As Filed with the Securities and Exchange Commission on April 25, 2006
REGISTRATION NO. 333-119363
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
POST EFFECTIVE
AMENDMENT NO.2
TO
FORM S-1
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)
MICHIGAN 3714 38-2790152
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification
Organization) Code Number) No.)
4436 BROADMOOR 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
4436 BROADMOOR 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 OFFER: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
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(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If 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
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER NOTE (1) PRICE (1) FEE
- --------------------------- ------------ ---------------- ------------------ ------------
10.875% Senior Subordinated Notes due 2014 $140,000,000 100% $140,000,000 (3)
Guarantees of 10.875% Senior Subordinated
Notes due 2014 $140,000,000 (2) (2) (2)
- ----------
(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.
(3) No filing fee is required pursuant to Rule 457(q) under the Securities Act.
----------
This Registration Statement will constitute post-effective amendment No.2 to our
registration statement 333-119363. The post effective amendment will become
effective concurrently with the effectiveness of this Registration Statement in
accordance with Section 8(c) of the Securities Act of 1933.
----------
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. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO ACQUIRE THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS
NOT PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 25, 2006.
PROSPECTUS
(AUTOCAM LOGO)
AUTOCAM CORPORATION
$140,000,000
10.875% SENIOR SUBORDINATED NOTES DUE 2014
INTEREST PAYABLE JUNE 15 AND DECEMBER 15
The 10.875% Senior Subordinated Notes due 2014 offered hereby were issued on
November 23, 2004 in exchange for the 10.875% Senior Subordinated Notes due 2014
originally issued on June 10, 2004. We refer to the notes issued in the exchange
and the original notes collectively as "notes."
The notes mature on June 15, 2014. Interest on the notes offered hereby accrues
from June 10, 2004 and the first interest payment date will be December 15,
2004.
We have the option to redeem all or a portion of the notes at any time on or
after June 15, 2009 at the redemption prices set forth in this prospectus. In
addition, before June 15, 2007, we may redeem up to 35% of the aggregate
principal amount of the notes with the net proceeds of certain equity offerings
or contributions at the redemption price set forth in this prospectus. If we
undergo certain changes of control, each holder of the notes may require us to
repurchase all or a part of its notes.
The notes are our senior subordinated unsecured obligations and rank junior to
all of our existing and future senior debt, including our senior credit
facilities and second lien credit facility. The notes rank equally with all of
our future senior subordinated unsecured debt. The notes are 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 are subordinated to all of the existing and future
senior debt of the guarantors, including our senior credit facilities and second
lien credit facility.
We do not intend to apply for listing of the notes on any securities exchange or
automated quotation system.
Certain private equity funds managed by affiliates of Goldman, Sachs & Co. own a
substantial portion of the equity of Micron Holdings, Inc., our parent company.
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN RISKS THAT
YOU SHOULD CONSIDER IN CONNECTION WITH AN INVESTMENT IN THE NOTES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------
This prospectus has been prepared for and will be used by Goldman, Sachs & Co.
in connection with offers and sales of the notes in market-making transactions.
These transactions may occur in the open market or may be privately negotiated
at prices related to prevailing market prices at the time of sales or at
negotiated prices. Goldman, Sachs & Co. may act as principal or agent in these
transactions. We will not receive any proceeds of such sales.
GOLDMAN, SACHS & CO.
[_______], 2006
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
PAGE
----
Where You Can Find More Information...................................... ii
Market and Industry Data................................................. iii
Forward-Looking Statements............................................... iii
Prospectus Summary....................................................... 1
Summary Financial Information............................................ 7
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 20
Capitalization........................................................... 21
Selected Financial Information and Other Data............................ 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 23
Business................................................................. 40
Management............................................................... 53
Merger................................................................... 59
Principal Stockholders................................................... 60
Related Party Transactions............................................... 60
Description of Certain Indebtedness...................................... 61
Description of Notes..................................................... 66
U.S. Federal Income Tax Considerations................................... 113
Plan of Distribution..................................................... 118
Legal Matters............................................................ 118
Experts.................................................................. 118
Index to Financial Information........................................... F-1
----------
Autocam Corporation is a Michigan corporation. Our principal executive offices
are located at 4436 Broadmoor 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., or "Micron;"
- - "Holdings" refers to Titan Holdings, Inc. or "Titan;"
- - "we," "our" or "us" refer to Holdings together with its consolidated
subsidiaries;
- - "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 for resale pursuant to this prospectus. We sometimes refer to
the outstanding notes and the exchange notes collectively as the "notes."
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 "2005," "2004" and "2003" relate to the
fiscal years ended December 31, 2005, December 31, 2004 and December 31, 2003.
i
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 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 at
100 F Street, N.E., Washington, D.C. 20549. 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.
----------
ii
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 of 1933 and Section 21E of the Exchange Act of
1934 (the "Exchange Act") with respect to our financial condition, results of
operations and business and our expectations or beliefs concerning future
events. Statements that are predictive in nature that depend upon or refer to
future events or conditions or that include words such as "believes," "expects,"
"anticipates," "estimates," "intends," "plans," "targets," "likely," "would,"
"could" and similar expressions are forward-looking statements.
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 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;
iii
- - 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 8.
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
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 move our product offerings
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 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
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 2005 sales, which we believe provides
greater visibility of and stability to earnings and cash flow.
Our business was established in 1988 as Autocam Corporation, a Michigan
corporation, to manufacture highly engineered, precision-machined, metal alloy
components for automotive parts. 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 "Merger")
and Autocam becoming an indirect wholly-owned subsidiary of Parent.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, registration statements and amendments to those filings are filed
with the Securities and Exchange Commission and are available free of charge to
the public at the website maintained by the Securities and Exchange Commission
at www.sec.gov.
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 typical product life cycle for our
products is five to seven years.
1
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, including 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. We are a leading independent manufacturer of
precision-machined components, sub-assemblies and assemblies in all five product
categories in which we operate.
- - Steering is our largest product category. Within the 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 and
North American operations of OEMs.
- - Fuel delivery is our second largest product category. Within the fuel
delivery 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.
- - 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.
- - 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 airbag product category, we 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. Our
components are used in the following medical devices:
- - hand pieces for use in ophthalmic surgery;
- - spinal, hip, knee, and shoulder implant systems;
- - blood cleaning and separation equipment, ultrasonic imaging equipment and
DNA testing equipment; and
- - laser cut coronary and aortic stents.
Our customers are among the leaders in their respective markets for ophthalmic
surgical devices, orthopedic devices and minimally invasive stent delivery
systems.
2
INDUSTRY TRENDS
We primarily operate within the automotive parts industry. The markets in that
industry 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
We believe our business possesses the following 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.
MERGER
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 Merger was financed
with the net proceeds from the issuance of the outstanding notes, borrowings
under our senior credit facilities and a common equity contribution of $143.4
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 "Merger."
See "Merger."
3
THE FINANCIAL SPONSORS
GSCP 2000
Since 1986, private equity funds affiliated with Goldman, Sachs & Co. have
invested $35 billion in over 600 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. 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.
THE 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 are our general unsecured senior
subordinated obligations, are subordinated to our
existing and future senior indebtedness and rank
equally with our future senior subordinated
indebtedness.
In addition, the notes 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 are 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.
4
As of December 31, 2005 (other than intercompany
indebtedness):
- Autocam had outstanding $95.0 million of senior
indebtedness consisting of borrowings under our
senior credit facilities, second lien credit
facility, no senior subordinated indebtedness
outstanding other than the notes, no
indebtedness outstanding that is subordinate to
the notes and $34.3 million of trade payables
and other liabilities;
- our subsidiaries that guaranteed the notes had
$0.2 million of indebtedness outstanding (other
than guarantees of indebtedness of Autocam) and
$2.4 million of trade payables and other
liabilities; and
- our subsidiaries that did not guarantee the
notes had $58.7 million of indebtedness
outstanding, including E36.1 million
($42.5 million as of December 31, 2005) of
borrowings under our senior credit facilities,
and $78.3 million of trade payables and other
liabilities.
See "Description of Notes -- Subordination."
Guarantees................................... The notes are 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 Notes -- The Guarantees."
The guarantees are general unsecured obligations of
each guarantor, are subordinated to any existing and
future senior indebtedness of our guarantors and
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 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 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 Notes -- Optional Redemption."
5
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 Notes -- Repurchase at the Option of Holders."
Our 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.
These covenants are subject to important exceptions
and qualifications, which are described under the
heading "Description of 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
deciding to invest in the notes. In particular, we urge you to consider
carefully the factors set forth under "Risk Factors" beginning on page 8 of this
prospectus.
6
SUMMARY FINANCIAL INFORMATION
The following table sets forth Holdings' selected consolidated historical
financial data for the years ended December 31, 2003, and for the six months
ended June 30, 2004, reflecting the historical basis of accounting without any
application of purchase accounting for the Merger, and for the six months ended
December 31, 2004 and the year ended December 31, 2005, reflecting the basis of
accounting after purchase accounting for the Merger. All amounts have been
derived from the consolidated financial statements of Holdings. The following
data should be read in conjunction with our consolidated financial statements
and related notes and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Six Months Ended
Year Ended ----------------------- Year Ended
December 31, June 30, December 31, December 31,
2003 2004 2004 2005
------------ -------- ------------ ------------
(amounts in thousands) (predecessor) (successor)
STATEMENTS OF OPERATIONS DATA:
Sales $323,210 $184,489 $165,821 $ 347,823
Cost of sales 280,070 153,426 140,847 306,384
Goodwill impairment 33,000
-------- -------- -------- ---------
Gross profit 43,140 31,063 24,974 8,439
Selling, general and administrative
expenses 17,577 17,337 10,566 22,055
-------- -------- -------- ---------
Income (loss) from operations 25,563 13,726 14,408 (13,616)
Interest and other expense, net 13,872 8,338 13,432 30,354
Tax provision 4,697 3,211 422 (3,800)
Net loss from joint venture 17
-------- -------- -------- ---------
Net income (loss) $ 6,994 $ 2,177 $ 554 ($40,187)
======== ======== ======== =========
2003 2004 2005
------------- -------- --------
(predecessor) (successor)
BALANCE SHEET DATA (END OF PERIOD):
Cash and equivalents $ 1,075 $ 2,117 $ 14,733
Adjusted working capital (1) 22,113 31,543 29,837
Property, plant and equipment, net 173,580 177,285 163,059
Total assets 409,075 569,432 531,763
Total debt 133,888 288,781 291,241
- ----------
(1) Adjusted working capital is defined as current assets (excluding cash and
cash equivalents) less current liabilities (excluding current portion of
long-term indebtedness).
7
RISK FACTORS
You should carefully consider the risks described below, as well as other
information and data included in this prospectus, before deciding whether to
invest in the notes. If any of the following risks actually occur, our business,
results of operations and financial condition could be adversely affected.
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 debt in the future. As of December 31,
2005, we had total indebtedness of $291.2 million, including the unamortized
original issue discount on the notes. In addition, as of that date, $28.9
million was available for future borrowings under the multi-currency revolving
credit facility and E9.3 million was available to Autocam France, SARL
under the euro-denominated revolving credit facility of our senior credit
facilities. We are permitted under the terms of the notes to incur additional
indebtedness in the future that will intensify the leverage related risks
described below.
Our substantial indebtedness could:
- - make it more difficult for us to satisfy our obligations under our
indebtedness;
- - 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.
As of December 31, 2005, we were in compliance with the covenants contained in
the indenture governing the notes and our senior credit facilities and second
lien credit facility agreements.
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 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 senior credit facilities, our second lien
credit facility and the notes, on commercially reasonable terms or at all. If we
are unable to generate sufficient cash flow to refinance our debt obligations,
including the notes, on favorable terms, it could have a significant adverse
effect on our business, results of operations and financial condition and on our
ability to pay principal and interest on the notes.
8
THE AGREEMENTS GOVERNING THE NOTES AND OUR OTHER INDEBTEDNESS, INCLUDING OUR
SENIOR CREDIT FACILITIES AND SECOND LIEN CREDIT FACILITY, IMPOSE SIGNIFICANT
RESTRICTIONS ON OUR BUSINESS.
The indenture governing the notes and the agreements governing our senior credit
facilities and second lien credit facility 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 senior credit facilities and second lien credit facility
agreements 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 senior credit facilities or
second lien credit facility agreements. 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 senior credit facilities
and our second lien credit facility 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 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.
In addition, all payments on the notes and the guarantees will be blocked in the
event of a payment default on senior indebtedness, including our senior credit
facilities and our second lien credit facility, and may be blocked for up to 179
days of 360 consecutive days in the event of specified non-payment defaults on
senior indebtedness.
9
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 SENIOR CREDIT
FACILITIES AND SECOND LIEN CREDIT FACILITY 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 senior credit
facilities and second lien credit facility 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
senior credit facilities and second lien credit facility 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 THAT 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 the 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 December 31, 2005, our non-guarantor foreign subsidiaries had total
indebtedness of $58.7 million, excluding intercompany liabilities. This
represented 20.2% of our total indebtedness as of that date. These non-guarantor
subsidiaries held 54.5% of our consolidated assets as of December 31, 2005 and
accounted for 57.0% of our revenues for 2005.
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, 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.
10
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 senior credit facilities, second lien credit facility 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. Dutch 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 Dutch 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 NON HOLDERS TO RETURN PAYMENTS RECEIVED FROM GUARANTORS.
Under 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.
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;
- - 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.
11
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 Dutch
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 Dutch 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 Dutch law and the prohibition of the
NCC should not extend to its subsidiaries incorporated under Dutch 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 senior credit
facilities or second lien credit facility, we will be required to prepay all
amounts outstanding under our senior credit facilities and second lien credit
facility and to cancel the multi-currency and euro denominated revolving credit
facilities of our senior credit facilities. The definitions of change of control
in the indenture and our senior credit facilities and second lien credit
facility agreements are similar, but not identical. Under some circumstances,
there may be a change in control for purposes of our new credit facilities or
second lien credit facility, 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 senior credit
facilities or second lien credit facility or that restrictions in our senior
credit facilities or second lien credit facility agreements 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 Notes -- Repurchase at the Option of Holders."
THE NOTES HAVE NO PRIOR PUBLIC MARKET, AND A PUBLIC MARKET FOR THE NOTES MAY NOT
DEVELOP OR BE SUSTAINED.
Goldman, Sachs & Co. has advised us that they presently intend to make a market
in the notes as permitted by applicable law. Goldman, Sachs & Co. is not
obligated; however, to make a market in the notes and any market-making may be
discontinued at any time in the sole discretion of Goldman, Sachs & Co. No
assurance can be given as to the liquidity of any trading market for the notes,
or the ability of the holders of the notes to sell their notes or the price at
which such holders may be able to sell their notes. An active market for the
notes may not develop or be sustained. If an active public market does not
develop or continue, the market price and liquidity of the 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 notes will be volatile.
This volatility in price may affect your ability to resell your notes or the
timing of their sale.
12
Notwithstanding the registration of the 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., Goldman,
Sachs & Co. is 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 notes, which may affect its
ability to continue market-making activities. 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 a 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.
RISKS RELATED TO OUR BUSINESS
WE HAVE SUBSTANTIAL INDEBTEDNESS, WHICH COULD AFFECT OUR ABILITY TO MEET OUR
OBLIGATIONS AND MAY OTHERWISE RESTRICT OUR ACTIVITIES.
As of December 31, 2005, we had total indebtedness for borrowed money of
approximately $291.2 million. In addition, at that date, $28.9 million was
available for future borrowings under the multi-currency revolving credit
facility and E9.3 million was available to our French subsidiary, Autocam
France, SARL under the euro-denominated revolving credit facility of our senior
credit facilities. We are also permitted under the terms of the indenture
governing our senior subordinated notes to incur additional indebtedness in the
future provided that we comply with certain financial ratios or tests. Any
additional indebtedness could intensify the leverage related risks described
below.
Our substantial indebtedness could:
- - make it more difficult for us to satisfy our obligations under our
indebtedness;
- - 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 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.
13
Our business may not generate sufficient cash flow from operations or we may be
unable to borrow additional funds under our senior credit facilities or
otherwise in amounts sufficient to enable us to pay our indebtedness or to fund
our other liquidity needs. We may need to refinance all or a portion of our
indebtedness on or before maturity. We cannot provide any assurances that we
will be able to refinance any of our indebtedness on commercially reasonable
terms or at all. If we are unable to generate sufficient cash flow to refinance
our debt obligations on favorable terms, it could have a significant adverse
effect on our financial condition.
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 2005. 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, results of operations 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, results of
operations and financial condition.
OUR BASE OF CUSTOMERS IS CONCENTRATED AND THE LOSS OF BUSINESS FROM OR
BANKRUPTCY OF 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 76.6% of our sales in 2005. 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 or bankruptcy of a major customer or a significant
reduction in sales to a major customer could have a material adverse effect on
us. For example, on October 8, 2005, Delphi and its United States subsidiaries
filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Our customers consist primarily of Tier I suppliers, like ZF, TRW, Delphi and
Bosch, that serve the large OEMs. Accordingly, while sales directly to OEMs
accounted for an insignificant percentage of our sales, due to our significant
Tier I customer base, adverse performance by, the bankruptcy of 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.
14
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, rising steel prices
could have a negative impact on our financial results. 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. 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, particularly Delphi, 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. Almost 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 because our
financial information is publicly available. 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 concessions that may
have a material adverse effect on our business, results of operations and
financial condition.
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 themselves may decide to
produce certain items sold by us. There can be no assurance that we will be able
to compete successfully with our existing competitors or with new competitors.
Failure to compete successfully could have a material adverse effect on our
business, results of operations and financial condition.
15
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 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
a third party, could be protracted and costly and could have a material adverse
effect on our business, results of operations and financial condition.
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 are 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.
WE MAY BE SUBJECT TO WORK STOPPAGES AT OUR FACILITIES OR AT THE FACILITIES OF
OUR PRINCIPAL CUSTOMERS.
As is common in many European and South American jurisdictions, substantially
all of our 1,191 French and 674 Brazilian employees are covered by country-wide
collective bargaining agreements. 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 and adversely affect our business, results
of operations and financial condition. 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
concluded and the dispute was 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, results of operations and financial condition could be
materially and adversely affected.
16
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 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;
- - 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 us 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, the senior
credit facilities and the second lien credit facility further limit 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 and
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 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;
17
- - 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 OF OPERATIONS BETWEEN FINANCIAL PERIODS.
Our operations are conducted by subsidiaries in countries where the functional
currency is not our reporting currency, the U.S. dollar. The results of the
operations and the financial position of these subsidiaries are reported in the
relevant foreign, or functional, 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 the U.S. dollar and the euro and, to a lesser extent, other
currencies, which are unrelated to our underlying results of operations.
In addition, as of December 31, 2005, $69.6 million, or 23.9%, of our total
indebtedness was denominated in euros. While this helps us match the currency of
some of our revenues and expenses with the currency of our debt repayment
obligations, 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, interest expenses for our
euro-denominated indebtedness will increase for financial reporting purposes.
We are also subject to interest rate risk because we have substantial
indebtedness at variable interest rates. As of December 31, 2005, our interest
was determined on a variable basis on $142.4 million, or 48.9%, of our total
indebtedness. An increase in interest rates of 0.25% will increase interest
expense under our variable rate loans by $0.4 million per year. In March 2006,
through an interest rate swap agreement we fixed the interest rate on $50.0
million of our variable-interest-rate indebtedness at a London Interbank Offered
Rate (LIBOR) of 5.14% for five years.
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 U.S. dollar will
make the debt repayment more costly in euro terms.
While we may enter into various currency and interest rate hedging contracts, we
cannot assure you that any hedging transactions we might enter into will be
successful or that shifts in the currency exchange 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, Brazil,
Poland and China. 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 foreign 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.
18
OUR OPERATIONS OUTSIDE OF THE UNITED STATES ARE SUBJECT TO POLITICAL, INVESTMENT
AND LOCAL BUSINESS RISKS.
Sales by our subsidiaries located outside of the United States accounted for
54.3% of our 2005 sales and an additional 4.9% of our sales in 2005 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, results of operations 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;
- - 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 legal 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 provide any assurances 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 the business, results of operations and financial condition of
our international 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, results of operations and financial condition. In
addition, we cannot provide any assurances 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.
19
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, national disasters 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 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 business, results of operations and financial
condition.
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 precision metal
machining facilities 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.
WE ARE CONTROLLED BY GS CAPITAL PARTNERS 2000, L.P. ("GSCP 2000"), OTHER PRIVATE
EQUITY FUNDS AFFILIATED WITH GSCP 2000, TRANSPORTATION RESOURCE PARTNERS LP
("TRP") AND OTHER INVESTMENT VEHICLES AFFILIATED WITH TRP, AND THEIR INTERESTS
AS EQUITY HOLDERS MAY CONFLICT WITH THE INTERESTS OF OTHER STAKEHOLDERS.
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 the interests of our stakeholders, in particular the
holders of our outstanding debt.
USE OF PROCEEDS
This prospectus is delivered in connection with the sale of notes by Goldman,
Sachs & Co. in market-making transactions. We will not receive any of the
proceeds from such transactions.
20
CAPITALIZATION
The following table sets forth our cash and cash equivalents and consolidated
capitalization as of December 31, 2005.
You should also read the following information in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Merger," our consolidated financial statements and related notes thereto.
DECEMBER 31, 2005
(IN MILLIONS
OF U.S. DOLLARS)
-----------------
Cash and cash equivalents(1) $ 14.7
======
Senior indebtedness (including current portions thereof):
Senior credit facilities:
Senior secured E62.7 million term loan (U.S.
dollar equivalent at December 31, 2005) $ 42.5
Senior secured U.S. dollar term loan 20.0
Multi-currency revolving credit facility(2)
Euro revolving credit facility(3)
Second lien credit facility 75.0
Capital lease obligations and other indebtedness(4) 16.3
------
Total senior debt 153.8
Notes(5) 137.4
------
Total debt 291.2
------
Common stock
Additional paid-in capital 162.1
Accumulated other comprehensive income 4.1
Accumulated deficit (39.6)
------
Total shareholders' equity 126.6
------
Total capitalization $417.8
======
- ----------
(1) On January 3, 2006, Autocam purchased certain assets and assumed certain
liabilities of ATS Automation Tooling Systems, Inc.'s ("ATS") Precision
Metals Division pursuant to an asset purchase agreement, dated December 12,
2005. In connection therewith, we paid 6.0 million Canadian dollars
(USD-equivalent of $5.2 million).
(2) We have the ability to borrow $28.9 million pursuant to the multi-currency
revolving credit facility of our senior credit facilities.
(3) Autocam France, SARL has the ability to borrow E9.3 million (equivalent of
$11.0 million as of December 31, 2005) pursuant to the euro revolving
credit facility of our senior credit facilities.
(4) Includes the U.S. dollar equivalent of $8.3 million in capital lease
obligations denominated in euros or Brazilian reais, the U.S. dollar
equivalent of $4.9 million in working capital line of credit obligations
denominated in euros or Brazilian reais, the U.S. dollar equivalent of $2.9
million in notes payable denominated in Brazilian reais and issued by our
Brazilian subsidiary and $0.2 million in capital lease obligations
denominated in U.S. dollars.
(5) Represents principal amount of $140.0 million, net of the unamortized
portion of the original issue discount ($2.6 million).
21
SELECTED FINANCIAL INFORMATION AND OTHER DATA
The following table sets forth Holdings' selected consolidated historical
financial data for the years ended December 31, 2001, 2002 and 2003, and for the
six months ended June 30, 2004, reflecting the historical basis of accounting
without any application of purchase accounting for the Merger, and for the six
months ended December 31, 2004 and the year ended December 31, 2005, reflecting
the basis of accounting after purchase accounting for the Merger. All amounts
have been derived from the consolidated financial statements of Holdings. The
following data should be read in conjunction with our consolidated financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, ----------------------- YEAR ENDED
------------------------------ JUNE 30, DECEMBER 31, DECEMBER 31,
2001 2002 2003 2004 2004 2005
-------- -------- -------- -------- ------------ ------------
(amounts in thousands) (predecessor) (successor)
----------------------------------------- ---------------------------
STATEMENTS OF OPERATIONS DATA:
Sales $236,452 $275,117 $323,210 $184,489 $165,821 $ 347,823
Cost of sales 201,757 231,334 280,070 153,426 140,847 306,384
Goodwill impairment 33,000
-------- -------- -------- -------- -------- ---------
Gross profit 34,695 43,783 43,140 31,063 24,974 8,439
Selling, general and administrative
expenses 16,415 16,698 17,577 17,337 10,566 22,055
-------- -------- -------- -------- -------- ---------
Income (loss) from operations 18,280 27,085 25,563 13,726 14,408 (13,616)
Interest and other expense, net 17,782 15,931 13,872 8,338 13,432 30,354
Minority interest in net income (loss) 317 (21)
Tax provision 1,540 4,635 4,697 3,211 422 (3,800)
Net loss from joint venture 17
-------- -------- -------- -------- -------- ---------
Net income (loss) ($1,359) $ 6,540 $ 6,994 $ 2,177 $ 554 ($40,187)
======== ======== ======== ======== ======== =========
OTHER FINANCIAL DATA:
Ratio of Earnings to Fixed Charges 1.0x 1.6x 1.8x 1.6x 1.1x -0.3x
2001 2002 2003 2004 2005
-------- -------- -------- -------- --------
(predecessor) (successor)
------------------------------ -------------------
BALANCE SHEET DATA (END OF PERIOD):
Cash and equivalents $ 9,830 $ 4,996 $ 1,075 $ 2,117 $ 14,733
Adjusted working capital (1) 34,190 27,957 22,113 31,543 29,837
Property, plant and equipment, net 142,758 156,964 173,580 177,285 163,059
Total assets 371,700 392,335 409,075 569,432 531,763
Total debt 153,071 146,082 133,888 288,781 291,241
- ----------
(1) Working capital is defined as current assets (excluding cash and cash
equivalents) less current liabilities (excluding current portion of
long-term indebtedness).
22
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. Financial information presented herein as of dates and for periods
through the date of the Merger on June 21, 2004 (see "Overview" below) is
presented as "predecessor" financial information. Financial information
presented herein as of dates and for periods subsequent to the date of the
Merger is presented as "successor" financial information. Future results could
differ materially from those discussed below. See discussion under the caption
"Forward-Looking Statements."
Autocam Corporation is a Michigan corporation and is 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 portion of this prospectus, unless the context otherwise requires
- - "Parent" refers to Micron Holdings, Inc., or "Micron", the parent company
of Titan,
- - "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.
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 steering, fuel delivery, electric motors,
braking, and air bag 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 Corporation, Robert Bosch GmbH, SMI-Koyo, Siemens VDO, TRW
Automotive, Inc. and ZF Friedrichshafen AG. 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.
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 profit levels. Market shares of the
traditional Big Three have declined over the period from January 1, 2003 to
December 31, 2005. Light vehicle production in North America was 15.9
million units in 2003, 15.8 million units in 2004 and 15.8 million units in
2005. In Western Europe, the comparable production rates were 16.2 million
units in 2003, 16.5 million units in 2004 and 15.8 million units in 2005.
CSM Worldwide, Inc. ("CSM") forecasts production of 15.8 million units in
North America and 15.6 million units in Western Europe during 2006.
- - A significant portion of our sales and profits resulted from transactions
denominated in foreign currencies (primarily the euro and the Brazilian
real). 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 those foreign currencies in 2003, 2004 and 2005 relative to the
same periods in the prior years impacted our reported results. The
following table sets forth, for the periods indicated, the period end,
period average, and high and low noon New
23
York time buying rates for cable transfers as certified for customs
purposes by the Federal Reserve Bank of New York expressed as USD per euro
and USD per Brazilian real. As of April 20, 2006, the noon buying rate of
the euro was $1.23 per euro and of the Brazilian real was $.47 per
Brazilian real.
YEARS ENDED DECEMBER 31,
---------------------------------------
EURO BRAZILIAN REAL
------------------ ------------------
2003 2004 2005 2003 2004 2005
---- ---- ---- ---- ---- ----
Average (1) 1.14 1.24 1.25 0.32 0.34 0.41
End of year 1.26 1.36 1.18 0.34 0.38 0.43
High 1.26 1.36 1.35 0.35 0.38 0.46
Low 1.04 1.18 1.17 0.27 0.31 0.36
----------
(1) The average rates are 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 in 2003, 2004 and 2005 were affected by
the following events:
- - 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 indebtedness outstanding at the time. 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 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.
- - 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 "Merger"). As a
result, Holdings became a wholly-owned subsidiary of Parent. 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 common shareholders of Holdings and the
payment of transaction costs incurred by Holdings, was $395.0 million. The
Merger was financed with the net proceeds from the issuance of $140.0
million of senior subordinated notes issued by us and guaranteed by
Holdings (the "Notes"), borrowings under senior credit facilities of $114.0
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 certain of our
management.
- - Effective November 1, 2004, Autocam France, SARL's wholly-owed subsidiary,
Frank & Pignard, SA, acquired the stock of ATI, S.A.S. ("ATI"), for $1.7
million in cash and the assumption of $6.1 million in debt, primarily
consisting of capital lease obligations. The acquisition was completed
primarily for the purpose of eliminating costly outside processing of
certain electric motor components.
24
- - Effective June 15, 2005, Autocam's wholly-owned subsidiary, Autocam
Greenville, Inc., acquired the stock of Sager Precision Technologies, Inc.
("Sager") for $9.9 million in cash and the assumption of $0.2 million in
capital lease obligations. The purchase price was primarily financed
indirectly through equity contributions from the shareholders of Micron in
the amount of $10.0 million. The acquisition was completed primarily for
the purpose of expanding our medical devices product offerings.
- - In accordance with Statement of Financial Accounting Standards ("SFAS") No.
142, "Goodwill and Other Intangible Assets," we evaluate the carrying value
of our goodwill for indicators of impairment on at least an annual basis
and on an interim basis if indicators of potential impairment arise between
annual evaluations. Our European segment experienced unfavorable operating
results primarily as a result of lower production volumes on key programs,
excessive labor costs, increased customer pricing pressure and higher raw
material costs. As a result, we concluded that our European reporting
unit's goodwill has been impaired and we recorded against our 2005 results
a goodwill impairment loss of $33.0 million. The fair value of that
reporting unit was estimated using the present value of expected future
cash flows. This charge does not result in current or future cash
expenditures.
RESULTS OF OPERATIONS
Set forth below is our Consolidated Statements of Operations expressed as a
percentage of sales:
NON-GAAP
2003 (1) 2004 (2) 2005 (2)
-------- -------- --------
Sales 100.0% 100.0% 100.0%
Cost of sales 86.7% 84.0% 88.1%
Goodwill impairment 9.5%
----- ----- -----
Gross profit 13.3% 16.0% 2.4%
Selling, general and administrative expenses 5.4% 8.0% 6.3%
----- ----- -----
Income (loss) from operations 7.9% 8.0% -3.9%
Interest expense, net 2.9% 4.7% 7.2%
Other expenses, net 1.4% 1.6% 1.5%
----- ----- -----
Income (loss) before tax provision 3.6% 1.7% -12.6%
Tax provision 1.5% 1.0% -1.0%
----- ----- -----
Net income (loss) 2.1% 0.7% -11.6%
===== ===== =====
- ----------
(1) Represents our consolidated results of operations reflecting the historical
basis of accounting without any application of purchase accounting for the
Merger.
(2) Represents our combined consolidated results of operations reflecting the
historical basis of accounting without any application of purchase
accounting for the Merger for the six months ended June 30, 2004 and
reflecting the basis of accounting after purchasing accounting for the
Merger for the six months ended December 31, 2004 and for the year ended
December 31, 2005.
2005 COMPARED TO 2004
SALES
Sales decreased $2.5 million, or 0.7%, to $347.8 million in 2005 from $350.3
million in 2004. The fluctuation in the exchange rates between the USD and the
functional currencies of our foreign operations caused a $5.8 million increase
in sales when comparing 2005 to 2004. On a constant currency basis, sales in
2005 decreased $8.3 million from 2004 levels principally due to the following
factors:
25
- - Factors resulting in a decrease in sales:
- Our European operations were desourced by customers on steering,
electric motor and fuel components resulting in a reduction in sales
of $19.6 million when comparing 2005 to 2004;
- We granted unit price reductions to our customers totaling $6.0
million in 2005;
- Lower sales to a North American fuel customer whose primary customers
lost market share and produced less vehicles in 2005 as compared to
2004; and
- Lower sales to a European fuel customer as production on its current
injector program was replaced by production on a new injector program
for which we do not produce components.
- - Factors partially offsetting the decrease in sales:
- Sales of medical device components by the newly-acquired Sager
facilities totaled $7.1 million in 2005;
- Our North American operations were awarded steering business by a new
customer for whom we began production in late 2004;
- Our European operations were awarded new steering business by an
existing customer late in 2005; and
- Our North American operations benefited from incremental sales to a
braking customer for a new generation program while continuing to
produce components for the old generation program.
GROSS PROFIT
Gross profit decreased $47.6 million to $8.4 million, or 2.4% of sales, in 2005
from $56.0 million, or 16.0% of sales, in 2004. The gross profit percentage
decline can be principally attributed to the following factors:
- - We recorded a goodwill impairment loss of $33.0 million in 2005. No charge
was recorded in 2004;
- - The loss of sales volume as described above resulted in decreasing margins
as existing equipment and facilities were underutilized, particularly in
our European operations;
- - Unit price reductions of $6.0 million were granted to our customers between
2004 and 2005;
- - Our North American and European operations experienced production
difficulties on product launches in 2005 resulting in higher levels of
production scrap than were experienced in 2004;
- - Severance and equipment move costs associated with closing a French
facility and moving production to other French facilities and to our new
Polish facility were $3.1 million in 2005 and a $1.2 million charge taken
to write down the carrying cost of the facility to be closed to its
estimated net realizable value; and
- - Our European operations incurred excessive labor costs in 2005. Although
restructuring and productivity improvement initiatives focused on reducing
labor were largely successful in 2005, lower production volumes required a
larger reduction in labor in order to maintain gross margin percentages
comparable to 2004. Given the largely fixed nature of direct labor in our
European operations, we were unable to quickly react to the drop in demand
from our customers.
These unfavorable effects were partially offset by lower outsouring costs. The
acquisition of ATI as described above reduced outsourcing costs on certain
electric motor components.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses decreased $5.8 million to $22.1
million, or 6.3% of sales, in 2005 from $27.9 million, or 8.0% of sales, in 2004
due to the net affects of the following:
- - The 2004 results include $8.2 million in costs associated with the Merger,
consisting principally of investment banking fees, management bonuses, and
legal and accounting fees, and $0.7 million in executive manager
receivables forgiven under a split-dollar life insurance program; and
26
- - Severance, travel and consulting expenses associated with closing a French
facility and moving production to other French facilities and to our new
Polish facility were $1.8 million in 2005.
INTEREST EXPENSE, NET
Net interest expense increased $8.8 million to $25.1 million in 2005 from $16.3
million in 2004. Our 2005 interest expense reflects the full-year affect of
increased debt levels incurred as a result of the Merger. In addition, average
borrowings under our revolving credit facility were higher in 2005 as compared
to 2004 as reduced operating cash flows necessitated increased borrowings to
fund operations and capital expenditures. Finally, interest rates incurred on
borrowings under our senior credit facility averaged 98 basis points more in
2005 when compared to 2004.
OTHER EXPENSE, NET
Net other expense of $5.2 million in 2005 and $5.5 million in 2004 consists
primarily of the following:
- - The $1.9 million write-off in 2004 of unamortized debt issue costs
associated with our former senior credit facilities, which was refinanced
in connection with the Merger, and the $1.7 million write-off in 2005 of
unamortized debt issue costs in connection with entering into our second
lien credit facility agreement;
- - Amortization of debt issue costs incurred in connection with entering into
our senior credit facilities, the second lien facility and the Notes was
$1.1 million in 2004 and $1.8 million in 2005;
- - Net losses on the disposal of fixed assets, financing costs associated with
non-recourse factoring of accounts receivable in Europe and net foreign
currency transaction losses of $2.5 million in 2004 and $1.7 million in
2005.
TAX PROVISION
In 2005, we recorded an income tax benefit of $3.8 million. This amount is less
than the amount that would be calculated using the United States statutory rate
of 35.0% primarily because the goodwill impairment charge is not deductible for
income tax purposes, and therefore no offsetting tax benefit has been recorded.
The impact on the 2005 income tax benefit of French legal profit sharing
contribution expense was insignificant.
2004 COMPARED TO 2003
SALES
Sales increased $27.1 million, or 8.4%, to $350.3 million in 2004 from $323.2
million in 2003. Of this increase, $17.9 million was attributable to the
fluctuation in the exchange rates between the USD and the functional currencies
of our foreign operations. On a constant currency basis, sales in 2004 increased
$9.2 million over 2003 levels principally due to the following factors:
- - Factors resulting in an increase in sales:
- Increased shipments of electric power-assisted steering products to
two European customers in 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
- Sales of components manufactured by our South American operations have
grown in 2004 relative to 2003 as lower labor costs in those
facilities (relative to those in our European and North American
facilities and those of our competitors) have afforded us additional
demand for high value-added components from our customers.
27
- - Factors resulting in a decrease in sales:
- We granted unit price reductions to our customers totaling $4.8
million in 2004;
- Decreased sales to European steering and electric motor customers,
both of which desourced us on some products; and
- We had lower sales to a European fuel customer as we decided not to
continue supplying some of its products at unacceptably low profit
levels.
GROSS PROFIT
Gross profit increased $12.9 million to $56.0 million, or 16.0% of sales, in
2004 from $43.1 million, or 13.3% of sales, in 2003. The gross profit percentage
improvement can generally be attributed to the following factors:
- - Labor productivity improvement initiatives implemented in 2004 resulted in
the reduction of direct labor cost and a corresponding improvement in gross
margin by 1.4 percentage points. Major initiatives included headcount
reductions achieved in North America as a result of the Chicago, Illinois
facility closure as described above and various other continuous process
improvement initiatives, and in Europe as a result of the steering
production line reorganization described above;
- - We incurred premium freight, outsourcing, consulting services and machinery
repair costs in 2003 in connection with the European steering line
reorganization. Some of these costs were offset by labor productivity
improvements that occurred late in 2003. These costs were not repeated in
2004;
- - Depreciation expense was $1.8 million less in 2004 as compared to 2003 as
we adjusted the historical cost of our property, plant and equipment to
fair market appraised values in connection with the Merger;
- - We incurred equipment move, severance and other costs of $1.5 million in
2003 in connection with the Chicago, Illinois facility closure. These costs
were not repeated in 2004; and
- - The majority of our 2004 sales growth was due to expansion of existing
programs, thereby increasing margins as existing equipment and facilities
were more fully utilized.
These positive factors were partially offset by the negative impact on gross
profit of steel cost increase, price reductions to customers and the loss of
business to European customers as described in "Sales" above.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses increased $10.3 million to $27.9
million, or 8.0% of sales, in 2004 from $17.6 million, or 5.4% of sales, in
2003. The 2004 results include $8.2 million in costs associated with the Merger,
consisting principally of investment banking fees, management bonuses, and legal
and accounting fees, and $0.7 million in executive manager receivables forgiven
under a split-dollar life insurance program. In addition, the devaluation of the
USD versus the euro caused a comparative increase in selling, general and
administrative expenses of $0.8 million from 2003 to 2004.
INTEREST EXPENSE, NET
Net interest expense increased $6.9 million to $16.3 million in 2004 from $9.4
million in 2003. Interest expense on increased debt levels incurred as a result
of the Merger more than offset the favorable impact of 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,
interest rates incurred on borrowings under our new senior credit facility
averaged 40-45 basis points less in 2004 when compared to interest rates
incurred on borrowings under our former senior credit facility in 2003.
28
OTHER EXPENSE, NET
Net other expense increased $1.1 million to $5.5 million in 2004 from $4.4
million in 2003. The 2004 results include the accelerated write-off of $1.9
million in unamortized debt issue costs associated with our former senior credit
facilities, which was refinanced in connection with the Merger. In addition,
amortization of debt issue costs incurred in connection with securing our new
senior credit facilities and the Notes was $0.4 million more in 2004 than the
amortization of similar costs incurred in connection with securing our old
senior credit facilities. These factors more than offset the $0.7 million
negative impact on our 2003 results of the loss recorded on the sale of
equipment from our Chicago, Illinois facility.
TAX PROVISION
In 2004, we recorded an income tax provision of $3.6 million, for an effective
tax rate of 57.1%. Our effective tax rate was more than the United States
statutory rate of 35.0% due primarily to the French income tax provision, which
includes legal profit sharing contribution expense of $1.6 million.
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 in 2006 are expected to be $21.6 million.
Our principal sources of cash to fund short- and long-term liquidity needs
consist of cash generated by operations and borrowing under our revolving credit
facilities. We believe our sources of liquidity are sufficient to meet our needs
for 2006.
On October 8, 2005 (the "Filing Date"), Delphi Corporation and its United States
subsidiaries ("Delphi-US") filed for bankruptcy protection under Chapter 11 of
the U.S. Bankruptcy Code. Delphi-US is a significant customer of ours,
accounting for 12-13% of our gross sales in 2003, 2004 and 2005. We believe that
we are a critical supplier to Delphi-US's continued operations as we are a sole
source and just-in-time supplier for a majority of components we ship to
Delphi-US. Critical supplier status increases the likelihood that invoices for
product shipped by us to Delphi-US prior to the Filing Date will be collected
and retained. We have had discussions with Delphi-US since the Filing Date and
as yet have no final written agreements in place. Our short-term cash flows and
profitability have been largely unaffected by the Delphi-US filing. Delphi-US's
long-term survival and scope of operations are not clear at this time. The loss
of Delphi-US as a customer or a significant reduction in Delphi-US's operations
could have a material adverse effect on our net income and operating cash flows.
THE SENIOR CREDIT FACILITIES
In connection with the Merger, on June 21, 2004, Autocam entered into a $158.0
million USD-equivalent senior credit facilities agreement, which consisted of a
$36.1 million multi-currency revolving credit facility available to Autocam, an
E11.6 million revolving credit facility available to our French subsidiary,
Autocam France, SARL, a $33.0 million term loan to Autocam and a E62.7
million term loan to Autocam France, SARL.
On December 22, 2005, we amended our senior credit facilities agreement to
permit us to incur the second lien term loans discussed below, to replace
interest coverage, leverage and senior leverage ratio covenants with maximum
first lien leverage and revised maximum senior leverage ratio covenants, to
amend the consolidated capital expenditures covenant and to make other
modifications. We also reduced the committed amount of our
multi-currency-denominated revolving credit facility from $36.1 million to $28.9
million and we reduced the committed amount of Autocam France, SARL's
euro-denominated revolving credit facility from E11.6 million to E9.3 million
(USD-equivalent of $11.0 million as of December 31, 2005). We had no borrowings
outstanding under any of the revolving credit facilities of our senior credit
facilities as of December 31, 2005. Our ability to borrow against these
facilities expires in June 2011.
29
Interest and Fees. The interest rate margins on our senior credit facilities
changed in conjunction with the December 2005 amendment to our senior credit
facilities agreement. The interest rate margin applicable to the U.S. Term Loans
(with a Eurocurrency rate) is 3.50% and the interest rate margin applicable to
the Euro Term Loans is 4.00%, in each case from December 22, 2005 until the
later of the first anniversary of the effective date of the first amendment to
our senior credit facilities agreement (i.e. April 2006) and the date we
demonstrate a "Leverage Ratio," as defined in our senior credit facilities
agreement, of less than or equal to 4.50:1.00. Thereafter, the applicable
interest rate margin is determined by reference to the Leverage Ratio in effect
from time to time as set forth below:
APPLICABLE MARGIN FOR REVOLVING APPLICABLE MARGIN
LOANS, EUROPEAN REVOLVING LOANS FOR EUROPEAN
LEVERAGE RATIO AND U.S. TERM LOANS TERM LOANS
- -------------- ------------------------------- -----------------
> or = 3.00:1.00 3.25% 3.75%
< 3.00:1.00 3.00% 3.50%
If, at any time our "First Lien Leverage Ratio" as defined in our senior credit
facilities agreement exceeds 2.25:1.00, the applicable margins shown above shall
be increased by 0.25%, and if our First Lien Leverage Ratio exceeds 2.75:1.00,
the applicable margins shown above shall be increased by an additional 0.25%.
The interest rate margin applicable to swing line loans and other loans that are
base rate loans is an amount equal to the margin applicable to Eurocurrency rate
loans at that time, minus 1.00% per annum.
Amortization and Prepayments. After giving effect to the prepayments made from
the proceeds of the term loans under our second lien credit facility (described
below), no amortization of the term loans under our senior credit facilities is
required through the quarter ending June 30, 2008, and thereafter required
amortization is as follows:
TERM LOAN
INSTALLMENTS
----------------
FISCAL QUARTER ENDING U.S. EUROPEAN
- --------------------- ----- --------
September 30, 2008 E 0.9
December 31, 2008 1.1
March 31, 2009 2.7
June 30, 2009 2.7
September 30, 2009 2.7
December 31, 2009 2.7
March 31, 2010 3.9
June 30, 2010 3.9
September 30, 2010 $ 2.3 3.9
December 31, 2010 5.9 3.9
March 31, 2011 5.9 3.9
June 30, 2011 5.9 3.8
----- -----
Total $20.0 E36.1
===== =====
Our senior credit facilities also require mandatory prepayments on terms
substantially identical to our second lien credit facility (described below).
Collateral and Guarantors. Indebtedness under our senior credit facilities is
guaranteed by Titan, Autocam Europe, B.V. (Autocam's Dutch holding company
subsidiary) and 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 by Autocam with
respect to the obligations of Autocam France, SARL under the Eurocurrency Term
Loan and revolving credit facilities.
30
Indebtedness under our senior credit facilities is secured by a first priority
lien on substantially all of our and the guarantors' tangible and intangible
assets, including personal property, real property, intercompany indebtedness
and capital stock owned by Autocam and such guarantors, limited to 65% of such
capital stock in the case of certain foreign subsidiaries.
Financial and Restrictive Covenants. Our senior credit facilities agreement
contains maximum first lien leverage ratios, maximum senior leverage ratios and
maximum capital expenditures and also contains 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.
THE SECOND LIEN CREDIT FACILITY
On December 22, 2005, Autocam entered into a second lien Term Loan and Guaranty
Agreement ("second lien credit facility") with a syndicate of lenders, Goldman
Sachs Credit Partners L.P. as syndication agent, lead arranger and sole book
runner, and The Bank of New York as administrative agent and collateral agent.
Amount and Final Maturity. The second lien credit facility provides for a $60.0
million term loan and a E12.7 million term loan (USD-equivalent of $15.0 million
as of December 31, 2005). Each term loan has a final maturity of six years.
Autocam is the borrower under the term notes, which were fully borrowed at the
closing on December 22, 2005.
Use of Proceeds. Proceeds of the second lien term loans were used by us to repay
borrowings under our senior credit facilities as follows: (i) $12.6 million of
term loans borrowed by Autocam, (ii) E22.7 million of term loans borrowed by
Autocam France, SARL, and (iii) $29.0 million of revolving loans borrowed by
Autocam. The balance of the proceeds was used to pay transaction costs and
interest due on our senior credit facilities and for working capital and general
corporate purposes.
Interest and Fees. The interest rates applicable to loans under our second lien
credit facility will be (i) in the case of our USD-denominated term loans, at
its option equal to either (x) a base (prime) rate plus 7.50% per annum or (y)
an adjusted Eurodollar bank deposit rate plus 8.50% per annum; or (ii) in the
case of our euro-denominated term loans, an adjusted Euro bank deposit rate plus
9.50% per annum. We may at our option, in lieu of payment of interest in cash,
pay up to 1.50% per annum of the interest by adding such interest to the then
outstanding principal amount of the term loans (payment-in-kind).
We have agreed to pay various fees with respect to our second lien credit
facility, including customary arrangement fees paid to Goldman Sachs Credit
Partners L.P. and a customary annual administrative agent fee payable to The
Bank of New York.
Prepayments. Our second lien credit facility requires mandatory prepayments,
subject to exceptions, of an amount equal to:
- - 100% of the net cash proceeds from asset sales or other dispositions of
property by us or our subsidiaries, including insurance proceeds or
governmental condemnations, 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", as defined in our second lien credit facilities
agreement, 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 "Consolidated Excess Cash Flow", as defined in our second lien
credit facility agreement, provided that this percentage will be reduced to
50% if its "Leverage Ratio" is less than 3.00:1.00.
31
Mandatory prepayments (which are permitted to be waived by the lenders in
certain circumstances) will be applied first to repay our obligations under our
senior credit facilities, and then remaining amounts, if any, to our USD term
loans and our euro term loans under our second lien credit facility on a pro
rata basis.
We are permitted to voluntarily prepay loans under our second lien credit
facility on or after December 22, 2006, subject to the terms of our senior
credit facilities agreement. If we voluntarily prepay all or any portion of our
second lien credit facility, we are required to pay a prepayment premium (as a
percentage of the principal prepaid) as follows: on or after December 22, 2006
but prior to December 22, 2007, 2.0%; and on or after December 22, 2007 but
prior to December 22, 2008, 1.0%. The term loans under our second lien credit
facility may be prepaid without a prepayment premium from and after December 22,
2008.
Collateral and Guarantors. Indebtedness under our second lien credit facility is
guaranteed by Titan, Autocam's Dutch subsidiary, Autocam Europe, B.V., and each
of our existing and subsequently acquired or organized domestic and, to the
extent no material adverse tax consequence would result and permitted under
local law, each of our foreign subsidiaries.
Indebtedness under our second lien credit facility is secured by a second
priority lien on 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.
The liens to secure our second lien credit facility are subordinated to the
liens to secure our senior credit facilities. The priority of, and certain other
matters relating to, the liens in the collateral under our second lien credit
facility and our senior credit facilities is set out in an intercreditor
agreement.
Financial and Restrictive Covenants. Our second lien credit facility agreement
contains maximum senior leverage ratios that vary during the term of the
facility agreement. Our second lien credit facility agreement also contains
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. These are substantially identical to (and in some respects
more flexible than) the covenants in our senior credit facilities agreement.
Representations and Affirmative Covenants. Our second lien credit facility
contains customary representations, warranties and affirmative covenants.
Events of Defaults. Our second lien credit facility contains customary events of
default, which are substantially as set forth in our senior credit facilities
agreement, but with materiality thresholds 15% higher than the corresponding
provisions in our senior credit facilities agreement, including:
- - failure to make payments when due;
- - defaults under other material indebtedness;
- - non-compliance 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 our second lien credit facilities
agreement.
There is a 60-day standstill period with respect to a cross default to our
senior credit facilities agreement.
32
THE SENIOR SUBORDINATED NOTES
On June 10, 2004, we issued the Notes to fund a portion of the purchase price of
the Merger. The Notes mature on June 15, 2014. The Notes are general unsecured
obligations, are subordinated in right of payment to all existing and future
senior debt, including borrowings under the senior credit facilities and the
second lien credit facility, rank equally in right of payment to any future
senior subordinated indebtedness, are senior in right of payment to any future
subordinated indebtedness and are unconditionally guaranteed by certain of our
domestic restricted subsidiaries and by Autocam Europe, B.V. Interest on the
Notes accrues at the rate of 10.875% per annum and is payable semi-annually on
June 15 and December 15 of each year.
The indenture governing the Notes contains covenants that impose significant
restrictions on us. These restrictions include limitations on our ability to:
incur indebtedness or issue disqualified 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.
At December 31, 2005, we were in compliance with the covenants contained in the
indenture governing the Notes, the senior credit facilities agreement and the
second lien credit facility agreement.
2005
Cash provided by operating activities of $16.1 million in 2005 reflects net
income, excluding non-cash and other reconciling items, of $8.1 million, and a
decrease in net working capital of $8.0 million due primarily to the following
factors:
- - Accounts payable increased $6.7 million as payment terms for most vendors
were extended at the end of December 2005 in order to conserve cash;
- - Accounts receivable decreased $5.3 million. Factored European accounts
receivable increased $5.0 million from December 31, 2004 to December 31,
2005; and
- - These factors were partially offset by the impact of an increase in
inventories of $4.2 million. Raw material inventories increased throughout
2005 consistent with the rise in steel and perishable tooling prices. Also,
machinery spare parts inventories have increased consistent with the
addition of new types of equipment.
Cash used in investing activities of $31.6 million in 2005 included the
following significant items:
- - Capital expenditures primarily for production equipment (net of proceeds
from fixed asset sales) of $17.9 million;
- - Expenditures totaling $11.0 million for acquisitions; and
- - Refundable deposits paid of $2.0 million for equipment to be received in
the future, which equipment will be subject to operating lease arrangements
that provide for the deposits to be refunded upon signing.
Cash provided by financing activities of $28.0 million in 2005 included the
following significant items:
- - Proceeds from borrowings pursuant to the second lien credit facility and
other debt, including Brazilian equipment notes, of $76.0 million, less
debt issue costs paid of $3.9 million;
- - Shareholder contributions received in connection with acquisitions of $17.0
million ($7.0 million of which was received in anticipation of funding the
acquisition of the Precision Metals Division of ATS Automation Tooling
Systems. Inc. in January 2006);
- - Principal payments of our senior credit facilities, capital lease
obligations and equipment notes payable of $45.6 million; and
33
- - Net repayments under our revolving credit facilities of $15.5 million.
2004
Cash provided by operating activities of $10.2 million in 2004 reflects net
income, excluding non-cash and other reconciling items of $25.3 million, and an
increase in net working capital of $15.1 million due primarily to the following
factors:
- - Inventories increased $8.8 million due primarily to the growth in our
business as described above. In addition, the value of raw material
inventories has risen consistent with the rise in steel and perishable
tooling prices. Finally, machinery spare parts inventories have increased
consistent with the addition of new types of equipment; and
- - Deferred credits and other long-term liabilities decreased $5.8 million. We
satisfied obligations under interest rate derivative instruments totaling
$2.4 million. Additionally, the French government passed a new law allowing
for the partial early withdrawal of legal profit sharing earned by our
employees, which resulted in the reduction of such liability of $1.6
million.
Cash used in investing activities of $18.7 million in 2004 included capital
expenditures primarily for production equipment (net of proceeds from fixed
asset sales) of $19.0 million and $1.1 million in costs associated with the
acquisition of an outsource vendor by our European operations. Investing cash
inflows included $1.5 million in refunds of equipment deposits previously paid
by leasing companies as such equipment is now subject to operating lease
arrangements.
Cash provided by financing activities of $9.7 million in 2004 included the
following:
- - Proceeds from issuance of the Notes and term note borrowings at the closing
of the Merger under our senior credit facilities of $246.0 million, less
debt issue costs paid of $11.6 million;
- - Shareholder contributions received in connection with the Merger of $115.4
million;
- - Proceeds from the issuance of equipment notes payable and borrowings on
swing lines of credit of $1.9 million;
- - Payments made to former shareholders and option holders of Holdings of
$232.7 million;
- - Payments made to retire the term notes of our old senior credit facilities
in existence at the closing of the Merger of $89.9 million;
- - Scheduled term note principal payments of our old and new senior credit
facilities, capital lease obligations and equipment notes payable of $23.5
million; and
- - Net borrowings under the old and new revolving credit facilities of $4.1
million.
2003
Cash provided by operating activities of $38.0 million in 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 in 2003 of certain liabilities existing as of 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.
34
Cash used in investing activities of $14.9 million in 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 in 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.
CONTRACTUAL OBLIGATIONS
Our contractual obligations as of December 31, 2005 are set forth below:
PAYMENTS DUE BY PERIOD
--------------------------------
LESS MORE
THAN 1-3 4-5 THAN
TOTAL 1 YEAR YEARS YEARS 5 YEARS
------ ------ ----- ----- -------
(amounts in millions)
Senior credit facilities, second lien
credit facility and the Notes (1) $274.9 $ 2.3 $39.3 $233.3
Capital leases and other debt 16.3 $ 8.6 5.3 1.3 1.1
Operating leases 64.9 14.3 24.0 11.1 15.5
Pension obligations 0.3 0.3
Conditional purchase commitments (2) 13.1 10.3 1.3 1.2 0.3
------ ----- ----- ----- ------
Total contractual cash obligations $369.5 $33.2 $32.9 $52.9 $250.5
====== ===== ===== ===== ======
- ----------
(1) Interest obligations under our senior credit facilities and second lien
credit facility are variable in nature. Interest obligations under the
Notes are fixed at $15.2 million per year through the year ending December
31, 2013 and $7.6 million for the year ending December 31, 2014.
(2) These amounts are non-cancelable purchase commitments for machinery and
equipment and buildings, 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. In addition, on January 3, 2006, Autocam purchased certain assets
and assumed certain liabilities of ATS Automation Tooling Systems, Inc.'s
Precision Metals Division pursuant to an asset purchase agreement, dated
December 12, 2005. In connection therewith, we paid 6 million Canadian
dollars (USD-equivalent of $5.2 million).
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements as defined by Item 303 of Regulation
S-K.
CONTINGENT LIABILITIES AND OTHER COMMITMENTS
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 December 31, 2005 was $2.1 million. Our
expected funding obligation in 2006 is less than $0.1 million.
35
SEASONALITY
Our business is seasonal, as it is common that our customers and OEMs
historically have one to two week shutdowns of operations in 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
In 2005, our North American operations exported $17.0 million of product to
customers located in foreign countries, and our foreign operations shipped
$198.7 million of product to customers from their facilities. In 2004, our North
American operations exported $21.1 million of product to customers located in
foreign countries, and our foreign operations shipped $213.0 million of product
to customers from their facilities. In 2003, our North American operations
exported $22.4 million of product to customers located in foreign countries, and
our foreign operations shipped $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
In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 123(R), "Share-Based
Payment," which will require compensation costs related to share-based payment
transactions to be recognized in the financial statements. With limited
exceptions, the amount of compensation cost will be measured based on the grant
date fair value of the equity or liability instruments issued. In addition,
liability awards will be re-measured each reporting period. Compensation cost
will be recognized over the period that an employee provides services in
exchange for the award. SFAS No. 123(R) replaces SFAS No. 123, "Accounting for
Stock-Based Compensation, and supercedes Accounting Principals Board Opinion No.
25, Accounting for Stock Issued to Employees," and related interpretations. SFAS
No. 123(R) becomes effective January 1, 2006. We expect that the impact of
adopting SFAS No. 123(R) will be consistent with the pro forma expense that has
been previously disclosed, adjusted for future grants, cancellations and
exercises of stock options in accordance with SFAS 123(R).
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections," which replaces APB Opinion No, 20, "Accounting Changes," and SFAS
No. 3, "Reporting Accounting Changes in Interim Financial Statements," and
provides guidance on the accounting for and reporting of accounting changes and
error corrections. SFAS No. 154 applies to all voluntary changes in accounting
principles and requires retrospective application (as defined) to prior periods'
financial statements, unless it is impracticable to determine the effects of a
change. It also applies to changes required by an accounting pronouncement that
does not include specific transition provisions. In addition, SFAS No. 154
redefines restatement as the revising of previously issued financial statements
to reflect the correction of an error. This statement is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. We will adopt SFAS No. 154 beginning January 1, 2006.
36
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 2005 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. This write-down, if needed, would
result in a lower value, which would become the new cost basis in the carrying
value of the inventory. 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.
In estimating future cash flows, we rely upon internally generated 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 and workers'
compensation plans that are primarily self-insured by us. As a result, we accrue
liabilities for known claims as well as the estimated amount of expected claims
incurred but not reported. We evaluate our medical and workers' compensation
claims liabilities on a quarterly basis through the review of claims lag studies
and knowledge of past history.
37
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 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 2003, we assumed a compensation growth rate
of 2.0% or 3.0% depending on the plan. When calculating pension expense for 2004
and 2005, 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
Generally, 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN CURRENCY EXCHANGE RATES
We have in the past and may in the future 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 as of December 31, 2004 or 2005.
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 will be
higher or lower depending on fluctuations in exchange rates between the USD and
the functional currencies of our foreign operations.
38
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 or euro. As such, results of
operations with regard to these sales are directly influenced by fluctuations in
the exchange rates between the Brazilian real and the USD or euro. The effects
of foreign currency exchange rate fluctuations are somewhat mitigated on the
remainder of this subsidiary's sales by the fact that these sales and the
related expenses associated with the sales are generally incurred in Brazilian
reais and the reported income will be higher or lower depending on fluctuations
in the exchange rates between the USD or euro and the Brazilian real. Our
consolidated net assets as of December 31, 2005 include amounts based in Europe
and in South America, and were translated into USD at the exchange rates in
effect at that date (1.1797 USD per euro and 2.3399 Brazilian reais per USD).
Accordingly, our consolidated net assets will fluctuate depending on the
exchange rates between the USD and the functional currencies of our foreign
operations as a result of currency translation adjustments.
INTEREST RATES
We are exposed to interest rate risk on a portion of our outstanding
indebtedness. Our senior secured credit facilities and our second line credit
facility bear interest at variable rates as described in the notes to our 2005
consolidated financial statements. We previously managed interest rate risk on a
majority of our indebtedness through the use of interest rate swap agreements
that were settled in connection with the Merger. We did not enter into new
interest rate swap agreements upon settlement of the prior agreements.
In March 2006, through the purchase of an interest rate swap contract we fixed
the interest rate on $50.0 million of our variable-interest-rate indebtedness at
LIBOR of 5.14% for five years.
Set forth below are the annual aggregate maturities of long-term obligations as
of December 31, 2005:
YEARS ENDING DECEMBER 31,
2006 $ 8.6
2007 3.2
2008 4.4
2009 13.6
2010 27.0
Thereafter 234.4
------
Total $291.2
======
Our weighted average interest rates incurred on long-term obligations was 6.7%
in 2003, 7.9% in 2004 and 8.9% in 2005.
Based on the borrowing rates currently available to us for bank loans with
similar terms and average maturities, the fair value of long-term debt
approximated its carrying value as of December 31, 2004 and was $249.9 million
as of December 31, 2005.
39
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 move our product offerings
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 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
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 2005 sales, which we believe provides
greater visibility of and stability to earnings and cash flow.
Our business was established in 1988 as Autocam Corporation, a Michigan
corporation, to manufacture highly engineered, precision-machined, metal alloy
components for automotive parts. 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 "Merger")
and Autocam becoming an indirect wholly-owned subsidiary of Parent.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, registration statements and amendments to those filings are filed
with the Securities and Exchange Commission and are available free of charge to
the public at the website maintained by the Securities and Exchange Commission
at www.sec.gov.
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 typical product life cycle for our
products is 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, including 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.
40
We manufacture and sell over 200 types of precision automotive components for
five primary product categories. We are a leading independent manufacturer of
precision-machined components, sub-assemblies and assemblies in all five product
categories in which we operate.
- - Steering is our largest product category. Within the 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 and
North American operations of OEMs.
- - Fuel delivery is our second largest product category. Within the fuel
delivery 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.
- - 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.
- - 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 airbag product category, we 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. Our
components are used in the following medical devices:
- - hand pieces for use in ophthalmic surgery;
- - spinal, hip, knee, and shoulder implant systems;
- - blood cleaning and separation equipment, ultrasonic imaging equipment and
DNA testing equipment; and
- - laser cut coronary and aortic stents.
Our customers are among the leaders in their respective markets for ophthalmic
surgical devices, orthopedic devices and minimally invasive stent delivery
systems.
INDUSTRY TRENDS
We primarily operate within the automotive parts industry. The markets in that
industry 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.
41
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
2005, we serviced our top six customers from more than one of our production
locations.
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:
- - Steering -- Steering demand is expected to increase with the worldwide
emergence of electric power-assisted steering;
- - 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 and
that typically require improved technology and higher value-added precision
manufactured components;
- - 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,
Inc., an independent market research firm for the automotive industry
("CSM"), expects the demand for these conveniences to increase to an
average of 38 electric motors per vehicle in 2006 from an average of 26
electric motors per vehicle in 2000; and
- - Airbags -- We believe growing customer demand for safety as well as
regulatory activity will continue to increase airbag content in new
vehicles principally from the 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.
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, represented over 45% of the
European fuel injection market in 2005. 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-added precision manufactured 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 both locations.
CONTINUED PENETRATION OF IMPORT-BRAND OEMS IN NORTH AMERICA. Import-brand OEMs,
including Toyota, Honda and Nissan, continue to increase their manufacturing
presence in North America. The North American market share of import-brand OEMs
has grown from 28.8% in 1997 to 43.6% in 2005. CSM expects import-brand OEMs to
capture 48.3% of the North American market by 2008. We believe there is an
opportunity to take advantage of this trend by increasing our sales to Tier I
suppliers that currently sell to import-brand OEMs.
42
COMPETITIVE STRENGTHS
INDUSTRY LEADER IN STRATEGICALLY TARGETED MARKETS. We are a leader in
fragmented, niche markets. 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 2006 sales will be under existing contractual
agreements, with much of the related capital expenditures and start-up costs
already incurred. We believe that over 80% of our expected sales volumes through
2007 will come from products and customers already under contract. The long-term
nature of our contracts permits us to achieve meaningful manufacturing cost
reductions and sustain or 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. The strength of our
customer relationships is evidenced by the fact that our top 10 customers have
been customers for an average of more than 18 years. 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 ZF Friedrichshafen AG ("ZF"), TRW, Delphi, Bosch and
Siemens VDO Automotive 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 automobile 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 15
strategically located manufacturing facilities in North America (7), France (4),
Brazil (3) and Poland (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.
43
Our breakdown of sales in 2005 by product category, geography and customer was:
BY CATEGORY
Steering 34.9%
Fuel 31.2%
Braking 9.3%
Electric motors 7.4%
Air bags 5.0%
Medical devices 4.6%
Other 7.6%
BY GEOGRAPHY
North America 45.7%
Europe 45.7%
South America 8.6%
Asia (1)
BY CUSTOMER
ZF 18.1%
TRW 16.4%
Delphi 15.1%
Bosch 11.7%
Other 38.7%
- ----------
(1) Our Asian facility had not yet begun production as of December 31, 2005.
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 20 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, throughout 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 and others in the management team own in the aggregate
21.0% of Parent on a fully-diluted basis.
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
moving 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, in late 2004 and 2005, we 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.
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 2005 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.
44
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 eliminate duplicate
costs. In France, we have similarly undertaken efforts to reduce headcount and
optimize operations to increase cash flow over the past two years. In addition,
we believe we have identified additional operational initiatives 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 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:
- - steering,
- - fuel,
- - braking,
- - electric motors,
- - air bags,
- - medical devices, and
- - other.
45
Set forth below are our sales by product line for the periods presented:
YEARS ENDED
------------------------
PRODUCT CATEGORIES 2003 2004 2005
- ------------------ ------ ------ ------
(IN MILLIONS)
Steering $ 99.9 $120.2 $121.4
Fuel 111.0 109.1 108.4
Braking 26.4 30.6 32.5
Electric motors 41.8 39.2 25.6
Air bags 18.5 18.6 17.5
Medical devices 8.1 9.0 15.8
Other 17.5 23.6 26.6
------ ------ ------
Total revenue $323.2 $350.3 $347.8
====== ====== ======
Set forth below are our sales by product line as a percentage of total sales for
the periods presented:
YEARS ENDED
------------------
PRODUCT CATEGORIES 2003 2004 2005
- ------------------ ---- ---- ----
Steering 31% 34% 35%
Fuel 34% 31% 31%
Braking 8% 9% 9%
Electric motors 13% 11% 7%
Air bags 6% 5% 5%
Medical devices 3% 3% 5%
Other 5% 7% 8%
--- --- ---
Total revenue 100% 100% 100%
=== === ===
STEERING. We design, engineer and manufacture 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, S.A. ("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 steering component sales are predominantly generated in Europe where we
serve many of the leading Tier I steering suppliers. We also have a growing
presence in North and South America where we serve our top customers' local
steering component needs. Our customers have penetration on a diverse OEM
customer base. In Europe, OEM customers for our steering components include BMW,
DaimlerChrysler, Fiat, General Motors, Honda, Nissan, Peugeot, Renault, Toyota
and Volkswagen. In North and South America, OEM customers for our steering
components include DaimlerChrysler, Fiat, General Motors and Peugeot.
Steering demand was historically driven by consumer demand for the comfort and
safety of power steering systems. In 2005, it is estimated that the North
American light vehicle market has achieved almost 100% power steering
penetration with Europe at slightly over 92%. 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 steering system components at our facilities in Kentwood,
Michigan, Pochons, Ternier, Le Lac and Lecheres, France and Campinas, Brazil.
46
FUEL. We design, engineer and manufacture fuel delivery 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
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 delivery systems 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 delivery system component needs. Our customers' products
are generally platform neutral. Examples of North America OEM customers for our
fuel delivery components include DaimlerChrysler, Ford, General Motors, Nissan
and Hyundai. Examples of European OEM customers for our fuel delivery components
include Opal, Fiat, DaimlerChrysler and Ford. Examples of South American OEM
customers for our fuel delivery components include Volkswagon and Fiat.
The fuel delivery 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. Direct injecting systems, a newer form of fuel injectors, 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. This
technology has become particularly important in Europe, where we have
significant development efforts with a key fuel delivery systems customer. 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
have significant development efforts underway to meet the future demand for
diesel direct injection in Europe and North America.
We manufacture fuel delivery system components at our facilities in Kentwood and
Marshall, Michigan, Pochons, Ternier and Lecheres, France, and Campinas and
Pinhal, Brazil.
BRAKING. We design, engineer and manufacture braking system components including
sleeves, seats, valve rods and push 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, anti-lock brake systems and
traction control and stability systems. As these systems become increasingly
complex, we believe that the precision required in manufacturing 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, OEM customers for our braking components
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.
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 Industries, S.A. ("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 provided global manufacturing capabilities and enhanced
our manufacturing skills in this product category.
47
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. OEM customers for our electric motor components
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, Lecheres, France, Boituva, Brazil and Kamienna Gora, Poland.
AIR BAGS. We engineer and manufacture air bag system components like collars,
adaptors, projectiles, chargeholders, diffusers and bases for customers such as
Autoliv, one of the world's largest producers of air bag systems.
Our air bag 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, OEM customers for our air bag
components include Ford, Honda, Renault/Nissan and Toyota.
We believe the air bag system segment has significant opportunities for future
growth driven by increasing consumer demand and ongoing regulatory activity.
Driver and passenger air bags are now standard on all North American light
vehicles. However, side curtain air bags have only achieved 29% penetration of
North American light vehicles in 2005. CSM predicts that approximately 95% of
North American vehicles will offer side curtain air bags by 2009. We expect
state and federal regulators to continue to encourage and require OEMs to
increase vehicle air bag 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 air bags. We also expect the demand for "smart" or sensing air
bags to contribute to future growth of this category. These air bags have staged
deployments and typically require double the number of precision-machined parts
compared to first generation air bags.
We manufacture air bag system components at our facilities in Kentwood, Marshall
and Dowagiac, Michigan and Campinas, Brazil. In June 2003, we closed the
Chicago, Illinois facility that originally contained Har's operations and
combined it with our Kentwood and Marshall facilities to reduce costs and
improve quality to our customers.
MEDICAL DEVICES. We design and manufacture a number of components and
sub-assemblies primarily for ophthalmic surgical device and orthopedic implant
applications. The bulk of our sales in the medical device category come from
three primary customers, all of which are among the leaders in their respective
markets for ophthalmic surgical and orthopedic implant devices. We manufacture
our components for medical devices at our Hayward, California and Weymouth and
Plymouth, Massachusetts facilities.
OTHER. Examples of some of our other 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 shorter or 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 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.
48
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.
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 steering, fuel delivery and electric motor product
groups. 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 CNC 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 its products.
For example, we manufacture key components for 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.
49
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.
PATENTS AND TRADEMARKS
In limited cases, we rely on a combination of patents, trade secrets,
trademarks, copyrights and other intellectual property rights, non-disclosure
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 compete primarily on the basis of quality and price, and 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
$66.5 million of steel in 2005, representing 21.7% 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 and cost increases were
significant in 2004 and, to a lesser degree, in 2005. 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 expect that adequate quantities of steel will be available at
market prices.
50
EMPLOYEES
Set forth below is a distribution of our workforce by geographic segment as of
the end of 2005:
TOTAL
EMPLOYEES
---------
North America (United States) 746
Europe (France and Poland) 1,191
South America (Brazil) 674
Asia (China) 1
-----
2,612
=====
None of our North American, Polish or Asian employees are covered by collective
bargaining agreements. Governmental unions represent all of our French and South
American employees. We consider our relations with our employees to be good.
PROPERTIES
Our principal executive offices are located at 4436 Broadmoor Avenue, S.E.,
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.
51
The following table sets forth our principal manufacturing facilities as of
December 31, 2005:
APPROXIMATE OWNED OR
LOCATION SQUARE FOOTAGE LEASED PRIMARY PRODUCTS
- -------- -------------- -------- ----------------
North America (United States):
Kentwood, Michigan 190,000 Lease Fuel, steering, electric motors, air bags, braking
Marshall, Michigan 57,000 Lease Fuel, air bags, braking
Dowagiac, Michigan 70,000 Own Braking, air bags
Hayward, California 27,000 Lease Medical devices
Weymouth, Massachusetts 13,000 Lease Medical devices
Plymouth, Massachusetts 17,000 Lease Medical devices
Europe:
France:
Thyez (Pochons) 194,000 Lease Fuel, steering, braking
Thyez (Ternier) 194,000 Lease Fuel, steering, braking
Thyez (Le Lac) 74,000 Lease Steering
Marnaz (Perrieres) 91,000 Own Idle
Marnaz (Lecheres) 75,000 Lease Fuel, steering, electric motors
Poland -
Kamienna Gora 75,000 Lease(1) Electric motors
South America (Brazil):
Campinas 50,000 Lease Steering, fuel, air bags, braking
Sao Joao Boa Vista 65,000 Lease Fuel, braking
Boituva 36,000 Lease Electric motors
Asia (China) - Wuxi 69,000 Lease Electric motors
Corporate - Kentwood, Michigan 17,000 Lease Corporate operations
- ----------
(1) In January 2006, we exercised our option to purchase this facility for 1.2
million Polish Zloties (USD-equivalent of $0.4 million as of December 31,
2005), 0.2 million Polish Zloties of which had already been paid as of
December 31, 2005.
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.
52
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, are not expected to have a material adverse effect on our business,
results of operations or financial condition.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Parent and Autocam are as follows:
NAME AGE TITLE
---- --- -----
John C. Kennedy 47 President, Chief Executive Officer and Director
Warren A. Veltman 44 Chief Financial Officer and Secretary/Treasurer
Thomas K. O'Mara 45 Vice President, Sales and Marketing
John R. Buchan 44 Chief Operating Officer, North American Operations
Jonathan B. DeGaynor 39 Chief Operating Officer, International Operations
Eduardo Renner de Castilho 45 Chief Operating Officer, South American Operations
Jack Daly 40 Vice President and Director *
James A. Hislop 48 Vice President and Director *
Adrian Jones 41 Vice President and Director *
Richard J. Peters 58 Vice President and Director *
Richard J. Lacks, Jr. 55 Director
- ----------
* 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 Chief Executive Officer at our
inception in April 1988 and has been a Director of Parent since June 2004. Mr.
Kennedy earned a Bachelor of Science in Accounting and Finance from the
University of Detroit and an Executive Masters in Business Administration from
the University of Michigan. Mr. Kennedy serves on the Board of Directors of
Lacks Enterprises, Inc.
WARREN A. VELTMAN
Mr. Veltman became our Chief Financial Officer in November 1990 and our
secretary/treasurer in August 1991. Mr. Veltman earned a Bachelor of Business
Administration 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 earned a Bachelor of Science 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 Benteler
Automotive, most recently as executive vice president of the Exhaust Products
Group. Mr. Buchan earned a Bachelor of Science in Electrical Engineering and a
Masters in Manufacturing Management from the General Motors Institute.
53
JONATHAN B. DEGAYNOR
Mr. DeGaynor has been with us since September 2005 as the Chief Operating
Officer of our International operations. Prior to that, he worked 17 years first
at General Motors Corporation and then at Delphi Corporation, most recently as
the Business Line Executive for the Diesel Business Line based in Paris, France.
Mr. DeGaynor earned a Bachelor of Science in Mechanical Engineering at the
University of Michigan and a Masters in Business Administration from The
University of Pennsylvania's Wharton School of Business.
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 earned law and
business degrees from Mackenzie University and a Masters in Business
Administration from Northwestern University.
JACK DALY
Mr. Daly has been a Director of Autocam since June 2004 and a Director of Parent
since April 2004. He 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 Bachelor and Masters degrees in Engineering from Case Western Reserve
University and a Masters in Business Administration from the University of
Pennsylvania's Wharton School of Business. Mr. Daly currently serves on the
boards of directors of IPC Acquisition Corporation, Euramax and Cooper Standard
Automotive.
JAMES A. HISLOP
Mr. Hislop has been a Director of Autocam since June 2004 and a Director of
Parent since April 2004. He 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
Bachelor of Science in Business Administration from Bucknell University and a
Masters of Business Administration in Corporate Finance from New York
University. Mr. Hislop currently serves on the Boards of Directors of Penske
Corporation, UnitedAuto Group, Inc., Fleetwash, Inc., Home Direct, Inc. and Katt
Worldwide Logistics, Inc.
ADRIAN JONES
Mr. Jones has been a Director of Autocam since June 2004 and a Director of
Parent since April 2004. He is a Managing Director in the Principal Investment
Area of Goldman, Sachs & Co., where he has worked since 1998. He joined Goldman
and became a Managing Director in 2002. Mr. Jones earned a Bachelor of
Administration from University College Galway, a Masters of Administration from
University College Dublin, and a Masters of Business Administration from Harvard
Graduate School of Business Administration. Mr. Jones currently serves on the
Board of Directors of Burger King Corporation.
RICHARD J. PETERS
Mr. Peters has been a Director of Autocam and Parent since June 2004. He is a
Managing Director of Transportation Resource Partners LP. Mr. Peters was with
Penske Corporation from 1986 to 2003 serving in various capacities, most
recently as its President. Mr. Peters is a Director and a member of the
Executive Committees of Penske Corporation, Penske Truck Leasing Corporation,
UnitedAuto Group and Hino Trucks. He earned a degree from Wayne State University
in 1970.
54
RICHARD J. LACKS, JR.
Mr. Lacks has been a Director of Autocam since October 2004. He is the President
and Chief Executive Officer and a board member of Lacks Enterprises, Inc. Mr.
Lacks joined Lacks in 1973 and has served in his present capacities since 1999.
He earned a Bachelor of Business Administration from Western Michigan
University. Mr. Lacks also serves on the boards of directors of Adac Plastics,
Inc., and Plastic Plate, Inc.
COMMITTEES OF THE BOARD OF DIRECTORS
Autocam is not a "listed company and is 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 the member's financial sophistication. Accordingly,
the Board of Directors believes that each of its members have sufficient
knowledge and the experience necessary to fulfill the duties and obligations of
an audit committee.
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. All other directors are entitled to annual compensation
for their services of $25,000.
STOCKHOLDERS AGREEMENT
On June 21, 2004, in connection with the closing of the Merger, 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 Mr. Kennedy. The stockholders agreement provides each of GSCP 2000 and TRP
the right to designate two members and Mr. Kennedy the right to designate one
member of the board of directors. The original GSCP 2000 designees were Messrs.
Daly and Jones, the original TRP designees were Messrs. Hislop and Peters and
the original Mr. Kennedy designee was himself. The stockholders agreement
allows, at the request of TRP, for the expansion of the board of directors to a
maximum of 10, with four each being designated by GSCP 2000 and TRP and two by
Mr. Kennedy. In October 2004, the parties agreed to allow TRP and Mr. Kennedy to
add one additional board member each. Mr. Kennedy appointed Mr. Lacks. The
position allocable to TRP is currently vacant.
The stockholders agreement provides that Mr. Kennedy has the right:
- - to designate members of the board of directors as described above;
- - 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.
CODE OF ETHICS
Our Board of Directors has not adopted a code of ethics applicable to our
principal executive, financial or accounting officers. The Board of Directors
believes that our current internal control procedures and business practices are
adequate to promote honest and ethical conduct and to deter wrongdoing by these
executives.
55
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation earned by our chief
executive officer and each of our other four most highly-compensated executive
officers in 2005 paid by us and our affiliates.
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION (1) SECURITIES
NAME AND PRINCIPAL ---------------------------------- UNDERLYING ALL OTHER
POSITION YEAR SALARY ($) BONUS ($) OTHER ($) OPTIONS (#) COMPENSATION ($) (2)
- ------------------ ---- ---------- --------- --------- ------------ --------------------
John C. Kennedy 2005 500,000 600 2,000
President and 2004 425,000 1,700 1,671,765
Chief Executive Officer 2003 356,731 600 99,383
John R. Buchan 2005 184,135 102,850 40,014
Chief Operating Officer, 2004 170,000 143,950 105,926 385,724
North American Operations 2003 173,269 130,600 64,609
Eduardo Renner de Castilho 2005 275,000
Chief Operating Officer, 2004 275,000 26,481
South American Operations 2003 275,000
Warren A. Veltman 2005 168,846 104,600 31,309
Secretary, Treasurer and 2004 150,000 146,700 105,926 624,714
Chief Financial Officer 2003 152,885 131,350 28,157
Thomas K. O'Mara 2005 158,846 80,600 27,694
Vice President of Sales and 2004 140,000 111,700 105,926 735,970
Marketing 2003 142,692 100,600 25,670
FORMER OFFICER -
Bruno Le Sech 2005 264,690 70,214 374,680
Chief Operating Officer, 2004 223,344 67,003 105,926 106,204
European Operations (3) 2003 203,382 61,015 40,676
- ----------
(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) 2005 amounts include the following:
- Premiums paid under life insurance policies owned by Messrs. Veltman
and O'Mara in the amounts of $29,309 for Mr.Veltman and $25,694 for
Mr. O'Mara. See "Split Dollar Arrangements";
- Insurance premiums paid on a life insurance policy for Mr. Buchan of
$38,014;
- Matching contributions under our 401(k) plan of $2,000 each for
Messrs. Kennedy, Buchan, Veltman and O'Mara; and
- Tuition costs of $4,296 reimbursed to Mr. Le Sech for his children.
(3) Converted at USD per euro rates of 1.1299 in 2003, 1.2408 in 2004 and
1.2456 in 2005.
56
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. As of December 31, 2005, options in respect
of 948,035 shares have been granted under the plan. Options may not be granted
under the plan after June 21, 2014.
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.
AGGREGATED OPTION EXERCISES IN 2005 AND OPTION VALUES AS OF DECEMBER 31, 2005
For each named executive officer, as of December 31, 2005, the following table
provides:
- - the total number of shares of Holdings stock received upon the exercise of
options in 2005;
- - 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, 2005; and
- - the value of all options that were in-the-money as of December 31, 2005.
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT THE-MONEY OPTIONS AT
SHARES DECEMBER 31, 2005 (#) DECEMBER 31, 2005 ($)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --------------- ------------ ----------- ------------- ----------- -------------
John R. Buchan -- -- 18,537 87,389 -- --
Eduardo Renner de Castilho -- -- 4,634 21,847 -- --
Warren A. Veltman -- -- 18,537 87,389 -- --
Thomas K. O'Mara -- -- 18,537 87,389 -- --
FORMER OFFICER -
Bruno Le Sech -- -- -- -- -- --
57
EMPLOYMENT AGREEMENTS OF MESSRS. KENNEDY, BUCHAN, VELTMAN AND O'MARA
GENERAL
We have employment agreements with each of Messrs. Kennedy, Buchan, Veltman and
O'Mara. The agreement for Mr. Kennedy expires on June 21, 2007, the agreement
for Mr. Buchan expires on January 20, 2007 and the agreements for Messrs.
Veltman and O'Mara expire on January 31, 2007, in each case subject to automatic
renewal for additional one-year periods unless either party provides 90-day
notice of non-extension to the other prior to the end of the term. The
employment agreements provide for base salaries as of the end of 2005 of
$500,000 for Mr. Kennedy, $200,000 for Mr. Buchan, $190,000 for Mr. Veltman and
$180,000 for Mr. O'Mara. Salaries are subject to annual adjustment at the
discretion of our board of directors in the cases of Messrs. Buchan, Veltman and
O'Mara and their employment agreements provide for performance-based bonuses.
MATERIAL TERMS UNIQUE TO MR. KENNEDY'S EMPLOYMENT AGREEMENT
The salary of Mr. Kennedy is subject to periodic review by Parent's board of
directors for increase and his target performance bonus per year is 60% of his
salary. 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 in the
calendar year in which the termination occurred. If Mr. Kennedy is terminated by
us without "cause" (as defined in his employment agreement), he is entitled to
18 months base salary and benefits continuation. Additionally, if
- - Parent materially breaches the employment agreement,
- - assigns him duties or responsibilities inconsistent with his positions with
us, Parent or Holdings,
- - makes a change resulting in a material diminution of his responsibilities
with us, Parent or Holdings,
- - fails to provide employee benefits substantially comparable to those
provided to him on June 21, 2004,
- - fails to require a successor to assume his employment agreement,
- - we relocate Autocam's headquarters by more than 35 miles or relocate his
place of employment to other than Autocam's headquarters, or
- - there is a reduction in his base salary or target bonus,
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 in the
calendar year in which the termination occurred. 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. Each employment agreement includes a perpetual non-disclosure
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.
MATERIAL TERMS UNIQUE TO MR. BUCHAN'S EMPLOYMENT AGREEMENT
In order to compensate Mr. Buchan for the loss of supplemental retirement plan
benefits earned by him at his previous employer, 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.
58
MATERIAL TERMS COMMON TO MESSRS. BUCHAN'S, VELTMAN'S AND O'MARA'S EMPLOYMENT
AGREEMENTS
If Messrs. Buchan, Veltman or O'Mara is terminated by us without "cause" (as
defined in his employment agreement), he is entitled to 18 months base salary
and benefits continuation. If Messrs. Buchan, Veltman or O'Mara is involuntarily
terminated within 180 days following a change of control (as defined in his
employment agreement), he is entitled to 24 months base salary with bonus and 12
months benefits continuation. Messrs. Buchan's, Veltman's and O'Mara's
agreements contain non-competition and non-solicitation provisions that apply
for the severance period. If we materially breach the employment agreements of
those individuals or make a change resulting in a material diminution of their
duties, authority or compensation, they can terminate their employment and be
entitled to the same base salary and benefits as if they had been terminated
without "cause."
EMPLOYMENT AGREEMENT OF MR. EDUARDO RENNER DE CASTILHO
Autocam do Brasil Usinagem Ltda 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 $22,917 per
month for his services. Lean Management Consultoria Empresarial is solely
responsible for all labor and social security obligations relating to its
employees. Lean Management Consultoria 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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Kennedy serves on the board of directors of Lacks Enterprises, Inc. and Mr.
Lacks serves on our board of directors. In their respective roles on those
boards of directors, both Messrs. Kennedy and Lacks participate in deliberations
over each others' compensation arrangements.
SPLIT DOLLAR ARRANGEMENTS
We formerly had split dollar arrangements with Messrs. Buchan, Veltman and
O'Mara. As described above, these split dollar arrangements were terminated as
of September 17, 2004 and all amounts due from each of Messrs. Buchan, Veltman
and O'Mara with respect to premiums paid by Autocam prior to the at date were
forgiven. Autocam will continue to pay the premiums on all life insurance
policies previously subject to the split dollar arrangements for Messrs. Buchan,
Veltman and O'Mara until the termination of the executive's employment
agreement. Autocam treated the amount of the debt forgiveness as a bonus to each
of Messrs. Buchan, Veltman and O'Mara and paid the executive an additional bonus
to substantially 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 Merger.
MERGER
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 Merger was financed with the net
proceeds from the issuance of the outstanding notes, borrowings under our senior
credit facilities and a common equity contribution of $143.4 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.
59
PRINCIPAL STOCKHOLDERS
Autocam is wholly-owned by Holdings. Holdings is wholly-owned by Parent. Set
forth below is information regarding the beneficial ownership by class of the
shares of Parent, by (1) all stockholders known by us to beneficially own more
than 5% (either individually or as a group of related entities) of its
outstanding common stock, (2) our directors, (3) our named executive officers,
and (4) all of our executive officers and directors as a group. 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
each of 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 Mr. Kennedy is 4436 Broadmoor
Avenue, S.E., Kentwood, Michigan 49512. The address for Mr. de Castilho is rua
guido de camargo pentendo sobrinho, 3055-cep 13082-800, Campinas, Sao Paulo,
Brazil.
10% SERIES A CONVERTIBLE 12% SERIES B CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------------- ------------------------- -------------------------
% % %
NAME # OF SHARES OUTSTANDING # OF SHARES OUTSTANDING # OF SHARES OUTSTANDING
---- ----------- ----------- ----------- ----------- ----------- -----------
Transportation Resource Partners LP 3,479,224 24.3%
GS Capital Partners 2000, L.P. 222,058 22.1% 206,676 22.1% 3,175,408 22.1%
John C. Kennedy 195,800 19.5% 182,237 19.5% 2,800,000 19.5%
TRP Autocam Holdings I, L.L.C. 1,200,000 8.4%
GS Capital Partners 2000 Offshore, L.P. 80,687 8.0% 75,098 8.0% 1,153,821 8.0%
GS Capital Partners 2000 Employee Fund, L.P. 19,519 1.9% 65,667 7.0% 1,008,920 7.0%
TRP Autocam Holdings II, L.L.C. 636,473 4.4%
Goldman Sachs Direct Investment 2000, L.P. 9,282 * 18,167 1.9% 279,126 1.9%
TRP Autocam Holdings IV, L.L.C. 255,600 1.8%
GS Capital Partners 2000 GmbH & Co.
Beteiligungs KG 70,554 7.0% 8,639 * 132,725 *
TRP Autocam Holdings III, L.L.C. 124,110 *
TRP Autocam Holdings V, L.L.C. 54,593 *
TRP Autocam Holdings VI, L.L.C. 402,100 40.1% 374,247 40.1%
Eduardo Renner de Castilho 2,797 * 2,603 * 40,000 *
All directors and officers as a group 198,597 19.8% 184,840 19.8% 2,840,000 19.8%
- ----------
* Represents less than 1% of respective class of stock outstanding.
RELATED PARTY TRANSACTIONS
AURORA CAPITAL
Prior to the Merger, 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 $0.5 million in 2003 and
$0.3 million in 2004.
60
GSCP 2000
GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co.
own 40.1% of the common stock and preferred stock of Parent. Under the
registration rights agreement, we filed 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 in September 2004. 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 senior
credit facilities initially and in the March 2005 amendment of the senior credit
facilities agreement. Goldman Sachs Credit Partners L.P. was also the
syndication agent, lead arranger and sole book runner for our second lien credit
facility. 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. In 2004, we paid Goldman Sachs Credit Partners L.P.
$4.2 million from the proceeds of our senior credit facilities and the Notes for
underwriters and bridge financing commitment fees and out-of-pocket expenses. In
2005, we paid Goldman Sachs Credit Partners L.P. $1.9 million from the proceeds
of our second lien credit facility for syndication fees and out-of-pocket
expenses.
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 Mr. Kennedy.
MANAGEMENT SERVICES AGREEMENT
We entered into a Management Services Agreement with Goldman, Sachs & Co.,
Transportation Resource Advisors, LLC, and Mr. Kennedy, on June 21, 2004. Under
the management services agreement, we 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., 40.1%; Transportation Resource Advisors, LLC, 40.1%; and
Mr. Kennedy, 19.8%. We also agreed to indemnify these parties and their
affiliates for liabilities arising from their actions under the management
services agreement. In consideration of such services, we paid these parties
combined fees and expenses of $0.3 million in 2004 and $0.6 million in 2005.
RENTAL EXPENSES
We lease a building in France 50% owned by Mr. Kennedy. 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 in 2003, $0.7 million in 2004 and $0.7 million in
2005.
DESCRIPTION OF CERTAIN INDEBTEDNESS
SENIOR CREDIT FACILITIES
In connection with the Merger, on June 21, 2004, Autocam entered into a $158.0
million USD-equivalent senior credit facilities agreement, which consisted of a
$36.1 million multi-currency revolving credit facility available to Autocam, an
E11.6 million revolving credit facility available to our French subsidiary,
Autocam France, SARL, a $33.0 million term loan to Autocam and a E62.7 million
term loan to Autocam France, SARL.
61
On December 22, 2005, we amended our senior credit facilities agreement to
permit us to incur the second lien term loans discussed below, to replace
interest coverage, leverage and senior leverage ratio covenants with maximum
first lien leverage and revised maximum senior leverage ratio covenants, to
amend the consolidated capital expenditures covenant and to make other
modifications. We also reduced the committed amount of our
multi-currency-denominated revolving credit facility from $36.1 million to $28.9
million and we reduced the committed amount of Autocam France, SARL's
euro-denominated revolving credit facility from E11.6 million to E9.3 million
(USD-equivalent of $11.0 million as of December 31, 2005). We had no borrowings
outstanding under any of the revolving credit facilities of our senior credit
facilities as of December 31, 2005. Our ability to borrow against these
facilities expires in June 2011.
Interest and Fees. The interest rate margins on our senior credit facilities
changed in conjunction with the December 2005 amendment to our senior credit
facilities agreement. The interest rate margin applicable to the U.S. Term Loans
(with a Eurocurrency rate) is 3.50% and the interest rate margin applicable to
the Euro Term Loans is 4.00%, in each case from December 22, 2005 until the
later of the first anniversary of the effective date of the first amendment to
our senior credit facilities agreement (i.e. April 2006) and the date we
demonstrate a "Leverage Ratio," as defined in our senior credit facilities
agreement, of less than or equal to 4.50:1.00. Thereafter, the applicable
interest rate margin is determined by reference to the Leverage Ratio in effect
from time to time as set forth below:
APPLICABLE MARGIN FOR REVOLVING APPLICABLE MARGIN
LOANS, EUROPEAN REVOLVING LOANS FOR EUROPEAN
LEVERAGE RATIO AND U.S. TERM LOANS TERM LOANS
- -------------- ------------------------------- -----------------
> or = 3.00:1.00 3.25% 3.75%
< 3.00:1.00 3.00% 3.50%
If, at any time our "First Lien Leverage Ratio" as defined in our senior credit
facilities agreement exceeds 2.25:1.00, the applicable margins shown above shall
be increased by 0.25%, and if our First Lien Leverage Ratio exceeds 2.75:1.00,
the applicable margins shown above shall be increased by an additional 0.25%.
The interest rate margin applicable to swing line loans and other loans that are
base rate loans is an amount equal to the margin applicable to Eurocurrency rate
loans at that time, minus 1.00% per annum.
Amortization and Prepayments. After giving effect to the prepayments made from
the proceeds of the term loans under our second lien credit facility (described
below), no amortization of the term loans under our senior credit facilities is
required through the quarter ending June 30, 2008, and thereafter required
amortization is as follows:
TERM LOAN INSTALLMENTS
----------------------
FISCAL QUARTER ENDING U.S. EUROPEAN
- --------------------- ----- --------
September 30, 2008 E 0.9
December 31, 2008 1.1
March 31, 2009 2.7
June 30, 2009 2.7
September 30, 2009 2.7
December 31, 2009 2.7
March 31, 2010 3.9
June 30, 2010 3.9
September 30, 2010 $ 2.3 3.9
December 31, 2010 5.9 3.9
March 31, 2011 5.9 3.9
June 30, 2011 5.9 3.8
----- -----
Total $20.0 E36.1
===== =====
62
Our senior credit facilities also require mandatory prepayments on terms
substantially identical to our second lien credit facility (described below).
Collateral and Guarantors. Indebtedness under our senior credit facilities is
guaranteed by Titan, Autocam Europe, B.V. (Autocam's Dutch holding company
subsidiary) and 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 by Autocam with
respect to the obligations of Autocam France, SARL under the Eurocurrency Term
Loan and revolving credit facilities.
Indebtedness under our senior credit facilities is secured by a first priority
lien on substantially all of our and the guarantors' tangible and intangible
assets, including personal property, real property, intercompany indebtedness
and capital stock owned by Autocam and such guarantors, limited to 65% of such
capital stock in the case of certain foreign subsidiaries.
Financial and Restrictive Covenants. Our senior credit facilities agreement
contains maximum first lien leverage ratios, maximum senior leverage ratios and
maximum capital expenditures and also contains 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.
THE SECOND LIEN CREDIT FACILITY
On December 22, 2005, Autocam entered into a second lien Term Loan and Guaranty
Agreement ("second lien credit facility") with a syndicate of lenders, Goldman
Sachs Credit Partners L.P. as syndication agent, lead arranger and sole book
runner, and The Bank of New York as administrative agent and collateral agent.
Amount and Final Maturity. The second lien credit facility provides for a $60.0
million term loan and a E12.7 million term loan (USD-equivalent of $15.0 million
as of December 31, 2005). Each term loan has a final maturity of six years.
Autocam is the borrower under the term notes, which were fully borrowed at the
closing on December 22, 2005.
Use of Proceeds. Proceeds of the second lien term loans were used by us to repay
borrowings under our senior credit facilities as follows: (i) $12.6 million of
term loans borrowed by Autocam, (ii) E22.7 million of term loans borrowed by
Autocam France, SARL, and (iii) $29.0 million of revolving loans borrowed by
Autocam. The balance of the proceeds was used to pay transaction costs and
interest due on our senior credit facilities and for working capital and general
corporate purposes.
Interest and Fees. The interest rates applicable to loans under our second lien
credit facility will be (i) in the case of our USD-denominated term loans, at
its option equal to either (x) a base (prime) rate plus 7.50% per annum or (y)
an adjusted Eurodollar bank deposit rate plus 8.50% per annum; or (ii) in the
case of our euro-denominated term loans, an adjusted Euro bank deposit rate plus
9.50% per annum. We may at our option, in lieu of payment of interest in cash,
pay up to 1.50% per annum of the interest by adding such interest to the then
outstanding principal amount of the term loans (payment-in-kind).
We have agreed to pay various fees with respect to our second lien credit
facility, including customary arrangement fees paid to Goldman Sachs Credit
Partners L.P. and a customary annual administrative agent fee payable to The
Bank of New York.
Prepayments. Our second lien credit facility requires mandatory prepayments,
subject to exceptions, of an amount equal to:
63
- - 100% of the net cash proceeds from asset sales or other dispositions of
property by us or our subsidiaries, including insurance proceeds or
governmental condemnations, 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", as defined in our second lien credit facilities
agreement, 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 "Consolidated Excess Cash Flow", as defined in our second lien
credit facility agreement, provided that this percentage will be reduced to
50% if its "Leverage Ratio" is less than 3.00:1.00.
Mandatory prepayments (which are permitted to be waived by the lenders in
certain circumstances) will be applied first to repay our obligations under our
senior credit facilities, and then remaining amounts, if any, to our USD term
loans and our euro term loans under our second lien credit facility on a pro
rata basis.
We are permitted to voluntarily prepay loans under our second lien credit
facility on or after December 22, 2006, subject to the terms of our senior
credit facilities agreement. If we voluntarily prepay all or any portion of our
second lien credit facility, we are required to pay a prepayment premium (as a
percentage of the principal prepaid) as follows: on or after December 22, 2006
but prior to December 22, 2007, 2.0%; and on or after December 22, 2007 but
prior to December 22, 2008, 1.0%. The term loans under our second lien credit
facility may be prepaid without a prepayment premium from and after December 22,
2008.
Collateral and Guarantors. Indebtedness under our second lien credit facility is
guaranteed by Titan, Autocam's Dutch subsidiary, Autocam Europe, B.V., and each
of our existing and subsequently acquired or organized domestic and, to the
extent no material adverse tax consequence would result and permitted under
local law, each of our foreign subsidiaries.
Indebtedness under our second lien credit facility is secured by a second
priority lien on 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.
The liens to secure our second lien credit facility are subordinated to the
liens to secure our senior credit facilities. The priority of, and certain other
matters relating to, the liens in the collateral under our second lien credit
facility and our senior credit facilities is set out in an intercreditor
agreement.
Financial and Restrictive Covenants. Our second lien credit facility agreement
contains maximum senior leverage ratios that vary during the term of the
facility agreement. Our second lien credit facility agreement also contains
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. These are substantially identical to (and in some respects
more flexible than) the covenants in our senior credit facilities agreement.
Representations and Affirmative Covenants. Our second lien credit facility
contains customary representations, warranties and affirmative covenants.
Events of Defaults. Our second lien credit facility contains customary events of
default, which are substantially as set forth in our senior credit facilities
agreement, but with materiality thresholds 15% higher than the corresponding
provisions in our senior credit facilities agreement, including:
- - failure to make payments when due;
- - defaults under other material indebtedness;
- - non-compliance with covenants;
- - incorrectness of representations and warranties;
64
- - 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 our second lien credit facilities
agreement.
There is a 60-day standstill period with respect to a cross default to our
senior credit facilities agreement.
65
DESCRIPTION OF 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 its subsidiaries or any of
its 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 issued the exchange notes on November 23, 2004 under the indenture
dated as of June 10, 2004 (the "Indenture") between itself and J.P. Morgan Trust
Company, National Association, as trustee, incorporated by reference as an
exhibit to the registration statement of which this prospectus is a part. The
terms of the notes 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 and the
second lien credit facility;
- - 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
- - is effectively subordinated to the obligations of any Subsidiary of that
Guarantor if that Subsidiary is not a Guarantor.
66
As of December 31, 2005, the Company and the Guarantors had total Senior Debt of
approximately $153.9 million. In addition, $28.9 million was available to be
borrowed under our new multi-currency revolving credit facility and E9.3
million was 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
December 31, 2005, the Company's non-Guarantor Subsidiaries had approximately
$58.7 million of Indebtedness and $78.3 million of trade payables and other
liabilities outstanding assuming consummation of the Transactions. The
non-Guarantor Subsidiaries generated 57.0% of our sales for 2005 and held 54.5%
of our consolidated assets as of December 31, 2005. 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 are 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.
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.
67
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
(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;
68
(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.
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.
69
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 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:
YEAR PERCENTAGE
- ---- ----------
2009................. 105.438%
2010................. 103.625%
2011................. 101.813%
2012 and thereafter.. 100.000%
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.
70
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 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.
71
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.
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;
72
(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.
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 Merger 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).
73
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.
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:
74
(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 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;
75
(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 Merger 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
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.
76
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
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;
77
(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;
(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;
78
(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 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.
79
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 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:
80
(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;
(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;
81
(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;
(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
82
(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 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;
83
(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 Merger 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";
(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.
84
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 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.
85
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
in 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 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:
86
(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
(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;
87
(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 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:
88
(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 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;
89
(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 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 Notes to the extent that such
provision in this Description of 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
90
(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.
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.
91
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,
4436 Broadmoor 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).
92
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
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.
93
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.
94
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.
"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.
"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
95
(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.
"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;
96
(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;
(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;
97
(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.
"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:
98
(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 Merger 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 Merger or such
other acquisitions, will be excluded;
(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;
99
(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 Merger
(including, without limitation, bonus payments paid to employees in
connection with the Merger and write-offs of any debt issuance costs
relating to Indebtedness being retired or repaid in connection with
the Merger) 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 Merger, 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.
"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."
100
"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 it's Subsidiaries
(other than Indebtedness under the Credit Agreement) in existence on the date of
the indenture after giving effect to the Merger.
"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 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:
101
(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
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
102
(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;
(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;
103
(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.
"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 Merger as the same may be amended
from time to time in any manner no less favorable to the holders of the notes.
"Merger" means the transactions contemplated by the Merger Agreement, including
the borrowings under the Credit Agreement and the offering 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.
104
"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.
"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;
105
(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 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 Merger;
(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
106
(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 Merger 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;
(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;
107
(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;
(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;
108
(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 Merger; 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 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.
109
"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.
"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;
110
(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 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
Merger.
"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;
111
(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.
112
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 notes.
This summary deals only with 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 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 or foreign income tax consequences or any
non-income 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 notes as set
forth in this summary. You are urged to 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 notes that may be
applicable to you.
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 a 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 (or other entity classified as a corporation for these
purposes) or a partnership (or other entity classified as a 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;
- - 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 a 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.
113
PAYMENTS OF STATED INTEREST. Payments of stated interest on your 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 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
notes in your gross income at the time the interest accrues.
MARKET DISCOUNT AND BOND PREMIUM. If you purchase a note at a price that is less
than its principal amount, 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 note.
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, a 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 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 note. In general,
market discount will be considered to accrue ratably during the period from the
date of the purchase of the note to the maturity date of the 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 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 a note for an amount in excess of the amount payable at maturity
of the note, you will be considered to have purchased the 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 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 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 note, and finally as
a carryforward allowable against your future interest inclusions on the 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 a
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 NOTES. Upon the sale, exchange, retirement,
redemption or other disposition of a 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 note. Your
adjusted tax basis in a note will generally equal the cost of the 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 note.
114
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 note has been
held for more than one year at the time of the disposition.
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.
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 note, and
- - to payment of the proceeds of a sale or other disposition of your note, 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 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 a 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 your notes, and will not apply to
payments of interest on your 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 properly completed Internal Revenue Service Form W-8BEN
signed under penalties of perjury, which can reliably be related to you,
that you are not a United States person within the meaning of the Code and
providing your name and address to:
115
- - 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 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 Form
W-8BEN and provides us or our paying agent with a copy of this statement.
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 do not satisfy the requirements of the "portfolio interest" exception
described above, payments of interest made to you will be subject to the 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 a 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 notes, or on
any gain or accrued interest realized from the sale, redemption, retirement at
maturity or other disposition of your notes unless:
- - in the case of interest payments or disposition proceeds representing
accrued interest, you do not 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 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 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.
116
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 notes in 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 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 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 notes.
The gross proceeds from the disposition of your notes may be subject to
information reporting and backup withholding tax at a rate that is currently
28%, scheduled to increase to 31% for taxable years beginning on or after
January 1, 2011. If you sell your 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 (except as provided in the
following sentence) 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 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 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.
117
PLAN OF DISTRIBUTION
This prospectus is to be used by Goldman, Sachs & Co. in connection with offers
and sales of the notes in market-making transactions effected from time to time.
Goldman, Sachs & Co. may act as principal or agent in such transactions. Such
sales will be made at prevailing market prices at the time of sale, at prices
related thereto or at negotiated prices. We will not receive any of the proceeds
from such sales.
GSCP 2000 and other private equity funds affiliated with Goldman, Sachs & Co.
own 40.1% of the common stock and preferred stock of Parent. See "Principal
stockholders." 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. 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 senior credit facilities and second lien credit facility. 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. See "Related Party Transactions."
We have been advised by Goldman, Sachs & Co. that, subject to applicable laws
and regulations, it has made and currently intends to make a market in the
notes. However, Goldman, Sachs & Co. is not obligated to do so, and any such
market-making may be interrupted or discontinued at any time without notice.
We and Goldman, Sachs & Co. have entered into a registration rights agreement
with respect to the use by Goldman, Sachs & Co. of this prospectus. Pursuant to
such agreement, we agreed to indemnify Goldman, Sachs & Co. against certain
liabilities, including liabilities under the Securities Act and to contribute to
payments which Goldman, Sachs & Co. might be required to make in respect
thereof.
Pursuant to a stockholders agreement entered into in connection with the closing
of the Merger, 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. See "Management - Stockholders
Agreement."
LEGAL MATTERS
Fried, Frank, Harris, Shriver & Jacobson LLP, New York, New York, will pass upon
the validity of the notes. Certain matters relating to the notes will be passed
upon by Stuart Cheney, Esq., our General Counsel, with respect to Michigan law.
EXPERTS
The financial statements of Titan Holdings, Inc. and subsidiaries included in
this prospectus have been audited by Deloitte & Touche LLP, an independent
registered public accounting firm, as stated in their report appearing herein
and has been included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
118
TITAN HOLDINGS, INC.
INDEX TO FINANCIAL INFORMATION
PAGE
----
TITAN HOLDINGS, INC. AUDITED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets at December 31, 2004 and December 31, 2005 F-3
Consolidated Statements of Operations and Comprehensive Income F-4
Consolidated Statements of Shareholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Micron Holdings, Inc.
Kentwood, Michigan
We have audited the accompanying consolidated balance sheets of Titan Holdings,
Inc. and subsidiaries (the "Company") as of December 31, 2005 and 2004
(successor), and the related consolidated statements of operations and
comprehensive income, shareholders' equity, and cash flows for the year ended
December 31, 2005 (successor), for the periods from June 22, 2004 through
December 31, 2004 (successor), January 1, 2004 through June 21, 2004 (date of
the merger with Micron) (predecessor), and the year ended December 31, 2003
(predecessor). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with the 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. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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 Titan Holding, Inc. and
subsidiaries as of December 31, 2005 and 2004 (successor), and the results of
their operations and their cash flows for the year ended December 31, 2005
(successor), for the periods from June 22, 2004 through December 31, 2004
(successor), January 1, 2004 through June 21, 2004 (date of the merger with
Micron) (predecessor), and the year ended December 31, 2003 (predecessor), in
conformity with accounting principles generally accepted in the United States of
America.
/s/ Deloitte & Touche, LLP
Grand Rapids, Michigan
March 24, 2006
F-2
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
-------------------
2004 2005
-------- --------
Amounts in thousands, except share information (successor)
Assets
Current assets:
Cash and equivalents $ 2,117 $ 14,733
Accounts receivable, net of allowances of $618 and $627,
respectively 58,360 46,989
Inventories 36,947 40,927
Prepaid expenses and other current assets 3,485 5,249
-------- --------
Total current assets 100,909 107,898
Property, plant and equipment, net 177,285 163,059
Goodwill 268,039 224,024
Other long-term assets 23,199 36,782
-------- --------
Total assets $569,432 $531,763
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 12,942 $ 8,582
Accounts payable 46,688 46,014
Accrued liabilities:
Compensation 18,002 15,325
Other 2,559 1,989
-------- --------
Total current liabilities 80,191 71,910
-------- --------
Long-term obligations, net of current maturities 275,839 282,659
Deferred taxes 40,563 42,696
Other long-term liabilities 7,479 7,893
Shareholders' equity:
Common stock - $.01 par value; 100 shares authorized,
issued and outstanding as of December 31, 2004 and 2005
Additional paid-in capital 145,112 162,140
Accumulated other comprehensive income 19,694 4,098
Retained earnings (accumulated deficit) 554 (39,633)
-------- --------
Total shareholders' equity 165,360 126,605
-------- --------
Total liabilities and shareholders' equity $569,432 $531,763
======== ========
See notes to consolidated financial statements.
F-3
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
SIX MONTHS ENDED
YEAR ENDED ----------------------- YEAR ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31,
2003 2004 2004 2005
------------ -------- ------------ ------------
Amounts in thousands (predecessor) (successor)
Sales $323,210 $184,489 $165,821 $ 347,823
Cost of sales 280,070 153,426 140,847 306,384
Goodwill impairment 33,000
-------- -------- -------- ---------
Gross profit 43,140 31,063 24,974 8,439
Selling, general and administrative expenses 17,577 17,337 10,566 22,055
-------- -------- -------- ---------
Income (loss) from operations 25,563 13,726 14,408 (13,616)
Interest expense, net 9,444 4,666 11,638 25,141
Other expenses, net 4,428 3,672 1,794 5,213
-------- -------- -------- ---------
Income (loss) before tax provision 11,691 5,388 976 (43,970)
Tax provision 4,697 3,211 422 (3,800)
Net loss from joint venture 17
-------- -------- -------- ---------
Net income (loss) $ 6,994 $ 2,177 $ 554 ($40,187)
======== ======== ======== =========
Statements of Comprehensive Income (Loss):
Net income (loss) $ 6,994 $ 2,177 $ 554 ($40,187)
Other comprehensive income (losses):
Foreign currency translation adjustments 5,744 (1,138) 19,694 (15,596)
Amortization of interest rate agreements 269 135
-------- -------- -------- ---------
Comprehensive income (loss) $ 13,007 $ 1,174 $ 20,248 ($55,783)
======== ======== ======== =========
See notes to consolidated financial statements.
F-4
TITAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
--------------- --------------- --------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------ ------ ------
Amounts in thousands
Balance, January 1, 2003 (predecessor) 579 $ 6 110 $ 1 6,479 $ 65
Net income
Foreign currency translation adjustments
Amortization of interest rate agreements
---- --- ---- --- ------ ----
Balance, December 31, 2003 (predecessor) 579 6 110 1 6,479 65
Net income
Foreign currency translation adjustments
Amortization of interest rate agreements
---- --- ---- --- ------ ----
Balance, June 30, 2004 (predecessor) 579 6 110 1 6,479 65
Elimination of former shareholders' equity
upon consummation of Merger (579) (6) (110) (1) (6,479) (65)
Equity contributions from shareholders
Tax benefit of stock option exercises
Net income
Foreign currency translation adjustments
Balance, December 31, 2004 (successor)
Equity contributions from shareholders
Net loss
Foreign currency translation adjustments
Balance, December 31, 2005 (successor)
ACCUMULATED
ADDITIONAL OTHER
PAID-IN COMPREHENSIVE RETAINED
CAPITAL INCOME (LOSS) EARNINGS TOTAL
---------- ------------- --------- ---------
Amounts in thousands
Balance, January 1, 2003 (predecessor) $ 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 (predecessor) 137,824 2,178 22,254 162,328
Net income 2,177 2,177
Foreign currency translation adjustments (1,138) (1,138)
Amortization of interest rate agreements 135 135
--------- -------- --------- ---------
Balance, June 30, 2004 (predecessor) 137,824 1,175 24,431 163,502
Elimination of former shareholders' equity
upon consummation of Merger (137,824) (1,175) (24,431) (163,502)
Equity contributions from shareholders 143,400 143,400
Tax benefit of stock option exercises 1,712 1,712
Net income 554 554
Foreign currency translation adjustments 19,694 19,694
--------- -------- --------- ---------
Balance, December 31, 2004 (successor) 145,112 19,694 554 165,360
Equity contributions from shareholders 17,028 17,028
Net loss (40,187) (40,187)
Foreign currency translation adjustments (15,596) (15,596)
--------- -------- --------- ---------
Balance, December 31, 2005 (successor) $ 162,140 $ 4,098 ($39,633) $ 126,605
========= ======== ========= =========
See notes to consolidated financial statements.
F-5
TITAN HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
YEAR ENDED ------------------------ YEAR ENDED
DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31,
2003 2004 2004 2005
------------ --------- ------------ ------------
Amounts in thousands (predecessor) (successor)
Cash flows from operating activities:
Cash received from customers $ 331,121 $ 175,424 $ 176,320 $ 353,523
Cash paid to suppliers and employees (281,726) (154,938) (163,250) (309,293)
Income taxes received (paid) (950) (3,331) (1,768) (2,768)
Interest paid (10,456) (6,461) (11,839) (25,365)
--------- --------- --------- ---------
Net cash provided by (used in) operating activities 37,989 10,694 (537) 16,097
--------- --------- --------- ---------
Cash flows from investing activities:
Expenditures for property, plant and equipment (22,459) (10,676) (9,679) (18,346)
Equipment deposits refunded (paid and to be refunded), net 1,727 (165) 1,680 (1,999)
Proceeds from sale of property, plant and equipment 6,656 808 550 450
Acquisitions, net of cash (1,084) (11,047)
Payment to terminate lease (739)
Investments in joint venture (450)
Other (58) (174) 21 (169)
--------- --------- --------- ---------
Net cash used in investing activities (14,873) (10,207) (8,512) (31,561)
--------- --------- --------- ---------
Cash flows from financing activities:
Borrowings (repayments) on lines of credit, net 620 (3,531) 7,615 (15,561)
Proceeds from issuance of long-term obligations 872 247,248 647 76,021
Principal payments of long-term obligations (28,827) (109,940) (3,437) (45,605)
Payments to shareholders and option holders (232,663)
Shareholder contributions 115,400 17,028
Debt issue costs and other (10,855) (781) (3,882)
--------- --------- --------- ---------
Net cash provided by (used in) financing activities (27,335) 5,659 4,044 28,001
--------- --------- --------- ---------
Effect of exchange rate changes on cash and equivalents 298 (18) (81) 79
--------- --------- --------- ---------
Increase (decrease) in cash and equivalents (3,921) 6,128 (5,086) 12,616
Cash and equivalents at beginning of period 4,996 1,075 7,203 2,117
--------- --------- --------- ---------
Cash and equivalents at end of period $ 1,075 $ 7,203 $ 2,117 $ 14,733
========= ========= ========= =========
See notes to consolidated financial statements.
F-6
TITAN HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In these notes, unless the context otherwise requires
- - "Micron" refers to Micron Holdings, Inc., a Delaware holding company and
the parent company of Titan,
- - "Titan" refers to Titan Holdings, Inc., a Delaware holding company and the
parent company of Autocam,
- - "we," "our" or "us" refer to Titan together with its consolidated
subsidiaries, and
- - "Autocam" refers to Autocam Corporation, a wholly-owned subsidiary of
Titan.
Unless otherwise indicated, all references in these notes to fiscal years are to
the year ended on December 31. Unless the context requires otherwise, all
references in these notes to "2003," "2004" and "2005" relate to the fiscal
years ended December 31, 2003, December 31, 2004 and December 31, 2005.
PRINCIPLES OF CONSOLIDATION -- Our consolidated financial statements are
prepared in accordance with accounting principles generally accepted in the
United States of America. All of our significant intercompany accounts and
transactions have been eliminated in consolidation. All figures in these notes
are expressed in thousands of U.S. dollars, unless otherwise noted.
NATURE OF OPERATIONS -- We design and manufacture close-tolerance, specialty
metal alloy components for mechanical and electromechanical systems using
turning, grinding and milling processes. Currently, we manufacture components
for use on steering, fuel delivery, electric motor, braking and air bag systems
for the transportation industry and medical devices for the ophthalmic,
orthopedic and cardiovascular surgery industries. We have seven manufacturing
locations in the United States, four in France, three in Brazil and one each in
Poland and China. Our customers are located in virtually all areas of the world,
with the exception of the continent of Africa.
On June 21, 2004, Micron Merger Corporation, a newly formed entity and
wholly-owned subsidiary of Micron, merged with and into Titan with Titan
continuing as the surviving corporation (the "Merger"). As a result, Titan
became a wholly-owned subsidiary of Micron. 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 Titan, payments to common
shareholders of Titan and the payment of transaction costs incurred by Titan,
was $395,000. The Merger was financed with the net proceeds from Autocam's
issuance of $140,000 of senior subordinated notes, which are guaranteed by Titan
(the "Notes"), borrowings under our senior credit facilities of $114,000 and
combined common equity contributions of $143,400 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 certain of our management.
SUCCESSOR PERIODS -- Represents our consolidated financial position and
consolidated results of operations and cash flows reflecting the basis of
accounting after purchasing accounting for the Merger.
PREDECESSOR PERIODS -- Represents our consolidated financial position and
results of operations and cash flows reflecting the historical basis of
accounting without any application of purchase accounting for the Merger.
ESTIMATES -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires our 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 our management
believes the estimates are reasonable, actual results could differ from those
estimates.
F-7
FINANCIAL INSTRUMENTS consist principally of cash and equivalents, accounts
receivable and payable, debt and related interest contracts. The carrying
amounts of our financial instruments approximate estimated fair value, except
for the senior subordinated notes and interest contracts. We have determined the
estimated fair value amounts using available market information and valuation
methodologies (see Note 5).
CASH AND EQUIVALENTS consist of highly-liquid investments with original
maturities of three months or less at the date of purchase.
ACCOUNTS RECEIVABLE -- We participate in an accounts receivable financing
facility under which accounts receivable are sold without recourse to an
unrelated third party, resulting in reductions of accounts receivable of $18,809
as of December 31, 2004 and $23,846 as of December 31, 2005. We account 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 $181 in 2003, $150 in 2004 and $285 in 2005 are included in Selling, General
and Administrative Expenses, while certain factoring charges of $295 in 2003,
$402 in 2004 and $541 in 2005 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.
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:
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
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. Leasehold improvements
are amortized of the lesser of their useful lives or the lease term.
GOODWILL consists of amounts paid in excess of the fair value of acquired net
assets. Goodwill is not amortized; rather, it is subject to impairment testing
in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets." We
evaluate for indicators of impairment the carrying value of our goodwill at
least on an annual basis (in the fourth quarter) and on an interim basis if
indicators of potential impairment arise between annual evaluations. Our
European segment experienced unfavorable operating results in 2005 primarily as
a result of lower production volumes on key programs, excessive labor costs,
increased customer pricing pressure and higher raw material costs. As a result,
our management concluded that Autocam's European reporting unit's goodwill had
been impaired and we recorded against our third quarter 2005 results a goodwill
impairment loss of $33,000. The fair value of that reporting unit was estimated
using the present value of expected future cash flows. This charge does not
result in current or future cash expenditures.
F-8
Set forth below is a summary of the changes in our goodwill balances by segment
in 2004 and 2005:
NORTH SOUTH
AMERICA EUROPE AMERICA TOTAL
-------- -------- ------- --------
Balance at January 1, 2004 $125,209 $ 12,056 $ 2,181 $139,446
Acquisition activity (8,807) 113,516 8,658 113,367
Translation and other 15,921 (695) 15,226
-------- -------- ------- --------
Balance at December 31, 2004 116,402 141,493 10,144 268,039
Acquisition activity 5,412 5,412
Impairment charge (33,000) (33,000)
Translation and other (18,220) 1,793 (16,427)
-------- -------- ------- --------
Balance at December 31, 2005 $121,814 $ 90,273 $11,937 $224,024
======== ======== ======= ========
EQUIPMENT DEPOSITS AND OTHER LONG-TERM ASSETS consists primarily of debt issue
costs of $11,128 as of December 31, 2004 and $11,025 as of December 31, 2005
(amortized over the terms of the debt instruments) and deposits on equipment to
be placed into service in the future of $2,093 as of December 31, 2004 and
$3,069 as of December 31, 2005. Debt issue cost amortization expense was $706 in
2003, $2,962 in 2004 and $3,528 in 2005. This expense includes $1,822 in 2004
and $1,652 in 2005 in unamortized debt issue costs incurred to secure our senior
credit facilities that were written off in connection repayment of indebtedness
precipitated by the Merger and the repayment of a portion of our senior credit
facilities indebtedness in connection with entering into our second lien credit
facility agreement (see Note 5).
Set forth below is expected debt issue cost amortization expense to be recorded
by us in the years following December 31, 2005:
YEARS ENDING DECEMBER 31,
2006 $ 1,786
2007 1,786
2008 1,782
2009 1,692
2010 1,498
Thereafter 2,481
-------
Total $11,025
=======
ACCOUNTS PAYABLE includes the reclassification from Cash and Equivalents of
outstanding checks, net of related cash balances, totaling $4,142 as of December
31, 2004 and $4,691 as of December 31, 2005.
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 (see Note 7).
F-9
DERIVATIVE AND HEDGING ACTIVITIES -- From time to time, we manage interest rate
risk through the use of interest rate swap agreements although no such
instruments were outstanding as of December 31, 2004 or December 31, 2005. We
also manage foreign currency exchange risks 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 as
of December 31, 2004 or December 31, 2005. In March 2006, through an interest
rate swap agreement we fixed the interest rate on $50,000 of our
variable-interest-rate indebtedness at a London Interbank Offered Rate of 5.14%
for five years.
STOCK-BASED COMPENSATION -- We apply Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations,
in accounting for our stock-based compensation plans. 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 our 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," our net income would have changed to
the pro forma amounts indicated below:
SIX MONTHS ENDED
-----------------------
DECEMBER 31, JUNE 30, DECEMBER 31, DECEMBER 31,
2003 2004 2004 2005
------------ -------- ------------ ------------
(predecessor) (successor)
As reported $ 6,994 $ 2,177 $ 554 ($40,187)
Compensation expense, net of related tax effects (559) (280) (200) (405)
------- ------- ----- --------
Pro forma $ 6,435 $ 1,897 $ 354 ($40,592)
======= ======= ===== ========
The fair value approach was used to value all option grants, with the following
weighted-average assumptions: risk-free interest rates, 4%-4.51%; volatility
rates, 10.98%-12.01%; and expected life of options, 10 years.
NEW ACCOUNTING PRONOUNCEMENTS -- In December 2004, the FASB issued SFAS No.
123(R), "Share-Based Payment," which will require compensation costs related to
share-based payment transactions to be recognized in the financial statements.
With limited exceptions, the amount of compensation cost will be measured based
on the grant date fair value of the equity or liability instruments issued. In
addition, liability awards will be re-measured each reporting period.
Compensation cost will be recognized over the period that an employee provides
services in exchange for the award. SFAS No. 123(R) replaces SFAS No. 123 and
supercedes APB No. 25. SFAS No. 123(R) becomes effective on January 1, 2006. We
expect the impact of adopting SFAS No. 123(R) will be consistent with the pro
forma expense that has been previously disclosed, adjusted for future grants,
cancellations and exercises of stock options in accordance with SFAS No. 123(R).
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections," which replaces APB Opinion No, 20, "Accounting Changes," and SFAS
No. 3, "Reporting Accounting Changes in Interim Financial Statements," and
provides guidance on the accounting for and reporting of accounting changes and
error corrections. SFAS No. 154 applies to all voluntary changes in accounting
principles and requires retrospective application (as defined) to prior periods'
financial statements, unless it is impracticable to determine the effects of a
change. It also applies to changes required by an accounting pronouncement that
does not include specific transition provisions. In addition, SFAS No. 154
redefines restatement as the revising of previously issued financial statements
to reflect the correction of an error. This statement is effective for
accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005. We will adopt SFAS No. 154 beginning January 1, 2006.
F-10
RESTRUCTURING -- In June 2003, we closed our Chicago, Illinois facility and
moved all existing production to other facilities. We incurred related employee
termination and plant closing costs of $879 in 2003. In that year, we also
incurred $534 of costs associated with the termination of our building lease and
other ancillary costs upon ceasing use of the facility. All of the
aforementioned expenses are included in Cost of Sales. In December 2005, we
closed our Perrieres, France facility and moved all existing production to other
facilities. We incurred related employee termination and plant closing costs of
$4,878 in 2005, $3,114 of which are included in Cost of Sales and $1,764 of
which are included in Selling, General and Administrative Expenses.
JOINT VENTURE -- We and an unrelated entity jointly own Wuxi Weifu Autocam
Precision Machinery Company, Ltd. ("JV"), which was formed in China in 2005. The
purpose of the JV is to produce fuel delivery systems components for a
customer's Asian operations. Our investment in JV of 50% is being accounted for
under the equity method.
2. BUSINESS COMBINATIONS
The Merger (see Note 1) was accounted for as a purchase, and accordingly, the
purchase price was allocated to assets acquired and liabilities assumed based
upon their relative fair market values. Cost in excess of the fair value of the
net assets acquired (goodwill) was $249,371, allocated among our operating
segments as follows: North America - $116,227, Europe - $124,486 and South
America - $8,658. The results of our operations and cash flows (as predecessor
company) have been reported through June 30, 2004.
Set forth below are our unaudited pro forma statements of operations information
for 2003 and the six months ended June 30, 2004, which are based upon our
historical Consolidated Statements of Operations for those periods after giving
effect to the Merger as if such transaction had occurred at the beginning of
each period presented. These pro forma results are based upon assumptions
considered appropriate our management and include adjustments as considered
necessary in the circumstances. Such adjustments include interest expense that
would have been incurred to finance the purchase, 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 Merger taken place at the
beginning of each period presented or which may be reported in the future.
SIX MONTHS
ENDED
JUNE 30,
2003 2004
-------- ----------
Sales $323,210 $184,489
Net income 1,269 6,649
Effective November 1, 2004, Autocam, through our wholly-owned subsidiary, Frank
& Pignard, SA, acquired the stock of ATI, S.A.S. ("ATI"), for $1,681 in cash and
the assumption of $6,065 in debt, primarily consisting of capital lease
obligations. The acquisition was accounted for as a purchase, and accordingly,
the purchase price was allocated to assets acquired and liabilities assumed
based upon their relative fair market values. Cost in excess of the fair value
of the net assets acquired (goodwill) was $1,086.
On June 15, 2005, Autocam Greenville, Inc., a wholly-owned subsidiary of
Autocam, acquired the stock of Sager Precision Technologies, Inc. for $9,902 in
cash and the assumption of $240 in capital lease obligations. In accordance with
the purchase agreement, we recognized a receivable from the seller of $342
representing a shortfall in working capital on June 15, 2005. Additional
consideration will be paid to the seller if earnings before interest, taxes,
depreciation and amortization exceed certain levels for the year ending June 30,
2006. The purchase price was primarily financed indirectly through $10,028 in
equity contributions from the shareholders of Micron. The acquisition was
accounted for as a purchase, and accordingly, the purchase price was allocated
to assets acquired and liabilities assumed based upon their relative fair market
values. Cost in excess of the fair value of the net assets acquired (goodwill)
was $5,242.
F-11
3. INVENTORIES
Set forth below are the components of Inventories as of December 31:
2004 2005
------- -------
(successor)
Raw materials $11,030 $12,657
Production supplies 7,188 7,512
Work in-process 12,979 14,916
Finished goods 5,750 5,842
------- -------
Total inventories $36,947 $40,927
======= =======
4. PROPERTY, PLANT AND EQUIPMENT
Set forth below are the components of Property, Plant and Equipment, Net as of
December 31:
2004 2005
-------- --------
(successor)
Buildings and land $ 10,838 $ 10,156
Machinery and equipment 161,407 160,631
Furniture and fixtures 11,041 11,402
-------- --------
Total 183,286 182,189
Accumulated depreciation (6,001) (19,130)
-------- --------
Total property, plant and equipment, net $177,285 $163,059
======== ========
F-12
5. LONG-TERM OBLIGATIONS
Set forth below are the components of Long-Term Obligations as of December 31
(percentages represent interest rates as of December 31, 2005):
2004 2005
-------- --------
(successor)
Senior credit facility:
U.S. dollar term note with banks - principal payments in quarterly installments
beginning in September 2010; interest payable quarterly at variable interest
rates based on LIBOR plus 3.5% (7.938-8.25% per annum); due June 2011 $ 32,835 $ 19,988
Euro term note with banks - principal payments in quarterly installments
beginning in September 2008; interest payable quarterly at variable interest
rates based on EURIBOR plus 4% (6.492% per annum); due June 2011 83,269 42,532
Multi-currency revolving line of credit with banks - interest payable quarterly
at variable interest rates based on either LIBOR plus 3.5% or the bank's
prime rate plus 2.5%; principal due June 2011 18,000
Second lien term note:
U.S. dollar-denominated portion - interest payable in quarterly installments at
variable interest rates based on LIBOR plus 7% (11.438% per annum);
principal due December 2011; balance due at December 31, 2005 reflects
paid-in kind interest accrued at 1.5% per annum of the principal balance
outstanding 60,023
Euro-denominated portion - interest payable in quarterly installments at
variable interest rates based on EURIBOR plus 8% (10.438% per annum);
principal due December 2011; balance due at December 31, 2005 reflectes
paid-in kind interest accrued at 1.5% per annum of the principal balance
outstanding 14,951
Senior subordinated notes - interest payable in semi-annual installments at a
fixed interest rate of 10.875% per annum, net of original issue discount;
principal due June 2014 137,043 137,355
Capital leases obligations - payable in monthly installments, including interest
imputed at rates ranging from 2.14% to 19.62%; due through February 2016 12,659 8,546
Other 4,975 7,846
-------- --------
Total long-term obligations 288,781 291,241
Current portion (12,942) (8,582)
-------- --------
Long-term portion $275,839 $282,659
======== ========
SENIOR CREDIT FACILITIES
In connection with the Merger, on June 21, 2004, Autocam entered into a $158,000
USD-equivalent senior credit facilities agreement, which consisted of a $36,100
multi-currency revolving credit facility available to Autocam, an E11,621
revolving credit facility available to our French subsidiary, Autocam France,
SARL, a $33,000 term loan to Autocam and a E62,700 term loan to Autocam France,
SARL.
F-13
On December 22, 2005, we amended our senior credit facilities agreement to
permit us to incur the second lien term loans discussed below, to replace
interest coverage, leverage and senior leverage ratio covenants with maximum
first lien leverage and revised maximum senior leverage ratio covenants, to
amend the consolidated capital expenditures covenant and to make other
modifications. We also reduced the committed amount of our
multi-currency-denominated revolving credit facility from $36,100 to $28,880 and
we reduced the committed amount of Autocam France, SARL's euro-denominated
revolving credit facility from E11,621 to E9,297 (USD-equivalent of $10,968 as
of December 31, 2005). We had no borrowings outstanding under any of the
revolving credit facilities of our senior credit facilities as of December 31,
2005. Our ability to borrow against these facilities expires in June 2011.
Interest and Fees. The interest rate margins on our senior credit facilities
changed in conjunction with the December 2005 amendment to our senior credit
facilities agreement. The interest rate margin applicable to the U.S. Term Loans
(with a Eurocurrency rate) is 3.50% and the interest rate margin applicable to
the Euro Term Loans is 4.00%, in each case from December 22, 2005 until the
later of the first anniversary of the effective date of the first amendment
(i.e. April 2006) to our senior credit facilities agreement and the date we
demonstrate a "Leverage Ratio," as defined in our senior credit facilities
agreement, of less than or equal to 4.50:1.00. Thereafter, the applicable
interest rate margin is determined by reference to the Leverage Ratio in effect
from time to time as set forth below:
APPLICABLE MARGIN FOR REVOLVING APPLICABLE MARGIN
LOANS, EUROPEAN REVOLVING LOANS FOR EUROPEAN
LEVERAGE RATIO AND U.S. TERM LOANS TERM LOANS
- -------------- ------------------------------- -----------------
> or = 3.00:1.00 3.25% 3.75%
< 3.00:1.00 3.00% 3.50%
If, at any time our "First Lien Leverage Ratio" as defined in our senior credit
facilities agreement exceeds 2.25:1.00, the applicable margins shown above shall
be increased by 0.25%, and if our First Lien Leverage Ratio exceeds 2.75:1.00,
the applicable margins shown above shall be increased by an additional 0.25%.
The interest rate margin applicable to swing line loans and other loans that are
base rate loans is an amount equal to the margin applicable to Eurocurrency rate
loans at that time, minus 1.00% per annum.
Amortization and Prepayments. After giving effect to the prepayments made from
the proceeds of the term loans under our second lien credit facility (described
below), no amortization of the term loans under our senior credit facilities is
required through the quarter ending June 30, 2008, and thereafter required
amortization is as follows:
TERM LOAN
INSTALLMENTS
-----------------
FISCAL QUARTER ENDING U.S. EUROPEAN
- --------------------- ------- --------
September 30, 2008 E 894
December 31, 2008 1,073
March 31, 2009 2,682
June 30, 2009 2,682
September 30, 2009 2,682
December 31, 2009 2,682
March 31, 2010 3,893
June 30, 2010 3,893
September 30, 2010 $ 2,298 3,893
December 31, 2010 5,896 3,893
March 31, 2011 5,896 3,893
June 30, 2011 5,898 3,893
------- -------
Total $19,988 E36,053
======= =======
Our senior credit facilities also require mandatory prepayments on terms
substantially identical to our second lien credit facility (described below).
F-14
Collateral and Guarantors. Indebtedness under our senior credit facilities is
guaranteed by Titan, Autocam Europe, B.V. (Autocam's Dutch subsidiary), and 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 by Autocam with respect to the
obligations of Autocam France, SARL under the Eurocurrency Term Loan and
revolving credit facilities.
Indebtedness under our senior credit facilities is secured by a first priority
lien on substantially all of our and the guarantors' tangible and intangible
assets, including personal property, real property, intercompany indebtedness
and capital stock owned by Autocam and such guarantors, limited to 65% of such
capital stock in the case of certain foreign subsidiaries.
Financial and Restrictive Covenants. Our senior credit facilities agreement
contains maximum first lien leverage ratios, maximum senior leverage ratios and
maximum capital expenditures and also contains 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.
THE SECOND LIEN CREDIT FACILITY
On December 22, 2005, Autocam entered into a second lien Term Loan and Guaranty
Agreement ("second lien credit facility") with a syndicate of lenders, Goldman
Sachs Credit Partners L.P. as syndication agent, lead arranger and sole book
runner, and The Bank of New York as administrative agent and collateral agent.
Amount and Final Maturity. The second lien credit facility provides for a
$60,000 term loan and a E12,669 term loan (USD-equivalent of $15,000 as of
December 31, 2005). Each term loan has a final maturity of six years. Autocam is
the borrower under the term notes, which were fully borrowed at the closing on
December 22, 2005.
Use of Proceeds. Proceeds of the second lien term loans were used by us to repay
borrowings under our senior credit facilities as follows: (i) $12,600 of term
loans borrowed by Autocam, (ii) E22,728 of term loans borrowed by Autocam
France, SARL, and (iii) $29,000 of revolving loans borrowed by Autocam. The
balance of the proceeds was used to pay transaction costs and interest due on
our senior credit facilities and for working capital and general corporate
purposes.
Interest and Fees. The interest rates applicable to loans under our second lien
credit facility will be (i) in the case of our USD-denominated term loans, at
its option equal to either (x) a base (prime) rate plus 7.50% per annum or (y)
an adjusted Eurodollar bank deposit rate plus 8.50% per annum; or (ii) in the
case of our euro-denominated term loans, an adjusted Euro bank deposit rate plus
9.50% per annum. We may at our option, in lieu of payment of interest in cash,
pay up to 1.50% per annum of the interest by adding such interest to the then
outstanding principal amount of the term loans (payment-in-kind).
We have agreed to pay various fees with respect to our second lien credit
facility, including customary arrangement fees paid to Goldman Sachs Credit
Partners L.P. and a customary annual administrative agent fee payable to The
Bank of New York.
Prepayments. Our second lien credit facility requires mandatory prepayments,
subject to exceptions, of an amount equal to:
- - 100% of the net cash proceeds from asset sales or other dispositions of
property by us or our subsidiaries, including insurance proceeds or
governmental condemnations, 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", as defined in our second lien credit facilities
agreement, is less than 3.00:1.00;
F-15
- - 100% of the net cash proceeds from the issuance of specified debt
obligations by us or our subsidiaries; and
- - 75% of "Consolidated Excess Cash Flow", as defined in our second lien
credit facility agreement, provided that this percentage will be reduced to
50% if its "Leverage Ratio" is less than 3.00:1.00.
Mandatory prepayments (which are permitted to be waived by the lenders in
certain circumstances) will be applied first to repay our obligations under our
senior credit facilities, and then remaining amounts, if any, to our USD term
loans and our euro term loans under our second lien credit facility on a pro
rata basis.
We are permitted to voluntarily prepay loans under our second lien credit
facility on or after December 22, 2006, subject to the terms of our senior
credit facilities agreement. If we voluntarily prepay all or any portion of our
second lien credit facility, we are required to pay a prepayment premium (as a
percentage of the principal prepaid) as follows: on or after December 22, 2006
but prior to December 22, 2007, 2.0%; and on or after December 22, 2007 but
prior to December 22, 2008, 1.0%. The term loans under our second lien credit
facility may be prepaid without a prepayment premium from and after December 22,
2008.
Collateral and Guarantors. Indebtedness under our second lien credit facility is
guaranteed by Titan, Autocam's Dutch subsidiary, Autocam Europe, B.V., and each
of our existing and subsequently acquired or organized domestic and, to the
extent no material adverse tax consequence would result and permitted under
local law, each of our foreign subsidiaries.
Indebtedness under our second lien credit facility is secured by a second
priority lien on 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.
The liens to secure our second lien credit facility are subordinated to the
liens to secure our senior credit facilities. The priority of, and certain other
matters relating to, the liens in the collateral under our second lien credit
facility and our senior credit facilities is set out in an intercreditor
agreement.
Financial and Restrictive Covenants. Our second lien credit facility agreement
contains maximum senior leverage ratios that vary during the term of the
facility agreement. Our second lien credit facility agreement also contains
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. These are substantially identical to (and in some respects
more flexible than) the covenants in our senior credit facilities agreement.
Representations and Affirmative Covenants. Our second lien credit facility
contains customary representations, warranties and affirmative covenants.
Events of Defaults. Our second lien credit facility contains customary events of
default, which are substantially as set forth in our senior credit facilities
agreement, but with materiality thresholds 15% higher than the corresponding
provisions in our senior credit facilities agreement, including:
- - failure to make payments when due;
- - defaults under other material indebtedness;
- - non-compliance 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 our second lien credit facilities
agreement.
There is a 60-day standstill period with respect to a cross default to our
senior credit facilities agreement.
F-16
SENIOR SUBORDINATED NOTES
Autocam issued $140,000 of Notes in connection with the Merger. The Notes will
mature on June 15, 2014. Interest on the Notes accrues at the rate of 10.875%
per annum and is paid semi-annually in arrears on June 15 and December 15. We
make each interest payment to the holders of record on the immediately preceding
June 1 and December 1. Interest is computed on the basis of a 360-day year
comprised of twelve 30-day months.
The Notes:
- - are general unsecured obligations of Autocam;
- - are subordinated in right of payment to all our existing and future senior
debt, including borrowings under our senior credit facilities and second
lien credit facility;
- - rank equally in right of payment to any future senior subordinated
indebtedness of ours;
- - are senior in right of payment to any future subordinated indebtedness of
ours; and
- - are jointly, severally, fully and unconditionally guaranteed by the
guarantors (see below and Note 14).
The Notes are guaranteed by all of our existing and future restricted
subsidiaries that are domestic subsidiaries and by Autocam Europe, B.V. 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
- - is effectively subordinated to the obligations of any subsidiary of that
guarantor if that subsidiary is not a guarantor.
Except for Autocam Europe, B.V., none of our foreign subsidiaries guarantee the
Notes. The Notes are effectively subordinated in right of payment to all of our
indebtedness and other liabilities and commitments (including trade payables and
lease obligations) and those of our subsidiaries that are not guarantors. Any
right of ours to receive assets of any of our 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 we are recognized as a creditor of the subsidiary, in which case
those claims 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 us.
Set forth below are the annual aggregate maturities of long-term obligations as
of December 31, 2005:
YEARS ENDING DECEMBER 31,
2006 $ 8,582
2007 3,194
2008 4,399
2009 13,588
2010 27,004
Thereafter 234,474
--------
Total $291,241
========
Our weighted average interest rates incurred on long-term obligations was 6.7%
in 2003, 7.9% in 2004 and 8.9% in 2005.
F-17
Based on the borrowing rates currently available to us for bank loans with
similar terms and average maturities, the fair value of long-term debt
approximated its carrying value as of December 31, 2004 and was $249,941 as of
December 31, 2005.
6. COMMITMENTS
We lease buildings and equipment under capital leases. The cost of assets
purchased subject to capital leases was $239 in 2003, $1,933 in 2004 and $307 in
2005. The cost of the assets subject to the capital leases was $18,937 as of
December 31, 2004 and $16,108 as of December 31, 2005. The accumulated
amortization of such assets was $400 as of December 31, 2004 and $1,363 as of
December 31, 2005.
We lease 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. We lease other buildings under cancelable operating leases,
which contain renewal options every three years in accordance with French law.
Set forth below are minimum future lease payments under all capital and
operating leases as of December 31, 2005:
CAPITAL OPERATING
LEASES LEASES
------- ---------
YEARS ENDING DECEMBER 31,
2006 $ 2,864 $14,343
2007 2,424 13,205
2008 1,704 10,837
2009 926 6,622
2010 506 4,519
Thereafter 1,263 15,388
------- -------
Subtotal 9,687 $64,914
=======
Less imputed interest (1,141)
-------
Total $ 8,546
=======
Rent expense under operating leases summarized above was $11,404 in 2003,
$12,422 in 2004 and $14,098 in 2005.
As of December 31, 2005, we had non-cancelable purchase commitments for
machinery and equipment and buildings totaling $7,871 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 certain capabilities as documented
in our purchase orders.
On January 3, 2006, Autocam purchased certain assets and assumed certain
liabilities of ATS Automation Tooling Systems, Inc.'s ("ATS") Precision Metals
Division pursuant to an asset purchase agreement, dated December 12, 2005. In
connection therewith, we paid 6,000 Canadian dollars (USD-equivalent of $5,179).
We formerly guaranteed the performance under equipment leases of ATI. We
acquired the outstanding stock of ATI in 2004 (see Note 2), and therefore became
primarily responsible for the capital lease obligations of ATI. These
obligations are reflected in Long-Term Obligations.
F-18
7. INCOME TAXES
Set forth below is income (loss) before tax provision:
SIX MONTHS ENDED
-----------------------
JUNE 30, DECEMBER 31,
2003 2004 2004 2005
------- -------- ------------ --------
(predecessor) (successor)
U.S. income (loss) $ 4,477 ($4,034) ($3,913) ($3,915)
Foreign income (loss) 7,214 9,422 4,889 (40,055)
------- -------- -------- --------
Total $11,691 $ 5,388 $ 976 ($43,970)
======= ======== ======== ========
Set forth below is our income tax expense:
SIX MONTHS ENDED
-----------------------
JUNE 30, DECEMBER 31,
2003 2004 2004 2005
------ -------- ------------ -------
(predecessor) (successor)
Current:
U.S. federal $ 27 ($1,691) $ 3,582 ($ 467)
Foreign 1,349 4,525 (383) 948
U.S. state and local 28 9 15 34
------ -------- ------- -------
Total current 1,404 2,843 3,214 515
------ -------- ------- -------
Deferred:
U.S. federal 1,559 326 (4,522) (727)
Foreign 1,734 42 1,730 (3,588)
------ -------- ------- -------
Total deferred 3,293 368 (2,792) (4,315)
------ -------- ------- -------
Total taxes $4,697 $ 3,211 $ 422 ($3,800)
====== ======== ======= =======
We do not provide for deferred taxes on the excess of the financial reporting
over the tax basis in our investments in foreign subsidiaries that are
essentially permanent in duration. That excess totaled $69,840 as of December
31, 2005. The determination of the additional deferred taxes that have not been
provided is not practicable.
Set forth below are reconciliations of the differences between our income tax
expense and income taxes computed at the United States Federal statutory tax
rate:
SIX MONTHS ENDED
-----------------------
JUNE 30, DECEMBER 31,
2003 2004 2004 2005
------- -------- ------------ --------
(predecessor) (successor)
Tax at United States Federal statutory rate $ 4,092 $1,885 $ 342 ($15,390)
Effect of foreign operations, net of related tax credits 558 1,068 (139) (999)
Goodwill impairment 11,550
Non-deductible business combination expenditures 340
Other 47 (82) 219 1,039
------- ------ ----- --------
Tax as reported $ 4,697 $3,211 $ 422 ($ 3,800)
======= ====== ===== ========
F-19
Deferred income tax assets and liabilities as of December 31, 2004 and as of
December 31, 2005 reflect the effect of temporary differences between amounts of
assets, liabilities and equity for financial reporting purposes and the bases of
such assets, liabilities, and equity as measured by tax laws, as well as tax
loss and tax credit carryforwards.
Set forth below are temporary differences that gave rise to deferred tax assets
and liabilities as of December 31:
2004 2005
--------------------- ---------------------
DEFERRED TAX DEFERRED TAX
--------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------- ----------- ------- -----------
(successor)
---------------------------------------------
Domestic international sales corporation income $ 568 $ 426
Accrued expenses $ 1,643 535 $ 989 426
Foreign tax and other credits 5,774 6,915
Net operating loss carryforward 7,421 10,516
Depreciation and other 43,607 38,163
------- ------- ------- -------
Subtotal 14,838 44,710 18,420 39,015
Less valuation allowance (2,732) (3,945)
------- ------- ------- -------
Total deferred taxes $12,106 $44,710 $14,475 $39,015
======= ======= ======= =======
Set forth below is the deferred tax detail above as reflected in the
consolidated balance sheets as of December 31:
2004 2005
------- --------
(successor)
Short-term deferred tax assets ($238) ($725)
Long-term deferred tax assets (7,721) (17,431)
Long-term deferred tax liabilities 40,563 42,696
------- --------
Total deferred taxes $32,604 $ 24,540
======= ========
We had United States Federal income tax credit carryforwards of $6,915 as of
December 31, 2005 related primarily to research and development expenses and
foreign tax credits, which expire from 2008 to 2025. We also had net operating
loss carryforwards available to offset future taxable income of $30,014, as of
December 31, 2005, which expire from 2017 to 2025.
8. BUSINESS SEGMENT INFORMATION
We have four operating segments: North America, Europe, South America and Asia.
The North American segment provides precision-machined components to the
transportation and medical devices industries, while the European, South
American and Asia segments provide precision-machined components to the
transportation industry. We have assigned specific business units to a segment
based on their geographical location. Each of our segments is individually
managed and have separate financial results reviewed by our 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. We evaluate segment performance primarily based on
income from operations and the efficient use of assets. The totals set forth
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 and
for 2003, 2004 and 2005:
F-20
SIX MONTHS ENDED
-----------------------
JUNE 30, DECEMBER 31,
2003 2004 2004 2005
-------- -------- ------------ ---------
(predecessor) (successor)
Sales to Unaffiliated Customers from Company Facilities Located in:
North America $139,876 $ 75,031 $ 68,903 $ 159,023
Europe 170,536 100,429 83,726 158,798
South America 12,798 9,029 13,192 30,002
-------- -------- -------- ---------
Total $323,210 $184,489 $165,821 $ 347,823
======== ======== ======== =========
Net Income (Loss) of Company Facilities Located in:
North America $ 2,863 ($2,678) ($2,988) ($2,772)
Europe 3,087 3,732 1,729 (40,089)
South America 1,044 1,123 1,813 2,726
Asia (52)
-------- -------- -------- ---------
Total $ 6,994 $ 2,177 $ 554 ($40,187)
======== ======== ======== =========
Depreciation and Amortization on Assets Located in:
North America $ 8,265 $ 6,225 $ 2,028 $ 6,323
Europe 11,313 6,189 5,306 11,981
South America 868 540 429 1,259
-------- -------- -------- ---------
Total $ 20,446 $ 12,954 $ 7,763 $ 19,563
======== ======== ======== =========
Net Interest Expense of Company Facilities Located in:
North America $ 2,909 $ 1,763 $ 8,493 $ 17,792
Europe 6,257 2,699 2,841 6,794
South America 278 204 304 555
-------- -------- -------- ---------
Total $ 9,444 $ 4,666 $ 11,638 $ 25,141
======== ======== ======== =========
Tax Provision of Company Facilities Located in:
North America $ 1,614 ($1,356) ($925) ($1,160)
Europe 2,744 4,068 698 (4,031)
South America 339 499 649 1,391
-------- -------- -------- ---------
Total $ 4,697 $ 3,211 $ 422 ($3,800)
======== ======== ======== =========
Expenditures for Property, Plant and Equipment of Facilities Located in:
North America $ 10,892 $ 4,085 $ 3,032 $ 7,254
Europe 8,866 5,622 4,813 7,648
South America 2,701 969 1,834 3,424
Asia 20
-------- -------- -------- ---------
Total $ 22,459 $ 10,676 $ 9,679 $ 18,346
======== ======== ======== =========
2004 2005
-------- --------
(successor)
Total Assets of Company Facilities Located in:
North America $205,690 $241,735
Europe 332,279 249,199
South America 31,463 38,927
Asia 1,902
-------- --------
Total $569,432 $531,763
======== ========
Included in the North American sales to unaffiliated customers are sales
exported from facilities in the United States of $22,381 in 2003, $21,138 in
2004 and $16,963 in 2005, with the majority being to customers in Germany,
Mexico, Brazil and Austria.
F-21
Set forth below are our sales by product line for the periods presented:
2003 2004 2005
-------- -------- --------
Steering $ 99,858 $120,204 $121,387
Fuel 111,013 109,054 108,374
Braking 26,393 30,648 32,468
Electric motors 41,840 39,173 25,572
Air bags 18,544 18,612 17,464
Medical devices 8,112 9,001 15,830
Other 17,450 23,618 26,728
-------- -------- --------
Total revenue $323,210 $350,310 $347,823
======== ======== ========
Set forth below are sales to customers that exceeded 10% of consolidated sales:
2003 2004 2005
-------- -------- --------
ZF Friedrichshafen AG $ 39,929 $ 57,252 $ 62,857
TRW Automotive, Inc. 42,077 53,531 57,173
Delphi Corporation 52,183 54,656 52,516
Robert Bosch GmbH 42,556 40,637 40,739
-------- -------- --------
$176,745 $206,076 $213,285
======== ======== ========
9. RELATED PARTY TRANSACTIONS
We lease a building in France from a partnership in which our president has a
50% interest 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 was $588 in 2003, $664 in 2004
and $704 in 2005.
We paid management fees of $530 in 2003 and $278 in 2004 to our former majority
shareholder. We paid management fees of $317 in 2004 and $600 in 2005 to our
current shareholders.
GS Capital Partners 2000, L.P. ("GSCP 2000") and other private equity funds
affiliated with Goldman, Sachs & Co. own 40.1% of the common stock and preferred
stock of Micron. Under the registration rights agreement, we filed a
"market-making" prospectus in order to allow Goldman, Sachs & Co. to engage in
market-making activities for the Notes we entered into with these entities at
the closing of the Merger. 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 senior credit facilities initially and
in the March and December 2005 amendments of the senior credit facilities
agreement. Goldman Sachs Credit Partners L.P. was also the syndication agent,
lead arranger and sole book runner for our second lien credit facility. In 2004,
we paid Goldman Sachs Credit Partners L.P. $4,241 from the proceeds of our
senior credit facilities and the Notes for underwriting and bridge financing
commitment fees and out-of-pocket expenses. In 2005, we paid Goldman Sachs
Credit Partners L.P. $1,902 from the proceeds of our second lien credit facility
for syndication fees and out-of-pocket expenses.
F-22
10. CAPITAL STOCK
Micron's Board of Directors has reserved 1,430,000 shares of common stock for
issuance to employees under the 2004 Stock Option Plan (the "Option Plan"), and
as of December 31, 2005, options for 948,035 shares were granted at $10 per
share under the Option Plan, 929,498 of which were issued in 2004 and 18,537 in
2005. Options are not exercisable prior to twelve months from or ten years after
the grant date. Certain options granted vest at a rate of twenty-five percent
annually over a four-year period, while others vest based on Micron
shareholders' ability to meet certain levels of return on their investment in
Micron. No options were exercisable as of December 31, 2004. Options for 232,375
shares were exercisable as of December 31, 2005.
11. EMPLOYEE BENEFIT PLANS
We maintain a self-funded medical and dental plan for our Kentwood and Marshall
and certain of our Dowagiac, Michigan full-time employees. A third-party
administrator makes benefit payments, and an estimate of our liability for
unpaid and incurred but not reported claims is included in Other Accrued
Liabilities. Employees of our other subsidiaries are enrolled in various insured
group or governmental health plans.
We sponsor 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 $819 in 2003, $829 in 2004 and $818 in 2005.
We sponsor defined benefit pension plans for substantially all employees of our
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 funded. Accordingly, the unfunded obligations under
the F&P Plan 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.
For the purpose of calculating the actuarial present value of the benefit
obligation under the F&P and Bouverat Plans, the discount rate assumed for all
periods was 5%. The compensation growth rate for the F&P Plan was assumed at 3%
for all periods presented. The compensation growth rates for the Bouverat Plan
were assumed at 2% in 2003, 3% in 2004 and 3% in 2005. The measurement date was
December 31 of each year.
F-23
Set forth below is projected benefit obligation information for the F&P and
Bouverat Plans:
2004 2005
------------------------ ------------------------
F&P PLAN BOUVERAT PLAN F&P PLAN BOUVERAT PLAN
-------- ------------- -------- -------------
Accumulated benefit obligation at measurement date $1,144 $354 $1,013 $256
Effect of salary increases 729 173 665 159
------ ---- ------ ----
Projected benefit obligation at measurement date $1,873 $527 $1,678 $415
====== ==== ====== ====
2004 2005
------------------------ ------------------------
F&P PLAN BOUVERAT PLAN F&P PLAN BOUVERAT PLAN
-------- ------------- -------- -------------
Projected benefit obligation at beginning of year $2,335 $ 545 $1,873 $527
Plan amendments (293) (125)
Service and interest costs 148 115 316 19
Actuarial gain (304)
Benefits paid (150) (48) (258) (61)
Effect of foreign currency translation gain 137 40 (254) (69)
------ ----- ------ ----
Projected benefit obligation at measurement date $1,873 $ 527 $1,678 $415
====== ===== ====== ====
Set forth below is net periodic benefit cost information for the F&P and
Bouverat Plans:
2003 2004 2005
------------------------ ------------------------ ------------------------
F&P PLAN BOUVERAT PLAN F&P PLAN BOUVERAT PLAN F&P PLAN BOUVERAT PLAN
-------- ------------- -------- ------------- -------- -------------
Service and interest costs $308 $ 34 $148 $115 $316 $ 19
Expected return on plan assets (23) (30) (32)
---- ---- ---- ---- ---- -----
Net periodic benefit cost $308 $ 11 $148 $ 85 $316 ($13)
==== ==== ==== ==== ==== =====
F-24
Set forth below are expected benefit payments under the F&P Plan for the next
five years and the five years thereafter:
YEARS ENDING DECEMBER 31,
2006 $ 5
2007
2008
2009 8
2010 22
2011-2015 256
----
Total $291
====
Set forth below is plan asset information for the Bouverat Plan:
2004 2005
----- -----
Plan assets at fair value at measurement date $ 648 $ 512
Projected benefit obligations at measurement date (527) (415)
----- -----
Funded status and accrued benefit cost $ 121 $ 97
===== =====
2004 2005
---- ----
Plan assets at fair value at beginning of year $602 $648
Actual return on plan assets 43 25
Benefits paid (48) (61)
Other (15)
Effect of foreign currency translation loss 51 (85)
---- ----
Plan assets at fair value at measurement date $648 $512
==== ====
The assumed rate of return on assets of the Bouverat Plan was 5% for all periods
presented, which is consistent with historical long-term rates of return
experienced for each asset class. We have a targeted goal of allocating Bouverat
Plan assets one-third to equity and two-thirds to fixed income securities. Set
forth below are actual allocations of plan assets of the Bouverat Plan between
equity and fixed income securities as of December 31:
2004 2005
---- ----
Equity 27% 19%
Fixed income 73% 81%
--- ---
100% 100%
=== ===
Our expected funding obligations under the Bouverat Plan are $47 in 2006.
F-25
12. SUPPLEMENTAL CASH FLOW INFORMATION
Set forth below is a reconciliation of net income (loss) to net cash provided by
(used in) operating activities:
SIX MONTHS ENDED
-----------------------
JUNE 30, DECEMBER 31,
2003 2004 2004 2005
------- -------- ------------ ---------
(predecessor) (successor)
Net income (loss) $ 6,994 $ 2,177 $ 554 ($40,187)
Adjustments to reconcile net income (loss) to cash provided
by (used in) operating activities:
Depreciation and amortization 20,446 12,954 7,763 19,563
Goodwill impairment 33,000
Deferred taxes 3,293 395 (874) (4,768)
Realized gains and losses and other, net 2,223 2,627 (257) 476
Changes in assets and liabilities that provided (used) cash:
Accounts receivable 6,782 (9,243) 10,488 5,250
Inventories 1,838 (2,899) (5,908) (4,179)
Prepaid expenses and other current assets 53 (44) (280) 1,323
Other long-term assets (69) (1,192) 203 (1,916)
Accounts payable 1,950 1,687 (6,217) 6,670
Accrued liabilities (5,634) 6,962 (2,985) (247)
Deferred credits and other 113 (2,730) (3,024) 1,112
------- ------- ------- ---------
Net cash provided by (used in) operating activities $37,989 $10,694 ($537) $ 16,097
======= ======= ======= =========
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
2005 QUARTERS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL YEAR
- ------------------- -------- ------- ------------ ----------- ----------
(successor)
-----------------------------------------------
Sales $88,787 $87,554 $ 85,416 $86,066 $347,823
Gross profit 12,294 12,935 (24,215) 7,425 8,439
Net income (loss) 322 419 (35,614) (5,314) (40,187)
2004 QUARTERS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL YEAR
- ------------------- -------- ------- ------------ ----------- ----------
(predecessor) (successor)
Sales $92,856 $91,633 $ 80,249 $85,572 $350,310
Gross profit 16,241 14,822 11,901 13,073 56,037
Net income (loss) 4,865 (2,688) (140) 694 2,731
F-26
14. FINANCIAL INFORMATION FOR GUARANTOR AND NON-GUARANTOR SUBSIDIARIES
Set forth below are the guarantor and non-guarantor subsidiaries of Autocam with
respect to the Notes:
GUARANTOR SUBSIDIARIES
Autocam-Pax, Inc.
Autocam Acquisition, Inc.
Autocam Laser Technologies, Inc.
Autocam International Ltd.
Autocam Europe, B.V.
Autocam International Sales Corporation
Autocam Greenville, Inc.
Autocam South Carolina, Inc.
NON-GUARANTOR SUBSIDIARIES
Autocam-Har, Inc.
Autocam France, SARL
Frank & Pignard, SA
Bouverat Industries, SA
Autocam do Brasil Usinagem Ltda.
Autocam Foreign Sales Corporation
Autocam Poland Sp. z o.o.
Wuxi Kent Precision Automotive Components Co., Ltd.
Subsequent to the issuance of the consolidated financial statements for the year
ended December 31, 2004, management determined that the previously presented
condensed combining financial data for 2003 and 2004 did not reflect the
investment in subsidiaries within Titan Holdings, Inc. and Autocam under the
equity method for purposes of the supplemental combining presentation. The
current presentation has been restated to reflect all investments in
subsidiaries under the equity method. Net income (losses) of the subsidiaries
accounted for under the equity method are therefore reflected in their parents'
investment accounts. The principle elimination entries eliminate investments in
subsidiaries and intercompany balances and transactions. The changes in
presentation did not effect our consolidated financial position or consolidated
results of operations, nor did the changes adversely impact our compliance with
debt covenants or ratios.
Set forth below are schedules that reconcile the amounts as previously reported
in our condensed combining balance sheet as of December 31, 2004 and the
condensed combining statements of operations for the years ended December 31,
2003 and 2004, to the corresponding restated amounts.
TITAN
(PARENT SUBSIDIARIES
COMPANY -------------------------
ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
-------- -------- --------- ------------- ------------ --------
YEAR ENDED DECEMBER 31, 2003:
Net income (loss) as previously reported ($38) $ 3,425 $1,084 $ 2,523 $ 6,994
Net income as restated 6,994 7,032 1,084 2,523 ($10,639) 6,994
SIX MONTHS ENDED JUNE 30, 2004:
Net income (loss) as previously reported ($4,262) $ 77 $1,509 $ 4,853 $ 2,177
Net income as restated 2,177 6,439 1,509 4,853 ($12,801) 2,177
SIX MONTHS ENDED DECEMBER 31, 2004:
Net income (loss) as previously reported ($12) ($3,791) $ 815 $ 3,542 $ 554
Net income as restated 554 566 815 3,542 ($4,923) 554
DECEMBER 31, 2004:
As previously reported:
Total assets $145,060 $210,909 $1,368 $213,082 ($987) $569,432
Total equity 145,094 (1,303) 815 20,754 165,360
As restated:
Total assets 145,626 215,266 1,368 213,082 (5,910) 569,432
Total equity 145,660 3,054 815 20,754 (4,923) 165,360
F-27
Set forth below is financial information regarding the guarantors and
non-guarantors:
TITAN (PARENT SUBSIDIARIES
COMBINING STATEMENT OF OPERATIONS (RESTATED) COMPANY -------------------------
YEAR ENDED DECEMBER 31, 2003 ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- -------------------------------------------- ------------- -------- --------- ------------- ------------ --------
(predecessor)
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 (income), 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
Equity in net income of subsidiaries 7,032 3,607 (10,639)
------ -------- ------- -------- -------- --------
Net income $6,994 $ 7,032 $ 1,084 $ 2,523 ($10,639) $ 6,994
====== ======== ======= ======== ======== ========
TITAN (PARENT SUBSIDIARIES
COMBINING STATEMENT OF OPERATIONS (RESTATED) COMPANY -------------------------
SIX MONTHS ENDED JUNE 30, 2004 ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- -------------------------------------------- ------------- -------- --------- ------------- ------------ --------
(predecessor)
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 (income), 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
Equity in net income of subsidiaries 6,439 6,362 (12,801)
------- ------- ------- -------- -------- --------
Net income $ 2,177 $ 6,439 $ 1,509 $ 4,853 ($12,801) $ 2,177
======= ======= ======= ======== ======== ========
TITAN (PARENT SUBSIDIARIES
COMBINING STATEMENT OF OPERATIONS (RESTATED) COMPANY -------------------------
SIX MONTHS ENDED DECEMBER 31, 2004 ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- -------------------------------------------- ------------- -------- --------- ------------- ------------ --------
(successor)
Sales $60,389 $8,854 $100,498 ($3,920) $165,821
Cost of sales 52,462 6,693 85,612 (3,920) 140,847
------- ------ -------- ------- --------
Gross profit 7,927 2,161 14,886 24,974
Selling, general and administrative expenses 4,127 587 5,852 10,566
------- ------ -------- ------- --------
Income (loss) from operations 3,800 1,574 9,034 14,408
Interest expense, net 8,170 323 3,145 11,638
Other expense, net $ 18 775 1 1,000 1,794
---- ------- ------ -------- ------- --------
Income (loss) before tax provision (18) (5,145) 1,250 4,889 976
Tax provision (6) (1,354) 435 1,347 422
Equity in net income of subsidiaries 566 4,357 (4,923)
---- ------- ------ -------- ------- --------
Net income $554 $ 566 $ 815 $ 3,542 ($4,923) $ 554
==== ======= ====== ======== ======= ========
F-28
TITAN (PARENT SUBSIDIARIES
COMBINING STATEMENT OF OPERATIONS COMPANY -------------------------
YEAR ENDED DECEMBER 31, 2005 ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- --------------------------------- ------------- --------- --------- ------------- ------------ ---------
(successor)
Sales $ 132,517 $28,191 $ 198,296 ($11,181) $ 347,823
Cost of sales 115,055 20,401 182,109 (11,181) 306,384
Goodwill impairment 33,000 33,000
--------- ------- --------- --------- ---------
Gross profit (loss) 17,462 7,790 (16,813) 8,439
Selling, general and administrative expenses 7,191 1,777 13,087 22,055
--------- ------- --------- --------- ---------
Income (loss) from operations 10,271 6,013 (29,900) (13,616)
Interest expense, net 16,643 1,149 7,349 25,141
Other expense, net $ 15 2,363 44 2,791 5,213
--------- --------- ------- --------- --------- ---------
Income (loss) before tax provision (15) (8,735) 4,820 (40,040) (43,970)
Tax provision (5) (2,819) 1,664 (2,640) (3,800)
Equity in net loss of subsidiaries (40,177) (34,244) 74,421
Net loss in joint venture 17 17
--------- --------- ------- --------- --------- ---------
Net income (loss) ($40,187) ($40,177) $ 3,156 ($37,400) $ 74,421 ($40,187)
========= ========= ======= ========= ========= =========
TITAN (PARENT SUBSIDIARIES
CONDENSED COMBINING STATEMENT OF CASH FLOWS COMPANY -------------------------
YEAR ENDED DECEMBER 31, 2005 ONLY) AUTOCAM GUARANTOR NON-GUARANTOR COMBINED
- ------------------------------------------- ------------- --------- --------- ------------- ---------
(predecessor)
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
Borrowings (repayments) on line of credit, net 4,000 (3,380) 620
Principal payments of long-term obligations (9,399) (19,428) (28,827)
Other (914) (1) 3,015 2,100
---- -------- ------- -------- --------
Net 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
==== ======== ======= ======== ========
TITAN (PARENT SUBSIDIARIES
CONDENSED COMBINING STATEMENT OF CASH FLOWS COMPANY -------------------------
SIX MONTHS ENDED JUNE 30, 2004 ONLY) AUTOCAM GUARANTOR NON-GUARANTOR COMBINED
- ------------------------------------------- ------------- --------- --------- ------------- ---------
(predecessor)
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
-------- --------- ----- -------- ---------
Net increase (decrease) 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
======== ========= ===== ======== =========
F-29
TITAN (PARENT SUBSIDIARIES
CONDENSED COMBINING STATEMENT OF CASH FLOWS COMPANY -------------------------
SIX MONTHS ENDED DECEMBER 31, 2004 ONLY) AUTOCAM GUARANTOR NON-GUARANTOR COMBINED
- ------------------------------------------- ------------- -------- --------- ------------- --------
(successor)
Net cash provided by (used in) operating activities ($7,104) $ 882 $ 5,685 ($537)
Expenditures for property, plant and equipment (2,149) (883) (6,647) (9,679)
Borrowings (repayments) on lines of credit, net 6,972 643 7,615
Proceeds from issuance of long-term obligations 647 647
Principal payments of long-term obligations (152) (3,285) (3,437)
Debt issue costs (781) (781)
Other 776 (1) 311 1,086
-------- ----- ------- -------
Net increase (decrease) in cash and equivalents (2,438) (2) (2,646) (5,086)
Cash and equivalents at beginning of period 3,525 4 3,674 7,203
-------- ----- ------- -------
Cash and equivalents at end of period $ 1,087 $ 2 $ 1,028 $ 2,117
======== ===== ======= =======
TITAN (PARENT SUBSIDIARIES
CONDENSED COMBINING STATEMENT OF CASH FLOWS COMPANY -------------------------
YEAR ENDED DECEMBER 31, 2005 ONLY) AUTOCAM GUARANTOR NON-GUARANTOR CONSOLIDATED
- ------------------------------------------- ------------- -------- --------- ------------- ------------
(successor)
Net cash provided by (used in) operating activities ($15) $ 3,671 ($484) $ 12,925 $ 16,097
Expenditures for property, plant and equipment (6,912) (342) (11,092) (18,346)
Acquisitions, net of cash (944) (9,902) (201) (11,047)
Transactions with affiliates (17,013) (23,457) 10,732 29,168 (570)
Borrowings (repayments) on lines of credit, net (18,000) 2,439 (15,561)
Proceeds from issuance of long-term debt 75,000 1,021 76,021
Principal payments of long-term obligations (12,848) (31) (32,726) (45,605)
Shareholder contributions 17,028 17,028
Debt issue costs (3,762) (3,762)
Other (570) 39 (1,108) (1,639)
-------- ------- -------- --------
Net increase (decrease) in cash and equivalents 12,178 12 426 12,616
Cash and equivalents at beginning of period 1,087 2 1,028 2,117
-------- ------- -------- --------
Cash and Equivalents at End of Period $ 13,265 $ 14 $ 1,454 $ 14,733
======== ======= ======== ========
F-30
TITAN (PARENT SUBSIDIARIES
CONDENSED COMBINING BALANCE SHEET (RESTATED) COMPANY ------------------------
DECEMBER 31, 2004 ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- -------------------------------------------- ------------- -------- --------- ------------- ------------ --------
(successor)
Assets
Current assets:
Cash and equivalents $ 1,087 $ 2 $ 1,028 $ 2,117
Accounts receivable, net 20,329 1,700 37,202 ($871) 58,360
Inventories 10,314 1,501 25,132 36,947
Prepaid expenses and other current assets 1,148 78 2,259 3,485
-------- -------- --------- ------- --------
Total current assets 32,878 3,281 65,621 (871) 100,909
Property, plant and equipment, net 29,772 5,637 141,457 419 177,285
Goodwill $116,399 3 151,637 268,039
Investment in affiliates 29,227 134,493 (7,600) (150,662) (5,458)
Other long-term assets 18,120 50 5,029 23,199
-------- -------- -------- --------- ------- --------
Total assets $145,626 $215,266 $ 1,368 $ 213,082 ($5,910) $569,432
======== ======== ======== ========= ======= ========
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Current maturities of long-term obligations $ 330 $ 12,612 $ 12,942
Accounts payable 9,232 $ 184 38,256 ($984) 46,688
Accrued liabilities ($34) 4,005 369 16,224 (3) 20,561
-------- -------- -------- --------- ------- --------
Total current liabilities (34) 13,567 553 67,092 (987) 80,191
-------- -------- -------- --------- ------- --------
Long-term obligations, net of current maturities 187,548 88,291 275,839
Deferred taxes and other 11,097 36,945 48,042
Shareholders' equity (deficit):
Capital stock 145,112 145,112
Accumulated other comprehensive income 2,483 17,211 19,694
Retained earnings (accumulated deficit) 548 571 815 3,543 (4,923) 554
-------- -------- -------- --------- ------- --------
Total shareholders' equity (deficit) 145,660 3,054 815 20,754 (4,923) 165,360
-------- -------- -------- --------- ------- --------
Total liabilities and shareholders' equity (deficit) $145,626 $215,266 $ 1,368 $ 213,082 ($5,910) $569,432
======== ======== ======== ========= ======= ========
F-31
TITAN (PARENT SUBSIDIARIES
CONDENSED COMBINING BALANCE SHEET COMPANY ------------------------
DECEMBER 31, 2005 ONLY) AUTOCAM GUARANTOR NON-GUARANTOR ELIMINATIONS COMBINED
- --------------------------------- ------------- -------- --------- ------------- ------------ --------
(successor)
Assets
Current assets:
Cash and equivalents $ 13,264 $ 15 $ 1,454 $ 14,733
Accounts receivable, net 18,693 2,426 28,896 ($3,026) 46,989
Inventories 11,709 3,954 24,009 1,255 40,927
Prepaid expenses and other current assets 1,428 393 3,428 5,249
-------- -------- --------- -------- --------
Total current assets 45,094 6,788 57,787 (1,771) 107,898
Property, plant and equipment, net 31,933 7,745 122,616 765 163,059
Goodwill $116,507 135 5,242 102,210 (70) 224,024
Investments in affiliates 5,969 121,200 (13,479) (181,817) 68,683 556
Other long-term assets 28,116 254 6,984 872 36,226
-------- -------- -------- --------- -------- --------
Total assets $122,476 $226,478 $ 6,550 $ 107,780 $ 68,479 $531,763
======== ======== ======== ========= ======== ========
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Current maturities of long-term obligations $ 44 $8,538 $ 8,582
Accounts payable $ 12,213 731 34,104 ($1,034) 46,014
Accrued liabilities ($19) 3,564 970 12,784 15 17,314
-------- -------- -------- --------- -------- --------
Total current liabilities (19) 15,777 1,745 55,426 (1,019) 71,910
-------- -------- -------- --------- -------- --------
Long-term obligations, net of current maturities 232,316 165 50,178 282,659
Deferred taxes and other 18,546 668 31,375 50,589
Shareholders' equity (deficit):
Capital stock 162,140 162,140
Accumulated other comprehensive income (564) 4,662 4,098
Retained earnings (accumulated deficit) (39,645) (39,597) 3,972 (33,861) 69,498 (39,633)
-------- -------- -------- --------- -------- --------
Total shareholders' equity (deficit) 122,495 (40,161) 3,972 (29,199) 69,498 126,605
-------- -------- -------- --------- -------- --------
Total liabilities and shareholders' equity (deficit) $122,476 $226,478 $ 6,550 $ 107,780 $ 68,479 $531,763
======== ======== ======== ========= ======== ========
F-32
================================================================================
(AUTOCAM CORPORATION LOGO)
AUTOCAM CORPORATION
$140,000,000
10.875% SENIOR SUBORDINATED NOTES DUE 2014
----------
PROSPECTUS
----------
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses incurred or expected to be
incurred in connection with this registration statement and the transactions
contemplated hereby:
ITEM AMOUNT
---- ------
SEC registration fee (1) $ --
Printing and engraving expenses $ 7,500
Legal fees and expenses $15,000
Accounting fees and expenses $15,000
Miscellaneous expenses $ 2,000
- ----------
(1) Pursuant to Rule 457(q) of the Securities Act, no filing fee is required.
ITEM 14. 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, which 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 15. RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the Merger, Titan redeemed all of its outstanding shares of
preferred stock and Titan's outstanding shares of common stock were converted
into the right to receive the consideration paid to the holders of common stock
in the Merger. Following the consummation of the Merger, Titan issued shares of
its common stock to Micron in exchange for the shares of Merger held by Micron
and Titan became a wholly-owned subsidiary of Micron.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
The following is a list of all the exhibits filed as part of the Registration
Statement.
NUMBER DESCRIPTION
------ -----------
3.1 Restated Articles of Incorporation of Autocam Corporation (filed as
Exhibit 3.1 to the Form S-4, filed September 23, 2004 (Form No.
333-119215; the "Form S-4"), and incorporated herein by reference)
3.2 Bylaws of Autocam Corporation (as amended, September 9, 1991) (filed
as Exhibit 3.2 to the Form S-4, and incorporated herein by reference)
4.1 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 (filed as Exhibit
4.1 to the Form S-4, and incorporated herein by reference)
4.2 Supplemental Indenture, dated 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 (filed
as Exhibit 4.2 to the Form S-4, and incorporated herein by reference)
4.3 Registration Rights Agreement, dated as of June 10, 2004, among Micron
Notes Corporation, Goldman, Sachs & Co. and Citigroup Global Markets
Inc. (filed as Exhibit 4.3 to the Form S-4, and incorporated herein by
reference)
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. (filed as Exhibit 4.4 to the Form S-4, and incorporated
herein by reference)
4.5 Assumption Agreement, dated June 21, 2004, among Autocam Corporation
and J.P. Morgan Trust Company, National Association (filed as Exhibit
4.5 to the Form S-4, and incorporated herein by reference)
4.6 Form of Initial Note and Form of Exchange Note (included within the
Indenture filed as Exhibit 4.1 to the Form S-4, and incorporated
herein by reference)
5.1* Opinion of Fried, Frank, Harris, Shriver & Jacobson LLP as to the
legality of the notes
5.2* Opinion of the General Counsel of Autocam Corporation as to the
legality of the 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 (filed as Exhibit 10.1 to the Form S-4, and incorporated
herein by reference)
NUMBER DESCRIPTION
------ -----------
10.2.1 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 (filed
as Exhibit 10.2 to the Form S-4, and incorporated herein by reference)
10.2.2 Pledge and Security Agreement, dated as of June 21, 2004, between
Autocam Corporation and each of the other parties thereto and
Citigroup North America, Inc., as Collateral Agent (filed as Exhibit
10.2.2 to the Annual Report on Form 10-K, filed March 30, 2006, and
incorporated herein by reference)
10.3+ Supply Contract with Delphi, dated March 28, 2003, for Multec 2 Fuel
Injection Components (filed as Exhibit 10.3 to the Form S-4, and
incorporated herein by reference)
10.4 Lease for Facility at 4070 E. Paris Avenue, S.E., dated April 11, 2003
(filed as Exhibit 10.4 to the Form S-4, and incorporated herein by
reference)
10.5 Lease for Facility at 1511 George Brown Dr., dated April 11, 2003
(filed as Exhibit 10.5 to the Form S-4, and incorporated herein by
reference)
10.6 Management Services Agreement, dated June 21, 2004, among Goldman,
Sachs & Co., Transportation Resource Advisors, LLC and John C. Kennedy
(filed as Exhibit 10.6 to the Form S-4, and incorporated herein by
reference)
10.7 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 (filed as Exhibit 10.7 to the Form S-4, and
incorporated herein by reference)
10.8 Management Rights Letter from Micron Holdings, Inc., Titan Holdings,
Inc. and Autocam Corporation to Transportation Resource Partners, LP,
dated as of June 21, 2004 (filed as Exhibit 10.8 to the Form S-4, and
incorporated herein by reference)
10.9 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 (filed as Exhibit
10.9 to the Form S-4, and incorporated herein by reference)
10.10 Employment Agreement, dated June 21, 2004, by and between Micron
Holdings, Inc., Autocam Corporation, Titan Holdings, Inc. and John C.
Kennedy (filed as Exhibit 10.10 to the Form S-4, and incorporated
herein by reference)
10.11 Employment Agreement, dated February 1, 2002, by and between Autocam
Corporation and Warren A. Veltman (filed as Exhibit 10.11 to the Form
S-4, and incorporated herein by reference)
10.12 First Amendment to Employment Agreement by and between Autocam
Corporation and Warren A. Veltman, dated September 17, 2004 (filed as
Exhibit 10.12 to the Form S-4, and incorporated herein by reference)
10.13 Employment Agreement, dated January 21, 2002, by and between Autocam
Corporation and John R. Buchan (filed as Exhibit 10.13 to the Form
S-4, and incorporated herein by reference)
10.14 First Amendment to Employment Agreement by and between Autocam
Corporation and John R. Buchan, dated September 17, 2004 (filed as
Exhibit 10.14 to the Form S-4, and incorporated herein by reference)
10.15 Employment Agreement, dated April 30, 2002, by and between Autocam
France, SARL and Bruno Le Sech (filed as Exhibit 10.15 to the Form
S-4, and incorporated herein by reference)
NUMBER DESCRIPTION
------ -----------
10.16 Amendment to the Employment Agreement by and between Autocam France,
SARL and Bruno Le Sech, dated June 4, 2002 (filed as Exhibit 10.16 to
the Form S-4, and incorporated herein by reference)
10.17 Services Agreement by and between Autocam Do Brazil and Lean
Management Consultoria Empresarial S/C Ltda, dated January 1, 1998
(filed as Exhibit 10.17 to the Form S-4, and incorporated herein by
reference)
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 (filed as Exhibit 10.18 to the Form S-4, and
incorporated herein by reference)
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 (filed as Exhibit 10.19 to the Form S-4,
and incorporated herein by reference)
10.20 Employment Agreement, dated February 1, 2002, by and between Autocam
Corporation and Thomas K. O'Mara (filed as Exhibit 10.20 to the Form
S-4, and incorporated herein by reference)
10.21 Amendment to Employment Agreement by and between Autocam Corporation
and Thomas K. O'Mara, dated September 17, 2004 (filed as Exhibit 10.21
to the Form S-4, and incorporated herein by reference)
10.22 Micron Holdings, Inc. 2004 Stock Option Plan (filed as Exhibit 10.22
to the Form S-4, and incorporated herein by reference)
10.23 Form of Micron Holdings, Inc. Nonqualified Stock Option Agreement
(Time-vesting) (filed as Exhibit 10.23 to the Form S-4, and
incorporated herein by reference)
10.24 Form of Micron Holdings, Inc. Nonqualified Stock Option Agreement
(Performance-vesting) (filed as Exhibit 10.24 to the Form S-4, and
incorporated herein by reference)
10.25 Termination of Split Dollar Life Insurance Agreement, dated September
17, 2004, by and between Autocam Corporation and Warren A. Veltman
(filed as Exhibit 10.25 to the Form S-4, and incorporated herein by
reference)
10.26 Termination of Split Dollar Life Insurance Agreement, dated September
17, 2004, by and between Autocam Corporation and John R. Buchan (filed
as Exhibit 10.26 to the Form S-4, and incorporated herein by
reference)
10.27 Termination of Split Dollar Life Insurance Agreement, dated September
17, 2004, by and between Autocam Corporation and Thomas K. O'Mara
(filed as Exhibit 10.27 to the Form S-4, and incorporated herein by
reference)
10.28 First Amendment to Guaranty and Credit Agreement, dated March 31, 2005
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 (filed
as Exhibit 10.2.1 to Autocam's Registration Statement on Form S-1,
filed April 25, 2005, and incorporated herein by reference)
10.29.1 Term Loan and Guaranty Agreement, dated as of December 22, 2005, among
Autocam Corporation, as Borrower, Titan Holdings, Inc. and certain
subsidiaries of Autocam Corporation, as Guarantors, various lenders
party thereto, The Bank of New York, as Administrative Agent and
Collateral Agent, and Goldman Sachs Credit Partners L.P., as
Syndication Agent, Lead Arranger and Sole Bookrunner (filed as Exhibit
10.1 to the Form 8-K, filed December 27, 2005, and incorporated herein
by reference)
NUMBER DESCRIPTION
------ -----------
10.29.2 Pledge and Security Agreement, dated as of December 22, 2005, between
Autocam Corporation and each of the other Grantors party thereto and
The Bank of New York, as Collateral Agent (filed as Exhibit 10.2 to
the Form 8-K, filed December 27, 2005, and incorporated herein by
reference)
10.29.3 Intercreditor Agreement, dated as of December 22, 2005, between
Citicorp North America. Inc., as First Lien Collateral Agent, The Bank
of New York, as Second Lien Collateral Agent, and Autocam Corporation
(filed as Exhibit 10.3 to the Form 8-K, filed December 27, 2005, and
incorporated herein by reference)
10.30 Second Amendment to Credit and Guaranty Agreement, dated as of
December 22, 2005 (effective as of December 22, 2005), by and among
Autocam Corporation, Autocam France, SARL, Titan Holdings, Inc.,
certain subsidiaries of Autocam Corporation, various lenders parties
thereto, Citicorp North America. Inc., as General Administrative Agent
and Collateral Agent, and Citibank International PLC, as European
Administrative Agent (filed as Exhibit 10.4 to the Form 8-K, filed
December 27, 2005, and incorporated herein by reference)
12.1* Ratio of Earnings to Fixed Charges
21.1 List of Subsidiaries of the Registrant (filed as Exhibit 21.1 to the
Annual Report on Form 10-K, filed March 30, 2006, and incorporated
herein by reference)
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 (filed as Exhibit 25.1 to the Form S-4 and
incorporated herein by reference)
- ----------
+ Certain portions of this exhibit have been omitted and separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
* Filed herewith.
(B) FINANCIAL STATEMENT SCHEDULES - NONE.
ITEM 17. 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.
(a) to include any prospectus required by Section 10(a)(3) of the
Securities Act;
(b) 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
(c) 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 by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering;
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 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.
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 25th day of April, 2006.
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 April 25, 2006.
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
/s/ Richard J. Lacks, Jr. Director
- -------------------------------------
Richard J. Lacks, Jr.
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 25th day of April, 2006.
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 April 25, 2006.
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
/s/ Richard J. Lacks, Jr. Director
- -------------------------------------
Richard J. Lacks, Jr.
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 25th day of April, 2006.
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 April 25, 2006.
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
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 25th day of April, 2006.
AUTOCAM EUROPE B.V.
By: /s/ John C. Kennedy
-----------------------------------
John C. Kennedy
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 April 25, 2006.
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
Warren A. Veltman Officer of Autocam Corporation)
Managing Director of Autocam Europe
B.V.
EXHIBIT INDEX
NUMBER DESCRIPTION
- ------ -----------
3.1 Restated Articles of Incorporation of Autocam Corporation (filed as
Exhibit 3.1 to the Form S-4, filed September 23, 2004 (Form No.
333-119215; the "Form S-4"), and incorporated herein by reference)
3.2 Bylaws of Autocam Corporation (as amended, September 9, 1991) (filed
as Exhibit 3.2 to the Form S-4, and incorporated herein by reference)
4.1 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 (filed as Exhibit
4.1 to the Form S-4, and incorporated herein by reference)
4.2 Supplemental Indenture, dated 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 (filed
as Exhibit 4.2 to the Form S-4, and incorporated herein by reference)
4.3 Registration Rights Agreement, dated as of June 10, 2004, among Micron
Notes Corporation, Goldman, Sachs & Co. and Citigroup Global Markets
Inc. (filed as Exhibit 4.3 to the Form S-4, and incorporated herein by
reference)
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. (filed as Exhibit 4.4 to the Form S-4, and incorporated
herein by reference)
4.5 Assumption Agreement, dated June 21, 2004, among Autocam Corporation
and J.P. Morgan Trust Company, National Association (filed as Exhibit
4.5 to the Form S-4, and incorporated herein by reference)
4.6 Form of Initial Note and Form of Exchange Note (included within the
Indenture filed as Exhibit 4.1 to the Form S-4, and incorporated
herein by reference)
5.1* Opinion of Fried, Frank, Harris, Shriver & Jacobson LLP as to the
legality of the notes
5.2* Opinion of General Counsel of Autocam Corporation as to the legality
of the 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 (filed as Exhibit 10.1 to the Form S-4, and incorporated
herein by reference)
10.2.1 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 (filed
as Exhibit 10.2 to the Form S-4, and incorporated herein by reference)
NUMBER DESCRIPTION
- ------ -----------
10.2.2 Pledge and Security Agreement, dated as of June 21, 2004, between
Autocam Corporation and each of the other parties thereto and
Citigroup North America, Inc., as Collateral Agent (filed as Exhibit
10.2.2 to the Annual Report on Form 10-K, filed March 30, 2006, and
incorporated herein by reference)
10.3+ Supply Contract with Delphi, dated March 28, 2003, for Multec 2 Fuel
Injection Components (filed as Exhibit 10.3 to the Form S-4, and
incorporated herein by reference)
10.4 Lease for Facility at 4070 E. Paris Avenue, S.E., dated April 11, 2003
(filed as Exhibit 10.4 to the Form S-4, and incorporated herein by
reference)
10.5 Lease for Facility at 1511 George Brown Dr., dated April 11, 2003
(filed as Exhibit 10.5 to the Form S-4, and incorporated herein by
reference)
10.6 Management Services Agreement, dated June 21, 2004, among Goldman,
Sachs & Co., Transportation Resource Advisors, LLC and John C. Kennedy
(filed as Exhibit 10.6 to the Form S-4, and incorporated herein by
reference)
10.7 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 (filed as Exhibit 10.7 to the Form S-4, and
incorporated herein by reference)
10.8 Management Rights Letter from Micron Holdings, Inc., Titan Holdings,
Inc. and Autocam Corporation to Transportation Resource Partners, LP,
dated as of June 21, 2004 (filed as Exhibit 10.8 to the Form S-4, and
incorporated herein by reference)
10.9 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 (filed as Exhibit
10.9 to the Form S-4, and incorporated herein by reference)
10.10 Employment Agreement, dated June 21, 2004, by and between Micron
Holdings, Inc., Autocam Corporation, Titan Holdings, Inc. and John C.
Kennedy (filed as Exhibit 10.10 to the Form S-4, and incorporated
herein by reference)
10.11 Employment Agreement, dated February 1, 2002, by and between Autocam
Corporation and Warren A. Veltman (filed as Exhibit 10.11 to the Form
S-4, and incorporated herein by reference)
10.12 First Amendment to Employment Agreement by and between Autocam
Corporation and Warren A. Veltman, dated September 17, 2004 (filed as
Exhibit 10.12 to the Form S-4, and incorporated herein by reference)
10.13 Employment Agreement, dated January 21, 2002, by and between Autocam
Corporation and John R. Buchan (filed as Exhibit 10.13 to the Form
S-4, and incorporated herein by reference)
10.14 First Amendment to Employment Agreement by and between Autocam
Corporation and John R. Buchan, dated September 17, 2004 (filed as
Exhibit 10.14 to the Form S-4, and incorporated herein by reference)
10.15 Employment Agreement, dated April 30, 2002, by and between Autocam
France, SARL and Bruno Le Sech (filed as Exhibit 10.15 to the Form
S-4, and incorporated herein by reference)
10.16 Amendment to the Employment Agreement by and between Autocam France,
SARL and Bruno Le Sech, dated June 4, 2002 (filed as Exhibit 10.16 to
the Form S-4, and incorporated herein by reference)
10.17 Services Agreement by and between Autocam Do Brazil and Lean
Management Consultoria Empresarial S/C Ltda, dated January 1, 1998
(filed as Exhibit 10.17 to the Form S-4, and incorporated herein by
reference)
NUMBER DESCRIPTION
- ------ -----------
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 (filed as Exhibit 10.18 to the Form S-4, and
incorporated herein by reference)
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 (filed as Exhibit 10.19 to the Form S-4,
and incorporated herein by reference)
10.20 Employment Agreement, dated February 1, 2002, by and between Autocam
Corporation and Thomas K. O'Mara (filed as Exhibit 10.20 to the Form
S-4, and incorporated herein by reference)
10.21 Amendment to Employment Agreement by and between Autocam Corporation
and Thomas K. O'Mara, dated September 17, 2004 (filed as Exhibit 10.21
to the Form S-4, and incorporated herein by reference)
10.22 Micron Holdings, Inc. 2004 Stock Option Plan (filed as Exhibit 10.22
to the Form S-4, and incorporated herein by reference)
10.23 Form of Micron Holdings, Inc. Nonqualified Stock Option Agreement
(Time-vesting) (filed as Exhibit 10.23 to the Form S-4, and
incorporated herein by reference)
10.24 Form of Micron Holdings, Inc. Nonqualified Stock Option Agreement
(Performance-vesting) (filed as Exhibit 10.24 to the Form S-4, and
incorporated herein by reference)
10.25 Termination of Split Dollar Life Insurance Agreement, dated September
17, 2004, by and between Autocam Corporation and Warren A. Veltman
(filed as Exhibit 10.25 to the Form S-4, and incorporated herein by
reference)
10.26 Termination of Split Dollar Life Insurance Agreement, dated September
17, 2004, by and between Autocam Corporation and John R. Buchan (filed
as Exhibit 10.26 to the Form S-4, and incorporated herein by
reference)
10.27 Termination of Split Dollar Life Insurance Agreement, dated September
17, 2004, by and between Autocam Corporation and Thomas K. O'Mara
(filed as Exhibit 10.27 to the Form S-4, and incorporated herein by
reference)
10.28 First Amendment to Guaranty and Credit Agreement, dated March 31, 2005
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 (filed
as Exhibit 10.2.1 to Autocam's Registration Statement on Form S-1,
filed April 25, 2005, and incorporated herein by reference)
10.29.1 Term Loan and Guaranty Agreement, dated as of December 22, 2005, among
Autocam Corporation, as Borrower, Titan Holdings, Inc. and certain
subsidiaries of Autocam Corporation, as Guarantors, various lenders
party thereto, The Bank of New York, as Administrative Agent and
Collateral Agent, and Goldman Sachs Credit Partners L.P., as
Syndication Agent, Lead Arranger and Sole Bookrunner (filed as Exhibit
10.1 to the Form 8-K, filed December 27, 2005, and incorporated herein
by reference)
10.29.2 Pledge and Security Agreement, dated as of December 22, 2005, between
Autocam Corporation and each of the other Grantors party thereto and
The Bank of New York, as Collateral Agent (filed as Exhibit 10.2 to
the Form 8-K, filed December 27, 2005, and incorporated herein by
reference)
NUMBER DESCRIPTION
- ------ -----------
10.29.3 Intercreditor Agreement, dated as of December 22, 2005, between
Citicorp North America. Inc., as First Lien Collateral Agent, The Bank
of New York, as Second Lien Collateral Agent, and Autocam Corporation
(filed as Exhibit 10.3 to the Form 8-K, filed December 27, 2005, and
incorporated herein by reference)
10.30 Second Amendment to Credit and Guaranty Agreement, dated as of
December 22, 2005 (effective as of December 22, 2005), by and among
Autocam Corporation, Autocam France, SARL, Titan Holdings, Inc.,
certain subsidiaries of Autocam Corporation, various lenders parties
thereto, Citicorp North America. Inc., as General Administrative Agent
and Collateral Agent, and Citibank International PLC, as European
Administrative Agent (filed as Exhibit 10.4 to the Form 8-K, filed
December 27, 2005, and incorporated herein by reference)
12.1* Ratio of Earnings to Fixed Charges
21.1 List of Subsidiaries of the Registrant (filed as Exhibit 21.1 to the
Annual Report on Form 10-K, filed March 30, 2006, and incorporated
herein by reference)
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 (filed as Exhibit 25.1 to the Form S-4 and
incorporated herein by reference)
- ----------
+ Certain portions of this exhibit have been omitted and separately filed
with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
* Filed herewith.