<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1996
REGISTRATION NO. 333-03813
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------------------
HAYES WHEELS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 13-3384636
(State of Incorporation) 38481 HURON RIVER DRIVE (IRS Employer Identification No.)
ROMULUS, MICHIGAN 48174
(313) 941-2000
</TABLE>
(Address including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------------
HAYES WHEELS INTERNATIONAL-CALIFORNIA, INC.
(Exact name of registrant as specified in its charter)
------------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 33-0042337
(State of Incorporation) 14500 FIRESTONE BLVD. (IRS Employer Identification No.)
LA MIRADA, CALIFORNIA
(714) 994-0150
</TABLE>
(Address including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------------
HAYES WHEELS INTERNATIONAL-GEORGIA, INC.
(Exact name of registrant as specified in its charter)
------------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 58-2046122
(State of Incorporation) 1215 PALMOUR DRIVE (IRS Employer Identification No.)
GAINESVILLE, GEORGIA 30501
(770) 535-6783
</TABLE>
(Address including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------------
HAYES WHEELS INTERNATIONAL-INDIANA, INC.
(Exact name of registrant as specified in its charter)
------------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 62-1240825
(State of Incorporation) 1870 RIVERFORK DRIVE (IRS Employer Identification No.)
HUNTINGTON, INDIANA 46750
(219) 356-7001
</TABLE>
(Address including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------------
HAYES WHEELS INTERNATIONAL-MEXICO, INC.
(Exact name of registrant as specified in its charter)
------------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 38-3281831
(State of Incorporation) 38481 HURON RIVER DRIVE (IRS Employer Identification No.)
ROMULUS, MICHIGAN 48174
(313) 941-2000
</TABLE>
(Address including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------------
HAYES WHEELS INTERNATIONAL-MICHIGAN, INC.
(Exact name of registrant as specified in its charter)
------------------------------------
<TABLE>
<S> <C> <C>
MICHIGAN 38-1799246
(State of Incorporation) 2440 HIGHLAND ROAD (IRS Employer Identification No.)
HOWELL, MICHIGAN 48843
(517) 546-3441
</TABLE>
(Address including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------------
DANIEL M. SANDBERG, ESQ.
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
HAYES WHEELS INTERNATIONAL, INC.
38481 HURON RIVER DRIVE
ROMULUS, MICHIGAN 48174
(313) 941-2000
(Name, addresses and telephone numbers, including area codes, of agents for
service of process)
------------------------------------
Copies to:
<TABLE>
<S> <C> <C>
ROBERT B. PINCUS, ESQ. LOUIS B. GOLDMAN, ESQ. ROGER MELTZER, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM ALTHEIMER & GRAY CAHILL GORDON & REINDEL
ONE RODNEY SQUARE, P.O. BOX 636 10 SOUTH WACKER DRIVE, SUITE 4000 80 PINE STREET
WILMINGTON, DELAWARE 19899 CHICAGO, ILLINOIS 60606 NEW YORK, NEW YORK 10005
(302) 651-3000 (312) 715-4000 (212) 701-3000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If the only securities being registered on this Form are being offered to
dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
THIS PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO CHANGE,
COMPLETION OR AMENDMENT WITHOUT NOTICE. A REGISTRATION STATEMENT RELATING
TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE
ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
UNDER NO CIRCUMSTANCES SHALL THIS PROSPECTUS CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF SUCH JURISDICTION.
SUBJECT TO COMPLETION, DATED JUNE 7, 1996
PROSPECTUS
$250,000,000
HAYES WHEELS LOGO HAYES WHEELS INTERNATIONAL, INC.
% SENIOR SUBORDINATED NOTES DUE 2006
------------------
The % Senior Subordinated Notes due 2006 (the "Notes") are being offered
(the "Offering") by Hayes Wheels International, Inc. ("Hayes"), in connection
with the consummation of the Transactions (as defined herein), including the
Merger (as defined herein) of MWC Holdings, Inc. ("Holdings") with and into
Hayes, pursuant to which Motor Wheel Corporation ("Motor Wheel"), a wholly owned
subsidiary of Holdings, will become a wholly owned subsidiary of Hayes (together
with its subsidiaries, including Motor Wheel after the Merger, the "Company").
The consummation of the Offering is conditioned upon, among other things, the
simultaneous consummation of the Transactions.
Interest on the Notes will be payable in cash semi-annually on each January
15 and July 15, commencing January 15, 1997. The Notes will be redeemable at the
option of the Company in whole or in part, on or after July 15, 2001, at the
redemption prices set forth herein, plus accrued and unpaid interest thereon to
the date of
redemption. In addition, the Company may redeem in the aggregate up to 35% of
the original principal amount of the Notes on or prior to July 15, 1999 at a
redemption price equal to % of the aggregate principal amount thereof, plus
accrued and unpaid interest thereon to the redemption date, with the net cash
proceeds of one or more Equity Offerings (as defined herein), provided that at
least $162.5 million aggregate principal amount of the Notes remain outstanding.
Upon a Change of Control (as defined herein), each holder of the Notes will be
entitled to require the Company to purchase such holder's Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest thereon to the date
of purchase.
The Notes will be general unsecured obligations of the Company subordinate
in right of payment to all existing and future Senior Indebtedness (as defined
herein) of the Company. The Notes will be unconditionally guaranteed, on an
unsecured senior subordinated basis, as to payment of principal, premium, if
any, and interest, jointly and severally, by all of the Company's material
domestic subsidiaries (the "Guarantors"). As of April 30, 1996, after giving
effect to the Transactions, the Company and the Guarantors would have had
approximately $453.3 million of Senior Indebtedness outstanding.
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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- -----------------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) THE COMPANY(3)
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<S> <C> <C> <C>
Per Note............................ $ $ $
- -----------------------------------------------------------------------------------------------------------
Total............................... $ $ $
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- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2)The Company and the Guarantors have agreed to indemnify the Underwriters (as
defined herein) against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(3)Before deducting the expenses of the Offering payable by the Company
estimated to be $ .
The Notes are offered by the Underwriters named herein, subject to prior
sale, when, as and if delivered to and accepted by them, and subject to certain
conditions, including their right to reject orders in whole or in part. It is
expected that delivery of the Notes will be made on or about July 2, 1996 at the
offices of CIBC Wood Gundy Securities Corp., New York, New York.
CIBC WOOD GUNDY SECURITIES CORP.
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
------------------
The date of this Prospectus is June , 1996.
<PAGE> 3
KEEPING THE WORLD IN MOTION
HAYES WHEEL INTERNATIONAL, INC. LOGO
1. ALFA ROMEO
2. BMW
3. BUICK
4. CADILLAC
5. CHEVROLET
6. CHRYSLER
7. DODGE
8. FIAT
9. FORD
10. GMC
11. HONDA
12. ISUZU
13. JEEP
14. LINCOLN
15. MAZDA
16. MERCEDES-BENZ
17. MITSUBISHI
18. NISSAN
19. OLDSMOBILE
[PICTURES OF 22 HAYES WHEELS]
<PAGE> 4
AVAILABLE INFORMATION
Hayes is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by Hayes with the Commission can be
inspected and copied at the public reference facilities of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and are available at the
Commission's Regional Offices at Seven World Trade Center, 13th Floor, New York,
New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and copies of such materials may be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, such materials may be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
Hayes has filed with the Commission a registration statement on Form S-3
(the "Registration Statement") (of which this Prospectus is a part) under the
Securities Act of 1933 (the "Securities Act") for registration of the Notes
offered hereby. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits thereto, certain parts of which
are omitted in accordance with the Rules and Regulations of the Commission.
Reference is hereby made to the Registration Statement and related exhibits for
further information with respect to Hayes and the securities offered hereby.
Statements contained in this Prospectus, or in any document incorporated in this
Prospectus by reference, as to the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Hayes incorporates by reference herein the following documents filed with
the Commission pursuant to the Exchange Act:
I. Hayes' Annual Report on Form 10-K for the fiscal year ended January
31, 1996;
II. Hayes' Current Report on Form 8-K dated March 28, 1996; and
III. Hayes' Quarterly Report on Form 10-Q for the fiscal quarter ended
April 30, 1996.
All documents and reports filed by Hayes pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the dates of filing of such documents or reports. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
THIS PROSPECTUS CONTAINS AND INCORPORATES BY REFERENCE CERTAIN FORWARD
LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF
OPERATIONS AND BUSINESS OF THE COMPANY, INCLUDING STATEMENTS UNDER THE CAPTIONS
"PRO FORMA COMBINED CONDENSED FINANCIAL DATA" AND "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS." THESE FORWARD
LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES. NO ASSURANCE CAN BE
GIVEN THAT ANY OF SUCH MATTERS WILL BE REALIZED. FACTORS THAT MAY CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD LOOKING
STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES: (1) EXPECTED COST
SAVINGS FROM THE MERGER WITH HOLDINGS CANNOT BE FULLY REALIZED; (2) COMPETITIVE
PRESSURE IN THE COMPANY'S INDUSTRY INCREASES SIGNIFICANTLY; (3) COSTS OR
DIFFICULTIES RELATED TO THE INTEGRATION OF THE BUSINESSES OF THE COMPANY ARE
GREATER THAN EXPECTED; AND (4) GENERAL ECONOMIC CONDITIONS ARE LESS FAVORABLE
THAN EXPECTED. FURTHER INFORMATION ON OTHER FACTORS WHICH COULD AFFECT THE
FINANCIAL RESULTS OF THE COMPANY AFTER THE MERGER AND SUCH FORWARD LOOKING
STATEMENTS IS INCLUDED IN THE SECTION HEREIN ENTITLED "RISK FACTORS" AND IN THE
ANNUAL REPORT ON FORM 10-K AND THE QUARTERLY REPORT ON FORM 10-Q OF HAYES
INCORPORATED HEREIN BY REFERENCE.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
i
<PAGE> 5
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus or in the documents incorporated herein by reference. Reference
is made to, and this summary is qualified in its entirety by, the more detailed
information contained elsewhere in this Prospectus and in the documents
incorporated by reference herein. All references to fiscal years in this
Prospectus refer to years ended January 31. Unless the context otherwise
requires, the term "Hayes" refers to Hayes Wheels International, Inc. and its
subsidiaries before the Merger, the term "Holdings" refers to MWC Holdings, Inc.
and its subsidiaries, the term "Motor Wheel" refers to Motor Wheel Corporation,
a wholly owned subsidiary of Holdings, and its subsidiaries, and the term
"Company" refers to Hayes and its subsidiaries (including Motor Wheel) on a
combined basis. The consummation of the Offering is conditioned upon, among
other things, the simultaneous consummation of the Transactions.
THE COMPANY
The combination of Hayes and Motor Wheel will result in an entity that will
be a leading global supplier of wheels and brake components to original
equipment manufacturers ("OEMs") of passenger cars, light trucks and commercial
highway vehicles in North America and Europe. Hayes is a world leader in the
design, manufacture and supply of steel and aluminum wheels to OEMs of passenger
cars and light trucks. Motor Wheel is a leading designer and producer of steel
wheels and brake components for the passenger car, light truck and commercial
highway truck and trailer markets.
The Merger is expected to result in the combination of the strength of
Hayes in steel and aluminum wheel manufacturing and of Motor Wheel in steel
wheel and brake component manufacturing. In addition, the Company expects that
the combination of Hayes' and Motor Wheel's product lines will enable the
Company to sell a complementary range of products. As automotive suppliers
continue to consolidate worldwide, the combination of Hayes and Motor Wheel is
expected to strengthen the Company's leadership position in meeting the global
sourcing, quality and engineering requirements of its customers.
The Company's principal customers for wheel and brake products comprise the
majority of the OEMs in the United States, Europe and Japan, including General
Motors, Ford, Chrysler (the three of which comprised approximately 72% of the
Company's combined 1995 revenues), BMW, Renault, Fiat, Volkswagen, Porsche,
Mercedes, Toyota, Mazda, Nissan, Honda and Isuzu. The Company will also have
over 300 commercial highway customers including Trailmobile, Strick, Great Dane
Trailers, Freightliner, PACCAR and Volvo-GM.
A significant trend in the automotive industry toward the use of lighter,
more highly-styled wheels for passenger cars and light trucks has increased the
demand for and use of aluminum wheels. North American automotive aluminum wheel
penetration (new vehicle installations) has increased from approximately 3% in
1980 to approximately 43% in 1995, and management estimates such penetration
will reach approximately 55% by 2000. Automotive aluminum wheel penetration in
Europe in 1995 was approximately 20% and continues to display a similar growth
pattern as that experienced in North America. The Company believes that its
available cast aluminum manufacturing capacity and innovative new aluminum
wheels, including its fabricated aluminum and Full Face Modular ("FFM(R)")
products, will enable it to capitalize on these trends and increase its sales of
aluminum wheels in North America and in Europe.
OEMs have pursued outsourcing opportunities in which automobile component
manufacturing requirements (including wheel and brake products) are met by
independent suppliers. Outsourcing has increased in response to competitive
pressures on OEMs to improve quality and reduce capital outlays, production
costs, overhead and brake component inventory levels. The Company believes that
it is well-positioned to benefit from any future outsourcing opportunities.
In addition to increasing the percentage of parts that are outsourced, OEMs
are increasingly transferring the primary responsibility for design, engineering
and testing of components to suppliers with proven capabilities in these areas.
The Company believes that its early involvement in the design and engineering of
1
<PAGE> 6
new wheel and brake products as a Tier I (as defined herein) supplier has
afforded it a competitive advantage in securing new business and will continue
to do so in the future.
Hayes and Motor Wheel have developed a number of new products and
proprietary manufacturing processes which have provided them with a competitive
advantage and served to further expand their product lines. For example, Hayes
is a major producer of fabricated aluminum wheels (which are 20% lighter than
cast aluminum wheels). Hayes has also recently introduced FFM(R) wheels, which
are lightweight, highly-styled wheels that utilize a cast aluminum face with a
fabricated aluminum rim. Motor Wheel has introduced innovative products such as
Centrifuse(R) brake drums and full-faced steel wheels. The Company intends to
continue its efforts to develop innovative wheel and brake products and
manufacturing processes to better serve customers and improve the Company's
product mix with higher margin wheel and brake products.
Sales of automotive wheel and brake products comprise approximately 85% of
the Company's combined net sales (75% wheels and 10% brake components), with the
remainder consisting of commercial highway wheel and brake products. The
following table sets forth the Company's estimated combined market position for
its primary products in North America and Europe in 1995:
<TABLE>
<CAPTION>
MARKET
POSITION
--------
<S> <C>
NORTH AMERICA
Automotive Steel Wheels -- Including OEM Captives................... #1
Automotive Cast Aluminum Wheels..................................... #2
Automotive Fabricated Aluminum Wheels............................... #1
Automotive Brake Rotors and Drums -- Excluding OEM Captives......... #2
Automotive Brake Rotors and Drums -- Including OEM Captives......... #3
Commercial Highway Wheels........................................... #2
Commercial Highway Brake Hubs and Drums............................. #1
EUROPE
Automotive Aluminum Wheels.......................................... #1
</TABLE>
The Company also has strategic manufacturing joint ventures in the Czech
Republic, Mexico, Italy, South America and the United States, as well as a
technical relationship in Thailand and a marketing joint venture in Japan.
2
<PAGE> 7
BUSINESS STRATEGY
The Company believes that it is well positioned to realize growth in sales
and EBITDA following the Merger, despite anticipated declines in automotive and
commercial highway vehicle production. The Company will continue to build upon
Hayes' position as a leading global, full-line supplier of wheels to the
automotive industry, and expects to enhance this position by extending Hayes'
product offering to automotive brake drums and rotors, as well as extending
Motor Wheel's leading position in the commercial highway wheel and brake
markets. The Company expects to maintain its leadership position by continuing
to offer innovative new products to increase sales and enhance profitability.
The Company expects to continue its growth and enhance its market leadership by
implementing a strategy based on the following elements:
- Maintaining and Enhancing Strong Relationships with OEMs. The Company has
developed and intends to continue to build upon strong relationships with
its OEM customers to enable it to identify business opportunities and
work closely with customers during the early stages of vehicle design.
The Company has established a leadership position as a Tier I supplier of
automotive and commercial highway wheels and brakes by maintaining an
excellent reputation for quality, service and innovation. As a result of
its strong relationships with the OEMs, the Company has secured contracts
to be the wheel and brake supplier for anticipated high volume vehicle
model platforms in upcoming years.
- Continuing Focus on New Product Innovation. The Company believes that
both Hayes and Motor Wheel have established reputations for developing
new product and manufacturing process innovations. The Company intends to
continue to develop such innovative products and proprietary processes
that are expected to collectively enhance the Company's leadership
position in the worldwide automotive and commercial highway wheel and
brake component markets, increase the Company's portfolio of higher
margin products and result in the Company being awarded contracts for
additional vehicle platforms.
- Pursuing New Contracts. The Company has obtained significant firm orders
on a number of platforms for periods commencing during 1996 through 1998
for incremental new business in North America and Europe, fueled by the
introduction of new, innovative wheel and brake products. The Company
intends to continue to pursue new vehicle platform contracts.
- Implementing Rationalization Programs. The Company has identified a
number of opportunities to rationalize its manufacturing facilities.
Prior to the Transactions, Motor Wheel announced and implemented a
facility rationalization program and, pursuant to this program, is in the
process of consolidating its manufacturing facilities. In early 1996,
Motor Wheel also implemented an overhead reduction program at its
headquarters. The Company's pro forma combined financial data included
herein does not reflect the anticipated net annual cost savings related
to Motor Wheel's plant closures and capacity rationalizations that have
been completed or are substantially underway (the "Motor Wheel
Restructuring") (see Note J to the Pro Forma Statement of Operations
included in "Pro Forma Combined Condensed Financial Data" for additional
information). Subsequent to the Transactions, the Company will continue
to seek to optimize the use of its manufacturing capacity and implement
further administrative, engineering and operating expense reductions.
- Capitalizing on Complementary Nature of Businesses. The Merger also
provides opportunities due to the complementary nature of the Hayes and
Motor Wheel businesses. The Company intends to improve its future
performance by: (i) utilizing Motor Wheel's available steel wheel
capacity to meet the increasing demand for Hayes' products; (ii)
distributing Motor Wheel's automotive and commercial highway brake
products through Hayes' European sales and marketing network; (iii)
attaining additional automotive wheel and brake component sales to
Japanese OEMs by building on Motor Wheel's existing relationships; and
(iv) reducing costs of materials through economies of scale.
Following the Merger, the Company will be managed by a team led by Hayes'
Chief Executive Officer and President Ron Cucuz and Hayes' Chief Financial
Officer William Shovers and certain senior Hayes and Motor Wheel executives.
3
<PAGE> 8
THE TRANSACTIONS
On March 28, 1996, Hayes and Holdings entered into a definitive merger
agreement (the "Merger Agreement"), pursuant to which (i) Holdings common stock
will be converted into 3,125,000 shares of newly issued common stock of the
Company (the "New Common Stock") and 1,150,000 warrants of the Company (the
"Warrants") with each Warrant entitling the holder thereof to purchase one share
of New Common Stock at a price of $48.00 during the period commencing on the
fourth anniversary of the effective time of the Merger and ending on the seventh
anniversary thereof, (ii) Motor Wheel will become a wholly owned subsidiary of
Hayes and (iii) each outstanding share of common stock of Hayes will be
converted into the right to receive $28.80 in cash and 1/10th of one share of
New Common Stock (collectively, the "Merger"). It is anticipated that
substantially all of Hayes' and Motor Wheel's existing indebtedness will be
refinanced in connection with the Merger. The Merger and the related
transactions are expected to be financed with (i) senior secured credit
facilities (the "Credit Agreement") consisting of term loan facilities (the
"Term Loan Facilities") and a revolving credit facility (the "Revolving Credit
Facility"), (ii) the Notes offered hereby and (iii) new equity investments
(collectively, the "Financing"). In connection with the Merger, Hayes has
commenced a tender offer (the "Debt Tender") to repurchase all $100 million
principal amount of its 9 1/4% Senior Notes due 2002 (the "Hayes Senior Notes")
and Motor Wheel intends to redeem all $125 million principal amount of its
11 1/2% Senior Notes due 2000 (the "Motor Wheel Senior Notes") pursuant to their
terms (the "Motor Wheel Redemption"). The Merger, the Financing, the Debt Tender
and the Motor Wheel Redemption are hereinafter collectively referred to as the
"Transactions."
Joseph Littlejohn & Levy Fund II, L.P. ("JLL"), together with certain other
investors (collectively, the "New Investors"), will invest an aggregate of $200
million of new cash equity in the Company, representing 56% of the Company's
outstanding New Common Stock immediately following completion of the
Transactions. JLL, the largest stockholder of Holdings, will provide $80.0
million of the new cash equity in the Company.
The approximate sources and uses of funds in connection with the
Transactions are presented in the following table, assuming the Transactions
occurred as of April 30, 1996 (dollars in millions):
<TABLE>
<S> <C>
SOURCES OF FUNDS:
Revolving Credit Facility(a)....................................... $ 27.0
Term Loan Facilities............................................... 425.0
Notes offered hereby............................................... 250.0
New Investors' cash equity investment(b)........................... 200.0
------
Total Sources................................................. $902.0
======
USES OF FUNDS:
Cash merger consideration.......................................... $506.1
Refinancing of indebtedness and purchase of stock options.......... 309.9
Working capital.................................................... 45.0
Fees and expenses.................................................. 41.0
------
Total Uses.................................................... $902.0
======
</TABLE>
- ---------------
(a) Initial drawdown of the Revolving Credit Facility with commitments of $220.0
million.
(b) Cash equity investments exclude the value of New Common Stock which will be
issued to the pre-Merger Hayes common stockholders and the pre-Merger
Holdings common stockholders.
4
<PAGE> 9
THE OFFERING
Issuer........................ Hayes Wheels International, Inc.
Securities Offered............ $250,000,000 principal amount of % Senior
Subordinated Notes due 2006.
Maturity Date................. July 15, 2006.
Interest Payment Dates........ Interest will accrue on the Notes from the date
of issuance (the "Issue Date") and will be
payable semi-annually on each January 15 and
July 15, commencing January 15, 1997.
Ranking....................... The Notes will be general unsecured obligations
of the Company subordinate in right of payment
to all existing and future Senior Indebtedness
of the Company, including indebtedness under
the Credit Agreement and senior in right of
payment to all other subordinated indebtedness
of the Company. At April 30, 1996, after giving
pro forma effect to the Transactions, the
Company and the Guarantors would have had
approximately $453.3 million of Senior
Indebtedness outstanding.
Guarantees.................... The Notes will be unconditionally guaranteed,
on a senior subordinated basis, as to the
payment of principal, premium, if any, and
interest, jointly and severally (the
"Guarantees"), by the Guarantors which will
consist of the Company's material Domestic
Subsidiaries. The Guarantees will be
subordinated to all Senior Indebtedness of the
respective Guarantors.
Optional Redemption........... The Notes will be redeemable at the option of
the Company, in whole or in part, at any time
on or after July 15, 2001 at the redemption
prices set forth herein, together with accrued
and unpaid interest thereon to the date of
redemption. In addition, the Company, at its
option, may redeem in the aggregate up to 35%
of the original principal amount of Notes at
any time prior to July 15 , 1999, at a
redemption price equal to % of the principal
amount thereof plus accrued and unpaid interest
thereon to the redemption date with the Net
Cash Proceeds of one or more Equity Offerings;
provided, however, that at least $162.5 million
aggregate principal amount of Notes remain
outstanding and that such redemption occurs
within 90 days following the closing of any
such Equity Offering.
Change of Control............. In the event of a Change of Control, the
Company will be required to make an offer to
purchase all outstanding Notes at a price equal
to 101% of the principal amount thereof, plus
accrued and unpaid interest to the date of
purchase. See "Description of the Notes --
Change of Control Offer." There can be no
assurance that the Company will have sufficient
funds or will be contractually permitted by
outstanding Senior Indebtedness to pay the
required purchase price for all Notes tendered
by holders upon a Change of Control.
Certain Covenants............. The Indenture (as defined herein) will contain
covenants for the benefit of the holders of the
Notes that, among other things, restrict the
ability of the Company and its Restricted
Subsidiaries (as defined herein) to: (i) incur
additional Indebtedness (as
5
<PAGE> 10
defined herein); (ii) pay dividends and make
distributions; (iii) issue stock of
subsidiaries; (iv) make certain investments;
(v) repurchase stock; (vi) create liens; (vii)
enter into transactions with affiliates; (viii)
merge or consolidate the Company or the
Guarantors; and (ix) transfer or sell assets.
These covenants are subject to a number of
important exceptions. See "Description of the
Notes -- Certain Covenants."
Use of Proceeds............... The net proceeds from the sale of the Notes
will be used to partially fund the
Transactions.
For more complete information regarding the Notes, including the
definitions of certain capitalized terms used above, see "Description of the
Notes."
RISK FACTORS
Prospective purchasers of the Notes should consider carefully the
information set forth under the caption "Risk Factors," and all other
information set forth in this Prospectus, in evaluating an investment in the
Notes.
SUMMARY HISTORICAL FINANCIAL INFORMATION
The summary historical consolidated financial information of Hayes and
Holdings with respect to each year in the five-year periods ended January 31,
1996 and December 31, 1995, respectively, is derived from the consolidated
financial statements of Hayes and Holdings. The consolidated financial
statements of Hayes for each of the years in the three-year period ended January
31, 1996 are included elsewhere in this Prospectus. Such consolidated financial
statements have been audited by KPMG Peat Marwick LLP, independent certified
public accountants. The consolidated financial statements of Holdings for each
of the years in the three-year period ended December 31, 1995 are included
elsewhere in this Prospectus. Such consolidated financial statements have been
audited by Ernst & Young LLP, independent auditors. The financial information of
Hayes for the three months ended April 30, 1995 and April 30, 1996, and of
Holdings for the three months ended March 31, 1995 and March 31, 1996, are
unaudited, but in the opinion of Hayes' and Holding's managements, respectively,
reflect all adjustments necessary for a fair presentation of such information.
Such financial statements are included elsewhere in this Prospectus. Operating
results of Hayes for the three months ended April 30, 1996 and of Holdings for
the three months ended March 31, 1996 are not necessarily indicative of the
results that may be expected for the fiscal year ended January 31, 1997 and
December 31, 1996, respectively. The summary historical consolidated financial
information provided below should be read in conjunction with the consolidated
financial statements and notes of Hayes and Holdings included elsewhere in this
Prospectus. See "Index to Consolidated Financial Statements."
6
<PAGE> 11
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED JANUARY 31, ENDED APRIL 30,
---------------------------------------------- -----------------
HAYES 1992 1993 1994 1995 1996 1995 1996(a)
- -------------------------------------------- ------ ------ ------ ------ ------ ------ -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................... $398.9 $408.7 $428.2 $537.6 $611.1 $159.7 $156.2
Cost of goods sold.......................... 342.7 336.4 344.4 441.4 513.4 133.1 133.6
Marketing, general and administration....... 21.1 26.1 26.3 28.6 29.7 7.6 7.8
Engineering and product development......... 5.1 5.8 4.0 5.1 4.7 1.3 1.8
Depreciation and amortization............... 21.7 22.2 24.8 29.6 32.7 7.8 8.8
Interest expense, net....................... 33.7 33.8 13.6 13.4 15.0 3.8 3.6
Net income (loss)........................... (6.3) 3.6 0.0 29.9 28.4 8.3 6.1
OTHER DATA:
EBITDA(b)................................... $ 54.6 $ 63.8 $ 80.6 $ 92.9 $ 97.5 $ 25.3 $ 22.3
Capital expenditures, tooling and dunnage... 31.1 28.9 35.6 43.7 49.1 9.7 23.4
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets................................ $475.4 $499.9 $527.6 $589.6 $633.9 $609.2 $648.9
Total debt.................................. 255.0 122.0 107.7 123.0 133.1 147.9 153.8
Stockholders' equity........................ 60.0 191.9 184.8 216.4 245.4 226.2 251.1
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------- ----------------
HOLDINGS 1991 1992 1993 1994 1995 1995 1996
- --------------------------------------------- ------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................... $288.6 $309.7 $368.0 $405.2 $357.2 $105.6 $ 79.6
Cost of goods sold........................... 258.1 267.8 325.7 361.5 324.0 91.8 73.5
Selling, administrative and general.......... 15.4 17.2 17.0 18.5 18.2 4.6 4.1
Research and development..................... 7.0 6.3 6.7 6.9 6.9 1.9 1.3
Depreciation and amortization................ 15.1 14.9 17.5 19.3 19.0 4.9 4.5
Interest expense, net........................ 18.6 17.0 16.5 17.2 17.9 4.5 4.3
Net income (loss)............................ (1.2) 1.1 (5.3) (37.4) (52.2) 2.7 (4.2)
OTHER DATA:
EBITDA(b).................................... $ 24.9 $ 37.2 $ 37.2 $ 37.7 $ 27.5 $ 12.2 $ 5.5
Nonrecurring expense (income)................ (12.1) -- -- 33.3 33.2 -- --
Noncash expense (income)..................... 3.0 -- 2.7 2.9 3.8 (0.4) 0.9
Capital expenditures, tooling and dunnage.... 9.6 12.5 15.8 18.4 14.2 4.1 2.5
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets................................. $206.6 $198.5 $217.1 $208.9 $169.6 $213.0 $167.1
Total debt................................... 136.2 126.1 128.7 131.8 130.0 139.6 137.0
Stockholders' equity (deficit)............... (10.3) (9.0) (14.1) (52.2) (77.6) (49.5) (81.5)
</TABLE>
- ---------------
(a) Hayes' first quarter 1996 results were significantly affected by the 17-day
General Motors strike during February of this year. Management believes
that, excluding the effects of such strike, Hayes' first quarter 1996 net
sales would have been higher than its net sales for the first quarter of
1995, in spite of lower industry production volumes during the first quarter
of 1996. Management believes that substantially all lost sales related to
the strike will be realized during the remainder of fiscal 1996. Capital
expenditures in the first quarter included the acquisition of machinery and
equipment primarily for additional production capacity at Hayes' North
American facilities to meet future customer requirements for fabricated
aluminum and FFM(R) Wheels.
(b) EBITDA represents the sum of income before interest expense, preferred
dividends of subsidiaries and income taxes, plus depreciation and
amortization, nonrecurring charges, and other non-cash income and expense.
EBITDA should not be construed as a substitute for income from operations,
net income or cash flow from operating activities, for the purpose of
analyzing Hayes' and Holdings' respective operating performance, financial
position and cash flows. Hayes and Holdings have presented EBITDA because it
is commonly used by investors to analyze and compare companies on the basis
of operating performance and to determine a company's ability to service
debt.
7
<PAGE> 12
SUMMARY PRO FORMA FINANCIAL DATA
The following table sets forth certain unaudited pro forma financial data
for the Company for the year ended January 31, 1996 and as of and for the three
months ended April 30, 1996, and certain financial ratios derived therefrom
which are presented to reflect the pro forma effect of (i) the Transactions and
(ii) the Holdings 1995 Recapitalization (as defined herein). The pro forma
financial data do not reflect any cost savings related to the Motor Wheel
Restructuring or synergies that are expected to result from the Transactions.
The unaudited pro forma statement of operations data give effect to the
Transactions and the Holdings 1995 Recapitalization as if they had occurred on
February 1, 1995 and the unaudited pro forma balance sheet data give effect to
the Transactions as if they had occurred on April 30, 1996. The unaudited pro
forma combined financial data do not purport to be indicative of the results of
operations or financial position of the Company that would have actually been
obtained had the Transactions and the Holdings 1995 Recapitalization been
completed as of the assumed dates and for the period presented, or which may be
obtained in the future. The unaudited pro forma combined financial data (i) have
been derived from and should be read in conjunction with the "Pro Forma Combined
Condensed Financial Data" and the notes thereto included elsewhere in this
Prospectus and (ii) should be read in conjunction with the separate historical
consolidated financial statements of Hayes and Holdings and the notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus. See "Index to Consolidated
Financial Statements."
<TABLE>
<CAPTION>
COMPANY PRO FORMA COMPANY PRO FORMA
YEAR ENDED THREE MONTHS ENDED
JANUARY 31, 1996 APRIL 30, 1996
----------------- -------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................ $ 968.3 $ 235.8
Cost of goods sold....................................... 832.1 205.0
Marketing, general and administration.................... 44.5 11.4
Engineering and product development...................... 9.1 2.7
Depreciation and amortization............................ 48.9 11.9
Interest expense, net.................................... 71.3 17.8
Net income (loss)........................................ (16.7) (0.7)
OTHER DATA:
EBITDA(a)(b)............................................. $ 133.2 $ 29.4
Cash interest expense.................................... 68.2 17.0
Capital expenditures, tooling and dunnage................ 63.3 25.9
BALANCE SHEET DATA (AT END OF PERIOD):
Total assets.............................................................. $ 1,115.8
Total debt................................................................ 703.3
Stockholders' equity...................................................... 23.4
</TABLE>
- ---------------
(a) EBITDA represents the sum of income before interest expense, preferred
dividends of subsidiary and income taxes, plus depreciation and
amortization, nonrecurring charges, and other non-cash income and expense.
EBITDA should not be construed as a substitute for income from operations,
net income or cash flow from operating activities, for the purpose of
analyzing the Company's operating performance, financial position and cash
flows. The Company has presented EBITDA because it is commonly used by
investors to analyze and compare companies on the basis of operating
performance and to determine a company's ability to service debt.
8
<PAGE> 13
footnotes from previous page
(b) The summary Company pro forma combined financial data and the results of
operations and EBITDA for the year ended January 31, 1996 and the three
months ended April 30, 1996 include various non-recurring charges, and do
not include anticipated net annual cost savings, related to the Motor Wheel
Restructuring that has been implemented and is currently underway. Pro
forma EBITDA does not give effect to at least $26.2 million of anticipated
net annual cost savings related to reduced labor costs, head count
reductions, and the elimination of redundant fixed overhead costs resulting
from the closure of certain facilities and the transfer of production to
other facilities. The effect of these items on the pro forma combined
statement of operations is summarized below (dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JANUARY 31, 1996 APRIL 30, 1996
---------------- ------------------
<S> <C> <C>
Pro forma combined net loss............................. $(16.7) $ (0.7)
Supplemental adjustments:
Holdings 1995 plant restructuring..................... 33.0 --
Plant consolidation cost savings...................... 26.2 6.6
Holdings 1995 corporate restructuring................. 3.1 --
Nonrecurring Company costs............................ 3.6 --
Tax effect of supplemental adjustments @ 39%.......... (25.8) (2.6)
------ -----
Supplemental pro forma combined net income.............. $ 23.4 $ 3.3
====== =====
Pro forma combined EBITDA............................... $133.2 $ 29.4
Supplemental adjustments:
Net payroll and benefit reductions.................... 18.6 4.7
Manufacturing fixed cost reductions................... 7.6 1.9
------ -----
Supplemental pro forma combined EBITDA.................. $159.4 $ 36.0
====== =====
Ratio of supplemental pro forma
combined EBITDA to pro forma cash interest expense.... 2.3x 2.1x
</TABLE>
For additional information on the effects of the Motor Wheel Restructuring
and nonrecurring charges on pro forma combined EBITDA, see Note J to the
Pro Forma Statement of Operations included in "Pro Forma Combined Condensed
Financial Data."
9
<PAGE> 14
RISK FACTORS
In addition to the other matters set forth or incorporated by reference in
this Prospectus, the following factors should be considered carefully in
evaluating an investment in the Notes offered by this Prospectus.
LEVERAGE AND LIQUIDITY
In connection with the Transactions, the Company will enter into
agreements, including but not limited to the Credit Agreement, pursuant to which
it will borrow money in order to finance the cash consideration to be paid to
the holders of Hayes common stock in the Merger, to refinance certain
outstanding indebtedness of Hayes and Motor Wheel, to pay expenses relating to
the Transactions and to provide for the Company's working capital requirements.
After giving effect to the Transactions, the Company's consolidated indebtedness
will exceed $700 million. This increased indebtedness and higher debt-to-equity
ratio of the Company in comparison to that of Hayes and Motor Wheel on a
historical basis may reduce the flexibility of the Company to respond to
changing business and economic conditions, as well as limit capital expenditures
of the Company. The Credit Agreement and the Indenture will include significant
operating and financial restrictions, such as limits on the Company's ability to
incur indebtedness.
The Company's high degree of leverage may have important consequences for
the Company, including: (i) the ability of the Company to obtain additional
financing for acquisitions, working capital, capital expenditures or other
purposes, if necessary, may be impaired or such financing may not be on terms
favorable to the Company; (ii) a substantial portion of the Company's cash flow
will be used to pay the Company's interest expense, which will reduce the funds
that would otherwise be available to the Company for its operations and future
business opportunities; (iii) a substantial decrease in net operating cash flows
or an increase in expenses of the Company could make it difficult for the
Company to meet its debt service requirements and force it to modify its
operations; (iv) the Company may be more highly leveraged than its competitors
which may place it at a competitive disadvantage; and (v) the Company's high
degree of leverage may make it more vulnerable to a downturn in its business or
the economy generally. Any inability of the Company to service its indebtedness
or obtain additional financing, as needed, would have a material adverse effect
on the Company.
RESTRICTIVE DEBT COVENANTS
The Credit Agreement is expected to contain a number of significant
covenants that, among other things, will restrict the ability of the Company to
(i) declare dividends or redeem or repurchase capital stock, (ii) prepay, redeem
or purchase debt, including the Notes, (iii) incur liens and engage in
sale-leaseback transactions, (iv) make loans and investments, (v) incur
additional indebtedness, (vi) amend or otherwise alter debt and other material
agreements, (vii) make capital expenditures, (viii) engage in mergers,
acquisitions and asset sales, (ix) enter into transactions with affiliates and
(x) alter the business it conducts. The indebtedness outstanding under the
Credit Agreement will be guaranteed by all of the Company's domestic
subsidiaries and will be secured by a first priority lien in substantially all
of the properties and assets of the Company and its respective domestic
subsidiaries, now owned or acquired later, including a pledge of all of the
shares of the Company's respective existing and future domestic subsidiaries and
up to 65% of the shares of the Company's existing and future foreign
subsidiaries which are owned by the Company or one of its domestic subsidiaries.
In addition, under the Credit Agreement, the Company will also be required to
comply with financial covenants with respect to (i) a maximum leverage ratio,
(ii) a minimum interest coverage ratio and (iii) a minimum fixed charge coverage
ratio. If the Company were unable to borrow under the Credit Agreement due to a
default, it could be left without sufficient liquidity.
SUBORDINATION
The Notes will be unsecured and subordinated to the prior payment in full
of all Senior Indebtedness whether existing upon the consummation of the
Transactions or thereafter incurred. As of April 30, 1996, on a pro forma basis,
after giving effect to the Transactions, the aggregate outstanding principal
amount of all Senior Indebtedness would have been approximately $453.3 million.
In the event of a bankruptcy, liquidation
10
<PAGE> 15
or reorganization of the Company, the assets of the Company will be available to
pay obligations on the Notes only after all Senior Indebtedness has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on any
or all of the Notes. In addition, the Company may not pay principal or premium,
if any, or interest on the Notes if any Senior Indebtedness is not paid when due
or any other default on any Senior Indebtedness occurs and the maturity of such
Senior Indebtedness is accelerated in accordance with its terms, unless in
either case, such amount has been paid in full or the default has been cured or
waived and such acceleration has been rescinded. In addition, if any default
occurs with respect to certain Senior Indebtedness and certain other conditions
are satisfied, the Company may not make any payments on the Notes for a
designated period of time. Finally, if any judicial proceeding is pending with
respect to any such default in payment on any Senior Indebtedness, or other
default with respect to certain Senior Indebtedness, or if the maturity of the
Notes is accelerated because of a default under the Indenture and such default
constitutes a default with respect to any Senior Indebtedness, the Company may
not make any payment on the Notes.
INCREASE IN VARIABLE INTEREST RATES
A substantial portion of the indebtedness to be incurred by the Company to
finance the Transactions will bear interest at variable rates. While it is
anticipated that the Company will enter into one or more interest rate
protection agreements to limit its exposure to increases in such interest rates,
such agreements will not eliminate such exposure to variable rates. Any increase
in the interest rates on the Company's indebtedness will reduce funds available
to the Company for its operations and future business opportunities and will
exacerbate the consequences of the Company's leveraged capital structure.
FRAUDULENT TRANSFER CONSIDERATIONS
The payment of the consideration in the Merger to the stockholders of Hayes
and the related financings may be subject to review under federal or state
fraudulent transfer laws. While the relevant laws may vary from state to state,
under such laws, if a court in a lawsuit by a creditor or a representative of
creditors of Hayes or the Company, such as a trustee in bankruptcy or one of
such entities as debtor-in-possession, were to find that, at the time of or
after and giving effect to the Transactions, Hayes or the Company (i) was
insolvent or rendered insolvent thereby, (ii) was engaged in a business or
transaction for which its remaining assets constituted unreasonably small
capital, (iii) intended to incur, or believed that it would incur, debts beyond
its ability to pay as they matured, or (iv) intended to hinder, delay or defraud
creditors and, in the case of clauses (i), (ii) and (iii), that Hayes or the
Company did not receive reasonably equivalent value or fair consideration in the
Transactions, such court could avoid all or a part of the payment of the
consideration in the Merger and require that the stockholders, including
stockholders exercising appraisal rights, return such consideration to Hayes or
the Company or to a fund for the benefit of their respective creditors. In
addition, if a court were to find that Hayes or the Company came within any of
clauses (i) through (iv) above, Hayes or the Company, or their respective
creditors or trustees in bankruptcy, could seek to avoid the grant of security
interests to the lenders under the Credit Agreement or to subordinate or void
altogether the Senior Indebtedness or to subordinate or void altogether the
Notes. This would result in an event of default with respect to such
indebtedness which, under the terms of such indebtedness (subject to applicable
law), would allow the lenders to terminate their obligations thereunder and to
accelerate payment of such indebtedness.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the jurisdiction which is being applied. There can be no
certainty as to what law a court would apply pursuant to applicable choice of
law provisions, although it is likely that a court would apply the law of the
state of incorporation of Hayes or Holdings, federal bankruptcy law, the
jurisdiction in which the headquarters of Hayes or Holdings is located or the
law of the jurisdiction in which the Merger is deemed to have occurred.
Generally, however, a company would be considered insolvent for purposes of the
foregoing if the sum of such company's debts is greater than all such company's
property at a fair valuation, or if the present fair saleable value of such
company's assets is less than the amount that will be required to pay its
probable liability on its existing debts as they become absolute and matured.
For the fiscal year ended January 31, 1996, the pro forma ratio of earnings to
fixed charges of the Company was 0.6 to 1 (with earnings insufficient to cover
fixed charges by $27.4 million) after giving effect to the Transactions as if
the Transactions had occurred at the beginning of
11
<PAGE> 16
such fiscal year. It is a condition to consummation of the Merger that Hayes and
Holdings receive a mutually acceptable solvency opinion, which will be delivered
by Houlihan Lokey Howard & Zukin, Inc. There can, however, be no assurance that
a court would not determine that Hayes or the Company, as the case may be, was
insolvent at the time of or after and giving effect to the Transactions. In
addition, there can be no assurance that a court would not determine, regardless
of whether any of the foregoing entities was solvent, that the Transactions
constituted a fraudulent transfer on another of the grounds listed above.
Management believes that the Company will be solvent following the consummation
of the Transactions, and receipt of a solvency opinion is a condition to the
Merger Agreement. While such condition may be waived by Hayes and Holdings under
the Merger Agreement, the receipt of such opinion is also a condition to the
lenders' obligation to fund under the Credit Agreement, and the Company does not
have the ability to waive such condition thereunder.
DEPENDENCE ON MAJOR CUSTOMERS
Hayes derived approximately 80% of its revenues from General Motors, Ford
and Chrysler in fiscal 1995; Motor Wheel derived approximately 58% of its
revenues from these three customers in its year ended December 31, 1995. Hayes
and Motor Wheel, which have been suppliers to these companies for many years,
continually engage in efforts to improve and expand on their relations with each
of such companies. However, there can be no assurance that the Company will
maintain or improve these relationships or that the Company will continue to
supply these customers at current levels. The loss of a significant portion of
sales to General Motors, Ford or Chrysler could have a material adverse effect
on the Company's business. Furthermore, General Motors and Ford manufacture a
significant portion of their steel wheel requirements and Ford, to a limited
extent, manufactures aluminum wheels for its own use. Although General Motors
and Ford have indicated that they will continue to rely on outside suppliers,
they may increase their purchases of wheels from captive manufacturers, which
could reduce the market for the Company's products and have an adverse effect on
the Company.
CYCLICAL NATURE OF INDUSTRY
The principal operations of Hayes and Motor Wheel have been, and the
principal operations of the Company will continue to be, directly related to
domestic and foreign automotive and commercial highway vehicle production.
Industry sales and production are cyclical and can be affected by the strength
of the economy generally, or in specific regions such as North America or
Europe, by prevailing interest rates and by other factors which may have an
effect on the level of the Company's sales.
LABOR RELATIONS
Approximately 20% of Hayes' domestic employees and 68% of Motor Wheel's
employees are unionized. Hayes' two domestic collective bargaining agreements
expire in February 1997 and June 1998, while Motor Wheel's collective bargaining
agreements expire between March 1996 and October 1997. The contracts between
each of the United Automobile, Aerospace and Agricultural Implement Workers of
America ("UAW") and the National Automobile, Aerospace and Agricultural
Implement Workers Union of Canada and each of the three major North American
OEMs will expire and are subject to renegotiation in the summer of 1996. Among
other things, union job security concerns (including concerns relating to
outsourcing) and wage and benefit levels are expected to be major issues in such
negotiations. While Hayes and Motor Wheel believe that their relations with
their employees are satisfactory, a dispute between the Company and its
employees, or between any of its major customers and such customer's employees,
could have a material adverse effect on the Company. Substantially all of Hayes'
overseas employees are members of state-sponsored unions.
CHALLENGES OF BUSINESS INTEGRATION
The full benefits of a business combination of Hayes and Motor Wheel will
require the integration of each company's administrative, finance, sales and
marketing organizations, the coordination of each company's sales efforts, and
the implementation of appropriate operations, financial and management systems
and
12
<PAGE> 17
controls in order to capture the efficiencies and the cost reductions that are
expected to result from the Merger. This will require substantial attention from
the Company's management team, which has minimal experience integrating the
operations of companies the size of Hayes and Motor Wheel. The diversion of
management attention, as well as any other difficulties which may be encountered
in the transition and integration process, could have an adverse impact on the
revenue and operating results of the Company. There can be no assurance that the
Company will be able to integrate the operations of Hayes and Motor Wheel
successfully.
LACK OF A PUBLIC MARKET FOR THE NOTES
There is no public market for the Notes and the Company does not intend to
list the Notes on any securities exchange or for quotation over any
over-the-counter market. The Company has been advised by the Underwriters that,
following the completion of the Offering, the Underwriters presently intend to
make a market in the Notes. However, the Underwriters are under no obligation to
do so and may discontinue any market making activities at any time without
notice. No assurance can be given as to the liquidity of the trading market for
the Notes or that an active public market for the Notes will develop or, if
developed, will continue. If an active public market does not develop or is not
maintained, the market price and liquidity of the Notes may be adversely
affected.
13
<PAGE> 18
THE COMPANY
The combination of Hayes and Motor Wheel will result in an entity that will
be a leading global supplier of wheels and brake components to OEMs of passenger
cars, light trucks and commercial highway vehicles in North America and Europe.
Hayes is a world leader in the design, manufacture and supply of steel and
aluminum wheels to OEMs of passenger cars and light trucks. Motor Wheel is a
leading designer and producer of steel wheels and brake components for the
passenger car, light truck and commercial highway truck and trailer markets. The
following table sets forth the Company's estimated combined market position for
its primary products in North America and Europe in 1995:
<TABLE>
<CAPTION>
MARKET
POSITION
--------
<S> <C>
NORTH AMERICA
Automotive Steel Wheels -- Including OEM Captives................... #1
Automotive Cast Aluminum Wheels..................................... #2
Automotive Fabricated Aluminum Wheels............................... #1
Automotive Brake Rotors and Drums -- Excluding OEM Captives......... #2
Automotive Brake Rotors and Drums -- Including OEM Captives......... #3
Commercial Highway Wheels........................................... #2
Commercial Highway Brake Hubs and Drums............................. #1
EUROPE
Automotive Aluminum Wheels.......................................... #1
</TABLE>
The Merger is expected to result in the combination of the strength of
Hayes in steel and aluminum wheel manufacturing and of Motor Wheel in steel
wheel and brake component manufacturing. The Company's complementary product
lines will enable it to sell a comprehensive range of products. As automotive
suppliers continue to consolidate worldwide, the combination of Hayes and Motor
Wheel is expected to strengthen the Company's leadership position in meeting the
global sourcing, quality and engineering requirements of its customers.
Hayes' business originated with Hayes Wheel, founded in 1908 by Clarence
Hayes, and K.H. Wheel Company, founded in 1909 by John Kelsey and John Herbert,
which produced wooden-spoked wheels for automobiles such as Henry Ford's Model
T. These companies were merged in 1927 to form Kelsey-Hayes Wheel Corporation,
which was reorganized in 1933 into Kelsey-Hayes Wheel Company, to which Hayes
succeeded by virtue of a merger in 1986. In November 1989, Hayes was acquired by
Varity Corp. ("Varity"). In December 1992, Hayes issued 9.4 million shares of
its common stock in its initial public offering. Varity currently owns 46.3% of
Hayes.
Motor Wheel, which was formed in 1920, was publicly held until 1964 when it
was acquired by The Goodyear Tire & Rubber Company, Inc. ("Goodyear"). In 1986,
Holdings, a Delaware corporation that was organized by members of the management
of Motor Wheel, acquired Motor Wheel from Goodyear. In November 1995, Holdings
completed certain transactions contemplated by an Investment Agreement among
JLL, Holdings and Motor Wheel (collectively, the "Holdings 1995
Recapitalization") pursuant to which JLL and certain other investors made an
equity investment in Holdings in exchange for a controlling interest in
Holdings.
The Company's principal executive offices are located at 38481 Huron River
Drive, Romulus, Michigan 48174 and its telephone number is (313) 941-2000.
14
<PAGE> 19
THE GUARANTORS
The Company's obligations under the Notes will be jointly and severally
guaranteed by each of the Guarantors on a senior subordinated basis. The
Guarantees will rank subordinate in right of payment to all existing and future
Senior Indebtedness of such Guarantor, including the guarantees being executed
by the Guarantors in connection with the Credit Agreement, and senior to all
existing and future indebtedness of such Guarantor that is designated as
subordinate or junior in right of payment of such Guarantee. By their terms, the
Guarantees are limited to amounts that would cause them not to be fraudulent
conveyances. It is possible that the Guarantees could be limited to the net
worth of the Guarantors and effectively be subordinated to certain other
obligations of the Guarantors by virtue of those limitation provisions.
THE TRANSACTIONS
THE MERGER
On March 28, 1996, Hayes and Holdings entered into the Merger Agreement,
pursuant to which and, subject to the terms and condition thereof, (i) Holdings
common stock will be converted into 3,125,000 shares of New Common Stock and
1,150,000 Warrants, (ii) Motor Wheel will become a wholly owned subsidiary of
Hayes, and (iii) each outstanding share of common stock of Hayes will be
converted into the right to receive $28.80 in cash and 1/10th of one share of
New Common Stock. In connection with the Transactions, it is anticipated that
substantially all existing indebtedness of Hayes and Motor Wheel will be
refinanced. The Transactions are expected to be financed with (i) borrowings
under the Credit Agreement, (ii) the proceeds of the Notes offered hereby and
(iii) new equity investments. In connection with the Merger, on May 28, 1996
Hayes commenced the Debt Tender to purchase all outstanding Hayes Senior Notes.
Also, Motor Wheel intends to redeem the Motor Wheel Senior Notes. Following the
Transactions, the New Common Stock is expected to be listed on the New York
Stock Exchange.
THE FINANCING
If the Transactions had occurred on April 30, 1996, approximately $902.0
million would have been required to (i) fund the payment of the cash
consideration to be paid in connection with the Merger, (ii) repay, repurchase
or redeem certain existing indebtedness of Hayes and Motor Wheel, (iii) pay the
fees and expenses incurred in connection with the Transactions and (iv) provide
working capital for the Company.
Upon the completion of the Transactions, approximately $452.0 million of
bank borrowings by the Company pursuant to the Credit Agreement are expected to
be outstanding. The Credit Agreement is being provided by a group of banks led
by Canadian Imperial Bank of Commerce ("CIBC") and Merrill Lynch Capital
Corporation ("Merrill Capital"), and provides for total commitments of up to
$645.0 million. The Credit Agreement is comprised of the Term Loan Facilities
and the Revolving Credit Facility, of which $27.0 million is anticipated to be
outstanding upon the completion of the Transactions. Gross proceeds from the
sale of the Notes offered hereby are expected to be $250.0 million, and the New
Investors will invest $200.0 million of cash equity in the Company in exchange
for approximately 56% of the outstanding shares of New Common Stock following
the Transactions. See "Description of the Credit Agreement."
THE NEW INVESTORS
Hayes and Holdings have entered into subscription agreements with each of
the New Investors (the "Subscription Agreements"), including JLL, CIBC WG Argosy
Merchant Fund 2, L.L.C. ("Argosy") and TSG Capital Fund II, L.P. ("TSG"), to
acquire (i) an aggregate of 6,250,000 shares of New Common Stock, and (ii)
150,000 Warrants for an aggregate investment of $200.0 million.
THE REDEMPTION, DEBT TENDER OFFER AND CONSENT SOLICITATION
In connection with the Merger and subject to the consummation thereof,
Hayes has commenced the Debt Tender and a related consent solicitation to
eliminate substantially all of the restrictive covenants
15
<PAGE> 20
relating to any Hayes Senior Notes that remain outstanding following the Debt
Tender. Upon completion of the Transactions, Motor Wheel will consummate the
Motor Wheel Redemption. In addition, substantially all other outstanding
indebtedness for borrowed money of Hayes and Motor Wheel will be redeemed,
repaid or terminated pursuant to the terms thereof.
USE OF PROCEEDS
The total proceeds from the sale of the Notes, together with the other
proceeds from the Financing, will be used to finance the Transactions. The
anticipated sources and uses of funds, assuming the Transactions had occurred as
of April 30, 1996, are set forth below (dollars in millions):
<TABLE>
<S> <C>
SOURCES OF FUNDS:
Revolving Credit Facility(a)....................................... $ 27.0
Term Loan Facilities............................................... 425.0
Notes offered hereby............................................... 250.0
New Investors' cash equity investment(b)........................... 200.0
------
Total Sources................................................. $902.0
======
USES OF FUNDS:
Cash merger consideration.......................................... $506.1
Refinance outstanding domestic indebtedness of Hayes(c)............ 160.5
Refinance outstanding obligations of Holdings(d)................... 144.2
Hayes and Holdings management stock options........................ 5.2
Working capital.................................................... 45.0
Estimated fees and expenses........................................ 41.0
------
Total Uses.................................................... $902.0
======
</TABLE>
- -------------------------
(a) $27.0 million is the portion that is estimated would have been drawn from
the $220.0 million Revolving Credit Facility if the Transactions had
occurred as of April 30, 1996. Pursuant to the Credit Agreement, up to
$100.0 million may be drawn under the Revolving Credit Facility upon the
closing of the Transactions. The actual amount of the Revolving Credit
Facility to be drawn upon closing of the Transactions will depend on the
working capital requirements of Hayes and Motor Wheel at such time.
(b) Cash equity investments exclude the value of the New Common Stock which will
be issued to the pre-Merger common stockholders of Hayes and Holdings. The
New Investors' cash equity investments will represent 56% of the Company's
outstanding New Common Stock immediately following completion of the
Transactions.
(c) Approximately $108.0 million is estimated to be used to repurchase the Hayes
Senior Notes and approximately $52.5 million is estimated to be used to pay
the full amounts due under Hayes' existing credit agreement which bore
interest at a rate of 5.93% as of April 30, 1996 and has a maturity date of
March 31, 2000.
(d) Approximately $132.2 million is estimated to be used to redeem the Motor
Wheel Senior Notes and approximately $12.0 million is estimated to be used
to pay the full amounts due under Motor Wheel's existing credit agreement,
which bore interest at a rate of 7.81% as of March 31, 1996 and has a
maturity date of March 31, 1998.
16
<PAGE> 21
PRO FORMA CAPITALIZATION
The following table sets forth the capitalization of Hayes and Holdings
adjusted to give effect to the Transactions as if such Transactions had occurred
on April 30, 1996. This table should be read in conjunction with the information
contained in "Use of Proceeds," "Pro Forma Combined Condensed Financial Data"
and the notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" as well as Hayes' and Holdings' financial
statements and the notes thereto included elsewhere in this Prospectus or
incorporated by reference herein.
<TABLE>
<CAPTION>
COMPANY
HAYES ACTUAL HOLDINGS ACTUAL PRO FORMA
APRIL 30, MARCH 31, PRO FORMA AS ADJUSTED
1996 1996 ADJUSTMENTS APRIL 30, 1996
------------ --------------- ----------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Hayes bank debt........................... $ 52.5 $ -- $ (52.5) $ --
Motor Wheel bank debt..................... -- 12.0 (12.0) --
Revolving Credit Facility................. -- -- 27.0 27.0
Term Loan Facilities...................... -- -- 425.0 425.0
Hayes Senior Notes........................ 100.0 -- (100.0) --
Motor Wheel Senior Notes.................. -- 125.0 (125.0) --
Notes offered hereby...................... -- -- 250.0 250.0
Other Hayes debt.......................... 1.3 -- -- 1.3
------ ------ ------- ------
Total debt................................ 153.8 137.0 412.5 703.3
Stockholders' equity (deficit)............ 251.1 (81.5) (146.2)(a) 23.4
------ ------ ------- ------
Total capitalization...................... $404.9 $ 55.5 $ 266.3 $726.7
====== ====== ======= ======
</TABLE>
- ---------------
(a) See Notes C, E and F to the unaudited pro forma balance sheet included in
"Pro Forma Combined Condensed Financial Data."
17
<PAGE> 22
PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The Unaudited Pro Forma Combined Statement of Operations of the Company for
the fiscal year ended January 31, 1996 and the three months ended April 30, 1996
(the "Pro Forma Statements of Operations"), and the Unaudited Pro Forma Combined
Balance Sheet of the Company as of April 30, 1996 (the "Pro Forma Balance Sheet"
and, together with the Pro Forma Statement of Operations, the "Pro Forma
Financial Statements"), have been prepared to illustrate the estimated effect of
the Transactions and the Holdings 1995 Recapitalization. The Pro Forma Financial
Statements do not reflect any expected cost savings from the Motor Wheel
Restructuring or synergies that are expected to result from the Transactions,
which could be significant, although there can be no assurance with respect
thereto. The Pro Forma Statements of Operations give pro forma effect to the
Transactions and the Holdings 1995 Recapitalization as if they had occurred on
February 1, 1995. The Pro Forma Balance Sheet gives pro forma effect to the
Transactions as if they had occurred on April 30, 1996. The Pro Forma Financial
Statements do not purport to be indicative of the results of operations or
financial position of the Company that would have actually been obtained had
such transactions been completed as of the assumed dates and for the period
presented, or which may be obtained in the future. The pro forma adjustments are
described in the accompanying notes and are based upon available information and
certain assumptions that Hayes and Holdings believe are reasonable. The pro
forma adjustments relating to the Motor Wheel Restructuring have been provided
by Holdings and reviewed by Hayes. The Pro Forma Financial Statements should be
read in conjunction with the separate historical consolidated financial
statements of Hayes and Holdings and the notes thereto and "Management's
Discussions and Analysis of Results of Operations and Financial Condition"
appearing elsewhere in or incorporated by reference into this Prospectus.
The acquisition of Holdings will be accounted for by the purchase method of
accounting. Under purchase accounting, the total purchase price will be
allocated to the tangible and intangible assets and liabilities of Holdings
based upon their respective fair values as of the effective time of the Merger
based on valuations and other studies which are not yet available. A preliminary
allocation of the purchase price has been made to major categories of assets and
liabilities in the accompanying Pro Forma Financial Statements based on
available information. The actual allocation of purchase price and the resulting
effect on income from operations may differ significantly from the pro forma
amounts included herein. These pro forma adjustments represent Hayes' and
Holdings managements' preliminary determination of purchase accounting
adjustments and are based upon available information and certain assumptions
that Hayes and Holdings believe to be reasonable. Consequently, the amounts
reflected in the Pro Forma Balance Sheet are subject to change, and the final
amounts may differ substantially.
18
<PAGE> 23
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(YEAR ENDED JANUARY 31, 1996)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------
HAYES HOLDINGS
YEAR ENDED YEAR ENDED PRO FORMA(B)(C)
JANUARY 31, DECEMBER 31, ----------------------------
1996 1995 ADJUSTMENTS COMBINED
---------- ------------ ------------ ---------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales...................................... $611.1 $ 357.2 $ -- $ 968.3
(5.2)(D)
(0.1)(E)
Cost of goods sold............................. 513.4 324.0 (5.3) 832.1
------ --------- ------ ------
Gross profit................................. 97.7 33.2 5.3 136.2
(0.3)(D)
(2.9)(E)
(0.2)(F)
Marketing, general and administration.......... 29.7 18.2 (3.4) 44.5
Nonrecurring charges........................... 3.6 33.0 -- 36.6
Engineering and product development costs...... 4.7 6.9 (2.5)(E) 9.1
Other expense (income), net.................... (1.5) 3.6 -- 2.1
------ --------- ------ ------
Earnings (loss) from operations.............. 61.2 (28.5) 11.2 43.9
Interest expense............................... 15.0 17.9 38.4 (G) 71.3
Preferred dividends of subsidiary.............. -- 1.6 (1.6)(H) --
------ --------- ------ ------
Earning (loss) before taxes on income........ 46.2 (48.0) (25.6) (27.4)
Income tax provision (benefit)............... 17.8 4.2 (32.7)(I) (10.7)
------ --------- ------ ------
Net income (loss)(J)......................... $ 28.4 $ (52.2) $ 7.1 $ (16.7)
====== ========= ====== ======
Earnings per share........................... $ 1.62 $ (267,912) $ (1.50)
OPERATING AND OTHER DATA:
EBITDA*(J)..................................... $ 97.5 $ 27.5 $ 8.2 $ 133.2
Depreciation and amortization.................. 32.7 19.0 (2.8) 48.9
Capital expenditures, tooling and dunnage...... 49.1 14.2 -- 63.3
Cash interest expense.......................... 13.9 16.3 38.0 68.2
SELECTED RATIOS:
Ratio of earnings to fixed charges(K).......... 3.6x -- -- --(L)
PRO FORMA RECONCILIATION OF EBITDA:
Earnings (loss) from operations................ $ 61.2 $ (28.5) $ 11.2 $ 43.9
Add: Non-cash other expense (income), net...... -- 3.8 -- 3.8
Nonrecurring charges..................... 3.6 33.2 (0.2) 36.6
Depreciation and amortization............ 32.7 19.0 (2.8) 48.9
------ --------- ------ ------
EBITDA(J)...................................... $ 97.5 $ 27.5 $ 8.2 $ 133.2
====== ========= ====== ======
Cash flow provided from (used by):
Operations................................... $ 44.9 $ 7.2 $ 3.7 $ 55.8
Investing activity........................... (52.4) (14.1) -- (66.5)
Financing activity........................... 8.8 7.2 -- 16.0
</TABLE>
- ---------------
* EBITDA represents the sum of income before interest expense, preferred
dividends of subsidiary and income taxes, plus depreciation and amortization,
nonrecurring charges, and other non-cash income and expense. EBITDA should not
be construed as a substitute for income from operations, net income, or cash
flow from operating activities, for the purpose of analyzing the Company's
operating performance, financial position and cash flows. The Company has
presented EBITDA because it is commonly used by investors to analyze and
compare companies on the basis of operating performance and to determine a
company's ability to service debt.
19
<PAGE> 24
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(THREE MONTHS ENDED APRIL 30, 1996)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------
HAYES HOLDINGS
THREE MONTHS THREE MONTHS PRO FORMA(B)(C)
ENDED ENDED --------------------------
APRIL 30, 1996(A) MARCH 31, 1996 ADJUSTMENTS COMBINED
----------------- -------------- ----------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................. $ 156.2 $ 79.6 $ -- $235.8
Cost of goods sold........................ 133.6 73.5 (2.1)(D) 205.0
------ ------- ---- -----
Gross profit............................ 22.6 6.1 2.1 30.8
Marketing, general and administration..... 7.8 4.1 (0.5)(E) 11.4
Engineering and product development
costs................................... 1.8 1.3 (0.4)(E) 2.7
Other expense (income), net............... (0.5) 0.6 -- 0.1
------ ------- ---- -----
Earnings from operations................ 13.5 0.1 3.0 16.6
Interest expense.......................... 3.6 4.3 9.9(G) 17.8
------ ------- ---- -----
Earning (loss) before taxes on income... 9.9 (4.2) (6.9) (1.2)
Income tax provision (benefit).......... 3.8 -- (4.3)(I) (0.5)
------ ------- ---- -----
Net income (loss)(J).................... $ 6.1 $ (4.2) $(2.6) $ (0.7)
====== ======= ==== =====
Earnings (loss) per share................. $ 0.35 $(11,183) $(0.63)
OPERATING AND OTHER DATA:
EBITDA(*) (J)............................. $ 22.3 $ 5.5 $ 1.6 $ 29.4
Depreciation and amortization............. 8.8 4.5 (1.4) 11.9
Capital expenditures, tooling and
dunnage................................. 23.4 2.5 -- 25.9
Cash interest expense..................... 3.4 4.1 -- 17.0
SELECTED RATIOS:
Ratio of earning to fixed charges (K)..... 3.3 -- -- --(L)
PRO FORMA RECONCILIATION OF EBITDA:
Earnings (loss) from operations........... $ 13.5 $ 0.1 $ 3.0 $ 16.6
Add: Non-cash other expense (income),
net..................................... -- 0.9 -- 0.9
Depreciation and amortization....... 8.8 4.5 (1.4) 11.9
------ ------- ---- -----
EBITDA (J)................................ $ 22.3 $ 5.5 $ 1.6 $ 29.4
====== ======= ==== =====
Cash flow provided from (used by):
Operations.............................. $ 5.5 $ (5.9) $(3.6) $ (4.0)
Investing activity...................... (26.9) (2.5) -- (29.4)
Financing activity...................... 20.4 7.3 -- 27.7
</TABLE>
- ---------------
* EBITDA represents the sum of income before interest expense, preferred
dividends of subsidiary and income taxes, plus depreciation and amortization,
nonrecurring charges, and other non-cash income and expense. EBITDA should not
be construed as a substitute for income from operations, net income, or cash
flow from operating activities, for the purpose of analyzing the Company's
operating performance, financial position and cash flows. The Company has
presented EBITDA because it is commonly used by investors to analyze and
compare companies on the basis of operating performance and to determine a
company's ability to service debt.
20
<PAGE> 25
NOTES TO THE UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR YEAR ENDED JANUARY 31, 1996
(A) Hayes' first quarter 1996 results were significantly affected by the 17-day
General Motors strike during February of this year. Management believes
that, excluding the effects of such strike, Hayes' first quarter 1996 net
sales would have been higher than its net sales for the first quarter of
1995, in spite of lower industry production volumes during the first
quarter of 1996. Management believes that substantially all lost sales
related to the strike will be realized during the remainder of fiscal 1996.
Capital expenditures in the first quarter included the acquisition of
machinery and equipment primarily for additional production capacity at
Hayes' North American facilities to meet future customer requirements for
fabricated aluminum and FFM(R) Wheels.
(B) The Pro Forma Statement of Operations assumes that the Transactions and the
Holdings 1995 Recapitalization occurred on February 1, 1995. For purposes
of the Pro Forma Statement of Operations for the year ended January 31,
1996, Holdings' historical statement of operations for the fiscal year
ended December 31, 1995 was combined with Hayes' historical statement of
operations for the fiscal year ended January 31, 1996. For purposes of the
Pro Forma Statement of Operations for the three months ended April 30,
1996, Holdings' historical statement of operations for the three months
ended March 31, 1996 was combined with Hayes' historical statement of
operations for the three months ended April 30, 1996.
(C) The Company expects to incur an $8.0 million premium to repurchase the Hayes
Senior Notes, to write off $3.5 million of deferred debt issuance costs, to
write off $2.5 million of deferred licensing fees to Holdings and to
expense $3.1 million of nonrecurring costs in conjunction with the
settlement of outstanding Company management stock options. These costs and
their tax impact have not been included in the Pro Forma Statement of
Operations because they are non-recurring. Holdings expects to incur a $7.2
million premium associated with the redemption of the Motor Wheel Senior
Notes and to write off deferred debt issuance costs of $2.8 million which
are recorded as liabilities under purchase accounting in the Pro Forma
Balance Sheet at April 30, 1996.
(D) The acquisition of Holdings will be accounted for by the purchase method of
accounting. Under purchase accounting, the total purchase price will be
allocated to the tangible and intangible assets and liabilities of Holdings
based upon their respective fair values as of the Effective Time based on
valuations and other studies which are not yet available. A preliminary
allocation of the purchase price has been made to major categories of
assets and liabilities in the accompanying Pro Forma Financial Statements
based on available information. The actual allocation of purchase price and
the resulting effect on income from operations may differ significantly
from the pro forma amounts included herein. These pro forma adjustments
represent Hayes' and Holdings' managements' preliminary determination of
purchase accounting adjustments and are based upon available information
and certain assumptions that Hayes and Holdings believe to be reasonable.
Consequently, the amounts reflected in the Pro Forma Balance Sheet are
subject to change, and the final amounts may differ substantially. The
following presents the effect of the purchase adjustments and adjustments
to reflect adoption of the Company's accounting policies and pension and
post-retirement benefit cost assumptions on the Pro Forma Statement of
Operations (dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31, 1996 THREE MONTHS ENDED
-------------------------------------- APRIL 30, 1996
MARKETING, GENERAL ------------------
COST OF SALES AND ADMINISTRATION COST OF SALES
------------- ------------------- ------------------
<S> <C> <C> <C>
Depreciation............................ $(7.8) $(0.3) $ (2.8)
Reduction in postretirement benefit
costs................................. (2.7) -- (0.7)
Amortization of intangible assets and
goodwill.............................. 5.3 -- 1.4
----- ----- -----
Total decrease..................... $(5.2) $(0.3) $ (2.1)
===== ===== =====
</TABLE>
The adjustments for estimated pro forma depreciation and amortization of
intangible assets and goodwill are based on their estimated fair values.
Property, plant and equipment is expected to be depreciated
21
<PAGE> 26
over estimated useful lives. Holdings currently depreciates the $215.4
million of historical cost of its assets appearing on the December 31, 1995
balance sheet over a composite life of 14 years resulting in $15.4 million
of annual depreciation, accumulated depreciation of $136.4 million and a
net book value of $79.0 million. Upon consummation of the Transactions, the
fair value of assets acquired is estimated to be $99.0 million. This amount
will be depreciated over 25 years for buildings and 12 years for equipment,
consistent with Hayes' depreciation policy for used equipment and Hayes'
estimate of the remaining economic life of the assets ($7.2 million of
annual depreciation expense.) Other intangible assets and goodwill are
expected to be amortized over their estimated useful lives, not to exceed
40 years. For pro forma purposes, a 35 year composite amortization life has
been used.
(E) As part of its restructuring, Holdings permanently terminated approximately
50 corporate positions and eliminated certain salaries and related costs
associated with its Okemos, Michigan corporate headquarters. The savings
related to the elimination of these salaries and related costs are as
follows (dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JANUARY 31, 1996 APRIL 30, 1996
---------------- ------------------
<S> <C> <C>
Cost of goods sold............................ $ (0.1) $ --
Marketing, general and administration......... (2.9) (0.5)
Engineering and product development........... (2.5) (0.4)
----- -----
Total savings............................ $ (5.5) $ (0.9)
===== =====
</TABLE>
(F) Holdings incurred $0.2 million for the three months ended January 31, 1996
and $0 for the three months ended April 30, 1996 for settlement of certain
management stock options to be reacquired in connection with the Merger.
The cost of these options has been eliminated.
(G) Reflects adjustments for the additional interest expense assuming the
Transactions occurred on February 1, 1995. The change in interest expense,
in addition to amortization of deferred financing costs, reflects changes
in long term borrowings and their rates expected to be in effect as of the
Effective Time as follows (dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JANUARY 31, 1996 APRIL 30, 1996
------------------- -------------------
PRO FORMA PRO FORMA
INTEREST INTEREST
RATE AMOUNT EXPENSE AMOUNT EXPENSE
------ ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C>
Revolving Credit Facility................. 8.50% $ 26.4 $ 2.2 $ 27.0 $ 0.6
Term Loan A............................... 8.50 200.0 17.0 200.0 4.2
Term Loan B............................... 9.00 125.0 11.3 125.0 2.8
Term Loan C............................... 9.50 100.0 9.5 100.0 2.4
Notes offered hereby...................... 10.50 250.0 26.3 250.0 6.6
Existing European debt.................... 11.50 4.2 0.5 1.3 0.0
Unused revolver commitment................ 1.0 0.3
Administrative fee........................ 0.4 0.1
------ ------
Cash pro forma interest expense........... $ 68.2 $ 17.0
Amortization of capitalized financing
fees.................................... 3.1 0.8
------ ------
Total pro forma interest expense.......... $ 71.3 $ 17.8
Less: ------
Historical Holdings interest expense.... $ (17.9) $ (4.3)
Historical Hayes interest expense....... (15.0) (3.6)
------ ------
Total historical interest expense
(including amortization of financing
fees)................................... (32.9) (7.9)
------ ------
Total pro forma interest expense
adjustment.............................. $ 38.4 $ 9.9
====== ======
</TABLE>
22
<PAGE> 27
The Company estimates that an increase or decrease in interest rates on
floating rate debt of 0.125 percent would increase or decrease annual
interest expense by approximately $575,000. The Company anticipates
entering into interest rate caps or swaps with respect to a portion of the
floating rate debt to mitigate the effect of interest rate fluctuations.
(H) Gives effect to the repurchase and retirement of outstanding preferred
stock of Motor Wheel in connection with the Holdings 1995 Recapitalization
which was consummated in November 1995.
(I) Adjustments to reflect income tax effects assuming a combined effective
state and federal statutory income tax rate of 39%.
(J) The historical financial statements of Hayes and Holdings include various
nonrecurring charges and other charges and cost savings related to the
implementation of the Motor Wheel Restructuring which has been implemented
and is currently underway, the effects of which have not been included in
the Pro Forma Combined Statement of Operations. The effect of these
nonrecurring items on the Pro Forma Combined Statement of Operations is as
follows (dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JANUARY 31, 1996 APRIL 30, 1996
---------------- ------------------
<S> <C> <C>
Pro forma combined net loss................... $(16.7) $ (0.7)
Supplemental adjustments:
Holdings 1995 plant restructuring(1)........ 33.0 --
Plant consolidation cost savings(1)......... 26.2 6.6
Holdings 1995 corporate restructuring(2).... 3.1 --
Nonrecurring Company costs(3)............... 3.6 --
Tax effect of supplemental adjustments @
39%...................................... (25.8) (2.6)
----- -----
Supplemental pro forma combined net income.... $ 23.4 $ 3.3
===== =====
EBITDA reconciliation:
Pro forma combined EBITDA................... $133.2 $ 29.4
Plant consolidation cost savings(1)......... 26.2 6.6
----- -----
Supplemental pro forma combined EBITDA........ $159.4 $ 36.0
===== =====
Ratio of supplemental pro forma combined
EBITDA to pro forma cash interest expense... 2.3x 2.1x
</TABLE>
- ---------------
(1) Holdings has specifically identified additional reductions in cost of
sales related to the consolidation and work force rationalization plans
announced during 1994 and 1995. Holdings anticipates realizing
significant cost savings related to reduced labor costs, head count
reductions, and the elimination of redundant fixed overhead costs
resulting from the closure of certain facilities and the transfer of
production to other Holdings facilities. In 1994, Holdings recorded
provisions related to plant closure matters associated with its
production facilities in Lansing, Michigan and Luckey, Ohio. In 1995,
Holdings recorded additional provisions totaling $33.0 million related
to plant closures of its Mendota, Illinois and Ypsilanti, Michigan
facilities. This plant closure provision has been reflected as a
nonrecurring charge in Holdings' historical financial statements. The
foregoing plant closure provisions are expected to be funded from the
future cash flow of Holdings or, following the Merger, the future cash
flow of the Company. The primary cost savings related to the four plant
closures which are not already reflected in Holdings' historical
financial statements are summarized below (dollars in millions):
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JANUARY 31, 1996 APRIL 30, 1996
---------------- ------------------
<S> <C> <C>
Net payroll and benefit reductions..... $ 18.6 $ 4.7
Manufacturing fixed cost reductions.... 7.6 1.9
---- -----
Total savings..................... $ 26.2 $ 6.6
==== =====
</TABLE>
23
<PAGE> 28
Manufacturing fixed cost reductions include utilities, repairs and
maintenance, property taxes and other direct costs associated with the
closed facilities. The foregoing cost savings are not expected to be
fully realized prior to 1997.
(2) During 1995 Holdings also recorded restructuring charges related to its
corporate offices as follows (dollars in millions):
<TABLE>
<S> <C>
Write-down of assets to realizable value........................ $2.3
Corporate costs related to restructuring........................ 0.8
----
Total charges.............................................. $3.1
====
</TABLE>
(3) For the year ended January 31, 1996, Hayes incurred professional fees
and other costs of approximately $2.2 million related to activities of
the Special Committee of the Board of Directors, including its
consideration of Varity's proposal to acquire all of the outstanding
shares of Hayes' which it did not already own, and investigation of
alternatives to such proposal. These fees and costs, together with
costs of $1.4 million related to the restructuring of Hayes' North
American Aluminum Wheel Group, are nonrecurring.
(K) For the purpose of computing this ratio, earnings consist of earnings
before taxes on income and fixed charges. Fixed charges consist of interest
expense, capitalized interest, amortization of deferred debt issuance costs
and one-third of rental expense.
(L) On a pro forma combined basis for the fiscal year ended January 31, 1996
and the three months ended April 30, 1996, earnings were insufficient to
cover fixed charges by $27.4 million and $1.2 million, respectively.
24
<PAGE> 29
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(APRIL 30, 1996)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------
HAYES HOLDINGS PRO FORMA
APRIL 30, MARCH 31, -------------------------------
1996 1996 ADJUSTMENTS COMBINED
--------- --------- ----------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Cash..................................... $ 0.8 $ 0.3 $ 45.0 (A) $ 46.1
Trade accounts and notes receivable...... 113.4 32.0 -- 145.4
Inventories.............................. 52.5 34.1 3.8 (B) 90.4
Other current assets..................... 8.8 4.3 -- 13.1
------ ------ ------ --------
Current assets......................... 175.5 70.7 48.8 295.0
Property, plant, and equipment........... 320.9 76.9 20.0 (B) 417.8
Other noncurrent assets.................. 39.6 16.7 (13.0)(B) 43.3
Deferred tax............................. 0.0 0.0 35.6 (B) 35.6
Deferred financing costs................. 3.5 2.8 19.7 (A)(B)(C) 26.0
Goodwill................................. 109.4 0.0 188.7 (B) 298.1
------ ------ ------ --------
Total assets........................... $ 648.9 $ 167.1 $ 299.8 $1,115.8
====== ====== ====== ========
Current portion of debt and notes........ $ 1.3 $ 12.0 $ (12.0)(D) $ 1.3
Trade accounts payable................... 76.8 28.5 -- 105.3
Accrued liabilities...................... 38.3 22.1 (6.7)(C) 53.7
Revolving credit facility................ 0.0 0.0 27.0 (A) 27.0
------ ------ ------ --------
Current liabilities.................... 116.4 62.6 8.3 187.3
Restructuring reserve -- noncurrent...... 0.0 22.1 -- 22.1
Pension and other long-term
liabilities............................ 80.0 38.9 40.2 (B) 159.1
Deferred tax liability, net.............. 48.9 -- -- 48.9
Senior debt -- less current portion...... 152.5 125.0 (277.5)(A)(D) --
Term loans............................... -- -- 425.0 (A) 425.0
Notes offered hereby..................... -- -- 250.0 (A) 250.0
------ ------ ------ --------
Total liabilities...................... 397.8 248.6 446.0 1,092.4
Paid-in capital.......................... 198.5 30.5 60.0 (E)(F) 289.0
Preferred stock.......................... -- -- -- --
Common stock............................. 0.2 -- -- 0.2
Retained earnings (deficit).............. 55.6 (112.0) (206.2)(C)(F) (262.6)
Cumulative translation and pension
liability adjustments.................. (3.2) -- -- (3.2)
------ ------ ------ --------
Total stockholders' equity............. 251.1 (81.5) (146.2) 23.4
------ ------ ------ --------
Total liabilities and stockholders'
equity.............................. $ 648.9 $ 167.1 $ 299.8 $1,115.8
====== ====== ====== ========
</TABLE>
25
<PAGE> 30
NOTES TO THE PRO FORMA COMBINED BALANCE SHEET AT APRIL 30, 1996
(A) Reflects the estimated sources and uses of funds for the Transaction as
follows, assuming the Transactions had occurred as of April 30, 1996
(dollars in millions):
<TABLE>
<S> <C>
Sources of Funds:
Revolving credit facility.......................................... $ 27.0
Term Loan Facilities............................................... 425.0
Senior Subordinated Notes.......................................... 250.0
New Investors' cash equity investment.............................. 200.0
------
Total Sources.................................................... $902.0
======
Uses of Funds:
Cash merger consideration.......................................... $506.1
Refinance outstanding domestic indebtedness of Hayes............... 152.5
Refinance outstanding obligations of Holdings...................... 137.0
Estimated debt tender and call premiums............................ 15.2
Hayes and Holdings management stock options........................ 5.2
Working capital.................................................... 45.0
Estimated financing fees and interest rate cap..................... 26.0
Estimated professional fees and expenses........................... 15.0
------
Total Uses....................................................... $902.0
======
</TABLE>
(B) The estimated purchase price and preliminary adjustments to historical book
value of Holdings as a result of the Transactions are as follows (dollars
in millions):
<TABLE>
<S> <C>
Purchase price:
Estimated value of stock and warrants issued....................... $104.0
Book value of net liabilities acquired............................. 81.5
------
Purchase price in excess of net liabilities acquired............... $185.5
======
Preliminary allocation of purchase price in excess of net liabilities
acquired:
Increase in inventory to estimated fair value...................... $ 3.8
Increase in property, plant and equipment to estimated fair
value............................................................ 20.0
Increase in pension and post retirement liabilities................ (40.2)
Increase in deferred tax assets.................................... 35.6
Estimated goodwill................................................. 188.7
Write-off of deferred financing asset.............................. (2.8)
Increase in accrued liabilities to reflect call premium and
settlement of management stock options (see Note (D) below)...... (9.3)
Adjustment to other noncurrent assets.............................. (10.3)
------
Total............................................................ $185.5
======
</TABLE>
26
<PAGE> 31
(C) Represents one of the two adjustments to retained earnings (dollars in
millions):
<TABLE>
<S> <C>
Repurchase of common stock........................................ $(506.1)
Reversal of paid-in capital included in Note E below.............. 198.5
Elimination of deferred licensing fee to Holdings (i)............. (2.7)
Deferred financing costs (ii)..................................... (3.5)
Estimated tender premium (iii).................................... (8.0)
Hayes management stock options (iv)............................... (3.1)
Add: Tax effect related to items (i), (ii), (iii) and (iv)........ 6.7
-------
Total........................................................... $(318.2)
========
</TABLE>
(D) Transition proceeds will be used to repay the following obligations of
Holdings (dollars in millions):
<TABLE>
<S> <C>
Estimated call premium on debt and management stock options....... $ 9.3
Current portion of debt and notes................................. 12.0
Senior Notes...................................................... 125.0
-------
Total........................................................... $ 146.3
=======
</TABLE>
(E) Represents one of the two adjustments to the paid-in capital account
(dollars in millions):
<TABLE>
<S> <C>
Elimination of paid-in capital.................................... $(198.5)
Increase in paid-in capital from issuance of new common stock..... 200.0
Estimated professional fees and expenses.......................... (15.0)
-------
Total........................................................... $ (13.5)
========
</TABLE>
(F) The adjustments to paid-in capital and retained earnings as a result of the
acquisition of Holdings as described in Note (B) is as follows (see Notes
(C) and (E) for additional adjustments to paid-in capital and retained
earnings as a result of the Transactions) (dollars in millions):
<TABLE>
<S> <C>
Paid-in capital:
Elimination of Holdings paid-in capital......................... $ (30.5)
Value of common stock and warrants issued....................... 104.0
-------
Total........................................................ $ 73.5
=======
Retained earnings:
Elimination of Holding's pre-business combination retained
deficit...................................................... $ 112.0
=======
</TABLE>
27
<PAGE> 32
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF HAYES
The following selected historical consolidated financial information of
Hayes with respect to each year in the five-year period ended January 31, 1996,
is derived from the consolidated financial statements of Hayes. The consolidated
financial statements of Hayes for each of the years in the three-year period
ended January 31, 1996, are included elsewhere in this Prospectus. Such
consolidated financial statements have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The financial information for the
three months ended April 30, 1995 and April 30, 1996 are unaudited, but in the
opinion of Hayes reflect all adjustments necessary for a fair presentation of
such information. Operating results for the three months ended April 30, 1996
are not necessarily indicative of the results that may be expected for the
fiscal year ended January 31, 1997. The selected consolidated financial
information provided below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of Hayes and the notes thereto included
elsewhere in this Prospectus. See "Index to Consolidated Financial Statements."
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED JANUARY 31, ENDED APRIL 30,
------------------------------------------ ---------------
1992 1993 1994 1995 1996 1995 1996
------ ------ ------ ------ ------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................... $398.9 $408.7 $428.2 $537.6 $611.1 $159.7 $156.2
Cost of goods sold............................. 342.7 336.4 344.4 441.4 513.4 133.1 133.6
------ ------ ------ ------ ------ ------ ------
Gross profit................................. 56.2 72.3 83.8 96.2 97.7 26.6 22.6
Marketing, general and administration............ 21.1 26.1 26.3 28.6 29.7 7.6 7.8
Engineering and product development.............. 5.1 5.8 4.0 5.1 4.7 1.3 1.8
Other income, net................................ (2.9) (1.2) (2.3) (0.8) (1.5) 0.2 (0.5)
Nonrecurring charges............................. 1.7 -- -- -- 3.6 -- --
------ ------ ------ ------ ------ ------ ------
Earnings from operations....................... 31.2 41.6 55.8 63.3 61.2 17.5 13.5
Interest expense, net............................ 33.7 33.8 13.6 13.4 15.0 3.8 3.6
------ ------ ------ ------ ------ ------ ------
Earnings (loss) before taxes on income,
minority interest and cumulative effect of
changes in accounting principles............. (2.5) 7.8 42.2 49.9 46.2 13.7 9.9
Income tax provision............................. (3.2) 4.2 17.6 20.0 17.8 5.4 3.8
------ ------ ------ ------ ------ ------ ------
Earnings (loss) before minority interest and
cumulative effect of changes in accounting
principles................................... (5.7) 3.6 24.6 29.9 28.4 8.3 6.1
Minority interest.............................. 0.6 -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Earnings (loss) before cumulative effect of
changes in accounting principles............. (6.3) 3.6 24.6 29.9 28.4 8.3 6.1
Cumulative effect of changes in accounting
principles..................................... -- -- 24.6 -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss)............................ $ (6.3) $ 3.6 $ 0.0 $ 29.9 $ 28.4 $ 8.3 $ 6.1
====== ====== ====== ====== ====== ====== ======
OTHER DATA:
EBITDA(a)........................................ $ 54.6 $ 63.8 $ 80.6 $ 92.9 $ 97.5 $ 25.3 $ 22.3
Depreciation and amortization.................... 21.7 22.2 24.8 29.6 32.7 7.8 8.8
Capital expenditures, tooling and dunnage........ 31.1 28.9 35.6 43.7 49.1 9.7 23.4
CASH FLOW PROVIDED FROM (USED BY):
Operations..................................... $ (1.1) $ 18.5 $ 52.6 $ 22.4 $ 44.9 $ (8.8) $ 5.5
Investing activities........................... (25.2) (38.2) (48.6) (40.9) (52.4) (8.6) (26.9)
Financing activities........................... 23.1 34.8 (15.7) 13.5 8.8 24.5 20.4
Ratio of earnings to fixed charges............... --(b) 1.2x 3.9x 4.2x 3.6x 4.1x 3.3x
BALANCE SHEET DATA (AT PERIOD END):
Total assets..................................... $475.4 $499.9 $527.6 $589.6 $633.9 $609.2 $648.9
Total debt....................................... 255.0 122.0 107.7 123.0 133.1 147.9 153.8
Stockholders' equity............................. 60.0 191.9 184.8 216.4 245.4 226.2 251.1
</TABLE>
- ---------------
(a) EBITDA represents the sum of income before interest expense, preferred
dividends of subsidiary and income taxes, plus depreciation and
amortization, nonrecurring charges, and other non-cash income and expense.
EBITDA should not be construed as substitute for income from operations, net
income or cash flow from operating activities, for the purpose of analyzing
Hayes' operating performance, financial position and cash flows. The Company
has presented EBITDA because it is commonly used by investors to analyze and
compare companies on the basis of operating performance and to determine a
company's ability to service debt.
(b) Earnings were insufficient to cover fixed charges by $2.5 million for the
fiscal year ended January 31, 1992.
28
<PAGE> 33
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION OF HOLDINGS
The selected historical consolidated financial information of Holdings with
respect to each year in the five-year period ended December 31, 1995, is derived
from the consolidated financial statements of Holdings. The consolidated
financial statements of Holdings for each of the years in the three-year period
ended December 31, 1995 are included elsewhere in this Prospectus. Such
consolidated financial statements have been audited by Ernst & Young LLP,
independent auditors. The financial information for the three months ended March
31, 1995 and March 31, 1996 are unaudited, but in the opinion of Holdings
reflect all adjustments necessary for a fair presentation of such information.
Operating results for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996. The selected consolidated financial information provided below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
of Holdings and the notes thereto included elsewhere in this Prospectus. See
"Index to Consolidated Financial Statements."
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------ ------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................ $288.6 $309.7 $368.0 $ 405.2 $357.2 $ 105.6 $ 79.6
Cost of goods sold....................... 258.1 267.8 325.7 361.5 324.0 91.8 73.5
------ ------ ------ ------ ------ ------ ------
Gross profit............................. 30.5 41.9 42.3 43.7 33.2 13.8 6.1
Selling, administrative and general...... 15.4 17.2 17.0 18.5 18.2 4.6 4.1
Research and development................. 7.0 6.3 6.6 6.9 6.9 1.9 1.3
Plant closure costs...................... -- -- -- 31.6 33.0 -- --
Interest expense......................... 18.6 17.0 16.5 17.2 17.9 4.5 4.3
Preferred dividends of subsidiary........ 2.0 1.9 1.9 1.9 1.6 0.5 --
Other expense (income)(a)................ (10.8) (3.9) 1.6 2.8 3.6 (0.4) 0.6
Patent defense costs..................... -- -- -- 1.7 -- -- --
------ ------ ------ ------ ------ ------ ------
Income (loss) before income taxes........ (1.7) 3.4 (1.4) (36.9) (48.0) 2.7 (4.2)
Provision for income taxes............... 1.2 2.3 0.7 0.5 4.2 -- --
------ ------ ------ ------ ------ ------ ------
Income (loss) before extraordinary
items.................................. (2.9) 1.1 (2.1) (37.4) (52.2) 2.7 (4.2)
Extraordinary items net of income
taxes(b)............................... 1.7 -- (3.2) -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss)........................ $ (1.2) $ 1.1 $ (5.3) $ (37.4) $(52.2) $ 2.7 $ (4.2)
====== ====== ====== ====== ====== ====== ======
OTHER DATA:
EBITDA(c)................................ $ 24.9 $ 37.2 $ 37.2 $ 37.7 $ 27.5 $ 12.2 $ 5.5
Depreciation and amortization............ 15.1 14.9 17.5 19.3 19.0 4.9 4.5
Nonrecurring expense (income)............ (12.1) -- -- 33.3 33.2 -- --
Noncash expense.......................... 3.0 -- 2.7 2.9 3.8 (0.4) 0.9
Capital expenditures, tooling and
dunnage................................ 9.6 12.5 15.8 18.4 14.2 4.1 2.5
CASH FLOW PROVIDED FROM (USED BY):
Operations............................... $ 12.0 $ 21.1 $ 25.3 $ 18.0 $ 7.2 $ (4.3) $ (5.9)
Investing activities..................... (8.8) (11.0) (16.0) (18.3) (14.1) (4.1) (2.5)
Financing activities..................... (3.3) (10.1) (9.3) 1.3 7.2 7.8 7.3
BALANCE SHEET DATA (AT PERIOD END):
Total assets............................. $206.6 $198.5 $217.1 $ 208.9 $169.6 $ 213.0 $167.1
Total debt............................... 136.2 126.1 128.7 131.8 130.0 139.6 137.0
Stockholders' equity (deficit)........... (10.3) (9.0) (14.1) (52.2) (77.6) (49.5) (81.5)
</TABLE>
- ---------------
(a) Includes $12.1 million of income in 1991 reflecting favorable settlement of
patent infringement litigation.
(b) Reflects impact of loss on debt extinguishment in 1993 and an income tax
credit from utilization of foreign net operating loss carryforward in 1991.
(c) EBITDA represents the sum of income before interest expense, preferred
dividends of subsidiary and income taxes, plus depreciation and
amortization, nonrecurring charges, and non-cash other income and expense.
EBITDA should not be construed as a substitute for income from operations,
net income or cash flow from operating activities, for the purpose of
analyzing Holdings' operating performance, financial position and cash
flows. The Company has presented EBITDA because it is commonly used by
investors to analyze and compare companies on the basis of operating
performance and to determine a company's ability to service debt.
29
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of each of Hayes' and Holdings' consolidated
historical results of operations and financial condition should be read in
conjunction with the consolidated financial statements of each such company and
the notes thereto included elsewhere or incorporated by reference in this
Prospectus. Other than the section entitled "-- Pro Forma Capital Resources and
Liquidity of the Company," the following discussion and analysis covers periods
before completion of the Transactions. See "Risk Factors" and "Pro Forma
Condensed Financial Data" for a further discussion relating to the effect that
the Transactions may have on the Company.
GENERAL
Sales of the Company's products are directly affected by the overall level
of passenger car, light truck and commercial highway vehicle production of OEMs.
The passenger car, light truck and commercial highway industries are sensitive
to the overall strength of the economy.
OEMs typically specify the type and basic styling of a wheel which will be
used for a particular model. A particular wheel may be designated either as
standard equipment or as an option. An OEM will ordinarily designate one
supplier for each specific wheel platform for a vehicle model, although a
particular vehicle model may offer a number of different wheels. The process of
being designated as a supplier of a particular wheel often occurs several years
before initial vehicle production. A potential supplier must first develop a
wheel design based on styling and engineering specifications provided by an OEM.
Suppliers that design, engineer, manufacture and conduct quality control testing
are generally referred to as Tier I suppliers. After a comprehensive engineering
and feasibility review, the OEM will designate a specific supplier for a
particular wheel that meets the OEM's cost, quality and engineering
specifications for a particular vehicle model. The duration of a wheel
platform's life depends on the life cycle of the vehicle model, although wheel
designs may be changed every two to four years to update the appearance of the
vehicle.
The Company has been awarded new automotive wheel contracts that management
expects will significantly increase its fabricated wheel volumes. An important
factor enabling the Company to obtain automotive wheel contracts is its ability
to offer new, innovative products at competitive prices. As a result of these
new contracts, the Company anticipates that it will experience significant
upfront costs. Management believes such costs will include capital expenditures
for tooling and facility expansion and additional launch costs as the OEMs reach
normal operating levels for new vehicle production. In addition to capital
expenditures associated with new business, the Company anticipates further
capital expenditures related to productivity improvements and cost reductions.
For the past three years, more than half of the Company's capital expenditures
have been related to new contract awards.
The Company has identified a number of opportunities to rationalize its
manufacturing facilities. Motor Wheel has already announced and implemented a
facility rationalization program and, pursuant to such program, is in the
process of closing two of its manufacturing facilities. In early 1996, Holdings
also implemented an overhead reduction program at its headquarters. The Company
will seek to optimize the use of its manufacturing capacity and implement
further administrative, engineering and operating expense reductions as such
opportunities arise.
The Company's largest component of cost is the raw material cost of steel
and aluminum. In accordance with industry practice in the United States, the
costs or benefits of fluctuations in steel and aluminum prices are passed on to
the customer. Opportunities to recover increased material costs from customers
in Europe are more limited than in the United States.
RESULTS OF OPERATIONS OF HAYES
Sales of Hayes' wheels produced in the United States are directly affected
by the overall level of passenger car and light truck production of North
American OEMs, while sales of its wheels in Europe are
30
<PAGE> 35
directly affected by the overall vehicle production in Europe. The North
American and European automotive industries are sensitive to the overall
strength of their respective economies.
THREE MONTHS ENDED APRIL 30, 1996 COMPARED TO THREE MONTHS ENDED APRIL 30, 1995
Hayes' net sales for the first quarter of fiscal 1996 decreased by $3.5
million or 2% compared to the first quarter of fiscal 1995. These results were
due to the strike at General Motors resulting in a sales reduction of
approximately $12 million, largely offset by increased volume at other customers
in North America. Management believes that, excluding the effects of such
strike, Hayes' first quarter 1996 net sales would have been higher than its net
sales for the first quarter of 1995, in spite of lower industry production
volumes during the first quarter of 1996. Management believes that substantially
all lost sales related to the strike will be realized during the remainder of
fiscal 1996. Capital expenditures in the first quarter included the acquisition
of machinery and equipment primarily for additional production capacity at
Hayes' North American facilities to meet future customer requirements for
fabricated aluminum and FFM(R) Wheels. During the last half of fiscal 1995,
Hayes launched significant new programs that resulted in increased sales in the
first quarter of 1996.
Hayes' gross profit for the first quarter of fiscal 1996 decreased to $22.6
million or 14.5% of net sales, compared to $26.6 million or 16.7% of net sales
for the first quarter of fiscal 1995. The decrease in margin percentage is
attributable to production losses resulting from the General Motors strike and
an equipment issue in March 1996 associated with the fabricated aluminum line at
the Romulus, Michigan facility. Hayes has resolved this issue while meeting all
delivery requirements with no quality issues.
Engineering and product development expenses increased $0.5 million in the
first quarter of fiscal 1996 as compared to the first quarter of fiscal 1995.
This increase is the result of reduced customer recovery on engineering expenses
relating to the timing of new programs.
Other (income) expense for the first quarter of fiscal 1996 improved $0.7
million from the same period in fiscal 1995. This improvement is due primarily
to timing of the sales of molds in Hayes' European operations and the timing of
receipt of royalties from one of Hayes' technology licensees.
FISCAL 1995 COMPARED TO FISCAL 1994
Hayes' net sales for fiscal 1995 increased by $73.5 million or 13.7% as
compared with fiscal 1994. This increase was due to significant increased unit
volume in Europe, higher selling prices resulting from the pass through of
increased aluminum and steel costs and a shift in Hayes' steel wheel sales mix
toward more highly styled full-face wheels.
Hayes' gross profit for fiscal 1995 increased to $97.7 million or 16% of
net sales, compared with $96.2 million or 17.9% of net sales for the same period
in fiscal 1994. The decrease in margin percentage is attributable to: (i) higher
selling prices with the profit level remaining unchanged, as a result of the
pass through of increased aluminum and steel costs, (ii) plant capacity
additions resulting in higher support costs that were not fully absorbed due to
softer customer demand, (iii) customer delays of new product launches and (iv)
the impact of a strike at Hayes' Howell, Michigan facility.
Marketing, general and administrative expenses increased $1.1 million for
fiscal 1995 as compared to fiscal 1994. However these costs decreased from 5.3%
of net sales for fiscal 1994 to 4.9% of net sales for the current period.
During the fourth quarter of fiscal 1995, Hayes recognized non-recurring
charges of $3.6 million. These charges include a $1.4 million provision
associated with the restructuring of the North American Aluminum Wheels Group
and $2.2 million of charges associated with Varity's proposal to purchase Hayes'
outstanding publicly held shares not owned by Varity for $25.00 per share; this
proposal was made public on September 27, 1995, and withdrawn on February 5,
1996.
Interest expense increased to $15.0 million for fiscal 1995, an increase of
$1.6 million over the same period of fiscal 1994. This change was due primarily
to (1) higher short term borrowing rates in the United
31
<PAGE> 36
States, (2) an increase in borrowing levels to support working capital needs and
(3) higher bank fees associated with Hayes' United States bank facility, which
was increased in March 1995.
FISCAL 1994 COMPARED TO FISCAL 1993
Hayes' net sales for fiscal 1994 increased by $109.4 million or 26% as
compared with fiscal 1993. This increase was attributable to increased sales of
cast aluminum and fabricated wheels in North America, primarily due to increased
light vehicle sales in North America and other new business, primarily wheels
for the Ford Windstar, the Chevrolet S-10, the GMC Sonoma and the Chrysler Neon.
Hayes' gross profit for fiscal 1994 increased by 14.8% to $96.2 million or
17.9% of net sales, compared with $83.8 million or 19.6% of net sales for fiscal
1993. The decrease in margin percentage is attributable to higher launch costs
associated with strong sales volumes and a time lag in Hayes' ability to recover
increased aluminum and steel costs from certain customers, partially offset by a
decrease in postretirement healthcare expense.
Marketing, general and administrative expenses in fiscal 1994 were $28.6
million, a $2.3 million increase over 1993. However, these costs decreased from
7.1% of net sales for fiscal 1993 to 6.3% for fiscal 1994. The increase in
expenses was due primarily to an increase in product liability costs. In
November 1993, Hayes incurred an increase in its premiums for product liability
insurance. The policy period for this insurance starts November 1 of each year
and ends on October 31 of the following year; therefore, approximately $3.0
million was included in the income statement for the year ended January 31,
1995. This premium increase was the result of the large cash settlement
disclosed in Hayes' results for the first quarter of fiscal 1993.
Other expense (income) for fiscal 1994 decreased $1.5 million from fiscal
1993 due to a gain recognized on the sale of an interest in an affiliate for
$1.6 million in fiscal 1993. Other income consisted primarily of royalty and
miscellaneous income and expense.
Hayes' provision for taxes on income increased $2.4 million for fiscal 1994
compared to fiscal 1993. This increase was due to higher pre-tax income
partially offset by lower tax rates in Europe.
Results for fiscal 1993 include the cumulative effect of changes in
accounting principles resulting from the adoption of the following new
accounting standards: Statement of Financial Accounting Standards ("SFAS") No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
SFAS No. 109, "Accounting for Income Taxes" and SFAS 112, "Employers' Accounting
for Postemployment Benefits." The adoption of SFAS No. 106 and SFAS No. 112
resulted in net after-tax charges to income of $24.6 million or $1.40 per share.
The adoption of SFAS No. 109 had an immaterial effect on the consolidated
financial statements. The adoption of the accounting standards for
postretirement and postemployment benefits has had no effect on cash flows as
Hayes has continued to follow its policy of paying such benefits as incurred.
RESULTS OF OPERATIONS OF HOLDINGS
Three Months Ended March 31, 1996 and 1995. Total sales in the first
quarter of 1996 were $79.6 million compared to $105.6 million in the same period
of 1995. Automotive sales were $50.9 million in the first quarter of 1996, a
decrease of $17.0 million from the same period of 1995. This decrease was due
primarily to a determination by one of Holdings' principal customers to obtain
certain products from other suppliers (including a substantial portion from
Hayes). This determination only impacts Holdings' level of automotive wheel
sales and was a consideration in Holdings' decision to close its Mendota,
Illinois manufacturing facility. Sales of automotive brake products also
decreased as selected production shutdowns by customers to control their
inventory levels impacted some of Holdings' higher volume brake components.
Commercial highway sales were $28.7 million in the first quarter of 1996, a
decrease of $9.0 million from the same period of 1995. Such decrease is
attributable to a significant downturn in the production of heavy-duty trucks
and trailers compared to record production levels in the first quarter of 1995.
Holdings' gross profit for the first quarter of 1996 was $6.1 million, or
7.7% of net sales, compared to $13.8 million, or 13.1% of net sales, for the
same period of 1995. The lower sales volume is the primary reason
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<PAGE> 37
for the decreased level of gross profit, but Holdings has also experienced
certain manufacturing inefficiencies and incurred other transition costs as its
previously disclosed plans to cease operations at certain manufacturing
facilities are being implemented. Closure of the Mendota facility is in process
as Holdings is consolidating all automotive wheel production in its Bowling
Green, Kentucky facility with an anticipated completion by the end of the third
quarter of 1996. In addition, Holdings is implementing certain aspects of its
plan to close its automotive brake manufacturing facility in Ypsilanti, Michigan
and continues to evaluate options with respect to satisfying its expected
long-term production requirements. Military wheel production equipment
previously located at Holdings' now closed Lansing, Michigan facility is in the
process of being installed at the Akron, Ohio facility. Management expects that
these closings will result in improvements in financial performance primarily
through reductions in fixed manufacturing cost and lower variable costs.
Selling, administrative and general expense together with research and
development expense decreased to $5.4 million in the first quarter of 1996
compared to $6.5 million in the same period of 1995 as a result of actions
undertaken by Holdings during the fourth quarter of 1995 to adjust this expense
category in line with the lower sales volume.
Interest expense was $4.3 million in the first quarter of 1996 compared to
$4.5 million in the same period of 1995. Other expense was $0.6 million in the
first quarter of 1996 compared to other income of $0.4 million in the same
period of 1995. The primary component of this other category is Holdings' share
of the results of Alumitech.
Holdings had minimal income tax expense and therefore the resulting net
loss for the first quarter of 1996 was $4.2 million compared to net income of
$3.1 million in the same period of 1995.
Twelve Months Ended December 31, 1995, 1994 and 1993. North American
passenger car and light truck production in 1995 declined by 2% from 1994 but
was 8% higher than 1993, while heavy duty truck and trailer production in 1995
increased 11% over 1994, which was up 17% from 1993 levels. Holdings sales
levels are as shown below (dollars in thousands):
<TABLE>
<CAPTION>
% CHANGE % CHANGE
TO PRIOR TO PRIOR
1995 YEAR 1994 YEAR 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Automotive............................... $220,048 (20.6)% $277,111 5.2% $263,476
Commercial Highway....................... 137,131 7.1 128,072 22.6 104,494
-------- ----- -------- ----- --------
$357,179 (11.8)% $405,183 10.1% $367,970
======== ===== ======== ===== ========
</TABLE>
Holdings' automotive products sales decreased in 1995 as a result of a
variety of factors including: (i) the continuing growth in demand for aluminum
wheels; (ii) a decrease in automotive brake market share, some of which was
temporary, due to model changeovers by Holdings' customers; (iii) selective
production shutdowns by the automotive manufacturers which impacted shipment
levels of certain of Holdings' higher volume component parts; and (iv) loss of
steel wheel business on certain light trucks due to vehicle platform changes
made by the manufacturers. Automotive product sales in 1994, as compared to
1993, reflect an increase in the sale of automotive styled steel wheels
introduced in the 1994 model year, which was partially offset by the loss of the
Polycast steel wheel business on a vehicle platform discontinued by a customer
at the end of the 1994 model year. Increases in commercial highway product sales
reflect the increase in production of heavy duty trucks and trailers. In 1995,
Holdings maintained market share gains for sales to OEMs which were achieved by
Holdings in 1994, as compared to 1993. Sales to aftermarket distributors in 1995
declined in wheels and rims and were only slightly higher in brake components as
compared to 1994.
Holdings' gross profit for 1995 was $33.2 million, or 9.3%, of net sales
compared to $43.7 million, or 10.8%, of net sales for 1994 and $42.3 million, or
11.5%, of net sales for 1993. The decrease in gross profit in 1995 is largely
attributable to the lower sales volume as manufacturing costs were not reduced
in direct proportion to the decrease in sales. Fixed manufacturing costs were
fairly constant in 1995 compared to 1994 although certain reductions were
realized starting in the fourth quarter of 1995 as automotive wheel production
ceased at Holdings' Lansing, Michigan facility. Additionally, Holdings incurred
temporary
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<PAGE> 38
incremental costs in the second half of 1995 to develop and qualify production
of automotive wheels transferred to Holdings' Bowling Green, Kentucky facility.
The decrease in the gross margin percentage in 1994 compared to 1993 reflects
increases in the costs of steel and cast iron, which were not fully recovered
through increased selling prices. For some products, selling price reductions
unrelated to material cost changes also unfavorably impacted gross margin
percentages. These factors were offset in part by a reduction in postretirement
benefits costs as the result of an agreement reached in August 1993 with one of
Holdings' collective bargaining units to limit its retiree health care
obligations.
Selling, administrative and general expense together with research and
development expense was $25.1 million, $25.4 million and $23.7 million in 1995,
1994 and 1993, respectively. In the second half of 1995, Holdings commenced cost
control and reduction measures to bring these costs back in line with the lower
sales volume. Certain of the cost reduction measures resulted in a charge to
1995 results of $0.8 million. The major items affecting the increase in 1994
over 1993 were shipping, sales and marketing costs which were a direct result of
the higher sales volume.
In the fourth quarter of 1995, Holdings recorded provisions for plant
closure costs related to an automotive brake manufacturing facility in
Ypsilanti, Michigan and an automotive wheel manufacturing facility in Mendota,
Illinois. See "-- Capital Resources and Liquidity of Holdings -- Plant Closure
Costs." These provisions totalled $33.0 million consisting of: $16.4 million for
asset write-downs; $3.5 million for curtailment costs associated with
postretirement benefits; $6.0 million for facility maintenance costs; and $7.1
million for postemployment benefits.
In 1994, Holdings recorded provisions for plant closure costs related to
the reduction of manufacturing capacity within its automotive wheel operations.
See "-- Capital Resources and Liquidity of Holdings -- Plant Closure Costs."
These provisions totalled $31.6 million consisting of: $12.5 million for asset
write-downs; $8.9 million for curtailment costs associated with postretirement
benefits; $6.6 million for facility maintenance costs; and $3.6 million for
postemployment benefits.
Interest expense was $17.9 million, $17.2 million and $16.5 million in
1995, 1994 and 1993, respectively. The higher interest expense was the result of
an increase in overall average debt levels. Accrued preferred stock dividends of
Motor Wheel were $1.6 million, $1.9 million and $1.9 million in 1995, 1994 and
1993, respectively. As further discussed below, see "-- Capital Resources and
Liquidity of Holdings," funds received in connection with the Holdings 1995
Recapitalization in November 1995 were used to reduce the level of existing bank
debt.
Other expense was $3.6 million, $2.8 million and $1.6 million in 1995, 1994
and 1993, respectively and includes the following:
Asset write-downs: In 1995 and 1994, Holdings wrote down the value of
certain assets, primarily consisting of the real property owned by its
Canadian subsidiary, by $2.3 million and $1.9 million, respectively, to
updated estimates of realizable value.
Corporate costs: In 1995, Holdings recorded $0.8 million in costs for
the impact of workforce reductions designed to reduce Holdings' level of
selling, general and administrative as well as research and development
costs.
Equity in net loss of affiliates: Total losses recorded were $0.7
million, $1.0 million and $2.7 million in 1995, 1994 and 1993,
respectively.
Patent defense costs of $1.7 million reflect legal expenses incurred in
1994 for the defense of a certain patented manufacturing process of Holdings.
The aforementioned factors resulted in a loss before taxes of $48.0
million, $36.9 million and $1.4 million in 1995, 1994 and 1993, respectively.
Holdings' provision for income taxes was $4.2 million, $0.5 million and
$0.7 million in 1995, 1994 and 1993, respectively. In 1995, Holdings established
additional valuation allowances against deferred tax assets, for additional
information refer to the notes to Holdings' consolidated financial statements
included elsewhere
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<PAGE> 39
herein. In prior years, the relationship between pretax income and income taxes
was impacted by limitations on recognition of deferred tax assets on plant
closure costs and nondeductible losses from foreign subsidiaries and equity
investments.
Before extraordinary items, there were resulting losses of $52.2 million,
$37.4 million and $2.1 million in 1995, 1994 and 1993, respectively. An
extraordinary charge of $3.2 million was recorded in 1993 in connection with
Holdings' debt refinancing, resulting in a net loss of $5.3 million.
CAPITAL RESOURCES AND LIQUIDITY OF HAYES
Hayes provided $5.5 million in cash from operations during the first
quarter of fiscal 1996, an improvement of $14.3 million from the same period in
fiscal 1995. In the first quarter of 1995, Hayes experienced high working
capital usage due to increased sales volume. The improvement between 1995 and
1996 represents a smaller increase in working capital, primarily accounts
receivable, for the first quarter of fiscal 1996 due to lower sales.
Hayes' operations provided $44.9 million in cash during fiscal 1995, an
increase of $22.5 million over the same period of fiscal 1994. This increased
cash flow is attributable primarily to a smaller increase in inventory and
receivables than in fiscal 1994. During fiscal 1994, Hayes built inventory as a
safety net against a lack of capacity in order to meet customer requirements.
The lack of capacity was alleviated during fiscal 1995, allowing Hayes to carry
only slightly more inventory despite a 22% increase in sales. The accounts
receivable increase was smaller than in fiscal 1994, which included an
unfavorable change in credit terms to a major customer.
Capital expenditures for the first quarter of fiscal 1996 and for fiscal
1995 amounted to $23.4 million and $43.4 million, respectively. These capital
expenditures included plant capacity additions in Hayes' North American cast and
fabricated aluminum facilities. Hayes anticipates that capital expenditures for
the fiscal year to end January 31, 1997, will be approximately $68.0 million.
Hayes is party to a credit agreement providing for a two-year term facility
of $80 million, which expires and converts to a four-year term loan March 31,
1997, and a five-year unsecured revolving facility of $100 million, including
unused capacity for letters of credit totalling $8 million which expires March
31, 2000, at which time all loans outstanding thereunder are payable in full. As
of April 30, 1996, Hayes had available borrowing capacity under this agreement
of $157.1 million, including unused letters of credit totaling $5.1 million.
Hayes has also established other daily unsecured lines of credit. As of April
30, 1996, $32.2 million was outstanding under these lines. Hayes also has
outstanding $100 million principal amount of the Hayes Senior Notes. If the
Merger is consummated, it is expected that all of the indebtedness described in
this paragraph will be refinanced, as described below.
At April 30, 1996, management believes that Hayes was in compliance with
the various covenants under the agreements pursuant to which it may currently
borrow money. Management expects that Hayes will remain in material compliance
with these covenants as long as such agreements remain in effect. For
information regarding the liquidity of Hayes following the Merger, see " -- Pro
Forma Capital Resources and Liquidity of the Company."
Hayes does not believe that sales of its products are materially affected
by inflation, although there can be no assurance that such an effect will not
occur in the future. In accordance with industry practice, the costs or benefits
of fluctuations in aluminum prices are passed through to customers. In the
United States, Hayes attempts to adjust the sales prices of its aluminum wheels
every quarter, if necessary, to reflect fully any increase or decrease in the
price of aluminum. A general decline in aluminum prices in fiscal 1993 and
higher prices in fiscal 1994 (an approximately 70% increase) was passed through
to Hayes' customers. As a result, Hayes' net selling prices for aluminum wheels
were adjusted, although gross profit per wheel was not affected. During fiscal
1995, prices of aluminum declined slightly. From time to time, Hayes enters into
futures contracts or purchase commitments solely to hedge against possible
aluminum price changes that may occur between the dates of aluminum wheel price
adjustments. These purchase commitments typically relate on average to 50% of
Hayes' production needs for the next three to six months. Pricing and purchasing
practices
35
<PAGE> 40
in Europe are similar, but opportunities to recover increased material costs
from customers are more limited than in the United States.
The value of Hayes' consolidated assets and liabilities located outside the
United States (which are translated at period end exchange rates) and income and
expenses (which are translated using rates prevailing during the period) have
been affected by the translation values, particularly those of the Italian lira
and Spanish peseta. Such translation adjustments are reported as a separate
component of stockholders' equity. Foreign exchange rate fluctuations have
historically not had a significant impact on Hayes' reported results of
operations.
Hayes' net sales are continually affected by pressure from its major
customers to reduce prices. Hayes believes that its emphasis on reduction of
production costs, increased productivity and improvement of production
facilities will enable it to respond to this pressure.
During 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation." Effective for fiscal years
beginning after December 15, 1995, Statement No. 123 encourages companies to
include the fair value of any stock awards issued as compensation expense within
their income statements. Companies that choose to remain with Accounting
Principles Board Opinion No. 25 (which uses the intrinsic value method to
account for stock awards) must disclose pro forma net income and earnings per
share as if the fair value of the award had been included as compensation
expense. Hayes anticipates remaining with the intrinsic value method.
On March 31, 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of." This Statement provides guidance for
recognition and measurement of impairment of long-lived assets, certain
identifiable intangibles and goodwill related both to assets to be held and used
and assets to be disposed of. Hayes intends to adopt this Statement as of the
first quarter of the current fiscal year and anticipates that the effect of such
adoption will be immaterial.
CAPITAL RESOURCES AND LIQUIDITY OF HOLDINGS
General. Holdings' liquidity can be impacted by both the cyclical nature of
its business and levels of net sales with its two major customers. Historically,
Holdings has met its liquidity requirements, working capital (including interest
on debt obligations) and capital expenditures through cash flow provided by
operating activities and short-term borrowings under Motor Wheel's revolving
credit agreement. As discussed above, in November 1995 in connection with the
Holdings 1995 Recapitalization, Motor Wheel received a contribution of $8.6
million from Holdings which was used to reduce the level of existing bank debt.
Motor Wheel's revolving credit agreement provides borrowing capacity up to $50
million through March 1998, subject to limitations based on the value of
inventory and receivables. The credit agreement also provides up to $25 million
in letters of credit with the amount of any outstanding letters of credit
applied to reduce Motor Wheel's borrowing capacity thereunder. At March 31,
1996, Holdings had $12.0 million of short-term borrowings and $12.5 million of
letters of credit outstanding and excess availability of $17.1 million.
Three Months Ended March 31, 1996 and 1995. Net cash used for operating
activities was $5.9 million in the first quarter of 1996 as compared to $4.3
million in the same period of 1995. The principal usage of cash during the first
quarter of 1996 was for an inventory build-up program in one of Holdings' plants
in anticipation of the termination of a labor agreement. Cash provided by net
income (loss), as adjusted for non-cash charges, was $2.1 million while cash
requirements to support operating assets and liabilities was $7.7 million. These
amounts are both lower than the comparable amounts in the same period of 1995
due to the lower sales volume.
Net cash used for investing activities was $2.5 million in the first
quarter of 1996 as compared to $4.1 million for the same period of 1995 as
Holdings has adjusted its plans for investment in property, plant and equipment
to be in line with the lower sales volume.
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<PAGE> 41
Net cash provided by financing activities was $7.3 million in the first
quarter of 1996 as compared to $7.8 million for the same period of 1995.
Holdings has utilized borrowings under the revolving credit agreement to support
its cash requirements for operating assets and liabilities.
Twelve Months Ended December 31, 1995, 1994 and 1993. Net cash provided by
operating activities was $7.2 million, $18.0 million and $25.3 million for 1995,
1994 and 1993, respectively. The decrease in 1995 versus 1994 resulted from a
variety of factors, including a deterioration in operating results, start-up of
operations in Mexico, higher interest costs, and payments of plant closure
costs. The decrease in 1994 versus 1993 resulted from higher interest costs,
patent defense costs, higher income tax payments due to alternative minimum tax
and a net increase in operating assets and liabilities due to higher sales
volume.
Net cash used for investing activities was $14.1 million, $18.3 million and
$16.0 million for 1995, 1994 and 1993, respectively. Investing activities in
1995 reflect a variety of programs to expand capacity within certain existing
product lines, add capacity for new product lines and continue Holdings'
emphasis on cost reduction through modernization of production equipment.
Investing activities in prior years include expenditures for equipment and
production tooling in the automotive brake and commercial highway operations in
1994 and expenditures for equipment in the automotive steel wheel operations in
1993.
Net cash provided by financing activities was $7.2 million in 1995 and $1.3
million in 1994, with net cash used for financing activities of $9.4 million in
1993. In 1995, prior to the Holdings 1995 Recapitalization, Holdings increased
its usage of short-term borrowings to support operating activities and capital
expenditures. Funds from the Holdings 1995 Recapitalization were utilized by
Holdings in November 1995 to reduce the level of existing bank debt. In 1994,
Holdings utilized borrowings under the revolving credit agreement to support
increased operating requirements due to higher sales volume and the higher level
of investing activities. In 1993, Holdings completed a refinancing which
included the issuance of $125 million of 11 1/2% Senior Notes, the retirement of
$105 million face value of 11 3/8% Senior Subordinated Notes, the repayment of
outstanding term loans, the payment of $3.4 million of accrued preferred stock
dividends and the payment of other costs related to the refinancing.
The plant closure costs recorded in 1995 and 1994 along with other non-cash
expenses recorded over the past three years are significant items contributing
to Holdings' net losses for 1995, 1994 and 1993 and the resulting stockholders'
deficit.
Plant Closure Costs. In 1995, Holdings recorded provisions related to two
plant closures. Holdings commenced efforts to address manufacturing capacity and
noncompetitive costs in both its automotive steel wheel and automotive brake
operations. As a result of these efforts, manufacturing operations at both the
Mendota, Illinois and Ypsilanti, Michigan facilities will be terminated. Closure
of these facilities will commence in 1996. Holdings is currently evaluating
various options with respect to satisfying its expected production requirements
within automotive wheel and brake operations.
In 1994, Holdings recorded provisions related to plant closures associated
with reducing its manufacturing capacity within its automotive wheel operations.
In 1995, transfer of automotive wheel production from Holdings' facility in
Lansing, Michigan to its facility in Bowling Green, Kentucky was completed.
Military wheel production at the Lansing facility is also complete and Holdings
is in the process of transferring equipment and production to the Akron, Ohio
facility. During the second quarter of 1995, Holdings completed the sale of
certain equipment and inventory associated with its Polycast(R) wheel
operations. The buyer is leasing Holdings' property and plant in Luckey, Ohio
and is a supplier to Holdings for Polycast(R) wheels.
Management expects that these closings will result in improvements in
financial performance primarily through reductions in fixed manufacturing costs
and lower variable costs. A significant portion of the fixed costs in Lansing
was eliminated in the fourth quarter of 1995.
The portion of the provisions recorded in 1995 and 1994 which had not been
expended as of December 31, 1995 totaled approximately $26.3 million ($16.6
million and $9.7 million related to 1995 and 1994 provisions, respectively) and
consist primarily of employee benefit costs and facility maintenance costs.
Management estimates future cash requirements related to the recorded provisions
will approximate $3.0 million and $7.0 million in 1996 and 1997, respectively.
The cash requirements in 1996 relate
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<PAGE> 42
predominantly to the closure of the Lansing facility as production was
substantially completed at this facility by the end of 1995. The cash
requirements in 1997 increase as production at the Mendota facility is expected
to be completed by the end of 1996 and production at the Ypsilanti facility will
be phased down throughout 1996 with final completion anticipated in the first
quarter of 1997. In 1998 and beyond, cash requirements related to plant closure
costs are expected to decrease significantly and pertain predominantly to
facility maintenance costs and certain post-employment and post-retirement
benefit costs. Management expects the facilities in Lansing, Mendota and
Ypsilanti will be sold during the next five-year period. In determining the 1995
and 1994 provisions, no assumption was made with respect to leasing the affected
facilities to outside parties.
Holdings 1995 Recapitalization. On November 7, 1995, Holdings consummated
the Holdings 1995 Recapitalization which was a series of transactions intended
to provide liquidity to its stockholders, strengthen its balance sheet and
provide additional equity for future growth. The Holdings 1995 Recapitalization
included the following transactions: (i) the purchase by JLL and certain other
investors of an aggregate of 296.296 shares of common stock of Holdings
(approximately 78% of the outstanding shares of common stock of Holdings) for
$135,000 per share, or an aggregate purchase price of $40 million; (ii) a
1-for-1,000 reverse stock split of common stock of Holdings, pursuant to which
holders who would have been entitled to less than one share of common stock of
Holdings received cash equal to such holder's fractional share multiplied by
$135,000; (iii) the repurchase by Holdings of an aggregate of 64.652 shares of
its common stock from certain holders for $135,000 per share, or an aggregate
repurchase price of approximately $8.73 million; (iv) the purchase by Holdings
of all of Motor Wheel's outstanding 11 1/4% Cumulative Exchange Preferred
Shares, without par value (the "Motor Wheel Preferred Stock") from the holders
thereof for $100 per share plus accrued but unpaid dividends thereon or an
aggregate of approximately $17.07 million; (v) the contribution by Holdings to
Motor Wheel of $8.6 million in cash, which was used to pay down existing bank
debt; and (vi) the contribution by Holdings to Motor Wheel of the Motor Wheel
Preferred Stock, which was subsequently retired. All of the funds necessary to
effect the Holdings 1995 Recapitalization were provided through the proceeds of
the sale of common stock of Holdings by JLL and certain other investors.
PRO FORMA CAPITAL RESOURCES AND LIQUIDITY OF THE COMPANY
General. Following the consummation of the Transactions, the Company's
liquidity needs will arise primarily from debt service on the substantial
indebtedness to be incurred in connection with the Transactions, and from the
funding of its capital expenditures. After completion of the Transactions, the
Company expects to have outstanding approximately $703.3 million of
indebtedness, primarily consisting of $250 million principal amount of the
Notes, $425 million in term loan borrowings under the Credit Agreement and
borrowings under the Revolving Credit Facility. See "Risk Factors -- Leverage
and Liquidity."
Debt Service. Principal and interest payments under the Credit Agreement
and interest payments on the Notes will represent significant liquidity
requirements for the Company. It is expected that with respect to the $425
million in Term Loan Facilities to be borrowed under the Credit Agreement, the
Company will be required to make scheduled principal payments of approximately
$17.3 million in 1997, $32.3 million in 1998, $42.3 million in 1999, $42.3
million in 2000, $52.3 million in 2001, and an aggregate of $238.8 million
thereafter. The Revolving Credit Facility will mature in July 2002. The loans
under the Credit Agreement will bear interest at floating rates based upon the
interest rate option elected by the Company. See "Description of the Credit
Agreement." Following completion of the Transactions, as a result of the
substantial indebtedness to be incurred in connection with the Merger, the
Company's interest expense will be higher and will have a greater proportionate
impact on net income in comparison to prior periods.
Capital Expenditures. Capital expenditures for 1996 will relate principally
to new vehicle platforms, cost reduction programs and maintenance. The Company
estimates that for 1996, capital expenditures will be approximately $77 million.
Future Financing Sources and Cash Flows. The amount under the Revolving
Credit Facility that will remain undrawn following the completion of the
Transactions, currently estimated to be in excess of $170 million, will be
available to meet future working capital and other business needs of the
Company. The
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<PAGE> 43
Company believes that cash generated from operations, together with amounts
available under the Revolving Credit Facility and any other available financing
sources, will be adequate to permit the Company to meet its debt service
obligations, capital expenditure program requirements, ongoing operating costs
and working capital needs, although no assurance can be given in this regard.
The Company's future operating performance and ability to service or refinance
the Notes and to repay, extend or refinance the Credit Agreement will be subject
to future economic conditions and to financial, business and other factors, many
of which are beyond the Company's control. See "Risk Factors."
39
<PAGE> 44
BUSINESS
GENERAL
The combination of Hayes and Motor Wheel will result in an entity that will
be a leading global supplier of wheels and brake components to OEMs of passenger
cars, light trucks and commercial highway vehicles in North America and Europe.
Hayes is a world leader in the design, manufacture and supply of steel and
aluminum wheels to OEMs of passenger cars and light trucks. Motor Wheel is a
leading designer and producer of steel wheels and brake components for the
passenger car, light truck and commercial highway truck and trailer markets.
The Merger is expected to result in the combination of the strength of
Hayes in steel and aluminum wheels manufacturing and of Motor Wheel in steel
wheel and brake component manufacturing. The Company's complementary product
lines will enable it to sell a comprehensive range of products. As pressure on
automotive suppliers to consolidate worldwide continues to increase, the
combination of Hayes and Motor Wheel is expected to strengthen the Company's
leadership position in meeting the global sourcing, quality and engineering
requirements of its customers.
The Company's principal customers for wheel and brake products comprise the
majority of the OEMs in the United States, Europe and Japan, including General
Motors, Ford, Chrysler (the three of which comprised approximately 72% of the
Company's combined 1995 revenues), BMW, Renault, Fiat, Volkswagen, Porsche,
Mercedes, Toyota, Mazda, Nissan, Honda and Isuzu. Following the Merger, the
Company will have over 300 commercial highway customers including Trailmobile,
Strick, Great Dane Trailers, Freightliner, PACCAR and Volvo-GM.
A significant trend in the automotive industry toward the use of lighter,
more highly-styled wheels for passenger cars and light trucks has increased the
demand for and use of aluminum wheels. North American automotive aluminum wheel
penetration (new vehicle installations) has increased from approximately 3% in
1980 to approximately 43% in 1995, and management estimates such penetration
will reach approximately 55% by 2000. Automotive aluminum wheel penetration in
Europe in 1995 was approximately 20% and continues to display a similar growth
pattern as that experienced in North America. The Company believes that its
available cast aluminum manufacturing capacity and innovative new aluminum
wheels, including its fabricated aluminum and "FFM(R)" products, will enable it
to capitalize on these trends and increase its sales of aluminum wheels in North
America and in Europe.
OEMs have pursued outsourcing opportunities in which automobile component
manufacturing requirements (including wheel and brake products) are met by
independent suppliers. Outsourcing has increased in response to competitive
pressures on OEMs to improve quality and reduce capital outlays and the
production costs, overhead and inventory. The Company believes that it is well
positioned to benefit from any future outsourcing of wheel production to
independent suppliers in North America and Europe.
In addition to increasing the percentage of parts that are outsourced, OEMs
are increasingly transferring the primary responsibility for design, engineering
and testing of components to suppliers with proven capabilities in these areas.
The Company believes that its early involvement in the design and engineering of
new wheel and brake products as a Tier I supplier has afforded it a competitive
advantage in securing new business and will continue to do so in the future.
Hayes and Motor Wheel have developed a number of new products and
proprietary manufacturing processes which have provided them with a competitive
advantage and served to further expand their product lines. For example, Hayes
is a major producer of fabricated aluminum wheels (which are 20% lighter than
cast aluminum wheels). Hayes has also recently introduced FFM(R) wheels, which
are lightweight, highly-styled wheels that utilize a cast aluminum face with a
fabricated aluminum rim. Motor Wheel has also introduced innovative products
such as Centrifuse(R) brake drums and full-faced steel wheels. The Company
intends to continue its efforts to develop innovative wheel and brake products
to better serve customers and improve the Company's product mix with higher
margin wheel and brake products.
40
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Sales of automotive wheel and brake products comprise approximately 85% of
the Company's combined net sales (75% wheels and 10% brake components), with the
remainder consisting of commercial highway wheel and brake products. The
following table sets forth the Company's estimated market position for its
primary products in North America and Europe in 1995:
<TABLE>
<CAPTION>
MARKET
POSITION
--------
<S> <C>
NORTH AMERICA
Automotive Steel Wheels -- Including OEM Captives.................. #1
Automotive Cast Aluminum Wheels.................................... #2
Automotive Fabricated Aluminum Wheels.............................. #1
Automotive Brakes Rotor and Drums -- Excluding OEM Captives........ #2
Automotive Brakes Rotor and Drums -- Including OEM Captives........ #3
Commercial Highway Wheels.......................................... #2
Commercial Highway Brake Hubs and Drums............................ #1
EUROPE
Automotive Aluminum Wheels......................................... #1
</TABLE>
The Company also has strategic manufacturing joint ventures in the Czech
Republic, Mexico, Italy, South America and the United States, as well as a
technical relationship in Thailand and a marketing joint venture in Japan.
THE INDUSTRY
Wheel and Brake Industries in North America and Western Europe. Based on
published vehicle production statistics, the Company's management estimates that
in 1995 approximately 24 million aluminum automotive wheels were sold in North
America. Hayes estimates that it sold approximately 23% of the aluminum wheels
sold in North America in 1995. Motor Wheel's management estimates that
Alumitech, its joint venture for the production of cast aluminum wheels, sold
approximately 3% of the aluminum wheels sold in North America in the same
period.
Based on published vehicle production statistics, the Company's management
estimates that in 1995 approximately 48 million steel passenger car and light
truck wheels, including 16 million steel wheels purchased from OEM captive wheel
manufacturers, were sold in North America. Hayes estimates that it sold
approximately 28%, and Motor Wheel estimates that it sold approximately 10%, of
the steel wheels sold in North America for such period.
In Western Europe, the Company's management estimates that approximately 10
million cast aluminum wheels were sold in the 1995 fiscal year and that Hayes
sold approximately 15% of such wheels.
Market Trends. A significant trend toward the use of lighter, more highly
styled wheels for passenger cars and light trucks has increased the demand for
and the use of aluminum wheels. This increase in demand for lighter weight
aluminum wheels has gained in the last ten years as government legislation
regarding fuel efficiency in both North America and Europe. Aluminum wheel
penetration (new vehicle installations) in North America has increased from
approximately 3% in 1980 to approximately 43% in 1995, and management estimates
such penetration will reach approximately 55% by the year 2000. Automotive
aluminum wheel penetration in Europe in 1995 was approximately 20% and continues
to display a similar growth pattern as that experienced in North America.
Aluminum wheel growth is primarily attributable to (i) the weight advantage of
aluminum wheels, which helps OEMs meet government-imposed fuel economy standards
and (ii) the aesthetics of styled features of cast aluminum wheels. The Company
is well positioned to continue to increase sales of its aluminum wheels given
the new, but rapidly growing, fabricated aluminum wheel segment where the
Company is the only significant manufacturer.
Outsourcing Trends. General Motors, Ford and Chrysler, as well as Japanese
OEMs and European OEMs, continue to outsource component manufacturing. Wheel
manufacturing is not strategic to these
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<PAGE> 46
companies. Outsourcing has increased in response to competitive pressures on
OEMs to improve quality and reduce capital outlays and production costs,
overhead and inventory levels. The Company believes that it is well positioned
to benefit from any future outsourcing opportunities.
Business Procurement. OEMs typically specify the features of the wheel,
whether steel or aluminum, which will be used for a particular model either as
standard or optional equipment. Among the features specified by OEMs are weight,
styling and pricing requirements. The OEM will ordinarily designate one supplier
of a particular wheel for a vehicle model, although a particular vehicle model
may utilize a number of different wheels produced by one or more suppliers. The
process of being designated as a supplier of a particular wheel can take more
than two years from the time of initial design to first delivery. A potential
supplier must first develop a wheel design based on styling and engineering
specifications provided by the OEM. After a comprehensive engineering and
feasibility review, the OEM then designates a specific supplier for a particular
wheel that meets the OEMs' cost, quality styling and engineering specifications
for particular vehicle models. The duration of the designation is dependent upon
the life cycle of the vehicle model. Suppliers that design, engineer,
manufacture and conduct quality control testing are generally referred to as
"Tier I" suppliers. Management believes that early involvement in the design and
engineering of new wheel products as a Tier I supplier affords the Company a
competitive advantage in securing new business and provides customers
significant cost reduction opportunities through the coordination of design,
development and manufacturing processes. As a result of the lengthy approval
process, combined with the continued designation of a particular supplier for
the life of a vehicle model, increases or decreases in sales to a particular OEM
and corresponding changes in market share normally occur over an extended period
of time.
OEMs demand high quality products from their component suppliers. Each OEM
has a structured program and rating system for quality and grants awards to
suppliers. Examples include Ford's Q-1, General Motors' Targets for Excellence
and Chrysler's QE and Pentastar. Once a supplier receives a quality award, the
supplier retains the award level, subject to continuing favorable review by the
OEM. The Company endeavors to meet and exceed the quality demands of the OEMs.
Nearly all of Hayes' and Motor Wheel's manufacturing facilities have received
quality awards.
The domestic automotive industry has recently adopted new standards for
quality rating, commonly known as QS 9000. General Motors, Ford and Chrysler
have each required compliance with these standards by December 31, 1997. Hayes'
Gainesville, Georgia facility is the first wheel plant in the United States to
qualify for this rating and all of the Company's plants are expected to receive
the QS 9000 rating in compliance with all of its customers' requirements.
BUSINESS STRATEGY
The Company believes that it is well positioned to continue to realize
growth in sales and EBITDA following the Merger, despite anticipated declines in
automotive and commercial highway vehicle production. The Company will continue
to build upon its positions as a leading global, full-line supplier by
implementing a strategy based on the following elements:
-Maintaining and Enhancing Strong Relationships with OEMs. The Company has
developed and intends to continue to build upon strong relationships with
its OEM customers to enable it to identify business opportunities and work
closely with customers during the early stages of vehicle design. The
Company has established a leadership position as a Tier I supplier of
automotive and commercial highway wheels and brakes by maintaining an
excellent reputation for quality, service and innovation. As a result of
its strong relationships with the OEMs, the Company currently supplies
wheels for vehicle platforms including the Ford Ranger and Explorer, the
Chevy full-sized pickup, the Pontiac Grand Am, the Ford F150 pickup and
the Jeep Cherokee. In addition, the Company has secured contracts to be
the wheel and brake supplier for anticipated high volume vehicle model
platforms in upcoming years, many of which include new, higher priced,
more profitable wheels and brake systems. The Company believes that its
strong relationships with OEMs result in a competitive advantage and
position the Company to capitalize on the continuing trend toward
outsourcing.
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<PAGE> 47
- Continuing Focus on New Product Innovation. The Company believes that
both Hayes and Motor Wheel have established reputations for developing
new product and manufacturing process innovations. Hayes is a major
producer of fabricated aluminum wheels, which are 20% lighter than cast
aluminum wheels and for which Hayes has secured significant contracts
for the period from 1996 through 1998. Hayes has also recently
introduced, and has contracts to supply, FFM(R) wheels, which are
lightweight, highly-styled wheels that utilize a cast aluminum face with
a fabricated rim and chrome skin wheels, which provide a bright chrome
finish at a significantly lower cost than traditional chroming. Motor
Wheel has also introduced innovative products such as Centrifuse(R)
brake drums and full-faced steel wheels. The Company intends to continue
to develop such innovative products and proprietary processes that are
expected to collectively enhance the Company's leadership position in
the worldwide automotive and commercial highway wheel and brake
components markets, increase the Company's portfolio of higher margin
products and result in the Company's being awarded contracts for
additional vehicle platforms.
- Pursuing New Contracts. The Company has obtained significant firm orders
on a number of platforms for periods commencing during 1996 through 1998
for incremental new business in North America and Europe, fueled by the
introduction of new, innovative wheel and brake products. The Company
intends to continue to pursue new vehicle platform contracts.
- Implementing Rationalization Programs. The Company has identified a
number of opportunities to rationalize its manufacturing facilities.
Prior to the Transactions, Motor Wheel announced and implemented a
facility rationalization program and is in the process of closing its
manufacturing facilities located in Ypsilanti, Michigan and Mendota,
Illinois. Production at these facilities will be consolidated into the
Company's existing facilities. Upon the completion of these manufacturing
consolidations, the Company expects to realize significant fixed cost,
facility overhead and labor savings. In addition, because the closing of
the Ypsilanti and Mendota facilities will be phased in throughout 1996
and 1997 and associated production will be shifted concurrently, no
significant disruptions to production are expected to occur. In early
1996, Motor Wheel also implemented an overhead reduction program pursuant
to which headcount at its headquarters was reduced by 50 individuals.
Total annual savings of $5.5 million, primarily through the elimination
of redundant engineering, finance and sales personnel, are expected to by
achieved from this headcount reduction. The Company's Pro Forma Combined
Financial Data included herein does not reflect the anticipated net
annual cost savings related to the Motor Wheel Restructuring that has
been implemented and is currently underway (see Note J to the Pro Forma
Statement of Operations included in "Pro Forma Combined Condensed
Financial Data" for additional information). Subsequent to the
Transactions, the Company will continue to seek to optimize the use of
its manufacturing capacity and implement further administrative,
engineering and operating expense reductions.
- Capitalizing on Complementary Nature of Businesses. The Merger also
provides opportunities due to the complementary nature of the Hayes and
Motor Wheel businesses. Hayes manufactures and markets a full product
line of high quality automotive wheels in the United States and Europe.
Motor Wheel has a strong presence in the commercial truck and trailer
markets, a growing automotive brake business and strong wheel supply
relationships with Japanese OEMs. Motor Wheel's market share and sales of
automotive steel wheels to the North American OEMs, however, have been
declining during the last several years as a result of the continuing
growth in demand for aluminum wheels and the loss of business on certain
light truck platforms. As a result, Motor Wheel's facilities have
available capacity to manufacture automotive and light truck steel wheels
in excess of current orders and projected sales. The Company intends to
improve its future performance by: (i) utilizing Motor Wheel's available
steel wheel capacity to meet the increasing demand for Hayes' products;
(ii) distributing Motor Wheel's automotive and commercial highway brake
products through Hayes' European sales and marketing network; (iii)
attaining additional automotive wheel and brake component sales to
Japanese OEMs by building on Motor Wheel's existing relationship; and
(iv) reducing costs of materials through economies of scale.
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<PAGE> 48
ACQUISITION STRATEGY
The industry in which the Company competes is fragmented, particularly in
Europe where independent producers dominate. The Company believes that as
outsourcing continues, there will be opportunities for further consolidation of
the North American and European wheel manufacturing industries. The Company
believes that, through its established presence in these markets, it is in a
favorable position to take advantage of any future consolidation. The Company
intends to examine future consolidation opportunities, both in North America and
Europe, that would expand its product offerings or geographical reach and to
pursue opportunities that are compatible with its business strategy.
PRINCIPAL PRODUCTS
Wheels for passenger cars and light trucks are generally made of steel or
aluminum. Steel and aluminum offer OEMs a range of options. Steel wheels, which
are heavier than aluminum wheels, are generally low-cost, high-volume production
items that consist of two separate pieces (a rim and a center) welded together.
The Company also manufactures more expensive styled full-faced steel wheels,
with clear, colored or chrome finish. "Full-faced" refers to a design approach
in which the styling effect is obtained by forming the entire face of the wheel
into a one-piece styled design that is then welded onto a partial rim assembly
to form a complete wheel. Aluminum wheels are generally lighter in weight, more
readily styled and more expensive than steel wheels and are manufactured by the
Company as single-piece cast aluminum wheels, fabricated aluminum or FFM(R)
wheels, which are made from two separate pieces (a fabricated rim and a cast
center) welded together. The Company's fabricated aluminum wheels are similar in
design to fabricated steel wheels. Though not as highly styled as cast aluminum
wheels, they are lighter in weight than fabricated steel wheels. The Company's
cast aluminum wheels are produced in the United States and Europe and are sold
in North America, Europe and Japan.
The Company offers its customers a wide range of products including a
low-cost base steel wheel, a styled chrome steel wheel, a highly styled cast
aluminum wheel, a low-weight fabricated aluminum wheel and finally, a FFM(R),
two-piece aluminum wheel which provides both high styling and lighter weight.
The Company believes its depth of product offering and global manufacturing
capacity makes it unique to its customers in terms of supporting a full vehicle
platform with any wheel desired by its customers.
North American OEMs generally manufacture passenger cars and light trucks
with drum-type brakes on the rear axle and disc brakes on the front axle,
although disc brakes are increasingly being used on rear axles for high
performance vehicles and vehicles incorporating anti-lock brake systems. OEMs
offer anti-lock brake systems as optional equipment on certain vehicle models
and as standard equipment on higher priced vehicle models. The Company
manufactures automotive brake components consisting primarily of composite metal
drums, full cast drums and cast iron hubs for drum-type brakes and cast iron
rotors for disc brakes. The Company's brake components have been incorporated
into the anti-lock brake systems offered by its OEM customers. Recently
developed products include the drum-in-hat (which include an integrated parking
brake for four-wheel disc brake vehicles) and the Company's patented noise
reduction rotor. In addition to the OEM market for automotive brake components,
a growing service market exists for brake rotors due to the high wear-out rate
which is experienced with this product. As a result, the automotive industry is
facing a demand for brake rotors in excess of manufacturing capacity.
In the commercial highway vehicle market, the Company sells wheels, rims
and brake products to OEMs (including replacement parts sold through OEMs) and
aftermarket distributors. Commercial highway wheels, rims, brake components, and
wheel hub and brake drum assemblies are installed principally on trucks,
trailers and buses. In the commercial highway market, sales to OEMs are
attributable to either having product designated as standard equipment by the
OEM or obtaining fleet specifications where purchasers of commercial highway
vehicles specify the component parts to be utilized on vehicles manufactured for
their fleets. Management estimates that in 1995 the North American production of
heavy duty highway trucks and trailers was approximately 701,000 units
representing an increase of approximately 11% from 1994.
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<PAGE> 49
CAST ALUMINUM WHEELS -- NORTH AMERICA
HAYES
At four manufacturing facilities in the United States, the Company designs,
manufactures and distributes a full line of cast aluminum wheels to OEMs in the
passenger car and light truck segments of the automotive industry. In fiscal
1995, the Company believes that Hayes supplied approximately 23% of the cast
aluminum wheels purchased in North America. With the exception of a limited
number of cast aluminum wheels manufactured by Ford in New Zealand and aluminum
wheels manufactured by Toyota and Volkswagen, there is no significant OEM
captive manufacturing of cast aluminum wheels. The Company believes that
approximately 43% of passenger cars and light trucks manufactured in North
America in 1995 used cast aluminum wheels, up from approximately 41% in 1994.
Customers. In fiscal 1995, approximately 85% of Hayes' total cast aluminum
wheel production was sold to General Motors, Ford and Chrysler for use on
vehicles produced in North America. The Company exported approximately 6% of its
cast aluminum wheels to Nissan, Isuzu and Mazda in Japan and sold approximately
9% to Japanese OEMs in the United States. The Company owns 60% and Nippon Light
Metal Co., Ltd. owns 40% of Nippon Western Pacific, a Japanese corporation that
provides sales and service support for the Company in the Japanese wheel market.
The Company believes that it has excellent relationships with its customers and
is continually working to strengthen these relationships.
Manufacturing. In manufacturing cast aluminum wheels, the Company uses both
gravity casting and low pressure casting. The Company has emphasized cost
control and product quality in its manufacturing processes and facilities.
The Company manufactures one-piece and two-piece wheels. One-piece wheels
comprise the bulk of the Company's current sales. The Company introduced its
innovative Street Smart Modular(R) two-piece wheel in 1987, and more recently,
the FFM(R) two-piece wheel. These two-piece designs offer OEMs even greater
weight savings without sacrificing styling.
To enhance wheel design and reduce development lead-time, the Company
utilizes computer-aided design, has direct computer links to customers and
provides OEMs with engineering and manufacturing support. The Company utilizes a
computer-aided manufacturing system that gathers key data to control cast
aluminum wheel manufacturing to continually improve product quality and cost.
The Company also utilizes other manufacturing techniques to reduce
manufacturing process time and improve product quality. An example is
Lok-Alloy(R), the Company's patented infrared heat treating process that changes
the manufacturing of cast aluminum wheels from a traditional batch process to a
modern synchronous process. Lok-Alloy(R) reduces work-in-process inventory and
material handling, minimizes labor costs and improves quality. Lok-Alloy(R) also
reduces the total time to produce a wheel from three to five days to three to
five hours. The Company has implemented this process at its Gainesville, Georgia
facility.
Competition. The Company believes that its capabilities as a cost-effective
supplier of cast aluminum wheels meeting OEM requirements enable it to compete
effectively with other aluminum wheel manufacturers. The Company's primary
competitor for sales of cast aluminum wheels in North America is Superior
Industries International, Inc., which the Company estimates sold approximately
38% of all cast aluminum wheels sold in North America in Fiscal 1995, as
compared with Hayes' sales of approximately 23%. Other aluminum wheel
manufacturers, including Wheeltek, Inc., a subsidiary of Amcast Industrial
Corp., American Racing Equipment, Inc., Reynolds Metals Co., Aluminum Wheels
Technology, Inc. and several foreign suppliers operating in the United States,
account for most of the remaining sales.
MOTOR WHEEL
Through Aluminum Wheel Technology, Inc. ("Alumitech"), an unconsolidated
corporate joint venture that is 50% owned by Holdings, Holdings participates in
the automotive aluminum wheel market.
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CAST ALUMINUM WHEELS -- EUROPE
At its three manufacturing facilities in Europe, the Company designs,
manufactures and distributes a full line of cast aluminum wheels to OEMs in the
passenger car and light truck segments of the European automotive industry.
Customers. The Company estimates that Hayes sold approximately 15% of all
cast aluminum wheels sold in Europe in fiscal 1995. Approximately 84% of its
European cast aluminum wheels were sold to BMW, Fiat, Ford of Europe, Renault
and Porsche in that year.
Manufacturing. All of the engineering, research and development for the
Company's European cast aluminum wheel operations is performed at its Dello,
Italy facility.
The Company has implemented standardization of processes, tooling and dies
at its three existing European plants to provide flexibility by enabling the
interchange of production among the plants at reduced overhead costs. The
Company is also implementing other programs in Europe to reduce product cost and
improve quality.
The Company maintains substantial capability in Europe to style and design
cast aluminum wheels for particular OEMs. The Company offers its OEM customers
various Company-generated styles each year. The Company has also established
direct computer links with several customer locations in Europe to streamline
the design and approval process and reduce product development lead-time. The
Company believes that its interaction with its European customers through
computer-aided design offers it a competitive advantage. In addition, the
Company is actively introducing its new weight and cost saving technologies to
the European car makers. Pressure for better fuel consumption and lower vehicle
weight are driving European car producers to seek lighter-weight products such
as fabricated aluminum wheels and FFM(R) wheels.
In 1988, the Company acquired its Campiglione, Italy aluminum wheel
operation from Fiat and entered into a five-year contract with Fiat to supply at
least 50% of Fiat's aluminum wheel requirements, The Company has not negotiated
an extension of this agreement or a new agreement with Fiat but management
believes that the Company will retain this business because it continues to
deliver wheels at competitive cost and of higher quality than its competitors.
The Company leases the plant at which these operations are conducted (excluding
equipment) from Fiat on a year-to-year basis.
Competition. The Company's primary competitors for European sales of cast
aluminum wheels for passenger cars are Ronal AG, Speedline S.p.A., Lemmerz GmbH,
Alloy Wheel International Ltd. and Kronprinz (Mannesmann AG). The Company
believes that these competitors accounted for sales ranging from 6% to 13% each.
Sales of cast aluminum wheels in Europe remain more fragmented than in
North America, with numerous producers possessing varying levels of financial
resources and market positions. The current installation rate of cast aluminum
wheels in Europe is significantly lower than in North America. As a result of
anticipated consolidations of small local manufacturers across the European
community and the expected increasing demand for cast aluminum wheels among
consumers and OEMs in Europe, the Company believes that, over the next several
years, the number of cast aluminum wheel manufacturers in Europe is likely to
decline. As a result of its position in Europe and its advanced engineering and
technology, the Company believes that it is well positioned to meet these
changes in the European market.
FABRICATED WHEELS -- NORTH AMERICA
HAYES
At its manufacturing facilities in Sedalia, Missouri, and Romulus,
Michigan, the Company designs, manufactures and distributes a full line of
fabricated steel and fabricated aluminum wheels for sale to OEMs in the
passenger car and light truck segments of the automotive industry. Having
commenced production in the early 1900's, the Company has manufactured more
steel wheels in North America than any other manufacturer.
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Revenues and unit sales in the Fabricated Wheel Group in North America
increased in 1995 from prior year levels primarily due to its introduction of
new products and increased sales. The Company's new products, and particularly
its fabricated aluminum wheels, have been well received by its customers.
Management believes that new contracts obtained in 1994 and 1995 relating to
these new products have positioned this group for significant future growth.
The Company believes that its sales of steel wheels in North America will
remain significant as long as OEMs continue to specify less costly steel wheels
for more moderately priced passenger cars and light trucks and for most spare
wheels. The rate of installation of steel or aluminum wheels for any model year
may be affected by OEM promotional programs. The Company continues to explore
other avenues of growth for steel wheels, including increasing its competition
with OEM captive wheel manufacturers for business with the OEMs.
Customers. The Company estimates that Hayes' share of total North American
sales of steel wheels to OEMs for fiscal 1995 was approximately 28% (including
wheels sold by OEM captive wheel manufacturers). Approximately 95% of Hayes'
steel wheels sold in North America were sold to General Motors, Ford and
Chrysler in Fiscal 1995.
Manufacturing. The Company's fabricated steel and aluminum wheels are
manufactured by a continuous in-line process, thus enhancing quality
standardization and reducing work-in-process inventory. Although tooling for
steel wheels is relatively expensive, a particular style is likely to be run for
a customer in high volume over a long period, lowering the unit production cost.
The basic steel wheel is black and consists of a center piece welded to a rim.
The Company produces large quantities of steel wheels on a cost-efficient
basis at its Sedalia facility. At its Romulus facility, the Company produces
lower-volume, more specialized steel wheels with shorter manufacturing runs. The
Company also manufactures light-weight fabricated aluminum wheels and has
obtained significant contracts for Model Years 1996, 1997 and 1998 for this
product line.
Competition. The Company's primary noncaptive competitors in the North
American steel wheel market for passenger cars and light trucks are Fumigalli (a
Brazilian subsidiary of Rockwell International), Topy and Accuride. The Company
estimates that OEM captive wheel manufacturers together accounted for 30% of the
market in 1995. The Company believes that it is well-positioned to maintain its
sales level at General Motors, Ford and Chrysler against noncaptive competition.
The Company remains vulnerable to increased sourcing of steel wheels by
General Motors and Ford from their respective captive wheel manufacturers, which
may win contracts based on factors other than quality, price and efficiency.
General Motors' captive manufacturer supplied approximately 45% of General
Motors' steel wheel needs in 1995 and 1994. In both 1995 and 1994, Ford's
captive manufacturer supplied approximately 65% of Ford's steel wheel needs. The
Company believes, however, that, with OEMs becoming increasingly sensitive to
the cost of their products and with new products such as styled steel and
fabricated aluminum wheels, it will be able to compete with OEM captive wheel
manufacturers on a basis more like that on which it competes with other outside
suppliers. Neither General Motors nor Ford has production capability for styled
steel wheels or fabricated aluminum wheels.
MOTOR WHEEL
Motor Wheel manufactures base steel wheels which utilize a wheel cover and
styled steel wheels, such as its Full Face(TM), Full Face(TM) Chrome and
Polycast(R) wheels.
Customers. Motor Wheel supplies automotive steel wheels primarily to OEMs
located in North America, including Chrysler, Ford, General Motors, Mitsubishi,
and Toyota. Alumitech is the principal supplier of aluminum wheels to Honda of
America.
Competition. The principal competitors of Motor Wheel for the sale of
automotive wheels include Superior Industries, Fumagalli, Topy Corporation and
Central Manufacturing Company. According to information available to the
Company, management believes that Superior Industries supplies only aluminum
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<PAGE> 52
wheels and Fumagalli supplies only steel wheels while all other of the named
competitors supply both aluminum and steel wheels. Also, Topy Corporation and
Central Manufacturing Company are subsidiaries of Japanese wheel suppliers and
predominately supply the North American operations of Japanese OEMs. Ford and
General Motors, two customers of the Company, are also significant manufacturers
of base steel wheels but solely for installation on their own vehicles.
The Company competes for sales of automotive wheel on the basis of cost,
delivery, quality and service. The loss of a significant portion of the
Company's sales to Chrysler, Ford and General Motors could have a material
adverse impact on the Company. The Company has been doing business with each of
these OEMs for many years, and sales are composed of a number of different
products and of different models or types of the same products and are made to
individual divisions of such OEMs.
FABRICATED WHEELS -- EUROPE
In October 1993, the Company and Nova Hut a.s. ("Nova Hut"), established a
joint venture company, named Hayes Wheels Autokola NH, a.s. ("Autokola") to
manufacture fabricated steel and fabricated aluminum wheels in the Czech
Republic. The Company initially acquired a 45% interest in the joint venture
company, with the right (but not the obligation) to increase its interest to 60%
at any time. The Company has granted Autokola the exclusive right to sell
products manufactured under the Company's licensed technology in the Czech
Republic, the Slovak Republic, Poland, Romania, Croatia, Serbia and the other
republics of the territory formerly comprising Yugoslavia, Albania, Bulgaria,
Russia and the other republics of the territory formerly comprising the Soviet
Union, and Hungary. The Company has signed a marketing assistance agreement for
sales outside the exclusive territories and a technical assistance agreement
with Autokola, under which it has licensed its wheel patents and other technical
information to Autokola and has agreed to furnish Autokola with technical
assistance. The Company will receive fees and commissions under the former
agreement and license fees and royalties under the latter.
At the inception of the joint venture, Autokola had capacity to produce 1.5
million base steel wheels annually. Subsequently, its capacity has been
increased to 4.5 million fabricated steel and fabricated aluminum wheels.
Autokola has received purchase orders from European OEMs which has resulted in
the introduction of the Company's fabricated steel and fabricated aluminum
wheels into that market, commencing in the 1996 model year.
Customers. Autokola's principal customer is now Skoda, the national
automobile manufacturer of the Czech Republic, for which it is the sole supplier
of wheels. Sales related to the increased capacity relate primarily to Opel and
BMW. As Autokola's increased capacity is utilized, it is expected that the
percentage of sales to Skoda will be reduced.
Manufacturing. Subsequent to the joint venture, Autokola completed a new
paint facility and installed a new fabricated aluminum wheel rim and assembly
line and a steel wheel rim and assembly line. This equipment is state-of-the-art
and was required to meet the volume and quality demands of Skoda and Autokola's
new Western European customers.
Competition. Prior to the inception of the joint venture, during which
period the Czech Republic had been a centrally controlled state economy,
Autokola had no competition as sole supplier to Skoda for steel wheels. In the
future, Autokola's competition may come from Western European companies as well
as former Eastern Bloc companies.
AUTOMOTIVE BRAKE COMPONENTS
The Company manufactures automotive brake components consisting primarily
of composite metal drums and full cast drums for drum-type brakes and cast iron
rotors for disc brakes. Sales of automotive products accounted for approximately
62%, 68% and 72%, respectively, of Motor Wheel's net sales in 1995, 1994 and
1993 products.
Customers. The Company sells its automotive brake components primarily to
North American OEMs with substantially all of its automotive brake components
sold to Chrysler and Ford.
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Competition. The principal competitors of the Company for the sale of
automotive brake components include Kelsey-Hayes Company, Bosch and Varga.
According to information available to the Company, management believes that
Kelsey-Hayes Company supplies brake drums and rotors as well as anti-lock brake
systems while Allied Signal and Varga are suppliers of brake rotors. General
Motors is also a significant manufacturer of automotive brake components,
installed primarily on General Motors vehicles.
The Company competes for sales of brake components on the basis of cost,
delivery, quality and service. The loss of a significant portion of the
Company's sales to Chrysler, Ford and General Motors could have a material
adverse impact on the Company. The Company has been doing business with each of
these OEMs for many years, and sales are composed of a number of different
products and of different models or types of the same products and are made to
individual divisions of such OEMs.
COMMERCIAL HIGHWAY PRODUCTS
The Company manufactures disc wheels and demountable rims for commercial
highway vehicles. The Company also manufactures two-piece Take-Apart wheels for
certain special applications, the most significant of which is for the High
Mobility Multiple Purpose Wheeled Vehicle (the "Hummer") produced by AM General
Corporation. The Company manufactures brake components for commercial highway
vehicles consisting of Centrifuse(R) drums and cast iron or aluminum hubs which
can be assembled together and sold as a unit. Unlike conventional cast iron
brake drums, Centrifuse(R) drums fuse iron to a steel jacket to combine the
advantages of iron and steel to produce a lighter and stronger brake drum. The
Company has achieved a significant market share for this product which is
supplied to OEM's almost exclusively as a result of fleet specification. Sales
of commercial highway products accounted for approximately 38%, 32% and 28% of
Motor Wheel's net sales for 1995, 1994 and 1993, respectively.
Customers. The Company's largest customers for commercial highway wheels
and rims include Trailmobile, Strick and Monon, while its largest customers for
commercial highway brake components include Freightliner Corporation, PACCAR and
Volvo-GM. Sales for OEM and service use constituted approximately 70% and 30%,
respectively, of the Company's commercial highway net sales in 1995.
Competition. The Company competes for sales of commercial highway wheels,
rims and brake components on the basis of cost, delivery, quality and service.
The Company spends a considerable amount of effort obtaining fleet
specifications where purchasers of commercial highway vehicles specify to the
OEM's the components to be used. The principal competitors of the Company for
the sale of commercial highway wheels and rims include Accuride Corporation,
ALCOA and Bosch. According to information available to the Company, management
believes Accuride Corporation predominately supplies steel wheels but also
supplies aluminum wheels while ALCOA supplies aluminum wheels and Bosch supplies
steel wheels and brake components. The Company is the only producer of the
Centrifuse(R) drum but does compete with several producers of full cast iron
drums including Gunite Corporation, Webb Wheel Products and Dayton-Walther.
INVESTMENTS
Hayes. Hayes has additional interests, to the extent described below, in
the following wheel manufacturing entities throughout the world:
(i) a 49% interest in Ruedas de Venezuela, C.A., a steel wheel
manufacturer in Venezuela;
(ii) a 40% interest in Hayes Wheels de Mexico, S.A. de C.V. (formerly
named Kelsey-Hayes de Mexico, S.A. de C.V.), an aluminum and steel wheel
manufacturer in Mexico;
(iii) a 30% interest in Cromodora S.p.A., an Italian cast aluminum
wheel producer supplying the independent after-market; and
(iv) a 7% interest in Central Manufacturing Company, a joint venture
in Kentucky, which manufactures steel wheels for Japanese OEMs, the other
partners of which include Central Motor Wheel of Japan, a leading Japanese
wheel manufacturer, and Toyota of America.
In addition, Hayes has a technical assistance agreement with ATP, a wheel
manufacturer in Thailand.
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<PAGE> 54
Motor Wheel. Motor Wheel has additional interests to the extent described
below, in the following entities:
(i) a 50% interest in Alumitech, a manufacturer of cast aluminum
wheels in Kentucky; and
(ii) a 50% interest in Riviera Die & Tool, Inc., a manufacturer of
stamping dies sold to domestic automobile manufacturers and their
suppliers.
MANUFACTURING FACILITIES AND PROPERTIES
Hayes. Hayes operates six major manufacturing facilities in the United
States and has its headquarters in Romulus, Michigan. Total United States
manufacturing space exceeds two million square feet. Outside of the United
States, Hayes operates three manufacturing facilities with approximately
one-half million square feet in the aggregate. Hayes believes that its plants
are adequate and suitable for the manufacturing of products for the markets in
which it sells. Moreover, Hayes believes that it maintains adequate production
capacity at its manufacturing facilities to meet current product demand for cast
aluminum wheels and steel wheels in North America and aluminum wheels in Europe
and that such capacity will be sufficient to meet projected product demand. To
meet projected demand for fabricated aluminum wheels in North America, Hayes
expects to continue upgrading and expanding its current manufacturing
facilities. Hayes leases a part of the headquarters facilities to K-H
Corporation.
<TABLE>
<CAPTION>
LOCATION USE OWNED OR LEASED
- ------------------------------------- --------------------------------------- ---------------
<S> <C> <C>
Romulus, Michigan Fabricated Wheels, Headquarters and R&D Owned
Howell, Michigan Cast Aluminum Wheels Owned
Gainesville, Georgia Cast Aluminum Wheels Owned
Huntington, Indiana Cast Aluminum Wheels Owned
Sedalia, Missouri Fabricated Wheels Owned
La Mirada, California Cast Aluminum Wheels Leased
Barcelona, Spain Cast Aluminum Wheels Owned
Dello, Italy Cast Aluminum Wheels and R&D Owned
Campiglione Fenile, Italy Cast Aluminum Wheels Leased
</TABLE>
Motor Wheel. Motor Wheel currently operates seven manufacturing facilities
in North America as follows:
<TABLE>
<CAPTION>
LOCATION USE OWNED OR LEASED
- ------------------------------------- --------------------------------------- ---------------
<S> <C> <C>
Bowling Green, Kentucky Automotive Steel Wheels Leased
Mendota, Illinois(a) Automotive Steel Wheels Owned
Ypsilanti, Michigan(a) Automotive Brakes Owned
Homer, Michigan Automotive Brakes Owned
Monterrey, Mexico Automotive Brakes Leased
Akron, Ohio Commercial Highway Wheels Owned
Berea, Kentucky Commercial Highway Brakes Owned
</TABLE>
- -------------------------
(a) These plants will be closed in 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Capital
Resources and Liquidity of Holdings -- Plant Closure Costs."
The lease for the Bowling Green facility expires in January 2008, subject
to two five-year extension options exercisable by Motor Wheel and to a purchase
option exercisable by Motor Wheel upon expiration of the lease. The lease for
the Monterrey facility expires in July 2001, subject to a one year extension
option exercisable by Motor Wheel and to a purchase option exercisable by Motor
Wheel beginning in July 1998 and extending through the remaining term of the
lease.
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<PAGE> 55
Alumitech owns and operates a manufacturing facility located in Somerset,
Kentucky where it manufactures cast aluminum wheels.
Motor Wheel's headquarters, housing its executive offices and central
accounting, purchasing, marketing and engineering departments, is currently in
Okemos, Michigan. Motor Wheel leases approximately 90% of a building under a
ten-year lease which expires in July 2004.
RAW MATERIALS
Hayes. Raw materials and component parts used in Hayes' manufacturing
operations are those commonly used in such operations, of which adequate
supplies are available. The Company is generally not dependent on long-term
supply contracts and has available to it alternate sources for raw materials and
component parts.
Motor Wheel. The two principal materials used in Motor Wheel's products are
castings (primarily composite and fullcast drums, Centrifuse(R) drums, rotors
and cast iron hubs) and steel (primarily flat rolled steel for wheels and rims).
Although Motor Wheel has alternate sources for most of its raw materials, Motor
Wheel develops close relationships with a limited number of suppliers to
facilitate cost efficiencies and quality of materials.
Motor Wheel purchases steel primarily from three suppliers. Motor Wheel
purchases castings from several foundries with one primary long term supplier.
Motor Wheel's contracts with suppliers are generally for a period of twelve
months or less. Motor Wheel's primary long term supplier of castings is a
closely-held company with which Motor Wheel has had a good relationship and is
the sole source of castings for Centrifuse(R) drums. The supply contract for
Centrifuse(R) drums expires in 1996 and the Company expects to renew or extend
the contract.
RESEARCH AND DEVELOPMENT
Hayes. Hayes is dedicated to the continued development of new and improved
wheels and related products either through its own engineering efforts or joint
ventures with other parties, including styled steel wheels, light-weight
fabricated aluminum wheels, FFM(R) wheels and clad-covered wheels. Hayes' North
American wheel engineering, design, and advanced research and development
groups, are located in Romulus, Michigan. All research, development and
engineering relating to Hayes' European aluminum wheel operations is conducted
at its Dello, Italy facility.
Supported by computer-aided design and manufacturing, as well as
finite-element analysis tools, Hayes is investigating specific wheel designs for
lighter-weight wheels that help reduce overall vehicle weight and provide more
attractive styling variations. To ensure that new, lighter-weight products are
durable enough to meet vehicle requirements, Hayes performs fatigue tests that
put prototype wheels through the equivalent of thousands of miles of road use
before they reach the manufacturing stage. To ensure longevity of wheels, salt-
spray and other environmental tests are conducted on coated wheels.
During fiscal 1995, fiscal 1994 and fiscal 1993, Hayes spent approximately
$2.3 million, $2.2 million and $1.8 million, respectively, on research and
development.
Motor Wheel. Motor Wheel's expenditures for research and development were
approximately $6.9 million, $6.9 million and $6.6 million in 1995, 1994 and
1993, respectively. Motor Wheel engages in research and development to improve
its technology and products and to develop new products and processes. It
focuses its efforts on working closely with the OEMs to engineer and design
specific products to address OEM needs.
PATENTS AND TRADEMARKS
Hayes. Hayes owns numerous patents and trademarks and has patent licenses
from others relating to its products and manufacturing methods. Hayes also
grants patent and trademark licenses to others throughout the world and receives
royalties under most of these licenses. While Hayes does not consider any
particular patent or group of patents to be essential to its business as a
whole, it considers its patents to be of some
51
<PAGE> 56
significance to the conduct of its business in certain product areas. In
addition, Hayes relies on proprietary data and processes, including trade
secrets and know-how, and depends, to some extent, on such information remaining
confidential.
Motor Wheel. Motor Wheel holds numerous patents covering certain of Motor
Wheel's products and manufacturing processes. Management believes that many of
Motor Wheel's patents describe cost-effective production methods, and,
accordingly, Motor Wheel considers such patents to be important to its business
but not of such importance that the loss or expiration of any individual patent
would materially affect its business considered as a whole.
Motor Wheel has licensed certain of its patents to permit certain companies
to produce, and in certain instances distribute, products under their own name.
Licensees under these arrangements include Ford, General Motors, Accuride, Hayes
Wheels and wheel manufacturers located in Mexico and South America.
Motor Wheel owns various trademarks, trade names and logos, the most
important of which are its Centrifuse(R), Centrue/Pierce(R), Polycast(R), Full
Face(TM), WHD-8(R), WHD-10(TM), and Centruelight(R) trademarks and related
logos. Although they believe such trademarks, trade names and logos enhance the
name recognition of Motor Wheel's products and therefore are important to its
business, management believes that Motor Wheel's innovative products, reputation
for quality and relationships with its customers are more important for the
maintenance and growth of its business.
EMPLOYEES
Hayes. Approximately 20% of Hayes' employees in the United States at
January 31, 1996 were represented by the UAW. Collective bargaining agreements
with the UAW affecting these employees expire in 1997 and 1998. As is common in
many European jurisdictions, substantially all of Hayes' employees in Europe are
covered by country-wide collective bargaining agreements. In Europe, additional
bargaining agreements are often made on a local basis. These agreements expire
at various times through 1997. There are no Hayes-wide or industry-wide
bargaining units in the United States. Hayes considers its employee relations to
be satisfactory.
Motor Wheel. At December 31, 1995, Motor Wheel employed 1,304 persons.
Motor Wheel's seven manufacturing plants employed 1,150 persons (182 salaried
and 968 hourly) with the balance assigned to its headquarters in Okemos,
Michigan, and sales offices throughout North America. Currently, collective
bargaining agreements cover approximately 69% of hourly employees and
approximately 10% of salaried employees. Current collective bargaining
agreements expire through October 1997, none of such agreements provide for
multi-plant bargaining units. As part of Motor Wheel's facility rationalization
program, Motor Wheel expects to phase out production at its Ypsilanti, Michigan
plant. The collective bargaining agreement at such facility expired in March of
1996, and negotiations regarding the termination of such agreement are ongoing.
Motor Wheel considers its employee relations to be satisfactory.
ENVIRONMENTAL MATTERS
The Company, like most other manufacturing companies, is subject to and is
required from time to time to take action at its facilities to comply with
federal, state, local and foreign laws and regulations relating to pollution
control and protection of the environment. In this regard, the Company maintains
an ongoing compliance program to anticipate and, if necessary, correct
environmental problems.
Hayes spent approximately $0.6 million for environmental compliance and
cleanup projects in fiscal 1995. Hayes believes that its fiscal 1996 and 1997
expenditures for environmental compliance, including potential expenditures for
compliance with the permitting and other requirements of the federal Clean Air
Act, will not exceed a total of $3 million. In addition, under Hayes' cleanup
program, commenced in 1990 and scheduled to be completed in the fiscal year
ending January 31, 1999, Hayes anticipates spending approximately $1.5 million
in each of the fiscal years ending January 31, 1997, 1998 and 1999. The Company
believes it is in material compliance with applicable federal, state, local and
foreign laws and regulations relating to pollution control and protection of the
environment.
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<PAGE> 57
Hayes has received notice of potential environmental liability arising out
of both its wheel and non-wheel businesses (including certain divested
businesses) at fourteen Superfund sites (the "Sites") under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"). Also, Hayes has received notice of potential environmental liability
at one state-listed site. Hayes has entered into settlements with various
government agencies and the other parties identified by the applicable agency as
"potentially responsible parties" to resolve its liability with respect to three
of the Sites, all of which are associated with the wheel business. While Hayes
remains potentially liable under CERCLA to the federal and certain state
governments with respect to the Sites, it believes that its maximum financial
exposure will be less than $2.6 million. In addition, pursuant to the
Reorganization, Kelsey-Hayes assumed and agreed to indemnify Hayes with respect
to any liabilities arising out of or associated with twelve of the Sites,
thereby reducing Hayes potential exposure.
In March, 1995, Hayes received from the U.S. EPA a request for information
under CERCLA regarding the Shiawassee River Site, located in Howell, Michigan.
Hayes is in the process of responding to that information request. Hayes
understands that the hazardous substances of concern are PCBs, which reportedly
were used at Hayes' manufacturing facility in Howell, Michigan prior to its
acquisition of that facility in 1981. The State of Michigan is performing a
remedial investigation/feasibility study. Hayes understands that, with respect
to the remedy that the State reportedly expects will be selected, the State's
preliminary estimate is that the costs of implementing such remedy will range
from $10 to $15 million. Hayes further understands that the State expects that
implementation of the remedy will not commence for several years and that, once
commenced, it will require three to five years to implement fully. Hayes
believes that, pursuant to a 1981 consent judgment between Hayes' subsidiary
that owns the Howell facility and the State of Michigan, the State has retained
some or all of the responsibility for cleanup of this site. Moreover, at the
time Hayes acquired the corporation that owns the Howell manufacturing facility,
Hayes received an indemnity against liability arising from the prior use of PCBs
at that facility from Multifastener Corp., one of the stockholders in that
corporation. Multifastener Corp. has to date honored its indemnity obligations.
However, Multifastener is a small corporation and no assurance can be given that
it will continue to honor its obligations. If the State takes the position that
it has not retained liability for the cleanup at this site, and if Multifastener
Corp. should fail to honor all or part of its indemnity obligations with respect
to cleanup at this site, then in the event that Hayes were required to
participate in cleanup efforts mandated by the U.S. EPA or the State, Hayes'
expenses with respect to cleanup of this site potentially could have a material
adverse effect on the consolidated operations or financial condition of Hayes.
Hayes may remain liable with respect to environmental cleanup costs in
connection with certain divested businesses relating to aerospace, heavy duty
truck components and farm implements, under federal and state laws and under
agreements with purchasers of certain divested businesses. Hayes believes,
however, that such costs in the aggregate will not have a material adverse
effect on the consolidated operations or financial condition of Hayes and, in
any event, Kelsey-Hayes has assumed and agreed to indemnify Hayes with respect
to any liabilities arising out of or associated with these businesses.
Some of Motor Wheel's manufacturing processes result in the generation of
hazardous wastes and consequently Motor Wheel is subject to various federal,
state and local laws and regulations relating to environmental protection. Motor
Wheel does not transport hazardous wastes to, or dispose of hazardous wastes or
have hazardous waste storage facilities at, any Motor Wheel owned facility.
At the time of the Holdings acquisition of Motor Wheel, Goodyear either
retained liability for or agreed to indemnify Motor Wheel with respect to all
liabilities, claims and obligations for environmental pollutants, contaminants
or other substances generated prior to December 30, 1986, for the plants then
owned by Motor Wheel, and April 1, 1987, for the plants previously owned by
Goodyear. Goodyear to date has honored such indemnity obligations. Motor Wheel
has taken steps to ensure that handling and disposal of all hazardous wastes
comply with federal, state or local laws relating to the protection of the
environment. Substantially all of the hazardous wastes generated by Motor Wheel
are disposed of at treatment and disposal facilities which utilize recycling or
incineration rather than landfill disposal. All off-site hazardous waste
disposal sites have been inspected and are periodically audited. Environmental
audits are also performed at each of Motor Wheel's plants.
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<PAGE> 58
Motor Wheel has been identified by federal or state authorities as a
potentially responsible party for the clean-up of hazardous waste disposal sites
which are listed on the National Priority List of Hazardous Waste Disposal Sites
compiled by the United States Environmental Protection Agency under CERCLA. All
occasions where hazardous wastes were allegedly sent to such sites by Motor
Wheel occurred prior to the Management Acquisition, and Goodyear has assumed and
is expected to continue to assume responsibility for Motor Wheel's share of any
associated clean-up costs. Because Goodyear has continued to meet its indemnity
obligations and has assumed Motor Wheel's position in all proceedings involving
the clean-up of hazardous waste disposal sites, Motor Wheel's management
believes its exposure with respect to environmental claims resulting therefrom
is not material. Because Goodyear has assumed full responsibility for all
proceedings and liabilities relating to the sites, Motor Wheel has not
participated in matters relating to such sites and does not have sufficient
information to qualify its proportionate share of the costs of remediation at
these sites. If Goodyear should fail to honor its indemnity obligations and
Motor Wheel is required to participate in clean-up efforts mandated by
governmental authorities, Motor Wheel's expenses with respect to clean-up of
such sites in the aggregate would have a material adverse effect on Motor
Wheel's financial condition and results of operations, capital resources and
liquidity. While Motor Wheel cannot quantify the extent of such effect, Motor
Wheel's management believes that it would be substantial.
LEGAL MATTERS
In the ordinary course of its business, the Company is a party to
litigation involving its operations and products, which may include allegations
as to safety and design. The Company's management believes that the outcome of
this litigation will not have a material adverse effect on the consolidated
operations or financial condition of the Company.
Product Liability of Motor Wheel. At the time of the Management
Acquisition, Goodyear agreed to be responsible for and to indemnify Motor Wheel
for all costs and liabilities arising from any product warranty, product
liability, other claims or obligations for products manufactured by Motor Wheel
prior to December 30, 1986 and for products manufactured by Goodyear at the
Akron plant prior to April 1, 1987. As to incidents relating to products
manufactured on or before those dates, Goodyear continues to acknowledge its
indemnification obligations under the purchase agreement and has assumed and is
expected to continue to assume the defense of all such product liability cases.
While there have been warranty claims involving products manufactured by
Motor Wheel after these dates, there currently is no pending product liability
action outstanding against Motor Wheel. Currently, Motor Wheel is insured in the
amount of $57 million in the aggregate with a deductible of $500,000 per
occurrence to cover product liability claims relating to its products.
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<PAGE> 59
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets out the names and ages of each of the individuals
that are currently expected to serve as directors and executive officers of the
Company upon the consummation of the Transactions. An additional person who is
not affiliated with the Company or with the New Investors will also serve as a
director.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- --------------------------------------------------------
<S> <C> <C>
Ranko "Ron" Cucuz............. 52 Chairman of the Board of Directors; President and Chief
Executive Officer
Richard W. Tuley.............. 53 Executive Vice President
William D. Shovers............ 42 Vice President -- Chief Financial Officer and Principal
Accounting Officer
Giancarlo Dallera............. 50 Vice President -- President, European Aluminum Wheels
Ronald L. Kolakowski.......... 49 Vice President -- President, North American
Aluminum Wheels
William S. Linski............. 49 Vice President -- President, Fabricated Wheels
Larry Karenko................. 46 Vice President -- Human Resources
Daniel M. Sandberg............ 37 Vice President, General Counsel and Secretary
John A. Salvette.............. 40 Treasurer
Timothy J. Clark.............. 31 Director
Cleveland A. Christophe....... 50 Director
Peter A. Joseph............... 44 Director
Paul S. Levy.................. 48 Director
John S. Rodewig............... 62 Director
Marcos A. Rodriguez........... 34 Director
Kenneth L. Way................ 56 Director
</TABLE>
Pursuant to a stockholders agreement to be entered into by Hayes and the
New Investors, the New Investors will be entitled to designate six of the nine
directors. See "-- Stockholders Agreement."
Ranko ("Ron") Cucuz was elected President and Chief Executive Officer and a
Director of Hayes in October 1992. He also serves as Chairman of the Management
Board of Hayes Wheels Autokola NH, a.s., Hayes' Czech joint venture, and as a
director of Hayes Wheels, S.p.A. (Italy) and FPS Kelsey-Hayes, S.A. (Spain), the
Company's wholly owned subsidiaries, and serves as Chairman of each of the
Aluminum Wheel Subsidiaries. From August 1992 to October 1992, Mr. Cucuz served
as Group President of the Wheels Division of Hayes as it existed prior to the
Reorganization. Previously, Mr. Cucuz was President, Steel Wheels (renamed
Fabricated Wheels) Business Unit from June 1991 to October 1992. Prior to
assuming that position, Mr. Cucuz was employed by ACCO Babcock Industries from
1976 to 1991, serving as President and Chief Executive Officer of its Automotive
Mechanical Cable Controls Group from September 1987 to June 1991.
Richard W. Tuley will become Executive Vice President of the Company upon
consummation of the Merger. He has been President of Motor Wheel since May 1995,
has been Chief Operating Officer of Motor Wheel since September 1994 and was
Executive Vice President and General Manager -- Commercial Highway products of
Motor Wheel since 1991. He has also been a director of Motor Wheel since 1986.
William D. Shovers has been Vice President, Chief Financial Officer and
Principal Accounting Officer of Hayes since February 1993. Mr. Shovers has also
served as a Director of Hayes Wheels, S.p.A. and Autokola
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<PAGE> 60
since February 1993 and October 1993, respectively. From November 1989 to
January 1993, Mr. Shovers served as Vice President of Finance at Monroe Auto
Equipment Company, a subsidiary of Tenneco, Inc.
Giancarlo Dallera has been Vice President -- President, European Aluminum
Wheels of Hayes since 1992. He is also President of Cromodora, S.p.A. Since
October 1992, Mr. Dallera has served as the Managing Director of Kelsey-Hayes de
Espana, S.A. In 1981, Mr. Dallera assumed the post of General Manager of Hayes
Wheels, S.p.A and since 1985 Mr. Dallera has also been a Director of Hayes
Wheels, S.p.A.
Ronald L. Kolakowski has served as Vice President -- President, North
American Aluminum Wheels of Hayes since November 1995. Prior to assuming this
position, Mr. Kolakowski was the Plant Manager of the Sedalia Plant since 1992.
William S. Linski has been Vice President -- President, Fabricated Wheels
of Hayes since November 1993. In October 1993, he was elected Chairman of the
Supervisory Board of Autokola. From 1992 to October 1993, Mr. Linski was Vice
President of Operations of Fabricated Wheels. Mr. Linski was Plant Manager of
the Sedalia Plant from 1988 to 1992.
Larry Karenko has been Vice President -- Human Resources of Hayes since
October 1994. From August 1993 to October 1994, Mr. Karenko was Group Human
Resources Manager of the Chasis Products Operation and from August 1992 to
August 1993, he was Group Human Resources Manager of Powertrain Products
Operation. Mr. Karenko served as Division Human Resources Manager of the
Precision Forged Products Division from June 1986 to August 1992.
Daniel M. Sandberg has been Vice President, General Counsel and Secretary
of Hayes since March 1994. Since September 1994, he has been a Director of Hayes
Wheels S.p.A. Prior to joining the Company, Mr. Sandberg was Executive Vice
President and General Counsel of Kelter-Thorner, Inc. from October 1990 to March
1994. From September 1988 to September 1990, Mr. Sandberg was the General
Counsel and Secretary of Meadowdale Foods, Inc.
John A. Salvette has served as Treasurer of Hayes since February 1995. From
May 1993 to January 1995, he was Director of Investor Relations and Business
Planning of Hayes. Mr. Salvette was Group Controller of the North American
Aluminum Wheel Business from May 1990 to April 1993.
Timothy J. Clark will become a director of the Company upon consummation of
the Transactions. Mr. Clark is a principal of Joseph Littlejohn & Levy (the
general partner of JLL), which he joined in 1993. Prior to that time, Mr. Clark
was corporate planning manager of Edgcomb Metals Company and a financial analyst
at the Blackstone Group.
Cleveland A. Christophe will become a director of the Company upon
consummation of the Transactions. Mr. Christophe has been a Managing Partner and
major shareholder of TSG Capital Group since its inception in 1994. TSG acts as
manager of TSG Capital Fund II, L.P., a $225 million private equity investment
fund. He has served as a principal and a director of TSG Ventures Inc. (formerly
known as Equico Capital Corporation), a private equity investment firm since May
1992. From February 1990 to May 1992, Mr. Christophe was a Vice President of
Equico Capital Corporation. Mr. Christophe is also a director of EnviroTest
Systems Corp.
Peter A. Joseph will become a director of the Company upon consummation of
the Transactions. Mr. Joseph has been a partner of Joseph Littlejohn & Levy from
its inception in 1988. Prior to that time, Mr. Joseph was a managing director of
Quadrex Securities. Mr. Joseph serves on the Board of Directors of Foodbrands
America, Inc., OrNda HealthCorp, Lancer, Fairfield Manufacturing Co., Inc. and
MWC Holdings, Inc. Mr. Joseph is also President and Secretary of Lancer and Vice
President and Secretary of Fairfield.
Paul S. Levy will become a director of the Company upon consummation of the
Transactions. Mr. Levy has been a partner of Joseph Littlejohn & Levy from its
inception in 1988. Prior to that time, Mr. Levy was a Managing Director of
Drexel Burnham Lambert Incorporated responsible for its restructuring and
exchange offer group. Mr. Levy serves as Chief Executive Officer and Chairman of
the Board of Directors of Lancer and as a member of the Board of Directors of
Foodbrands America, Inc., OrNda HealthCorp, Fairfield
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<PAGE> 61
Manufacturing Co. and MWC Holdings, Inc. Mr. Levy is also Vice President and
Assistant Secretary of Fairfield.
John S. Rodewig has been a director of Hayes since December 1992 and is
expected to continue to serve in that capacity after consummation of the
Transactions. He served as President of Eaton Corporation and its Chief
Operating Officer -- Vehicle Components from 1992 until his retirement on
January 1, 1996. He served as President of the Truck Components Group of Eaton
Corporation from 1991 to 1992. Mr. Rodewig also serves as Chairman of the Board
of Directors of Eaton Limited (United Kingdom). He also serves as a director of
FKI plc and AP Parts International. He is Chairman of the Company's Audit
Committee and a member of its Compensation Committee.
Marcos A. Rodriguez will become a director of the Company upon consummation
of the Transactions. Mr. Rodriguez is a principal of Joseph Littlejohn & Levy,
which he joined in 1989. Prior to that time, Mr. Rodriguez worked at General
Electric Company in various positions. Mr. Rodriguez serves on the Board of
Directors of MWC Holdings, Inc.
Kenneth L. Way has been a director of Hayes since December 1992. He has
served as Chairman and Chief Executive Officer of Lear Corporation, a publicly
traded company, since September 1988.
STOCKHOLDERS AGREEMENT
Hayes and each of the New Investors have agreed to enter into a
Stockholders Agreement at the Effective Time. The Stockholders Agreement will
provide that the New Investors will vote the New Common Stock received in the
Merger so that the Board of Directors will consist of nine members, of which
four members will be designated by JLL (currently, Messrs. Clark, Joseph, Levy
and Rodriguez), one member will be designated by TSG (currently, Mr.
Christophe), one member will be the Chief Executive Officer of the Company
(currently, Mr. Cucuz) and the remaining three members, which may not be
affiliated with the Company or any of the New Investors, will be selected by the
remaining members of the Company's Board of Directors (currently expected to be
Messrs. Rodewig and Way and one other independent director). The Stockholders
Agreement will provide that the respective rights of JLL and TSG to designate
directors will terminate if any such entity ceases to own at least 50% of its
initial investment. Each New Investor also will agree not to acquire any shares
of common stock of the Company if, as a result of such acquisition, such New
Investor would own in excess of 50% of the outstanding shares of common stock of
the Company. Pursuant to the Merger Agreement, the Company will assume the
rights and obligations of Hayes under the Stockholders Agreement.
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<PAGE> 62
OWNERSHIP OF NEW COMMON STOCK UPON CONSUMMATION OF THE TRANSACTIONS
The following table sets forth the expected ownership of New Common Stock
by each entity which is expected to own more than 5% of the then outstanding
shares of New Common Stock immediately upon consummation of the Transactions.
<TABLE>
<CAPTION>
PERCENT OF OWNERSHIP
OF
SHARES OF NEW SHARES OF NEW COMMON
COMMON STOCK(A) STOCK(B)
--------------- --------------------
<S> <C> <C>
Joseph Littlejohn & Levy Fund II, L.P. .................. 4,817,086 43.3%
TSG Capital Fund II, L.P. ............................... 1,406,250 12.6
CIBC WG Argosy Merchant Fund 2, L.L.C. .................. 1,250,000 11.2
Varity Corporation(c).................................... 814,400 7.3
Chase Equity Associates, L.P............................. 625,000 5.6
</TABLE>
- ---------------
(a) In addition, 943,000 shares of New Common Stock will be owned by pre-Merger
stockholders of Hayes other than Varity, constituting an ownership of
approximately 8.5% of the shares of New Common Stock (excluding Warrants
and options).
(b) Excludes options to purchase shares of New Common Stock held by certain
officers and directors of Hayes and Holdings and Warrants to purchase
1,300,000 shares of New Common Stock.
(c) Varity owns its shares through K-H Corporation, its indirect wholly owned
subsidiary.
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<PAGE> 63
DESCRIPTION OF THE CREDIT AGREEMENT
The Credit Agreement. In connection with the Merger, the Company expects to
enter into to the Credit Agreement, among the Company, Motor Wheel and the
Managing Agents, pursuant to which the Managing Agents and a syndicate of
lenders will lend to the Company up to $425 million in the form of a senior
secured term loan facility, such aggregate amount to be allocated among (i) a
Tranche A Term Loan Facility in an aggregate principal amount of up to $200
million (the "Tranche A Facility"), (ii) a Tranche B Term Loan Facility in an
aggregate principal amount of up to $125 million (the "Tranche B Facility") and
(iii) a Tranche C Term Loan Facility in an aggregate principal amount of up to
$100 million (the "Tranche C Facility") (collectively, the "Term Loan
Facilities"), and up to $220 million in the form of a senior secured revolving
credit facility (the "Revolving Credit Facility," and, together with the Term
Loan Facilities, the "Loans").
Pursuant to the Credit Agreement, CIBC has agreed to provide $387 million
of the aggregate principal amount of the Loans and Merrill Capital has agreed to
provide $258 million of such aggregate principal amount, each commitment to be
divided pro rata among the Loans. Each of the Managing Agents reserved the right
to syndicate all or a portion of its commitment to one or more financial
institutions (the "Lenders"), such institutions being subject to the Company's
approval. Upon the acceptance of the commitment of any Lender to provide a
portion of the Loans, each of CIBC and Merrill Capital will be released from a
portion of its commitment in an amount equal to its pro rata share of the
commitment of such Lender. In addition, CIBC has agreed to serve as
administrative and syndication agent (the "Agent") in connection with the Loans,
as well as fronting bank in connection with the letters of credit issued under
the Revolving Credit Facility. Merrill Capital has agreed to serve as
documentation agent in connection with the Loans.
The following terms and descriptions of the Loans are based upon the terms
set forth in the Commitment Letter and related documents.
Use of Proceeds; Maturity. The Term Loan Facilities and $100 million of the
Revolving Credit Facility will be made available to the Company and its
subsidiaries at the time of the Merger, to finance in part the Transactions. The
amount that will be borrowed under the Term Loan Facilities will be required to
be drawn in a single drawing upon the consummation of the Merger (such date is
referred to herein as the "Effective Time"). The Revolving Credit Facility will
also be made available at the Effective Time to finance (including through the
making of revolving loans and the issuance of letters of credit) working capital
requirements and general corporate purposes of the Company and its subsidiaries.
The Term Loan Facilities have maturity schedules as follows: (i) the Tranche A
Facility will mature on the sixth anniversary of the Effective Time, and will
amortize in quarterly installments under a schedule to be agreed upon; (ii) the
Tranche B Facility will mature on the seventh anniversary of the Effective Time,
and will amortize in quarterly installments under a schedule to be agreed upon;
and (iii) the Tranche C Facility will mature on the eighth anniversary of the
Effective Time, and will amortize in quarterly installments under a schedule to
be agreed upon. The Revolving Credit Facility will mature on the sixth
anniversary of the Effective Time. The Credit Agreement will require the Company
to reduce the amount outstanding under the Revolving Credit Facility to a level
to be agreed upon during a period to be agreed upon each year.
Prepayments; Reduction of Commitments. Loans under the Term Loan Facilities
are required to be prepaid and commitments under the Revolving Credit Facility
are required to be permanently reduced with (i) 75% of excess cash flow, (ii)
100% of the net cash proceeds of all non-ordinary-course asset sales or other
dispositions of the property by the Company and its subsidiaries (including
insurance and condemnation proceeds), subject to limited exceptions, and (iii)
100% of the net proceeds of issuances of debt obligations of the Company and its
subsidiaries, subject to limited exceptions. Such mandatory prepayments and
commitment reductions will first be allocated pro rata among the Term Loan
Facilities and second to commitments under the Revolving Credit Facility. Within
the Term Loan Facilities such prepayments will be applied pro rata to the
remaining amortization payments under each such Facility. However, the holders
of loans under the Tranche B Facility and the Tranche C Facility may, so long as
loans are outstanding under the Tranche A Facility, decline to accept any
mandatory prepayment described above and, under such circumstances, all amounts
that would otherwise be used to prepay loans under the Tranche B Facility and
the Tranche C Facility will be used to prepay loans under the Tranche A
Facility.
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Voluntary prepayments will be permitted in whole or in part, at the option
of the Company, in minimum principal amounts to be agreed upon, without premium
or penalty, subject to reimbursement of the Lenders' redeployment costs in the
case of prepayment of Adjusted LIBOR borrowings other than on the last day of
the relevant interest period. All Term Loan voluntary prepayments under the Term
Loan Facilities will be allocated pro rata among the Term Loan Facilities and,
within each such Facility, applied pro rata to the remaining amortization
payment under such Facility.
Interest and Fees. The interest rates under the Loans are, at the option of
the Company, as follows:
(a) Revolving Credit Facility and Tranche A Facility: Adjusted LIBOR
plus 2.50% per annum or the rate which is equal to the highest of CIBC's
prime rate, the federal funds rate plus 1/2 of 1% and the base certificate
of deposit rate plus 1% ("ABR") plus 1.50% per annum. Following the first
anniversary of the Effective Time, the spreads above the Adjusted LIBOR and
ABR set forth above will decrease in increments to be agreed upon if the
Company satisfies performance tests to be agreed upon and no event of
default under the Credit Agreement exists. The Credit Agreement will
require the Company to reduce the amount outstanding under the Revolving
Credit Facility to a level to be agreed upon during a specified period each
year.
(b) Tranche B Facility: Adjusted LIBOR plus 3.00% per annum or ABR
plus 2.00% per annum, with such spreads to remain in effect throughout the
term of the Term Loan Facilities.
(c) Tranche C Facility: Adjusted LIBOR plus 3.50% per annum or ABR
plus 2.50% per annum, with such spreads to remain in effect throughout the
term of the Term Loan Facilities.
The Company may elect interest periods of 1, 2, 3 or 6 months for Adjusted
LIBOR borrowings. Calculation of interest will be on the basis of actual number
of days elapsed in a year of 360 days (or 365 or 366 days, as the case may be,
in the case of ABR loans based on the Prime Rate) and interest will be payable
at the end of each interest period and, in any event, at least every 3 months.
The Credit Agreement provides for payment by the Company in respect of
outstanding letters of credit (i) a per annum fee equal to the spread over
Adjusted LIBOR for the Revolving Credit Facility from time to time in effect,
(ii) a facing fee to be negotiated with the issuing bank, plus (iii) customary
issuing fees and expenses. The Company will also pay a commitment fee equal to
one half of one percent per annum on (i) the undrawn portion of available
commitments in respect of the commitments for all the Loans, commencing to
accrue, with respect to the commitments of CIBC, Merrill Capital and each other
Lender, on the date such commitment is accepted and payable on the closing date
of the Credit Agreement (or the earlier termination of such commitment in which
case such fees will be payable by Motor Wheel in accordance with the Fee Letter)
and (ii) the undrawn portion of the Revolving Credit Facility, quarterly in
arrears after the closing date of the Credit Agreement.
Collateral and Guarantees. The Term Loan Facilities are guaranteed by the
Company and all of its existing and future domestic subsidiaries. The Term Loan
Facilities are secured by a first priority lien in substantially all of the
properties and assets of the Company and its respective domestic subsidiaries,
now owned or acquired later, including a pledge of all of the shares of the
Company's respective existing and future domestic subsidiaries and 65% of the
shares of their respective existing and future foreign subsidiaries.
Covenants. The Credit Agreement contains covenants restricting the ability
of the Company and its subsidiaries to, among others, (i) declare dividends or
redeem or repurchase capital stock, (ii) prepay, redeem or purchase debt, (iii)
incur liens and engage in sale-leaseback transactions, (iv) make loans and
investments, (v) issue more debt, (vi) amend or otherwise alter debt and other
material agreements, (vii) make capital expenditures, (viii) engage in mergers,
acquisitions and asset sales, (ix) transact with affiliates and (x) alter the
business it conducts. The Company must also make certain customary
indemnifications of the Managing Agents and their respective agents and will
also be required to comply with financial covenants with respect to: (i) a
maximum leverage ratio, (ii) a minimum interest coverage ratio and (iii) a
minimum fixed charge coverage ratio. The Company is also required to make
certain customary affirmative covenants.
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Events of Default. Events of default under the Credit Agreement include (i)
the Company's failure to pay principal or interest when due, (ii) the Company's
material breach of any covenant, representation or warranty contained in the
loan documents, (iii) customary cross-default provisions, (iv) events of
bankruptcy, insolvency or dissolution of the Company or its subsidiaries, (v)
the levy of certain judgments against the Company, its subsidiaries, or their
assets, (vi) certain adverse events under ERISA plans of the Company or its
subsidiaries, (vii) the actual or asserted invalidity of security documents or
guarantees of the Company or its subsidiaries and (viii) a change of control of
the Company.
DESCRIPTION OF THE NOTES
The Notes will be issued under an Indenture, dated as of July , 1996 (the
"Indenture") among the Company and Comerica Bank, as trustee (the "Trustee").
The terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act") as in effect on the date of the Indenture. The Notes
are subject to all such terms, and holders of the Notes are referred to the
Indenture and the Act for a statement of them. The following is a summary of the
material terms and provisions of the Notes. This summary does not purport to be
a complete description of the Notes and is subject to the detailed provisions
of, and qualified in its entirety by reference to, the Notes and the Indenture
(including the definitions contained therein). A copy of the form of Indenture
may be obtained from the Company by any holder or prospective investor upon
request. Definitions relating to certain capitalized terms are set forth under
"-- Certain Definitions" and throughout this description. Capitalized terms that
are used but not otherwise defined herein have the meanings assigned to them in
the Indenture and such definitions are incorporated herein by reference.
GENERAL
The Notes will be limited in aggregate principal amount to $250,000,000.
The Notes will be general unsecured obligations of the Company, subordinated in
right of payment to Senior Indebtedness of the Company and senior in right of
payment to any current or future subordinated indebtedness of the Company.
The Notes will be unconditionally guaranteed, on a senior subordinated
basis, as to payment of principal, premium, if any, and interest, jointly and
severally, by the Guarantors (together with each other Restricted Subsidiary
which guarantees payment of the Notes pursuant to the covenant described under
"Limitation on Creation of Subsidiaries").
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on July 15, 2006. The Notes will bear interest at a
rate of % per annum from the date of original issuance until maturity.
Interest is payable semi-annually in arrears on January 15 and July 15
commencing January 15, 1997, to holders of record of the Notes at the close of
business on the immediately preceding January 1, and July 1, respectively.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after July 15, 2001 at the following redemption prices
(expressed as a percentage of principal amount), together, in each case, with
accrued and unpaid interest to the redemption date, if redeemed during the
twelve-month period beginning on July 15 each year listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------------------------------------------------------------- ----------
<S> <C>
2001............................................................... %
2002............................................................... %
2003............................................................... %
2004 and thereafter................................................ 100%
</TABLE>
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Notwithstanding the foregoing, the Company may redeem in the aggregate up
to 35% of the original principal amount of the Notes at any time and from time
to time prior to July 15, 1999 at a redemption price equal to % of the
aggregate principal amount so redeemed, plus accrued interest to the redemption
date out of the Net Cash Proceeds of one or more Equity Offerings where the
proceeds to the Company of any such Equity Offering are at least $35.0 million;
provided, that at least $162.5 million of the principal amount of the Notes
originally issued remain outstanding immediately after the occurrence of any
such redemption and that any such redemption occurs within 60 days following the
closing of any such Equity Offering.
In the event of redemption of fewer than all of the Notes, the Trustee
shall select by lot or in such other manner as it shall deem fair and equitable
the Notes to be redeemed. The Notes will be redeemable in whole or in part upon
not less than 30 nor more than 60 days prior written notice, mailed by first
class mail to a holder's last address as it shall appear on the register
maintained by the Registrar of the Notes. On and after any redemption date,
interest will cease to accrue on the Notes or portions thereof called for
redemption unless the Company shall fail to redeem any such Note.
SUBORDINATION
The indebtedness represented by the Notes is, to the extent and in the
manner provided in the Indenture, subordinated in right of payment to the prior
indefeasible payment and satisfaction in full in cash of all existing and future
Senior Indebtedness of the Company. As of April 30, 1996, after giving pro forma
effect to the application of the net proceeds of the Offering and the
consummation of the Transactions, the principal amount of outstanding Senior
Indebtedness of the Company, on a consolidated basis, would have been
approximately $453.3 million.
In the event of any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, arrangement, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its creditors,
as such, or to its assets, whether voluntary or involuntary, or any liquidation,
dissolution or other winding-up of the Company, whether voluntary or involuntary
and whether or not involving insolvency or bankruptcy, or any general assignment
for the benefit of creditors or other marshalling of assets or liabilities of
the Company (except in connection with the merger or consolidation of the
Company or its liquidation or dissolution following the transfer of
substantially all of its assets, upon the terms and conditions permitted under
the circumstances described under "Merger, Consolidation or Sale of Assets")
(all of the foregoing referred to herein individually as a "Bankruptcy
Proceeding" and collectively as "Bankruptcy Proceedings"), the holders of Senior
Indebtedness of the Company will be entitled to receive payment and satisfaction
in full in cash of all amounts due on or in respect of all Senior Indebtedness
of the Company before the holders of the Notes are entitled to receive or retain
any payment or distribution of any kind on account of the Notes. In the event
that, notwithstanding the foregoing, the Trustee or any holder of Notes receives
any payment or distribution of assets of the Company of any kind, whether in
cash, property or securities, including, without limitation, by way of set-off
or otherwise, in respect of the Notes before all Senior Indebtedness of the
Company is paid and satisfied in full in cash, then such payment or distribution
will be held by the recipient in trust for the benefit of holders of Senior
Indebtedness and will be immediately paid over or delivered to the holders of
Senior Indebtedness or their representative or representatives to the extent
necessary to make payment in full in cash of all Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution, or
provision therefor, to or for the holders of Senior Indebtedness. By reason of
such subordination, in the event of liquidation or insolvency, creditors of the
Company who are holders of Senior Indebtedness may recover more, ratably, than
other creditors of the Company, and creditors of the Company who are not holders
of Senior Indebtedness or of the Notes may recover more, ratably, than the
holders of the Notes.
No payment or distribution of any assets or securities of the Company or
any Restricted Subsidiary of any kind or character (including, without
limitation, cash, property and any payment or distribution which may be payable
or deliverable by reason of the payment of any other Indebtedness of the Company
being subordinated to the payment of the Notes by the Company) may be made by or
on behalf of the Company or any Restricted Subsidiary, including, without
limitation, by way of set-off or otherwise, for or on account of the Notes, or
for or on account of the purchase, redemption, defeasance or other acquisition
of the Notes, and neither the
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Trustee nor any holder or owner of any Notes shall take or receive from the
Company or any Restricted Subsidiary, directly or indirectly in any manner,
payment in respect of all or any portion of the Notes following the delivery by
the representative of the holders of Designated Senior Indebtedness under or in
respect of the Credit Agreement, for so long as there shall exist any Designated
Senior Indebtedness under or in respect of the Credit Agreement, and thereafter,
the holders of Designated Senior Indebtedness (in either such case, the
"Representative") to the Trustee of written notice of (i) the occurrence of a
Payment Default on Designated Senior Indebtedness or (ii) the occurrence of a
Non-Payment Event of Default on Designated Senior Indebtedness and the
acceleration of the maturity of Designated Senior Indebtedness in accordance
with its terms and in any such event, such prohibition shall continue until such
Payment Default is cured, waived in writing or ceases to exist or such
acceleration has been rescinded or otherwise cured. At such time as the
prohibition set forth in the preceding sentence shall no longer be in effect,
subject to the provisions of the following paragraph, the Company shall resume
making any and all required payments in respect of the Notes, including any
missed payments.
Upon the occurrence of a Non-Payment Event of Default on Designated Senior
Indebtedness, no payment or distribution of any assets or securities of the
Company of any kind or character (including, without limitation, cash, property
and any payment or distribution which may be payable or deliverable by reason of
the payment of any other Indebtedness of the Company being subordinated to the
payment of the Notes by the Company) may be made by or on behalf of the Company,
including, without limitation, by way of set-off or otherwise, for or on account
of the Notes, or for or on account of the purchase, redemption, defeasance or
other acquisition of Notes, and neither the Trustee nor any holder or owner of
any Notes shall take or receive from the Company, directly or indirectly in any
manner, payment in respect of all or any portion of the Notes, for a period (a
"Payment Blockage Period") commencing on the date of receipt by the Trustee of
written notice from the Representative of such Non-Payment Event of Default
unless and until (subject to any blockage of payments that may then be in effect
under the preceding paragraph) the earliest of (x) more than 179 days shall have
elapsed since receipt of such written notice by the Trustee, (y) such
Non-Payment Event of Default shall have been cured or waived in writing or shall
have ceased to exist or such Designated Senior Indebtedness shall have been paid
in full or (z) such Payment Blockage Period shall have been terminated by
written notice to the Company or the Trustee from the Representative, after
which, in the case of clause (x), (y) or (z), the Company shall resume making
any and all required payments in respect of the Notes, including any missed
payments. Notwithstanding any other provision of the Indenture, in no event
shall a Payment Blockage Period commenced in accordance with the provisions of
the Indenture described in this paragraph extend beyond 179 days from the date
of the receipt by the Trustee of the notice referred to above (the "Initial
Blockage Period"). Any number of additional Payment Blockage Periods may be
commenced during the Initial Blockage Period; provided, however, that no such
additional Payment Blockage Period shall extend beyond the Initial Blockage
Period. After the expiration of the Initial Blockage Period, no Payment Blockage
Period may be commenced until at least 180 consecutive days have elapsed from
the last day of the Initial Blockage Period. Notwithstanding any other provision
of the Indenture, no event of default with respect to Designated Senior
Indebtedness (other than a Payment Default) which existed or was continuing on
the date of the commencement of any Payment Blockage Period initiated by the
Representative shall be, or be made, the basis for the commencement of a second
Payment Blockage Period initiated by the Representative, whether or not within
the Initial Blockage Period, unless such event of default shall have been cured
or waived for a period of not less than 90 consecutive days.
Each Guarantee will, to the extent set forth in the Indenture, be
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness of the respective Guarantor, including obligations of such
Guarantor with respect to the Credit Agreement (including any guarantee
thereof), and will be subject to the rights of holders of Designated Senior
Indebtedness of such Guarantor to initiate blockage periods, upon terms
substantially comparable to the subordination of the Notes to all Senior
Indebtedness of the Company.
If the Company or any Guarantor fails to make any payment on the Notes or
any Guarantee, as the case may be, when due or within any applicable grace
period, whether or not on account of payment blockage provisions, such failure
would constitute an Event of Default under the Indenture and would enable the
holders of the Notes to accelerate the maturity thereof. See "Events of
Default."
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A holder of Notes by his acceptance of Notes agrees to be bound by such
provisions and authorizes and expressly directs the Trustee, on his behalf, to
take such action as may be necessary or appropriate to effectuate the
subordination provided for in the Indenture and appoints the Trustee his
attorney-in-fact for such purpose.
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants. Except
as otherwise specified, all of the covenants described below will appear in the
Indenture.
Limitation on Additional Indebtedness
The Company will not, and will not permit any Restricted Subsidiary of the
Company to, directly or indirectly, incur (as defined) any Indebtedness
(including Acquired Indebtedness) other than Permitted Indebtedness.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may incur Indebtedness (including Acquired Indebtedness), if (i) after giving
effect to the incurrence of such Indebtedness and the receipt and application of
the proceeds thereof, the Company's Fixed Charge Coverage Ratio (determined on a
pro forma basis for the last four fiscal quarters of the Company for which
financial statements are available at the date of determination in accordance
with the further provisions of this paragraph) is greater than 2.0 to 1 if the
Indebtedness is incurred prior to , 1999 and 2.25 to 1 if the
Indebtedness is incurred thereafter and (ii) no Default or Event of Default
shall have occurred and be continuing at the time or as a consequence of the
incurrence of such Indebtedness. For purposes of computing the Fixed Charge
Coverage Ratio, (A) if the Indebtedness which is the subject of a determination
under this provision is Acquired Indebtedness, or Indebtedness incurred in
connection with the simultaneous acquisition (by way of merger, consolidation or
otherwise) of any Person, business, property or assets (an "Acquisition"), then
such ratio shall be determined by giving effect to (on a pro forma basis, as if
the transaction had occurred at the beginning of the four-quarter period used to
make such calculation) to both the incurrence or assumption of such Acquired
Indebtedness or such other Indebtedness and the inclusion in the Company's
EBITDA of the EBITDA of the acquired Person, business, property or assets, (B)
if any Indebtedness outstanding or to be incurred (x) bears a floating rate of
interest, the interest expense on such Indebtedness shall be calculated as if
the rate in effect on the date of determination had been the applicable rate for
the entire period (taking into account on a pro forma basis any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term as at the date of determination in excess of 12 months), (y)
bears, at the option of the Company or a Restricted Subsidiary, a fixed or
floating rate of interest, the interest expense on such Indebtedness shall be
computed by applying, at the option of the Company or such Restricted
Subsidiary, either a fixed or floating rate and (z) was incurred under a
revolving credit facility, the interest expense on such Indebtedness shall be
computed based upon the average daily balance of such Indebtedness during the
applicable period, (C) for any quarter prior to the date hereof included in the
calculation of such ratio, such calculation shall be made on a pro forma basis,
giving effect to the acquisition by the Company of Motor Wheel, the issuance of
the Notes, the incurrence of Indebtedness under the Credit Agreement and the use
of the net proceeds therefrom as if the same had occurred at the beginning of
the four-quarter period used to make such calculation and (D) for any quarter
included in the calculation of such ratio prior to the date that any Asset Sale
was consummated, or that any Indebtedness was incurred, or that any Acquisition
was effected, by the Company or any of its Subsidiaries, such calculation shall
be made on a pro forma basis, giving effect to each Asset Sale, incurrence of
Indebtedness or Acquisition, as the case may be, and the use of any proceeds
therefrom, as if the same had occurred at the beginning of the four quarter
period used to make such calculation.
Limitation on Foreign Indebtedness
The Company will not permit any Restricted Subsidiary of the Company which
is not a Guarantor to, directly or indirectly, incur (as defined) any
Indebtedness (including Acquired Indebtedness) other than Permitted Indebtedness
set forth in clauses (i) through (x) of the definition thereof unless (i) the
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Indebtedness is incurred, denominated and payable in the local currencies of the
jurisdictions of the operations of the Restricted Subsidiary incurring such
Indebtedness or of the business or the location of assets being acquired with
the proceeds of such Indebtedness; provided, however, that any Indebtedness
permitted to be incurred in a Western European currency pursuant to this clause
(i) may be incurred in any Western European currency; provided, further, that
any Restricted Subsidiary whose operations are located in Mexico can also incur
Indebtedness denominated and payable in U.S. dollars, (ii) after giving effect
to the incurrence of such Indebtedness and the receipt of the application of the
proceeds thereof, (A) if, as a result of the incurrence of such Indebtedness
such Restricted Subsidiary will become subject to any restriction or limitation
on the payment of dividends or the making of other distributions, (I) the ratio
of Foreign EBITDA to Foreign Interest Expense (determined on a pro forma basis
for the last four fiscal quarters for which financial statements are available
at the date of determination) is greater than 3.0 to 1 and (II) the ratio of the
Company's Adjusted EBITDA to Consolidated Fixed Charges (determined on a pro
forma basis for the last four fiscal quarters of the Company for which financial
statements are available at the date of determination) is greater than 2.0 to 1
if the Indebtedness is incurred prior to , 1999 and 2.25 to 1 if the
Indebtedness is incurred thereafter and (B) in any other case, the Company's
Fixed Charge Coverage Ratio (determined on a pro forma basis for the last four
fiscal quarters of the Company for which financial statements are available at
the date of determination) is greater than 2.0 to 1 if the Indebtedness is
incurred prior to , 1999 and 2.25 to 1 if the Indebtedness is
incurred thereafter, and (iii) no Default or Event of Default shall have
occurred and be continuing at the time or as a consequence of the incurrence of
such Indebtedness.
In the event that any Indebtedness incurred pursuant to clause (ii)(B) of
the foregoing paragraph is proposed to be amended, modified or otherwise
supplemented such that the payment of dividends or the making of other
distributions becomes subject in any manner to any restriction or limitation,
the Company will not permit the Restricted Subsidiary to so amend, modify or
supplement such Indebtedness unless such Indebtedness could be incurred pursuant
to the terms of clause (ii)(A) of the foregoing paragraph.
All calculations required under the prior two paragraphs hereof shall be
made in a manner consistent with the calculations required under the covenant
described under "Limitation on Additional Indebtedness."
Limitation on Restricted Payments
The Company will not make, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to such
Restricted Payment;
(b) immediately after giving pro forma effect to such Restricted
Payment, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the covenant set forth under "Limitation
on Additional Indebtedness"; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of (1) $5 million, plus (2) 50% of the Company's
Consolidated Net Income (or in the event that such Consolidated Net Income
shall be a deficit, minus 100% of such deficit) after the Issue Date, plus
(3) 100% of the aggregate Net Cash Proceeds from the issue or sale, after
the Issue Date, of Capital Stock (other than Disqualified Capital Stock or
Capital Stock of the Company issued to any Subsidiary of the Company) of
the Company or any Indebtedness or other securities of the Company
convertible into or exercisable or exchangeable for Capital Stock (other
than Disqualified Capital Stock) of the Company which has been so converted
or exercised or exchanged, as the case may be. For purposes of determining
under this clause (c) the amount expended for Restricted Payments, cash
distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its fair market value.
The provisions of this covenant shall not prohibit (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions
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of the Indenture, (ii) the retirement of any shares of Capital Stock of the
Company or Indebtedness which is subordinated in right of payment to the Notes
by conversion into, or by or in exchange for, shares of Capital Stock (other
than Disqualified Capital Stock), or out of, the Net Cash Proceeds of the
substantially concurrent sale (other than to a Subsidiary of the Company) of
other shares of Capital Stock of the Company (other than Disqualified Capital
Stock), (iii) the redemption, repayment or retirement of Indebtedness of the
Company subordinated in right of payment to the Notes in exchange for, by
conversion into, or out of the Net Cash Proceeds of, a substantially concurrent
sale or incurrence of Indebtedness (other than any Indebtedness owed to a
Subsidiary) of the Company that is contractually subordinated in right of
payment to the Notes to at least the same extent as the Indebtedness being
redeemed, repaid or retired, (iv) the retirement of any shares of Disqualified
Capital Stock by conversion into, or by exchange for, shares of Disqualified
Capital Stock, or out of the Net Cash Proceeds of the substantially concurrent
issuance or sale (other than to a Subsidiary of the Company) of other shares of
Disqualified Capital Stock, or (v) the making of Investments in Unrestricted
Subsidiaries and joint ventures, provided that the Net Investment therein shall
not exceed an aggregate of $15 million and (vi) the making of Investments funded
with the transfer of excess fixed assets no longer necessary in the conduct of
the business of the Company and its Subsidiaries in an aggregate amount not to
exceed $15 million; provided, however, that in calculating the aggregate amount
of Restricted Payments made subsequent to the Issue Date, the amount of Net
Investments made pursuant to clauses (v) and (vi) shall be included in the
calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Limitation on Restricted Payments" were computed,
which calculations may be based upon the Company's latest available financial
statements, and that no Default or Event of Default exists and is continuing and
no Default or Event of Default will occur immediately after giving effect to any
such Restricted Payments.
Limitation on Other Senior Subordinated Debt
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, incur, contingently or otherwise, any
Indebtedness (other than the Notes and the Guarantees, as the case may be) that
is both (i) subordinate in right of payment to any Senior Indebtedness of the
Company or its Restricted Subsidiaries, as the case may be, and (ii) senior in
right of payment to the Notes and the Guarantees, as the case may be. For
purposes of this covenant, Indebtedness is deemed to be senior in right of
payment to the Notes and the Guarantees, as the case may be, if it is not
explicitly subordinate in right of payment to Senior Indebtedness at least to
the same extent as the Notes and the Guarantees, as the case may be, are
subordinate to Senior Indebtedness.
Limitations on Liens
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur or otherwise cause or suffer to exist or become
effective any Liens of any kind upon any Property of the Company or any
Restricted Subsidiary, now owned or hereafter acquired, which secures
Indebtedness pari passu with or subordinated to the Notes unless (i) if such
Lien secures Indebtedness which is pari passu with the Notes, then the Notes are
secured on an equal and ratable basis with the obligations so secured until such
time as such obligation is no longer secured by a Lien or (ii) if such Lien
secures Indebtedness which is subordinated to the Notes, any such Lien shall be
subordinated to a Lien granted to the Holders of the Notes in the same
collateral as that securing such Lien to the same extent as such subordinated
Indebtedness is subordinated to the Notes.
Limitation on Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with any
Affiliate (including entities in which the Company or any of its Restricted
Subsidiaries own a minority interest) or holder of 10% or more of the Company's
Common Stock (an "Affiliate Transaction") or extend, renew, waive or otherwise
modify the terms of any Affiliate Transaction entered into prior to the Issue
Date unless (i) such Affiliate Transaction is
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between or among the Company and/or its Wholly-Owned Subsidiaries; or (ii) the
terms of such Affiliate Transaction is fair and reasonable to the Company or
such Restricted Subsidiary, as the case may be, and the terms of such Affiliate
Transaction are at least as favorable as the terms which could be obtained by
the Company or such Restricted Subsidiary, as the case may be, in a comparable
transaction made on an arm's-length basis between unaffiliated parties. In any
Affiliate Transaction involving an amount or having a value in excess of $2
million which is not permitted under clause (i) above, the Company must obtain a
resolution of the Board of Directors certifying that such Affiliate Transaction
complies with clause (ii) above. In transactions with a value in excess of $10
million which are not permitted under clause (i) above, the Company or such
Restricted Subsidiary must obtain a written opinion as to the fairness of such a
transaction from an independent investment banking firm.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under "Limitations on Restricted
Payments" contained herein, (ii) reasonable and customary fees paid by the
Company or its Restricted Subsidiaries to their respective directors or (iii)
customary investment banking, underwriting, placement agent or financial advisor
fees paid in connection with services rendered to the Company or its
Subsidiaries.
Limitation on Creation of Subsidiaries
The Company shall not create or acquire, nor permit any of its Restricted
Subsidiaries to create or acquire, any Subsidiary other than (i) a Restricted
Subsidiary existing as of the date of the Indenture, (ii) a Restricted
Subsidiary conducting a business similar or reasonably related to the business
of the Company and its Subsidiaries as conducted on the Issue Date, or (iii) an
Unrestricted Subsidiary; provided, however, that each Restricted Subsidiary
which is a Domestic Subsidiary acquired or created pursuant to clause (ii) shall
have executed a guarantee, satisfactory in form and substance to the Trustee
(and with such documentation relating thereto as the Trustee shall require,
including, without limitation a supplement or amendment to the Indenture and
opinions of counsel as to the enforceability of such guarantee), pursuant to
which such Restricted Subsidiary shall become a Guarantor. Neither the Company
nor any of the Guarantors will transfer any assets to a Domestic Restricted
Subsidiary which is not a Guarantor unless such Restricted Subsidiary
simultaneously with such transfer executes a guarantee satisfactory in form and
substance to the Trustee (together with the documentation referred to in the
preceding sentence) pursuant to which such Restricted Subsidiary shall become a
Guarantor. See "-- General."
Limitation on Certain Asset Sales
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company or its
Restricted Subsidiaries, as the case may be, receives consideration at the time
of such sale or other disposition at least equal to the fair market value
thereof (as determined in good faith by the Company's board of directors, and
evidenced by a board resolution); (ii) not less than 75% of the consideration
received by the Company or its Subsidiaries, as the case may be, is in the form
of cash or Temporary Cash Investments other than in the case where the Company
or a Restricted Subsidiary is exchanging assets held by the Company or such
Restricted Subsidiary for assets held by another Person provided that any
Investment received in such exchange would be permitted under clause (b) below;
and (iii) the Asset Sale Proceeds received by the Company or such Restricted
Subsidiary are applied (a) first, to the extent the Company elects, or is
required, to prepay, repay or purchase any then existing Senior Indebtedness of
the Company or any Restricted Subsidiary within 180 days following the receipt
of the Asset Sale Proceeds from any Asset Sale, provided that any such repayment
shall result in a permanent reduction of the commitments, if any, thereunder in
an amount equal to the principal amount so repaid; (b) second, to the extent of
the balance of Asset Sale Proceeds after application as described above, to the
extent the Company elects, to an investment in assets used or useful in
businesses similar or reasonably related to the business of the Company or
Restricted Subsidiary as conducted on the Issue Date (either directly or
indirectly through the purchase of Capital Stock or other securities of a person
holding such assets), provided that such investment occurs or the Company or a
Restricted Subsidiary enters into contractual commitments to make such
investment, subject only to customary conditions (other than the obtaining of
financing), on or prior to the 181st day following receipt of such Asset Sale
Proceeds (the "Reinvestment Date") and Asset Sale Proceeds contractually
committed are so applied within 270 days following the receipt of such Asset
Sale
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Proceeds; and (c) third, if on the Reinvestment Date with respect to any Asset
Sale, the Available Asset Sale Proceeds exceed $10 million, the Company shall
apply an amount equal to such Available Asset Sale Proceeds to an offer to
repurchase the Notes, at a purchase price in cash equal to 100% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
repurchase (an "Excess Proceeds Offer"). If an Excess Proceeds Offer is not
fully subscribed, the Company may retain the portion of the Available Asset Sale
Proceeds not required to repurchase Notes.
If the Company is required to make an Excess Proceeds Offer, the Company
shall mail, within 30 days following the Reinvestment Date, a notice to the
Holders stating, among other things: (1) that such Holders have the right to
require the Company to apply the Available Asset Sale Proceeds to repurchase
such Notes at a purchase price in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase; (2)
the purchase date, which shall be no earlier than 30 days and not later than 60
days from the date such notice is mailed; (3) the instructions, determined by
the Company, that each Holder must follow in order to have such Notes
repurchased; and (4) the calculations used in determining the amount of
Available Asset Sale Proceeds to be applied to the repurchase of such Notes.
Limitation on Common Stock of Subsidiaries
The Company will not (i) sell, pledge, hypothecate or otherwise convey or
dispose of any Common Stock of a Restricted Subsidiary (other than under or in
respect of the Credit Agreement or under the terms of any Designated Senior
Indebtedness and other than pledges of the Capital Stock of Restricted
Subsidiaries that are not Guarantors securing Indebtedness of such Restricted
Subsidiaries that are not Guarantors) or (ii) permit any of its Subsidiaries to
issue any Common Stock, other than to the Company or a Wholly-Owned Subsidiary
of the Company. The foregoing restrictions shall not apply to an Asset Sale made
in compliance with "Limitation on Certain Asset Sales."
Payments for Consent
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all holders of the Notes which so consent, waive or agree to amend
in the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
CHANGE OF CONTROL OFFER
Within 20 days of the occurrence of a Change of Control, the Company shall
notify the Trustee in writing of such occurrence and shall make an offer to
purchase (the "Change of Control Offer") the outstanding Notes at a purchase
price equal to 101% of the principal amount thereof plus any accrued and unpaid
interest thereon to the Change of Control Payment Date (as hereinafter defined)
(such applicable purchase price being hereinafter referred to as the "Change of
Control Purchase Price") in accordance with the procedures set forth in this
covenant.
Within 20 days of the occurrence of a Change of Control, the Company also
shall (i) cause a notice of the Change of Control Offer to be sent at least once
to the Dow Jones News Service or similar business news service in the United
States and (ii) send by first-class mail, postage prepaid, to the Trustee and to
each holder of the Notes, at the address appearing in the register maintained by
the Registrar of the Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment, and
otherwise subject to the terms and conditions set forth herein;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 20 business days from the date such
notice is mailed (the "Change of Control Payment Date"));
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(3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
(5) that holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day preceding the Change of Control
Payment Date;
(6) that holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Notes delivered for purchase, and a
statement that such holder is withdrawing his election to have such Notes
purchased;
(7) that holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, provided that each Note purchased and each such new
Note issued shall be in an original principal amount in denominations of
$1,000 and integral multiples thereof;
(8) any other procedures that a holder must follow to accept a Change
of Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Company shall, to the extent
lawful, (i) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient
to pay the purchase price of all Notes or portions thereof so tendered and (iii)
deliver or cause to be delivered to the Trustee Notes so accepted together with
an Officers' Certificate stating the Notes or portions thereof tendered to the
Company. The Paying Agent shall promptly mail to each holder of Notes so
accepted payment in an amount equal to the purchase price for such Notes, and
the Company shall execute and issue, and the Trustee shall promptly authenticate
and mail to such holder, a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered; provided that each such new Note shall be
issued in an original principal amount in denominations of $1,000 and integral
multiples thereof.
The Indenture requires that if the Credit Agreement is in effect, or any
amounts are owing thereunder or in respect thereof, at the time of the
occurrence of a Change of Control, prior to the mailing of the notice to holders
described in the preceding paragraph, but in any event within 30 days following
any Change of Control, the Company covenants to (i) repay in full all
obligations under or in respect of the Credit Agreement or offer to repay in
full all obligations under or in respect of the Credit Agreement and repay the
obligations under or in respect of the Credit Agreement of each lender who has
accepted such offer or (ii) obtain the requisite consent under the Credit
Agreement to permit the repurchase of the Notes as described above. The Company
must first comply with the covenant described in the preceding sentence before
it shall be required to purchase Notes in the event of a Change of Control;
provided that the Company's failure to comply with the covenant described in the
preceding sentence constitutes an Event of Default described in clause (iii)
under "Events of Default" below if not cured within 60 days after the notice
required by such clause. As a result of the foregoing, a holder of the Notes may
not be able to compel the Company to purchase the Notes unless the Company is
able at the time to refinance all of the obligations under or in respect of the
Credit Agreement or obtain requisite consents under the Credit Agreement.
Failure by the Company to make a Change of Control Offer when required by the
Indenture constitutes a default under the Indenture and, if not cured within 60
days after notice, constitutes an Event of Default.
The Indenture will provide that, (A) if the Company or any Subsidiary
thereof has issued any outstanding (i) Indebtedness that is subordinated in
right of payment to the Notes or (ii) Preferred Stock, and the Company or such
Subsidiary is required to make a Change of Control Offer or to make a
distribution
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with respect to such subordinated Indebtedness or Preferred Stock in the event
of a change of control, the Company shall not consummate any such offer or
distribution with respect to such subordinated Indebtedness or Preferred Stock
until such time as the Company shall have paid the Change of Control Purchase
Price in full to the holders of Notes that have accepted the Company's Change of
Control Offer and shall otherwise have consummated the Change of Control Offer
made to holders of the Notes and (B) the Company will not issue Indebtedness
that is subordinated in right of payment to the Notes or Preferred Stock with
change of control provisions requiring the payment of such Indebtedness or
Preferred Stock prior to the payment of the Notes in the event of a Change in
Control under the Indenture.
In the event that a Change of Control occurs and the holders of Notes
exercise their right to require the Company to purchase Notes, if such purchase
constitutes a "tender offer" for purposes of Rule 14e-1 under the Exchange Act
at that time, the Company will comply with the requirements of Rule 14e-1 as
then in effect with respect to such repurchase.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company will not and will not permit any Guarantor to consolidate with,
merge with or into, or transfer all or substantially all of its assets (as an
entirety or substantially as an entirety in one transaction or a series of
related transactions), to any Person unless: (i) the Company or the Guarantor,
as the case may be, shall be the continuing Person, or the Person (if other than
the Company or the Guarantor) formed by such consolidation or into which the
Company or the Guarantor, as the case may be, is merged or to which the
properties and assets of the Company or the Guarantor, as the case may be, are
transferred shall be a corporation organized and existing under the laws of the
United States or any State thereof or the District of Columbia and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, in form satisfactory to the Trustee, all of the obligations of the
Company or the Guarantor, as the case may be, under the Notes and the Indenture,
and the obligations under the Indenture shall remain in full force and effect;
(ii) immediately before and immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be continuing; and (iii)
immediately after giving effect to such transaction on a pro forma basis the
Company or such Person could incur at least $1.00 additional Indebtedness (other
than Permitted Indebtedness) under the covenant set forth under "Limitation on
Additional Indebtedness," provided that a Person that is a Guarantor may merge
into the Company or another Person that is a Guarantor without complying with
this clause (iii).
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
GUARANTEES
The Notes will be guaranteed on a senior subordinated basis by the
Guarantors. All payments pursuant to the Guarantees by the Guarantors are
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness of the Guarantor, to the same extent and in the same manner that
all payments pursuant to the Notes are subordinated in right of payment to the
prior payment in full of all Senior Indebtedness of the Company.
The obligations of each Guarantor are limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor (including, without limitation, any guarantees of Senior Indebtedness)
and after giving effect to any collections from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor
under its Guarantee or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Guarantor under the Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a Guarantee
shall be entitled to a contribution from each other Guarantor in a pro rata
amount based on the Adjusted Net Assets of each Subsidiary Guarantor.
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A Guarantor shall be released from all of its obligations under its
Guarantee if all or substantially all of its assets are directly or indirectly
sold or all of its Capital Stock is directly or indirectly sold, in all such
cases in a transaction in compliance with the covenant described under
"Limitation on Certain Asset Sales," or the Guarantor merges with or into or
consolidates with, or transfers all or substantially all of its assets to, the
Company or another Guarantor in a transaction in compliance with "Merger,
Consolidation or Sale of Assets," and such Guarantor has delivered to the
Trustee an Officers' Certificate and an opinion of counsel, each stating that
all conditions precedent herein provided for relating to such transaction have
been complied with.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) default in payment of any principal of, or premium, if any, on the
Notes;
(ii) default for 30 days in payment of any interest on the Notes;
(iii) default by the Company or any Guarantor in the observance or
performance of any other covenant in the Notes or the Indenture for 60 days
after written notice from the Trustee or the holders of not less than 25%
in aggregate principal amount of the Notes then outstanding;
(iv) default in the payment at final maturity of principal in an
aggregate amount of $10,000,000 or more with respect to any Indebtedness of
the Company or any Restricted Subsidiary thereof which default shall not be
cured, waived or postponed pursuant to an agreement with the holders of
such Indebtedness within 60 days after written notice, or the acceleration
of any such Indebtedness aggregating $10,000,000 or more which acceleration
shall not be rescinded or annulled within 20 days after written notice as
provided in the Indenture;
(v) any final judgment or judgments which can no longer be appealed
for the payment of money in excess of $10,000,000 shall be rendered against
the Company or any Restricted Subsidiary thereof, and shall not be
discharged for any period of 60 consecutive days during which a stay of
enforcement shall not be in effect; and
(vi) certain events involving bankruptcy, insolvency or reorganization
of the Company or any Restricted Subsidiary thereof.
The Indenture provides that the Trustee may withhold notice to the holders
of the Notes of any default (except in payment of principal or premium, if any,
or interest on the Notes) if the Trustee considers it to be in the best interest
of the holders of the Notes to do so.
The Indenture will provide that if an Event of Default (other than an Event
of Default resulting from certain events of bankruptcy, insolvency or
reorganization of the Company) shall have occurred and be continuing, then the
Trustee or the holders of not less than 25% in aggregate principal amount of the
Notes then outstanding may declare to be immediately due and payable the entire
principal amount of all the Notes then outstanding plus accrued interest to the
date of acceleration and (i) such amounts shall become immediately due and
payable or (ii) if there are any amounts outstanding under or in respect of the
Credit Agreement, such amounts shall become due and payable upon the first to
occur of an acceleration of amounts outstanding under or in respect of the
Credit Agreement or five business days after receipt by the Company and the
Representative of the holders of Senior Indebtedness under or in respect of the
Credit Agreement of notice of the acceleration of the Notes; provided, however,
that after such acceleration but before a judgment or decree based on
acceleration is obtained by the Trustee, the holders of a majority in aggregate
principal amount of outstanding Notes may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than nonpayment of
accelerated principal, premium or interest, have been cured or waived as
provided in the Indenture. In case an Event of Default resulting from certain
events of bankruptcy, insolvency or reorganization of the Company shall occur,
the principal, premium and interest amount with respect to all of the Notes
shall be due and payable immediately without any declaration or other act on the
part of the Trustee or the holders of the Notes.
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The holders of a majority in principal amount of the Notes then outstanding
shall have the right to waive any existing default or compliance with any
provision of the Indenture or the Notes and to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture.
No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the holders of at least 25% in aggregate principal
amount of the outstanding Notes shall have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as a trustee,
and unless the Trustee shall not have received from the holders of a majority in
aggregate principal amount of the outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instituted on such Note
on or after the respective due dates expressed in such Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides the Company may elect either (a) to defease and be
discharged from any and all obligations with respect to the Notes (except for
the obligations to register the transfer or exchange of such Notes, to replace
temporary or mutilated, destroyed, lost or stolen Notes, to maintain an office
or agency in respect of the Notes and to hold monies for payment in trust)
("defeasance") or (b) to be released from their obligations with respect to the
Notes under certain covenants contained in the Indenture and described above
under "-- Certain Covenants" ("covenant defeasance"), upon the deposit with the
Trustee (or other qualifying trustee), in trust for such purpose, of money
and/or U.S. Government Obligations which through the payment of principal and
interest in accordance with their terms will provide money, in an amount
sufficient to pay the principal of, premium, if any, and interest on the Notes,
on the scheduled due dates therefor or on a selected date of redemption in
accordance with the terms of the Indenture. Such a trust may only be established
if, among other things, the Company has delivered to the Trustee an Opinion of
Counsel (as specified in the Indenture) (i) to the effect that neither the trust
nor the Trustee will be required to register as an investment company under the
Investment Company Act of 1940, as amended, and (ii) to the effect that holders
of the Notes or persons in their positions will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit, defeasance and
discharge and will be subject to federal income tax on the same amount and in
the same manner and at the same times, as would have been the case if such
deposit, defeasance and discharge had not occurred which in the case of
discharge only, must be based upon a private ruling concerning the Notes, a
published ruling of the Internal Revenue Service or a change in applicable
federal tax law.
MODIFICATION OF INDENTURE
From time to time, the Company, the Guarantors and the Trustee may, without
the consent of holders of the Notes, amend the Indenture or the Notes or
supplement the Indenture for certain specified purposes, including providing for
uncertificated Notes in addition to certificated Notes, and curing any
ambiguity, defect or inconsistency, or making any other change that does not
materially and adversely affect the rights of any holder. The Indenture contains
provisions permitting the Company, the Guarantors and the Trustee, with the
consent of holders of at least a majority in principal amount of the outstanding
Notes, to modify or supplement the Indenture or the Notes, except that no such
modification shall, without the consent of each holder affected thereby, (i)
reduce the amount of Notes whose holders must consent to an amendment,
supplement, or waiver to the Indenture or the Notes, (ii) reduce the rate of or
change the time for payment of interest on any Note, (iii) reduce the principal
of or premium on or change the stated maturity of any Note, (iv) make any Note
payable in money other than that stated in the Note or change the place of
payment from New York, New York, (v) change the amount or time of any payment
required by the Notes or reduce the premium payable upon any redemption of
Notes, or change the time before which no such redemption may be made, (vi)
waive a default on the payment of the principal of, interest on, or redemption
payment with respect to any Note, or (vii) take any other action otherwise
prohibited by the Indenture to be taken without the consent of each holder
affected thereby.
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REPORTS TO HOLDERS
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it will continue to furnish the information required thereby
to the Commission and to the holders of the Notes. The Indenture provides that
even if the Company is entitled under the Exchange Act not to furnish such
information to the Commission or to the holders of the Notes, they will
nonetheless continue to furnish such information to the Commission and holders
of the Notes.
COMPLIANCE CERTIFICATE
The Company will deliver to the Trustee on or before 100 days after the end
of the Company's fiscal year and on or before 50 days after the end of each the
first, second and third fiscal quarters in each year an Officers' Certificate
stating whether or not the signers know of any Default or Event of Default that
has occurred. If they do, the certificate will describe the Default or Event of
Default and its status.
THE TRUSTEE
The Trustee under the Indenture will be the Registrar and Paying Agent with
regard to the Notes. The Indenture provides that, except during the continuance
of an Event of Default, the Trustee will perform only such duties as are
specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs. The Trustee is currently a co-agent under Hayes' existing credit
agreement, which will be repaid in full upon consummation of the Transactions.
TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar under such Indenture may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any taxes and fees required by law or permitted by the Indentures. The Registrar
is not required to transfer or exchange any Note selected for redemption. Also,
the Registrar is not required to transfer or exchange any Note for a period of
15 days before selection of the Notes to be redeemed.
The registered holder of a Note may be treated as the owner of it for all
purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture. Reference is made to the Indenture for the
full definition of all such terms as well as any other capitalized terms used
herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or is merged or consolidated with or into the Company or a Restricted
Subsidiary or assumed in connection with the acquisition of assets from such
Person.
"Adjusted EBITDA" means, for any Person, for any period, the EBITDA of such
Person, plus any amounts excluded from the calculation of the Consolidated Net
Income of such Person pursuant to clause (b) of the definition thereof.
"Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of
the amount by which (x) the fair value of the property of such Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities
(including, without limitation, any guarantees of Senior Indebtedness)), but
excluding liabilities under the Guarantee, of such Guarantor at such date and
(y) the present fair salable value of the assets of such Guarantor at such date
exceeds the amount that will be required to pay the probable liability of such
Guarantor on its debts (after giving effect to all other fixed and contingent
liabilities (including, without limitation, any guarantees of Senior
Indebtedness) and after giving effect to any collection from any Subsidiary of
such Guarantor in respect of the
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obligations of such Subsidiary under the Guarantee), excluding Indebtedness in
respect of the Guarantee, as they become absolute and matured.
"Affiliate" of any specified Person means any other Person which directly
or indirectly through one or more intermediaries controls, or is controlled by,
or is under common control with, such specified Person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
"Asset Sale" means the sale, transfer or other disposition in any single
transaction or series of related transactions of (a) any Capital Stock of or
other equity interest in any Restricted Subsidiary of the Company, (b) all or
substantially all of the assets of the Company or of any Restricted Subsidiary
thereof, (c) real property or (d) all or substantially all of the assets of any
business owned by the Company or any Restricted Subsidiary thereof, or a
division, line of business or comparable business segment of the Company or any
Restricted Subsidiary thereof; provided that Asset Sales shall not include (i)
sales, leases, conveyances, transfers or other dispositions to the Company or to
a Restricted Subsidiary or to any other Person if after giving effect to such
sale, lease, conveyance, transfer or other disposition such other Person becomes
a Restricted Subsidiary, (ii) leases, conveyances or other transfers by the
Company or a Restricted Subsidiary of Property to any Person as an Investment in
such Person provided that the Company or such Restricted Subsidiary receives
consideration at the time of such lease, conveyance or other transfer at least
equal to the fair market value of such Property and such Investment is included
in clause (v) of the second paragraph of "Limitation on Restricted Payments"
contained herein.
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by the Company or any Restricted Subsidiary from such Asset Sale
(including cash received as consideration for the assumption of liabilities
incurred in connection with or in anticipation of such Asset Sale), after (a)
provision for all income or other taxes measured by or resulting from such Asset
Sale, (b) payment of all brokerage commissions, underwriting and other fees and
expenses related to such Asset Sale, (c) provision for minority interest holders
in any Restricted Subsidiary as a result of such Asset Sale and (d) deduction of
appropriate amounts to be provided by the Company or a Restricted Subsidiary as
a reserve, in accordance with GAAP, against any liabilities associated with the
assets sold or disposed of in such Asset Sale and retained by the Company or a
Restricted Subsidiary after such Asset Sale, including, without limitation,
pension and other post employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
the assets sold or disposed of in such Asset Sale, and (ii) promissory notes and
other non-cash consideration received by the Company or any Restricted
Subsidiary from such Asset Sale or other disposition upon the liquidation or
conversion of such notes or non-cash consideration into cash.
"Attributable Indebtedness" means, in respect of a Sale and Lease-Back
Transaction, as of the time of determination, the present value of the notes
(discounted according to GAAP at the cost of indebtedness implied in the lease)
of the total obligations of the lessee for rental payments during the remaining
term of the lease included in such Sale and Lease-Back Transaction (including
any period for which such lease has been extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sales that have not been applied
in accordance with clauses (iii)(a) or (iii)(b), and which has not yet been the
basis for an Excess Proceeds Offer in accordance with clause (iii)(c), of the
first paragraph of "Certain Covenants -- Limitation on Certain Asset Sales."
"Capital Stock" means, with respect to any Person, any and all shares or
other equivalents (however designated) of capital stock, partnership interests
or any other participation, right or other interest in the nature of an equity
interest in such Person or any option, warrant or other security convertible
into any of the foregoing.
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"Capitalized Lease Obligations" means indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
A "Change of Control" of the Company will be deemed to have occurred at
such time as (i) any Person (including a Person's Affiliates and associates),
other than a Permitted Holder, becomes the beneficial owner (as defined under
Rule 13d-3 or any successor rule or regulation promulgated under the Exchange
Act) of 50% or more of the total voting power of the Company's Common Stock,
(ii) any Person (including a Person's Affiliates and associates), other than a
Permitted Holder, becomes the beneficial owner of more than 30% of the total
voting power of the Company's Common Stock, and either (A) the Permitted Holders
beneficially own, in the aggregate, a lesser percentage of the total voting
power of the Common Stock of the Company than such other Person and do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors of the Company or
(B) JLL is the beneficial owner of less than 20% of the total voting power of
the Company's Common Stock, (iii) there shall be consummated any consolidation
or merger of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which the Common Stock of the Company would be
converted into cash, securities or other property, other than a merger or
consolidation of the Company in which the holders of the Common Stock of the
Company outstanding immediately prior to the consolidation or merger hold,
directly or indirectly, at least a majority of the Common Stock of the surviving
corporation immediately after such consolidation or merger, or (iv) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company has been approved by 66 2/3% of the
directors then still in office who either were directors at the beginning of
such period or whose election or recommendation for election was previously so
approved) cease to constitute a majority of the Board of Directors of the
Company.
"Chase" means Chase Equity Associates, L.P.
"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such Person.
"Consolidated Fixed Charges" means, with respect to any Person, the sum of
a Person's (i) Consolidated Interest Expense, plus (ii) the product of (x) the
aggregate amount of all dividends paid on Disqualified Capital Stock of the
Company or on each series of preferred stock of each Subsidiary of such Person
(other than dividends paid or payable in additional shares of preferred stock or
to the Company or any of its Wholly Owned Subsidiaries) times (y) a fraction,
the numerator of which is one and the denominator of which is one minus the then
current effective combined federal, state and local tax rate of such Person
(expressed as a decimal), in each case, for such four-quarter period.
"Consolidated Interest Expense" means, with respect to any Person, for any
period and without duplication, the aggregate amount of interest which, in
conformity with GAAP, would be set forth opposite the caption "interest expense"
or any like caption on an income statement for such Person and its Subsidiaries
on a consolidated basis (including, but not limited to, (i) imputed interest
included in Capitalized Lease Obligations, (ii) all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing, (iii) net payments made in connection with Interest Rate
Agreements, (iv) the interest portion of any deferred payment obligation, (v)
amortization of discount or premium, if any, and (vi) all other non-cash
interest expense (other than interest amortized to cost of sales)) plus, all net
capitalized interest for such period and all interest paid under any guarantee
of Indebtedness (including a guarantee of principal, interest or any combination
thereof) of any Person, and minus, (i) net payments received in connection with
Interest Rate Agreements and (ii) amortization of deferred financing costs and
expenses.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate of the net income (before preferred stock dividends) of
such Person and its Subsidiaries for such period, on a
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consolidated basis, determined in accordance with GAAP; provided, however, that
there shall be excluded from Consolidated Net Income (a) the net income of any
Person which under GAAP is not consolidated with the Person in question other
than the amount of dividends or distributions paid to the Person in question or
the Subsidiary, (b) the net income of any Subsidiary of the Person in question,
other than a Domestic Subsidiary, that is subject to any restriction or
limitation on the payment of dividends or the making of other distributions
(other than pursuant to the Notes or the Indenture) to the extent of such
restriction or limitation (provided that if any such restriction or limitation
by its terms takes effect upon the occurrence of a default or an event of
default, such exclusion shall become effective only upon the occurrence and
during the continuance of such default or event of default), (c) the net income
of any Person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition and (d) any net gain or loss resulting
from a sale of Property by the Person in question or any of its Subsidiaries
other than in the ordinary course of business, (e) extraordinary gains and
losses, (f) non-recurring gains, non-cash non-recurring losses and charges
(including restructuring charges and costs) and, in the case of the Company,
cash restructuring charges for any period ending prior to July 31, 1998, (g) any
amounts received by the Company or a Restricted Subsidiary which are used to
offset Investments pursuant to the terms of clause (ii) of the definition of
"Net Investments," and (h) in the case of clauses (d), (e) and (f), the
associated tax effects during such period.
"Credit Agreement" means the Credit Agreement, to be dated as of a date on
or prior to the Issue Date, among the Company, CIBC, as administrative agent,
Merrill Capital, as documentation agent, and the lenders from time to time
parties thereto, as such agreement may be amended, modified or supplemented from
time to time or deferred, renewed, extended, refunded, refinanced, restructured
or replaced from time to time in whole or in part (whether with the original
administrative agent and lenders or other agents and lenders or otherwise, and
whether provided under the original Credit Agreement or other credit agreements
or otherwise).
"Designated Senior Indebtedness," as to the Company or any Guarantor, as
the case may be, means any Senior Indebtedness (a) under or in respect of the
Credit Agreement, or (b) which at the time of determination exceeds $25 million
in aggregate principal amount (or accreted value in the case of Indebtedness
issued at a discount) outstanding or available under a committed facility, and
(i) which is specifically designated in the instrument evidencing such Senior
Indebtedness as "Designated Senior Indebtedness" by such Person and (ii) as to
which the Trustee has been given written notice of such designation.
"Disqualified Capital Stock" means any Capital Stock of the Company or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Notes, for cash or securities constituting
Indebtedness. Without limitation of the foregoing, Disqualified Capital Stock
shall be deemed to include any Preferred Stock of a Restricted Subsidiary of the
Company or the Company under which, by agreement or otherwise, such Restricted
Subsidiary or the Company is obligated to pay current dividends or distributions
in cash during the period prior to the maturity date of the Notes; provided,
however, that Preferred Stock of the Company or any Restricted Subsidiary
thereof that is issued with the benefit of provisions requiring a change of
control offer to be made for such Preferred Stock in the event of a change of
control of the Company or Restricted Subsidiary, which provisions have
substantially the same effect as the provisions of the Indenture described under
"Change of Control," shall not be deemed to be Disqualified Capital Stock solely
by virtue of such provisions and, provided, further, that Capital Stock owned by
the Company or any Restricted Subsidiary shall not constitute Disqualified
Capital Stock.
"Domestic" with respect to any Person shall mean a Person whose
jurisdiction of incorporation or formation is the United States, any state
thereof or the District of Columbia.
"EBITDA" means, for any Person, for any period, an amount equal to (a) the
sum of (i) Consolidated Net Income for such period, plus (ii) the provision for
taxes for such period based on income or profits to the extent such income or
profits were included in computing Consolidated Net Income and any provision for
taxes utilized in computing net loss under clause (i) hereof, plus (iii)
Consolidated Interest Expense for such
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period, plus (iv) depreciation for such period, plus (v) amortization for such
period (including the amortization of deferred financing costs and expenses),
plus (vi) any other non-cash items (including minority interests) reducing
Consolidated Net Income for such period, plus (vii) non-recurring losses and
charges (including restructuring charges and costs) whether cash or non-cash for
such period to the extent not included in the calculation of Consolidated Net
Income, minus (viii) all non-cash items increasing Consolidated Net Income for
such period, all for such Person and its Subsidiaries determined on a
consolidated basis in accordance with GAAP, except that with respect to the
Company each of the foregoing items shall be determined on a consolidated basis
with respect to the Company and its Restricted Subsidiaries only.
"Equity Offering" means offering by the Company of shares of its common
stock (however designated and whether voting or non-voting) and any and all
rights, warrants or options to acquire such common stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fixed Charge Coverage Ratio" of any Person means, with respect to any
determination date, the ratio of (i) EBITDA for such Person's prior four full
fiscal quarters for which financial results have been reported immediately
preceding the determination date, to (ii) Consolidated Fixed Charges of such
Person.
"Foreign EBITDA" means for any period, the aggregate of the EBITDA of each
of the Company's Restricted Subsidiaries which are not Guarantors.
"Foreign Interest Expense" means for any period, the aggregate of the
Consolidated Interest Expense of each of the Company's Restricted Subsidiaries
which are not Guarantors.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such person (and
"incurrence," "incurred," "incurrable," and "incurring" shall have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other accrued liabilities arising in the ordinary
course of business) if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, and shall also include, to the extent not otherwise included (i) any
Capitalized Lease Obligations, (ii) obligations of others secured by a lien to
which the property or assets owned or held by such Person is subject, whether or
not the obligation or obligations secured thereby shall have been assumed, (iii)
guarantees of obligations of other Persons which would be included within this
definition for such other Persons (whether or not such items would appear upon
the balance sheet of the guarantor), (iv) all obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (v) in the case of the Company, Disqualified Capital Stock and, in
the case of any Restricted Subsidiary, Preferred Stock (vi) obligations of any
such Person under any Interest Rate Agreement (if and to the extent such
Interest Rate Agreement obligations would appear as a liability upon a balance
sheet of such Person prepared in accordance with GAAP) and (vii) Attributable
Indebtedness. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation, provided (i)
that the amount outstanding at any time of any Indebtedness issued with original
issue discount is the principal amount of such Indebtedness less the
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remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in accordance with GAAP and (ii) that
Indebtedness shall not include any liability for federal, state, local or other
taxes. Notwithstanding any other provision of the foregoing definition, any
trade payable arising from the purchase of goods or materials or for services
obtained in the ordinary course of business shall not be deemed to be
"Indebtedness" of the Company or any Restricted Subsidiaries for purposes of
this definition. Furthermore, guarantees of (or obligations with respect to
letters of credit supporting) Indebtedness and Liens securing Indebtedness
otherwise included in the determination of such amount shall not also be
included.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.
"Investments" means, directly or indirectly, any advance, account
receivable, loan or capital contribution to (by means of transfers of property
to others, payments for property or services for the account or use of others or
otherwise), the purchase of any stock, bonds, notes, debentures, partnership or
joint venture interests or other securities of, the acquisition, by purchase or
otherwise, of all or substantially all of the business or assets or stock or
other evidence of beneficial ownership of, any Person. Investments shall exclude
extensions of trade credit on commercially reasonable terms in accordance with
normal trade practices.
"Issue Date" means the date the Notes are first issued by the Company and
authenticated by the Trustee under the Indenture.
"Lien" means with respect to any Property of any Person, any mortgage or
deed of trust, pledge, hypothecation, deposit arrangement, security interest,
lien, charge, encumbrance, preference, priority, or other security agreement or
preferential arrangement of any kind or nature whatsoever on or with respect to
such property or assets (including without limitation, any Capitalized Lease
Obligation, conditional sales, or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Net Cash Proceeds" means (a) in the case of any sale of Capital Stock by
the Company, the aggregate net cash proceeds received by the Company, after
payment of expenses, commissions, underwriting discounts and the like incurred
in connection therewith, (b) in the case of any exchange, exercise, conversion
or surrender of outstanding securities of any kind for or into shares of Capital
Stock of the Company which is not Disqualified Stock, the net cash proceeds
received from the sale of such outstanding securities so exchanged, exercised,
converted or surrendered (plus any additional amount required to be paid in cash
by the holder to the Company upon such exchange, exercise, conversion or
surrender, less any and all payments made to the holders, e.g., on account of
fractional shares and less all expenses incurred by the Company in connection
therewith) and (c) in the case of any issuance of any Indebtedness by the
Company or any Restricted Subsidiary, the aggregate net cash proceeds received
by such Person after payment of expenses, commissions, underwriting discounts
and the like incurred in connection therewith.
"Net Investment" means the excess of (i) the aggregate amount of all
Investments in Unrestricted Subsidiaries or joint ventures made by the Company
or any Restricted Subsidiary on or after the Issue Date (in the case of an
Investment made other than in cash, the amount shall be the fair market value of
such Investment as determined in good faith by the board of directors of the
Company or such Restricted Subsidiary) over (ii) the sum of (A) the aggregate
amount returned in cash on or with respect to such Investments whether through
interest payments, principal payments, dividends or other distributions or
payments and (B) the Net Cash Proceeds received by the Company or any Restricted
Subsidiary or joint venture from the disposition of all or any portion of such
Investments (other than to a Subsidiary of the Company); provided, however, that
with respect to all Investments made in any Unrestricted Subsidiary or joint
venture the sum of clauses (A) and (B) above with respect to such Investments
shall not exceed the aggregate amount of all such Investments made in such
Unrestricted Subsidiary.
"Nomura" means Nomura Holding America, Inc.
"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles one or more Persons to accelerate the
maturity of any Designated Senior Indebtedness.
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"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer or any Treasurer of such Person that shall comply
with applicable provisions of the Indenture.
"Payment Default" means any default, whether or not any requirement for the
giving of notice, the lapse of time or both, or any other condition to such
default becoming an event of default has occurred, in the payment of principal
of (or premium, if any) or interest on or any other amount payable in connection
with Designated Senior Indebtedness.
"Permitted Holders" means (i) JLL or any other fund controlled by Joseph
Littlejohn & Levy, (ii) TSG, (iii) Argosy, (iv) Nomura and (v) Chase.
"Permitted Indebtedness" means:
(i) Indebtedness of the Company or any Domestic Restricted Subsidiary
arising under or in respect of the Credit Agreement in an aggregate amount
not to exceed $645 million, less any mandatory prepayments actually made
thereunder (to the extent, in the case of payments of revolving credit
Indebtedness, that the corresponding commitments have been permanently
reduced) or scheduled payments actually made thereunder;
(ii) Indebtedness under the Notes and the Guarantees;
(iii) Indebtedness not covered by any other clause of this definition
which is outstanding on the Issue Date;
(iv) Indebtedness incurred to finance the working capital requirements
of the Western European operations of the Company's Restricted Subsidiaries
pursuant to commitments outstanding on the Issue Date in an aggregate
amount not to exceed $10 million (or, to the extent non-U.S. dollar
denominated, the U.S. dollar equivalent thereof);
(v) Indebtedness of Autokola not to exceed $35 million in principal
amount in the aggregate which is incurred after the Issue Date as a result
of it becoming a Subsidiary of the Company;
(vi) Indebtedness of the Company to any Domestic Restricted Subsidiary
which is a Wholly-Owned Subsidiary and Indebtedness of any Restricted
Subsidiary to the Company or another Restricted Subsidiary provided that in
the case of Indebtedness of a Domestic Restricted Subsidiary such
Indebtedness is owed to another Domestic Restricted Subsidiary;
(vii) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred to acquire property in the ordinary course of business which
Indebtedness and Capitalized Lease Obligations do not in the aggregate
exceed 5% of the Company's consolidated total assets as of the Company's
most recent quarterly balance sheet;
(viii) Interest Rate Agreements;
(ix) additional Indebtedness of the Company and its Restricted
Subsidiaries not to exceed $50 million in aggregate principal amount
outstanding at any time;
(x) Refinancing Indebtedness; and
(xi) Indebtedness incurred in accordance with the covenant described
under "Limitation on Foreign Indebtedness."
"Permitted Investments" means, for any Person, Investments made on or after
the date of the Indenture consisting of:
(i) Investments by the Company, or by a Restricted Subsidiary thereof,
in the Company or a Restricted Subsidiary;
(ii) Temporary Cash Investments;
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(iii) Investments by the Company, or by a Restricted Subsidiary
thereof, in a Person, if as a result of such Investment (a) such Person
becomes a Restricted Subsidiary of the Company or (b) such Person is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary;
(iv) reasonable and customary loans made to employees not to exceed $1
million in the aggregate at any one time outstanding;
(v) an Investment that is made by the Company or a Restricted
Subsidiary thereof in the form of any stock, bonds, notes, debentures,
partnership or joint venture interests or other securities that are issued
by a third party to the Company or Restricted Subsidiary solely as partial
consideration for the consummation of an Asset Sale;
(vi) Investments in Unrestricted Subsidiaries and joint ventures
permitted under subclause (v) under the covenant described under
"Limitation on Restricted Payments";
(vii) Investments received in connection with the bankruptcy or
reorganization of Persons having obligations in favor of the Company or its
Subsidiaries (which obligations were incurred in the ordinary course), in
settlement of such obligations; and
(viii) Investments paid for in Common Stock of the Company.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government (including any agency or political subdivision thereof).
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company or its Subsidiaries outstanding on the
Issue Date or other Indebtedness permitted to be incurred by the Company or its
Restricted Subsidiaries pursuant to the terms of the Indenture, but only to the
extent that (i) the Refinancing Indebtedness is subordinated to the Notes to at
least the same extent as the Indebtedness being refunded, refinanced or
extended, if at all, (ii) the Refinancing Indebtedness is scheduled to mature
either (a) no earlier than the Indebtedness being refunded, refinanced or
extended, or (b) after the maturity date of the Notes, (iii) the portion, if
any, of the Refinancing Indebtedness that is scheduled to mature on or prior to
the maturity date of the Notes has a weighted average life to maturity at the
time such Refinancing Indebtedness is incurred that is equal to or greater than
the weighted average life to maturity of the portion of the Indebtedness being
refunded, refinanced or extended that is scheduled to mature on or prior to the
maturity date of the Notes, (iv) such Refinancing Indebtedness is in an
aggregate principal amount that is equal to or less than the sum of (a) the
aggregate principal amount then outstanding under the Indebtedness being
refunded, refinanced or extended, (b) the amount of accrued and unpaid interest,
if any, and any necessary premiums (including the amount of any premium
reasonably determined by the Company or the applicable Restricted Subsidiary as
necessary to accomplish such refunding, refinancing or extension) on such
Indebtedness being refunded, refinanced or extended and (c) the amount of
customary fees, expenses and costs related to the incurrence of such Refinancing
Indebtedness, (v) such Refinancing Indebtedness is incurred by the same Person
that initially incurred the Indebtedness being refunded, refinanced or extended,
except that the Company may incur Refinancing Indebtedness to refund, refinance
or extend Indebtedness of any Wholly-Owned Subsidiary of the Company; provided,
however, that any non-Domestic Restricted
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Subsidiary may incur Refinancing Indebtedness to refund, refinance or extend
Indebtedness of the Company arising under or in respect of the Credit Agreement
in an aggregate amount not to exceed $20 million outstanding at any time; and,
provided, further, that with respect to such Refinancing Indebtedness referred
to in the previous provision, clauses (ii) and (iii) shall not apply and (vi) if
such Indebtedness was incurred pursuant to the covenant described under
"Limitation on Foreign Indebtedness" and does not contain any restriction or
limitation on the payment of dividends or the making of other distributions then
the Refinancing Indebtedness shall not contain any such limitation or
restriction.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock of
the Company or any Restricted Subsidiary of the Company or any payment made to
the direct or indirect holders (in their capacities as such) of Capital Stock of
the Company or any Restricted Subsidiary of the Company (other than (x)
dividends or distributions payable solely in Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to purchase Capital
Stock (other than Disqualified Stock), and (y) in the case of Restricted
Subsidiaries of the Company, dividends or distributions payable to the Company
or to a Wholly-Owned Subsidiary of the Company), (ii) the purchase, redemption
or other acquisition or retirement for value of any Capital Stock of the Company
or any of its Restricted Subsidiaries (other than Capital Stock owned by the
Company or a Wholly-Owned Subsidiary of the Company, excluding Disqualified
Stock), (iii) the purchase, defeasance, repurchase, redemption or other
acquisition or retirement for value, prior to any scheduled maturity, scheduled
repayment or scheduled sinking fund payment of, or the making of any principal
payment on, any Indebtedness which is subordinated in right of payment to the
Notes other than subordinated Indebtedness acquired in anticipation of
satisfying a scheduled sinking fund obligation, principal installment or final
maturity (in each case due within one year of the date of acquisition), (iv) the
making of any Investment or guarantee of any Investment in any Person other than
a Permitted Investment, (v) any designation of a Restricted Subsidiary as an
Unrestricted Subsidiary on the basis of the Net Investment by the Company
therein and (vi) forgiveness of any Indebtedness of an Affiliate of the Company
to the Company or a Restricted Subsidiary. For purposes of determining the
amount expended for Restricted Payments, cash distributed or invested shall be
valued at the face amount thereof and property other than cash shall be valued
at its fair market value determined in good faith by the board of directors of
the Company.
"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary. The Board of Directors of the Company may designate any
Unrestricted Subsidiary or any Person that is to become a Subsidiary as a
Restricted Subsidiary if immediately after giving effect to such action (and
treating any Acquired Indebtedness as having been incurred at the time of such
action), the Company could have incurred at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation on
Additional Indebtedness" covenant.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal property, which property has been or is
to be sold or transferred by the Company or such Restricted Subsidiary to such
Person in contemplation of such leasing.
"Senior Indebtedness" means the principal of and premium, if any, and
interest (including, without limitation, interest accruing or that would have
accrued but for the filing of a bankruptcy, reorganization or other insolvency
proceeding whether or not such interest constitutes an allowable claim in such
proceeding) on, and any and all other fees, charges, expense reimbursement
obligations, indemnities and other amounts due pursuant to the terms of all
agreements, documents and instruments providing for, creating, securing,
guaranteeing or evidencing or otherwise entered into in connection with (a) all
obligations, whether outstanding on the Issue Date or thereafter incurred, of
the Company owed to lenders under or in respect of the Credit Agreement, (b) all
obligations of the Company with respect to any Interest Rate Agreement, (c) all
obligations of the Company to reimburse any bank or other person in respect of
amounts paid under letters of credit, acceptances or other similar instruments,
(d) all other Indebtedness of the Company which does not provide that it is to
rank pari passu with or subordinate to the Notes and (e) all deferrals,
renewals, extensions, refundings, refinancings and restructurings of, and
amendments, modifications and supplements to, any of the Senior Indebtedness
described above. Notwithstanding anything to the contrary in the foregoing,
81
<PAGE> 86
Senior Indebtedness will not include (i) Indebtedness of the Company to any of
its Subsidiaries, (ii) Indebtedness represented by the Notes and the Guarantees,
(iii) any Indebtedness which by the express terms of the agreement or instrument
creating, evidencing or governing the same is junior or subordinate in right of
payment to any item of Senior Indebtedness, (iv) any trade payable arising from
the purchase of goods or materials or for services obtained in the ordinary
course of business, or (v) Indebtedness incurred in violation of the Indenture.
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which more
than 50% of the total voting power of the Capital Stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held by such first-named Person or any of its
Subsidiaries; or (ii) in the case of a partnership, joint venture, association
or other business entity, with respect to which such first-named Person or any
of its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity by contract or otherwise or if in
accordance with generally accepted accounting principles such entity is
consolidated with the first-named Person for financial statement purposes;
provided that Autokola shall not be considered a Subsidiary of the Company until
such time as the Company acquires a majority interest therein.
"Temporary Cash Investments" means (i) Investments in marketable, direct
obligations issued or guaranteed by the United States of America, or of any
governmental agency or political subdivision thereof, maturing within 365 days
of the date of purchase; (ii) Investments in demand deposits or certificates of
deposit issued by a bank organized under the laws of the United States of
America or any state thereof or the District of Columbia, in each case having
capital, surplus and undivided profits totaling more than $500,000,000 and rated
at least A by Standard & Poor's Corporation and A-2 by Moody's Investors
Service, Inc., maturing within 365 days of purchase; (iii) Investments in
commercial paper, maturing not more than 180 days after the date of acquisition,
issued by a corporation (other than an Affiliate of the Company) organized and
in existence under the laws of the United States of America or any foreign
country recognized by the United States of America with a rating at the time as
of which any Investment therein is made of "P-1" (or higher) according to
Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and
Poor's Ratings Group, (iv) in the case of any non-Domestic Restricted
Subsidiary, Investments: (a) in direct obligations of the sovereign nation (or
any agency thereof) in which such non-Domestic Restricted Subsidiary is
organized and is conducting business or in obligations fully and unconditionally
guaranteed by such sovereign nation (or any agency thereof) or (b) of the type
and maturity described in clauses (i) through (iii) above of foreign obligors,
which Investments or obligors (of the parents of such obligors) have ratings
described in such clauses or equivalent ratings from comparable foreign rating
agencies or (v) Investments not exceeding 365 days in duration in money market
funds that invest substantially all of such funds' assets in the Investments
described in the preceding clauses (i) and (iv).
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary and (b) any Subsidiary of the Company which is classified after the
Issue Date as an Unrestricted Subsidiary by a resolution adopted by the Board of
Directors of the Company; provided that a Subsidiary organized or acquired after
the Issue Date may be so classified as an Unrestricted Subsidiary only if such
classification is in compliance with the covenant set forth under "Limitation on
Restricted Payments." The Trustee shall be given prompt notice by the Company of
each resolution adopted by the Board of Directors of the Company under this
provision, together with a copy of each such resolution adopted.
"Western Europe" means, with respect to any jurisdictional matter, any of
the twelve current member states of the European Community and Switzerland,
Norway, Sweden, Finland, Austria and the Czech Republic (and "Western European"
shall have a meaning correlative to the foregoing).
"Wholly-Owned Subsidiary" means any Restricted Subsidiary, all of the
outstanding voting securities (other than directors' qualifying shares or
similar requirements of law in respect of non-Domestic Subsidiaries) of which
are owned, directly or indirectly, by the Company.
82
<PAGE> 87
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each of CIBC Wood Gundy Securities Corp. ("CIBC
Wood Gundy"), Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and Salomon Brothers Inc ("Salomon Brothers" and collectively the
"Underwriters") has agreed severally, and not jointly, to purchase, and the
Company has agreed to sell, that principal amount of the Notes offered hereby
set forth opposite its name below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF THE NOTES
- ----------------------------------------------------------------------------- ----------------
<S> <C>
CIBC Wood Gundy Securities Corp.............................................. $
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................................
Salomon Brothers Inc.........................................................
------------
Total...................................................................... $250,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes are subject to approval
of certain legal matters by counsel and to certain other conditions. The
Underwriting Agreement also provides that the Company and the Guarantors will
indemnify the Underwriters and their controlling persons against certain
liabilities and expenses, including liabilities under the Securities Act. The
Underwriters are obligated to take and pay for all of the Notes offered hereby
if any such Notes are taken.
The Underwriters propose to offer the Notes directly to the public
initially at the public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of % per $1,000 principal amount of the Notes. After the initial public
offering of the Notes, the offering price and other selling terms may be changed
by the Underwriters.
Prior to the Offering, there has been no public market for the Notes. The
Company does not intend to list any of the Notes on a national securities
exchange or to seek admission thereof for trading in the National Association of
Securities Dealers Automated Quotation System. The Underwriters have advised the
Company that they currently intend to make a market in the Notes, but are not
obligated to do so and may discontinue any such market making at any time
without notice. Accordingly, there can be no assurance as to the liquidity of,
or that an active trading market will develop for, the Notes.
The Underwriters have advised the Company that they will not confirm sales
to discretionary accounts.
Under the Rules of Fair Practice of the National Association of Securities
Dealers, Inc. (the "NASD"), no member of the NASD or an affiliate of a member
shall participate in the distribution of a public offering of debt securities
issued by a company if the member and/or its affiliates have a conflict of
interest (as defined) with the company unless the yield at which such debt
securities are to be distributed to the public is no lower than that recommended
by a "qualified independent underwriter" meeting certain standards. As defined
by the NASD, a "conflict of interest" exists when a member and/or its affiliates
in the aggregate beneficially own 10% or more of the equity of a company. An
affiliate of CIBC Wood Gundy, an Underwriter and a member of the NASD, is
purchasing 1,250,000 shares of New Common Stock and 30,000 Warrants for an
aggregate purchase price of $40.0 million and will beneficially own 11.24% of
the New Common Stock upon consummation of the Transactions.
It is expected that Merrill Lynch will be engaged to act as a qualified
independent underwriter in connection with the Offering and that the yield at
which the Notes will be distributed to the public will be no less than that
recommended by it. Merrill Lynch will participate in the preparation of this
Prospectus and the Registration Statement of which this Prospectus is a part and
will exercise the usual standards of due diligence with respect thereto. Merrill
Lynch will receive no additional fees in connection with acting as qualified
independent underwriter. It is expected that the Company and the Guarantors will
indemnify Merrill Lynch for acting as qualified independent underwriter against
certain liabilities, including liabilities under the Securities Act.
83
<PAGE> 88
CIBC Wood Gundy is an affiliate of CIBC which is the Agent and a lender
under the Credit Facility. Merrill Lynch is an affiliate of Merrill Capital who
is acting as a Managing Agent and a lender under the Credit Facility. In
connection with acting as agents and lenders under the Credit Facility, CIBC and
Merrill Capital will each receive customary fees. In addition, in connection
with the Transactions, CIBC Wood Gundy will receive a financial advisory fee.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Company by Skadden, Arps, Slate, Meagher & Flom, New York, New York. Skadden,
Arps, Slate, Meagher & Flom also provides legal representation to certain of the
Underwriters from time to time. Certain legal matters will be passed upon for
the Underwriters by Cahill Gordon & Reindel (a partnership including a
professional corporation), New York, New York. Cahill Gordon & Reindel also
regularly provides legal representation to Varity and has provided legal
services to Hayes in the past.
EXPERTS
The consolidated financial statements of the Company as of January 31,
1996, and for each of the years in the three-year period ended January 31, 1996
which are included in this Prospectus or incorporated herein by reference to the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1996,
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants, as stated in their report, which refers to a change from the LIFO
method of valuing inventory to the FIFO method and the adoption of the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards ("SFAS") No. 109, Accounting for Income Taxes, SFAS No.
106, Employers' Accounting for Postretirement Benefits Other Than Pensions and
SFAS No. 112, Employers' Accounting for Postemployment Benefits which are
included herein or incorporated by reference, and have been so included in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements and related financial statement
schedules of Holdings at December 31, 1995 and 1994, and for each of the three
years in the period ended December 31, 1995, included in this Prospectus have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
84
<PAGE> 89
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES:
AUDITED FINANCIAL STATEMENTS
Report of KPMG Peat Marwick LLP, Independent Auditors................................ F-2
Consolidated Balance Sheets at January 31, 1996 and 1995............................. F-3
Consolidated Statements of Operations for the Fiscal Years Ended January 31, 1996,
1995 and 1994...................................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the Fiscal Years Ended
January 31, 1996, 1995 and 1994.................................................... F-5
Consolidated Statements of Cash Flow for the Fiscal Years Ended January 31, 1996,
1995 and 1994...................................................................... F-6
Notes to Consolidated Financial Statements for the Fiscal Years Ended January 31,
1996, 1995 and 1994................................................................ F-7
UNAUDITED FINANCIAL STATEMENTS
Consolidated Balance Sheets at April 30, 1996 and January 31, 1996................... F-23
Consolidated Statements of Operations for the Three Months Ended April 30, 1996 and
1995............................................................................... F-24
Consolidated Statements of Cash Flows for the Three Months Ended April 30, 1996 and
1995............................................................................... F-25
Notes to Consolidated Financial Statements for the Three Months Ended April 30, 1996
and 1995........................................................................... F-26
MWC HOLDINGS, INC.:
AUDITED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors.................................... F-28
Consolidated Balance Sheets at December 31, 1995 and 1994............................ F-29
Consolidated Income Statements for the Years Ended December 31, 1995, 1994 and
1993............................................................................... F-30
Consolidated Statements of Stockholders' Equity for the Years Ended December 31,
1995, 1994 and 1993................................................................ F-31
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and
1993............................................................................... F-32
Notes to Consolidated Financial Statements for the Years Ended December 31, 1995,
1994 and 1993...................................................................... F-33
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets at March 31, 1996 and December 31, 1995........ F-45
Condensed Consolidated Statements of Income for the Three Months Ended March 31, 1996
and 1995........................................................................... F-46
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31,
1996 and 1995...................................................................... F-47
Notes to Condensed Consolidated Financial Statements for the Three Months Ended March
31, 1996 and 1995.................................................................. F-48
</TABLE>
F-1
<PAGE> 90
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Hayes Wheels International, Inc.
We have audited the accompanying consolidated balance sheets of Hayes Wheels
International, Inc. and subsidiaries as of January 31, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the three year period ended January 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Hayes Wheels
International, Inc. and subsidiaries as of January 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three year-period ended January 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial statements, the Company
changed its method of accounting in 1994 for certain inventory from the LIFO
method to the FIFO method. Also, as discussed in Note 2 to the consolidated
financial statements, the Company changed its methods of accounting effective
February 1, 1993, to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standards ("SFAS") No. 109, Accounting
for Income Taxes, SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other than Pensions and SFAS No. 112, Employers' Accounting for
Postemployment Benefits.
KPMG Peat Marwick LLP
Detroit, Michigan
February 23, 1996
except for Note 17,
which is as of
March 28, 1996.
F-2
<PAGE> 91
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
ASSETS 1996 1995
- ----------------------------------------------------------------------- ----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 1.8 $ 0.5
Receivables (less allowance of $0.1 million at January 31, 1996 and
1995)............................................................. 109.6 92.7
Inventories (Note 3)................................................. 58.9 57.6
Prepaid expenses and other........................................... 9.9 6.8
------ ------
Total current assets.............................................. 180.2 157.6
Property, plant and equipment:
Land................................................................. 18.3 18.3
Buildings............................................................ 76.8 72.9
Machinery and equipment.............................................. 319.7 280.8
------ ------
414.8 372.0
Accumulated depreciation............................................. (110.4) (86.3)
------ ------
Net property, plant and equipment................................. 304.4 285.7
Goodwill and other assets (Note 4)..................................... 149.3 146.3
------ ------
Total assets......................................................... $ 633.9 $ 589.6
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings (Note 8)............................................. $ 4.1 $ 10.3
Current portion of long-term debt (Note 8)........................... 0.1 1.3
Accounts payable and accrued liabilities (Note 5).................... 125.5 118.9
------ ------
Total current liabilities......................................... 129.7 130.5
Noncurrent liabilities:
Long-term debt (Note 8).............................................. 128.9 111.4
Deferred income taxes (Note 7)....................................... 48.1 38.8
Pension and other long-term liabilities (Note 10).................... 81.8 92.5
------ ------
Total noncurrent liabilities...................................... 258.8 242.7
Commitments and contingencies (Notes 8, 9, 12 and 15)
Stockholders' equity (Notes 14 and 17):
Preferred Stock, 25,000,000 shares authorized; none issued or
outstanding...................................................... -- --
Common stock, par value $0.01 per share:
Authorized 50,000,000 shares;
Issued and outstanding, 17,574,000 at January 31, 1996 and
1995........................................................... 0.2 0.2
Additional paid-in capital........................................ 198.5 198.5
Retained earnings................................................. 49.6 22.3
Cumulative translation adjustment................................. (0.3) (2.2)
Pension liability adjustment...................................... (2.6) (2.4)
------ ------
Total stockholders' equity...................................... 245.4 216.4
------ ------
Total liabilities and stockholders' equity...................... $ 633.9 $ 589.6
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 92
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY JANUARY JANUARY
31, 31, 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................................... $611.1 $537.6 $428.2
Cost of goods sold.......................................... 513.4 441.4 344.4
------ ------ ------
Gross profit........................................... 97.7 96.2 83.8
Marketing, general and administrative....................... 29.7 28.6 26.3
Engineering and product development......................... 4.7 5.1 4.0
Other income, net........................................... (1.5) (0.8) (2.3)
Nonrecurring charges (Note 11).............................. 3.6 -- --
------ ------ ------
Earnings from operations............................... 61.2 63.3 55.8
Interest expense, net....................................... 15.0 13.4 13.6
------ ------ ------
Earnings before taxes on income and cumulative effect
of changes in accounting principles.................. 46.2 49.9 42.2
Income tax provision (Note 7)............................... 17.8 20.0 17.6
------ ------ ------
Earnings before cumulative effect of changes in
accounting principles................................ 28.4 29.9 24.6
Cumulative effect of changes in accounting principles (Note
2)........................................................ -- -- 24.6
------ ------ ------
Net income............................................. $ 28.4 $ 29.9 $ --
====== ====== ======
Per share income:
Income before cumulative effect of changes in
accounting principles................................ $ 1.62 $ 1.70 $ 1.40
Cumulative effect of changes in accounting
principles........................................... -- -- (1.40)
------ ------ ------
Primary................................................ $ 1.62 $ 1.70 $ --
====== ====== ======
Fully diluted.......................................... $ 1.62 $ 1.70 $ --
====== ====== ======
Weighted average shares outstanding (in thousands).......... 17,574 17,574 17,574
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 93
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JANUARY 31, 1996, 1995, 1994
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL RETAINED CUMULATIVE PENSION
PAR PAID-IN EARNINGS TRANSLATION LIABILITY
SHARES VALUE CAPITAL (DEFICIT) ADJUSTMENT ADJUSTMENT
---------- ----- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1993............. 17,574,000 $0.2 $198.5 $ (5.4) $(1.4) $ --
Cash dividends ($0.06 per share)...... -- -- -- (1.1) -- --
Net income............................ -- -- -- -- -- --
Translation adjustment................ -- -- -- -- (2.1) --
Pension adjustment.................... -- -- -- -- -- (3.9)
---------- ---- ------ ----- ----- -----
Balance, January 31, 1994............. 17,574,000 0.2 198.5 (6.5) (3.5) (3.9)
---------- ---- ------ ----- ----- -----
Cash dividends ($0.06 per share)...... -- -- -- (1.1) -- --
Net income............................ -- -- -- 29.9 -- --
Translation adjustment................ -- -- -- -- 1.3 --
Pension adjustment.................... -- -- -- -- -- 1.5
---------- ---- ------ ----- ----- -----
Balance, January 31, 1995............. 17,574,000 0.2 198.5 22.3 (2.2) (2.4)
---------- ---- ------ ----- ----- -----
Cash dividends ($0.06 per share)...... -- -- -- (1.1) -- --
Net income............................ -- -- -- 28.4 -- --
Translation adjustment................ -- -- -- -- 1.9 --
Pension adjustment.................... -- -- -- -- -- (0.2)
---------- ---- ------ ----- ----- -----
Balance, January 31, 1996............. 17,574,000 $0.2 $198.5 $ 49.6 $(0.3) $ (2.6)
========== ==== ====== ===== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 94
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY JANUARY JANUARY
31, 31, 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income.............................................. $ 28.4 $ 29.9 $ --
Adjustments to reconcile net income to net cash provided
by operations:
Depreciation and tooling amortization................ 26.6 24.0 20.0
Amortization of intangibles.......................... 6.1 5.6 4.8
Cumulative effect of changes in accounting
principles......................................... -- -- 24.6
Increase in deferred taxes........................... 7.7 1.3 1.9
Changes in operating assets and liabilities:
Increase in receivables.............................. (14.5) (30.9) (12.3)
Increase in inventories.............................. (1.9) (13.1) (7.5)
Increase in prepaid expenses and other............... (2.4) (2.2) (2.2)
Increase in accounts payable and accrued
liabilities........................................ 6.5 12.4 14.7
Increase (decrease) in other long-term liabilities... (11.6) (4.6) 8.6
------ ------ ------
Cash provided by operating activities........... 44.9 22.4 52.6
Cash flows from investment activities:
Acquisition of property, plant and equipment......... (43.4) (39.9) (34.8)
Acquisition of minority interest..................... -- -- (0.2)
Acquisition of license............................... -- (0.7) (1.4)
Investment in joint venture.......................... (3.2) -- (3.4)
Plant start-up costs................................. -- -- (3.5)
Other, net........................................... (5.8) (0.3) (5.3)
------ ------ ------
Cash used for investment activities............. (52.4) (40.9) (48.6)
Cash flows from financing activities:
Increase (decrease) in foreign bank borrowings and
loans.............................................. (6.4) 6.0 (14.6)
Increase in bank revolving loan and other domestic
loans.............................................. 16.3 8.6 --
Dividends paid to shareholders....................... (1.1) (1.1) (1.1)
------ ------ ------
Cash provided by (used for) financing
activities.................................... 8.8 13.5 (15.7)
Effect of exchange rate changes on cash and cash
equivalents............................................. -- 0.2 --
------ ------ ------
Increase (decrease) in cash and cash
equivalents................................... 1.3 (4.8) (11.7)
Cash and cash equivalents at beginning of year............ 0.5 5.3 17.0
------ ------ ------
Cash and cash equivalents at end of year.................. $ 1.8 $ 0.5 $ 5.3
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 95
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(1) ORGANIZATION
Hayes Wheels International, Inc. and subsidiaries (the "Company")
manufactures, designs and supplies wheels, principally to original equipment
manufacturers ("OEMs") of passenger cars and light trucks throughout North
America and Europe. The Company's products include cast aluminum wheels,
fabricated aluminum and fabricated steel wheels, clad covered wheels and other
wheels of various designs.
On December 23, 1992, the Company consummated an initial public offering of
its common stock and its 9 1/4% Senior Notes due November 15, 2002 (the "IPO").
Prior to the IPO, the Company was a wholly owned subsidiary of K-H Corporation
("K-H"), a wholly owned subsidiary of Varity Corporation ("Varity"). Subsequent
to the IPO, Varity has continued to own, indirectly through K-H, 46.3% of the
common stock of the Company.
(2) SUMMARY OF ACCOUNTING PRINCIPLES
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company
and its majority owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. The Company's investments in
Hayes Wheels Autokola NH, a.s. ("Autokola"), a 45% owned joint venture in the
Czech Republic, Hayes Wheels de Mexico S.A. de C.V. (formerly named Kelsey-Hayes
de Mexico, S.A. de C.V.), a 40 % owned joint venture in Mexico, and Hayes Wheels
de Venezuela, C.A., a 49% owned joint venture in Venezuela, are accounted for
under the equity method. Financial position and results of operations for these
entities as of, and for the twelve months ended, January 31, 1996, were not
material to the consolidated financial statements of the Company. The Company
also has two minor investments which are carried at cost and are not deemed
material.
Revenue Recognition
Sales are recorded when products are shipped to customers.
Inventories
Inventories are stated at the lower of cost or market, with cost determined
by the last in, first out (LIFO) method for a portion of domestic inventories.
Cost for other inventories, including foreign, which were approximately 62% and
66% of inventories at January 31, 1996 and 1995, respectively, are stated using
the first in, first out (FIFO) or average cost method. Cost includes the cost of
materials, direct labor and the applicable share of manufacturing overhead.
During the fourth quarter of fiscal 1994, the Company changed its method of
accounting for a portion of its aluminum inventories from the LIFO method to the
FIFO method. Management believes the FIFO method will produce a better matching
of current costs and current revenues due to cost pass through arrangements with
customers.
The effect of retroactively applying the change in accounting had no
material impact on retained earnings at February 1, 1993 or on net income for
the years ended January 31, 1995 and 1994.
F-7
<PAGE> 96
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(2) SUMMARY OF ACCOUNTING PRINCIPLES -- (CONTINUED)
Property, Plant and Equipment
Additions to property, plant and equipment are recorded at cost.
Depreciation of facilities is generally provided on a straight-line basis at
rates which are designed to write off the assets over their estimated useful
lives, principally as follows:
Buildings.................................................25 years
Machinery and equipment.............................12 to 14 years
Expenditures for maintenance, repairs and minor replacements of $22.8
million, $18.5 million and $17.6 million for the years ended January 31, 1996,
1995 and 1994, respectively, were charged to expense as incurred.
Special Tooling
Expenditures made to meet special tooling requirements are capitalized.
Special tooling which is reimbursable by the customer is classified as either a
current asset or noncurrent asset, depending upon the expected time of
reimbursement. Special tooling which is not reimbursable by the customer is
classified as a noncurrent asset and is charged to expense on a pro rata basis
over its estimated useful life.
Goodwill
Goodwill is amortized on a straight-line basis over 40 years.
Recoverability is reviewed annually or sooner if events or changes in
circumstances indicate that the carrying amount may exceed fair value.
Recoverability is then determined by comparing the undiscounted net cash flows
of the assets to which the goodwill applies to the net book value including
goodwill of those assets.
Capitalization of Start-Up Costs
Costs associated with the start-up of new plants and production lines
incorporating new manufacturing processes are deferred and amortized over the
lesser of the life of the initial products produced at the location or five
years. Capitalization ends and amortization commences at the time revenue is
recognized from product shipments. Deferrals are evaluated on an ongoing basis
for future recoverability.
During fiscal 1993, the Company opened a new cast aluminum wheel facility
in Gainesville, Georgia. The Gainesville facility became operational in the
fourth quarter of fiscal 1993. Total costs capitalized in starting this facility
were $3.5 million. Amortization of these amounts during fiscal 1994 and 1995
totalled $0.7 million, respectively. The net remaining amount is reflected in
"Goodwill and Other Assets" on the accompanying balance sheet (Note 4).
Research and Development Costs
Research and development costs are expensed as incurred. Amounts expensed
during the years ended January 31, 1996, 1995 and 1994, were approximately $2.3
million, $2.2 million and $1.8 million, respectively.
Financial Instruments
The carrying amounts of cash and cash equivalents, receivables, and
accounts payable and accrued liabilities approximate fair value because of the
short maturity of these instruments. The carrying amount of
F-8
<PAGE> 97
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(2) SUMMARY OF ACCOUNTING PRINCIPLES -- (CONTINUED)
bank borrowings, variable rate long-term debt, and other liabilities approximate
market value, as interest rates vary with market rates.
In accordance with industry practice, the costs or benefits of fluctuations
in aluminum prices are passed through to customers. Futures contracts and
purchase commitments are entered into by the Company, from time to time, to
hedge its exposure to future increases in aluminum prices that may occur between
the dates of aluminum wheel price adjustments. Outstanding contracts represent
future commitments and are not included in the consolidated balance sheet.
Substantially all of such contracts mature within a period of three months.
Gains or losses resulting from the liquidation of futures contracts are
recognized in the income statement currently as part of costs of goods sold.
The Company has entered into an interest rate swap agreement to reduce the
impact of interest rate changes on a portion of its debt. The agreement involves
an exchange of floating rate for fixed rate interest payments without the
exchange of the underlying notational amount. The notional amount of such
agreement is used to measure the interest to be paid or received and does not
represent the amount of exposure to loss. The amount to be paid or received from
the interest rate swap is charged or credited to interest expense over the life
of the agreement.
Foreign Currency Translation
Translation of assets and liabilities of subsidiaries denominated in
foreign currencies, other than those located in highly inflationary countries,
are translated at the rate of exchange in effect on the balance sheet date;
income and expenses are translated at the average rates of exchange prevailing
during the year. The related translation adjustments are reflected in the
cumulative translation adjustment section of stockholders' equity. Foreign
currency gains and losses resulting from transactions and the translation of
financial statements of subsidiaries in highly inflationary countries are
included in results of operations.
Pensions
The Company has trusteed noncontributory pension plans covering
substantially all domestic employees and funds at least the minimum amounts
required by the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
Taxes on Income
Effective February 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." There was no
cumulative effect as a result of adopting SFAS 109. Prior to its adoption, the
Company accounted for income taxes in conformity with SFAS No. 96, "Accounting
for Income Taxes." SFAS 109 requires the asset and liability method of
accounting for income taxes similar to the method required by SFAS 96. Deferred
taxes continue to be recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to future years
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities.
SFAS 109 requires that deferred tax assets be recognized for deductible
temporary differences and operating loss and tax credit carryforwards if it is
more likely than not that a tax benefit will be realized in future years. SFAS
96, in contrast, limited the recognition of deferred tax assets to benefits that
would offset deferred tax liabilities or that could be realized through the
recovery of income taxes paid in the current or prior periods. No provision is
necessary for future United States taxes on the undistributed portion of the
F-9
<PAGE> 98
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(2) SUMMARY OF ACCOUNTING PRINCIPLES -- (CONTINUED)
Company's equity in earnings of foreign affiliates, because it is anticipated
that the unremitted earnings will be permanently invested for growth and
expansion.
Environmental Compliance and Remediation
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations and do not contribute to current or future revenue
generation, are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs can be reasonably
estimated. Estimated costs are based upon enacted laws and regulations, existing
technology and the most probable method of remediation. The costs determined are
not discounted and exclude the effects of inflation and other societal and
economic factors. Where the cost estimates result in a range of equally probable
amounts, the lower end of the range is accrued. Amount accrued for environmental
compliance and remediation are not material to the consolidated financial
statements as of January 31, 1996 and 1995.
Statement of Cash Flows
For purposes of reporting cash flows, the Company considers all investments
with an original maturity of three months or less to be cash equivalents. The
following is additional information to the consolidated statements of cash flows
(millions of dollars):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY JANUARY JANUARY
31, 31, 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash paid for interest........................ $ 13.8 $ 12.8 $ 12.6
Cash paid for income taxes.................... 12.0 21.4 7.4
Non-cash investing and financing transactions:
Promissory note issued for acquisition of
land and building........................ -- -- 2.5
Assets transferred to joint venture......... 0.4 -- 4.8
</TABLE>
Postretirement and Postemployment Benefits
On February 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other than Pensions." The adoption of
SFAS No. 106 changed the Company's prior practice of accounting for
postretirement benefits from a cash basis (except for certain retirees who
retired prior to and as a result of an acquisition, for which payments were
charged to reserves established in accordance with the purchase method of
accounting) to an accrual basis recognizing the cost of these benefits over an
employee's active working career. The transition obligation recorded by the
Company represents the portion of future retiree benefit costs related to
service already rendered by both active and retired employees, up to January 31,
1993 (net of remaining amounts recorded at the time of the acquisition mentioned
above). This one time, non-cash charge was $36.8 million, partially offset by
$13.6 million of estimated tax benefits and is included within the cumulative
effect of changes in accounting principles in the Company's consolidated
statement of operations. The Company will continue its policy of paying
postretirement benefits as they become due.
In addition, effective February 1, 1993, the Company changed its method of
accounting for postemployment benefits in accordance with SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." The adoption of SFAS No.
112 resulted in a one time, non-cash charge against earnings of $2.2 million,
F-10
<PAGE> 99
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(2) SUMMARY OF ACCOUNTING PRINCIPLES -- (CONTINUED)
partially offset by $0.8 million of estimated tax benefits. This charge is
included within the cumulative effect of changes in accounting principles in the
Company's consolidated statement of operations.
The Company has disclosed in the financial statements certain amounts
associated with estimated future postretirement benefits other than pensions and
characterized such amounts as "accumulated postretirement benefit," "actuarial
liabilities," "liabilities" or "transition obligations." Notwithstanding the
recording of such amounts and the use of these terms, the Company does not admit
or otherwise acknowledge that such amounts or existing postretirement benefit
plans of the Company (other than pensions) represent legally enforceable
liabilities of the Company.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
(3) INVENTORIES
The major classes of inventory are as follows (millions of dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1995
----------- -----------
<S> <C> <C>
Raw materials............................................ $19.7 $20.8
Work-in-process.......................................... 13.5 14.4
Finished goods........................................... 25.7 22.4
----- -----
Total............................................... $58.9 $57.6
===== =====
</TABLE>
(4) GOODWILL AND OTHER ASSETS
Goodwill and other assets consist of the following (millions of dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1995
----------- -----------
<S> <C> <C>
Goodwill................................................. $ 110.3 $ 115.3
Unamortized debt issuance costs.......................... 3.6 4.2
Investment in joint ventures............................. 13.0 9.1
Plant start-up costs, net of current portion............. 1.4 2.1
Receivable from sale of affiliate........................ 2.3 2.0
Other, including special tooling......................... 18.7 13.6
------ ------
Total............................................... $ 149.3 $ 146.3
====== ======
</TABLE>
Goodwill and other assets are presented net of accumulated amortization of
$27.3 million and $21.2 million at January 31, 1996 and 1995, respectively.
F-11
<PAGE> 100
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(5) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following (millions
of dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1995
----------- -----------
<S> <C> <C>
Accounts payable......................................... $ 86.8 $ 82.4
Employee costs........................................... 19.7 19.7
Accrued interest......................................... 2.1 2.0
Other accrued liabilities................................ 16.9 14.8
------ ------
Total............................................... $ 125.5 $ 118.9
====== ======
</TABLE>
(6) TRANSACTIONS WITH RELATED PARTIES
The consolidated statements of operations include income and costs
associated with various agreements with K-H (see Note 1) and transactions with
various other joint ventures. The following is a summary of such items (millions
of dollars):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY JANUARY JANUARY
31, 31, 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
K-H Management Services....................... 0.4 1.3 3.7
Rents Charged to K-H.......................... (1.0) (1.4) (2.3)
K-H Distributorship Services.................. -- -- 1.2
Purchases from joint ventures................. 5.4 1.5 --
</TABLE>
The consolidated balance sheets include amounts receivable from and payable
to K-H resulting from the transactions noted above. The amounts included in
accounts receivable were $1.8 million and $0.3 million at January 31, 1996 and
1995, respectively.
Under a Distributorship Agreement, pursuant to which K-H agreed to act as
distributor for certain of the Company's products to be sold in the aftermarket,
the Company paid K-H a commission of 8% of net sales made through K-H. The
Distributorship Agreement was terminated effective February 1, 1994, at which
time the Company assumed control over the distribution of its aftermarket
products.
In conjunction with the IPO, the Company entered into a Non-competition
Agreement with Varity. The agreement prohibits Varity and its other affiliates
(excluding Kelsey-Hayes de Mexico) from directly or indirectly engaging in any
business competitive with the automotive wheel systems business of the Company,
in its current or planned future markets. Varity also agreed to offer the
Company any business opportunities of which Varity is apprised or which Varity
initiates that relate to the automotive wheel systems business of the Company
prior to availing itself of such opportunity. Each of Varity and the Company
also agreed not to divulge to any third parties or appropriate for its own use,
confidential or proprietary information concerning each other's respective
businesses. The term of Non-competition Agreement extends until the latest of
the date that (i) the K-H Management Services Agreement is terminated; (ii)
Varity and its affiliates, in the aggregate, are the beneficial owners of less
than thirty percent (30%) of the outstanding voting stock of the Company; and
(iii) is five years after the date of the Non-competition Agreement.
F-12
<PAGE> 101
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(7) TAXES ON INCOME
The components of pre-tax income are as follows (millions of dollars):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY JANUARY JANUARY
31, 1996 31, 1995 31, 1994
---------- ---------- ----------
<S> <C> <C> <C>
United States.................................. $ 34.6 $ 42.8 $ 35.1
Foreign........................................ 11.6 7.1 7.1
----- ----- -----
$ 46.2 $ 49.9 $ 42.2
===== ===== =====
</TABLE>
The provision for taxes on income is summarized as follows (millions of
dollars):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY JANUARY JANUARY
31, 1996 31, 1995 31, 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current:
United States................................ $ 4.5 $ 15.0 $ 10.6
Foreign...................................... 4.0 2.2 1.5
----- ----- -----
8.5 17.2 12.1
Deferred:
United States................................ 9.4 2.6 4.0
Foreign...................................... (0.1) 0.2 1.5
----- ----- -----
9.3 2.8 5.5
----- ----- -----
Taxes on income......................... $ 17.8 $ 20.0 $ 17.6
===== ===== =====
</TABLE>
F-13
<PAGE> 102
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(7) TAXES ON INCOME -- (CONTINUED)
A reconciliation of federal income tax computed at the statutory 35% rate
to the actual provision for taxes on income follows (millions of dollars):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY JANUARY JANUARY
31, 1996 31, 1995 31, 1994
---------- ---------- ----------
<S> <C> <C> <C>
Federal taxes computed at statutory rate....... $ 16.2 $ 17.5 $ 14.8
Increase (decrease) resulting from:
Tax benefit from net operating loss
carryforwards............................. 1.2 -- (1.0)
Tax benefit from foreign sales corporation... (0.5) 2.4 --
Expiring foreign net operating loss.......... 0.7 -- --
Effective tax rate differential on earnings
of consolidated foreign affiliates........ (0.4) 1.4 1.2
Permanent differences resulting from purchase
accounting................................ 0.9 0.9 0.9
Consolidated foreign subsidiaries'
nondeductible operating losses............ -- -- 0.6
Change in valuation allowance for foreign NOL
carryforward/deferred tax asset........... (1.9) (2.4) (1.3)
Effect of change in tax rates on deferred tax
balance................................... -- -- 0.8
All other items.............................. 1.6 0.7 0.7
----- ----- -----
Taxes................................... $ 17.8 $ 20.0 $ 17.6
===== ===== =====
</TABLE>
Deferred tax assets (liabilities) result from differences in the basis of
assets and liabilities for tax and financial statement purposes. The cumulative
tax effect of the major items follows (millions of dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Nondeductible accrued liabilities...................... $ 24.7 $ 27.2
Net operating loss and tax credit carryforwards........ 2.8 6.8
Pension................................................ 7.6 10.0
------ ------
Total gross deferred tax assets..................... 35.1 44.0
Less valuation allowance............................... (2.5) (3.7)
------ ------
Net deferred tax assets............................. 32.6 40.3
------ ------
Deferred tax liabilities:
Fixed assets, principally due to differences in
depreciation........................................ (66.3) (66.7)
Intangibles............................................ (8.0) (8.5)
Inventory.............................................. (2.8) (3.1)
All other items........................................ (3.6) (0.8)
------ ------
Total gross deferred tax liabilities................ (80.7) (79.1)
------ ------
Net deferred tax liabilities........................ $ (48.1) $ (38.8)
====== ======
</TABLE>
F-14
<PAGE> 103
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(7) TAXES ON INCOME -- (CONTINUED)
The Company has recorded a valuation allowance to reflect the estimated
amount of deferred tax assets which may not be realized principally due to the
inability of a foreign subsidiary to fully utilize available net operating loss
carryforwards. The subsequent recognition of tax benefits relating to the
valuation allowance will be reported in the consolidated statement of operations
as opportunities to utilize these carryforwards become more certain.
Kelsey-Hayes Company ("Kelsey-Hayes"), a subsidiary of K-H, and the Company
are party to a Tax Sharing Agreement. In general, pursuant to the Tax Sharing
Agreement, if there is an adjustment, in respect of a taxable period ending on
or prior to the Effective Date, to a consolidated Federal income tax return or
to a state or local consolidated, combined or unitary or separate income tax
return in which the Company or one of its subsidiaries are included, K-H and
Kelsey-Hayes and Varity are responsible for any deficiencies and entitled to
receive any refunds resulting from such adjustment (except for adjustments
attributable to income taxes for which the Company is responsible as describe
above), provided that the Company is required to pay K-H an amount equal to any
actual reduction in the income tax liability of the Company or its subsidiaries
for any taxable period beginning after the Effective Date resulting from such
adjustments. In addition, Varity, K-H and Kelsey-Hayes are responsible for any
income taxes resulting to the Company as a result of the spin-off of its
non-wheel business and the IPO.
(8) LONG-TERM DEBT AND BANK BORROWINGS
Long-term debt of the Company consists of the following (millions of
dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1995
----------- -----------
<S> <C> <C>
9 1/4% Senior Notes due November 15, 2002........... $ 100.0 $ 100.0
Bank revolving loan................................. 28.6 11.0
Other domestic loans maturing through 1995, weighted
average interest rate was 6% at January 31,
1995.............................................. -- 1.3
Various foreign bank and government loans maturing
through 2003, weighted average interest rate was
11.9% and 11.2% at January 31, 1996 and 1995,
respectively...................................... 0.4 0.4
------ ------
129.0 112.7
Less current portion................................ 0.1 1.3
------ ------
$ 128.9 $ 111.4
====== ======
</TABLE>
The Senior Notes provide for mandatory redemption through operation of
sinking fund payments on each of November 15, 1999, 2000 and 2001, each equal to
12.5% of the aggregate principal amount of the Senior Notes originally issued,
at 100% of the principal amount thereof plus accrued interest. The Senior Notes
are senior unsecured obligations of the Company. The Company believes that as of
January 31, 1996, the market value of the Senior Notes exceeds their recorded
value by approximately 6 to 8 percent.
The Company entered into a Third Amended and Restated Credit Agreement,
dated as of December 15, 1992, and amended and restated as of November 30, 1993,
June 10, 1994 and March 24, 1995, among the Company, the Subsidiary Guarantors
(as defined therein), the Banks (as defined therein), The Chase Manhattan Bank,
N.A. as Agent ("Chase"), and The Bank of Nova Scotia as Co-Agent (the "Third
Amended Credit Agreement").
F-15
<PAGE> 104
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(8) LONG-TERM DEBT AND BANK BORROWINGS -- (CONTINUED)
The Third Amended Credit Agreement provides senior bank financing in the
amount of $180 million, consisting of a revolving credit facility of $100
million, including up to $8 million of letters of credit ("Facility A"), to be
used for working capital purposes, and a revolving credit facility of $80
million converting to a four year term loan ("Facility B"), to be used for both
working capital and capital expenditure purposes. Borrowings under the Third
Amended Credit Agreement are unsecured. Borrowings on these facilities bear
interest at one of the following rates as selected by the Company: (1) the rate
per annum equal to the London Interbank Offered Rate ("LIBOR") plus the LIBOR
margin, (2) the rate per annum that is the higher of the federal funds rate plus
1/2% or the prime commercial lending rate of Chase, or (3) the rate quoted under
a competitive bid or set rate auction. In addition, the Company pays a facility
fee on the total commitment, whether utilized or not. The LIBOR margin and the
facility fee are variable depending on the Company's rating as determined by
rating agencies or an interest coverage ratio as defined in the agreement.
Facility A terminates on March 31, 2000 and all borrowings outstanding at that
time are payable in full. Any borrowings outstanding under Facility B as of
March 31, 1997 will convert to a four-year term loan, with repayment in sixteen
quarterly installments. As of January 31, 1996, the Company had available
borrowing capacity under the Third Amended Credit Agreement of $156.9 million,
including unused capacity for letters of credit totaling $4.9 million. The
Company has also established various other daily unsecured lines of credit. As
of January 31, 1996, there was $8.6 million outstanding on these lines.
Principal repayments during the next five years ending January 31 are as
follows (millions of dollars): 1997-$0.1; 1998-$1.6; 1999-$4.4; 2000-$18.4;
2001-$27.9 and thereafter-$76.6. The Company has guaranteed $0.3 million of debt
of a minority interest joint venture. Bank borrowings consist of short-term
notes of the Company's foreign subsidiaries.
During the fourth quarter of fiscal 1995, the Company entered into a three
year notional $10 million interest rate swap whereby the Company pays interest
at the three-month LIBOR rate and receives interest at a fixed rate of 5.96%.
Fair market value of this agreement was $(0.2) million at January 31, 1996.
(9) LEASES
The Company leases certain production facilities and equipment under
agreements expiring from 1997 to 2001. The following is a schedule of future
minimum rental payments required under operating leases that have initial or
remaining noncancelable lease terms in excess of one year as of January 31, 1996
(millions of dollars):
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31:
- -----------------------
<S> <C>
1997................................................................. $ 8.2
1998................................................................. 6.4
1999................................................................. 5.1
2000................................................................. 3.8
2001 and later years................................................. 11.1
-----
Total minimum payments required...................................... $34.6
=====
</TABLE>
Rent expense was $7.8 million, $6.0 million and $3.1 million for the years
ended January 31, 1996, 1995 and 1994, respectively.
F-16
<PAGE> 105
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(10) PENSION PLANS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The components of net pension cost included in operating results for the
years ended January 31, 1996, 1995 and 1994 are as follows (millions of
dollars):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY JANUARY JANUARY
31, 31, 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Service cost.................................. $ 0.8 $ 1.1 $ 0.9
Interest on projected benefit obligation...... 5.1 4.7 4.8
Actual return on plan assets.................. (5.0) (1.6) (2.7)
Net amortization and deferral................. 3.1 (0.3) 0.6
----- ----- -----
Net pension cost............................ $ 4.0 $ 3.9 $ 3.6
===== ===== =====
Discount rate................................. 7.50% 8.25% 7.50%
Assumed rate of return........................ 9.00% 8.50% 8.25%
</TABLE>
The following table sets forth the plans' funded status (millions of
dollars):
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1995
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested employees......................................... $ 56.5 $ 52.5
Nonvested employees...................................... 9.2 8.8
----- -----
Accumulated benefit obligation........................... 65.7 61.3
Projected benefit obligation............................. 67.6 63.2
Plan assets at fair value (principally listed stocks and
bonds)................................................. (38.0) (28.4)
----- -----
Projected benefit obligation in excess of plan assets.... 29.6 34.8
Unrecognized net losses.................................. (4.8) (4.1)
Unrecognized prior service cost.......................... (4.3) (4.8)
Adjustment required to recognize minimum liability....... 7.1 6.8
----- -----
Accrued pension cost................................ $ 27.6 $ 32.7
===== =====
</TABLE>
The Company's defined benefit pension plans generally provide benefits
based on years of service. The projected unit credit funding method was used.
Prior service costs and actuarial gains and losses are generally amortized over
the average remaining service period of active employees.
Effective January 1, 1995, the Company modified the defined benefit
Salaried Pension Plan to freeze credited service and remove salary caps that had
been instituted in 1991. Assumed rates of increase in future compensation levels
for the Salaried Pension Plan range from 5% to 6%. In conjunction with this
change, the Company increased the basic contribution of the existing salaried
defined contribution plan.
The Company provides pension benefits to substantially all domestic
employees. Certain of these plans include participants of both the Company and
Kelsey-Hayes. Accordingly, only the assets, liabilities and pension costs
related to the Company's participants in such combined plans have been included
above, as determined by the Company's actuary. The Company intends to transfer
the assets and liabilities related to Kelsey-Hayes participants to separate
Kelsey-Hayes' plans in accordance with ERISA requirements.
The Company also has contributory employee retirement savings plans
covering substantially all of its employees. The employer contribution is
determined at the discretion of the Company and totaled
F-17
<PAGE> 106
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(10) PENSION PLANS AND POSTRETIREMENT BENEFITS OTHER THAN PENSIONS --
(CONTINUED)
approximately $2.7 million, $0.9 million and $0.9 million for the years ended
January 31, 1996, 1995 and 1994, respectively.
The Company provides comprehensive medical and group life benefits to
certain of its United States retirees who elect to participate in the Company's
medical and group life plans. The medical plan contributions are adjusted
periodically; the life insurance plan is non-contributory. During fiscal 1994,
the Company entered into a labor agreement which capped the cost of retiree
health care effective February, 1997. The amounts shown below reflect the
effects of this capping.
For the year ended January 31, 1996, 1995 and 1994, the components of
postretirement benefits expense (income) were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY JANUARY JANUARY
31, 31, 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Service cost (benefits earned during the
period)..................................... $ 0.3 $ 0.6 $0.7
Interest cost on accumulated postretirement
benefit obligations......................... 2.6 2.6 4.7
Net amortization.............................. (4.1) (3.8) --
----- ----- ----
Total.................................... $ (1.2) $ (0.6) $5.4
===== ===== ====
Discount rate................................. 7.50% 8.25% 7.50%
</TABLE>
At January 31, 1996 and 1995, the recorded actuarial liabilities for these
postretirement benefits are as follows:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 31,
1996 1995
----------- -----------
<S> <C> <C>
Retirees................................................. $22.6 $20.1
Fully eligible active participants....................... 4.6 4.0
Other active participants................................ 10.2 9.1
----- -----
Subtotal............................................ 37.4 33.2
Unamortized gains (losses)............................... 9.8 21.2
----- -----
Total............................................... $47.2 $54.4
===== =====
</TABLE>
The assumed health care cost trend was 8.0% (9.0% at January 31, 1995) and
was assumed to decrease by 1% per annum to an ultimate rate of 6%. This
assumption was modified in the case of the plan that was capped. The Company
estimates an increase in the assumed health care cost trend rate of 1% per year
would increase the accumulated postretirement benefit obligation as of January
31, 1996 and 1995 by $0.1 million but would have no effect on the aggregate of
the service and interest components of postretirement benefit expense for the
year ended January 31, 1996 and 1995.
One of the Company's European subsidiaries provides benefits to its
employees through unfunded retirement arrangements. At January 31, 1996 and
1995, $4.4 million and $3.6 million, respectively, were accrued for such
obligations.
F-18
<PAGE> 107
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(11) NONRECURRING CHARGES
During the fourth quarter of the year ended January 31, 1996, the Company
recognized nonrecurring charges of $3.6 million. These charges include a $1.4
million provision associated with the restructuring of the North American
Aluminum Wheel Group and $2.2 million of charges associated with Varity's
proposal to purchase the Company's outstanding shares not owned by Varity, which
was made on September 27, 1995, and withdrawn on February 5, 1996.
(12) CONTINGENCIES
The Company is party to various litigation. Management believes that the
outcome of these lawsuits will not have a material adverse effect on the
consolidated operations or financial condition of the Company.
Kelsey-Hayes, and in some cases K-H, have agreed to indemnify the Company
for certain liabilities related to the spin-off of businesses and assets from
K-H in connection with the IPO described in Note 1, including liabilities
related to certain divested businesses; however, the Company remains
contingently liable for certain liabilities in the event that Kelsey-Hayes were
unable to satisfy its obligations to pay such costs. Included among such
contingent liabilities are liabilities related to environmental clean-up costs
(including certain Superfund sites), medical and other welfare benefits, recall
and warranty costs, product liability claims and certain obligations under
defined benefit plans. However, K-H, principally a holding company, and
Kelsey-Hayes are each indebted to third parties, which may affect their ability
to pay certain contingent liabilities related to the business and assets
retained by the Company in connection with the spin-off, if they were required
so to do.
On October 26, 1993, the Company consummated the transactions contemplated
by the Joint Venture Agreement, dated February 16, 1993, as amended, between the
Company and Nova Hut, a.s. ("Nova Hut"), respecting a joint venture in the Czech
Republic through Autokola, which is owned 55% by Nova Hut and 45% by the
Company. On November 12, 1993, Autokola entered into an Investment Agreement
with International Finance Corporation ("IFC") under which it has borrowed
63,000,000 Deutsche Marks. Autokola has pledged substantially all of its assets
as collateral for these borrowings.
In connection with the Investment Agreement, the Company executed and
delivered various other agreements. Under a Project Funds Agreement, dated
November 12, 1993, among Autokola, Nova Hut, the Company and IFC, the Company
agreed to provide funds, if required, for the completion of the Project as
defined in, and to be funded by, the Investment Agreement, not to exceed
61,000,000 Deutsche Marks. The Project Funds Agreement will terminate when the
Project is completed and certain other conditions are satisfied, which the
Company believes will occur during 1997. Under a Fee Clawback Agreement among
Autokola, the Company and IFC, the Company agreed to return to Autokola after
completion of the Project certain fees (primarily fees for marketing assistance
and license fees) to the extent that Autokola requires them to service certain
portions of its indebtedness to IFC. Under a Subordination Agreement between
Autokola, Nova Hut, the Company and IFC, the Company agreed to subordinate
Sponsor Indebtedness, as defined therein (including certain present and future
indebtedness of Autokola to the Company and certain fees to be paid by Autokola
to the Company), to specified indebtedness of Autokola under the Investment
Agreement.
The union contract at one of the Company's plants is due to expire in
February 1997. Based on management's experience, negotiation of a new contract
is anticipated without a work stoppage. Union contracts covering approximately
14% of the Company's workforce are renewable in 1997.
F-19
<PAGE> 108
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(13) ACQUISITIONS AND DIVESTITURES
In fiscal 1995, the Company increased its ownership in Ruedas de Venezuela,
C.A. to 49% at a cost of $1.4 million, which included capital equipment, tooling
and a cash contribution.
In fiscal 1995, the Company also purchased a 40% interest in Kelsey-Hayes
de Mexico, S.A. de C.V. ("KHDM") from Varity's subsidiary, Kelsey-Hayes. Prior
to this purchase, KHDM spun off its non-wheel business, leaving KHDM with only
its wheel business. KHDM was then renamed Hayes Wheels de Mexico, S.A. de C.V.
Prior to this purchase, the Company received from Kelsey-Hayes annual fees for
services rendered to KHDM. Total investment by the Company in Hayes Wheels de
Mexico, S.A. de C.V. is $2.2 million.
In fiscal 1994, the Company purchased a brake controller business from
Kelsey-Hayes. The purchase price of $2.0 million included inventory, tooling and
patents and was paid in cash.
In fiscal 1993, the Company purchased the remaining 10% interest in Hayes
Wheels de Espana, S.A. from an unrelated party at a cost of $0.2 million.
(14) STOCK INCENTIVE PLAN
Prior to the IPO, the Company adopted the Hayes Wheels International, Inc.
1992 Stock Incentive Plan (the "Plan"), under which up to 500,000 shares of
Common Stock are available for issuance with respect to awards granted to
officers, management and other key employees of the Company. Incentive stock
options, within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, as well as non-qualified stock options, may be granted under the
Plan. Other awards denominated in the Common Stock of the Company may be made,
including stock appreciation rights, restricted stock, performance awards and
other stock-based incentive awards. Information with respect to the Plan is
summarized below:
<TABLE>
<CAPTION>
FAIR MARKET PREMIUM
VALUE OPTIONS OPTIONS
------------- -------
<S> <C> <C>
Outstanding at January 31, 1994......................... 28,050 84,100
Granted................................................. 19,600 100,300
Exercised............................................... -- --
------- -------
Outstanding at January 31, 1995......................... 47,650 184,400
Granted................................................. 35,100 97,900
Exercised............................................... -- --
Expired................................................. (10,000) (30,000)
------- -------
Outstanding at January 31, 1996......................... 72,750 252,300
======= =======
</TABLE>
At January 31, 1996, options for 154,400 shares were exercisable under the
Plan. At that date, total shares of Common Stock available for granting of stock
options was 174,950.
Fair Market Value Options outstanding at January 31, 1996, become
exercisable three years from the date of grant and have a weighted average
exercise prices ranging from $18.38 to $31.88.
Premium Options issued on or after May 12, 1995, become exercisable at the
earlier of nine years after the date of grant or on the date following the tenth
day that the Company's stock price equals or exceeds a market price calculated
using a Black-Scholes Model applied to a market calculated average. The market
price under this model was $27.21 for premiums options issued in 1995. Premium
Options issued before May 12, 1995, vest one year from the date of grant and are
issued at an exercise price which, for 1994, was
F-20
<PAGE> 109
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(14) STOCK INCENTIVE PLAN -- (CONTINUED)
35% higher than a market calculated average. Premium Options outstanding at
January 31, 1996 have a weighted average exercise price ranging from $18.38 to
$39.88.
(15) INFORMATION BY GEOGRAPHIC AREA
The Company operates principally in one segment -- the design, manufacture
and supply of wheels to OEMs of automobiles and light trucks. Operating data and
identifiable assets by geographic area follow (millions of dollars):
<TABLE>
<CAPTION>
EARNINGS BEFORE TAXES
REVENUE(1)(2) ON INCOME(3) YEAR-END
--------------------------------------- --------------------------------------- IDENTIFIABLE ASSETS
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED -------------------------
JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31, JANUARY 31,
1996 1995 1994 1996 1995 1994 1996 1995
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States..... $ 527.3 $ 474.9 $ 373.2 $ 48.4 $ 54.6 $ 45.5 $ 552.8 $ 516.3
Europe(4)......... 83.8 62.7 55.0 12.8 8.7 10.3 77.5 69.1
------ ------ ------ ----- ----- ----- ------ ------
Geographic area
totals.......... 611.1 537.6 428.2 61.2 63.3 55.8 630.3 585.4
General
corporate(5).... -- -- -- -- -- (24.6) 3.6 4.2
Interest
expense......... -- -- -- (15.0) (13.4) (13.6) -- --
------ ------ ------ ----- ----- ----- ------ ------
Consolidated
totals.......... $ 611.1 $ 537.6 $ 428.2 $ 46.2 $ 49.9 $ 17.6 $ 633.9 $ 589.6
====== ====== ====== ===== ===== ===== ====== ======
</TABLE>
- -------------------------
(1) Transfers between geographic areas were not material.
(2) Sales were made to three major automotive customers each in amounts
exceeding 10 percent of total sales. Sales to one of these customers totaled
$197.6 million in fiscal 1995, $180.3 million in fiscal 1994 and $133.8
million in fiscal 1993. Sales to another customer totalled $161.0 million in
fiscal 1995, $130.5 million for fiscal 1994 and $102.0 million for fiscal
1993. Sales to a third major customer totaled $129.1 million in fiscal 1995,
$122.5 million for fiscal 1994 and $101.0 million for fiscal 1993.
(3) After adjustment for minority interest, Europe's result's for fiscal 1993
include a gain of $1.6 million related to the sale of an affiliate.
(4) Europe includes only Italy and Spain.
(5) General corporate expenses include the one-time, non-cash charges for
adoption of SFAS 106 and SFAS 112. General corporate assets are unamortized
debt issuance costs.
(16) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following represents the Company's quarterly results (millions of
dollars, except per share amounts):
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------------------
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1995 1995 1995 1996 1994 1994 1994 1995
--------- -------- ----------- ----------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales.............. $ 159.7 $ 151.4 $ 157.9 $ 142.1 $ 133.0 $ 125.1 $ 140.3 $ 139.2
Gross profit........... 26.6 23.0 25.2 22.9 25.1 23.2 24.8 23.1
Net income............. 8.3 7.2 8.0 4.9 7.9 7.2 7.9 6.9
Net income per share... 0.47 0.41 0.46 0.28 0.45 0.41 0.45 0.39
</TABLE>
(17) SUBSEQUENT EVENT
On March 28, 1996, the Company entered into an agreement and plan of merger
(the "Merger Agreement") which provides for the recapitalization of the Company
and simultaneous merger with MWC Holdings, Inc. ("Holdings"). By virtue of the
merger, each share of the Company's Common Stock outstanding at the effective
time of the merger will be converted into $28.80 in cash and one-tenth of one
F-21
<PAGE> 110
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED JANUARY 31, 1996, 1995 AND 1994
------------------------------------
(17) SUBSEQUENT EVENT -- (CONTINUED)
share of the common stock of the surviving corporation. The transactions
contemplated by the Merger Agreement are expected to be financed with proceeds
to be received from (i) the sale by the Company to certain investors of $200
million of Series A Preferred Stock, par value $0.01 per share, of the Company
(which will be converted into 6,250,000 shares of the common stock of the
Surviving Corporation upon consummation of the merger) and warrants to purchase
shares of the Company's new common stock at $48.00 per share commencing on the
fourth anniversary of the effective date of the merger and ending on the seventh
anniversary thereof, (ii) borrowings of $459.1 million under a new credit
facility to be entered into by the Company and (iii) the proceeds of the public
offering of up to $250 million of subordinated debt. The Company will also
retire its existing bank credit agreement and offer to repurchase its
outstanding 9 1/4% Senior Notes due 2002. In accordance with generally accepted
accounting principles, the transactions contemplated by the Merger Agreement
will result in the carryover of the Company's assets and liabilities at their
historical basis. Also, in connection with the merger, the Company intends to
adopt a new stock option plan, providing for the granting to certain officers
and key employees of stock options to purchase shares in an aggregate amount not
to exceed 10% of the shares of common stock of the surviving corporation.
The Merger Agreement provides for the merger of Holdings with and into the
Company, at which time the separate corporate existence of Holdings shall
thereupon cease and the Company will continue as the surviving corporation. The
Company will issue 3,125,000 new common shares plus warrants for all of the
outstanding shares of Holdings. Upon consummation of the merger, existing
holders of the Company's common stock will own approximately 15.8% of the shares
of the surviving corporation, common stock, without giving effect to the
warrants or any employee stock options. The Company will account for the merger
with Holdings as a purchase. In connection with the merger and related new debt
borrowings, all of Holdings' outstanding debt is expected to be refinanced.
Consummation of the merger is subject to various conditions, including: (i)
receipt of approval of the Merger Agreement by the stockholders of the Company
and Holdings; (ii) expiration or termination of the applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;
(iii) effectiveness of a registration statement; (iv) receipt of the requisite
financing; and (v) satisfaction of certain other conditions.
F-22
<PAGE> 111
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1996 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................... $ 0.8 $ 1.8
Receivables (less allowance of $0.1 million at April 30, 1996 and
January 31, 1996................................................. 113.4 109.6
Inventory (Note 3).................................................. 52.5 58.9
Prepaid expenses and other.......................................... 8.8 9.9
------- -------
Total current assets........................................... 175.5 180.2
Property, plant and equipment:
Land................................................................ 18.6 18.3
Buildings........................................................... 77.9 76.8
Machinery and equipment............................................. 341.7 319.7
------- -------
438.2 414.8
Accumulated depreciation............................................ (117.3) (110.4)
------- -------
Net property, plant and equipment.............................. 320.9 304.4
Goodwill and other assets............................................. 152.5 149.3
------- -------
Total assets........................................................ $ 648.5 $ 633.9
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings..................................................... $ 1.2 $ 4.1
Current portion of long-term debt................................... 0.1 0.1
Accounts payable and accrued liabilities............................ 115.1 125.5
------- -------
Total current liabilities...................................... 116.4 129.7
Noncurrent liabilities:
Long-term debt...................................................... 152.5 128.9
Deferred income taxes............................................... 48.9 48.1
Pension and other long-term liabilities............................. 80.0 81.8
------- -------
Total noncurrent liabilities................................... 281.4 258.8
Commitments and contingencies (Note 4)
Stockholders' equity:
Preferred stock 25,000,000 shares authorized, none issued........... -- --
Common stock, par value $0.01 per share:
Authorized 50,000,000 shares
Issued and outstanding, 17,574,000 shares........................ 0.2 0.2
Additional paid in capital.......................................... 198.5 198.5
Retained earnings................................................... 55.6 49.6
Foreign currency translation adjustment............................. (0.6) (0.3)
Pension liability adjustment........................................ (2.6) (2.6)
------- -------
Total stockholders' equity..................................... 251.1 245.4
------- -------
Total liabilities and stockholders' equity............................ $ 648.9 $ 633.9
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE> 112
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
------------------
1996 1995
------ ------
<S> <C> <C>
Net sales.............................................................. $156.2 $159.7
Cost of goods sold..................................................... 133.6 133.1
------ ------
Gross profit...................................................... 22.6 26.6
Marketing, general and administration.................................. 7.8 7.6
Engineering and product development.................................... 1.8 1.3
Other (income) expense................................................. (0.5) 0.2
------ ------
Earnings from operations.......................................... 13.5 17.5
Interest expense, net.................................................. 3.6 3.8
------ ------
Income before taxes on income..................................... 9.9 13.7
Income tax provision................................................... 3.8 5.4
------ ------
Net income........................................................ $ 6.1 $ 8.3
====== ======
Per share income:
Net income............................................................. $ 0.35 $ 0.47
====== ======
Weighted average shares outstanding (in thousands)..................... 17.574 17.574
====== ======
Dividends declared per share........................................... $0.015 $0.015
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE> 113
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(MILLIONS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30,
------------------
1996 1995
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................. $ 6.1 $ 8.3
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation........................................................ 7.3 6.3
Amortization of intangibles and debt issue costs.................... 1.5 1.5
Increase in deferred taxes.......................................... 0.9 1.1
Changes in operating assets and liabilities:
Increase in receivables........................................... (3.8) (16.4)
Decrease in inventories........................................... 5.4 3.1
Decrease in prepaid expenses and other............................ 1.1 0.5
Decrease in accounts payable and accrued liabilities.............. (11.1) (13.3)
Increase in other long-term liabilities........................... (1.9) 0.1
------ ------
Cash provided by (used for) operating activities.................. 5.5 (8.8)
Cash flows from investing activities:
Acquisition of property, plant and equipment........................ (23.4) (6.9)
Other, net.......................................................... (3.5) (1.7)
------ ------
Cash used for investing activities................................ (26.9) (8.6)
Cash flows from financing activities:
Decrease in foreign bank borrowings and loans.......................... (2.9) (2.5)
Dividend paid to stockholders.......................................... (0.3) (0.3)
Increase in bank revolving loan & other domestic loans................. 23.6 27.3
------ ------
Cash provided by financing activities............................. 20.4 24.5
Effect of exchange rate changes on cash and cash equivalents............. -- --
------ ------
Increase (decrease) in cash and cash equivalents.................. (1.0) 7.1
Cash and cash equivalents at beginning of year........................... (1.8) 0.5
------ ------
Cash and cash equivalents at end of period............................... $ 0.8 $ 7.6
====== ======
Supplemental data:
Cash paid for interest................................................. $ 1.2 $ 1.3
Cash paid for income taxes............................................. $ 0.1 $ 0.3
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE> 114
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED APRIL 30, 1996 AND 1995
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by
management and in the opinion of management, contain all adjustments, consisting
of normal recurring adjustments, necessary to present fairly the financial
position of the Company as of April 30, 1996, and January 31, 1996, and the
results of its operations and cash flows for the three months ended April 30,
1996 and 1995. The consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere herein. Results for interim periods are not necessarily
indicative of those to be expected for the year.
(2) SUMMARY OF ACCOUNTING PRINCIPALS
Effective February 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets." The adoption of SFAS No. 121 did not have a material effect
to the Company.
During 1995, the Financial Accounting Standards Board issued Statement No.
123, "Accounting for Stock-Based Compensation." Effective for fiscal years
beginning after December 15, 1995, SFAS No. 123 encourages companies to include
the fair value of any stock awards issued as compensation expense within their
income statements. Companies that choose to remain with Accounting Principles
Board Opinion No. 25 (which uses the intrinsic value method to account for stock
awards) must disclose pro forma net income and earnings per share as if the fair
value of the award had been included as compensation expenses. The Company
anticipates remaining with the intrinsic value method.
(3) INVENTORIES
The major classes of inventory are as follows (millions of dollars):
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1996 1996
--------- -----------
<S> <C> <C>
Raw materials........................................... $21.4 $19.7
Work-in-progress........................................ 13.2 13.5
Finished goods.......................................... 17.9 25.7
----- -----
Total.............................................. $52.5 $58.9
===== =====
</TABLE>
(4) COMMITMENTS AND CONTINGENCIES
At April 30, 1996, management believes that the Company was in compliance
with its various financial covenants. Management expects that the Company will
remain in compliance with its financial covenants in all material respects
through the period ending April 30, 1997. See Note (5) for additional disclosure
regarding future contingencies.
The Company is party to various litigation. Management believes that the
outcome of these lawsuits will not have a material adverse effect on the
consolidated operations or financial condition of the Company.
(5) SUBSEQUENT EVENTS
As of March 28, 1996, the Company entered into an Agreement and Plan of
Merger between the Company and MWC Holdings, Inc. ("Holdings") which provides
for the recapitalization of the Company and simultaneous merger with Holdings.
The Merger Agreement provides for the merger of Holdings with and
F-26
<PAGE> 115
HAYES WHEELS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE MONTHS ENDED APRIL 30, 1996 AND 1995
(UNAUDITED)
(5) SUBSEQUENT EVENTS -- (CONTINUED)
into the Company, at which time the separate corporate existence of Holdings
will thereupon cease and the Company will continue as the surviving corporation.
The Company will issue 3,125,000 new common shares (the "New Common Stock") plus
warrants for all of the outstanding shares of Holdings. At the effective time of
the merger, each share of the Company's Common Stock outstanding will be
converted into $28.80 in cash and one-tenth of one share of the New Common
Stock. Upon consummation of the merger, existing holders of the Company's common
stock will own approximately 15.8% of the shares of the Surviving Corporation's
common stock, without giving effect to the warrants of any employee stock
options (collectively the "Merger"). Also, in connection with the merger, the
Company intends to adopt a new stock option plan, providing for the granting to
certain officers and key employees of stock options to purchase shares in an
aggregate amount not to exceed 10% of the shares of common stock of the
surviving corporation.
The Merger Agreement and related transactions, fees and working capital
requirements of the Company are expected to be financed with (i) proceeds to be
received from the sale by the Company to certain investors of $200 million of
Series A Preferred Stock, par value $0.01 per share, of the Company (which will
be converted into 6,250,000 shares of New Common Stock upon consummation of the
Merger) and warrants, each warrant entitling the holder thereof to purchase one
share of the Company's New Common Stock at $48.00 per share commencing on the
fourth anniversary of the Effective Time of the Merger and ending on the seventh
anniversary thereof, (ii) borrowings of $452.0 million under a new credit
facility to be entered into by the Company (which amount has been estimated
assuming the Merger and related transactions occurred as of April 30, 1996) and
(iii) the proceeds of the public offering of $250 million of subordinated debt.
The Company will also retire its existing bank credit agreement and has
commenced a debt tender offer to repurchase its outstanding 9 1/4% Senior Notes
due 2002.
In accordance with generally accepted accounting principles, the
transactions contemplated by the Merger Agreement will result in the carryover
of the Company's assets and liabilities at their historical basis. The Company
will account for the Merger with Holdings as a purchase. In connection with the
Merger and related new debt borrowings, all of Holdings' outstanding debt is
expected to be refinanced.
Consummation of the merger is subject to various conditions, including: (i)
receipt of approval of the Merger Agreement by the stockholders of the Company
and Holdings; (ii) effectiveness of a Registration Statement; (iii) receipt of
the requisite financing; and (iv) satisfaction of certain other conditions.
F-27
<PAGE> 116
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
MWC Holdings, Inc.
We have audited the accompanying consolidated balance sheets of MWC
Holdings, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1995. The financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
MWC Holdings, Inc. and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Notes G and L to the financial statements, in 1993 the
Company changed its method of accounting for postretirement benefits other than
pensions and its method of accounting for income taxes.
ERNST & YOUNG LLP
February 23, 1996,
except for Note O, as to which the date is
March 28, 1996
Detroit, Michigan
F-28
<PAGE> 117
MWC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
--------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
ASSETS -- Note E
Current assets:
Cash................................................................. $ 1,351 $ 1,018
Accounts receivable, net of allowance of $250 in 1995 and 1994....... 32,294 44,766
Inventories -- Note B................................................ 31,943 33,187
Prepaid expenses and other current assets............................ 5,581 5,817
--------- --------
Total current assets............................................ 71,169 84,788
Property, plant and equipment -- Note J:
Land and improvements................................................ 4,445 4,445
Buildings............................................................ 26,111 25,569
Machinery and equipment.............................................. 178,186 171,791
Construction in progress............................................. 6,620 7,670
--------- --------
215,362 209,475
Less accumulated depreciation, amortization and valuation
allowance......................................................... 136,385 110,519
--------- --------
78,977 98,956
Investments in equity affiliates -- Note C............................. 7,374 8,061
Other assets........................................................... 12,087 17,131
--------- --------
Total assets.................................................... $ 169,607 $208,936
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable..................................................... $ 30,123 $ 43,374
Accrued liabilities -- Note D........................................ 26,087 21,247
Short-term borrowings -- Note E...................................... 5,000 6,811
--------- --------
Total current liabilities....................................... 61,210 71,432
Long-term debt -- Note E............................................... 125,000 125,000
Preferred stock of subsidiary -- Note H................................ -- 15,000
Other long-term liabilities............................................ 60,953 49,655
Shareholders' equity (deficit) -- Notes E and I:
Common stock, $0.01 par value, authorized 500,000 shares, issued
442.5 shares and 162,994 shares at December 31, 1995 and 1994,
respectively...................................................... -- 2
Additional paid-in capital........................................... 38,922 4,164
Retained-earnings deficit............................................ (107,737) (55,541)
Additional minimum pension liability................................. -- (763)
--------- --------
(68,815) (52,138)
Less treasury stock, 65.1 shares and 428 shares at December 31, 1995
and 1994, respectively............................................ (8,741) (13)
--------- --------
Total shareholders' equity (deficit)............................ (77,556) (52,151)
--------- --------
Total liabilities and shareholders' equity (deficit)............ $ 169,607 $208,936
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-29
<PAGE> 118
MWC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
--------- --------- --------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales................................................... $ 357,179 $ 405,183 $367,970
Cost of goods sold.......................................... 324,012 361,510 325,702
--------- --------- --------
Gross profit........................................... 33,167 43,673 42,268
Selling, administrative and general......................... 18,218 18,471 16,985
Research and development.................................... 6,882 6,941 6,647
Plant closure costs -- Note J............................... 32,986 31,589 --
Interest expense............................................ 17,854 17,174 16,466
Preferred dividends of subsidiary -- Note H................. 1,629 1,890 1,908
Other expense (income) -- Note K............................ 3,646 2,808 1,608
Patent defense costs........................................ -- 1,700 --
--------- --------- --------
Loss before taxes...................................... (48,048) (36,900) (1,346)
Provision for income taxes -- Note L........................ 4,168 503 713
--------- --------- --------
Loss before extraordinary item......................... (52,216) (37,403) (2,059)
Loss on debt extinguishment, net of income tax tax benefit
-- Note E................................................. -- -- (3,229)
--------- --------- --------
Net loss............................................... $ (52,216) $ (37,403) $ (5,288)
========= ========= ========
Loss per common share -- Note I:
Before extraordinary item................................. $(267,912) $(230,314) $(12,741)
Extraordinary item........................................ -- -- (19,982)
--------- --------- --------
Net loss............................................... $(267,912) $(230,314) $(32,723)
========= ========= ========
Weighted average common shares outstanding -- Note I........ 194.9 162.4 161.6
========= ========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-30
<PAGE> 119
MWC HOLDINGS, INC. SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL
ADDITIONAL RETAINED- MINIMUM
COMMON PAID-IN EARNINGS PENSION TREASURY
STOCK CAPITAL DEFICIT LIABILITY STOCK TOTAL
------ ---------- --------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992........... $ 2 $ 4,145 $ (13,085) $ -- $ (39) $ (8,977)
Net loss for 1993.................... -- -- (5,288) -- -- (5,288)
Accretion on preferred stock of
subsidiary......................... -- -- 164 -- -- 164
--- ------- --------- ------- ------- --------
Balance, December 31, 1993........... 2 4,145 (18,209) -- (39) (14,101)
Sale of treasury stock............... -- 19 -- -- 26 45
Net loss for 1994.................... -- -- (37,403) -- -- (37,403)
Accretion on preferred stock of
subsidiary......................... -- -- 71 -- -- 71
Adjustment to additional minimum
pension liability.................. -- -- -- (763) -- (763)
--- ------- --------- ------- ------- --------
Balance, December 31, 1994........... 2 4,164 (55,541) (763) (13) (52,151)
Issuance of common stock............. 3 37,022 -- -- -- 37,025
Purchase of treasury stock and common
shares retired..................... -- (2,269) -- -- (8,728) (10,997)
Common stock reverse split........... (5) 5 -- -- -- --
Net loss for 1995.................... -- -- (52,216) -- -- (52,216)
Accretion on preferred stock of
subsidiary......................... -- -- 20 -- -- 20
Adjustment to additional minimum
pension liability.................. -- -- -- 763 -- 763
--- ------- --------- ------- ------- --------
Balance, December 31, 1995........... $ -- $ 38,922 $(107,737) $ -- $ (8,741) $(77,556)
=== ======= ========= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-31
<PAGE> 120
MWC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
-------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net loss................................................... $(52,216) $(37,403) $ (5,288)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Plant closure costs..................................... 32,986 31,589 --
Depreciation and amortization........................... 19,047 19,346 17,454
Postretirement benefits other than pensions -- Note G... 1,764 2,934 4,985
Deferred income taxes (credit).......................... 5,189 (2,004) (2,573)
Write-down of assets to realizable value................ 2,263 1,909 --
Preferred dividends of subsidiary....................... 1,629 1,890 1,908
Extraordinary item -- loss on debt extinguishment....... -- -- 4,893
Other................................................... 1,974 2,127 3,848
Net change in operating assets and liabilities -- Note M... (5,398) (2,392) 122
-------- -------- ---------
Net cash provided by operating activities.................... 7,238 17,996 25,349
Cash Flows from Investing Activities
Additions to property, plant and equipment:
Capital expenditures.................................... (9,284) (13,069) (12,433)
Tooling and dunnage..................................... (4,959) (5,293) (3,380)
Other................................................... 190 14 (140)
-------- -------- ---------
Net cash used for investing activities....................... (14,053) (18,348) (15,953)
Cash Flows from Financing Activities
Issuance of common stock................................... 37,025 -- --
Purchase of treasury stock and common stock retired........ (10,977) -- --
Purchase of preferred stock of subsidiary.................. (17,069) -- --
Proceeds from (repayment of) revolving credit loans with
financial institutions.................................. (1,811) 3,085 3,726
Payment of preferred stock dividends by subsidiary......... -- (1,800) (4,256)
Sale of treasury stock..................................... -- 45 --
Proceeds from issuance of Motor Wheel Senior Notes......... -- -- 125,000
Retirement of Subordinated Notes........................... -- -- (107,665)
Repayment of term and revolving credit loans with financial
institutions............................................ -- -- (21,063)
Debt issuance costs........................................ -- -- (5,117)
-------- -------- ---------
Net cash provided by (used for) financing activities......... 7,168 1,330 (9,375)
-------- -------- ---------
Increase in cash............................................. 333 978 21
Cash at beginning of year.................................... 1,018 40 19
-------- -------- ---------
Cash at end of year.......................................... $ 1,351 $ 1,018 $ 40
======== ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-32
<PAGE> 121
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES
Description of Business: MWC Holdings, Inc. (the Company) and its
wholly-owned subsidiary, Motor Wheel, operate primarily in one business segment.
Holdings designs, manufactures and markets wheels, rims and brake components for
passenger cars, light trucks and commercial highway vehicles. Each of Holdings'
plants produces and ships products principally to original equipment
manufacturers in North America and Japan. Substantially all of Holdings'
accounts receivable are from these manufacturers. Holdings has two major
customers. Sales to its largest customer represented 40%, 44% and 37% of net
sales in 1995, 1994 and 1993, respectively. Sales to its second largest customer
represented 13%, 15% and 24% of net sales in 1995, 1994 and 1993, respectively.
Total export sales were $70,580,000, $82,700,000 and $73,470,000 in 1995, 1994
and 1993, respectively, which include sales to unaffiliated customers in Canada
of $45,895,000, $56,065,000 and $59,810,000 in 1995, 1994 and 1993,
respectively, and the remainder predominantly representing sales to unaffiliated
customers in Mexico and Japan.
Principles of Consolidation: The consolidated financial statements include
the accounts of Holdings and its majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. Companies in which
Holdings has stock ownership from 20 to 50 percent are accounted for by the
equity method.
Revenue Recognition: Sales and related costs of goods sold are recognized
when the products are shipped.
Inventories: Inventories are stated at the lower of cost or market. Cost
was determined by the last-in, first-out (LIFO) method for substantially all
inventories at December 31, 1995 and 1994.
Property, Plant and Equipment: Property, plant and equipment are stated on
the basis of cost. Expenditures for major improvements are capitalized while
repairs and maintenance are charged to expense. Depreciation is computed by the
straight-line method based upon the estimated useful lives of the assets, which
range from 20 to 40 years for buildings and land improvements and from 3 to 15
years for machinery and equipment. Expenditures for tooling and dunnage are
included in machinery and equipment and are amortized on a straight-line basis
over the estimated useful lives of the assets which range from 2 to 5 years.
When a tooling or dunnage expenditure is fully amortized, the cost and
accumulated amortization are eliminated from the accounts.
Holdings capitalizes interest costs incurred in constructing major
improvements. Interest costs of $76,000, $66,000 and $461,000 were capitalized
in 1995, 1994, and 1993, respectively. Construction in progress at December 31,
1995 primarily relates to normal ongoing improvements and replacements of
machinery and equipment.
Debt Issuance Costs: Debt issuance costs at December 31, 1995 represent
expenditures associated with the issuance and sale of the 11 1/2% senior notes
(the "Motor Wheel Senior Notes") and the borrowings under Motor Wheel s credit
agreement with financial institutions. These costs are being amortized using the
interest yield method over the terms of the agreements, and the unamortized
balance of $3,134,000 at December 31, 1995 is included in other assets.
Management Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported net income
during the reporting period. Actual results could differ from those estimates.
Long-Lived Assets: In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for
F-33
<PAGE> 122
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
Long-Lived Assets to Be Disposed of. Companies are required to adopt this
standard no later than 1996. Holdings has not completed the analysis of the
impact of this standard, but management does not believe the impact will be
significant.
NOTE B -- INVENTORIES
Inventories are comprised of:
<TABLE>
<CAPTION>
1995 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Raw materials and supplies............................................. $15,315 $16,860
Work in process........................................................ 6,536 6,578
Finished product....................................................... 14,863 12,770
------- -------
36,714 36,208
Less excess of FIFO cost over LIFO..................................... (1,971) (1,507)
Less valuation allowance -- Note J..................................... (2,800) (1,514)
------- -------
$31,943 $33,187
======= =======
</TABLE>
NOTE C -- EQUITY INVESTMENTS
Holdings has a 50% common stock ownership in Aluminum Wheel Technology,
Inc. ("Alumitech"), a manufacturer of cast aluminum wheels. Alumitech has
$39,881,000 of bank loans which are 50% guaranteed by Holdings.
Holdings has a 50% common stock ownership in Riviera Tool Company, a
manufacturer of stamping dies that are sold to domestic automobile manufacturers
and their suppliers.
F-34
<PAGE> 123
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C -- EQUITY INVESTMENTS -- (CONTINUED)
Alumitech's fiscal year end is December 31, 1995, and Riviera Tool
Company's fiscal year end is August 31, 1995. Summarized combined financial
information at December 31, 1995 and 1994, and for the three years ended
December 31, 1995 for these equity investments, is as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31,
--------------------
1995 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Current assets......................................................... $23,582 $25,637
Noncurrent assets...................................................... 51,080 55,249
------- -------
Total assets.................................................... $74,662 $80,886
======= =======
Current liabilities.................................................... $24,494 $30,022
Noncurrent liabilities................................................. 36,508 35,850
------- -------
Total liabilities............................................... 61,002 65,872
Shareholders' equity................................................... 13,660 15,014
------- -------
Total liabilities and shareholders' equity...................... $74,662 $80,886
======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................... $74,785 $78,495 $67,552
Gross profit................................................ 6,513 6,186 6,994
Operating profit............................................ 2,973 2,184 3,694
Net loss.................................................... (1,115) (1,803) (2,417)
</TABLE>
In 1993, Riviera Tool Company recorded a loss of $2,517,000 to write off an
investment in and receivable from an affiliated company which ceased business
operations during 1994 and sold substantially all of its assets.
For a substantial portion of 1993, Holdings carried a note receivable
balance due from Dotson Wheel Corporation, Inc. ("Dotson"), a manufacturer of
off-highway wheel and rim products in which Holdings also held a 30% common
stock ownership. Dotson ceased business operations during 1993 and sold
substantially all of its assets. Correspondingly, Holdings recorded a $1,289,000
loss in 1993 to write off the note receivable.
NOTE D -- ACCRUED LIABILITIES
Accrued liabilities are comprised of:
<TABLE>
<CAPTION>
1995 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Payroll and compensated absences....................................... $ 5,233 $ 6,093
Interest............................................................... 4,884 4,958
Workers' compensation.................................................. 3,363 3,414
Plant closure costs.................................................... 3,340 1,000
Other.................................................................. 9,267 5,782
------- -------
$26,087 $21,247
======= =======
</TABLE>
F-35
<PAGE> 124
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1994 consists of $125,000,000 of
Motor Wheel Senior Notes due March 1, 2000 which are unsecured with interest
payable semiannually on March 1 and September 1 of each year.
Motor Wheel has a revolving credit agreement which provides borrowing
capacity up to $50,000,000 through March 1998, subject to limitations based on
the value of Motor Wheel's inventory and receivables. During 1995, Motor Wheel
negotiated an amendment to its existing revolving credit agreement which
extended the maturity date of the agreement from March 1996 to March 1998,
decreased the interest rates on borrowings under the agreement, eliminated
certain financial covenants and provided an option, at the mutual consent of
Motor Wheel and its lender, for an extension of one year on the maturity date.
The credit agreement also provides up to $25,000,000 in letters of credit with
the amount of any outstanding letters of credit applied to reduce Motor Wheel s
borrowing capacity.
Short-term borrowings outstanding at December 31, 1995 represent borrowings
under this agreement based upon Eurodollar interest rates (8.44% at December 31,
1995). The agreement also provides for borrowings based upon prime interest
rates plus 1%, none of which were outstanding at December 31, 1995. The interest
rate on the short term borrowings outstanding at December 31, 1994 was 10 1/4%.
Interest is payable monthly. Outstanding letters of credit totaled $12,532,000
at December 31, 1995 and included $6,667,000 in standby letters of credit
partially to support Holdings guarantee of 50% of Alumitech's bank loans (see
Note C). At December 31, 1995, the unused and available portion of commitment
under the credit agreement was approximately $22,300,000.
The liquidity position of Holdings, primarily the level of unused and
available portion of commitment under the credit agreement, is improved over
prior years despite the incurrence of net losses over the past three years and
the resulting shareholders deficit. The significant items contributing to these
net losses include the plant closure costs and other noncash expenses recorded
over the past three years.
In 1993, Holdings completed a refinancing which included the issuance of
the Motor Wheel Senior Notes, the retirement of $105 million face value of
Senior Subordinated Notes, the repayment of outstanding term loans, the payment
of $3,375,000 of accrued preferred stock dividends and the payment of other
costs related to the refinancing. Holdings recognized an extraordinary charge of
$3,229,000, net of the related income tax effect of $1,664,000, which consisted
primarily of the write-off of unamortized debt issuance costs and the redemption
premium for the 11 3/8% Senior Subordinated Notes.
The indenture relating to the 11 1/2% Motor Wheel Senior Notes include
covenants that, among other things, limit Motor Wheel's ability to create or
incur additional indebtedness, create or incur additional liens, sell assets and
engage in certain transactions. The revolving credit agreement includes a limit
on Motor Wheel's annual capital expenditures in the amount of $15,000,000, which
can be exceeded provided that certain minimum levels of borrowing availability
have been maintained. Substantially all accounts receivable and inventory are
collateralized under the credit agreement for short-term borrowings. Although
the remaining assets are not collateralized, under the indenture relating to the
Motor Wheel Senior Notes Holdings has agreed not to pledge these assets as
collateral for other borrowings.
Interest paid was $16,340,000, $16,300,000 and $14,920,000 in 1995, 1994
and 1993, respectively.
The fair value of the Motor Wheel Senior Notes outstanding at December 31,
1995 was approximately 88% of the carrying amount. Based on borrowing rates
currently available to Holdings for bank loans with similar terms, the fair
value of the amounts outstanding under Motor Wheel's credit agreement
approximate the carrying amounts at December 31, 1995.
F-36
<PAGE> 125
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- PENSIONS
Holdings has defined benefit pension plans covering substantially all
employees. Benefits for plans covered by collective bargaining agreements are
based upon a fixed amount per year of credited service while benefits for other
plans are based upon years of service, compensation and social security
benefits.
Holdings' funding policy is to contribute annually an actuarially
determined amount which includes current and prior service cost. Plan assets
include corporate and government debt securities, marketable equity securities
and cash equivalents.
The following table sets forth the plans' funded status and amounts
recognized in Holdings' consolidated balance sheets at December 31, 1995 and
1994.
<TABLE>
<CAPTION>
1995 1994
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Accumulated benefits obligation including vested benefits of $80,312 and
$71,213 at December 31, 1995 and 1994, respectively.................... $83,504 $79,782
======= =======
Projected benefit obligation for service rendered to date................ $85,789 $82,697
Plan assets at fair value................................................ 68,835 61,117
------- -------
Projected benefit obligation in excess of plan assets.................... 16,954 21,580
Unrecognized net gain from past experience different from that assumed... 3,051 504
Unrecognized prior service costs resulting from plan amendments.......... (3,492) (4,581)
Adjustment required to recognize minimum liability....................... 2,886 4,595
------- -------
Accrued pension liability................................................ $19,399 $22,098
======= =======
</TABLE>
Accrued pension liability is included under the captions "Accrued
liabilities" and "Other long-term liabilities."
Intangible assets in the amounts of $2,886,000 and $3,832,000 as of
December 31, 1995 and 1994, respectively, related to the minimum liability
recognized have been included in other assets.
Pension expense consists of:
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost-benefits earned during the period.................. $ 1,868 $ 2,341 $ 2,074
Interest cost on projected benefit obligation................... 6,111 5,796 5,377
Actual (return) loss on assets.................................. (14,115) 1,333 (6,176)
Net amortization and deferral................................... 9,909 (5,783) 2,121
-------- ------- -------
$ 3,773 $ 3,687 $ 3,396
======== ======= =======
</TABLE>
In 1995, there were certain curtailment and termination events primarily
relating to work-force reductions which resulted in the recognition of a net
gain of $969,000. In 1994, as part of a provision for plant closure costs (see
Note J), Holdings recognized a loss of $4,527,000.
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 7 3/4% at December 31, 1995, 8 1/2% at December
31, 1994 and 7 3/4% at December 31, 1993. The assumed long-term rate of return
on plan assets was 9 1/2%. The rate of increase in future compensation, where
applicable, was 4 1/2%.
F-37
<PAGE> 126
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- PENSIONS -- (CONTINUED)
Holdings has 401(K) plans covering substantially all domestic employees.
Under these various plans, Holdings provides differing levels of matching
contributions which totaled $497,000, $423,000 and $307,000 in 1995, 1994 and
1993, respectively.
NOTE G -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Holdings provides substantially all employees with health care and life
insurance benefits following retirement with the primary exception being that
these benefits are not extended to the majority of employees hired after
December 31, 1992. Health care benefit levels for all current retirees are based
upon company contributions which are substantially limited to 1992 levels of
health care costs requiring certain levels of contributions by the retirees. The
cost of life insurance benefits is fully paid by Holdings. Postretirement
benefit levels for active plan participants (future retirees) are similar to the
benefit levels for current retirees; however, differences exist for certain
active plan participants who are covered by existing collective bargaining
agreements.
The following table displays the components of Holdings' accumulated
postretirement benefit obligation as of December 31, 1995 and 1994 reconciled to
amounts recognized in the accompanying consolidated balance sheet.
<TABLE>
<CAPTION>
1995 1994
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.............................................................. $ 33,970 $ 30,801
Fully eligible active plan participants............................... 9,070 12,123
Other active plan participants........................................ 12,273 8,681
-------- --------
55,313 51,605
Unrecognized prior service cost......................................... (1,179) --
Unrecognized net gain (loss)............................................ 2,157 5,005
Unrecognized transition obligation...................................... (41,201) (44,341)
-------- --------
Accrued postretirement benefit cost..................................... $ 15,090 $ 12,269
======== ========
</TABLE>
Effective January 1, 1993, Holdings adopted SFAS No. 106, Employer's
Accounting for Postretirement Benefits Other Than Pensions. The estimated
transition obligation as of January 1, 1993 was $78,928,000, measured based upon
the substantive plans in effect as of that date. The transition obligation
represented that portion of future retiree benefit costs related to services
already rendered by both active plan participants and retirees as of January 1,
1993. This obligation is being recognized over an amortization period of 20
years. Since January 1, 1993, Holdings has negotiated reductions in benefit
levels with certain active plan participants who are covered under collective
bargaining agreements. The impact of these lower benefit levels has been
accounted for as reductions to the unamortized transition obligation and a
corresponding reduction in ongoing net periodic postretirement benefit costs.
F-38
<PAGE> 127
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS -- (CONTINUED)
Net periodic postretirement benefit cost is comprised of:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost....................................................... $ 433 $ 674 $ 1,377
Interest cost...................................................... 4,280 4,378 6,051
Amortization of transition obligation.............................. 2,686 2,818 3,435
Amortization of prior service cost................................. 43 -- --
------ ------ ------
Net periodic postretirement benefit cost........................... $7,442 $7,870 $10,863
====== ====== ======
</TABLE>
The net periodic postretirement benefit cost has exceeded Holdings' cash
disbursements for such benefits by $1,764,000, $2,934,000 and $4,985,000 in
1995, 1994 and 1993, respectively. Holdings expects to continue its policy of
paying postretirement benefits as incurred, so there is no anticipated effect on
the timing of cash disbursements relating to postretirement benefits.
In 1995, there were certain curtailment and termination events primarily
relating to work-force reductions which resulted in the recognition of a net
loss of $215,000. In 1994, as part of a provision for plant closure costs (see
Note J), Holdings recognized a loss of $4,350,000.
The assumed weighted-average health care cost trend rate is 8.0% for 1996
and is assumed to decrease linearly to 4 3/4% for 2001 and remain at that level
thereafter. The health care cost trend rate assumption can have a significant
effect on the amounts reported. Increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1995 by $850,000, and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year ended December 31, 1995 by $130,000.
The assumed weighted average discount rate used in determining the actuarial
present value of the accumulated postretirement benefit obligation was 7 3/4% at
December 31, 1995, 8 1/2% at December 31, 1994 and 7 3/4% at December 31, 1993.
NOTE H -- PREFERRED STOCK
Prior to November 7, 1995 (see Note I), Motor Wheel had 150,000 outstanding
shares of no-par-value Cumulative Exchangeable Preferred Stock ("Motor Wheel
Preferred Stock"). The initial dividend rate was $11.25 per share per annum
through April 1, 1993 and increased thereafter by $0.50 per share each year on
April 1. The accretion of the discount at the time of issuance of the increasing
rate Motor Wheel Preferred Stock of $20,000, $71,000 and $164,000 in 1995, 1994
and 1993, respectively, has been reflected in net loss.
NOTE I -- ISSUANCE OF COMMON STOCK
On November 7, 1995, Holdings completed certain transactions in which an
equity investment was made in Holdings in exchange for a controlling interest in
Holdings. A portion of the proceeds of this investment was used by Holdings to
(i) purchase certain shares of its common stock; (ii) purchase the outstanding
shares of Motor Wheel Preferred Stock; and (iii) pay transaction costs. In
conjunction, a reverse split of the common shares of Holdings was completed
whereby holders received one share for every thousand shares held. The loss per
common share amounts is based on the weighted average number of common shares
outstanding, which are presented on a pro forma basis for all years giving
effect to the reverse split in 1995.
An officer of Holdings has options to purchase 16.371 shares of Holdings'
common stock at an exercise price of $135,000 per share. Such options vest and
become exercisable ratably over a five-year period
F-39
<PAGE> 128
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- ISSUANCE OF COMMON STOCK -- (CONTINUED)
beginning on December 31, 1996. Vesting of the options is subject to Holdings
achieving certain performance targets but shall vest in full no later than 2003,
provided the officer remains an employee of Holdings.
NOTE J -- PLANT CLOSURE COSTS
In 1995, Holdings recorded provisions related to two plant closure matters.
Holdings commenced efforts to address manufacturing capacity and noncompetitive
costs in both its automotive steel wheel and automotive brake operations. As a
result of these efforts, manufacturing operations at both the Mendota, Illinois,
and Ypsilanti, Michigan, facilities will be terminated. Closure of these
facilities will commence in 1996. Holdings is currently evaluating various
options with respect to satisfying its expected production requirements within
automotive wheel and brake operations.
Holdings has recorded provisions totaling $32,986,000, which consist of the
following estimates:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Asset write-down to estimated realizable values.......................... $ 16,396
Curtailment costs associated with postretirement benefits................ 3,525
Facility maintenance costs during estimated holding period............... 5,940
Postemployment benefits.................................................. 7,125
-------
$ 32,986
=======
</TABLE>
In 1994, Holdings recorded provisions related to plant-closure matters
associated with reducing its manufacturing capacity within its automotive wheel
operations. Holdings recorded provisions totaling $31,589,000, which consisted
of the following estimates:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
Asset write-downs to estimated realizable values......................... $ 12,541
Curtailment costs associated with postretirement benefits................ 8,877
Facility maintenance costs during estimated holding period............... 6,596
Postemployment benefits.................................................. 3,575
-------
$ 31,589
=======
</TABLE>
During 1995, Holdings transferred production of automotive steel wheels
from Lansing to another steel wheel facility, reduced employment levels and
commenced efforts to dispose of excess property, plant and equipment. Also in
1995, Holdings completed the sale of certain equipment and inventory associated
with its Luckey manufacturing operations.
As of December 31, 1995, Holdings' recorded liability for the Lansing and
Luckey plant-closure costs was $9,675,000, which consists of facility
maintenance costs and postemployment benefits. Liabilities related to these
plant closures for pensions and postretirement benefits other than pensions are
included in the amounts disclosed in Notes F and G. In addition, remaining
valuation allowances for inventory and property, plant and equipment total
$708,000 and $7,968,000, respectively. There were no significant adjustments
made in 1995 to the plant-closure cost estimates recorded in 1994.
F-40
<PAGE> 129
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K -- OTHER EXPENSE (INCOME)
Other expense (income) is comprised of:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Write-down of assets to realizable value....................... $2,263 $1,909 $ --
Restructuring costs............................................ 846 -- --
Equity in net loss of affiliates Note C........................ 687 1,024 2,666
License and royalty agreements................................. (124) (341) (411)
Other.......................................................... (26) 216 (647)
------ ------ ------
$3,646 $2,808 $1,608
====== ====== ======
</TABLE>
NOTE L -- INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
Holdings' deferred tax assets and liabilities as of December 31, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------------- -----------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Tax over book depreciation........................... $ -- $12,603 $ -- $14,680
Plant-closure costs.................................. 17,460 -- 10,740 --
Employee benefit accruals............................ 13,545 -- 10,692 --
Other................................................ 1,430 709 443 604
Net operating loss carryforwards..................... 4,451 -- 2,965 --
------- ------- -------- -------
36,886 13,312 24,840 15,284
Tax credit carryforwards............................. 5,345 -- 6,373 --
Valuation allowance for deferred tax assets.......... (28,919) -- (10,740) --
------- ------- -------- -------
Total deferred taxes................................. $ 13,312 $13,312 $ 20,473 $15,284
======= ======= ======== =======
</TABLE>
As disclosed in Note I, certain transactions were completed in 1995 which
resulted in a change in control in the ownership of Holdings. Under certain
provisions of the Internal Revenue Code, a change in control can significantly
impact a taxpayer s ability to utilize net operating loss and tax credit
carryforwards. The change of control has a significant impact on Holdings'
ability to utilize net operating loss and tax credit carryforwards. Holdings
also incurred additional operating losses and provided additional costs for
plant closures in 1995. As a result, Holdings provided a total of $18,179,000 to
increase the valuation allowance against deferred tax assets. Net deferred tax
assets of $5,189,000 at December 31, 1994 include $1,250,000 under the caption
"Prepaid expenses and other current assets" and $3,939,000 under the caption
"Other assets."
F-41
<PAGE> 130
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L -- INCOME TAXES -- (CONTINUED)
The provision (credit) for income taxes is comprised of:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Deferred expense (credit):
Plant-closure costs.......................................... $ (6,720) $(10,740) $ --
Employee benefits............................................ (2,853) (962) (1,901)
Depreciation................................................. (2,077) (1,126) (706)
Other items, net............................................. (882) (381) (19)
-------- -------- -------
(12,532) (13,209) (2,626)
Net operating loss carryforwards............................. (1,486) -- --
Tax credit carryforwards..................................... 1,028 (1,936) (1,479)
Reinstatement due to utilization of net operating loss
carryforwards............................................. -- 2,401 1,532
-------- -------- -------
(12,990) (12,744) (2,573)
Adjustment to valuation allowance for deferred tax assets...... 18,179 10,740 --
-------- -------- -------
Total deferred expense (credit).............................. 5,189 (2,004) (2,573)
Currently payable (refundable)................................. (1,021) 2,507 1,622
-------- -------- -------
4,168 503 (951)
Tax benefit allocated to extraordinary item Note E............. -- -- 1,664
-------- -------- -------
$ 4,168 $ 503 $ 713
======== ======== =======
</TABLE>
Net income taxes paid were $300,000, $2,078,000 and $1,204,000 in 1995,
1994 and 1993, respectively.
A reconciliation of income taxes calculated at the statutory rate of 34% to
the provision for income taxes follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Credit at Federal statutory rate................................ $(16,336) $(12,546) $(458)
Adjustments to taxes at statutory rate:
Adjustment to valuation allowance for deferred tax assets..... 18,179 10,740 --
Nondeductible losses from foreign subsidiaries................ 1,248 854 259
Nondeductible preferred dividends of subsidiary............... 554 643 649
Nondeductible losses from equity investments.................. 320 391 48
Other items................................................... 203 421 215
-------- -------- -----
Income taxes.................................................. $ 4,168 $ 503 $ 713
======== ======== =====
</TABLE>
For United States tax-reporting purposes, at December 31, 1995, Holdings
has net operating loss carryforwards of approximately $13,091,000, utilization
of which is limited to approximately $250,000 per year through the final year of
expiration in 2010, and tax credit carryforwards of approximately $5,345,000
principally related to alternative minimum tax.
Effective January 1, 1993, Holdings adopted SFAS No. 109, Accounting for
Income Taxes. This adoption did not have a significant impact on the financial
position, results of operations or cash flows of Holdings.
F-42
<PAGE> 131
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- NET CHANGE IN OPERATING ASSETS AND LIABILITIES
The net change in operating assets and liabilities is comprised of (dollars
in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Accounts receivable............................................. $ 12,472 $(6,294) $(5,186)
Inventories..................................................... (1,277) 693 (3,496)
Other operating assets.......................................... (2,732) (2,306) (411)
Operating liabilities........................................... (13,861) 5,515 9,215
-------- ------- -------
$ (5,398) $(2,392) $ 122
======== ======= =======
</TABLE>
NOTE N -- COMMITMENTS AND CONTINGENCIES
Holdings leases certain property, plant and equipment under various
noncancelable operating leases. Original lease terms generally expire within
fifteen years but may be renewed by Holdings. Many of the leases provide that
Holdings will pay taxes assessed against leased property and the cost of
insurance and maintenance.
Future minimum lease payments under noncancelable operating leases are as
follows (dollars in thousands):
<TABLE>
<S> <C>
1996..................................................................... $ 3,263
1997..................................................................... 2,446
1998..................................................................... 1,713
1999..................................................................... 1,555
2000..................................................................... 1,539
-------
10,516
Thereafter............................................................... 6,884
-------
Total future minimum lease payments...................................... $ 17,400
=======
</TABLE>
Total rental expense charged to income was $4,000,000, $4,800,000 and
$4,900,000 in 1995, 1994 and 1993, respectively.
Holdings, in the normal course of business, is involved in various legal
actions. Management, after taking into consideration legal counsel's
evaluations, is of the opinion that the outcome thereof will not have a material
impact on the financial position, operating results or cash flows of Holdings.
In addition, Holdings is party to various environmental cleanup and product
liability matters. Holdings was formed to acquire Motor Wheel from The Goodyear
Tire & Rubber Company ( Goodyear ). At the time of the acquisition of Motor
Wheel from Goodyear in December 1986 (the "Acquisition"), Goodyear agreed to be
responsible for, and to indemnify Holdings with respect to, all liabilities,
claims and obligations for environmental pollutants, or other substances
generated prior to December 30, 1986, for the plants then owned by Motor Wheel,
and April 1, 1987, for the plants previously owned by Goodyear. Also at the time
of the Acquisition, Goodyear agreed to indemnify Holdings for all costs and
liabilities arising from any product warranty, product liability, other claims
or obligations for products manufactured by Motor Wheel prior to December 30,
1986 and for products manufactured by Goodyear at the Akron, Ohio, plant prior
to April 1, 1987. After taking into consideration both the Goodyear
indemnification and actions taken by Holdings since the Acquisition to limit
Holdings's exposure in these matters, management is of the opinion that the
outcome thereof will not have a material impact on the financial position,
operating results or cash flows of Holdings.
F-43
<PAGE> 132
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE O -- SUBSEQUENT EVENT
On March 28, 1996, Holdings signed a definitive Agreement and Plan of
Merger (the "Merger Agreement"), which provides for the merger of Holdings with
and into Hayes Wheels International, Inc. (the "Company"). At the effective time
of the merger, the separate corporate existence of Holdings shall thereupon
cease and the Company shall continue as the surviving corporation. The Board of
Directors of both Holdings and the Company approved the Merger Agreement and the
transactions contemplated thereby at their respective meetings held on March 28,
1996. In connection with the merger and the related financings, it is
anticipated that all of the outstanding Motor Wheel Senior Notes due 2000 of
Holdings will be retired in accordance with their terms.
Consummation of the merger is subject to various conditions, including: (i)
receipt of approval by the stockholders of Holdings and the Company of the
Merger Agreement and the merger; (ii) expiration or termination of the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended; (iii) filing and effectiveness of a Proxy and Registration
Statement; (iv) receipt of financing necessary to consummate the transactions;
and (v) satisfaction of certain other conditions. The merger is expected to be
consummated in midsummer 1996.
F-44
<PAGE> 133
MWC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
1996 1995
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents............................................. $ 326 $ 1,351
Accounts receivable, net of allowance of $250 in 1996 and in
1995.......................................................... 32,018 32,294
Inventories -- Note B............................................ 34,082 31,943
Prepaid expenses and other current assets........................ 4,237 5,581
--------- ---------
Total current assets........................................ 70,663 71,169
Property, plant and equipment...................................... 217,148 215,362
Less accumulated depreciation, amortization and valuation
allowance..................................................... 140,241 136,385
--------- ---------
76,907 78,977
Investments in equity affiliates................................... 6,499 7,374
Other assets....................................................... 13,034 12,087
--------- ---------
Total assets................................................ $ 167,103 $ 169,607
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................. $ 28,519 $ 30,123
Accrued liabilities.............................................. 22,079 26,087
Short-term borrowings............................................ 12,021 5,000
--------- ---------
Total current liabilities................................... 62,639 61,210
Long-term debt..................................................... 125,000 125,000
Other long-term liabilities........................................ 60,947 60,953
Shareholders' equity (deficit):
Common stock, outstanding........................................ -- --
Additional paid-in capital....................................... 39,222 38,922
Retained-earnings deficit........................................ (111,964) (107,737)
Additional minimum pension liability............................. -- --
--------- ---------
(72,742) (68,815)
Less treasury stock.............................................. (8,741) (8,741)
Total shareholders' equity (deficit)........................ (81,483) (77,556)
--------- ---------
Total liabilities and shareholders' equity (deficit)........ $ 167,103 $ 169,607
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-45
<PAGE> 134
MWC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
----------------------
1996 1995
-------- --------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Net Sales............................................................ $ 79,590 $105,605
Costs of goods sold.................................................. 73,497 91,776
-------- --------
Gross profit.................................................. 6,093 13,829
Selling, administrative and general.................................. 4,136 4,626
Research and development............................................. 1,240 1,891
Interest expense..................................................... 4,302 4,513
Other (income) expense............................................... 631 (354)
Preferred dividends of subsidiary.................................... -- 471
-------- --------
Income (loss) before taxes.................................... (4,216) 2,687
Provision for income taxes........................................... 11 29
-------- --------
Net income (loss)............................................. $ (4,227) $ 2,653
======== ========
Income (loss) per common share:
Net income (loss) per common share............................ $(11,183) $ 16,319
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-46
<PAGE> 135
MWC HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss)...................................................... $(4,227) $ 2,653
Adjustments to reconcile net income (loss) to net cash used for
operating activities:
Depreciation and amortization............................................ 4,542 4,901
Postretirement benefits other than pensions............................ 710 600
Debt issuance amortization............................................. 208 208
Equity in net (income) loss of affiliates.............................. 875 (431)
Net Change in operating assets and liabilities.................... (7,981) (12,667)
------- --------
Net cash used for operating activities............................ (5,873) (4,265)
Cash Flows from Investing Activities
Additions to property, plant and equipment............................. (2,480) (4,094)
Disposals of property, plant and equipment............................. 7 3
------- --------
Net cash used for investing activities............................ (2,473) (4,091)
Cash Flows from Financing Activities
Issuance of common shares.............................................. 300
Proceeds from revolving credit loans with financial institutions....... 7,021 7,780
------- --------
Net cash provided by financing activities......................... 7,321 7,780
------- --------
Decrease in cash.................................................. (1,025) (576)
Cash at beginning of year................................................ 1,396 966
------- --------
Cash at end of period............................................. $ 371 $ 390
======= ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-47
<PAGE> 136
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. Adjustments consisted of only normal recurring accruals.
Operating results for the three month period ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1996.
NOTE B -- INVENTORIES
Inventories are comprised of (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1996
----------------------
<S> <C>
Raw materials and supplies....................... $ 13,441
Work in process.................................. 6,939
Finished product................................. 18,455
-------
38,835
Less excess of FIFO cost over LIFO............... (2,088)
Less valuation allowance......................... (2,665)
-------
$ 34,082
=======
</TABLE>
NOTE C -- INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share amounts are based on the weighted average
number of common shares outstanding and give effect to increasing preferred
stock dividend requirements in 1995. The weighted average number of common
shares outstanding was 1,100 for the periods presented.
NOTE D -- CONTINGENCIES
Holdings, in the normal course of business, is involved in various legal
actions. Management, after taking into consideration legal counsels'
evaluations, is of the opinion that the outcome thereof will not have a material
impact on the financial position, operating results or cash flows of Holdings.
In addition, Holdings is party to various environmental clean-up and
product liability matters. At the time of the acquisition of Holdings from
Goodyear in December 1986 (the "Acquisition"), Goodyear agreed to be responsible
for, and to indemnify Holdings with respect to, all liabilities, claims and
obligations for environmental pollutants, or other substances generated prior to
December 30, 1986, for the plants then owned by Holdings, and April 1, 1987, for
the plants previously owned by Goodyear. Also at the time of the Acquisition,
Goodyear agreed to indemnify Holdings for all costs and liabilities arising from
any product warranty, product liability, other claims or obligations for
products manufactured by Holdings prior to December 30, 1986 and for products
manufactured by Goodyear at the Akron, Ohio plant prior to April 1, 1987. After
taking into consideration both the Goodyear indemnification and actions taken by
Holdings since the Acquisition to limit Holding's exposure in these matters,
management is of the opinion that the outcome thereof will not have a material
impact on the financial position, operating results or cash flows of Holdings.
F-48
<PAGE> 137
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
NOTE E -- OTHER EVENTS
On March 28, 1996, Holdings signed a definitive Agreement and Plan of
Merger (the "Merger Agreement") which provides for the merger of Holdings with
and into Hayes Wheels International, Inc. (the "Company"). At the effective time
of the merger, the separate corporate existence of Holdings shall thereupon
cease and the Company shall continue as the surviving corporation. Pursuant to
the merger, Motor Wheel Corporation will become a wholly-owned subsidiary of the
Company. The Board of Directors of both Holdings and the Company approved the
Merger Agreement and the transactions contemplated thereby at their respective
meetings held on March 28, 1996. In connection with the merger and the related
financings, it is anticipated that all of the outstanding 11 1/2% Senior Notes
due 2000 of the Company will be redeemed in accordance with their terms.
Consummation of the merger is subject to various conditions, including (i)
receipt of approval by the stockholders of Holdings and the Company of the
Merger Agreement and the merger; (ii) expiration or termination of the
applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended; (iii) filing and effectiveness of a Proxy and Registration
Statement; (iv) receipt of financing necessary to consummate the transactions;
and (v) satisfaction of certain other conditions. The merger is expected to be
consummated in mid-summer 1996.
F-49
<PAGE> 138
MOTOR WHEEL CORPORATION COMMERCIAL HIGHWAY AND AUTOMOTIVE PRODUCTS
[7 PHOTOGRAPHS OF MOTOR WHEELS]
Product Identification
- -------------------------------------------------------------------------------
1. Alpha Romeo 164, cast aluminum
2. BMW 3-Series, cast aluminum
3. Cadillac mini-spare, fabricated aluminum
4. Chevrolet Cavalier, steel
5. Chevy S10 pickup, cast aluminum
6. Chrysler minivan, cast aluminum
7. Dodge Intrepid, cast aluminum
8. Dodge Neon, cast aluminum
9. Dodge Ram pickup, fabricated steel - chromed
10. Dodge Viper, fall face modular
11. Ford Explorer, fabricated steel - chromed
12. Ford F-150, clad covered
13. Ford F-150, fabricated aluminum
14. Ford Probe, cast aluminum
15. Ford Scorpio, cast aluminum
16. Ford Splash Ranger, fabricated steel - clad covered
17. GM Opel minivan, cast aluminum
18. GMC Safari, fabricated steel - clad covered
19. Isuzu Trooper, cast aluminum
20. Oldsmobile Aurora, cast aluminum
21. Pontiac Trans Sport, cast aluminum
22. Porsche 968, cast aluminum
23. Centrifuse(R) drum
24. Hummer wheel assembly
25. AM General Hummer
26. Brake rotor
27. Wheel, hub and drum assembly
28. Commercial Highway wheel, hub and drum
29. Commercial Highway wheel
<PAGE> 139
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY THE NOTES BY ANYONE IN ANY JURISDICTION IN WHICH THE PERSON MAKING
THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT
IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................ i
Incorporation of Certain Documents by
Reference.......................... i
Prospectus Summary................... 1
Risk Factors......................... 10
The Company.......................... 14
The Guarantors....................... 15
The Transactions..................... 15
Use of Proceeds...................... 16
Pro Forma Capitalization............. 17
Pro Forma Combined Condensed
Financial Data..................... 18
Selected Historical Consolidated
Financial Information of Hayes..... 28
Selected Historical Consolidated
Financial Information of
Holdings........................... 29
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 30
Business............................. 40
Management........................... 55
Ownership of New Common Stock upon
Consummation of the Transactions... 58
Description of the Credit
Agreement.......................... 59
Description of the Notes............. 61
Underwriting......................... 83
Legal Matters........................ 84
Experts.............................. 84
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$250,000,000
HAYES WHEELS LOGO
HAYES WHEELS
INTERNATIONAL, INC.
% SENIOR
SUBORDINATED NOTES
DUE 2006
---------------------------
PROSPECTUS
---------------------------
CIBC WOOD GUNDY SECURITIES CORP.
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
JUNE , 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 140
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this offering other than
underwriting discounts and commissions are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................................ $86,207
NASD filing fee.................................................................... 25,500
Blue Sky fees and expenses......................................................... *
Accounting fees and expenses....................................................... *
Legal fees and expenses............................................................ *
Trustee's fees and expenses........................................................ *
Printing........................................................................... *
Miscellaneous...................................................................... *
-------
Total............................................................................ $ *
=======
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Set forth below is a description of certain provisions of the By-laws (the
"By-laws") of the Company and the General Corporation Law of the State of
Delaware (the "DGCL"), as such provisions relate to the indemnification of the
directors and officers of the Company. This description is intended only as a
summary and is qualified in its entirety by reference to the Restated
Certificate of Incorporation, the By-laws and the DGCL.
Section 145 of the General Corporation Law of Delaware empowers a
corporation to indemnify any person who was or is a party or witness or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reasons of the
fact that he or she is or was a director, officer, employee or agent of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise.
Depending on the character of the proceeding, a corporation may indemnify
against expenses, costs and fees (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with such action, suit or proceeding if the person indemnified acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. If the person indemnified is not wholly successful in such action,
suit or proceeding, but is successful, on the merits or otherwise, in one or
more but less than all claims, issues or matters in such proceeding, he or she
may be indemnified against expenses actually and reasonably incurred in
connection with each successfully resolved claim, issue or matter. In the case
of an action or suit by or in the right of the corporation, no indemnification
may be made in respect to any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery, or the court in which such action or suit was
brought, shall determine that, despite the adjudication of liability, such
person is fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper. Section 145 provides that, to the extent a
director, officer, employee or agent of a corporation has been successful in the
defense of any action, suit or proceeding referred to above or in the defense of
any claim, issue or manner therein, he or she shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection therewith.
The Company's By-laws provide for indemnification by the Company of its
directors and officers to the full extent permitted by the DGCL. Pursuant to
Section 145 of the DGCL, the Company will purchase
II-1
<PAGE> 141
insurance on behalf of its present and former directors and officers against
liabilities asserted against or incurred by them in such capacity or arising out
of their status as such.
The Company intends to enter into indemnification agreements with each of
its executive officers and directors pursuant to which the Company will agree to
indemnify such individuals to the extent permitted under Delaware law.
The form of Underwriting Agreement contained in Exhibit 1.1 provides for
indemnification of the directors and officers signing the Registration Statement
and certain controlling persons of the Company against certain liabilities,
including certain liabilities under the Securities Act, in certain instances by
the Underwriters.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Registration
Statement.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
2.1 Agreement and Plan of Merger, dated as of March 28, 1996, by and
between Hayes Wheels International, Inc. and MWC Holdings, Inc.
(incorporated by reference to Exhibit 2 of the Current Report on Form
8-K, dated March 28, 1996, of Hayes Wheels International, Inc.).
4.1 Indenture, dated as of November 15, 1992, between Hayes Wheels
International, Inc. and Manufacturers and Traders Trust Company, as
Trustee, relating to 9 1/4% Senior Notes due 2002, including the form
of Note therein (incorporated by reference to Exhibit 4.2 of the Form
10-K for the year ended January 31, 1993 of Hayes Wheels
International, Inc. (File No. 1-11592)).
4.2 Indenture, between Hayes Wheels International, Inc. and Comerica Bank,
as Trustee, relating to % Senior Subordinated Notes due 2006,
including the form of Note therein.*
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom.*
10.1 Credit Agreement, dated as of December 15, 1992, and amended
and restated as of November 30, 1993, June 10, 1994 and March 24,
1995, between Hayes Wheels International, Inc., the Subsidiary
Guarantors (as defined therein), the Banks named on the signature
pages thereof, The Chase Manhattan Bank (National Association) as
Agent, and the Bank of Nova Scotia, as Co-Agent (incorporated by
reference to Exhibit 4.4 of the Form 10-K for the year ended January
31, 1995 of Hayes Wheels International, Inc. (File No. 1-11592)).
10.2 Form of Subscription Agreement, between Hayes Wheels International,
Inc. and the New Investors (incorporated by reference to Exhibit 10.1
of the Current Report on Form 8-K, dated March 28, 1996, of Hayes
Wheels International, Inc.).
12.1 Calculation of Ratios of Earnings to Fixed Charges.
23.1 Consent of KMPG Peat Marwick LLP.
23.2 Consent of Ernst Young LLP.
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom (included in its
opinion filed as Exhibit 5.1 hereto).*
23.4 Consent of Houlihan Lokey Howard & Zukin, Inc.
24.1 Powers of Attorney.+
25.1 Statement of Eligibility of Trustee on Form T-1.
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
(b) No Financial Statement Schedules are required to be filed as part of
this Registration Statement.
II-2
<PAGE> 142
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933:
(1) each filing of the Registrant pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of
the Securities Exchange Act of 1934) that is incorporated by reference in
the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof;
(2) the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act of 1933 shall be deemed to be part
of this Registration Statement as of the time it was declared effective;
and
(3) each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for identification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE> 143
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Romulus, State of Michigan, on this
6th day of June 1996.
HAYES WHEELS INTERNATIONAL, INC.
By: /s/ WILLIAM D. SHOVERS
--------------------------------------
Name: William D. Shovers
Title: Vice President -- Finance
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ----------------------------------- ------------
<C> <S> <C>
/s/ JOHN E. UTLEY* Chairman of the Board of Directors; June 6, 1996
- ------------------------------------- Director
John E. Utley
/s/ RANKO CUCUZ* President and Chief Executive June 6, 1996
- ------------------------------------- Officer (Principal Executive
Ranko Cucuz Officer); Director
/s/ WILLIAM D. SHOVERS Chief Financial Officer (Principal June 6, 1996
- ------------------------------------- Accounting Officer and Principal
William D. Shovers Financial Officer)
/s/ J. ANTHONY GILROY* Director June 6, 1996
- -------------------------------------
J. Anthony Gilroy
/s/ JOHN S. RODEWIG* Director June 6, 1996
- -------------------------------------
John S. Rodewig
/s/ KENNETH L. WAY* Director June 6, 1996
- -------------------------------------
Kenneth L. Way
</TABLE>
*By: /s/ BARRY MILLER
- --------------------------------
Barry Miller
Pursuant to power of
attorney filed as
Exhibit 24.1 to
the Registration
Statement.
II-4
<PAGE> 144
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Romulus, State of Michigan, on this
6th day of June 1996.
HAYES WHEELS INTERNATIONAL --
CALIFORNIA, INC.
By: /s/ WILLIAM D. SHOVERS
--------------------------------------
Name: William D. Shovers
Title: Vice President -- Finance
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ----------------------------------- ------------
<C> <S> <C>
/s/ RANKO CUCUZ* Chairman of the Board of Directors; June 6, 1996
- ------------------------------------- Director
Ranko Cucuz
/s/ RONALD KOLAKOWSKI* President (Principal Executive June 6, 1996
- ------------------------------------- Officer); Director
Ronald Kolakowski
/s/ WILLIAM D. SHOVERS Vice President -- Finance June 6, 1996
- ------------------------------------- (Principal Accounting Officer and
William D. Shovers Principal Financial Officer);
Director
</TABLE>
*By: /s/ BARRY MILLER
- --------------------------------
Barry Miller
Pursuant to power of
attorney filed as
Exhibit 24.1 to
the Registration
Statement.
II-5
<PAGE> 145
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Romulus, State of Michigan, on this
6th day of June 1996.
HAYES WHEELS INTERNATIONAL--
GEORGIA, INC.
By: /s/ WILLIAM D. SHOVERS
--------------------------------------
Name: William D. Shovers
Title: Vice President -- Finance
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ----------------------------------- ------------
<C> <S> <C>
/s/ RANKO CUCUZ* Chairman of the Board of Directors; June 6, 1996
- ------------------------------------- Director
Ranko Cucuz
/s/ RONALD KOLAKOWSKI* President (Principal Executive June 6, 1996
- ------------------------------------- Officer); Director
Ronald Kolakowski
/s/ WILLIAM D. SHOVERS Vice President -- Finance June 6, 1996
- ------------------------------------- (Principal Accounting Officer and
William D. Shovers Principal Financial Officer);
Director
</TABLE>
*By: /s/ BARRY MILLER
- --------------------------------
Barry Miller
Pursuant to power of
attorney filed as
Exhibit 24.1 to
the Registration
Statement.
II-6
<PAGE> 146
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Romulus, State of Michigan, on this
6th day of June 1996.
HAYES WHEELS INTERNATIONAL--
INDIANA, INC.
By: /s/ WILLIAM D. SHOVERS
--------------------------------------
Name: William D. Shovers
Title: Vice President -- Finance
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ----------------------------------- ------------
<C> <S> <C>
/s/ RANKO CUCUZ* Chairman of the Board of Directors; June 6, 1996
- ------------------------------------- Director
Ranko Cucuz
/s/ RONALD KOLAKOWSKI* President (Principal Executive June 6, 1996
- ------------------------------------- Officer); Director
Ronald Kolakowski
/s/ WILLIAM D. SHOVERS Vice President -- Finance June 6, 1996
- ------------------------------------- (Principal Accounting Officer and
William D. Shovers Principal Financial Officer);
Director
*By: /s/ BARRY MILLER
- --------------------------------
Barry Miller
Pursuant to power of
attorney filed as
Exhibit 24.1 to
the Registration
Statement.
</TABLE>
II-7
<PAGE> 147
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Romulus, State of Michigan, on this
6th day of June 1996.
HAYES WHEELS INTERNATIONAL --
MEXICO, INC.
By: /s/ WILLIAM D. SHOVERS
--------------------------------------
Name: William D. Shovers
Title: Vice President -- Finance
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ----------------------------------- ------------
<C> <S> <C>
/s/ RANKO CUCUZ* Chairman of the Board of Directors; June 6, 1996
- ------------------------------------- President and Chief Executive
Ranko Cucuz Officer (Principal Executive
Officer); Director
/s/ WILLIAM LINSKI* Chief Operating Officer June 6, 1996
- -------------------------------------
William Linski
/s/ WILLIAM D. SHOVERS Vice President -- Finance June 6, 1996
- ------------------------------------- (Principal Accounting Officer and
William D. Shovers Principal Financial Officer);
Director
/s/ DANIEL M. SANDBERG* Director June 6, 1996
- -------------------------------------
Daniel M. Sandberg
*By: /s/ BARRY MILLER
- --------------------------------
Barry Miller
Pursuant to power of
attorney filed as
Exhibit 24.1 to
the Registration
Statement.
</TABLE>
II-8
<PAGE> 148
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Romulus, State of Michigan, on this
6th day of June 1996.
HAYES WHEELS INTERNATIONAL --
MICHIGAN, INC.
By: /s/ WILLIAM D. SHOVERS
--------------------------------------
Name: William D. Shovers
Title: Vice President -- Finance
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated below.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ----------------------------------- ------------
<C> <S> <C>
</TABLE>
<TABLE>
<C> <S> <C>
/s/ RANKO CUCUZ* Chairman of the Board of Directors; June 6, 1996
- ------------------------------------- Director
Ranko Cucuz
/s/ RONALD KOLAKOWSKI* President (Principal Executive June 6, 1996
- ------------------------------------- Officer); Director
Ronald Kolakowski
/s/ WILLIAM D. SHOVERS Vice President -- Finance June 6, 1996
- ------------------------------------- (Principal Accounting Officer and
William D. Shovers Principal Financial Officer);
Director
</TABLE>
*By: /s/ BARRY MILLER
- --------------------------------
Barry Miller
Pursuant to power of
attorney filed as
Exhibit 24.1 to
the Registration
Statement.
II-9
<PAGE> 149
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- ------- ----------- ----------
<S> <C>
1.1 Form of Underwriting Agreement..............................................
2.1 Agreement and Plan of Merger, dated as of March 28, 1996, by and between
Hayes Wheels International, Inc. and MWC Holdings, Inc. (incorporated by
reference to Exhibit 2 of the Current Report on Form 8-K, dated March 28,
1996, of Hayes Wheels International, Inc.)..................................
4.1 Indenture, dated as of November 15, 1992, between Hayes Wheels
International, Inc. and Manufacturers and Traders Trust Company, as Trustee
($100,000,000 principal amount of 9 1/4% Senior Notes due 2002), including
all exhibits thereto (incorporated by reference to Exhibit 4.2 of the Form
10-K for the year ended January 31, 1993 of Hayes Wheels International, Inc.
(File No. 1-11592)).........................................................
4.2 Indenture between Hayes Wheels International, Inc. and Comerica Bank, as
Trustee relating to % Senior Subordinated Notes due 2006, including the
form of Note therein.*......................................................
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom.*...........................
10.1 Credit Agreement, dated as of 15, 1992, and amended and restated as of
November 30, 1993, June 10, 1994 and March 24, 1995, between Hayes Wheels
International, Inc., the Subsidiary Guarantors (as defined therein), the
Banks named on the signature pages thereof, The Chase Manhattan Bank
(National Association) as Agent, and the Bank of Nova Scotia, as Co-Agent
(incorporated by reference to Exhibit 4.4 of the Form 10-K for the year
ended January 31, 1995 of Hayes Wheels International, Inc. (File No.
1-11592))...................................................................
10.2 Form of Subscription Agreement, between Hayes Wheels International, Inc. and
the New Investors (incorporated by reference to Exhibit 10.1 of the Current
Report on Form 8-K, dated March 28, 1996, of Hayes Wheels International,
Inc.).......................................................................
12.1 Calculation of Ratios of Earnings to Fixed Charges..........................
23.1 Consent of KMPG Peat Marwick LLP............................................
23.2 Consent of Ernst Young LLP..................................................
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom (included in its opinion
filed as Exhibit 5.1 hereto).*..............................................
23.4 Consent of Houlihan Lokey Howard & Zukin, Inc...............................
24.1 Powers of Attorney.+........................................................
25.1 Statement of Eligibility of Trustee on Form T-1.............................
</TABLE>
- ---------------
* To be filed by amendment.
+ Previously filed.
<PAGE> 1
EXHIBIT 1.1
HAYES WHEELS INTERNATIONAL, INC.
$250,000,000
% Senior Subordinated Notes due 2006
UNDERWRITING AGREEMENT
, 1996
CIBC WOOD GUNDY SECURITIES CORP.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
SALOMON BROTHERS INC
c/o CIBC Wood Gundy Securities Corp.
425 Lexington Avenue
3rd Floor
New York, New York 10017
Ladies and Gentlemen:
Hayes Wheels International, Inc., a Delaware corporation (the "Company"),
and each of the Company's subsidiaries listed in Exhibit A hereto (each, a
"Subsidiary Guarantor" and, collectively, the "Subsidiary Guarantors" and,
together with the Company, the "Issuers") hereby confirm their agreement with
you (the "Underwriters"), as set forth below.
1. The Securities. Subject to the terms and conditions herein contained,
the Company proposes to issue and sell to the Underwriters $250,000,000
aggregate principal amount of its % Senior Subordinated Notes due 2006
(the "Notes"). The obligations of the Company under the Indenture (as
hereinafter defined) and the Notes will be unconditionally guaranteed (the
"Guarantees"), on a joint and several basis, by each Subsidiary Guarantor. The
Notes and the Guarantees are to be issued pursuant to the Indenture (the
"Indenture"), dated , 1996, among the Company, Comerica Bank, a
[ ], as trustee (the "Trustee"), and the Subsidiary Guarantors.
The Notes and the Guarantees are hereinafter referred to collectively as the
"Securities."
The Securities are being issued and sold in connection with the merger
(the "Merger") pursuant to the Merger Agreement (the "Merger Agreement"), dated
March 28, 1996, between the Company and MWC Holdings, Inc., a Delaware
corporation ("Holdings"), pursuant to which Holdings will merge with and into
the Company, and Motor Wheel Corporation, an Ohio
<PAGE> 2
-2-
corporation ("Motor") and a wholly owned subsidiary of Holdings, will become a
wholly owned subsidiary of the Company. Pursuant to the Merger Agreement (i)
the outstanding capital stock of Holdings will be converted into 3,125,000
shares of newly issued common stock of the Company (the "New Common Stock") and
warrants ("Warrants") to purchase 1,150,000 shares of New Common
Stock and (ii) each outstanding share of the Company's common stock
will be converted into the right to receive $28.80 in cash and one-tenth of one
share of New Common Stock (collectively, the "Equity Issuance"). The time of
consummation of the Merger is herein referred to as the "Effective Time."
At the Effective Time, the Company, Motor and the Trustee will enter into
a first supplemental indenture to the Indenture (the "Supplemental Indenture")
pursuant to which Motor and the Motor Subsidiaries (as hereinafter defined)
will become guarantors of the Notes.
In connection with the Merger, (i) Motor proposes to redeem (the
"Redemption") all of its outstanding 11 1/2% Senior Notes due 2000 (the "Motor
Notes") upon the terms and subject to the conditions set forth in the
redemption notice to be dated the Closing Date (as hereinafter defined)
prepared by Motor (the "Redemption Notice") and (ii) the Company has offered to
purchase (the "Tender Offer") from the holders of its 9 1/4% Senior Notes due
2002 (the "Old Notes"), upon the terms and subject to the conditions set forth
in the Offer to Purchase and Consent Solicitation Statement dated May 28, 1996
prepared by the Company in connection with the Tender Offer (as amended and
supplemented, the "Offer to Purchase"), any and all of the outstanding Old
Notes. Concurrently with the Tender Offer, the Company is soliciting consents
(the "Consent Solicitation") from holders of the Old Notes to amendments (the
"Proposed Amendments") to certain of the provisions in the indenture governing
the Old Notes (the "Old Indenture"), as described in the Offer to Purchase.
After receipt of the required consents from the holders of the Old Notes, the
Company and the trustee under the Old Indenture will enter into a supplemental
indenture to give effect to the Proposed Amendments. Unless otherwise
indicated the use of the term Tender Offer herein shall be deemed to include
the Consent Solicitation.
The Merger, the Equity Issuance, the Redemption, the Tender Offer and the
ongoing working capital needs of the Company will be financed by the (i)
issuance and sale pursuant
<PAGE> 3
-3-
to the terms of subscription agreements (collectively, the "Subscription
Agreements") of $200 million of preferred stock of the Company (the "Preferred
Equity Issuance") to certain investors which, at the Effective Time, will be
converted into shares of New Common Stock and Warrants to purchase New Common
Stock (the "Preferred Equity Exchange"), (ii) the issuance of the Notes, (iii)
the incurrence by the Company and the Subsidiary Guarantors of senior secured
bank financing pursuant to a credit agreement (the "Credit Agreement") by and
among the Company and Motor and Canadian Imperial Bank of Commerce and Merrill
Lynch Capital Corporation, as managing agents, and the other financial
institutions party thereto, as lenders, providing for term loan borrowings of
up to $425 million and revolving credit borrowings of up to $220 million.
The Merger Agreement and the documents entered into in connection
therewith including, without limitation, the agreements attached thereto as
exhibits, are herein collectively referred to as the "Merger Documents." This
Agreement, the Securities and the Indenture are herein collectively referred to
as the "Offering Documents." The Merger Documents, the Offering Documents, the
Subscription Agreements, the Credit Agreement and all documents entered into or
prepared in connection with the Equity Issuance, the Redemption, the Tender
Offer, the Preferred Equity Issuance and the Preferred Equity Exchange are
herein collectively referred to as the "Transaction Documents."
The Merger, the issuance of the Securities, the Equity Issuance, the
Redemption, the Tender Offer, the Preferred Equity Issuance, the Preferred
Equity Exchange and the transactions contemplated by the Subscription
Agreements and the Credit Agreement are herein collectively referred to as the
"Transactions."
2. Representations and Warranties of the Issuers. The Issuers, jointly
and severally, represent and warrant to and agree with the Underwriters that:
(a) A registration statement on Form S-3 (File No. 333-03813) with
respect to the Securities, including a prospectus, subject to completion,
has been filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (together with
the rules and regulations of the Commission promulgated thereunder, the
"Act") by the Issuers with respect to the Securities; and one or more
amendments to
<PAGE> 4
-4-
such registration statement also have been so filed. After the execution of
this Agreement, the Issuers will file with the Commission either (i) if such
registration statement, as it may have been amended, has been declared by the
Commission to be effective under the Act prior to the execution and delivery
hereof, a prospectus in the form most recently included in an amendment to such
registration statement (or, if no such amendment shall have been filed, in such
registration statement) with only such changes or insertions therein as are
required by Rule 430A under the Act or permitted by Rule 424(b) under the Act
and as have been provided to and approved by the Underwriters or their counsel
prior to the filing thereof and as to which the Underwriters shall not have
reasonably objected; or (y) if such registration statement, as it may have been
amended, has not been declared by the Commission to be effective under the Act
prior to the execution and delivery hereof, an amendment to such registration
statement, including a form of final prospectus, a copy of which amendment has
been furnished to and approved by the Underwriters or their counsel prior to
the proposed filing thereof. As used in this Agreement, the term "Registration
Statement" means such registration statement, as amended at the time when it
was or is declared effective, including all financial schedules and exhibits
thereto and including any information omitted therefrom pursuant to Rule 430A
under the Act and included in the Prospectus (as hereinafter defined); the term
"Preliminary Prospectus" means each prospectus, subject to completion, filed
with such registration statement or any amendment thereto (including the
prospectus, subject to completion, if any, included in the Registration
Statement or any amendment thereto at the time it was or is declared
effective); and the term "Prospectus" means the prospectus first filed with the
Commission pursuant to Rule 430A and Rule 424(b), if required, or, if no
prospectus is required to be filed pursuant to Rule 430A or Rule 424(b), such
term means the prospectus included in such Registration Statement, provided
that if a revised prospectus shall be provided to the Underwriters by the
Company for use in connection with the offering and sale of the Securities that
differs from the prospectus on file at the Commission at the time such
Registration Statement becomes effective or as first filed under Rule 430A and
Rule 424(b), the term "Prospectus" shall refer to the revised prospectus from
and after the time it is first provided to the Underwriters for such use. If
the Company has filed an
<PAGE> 5
-5-
abbreviated registration statement to register additional securities
pursuant to Rule 462(b) under the Act (the "Rule 462 Registration
Statement") then any reference herein to "Registration Statement" shall
be deemed to include such Rule 462 Registration Statement. All
references in this Agreement to the Registration Statement, Preliminary
Prospectus and Prospectus and to financial statements and schedules and
other information that is "contained," "included," "set forth,"
"described in" or "stated" therein (and all other references of like
import) shall be deemed to mean and include all such financial statements
and schedules and other information that is or is deemed to be
incorporated by reference therein; and all references in this Agreement
to amendments or supplements to the Registration Statement, the
Preliminary Prospectus or the Prospectus shall be deemed to mean and
include the filing of any document under the Securities Exchange Act of
1934, as amended (together with the rules and regulations of the
Commission promulgated thereunder, the "1934 Act"), that is or is deemed
to be incorporated by reference therein.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus nor instituted any
proceeding for such purpose. When the Registration Statement or any
amendment thereto was or is declared effective, it (i) complied or will
comply in all material respects with the requirements of the Act and (ii)
did not or will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. When the
Registration Statement becomes effective, the Indenture will have been
qualified under and will conform in all material respects to the
requirements of the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"), and the rules and regulations of the Commission
thereunder. The Prospectus, and any amendment or supplement thereto, on
the date first filed with the Commission pursuant to Rule 424(b) (or if
not filed, on the date first provided to the Underwriters in connection
with the offering and sale of the Securities) and on the Closing Date (i)
complied or will comply in all material respects with the requirements of
the Act and (ii) did not or will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the
<PAGE> 6
-6-
statements therein, in the light of the circumstances under which they
were made, not misleading. The foregoing provisions of this paragraph
(b) do not apply to statements or omissions in the Registration Statement
or any amendment thereto or the Prospectus or any amendment or supplement
thereto made in reliance upon and in conformity with written information
furnished to the Company by any Underwriter specifically for use therein,
or to the Statement of Eligibility and Qualification (Form T-1) under the
Trust Indenture Act of the Trustee filed as an exhibit to the
Registration Statement.
(c) The documents incorporated or deemed to be incorporated by
reference in the Prospectus, at the time they were or hereafter are filed
with the Commission, complied and will comply in all material respects
with the requirements of the 1934 Act, and when read together with the
other information in the Prospectus, at the time the Registration
Statement and any amendments thereto became or becomes effective and at
the Closing Date, did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) Each of the Issuers, the Subsidiaries (as hereinafter defined)
and, to the best knowledge of the Issuers, after due inquiry, Holdings,
Motor and the Motor Subsidiaries (as hereinafter defined) has been and at
and as of the Effective Time will be duly incorporated and each of the
Issuers, the Subsidiaries and, to the best knowledge of the Issuers,
after due inquiry, Holdings, Motor and the Motor Subsidiaries is and at
and as of the Effective Time will be validly existing in good standing as
a corporation under the laws of its jurisdiction of incorporation, with
the requisite corporate power and authority to own its properties and
conduct its business as now conducted as described in the Prospectus and
is and at and as of the Effective Time will be duly qualified to do
business as a foreign corporation in good standing in all other
jurisdictions where the ownership or leasing of its properties or the
conduct of its business requires such qualification, except where the
failure to be so qualified would not, individually or in the aggregate,
have a material adverse effect on the business, condition (financial or
other) or results of operations of any of
<PAGE> 7
-7-
the Issuers, the Subsidiaries or, to the best knowledge of the Issuers,
after due inquiry, Holdings, Motor or the Motor Subsidiaries, taken as a
whole (any such event a "Material Adverse Effect"); the Company had as of
the date specified therein and at and as of the Effective Time will have
the authorized, issued and outstanding capitalization set forth in the
Prospectus; except as set forth in Exhibit B-1 hereto, the Company does
not have any subsidiaries (the "Subsidiaries") other than the Subsidiary
Guarantors and, to the best knowledge of the Company, after due inquiry,
except as set forth in Exhibit B-2 hereto, Holdings and Motor do not have
any subsidiaries (the "Motor Subsidiaries") or, in each case, own
directly or indirectly any of the capital stock or other equity
securities of any other person; all of the outstanding shares of capital
stock of the Issuers and the Subsidiaries have been, and to the best
knowledge of the Issuers, after due inquiry, all of the outstanding
shares of capital stock of Holdings, Motor and the Motor Subsidiaries
have been, duly authorized and validly issued, are fully paid and
nonassessable and were not issued in violation of any preemptive or
similar rights and, in the case of the Subsidiary Guarantors, the
Subsidiaries, Motor and the Motor Subsidiaries, except in connection with
the Credit Agreement, are owned free and clear of all liens,
encumbrances, equities and restrictions on transferability (other than
those imposed by the Act and the state securities or "Blue Sky" laws);
except as set forth in the Registration Statement and the Prospectus, no
options, warrants or other rights to purchase from any Issuer or any
Subsidiary or, to the best knowledge of the Issuers, after due inquiry,
Holdings, Motor or any Motor Subsidiary, agreements or other obligations
of any Issuer or any Subsidiary or, to the best knowledge of the Issuers,
after due inquiry, Holdings, Motor or any Motor Subsidiary to issue or
other rights to convert any obligation into, or exchange any securities
for, shares of capital stock of or ownership interests in any Issuer or
any Subsidiary or Holdings, Motor or any Motor Subsidiary are
outstanding; and, except for Varity Corporation and in connection with
the Preferred Equity Issuance, no holder of securities of any Issuer or
any Subsidiary or, to the best knowledge of the Issuers, after due
inquiry, Holdings, Motor or any Motor Subsidiary is entitled to have such
securities registered under the Registration Statement.
<PAGE> 8
-8-
(e) The Securities have been duly and validly authorized by each of
the Issuers for issuance and when executed by the Issuers and
authenticated by the Trustee in accordance with the provisions of the
Indenture, and delivered to and paid for by the Underwriters in
accordance with the terms hereof, will have been duly executed, issued
and delivered and will constitute valid and legally binding obligations
of the Issuers, entitled to the benefits of the Indenture and enforceable
against the Issuers in accordance with their terms except that the
enforcement thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in
effect relating to or affecting creditors' rights generally or (ii)
general principles of equity (regardless of whether such enforcement is
considered in a proceeding at law or in equity); each of the Issuers has
all requisite corporate power and authority to execute, deliver and
perform its obligations under the Indenture and the Securities; and the
Indenture has been duly and validly authorized by the Issuers and
qualified under the Trust Indenture Act and, when executed and delivered
by the Issuers (assuming the due authorization, execution and delivery by
the Trustee), will constitute a valid and legally binding agreement of
the Issuers, enforceable against the Issuers in accordance with its terms
except that the enforcement thereof may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to or affecting creditors' rights generally
or (ii) general principles of equity (regardless of whether such
enforcement is considered in a proceeding at law or in equity).
(f) Each of Motor and the Motor Subsidiaries has the requisite
corporate power and authority to issue and deliver its Guarantee as
provided in the Supplemental Indenture and to perform its obligations
under the Indenture; the Guarantees of Motor and each of the Motor
Subsidiaries to be endorsed on the Notes have been duly and validly
authorized; the Supplemental Indenture has been duly and validly
authorized by the Issuers, Motor and the Motor Subsidiaries.
(g) Each of the Issuers has the requisite corporate power and
authority to execute, deliver and perform its obligations under this
Agreement. This Agreement has been duly and validly authorized by the
<PAGE> 9
-9-
Issuers and, when executed and delivered by the Issuers, will constitute
a valid and legally binding agreement of the Issuers, enforceable against
the Issuers in accordance with its terms except (i) that the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
or affecting creditors' rights generally or general principles of equity
(regardless of whether such enforcement is considered in a proceeding at
law or in equity) and (ii) as any rights to indemnity or contribution
hereunder may be limited by federal and state securities laws and public
policy considerations.
(h) Each of the Issuers has and, to the best knowledge of the
Issuers, after due inquiry, Holdings, Motor and the Motor Subsidiaries
have, to the extent each is or will be a party thereto (whether or not by
operation of law), all requisite corporate power and authority to
execute, deliver and perform its obligations under each of the
Transaction Documents (other than the Offering Documents); each of the
Transaction Documents (other than the Offering Documents), to the extent
each is or will be a party thereto, has been duly and validly authorized,
executed and delivered by the Issuers and, to the best knowledge of the
Issuers, after due inquiry, Holdings, Motor and the Motor Subsidiaries
and each Transaction Document (other than the Offering Documents)
constitutes a valid and legally binding agreement of the Issuers and, to
the best knowledge of the Issuers, after due inquiry, Holdings, Motor and
the Motor Subsidiaries enforceable against the Issuers and, to the best
knowledge of the Issuers, after due inquiry, Holdings, Motor and the
Motor Subsidiaries, in each case in accordance with its terms (assuming
due authorization, execution and delivery of each Transaction Document by
any other party thereto) except that the enforcement thereof may be
limited by (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to or affecting
creditors' rights generally or general principles of equity (regardless
of whether such enforcement is considered in a proceeding at law or in
equity) and (ii) as any rights to indemnity or contribution hereunder may
be limited by federal and state securities laws and public policy
considerations; except as set forth in the Registration Statement and
Prospectus,
<PAGE> 10
-10-
no consent, approval, authorization or order of any court or governmental
agency or body is required for the performance of any of the Transaction
Documents by the Issuers or, to the best knowledge of the Issuers, after
due inquiry, Holdings, Motor and the Motor Subsidiaries to the extent
each is or will be a party thereto (whether or not by operation of law),
or to the consummation by the Issuers or, to the best knowledge of the
Issuers, after due inquiry, Holdings, Motor and the Motor Subsidiaries of
any of the transactions contemplated thereby, except to the extent
contemplated by the Merger Agreement or as may be required and have been
obtained under the Act, the Trust Indenture Act or state securities or
"Blue Sky" laws in connection with the purchase and distribution of the
Securities by the Underwriters; and none of the Issuers or, to the best
knowledge of the Issuers, after due inquiry, Holdings, Motor or the Motor
Subsidiaries is (i) in violation of its certificate of incorporation or
bylaws, (ii) in violation of any statute, judgment, decree, order, rule
or regulation applicable to it or any of its properties or assets, which
violation would, individually or in the aggregate, have a Material
Adverse Effect, or (iii) in default in the performance or observance of
any obligation, agreement, covenant or condition contained in any of the
Transaction Documents or any other contract, indenture, mortgage, deed of
trust, loan agreement, note, lease, license, franchise agreement, permit,
certificate or agreement or instrument to which it is a party or to which
it is subject, which default would, individually or in the aggregate,
have a Material Adverse Effect.
(i) The execution, delivery and performance by the Issuers and, to
the best knowledge of the Issuers, after due inquiry, Holdings, Motor and
the Motor Subsidiaries to the extent each is a party thereto, of each of
the Transaction Documents, and the consummation by the Issuers and, to
the best knowledge of the Issuers, after due inquiry, Holdings, Motor and
the Motor Subsidiaries of the transactions contemplated thereby and the
fulfillment of the terms thereof, will not violate, conflict with or
constitute or result in a breach of or a default under (or an event that,
with notice or lapse of time, or both, would constitute a breach of or a
default under) any of (a) the terms or provisions of any indenture,
mortgage, deed of trust, loan agreement, note, lease, license, franchise
agreement, or agreement or instrument to which
<PAGE> 11
-11-
any of the Issuers or the Subsidiaries is, or to the best knowledge of
the Issuers, after due inquiry, any of Holdings, Motor and the Motor
Subsidiaries is, a party or to which any of their respective properties
or assets are subject, which violation, conflict, breach or default
would, individually or in the aggregate, have a Material Adverse Effect,
(b) the certificate of incorporation or bylaws of any of the Issuers, the
Subsidiaries, Holdings, Motor or the Motor Subsidiaries or (c) (assuming
compliance with all applicable state securities and "Blue Sky" laws) any
statute, judgment, decree, order, rule or regulation of any court or
governmental agency or other body applicable to the Issuers or the
Subsidiaries or, to the best knowledge of the Issuers, after due inquiry,
Holdings, Motor or the Motor Subsidiaries or any of their respective
properties or assets, which violation, conflict, breach or default would,
individually or in the aggregate, have a Material Adverse Effect.
(j) Each of the Transactions has been duly authorized by each of
the Issuers and, to the best knowledge of the Issuers, after due inquiry,
Holdings and Motor, to the extent each is or will be a party thereto.
(k) The audited consolidated financial statements and schedules of
each of the Company and Holdings included in the Registration Statement
and the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) present fairly the consolidated financial
position, results of operations and cash flows of the Company and, in the
case of Holdings, to the best knowledge of the Issuers, after due
inquiry, of Holdings, at the dates and for the periods to which they
relate and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, except as otherwise
stated therein; the unaudited consolidated financial statements and the
related notes of the Company and Holdings included in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus) present fairly the consolidated
financial position, results of operations and cash flows of the Company
and, to the best knowledge of the Company, after due inquiry, Holdings,
respectively at the dates and for the periods to which they relate,
subject to year end audit adjustments and have been prepared in
accordance with generally accepted accounting principles applied on a
consistent
<PAGE> 12
-12-
basis except as otherwise stated therein and have been prepared on a
basis substantially consistent with that of the audited financial
statements referred to above except as otherwise stated therein; to the
best knowledge of the Company, after due inquiry, the summary and
selected financial and statistical data included in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus) present fairly the information
shown therein and have been prepared and compiled on a basis consistent
with the audited and unaudited financial statements included therein,
except as otherwise stated therein; and each of KPMG Peat Marwick LLP and
Ernst & Young LLP, which has examined certain of such financial
statements and schedules as set forth in their reports included in the
Registration Statement and the Prospectus, is an independent public
accounting firm as required by the Act.
(l) (i) The pro forma financial statements and other pro forma
financial information (including the notes thereto) included in the
Registration Statement and the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus) (A) have been
prepared in accordance with applicable requirements of Rule 11-02 of
Regulation S-X promulgated under the Act and (B) have been properly
computed on the bases described therein; (ii) the assumptions used in the
preparation of the pro forma financial statements and other pro forma
financial information included in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) are reasonable and the adjustments used therein
are appropriate to give effect to the transactions or circumstances
referred to therein.
(m) Except as described in the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), there is not
pending or, to the best knowledge of the Issuers, threatened any action,
suit, proceeding, inquiry or investigation, governmental or otherwise, to
which any of the Issuers or the Subsidiaries or, to the best knowledge of
the Issuers, after due inquiry, Holdings, Motor or the Motor Subsidiaries
is a party, or to which their respective properties or assets are
subject, before or brought by any court, arbitrator or governmental
agency or body, that, if determined adversely to the Issuers or the
Subsidiaries or
<PAGE> 13
-13-
Holdings, Motor or the Motor Subsidiaries, would, individually or in the
aggregate, have a Material Adverse Effect or that seeks to restrain,
enjoin, prevent the consummation of or otherwise challenge the issuance
or sale of the Securities to be sold hereunder or the consummation of the
transactions described in the Prospectus under the captions "Use of
Proceeds" and "The Transactions."
(n) The Issuers and the Subsidiaries and, to the best knowledge of
the Issuers, after due inquiry, Holdings, Motor and the Motor
Subsidiaries possess adequate licenses or other rights to use all
patents, trademarks, service marks, trade names, copyrights and know-how
(i) that are necessary to conduct their business as described in the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and (ii) the loss of which would, individually or
in the aggregate, have a Material Adverse Effect.
(o) None of the Issuers or the Subsidiaries has received and, to
the best knowledge of the Issuers, after due inquiry, none of Holdings,
Motor or the Motor Subsidiaries has received any notice of infringement
of or conflict with (or knows of any such infringement of or conflict
with) asserted rights of others with respect to any patents, trademarks,
service marks, trade names, copyrights or know-how that, if such
assertion of infringement or conflict were sustained, would, individually
or in the aggregate, have a Material Adverse Effect.
(p) Each of the Issuers and the Subsidiaries has obtained and, to
the best knowledge of the Issuers, after due inquiry, Holdings, Motor and
the Motor Subsidiaries have obtained all licenses, permits, franchises
and other governmental authorizations, the lack of which would,
individually or in the aggregate, have a Material Adverse Effect.
(q) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus)
and except as described therein, (i) the Issuers and the Subsidiaries
have not incurred and, to the best knowledge of the Issuers, after due
inquiry, Holdings, Motor and the Motor
<PAGE> 14
-14-
Subsidiaries, taken as a whole, have not incurred any material
liabilities or obligations, direct or contingent, or entered into any
material transactions, in either case whether or not in the ordinary
course of business, and (ii) the Issuers and the Subsidiaries or, to the
best knowledge of the Issuers, after due inquiry, Holdings, Motor and the
Motor Subsidiaries, taken as a whole, have not purchased any of their
respective outstanding capital stock, or, except for the Company's
regular quarterly dividend which has been declared but not paid,
declared, paid or otherwise made any dividend or distribution of any kind
on any of their respective capital stock or otherwise.
(r) There are no contracts or other documents required to be
described in the Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement by the Act that have not been
described or filed as required.
(s) None of the Issuers or the Subsidiaries or, to the best
knowledge of the Issuers, after due inquiry, Holdings, Motor or the Motor
Subsidiaries has taken or will take any action that would cause this
Agreement or the issuance or sale of the Securities, the Preferred Stock,
the New Common Stock or the Warrants to violate Regulation G, T, U or X
of the Board of Governors of the Federal Reserve System, in each case as
in effect, or as the same may hereafter be in effect, on the Closing
Date.
(t) Each of the Issuers and the Subsidiaries has and, to the best
knowledge of the Issuers, after due inquiry, each of Holdings, Motor and
the Motor Subsidiaries has, good and marketable title to all real
property described in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) as being owned by it
and good and marketable title to the leasehold estate in the real
property described therein as being leased by it, free and clear of all
liens, charges, encumbrances or restrictions, except, in each case, as
described in the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus) or such as would not,
individually or in the aggregate, have a Material Adverse Effect.
(u) Each of the Issuers and the Subsidiaries has
<PAGE> 15
-15-
and, to the best knowledge of the Issuers, after due inquiry, each of
Holdings, Motor and the Motor Subsidiaries has, filed all necessary
federal, state and foreign income and franchise tax returns, except where
the failure to so file such returns would not, individually or in the
aggregate, have a Material Adverse Effect; and other than taxes due
thereon or tax deficiencies which any Issuer or Subsidiary or, to the
best knowledge of the Issuers, after due inquiry, any of Holdings, Motor
or the Motor Subsidiaries is contesting in good faith and for which any
Issuer or Subsidiary or, to the best knowledge of the Issuers, after due
inquiry, any of Holdings, Motor or the Motor Subsidiaries reasonably
believes that it has provided adequate reserves, has paid all taxes due
thereon and there is no tax deficiency that has been asserted against any
Issuer or Subsidiary or, to the best knowledge of the Issuers, after due
inquiry, any of Holdings, Motor or the Motor Subsidiaries that would,
individually or in the aggregate, have a Material Adverse Effect.
(v) (i) Immediately after the consummation of the Merger and the
other transactions contemplated by the Transaction Documents, the fair
value and present fair saleable value of the assets of the Company will
exceed the sum of its stated liabilities and identified contingent
liabilities; and (ii) the Company is not, nor will it be, after giving
effect to the execution, delivery and performance of the Transaction
Documents, to the extent it is a party thereto, and the consummation of
the transactions contemplated thereby, (a) left with unreasonably small
capital with which to carry on its business as it is proposed to be
conducted, (b) unable to pay its debts (contingent or otherwise) as they
mature or (c) insolvent.
(w) (i) The Issuers have delivered to the Underwriters a true and
correct copy of each of the Transaction Documents that have been
executed and delivered prior to the date of this Agreement and each other
Transaction Document in the form substantially as it will be executed and
delivered on or prior to the Closing Date, together with all related
agreements and all schedules and exhibits thereto, and [as of the date
hereof] there have been no material amendments, alterations,
modifications or waivers of any of the provisions of any of the
Transaction Documents since their date of execution or from the form in
which any such
<PAGE> 16
-16-
Transaction Document has been delivered to the Underwriters; and (ii)
there exists as of the date hereof (after giving effect to the
transactions contemplated by each of the Transaction Documents) no event
or condition that would constitute a default or an event of default (in
each case as defined in each of the Transaction Documents) under any of
the Transaction Documents that would result in, individually or in the
aggregate, a Material Adverse Effect or materially adversely effect the
ability of the Company or Holdings to consummate the Merger and the other
Transactions.
(x) Except as disclosed in the Registration Statement or Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), and except as would not individually or in the aggregate
have a Material Adverse Effect (A) each of the Issuers and the
Subsidiaries is and, to the best knowledge of the Issuers, after due
inquiry, Holdings, Motor and the Motor Subsidiaries is, in compliance
with all applicable Environmental Laws, (B) each of the Issuers and the
Subsidiaries has and, to the best knowledge of the Issuers, after due
inquiry, Holdings, Motor and the Motor Subsidiaries has, made all filings
and provided all notices required under any applicable Environmental Law,
and has all permits, authorizations and approvals required under any
applicable Environmental Laws and is in compliance with their
requirements, (C) there are no pending or, to the best knowledge of the
Issuers, after due inquiry, threatened Environmental Claims against any
of the Issuers or the Subsidiaries or Holdings, Motor or the Motor
Subsidiaries and (D) none of the Issuers or the Subsidiaries and, to the
best knowledge of the Issuers, after due inquiry, none of Holdings, Motor
or the Motor Subsidiaries, has knowledge of any circumstances with
respect to any of their respective properties or operations that could
reasonably be anticipated to form the basis of an Environmental Claim
against any of them or any of their subsidiaries or any of their
respective properties or operations and the business operations relating
thereto.
For purposes of this Agreement, the following terms shall have the
following meanings: "Environmental Law" means any federal, state, local or
municipal statute, law, rule,
<PAGE> 17
-17-
regulation, ordinance, code, policy or rule of common law and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment binding on any of the Issuers or the
Subsidiaries or Holdings, Motor or the Motor Subsidiaries, relating to
pollution or protection of the environment or health or safety or any chemical,
material or substance, that is subject to regulation thereunder.
"Environmental Claims" means any and all administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, notices of responsibility,
information requests, liens, notices of noncompliance or violation,
investigations or proceedings relating in any way to any Environmental Law.
(y) None of the Issuers or the Subsidiaries and, to the best
knowledge of the Issuers, after due inquiry, none of Holdings, Motor or
the Motor Subsidiaries is required to register as an "investment company"
or a company "controlled by" an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
(z) Except as stated in the Prospectus (or, if the Prospectus is
not in existence, the most recent Preliminary Prospectus) none of the
Issuers or the Subsidiaries or, to the best knowledge of the Issuers,
after due inquiry, none of Holdings, Motor or the Motor Subsidiaries or
any of their respective directors, officers or controlling persons, has
taken, directly or indirectly, any action designed, or that might
reasonably be expected, to cause or result, under the Act or otherwise,
in, or that has constituted, stabilization or manipulation of the price
of any security of any Issuer to facilitate the sale or resale of the
Securities (it being understood that no representation or warranty is
made as to any actions by the Underwriters).
3. Purchase, Sale and Delivery of the Securities. On the basis of the
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Underwriters, and each of the Underwriters severally
agrees to purchase from the Company, at [ ]% of their principal amount, the
respective aggregate principal amounts of the Notes set forth opposite their
respective names on Exhibit C hereto. The obligations of the Underwriters
under
<PAGE> 18
-18-
this Agreement are several and not joint. One or more certificates in
definitive form for the Notes that the Underwriters have agreed to purchase
hereunder, and in such denomination or denominations and registered in such
name or names, as each Underwriter requests upon notice to the Company at least
48 hours prior to the Closing Date, shall be delivered by or on behalf of the
Company, against payment by or on behalf of the Underwriters, of the purchase
price therefor by wire transfer of immediately available funds net of the
overnight cost of such funds to the account of the Company previously
designated by it in writing. Such delivery of and payment for the Securities
shall be made at the offices of Skadden, Arps, Slate, Meagher & Flom, 919 Third
Avenue, New York, New York 10022, at 12:00 p.m., New York time, on [ ],
1996, or at such date as the Underwriters and the Company may agree upon or
as the Underwriters may determine pursuant to Section 7(i) hereof, such time
and date of delivery against payment being herein referred to as the "Closing
Date." The Company will make such certificate or certificates for the
Securities available for checking and packaging by the Underwriters at the
offices in New York, New York of CIBC Wood Gundy Securities Corp. at least 24
hours prior to the Closing Date.
4. Offering by the Underwriters. After the Registration Statement becomes
effective, the Underwriters propose to offer for sale to the public the
Securities at the price and upon the terms set forth in the Prospectus. The
Underwriters will notify the Issuers when such offer and sale has been
completed.
5. Certain Covenants. The Issuers jointly and severally covenant and
agree with the Underwriters that:
(i) Each of the Issuers will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, and any amendments thereto, to become effective promptly. If, at
the time that the Registration Statement becomes effective, any information
shall have been omitted therefrom in reliance upon Rule 430A of the rules and
regulations of the Commission under the Act, then immediately following the
execution of this Agreement, the Issuers will prepare, and thereafter the
Issuers will file or transmit for filing with the Commission in accordance with
such Rule 430A and Rule 424(b) of the rules and regulations of the Commission
under the Act, copies of an amended Prospectus relating to such Registration
Statement, or, if required by
<PAGE> 19
-19-
such Rule 430A, a post-effective amendment to such Registration Statement
(including an amended Prospectus), containing all information so omitted.
During any time when a prospectus relating to the Securities is required to be
delivered under the Act, the Issuers will comply with all requirements imposed
by the Act, the Exchange Act and the Trust Indenture Act to the extent
necessary to permit the continuance of sales or dealings in the Securities in
accordance with the provisions hereof and of the Prospectus. The Issuers will
give each Underwriter notice of their intention to file any amendment to the
Registration Statement (including any post-effective amendment) or any
amendment or supplement to the Prospectus (including any revised prospectus
that the Issuers propose for use by the Underwriters in connection with the
offering of the Securities that differs from any prospectus on file at the
Commission at the time the Registration Statement including such prospectus
becomes effective, whether or not such revised prospectus is required to be
filed pursuant to Rule 424(b) of the rules and regulations of the Commission
under the Act), will furnish the Underwriters with copies of any such amendment
or supplement a reasonable amount of time prior to such proposed filing or use,
as the case may be, and will not file any such amendment or supplement or use
any such prospectus to which the Underwriters or counsel for the Underwriters
shall reasonably object or which is not in compliance with the Act. The
Issuers will advise the Underwriters, promptly after they receive notice
thereof, of the time when the Registration Statement or any amendment thereto
has been filed or declared effective or the Prospectus or any amendment or
supplement thereto has been filed.
(ii) The Issuers will advise the Underwriters, promptly after receiving
notice or obtaining knowledge thereof, of (a) the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement or
any amendment thereto or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto, (b) the suspension of the qualification of the Notes or the Guarantees
for offering or sale in any jurisdiction, (c) the institution, threatening or
contemplation of any proceeding for any such purpose or (d) any request made by
the Commission for amending the Registration Statement, for amending or
supplementing the Prospectus or for additional information. Each of the
Issuers will use its best efforts to prevent the issuance of any such stop
order and, if any such stop order is issued, to obtain the withdrawal thereof
as promptly as possible.
<PAGE> 20
-20-
(iii) The Issuers will cooperate with the Underwriters in arranging for
the qualification of the Securities for offering and sale under the securities
or "Blue Sky" laws of such jurisdictions as the Underwriters may designate and
will continue such qualifications in effect for as long as may be necessary to
complete the distribution of the Securities by the Underwriters; provided,
however, that in connection therewith none of the Issuers shall be required to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction or to take any other action that would subject it
to general service of process or to taxation in respect of doing business in
any jurisdiction in which it is not otherwise subject.
(iv) If any event shall occur as a result of which it is necessary, in
the opinion of counsel for the Underwriters, to amend or supplement the
Prospectus in order to make such Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or if for
any other reason it shall be necessary to amend or supplement the Prospectus in
order to comply with the Act and the Exchange Act, the Issuers shall (subject
to Section 5(i)) forthwith amend or supplement such Prospectus so that, as so
amended or supplemented, such Prospectus will not include an untrue statement
of a material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances existing at the time
it is delivered to a purchaser, not misleading and will comply in all material
respects with the Act and the Exchange Act, and the Issuers will furnish to the
Underwriters, without charge, a reasonable number of copies of such amendment
or supplement.
(v) The Issuers will, without charge, provide (a) to each Underwriter and
to counsel for the Underwriters a signed copy of each registration statement
originally filed with respect to the Securities and each amendment thereto (in
each case including exhibits thereto) and (b) so long as a prospectus relating
to the Securities is required to be delivered under the Act, as many copies of
each Preliminary Prospectus or Prospectus or any amendment or supplement
thereto as the Underwriters may reasonably request.
(vi) The Company will make generally available to its security holders as
soon as practicable, but not later than 90 days after the close of the period
covered thereby, a consolidated earning statement (in form complying with the
provisions of Rule 158 of the rules and regulations of the
<PAGE> 21
-21-
Commission under the Act ("Rule 158")) covering a twelve-month period beginning
not later than the first day of the fiscal quarter of the Company next
following the "effective date" (as defined in Rule 158) of the Registration
Statement, which consolidated earning statement shall satisfy the provisions of
Section 11(a) of the Act.
(vii) During the period of five years hereafter, the Company will furnish
to the Underwriters (a) as soon as available, a copy of each report or other
communication (financial or otherwise) of the Company mailed to the Trustee or
holders of the Notes, stockholders or filed with the Commission, and (b) from
time to time such other information concerning the Company as you may
reasonably request.
(viii) If this Agreement shall terminate or shall be terminated after
execution pursuant to any provisions hereof (other than solely by reason of a
default by the Underwriters of their obligations hereunder after all conditions
hereunder have been satisfied in accordance herewith) or if this Agreement
shall be terminated by the Underwriters because of any failure or refusal on
the part of the Issuers to comply with the terms or fulfill any of the
conditions of this Agreement, the Company agrees to reimburse you for all
reasonable out-of-pocket expenses (including fees and expenses of counsel for
the Underwriters) incurred by you in connection herewith.
(ix) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Prospectus.
(x) Prior to the Closing Date, the Company will furnish to the
Underwriters, as soon as they have been prepared by or are available to the
Company, a copy of any unaudited interim consolidated financial statements of
the Issuers and the Subsidiaries, for any period subsequent to the period
covered by the most recent financial statements appearing in the Registration
Statement and the Prospectus.
6. Expenses. Notwithstanding any termination of this Agreement (pursuant
to Section 10 or otherwise), the Company agrees to pay the following costs and
expenses and all other costs and expenses incident to the performance by the
Issuers of their obligations hereunder: (i) the preparation, printing or
reproduction, and filing with the Commission of the registration statement
(including financial statements and
<PAGE> 22
-22-
exhibits thereto), each Preliminary Prospectus, the Prospectus and each
amendment or supplement to any of them; (ii) the printing (or reproduction) and
delivery (including postage, air freight charges and charges for counting and
packaging) of such copies of the registration statement, each Preliminary
Prospectus, the Prospectus and all amendments or supplements to any of them as
may be reasonably requested for use in connection with the offering and sale of
the Securities; (iii) the preparation, printing, authentication, issuance and
delivery of certificates for the Securities, including any stamp taxes in
connection with the original issuance and sale of the Notes and trustees' fees;
(iv) the reproduction and delivery of this Agreement, the preliminary and
supplemental "Blue Sky" memoranda, including filing fees and reasonable fees
and disbursements of Cahill Gordon & Reindel, counsel to the Underwriters,
relating thereto and all other agreements or documents reproduced and delivered
in connection with the offering of the Securities; (v) the registration or
qualification of the Securities for offer and sale under the securities or Blue
Sky laws of the several states (including the reasonable fees, expenses and
disbursements of counsel to the Underwriters relating to such registration and
qualification); (vi) the filing fees in connection with any filings required to
be made with the National Association of Securities Dealers, Inc. (the "NASD")
(including the reasonable fees and disbursements of counsel to the Underwriters
in respect thereof and in connection with obtaining an opinion of the NASD
concerning the fairness of the terms and arrangements of the underwriting of
the Securities); (vii) the transportation and other expenses incurred by or on
behalf of Company representatives in connection with presentations to
prospective purchasers of the Securities; (viii) the fees and expenses of the
Company's accountants and the fees and expenses of counsel (including local and
special counsel) for the Issuers; (ix) fees and expenses of the Trustee
including fees and expenses of its counsel; and (x) any fees charged by
investment rating agencies for the rating of the Securities.
7. Conditions of the Underwriters' Obligations. The several obligations
of the Underwriters to purchase and pay for the Securities are subject to the
accuracy of the representations and warranties contained herein, to the
performance by the Issuers of their respective covenants and agreements
hereunder and to the following additional conditions unless waived in writing
by the Underwriters:
(i) If the registration statement originally filed with
<PAGE> 23
-23-
respect to any of the Securities, or any amendment thereto filed prior to the
Closing Date has not been declared effective as of the time of execution
hereof, such registration statement or such amendment shall have been declared
effective not later than 12:00 noon, New York City time, on the date on which
the amendment to such registration statement originally filed with respect to
such Securities, or to the Registration Statement, as the case may be,
containing information regarding the initial public offering price of such
Securities has been filed with the Commission, or such later time and date as
shall have been consented to by the Underwriters; if required, the Prospectus
and any amendment or supplement thereto shall have been filed in accordance
with Rule 424(b) under the Act; no stop order suspending the effectiveness of
the Registration Statement or any amendment thereto or the qualification of the
Indenture under the Trust Indenture Act shall have been issued and no
proceedings for that purpose shall have been instituted or to the knowledge of
the Issuers or the Underwriters, shall be threatened or contemplated by the
Commission.
(ii) None of the issuance and sale of the Securities pursuant to this
Agreement, the Transactions or any other transactions contemplated by any of
the Transaction Documents or the Prospectus shall be enjoined (temporarily or
permanently) and no restraining order or other injunctive order shall have been
issued; and there shall not have been any legal action, order, decree or other
administrative proceeding instituted or threatened against any of the Issuers
or against you relating to the issuance of the Securities or the Underwriters'
activities in connection therewith, the Transactions or any other transactions
contemplated by any of the Transaction Documents or the Prospectus.
(iii) Subsequent to the effective date of this Agreement, there shall not
have occurred (i) any change, or any development involving a prospective
change, in or affecting the condition (financial or other), business,
properties, prospects, net worth or results of operations of the Issuers, the
Subsidiaries, Holdings, Motor and the Motor Subsidiaries, taken as a whole, not
contemplated by the Prospectus that, in your opinion, would materially
adversely affect the market for the Notes, or (ii) any event or development
relating to or involving any of the Issuers, Holdings or Motor or any of the
respective officers or directors of the Issuers, Holdings or Motor that makes
any statement made in the Prospectus untrue or that, in the opinion of the
Issuers and their counsel or the Underwriters and their
<PAGE> 24
-24-
counsel, requires the making of any addition to or change in the Prospectus in
order to state a material fact required by the Act or any other law to be
stated therein or necessary in order to make the statements made therein not
misleading.
(iv) The Underwriters shall have received an opinion of counsel to the
Issuers in form and substance satisfactory to the Underwriters and counsel to
the Underwriters, dated the Closing Date, of each of (i) Skadden, Arps, Slate,
Meagher & Flom, substantially in the form of Exhibit D-1 hereto, (ii) Altheimer
& Gray substantially in the form of Exhibit D-2 hereto, (iii) Jones, Day,
Reavis & Pogue substantially in the form of Exhibit D-3 hereto and (iv) Daniel
M. Sandberg, Esq. substantially in the form of Exhibit D-4 hereto.
(v) The Underwriters shall have received an opinion, dated the Closing
Date, of Cahill Gordon & Reindel, counsel to the Underwriters, with respect to
the sufficiency of certain legal matters relating to this Agreement and such
other related matters as the Underwriters may require. In rendering such
opinion, Cahill Gordon & Reindel shall have received and may rely upon such
certificates and other documents and information as they may reasonably request
to pass upon such matters. In addition, in rendering their opinion, Cahill
Gordon & Reindel may state that its opinion is limited to matters of New York,
Delaware corporate and federal law.
(vi) The Underwriters shall have received, from KPMG Peat Marwick LLP,
independent public accountants for the Issuers, and Ernst & Young LLP,
independent public accountants for Holdings and Motor, "comfort" letters dated
the date hereof and the Closing Date, in form and substance reasonably
satisfactory to the Underwriters and Cahill Gordon & Reindel, counsel to the
Underwriters.
(vii) The representations and warranties of the Issuers contained in this
Agreement shall be true and correct on and as of the Closing Date; the Issuers
shall have complied in all material respects with all agreements and satisfied
all conditions on their part to be performed or satisfied hereunder at or prior
to the Closing Date.
(viii) There shall not have been any change in the capital stock of the
Issuers nor any material increase in the consolidated short-term or long-term
debt of the Issuers from that set forth or contemplated in the Registration
Statement or the Prospectus (or any amendment or supplement thereto) or
<PAGE> 25
-25-
contemplated by the Transaction Documents and (b) the Issuers shall not have
any liabilities or obligations, contingent or otherwise (whether or not in the
ordinary course of business), that are material to the Issuers, taken as a
whole, other than those reflected in the Registration Statement or the
Prospectus (or any amendment or supplement thereto) or contemplated by the
Transaction Documents.
(ix) You shall have received certificates, dated the Closing Date and
signed by the chief executive officer and the chief financial officer of the
Company and each Subsidiary Guarantor (or such other officers as are acceptable
to you), to the effect that each of the conditions to closing set forth in this
Section 7 have been satisfied.
(x) There shall have been no material amendments, alterations,
modifications or waivers of any provisions of the Merger Agreement since the
date of this Agreement; the Merger Agreement shall be in full force and effect;
the certificate of merger with respect to the Merger shall have been cleared
for filing by the Secretary of State of the State of Delaware and the Company
shall be prepared to file the certificate of merger immediately after the
closing of the sale of the Notes hereunder; and the Merger shall occur
simultaneously with the closing of the sale of the Notes by the Company
hereunder.
(xi) The Underwriters shall have received from the Company a true and
correct copy of the Credit Agreement, dated on or about the Closing Date, and
there shall have been no material amendments, alterations, modifications or
waivers of any provisions of the Credit Agreement since the date of this
Agreement; the Credit Agreement shall be in full force and effect;
simultaneously with the closing of the sale of the Notes by the Company
hereunder, the Company shall have borrowed not less than an aggregate of
$[425,000,000] in term loan borrowings and not less than an aggregate of
$[ ] in revolving credit borrowings, in each case, pursuant to the Credit
Agreement.
(xii) The Underwriters shall have received from the Company a true and
correct copy of each of the Subscription Agreements and there shall have been
no material amendments, alterations, modifications or waivers of any provisions
of any of the Subscription Agreements since the date of this Agreement; each of
the Subscription Agreements shall be in full force and effect; the Company
shall have received gross proceeds of not less than $200,000,000 from the
Preferred
<PAGE> 26
-26-
Equity Issuance and the Preferred Equity Exchange shall have occurred
simultaneously with the consummation of the Merger.
(xiii) Each of the Proposed Amendments, except for any change of control
amendment, to the Old Notes shall have been approved by the requisite
percentages of holders of Old Notes; simultaneously with the closing of the
sale of the Notes by the Company, the Company shall have accepted for payment
and have instructed the depositary with respect thereto to pay to the trustee
under the indenture governing the Motor Notes the purchase price for all Old
Notes tendered pursuant to the Tender Offer.
(xiv) Motor shall have issued the Redemption Notice; simultaneously with
the closing of the sale of the Notes by the Company, the Company shall have
deposited funds sufficient to effect the Redemption.
(xv) Each of the Transactions shall have been approved on or before the
Closing Date by the stockholders of each of the Company and Holdings.
(xvi) On the Closing Date, the Underwriters shall have received a letter,
dated the Closing Date, from Houlihan Lokey Howard & Zubin, Inc. with respect
to the solvency of the Issuers and the Subsidiaries in form, scope and
substance reasonably satisfactory to the Underwriters.
(xvii) The Issuers shall have furnished or caused to be furnished to you
such further certificates and documents as you shall have reasonably requested.
Any certificate or document signed by any officer of an Issuer and
delivered to you or to counsel for the Underwriters, shall be deemed a
representation and warranty by such Issuer, to each Underwriter as to the
statements made therein.
All such opinions, certificates, letters, schedules, documents or
instruments delivered pursuant to this Agreement will comply with the
provisions hereof only if they are reasonably satisfactory in all material
respects to the Underwriters and counsel to the Underwriters. The Issuers
shall furnish to the Underwriters such conformed copies of such opinions,
certificates, letters, schedules, documents and instruments in such quantities
as the Underwriters shall
<PAGE> 27
-27-
reasonably request.
8. Indemnification and Contribution. (a) Each Issuer jointly and severally
agrees to indemnify and hold harmless each Underwriter, and each person, if
any, who controls either of the Underwriters within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter or such
controlling person may become subject under the Act, the Exchange Act or
otherwise, insofar as any such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any material fact
contained in (A) the registration statement originally filed with respect to
the Securities or any amendment thereto or any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto or (B) any application or
other document, or any amendment or supplement thereto, executed by any Issuer
or based upon written information furnished by or on behalf of any Issuer filed
in any jurisdiction in order to qualify the Securities under the securities or
"Blue Sky" laws thereof or filed with the Commission or any securities
association or securities exchange (each an "Application"); or
(ii) the omission or alleged omission to state, in the registration
statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or any Application, a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and will reimburse, as incurred, each Underwriter and each
such controlling person for any reasonable and documented out-of-pocket legal
or other expenses reasonably incurred by the Underwriters or such controlling
person in connection with investigating, defending against or appearing as a
third-party witness in connection with any such loss, claim, damage, liability
or action; provided, however, that none of the Issuers will be liable in any
such case to an Underwriter or any controlling person of such Underwriter to
the extent that any such loss, claim, damage or liability arises out of or is
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in any registration statement
<PAGE> 28
-28-
or any amendment thereto, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application in reliance upon and in
conformity with written information furnished to the Issuers by or on behalf of
such Underwriter specifically for use therein; and provided, further, that none
of the Issuers will be liable to an Underwriter or any person controlling such
Underwriter with respect to any such untrue statement or omission made in any
Preliminary Prospectus that is corrected in the Prospectus (or any amendment or
supplement thereto) if the person asserting any such loss, claim, damage or
liability purchased Securities from such Underwriter in reliance upon the
Preliminary Prospectus but was not sent or given a copy of the Prospectus (as
amended or supplemented) that was made available by the Issuers to such
Underwriter at or prior to the written confirmation of the sale of the
Securities to such person in any case where such delivery of such Prospectus
(as so amended or supplemented) is required by the Act, unless such failure to
deliver such Prospectus (as amended or supplemented) was a result of
noncompliance by the Issuers with Section 5(v)(b) of this Agreement. This
indemnity agreement will be in addition to any liability that the Issuers may
otherwise have to the indemnified parties. None of the Issuers will, without
the prior written consent of the Underwriters, [which shall not be
unreasonably withheld or delayed,] settle or compromise or consent to the entry
of any judgment in any pending or threatened claim, action, suit or proceeding
in respect of which indemnification by the Underwriters may be sought hereunder
(whether or not the Underwriters or any person who controls either of the
Underwriters within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act is a party to such claim, action, suit or proceeding), unless such
settlement, compromise or consent includes an unconditional release of the
Underwriters and each such controlling person from all liability arising out of
such claim, action, suit or proceeding.
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Issuers, their respective directors, officers who signed the
Registration Statement and each person, if any, who controls any of the Issuers
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act
against any losses, claims, damages or liabilities to which any of the Issuers
or any such director, officer or controlling person may become subject under
the Act, the Exchange Act, or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
<PAGE> 29
-29-
based upon (i) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or any Application or (ii) the omission or the alleged omission to
state therein a material fact required to be stated in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or any Application, or
necessary to make the statements therein (in the case of any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto or any
Application, in the light of the circumstances under which such statements were
made) not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to any of the Issuers by or on behalf of such Underwriter
specifically for use therein; and, subject to the limitation set forth
immediately preceding this clause, will reimburse, as incurred, any reasonable
and documented out-of-pocket legal or other expenses reasonably incurred by any
of the Issuers or any such director, officer or controlling person in
connection with investigating or defending against or appearing as a
third-party witness in connection with any such loss, claim, damage, liability
or action in respect thereof. This indemnity agreement will be in addition to
any liability that the Underwriters may otherwise have to the indemnified
parties. The Underwriters will not, without the prior written consent of the
Issuers, [which shall not be unreasonably withheld or delayed,]settle or
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification by any of
the Issuers may be sought hereunder (whether or not any of the Issuers or any
person who controls the Issuers within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of any such Issuer and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.
(c) Promptly after receipt by an indemnified party under this Section 8
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
this Section 8, notify the indemnifying party of the commencement thereof; but
the omission so to notify the indemnifying party
<PAGE> 30
-30-
will not relieve it from any liability that it may have to any indemnified
party except to the extent that such omission results in the forfeiture by the
indemnifying party of substantial rights and defenses. In case any such action
is brought against any indemnified party, and such indemnified party notifies
the indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded, based on the advise of counsel, that there may be
one or more legal defenses available to it and/or other indemnified parties
that are different from or additional to those available to any such
indemnifying party then the indemnifying parties shall not have the right to
direct the defense of such action on behalf of such indemnified party or
parties and such indemnified party or parties shall have the right to select
separate counsel to defend such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof and approval by such indemnified
party of counsel appointed to defend such action, the indemnifying party will
not be liable to such indemnified party under this Section 8 for any legal or
other expenses, other than reasonable and documented out-of-pocket costs of
investigation, subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the immediately preceding
sentence (it being understood, however, that in connection with such action the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (in addition to local counsel) in any one action or separate
but substantially similar actions in the same jurisdiction arising out of the
same general allegations or circumstances, designated by the Underwriters in
the case of paragraph (a) of this Section 8 or the Issuers in the case of
paragraph (b) of this Section 8, representing the indemnified parties under
such paragraph (a) or paragraph (b), as the case may be, who are parties to
such action or actions); (ii) the indemnifying party has authorized in writing
the employment of counsel for the indemnified party at the expense of the
indemnifying parties or (iii) the indemnifying party shall have failed to
assume the defense or retain counsel reasonably satisfactory to the indemnified
<PAGE> 31
-31-
party. After such notice from the indemnifying parties to such indemnified
party (so long as the indemnified party shall have informed the indemnifying
parties of such action in accordance with this Section 8 on a timely basis
prior to the indemnified party seeking indemnification hereunder), the
indemnifying parties will not be liable under this Section 8 for the costs and
expenses of any settlement of such action effected by such indemnified party
without the consent of the indemnifying party, unless such indemnified party
waived its rights under this Section 8, in which case the indemnified party may
effect such a settlement without such consent.
(d) In circumstances in which the indemnity agreement provided for in the
preceding paragraphs of this Section 8 is unavailable or insufficient to hold
harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other from
the offering of the Securities or (ii) if the allocation provided by the
foregoing clause (i) is not permitted by applicable law, not only such relative
benefits but also the relative fault of the indemnifying party or parties on
the one hand and the indemnified party on the other in connection with the
statements or omissions or alleged statements or omissions that resulted in
such losses, claims, damages or liabilities (or actions in respect thereof).
The relative benefits received by the Issuers on the one hand and the
Underwriters on the other shall be deemed to be in the same proportion as the
total proceeds from the offering of the Securities (before deducting expenses
other than underwriting discounts and commissions) received by the Issuers bear
to the total underwriting discounts and commissions received by the
Underwriters. The relative fault of the parties shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Issuers on the one hand,
or the Underwriters on the other, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Issuers and the
<PAGE> 32
-32-
Underwriters agree that it would not be equitable if the amount of such
contribution were determined by pro rata or per capita allocation (even if the
Issuers on the one hand and the Underwriters on the other hand were treated as
one entity for such purpose) or by any other method of allocation that does not
take into account the equitable considerations referred to in the first
sentence of this paragraph (d). Notwithstanding any other provision of this
paragraph (d), the Underwriters shall not be obligated to make contributions
hereunder that in the aggregate exceed the total underwriting discounts and
commissions received by the Underwriters under this Agreement, less the
aggregate amount of any damages that the Underwriters have otherwise been
required to pay by reason of the untrue or alleged untrue statements or the
omissions or alleged omissions to state a material fact, and no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this paragraph (d), each
person, if any, who controls any of the Underwriters within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act shall have the same
rights to contribution as the Underwriters, and each director of any of the
Issuers, each officer of any of the Issuers who signed the Registration
Statement and each person, if any, who controls any of the Issuers within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act, shall have
the same rights to contribution as the Issuers.
9. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Issuers, their
respective officers and the Underwriters set forth in this Agreement or made by
or on behalf of them, respectively, pursuant to this Agreement shall remain in
full force and effect, regardless of (i) any investigation made by or on behalf
of the Issuers, any of their respective officers or directors, the Underwriters
or any controlling person referred to in Section 8 hereof and (ii) delivery of
and payment for the Securities, and shall be binding upon and shall inure to
the benefit of, any successors, assigns, heirs, personal representatives of the
Issuers, the Underwriters and indemnified parties referred to in Section 8
hereof. The respective agreements, covenants, indemnities and other statements
set forth in Sections 6 and 8 hereof shall remain in full force and effect,
regardless of any termination or cancellation of this Agreement.
10. Termination. (a)This Agreement may be
<PAGE> 33
-33-
terminated in the sole discretion of the Underwriters by notice to the Issuers
given in the event that the Issuers shall have failed, refused or been unable
to satisfy all conditions on its respective part to be performed or satisfied
hereunder on or prior to the Closing Date or, if at or prior to the Closing
Date:
(i) any of the Issuers or the Subsidiaries or Holdings, Motor or the
Motor Subsidiaries shall have sustained any loss or interference with respect
to their respective businesses or properties from fire, flood, hurricane,
earthquake, accident or other calamity, whether or not covered by insurance, or
from any labor dispute or any legal or governmental proceeding, which loss or
interference has had or has a material adverse effect on the business,
condition (financial or other), properties, prospects or results of operations
of the Issuers, taken as a whole, or there shall have been any material adverse
change, or any development involving a prospective material adverse change
(including without limitation a change in management or control of the
Issuers), in the business, condition (financial or other), properties,
prospects or results of operations of the Issuers, taken as a whole, except as
described in or contemplated by the Prospectus (exclusive of any amendment or
supplement thereto);
(ii) trading in securities generally on the New York or American Stock
Exchange shall have been suspended or minimum or maximum prices shall have been
established on any such exchange;
(iii) a banking moratorium shall have been declared by New York or United
States authorities;
(iv) there shall have been (A) an outbreak or escalation of hostilities
between the United States and any foreign power, (B) an outbreak or escalation
of any other insurrection or armed conflict involving the United States or (C)
any material change in the financial markets of the United States that, in the
sole judgment of the Underwriters, makes it impracticable or inadvisable to
proceed with the public offering or the delivery of the Securities as
contemplated by the Registration Statement, as amended as of the date hereof;
or
[(v) any securities of the Company or Holdings shall have been downgraded
or placed on any "watch list" for possible downgrading by any nationally
recognized statistical rating organization.]
<PAGE> 34
-34-
(b) Termination of this Agreement pursuant to this Section 10 shall be
without liability of any party to any other party except as provided in Section
9 hereof.
11. Notices. All communications hereunder shall be in writing and, if
sent to the Underwriters, shall be mailed or delivered or telecopied and
confirmed in writing to the Underwriters c/o CIBC Wood Gundy Securities Corp.,
425 Lexington Avenue, 3rd Floor, New York, New York 10017, Attention:
, and with a copy to Cahill Gordon & Reindel, 80 Pine Street,
New York, New York 10005, Attention: Roger Meltzer, Esq. If sent to
the Company or any of the Subsidiary Guarantors, shall be mailed, delivered or
telegraphed and confirmed in writing, to c/o Hayes Wheels International, Inc.,
and with a copy to Skadden, Arps, Slate, Meagher & Flom, One Rodney Square,
Wilmington, Delaware 19801, Attention: Robert B. Pincus, Esq.
12. Successors. This Agreement shall inure to the benefit of and be
binding upon the Underwriters and each of the Issuers and their respective
successors and legal representatives, and nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any other person any
legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained; this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of such persons and for the benefit of no other person
except that (i) the indemnities of the Issuers contained in Section 8 of this
Agreement shall also be for the benefit of any person or persons who control
the Underwriters within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act and (ii) the indemnities of the Underwriters contained in
Section 8 of this Agreement shall also be for the benefit of the directors of
the Issuers, their respective officers who have signed the Registration
Statement and any person or persons who controls any Issuer within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of
Securities from the Underwriters will be deemed a successor because of such
purchase.
13. Joint and Several Obligations. All of the obligations of the Issuers
hereunder shall be joint and several obligations of each of them.
14. Information Supplied by the Underwriters.
<PAGE> 35
S-35
The statements set forth in the last paragraph on the front cover page of
the Prospectus and in the first, third and fifth paragraphs under the
heading "Underwriting" in the Prospectus (to the extent such statements relate
to the Underwriters) constitute the only information furnished by the
Underwriters to the Issuers for purposes of Section 2(b) hereof.
15. Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto and supersedes all prior agreements, understandings
and arrangements, oral or written, among the parties hereto with respect to the
subject matter hereof.
16. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT,
AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW.
17. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE> 36
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter shall constitute a binding agreement among the Issuers and the
Underwriters.
Very truly yours,
HAYES WHEELS INTERNATIONAL, INC.,
a Delaware corporation
By: _________________________________
Name:
Title:
HAYES WHEELS INTERNATIONAL-CALIFORNIA, INC.,
a Delaware corporation
By: _________________________________
Name:
Title:
HAYES WHEELS INTERNATIONAL-GEORGIA, INC.,
a Delaware corporation
By: _________________________________
Name:
Title:
HAYES WHEELS INTERNATIONAL-INDIANA, INC.,
a Delaware corporation
By: _________________________________
Name:
Title:
HAYES WHEELS INTERNATIONAL-MEXICO, INC.,
a Delaware corporation
By: _________________________________
Name:
<PAGE> 37
Title:
HAYES WHEELS INTERNATIONAL-MICHIGAN, INC.,
a Michigan corporation
By: _________________________________
Name:
Title:
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
CIBC WOOD GUNDY SECURITIES CORP.
By: _________________________________
Name:
Title:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: _________________________________
Name:
Title:
SALOMON BROTHERS INC
By: _________________________________
Name:
Title:
<PAGE> 38
Exhibit A
Subsidiary Guarantors
<PAGE> 39
Exhibit B
B-1. Other Subsidiaries of the Company
B-2. Motor Subsidiaries
<PAGE> 40
Exhibit C
<TABLE>
<S> <C>
Principal Amount
Underwriter of Notes
- ----------- ----------------
CIBC Wood Gundy Securities Corp. $
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Salomon Brothers Inc
----------------
Total $
================
</TABLE>
<PAGE> 1
EXHIBIT 12.1
HAYES WHEELS INTERNATIONAL, INC.
RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
PRO FORMA
QUARTER QUARTER QUARTER
ENDED ENDED ENDED
APRIL 30, APRIL 30, APRIL 30,
1995 1996 1996
--------- --------- ---------
(MILLIONS OF DOLLARS, EXCEPT RATIOS)
(UNAUDITED)
<S> <C> <C> <C>
Earnings:
Earnings before taxes on income.............................. $13.7 $ 9.9 $(1.2)
Interest expense:
Bank borrowings and long-term debt........................... 3.8 3.6 17.8
Rentals (1).................................................. 0.6 0.8 1.6
----- ----- -----
4.4 4.4 19.4
Earnings before interest expense and taxes on income........... $18.1 $14.3 $18.2
===== ===== =====
Fixed charges:
Bank borrowings and long-term debt........................... 3.8 3.6 17.8
Rentals (1).................................................. 0.6 0.8 1.6
----- ----- -----
Total fixed charges....................................... $ 4.4 $ 4.4 $19.4
===== ===== =====
Ratio of earnings to fixed charges............................. 4.11 3.25 0.94
===== ===== =====
Coverage deficiency on fixed charges........................... N/A N/A $ 1.2
===== ===== =====
</TABLE>
- ---------------
(1) Estimated interest component of rent expense
<PAGE> 1
EXHIBIT 23.1
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
Hayes Wheels International, Inc.:
We consent to the use of our report dated February 23, 1996 except as to
Note 17, which is as of March 28, 1996, related to the consolidated balance
sheets of Hayes Wheels International, Inc. and subsidiaries as of January 31,
1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the years in the three-year
period ended January 31, 1996, included herein and to the reference of our firm
under the heading "Experts" in the Registration Statement (Form S-3) and related
Prospectus. Our report refers to a change from the LIFO method of valuing
inventory to the FIFO method and the adoption of the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards
("SFAS") No. 109, "Accounting for Income Taxes", SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and SFAS No. 112,
"Employers' Accounting for Postemployment Benefits".
KPMG Peat Marwick LLP
Detroit, Michigan
June 7, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated February 23, 1996, except for Note O, as to which
the date is March 28, 1996, with respect to the financial statements of MWC
Holdings, Inc. included in the Registration Statement (Form S-3, No. 333-03813)
and the related Prospectus of Hayes Wheels International, Inc. for the
registration of $250,000,000 Senior Subordinated Notes.
Ernst & Young LLP
Detroit, Michigan
June 7, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF HOULIHAN LOKEY HOWARD & ZUKIN, INC.
We hereby consent to the reference to our firm under the caption "Risk
Factors -- Fraudulent Transfer Considerations" in Amendment No. 1 to the
Registration Statement on Form S-3 (Registration No. 333-03813) of Hayes Wheels
International, Inc. (the "Registrant") to be filed on June 7, 1996 in connection
with the Registrant's offering of $250,000,000 of senior subordinated notes.
HOULIHAN LOKEY HOWARD & ZUKIN, INC.
By: /s/ WARREN I. HIRSCHHORN
------------------------------------
Name: Warren I. Hirschhorn
Title: Senior Vice-President
New York, New York
June 5, 1996
<PAGE> 1
EXHIBIT 25.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
FORM T-1
Statement of Eligibility under the Trust
Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
Check if an Application to determine eligibility of a Trustee pursuant to
Section 305(b)(2) x
----------------------------------
------------------------------------
COMERICA BANK
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
MICHIGAN 38-0477375
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
ONE DETROIT CENTER 48226
DETROIT, MICHIGAN (Zip Code)
(Address of principal executive offices)
</TABLE>
------------------------------------
HAYES WHEELS INTERNATIONAL, INC.
(Exact name of Obligor as specified in its charter)
DELAWARE 13-3384636
------------------------------------
HAYES WHEELS INTERNATIONAL-CALIFORNIA, INC.
(Exact name of Obligor as specified in its charter)
DELAWARE 33-0042337
------------------------------------
HAYES WHEELS INTERNATIONAL-GEORGIA, INC.
(Exact name of Obligor as specified in its charter)
DELAWARE 58-2046122
------------------------------------
HAYES WHEELS INTERNATIONAL-INDIANA, INC.
(Exact name of Obligor as specified in its charter)
DELAWARE 62-1240825
------------------------------------
HAYES WHEELS INTERNATIONAL-MEXICO, INC.
(Exact name of Obligor as specified in its charter)
DELAWARE 38-3281831
------------------------------------
HAYES WHEELS INTERNATIONAL-MICHIGAN, INC.
(Exact name of Obligor as specified in its charter)
MICHIGAN 38-17999246
<TABLE>
<S> <C>
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
38481 HURON RIVER DRIVE 48174
ROMULUS, MICHIGAN (Zip Code)
(Address of principal executive offices)
</TABLE>
------------------------------------
% SENIOR SUBORDINATED NOTES DUE 2006
(Title of indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION
Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to
which it is subject. State of Michigan Financial Institutions Bureau,
Lansing, Michigan; Federal Deposit Insurance Corporation, Washington, D.C.;
Board of Governors of the Federal Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers. Yes.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
If the Obligor is an affiliate of the Trustee, describe each such
affiliation.
None.
ITEM 16. LIST OF EXHIBITS
List below all exhibits filed as a part of this statement of eligibility.
Exhibits identified in parenthesis below are incorporated herein by reference.
<TABLE>
<S> <C>
Exhibit 1. A copy of the Articles of Association of the Trustee as now in effect. (Exhibit
1 to Form T-1 filed as Exhibit 26 to Form S-3 filed by ANR Pipeline Company on
September 23, 1993 Registration No. 33-50375)
Exhibit 2. A copy of the certificate of authority of the Trustee to commence business, if
not contained in the Articles of Association. (Exhibit 2 to Form T-1 filed as
Exhibit 26 to Form S-3 filed by ANR Pipeline Company on September 23, 1993
Registration No. 33-50375)
Exhibit 3. Not applicable.
Exhibit 4. A copy of the existing By-Laws of the Trustee, or instruments corresponding
thereto. (Exhibit 4 to Form T-1 filed as Exhibit 26 to Form S-3 filed by ANR
Pipeline Company on September 23, 1993 Registration No. 33-50375)
Exhibit 5. Not applicable.
Exhibit 6. The consent of the Trustee, required by Section 321(b) of the Act.
Exhibit 7. A copy of the latest report of condition of the Trustee published pursuant to
law or the requirements of its supervising or examining authority.
Exhibit 8. Not Applicable.
Exhibit 9. Not Applicable.
</TABLE>
------------------------------------
NOTE
In accordance with General Instruction B, since the Obligor is not in
default on any securities issued under indentures under which the applicant is
trustee, responses to Items 3 through 15 have not been provided.
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Comerica Bank, a Michigan banking corporation, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Detroit and the State of Michigan
on the 16th day of May, 1996.
COMERICA BANK
By: /s/ MARILYN A. KARAM
--------------------------------------
Marilyn A. Karam
Vice President
<PAGE> 4
EXHIBIT 6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939 in connection with the proposed issue by Hayes Wheels International,
Inc. of its % Senior Subordinated Notes Due 2006, Comerica Bank
hereby consents that reports of examinations of federal, state, territorial or
district authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
COMERICA BANK
By: /s/ MARILYN A. KARAM
--------------------------------------
Marilyn A. Karam
Vice President
Dated: May 16, 1996
<PAGE> 5
EXHIBIT 7
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND
STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1996
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
SCHEDULE RC -- BALANCE SHEET
<TABLE>
<CAPTION>
C400
-------------
ASSETS RCFD BIL MIL THOU
---- -------------
DOLLAR AMOUNTS IN THOUSANDS
<S> <C> <C> <C> <C>
1. Cash and balances due form depository institutions (from Schedule
RC-A):
a. Noninterest-bearing balances and currency and coin(1).......... 0081 962,691 1.a.
b. Interest-bearing balances(2)................................... 0071 741 1.b.
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)..... 1754 0 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D)... 1773 4,896,131 2.b.
3. Federal funds sold and securities purchased under agreements to
resell in domestic offices of the bank and of its Edge and
Agreement subsidiaries, and in IBFs:
a. Federal funds sold............................................. 0276 1,007,410 3.a.
b. Securities purchased under agreements to resell................ 0277 50,544 3.b.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned
income (from Schedule RC-C)............... RCFD 2122 19,791,299 4.a.
b. LESS: Allowance for loan and lease
losses.................................... RCFD 3123 265,391 4.b.
c. LESS: Allocated transfer risk
reserve................................... RCFD 3128 0 4.c.
d. Loans and leases, net of unearned income, allowance, and
reserve (item 4.a minus 4.b and 4.c).............................. 2125 19,525,908 4.d.
5. Trading assets (from Schedule RC-D)............................... 3545 6,678 5.
6. Premises and fixed assets (including capitalized leases).......... 2145 236,548 6.
7. Other real estate owned (from Schedule RC-M)...................... 2150 20,076 7.
8. Investments in unconsolidated subsidiaries and associated
companies (from Schedule RC-M).................................... 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding...... 2155 66,414 9.
10. Intangible assets (from Schedule RC-M)............................ 2143 59,338 10.
11. Other assets (from Schedule RC-F)................................. 2160 701,236 11.
12. Total assets (sum of items 1 through 11).......................... 2170 27,533,715 12.
</TABLE>
- ---------------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 6
SCHEDULE RC -- CONTINUED
<TABLE>
<CAPTION>
LIABILITIES BIL MIL THOU
-------------
DOLLAR AMOUNTS IN THOUSANDS
<S> <C> <C> <C> <C>
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from
Schedule RC-E, part I)..................................... RCON 2200 15,159,839 13.a.
(1) Noninterest-bearing(1)............ RCON 6631 3,584,417 13.a.(1)
(2) Interest-bearing.................. RCON 6636 11,575,422 13.a.(2)
b. In foreign offices, Edge and Agreement subsidiaries, and
IBFs (from Schedule RC-E, part II)............................ RCFN 2200 1,074,973 13.b.
(1) Noninterest-bearing............... RCFN 6631 7,865 13.b.(1)
(2) Interest-bearing.................. RCFN 6636 1,067,108 13.b.(2)
14. Federal funds purchased and securities sold under agreements
to repurchase in domestic offices of the bank and of its Edge
and Agreement subsidiaries, and in IBFs:
a. Federal funds purchased.................................... RCFD 0278 2,777,816 14.a.
b. Securities sold under agreements to repurchase............. RCFD 0279 7,226 14.b.
15. a. Demand notes issued to the U.S. Treasury................... RCON 2840 753,480 15.a.
b. Trading liabilities (from Schedule RC-D)................... RCFD 3548 6,862 15.b.
16. Other borrowed money:
a. With a remaining maturity of one year or less.............. RCFD 2332 3,816,941 16.a.
b. With a remaining maturity of more than one year............ RCFD 2333 1,152,869 16.b.
17. Mortgage indebtedness and obligations under capitalized
leases........................................................ RCFD 2910 0 17.
18. Bank's liability on acceptances executed and outstanding...... RCFD 2920 66,414 18.
19. Subordinated notes and debentures............................. RCFD 3200 543,885 19.
20. Other liabilities (from Schedule RC-G)........................ RCFD 2930 294,446 20.
21. Total liabilities (sum of items 13 through 20)................ RCFD 2948 25,654,751 21.
22. Limited-life preferred stock and related surplus.............. RCFD 3282 0 22.
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus................. RCFD 3838 0 23.
24. Common stock.................................................. RCFD 3230 58,527 24.
25. Surplus (exclude all surplus related to preferred stock)...... RCFD 3839 638,078 25.
26. a. Undivided profits and capital reserves..................... RCFD 3632 1,206,927 26.a.
b. Net unrealized holding gains (losses) on available-for-sale
securities................................................. RCFD 8434 (24,568) 26.b.
27. Cumulative foreign currency translation adjustments........... RCFD 3284 0 27.
28. Total equity capital (sum of items 23 through 27)............. RCFD 3210 1,878,964 28.
29. Total liabilities, limited-life preferred stock, and equity
capital (sum of items 21, 22, and 28)......................... RCFD 3300 27,533,715 29.
Memorandum
<CAPTION>
To be reported only with the March Report of Condition. NUMBER
-------------
<S> <C> <C> <C>
1. Indicate in the box at the right the number of the statement
below that best describes the most comprehensive level of
auditing work performed for the bank by independent external RCFD 6724 2 M.1.
auditors as of any date during 1995.............................
</TABLE>
- ---------------
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank.
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately).
3 = Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority).
4 = Directors' examination of the bank performed by other external auditors (may
be required by state chartering authority).
5 = Review of the bank's financial statements by external auditors.
6 = Compilation of the bank's financial statements by external auditors.
7 = Other audit procedures (excluding tax preparation work).
8 = No external audit work.
- ---------------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
