<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 1996
REGISTRATION NO. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------
HAYES WHEELS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
---------------
DELAWARE 13-3384636
(State of Incorporation) (IRS Employer Identification No.)
38481 Huron River Drive
Romulus, Michigan 48174
(313) 941-2000
(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)
---------------
DELAWARE 33-0042337
(State of incorporation) (IRS Employer Identification No.)
14500 Firestone Blvd.
La Mirada, California
(714) 994-0150
(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)
---------------
DELAWARE 58-2046122
(State of incorporation) (IRS Employer Identification No.)
1215 Palmour Drive
Gainesville, Georgia 30501
(770) 535-6783
(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)
DELAWARE 62-1240825
(State of incorporation) (IRS Employer Identification No.)
1870 Riverfork Drive
Huntington, Indiana 46750
(219) 356-7001
(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)
---------------
DELAWARE 38-3281831
(State of incorporation) (IRS Employer Identification No.)
38481 Huron River Drive
Romulus, Michigan 48174
(313) 941-2000
(Address including zip code, and telephone number, including
area code, of registrant's principal executive offices)
---------------
<PAGE> 2
===============================================================================
HAYES WHEELS INTERNATIONAL-MICHIGAN, INC.
(Exact name of registrant as specified in its charter)
------------
MICHIGAN 38-1799246
(State of incorporation) (IRS Employer Identification No.)
2440 Highland Road
Howell, Michigan 48843
(517) 546-3441
(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. [ ]
------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================
Proposed
Proposed Maximum Maximum Amount of
Amount to be Aggregate Price Aggregate Registrat
Title of Securities to be Registered Registered Per Unit(1) Offering Price ion Fee
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Senior Subordinated Notes due 2006 $250,000,000 100% $250,000,000 $86,207
====================================================================================================================
Guarantees of the % Senior $250,000,000 (2) (2) (2)
Subordinated Notes due 2006
====================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) This Registration Statement covers the Guarantees to be issued by each
of the Company's material U.S. subsidiaries. Such Guarantees are to
be issued for no additional consideration, and therefore no additional
registration fee is required.
------------
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.
===============================================================================
ii
<PAGE> 3
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 MAY , 1996
PROSPECTUS
[LOGO]
$250,000,000
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
and , commencing , 1996. The Notes will be redeemable at the option
of the Company in whole or in part, on or after , 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 , 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 U.S. subsidiaries (the "Guarantors"). As of January 31,
1996, after giving effect to the Transactions, the Company and the Guarantors
would have had approximately $455.6 million of Senior Indebtedness outstanding.
___________________
SEE "RISK FACTORS" BEGINNING ON PAGE 11 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>
================================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions(2) Company(3)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note . . . . . . . . . . . . . . . $ $ $
- ----------------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . $ $ $
================================================================================================================
</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 ,
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> 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; and
II. Hayes' Current Report on Form 8-K dated March 28, 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 OF HAYES.
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.
2
<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 Company's pro
forma combined 1995 revenues and EBITDA (as defined herein) were $968.3 million
and $159.4 million, respectively.
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 expects that its product
lines will enable it 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.
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 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.
3
<PAGE> 6
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 (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
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>
North America Market Position
------------- ---------------
<S> <C>
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.
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:
4
<PAGE> 7
- -- 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. 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.
5
<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 Hayes
(the "New Common Stock"), (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." Following the Transactions, the New Common Stock is expected to
be listed on the New York Stock Exchange.
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 invest $80 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 (dollars in millions):
SOURCES OF FUNDS:
<TABLE>
<S> <C>
Revolving Credit Facility(a) . . . . . . . . . . . . . . . . . . . . . . . $ 26.4
Term Loan Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 425.0
Senior Subordinated Notes . . . . . . . . . . . . . . . . . . . . . . . . . 250.0
New Investors' cash equity investment (b) . . . . . . . . . . . . . . . . . 200.0
------
Total Sources . . . . . . . . . . . . . . . . . . . . . . . . . . $901.4
======
USES OF FUNDS:
Cash Merger consideration . . . . . . . . . . . . . . . . . . . . . . . . $506.1
Refinancing of indebtedness and purchase of stock options . . . . . . . . . 279.3
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75.0
Fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.0
------
Total Uses . . . . . . . . . . . . . . . . . . . . . . . . . . . . $901.4
======
</TABLE>
______________________
(a) Initial drawdown of the Revolving Credit Facility with commitments of $220
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.
6
<PAGE> 9
THE OFFERING
<TABLE>
<S> <C>
Issuer . . . . . . . . . . . . . . . Hayes Wheels International, Inc.
Securities Offered . . . . . . . . . $250,000,000 principal amount of % Senior Subordinated Notes due 2006.
Maturity Date . . . . . . . . . . . . , 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 and , commencing
, 1996.
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 , 1996, after giving pro forma
effect to the Transactions, the Company and the Guarantors would have had approximately
$ 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 , 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 , 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 $162,500,000 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
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.
</TABLE>
7
<PAGE> 10
<TABLE>
<S> <C>
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 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 fund a portion of the
Transactions.
</TABLE>
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.
8
<PAGE> 11
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 incorporated herein by reference. 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 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 or incorporated by reference herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
----------------------------------------------------------
HAYES 1992 1993 1994 1995 1996
- ----- ---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 398.9 $ 408.7 $ 428.2 $ 537.6 $ 611.1
Cost of goods sold 342.7 336.4 344.4 441.4 513.4
Marketing, general and administration 21.1 26.1 26.3 28.6 29.7
Engineering and product development 5.1 5.8 4.0 5.1 4.7
Depreciation and amortization 21.7 22.2 24.8 29.6 32.7
Interest expense, net 33.7 33.8 13.6 13.4 15.0
Net income (loss) (6.3) 3.6 0.0 29.9 28.4
OTHER DATA:
EBITDA(a) $ 54.6 $ 63.8 $ 80.6 $ 92.9 $ 97.5
Capital expenditures, tooling
and dunnage 31.1 28.9 35.6 43.7 49.1
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets $ 475.4 $ 499.9 $ 527.6 $ 589.6 $ 633.9
Total debt 255.0 122.0 107.7 123.0 133.1
Stockholders' equity 60.0 191.9 184.8 216.4 245.4
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
HOLDINGS 1991 1992 1993 1994 1995
-------- ---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 288.6 $ 309.7 $ 368.0 $ 405.2 $ 357.2
Cost of goods sold 258.1 267.8 325.7 361.5 324.0
Selling, administrative and general 15.4 17.2 17.0 18.5 18.2
Research and development 7.0 6.3 6.6 6.9 6.9
Depreciation and amortization 15.1 14.9 17.5 19.3 19.0
Interest expense, net 18.6 17.0 16.5 17.2 17.9
Net income (loss) (1.2) 1.1 (5.3) (37.4) (52.2)
OTHER DATA:
EBITDA(a) $ 24.9 $ 37.2 $ 37.2 $ 37.7 $ 27.5
Capital expenditures, tooling
and dunnage 9.6 12.5 15.8 18.4 14.2
BALANCE SHEET DATA
(AT END OF PERIOD):
Total assets $ 206.6 $ 198.5 $ 217.1 $ 208.9 $ 169.6
Total debt 136.2 126.1 128.7 131.8 130.0
Stockholders' equity (deficit) (10.3) (9.0) (14.1) (52.2) (77.6)
</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.
9
<PAGE> 12
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth certain historical financial data for
Hayes as of and for the year ended January 31, 1996, and Holdings as of and for
the year ended December 31,1995, and unaudited pro forma financial data for the
combined companies as of and for the year ended January 31, 1996, and certain
financial ratios derived therefrom which are presented to reflect the pro forma
effect of (i) the Transactions, (ii) the Holdings 1995 Recapitalization (as
defined herein), (iii) Motor Wheel's plant closures and capacity
rationalizations that have been completed or are substantially underway and (iv)
Motor Wheel's corporate staff rationalization that has been implemented. (The
items referred to in clauses (ii) through (iv) above are hereinafter referred to
as the "Motor Wheel Restructuring"). The unaudited pro forma financial data do
not reflect any cost savings or other synergies that are expected to result from
the Transactions, which could be significant, although there can be no assurance
with respect thereto.
The unaudited pro forma statement of operations data give effect to the
Transactions and the Motor Wheel Restructuring 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 January 31, 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 Motor Wheel Restructuring 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 or incorporated by reference
herein.
<TABLE>
<CAPTION>
Hayes Actual Holdings Actual Company Pro Forma
Fiscal Year Ended Year Ended Year Ended
January 31, 1996 December 31, 1995 January 31, 1996
-------------------- ----------------------- ------------------
(dollars in millions)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $611.1 $357.2 $ 968.3
Cost of goods sold 513.4 324.0 805.9
Marketing, general and administration 29.7 18.2 44.5
Engineering and product development 4.7 6.9 9.1
Depreciation and amortization 32.7 19.0 48.9
Interest expense, net 15.0 17.9 71.3
OTHER DATA:
EBITDA(a) $ 97.5 $ 27.5 $ 159.4
Cash interest expense 13.9 16.3 68.2
Capital expenditures, tooling 49.1 14.2 63.3
and dunnage
Ratio of total debt to EBITDA 1.4x 4.7x 4.4x
Ratio of EBITDA to cash 7.0 1.7 2.3
interest expense
BALANCE SHEET DATA (AT END OF
PERIOD):
Total assets $633.9 $169.6 $1,129.3
Total debt 133.1 130.0 705.6
Stockholders' equity (deficit) 245.4 (77.6) 17.7
</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.
10
<PAGE> 13
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)<ws>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)<ws>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)<ws>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)<ws>the Company may be more highly leveraged than its
competitors which may place it at a competitive disadvantage; and (v)<ws>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)<ws>declare dividends or redeem or repurchase capital stock, (ii)<ws>prepay,
redeem or purchase debt, including the Notes, (iii)<ws>incur liens and engage in
sale-leaseback transactions, (iv)<ws>make loans and investments, (v)<ws>incur
additional indebtedness, (vi)<ws>amend or otherwise alter debt and other
material agreements, (vii)<ws>make capital expenditures, (viii)<ws>engage in
mergers, acquisitions and asset sales, (ix)<ws>enter into transactions with
affiliates and (x)<ws>alter the business it conducts. The indebtedness
outstanding under the Credit Agreement will be guaranteed by all of the
Company's U.S. 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. The Credit Agreement will also require the Company to maintain a
cash collateral account into which all available funds will be deposited and
applied to service amounts outstanding thereunder on a daily basis. In addition,
under the Credit Agreement, the Company will also be required to comply with
financial covenants with respect to: (i)<ws>a maximum leverage ratio, (ii)<ws>a
minimum interest coverage ratio and (iii)<ws>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. In addition, the Credit
Agreement will contain provisions providing for the setting and adjustment, at a
reasonable discretion of the agent for the lenders thereunder, of accounts
receivable and inventory advance rates and standards of eligibility. Any such
adjustment which reduces the amount of borrowings available to the Company
pursuant to the Credit Agreement could negatively effect the Company's operating
and financial flexibility.
11
<PAGE> 14
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 January 31, 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
$455.6 million. In the event of a bankruptcy, liquidation or reorganization of
the Company, the assets of the Company will be available to pay obligations on
the Notes only after all Senior 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 cap 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. 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 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 return such
consideration to 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, the Company or Holdings, 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.
The measure of insolvency for purposes of the foregoing will vary
depending upon the law of the jurisdiction which is being applied. 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. It is a
condition to consummation of the Merger that Hayes and Holdings receive a
mutually acceptable solvency opinion. 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. Nor
can there be any assurance that a court would not determine, regardless of
whether any of
12
<PAGE> 15
the foregoing entities was solvent, that the Transactions
constituted a fraudulent transfer on another of the grounds listed above.
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, prevailing interest rates and other factors which may have an effect on
the level of the Company's sales.
LABOR RELATIONS
Approximately 20% of Hayes' U.S. 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. 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 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.
13
<PAGE> 16
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.
14
<PAGE> 17
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 the 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 Company's pro forma combined 1995 revenues and EBITDA were $968.3
million and $159.4 million, respectively. 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>
North America Market Position
------------- ---------------
<S> <C>
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 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.
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.
15
<PAGE> 18
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, (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, Hayes has commenced the Debt Tender
to purchase all of the 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
Approximately $901.4 million is 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 $451.4 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 provide for total commitments of up to $645
million. The Credit Agreement is comprised of the Term Loan Facilities and the
Revolving Credit Facility, of which $26.4 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 million, and the New
Investors will invest $200 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 to purchase New Common Stock (the "Warrants") for an aggregate
investment of $200 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 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 of
Hayes and Motor Wheel will be redeemed, repaid or terminated pursuant to the
terms thereof.
16
<PAGE> 19
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 as set
forth below (dollars in millions):
<TABLE>
SOURCES OF FUNDS:
<S> <C>
Revolving Credit Facility(a) . . . . . . . . . . . . . . . . . . . . . $ 26.4
Term Loan Facilities . . . . . . . . . . . . . . . . . . . . . . . . . 425.0
Senior Subordinated Notes . . . . . . . . . . . . . . . . . . . . . . 250.0
New Investors' cash equity investment . . . . . . . . . . . . . . . 200.0
-----------
Total Sources . . . . . . . . . . . . . . . . . . . . . . . . . . $ 901.4
===========
</TABLE>
<TABLE>
USES OF FUNDS:
<S> <C>
Cash merger consideration . . . . . . . . . . . . . . . . . . . . . . $ 506.1
Refinance outstanding domestic indebtedness of Hayes(b) . . . . . . . 136.9
Refinance outstanding obligations of Holdings(c) . . . . . . . . . . 137.2
Hayes and Holdings management stock options . . . . . . . . . . . . . 5.2
Working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 75.0
Estimated fees and expenses . . . . . . . . . . . . . . . . . . . . . 41.0
-----------
Total Uses . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 901.4
===========
</TABLE>
______________________
(a) Upon the closing of the Transactions, $26.4 million is the
portion of the $220.0 million Revolving Credit Facility that is
estimated to be drawn. Pursuant to the Credit Agreement, up to
$100.0 million may be drawn from the Revolving Credit Facility upon
the closing of the Transactions. The actual amount to be drawn of the
Revolving Credit Facility will depend on the working capital
requirements of Hayes and Motor Wheel at that time.
(b) Approximately $108.0 million is estimated to be used to repurchase the
Hayes Senior Notes and approximately $28.9 million is estimated to be
used to pay the full amounts due under its existing credit agreement
which bore interest at a rate of 6.17% as of January 31, 1996 and has
a maturity date of March 31, 2000.
(c) Approximately $132.2 million is estimated to be used to redeem the
Motor Wheel Senior Notes and approximately $5.0 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 8.44% as of
December 31, 1995 and has a maturity date of March 31, 1998.
17
<PAGE> 20
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 January 31, 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
January 31, December 31, Pro Forma as adjusted
1996 1995 Adjustments January 31, 1996
------------ --------------- ----------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Hayes bank debt . . . . . . . . . . . . $ 28.9 $ -- $ (28.9) $ --
Motor Wheel bank debt . . . . . . . . . -- 5.0 (5.0) --
Revolving Credit Facility . . . . . . . -- -- 26.4 26.4
Term Loan Facilities . . . . . . . . . -- -- 425.0 425.0
Hayes Senior Notes . . . . . . . . . . 100.0 -- (100.0) --
Motor Wheel Senior Notes . . . . . . . -- 125.0 (125.0) --
Senior Subordinated Notes . . . . . . . -- -- 250.0 250.0
Other Hayes debt . . . . . . . . . . . 4.2 -- -- 4.2
------ ------ ------- ------
Total debt 133.1 130.0 442.5 705.6
Stockholders' equity (deficit) . . . . 245.4 (77.6) (150.1)(a) 17.7
------ ------ ------- ------
Total capitalization . . . . . . . . $378.5 $ 52.4 $ 292.4 $723.3
====== ====== ======= ======
</TABLE>
- ------------------
(a) See notes C, E and F to the unaudited pro forma balance sheet
included in "Pro Forma Combined Condensed Financial Data."
18
<PAGE> 21
PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The unaudited pro forma combined condensed statement of operations of the
Company for the fiscal year ended January 31, 1996 (the "Pro Forma Statement of
Operations"), and the unaudited pro forma combined condensed balance sheet of
the Company as of January 31, 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 Motor Wheel Restructuring. The Pro Forma Financial
Statements do not reflect any cost savings or other 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 Statement of Operations
gives pro forma effect to the Transactions and the Motor Wheel Restructuring 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 January 31,
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.
19
<PAGE> 22
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Historical Pro Forma(A)(B)
------------------------------- ---------------------------
Hayes Holdings
Year Ended Year Ended
Jan. 31, 1996 Dec. 31, 1995 Adjustments Combined
------------- ------------- ----------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . $ 611.1 $ 357.2 $ -- $ 968.3
(5.2) (C)
(26.2) (D)
(0.1) (E)
-------
Cost of goods sold . . . . . . . . . 513.4 324.0 (31.5) 805.9
--------- --------- ------- ---------
Gross profit . . . . . . . . . . . 97.7 33.2 31.5 162.4
(0.3) (C)
(0.2) (F)
(2.9) (E)
-------
Marketing, general and
administration . . . . . . . . . . 29.7 18.2 (3.4) 44.5
(3.6) (G)
(33.0) (F)
-------
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 (3.1) (F) (1.0)
--------- --------- ------- --------
Earnings (loss) from
operations . . . . . . . . . . . 61.2 (28.5) 77.1 109.8
Interest expense . . . . . . . . . . 15.0 17.9 38.4 (H) 71.3
Preferred dividends on subsidiary . . -- 1.6 (1.6) (I) --
---------- --------- ------- ---------
Earnings (loss) before taxes on
income . . . . . . . . . . . . . 46.2 (48.0) 40.3 38.5
Income tax provision . . . . . . . 17.8 4.2 (6.9) (J) 15.1
--------- --------- ------- ---------
Net income (loss) . . . . . . . . $ 28.4 $ (52.2) $ 47.2 $ 23.4
========= ========= ======= =========
OPERATING AND OTHER DATA:
EBITDA* . . . . . . . . . . . . . $ 97.5 $ 27.5 $ 34.4 $ 159.4
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 EBITDA to cash interest
expense . . . . . . . . . . . . 7.0x 1.7x -- 2.3x
Ratio of total debt to EBITDA . . 1.4 4.7 -- 4.4
Ratio of earnings to fixed
charges (K) . . . . . . . . . . 3.6 -- -- 1.5
PRO FORMA RECONCILIATION OF EBITDA
Earnings (loss) from operations . $ 61.2 $ (28.5) $ 77.1 $ 109.8
Add: Non-cash other expense (income), net -- 3.8 (3.1) 0.7
Nonrecurring charges . . . . . . . 3.6 33.2 (36.8) --
Depreciation and amortization . . 32.7 19.0 (2.8) 48.9
---------- --------- ------- --------
EBITDA . . . . . . . . . . . . . . . $ 97.5 $ 27.5 $ 34.4 $ 159.4
========= ========= ======= ========
</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> 23
(A) The Pro Forma Statement of Operations assumes that the Transactions
and the Motor Wheel Restructuring 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.
(B) The Company expects to incur an $8.0 million premium to repurchase $100
million of Hayes Senior Notes, to write off $3.6 million of deferred
debt issuance costs, to write off $2.7 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. The Company expects to incur a $7.2 million premium
associated with the redemption of $125 million principal
amount of the Motor Wheel Senior Notes outstanding and to write off
deferred debt issuance costs of $3.0 million which are recorded as
liabilities under purchase accounting in the Pro Forma Balance Sheet
at January 31, 1996.
(C) 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>
Marketing, general
Cost of sales and administration
------------- ------------------
<S> <C> <C>
Depreciation $ (7.8) $ (0.3)
Reduction in postretirement benefit costs (2.7)
Amortization of intangible assets and goodwill 5.3
-------- --------
Total decrease $ (5.2) $ (0.3)
======== ========
</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
over estimated useful lives. For pro forma purposes, a composite
depreciable life of 12 years has been used for machinery and equipment
and 25 years for buildings. 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.
(D) 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 is in the process of
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 these facilities.
In 1994, Holdings recorded provisions related to plant closure matters
associated with the reduction of its automotive wheel manufacturing
capacity. In 1995, Holdings transferred its automotive wheel
production from its facility in Lansing, Michigan to its facility in
Bowling Green, Kentucky. Military wheel production at the Lansing
facility has also terminated and Holdings has transferred equipment
and production to its Akron, Ohio facility. During the second quarter
of 1995, Holdings completed the sale of certain equipment and
inventory associated with its Polycast wheel operations. The buyer is
leasing from Holdings certain property in Luckey, Ohio and is a
supplier to Holdings of Polycast wheels.
In 1995, Holdings recorded additional provisions related to 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
commenced in 1996.
21
<PAGE> 24
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>
<S> <C>
Net payroll and benefit reductions $ (18.6)
Manufacturing fixed costs (1) (7.6)
---------
Total savings $ (26.2)
==========
</TABLE>
(1) Includes utilities, repairs and maintenance, property taxes and
other direct costs associated with the closed facilities.
(E) As part of the Motor Wheel Restructuring, Holdings terminated
approximately 50 corporate positions and eliminated certain overhead
costs associated with its Okemos, Michigan corporate headquarters.
The savings are as follows (dollars in millions):
<TABLE>
<S> <C>
Cost of goods sold $ (0.1)
Marketing, general and administration (2.9)
Engineering and product development (2.5)
---------
Total savings $ (5.5)
=========
</TABLE>
(F) During 1995, Holdings commenced the closing and consolidation of
certain operating facilities. Related nonrecurring restructuring
costs of $33.0 million recorded by Holdings in 1995 have been
eliminated. Includes $0.2 million for the settlement of certain
management stock options.
Reflects the following adjustments to asset write-down and corporate
costs related to corporate restructuring (dollars in millions):
<TABLE>
<S> <C>
Write-down of assets to realizable value $ (2.3)
Corporate costs related to restructuring (0.8)
---------
Total saving $ (3.1)
=========
</TABLE>
(G) Hayes incurred nonrecurring professional fees and other costs of
approximately $2.2 million in connection with Varity's proposal to
acquire all of the outstanding shares of the Company it did not
already own, which proposal was subsequently withdrawn. These fees
and costs, together with nonrecurring costs of $1.4 million related to
the restructuring of the Hayes' North American Aluminum Wheel Group,
have been eliminated.
(H) 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 Closing Date as follows (dollars in millions):
<TABLE>
<CAPTION>
Pro Forma
Interest
Amount Rate Expense
------ ---- -------
<S> <C> <C> <C>
Revolving Credit Facility $ 26.4 8.50% $ 2.2
Term Loan A 200.0 8.50 17.0
Term Loan B 125.0 9.00 11.3
Term Loan C 100.0 9.50 9.5
Notes 250.0 10.50 26.3
Existing European debt 4.2 11.50 0.5
Unused revolver commitment 1.0
Administrative fee 0.4
-------
Cash pro forma interest expense $ 68.2
Amortization of capitalized financing fees 3.1
-------
Total pro forma interest expense $ 71.3
Less:
Historical Holdings interest expense $ (17.9)
Historical Hayes interest expense (15.0)
-------
Total historical interest expense (including amortization of financing fees) (32.9)
Total pro forma interest expense adjustment $ 38.4
=======
</TABLE>
22
<PAGE> 25
(I) 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.
(J) Adjustments to reflect income tax effects assuming a combined
effective state and federal statutory income tax rate of 39%.
(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. Holdings' earnings for
the year ended December 31, 1995 were insufficient to cover fixed
charges by $5.8 million.
23
<PAGE> 26
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------- -----------------------------------
Hayes Holdings
Jan. 31, 1996 Dec. 31, 1995 Adjustments Combined
------------- ------------- ----------- --------
(dollars in millions)
<S> <C> <C> <C> <C>
Cash . . . . . . . . . . . . . . . . $ 1.8 $ 1.4 $ 75.0 (A) $ 78.2
Trade accounts and notes receivable . 109.6 32.3 141.9
Inventories . . . . . . . . . . . . . 58.9 31.9 3.8 (B) 94.6
Other current assets . . . . . . . . 9.9 5.6 -- 15.5
------- -------- ------- ----------
Current assets . . . . . . . . . 180.2 71.2 78.8 330.2
Property, plant, and equipment . . . 304.4 79.0 20.0 (B) 403.4
Other noncurrent assets . . . . . . . 35.4 16.4 (13.0) (B)(C) 38.8
Deferred tax . . . . . . . . . . . . -- -- 35.6 (B) 35.6
Deferred financing costs . . . . . . 3.6 3.0 19.4 (A)(B)(C) 26.0
Goodwill . . . . . . . . . . . . . . 110.3 -- 185.0 (B) 295.3
------- -------- ------- ----------
Total assets . . . . . . . . . . $ 633.9 $ 169.6 $ 325.8 $ 1,129.3
======= ======== ======= ==========
Current portion of debt and notes . . $ 4.2 $ 5.0 $ (5.0) (D) $ 4.2
Trade accounts payable . . . . . . . 86.8 30.1 -- 116.9
Accrued liabilities . . . . . . . . . 38.7 26.1 (6.8) (C) 58.0
Revolving credit facility . . . . . . -- -- 26.4 (A) 26.4
------- -------- ------- ----------
Current liabilities . . . . . . . 129.7 61.2 14.6 205.5
Restructuring reserve--noncurrent . . -- 22.9 -- 22.9
Pension and other long-term
liabilities . . . . . . . . . . . 81.8 38.1 40.2 (B) 160.1
Deferred tax liability, net . . . . . 48.1 -- -- 48.1
Senior debt--less current portion . . 128.9 125.0 (253.9) (A)(D) --
Term loans . . . . . . . . . . . . . -- -- 425.0 (A) 425.0
Senior Subordinated Notes . . . . . . -- -- 250.0 (A) 250.0
------- -------- ------- ----------
Total liabilities . . . . . . . . 388.5 247.2 475.9 1,111.6
Paid-in capital . . . . . . . . . . . 198.5 30.1 60.4 (E)(F) 289.0
Preferred stock . . . . . . . . . . . -- -- -- --
Common stock . . . . . . . . . . . . 0.2 -- -- 0.2
Retained earnings (deficit) . . . . . 49.6 (107.7) (210.5) (C)(F) (268.6)
Currency translation and pension
liability adjustments . . . . . . (2.9) -- -- (2.9)
------- -------- ------- ----------
Total stockholders' equity . . . 245.4 (77.6) (150.1) 17.7
------- -------- ------- ----------
Total liabilities and
stockholders' equity . . . . $ 633.9 $ 169.6 $ 325.8 $ 1,129.3
======= ======== ======= ==========
</TABLE>
24
<PAGE> 27
(A) Reflects the estimated sources and uses of funds for the Transactions as
follows (dollars in millions):
<TABLE>
<S> <C>
Sources of Funds:
Revolving Credit Facility $ 26.4
Term Loan Facilities 425.0
Senior Subordinated Notes 250.0
New Investors' cash equity investment 200.0
-----------
Total Sources $ 901.4
===========
Uses of Funds:
Refinance outstanding domestic indebtedness of Hayes $ 128.9
Cash merger consideration 506.1
Estimated financing fees and interest rate cap 26.0
Estimated debt tender and call premiums 15.2
Estimated professional fees and expenses 15.0
Hayes and Holdings management stock options 5.2
Refinance outstanding obligations of Holdings 130.0
Working capital 75.0
-----------
Total Uses $ 901.4
===========
</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 77.6
-----------
Purchase price in excess of net liabilities acquired $ 181.6
===========
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 185.0
Write-off of deferred financing asset (3.0)
Increase in accrued liabilities to reflect call premium and
settlement of management stock options (see (D) below) (9.3)
Adjustment to other noncurrent assets (10.3)
-----------
Total $ 181.6
===========
</TABLE>
25
<PAGE> 28
(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 footnote (E) above 198.5
Elimination of deferred licensing fee to Holdings (i) (2.7)
Deferred financing costs (ii) (3.6)
Estimated tender premium (iii) (8.0)
Company management stock options (iv) (3.1)
Add: tax effect related to items (i), (ii), (iii) and (iv) 6.8
-----------
Total $ (318.2)
============
</TABLE>
(D) Transaction proceeds will be used to repay the following obligations of
Holdings (dollars in millions):
<TABLE>
<S> <C>
Estimated call premium on debt $ 7.2
Management stock options 2.1
Current portion of debt and notes 5.0
Senior Notes 125.0
-----------
Total $ 139.3
===========
</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 described in footnote (B) is as follows
(see footnotes (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 $ (30.1)
Value of common stock and warrants issued 104.0
-----------
Total $ 73.9
===========
Retained earnings:
Elimination of Holding's pre-business combination retained deficit $ 107.7
===========
</TABLE>
26
<PAGE> 29
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 incorporated by reference
herein. Such consolidated financial statements have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. 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 incorporated by reference in this Prospectus. See
"Available Information" and "Incorporation of Documents by Reference."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales . . . . . . . . . . . . . . . . . $398.9 $408.7 $428.2 $537.6 $611.1
Cost of goods sold . . . . . . . . . . . . 342.7 336.4 344.4 441.4 513.4
------ ------ ------ ------ ------
Gross profit . . . . . . . . . . . . . . 56.2 72.3 83.8 96.2 97.7
Marketing, general and administration . . . . 21.1 26.1 26.3 28.6 29.7
Engineering and product development . . . . . 5.1 5.8 4.0 5.1 4.7
Other income, net . . . . . . . . . . . . . . (2.9) (1.2) (2.3) (0.8) (1.5)
Nonrecurring charges . . . . . . . . . . . . 1.7 -- -- -- 3.6
------ ------ ------ ------ ------
Earnings from operations . . . . . . . . . 31.2 41.6 55.8 63.3 61.2
Interest expense, net . . . . . . . . . . . . 33.7 33.8 13.6 13.4 15.0
------ ------ ------ ------ ------
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
Income tax provision . . . . . . . . . . . . (3.2) 4.2 17.6 20.0 17.8
------ ------ ------ ------ ------
Earnings (loss) before minority interest
and cumulative effect of changes in
accounting principles . . . . . . . . . . (5.7) 3.6 24.6 29.9 28.4
------ ------ ------ ------ ------
Minority interest . . . . . . . . . . . . . 0.6 -- -- -- --
------ ------ ------ ------ ------
Earnings (loss) before cumulative effect
of changes in accounting principles . . (6.3) 3.6 24.6 29.9 28.4
Cumulative effect of changes in
accounting principles . . . . . . . . . . . -- -- 24.6 -- --
------ ------ ------ ------ -------
Net income (loss) . . . . . . . . . . . . $ (6.3) $ 3.6 $ 0.0 $ 29.9 $ 28.4
====== ====== ====== ====== =======
OTHER DATA:
EBITDA(a) . . . . . . . . . . . . . . . . . . $ 54.6 $ 63.8 $ 80.6 $ 92.9 $ 97.5
Depreciation and amortization . . . . . . . . 21.7 22.2 24.8 29.6 32.7
Capital expenditures, tooling
and dunnage . . . . . . . . . . . . . . . . 31.1 28.9 35.6 43.7 49.1
Ratio of earnings to fixed charges . . . . . 0.9x 1.2x 3.9x 4.2x 3.6x
BALANCE SHEET DATA (AT PERIOD END):
Total assets . . . . . . . . . . . . . . . . $475.4 $499.9 $527.6 $589.6 $633.9
Total debt . . . . . . . . . . . . . . . . . 255.0 122.0 107.7 123.0 133.1
Stockholders' equity . . . . . . . . . . . . 60.0 191.9 184.8 216.4 245.4
</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 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.
27
<PAGE> 30
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 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales . . . . . . . . . . . . . . . . . . . $ 288.6 $ 309.7 $ 368.0 $ 405.2 $ 357.2
Cost of goods sold . . . . . . . . . . . . . . 258.1 267.8 325.7 361.5 324.0
--------- --------- ---------- ---------- ----------
Gross profit . . . . . . . . . . . . . . . . . 30.5 41.9 42.3 43.7 33.2
Selling, administrative and general . . . . . . 15.4 17.2 17.0 18.5 18.2
Research and development . . . . . . . . . . . 7.0 6.3 6.6 6.9 6.9
Plant closure costs . . . . . . . . . . . . . . -- -- -- 31.6 33.0
Interest expense . . . . . . . . . . . . . . . 18.6 17.0 16.5 17.2 17.9
Preferred dividends of subsidiary . . . . . . . 2.0 1.9 1.9 1.9 1.6
Other expense (income)(a) . . . . . . . . . . . (10.8) (3.9) 1.6 2.8 3.6
Patent defense costs . . . . . . . . . . . . . -- -- -- 1.7 --
--------- --------- ---------- ----------- ----------
Income (loss) before income taxes . . . . . . . (1.7) 3.4 (1.4) (36.9) (48.0)
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)
Extraordinary items net of income taxes(b) . . 1.7 -- (3.2) -- --
--------- --------- ---------- ---------- ----------
Net income (loss) . . . . . . . . . . . . . . . $ (1.2) $ 1.1 $ (5.3) $ (37.4) $ (52.2)
========= ========= ========== ========== ==========
OTHER DATA:
EBITDA(c) . . . . . . . . . . . . . . . . . . . $ 24.9 $ 37.2 $ 37.2 $ 37.7 $ 27.5
Depreciation and amortization . . . . . . . . . 15.1 14.9 17.5 19.3 19.0
Nonrecurring expense (income) . . . . . . . . . (12.1) -- -- 33.3 33.2
Noncash expense . . . . . . . . . . . . . . . . 3.0 -- 2.7 2.9 3.8
Capital expenditures, tooling
and dunnage . . . . . . . . . . . . . . . . . 9.6 12.5 15.8 18.4 14.2
BALANCE SHEET DATA (AT PERIOD END):
Total assets . . . . . . . . . . . . . . . . . $ 206.6 $ 198.5 $ 217.1 $ 208.9 $ 169.6
Total debt . . . . . . . . . . . . . . . . . . 136.2 126.1 128.7 131.8 130.0
Stockholders' equity (deficit) . . . . . . . . (10.3) (9.0) (14.1) (52.2) (77.6)
</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.
28
<PAGE> 31
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 directly affected
by
29
<PAGE> 32
the overall vehicle production in Europe. The North American and European
automotive industries are sensitive to the overall strength of their respective
economies.
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 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.
30
<PAGE> 33
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
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 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
31
<PAGE> 34
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 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.
32
<PAGE> 35
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' 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 fiscal 1995 amounted to $43.4 million. 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 in excess of
$68.0 million to facilitate future wheel programs.
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,
which expires March 31, 2000, at which time all loans outstanding thereunder
are payable in full. As of January 31, 1996, Hayes had available borrowing
capacity under this agreement of $156.9 million, including unused capacity for
letters of credit of $4.9 million. Hayes has also established other daily
unsecured lines of credit. As of January 31, 1996, $8.6 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 January 31, 1996, 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 (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 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.
33
<PAGE> 36
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 December 31, 1995, Motor Wheel had $5.0 million of
short-term borrowings and $12.5 million of letters of credit outstanding and
excess availability of $22.3 million.
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.
34
<PAGE> 37
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. Cash requirements, which will
relate primarily to employee benefit costs and facility maintenance costs, are
anticipated to be spread out over many years, with estimates of approximately
$3 million and $7 million in 1996 and 1997, respectively. In 1998 and beyond,
cash requirements related to plant closure costs are expected to decrease
significantly.
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 $705.6 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."
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<PAGE> 38
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 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."
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<PAGE> 39
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 Company's pro forma combined 1995 revenues and EBITDA were $968.3
million and $159.4 million, respectively.
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 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.
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.
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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>
North America Market Position
------------- ---------------
<S> <C>
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 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.
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<PAGE> 41
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
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<PAGE> 42
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.
- - 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. 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.
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.
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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.
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.
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<PAGE> 44
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.
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.
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<PAGE> 45
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.
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.
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<PAGE> 46
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
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.
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<PAGE> 47
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.
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,
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<PAGE> 48
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 Hayes Wheels 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> 49
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>
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> 50
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, Certrifuse(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
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<PAGE> 51
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 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 United Auto Workers ("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
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<PAGE> 52
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.
Environmental Compliance. 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> 53
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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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets out the names and ages of each of the individuals
that are expected to serve as directors and executive officers of the Company
upon the consummation of the Transactions.
<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
John R. Kinstler 47 Vice President - Engineering
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
Andrew R. Heyer 38 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 seven 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 an 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 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 of 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.
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<PAGE> 55
Ronald L. Kolakowski has served as Vice President - President of 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 of 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 of 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.
John R. Kinstler will become Vice President - Engineering of the
Company upon consummation of the Transactions. He has been Executive Vice
President of Engineering of Motor Wheel since September 1994. He was Vice
President of Manufacturing from 1992 through September 1994, Executive Vice
President of Engineering and Quality from 1989 through 1992 and Vice President
of Engineering of Motor Wheel from 1985 through 1989. He served as a Director
of Motor Wheel from 1986 through November 1995.
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.
Andrew R. Heyer will become a director of the Company upon
consummation of the Transactions. Since August 1995, Mr. Heyer has been a
Managing Director of CIBC Wood Gundy Securities Corp. From 1990 to 1995, Mr.
Heyer had been a Managing Director of The Argosy Group, L.P. (which was acquired
by CIBC Wood Gundy in August 1995), a financial advisory firm that specialized
in merger, acquisition, divestiture, financing, refinancing and restructuring
transactions. From 1984 to 1990, Mr. Heyer held various positions with Drexel
Burnham Lambert Incorporated, including Co-head of Merchant Banking, Head of
Industrial Finance and a Managing Director of the Corporate Finance department.
Mr. Heyer currently serves as Chairman of the Board of Directors of the Hain
Food Group, Inc. and as director of International Metals Acquisition 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 Holding, Inc. Mr. Joseph is also
President and Secretary of Lancer and Vice President and Secretary of Fairfield.
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<PAGE> 56
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
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 of the Merger. The Stockholders
Agreement will provide that the New Investors will vote the New Common Stock
they receive 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 designated by Argosy (currently,
Mr. Heyer), one member will be the Chief Executive Officer of the Company
(currently, Mr. Cucuz) and the remaining two 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, Mr. Rodewig
and Mr. Way). The Stockholders Agreement will provide that the respective
rights of JLL, TSG and Argosy 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.
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
Chemical Equity Associates, A California 625,000 5.6
Limited Partnership
</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 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> 57
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 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 specified period each year.
Prepayments. Loans under the Term Loan Facilities are required to be
prepaid 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 will be allocated pro rata
among the Term Loan Facilities and, within each such Facility, applied pro
rata to the remaining amortization payments under 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.
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
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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 the Company's 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.
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
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<PAGE> 59
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 __________, 1996
(the "Indenture") among the Company and __________, 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 __________, 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 _______ and _______ commencing
__________, 1996, to holders of record of the Notes at the close of business on
the immediately preceding ________, and ________, respectively.
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<PAGE> 60
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after __________, 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 __________, of each year listed below:
<TABLE>
<CAPTION>
Year Percentage
---------------------- ----------
<S> <C>
2001 ................. %
2002 ................. %
2003 ................. %
2004 and thereafter .. %
</TABLE>
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 __________, 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 January 31, 1996, after giving pro
forma effect
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<PAGE> 61
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
$455.6 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
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(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 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 (the
"Representative") to the Trustee of written notice of the occurrence of a
Payment Default, 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. 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, 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 such 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
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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."
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.
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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
(a) 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.
(b) Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries may incur Indebtedness (including Acquired Indebtedness), if
(i)Eafter 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) is greater than _______ to 1 if the Indebtedness is incurred
prior to _______, 1999 and _______ to 1 if the Indebtedness is incurred
thereafter; provided, however, that 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, 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) 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, 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. 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 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
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balance of such Indebtedness during the applicable period. In calculating the
Company's Fixed Charge Coverage Ratio (i) for any quarter prior to the date
hereof, such calculation shall be made on a pro forma basis, giving effect
to the issuance of the Notes and 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 (ii) for any quarter prior to the date of 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 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) $_______ million,
(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
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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 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 Net Investment of an aggregate of $
million in Unrestricted Subsidiaries and joint ventures; 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 clause (v)
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 Restricted Payments.
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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 or asset of the Company or
any Restricted Subsidiary or any shares of stock or debt of any Restricted
Subsidiary which owns property or assets, now owned or hereafter acquired,
which secures Indebtedness pari passu 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 the Lien granted to the Holders of the Notes
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 between or among the Company and
its Wholly-Owned Subsidiaries; or (ii) the terms of such Affiliate
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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 underwriter, 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."
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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 80% 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 is a Permitted Investment; 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 (including Capital Stock or other
securities purchased in connection with the acquisition of Capital Stock or
property of another person) used or useful in businesses similar or reasonably
related to the business of the Company or Restricted Subsidiary as conducted on
the Issue Date, 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 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.
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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) 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
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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"));
(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
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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
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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 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
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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
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pro rata amount based on the Adjusted Net Assets of each Subsidiary
Guarantor.
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 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
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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.
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
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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
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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.
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
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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.
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 and not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Subsidiary of the
Company or such acquisition, merger or consolidation.
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"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 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 or assets 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
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market value of such property or assets 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 at a rate of 10%, compounded annually) 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
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or any option, warrant or other security convertible into any of the
foregoing.
"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 or economic 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 %
of the total voting power of the Company's Common Stock, and 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,
(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.
"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
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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 (other than those dividends
referred to in the succeeding clause (ii)), 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, 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, Redeemable Dividends, whether paid or accrued,
on Preferred Stock of Subsidiaries, imputed interest included in Capitalized
Lease Obligations, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing, the net
costs associated with Interest Rate Agreements, the interest portion of any
deferred payment obligation, amortization of discount or premium, if any, and
all other non-cash interest expense (other than interest amortized to cost of
sales)) plus, without duplication, all net capitalized interest for such period
and all interest incurred or paid under any guarantee of Indebtedness
(including a guarantee of principal, interest or any combination thereof) of
any Person, plus the amount of all dividends or distributions paid on
Disqualified Capital Stock (other than dividends paid or payable in shares of
Capital Stock of the Company or dividends paid or payable to the Company or a
Restricted Subsidiary) but excluding 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 of such Person and its Subsidiaries for
such period, on a 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 (the "other Person") in which the Person in
question or any of its Subsidiaries has less than a 100% interest
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(which interest does not cause the net income of such other Person to be
consolidated into the net income of the Person in question in accordance with
GAAP) shall be included only to the extent of the amount of dividends or
distributions paid to the Person in question or the Subsidiary, (b) other than
with respect to a Domestic Restricted Subsidiary the net income of any
Subsidiary of the Person in question 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) shall be excluded to the
extent of such restriction or limitation, (c)(i) the net income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition and (ii) any net gain (but not loss) resulting from an
Asset Sale by the Person in question or any of its Subsidiaries other than in
the ordinary course of business shall be excluded, and (d) extraordinary gains
and losses and (e) any amounts received by the Company which are used to offset
Investments pursuant to the terms of clause (ii) of the definition of "Net
Investments"; provided, further, that there shall be added back to Consolidated
Net Income non-cash restructuring charges deducted in calculating Consolidated
Net Income for such period.
"Credit Agreement" means the Credit Agreement, to be dated as of the Issue
Date, among the Company, Canadian Imperial Bank of Commerce, as administrative
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
(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
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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 (i) any Preferred Stock of a Restricted Subsidiary of the Company and
(ii) any Preferred Stock of the Company, with respect to either of which, under
the terms of such Preferred Stock, 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.
"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.
"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 period (but only including
Redeemable Dividends in the calculation of such Consolidated Interest Expense
to the extent that such Redeemable Dividends have not been excluded in the
calculation of Consolidated Net Income), plus (iv) depreciation for such period
on a consolidated basis, plus (v) amortization of intangibles for such period
on a consolidated basis, plus (vi) any other non-cash items (including minority
interests) reducing Consolidated Net Income for such period, plus (vii)
restructuring charges and costs for such period to the extent not included in
Consolidated Net Income, minus
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(viii) all non-cash items increasing Consolidated Net Income for such period,
all for such Person and its Subsidiaries determined 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.
"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.
"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," "incurable," 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
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,
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(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 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
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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 sale 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) over (ii) the sum of (A) the aggregate amount returned in cash on such
Investments whether through interest payments, principal payments, dividends or
other distributions and (B) the net cash proceeds received by the Company or
any Restricted Subsidiary from the disposition of all or any portion of such
Investments (other than to a Subsidiary of the Company); provided,
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however, that with respect to all Investments made in an Unrestricted
Subsidiary 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.
"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.
"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 JLL or any other fund controlled by Joseph
Littlejohn & Levy.
"Permitted Indebtedness" means:
(i) Indebtedness of the Company or any Domestic Restricted
Subsidiary arising under or in respect of the Credit Agreement in an
amount not to exceed $ million, less any mandatory prepayments
actually made or scheduled 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 date of the Indenture,
including Indebtedness of the Hayes-Wheels Autokola N.H. a.s. not
to exceed $___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;
(iv) 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
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the case of Indebtedness of a Domestic Restricted Subsidiary such
Indebtedness is owed to another Domestic Restricted Subsidiary;
(v) 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;
(vi) Interest Rate Agreements;
(vii) additional Indebtedness of the Company and its
Restricted Subsidiaries not to exceed $ million in principal
amount outstanding at any time; and
(viii) Refinancing 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 Guarantor;
(ii) Temporary Cash Investments;
(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 Domestic 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 Domestic Restricted Subsidiary thereof;
and
(iv) reasonable and customary loans made to employees not to
exceed $ in the aggregate at any one time outstanding; and
(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
88
<PAGE> 91
Sale that is otherwise permitted under the covenant described under
"Limitation on Sale of Assets";
(vi) Investment 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.
"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.
"Redeemable Dividend" means, for any dividend or distribution with regard
to Disqualified Capital Stock, the quotient of the dividend or distribution
divided by the difference between one and the maximum statutory federal income
tax rate (expressed as a decimal number between 1 and 0) then applicable to the
issuer of such Disqualified Capital Stock.
"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
89
<PAGE> 92
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, and (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.
"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
90
<PAGE> 93
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 and includes all of the Subsidiaries of the Company
existing as of the Issue Date. 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
91
<PAGE> 94
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, 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.
"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; or (iii) Investments not
exceeding 365 days in duration in money market funds that invest substantially
92
<PAGE> 95
all of such funds' assets in the Investments described in the preceding clauses
(i) and (ii).
"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.
"Wholly-Owned Subsidiary" means any Restricted Subsidiary, all of the
outstanding voting securities (other than directors' qualifying shares) of
which are owned, directly or indirectly, by the Company.
93
<PAGE> 96
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 it 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 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
94
<PAGE> 97
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.
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.
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 incorporated in this Prospectus 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
incorporated by reference, and have been so incorporated 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.
95
<PAGE> 98
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MWC Holdings, Inc.:
Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . . . . F-2
Consolidated Financial Statement for the years ended:
December 31, 1994 and December 31, 1995
Consolidated Balance Sheets . . . . . . . . . . . F-3
December 31, 1993, December 31, 1994 and December 31, 1995
Consolidated Statements of Income Statements . . F-5
Consolidated Statements of Changes in Shareholders' Equity . . . F-6
Consolidated Statements of Cash Flows . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . F-8
F-1
<PAGE> 99
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
F-2
<PAGE> 100
MWC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
December 31
------------------------------------
1995 1994
----------- ----------
<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
=========== ==========
</TABLE>
F-3
<PAGE> 101
<TABLE>
<CAPTION>
December 31
------------------------------------
1995 1994
----------- ----------
<S> <C> <C>
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-4
<PAGE> 102
MWC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------
1995 1994 1993
----------- ------------ ------------
<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-5
<PAGE> 103
MWC HOLDINGS, INC. SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(dollars in thousands)
<TABLE>
<CAPTION>
Additional
Additional Retained- Minimum
Common Paid-In Earnings Pension Treasury
Stock Capital Deficit Liability Stock Total
----------- ----------- ----------- ------------ ----------- -----
<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-6
<PAGE> 104
MWC HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------
1995 1994 1993
----------- ----------- -----------
<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-7
<PAGE> 105
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#% 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 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.
F-8
<PAGE> 106
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B -- INVENTORIES
Inventories are comprised of:
<TABLE>
<CAPTION>
(dollars in thousands)
1995 1994
----------- ----------
<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.
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>
(dollars in thousands)
At December 31,
1995 1994
----------- ----------
<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>
F-9
<PAGE> 107
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C -- EQUITY INVESTMENTS (Continued)
<TABLE>
<CAPTION>
(dollars in thousands)
For the years ended December 31,
1995 1994 1993
---------- ---------- ----------
<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>
(dollars in thousands)
1995 1994
----------- ----------
<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>
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.
F-10
<PAGE> 108
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E -- LONG-TERM DEBT (Continued)
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#%. 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.
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.
F-11
<PAGE> 109
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F -- PENSIONS (Continued)
<TABLE>
<CAPTION>
(dollars in thousands)
1995 1994
----------- -----------
<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>
(dollars in thousands)
1995 1994 1993
-------- --------- ---------
<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.
F-12
<PAGE> 110
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F -- PENSIONS (Continued)
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%.
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>
(dollars in thousands)
Accumulated postretirement benefit obligation:
1995 1994
----------- -----------
<S> <C> <C>
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>
F-13
<PAGE> 111
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G -- POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (Continued)
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.
Net periodic postretirement benefit cost is comprised of:
<TABLE>
<CAPTION>
(dollars in thousands)
1995 1994 1993
---------- ----------- -----------
<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.
F-14
<PAGE> 112
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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>
F-15
<PAGE> 113
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J -- PLANT CLOSURE COSTS (Continued)
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.
NOTE K OTHER EXPENSE (INCOME)
Other expense (income) is comprised of:
<TABLE>
<CAPTION>
(dollars in thousands)
1995 1994 1993
--------- ---------- ----------
<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>
F-16
<PAGE> 114
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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>
(dollars in thousands)
December 31, 1995 December 31, 1994
------------------------------ ------------------------------
Deferred Deferred Deferred Deferred
Tax Tax Tax Tax
Assets Liabilities Assets Liabilities
----------- ------------ ----------- -----------
<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-17
<PAGE> 115
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L -- INCOME TAXES (Continued)
The provision (credit) for income taxes is comprised of:
<TABLE>
<CAPTION>
(dollars in thousands)
1995 1994 1993
----------- ----------- -----------
<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.
F-18
<PAGE> 116
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L -- INCOME TAXES (Continued)
A reconciliation of income taxes calculated at the statutory rate of 34% to the
provision for income taxes follows:
<TABLE>
<CAPTION>
(dollars in thousands)
1995 1994 1993
----------- ------------ -----------
<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.
NOTE M -- NET CHANGE IN OPERATING ASSETS AND LIABILITIES
The net change in operating assets and liabilities is comprised of:
<TABLE>
<CAPTION>
(dollars in thousands)
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>
F-19
<PAGE> 117
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
<TABLE>
<CAPTION>
(dollars in thousands)
<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-20
<PAGE> 118
MWC HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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-21
<PAGE> 119
==============================================================================
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 .......................... 2
Incorporation of Certain Documents by
Reference ................................... 2
Prospectus Summary ............................. 3
Risk Factors ................................... 11
The Company .................................... 15
The Guarantors ................................. 15
The Transactions ............................... 16
Use of Proceeds ................................ 17
Pro Forma Capitalization ....................... 18
Pro Forma Combined Condensed
Financial Data .............................. 19
Selected Historical Consolidated Financial
Information of Hayes ......................... 27
Selected Historical Consolidated Financial
Information of Holdings ...................... 28
Management's Discussion and Analysis
of Financial Condition and Results of
Operations ................................... 29
Business ....................................... 37
Management ..................................... 52
Ownership of New Common Stock upon
Consummation of the Transactions ............. 54
Description of the Credit Agreement ............ 55
Description of the Notes ....................... 57
Underwriting ................................... 94
Legal Matters .................................. 95
Experts ........................................ 95
Index to Financial Statements .................. F-1
</TABLE>
==============================================================================
==============================================================================
$250,000,000
[LOGO]
HAYES WHEELS
INTERNATIONAL, INC.
% SENIOR SUBORDINATED NOTES
DUE 2006
----------------
PROSPECTUS
----------------
CIBC WOOD GUNDY SECURITIES CORP.
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
, 1996
==============================================================================
<PAGE> 120
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.
II-1
<PAGE> 121
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 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.
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 Ratio 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).*
24.1 Powers of Attorney (see signature page).
II-2
<PAGE> 122
25.1 Statement of Eligibility of Trustee on Form T-1.*
27.1 Financial Data Schedule.*
- ---------------------
* To be filed by amendment.
(b) No Financial Statement Schedules are required to be filed as part of this
Registration Statement.
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> 123
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on this 15th day of May
1996.
HAYES WHEELS INTERNATIONAL, INC.
By: /s/ William D. Shovers
---------------------------------
Name: William D. Shovers
Title: Vice President -- Finance
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Daniel M. Sandberg and Barry Miller, and each of
them, each with full power to act without the other, his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for such person and in his name, place and stead, in any and
all capacities, to sign any or all further amendments or supplements (including
post-effective amendments) to this Form S-3 Registration Statement and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully as to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or his substitutes, may lawfully do or cause to
be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
Signature Title Date
--------- ----- ----
/s/ John F. Utley Chairman of the May 15, 1996
- --------------------------------- Board of Directors;
John E. Utley Director
President and Chief
Executive Officer
/s/ Ranko Cucuz (Principal May 15, 1996
- --------------------------------- Executive Officer);
Ranko Cucuz Director
Chief Financial
Officer (Principal
/s/ William D. Shovers Accounting Officer May 15, 1996
- --------------------------------- and Principal
William D. Shovers Financial Officer)
/s/J. Anthony Gilroy May 15, 1996
- --------------------------------- Director
J. Anthony Gilroy
II-4
<PAGE> 124
/s/ John S. Rodewig
- --------------------------------- Director May 15, 1996
John S. Rodewig
/s/ Kenneth L. Way
- --------------------------------- Director May 15, 1996
Kenneth L. Way
II-5
<PAGE> 125
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on this 15th day of May
1996.
HAYES WHEELS INTERNATIONAL-
CALIFORNIA, INC.
By: /s/ William D. Shovers
----------------------------------
Name: William D. Shovers
Title: Vice President - Finance
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Daniel M. Sandberg and Barry Miller, and each of
them, each with full power to act without the other, his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for such person and in his name, place and stead, in any and
all capacities, to sign any or all further amendments or supplements (including
post-effective amendments) to this Form S-3 Registration Statement and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully as to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or his substitutes, may lawfully do or cause to
be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
Signature Title Date
- --------- ----- ----
/s/ Ranko Cucuz Chairman of the May 15, 1996
- ---------------------- Board of Directors;
Ranko Cucuz Director
/s/ Ronald Kolakowski President (Principal May 15, 1996
- ---------------------- Executive Officer);
Ronald Kolakowski Director
/s/ William D. Shovers Vice President - Finance May 15, 1996
- ---------------------- (Principal Accounting Officer
William D. Shovers and Principal Financial Officer);
Director
II-6
<PAGE> 126
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on this 15th day of May
1996.
HAYES WHEELS INTERNATIONAL-
GEORGIA, INC.
By: /s/ William D. Shovers
----------------------------------
Name: William D. Shovers
Title: Vice President - Finance
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Daniel M. Sandberg and Barry Miller, and each of
them, each with full power to act without the other, his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for such person and in his name, place and stead, in any and
all capacities, to sign any or all further amendments or supplements (including
post-effective amendments) to this Form S-3 Registration Statement and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully as to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or his substitutes, may lawfully do or cause to
be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Ranko Cucuz Chairman of the May 15, 1996
- ------------------ Board of Directors;
Ranko Cucuz Director
/s/ Ronald Kolakowski President (Principal May 15, 1996
- ------------------ Executive Officer);
Ronald Kolakowski Director
/s/ William D. Shovers Vice President-Finance May 15, 1996
- ------------------ (Principal Accounting
William D. Shovers Officer and Principal
Financial Officer); Director
</TABLE>
II-7
<PAGE> 127
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on this 15th day of May
1996.
HAYES WHEELS INTERNATIONAL-
INDIANA, INC.
By: /s/ William D. Shovers
----------------------------------
Name: William D. Shovers
Title: Vice President - Finance
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Daniel M. Sandberg and Barry Miller, and each of
them, each with full power to act without the other, his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for such person and in his name, place and stead, in any and
all capacities, to sign any or all further amendments or supplements (including
post-effective amendments) to this Form S-3 Registration Statement and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully as to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or his substitutes, may lawfully do or cause to
be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Ranko Cucuz Chairman of the May 15, 1996
- --------------------- Board of Directors;
Ranko Cucuz Director
/s/ Ronald Kolakowski President (Principal Executive May 15, 1996
- --------------------- Officer); Director
Ronald Kolakowski
/s/ William D. Shovers Vice President - Finance (Principal May 15, 1996
- ---------------------- Accounting Officer and Principal
William D. Shovers Financial Officer); Director
</TABLE>
II-8
<PAGE> 128
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on this 15th day of May
1996.
HAYES WHEELS INTERNATIONAL-
MEXICO, INC.
By: /s/ William D. Shovers
----------------------------------
Name: William D. Shovers
Title: Vice President - Finance
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Daniel M. Sandberg and Barry Miller, and each of
them, each with full power to act without the other, his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for such person and in his name, place and stead, in any and
all capacities, to sign any or all further amendments or supplements (including
post-effective amendments) to this Form S-3 Registration Statement and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully as to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or his substitutes, may lawfully do or cause to
be done by virtue thereof.
Pursant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Ranko Cucuz Chairman of the Board May 15, 1996
- ---------------------- of Directors;
Ranko Cucuz President and Chief
Executive Officer
(Principal Executive
Officer); Director
/s/ William Linski Chief Operating Officer May 15, 1996
- ----------------------
William Linski
/s/ William D. Shovers Vice President - Finance May 15, 1996
- ---------------------- (Principal Accounting
William D. Shovers Officer and Principal
Financial Officer);
Director
</TABLE>
II-9
<PAGE> 129
/s/ Daniel M. Sandberg Director May 15, 1996
- -----------------------
Daniel M. Sandberg
II-10
<PAGE> 130
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 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on this 15th day of May
1996.
HAYES WHEELS INTERNATIONAL-
MICHIGAN, INC.
By: /s/ William D. Shovers
----------------------------------
Name: William D. Shovers
Title: Vice President - Finance
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Daniel M. Sandberg and Barry Miller, and each of
them, each with full power to act without the other, his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for such person and in his name, place and stead, in any and
all capacities, to sign any or all further amendments or supplements (including
post-effective amendments) to this Form S-3 Registration Statement and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto each of
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about
the premises, as fully as to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or his substitutes, may lawfully do or cause to
be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated below.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Ranko Cucuz Chairman of the May 15, 1996
- ---------------------- Board of Directors;
Ranko Cucuz Director
/s/ Ronald Kolakowski President (Principal May 15, 1996
- ---------------------- Executive Officer);
Ronald Kolakowski Director
/s/ William D. Shovers Vice President - May 15, 1996
- ---------------------- Finance (Principal Accounting
William D. Shovers Officer and Principal Financial
Officer); Director
</TABLE>
II-11
<PAGE> 131
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
No. Description Page No.
- ------- ----------- ----------
<S> <C> <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 Ratio of Earnings to Fixed
Charges.*
23.1 Consent of KMPG Peat Marwick LLP.
23.2 Consent of Ernst Young LLP.
</TABLE>
<PAGE> 132
23.3 Consent of Skadden, Arps, Slate, Meagher & Flom
(included in its opinion filed as Exhibit 5.1
hereto).*
24.1 Powers of Attorney (see signature page).
25.1 Statement of Eligibility of Trustee on Form
T-1.*
27.1 Financial Data Schedule.*
- ---------------------
* To be filed by amendment.
<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, incorporated herein by reference and to the
reference of our firm under the heading "Experts" in the Registration Statement
and 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
May 15, 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 to be filed
May 15, 1996) and the related Prospectus of Hayes Wheels International, Inc.
for the registration of $250,000,000 Senior Subordinated Notes.
Ernst & Young LLP
Detroit, Michigan
May 15, 1996
