<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-11592
HAYES LEMMERZ INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
13-3384636
(IRS EMPLOYER IDENTIFICATION NO.)
38481 HURON RIVER DRIVE
ROMULUS, MICHIGAN 48174
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (734) 941-2000
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
THE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF DECEMBER 15, 1998,
WAS 30,179,985 SHARES.
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<PAGE> 2
HAYES LEMMERZ INTERNATIONAL, INC.
QUARTERLY REPORT ON FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations....................... 3
Consolidated Balance Sheets................................. 4
Consolidated Statements of Cash Flows....................... 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 21
Item 2. Changes in Securities....................................... 21
Item 3. Defaults upon Senior Securities............................. 21
Item 4. Submission of Matters to a Vote of Security-Holders......... 21
Item 5. Other Information........................................... 21
Item 6. Exhibits and Reports on Form 8-K............................ 21
Signatures............................................................. 22
</TABLE>
UNLESS OTHERWISE INDICATED, REFERENCES TO THE "COMPANY" MEAN HAYES LEMMERZ
INTERNATIONAL, INC., AND ITS SUBSIDIARIES AND REFERENCE TO A FISCAL YEAR MEANS
THE COMPANY'S YEAR ENDED JANUARY 31 OF THE FOLLOWING YEAR (E.G., FISCAL 1998
MEANS THE PERIOD BEGINNING FEBRUARY 1, 1998, AND ENDING JANUARY 31, 1999). THIS
REPORT CONTAINS 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. 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) COMPETITIVE
PRESSURE IN THE COMPANY'S INDUSTRY INCREASES SIGNIFICANTLY; (2) GENERAL ECONOMIC
CONDITIONS ARE LESS FAVORABLE THAN EXPECTED; (3) THE COMPANY'S DEPENDENCE ON THE
AUTOMOTIVE INDUSTRY (WHICH HAS HISTORICALLY BEEN CYCLICAL); (4) CHANGES IN THE
FINANCIAL MARKETS AFFECTING THE COMPANY'S FINANCIAL STRUCTURE AND THE COMPANY'S
COST OF CAPITAL AND BORROWED MONEY; AND (5) THE UNCERTAINTIES INHERENT IN
INTERNATIONAL OPERATIONS AND FOREIGN CURRENCY FLUCTUATIONS. THE COMPANY HAS NO
DUTY UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 TO UPDATE THE
FORWARD LOOKING STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q AND THE COMPANY
DOES NOT INTEND TO PROVIDE SUCH UPDATES.
2
<PAGE> 3
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(MILLIONS OF DOLLARS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
------------------ --------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales............................................. $443.9 $369.8 $1,240.8 $897.9
Cost of goods sold.................................... 361.2 305.0 1,024.1 748.3
------ ------ -------- ------
Gross profit........................................ 82.7 64.8 216.7 149.6
Marketing, general and administration................. 16.7 15.1 48.7 36.5
Engineering and product development................... 5.7 3.2 15.7 8.1
Amortization of intangibles........................... 4.6 3.5 12.7 8.6
Other income.......................................... (1.8) (0.8) (3.9) (2.6)
Equity in losses (earnings) of unconsolidated
subsidiaries........................................ 0.4 (0.6) (0.6) (0.6)
------ ------ -------- ------
Earnings from operations............................ 57.1 44.4 144.1 99.6
Interest expense, net................................. 22.4 25.7 69.4 65.9
------ ------ -------- ------
Earnings before taxes on income, minority interest
and extraordinary loss........................... 34.7 18.7 74.7 33.7
Income tax provision.................................. 14.6 7.8 31.4 14.2
------ ------ -------- ------
Earnings before minority interest and extraordinary
loss............................................. 20.1 10.9 43.3 19.5
Minority interest..................................... 0.4 -- 1.4 0.1
------ ------ -------- ------
Earnings before extraordinary loss.................. 19.7 10.9 41.9 19.4
Extraordinary loss, net of tax of $6.0 (Note 6)....... -- -- (8.3) --
------ ------ -------- ------
Net income.......................................... $ 19.7 $ 10.9 $ 33.6 $ 19.4
====== ====== ======== ======
Per share information (Note 3):
Earnings before extraordinary loss.................... $ 0.65 $ 0.34 $ 1.39 $ 0.72
Extraordinary loss, net of tax........................ -- -- (0.28) --
------ ------ -------- ------
Basic net income per share............................ $ 0.65 $ 0.34 $ 1.11 $ 0.72
====== ====== ======== ======
Basic average shares outstanding (in thousands)....... 30,180 31,691 30,134 26,803
====== ====== ======== ======
Earnings before extraordinary loss.................... $ 0.62 $ 0.34 $ 1.29 $ 0.72
Extraordinary loss, net of tax........................ -- -- (0.26) --
------ ------ -------- ------
Diluted net income per share.......................... $ 0.62 $ 0.34 $ 1.03 $ 0.72
====== ====== ======== ======
Diluted average shares outstanding (in thousands)..... 32,004 31,691 32,482 26,803
====== ====== ======== ======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
1998 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 17.8 $ 23.1
Receivables (less allowance of $4.3 million at October 31,
1998 and at January 31, 1998) (Note 5)................. 173.6 217.8
Inventory (Note 2)........................................ 161.1 131.5
Prepaid expenses and other................................ 18.9 10.0
-------- --------
Total current assets................................. 371.4 382.4
-------- --------
Property, plant and equipment:
Land...................................................... 24.4 15.6
Buildings................................................. 195.5 154.7
Machinery and equipment................................... 805.8 622.3
-------- --------
1,025.7 792.6
Accumulated depreciation.................................. (175.0) (122.2)
-------- --------
Net property, plant and equipment.................... 850.7 670.4
Goodwill and other assets................................... 780.1 706.1
-------- --------
Total assets......................................... $2,002.2 $1,758.9
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank borrowings........................................... $ 87.6 $ 23.6
Current portion of long-term debt......................... 10.3 14.4
Accounts payable and accrued liabilities.................. 394.7 334.9
-------- --------
Total current liabilities............................ 492.6 372.9
Long-term debt.............................................. 899.3 882.6
Pension and other long-term liabilities..................... 334.0 301.5
Deferred income taxes....................................... 56.7 34.8
Minority interest........................................... 12.5 5.6
-------- --------
Total liabilities.................................... 1,795.1 1,597.4
Commitments and contingencies (Note 7)
Stockholders' equity :
Preferred stock, 25,000,000 shares authorized, none issued
or outstanding......................................... -- --
Common stock, par value $0.01 per share:
Voting -- authorized 99,000,000 shares; issued and
outstanding 27,530,959 at October 31, 1998 and
27,439,419 at January 31, 1998........................ 0.3 0.3
Nonvoting -- authorized 5,000,000 shares; issued and
outstanding, 2,649,026 at October 31 1998 and at
January 31, 1998...................................... -- --
Additional paid in capital................................ 236.8 229.4
Accumulated deficit....................................... (17.2) (50.8)
Accumulated other comprehensive income (Note 3)........... (12.8) (17.4)
-------- --------
Total stockholders' equity........................... 207.1 161.5
-------- --------
Total liabilities and stockholders' equity.................. $2,002.2 $1,758.9
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(MILLIONS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31,
-----------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 33.6 $ 19.4
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation.............................................. 49.6 37.5
Amortization of intangibles and debt issue costs.......... 17.2 14.1
Increase in deferred taxes................................ 12.9 (2.4)
Increase in minority interest............................. 3.6 --
Equity in earnings of subsidiaries........................ (0.6) (0.6)
Extraordinary loss........................................ 14.4 --
Changes in operating assets and liabilities:
Increase in receivables................................ (34.1) (24.6)
Increase in inventories................................ (2.7) (2.6)
(Increase) decrease in prepaid expenses and other...... (1.8) 4.4
Increase in accounts payable and accrued liabilities... 7.5 5.6
Decrease in other long-term liabilities................ (27.0) (27.6)
------- ------
Cash provided by operating activities................ 72.6 23.2
------- ------
Cash flows from investing activities:
Acquisition of property, plant and equipment.............. (88.9) (56.1)
Purchase of businesses, net of cash received.............. (79.3) (228.0)
Other, net................................................ (39.8) (10.9)
------- ------
Cash used for investing activities................... (208.0) (295.0)
------- ------
Cash flows from financing activities:
Increase (decrease) in short-term bank borrowings......... 16.8 (17.7)
Increase (decrease) in long-term and bank revolving
loans.................................................. 94.4 (211.9)
Repayment of term debt.................................... (100.5) --
Proceeds from accounts receivable securitization.......... 120.8 --
Stock options exercised................................... 1.7 --
Proceeds from issuance of long term debt.................. -- 500.0
Proceeds from equity offering, net of costs............... -- 77.9
Fees paid to issue long term debt......................... (1.4) (17.0)
------- ------
Cash provided by financing activities................ 131.8 331.3
------- ------
Effect of exchange rate changes on cash and cash
equivalents............................................... (1.7) 1.1
------- ------
Increase (decrease) in cash and cash equivalents.......... (5.3) 60.6
Cash and cash equivalents at beginning of year.............. 23.1 47.5
------- ------
Cash and cash equivalents at end of period.................. $ 17.8 $108.1
======= ======
Supplemental data:
Cash paid for interest.................................... $ 56.2 $ 45.9
Cash paid for income taxes................................ $ 6.9 $ 10.9
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared by management and in the opinion of management, contain all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the financial position of the Company as of October 31, 1998, and January
31, 1998, and the results of its operations for the three and nine months ended
October 31, 1998, and 1997 and cash flows for the nine months ended October 31,
1998, and 1997. The consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998. Results for interim periods are not necessarily indicative of
those to be expected for the year.
(2) INVENTORIES
The major classes of inventory are as follows:
<TABLE>
<CAPTION>
OCTOBER 31, JAN. 31,
1998 1998
----------- --------
<S> <C> <C>
Raw materials.............................................. $ 52.5 $ 40.9
Work-in-progress........................................... 51.0 37.6
Finished goods............................................. 57.6 53.0
------ ------
Total................................................. $161.1 $131.5
====== ======
</TABLE>
(3) EARNINGS PER SHARE AND COMPREHENSIVE INCOME
During 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" ("EPS"), which changes the calculation of earnings per share to be more
consistent with countries outside of the United States. In general, the
statement requires two calculations of earnings per share to be disclosed, basic
EPS and diluted EPS. Basic EPS is computed using only the weighted average
shares outstanding, while diluted EPS is computed considering the dilutive
effect of options and warrants.
Net income per share information has been computed using the new standard
for all periods presented. Shares outstanding for the three and nine months
ended October 31, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
---------------- -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares outstanding........................ 30,180 31,691 30,134 26,803
Dilutive effect of options and warrants.................... 1,824 -- 2,348 --
------ ------ ------- ------
Diluted shares outstanding................................. 32,004 31,691 32,482 26,803
====== ====== ======= ======
</TABLE>
During 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive income. Comprehensive income is defined as all changes in a
Company's net assets except changes resulting from transactions with
shareholders. It differs from net income in that certain items currently
recorded to equity would be a part of comprehensive income. Comprehensive income
must be reported in a financial statement with the cumulative total presented as
a component of equity. This statement was adopted by the Company effective
February 1, 1998.
6
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HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE AND NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(3) EARNINGS PER SHARE AND COMPREHENSIVE INCOME -- (CONTINUED)
The components of comprehensive income for the nine months ended October
31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
OCTOBER 31, OCTOBER 31,
1998 1997
----------- -----------
<S> <C> <C>
Net income.................................................. $33.6 $19.4
Cumulative translation adjustments.......................... 4.6 (5.0)
----- -----
Total comprehensive income............................. $38.2 $14.4
===== =====
</TABLE>
(4) ACQUISITIONS
In February 1998, the Company purchased the remaining 50% equity in its
aluminum wheel joint venture in Somerset, Kentucky, Aluminum Wheel Technology,
Inc. ("Alumitech").
On March 4, 1998 the Company acquired 35% of the automotive wheel business
of Automotive Overseas Investments Limited, an organization which owns and
operates N.F. Die Casting (Pty) Ltd. ("N.F. Die"), a producer of cast aluminum
wheels for the automotive industry in South Africa. The Company exercised its
right to purchase an additional 16% of the operations on June 4, 1998 increasing
its total interest in N.F. Die to 51%.
On May 19, 1998, the Company purchased an additional 50.7% of the common
equity and 46.2% of the preferred equity in its joint venture in Brazil, Borlem
S.A. Empreendimentos Industriais ("Borlem"). This purchase increases the
Company's ownership of Borlem to 98.7% of the common equity and 87.0% of the
preferred equity, with the remaining shares being publicly held.
On June 10, 1998, the Company acquired 100% of the common stock of MIN-CER,
S.A. de C.V. ("MIN-CER"), Mexico's largest heavy-duty hub, drum and wheel
manufacturer.
On August 14, 1998, the Company acquired an additional 60% of the equity in
its joint venture Kalyani Lemmerz Limited in India. This transaction increased
the Company's ownership equity from 25% to 85%.
The purchase price for the above mentioned acquisitions, net of cash
received, amounted to $79.3 million and generated $94.2 million of goodwill.
The following unaudited pro forma financial data illustrates the estimated
effects as if the above mentioned acquisitions had been completed as of the
beginning of the periods presented, after including the impact of certain
adjustments, such as amortization, depreciation, interest expense and the
related income tax effects.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
OCTOBER 31, OCTOBER 31,
---------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales.................................................... $443.9 $426.9 $1,315.7 $1,247.2
Net income............................................... $ 19.7 $ 9.1 $ 40.4 $ 17.4
Basic net income per share............................... $ 0.65 $ 0.30 $ 1.34 $ 0.58
Diluted net income per share............................. $ 0.62 $ 0.28 $ 1.24 $ 0.53
</TABLE>
7
<PAGE> 8
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE AND NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(4) ACQUISITIONS -- (CONTINUED)
The pro forma results are not necessarily indicative of the actual results
as if the transactions had been in effect for the entire periods presented. In
addition, they are not intended to be a projection of future results and do not
reflect, among other things, any synergies that might have been achieved from
combined operations.
(5) ACCOUNTS RECEIVABLE SECURITIZATION
In April 1998, the Company entered into a three-year trade securitization
agreement pursuant to which the Company and certain of its subsidiaries sold,
and will continue to sell on an ongoing basis, a portion of their accounts
receivable to a special purpose entity ("Funding Co."), which is wholly owned by
the Company. Accordingly, the Company and such subsidiaries, irrevocably and
without recourse, transferred and will transfer substantially all of their U.S.
dollar denominated trade accounts receivable to Funding Co. Funding Co. then
sold and will sell such trade accounts receivable to an independent issuer of
receivable-backed commercial paper. The trade receivable securitization
agreement was accounted for as a sale of receivables in accordance with FASB No.
125 "Accounting for Transfers and Servicing of Financial Assets &
Extinguishments of Liabilities." The Company has collection and administrative
responsibilities with respect to all the receivables which were and will be
sold.
(6) EXTRAORDINARY LOSS
During the second quarter of fiscal 1998, the Company entered into a second
amended and restated credit agreement dated June 12, 1998 (the "Second Amended
and Restated Credit Agreement"). Pursuant to the Second Amended and Restated
Credit Agreement, a syndicate of lenders agreed to lend to the Company up to
$100 million in the form of a senior secured term loan facility and up to $400
million in the form of a senior secured revolving credit facility. This
agreement amended and restated the credit agreement dated June 30, 1997 and
thereby (a) eliminated (and repaid the outstanding principal balance of) certain
of the then existing senior secured term loan facilities under the prior credit
agreement and (b) increased the revolving credit facility to $400 million. In
connection with this early repayment of the term loan facilities, the Company
recorded an extraordinary loss writing off the remaining deferred financing
costs associated with the term debt which was repaid.
(7) COMMITMENTS AND CONTINGENCIES
Management believes that at October 31, 1998, the Company was in compliance
with the various covenants under the agreements pursuant to which it has or may
borrow money. Management expects that the Company will remain in compliance with
these covenants in all material respects through the period ending October 31,
1999.
The Company is party to various litigation. Management believes that the
outcome of these lawsuits will not have a material adverse effect on the
consolidated operations or financial condition of the Company.
(8) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS
In connection with the Company's merger with MWC Holdings, Inc., on July 2,
1996, and as part of the financing thereof, the Company issued and sold $250
million in aggregate principal amount of its 11% senior subordinated notes due
2006 (the "11% Notes") in a public offering. The 11% Notes are general unsecured
8
<PAGE> 9
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE AND NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(8) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
obligations of the Company, subordinated in right of payment to all existing and
future senior indebtedness of the Company, and are guaranteed by certain of the
Company's domestic subsidiaries.
In connection with the Company's acquisition of Lemmerz Holding GmbH on
June 30, 1997 (the "Lemmerz Acquisition"), the Company issued and sold $400
million in aggregate principal amount of its 9 1/8% senior subordinated notes
due 2007 (the "9 1/8% Notes") in two offerings under Rule 144A of the Securities
Act. The 9 1/8% Notes are general unsecured obligations of the Company, ranking
pari passu with the 11% Notes and are guaranteed by the same domestic
subsidiaries of the Company as guaranteed the 11% Notes.
The following condensed consolidating financial information presents:
(1) Condensed consolidating financial statements as of October 31,
1998, and January 31, 1998, and for the nine-month periods ended October
31, 1998, and 1997, of (a) Hayes Lemmerz International, Inc., the parent,
(b) the guarantor subsidiaries, (c) the nonguarantor subsidiaries and (d)
the Company on a consolidated basis, and
(2) Elimination entries necessary to consolidate Hayes Lemmerz
International, Inc., the parent, with the guarantor and nonguarantor
subsidiaries.
Investments in foreign subsidiaries are accounted for by the parent on the
equity method (domestic subsidiaries are accounted for by the parent on the cost
method) for purposes of the consolidating presentation. The principle
elimination entries eliminate investments in subsidiaries and intercompany
balances and transactions.
9
<PAGE> 10
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE AND NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(8) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................. $215.1 $514.0 $519.3 $(7.6) $1,240.8
Cost of goods sold........................ 185.2 428.1 418.4 (7.6) 1,024.1
------ ------ ------ ----- --------
Gross profit.............................. 29.9 85.9 100.9 -- 216.7
Marketing, general and administration..... 6.9 13.8 28.0 -- 48.7
Engineering and product development....... 2.1 4.2 9.4 -- 15.7
Amortization of intangibles............... 1.0 6.2 5.5 -- 12.7
Other income (expense).................... (0.5) (0.1) (3.3) -- (3.9)
Equity in earnings of unconsolidated
subs.................................... (0.6) -- -- -- (0.6)
------ ------ ------ ----- --------
Earnings from operations.................. 21.0 61.8 61.3 -- 144.1
Interest expense, net..................... 28.7 35.4 5.3 -- 69.4
------ ------ ------ ----- --------
Earnings (loss) before taxes on income,
minority interest and extraordinary
loss.................................... (7.7) 26.4 56.0 -- 74.7
Income tax provision...................... 11.5 9.4 10.5 -- 31.4
------ ------ ------ ----- --------
Earnings (loss) before minority interest
and extraordinary loss.................. (19.2) 17.0 45.5 -- 43.3
Minority interest......................... -- 0.2 1.2 -- 1.4
------ ------ ------ ----- --------
Earnings (loss) before extraordinary
loss.................................... (19.2) 16.8 44.3 -- 41.9
Extraordinary loss, net of tax............ 8.3 -- -- -- 8.3
------ ------ ------ ----- --------
Net income (loss)......................... $(27.5) $ 16.8 $ 44.3 $ -- $ 33.6
====== ====== ====== ===== ========
</TABLE>
10
<PAGE> 11
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE AND NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(8) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................. $276.4 $416.4 $207.3 $(2.2) $897.9
Cost of goods sold........................ 225.4 354.0 171.1 (2.2) 748.3
------ ------ ------ ----- ------
Gross profit.............................. 51.0 62.4 36.2 -- 149.6
Marketing, general and administration..... 9.8 15.6 11.1 -- 36.5
Engineering and product development....... 1.6 4.2 2.3 -- 8.1
Amortization of intangibles............... 1.3 5.9 1.4 -- 8.6
Other income.............................. (1.1) (0.4) (1.7) -- (3.2)
------ ------ ------ ----- ------
Earnings from operations.................. 39.4 37.1 23.1 -- 99.6
Interest expense, net..................... 31.2 30.9 3.8 -- 65.9
Equity in earnings of consolidated
subsidiaries............................ (5.0) -- -- 5.0 --
------ ------ ------ ----- ------
Earnings before taxes on income and
minority interest....................... 13.2 6.2 19.3 (5.0) 33.7
Income tax provision...................... 4.6 3.5 6.1 -- 14.2
------ ------ ------ ----- ------
Earnings (loss) before minority
interest................................ 8.6 2.7 13.2 (5.0) 19.5
Minority interest......................... -- (0.1) -- 0.2 0.1
------ ------ ------ ----- ------
Net income................................ $ 8.6 $ 2.8 $ 13.2 $(5.2) $ 19.4
====== ====== ====== ===== ======
</TABLE>
11
<PAGE> 12
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE AND NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(8) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEETS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents........... $ -- $ (0.2) $ 18.0 $ -- $ 17.8
Receivables......................... 0.7 12.5 160.4 -- 173.6
Inventories......................... 31.8 45.4 83.9 -- 161.1
Prepaid expenses and other.......... 1.1 4.0 14.7 (0.9) 18.9
------- ------- -------- ------- --------
Total current assets............. 33.6 61.7 277.0 (0.9) 371.4
Property, plant and equipment......... 162.0 406.6 457.1 -- 1,025.7
Accumulated depreciation............ (10.3) (108.0) (56.7) -- (175.0)
------- ------- -------- ------- --------
Net property, plant and
equipment...................... 151.7 298.6 400.4 -- 850.7
Goodwill and other assets............. 789.4 308.7 348.9 (666.9) 780.1
------- ------- -------- ------- --------
Total assets..................... $ 974.7 $ 669.0 $1,026.3 $(667.8) $2,002.2
======= ======= ======== ======= ========
Current liabilities:
Bank borrowings..................... $ 2.8 $ -- $ 84.8 $ -- $ 87.6
Current portion of long-term debt... -- -- 10.3 -- 10.3
Account payable and accrued
liabilities...................... 88.4 110.7 196.5 (0.9) 394.7
------- ------- -------- ------- --------
Total current liabilities........ 91.2 110.7 291.6 (0.9) 492.6
Noncurrent liabilities:
Long-term debt...................... 849.3 -- 50.0 -- 899.3
Pension and other long-term
liabilities...................... 89.9 85.4 160.8 (2.1) 334.0
Deferred income taxes............... (5.1) 19.9 41.9 -- 56.7
Minority interest................... -- 0.4 12.0 0.1 12.5
Parent loans........................ (222.3) 232.8 (7.8) (2.7) --
------- ------- -------- ------- --------
Total noncurrent liabilities..... 711.8 338.5 256.9 (4.7) 1,302.5
Stockholders' equity:
Common stock........................ 0.3 -- -- -- 0.3
Additional paid-in capital.......... 251.8 108.7 279.1 (402.8) 236.8
Retained earnings (accumulated
deficit)......................... (54.7) 111.1 188.6 (262.2) (17.2)
Accumulated other comprehensive
income........................... (25.7) -- 10.1 2.8 (12.8)
------- ------- -------- ------- --------
Total stockholders' equity....... 171.7 219.8 477.8 (662.2) 207.1
------- ------- -------- ------- --------
Total liabilities and stockholders'
equity.............................. $ 974.7 $ 669.0 $1,026.3 $(667.8) $2,002.2
======= ======= ======== ======= ========
</TABLE>
12
<PAGE> 13
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE AND NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(8) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
JANUARY 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents............... $ 4.6 $ 0.1 $ 18.4 $ -- $ 23.1
Receivables............................. 36.3 63.0 118.5 -- 217.8
Inventories............................. 32.9 43.2 55.4 -- 131.5
Prepaid expenses and other.............. 1.5 3.3 5.4 (0.2) 10.0
------ ------ ------ ------- --------
Total current assets................. 75.3 109.6 197.7 (0.2) 382.4
Property, plant and equipment:............ 156.6 320.6 315.4 -- 792.6
Accumulated depreciation................ 1.5 (85.9) (37.8) -- (122.2)
------ ------ ------ ------- --------
Net property, plant and equipment.... 158.1 234.7 277.6 -- 670.4
Goodwill and other assets................. 752.2 303.6 300.8 (650.5) 706.1
------ ------ ------ ------- --------
Total assets......................... $985.6 $647.9 $776.1 $(650.7) $1,758.9
====== ====== ====== ======= ========
Current liabilities:
Bank borrowings......................... $ -- $ -- $ 23.6 $ -- $ 23.6
Current portion of long-term debt....... 2.9 -- 11.5 -- 14.4
Accounts payable and accrued
liabilities.......................... 71.5 128.4 135.2 (0.2) 334.9
------ ------ ------ ------- --------
Total current liabilities............ 74.4 128.4 170.3 (0.2) 372.9
Noncurrent liabilities:
Long-term debt.......................... 841.9 -- 40.7 -- 882.6
Pension and other long-term
liabilities.......................... 83.6 85.4 135.4 (2.9) 301.5
Deferred income taxes................... (7.5) 17.9 24.4 -- 34.8
Minority interest....................... -- 0.2 5.3 0.1 5.6
Parent loans............................ (212.5) 219.7 (7.2) -- --
------ ------ ------ ------- --------
Total noncurrent liabilities......... 705.5 323.2 198.6 (2.8) 1,224.5
Stockholders' equity:
Common stock............................ 0.3 -- -- -- 0.3
Additional paid-in capital.............. 246.9 104.5 272.9 (394.9) 229.4
Retained earnings (accumulated
deficit)............................. (30.6) 91.7 144.4 (256.3) (50.8)
Accumulated other comprehensive
income............................... (10.9) 0.1 (10.1) 3.5 (17.4)
------ ------ ------ ------- --------
Total stockholders' equity........... 205.7 196.3 407.2 (647.7) 161.5
Total liabilities and stockholders'
equity.................................. $985.6 $647.9 $776.1 $(650.7) $1,758.9
====== ====== ====== ======= ========
</TABLE>
13
<PAGE> 14
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE AND NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(8) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1998
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flow provided by (used for)
operating activities................... $ (48.0) $ 44.3 $ 76.3 $-- $ 72.6
Cash flows from investing activities:
Acquisition of property, plant &
equipment........................... (12.3) (31.9) (44.7) -- (88.9)
Purchase of businesses, net of cash
received............................ (8.8) -- (70.5) -- (79.3)
Other, net............................. (48.6) 8.7 0.1 -- (39.8)
------- ------ ------- --- -------
Cash flow used for investing
activities........................ (69.7) (23.2) (115.1) -- (208.0)
Cash flows from financing activities:
Increase (decrease) in short-term bank
borrowings.......................... 0.2 (26.5) 43.1 -- 16.8
Increase (decrease) in long-term and
bank revolving loans................ 105.0 (8.0) (2.6) -- 94.4
Repayment on term debt................. (100.5) -- -- -- (100.5)
Net proceeds under accounts receivable
securitization program.............. 120.8 -- -- -- 120.8
Stock options exercised................ 1.7 -- -- -- 1.7
------- ------ ------- --- -------
Fees paid to issue long term debt...... (1.4) -- -- -- (1.4)
------- ------ ------- --- -------
Cash provided by (used for)
financing activities.............. 125.8 (34.5) 40.5 -- 131.8
Increase (decrease) in parent advances... (12.7) 13.1 (0.4) -- --
Effect of exchange rates on cash and cash
equivalents............................ -- -- (1.7) -- (1.7)
------- ------ ------- --- -------
Net decrease in cash and cash
equivalents............................ (4.6) (0.3) (0.4) -- (5.3)
Cash and cash equivalents at beginning of
year................................... 4.6 0.1 18.4 -- 23.1
------- ------ ------- --- -------
Cash and cash equivalents at end of
period................................. $ -- $ (0.2) $ 18.0 $-- $ 17.8
======= ====== ======= === =======
</TABLE>
14
<PAGE> 15
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE AND NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(8) GUARANTOR AND NONGUARANTOR FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
GUARANTOR NONGUARANTOR CONSOLIDATED
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS TOTAL
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash flow provided by (used for)
operating activities................... $ 5.3 $ 3.2 $ 20.4 $(5.1) $ 23.8
Cash flows from investing activities:
Acquisition of property, plant &
equipment........................... (10.2) (12.1) (33.8) -- (56.1)
Purchase of businesses, net of cash
received............................ (215.0) -- -- -- (215.0)
Purchase of minority interest.......... (13.0) -- -- -- (13.0)
Other, net............................. 39.3 (20.9) (29.9) -- (11.5)
------- ------ ------ ----- -------
Cash flow used for investing
activities........................ (198.9) (33.0) (63.7) -- (295.6)
Cash flows from financing activities:
Decrease in short-term bank
borrowings.......................... -- -- (17.7) -- (17.7)
Decrease in long-term & bank revolving
loans............................... (203.0) -- (8.9) -- (211.9)
Proceeds from issuance of long term
debt................................ 500.0 -- -- -- 500.0
Proceeds from equity offering.......... 77.9 -- -- -- 77.9
Fees paid to issue long term debt...... (17.0) -- -- -- (17.0)
------- ------ ------ ----- -------
Cash provided by (used for)
financing activities.............. 357.9 -- (26.6) -- 331.3
Increase (decrease) in parent advances... (163.1) 31.4 126.6 5.1 --
Effect of exchange rates on cash and cash
equivalents............................ -- -- 1.1 -- 1.1
------- ------ ------ ----- -------
Net increase (decrease) in cash and cash
equivalents............................ 1.2 1.6 57.8 -- 60.6
Cash and cash equivalents at beginning of
year................................... 41.2 (0.6) 6.9 -- 47.5
------- ------ ------ ----- -------
Cash and cash equivalents at end of
period................................. $ 42.4 $ 1.0 $ 64.7 $ -- $ 108.1
======= ====== ====== ===== =======
</TABLE>
(9) SUBSEQUENT EVENTS
On November 19, 1998, the Company and CMI International, Inc. ("CMI")
entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant
to which the Company will acquire CMI (the "Acquisition"). Pursuant to the
Merger Agreement, the Company will pay an aggregate of $605 million for CMI, of
which approximately $154 million will be used to repay or assume CMI's existing
indebtedness and the balance of which will be paid to the existing shareholders
of CMI. The merger consideration along with fees and expenses of the transaction
is expected to be financed through a combination of the proceeds of the New
Notes (as defined below) and a new senior secured bank facility of the Company.
The Acquisition is expected to be completed early in the first quarter of fiscal
1999.
15
<PAGE> 16
HAYES LEMMERZ INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE AND NINE MONTHS ENDED OCTOBER 31, 1998 AND 1997
(UNAUDITED)
(MILLIONS OF DOLLARS UNLESS OTHERWISE STATED)
(9) SUBSEQUENT EVENTS -- (CONTINUED)
On December 14, 1998 the Company issued $250 million in aggregate principal
amount of 8 1/4% Senior Subordinated Notes due 2008 (the "New Notes"). The New
Notes are general unsecured obligations of the Company, subordinated in right of
payment to senior indebtedness of the Company, pari passu with an aggregate of
$250 million of the Company's 11% Notes and an aggregate of $400 million of the
Company's 9 1/8% Notes and senior in right of payment to any current or future
subordinated indebtedness of the Company. The New Notes are unconditionally
guaranteed, on a senior subordinated basis, as to the payment of principal,
premium, if any, and interest, jointly and severally by the Company's material
domestic subsidiaries. Interest on the New Notes is payable in arrears on June
15 and December 15 commencing June 15, 1999.
16
<PAGE> 17
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months Ended October 31, 1998 Compared to Three Months Ended October 31,
1997
The Company's net sales for the third quarter of fiscal 1998 were $443.9
million, an increase of 20% as compared to net sales for the third quarter of
fiscal 1997. This increase was due to the additional sales contributed by the
recent acquisitions of Alumitech, Borlem, MIN-CER, N.F. Die and Kalyani and
higher sales in all of our European businesses and the Automotive Brake business
in North America.
The Company's gross profit for the third quarter of fiscal 1998 increased
to $82.7 million or 18.6% of net sales as compared to $64.8 million or 17.5% of
net sales for the third quarter of fiscal 1997. This increase in margin percent
was due to improved productivity in all of the Company's businesses.
Marketing, general and administrative expenses were $16.7 million or 3.8%
of net sales for the third quarter of fiscal 1998 as compared to $15.1 million
or 4.1% of net sales for the same period of fiscal 1997. This improvement in
marketing, general and administrative costs as a percent of sales was
attributable to savings realized as a result of combining the administrative
functions from the Lemmerz Acquisition and other recently completed
acquisitions.
Engineering and product development costs were $5.7 million or 1.3% of net
sales for the third quarter of fiscal 1998 as compared to $3.2 million or 0.9%
of net sales for the second quarter of fiscal 1997. This increase in costs and
percent of net sales was attributable to additional costs incurred as a result
of the Lemmerz Acquisition and other recently completed acquisitions. The
Company believes that engineering and product development costs as a percent of
sales will improve even as these costs increase to successfully develop new
products and as expected savings are realized as a result of these acquisitions.
Amortization of intangibles increased by $1.1 million to $4.6 million for
the third quarter of fiscal 1998. This increase is attributable to the increased
goodwill recognized as a result of the recent acquisitions of Alumitech, Borlem,
MIN-CER, N.F. Die and Kalyani.
Interest expense decreased by $3.3 million to $22.4 million for the third
quarter of fiscal 1998. This decrease is attributable to improved interest rates
as a result of the Company's reduction in its leverage ratio.
Nine Months Ended October 31, 1998 Compared to Nine Months Ended October 31,
1997
The Company's net sales for the first nine months of fiscal 1998 were
$1,240.8 million, an increase of 38% as compared to net sales for the first nine
months of fiscal 1997. This increase was due to the additional sales contributed
by Lemmerz, which was acquired effective June 30, 1997, sales contributed by the
recent acquisitions of Alumitech, Borlem, MIN-CER, N.F. Die and Kalyani and
higher sales in all of our European businesses and the Automotive Brake business
in North America. These increases were partially offset by the negative impact
of the GM strike.
The Company's gross profit for the first nine months of fiscal 1998
increased to $216.7 million or 17.5% of net sales as compared to $149.6 million
or 16.7% of net sales for the first nine of fiscal 1997. This increase in margin
amount was achieved due to the increased revenues and improved productivity in
all of the Company's businesses despite the negative impact of the GM strike.
Marketing, general and administrative expenses were $48.7 million or 3.9%
of net sales for the first nine months of fiscal 1998 as compared to $36.5
million or 4.1% of net sales for the same period of fiscal 1997. This
improvement in marketing, general and administrative costs as a percent of sales
was attributable to savings realized as a result of combining the administrative
functions from the Lemmerz Acquisition and other recently completed
acquisitions.
17
<PAGE> 18
Engineering and product development costs were $15.7 million or 1.3% of net
sales for the first nine months of fiscal 1998 as compared to $8.1 million or
0.9% of net sales for the first nine months of fiscal 1997. This increase in
costs and percent of net sales was attributable to additional costs incurred as
a result of the Lemmerz Acquisition and other recently completed acquisitions
and the negative impact of the GM strike. The Company believes that engineering
and product development costs as a percent of sales will improve even as these
costs increase to successfully develop new products and as expected savings are
realized as a result of these acquisitions.
Amortization of intangibles increased by $4.1 million to $12.7 million for
the first nine months of fiscal 1998. This increase is attributable to the
increased goodwill recognized as a result of the Lemmerz Acquisition and the
recent acquisitions of Alumitech, Borlem, MIN-CER, N.F. Die and Kalyani.
Interest expense was $69.4 million for the first nine months of fiscal
1998, an increase of $3.5 million over the same period of fiscal 1997. This
increase was due to the increase in debt as a result of the Lemmerz Acquisition
and the recent acquisitions of Alumitech, Borlem, MIN-CER, N.F. Die and Kalyani
offset by improved interest rates as a result of the Company's reduction in its
leverage ratio.
The extraordinary loss for early extinguishment of debt represented the
write-off of deferred financing cash as a result of the refinancing of existing
debt in the second quarter of fiscal 1998. As a result of strong cash flow and
significantly improved credit position, the Company was able to restructure its
senior credit facility and fully repay certain of its outstanding term debt.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's operations provided $72.6 million in cash in the first nine
months of fiscal 1998, an increase of $49.4 million over the same period of
fiscal 1997. This increase was due primarily to increased operating income
before noncash charges for depreciation, amortization and deferred taxes.
Capital expenditures for the first nine months of fiscal 1998 were $88.9
million. These expenditures were primarily for additional machinery and
equipment to increase the production capacity at the Company's North American
and European Aluminum Wheel facilities to meet expected future customer
requirements for fabricated aluminum and FFCTM wheels. The Company anticipates
that capital expenditures for fiscal 1998 will be approximately $110 million
relating primarily to new vehicle platforms, cost reduction programs and
maintenance.
As of October 31, 1998, the Company was party to a second amended and
restated credit agreement dated June 12, 1998 (the "Second Amended and Restated
Credit Agreement") with Canadian Imperial Bank of Commerce ("CIBC") and Merrill
Lynch Capital Corporation ("Merrill Lynch"), as managing agents. Pursuant to the
Second Amended and Restated Credit Agreement, a syndicate of lenders agreed to
lend to the Company up to $100 million in the form of a senior secured term loan
facility and up to $400 million in the form of a senior secured revolving credit
facility. Such term loan and revolving facilities are guaranteed by the Company
and all of its existing and future material domestic subsidiaries. Such term
loan and revolving facilities are secured by a first priority lien in
substantially all of the properties and assets of the Company and its material
domestic subsidiaries, now owned or acquired later, including a pledge of all of
the shares of certain of the Company's existing and future foreign subsidiaries.
As of October 31, 1998 there was $100 million outstanding under the term loan
facility and $280 million available under the revolving facility.
In April 1998, the Company entered into a three-year agreement pursuant to
which the Company and certain of its subsidiaries sold, and will continue to
sell on an ongoing basis, a portion of their accounts receivables to a special
purpose entity ("Funding Co."), which is wholly owned by the Company.
Accordingly, the Company and such subsidiaries, irrevocably and without
recourse, transferred and will transfer substantially all of their U.S. dollar
denominated trade accounts receivable to Funding Co. Funding Co. then sold and
will sell such trade accounts receivable to an independent issuer of
receivable-backed commercial paper. The Company has collection and
administrative responsibilities with respect to all the receivables which are
sold.
At October 1998, management believes that the Company was in compliance
with the various covenants under the agreements pursuant to which it has or may
borrow money. Management expects that the Company
18
<PAGE> 19
will remain in compliance with these covenants in all material respects through
the period ending October 31, 1999.
OTHER MATTERS
New Accounting Pronouncements
On June 30, 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information", which introduces the ":management
approach" for segment reporting. This approach reflects management's
organization of the business segments and is consistent with how the Company and
its key decision-makers assess operating performance, make operating decisions
and allocate resources. This approach also considers the existence of managers
responsible for each business segment and how information is presented to the
Company's Board of Directors. The statement requires disclosures for each
segment that are similar to those currently required, with the adoption of
quarterly disclosure requirements, after initial year of application, and
geographic data by country. This statement will be adopted by the Company in its
January 31, 1999 consolidated financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. Statement 133 is effective for
fiscal years beginning after June 15, 1999. The Company anticipates adopting
this standard in its fiscal year 2000 and does not anticipate a material impact
on the Company's financial position or results of operations when adopted.
Year 2000
The Company has developed plans to address its exposure in all critical
information technology ("IT") and non-IT systems to computer programs which
identify years with two digits instead of four. Such programs may recognize the
year 2000 as the year 1900. The Company is also assessing the year 2000
capabilities of its critical suppliers, customers and key service providers to
determine, to the extent possible, whether its operations will be adversely
impacted by these companies.
The Company primarily relies on packaged software applications which are
year 2000 compliant. The Company has either tested these applications or expects
to have done so by the end of the first quarter of fiscal 1999. The Company is
also testing all internally developed IT software for the year 2000 compliance.
It is anticipated that this process will be substantially completed by the end
of the first quarter of fiscal 1999 and fully completed by the end of the second
quarter of fiscal 1999.
The Company continues to assess all critical non-IT systems for year 2000
compliance. Non-IT systems include, among other things, manufacturing equipment,
telephone systems and heating and cooling systems. An inventory of all critical
non-IT systems and manufacturers to determine year 2000 compliance has been
prepared. This process was completed during the first quarter of fiscal 1998.
As of October 31, 1998, the costs incurred directly related to becoming
year 2000 compliant are $3.0 million and the costs which are expected to be
incurred subsequent to October 31, 1998 are $2.0 million. The year 2000
remediation effort has not postponed any IT projects, the delay of which would
have a material adverse effect on the business, financial condition or results
of operations.
The Company is not entirely year 2000 compliant at this time, but has
targeted the end of the third quarter of fiscal 1999 to have all critical
business and production processes ready. Although the Company is striving to be
completely year 2000 compliant, year 2000 issues may still negatively affect us.
Based on
19
<PAGE> 20
progress to date, the management believes that such impact, if any, will not
have a material adverse impact on the business, financial condition or results
of operations. The Company cannot guarantee that this will be so.
Although the Company has contacted critical suppliers, customers and key
service providers to determine their level of year 2000 compliance, a lack of
year 2000 readiness at these companies could adversely impact our operations.
The Company has developed a program for monitoring year 2000 risk in its supply
chain and has mailed "Supplier Year 2000 Self-Assessment" questionnaires to
critical suppliers and key service providers. The full extent of any such
adverse impact (if any) is impossible to determine. The Company is attempting to
mitigate any possible adverse impact by identifying alternate suppliers where
possible. The Company may also increase its inventory of crucial materials in
anticipation of possible disruptions.
The Company is developing contingency plans for all critical business and
production processes. It is anticipated that these plans should be completed by
the end of the first quarter of fiscal 1999.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
2.3 Agreement and Plan of Merger, dated November 19, 1998, among
Hayes Lemmerz International, Inc., HL-CMI Holding Co., CMI
International, Inc. and Ray H. Witt as Trustee of the Ray H.
Witt Living Trust Agreement dated December 2, 1981, as
amended and restated.
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HAYES LEMMERZ INTERNATIONAL, INC.
By: /s/ D. N. VERMILYA
------------------------------------
D. N. Vermilya
Corporate Controller and Chief
Accounting Officer
December 15, 1998
22
<PAGE> 23
EXHIBIT INDEX
<TABLE>
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2.3 Agreement and Plan of Merger, dated November 19, 1998, among
Hayes Lemmerz International, Inc., HL-CMI Holding Co., CMI
International, Inc. and Ray H. Witt as Trustee of the Ray H.
Witt Living Trust Agreement dated December 2, 1981, as
amended and restated.
27 Financial Data Schedule
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<PAGE> 1
EXHIBIT 2.3
AGREEMENT AND PLAN OF MERGER
DATED AS OF NOVEMBER 19, 1998
BY AND AMONG
HAYES LEMMERZ INTERNATIONAL, INC.
HL-CMI HOLDING CO.
CMI INTERNATIONAL, INC.
AND
RAY H. WITT AS TRUSTEE OF THE RAY H. WITT LIVING TRUST
AGREEMENT DATED DECEMBER 2, 1981, AS AMENDED AND
RESTATED
<PAGE> 2
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of November 19, 1998 by and among
Hayes Lemmerz International, Inc., a Delaware corporation ("Parent"), HL-CMI
Holding Co., a Michigan corporation to be formed as a wholly owned subsidiary of
Parent ("Sub"), CMI International, Inc. (the "Company") and Ray H. Witt as
trustee of the Ray H. Witt Living Trust Agreement dated December 2, 1981, as
amended and restated (the "Principal Shareholder").The Principal Shareholder
along with the other holders of the Company Common Stock are sometimes referred
to as the "Shareholders".
The parties hereto desire for Parent to enter into a business
combination with the Company upon the terms and subject to the conditions set
forth herein.
In furtherance of such combination, the Sub will merge with and into
Company in accordance with the applicable provisions of the Michigan Business
Corporation Act (the "MBCA"), and upon the terms and subject to the conditions
set forth herein (the "Merger").
Pursuant to the Merger, each outstanding share (a "Share") of the
Company's voting and non-voting common stock (the "Company Common Stock") shall
be canceled in exchange for the right to receive the Merger Consideration (as
defined in Section 2.1 hereof), upon the terms and subject to the conditions set
forth herein with the effect that Parent will own beneficially and of record
100% of the Company Common Stock (excluding Treasury Shares referred to in
Section 1.6(b)).
The parties hereto intend for the Merger to be a fully taxable purchase
of the Shares for federal income tax purposes within the meaning of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations promulgated
thereunder.
Prior to the Effective Date, the Company will (a) sell, transfer,
convey or assign certain assets, including subsidiaries, that are not intended
by the parties hereto to be included in the assets of the Company upon the
completion of the Merger (the assets that are to be sold, transferred, conveyed
or assigned are referred to herein as the "Non-Core Assets" and the "Non-
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Core Subsidiaries", as applicable, (as more particularly defined in Article XI);
and (b) repay loans and advances to the Company from Non-Core Subsidiaries and
capitalize indebtedness due to the Company from Non-Core Subsidiaries (the
transactions referred to in (a) and (b) above are collectively referred to as
the "Restructuring Transactions").
In consideration of the foregoing and the mutual covenants and
agreements herein contained, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2), and
subject to and upon the terms and conditions of this Agreement and the MBCA, the
Sub shall be merged with and into Company, the separate corporate existence of
the Sub shall cease, and Company shall continue as the surviving corporation.
Company as the surviving corporation after the Merger is hereinafter sometimes
referred to as the "Surviving Corporation."
1.2 Effective Time. Subject to the terms and conditions set forth in
this Agreement, the parties hereto shall cause the Merger to be consummated by
filing a certificate of merger as contemplated by the MBCA (the "Certificate of
Merger"), together with any required related certificates, with the State of
Michigan and executed in accordance with the relevant provisions of the MBCA
(the time of such filing being the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of the MBCA. Without limiting the generality of the
foregoing, and subject thereto and to the terms of this Agreement, at the
Effective Time, all the property, assets, rights, privileges, powers and
franchises of the Company and Sub shall vest in the Surviving Corporation, and
all debts, liabilities and duties of the Company and Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Articles of Incorporation; By-Laws.
(a) Articles of Incorporation. At the Effective Time, the
Articles of Incorporation of Sub, as in effect immediately prior to the
Effective Time, shall be the Articles of Incorporation of the Surviving
Corporation until thereafter amended in accordance with the MBCA and such
Articles of Incorporation.
(b) By-Laws. The By-Laws of Sub, as in effect immediately
prior to the Effective Time, shall be the By-Laws of the Surviving Corporation
until thereafter amended in
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accordance with the MBCA, the Articles of Incorporation of the Surviving
Corporation and such By-Laws.
1.5 Directors and Officers. The directors of Sub immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation,
each to hold office in accordance with the Articles of Incorporation and By-Laws
of the Surviving Corporation, and the officers of Company immediately prior to
the Effective Time shall be the initial officers of the Surviving Corporation,
in each case until their respective successors are duly elected or appointed and
qualified.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Parent, Sub, the Company or the
holders of the Company Common Stock:
(a) Cancellation of Shareholders' Shares. Each Share issued
and outstanding immediately prior to the Effective Time (excluding any Treasury
Shares to be canceled pursuant to Section 1.6(b)) shall be canceled in exchange
for the right to receive the Merger Consideration (as defined in Section 2.1).
(b) Cancellation of Other Shares. Each Share held in the
treasury of the Company (the "Treasury Shares") immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the Company, cease to be outstanding, be canceled and retired without payment
of any consideration therefor and cease to exist.
1.7 Stock Transfer Books. Three business days prior to the Effective
Time, the stock transfer books of the Company shall be closed, and there shall
be no further registration of transfers of Company Common Stock thereafter on
the records of the Company.
1.8 No Further Ownership Rights in Company Common Stock. The Merger
Consideration delivered upon the cancellation of Shares in accordance with the
terms hereof shall be deemed to have been paid in full satisfaction of all
rights pertaining to such Shares, and there shall be no further registration of
transfers on the records of the Surviving Corporation of Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates evidencing the Shares ("Certificates") are presented to the
Surviving Corporation for any reason, they shall be canceled.
1.9 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a taxable purchase of Shares for federal income tax
purposes within the meaning of the Code. The parties hereto hereby agree that
Sub has been formed for the sole purpose of acquiring all of the Company Common
Stock by means of a reverse subsidiary cash merger.
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1.10 Taking of Necessary Action; Further Action. Each of the parties
hereto will take all such reasonable and lawful action as may be necessary or
appropriate in order to effectuate the Merger in accordance with this Agreement
as promptly as possible. If, at any time after the Effective Time, any such
further action is necessary or desirable to carry out the purposes of this
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
the Company and Sub, the officers and directors of the Company and Sub
immediately prior to the Effective Time are fully authorized in the name of
their respective corporations or otherwise to take, and will take, all such
lawful and necessary action.
ARTICLE II
THE MERGER CONSIDERATION
2.1 Merger Consideration; Cancellation of Shares. At the Effective
Time, each Share (other than Treasury Shares described in Section 1.6(b)) issued
and outstanding immediately prior to the Effective Time will, by virtue of the
Merger and without any action on the part of the holder thereof, be, subject to
the terms and conditions of this Article II, canceled in exchange for the right
to receive cash in an amount equal to (x) the sum of (A) $605,000,000 less (B)
the Funded Debt Amount immediately prior to the Effective Time plus (C) cash and
cash equivalents immediately prior to the Effective Time and less (D) the Merger
Expenses divided by (y) the number of issued and outstanding Shares (other than
Treasury Shares described in Section 1.6(b)) at the Effective Time (the "Merger
Consideration"). "Funded Debt Amount" means, as of the date of any
determination, the Company's and its Subsidiaries' liabilities and obligations
with respect to outstanding principal amount of all indebtedness for borrowed
money plus accrued interest thereon and all fees, expenses, prepayment penalties
(but only to the extent such prepayment penalty is required to be paid as a
result of the Merger pursuant to the terms of the relevant debt document) and
other charges due as of such date but not including the indebtedness of the
Joint Ventures.
ARTICLE III
THE CLOSING
3.1 Time and Place. Subject to the terms and conditions set forth in
this Agreement, the closing (sometimes referred to herein as the "Closing") of
the transactions contemplated hereby shall take place as soon as practicable
after satisfaction or waiver of the conditions set forth in Article IV hereof,
at the offices of Dean & Fulkerson, on February 1, 1999 (the "Effective Date")
at 10:00 a.m. (local time), or such other place and time as Parent and the
Company may mutually agree upon for the Closing to take place.
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3.2 Deliveries and Certain Actions at the Closing. At the Closing:
(a) Parent shall deliver to the Representative (as defined in
Section 9.3) an amount equal to (A) $605,000,000 less (B) the Funded Debt Amount
plus (C) cash and cash equivalents (including the Witt Notes) immediately prior
to the Effective Date less (D) the Exclusivity Fee by wire transfer of
immediately available funds, which will then be distributed to the Shareholders
entitled thereto in such amounts after the deduction of costs and expenses of
the transaction and such other amounts as the Representative shall determine.
(b) Principal Shareholder shall deliver or cause to be
delivered to Parent a standby letter of credit in the amount of $5,000,000
having an expiration date that is not less than four (4) years following the
Effective Date and on other terms and conditions reasonably acceptable to Parent
including the authorization of multiple draws and a requirement that draws can
be made only upon presentation of a draft accompanied by a written certification
setting forth the basis for the draw that is signed by an attorney-at-law for
both the Principal Shareholder and the Parent.
(c) There shall be delivered to Parent, Sub and Representative
the other documents and instruments provided to be delivered under Article IV
hereof.
(d) Sub or Parent shall repay all amounts owing with respect
to the indebtedness for borrowed money described on Schedule 3.2 (the "Paid-Off
Indebtedness").
(e) The principal amount and accrued interest on all notes
receivable issued by the Principal Shareholder or an Affiliate of the Principal
Shareholder to the Company in connection with the Restructuring Transactions
(the "Witt Notes") which are outstanding on the Effective Date shall be paid in
full by the issuers thereof out of the Merger Consideration allocable to the
Shares owned by the Principal Shareholder.
(f) Sub and the Company shall cause the Certificate of Merger
to be filed in accordance with the MBCA, and shall take any and all other lawful
actions, and do any and all lawful other things necessary to effect the Merger
and to enable the Merger to become effective as more particularly described in
Section 1.10.
(g) Principal Shareholder shall execute and deliver to Parent
the Non-Competition Agreement substantially in the form of Exhibit 3.2(g)
attached hereto.
ARTICLE IV
CONDITIONS TO CLOSING
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4.1 Conditions to Parent's and Sub's Obligations. The obligation of
Parent and Sub to consummate the transactions contemplated by this Agreement is
subject to the satisfaction of the following conditions on or before the
Effective Date:
(a) The representations and warranties of the Company set
forth in Article VI hereof will be true and correct in all material respects at
and as of the Effective Date;
(b) Each of the Company and the Principal Shareholder will
have performed or complied with all of the covenants and agreements required to
be performed or complied with by them under this Agreement prior to the Closing;
(c) All shareholder and third party consents that are required
for the consummation of the transactions contemplated hereby will have been
obtained on terms reasonably satisfactory to each of Parent and Sub;
(d) All governmental filings, authorizations and approvals
(including, but not limited to, the filing required by, and expiration of the
waiting period under, the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated thereunder (the "HSR
Act")), that are required for the consummation of the transactions contemplated
hereby and the continuation of the operation of the Company's and Subsidiaries'
businesses will have been duly made and obtained on terms reasonably
satisfactory to each of Parent and Sub;
(e) No action or proceeding before any court or government
body will be pending or threatened wherein an unfavorable judgment, decree,
injunction or order would prevent the carrying out of this Agreement or any of
the transactions contemplated hereby, declare unlawful the transactions
contemplated by this Agreement or cause such transactions to be rescinded, or
might adversely affect the right of Parent to own, operate or control the
Company and no notice will have been received regarding any investigation that
would result in any such action or proceeding or other conditions or events that
would result in any such action or proceeding being pending or threatening;
(f) Parent shall have obtained financing from its lenders
substantially on the terms and conditions set forth in the commitment letter
dated of even date herewith of Credit Suisse First Boston and Canadian Imperial
Bank of Commerce;
(g) Parent will have received an opinion addressed to Parent,
dated the Effective Date, of Dean & Fulkerson, counsel for the Company, in form
and substance reasonably satisfactory to each of Parent and Sub and their
counsel; and
(h) On or prior to the Effective Date, the Company will have
delivered to Parent all of the following:
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A. Certified copies of the resolutions of the
Company's Board of Directors and Shareholders approving the
transactions contemplated by this Agreement; and
B. Such other documents or instruments as either of
Parent or Sub reasonably requests to effect the transactions
contemplated hereby.
(i) All proceedings shall be taken by each of Company and
Principal Shareholder in connection with the consummation of the transactions
contemplated hereby, and all certificates, opinions, instruments and other
documents required to be delivered by each of Company and Principal Shareholder
shall have been delivered, to effect the transactions contemplated hereby as
reasonably requested by, and in reasonably satisfactory form and substance to,
the Parent.
(j) Prior to the Effective Time, and notwithstanding any other
provisions of this Agreement, the Company shall have sold, transferred, conveyed
or assigned the Non-Core Subsidiaries and Non-Core Assets identified on Schedule
6.8 attached hereto to such Person or Persons and on such terms and conditions
as the Company shall deem appropriate and all indebtedness due from or to a
Non-Core Subsidiary shall have been paid or discharged (including, in the case
of obligations arising from advances or loans by the Company to a Non-Core
Subsidiary, the capitalization of such indebtedness).
(k) Parent shall have received from Comerica Bank as agent
under the A-CMI Second Amended and Restated Credit Agreement, dated as of June
1, 1997, among Comerica Bank and the other financial institutions parties
thereto and A-CMI (the "Credit Agreement") evidence satisfactory to the Parent
that the consummation of the Merger does not constitute an Event of Default (as
defined in the Credit Agreement) or that any such Event of Default has been
waived pursuant to the terms of the Credit Agreement.
Any condition specified in this Section 4.1 may be waived by Parent, provided
that no such waiver will be effective unless it is set forth in a writing
executed by Parent.
4.2 Conditions to the Company's and Principal Shareholder's
Obligations. The obligation of the Company, the Principal Shareholder and the
other Shareholders to consummate the transactions contemplated by this Agreement
is subject to the satisfaction of the following conditions on or before the
Effective Date:
(a) the representations and warranties set forth in Article
VII hereof will be true and correct in all material respects at and as of the
Effective Date;
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(b) each of Parent and Sub will have performed or complied
with all of the covenants and agreements required to be performed or complied
with by it under this Agreement prior to the Closing;
(c) All governmental filings, authorizations and approvals
(including, but not limited to, those required by the HSR Act) that are required
for the consummation of the transactions contemplated hereby will have been duly
made and obtained on terms reasonably satisfactory to the Company and the
Principal Shareholder;
(d) No action or proceeding instituted by any governmental
agency before any court or government body will be pending or threatened wherein
an unfavorable judgment, decree, injunction or order would prevent the carrying
out of this Agreement or any of the transactions contemplated hereby, declare
unlawful the transactions contemplated by this Agreement or cause such
transactions to be rescinded and no notice will have been received regarding any
investigation that would result in any such action or proceeding or other
conditions or events that would result in any such action or proceeding being
pending or threatened;
(e) The Merger and the other transactions contemplated by this
Agreement shall have been approved by the Company's Shareholders in accordance
with the Company's Articles of Incorporation and By-Laws and the MBCA;
(f) The Company shall have made the Bonus Payments;
(g) The Principal Shareholder and the Representative will have
received an opinion, dated the Effective Date, of Daniel M. Sandberg, Esq.,
counsel to each of Parent and Sub, in form and substance reasonably satisfactory
to the Principal Shareholder, Representative and their counsel;
(h) On or prior to the Effective Date, Parent will have
delivered to Principal Shareholder and Representative all of the following:
A. certified copies of (x) the resolutions of Sub's
board of directors and Shareholders and (y) the resolutions of Parent's
board of directors, approving the transactions contemplated by this
Agreement; and
B. such other documents or instruments as the
Representative reasonably requests to effect the transactions
contemplated hereby; and
(i) All proceedings shall be taken by each of Parent and Sub
in connection with the consummation of the transactions contemplated hereby, and
all certificates, opinions, instruments and other documents required to be
delivered by each of Parent and Sub shall have
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been delivered, to effect the transactions contemplated hereby as reasonably
requested by, and in reasonably satisfactory form and substance to, the Company
and Principal Shareholder.
Any condition specified in this Section 4.2 may be waived by
the Company, provided that no such waiver will be effective unless it is set
forth in a writing executed by the Company.
ARTICLE V
COVENANTS PRIOR TO THE EFFECTIVE TIME
5.1 Affirmative Covenants of the Company. Prior to the Effective Time,
unless each of Parent and Sub otherwise agrees in writing, the Company shall
conduct, and cause each of its Subsidiaries and Joint Ventures (other than
Digitron-CMI) to conduct, its business only in the ordinary and usual course,
and Company shall use, and cause each of its Subsidiaries to use, its best
efforts to preserve intact the present business organization, keep available the
services of its present management and key employees, and preserve their
existing business relationships. Without limiting the generality of the
foregoing, Company shall not, nor shall it permit any of its Subsidiaries to:
(a) (i) amend its Articles of Incorporation, charter or
organizational documents, (ii) split, combine or reclassify any shares of its
outstanding capital stock, (iii) declare, set aside or pay any dividend or other
distribution payable in cash, stock or property, or (iv) directly or indirectly
redeem or otherwise acquire any shares of its capital stock or shares of the
capital stock of any of the Subsidiaries except as required under the CMI
International, Inc. Profit Sharing Plan and in connection with the Restructuring
Transactions;
(b) authorize for issuance, issue, sell or pledge or agree to
issue, sell or pledge any shares of, or rights to acquire or convertible into
any shares of its capital stock or shares of capital stock of any of its
Subsidiaries (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise);
(c) (i) merge, combine or consolidate with another entity,
(ii) acquire or purchase an equity interest in or a substantial portion of the
assets of another corporation, partnership or other business organization or
otherwise acquire any assets outside the ordinary course of business or
otherwise enter into any such commitment or transaction, (iii) sell, lease,
license, waive, release, transfer, encumber or otherwise dispose of any of its
assets, other than inventory in the ordinary course of business, or (iv) except
as permitted under Section 5.1(g) and the settlement or resolution of those
matters disclosed on Schedule 6.7, enter into any Material Contract relating to
any supplier, joint venturer or similar arrangement;
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(d) (i) incur, assume or prepay any material indebtedness
except the Paid-Off Indebtedness or any other material liabilities other than in
each case in the ordinary course of business, (ii) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other Person other than a Subsidiary, or
(iii) make any loans, advances or capital contributions to, or investments in,
any other Person, other than any Subsidiary or Joint Venture to the extent set
forth in the fiscal 1998 and 1999 business plans of the Company or Non-Core
Subsidiaries in the ordinary course of business or pursuant to the Restructuring
Transactions;
(e) except as permitted under Section 5.1(g) and the
settlement or resolution of those matters disclosed on Schedule 6.7, pay,
satisfy, discharge or settle any material claims, liabilities or obligations
(absolute, accrued, contingent or otherwise) in excess of $250,000 except
pursuant to mandatory terms of any legally binding agreement in effect on the
date hereof;
(f) modify or amend, or waive any benefit of, any
non-competition agreement to which Company or any of its Subsidiaries is a
party;
(g) authorize or make capital expenditures in excess of $1
million individually, or in excess of $10 million in the aggregate, except as
set forth in the fiscal 1998 and 1999 business plans of Company or the Joint
Ventures and non-discretionary expenses related to customer programs, such as
the purchase of tooling;
(h) other than officer's life insurance, permit any insurance
policy naming Company or any Subsidiary of Company as a beneficiary or a loss
payee to be canceled or terminated, except to the extent that such coverage is
replaced or renewed with comparable coverage;
(i) (i) adopt, enter into, terminate or amend in any material
respect (except as may be required by applicable law) any plan for the current
or future benefit or welfare of any existing member of the Board of Directors or
other officer or manager of Company or any Subsidiary, (ii) enter into any
employment or consulting agreement with any employee, (iii) increase in any
manner the compensation (including severance) or fringe benefits of, or pay any
bonus to, any manager or employee (except for normal increases in salaries,
compensation and bonuses and payment of bonuses, in each case in the ordinary
course of business, and the payments under the Bonus Agreements), or (iv) take
any action to fund or in any other way secure, or to accelerate or otherwise
remove restrictions with respect to, the payment of compensation or benefits
under any employee plan, agreement, contract, arrangement or other plan other
than in the ordinary course of business;
(j) make any material change in its accounting or tax policies
or procedures, except as is required by law or to comply with mandatory
principles of accounting in the relevant jurisdiction of organization; or
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(k) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing.
5.2 Affirmative Covenant of Principal Shareholder. The Principal
Shareholder agrees to vote its Shares in favor of the Merger and to deliver upon
the execution and delivery of this Agreement a proxy to Parent substantially in
the form of Exhibit 5.2 attached hereto.
5.3 Affirmative Covenants of Parent, Sub Company and Principal
Shareholders. Prior to the Closing, each party hereto will cooperate with the
others and use its reasonable best efforts to make all registrations, filings
and applications, to give all notices and to obtain all governmental, third
party or other consents, transfers, approvals, orders, qualifications and
waivers necessary for the consummation of the transactions contemplated hereby
and to cause the other conditions to its obligation to close to be satisfied
(including, without limitation, the execution and delivery of all agreements
contemplated hereunder to be so executed and delivered). Without limiting the
generality of the foregoing, Parent and Sub will use reasonable best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable to obtain the Financing (as defined in
Section 7.5) required to consummate the Merger and the transactions contemplated
thereby on terms and conditions not materially less favorable in the aggregate
than the terms and conditions set forth in the Commitment Letter (as defined in
Section 7.5). Parent also shall keep the Company reasonably informed of the
status of the Financing process contemplated by the Commitment Letter.
5.4 Shareholder Approval. Immediately following the date hereof, the
Company shall take all corporate action necessary or desirable to obtain the
approval of the Merger by the Shareholders including, without limitation,
calling a special meeting of the Shareholders in accordance with the Company's
Articles of Incorporation and By-Laws and the MBCA at which this Agreement and
the Merger, along with other related matters, will be submitted for approval.
Company will give Parent notice of the time and place of such meeting in the
same manner as the Shareholders.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
CONCERNING THE COMPANY
As a material inducement to each of Parent and Sub to enter
into this Agreement, the Company represents and warrants to each of Parent and
Sub:
6.1 Organization and Corporate Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Michigan and is
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qualified to do business in every jurisdiction except where the failure to
qualify would not have a Material Adverse Effect. Each of the Company's
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction set forth on Schedule 6.3 hereof and
is qualified to do business in every jurisdiction except where the failure to
qualify would not have a Material Adverse Effect. The Company and its
Subsidiaries have full corporate power and authority to own and operate their
properties and to carry on their businesses as now conducted.
6.2 Authorization of Transactions. The Company has full corporate
power and authority to execute and deliver this Agreement, the other agreements
contemplated hereby and to consummate the transactions contemplated hereby and
thereby. The board of directors of the Company have, and as of the Effective
Date the Shareholders shall have, duly approved this Agreement, the other
agreements contemplated hereby and the consummation of the transactions
contemplated hereby and thereby. No other corporate proceedings on the part of
the Company are necessary to approve and authorize the execution and delivery of
this Agreement, the other agreements contemplated hereby and the consummation of
the transactions contemplated hereby and thereby. This Agreement and the other
agreements contemplated hereby to which Company or Principal Shareholder is a
party have been duly executed and delivered by each of the Company and the
Principal Shareholder, and are enforceable in accordance with their terms,
except as enforceability hereof or thereof may be limited by bankruptcy or other
laws affecting creditor's rights generally and limitations on the availability
of equitable remedies.
6.3 Capitalization. The authorized and issued capital stock of the
Company and each of its Subsidiaries is accurately described in Schedule 6.3
(the "Capitalization and Subsidiary Schedule") attached hereto. All of the
issued shares described in Schedule 6.3 are issued and outstanding and are owned
of record and beneficially as of November 7, 1998 by the Shareholders or the
Company as set forth opposite their names on Schedule 6.3 and on the Record Date
Shareholders' List. All of the outstanding capital stock of the Company and its
Subsidiaries has been duly authorized by all necessary corporate action on the
part of the Company and its Subsidiaries, as the case may be, and is validly
issued, fully paid and nonassessable. Except as set forth in Schedule 6.3, there
are no rights, outstanding commitments, subscriptions, warrants, options,
conversion rights or agreements of any kind outstanding to purchase or otherwise
acquire any shares of capital stock of the Company or its Subsidiaries or
securities or obligations of any kind convertible into or exchangeable or
exercisable for any shares of capital stock of the Company or its Subsidiaries,
except pursuant to this Agreement. As of the close of business at the Effective
Time, Parent shall own 100% of the issued and outstanding capital stock of the
Surviving Corporation free and clear of any security interests, claims, liens,
pledges, options, encumbrances, charges, agreements, voting trusts, proxies or
other arrangements or restrictions (including transfer restrictions) whatsoever.
Except as disclosed in Schedule 6.3, no shares of the capital stock of the
Company or its Subsidiaries are reserved for any purpose; there are no
preemptive or similar rights with respect to the issuance, sale or other
transfer (whether present, past or future) of the capital stock of the Company
or its
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Subsidiaries and there are no agreements or other obligations (contingent
or otherwise) which may require the Company or its Subsidiaries to issue,
repurchase or otherwise acquire any shares of its capital stock or any of its
other securities of any kind.
6.4 Subsidiaries; Investments. Schedule 6.3 attached hereto correctly
sets forth the name of each Subsidiary of the Company, the jurisdiction of its
incorporation and the Persons owning the outstanding capital stock of such
Subsidiary and the number of shares owned. Except as set forth on Schedule 6.3,
neither the Company nor any of its Subsidiaries owns or holds the right to
acquire any stock, partnership interest, joint venture interest or other
security or interest in any other Person.
6.5 Absence of Conflicts. Except as set forth on the attached Schedule
6.5 (the "Conflicts Schedule"), the execution, delivery and performance by the
Company and the Principal Shareholder of this Agreement and the other agreements
contemplated hereby to which it is a party and the consummation of the
transactions contemplated hereby and thereby do not and shall not (i) conflict
with or result in any breach of any of the provisions of, (ii) constitute a
default under, (iii) result in a violation of, (iv) give any third party the
right to terminate or to accelerate any obligation under, (v) result in the
creation of any lien upon any of the assets of the Company or any of its
Subsidiaries or (vi) require any authorization, consent, approval, license,
permit, exemption or other action by or notice to or filing with any court or
other governmental entity, under the provisions of the Company's or any of its
Subsidiaries' constituent documents or any Material Contract, or any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of an arbitrator or governmental entity.
6.6 Financial Statements. The Company has furnished Parent with
copies of the Company's (i) unaudited consolidated balance sheet as of September
30, 1998 (the "Latest Balance Sheet") and the related consolidated statements of
income and cash flow for the four-month period then ended and (ii) audited
consolidated balance sheets and consolidated statements of income and cash flow
for the fiscal years ended May 31, 1998, 1997 and 1996. Each of the foregoing
financial statements (including in all cases the notes thereto, if any) (the
"Financial Statements") is correct and complete, presents fairly in all material
respects the Company's and its Subsidiaries' financial condition and results of
operations as of the times and for the periods referred to therein, and except
as set forth on Schedule 6.6 attached hereto (the "Exceptions to GAAP Schedule")
has been prepared in accordance with generally accepted accounting principles,
consistently applied ("GAAP"), subject in the case of unaudited financial
statements to changes resulting from normal year-end audit adjustments and to
the absence of footnote disclosure. Without limiting the generality of the
foregoing, with respect to the Financial Statements (i) adequate provision has
been made for doubtful accounts; (ii) receivables and sales are stated net of
discounts, returns and allowances; and (iii) all items of income or expense that
are unusual or of a non-recurring nature are separately disclosed on the
Financial Statements. No accounts payable have been written off since May 31,
1998 and no provision in
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the Financial Statements is necessary under GAAP (except as otherwise disclosed
therein) for liability for product warranties or the manufacture or sale of
defective products.
6.7 Absence of Undisclosed Liabilities. Except as set forth on
Schedule 6.7, the "Undisclosed Liabilities Schedule" attached hereto, to the
knowledge of Company, neither the Company nor any of its Subsidiaries has any
obligation or liability (whether accrued or unaccrued, whether absolute or
contingent, whether liquidated or unliquidated, whether due or to become due)
arising out of or related to events, transactions, occurrences, facts,
circumstances, actions or inactions on or prior to the Effective Date which
could reasonably be expected to have a Material Adverse Effect, except (a)
obligations under executory contracts or commitments for the sale or purchase of
products or services by the Company or any Subsidiary in the ordinary course of
business consistent with past practice, (b) liabilities reflected on the Latest
Balance Sheet, and (c) liabilities which have arisen after the date of the
Latest Balance Sheet in the ordinary course of business or otherwise in
accordance with the terms and conditions of this Agreement.
6.8 Absence of Certain Developments. Except as set forth in
Schedule 6.8 attached hereto (the "Developments Schedule") and except as
expressly contemplated by this Agreement, since May 31, 1998, neither the
Company nor any of its Subsidiaries has:
(a) declared, set aside or paid any dividends or made any
other distributions with respect to any shares of its capital stock;
(b) issued, sold or transferred any notes, bonds or other debt
securities or any equity securities, securities convertible, exchangeable or
exercisable into equity securities, or warrants, options or other rights to
acquire equity securities, of the Company or its Subsidiaries;
(c) mortgaged, pledged or subjected to any lien, charge or any
other encumbrance, any portion of its properties or assets;
(d) sold, leased, licensed (as licensor), assigned, disposed
of or transferred (including without limitation transfers to the Principal
Shareholder or any employees or affiliates of the Company) any of its assets
(whether tangible or intangible), except for sales in the ordinary course of
business;
(e) made or granted any bonus or any wage, salary or
compensation increase to any director, officer, or employee, other than in the
usual and ordinary course of business and in accordance with past custom and
practice;
(f) made loans or advances to, guarantees for the benefit of,
or any investments in, any Persons in excess of $5,000 in the aggregate;
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(g) instituted or settled any claim or lawsuit involving
equitable or injunctive relief or more than $100,000; or
(h) committed to do any of the foregoing.
6.9 Real Property.
(a) The leases and subleases described in Schedule 6.9(a) (the
"Leases Schedule") constitute all of the leases and sub-leases under which the
Company and its Subsidiaries hold leasehold or sub-leasehold interests in real
estate. With respect to each lease and sublease listed on Schedule 6.9(a),
except as set forth on the Leases Schedule: (i) neither the Company nor any of
its Subsidiaries is in breach or default, and no event has occurred which, with
notice or lapse of time, would constitute such a breach or default or permit
termination, modification or acceleration under the lease or sublease; (ii) all
of the leases and sub-leases are in full force and effect, (iii) neither the
Company nor any of its Subsidiaries has assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold or
sub-leasehold; and (iv) to the knowledge of Company, no other party to such
leases or sub-leases is in breach or default.
(b) Schedule 6.9(b) attached hereto (the "Owned Property
Schedule") lists and describes briefly all real property currently owned by any
of the Company and its Subsidiaries (the "Owned Real Property"). With respect to
each parcel of real property listed on the Owned Property Schedule, except as
set forth therein: (i) either the Company or its Subsidiaries has good and
marketable title to the parcel of real property, free and clear of all
mortgages, pledges, security interests, encumbrances, charges or other liens,
easements and other restrictions, other than (A) installments of special
assessments not yet delinquent and (B) recorded easements, covenants and
restrictions; (ii) there are no pending or, to the knowledge of the Company,
threatened condemnation proceedings, assessments or special assessments relating
to the property; (iii) there are no leases, subleases, licenses, concessions or
other agreements, written or oral, granting to any party or parties the right of
use or occupancy of any portion of the parcel of real property; (iv) there are
no outstanding options or rights of first refusal to purchase the parcel of real
property, or any portion thereof or interest therein; and (v) there are no
parties (other than the Company and its Subsidiaries) in possession of the
parcel of real property, other than tenants under any leases disclosed in
Schedule 6.9(b) who are in possession of space to which they are entitled.
6.10 Title to Personal Property. Either the Company or one of its
Subsidiaries has good title to, or a valid leasehold interest in, all personal
property reflected on the books and records of the Company and its Subsidiaries
as being owned or leased, free and clear of all mortgages, pledges, security
interests, encumbrances, charges or other liens, except (a) as set forth in
Schedule 6.10 attached hereto (the "Encumbrances Schedule") and (b) as reflected
in the Latest Balance Sheet, (c) encumbrances with respect to leases of
equipment, liens of materialmen
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and other liens arising by operation of law for obligations incurred, but not
yet paid for, which in any case were incurred in the ordinary course of business
subsequent to the date of the Latest Balance Sheet, (d) liens for current Taxes
and assessments not yet due and payable, (e) encumbrances which are minor in
amount and do not materially impair the value or proposed use of the assets
affected thereby, and (f) leased property. The assets held by the Company and
the Subsidiaries as of the Effective Date, (other than assets which have become
obsolete and/or replaced, Non-Core Assets and assets held by the Non-Core
Subsidiaries) are all of the assets that are required, and have been used, by
the Company and its Subsidiaries to operate their businesses as such businesses
have been conducted during the past eighteen (18) months.
6.11 Environmental Matters. Except as set forth on Schedule 6.11 (the
"Environmental Schedule"):
(a) Each of the Company and its Subsidiaries and the Joint
Ventures (other than Digitron-CMI) is and has been in compliance with all
Environmental Requirements except where the failure to comply would not have a
Material Adverse Effect.
(b) Without limiting the generality of the foregoing, each of
the Company and its Subsidiaries and the Joint Ventures (other than
Digitron-CMI) has obtained, and is and has been in compliance with, all permits,
licenses and other authorizations (including pending Consent Judgments and
Administrative Orders by Consent) that are required pursuant to Environmental
Requirements for the operation of its business as currently conducted except
where the failure to have or be in compliance with would not have a Material
Adverse Effect.
(c) Neither the Company nor its Subsidiaries nor the Joint
Ventures (other than Digitron-CMI) has received any notice of any actual or
alleged violation of Environmental Requirements or any liabilities or potential
liabilities, including but not limited to liens or any investigatory, remedial
or corrective actions arising under Environmental Requirements. Neither the
Company nor any Subsidiary nor the Joint Ventures (other than Digitron-CMI) is
subject to any order, decree or injunction issued pursuant to Environmental
Requirements.
(d) Neither the Company nor its Subsidiaries nor the Joint
Ventures (other than Digitron-CMI) has used, treated, stored, disposed of,
transported, handled, managed or released any Hazardous Substance, in a manner
that has given or is expected to give rise to liabilities, including but not
limited to any liability for response costs, corrective action costs, personal
injury, property damage or natural resources damages , pursuant to Environmental
Requirements.
(e) Neither the Company nor its Subsidiaries nor the Joint
Ventures (other than Digitron-CMI) owns or leases any manufacturing facility
that is included on the National Priorities List or comparable state "Superfund"
list and there are no unregistered underground
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storage tanks used or in use by the Company or its Subsidiaries or the Joint
Ventures (other than Digitron-CMI) contrary to Environmental Requirements.
(f) As used in this Section 6.11, "Environmental Requirements"
means all federal, state, local and foreign statutes, regulations, ordinances
and similar provisions having the force or effect of law, all judicial and
administrative orders and determinations, and all common law concerning
pollution or protection of public health or the environment, including without
limitation all those relating to the presence, use, production, generation,
handling, transport, treatment, storage, disposal, processing, management,
emission, discharge, release, threatened release, or cleanup of any Hazardous
Substances if and as now applicable to Company or its Subsidiaries. "Hazardous
Substances" means any toxic or hazardous materials, substances, wastes,
chemicals, constituents, pollutants, or contaminants or any other materials,
regulated by any Environmental Requirement, including but not limited to
pesticides, petroleum, petroleum products and byproducts, asbestos and
asbestos-containing materials, polychlorinated biphenyls and radiation.
(g) This Section 6.11 sets forth all of the representations
and warranties of Company regarding environmental matters and, except for
representations and warranties made in this Agreement with respect to reserves
for environmental matters, no other representation and warranty set forth in
this Agreement, including, without limitation, Section 6.21, Compliance with
Laws and Section 6.16 Government Licenses and Permits, shall be construed as
including or relating to environmental matters.
6.12 Taxes.
(a) The Company and each of its Subsidiaries has timely filed
all Tax Returns required to be filed by it. All Taxes due and payable by the
Company and each of its Subsidiaries have been paid or adequately accrued on the
Financial Statements for all periods ended on or prior to the Effective Date.
The Company and each of its Subsidiaries has properly withheld and paid all
Taxes which such person was required to withhold from amounts paid to employees,
foreign persons or other persons.
(b) Except as set forth in Schedule 6.12 attached hereto (the
"Taxes Schedule"):
(i) neither the Company nor any of its Subsidiaries
has requested or been granted an extension of the time for filing any
Tax Return which has not yet been filed; and
(ii) there is no action, suit, taxing authority
proceeding or audit now in progress, pending or, to the Shareholders'
and the Company's and its Subsidiaries' knowledge, threatened against
or with respect to the Company or any of its Subsidiaries.
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(c) As used in this Agreement, the following terms shall have
the following respective meanings.
(i) "Tax" means any (A) federal, state, local or
foreign income, gross receipts, franchise, estimated, alternative
minimum, add-on minimum, sales, use, transfer, registration, value
added, excise, natural resources, severance, stamp, occupation,
premium, windfall profit, environmental, customs, duties, real
property, personal property, capital stock, social security,
unemployment, disability, payroll, license, employee or other
withholding, or other tax, of any kind whatsoever, including any
interest, penalties or additions to tax or additional amounts in
respect of the foregoing; (B) liability of the Company or its
Subsidiaries for the payment of any amounts of the type described in
clause (A) arising as a result of being (or ceasing to be) a member of
any Affiliated Group (or being included (or required to be included) in
any Tax Return relating thereto); and (C) liability of the Company for
the payment of any amounts of the type described in clause (A) as a
result of any express or implied obligation to indemnify or otherwise
assume or succeed to the liability of any other person;
(ii) "Tax Returns" means returns, declarations,
reports, claims for refund, information returns or other documents
(including any related or supporting schedules, statements or
information) filed or required to be filed in connection with the
determination, assessment or collection of Taxes of any party or the
administration of any laws, regulations or administrative requirements
relating to any Taxes.
6.13 Intellectual Property Rights. Except as set forth in Schedule
6.13 hereof (the "Intellectual Property Schedule") and such matters which would
not reasonably be expected to have a Material Adverse Effect:
(a) The Company or one of its Subsidiaries owns and
possesses all right, title and interest in and to, or has a license to use, the
Intellectual Property Rights used in the business of the Company free and clear
of all liens, licenses and other encumbrances, and no claim by any third party
contesting the validity, enforceability, use or ownership of any of the
Intellectual Property Rights has been made, is currently outstanding or is
threatened. "Intellectual Property Rights" shall mean all of the following owned
by, issued to or licensed to, the Company or its Subsidiaries: patents, patent
applications, and any reissue, continuation, continuation-in-part, division,
revision, extension or reexamination thereof; trademarks, service marks, and
copyrightable works; and all registrations, applications and renewals for any of
the foregoing; licenses or other agreements to or from third parties regarding
the foregoing.
(b) The transactions contemplated by this Agreement
will have no effect on the Company's or its Subsidiaries' right, title and
interest in and to the Intellectual Property Rights. The Company and each of its
Subsidiaries has taken all necessary and desirable
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action to protect the Intellectual Property Rights and will continue to maintain
those rights prior to the Closing so as to not adversely affect the validity or
enforcement of such Intellectual Property Rights.
(c) Schedule 6.13 contains an accurate and complete
list of all licenses for Intellectual Property Rights except licenses for
computer software.
(d) Except as set forth on Schedule 6.13, to the
knowledge of the Company, there are no claims to the effect that the
manufacture, sale, licensing or use of any products as now used, sold or
licensed by the Company or any of its Subsidiaries infringes any Intellectual
Property Rights of any other Person.
6.14 Litigation; Proceedings. Except as set forth in Schedule 6.14
attached hereto (the "Litigation Schedule"), there are no actions, suits,
proceedings, orders or investigations pending or, to the Principal Shareholder's
and the Company's knowledge, threatened against or affecting the Company or its
Subsidiaries at law or in equity, or before or by any federal, state, municipal
or other governmental department, commission, board, bureau, or agency, domestic
or foreign.
6.15 Brokerage. Except as set forth in Schedule 6.15 attached hereto
(the "Brokerage Schedule"), which compensation is the sole responsibility of the
Shareholders, there are no claims for brokerage commissions, finders fees' or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of the
Shareholders, the Company or any of its Subsidiaries.
6.16 Governmental Licenses and Permits. The Company and its
Subsidiaries own or possess all of the government licenses and permits which are
necessary to conduct its businesses as presently conducted except where the
failure to possess would not have a Material Adverse Effect.
6.17 Employees. Except as set forth in Schedule 6.17 (the "Employee
Schedule"), the Company and its Subsidiaries have complied in all material
respects with all applicable laws relating to the employment of personnel and
labor, including provisions thereof relating to safety, wages, hours, equal
opportunity, collective bargaining and the payment of social security and other
taxes and the Immigration Reform and Control Act of 1986.
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6.18 Employee Benefit Plans.
(a) Schedule 6.18 attached hereto ("Employee Benefit Plans Schedule")
contains an accurate and complete list of all Plans, as defined below,
maintained, sponsored, or contributed to by the Company and its Subsidiaries, at
any time within the six (6) year period ending on the Effective Date. For
purposes of this Agreement, the term "Plans" shall mean: (i) employee benefit
plans as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") and (ii) fringe benefit policies, programs and
arrangements, whether or not funded, including bonus plans, incentive
compensation, deferred compensation, and stock purchase, stock options and stock
grants. Neither the Company nor any Subsidiary has any obligation to contribute
to or has any liability or potential liability with respect to any
"multiemployer pension plan" as such term is defined in Section 3 (37) of ERISA,
any plan maintained by more than one employer within the meaning of Section 413
(c) of the Code, or any pension plan subject to Title IV of ERISA or Section 412
of the Code.
(b) The Company and its Subsidiaries form a "controlled group of
corporations" as defined in Section 414(b) of the Code. None of A-CMI, A-CMI SCC
or Digitron-CMI, LLC is a member of the controlled group of corporations which
include the Company nor is it a "trade or business under common control" as
defined in Code Section 414(c) of the Code. Neither the Company nor its
Subsidiaries, are part of an "affiliated service group" as defined in Code
Section 414(m).
(c) Except as set forth in Schedule 6.18, the Company and its
Subsidiaries, do not contribute and do not have any liability or potential
liability with respect to any Plan or other arrangement which provides health or
life insurance to current or future retirees or to other current or future
former employees, their spouses or dependents, other than in accordance with
Section 4980B of the Code or applicable state laws.
(d) Except as set forth in Schedule 6.18, none of the Plans obligates
the Company or its Subsidiaries to pay separation, severance, termination or
similar-type benefits solely as a result of any transaction contemplated by this
Agreement or solely as a result of a "change in control," as such term is
defined in Section 280G of the Code.
(e) With respect to each Plan, all required payments, premiums,
contributions, reimbursements or accruals for all periods ending prior to the or
as of the Effective Date shall have been made or properly accrued on the
Financial Statements.
(f) Except as disclosed in Schedule 6.18, each Plan and any related
trusts, insurance contracts and funds have been maintained, funded and
administered in compliance in all material respects with all applicable laws and
regulations, including but not limited to ERISA and the Code. Except to the
extent disclosed in Schedule 6.18, none of the Shareholders nor the
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Company nor any of its Subsidiaries, nor any trustee or administrator of any
Plan, nor other Person has engaged in any transaction with respect to the Plans
which could subject the Company or its Subsidiaries, or any trustee or
administrator of the Plans, or any party dealing with any Plan, to any tax or
penalty imposed by ERISA or the Code. No actions, suits or claims with respect
to the Plans (other than routine claims for benefits) are pending or threatened
and neither the Company nor any of its Subsidiaries has any knowledge of any
facts which could give rise to or be expected to give rise to any such actions,
suits or claims.
(g) Each Plan that is intended to be qualified under Section 401(a) of
the Code, and each trust (if any) forming a part thereof, has received a
favorable determination letter from the Internal Revenue Service ("IRS") as to
the qualification under the Code of such Plan and the tax-exempt status of such
related trust. Nothing has occurred since the date of the last determination
letter that could adversely affect the qualification of such Plan or the tax
exempt status of such related trust and all amendments that have been made since
the date of the last determination letter have been submitted to the Internal
Revenue Service for approval.
6.19 Bank Accounts. Schedule 6.19 attached hereto (the "Bank
Accounts") lists all of the Company's and its Subsidiaries' bank accounts
(designating each authorized signatory).
6.20 Affiliate Transactions. Except as disclosed on Schedule 6.20
attached hereto (the "Affiliate Transactions Schedule") no executive officer,
director or the Principal Shareholder of the Company or its Subsidiaries or any
Affiliate thereof or any person related by blood or marriage to any such Person
in which any such Person owns any beneficial interest (collectively, the
"insiders"), is a party to any agreement, contract, commitment or transaction
with the Company or any of its Subsidiaries or which is pertaining to the
business of the Company or has any interest in any property, real or personal or
mixed, tangible or intangible, used in or pertaining to the business of the
Company or its Subsidiaries. "Affiliate" means, in the case of a natural Person,
one or more members of a group comprised of such Person and such Person's
parents or grandparents, his children or grandchildren, his siblings and any
spouse of any of the foregoing. In the case of a corporation or other Person
which is not a natural Person, the term "Affiliate" means a Subsidiary or other
Person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such Person. For
purposes hereof, "control" means the power to vote or direct the voting of
sufficient securities or other interests to elect a majority of the directors or
to control the management of a Person.
6.21 Compliance with Laws. The Company and its Subsidiaries have
complied in all material respects with all applicable laws, regulations
(including, without limitation, applicable occupational health and safety laws
and regulations) and zoning ordinances of foreign, federal, state and local
governments and all agencies thereof except where the failure to comply would
not have a Material Adverse Effect. No claims have been made or filed against
the Company alleging a violation of any such laws or regulations.
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6.22 Funded Debt Amount. Schedule 6.22 attached hereto (the "Funded
Debt Schedule") describes the Funded Debt Amount as of the date of this
Agreement. There shall be no fees, expenses, prepayment penalties or other
charges due as of the Effective Time with respect to indebtedness for borrowed
money described on the Funded Debt Schedule assuming that all amounts owing with
respect to any such indebtedness which is required to be repaid as a result of
the Merger or other transactions contemplated by this Agreement are repaid at or
after the Effective Time.
6.23 Effective Date. All of the representations and warranties
contained in this Article VI are true and correct on the date of this Agreement
and will be true and correct on the Effective Date.
6.24 Contracts. All of the Material Contracts are valid and legally
binding obligations of the Company or its Subsidiaries, as the case may be, and,
to the knowledge of the Company, the other parties thereto, enforceable in
accordance with their terms subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles. The
Company and each Subsidiary have performed in all material respects all
obligations required to be performed by them under the Material Contracts, and
are not in material default under or in material breach of any Material
Contract, or in receipt of any claim of such default or breach. No event has
occurred which, with the passage of time or the giving of notice or both, would
result in a material default, material breach or event of material noncompliance
by the Company or any of its Subsidiaries under any Material Contract. Neither
the Company nor any Subsidiary has any present expectation or intention of not
fully performing all of its material obligations under any Material Contract.
Neither the Company nor any Subsidiary has knowledge of any material breach or
anticipated material breach by the other parties to any Material Contract.
Neither the Company nor any Subsidiary has any written notice or other
communication to the effect that any other party to any Material Contract
intends to terminate such contract, agreement or instrument prior to the
expiration of the maximum stated term of such contract, agreement or instrument.
With respect to any contract for the sale of goods or services by the Company or
its Subsidiaries, except where a breach or default would not result in a
Material Adverse Effect, (a) neither the Company nor any Subsidiary is in
default or has breached such contract; (b) no event has occurred which with the
passage of time or the giving of notice or both would result in a default or
breach under such contract; and (c) neither the Company nor any Subsidiary has
received any written notice or other communication to the effect that it has
breached or defaulted under such contract.
6.25 Joint Ventures.
(a) Schedule 6.25 attached hereto (the "Joint Venture Schedule")
correctly sets forth the names of each Joint Venture, type of entity,
jurisdiction of organization, equity ownership percentage and identity of every
owner. True and correct copies of all organizational documents
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and other agreements for the Joint Venture have been made available to Parent in
the Data Room and all such documents and agreements (i) were duly authorized by
Company or a Subsidiary, as applicable, and (ii) to the knowledge of Company,
are valid, binding and enforceable against the other parties thereto except as
enforceability thereof may be limited by bankruptcy or other laws affecting
creditor's right generally and limitations on the availability of equitable
remedies. Neither Company nor any Subsidiary is in default under any such
document or agreement except where such default would not have a Material
Adverse Effect and, to the knowledge of Company, no other party is in default
under any such document or agreement.
(b) The Company or the relevant Subsidiary has made all capital
contributions to the Joint Ventures which are required to be made under the
Joint Venture documents or agreements.
(c) All taxes payable by the Joint Ventures for which the Company or
any Subsidiary is liable have been paid or adequately accrued on the Financial
Statements of the Company or such Joint Venture.
(d) Except as set forth on Schedule 6.25, there are no agreements
between any Joint Venture and the Company, any Subsidiary or any Affiliate.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
As a material inducement to the Company, Principal Shareholder
and the other Shareholders to enter into this Agreement, each of Parent and Sub
jointly and severally hereby represents and warrants to the Company, the
Principal Shareholder, and the other Shareholders that:
7.1 Corporate Organization and Power. The Parent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Sub is a corporation duly organized, validly existing and
in good standing under the laws of the State of Michigan. Each of Parent and Sub
has full corporate power to execute and deliver this Agreement, the other
agreements contemplated hereby and to consummate the transactions contemplated
hereby and thereby.
7.2 Authorization. Except as described on Schedule 7.2 attached
hereto (the "Parent Authorization Schedule"), (i) the execution, delivery and
performance of this Agreement, the other Agreements contemplated hereby and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all requisite corporate action on the part of Parent
and Sub, (ii) no other corporate proceedings on its part are necessary to
authorize the execution, delivery or performance of this Agreement, the other
agreements contemplated
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hereby or the transactions contemplated hereby or thereby and (iii) this
Agreement and the other agreements contemplated hereby to which it is a party
constitutes a valid and binding obligation of Parent or Sub, as applicable,
enforceable in accordance with its terms, except as enforceability hereof may be
limited by bankruptcy or other laws affecting creditor's rights generally and
limitations on the availability of equitable remedies.
7.3 Absence of Conflicts. Except as set forth on the attached
Schedule 7.4 (the "Parent Conflicts Schedule"), the execution, delivery and
performance by each of Parent and Sub of this Agreement and the other agreements
contemplated hereby to which it is a party and the consummation of the
transactions contemplated hereby and thereby do not and shall not (i) conflict
with or result in any breach of any of the provisions of, (ii) constitute a
default under, (iii) result in a violation of, or (iv) require any
authorization, consent, approval, license, permit, exemption or other action by
or notice to or filing with any court or other governmental entity, under the
provisions of the Parent's or Sub's constituent documents or any agreement,
contract, instrument, or any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of an
arbitrator or governmental entity.
7.4 Litigation. There are no actions, suits, proceedings, orders or
investigations pending or, to the best of Parent's knowledge, threatened against
or affecting Parent or Sub at law or in equity, or before or by any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, which would adversely affect
Parent's or Sub's performance under this Agreement or the consummation of the
transactions contemplated hereby.
7.5 Financing. Parent and Sub have received executed commitments
(including the term sheet attached thereto, the "Commitment Letter"), copies of
which have been delivered to the Company, from one or more financial
institutions to provide, subject to the conditions specified therein, the funds
necessary for Parent and Sub to consummate the Merger and the transactions
contemplated thereby (the "Financing"). As of the date hereof, Parent and Sub
have no knowledge of any facts or circumstances that reasonably could be
expected to result in any of the conditions set forth in the Commitment Letter
(or in the definitive documentation therefor) not being satisfied or that
otherwise reasonably could be expected to result in the inability of Parent or
Sub to obtain and use the funds available thereunder for consummation of the
Merger and the transactions contemplated thereby.
7.6 Effective Date. All of the representations and warranties
contained in this Article VII are true and correct in all material respects on
the date of this Agreement and will be true and correct in all material respects
on the Effective Date, except to the extent that Parent has advised the Company
otherwise in writing prior to the Closing.
24
<PAGE> 26
VERSION 5
November 19, 1998
ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated at any time prior
to the Closing:
(a) by mutual written consent of Parent and the
Company;
(b) by either Parent or the Company if there has been
a breach on the part of the other party in the representations and warranties or
covenants set forth in this Agreement, or if events have occurred which have
made it impossible to satisfy a condition precedent to the terminating party's
obligations to consummate the transactions contemplated hereby, unless such
terminating party's willful breach of this Agreement has caused the condition to
be unsatisfied; or
(c) by either Parent or the Company if the Closing has
not occurred on or prior to March 1, 1999 by reason of the failure of any
condition precedent under Article IV hereof; provided that neither Parent nor
the Company will be entitled to terminate this Agreement pursuant to this
Section 8.1(c) if such person's willful breach of this Agreement has prevented
satisfaction of the conditions or the consummation of the transactions
contemplated hereby at or prior to such time.
8.2 Effect of Termination. In the event of termination of this
Agreement by either Parent or the Company as provided above, this Agreement will
forthwith become void and there will be no liability on the part of any party
hereto to any other party hereto or its Shareholders or directors or officers in
respect thereof, except for the obligations of the parties hereto in Sections
9.4(b) and 9.5 and except that nothing herein will relieve any party from any
breach of this Agreement prior to such termination.
ARTICLE IX
ADDITIONAL AGREEMENTS
9.1 Survival. All representations, warranties, covenants and
agreements set forth in this Agreement or in any writing delivered in connection
with this Agreement will survive the Effective Date and the consummation of the
transactions contemplated hereby.
9.2 Indemnification.
(a) Subject to the limitations set forth in (b) below, the
Principal Shareholder agrees to indemnify Parent and the Surviving Corporation
(the "Buyer Parties") and hold them
25
<PAGE> 27
VERSION 5
November 19, 1998
harmless against any loss, liability, deficiency, damage or expense including,
but not limited to, legal expenses and costs, ("Losses") which Buyer Parties may
suffer, sustain or become subject to, as a result of (i) the breach of any
representation or warranty contained in Article VI of this Agreement without
regard to any materiality standard contained in any such representation or
warranty; (ii) the breach of any covenant or agreement made by the Company
and/or the Principal Shareholder contained in this Agreement; (iii) tax or other
liabilities relating to or arising out of the Restructuring Transactions; (iv)
CMI-Quaker Alloy, Inc. and CMI-Noren, Inc. workers' compensation case
liabilities in excess of the total reserve set forth on Schedule 9.2(a)(iv)
hereof and all other liabilities of such entities; (v) any and all acts or
omissions of the Representative appointed pursuant to Section 9.3; (vi) any and
all liabilities of, or in any way connected with, the Non-Core Subsidiaries or
Non-Core Assets; and (vii) establishing marketable title to that portion of the
property of CMI-Cast Parts, Inc. with respect to which title has not been
recorded.
(b) The indemnification provided for in Section 9.2(a)(i)
above is subject to the following limitations:
(i) The Principal Shareholder will be liable to Buyer
Parties only if the Buyer Parties delivers to the Principal Shareholder
a Claims Notice (as defined below) with respect to claims arising under
Section 6.11, "Environmental", within three (3) years after the
Effective Date; with respect to claims arising under Section 6.12
"Taxes", within four (4) years after the Effective Date or the
expiration of the statutory period under the Code, whichever first
occurs; and with respect to any other claims, within eighteen (18)
months after the Effective Date;
(ii) the Principal Shareholder will not be liable to
Buyer Parties and Buyer Parties shall not be entitled to assert an
indemnity claim for any Losses arising under 9.2 (a)(i) above unless
and until (X) the Losses associated with an indemnity claim or series
of related claims exceed $100,000 (a "Qualifying Claim", being the
entire amount of such Losses and not just the excess over $100,000) and
(Y) only to the extent that the aggregate amount of all the Losses
relating to all Qualifying Claims exceeds $2,000,000 (the
"Deductible"); provided, however, that neither clause (X) nor (Y) shall
apply to Losses arising under Sections 6.3 "Capitalization" and 6.15
"Brokerage";
(iii) the Principal Shareholder will not be liable to
Buyer Parties for any such Losses to the extent that such Losses exceed
$60,000,000 in the aggregate; and
(iv) Notwithstanding any other provision to the
contrary and without derogation of clauses (i), (ii) and (iii) of this
Section 9.2(b), with respect to any Losses arising out of the
categories of matters set forth on Schedule 9.2(b)(iv) (the "Reserve
Schedule") hereto, the Principal Shareholder's obligation to indemnify
the Buyer Parties shall arise only if and to the extent that the Losses
exceed in the aggregate the amount set
26
<PAGE> 28
VERSION 5
November 19, 1998
forth opposite each such category. For example, an indemnity claim
based on a breach of warranty or misrepresentation with regard to an
environmental matter due to an insufficient reserve under Section 6.7
"Absence of Undisclosed Liabilities" (see Item 8, Schedule 6.7) or an
undisclosed matter arising under Section 6.11 "Environmental", shall
not arise unless and until all Losses arising from such matters, in the
aggregate, exceed $1,000,000.
(c) The Parent, Surviving Corporation and its Subsidiaries,
jointly and severally, agree to indemnify the Shareholders and hold them
harmless against any Losses the Shareholders may suffer, sustain or become
subject to, as the result of a breach (or alleged breach) of any representation,
warranty, covenant, or agreement by Parent or Sub contained in this Agreement.
(d) If a party hereto seeks indemnification under this Section
9.2, such party (the "Indemnified Party") shall gave written notice to the other
party (the "Indemnifying Party") specifying in reasonable detail the basis for
the claim; or if any suit, action, claim, liability of obligation shall be
brought or asserted by any third party which, if adversely determined, could
entitle the Indemnified Party to indemnity pursuant to this Section 9.2, the
Indemnified Party shall promptly notify the Indemnifying Party of the same in
writing, specifying in detail the basis of such claim and the facts pertaining
thereto (in either case, a "Claims Notice"). A Claims Notice which sets forth in
reasonable detail the basis for a claim for indemnification shall constitute
valid notice of a proposed claim even if, as of the date of the giving of such
Claims Notice, no litigation has been commenced with respect to such claim or
the amount of such claim is not known with certainty; provided, however, that
the Buyer Parties shall not deliver a Claims Notice unless the Buyer Parties
reasonably believe that the indemnity claim is or could become a Qualifying
Claim. The Indemnifying Party shall, at its own expense, be entitled to
participate in and, to the extent that it shall wish, assume the defense of any
such claim or proceeding. If the Indemnifying Party elects to assume control of
such defense or settlement, the Indemnifying Party shall within 30 days (or
sooner, if the nature of the matter so requires) notify the Indemnified Party of
its intent to do so, and the Indemnified Party shall, at the expense of the
Indemnifying Party, cooperate with all reasonable requests, in the compromise
of, or defense against, such claim or proceeding and shall make available to the
Indemnifying Party any books, records, other documents or personnel within its
control that are necessary or appropriate for such defense. If the Indemnifying
Party elects to assume control of such defense or settlement, it shall conduct
such defense or settlement in a manner reasonably satisfactory and effective to
protect the Indemnified Party fully; no compromise or settlement shall be agreed
or made without the Indemnified Party's written consent which consent will not
be unreasonably withheld. If the Indemnifying Party assumes the defense of a
claim, the Indemnified Party shall have the right to employ its own counsel and
such counsel may participate in such action, but the fees and expenses of such
counsel shall be at the expense of the Indemnified Party. If the Indemnifying
Party does not elect to assume the defense or settlement in a manner reasonably
satisfactory to protect the Indemnified Party fully, the Indemnified Party may
engage
27
<PAGE> 29
VERSION 5
November 19, 1998
independent counsel to assume the defense and may contest, pay, settle or
compromise any such claim on such terms and conditions as the Indemnified Party
may determine. The reasonable fees and disbursements of the Indemnified Party's
counsel shall constitute amounts for which indemnification shall be made
hereunder.
9.3 Appointment of Representative.
(a) Representative. The Principal Shareholder and the other
Shareholders hereby appoint Ray H. Witt (such person and any replacement
appointed pursuant hereto the "Representative") for the purposes contemplated by
this Agreement including, without limitation:
(i) receive and distribute to the Shareholders the
Merger Consideration;
(ii) deduct the costs and expenses of the transaction
from the Merger Consideration and any other funds received and pay the
costs and expenses of the transaction as the Representative, in his or
her discretion, deems appropriate, including, without limitation, the
Merger Expenses;
(iii) determine the presence (or absence) of claims
for indemnification against the Buyer Parties pursuant to Section 9.2
above;
(iv) deliver all notices required to be delivered by
such person under this Agreement, including, without limitation, any
Claims Notice;
(v) receive all notices required to be delivered to
such person under this Agreement;
(vi) take any and all action on behalf of the
Shareholders from time to time as the Representative may deem necessary
or desirable to resolve and/or settle claims under this Agreement and
the other agreements contemplated hereby, including, without
limitation, Sections 9.2 above; and
(vii) take all action as the Representative may deem
necessary or advisable under this Agreement, and the other agreements
contemplated hereby including, without limitation, engaging and paying
for the services of attorneys, accountants and other persons to the
extent the Representative believes is desirable or necessary to
accomplish the purposes set forth in this Section 9.3(a) and delegating
to such persons as the Representative chooses the power and authority
to perform acts on behalf of the Representative.
28
<PAGE> 30
VERSION 5
November 19, 1998
(b) Replacement of the Representative. Upon the death,
disability or incapacity of the initial Representative appointed pursuant to
Section 9.3(a) above, the Principal Shareholder or his executor, guardian or
legal representative, as the case may be, shall appoint a replacement reasonably
believed by such person as capable of carrying out the duties and performing the
obligations of the Representative hereunder within thirty (30) days.
(c) Actions of the Representative; Liability of the
Representative. Parent and Sub shall be entitled to rely on any action taken by
the Representative, on behalf of the Shareholders, pursuant to Section 9.3(a)
above (each, an "Authorized Action"), and that each Authorized Action shall be
binding on each Shareholder as fully as if such person had taken such Authorized
Action. Each of Parent and Sub agrees that the Representative (in his/her
capacity as such) shall have no liability to them for any Authorized Action,
except to the extent that such Authorized Action is found by a final order of a
court of competent jurisdiction to have constituted fraud or willful misconduct.
Representative shall not be liable or responsible for, and the Shareholders
shall indemnify and hold Representative harmless from and against any claims
arising out of, any act done or step taken or omitted by Representative or any
mistake of fact or law or for anything which Representative may do or refrain
from doing, except for his/her gross negligence or willful misconduct.
9.4 Investigation and Confidentiality.
(a) Prior to the Effective Date, subject to the terms of the
Confidentiality Agreement and with prior notice to and the consent of the
Company, Parent may make or cause to be made such investigation of the business
and properties of the Company and its Subsidiaries as it deems necessary or
advisable to familiarize itself therewith. The Company shall permit Parent, its
authorized representatives and agents to (i) have full access to the premises,
books and records of the Company and its Subsidiaries at reasonable hours, (ii)
visit and inspect any of the properties of the Company and its Subsidiaries,
(iii) discuss the affairs, finances and accounts of the Company and its
Subsidiaries with the directors, officers, key employees and independent
accountants of the Company and its Subsidiaries, and (iv) discuss the business
of the Company and its Subsidiaries with their respective customers.
(b) If the transactions contemplated by this Agreement are not
consummated, Parent and Sub will not disclose or use at any time any information
and materials obtained by Parent, Sub or its Representatives concerning the
Company and its Subsidiaries, and Parent, Sub and its Representatives will
return to Company or destroy all memoranda, notes, plans, records, documentation
and other materials obtained from the Company or its Subsidiaries in connection
with the transactions contemplated by this Agreement. Whether or not the
transactions contemplated hereby are consummated, the Principal Shareholder will
maintain the confidentiality of all information and materials regarding Parent,
Sub and its Affiliates reasonably designated by Parent as confidential. If the
transactions contemplated by this
29
<PAGE> 31
VERSION 5
November 19, 1998
Agreement are consummated, the Principal Shareholder will maintain the
confidentiality of all proprietary and other non-public information regarding
the Company or any of its Subsidiaries.
9.5 Expenses. Except as otherwise provided herein, the parties hereto
will pay all of their own expenses (including fees and expenses of legal
counsel, investment bankers, brokers or other representatives and consultants
and appraisal fees and expenses) incurred in connection with or related to the
negotiation of this Agreement and the other agreements contemplated hereby, the
performance of its obligations hereunder and thereunder, and the consummation of
the transactions contemplated hereby and thereby; it being understood that the
Shareholders reimburse Company for all Merger Expenses incurred by the Company
after the date hereof through the Effective Date, and that neither the Company
nor any of its Subsidiaries will pay any of the Merger Expenses, arising after
the Effective Date in connection with the transactions contemplated hereby.
9.6 Exclusivity. The Principal Shareholder, the Company and its
Subsidiaries shall, and shall cause their officers, directors and affiliates to,
not discuss a possible sale or other disposition (whether by merger,
reorganization, recapitalization or otherwise) of all or any part of the capital
stock or assets of the Company or its Subsidiaries with any other party (an
"Acquisition Proposal") or provide any information to any other party regarding
the Company and its Subsidiaries other than information which is traditionally
provided in the regular course of their respective business operations to third
parties. In consideration of the foregoing, Parent shall pay to Company upon the
execution and delivery of this Agreement, a non-refundable fee of $5,000,000
(the "Exclusivity Fee") by wire transfer of immediately available funds;
provided, however, if the Merger is consummated as contemplated in this
Agreement, the Exclusivity Fee shall be credited against the Merger
Consideration in accordance with Section 3.2(a). Notwithstanding the foregoing,
Company shall return the Exclusivity Fee to Parent in the event the Merger is
not consummated because the Company is sold to another Person.
ARTICLE X
MISCELLANEOUS
10.1 Press Releases and Announcements. After the date hereof, no press
releases related to this Agreement and the transactions contemplated herein, or
other public announcements to the employees, customers or suppliers of the
Company or its Subsidiaries will be issued without the mutual approval of all
parties hereto, except any public disclosure which any party in good faith
believes is required by law or regulation or any stock exchange listing or
trading requirements, in which case the party making such press release or
announcement shall use reasonable efforts to advise and consult with the other
party and accommodate the other parties reasonable requests regarding the
content of any such press release prior to the issuance of such press release or
announcement.
30
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VERSION 5
November 19, 1998
10.2 Amendment and Waiver. This Agreement may be amended and any
provision of this Agreement may be waived, provided that any such amendment or
waiver will be binding upon a party only if such amendment or waiver is set
forth in a writing executed by Parent and, before the Effective Date, the
Company, and after the Effective Date, the Principal Shareholder and
Representative. No course of dealing between or among any persons having any
interest in this Agreement will be deemed effective to modify, amend or
discharge any part of this Agreement or any rights or obligations of any party
under or by reason of this Agreement.
10.3 Notices. All notices, demands and other communications given or
delivered under this Agreement will be in writing and will be deemed to have
been given when received by the party to whom they are sent. Notices, demands
and communications to the Shareholders, the Company and Parent will, unless
another address is specified in writing, be sent to the address indicated below:
<TABLE>
<S> <C>
Notices to Principal Shareholder: Notices to the Company:
c/o Ray H. Witt CMI International, Inc.
30333 Southfield Road 30333 Southfield Road
Southfield, MI 48076 Southfield, MI 48076
Attn: Richard A. Nawrocki
with a copy to: with a copy to:
Dean & Fulkerson, P.C. Dean & Fulkerson, P.C.
801 W. Big Beaver Rd., 5th Floor 801 W. Big Beaver Rd., 5th Floor
Troy, MI 48084 Troy, MI 48084
Attn: William G. Coon Attn: William G. Coon
Notices to Sub: Notices to Parent:
HL-CMI Holding Co. Hayes Lemmerz International, Inc.
c/o Hayes Lemmerz International, Inc. 3481 Huron River Drive
3481 Huron River Drive Romulus, MI 48174
Romulus, MI 48174 Attn: Chief Executive Officer
Attn: Chief Executive Officer
with a copy to: with a copy to:
Vice President, General Counsel and Vice President, General Counsel and
Secretary Secretary
Hayes Lemmerz International, Inc. Hayes Lemmerz International, Inc.
</TABLE>
31
<PAGE> 33
VERSION 5
November 19, 1998
<TABLE>
<S> <C>
3481 Huron River Drive 3481 Huron River Drive
Romulus, MI 48174 Romulus, MI 48174
Notices to Representative:
Ray H. Witt
[address to follow]
with a copy to:
Dean & Fulkerson, P.C.
801 W. Big Beaver Rd., 5th Floor
Troy, MI 48084
Attn: William G. Coon
</TABLE>
10.4 Binding Agreement; Assignment. This Agreement and all of the
provisions hereof will be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder may be
assigned by the Company or the Principal Shareholder without the prior written
consent of Parent or by Parent or Sub without the prior written consent the
Representative.
10.5 Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provisions or the remaining provisions of this Agreement.
10.6 No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction will be applied against any
person. Where specific language is used to clarify by example a general
statement contained herein, such specific language shall not be deemed to
modify, limit or restrict in any manner the construction of the general
statement to which it relates.
10.7 Captions. The captions used in this Agreement are for convenience
of reference only and do not constitute a part of this Agreement and will not be
deemed to limit, characterize or in any way affect any provision of this
Agreement, and all provisions of this Agreement will be enforced and construed
as if no caption had been used in this Agreement.
10.8 Entire Agreement. This Agreement and the documents referred to
herein contain the entire agreement between the parties and supersede any prior
understandings, agreements or
32
<PAGE> 34
VERSION 5
November 19, 1998
representations by or between the parties, written or oral, which may have
related to the subject matter hereof in any way.
10.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which taken
together will constitute one and the same instrument.
10.10 Governing Law; Submission to Jurisdiction; Representative as Agent
for Service of Process. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Michigan without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Michigan or any other jurisdiction) that would cause the application to this
Agreement of the laws of any jurisdiction other than the State of Michigan. All
legal proceedings arising out of or relating to this Agreement or any other
transactions contemplated hereby shall be brought either in the United States
District Court for the Eastern District of Michigan or in the Oakland County
Circuit Court. The parties irrevocably waive, to the fullest extent permitted by
law, any objection which they may now or hereafter have to the laying of the
venue of any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum.
10.11 Parties in Interest. Nothing in this Agreement, express or
implied, is intended to confer on any person other than the parties and their
respective successors and assigns any rights or remedies under or by virtue of
this Agreement.
10.12 Delivery by Facsimile. This Agreement and any signed agreement or
instrument entered into in connection with thereto or contemplated thereby, and
any amendments hereto or thereto, to the extent signed and delivered by means of
a facsimile machine, shall be treated in all manner and respects as an original
agreement or instrument and shall be considered to have the same binding legal
effects as if it were the original signed version thereof delivered in person.
At the request of any party hereto or to any such agreement or instrument, each
other party hereto or thereto shall re-execute original forms thereof and
deliver them to all other parties. No party hereto or to any such agreement or
instrument shall raise the use of a facsimile machine to deliver a signature or
the fact that any signature or agreement or instrument was transmitted or
communicated through the use of facsimile machine as a defense to the formation
of a contract and each such party forever waives any such defense.
ARTICLE XI
DEFINITIONS
As used in this agreement (including the Schedules hereto):
33
<PAGE> 35
VERSION 5
November 19, 1998
"Bonus Agreements" means those agreements described in Schedule 6.15
between the Company and certain executive employees which provide for the
payments of a special cash bonus to such executive employees upon the successful
closing of the Merger.
"Bonus Payments" means the payments to be made pursuant to the Bonus
Agreements.
"Data Room" means the room located at Company's headquarters in which
the due diligence materials were located.
"Data Room Index" means the index attached to the Disclosure Schedules.
"Disclosure Schedules" means the schedules incorporated by reference in
this Agreement.
"Joint Ventures" means A-CMI, a Michigan general partnership, A-CMI
Scandinavian Casting Center ANS, a Norwegian general partnership, and
Digitron-CMI LLC, an Ohio limited liability company.
"Material Adverse Effect" means a material adverse effect on the
business, operations, assets, properties, condition (financial or otherwise) of
the Company taken as a whole.
"Material Contract" means any contract, agreement or instrument to
which the Company or any Subsidiary is a party that: (a) is terminable only on
notice of one hundred eighty (180) days or more; or (b) involves the payment of
money or other consideration by or to the Company or the Subsidiary which is a
party to such contract having a value in excess of $500,000, in any twelve month
period; provided, however, that Material Contract shall not include purchase
orders or other contracts for the sale of products or services by the Company or
its Subsidiaries entered into in the ordinary course of business consistent with
past practice.
"Merger Expenses" means the legal, accounting, environmental, title
search and other out-of-pocket expenses incurred by the Company or on behalf of
the Shareholders in connection with the Merger and the other transactions
contemplated by this Agreement including, without limitation, the Bonus
Payments; the fees and expenses paid or payable to Salomon Smith Barney for its
services; the fees and expenses of attorneys, accountants and other persons
engaged by the Representative after the Effective Date; and any other fees,
expenses and costs which are incurred by or at the direction of the
Representative in the performance of the activities pursuant to Section 9.3
hereof.
"Non-Core Assets" means the assets identified on Schedule 6.8.
"Non-Core Subsidiaries" means the subsidiaries identified on Schedule
6.8.
34
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VERSION 5
November 19, 1998
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Record Date Shareholders' List" means the list of Shareholders of the
Company as of the record date established by the board of directors for the
purpose of identifying the shareholders entitled to receive the Merger
Consideration.
"Subsidiaries" means the subsidiaries of the Company identified in
Schedule 6.3 hereto.
* * * * * * * * * *
35
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[This page intentionally left blank]
36
<PAGE> 38
VERSION 5
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
HAYES LEMMERZ INTERNATIONAL, INC.
By:_______________________________
Its:______________________________
HL-CMI HOLDING COMPANY
(A CORPORATION TO BE FORMED)
By: Hayes Lemmerz International, Inc.
By:_______________________________
Its:______________________________
CMI INTERNATIONAL, INC.
By:_______________________________
Its:______________________________
PRINCIPAL SHAREHOLDER
___________________________________
Ray H. Witt, Trustee of the
Ray H. Witt Living Trust
Agreement dated December 2,
1981, as amended and
restated.
REPRESENTATIVE
___________________________________
Only for the purpose of
accepting the appointment
in accordance with Section
9.3 hereof
37
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 17,800
<SECURITIES> 0
<RECEIVABLES> 173,600
<ALLOWANCES> 0
<INVENTORY> 161,100
<CURRENT-ASSETS> 371,400
<PP&E> 1,025,700
<DEPRECIATION> (175,000)
<TOTAL-ASSETS> 2,002,200
<CURRENT-LIABILITIES> 492,600
<BONDS> 0
0
0
<COMMON> 300
<OTHER-SE> 206,800
<TOTAL-LIABILITY-AND-EQUITY> 2,002,200
<SALES> 443,900
<TOTAL-REVENUES> 443,900
<CGS> 361,200
<TOTAL-COSTS> 361,200
<OTHER-EXPENSES> 25,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,400
<INCOME-PRETAX> 34,700
<INCOME-TAX> 14,600
<INCOME-CONTINUING> 19,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,700
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.62
</TABLE>
