1999, and the Lancaster
contract expires in June 2001. 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.
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 is not expected to have a material adverse effect
on the Company's financial position or results of operations.
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.
Estimates of the costs of future compliance with such 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
December 31, 1998, the Company had a reserve of approximately $1.3 million to
address the known issues 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.
ITEM 2. 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
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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 2001
model year.
The following table sets forth certain information concerning the Company's
facilities.
<TABLE>
<CAPTION>
-------------------------- -------- ---------- ----------------------------------
TYPE
SQUARE OF DESCRIPTION
LOCATION FOOTAGE INTEREST OF USE
-------------------------- -------- ---------- ----------------------------------
MICHIGAN
<S> <C> <C> <C>
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
-------------------------- -------- ---------- ----------------------------------
Service Center...... 6,000 Leased Administration
-------------------------- -------- ---------- ----------------------------------
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
-------------------------- -------- ---------- ----------------------------------
Almont Facility II.. 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 Owned 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 (inactive)
-------------------------- -------- ---------- ----------------------------------
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, formerly owned a minority
interest. In addition, the Company has subcontracted certain work to Nova
Corporation ("Nova"), a business in which Mr. Winget has a significant equity
interest.
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ITEM 3. LEGAL PROCEEDINGS
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.
In December of 1997, the Company settled litigation with the contractor that
built the paint line at Vemco, Inc. for $2.0 million. Of this amount, $0.8
million was recorded as a reduction to the carrying value of the paint line and
$1.2 million was recorded as miscellaneous income.
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.
As previously reported, on February 23, 1998, the Attorney General of the
State of Michigan and the Michigan Department of Environmental Quality (MDEQ)
instituted legal proceedings in state court alleging violations by the Company
of current permits regarding the level of emissions and odors discharged from
its Grand Blanc paint facility. These proceedings seek and may result in the
imposition of civil penalties of up to $10,000 per day; the total amount is not
reasonably estimable given the current status of the proceedings. Emission
levels are being evaluated as part of the proceedings, and it is possible the
Company may be required to make capital expenditures of $2 million to $5 million
to the current systems to come into compliance. During the first quarter of
1999, the U.S. Environmental Protection Agency has issued a notice of violation
and taken an active role in monitoring the legal proceeding and may take action
separate and distinct from the legal proceedings begun by the State of Michigan
and MDEQ.
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
December 31, 1998 and 1997 the Company had a reserve of approximately $1.3 and
$1.3 million, respectively, to address the issues discussed above and for
compliance monitoring activities that may be incurred. The Company periodically
evaluates and revises estimates for environmental reserves based upon
expenditures against established reserves and the availability of additional
information. 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 ultimate cost of resolving these matters could not be
precisely determined at December 31, 1998, management believes, based on
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
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PART II
ITEM 5. MARKET FOR THE REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
All of the Subsidiaries' capital stock is owned by the Trust, of which Mr.
Winget is the sole beneficiary. Thus there is no market for such capital stock.
DIVIDENDS
No dividends were declared in 1998 or 1997. The Company is restricted by
certain debt covenants from paying dividends except for distributions related to
the payment of taxes by the beneficiary of the Trust related to the results of
operations of the Company and its Subsidiaries.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated balance sheet data and income statement data
presented below as of December 31, 1998 and 1997 and for the years ended
December 31, 1998, 1997 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 consolidated
financial statements and notes thereto included elsewhere herein. The selected
consolidated income statement data and balance sheet data presented below as of
December 31, 1996, 1995 and 1994 and for the years ended December 31, 1995 and
1994, are derived from the Company's audited consolidated financial statements
not included herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(1)(2):
Net sales............................. $ 645,196 $ 624,113 $ 351,777 $251,142 $244,112
Cost of products sold................. 532,809 521,361 302,940 211,262 199,717
Gross profit........................ 112,387 102,752 48,837 39,880 44,395
Selling, general and administrative 59,689 57,217 26,588 20,129 19,200
expense...............................
Payments to beneficiary in lieu of 535 472 666 577 3,405
taxes(3)..............................
Income from operations................ 52,163 45,063 21,583 19,174 21,790
Interest expense...................... 36,641 30,182 19,248 15,032 14,345
Net income before extraordinary
items and taxes..................... 15,522 14,881 2,335 4,142 7,445
Net extraordinary loss on early
retirement of debt.................... -- -- 2,738 -- --
Net income (loss) after
extraordinary items................. 15,522 14,881 (403) 4,142 7,445
Tax provision(4)...................... 1,954 3,358 336 -- --
Net income (loss)................... 13,568 11,523 (739) 4,142 7,445
Ratio of earnings to fixed charges(5).. 1.4X 1.5X 1.2x 1.3x 1.7x
OTHER FINANCIAL DATA:
EBITDA(6)............................. $ 94,216 $ 77,682 $ 44,877 $ 35,819 $ 39,265
Depreciation and amortization......... 39,320 32,147 22,628 16,068 14,070
Capital expenditures.................. 24,706 33,012 64,593 20,339 22,798
Net cash provided by (used in):
Operating activities................ (5,393) (13,058) 35,003 10,950 (3,066)
Investing activities................ (24,706) (37,093) (121,547) (20,339) (22,798)
Financing activities................ 28,752 36,192 82,976 (655) 53,643
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital....................... $ 168,655 $ 125,101 $ 83,403 $ 74,354 $ 85,258
Property, plant and equipment -- net.. 200,544 205,765 201,035 116,299 111,472
Total assets.......................... 541,315 524,122 498,067 231,602 234,435
Total debt............................ 364,939 336,188 299,996 152,463 153,118
Trust principal....................... 77,113 64,282 52,759 53,498 49,356
</TABLE>
- -------------
(1) The Trust operates as a holding company and has no independent operations of
its own. Separate financial statements of the Subsidiaries have not been
presented because the Company does not believe that such information would
be material to an understanding of the Company's results of operations or
financial position.
(2) The results for 1996 include the operations of Bailey from August 26, 1996,
and of Venture Grand Rapids from June 3, 1996.
9
<PAGE> 10
(3) The Company makes 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 that have elected "S" corporation
status under the Code. For all the years presented, 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 Venture Holdings Corporation (which
operates 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) EBITDA represents income from operations before deducting taxes,
depreciation, amortization, interest and distributions to the beneficiary
of the Trust. 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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of liquidity and
operating results.
ITEMS 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion and analysis contains a number of "forward looking"
statements within the meaning of the Securities Exchange Act of 1934 and are
subject to a number of risks and uncertainties. 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; year 2000 compliance; retention of earnings; control and the level
of affiliated transactions.
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
----------------------------
YEARS ENDED DECEMBER 31,
------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0%
Cost of products sold............................... 82.6 83.5 86.1
------- ------- -------
Gross profit........................................ 17.4 16.5 13.9
Selling, general and administrative expenses........ 9.2 9.2 7.6
Payments to beneficiary in lieu of Trust
distributions..................................... 0.1 0.1 0.2
------- ------- -------
Income from operations.............................. 8.1 7.2 6.1
Interest expense.................................... 5.7 4.8 5.4
------- ------- -------
Income before extraordinary items and taxes......... 2.4 2.4 0.7
Extraordinary loss on retirement of debt............ -- -- 0.8
------ ------ -------
Income (loss) before taxes.......................... 2.4 2.4 (0.1)
Tax provision....................................... 0.3 0.5 0.1
------- ------- -------
Net income (loss)................................... 2.1% 1.9% (0.2)%
======= ======= =======
</TABLE>
10
<PAGE> 11
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net sales increased $21.1 million for the year ended December 31, 1998, or
3.4%, to $645.2 million, compared to net sales of $624.1 million for the year
ended December 31, 1997. The increase in net sales in 1998 is primarily a result
of increased volumes in the comparable business offset by planned price
reductions mandated by customers under sole-source arrangements for product life
cycles. The Company's productivity improvements for these products partially
offset the planned price reductions. Net sales during the second and third
quarters of 1998 were impacted negatively due to strikes at certain General
Motors plants. The Company believes that a portion of these lost sales were
recouped in the fourth quarter of 1998 as GM accelerated production to refill
its distribution channels.
Gross profit for the year ended December 31, 1998 increased $9.7 million,
or 9.4%, to $112.4 million compared to $102.7 million for the year ended
December 31, 1997. As a percentage of net sales, gross profit increased from
16.5% to 17.4% for the year ended December 31, 1998, which was in part due to
the increased volumes associated with product rationalizations among the
facilities and continued cost cutting efforts. During the fourth quarter of
1998, the Company resolved several commercial issues which resulted in the
recovery of gross profit lost during current and prior years. The resolution of
these issues resulted in an additional $7.4 million of gross profit. Gross
profits continue to be under pressure attributable to selling price reductions,
as OEMs continue to expect annual productivity improvements on the part of their
suppliers.
Selling, general and administrative expense for 1998 of $59.7 million, or
9.3% of net sales, is comparable with selling, general and administrative
expense of $57.2 million, or 9.2% of net sales, for 1997.
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 $0.5 million in
1998 and 1997. 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, 1998 increased $7.1 million, or 15.8%, to $52.2 million, compared
to $45.1 million in fiscal 1997. As a percentage of net sales, income from
operations increased to 8.1% in fiscal 1998 from 7.2% in fiscal 1997.
Interest expense increased $6.4 million to $36.6 million in fiscal 1998
compared to $30.2 million in fiscal 1997. The increase is the result of
additional borrowing under the Company's bank credit facility (the "Senior
Credit Agreement") to fund increased working capital needs.
Due to the foregoing, net income for the year ended December 31, 1998
increased $2.1 million, to $13.6 million compared to $11.5 million for the year
ended December 31, 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
The period to period comparisons are substantially effected by the
acquisitions of Bailey and AutoStyle ("Grand Rapids").
Net sales increased $272.3 million for the year ended December 31, 1997, or
77.4%, to $624.1 million, compared to net sales of $351.8 million for the year
ended December 31, 1996. The increase in net sales was primarily the result
having the benefit of a full year of the Bailey and Grand Rapids operating
sales. The operating sales for 1996 represented only the activities subsequent
to the acquisitions. The following table explains the changes (in millions).
<TABLE>
<CAPTION>
Net Sales Year Ended
December 31,
------------
1997 1996 Increase
---- ---- --------
<S> <C> <C> <C>
Bailey $ 224.8 $ 72.6 $152.2
Grand Rapids 96.5 38.9 57.6
Comparable 302.8 240.3 62.5
---------- ------ ------
Total $ 624.1 $351.8 $272.3
========= ====== ======
</TABLE>
Sales were less in the last half of the year than were expected for the Chrysler
LH due to a slow new model changeover.
11
<PAGE> 12
Gross profit for the year ended December 31, 1997 increased $53.9 million, or
110.4%, to $102.7 million compared to $48.8 million for the year ended December
31, 1996. As a percentage of net sales, gross profit increased from 13.9% to
16.5% for the year ended December 31, 1997, which was in part due to the
increased volumes associated with product rationalizations among the facilities
and cost cutting efforts at Bailey. However, gross profit was unfavorably
impacted by new model introductions and launch costs in the third and fourth
quarters. Gross profits continued to be under pressure attributable to selling
price reductions, as OEMs continued to expect annual productivity improvements
on the part of their suppliers. In addition, the Company's sales were shifting
more to products produced using the injection molding process, which
traditionally have had higher margins. During the fourth quarter of 1997 certain
reserves were reevaluated and reduced by $2.8 million reflecting changes in
circumstances and estimates and were recorded as reductions in cost of products
sold.
Selling, general and administrative expenses increased $30.6 million, or
115.2%, for fiscal 1997 to $57.2 million, compared to $26.6 million in fiscal
1996. As a percentage of net sales, selling, general and administrative expenses
increased to 9.2% for the year ended December 31, 1997, compared to 7.6% in
1996. The increase is generally due to the acquisition of Bailey and the
attendant cost of its operations.
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 $0.5 million and
$0.7 million in fiscal 1997 and 1996, 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, 1997 increased $23.5 million, or 108.8%, to $45.1 million, compared
to $21.6 million in fiscal 1996. As a percentage of net sales, income from
operations increased to 7.2% in fiscal 1997 from 6.1% in fiscal 1996.
Interest expense increased $10.9 million to $30.2 million in fiscal 1997
compared to $19.2 million in fiscal 1996. The increase is the result of the
senior credit agreement entered into on August 26, 1996 to fund the Bailey
acquisition, subsequent refinancing, issuance of $205 million senior notes in
the third quarter of 1997 and increased working capital needs.
Due to the foregoing, net income for the year ended December 31, 1997
increased $12.2 million, to $11.5 million compared to $(0.7) million for the
year ended December 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated working capital was $168.7 million at December
31, 1998, compared to $125.1 million at December 31, 1997, an increase of $43.6
million. The Company's working capital ratio increased to 3.1x at December 31,
1998 from 2.3x at December 31, 1997, as a result of increased receivables,
primarily from related parties, and a reduction in accounts payable.
The Company's principal sources of liquidity are internally generated
funds, cash equivalent investments and borrowings under the Senior Credit
Agreement. Net cash used in operating activities was $5.4 million for
1998, and $13.1 million for 1997. Net cash provided by operating
activities was $35.0 million for 1996. The decrease in cash used in operations
from 1997 to 1998 is due primarily to higher net income, increases in non-cash
charges, such as depreciation and amortization, and reductions in the net
increase in current assets.
Net cash used in investing activities was $24.7 million, $37.1
million and $121.6 million in 1998, 1997 and 1996, respectively. Capital
expenditures for 1998 and 1997 were for the purchase of machinery and equipment,
leasehold improvements and the expansion of facilities to accommodate increased
volumes and for general refurbishment. The Company believes that it has
sufficient capacity to meet current manufacturing production needs through the
2001 model year. The 1996 amount is primarily for the acquisition of Bailey.
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, other than business acquired as a
consequence of the Peguform Acquisition, and there is no assurance that the
Company will be awarded any such business.
12
<PAGE> 13
Net cash from financing activities was $28.8 million in 1998 and $36.2
million in 1997. In 1997, the Company issued $205 million of 9 1/2% Senior Notes
due 2005 (the "Senior Notes"). The net proceeds of $199 million from the sale of
the Senior Notes was used to repay term loans and amounts outstanding under the
revolving credit portion of the Senior Credit Agreement. As a result, less cash
was provided by financing activities during 1998 as compared with 1997.
The Company's debt obligations contain various restrictive covenants that
require the Company to maintain stipulated financial ratios, including a minimum
consolidated net worth (adjusted yearly), fixed charge coverage ratio, interest
coverage ratio and total indebtedness ratio. As of December 31, 1998, the
Company was in compliance with all debt covenants.
The Senior Credit Agreement 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 Agreement. The Company has issued letters of credit
of approximately $3.0 million at December 31, 1998 against this agreement,
thereby reducing the maximum availability to $197.0 million, and pursuant to the
borrowing base formula could have borrowed $120.4 million, of which $77.0
million was outstanding thereunder.
The Company has executed commitment letters with BankOne Corporation, and
its affiliates, pursuant to which BankOne Corporation has committed, subject to
certain conditions, to provide financing for the Peguform Acquisition.
YEAR 2000 COMPLIANCE
As is the case with most companies using computers in their operations, the
Company is in the process of addressing the year 2000 problem. The year 2000
issue is the result of computer programs being written using two digits rather
than four digits to define the applicable year. Any of the Company's systems,
equipment, or hardware that have date sensitive software or embedded chips may
recognize a date using "00" as the year 1900 rather than year 2000. This could
result in a system failure or miscalculations causing disruption of operations,
including among other things, a temporary inability to properly manufacture
products, process transactions, send invoices or engage in similar normal
business activities.
Based on its initial assessments, the Company determined that it would be
required to modify or replace certain portions of its equipment, hardware, and
software so that affected systems will properly utilize dates beyond December
31, 1999. The Company presently believes that, with modifications and some
replacement of existing equipment, hardware and software, the year 2000 issue
will be mitigated.
The Company's plan to resolve the year 2000 issue is being implemented by
each facility across the Company and involves six phases: inventory; risk
assessment; prioritization and ownership assignment; compliance research;
remediation; and testing. The inventory, risk assessment, prioritization, and
ownership assignment phases were performed concurrently and are substantially
complete. The compliance research phase is to be substantially completed by
April 30, 1999. The remediation and testing phases are expected to be
substantially completed by August 31, 1999. The Company's year 2000 plan is
being completed on a facility by facility basis. It is estimated that the
compliance research phase is approximately 90% complete, the remediation phase
is approximately 70% compete and the testing phase is approximately 80%
complete.
The Company's year 2000 inventory of potentially affected items is
segregated into four categories: business application (developed software,
customized extensions to purchased software and systems interfaces); tools and
platforms (purchased commercial products, both hardware and software);
intelligent devices (manufacturing, laboratory, office and facilities
equipment); and external business partners (suppliers, customers and other
service providers). Business applications, tools and platforms are considered
information technology ("IT") systems while intelligent devices and external
business partners are considered non-IT systems.
Concerning IT systems, several of the facilities that share existing
applications will upgrade those applications to year 2000 compliant versions.
All other facilities have already made their systems year 2000 compliant.
With respect to non-IT systems, the Company has dedicated resources to
assist in identifying potentially affected intelligent devices. Determination of
compliance status, remediation, and testing of these devices may be more
difficult than IT systems, as some of the manufacturers of potentially affected
equipment may no longer be in business.
13
<PAGE> 14
The external business partners category of potentially affected items
primarily includes the process of identifying and prioritizing critical
suppliers and customers, and communicating with them about their plans and
progress in addressing the year 2000 problem. The Company has established a
questionnaire that it used to obtain this information from key existing business
partners. To date the Company is not aware of any problems that would materially
impact results of operations, liquidity, or capital resources. However, the
Company has no means of ensuring that these parties will be year 2000 ready and
the inability of these parties to successfully complete their year 2000
compliance program could impact the Company. For key business partners, the
initial assessments are evaluated and, as deemed necessary, follow-up
assessments are made. We expect this process to be ongoing throughout 1999. The
Company is in the process of developing contingency plans to address potential
year 2000 exposure.
The Company has utilized both internal and external resources to repair or
replace, test, and implement software and operating equipment for year 2000
modifications. The Company is unable to estimate with any certainty the total
cost of the year 2000 project. However, the Company has not seen a significant
increase in its IT cost nor in the normal overhead cost associated with its
facilities. Primarily all of the costs of the year 2000 project have been
expensed and have been funded through normal operating cash flow or bank
borrowings.
The failure to remediate a material year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations of the Company including the ability to produce or deliver products
to customers. Such failures could materially or adversely affect the Company's
results of operations, liquidity, and financial condition. Due to the general
uncertainty inherent in the year 2000 problem, the Company is unable to
determine with certainty at this time whether the consequences of year 2000
failure will have a material impact on the Company. The Company's year 2000 plan
is expected to significantly reduce its level of uncertainty about the year 2000
problem. The Company believes that by executing its year 2000 plan in a timely
manner, the possibility of significant interruptions to normal operations should
be reduced. The Company believes its most reasonably likely worst case scenario
is that certain suppliers would not be able to supply the Company with key
materials, thus disrupting the manufacture and sale of products to customers.
The Company's plans to complete the year 2000 project are based on
management's best estimates, which were derived utilizing numerous assumption of
future events including, but not limited to, the continued availability of
certain resources and other factors. Estimates of the status of completion and
the expected completion dates are based on tasks completed to date compared to
all required tasks. However, there can be no guarantee that expected completion
dates will be met, and actual results could differ materially for those
forecasted. Specific factors that might cause such material difference include,
but are not limited to, the availability and cost of personnel trained in
certain areas, the ability to locate and correct all relevant equipment, devices
and computer codes, and similar uncertainties.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) approved SFAS
No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 130 establishes
accounting standards for reporting and displaying comprehensive income and its
components (revenues, expenses, gains and losses). The Company has adopted this
standard in the financial statements. SFAS No. 131 establishes accounting
standards for the way public enterprises report information about operating
segments in annual financial statements. This statement also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The Company has adopted this accounting standard; however,
there was no impact on the Company's financial statement presentation and
disclosures because it operates in only one segment, automotive operations.
In February 1998, the FASB approved SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which standardizes the
disclosure requirements for pension and other postretirement benefits. In
particular, the Standard requires additional information on changes in the
benefit obligation and fair values of plan assets. The Company has adopted this
Standard in the presentation of its financial statements (Note 10).
In June 1998, the FASB approved SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
Standard is effective for the first quarter of the Company's fiscal year
beginning January 1, 2000. The Company has not yet determined the impact of
adopting this Standard on its financial position or results of operations.
In March 1998, the Accounting Standards Executive committee published
accounting Statement of Position (SOP) 98-1, which provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. The provisions of this SOP are applicable for the Company's fiscal year
beginning January 1, 1999. The Company does not anticipate that adoption of this
Standard will have a material impact on its financial position or results of
operations.
14
<PAGE> 15
SOP 98-5, Reporting on the Costs of Start-Up Activities, was issued April
1998. SOP 98-5 establishes standards for the financial reporting of start-up
costs and organization costs and requires such costs to be expensed as
incurred. SOP 98-5 is effective for fiscal years beginning after December 15,
1998. The Company has not yet determined the impact of adopting SOP 98-5 on
its financial condition or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
The Company is exposed to market risk related to changes in interest rates
and commodity prices and selectively uses financial instruments to manage some
of these risks. The Company does not enter into financial instruments for
speculation or trading purposes. A discussion of the Company's accounting policy
for derivative financial instruments is included in the Organization and Summary
of Significant Accounting Policies and Financial Instruments footnotes to the
financial statements found in Item 8 of this report.
The Company has three interest rate exchange agreements with a financial
institution to limit exposure to interest rate volatility. The Company has
currency exposure primarily with respect to the Australian dollar and has chosen
not to hedge that risk at the present time. The Company's exposure to commodity
price changes relates to operations that utilize certain commodities as raw
materials. The Company manages its exposure to changes in these prices primarily
through its procurement and sales practices. At December 31, 1998, the Company
had no financial instruments outstanding as hedges of commodity price risk.
These financial exposures are monitored and managed as a part of a
management program, which recognizes the unpredictability of financial markets
and seeks to reduce the potentially adverse effect. Sensitivity analysis is one
technique used to evaluate the impact of such possible movements on the
valuation of these instruments. A hypothetical ten-percent change in the value
of foreign currency movements would not have a significant impact on the
Company's financial position, results of operations or future cash flows. In
addition, based upon a one percentage point decrease in interest rates at
December 31, 1998, the Company estimates that the fair market value of the
interest rate exchange agreement would have decreased by $1.1 million. A
hypothetical one percentage point increase in interest rates related to floating
rate debt at December 31, 1998 would increase future pretax earnings and cash
flow by $0.3 million annually.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
VENTURE HOLDINGS TRUST
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants.................................. 16
Consolidated Balance Sheets............................................... 17
Consolidated Statements of Income and Comprehensive Income................ 18
Consolidated Statements of Changes in Trust Principal..................... 18
Consolidated Statements of Cash Flows..................................... 19
Notes to Consolidated Financial Statements................................ 20
NOTE: Separate financial statements for the Trust and each Subsidiary are not
included herein because each entity (other than Venture Canada and Experience
Management L.L.C.) is jointly and severally liable for the Senior Credit
Agreement and the Senior Notes, and each entity (including Venture Canada but
excluding Experience Management L.L.C.) 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 and Experience
Management L.L.C.) are substantially equivalent to the total assets, net
earnings and net equity of the Company on a consolidated basis. Venture Canada
and Experience Management L.L.C. represent less than 1% of total assets, net
earnings, net trust principal and operating cash flow.
15
<PAGE> 16
<PAGE> 17
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, 1998 and 1997, and the related consolidated
statements of income, comprehensive income, trust principal and cash flows for
each of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the Index at Item 14. These
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the financial statement schedule 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, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
Deloitte & Touche LLP
March 30, 1999
Detroit, Michigan
16
<PAGE> 18
VENTURE HOLDINGS TRUST
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 130 $ 1,477
Accounts receivable, net, includes related party
receivables of $56,648 and $32,260 at December 31, 1998
and 1997, respectively (Notes 2, 6 & 7) 190,135 161,157
Inventories (Notes 3, 6 & 7) 51,139 52,616
Prepaid expenses and other (Note 11) 8,870 8,994
----------- -----------
Total current assets 250,274 224,244
Property, Plant and Equipment, Net (Notes 4 & 7) 200,544 205,765
Intangible Assets (Note 5) 52,022 53,900
Other Assets (Notes 1 & 7) 26,636 25,771
Deferred Tax Assets (Note 11) 11,839 14,442
------------ -----------
Total Assets $ 541,315 $ 524,122
============ ===========
LIABILITIES AND TRUST PRINCIPAL
Current Liabilities:
Accounts payable (Note 7) $ 52,351 $ 70,047
Accrued payroll & taxes 9,017 7,341
Accrued interest 13,387 12,148
Other accrued expenses 5,299 6,485
Current portion of long-term debt (Note 6) 1,565 3,122
------------ -----------
Total current liabilities 81,619 99,143
Other Liabilities (Note 10) 7,254 14,281
Deferred Tax Liabilities (Note 11) 11,955 13,350
Long-Term Debt (Note 6) 363,374 333,066
------------ -----------
Total liabilities 464,202 459,840
Commitments and Contingencies (Note 8) -- --
Trust Principal:
Accumulated other comprehensive income -
minimum pension liability in excess of unrecognized
prior service cost, net of tax (Note 10) (737)
Trust principal 77,850 64,282
------------ -----------
Total trust principal 77,113 64,282
------------ -----------
Total Liabilities and Trust Principal $ 541,315 $ 524,122
============ ===========
</TABLE>
See notes to consolidated financial statements.
17
<PAGE> 19
VENTURE HOLDINGS TRUST
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Sales (Notes 7 & 9) $ 645,196 $ 624,113 $ 351,777
Cost of Products Sold (Note 7) 532,809 521,361 302,940
----------- ----------- ----------
Gross Profit 112,387 102,752 48,837
Selling, General and Administrative Expense (Note 7) 59,689 57,217 26,588
Payments to Beneficiary in Lieu of Taxes (Note 7) 535 472 666
----------- ----------- ----------
Income from Operations 52,163 45,063 21,583
Interest Expense 36,641 30,182 19,248
----------- ----------- ----------
Net Income Before Extraordinary Items and Taxes 15,522 14,881 2,335
Tax Provision (Note 11) 1,954 3,358 336
----------- ----------- ----------
Net Income Before Extraordinary Items 13,568 11,523 1,999
Net Extraordinary Loss on Early Retirement
of Debt (Note 12) 0 0 2,738
----------- ----------- ----------
Net Income (Loss) 13,568 11,523 (739)
Other Comprehensive Income -
minimum pension liability in excess of unrecognized
prior service cost, net of tax (Note 10)
(737) 0 0
----------- ------------ -----------
Comprehensive Income (Loss) $ 12,831 $ 11,523 $ (739)
=========== ============ ===========
</TABLE>
See notes to consolidated financial statements.
VENTURE HOLDINGS TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN TRUST PRINCIPAL
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Trust Principal, Beginning of Period 64,282 52,759 53,498
Comprehensive Income (Loss)
Net Income (Loss) 13,568 11,523 (739)
Other Comprehensive Income--
minimum pension liability in excess
of unrecognized prior service cost,
net of tax (Note 10) (737)
------ ------ ------
Comprehensive Income (Loss) 12,831 11,523 (739)
------ ------ ------
Trust Principal, End of Period 77,113 64,282 52,759
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 20
VENTURE HOLDINGS TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 13,568 $ 11,523 $ (739)
Adjustments to reconcile net income to net cash provided
by operating activities, net of acquisitions:
Depreciation and amortization 39,320 32,147 22,628
Change in accounts receivable (29,795) (31,489) (35,789)
Change in inventories 1,477 (1,517) (4,298)
Change in prepaid expenses 2,147 2,329 (4,116)
Change in other assets (7,045) (7,178) (6,445)
Change in accounts payable (17,696) (14,774) 32,400
Change in accrued expenses (21) (5,588) 21,221
Change in other liabilities (7,028) (1,630) 8,725
Change in deferred taxes (320) 3,119 (1,322)
Net extraordinary loss on early extinguishment of debt 0 0 2,738
-------- --------- ---------
Net cash (used in) provided by operating activities (5,393) (13,058) 35,003
Cash Flows From Investing Activities:
Capital expenditures (24,706) (33,012) (64,593)
Purchase of subsidiaries, net of cash acquired 0 (4,081) (56,954)
-------- --------- ---------
Net cash used in investing activities (24,706) (37,093) (121,547)
Cash Flows From Financing Activities:
Net borrowings under revolving credit agreement 32,000 (46,000) 91,000
Net proceeds from issuance of debt 0 205,000 69,249
Principal payments on debt (3,248) (122,808) (14,535)
Payment for early extinguishment of debt 0 0 (62,738)
-------- --------- ---------
Net cash provided by financing activities 28,752 36,192 82,976
-------- --------- ---------
Net Decrease in Cash (1,347) (13,959) (3,568)
Cash and Cash Equivalents at Beginning of Period 1,477 15,436 19,004
-------- --------- ---------
Cash and Cash Equivalents at End of Period $ 130 $ 1,477 $ 15,436
======== ========= =========
Supplemental Cash Flow Information
Cash paid during the period for Interest $ 35,402 $ 22,628 $ 18,187
======== ========= =========
Income taxes paid (refunded) $ 285 $ 140 $ (2,179)
======== ========= =========
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 21
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 of 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, Experience Management L.L.C. and any
predecessors to such organizations. Experience Management L.L.C. was formed late
in 1997 to assume the human resource obligations of the Trust. 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. During 1996 the Trust acquired Bailey Corporation and its
subsidiaries ("Bailey") which were merged into Venture Holdings Corporation in
July of 1997. During 1996, the trust acquired the assets of Autostyle Plastics,
Inc. ("Autostyle") which was merged into Vemco, Inc. in July of 1997.
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 principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
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:
YEARS
-----
Building and improvements.................................... 10-40
Machinery and equipment, and automobiles..................... 3-20
Leasehold improvements are amortized over the useful life or the term of the
lease, whichever is shorter. Expenditures for maintenance and repairs are
charged to expense as incurred.
20
<PAGE> 22
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, 1998
and 1997 was $52.0 million and $53.9 million, respectively, which is net of
accumulated amortization.
Long-Lived Assets and Long-Lived Assets to be Disposed of -- Effective
January 1, 1996, 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 asset 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 includes 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.
Program Costs -- Certain costs incurred for the design of components to be
built for customers are recorded as deferred program 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 the subsidiaries that have not elected S corporation status 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 and Experience Management L.L.C.) is jointly and severally
liable for the Company's senior credit facility and senior notes, and each
entity (including Venture Canada but excluding Experience Management L.L.C.) 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 and Experience Management L.L.C.) are substantially equivalent to
the total assets, net earnings and net equity of the Company on a consolidated
basis. Venture Canada and Experience Management L.L.C. represent 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 includes fluctuations in interest rates and
variability in spread relationships (i.e. Prime vs. LIBOR spreads). Interest
rate swaps are used to change 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.
Reclassifications -- Certain reclassifications have been made to the 1997
financial statements in order to conform to the 1998 presentation.
21
<PAGE> 23
Recent Accounting Pronouncements -- In June 1997, the Financial Accounting
Standards Board (FASB) approved SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 130 establishes accounting standards for reporting and
displaying comprehensive income and its components (revenues, expenses, gains
and losses). The Company has adopted this Standard in the financial statements
(Note 10). SFAS No. 131 establishes accounting standards for the way public
enterprises report information about operating segments in annual financial
statements. This statement also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The Company
has adopted this accounting standard; however, there was no impact on the
Company's financial statement presentation and disclosures because it operates
in only one segment, automotive operations.
In February 1998, the FASB approved SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits," which standardizes the
disclosure requirements for pension and other postretirement benefits. In
particular, the Standard requires additional information on changes in the
benefit obligation and fair values of plan assets. The Company has adopted this
Standard in the presentation of its financial statements (Note 10).
In June 1998, the FASB approved SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
Standard is effective for the first quarter of the Company's fiscal year
beginning January 1, 2000. The Company has not yet determined the impact of
adopting this Standard on its financial position or results of operations.
In March 1998, the Accounting Standards Executive committee published
accounting Statement of Position (SOP) 98-1, which provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. The provisions of this SOP are applicable for the Company's fiscal year
beginning January 1, 1999. The Company does not anticipate that adoption of this
Standard will have a material impact on its financial position or results of
operations.
SOP 98-5, Reporting on the Costs of Start-Up Activities, was issued in
April 1998. SOP 98-5 establishes standards for the financial reporting of
start-up costs and organization costs and requires such costs to be expensed as
incurred. SOP 98-5 is effective for fiscal years beginning after December 15,
1998. The Company has not yet determined the impact of adopting SOP 98-5 its
financial condition or results of operations.
2. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
(IN THOUSANDS)
--------------
1998 1997
---- ----
<S> <C> <C>
Accounts receivable (including related parties)....... $ 172,759 $ 140,003
Unbilled mold contract receivables.................... 21,894 24,726
--------- ---------
194,653 164,729
Allowance for doubtful accounts....................... (4,518) (3,572)
--------- ---------
Net accounts receivable............................... $ 190,135 $161,157
========= =========
</TABLE>
Excluding receivables from related parties, substantially all of the
receivables are from companies operating in the automobile industry.
3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
(IN THOUSANDS)
--------------
1998 1997
---- ----
<S> <C> <C>
Raw material.......................................... $ 25,169 $ 26,036
Work-in-process-- manufactured parts.................. 2,965 2,863
Work-in-process-- molds............................... 11,436 10,922
Finished goods........................................ 11,569 12,795
-------- --------
Total............................................ $ 51,139 $ 52,616
======== ========
</TABLE>
22
<PAGE> 24
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
(IN THOUSANDS)
--------------
1998 1997
---- ----
<S> <C> <C>
Land.................................................. $ 2,418 $ 2,427
Building and improvements............................. 64,459 62,538
Leasehold Improvements................................ 13,970 12,090
Machinery and equipment............................... 225,687 219,767
Tooling/Molds......................................... 12,026 8,659
Office and transportation equipment................... 5,963 6,373
Construction in progress.............................. 4,009 7,421
-------- --------
328,532 319,275
Less accumulated depreciation and amortization........ 127,988 113,510
-------- --------
Total............................................ $200,544 $205,765
======== ========
</TABLE>
Included in property, plant and equipment is equipment and buildings held
under capitalized leases. These assets had a cost basis of $9.4 million and
accumulated depreciation relating to these assets of $2.6 million at December
31, 1998. As of December 31, 1997, these assets had a cost basis of $12.7
million and accumulated depreciation of $4.0 million.
5. BUSINESS ACQUISITIONS
Effective August 26, 1996, the Trust acquired Bailey, 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
approximately $53.8 million. The goodwill is being amortized over 30 years using
the straight-line method. Bailey was merged into Venture Holdings Corporation
in July of 1997.
Effective June 3, 1996, the Company acquired certain assets from Autostyle
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 from June 3, 1996.
Unaudited pro forma results of operations represent the consolidation of
historical results for the twelve months ended December 31, 1996, assuming the
acquisition of Bailey had occurred at January 1, are as follows (in thousands):
Net sales...................................................... $471,118
Net (loss) before extraordinary item........................... (887)
Net (loss)..................................................... (3,402)
The Bailey transaction had the following non-cash impact on the Company's
balance sheet at August 26, 1996 (in millions):
Current assets.................................................. $ 62
Non-current assets.............................................. 143
Current liabilities............................................. 159
Non-current liabilities......................................... 46
23
<PAGE> 25
6. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
(IN THOUSANDS)
1998 1997
---- ----
<S> <C> <C>
Revolving credit agreement.............................. $ 77,000 $ 45,000
Registered senior secured notes payable with
interest at 9.5%...................................... 205,000 205,000
Registered senior subordinated notes payable with
interest at 9.75%..................................... 78,940 78,940
Capital leases with interest at 8.25% to 11.5%.......... 2,196 5,023
Installment notes payable with interest at 5.85% to
11.75%................................................
1,803 2,225
---------- ----------
Total.............................................. 364,939 336,188
Less current portion of debt.......................... 1,565 3,122
---------- ----------
Total.............................................. $ 363,374 333,066
========== ==========
</TABLE>
In the third quarter of 1997, the Trust, and each of its wholly owned
subsidiaries, other than Venture Industries Canada, Ltd. and Experience
Management L.L.C., which was not in existence at the time, (collectively, the
"Issuers") issued $205 million of Senior Notes. The net proceeds of $199 million
were used to repay Term loans and the amount outstanding under the revolving
credit portion of the Senior Credit Agreement. In connection with the issuance
of the Senior Notes, certain subsidiaries were merged and or liquidated into
other subsidiaries. On August 27, 1997, the Issuers filed a registration
statement on Form S-4 registering the Issuers' Series B 9 1/2% Senior Notes due
2005 (the "Registration Statement"), to be offered in exchange for the Senior
Notes. The Registration Statement was declared effective by the Securities and
Exchange Commission on October 29, 1997.
Simultaneously with the issuance of the Senior Notes, the Senior Credit
Agreement was amended and now provides for borrowings of up to the lesser of a
borrowing base or $200 million under a revolving credit facility. The annual
interest rate for borrowings under this agreement is a floating rate based upon
LIBOR or the banks prime rate which averaged 7.8% at December 31, 1998. 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 approximately $3.0 million at December
31, 1998 against this agreement, thereby reducing the maximum availability to
$197.0 million, and pursuant to the borrowing base formula could have borrowed
$120.4 million, of which $77.0 million was outstanding thereunder.
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.
The senior credit agreement, senior notes and the senior subordinated notes
contain certain restrictive covenants relating to cash flow, fixed charges,
debt, trust principal, trust distributions, leases, and liens on assets. The
Company's debt obligations contain various restrictive covenants that require
the Company to maintain stipulated financial ratios, including a minimum
consolidated net worth (adjusted yearly), fixed charge coverage ratio, interest
coverage ratio and total indebtedness ratio. As of December 31, 1998, the
Company was in compliance with all debt covenants.
See also Note 12 - Extraordinary Items for information related to the early
retirement of debt.
Scheduled maturities of debt at December 31, 1998 were as follows (in
thousands):
<TABLE>
<S> <C>
1999...................................................... 1,565
2000...................................................... 976
2001...................................................... 887
2002...................................................... 558
2003...................................................... 77,013
Remaining years........................................... 283,940
---------
Total................................................ $ 364,939
=========
</TABLE>
24
<PAGE> 26
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 $0.6
million of additional interest expense in each of 1997 and 1998.
<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, 1998 DECEMBER 31, 1997
- --------------------------------------- -------- ----------------------------- ------------------
<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 5.31% 5.70%
</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.
In addition, employees of the Company are made available to certain of these
entities for services such as design, model and tool-building. 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.
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 an additional payment of
$613 thousand to Pompo in 1998, and no payments in 1997. At December 31, 1998
and 1997, the Company had approximately $3.4 million and $2.8 million,
respectively, on deposit with Pompo. A portion of this amount was invested on a
short term basis with a related party.
Deluxe Pattern Corporation (Deluxe) provided design, model and prototyping
services to the Company of $6.6, $9.2, and $4.3 million in 1998, 1997 and 1996,
respectively. The Company charged approximately $1.1 million each year from
Deluxe in 1998, 1997 and 1996 for equipment rentals and services. Employees of
the Company made available to Deluxe on an as-needed basis, for which the
Company charged Deluxe $9.6, $4.6, and $17.3 million in 1996, 1997 and 1998,
respectively. These charges and the cash management services provided to Deluxe
by the Company result in a net receivable from Deluxe.
The Company leases buildings and machinery and equipment that have a book
value of approximately $460 thousand to an entity in which the sole beneficiary
owns a significant equity interest. During 1998, 1997 and 1996, the Company
received $162 thousand per year, in connection with this agreement.
Venture Sales and Engineering (VS&E) 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. VS&E has conducted sales and marketing activities around the
world for the Company and has been advanced certain funds in order to carry on
that work on behalf of the Company. These activities result in a net receivable
from VS&E.
25
<PAGE> 27
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 billed management fees and commissions totaling $4.5,
$4.0 and $5.1 million to VAP in 1998, 1997 and 1996, respectively. In addition,
VAP is also liable to the Company for expenditures made on its behalf including
tooling costs associated with a long-term program to be launched in
1999. The Company expects to receive payment on these receivables once final
approval is received from the end OEM customer.
The following is a summary of transactions with all related parties at
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS)
--------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue for:
Materials sold, tooling sales,
sales commission and rent
charged........................ $18,974 $ 17,349 $ 2,123
Providing administrative
services....................... 0 0 149
Insurance and benefit
Premiums....................... 0 166 420
Management Fees................... 4,533 4,028 5,098
Subcontracted services.............. 2,324 2,686 9,632
Manufacturing related services
and inventory purchased........... 8,084 10,213 11,683
Rent expense paid................... 2,180 3,195 2,950
Machine and facility usage fees
paid.............................. 4,158 3,748 3,397
Commission expense paid............. 10,391 7,269 6,391
Litigation, workers compensation
and medical insurance
premiums.......................... 613 0 0
Property, Plant and Equipment
purchased......................... 40 0 49
</TABLE>
The result of these related party transactions is a net receivable, which is
included in accounts receivable as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
(IN THOUSANDS)
--------------
1998 1997
---- ----
<S> <C> <C>
Amounts Receivable.................. $ 65,755 $ 36,690
Amounts Payable..................... 9,107 4,430
----------- -----------
Net Amounts Receivable.............. $ 56,648 $ 32,260
=========== ===========
</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, 1998, 1997 and 1996 were recorded as expense.
26
<PAGE> 28
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, 1998. Future minimum lease commitments, including related party
leases, are as follows (in thousands):
<TABLE>
<CAPTION>
RELATED PARTY OTHER
OPERATING OPERATING
LEASES LEASES
------------- ---------
<S> <C> <C>
Years:
1999............................................... 2,180 494
2000............................................... 0 186
2001............................................... 0 25
---------- ----------
Total......................................... $ 2,180 $ 705
========== ==========
</TABLE>
Rent expense for operating leases and other agreements with a term of
greater than one month, including amounts paid to related parties, was $5.5
million, $6.3 and $5.0 million for the years ended December 31, 1998, 1997, and
1996, respectively. Usage fees paid based on monthly usage of certain machinery
and equipment and facilities, all of which were paid to related parties, were
$4.0 million, $3.6, and $3.4 million for the years ended December 31, 1998, 1997
and 1996, respectively.
Litigation -- In December of 1997, the Company settled litigation with the
contractor that built the paint line at Vemco, Inc. for $2.0 million. Of this
amount, $0.8 million was recorded as a reduction to the carrying value of the
paint line and $1.2 million was recorded as miscellaneous income.
Resolution of Commercial Issues -- During the fourth quarter of 1998, the
Company resolved several commercial issues which resulted in the recovery of
gross profit lost during current and prior years. The resolution of these issues
resulted in an addition $7.4 million of gross profit.
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 $1.3 million at December 31, 1998 and $1.3 million at December 31, 1997.
On February 23, 1998, the Attorney General of the State of Michigan and the
Michigan Department of Environmental Quality (MDEQ) instituted legal proceedings
in state court alleging violations by the Company of current permits regarding
the level of emissions and odors discharged from its Grand Blanc paint facility.
These proceedings seek and may result in the imposition of civil penalties of up
to $10,000 per day; the total amount is not reasonably estimable given the
current status of the proceedings. Emission levels are being evaluated as part
of the proceedings, and it is possible the Company may be required to make
capital expenditures of $2 to $5 million to the current systems to come into
compliance. During the first quarter of 1999, the U.S. Environmental Protection
Agency has issued a notice of violation and taken an active role in monitoring
the legal proceeding and may take action separate and distinct from the legal
proceedings begun by the State of Michigan and MDEQ.
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, 1998, management believes, based on 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 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. 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.
27
<PAGE> 29
9. CONCENTRATIONS
The Company's sales to General Motors Corporation ("GM"), Ford Motor Company
("Ford") and DaimlerChrysler Corporation ("DaimlerChrysler"), expressed as a
percentage of sales, were 41%, 16% and 12%, respectively, in 1996. For 1997, the
percentages were 40% and 27% for GM and Ford, respectively, and less than 10%
for DaimlerChrysler. For 1998, the percentages were 38%, 23% and 15% for GM,
Ford and DaimlerChrysler, respectively. 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. Net sales during the second and third quarters
of 1998 were impacted negatively due to strikes at certain General Motors
plants. The Company believes that a portion of these lost sales were recouped in
the fourth quarter of 1998 as GM accelerated production to refill its
distribution channels. Approximately 11% of the Company's 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
cover substantially all employees. The plans provide for the Company to
contribute a discretionary amount each year. Contributions were $2.3, $2.2 and
$1.3 million for the years ended December 31, 1998, 1997 and 1996, respectively.
Bailey has various retirement plans covering substantially all 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 these
plans the funding policy is to make at least the minimum annual contributions
required by Federal law and regulation.
The change in benefit obligation for the years ended December 31, 1998 and
1997 was as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Benefit obligation at beginning of year $ 15,980 $ 14,861
Service cost........................ 543 321
Interest cost....................... 1,120 1,069
Curtailment gain.................... (648)
Amendments.......................... 599
Actuarial loss (gain)............... 1,771 (365)
Benefits paid....................... (536) (505)
----------- -----------
Benefit obligation at end of year... $ 18,230 $ 15,980
=========== ===========
</TABLE>
The change in the market value of plan assets for the years ended December
31, 1998 and 1997 was as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Market value of plan assets at beginning
of year........................... $ 14,026 $ 11,528
Actual return on plan assets........ 105 2,531
Employer contribution............... 660 472
Benefits paid....................... (536) (505)
----------- -----------
Market value of plan assets at end of year $ 14,255 $ 14,026
=========== ===========
</TABLE>
The funded status of the defined benefit plans at December 31, 1998 was as
follows (in thousands):
<TABLE>
<CAPTION>
ASSETS EXCEED ACCUMULATED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
-------------------- -------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested Benefits.......................................... $ 3,017 $ 15,078
Nonvested benefits....................................... 33 102
---------- ----------
Accumulated benefit obligation............................. $ 3,050 $ 15,180
========== ==========
Projected benefit obligation............................... $3,050 $ 15,180
Market value of plan assets................................ 3,891 10,364
---------- ----------
Excess (deficiency) of assets over projected benefit
obligation............................................... 841 (4,816)
Unrecognized net (gain) loss............................... (928) 1,232
Unrecognized prior service cost............................ 519
Additional minimum liability............................... (1,751)
---------- ----------
Accrued pension cost....................................... $ (87) $ (4,816)
========== ==========
</TABLE>
28
<PAGE> 30
The funded status of the defined benefit plans at December 31, 1997 was as
follows (in thousands):
<TABLE>
<CAPTION>
ASSETS EXCEED ACCUMULATED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
-------------------- -------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested Benefits.......................................... $ 5,151 $ 10,003
Nonvested benefits....................................... 42 70
------------ ------------
Accumulated benefit obligation............................. $ 5,193 $ 10,073
============ ============
Projected benefit obligation............................... $ 5,907 $ 10,073
Market value of plan assets................................ 6,996 7,030
------------ ------------
Excess (deficiency) of assets over projected benefit
obligation............................................... 1,089 (3,043)
Unrecognized net loss...................................... (1,736) (892)
Unrecognized prior service cost............................ 0 559
------------ ------------
Accrued pension cost....................................... $ (647) $ (3,376)
============ ============
</TABLE>
Net periodic pension (benefit) expense for the years ended December 31, 1998
and 1997 included the following components (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Service cost benefit during the year $ 543 $ 321
Interest cost on projected benefit obligation 1,120 1,069
Expected return on plan assets...... (1,174) (961)
Net amortization and deferral....... (52) (22)
Curtailment gain.................... (648)
------------ -----------
Net periodic pension (benefit) expense $ (211) $ 407
============ ===========
</TABLE>
The date used to measure plan assets and liabilities is as of September 30
each year.
The weighted-average assumed discount rate was 6.5% and 7.25% for 1998 and
1997, respectively. The assumed rate of return on plan assets was 8.5% for 1998
and 1997. For salary based plans, the expected rate of increase in compensation
levels was 5.5% for 1998 and 1997.
At December 31, 1998, the Company recorded an intangible pension asset of
$519 thousand as an offset to recording the additional minimum pension
liability. An additional amount of $737 thousand was recorded (net of tax)
against equity at December 31, 1998, which represented the minimum pension
liability in excess of unrecognized prior service cost.
Plan assets consist principally of cash and cash equivalents, listed common
stocks, debentures, and fixed income securities.
A salaried pension plan has been frozen since 1992, and no further service
liability will accrue under the plan. During 1998, an additional salaried
pension plan and an hourly pension plan were frozen, and no further service
liability will accrue under these plans. The freezing of the salaried pension
plan resulted in a curtailment gain of approximately $648,000 and has been
included in the calculation of the net periodic pension benefit for the year
ended December 31, 1998. The freezing of the hourly plan did not result in a
curtailment gain or loss since the accumulated and projected benefit obligation
for this plan are equal.
Effective January 1, 1999, the three frozen plans were merged into one plan.
The merged plan will eventually be terminated.
29
<PAGE> 31
11. INCOME TAXES
Amounts in the financial statements related to income taxes are for the
operations of Bailey. 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 for the period ended (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Currently Payable
United States................................. $ 80 $ 0 $ 0
State and Local............................... 0 239 0
Foreign....................................... 16 0 0
----------- --------- ----------
Total...................................... 96 239 0
=========== ========= ==========
Deferred
United States................................. $ 1,618 $ 2,716 $ 293
State and Local............................... 240 403 43
----------- --------- ----------
Total...................................... $ 1,858 $ 3,119 $ 336
=========== ========= ==========
</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 70.4% for the year ended
December 31, 1998, of which 29.9% relates to permanent differences not
deductible for income taxes (primarily goodwill amortization)and 5.2% for state
and local income taxes, net of the federal tax benefit. The effective tax rate
on pretax income was 58.3% for the year ended December 31, 1997, of which 18.1%
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 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 tax-effected temporary differences and carryforwards which comprised
deferred assets and liabilities were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------- -------------
<S> <C> <C>
Deferred tax assets:
Accrued expenses and reserves......................... $ 7,372 $ 8,920
Net Operating Loss carryforward....................... 9,750 11,497
Minimum tax credit carryforward....................... 844 764
Other.................................................
750 293
---------- ----------
Total deferred tax assets.......................... $ 18,716 $ 21,474
---------- ----------
Deferred tax liabilities:
Depreciation.......................................... 11,931 12,505
Other................................................. 24 845
---------- ----------
Total deferred tax liabilities..................... 11,955 13,350
---------- ----------
Net deferred tax asset............................. $ 6,761 $ 8,124
========== ==========
</TABLE>
The current portion of deferred tax assets, $6.9 and $7.0 million is
included in prepaid expense and other at December 31, 1998 and 1997,
respectively. Bailey's U.S. net operating loss carryforwards, which totaled
$26.4 and $29.9 million at December 31, 1998 and 1997, begin to expire in the
year 2011. Alternative minimum tax credit carryforwards totaled $0.8 million at
December 31, 1998 and have no expiration date. Management believes the net
operating loss carryforwards at December 31, 1998 are realizable based on
forecasted earnings and available tax planning strategies.
30
<PAGE> 32
12. EXTRAORDINARY ITEMS
The senior secured notes payable to financial institutions required
semiannual interest payments at 9.89% and annual principal payments of $10
million each year commencing March 15, 1996. The outstanding balance of $40
million was refinanced on August 26, 1996 which resulted in an extraordinary
loss of $3.4 million ($2.5 million prepayment penalty plus unamortized deferred
financing costs of $0.9 million) in the quarter ended September 30, 1996.
On September 23, 1996 the Company redeemed approximately $21 million 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 thousand (net of unamortized deferred financing costs
of $365 thousand).
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 (in thousands).
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
----------------------------------- -------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Debt.......... $ 283,940 $ 282,126 $ 283,940 $ 287,626
</TABLE>
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, 1998 DECEMBER 31, 1997
-------------------------------------- ---------------------------------------
NOTIONAL UNREALIZED GAIN/ NOTIONAL UNREALIZED GAIN/
AMOUNT (LOSSES) AMOUNT (LOSSES)
------ -------- ------ --------
Interest Rate
<S> <C> <C> <C> <C>
Swaps......... $ 55,000 $(2,020) $ 55,000 $ (1,367)
</TABLE>
The carrying values of cash and cash equivalents, accounts receivable,
accounts payable and the Senior Credit Facility approximate fair market value
due to the short-term maturities of these instruments.
14. SUBSEQUENT EVENT
On March 8, 1999, the Company entered into an agreement to acquire Peguform
GmbH ("Peguform"), a leading European supplier of high performance interior and
exterior plastic modules, systems and components to European OEMs (the "Peguform
Acquisition"). The aggregate purchase price of Peguform is approximately DEM 850
million (approximately $466 million based upon the published United States
Dollar exchange rate on March 30, 1999), subject to certain post-closing
adjustments. Consummation of the Peguform Acquisition is subject to only limited
conditions, including approval of the shareholders of Klockner-Werke AG, the
parent of Peguform, and receipt of regulatory approvals. The purchase agreement
does not permit the Company to terminate the transaction, even if there has been
a material adverse change in the business of Peguform from the date of signing
the purchase agreement to closing, which is currently expected to occur no later
than May 31, 1999.
The Company has executed commitment letters with BankOne Corporation, and
its affiliates, pursuant to which BankOne Corporation has committed, subject to
certain conditions, to provide financing for the Peguform Acquisition.
================================================================================
31
<PAGE> 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS
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
Subsidiary, other than Venture Canada. 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............ 56 Chairman of the Board and Chief Executive Officer
--------------------------- ----- ------------------------------------------------------
A. James Schutz............ 53 Vice.Chairman
--------------------------- ----- ------------------------------------------------------
Michael G. Torakis......... 42 President and Chief Financial Officer
--------------------------- ----- ------------------------------------------------------
Robert Wedge............... 61 President of Mold & Engineering Operations
--------------------------- ----- ------------------------------------------------------
James E. Butler, Jr........ 46 Executive Vice President-Finance and Secretary
--------------------------- ----- ------------------------------------------------------
Charles Hunter............. 43 Executive Vice President-Engineering
--------------------------- ----- ------------------------------------------------------
Michael Juras.............. 57 Executive Vice President-Advanced Engineering and
Marketing
--------------------------- ----- ------------------------------------------------------
Patricia A. Stephens 52 Executive Vice President-Purchasing
--------------------------- ----- ------------------------------------------------------
Joseph R. Tignanelli 37 Executive Vice President-Interior Operations
--------------------------- ----- ------------------------------------------------------
David Voita................ 58 Executive Vice President-Manufacturing
--------------------------- ----- ------------------------------------------------------
Larry J. Winget, Jr........ 38 Executive Vice President-Manufacturing and
Engineering
--------------------------- ----- ------------------------------------------------------
Warren Brown............... 55 Vice.President-SMC Operations
--------------------------- ----- ------------------------------------------------------
</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.
A. James Schutz assumed the position of Vice Chairman in October 1997 and
had been Executive Vice President since 1987. He has been in the injection
molding business for 25 years
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.
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 35 years
of mold building experience.
James E. Butler joined the Company in 1994 and assumed his current position
in April of 1995. From 1981 until joining the Company, Price Waterhouse Coopers
L.L.P., a certified public accounting firm, employed him.
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 worldwide 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.
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.
32
<PAGE> 34
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, Vice President
of Venture Industries until October of 1995, and Executive Vice President -
Customer Services until December 1997, when he assumed his current position.
The Company has employed David Voita in various manufacturing positions
since 1995 after a 33-year career with Ford Motor Company. Mr. Voita's last
position was that of Plant Manager for the Plastic and Trim Division where he
managed a 1.2 million square foot and 1,300 employee facility.
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. In December of 1997 he assumed
the additional role of leading all manufacturing operations
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.
Stephen M. Cheifetz, 41, is a partner of Comeri and Martion and has served
as a partner of this firm for less than 1 year. Prior to that he was a partner
with Wilson, Walker, Hochberg, Slopen, a Windsor, Ontario law firm, and served
as a partner in that firm for over five years.
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation Tables sets forth compensation paid for
the years ended December 31, 1998, 1997 and 1996, respectively, to those persons
who were, at December 31, 1998, the chief executive officer of the Company and
four other most highly paid 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.................... 1998 $ 526,503 $ 542,872 $ 366,063
Chairman of the Board and 1997 527,657 478,945 277,347
Chief Executive Officer 1996 513,820 675,799 250,807
A. James Schutz.................... 1998 $ 238,856 $ 41,760 $ $ 5,100
Vice Chairman 1997 237,150 41,760 4,800
1996 231,491 41,760 4,800
Michael G. Torakis................. 1998 $ 268,834 $ $ 5,100
President and 1997 263,819 4,800
Chief Financial Officer 1996 257,615 $ 250,000 4,800
Larry J. Winget, Jr................ 1998 $ 219,224 $ $ 5,100
Executive Vice President 1997 220,938 4,275
1996 216,034 3,950
Joseph R. Tignanelli............... 1998 $ 198,039 $ $ 4,850
Executive Vice President 1997 192,428 4,800
1996 189,084 -- -- 4,800
</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.
(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."
33
<PAGE> 35
(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 $1,672,705, $1,311,742 and $1,039,195 at December 31,
1998, 1997 and 1996, 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
1998 $ 4,800 $ 300 $360,963 $ 366,063
1997 $ 4,500 $ 300 $272,547 $ 277,347
1996 $ 4,500 $ 300 $246,007 $ 250,807
Schutz
1998 $ 4,800 $ 300 $ 5,100
1997 $ 4,500 $ 300 $ 4,800
1996 4,500 300 4,800
Torakis
1998 $ 4,800 $ 300 $ 5,100
1997 $ 4,500 $ 300 $ 4,800
1996 4,500 300 4,800
Winget Jr.
1998 $ 4,800 $ 300 $ 5,100
1997 $ 3,975 $ 300 $ 4,275
1996 3,650 300 3,950
Tignanelli
1998 $ 4,550 $ 300 $ 4,850
1997 $ 4,500 $ 300 $ 4,800
1996 4,500 300 4,800
</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 firms of which he
is (or was) a partner act as counsel to Venture Canada.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Experienced Management LLC for the year ended December 31, 1998 paid all of
the Named Officers' compensation. Messrs. Winget and Torakis, in their
capacities as directors 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."
OPTIONS.
None of the named officers hold any options to acquire stock of the
Subsidiaries or were granted any such options in the 1998 fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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, Fraser, Michigan 48026.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 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.
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Pursuant to the indentures relating to the Company's senior subordinated
notes and senior 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.
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. The Company accounts for such improvements as leasehold
improvements. 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. Amounts paid to
Venture Real Estate, Inc. and a predecessor affiliate were approximately $0.8,
$1.0 and $0.8 million for the years ended December 31, 1996, 1997 and 1998,
respectively.
Deluxe Pattern Company ("Deluxe"), a corporation wholly owned by Mr. Winget,
provides an advanced design, model and tool-building facility, and is engaged in
the business of providing design, model and tool-building services to the
Company and to customers unaffiliated with the Company. The Company paid Deluxe
$4.3, $9.2 and $6.6 million for the years ended December 31, 1996, 1997 and
1998, respectively, for the purchase of goods and services and equipment at net
book value. Deluxe does not directly employ its own workforce, but rather,
employees of the Company are made available to Deluxe on an as needed basis, for
which Deluxe is charged a fee by the Company. During the years ended December
31, 1996, 1997 and 1998, the Company made sales to Deluxe of $1.1 million each
year, and Deluxe was charged by the Company $9.6, $4.6 and $17.3 million,
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, which is expected to be renewed prior to the
termination date. 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 and the Realven Lease
provide for semi-annual lease payments. 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
$1.7 million in each of the years ended December 31, 1996, 1997 and 1998,
respectively, under the Harper Lease. The Company paid Realven $0.4 million in
each of the years ended December 31, 1996, 1997 and 1998, respectively, under
the Realven Lease.
Mr. Winget has allowed the Company to use approximately 40 molding machines
pursuant to the terms of usage agreements. In February of 1995, Mr. Winget
contributed and assigned his interests in the usage agreements to the various
injection molding machines and equipment to a new entity, Venture Heavy
Machinery Limited Liability Company. The Company paid Venture Heavy Machinery
Limited Liability Company $1.8 million in each of the years ended December 31,
1996, 1997 and 1998, respectively, under the usage agreements.
35
<PAGE> 37
Venture Real Estate Acquisition Company and Venture Equipment Acquisition
Company, each wholly owned by Mr. Winget, own a 176,000 square foot injection
molding facility and the machinery and equipment located therein (including 35
molding machines). 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 1996, 1997 and 1998 the
Company paid $1.3, $1.3 and $1.3 million respectively, to Venture Real Estate
Acquisition Company and Venture Equipment Acquisition Company pursuant to these
agreements.
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 $2.3, $ 1.0 and $1.5 million for the
years ended December 31, 1996, 1997 and 1998, respectively. In connection with
this relationship, the Company has provided Nova with various raw materials at
cost and receives commission income, for which Nova paid the Company $0.8, $0.3
and $0.4 million in the years ended December 31, 1996, 1997 and 1998,
respectively. Nova sells products to customers other than the Company, and has
and will compete with the Company for certain contracts. Nova paid the Company
$0.2 million each year pursuant to machinery and equipment operating leases for
the years ended December 31, 1996, 1997 and 1998, respectively. The Company paid
Windall Industries usage fees of $80 thousand in each of the years-ended
December 31, 1996, 1997 and 1998.
Venture Sales and Engineering Corporation ("VS&E") and Venture Foreign Sales
Corporation ("VFS"), corporations wholly owned by Mr. Winget, serve as the
Company's outside sales agencies for sales and marketing of the Company's
products manufactured or services conducted or provided by the Company's
facilities. Currently, the Company pays VS&E and VFS, in the aggregate, a sales
commission of 3% on all production part sales. The Company paid VS&E, $6.4, $
7.3 and $10.4 million in the years ended December 31, 1996, 1997 and 1998,
respectively. VFS was paid nothing in 1996 through 1998. VS&E has conducted
sales and marketing activities around the world for the Company and has been
advanced certain funds in order to carry on that work on behalf of the Company.
VAC has performed sequencing and value-added assembly of parts manufactured
at the Company's Grand Blanc facility. The Company paid VAC $3.3 million for the
year ended December 31, 1996, under this arrangement. During the year ended
December 31, 1996 the Company made sales to VAC of $0.07. 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,
owned a minority interest until the fourth quarter of 1998. Services for the
period ending December 31, 1996, 1997 and 1998 were $0.3, $2.7 and $2.3 million,
respectively.
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 $1.8 and $0.2 in the years ended
December 31, 1996 and 1997, respectively. No amounts were paid in 1998.
Venture Asia Pacific Pty. Ltd. and its subsidiaries ("VAP") were provided
with management and sales services by the Company and paid the Company $5.1,
$4.0 and $4.5 million for 1996, 1997 and 1998, respectively. In addition, VAP
also reimbursed the Company for certain other expenditures made on its behalf
and assigned certain tooling contracts to the Company.
36
<PAGE> 38
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. No amounts were paid in 1996 or 1997. In 1998 the Company paid
Pompo $0.6 million in premiums. The Company received and utilized premium
credits of $0.2 and $0.7 million, respectively, for 1996 and 1998. No premium
credits were utilized in 1997.
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 was not
indebted to the Company for such expenses at December 31, 1996 and 1997. At
December 31, 1998, Mr. Winget's indebtedness to the Company for such
indebtedness was $867 thousand. The highest amount of such indebtedness
outstanding at any one time during such periods was $867 thousand. Such
indebtedness was repaid in its entirety in the first quarter of 1999.
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 an
availability basis. Cumulative leasehold improvements to this facility through
December 31, 1998 aggregate $0.3 million. 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 $80 thousand, $50 thousand and $90 thousand
in the years ended December 31, 1996, 1997 and 1998, 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 1996,
1997 and 1998 were $0.2 million in each year.
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 certain members of his family no longer own 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.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements
Financial statements filed as part of this Form 10-K are
listed under Part II, Item 8.
2. Financial Statement Schedules
Valuation and qualifying accounts for the years ended
December 31, 1998, 1997 and 1996.
3. Exhibits.
A list of the exhibits required to be filed as part of this
Form 10-K is included under the heading "Exhibit Index" in
this Form 10-K and incorporated herein by reference.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the three
months ended December 31, 1998.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT
TO SECTION 12 OF THE ACT.
The Company has not furnished an annual report covering the Company's
last fiscal year or a proxy statement with respect to any annual or other
meetings, to the sole beneficiary of the Trust because it is not required to do
so.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, each registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
VENTURE HOLDINGS TRUST
DATE: March 31, 1999 BY: /s/ Larry J. Winget
------------------------------------------
LARRY J. WINGET, Chairman
and Trustee
VEMCO, INC., VENTURE INDUSTRIES CORPORATION,
VENTURE MOLD & ENGINEERING CORPORATION,
VENTURE LEASING COMPANY, VEMCO LEASING,
INC., VENTURE SERVICE COMPANY, VENTURE
HOLDINGS CORPORATION
DATE: March 31, 1999 BY: /s/ Michael G. Torakis
------------------------------------------
MICHAEL G. TORAKIS
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrants and
in the capacities and on the dates indicated.
/s/ Larry J. Winget Chairman (Chief Executive
- --------------------- Officer) and Director of
LARRY J. WINGET each registrant;
/s/ Michael G. Torakis President
- ---------------------- (Principal Financial
MICHAEL G. TORAKIS Officer and Principal Accounting
Officer) and Director of each
registrant
/s/ A. James Schutz Director of each registrant
- -----------------------
A. JAMES SCHUTZ
/s/ James E. Butler Director of Venture Holdings
- ----------------------- Corporation
JAMES E. BUTLER
38
<PAGE> 40
EXHIBIT INDEX
EXHIBIT DESCRIPTION OF EXHIBITS
2.1* Share Purchase and Transfer Agreement between Klockner Mercator
Maschinenbau GmbH, on the one hand, and Venture Beteiligungs GmbH and
Venture Holdings Trust, on the other hand, dated March 8, 1999.
3.1 Restated Articles of Incorporation of Vemco, Inc. filed as
Exhibit 3.1 to the Registrants' Registration Statement on Form S-4,
effective October 27, 1997 and incorporated herein by reference.
3.2 Restated Articles of Incorporation of Venture Industries
Corporation filed as Exhibit 3.2 to the Registrants' Registration
Statement on Form S-4, effective October 27, 1997 and incorporated
herein by reference.
3.3 Restated Articles of Incorporation of Venture Mold & Engineering
Corporation filed as Exhibit 3.3 to the Registrants' Registration
Statement on Form S-4, effective October 27, 1997 and incorporated
herein by reference.
3.4 Restated Articles of Incorporation of Venture Leasing Company
filed as Exhibit 3.4 to the Registrants' Registration Statement on
Form S-4, effective October 27, 1997 and incorporated herein by
reference.
3.5 Restated Articles of Incorporation of Vemco, Leasing, Inc. filed
as Exhibit 3.5 to the Registrants' Registration Statement on Form S-4,
effective October 27, 1997 and incorporated herein by reference.
3.6 Restated Articles of Incorporation of Venture Holdings
Corporation filed as Exhibit 3.6 to the Registrants' Registration
Statement on Form S-4, effective October 27, 1997 and incorporated
herein by reference.
3.7 Restated Articles of Incorporation of Venture Service Company
filed as Exhibit 3.7 to the Registrants' Registration Statement on
Form S-4, effective October 27, 1997 and incorporated herein by
reference.
3.8 Bylaws of Vemco, Inc. filed as Exhibit 3.9 to the Registrants'
Registration Statement on Form S-1, effective February 8, 1994 and
incorporated herein by reference.
3.9 Bylaws of Venture Industries Corporation filed as Exhibit 3.10
to the Registrants' Registration Statement on Form S-1, effective
February 8, 1994 and incorporated herein by reference.
3.10 Bylaws of Venture Mold & Engineering Corporation filed as
Exhibit 3.11 to the Registrants' Registration Statement on Form S-1,
effective February 8, 1994 and incorporated herein by reference.
3.11 Bylaws of Venture Leasing Company filed as Exhibit 3.12 to the
Registrants' Registration Statement on Form S-1, effective February 8,
1994 and incorporated herein by reference.
3.12 Bylaws of Vemco Leasing, Inc. filed as Exhibit 3.13 to the
Registrants' Registration Statement on Form S-1, effective February 8,
1994 and incorporated herein by reference.
3.13 Bylaws of Venture Holdings Corporation filed as Exhibit 3.14 to
the Registrants' Registration Statement on Form S-1, effective
February 8, 1994 and incorporated herein by reference.
3.14 Bylaws of Venture Service Company filed as Exhibit 3.15 to the
Registrants' Registration Statement on Form S-1, effective February 8,
1994 and incorporated herein by reference.
4.1 Indenture for 9-1/2% Senior Notes due 2005 (including form of
Notes) filed as Exhibit 4.1 to the Registrants' Registration Statement
on Form S-4, effective October 27, 1997 and incorporated herein by
reference.
4.2 Indenture for 9-3/4% Senior Subordinated Notes due 2004
(including form of Notes) filed as Exhibit 4.1 to the Registrants'
Annual Report on Form 10-K, for the fiscal year ended December 31,
1993 and incorporated herein by reference.
4.2.1 First Supplemental Indenture, dated August 8, 1996, to the
Indenture filed as Exhibit 4.2 filed as Exhibit 4.2.1 to the
Registrants' Registration Statement on Form S-4, effective October
27, 1997 and incorporated herein by reference.
<PAGE> 41
4.2.2 Supplemental Indenture of Vemco Acquisition Corp., as
Supplemental Guarantor, to the Indenture filed as Exhibit 4.2 filed as
Exhibit 4.2.2 to the Registrants' Registration Statement on Form S-4,
effective October 27, 1997 and incorporated herein by reference.
4.2.3 Supplemental Indenture of Venture Grand Rapids L.L.C., as
Supplemental Guarantor, to the Indenture filed as Exhibit 4.2 filed as
Exhibit 4.2.3 to the Registrants' Registration Statement on Form S-4,
effective October 27, 1997 and incorporated herein by reference.
4.2.4 Supplemental Indenture of Venture Western Michigan Ltd., as
Supplemental Guarantor, to the Indenture filed as Exhibit 4.2 filed as
Exhibit 4.2.4 to the Registrants' Registration Statement on Form S-4,
effective October 27, 1997 and incorporated herein by reference.
4.2.5 Supplemental Indenture of Bailey Corporation as Supplemental
Guarantor, to the Indenture filed as Exhibit 4.2 filed as Exhibit
4.2.5 to the Registrants' Registration Statement on Form S-4,
effective October 27, 1997 and incorporated herein by reference.
4.2.6 Supplemental Indenture of Bailey Manufacturing Corporation, as
Supplemental Guarantor, to the Indenture filed as Exhibit 4.2 filed as
Exhibit 4.2.6 to the Registrants' Registration Statement on Form S-4,
effective October 27, 1997 and incorporated herein by reference.
4.2.7 Supplemental Indenture of Bailey Transportation Products, Inc., as
Supplemental Guarantor, to the Indenture filed as Exhibit 4.2 filed as
Exhibit 4.2.7 to the Registrants' Registration Statement on Form S-4,
effective October 27, 1997 and incorporated herein by reference.
4.3 Registrant Rights Agreement, dated as of July 9, 1997 among Venture
Holdings Trust, Vemco, Industries Corporation, Venture Holdings
Corporation Inc., Venture Leasing Company, Venture Mold & Engineering
Corporation and Venture Service Company, as Issuers, and First Chicago
Capital Markets, Inc., as Initial Purchaser filed as Exhibit 4.3 to
the Registrants' Registration Statement on Form S-4, effective October
27, 1997 and incorporated herein by reference.
10.1 Amended and Restated Venture Holdings Trust effective as of February
16, 1994 filed as Exhibit 10.1 to the Registrants' Registration
Statement on Form S-4, effective October 27, 1997 and incorporated
herein by reference.
10.2 Amended and Restated Credit Agreement dated as of July 9, 1997 among
Venture Holdings Trust, certain Borrowing Subsidiaries (as defined
therein), the Lenders party thereto and NBD Bank, as Agent filed as
Exhibit 10.2 to the Registrants' Registration Statement on Form S-4,
effective October 27, 1997 and incorporated herein by reference.
10.3 Corporate Opportunity Agreement, dated February 16, 1994, by and
between Larry J. Winget and Comerica Bank, as Indenture Trustee filed
as Exhibit 10.3 to the Registrants' Registration Statement on Form
S-4, effective October 27, 1997 and incorporated herein by reference.
10.3.1 Agreement dated July 9, 1997 by Larry J. Winget to be bound by the
terms of the Corporate Opportunity Agreement, filed as Exhibit 10.3,
for the benefit of the holders of the Issuers' 9 1/2 Senior Notes due
2005 filed as Exhibit 10.3.1 to the Registrants' Registration
Statement on Form S-4, effective October 27, 1997 and incorporated
herein by reference.
10.4 Service Agreement dated as of January 1, 1992 by and between Venture
Industries Corporation, Vemco, Inc., Venture Mold & Engineering
Corporation, Venture Leasing Company, Vemco Leasing, Inc., Deluxe
Pattern Corporation, Venture Automotive Corp., Venture Sales &
Engineering Corp. and Venture Service Company filed as Exhibit 10.11
to the Registrants' Registration Statement on Form S-1, effective
February 8, 1994 and incorporated herein by reference.
10.5 Lease dated as of November 1, 1990 by and among Venture Industries
Corporation, Venture Technical Development Company, Venture Mold &
Engineering Corporation, Vemco, Inc., Deluxe Pattern Company, Venture
Automotive Corp., Larry J. Winget and Alicia Winget (Acropolis Resort)
filed as Exhibit 10.14 to the Registrants' Registration Statement on
Form S-1, effective February 8, 1994 and incorporated herein by
reference.
10.6 Real Estate Lease Agreement dated December 7, 1988 by and between
Harper Properties of Clinton Township Limited Partnership and Venture
Industries Corporation (Harper Lease) filed as Exhibit 10.15 to the
Registrants' Registration Statement on Form S-1, effective February 8,
1994 and incorporated herein by reference.
<PAGE> 42
10.6.1 First amendment to Real Estate Lease Agreement dated December 30, 1993
by and between Harper Properties of Clinton Township Limited
Partnership and Venture Industries Corporation (Harper Lease) filed as
Exhibit 10.15.1 to the Registrants' Registration Statement on Form
S-1, effective February 8, 1994 and incorporated herein by reference.
10.7 Machinery and Equipment Lease Agreement dated as of December 7, 1988
by and between Realven Corporation and Venture Industries Corporation
(Realven Lease) filed as Exhibit 10.16 to the Registrants'
Registration Statement on Form S-1, effective February 8, 1994 and
incorporated herein by reference.
10.7.1 First Amendment to Machinery and Equipment Lease Agreement dated
December 30, 1993 by and between Realven Corporation and Venture
Industries Corporation (Realven Lease) filed as Exhibit 10.16.1 to the
Registrants' Registration Statement on Form S-1, effective February 8,
1994 and incorporated herein by reference.
10.8 Real Estate Lease Agreement dated as of January 27, 1989 by and
between Venture Real Estate, Inc. and Venture Mold & Engineering
Corporation (Commerce Road facility) filed as Exhibit 10.17 to the
Registrants' Registration Statement on Form S-1, effective February 8,
1994 and incorporated herein by reference.
10.9 Real Estate Lease Agreement dated as of August 1, 1992 by and between
Venture Real Estate, Inc. and Venture Industries Corporation (17400
Malyn) filed as Exhibit 10.18 to the Registrants' Registration
Statement on Form S-1, effective February 8, 1994 and incorporated
herein by reference.
10.10 Real Estate Lease Agreement dated as of August 1, 1992 by and between
Venture Real Estate, Inc. and Venture Industries Corporation (17350
Malyn filed as Exhibit 10.19 to the Registrants' Registration
Statement on Form S-1, effective February 8, 1994 and incorporated
herein by reference.
10.11 Farm and Country Real Estate Company and Vemco, Inc. Real Estate
Availability and Usage Agreement dated April 24, 1992 filed as Exhibit
10.20 to the Registrants' Registration Statement on Form S-1,
effective February 8, 1994 and incorporated herein by reference.
10.12 Sales Representation Agreement by and between Vemco, Inc. and Venture
Sales & Engineering Corporation filed as Exhibit 10.21 to the
Registrants' Registration Statement on Form S-1, effective February 8,
1994 and incorporated herein by reference.
10.12.1 Sales Representation Agreement by and between Venture Industries
Corporation and Venture Sales & Engineering Corporation filed as
Exhibit 10.21.1 to the Registrants' Registration Statement on Form
S-1, effective February 8, 1994 and incorporated herein by reference.
10.13 Manufacturing Agreement by and between Venture Automotive Corp. and
Vemco, Inc. filed as Exhibit 10.22 to the Registrants' Registration
Statement on Form S-1, effective February 8, 1994 and incorporated
herein by reference.
10.14 Machinery Usage Agreements between Larry J. Winget Living Trust and
Venture Industries Corporation filed as Exhibit 10.23 to the
Registrants' Registration Statement on Form S-1, effective February 8,
1994 and incorporated herein by reference.
10.14.1 Machinery Usage Agreement between Larry J. Winget Living Trust and
Vemco, inc. filed as Exhibit 10.23.1 to the Registrants' Registration
Statement on Form S-1, effective February 8, 1994 and incorporated
herein by reference.
10.15 Machinery Usage Agreement between Deluxe Pattern Corporation and
Venture Mold & Engineering filed as Exhibit 10.24 to the Registrants'
Registration Statement on Form S-1, effective February 8, 1994 and
incorporated herein by reference.
10.16 Form of Machinery and Equipment Lease Agreement between Venture
Industries Corporation and Nova Industries, Inc. filed as Exhibit
10.25 to the Registrants' Registration Statement on Form S-1,
effective February 8, 1994 and incorporated herein by reference.
10.17 Form of Machinery and Equipment Lease Agreement between Venture
Industries Corporation and Nova Industries, Inc. filed as Exhibit
10.26 to the Registrants' Registration Statement on Form S-1,
effective February 8, 1994 and incorporated herein by reference.
10.18 Indemnification Agreement between the Company and Larry J. Winget
filed as Exhibit 10.25 to the Registrants' Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 and incorporated herein by
reference.
10.19 Indemnification Agreement between the Company and Michael G. Torakis
filed as Exhibit 10.26 to the Registrants' Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 and incorporated herein by
reference.
<PAGE> 43
10.20 Indemnification Agreement between the Company and A. James Schutz
filed as Exhibit 10.27 to the Registrants' Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 and incorporated herein by
reference.
10.21 Indemnity Agreement between Venture Holdings Trust and Stephen M.
Cheifetz filed as Exhibit 10.31 to the Registrants' Registration
Statement on Form S-1, effective February 8, 1994 and incorporated
herein by reference.
10.22 Insurance Policies issued by Pompo Insurance & Indemnity Company Ltd.
to the Registrants and affiliated companies filed as Exhibit 10.32 to
the Registrants' Registration Statement on Form S-1, effective
February 8, 1994 and incorporated herein by reference.
10.23 Real Estate Usage Agreement between Venture Real Estate Acquisition
Company and Venture Industries Corporation dated February 15, 1995
filed as Exhibit 10.23 to the Registrants' Registration Statement on
Form S-4, effective October 27, 1997 and incorporated herein by
reference.
10.24 Machinery Usage Agreement between Venture Equipment Acquisition
Company and Venture Industries Corporation dated February 15, 1995
filed as Exhibit 10.24 to the Registrants' Registration Statement on
Form S-4, effective October 27, 1997 and incorporated herein by
reference.
10.29 Venture Industries Group Participation Agreement between Venture
Industries Corporation and Venture Asia Pacific Pty Ltd. filed as
Exhibit 10.29 to the Registrants' Registration Statement on Form S-4,
effective October 27, 1997 and incorporated herein by reference
10.30 License Agreement as to Proprietary Technologies and Processes, dated
July 2, 1997, between Larry J. Winget and Venture Industries
Corporation, Vemco, Inc., Venture Mold & Engineering Corporation,
Venture Industries Canada Ltd., Vemco Leasing, Inc., Venture Leasing
Company, Venture Service Company, Venture Holdings Corporation and
Venture Holdings Trust filed as Exhibit 10.30 to the Registrants'
Registration Statement on Form S-4, effective October 27, 1997 and
incorporated herein by reference
10.31 License Agreement as to Patents, dated July 2, 1997, between Larry J.
Winget and Venture Industries Corporation, Vemco, Inc., Venture Mold &
Engineering Corporation, Venture Industries Canada Ltd., Vemco
Leasing, Inc., Venture Leasing Company, Venture Service Company,
Venture Holdings Corporation and Venture Holdings Trust filed as
Exhibit 10.31 to the Registrants' Registration Statement on Form S-4,
effective October 27, 1997 and incorporated herein by reference
12 * Statement Regarding Computation of Ratio of Earnings to Fixed Charges
21.1 * Subsidiaries of the Registrants
27.1 * Financial Data Schedule
- -------------
* Filed herewith.
<PAGE> 1
Ass.Prot. 1999/26 EXHIBIT 2.1
- -----------------
NOTARIAL DEED
SHARE PURCHASE AND TRANSFER AGREEMENT
Negotiated at Basel/Switzerland this 8th (eighth) day of March 1999 (nineteen
hundred and ninety-nine).
Before me, the undersigned Notary Public
STEPHAN CUENI
at Basel/Switzerland appeared today:
1. Dr. Joern Christian Roland Nissen, born May 24, 1959, attorney-at-law,
German citizen, domiciled at D-45219 Essen, Unterlehberg 46, known by
person,
acting not in his own name, but as representative exempted from the
restrictions imposed by Section 181 German Civil Code, presenting an
original power of attorney, a true copy thereof being attached to this
Deed, in the name and on behalf of
Klockner Mercator Maschinenbau GmbH, a German limited liability company
with head office at D-47057 Duisburg, Klocknerstrasse 29, registered with
the Commercial Register at the Local Court of Duisburg under HRB 3460,
- hereinafter referred to as " Seller" -
2. Dr. Hans-Jorg Ziegenhain, born August 9, 1961, attorney-at-law, German
citizen, domiciled at D-61476 Kronberg, Wilhelm-Bonn-Strasse 6c, known by
person,
acting not in his own name, but as representative exempted from the
restrictions imposed by Section 181 German Civil Code, presenting two
original
<PAGE> 2
powers of attorney, true copies thereof being attached to this Deed (the
second power of attorney dated March 4, 1999, is presented and attached
for the Secretary's Certificate of Venture Holdings Trust contained
therein), in the name and on behalf of
a) Venture Beteiligungs GmbH, a German limited liability company in
process of incorporation and registration with head office at
D-61118 Bad Vilbel, Wenzel-Jaksch-Strasse 6a, to be registered
with the commercial register at the local court of Bad Vilbel,
according to the attached certified copy of the Deed of
Incorporation of Venture Germany GmbH dated March 4, 1999, and the
attached certified copy ot the Deed of Incorporation of Venture
Beteiligungs GmbH dated March 7, 1999,
- hereinafter referred to as "Buyer" -
b) Venture Holdings Trust, a grantor trust, organized and existing
under the laws of the State fo Michigan, USA, with registered head
office at 33662 James J. Pompo Drive, Fraser, Michigan 48026, USA,
- hereinafter referred to as "Parent" -
- Seller, Buyer and Parent hereinafter referred to as
"Party" or "Parties", as the case may be -
The acting notary asked the persons appearing prior to the notarization whether
he or any of his partners acts or acted in the matter to be recorded for any of
the parties of this deed outside his or, as the case may be, their notarial
function (Section 3 para. 1 No. 7 Recording Act (Beurkundungsgesetz)). The
answer was negative.
The persons appearing requested this Deed including its Exhibits to be recorded
in the English language. The acting Notary Public who is in sufficient command
of the English language ascertained that the persons appearing are also in
command of the English language. After having been instructed by the acting
Notary, the persons appearing waived the right to obtain the assistance of a
sworn interpreter and to obtain a certified translation of this Deed and the
Exhibits thereto.
The persons appearing, acting as indicated, asked for the Notarization of the
following
SHARE PURCHASE AND TRANSFER AGREEMENT
<PAGE> 3
between
KLOCKNER MERCATOR MASCHINENBAU GMBH,
Klocknerstra(beta)e 29,
D-47057 Duisburg
- hereinafter "SELLER" -
on the one hand
and
VENTURE BETEILIGUNGS GMBH I. GR.,
Wenzel-Jaksch-Stra(beta)e 6 a,
61118 Bad Vilbel
hereinafter - "BUYER" -
and
VENTURE HOLDINGS TRUST
33662 James J. Pompo Drive
Fraser, Michigan 48026, U.S.A.
hereinafter - "PARENT" -
on the other hand
- Seller, Buyer and Parent hereinafter "Party"
or "Parties", as the case may be -
Section 1
DEFINITIONS
The terms listed below are defined with effect for the entire Agreement in the
section listed opposite the relevant term:
Activities 2.1
<PAGE> 4
Adjustment Amount 5.6
Banking Day 11.1
BDO 6
Buyer's Auditor 9.1
Cash 5.1.4
Cash Management System 8.1
Closing Conditions 10.1
Control Agreement 7.2
Effective Date 9.1
Effective Date Accounts 9.1
Environmental Due Diligence 12a.1
Environmental Liabilities 12a.2
Financial Indebtedness 5.1.2
Financial Statements 1998 6
GAAP 9.1
Intellectual Property Rights 12.6
Klockner-Group 3.2
Known Conditions 12a.1
Net Equity 5.1.6
Peguform 2.1
Peguform-Group 3.1
Preliminary Purchase Price 5.2
Preliminary Effective Date Accounts 5.2
Preliminary Shareholder's Loans 5.2
<PAGE> 5
Purchase Price 5.1
Purchase Price Adjustment 5.4
Real Estate 12.7
Revised Effective Date Accounts 9.2
Shareholder's Loans 4.2
Shareholder's Loans Adjustment 5.5
Shares 2.2(a)
U.S. GAAP Statements 11.1
Working Capital 5.1.5
Section 2
PEGUFORM AND SUBSIDIARIES
2.1 Peguform GmbH, Botzingen, registered in the Commercial Register of
the Lower Court of Freiburg/Breisgau sub HRB 1129 ("PEGUFORM") is
active in the manufacture and sale of plastic products, in particular
plastic automotive components (the "ACTIVITIES").
2.2 The stated share capital (Stammkapital) of Peguform amounts to
Deutsche Mark seventy million and is held as follows:
(a) Seller holds shares in the nominal amount of DEM 25
million (twenty-five million), DEM 15 million (fifteen
million), DEM 10 million (ten million), DEM 5 million
(five million), DEM 5 million (five million), DEM
3,150,000 (three million one hundred fifty thousand), DEM
1,913,000 (one million nine hundred thirteen thousand),
DEM 1,100,000 (one million one hundred thousand), DEM
1,100,000 (one million one hundred thousand), DEM 1
million (one million), DEM 1 million (one million), DEM
12,400 (twelve thousand four hundred), DEM 10,000 (ten
thousand), DEM 10,000 (ten thousand) and DEM 4,600 (four
thousand six hundred), together shares in the nominal
amount of DEM 69.3 million (sixty nine million three
hundred thousand - the "SHARES") and
<PAGE> 6
(b) NEPTUNO Verwaltungs- und Treuhand-Gesellschaft mbH,
Cologne, holds shares in the nominal amount of DEM 300,000
(three hundred thousand), DEM 300,000 (three hundred
thousand) and DEM 100,000 (one hundred thousand), together
shares in the nominal amount of DEM 700,000 (seven hundred
thousand).
2.3 Peguform holds all of the shares (including the shares held in trust
for Peguform as set out in Section 2.4) in (a) Peguform France S.A.,
Vernon, France; (b) Peguform Iberica S.A., Polinya, Spain (except as
set out in Section 2.5); (c) Peguform Bohemia a.s., Liberec, Czech
Republic; as well as (d) a 70 %-interest in Peguform Hella Mexico
S.A., Puebla, Mexico. Peguform Iberica S.A. and Peguform Bohemia a.s.
hold the interests shown on the corporate chart attached as EXHIBIT
Section 2.3. Peguform France S.A. has entered into a joint venture
agreement with Shashi Hengfeng Plastic Co. Ltd. regarding the
foundation of Manducher Hengfeng Ltd.
2.4 The following parties hold shares in Peguform France S.A. as trustees
for Peguform:
(a) Mr. Siegfried Barschkett 2 shares
(b) Mr. Mattheus de Graef 2 shares
(c) Mr. Felix Perez Solana 2 shares
(d) Mr. Werner Deggim 2 shares. 2 shares.
2.5 Domus Verwaltungsgesellschaft mbH, Duisburg, holds one share in
Peguform Iberica S.A.
2.6 Inerga Components S.A. holds 2,500 shares in Inerga Logistics S.L.
and Celulosa Fabril (Cefa) S.A. holds one share in Inerga Components
S.A.
2.7 Mr. Francesc Borull holds as a trustee for Peguform Iberica S.A. one
share (quota) in Peguform do Brazil and 1,000 shares in Peguform
Argentinia S.A.
SECTION 3
PEGUFORM-GROUP, KLOCKNER-GROUP
<PAGE> 7
3.1 Peguform and the direct and indirect subsidiaries (including
interests in joint ventures) referred to in Section 2.3 are
hereinafter collectively referred to as the "PEGUFORM-GROUP".
3.2 Klockner-Werke AG and its affiliated enterprises within the meaning
of Section 15 Stock Corporation Act excluding the companies of the
Peguform-Group are hereinafter collectively referred to as the
"KLOCKNER-GROUP".
SECTION 4
SALE AND TRANSFER OF SHARES, REPAYMENT OF SHAREHOLDER'S LOANS
4.1 Seller hereby sells and transfers subject to the suspensive
conditions set forth in ss. 4.3 below the Shares to Buyer. Buyer
accepts the sale and transfer of the Shares. The sale and transfer of
the Shares shall include all rights and obligations attached to the
Shares.
4.2 Buyer shall repay on behalf of Peguform-Group all accounts receivable
of Seller against the companies of the Peguform-Group existing at the
time of the Effective Date excluding accounts receivable arising from
supplies and services in the ordinary course of business
("SHAREHOLDER'S LOANS") being recorded in the Cash Management System
(Seller's account nos. 5032 and 5518).
4.3 The sale of the Shares shall become effective in relation between the
Parties as of the end of the day (24:00 hrs.) of the Effective Date.
The transfer of the Shares, however, shall become legally effective
(suspensive condition/ aufschiebende Bedingung) only at the day of
Closing, or with the payment of the Preliminary Purchase Price and
the repayment of the Preliminary Shareholder's Loans, whichever
occurs later.
SECTION 5
PURCHASE PRICE
5.1 The Purchase Price for the Shares shall be the aggregate of:
5.1.1 a fixed amount of DEM 848,118,948.-- (Deutsche Mark eight
hundred forty eight million one hundred eighteen thousand
nine
<PAGE> 8
hundred forty eight);
minus
5.1.2 the amount of interest-bearing and non interest-bearing
debt obligations or other similar instruments of the
Peguform-Group to banks, financial or other similar
institutions or vendors in the case of financed equipment
purchases initially providing for deferred payments in
excess of one year (including any accrued and/or unpaid
interest thereon) and excluding any obligations arising
from financial leases each existing at the time of the
Effective Date ("FINANCIAL INDEBTEDNESS");
minus
5.1.3 the amount of the Shareholder's Loans existing at the time
of the Effective Date;
plus
5.1.4 cash and cash equivalents (Section 266(2) B IV German
Commercial Code) existing at the time of the Effective Date
("CASH");
plus/minus
5.1.5 the amount by which the accounts receivable from customers
plus inventories less accounts payable to vendors of the
Peguform-Group less of customer deposits received by the
Peguform-Group and excluding any amounts owed to vendors in
the case of financed equipment purchases initially
providing for deferred payments in excess of one year
(including any accrued and/or unpaid interest thereon) as
far as these amounts have been included in the Financial
Indebtedness (the "WORKING CAPITAL") existing at the time
of the Effective Date is more/less than DEM 208.5 million
(Deutsche Mark two hundred eight million five hundred
thousand);
plus/minus
5.1.6 the amount of any increase/decrease between (i) the
consolidated net equity less of minority interests
(Eigenkapital abzuglich
<PAGE> 9
Anteile Dritter) of the Peguform-Group existing at the time
of the Effective Date (the "NET EQUITY") and (ii) the
amount of DEM 159,735,625 (Deutsche Mark one hundred fifty
nine million seven hundred thirty five thousand six hundred
twenty five), representing the consolidated net equity less
of minority interests as shown in the Financial Statements
1998; in the calculation of the increase/decrease between
the Net Equity and the consolidated net equity less of
minority interests as shown in the Financial Statements
1998 all items which would give rise to duplicative
adjustments to the Purchase Price, such as changes in the
provisions for inventories and receivables or other items,
shall be disregarded;
(the "PURCHASE PRICE") plus interest on the Purchase Price at the
rate of 6 % per annum (365 days) from Closing to but not including
the day of payment. The Financial Indebtedness, the Shareholder's
Loans, the Cash, the Working Capital and the Net Equity which are
used in calculating the Purchase Price are shown for illustration
purposes in EXHIBIT SECTION 5.1 as of 30 September 1998.
5.2 The Preliminary Purchase Price to be paid by Buyer to Seller on
Closing as provided under Section 11.3 (a) shall be calculated by
applying the principles set out in Section 5.1 above on the basis of
Preliminary Effective Date Accounts prepared by the management of the
Peguform-Group based on good faith projections ("PRELIMINARY
EFFECTIVE DATE ACCOUNTS") and delivered to Buyer on or before the
tenth Banking Day preceding the Closing ("PRELIMINARY PURCHASE
PRICE"). The Preliminary Shareholder's Loans to be repaid by Buyer on
behalf of the Peguform-Group to Seller on Closing as provided under
Section 11.3(b) shall be calculated on the basis of the Preliminary
Effective Date Accounts ("PRELIMINARY SHAREHOLDER'S LOANS").
5.3 The Preliminary Purchase Price and the Preliminary Shareholder's
Loans shall be paid by Buyer free of costs and charges in immediately
available funds by wire transfer at Closing to the account designated
by Seller in writing prior to Closing.
5.4 If, on the basis of the Effective Date Accounts, the Purchase Price
is higher
<PAGE> 10
than the Preliminary Purchase Price, Buyer shall pay to Seller an
amount equal to the amount by which the Purchase Price exceeds the
Preliminary Purchase Price and, if, on the basis of the Effective
Date Accounts, the Preliminary Purchase Price is higher than the
Purchase Price, Seller shall pay to Buyer an amount equal to the
amount by which the Preliminary Purchase Price exceeds the Purchase
Price. Any such amount to be paid by either Buyer or Seller
("PURCHASE PRICE ADJUSTMENT") shall be paid as follows:
5.4.1 Any Purchase Price Adjustment owed by Buyer shall be paid
free of costs and charges in immediately available funds
ten Banking Days after the Effective Date Accounts have
become final and binding upon the Parties in accordance
with Section 9 below to the account designated by Seller in
writing prior to Closing.
5.4.2 Any Purchase Price Adjustment owed by Seller shall be paid
by Seller free of costs and charges in immediately
available funds by wire transfer ten Banking Days after the
Effective Date Accounts have become final and binding upon
the Parties in accordance with Section 9 below to the
account designated by Buyer in writing prior to Closing.
5.5 If, on the basis of the Effective Date Accounts, the amount of the
Shareholder's Loans is higher than the amount of the Preliminary
Shareholder's Loans, Buyer shall pay to Seller on behalf of
Peguform-Group an amount equal to the amount by which the
Shareholder's Loans exceed the Preliminary Shareholder's Loans and,
if, on the basis of the Effective Date Accounts, the Preliminary
Shareholder's Loans are higher than the Shareholder's Loans, Seller
shall pay to Buyer for the account of the Peguform-Group an amount
equal to the amount by which the Preliminary Shareholder's Loans
exceed the Shareholder's Loans. Any such amount to be paid by either
Buyer or Seller ("SHAREHOLDER'S LOANS ADJUSTMENT") shall be paid as
follows:
5.5.1 Any Shareholder's Loans Adjustment owed by Buyer shall be
paid free of costs and charges in immediately available
funds ten Banking Days after the Effective Date Accounts
have become final and binding upon the Parties in
accordance with Section 9 below to the
<PAGE> 11
account designated by Seller in writing prior to Closing.
5.5.2 Any Shareholder's Loans Adjustment owed by Seller shall be
paid by Seller free of costs and charges in immediately
available funds by wire transfer ten Banking Days after the
Effective Date Accounts have become final and binding upon
the Parties in accordance with Section 9 below to the
account designated by Buyer in writing prior to Closing.
5.6 If one Party owes a Purchase Price Adjustment to the other Party and
that other Party owes a Shareholder's Loans Adjustment to the other,
these claims shall be offset to the extent that the amounts
correspond with each other. The excess amount shall be payable by
Seller or Buyer respectively, whoever owes the larger amount, as
provided for in Section 5.4 or Section 5.5 respectively ("ADJUSTMENT
AMOUNT").
SECTION 6
FINANCIAL STATEMENTS 1998
The financial statements of Peguform GmbH for fiscal year 1997/1998 ending on
September 30, 1998 audited and certified by BDO Deutsche Warentreuhand AG
Wirtschaftsprufungsgesellschaft, Dusseldorf ("BDO"), as well as the consolidated
financial statements of the Peguform-Group for such fiscal year audited by BDO
(collectively the "FINANCIAL STATEMENTS 1998") have been handed over to Buyer
prior to the conclusion of this Agreement.
SECTION 7
ALLOCATION OF PROFITS AND LOSSES
7.1 Seller shall arrange that the fiscal year of Peguform is changed to
the effect that the fiscal year starting on October 1, 1998 shall end
on the Effective Date.
7.2 Seller shall enter into an agreement with Peguform pursuant to which
the control and profit and loss transfer agreement between Seller and
Peguform dated July 31/August 6, 1997 ("CONTROL AGREEMENT") shall be
terminated by mutual agreement as of the Effective Date.
<PAGE> 12
7.3 Seller shall be obliged to assume the losses, if any, of Peguform as
shown in the statutory accounts of Peguform as of the Effective Date
under the Control Agreement in accordance with Section 302 (1) German
Stock Corporation Act.
7.4 The profit of Peguform for the stub fiscal year ending on the
Effective Date as shown in the statutory accounts of Peguform as of
such date shall be allocated and transferred to Seller under the
Control Agreement.
7.5 In case creditors of Peguform should require collateral pursuant to
Section 303 German Stock Corporation Act, Seller shall upon request
of Buyer provide such collateral in its own name and for its own
account, irrespective of when the claim for which collateral is
requested came into existence. Should this not be feasible, Seller
shall indemnify Buyer against any costs and expenses incurred in
providing such collateral as well as indemnify Buyer against any
recourse by third parties.
7.6 The statutory accounts of Peguform for the stub fiscal year shall be
prepared by the management of Peguform, audited by BDO and determined
by Buyer timely and without undue delay. However, in relation between
the Parties the Effective Date Accounts shall govern the
determination of the profit and loss of the stub fiscal year. If the
statutory accounts show a larger loss of Peguform in the stub fiscal
year than the Effective Date Accounts, Buyer shall hold Seller
harmless against any claim of Peguform exceeding the loss as shown in
the Effective Date Accounts. Seller herewith waives any claims
against Peguform for any profit of the stub fiscal year in excess of
the amount of profit shown in the Effective Date Accounts.
SECTION 8
CASH MANAGEMENT/WORKING CAPITAL
8.1 Seller maintains a cash management system to record and settle all
intercompany transactions between the Klockner-Group and the
Peguform-Group other than transactions between companies of those
groups concerning supplies and services in the ordinary course of
business (the "CASH MANAGEMENT SYSTEM"). The Cash Management System
shall be terminated on or before the Effective Date.
<PAGE> 13
8.2 Under the Cash Management System Seller will have an account
receivable against Peguform-Group which corresponds to the
Shareholder's Loans and shall be repaid by Buyer on behalf of
Peguform-Group as described in Section 4.2.
8.3 Seller shall, as far as necessary and appropriate, with the prior
consent or on the request of Buyer, provide Peguform-Group with
additional cash between the Effective Date and Closing by means of
further loans. The aggregate of such amounts plus interest accrued
(at the rate of 4 % per annum (365 days) from the Effective Date to
but not including the day of payment) shall be repaid by Buyer on
behalf of the Peguform-Group to Seller at Closing as provided for in
Section 5.3. Seller shall submit to Buyer satisfactory documentation
that reflects the additional cash provided by Seller after the
Effective Date on or before the seventh Banking Day prior to Closing.
8.4 Seller undertakes and covenants that the Working Capital will be
managed in the ordinary course between October 1, 1998 and the
Effective Date and in accordance with past practice prior to October
1, 1998, in particular without limitation (i) the collection of the
receivables will not be accelerated, (ii) the payables will not be
extended and (iii) the inventories will not be liquidated other than
in the ordinary course of business.
SECTION 9
EFFECTIVE DATE ACCOUNTS
9.1 The Financial Indebtedness, the Shareholder's Loans, the Cash, the
Net Equity and the Working Capital, each as per 31 March 1999 (the
"EFFECTIVE DATE") as well as any Purchase Price Adjustment,
Shareholder's Loans Adjustment and any Adjustment Amount resulting
therefrom, shall be determined on the basis of the consolidated
accounts of Peguform-Group as of the Effective Date which shall be
prepared by BDO in accordance with German generally accepted
principles of accounting and preparation of annual accounts ("GAAP")
utilizing and continuing the same election rights and valuation
principles as used by the Peguform-Group in preparation of the
Financial Statements 1998 and on the basis of (i) the then current
Klockner-Werke AG accounting and consolidation standards
<PAGE> 14
(Bilanzierungsrichtlinie Stand 9/94 and Konsolidierungsrichtlinie
Stand 9/94) used in the preparation of the Financial Statements 1998
consistently applied and (ii) the accounting policies listed in
EXHIBIT SECTION 9.1 (the "EFFECTIVE DATE ACCOUNTS"). However, in the
event that GAAP and past practices conflict, then GAAP will prevail.
Seller shall until Closing and Buyer shall after Closing instruct the
management of the companies of the Peguform-Group to effectively
assist BDO in the preparation of the Effective Date Accounts, in
particular by providing all information and documentation requested
by BDO. The Effective Date Accounts prepared by BDO shall be
delivered to Deloitte and Touche LLP ("BUYER'S AUDITOR") not later
than sixty (60) days after the Effective Date. Buyer's Auditor shall
receive all necessary assistance and shall be given access to all
relevant documentation for reviewing the Effective Date Accounts.
9.2 The calculation of the Financial Indebtedness, the Shareholder's
Loans, the Cash, the Net Equity and the Working Capital, each as of
the Effective Date, as well as any Purchase Price Adjustment,
Shareholder's Loans Adjustment and any Adjustment Amount resulting
therefrom, will be based on the Effective Date Accounts prepared by
BDO to the extent that Buyer does not within thirty (30) days after
receipt of BDO's Effective Date Accounts provide Seller with a
written report asserting that the Effective Date Accounts do not meet
the provisions of this Agreement by way of stating the specific
objections to that effect. In such event, revised Effective Date
Accounts shall be prepared by Buyer's Auditor and submitted to Seller
within the foregoing thirty (30) days' period which shall take into
account the changes that are necessary in Buyer's view ("REVISED
EFFECTIVE DATE ACCOUNTS").
9.3 If the Parties cannot agree on the changes of the Revised Effective
Date Accounts within two weeks following the delivery of the Revised
Effective Date Accounts by Buyer's Auditors, each of Seller and Buyer
shall be entitled to request the Institut der Wirtschaftsprufer in
Deutschland e.V., Dusseldorf, to appoint an auditor to act as an
arbitrator (Schiedsgutachter) to determine the correct amount of the
Financial Indebtedness, the Shareholder's Loans, the Cash, the Net
Equity and the Working Capital, but limited to any dispute on the
changes since September 30, 1998. The arbitrator shall give Seller
and Buyer adequate opportunity to present their views in writing and
at a hearing or hearings to be held in the presence of
<PAGE> 15
Seller and Buyer and their advisors. The arbitrator shall give
reasons for his decision on all issues which are in dispute between
Seller and Buyer. The arbitrator shall also determine the allocation
of the cost of the arbitration proceedings pursuant to Sections 91
sequent German Code of Civil Procedure, provided that each Party
shall fully bear the costs of his own advisors. The Effective Date
Accounts as determined by the arbitrator shall be final and binding
for the Parties but shall not limit the representations and
warranties contained in Section 12.8 otherwise.
SECTION 10
CLOSING CONDITIONS
10.1 The Closing shall take place after the following conditions ("CLOSING
CONDITIONS") have occurred:
(a) The supervisory board (Aufsichtsrat) of Klockner-Werke AG
has agreed to the conclusion and performance of this
Agreement;
(b) the shareholders' meeting (Hauptversammlung) of
Klockner-Werke AG has agreed to the conclusion and
performance of this Agreement;
(c) any necessary pre-merger antitrust clearance in Germany,
Belgium and Mexico has been obtained.
10.2 The Parties undertake to use all reasonable endeavours to ensure that
the Closing Conditions are fulfilled as soon as possible after the
time of signing of this Agreement, in particular the Board of
Directors (Vorstand) of Klockner-Werke AG shall recommend to the
shareholders' meeting of Klockner-Werke AG to approve the transaction
as contemplated hereunder. The Parties shall promptly inform each
other about the occurrence of the Closing Conditions. Each Party is
entitled to waive the satisfaction of a Closing Condition intended
for the protection of that Party.
10.3 If any of the Closing Conditions has not been satisfied on or before
June 30, 1999, this Agreement, with the exception of Section 19 and
Section 20 shall be deemed null and void unless a Party has waived a
Closing Condition pursuant Section 10.2. If the Agreement shall be
deemed null and void none of the Parties
<PAGE> 16
shall have a claim against the other in the context of having entered
into this Agreement. However, each Party shall be obliged to return
all material received from the other side and to keep secret and not
to use for its own purposes all confidential information received in
the context of the transactions contemplated in this Agreement.
Seller and Buyer may agree on an extension of the period set forth in
sentence 1.
SECTION 11
CLOSING
11.1 The Closing shall take place five banking days (a day on which banks
are open for business in Frankfurt am Main and in New York - "BANKING
DAY") following the occurrence of the last of the Closing Conditions
not waived by one of the Parties. The Parties will use their best
efforts to achieve the Closing as soon as reasonably possible,
however, the Parties are aware of Buyer's desire to receive thirty
days before Closing, consolidated financial statements of the
Peguform Group (consolidated balance sheets, income statements,
statements of cash flows, statement of shareholders' equity and notes
thereto) prepared in accordance with United States Generally Accepted
Accounting Principles and accompanied by the report of BDO in form
and substance meeting the requirements for inclusion by Buyer in
reports and other filings it may make under the United States
securities laws (i) as of September 30, 1997 and September 30, 1998
(audited) and (ii) for the three months periods ended as of December
31, 1997 and December 31, 1998 (unaudited)("U.S. GAAP STATEMENTS").
In the event that the U.S. GAAP Statements are not timely (30 days in
advance) received by Buyer, the Closing may at Buyer's request be
postponed, but in no event the Closing may be postponed to a later
date than 31 May 1999, 10 a.m. for this reason.
11.2 The Closing shall take place at the offices of Klockner-Werke AG, 29
Klocknerstra(beta)e, 47057 Duisburg or at such other place agreed
upon by the Parties.
11.3 At Closing the Parties shall procure simultaneously ("Zug um Zug")
the following:
<PAGE> 17
(a) Buyer shall pay the Preliminary Purchase Price as provided
for in Section 5;
(b) Buyer shall repay the Preliminary Shareholder's Loans as
provided for in Section 4.2 and Section 5.2;
(c) Buyer shall pay the amount of any additional cash
contribution, including any interest thereon, by Seller to
Peguform-Group after the Effective Date (as provided for in
Section 8.3);
(d) Seller shall submit to Buyer satisfactory documentation
showing that the supervisory board (Aufsichtsrat) and the
shareholders meeting (Hauptversammlung) of Klockner-Werke
AG have given their consent to the conclusion and
performance of this Agreement;
(e) Seller shall hand over to Buyer the resignation letters
provided for in Section 18;
(f) Seller shall procure that the shares referred to in Section
2.4 (a) and (b) and Section 2.5 are transferred to parties
designated by Buyer;
(g) If a list of Known Conditions has been prepared by the
Parties as provided for in Section 15.7, such list shall be
confirmed by Seller and Buyer by way of signing.
SECTION 12
REPRESENTATIONS AND WARRANTIES
Seller represents and warrants at the time of signing of this Agreement and as
of the Closing as follows:
12.1 Seller has all necessary authority, including any required board
approvals, to enter into and to perform this Agreement. Seller can
freely dispose of the Shares sold and transferred pursuant to this
Agreement, free of any encumbrances or other rights of third parties
including warrants and options to purchase Shares, and there are no
agreements to acquire or subscribe for any of the capital stock of
Peguform or any of the companies of the Peguform-Group (except as
provided for in the joint venture and
<PAGE> 18
shareholders' agreements of Celulosa Fabril (Cefa) S.A., Manducher
Hengfend Ltd. and Peguform Hella Mexico S.A. de C.V.).
12.2 The statements in Section 2 correctly reflect the ownership in and
the capital of Peguform and the companies of the Peguform-Group.
There are no other shares held by Peguform or the companies of the
Peguform-Group in any other companies nor any obligations to acquire
such shares.
12.3 Peguform and the companies of the Peguform-Group are companies duly
organised and validly existing under the laws of their respective
jurisdictions. No bankruptcy or judicial composition proceedings
concerning the assets of any of the companies of the Peguform-Group
or of Seller have been applied for and no circumstances exist
pursuant to any bankruptcy or voidance laws applicable which could
justify the voidance of this Agreement.
12.4 The share capital of Peguform and each of the companies of the
Peguform-Group is fully paid in. Cash contributions have been made in
full, and contributions in kind have been made at not more than
market value. Contributions have not been reduced by repayments.
There exist no other financial encumbrances on the Real Estate, to
the extent owned by Peguform or the companies of the Peguform-Group,
other than such securing liabilities shown in the Financial
Statements 1998.
12.5 Each of the companies of the Peguform-Group has performed and
complied with all material obligations under any material agreements,
contracts or other commitments any of them are a party to, and has
done everything which is reasonable in order to be in a position to
meet such material obligations under these agreements, contracts, or
commitments when they become due. Except as disclosed in EXHIBIT
SECTION 12.5, to the best of Seller's knowledge, no event has
occurred which would constitute a material default under any material
agreement, contract or commitment, and none of the parties to such
material agreement, contract or commitment is entitled to terminate
or modify the obligations thereunder as a result of the execution of
this Agreement.
12.6 Peguform and each of the companies of the Peguform-Group own or
lawfully use under a license all such patents, utility models, design
patents, trademarks, copyrights, software and other intellectual
property rights
<PAGE> 19
(collectively "INTELLECTUAL PROPERTY RIGHTS") necessary to carry on
the Activities of Peguform and each of the companies of the
Peguform-Group as presently conducted and that such Intellectual
Property Rights, to the best knowledge of Seller, do not infringe on
any third party rights nor, to the best knowledge of Seller, can any
third party claim the invalidity or unenforceability of such rights
and Peguform and each of the companies of the Peguform-Group hold
unrestricted and lawful title to the Intellectual Property Rights to
the extent they are owned by Peguform and/or the companies of the
Peguform-Group. The Intellectual Property Rights are not the subject
of any pending or, to the best knowledge of Seller, threatened
proceedings for opposition, cancellation, revocation or
rectification, and there exist no facts or circumstances to the best
knowledge of Seller which might give rise to any such proceedings.
12.7 Peguform and each of the companies of the Peguform-Group own, or hold
lawful possession to, all assets (including the Real Estate) and
inventories necessary for carrying out the Activities in
substantially the same fashion as prior to the Closing, and all such
assets and inventories are in a condition which is adequate to carry
on the Activities in the ordinary course of business in substantially
the same fashion and manner as prior to the Closing. Peguform and
each of the companies of the Peguform-Group have good and marketable
title to all of their assets necessary for carrying out the
Activities, except for leased property and third party intellectual
property rights, to which Peguform or the respective companies of the
Peguform-Group has valid and enforceable leases or licenses, as the
case may be, free and clear of all mortgages, options, leases,
covenants, conditions, agreements, liens, security interest, adverse
claims, restrictions, charges, encumbrances or right of others,
except for any statutory or customary encumbrances or restrictions
(e.g. title retention, right of way and all other servitudes of
non-financial nature, right of first refusal) and except as disclosed
in EXHIBIT SECTION 12.7. The use of the Real Estate used or owned by
Peguform or the companies of the Peguform-Group (collectively "REAL
ESTATE"), the conduct of its Activities does not violate any material
law or governmental regulation, and the buildings and improvements on
the Real Estate comply in all material aspects with the applicable
laws and regulations. This representation does not extend to Known
Conditions and Environmental Liabilities and to shareholdings within
the meaning of Section
<PAGE> 20
12.2.
12.7a As of the Effective Date, Seller will cause Peguform to ensure that
all machinery, equipment and other fixed assets necessary to generate
the production volumes of Peguform do Brazil as originally projected
by Peguform will be in sufficient condition to support the full
operation of the facility, or, to the extent that Seller anticipates
any additional expenditures to be incurred subsequent to the
Effective Date with respect to the purchase and installation of such
fixed assets, these will be recognized as a liability of Peguform do
Brazil at the Effective Date in the Preliminary Effective Date
Accounts and the Effective Date Accounts.
12.8 The Financial Statements 1998 and the Effective Date Accounts have
each been prepared in accordance with the GAAP, utilizing and
continuing the same election rights and valuation principles as used
by the Peguform-Group in preparation of the preceding financial
statements respectively and on the basis of (i) the then current
Klockner-Werke AG accounting and consolidation standards
(Bilanzierungsrichtlinie Stand 9/94 and Konsolidierungsrichtlinie
Stand 9/94), consistently applied and (ii) the accounting policies
listed in EXHIBIT SECTION 9.1; the Financial Statements 1998 note all
material contingent liabilities within the meaning of Section 251
German Commercial Code ("Eventualverbindlichkeiten") of each of
Peguform and the companies of the Peguform-Group, stating the exact
amounts and exposure incurred with any such contingent liability. All
companies in which Peguform directly or indirectly holds the majority
of the voting rights or which are directly or indirectly controlled
by Peguform have been included in the consolidation as if they were
wholly owned subsidiaries of Peguform (including Celulosa Fabril
(Cefa) S.A.).
In accordance with German GAAP, Peguform accounts for production
tooling projects utilizing the strict "lowest value" principle, in
which the carrying value as of the balance sheet date of each
production tooling project may not exceed the proceeds reasonably
expected from the Peguform customer, net of all future estimated
costs necessary to complete the project. Any write downs necessary to
perform this "loss-free" valuation are continuously treated as a
valuation adjustment, are offset against the related production
tooling projects recorded within inventory on the balance sheet, and
are charged to expense in the period such write-downs are
<PAGE> 21
identified. This principle will be utilized in the preparation of the
Preliminary Effective Date Accounts and the Effective Date Accounts.
12.9 The Financial Statements 1998 and the Effective Date Accounts present
a true and fair view according to GAAP of the net worth, financial
position and results of the Peguform-Group.
12.10 Peguform and each of the companies of the Peguform-Group are in
possession of all material governmental approvals, licenses and
permits necessary to operate their respective business as it
currently exists except as disclosed in EXHIBIT SECTION 12.10. The
approvals, licenses and permits are in full force and effect and will
not be terminated due to the transfer of the Shares. Peguform and
each of the companies of the Peguform-Group are each at the time of
Closing in all material respects in compliance with such approvals,
licenses and permits affecting or applicable to the Activities.
12.11 For the benefit of Peguform and the companies of the Peguform-Group
the insurances listed in EXHIBIT SECTION 12.11 have been entered
into, partially under framework agreements of Klockner-Werke AG. All
premiums due for the insurances listed in EXHIBIT SECTION 12.11 have
been paid. The insurance coverage for insurances under the framework
agreements of Klockner-Werke AG will continue until the end of the
respective current insurance period as described in EXHIBIT SECTION
12.11 provided that Peguform and each of the companies of the
Peguform-Group continue to comply with all obligations under the
relevant policies, including payment of its share of the premiums.
The coverage under all other insurance agreements of Peguform and the
companies of the Peguform-Group outside the framework agreements of
Klockner-Werke AG will continue until their respective contractual
termination date or their respective renewal date as described in
EXHIBIT SECTION 12.11, provided that Peguform and each of the
companies of the Peguform-Group continue to comply with all
obligations vis-a-vis the insurers, including the payment of
premiums. Seller does not warrant that the terms and conditions of
the insurances which are covered by the framework agreements of
Klockner-Werke AG will remain unchanged in view of the transfer of
the Shares after the end of the respective current insurance periods.
12.12 Peguform and each of the companies of the Peguform-Group at the time
of
<PAGE> 22
signing of this Agreement are not involved in court or administrative
proceedings, including arbitration proceedings, either as plaintiff
or defendant having a litigation value (Streitwert) exceeding DEM
1,000,000 in the individual case except as disclosed in EXHIBIT
SECTION 12.12. There are no product liability, warranty or other
similar claims currently against Peguform and/or any of the companies
of the Peguform-Group exceeding a value of DEM 200,000 in the
individual case; and, to the best knowledge of Seller, there exist no
circumstances which could give rise to any such liabilities or
claims.
12.13 All obligations, whether arising by operation of law, by agreement or
past custom, for payments and contributions with respect to direct or
indirect pension and retirement benefits or other compensational
benefits, such as anniversary payments, early retirement benefits,
severance payments and other alike payments to the employees of
Peguform or the companies of the Peguform-Group in pension fund and
old age pension liabilities for periods prior to the Effective Date
have been paid, are funded for or are provided for to the extent
required by GAAP in the Effective Date Accounts taking into
consideration Section 6a German Income Tax Act; Peguform and/or the
companies of the Peguform-Group have not experienced any strike,
labour interruption or disturbance or other collective labour
controversy of any material nature since January 1, 1997 until the
signing of this Agreement, except as disclosed in EXHIBIT SECTION
12.13. To the best knowledge of Seller, Peguform and the companies of
the Peguform-Group are in compliance with all material laws and
regulations dealing with wages, hours, vacations and working
conditions for their employees. Peguform and the companies of the
Peguform-Group employ in the aggregate on the Effective Date no more
than 8.100 employees, including such employees who are not currently
on the payroll of the Peguform-Group due to maternity leave,
long-term sickness or alike circumstances, but excluding all leased
personnel. Except as set forth in EXHIBIT 12.13A, there are no union
agreements, shop floor agreements, social plans or other labour
contracts which restrain Peguform-Group or any of its constituent
companies from undertaking reductions in force, in either case which
are in addition to requirements imposed by statutory law.
12.14 Peguform and each of the companies of the Peguform-Group are not in
default regarding payment of taxes, customs and social security
<PAGE> 23
contributions and have filed all necessary returns in time. There is
no basis for assessment of any deficiency in taxes, customs and
social security contributions and there exist no circumstances which
could give rise to the revocation or withdrawal of any subsidies
granted to Peguform or any of the companies of the Peguform-Group,
except to the extent disclosed in EXHIBIT SECTION 12.14. All
transactions and agreements entered into by Peguform and/or the
companies of the Peguform-Group amongst themselves or with the
Klockner-Group provide for customary terms and are entered into at
arms' length.
12.15 Peguform and the companies of the Peguform-Group have each made all
reasonable arrangements as far as necessary and appropriate at the
time of Closing with a view to securing that the computer systems of
each of Peguform and the companies of the Peguform-Group are
millennium-compliant which term shall mean that neither the
performance nor functionality is or will be effected by dates prior
to, during or after the year 2000 and in particular, but without
limitation, (i) date based functionality behaves, and will behave
consistently for dates prior to, during or after the year 2000, (ii)
in all interfaces and data storage, the century in any date is and
will be specified either explicitly or by unambiguous algorithms or
interferencing rules and (iii) the year 2000 is and will be
recognized as a leap year.
12.16 During the period from October 1, 1998 until the Effective Date
(a) no material adverse changes in the financial position and
conditions of operation of Peguform and the companies of
the Peguform-Group have occurred (except for the currency
devaluation in Brazil);
(b) no damages to Peguform or each of the companies of the
Peguform-Group the amount of which exceeds DEM 1 million in
the individual case or DEM 5 million in the aggregate have
been incurred.
12.17 During the period from October 1, 1998 until the Closing Peguform and
each of the companies of the Peguform-Group have continued to conduct
their Activities in all material respects in the ordinary course of
business.
<PAGE> 24
12.18 During the period from October 1, 1998 until the signing of the
Agreement
(a) Peguform or any of the companies of the Peguform-Group have
not incurred any material liabilities, disposed of or used
as a security, any material asset, or entered into any
material transactions not in the ordinary course of
business, made any material capital expenditure or
commitment therefore other than set forth in the budget of
Peguform-Group, in each case exceeding DEM 1 million in the
individual case, except as disclosed in EXHIBIT SECTION
12.18;
(b) the remuneration payable, including any employee benefits,
in particular under any bonus or pension schemes, to the
managing directors, officers, employees, are not being
changed other than under statutory laws or existing union
agreements or in the ordinary course of business.
12.19 As far as representations and warranties are given to the Seller's
best knowledge, only the knowledge of the current members of Seller's
management (Geschaftsfuhrung/Prokuristen) and Klockner-Werke AG's
board of directors (Vorstand) as of the signing of this Agreement
shall be attributed to Seller, provided that such knowledge is deemed
present if any of the foregoing persons could have obtained knowledge
about the underlying facts and circumstances giving rise to a breach
of a representation and warranty by applying the standard of care of
a prudent business man pursuant to Section 93 German Stock
Corporation Act.
12.20 No representation or warranty by Seller in this agreement contains
any untrue statement of a material fact or deliberately fails to
contain any material fact necessary in order to make the statements
therein not misleading as of the signing of this Agreement.
SECTION 12a
ENVIRONMENTAL INDEMNITY
12A.1 Seller had engaged Lahmeyer ERM International for the conduct of
Phase I environmental examinations for all of the Peguform-Group
companies, the
<PAGE> 25
results of which were disclosed to Buyer prior to the signing of this
Agreement. Buyer has in addition conducted investigations on its own
behalf through Golder Associates U.K., Ltd. ("ENVIRONMENTAL DUE
DILIGENCE"). The findings of such Environmental Due Diligence make up
all contaminations and conditions known to Buyer as of the date of
the signing of this Agreement ("KNOWN CONDITIONS"). Seller shall be
under no obligation whatsoever for the removal, clean up or treatment
of any contamination or the costs thereof up to an amount of DEM
7,500,000 (Deutsche Mark seven million five hundred thousand)
(exclusive of V.A.T.). Any cost exceeding this amount shall be borne
by the Parties as described below in Section 12a.2 (b)-(e).
12A.2 Except as for the Known Conditions Seller shall indemnify and hold
harmless Buyer, Peguform and each of the companies of the
Peguform-Group, as the case may be, from all liabilities, losses or
damages of any nature whatsoever, excluding, however, damages for
lost profit, which arise (i) as a result of any soil (including
buildings) or ground water contamination, to the extent existing at
the Closing, of any of the sites currently or formerly, used or owned
by Peguform or the companies of the Peguform-Group, including their
respective legal predecessors, caused only by the actual removal,
clean up or treatment of a contamination which is currently required
by the laws in force at the time of Closing or (ii) as a result of
the failure to obtain, maintain and effect or comply with any air
emission or noise control permits, licenses, consents, applicable
laws or regulations prior to Closing ((i) and (ii) collectively
"ENVIRONMENTAL LIABILITIES") in accordance with the following:
(a) An amount of up to DEM 6 million (exclusive of VAT) shall
be exclusively borne by Buyer.
(b) Any further costs incurred between the Effective Date and
the 2nd anniversary of the Effective Date shall be borne in
shares of 75 % by Seller and 25 % by Buyer.
(c) Any further costs incurred between the 2nd anniversary of
the Effective Date and the 5th anniversary of the Effective
Date shall be borne in shares of 50 % by Seller and of 50 %
by Buyer.
(d) Any further costs incurred between the 5th anniversary of
<PAGE> 26
the Effective Date and the 7th anniversary of the Effective Date
shall be borne in shares of 25 % by Seller and 75 % by Buyer.
(e) Any further costs incurred after the 7th anniversary of the
Effective Date shall exclusively be borne by Buyer.
Costs shall be considered incurred in the relevant period if Buyer
has timely given notice of the claim to Seller and if the costs have
actually been paid by Buyer no later than within twelve months
following the end of the respective period.
12a.3 The limitations set forth in Section 12a.2 shall not apply to such
Environmental Liabilities of which Seller had actual knowledge at the
time of the signing of this Agreement and which were not Known
Conditions.
12a.4 The burden of proof that any contamination existed prior to the
Closing, to which extent it existed prior to the Closing and to what
extent any costs resulting from the clean up, removal or treatment
can be attributed to such contaminations existing prior to Closing as
opposed to such contaminations coming into existence after Closing
shall rest with the Buyer. Should Buyer raise any claim against
Seller under this Section 12a, Buyer shall with the statement
describing the nature and extent of the claim deliver to Seller a
true and complete copy of all environmental due diligence reports and
findings reported to or delivered to Buyer by Buyer's advisors,
including Golder Associates U.K. Ltd., in the preparation of this
Agreement, true and complete copies of which shall be deposited with
the acting notary public at the time of the signing of this
Agreement.
12a.5 This Section 12a shall exclusively govern all of Seller's
obligations, liabilities, representations and warranties with respect
to Environmental Liabilities. No other representation or warranty in
this Agreement shall be construed or applied to extend to
Environmental Liabilities and the Known Conditions.
12a.6 Seller covenants and undertakes that the environmental liability
insurance taken out by Klockner-Werke AG with HDI Haftpflichtverband
der Deutschen Industrie, the beneficiaries of which include Peguform,
providing for coverage against personal and property damage in
connection with environmental occurrences on ground, water and air
shall remain in force until 30 September 1999, provided that Buyer
shall be responsible for
<PAGE> 27
any premiums becoming due and payable after the Effective Date.
SECTION 13
REMEDIES
13.1 If a representation or warranty set forth in Section 12 or Section
12a is partially or entirely incorrect, the Seller shall put the
Buyer, or at the option of Buyer, if a company of the Peguform-Group
has suffered a financial disadvantage, the respective company, in the
position as if the representation or warranty had been correct. Buyer
is not entitled to assert damages for lost profit (entgangener
Gewinn).
13.2 The Buyer shall only be entitled to assert claims under Section 12 or
Section 12a exceeding the amount of DEM 75,000 in the individual
case. The Buyer shall furthermore only be entitled to assert claims
once the aggregate amount of all claims asserted by Buyer - de
minimis claims of up to DEM 75,000 shall not be included for such
purpose - exceeds DEM 6 million (Deutsche Mark six million) in which
event Buyer shall be entitled to claim the full amount (except as for
de minimis claims and except as for claims under Section 12a.1 and 2
to which the limitations as set forth in Section 12a.1 and 2(a) et
seq. shall apply).
For the avoidance of doubt, the aggregate of a particular type of
taxes owed by a company of the Peguform Group as a result of an
external tax audit covering more than one tax period shall constitute
one individual claim within the meaning of this paragraph. The same
shall apply, if and to the extent a serial of claims of the same or
similar nature is based on the same kind of factual circumstances
(basierend auf gleichartigem Lebenssachverhalt).
13.3 To the extent that the financial effect of circumstances constituting
a breach of a representation or warranty are reflected or provided
for in the Effective Date Accounts, claims of Buyer shall be
excluded.
13.4 In case of a claim resulting from a tax audit pursuant to which
depreciation expenses or provisions are not recognised with the
result that they can be utilised for a later period (tax deferment),
the obligation to pay damages pursuant to Section 13.1 is limited to
the costs of financing the relevant tax
<PAGE> 28
payment for the time until the tax deferment reduces the tax burden
of the relevant company. Financing costs are computed on the basis of
an interest rate of 4 % p.a. (365 days).
13.5 If the Buyer is becoming aware of a fact, circumstance or event which
may lead or has led to a breach of representations or warranties,
Buyer shall inform Seller promptly, but in no event later than within
ninety days, stating the nature of the fact, the circumstance or the
event and the damage expected or sustained.
13.6 If a breach of a representation or warranty is the result of or is
connected with a liability vis-a-vis or a dispute with a third party
including public authorities, Buyer shall ensure that
(a) the Buyer or each of the respective companies of the
Peguform-Group at the request and on the instructions of
Seller shall reasonably do everything (or, as the case may
be, refrain therefrom) to conduct a defence against, or to
negotiate about the claim concerned and to minimize the
damage which may arise from this claim;
(b) in connection with the defence referred to under (a), the
Buyer or each of the respective companies of the
Peguform-Group shall only engage advisors after
consultation with Seller, or give to the Seller power of
attorney to act in and out of court as the agent of the
relevant company;
(c) if a claim is filed for which a response is required, that
Seller shall be promptly and adequately informed by Buyer
or each of the respective companies of the Peguform-Group.
Seller shall have the right to declare within two weeks (unless a
prompter response is required due to the lapse of appeal periods)
after having been notified by Buyer of a breach of a representation
or warranty within the foregoing meaning, that it will compromise or
defend, at its own expense and by its own counsel, any such dispute,
unless Buyer elects to assume such defense. Seller's right to defend
or compromise a dispute shall always in good faith take into account
Buyer's relationship with its customers. If Seller shall undertake to
compromise or defend any such asserted liability,
<PAGE> 29
he shall promptly notify the Buyer in writing of his intentions to do
so. The Buyer shall reasonably cooperate with the Seller or Seller's
counsel in the defense against any such asserted liability and in any
compromise thereof. Such cooperation shall include, but not be
limited to, furnishing the Seller with any books, records or
information reasonably requested by Seller. If Seller shall desire to
settle any such asserted liability and Buyer shall unreasonably
refuse to consent to such compromise, then the Seller's liability
shall be limited to the amount so offered in compromise.
The Buyer shall ensure that no liability is acknowledged and no
settlement with respect to a fact or circumstance which may lead to a
breach of representations is entered into without the Seller's prior
written consent, which may not be unreasonably withheld.
13.7 The statute of limitations shall be as follows:
(a) claims for legal defects (Rechtsmangel) within in the
meaning of Section 434 German Civil Code relating to the
Shares and the interests in the companies of the
Peguform-Group directly or indirectly held by Peguform
shall be time barred in accordance with statutory laws;
(b) all other claims for a breach of a representation or
warranty, except for claims arising from a breach of the
representation or warranty set forth in Section 12.1, shall
be time barred in two years after the Effective Date;
(c) claims relating to taxes, customs or social security
contributions shall be time barred six months after the
assessment for the respective tax, social security
contribution or customs duty has become final;
(d) all claims relating to Environmental Liabilities shall be
time barred seven years after the Effective Date.
13.8 The statute of limitations shall be interrupted (unterbrochen) by
raising the specific claim in writing to the other Party. In case of
interruption, the new statute of limitations beginning after the end
of the interruption (Section 217 German Civil Code) shall be the
longer of six months or the
<PAGE> 30
remainder of the original limitation period.
13.9 The Buyer has no right to invoke a breach of representation or
warranty or to claim an indemnification or otherwise in the event and
to the extent:
(a) the provision in Section 13.5 has not been complied with
and as a result thereof Seller has been prejudiced;
(b) the Buyer or its professional advisors having been engaged
in the preparation of this Agreement having actual
knowledge of a breach of a representation or warranty or an
Environmental Liability prior to signing of this Agreement;
(c) the Buyer has not undertaken all reasonable things
necessary from Closing to prevent and minimize damage;
(d) the breach is covered by an insurance policy;
(e) the breach is a result of a change after the Effective Date
in the accounting principles and methods, applied by a
company of the Peguform-Group;
(f) the Buyer has already been indemnified directly or
indirectly by a third party.
The Seller will be given the opportunity to take part in all meetings
with the tax authorities in the context of tax audits and tax
assessments relating to the period until the Effective Date and to
present Seller's position to the tax authorities in writing in
consultation with Buyer.
13.10 Peguform and Seller belong to the tax consolidation group of
Klockner-Werke AG. To the extent Klockner-Werke AG was or is itself
the tax debtor for reasons of such tax consolidation, the rights of
the Seller pursuant to Section 13 may be invoked correspondingly by
Klockner-Werke AG.
13.11 Payments of the Seller made according to Section 12a or Section 13
constitute in the relationship between Seller and Buyer a reduction
of the Purchase Price; to the extent they are made directly to a
company of the Peguform-Group, in relation between Buyer and the
relevant company as a capital contribution (Einlage) on behalf of
Buyer.
<PAGE> 31
13.12 Subject to Section 14.3, the provisions of this Section 13 represent
the full and entire agreement of the Parties with regard to the
consequences of a violation of any representations and warranties of
the Seller set forth in Section 12.
SECTION 14
GENERAL LIMITATION OF LIABILITY
14.1 Any claims of Buyer relating to this Agreement and the transactions
contemplated herein for a reduction of the Purchase Price, payment of
damages, indemnification or otherwise, whether on the basis of
violation of statutory or contractual obligations or pre-contractual
duties of care (culpa in contrahendo) or any other course of action
other than the representations, warranties and covenants explicitly
set forth in this Agreement shall be excluded.
14.2 Any claims of Buyer to unwind or rescind this Agreement, regardless
of their cause, are excluded. The provisions of Sections 459 et seq.
German Civil Code shall not apply.
14.3 Seller's aggregate liability for all claims arising out of this
Agreement, including but not limited to the representations,
warranties and indemnifications set forth in Section 12 and Section
12a, shall be limited to the total amount of DEM 200 million
(Deutsche Mark two hundred million). This limitation shall not apply
to Seller's representations in Section 12.1 and Section 12.2. with
respect to the Shares.
SECTION 15
CONDUCT OF BUSINESS AND UNDERTAKINGS
15.1 For the period between the signing of this Agreement and the Closing,
Seller will see to it that Peguform and the companies of the
Peguform-Group shall (i) preserve customer relationships of Peguform
and the companies of the Peguform-Group, (ii) preserve the assets of
Peguform and the companies of the Peguform-Group in good working
condition, (iii) keep the necessary insurances for the Activities in
place, (iv) maintain accounting procedures in accordance with past
practice. Further, for the
<PAGE> 32
period between the signing of this Agreement and the Closing, Seller
shall see to it that Peguform and each of the companies of the
Peguform-Group will not, except in the ordinary course of business
and in accordance with past practice and without limiting any
representations and warranties contained in this Agreement, (i)
permit any of its material assets to be subjected to any mortgage,
pledge, lien, security, interest, encumbrance, restriction, or charge
of any kind, (ii) make any material capital expenditure or commitment
therefor, (iii) grant any increase in wages, salaries, bonus or other
remuneration of any employee, (iv) cancel or waive any claims or
rights of substantial value, (v) accelerate the collection of
receivables, (vi) effect any reduction of inventory, (vii) pay any
dividends from Peguform to Seller, (viii) agree, whether or not in
writing, to do any of the foregoing except as otherwise agreed with
Buyer. Seller shall see to it that Buyer has appropriate access to
the management of the Peguform-Group between the signing of this
Agreement and the Closing.
15.2 Seller shall procure that Buyer and Buyer's advisors and other
persons designated by Buyer are granted full access to all files,
documents, personnel and information useful for the performance of
this Agreement and the transition of the Peguform-Group.
15.3 Subject to the terms and conditions provided in this Agreement, each
of the Parties hereto agrees to use all commercially reasonable
efforts to take all action and to do all things necessary,
appropriate or advisable under applicable laws and regulations to
satisfy the conditions set forth in and to consummate and make
effective the transactions contemplated by this Agreement.
15.4 If and to the extent the Peguform-Group has granted any guarantees,
securities or any other collaterals of whatsoever nature for the
benefit of Seller of companies forming part of the Klockner-Group,
such collaterals shall be released at the sole expense of Seller at
the latest on Closing.
15.5 For the period between the signing of this Agreement and the Closing,
Seller shall ensure that Buyer and all of Buyer's affiliates are
given the opportunity to bid on, and the opportunity to be awarded,
all tooling, design and prototyping contracts with each of the
companies of the Peguform-Group that such companies bid out to
independent third parties during the
<PAGE> 33
period between the signing of this Agreement and the Closing.
15.6 The Parties will cooperate in good faith to cause Celulosa Fabril
(Cefa) S.A. to transfer its one share in Inerga Components S.A. on
Closing to a party designated by Buyer.
15.7 The Parties shall cooperate in good faith to agree on a list of Known
Conditions prior to Closing from the Lahmeyer ERM International and
Golder Associates U.K., Ltd. reports.
SECTION 16
NON-COMPETITION COVENANT
16.1 Seller and the companies of the Klockner-Group shall not compete with
the Peguform-Group for a period of five years after Closing in the
relevant geographic and product markets in which the Peguform-Group
is active at the time of the signing of this Agreement.
16.2 It shall not constitute a violation of the non-competition covenant
pursuant to Section 16.1 if, in the context of an acquisition of an
undertaking or a group of undertakings, a business is acquired which
operates in the product and geographic markets referred to in Section
16.1, provided that the turnover of such business in the last
preceding fiscal year amounted to not more than 10 % of the
undertaking or group of undertakings acquired. If such threshold is
exceeded, the acquisition and operation of such business shall not
constitute a violation of the non-competition covenant pursuant to
Section 16.1, provided the business is subsequently sold and the time
period between the acquisition and sale of the business does not
exceed one year.
16.3 The acquisition or the holding of interests up to 5 % in stock
exchange listed companies shall not constitute a violation of the
non-competition covenant pursuant to Section 16.1.
16.4 Seller shall refrain for a period of two years after Closing from
soliciting for employment any current employees of the
Peguform-Group.
SECTION 17
<PAGE> 34
MERGER CONTROL CLEARANCE
17.1 Seller and Buyer shall cooperate and provide each other with all
necessary and appropriate assistance to notify the concentration
contemplated in this Agreement to the Federal Cartel Office as well
as to the Belgian and Mexican antitrust agencies.
17.2 The notifications shall be filed jointly by Seller and Buyer.
Representatives of Seller and Buyer shall be present at meetings with
representatives of the antitrust agencies. Seller and Buyer shall
keep each other fully informed on all contacts which they may have
with such agencies' representatives in the context of the
notifications.
17.3 Should any antitrust agency clear the concentration contemplated in
this Agreement only upon conditions and/or obligations, the Buyer
shall take all reasonable actions necessary, including but not
limited to divestments or terminating certain existing contractual
relationships with third parties, in order to obtain the clearance as
soon as possible and within the time frame imposed by the agency. All
financial consequences of any such action, including all costs and
expenses incurred by the Buyer in this regard shall be for his own
account without recourse to the Seller.
SECTION 18
RESIGNATIONS
Seller shall procure that the members of the supervisory board (Aufsichtsrat) of
Peguform and each of the companies of the Peguform-Group appointed by Seller
shall at Buyer's request which shall be communicated to Seller no later than
three weeks after the signing of this Agreement, submit their resignation in
writing as of Closing waiving all their compensation rights, if any, against
Peguform and the companies of the Peguform-Group.
SECTION 19
PARENT GUARANTEE
Parent herewith unconditionally and irrevocably guarantees as a principal debtor
to Seller the performance and fulfilment of all of Buyer's obligations and
Seller's
<PAGE> 35
claims under this Agreement, including but not limited to the prompt
payment of all amounts owed to Seller under Section 4 and Section 5
when due. Parent is not entitled to deposit any monies owed.
SECTION 20
MISCELLANEOUS
20.1 Neither Seller nor Buyer is entitled to transfer without the consent
of the other Party rights or obligations arising out of this
Agreement to a third party, provided, however, that either Seller or
Buyer may transfer its rights and obligations under this Agreement to
an affiliate of such party as long as such transfer does not affect
the rights of the other Party.
20.2 Buyer shall not be entitled to exercise any right of retention or
set-off against Seller's claims under Sections 4 and 5.
20.3 All costs, notarial fees, transfer taxes and the like arising in the
context of this Agreement and the implementation of the transactions
contemplated herein shall be borne by Buyer. Each Party shall bear
the costs for its own advisers.
20.4 Changes and amendments to this Agreement, including a change of this
written form clause, shall require written form, except if notarial
form is required by statutory law.
20.5 Should any provision of this Agreement be or become in whole or in
part invalid, this shall not affect the validity of the rest of the
Agreement. In this event, the invalid provision shall be deemed to be
replaced by a valid provision which corresponds to the economic
purpose of the invalid provision to the largest extent possible. This
shall also apply in the case of any gaps in this Agreement.
20.6 Notices or declarations to Seller made in the context of this
Agreement shall be deemed to be validly given if sent by registered
mail or courier to the following address or such other address as
notified in writing by Seller to Buyer:
Klockner Mercator Maschinenbau GmbH
<PAGE> 36
Klocknerstra(beta)e 29
D-47057 Duisburg
Attn.: Geschaftsfuhrung
Notices or declarations to Buyer or Parent made in the context of
this Agreement shall be deemed to be validly given if sent by
registered mail or courier to the following address or such other
address as notified in writing by Buyer to Seller:
Venture Holdings Trust
33662 James J. Pompo Drive
Fraser, Michigan 48026, U.S.A.
Attn. General Counsel
with copies to:
Doser Amereller Noack Dykema Gossett
Zollhof 3 400 Renaissance Cent. 35th fl.
D-40221 Dusseldorf Detroit, Michigan 48423 USA
Attn.
Dr. Hans-Jorg Ziegenhain Frederick M. Miller, Esq.
20.7 This Agreement shall be governed by the laws of the Federal
Republic of Germany.
20.8 The courts in Dusseldorf shall have exclusive jurisdiction.
(continued on next page)
<PAGE> 37
IN WITNESS THEREOF this Notarial Dseed including the Exhibits hereto has been
read aloud to the persons appeared and was confirmed and approved by the persons
appeared. The persons appeared then signed this Deed. All this was done at the
day herebelow written in the presence of me, the Notary Public, who also signed
this Deed and affixed my official Seal.
Basel, this 8th (eighth) day of March 1999 (nineteen hundred and ninety-nine).
/s/ Dr. Joern Christian Roland Nissen
/s/ Dr. Hans-Jong Ziegenhain
/s/ Stephan Cueni
Notary
-Notary's Seal-
<PAGE> 38
LIST OF EXHIBITS
Section 2.3 corporate chart
Section 5.1 purchase price adjustments Section 5,
definition as of September 30, 1998
Section 9.1 accounting policies Peguform Group
Section 12.5 termination or modification of agreements, contract or
commitments as a result of the execution of this
agreement
Section 12.7 assets not owned but necessary for carrying out the
activities encumbrances
Section 12.10 governmental approvals, licenses, permits necessary to
operate the respective business as it currently,
exists which are not completely fulfilled
Section 12.11 insurances
Section 12.12 litigations (exceeding DEM 1.0 Mio. in the individual
case)
Section 12.13 list of strikes, labour interruptions or disturbances
since January 1, 1997
Section 12.13a union agreements, shop floor agreements, social plans
or other labour contracts which could restrain from
undertaking reductions in work force
Section 12.14 circumstances or conditions which could give rise to the
revocation or withdrawal of subsidies
circumstances or conditions of subsidies, which could
restrain from undertaking reductions in work force
Section 12.18 period from October 1, 1998, until the signing of the
agreement
- disposal of fixed assets/leasing
- capital expenditures other than set forth in the
budget
- change in remuneration payable other than under
statutory laws of existing union agreements
<PAGE> 1
EXHIBIT 12
VENTURE HOLDINGS TRUST
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Earnings from continuing operations 13,568 11,523 1,999 4,142 7,445
Add back:
Taxes on Income 2,489 3,830 1,002 577 3,405
Fixed Charges 40,651 34,204 21,899 16,704 16,049
Amortization of previously capitalized interest 224 295 285 285 285
Deduct:
Capitalized interest 0 0 108 0 0
Earnings available for fixed charges 56,932 49,852 25,077 21,708 27,184
Fixed charges of Venture Holdings Trust:
Interest expense 36,641 30,182 19,248 15,032 14,345
Capitalized interest 0 0 108 0 0
Amortization of debt expense and debt discount 2,160 1,934 885 556 466
Interest portion of rent expense 1,850 2,088 1,658 1,116 1,238
----- ----- ----- ----- -----
40,651 34,204 21,899 16,704 16,049
Ratio of earnings to fixed charges 1.40 1.46 1.15 1.30 1.69
</TABLE>
VENTURE HOLDINGS TRUST
VALUATION AND QUALIFYING ACCOUNTS
(THOUSANDS OF DOLLARS)
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Column A Column B Column C Additions Column D Column E
-------- -------- --------- -------- --------
Allowance for Doubtful Accounts Balance at Charged to Charged to Balance at
For the year ended December 31, Beginning Costs and other accounts Deductions End of
of year expenses described described Year
------- -------- --------- --------- ----
<S> <C> <C> <C> <C> <C>
1998 $3,572 $3,226 $ 0 $(2,280) $4,518
1997 2,781 1,635 0 (844) 3,572
1996 1,679 3,175 0 (2,073) 2,781
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANTS
Set forth below are the directly and indirectly wholly owned
subsidiaries of Venture Holdings Trust, including those subsidiaries that are
co-registrants. Other than Venture Germany GmbH, the subsidiaries of Venture
Holdings Trust have no subsidiaries. Also listed below is the state or other
jurisdiction of incorporation of each subsidiary, and the names under which such
subsidiaries do business.
<TABLE>
<CAPTION>
Other name(s) under which
Name Jurisdiction the company does business
- ---- ------------ -------------------------
<S> <C> <C>
Vemco, Inc. Michigan Quantum Polymer Processors, Inc.
Venture Grand Blanc
Venture Industries Corporation Michigan n/a
Venture Mold & Engineering Michigan Venture Industries Technical
Corporation Development Company
Venture Leasing Company Michigan n/a
Vemco Leasing, Inc. Michigan n/a
Venture Holdings Corporation Michigan Bailey
Venture Service Company Michigan Venture Holding
Venture Advanced Engineering
Venture Advanced Engineering
Group
Venture Manufacturing Group
Venture Holdings Group
Venture Mold Group
Venture Sales Group
Venture Industries Canada Ltd. Ontario, Canada n/a
Experience Management L.L.C. Michigan n/a
Venture Germany GmbH Germany n/a
Venture Beteiligungs GmbH Germany n/a
(wholly owned subsidiary of
Venture Germany GmbH)
Venture Verwaltungs GmbH Germany n/a
(wholly owned subsidiary of
Venture Germany GmbH)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF VENTURE HOLDINGS TRUST FOR THE YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000864167
<NAME> Venture Holdings Trust
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 130
<SECURITIES> 0
<RECEIVABLES> 194,653
<ALLOWANCES> (4,518)
<INVENTORY> 51,139
<CURRENT-ASSETS> 250,274
<PP&E> 328,532
<DEPRECIATION> (127,988)
<TOTAL-ASSETS> 541,315
<CURRENT-LIABILITIES> 81,619
<BONDS> 363,374
0
0
<COMMON> 0
<OTHER-SE> 77,113
<TOTAL-LIABILITY-AND-EQUITY> 541,315
<SALES> 645,196
<TOTAL-REVENUES> 645,196
<CGS> 532,809
<TOTAL-COSTS> 592,498
<OTHER-EXPENSES> 39,130
<LOSS-PROVISION> 3,226
<INTEREST-EXPENSE> 36,641
<INCOME-PRETAX> 15,522
<INCOME-TAX> 1,954
<INCOME-CONTINUING> 13,568
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,568
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
