AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 2004
REGISTRATION NO. [ ]
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
AUTOCAM CORPORATION
GUARANTORS LISTED ON SCHEDULE A HERETO
(Exact Name of Registrants as Specified in their Charters)
<Table>
MICHIGAN 3714 38-2790152
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</Table>
4070 EAST PARIS AVENUE SOUTHEAST
KENTWOOD, MICHIGAN 49512
(616) 698-0707
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
---------------------
WARREN A. VELTMAN
CHIEF FINANCIAL OFFICER,
SECRETARY AND TREASURER
AUTOCAM CORPORATION
4070 EAST PARIS AVENUE SOUTHEAST
KENTWOOD, MICHIGAN 49512
(616) 698-0707
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
---------------------
COPY TO:
JEFFREY BAGNER, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON LLP
ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10004
(212) 859-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED EXCHANGE OFFER: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE FEE
- -------------------------------------------------------------------------------------------------------------------------------
10.875% Senior Subordinated Notes due
2014..................................... $140,000,000 100% $140,000,000 $17,738
- -------------------------------------------------------------------------------------------------------------------------------
Guarantees of 10.875% Senior Subordinated
Notes due 2014........................... $140,000,000 (2) (2) (2)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act.
(2) No separate filing fee is required pursuant to Rule 457(n) under the
Securities Act.
---------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SHALL SPECIFICALLY STATE THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND
EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
SCHEDULE A
GUARANTORS
TITAN HOLDINGS, INC.
AUTOCAM-PAX, INC.
AUTOCAM SOUTH CAROLINA, INC.
AUTOCAM GREENVILLE, INC.
AUTOCAM ACQUISITION, INC.
AUTOCAM LASER TECHNOLOGIES, INC.
AUTOCAM INTERNATIONAL LTD.
AUTOCAM INTERNATIONAL SALES CORPORATION
AUTOCAM EUROPE B.V.
The information in this prospectus is not complete and may be changed. We may
not sell these securities or consummate the exchange offer until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell or exchange these securities
and it is not soliciting an offer to acquire or exchange these securities in any
jurisdiction where the offer, sale or exchange is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 23, 2004.
PROSPECTUS
LOGO TK
AUTOCAM CORPORATION
EXCHANGE OFFER FOR
$140,000,000
10.875% SENIOR SUBORDINATED NOTES DUE 2014
We are offering to exchange 10.875% senior subordinated notes due 2014 for our
currently outstanding 10.875% senior subordinated notes due 2014. The new notes,
or exchange notes, have substantially the same terms as the outstanding notes,
except that the exchange notes will have been registered under the federal
securities laws and will not bear any legend restricting their transfer. The
exchange notes will be issued under the same indenture as the outstanding notes.
The exchange notes will be our senior subordinated unsecured obligations and
will rank junior to all of our existing and future senior debt, including our
new senior credit facilities. The exchange notes will rank equally with all of
our future senior subordinated unsecured debt. The exchange notes will be
guaranteed by Titan Holdings, Inc., our direct parent company, substantially all
of our existing and future domestic subsidiaries, and one of our foreign
subsidiaries, Autocam Europe B.V. The guarantees will be subordinated to all of
the existing and future senior debt of the guarantors, including our new senior
credit facilities.
The principal features of the exchange offer are as follows:
- Expires 5:00 p.m., New York City time, on , 2004, unless
extended.
- We will exchange all outstanding notes that are validly tendered and not
validly withdrawn prior to the expiration of the exchange offer.
- You may withdraw tendered outstanding notes at any time prior to the
expiration of the exchange offer.
- The exchange of outstanding notes for exchange notes pursuant to the
exchange offer will be a tax free event for United States federal tax
purposes.
- We will not receive any proceeds from the exchange offer.
- We do not intend to apply for listing of the exchange notes on any
securities exchange or automated quotation system.
Broker-dealers receiving exchange notes in exchange for outstanding notes
acquired for their own account through market-making or other trading activities
must deliver this prospectus in any resale of the exchange notes.
Investing in the exchange notes involves risks that are described in the
"Risk Factors" section beginning on page 12 of this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is , 2004
YOU SHOULD RELY ONLY UPON THE INFORMATION PROVIDED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. YOU SHOULD
NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE
OTHER THAN THE DATE OF THIS PROSPECTUS.
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
----
Where You Can Find More Information......................... ii
Market and Industry Data.................................... iii
Forward-Looking Statements.................................. iii
Prospectus Summary.......................................... 1
Summary Financial Information............................... 11
Risk Factors................................................ 12
Use of Proceeds............................................. 26
Capitalization.............................................. 27
Selected Financial Information and Other Data............... 28
Unaudited Pro Forma Condensed Consolidated Financial
Information............................................... 29
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 33
Business.................................................... 48
Management.................................................. 62
Acquisition................................................. 69
Principal Stockholders...................................... 70
Related Party Transactions.................................. 71
Description of Certain Indebtedness......................... 72
The Exchange Offer.......................................... 75
Description of Exchange Notes............................... 84
U.S. Federal Income Tax Considerations...................... 133
Plan of Distribution........................................ 139
Legal Matters............................................... 140
Experts..................................................... 140
Index to Financial Information.............................. F-1
</Table>
----------------------
Autocam Corporation is a Michigan corporation. Our principal executive
offices are located at 4070 East Paris Avenue Southeast, Kentwood, Michigan
49512, and our telephone number at that address is (616) 698-0707. We are a
wholly owned subsidiary of Titan Holdings, Inc., a Delaware corporation, which
in turn is a wholly owned subsidiary of Micron Holdings, Inc., a Delaware
corporation.
In this prospectus, unless the context otherwise requires
- "Parent" refers to Micron Holdings, Inc.,
- "Holdings" refers to Titan Holdings, Inc. or Titan,
- "we," "our" or "us" refer to Holdings together with its consolidated
subsidiaries, and
- "Autocam" refers to Autocam Corporation, a wholly owned subsidiary of
Holdings, and the obligor under the exchange notes and the outstanding
notes, and
- "Outstanding notes" refers to all the 10.875% Senior Subordinated Notes
due 2014 that were issued in a private placement transaction on June 10,
2004 and "exchange notes" refers to the 10.875% Senior Subordinated Notes
due 2014 offered pursuant to this prospectus. We sometimes refer to the
outstanding notes and the exchange notes collectively as the "notes."
i
Unless otherwise indicated, all references in this prospectus to fiscal years
are to the year ending on December 31. Unless the context requires otherwise,
all references in this prospectus to "2003," "2002" and "2001" relate to the
fiscal years ended December 31, 2003, December 31, 2002 and December 31, 2001.
NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES
WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY
REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A
FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER
RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE
FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION
MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE MERITS OR
QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR
TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE
PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH THE
PROVISIONS OF THIS PARAGRAPH.
----------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY US. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH AN OFFER TO SELL OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
----------------------
WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of a registration statement of Form S-4 that we
filed with the Securities and Exchange Commission (the "SEC"). This prospectus
does not contain all of the information in that registration statement. For
further information with respect to us and the notes, see the registration
statement, including the exhibits.
You may read and copy any document we file at the SEC's public reference
room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further
information. Our filings will also be available to the public from commercial
document retrieval services and at the web site maintained by the SEC at
http://www.sec.gov.
Statements made in this prospectus as to the contents of any contract,
agreement, or other documents referred to are not necessarily complete. For a
more complete understanding and description of each contract, agreement or other
document filed as an exhibit to the registration statement, we encourage you to
read the documents contained in the exhibits.
We are not currently required to file periodic reports or any other
information required by the Securities Exchange Act of 1934, as amended.
However, under the indenture for the notes, we have agreed to furnish to holders
of the notes, within the time periods specified in the SEC's rules and
regulations, all quarterly and annual financial information that would be
required to be filed with the SEC on Forms 10-Q and 10-K if we were required to
file such forms and all current reports that would be required to be filed with
the SEC on Form 8-K if we were required to file these reports.
ii
Following the consummation of the exchange offer, whether or not required by the
SEC, we will file a copy of all of the information and reports referred to in
the preceding sentence with the SEC for public availability within the time
periods specified in the SEC's rules and regulations (unless the SEC will not
accept these filings) and make this information available to securities analysts
and prospective investors upon request.
In addition, we have agreed that we will furnish to holders and securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act of 1933, as
amended, or the Securities Act, until we have either exchanged the outstanding
notes pursuant to the exchange offer or until holders of the outstanding notes
have disposed of their notes pursuant to an effective registration statement
under the Securities Act.
----------------------
MARKET AND INDUSTRY DATA
Market and industry data included in this prospectus, including all market
share and market size data, are based on estimates of our management. These
estimates have been derived from our management's knowledge and experience in
the markets in which we operate, as well as information obtained from internal
research and surveys, our customers, distributors, suppliers, trade and business
organizations and other contacts in the markets in which we operate. Estimates
about the end use markets for our products and the automotive industry have been
derived from the sources above and from independent industry surveys from CSM
Worldwide Inc., or CSM Worldwide. CSM Worldwide is an independent market
research firm for the automotive industry. Although we believe that these
sources are generally reliable, we have not independently verified data from
these sources or obtained third party verification of market share data and do
not guarantee the accuracy or completeness of this information. In addition,
data regarding market position and market share within our industry is intended
to provide general guidance but is inherently imprecise. References herein to
our being a leader in a market or product category refers to our having a
leading market share position among "independent" manufacturers, unless the
context otherwise requires. In many cases, the in-house machining operations of
our Tier I customers manufacture similar products to our products. References to
our market position among "independent" manufacturers exclude products produced
by Tier I suppliers. References to the market size of such markets refer to the
entire market, including products produced by our Tier I customers and
independent manufacturers.
References in this prospectus to
- Tier I suppliers refer to suppliers, like Delphi Corporation or Visteon
Corporation, who sell directly to original equipment vehicle
manufacturers,
- OEMs refer to original equipment vehicle manufacturers like
DaimlerChrysler Corporation, Ford Motor Company or General Motors
Corporation, and
- Tier II suppliers refer to suppliers like us who sell components,
sub-assemblies and assemblies to Tier I suppliers.
----------------------
FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements," within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act with
respect to our financial condition, results of operations and business and our
expectations or beliefs concerning future events. You can generally identify
forward-looking statements by our use of forward-looking terminology like
"believes," "expects," "anticipates," "estimates," "intends," "plans,"
"targets," "likely," "will," "would," "could" and similar expressions.
All forward-looking statements involve risks and uncertainties. Many risks
and uncertainties are inherent in our industry and markets. Others are more
specific to our operations. The occurrence of
iii
the events described and the achievement of the expected results depend on many
events, some or all of which are not predictable or within our control. Actual
results may differ materially from the forward looking statements contained in
this prospectus.
Factors that could cause actual results to differ materially from those
expressed or implied by the forward-looking statements include:
- risks associated with our substantial indebtedness, leverage and debt
service;
- risks related to the notes and to high yield securities generally;
- the cyclical nature of the automotive industry;
- performance of our business and future operating results;
- general business and economic conditions, particularly an economic
downturn;
- the loss of one or more significant customers;
- changes in prices in and availability of raw materials;
- risks of increased competition and pricing pressures in our existing and
future markets;
- loss of any key executives;
- increases in the cost of compliance with laws and regulations, including
environmental laws and regulations;
- risks related to our acquisition strategy and integration of acquired
businesses;
- fluctuations in currency exchange and interest rates;
- risks associated with international operations;
- catastrophic loss of any of our key manufacturing facilities;
- seasonality; and
- the other risks described as "Risk Factors" beginning on page 12.
All future written and verbal forward-looking statements attributable to us
or any person acting on our behalf are expressly qualified in their entirety by
the cautionary statements contained or referred to in this section. We undertake
no obligation, and specifically decline any obligation, to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this prospectus might not
occur.
iv
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information that
may be important to you. We urge you to read this entire prospectus carefully,
including the "Risk Factors" section and our consolidated financial statements
and related notes included elsewhere in this prospectus. For an explanation of
market and industry data, see "Market and Industry Data."
OUR COMPANY
GENERAL
We are a leading independent manufacturer of a diverse mix of highly
engineered, precision-machined, metal alloy components for many of the world's
leading Tier I automotive parts suppliers. We focus on higher value-added
products and emphasize product categories likely to benefit from technological
innovation. Within each of our product categories, we strive to migrate our
product portfolio up the "value pyramid" described below by focusing on
sub-assemblies, complete assemblies and other products that we believe generate
margins above most of our peers. Our technology and manufacturing know-how
allows us to produce complex parts requiring extremely close tolerances in the
single digit micron range, with one micron equaling 1/88th the width of a human
hair. Given the high performance and safety critical nature of the applications
where our parts are used, our products very often approach zero-defect quality
levels.
We believe that over 80% of our sales are generated in product categories,
including power steering, fuel injection, airbags and electric motors, where we
hold a number one market position relative to other independent manufacturers.
We believe our scale and precision manufacturing capabilities provide a
significant competitive advantage over our independent competitors, many of
which are smaller and lack the capital or technology to compete effectively with
us. In addition, our scale allows us to pursue long production runs of high
volume parts, enabling us to lower average manufacturing costs. Our in-house
application engineering expertise allows us to fully integrate with customers'
application design and engineering efforts during the prototyping stage, further
entrenching our competitive position. Our expertise has allowed us to achieve
sole-source contracts covering an estimated 80% of our 2003 sales, which we
believe provides greater visibility and stability to earnings and cash flow.
For the year ended December 31, 2001, we generated total sales of $236.5
million, for the year ended December 31, 2002, we generated total sales of
$275.1 million, for the year ended December 31, 2003, we generated total sales
of $323.2 million, for the three months ended June 30, 2004, we generated total
sales of $91.6 million and for the six months ended June 30, 2004, we generated
total sales of $184.5 million. We believe we are well positioned to continue to
increase our sales as we continue to benefit from favorable industry trends.
OUR PRODUCTS
Our products include precision-machined automotive components,
sub-assemblies and assemblies. Generally, our products are platform neutral
because they are not tied to any specific OEM models or platforms. We sell our
products principally to North American and European Tier I automotive suppliers,
which integrate these components into their own product offerings. These product
offerings are in turn sold directly to OEMs primarily for the manufacture of new
passenger vehicles and light trucks. A normal product life cycle for our
products is typically five to seven years.
We specifically target product categories that leverage our unique
competencies and that we expect will further entrench our leading market
positions. To this end, we are guided by a conceptual framework we refer to as
the Autocam "value pyramid." We use the value pyramid to guide decisions
regarding which product categories to target, which new business opportunities
to pursue within
1
each product category and which existing programs to exit. Our ultimate goal is
to move our product offering up the value pyramid. The higher levels of the
value pyramid generally include products where we are involved from the
prototype-stage, specialty products, sub-assemblies, assemblies and selected
products for niche applications. These products typically have the following
characteristics:
- high engineering and design content;
- very close manufacturing tolerances at high volumes;
- use of proprietary manufacturing know-how and specialty manufacturing
equipment; and
- high customer switching costs.
We manufacture and sell over 200 types of precision automotive components
for five primary product categories. Below is an overview of what we believe is
our market position and market share and the market size of our five primary
product categories.
<Table>
<Caption>
MARKET POSITION
AMONG OVERALL OUR PERCENTAGE OF
INDEPENDENT MARKET SIZE(2) MARKET OUR 2003
PRODUCT CATEGORY SUPPLIERS(1) (IN MILLIONS) SHARE(2) SALES
- ---------------- --------------- -------------- -------- -------------
Fuel Injection(3)............. #1 $770 13% 34%
Power Steering................ #1 984 12 31
Electric Motors............... #1 223 15 13
Braking....................... #4 275 10 8
Airbags....................... #1 203 9 6
</Table>
- ---------------
(1) Management estimate of market position among independent suppliers and does
not take into account products made by Tier I suppliers.
(2) Management estimate of overall market size and our market share, including
independent and Tier I suppliers.
(3) For purposes of determining market position, market size and market share,
fuel injection reflects only light-vehicle fuel injection products. Our 2003
sales includes sales of heavy vehicle fuel injection products.
We are a leading independent manufacturer of precision-machined components,
sub-assemblies and assemblies in all five product categories in which we
operate.
- Fuel injection has historically been our largest product category. Within
the fuel injection product category, we manufacture components like disk
checks, pole pieces, valves, seat guides, diesel pump bodies, diesel
cases, sleeves and inlet tubes. These components are integrated into
products that are sold primarily into the North American operations of
OEMs.
- Power steering has historically been our second largest product category.
Within the power steering product category, we manufacture valve
assemblies, as well as components like sleeves, torsion bars, input
shafts, pinions and worms. These components are integrated into products
that are sold primarily into the European operations of OEMs.
- Our products within the electric motors product category primarily
include gears, gear sub-assemblies and worm shafts. These components are
integrated into products that are sold primarily into the European
operations of OEMs.
- Within the braking product category, we manufacture components like
sleeves, push rods, seats and valve rods. These components are integrated
into products that are sold into European and North American operations
of OEMs.
- We entered the airbag market in 2001 when we acquired some of the assets
of Chicago based Har Technologies, Inc., or Har Technologies, which we
regarded as a leader in
2
machined airbag components in North America at that time. Within the
airbag product category, we presently manufacture components like
collars, adaptors, projectiles, chargeholders and diffusers. These
components are integrated into products that are sold primarily into the
North American operations of OEMs.
In addition to our core product categories, we also manufacture components
and assemblies for other automotive applications and for medical devices.
Components for use in medical devices include hand pieces for use in ophthalmic
surgery and laser cut coronary and aortic stents. Our customers are among the
leaders in their respective markets for ophthalmic surgical devices and
minimally invasive stent delivery systems.
INDUSTRY TRENDS
We primarily operate within the automotive parts industry. The markets in
that industry in which we operate are very fragmented, niche markets where most
of our independent competitors are much smaller. Currently, we believe several
significant existing and emerging trends are impacting the automotive industry.
We believe our business is well positioned to benefit from these trends,
including:
- Outsourcing Trends by Tier I Suppliers;
- Increasing Demand for Global Capabilities;
- Increasing Demand for Safety and Convenience Features;
- Diesel Fuel Trends; and
- Continued Penetration of Import Brand OEMs in North America.
COMPETITIVE STRENGTHS
- Industry leader in strategically targeted markets;
- Business visibility supported by long-term contracts;
- Well entrenched positions with Tier I customer base;
- Diverse business mix;
- Culture of lean manufacturing and continuous improvement; and
- Experienced and motivated management team.
BUSINESS STRATEGY
Our goals are to continue to increase our leading market position and
leverage our manufacturing expertise and customer relationships to increase our
sales and cash flow. Our strategy to achieve these goals includes the following
initiatives:
- Focus on high growth and higher value-added product offerings;
- Align sales and marketing efforts with leading Tier I suppliers;
- Exploit technical manufacturing strength;
- Continuously pursue productivity improvements and lean manufacturing; and
- Selectively pursue strategic acquisitions.
3
RECENT DEVELOPMENTS
On June 21, 2004, Micron Merger Corporation, a newly formed entity and
wholly owned subsidiary of Parent, merged with and into Holdings with Holdings
continuing as the surviving corporation. The total amount of consideration paid
in the merger, including amounts related to the repayment of indebtedness, the
redemption of the outstanding preferred stock of Holdings, payments to owners of
outstanding common stock of Holdings and the payment of transaction costs
incurred by Holdings, was approximately $395.0 million. The acquisition was
financed with the net proceeds from the issuance of the outstanding notes,
borrowings under our new senior credit facilities and a common equity
contribution of $143.0 million by GS Capital Partners 2000, L.P., or GSCP 2000,
other private equity funds affiliated with GSCP 2000, Transportation Resource
Partners LP, or TRP, other investment vehicles affiliated with TRP, and John C.
Kennedy, our president. The transaction is referred to in this prospectus as the
"acquisition." See "Acquisition."
THE FINANCIAL SPONSORS
GSCP 2000
Since 1982, private equity funds affiliated with Goldman, Sachs & Co. have
invested $15 billion in over 500 companies. These Goldman Sachs private equity
funds make investments on a global basis in a wide variety of transactions
including private equity, leveraged buyouts and venture capital. GSCP 2000 is
the current primary equity investment vehicle of Goldman Sachs. The GSCP 2000
family of funds was formed in July 2000 with total committed capital of $5.25
billion, $1.6 billion of which was committed by Goldman, Sachs & Co. and its
employees and the remainder by institutional and individual investors.
TRP
TRP is a $265 million private equity fund that makes leveraged investments
in growth-oriented companies operating in the transportation and transportation
services industry. TRP's philosophy is to identify attractive investment
situations where it can work in partnership with management to support growth.
TRP's principals have extensive operating and investing experience in the
transportation industry. TRP focuses on businesses having enterprise values of
up to $500 million. TRP, along with its predecessor fund, Penske Capital
Partners, has been responsible for managing over $600 million of equity capital.
Current investors in TRP include both strategic investors and financial
institutions.
4
OWNERSHIP STRUCTURE
The following chart sets forth our ownership structure.
[FLOW CHART]
5
THE EXCHANGE OFFER
On June 10, 2004, we completed the offering of $140 million aggregate
principal amount of 10.875% senior subordinated notes due 2014 in a transaction
exempt from registration under the Securities Act. The net proceeds of that
offering were used to fund a portion of the purchase price for the acquisition.
In connection with that offering, we entered into a registration rights
agreement with the initial purchasers of the outstanding notes, in which we
agreed to commence this exchange offer. Accordingly, you may exchange your
outstanding notes for exchange notes which have substantially the same terms.
You should read the discussion under the headings "The Exchange Offer" and
"Description of Exchange Notes" for further information regarding the exchange
notes to be issued in the exchange offer.
Securities Offered............ Up to $140,000,000 aggregate principal amount
of 10.875% senior subordinated notes due 2014,
registered under the Securities Act. The terms
of the exchange notes offered in the exchange
offer are substantially identical to those of
the outstanding notes, except that the transfer
restrictions, registration rights and penalty
interest provisions relating to the outstanding
notes do not apply to the exchange notes.
The Exchange Offer............ We are offering exchange notes in exchange for
a like principal amount of our outstanding
notes. We are offering these exchange notes to
satisfy our obligations under a registration
rights agreement which we entered into with the
initial purchasers of the outstanding notes.
You may tender your outstanding notes for
exchange notes by following the procedures
described under the heading "The Exchange
Offer."
Tenders; Expiration Date;
Withdrawal.................... The exchange offer will expire at 5:00 p.m.,
New York City time, on , 2004, unless
we extend it. If you decide to exchange your
outstanding notes for exchange notes, you must
acknowledge that you are not engaged in, and do
not intend to engage in, a distribution of the
exchange notes. You may withdraw any
outstanding notes that you tender for exchange
at any time prior to the expiration of this
exchange offer. See "The Exchange
Offer -- Terms of the Exchange Offer" for a
more complete description of the tender and
withdrawal period.
Certain Material U.S. Federal
Tax Considerations............ Your exchange of outstanding notes for exchange
notes to be issued in the exchange offer will
not result in any gain or loss to you for
United States federal income tax purposes. See
"U.S. Federal Income Tax Considerations" for a
summary of material United States federal
income tax consequences associated with the
exchange of outstanding notes for the exchange
notes and the ownership and disposition of
those exchange notes.
Use Of Proceeds............... We will not receive any cash proceeds from the
exchange offer.
Exchange Agent................ J.P. Morgan Trust Company, National
Association.
6
Shelf Registration............ If applicable interpretations of the staff of
the SEC do not permit us to effect the exchange
offer, we will be required to use all
commercially reasonable efforts to file, and
cause to become effective, a shelf registration
statement under the Securities Act, which would
cover resales of outstanding notes.
Consequences Of Failure To
Exchange Your Outstanding
Notes......................... Outstanding notes not exchanged in the exchange
offer will continue to be subject to the
restrictions on transfer that are described in
the legend on the outstanding notes. In
general, you may offer or sell your outstanding
notes only if they are registered under, or
offered or sold under an exemption from, the
Securities Act and applicable state securities
laws. We do not currently intend to register
the outstanding notes under the Securities Act.
If your notes are not tendered and accepted in
the exchange offer, it may become more
difficult for you to sell or transfer your
outstanding notes.
Exchanging Your Outstanding
Notes......................... Based on interpretations of the staff of the
SEC, we believe that you may offer for sale,
resell or otherwise transfer the exchange notes
that we issue in the exchange offer without
complying with the registration and prospectus
delivery requirements of the Securities Act if:
- you acquire the exchange notes issued in
the exchange offer in the ordinary
course of your business;
- you are not participating, do not intend
to participate, and have no arrangement
or undertaking with anyone to
participate, in the distribution of the
exchange notes issued to you in the
exchange offer; and
- you are not an "affiliate" of us, as
described in Rule 405 of the Securities
Act.
If any of these conditions are not satisfied
and you transfer any exchange notes issued to
you in the exchange offer without delivering a
proper prospectus or without qualifying for a
registration exemption, you may incur liability
under the Securities Act. We will not be
responsible for, or indemnify you against, any
liability you incur.
Any broker-dealer that acquires exchange notes
in the exchange offer for its own account in
exchange for outstanding notes which it
acquired through market-making or other trading
activities must acknowledge that it will
deliver this prospectus when it resells or
transfers any exchange notes issued in the
exchange offer. See "Plan of Distribution" for
a description of the prospectus delivery
obligations of broker-dealers.
7
THE EXCHANGE NOTES
Issuer........................ Autocam Corporation, a Michigan corporation.
Securities Offered............ $140,000,000 aggregate principal amount of
10.875% senior subordinated notes due 2014.
Maturity Date................. June 15, 2014.
Interest Rate................. 10.875% per annum.
Ranking....................... The notes will be our general unsecured senior
subordinated obligations, will be subordinated
to our existing and future senior indebtedness
and will rank equally with our future senior
subordinated indebtedness.
In addition, the notes will effectively rank
junior to our secured indebtedness and to the
secured indebtedness of all of our subsidiaries
to the extent of the value of the assets
securing the indebtedness and will be
structurally subordinated to all liabilities of
our subsidiaries that are not guaranteeing the
notes. Because the notes are subordinated, in
the event of bankruptcy, liquidation or
dissolution, holders of the notes will not
receive any payment until holders of senior
indebtedness have been paid in full.
As of June 30, 2004 (other than intercompany
indebtedness):
- Autocam had outstanding $44.0 million of
senior indebtedness consisting of
borrowings under our new senior credit
facilities, no senior subordinated
indebtedness outstanding other than the
notes and no indebtedness outstanding
that is subordinate to the notes;
- our subsidiaries that guaranteed the
notes had no indebtedness outstanding
(other than guarantees of indebtedness
of Autocam) and $20.4 million of trade
payables and other liabilities; and
- our subsidiaries that did not guarantee
the notes had $83.8 million of
indebtedness outstanding, including
E 62.7 ($75.8 million as of June 30,
2004) of borrowings under our new senior
credit facilities, and $89.2 million of
trade payables and other liabilities.
See "Description of Exchange
Notes -- Subordination."
Guarantees.................... The notes will be guaranteed by Holdings, our
direct parent, all of our existing and future
domestic restricted subsidiaries and one of our
foreign subsidiaries, Autocam Europe B.V. See
"Description of Exchange Notes -- The
Guarantees."
The guarantees will be general unsecured
obligations of each guarantor, will be
subordinated to any existing and future senior
indebtedness of our guarantors and will rank
equally with any senior subordinated
indebtedness of our guarantors.
Optional Redemption........... We cannot redeem the notes until June 15, 2009,
except as described in the preceding paragraph
and as described
8
below. On or after June 15, 2009, we may redeem
all or a portion of the notes at the redemption
prices set forth in this prospectus, plus
accrued and unpaid interest to, but not
including, the redemption date. See
"Description of Exchange Notes -- Optional
Redemption."
Optional Redemption After
Equity Offerings.............. At any time prior to June 15, 2007, on one or
more occasions, we may redeem up to 35% of the
aggregate principal amount of the notes at a
purchase price equal to 110.875% of the
principal amount of the notes, plus accrued and
unpaid interest to, but not including, the
redemption date, in an amount up to the net
cash proceeds of one or more specified equity
offerings or contributions if at least 65% of
the aggregate principal amount of the notes
originally issued under the indenture remain
outstanding after the redemption. See
"Description of Exchange Notes -- Optional
Redemption."
Mandatory Offer to
Repurchase.................... If we sell assets without applying the net
proceeds in a specified manner, or experience
specified change of control events, each holder
of notes may require us to repurchase all or a
portion of its notes at a price of 101% of the
principal amount of the notes, plus accrued and
unpaid interest to, but not including, the
repurchase date. See "Description of Exchange
Notes -- Repurchase at the Option of Holders."
Our new senior credit facilities may restrict
us from repurchasing any of the notes,
including any repurchase we may be required to
make as a result of a change of control or
certain asset sales. See "Risk Factors -- Risks
Related to the Notes -- We may not have the
ability to raise the funds necessary to finance
any change of control offer required by the
indenture."
Covenants..................... The indenture governing the notes contains
covenants that limit our ability and the
ability of our restricted subsidiaries to:
- incur additional indebtedness or issue
disqualified stock or preferred stock;
- pay dividends on, redeem or repurchase
our capital stock;
- make investments or acquisitions;
- create liens;
- sell assets;
- restrict dividends or other payments to
us;
- guarantee indebtedness;
- engage in transactions with affiliates;
and
- consolidate, merge or transfer all or
substantially all of our assets.
9
These covenants are subject to important
exceptions and qualifications, which are
described under the heading "Description of
Exchange Notes" in this prospectus.
Trustee....................... J.P. Morgan Trust Company, National
Association.
Governing Law................. New York.
----------------------
RISK FACTORS
You should carefully consider all the information in this prospectus prior
to participating in the exchange offer. In particular, we urge you to consider
carefully the factors set forth under "Risk Factors" beginning on page 12 of
this prospectus.
10
SUMMARY FINANCIAL INFORMATION
The following table sets forth a summary of our consolidated historical
financial data for each of the years 2001, 2002 and 2003, which have been
derived from the consolidated financial statements of Holdings which have been
audited by Deloitte & Touche LLP, an independent public registered accounting
firm, and for the six months ended June 30, 2003 and June 30, 2004, which have
been derived from our unaudited consolidated financial statements. Those columns
denoted as "predecessor" represent statements of operations and balance sheet
data determined using the historical cost basis relevant to our predecessor
shareholders. In the opinion of management, the unaudited financial data
includes all adjustments, consisting of only normal recurring adjustments,
considered necessary for a fair presentation of this information. The results of
operations for interim periods are not necessarily indicative of the results
that may be expected for the entire year. The following data should be read in
conjunction with our consolidated financial statements and related notes,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Unaudited Pro Forma Financial Information."
<Table>
<Caption>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------------------- -----------------------------
2001 2002 2003 2003 2004
(predecessor) (predecessor) (predecessor) (predecessor) (predecessor)
------------- ------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
STATEMENTS OF OPERATIONS DATA:
Sales......................... $236,452 $275,117 $323,210 $166,829 $184,489
Cost of sales................. 201,757 231,334 280,070 142,870 153,426
-------- -------- -------- -------- --------
Gross profit.................. 34,695 43,783 43,140 23,959 31,063
Selling, general and
administrative expenses..... 16,415 16,698 17,577 8,723 17,337
-------- -------- -------- -------- --------
Income from operations........ 18,280 27,085 25,563 15,236 13,726
Interest and other expense,
net......................... 17,782 15,931 13,872 6,724 8,338
Minority interest in net
income (loss)............... 317 (21)
Tax provision................. 1,540 4,635 4,697 3,506 3,211
-------- -------- -------- -------- --------
Net income (loss)............. $ (1,359) $ 6,540 $ 6,994 $ 5,006 $ 2,177
======== ======== ======== ======== ========
</Table>
<Table>
<Caption>
AS OF DECEMBER 31, AS OF JUNE 30,
--------------------------------------------- --------------
2001 2002 2003 2004
(predecessor) (predecessor) (predecessor)
------------- ------------- ------------- ----
(UNAUDITED)
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA (END OF PERIOD):
Cash and equivalents....................... $ 9,830 $ 4,996 $ 1,075 $ 7,203
Working capital(1)......................... 34,190 27,957 22,113 26,050
Property, plant and equipment, net......... 142,758 156,964 173,580 149,948
Total assets............................... 371,700 392,335 409,075 518,235
Total debt................................. 153,071 146,082 133,888 264,686
</Table>
- ---------------
(1) Working capital is defined as current assets (excluding cash and cash
equivalents) less current liabilities (excluding current portion of
long-term indebtedness).
11
RISK FACTORS
You should carefully consider the risks described below, as well as other
information and data included in this prospectus, before participating in the
exchange offer or deciding whether to invest in the notes. The risks described
below may not be the only ones we face. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial may also
adversely affect our business, financial condition or results of operations,
which may result in your loss of all or part of your original investment.
RISKS RELATED TO THE NOTES
WE HAVE SUBSTANTIAL INDEBTEDNESS, WHICH COULD AFFECT OUR ABILITY TO MEET OUR
OBLIGATIONS UNDER THE NOTES AND MAY OTHERWISE RESTRICT OUR ACTIVITIES.
We have substantial debt and may incur substantial debt in the future. As
of June 30, 2004, we had total indebtedness of approximately $264.7 million,
including the unamortized original issue discount on the notes. In addition, as
of that date, $25.1 million was available for future borrowings under the
multi-currency revolving credit facility and E 11.6 million was available to
Autocam France, SARL under the euro denominated revolving credit facility of our
new senior credit facilities. See "Description of Certain Indebtedness -- New
Senior Credit Facilities." We are also permitted under the terms of the notes to
incur substantial additional indebtedness in the future that will intensify the
leverage related risks described below.
Our substantial indebtedness could have important consequences to you. For
example, it could:
- make it more difficult for us to satisfy our obligations under the notes;
- require us to dedicate a substantial portion of our cash flow to payments
on our indebtedness, which would reduce the amount of cash flow available
to fund working capital, capital expenditures, product development and
other corporate requirements;
- increase our vulnerability to general adverse economic and industry
conditions, including changes in currency exchange rates;
- limit our ability to respond to business opportunities;
- limit our ability to borrow additional funds or refinance existing
indebtedness, which may be necessary; and
- subject us to financial and other restrictive covenants, which, if not
complied with, could result in an event of default.
TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH. OUR
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on our indebtedness, including the notes, and
to fund planned capital expenditures and research and development efforts will
depend on our ability to generate cash in the future. This, to an extent, is
subject to general economic, financial, competitive, legislative, regulatory and
other factors, including those described in this "Risk Factors" section, that
are beyond our control.
We cannot assure you that our business will generate sufficient cash flow
from operations or that future borrowings will be available to us under our new
senior credit facilities or otherwise in an amount sufficient to enable us to
pay our indebtedness, including the notes, or to fund our other liquidity needs.
We may need to refinance all or a portion of our indebtedness, including the
notes, on or before maturity. We cannot assure you that we will be able to
refinance any of our indebtedness, including our new senior credit facilities
and the notes, on commercially reasonable terms or at all. If we are unable to
generate sufficient cash flow to refinance our debt obligations,
12
including the notes, on favorable terms, it could have a significant adverse
effect on our financial condition and on our ability to pay principal and
interest on the notes.
THE AGREEMENTS GOVERNING THE NOTES AND OUR OTHER INDEBTEDNESS, INCLUDING OUR NEW
SENIOR CREDIT FACILITIES, IMPOSE SIGNIFICANT RESTRICTIONS ON OUR BUSINESS.
The indenture governing the notes and the agreements governing our new
senior credit facilities contain a number of covenants imposing significant
restrictions on our business. These restrictions may affect our ability to
operate our business and may limit our ability to take advantage of potential
business opportunities as they arise. The restrictions these covenants place on
us and our restricted subsidiaries include limitations on our ability and the
ability of our restricted subsidiaries to:
- incur indebtedness or issue disqualified stock or preferred stock;
- pay dividends on, redeem or repurchase our capital stock;
- make investments or acquisitions;
- create liens;
- sell assets;
- engage in sale and leaseback transactions;
- restrict dividends or other payments to us;
- guarantee indebtedness;
- engage in transactions with affiliates; and
- consolidate, merge or transfer all or substantially all of our assets.
In addition, our new senior credit facilities also require us to meet a
number of financial ratio tests and restrict our ability to make capital
expenditures or prepay certain other indebtedness. We may not be able to
maintain these ratios. These restrictions could limit our ability to plan for or
react to market conditions or meet our capital needs. We cannot assure you that
we will be granted waivers or amendments to these agreements if for any reason
we are unable to comply with these agreements, or that we will be able to
refinance our indebtedness on terms acceptable to us, or at all.
The breach of any of these covenants or restrictions could result in a
default under the indenture governing the notes or our new senior credit
facilities. An event of default under our debt agreements would permit some of
our lenders to declare all amounts borrowed from them to be due and payable. If
we are unable to repay indebtedness, lenders having secured obligations like the
lenders under our new senior credit facilities could proceed against the
collateral securing that indebtedness. In addition, if any of our other
indebtedness is accelerated, we may be unable to make interest payments on the
notes and repay the principal amount of the notes.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES AND THE GUARANTEES IS JUNIOR TO OUR
EXISTING AND FUTURE SENIOR INDEBTEDNESS AND THE EXISTING AND FUTURE SENIOR
INDEBTEDNESS OF THE GUARANTORS.
The notes and the guarantees rank behind all of our existing indebtedness
and the existing indebtedness of our guarantors. The notes and the guarantees
also rank behind our and our guarantors' future senior indebtedness. As a
result, upon any distribution to our creditors or the creditors of the
guarantors in a bankruptcy, liquidation or reorganization or similar proceeding
relating to us or the guarantors or our or their property, the holders of our
senior indebtedness and senior indebtedness of the guarantors will be entitled
to be paid in full before any payment may be made with respect to the notes or
the guarantees. Sufficient assets may not remain after these payments to make
any payments on the notes.
13
In addition, all payments on the notes and the guarantees will be blocked
in the event of a payment default on senior indebtedness, including the new
credit facilities, and may be blocked for up to 179 days of 360 consecutive days
in the event of specified non-payment defaults on senior indebtedness.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the guarantors, holders of the notes will
participate with trade creditors and all other holders of our and the
guarantors' subordinated indebtedness in the assets remaining after we and the
subsidiary guarantors have paid all of our and their senior indebtedness.
However, because the senior indebtedness is secured and because the indenture
requires that amounts otherwise payable to holders of the notes in a bankruptcy
or similar proceeding be paid to holders of senior indebtedness instead, holders
of the notes may receive less, ratably, than holders of trade payables in the
proceeding. In any of these cases, we and the subsidiary guarantors may not have
sufficient funds to pay all of our creditors and holders of notes may receive
less, ratably, than the holders of our senior indebtedness.
THE NOTES ARE NOT SECURED BY ANY OF OUR ASSETS. HOWEVER, OUR NEW SENIOR CREDIT
FACILITIES ARE SECURED AND, THEREFORE, OUR BANK LENDERS HAVE A PRIOR CLAIM ON
SUBSTANTIALLY ALL OF OUR ASSETS.
The notes are not secured by any of our assets. However, our new senior
credit facilities are secured by a pledge of 100% of the stock of our existing
and future domestic subsidiaries and 65% of the stock of some of our existing
and future foreign subsidiaries, as well as by substantially all of our assets.
If we become insolvent or are liquidated, or if payment under any of the
instruments governing our secured indebtedness is accelerated, the lenders under
these instruments will be entitled to exercise the remedies available to a
secured lender under applicable law and pursuant to instruments governing that
indebtedness. Accordingly, the lenders under our new senior credit facilities
will have a prior claim on our assets and on the assets of the guarantors of the
notes. In that event, because the notes are not secured by any of our assets, it
is possible that our remaining assets might be insufficient to satisfy your
claims in full.
AUTOCAM EUROPE B.V., OUR ONLY NON-U.S. SUBSIDIARY WHICH HAS GUARANTEED THE
NOTES, AND HOLDINGS ARE HOLDING COMPANIES WITH NO REVENUE-GENERATING OPERATIONS
OF THEIR OWN. YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES COULD BE ADVERSELY
AFFECTED IF ANY OF OUR NON-GUARANTOR SUBSIDIARIES DECLARE BANKRUPTCY, LIQUIDATE,
OR REORGANIZE; THE NOTES WILL BE STRUCTURALLY SUBORDINATED TO THE OBLIGATIONS OF
OUR NON-GUARANTOR SUBSIDIARIES.
Some but not all of our subsidiaries will guarantee the notes. The notes
are not guaranteed by any of our non-U.S. subsidiaries other than Autocam Europe
B.V., or Autocam Europe. Autocam Europe does not conduct any business
operations. Autocam Europe's principal assets are shares of Autocam France SARL,
which itself is a holding company. All operations are conducted by subsidiaries
of Autocam France SARL. Accordingly, the obligations under these notes will be
structurally subordinated to the obligations of our non-guarantor subsidiaries,
including trade creditors. In addition, because Holdings is a holding company
with no operations, its guarantee provides little, if any, additional credit
support for the notes.
In the event of a bankruptcy, liquidation or reorganization of any of our
non-guarantor subsidiaries, holders of their indebtedness and their trade
creditors will generally be entitled to payment of their claims from the assets
of those subsidiaries before any assets are made available for distribution to
us. As of June 30, 2004, our non-guarantor foreign subsidiaries had total
indebtedness of $83.8 million, excluding intercompany liabilities. This
represented 31.7% of our total indebtedness as of that date. These non-guarantor
subsidiaries held 61.9% of our consolidated assets as of June 30, 2004 and
accounted for 60.8% of our revenues for 2003.
Our foreign subsidiaries are separate and distinct legal entities and,
other than Autocam Europe, have no obligation, contingent or otherwise, to pay
any amounts due pursuant to the notes,
14
whether by dividends, loans, distributions or other payments. Any right that we
or our guarantors have to receive any assets of any of our foreign subsidiaries
upon the liquidation or reorganization of those subsidiaries, and the consequent
rights of holders of notes to realize proceeds from the sale of any of those
subsidiaries' assets, will be effectively subordinated to the claims of
creditors of that subsidiary, including trade creditors and holders of
indebtedness of that subsidiary.
Substantially all of our foreign operations are conducted by non-guarantor
subsidiaries. In order to service our indebtedness we may need to upstream funds
from these foreign subsidiaries. These funds could be made available by way of
intercompany loans, advances, dividends or any other type of distribution
permitted by our new senior credit facilities or the notes. The ability of
Autocam France and its subsidiaries to make distributions may be limited by
financial assistance rules, corporate benefit laws and other legal restrictions
which, if violated, might require us to refund unlawful payments. In particular,
under company law (including the French Civil Code (code civil) and the French
Commercial Code (code de commerce)), our French subsidiaries are generally
prohibited from paying dividends except out of profits legally available for
distribution.
The ability of Autocam Europe to make distributions is limited by the laws
of the Netherlands. Netherlands law provides that a company may only pay a
dividend to shareholders to the extent its shareholders' equity exceeds the sum
of the amount of the paid and called up portion of the capital and the reserves
which must be maintained under mandatory provisions of Netherlands law and its
articles of association. Any distribution of profits is required to be made
after the adoption or approval of the annual accounts from which it appears that
the dividend is provided. Interim distributions may also be made up to the
amount of Autocam Europe's freely distributable reserves. The ability of a Dutch
company to distribute dividends may be limited or affected on the basis of
fraudulent preference or conveyance or tort, where the payment of dividends
would result in a situation where it is foreseeable that the company will not be
able to pay its creditors.
Any dividends, if significant, could also eliminate the historical reserves
of some of our subsidiaries and, in that case, our subsidiaries would be
dependent on future earnings to generate sufficient distributable reserves to
pay future dividends.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTE HOLDERS TO RETURN PAYMENTS RECEIVED FROM GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of a
guarantee could be subordinated to all other indebtedness of that guarantor
under specific circumstances, including circumstances where the guarantor, at
the time it incurred the indebtedness evidenced by its guarantee:
- issued the guarantee to delay, hinder or defraud present or future
creditors; or
- received less than reasonably equivalent value or fair consideration for
the incurrence of such guarantee; and
- was insolvent or rendered insolvent by reason of such incurrence;
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could
be voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.
15
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
- the sum of its indebtedness, including contingent liabilities, was
greater than the fair saleable value of all of its assets; or
- if the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
indebtedness, including contingent liabilities, as they become absolute
and mature; or
- it could not pay its indebtedness as it becomes due.
On the basis of historical financial information, recent operating history
and other factors, we believe that each guarantor, after giving effect to its
guarantee of the notes, is not insolvent, does not have unreasonably small
capital for the business in which it is engaged and has not incurred
indebtedness beyond its ability to pay such indebtedness as it matures. We
cannot assure you, however, as to what standard a court would apply in making
these determinations or that a court would agree with our conclusions in this
regard.
INSOLVENCY LAWS IN THE NETHERLANDS COULD NEGATIVELY AFFECT ANY ATTEMPT TO
ENFORCE THE GUARANTEE FROM THIS ENTITY.
Autocam Europe is incorporated under the laws of the Netherlands as a B.V.
Accordingly, any insolvency proceedings concerning it and any of its
subsidiaries may proceed under the laws of the Netherlands. The guarantee given
by Autocam Europe may be subject to review under the relevant provisions of the
Netherlands Civil Code, or NCC, and the Netherlands Bankruptcy Court. A
Netherlands court could nullify the guarantee of Autocam Europe in an insolvency
proceeding under circumstances similar to those discussed above for U.S.
companies.
Pursuant to the NCC, a B.V. may not provide security or assist through any
contractual arrangements, including the granting of guarantees, the subscription
or acquisition by third parties of shares in its share capital or depository
receipts. This prohibition also applies to its subsidiaries. Under the NCC, a
B.V. may only grant loans with a view to the subscription or acquisition by
third parties of shares in its share capital or depository receipts to the
extent of its freely distributable reserves and to the extent so permitted by
its articles. While the nature and scope of the relevant provision of the NCC is
heavily debated in Netherlands legal literature and there is no definitive case
law in the Netherlands on point, the prevailing view is that the NCC should be
restrictively interpreted and that it should not apply in a situation where the
parent company is not incorporated under Netherlands law and the prohibition of
the NCC should not extend to its subsidiaries incorporated under Netherlands law
like Autocam Europe. However, we can give no assurances of the interpretation by
a court in the Netherlands of this provision.
WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE ANY CHANGE
OF CONTROL OFFER REQUIRED BY THE INDENTURE.
Upon the occurrence of specific kinds of change of control events, we will
be required to offer to repurchase all notes at 101% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of repurchase. In
addition, if there is a change in control as defined in our new credit
facilities, we will be required to prepay all amounts outstanding under our new
senior credit facilities and to cancel the multi-currency and euro denominated
revolving credit facilities of our new senior credit facilities. The definitions
of change of control in the indenture and our new senior credit facilities are
similar but are not identical. Under some circumstances, there may be a change
in control for purposes of our new credit facilities but not for purposes of the
notes. Also, it is possible that we will not have sufficient funds at the time
of the change of control to make the required repurchase of notes and repay our
new senior credit facilities or that restrictions in our new senior
16
credit facilities will not allow these repurchases. In addition, certain
important corporate events, like leveraged recapitalizations that would increase
the level of our indebtedness, would not constitute a change of control under
the indenture governing the notes. See "Description of Exchange Notes --
Repurchase at the Option of Holders."
THERE IS NO PUBLIC MARKET FOR THE EXCHANGE NOTES, AND WE CANNOT BE SURE THAT A
MARKET FOR THE EXCHANGE NOTES WILL DEVELOP.
The Initial Purchasers have advised us that they presently intend to make a
market in the exchange notes as permitted by applicable law. No Initial
Purchaser is obligated, however, to make a market in the exchange notes and any
market-making may be discontinued at any time in the sole discretion of the
Initial Purchasers. No assurance can be given as to the liquidity of any trading
market for the exchange notes, or the ability of the holders of the exchange
notes to sell their exchange notes or the price at which such holders may be
able to sell their exchange notes. An active market for the exchange notes may
not develop or be sustained. If an active public market does not develop or
continue, the market price and liquidity of the exchange notes may be adversely
affected.
Historically, the market for non-investment grade debt has been volatile in
terms of price. It is possible that the market for the exchange notes will be
volatile. This volatility in price may affect your ability to resell your
exchange notes or the timing of their sale.
Notwithstanding the registration of the exchange notes, holders who are
"affiliates" (as defined under Rule 405 of the Securities Act) of us may
publicly offer for sale or resale the notes only in compliance with the
provisions of Rule 144 or any other exemption under the Securities Act.
Because we may be deemed to be an affiliate of Goldman, Sachs & Co.
following completion of the exchange offer required by the registration rights
agreement, Goldman, Sachs & Co. will be required to deliver a current
"market-maker" prospectus and otherwise comply with the registration
requirements of the Securities Act in connection with any secondary market sale
of the exchange notes, which may affect its ability to continue market-making
activities. Following completion of the exchange offer, we have agreed to make a
"market-maker" prospectus available to Goldman, Sachs & Co. to permit it to
engage in market-making transactions. However, the registration rights agreement
also provides that at any time after completion of the exchange offer, we may
allow the market-maker prospectus to cease to be effective and usable if our
board of directors determines in good faith that that action is in our best
interest or the prospectus contains an untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. As result, the liquidity of the secondary market for the exchange
notes may be materially adversely affected by the unavailability of a current
"market-maker" prospectus following the exchange offer.
YOU MAY HAVE DIFFICULTY SELLING THE OUTSTANDING NOTES WHICH YOU DO NOT EXCHANGE.
If you do not exchange your outstanding notes for the exchange notes
offered in this exchange offer, you will continue to be subject to the
restrictions on the transfer of your outstanding notes. Those transfer
restrictions are described in the indenture and in the legend contained on the
outstanding notes, and arose because we originally issued the outstanding notes
under exemptions from, and in transactions not subject to, the registration
requirements of the Securities Act.
In general, you may offer or sell your outstanding notes only if they are
registered under the Securities Act and applicable state securities laws, or if
they are offered and sold under an exemption from those requirements. We do not
intend to register the outstanding notes under the Securities Act.
If a large number of outstanding notes are exchanged for notes issued in
the exchange offer, it may be more difficult for you to sell your unexchanged
outstanding notes. In addition, if you do not
17
exchange your outstanding notes in the exchange offer, you will no longer be
entitled to have those outstanding notes registered under the Securities Act.
See "The Exchange Offer -- Consequences of Failure to Exchange Your
Outstanding Notes" for a discussion of the possible consequences of failing to
exchange your outstanding notes.
RISKS RELATED TO OUR BUSINESS
THE INDUSTRIES IN WHICH WE OPERATE DEPEND UPON GENERAL ECONOMIC CONDITIONS AND
ARE HIGHLY CYCLICAL.
Our financial performance depends on conditions in the global automotive
industry, and, generally, on the North American and European economies. Our
sales to customers in the automotive and light-duty truck industries accounted
for substantially all of our sales in 2003. Demand in the automotive industry
fluctuates significantly in response to overall economic conditions and is
particularly sensitive to changes in interest rate levels, consumer confidence
and fuel costs. Any sustained weakness in demand or downturn in the economy
generally could have a material adverse effect on our business, results of
operations and financial condition.
Our sales are also impacted by inventory levels and OEM production levels.
We cannot predict when OEMs will decide to either build or reduce inventory
levels or whether new inventory levels will approximate historical inventory
levels. This may result in variability in our performance. Uncertainty regarding
inventory levels has been exacerbated by favorable consumer financing programs
initiated by OEM manufacturers which may accelerate sales that otherwise would
occur in future periods. In addition, we have historically experienced sales
declines during the OEMs scheduled shut-downs or shut-downs resulting from
unforeseen events. Continued uncertainty and other unexpected fluctuations could
have a material adverse effect on our business and financial condition.
The Tier I supplier industry is also cyclical, and in large part, dependant
on the overall strength of consumer demand for various types of motor vehicles.
A decrease in consumer demand for motor vehicles in general or specific types of
vehicles could have a material adverse effect on our business and financial
condition.
OUR BASE OF CUSTOMERS IS CONCENTRATED AND THE LOSS OF BUSINESS FROM A MAJOR
CUSTOMER OR A CHANGE IN AUTO CONSUMER PREFERENCES OR REGULATIONS COULD HAVE A
MATERIAL ADVERSE EFFECT ON US.
Because of the relative importance of our largest customers and the high
degree of concentration of OEMs in the North American automotive industry, our
business is exposed to a high degree of risk related to customer concentration.
Our seven largest customers accounted for approximately 72.0% of our sales in
2003 and 73.6% of our sales in the six months ended June 30, 2004. Although we
have long-term contracts with many of our customers, some of our customers are
not subject to long-term contracts or may have the ability to terminate their
contracts with us. The loss of a major customer or a significant reduction in
sales to a major customer could have a material adverse effect on us. Our
customers consist primarily of Tier I suppliers, like Delphi, TRW, ZF and Bosch,
that serve the large OEMs. Accordingly, while sales directly to OEMs accounted
for an insignificant percentage of our sales in 2003 due to our significant Tier
I customer base, adverse performance by or production cuts at these OEMs could
also adversely impact our sales to Tier I suppliers. Our sales and performance
are also influenced by consumer preferences, regulatory changes and OEM new
vehicle financing programs. In addition, government regulations, including those
relating to fuel economy, could impact vehicle content and volume and,
accordingly, have a material adverse impact on us.
18
INCREASES IN OUR RAW MATERIAL OR ELECTRICITY COSTS OR THE LOSS OF A SUBSTANTIAL
NUMBER OF OUR SUPPLIERS OR A MATERIAL DISRUPTION IN ELECTRICITY SUPPLIES COULD
AFFECT OUR FINANCIAL HEALTH.
The most significant raw material used in our business is steel. Generally,
our raw materials requirements are obtainable from various sources and in the
desired quantities. While we currently maintain alternative sources for raw
materials, our businesses are subject to the risk of price fluctuations and
periodic delays in the delivery of various raw materials and component parts.
The domestic steel industry has experienced substantial financial instability
due to numerous factors, including energy costs and the effect of foreign
competition. As a result of various global economic factors and the weakening of
the U.S. dollar, steel prices have been rising, which could have a negative
impact on our financial results in 2004. In addition, a failure by our suppliers
to continue to supply us with various raw materials on commercially reasonable
terms, or at all, would have a material adverse effect on us. Our electricity
costs are an element of our cost structure. To the extent there are material
fluctuations in electricity costs, our margins could be adversely impacted. Any
material disruption in electricity supplies could delay our production and could
have a material adverse effect on us.
CONTINUING TRENDS AMONG OUR CUSTOMERS WILL INCREASE COMPETITIVE PRESSURES IN OUR
BUSINESSES.
The markets for our products are highly competitive. Our competitors
include component manufacturing facilities of Tier I suppliers, as well as
independent domestic and international suppliers. Some of our competitors are
large companies with in-house machining operations that have greater financial
resources than us. At times, we may be in a position of competing with some of
our own customers, which could have adverse consequences. We believe that the
principal competitive factors for all of our products are product quality and
conformity to customer specifications, design and engineering capabilities,
product development, timeliness of delivery and price. In addition, our
competitors may develop products that are superior to our products or may adapt
more quickly than us to new technologies or evolving customer requirements.
Technological advances by our competitors may lead to new manufacturing
techniques to make our products and make it more difficult for us to compete.
Continuing trends by our customers in many of our markets to limit their number
of outside suppliers may result in increased competition as many competitors may
reduce prices to compete.
In addition, financial and operating difficulties experienced by our major
customers, and the OEMs that our customers supply their products to, may result
in further pricing pressures on us. Pricing pressure from customers has been a
characteristic of the automotive parts industry for many years. Virtually all
Tier I suppliers have policies of seeking price reductions each year. We have
taken steps to reduce costs and resist price reductions, but price reductions
have impacted our sales and profit margins. We may also be subject to increased
pricing pressures from customers as a result of the fact that our financial
information will become publicly available as a result of the exchange offer. If
we are not able to offset continued price reductions through improved operating
efficiencies and reduced costs, we may lose customers or be compelled to make
price reductions that may have a material adverse effect on our results of
operations.
We are continually exposed to pressure from our customers to extend payment
terms. Currently, customary industry payment terms in the United States are
30-45 days; however, customers routinely request payment terms of 45-60 days. In
Europe, customary terms exceed 90 days. To the extent we are unsuccessful in
resisting our customers attempts to lengthen payment terms, our liquidity may be
adversely impacted.
We expect competitive pressures in our markets to remain strong. These
pressures arise from existing competitors, other companies that may enter our
existing or future markets and, in some cases, our customers, which may decide
to internalize production of certain items sold by us. There can be no assurance
that we will be able to compete successfully with our existing competitors or
19
with new competitors. Failure to compete successfully could have a material
adverse effect on our business and financial condition.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS; IN ADDITION, WE
MAY BE SUBJECT TO INTELLECTUAL PROPERTY LITIGATION AND INFRINGEMENT CLAIMS BY
THIRD PARTIES.
We rely upon proprietary technology and technology advancements to maintain
competitiveness in the market. We generally rely on a combination of unpatented
proprietary know-how and trade secrets, copyrights, trademarks, and, to a lesser
extent, patents in order to preserve our position in the market. Because of the
importance of our proprietary know-how, we typically enter into confidentiality
or license agreements with third parties, employees and consultants, and control
access to and distribution of our proprietary information. We have entered into,
and may enter into in the future, other contractual arrangements with employees
and third parties relating to our intellectual property rights.
Despite our efforts to protect our proprietary rights, unauthorized parties
may copy or otherwise obtain and use our products or technology. It is difficult
for us to monitor unauthorized uses of our products. The steps we have taken may
not prevent unauthorized use of technology, particularly in foreign countries
where the laws may not protect our proprietary rights as fully as in the United
States. Although we enter into confidentiality agreements with third parties to
whom we disclose unpatented proprietary know-how and trade secrets, these
methods may not afford complete protection and there can be no assurance that
others will not independently develop similar know-how and trade secrets. If
third parties take actions that affect our rights or the value of our
intellectual property, similar proprietary rights or reputation or we are unable
to protect our intellectual property from infringement or misappropriation,
other companies may be able to use our intellectual property to offer
competitive products at lower prices and we may not be able to effectively
compete against these companies.
Although we believe that our intellectual property rights are sufficient to
allow us to conduct our business without incurring liability to third parties,
we can give no assurance that claims or litigation asserting infringement by us
of intellectual property rights will not be initiated in the future seeking
damages, payment of royalties or licensing fees, or an injunction against the
sale of our products or that we would prevail in any litigation or be successful
in preventing such judgment. In the future, we may also rely on litigation to
enforce our intellectual property rights and contractual rights and, if not
successful, we may not be able to protect the value of our intellectual
property. Regardless of its outcome, any litigation, whether commenced by us or
third parties, could be protracted and costly and could have a material adverse
effect on our business and results of operations.
LOSS OF KEY EXECUTIVE OFFICERS COULD WEAKEN OUR BUSINESS EXPERTISE AND OTHER
BUSINESS PLANS.
Our success depends to a significant degree upon the continued
contributions of our senior management team and technical, marketing and sales
personnel. Our employees, including management, may voluntarily terminate their
employment with us at any time. There is competition for qualified employees and
personnel in our industry and there is a limited number of persons with relevant
knowledge and experience. The loss of any of our key executive officers in the
future could significantly impede our ability to successfully implement our
business strategy, financial plans, expansion of services, marketing and other
objectives. We believe that the growth and future success of our business will
depend in large part on our continued ability to attract, motivate and retain
highly-skilled qualified personnel.
20
THE REQUIREMENTS OF BEING A REPORTING COMPANY UNDER THE EXCHANGE ACT MAY STRAIN
OUR RESOURCES AND DISTRACT MANAGEMENT.
As a result of the exchange offer, we have filed an exchange offer
registration statement with the SEC and we are subject to the reporting
requirements of the Exchange Act and the Sarbanes-Oxley Act. These requirements
may place a strain on our systems and resources. The Exchange Act requires that
we file annual, quarterly and current reports with respect to our business and
financial condition. The Sarbanes-Oxley Act requires that we maintain effective
disclosure controls and procedures and internal controls for financial
reporting. In order to maintain and improve the effectiveness of our disclosure
controls and procedures and internal control over financial reporting,
significant resources and management oversight will be required. As a result,
management's attention may be diverted from other business concerns, which could
have a material adverse effect on our business. The costs associated with
complying with the Exchange Act and the Sarbanes-Oxley Act could be material.
WE MAY BE SUBJECT TO WORK STOPPAGES AT OUR FACILITIES OR AT THE FACILITIES OF
OUR PRINCIPAL CUSTOMERS, WHICH COULD SERIOUSLY IMPACT THE PROFITABILITY OF OUR
BUSINESS.
As is common in many European and South American jurisdictions,
substantially all of our 1,317 employees in France and 548 employees in Brazil
are covered by country-wide collective bargaining agreements. Although we
believe our relations with these unions are good, there can be no assurance that
future issues with our labor unions will be resolved favorably or that we will
not experience a work stoppage that could materially adversely affect our
business. For example, in April 2004, we experienced a one hour work stoppage by
some employees of our French facilities with respect to compensation
negotiations then in progress. These negotiations have concluded and this
dispute has since been resolved. If our unionized workers were to engage in a
strike, work stoppage or other slowdown in the future, we could experience a
significant disruption of our operations, which could have a material adverse
effect on us. In addition, if a greater percentage of our work force becomes
unionized, our business and financial results could be materially adversely
affected.
Many of our direct or indirect customers have unionized work forces.
Strikes, work stoppages or slowdowns experienced by OEMs or their suppliers
could result in slowdowns or closures of assembly plants where our products are
included in assembled vehicles. In addition, organizations responsible for
shipping our customers' products may be impacted by occasional strikes. Any
interruption in the delivery of our customers' products would reduce demand for
our products and could have a material adverse effect on us.
OUR ACQUISITION STRATEGY MAY BE UNSUCCESSFUL.
As part of our growth strategy, we plan to pursue the acquisition of other
companies, assets and product lines that either complement or expand our
existing business. We cannot assure you that we will be able to consummate any
acquisitions or that any future acquisitions will be able to be consummated at
acceptable prices and terms. We continually evaluate potential acquisition
opportunities in the ordinary course of business, including those that could be
material in size and scope. Acquisitions involve a number of special risks and
factors, including:
- the focus of management's attention to the assimilation of the acquired
companies and their employees and on the management of expanding
operations;
- the incorporation of acquired products into our product line;
- the increasing demands on our operational systems;
- the failure to realize expected synergies;
- possible adverse effects on our reported operating results, particularly
during the first several periods after the acquisition is complete;
21
- the amortization of acquired intangible assets; and
- the loss of key employees of the acquired businesses.
In pursuing acquisitions, we compete against other automotive part
manufacturers, some of which are larger than we are and have greater financial
and other resources than we have. We compete for potential acquisitions based on
a number of factors, including price, terms and conditions, size and ability to
offer cash, stock or other forms of consideration. Increased competition for
acquisition candidates could result in fewer acquisition opportunities for us
and higher acquisition prices. As a company without public equity, we may not be
able to offer attractive equity to potential sellers. Additionally, our
acquisition strategy may result in significant increases in our outstanding
indebtedness and debt service requirements. The terms of the notes and our new
senior credit facilities further limit the acquisitions we may pursue. In
addition, the negotiation of potential acquisitions may require members of
management to divert their time and resources away from our operations.
THE INTEGRATION OF ACQUIRED BUSINESSES MAY RESULT IN SUBSTANTIAL COSTS, DELAYS
OR OTHER PROBLEMS.
We may not be able to successfully integrate our acquisitions without
substantial costs, delays or other problems. We will have to continue to expend
substantial managerial, operating, financial and other resources to integrate
our businesses. The costs of integration could have a material adverse effect on
our operating results and financial condition. These costs include non-recurring
acquisition costs, including accounting and legal fees, investment banking fees,
recognition of transaction-related obligations and various other
acquisition-related costs.
In addition, the pace of our acquisitions of other businesses may
materially adversely affect our efforts to integrate acquisitions and manage
those acquisitions profitably. We may seek to recruit additional managers to
supplement the incumbent management of the acquired businesses, but we may be
unable to recruit additional candidates with the necessary skills.
Although we conduct what we believe to be a prudent level of investigation
regarding the operating and financial condition of the businesses we purchase,
in light of the circumstances of each transaction, an unavoidable level of risk
remains regarding the actual operating condition of these businesses. Until we
actually assume operating control of these business assets and their operations,
we may not be able to ascertain the actual value or understand the potential
liabilities of the acquired entities and their operations. Once we acquire a
business, the risks we are faced with include:
- the possibility that it will be difficult to integrate the operations
into our other operations;
- the possibility that we have acquired substantial undisclosed
liabilities;
- the risks of entering markets or offering services for which we have no
prior experience; and
- the potential loss of customers as a result of changes in management.
We may not be successful in overcoming these risks.
FLUCTUATIONS IN CURRENCY EXCHANGE AND INTEREST RATES MAY SIGNIFICANTLY IMPACT
OUR RESULTS OF OPERATIONS AND MAY SIGNIFICANTLY AFFECT THE COMPARABILITY OF OUR
RESULTS BETWEEN FINANCIAL PERIODS.
Our operations are conducted by subsidiaries in many countries. The results
of the operations and the financial position of these subsidiaries are reported
in the relevant foreign currencies and then translated into U.S. dollars at the
applicable exchange rates for inclusion in our combined financial statements. As
a result, our financial results are impacted by currency fluctuations between
22
the dollar and the euro and, to a lesser extent, other currencies, which are
unrelated to our underlying results of operations.
In addition, as of June 30, 2004, $81.5 million, or 30.8%, of our total
indebtedness was denominated in euros. The carrying value of that indebtedness
will fluctuate depending on currency exchange rates between the U.S. dollar and
the euro. To the extent the U.S. dollar declines against the euro, our interest
expenses for our euro denominated indebtedness will increase for financial
reporting purposes. For a description of our pro forma indebtedness after giving
effect to the refinancing transaction, see "Capitalization."
We are also subject to interest rate risk because we have substantial
indebtedness at variable interest rates. As of June 30, 2004, our interest was
determined on a variable basis on $119.8 million, or 45.3%, of our total
indebtedness. An increase in interest rates of 0.25% will increase our interest
expense under our term loans by $0.3 million per year.
We incur currency transaction risk whenever we enter into either a purchase
or sale transaction using a currency other than the local currency of the
transacting entity. Further, while we will attempt to repay indebtedness using
cash flows from the same currency under which the indebtedness is denominated,
there are no assurances we will be able to do so. For example, if we are forced
to repay borrowings of ours or our domestic subsidiaries that are denominated in
U.S. dollars with euros, depreciation of the euro against the dollar will make
the debt repayment more costly in euro terms.
While we may enter into various currency and interest hedging contracts, we
cannot assure you that any hedging transactions we might enter into will be
successful or that shifts in the currency exchange rates or interest rates will
not have a material adverse effect on us.
WE ARE SUBJECT TO TAXATION IN MULTIPLE JURISDICTIONS.
We are subject to taxation primarily in the United States, France and
Brazil. Our effective tax rate and tax liability will be affected by a number of
factors, like the amount of taxable income in particular jurisdictions, the tax
rates in these jurisdictions, tax treaties between jurisdictions, the extent to
which we transfer funds to and repatriate funds from our subsidiaries, and
future changes in the law. Our tax liability will be dependent upon our
operating results and the manner in which our operations are funded. Generally,
the tax liability for each legal entity is determined either on a non-
consolidated basis or on a consolidated basis only with other entities
incorporated in the same jurisdiction. In either case, our tax liability is
determined without regard to the taxable losses of non-consolidated affiliated
entities. As a result, we may pay income taxes in one jurisdiction for a
particular period even though on an overall basis we incur a net loss for that
period.
OUR OPERATIONS OUTSIDE OF THE UNITED STATES ARE SUBJECT TO POLITICAL, INVESTMENT
AND LOCAL BUSINESS RISKS WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
FINANCIAL CONDITION OR RESULTS OF OPERATIONS.
Approximately 58.3% of our sales in 2003 were derived from sales by our
subsidiaries located outside of the United States and an additional
approximately 7.0% of our sales in 2003 were derived from sales of products
manufactured in the United States that were sold outside the United States. As
part of our business strategy, we intend to expand our international operations
through internal growth and acquisitions. Sales outside of the United States,
particularly sales to emerging markets, are subject to other various risks which
are not present in sales within the United States that can materially affect our
business and financial condition. In addition to currency exchange and tax risks
as discussed above, these risks include:
- local political and social conditions, including hyperinflationary
conditions and political instability in certain countries;
- devaluation of foreign currencies;
23
- potential imposition of limitations on conversion of foreign currencies
into U.S. dollars and remittance of dividends and payment by foreign
subsidiaries;
- potential difficulties in enforcing agreements and collecting receivables
through certain foreign local systems;
- domestic and foreign customs, tariffs and quotas or other trade barriers;
- increased costs for transportation and shipping;
- potential difficulties in protecting intellectual property;
- risk of nationalization of private enterprises by foreign governments;
- managing and obtaining support and distributions for local operations;
- potential imposition or increase of restrictions on investment; and
- required compliance with a variety of laws and regulations.
We cannot assure you that we will succeed in developing and implementing
policies and strategies to address the foregoing factors in a timely and
effective manner in each location where we do business. Consequently, the
occurrence of one or more of the foregoing factors could have a material adverse
effect on our international operations or upon the financial condition and
results of operations.
WE MAY INCUR MATERIAL LOSSES AND COSTS AS A RESULT OF PRODUCT LIABILITY AND
WARRANTY CLAIMS THAT MAY BE BROUGHT AGAINST US.
We face an inherent business risk of exposure to product liability claims
in the event that the use of our current and formerly manufactured or sold
products results, or is alleged to result, in bodily injury and/or property
damage. Although we have not been required to make any material payments in
respect of product liability claims in the past five years, we cannot assure you
that we will not experience any material product liability losses in the future
or that we will not incur significant costs to defend such claims. In addition,
if any of our products are or are alleged to be defective, we may be required to
participate in a government-required or manufacturer-instituted recall involving
such products. In the automotive industry, each vehicle manufacturer has its own
policy regarding product recalls and other product liability actions relating to
its suppliers. However, as we move up the value pyramid and become more
integrally involved in the system design process and assume more of the vehicle
system assembly functions, vehicle manufacturers may begin to look to us for
contribution when faced with product liability claims. A successful claim
brought against us in excess of our available insurance coverage or a
requirement to participate in a product recall may have a material adverse
effect on our business. In addition, we cannot assure you that claims will not
be asserted against us with respect to former businesses disposed of by us,
whether or not we are legally responsible or entitled to contractual
indemnification.
OUR INSURANCE COVERAGE MAY BE INADEQUATE TO PROTECT AGAINST THE POTENTIAL
HAZARDS INCIDENT TO OUR BUSINESS.
We maintain property, business interruption, product liability and casualty
insurance coverage which we believe is in accordance with customary industry
practices, but we cannot be fully insured against all potential hazards incident
to our business, including losses resulting from war risks or terrorist acts. A
catastrophic loss of the use of all or a portion of our facilities due to
accident, labor issues, weather conditions, other national disaster or
otherwise, whether short or long-term, could have a material adverse effect on
us. As a result of market conditions, premiums and deductibles for some of our
insurance policies can increase substantially and, in some instances, some types
of insurance may become available only for reduced amounts of coverage, if at
all. In addition, there can be no assurance that our insurers would not
challenge coverage for certain claims. If we were to
24
incur a significant liability for which we were not fully insured or that our
insurers disputed, it could have a material adverse effect on our financial
position.
WE ARE SUBJECT TO RISKS AND COSTS ASSOCIATED WITH NON-COMPLIANCE WITH
ENVIRONMENTAL REGULATIONS.
Our operations are subject to federal, state, local and foreign laws and
regulations governing emissions to air, discharge to waters and the generation,
handling, storage, transportation, treatment and disposal of waste and other
materials. While we believe that our operations and facilities are being
operated in compliance in all material respects with applicable environmental
health and safety laws and regulations, the operation of automotive parts
manufacturing plants entails risks in these areas. There can be no assurance
that we will not incur material costs or liabilities, including substantial
fines and criminal sanctions for violations. In addition, potentially
significant expenditures could be required in order to comply with evolving
environmental and health and safety laws, regulations or requirements that may
be adopted or imposed in the future.
SOME OF OUR MATERIAL CONTRACTS MAY BE TERMINATED FOLLOWING THE ACQUISITION IF WE
DO NOT GAIN THE OTHER PARTY'S CONSENT TO THE ACQUISITION.
A number of contracts to which we are a party, including leases for some of
our facilities and equipment and contracts for one of our significant customers,
gave the other party to the contract a right to require us to receive consent
from them prior to consummating a transaction which would result in a change of
control. Although receipt of some of these consents was a condition to the
closing of the acquisition, Parent waived the failure by the other party to our
contracts to provide the necessary consents under the contracts. There is a risk
that some or all of these contracts may be terminated by the other party.
Termination of these contracts may have a material adverse effect on our
financial condition and on our ability to pay principal and interest on the
notes.
WE ARE CONTROLLED BY GSCP 2000, OTHER PRIVATE EQUITY FUNDS AFFILIATED WITH GSCP
2000, TRP AND OTHER INVESTMENT VEHICLES AFFILIATED WITH TRP, AND THEIR INTERESTS
AS EQUITY HOLDERS MAY CONFLICT WITH YOUR INTERESTS AS A CREDITOR.
GSCP 2000, other private equity funds affiliated with GSCP 2000, TRP, and
other investment vehicles affiliated with TRP control, through Parent and
Holdings, our voting interests and have the power to elect a majority of the
members of our board of directors, to change our management and to approve any
mergers or other extraordinary transactions. The interests of GSCP 2000 and TRP
may not in all cases be aligned with your interests as a holder of the notes.
25
USE OF PROCEEDS
We will not receive any proceeds in connection with the exchange offer. In
consideration for issuing the exchange notes in exchange for the outstanding
notes as described in this prospectus, we will receive, retire and cancel the
outstanding notes tendered in the exchange offer. The net proceeds from the sale
of the outstanding notes, after deducting underwriting discounts, was
approximately $133.1 million. We used all of the net proceeds to fund a portion
of the consideration for, and fees and expenses relating to, the acquisition.
26
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
consolidated capitalization as of June 30, 2004, and gives effect to the
acquisition, including the issuance of the notes and the borrowings under our
new senior credit facilities.
You should also read the following information in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Acquisition," our consolidated financial statements and related
notes thereto and the unaudited pro forma financial statements included
elsewhere in this prospectus.
<Table>
<Caption>
AS OF
JUNE 30,
2004
--------------
(UNAUDITED,
IN MILLIONS OF
U.S. DOLLARS)
Cash and cash equivalents................................... $ 7.2
======
Senior indebtedness (including current portion thereof):
New senior credit facilities:
New senior secured E 62.7 million term loan (U.S. $
equivalent at June 30, 2004).......................... $ 75.8
New senior secured U.S. term loan...................... 33.0
Multi-currency revolving credit facility(1)............ 11.0
Euro revolving credit facility(2)...................... --
Capital lease obligations and other indebtedness(3)....... 8.0
------
Total senior debt.................................... 127.8
Notes(4).................................................... 136.9
------
Total debt........................................... 264.7
Common stock................................................ 143.4
Additional paid-in capital.................................. --
Accumulated other comprehensive income...................... --
Retained earnings........................................... --
------
Total shareholders' equity........................... 143.4
------
Total capitalization........................................ $408.1
======
</Table>
- ---------------
(1) We have the ability to borrow an additional $25.1 million pursuant to the
multi-currency revolving credit facility of our new senior credit
facilities.
(2) Autocam France, SARL has the ability to borrow E 11.6 million (equivalent of
$14.0 million as of June 30, 2004) pursuant to the euro revolving credit
facility of our new senior credit facilities.
(3) Includes capital leases of $5.7 million and the U.S. dollar equivalent of
$2.3 million in notes denominated in Brazilian reais issued by our Brazilian
subsidiary.
(4) Represents principal amount of $140.0 million, net of original issue
discount of $3.1 million.
27
SELECTED FINANCIAL INFORMATION AND OTHER DATA
The following table sets forth Holdings' selected consolidated historical
financial data for the twelve months ended June 30, 1999, the seven months ended
February 6, 2000, the eleven months ended December 31, 2002 and each of the
years 2001, 2002 and 2003, which have been derived from the consolidated
financial statements of Holdings which have been audited by Deloitte & Touche
LLP, an independent public registered accounting firm, and for the six months
ended June 30, 2003 and June 30, 2004, which have been derived from our
unaudited consolidated financial statements. Those columns denoted as
"predecessor" represent statements of operations and balance sheet data
determined using the historical cost basis relevant to our predecessor
shareholders. In the opinion of management, the unaudited financial data
includes all adjustments, consisting of only normal recurring adjustments,
considered necessary for a fair presentation of this information. The results of
operations for interim periods are not necessarily indicative of the results
that may be expected for the entire year. The following data should be read in
conjunction with our consolidated financial statements and related notes,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Unaudited Pro Forma Financial Information."
<Table>
<Caption>
TWELVE SEVEN ELEVEN
MONTHS MONTHS MONTHS
ENDED ENDED ENDED YEARS ENDED DECEMBER 31,
JUNE 30, FEBRUARY 6, DECEMBER 31, ---------------------------------------------
1999 2000 2000 2001 2002 2003
(predecessor) (predecessor) (predecessor) (predecessor) (predecessor) (predecessor)
------------- ------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS)
STATEMENTS OF OPERATIONS DATA:
Sales............................. $179,726 $119,312 $185,699 $236,452 $275,117 $323,210
Cost of sales..................... 150,742 97,026 146,419 201,757 231,334 280,070
-------- -------- -------- -------- -------- --------
Gross profit...................... 28,984 22,286 39,280 34,695 43,783 43,140
Selling, general and
administrative expenses.......... 10,208 8,805 9,764 16,415 16,698 17,577
-------- -------- -------- -------- -------- --------
Income from operations............ 18,776 13,481 29,516 18,280 27,085 25,563
Interest and other expense, net... 8,104 7,076 10,489 17,782 15,931 13,872
Minority interest in net income
(loss)........................... 645 (142) 852 317 (21)
Tax provision..................... 3,757 2,644 8,096 1,540 4,635 4,697
-------- -------- -------- -------- -------- --------
Net income (loss)................. $ 6,270 $ 3,903 $ 10,079 $ (1,359) $ 6,540 $ 6,994
======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
Ratio of Earnings to Fixed
Charges.......................... 2.4x 2.0x 2.8x 1.0x 1.8x 2.2x
Pro Forma Ratio of Earnings to
Fixed Charges (unaudited)(1)..... 1.2x
<Caption>
SIX MONTHS ENDED JUNE 30,
-----------------------------
2003 2004
(predecessor) (predecessor)
------------- -------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
STATEMENTS OF OPERATIONS DATA:
Sales............................. $166,829 $184,489
Cost of sales..................... 142,870 153,426
-------- --------
Gross profit...................... 23,959 31,063
Selling, general and
administrative expenses.......... 8,723 17,337
-------- --------
Income from operations............ 15,236 13,726
Interest and other expense, net... 6,724 8,338
Minority interest in net income
(loss)...........................
Tax provision..................... 3,506 3,211
-------- --------
Net income (loss)................. $ 5,006 $ 2,177
======== ========
OTHER FINANCIAL DATA:
Ratio of Earnings to Fixed
Charges.......................... 2.6x 1.8x
Pro Forma Ratio of Earnings to
Fixed Charges (unaudited)(1)..... 1.4x 2.1x
</Table>
- ---------------
(1) Adjusted to give effect to the acquisition as if it had occurred at the
beginning of the earliest period presented.
<Table>
<Caption>
AS OF
---------------------------------------------
JUNE 30, FEBRUARY 6, DECEMBER 31,
1999 2000 2000
(predecessor) (predecessor) (predecessor)
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA (END OF PERIOD):
Cash and equivalents................. $ 3,654 $ 5,016 $16,448
Working capital(1)................... 22,729 20,989 29,737
Property, plant and equipment, net... 129,744 126,360 140,265
Total assets......................... 229,491 231,541 379,481
Total debt........................... 114,038 106,669 157,171
<Caption>
AS OF DECEMBER 31, AS OF
--------------------------------------------- -----------
2001 2002 2003 JUNE 30,
(predecessor) (predecessor) (predecessor) 2004
------------- ------------- ------------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA (END OF PERIOD):
Cash and equivalents................. $ 9,830 $ 4,996 $ 1,075 $ 7,203
Working capital(1)................... 34,190 27,957 22,113 26,050
Property, plant and equipment, net... 142,758 156,964 173,580 149,948
Total assets......................... 371,700 392,335 409,075 518,235
Total debt........................... 153,071 146,082 133,888 264,686
</Table>
- ---------------
(1) Working capital is defined as current assets (excluding cash and cash
equivalents) less current liabilities (excluding current portion of
long-term indebtedness).
28
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Set forth below are our unaudited pro forma condensed consolidated
statement of operations for the year ended December 31, 2003 and the three and
six months ended June 30, 2004 assuming the transactions described below
occurred on the first day of the earliest period presented.
The unaudited pro forma condensed consolidated financial information is
presented for informational purposes only and does not purport to represent
results of operations for the year ended December 31, 2003 or the six months
ended June 30, 2003 or 2004 had the acquisition occurred on the first day of the
earliest period presented, or to project the results for any future date or
period.
The unaudited pro forma condensed consolidated statement of operations
gives effect to the acquisition, including the issuance of the notes and the
borrowings under our new senior credit facilities. See "Acquisition."
The unaudited pro forma condensed consolidated financial information should
be read in conjunction with the financial statements and related notes thereto
included elsewhere in this prospectus and the information set forth in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
29
TITAN HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30, 2003
------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
Sales............................................... $166,829 $166,829
Cost of sales....................................... 142,870 $(1,839)(1) 141,031
-------- ------- --------
Gross profit........................................ 23,959 1,839 25,798
Selling, general and administrative expenses........ 8,723 8,723
-------- ------- --------
Income from operations.............................. 15,236 1,839 17,075
Interest expense, net............................... 4,927 6,043(2) 10,970
Other expenses, net................................. 1,797 107(3) 1,904
-------- ------- --------
Income before tax provision......................... 8,512 (4,311) 4,201
Tax provision....................................... 3,506 (1,466)(5) 2,040
-------- ------- --------
Net income.......................................... $ 5,006 $(2,845) $ 2,161
======== ======= ========
</Table>
TITAN HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30, 2004
------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
Sales............................................... $184,489 $184,489
Cost of sales....................................... 153,426 $(3,249)(1) 150,177
-------- ------- --------
Gross profit........................................ 31,063 3,249 34,312
Selling, general and administrative expenses........ 17,337 (8,235)(4) 9,102
-------- ------- --------
Income from operations.............................. 13,726 11,484 25,210
Interest expense, net............................... 4,666 6,368(2) 11,034
Other expenses, net................................. 3,672 (1,660)(3) 2,012
-------- ------- --------
Income before tax provision......................... 5,388 6,776 12,164
Tax provision....................................... 3,211 2,304(5) 5,515
-------- ------- --------
Net income.......................................... $ 2,177 $ 4,472 $ 6,649
======== ======= ========
</Table>
30
TITAN HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<Table>
<Caption>
YEAR ENDED DECEMBER 31, 2003
------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
(DOLLARS IN THOUSANDS)
Sales............................................... $323,210 $323,210
Cost of sales....................................... 280,070 $(4,592)(1) 275,478
-------- ------- --------
Gross profit........................................ 43,140 4,592 47,732
Selling, general and administrative expenses........ 17,577 17,577
-------- ------- --------
Income from operations.............................. 25,563 4,592 30,155
Interest expense, net............................... 9,444 12,551(2) 21,995
Other expenses, net................................. 4,428 211(3) 4,639
-------- ------- --------
Income before tax provision......................... 11,691 (8,170) 3,521
Tax provision....................................... 4,697 (2,778)(5) 1,919
-------- ------- --------
Net income.......................................... $ 6,994 $(5,392) $ 1,602
======== ======= ========
</Table>
31
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
(1) This adjustment reflects the elimination of historical depreciation
expense offset by the estimated depreciation expense on property, plant and
equipment as adjusted from net book value to preliminary fair market appraised
value.
(2) This adjustment reflects the elimination of historical interest expense
incurred on the indebtedness being repaid in connection with the acquisition
offset by the estimated interest expense on the indebtedness being incurred in
connection with the acquisition.
The following table sets forth the calculation of these adjustments:
<Table>
<Caption>
TWELVE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
2003 2003 2004
------------- ---------- ----------
Interest on $33.0 million U.S. dollar
denominated term loan portion of our new
senior credit facility........................ $ 1,472 $ 736 $ 736
Interest on E 62.7 million (U.S. $75.8 million
at June 30, 2004) term loan portion of our new
senior credit facility........................ 3,879 1,939 1,939
Interest on $6.0 million in borrowings under the
multi-currency revolving credit facility of
our new senior credit facilities.............. 268 134 134
Interest on borrowings under the euro
denominated revolving credit facility of our
new senior credit facilities.................. -- -- --
Interest on $140.0 million of notes offered
hereby........................................ 15,225 7,613 7,613
Original issue discount amortization............ 311 156 156
Less elimination of historical interest expense
on indebtedness being repaid.................. (8,604) (4,535) (4,210)
------- ------- -------
Pro forma interest expense adjustment........... $12,551 $ 6,043 $ 6,368
======= ======= =======
</Table>
(3) This adjustment reflects the elimination of amortization of debt
financing costs incurred on indebtedness being repaid, offset by amortization of
debt financing costs on indebtedness being incurred in connection with the
acquisition.
(4) This adjustment reflects the elimination of transaction expenses
recorded in connection with the acquisition, including investment banking, legal
and other professional service fees and management bonuses.
(5) This adjustment reflects the income tax impact of adjustments (1)
through (4) above at an effective tax rate of 35%.
32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
and is qualified in its entirety by reference to our consolidated financial
statements and accompanying notes. Except for historical information, the
discussions in this section contain forward-looking statements that involve
risks and uncertainties, including those described in the "Risk Factors" section
of this prospectus. Future results could differ materially from those discussed
below. See discussion under the caption "Forward-Looking Statements."
OVERVIEW
We are headquartered in Kentwood, Michigan, and are a leading independent
manufacturer of extremely close tolerance precision-machined, metal alloy
components, sub-assemblies and assemblies, primarily for performance and safety
critical automotive applications. Those applications in which we have
significant penetration include fuel injection, power steering, braking,
electric motors and airbag systems. We provide these products from our
facilities in North America, Europe, South America and Asia to some of the
world's largest Tier I suppliers to the automotive industry. These Tier I
suppliers include Autoliv, Delphi Automotive Systems, Robert Bosch Corporation,
SMI-Koyo, Siemens VDO, TRW Automotive and ZF GmbH. We believe our manufacturing
space is sufficient to meet the needs of our customer's current programs.
We focus primarily on higher value-added categories of strategically
targeted markets. The products we manufacture demand expertise typically
exceeding the capabilities of many of our competitors. We produce complex
products in high volumes where required tolerances are in the single digit
micron range with quality levels very often approaching zero defects.
On June 21, 2004, Micron Merger Corporation, a newly formed entity and
wholly owned subsidiary of Parent, merged with and into Holdings with Holdings
continuing as the surviving corporation and becoming a wholly owned subsidiary
of Parent.
A number of factors influence our results of operations, including the
following:
- Our business is directly impacted by light-vehicle production levels,
primarily in North America and Western Europe. We are also impacted by
the relative North American market shares of the traditional Big Three
automakers, DaimlerChrysler Corporation, Ford Motor Company and General
Motors Corporation. Material changes in either of these factors can have
a material impact on our sales and profitability levels. Although the
market shares of the traditional Big Three have been declining over the
period from January 1, 2001 to June 30, 2004, light-vehicle production in
North America was approximately 15.5 million units in 2001, approximately
16.4 million units in 2002 and approximately 15.9 million units in 2003.
In Western Europe, the comparable production rates were approximately
16.5 million units in 2001, approximately 16.4 million units in 2002 and
approximately 16.2 million units in 2003. CSM Worldwide forecasts
production of approximately 16.0 million units in North America and
approximately 16.2 million units in Western Europe during 2004.
- A significant portion of our sales and profits resulted from transactions
denominated in euros. Those sales and profits have been translated into
U.S. Dollars, or USD, for financial reporting purposes. As a result, the
value of the USD compared to the euro in 2001, 2002, 2003 and in the
first six months of 2004 relative to the same periods in the prior years
positively impacted our reported results. The following table sets forth,
for the periods indicated, the period end, period average, high and low
noon New York time buying rate for cable transfers as certified for
customs purposes by the Federal Reserve Bank of New York expressed as
33
U.S. dollars per euro. The noon buying rate of the euro on September 22, 2004
was $1.23 per euro.
<Table>
<Caption>
SIX MONTHS
ENDED
YEARS ENDED JUNE 30,
------------------ -----------
2001 2002 2003 2003 2004
---- ---- ---- ---- ----
Average(1)............................................. 0.89 0.95 1.14 1.11 1.23
End of Period.......................................... 0.89 1.05 1.26 1.15 1.22
High................................................... 0.95 1.05 1.26 1.19 1.29
Low.................................................... 0.84 0.86 1.04 1.04 1.18
</Table>
- ---------------
(1) The average rate is the average of noon New York time buying rates on the
last day of each month during the relevant period.
- We are routinely exposed to pressure by our customers to offer unit price
reductions, which is typical of our industry. Through continuous
improvement and increased efficiencies in our manufacturing and
administrative processes we have achieved improvements in margins over
time in spite of these constant pressures.
Our business and results of operations during 2001, 2002, 2003 and the
first six months of 2004 were affected by the following events:
- In June 2001, we acquired some assets of Har Technologies, Inc., allowing
us to expand product offerings to include airbag system components.
- Effective January 1, 2002, we acquired the minority interest of our
Brazilian subsidiary, Autocam do Brasil Usinagem Ltda, providing us the
opportunity to more fully utilize those facilities to produce blanks and
other labor intensive components for our North American operations
without having to share the profits with its former minority shareholder.
- In April 2003, we sold and leased back our Kentwood and Marshall,
Michigan facilities for $5.8 million, using the proceeds of that sale to
prepay some of our USD-denominated term indebtedness. Annual lease
expense under these agreements is $0.6 million.
- In June 2003, we closed our Chicago, Illinois production facility, moving
all existing production to our Michigan facilities. Through the
re-engineering of manufacturing processes and elimination of
redundancies, we were able to reduce headcount in North America by 15%
from December 2002 to December 2003.
- In 2003, we successfully consolidated power steering production lines
formerly contained within three of our French facilities into one
facility. Significant costs, including premium freight, outsourcing,
labor and machinery repairs, were incurred to affect this reorganization.
This reorganization has and is expected to continue to provide benefits
in the future, primarily in the area of lower labor costs through
headcount reductions and improved efficiency.
34
RESULTS OF OPERATIONS
The following table sets forth our Consolidated Statements of Operations
expressed as a percentage of sales:
<Table>
<Caption>
THREE
MONTHS SIX MONTHS
YEARS ENDED ENDED ENDED
DECEMBER 31, JUNE 30, JUNE 30,
--------------------- ------------- -------------
2001 2002 2003 2003 2004 2003 2004
----- ----- ----- ----- ----- ----- -----
Sales................................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........................ 85.3 84.1 86.7 86.2 83.8 85.6 83.2
----- ----- ----- ----- ----- ----- -----
Gross profit......................... 14.7 15.9 13.3 13.8 16.2 14.4 16.8
Selling, general and administrative
expenses........................... 6.9 6.1 5.4 5.2 13.4 5.2 9.4
----- ----- ----- ----- ----- ----- -----
Income from operations............... 7.8 9.8 7.9 8.6 2.8 9.2 7.4
Interest expense, net................ 6.2 4.9 2.9 3.0 2.9 3.0 2.5
Other expenses, net.................. 1.4 0.9 1.4 1.0 3.0 1.1 2.0
----- ----- ----- ----- ----- ----- -----
Income before tax provision.......... 0.2 4.0 3.6 4.6 (3.1) 5.1 2.9
Tax provision........................ 0.7 1.7 1.5 1.9 (0.2) 2.1 1.7
----- ----- ----- ----- ----- ----- -----
Net income (loss).................... (0.5) 2.3 2.1 2.7 (2.9) 3.0 1.2
===== ===== ===== ===== ===== ===== =====
</Table>
THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE MONTHS ENDED JUNE 30, 2004
SALES
Sales increased $8.6 million, or 10.4%, to $91.6 million for the three
months ended June 30, 2004 from $83.0 million for the three months ended June
30, 2003. Of this increase, $2.8 million was attributable to the increase of the
value of the euro compared to the USD. Excluding the effect of foreign currency
translation and unit price reductions mentioned below, sales for the quarter
increased $7.0 million over the quarter ended June 30, 2003, principally
attributable to the following factors:
- Increased shipments of electric power-assisted steering products to two
European customers during the second quarter of 2004;
- During the latter part of 2003, we began shipping diesel injection
components to two North American customers seeking to increase their
penetration of the North American diesel injection market. The benefit
derived from these incremental 2004 volumes was offset by premium pricing
earned in the second quarter of 2003 on one of the new product lines
during the transition from prototype to production volumes; and
- During the first quarter of 2004, we began shipping production volumes of
air compressor components to a South American customer.
These positive developments more than offset the negative impact of unit
price reductions of $1.2 million during the second quarter of 2004 and
decreasing sales to a European power steering systems customer that desourced us
on some products. Our management also elected to discontinue manufacturing some
products with unacceptably low margins.
GROSS PROFIT
Gross profit increased $3.4 million to $14.8 million, or 16.2% of sales,
for the three months ended June 30, 2004 from $11.4 million, or 13.8% of sales,
for the three months ended June 30, 2003. The gross profit percentage
improvement can generally be attributed to headcount reductions realized in
North America, primarily as a result of the Chicago, Illinois facility closure,
and in Europe,
35
primarily as a result of the power steering production line reorganization.
Also, we elected to discontinue manufacturing products in Europe with
unacceptably low margins. These positive factors were partially offset by the
negative impact on gross profit of the unit price reductions, the cessation in
2004 of the premium pricing described above and additional building lease
expense derived from the sale and leaseback of our Kentwood and Marshall
facilities as described above.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased $7.9 million to
$12.3 million, or 13.4% of sales, for the three months ended June 30, 2004 from
$4.4 million, or 5.2% of sales, for the three months ended June 30, 2003. The
2004 results include $8.1 million in costs associated with the Acquisition,
consisting principally of investment banking fees, management bonuses, and legal
and accounting fees.
INTEREST EXPENSE, NET
Net interest expense increased $0.2 million to $2.7 million for the three
months ended June 30, 2004 from $2.5 million for the three months ended June 30,
2003. Interest expense on increased debt levels incurred as a result of the
Acquisition more than offset the favorable impact caused by principal reductions
through regularly scheduled payments and repayments from the proceeds of the
sale and leaseback of the production facilities as described above. In addition,
both the EURIBOR and LIBOR indices decreased in the three months ended June 30,
2004 when compared to the three months ended June 30, 2003, resulting in lower
interest rates in the second quarter of 2004 relative to the second quarter in
2003.
OTHER EXPENSE, NET
Net other expense increased $1.9 million to $2.7 million for the three
months ended June 30, 2004 from $0.8 million for the three months ended June 30,
2003. The 2004 results include the write-off of $1.9 million in unamortized debt
issue costs associated with our former bank agreement, which was refinanced in
connection with the Acquisition.
TAX PROVISION
For the three months ended June 30, 2004, we recorded an income tax benefit
of $0.2 million, for an effective tax rate of 6.0%. The decrease of $1.8 million
from the three months ended June 30, 2003 can be attributed to the $6.6 million
decrease in income before taxes when comparing the two periods. Our effective
tax rate for the tax credit was less than the United States statutory rate of
34% due primarily to the French income tax provision, which includes legal
profit sharing contribution expense of $0.6 million. Under French law the legal
profit sharing contribution is assessed on income before taxes, and therefore is
treated by us as a component of our tax provision. In addition, our French
operations recorded $0.4 million in non-deductible expenses in the second
quarter of 2004, thereby increasing our effective tax rate. Finally, French
income taxes are levied at a rate of 35.4% of income before taxes.
SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2004
SALES
Sales increased $17.7 million, or 10.6%, to $184.5 million for the six
months ended June 30, 2004 from $166.8 million for the six months ended June 30,
2003. Of this increase, $9.9 million was attributable to the increase of the
value of the euro compared to the USD. Excluding the effect of foreign currency
translation and unit price reductions mentioned below, sales for the six-month
36
period increased $10.2 million over the six months ended June 30, 2003,
principally attributable to the following factors:
- Increased shipments of electric power-assisted steering products to two
European customers during the first half of 2004;
- During the latter part of 2003, we began shipping diesel injection
components to two North American customers seeking to increase their
penetration of the North American diesel injection market. The benefit
derived from this development was partially offset by premium pricing
earned in the second quarter of 2003 on one of the new product lines
during the transition from prototype to production volumes; and
- During the first quarter of 2004, we began shipping production volumes of
air compressor components to a South American customer.
These positive developments more than offset the negative impact of unit
price reductions of $2.4 million during the first half of 2004 and decreasing
sales to a European power steering systems customer that desourced us on some
products. We also elected to discontinue manufacturing some products with
unacceptably low margins.
GROSS PROFIT
Gross profit increased $7.1 million to $31.1 million, or 16.8% of sales,
for the six months ended June 30, 2004 from $24.0 million, or 14.4% of sales,
for the six months ended June 30, 2003. The gross profit percentage improvement
can generally be attributed to headcount reductions incurred in North America,
primarily as a result of the Chicago, Illinois facility closure, and in Europe,
primarily as a result of the power steering production line reorganization. In
addition, equipment move, severance and other costs incurred during the six
months ended June 30, 2003 in connection with the closing of the Chicago,
Illinois facility were $1.1 million. These costs were not repeated in the
six-month period ended June 30, 2004. Also, we elected to discontinue
manufacturing products in Europe with unacceptably low margins. These positive
factors were partially offset by the negative impact on gross profit of the unit
price reductions and additional building lease expense derived from the sale and
leaseback of the production facilities as described above.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased $8.6 million to
$17.3 million, or 9.4% of sales, for the six months ended June 30, 2004 from
$8.7 million, or 5.2% of sales, for the six months ended June 30, 2003. The 2004
results include $8.2 million in costs associated with the Acquisition,
consisting principally of investment banking fees, management bonuses, and legal
and accounting fees.
INTEREST EXPENSE, NET
Net interest expense decreased $0.2 million to $4.7 million for the six
months ended June 30, 2004 from $4.9 million for the six months ended June 30,
2003. The favorable impact on interest expense caused by principal reductions
through regularly scheduled payments and repayments from the proceeds of the
sale and leaseback of the production facilities as described above more than
offset the negative impact of increased debt levels incurred as a result of the
Acquisition. In addition, both the EURIBOR and LIBOR indices decreased in the
six months ended June 30, 2004 when compared to the six months ended June 30,
2003, resulting in lower interest rates in the first half of 2004 relative to
the first half of 2003.
OTHER EXPENSE, NET
Net other expense increased $1.9 million to $3.7 million for the six months
ended June 30, 2004 from $1.8 million for the six months ended June 30, 2003.
The 2004 results include the write-
37
off of $1.9 million in unamortized debt issue costs associated with our former
senior credit facility, which was refinanced in connection with the Acquisition.
TAX PROVISION
For the six months ended June 30, 2004, we recorded an income tax provision
of $3.2 million, for an effective tax rate of 59.6%. Our effective tax rate was
more than the United States statutory rate of 34% due primarily to the French
income tax provision, which includes legal profit sharing contribution expense
of $1.2 million.
YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002
SALES
Sales increased $48.1 million, or 17.5%, to $323.2 million for the year
ended December 31, 2003 from $275.1 million for the year ended December 31,
2002. Of this increase, $34.7 million was attributable to the increase of the
value of the euro compared to the USD. Excluding the effect of foreign currency
translation and price reductions described below, sales for the year increased
$18.8 million over the prior year, principally attributable to the following
factors:
- Increased shipments of electric power-assisted steering products to two
European customers during 2003; and
- During 2003, we began shipping new diesel injection components to a North
American customer seeking to increase its penetration of the North
American diesel injection market.
These positive developments more than offset the negative impact during
2003 of unit price reductions of $5.4 million and declining sales to a European
power steering systems customer that desourced us on some products.
GROSS PROFIT
Gross profit decreased $0.7 million to $43.1 million, or 13.3% of sales,
for the year ended December 31, 2003 from $43.8 million, or 15.9% of sales, for
the year ended December 31, 2002. The decrease in gross profit percentage can be
primarily attributed to the effects of the following:
- We granted annual unit price reductions as referenced above.
- We incurred premium freight, outsourcing, consulting services and
machinery repair costs in 2003 in connection with the European power
steering line reorganization. Some of these costs were offset by labor
productivity improvements that occurred late in 2003.
- We incurred $1.5 million in equipment move, severance, building lease
termination and other costs associated with closing the Chicago facility
in 2003.
- We incurred an additional $0.5 in building lease expense in 2003 as a
result of the sale and leaseback of our Kentwood and Marshall facilities
as referenced above.
These decreases were partially offset by the favorable impact of labor
savings resulting from significant headcount reductions in North America during
2003, primarily as a result of the Chicago facility closure.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased by $0.9 million to
$17.6 million, or 5.4% of sales, for the year ended December 31, 2003 from $16.7
million, or 6.1% of sales, during the year ended December 31, 2002. Of this
increase, $1.4 million was attributable to the increase of the value of the euro
compared to the USD. Excluding the increase of the value of the euro compared to
the USD, selling, general and administrative expenses decreased $0.5 million
from 2002 to 2003,
38
primarily as a result of the elimination of redundant costs for administrative
labor and other expenses previously incurred at the Chicago facility. The
elimination of these costs resulted in selling, general and administrative
expenses, as a percentage of sales, decreasing in 2003 as compared to 2002.
INTEREST EXPENSE, NET
Net interest expense decreased $4.0 million to $9.4 million for the year
ended December 31, 2003 from $13.4 million for the year ended December 31, 2002.
Borrowings were reduced through scheduled principal payments, as well as from
the proceeds of factoring an additional approximately $2.1 million of European
accounts receivable without recourse and the sale and leaseback of our Kentwood
and Marshall, Michigan facilities. In addition, both the EURIBOR and LIBOR
indices decreased when comparing the periods, resulting in lower interest rates
in 2003 relative to 2002. These factors were partially offset by an increase of
$1.0 million attributable to the increase of the value of the euro compared to
the USD.
OTHER EXPENSE, NET
Net other expense for the year ended December 31, 2003 increased $1.9
million to $4.4 million from $2.5 million for the year ended December 31, 2002.
A portion of this increase resulted from expenses incurred in connection with
our termination of a lease on some of the production equipment utilized by the
former Chicago facility. Process improvements implemented in connection with the
closing and relocation of production to the Kentwood and Marshall facilities
rendered that equipment obsolete. In addition, foreign currency transaction
losses were $0.7 million higher in 2003 relative to 2002 due to the increase of
the value of the euro compared to the USD.
TAX PROVISION
For the year ended December 31, 2003, we recorded income tax expense of
$4.7 million, for an effective tax rate of 40.2%. Our effective tax rate
exceeded the United States statutory rate of 34.0% due primarily to the
recording of French legal profit sharing contribution expense as described
above.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001
SALES
Sales increased $38.6 million, or 16.3%, to $275.1 million from $236.5
million for the year ended December 31, 2001. Of this increase, $5.7 million was
attributable to the increase of the value of the euro compared to the USD.
Excluding the effect of foreign currency translation and price reductions
described below, sales for the year increased $37.5 million over the prior year,
principally attributable to the following factors:
- Light-vehicle production rates in North America were 5.5% greater in 2002
than 2001.
- Our acquisition of some assets of Har Technologies introduced airbag
components to our product offerings, adding $12.8 million in incremental
sales in 2002.
- Units shipped to two European customers increased significantly during
2002 as OEMs electric power-assisted steering products gained wider
acceptance in the market place.
These positive developments more than offset the negative impact of unit
price reductions of $4.6 million.
39
GROSS PROFIT
Gross profit increased $9.1 million to $43.8 million, or 15.9% of sales,
for the year ended December 31, 2002 from $34.7 million, or 14.7% of sales, for
the year ended December 31, 2001. The increase in gross profit percentage can be
primarily attributed to the following:
- In accordance with the implementation of Statement of Financial
Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets,
effective January 1, 2002, no goodwill amortization expense was recorded
in 2002, which positively impacted the comparison of gross profit between
2001 and 2002 by $3.4 million.
- Increased production volumes in North America and Europe allowed for the
improved utilization of existing equipment and facilities.
- We received price concessions totaling $1.7 million from North American
raw material suppliers in 2002, which positively impacted the gross
profit percentage in that period relative to 2001.
These positive effects were partially offset by annual unit price
reductions of $4.6 million.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased by $0.3 million to
$16.7 million, or 6.1% of sales, for the year ended December 31, 2002 from $16.4
million, or 6.9% of sales, during the year ended December 31, 2001. Of this
increase, $0.4 million was attributable to the increase of the value of the euro
compared to the USD. Excluding this increase, selling, general and
administrative expenses decreased by $0.1 million.
INTEREST EXPENSE, NET
Net interest expense decreased $1.3 million to $13.4 million for the year
ended December 31, 2002 from $14.7 million for the year ended December 31, 2001.
Borrowings were reduced through scheduled principal payments as well as from the
proceeds of factoring approximately $9.0 million of European accounts receivable
without recourse which we used to repay borrowings. In addition, both the
EURIBOR and LIBOR indices decreased when comparing the periods, resulting in
lower interest rates in 2002 relative to 2001. These factors were partially
offset by an increase of $0.4 million attributable to the increase of the value
of the euro compared to the USD.
OTHER EXPENSE, NET
Net other expense for the year ended December 31, 2002 decreased $0.9
million to $2.5 million from $3.4 million for the year ended December 31, 2001.
Our European operations recorded losses on the disposal of equipment that were
$1.6 million greater in 2001 as compared to 2002. On January 1, 2002, we
acquired the minority interest of our Brazilian subsidiary, thereby eliminating
minority interest expense of $0.3 million in 2001. These factors were partially
offset by foreign currency transaction losses which were $0.5 million higher in
2002 relative to 2001 due to the increase in the value of the euro compared to
the USD.
TAX PROVISION
For the year ended December 31, 2002, we recorded income tax expense of
$4.6 million, for an effective tax rate of 41.5%. Our effective tax rate
exceeded the United States statutory rate of 34.0% due primarily to the
recording of French legal profit sharing contribution expense as described
above. The increase of $3.1 million over the year ended December 31, 2001 can be
attributed to the $11.0 million increase in income before taxes when comparing
the two periods and the fact that no benefit was recorded in our 2001 tax
provision for the non-deductible goodwill amortization referenced above.
40
LIQUIDITY AND CAPITAL RESOURCES
Our short-term liquidity needs include required debt service and day-to-day
operating expenses like working capital requirements and the funding of capital
expenditures. Long-term liquidity requirements include capital expenditures for
new programs and maintenance of existing equipment and debt service. Capital
expenditures for 2004 are expected to be $17.5 million, of which $10.7 million
was spent in the six months ended June 30, 2004.
Our principal sources of cash to fund short- and long-term liquidity needs
consist of cash generated by operations and borrowing under our new revolving
credit facilities.
In connection with the Acquisition, we entered into a new senior credit
facilities agreement with a syndication of banks consisting of the following
components:
- a $33 million term loan to Autocam;
- a E 62.7 million term loan to Autocam's wholly-owned subsidiary, Autocam
France SARL (equivalent to $75.8 million as of June 30, 2004);
- a multi-currency revolving credit facility of $36.1 million ($25.1
million in availability as of June 30, 2004) against which borrowings may
be made by Autocam in USD or euros; and
- a euro revolving credit facility of E 11.6 million available to Autocam
France SARL (fully available as of June 30, 2004).
The indenture governing the Notes and the agreement governing the senior
credit facilities contain a number of covenants imposing significant
restrictions on our business. These restrictions may affect our ability to
operate our business and may limit our ability to take advantage of potential
business opportunities as they arise.
The senior credit facilities require us to meet a number of financial ratio
tests, including interest coverage and total leverage ratios. The senior credit
facilities also limit the amount of capital expenditures we may make. Our
management believes that cash from operations and, if required, borrowings under
the revolving credit facilities of the senior credit facilities will be
sufficient for cash requirements through at least June 2005.
SIX MONTHS ENDED JUNE 30, 2004
Cash provided by operating activities of $10.7 million during the six
months ended June 30, 2004 reflects net income, excluding non-cash and other
reconciling items of $18.1 million, and an increase in net working capital of
$7.4 million. Accounts receivable increased $9.2 million and inventories
increased $2.9 million due primarily to a 37.7% increase in sales during the
last portion of the second quarter of 2004 when compared to the same period in
the fourth quarter of 2003. Accrued liabilities increased $7.0 million,
primarily reflecting increases in accrued compensation and benefits costs and
income, property and value-added taxes.
Cash used in investing activities of $10.2 million during the six months
ended June 30, 2004 included capital expenditures primarily for production
equipment of $10.7 million.
Cash provided by financing activities of $5.7 million during the six months
ended June 30, 2004 included the following:
- Proceeds from issuance of the Notes and term note borrowings at the
closing of the Acquisition under our new senior credit facility of $246.0
million, less debt issue costs paid of $10.9 million;
- Shareholder contributions received in connection with the Acquisition of
$115.4 million;
- Payments made to former shareholders and option holders of Titan of
$232.7 million;
41
- Payments made to retire the old senior credit facility in existence at
the closing of the Acquisition of $89.9 million;
- Scheduled principal payments of the old senior credit facility, capital
lease obligations and equipment notes payable of $20 million;
- Proceeds from the issuance of equipment note payable of $1.2 million; and
- Net repayments under the old and new revolving credit facilities of $3.5
million.
SIX MONTHS ENDED JUNE 30, 2003
Cash provided by operating activities of $20.6 million during the six
months ended June 30, 2003 reflects net income, excluding non-cash and other
reconciling items of $15.8 million, and a decrease in net working capital of
$4.8 million. Accrued liabilities increased $3.2 million, primarily reflecting
increases in accrued compensation and benefits costs and income, property and
value-added taxes.
Cash used in investing activities of $4.3 million during the six months
ended June 30, 2003 included capital expenditures primarily for production
equipment of $11.1 million and proceeds from the sale of production equipment
and the facilities described above of $5.9 million.
Cash used in financing activities of $20.1 million during the six months
ended June 30, 2003 included the following:
- Principal payments on borrowings under our former senior credit
facilities of $14.8 million, including the unscheduled payment of $5.8
million in April from funds received in the sale and leaseback
transaction described above; and
- Net repayments under the former revolving credit facilities of $5.6
million.
YEAR ENDED DECEMBER 31, 2003
Cash provided by operating activities of $38.0 million during 2003 reflects
net income, excluding non-cash and other reconciling items, of $33.0 million and
a decrease in net working capital of $5.0 million. Accounts receivable decreased
$6.8 million commensurate with reduced European sales volume in the last quarter
of 2003 relative to the same period in 2002. In addition, European accounts
receivable factoring activity increased $2.1 million from December 31, 2002 to
December 31, 2003. Accounts payable and accrued liabilities decreased $3.7
million due primarily to decreases in accrued compensation and benefits costs,
the satisfaction during 2003 of certain liabilities existing at December 31,
2002 arising from the closing of the Chicago facility, and the recognition of
deferred revenue associated with the cancellation of a customer program.
Cash used in investing activities of $14.9 million during 2003 included
capital expenditures primarily for production equipment of $22.5 million and
proceeds from the sale and leaseback of our Kentwood and Marshall facilities and
the sale of equipment of $6.7 million. In addition, we received net cash from
leasing companies totaling $1.7 million, representing reimbursements of deposits
previously paid on production equipment now subject to operating lease
agreements. Finally, we paid $0.7 million to terminate an operating lease for
some of the production equipment that had been used in our Chicago facility as
described above.
Cash used in financing activities of $27.3 million during 2003 primarily
represents scheduled principal payments on bank and capital lease obligations of
$19.3 million, the final principal installment payment on a note payable to the
sellers of Bouverat Industries, SA of $3.7 million, and a $5.8 million
unscheduled principal payment on our USD-denominated term debt through proceeds
from the sale and leaseback of our Kentwood and Marshall facilities referenced
above. We issued $0.9 million in notes payable to fund capital expenditures in
South America.
42
YEAR ENDED DECEMBER 31, 2002
Cash provided by operating activities of $32.0 million during 2002 reflects
net income, excluding non-cash and other reconciling items, of $27.0 million and
a decrease in net working capital of $5.0 million. Accounts receivable increased
$3.6 million and inventories increased $1.3 million commensurate with increased
sales volume in the last quarter of 2002 relative to the same period in 2001. In
2002, we factored $9.0 million of European accounts receivable, which partially
offset the impact of sales growth on accounts receivable. Accounts payable
increased $5.1 million commensurate with the increase in production in 2002
relative to 2001. Accrued liabilities increased $4.9 million reflecting
increases in accrued compensation and benefits costs. In addition, we
established a $0.7 million deferred revenue liability for funds received from a
customer for a new program that was later terminated as referenced above.
Cash used in investing activities of $15.6 million during 2002 included
capital expenditures primarily for production equipment of $17.2 million and
proceeds from the sale of equipment of $1.6 million.
Cash used in financing activities of $21.5 million during 2002 included
repayments on our revolving line of credit of $6.8 million and scheduled
principal payments on bank and capital lease obligations of $15.2 million. We
issued $0.5 million in notes payable to fund capital expenditures in South
America.
CONTRACTUAL OBLIGATIONS
Our contractual obligations as of December 31, 2003 are set forth below:
<Table>
<Caption>
PAYMENTS DUE BY PERIOD
--------------------------------------
LESS THAN 1-3 4-5 MORE THAN
TOTAL 1 YEAR YEARS YEARS 5 YEARS
------ --------- ------ ----- ---------
Long-Term Debt(1)....................... $124.1 $26.2 $ 97.9
Capital Leases and Other Debt........... 9.8 3.6 2.8 $1.3 $ 2.1
Operating Leases........................ 62.7 11.2 19.3 13.5 18.7
Conditional Purchase Commitments(2)..... 10.5 6.9 1.1 1.2 1.3
------ ----- ------ ----- -----
Total Contractual Cash Obligations...... $207.1 $47.9 $121.1 $16.0 $22.1
====== ===== ====== ===== =====
</Table>
- ---------------
(1) These amounts include amounts outstanding under our existing credit
facilities.
(2) These amounts are non-cancelable purchase commitments for machinery and
equipment, some of which may be assigned to financing companies under
operating lease agreements. In accordance with terms of the purchase
agreements, final acceptance of the equipment is contingent upon the
equipment demonstrating capabilities as documented by our purchase orders.
43
Our contractual obligations as of June 30, 2004 are set forth below:
<Table>
<Caption>
PAYMENTS DUE BY PERIOD
-------------------------------------
LESS THAN 1-3 4-5 MORE THAN
TOTAL 1 YEAR YEARS YEARS 5 YEARS
------ --------- ----- ----- ---------
(DOLLARS IN MILLIONS)
Long-Term Debt(1)........................ $259.8 $ 4.1 $15.8 $34.4 $205.5
Capital Leases and Other Debt............ 8.0 1.9 3.0 1.4 1.7
Operating Leases......................... 62.2 11.7 20.2 12.8 17.5
Conditional Purchase Commitments(2)...... 9.1 3.1 2.0 2.0 2.0
------ ----- ----- ----- ------
Total Contractual Cash Obligations....... $339.1 $20.8 $41.0 $50.6 $226.7
====== ===== ===== ===== ======
</Table>
- ---------------
(1) These amounts include indebtedness outstanding under our new senior credit
facilities and the aggregate principal amount of the notes.
(2) These amounts are non-cancelable purchase commitments for machinery and
equipment, some of which may be assigned to financing companies under
operating lease agreements. In accordance with terms of the purchase
agreements, final acceptance of the equipment is contingent upon the
equipment demonstrating capabilities as documented by our purchase orders.
CONTINGENT LIABILITIES AND OTHER COMMITMENTS
We have guaranteed the performance of some equipment leases of an unrelated
vendor that provides services to us within one of our European production
facilities in a total amount equal to $5.5 million as of June 30, 2004.
We sponsor defined benefit pension plans, see "-- Critical Accounting
Policies" below, for substantially all employees of our French subsidiaries. Our
estimated liability under these plans as of June 30, 2004 was $1.9 million and
our expected funding obligations for 2004 are $0.3 million.
SEASONALITY
Our business is seasonal, as it is common that our customers and OEMs
historically have one to two week shutdowns of operations during August and
December. Our sales figures reflect the effects of these shutdowns. As a result,
our working capital requirements are also seasonal, with the largest working
capital commitments coming in the early part of the first quarter and the latter
part of the third quarter of each year.
EFFECTS OF INFLATION
We believe that relatively moderate levels of inflation over the last few
years have not had a significant impact on revenues or profitability and that
our management has been able to offset the effects of inflation by realizing
improvements in operating efficiency.
FOREIGN OPERATIONS
During the three months ended June 30, 2004, our North American operations
exported $6.1 million of product to customers located in foreign countries, and
our foreign operations shipped $56.0 million of product to customers from their
facilities. During the six months ended June 30, 2004, our North American
operations exported $12.3 million of product to customers located in foreign
countries, and our foreign operations shipped $112.5 million of product to
customers from their facilities. In the year ended December 31, 2003, our North
American operations exported $22.4 million of product to customers located in
foreign countries, and our foreign operations shipped
44
$189.0 million of product to customers from their facilities. As a result, we
are subject to the risks of doing business abroad, including currency exchange
rate fluctuations, limits on repatriation of funds, compliance with foreign laws
and other economic and political uncertainties.
ACCOUNTING PRONOUNCEMENTS
SFAS No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits, was revised in December 2003. It requires additional
disclosures about assets, obligations, cash flows and net periodic benefit cost
of defined benefit pension plans and enhanced disclosures of management's
assumptions related to discount rates, investment returns and salary
assumptions. This statement is effective for us for the year ending December 31,
2004.
CRITICAL ACCOUNTING POLICIES
Our accounting policies, including those described below, require
management to make estimates and assumptions using information available at the
time the estimates are made. Actual amounts could differ significantly from
these estimates. See Note 1 to our 2003 consolidated financial statements for a
summary of the significant accounting policies and methods used in the
preparation of our consolidated financial statements. Our management believes
the following are some of the more critical judgment areas in the application of
accounting policies that currently affect the consolidated financial condition
and results of operations.
ACCOUNTS RECEIVABLE
We evaluate our allowance for doubtful accounts on a quarterly basis and
review the significant customers with delinquent balances to determine future
collectibility. We base our determinations on legal issues like bankruptcy
status, past history, current financial and credit agency reports, and the
experience of our credit representatives. We reserve accounts that we deem to be
uncollectible in the quarter in which we make the determination. We maintain
additional reserves based on our historical bad debt experience, which is
minimal. We believe that, based on past history and our credit policies, the net
accounts receivable are of good quality.
INVENTORY VALUATION
Inventories are stated at the lower of actual cost, on a first-in,
first-out, or FIFO, basis, or market. Market price is generally based on the
current selling price of our products. We regularly review inventories to
determine if their carrying value exceeds market value, and we record a reserve
to reduce the carrying value to market price, as necessary. Historically, we
have rarely experienced significant occurrences of obsolescence or slow moving
inventory.
FIXED ASSET IMPAIRMENT
We review long-lived assets whenever events and circumstances indicate that
the carrying value of these assets may not be recoverable based on estimated
future cash flows. In determining future cash flows, significant estimates are
made by us with respect to future operating results. If these assets are
considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the
assets.
GOODWILL
We evaluate the carrying value of goodwill at least annually for
impairment. Fair value is determined based upon discounted cash flows and
requires that we make significant estimates and assumptions, including long-term
projections of cash flows, market conditions and appropriate discount rates. Our
judgments are based upon historical experience, current market conditions and
other information. While we believe the estimates and assumptions underlying the
valuation methodology to be reasonable, different assumptions could result in
different outcomes.
45
In estimating future cash flows, we rely upon internally generated
five-year forecasts for sales, operating cash flows and capital expenditures to
maintain current equipment levels. We generally develop these forecasts based
upon recent sales data for existing operations and other factors.
SELF INSURANCE RESERVES
We offer our North American employees medical insurance that is primarily
self-insured by us. As a result, we accrue a liability for known claims as well
as the estimated amount of expected claims incurred but not reported. We
evaluate our medical claims liability on a quarterly basis through the review of
claims lag studies and knowledge of past history. We accrue as a liability
expected claims incurred but not reported and any known claims.
Starting in May 2001, our North American facilities converted to a
self-insured workers' compensation program. On a quarterly basis, we evaluate
our liability based on a third-party adjuster's independent analysis by claim.
PENSIONS
We sponsor defined benefit pension plans for substantially all employees of
our French subsidiaries. We account for our defined benefit pension plans using
SFAS No. 87, Employers' Accounting for Pensions. The benefits accrued under our
plans are calculated based on each employee's years of credited service and most
recent monthly compensation and service category. The obligations for the plan
sponsored by F&P are not funded and the obligations for the plan sponsored by
Bouverat are partially funded. Employees become vested in accordance with
governmental regulations in place at the time of retirement under both plans.
The calculation of pension expense and our pension liability requires the
use of a number of assumptions. Changes in these assumptions can result in
different expense and liability amounts, and future experience can differ from
the assumptions. We believe that the two most critical assumptions are the
compensation growth and discount rates.
When calculating pension expense for the six months ended June 30, 2004 and
the year ended December 31, 2003, we assumed a compensation growth rate of 2.0%.
When calculating pension expense for the years ended December 31, 2002 and 2001,
we assumed a compensation growth rate of 3.0%. We discounted our future pension
obligation using a rate of 5.0% for all periods presented. We determined the
appropriate compensation growth and discount rates based upon market conditions,
long-term corporate and government yields commensurate with the ultimate pension
obligation and long-term anticipated compensation trends.
Future changes in assumed compensation growth and discount rates and
various other factors related to participants in our pension plans will impact
our future pension expense and liabilities. We cannot predict with certainty
what these factors will be in the future.
REVENUE RECOGNITION
Sales are recognized at the time product is shipped to the customer at
which time title and risk of ownership transfer to the purchaser.
INCOME TAXES
Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future. Such deferred income
tax asset and liability computations are based on enacted tax laws and rates
applicable to periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized. Income tax expense is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
46
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We manage certain foreign currency exchange risk in relation to equipment
purchases through the limited use of foreign currency futures contracts to
reduce the impact of changes in foreign currency rates on firm commitments to
purchase equipment. No such contracts related to equipment purchases were
outstanding at June 30, 2004 or December 31, 2003.
We typically derive 50-60% of our sales from foreign manufacturing
operations. The financial position and results of operations of our subsidiaries
in France are measured in euros and translated into USD. The effects of foreign
currency fluctuations in France are somewhat mitigated by the fact that sales
and expenses are generally incurred in euros, and the reported net income
thereon will be higher or lower depending on a weakening or strengthening of the
USD as compared to the euro.
The financial position and results of operations of our subsidiary in
Brazil are measured in Brazilian reais and translated into USD. With respect to
approximately 40% of this subsidiary's sales, expenses are generally incurred in
Brazilian reais, but sales are invoiced in USD. As such, results of operations
with regard to these sales are directly influenced by a weakening or
strengthening of the Brazilian reais as compared to the USD. The effects of
foreign currency fluctuations are somewhat mitigated on the remainder of this
subsidiary's sales by the fact that these sales and related expenses associated
therewith are generally incurred in Brazilian reais and the reported income
thereon will be higher or lower depending on a weakening or strengthening of the
USD as compared to the Brazilian real. Our consolidated net assets include
assets based in France denominated in euros and assets based in Brazil
denominated in reais, each of which will be translated to USD as of a reporting
date. Accordingly, our consolidated net assets will fluctuate depending on the
weakening or strengthening of the USD as compared to these currencies as a
result of foreign currency translation adjustments.
47
BUSINESS
GENERAL
We are a leading independent manufacturer of a diverse mix of highly
engineered, precision machined, metal alloy components for many of the world's
leading Tier I automotive parts suppliers. We focus on higher value-added
products and emphasize product categories likely to benefit from technological
innovation. Within each of our product categories, we strive to migrate our
product portfolio up the "value pyramid" described below by focusing on
sub-assemblies, complete assemblies and other products that we believe generate
margins above most of our peers. Our technology and manufacturing know-how
allows us to produce complex parts requiring extremely close tolerances in the
single digit micron range, with one micron equaling 1/88th the width of a human
hair. Given the high performance and safety critical nature of the applications
where our parts are used, our products very often approach zero-defect quality
levels.
We believe that over 80% of our sales are generated in product categories,
including power steering, fuel injection, airbags and electric motors, where we
hold a number one market position relative to other independent manufacturers.
We believe our scale and precision manufacturing capabilities provide a
significant competitive advantage over our independent competitors, many of
which are smaller and lack the capital or technology to compete effectively with
us. In addition, our scale allows us to pursue long production runs of high
volume parts, enabling us to lower average manufacturing costs. Our in-house
application engineering expertise allows us to fully integrate with customers'
application design and engineering efforts during the prototyping stage, further
entrenching our competitive position. Our expertise has allowed us to achieve
sole-source contracts covering an estimated 80% of our 2003 sales, which we
believe provides greater visibility of and stability to earnings and cash flow.
For the year ended December 31, 2001, we generated total sales of $236.5
million, for the year ended December 31, 2002, we generated total sales of
$275.1 million, for the year ended December 31, 2003, we generated total sales
of $323.2 million, for the three months ended June 30, 2004, we generated total
sales of $91.6 million and for the six months ended June 30, 2004, we generated
total sales of $184.5 million. We believe we are well positioned to continue to
increase our sales as we continue to benefit from favorable industry trends.
OUR PRODUCTS
Our products include precision-machined automotive components,
sub-assemblies and assemblies. Generally, our products are platform neutral
because they are not tied to any specific OEM models or platforms. We sell our
products principally to North American and European Tier I automotive suppliers,
which integrate these components into their own product offerings. These product
offerings are in turn sold directly to OEMs primarily for the manufacture of new
passenger vehicles and light trucks. A normal product life cycle for our
products is typically five to seven years.
We specifically target product categories that leverage our unique
competencies and that we expect will further entrench our leading market
positions. To this end, we are guided by a conceptual framework we refer to as
the Autocam "value pyramid." We use the value pyramid to guide decisions
regarding which product categories to target, which new business opportunities
to pursue within each product category and which existing programs to exit. Our
ultimate goal is to move our product offering up the value pyramid. The higher
levels of the value pyramid generally include products where we are involved
from the prototype-stage, specialty products, sub-assemblies, assemblies and
selected products for niche applications. These products typically have the
following characteristics:
- high engineering and design content;
- very close manufacturing tolerances at high volumes;
48
- use of proprietary manufacturing know-how and specialty manufacturing
equipment; and
- high customer switching costs.
We manufacture and sell over 200 types of precision automotive components
for five primary product categories. Below is an overview of what we believe is
our market position and market share and the market size of our five primary
product categories.
<Table>
<Caption>
MARKET
POSITION AMONG OVERALL OUR PERCENTAGE OF
INDEPENDENT MARKET SIZE MARKET OUR 2003
PRODUCT CATEGORY SUPPLIERS(1) (IN MILLIONS)(2) SHARE(2) SALES
---------------- -------------- ---------------- -------- -------------
Fuel Injection(3)............. #1 $770 13% 34%
Power Steering................ #1 984 12 31
Electric Motors............... #1 223 15 13
Braking....................... #4 275 10 8
Airbags....................... #1 203 9 6
</Table>
- ---------------
(1) Management estimate of market position among independent suppliers and does
not take into account products made by Tier I suppliers.
(2) Management estimate of overall market size and our market share, including
independent and Tier I suppliers.
(3) For purposes of determining market position, market size and market share,
fuel injection reflects only light-vehicle fuel injection products. Our 2003
sales includes sales of heavy vehicle fuel injection products.
We are a leading independent manufacturer of precision-machined components,
sub-assemblies and assemblies in all five product categories in which we
operate.
- Fuel injection has historically been our largest product category. Within
the fuel injection product category, we manufacture components like disk
checks, pole pieces, valves, seat guides, diesel pump bodies, diesel
cases, sleeves and inlet tubes. These components are integrated into
products that are sold primarily into the North American operations of
OEMs.
- Power steering has historically been our second largest product category.
Within the power steering product category, we manufacture valve
assemblies, as well as components like sleeves, torsion bars, input
shafts, pinions and worms. These components are integrated into products
that are sold primarily into the European operations of OEMs.
- Our products within the electric motors product category primarily
include gears, gear sub-assemblies and worm shafts. These components are
integrated into products that are sold primarily into the European
operations of OEMs.
- Within the braking product category, we manufacture components like
sleeves, push rods, seats and valve rods. These components are integrated
into products that are sold into European and North American operations
of OEMs.
- We entered the airbag market in 2001 when we acquired some of the assets
of Chicago based Har Technologies, Inc., or Har Technologies, which we
regarded as a leader in machined airbag components in North America at
that time. Within the airbag product category, we presently manufacture
components like collars, adaptors, projectiles, chargeholders and
diffusers. These components are integrated into products that are sold
primarily into the North American operations of OEMs.
In addition to our core products categories, we also manufacture components
and assemblies for other automotive applications and for medical devices.
Components for use in medical devices
49
include hand pieces for use in ophthalmic surgery and laser cut coronary and
aortic stents. Our customers are among the leaders in their respective markets
for ophthalmic surgical devices and minimally invasive stent delivery systems.
INDUSTRY TRENDS
We primarily operate within the automotive parts industry. The markets in
that industry in which we operate are very fragmented, niche markets where most
of our independent competitors are much smaller. Currently, we believe several
significant existing and emerging trends are impacting the automotive industry.
We believe our business is well positioned to benefit from these trends,
including:
OUTSOURCING TRENDS BY TIER I SUPPLIERS. Over the past several years, Tier
I automotive suppliers have continued a trend toward outsourcing automotive
parts and systems to focus on their core design, development, assembly and
marketing. We believe that Tier I suppliers are increasingly re-evaluating their
own in-house machining operations with a focus on reducing costs through
increased outsourcing of individual parts and assemblies to suppliers capable of
global delivery. Independent suppliers are frequently able to achieve lower
production costs per unit than Tier I suppliers and therefore can offer
significant cost saving opportunities. We expect this trend to continue and
believe that both our precision manufacturing base and global presence position
us well to continue to increase our penetration of the Tier I precision parts
market.
INCREASING DEMAND FOR GLOBAL CAPABILITIES. OEMs and Tier I suppliers
continue to expand their operations globally to capitalize on market
opportunities. As these end use customers expand their geographic reach, they
increasingly look to suppliers with the global capabilities to service their
needs in those same locations. Suppliers with leading market positions and
global capabilities have a competitive advantage and are best positioned to
benefit from these trends. In 2003, we serviced in more than one location each
of our top three customers, Robert Bosch GmbH, Delphi Corporation and TRW
Automotive Inc.
INCREASING DEMAND FOR SAFETY AND CONVENIENCE FEATURES. We expect that
growing regulatory and consumer demand for safety and convenience features will
continue to drive growth across a number of our product categories. The demand
for these features typically drives OEM design changes and provides an
opportunity to further increase our sales. We believe we will benefit from new
and expanding product demand in a number of our product categories, including:
- Power Steering -- Power steering demand is expected to increase with the
worldwide emergence of electric power assisted steering;
- Electric Motors -- Consumers continue to demand more convenience, comfort
and safety features in their vehicles, including seat adjusters,
sunroofs, lumbar supports, power sliding doors and power lift gates. CSM
Worldwide expects the demand for these conveniences to increase to an
average of 36 electric motors per vehicle by 2005 from an average of 26
electric motors per vehicle in 2000;
- Braking Systems -- We believe pressure from consumers and regulatory
agencies for safer vehicles will continue to put pressure on brake system
suppliers to develop advanced systems that reduce stopping distances and
control the vehicle during hard-stopping and crash avoidance situations.
Typically these newer systems require improved technology and higher
value-added precision manufactured components; and
- Airbags -- We believe growing customer demand for safety as well as
regulatory activity will continue to increase airbag content in new
vehicles. Growth will be driven by demand for side and curtain airbags
and a move toward "smart" airbags, which are airbag systems in which
deployment is electronically controlled and typically require double the
number of machined parts.
50
DIESEL FUEL TRENDS. Given ongoing requirements for improved emissions and
better fuel consumption, fuel systems are an area of constant focus for OEMs.
Diesel engines, though not as common in North America, represent over 40% of the
European fuel injection market. Diesel engines continue to gain popularity for
their fuel efficiency, relative environmental friendliness and durability. New
technological advancements in diesel fuel injectors, including common rail fuel
delivery and other forms of diesel direct injection, will require higher value
components and assemblies than traditional gasoline systems. We believe our
experience in the manufacture of diesel components in Europe and North America
positions us well to capture increased volume from potential diesel penetration
in North America.
CONTINUED PENETRATION OF IMPORT BRAND OEMS IN NORTH AMERICA. Import brand
automobile manufacturers, including Toyota, Honda and Nissan, continue to
increase their manufacturing presence in North America. Import brand OEMs have
grown their market share from 28.8% to 40.7% of the North American market from
1997 to 2003. CSM Worldwide expects them to capture 48.3% of the market by 2008.
We believe there is an opportunity to take advantage of this trend by increasing
our sales to Tier I suppliers, who are currently selling to import brand OEMs.
COMPETITIVE STRENGTHS
INDUSTRY LEADER IN STRATEGICALLY TARGETED MARKETS. We are a leader in
fragmented, niche markets. We believe that over 80% of our 2003 sales were from
product categories in which we held number one market positions relative to
competing independent manufacturers, including fuel injection, power steering,
electric motors and airbags. We specifically target those product categories
that are likely to grow quicker than the overall industry, offer extensive
value-added and higher margin product opportunities and are likely to benefit
from technological change. We have continuously refined our processes and
customized production equipment to provide state-of-the-art precision machining
capabilities, enabling us to enhance our position as a valued supplier to our
global Tier I customers. Our products contain a high degree of engineering
content and require precision manufacturing processes in order to meet the
performance requirements of these critical components. Moreover, we believe that
as our customers continue to rationalize their supplier bases and re-evaluate
their own in-house precision machining capabilities, we will be able to leverage
our leading position to gain increased market share.
BUSINESS VISIBILITY SUPPORTED BY LONG-TERM CONTRACTS. The majority of our
products are sold under long-term, sole-source contracts that provide visibility
on our future sales and cash flow. We focus our new product development efforts
on securing long-term, sole-source contracts with Tier I automotive suppliers.
Substantially all of our expected 2004 sales will be under existing contractual
agreements, with the related capital expenditures and start-up costs already
incurred. We believe that over 80% of our expected sales volumes through 2006
will come from products and customers already under contract. The long-term
nature of our contracts permit us to achieve meaningful manufacturing cost
reductions and sustain and improve our margins throughout a product's lifecycle
as we pursue continuous manufacturing improvements.
WELL ENTRENCHED POSITIONS WITH TIER I CUSTOMER BASE. We have aligned our
business with many of the world's leading Tier I suppliers. As evidence of our
strong relationships with our customers, our relationships with our top 10
customers average 18 years in length. We believe our reputation for close
tolerance, high precision manufacturing expertise provides us with a strong
competitive advantage that will allow us to continue to increase our sales to
both new and existing customers. Our products typically have applications in
performance critical or safety related applications that place a premium on
quality and reliability, mitigating our customer's incentive to switch
suppliers. Although our products are critical to the reliability and durability
of our customer's products, they typically represent only a small portion of
their overall system cost. Moreover, we strategically target those Tier I
suppliers that are best positioned to grow within our core product categories.
Our customers include 10 of the 15 largest global Tier I automotive suppliers,
including
51
Robert Bosch GmbH, Delphi Corporation, Siemens VDO Automotive AG, TRW Automotive
Inc. and ZF Friedrichshafen AG.
DIVERSE BUSINESS MIX. We supply a diverse range of precision products on a
global basis to a broad group of customers. Our diversity across products,
geography and automobile platforms provides stability and predictability to our
business. Our precision products are provided to key Tier I suppliers who
typically use them in critical products and systems for numerous vehicle models
from many of the world's major auto manufacturers, including BMW,
DaimlerChrysler Corporation, Ford Motor Company, General Motors Corporation,
Honda, Nissan, Toyota Motor Company and Volkswagen AG. Our products are
typically automobile platform neutral, mitigating our exposure to any single
vehicle model or platform. We support our global customer base from 13
strategically located manufacturing facilities in North America (4), France (5),
Brazil (3) and China (1). Our geographic reach allows us to lower shipping
costs, reduce delivery times and provide opportunities to grow with our
customers in their local markets.
Our breakdown of sales in 2003 by product category, geography and customer
was:
BY CATEGORY
(PIE CHART)
<Table>
Fuel Injection 34
Power Steering 31
Electric Motors 13
Braking 8
Airbags 6
Other Transport 5
Medical 3
</Table>
BY GEOGRAPHY
(PIE CHART)
<Table>
Europe 53
South America 4
North America 43
</Table>
BY CUSTOMER
(PIE CHART)
<Table>
Other 26
Delphi 16
TRW 13
Robert Bosch 13
ZF 12
Koyo 8
Siemens VDO 6
Autoliv 6
</Table>
CULTURE OF LEAN MANUFACTURING AND CONTINUOUS IMPROVEMENT. We have built a
pervasive culture centered on lean manufacturing, quality management and
continuous improvement. In many cases, our management team considers us to be
"best in class" in continuous process improvement. Our "Autocam Production
System" incorporates "lean" manufacturing philosophies and other techniques into
our operations, resulting in operational excellence that has allowed us to
achieve improved margins over time. Our focus on long-term, high-volume
components allows us to fully leverage our continuous improvement and cost
reduction capabilities.
EXPERIENCED AND MOTIVATED MANAGEMENT TEAM. We are led by an experienced
management team that averages 18 years of automotive parts manufacturing
experience. The senior management team has been led by our president, John C.
Kennedy, who has held that position with Autocam since he first acquired Autocam
in 1988. The current management team has been responsible for developing and
executing our strategy, which is focused on manufacturing expertise, profits,
cash flow and profitable return on invested capital, or ROIC, through the
product life cycle. Moreover, our senior management has deep experience with our
current customer base and extensive relationships throughout the automotive
industry. Mr. Kennedy re-invested $28.0 million of his Holdings equity in the
acquisition. Our management team was granted options in Parent, and Mr. Kennedy
and others in the management team own in the aggregate more than 25% of Parent
on a fully diluted basis.
52
BUSINESS STRATEGY
Our goals are to continue to increase our leading market position and
leverage our manufacturing expertise and customer relationships to increase our
sales and cash flow. Our strategy to achieve these goals includes the following
initiatives:
FOCUS ON HIGH GROWTH AND HIGHER VALUE-ADDED PRODUCT OFFERINGS. We seek to
focus our design, engineering and manufacturing expertise on higher value-added
products, sub-assemblies and assemblies that are not easily manufactured. By
migrating up the value pyramid to the highest precision products, we expect to
leverage our technologically advanced manufacturing expertise and increase our
ROIC. In addition, we seek to align our development efforts on new products in
categories that we believe will benefit from technological innovation and grow
faster than the industry. For example, we believe our 2001 entry into the airbag
product category will continue to provide momentum to our sales and cash flow as
consumers and regulators demand greater safety features and increasingly
sophisticated airbag systems. Similarly, we recently demonstrated our ability to
provide value-added products and services by performing all of the design,
assembly and testing of a custom-tailored, complete hydraulic power steering
valve assembly for ThyssenKrupp Presta Steertec specifically used in Mercedes
Benz M-Class and Jeep Grand Cherokee vehicles. We believe that this strategy has
helped us to achieve 14 quarters of year-over-year sales growth through June 30,
2004.
ALIGN SALES AND MARKETING EFFORTS WITH LEADING TIER I SUPPLIERS. We seek
to focus our sales and marketing efforts on Tier I suppliers that can maintain
or achieve leadership positions in our product categories. By focusing our
efforts on these customers during the design and prototype stages of product
development, we are able to secure early access to new products and better
position ourselves to supply higher value-added components and sub-assemblies.
This integrated approach allowed us to achieve sole-source contracts covering an
estimated 80% of our 2003 sales. In addition, as the incumbent manufacturer, we
are well positioned to leverage our manufacturing expertise onto next generation
parts and secure additional sales and volumes with our customers.
EXPLOIT TECHNICAL MANUFACTURING STRENGTH. We are recognized by our
customers as a leading independent manufacturer of precision-machined, extremely
close tolerance metal alloy components for high technology automotive
applications. We produce these components through various processing techniques
like high precision automatic and computer numerically controlled, or CNC,
turning, rotary transfer, precision milling and precision grinding. From product
development to final delivery, we employ state of the art manufacturing
technologies and processes. Moreover, we have continuously refined our processes
and customized our production equipment to deliver levels of precision machining
capabilities that we believe provide a competitive advantage versus many of our
competitors. We believe our recognized manufacturing advantage allows us to
achieve close tolerance specifications, approach zero-defect manufacturing and
achieve superior on-time delivery to better serve our customers.
CONTINUOUSLY PURSUE PRODUCTIVITY IMPROVEMENTS AND LEAN MANUFACTURING. We
have a deep culture throughout the organization of continuously pursuing
efficiencies to lower costs and improve cash flows and margins. For example, in
2003 we consolidated the operations at our Chicago facility with our Kentwood
and Marshall facilities, enabling us to reduce headcount and rationalize
duplicate costs. In France, we have similarly undertaken efforts to reduce
headcount and optimize operations to increase cash flow. In addition, we believe
we have identified additional operational initiatives that we plan on pursuing
to drive greater efficiency, lower costs and increase cash flow.
SELECTIVELY PURSUE STRATEGIC ACQUISITIONS. We have successfully completed
and integrated acquisitions that have increased our scale and broadened our
product portfolio. As a result of our strong position in our product categories,
the fragmented nature of markets in which we operate and our prior success in
making acquisitions, we believe we are well positioned to capitalize on
potential acquisition opportunities. We intend to continue to apply a selective
and disciplined acquisition
53
strategy that is focused on improving financial performance, broadening our
product portfolio and increasing our leadership position.
PRODUCT OVERVIEW
We organize our product lines into the following categories:
- fuel injection,
- power steering,
- electric motors,
- braking,
- airbags,
- medical devices, and
- other.
For the three years ended December 31, 2003 and the six months ended June
30, 2004, our sales by product line were as follows:
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED 6 MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
PRODUCT CATEGORIES 2001 2002 2003 2004
- ------------------ ------------ ------------ ------------ --------------
(IN MILLIONS)
Fuel injection............ $ 91.3 $ 99.7 $111.0 $ 58.1
Power steering............ 49.6 70.2 99.9 61.0
Electric motors........... 34.5 34.1 41.8 22.6
Braking................... 26.2 25.4 26.4 16.9
Airbags................... 7.0 19.8 18.5 9.1
Medical devices........... 6.0 7.3 8.1 5.1
Other..................... 21.9 18.6 17.5 11.7
------ ------ ------ ------
TOTAL REVENUE............. $236.5 $275.1 $323.2 $184.5
====== ====== ====== ======
</Table>
For the three years ended December 31, 2003 and the six months ended June
30, 2004, the percentage of our revenues by product lines was:
<Table>
<Caption>
YEAR ENDED YEAR ENDED YEAR ENDED 6 MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
PRODUCT CATEGORIES 2001 2002 2003 2004
- ------------------ ------------ ------------ ------------ --------------
Fuel injection............ 39% 36% 34% 31%
Power steering............ 21 26 31 33
Electric motors........... 15 12 13 12
Braking................... 11 9 8 9
Airbags................... 3 7 6 5
Medical devices........... 3 3 3 3
Other..................... 8 7 5 7
--- --- --- ---
TOTAL REVENUE............. 100% 100% 100% 100%
=== === === ===
</Table>
FUEL INJECTION. We design, engineer and manufacture fuel injector system
components for use in both gasoline and diesel powered engines. Our customers'
products have applications in both light-vehicles as well as heavy-duty trucks
and off road vehicles. Some of the component parts we manufacture include disk
checks, pole pieces, valves, seat guides, diesel pump bodies and diesel cases.
Our status as a value-added supplier positions us to participate in the design
or redesign of
54
our customer's products. For example, we have participated in the design and
manufacture of components for three successive generations of one family of fuel
injectors.
Our fuel injector component sales are predominantly generated in North
America where we serve the leading Tier I fuel injector suppliers. We also have
a presence in Europe and South America where we serve our top customers'
European and South American fuel injector component needs. Our customers'
products are generally platform neutral. Examples of North America end-use
customers include DaimlerChrysler, Ford, General Motors and Nissan.
The fuel injector market has been driven by a shift in technology, first
from carburetion systems to fuel injectors, then from single port fuel injectors
to the multi port fuel injectors commonly found on many vehicles today. Emission
standards and performance considerations have each been a factor in this
technology shift. A new form of fuel injectors, direct injecting systems, are
gaining popularity and are expected to continue to support growth in this
category. Direct injecting systems spray fuel directly into the cylinder, as
opposed to the intake manifold, and provide increased fuel efficiency. In
addition, new developments in diesel fuel engines including technology driven
common rail fuel delivery and other diesel injection innovations are expected to
increase the demand for high value component parts for diesel applications.
We manufacture fuel injection system components at our facilities in
Kentwood and Marshall, Michigan, Pochons, Ternier and Lecheres, France, and
Campinas and Pinhal, Brazil.
POWER STEERING. We design, engineer and manufacture power steering system
components, sub-assemblies and assemblies. Some of our products include sleeves,
input shafts, torsion bars, and integrated pinions and sleeves as well as
finished hydraulic valve assemblies. We entered this product category in 1998
with the acquisition of Frank & Pignard, or F&P, in France. At the time of the
acquisition, we regarded F&P as a leading independent manufacturer of hydraulic
power steering components and sub-assemblies in Europe. We have leveraged F&P's
leading market position to develop critical components for electric power
assisted steering, or EPAS, including a "torque sensing assembly." These design
efforts have positioned us as an exclusive supplier to a number of leading Tier
I suppliers.
Our power steering component sales are predominantly generated in Europe
where we serve many of the leading Tier I power steering suppliers. We also have
a presence in North and South America where we serve our top customers' local
power steering component needs. Our customers' products are generally platform
neutral. In Europe end-use customers include BMW, DaimlerChrysler, Fiat, General
Motors, Honda, Nissan, Peugeot, Renault, Toyota and Volkswagen. In North and
South America end-use customers include DaimlerChrysler, Fiat, Opel and Peugeot.
Power steering demand was historically driven by consumer demand for
comfort and safety. In 2003, it is estimated that the North American
light-vehicle market has achieved almost 100% power steering penetration with
Europe at an estimated 95%. Emerging markets are expected to continue to see
increased penetration of power steering as vehicle offerings become more
sophisticated. We also believe that the use of EPAS technology will expand
market opportunity for us as it becomes more commercially accepted.
We manufacture power steering system components at our facilities in
Kentwood, Michigan, Pochons, Ternier, Le Lac, Perrieres and Lecheres, France and
Campinas, Brazil.
ELECTRIC MOTORS. We design, engineer and manufacture electric motor
components including gears, worm shafts, gear sub-assemblies and gear boxes. We
identified this growth market in the mid 1990's when the demand for high torque,
safety and performance critical electric motors was emerging. High value
electric motor applications include window lifts, seat adjusters and windshield
wipers. In 2000 we enhanced our position in this product category with the
acquisition of Bouverat in France. At the time of the acquisition, we regarded
Bouverat as a leading manufacturer of technically complex gears, shafts and
related components for electric motors. The acquisition of Bouverat
55
provided global manufacturing capabilities and enhanced our manufacturing skills
in this product category.
Our electric motor component sales are predominantly generated in Europe
where we serve many of the leading Tier I suppliers. Our customers' products are
generally platform neutral. End-use customers include many of the major OEMs in
North America and Europe.
Demand for electric motors has been driven by consumer preference for
convenience, comfort and safety features. Although power windows and windshield
wipers are approaching maximum penetration, other convenience applications
including seat adjusters, sun roofs, convertible tops, electric lumbar supports
and electric mirrors continue to expand. Applications in safety features include
electric braking, electric power steering, hybrid starter motors, hybrid
generators and emission control pumps. We believe OEMs will continue to develop
new applications for electric motors to continue to differentiate their vehicles
including electric massage units, retractable running boards, power folding
mirrors, power door and deck lids and tilting head rests.
We manufacture electric motor components at our facilities in Kentwood,
Michigan, Perrieres and Lecheres, France, Boituva, Brazil and Shenzhen, China.
BRAKING. We design, engineer and manufacture braking system components
including sleeves, pump pistons, seats and valve rods. We identified this market
when luxury brands like Mercedes Benz and BMW first introduced premium anti-lock
braking safety features to the European market. As the safety advantages of this
feature became apparent, applications for "mass market" anti-lock braking
systems emerged in both Europe and North America. Our growth focus in this
category is on high value-added brake system applications, including complete
solenoid assemblies, anti-lock brake systems, traction control and stability
systems. As these systems become increasingly complex, we believe that the
precision required to manufacture components and assemblies will also increase.
Our braking system component sales are generated in Europe and North
America, where we serve many of the leading Tier I suppliers. Our customers'
products are generally platform neutral. In Europe end-use customers include
DaimlerChrysler, Fiat and Volkswagen and in North America they include
DaimlerChrysler, Ford and General Motors.
We manufacture braking system components at our facilities in Kentwood,
Marshall and Dowagiac, Michigan, Pochons and Ternier, France and Campinas and
Pinhal, Brazil.
AIRBAGS. We engineer and manufacture airbag system components like
collars, adaptors, projectiles, charge-holders, diffusers and bosses. In 2000,
we acquired some assets of Har Technologies, Inc. of Chicago and entered this
product category. We believe the combination of our precision manufacturing
know-how with Har's products and market position allowed us to become an
increasingly valuable supplier to customers such as Autoliv, one of the world's
largest producers of airbag systems.
Our airbag system component sales are almost entirely generated in North
America where we serve leading Tier I suppliers. Our customers' products are
generally platform neutral. In North America end-use customers include Ford,
Honda, Renault/Nissan and Toyota.
We believe the airbag system segment has significant opportunities for
future growth driven by increasing consumer demand and ongoing regulatory
activity. Driver and passenger airbags are now standard on all North American
light-vehicles. However, side airbags have only achieved 22% penetration of
North American light-vehicles. CSM Worldwide predicts that approximately 70% of
North American vehicles will offer side airbags by 2009. We expect state and
federal regulators to continue to encourage and require OEMs to increase vehicle
airbag content. Additionally, we expect pressure and publicity generated by
industry groups, including the Alliance of Automobile Manufacturers and
Insurance Institute for Highway Safety, will spur consumer demand for increasing
use of airbags. We also expect the demand for "smart" or sensing airbags to
contribute to future
56
growth of this category. These airbags have staged deployments and typically
require double the number of precision machined parts compared to first
generation airbags.
We manufacture airbag system components at our facilities in Kentwood and
Marshall, Michigan and Campinas, Brazil. In June 2003 we closed the Chicago
facility that originally contained Har's operations and combined it with our
Kentwood and Marshall facilities to reduce costs.
MEDICAL DEVICES. We design and manufacture a number of components and
sub-assemblies for medical device applications. Some of our components include
horns, bolts and luer fittings for surgical instruments. Medical device
component sales represented 2.5%, or $8.1 million, of our 2003 sales of $323.2
million.
The bulk of our sales in the medical device category come from two primary
customers. Our customers are among the leaders in their respective markets for
ophthalmic surgical devices and minimally invasive stent delivery systems. We
manufacture our components for medical devices at our Hayward, California
facility.
OTHER. Approximately 5% of our 2003 sales were sold for use primarily in
other automotive applications. Examples of some of our products include
components for automatic and manual transmissions, air conditioning compressors
and engine block valve guides.
SALES AND MARKETING
The substantial majority of our sales are generated under long-term
sole-source contracts with our customers. Our contracts typically last three to
seven years, but can be longer. Most of our contracts provide us with
sole-source status, prohibiting our customers from purchasing competing products
unless we fail to maintain prescribed levels of production quality or quantity.
Our customers typically provide quarterly or annual expected production volume
estimates, based on anticipated OEM production volumes that we in turn utilize
to schedule our production. These contracts often mandate annual price
concessions of between 1% and 3% which we have historically offset by
manufacturing efficiency gains over the life of a product.
We undertake minimal advertising as most of our target customers have a
working knowledge of our precision capabilities. We have built our sales
department and crafted its culture on the premise that a properly serviced and
satisfied customer will ultimately provide the best opportunity for market and
customer expansion. Customer development activity is a collaborative effort led
by our customer development engineers, or CDEs. The CDE's main focus is the
growth and development of specific customers, while providing support at
customer locations for manufacturing teams. The CDE is also able to gather
critical customer and competitive intelligence regarding new product and market
opportunities. Outside representatives are occasionally assigned to specific
customers or regional areas. We will also use this approach to gain access to
important new markets or regions where a presence is essential to the long-term
business plan. For example, we employ independent agents in Germany and Eastern
Europe to gain access to specific customers of strategic significance.
We view customer management as the activity required to maintain and manage
customer relationships profitably. Due to the specific focus on customer
satisfaction, the CDE is regarded as the "voice of the customer," providing
timely feedback to quality, delivery and customer service issues. The CDE
provides a critical link to the manufacturing product teams. Often, the CDE acts
as the front-line liaison at the customer's facility or leads meetings with the
customer regarding product or process issues. The CDE's involvement, facilitated
by the fact that the CDE is often located on site, can also be critical in
making sure that customer-derived satisfaction scores are accurate and that
quality costs are minimized. In many cases, the CDE provides the necessary
guidance as to the long-term strategy employed by a given individual customer.
For example, CDE feedback to the sales management team may help determine if we
decide to grow, maintain, or, in some cases, elect to terminate a particular
customer relationship.
57
Our market development specialists use their technical expertise and
knowledge side-by-side with our customers to thoroughly understand a customer's
requirements, offer solutions to these needs, and then coordinate a
manufacturing strategy to satisfy the technological and performance requirements
of the customer's applications. Currently, we have market development
specialists and teams in power steering, fuel injection and electric motors.
Examples of past activities of our market development specialists include:
- the development of a proprietary design for column mounted EPAS
applications for a European customer;
- the development of a hydraulic steering valve and associated
manufacturing processes for applications in North America; and
- the development of several fuel injection products with key customers,
including a unique variable-stroke solenoid valve assembly for gasoline
direct injection.
MANUFACTURING
From initial product development and component design stage to delivery of
the finished product, we employ state-of-the-art manufacturing technologies and
processes. We primarily utilize a wide range of precision machining
technologies, including high precision automatic and computer numerically
controlled turning, rotary transfer, precision milling and precision grinding,
to meet a wide range of customer specifications. The components we manufacture
are carefully and efficiently processed through a variety of high precision
finishing methods like ultrasonic cleaning and assembled into a value-added
assembly or sub-assembly or shipped directly to a customer for use in their
products.
For example, we manufacture key components for power steering systems using
precision turning, grinding and milling methods in various facilities. These
components are then matched with key purchased components, like seals, clips and
housings, and assembled using specialty precision assembly equipment in our
Kentwood, Michigan facility. This assembly is then balanced according to unique
vehicle performance specifications, tested, packed and shipped to our customer
who then adds our valve to their steering gear product. In this example, we have
refined our processes and, in some cases, customized production equipment to
achieve world-class precision manufacturing capabilities.
We also believe our in-house tooling capability provides us a unique
advantage. We have the capability to manufacture precision cutting tools and to
reconfigure specialized machine tools. These capabilities provide a competitive
advantage as product launch times are reduced, specialized machines are
available for use on future programs and proprietary know-how is maintained
within the organization.
RESEARCH, DEVELOPMENT AND TECHNOLOGY
Our objective is to offer superior quality, technologically advanced
products to our customers at competitive prices. To this end, we engage in
ongoing engineering, research and development activities to improve the
reliability, performance and cost-effectiveness of existing products and to
design and develop new products for existing and new applications. We believe
our technology and research and development support are among the best in our
industry.
Our research and development program is specifically designed to develop
new products and applications, develop improved cost-effective manufacturing and
support processes and assist in marketing new products. Many of our customers
work in partnership with our technical representatives to develop new, more
competitive products. At the same time, our engineering staff also works
independently to design new products, improve performance and technical features
of existing products and develop methods to lower manufacturing costs.
58
PATENTS AND TRADEMARKS
In limited cases, we rely on a combination of patents, trade secrets,
trademarks, copyrights and other intellectual property rights, nondisclosure
agreements and other protective measures to protect our proprietary rights. More
commonly, we also rely on unpatented know-how and trade secrets and employ
various methods, including confidentially agreements with third parties,
employees and consultants, to protect our trade secrets and know-how. We do not
believe that any individual item of our intellectual property is material to our
business.
COMPETITION
Our competitors include Tier I suppliers, as well as independent domestic
and international suppliers. Many of these Tier I suppliers are larger companies
that have greater financial resources than us and are also our most important
customers. Over the past several years, Tier I suppliers have trended toward
outsourcing the products we make, which we believe will reduce competition from
those entities in the future.
We believe that a number of barriers to entry will serve to protect our
competitive position. In general, our markets are highly fragmented with few
independent competitors able to match our geographic footprint and the depth and
breadth of our product offerings. Our well-entrenched position with Tier I
suppliers gives us an advantage to source new business from these customers.
Further, our independent competitors will not be able to match our global
capabilities without a substantial investment in new facilities. Finally,
development of new products is capital intensive, and we believe many of our
smaller competitors lack sufficient financial resources to make the necessary
investments in new product lines.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The most important raw material we purchase is steel. We purchased
approximately $45 million of steel in 2003, representing approximately 16% of
our total cost of goods sold. We purchase primarily high-value-added specialty
steel, which has historically experienced more stable pricing than commodity
steel. The price of commodity steel is subject to cyclical fluctuation. During
the latter part of 2003 and early 2004, our steel costs have risen approximately
8% compared to the prior year. We are often able to pass through price changes
through contractual price escalators and de-escalators tied to raw material
costs. Further, we estimate that we can recoup a portion of any price increase
of steel in the scrap steel market through the increased prices we receive for
scrap steel left over from our manufacturing processes.
Our purchasing strategy is to deal with only high-quality, dependable
suppliers. We believe that we have maintained strong relationships with our key
suppliers and that these relationships will continue into the foreseeable
future. Based on our experience, we believe that adequate quantities of steel
will be available at market prices, but we cannot give any assurances as to such
availability or the prices thereof.
59
EMPLOYEES
The following table sets forth a distribution of our workforce by
geographic location as of December 31, 2003.
<Table>
<Caption>
TOTAL
FACILITY EMPLOYEES
-------- ---------
North America (United States) - 4 facilities................ 566
Europe (France) - 5 facilities.............................. 1,317
South America (Brazil) - 3 facilities....................... 548
Corporate
Kentwood, MI.............................................. 55
-----
TOTAL....................................................... 2,486
=====
</Table>
None of our North American employees are covered by collective bargaining
agreements. Governmental unions represent all of our French and Brazilian
employees. We consider our relations with our employees to be good.
PROPERTIES
Our principal executive offices are located at 4070 East Paris Avenue
Southeast, Kentwood, Michigan 49512.
We lease the majority of the real property used in our operations. We
believe that our properties and equipment are in good operating condition and
are adequate for our present needs.
The following table sets forth our principal manufacturing facilities:
<Table>
<Caption>
SQUARE
FACILITY FOOTAGE(1) TITLE MAJOR PRODUCT CATEGORIES SERVED
-------- ---------- ----- -------------------------------
North America (United States)
Kentwood, MI(2)................. 190,000 Lease Fuel injection, power steering,
electric motors, airbags, braking
Marshall, MI.................... 57,000 Lease Fuel injection, airbags, braking
Dowagiac, MI.................... 70,000 Own Braking
Hayward, CA..................... 27,000 Lease Medical devices
Europe (France)
Thyez (Pochons)................. 194,000 Lease Fuel injection, power steering,
braking
Thyez (Ternier)................. 194,000 Lease Fuel injection, power steering,
braking
Thyez (Le Lac).................. 74,000 Lease Power steering
Marnaz (Perrieres).............. 91,000 Own Power steering, electric motors
Marnaz (Lecheres)............... 75,000 Lease Fuel injection, power steering,
electric motors
South America (Brazil)
Campinas........................ 50,000 Lease Power steering, fuel injection,
airbags, braking
Pinhal.......................... 24,000 Lease Fuel injection, braking
Boituva......................... 36,000 Lease Electric motors
China
Shenzhen........................ 5,400 Lease Electric motors
</Table>
- ---------------
(1) Approximate square footage.
(2) Includes our corporate headquarters, which is located in the same building.
60
ENVIRONMENTAL MATTERS AND GOVERNMENT REGULATION
Our past and present operations as well as our past and present ownership
and operations of real property are subject to federal, state, local and foreign
environmental laws and regulations pertaining to emissions to air, discharge to
waters and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials. We believe that our operations and
facilities are being operated in compliance, in all material respects, with
applicable environmental, health and safety laws and regulations. However, we
cannot predict with any certainty that we will not in the future incur liability
under environmental statutes and regulations with respect to non-compliance with
environmental laws, contamination of sites formerly or currently owned or
operated by us, including contamination caused by prior owners and operators of
these sites, or the off-site disposal of hazardous substances.
Like any manufacturer, we are subject to the possibility that we may
receive notices of potential liability, pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, or CERCLA, or analogous
state laws, for cleanup costs associated with offsite waste recycling or
disposal facilities at which wastes associated with its operations have
allegedly come to be located. Liability under CERCLA is strict, retroactive and
joint and several. No such notices are currently pending.
LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings other than ordinary or
routine proceedings incidental to our operations, which, in the opinion of
management, will not have a material adverse effect on our financial condition
or results of operations.
61
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Parent and Autocam are as follows:
<Table>
<Caption>
NAME AGE TITLE
---- --- -----
John C. Kennedy........................... 46 President, Chief Executive Officer and
Director
Warren A. Veltman......................... 43 Chief Financial Officer and
Secretary/Treasurer
Thomas K. O'Mara.......................... 44 Vice President, Sales and Marketing
John R. Buchan............................ 43 Chief Operating Officer, North American
Operations
Bruno Le Sech............................. 42 Chief Operating Officer, European
Operations
Eduardo Renner de Castilho................ 43 Chief Operating Officer, South American
Operations
Jack Daly................................. 38 Vice President* and Director
James A. Hislop........................... 46 Vice President* and Director
Adrian Jones.............................. 39 Vice President* and Director
Richard J. Peters......................... 56 Vice President* and Director
</Table>
- ---------------
* Vice President of Parent only. Director of both Parent and Autocam.
The following is a brief description of the present and past business
experience of each of those directors and executive officers.
JOHN C. KENNEDY
Mr. Kennedy became a director, our president and our chief executive
officer at our inception in April 1988. Mr. Kennedy graduated in 1979 with a
Bachelor of Science degree in Accounting and Finance from the University of
Detroit.
WARREN A. VELTMAN
Mr. Veltman became our chief financial officer in November 1990 and our
secretary/treasurer in August 1991. Mr. Veltman graduated in 1983 with a
Bachelor of Business Administration degree from the University of Michigan.
THOMAS K. O'MARA
Mr. O'Mara has been with us since November 1989 as the vice president of
sales and marketing. Mr. O'Mara graduated in 1982 with a Bachelor of Science
degree in Marketing from Central Michigan University.
JOHN R. BUCHAN
Mr. Buchan has been with us since January 2002 as the chief operating
officer of our North American operations. Prior to that, he worked 12 years at
Bentler Automotive, most recently as executive vice president of the Exhaust
Products Group. Mr. Buchan graduated with Bachelor's and Master's degrees in
Electrical Engineering in 1983 and Manufacturing Management in 1987 from the
General Motors Institute.
62
BRUNO LE SECH
Mr. Le Sech has been with us since January 2002 as the chief operating
officer of our European operations. Prior to that, he worked 5 years at Krupp
Moulinex as chief operating officer of North American operations. Mr. Le Sech
graduated in 1985 with a Masters in Finance degree from the University of
Rennes.
EDUARDO RENNER DE CASTILHO
Mr. de Castilho has been with us since January 1998 as the chief operating
officer of our South American operations. Mr. De Castilho graduated with a law
degree in 1986 and a business degree in 1989 from Mackenzie University, and with
a Masters in Business Administration from Northwestern University in 2000.
JACK DALY
Mr. Daly is a Vice President in the Principal Investment Area of Goldman,
Sachs & Co., where he has worked since 2000. From 1998 to 2000, he was a member
of the Investment Banking Division of Goldman, Sachs & Co. Mr. Daly earned a BS
and MS in Engineering from Case Western Reserve University and an MBA from the
Wharton School of Business. Mr. Daly currently serves on the board of directors
of IPC Acquisition Corp.
JAMES A. HISLOP
Mr. Hislop is a Managing Director of Transportation Resource Partners LP
and the President and Chief Executive Officer of Penske Capital Partners. Mr.
Hislop was formerly a Managing Director in the Investment Banking Division of
the Corporate Banking Group at Merrill Lynch. Mr. Hislop earned a BSBA degree
from Bucknell University in 1979 and an MBA in Corporate Finance from New York
University in 1982. Mr. Hislop currently serves on the Board of Directors of
Penske Corporation and UnitedAuto Group, Inc.
ADRIAN JONES
Mr. Jones is a Managing Director in the Principal Investment Area of
Goldman, Sachs & Co., where he has worked since 1998. He joined Goldman, Sachs &
Co. in 1994 and became a Managing Director in 2002. Mr. Jones earned a B.A. from
University College Galway in 1986, a M.A. from University College Dublin in
1989, and a M.B.A. from Harvard Graduate School of Business Administration in
1994. Mr. Jones currently serves on the Board of Directors of Burger King
Corporation.
RICHARD J. PETERS
Mr. Peters is a Managing Partner of Transportation Resource Partners LP.
Mr. Peters joined Penske Corporation in 1986, and from 2000-2002 served as
President of Penske Corporation and its affiliate, Penske Company LLC. He earned
a degree from Wayne State University in 1970. Mr. Peters is a Director and a
member of the Executive Committee of Penske Corporation, Penske Truck Leasing
Corp., UnitedAuto Group, Hino Trucks and Intermet. He also serves as Chairman of
Penske Company LLC's transportation components business, Truck-Lite Holdings,
L.L.C. Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
Autocam is not a "listed company" under SEC rules and is therefore not
required to have an audit committee comprised of independent directors. Autocam
does not currently have an audit committee and does not have an audit committee
financial expert. Autocam's Board of Directors has determined that each of its
members is able to read and understand fundamental financial statements and has
substantial business experience that results in that member's financial
63
sophistication. Accordingly, the Board of Directors believes that each of its
members have the sufficient knowledge and experience necessary to fulfill the
duties and obligations that an audit committee would have.
COMPENSATION OF DIRECTORS
Directors who are also employees of Parent or its subsidiaries or the
employees of our principal stockholders will receive no additional compensation
for their services as directors.
STOCKHOLDERS AGREEMENT
On June 21, 2004, in connection with the closing of the acquisition, Parent
entered into a stockholders agreement with GSCP 2000, other private equity funds
affiliated with GSCP 2000, TRP, other investment vehicles affiliated with TRP
and John C. Kennedy, our president. The stockholders agreement provides each of
GSCP 2000 and TRP the right to designate two members of the board of directors.
The GSCP designees are Messrs. Daly and Jones and the TRP designees are Messrs.
Hislop and Peters.
The stockholders agreement provides that Mr. Kennedy has the right:
- to designate one member of the board of directors, which currently is Mr.
Kennedy,
- to approve any transactions between us and our affiliates and
- to approve:
- entering into or engaging in the ownership, active management,
development, construction or operation of any line of business that is
not substantially similar to that conducted by Titan and its
subsidiaries,
- amendment of our organization documents,
- hiring and remuneration of our key executives and
- acquisitions of or investments in businesses outside of the automotive
precision parts business.
In addition, the stockholders agreement contains customary terms including
transfer restrictions, rights of first offer, tag along rights, drag along
rights, preemptive rights and veto rights. Additionally, Parent has the right to
purchase Mr. Kennedy's shares in Parent if his employment is terminated for
cause. The stockholders agreement, except for the registration rights
provisions, will terminate upon an initial public offering of our equity
securities.
64
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation earned by our
president and each of our other four most highly compensated executive officers
for the fiscal year ended December 31, 2003 paid by us and our affiliates.
<Table>
<Caption>
LONG-
TERM
COMP.
AWARDS
ANNUAL ----------
COMPENSATION(1) SECURITIES
NAME AND PRINCIPAL ------------------- UNDERLYING ALL OTHER
POSITION AT DECEMBER 31, 2003 SALARY BONUS OPTIONS(#) COMPENSATION(2)
----------------------------- ------ ----- ---------- ---------------
John C. Kennedy....................... $356,731 $ 5,048 -- $99,383
President and Chief Executive
Officer
Warren A. Veltman..................... 152,885 129,244 -- 28,157
Secretary, Treasurer, and
Chief Financial Officer
John R. Buchan........................ 173,269 132,690 -- 64,609
Chief Operating Officer,
North American Operations
Bruno Le Sech......................... 203,382 61,015 -- 40,676
Chief Operating Officer,
European Operations(3)
Eduardo Renner de Castilho............ 275,000 -- -- --
Chief Operating Officer,
South American Operations
</Table>
- ---------------
(1) Does not include any value that might be attributable to job-related
personal benefits, the amount of which did not exceed the lesser of 10% of
annual salary plus bonus or $50,000 for each executive officer. These
benefits include car allowances, country club fees, and executive disability
policies.
(2) Includes premiums paid under split-dollar policies owned by Messrs. Kennedy,
Veltman and Buchan in the amount of $97,383 for Mr. Kennedy, $26,157 for Mr.
Veltman and $31,320 for Mr. Buchan. The split-dollar program was terminated
subsequent to the acquisition. See "Management -- Split-Dollar
Arrangements." Also includes $2,000 of matching contributions under our
401(k) plan for Messrs. Kennedy, Veltman and Buchan, $31,289 of insurance
premiums on a life insurance policy for Mr. Buchan and tuition costs
reimbursed to Mr. Le Sech for his children.
(3) Converted at 1.1299 USD/euro.
EMPLOYEE EQUITY INCENTIVE PLANS
Parent adopted the Micron Holdings, Inc. 2004 Stock Option Plan, effective
as of June 21, 2004. The plan provides for the grant of non-qualified stock
options to key employees, directors and consultants of Parent and its
affiliates. Subject to adjustment for stock dividends, splits, and other similar
transactions, a maximum of 1,430,000 shares of common stock of Parent may be
subject to awards under the plan. The Board of Parent or a committee of the
Board as may be designated to administer the plan selects the individuals that
may participate in the plan, the amount of any grant and the terms and
conditions of such grant (not otherwise specified in the plan), and has the
authority to otherwise interpret and administer the plan. Parent plans to grant
options under this plan. Options may not be granted under the plan after June
21, 2014.
65
The term of stock options granted under the plan may not exceed ten years.
Options granted under the plan will be exercisable at such time and upon such
terms and conditions as may be determined by the Board or committee, but in no
event will an option be exercisable more than ten years after the date of grant.
If a "transaction" (as defined in the plan) occurs, the Board or committee may
provide that outstanding options held by participants will become fully vested
and exercisable upon the consummation of the transaction. In addition, the Board
or committee may, in its discretion, cancel all options for payment of the
excess of the "fair market value" (as defined in the plan) of the shares subject
to the options over the aggregate exercise price of the options or provide for
the issuance of substitute options or other awards that will preserve the
economic terms of the options. Unless the Board or committee determines
otherwise, the exercise of an option will be conditioned on the execution by the
participant of a form of stockholders' agreement prepared by Parent.
The plan may be amended by the Board of Parent, but no amendment that would
increase the number of shares reserved under the plan may be made without
approval of the stockholders of Parent, and no amendment that would diminish the
rights of a participant under a previously granted option may be made without
the consent of the participant.
OPTION GRANTS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
There were no options issued under Holdings' equity incentive plan during
2003.
AGGREGATED OPTION EXERCISES FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 AND
FISCAL YEAR-END OPTION VALUES
For each named executive officer, as of December 31, 2003, the following
table provides:
- the total number of shares of Holdings stock received upon the exercise
of options during 2003;
- the value realized upon such exercises;
- the total number of shares of Holdings stock held by the named executive
officers (exercisable and unexercisable) as of December 31, 2003; and
- the value of all options that were in the money at December 31, 2003,
based on the amounts paid to our common stockholders in the acquisition.
<Table>
<Caption>
NUMBER OF VALUE OF UNEXERCISED IN-
UNEXERCISED OPTIONS THE-MONEY OPTIONS AT
AT DECEMBER 31, 2003(#) DECEMBER 31, 2003($)
SHARES ACQUIRED VALUE ------------------------------ ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE(1) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- ----------- -------------- ------------- ----------- -------------
John C. Kennedy...... -- -- -- -- -- --
Warren A. Veltman.... -- -- 37,298 24,865 505,780 337,182
John R. Buchan....... -- -- 6,260 25,039 47,328 189,307
Bruno Le Sech........ -- -- 6,260 25,039 47,328 189,307
Eduardo Renner de
Castilho........... -- -- -- -- -- --
</Table>
- ---------------
(1) All of these options vested and became immediately exercisable at the time
of the acquisition.
EMPLOYMENT AGREEMENTS OF MESSRS. KENNEDY, VELTMAN, BUCHAN AND LE SECH
We have employment agreements with each of Messrs. Kennedy, Veltman, Buchan
and Le Sech. The agreement for Mr. Kennedy expires on June 21, 2007, the
agreement for Mr. Veltman expires on January 31, 2007 and the agreement for Mr.
Buchan expires on January 20, 2007, in each case subject to automatic renewal
for additional one-year periods unless either party provides
66
90 day notice of non-extension to the other prior to the end of the term. Mr. Le
Sech's agreement is terminable upon three months notice. The employment
agreements provide for base salaries which are currently $500,000 for Mr.
Kennedy, $150,000 for Mr. Veltman, $170,000 for Mr. Buchan and E180,000
($203,382 converted at 1.1299 USD/euro) for Mr. Le Sech. The salary of Mr.
Kennedy is subject to periodic review by Parent's board of directors for
increase. Salaries are subject to annual adjustment at the discretion of our
board of directors in the cases of Messrs. Veltman and Buchan and pursuant to
our standard practices in the case of Mr. Le Sech. The employment agreements
provide for performance based bonuses. Under Mr. Kennedy's employment agreement,
his target performance bonus per year is 60% of his salary. Additionally, in
order to compensate Mr. Buchan for the loss of the supplemental retirement plan
in existence at his previous employer, under Mr. Buchan's agreement, we must pay
the premiums on a life insurance policy that will have a cash value of $111,000
at the end of the initial term of his agreement. If Mr. Kennedy is terminated by
Parent without "cause" (as defined in the employment agreement), he is entitled
to 1.5 times the sum of his base salary and target bonus, and a prorated portion
of his target bonus in effect immediately prior to his termination based on the
number of days employed during the calendar year in which the termination
occurred. If Mr. Veltman or Mr. Buchan is terminated by us without "cause" (as
defined in the employment agreements), he is entitled to 18 months base salary
and benefits continuation. If Mr. Le Sech is terminated without "cause" (as
defined in the employment agreement), he is entitled to an amount equal to 24
months salary, calculated on the basis of the previous 12 months average base
salary and bonus. If Mr. Veltman or Mr. Buchan is involuntarily terminated
within 180 days following a change of control (as defined in the employment
agreement), he will be entitled to 24 months base salary with bonus and 12
months benefits continuation. Additionally, in the case of Mr. Kennedy, if
- Parent materially breaches the employment agreement,
- Parent assigns him duties or responsibilities inconsistent with his
positions with us, Parent or Holdings,
- Parent makes a change resulting in a material diminution of his
responsibilities with us, Parent or Holdings,
- Parent fails to provide employee benefits substantially comparable to
those provided to him on June 21, 2004,
- Parent fails to require a successor to assume his employment agreement,
- we relocate Autocam's headquarters by more than 35 miles or relocate Mr.
Kennedy's place of employment to other than Autocam's headquarters, or
- there is a reduction in Mr. Kennedy's base salary or target bonus,
then Mr. Kennedy can terminate his employment and be entitled to the same
consideration as if he had been terminated without "cause." If Parent delivers a
notice of non-extension of the term under the employment agreement, Mr. Kennedy
can terminate his employment and be entitled to the sum of his base salary and
target bonus, as well as a prorated portion of his target bonus in effect
immediately prior to his termination based on the number of days employed during
the calendar year in which the termination occurred. In the case of Messrs.
Veltman and Buchan, if we materially breach the employment agreement or make a
change resulting in a material diminution of the duties, authority or
compensation of the affected individual, that individual can terminate his
employment and be entitled to the same base salary and benefits as if he had
been terminated without "cause." Mr. Kennedy's employment agreement provides
that if any payment or benefit made pursuant to the employment agreement would
be subject to the excise tax on golden parachute payments, then he will be
entitled to a gross-up payment for the excise tax and any federal income tax
deductions disallowed in connection with the gross-up payment. Under Mr.
Kennedy's employment agreement, he is entitled to reimbursement of 50% of his
legal fees incurred in connection with the preparation of the employment
agreement and the stockholders' agreement, up to $20,000 in total. Each
67
employment agreement also includes a perpetual nondisclosure provision.
Additionally, Mr. Kennedy's agreement contains a post-termination perpetual and
mutual non-disparagement provision and non-competition and non-solicitation
provisions that apply for a 2 year period following the termination of his
employment, Messrs. Veltman and Buchan's agreements contain non-competition and
non-solicitation provisions that apply for the severance period, and Mr. Le
Sech's agreement contains a non-competition provision that applies for one year,
renewable for a second year at our option.
The employment agreements of each of Messrs. Veltman and Buchan were
amended as of September 17, 2004 to provide that all amounts due from the
executives under certain split dollar life insurance arrangements maintained
between Autocam and the executives for premiums previously paid by Autocam were
forgiven as of that date and treated as bonus payments to the executives. Under
the amended employment agreements, Autocam will continue to pay the premiums due
on the life insurance policies previously subject to the split dollar
arrangements for Messrs. Veltman and Buchan until the termination of their
employment agreements. In addition, Autocam will pay each of Messrs. Veltman and
Buchan a bonus in 2004 and each applicable year thereafter in an amount intended
to compensate the executives for the tax consequences of the debt forgiveness
and the payment of premiums on the policies by Autocam. The amount of these
bonuses is agreed upon by the executive and Autocam and calculated by the Chief
Executive Officer of Autocam with approval by Autocam's management. The amended
employment agreements provide that all payments will be treated as compensation
to each of Messrs. Veltman and Buchan in the year paid and will not be subject
to any reimbursement to Autocam by the executive at any time.
EMPLOYMENT AGREEMENT OF MR. EDUARDO RENNER DE CASTILHO
Autocam Do Brasil entered into a services agreement with Lean Management
Consultoria Empresarial S/C Ltda, dated January 1, 1998 (as amended and restated
as of January 31, 2002). The agreement provides for the rendering of advisory
services by Lean Management Consultoria Empresarial with respect to the
operational management of Autocam Do Brasil's industrial plants. The term of the
agreement is indefinite and may be terminated by either party with 90 days'
written notice. The partner in charge of the project on behalf of Lean
Management Consultoria Empresarial is Mr. de Castilho. He receives $22,916.67
per month for his services. Mr. Caetano Roberto Ferraiolo is also a member of
the project and performs managerial advisory tasks in the Boituva unit and the
Departments of Engineering and Thermal Treatment. Mr. Ferraiolo receives
11,317.58 Brazilian reais per month for his services, subject to adjustment
every month (or any other interval as Autocam Do Brasil may provide) according
to the Brazilian General Index of Market Prices. Lean Management Empresarial is
solely responsible for all labor and social security obligations relating to its
employees. Lean Management Empresarial is subject to a perpetual confidentiality
provision with respect to all confidential information of Autocam Do Brasil
acquired during the course of its services.
SPLIT DOLLAR ARRANGEMENTS
We formerly had split dollar arrangements with Messrs. Veltman and Buchan.
As described above, these split dollar arrangements were terminated as of
September 17, 2004 and all amounts due from each of Messrs. Veltman and Buchan
with respect to premiums paid by Autocam prior to that date were forgiven.
Autocam will continue to pay the premiums on all life insurance policies
previously subject to the split dollar arrangements for Messrs. Veltman and
Buchan until the termination of the executive's employment agreement. Autocam
will treat the amount of the debt forgiveness as a bonus to each of Messrs.
Veltman and Buchan and pay the executive an additional bonus to compensate him
for the tax consequences of the debt forgiveness and the premium payments on the
policies.
We also formerly had a comparable arrangement for Mr. Kennedy. Mr.
Kennedy's split dollar arrangements were converted into interest bearing loans
initially at an interest rate of 3.55%, and these interest bearing loans were
forgiven immediately following the acquisition.
68
ACQUISITION
On June 21, 2004, and pursuant to a merger agreement dated May 1, 2004,
Micron Merger Corporation, a newly formed entity and wholly owned subsidiary of
Parent, merged with and into Holdings with Holdings continuing as the surviving
corporation. The total amount of consideration paid in the merger, including
amounts related to the repayment of indebtedness, the redemption of the
outstanding preferred stock of Holdings, payments to owners of outstanding
common stock of Holdings and the payment of transaction costs incurred by
Holdings, was approximately $395.0 million. The acquisition was financed with
the net proceeds from the issuance of the outstanding notes, borrowings under
our new senior credit facilities and a common equity contribution of $143.0
million by GS Capital Partners 2000, L.P., or GSCP 2000, other private equity
funds affiliated with GSCP 2000, Transportation Resource Partners LP, or TRP,
other investment vehicles affiliated with TRP, and John C. Kennedy, our
president.
Micron Merger Corporation and Holdings closed the acquisition
simultaneously with the closing of our new senior credit facilities and the
release of the proceeds from the issuance of the outstanding notes from escrow.
The merger agreement contained customary representations and warranties
from Holdings. None of these representations or warranties survived the closing
of the acquisition.
69
PRINCIPAL STOCKHOLDERS
Autocam is wholly owned by Holdings. Holdings is wholly owned by Parent.
The following table sets forth information regarding the beneficial ownership of
the shares of Parent, by all stockholders known by us to beneficially own its
outstanding common stock. See "Acquisition." The address for each of GS Capital
Partners 2000, L.P., GS Capital Partners 2000 Offshore, L.P., GS Capital
Partners 2000 GMBH & Co. Beteiligungs KG, GS Capital Partners 2000 Employee
Fund, L.P. and Goldman Sachs Direct Investment Fund 2000, L.P. is c/o Goldman,
Sachs & Co., 85 Broad Street, New York, New York 10004. The address for
Transportation Resource Partners LP, TRP Autocam Holdings I, L.L.C., TRP Autocam
Holdings II, L.L.C., TRP Autocam Holdings III, L.L.C., TRP Autocam Holdings IV,
L.L.C. and TRP Autocam Holdings V, L.L.C. is 2555 Telegraph Road, Bloomfield
Hills, Michigan 48302. The address for John C. Kennedy is 4070 East Paris Avenue
Southeast, Kentwood, Michigan 49512.
<Table>
<Caption>
PERCENTAGE OF
NUMBER COMMON STOCK
NAME OF SHARES OUTSTANDING
---- --------- -------------
GS Capital Partners 2000, L.P............................... 3,175,408 22.21%
GS Capital Partners 2000 Offshore, L.P...................... 1,153,821 8.05
GS Capital Partners 2000 GmbH & Co. Beteiligungs KG......... 132,725 *
GS Capital Partners 2000 Employee Fund, L.P................. 1,008,920 7.04
Goldman Sachs Direct Investment Fund 2000, L.P.............. 279,126 1.95
Transportation Resource Partners LP......................... 3,479,224 24.26
TRP Autocam Holdings I, L.L.C............................... 1,200,000 8.37
TRP Autocam Holdings II, L.L.C.............................. 636,432 4.44
TRP Autocam Holdings III, L.L.C............................. 124,122 *
TRP Autocam Holdings IV, L.L.C.............................. 255,624 1.78
TRP Autocam Holdings V, L.L.C............................... 54,598 *
John C. Kennedy............................................. 2,800,000 19.53
Eduardo Renner de Castilho.................................. 40,000 *
</Table>
- ---------------
* Represents less than 1% of common stock outstanding.
70
RELATED PARTY TRANSACTIONS
AURORA CAPITAL
Prior to the acquisition, Aurora Capital Partners was the largest voting
stockholder of Holdings. Pursuant to a management agreement, Aurora Capital
provided us with financial advisory and management consulting services. In
consideration of such services, we paid Aurora Capital fees and expenses of
approximately $0.5 million for 2003, $0.6 million for 2002, and $0.8 million for
2001.
GSCP 2000
GSCP 2000 and other private equity funds affiliated with Goldman, Sachs &
Co. own 40.2% of the common stock of Parent. Under the registration rights
agreement, we agreed to file a "market-making" prospectus in order to allow
Goldman, Sachs & Co. to engage in market-making activities for the notes after
completion of the exchange offer. Goldman, Sachs & Co., an affiliate of GSCP
2000 and its related investment funds, acted as an initial purchaser in the
offering of the notes. Goldman Sachs Credit Partners L.P., an affiliate of GSCP
2000 and its related investment funds, was the joint lead arranger, joint book
runner, syndication agent and a lender under our new senior credit facilities.
In addition, Goldman, Sachs & Co. and its affiliates may in the future engage in
commercial banking, investment banking or other financial advisory transactions
with us and our affiliates.
STOCKHOLDERS AGREEMENT
Parent entered into a stockholders agreement on June 21, 2004, with GSCP
2000, other private equity funds affiliated with GSCP 2000, TRP, other
investment vehicles affiliated with TRP and John C. Kennedy, our president. See
"Management -- Stockholders Agreement."
MANAGEMENT SERVICES AGREEMENT
We entered into a Management Services Agreement with Goldman, Sachs & Co.,
Transportation Resource Advisors, LLC, and John C. Kennedy, our president, on
June 21, 2004. Under the management services agreement, we will pay these
parties an annual aggregate fee of $0.6 million, plus reasonable out-of-pocket
expenses, as compensation for various advisory services. This fee will be shared
by the parties as follows: Goldman, Sachs & Co., 40.2%; Transportation Resource
Advisors, LLC, 40.2%; and Mr. Kennedy, 19.6%. We also agreed to indemnify these
parties and their affiliates for liabilities arising from their actions under
the management services agreement.
RENTAL EXPENSES
We lease a building in France owned 50% by Mr. John C. Kennedy, our
president. The present term of the lease expires in July 2014. Annual rent is
due in quarterly installments subject to annual increases based upon an index
tied to France's national public construction costs. Rent expense recorded in
connection with this lease agreement was $0.6 million for 2003 and $0.2 million
for 2002.
71
DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW SENIOR CREDIT FACILITIES
In connection with the acquisition, we entered into our new senior credit
facilities with a syndicate of financial institutions led by Goldman Sachs
Credit Partners L.P. and Citigroup Global Markets, Inc., as joint lead arrangers
and joint book runners and in other capacities. The following is a summary of
the material terms and conditions of the new senior credit facilities and is
qualified in its entirety by reference to the credit agreement.
BORROWERS; AMOUNTS AND FINAL MATURITIES. The new senior credit facilities
provide for senior secured financing of up to the equivalent of $158.0 million,
in U.S. dollars or euros, consisting of:
- a multi-currency revolving credit facility of $36.1 million available to
us in U.S. dollars or euros with a final maturity of 5 years;
- a euro revolving credit facility of E 11.6 million available in euros to
our French subsidiary, Autocam France SARL, with a final maturity of 5
years;
- a $33.0 million term loan to us with a final maturity of 7 years; and
- a E 62.7 million term loan to Autocam France SARL, with a final maturity
of 7 years.
CONDITIONS PRECEDENT. All borrowings under our revolving credit facilities
are subject to the satisfaction of customary conditions, including absence of
defaults and accuracy in material respects of representations and warranties.
INTEREST AND FEES. The interest rates applicable to loans under our new
senior credit facilities initially will be (i) for loans denominated in U.S.
dollars, at our option, equal to either a base rate plus a 2% margin or an
adjusted eurodollar bank deposit rate plus a 3% margin and (ii) for loans
denominated in euros, equal to an adjusted euro bank deposit rate plus a 3%
margin. We may elect interest periods of one, two, three, six and, if available
to all of the applicable lenders, nine or twelve months for eurodollar or euro
borrowings.
After one full fiscal quarter has been completed after the acquisition, the
applicable interest rate margin for the senior credit facilities will be
determined from time to time based on our "leverage ratio," defined in our new
senior credit facilities generally as the ratio of our consolidated indebtedness
to our consolidated adjusted EBITDA for the trailing four quarter period, as
follows:
<Table>
<Caption>
APPLICABLE MARGIN APPLICABLE MARGIN
LEVERAGE FOR BASE RATE FOR EUROCURRENCY
RATIO LOANS RATE LOANS
-------- ----------------- -----------------
$ 3.00:1.00 2.00% 3.00%
< 3.00:1.00 1.75% 2.75%
</Table>
We have agreed to pay various fees with respect to the new senior credit
facilities, including:
- commitment fees equal to 0.50% per annum times the average undrawn
portion of the revolving credit facilities, reduced by the amount of
letters of credit issued and outstanding under the revolving credit
facilities but not reduced by the amount of outstanding swing line loans;
- letter of credit fees equal to the applicable margin then in effect with
respect to eurocurrency rate loans under the revolving credit facilities
times the maximum aggregate amount available to be drawn under all
letters of credit. The issuer of any letter of credit will also receive a
fronting fee equal to 0.250% per annum times the maximum aggregate amount
available to be drawn under the letter of credit and other customary
documentary and processing charges; and
- an annual administrative agent fee in an amount of $100,000.
72
AMORTIZATION OF PRINCIPAL. The term loan denominated in U.S. dollars
amortizes quarterly as follows:
- $82,500 for each quarter beginning September 30, 2004 and ending June 30,
2010; and
- $7,755,000 for each quarter thereafter with the final payment due on June
15, 2011.
The term loan denominated in euros amortizes each quarter as follows:
- E 783,750 for each quarter beginning September 30, 2004 and ending June
30, 2005;
- E 1,567,500 for each quarter beginning September 30, 2005 and ending June
30, 2007;
- E 2,351,000 for each quarter beginning September 30, 2007 and ending June
30, 2009; and
- E 3,526,875 for each quarter thereafter with final payment due on June
15, 2011.
PREPAYMENTS. Our new senior credit facilities require mandatory
prepayments, subject to exceptions, in amounts equal to:
- 100% of the net cash proceeds from asset sales or other dispositions of
property of our and our subsidiaries, including insurance proceeds, other
than inventory sold or disposed of in the ordinary course of business,
certain other transactions and net cash proceeds reinvested in assets
used in our business;
- 50% of the net cash proceeds from the issuance of specified equity
securities; provided, that this percentage will be reduced to 25% if our
"leverage ratio" is less than 3.00:1.00;
- 100% of the net cash proceeds from the issuance of specified debt
obligations by us or our subsidiaries; and
- 75% of "excess cash flow" as defined in our new senior credit facilities;
provided, that this percentage will be reduced to 50% if our "leverage
ratio" is less than 3.00:1.00.
Mandatory prepayments will be applied first to the term loans, next to
swing line loans and finally to outstanding loans under the revolving credit
facilities. Mandatory prepayments of term loans will be applied first, at our
option, in direct order of maturity to the next four scheduled amortization
installments and second, pro rata to remaining installments.
Voluntary prepayments of loans under our new senior credit facilities will
be permitted, in whole or in part, at our option, without premium or penalty.
Any voluntary prepayment of loans will be subject to reimbursement of the
lender's breakage costs in the case of a prepayment of eurocurrency rate
borrowings other than on the last day of the relevant interest period.
COLLATERAL AND GUARANTORS. Indebtedness under our new senior credit
facilities is guaranteed by:
- each existing and subsequently acquired or organized domestic and, to the
extent no material adverse tax consequence would result and to the extent
permitted under local law, foreign subsidiary; and
- us with respect to the obligations of our French subsidiary under term
and revolving facilities.
Indebtedness under our new senior credit facilities is secured by a first
priority security interest in substantially all of our and the guarantors'
tangible and intangible assets, including personal property, real property,
intercompany indebtedness and capital stock owned by us and such guarantors,
limited to 65% of such capital stock in the case of certain foreign
subsidiaries.
73
FINANCIAL AND RESTRICTIVE COVENANTS. Our new senior credit facilities
contain minimum interest coverage and total leverage ratios that vary during the
term of the credit facilities. The senior credit facilities also contain a
restriction on the amount of capital expenditures we may make.
Our new senior credit facilities also contain covenants that restrict our
ability to incur additional indebtedness, grant liens, make investments, loans,
guarantees or advances, make restricted junior payments, including dividends,
redemptions of capital stock and voluntary prepayments or repurchase of certain
other indebtedness, engage in mergers, acquisitions or sales of assets, enter
into sale and leaseback transactions or engage in certain transactions with
affiliates and otherwise restrict certain corporate activities.
REPRESENTATIONS AND AFFIRMATIVE COVENANTS. Our new senior credit
facilities contain customary representations, warranties and affirmative
covenants.
EVENTS OF DEFAULT. The new senior credit facilities contain customary
events of default, subject to grace periods and materiality thresholds specified
therein, including:
- failure to make payments when due;
- defaults under other material indebtedness;
- noncompliance with covenants;
- incorrectness of representations and warranties;
- bankruptcy, insolvency or dissolution events;
- material judgments;
- certain events related to ERISA;
- impairment of security interests in collateral or invalidity of
guarantees; and
- a "change of control," as defined in the new senior credit facilities.
74
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
Following the sale of the outstanding notes on June 10, 2004, the proceeds
of the notes were placed into escrow pending the closing of the acquisition,
which closed on June 21, 2004. On that date, Autocam entered into the new senior
credit facilities and the proceeds from the sale of the notes were released from
escrow in order to finance a portion of the purchase price for the acquisition.
Upon the closing of the acquisition on June 21, 2004, Autocam and the guarantors
entered into joinder agreements in order to become parties to a registration
rights agreement with the initial purchasers of the outstanding notes, which
requires Autocam and the guarantors:
- to file with the SEC a registration statement related to the exchange
notes 120 days after the closing of the offering of the outstanding notes
(on or about October 8, 2004);
- to use all commercially reasonable efforts to have the registration
statement declared effective by the SEC 210 days after the closing of the
offering of the outstanding notes (on or about January 6, 2005);
- to offer to the holders of the outstanding notes the opportunity to
exchange their outstanding notes for a like principal amount of exchange
notes upon the effectiveness of the registration statement; and
- to use all commercially reasonable efforts to issue on or prior to 30
business days, or longer, if required by the federal securities laws,
after the date the registration statement was declared effective by the
SEC, the exchange notes in exchange for all outstanding notes tendered in
the exchange offer; and
- if obligated to file the shelf registration statement, to use all
commercially reasonable efforts to file the shelf registration statement
with the SEC on or prior to 30 days after such filing obligation arises
and to use all commercially reasonable efforts to have the shelf
registration statement to be declared effective by the SEC on or prior to
90 days after such obligation arises.
If we fail to satisfy our registration and exchange obligations under the
registration rights agreement, we will be required to pay Special Interest to
the holders of the notes, with respect to the first 90-day period immediately
following the occurrence of the first Registration Default in an amount equal to
0.25% per annum on the outstanding principal amount of notes held by such
holder. The amount of the Special Interest will increase by an additional 0.25%
per annum on the outstanding principal amount of the notes with respect to each
subsequent 90-day period until all Registration Defaults have been cured, up to
a maximum amount of Special Interest for all Registration Defaults of 1.0% per
annum on the outstanding principal amount of notes.
A copy of the registration rights agreement is filed as an exhibit to the
registration statement of which this prospectus is a part.
TERMS OF THE EXCHANGE OFFER
This prospectus and the accompanying letter of transmittal together
constitute the exchange offer. Upon the terms and subject to the conditions set
forth in this prospectus and in the letter of transmittal, we will accept for
exchange outstanding notes, which are properly tendered on or before the
expiration date and are not withdrawn as permitted below, for exchange notes.
The expiration date for this exchange offer is 5:00 p.m., New York City time, on
, 2004, or such later date and time to which we, in our sole
discretion, extend the exchange offer.
75
The form and terms of the exchange notes are substantially the same as the
form and terms of the outstanding notes, except that:
- the exchange notes will have been registered under the Securities Act;
- the exchange notes will not bear the restrictive legends restricting
their transfer under the Securities Act; and
- the exchange notes will not contain the registration rights and special
interest provisions contained in the outstanding notes.
Notes tendered in the exchange offer must be in minimum denominations of
$1,000 and integral multiples of $1,000 in excess thereof.
We expressly reserve the right, in our sole discretion:
- to extend the expiration date;
- to delay accepting any outstanding notes;
- if any of the conditions set forth below under "-- Conditions to the
Exchange Offer" have not been satisfied, to terminate the exchange offer
and not accept any outstanding notes for exchange; or
- to amend the exchange offer in any manner.
We will give oral or written notice of any extension, delay,
non-acceptance, termination or amendment as promptly as practicable by a public
announcement, and in the case of an extension, no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
During an extension, all outstanding notes previously tendered will remain
subject to the exchange offer and may be accepted for exchange by us. Any
outstanding notes not accepted for exchange for any reason will be returned
without cost to the holder that tendered them as promptly as practicable after
the expiration or termination of the exchange offer.
HOW TO TENDER OUTSTANDING NOTES FOR EXCHANGE
When the holder of outstanding notes tenders, and we accept such notes for
exchange pursuant to that tender, a binding agreement between us and the
tendering holder is created, subject to the terms and conditions set forth in
this prospectus and the accompanying letter of transmittal. Except as set forth
below, a holder of outstanding notes who wishes to tender such notes for
exchange must, on or prior to the expiration date:
- transmit a properly completed and duly executed letter of transmittal,
including all other documents required by such letter of transmittal, to
J.P. Morgan Trust Company, National Association, which will act as the
exchange agent, at the address set forth below under the heading "-- The
Exchange Agent"; or
- if outstanding notes are tendered pursuant to the book-entry procedures
set forth below, the tendering holder must transmit an agent's message to
the exchange agent at the address set forth below under the heading
"-- The Exchange Agent."
In addition, either:
- the exchange agent must receive the certificates for the outstanding
notes and the letter of transmittal;
- the exchange agent must receive, prior to the expiration date, a timely
confirmation of the book-entry transfer of the outstanding notes being
tendered into the exchange agent's
76
account at the Depository Trust Company, or DTC, along with the letter of
transmittal or an agent's message; or
- the holder must comply with the guaranteed delivery procedures described
below.
The term "agent's message" means a message, transmitted to DTC and received
by the exchange agent and forming a part of a book-entry transfer, or
"book-entry confirmation," which states that DTC has received an express
acknowledgement that the tendering holder agrees to be bound by the letter of
transmittal and that we may enforce the letter of transmittal against such
holder.
The method of delivery of the outstanding notes, the letters of transmittal
and all other required documents is at the election and risk of the holders. If
such delivery is by mail, we recommend registered mail, properly insured, with
return receipt requested. In all cases, you should allow sufficient time to
assure timely delivery. No letters of transmittal or notes should be sent
directly to us.
Signatures on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible institution unless the outstanding notes surrendered
for exchange are tendered:
- by a registered holder of the outstanding notes; or
- for the account of an eligible institution.
An "eligible institution" is a firm which is a member of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an office
or correspondent in the United States.
If outstanding notes are registered in the name of a person other than the
signer of the letter of transmittal, the outstanding notes surrendered for
exchange must be endorsed by, or accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by us in
our sole discretion, duly executed by the registered holder with the holder's
signature guaranteed by an eligible institution.
We will determine all questions as to the validity, form, eligibility
(including time of receipt) and acceptance of outstanding notes tendered for
exchange in our sole discretion. Our determination will be final and binding. We
reserve the absolute right to:
- reject any and all tenders of any outstanding note improperly tendered;
- refuse to accept any outstanding note if, in our judgment or the judgment
of our counsel, acceptance of the outstanding note may be deemed
unlawful; and
- waive any defects or irregularities or conditions of the exchange offer
as to any particular outstanding note either before or after the
expiration date, including the right to waive the ineligibility of any
holder who seeks to tender outstanding notes in the exchange offer.
Our interpretation of the terms and conditions of the exchange offer as to
any particular outstanding notes either before or after the expiration date,
including the letter of transmittal and the instructions to it, will be final
and binding on all parties. Holders must cure any defects and irregularities in
connection with tenders of notes for exchange within such reasonable period of
time as we will determine, unless we waive such defects or irregularities.
Neither we, the exchange agent nor any other person shall be under any duty to
give notification of any defect or irregularity with respect to any tender of
outstanding notes for exchange, nor shall any of us incur any liability for
failure to give such notification.
If a person or persons other than the registered holder or holders of the
outstanding notes tendered for exchange signs the letter of transmittal, the
tendered outstanding notes must be endorsed or accompanied by appropriate powers
of attorney, in either case signed exactly as the name or names of the
registered holder or holders that appear on the outstanding notes.
77
If trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity sign the letter of transmittal or any outstanding notes or any power of
attorney, these persons should so indicate when signing, and you must submit
proper evidence satisfactory to us of those person's authority to so act unless
we waive this requirement.
By tendering, each holder will represent to us that the person acquiring
exchange notes in the exchange offer, whether or not that person is the holder,
is obtaining them in the ordinary course of its business, and neither the holder
nor that other person has any arrangement or understanding with any person to
participate in the distribution of the exchange notes issued in the exchange
offer. If any holder or any other person is an "affiliate," as defined under
Rule 405 of the Securities Act, of us, or is engaged in or intends to engage in
or has an arrangement or understanding with any person to participate in a
distribution of the notes to be acquired in the exchange offer, the holder or
any other person:
- may not rely on applicable interpretations of the staff of the SEC; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction.
Each broker-dealer who acquired its outstanding notes as a result of
market-making activities or other trading activities, and thereafter receives
exchange notes issued for its own account in the exchange offer, must
acknowledge that it will deliver this prospectus in connection with any resale
of such exchange notes issued in the exchange offer. The letter of transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. See "Plan of Distribution" for a discussion of the exchange
and resale obligations of broker-dealers.
ACCEPTANCE OF OUTSTANDING NOTES FOR EXCHANGE; DELIVERY OF NOTES ISSUED IN THE
EXCHANGE OFFER
Upon satisfaction or waiver of all the conditions to the exchange offer, we
will accept, promptly after the expiration date, all outstanding notes properly
tendered and will issue exchange notes registered under the Securities Act in
exchange for the tendered outstanding notes. For purposes of the exchange offer,
we shall be deemed to have accepted properly tendered outstanding notes for
exchange when, as and if we have given oral or written notice to the exchange
agent, with written confirmation of any oral notice to be given promptly
thereafter. See "-- Conditions to the Exchange Offer" for a discussion of the
conditions that must be satisfied before we accept any outstanding notes for
exchange.
For each outstanding note accepted for exchange, the holder will receive an
exchange note registered under the Securities Act having a principal amount
equal to that of the surrendered outstanding note. Registered holders of
exchange notes issued in the exchange offer on the relevant record date for the
first interest payment date following the consummation of the exchange offer
will receive interest accruing from the most recent date to which interest has
been paid. Outstanding notes that we accept for exchange will cease to accrue
interest from and after the date of consummation of the exchange offer. Under
the registration rights agreement, we may be required to make additional
payments in the form of penalty interest to the holders of the outstanding notes
under circumstances relating to the timing of the exchange offer.
In all cases, we will issue exchange notes for outstanding notes that are
accepted for exchange only after the exchange agent timely receives:
- certificates for such outstanding notes or a timely book-entry
confirmation of such outstanding notes into the exchange agent's account
at DTC;
- a properly completed and duly executed letter of transmittal or an
agent's message; and
- all other required documents.
78
If for any reason set forth in the terms and conditions of the exchange
offer we do not accept any tendered outstanding notes, or if a holder submits
outstanding notes for a greater principal amount than the holder desires to
exchange, we will return such unaccepted or nonexchanged notes without cost to
the tendering holder. In the case of outstanding notes tendered by book-entry
transfer into the exchange agent's account at DTC, the nonexchanged notes will
be credited to an account maintained with DTC. We will return the outstanding
notes or have them credited to DTC account as promptly as practicable after the
expiration or termination of the exchange offer.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the outstanding notes at DTC for purposes of the exchange offer within two
business days after the commencement of the exchange offer. Any financial
institution that is a participant in DTC's system may make book-entry delivery
of outstanding notes by causing DTC to transfer such outstanding notes into the
exchange agent's account at DTC in accordance with DTC's procedures for
transfer. The participant should transmit its acceptance to DTC on or prior to
the expiration date or comply with the guaranteed delivery procedures described
below. DTC will verify the acceptance, execute a book-entry transfer of the
tendered outstanding notes into the exchange agent's account at DTC and then
send to the exchange agent confirmation of the book-entry transfer. The
confirmation of the book-entry transfer will include an agent's message
confirming that DTC has received an express acknowledgment from the participant
that the participant has received and agrees to be bound by the letter of
transmittal and that we may enforce the letter of transmittal against such
participant. Delivery of exchange notes issued in the exchange offer may be
effected through book-entry transfer at DTC. However, the letter of transmittal
or facsimile thereof or an agent's message, with any required signature
guarantees and any other required documents, must:
- be transmitted to and received by the exchange agent at the address set
forth below under "-- The exchange agent" on or prior to the expiration
date; or
- comply with the guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If a holder of outstanding notes desires to tender such notes and the
holder's outstanding notes are not immediately available, or time will not
permit the holder's outstanding notes or other required documents to reach the
exchange agent before the expiration date, or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if:
- the holder tenders the outstanding notes through an eligible institution;
- prior to the expiration date, the exchange agent receives from such
eligible institution a properly completed and duly executed notice of
guaranteed delivery, acceptable to us, by telegram, telex, facsimile
transmission, mail or hand delivery, setting forth the name and address
of the holder of the outstanding notes tendered and the amount of the
outstanding notes being tendered. The notice of guaranteed delivery shall
state that the tender is being made and guarantee that within three New
York Stock Exchange trading days after the date of execution of the
notice of guaranteed delivery, the certificates for all physically
tendered outstanding notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, together with a properly completed and
duly executed letter of transmittal or agent's message with any required
signature guarantees and any other documents required by the letter of
transmittal will be deposited by the eligible institution with the
exchange agent; and
- the exchange agent receives the certificates for all physically tendered
outstanding notes, in proper form for transfer, or a book-entry
confirmation, as the case may be, together with a properly completed and
duly executed letter of transmittal or agent's message with any required
signature guarantees and any other documents required by the letter of
transmittal,
79
within three New York Stock Exchange trading days after the date of
execution of the notice of guaranteed delivery.
WITHDRAWAL RIGHTS
You may withdraw tenders of your outstanding notes at any time prior to the
expiration of the offer.
For a withdrawal to be effective, you must send a written notice of
withdrawal to the exchange agent at one of the addresses set forth below under
"The Exchange Agent." Any such notice of withdrawal must:
- specify the name of the person that has tendered the outstanding notes to
be withdrawn;
- identify the outstanding notes to be withdrawn, including the principal
amount of such outstanding notes; and
- where certificates for outstanding notes are transmitted, specify the
name in which outstanding notes are registered, if different from that of
the withdrawing holder.
If certificates for outstanding notes have been delivered or otherwise
identified to the exchange agent, then, prior to the release of such
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and signed notice of withdrawal with
signatures guaranteed by an eligible institution unless such holder is an
eligible institution. If outstanding notes have been tendered pursuant to the
procedure for book-entry transfer described above, any notice of withdrawal must
specify the name and number of the account at DTC to be credited with the
withdrawn notes and otherwise comply with the procedures of such facility. We
will determine all questions as to the validity, form and eligibility (including
time of receipt) of notices of withdrawal and our determination will be final
and binding on all parties. Any tendered notes so withdrawn will be deemed not
to have been validly tendered for exchange for purposes of the exchange offer.
Any outstanding notes which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost to
such holder. In the case of outstanding notes tendered by book-entry transfer
into the exchange agent's account at DTC, the outstanding notes withdrawn will
be credited to an account maintained with DTC for the outstanding notes. The
outstanding notes will be returned or credited to DTC account as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. Properly withdrawn outstanding notes may be re-tendered by following one
of the procedures described under "-- How to Tender Outstanding Notes for
Exchange" above at any time on or prior to 5:00 p.m., New York City time, on the
expiration date.
CONDITIONS TO THE EXCHANGE OFFER
We are not required to accept the outstanding notes in the exchange offer
or to issue the exchange notes. We may terminate or amend the exchange offer if
at any time before the acceptance of such outstanding notes for exchange:
- any federal law, statute, rule or regulation shall have been adopted or
enacted which, in our judgment, would reasonably be expected to impair
our ability to proceed with the exchange offer;
- any stop order shall be threatened or in effect with respect to the
registration statement of which this prospectus constitutes a part or the
qualification of the indenture under the Trust Indenture Act of 1939, as
amended; or
- there shall occur a change in the current interpretation by the staff of
the SEC which presently permits the exchange notes issued in the exchange
offer in exchange for the outstanding notes to be offered for resale,
resold and otherwise transferred by holders, other than any broker-dealer
who acquired the exchange notes issued in the exchange offer for its
80
own account and any holder which is an "affiliate" of us within the
meaning of Rule 405 under the Securities Act, without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that exchange notes acquired in the exchange offer are acquired
in the ordinary course of the holder's business and the holder has no
arrangement or understanding with any person to participate in the
distribution of notes issued in the exchange offer.
The preceding conditions are for our sole benefit, and we may assert them
regardless of the circumstances giving rise to any such condition. We may waive
the preceding conditions in whole or in part at any time and from time to time
in our sole discretion. Our failure at any time to exercise the foregoing rights
shall not be deemed a waiver of this right, and each right shall be deemed an
ongoing right which we may assert at any time and from time to time.
THE EXCHANGE AGENT
The J.P. Morgan Trust Company, National Association has been appointed as
our exchange agent for the exchange offer. All executed letters of transmittal
should be directed to our exchange agent at the address set forth below.
Questions and requests for assistance, requests for additional copies of this
prospectus or of the letter of transmittal and requests for notices of
guaranteed delivery should be directed to the exchange agent addressed as
follows:
By mail, hand or overnight delivery:
J.P. Morgan Trust Company, National Association, as Exchange Agent
Institutional Trust Services
2001 Byran Street, 9th Floor
Dallas, Texas 75201
Attention: Exchanges, Frank Ivins
By telecopier:
(214) 468-6494
Confirm by telephone:
(800) 275-2048
Originals of all documents sent by facsimile should be promptly sent to the
exchange agent by registered or certified mail, by hand, or by overnight
delivery service.
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF SUCH LETTER OF TRANSMITTAL VIA FACSIMILE OTHER THAN AS
SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF
TRANSMITTAL.
FEES AND EXPENSES
We will not make any payment to brokers, dealers or others soliciting
acceptance of the exchange offer except for reimbursement of mailing expenses.
The cash expenses to be incurred in connection with the exchange offer will
be paid by us.
TRANSFER TAXES
Holders who tender their outstanding notes for exchange notes will not be
obligated to pay any transfer taxes in connection with the exchange. If,
however, exchange notes issued in the exchange offer are to be delivered to, or
are to be issued in the name of, any person other than the holder of the
outstanding notes tendered, or if a transfer tax is imposed for any reason other
than the exchange of outstanding notes in connection with the exchange offer,
then the holder must pay any
81
applicable transfer taxes, whether imposed on the registered holder or on any
other person. If satisfactory evidence of payment of, or exemption from,
transfer taxes is not submitted with the letter of transmittal, the amount of
the transfer taxes will be billed directly to the tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE OUTSTANDING NOTES
Holders who desire to tender their outstanding notes in exchange for notes
registered under the Securities Act should allow sufficient time to ensure
timely delivery. Neither the exchange agent nor we are under any duty to give
notification of defects or irregularities with respect to the tenders of
outstanding notes for exchange.
Outstanding notes that are not tendered or are tendered but not accepted
will, following the consummation of the exchange offer, continue to accrue
interest and to be subject to the provisions in the indenture regarding the
transfer and exchange of the outstanding notes and the existing restrictions on
transfer set forth in the legend on the outstanding notes and in the offering
circular dated May 26, 2004, relating to the outstanding notes. Except in
limited circumstances with respect to specific types of holders of outstanding
notes, we will have no further obligation to provide for the registration under
the Securities Act of those outstanding notes. In general, outstanding notes,
unless registered under the Securities Act, may not be offered or sold except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws.
Upon completion of the exchange offer, holders of any remaining outstanding
notes will not be entitled to any further registration rights under the
registration rights agreement, except under limited circumstances.
EXCHANGING OUTSTANDING NOTES
Based on interpretations of the staff of the SEC, as set forth in no-action
letters to third parties, we believe that the notes issued in the exchange offer
may be offered for resale, resold or otherwise transferred by holders of such
notes, other than by any holder that is a broker-dealer who acquired outstanding
notes for its own account as a result of market-making or other trading
activities or by any holder which is an "affiliate" of us within the meaning of
Rule 405 under the Securities Act. The exchange notes may be offered for resale,
resold or otherwise transferred without compliance with the registration and
prospectus delivery provisions of the Securities Act, if:
- the holder is not a broker-dealer tendering notes acquired directly from
us;
- the person acquiring the exchange notes in the exchange offer, whether or
not that person is a holder, is acquiring them in the ordinary course of
its business; and
- neither the holder nor that other person has any arrangement or
understanding with any person to participate in the distribution of the
exchange notes issued in the exchange offer.
However, the SEC has not considered the exchange offer in the context of a
no-action letter, and we cannot guarantee that the staff of the SEC would make a
similar determination with respect to the exchange offer as in these other
circumstances.
Each holder must furnish a written representation, at our request, that:
- it is not an affiliate of us;
- it is not a broker-dealer tendering notes acquired directly from us;
- it is not engaged in, and does not intend to engage in, a distribution of
the notes issued in the exchange offer and has no arrangement or
understanding to participate in a distribution of notes issued in the
exchange offer; and
- it is acquiring the exchange notes in the ordinary course of its
business.
82
Each holder who cannot make such representations:
- will not be able to rely on the interpretations of the staff of the SEC
in the above-mentioned interpretive letters;
- will not be permitted or entitled to tender outstanding notes in the
exchange offer; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act of 1933 in connection with any sale or other transfer
of outstanding notes, unless the sale is made under an exemption from
such requirements.
In addition, each broker-dealer that receives exchange notes for its own
account in exchange for outstanding notes must acknowledge that these
outstanding notes were acquired by that broker-dealer as a result of
market-making or other trading activities and that it will deliver this
prospectus in connection with any resale of such notes issued in the exchange
offer. See "Plan of Distribution" for a discussion of the exchange and resale
obligations of broker-dealers in connection with the exchange offer.
In addition, to comply with state securities laws of certain jurisdictions,
the exchange notes may not be offered or sold in any state unless they have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and complied with by the holders selling the
exchange notes. We have not agreed to register or qualify the exchange notes for
offer or sale under state securities laws.
83
DESCRIPTION OF EXCHANGE NOTES
You can find the definitions of certain terms used in this description
under the subheading "-- Certain Definitions." In this description, the word
"Company" refers only to Autocam Corporation and not to any of their
subsidiaries nor any of their parent companies. Unless the context requires
otherwise, the word "notes" refers collectively to the notes, additional notes
as described below and Exchange Notes.
The Company will issue the exchange notes under the indenture dated as of
June 10, 2004 (the "Indenture") between itself and J.P. Morgan Trust Company,
National Association, as trustee, filed as an exhibit to the registration
statement of which this prospectus is a part. The terms of the notes will
include those stated in the indenture and, upon effectiveness of a registration
statement with respect to the notes, those made part of the indenture by
reference to the Trust Indenture Act of 1939, as amended.
Any outstanding notes that remain outstanding after completion of the
exchange offer, together with the exchange notes issued in the exchange offer,
will be treated as a single class of securities under the Indenture, including
for purposes of amending the Indenture.
The following description is a summary of the material provisions of the
indenture. It does not restate those agreements in their entirety. We urge you
to read the indenture and the registration rights agreement because they, and
not this description, define our obligations and your rights as holders of the
notes. Certain defined terms used in this description but not defined below
under "-- Certain Definitions" have the meanings assigned to them in the
indenture.
The registered holder of a note will be treated as the owner of it for all
purposes. Only registered holders will have rights under the indenture.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
THE NOTES
The notes:
- are general unsecured obligations of the Company;
- are subordinated in right of payment to all existing and future Senior
Debt of the Company, including borrowings under the Credit Agreement;
- rank equally in right of payment to any future senior subordinated
Indebtedness of the Company;
- are senior in right of payment to any future subordinated Indebtedness of
the Company; and
- are unconditionally guaranteed by the Guarantors.
THE GUARANTEES
The notes are guaranteed by all of the Company's existing and future
Restricted Subsidiaries that are Domestic Subsidiaries and by Autocam Europe and
Titan.
Each guarantee of the notes:
- is a general unsecured obligation of each Guarantor;
- is subordinated in right of payment to all existing and future Senior
Debt of that Guarantor;
- is equal in right of payment with any future senior subordinated
Indebtedness of that Guarantor;
- is effectively subordinated to all secured Indebtedness of that Guarantor
to the extent of the value of the assets securing such Indebtedness; and
84
- is effectively subordinated to the obligations of any Subsidiary of that
Guarantor if that Subsidiary is not a Guarantor.
As of June 30, 2004, the Company and the Guarantors had total Senior Debt
of approximately $33.0 million. In addition, $25.1 million would have been
available to be borrowed under our new multi-currency revolving credit facility
and E11.6 million would have been available to Autocam France, SARL to be
borrowed under our new euro denominated revolving credit facility. As indicated
above and as discussed in detail below under the caption "-- Subordination,"
payments on the notes and under these guarantees will be subordinated to the
payment of Senior Debt. The indenture will permit us and the Guarantors to incur
additional Senior Debt.
Except for Autocam Europe, none of our Foreign Subsidiaries will guarantee
the notes. The notes are effectively subordinated in right of payment to all
Indebtedness and other liabilities and commitments (including trade payables and
lease obligations) of the Company's Subsidiaries that are not Guarantors. Any
right of the Company to receive assets of any of its Subsidiaries that are not
Guarantors upon that Subsidiary's liquidation or reorganization (and the
consequent right of the holders of the notes to participate in those assets) is
effectively subordinated to the claims of that Subsidiary's creditors, except to
the extent that the Company is itself recognized as a creditor of the
Subsidiary, in which case the claims of the Company would still be subordinate
in right of payment to any security in the assets of the Subsidiary and any
Indebtedness of the Subsidiary senior to that held by the Company. As of June
30, 2004, the Company's non-Guarantor Subsidiaries had approximately $83.8
million of Indebtedness and $89.2 million of trade payables and other
liabilities outstanding assuming consummation of the Transactions. The
non-Guarantor Subsidiaries generated 58.3% of our sales for 2003 and held 43.8%
of our consolidated assets as of December 31, 2003. See note 14 to our
consolidated financial statements included at the back of this prospectus for
more detail about the division of our consolidated revenues and assets between
our Guarantor and non-Guarantor Subsidiaries. As stated above, all of the
Company's Domestic Subsidiaries, Titan and Autocam Europe will guarantee the
notes. See "Risk Factors -- Autocam Europe B.V., our only non-U.S. subsidiary
which is guaranteeing the notes, and Holdings are holding companies with no
revenue-generating operations of their own. Your right to receive payments on
the notes could be adversely affected if any of our non-guarantor subsidiaries
declare bankruptcy, liquidate, or reorganize; the notes would be structurally
subordinated to the obligations of our non- guarantor subsidiaries."
As of the date of the indenture, all of our Subsidiaries were "Restricted
Subsidiaries." However, under the circumstances described below under the
caption "-- Certain Covenants -- Designation of Restricted and Unrestricted
Subsidiaries," we will be permitted to designate certain of our Subsidiaries as
"Unrestricted Subsidiaries." Any Unrestricted Subsidiaries would not be subject
to many of the restrictive covenants in the indenture. As mentioned above, other
than Autocam Europe, none of our Foreign Subsidiaries would guarantee the notes,
and any Unrestricted Subsidiaries will not guarantee the notes.
PRINCIPAL, MATURITY AND INTEREST
The Company issued $140.0 million in aggregate principal amount of notes in
the offering. The Company may in the future issue additional notes with
identical terms and conditions (other than the Special Interest) under the
indenture from time to time after the offering. Any issuance of additional notes
is subject to all of the covenants in the indenture, including the covenant
described below under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock." The notes and any additional
notes subsequently issued under the indenture will be treated as a single class
for all purposes under the indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase. The Company will issue notes in
denominations of $1,000 and integral multiples of $1,000. The notes will mature
on June 15, 2014.
85
Interest on the notes will accrue at the rate of 10.875% per annum and will
be payable semi-annually in arrears on June 15 and December 15, commencing on
December 15, 2004. The Company will make each interest payment to the holders of
record on the immediately preceding June 1 and December 1.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder of notes has given wire transfer instructions to the Company,
the Company will pay all principal, interest and premium, if any, on that
holder's notes in accordance with those instructions. All other payments on the
notes will be made at the office or agency of the paying agent and registrar
within the City and State of New York unless the Company elects to make interest
payments by check mailed to the noteholders at their address set forth in the
register of holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee will initially act as paying agent and registrar. The Company
may change the paying agent or registrar without prior notice to the holders of
the notes, and the Company or any of its Subsidiaries may act as paying agent or
registrar.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the provisions
of the indenture. The registrar and the trustee may require a holder, among
other things, to furnish appropriate endorsements and transfer documents in
connection with a transfer of notes. Holders will be required to pay all taxes
due on transfer. The Company will not be required to transfer or exchange any
note selected for redemption. Also, the Company will not be required to transfer
or exchange any note for a period of 15 days before a selection of notes to be
redeemed.
GUARANTEES
The notes are guaranteed by the Company's direct parent, Titan, each of the
Company's current and future Restricted Subsidiaries that are Domestic
Subsidiaries and Autocam Europe. These Note Guarantees are joint and several
obligations of the Guarantors. Each Note Guarantee will be subordinated to the
prior payment in full of all Senior Debt of that Guarantor. The obligations of
each Guarantor under its Note Guarantee are limited as necessary to prevent that
Note Guarantee from constituting a fraudulent conveyance under applicable law.
See "Risk Factors -- Federal and state statutes allow courts, under specific
circumstances, to void guarantees and require note holders to return payments
received from guarantors." In addition, because Titan is a holding company with
no operations, the Guarantee by Titan provides little, if any, additional credit
support for the notes and investors should not rely on the Guarantee by Titan in
evaluating an investment in the notes.
A Guarantor may not sell or otherwise dispose of all or substantially all
of its assets to, or consolidate with or merge with or into or dissolve or
liquidate into (whether or not such Guarantor is the surviving Person) another
Person, other than the Company or another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
86
(2) either:
(a) the Person acquiring the property in any such sale or
disposition or the Person formed by or surviving any such consolidation
or merger assumes all the obligations of that Guarantor under the
indenture, its Note Guarantee and the registration rights agreement
pursuant to a supplemental indenture satisfactory to the trustee; or
(b) the Net Proceeds of such sale or other disposition are
applied in accordance with the applicable provisions of the indenture.
The Note Guarantee of a Guarantor will be released:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Guarantor (including by way of
merger or consolidation) to a Person that is not (either before or after
giving effect to such transaction) the Company or a Restricted Subsidiary
of the Company, if the sale or other disposition does not violate the
"Asset Sale" provisions of the indenture;
(2) in connection with any sale or other disposition of all of the
Capital Stock of that Guarantor to a Person that is not (either before or
after giving effect to such transaction) the Company or a Restricted
Subsidiary of the Company, if the sale or other disposition does not
violate the "Asset Sale" provisions of the indenture;
(3) if the Company designates any Restricted Subsidiary that is a
Guarantor to be an Unrestricted Subsidiary in accordance with the
applicable provisions of the indenture; or
(4) upon legal defeasance or satisfaction and discharge of the
indenture as provided below under the captions "-- Legal Defeasance and
Covenant Defeasance" and "-- Satisfaction and Discharge."
See "-- Repurchase at the Option of Holders -- Asset Sales."
SUBORDINATION
The payment of principal, interest and premium, if any, on the notes is
subordinated to the prior payment in full of all Senior Debt of the Company,
including Senior Debt incurred after the date of the indenture.
The holders of Senior Debt are entitled to receive payment in full in cash
of all Obligations due in respect of Senior Debt (including interest after the
commencement of any bankruptcy proceeding at the rate specified in the
applicable Senior Debt, whether or not an allowable claim in any such
proceeding) before the holders of notes will be entitled to receive any payment
with respect to the notes (except that holders of notes may receive and retain
Permitted Junior Securities and payments made from either of the trusts
described under "-- Legal Defeasance and Covenant Defeasance" and
"-- Satisfaction and Discharge"), in the event of any distribution to creditors
of the Company:
(1) in a liquidation or dissolution of the Company;
(2) in a bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of the Company's assets and liabilities.
87
The Company also may not make any payment in respect of the notes (except
in Permitted Junior Securities or from the trusts described under "-- Legal
Defeasance and Covenant Defeasance" and "-- Satisfaction and Discharge") if:
(1) a payment default on Designated Senior Debt occurs and is
continuing; or
(2) any other default occurs and is continuing on any series of
Designated Senior Debt that permits holders of that series of Designated
Senior Debt to accelerate its maturity and the trustee receives a notice of
such default (a "Payment Blockage Notice") from the holders of any
Designated Senior Debt.
Payments on the notes may and are required to be resumed:
(1) in the case of a payment default, upon the date on which such
default is cured or waived; and
(2) in the case of a nonpayment default, upon the earlier of the date
on which such nonpayment default is cured or waived or 179 days after the
date on which the applicable Payment Blockage Notice is received, unless
the maturity of any Designated Senior Debt has been accelerated or if any
Payment Default then exists on Designated Senior Debt.
No new Payment Blockage Notice may be delivered unless and until:
(1) 360 days have elapsed since the delivery of the immediately prior
Payment Blockage Notice; and
(2) all scheduled payments of principal, interest and premium, if any,
on the notes that have come due have been paid in full in cash.
No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the trustee will be, or will be made,
the basis for a subsequent Payment Blockage Notice unless such default has been
cured or waived for a period of not less than 90 days.
If the trustee or any holder of the notes receives a payment in respect of
the notes (except in Permitted Junior Securities or from the trusts described
under "-- Legal Defeasance and Covenant Defeasance" and "-- Satisfaction and
Discharge") when:
(1) the payment is prohibited by these subordination provisions; and
(2) the trustee or the holder has actual knowledge that the payment is
prohibited, the trustee or the holder, as the case may be, will hold the
payment in trust for the benefit of the holders of Senior Debt. Upon the
proper written request of the holders of Senior Debt or their
representative, the trustee or the holder, as the case may be, will deliver
the amounts in trust to the holders of Senior Debt or their proper
representative.
The Company must promptly notify holders of Senior Debt if payment on the
notes is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event
of a bankruptcy, liquidation or reorganization of the Company, holders of notes
may recover less ratably than creditors of the Company who are holders of Senior
Debt. As a result of the obligation to deliver amounts received in trust to
holders of Senior Debt, holders of notes may recover less ratably than trade
creditors of the Company. See "Risk Factors -- Your right to receive payments on
the notes and the guarantees is junior to our existing and future senior
indebtedness and the existing and future senior indebtedness of the guarantors."
OPTIONAL REDEMPTION
At any time prior to June 15, 2007, the Company may, on any one or more
occasions, redeem up to 35% of the aggregate principal amount of notes issued
under the indenture (calculated giving
88
effect to any issuance of additional notes) at a redemption price of 110.875% of
the principal amount, plus accrued and unpaid interest, if any, to, but not
including, the redemption date (subject to the right of holders of notes on any
relevant interest record date to receive interest on the relevant interest
payment date), in an amount up to the net cash proceeds of one or more Equity
Offerings (1) by the Company or (2) by a Parent to the extent the net cash
proceeds thereof are contributed to the Company or used to purchase Qualified
Capital Stock from the Company; provided that:
(1) at least 65% of the aggregate principal amount of notes originally
issued under the indenture (calculated giving effect to any issuance of
additional notes and excluding notes held by the Company and its
Subsidiaries) remains outstanding immediately after the occurrence of such
redemption; and
(2) the redemption occurs within 60 days of the date of the closing of
such Equity Offering.
Except pursuant to the preceding paragraph, the notes are not redeemable at
the Company's option prior to June 15, 2009.
On or after June 15, 2009, the Company may redeem all or a part of the
notes upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest, if any, on the notes redeemed, to, but not
including, the applicable redemption date, if redeemed during the twelve-month
period beginning on June 15 of the years indicated below, subject to the rights
of holders of notes on the relevant record date to receive interest on the
relevant interest payment date:
<Table>
<Caption>
YEAR PERCENTAGE
- ---- ----------
2009........................................................ 105.438%
2010........................................................ 103.625%
2011........................................................ 101.813%
2012 and thereafter......................................... 100.000%
</Table>
Unless the Company defaults in the payment of the redemption price,
interest will cease to accrue on the notes or portions thereof called for
redemption on the applicable redemption date.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each holder of notes will have the right to
require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple of $1,000) of that holder's notes pursuant to a Change of
Control Offer on the terms set forth in the indenture. In the Change of Control
Offer, the Company will offer a Change of Control Payment in cash equal to 101%
of the aggregate principal amount of notes repurchased plus accrued and unpaid
interest, if any, on the notes repurchased to, but not including, the date of
purchase, subject to the rights of holders of notes on the relevant record date
to receive interest due on the relevant interest payment date. Within thirty
days following any Change of Control or, at the Company's option, prior to the
completion of such Change of Control event but only after such event is publicly
announced, the Company will mail a notice to each holder describing the
transaction or transactions that constitute the Change of Control and offering
to repurchase notes on the Change of Control Payment Date specified in the
notice, which date will be no earlier than 30 days and no later than 60 days
from the date such notice is mailed, pursuant to the procedures required by the
indenture and described in such notice. In the case of a Change of Control
Notice sent prior to the applicable Change of
89
Control event pursuant to the preceding sentence, the Change of Control Offer
will be irrevocable, subject only to the completion of the applicable Change of
Control event. The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with the
repurchase of the notes as a result of a Change of Control. To the extent that
the provisions of any securities laws or regulations conflict with the Change of
Control provisions of the indenture, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Change of Control provisions of the indenture by virtue of
such compliance.
On the Change of Control Payment Date, the Company will, to the extent
lawful:
(1) accept for payment all notes or portions of notes properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all notes or portions of notes properly
tendered; and
(3) deliver or cause to be delivered to the trustee the notes properly
accepted together with an officers' certificate stating the aggregate
principal amount of notes or portions of notes being purchased by the
Company.
The paying agent will promptly mail to each holder of notes properly
tendered the Change of Control Payment for such notes, and the trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each holder a new note equal in principal amount to any unpurchased portion of
the notes surrendered, if any, provided that each new note will be equal to
$1,000 or an integral multiple of $1,000. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, the
Company will either repay all outstanding Senior Debt or obtain the requisite
consents, if any, under all agreements governing outstanding Senior Debt to
permit the repurchase of notes required by this covenant.
The provisions described above that require the Company to make a Change of
Control Offer following a Change of Control will be applicable whether or not
any other provisions of the indenture are applicable. Except as described above
with respect to a Change of Control, the indenture does not contain provisions
that permit the holders of the notes to require that the Company repurchase or
redeem the notes in the event of a takeover, recapitalization or similar
transaction.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if (1) a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control Offer made by the Company and
purchases all notes properly tendered and not withdrawn under the Change of
Control Offer, or (2) notice of redemption has been given pursuant to the
indenture as described above under the caption "-- Optional Redemption," unless
and until there is a default in payment of the applicable redemption price.
The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all" of the properties or assets of the Company and its
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
holder of notes to require the Company to repurchase its notes as a result of a
sale, lease, transfer, conveyance or other disposition of less than all of the
assets of the Company and its Subsidiaries taken as a whole to another Person or
group may be uncertain.
90
ASSET SALES
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless:
(1) the Company (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of the Asset Sale at least equal to the
Fair Market Value of the assets or Equity Interests issued or sold or
otherwise disposed of; and
(2) at least 75% of the consideration received in the Asset Sale by the
Company or such Restricted Subsidiary is in the form of cash or Cash
Equivalents. For purposes of this provision, each of the following will be
deemed to be cash:
(a) any liabilities, as shown on the Company's most recent
consolidated balance sheet, of the Company or any Restricted Subsidiary
(other than contingent liabilities and liabilities that are by their
terms subordinated to the notes or any Note Guarantee) that are assumed
by the transferee or purchaser, or a third party on behalf of the
transferor or purchaser of any such assets, pursuant to a customary
assumption agreement that releases the Company or such Restricted
Subsidiary from such liability;
(b) any securities, notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary into cash within
60 days of receipt by the Company or such Restricted Subsidiary, to the
extent of the cash received in that conversion; and
(c) any stock or assets of the kind referred to in clauses (2) or
(4) of the next paragraph of this covenant.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company (or the applicable Restricted Subsidiary, as the case may be) may
apply such Net Proceeds at its option; provided that any stock or assets of the
kind referred to in clauses (2) and (4) below deemed to be cash pursuant to the
preceding paragraph will be deemed applied pursuant to clauses (2) and (4)
below, as applicable, to the extent such stock or assets are used in the
business and are not sold within such 365-day period for consideration of the
kind described in clauses (2)(a) and (2)(b) of the preceding paragraph:
(1) to repay (i) Senior Debt and, if the Senior Debt repaid is
revolving credit Indebtedness, to correspondingly reduce commitments with
respect thereto or (ii) any Indebtedness of a non-guarantor Restricted
Subsidiary only if the assets sold were of such non-guarantor Restricted
Subsidiary (other than Indebtedness owed to the Company or an Affiliate and
other than Disqualified Stock);
(2) to acquire (i) all or substantially all of the assets of another
Permitted Business or (ii) any Capital Stock of another Permitted Business
if, after giving effect to any such acquisition of Capital Stock, the
Permitted Business is or becomes a Restricted Subsidiary of the Company;
(3) to make a capital expenditure;
(4) to acquire any property or assets (other than Indebtedness and
Capital Stock) to be used by the Company or a Restricted Subsidiary in a
Permitted Business; or
(5) to acquire from a Person other than the Company or any of its
Subsidiaries Capital Stock of a Restricted Subsidiary which constitutes a
minority interest in such Restricted Subsidiary.
Pending the final application of any Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest the Net
Proceeds in any manner that is not prohibited by the indenture.
91
Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the second paragraph of this covenant will constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $15.0 million,
within ten days thereof, the Company will make an Asset Sale Offer to all
holders of notes and all holders of other Indebtedness that ranks equally with
the notes containing provisions similar to those set forth in the indenture with
respect to offers to purchase or redeem with the proceeds of sales of assets to
purchase the maximum principal amount of notes and such other equally ranking
Indebtedness that may be purchased out of the Excess Proceeds. The offer price
in any Asset Sale Offer will be equal to 100% of the principal amount plus
accrued and unpaid interest, if any, to, but not including, the date of
purchase, and will be payable in cash (subject to the right of holders of notes
on the relevant record date to receive interest on the relevant interest payment
date). If any Excess Proceeds remain after consummation of an Asset Sale Offer,
the Company may use those Excess Proceeds for any purpose not otherwise
prohibited by the indenture. If the aggregate principal amount of notes and
other equally ranking Indebtedness tendered into such Asset Sale Offer exceeds
the amount of Excess Proceeds, the trustee will select the notes and such other
equally ranking Indebtedness to be purchased on a pro rata basis. Upon
completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset
at zero.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent those laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sale
provisions of the indenture, the Company will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of the indenture by virtue of such
compliance.
SENIOR DEBT LIMITATIONS
The agreements governing the Company's Senior Debt to be executed in
connection with the Acquisition prohibit the Company from purchasing any notes,
and also provide that certain change of control or asset sale events with
respect to the Company would constitute a default under these agreements. Any
future credit agreements or other agreements relating to Senior Debt to which
the Company becomes a party may contain similar restrictions and provisions. In
the event a Change of Control or Asset Sale occurs at a time when the Company is
prohibited from purchasing notes, the Company could seek the consent of its
senior lenders to the purchase of notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such
consent or repay such borrowings, the Company will remain prohibited from
purchasing notes. In such case, the Company's failure to purchase tendered notes
would constitute an Event of Default under the indenture which would, in turn,
constitute a default under such Senior Debt. In such circumstances, the
subordination provisions in the indenture would likely restrict payments to the
holders of notes.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption on a pro rata basis, by lot or by such method
as the trustee deems fair and appropriate, unless otherwise required by law,
applicable stock exchange requirement or the requirements of the Depository
Trust Company (in which case such provisions will apply).
No notes of $1,000 or less can be redeemed in part. Notices of redemption
will be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each holder of notes to be redeemed at its registered
address, except that redemption notices may be mailed more than 60 days prior to
a redemption date if the notice is issued in connection with a defeasance of the
notes or a satisfaction and discharge of the indenture. Notices of redemption
may not be conditional.
92
If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount of that note
that is to be redeemed. A new note in principal amount equal to the unredeemed
portion of the original note will be issued in the name of the holder of notes
upon cancellation of the original note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on notes or portions of notes called for redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or
distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving the Company or any
of its Restricted Subsidiaries) or to the direct or indirect holders of the
Company's or any of its Restricted Subsidiaries' Equity Interests in their
capacity as such (other than dividends or distributions payable in Equity
Interests (other than Disqualified Stock) of the Company);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving the Company) any Equity Interests of the Company or
any Parent;
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness of the
Company or any Guarantor that is contractually subordinated in right of
payment to the notes or to any Note Guarantee (excluding any intercompany
Indebtedness between or among the Company and any of its Restricted
Subsidiaries), except a payment of interest or principal at the Stated
Maturity thereof or a refinancing thereof with Permitted Refinancing
Indebtedness within one year of the final maturity date thereof; or
(4) make any Restricted Investment
(all such payments and other actions set forth in these clauses (1) through (4)
above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default has occurred and is continuing or
would occur as a consequence of such Restricted Payment;
(2) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the indenture (excluding Restricted Payments
permitted by clauses (2), (3), (4), (6), (7), (8), (9), (10), (11), (12)
and (13) of the next succeeding paragraph), is less than the sum, without
duplication, of:
(a) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing immediately prior to the date of the
indenture to the end of the Company's most recently
93
ended fiscal quarter for which internal financial statements are
available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, less 100% of such
deficit); plus
(b) 100% of the aggregate Qualified Proceeds received by the
Company since the date of the indenture as a contribution to its common
equity capital or from the issue or sale of Equity Interests of the
Company (other than Disqualified Stock) or from the issue or sale of
convertible or exchangeable Disqualified Stock or convertible or
exchangeable debt securities of the Company that have been converted
into or exchanged for such Equity Interests (other than Equity
Interests (or Disqualified Stock or debt securities) sold to a
Subsidiary of the Company); plus
(c) the amount equal to the net reduction in any Restricted
Investment that was made after the date of the indenture resulting from
payments of interest on Indebtedness, dividends, repayments of the
principal of loans or advances, or other transfers of assets, in each
case, to the Company or any Restricted Subsidiary and the cash return
of capital with respect to any Restricted Investment; plus
(d) to the extent that any Unrestricted Subsidiary of the Company
designated as such after the date of the indenture is redesignated as a
Restricted Subsidiary after the date of the indenture, the Fair Market
Value of the Company's Investment in such Subsidiary as of the date of
such redesignation; plus
(e) in the event the Company or any Restricted Subsidiary makes
any Investment in a Person that, as a result of or in connection with
such Investment, becomes a Restricted Subsidiary, an amount equal to
the Company's or any Restricted Subsidiary's existing Investment in
such Person that was previously treated as a Restricted Payment
pursuant to this clause (3); plus
(f) any amount which was previously treated as a Restricted
Payment pursuant to this clause (3) on account of any Guarantee entered
into by the Company or any Restricted Subsidiary permitted under the
terms of the indenture; provided that such Guarantee has not been
called upon and the obligation arising under such Guarantee no longer
exists.
The preceding provisions will not prohibit, without duplication:
(1) the payment of any dividend or the consummation of any irrevocable
redemption within 60 days after the date of declaration of the dividend or
giving of the redemption notice, as the case may be, if at the date of
declaration or notice, the dividend or redemption payment would have
complied with the provisions of the indenture;
(2) the making of any Restricted Payment in exchange for, or out of,
any or all of the net cash proceeds of the sale within 45 days (other than
to a Subsidiary of the Company) of, Equity Interests of the Company (other
than Disqualified Stock) or from the substantially concurrent contribution
of common equity capital to the Company; provided that the amount of any
such net cash proceeds that are utilized for any such Restricted Payment
will be excluded from clause (3)(b) of the preceding paragraph;
(3) the repurchase, redemption, defeasance, repayment or other
acquisition or retirement for value of Indebtedness of the Company or any
Guarantor that is subordinated in right of payment to the notes or to any
Note Guarantee out of any or all the net cash proceeds from a substantially
concurrent incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend (or, in the case of any partnership or
limited liability company, any similar distribution) by a Restricted
Subsidiary of the Company to the holders of its Equity Interests on a pro
rata basis;
94
(5) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company or any Parent held by any
current or former officer, director, employee or consultants of the Company
or any of its Restricted Subsidiaries or any Parent; provided that the
aggregate price paid for all such repurchased, redeemed, acquired or
retired Equity Interests (after taking into account payments under clause
(6) of the definition of "Permitted Payments to Parent") may not exceed
$2.0 million in any twelve-month period (with unused amounts in any
immediately preceding calendar year being carried over to the next
succeeding calendar year subject to a maximum carry-over amount of $2.0 in
any calendar year) plus the net proceeds of key person life insurance
policies received after the date of the indenture;
(6) the repurchase of Equity Interests of the Company deemed to occur
upon the exercise of stock options to the extent such Equity Interests
represent a portion of the exercise price of those stock options;
(7) the declaration and payment of regularly scheduled or accrued
dividends to holders of any class or series of Disqualified Stock of the
Company or any preferred stock of any Restricted Subsidiary issued on or
after the date of the indenture in accordance with "-- Incurrence of
Indebtedness and Issuance of Preferred Stock";
(8) any prepayment, repayment, purchase, repurchase, redemption,
retirement, defeasance or other acquisition for value of subordinated
Indebtedness with any Excess Proceeds that remain after consummation of an
Asset Sale Offer;
(9) (i) any payment or distribution contemplated by the Acquisition and
the financing thereof and (ii) payment of fees not in excess of $600,000
per annum plus customary out-of-pocket expenses pursuant to the Management
Services Agreement, and in each case, including any payments to any Parent
in order for any Parent to make such payments;
(10) any repurchase, redemption, retirement or other acquisition for
value of Disqualified Stock of the Company made by exchange for or out of
proceeds of a substantially concurrent sale of Disqualified Stock that is
permitted to be incurred pursuant to the covenant described below under
"-- Incurrence of Indebtedness and Issuance of Preferred Stock," provided
any new Disqualified Stock has an aggregate liquidation preference that
does not exceed the aggregate liquidation preference of the amount so
refinanced;
(11) Permitted Payments to Parent;
(12) the repurchase of any subordinated Indebtedness of the Company at
a purchase price not greater than 101% of the principal amount of such
subordinated Indebtedness in the event of a Change of Control pursuant to a
provision similar to "-- Repurchase at the Option of Holders -- Change of
Control"; provided that prior to consummating any such repurchase, the
Company has made the Change of Control Offer required by the indenture and
has repurchased all notes validly tendered for payment in connection with
such Change of Control Offer;
(13) the designation of Autocam-Har, Inc., a Michigan corporation, as
an Unrestricted Subsidiary, but only if, as of the time of such
designation, such entity does not engage in any activities and owns no
assets other than those owned as of the date of the indenture; and
(14) so long as no Default has occurred and is continuing or would be
caused thereby, other Restricted Payments in an aggregate amount not to
exceed $10.0 million since the date of the indenture.
The amount of all Restricted Payments (other than cash) will be the Fair
Market Value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to the Restricted Payment. The Fair
Market Value of any assets or securities that are required to be valued by this
95
covenant will be determined by the Board of Directors of the Company whose
resolution with respect thereto will be delivered to the trustee. The Board of
Directors' determination must be based upon an opinion or appraisal issued by an
accounting, appraisal or investment banking firm that is not an affiliate of any
party receiving all or any part of the Restricted Payment if the Fair Market
Value exceeds $12.5 million.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable, contingently or otherwise,
with respect to (collectively, "incur") any Indebtedness (including Acquired
Debt), and the Company will not issue any Disqualified Stock and will not permit
any of its Restricted Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) or issue Disqualified Stock, and the Guarantors may incur Indebtedness
(including Acquired Debt) or issue preferred stock, if the Fixed Charge Coverage
Ratio for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock or
such preferred stock is issued, as the case may be, would have been at least 2.0
to 1, determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been incurred or
the Disqualified Stock or the preferred stock had been issued, as the case may
be, at the beginning of such four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of
any of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by the Company or any Restricted Subsidiary (and the
Guarantee thereof by the Restricted Subsidiaries) of (i) Indebtedness under
Credit Facilities (with letters of credit being deemed to have a principal
amount equal to the face amount of the maximum potential liability of the
Company and its Restricted Subsidiaries thereunder) and (ii) Indebtedness
under any Receivables Facility (such amounts outstanding under any such
Receivables Facility not to exceed, together with the uncollected balance
of amounts due in respect of the accounts receivable and interests therein
referred to in clause (16) below, $30.0 million outstanding at any given
time) in an aggregate principal amount at any one time outstanding under
this clause (1) not to exceed the greater of:
(a) $165.0 million less the aggregate amount of all Net Proceeds
of Asset Sales applied by the Company or any of its Restricted
Subsidiaries since the date of the indenture to repay the principal
amount of any term Indebtedness under a Credit Facility or to repay the
principal amount of any revolving credit Indebtedness under a Credit
Facility and effect a corresponding permanent commitment reduction
thereunder pursuant to the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales"; and
(b) the Borrowing Base;
(2) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(3) the incurrence by the Issuers and the Guarantors of Indebtedness
represented by the notes and the related Note Guarantees to be issued on
the date of the indenture and the Exchange Notes and related Note
Guarantees to be issued as contemplated by the registration rights
agreement;
(4) the incurrence by the Company or any of its Restricted Subsidiaries
of Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the
purpose of financing all or any part of the purchase price or cost
96
of design, construction, installation or improvement of plant or equipment
(including the acquisition of any related property in connection with such
design, construction, installation or improvement) at the time used in the
business of the Company or any of its Restricted Subsidiaries or within one
year after completion of construction, installation or improvement in an
aggregate principal amount, including all Permitted Refinancing
Indebtedness incurred to renew, refund, refinance, replace, defease or
discharge any Indebtedness incurred pursuant to this clause (4), not to
exceed $25.0 million at any time outstanding;
(5) the incurrence by the Company or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to renew, refund, refinance, replace, defease or
discharge any Indebtedness (other than intercompany Indebtedness) that was
permitted by the indenture to be incurred under the first paragraph of this
covenant or clauses (2), (3), (4), (5), (13) and (17) of this paragraph;
(6) the incurrence by the Company or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; provided, however, that:
(a) if the Company or any Guarantor is the obligor on such
Indebtedness and the payee is not the Company or a Guarantor, such
Indebtedness must be expressly subordinated on terms at least as
favorable to the notes as the subordination of the notes to the Senior
Debt to the prior payment in full in cash of all Obligations then due
with respect to the notes, in the case of the Company, or the Note
Guarantee, in the case of a Guarantor; and
(b) excluding customary pledge arrangements in connection with
the incurrence of Indebtedness otherwise permitted by the indenture,
(i) any subsequent issuance or transfer of Equity Interests of such
Subsidiary's Equity Interest that results in any such Indebtedness
being held by a Person other than the Company or a Restricted
Subsidiary of the Company and (ii) any sale or other transfer of any
such Indebtedness to a Person that is not either the Company or a
Restricted Subsidiary of the Company, will be deemed, in each case, to
constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be, that was not permitted by
this clause (6);
(7) the issuance by any of the Company's Restricted Subsidiaries to the
Company or to any of its Restricted Subsidiaries of shares of preferred
stock; provided, however, that:
(a) any subsequent issuance or transfer of Equity Interests that
results in any such preferred stock being held by a Person other than
the Company or a Restricted Subsidiary of the Company; and
(b) any sale or other transfer of any such preferred stock to a
Person that is not either the Company or a Restricted Subsidiary of the
Company,
will be deemed, in each case, to constitute an issuance of such preferred stock
by such Restricted Subsidiary that was not permitted by this clause (7);
(8) the incurrence by the Company or any of its Restricted Subsidiaries
of Hedging Obligations for non-speculative purposes;
(9) the guarantee by the Company or any of the Guarantors of
Indebtedness of the Company or a Restricted Subsidiary of the Company that
was permitted to be incurred by another provision of this covenant;
provided that if the Indebtedness being guaranteed is subordinated to or
pari passu with the notes, then the Guarantee will be subordinated or pari
passu, as applicable, to the same extent as the Indebtedness guaranteed;
97
(10) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness in respect of workers' compensation claims,
unemployment insurance, self-insurance obligations, bankers' acceptances,
appeal, performance and surety bonds and other obligations of a like nature
in the ordinary course of business and in any such case any reimbursement
obligation in connection therewith;
(11) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
drawn against insufficient funds, so long as such Indebtedness is covered
within five business days of incurrence;
(12) obligations from agreements to provide for indemnification,
adjustment of purchase price or similar obligations, earn-outs or other
similar obligations, or from guarantees or letters of credit, surety bonds
or performance bonds securing the performance of the Company or any
Restricted Subsidiaries incurred in connection with the acquisition or
disposition of the assets of the Company or the assets or Capital Stock of
a Person that is or becomes a Restricted Subsidiary of the Company;
provided that (A) the maximum aggregate liability in connection with any
such disposition in respect of all such Indebtedness will at no time exceed
the gross proceeds actually received by the Company and its Subsidiaries in
connection with such disposition and (B) such Indebtedness is not reflected
in the balance sheet of the Company or any Restricted Subsidiary
(contingent obligations referred to in a footnote to financial statements
and not otherwise reflected on the balance sheet will not be deemed to be
reflected on such balance sheet for purposes of this clause (B));
(13) Indebtedness of any Foreign Subsidiary in an aggregate principal
amount which does not exceed $15.0 million plus any Indebtedness of a
Foreign Subsidiary existing at the time it is acquired by the Company or
any Restricted Subsidiary of the Company and not incurred in contemplation
thereof so long as after giving effect to such acquisition, the Company
could incur $1.00 of additional Indebtedness under the first paragraph of
this covenant;
(14) the incurrence by the Company or any of its Restricted
Subsidiaries of Guarantees of Indebtedness of suppliers, customers,
franchisees and licensees in the ordinary course of business as approved by
the Board of Directors of the Company;
(15) Indebtedness to the extent the net proceeds thereof are promptly
deposited to defease the notes as described below under the caption
"-- Legal Defeasance and Covenant Defeasance" or to redeem, satisfy or
discharge the notes;
(16) all obligations under accounts receivable factoring agreements in
connection with the sale or transfer (or sale or transfer of interest in)
accounts receivable and related assets customary in the industry which
accounts receivable and related assets are not required after such sale or
transfer to be recorded as assets of the Company on its consolidated
balance sheet in accordance with GAAP, the uncollected balance of amounts
due in respect of such accounts receivable and interests therein not to
exceed, together with Indebtedness under any Receivables Facility incurred
under clause (1) above, $30.0 million at any time outstanding; and
(17) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness incurred to renew, refund, refinance,
replace, defease or discharge any Indebtedness incurred pursuant to this
clause (17), not to exceed $15.0 million.
For purposes of determining compliance with this "-- Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant, in the event that an
item of proposed Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (1) through (17) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company will be permitted to classify such item of Indebtedness on the date of
its incurrence, or later reclassify all or
98
a portion of such item of Indebtedness, in any manner that complies with this
covenant. Indebtedness under Credit Facilities outstanding on the date on which
notes are first issued and authenticated under the indenture will initially be
deemed to have been incurred on such date in reliance on the exception provided
by clause (1) of the definition of Permitted Debt above. The accrual of
interest, the accretion or amortization of original issue discount, the payment
of interest on any Indebtedness in the form of additional Indebtedness with the
same terms, the reclassification of preferred stock as Indebtedness due to a
change in accounting principles, and the payment of dividends on Disqualified
Stock in the form of additional shares of the same class of Disqualified Stock
will not be deemed to be an incurrence of Indebtedness or an issuance of
Disqualified Stock for purposes of this covenant; provided, in each such case,
that the amount of any such accrual, accretion or payment is included in Fixed
Charges of the Company as accrued.
Notwithstanding any other provision of this covenant, the maximum amount of
Indebtedness that the Company or any Restricted Subsidiary may incur pursuant to
this covenant will not be deemed to be exceeded solely as a result of
fluctuations in exchange rates or currency values.
For purposes of determining compliance with any U.S. dollar-denominated
restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent
principal amount of Indebtedness denominated in a foreign currency will be
calculated based on the relevant currency exchange rate in effect on the date
such Indebtedness was incurred, in the case of term debt, or first committed, in
the case of revolving credit debt; provided, that (1) the U.S. dollar-equivalent
principal amount of any such Indebtedness outstanding or committed on the date
of the indenture will be calculated based on the relevant currency exchange rate
in effect on the date of the indenture, and (2) if such Indebtedness is incurred
to refinance other Indebtedness denominated in a foreign currency, and such
refinancing would cause the applicable U.S. dollar-denominated restriction to be
exceeded if calculated at the relevant currency exchange rate in effect on the
date of such refinancing, such U.S. dollar-denominated restriction will be
deemed not to have been exceeded so long as the principal amount of such
refinancing Indebtedness does not exceed the principal amount of such
Indebtedness being refinanced. The principal amount of any Indebtedness incurred
to refinance other Indebtedness, if incurred in a different currency from the
Indebtedness being refinanced, will be calculated based on the currency exchange
rate applicable to the currencies in which such respective Indebtedness is
denominated that is in effect on the date of such refinancing.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any
Indebtedness issued with original issue discount;
(2) the principal amount of the Indebtedness, in the case of any other
Indebtedness; and
(3) in respect of Indebtedness of another Person secured by a Lien on
the assets of the specified Person, the lesser of:
(a) the Fair Market Value of such assets at the date of
determination; and
(b) the amount of the Indebtedness of the other Person.
NO LAYERING OF DEBT
The Company will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is contractually subordinate or junior
in right of payment to any Senior Debt of the Company and contractually senior
in right of payment to the notes. No Guarantor will incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is
contractually subordinate or junior in right of payment to the Senior Debt of
such Guarantor and contractually senior in right of payment to such Guarantor's
Note Guarantee. No such Indebtedness will be considered to be senior by virtue
of being secured on a first or junior priority basis and
99
Indebtedness which has different security or different priorities on the same
security will not be deemed subordinate in right of payment to Secured
Indebtedness due to such differences.
LIENS
The Company will not, and will not permit any of its Restricted
Subsidiaries to create, incur, assume or otherwise cause or suffer to exist or
become effective any Lien of any kind (other than Permitted Liens) securing
Indebtedness upon any of their property or assets, now owned or hereafter
acquired, unless all payments due under the indenture and the notes are secured
on an equal and ratable basis with the obligations so secured until such time as
such obligations are no longer secured by a Lien.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock
to the Company or any of its Restricted Subsidiaries, or with respect to
any other interest or participation in, or measured by, its profits, or pay
any indebtedness owed to the Company or any of its Restricted Subsidiaries;
(2) make loans or advances to the Company or any of its Restricted
Subsidiaries; or
(3) sell, lease or transfer any of its properties or assets to the
Company or any of its Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) agreements governing Existing Indebtedness and Credit Facilities as
in effect on the date of the indenture and any amendments, restatements,
modifications, renewals, increases, supplements, refundings, replacements,
restructurings (including rate increases) or refinancings of those
agreements; provided that the amendments, restatements, modifications,
renewals, increases, supplements, refundings, replacements, restructurings
(including rate increases) or refinancings are not materially more
restrictive, taken as a whole, with respect to such dividend and other
payment restrictions than those contained in those agreements on the date
of the indenture;
(2) the indenture, the notes, the Exchange Notes, the additional notes
and the Note Guarantees;
(3) applicable law, rule, regulation or order including of any
regulatory body;
(4) any agreement, instrument governing Indebtedness or Capital Stock
of a Person acquired by the Company or any of its Restricted Subsidiaries
as in effect at the time of such acquisition (except to the extent such
Indebtedness or Capital Stock was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property or assets of the Person, so acquired;
provided that, in the case of Indebtedness, such Indebtedness was permitted
by the terms of the indenture to be incurred;
(5) customary non-assignment provisions in (a) any lease governing a
leasehold interest or (b) any contracts and licenses (including, without
limitation, those relating to intellectual property) entered into in the
ordinary course of business;
100
(6) purchase money obligations for property acquired in the ordinary
course of business or Capital Lease Obligations that impose restrictions on
the property purchased or leased of the nature described in clause (3) of
the preceding paragraph;
(7) any agreement for the sale or other disposition of the Capital
Stock of a Restricted Subsidiary or any assets of the Company or any
Restricted Subsidiaries that restrict distributions by that Restricted
Subsidiary or distributions of those assets pending the sale or other
disposition;
(8) Permitted Refinancing Indebtedness; provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are not materially more restrictive, taken as a whole, than
those contained in the agreements governing the Indebtedness being
refinanced;
(9) Liens permitted to be incurred under the provisions of the covenant
described above under the caption "-- Liens" that impose restrictions on
the property purchased or leased of the nature described in clause (3) of
the preceding paragraph;
(10) provisions limiting the disposition or distribution of assets or
property in joint venture agreements, asset sale agreements, sale-leaseback
agreements, stock sale agreements and other similar agreements entered into
in the ordinary course of business, which limitation is applicable only to
the assets that are the subject of such agreements;
(11) customary restrictions on real property interests set forth in
easements and similar arrangements of the Company or any Restricted
Subsidiary;
(12) any encumbrance or restriction existing under or by reason of a
Receivables Facility or other contractual requirements of a Receivables
Facility permitted pursuant to the covenant described under "-- Incurrence
of Indebtedness and Issuance of Preferred Stock"; provided that such
restrictions apply only to such Receivables Facility;
(13) restrictions contained in any other indenture governing debt
securities of the Company that are not materially more restrictive, taken
as a whole, than those contained in the indenture governing the notes; and
(14) restrictions on cash or other deposits or net worth imposed by
customers or suppliers under contracts entered into in the ordinary course
of business.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company will not, directly or indirectly: (1) consolidate or merge with
or into another Person (whether or not the Company is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of the Company and its
Restricted Subsidiaries taken as a whole, in one or more related transactions,
to another Person, unless:
(1) either: (a) the Company is the surviving corporation; or (b) the
Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, conveyance
or other disposition has been made (i) is a corporation organized or
existing under the laws of the United States, any state of the United
States or the District of Columbia or (ii) is a partnership or limited
liability company organized or existing under the laws of the United
States, any state thereof or the District of Columbia that has at least one
Restricted Subsidiary that is a corporation organized or existing under the
laws of the United States, any state thereof or the District of Columbia
which corporation becomes a co-issuer of the notes pursuant to a
supplemental indenture duly and validly executed by the trustee;
101
(2) the Person formed by or surviving any such consolidation or merger
(if other than the Company) or the Person to which such sale, assignment,
transfer, conveyance or other disposition has been made assumes all the
obligations of the Company under the notes, the indenture and the
registration rights agreement pursuant to agreements reasonably
satisfactory to the trustee;
(3) immediately after such transaction, no Default or Event of Default
exists; and
(4) the Company or the Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, conveyance or other disposition has been made would,
on the date of such transaction after giving pro forma effect thereto and
any related financing transactions as if the same had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant
described above under the caption "-- Incurrence of Indebtedness and
Issuance of Preferred Stock."
Upon completion of the disposition of all or substantially all of the
property or assets of the Company and its Restricted Subsidiaries taken as a
whole and satisfaction of the conditions set forth in clauses (1) through (4)
above, the Company will be released from any liability under the notes and the
indenture. In addition, the Company will not, directly or indirectly, lease all
or substantially all of the properties and assets of it and its Restricted
Subsidiaries taken as a whole, in one or more related transactions, to any other
Person.
This "-- Merger, Consolidation or Sale of Assets" covenant will not apply
to:
(1) a merger of the Company with an Affiliate solely for the purpose of
reincorporating the Company in another jurisdiction; or
(2) any consolidation or merger, or any sale, assignment, transfer,
conveyance, lease or other disposition of assets between or among the
Company and its Guarantors that are both Restricted Subsidiaries and
Domestic Subsidiaries.
TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate of the Company (each, an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms taken as a whole that are not
less favorable to the Company or the relevant Restricted Subsidiary than
those available in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person; and
(2) the Company delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in
excess of $5.0 million, a resolution of the Board of Directors of the
Company set forth in an officers' certificate certifying that such
Affiliate Transaction complies with this covenant and that such
Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors of the Company; and
(b) with respect to any Affiliate Transaction or series of
related Affiliate Transactions involving aggregate consideration in
excess of $12.0 million, such Affiliate Transaction or series of
related Affiliate Transactions has been approved by a majority of the
disinterested directors (or, if there is only one disinterested
director on the Company's
102
Board of Directors, such disinterested director) or the Company's Board
of Directors will have received an opinion as to the fairness to the
Company or such Subsidiary of such Affiliate Transaction from a
financial point of view issued by an accounting, appraisal or
investment banking firm that is not an Affiliate of any party to such
Affiliate Transaction.
The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment agreement, employee benefit plan, officer or
director indemnification agreement or any similar arrangement or other
compensation arrangement entered into by the Company or any of its
Restricted Subsidiaries in the ordinary course of business and payments
pursuant thereto;
(2) transactions between or among the Company and/or its Restricted
Subsidiaries;
(3) transactions with a Person (other than an Unrestricted Subsidiary
of the Company) that is an Affiliate of the Company solely because the
Company owns, directly or through a Restricted Subsidiary, an Equity
Interest in, or controls, such Person;
(4) payment of reasonable fees paid to, and indemnity provided on
behalf of, officers, directors, employees or consultants of the Company and
its Subsidiaries;
(5) any issuance of Equity Interests (other than Disqualified Stock) of
the Company to Affiliates of the Company;
(6) payments or distributions that do not violate the provisions of the
indenture described above under the caption "-- Restricted Payments";
(7) payment of fees not in excess of $600,000 per annum plus customary
out-of-pocket expenses pursuant to the Management Services Agreement;
(8) loans or advances to employees in the ordinary course of business
not to exceed $2.0 million in the aggregate at any one time outstanding;
(9) any issuance of securities or other payments pursuant to employment
arrangements, stock options and stock ownership plans approved by the Board
of Directors;
(10) the grant of stock options, restricted stock, stock appreciation
rights, phantom stock awards or similar rights to employees, directors and
consultants approved by the Board of Directors;
(11) any redemption of Capital Stock held by current or former
employees, directors or consultants at the time of their death, disability,
termination of employment or departure from the Board of Directors for not
in excess of fair market value;
(12) contracts or agreements with, and payments by the Company or any
of its Restricted Subsidiaries to, Goldman, Sachs & Co. or any of its
Affiliates in connection with any financial advisory, financing,
underwriting or placement services or any other investment banking, banking
or similar services, which payments are approved by a majority of the Board
of Directors in good faith;
(13) transactions pursuant to or contemplated by the Stockholder
Agreement as in effect on the date of the Acquisition as the same may be
amended from time to time in any manner no less favorable to the holders of
the notes;
(14) transactions pursuant to any agreement in effect on the date of
the indenture as the same may be amended from time to time in any manner
not materially less favorable to the holders of the notes;
(15) Permitted Payments to Parent or payments permitted under clauses
(5), (6) and (9) as described under the second paragraph of the caption
"-- Restricted Payments";
103
(16) transactions in connection with the Credit Agreement;
(17) transactions involving the sale of inventory or services in the
ordinary course of business from the Company or its Subsidiaries to
Affiliates of Principals; and
(18) transactions contemplated by the Merger Agreement.
BUSINESS ACTIVITIES
The Company will not, and will not permit any of its Restricted
Subsidiaries to, engage in any business other than Permitted Businesses, except
to such extent as would not be material to the Company and its Restricted
Subsidiaries taken as a whole.
GUARANTEES
If the Company or any of its Restricted Subsidiaries acquires or creates
another Domestic Subsidiary after the date of the indenture, then that newly
acquired or created Domestic Subsidiary will become a Guarantor and execute a
supplemental indenture and deliver an opinion of counsel reasonably satisfactory
to the trustee within 30 business days of the date on which it was acquired or
created or the date on which it becomes a Domestic Restricted Subsidiary;
provided that this covenant does not apply to (i) any Subsidiary of the Company
that has properly been designated an Unrestricted Subsidiary as described under
the caption "-- Designation of Restricted and Unrestricted Subsidiaries" below,
and for so long as it continues to constitute an Unrestricted Subsidiary and
(ii) any Subsidiary not required to become a Guarantor under any existing Credit
Facilities.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors of the Company may designate any Restricted
Subsidiary to be an Unrestricted Subsidiary if that designation would not cause
a Default. If a Restricted Subsidiary is designated as an Unrestricted
Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned
by the Company and its Restricted Subsidiaries in the Subsidiary designated as
Unrestricted will be deemed to be an Investment made as of the time of the
designation and will reduce the amount available for Restricted Payments under
the covenant described above under the caption "-- Restricted Payments" or under
one or more clauses of the definition of Permitted Investments, as determined by
the Company. That designation will only be permitted if the Investment would be
permitted at that time and if the Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary. The Board of Directors of the Company
may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if
that redesignation would not cause a Default.
Any designation of a Subsidiary of the Company as an Unrestricted
Subsidiary will be evidenced to the trustee by filing with the trustee a
certified copy of a resolution of the Board of Directors giving effect to such
designation and an officers' certificate certifying that such designation
complied with the preceding conditions and was permitted by the covenant
described above under the caption "-- Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted
Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary
will be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock," the Company will be in default of
such covenant. The Board of Directors of the Company may at any time designate
any Unrestricted Subsidiary to be a Restricted Subsidiary of the Company;
provided that such designation will be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary, and such designation will only be
permitted if (1) such Indebtedness is permitted under the covenant described
under the
104
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock,"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period; and (2) no Default or Event of
Default would be in existence following such designation.
PAYMENTS FOR CONSENT
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration to or for the benefit of any holder of notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the indenture or the notes unless such consideration is offered to be paid
and is paid to all holders of the notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
REPORTS
Whether or not required by the rules and regulations of the SEC, so long as
any notes are outstanding, the Company is required to furnish to the holders of
notes or cause the trustee to furnish to the holders of notes, within the time
periods specified in the SEC's rules and regulations:
(1) all quarterly and annual reports that would be required to be filed
with the SEC on Forms 10-Q and 10-K if the Company were required to file
such reports; and
(2) all current reports that would be required to be filed with the SEC
on Form 8-K if the Company were required to file such reports.
All such reports are required to be prepared in all material respects in
accordance with all of the rules and regulations applicable to such reports.
Each annual report on Form 10-K is required to include a report on the Company's
consolidated financial statements by the Company's certified independent
accountants. In addition, following the consummation of the Exchange Offer
contemplated by the registration rights agreement, the Company is required to
file a copy of each of the reports referred to in clauses (1) and (2) above with
the SEC for public availability within the time periods specified in the rules
and regulations applicable to such reports (unless the SEC will not accept such
a filing).
If, at any time after consummation of the Exchange Offer contemplated by
the registration rights agreement, the Company is no longer subject to the
periodic reporting requirements of the Exchange Act for any reason, the Company
is nevertheless required to continue filing the reports specified in the
preceding paragraphs of this covenant with the SEC within the time periods
specified above unless the SEC will not accept such a filing. The Company will
not take any action for the purpose of causing the SEC not to accept any such
filings. If, notwithstanding the foregoing, the SEC will not accept the
Company's filings for any reason, the Company will either (i) post the reports
referred to in the preceding paragraphs on its website or (ii) deliver the
reports to the holders of notes, in either case within the time periods that
would apply if the Company were required to file those reports with the SEC.
If the Company has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraphs will include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company.
In addition, the Company and the Guarantors agree that, for so long as any
notes remain outstanding, if at any time they are not required to file with the
SEC the reports required by the preceding paragraphs, they will furnish to the
holders of notes and to securities analysts and prospective investors, upon
their request, the information required to be delivered pursuant to
105
Rule 144A(d)(4) under the Securities Act until such time as the Company has
either exchanged the notes for the exchange notes which are registered under the
Securities Act or until such time as all holders have disposed of their notes
pursuant to an effective registration statement under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, if any,
the notes, whether or not prohibited by the subordination provisions of the
indenture;
(2) default in the payment when due (at maturity, upon redemption or
otherwise) of the principal of, or premium, if any, on, the notes, whether
or not prohibited by the subordination provisions of the indenture;
(3) failure by the Company or any of its Restricted Subsidiaries to
comply with the provisions described under the caption "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets";
(4) failure by the Company or any of its Restricted Subsidiaries for 60
days after notice to the Company by the trustee or the holders of at least
25% in aggregate principal amount of the notes then outstanding voting as a
single class to comply with any of the other agreements in the indenture;
(5) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Restricted Subsidiaries), whether such Indebtedness or Guarantee now
exists, or is created after the date of the indenture, if that default:
(a) is caused by a failure to pay principal under any such
instrument at maturity, and such unpaid portion exceeds $15.0 million
individually or, together with the principal amount of any other such
Indebtedness under which there has been a payment default at maturity,
aggregates $15.0 million or more, and is not paid, or such default is
not cured or waived, within any grace period applicable thereto, unless
such Indebtedness is discharged within 20 days of the Company or a
Restricted Subsidiary becoming aware of such default (a "Payment
Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity, and the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has
been so accelerated, aggregates $15.0 million or more.
(6) failure by the Company or any of its Restricted Subsidiaries to pay
final judgments entered by a court or courts of competent jurisdiction
aggregating in excess of $15.0 million or dollar equivalent, net of amounts
covered by insurance, which judgment or decree has remained outstanding for
a period of 60 days after such judgment or decree becomes final and
nonappealable without being paid, discharged, waived or stayed;
(7) except as permitted by the indenture, any Note Guarantee of a
Significant Subsidiary or any two or more Subsidiary Guarantors that when
taken together would constitute a Significant Subsidiary is held in any
judicial proceeding to be unenforceable or invalid or ceases for any reason
to be in full force and effect, or any Guarantor, or any Person acting on
behalf of any Guarantor that is a Significant Subsidiary or any two or more
Subsidiary Guarantors that when taken together would constitute a
Significant Subsidiary, denies or disaffirms its obligations under its Note
Guarantee; and
106
(8) certain events of bankruptcy or insolvency described in the
indenture with respect to the Company or any of its Restricted Subsidiaries
that is a Significant Subsidiary or any group of Restricted Subsidiaries
that, taken together, would constitute a Significant Subsidiary.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Restricted Subsidiary
of the Company that is a Significant Subsidiary or any group of Restricted
Subsidiaries of the Company that, taken together, would constitute a Significant
Subsidiary, all outstanding notes will become due and payable immediately
without further action or notice. If any other Event of Default occurs and is
continuing, the trustee or the holders of at least 25% in aggregate principal
amount of the then outstanding notes may declare all the notes to be due and
payable immediately; provided that so long as any Indebtedness permitted to be
incurred pursuant to the Credit Facilities is outstanding, such acceleration
will not be effective until the earlier of (1) the acceleration of such
Indebtedness under the Credit Facilities or (2) five business days after receipt
by the Company of written notice of such acceleration.
Subject to certain limitations, holders of a majority in aggregate
principal amount of the then outstanding notes may direct the trustee in its
exercise of any right or power. The trustee may withhold from holders of the
notes notice of any continuing Default or Event of Default if it determines that
withholding notice is in their interest, except any uncured Default or Event of
Default relating to the payment of principal, interest or premium, if any.
Subject to the provisions of the indenture relating to the duties of the
trustee, in case an Event of Default occurs and is continuing, the trustee will
be under no obligation to exercise any of the rights or powers under the
indenture at the request or direction of any holders of notes unless such
holders have offered to the trustee reasonable indemnity or security against any
loss, liability or expense. Except to enforce the right to receive payment of
principal, premium, if any, or interest, if any, when due, no holder of a note
may pursue any remedy with respect to the indenture or the notes unless:
(1) such holder has previously given the trustee notice that an Event
of Default is continuing;
(2) holders of at least 25% in aggregate principal amount of the then
outstanding notes have requested the trustee to pursue the remedy;
(3) such holders have offered the trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the trustee has not complied with such request within 60 days after
the receipt of the request and the offer of security or indemnity; and
(5) holders of a majority in aggregate principal amount of the then
outstanding notes have not given the trustee a direction inconsistent with
such request within such 60-day period.
The holders of a majority in aggregate principal amount of the then
outstanding notes by notice to the trustee may, on behalf of the holders of all
of the notes, rescind an acceleration or waive any existing Default or Event of
Default and its consequences under the indenture except a continuing Default or
Event of Default in the payment of interest or premium, if any, on, or the
principal of, the notes.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the notes pursuant to the
optional redemption provisions of the indenture, an equivalent premium will also
become and be immediately due and payable to the extent permitted by law upon
the acceleration of the notes. If an Event of Default occurs prior to June 15,
2009, by reason of any willful action (or inaction) taken (or not taken) by or
on behalf of the Company with the intention of avoiding the prohibition on
redemption of the notes prior to June 15, 2009, then an additional premium
specified
107
in the indenture will also become and be immediately due and payable to the
extent permitted by law upon the acceleration of the notes.
The Company is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, the Company is required to deliver to the trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, will have any liability for any obligations of the
Company or the Guarantors under the notes, the indenture, the Note Guarantees or
for any claim based on, in respect of, or by reason of, such obligations or
their creation. Each holder of notes by accepting a note waives and releases all
such liability. The waiver and release are part of the consideration for
issuance of the notes. The waiver may not be effective to waive liabilities
under the federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may at any time, at the option of its Board of Directors
evidenced by a resolution set forth in an officers' certificate, elect to have
all of its obligations discharged with respect to the outstanding notes and all
obligations of the Guarantors discharged with respect to their Note Guarantees
("Legal Defeasance") except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, or interest or premium, if any, on, such notes
when such payments are due from the trust referred to below;
(2) the Company's obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee,
and the Company's and the Guarantors' obligations in connection therewith;
and
(4) the Legal Defeasance provisions of the indenture.
In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company and the Guarantors released with respect to
certain covenants (including its obligation to make Change of Control Offers and
Asset Sale Offers) that are described in the indenture ("Covenant Defeasance")
and thereafter any omission to comply with those covenants will not constitute a
Default or Event of Default with respect to the notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "-- Events
of Default and Remedies" will no longer constitute an Event of Default with
respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) the Company must irrevocably deposit with the trustee, in trust,
for the benefit of the holders of the notes, cash in U.S. dollars,
non-callable Government Securities, or a combination of cash in U.S.
dollars and non-callable Government Securities, in amounts as will be
sufficient, in the opinion of a nationally recognized investment bank,
appraisal firm or firm of independent public accountants, to pay the
principal of, and interest and premium, if any, on, the outstanding notes
on the stated date for payment thereof or on the applicable redemption
date, as the case may be, and the Company must specify whether the notes
are being defeased to such stated date for payment or to a particular
redemption date;
(2) in the case of Legal Defeasance, the Company must deliver to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that (a) the Company has received
108
from, or there has been published by, the Internal Revenue Service a ruling
or (b) since the date of the indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel will confirm that, the holders of the
outstanding notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such Legal Defeasance had
not occurred;
(3) in the case of Covenant Defeasance, the Company must deliver to the
trustee an opinion of counsel reasonably acceptable to the trustee
confirming that the holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default under clauses (1) or (2) of the
first paragraph under the caption "-- Events of Default and Remedies" has
occurred and is continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be
applied to such deposit) and the deposit will not result in a breach or
violation of, or constitute a default under, any material agreement or
other instrument (other than the indenture) to which the Company or any
Guarantor is a party or by which the Company or any Guarantor is bound;
(5) the Company must deliver to the trustee an officers' certificate
stating that the deposit was not made by the Company with the intent of
preferring the holders of notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding any
creditors of the Company or others; and
(6) the Company must deliver to the trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent
relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the indenture
or the notes or the Note Guarantees may be amended or supplemented with the
consent of the holders of at least a majority in aggregate principal amount of
the notes then outstanding (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes),
and any existing Default or Event of Default or compliance with any provision of
the indenture or the notes or the Note Guarantees may be waived with the consent
of the holders of a majority in aggregate principal amount of the then
outstanding notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes).
Without the consent of each holder of notes affected, an amendment,
supplement or waiver may not (with respect to any notes held by a non-consenting
holder):
(1) reduce the principal amount of notes whose holders must consent to
an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes (other
than provisions relating to the covenants described above under the caption
"-- Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on
any note;
(4) waive a Default or Event of Default in the payment of principal of,
or interest or premium, if any, on, the notes (except a rescission of
acceleration of the notes by the holders
109
of at least a majority in aggregate principal amount of the then
outstanding notes and a waiver of the payment default that resulted from
such acceleration);
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of holders of notes to receive
payments of principal of, or interest or premium, if any, on, the notes;
(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the caption
"-- Repurchase at the Option of Holders");
(8) release any Guarantor from any of its obligations under its Note
Guarantee or the indenture, except in accordance with the terms of the
indenture; or
(9) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the
indenture relating to subordination that adversely affects the rights of the
holders of the notes will require the consent of the holders of at least 75% in
aggregate principal amount of notes then outstanding.
Notwithstanding the preceding, without the consent of any holder of notes,
the Company, the Guarantors and the trustee may amend or supplement the
indenture or the notes or the Note Guarantees:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of the Company's or a Guarantor's
obligations to holders of notes and Note Guarantees in the case of a merger
or consolidation or sale of all or substantially all of the Company's or
such Guarantor's assets, as applicable;
(4) to make any change that would provide any additional rights or
benefits to the holders of notes including adding a guarantor or that does
not adversely affect the legal rights under the indenture of any such
holder in any material respect;
(5) to comply with requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act;
(6) to conform the text of the indenture, the Note Guarantees or the
notes to any provision of this Description of Exchange Notes to the extent
that such provision in this Description of Exchange Notes was intended to
be a verbatim recitation of a provision of the indenture, the Note
Guarantees or the notes;
(7) to provide for the issuance of additional notes and Exchange Notes
in accordance with the limitations set forth in the indenture as of the
date of the indenture;
(8) to allow any Guarantor to execute a supplemental indenture and/or a
Note Guarantee with respect to the Notes; or
(9) to provide for the release of the Company or any Guarantor from any
of its obligations under the notes, the additional notes, the Exchange
Notes the Note Guarantees or the indenture in accordance with the terms of
the indenture.
110
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated, except lost, stolen
or destroyed notes that have been replaced or paid and notes for whose
payment money has been deposited in trust and thereafter repaid to the
Company, have been delivered to the trustee for cancellation; or
(b) all notes that have not been delivered to the trustee for
cancellation have become due and payable by reason of the mailing of a
notice of redemption or otherwise or will become due and payable within
one year and the Company or any Guarantor has irrevocably deposited or
caused to be deposited with the trustee as trust funds in trust solely
for the benefit of the holders, cash in U.S. dollars, non-callable
Government Securities, or a combination of cash in U.S. dollars and
non-callable Government Securities, in amounts as will be sufficient,
without consideration of any reinvestment of interest, to pay and
discharge the entire Indebtedness on the notes not delivered to the
trustee for cancellation for principal, premium, if any, and accrued
interest to the date of maturity or redemption;
(2) no Default or Event of Default under clauses (1) or (2) of the
first paragraph under the caption "-- Events of Default and Remedies" has
occurred and is continuing on the date of the deposit (other than a Default
or Event of Default resulting from the borrowing of funds to be applied to
such deposit) and the deposit will not result in a breach or violation of,
or constitute a default under, any other material agreement or instrument
to which the Company or any Guarantor is a party or by which the Company or
any Guarantor is bound;
(3) the Company or any Guarantor has paid or caused to be paid all sums
due and payable by it under the indenture; and
(4) the Company has delivered irrevocable instructions to the trustee
under the indenture to apply the deposited money toward the payment of the
notes at maturity or on the redemption date, as the case may be.
In addition, the Company must deliver an officers' certificate and an
opinion of counsel to the trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of the Company or any Guarantor, the
indenture limits the right of the trustee to obtain payment of claims in certain
cases, or to realize on certain property received in respect of any such claim
as security or otherwise. The trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the SEC for permission to continue as
trustee (if the indenture has been qualified under the Trust Indenture Act) or
resign.
The holders of a majority in aggregate principal amount of the then
outstanding notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the trustee,
subject to certain exceptions. The indenture provides that in case an Event of
Default occurs and is continuing, the trustee will be required, in the exercise
of its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to such provisions, the trustee will be under no obligation
to exercise any of its rights or powers under the indenture at the request of
any holder of notes, unless such holder has offered to the trustee security and
indemnity satisfactory to it against any loss, liability or expense.
111
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indenture and
registration rights agreement without charge by writing to Autocam Corporation,
4070 East Paris Avenue Southeast, Kentwood, MI 49512, Attention: Chief Financial
Officer.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the exchange notes will be issued in the form of
one or more Global Notes (each, a "Global Note"). Each new Global Note will be
deposited on the date of the closing of the exchange of the outstanding notes
for the exchange notes with, or on behalf of, DTC and will be registered in the
name of DTC or its nominee.
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
definitive notes in registered certificated form ("Certificated Notes") except
in the limited circumstances described below. See "-- Exchange of Global Notes
for Certificated Notes." Except in the limited circumstances described below,
owners of beneficial interests in the Global Notes will not be entitled to
receive physical delivery of notes in certificated form.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC,
Euroclear and Clearstream are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them. The Company takes no
responsibility for these operations and procedures and urges investors to
contact the system or their participants directly to discuss these matters.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between the Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the initial purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interests in, and transfers of ownership interests
in, each security held by or on behalf of DTC are recorded on the records of the
Participants and Indirect Participants.
DTC has also advised the Company that, pursuant to procedures established
by it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
the Participants designated by the initial purchasers with portions of the
principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on,
and the transfer of ownership of these interests will be effected only
through, records maintained by DTC (with respect to the Participants) or by
the Participants and the Indirect Participants (with respect to other
owners of beneficial interest in the Global Notes).
Investors in Global Notes who are Participants may hold their interests
therein directly through DTC. Investors in Global Notes who are not Participants
may hold their interests therein indirectly through organizations (including
Euroclear and Clearstream) which are Participants. Investors in the Regulation S
Global Notes must initially hold their interests therein through Euroclear or
112
Clearstream, if they are participants in such systems, or indirectly through
organizations that are participants. After the expiration of the Restricted
Period (but not earlier), investors may also hold interests in the Regulation S
Global Notes through Participants in the DTC system other than Euroclear and
Clearstream. Euroclear and Clearstream will hold interests in the Regulation S
Global Notes on behalf of their participants through customers' securities
accounts in their respective names on the books of their respective
depositories, which are Euroclear Bank S.A./N.V., as operator of Euroclear, and
Citibank, N.A., as operator of Clearstream. All interests in a Global Note,
including those held through Euroclear or Clearstream, may be subject to the
procedures and requirements of DTC. Those interests held through Euroclear or
Clearstream may also be subject to the procedures and requirements of such
systems. The laws of some states require that certain Persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interests in a Global Note to such Persons will
be limited to that extent. Because DTC can act only on behalf of the
Participants, which in turn act on behalf of the Indirect Participants, the
ability of a Person having beneficial interests in a Global Note to pledge such
interests to Persons that do not participate in the DTC system, or otherwise
take actions in respect of such interests, may be affected by the lack of a
physical certificate evidencing such interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and interest and premium, if any,
on, a Global Note registered in the name of DTC or its nominee will be payable
to DTC in its capacity as the registered holder under the indenture. Under the
terms of the indenture, the Company and the trustee will treat the Persons in
whose names the notes, including the Global Notes, are registered as the owners
of the notes for the purpose of receiving payments and for all other purposes.
Consequently, neither the Company, the trustee nor any agent of the Company or
the trustee has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interest in the Global Notes or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes; or
(2) any other matter relating to the actions and practices of DTC or
any of its Participants or Indirect Participants.
DTC has advised the Company that its current practice, upon receipt of any
payment in respect of securities such as the notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe that it will not
receive payment on such payment date. Each relevant Participant is credited with
an amount proportionate to its beneficial ownership of an interest in the
principal amount of the relevant security as shown on the records of DTC.
Payments by the Participants and the Indirect Participants to the beneficial
owners of notes will be governed by standing instructions and customary
practices and will be the responsibility of the Participants or the Indirect
Participants and will not be the responsibility of DTC, the trustee or the
Company. Neither the Company nor the trustee will be liable for any delay by DTC
or any of the Participants or the Indirect Participants in identifying the
beneficial owners of the notes, and the Company and the trustee may conclusively
rely on and will be protected in relying on instructions from DTC or its nominee
for all purposes.
Subject to transfer restrictions, transfers between the Participants will
be effected in accordance with DTC's procedures, and will be settled in same-day
funds, and transfers between participants in Euroclear and Clearstream will be
effected in accordance with their respective rules and operating procedures.
113
Subject to compliance with the transfer restrictions applicable to the
notes described herein, cross-market transfers between the Participants, on the
one hand, and Euroclear or Clearstream participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream, as the case may be, by their respective depositaries; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Clearstream, as the case may be,
will, if the transaction meets its settlement requirements, deliver instructions
to its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in the relevant Global Note in DTC,
and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly to the
depositories for Euroclear or Clearstream.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the notes, DTC reserves the right
to exchange the Global Notes for legended notes in certificated form, and to
distribute such notes to its Participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the Global Notes among
participants in DTC, Euroclear and Clearstream, they are under no obligation to
perform or to continue to perform such procedures, and may discontinue such
procedures at any time. None of the Company, the trustee and any of their
respective agents will have any responsibility for the performance by DTC,
Euroclear or Clearstream or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for Certificated Notes if:
(1) DTC (a) notifies the Company that it is unwilling or unable to
continue as depositary for the Global Notes or (b) has ceased to be a
clearing agency registered under the Exchange Act and, in either case, the
Company fails to appoint a successor depositary;
(2) the Company, at its option, notifies the trustee in writing that it
elects to cause the issuance of the Certificated Notes; or
(3) there has occurred and is continuing a Default or Event of Default
with respect to the notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the indenture. In all cases, Certificated Notes
delivered in exchange for any Global Note or beneficial interests in Global
Notes will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures) and will bear a restrictive legend unless that legend is not
required by applicable law.
EXCHANGE OF CERTIFICATED NOTES FOR GLOBAL NOTES
Certificated Notes may not be exchanged for beneficial interests in any
Global Note unless the transferor first delivers to the trustee a written
certificate (in the form provided in the indenture) to the effect that such
transfer will comply with the appropriate transfer restrictions applicable to
such notes.
114
SAME DAY SETTLEMENT AND PAYMENT
The Company will make payments in respect of the notes represented by the
Global Notes (including principal, premium, if any, interest, if any) by wire
transfer of immediately available funds to the accounts specified by DTC or its
nominee. The Company will make all payments of principal, interest and premium,
if any, with respect to Certificated Notes by wire transfer of immediately
available funds to the accounts specified by the holders of the Certificated
Notes or, if no such account is specified, by mailing a check to each such
holder's registered address. The notes represented by the Global Notes are
expected to be eligible to trade in The PORTAL(SM) Market and to trade in DTC's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such notes will, therefore, be required by DTC to be settled in
immediately available funds. The Company expects that secondary trading in any
Certificated Notes will also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a Global Note from a
Participant will be credited, and any such crediting will be reported to the
relevant Euroclear or Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear and Clearstream)
immediately following the settlement date of DTC. DTC has advised the Company
that cash received in Euroclear or Clearstream as a result of sales of interests
in a Global Note by or through a Euroclear or Clearstream participant to a
Participant will be received with value on the settlement date of DTC but will
be available in the relevant Euroclear or Clearstream cash account only as of
the business day for Euroclear or Clearstream following DTC's settlement date.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all defined terms used
therein, as well as any other capitalized terms used herein for which no
definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Restricted Subsidiary of such
specified Person, whether or not such Indebtedness is incurred in
connection with, or in contemplation of, such other Person merging with or
into, or becoming a Restricted Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person;
provided that any Indebtedness of such Person that is redeemed, defeased,
retired or otherwise repaid at the time of or immediately upon consummation of
the transaction pursuant to which such Person becomes a Restricted Subsidiary
will not be Acquired Debt.
"Acquisition" means the transactions contemplated by the Merger Agreement,
including the borrowings under the Credit Agreement and the offering of the
notes.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person will be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings.
115
"Asset Sale" means:
(1) the sale, lease (other than an operating lease entered into in the
normal course of business), conveyance or other disposition of any assets
or rights; provided that the sale, lease, conveyance or other disposition
of all or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
indenture described above under the caption "-- Repurchase at the Option of
Holders -- Change of Control" and/or the provisions described above under
the caption "-- Certain Covenants -- Merger, Consolidation or Sale of
Assets" and not by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests in any of the Company's Restricted
Subsidiaries or the sale by the Company or any of its Restricted
Subsidiaries of Equity Interests in any of its Restricted Subsidiaries.
Notwithstanding the preceding, none of the following items will be deemed
to be an Asset Sale:
(1) any single transaction or series of related transactions that
involves assets having a Fair Market Value of less than $4.0 million;
(2) a transfer of assets between or among the Company and its
Restricted Subsidiaries;
(3) an issuance of Equity Interests by a Restricted Subsidiary of the
Company to the Company or to a Restricted Subsidiary of the Company;
(4) the sale, lease, conveyance or other disposition of products,
services, inventory or accounts receivable in the ordinary course of
business and any sale or other disposition of damaged, worn-out or obsolete
assets in the ordinary course of business;
(5) the sale or other disposition of cash or Cash Equivalents;
(6) a Restricted Payment that does not violate the covenant described
above under the caption "-- Certain Covenants -- Restricted Payments" or a
Permitted Investment;
(7) a transfer of assets, by means of trade-in, of equipment owned by
it and used or previously used in the ordinary course of business, so long
as such equipment is replaced, substantially concurrently, by like-kind
equipment;
(8) the sale or transfer of (or the sale or transfer of interests in)
the Company's or any of its Restricted Subsidiaries' accounts receivable
and related assets pursuant to a Receivables Facility or accounts
receivable factoring arrangements pursuant to clause (16) of the second
paragraph of the covenant under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock,"
in each case in a transaction permitted under the terms of the indenture;
(9) any issuance of, or disposition in, connection with directors'
qualifying shares or investments by foreign nationals mandated by foreign
law; and
(10) the licensing or sublicensing of intellectual property or other
general intangibles to the extent that such license does not prohibit the
licensor from using the intellectual property and licenses, leases or
subleases of other property in the ordinary course of business.
"Asset Sale Offer" has the meaning assigned to that term in the indenture
governing the notes.
"Autocam Europe" means Autocam Europe B.V., a Dutch corporation and direct
wholly-owned Subsidiary of the Company.
"Bankruptcy Code" has the meaning assigned to that term in the indenture
governing the notes.
116
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act. The terms "Beneficially Owns" and
"Beneficially Owned" have a corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the
corporation or any committee thereof duly authorized to act on behalf of
such board;
(2) with respect to a partnership, the Board of Directors of the
general partner of the partnership or, if the general partner is not a
corporation, the board or committee of such Person serving a similar
function;
(3) with respect to a limited liability company, the managing member or
members or any controlling committee of managing members thereof; and
(4) with respect to any other Person, the board or committee of such
Person serving a similar function.
"Borrowing Base" means the sum of:
(1) 80% of the net book value of accounts receivable,
(2) 75% of the net book value of the inventory, and
(3) 50% of the net book value of the property, plant and equipment,
in each case of the Company and its Restricted Subsidiaries on a consolidated
basis in accordance with GAAP as of the end of the Company's most recently ended
fiscal quarter for which internal financial statements are available.
"Capital Lease Obligation" means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet prepared in
accordance with GAAP, and the Stated Maturity thereof will be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be prepaid by the lessee without payment of a
penalty.
"Capital Stock" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company,
partnership interests (whether general or limited) or membership interests;
and
(4) any other interest or participation that confers on a Person the
right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person, but excluding from all of the foregoing any
debt securities convertible into Capital Stock, whether or not such debt
securities include any right of participation with Capital Stock.
"Cash Equivalents" means:
(1) United States dollars, euros, Brazilian reais and local currencies
held by foreign Restricted Subsidiaries from time to time in the ordinary
course of business;
(2) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality of the United
States government (provided that the full faith and credit of the United
States is pledged in support of those securities) having maturities of not
more than one year from the date of acquisition;
117
(3) certificates of deposit, time deposits and eurodollar time deposits
with maturities of six months or less from the date of acquisition,
bankers' acceptances (or in the case of Foreign Subsidiaries, the foreign
equivalent) with maturities not exceeding six months and overnight bank
deposits, in each case, with any lender party to the Credit Agreement or
with any domestic commercial bank that is at least "adequately capitalized"
(as defined in the regulations of its primary Federal banking regulator)
and has Tier 1 Capital (as defined in such regulations) of not less than
$500.0 million;
(4) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having one of the two highest ratings obtainable
from Moody's Investors Service, Inc. or Standard & Poor's Rating Services
and, in each case, maturing within six months after the date of
acquisition;
(6) marketable direct obligations issued or fully guaranteed by any
state, commonwealth or territory of the United States of America or any
political subdivision of any such state, commonwealth or territory or any
public instrumentality thereof having the highest rating obtainable from
Moody's Investors Service, Inc. or Standard & Poor's Rating Services and in
each case maturing within one year after the date of acquisition; and
(7) securities with maturities of one year or less from the date of
acquisition backed by standby letters of credit issued by any Lender or any
commercial bank satisfying the requirements of clause (3) above;
(8) in the case of any investment by a Foreign Subsidiary, "Cash
Equivalents" will also include: (i) direct obligations of the sovereign
nation (or any agency thereof) in which such Foreign Subsidiary is
organized and is conducting business or in obligations fully and
unconditionally guaranteed by such sovereign nation (or agency thereof) and
(ii) investments of the type and maturity described in clauses (1) through
(7) above of foreign obligors, which Investments or obligors (or the
parents of such obligors) have ratings described in such clauses or
equivalent ratings from comparable foreign rating agencies; and
(9) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (8) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, lease, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the
properties or assets of the Company and its Subsidiaries taken as a whole
to any "person" (as that term is used in Section 13(d) of the Exchange Act)
other than a Principal or a Related Party of a Principal;
(2) the adoption of a plan relating to the liquidation or dissolution
of the Company, except where substantially all of the assets of the Company
are transferred to Titan and Titan becomes the obligor under the notes;
(3) the consummation of any transaction (including, without limitation,
any merger or consolidation), the result of which is that any "person" (as
defined above), other than a Principal or Related Party of a Principal,
becomes the Beneficial Owner, directly or indirectly, of more than 50% of
the Voting Stock of the Company, measured by voting power rather than
number of shares; or
(4) after an initial public offering of the Company or any direct or
indirect Parent of the Company, the first day on which a majority of the
members of the Board of Directors of the Company are not Continuing
Directors.
118
"Change of Control Offer" has the meaning assigned to that term in the
indenture governing the notes.
"Change of Control Payment" has the meaning assigned to that term in the
indenture governing the notes.
"Change of Control Payment Date" has the meaning assigned to that term in
the indenture governing the notes.
"Consolidated Cash Flow" means, with respect to any specified Person for
any period, the Consolidated Net Income of such Person for such period plus,
without duplication:
(1) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net Income,
including, contributions to legal profit sharing arrangements as required
by applicable French law; plus
(2) the Fixed Charges of such Person and its Restricted Subsidiaries
for such period, to the extent that such Fixed Charges were deducted in
computing such Consolidated Net Income; plus
(3) depreciation, amortization (including amortization of intangibles
but excluding amortization of prepaid cash expenses that were paid in a
prior period) and other non-cash expenses or charges (excluding any such
non-cash expense to the extent that it represents an accrual of or reserve
for cash expenses in any future period or amortization of a prepaid cash
expense that was paid in a prior period) of such Person and its Restricted
Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash expenses or charges were deducted in
computing such Consolidated Net Income; minus
(4) non-cash items increasing such Consolidated Net Income for such
period, other than the accrual of revenue in the ordinary course of
business, in each case, on a consolidated basis and determined in
accordance with GAAP.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that without duplication:
(1) the Net Income of any Person that is accounted for by the equity
method of accounting will be included only to the extent of the amount of
dividends or similar distributions paid in cash to the specified Person or
a Restricted Subsidiary of the Person;
(2) the Net Income of any Restricted Subsidiary will be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders;
(3) the cumulative effect of a change in accounting principles will be
excluded;
(4) the amortization of any premiums, fees or expenses incurred in
connection with the Acquisition or any other acquisition by the Company or
any of its Restricted Subsidiaries of assets or Capital Stock or any
amounts required or permitted by Accounting Principles Board Opinions Nos.
16 (including non-cash write-ups and non-cash charges relating to inventory
and fixed assets, in each case arising in connection with the acquisition)
and 17 (including non-cash charges relating to intangibles and goodwill) to
be recorded on the Company's consolidated balance sheet, in each case in
connection with the Acquisition or such other acquisitions, will be
excluded;
119
(5) any gain or loss realized upon the termination of any employee
benefit plan will be excluded;
(6) any non-cash compensation charge arising from the grant of or
issuance of stock, stock options or other equity based awards will be
excluded;
(7) any non-cash impact attributable to the application of the purchase
method of accounting in accordance with GAAP will be excluded;
(8) the Net Income of any Unrestricted Subsidiary will be excluded,
whether or not distributed to the specified Person or one of its
Subsidiaries;
(9) any gain or loss, together with any related provision for taxes on
such gain or loss, realized in connection with: (a) any sale or other
disposition of assets; or (b) the disposition of any securities by such
Person or any of its Restricted Subsidiaries or the extinguishment of any
Indebtedness of such Person or any of its Restricted Subsidiaries will be
excluded;
(10) any extraordinary gain or loss, together with any related
provision for taxes on such extraordinary gain or loss, will be excluded;
and
(11) fees, costs and expenses incurred by the Company or any of its
Subsidiaries during any period in connection with the Acquisition
(including, without limitation, bonus payments paid to employees in
connection with the Acquisition and write-offs of any debt issuance costs
relating to Indebtedness being retired or repaid in connection with the
Acquisition) will be excluded.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who:
(1) was a member of such Board of Directors on the date of consummation
of an initial public offering; or
(2) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who were
members of such Board of Directors at the time of such nomination or
election.
"Credit Agreement" means that certain Credit and Guaranty Agreement, dated
as of the closing date of the Acquisition, by and among the Company, the
guarantors each a party thereto, Citicorp North America, Inc., as Administrative
Agent and Goldman Sachs Credit Partners L.P. and Citigroup Global Markets Inc.
as Joint Lead Arrangers and Joint Book Managers, providing for up to $108.0
million of term loan and $50 million of revolving credit borrowings, including
any related notes, Guarantees, collateral documents, instruments and agreements
executed in connection therewith, and, in each case, as amended, restated,
modified, renewed, refunded, replaced (whether upon or after termination or
otherwise) or refinanced (including by means of sales of debt securities to
institutional investors) in whole or in part from time to time.
"Credit Facilities" means, one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, or other debt
instruments, indentures or agreements in each case, providing for revolving
credit loans, term loans, receivables financing (including through the sale of
receivables to such lenders or to special purpose entities formed to borrow from
such lenders against such receivables) or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, replaced (whether upon or after
termination or otherwise) or refinanced (including by means of sales of debt
securities to institutional investors) in whole or in part from time to time
(whether or not such added or substituted parties are banks or other
institutions).
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
120
"Designated Senior Debt" means:
(1) any Indebtedness outstanding under the Credit Facilities; and
(2) after payment in full of all Obligations and termination of all
commitments under the Credit Agreement, any other Senior Debt permitted
under the indenture the principal amount of which is $20.0 million or more
and that has been designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case, at the option of the holder of the Capital Stock),
or upon the happening of any event, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or redeemable at the option
of the holder of the Capital Stock, in whole or in part, on or prior to the date
that is 91 days after the date on which the notes mature. Notwithstanding the
preceding sentence, any Capital Stock that would constitute Disqualified Stock
solely because the holders of the Capital Stock have the right to require the
Company to repurchase such Capital Stock upon the occurrence of a change of
control or an asset sale will not constitute Disqualified Stock if the terms of
such Capital Stock provide that the Company may not repurchase or redeem any
such Capital Stock pursuant to such provisions unless such repurchase or
redemption complies with the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments." The amount of Disqualified Stock
deemed to be outstanding at any time for purposes of the indenture will be the
maximum amount that the Company and its Restricted Subsidiaries may become
obligated to pay upon the maturity of, or pursuant to any mandatory redemption
provisions of, such Disqualified Stock, exclusive of accrued dividends,
provided, further that any class of Capital Stock of such Person that, by its
terms, authorized such Person to satisfy in full its obligations with respect to
payment of dividends or upon maturity, redemption (pursuant to a sinking fund or
otherwise) or repurchase thereof or other payment obligations or otherwise by
delivery of Capital Stock that is not Disqualified Stock, and that is not
convertible, puttable or exchangeable for Disqualified Stock or Indebtedness,
will not be deemed Disqualified Stock so long as such Person satisfied its
obligations with respect thereto solely by the delivery of Capital Stock that is
not Disqualified Stock.
"Domestic Subsidiary" means any Restricted Subsidiary of the Company that
was formed under the laws of the United States or any state of the United States
or the District of Columbia.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means, with respect to any Person, a public or private
offering of Qualified Capital Stock of such Person.
"Exchange Offer" has the meaning set forth for such term in the
registration rights agreement or any similar agreement relating to additional
notes.
"Exchange Notes" means the notes issued in the Exchange Offer pursuant to
any registration rights agreement.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of the indenture after giving effect to the Acquisition.
"Fair Market Value" means the value that would be paid by a willing buyer
to an unaffiliated willing seller in a transaction not involving distress or
necessity of either party, determined in good faith by the Board of Directors of
the Company (unless otherwise provided in the indenture).
"Fixed Charge Coverage Ratio" means with respect to any specified Person
for any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such
121
Person for such period. In the event that the specified Person or any of its
Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases,
redeems, defeases or otherwise discharges any Indebtedness (other than ordinary
working capital or revolving credit borrowings) or issues, repurchases or
redeems preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated and on or prior to the date
on which the event for which the calculation of the Fixed Charge Coverage Ratio
is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio will be
calculated giving pro forma effect to such incurrence, assumption, Guarantee,
repayment, repurchase, redemption, defeasance or other discharge of
Indebtedness, or such issuance, repurchase or redemption of preferred stock, and
the use of the proceeds therefrom, as if the same had occurred at the beginning
of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of
its Restricted Subsidiaries, including through mergers or consolidations,
or any Person or any of its Restricted Subsidiaries acquired by the
specified Person or any of its Restricted Subsidiaries, and including any
related financing transactions and including increases in ownership of
Restricted Subsidiaries, during the four-quarter reference period or
subsequent to such reference period and on or prior to the Calculation Date
will be given pro forma effect (in accordance with Article 11 of Regulation
S-X under the Securities Act) as if they had occurred on the first day of
the four-quarter reference period;
(2) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses (and
ownership interests therein) disposed of prior to the Calculation Date,
will be excluded;
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses (and
ownership interests therein) disposed of prior to the Calculation Date,
will be excluded, but only to the extent that the obligations giving rise
to such Fixed Charges will not be obligations of the specified Person or
any of its Restricted Subsidiaries following the Calculation Date;
(4) any Person that is a Restricted Subsidiary on the Calculation Date
will be deemed to have been a Restricted Subsidiary at all times during
such four-quarter period;
(5) any Person that is not a Restricted Subsidiary on the Calculation
Date will be deemed not to have been a Restricted Subsidiary at any time
during such four-quarter period; and
(6) if any Indebtedness (i) bears a floating rate of interest, the
interest expense on such Indebtedness will be calculated as if the rate in
effect on the Calculation Date had been the applicable rate for the entire
period (taking into account any Hedging Obligation applicable to such
Indebtedness if such Hedging Obligation has a remaining term as at the
Calculation Date in excess of 12 months) and (ii) that was not outstanding
during the period for which the computation is being made but which bears,
at the option of the borrower, a fixed or floating rate of interest, will
be computed by applying at the option of the Company either the fixed or
floating rate.
"Fixed Charges" means, with respect to any specified Person for any period,
the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including, without
limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net of the effect of all
122
payments made or received pursuant to Hedging Obligations in respect of
interest rates, but excluding any interest expense deemed attributable to
accounts receivables factoring arrangements contemplated pursuant to clause
(16) of the second paragraph of the covenant under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock";
plus
(2) the consolidated interest expense of such Person and its Restricted
Subsidiaries that was capitalized during such period; plus
(3) any interest on Indebtedness of another Person that is guaranteed
by such Person or one of its Restricted Subsidiaries or secured by a Lien
on assets of such Person or one of its Restricted Subsidiaries, whether or
not such Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends, whether paid or accrued and
whether or not in cash, on any series of preferred stock of such Person or
any of its Restricted Subsidiaries, other than dividends on Equity
Interests payable solely in Equity Interests of the Company (other than
Disqualified Stock) or to the Company or a Restricted Subsidiary of the
Company, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current effective combined
federal, state and local statutory tax rate of such Person, expressed as a
decimal,
in each case, determined on a consolidated basis in accordance with GAAP.
"Foreign Subsidiary" means any Restricted Subsidiary of the Company that is
not a Domestic Subsidiary.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the indenture.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America (including any agency or
instrumentality thereof) for the payment of which obligations or guarantees the
full faith and credit of the United States of America is pledged and which are
not callable or redeemable at the issuer's option.
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness (whether arising by virtue of
partnership arrangements, or by agreements to keep-well, to purchase assets,
goods, securities or services, to take or pay or to maintain financial statement
conditions or otherwise).
"Guarantors" means each of:
(1) each Domestic Restricted Subsidiary on the date of the indenture,
Titan and Autocam Europe; and
(2) any other Subsidiary of the Company that executes a Note Guarantee
in accordance with the provisions of the indenture,
and their respective successors and assigns, in each case, until the Note
Guarantee of such Person has been released in accordance with the provisions of
the indenture.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements (whether from fixed to floating or
from floating to fixed), interest rate cap agreements and interest rate
collar agreements;
123
(2) other agreements or arrangements designed to manage interest rates
or interest rate risk; and
(3) other agreements or arrangements designed to protect such Person
against fluctuations in currency exchange rates or commodity prices.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person (excluding accrued expenses and trade payables),
whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations in respect of sale and
leaseback transactions;
(5) representing the balance deferred and unpaid of the purchase price
of any property or services due more than six months after such property is
acquired or such services are completed;
(6) representing any Hedging Obligations; or
(7) all amounts outstanding and other obligations of such Person in
respect of a Receivables Facility;
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any Indebtedness of any other Person.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. The term
"Investment" will exclude extensions of credit to customers in the ordinary
course of business on terms customary for the industry. If the Company or any
Restricted Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of the Company such that, after
giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of the Company, the Company will be deemed to have made an Investment
on the date of any such sale or disposition equal to the Fair Market Value of
the Company's Investments in such Subsidiary that were not sold or disposed of
in an amount determined as provided in the final paragraph of the covenant
described above under the caption "-- Certain Covenants -- Restricted Payments."
The acquisition by the Company or any Restricted Subsidiary of the Company of a
Person that holds an Investment in a third Person will be deemed to be an
Investment by the Company or such Restricted Subsidiary in such third Person in
an amount equal to the Fair Market Value (without duplication) of the
Investments held by the acquired Person in such third Person in an amount
determined as provided in the final paragraph of the covenant described above
under the caption "-- Certain Covenants -- Restricted Payments," the
classification of such Investment as a Permitted Investment or a Restricted
Investment as determined in accordance with the terms of the indenture. Except
as otherwise provided in the indenture, the amount of an Investment will be
determined at the time the Investment is made and without giving effect to
subsequent changes in value.
124
"Lien" means, with respect to any asset, any mortgage, lien (statutory or
otherwise), pledge, charge, security interest or encumbrance of any kind in
respect of such asset, whether or not filed, recorded or otherwise perfected
under applicable law, including any conditional sale or other title retention
agreement, any lease in the nature of any of the foregoing, any option or other
agreement to sell or give a security interest in and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction other than precautionary financing statements with
respect to leases, consignments or other transactions.
"Management Services Agreement" means, that certain Management Services
Agreement among Transportation Resource Advisors, LLC, Goldman, Sachs & Co.,
John C. Kennedy, the Company and/or any Parent or Parents and the other parties
named therein as in effect on the date of the Acquisition as the same may be
amended from time to time in any manner no less favorable to the holders of the
notes.
"Merger Agreement" means the Agreement and Plan of Merger by and among
Titan, Micron Holdings, Inc. and Micron Merger Corporation in effect on the date
of the indenture.
"Net Income" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends.
"Net Proceeds" means the aggregate cash proceeds and Cash Equivalents
received by the Company or any of its Restricted Subsidiaries in respect of any
Asset Sale (including, without limitation, any cash received upon the sale or
other disposition of any non-cash consideration received in any Asset Sale), net
of the direct costs relating to such Asset Sale, including, without limitation,
legal, accounting and investment banking fees, and sales commissions, and any
relocation expenses and other customary fees and expenses actually incurred in
connection with the Asset Sale, taxes paid or reasonably estimated to be payable
as a result of the Asset Sale, in each case, after taking into account any
available tax credits or deductions and any tax sharing arrangements, and
amounts required to be applied to the repayment of Indebtedness, other than
Senior Debt, secured by a Lien on the asset or assets that were the subject of
such Asset Sale and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither the Company nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable as a guarantor or otherwise, or (c)
constitutes the lender;
(2) no default with respect to which (including any rights that the
holders of the Indebtedness may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both)
any holder of any other Indebtedness of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment of the Indebtedness to be accelerated or payable prior to
its Stated Maturity; and
(3) as to which the lenders have been notified in writing that they
will not have any recourse to the stock or assets of the Company or any of
its Restricted Subsidiaries.
"Note Guarantee" means the Guarantee by each Guarantor of the Company's
obligations under the indenture and the notes, executed pursuant to the
provisions of the indenture.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
125
"Parent" means Titan or Micron Holdings, Inc., and any other Person who
Beneficially owns all of the Equity Interests of Titan or Micron Holdings, Inc.
"Permitted Business" means the design, manufacture and sale of close
tolerance precision machined or molded components and assemblies or activities
that are reasonably similar, ancillary or related to, or in connection with, or
a reasonable extension, development or expansion of, any of the foregoing.
"Permitted Investments" means:
(1) any Investment in the Company or in a Restricted Subsidiary of the
Company or in a Person that becomes a Restricted Subsidiary immediately
following such Investment;
(2) any Investment in Cash Equivalents;
(3) any Investment by the Company or any Restricted Subsidiary of the
Company in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of the Company
and, in the case of a Domestic Subsidiary, a Guarantor; or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary of the Company
and that, in the case of a Domestic Subsidiary, is a Guarantor;
(4) any Investment made as a result of the receipt of non-cash
consideration from an asset sale that was made pursuant to and in
compliance with, or not subject to, the covenant described above under the
caption "-- Repurchase at the Option of Holders -- Asset Sales";
(5) any acquisition of assets or Capital Stock solely in exchange for
the issuance of Equity Interests (other than Disqualified Stock) of the
Company;
(6) any Investments received in compromise or resolution of (A)
obligations of trade creditors or customers that were incurred in the
ordinary course of business of the Company or any of its Restricted
Subsidiaries, including pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of any trade creditor or
customer; or (B) litigation, arbitration or other disputes with Persons who
are not Affiliates;
(7) Investments represented by Hedging Obligations;
(8) (i) loans or advances to employees made in the ordinary course of
business of the Company or any Restricted Subsidiary of the Company or any
Parent in an aggregate principal amount not to exceed $2.0 million at any
one time outstanding and (ii) investments made in connection with the
split-dollar life insurance program for certain senior managers in the
ordinary course of business consistent with past practice;
(9) repurchases of the notes;
(10) other Investments in any Person other than an Affiliate of the
Company having an aggregate Fair Market Value (measured on the date each
such Investment was made and without giving effect to subsequent changes in
value), when taken together with all other Investments made pursuant to
this clause (10), not to exceed $15.0 million at any one time outstanding;
(11) receivables owing to the Company or any Restricted Subsidiary if
created or acquired in the ordinary course of business;
(12) Investments in a trust, limited liability company, special purpose
entity or other similar entity in connection with a Receivables Facility
permitted under the covenant "-- Incurrence of
126
Indebtedness and Issuance of Preferred Stock"; provided that such
Investment is necessary or advisable to effect such Receivables Facility;
(13) payroll, travel, commission and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course
of business;
(14) loans, deposits, prepayments, guarantees and other credits,
advances or arrangements to or with customers or suppliers in the ordinary
course of business;
(15) Investments in prepaid expenses, negotiable instruments held for
collection, and lease, utility, worker's compensation, performance and
other similar deposits provided to third parties in the ordinary course of
business;
(16) Hedging Obligations that are not entered into for speculative
purposes;
(17) Investments in existence on the date of the indenture after giving
effect to the Acquisition;
(18) Guarantees of Indebtedness of a Restricted Subsidiary of the
Company given by the Company or a Restricted Subsidiary, in each case, in
accordance with the terms of the indenture; and
(19) any indemnity, purchase price adjustment, earnout or similar
obligation benefiting the Company or any of its Restricted Subsidiaries
created as a result of any acquisition or disposition of the assets of the
Company or the assets or Capital Stock of a Person that is a Restricted
Subsidiary or becomes a Restricted Subsidiary as a result of such
transaction.
"Permitted Junior Securities" means:
(1) Equity Interests in the Company or any Guarantor; or
(2) debt securities that are subordinated to all Senior Debt and any
debt securities issued in exchange for Senior Debt to substantially the
same extent as, or to a greater extent than, the notes and the Note
Guarantees are subordinated to Senior Debt under the indenture, have a
final maturity and weighted average life to maturity not earlier than six
months after all Senior Debt or any debt securities issued in exchange
therefore.
"Permitted Liens" means:
(1) Liens on assets of the Company or any of its Restricted
Subsidiaries securing (x) Indebtedness under the Credit Agreement
outstanding or committed immediately following the completion of the
Acquisition or (y) Senior Debt that was otherwise permitted by the terms of
the indenture to be incurred;
(2) Liens in favor of the Company or the Guarantors and any other
subsidiaries to the extent required pursuant to the Credit Facilities;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with the Company or any Subsidiary of
the Company; provided that such Liens were in existence prior to and not
incurred in contemplation of such merger or consolidation and do not extend
to any assets other than those of the Person merged into or consolidated
with the Company or the Subsidiary; and, provided, however, that such Liens
may be extended to improvements to such property;
(4) Liens on property (including Capital Stock) existing at the time of
acquisition of the property by the Company or any Restricted Subsidiary of
the Company; provided that such Liens were in existence prior to and not
incurred in contemplation of such acquisition, and, provided, however, that
such Liens may be extended to improvements to such property;
127
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds, performance bids, cash, earnest money
deposits, escrows, tenders of contracts, statutory and common law
landlord's liens or other obligations of a like nature incurred in the
ordinary course of business;
(6) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (4) of the second paragraph of the covenant entitled
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with or financed by such
Indebtedness (including any extension of such Liens to improvements of such
property);
(7) Liens existing on the date of the indenture;
(8) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith provided
that any reserve or other appropriate provision as is required in
conformity with GAAP has been made therefor, and Liens in favor of customs
and revenue authorities arising as a matter of law to secure payment of
customs duties in connection with the importation of goods;
(9) Liens imposed by law, such as rights of set-off, carriers',
warehousemen's, landlord's and mechanics' Liens, in each case, incurred in
the ordinary course of business;
(10) survey exceptions, easements or reservations of, or rights of
others for, licenses, rights-of-way, sewers, electric lines, telegraph and
telephone lines and other similar purposes, or zoning or other restrictions
as to the use of real property that were not incurred in connection with
Indebtedness and that do not in the aggregate materially adversely affect
the value of said properties or materially impair their use in the
operation of the business of such Person;
(11) Liens created for the benefit of (or to secure) the notes, the
Exchange Notes, and the additional notes (or the Guarantees);
(12) Liens to secure any Permitted Refinancing Indebtedness permitted
to be incurred under the indenture; provided, however, that:
(a) the new Lien will be limited to all or part of the same
property and assets that secured or, under the written agreements
pursuant to which the original Lien arose, could secure the original
Lien (plus improvements and accessions to such property or proceeds or
distributions thereof); and
(b) the Indebtedness secured by the new Lien is not increased to
any amount greater than the sum of (x) the outstanding principal
amount, or, if greater, committed amount, of the Permitted Refinancing
Indebtedness and (y) an amount necessary to pay any fees and expenses,
including premiums, related to such extension, renewal, refunding,
refinancing, replacement, defeasance or discharge; and
(13) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries;
(14) Liens incurred or pledges and deposits made in the ordinary course
of business in connection with workers' compensation, unemployment
insurance, self insurance obligations, bankers' acceptances, appeal,
performances or surety bond or other obligations of like nature and other
types of social security legislation, and in any such case, any
reimbursement obligation in connection therewith;
(15) any Lien securing Indebtedness under Hedging Obligations or
otherwise incurred to hedge interest rate or currency risks that were
permitted by the indenture to be incurred;
128
(16) Liens to secured Indebtedness of Foreign Subsidiaries permitted to
be incurred under clause (13) of the second paragraph of the covenant
described above under the caption "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock;"
(17) any interest or title of a lessor or sublessor under any lease
(other than a Capital Lease Obligation incurred pursuant to the terms of
the indenture) entered into by the Company or any Restricted Subsidiary in
the ordinary course of its business and covering only the assets so leased;
(18) any Liens in connection with guarantees or letters of credit,
surety bonds or performance bonds securing the performance of the Company
or any Restricted Subsidiaries incurred in connection with the disposition
of the assets of the Company or its Restricted Subsidiaries or the Capital
Stock of a Restricted Subsidiary;
(19) any Lien securing or by reason of a Receivables Facility or other
contractual requirements of a Receivables Facility entered into in
accordance with the covenant described under "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock;"
and
(20) Liens incurred in the ordinary course of business of the Company
or any Subsidiary of the Company with respect to obligations that do not
exceed $5.0 million at any one time outstanding.
"Permitted Payments to Parent" means, without duplication as to amounts,
the following payments to any Parent (and any subsequent payment by such Parent
to one or more other Parents):
(1) payments for reasonable accounting, legal, administrative and other
general corporate and overhead expenses, franchise taxes and other fees to
maintain the corporate existence of any Parent when due, in an aggregate
amount to all Parents, not to exceed $400,000 per annum;
(2) for so long as the Company is a member of a group filing a
consolidated or combined tax return with any Parent, payments in respect of
an allocable portion of the tax liabilities of such group that is
attributable to the Company and its Subsidiaries ("Tax Payments"). The Tax
Payments will not exceed the amount of the relevant tax (including any
penalties and interest) that the Company would owe if the Company were
filing a separate tax return (or a separate consolidated or combined return
with its Subsidiaries that are members of the consolidated or combined
group), taking into account any carryovers and carrybacks of tax attributes
(such as net operating losses) of the Company and such Subsidiaries from
other taxable years. Any Tax Payments received from the Company will be
paid over to the appropriate taxing authority within 30 days of that
Parent's receipt of such Tax Payments or refunded to the Company;
(3) payments in order to enable any of such Parents to pay fees and
expenses, as incurred, of an offering of its securities or indebtedness
that is not consummated, or of a registered public offering all of the net
proceeds of which are payable to selling stockholders;
(4) payments to enable any of such Parents to repurchase Equity
Interests of the Company or any Parent to the extent such Equity Interests
of the Company or any Parent represent a portion of the exercise price of
such Equity Interests to the extent permitted by clause (6) under the
second paragraph of the covenant described under "-- Certain
Covenants -- Restricted Payments";
(5) payment in order to enable any Parent to pay fees and expenses
incurred in connection with the Acquisition; and
(6) payments in order to enable any such Parents to repurchase, redeem,
acquire or retire for value any Equity Interest of the Company or any
Parent held by any current or former
129
officer, director, employee or consultant of the Company, any Restricted
Subsidiary of the Company or any Parent to the extent permitted by clause
(5) under the second paragraph of the covenant described under "-- Certain
Covenants -- Restricted Payments."
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, renew, refund, refinance, replace, defease
or discharge, other Indebtedness of the Company or any of its Restricted
Subsidiaries (other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness exchanged, extended,
renewed, refunded, refinanced, replaced, defeased or discharged (plus all
accrued interest on the Indebtedness and the amount of all fees and
expenses, including premiums, incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
the Indebtedness being exchanged, extended, renewed, refunded, refinanced,
replaced, defeased or discharged;
(3) if the Indebtedness being exchanged, extended, renewed, refunded,
refinanced, replaced, defeased or discharged is subordinated in right of
payment to the notes, such Permitted Refinancing Indebtedness is
subordinated in right of payment to the notes on terms at least as
favorable to the holders of notes as those contained in the documentation
governing the Indebtedness being exchanged, extended, renewed, refunded,
refinanced, replaced, defeased or discharged; and
(4) such Indebtedness is incurred either by the Company or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
exchanged, extended, renewed, refunded, refinanced, replaced, defeased or
discharged.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"Principals" means GS Capital Partners 2000 L.P., Transportation Resource
Partners L.P. and their related Affiliates and John C. Kennedy and his immediate
family members.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Stock.
"Qualified Proceeds" means any of the following or any combination of the
following:
(1) Cash Equivalents;
(2) the Fair Market Value of assets that are used or useful in the
Permitted Business; and
(3) the Fair Market Value of the Capital Stock of any Person engaged
primarily in a Permitted Business if, in connection with the receipt by the
Company or any of its Restricted Subsidiaries of such Capital Stock, such
Person becomes a Restricted Subsidiary or such Person is merged or
consolidated into the Company or any Restricted Subsidiary.
"Receivables Facility" means one or more receivables financing facilities,
as amended from time to time, pursuant to which the Company and/or any of its
Restricted Subsidiaries directly, or indirectly through another Subsidiary,
sells or otherwise transfers (or sells or transfers interests in) its accounts
receivable and related assets pursuant to arrangements customary in the
industry, which accounts receivable and related assets are required after such
sale or transfer to be recorded as assets of the Company on its consolidated
balance sheet in accordance with GAAP.
130
"Related Party" means:
(1) any controlling stockholder, 80% (or more) owned Subsidiary or
immediate family member (in the case of an individual) of any Principal;
(2) any trust, corporation, partnership, limited liability company,
estate or other entity, the beneficiaries, stockholders, partners, members,
owners or Persons beneficially holding an 80% or more controlling interest
of which consist of any one or more Principals and/or such other Persons
referred to in the immediately preceding clause (1); or
(3) the general partner of a partnership or the managing member of a
limited liability company.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of such Person
that is not an Unrestricted Subsidiary. As of the date of the indenture, all of
the Company's Subsidiaries are deemed to be Restricted Subsidiaries.
"Senior Debt" means:
(1) all Indebtedness of the Company or any Restricted Subsidiary
outstanding under Credit Facilities and all Hedging Obligations with
respect thereto;
(2) any other Indebtedness of the Company or any Guarantor permitted to
be incurred under the terms of the indenture, unless the instrument under
which such Indebtedness is incurred expressly provides that it is on a
parity with or subordinated in right of payment to the notes or any Note
Guarantee; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2).
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any liability for federal, state, local or other taxes owed or
owing by the Company;
(2) any intercompany Indebtedness of the Company or any of its
Subsidiaries to the Company or any of its Affiliates;
(3) any trade payables;
(4) the portion of any Indebtedness that is incurred in violation of
the indenture; provided that Indebtedness outstanding under Credit
Facilities will not cease to be Senior Debt as a result of this clause (4)
if the lenders or agents thereunder obtained a representation from the
Company or any of its Subsidiaries on the date such Indebtedness was
incurred to the effect that such Indebtedness was not prohibited by (or, in
case of revolving credit indebtedness, that the incurrence of the entire
committed amount thereof as of the date committed would not violate) the
indenture; or
(5) Indebtedness which is classified as non-recourse in accordance with
GAAP or any unsecured claim arising in respect thereof by reason of the
application of section 1111(b)(1) of the Bankruptcy Code.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date of
the indenture.
"Special Interest" means all special interest then owing pursuant to the
registration rights agreement.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the documentation governing
such Indebtedness as of (i) in the case of Existing Indebtedness, the date
131
of the indenture and (ii) in the case of any other Indebtedness, as of the date
incurred, and in each case, will not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Stockholder Agreement" means that certain Stockholder Agreement among
Micron Holdings, Inc. and its stockholders to be dated as of the closing date of
the Acquisition.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency and after giving
effect to any voting agreement or stockholders' agreement that effectively
transfers voting power) to vote in the election of directors, managers or
trustees of the corporation, association or other business entity is at the
time owned or controlled, directly or indirectly, by that Person or one or
more of the other Subsidiaries of that Person (or a combination thereof);
and
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are that Person or one or more
Subsidiaries of that Person (or any combination thereof).
"Titan" means Titan Holdings, Inc.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors of the Company as an Unrestricted
Subsidiary pursuant to a resolution of the Board of Directors, but only to the
extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) except as permitted by the covenant described above under the
caption "-- Certain Covenants -- Transactions with Affiliates," is not
party to any agreement, contract, arrangement or understanding with the
Company or any Restricted Subsidiary of the Company unless the terms of any
such agreement, contract, arrangement or understanding taken as a whole
that are no less favorable to the Company or such Restricted Subsidiary
than those available at the time from Persons who are not Affiliates of the
Company;
(3) is a Person with respect to which neither the Company nor any of
its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Company or any of its Restricted
Subsidiaries.
"Voting Stock" of any specified Person as of any date means the Capital
Stock of such Person that is at the time entitled to vote in the election of the
Board of Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of
each then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect of the Indebtedness, by (b) the number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the making of
such payment; by
(2) the then outstanding principal amount of such Indebtedness.
132
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material United States federal income
tax consequences and, in the case of a holder that is a non-United States holder
(as defined below), the United States federal estate tax consequences, of
purchasing, owning and disposing of the exchange notes and exchanging the
outstanding notes for the exchange notes.
This summary deals only with exchange notes held as capital assets
(generally, investment property) and does not deal with special tax situations
such as:
- dealers in securities or currencies;
- traders in securities;
- United States holders, as defined below, whose functional currency is not
the United States dollar;
- persons holding exchange notes as part of a hedge, straddle, conversion
or other integrated transaction;
- certain United States expatriates;
- financial institutions;
- insurance companies; and
- entities that are tax-exempt for United States federal income tax
purposes.
This summary does not discuss all of the aspects of United States federal
income and estate taxation that may be relevant to you in light of your
particular investment or other circumstances. In addition, this summary does not
discuss any United States state or local income or foreign income or other tax
consequences. This summary is based on United States federal income and estate
tax law, including the provisions of the Internal Revenue Code of 1986, as
amended, or the Code, Treasury regulations, administrative rulings and judicial
authority, all as in effect as of the date of this prospectus. Subsequent
developments in United States federal income and estate tax law, including
changes in law or differing interpretations, which may be applied retroactively,
could have a material effect on the United States federal income and estate tax
consequences of purchasing, owning and disposing of exchange notes as set forth
in this summary. You should consult your own tax advisor regarding the
particular United States federal, state and local and foreign income and other
tax consequences of acquiring, owning and disposing of exchange notes that may
be applicable to you.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The exchange of the outstanding notes for the exchange notes in the
exchange offer will not be a taxable exchange for United States federal income
tax purposes and, accordingly, for such purposes you will not recognize any
taxable gain or loss as a result of such exchange and you will have the same tax
basis and holding period in the exchange notes as you had in your outstanding
notes immediately before the exchange.
UNITED STATES HOLDERS
The following summary applies to you only if you are a United States
holder, as defined below.
DEFINITION OF A UNITED STATES HOLDER. A "United States holder" is a
beneficial owner of an exchange note or notes who or which is for United States
federal income tax purposes:
- an individual citizen or resident of the United States;
- a corporation, partnership or other entity classified as a corporation or
partnership for these purposes created or organized in or under the laws
of the United States or of any political subdivision of the United
States, including any State;
133
- an estate, the income of which is subject to United States federal income
taxation regardless of the source of that income; or
- a trust, if (1) a United States court is able to exercise primary
supervision over the trust's administration and one or more United States
persons within the meaning of the Code has the authority to control all
of the trust's substantial decisions or, (2) the trust has a valid
election in effect under applicable Treasury regulations to be treated as
a United States person.
If a partnership or other entity classified as a partnership for United States
federal income tax purposes holds an exchange note or notes, the United States
federal income tax treatment of a partner in a partnership will generally depend
on the status of the partner and the activities of the partnership. If you are a
partnership holding notes or a partner in such a partnership, you should consult
your own tax advisor.
PAYMENTS OF STATED INTEREST. Payments of stated interest on your exchange
notes will be taxed as ordinary interest income. In addition:
- if you use the cash method of accounting for United States federal income
tax purposes, you will have to include the stated interest on your
exchange notes in your gross income at the time you receive the interest;
and
- if you use the accrual method of accounting for United States federal
income tax purposes, you will have to include the stated interest on your
exchange notes in your gross income at the time the interest accrues.
MARKET DISCOUNT AND BOND PREMIUM. If you purchase an exchange note (or
purchased the outstanding note for which the exchange note was exchanged, as the
case may be) at a price that is less than its principal amount (or were deemed
to purchase the outstanding note for which the exchange note was issued at a
price less than its principal amount upon the release of such outstanding note
from escrow), the excess of the principal amount over your purchase price will
be treated as "market discount." However, the market discount will be considered
to be zero if it is less than 1/4 of 1% of the principal amount multiplied by
the number of complete years to maturity from the date you purchased the
exchange note or outstanding note, as the case may be.
Under the market discount rules of the Code, you generally will be required
to treat any principal payment on, or any gain realized on the sale, exchange,
retirement or other disposition of, an exchange note as ordinary income
(generally treated as interest income) to the extent of the market discount
which accrued but was not previously included in income. In addition, you may be
required to defer, until the maturity of the exchange note or its earlier
disposition in a taxable transaction, the deduction of all or a portion of your
interest expense on any indebtedness incurred or continued to purchase or carry
the exchange note (or the outstanding note for which the exchange note was
exchanged, as the case may be). In general, market discount will be considered
to accrue ratably during the period from the date of the purchase of the
exchange note (or outstanding note for which the exchange note was exchanged, as
the case may be) to the maturity date of the exchange note, unless you make an
irrevocable election (on an instrument-by-instrument basis) to accrue market
discount under a constant yield method. You may elect to include market discount
in income currently as it accrues (under either a ratable or constant yield
method), in which case the rules described above regarding the treatment as
ordinary income of gain upon the disposition of the exchange note and upon the
receipt of certain payments and the deferral of interest deductions will not
apply. The election to include market discount in income currently, once made,
applies to all market discount obligations acquired on or after the first day of
the first taxable year to which the election applies, and may not be revoked
without the consent of the Internal Revenue Service.
If you purchase an exchange note (or purchased the outstanding note for
which the exchange note was exchanged, as the case may be) for an amount in
excess of the amount payable at
134
maturity of the exchange note (or were deemed to purchase the outstanding note
for which the exchange note was issued for an amount in excess of the amount
payable at maturity upon the release of such outstanding note from escrow), you
will be considered to have purchased the exchange note (or outstanding note)
with "bond premium" equal to the excess of your purchase price over the amount
payable at maturity (or on an earlier call date if it results in a smaller
amortizable bond premium). You may elect to amortize the premium using a
constant yield method over the remaining term of the exchange note (or until an
earlier call date, as applicable). The amortized amount of the premium for a
taxable year generally will be treated first as a reduction of interest on the
exchange note included in such taxable year to the extent thereof, then as a
deduction allowed in that taxable year to the extent of your prior interest
inclusions on the exchange note, and finally as a carryforward allowable against
your future interest inclusions on the exchange note. The election, once made,
is irrevocable without the consent of the Internal Revenue Service and applies
to all taxable bonds held during the taxable year for which the election is made
or subsequently acquired.
CONSTANT YIELD ELECTION. As an alternative to the above-described rules
for including interest payments and market discount in income and amortizing
bond premium, you may elect to include in gross income all interest that accrues
on an exchange note, including stated interest, market discount (including de
minimis market discount) and adjustments for bond premium, on the constant yield
method. If such an election were made, you would be deemed to have made an
election to amortize bond premium, which as discussed above applies to all debt
instruments held or subsequently acquired by you. Particularly for United States
holders who are on the cash method of accounting, a constant yield election may
have the effect of causing you to include interest in income earlier than would
be the case if no such election were made, and the election may not be revoked
without the consent of the Internal Revenue Service. You should consult your own
tax advisor before making this election.
SALE OR OTHER DISPOSITION OF THE EXCHANGE NOTES. Upon the sale, exchange,
retirement, redemption or other disposition of an exchange note, you generally
will recognize taxable gain or loss in an amount equal to the difference, if
any, between the amount realized on the disposition and your adjusted tax basis
in the exchange note. Your adjusted tax basis in an exchange note will generally
equal the cost of the exchange note (or, in the case of an exchange note
acquired in exchange for an outstanding note in the exchange offer, the basis of
the outstanding note), increased by the amount of any market discount previously
included in your gross income, and reduced by the amount of any amortizable bond
premium applied to reduce, or allowed as a deduction against, interest with
respect to your exchange note.
Your gain or loss generally will be capital gain or loss (except with
respect to any amount received that is attributable to accrued but unpaid
interest, which will be taxable in the manner described above under "-- United
States Holders -- Payments of Stated Interest" above, and except with respect to
accrued market discount that has not previously been included in income, as
discussed above under "-- United States Holders -- Market Discount and Bond
Premium"). Such capital gain or loss will be long-term capital gain or loss if
the exchange note has been held for more than one year at the time of the
disposition (taking into account for this purpose, in the case of an exchange
note received in exchange for an outstanding note in the exchange offer, the
period of time that the outstanding note was held).
Subject to limited exceptions, your capital losses cannot be used to offset
your ordinary income. If you are a non-corporate United States holder, your
long-term capital gain generally will be subject to a maximum tax rate of 15%,
scheduled to increase to 20% for dispositions occurring in taxable years that
begin on or after January 1, 2009.
135
BACKUP WITHHOLDING AND INFORMATION REPORTING. In general, "backup
withholding" at a rate of 28%, which rate will increase to 31% for taxable years
beginning on or after January 1, 2011, may apply:
- to any payments made to you of principal of and interest on your exchange
note, and
- to payment of the proceeds of a sale or other disposition of your
exchange note before maturity,
if you are a non-corporate United States holder and fail to provide a correct
taxpayer identification number or otherwise comply with applicable requirements
of the backup withholding rules. Information reporting may also apply to
payments made with respect to your exchange note.
The backup withholding tax is not an additional tax and may be credited
against your United States federal income tax liability, provided that correct
information is provided to the Internal Revenue Service.
NON-UNITED STATES HOLDERS
The following summary applies to you if you are a beneficial owner of an
exchange note who or which is not a United States holder, as defined above. An
individual may, subject to exceptions, be deemed to be a resident alien, and
therefore, a United States holder, as opposed to a non-resident alien, by
various ways, including being present in the United States:
- on at least 31 days in the calendar year, and
- for an aggregate of at least 183 days during a three-year period ending
in the current calendar year, counting for such purposes all of the days
present in the current year, one-third of the days present in the
immediately preceding year, and one-sixth of the days present in the
second preceding year.
UNITED STATES FEDERAL WITHHOLDING TAX. Under current United States federal
income tax laws, and subject to the discussion below, United States federal
withholding tax will not apply to payments by us or our paying agent, in its
capacity as paying agent, of principal of and interest on your exchange notes
under the "portfolio interest" exception of the Code, provided that you comply
with the following requirements:
- you do not, directly or indirectly, actually or constructively, own 10%
or more of the total combined voting power of all classes of our stock
entitled to vote within the meaning of section 871(h)(3) of the Code and
the Treasury regulations thereunder;
- you are not (i) a controlled foreign corporation for United States
federal income tax purposes that is related, directly or indirectly, to
us through sufficient stock ownership (as provided in the Code), or (ii)
a bank receiving interest described in section 881(c)(3)(A) of the Code;
- the interest is not effectively connected with your conduct of a United
States trade or business; and
- you provide a signed written statement, on an Internal Revenue Service
Form W-8BEN, or other applicable form which can reliably be related to
you, certifying under penalties of perjury that you are not a United
States person within the meaning of the Code and providing your name and
address to:
- us or our paying agent; or
- a securities clearing organization, bank or other financial institution
that holds customers' securities in the ordinary course of its trade or
business and holds your exchange notes on your behalf and that
certifies to us or our paying agent under penalties of perjury that it,
or the bank or financial institution between it and you, has received
from you your signed, written statement and provides us or our paying
agent with a copy of this statement.
136
The applicable Treasury regulations provide alternative methods for
satisfying the certification requirement described in this section. In addition,
under these Treasury regulations:
- if you are a foreign partnership, the certification requirement will
generally apply to partners in you, and you will be required to provide
certain information;
- if you are a foreign trust, the certification requirement will generally
be applied to you or your beneficial owners depending on whether you are
a "foreign complex trust," "foreign simple trust," or "foreign grantor
trust" as defined in the Treasury regulations; and
- look-through rules will apply for tiered partnerships, foreign simple
trusts and foreign grantor trusts.
If you are a foreign partnership or a foreign trust, you should consult
your own tax advisor regarding your status under these Treasury regulations and
the certification requirements applicable to you.
If you cannot satisfy the requirements of the "portfolio interest"
exception described above, payments of interest made to you will be subject to
30% United States federal withholding tax, unless you provide us or our paying
agent with a properly executed (1) Internal Revenue Service Form W-8ECI or other
applicable form stating that the interest paid on an exchange note is not
subject to withholding tax because it is effectively connected with your conduct
of a trade or business in the United States, or (2) Internal Revenue Service
Form W-8BEN or other applicable form claiming an exemption from or reduction in
this withholding tax under an applicable tax treaty.
UNITED STATES FEDERAL INCOME TAX. Except for the possible application of
United States federal withholding tax discussed under "-- Non-United States
Holders -- United States Federal Withholding Tax" above and backup withholding
tax discussed under "-- Non-United States Holders -- Backup Withholding and
Information Reporting" below, you generally will not have to pay United States
federal income tax on payments of principal of and interest on your exchange
notes, or on any gain or accrued interest realized from the sale, redemption,
retirement at maturity or other disposition of your exchange notes (provided
that, in the case of proceeds representing accrued interest, the conditions
described in "United States federal withholding tax" are met) unless:
- in the case of interest payments or disposition proceeds representing
accrued interest, you cannot satisfy the requirements of the "portfolio
interest" exception described above;
- in the case of gain, you are an individual who is present in the United
States for 183 days or more during the taxable year of the sale or other
disposition of your exchange notes, and specific other conditions are
met; or
- the interest, gain or other income is effectively connected with your
conduct of a United States trade or business, and, if an income tax
treaty applies, is generally attributable to a United States "permanent
establishment" maintained by you.
If you are engaged in a trade or business in the United States and
interest, gain or any other income in respect of your exchange notes is
effectively connected with the conduct of your trade or business, and, if an
income tax treaty applies, you maintain a United States "permanent
establishment" to which the interest, gain or other income is generally
attributable, you may be subject to United States income tax on a net basis on
the interest, gain or other income; although interest is exempt from the
withholding tax discussed in the preceding paragraphs provided that you provide
a properly executed applicable Internal Revenue Service Form W-8ECI or other
applicable form on or before any payment date to claim the exemption.
In addition, if you are a foreign corporation, you may be subject to a
branch profits tax equal to 30% of your effectively connected earnings and
profits for the taxable year, as adjusted for certain items, unless a lower rate
applies to you under a United States income tax treaty with your country of
residence. For this purpose, you must include interest, gain or income on your
exchange notes in
137
the earnings and profits subject to the branch profits tax if these amounts are
effectively connected with the conduct of your United States trade or business.
UNITED STATES FEDERAL ESTATE TAX. If you are an individual and are not a
United States citizen or a resident of the United States, as specially defined
for United States federal estate tax purposes, at the time of your death, your
exchange notes will generally not be subject to the United States federal estate
tax, unless, at the time of your death:
- you directly or indirectly, actually or constructively, own 10% or more
of the total combined voting power of all classes of our stock entitled
to vote within the meaning of section 871(h)(3) of the Code and the
Treasury regulations thereunder; or
- your interest on the exchange notes is effectively connected with your
conduct of a United States trade or business.
BACKUP WITHHOLDING AND INFORMATION REPORTING. Under current Treasury
regulations, backup withholding and information reporting will not apply to
payments made by us or our paying agent in its capacity as paying agent to you
if you have provided the required certification that you are a non-United States
holder as described in "-- Non-United States Holders -- United States Federal
Withholding Tax" above, and provided that neither we nor our paying agent has
actual knowledge that you are a United States holder as described in "-- United
States Holders" above. We or our paying agent may, however, report payments of
interest on the exchange notes.
The gross proceeds from the disposition of your exchange notes may be
subject to information reporting and backup withholding tax at a rate of up to
28% which rate will increase to 31% for taxable years beginning on or after
January 1, 2011. If you sell your exchange notes outside the United States
through a non-United States office of a broker and the sales proceeds are paid
to you outside the United States, then the United States backup withholding and
information reporting requirements generally will not apply to that payment.
However, United States information reporting, but not backup withholding, will
apply to a payment of sales proceeds, even if that payment is made outside the
United States, if you sell your exchange notes through a non-United States
office of a broker that:
- is a United States person as defined in the Code;
- derives 50% or more of its gross income in specific periods from the
conduct of a trade or business in the United States;
- is a "controlled foreign corporation" for United States federal income
tax purposes; or
- is a foreign partnership, if at any time during its tax year:
- one or more of its partners are United States persons who in the
aggregate hold more than 50% of the income or capital interests in the
partnership; or
- the foreign partnership is engaged in a United States trade or
business,
unless the broker has documentary evidence in its files that you are a
non-United States person and certain other conditions are met or you otherwise
establish an exemption. If you receive payments of the proceeds of a sale of
your exchange notes to or through a United States office of a broker, the
payments are subject to both United States backup withholding and information
reporting unless you provide a Form W-8BEN certifying that you are a non-United
States person or you otherwise establish an exemption.
You should consult your own tax advisor regarding application of backup
withholding in your particular circumstances and the availability of and
procedure for obtaining an exemption from backup withholding under current
Treasury regulations. Any amounts withheld under the backup withholding rules
from a payment to you will be allowed as a refund or credit against your United
States federal income tax liability, provided the required information is
furnished to the Internal Revenue Service.
138
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the SEC set forth in no-action
letters issued to third parties, we believe that the exchange notes issued
pursuant to the exchange offer in exchange for the outstanding notes may be
offered for resale, resold and otherwise transferred by holders thereof, other
than any holder which is (A) an "affiliate" of our company within the meaning of
Rule 405 under the Securities Act, (B) a broker-dealer who acquired notes
directly from our company or (C) broker-dealers who acquired notes as a result
of market-making or other trading activities, without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such exchange notes are acquired in the ordinary course of such holders'
business, and such holders are not engaged in, and do not intent to engage in,
and have no arrangement or understanding with any person to participate in, a
distribution of such exchange notes. However, broker-dealers receiving the
exchange notes in the exchange offer will be subject to a prospectus delivery
requirement with respect to resales of such exchange notes. To date, the staff
of the SEC has taken the position that these broker-dealers may fulfill their
prospectus delivery requirements with respect to transactions involving an
exchange of securities such as the exchange pursuant to the exchange offer,
other than a resale of an unsold allotment from the sale of the outstanding
notes to the initial purchasers thereof, with the prospectus contained in the
exchange offer registration statement. Pursuant to the registration rights
agreement, we have agreed to permit these broker-dealers to use this prospectus
in connection with the resale of such exchange notes. We have agreed that, for a
period of 180 days after the exchange offer has been completed, we will make
this prospectus, and any amendment or supplement to this prospectus, available
to any broker-dealer that requests such documents in the letter of transmittal.
Each holder of the outstanding notes who wishes to exchange its outstanding
notes for exchange notes in the exchange offer will be required to make certain
representations to us as set forth in "The Exchange Offer."
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for outstanding notes where such outstanding notes were acquired as a
result of market-making activities or other trading activities.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange notes that were received by it for its own account in the
exchange offer and any broker or dealer that participates in a distribution of
such exchange notes may be deemed to be an "underwriter" within the meaning of
the Securities Act, and any profit on any such resale of exchange notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
We have agreed to pay certain expenses incident to the exchange offer and
will indemnify the holders of the exchange notes, including any broker-dealers,
against certain liabilities, including liabilities under the Securities Act, as
set forth in the registration rights agreement.
139
LEGAL MATTERS
Fried, Frank, Harris, Shriver & Jacobson LLP, New York, New York, will pass
upon the validity of the exchange notes.
EXPERTS
The financial statements as of December 31, 2003 and 2002, and for each of
the three years in the period ended December 31, 2003, included in this
prospectus, and the financial statements from which the Selected Financial Data
included in this prospectus have been derived have been audited by Deloitte &
Touche LLP, an independent registered public accounting firm, as stated in their
report appearing herein and elsewhere in the registration statement, and have
been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
140
TITAN HOLDINGS, INC.
INDEX TO FINANCIAL INFORMATION
<Table>
<Caption>
PAGE
----
TITAN HOLDINGS, INC. AUDITED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm... F-2
Consolidated Balance Sheets at December 31, 2003 and
December 31, 2002...................................... F-3
Consolidated Statements of Operations and Comprehensive
Income (Loss) for the three years in the period ended
December 31, 2003...................................... F-4
Consolidated Statements of Shareholders' Equity for the
three years in the period ended December 31, 2003...... F-5
Consolidated Statements of Cash Flows for the three years
in the period ended December 31, 2003.................. F-6
Notes to Consolidated Financial Statements................ F-7
TITAN HOLDINGS, INC. UNAUDITED INTERIM FINANCIAL STATEMENTS
Consolidated Balance Sheets at June 30, 2004 and December
31, 2003............................................... F-25
Consolidated Statements of Operations and Comprehensive
Income for the six months ended June 30, 2004 and June
30, 2003 and for the quarters ended June 30, 2004 and
June 30, 2003.......................................... F-26
Consolidated Statements of Cash Flows for the six months
ended June 30, 2004 and June 30, 2003.................. F-27
Notes to Consolidated Financial Statements................ F-28
</Table>
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Titan Holdings, Inc.,
We have audited the accompanying consolidated balance sheets of Titan Holdings,
Inc. and subsidiaries (the "Company") as of December 31, 2003 and 2002, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2003
and 2002, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, in 2001 the
Company changed its method of accounting for derivative instruments to conform
to Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities", as amended and interpreted. In
2002, the Company changed its method of accounting for goodwill and other
intangible assets to conform to Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets." The Company also changed its method
of accounting for costs associated with exit and disposal activities to conform
to Statement of Financial Accounting Standards No. 146, "Accounting for Costs
Associated With Exit or Disposal Activities", in 2002.
Deloitte & Touche, LLP
Grand Rapids, Michigan
February 17, 2004
(June 21, 2004 as to Note 14)
F-2
TITAN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
DECEMBER 31, DECEMBER 31,
2002 2003
------------ ------------
(AMOUNTS IN THOUSANDS)
ASSETS
Current assets:
Cash and equivalents........................................ $ 4,996 $ 1,075
Accounts receivable, net of allowances of $610 and $484,
respectively.............................................. 56,344 55,484
Inventories................................................. 24,815 25,802
Prepaid expenses and other current assets................... 2,514 3,090
-------- --------
Total current assets........................................ 88,669 85,451
Property, plant and equipment, net.......................... 156,964 173,580
Goodwill.................................................... 137,040 139,446
Equipment deposits and other long-term assets............... 9,662 10,598
-------- --------
Total assets................................................ $392,335 $409,075
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations................. $ 20,878 $ 29,748
Accounts payable............................................ 37,369 47,246
Accrued liabilities:
Compensation and related withholdings..................... 13,911 13,242
Other..................................................... 4,436 1,775
-------- --------
Total current liabilities................................... 76,594 92,011
-------- --------
Long-term obligations, net of current maturities............ 125,204 104,140
Deferred taxes.............................................. 30,809 39,672
Deferred credits and other.................................. 10,407 10,924
Shareholders' equity:
Series A preferred stock -- $.01 par value; 600,000 shares
authorized; 579,112 shares issued and outstanding......... 6 6
Series B preferred stock -- $.01 par value; 400,000 shares
authorized; 110,364 shares issued and outstanding as of
December 31, 2002 and 2003................................ 1 1
Common stock -- $.01 par value; 8,000,000 shares authorized;
6,480,895 shares issued and outstanding as of December 31,
2002 and 2003............................................. 65 65
Additional paid-in capital.................................. 137,824 137,824
Accumulated other comprehensive income (loss)............... (3,835) 2,178
Retained earnings........................................... 15,260 22,254
-------- --------
Total shareholders' equity.................................. 149,321 162,328
-------- --------
Total liabilities and shareholders' equity.................. $392,335 $409,075
======== ========
</Table>
See notes to consolidated financial statements.
F-3
TITAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
<Table>
<Caption>
2001 2002 2003
---- ---- ----
(AMOUNTS IN THOUSANDS)
Sales...................................................... $236,452 $275,117 $323,210
Cost of sales.............................................. 201,757 231,334 280,070
-------- -------- --------
Gross profit............................................... 34,695 43,783 43,140
Selling, general and administrative expenses............... 16,415 16,698 17,577
-------- -------- --------
Income from operations..................................... 18,280 27,085 25,563
Interest expense, net...................................... 14,726 13,433 9,444
Other expenses, net........................................ 3,056 2,498 4,428
Minority interest in net income (loss)..................... 317 (21)
-------- -------- --------
Income before tax provision................................ 181 11,175 11,691
Tax provision.............................................. 1,540 4,635 4,697
-------- -------- --------
Net income (loss).......................................... $ (1,359) $ 6,540 $ 6,994
======== ======== ========
Statements of Comprehensive Income (Loss):
Net income................................................. $ (1,359) $ 6,540 $ 6,994
Other comprehensive income (loss):
Foreign currency translation adjustments................... (1,880) (1,870) 5,744
Amortization of interest rate agreements................... 269 269 269
-------- -------- --------
Comprehensive income (loss) before cumulative effect of
change in accounting principle........................... (2,970) 4,939 13,007
Cumulative effect of change in accounting principle of
adopting SFAS No. 133.................................... (1,091)
-------- -------- --------
Comprehensive income (loss) after cumulative effect of
change in accounting principle........................... $ (4,061) $ 4,939 $ 13,007
======== ======== ========
</Table>
See notes to consolidated financial statements.
F-4
TITAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
<Table>
<Caption>
SERIES A SERIES B ACCUMULATED
PREFERRED STOCK PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER
--------------- --------------- --------------- PAID-IN COMPREHENSIVE RETAINED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL INCOME (LOSS) EARNINGS TOTAL
------ ------ ------ ------ ------ ------ ---------- ------------- -------- -----
(AMOUNTS IN THOUSANDS)
Balance, January 1,
2001.................... 579 $6 75 $1 6,260 $63 $130,826 $ 468 $10,079 $141,443
Net loss................. (1,359) (1,359)
Foreign currency
translation
adjustments............. (1,880) (1,880)
Cumulative effect of
change in accounting
principle of adopting
SFAS No. 133............ (1,091) (1,091)
Amortization of interest
rate agreements......... 269 269
--- -- --- -- ----- --- -------- ------- ------- --------
Balance, December 31,
2001.................... 579 6 75 1 6,260 63 130,826 (2,234) 8,720 137,382
Net income............... 6,540 6,540
Shares issued............ 35 219 2 6,998 7,000
Foreign currency
translation
adjustments............. (1,870) (1,870)
Amortization of interest
rate agreements......... 269 269
--- -- --- -- ----- --- -------- ------- ------- --------
Balance, December 31,
2002.................... 579 6 110 1 6,479 65 137,824 (3,835) 15,260 149,321
Net income............... 6,994 6,994
Foreign currency
translation
adjustments............. 5,744 5,744
Amortization of interest
rate agreements......... 269 269
--- -- --- -- ----- --- -------- ------- ------- --------
Balance, December 31,
2003.................... 579 $6 110 $1 6,479 $65 $137,824 $ 2,178 $22,254 $162,328
=== == === == ===== === ======== ======= ======= ========
</Table>
See notes to consolidated financial statements.
F-5
TITAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
<Table>
<Caption>
2001 2002 2003
---- ---- ----
(AMOUNTS IN THOUSANDS)
Cash flows from operating activities:
Cash received from customers............................. $ 234,110 $ 273,146 $ 331,121
Cash paid to suppliers and employees..................... (197,852) (228,772) (281,726)
Income taxes received (paid)............................. (307) 866 (950)
Interest paid............................................ (12,036) (13,203) (10,456)
--------- --------- ---------
Net cash provided by operating activities................ 23,915 32,037 37,989
--------- --------- ---------
Cash flows from investing activities:
Expenditures for property, plant and equipment........... (27,124) (17,183) (22,459)
Equipment deposits refunded (paid and to be refunded),
net.................................................... (672) 485 1,727
Proceeds from sale of property, plant and equipment...... 1,843 1,630 6,656
acquisitions, net of cash received....................... (4,331) (180)
Payment to terminate lease............................... (739)
Other.................................................... (243) (380) (58)
--------- --------- ---------
Net cash used in investing activities.................... (30,527) (15,628) (14,873)
--------- --------- ---------
Cash flows from financing activities:
Borrowings (repayments) on line of credit, net........... 18,646 (6,803) 620
Proceeds from issuance of long-term obligations.......... 3,167 557 872
Principal payments of long-term obligations.............. (20,908) (15,206) (28,827)
Other.................................................... (123)
--------- --------- ---------
Net cash used in financing activities.................... 782 (21,452) (27,335)
--------- --------- ---------
Effect of exchange rate changes on cash and
equivalents............................................ (788) 209 298
--------- --------- ---------
Decrease in cash and equivalents......................... (6,618) (4,834) (3,921)
Cash and equivalents at beginning of period.............. 16,448 9,830 4,996
--------- --------- ---------
Cash and equivalents at end of period.................... $ 9,830 $ 4,996 $ 1,075
========= ========= =========
</Table>
See notes to consolidated financial statements.
F-6
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Titan Holdings, Inc. ("Titan"), a Delaware holding
company, and its domestic and foreign subsidiaries, including Autocam
Corporation ("Autocam"), a Michigan corporation (together, the "Company"). The
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America. All significant
intercompany accounts and transactions have been eliminated in consolidation.
All figures in these Notes are expressed in thousands, unless otherwise noted.
NATURE OF OPERATIONS -- The Company designs and manufactures
close-tolerance, specialty metal-alloy components for mechanical and
electromechanical systems using turning, grinding and milling processes.
Currently, the Company manufactures components for use on fuel, power steering,
braking, air bag and electromechanical systems for the transportation industry
and medical devices for the ophthalmic and cardiovascular surgery industries.
The Company has four manufacturing locations in the United States, five in
France and three in Brazil. Customers are located in virtually all areas of the
world, with the exception of the continent of Africa.
ESTIMATES -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Although management believes
the estimates are reasonable, actual results could differ from those estimates.
FINANCIAL INSTRUMENTS of the Company consist principally of cash and
equivalents, accounts receivable and payable, debt and related interest
contracts. The carrying amounts of financial instruments approximate estimated
fair value, except for the interest contracts. The Company has determined the
estimated fair value amounts using available market information and valuation
methodologies (see Note 5).
RECLASSIFICATIONS -- Certain reclassifications have been made to the 2001
and 2002 presentations in order to conform to the 2003 presentation.
CASH AND EQUIVALENTS consist of highly-liquid investments with original
maturities of three months or less at the date of purchase.
ACCOUNTS RECEIVABLE -- During 2002, the Company entered into an accounts
receivable financing facility under which accounts receivable were sold without
recourse to an unrelated third party, resulting in reductions of accounts
receivable of $9,095 and $14,244 at December 31, 2002 and 2003, respectively.
The Company accounts for the sales of receivables in accordance with the
requirements of Financial Accounting Standards Board's ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities. Net discounts
recognized on sales of receivables of $71 and $181 for the years ended December
31, 2002 and 2003, respectively, are included in Selling, General and
Administrative Expenses, while certain financing charges of $126 and $295 for
each respective period are included in Net Other Expenses.
INVENTORIES -- are stated at the lower of actual cost, on a first-in,
first-out (FIFO) basis, or market.
F-7
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT is stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets as
follows:
<Table>
Buildings and improvements.................................. 31 years
Leasehold improvements...................................... 3 to 12 years
Machinery and equipment..................................... 3 to 12 years
Furniture and fixtures...................................... 5 to 10 years
</Table>
Maintenance and repairs that do not improve or extend the lives of the
respective assets are charged to expense. When properties are retired or sold,
the related cost and accumulated depreciation are removed from the accounts and
any gain or loss on disposition is recognized in the results of operations.
Gains arising from sale and leaseback transactions are deferred for amortization
to income over the lives of the related operating leases.
GOODWILL consists of amounts paid in excess of the fair value of acquired
net assets. The Company adopted SFAS No. 142, Goodwill and Other Intangible
Assets, in January 2002. Under SFAS No. 142, goodwill shall not be amortized,
but be subject to impairment testing. The Company performed impairment testing
in accordance with the provisions of SFAS No. 142 upon adoption and during the
fourth quarters of 2002 and 2003. The fair value of goodwill recorded, which was
estimated using the expected present value of future cash flows, was determined
to be in excess of that recorded in the Company's December 31, 2002 and 2003
balance sheets. Amortization expense totaled $3,417 in 2001. If SFAS No. 142 had
been adopted as of January 1, 2001, amortization expense recorded in 2001 would
have been eliminated, which would have resulted in net income of $2,058 in 2001.
EQUIPMENT DEPOSITS AND OTHER LONG-TERM ASSETS consists primarily of
deposits on equipment to be placed into service in the future of $3,366 and
$4,739 as of December 31, 2002 and 2003, respectively, debt issue costs of
$2,792 and $2,119 as of December 31, 2002 and 2003, respectively (amortized over
the terms of the bank facilities), the cash surrender value of keyman life
insurance policies, and receivables from officers and certain key employees
under split-dollar life insurance agreements (see Note 9).
ACCOUNTS PAYABLE includes the reclassification from Cash and Equivalents
outstanding checks, net of related cash balances, totaling $2,643 and $4,428 as
of December 31, 2002 and 2003, respectively.
REVENUE RECOGNITION -- Sales are recognized at the time product is shipped
to the customer, at which time title and risk of ownership transfer to the
purchasers.
INCOME TAXES -- Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future.
Such deferred income tax asset and liability computations are based on enacted
tax laws and rates applicable to periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities (see Note 7).
DERIVATIVE AND HEDGING ACTIVITIES -- The Company manages interest rate risk
on a portion of its bank debt through the use of interest rate swap agreements.
The Company also manages certain foreign currency exchange risk in relation to
equipment purchases through the limited use of foreign currency futures
contracts to reduce the impact of changes in foreign currency rates on firm
F-8
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
commitments to purchase equipment. No such contracts related to equipment
purchases were outstanding at December 31, 2002 or 2003. See Note 5 related to
outstanding interest contracts. The Company adopted the provisions of SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities, and
subsequent amendments thereto, in 2001.
STOCK-BASED COMPENSATION -- The Company applies Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations, in accounting for its stock-based compensation plan.
Accordingly, no stock-based employee compensation cost is reflected in net
income as all options granted under those plans had an exercise price equal to
the estimated market value of the underlying common stock on the date of the
grant (see Note 10). Had stock-based employee compensation cost of the Company's
stock option plan been determined based upon the fair value at the grant dates
for awards under those plans consistent with the method of SFAS No. 123,
Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting
for Stock-Based Compensation -- Transition and Disclosure, the Company's net
income (loss) would have changed to the pro forma amounts indicated below:
<Table>
<Caption>
2001 2002 2003
---- ---- ----
As reported............................................ $(1,359) $6,540 $6,994
Compensation expense, net of related tax effects....... (376) (559) (559)
------- ------ ------
Pro forma.............................................. $(1,735) $5,981 $6,435
======= ====== ======
</Table>
The fair value of the Company's stock options issued in 2002 was set equal
to the amount the Company received for common stock sold in connection with the
purchase of Bouverat Industries, S.A. ("Bouverat") in December 2000 and the
exchange of the minority interest in its Brazilian subsidiary for its common
stock in 2002 ($16 per share). The intrinsic value approach was used to value
all option grants, with the following weighted-average assumptions: risk-free
interest rate, 4%-4.88%; and expected life of options, 10 years.
ACCOUNTING PRONOUNCEMENTS -- The Company adopted SFAS No. 146, Accounting
for Costs Associated with Exit or Disposal Activities, in December 2002, which
supercedes FASB's Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity. SFAS No. 146 requires recognition of a liability for costs associated
with exit and disposal activities when a liability is incurred, as opposed to
when an entity commits to an exit plan as required under EITF Issue No. 94-3.
The Company closed and transferred its Chicago, Illinois operation to other
facilities in June 2003. The Company incurred related employee termination and
plant closing costs of $121 and $879 for the years ended December 31, 2002 and
2003, respectively. The Company also incurred $534 of costs associated with the
termination of its building lease and other ancillary costs upon ceasing use of
the facility, $334 of which remains as a liability at December 31, 2003. All of
the aforementioned expenses are included in Cost of Sales.
SFAS No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits, was revised in December 2003. It requires additional
disclosures about assets, obligations, cash flows and net periodic benefit cost
of defined benefit pension plans and enhanced disclosures of management's
assumptions related to discount rates, investment returns and salary
assumptions. This statement is effective for the Company for the year ending
December 31, 2004.
F-9
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS COMBINATIONS
On June 19, 2001, the Company acquired certain assets of Har Technologies,
Inc., an Illinois corporation, for $4,138, and assumed certain liabilities
totaling $589. The acquisition was accounted for under the purchase method of
accounting, and therefore the purchase price was allocated to the assets
acquired based upon relative fair market values. Cost in excess of the fair
value of the net assets acquired (goodwill) of $401 was recorded in connection
with this business combination.
Effective January 1, 2002, the Company acquired the remaining quotas, or
stock, of its Brazilian subsidiary, which it did not previously own in exchange
for 35,000 shares of the Company's Series B preferred stock and 218,750 shares
of its common stock. The value placed on the stock exchanged was $7,000. The
acquisition was accounted for under the purchase method of accounting, and
therefore the purchase price was allocated to assets acquired and liabilities
assumed based upon relative fair market values. Cost in excess of the fair value
of the net assets acquired (goodwill) of $1,747 was recorded in connection with
this business combination.
3. INVENTORIES
Inventories consists of the following as of December 31:
\
<Table>
<Caption>
2002 2003
---- ----
Raw materials............................................... $ 7,298 $ 7,664
Production supplies......................................... 3,957 4,836
Work in-process............................................. 9,653 9,336
Finished goods.............................................. 3,907 3,966
------- -------
Total inventories........................................... $24,815 $25,802
======= =======
</Table>
4. PROPERTY, PLANT AND EQUIPMENT
Net property, plant and equipment consists of the following as of December
31:
<Table>
<Caption>
2002 2003
---- ----
Buildings and land.......................................... $ 16,584 $ 14,222
Machinery and equipment..................................... 173,309 210,273
Furniture and fixtures...................................... 5,780 8,444
-------- --------
Total....................................................... 195,673 232,939
Accumulated depreciation and amortization................... (38,709) (59,359)
-------- --------
Property, plant and equipment, net.......................... $156,964 $173,580
======== ========
</Table>
F-10
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM OBLIGATIONS
Long-term obligations consists of the following (percentages represent
interest rates in effect as of December 31, 2003):
<Table>
<Caption>
2002 2003
---- ----
U.S. dollar term note with banks -- principal payable in
quarterly installments; interest payable quarterly at
variable interest rates based on LIBOR plus 3.75% (4.92%
per annum); due December 2006............................. $ 47,500 $ 41,988
Euro term notes with banks -- principal payable in quarterly
installments; interest payable quarterly at variable
interest rates based on EURIBOR plus 3.25% (5.39% per
annum); due December 2005................................. 54,918 51,286
U.S. dollar term note with banks -- principal payable in
quarterly installments; interest payable quarterly at
variable interest rates based on LIBOR plus 3.25% (4.42%
per annum); due December 2005............................. 13,375 9,418
Euro term note with banks -- principal payable in quarterly
installments; interest payable quarterly at variable
interest rates based on EURIBOR plus 3.75% (5.89% per
annum); due December 2006................................. 6,803 7,976
Euro revolving line of credit with banks -- interest payable
quarterly at variable interest rates based on EURIBOR plus
3.25% (5.37% per annum); due February 2006................ 12,577 9,414
U.S. Dollar revolving line of credit with banks -- interest
payable quarterly at variable interest rates based on the
bank's prime lending rate plus 2.25% (6.25% per annum);
due February 2006......................................... 4,000
Capital lease obligations -- payable in euro monthly
installments, including interest imputed at 2.14 -- 8.13%
per annum; due through February 2016...................... 7,163 6,793
Note payable to sellers of Bouverat -- paid in full December
2003...................................................... 2,936
Other....................................................... 810 3,013
-------- --------
Total....................................................... 146,082 133,888
Less current maturities..................................... (20,878) (29,748)
-------- --------
Long-term................................................... $125,204 $104,140
======== ========
</Table>
The Company has a banking agreement (the "Agreement") with a bank group
that includes a 59,695 euro term note, two 6,764 euro term notes, $50,000 and
$17,000 term notes and a $40,000 revolving credit facility. The bank group has
reserved $188 against the availability under this facility for a letter of
credit issued to the landlord of one of its North American facilities. As of
December 31, 2003, the remaining availability under the revolving credit
facility was $16,253 as limited by the leverage ratio (see below). Interest
rates paid on all term notes are variable in nature; however, the Agreement
allows management to fix such rates for periods up to one year.
The Agreement includes covenants prohibiting the Company from exceeding
certain leverage and coverage ratios based primarily upon earnings before
interest, taxes, depreciation and amortization expenses. Debt under the
Agreement is secured by substantially all the assets of the Company resident in
the United States of America and a percentage of the common stock of certain of
the Company's foreign subsidiaries.
The Company manages interest rate risk on a portion of its bank debt
through the use of interest rate swaps and collars. The Company recorded, based
on the fair market value of the interest contracts at January 1, 2001, a
transition adjustment of $1,091 (net of related income tax benefits of
approximately $563) in Comprehensive Income and recognized a derivative
instrument
F-11
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liability of $1,654 as a cumulative effect of a change in accounting principle.
The transition adjustment is being amortized over the life of the agreement and
changes in the fair value of the derivatives (increases of $1,311 and $1,062 and
a decrease of $853 during the years ended December 31, 2001, 2002 and 2003,
respectively) are recorded in Net Interest Expense. As of December 31, 2002 and
2003, derivative instrument liabilities of $4,224 and $2,558, respectively, are
included in Deferred Credits and Other Long-Term Liabilities.
As of December 31, 2003, the annual aggregate maturities of long-term
obligations for each of the five years subsequent thereto were as follows:
<Table>
<Caption>
YEARS ENDING DECEMBER 31:
- -------------------------
2004........................................................ $ 29,748
2005........................................................ 38,245
2006........................................................ 62,448
2007........................................................ 895
2008........................................................ 444
Thereafter.................................................. 2,108
--------
Total....................................................... $133,888
========
</Table>
Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of long-term
debt approximated its carrying value as of December 31, 2002 and 2003.
6. COMMITMENTS
The Company leases buildings and equipment under capital leases. The cost
of the assets subject to the capital leases was $11,530 and $12,131 as of
December 31, 2002 and 2003, respectively. The accumulated amortization of such
assets was $1,314 and $1,918 as of December 31, 2002 and 2003, respectively.
The Company leases buildings and equipment under non-cancelable operating
leases, which generally contain renewal and purchase options at fair market
value at the end of the lease terms. The Company leases other buildings under
cancelable operating leases, which contain renewal options every three years in
accordance with French law.
As of December 31, 2003, minimum future lease payments under all capital
and operating leases for each of the five years subsequent thereto were as
follows:
<Table>
<Caption>
YEARS ENDING DECEMBER 31: CAPITAL OPERATING
- ------------------------- ------- ---------
2004........................................................ $ 1,907 $11,209
2005........................................................ 1,493 9,707
2006........................................................ 1,101 9,568
2007........................................................ 799 7,874
2008........................................................ 578 5,654
Thereafter.................................................. 2,411 18,711
------- -------
Subtotal.................................................... 8,289 $62,723
=======
Less imputed interest....................................... (1,496)
-------
Total....................................................... $ 6,793
=======
</Table>
F-12
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense under operating leases summarized above was $5,653, $7,801 and
$11,404 for the years ended December 31, 2001, 2002 and 2003, respectively.
As of December 31, 2003, the Company had non-cancelable purchase
commitments for machinery and equipment totaling $12,254 some of which may be
assigned to financing companies under operating lease agreements. In accordance
with terms of the purchase agreements, final acceptance of such equipment is
contingent upon the equipment demonstrating certain capabilities as documented
in Company purchase orders.
The Company guarantees the performance under certain equipment leases of an
unrelated vendor that provides services to the Company within one of the
Company's European production facilities. The cost associated with those
services is reflected in the Cost of Goods sold. The obligations under these
leases end at various times between May 2004 and February 2009. At December 31,
2003, the Company's maximum liability under these guarantees was $6,494, which
was not recorded in its financial statements. In the event of default by the
vendor, the Company would become primarily responsible for the lease obligations
and assume control of the equipment subject to the lease which has a fair market
value in excess of the present value of the future minimum lease payments.
7. INCOME TAXES
The provisions for income taxes consist of the following as of December 31:
<Table>
<Caption>
2001 2002 2003
---- ---- ----
Current................................................. $ 349 $2,019 $1,404
Deferred................................................ 1,191 2,616 3,293
------ ------ ------
Total................................................... $1,540 $4,635 $4,697
====== ====== ======
</Table>
The Company's income tax expense differs from income taxes computed at the
United States Federal statutory tax rate as follows as of December 31:
<Table>
<Caption>
2001 2002 2003
---- ---- ----
Tax at United States Federal statutory rate............. $ 63 $3,911 $4,092
Tax effect of non-deductible goodwill amortization
expense............................................... 994
Effect of foreign operations, net of related tax
credits............................................... 555 432 558
Other................................................... (72) 292 47
------ ------ ------
Tax provision as reported............................... $1,540 $4,635 $4,697
====== ====== ======
</Table>
F-13
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Temporary differences that give rise to deferred tax assets and liabilities
are as follows as of December 31:
<Table>
<Caption>
2002 2003
------------------- -------------------
ASSET LIABILITY ASSET LIABILITY
----- --------- ----- ---------
Domestic international sales corporation income..... $ 852 $ 710
Accrued expenses.................................... $ 1,956 2,235 $ 1,166 621
Foreign tax and other credits....................... 2,936 5,566
Valuation allowance................................. (2,936) (2,326)
Net operating loss carryforward..................... 1,744 402
Depreciation and other.............................. 31,347 42,677
------- ------- ------- -------
Total deferred taxes................................ $ 3,700 $34,434 $ 4,808 $44,008
======= ======= ======= =======
</Table>
No provision has been made for United States Federal or state income taxes
or foreign taxes that may result from future remittances of $15,301 in
undistributed earnings of foreign subsidiaries as of December 31, 2003 because
it is expected that such earnings will be reinvested overseas indefinitely.
Determination of the amount of any unrecognized deferred income tax liability on
earnings not remitted is not practicable.
As of December 31, 2003, the Company had United States Federal income tax
credit carryforwards of $1,387 related primarily to research and development
expenses, which expire from 2012 to 2023. The Company has net operating loss
carryforwards available to offset future taxable income of $1,147, which begin
to expire in 2018.
8. BUSINESS SEGMENT INFORMATION
The Company has three operating segments: North America, Europe and South
America. The North American segment provides precision-machined components to
the transportation and medical devices industries, while the European and South
American segments provide precision-machined components to the transportation
industry. The Company has assigned specific business units to a segment based on
their geographical location. Each of the Company's segments is individually
managed and have separate financial results reviewed by the Company's chief
executive and operating decision-makers. These results are used by those
individuals both in evaluating the performance of, and in allocating current and
future resources to, each of the segments. The Company evaluates segment
performance primarily based on income from operations and the efficient use of
assets. The totals presented below are inclusive of all adjustments needed to
reconcile to the data provided in the Consolidated Financial Statements and
related notes as of December 31, 2002 and 2003 and for the years ended December
31, 2001, 2002 and 2003:
<Table>
<Caption>
2001 2002 2003
---- ---- ----
Sales to Unaffiliated Customers from Company
Facilities Located in:
North America.................................... $108,226 $133,050 $139,876
Europe........................................... 116,434 132,732 170,536
South America.................................... 11,792 9,335 12,798
-------- -------- --------
Total............................................ $236,452 $275,117 $323,210
======== ======== ========
</Table>
F-14
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
2001 2002 2003
---- ---- ----
Net Income (Loss) of Company Facilities Located
in:
North America.................................... $ (2,872) $ 2,014 $ 2,863
Europe........................................... 1,084 3,400 3,087
South America.................................... 429 1,126 1,044
-------- -------- --------
Total............................................ $ (1,359) $ 6,540 $ 6,994
======== ======== ========
Depreciation and Amortization on Assets Located
in:
North America.................................... $ 8,920 $ 6,644 $ 7,560
Europe........................................... 6,973 8,118 11,313
South America.................................... 561 713 867
-------- -------- --------
Total............................................ $ 16,454 $ 15,475 $ 19,740
======== ======== ========
Net Interest Expense of Company Facilities
Located in:
North America.................................... $ 6,824 $ 5,636 $ 2,909
Europe........................................... 7,769 7,570 6,257
South America.................................... 133 227 278
-------- -------- --------
Total............................................ $ 14,726 $ 13,433 $ 9,444
======== ======== ========
Tax Provision of Company Facilities Located in:
North America.................................... $ (127) $ 1,533 $ 1,614
Europe........................................... 1,454 2,752 2,744
South America.................................... 213 350 339
-------- -------- --------
Total............................................ $ 1,540 $ 4,635 $ 4,697
======== ======== ========
Total Assets of Company Facilities Located in:
North America.................................... $213,431 $209,080
Europe........................................... 168,834 184,412
South America.................................... 11,007 16,802
-------- --------
Total............................................ $393,272 $410,294
======== ========
Expenditures for Property, Plant and Equipment of
Facilities Located in:
North America.................................... $ 7,726 $ 8,209 $ 10,892
Europe........................................... 16,864 7,090 8,866
South America.................................... 2,534 1,884 2,701
-------- -------- --------
Total.......................................... $ 27,124 $ 17,183 $ 22,459
======== ======== ========
</Table>
Included in the North American sales to unaffiliated customers are sales
exported from facilities in the United States of $20,551, $21,804 and $22,381
for the years ended December 31, 2001, 2002 and 2003, respectively, with the
majority being to customers in Austria, Germany, Mexico and Brazil, India and
Australia.
F-15
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company had the following number of transportation industry customers
that exceeded 10% of consolidated sales for the years ended December 31, 2001,
2002 and 2003, respectively:
<Table>
<Caption>
2001 2002 2003
---- ---- ----
Customer A....................................... $ 46,853 $ 50,656 $ 52,183
Customer B....................................... 45,850 43,254 42,556
Customer C....................................... 42,077
Customer D....................................... 24,727 39,929
Customer E....................................... 28,487
-------- -------- --------
Total............................................ $117,430 $122,397 $176,745
======== ======== ========
</Table>
9. RELATED PARTY TRANSACTIONS
During 2001, the Company paid $628 to begin the construction of a building
in France. In January 2002, a partnership in which the Company's President has a
50% interest reimbursed the Company for the amounts paid in 2001. The Company
now occupies the building subject to a 12-year operating lease, which expires in
July 2014. Annual rent is due in quarterly installments subject to annual
increases based upon an index tied to France's national public construction
costs. Rent expense recorded in connection with this lease agreement during the
years ended December 31, 2002 and 2003 were $205 and $588, respectively.
Monthly management fees totaling $761, $557 and $530 for the years ended
December 31, 2001, 2002 and 2003, respectively, were paid by the Company to its
majority shareholder, Aurora Capital Partners.
The Company has receivables from its officers and certain key employees in
connection with a life insurance program, collateralized by the cash surrender
value of the related insurance policies ("Insurance Receivables"). Amounts
receivable from such employees, included in Equipment Deposits and Other
Long-Term Assets, were $1,874 and $2,078 at December 31, 2002 and 2003,
respectively, including $1,259 and $1,377, respectively, due from the Company's
President (see Note 14).
A portion of a building leased by the Company's Kentwood, Michigan
operation was subleased until March 2001 to Conway Products Corporation
("Conway"), an affiliate by virtue of the Company President's 100% ownership of
Conway. Income and reimbursement for utility costs under this sublease was $70
for the year ended December 31, 2001.
10. CAPITAL STOCK
DIVIDENDS -- The Company's Series A preferred stock carries dividend rights
and rights on liquidation senior to the common stock issued by the Company.
Dividends on Series A preferred stock are cumulative in an amount equal to 10%
of the share value compounded annually on June 30. Dividends are payable
annually, when, as and if declared by the Board of Directors of the Company. The
Series B preferred stock carries dividend rights and rights on liquidation
identical to, and on parity with those of Series A preferred stock. Cumulative
unpaid and undeclared dividends totaled $12,406, $20,547 and $29,497 as of
December 31, 2001, 2002 and 2003, respectively.
STOCK OPTION PLAN -- The Company has reserved five hundred thousand shares
of common stock for issuance to employees under the 2000 Stock Incentive Plan
(the "Option Plan").
F-16
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Transactions of the Option Plan for 2001 and 2002 (there were no transactions in
2003) were as follows (amounts are not in thousands):
<Table>
<Caption>
EXERCISE PRICE
SHARES RANGES
------ --------------
Options outstanding at January 1, 2001................. 304,404 $10.00
Options granted........................................ 40,000 $16.00
-------
Options outstanding at December 31, 2001............... 344,404 $10.00 to $16.00
Options granted in 2002................................ 84,380 $16.00
-------
Options outstanding at December 31, 2002 and 2003...... 428,784 $10.00 to $16.00
=======
</Table>
Options are not exercisable prior to twelve months from or ten years after
the grant date. Options granted vest at a rate of twenty percent annually over a
five-year period.
11. EMPLOYEE BENEFIT PLANS
The Company maintains a self-funded medical and dental plan for its
Kentwood and Marshall and certain of its Dowagiac, Michigan full-time employees.
A third-party administrator makes benefit payments, and an estimate of the
Company's liability for unpaid and incurred but not reported claims is included
in Other Accrued Liabilities. Employees of the Company's other subsidiaries are
enrolled in various insured group or governmental health plans.
The Company sponsors a 401(k) savings plan (the "401k Plan") for all
qualified full-time employees resident in the United States. The 401k Plan
provides for an annual discretionary employer matching contribution that has
historically been dollar-for-dollar up to two thousand dollars. Expense incurred
in connection with the 401k Plan was $862, $841 and $819 for the years ended
December 31, 2001, 2002 and 2003, respectively.
The Company sponsors defined benefit pension plans for substantially all
employees of its French subsidiaries. These benefits are calculated based on
each employee's years of credited service and most recent monthly compensation
and service category. The obligations for the plan sponsored by Frank & Pignard
(the "F&P Plan") are not funded and the obligations for the plan sponsored by
Bouverat (the "Bouverat Plan") are partially funded. Accordingly, the unfunded
obligations are included in Deferred Credits and Other Long-Term Liabilities.
Employees become vested in accordance with governmental regulations in place at
the time of retirement under both plans. In 2002, the Company eliminated the
discretionary premium of the F&P Plan, thereby reducing 2002 net periodic
pension cost by $1,303.
For the purpose of calculating the actuarial present value of the benefit
obligation under the F&P and Bouverat Plans, discount and compensation growth
rates of 5% and 2-3%, respectively, and an average retirement age of 60 years
were assumed.
The actuarial present values of the benefit obligations under the F&P and
Bouverat Plans as of December 31 are calculated as follows:
<Table>
<Caption>
2002 2003
------------------------ ------------------------
F&P PLAN BOUVERAT PLAN F&P PLAN BOUVERAT PLAN
-------- ------------- -------- -------------
Accumulated benefit obligation....... $1,248 $320 $1,667 $403
Effect of salary increases........... 502 126 668 142
------ ---- ------ ----
Projected benefit obligation......... $1,750 $446 $2,335 $545
====== ==== ====== ====
</Table>
F-17
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following provides a reconciliation of the benefit obligation under the
F&P and Bouverat Plans during the years ended December 31:
<Table>
<Caption>
2002 2003
------------------------ ------------------------
F&P PLAN BOUVERAT PLAN F&P PLAN BOUVERAT PLAN
-------- ------------- -------- -------------
Net periodic pension cost............ $(1,075) $ 72 $ 215 $ 11
Effect of foreign currency
translation gain................... 445 50 370 88
------- ---- ------ ----
Change in projected benefit
obligation......................... (630) 122 585 99
Projected benefit obligation at
beginning of period................ 2,380 324 1,750 446
------- ---- ------ ----
Projected benefit obligation at end
of period.......................... $ 1,750 $446 $2,335 $545
======= ==== ====== ====
</Table>
The net periodic pension cost in 2001 was $347 for the F&P Plan and the net
periodic pension benefit in 2001 was $76 for the Bouverat Plan.
The following provides a summary of the funded status of the Bouverat Plan
as of December 31:
<Table>
<Caption>
2002 2003
---- ----
Plan assets................................................. $ 440 $ 628
Benefit obligations......................................... (446) (545)
----- -----
Funded Status and Accrued Benefit Cost...................... $ (6) $ 83
===== =====
</Table>
12. SUPPLEMENTAL CASH FLOW INFORMATION
The following is a reconciliation of net income (loss) to net cash provided
by operating activities for the years ended December 31, 2001, 2002 and 2003:
<Table>
<Caption>
2001 2002 2003
---- ---- ----
Net income (loss)................................... $(1,359) $ 6,540 $ 6,994
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 16,454 16,156 20,446
Deferred taxes...................................... 1,191 2,616 3,293
Minority interest in net income (loss).............. 301 (21)
Realized gains and losses and other, net............ 1,337 1,752 2,223
Changes in assets and liabilities that provided
(used) cash:
Accounts receivable............................... 725 (3,609) 6,782
Inventories....................................... (134) (1,300) 1,838
Prepaid expenses and other current assets......... (635) (183) 53
Other long-term assets............................ 1,546 (1,221) (69)
Accounts payable.................................. 364 5,080 1,950
Accrued liabilities............................... 808 4,894 (5,634)
Deferred credits and other........................ 3,317 1,333 113
------- ------- -------
Net cash provided by operating activities........... $23,915 $32,037 $37,989
======= ======= =======
</Table>
F-18
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<Table>
<Caption>
QUARTER MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
ENDED: 2003 2003 2003 2003 TOTAL YEAR
------- --------- -------- ------------- ------------ ----------
Sales................ $83,795 $83,034 $73,154 $83,227 $323,210
Gross profit......... 12,531 11,428 8,938 10,243 43,140
Net income (loss).... 2,836 2,170 (116) 2,104 6,994
</Table>
<Table>
<Caption>
QUARTER MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
ENDED: 2002 2002 2002 2002 TOTAL YEAR
------- --------- -------- ------------- ------------ ----------
Sales................ $65,021 $70,089 $66,548 $73,459 $275,117
Gross profit......... 11,183 10,901 10,673 11,026 43,783
Net income........... 2,366 1,841 1,565 768 6,540
</Table>
14. SUBSEQUENT EVENT
On June 21, 2004, Micron Merger Corporation, a newly formed entity and
wholly owned subsidiary of Micron Holdings, Inc. acquired and merged with and
into Titan, with Titan continuing as the surviving corporation (the
"Acquisition"). The total amount of consideration paid in the Acquisition,
including amounts related to the repayment of indebtedness, the redemption of
the outstanding common and preferred stock of Titan and the payment of
transaction costs incurred by Titan, was approximately $395 million. The
acquisition was financed with the net proceeds from the issuance of $140 million
in senior subordinated notes (the "Notes"), borrowings under our new senior
credit facilities and a common equity contribution of $143 million by GS Capital
Partners 2000, L.P. ("GSCP 2000"), other private equity funds affiliated with
GSCP 2000, Transportation Resource Partners LP ("TRP"), other investment
vehicles affiliated with TRP, and the Company's president.
In connection with the Acquisition, the Insurance Receivables due from
executive managers of the Company, including its President, were forgiven. The
amounts due from those individuals at December 31, 2002 and 2003 were $1,606 and
$1,779, respectively.
At the time of the Acquisition, Autocam refinanced its outstanding bank
debt (see Note 5) with the financings from the Acquisition, including the
proceeds from the Notes. In connection therewith, Titan and certain, but not
all, of the subsidiaries of its wholly-owned subsidiary, Autocam, fully and
unconditionally guaranteed the Notes. The following table sets forth the
guarantor and non-guarantor subsidiaries of Autocam:
<Table>
<Caption>
GUARANTOR SUBSIDIARIES NON-GUARANTOR SUBSIDIARIES
---------------------- --------------------------
Autocam-Pax, Inc. Autocam-Har, Inc.
Autocam Acquisition, Inc. Autocam France, SARL
Autocam Laser Technologies, Inc. Frank & Pignard, SA
Autocam International Ltd. Bouverat Industries, SA
Autocam Europe, B.V. Autocam do Brasil Usinagem Ltda.
Autocam International Sales Corporation Autocam Foreign Sales Corporation
Autocam Greenville, Inc.
Autocam South Carolina, Inc.
</Table>
F-19
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Information regarding the guarantors and non-guarantors are as follows:
<Table>
<Caption>
CONDENSED
COMBINING STATEMENT TITAN
OF OPERATIONS (PARENT NON-
FOR THE YEAR ENDED COMPANY GUARANTOR GUARANTOR
DECEMBER 31, 2001 ONLY) AUTOCAM SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
------------------- ------- ------- ------------ ------------ ------------ --------
Sales................. $84,203 $17,288 $136,908 $(1,947) $236,452
Cost of sales......... $3,135 71,669 14,256 114,644 (1,947) 201,757
------- ------- ------- -------- ------- --------
Gross profit (loss)... (3,135) 12,534 3,032 22,264 34,695
Selling, general and
administrative
expenses............ 7 5,695 1,599 9,114 16,415
------- ------- ------- -------- --------
Income (loss) from
operations.......... (3,142) 6,839 1,433 13,150 18,280
Interest expense,
net................. 5,647 1,061 8,017 14,725
Other expense, net.... 38 357 335 2,644 3,374
------- ------- ------- -------- --------
Income (loss) before
tax provision....... (3,180) 835 37 2,489 181
Tax provision......... 120 4 1,416 1,540
------- ------- ------- -------- --------
Net income (loss)..... $(3,180) $ 715 $ 33 $ 1,073 $ (1,359)
======= ======= ======= ======== ========
</Table>
<Table>
<Caption>
CONDENSED
COMBINING STATEMENT TITAN
OF OPERATIONS (PARENT NON-
FOR THE YEAR ENDED COMPANY GUARANTOR GUARANTOR
DECEMBER 31, 2002 ONLY) AUTOCAM SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
------------------- ------- ------- ------------ ------------ ------------ --------
Sales................. $101,671 $15,671 $162,014 $(4,239) $275,117
Cost of sales......... 86,850 12,669 136,054 (4,239) 231,334
-------- ------- -------- ------- --------
Gross profit.......... 14,821 3,002 25,960 43,783
Selling, general and
administrative
expenses............ $ 39 5,682 1,194 9,783 16,698
---- -------- ------- -------- --------
Income (loss) from
operations.......... (39) 9,139 1,808 16,177 27,085
Interest expense,
net................. 4,570 688 8,175 13,433
Other expense, net.... 827 84 1,566 2,477
---- -------- ------- -------- --------
Income (loss) before
tax provision....... (39) 3,742 1,036 6,436 11,175
Tax provision......... 1,586 350 2,699 4,635
---- -------- ------- -------- --------
Net income (loss)..... $(39) $ 2,156 $ 686 $ 3,737 $ 6,540
==== ======== ======= ======== ========
</Table>
F-20
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
CONDENSED
COMBINING STATEMENT TITAN
OF OPERATIONS (PARENT NON-
FOR THE YEAR ENDED COMPANY GUARANTOR GUARANTOR
DECEMBER 31, 2003 ONLY) AUTOCAM SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
------------------- ------- ------- ------------ ------------ ------------ --------
Sales................. $118,722 $17,332 $192,282 $(5,126) $323,210
Cost of sales......... 102,995 13,794 168,407 (5,126) 280,070
-------- ------- -------- ------- --------
Gross profit.......... 15,727 3,538 23,875 43,140
Selling, general and
administrative
expenses............ $ 38 6,103 1,247 10,189 17,577
---- -------- ------- -------- --------
Income (loss) from
operations.......... (38) 9,624 2,291 13,686 25,563
Interest expense,
net................. 2,168 591 6,685 9,444
Other expense, net.... 2,150 57 2,221 4,428
---- -------- ------- -------- --------
Income (loss) before
tax provision....... (38) 5,306 1,643 4,780 11,691
Tax provision......... 1,881 559 2,257 4,697
---- -------- ------- -------- --------
Net income (loss)..... $(38) $ 3,425 $ 1,084 $ 2,523 $ 6,994
==== ======== ======= ======== ========
</Table>
<Table>
<Caption>
CONDENSED COMBINING TITAN
STATEMENT OF CASH FLOWS (PARENT
FOR THE YEAR ENDED COMPANY GUARANTOR NON-GUARANTOR
DECEMBER 31, 2001 ONLY) AUTOCAM SUBSIDIARIES SUBSIDIARIES COMBINED
----------------------- ------- ------- ------------ ------------- --------
Net cash provided by operating
activities...................... $9,373 $ 1,381 $ 13,161 $ 23,915
Expenditures for property, plant
and equipment................... (5,169) (2,061) (19,894) (27,124)
Proceeds from sale of property,
plant and equipment............. 1,144 255 444 1,843
Acquisitions, net of cash
received........................ (4,042) (289) (4,331)
Borrowings on line of credit,
net............................. 139 18,507 18,646
Proceeds from issuance of
long-term obligations........... 3,167 3,167
Principal payments of long-term
obligations..................... (2,132) (18,776) (20,908)
Other............................. (1,422) 2 (406) (1,826)
------- ------- -------- --------
Decrease in cash and
equivalents..................... (2,109) (423) (4,086) (6,618)
Cash and equivalents at beginning
of period....................... $11 6,336 431 9,670 16,448
--- ------- ------- -------- --------
Cash and equivalents at end of
period.......................... $11 $4,227 $ 8 $ 5,584 $ 9,830
=== ======= ======= ======== ========
</Table>
F-21
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
CONDENSED COMBINING TITAN
STATEMENT OF CASH FLOWS (PARENT
FOR THE YEAR ENDED COMPANY GUARANTOR NON-GUARANTOR
DECEMBER 31, 2002 ONLY AUTOCAM SUBSIDIARIES SUBSIDIARIES COMBINED
----------------------- ------- ------- ------------ ------------- --------
Net cash provided by (used in)
operating activities............ $(1) $9,227 $ 547 $ 22,264 $ 32,037
Expenditures for property, plant
and equipment................... (6,714) (666) (9,803) (17,183)
Proceeds from sale of property,
plant and equipment............. 77 154 1,399 1,630
Acquisitions, net of cash
received........................ (180) (180)
Repayments on line of credit,
net............................. (2,000) (4,803) (6,803)
Proceeds from issuance of
long-term obligations........... 557 557
Principal payments of long-term
obligations..................... (3,228) (11,978) (15,206)
Other............................. (1,033) (41) 1,388 314
--- ------- ----- -------- --------
Decrease in cash and
equivalents..................... (1) (3,851) (6) (976) (4,834)
Cash and equivalents at beginning
of period....................... 11 4,227 8 5,584 9,830
--- ------- ----- -------- --------
Cash and equivalents at end of
period.......................... $10 $ 376 $ 2 $ 4,608 $ 4,996
=== ======= ===== ======== ========
</Table>
<Table>
<Caption>
CONDENSED COMBINING TITAN
STATEMENT OF CASH FLOWS (PARENT
FOR THE YEAR ENDED COMPANY GUARANTOR NON-GUARANTOR
DECEMBER 31, 2003 ONLY) AUTOCAM SUBSIDIARIES SUBSIDIARIES COMBINED
----------------------- ------- ------- ------------ ------------- --------
Net cash provided by (used in)
operating activities............ $(10) $11,763 $ 1,389 $ 24,847 $ 37,989
Expenditures for property, plant
and equipment................... (11,156) (1,438) (9,865) (22,459)
Proceeds from sale of property,
plant and equipment............. 6,080 50 526 6,656
Acquisitions, net of cash
received........................ 181 181
Borrowings (repayments) on line of
credit, net..................... 4,000 (3,380) 620
Proceeds from issuance of
long-term obligations........... 872 872
Principal payments of long-term
obligations..................... (9,399) (19,428) (28,827)
Other............................. (1,095) (1) 2,143 1,047
---- -------- ------- -------- --------
Increase (decrease) in cash and
equivalents..................... (10) 374 (4,285) (3,921)
Cash and equivalents at beginning
of period....................... 10 376 2 4,608 4,996
---- -------- ------- -------- --------
Cash and equivalents at end of
period.......................... $ 750 $ 2 $ 323 $ 1,075
==== ======== ======= ======== ========
</Table>
F-22
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
TITAN
CONDENSED COMBINING (PARENT
BALANCE SHEET COMPANY GUARANTOR NON-GUARANTOR
DECEMBER 31, 2002 ONLY) AUTOCAM SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
------------------- ------- ------- ------------ ------------- ------------ --------
ASSETS
Current assets:
Cash and equivalents...... $ 10 $ 411 $ 2 $ 4,608 $ (35) $ 4,996
Accounts receivable,
net..................... 12,645 1,453 42,246 56,344
Inventories and other
current assets.......... 8,174 716 18,439 27,329
-------- ------- ------- -------- ------- --------
Total current assets...... 10 21,230 2,171 65,293 (35) 88,669
Intercompany receivables
(payables).............. 9,176 23,329 (7,899) (22,227) (2,379)
Property, plant and
equipment, net.......... 41,927 8,816 106,087 134 156,964
Goodwill.................. 122,521 2,092 12,427 137,040
Equipment deposits and
other long-term
assets.................. 7,448 87 2,127 9,662
-------- ------- ------- -------- ------- --------
Total assets.............. $131,707 $96,026 $ 3,175 $163,707 $(2,280) $392,335
======== ======= ======= ======== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term obligations... $3,806 $ 17,072 $ 20,878
Accounts payable and
accrued liabilities..... $ 7 11,894 $ 531 43,467 $ (183) 55,716
-------- ------- ------- -------- ------- --------
Total current
liabilities............. 7 15,700 531 60,539 (183) 76,594
-------- ------- ------- -------- ------- --------
Long-term obligations, net
of current maturities... 56,930 68,377 (103) 125,204
Deferred taxes and
other................... 13,747 27,469 41,216
Shareholders' equity:
Capital stock and
accumulated paid-in
capital................. 137,896 1,994 (1,994) 137,896
Accumulated other
comprehensive income.... 1,643 (5,478) (3,835)
Retained earnings......... (6,196) 8,006 2,644 10,806 15,260
-------- ------- ------- -------- ------- --------
Total shareholders'
equity.................. 131,700 9,649 2,644 7,322 (1,994) 149,321
-------- ------- ------- -------- ------- --------
Total liabilities and
shareholders' equity.... $131,707 $96,026 $ 3,175 $163,707 $(2,280) $392,335
======== ======= ======= ======== ======= ========
</Table>
F-23
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
TITAN
CONDENSED COMBINING (PARENT
BALANCE SHEET COMPANY GUARANTOR NON-GUARANTOR
DECEMBER 31, 2003 ONLY) AUTOCAM SUBSIDIARIES SUBSIDIARIES ELIMINATIONS COMBINED
------------------- ------- ------- ------------ ------------- ------------ --------
ASSETS
Current assets:
Cash and equivalents..... $ 750 $ 2 $ 323 $ 1,075
Accounts receivable,
net.................... 13,524 1,757 40,203 55,484
Inventories and other
current assets......... 9,668 1,112 18,112 28,892
-------- -------- -------- --------
Total current assets..... 23,942 2,871 58,638 85,451
Intercompany receivables
(payables)............. $ 9,136 25,499 (7,669) (23,606) $ (3,360)
Property, plant and
equipment, net......... 40,899 8,945 123,602 134 173,580
Goodwill................. 122,521 2,688 14,237 139,446
Equipment deposits and
other long-term
assets................. 7,106 106 3,386 10,598
-------- -------- -------- -------- -------- --------
Total assets............. $131,657 $100,134 $ 4,253 $176,257 $ (3,226) $409,075
======== ======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term
obligations............ $ 4,656 $ 25,092 $ 29,748
Accounts payable and
accrued liabilities.... $ (5) 11,317 $ 528 50,628 $ (205) 62,263
-------- -------- -------- -------- -------- --------
Total current
liabilities............ (5) 15,973 528 75,720 (205) 92,011
-------- -------- -------- -------- -------- --------
Long-term obligations,
net of current
maturities............. 50,612 54,555 (1,027) 104,140
Deferred taxes and
other.................. 15,304 35,292 50,596
Shareholders' equity:
Capital stock and
accumulated paid-in
capital................ 137,896 1,994 (1,994) 137,896
Accumulated other
comprehensive income... 6,812 (4,634) 2,178
Retained earnings........ (6,234) 11,433 3,725 13,330 22,254
-------- -------- -------- -------- -------- --------
Total shareholders'
equity................. 131,662 18,245 3,725 10,690 (1,994) 162,328
-------- -------- -------- -------- -------- --------
Total liabilities and
shareholders' equity... $131,657 $100,134 $ 4,253 $176,257 $ (3,226) $409,075
======== ======== ======== ======== ======== ========
</Table>
F-24
TITAN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<Table>
<Caption>
DECEMBER 31,
2003 JUNE 30,
(PREDECESSOR) 2004
------------- --------
(AMOUNTS IN THOUSANDS)
ASSETS
Current assets:
Cash and equivalents........................................ $ 1,075 $ 7,203
Accounts receivable, net of allowances of $533 and $484,
respectively.............................................. 55,484 63,581
Inventories................................................. 25,802 28,037
Prepaid expenses and other current assets................... 3,090 3,054
-------- --------
Total current assets........................................ 85,451 101,875
Property, plant and equipment, net.......................... 173,580 149,948
Goodwill.................................................... 139,446 249,371
Equipment deposits and other long-term assets............... 10,598 17,041
-------- --------
Total assets................................................ $409,075 $518,235
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations................. $ 29,748 $ 5,962
Accounts payable............................................ 47,246 47,800
Accrued liabilities......................................... 15,017 20,822
-------- --------
Total current liabilities................................... 92,011 74,584
-------- --------
Long-term obligations, net of current maturities............ 104,140 258,724
Deferred taxes.............................................. 39,672 32,323
Deferred credits and other.................................. 10,924 9,204
Shareholders' equity:
Series A preferred stock -- $.01 par value; 600,000 shares
authorized; 579,112 shares issued and outstanding......... 6
Series B preferred stock -- $.01 par value; 400,000 shares
authorized; 110,364 shares issued and outstanding......... 1
Common stock -- $.01 par value; 8,000,000 shares authorized;
6,480,895 shares issued and outstanding................... 65
Common stock -- $10 par value; 20,000,000 shares authorized;
14,340,000 shares issued and outstanding as of June 30,
2004...................................................... 143,400
Additional paid-in capital.................................. 137,824
Accumulated other comprehensive income...................... 2,178
Retained earnings........................................... 22,254
-------- --------
Total shareholders' equity.................................. 162,328 143,400
-------- --------
Total liabilities and shareholders' equity.................. $409,075 $518,235
======== ========
</Table>
See notes to consolidated financial statements.
F-25
TITAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------ ----------------
2003 2004 2003 2004
(predecessor) (predecessor) (predecessor) (predecessor)
------------- ------------- ------------- -------------
(AMOUNTS IN THOUSANDS) (AMOUNTS IN THOUSANDS)
Sales............................ $83,034 $91,633 $166,829 $184,489
Cost of sales.................... 71,606 76,811 142,870 153,426
------- ------- -------- --------
Gross profit..................... 11,428 14,822 23,959 31,063
Selling, general and
administrative expenses........ 4,353 12,258 8,723 17,337
------- ------- -------- --------
Income from operations........... 7,075 2,564 15,236 13,726
Interest expense, net............ 2,504 2,677 4,927 4,666
Other expenses, net.............. 821 2,746 1,797 3,672
------- ------- -------- --------
Income (loss) before tax
provision...................... 3,750 (2,859) 8,512 5,388
Tax provision.................... 1,580 (171) 3,506 3,211
------- ------- -------- --------
Net income (loss)................ $ 2,170 $(2,688) $ 5,006 $ 2,177
======= ======= ======== ========
Statements of Comprehensive
Income (Loss):
Net income (loss)................ $ 2,170 $(2,688) $ 5,006 $ 2,177
Other comprehensive income
(loss):
Foreign currency translation
adjustments.................... 1,492 (230) 2,217 (1,138)
Amortization of interest rate
agreements..................... 67 67 135 135
------- ------- -------- --------
Comprehensive income (loss)...... $ 3,729 $(2,851) $ 7,358 $ 1,174
======= ======= ======== ========
</Table>
See notes to consolidated financial statements.
F-26
TITAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
----------------
2003 2004
(predecessor) (predecessor)
------------- -------------
(AMOUNTS IN THOUSANDS)
Net cash provided by operating activities................... $ 20,621 $ 10,694
-------- ---------
Cash flows from investing activities:
Expenditures for property, plant and equipment.............. (11,144) (10,676)
Proceeds from sale of property, plant and equipment......... 5,919 808
Other....................................................... 945 (339)
-------- ---------
Net cash used in investing activities....................... (4,280) (10,207)
-------- ---------
Cash flows from financing activities:
Borrowings (repayments) on line of credit, net.............. (5,555) (3,531)
Proceeds from issuance of long-term obligations............. 321 247,248
Principal payments of long-term obligations................. (14,844) (109,940)
Payments to shareholders and option holders................. (232,663)
Shareholder contributions................................... 115,400
Debt issue costs............................................ (10,855)
-------- ---------
Net cash provided by (used in) financing activities......... (20,078) 5,659
-------- ---------
Effect of exchange rate changes on cash and equivalents..... 303 (18)
-------- ---------
Increase (decrease) in cash and equivalents................. (3,434) 6,128
Cash and equivalents at beginning of period................. 4,996 1,075
-------- ---------
Cash and equivalents at end of period....................... $ 1,562 $ 7,203
======== =========
</Table>
See notes to consolidated financial statements.
F-27
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements (the
"Financial Statements") include the accounts of Titan Holdings, Inc. ("Titan")
and its subsidiaries (together, the "Company"), which includes Autocam
Corporation ("Autocam"), a wholly-owned subsidiary. The Financial Statements
have been prepared in accordance with accounting principles generally accepted
in the United States of America ("GAAP") for interim financial information.
Accordingly, they do not include all the information and footnotes normally
included in the annual consolidated financial statements prepared in accordance
with GAAP. All significant intercompany accounts and transactions have been
eliminated in consolidation. All tabular amounts in thousands, unless otherwise
noted.
In the opinion of management, the Financial Statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly such information in accordance with generally accepted accounting
principles.
STOCK-BASED COMPENSATION -- The Company applies Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations, in accounting for its stock-based compensation plan. This plan
was terminated in connection with the Acquisition (see Note 2). Accordingly, no
stock-based employee compensation cost is reflected in net income as all options
granted under this plan had an exercise price equal to the estimated market
value of the underlying common stock on the date of the grant. Had stock-based
employee compensation cost of the Company's stock option plan been determined
based upon the fair value at the grant dates for awards under this plan
consistent with the method of SFAS No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation -- Transition and Disclosure, the Company's net income (loss) would
have been reduced to the pro forma amounts indicated below:
<Table>
<Caption>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------ ----------
2003 2004 2003 2004
---- ---- ---- ----
(predecessor)
----------------------------------
As reported..................................... $2,170 $(2,688) $5,006 $2,177
Compensation expense, net of related tax
effects....................................... (140) (140) (280) (280)
------ ------- ------ ------
Pro forma....................................... $2,030 $(2,828) $4,726 $1,897
====== ======= ====== ======
</Table>
The intrinsic value approach was used to value all option grants, with the
following weighted-average assumptions: risk-free interest rate, 4%-4.88%; and
expected life of options, 10 years.
GUARANTEES -- The Company guarantees the performance under certain
equipment leases of an unrelated vendor that provides services to the Company
within one of the Company's European production facilities. The cost associated
with those services is reflected in Cost of Goods Sold. The obligations under
these leases end at various times between May 2004 and February 2009. At
December 31, 2003 and June 30, 2004, the Company's maximum liability under these
guarantees was $6,494 and $5,487, respectively, which were not recorded in the
Financial Statements. In the event of default by the vendor, the Company would
become primarily responsible for the lease obligations and assume control of the
equipment subject to the lease which has a fair market value in excess of the
present value of the future minimum lease payments.
F-28
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
2. BUSINESS COMBINATION
On June 21, 2004, Micron Merger Corporation, a newly formed entity and
wholly-owned subsidiary of Micron Holdings, Inc. ("Micron"), merged with and
into Titan with Titan continuing as the surviving corporation (the
"Acquisition"). As a result, Titan became a wholly-owned subsidiary of Micron.
The total amount of consideration paid in the Acquisition, including amounts
related to the repayment of indebtedness, the redemption of the outstanding
preferred stock of Titan, payments to common shareholders of Titan and the
payment of transaction costs incurred by Titan, was $395 million. The
Acquisition was financed with the net proceeds from the issuance of $140 million
of senior subordinated notes of the Company, which are guaranteed by Titan (the
"Notes"), borrowings under the Company's new senior credit facilities of $115.1
million and combined common equity contributions of $143.4 million by GS Capital
Partners 2000, L.P. ("GSCP 2000"), other private equity funds affiliated with
GSCP 2000, Transportation Resource Partners LP ("TRP"), other investment
vehicles affiliated with TRP, and the Company's president.
In connection with the Acquisition, receivables from certain key employees
owed in connection with a life insurance program, collateralized by the cash
surrender value of the related policies, were forgiven. The amounts due from
those individuals at December 31, 2003 and June 30, 2004 were $1,779 and $1,887,
respectively.
The acquisition was accounted for as a purchase, and accordingly, the
purchase price was allocated to assets acquired and liabilities assumed based
upon their preliminary relative fair market values. Cost in excess of the fair
value of the net assets acquired (goodwill) was $249,371, allocated among the
Company's operating segments as follows: North America -- $116,227, Europe --
$124,486 and South America -- $8,658. Goodwill deductible for tax purposes will
be approximately $4.2 million. The results of operations and cash flows of Titan
(as predecessor company) have been reported through June 30, 2004.
Set forth below are unaudited pro forma statements of operations
information for the six months ended June 30, 2003 and 2004, which are based
upon the historical Consolidated Statements of Operations of the Company for
those periods after giving effect to the Acquisition as if such transaction had
occurred at the beginning of each period presented. These pro forma results are
based upon assumptions considered appropriate by Company management and include
adjustments as considered necessary in the circumstances. Such adjustments
include interest expense that would have been incurred to finance the purchase,
less depreciation expense based on the fair market value of the property and
equipment acquired and the corresponding tax effects of each. These pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of results which would have actually been reported had the
Acquisition taken place at the beginning of each period presented or which may
be reported in the future.
<Table>
<Caption>
SIX MONTHS ENDED
JUNE 30,
----------------
2003 2004
---- ----
(predecessor)
-------------------
Sales....................................................... $166,829 $184,489
Net income.................................................. 2,161 6,649
</Table>
F-29
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
3. INVENTORIES
Set forth below are the components of Inventories:
<Table>
<Caption>
DECEMBER 31,
2003 JUNE 30,
(PREDECESSOR) 2004
------------- --------
Raw materials........................................... $ 7,664 $ 8,142
Production supplies..................................... 4,836 5,513
Work in-process......................................... 9,336 10,631
Finished goods.......................................... 3,966 3,751
------- -------
Total Inventories....................................... $25,802 $28,037
======= =======
</Table>
4. PROPERTY, PLANT AND EQUIPMENT
Set forth below are the components of Property, Plant and Equipment, Net:
<Table>
<Caption>
DECEMBER 31,
2003 JUNE 30,
(PREDECESSOR) 2004
------------- --------
Buildings and land...................................... $ 14,222 $ 9,484
Machinery and equipment................................. 210,273 130,973
Furniture and fixtures.................................. 8,444 9,491
-------- --------
Total................................................... 232,939 149,948
Accumulated depreciation and amortization............... (59,359)
-------- --------
Property, Plant and Equipment, Net...................... $173,580 $149,948
======== ========
</Table>
In connection with the Acquisition, the Company restated the historical
cost of its property, plant and equipment to fair market appraised values and
eliminated all historical accumulated depreciation.
F-30
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
5. LONG-TERM OBLIGATIONS
Set forth below are the components of Long-Term Obligations (percentages
represent interest rates as of June 30, 2004):
<Table>
<Caption>
DECEMBER 31,
2003 JUNE 30,
(PREDECESSOR) 2004
------------- --------
New Senior Credit Facility:
Term notes -- U.S. Dollar (USD)-denominated, 6%....... $ 33,000
Term notes -- euro-denominated, 5.08%................. 75,773
Multi-currency revolving line of credit, 6%........... 11,000
Old senior credit facility retired in connection with
the Acquisition....................................... $124,082
-------- --------
Total senior credit facility............................ 124,082 119,773
Senior subordinated notes, 10.875%, net of original
issue discount........................................ 136,888
Capital leases, from 2.14% to 8.13%..................... 6,793 5,729
Other................................................... 3,013 2,296
-------- --------
Total long-term obligations............................. 133,888 264,686
Current portion......................................... (29,748) (5,962)
-------- --------
Long-term portion....................................... $104,140 $258,724
======== ========
</Table>
At the time of the Acquisition, Autocam refinanced its former senior credit
facility with proceeds from the financings from the Acquisition. In connection
therewith, Titan and certain, but not all, of the subsidiaries of Autocam fully
and unconditionally guaranteed the Notes.
The following table sets forth the guarantor and non-guarantor subsidiaries
of Autocam with respect to the Notes:
<Table>
<Caption>
GUARANTOR SUBSIDIARIES NON-GUARANTOR SUBSIDIARIES
---------------------- --------------------------
Autocam-Pax, Inc. Autocam-Har, Inc.
Autocam Acquisition, Inc. Autocam France, SARL
Autocam Laser Technologies, Inc. Frank & Pignard, SA
Autocam International Ltd. Bouverat Industries, SA
Autocam Europe, B.V. Autocam do Brasil Usinagem Ltda.
Autocam International Sales Corporation Autocam Foreign Sales Corporation
Autocam Greenville, Inc.
Autocam South Carolina, Inc.
</Table>
F-31
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Information regarding the guarantors and non-guarantors are as follows:
<Table>
<Caption>
COMBINING STATEMENT OF
OPERATIONS TITAN
THREE MONTHS ENDED (PARENT SUBSIDIARIES
JUNE 30, 2003 COMPANY -------------------------
(PREDECESSOR) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
---------------------- ------- ------- --------- ------------- ------------ --------
Sales............................. $31,467 $4,286 $48,751 $(1,470) $83,034
Cost of sales..................... 27,031 3,642 42,403 (1,470) 71,606
------- ------ ------- ------- -------
Gross profit...................... 4,436 644 6,348 11,428
Selling, general and
administrative expenses......... 1,498 313 2,542 4,353
------- ------ ------- -------
Income from operations............ 2,938 331 3,806 7,075
Interest expense, net............. 571 150 1,783 2,504
Other expense, net................ $ 9 397 415 821
--- ------- ------ ------- -------
Income (loss) before tax
provision....................... (9) 1,970 181 1,608 3,750
Tax provision..................... 667 63 850 1,580
--- ------- ------ ------- -------
Net income (loss)................. $(9) $1,303 $ 118 $ 758 $ 2,170
=== ======= ====== ======= =======
</Table>
<Table>
<Caption>
COMBINING STATEMENT OF
OPERATIONS TITAN
THREE MONTHS ENDED (PARENT SUBSIDIARIES
JUNE 30, 2004 COMPANY ------------
(PREDECESSOR) ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
---------------------- ------- ------- --------- ------------- ------------ --------
Sales............................. $31,768 $5,572 $56,008 $(1,715) $91,633
Cost of sales..................... 27,626 4,024 46,876 (1,715) 76,811
------- ------ ------- ------- -------
Gross profit...................... 4,142 1,548 9,132 14,822
Selling, general and
administrative expenses......... $6,438 3,319 296 2,205 12,258
------- ------- ------ ------- -------
Income (loss) from operations..... (6,438) 823 1,252 6,927 2,564
Interest expense, net............. 1,083 146 1,448 2,677
Other expense, net................ 10 1,983 21 732 2,746
------- ------- ------ ------- -------
Income (loss) before tax
provision....................... (6,448) (2,243) 1,085 4,747 (2,859)
Tax provision..................... (2,192) (763) 383 2,401 (171)
------- ------- ------ ------- -------
Net income (loss)................. $(4,256) $(1,480) $ 702 $ 2,346 $(2,688)
======= ======= ====== ======= =======
</Table>
F-32
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
<Table>
<Caption>
COMBINING STATEMENT OF
OPERATIONS TITAN SUBSIDIARIES
SIX MONTHS ENDED (PARENT ---------------------
JUNE 30, 2003 COMPANY NON-
(PREDECESSOR) ONLY) AUTOCAM GUARANTOR GUARANTOR ELIMINATIONS COMBINED
---------------------- ------- ------- --------- --------- ------------ --------
Sales..................... $61,325 $8,145 $99,776 $(2,417) $166,829
Cost of sales............. 52,197 6,587 86,503 (2,417) 142,870
------- ------ ------- ------- --------
Gross profit.............. 9,128 1,558 13,273 23,959
Selling, general and
administrative
expenses................ 2,836 647 5,240 8,723
------- ------ ------- --------
Income from operations.... 6,292 911 8,033 15,236
Interest expense, net..... 1,113 291 3,523 4,927
Other expense (income),
net..................... $ 19 636 (1) 1,143 1,797
---- ------- ------ ------- --------
Income (loss) before tax
provision............... (19) 4,543 621 3,367 8,512
Tax provision............. 1,564 212 1,730 3,506
---- ------- ------ ------- --------
Net income (loss)......... $(19) $2,979 $ 409 $ 1,637 $ 5,006
==== ======= ====== ======= ========
</Table>
<Table>
<Caption>
COMBINING STATEMENT OF
OPERATIONS TITAN SUBSIDIARIES
SIX MONTHS ENDED (PARENT ---------------------
JUNE 30, 2004 COMPANY NON-
(PREDECESSOR) ONLY) AUTOCAM GUARANTOR GUARANTOR ELIMINATIONS COMBINED
---------------------- ------- ------- --------- --------- ------------ --------
Sales..................... $64,212 $11,061 $112,477 $(3,261) $184,489
Cost of sales............. 55,053 7,848 93,786 (3,261) 153,426
------- ------- -------- ------- --------
Gross profit.............. 9,159 3,213 18,691 31,063
Selling, general and
administrative
expenses................ $6,438 5,214 591 5,094 17,337
------- ------- ------- -------- --------
Income (loss) from
operations.............. (6,438) 3,945 2,622 13,597 13,726
Interest expense, net..... 1,472 291 2,903 4,666
Other expense, net........ 19 2,358 21 1,274 3,672
------- ------- ------- -------- --------
Income (loss) before tax
provision............... (6,457) 115 2,310 9,420 5,388
Tax provision............. (2,195) 38 801 4,567 3,211
------- ------- ------- -------- --------
Net income (loss)......... $(4,262) $ 77 $ 1,509 $ 4,853 $ 2,177
======= ======= ======= ======== ========
</Table>
F-33
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
<Table>
<Caption>
CONDENSED COMBINING
STATEMENT OF CASH FLOWS TITAN SUBSIDIARIES
SIX MONTHS ENDED (PARENT ---------------------
JUNE 30, 2003 COMPANY NON-
(PREDECESSOR) ONLY) AUTOCAM GUARANTOR GUARANTOR COMBINED
----------------------- ------- ------- --------- --------- --------
Net cash provided by (used in)
operating activities......... $(19) $7,591 $ 1,164 $11,885 $ 20,621
Expenditures for property,
plant and equipment.......... (7,002) (1,138) (3,004) (11,144)
Proceeds from sale of property,
plant and equipment.......... 5,871 48 5,919
Borrowings (repayments) on
lines of credit, net......... 9 (9) (5,555) (5,555)
Principal payments of long-term
obligations.................. (7,516) (7,328) (14,844)
Other.......................... 818 (25) 776 1,569
---- ------- ------- ------- --------
Increase (decrease) in cash and
equivalents.................. (10) (247) 1 (3,178) (3,434)
Cash and equivalents at
beginning of period.......... 10 376 2 4,608 4,996
---- ------- ------- ------- --------
Cash and Equivalents at End of
Period....................... $ 129 $ 3 $ 1,430 $ 1,562
==== ======= ======= ======= ========
</Table>
F-34
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
<Table>
<Caption>
CONDENSED COMBINING
STATEMENT OF CASH FLOWS TITAN SUBSIDIARIES
SIX MONTHS ENDED (PARENT ---------------------
JUNE 30, 2004 COMPANY NON-
(PREDECESSOR) ONLY) AUTOCAM GUARANTOR GUARANTOR COMBINED
----------------------- ------- ------- --------- --------- --------
Net cash provided by (used in)
operating activities......... $(6,457) $ 2,206 $ 207 $ 14,738 $ 10,694
Expenditures for property,
plant and equipment.......... (3,880) (205) (6,591) (10,676)
Borrowings (repayments) on
lines of credit, net......... (1,280) 21,829 (24,080) (3,531)
Proceeds from issuance of long-
term obligations............. 169,888 77,360 247,248
Principal payments of long-term
obligations.................. (51,268) (58,672) (109,940)
Payments to shareholders and
option holders............... (232,663) (232,663)
Shareholder contributions...... 115,400 115,400
Dividends received (paid)...... 125,000 (125,000)
Debt issue costs............... (10,855) (10,855)
Other.......................... (145) 596 451
-------- --------- ----- -------- ---------
Increase in cash and
equivalents.................. 2,775 2 3,351 6,128
Cash and equivalents at
beginning of period.......... 750 2 323 1,075
-------- --------- ----- -------- ---------
Cash and Equivalents at End of
Period....................... $ 3,525 $ 4 $ 3,674 $ 7,203
======== ========= ===== ======== =========
</Table>
F-35
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
<Table>
<Caption>
CONDENSED COMBINING TITAN SUBSIDIARIES
BALANCE SHEET (PARENT ---------------------
DECEMBER 31, 2003 COMPANY NON-
(PREDECESSOR) ONLY) AUTOCAM GUARANTOR GUARANTOR ELIMINATIONS COMBINED
------------------- ------- ------- --------- --------- ------------ --------
ASSETS
Current assets:
Cash and equivalents............ $ 750 $ 2 $ 323 $ 1,075
Accounts receivable............. 13,524 1,757 40,203 55,484
Inventories..................... 8,052 1,060 16,690 25,802
Prepaid expenses and other
current assets................ 1,616 52 1,422 3,090
-------- ------- -------- --------
Total current assets............ 23,942 2,871 58,638 85,451
Property, plant and equipment,
net........................... 40,899 8,945 123,602 $ 134 173,580
Goodwill........................ $122,521 2,688 14,237 139,446
Intercompany receivables
(payables).................... 9,136 25,499 (7,669) (23,606) (3,360)
Other long-term assets.......... 7,106 106 3,386 10,598
-------- -------- ------- -------- ------- --------
Total Assets.................... $131,657 $100,134 $ 4,253 $176,257 $(3,226) $409,075
======== ======== ======= ======== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations................... $ 4,656 $ 25,092 $ 29,748
Accounts payable................ 8,255 $ 290 38,906 $ (205) 47,246
Accrued liabilities............. $ (5) 3,062 238 11,722 15,017
-------- -------- ------- -------- ------- --------
Total current liabilities....... (5) 15,973 528 75,720 (205) 92,011
-------- -------- ------- -------- ------- --------
Long-term obligations, net of
current maturities............ 50,612 54,555 (1,027) 104,140
Deferred taxes and other........ 15,304 35,292 50,596
Shareholders' equity:
Capital stock................... 137,896 1,994 (1,994) 137,896
Accumulated other comprehensive
income........................ 6,812 (4,634) 2,178
Retained earnings............... (6,234) 11,433 3,725 13,330 22,254
-------- -------- ------- -------- ------- --------
Total shareholders' equity...... 131,662 18,245 3,725 10,690 (1,994) 162,328
-------- -------- ------- -------- ------- --------
Total Liabilities and
Shareholders' Equity.......... $131,657 $100,134 $ 4,253 $176,257 $(3,226) $409,075
======== ======== ======= ======== ======= ========
</Table>
F-36
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
<Table>
<Caption>
TITAN SUBSIDIARIES
CONDENSED COMBINING (PARENT ---------------------
BALANCE SHEET COMPANY NON-
JUNE 30, 2004 ONLY) AUTOCAM GUARANTOR GUARANTOR ELIMINATIONS COMBINED
------------------- ------- ------- --------- --------- ------------ --------
ASSETS
Current assets:
Cash and equivalents............ $ 3,525 $ 4 $ 3,674 $ 7,203
Accounts receivable............. 18,349 2,428 42,804 63,581
Inventories..................... 8,398 1,278 18,361 28,037
Prepaid expenses and other
current assets................ 1,451 69 1,534 3,054
-------- ------- --------- --------
Total current assets............ 31,723 3,779 66,373 101,875
Property, plant and equipment,
net........................... 28,216 4,714 116,594 $ 424 149,948
Goodwill........................ $116,227 133,144 249,371
Intercompany receivables
(payables).................... 27,147 129,125 (8,135) (146,263) (1,874)
Other long-term assets.......... 11,950 286 4,805 17,041
-------- -------- ------- --------- ------- --------
Total Assets.................... $143,374 $201,014 $ 644 $174,653 $(1,450) $518,235
======== ======== ======= ========= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
obligations................... $ 330 $ 5,632 $ 5,962
Accounts payable................ 9,826 $ 418 37,756 $ (200) 47,800
Accrued liabilities............. $ (26) 2,182 226 18,457 (17) 20,822
-------- -------- ------- --------- ------- --------
Total current liabilities....... (26) 12,338 644 61,845 (217) 74,584
-------- -------- ------- --------- ------- --------
Long-term obligations, net of
current maturities............ 180,586 79,371 (1,233) 258,724
Deferred taxes and other........ 8,090 33,437 41,527
Shareholders' equity --
Capital stock................... 143,400 143,400
-------- -------- ------- --------- ------- --------
Total Liabilities and
Shareholders' Equity.......... $143,374 $201,014 $ 644 $174,653 $(1,450) $518,235
======== ======== ======= ========= ======= ========
</Table>
6. BUSINESS SEGMENT INFORMATION
The Company has three operating segments: North America, Europe and South
America. The North American segment provides precision-machined components
primarily to the transportation and medical devices industries, while the
European and South American segments provide precision-machined components
primarily to the transportation industry. The Company has a small operation in
China that is grouped with its European operations for business segmentation
purposes. The Company has assigned specific business units to a segment based
principally on their geographical location. Each of the Company's segments is
individually managed and have separate financial results reviewed by the
Company's chief executive and operating decision-makers. These results are used
by those individuals both in evaluating the performance of, and in allocating
current and future resources to, each of the segments. The Company evaluates
segment performance primarily based on income from operations and the efficient
use of assets. Set forth below is
F-37
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
business segment information for the three and six month periods ended June 30,
2003 and 2004 and as of December 31, 2003 and June 30, 2004:
<Table>
<Caption>
THREE MONTHS SIX MONTHS ENDED
ENDED JUNE 30, JUNE 30,
----------------- -------------------
2003 2004 2003 2004
---- ---- ---- ----
(predecessor)
---------------------------------------
Sales to Unaffiliated Customers from Company
Facilities Located in:
North America..................................... $36,193 $37,201 $ 73,304 $ 75,031
Europe............................................ 43,909 49,250 87,053 100,429
South America..................................... 2,932 5,182 6,472 9,029
------- ------- -------- --------
Total............................................. $83,034 $91,633 $166,829 $184,489
======= ======= ======== ========
Net Income (Loss) of Company Facilities Located
in:
North America..................................... $ 861 $(5,036) $ 1,766 $ (2,678)
Europe............................................ 1,176 1,603 2,761 3,732
South America..................................... 133 745 479 1,123
------- ------- -------- --------
Total............................................. $ 2,170 $(2,688) $ 5,006 $ 2,177
======= ======= ======== ========
Depreciation and Amortization on Assets Located
in:
North America..................................... $ 1,828 $ 2,085 $ 3,962 $ 6,232
Europe............................................ 2,791 3,056 5,346 6,190
South America..................................... 202 267 424 532
------- ------- -------- --------
Total............................................. $ 4,821 $ 5,408 $ 9,732 $ 12,954
======= ======= ======== ========
Net Interest Expense of Company Facilities Located
in:
North America..................................... $ 776 $ 1,229 $ 1,554 $ 1,763
Europe............................................ 1,692 1,354 3,266 2,699
South America..................................... 36 94 107 204
------- ------- -------- --------
Total............................................. $ 2,504 $ 2,677 $ 4,927 $ 4,666
======= ======= ======== ========
Tax Provision of Company Facilities Located in:
North America..................................... $ 443 $(2,572) $ 950 $ (1,356)
Europe............................................ 1,071 2,016 2,365 4,068
South America..................................... 66 385 191 499
------- ------- -------- --------
Total............................................. $ 1,580 $ (171) $ 3,506 $ 3,211
======= ======= ======== ========
</Table>
F-38
TITAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
2003 2004 2003 2004
---- ---- ---- ----
(predecessor)
-----------------------------------
Expenditures for Property, Plant and
Equipment of Facilities Located in:
North America............................... $4,432 $2,087 $ 6,378 $ 4,085
Europe...................................... 2,431 2,634 4,190 5,434
South America............................... 456 94 576 1,157
------ ------ ------- -------
Total....................................... $7,319 $4,815 $11,144 $10,676
====== ====== ======= =======
</Table>
<Table>
<Caption>
DECEMBER 31,
2003 JUNE 30,
(PREDECESSOR) 2004
------------- --------
Total Assets of Company Facilities Located in:
North America........................................... $209,080 $196,897
Europe.................................................. 183,193 296,627
South America........................................... 16,802 24,711
-------- --------
Total................................................... $409,075 $518,235
======== ========
</Table>
7. SUPPLEMENTAL CASH FLOW INFORMATION
The following is a reconciliation of net income to net cash provided by
operating activities:
<Table>
<Caption>
SIX MONTHS
ENDED JUNE 30,
--------------
2003 2004
---- ----
(predecessor)
-----------------
Net income.................................................. $ 5,006 $ 2,177
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 9,732 12,954
Deferred taxes............................................ 586 395
Realized gains and losses and other, net.................. 435 2,627
Changes in assets and liabilities that provided (used)
cash:
Accounts receivable.................................... (1,546) (9,243)
Inventories............................................ 1,561 (2,899)
Prepaid expenses and other current assets.............. 549 (44)
Other long-term assets................................. (239) (1,192)
Accounts payable....................................... 590 1,687
Accrued liabilities.................................... 3,172 6,962
Deferred credits and other............................. 775 (2,730)
------- -------
Net cash provided by operating activities................... $20,621 $10,694
======= =======
</Table>
F-39
(AUTOCAM LOGO)
AUTOCAM CORPORATION
Offer to Exchange
All Outstanding
10.875% Senior Subordinated Notes Due 2014
of
AUTOCAM CORPORATION
----------------------
PROSPECTUS
----------------------
, 2004
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 561 - 571 of the Michigan Business Corporation Act ("MBCA"), grant
the Registrant broad powers to indemnify any person in connection with legal
proceedings brought against him by reason of his present or past status as an
officer or director of the Registrant, provided that the person acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the Registrant and its shareholders, and with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The MBCA also gives the Registrant powers to indemnify any such
person against reasonable expenses in connection with any action by or in the
right of the Registrant, provided the person acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Registrant and its shareholders, except that no indemnification may be made if
such person is adjudged to be liable to the Registrant, or in connection with
any proceeding charging improper personal benefit to the director whether or not
involving action in the director's official capacity, in which the director was
held liable on the basis that the personal benefit was improperly received by
the director. In addition, to the extent that any such person is successful in
the defense of any such legal proceeding, the Registrant is required by the MBCA
to indemnify him against expenses, including attorneys' fees, that are actually
and reasonably incurred by him in connection therewith.
The Registrant's Articles of Incorporation and By-laws contain provisions
entitling directors and executive officers of the Registrant to indemnification
against certain liabilities and expenses to the full extent permitted by
Michigan law. The Registrant's Articles of Incorporation provide that its
directors are not personally liable to the Registrant or its shareholders for
monetary damages for breach of the director's fiduciary duties. However, the
Articles of Incorporation do not eliminate or limit directors' liability for any
of the following:
- a breach of the director's duty of loyalty to the Registrant or its
shareholders;
- acts or omissions not in good faith or that involve intentional
misconduct or knowing violation of law;
- a violation of Section 551(1) of the MBCA; or
- any act or omission occurring before the effective date of the Articles.
Under an insurance policy maintained by the Registrant, the directors and
officers of the Registrant are insured within the limits and subject to the
limitations of the policy, against certain expenses in connection with the
defense of certain claims, actions, suits or proceedings, and certain
liabilities which might be imposed as a result of such claims, actions, suits or
proceedings, which may be brought against them by reason of being or having been
such directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL DATA SCHEDULES.
(A) EXHIBITS
The following is a list of all the exhibits filed as part of the
Registration Statement.
<Table>
<Caption>
NUMBER DESCRIPTION
------ -----------
2.1 The Agreement and Plan of Merger, dated as of May 1, 2004,
by and among by and among Titan Holdings, Inc., Micron
Holdings, Inc. and Micron Merger Corporation
2.2 First Amendment, dated as of June 8, 2004, to Agreement and
Plan of Merger, dated as of May 1, 2004, by and among by and
among Titan Holdings, Inc., Micron Holdings, Inc. and Micron
Merger Corporation
3.1 Restated Articles of Incorporation of Autocam Corporation
</Table>
II-1
<Table>
<Caption>
NUMBER DESCRIPTION
------ -----------
3.2 Bylaws of Autocam Corporation (as amended, September 9,
1991)
4.1 The Indenture, dated as of June 10, 2004, among Micron Notes
Corporation and J.P. Morgan Trust Company, National
Association relating to the 10.875% Senior Subordinated
Notes due June 15, 2014
4.2 Supplemental Indenture, as of June 21, 2004, among Titan
Holdings, Inc., Autocam-Pax, Inc., Autocam South Carolina,
Inc., Autocam Greenville, Inc., Autocam Acquisition, Inc.,
Autocam Laser Technologies, Inc., Autocam-Har, Inc, Autocam
International Ltd., Autocam International Sales Corporation,
Autocam Europe B.V., Autocam Corporation and J.P. Morgan
Trust Company, National Association
4.3 The Registration Rights Agreement, dated as of June 10,
2004, among Micron Notes Corporation, Goldman, Sachs & Co.
and Citigroup Global Markets Inc.
4.4 Joinder Agreement, dated June 21, 2004, among Titan
Holdings, Inc., Autocam-Pax, Inc., Autocam South Carolina,
Inc., Autocam Greenville, Inc., Autocam Acquisition, Inc.,
Autocam Laser Technologies, Inc., Autocam-Har, Inc, Autocam
International Ltd., Autocam International Sales Corporation,
Autocam Europe B.V., Goldman, Sachs & Co., Citigroup Global
Markets Inc., Micron Notes Corporation and Micron Holdings,
Inc.
4.5 Assumption Agreement, dated June 21, 2004, among Autocam
Corporation and J.P. Morgan Trust Company, National
Association
4.6 Form of Initial Note and Form of Exchange Note (included
within the Indenture filed as Exhibit 4.1)
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson LLP as
to the legality of the exchange notes
5.2 Opinion of the General Counsel of Autocam Corporation as to
the legality of the exchange notes
10.1 Stockholders Agreement dated as of June 21, 2004, among
Micron Holdings, Inc., GS Capital Partners 2000, L.P., GS
Capital Partners 2000 Offshore, L.P., GS Capital Partners
2000 GMBH & Co. Beteiligungs KG, GS Capital Partners 2000
Employee Fund, L.P., Goldman Sachs Direct Investment Fund
2000, L.P., Transportation Resource Partners LP, TRP Autocam
Holdings I, L.L.C., TRP Autocam Holdings II, L.L.C. and John
C. Kennedy
10.2 Credit and Guaranty Agreement, dated as of June 21, 2004,
among Autocam Corporation, Autocam France, SARL, as
Borrowers, Titan Holdings, Inc., and certain subsidiaries of
Autocam Corporation, as Guarantors, various lenders, Goldman
Sachs Credit Partners L.P. and Citigroup Global Markets Inc.
as Joint Lead Arrangers, Goldman Sachs Credit Partners L.P.,
as Syndication Agent, Citicorp North America, Inc., as
General Administrative Agent and Collateral Agent, Citibank
International PLC, as European Administrative Agent, and
Bank One, NA, ING Capital, LLC and National City Bank as
Documentation Agents
10.3 Supply Contract with Delphi, dated March 28, 2003, for
Multec 2 Fuel Injection Components+
10.4 Lease for Facility at 4070 E. Paris Avenue, S.E., dated
April 11, 2003
10.5 Lease for Facility at 1511 George Brown Dr., dated April 11,
2003
10.6 Management Services Agreement, dated June 21, 2004, among
Goldman, Sachs & Co., Transportation Resource Advisors, LLC
and John C. Kennedy
10.7 The Management Rights Letter from Micron Holdings, Inc.,
Titan Holdings, Inc. and Autocam Corporation to GS Capital
Partners 2000, L.P., dated as of June 21, 2004
10.8 The Management Rights Letter from Micron Holdings, Inc.,
Titan Holdings, Inc. and Autocam Corporation to
Transportation Resource Partners, LP, dated as of June 21,
2004
</Table>
II-2
<Table>
<Caption>
NUMBER DESCRIPTION
------ -----------
10.9 The Management Rights Letter from Micron Holdings, Inc.,
Titan Holdings, Inc. and Autocam Corporation to GS Private
Equity Partners 2002 -- Direct Investment Fund, L.P., GS
Private Equity Partners II -- Direct Investment Fund, L.P.
and GS Private Equity Partners 1999 -- Direct Investment
Fund, L.P., dated as of June 21, 2004
10.10 Employment Agreement, dated June 21, 2004, by and between
Micron Holdings, Inc., Autocam Corporation, Titan Holdings,
Inc. and John C. Kennedy
10.11 Employment Agreement, dated February 1, 2002, by and between
Autocam Corporation and Warren A. Veltman
10.12 First Amendment to Employment Agreement by and between
Autocam Corporation and Warren A. Veltman, dated September
17, 2004
10.13 Employment Agreement, dated January 21, 2002, by and between
Autocam Corporation and John R. Buchan
10.14 First Amendment to Employment Agreement by and between
Autocam Corporation and John R. Buchan, dated September 17,
2004
10.15 Employment Agreement, dated April 30, 2002, by and between
Autocam France, SARL and Bruno Le Sech
10.16 Amendment to the Employment Agreement by and between Autocam
France, SARL and Bruno Le Sech, dated June 4, 2002
10.17 Services Agreement by and between Autocam Do Brazil and Lean
Management Consultoria Empresarial S/C Ltda, dated January
1, 1998
10.18 First Amendment to Services Agreement by and between Autocam
Do Brasil Usinagem Ltda and Lean Management Consultoria
Empresarial S/C Ltda, dated January 1, 2000
10.19 Second Amendment to Services Agreement by and between
Autocam Do Brasil Usinagem Ltda and Lean Management
Consultoria Empresarial S/C Ltda, dated January 31, 2002
10.20 Employment Agreement, dated February 1, 2002, by and between
Autocam Corporation and Thomas K. O'Mara
10.21 First Amendment to Employment Agreement by and between
Autocam Corporation and Thomas K. O'Mara, dated September
17, 2004
10.22 Micron Holdings, Inc. 2004 Stock Option Plan
10.23 Form of Micron Holdings, Inc. Nonqualified Stock Option
Agreement (Time-vesting)
10.24 Form of Micron Holdings, Inc. Nonqualified Stock Option
Agreement (Performance-vesting)
10.25 Termination of Split Dollar Life Insurance Agreement, dated
September 17, 2004, by and between Autocam Corporation and
Warren A. Veltman
10.26 Termination of Split Dollar Life Insurance Agreement, dated
September 17, 2004, by and between Autocam Corporation and
John R. Buchan
10.27 Termination of Split Dollar Life Insurance Agreement, dated
September 17, 2004, by and between Autocam Corporation and
Thomas K. O'Mara
12.1 Ratio of earnings to fixed charges
21.1 List of Subsidiaries of the Registrant
23.1 Consent of Fried, Frank, Harris, Shriver & Jacobson LLP
(included in Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP
24.1 Powers of Attorney (included in Part II of this Registration
Statement)
25.1 Statement of Eligibility and Qualification of Trustee on
Form T-1 of J.P. Morgan Trust Company, National Association
under the Trust Indenture Act of 1939
99.1 Form of Letter of Transmittal, with respect to outstanding
notes and exchange notes
99.2 Form of Notice of Guaranteed Delivery, with respect to
outstanding notes and exchange notes
</Table>
II-3
<Table>
<Caption>
NUMBER DESCRIPTION
------ -----------
99.3 Form of Instructions to Registered Holder and/or Book-Entry
Transfer Facility Participant From Beneficial Owners
99.4 Form of Letter to Our Clients
</Table>
- ---------------
+ Certain portions of this exhibit have been omitted and separately filed with
the Securities and Exchange Commission pursuant to a request for confidential
treatment.
(B) FINANCIAL STATEMENT SCHEDULES -- NONE.
ITEM 22. UNDERTAKINGS
The Registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement.
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the SEC pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in effective registration
statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) that, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof;
(3) to remove from registration means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering;
(4) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request;
(5) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective; and
(6) to file an application for purposes of determining the eligibility of
the trustee to act under subsection (a) of Section 310 of the Trust Indenture
Act in accordance with the rules and regulations prescribed by the SEC under
Section 305(b)(20) of the Trust Indenture Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or
II-4
otherwise, the registrant has been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer of controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Autocam
Corporation has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Kentwood,
State of Michigan, on this 23rd day of September, 2004.
AUTOCAM CORPORATION
By: /s/ JOHN C. KENNEDY
------------------------------------
John C. Kennedy
President
POWER OF ATTORNEY
Each of the undersigned hereby appoints John C. Kennedy and Warren A.
Veltman, as attorney-in-fact and agent for the undersigned, with full power of
substitution for and in the name, place, and stead of the undersigned, to sign
and file with the Commission under the Securities Act any and all amendments and
exhibits to this Registration Statement and any and all applications,
instruments, and other documents to be filed with the Commission pertaining to
the registration of the securities covered hereby, with full power and authority
to do and perform any and all acts and things whatsoever requisite or desirable,
hereby ratifying and confirming all that each of said attorneys-in-fact, his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated on September 23, 2004.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
/s/ JOHN C. KENNEDY President and Director
------------------------------------------------ (Principal Executive Officer)
John C. Kennedy
/s/ WARREN A. VELTMAN Chief Financial Officer, Treasurer and Secretary
------------------------------------------------ (Principal Financial Officer)
Warren A. Veltman
/s/ RICHARD J. PETERS Director
------------------------------------------------
Richard J. Peters
/s/ ADRIAN JONES Director
------------------------------------------------
Adrian Jones
/s/ JAMES A. HISLOP Director
------------------------------------------------
James A. Hislop
/s/ JACK DALY Director
------------------------------------------------
Jack Daly
</Table>
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Titan Holdings,
Inc. has duly caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the city of Kentwood, State of
Michigan, on this 23rd day of September, 2004.
TITAN HOLDINGS, INC.
By: /s/ JOHN C. KENNEDY
------------------------------------
John C. Kennedy
Chief Executive Officer
POWER OF ATTORNEY
Each of the undersigned hereby appoints John C. Kennedy and Warren A.
Veltman, as attorney-in-fact and agent for the undersigned, with full power of
substitution for and in the name, place, and stead of the undersigned, to sign
and file with the Commission under the Securities Act any and all amendments and
exhibits to this Registration Statement and any and all applications,
instruments, and other documents to be filed with the Commission pertaining to
the registration of the securities covered hereby, with full power and authority
to do and perform any and all acts and things whatsoever requisite or desirable,
hereby ratifying and confirming all that each of said attorneys-in-fact, his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated on September 23, 2004.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
/s/ JOHN C. KENNEDY Chief Executive Officer and Director
------------------------------------------------ (Principal Executive Officer)
John C. Kennedy
/s/ WARREN A. VELTMAN Chief Financial Officer, Treasurer and Secretary
------------------------------------------------ (Principal Financial Officer)
Warren A. Veltman
/s/ RICHARD J. PETERS Director
------------------------------------------------
Richard J. Peters
/s/ ADRIAN JONES Director
------------------------------------------------
Adrian Jones
/s/ JAMES A. HISLOP Director
------------------------------------------------
James A. Hislop
/s/ JACK DALY Director
------------------------------------------------
Jack Daly
</Table>
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Autocam-Pax,
Inc., Autocam South Carolina, Inc., Autocam Greenville, Inc., Autocam
Acquisition, Inc., Autocam Laser Technologies, Inc., Autocam International Ltd.
and Autocam International Sales Corporation each has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Kentwood, State of Michigan, on this 23rd day of
September, 2004.
AUTOCAM-PAX, INC.
AUTOCAM SOUTH CAROLINA, INC.
AUTOCAM GREENVILLE, INC.
AUTOCAM ACQUISITION, INC.
AUTOCAM LASER TECHNOLOGIES, INC.
AUTOCAM INTERNATIONAL LTD.
AUTOCAM INTERNATIONAL SALES
CORPORATION
By: /s/ JOHN C. KENNEDY
------------------------------------
John C. Kennedy
President
POWER OF ATTORNEY
Each of the undersigned hereby appoints John C. Kennedy and Warren A.
Veltman, as attorney-in-fact and agent for the undersigned, with full power of
substitution for and in the name, place, and stead of the undersigned, to sign
and file with the Commission under the Securities Act any and all amendments and
exhibits to this Registration Statement and any and all applications,
instruments, and other documents to be filed with the Commission pertaining to
the registration of the securities covered hereby, with full power and authority
to do and perform any and all acts and things whatsoever requisite or desirable,
hereby ratifying and confirming all that each of said attorneys-in-fact, his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated on September 23, 2004.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
/s/ JOHN C. KENNEDY President and Sole Director
------------------------------------------------ (Principal Executive Officer)
John C. Kennedy
/s/ WARREN A. VELTMAN Chief Financial Officer, Treasurer and Secretary
------------------------------------------------ (Principal Financial Officer)
Warren A. Veltman
</Table>
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Autocam Europe
B.V. has duly caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the city of Kentwood, State of
Michigan, on this 23rd day of September, 2004.
AUTOCAM EUROPE B.V.
By: /s/ JOHN C. KENNEDY
------------------------------------
Autocam Corporation
Managing Director of Autocam
Europe B.V.
POWER OF ATTORNEY
Each of the undersigned hereby appoints John C. Kennedy and Warren A.
Veltman, as attorney-in-fact and agent for the undersigned, with full power of
substitution for and in the name, place, and stead of the undersigned, to sign
and file with the Commission under the Securities Act any and all amendments and
exhibits to this Registration Statement and any and all applications,
instruments, and other documents to be filed with the Commission pertaining to
the registration of the securities covered hereby, with full power and authority
to do and perform any and all acts and things whatsoever requisite or desirable,
hereby ratifying and confirming all that each of said attorneys-in-fact, his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated on September 23, 2004.
<Table>
<Caption>
SIGNATURE TITLE
--------- -----
/s/ JOHN C. KENNEDY President of Autocam Corporation
------------------------------------------------ (Principal Executive Officer of Autocam
John C. Kennedy Corporation)
Managing Director of Autocam Europe B.V
/s/ WARREN A. VELTMAN Chief Financial Officer of Autocam Corporation
------------------------------------------------ (Principal Financial Officer of Autocam
Warren A. Veltman Corporation)
Managing Director of Autocam Europe B.V
</Table>
II-9
EXHIBIT INDEX
<Table>
<Caption>
NUMBER DESCRIPTION
------ -----------
2.1 The Agreement and Plan of Merger, dated as of May 1, 2004,
by and among by and among Titan Holdings, Inc., Micron
Holdings, Inc. and Micron Merger Corporation
2.2 First Amendment, dated as of June 8, 2004, to Agreement and
Plan of Merger, dated as of May 1, 2004, by and among by and
among Titan Holdings, Inc., Micron Holdings, Inc. and Micron
Merger Corporation
3.1 Restated Articles of Incorporation of Autocam Corporation
3.2 Bylaws of Autocam Corporation (as amended, September 9,
1991)
4.1 The Indenture, dated as of June 10, 2004, among Micron Notes
Corporation and J.P. Morgan Trust Company, National
Association relating to the 10.875% Senior Subordinated
Notes due June 15, 2014
4.2 Supplemental Indenture, as of June 21, 2004, among Titan
Holdings, Inc., Autocam-Pax, Inc., Autocam South Carolina,
Inc., Autocam Greenville, Inc., Autocam Acquisition, Inc.,
Autocam Laser Technologies, Inc., Autocam-Har, Inc, Autocam
International Ltd., Autocam International Sales Corporation,
Autocam Europe B.V., Autocam Corporation and J.P. Morgan
Trust Company, National Association
4.3 The Registration Rights Agreement, dated as of June 10,
2004, among Micron Notes Corporation, Goldman, Sachs & Co.
and Citigroup Global Markets Inc.
4.4 Joinder Agreement, dated June 21, 2004, among Titan
Holdings, Inc., Autocam-Pax, Inc., Autocam South Carolina,
Inc., Autocam Greenville, Inc., Autocam Acquisition, Inc.,
Autocam Laser Technologies, Inc., Autocam-Har, Inc, Autocam
International Ltd., Autocam International Sales Corporation,
Autocam Europe B.V., Goldman, Sachs & Co., Citigroup Global
Markets Inc., Micron Notes Corporation and Micron Holdings,
Inc.
4.5 Assumption Agreement, dated June 21, 2004, among Autocam
Corporation and J.P. Morgan Trust Company, National
Association
4.6 Form of Initial Note and Form of Exchange Note (included
within the Indenture filed as Exhibit 4.1)
5.1 Opinion of Fried, Frank, Harris, Shriver & Jacobson LLP as
to the legality of the exchange notes
5.2 Opinion of the General Counsel of Autocam Corporation as to
the legality of the exchange notes
10.1 Stockholders Agreement dated as of June 21, 2004, among
Micron Holdings, Inc., GS Capital Partners 2000, L.P., GS
Capital Partners 2000 Offshore, L.P., GS Capital Partners
2000 GMBH & Co. Beteiligungs KG, GS Capital Partners 2000
Employee Fund, L.P., Goldman Sachs Direct Investment Fund
2000, L.P., Transportation Resource Partners LP, TRP Autocam
Holdings I, L.L.C., TRP Autocam Holdings II, L.L.C. and John
C. Kennedy
10.2 Credit and Guaranty Agreement, dated as of June 21, 2004,
among Autocam Corporation, Autocam France, SARL, as
Borrowers, Titan Holdings, Inc., and certain subsidiaries of
Autocam Corporation, as Guarantors, various lenders, Goldman
Sachs Credit Partners L.P. and Citigroup Global Markets Inc.
as Joint Lead Arrangers, Goldman Sachs Credit Partners L.P.,
as Syndication Agent, Citicorp North America, Inc., as
General Administrative Agent and Collateral Agent, Citibank
International PLC, as European Administrative Agent, and
Bank One, NA, ING Capital, LLC and National City Bank as
Documentation Agents
10.3 Supply Contract with Delphi, dated March 28, 2003, for
Multec 2 Fuel Injection Components+
10.4 Lease for Facility at 4070 E. Paris Avenue, S.E., dated
April 11, 2003
10.5 Lease for Facility at 1511 George Brown Dr., dated April 11,
2003
10.6 Management Services Agreement, dated June 21, 2004, among
Goldman, Sachs & Co., Transportation Resource Advisors, LLC
and John C. Kennedy
</Table>
<Table>
<Caption>
NUMBER DESCRIPTION
------ -----------
10.7 The Management Rights Letter from Micron Holdings, Inc.,
Titan Holdings, Inc. and Autocam Corporation to GS Capital
Partners 2000, L.P., dated as of June 21, 2004
10.8 The Management Rights Letter from Micron Holdings, Inc.,
Titan Holdings, Inc. and Autocam Corporation to
Transportation Resource Partners, LP, dated as of June 21,
2004
10.9 The Management Rights Letter from Micron Holdings, Inc.,
Titan Holdings, Inc. and Autocam Corporation to GS Private
Equity Partners 2002 -- Direct Investment Fund, L.P., GS
Private Equity Partners II -- Direct Investment Fund, L.P.
and GS Private Equity Partners 1999 -- Direct Investment
Fund, L.P., dated as of June 21, 2004
10.10 Employment Agreement, dated June 21, 2004, by and between
Micron Holdings, Inc., Autocam Corporation, Titan Holdings,
Inc. and John C. Kennedy
10.11 Employment Agreement, dated February 1, 2002, by and between
Autocam Corporation and Warren A. Veltman
10.12 First Amendment to Employment Agreement by and between
Autocam Corporation and Warren A. Veltman, dated September
17, 2004
10.13 Employment Agreement, dated January 21, 2002, by and between
Autocam Corporation and John R. Buchan
10.14 First Amendment to Employment Agreement by and between
Autocam Corporation and John R. Buchan, dated September 17,
2004
10.15 Employment Agreement, dated April 30, 2002, by and between
Autocam France, SARL and Bruno Le Sech
10.16 Amendment to the Employment Agreement by and between Autocam
France, SARL and Bruno Le Sech, dated June 4, 2002
10.17 Services Agreement by and between Autocam Do Brazil and Lean
Management Consultoria Empresarial S/C Ltda, dated January
1, 1998
10.18 First Amendment to Services Agreement by and between Autocam
Do Brasil Usinagem Ltda and Lean Management Consultoria
Empresarial S/C Ltda, dated January 1, 2000
10.19 Second Amendment to Services Agreement by and between
Autocam Do Brasil Usinagem Ltda and Lean Management
Consultoria Empresarial S/C Ltda, dated January 31, 2002
10.20 Employment Agreement, dated February 1, 2002, by and between
Autocam Corporation and Thomas K. O'Mara
10.21 First Amendment to Employment Agreement by and between
Autocam Corporation and Thomas K. O'Mara
10.22 Micron Holdings, Inc. 2004 Stock Option Plan
10.23 Form of Micron Holdings, Inc. Nonqualified Stock Option
Agreement (Time-vesting)
10.24 Form of Micron Holdings, Inc. Nonqualified Stock Option
Agreement (Performance-vesting)
10.25 Termination of Split Dollar Life Insurance Agreement, dated
September 17, 2004, by and between Autocam Corporation and
Warren A. Veltman
10.26 Termination of Split Dollar Life Insurance Agreement, dated
September 17, 2004, by and between Autocam Corporation and
John R. Buchan
10.27 Termination of Split Dollar Life Insurance Agreement, dated
September 17, 2004, by and between Autocam Corporation and
Thomas K. O'Mara
12.1 Ratio of earnings to fixed charges
21.1 List of Subsidiaries of the Registrant
23.1 Consent of Fried, Frank, Harris, Shriver & Jacobson LLP
(included in Exhibit 5.1)
23.2 Consent of Deloitte & Touche LLP
24.1 Powers of Attorney (included in Part II of this Registration
Statement)
25.1 Statement of Eligibility and Qualification of Trustee on
Form T-1 of J.P. Morgan Trust Company, National Association
under the Trust Indenture Act of 1939
99.1 Form of Letter of Transmittal, with respect to outstanding
notes and exchange notes
99.2 Form of Notice of Guaranteed Delivery, with respect to
outstanding notes and exchange notes
</Table>
<Table>
<Caption>
NUMBER DESCRIPTION
------ -----------
99.3 Form of Instructions to Registered Holder and/or Book-Entry
Transfer Facility Participant From Beneficial Owners
99.4 Form of Letter to Our Clients
</Table>
- ---------------
+ Certain portions of this exhibit have been omitted and separately filed with
the Securities and Exchange Commission pursuant to a request for confidential
treatment.