Filed pursuant to Rule 424(B)(3)
Registration No. 333-100351
FINAL PROSPECTUS DATED FEBRUARY 3, 2003
PROSPECTUS
TRIMAS CORPORATION
OFFER TO EXCHANGE ITS $352,773,000 AGGREGATE PRINCIPAL AMOUNT
OF 9 7/8% SENIOR SUBORDINATED NOTES DUE 2012,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR $352,773,000 AGGREGATE PRINCIPAL AMOUNT OF
9 7/8% SENIOR SUBORDINATED NOTES DUE 2012
(CUSIP NOS. 896215 AB 6 AND U89616 AA 1)
---------------------
TERMS OF EXCHANGE OFFER
o Expires 9:00 a.m., New York City time, on March 6, 2003 unless extended.
o Subject to certain customary conditions which may be waived by us.
o All outstanding 9 7/8% Senior Subordinated Notes due 2012 that are
validly tendered and not withdrawn will be exchanged.
o Tenders of original notes may be withdrawn any time prior to the
expiration of this exchange offer.
o The exchange of the original notes will not be a taxable exchange for
U.S. federal income tax purposes.
o We will not receive any cash proceeds from the exchange offer.
o The terms of the notes to be issued in exchange for the original notes
are substantially identical to the outstanding notes, except for certain
transfer restrictions and registration rights relating to the original
notes.
o Any original notes not validly tendered will remain subject to existing
transfer restrictions.
SEE "RISK FACTORS," BEGINNING ON PAGE 13, FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS BEFORE TENDERING THEIR ORIGINAL
NOTES IN THE EXCHANGE OFFER.
There has not previously been any public market for the exchange notes
that will be issued in the exchange offer. We do not intend to list the
exchange notes on any national stock exchange or on the Nasdaq National Market.
There can be no assurance that an active market for such exchange notes will
develop.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
---------------------
THE DATE OF THIS PROSPECTUS IS FEBRUARY 3, 2003.
TABLE OF CONTENTS
PAGE
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Where You Can Find More Information ...................................................... i
Forward-Looking and Other Statements ..................................................... i
Prospectus Summary ....................................................................... 1
Risk Factors ............................................................................. 13
Use of Proceeds .......................................................................... 22
Capitalization ........................................................................... 23
Unaudited Pro Forma Financial Information ................................................ 24
Selected Historical Financial Data ....................................................... 31
Management's Discussion and Analysis of Financial Condition and Results of Operations .... 34
Business ................................................................................. 45
Management ............................................................................... 59
Principal Stockholders ................................................................... 66
Certain Relationships and Related Party Transactions ..................................... 68
The Exchange Offer ....................................................................... 71
Description of Credit Facility ........................................................... 79
Description of Notes ..................................................................... 83
Summary of Material United States Federal Income Tax Considerations ...................... 122
Plan of Distribution ..................................................................... 125
Legal Matters ............................................................................ 125
Experts .................................................................................. 125
Index to Financial Statements ............................................................ F-1
WHERE YOU CAN FIND MORE INFORMATION
Upon effectiveness of the registration statement of which this prospectus
is a part, we become subject to and will commence filing annual, quarterly and
special reports and other information with the SEC. You may read and copy any
document that we file with the SEC at the SEC's public reference room at 450
Fifth Street, N.W., Washington, D.C. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. These SEC filings are also
available to you free of charge at the SEC's web site at http://www.sec.gov.
FORWARD-LOOKING AND OTHER STATEMENTS
This prospectus contains forward-looking statements about our financial
condition, results of operations and business. You can find many of these
statements by looking for words such as "may," "will," "expect," "anticipate,"
"believe," "estimate" and similar words used in this prospectus.
These forward-looking statements are subject to numerous assumptions,
risks and uncertainties. Because the statements are subject to risks and
uncertainties, actual results may differ materially from those expressed or
implied by the forward-looking statements. We caution readers not to place
undue reliance on the statements, which speak only as of the date of this
prospectus.
The cautionary statements set forth above should be considered in
connection with any subsequent written or oral forward-looking statements that
we or persons acting on our behalf may issue. We do not undertake any
obligation to review or confirm analysts' expectations or estimates or to
release publicly any revisions to any forward-looking statements to reflect
events or circumstances after the date of this prospectus or to reflect the
occurrence of unanticipated events.
Risks and uncertainties that could cause actual results to vary materially
from those anticipated in the forward-looking statements included in this
prospectus include general economic conditions in the
markets in which we operate and industry-based factors such as:
i
o technological developments that could competitively disadvantage us;
o our dependence on key individuals and relationships;
o labor costs and strikes at our customers' or at our facilities;
o exposure to product liability and warranty claims;
o increases in our raw material and energy costs;
o compliance with environmental and other regulations; and
o competition within our industries.
In addition, factors more specific to us could cause actual results to
vary materially from those anticipated in the forward-looking statements
included in this prospectus, such as substantial leverage, limitations imposed
by our debt instruments, our ability to identify attractive and other strategic
acquisition opportunities and our ability to successfully separate from
Metaldyne Corporation and to successfully integrate acquired businesses
including actions we have identified as providing cost-saving opportunities.
We disclose important factors that could cause our actual results to
differ materially from our expectations under "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this prospectus. These cautionary statements qualify all
forward-looking statements attributable to us or persons acting on our behalf.
When we indicate that an event, condition or circumstance could or would have
an adverse effect on us, we mean to include effects upon our business,
financial and other condition, results of operations and ability to make
payments on the notes.
We were acquired by Metaldyne (formerly MascoTech, Inc.) in January 1998
and Metaldyne did not report our results as a separate segment for 1998. As
such, certain statements in this prospectus that concern us for periods which
include 1998 are based upon our review of internal records and our best
estimates of certain data.
ii
PROSPECTUS SUMMARY
This summary highlights the material information contained elsewhere in
this prospectus. You should read this entire prospectus carefully, including
"Risk Factors" and our financial statements and the notes to those financial
statements included elsewhere in this prospectus. Unless the context otherwise
requires, all information in this prospectus which refers to (i) the "Issuer"
refers only to TriMas Corporation and (ii) the "Company," or "we," "our" or
"us" refers to the Issuer and its subsidiaries. For purposes of this
prospectus, when we describe information on a pro forma basis, we are giving
effect only to those adjustments set forth under "Unaudited Pro Forma Financial
Information."
THE COMPANY
We are a manufacturer of highly engineered products serving niche markets
in a diverse range of commercial, industrial and consumer applications. While
serving diverse markets, most of our businesses share important
characteristics, including leading market shares, strong brand names,
established distribution networks, high operating margins, and relatively low
capital investment requirements. We estimate that approximately 70% of our 2001
net sales were in U.S. markets in which we enjoy the number one or number two
market position within the respective product category. In addition, we believe
that in many of our businesses, we are one of only two or three manufacturers.
On June 6, 2002, an investor group led by Heartland Industrial Partners,
L.P. acquired 66% of our fully diluted common equity. Metaldyne Corporation,
our former parent, owns the remaining 34% of our fully diluted common equity.
As of September 29, 2002, Heartland owned approximately 55% of our fully
diluted common equity. We operated as an independent public company from 1989
through 1997. In 1998, we were acquired by Metaldyne and in November 2000
Metaldyne was acquired by an investor group led by Heartland. In early 2001, we
hired a new senior management team to increase our operating efficiency and
develop a focused growth strategy. We believe that as an independent company,
we will be better able to capitalize on our core manufacturing strengths and
our significant cash flow generation capacity to exploit growth opportunities.
Our businesses are organized into three operating groups: Transportation
Accessories, Rieke Packaging Systems and Industrial Specialties.
o Transportation Accessories Group. This group is a leading designer and
manufacturer of a wide range of accessory products used to outfit
light trucks, SUVs, recreational vehicles, passenger cars, and
trailers of all types including towing and hitch systems, trailer
components, electrical products, brake and rack systems, and
additional towing and trailering components. We benefit from strong
brand names, including Draw-Tite, Reese, Fulton, Wesbar, Hayman-Reese
and ROLA, that have broad customer recognition and are often perceived
as the quality leader in their respective market categories. We
believe we have the most extensive product lines in the industry. Our
products are distributed through an established national network of
independent installers as well as several retail outlets such as
Wal-Mart, Lowe's, Pep Boys, AutoZone and West Marine. Our products are
also distributed by both automotive and trailer original equipment
manufacturers, or OEMs.
o Rieke Packaging Systems Group. This group is a leading specialty
manufacturer of engineered closures and dispensing systems for steel
and plastic industrial and consumer packaging applications. Our brand
names include Rieke, TOV, Englass and Stolz. We believe that our Rieke
Packaging Systems group has significant market share in many of its
key product lines as a result of proprietary engineering and
manufacturing technology, patent protected systems and strong customer
relationships. We have over 25 patented or patent application pending
systems or technologies. Approximately 50% of this group's 2001 net
sales relate to value-added products based upon patented processes or
technology. We believe this group has significant growth opportunities
in the consumer products and pharmaceutical
1
markets through the introduction of its industrial design technology
to a range of consumer applications. Our customers include BASF,
Chevron, Coca-Cola, Colgate, Dow Chemical, Pepsi, Procter & Gamble,
Sherwin Williams, Valvoline and Zeneca.
o Industrial Specialties Group. This group manufactures a diverse range
of industrial products, such as cylinders, flame-retardant facings and
jacketings, specialty tape products, industrial gaskets and precision
tools, specialty fasteners and other products for use primarily in the
automotive, aerospace, construction, commercial, energy and defense
markets. Our companies and brands include Monogram Aerospace
Fasteners, Entegra Fasteners, Lake Erie Screw, Compac Corporation,
Norris Cylinders, Arrow Engine, Keo Cutters, Richard's Micro Tool and
Precision Performance. This group supplies highly engineered and
customer-specific products, provides value-added design and other
services and serves small markets supplied by a limited number of
companies. Our customers in this group include Air Liquide, Airgas,
Anderson Windows, BOC, Boeing, Caterpillar, Dana, Delta Faucets, Exxon
Mobil, Grainger, Honeywell, John Deere, Knauf and Shell.
OPERATING AND GROWTH STRATEGY
We will seek to enhance our cash flow and return on assets through the
following operating and growth strategies:
o Capitalize on New Product Development Opportunities. We have developed
innovative products without the need for significant incremental
capital investment and will work closely with our customers to
identify new product development opportunities. We believe we have
significant opportunities for future development in many of our
businesses that will benefit from our existing brand awareness and
successful distribution networks.
o Pursue Strategic Niche Acquisitions. We have successfully completed
over 25 acquisitions since 1986 and continue to seek attractive
acquisition candidates that will supplement existing product lines,
add new distribution channels, provide new cost-effective
technologies, expand our geographic coverage or enable us to absorb
overhead costs more efficiently.
o Continue to Aggressively Pursue Cost Savings Initiatives. In 2001, our
new management team implemented a plan to reorganize us into three
business groups and eliminate duplicative costs that we expect will
result in annual cost savings of approximately $29 million by the
second quarter of 2004.
o Continue to Emphasize Strong Free Cash Flow. We have grown by making
selective acquisitions using disciplined acquisition criteria that
focus on high margin businesses in niche markets with relatively low
capital requirements. We will continue to focus on high margin
businesses so that we can maximize free cash flow.
o Capitalize on Cyclical Recoveries. Several of our businesses sell into
industrial markets that experienced cyclical volume declines during
2001 as a result of general economic conditions as well as a sharp
liquidation of industrial inventories. In response, management has
aggressively pursued cost savings opportunities and projects and has
reduced our operating costs. While the timing of a recovery in
cyclical markets is uncertain, we believe that we are well positioned
to experience further margin improvement if volume increases given our
lower cost structure.
o Leverage Economies of Scale and Utilize World Class Operating
Practices. By increasing our scale, we will have opportunities to
improve supply base management, internal sourcing of materials and
selective out-sourcing of support functions, such as risk management,
logistics and freight management.
2
THE TRANSACTIONS AND RECENT DEVELOPMENTS
On June 6, 2002, Metaldyne and Heartland consummated a stock purchase
agreement under which Heartland and other investors invested approximately $265
million in us and acquired approximately 66% of our fully diluted common stock.
As a result of the investment and other transactions described below, Metaldyne
received $840 million in the form of cash, retirement of debt we owed to
Metaldyne or owed by us under the Metaldyne credit agreement and the repurchase
of the balance of receivables we originated and sold under the Metaldyne
receivables facility. Metaldyne retained shares of our common stock valued at
$120 million. In addition, Metaldyne received a warrant to purchase 750,000
additional shares of our common stock valued at $15 million. The common stock
and warrants are valued based upon the cash equity investment made by Heartland
and the other investors. Immediately following the transactions, Heartland and
Metaldyne owned approximately 55% and 34% of our fully diluted common stock,
respectively.
To effect the transactions contemplated by the stock purchase agreement,
we entered into a senior credit facility consisting of a $150 million revolving
credit facility and a $260 million term loan facility and a $125 million
receivables facility, issued the original notes and raised $265 million in cash
through the issuance of common stock. We used borrowings under our credit
facility and proceeds from the original notes offering to repay borrowings made
by our subsidiaries under the Metaldyne credit agreement in November 2000, to
repay certain debt that our subsidiaries owed to Metaldyne and its other
subsidiaries and to repurchase receivables balances we originated and sold
under the Metaldyne receivables facility. Prior to the closing of the
transactions contemplated by the stock purchase agreement, we declared and paid
a cash dividend equal to the difference between the $840 million and the
aggregate amount of such debt repayment and receivables repurchase. We also
issued the warrant as a dividend. We were released from all of our obligations
under the Metaldyne credit agreement in connection with the transactions. See
the information under the headings "Description of Credit Facility" and
"Certain Relationships and Related Party Transactions." We refer to the June 6,
2002 common equity issuance to Heartland and the related financings as the
"transactions."
On December 10, 2002, we issued an additional $85.0 million in aggregate
principal amount of notes pursuant to our June 6, 2002 indenture under which
our original notes were previously issued. We refer to the December 10, 2002
notes issuance as the "additional issuance," and the notes issued thereby as
the "additional notes." The additional notes are identical to the original
notes. We are only offering to exchange the original notes in this offering. We
intend to use the net proceeds from the additional issuance for general
corporate purposes, including potential acquisitions and debt repayment, and to
use up to $20.0 million of the net proceeds to repurchase a portion of our
common stock owned by Metaldyne. We received a consent from our senior lenders
to permit us to effect this stock repurchase and to hold the balance of the
cash proceeds until June 29, 2003 pending use for any potential permitted
acquisitions. If we do not utilize the portion of the net proceeds being held
for acquisitions or the stock repurchase by June 29, 2003, we may apply some of
the net proceeds to repay a portion of our term credit facility. See
"Description of Credit Facility."
On January 30, 2003, we acquired all of the capital stock of HammerBlow
Acquisition Corp., a manufacturer and distributor of towing, trailer and other
vehicle accessories throughout North America, from 2000 Riverside Capital
Appreciation Fund, L.P. and other stockholders of HammerBlow for a purchase
price of approximately $142 million (less our previous investment of $9.0
million), subject to adjustment. Of this amount, $7.5 million of the purchase
price is payable in January 2004. On a pro forma basis to account for its
recent acquisitions, Hammerblow had annual sales of approximately $108.0
million for the twelve months ended November 30, 2002. The purchase includes
The HammerBlow Corporation, Hidden Hitch, Tekonsha Towing Systems and SurePull
Towing Systems. Hammerblow sells its products under trade names such as BULLDOG
(Registered Trademark) ; CROWN (Registered Trademark) , ECLIPSE by HammerBlow
(Registered Trademark) and HammerBlow/Snowco (Registered Trademark) . The
acquisition was financed with cash on hand and drawings from our revolving
credit facility.
3
In addition, we recently entered into a non-binding letter of intent to
purchase all of the equity interests of a company engaged in the manufacture of
certain automotive after-market accessories with annual sales of approximately
$50 million that are complementary with our products. The anticipated purchase
price is approximately $70 million, but the transaction remains subject to due
diligence, the negotiation of definitive documentation and an approval by our
board of directors. There can be no assurance that we will proceed with this
transaction or that it will be completed.
4
SUMMARY OF THE EXCHANGE OFFER
The Exchange Offer............ We are offering to exchange $1,000 principal
amount of our 9 7/8% Senior Subordinated Notes
due 2012, which have been registered under the
Securities Act, for $1,000 principal amount of
our outstanding original 9 7/8% Senior
Subordinated Notes due 2012, (CUSIP 896215 AB 6
and CUSIP U89616 AA 1) which were issued in a
private offering on June 6, 2002. As of the
date of this prospectus, there is $352,773,000
principal amount at maturity of original notes
outstanding. We will issue exchange notes
promptly after the expiration of the exchange
offer.
Registration Rights........... You are entitled to exchange your original
notes for freely tradeable exchange notes with
substantially identical terms. The exchange
offer is intended to satisfy your exchange
rights. After the exchange offer is complete,
you will no longer be entitled to any exchange
or registration rights with respect to your
original notes. Accordingly, if you do not
exchange your original notes, you will not be
able to reoffer, resell or otherwise dispose of
your original notes unless you comply with the
registration and prospectus delivery
requirements of the Securities Act, or there is
an exemption available.
Resales....................... We believe that the exchange notes issued in
the exchange offer may be offered for resale,
resold or otherwise transferred by you without
compliance with the registration and prospectus
delivery requirements of the Securities Act,
provided that:
o you are acquiring the exchange notes in the
ordinary course of your business;
o you are not participating, do not intend to
participate and have no arrangement or
understanding with any person to
participate in a distribution of the
exchange notes; and
o you are not an "affiliate" of ours.
If you do not meet the above criteria you will
have to comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any reoffer,
resale or other disposition of your exchange
notes.
Each broker or dealer that receives exchange
notes for its own account in exchange for
original notes that were acquired as a result
of market-making or other trading activities
must acknowledge that it will deliver this
prospectus in connection with any sale of
exchange notes.
5
Expiration Date............... 9:00 a.m., New York City time, on March 6, 2003
unless we extend the expiration date.
Conditions to the Exchange
Offer........................ The exchange offer is subject to certain
customary conditions, which may be waived by
us. The exchange offer is not conditioned upon
any minimum principal amount of original notes
being tendered.
Procedures for Tendering
Original Notes............... If you wish to tender original notes, you
must complete, sign and date the letter of
transmittal, or a facsimile of it, in
accordance with its instructions and transmit
the letter of transmittal, together with your
notes to be exchanged and any other required
documentation, to The Bank of New York, who is
the exchange agent, at the address set forth in
the letter of transmittal to arrive by 9:00
a.m., New York City time, on the expiration
date. See "The Exchange Offer--Procedures for
Tendering Original Notes." By executing the
letter of transmittal, you will represent to us
that you are acquiring the exchange notes in
the ordinary course of your business, that you
are not participating, do not intend to
participate and have no arrangement or
understanding with any person to participate in
the distribution of exchange notes, and that
you are not an "affiliate" of ours. See "The
Exchange Offer--Procedures for Tendering
Original Notes."
Special Procedures for
Beneficial Holders........... If you are the beneficial holder of original
notes that are registered in the name of your
broker, dealer, commercial bank, trust company
or other nominee, and you wish to tender in the
exchange offer, you should contact the person
in whose name your original notes are
registered promptly and instruct such person to
tender on your behalf. See "The Exchange
Offer--Procedures for Tendering Original
Notes."
Guaranteed Delivery
Procedures.................... If you wish to tender your original notes and
you cannot deliver such notes, the letter of
transmittal or any other required documents to
the exchange agent before the expiration date,
you may tender your original notes according to
the guaranteed delivery procedures set forth in
"The Exchange Offer--Guaranteed Delivery
Procedures."
Withdrawal Rights............. Tenders may be withdrawn at any time before
9:00 a.m., New York City time, on the
expiration date.
6
Acceptance of Original Notes and
Delivery of Exchange Notes... Subject to certain conditions, we will accept
for exchange any and all original notes which
are properly tendered in the exchange offer
before 9:00 a.m., New York City time, on the
expiration date. The exchange notes will be
delivered promptly after the expiration date.
See "The Exchange Offer--Terms of the Exchange
Offer."
Certain Federal Income Tax
Considerations............... The exchange of original notes for exchange
notes will not be a taxable event for federal
income tax purposes. You will not recognize any
taxable gain or loss as a result of exchanging
original notes for exchange notes, and you will
have the same tax basis and holding period in
the exchange notes as you had in the original
notes immediately before the exchange. See
"Summary of Material United States Federal
Income Tax Considerations."
Use of Proceeds............... We will not receive any proceeds from the
issuance of the exchange notes.
Exchange Agent................ The Bank of New York is serving as exchange
agent in connection with the exchange offer.
The address, telephone number and facsimile
number of the exchange agent are set forth in
"The Exchange Offer--Exchange Agent."
7
SUMMARY OF THE EXCHANGE NOTES
The summary below describes the principal terms of the exchange notes. The
form and terms of the exchange notes are substantially identical to the form
and term of the original notes, except that we will register the exchange notes
under the Securities Act, and therefore, the exchange notes will not bear
legends restricting their transfer. Certain of the terms and conditions
described below are subject to important limitations and exceptions. The
"Description of Exchange Notes" section of this prospectus contains a more
detailed description of the terms and conditions of the exchange notes.
Issuer........................ TriMas Corporation.
Securities Offered............ $352,773,000 in aggregate principal amount of
9 7/8% Senior Subordinated Notes due 2012.
Maturity...................... June 15, 2012.
Interest...................... 9 7/8% per annum, payable semi-annually in
arrears on June 15 and December 15, commencing
December 15, 2002.
Guarantees.................... All payments on the exchange notes, including
$352,773,000 in aggregate principal amount and
interest accruing at 9 7/8% per annum, will be
jointly and severally guaranteed on a senior
subordinated unsecured basis by each of our
existing and future domestic restricted
subsidiaries that are guarantors or direct
borrowers under our credit facility.
Ranking....................... The exchange notes and the guarantees will
rank:
o junior to all of our and the guarantors'
existing and future senior indebtedness and
secured indebtedness, including any
borrowings under our credit facility;
o equally with any of our and the guarantors'
future unsecured senior subordinated
indebtedness, including trade payables;
o senior to any of our and the guarantors'
future indebtedness that is expressly
subordinated in right of payment to the
notes; and
o effectively junior to all of the
liabilities of our subsidiaries that have
not guaranteed the notes.
At September 29, 2002, the exchange notes and
the guarantees would have ranked junior to:
o approximately $260.0 million of senior
indebtedness; and
o other liabilities, including trade payables
but excluding intercompany obligations, of
our non-guarantor subsidiaries.
At September 29, 2002, the notes and related
guarantees then outstanding were not senior to
any of our
8
indebtedness and the notes and related
guarantees are not currently senior to any of
our Indebtedness. Further, at September 29,
2002, on a pro forma basis after giving effect
to the additional issuance we could have
incurred up to an aggregate of $36.4 million
in additional senior indebtedness under our
revolving credit facility and/or receivables
facility. We had no indebtedness that ranked
equally with the notes.
Restrictive Covenants......... The exchange notes will be issued under an
indenture with The Bank of New York, as
trustee. The indenture governing the notes will
limit the ability of the Issuer and its
restricted subsidiaries to, among other things:
o incur or guarantee additional indebtedness;
o pay dividends or make other distributions
or repurchase or redeem our stock;
o make investments;
o sell assets;
o create liens;
o enter into agreements restricting our
restricted subsidiaries' ability to pay
dividends;
o enter into transactions with affiliates;
and
o consolidate, merge or sell all or
substantially all of our assets.
These covenants are subject to important
exceptions and qualifications, which are
described under the heading "Description of
Exchange Notes" in this prospectus.
Additional Interest........... Pursuant to the registration rights agreement
covering the original notes, we are obligated
to pay additional interest to each holder of
original notes in an amount equal to $0.0278
per day or $10.00 per year per $1,000 principal
amount of original notes held by such holder,
which represents an aggregate amount of
additional interest of $9,799.25 per day or
$3,527,730 per year (calculated on the basis of
a 360 day year). The additional interest began
to accrue on January 2, 2003 and will continue
to accrue until the exchange offer is
completed. As of February 3, 2003, $323,375.25
in additional interest was accrued but unpaid
on the original notes. Following the closing of
the exchange offer, additional interest that is
accrued but unpaid on the original notes
exchanged in this offer will be due and payable
by us to the record holder of exchange notes
entitled to receive an interest payment made on
the first regularly scheduled interest payment
date following the completion of the exchange
offer. Holders of original notes who do not
exchange their original notes in this offer
9
will be entitled to receive additional
interest that is accrued and unpaid on the
original notes on the first regularly
scheduled interest payment date following the
completion of the exchange offer. See
"Exchange Offer--Additional Interest."
---------------------
TriMas Corporation is a Delaware corporation. Our principal executive
offices are located at 39400 Woodward Avenue, Suite 130, Bloomfield Hills,
Michigan 48304. Our telephone number is (248) 631-5400.
10
SUMMARY HISTORICAL FINANCIAL DATA
The following table sets forth our summary historical financial data for
the five years ended December 31, 2001 and the nine months ended September 30,
2001 and September 29, 2002. The financial data for the fiscal years ended
December 31, 1999, 2000 and 2001 has been derived from our audited combined
financial statements and notes to those financial statements included in this
prospectus, which have been audited by PricewaterhouseCoopers LLP, independent
accountants. The financial data for the fiscal year ended December 31, 1997 was
derived from our audited consolidated financial statements not included in this
prospectus. The financial data for the fiscal year ended December 31, 1998 was
derived from our unaudited combined financial statements not included in this
prospectus.
The selected information for the nine months ended September 30, 2001 and
September 29, 2002 has been derived from our unaudited interim
combined/consolidated financial statements and the notes to those financial
statements, which, in the opinion of management, include all adjustments, which
are normal and recurring in nature, necessary for the fair presentation of that
data for such periods.
In reviewing the following information, it should be noted that there is
significant non-comparability across historic periods. On June 6, 2002,
Metaldyne issued approximately 66% of our fully diluted common equity to an
investor group led by Heartland. We did not establish a new basis of accounting
as a result of this common equity issuance, due to the continuing contractual
control by Heartland. Our combined financial information for the periods prior
to June 6, 2002 includes allocations and estimates of direct and indirect
Metaldyne corporate administrative costs attributable to us, which are deemed
by management to be reasonable but are not necessarily reflective of those
costs to us on an ongoing basis. Prior to June 6, 2002, we were owned by
Metaldyne. On November 28, 2000, Metaldyne was acquired by an investor group
led by Heartland. The pre-acquisition basis of accounting for periods prior to
November 28, 2000 is reflected on the historical basis of accounting and all
periods subsequent to November 28, 2000 are reflected on a purchase accounting
basis and are therefore not comparable. In January 1998, we were acquired by
Metaldyne and established a new basis of accounting as a result of this
acquisition. Prior to January 1998, we operated as an independent public
company.
PRE-ACQUISITION BASIS
---------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, 1/1/2000-
1997 1998(1) 1999 11/27/2000
-------------- -------------- -------------- ------------
(in thousands)
STATEMENT OF OPERATIONS DATA:
Net sales ..................... $ 667,910 $ 707,180 $ 773,100 $ 739,590
Cost of sales ................. 447,940 475,550 519,610 514,570
--------- --------- --------- ---------
Gross profit .................. 219,970 231,630 253,490 225,020
Selling, general and
administrative ............... 106,270 122,370 134,560 130,490
--------- --------- --------- ---------
Operating profit .............. 113,700 109,260 118,930 94,530
--------- --------- --------- ---------
Net income (loss)(2) .......... 66,370 41,650 35,300 21,280
OTHER FINANCIAL DATA:
Depreciation and
amortization ................. $ 25,680 $ 31,780 $ 38,520 $ 38,400
Capital expenditures .......... 28,560 39,200 42,320 19,540
Cash flow from (used by):
operating activities ......... 83,820 93,970 55,980 113,430
investing activities ......... (39,810) (91,130) (44,870) (36,610)
financing activities ......... (44,520) (81,960) (19,410) (82,800)
Adjusted EBITDA(3) ............ 139,380 141,040 158,060 133,700
Ratio of earnings to fixed
charges(4) ................... 17.6x 1.8x 2.1x 1.7x
POST-ACQUISITION BASIS
-----------------------------------------------------------
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
11/28/2000- DECEMBER 31, SEPTEMBER 30, SEPTEMBER 29,
12/31/2000 2001 2001 2002
------------- -------------- --------------- --------------
(in thousands)
STATEMENT OF OPERATIONS DATA:
Net sales ..................... $ 50,640 $ 732,440 $ 575,010 $ 574,140
Cost of sales ................. 36,490 537,410 424,830 429,180
---------- --------- --------- ---------
Gross profit .................. 14,150 195,030 150,180 144,960
Selling, general and
administrative ............... 13,200 127,350 92,750 85,710
---------- --------- --------- ---------
Operating profit .............. 950 67,680 57,430 59,250
---------- --------- --------- ---------
Net income (loss)(2) .......... (4,150) (11,320) (4,490) (30,890)
OTHER FINANCIAL DATA:
Depreciation and
amortization ................. $ 4,540 $ 53,780 $ 40,320 $ 31,760
Capital expenditures .......... 3,260 18,690 13,700 20,120
Cash flow from (used by):
operating activities ......... 18,710 75,980 66,890 (20,190)
investing activities ......... (1,300) (12,620) (9,260) (22,100)
financing activities ......... (16,790) (66,640) (52,840) 77,810
Adjusted EBITDA(3) ............ 5,490 124,660 100,150 93,870
Ratio of earnings to fixed
charges(4) ................... -- -- -- 1.2x
11
AS OF
SEPTEMBER 29, 2002
-------------------
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents .............. $ 39,300
Working capital ........................ 117,410
Goodwill and other intangibles ......... 801,790
Total assets ........................... 1,338,380
Total debt ............................. 611,060
Shareholders' equity ................... 385,440
- ----------
(1) Metaldyne acquired us in January 1998. Financial results for the 21 days
prior to Metaldyne's acquisition have not been included because the
results were determined on a different accounting basis. Results of
operations for the first 21 days of January were as follows: sales --
$35.9 million; operating profit -- $4.9 million.
(2) Effective January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other
Intangible Assets," and discontinued amortization of goodwill. See Note 3
to the audited combined financial statements and unaudited interim
financial statements, respectively, for the effect on net income (loss)
of excluding amortization expense related to goodwill that will no longer
be amortized. We completed the transitional test for impairment of
goodwill in the second quarter of 2002, which resulted in a non-cash
after-tax charge of $36.6 million related to our industrial fasteners
business.
(3) Adjusted EBITDA is defined as operating profit before depreciation and
amortization and legacy restricted stock award expense. Adjusted
EBITDA-related information is presented in the manner as defined herein
because we believe it is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness. However, Adjusted
EBITDA-related information should not be considered as an alternative to
net income as a measure of operating results or to cash flows as a
measure of liquidity in accordance with generally accepted accounting
principles. Because Adjusted EBITDA-related information is not calculated
identically by all companies, the presentation in this prospectus is not
likely to be comparable to those disclosed by other companies.
RECONCILIATION OF
ADJUSTED EBITDA TO NET INCOME (LOSS)
------------------------------------------------
PRE-ACQUISITION BASIS
------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------
1/1/2000-
1997 1998 1999 11/27/2000
----------- ----------- ----------- ------------
Adjusted EBITDA ................... $ 139,380 $ 141,040 $ 158,060 $ 133,700
Depreciation and
amortization ..................... (25,680) (31,780) (38,520) (38,400)
Legacy stock award expense ........ -- -- (610) (770)
--------- --------- --------- ---------
Operating profit .................. 113,700 109,260 118,930 94,530
Interest expense .................. (5,420) (60,290) (55,380) (55,390)
Other, net ........................ 6,790 940 1,450 3,050
Income tax (expense) credit ....... (43,730) (8,260) (29,700) (20,910)
Extraordinary charge .............. (4,970) -- -- --
Cumulative effect of change in
recognition and
measurement of goodwill
impairment(2) .................... -- -- -- --
--------- --------- --------- ---------
Net income (loss) ................. $ 66,370 $ 41,650 $ 35,300 $ 21,280
========= ========= ========= =========
RECONCILIATION OF
ADJUSTED EBITDA TO NET INCOME (LOSS)
----------------------------------------------------------
POST-ACQUISITION BASIS
----------------------------------------------------------
NINE MONTHS ENDED
------------------------------
YEAR ENDED
11/28/2000- DECEMBER 31, SEPTEMBER 30, SEPTEMBER 29,
12/31/2000 2001 2001 2002
------------- ------------- --------------- --------------
Adjusted EBITDA ................... $ 5,490 $ 124,660 $ 100,150 $ 93,870
Depreciation and
amortization ..................... (4,540) (53,780) (40,320) (31,760)
Legacy stock award expense ........ -- (3,200) (2,400) (2,860)
-------- --------- --------- ---------
Operating profit .................. 950 67,680 57,430 59,250
Interest expense .................. (5,000) (73,130) (55,410) (46,090)
Other, net ........................ (1,200) (4,000) (3,130) (4,110)
Income tax (expense) credit ....... 1,100 (1,870) (3,380) (3,310)
Extraordinary charge .............. -- -- -- --
Cumulative effect of change in
recognition and
measurement of goodwill
impairment(2) .................... -- -- -- (36,630)
-------- --------- --------- ---------
Net income (loss) ................. $ (4,150) $ (11,320) $ (4,490) $ (30,890)
======== ========= ========= =========
- ----------
(4) For purposes of calculating the ratio of earnings to fixed charges,
earnings represents income or loss from continuing operations before
income taxes, plus fixed charges plus amortization of capitalized
interest, less capitalized interest. Fixed charges include interest
expense (including amortization of deferred financing costs), capitalized
interest and the portion of operating rental expense which management
believes is representative of the interest component of rent expense
(assumed to be 33%). For the period ended December 31, 2000, the nine
months ended September 30, 2001 and the year ended December 31, 2001,
additional earnings of $5.3 million, $1.2 million and $9.6 million,
respectively, would have been required to make the ratio 1.0x.
12
RISK FACTORS
You should carefully consider each of the risks described below, together
with all of the other information contained in this prospectus, before deciding
to invest in the notes.
RISKS RELATED TO OUR BUSINESS
OUR BUSINESSES DEPEND UPON GENERAL ECONOMIC CONDITIONS AND WE SERVE SOME
CUSTOMERS IN HIGHLY CYCLICAL INDUSTRIES; AS A RESULT WE ARE SUBJECT TO RISK OF
DOWNTURN AND LOSS OF SALES DUE TO RECESSION, WHICH COULD NEGATIVELY AFFECT OUR
BUSINESS, OPERATING RESULTS AND THE VALUE OF THE NOTES.
Our financial performance depends, in large part, on conditions in the
markets that we serve, and on the U.S. and global economies generally. Some of
the industries that we serve are highly cyclical, such as the automotive,
construction, industrial equipment, energy, aerospace and electrical equipment
industries. We have experienced a downturn and reduction in sales and margins
as a result of recent recessionary conditions. In addition, we had a net loss
of approximately $30.9 million for the nine months ended September 29, 2002,
due in large part to an approximate $36.6 million charge for the cumulative
effect on prior years of a change in recognition and measurement of goodwill
impairment and negative cash flows from operations of approximately $20.2
million for the nine months ended September 29, 2002. A continued net loss
could have a negative effect on our financial condition and results. While we
have undertaken a consolidation and cost reduction program to mitigate the
effect of these conditions, we may be unsuccessful in doing so and such actions
may be insufficient. The present uncertain economic environment may result in
significant quarter-to-quarter variability in our performance. Furthermore, we
note that sales by our Transportation Accessories group are generally stronger
in the first and second quarters, as distributors and retailers acquire product
for the spring selling season. Any sustained weakness in demand or continued
downturn or uncertainty in the economy generally would have a material adverse
effect on our business, operating results and the value of the notes.
OUR PRODUCTS ARE TYPICALLY HIGHLY ENGINEERED OR CUSTOMER-DRIVEN AND, AS SUCH,
WE ARE SUBJECT TO RISKS ASSOCIATED WITH CHANGING TECHNOLOGY AND MANUFACTURING
TECHNIQUES, WHICH COULD PLACE US AT A COMPETITIVE DISADVANTAGE.
We believe that our customers rigorously evaluate their suppliers on the
basis of product quality, price competitiveness, technical expertise and
development capability, new product innovation, reliability and timeliness of
delivery, product design capability, manufacturing expertise, operational
flexibility, customer service and overall management. Our success will depend
on our ability to continue to meet our customers' changing specifications with
respect to these criteria. We must remain committed to product research and
development, advanced manufacturing techniques and service to remain
competitive. We may not be able to address technological advances or introduce
new products that may be necessary to remain competitive within our businesses.
Furthermore, we may be unable to adequately protect any of our own
technological developments to produce a sustainable competitive advantage.
IF WE ARE UNABLE TO IDENTIFY ATTRACTIVE ACQUISITION CANDIDATES, SUCCESSFULLY
INTEGRATE OUR ACQUIRED OPERATIONS OR REALIZE THE INTENDED BENEFITS OF OUR
ACQUISITIONS, OUR BUSINESS STRATEGY AND FINANCIAL CONDITION AND RESULTS WOULD
BE NEGATIVELY AFFECTED.
One of our growth strategies is to pursue selective strategic acquisition
opportunities. We continually evaluate potential acquisitions, some of which
could be material, and engage in discussions with acquisition candidates. On
January 30, 2003, we acquired all of the capital stock of HammerBlow for a
purchase price of approximately $142 million (less our previous investment of
$9.0 million), subject to adjustment. $7.5 million of the purchase price is
payable in January 2004. In addition, we recently entered into a non-binding
letter of intent to purchase all of the equity interests of a company engaged
in the manufacture of certain transportation accessories with annual sales of
approximately $50 million. The anticipated purchase price is approximately $70
million, but the transaction remains subject to due diligence, the negotiation
of definitive documentation and an approval by our board of directors. There
can be no assurance that we will proceed with this transaction or that it will
be
13
completed. Attractive acquisition candidates may not be identified and acquired
in the future, and financing for any such acquisitions may not be available on
satisfactory terms or we may be unable to accomplish our strategic objectives
as a result of any such acquisition. Our acquisition strategies may not be
successfully received by customers or achieve their intended benefits. Often
acquisitions are undertaken to improve the operating results of either or both
of the acquiror and the acquired company and we may not be successful in this
regard. We will encounter various risks in acquiring other companies, including
the possible inability to integrate an acquired business into our operations,
diversion of management's attention and unanticipated problems or liabilities,
some or all of which could materially and adversely affect our business
strategy and financial condition and results.
WE DEPEND ON THE SERVICES OF KEY INDIVIDUALS AND RELATIONSHIPS, THE LOSS OF
WHICH WOULD MATERIALLY HARM US.
Our success will depend, in part, on the efforts of our executive officers
and other key employees. Some of our senior management was recently hired to
pursue our new strategies and business objectives. Despite their business
experience, our businesses will present new challenges for them and they may
not be successful. Our future success will also depend on, among other factors,
our ability to attract and retain other qualified personnel. The loss of the
services of any of our key employees or the failure to attract or retain
employees could have a material adverse effect on us. In addition, our largest
stockholder, Heartland, provides us with valuable strategic, operational and
financial support, the loss of which could materially adversely affect us.
WE RELY UPON METALDYNE FOR IMPORTANT TRANSITION SERVICES AND WE MAY ENCOUNTER
CERTAIN DIFFICULTIES IN SEPARATING FROM METALDYNE, WHICH MAY RESULT IN
INCREASED COSTS AND LOSS OF JOINT PURCHASING BENEFITS.
We may encounter certain challenges and difficulties in separating from
Metaldyne. We entered into a corporate services agreement with Metaldyne for
valuable services, including human resources support, risk management,
management information systems, treasury and audit services, and other critical
administrative and management functions and services. The agreement expires in
June 2003. Upon the expiration of the agreement or if Metaldyne is unable to
provide these services for any reason, we will need to replace the services. We
do not know whether we will be able to replace or contract for these services
on similar or more favorable economic terms and what cost may be incurred in
the transition to another situation. In addition, Metaldyne is a party to many
ordinary course contracts from which we have derived benefits in the past.
Metaldyne and we have agreed to provide one another with the benefits of these
contracts to the extent practicable. In general, these contracts can be
replaced, but we may encounter costs or additional expense in doing so. Of
particular note, we benefit from certain volume purchase agreements with
suppliers of steel, other materials and energy by aggregating our purchases
with Metaldyne. As of June 6, 2002, Metaldyne owns approximately 34% of our
fully diluted common stock and Heartland appointed a majority of the Metaldyne
board of directors. Accordingly, should Metaldyne materially reduce its equity
interest in us or Heartland cease to control Metaldyne, it may impact the
continuity and quality of the services we are provided, increase costs and
affect our ability to realize continued joint purchasing benefits.
WE MAY BE SUBJECT TO WORK STOPPAGES AT OUR FACILITIES OR OUR CUSTOMERS MAY BE
SUBJECTED TO WORK STOPPAGES, WHICH COULD SERIOUSLY IMPACT THE PROFITABILITY OF
OUR BUSINESS.
As of September 29, 2002, approximately 13.4% of our work force was
unionized. If our unionized workers were to engage in a strike, work stoppage
or other slowdown in the future, we could experience a significant disruption
of our operations, which could have a material adverse effect on us. In
addition, if a greater percentage of our work force becomes unionized, our
business and financial results could be materially adversely affected. Many of
our direct or indirect customers have unionized work forces. Strikes, work
stoppages or slowdowns experienced by these customers or their suppliers could
result in slowdowns or closures of assembly plants where our products are
included. In addition, organizations responsible for shipping our customers'
products may be impacted by occasional strikes staged by the Teamsters Union.
Any interruption in the delivery of our customers' products could reduce demand
for our products and could have a material adverse effect on us.
14
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. We may experience material product liability losses in the future
and/or incur significant costs to defend such claims. Our product liability
insurance coverage may not be adequate for liabilities that may ultimately be
incurred or it may not continue to be available on terms acceptable to us. 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. Our Transportation Accessories business has
historically experienced product liability claims as to towing products in the
ordinary course of business. 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 materially adverse effect on our business. In the ordinary
course of our business, contractual disputes over warranties can also arise. In
addition, we are party to lawsuits related to asbestos contained in gaskets
formerly manufactured by one of our Industrial Specialties group subsidiaries.
These or other liabilities or claims may increase or otherwise have a material
adverse effect on our business and financial condition and results. See
"Business--Legal Proceedings" for a discussion of these lawsuits.
OUR BUSINESS MAY BE MATERIALLY AND ADVERSELY AFFECTED BY COMPLIANCE OBLIGATIONS
AND LIABILITIES UNDER ENVIRONMENTAL LAWS AND REGULATIONS.
We are subject to federal, state, local and foreign environmental and
health and safety laws and regulations that:
o affect ongoing operations and may increase capital costs and operating
expenses in order to maintain compliance with such requirements; and
o impose liability relating to contamination at our facilities, and at
other locations such as former facilities, facilities where we have
sent wastes for treatment or disposal, and other properties to which
we (or a company or business for which we are responsible) are linked.
Such liability may include, for example, investigation and cleanup of the
contamination, personal injury and property damage caused by the contamination,
and damages to natural resources. Some of these liabilities may be imposed
without regard to fault, and may also be joint and several (which can result in
a liable party being held responsible for the entire obligation, even where
other parties are also liable).
We are legally or contractually responsible or alleged to be responsible
for the investigation and remediation of contamination at various sites, and
for personal injury or property damages, if any, associated with such
contamination. Our subsidiaries have been named as potentially responsible
parties under the federal Superfund law or similar state laws in several sites
requiring cleanup related to disposal of wastes we generated. These laws
generally impose liability for costs to investigate and remediate contamination
without regard to fault and under certain circumstances liability may be joint
and several, resulting in one responsible party being held responsible for the
entire obligation. Liability may also include damages to natural resources.
Certain of our subsidiaries have entered into consent decrees relating to two
sites in California along with the many other co-defendants in these matters.
We have incurred substantial expenses for all these sites over a number of
years, a portion of which has been covered by insurance. In addition to the
foregoing, our businesses have incurred and likely will continue to incur
expenses to investigate and clean up existing and former company-owned or
leased property. Additional sites may be identified at which we are a
potentially responsible party under the federal Superfund law or similar state
laws.
INCREASES IN OUR RAW MATERIAL OR ENERGY COSTS OR THE LOSS OF A SUBSTANTIAL
NUMBER OF OUR SUPPLIERS COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS AND
NEGATIVELY IMPACT OUR ABILITY TO SERVICE THE NOTES.
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
15
subject to the risk of price fluctuations and periodic delays in the delivery
of certain raw materials, component parts and specialty fasteners. Under supply
contracts for steel of varying terms, Metaldyne has established the prices at
which we will jointly purchase certain of our steel requirements. We, either
alone or with Metaldyne, may not be able to renegotiate future prices under
those contracts at prices favorable to us, depending on industry conditions. In
addition, a failure by our suppliers to continue to supply us with certain raw
materials or component parts on commercially reasonable terms, or at all, would
have a material adverse effect on us. Our energy costs are a substantial
element of our cost structure. To the extent there are energy supply
disruptions or material fluctuations in energy costs, our margins could be
materially adversely impacted.
WE MAY EXPERIENCE INCREASED COMPETITION AND INCREASED COSTS DUE TO COMPLIANCE
WITH THE FASTENER QUALITY ACT, WHICH MAY HAVE AN ADVERSE EFFECT ON OUR
FINANCIAL RESULTS AND IMPACT OUR ABILITY TO SERVICE THE NOTES.
The Fastener Quality Act of 1990 regulates the manufacture, importation
and distribution of certain high-grade industrial fasteners in the United
States. The Fastener Act, which was amended in June 1999, requires some
testing, certification, quality control and recordkeeping by the manufacturers,
importers and distributors of such fasteners. As a result, lower barriers to
entry, particularly for foreign firms, created additional competitive pressures
from new market participants. We may therefore lose customers and could be
materially adversely affected. Additionally, we, along with other fastener
suppliers, are required to maintain records and product tracking systems. We
have tracking and traceability systems, which, to date, have not materially
increased expenses. However, future regulations may result in materially
increased costs for us.
A GROWING PORTION OF OUR SALES MAY BE DERIVED FROM INTERNATIONAL SOURCES, WHICH
EXPOSES US TO CERTAIN RISKS WHICH MAY ADVERSELY AFFECT OUR FINANCIAL RESULTS
AND IMPACT OUR ABILITY TO SERVICE DEBT.
Approximately 12.2% of our net sales for the fiscal year ended December
31, 2001 were derived from sales by our subsidiaries located outside of the
United States and we may significantly expand our international operations
through 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 U.S. markets, including governmental embargoes or foreign trade
restrictions such as antidumping duties, changes in U.S. and foreign
governmental regulations, tariffs and other trade barriers, the potential for
nationalization of enterprises, foreign exchange risk and other political,
economic and social instability. In addition, there are tax inefficiencies in
repatriating cash flow from non-U.S. subsidiaries. To the extent such
repatriation is necessary for us to meet our debt service or other obligations,
this will adversely affect our financial results and our ability to service
debt.
WE HAVE SIGNIFICANT GOODWILL AND INTANGIBLE ASSETS, AND FUTURE IMPAIRMENT OF
OUR GOODWILL AND INTANGIBLE ASSETS COULD HAVE A MATERIAL NEGATIVE IMPACT ON OUR
FINANCIAL CONDITION AND RESULTS.
At September 29, 2002, our goodwill and intangible assets were
approximately $801.8 million, and represented approximately 60% of our total
assets. Our net loss of $30.9 million for the nine months ended September 29,
2002 was impacted by a charge of $36.6 million for the cumulative effect on
prior years of a change in recognition and measurement of goodwill impairment.
Because of the significance of our goodwill and intangible assets, any future
impairment of these assets could have a material adverse effect on our
financial condition and future results of operations.
WE ARE CONTROLLED BY HEARTLAND, WHOSE INTERESTS IN OUR BUSINESS MAY BE
DIFFERENT THAN YOURS, AND CONSEQUENTLY HEARTLAND COULD TAKE ACTIONS THAT ARE
NOT FAVORABLE TO A HOLDER OF EXCHANGE NOTES.
Heartland and its affiliates own a majority of our common stock and are
able to control our affairs. Our entire board has been, directly or indirectly,
designated by Heartland and a majority of the board is associated with
Heartland. In addition, Heartland controls Metaldyne, which owns approximately
34% of our fully diluted common stock. As described elsewhere and in another
risk factor, we will have material ongoing relationships with both Heartland
and Metaldyne. You should consider that the interests of Heartland and
Metaldyne will likely differ from yours in material respects. For example,
Heartland may cause us to pursue a growth strategy (including acquisitions
which are not accretive to earnings), which could impact our ability to make
payments on the
16
exchange notes and our credit facility or cause a change in control. In
addition, to the extent permitted by the indenture governing the exchange notes
and our credit facility, Heartland may cause us to pay dividends rather than
make capital expenditures. See "Certain Relationships and Related Party
Transactions."
RISKS RELATED TO THE EXCHANGE NOTES
WE HAVE SUBSTANTIAL DEBT AND INTEREST PAYMENT REQUIREMENTS THAT MAY RESTRICT
OUR FUTURE OPERATIONS AND IMPAIR OUR ABILITY TO MEET OUR OBLIGATIONS UNDER THE
EXCHANGE NOTES.
We have indebtedness that is substantial in relation to our shareholders'
equity. As of September 29, 2002, we had approximately $611.1 million of
outstanding debt and approximately $385.4 million of shareholders' equity.
Approximately $260.0 million of our debt is variable rate debt and the effect
of a 1% increase or decrease in interest rates would increase or decrease such
total annual interest expense by approximately $2.6 million. After giving
effect to the intended application of proceeds from the additional issuance,
and assuming none of the net proceeds from the additional issuance are used for
debt repayment, our current annual debt service payment obligations would have
been approximately $56.4 million on that basis. See "Use of Proceeds." Amounts
due under operating lease arrangements in the next year as of September 29,
2002 are approximately $7.6 million. The degree to which we are leveraged will
have important consequences, including the following:
o our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, business development
efforts or general corporate purposes may be impaired;
o a substantial portion of our cash flow from operations will be
dedicated to the payment of interest and principal on our
indebtedness, thereby reducing the funds available to us for other
purposes, including our obligations to pay rent in respect of our
significant operating leases;
o our operations are restricted by our debt instruments, which contain
material financial and operating covenants, and those restrictions
will limit, among other things, our ability to borrow money in the
future for working capital, capital expenditures, acquisitions, rent
expense or other purposes;
o indebtedness under our credit facility and the financing cost
associated with our accounts receivable facility are at variable rates
of interest, which makes us vulnerable to increases in interest rates;
o our leverage may place us at a competitive disadvantage as compared
with our less leveraged competitors;
o our substantial degree of leverage will make us more vulnerable in the
event of a downturn in general economic conditions or in any of our
businesses; and
o our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate may be limited.
We expect to incur significant additional debt in pursuit of our
acquisition strategies and our debt instruments may permit us to do so. At
September 29, 2002 after giving effect to the additional issuance, the
documents governing the terms of our indebtedness would have permitted us to
incur up to an additional approximate $36.4 million in the aggregate of
additional indebtedness, all of which could be senior indebtedness. Our ability
to service our debt and other obligations will depend on our future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, many of which are beyond our control.
Our business may not generate sufficient cash flow, and future financings may
not be available to provide sufficient net proceeds, to meet these obligations
or to successfully execute our business strategies. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
17
RESTRICTIONS IN OUR CREDIT FACILITY AND UNDER THE INDENTURE GOVERNING THE
EXCHANGE NOTES LIMIT OUR ABILITY TO TAKE CERTAIN ACTIONS.
Our credit facility and the indenture governing the exchange notes contain
covenants that restrict our ability to:
o pay dividends or redeem or repurchase capital stock;
o incur additional indebtedness and grant liens;
o make acquisitions and joint venture investments;
o sell assets; and
o make capital expenditures.
Our credit facility also requires us to comply with financial covenants
relating to, among other things, interest coverage and leverage. In addition,
our accounts receivable facility contains covenants similar to those in our
credit facility and include requirements regarding the purchase and sale of
receivables. We may not be able to satisfy these covenants in the future or be
able to pursue our new business strategies within the constraints of these
covenants. If we cannot comply with these covenants, we will be in default and
unable to access required liquidity from our revolving credit and accounts
receivable facilities and unable to make payments in respect of the notes. In
addition, our accounts receivable facility contains concentration limits with
respect to the percentage of receivables we can sell from any particular
customer. The concentration limits are based on the credit ratings of each
particular customer. We may implement credit hedging strategies to offset this
risk. However, if one or more of our customers were to have its credit ratings
downgraded, then the amount of receivables of such customer that we could sell
may decrease and our business could be materially adversely affected.
Our ability to comply with our covenants may be affected by prevailing
economic, financial and industry conditions. The breach of our covenants could
result in an event of default under our credit facility or under the indenture
governing the exchange notes, which could cause an event of default under our
accounts receivable facility and our equipment lease financing. Such breach
would permit the lenders to declare all amounts borrowed thereunder to be due
and payable, together with accrued interest, and the commitments of the lenders
to make further extensions of credit under our credit facility could be
terminated. In addition, such breach may cause a termination of our accounts
receivable facility and of our various sale-leaseback facilities. If we were
unable to secure a waiver from our lenders or repay our credit facility
indebtedness, our secured lenders could proceed against their collateral and
our lessors could prevent us from using our valuable facilities and equipment
that are under lease. We do not presently expect that alternative sources of
financing will be available to us under these circumstances or available on
attractive terms.
YOUR RIGHT TO RECEIVE PAYMENT ON THE EXCHANGE NOTES IS JUNIOR TO THE RIGHT OF
THE HOLDERS OF ALL OF OUR EXISTING SENIOR INDEBTEDNESS AND POSSIBLY TO ALL OF
OUR FUTURE BORROWINGS.
The exchange notes are general unsecured obligations, junior in right of
payment to all of our existing senior indebtedness, including indebtedness
under our credit facility, and all of our future borrowings, except any future
indebtedness that expressly provides that it ranks equally with, or is
subordinated in right of payment to, the notes. As of September 29, 2002, the
notes and the related guarantees then outstanding were effectively subordinated
to approximately $260 million of senior secured indebtedness under our credit
facility. As a result, upon any distribution to our creditors in a bankruptcy,
liquidation, reorganization or similar proceeding relating to us or our
property, the holders of our senior indebtedness will be entitled to be paid in
full in cash before any payment may be made with respect to the notes. In
addition, all payments on the exchange notes will be blocked in the event of a
payment default on senior indebtedness and may be blocked for up to 179 of 360
consecutive days in the event of certain non-payment defaults on designated
senior indebtedness.
In the event that we are declared bankrupt, become insolvent or are
liquidated, reorganized or involved in a similar proceeding, holders of the
exchange notes will participate with trade creditors
18
and all other holders of our subordinated indebtedness in the assets remaining
after we have paid all of the senior indebtedness. The indenture governing the
exchange notes requires that amounts otherwise payable to holders of the
exchange notes in a bankruptcy or similar proceeding be paid to holders of any
remaining senior indebtedness instead. In any of these cases, our assets may be
insufficient to pay all of our creditors, and holders of the exchange notes are
likely to receive less, proportionally, if any, than holders of our senior
indebtedness, including the lenders under our credit facility. We may be
permitted to incur substantial additional indebtedness, including senior
indebtedness, in the future, under the terms of the indenture governing the
exchange notes.
YOUR RIGHT TO ENFORCE REMEDIES IS LIMITED BY THE RIGHTS OF SECURED CREDITORS,
AND CLAIMS OF HOLDERS OF EXCHANGE NOTES WILL EFFECTIVELY RANK JUNIOR TO CLAIMS
OF SECURED CREDITORS AND CLAIMS OF CREDITORS OF OUR FOREIGN SUBSIDIARIES.
In addition to being subordinated to our senior indebtedness, the exchange
notes are not secured by any of our assets. Our obligations under our credit
facility are secured by substantially all of our owned assets and those of our
subsidiary guarantors and a pledge of the capital stock of each guarantor and
65% of the capital stock of our first tier foreign subsidiaries. If we become
insolvent or are liquidated, or if payment under our credit facility is
accelerated, the lenders under our credit facility would be entitled to
exercise the remedies available to a secured lender under applicable law.
Therefore, our bank lenders or other secured creditors have a claim on our
assets before holders of the exchange notes.
YOUR RIGHT TO RECEIVE PAYMENT ON THE EXCHANGE NOTES MAY BE ADVERSELY AFFECTED
BY A BANKRUPTCY, LIQUIDATION OR REORGANIZATION OF ONE OF OUR NON-GUARANTOR
SUBSIDIARIES.
Only our domestic subsidiaries that also guarantee our obligations or are
borrowers under the credit facility guarantee the exchange notes. This includes
all of our domestic subsidiaries other than our receivables subsidiary.
However, we have significant non-U.S. assets and operations. In the future,
only subsidiaries that guarantee our obligations under our credit facility are
required to guarantee our obligations under the exchange notes. The exchange
notes are structurally subordinated to all the liabilities of all our
subsidiaries that do not guarantee the exchange notes. In the event of
bankruptcy, liquidation or reorganization of any of the non-guarantor
subsidiaries, holders of their indebtedness and their trade creditors will
generally be entitled to payment on their claims from assets of those
subsidiaries before any assets are made available for distribution to us. Under
some circumstances, the terms of the exchange notes will permit our
non-guarantor subsidiaries to incur additional specified indebtedness. For the
year ended December 31, 2001, our non-guarantor subsidiaries had net sales of
approximately $89.2 million and net assets of approximately $107.0 million.
WE HAVE SIGNIFICANT OPERATING LEASE OBLIGATIONS, AND OUR FAILURE TO MEET THOSE
OBLIGATIONS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
As of September 29, 2002, we had operating leases for our 13 facilities
and certain capital equipment. Our annual rent expense under these leases is
approximately $7.6 million. Our failure to pay our rental obligations under
such leases could constitute a default under the leases and would allow the
landlord under the leases to pursue any remedy available to the landlord, which
would include taking possession of our machinery and equipment and evicting us.
In addition, these leases are categorized as operating leases and consequently
are not considered indebtedness for purposes of our credit facility and the
indenture governing the exchange notes. If at a later date, we or our auditors
concluded that these operating leases should be treated as capitalized leases,
then such leases would be considered indebtedness for balance sheet purposes
and we may, as a result, be in default under our credit facility and the
indenture governing the exhange notes.
WE MAY BE PREVENTED FROM FINANCING, OR MAY BE UNABLE TO RAISE FUNDS NECESSARY
TO FINANCE, THE CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE GOVERNING THE
EXCHANGE NOTES.
Upon certain change of control events, each holder of outstanding exchange
notes may require us to purchase all or a portion of our exchange notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase. Our ability to purchase the
exchange notes upon a change of control event may be prohibited by the terms of
our
19
credit facility or future credit facilities. Future agreements may contain a
similar provision. Certain change of control events will constitute events of
default under our credit facility and termination events under our accounts
receivable facility and, absent a consent or waiver, we would be required to
repay all amounts owed by us under our credit facility and wind down our
accounts receivable facility. We may not be able to repay amounts outstanding
under our credit facility or replace our accounts receivable facility. Any
requirement to offer to purchase any outstanding exchange notes may result in
us having to generate cash from new borrowings or asset sales, and having to
refinance other debt or obtain necessary consents under our other debt
agreements to repurchase the exchange notes, which we may not be able to do. In
such case, our failure to purchase exchange notes following a change of control
would constitute an event of default under the indenture governing the exchange
notes which would, in turn, constitute a default under our credit facility. In
addition, even if we were able to refinance such debt, such financing may be on
terms unfavorable to us.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE HOLDERS OF EXCHANGE NOTES TO RETURN PAYMENTS RECEIVED
FROM GUARANTORS.
Creditors of any business are protected by fraudulent conveyance laws
which differ among various jurisdictions, and these laws may apply to the
issuance of the guarantees by our subsidiaries. A guarantee may be voided by a
court, or subordinated to the claims of other creditors, if
o that guarantee was incurred by a subsidiary with actual intent to
hinder, delay or defraud any present or future creditor of the
subsidiary, or
o that subsidiary did not receive fair consideration, or reasonably
equivalent value, for issuing its guarantee, and the subsidiary
-- was insolvent or was rendered insolvent by reason of issuing the
guarantee,
-- was engaged or about to engage in a business or transaction for
which the remaining assets of the subsidiary constituted
unreasonably small capital, or
-- intended to incur, or believed that it would incur, debts beyond
its ability to pay as they matured.
We cannot be certain as to the standard that a court would use to
determine whether the guarantor subsidiaries were solvent upon issuance of the
guarantee or, regardless of the actual standard applied by the court, that the
issuance of the guarantee of the exchange notes would not be voided. If a
guarantee of a subsidiary was voided as a fraudulent conveyance or held
unenforceable for any other reason, holders of the exchange notes would be
solely our creditors and creditors of our other subsidiaries that have
guaranteed the exchange notes. The notes then would be effectively subordinated
to all obligations of that subsidiary. Since we are a holding company, if all
guarantees were voided, that would result in the holder of exchange notes
having claims that would not be paid prior to substantially all of the other
debt and liabilities of the consolidated group of entities. To the extent that
the claims of the holders of the exchange notes against any subsidiary were
subordinated in favor of other creditors of such subsidiary, such other
creditors would be entitled to be paid in full before any payment could be made
on the notes. If one or more of the guarantees are voided or subordinated,
there may not be sufficient assets remaining to satisfy the claims of holders
of the exchange notes after providing for all prior claims.
In addition, the dividend paid to Metaldyne in connection with the
transactions is itself subject to challenge as a fraudulent conveyance if it
were determined that we were insolvent. Based upon financial and other
information, we believe that the exchange notes and the guarantees are being
incurred for proper purposes and in good faith and that we are and each
subsidiary is solvent and will continue to be solvent after this offering is
completed, will have sufficient capital for carrying on its business after such
issuance and will be able to pay its debts as they mature. A court reviewing
these matters may not agree with us. A legal challenge to a guarantee on
fraudulent conveyance grounds may focus on the benefits, if any, realized by the
subsidiary as a result of our issuance of the exchange notes.
20
YOU CANNOT BE SURE AN ACTIVE TRADING MARKET FOR THE EXCHANGE NOTES WILL DEVELOP.
There has previously been only a limited secondary market, and no public
market, for the outstanding original notes. The exchange notes are an exchange
issue of securities, have no established trading market, and may not be widely
distributed. We do not intend to list the exchange notes on any national
securities exchange or the Nasdaq stock market or to seek the admission thereof
to trading on any automated quotation system. An active public or other market
may not develop for the exchange notes and the trading market for the exchange
notes may be illiquid. If a trading market does not develop or is not
maintained, holders of the exchange notes may experience difficulty in
reselling the exchange notes or may be unable to sell them at all. If a market
for the exchange notes develops, any such market may be discontinued at any
time. If a public trading market develops for the exchange notes, future
trading prices of the exchange notes will depend on many factors, including,
among other things, prevailing interest rates, our results of operations and
the market for similar securities, and the price at which the holders of
exchange notes will be able to sell such exchange notes is uncertain and the
exchange notes could trade at a premium or discount to their purchase price or
face value. Depending on prevailing interest rates, the market for similar
securities and other factors, including our financial condition, the exchange
notes may trade at a discount from their principal amount.
IF YOU DO NOT PROPERLY TENDER YOUR ORIGINAL NOTES, WE MAY NOT ACCEPT YOUR
ORIGINAL NOTES AND THE TRADING MARKET FOR THEM MAY BE LIMITED.
We will issue new notes under this exchange offer only after a timely
receipt of your original notes, a properly completed and duly executed Letter
of Transmittal and all other required documents. Therefore, if you want to
tender your original notes, please allow sufficient time to ensure timely
delivery. If we do not receive your original notes, Letter of Transmittal and
other required documents by the expiration date of the exchange offer, we will
not accept your original notes for exchange. We are under no duty to give
notification of defects or irregularities with respect to the tenders of
original notes for exchange. If there are defects or irregularities with
respect to your tender of original notes, we will not accept your original
notes for exchange.
YOU MAY PARTICIPATE IN THE EXCHANGE OFFER ONLY IF YOU MEET THE FOLLOWING
CONDITIONS.
Based on interpretations by the Commission staff, as set forth in
no-action letters the Commission issued to third parties, we believe that you
may offer for resale, resell and otherwise transfer the exchange notes without
compliance with the registration and prospectus delivery provisions of the
Securities Act, subject to certain limitations. These limitations include the
following:
o you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act;
o you acquire your exchange notes in the ordinary course of your
business; and
o you have no arrangement with any person to participate in the
distribution of such exchange notes.
However, we have not submitted a no-action letter to the Commission
regarding this exchange offer and the Commission may not make a similar
determination with respect to the exchange offer as in such other
circumstances. If you are our affiliate, engage in or intend to engage in or
have any arrangement or understanding with respect to a distribution of the
exchange notes that you or any person will acquire pursuant to the exchange
offer, you may not rely on the applicable interpretations of the staff of the
Commission; you must also comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
RESALES OF THE EXCHANGE NOTES MAY BE SUBJECT TO FURTHER RESTRICTIONS IN SOME
JURISDICTIONS.
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus meeting the requirements under the Securities Act in connection with
any resale of such exchange notes. We have agreed to use our best efforts to
make this prospectus available to any participating broker-dealer for use in
connection with any such resale. See "Plan of Distribution" below. However to
comply with the securities laws of certain jurisdictions, if applicable, you
may not offer or sell the exchange notes unless someone has registered or
qualified them for sale in such jurisdictions or an exemption from registration
or qualification is available.
21
USE OF PROCEEDS
We will receive no cash proceeds from the exchange offer. We intend the
exchange offer to satisfy some of our obligations under our registration rights
agreement for the original notes. We will issue exchange notes in exchange for
original notes in the same principal amount, and for the same terms and form as
the original notes, except that there will be no registration rights or
liquidated damages relating to the exchange notes. The original notes that
holders surrender in exchange for the exchange notes will be retired and
canceled and cannot be reissued. Accordingly, we will not incur any new debt by
issuing the exchange notes.
The net proceeds from the original offering and the additional issuance
were approximately $339.4 million and approximately $84.1 million,
respectively. The proceeds from the original offering were used to consummate
the transactions. The table below sets forth the sources and uses of funds for
the transactions.
SOURCES USES
------- ------
(IN MILLIONS)
Debt repayment and repurchase of
Revolving credit facility loans(1) ............ $ -- TriMas receivables(4) ............... $ 501.5
Term loan facility ............................ 260.0 Cash dividend to Metaldyne .......... 338.1
Receivables facility sale proceeds(2) ......... -- Fees and expenses ................... 35.4
-------
Notes originally offered ...................... 350.0
Common stock(3) ............................... 265.0
-------
Total sources of funds ........................ $ 875.0 Total uses of funds ................. $ 875.0
======== =======
- ----------
(1) We have a $150 million revolving credit facility that we did not utilize
at closing.
(2) We have a $125 million receivables purchase facility that we did not
utilize at closing.
(3) Does not include $120 million in common stock retained by Metaldyne and a
warrant to purchase common stock received by Metaldyne as a dividend.
(4) Reflects debt we owed to the lenders under the Metaldyne credit facility
of approximately $427 million and our receivables repurchased of
approximately $74.5 million. Such debt was repaid and receivables were
repurchased at closing. See note (2) above.
We intend to use the net proceeds from the additional issuance for general
corporate purposes, including potential acquisitions and debt repayment, and to
use up to $20.0 million of the net proceeds to repurchase a portion of our
common stock owned by Metaldyne. We received a consent from our senior lenders
to permit us to effect this stock repurchase and to hold the balance of the
cash proceeds until June 29, 2003 pending use for any potential permitted
acquisitions. If we do not utilize the portion of the net proceeds being held
for acquisitions or the stock repurchase by June 29, 2003, we may apply some of
the net proceeds to repay a portion of our term credit facility. Pending the
application of proceeds, we have and will continue to invest the net proceeds
in short-term, quality instruments.
22
CAPITALIZATION
The following table sets forth our unaudited cash and cash equivalents and
capitalization as of September 29, 2002 on an actual and as adjusted basis for
the additional issuance. You should read this table in conjunction with our
unaudited consolidated financial statements as of September 29, 2002 and the
notes to those financial statements included elsewhere in this prospectus.
AS OF SEPTEMBER 29, 2002
-----------------------------
ACTUAL AS ADJUSTED (1)
---------- ----------------
(IN THOUSANDS)
Cash and cash equivalents .................... $ 39,300 $ 102,570
======== ==========
Long-term debt (including current maturities):
Senior credit facility (2) .................. $260,000 $ 260,000
Original notes (3) .......................... 350,060 350,060
Additional notes (4) ........................ -- 85,850
Other ........................................ 1,000 1,000
-------- ----------
Total long-term debt ........................ 611,060 696,910
Total shareholders' equity ................... 385,440 365,440
-------- ----------
Total capitalization ........................ $996,500 $1,062,350
======== ==========
- ----------
(1) Gives effect to the additional issuance and the application of $20.0
million of the proceeds to repurchase shares of our common stock from
Metaldyne.
(2) Our credit facility is comprised of a $150 million five and one-half year
revolving credit facility and a $260 million seven and one-half year term
loan. As of September 29, 2002, we utilized approximately $23.5 million
of letter of credit capacity under our revolving credit facility to
support certain lease obligations and our ordinary course needs. In
addition, our three-year receivables facility provides us with up to $125
million of availability. Our credit facility also includes an uncommitted
additional $200 million term loan facility that we may utilize upon
receipt of commitments from existing or new lenders for permitted
acquisition. See "Description of Credit Facility" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
(3) $352.8 million face value of the original notes, net of unamortized
discount.
(4) Includes $85.0 million aggregate principal amount of the additional notes
plus the $0.85 million premium paid in connection with the issuance of
the additional notes.
23
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed financial information has been
derived from our audited and unaudited historical financial statements included
elsewhere in this prospectus, adjusted to give pro forma effect to the
transactions and the additional issuance. For presentation purposes, we have
assumed the application of $20.0 million to repurchase our common stock for
cash and the balance is held as cash pending its application. See "Use of
Proceeds."
The unaudited pro forma condensed combined statement of operations for the
year ended December 31, 2001 and unaudited pro forma condensed consolidated
statement of operations for the nine months ended September 29, 2002 give pro
forma effect to the transactions and the additional issuance as if they had
occurred on January 1, 2001.
The unaudited pro forma condensed statements of operations referred to
above are presented for informational purposes only and do not purport to
represent what our results of operations or financial position would actually
have been had the transactions and the additional issuance occurred at such
time or to project our results of operations for any future period or date.
The pro forma adjustments are based upon available information and various
assumptions that we believe are reasonable. The pro forma adjustments and
certain assumptions are described in the accompanying notes. Other information
included under this heading has been presented to provide additional analysis.
The unaudited pro forma condensed statements of operations should be read
in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our historical financial statements
and the related notes to such financial statements included elsewhere in
this prospectus.
24
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS AND OTHER FINANCIAL DATA
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2002
(IN THOUSANDS)
PRO FORMA
COMPANY PRO FORMA TRANSACTION
HISTORICAL ADJUSTMENTS BASIS
------------ ------------------- ------------
STATEMENT OF OPERATIONS DATA:
Net sales ............................................ $ 574,140 $ -- $ 574,140
Cost of sales ........................................ (429,180) (570)(1) (429,750)
---------- -------- ----------
Gross profit ........................................ 144,960 (570) 144,390
Selling, general and administrative expenses ......... (85,710) (1,950)(2) (87,660)
---------- -------- ----------
Operating profit ..................................... 59,250 (2,520) 56,730
Other income (expense), net ..........................
Interest expense .................................... (46,090) 650 (1,3) (45,440)
Other, net .......................................... (4,110) 2,030 (4) (2,080)
---------- -------- ----------
Income before income taxes and cumulative effect of
change in accounting principle ...................... 9,050 160 9,210
Income taxes ......................................... (3,310) (60)(5) (3,370)
---------- -------- ----------
Income before cumulative effect of change in
accounting principle(a) ............................. $ 5,740 $ 100 $ 5,840
---------- ======== ==========
Cumulative effect on prior years of change in
recognition and measurement of goodwill
impairment .......................................... (36,630)
----------
Net loss ............................................ $ (30,890)
==========
- ----------
(a) The cumulative effect of change in accounting principle is excluded
from the pro forma presentation.
See notes to Unaudited Pro Forma Financial Information.
25
UNAUDITED PRO FROMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2001
(IN THOUSANDS)
PRO FORMA
COMPANY PRO FORMA TRANSACTION
HISTORICAL ADJUSTMENTS BASIS
------------ ----------------- ------------
Net sales ............................................ $ 732,440 $ -- $ 732,440
Cost of sales ........................................ (537,410) -- (537,410)
---------- --------- ----------
Gross profit ........................................ 195,030 -- 195,030
Selling, general and administrative expenses ......... (127,350) (4,900)(2) (132,250)
---------- --------- ----------
Operating profit .................................... 67,680 (4,900) 62,780
Other income (expense), net ..........................
Interest expense .................................... (73,130) 12,570 (3) (60,560)
Other, net .......................................... (4,000) 2,970 (4) (1,030)
---------- --------- ----------
Income (loss) before income taxes .................... (9,450) 10,640 1,190
Income taxes ......................................... (1,870) (4,040)(5) (5,910)
---------- --------- ----------
Net income (loss) ................................... $ (11,320) $ 6,600 $ (4,720)
========== ========= ==========
See notes to Unaudited Pro Forma Financial Information.
26
TRIMAS CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the nine months ended September 29, 2002 and the Unaudited Pro Forma Condensed
Combined Statement of Operations for the year ended December 31, 2001 include
adjustments necessary to reflect the estimated effect of the transactions and
the additional issuance as if they had occurred on January 1, 2001.
PRO FORMA ADJUSTMENTS
1. As a result of the transactions, Metaldyne no longer provides a guarantee on
certain TriMas leases. The existence of the guarantee required that the
leases be accounted for as capitalized leases in periods prior to June 6,
2002. As a result of the guarantee release, these leases are now accounted
for as operating leases. This adjustment reflects the recording of $0.9
million of rent expense offset by a reduction of $0.3 million of capitalized
lease asset amortization expense for the nine months ended September 29,
2002. An additional add-back of $0.9 million related to interest expense on
the capitalized lease obligation for the nine months ended September 29,
2002 is included in adjustment 3 below as a result of eliminating this
interest expense.
2. Pro forma adjustment to reflect ongoing corporate operating costs and
related party contractual arrangements with Heartland and Metaldyne.
Subsequent to June 6, 2002, certain stand-alone operating costs and related
party contract costs have been recorded by the Company. The pro forma
adjustment for the nine months ended September 29, 2002 is incremental to
such costs recorded after June 6, 2002.
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 29, DECEMBER 31,
2002 2001
------------------- -------------
(IN THOUSANDS)
Corporate office costs(a) ........................ $ 2,450 $ 5,700
Heartland advisory fee(b) ........................ 1,720 4,000
Corporate Services agreement(c) .................. 1,040 2,500
-------- --------
Total Corporate operating costs ............... 5,210 12,200
Less: historical Metaldyne management fee(d) ..... (3,260) (7,300)
-------- --------
Pro forma adjustment ............................. $ 1,950 $ 4,900
======== ========
- ----------
(a) Represents the Company's estimate of stand-alone corporate operating
costs. Historically, such costs were allocated to TriMas via the
Metaldyne management fee. These pro forma costs are premised upon
certain assumptions necessary to operate on a stand-alone basis.
While the Company believes its pro forma assumptions are reasonable,
future operating costs may not approximate the amounts of such
adjustments.
(b) In connection with the transactions, TriMas entered into an advisory
services agreement with Heartland at an annual fee of $4.0 million.
(c) Under the terms of a Corporate Services agreement, TriMas agreed to
pay Metaldyne an annual fee of $2.5 million for human resources,
information systems, treasury services, audit, internal audit, tax,
legal and other general corporate services. To the extent TriMas
directly incurs costs related to items covered by the agreement, the
$2.5 million fee will be reduced accordingly.
(d) Adjustment to eliminate the historical 1% management fee paid to
Metaldyne for corporate support and administrative services.
Metaldyne continued to charge this fee to TriMas through June 6,
2002, at which point the Company began to incur the costs summarized
in items (a), (b), and (c) above.
27
TRIMAS CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
3. Pro forma adjustment to reflect interest expense related to borrowings under
the Company's bank credit agreement and as a result of issuance of the
original notes and additional notes.
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 29, DECEMBER 31,
2002 2001
------------------- -------------
(IN THOUSANDS)
Interest on new revolver(a) .............................. $ -- $ --
Interest on new $260.0 million term loan(b) .............. 8,870 11,830
Interest on 9 7/8% senior subordinated notes due 2012 ..... 32,430 43,230
Amortization of debt issue costs(c) ...................... 2,690 3,580
Commitment and letter of credit fees (d) ................. 1,350 1,800
Accretion on original notes(e) ........................... 140 170
Amortization on additional notes(f) ...................... (40) (50)
------- ---------
Pro forma interest expense ............................. 45,440 60,560
Less: historical interest expense(g) ..................... 46,090 73,130
------- ---------
Pro forma adjustment ................................... $ (650) $ (12,570)
======= =========
- ----------
(a) The interest on the revolving credit facility is variable based on
LIBOR plus 2.00% - 2.75%, depending on our leverage ratio. As of
September 29, 2002, our interest rate was 4.55% or LIBOR plus 2.75%.
We have not utilized the revolver as of September 29, 2002 for
operating purposes. Based on the terms of the transactions, we do
not believe we would have been required to draw upon our revolving
credit facility for operating purposes during the periods presented.
(b) The interest rate on the term loan facility is variable based on
LIBOR plus 2.50% - 2.75%, depending on the Company's leverage ratio.
As of September 29, 2002, the Company's rate was LIBOR plus 2.75%,
and such interest rate was 4.56% as of that date.
A 0.125% increase or decrease in the assumed interest rate for the
term loan facility would change pro forma interest expense by $0.25
and $0.33 million for the nine months ended September 29, 2002 and
the year ended December 31, 2001, respectively.
(c) Costs of approximately $31.5 million were incurred in connection
with obtaining our senior credit facility ($13.1 million) and the
issuance of the outstanding notes ($15.8 million). These amounts
have been capitalized as debt issue costs and are being amortized
using the interest method over 7.5 years and 10 years, respectively.
(d) Consists of commitment fees on our new revolving credit facility and
estimated annual fees for outstanding letters of credit.
(e) Represents accretion of discount on the original notes offered
hereby to their face value of $352.8 million.
(f) Represents amortization of premium of $0.85 million on the
additional notes to their face value of $85.0 million.
(g) Historical interest expense represents interest charged by
Metaldyne, at a rate which approximated 8.5% for 2001 and for the
period January 1, 2002 to June 6, 2002, and interest on
our new borrowings from June 6, 2002 to September 29, 2002.
28
TRIMAS CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
4. Adjustment to Other, net is comprised of the following:
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 29, DECEMBER 31,
2002 2001
------------------- -------------
(IN THOUSANDS)
Commitment fees(a) ................................... $ 270 $ 630
Elimination of accounts receivable financing costs(b) (2,300) (3,600)
-------- --------
Pro forma adjustment ................................. $ (2,030) $ (2,970)
======== ========
- ----------
(a) Consists of commitment fees on the Company's new accounts receivable
securitization facility.
(b) Adjustment to eliminate financing costs related to the prior
accounts receivable securitization facility of $2.3 million and $3.6
million for the nine months ended September 29, 2002 and the year
ended December 31, 2001, respectively. The Company does not
currently forecast the need to draw on their new accounts receivable
securitization facility for operating purposes.
5. To reflect the estimated tax effect of the above adjustments, as applicable,
at an estimated effective tax rate of 38%.
29
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 29, 2002
(IN THOUSANDS)
COMPANY PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS BASIS
-------------- ------------------ --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 39,300 $ 63,270(1) $ 102,570
Receivables ................................................ 110,060 -- 110,060
Inventories ................................................ 85,030 -- 85,030
Deferred income taxes ...................................... 8,760 -- 8,760
Prepaid expenses and other current assets .................. 9,670 -- 9,670
------------ ------------ ------------
Total current assets ..................................... 252,820 63,270 316,090
Property and equipment, net ................................. 231,220 -- 231,220
Excess of cost over net assets of acquired companies ........ 511,870 -- 511,870
Other intangibles ........................................... 289,920 -- 289,920
Other assets ................................................ 52,550 2,580(2) 55,130
------------ ------------ ------------
Total assets ................................................ $1,338,380 65,850 1,404,230
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................... $ 55,780 -- $ 55,780
Accrued liabilities ........................................ 70,030 -- 70,030
Current maturities, long-term debt ......................... 3,000 -- 3,000
Due to Metaldyne ........................................... 6,600 -- 6,600
------------ ------------ ------------
Total current liabilities ................................ 135,410 -- 135,410
Long-term debt .............................................. 608,060 85,850(3) 693,910
Deferred income taxes ....................................... 169,870 -- 169,870
Other long-term liabilities ................................. 33,460 -- 33,460
Due to Metaldyne ............................................ 6,140 -- 6,140
------------ ------------ ------------
Total liabilities ........................................ 952,940 85,850(3) 1,038,790
------------ ------------ ------------
Preferred stock, $.01 par: Authorized 100,000,000 shares;
Issued and outstanding: None ............................... -- -- --
Common stock, $.01 par: Authorized 400,000,000 shares;
Issued and outstanding: 19,250,000 shares .................. 190 (10) 180
Paid-in capital ............................................. 383,940 (19,990) 363,950
Retained deficit ............................................ (2,070) -- (2,070)
Accumulated other comprehensive income (loss) ............... 3,380 -- 3,380
------------ ------------ ------------
Total shareholders' equity ............................... 385,440 (20,000)(4) 365,440
------------ ------------ ------------
Total liabilities and shareholders' equity ............... $1,338,380 65,850 $1,404,230
============ ============ ============
- ----------
(1) Balance of proceeds of additional notes after application of $20 million
to repurchase an assumed 1 million shares of our common stock from
Metaldyne for cash and payment of debt issue costs.
(2) Debt issue costs associated with additional notes.
(3) Represents $85.0 million in aggregate principal amount of the additional
notes and associated premium.
(4) Assumes repurchase of 1 million shares of our common stock from
Metaldyne.
30
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth our summary historical financial data for
the five years ended December 31, 2001 and the nine months ended September 30,
2001 and September 29, 2002. The financial data for the fiscal years ended
December 31, 1999, 2000 and 2001 has been derived from our audited combined
financial statements and notes to those financial statements included in this
prospectus, which have been audited by PricewaterhouseCoopers LLP, independent
accountants. The financial data for the fiscal year ended December 31, 1997 has
been derived from our audited consolidated financial statements not included in
this prospectus. The financial data for the fiscal year ended December 31, 1998
has been derived from our unaudited combined financial statements not included
in this prospectus.
The selected information for the nine months ended September 30, 2001 and
September 29, 2002 has been derived from our unaudited interim
combined/consolidated financial statements and the notes to those financial
statements which, in the opinion of management, include all adjustments, which
are normal and recurring in nature, necessary for the fair presentation of that
data for such periods.
In reviewing the following information, it should be noted that there is
significant non-comparability across historic periods. On June 6, 2002,
Metaldyne issued approximately 66% of our fully diluted common equity to an
investor group led by Heartland. We did not establish a new basis of accounting
as a result of this common equity issuance, due to the continuing contractual
control by Heartland. Our combined financial information for the periods prior
to June 6, 2002 includes allocations and estimates of direct and indirect
Metaldyne corporate administrative costs attributable to us, which are deemed
by management to be reasonable but are not necessarily reflective of those
costs to us on an ongoing basis. Prior to June 6, 2002, we were owned by
Metaldyne. On November 28, 2000, Metaldyne was acquired by an investor group
led by Heartland. The pre-acquisition basis of accounting for periods prior to
November 28, 2000 is reflected on the historical basis of accounting and all
periods subsequent to November 28, 2000 are reflected on a purchase accounting
basis and are therefore not comparable. In January 1998, we were acquired by
Metaldyne and established a new basis of accounting as a result of this
acquisition. Prior to January 1998, we operated as an independent public
company.
PRE-ACQUISITION BASIS
---------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, 1/1/2000-
1997 1998(4) 1999 11/27/2000
-------------- -------------- -------------- ------------
STATEMENT OF (IN THOUSANDS)
OPERATIONS DATA:
Net sales ............... $ 667,910 $ 707,180 $ 773,100 $ 739,590
Cost of sales ........... 447,940 475,550 519,610 514,570
----------- --------- --------- ---------
Gross profit ............ 219,970 231,630 253,490 225,020
Selling, general and
administrative ......... 106,270 122,370 134,560 130,490
----------- --------- --------- ---------
Operating profit ........ 113,700 109,260 118,930 94,530
Net income
(loss) (2) ............. 66,370 41,650 35,300 21,280
OTHER FINANCIAL DATA:
Depreciation and
amortization ........... $ 25,680 $ 31,780 $ 38,520 $ 38,400
Capital expenditures .... 28,560 39,200 42,320 19,540
Cash flow from
(used by):
operating
activities ............. 83,820 93,970 55,980 113,430
investing activities ... (39,810) (91,130) (44,870) (36,610)
financing activities ... (44,520) (81,960) (19,410) (82,800)
Adjusted
EBITDA(1) .............. 139,380 141,040 158,060 133,700
Ratio of earnings to
fixed charges(3) ....... 17.6x 1.8x 2.1x 1.7x
POST-ACQUISITION BASIS
-----------------------------------------------------------
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
11/28/2000- DECEMBER 31, SEPTEMBER 30, SEPTEMBER 29,
12/31/2000 2001 2001 2002
------------- -------------- --------------- --------------
STATEMENT OF
OPERATIONS DATA:
Net sales ............... $ 50,640 $ 732,440 $ 575,010 $ 574,140
Cost of sales ........... 36,490 537,410 424,830 429,180
---------- --------- --------- ---------
Gross profit ............ 14,150 195,030 150,180 144,960
Selling, general and
administrative ......... 13,200 127,350 92,750 85,710
---------- --------- --------- ---------
Operating profit ........ 950 67,680 57,430 59,250
Net income
(loss) (2) ............. (4,150) (11,320) (4,490) (30,890)
OTHER FINANCIAL DATA:
Depreciation and
amortization ........... $ 4,540 $ 53,780 $ 40,320 $ 31,760
Capital expenditures .... 3,260 18,690 13,700 20,120
Cash flow from
(used by):
operating
activities ............. 18,710 75,980 66,890 (20,190)
investing activities ... (1,300) (12,620) (9,260) (22,100)
financing activities ... (16,790) (66,640) (52,840) 77,810
Adjusted
EBITDA(1) .............. 5,490 124,660 100,150 93,870
Ratio of earnings to
fixed charges(3) ....... -- -- -- 1.2x
31
PRE-ACQUISITION BASIS
---------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, 1/1/2000-
1997 1998(4) 1999 11/27/2000
-------------- -------------- -------------- ------------
Pro forma ratio of
earnings to fixed
charges ............. -- -- -- --
SELECTED BALANCE
SHEET DATA:
Total assets ......... $708,460 $1,239,740 $1,247,160 $1,192,810
Total debt ........... 46,970 541,150 520,560 461,300
Goodwill and other
intangibles ......... 184,500 729,810 717,320 709,140
POST-ACQUISITION BASIS
-----------------------------------------------------------
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
11/28/2000- DECEMBER 31, SEPTEMBER 30, SEPTEMBER 29,
12/31/2000 2001 2001 2002
------------- -------------- --------------- --------------
Pro forma ratio of
earnings to fixed
charges ............. -- 1.0x -- 1.2x
SELECTED BALANCE
SHEET DATA:
Total assets ......... $1,358,120 $1,265,740 $1,294,250 $1,338,380
Total debt ........... 472,920 440,760 460,170 611,060
Goodwill and other
intangibles ......... 868,010 841,360 838,423 801,790
- ----------
(1) Adjusted EBITDA is defined as operating profit before depreciation and
amortization and legacy restricted stock award expense. Adjusted
EBITDA-related information is presented in the manner as defined herein
because we believe it is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness. However, Adjusted
EBITDA-related information should not be considered as an alternative to
net income as a measure of operating results or to cash flows as a
measure of liquidity in accordance with generally accepted accounting
principles. Because Adjusted EBITDA-related information is not calculated
identically by all companies, the presentation in this prospectus is not
likely to be comparable to those disclosed by other companies.
RECONCILIATION OF ADJUSTED EBITDA TO NET INCOME (LOSS)
-----------------------------------------------------------------------------------------------------
PRE-ACQUISITION BASIS POST-ACQUISITION BASIS
------------------------------------------------ ----------------------------------------------------
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
----------------------------------- YEAR ENDED ------------------------
1/1/2000- 11/28/2000- DECEMBER SEPTEMBER SEPTEMBER
1997 1998 1999 11/27/2000 12/31/2000 31, 2001 30, 2001 29, 2002
----------- ----------- ----------- ------------ ------------- ------------- ----------- ------------
Adjusted EBITDA ........... $ 139,380 $ 141,040 $ 158,060 $ 133,700 $ 5,490 $ 124,660 $ 100,150 $ 93,870
Depreciation and
amortization ............. (25,680) (31,780) (38,520) (38,400) (4,540) (53,780) (40,320) (31,760)
Legacy stock award
expense .................. -- -- (610) (770) -- (3,200) (2,400) (2,860)
--------- --------- --------- --------- -------- --------- --------- ---------
Operating profit .......... 113,700 109,260 118,930 94,530 950 67,680 57,430 59,250
Interest expense .......... (5,420) (60,290) (55,380) (55,390) (5,000) (73,130) (55,410) (46,090)
Other, net ................ 6,790 940 1,450 3,050 (1,200) (4,000) (3,130) (4,110)
Income taxes .............. (43,730) (8,260) (29,700) (20,910) 1,100 (1,870) (3,380) (3,310)
Extraordinary
charge ................... (4,970) -- -- -- -- -- -- --
Cumulative effect of
change in
recognition and
measurement of
goodwill
impairment(2) ............ -- -- -- -- -- -- -- (36,630)
--------- --------- --------- --------- -------- --------- --------- ---------
Net income (loss) ......... $ 66,370 $ 41,650 $ 35,300 $ 21,280 $ (4,150) $ (11,320) $ (4,490) $ (30,890)
========= ========= ========= ========= ======== ========= ========= =========
(2) Effective January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other
Intangible Assets," and discontinued amortization of goodwill. See Note 3
to the audited combined financial statements and unaudited interim
financial statements, respectively, for the effect on net income (loss)
of excluding amortization expense related to goodwill that will no longer
be amortized. We completed the transitional test for impairment of
goodwill in the second quarter of 2002, which resulted in a non-cash,
after-tax charge of $36.6 million related to our industrial fasteners
business.
32
(3) For purposes of calculating the ratio of earnings to fixed charges,
earnings represents income or loss from continuing operations before
income taxes, plus fixed charges, plus amortization of capitalized
interest, less capitalized interest. Fixed charges include interest
expense (including amortization of deferred financing costs), capitalized
interest, and the portion of operating rental expense which management
believes is representative of the interest component of rent expense
(assumed to be 33%). For the period ended December 31, 2000, the nine
months ended September 30, 2001 and the year ended December 31, 2001,
additional earnings of $5.3 million, $1.2 million and $9.6 million,
respectively, would have been required to make the ratio 1.0x.
(4) Metaldyne acquired us in January 1998. Financial results for the 21 days
prior to Metaldyne's acquisition have not been included as the results
were determined on a different accounting basis. Results of operations
for the first 21 days of January were as follows: sales -- $35.9 million;
operating profit -- $4.9 million.
33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
We are an industrial manufacturer of highly engineered products serving
niche markets in a diverse range of commercial, industrial and consumer
applications. We have three operating groups or segments: Transportation
Accessories, Rieke Packaging Systems and Industrial Specialties.
RECENT COST SAVINGS INITIATIVES
In 2001, under new senior management we initiated a detailed consolidation
and cost savings program to address the legacy of inefficiencies that resulted
from our historical acquisitions and the inability to fully integrate and
synthesize the businesses in order to maximize efficiency. The plan involves a
number of major projects and other smaller initiatives to eliminate duplicative
and excess manufacturing and distribution facilities, sales forces, and back
office and other support functions. We expect to realize approximately $29
million in annual savings from these efforts by the second quarter of 2004. To
date, we have completed projects with expected full annual run rate savings of
approximately $17.3 million. The total net cash cost of our program is expected
to be $23.8 million, of which approximately $11.7 million was spent by the end
of the third quarter of 2002. All of these figures are net of discontinued
property sold or to be sold. The key elements of the plan are summarized below:
General:
o a 9% headcount reduction in aggregate across all groups as various
overlapping networks of distribution, sales, back office and other
functions are consolidated and certain plants are closed and consolidated
into other facilities; and
o for our numerous retirement plans and incentive compensation and service
award plans that were the legacy of many acquisitions, we are developing a
comprehensive plan with an outside consultant to harmonize the programs,
eliminate excess overhead and remove inequities between the programs;
Transportation Accessories Group:
o in 2001, we consolidated an acquired trailer products manufacturing plant
into an existing high performance facility, and reduced the towing products
regional warehouse service center footprint from eleven to five facilities
by closing or selling six related properties. In 2002, our electrical
products manufacturing facility in Indiana was closed and consolidated into
an existing low cost plant in Mexico. In addition, two duplicate, sub-scale
manufacturing facilities, each with its own separate master distribution
warehouse, will be closed and consolidated into a single existing third
facility, with one master warehouse on the same property;
Industrial Specialties Group:
o we have adopted a multi-step plan for our industrial fasteners product line
to consolidate five sub-scale manufacturing plants into three plants, one
of which will benefit from a $1.5 million capital expenditure program to
modernize it and improve operating efficiency; and
o we are centralizing manufacturing of some gasket products within a single
facility and rationalizing the back office general and administrative
support within our branch service centers; and
o we are consolidating two facilities which manufacture pressure-sensitive
tape and insulation products into a single facility and engaging in a
capital expenditure program to modernize and provide expansion room for
certain projected product growth.
SEGMENT INFORMATION
The following table summarizes historical and pro forma financial
information of our three operating segments. In comparing 2001 against 2000 we
have prepared an unaudited pro forma
34
combined statement of operations for the year ended December 31, 2000 since for
eleven months of the year we were on a pre-acquisition basis of accounting and
for approximately one month we were on a post-acquisition basis of accounting.
The pro forma adjustments do not impact the calculation of combined net sales
or Adjusted EBITDA. The unaudited pro forma combined statement of operations
and related notes follow the table below.
In addition to net income and other financial measures, we use Adjusted
EBITDA as an indicator of our operating performance and as a measure of our
cash generating capabilities. We define Adjusted EBITDA as operating profit
plus depreciation, amortization and legacy restricted stock award expense; a
contractual obligation from November 2000 acquisition, which will run off
completely by 2003.
Adjusted EBITDA does not represent and should not be considered as an
alternative to net income, operating income, net cash provided by operating
activities or any other measure for determining operating performance or
liquidity that is calculated in accordance with generally accepted accounting
principles. Further, Adjusted EBITDA, as we calculate it, is not likely to be
comparable to calculations of similarly titled measures by other companies.
SUPPLEMENTAL FINANCIAL ANALYSIS
NINE NINE
MONTHS MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 29,
NET SALES: ---------------------------------------- --------------- --------------
1999 2000
------------ ---------- 2001 2001 2002
HISTORICAL PROFORMA HISTORICAL HISTORICAL HISTORICAL
------------ ---------- ------------ --------------- --------------
(in thousands)
Transportation Accessories Group ......... $265,100 $280,950 $264,680 $216,630 $236,160
Rieke Packaging Systems Group ............ 114,090 108,150 105,250 80,040 82,230
Industrial Specialties Group ............. 393,910 401,130 362,510 278,340 255,750
-------- -------- -------- -------- --------
Total ................................... $773,100 $790,230 $732,440 $575,010 $574,140
======== ======== ======== ======== ========
NINE NINE
MONTHS MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 29,
ADJUSTED EBITDA: ------------------------------------------ --------------- --------------
1999 2000
------------ ------------ 2001 2001 2002
HISTORICAL PROFORMA HISTORICAL HISTORICAL HISTORICAL
------------ ------------ ------------ --------------- --------------
(in thousands)
Transportation Accessories Group(1) ..... $ 48,470 $ 46,250 $ 42,820 $ 37,490 $ 44,600
Rieke Packaging Systems Group(1) ........ 39,390 35,750 33,930 25,510 28,130
Industrial Specialties Group(1) ......... 77,760 64,550 55,080 43,560 29,240
Metaldyne management fee and other
corporate expenses ..................... (7,560) (7,360) (7,170) (6,410) (8,100)
-------- -------- -------- -------- --------
Total .................................. $158,060 $139,190 $124,660 $100,150 $ 93,870
======== ======== ======== ======== ========
- ----------
(1) Amounts are before general corporate expense.
35
NINE NINE
MONTHS MONTHS
ENDED ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30, SEPTEMBER 29,
CAPITAL EXPENDITURES: ---------------------------------------- --------------- --------------
1999 2000
------------ ---------- 2001 2001 2002
HISTORICAL PROFORMA HISTORICAL HISTORICAL HISTORICAL
------------ ---------- ------------ --------------- --------------
(in thousands)
Transportation Accessories Group ......... $ 9,190 $ 9,470 $ 5,350 $ 3,810 $ 5,370
Rieke Packaging Systems Group ............ 8,520 6,640 3,730 2,350 8,170
Industrial Specialties Group ............. 24,610 6,690 9,610 7,540 6,370
Corporate ................................ -- 210
------- ------- ------- ------- -------
Total ................................... $42,320 $22,800 $18,690 $13,700 $20,120
======= ======= ======= ======= =======
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
(IN THOUSANDS)
COMPANY HISTORICAL PRO FORMA
------------------------------------------------------------ ------------------
JANUARY 1, 2000-
NOVEMBER 28, 2000- JANUARY 1, 2000- DECEMBER 31, 2000 PRO FORMA JANUARY1, 2000-
DECEMBER 31, 2000 NOVEMBER 27, 2000 COMBINED ADJUSTMENTS DECEMBER 31, 2000
-------------------- ------------------- ------------------- ------------------ ------------------
Net sales ..................... $ 50,640 $ 739,590 $ 790,230 $ -- $ 790,230
Cost of sales ................. (36,490) (514,570) (551,060) (14,680)(1) (565,740)
--------- ----------- ----------- ----------- -----------
Gross profit .................. 14,150 225,020 239,170 (14,680) 224,490
Selling, general and
administrative expenses
(13,200) (130,490) (143,690) 2,200(2) (141,490)
--------- ----------- ----------- ------------- -----------
Operating profit .............. 950 94,530 95,480 (12,480) 83,000
Other income (expense),
net
Interest expense .............. (5,000) (55,390) (60,390) -- (60,390)
Other, net .................... (1,200) 3,050 1,850 -- 1,850
--------- ----------- ----------- ------------- -----------
Income (loss) before
income taxes ................. (5,250) 42,190 36,940 (12,480) 24,460
Income (taxes) credit ......... 1,100 (20,910) (19,810) 6,730(3) (13,080)
--------- ----------- ----------- ------------- -----------
Net income (loss) ............. $ (4,150) $ 21,280 $ 17,130 $ (5,750) $ 11,380
========= =========== =========== ============= ===========
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
The unaudited pro forma condensed combined statement of operations for the
year ended December 31, 2000 include adjustments necessary to reflect the
estimated effect on the period from January 1, 2000 to November 27, 2000 of the
change in accounting basis as if it had occurred on January 1, 2000. Reference
is made to Note 2 in our audited historical combined financial statements for
the year ended December 31, 2001.
PRO FORMA ADJUSTMENTS
1. Adjustment to reflect the impact of increased depreciation expense of
$(2,360) and increased intangible amortization of $(12,320) resulting from
the change in accounting basis.
2. Adjustment to reflect the impact of increased depreciation expense of
$(600), increased legacy stock award expense of $(2,430) and decreased
goodwill amortization of $5,230 resulting from the change in accounting
basis.
36
3. Adjustment to reflect the estimated tax effect of the above adjustments, as
applicable, at an estimated effective tax rate of 38%.
4. Reconciliation of pro forma Adjusted EBITDA to pro forma operating profit:
Pro forma Adjusted EBITDA ....................... $ 139,190
Pro forma depreciation and amortization ......... (52,990)
Pro forma legacy stock award expense ............ (3,200)
---------
Pro forma operating profit ...................... $ 83,000
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 29, 2002 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 2001
Net sales for the nine months ended September 29, 2002 decreased by
approximately 0.2% from the nine months ended September 30, 2001. However, net
sales for the Transportation Accessories and Rieke Packaging Systems groups
increased by 9.0% and 2.7%, respectively. The increases were due to greater
demand for these groups' products, primarily in North America. These increases
were offset by an 8.1% decline in sales for the Industrial Specialties group.
The reduction in sales in the Industrial Specialties group was due to continued
reduced demand for our industrial fastener products and reduced demand for our
specialty gasket and engine products provided to the energy sector. We also
experienced weaker demand for some of our other industrial products because
some of our customers retained excess inventories in lieu of making new
purchases from us. Net sales for the nine months ended September 29, 2002 are
not indicative of full year sales because the Transportation Accessories group
are more seasonal in nature with nearly 83% of anticipated 2002 full year sales
occurring in the first nine months.
Adjusted EBITDA margins approximated 16.3% and 17.4% for the nine months
ended September 29, 2002 and September 30, 2001, respectively. Adjusted EBITDA
for the nine months ended September 29, 2002 was impacted by an incremental
$10.0 million of other charges consisting of $8.5 million of non-cash charges
related primarily to excess and obsolete inventory and $0.9 million of
incremental lease expense. These additional costs and charges were partially
offset by the favorable $3.9 million impact of our cost reduction activities
and the $0.8 million favorable mix on slightly reduced net sales. The
Transportation Accessories group's Adjusted EBITDA increased $7.1 million for
the nine months ended September 29, 2002 compared to the comparable period for
2001. This increase resulted from $7.4 million in increased contribution
margin, $1.6 million from lower material costs and was partially offset by
incremental charges of $1.5 million related to restructuring activities and net
operating cost increases of $0.4 million, principally from incremental lease
expense. The Rieke Packaging Systems group's Adjusted EBITDA increased $2.6
million, principally due to a $1.1 million contribution improvement from
increased sales and $2.2 million from cost reduction activities. These
improvements were partially offset by incremental other charges and lease
expense of $0.7 million. The Industrial Specialties group's Adjusted EBITDA
decreased $14.3 million, principally due to $7.7 million of incremental other
charges principally related to excess and obsolete inventory, $7.7 million
contribution reduction resulting from decreased sales and $0.9 million of
increased operating expenses arising principally from incremental lease expense
which was partially offset by lower material costs of $2.0 million.
Selling, general and administrative costs were approximately $85.7
million, or 14.9% as a percentage of sales, for the nine months ended September
29, 2002 as compared with $92.8 million, or 16.1% as a percentage of sales, for
the nine months ended September 30, 2001. The decrease was due primarily to the
elimination of $10.2 million in goodwill amortization, offset by a $3.1 million
increase in operating expenses.
Interest expense was $46.1 million for the nine months ended September 29,
2002 as compared with $55.4 million for the nine months ended September 30,
2001. The decrease was due primarily to a reduction in interest resulting from
a lower debt balance with Metaldyne in 2002 and the impact of lower total
indebtedness resulting from the transactions.
37
Other income (expense), net for the nine months ended September 29, 2002
was expense of $50.2 million compared with expense of $58.5 million for the
nine months ended September 30, 2001. The reduction of $8.3 million is
primarily due to a $9.3 million interest expense reduction.
Net loss for the nine months ended September 29, 2002 was $30.9 million as
compared to a net loss of $4.5 million for the nine months ended September 30,
2001. The results for the nine months ended September 29, 2002 include a charge
of $36.6 million for the cumulative effect on prior years of a change in
recognition and measurement of goodwill impairment. The income before
cumulative effect of change in recognition and measurement of goodwill
impairment was $5.7 million for the nine months ended September 29, 2002 as
compared to a loss of $4.5 million for the nine months ended September 30,
2001. The improvement is principally due to the impact of our cost reduction
activities, lower material costs, lower interest expense and the elimination of
$10.2 million of goodwill amortization resulting from the adoption of SFAS No.
142.
YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000 (PRO
FORMA)
Net sales decreased by approximately 7.3% in 2001 from 2000. In
particular, net sales for the Transportation Accessories, Rieke Packaging
Systems and Industrial Specialties groups decreased by approximately 5.8%, 2.7%
and 9.6%, respectively, in 2001 as compared with 2000. The declines were driven
by a slowdown in general industrial production throughout 2001, particularly
late in the year. Certain of our businesses also experienced volume declines
due to sales of excess inventory in the supply chain in lieu of purchases from
us. The Industrial Specialties business experienced a disproportionate decline
relative to our other businesses due primarily to lower specialty fastener
product sales as we phased out certain products manufactured and production
inefficiencies caused by a plant closure. Both the Industrial Specialties and
Transportation Accessories groups were particularly affected by reduced demand
for products with applications in the marine, heavy truck, recreation vehicle,
and off-road markets, which were adversely impacted segments of the
transportation industry. We did experience improvements in certain businesses
which offset the negative impact of the economy, such as increased sales of
specialty gaskets and related products.
Adjusted EBITDA margins approximated 17.0% and 17.6% for the years ended
December 31, 2001 and 2000, respectively. Margins were negatively impacted by
the sales declines and the difficulty of fully absorbing our fixed costs as
volumes declined.
The Transportation Accessories segment recorded Adjusted EBITDA of $42.8
million in 2001 versus $46.3 million in 2000. Apart from the impact of lower
volumes, this decrease is partially attributable to operating inefficiencies
related to variable costs not changing in relation to the decline in sales
volume. The Rieke Packaging Systems group's Adjusted EBITDA decreased from
$35.8 million in 2000 to $33.9 million in 2001, driven primarily by lower
volumes. The Industrial Specialties group's Adjusted EBITDA declined from $64.6
million in 2000 to $55.1 million in 2001 primarily due to reduced sales and a
specialty fasteners plant closure.
Selling, general and administrative costs as a percentage of sales were
17.4% for 2001 as compared with 17.9% for 2000. Selling, general and
administrative expenses were approximately $127.4 million in 2001 as compared
with approximately $141.5 million in 2000. The reduction of $14.2 million is
primarily due to reduced discretionary spending due to the decrease in sales,
and reductions in headcount.
Interest expense for 2001 was approximately $73.1 million as compared with
$60.4 million in 2000. This increase in interest expense is principally the
result of an increase in the rate charged on advances from Metaldyne. This rate
was 8.5% at December 31, 2001 and 6.4% at December 31, 2000.
Other income (expense), net in 2001 was expense of $77.1 million as
compared with expense of $58.5 million in 2000. This increase primarily
reflects a $12.7 million increase in interest expense in 2001, but also
reflects in 2000 the favorable impact of receipt of insurance proceeds of $3.8
million due to a property claim.
Net loss in 2001 was $11.3 million as compared with a net income of $11.4
million in 2000. This decline to a net loss position was primarily attributable
to those factors mentioned above.
38
YEAR ENDED DECEMBER 31, 2000 (COMBINED) COMPARED WITH YEAR ENDED
DECEMBER 31, 1999
FOR PURPOSES OF COMPARING THE 2000 PERIOD TO 1999, WE HAVE COMBINED THE
2000 LONG PERIOD (APPROXIMATELY 11 MONTHS), OR 2000 LP, ON A PRE-ACQUISITION
BASIS WITH THE 2000 SHORT PERIOD (APPROXIMATELY ONE MONTH), OR 2000 SP, ON
POST-ACQUISITION BASIS OF ACCOUNTING. THE IMPACT OF THE CHANGE IN ACCOUNTING
BASIS IS IMMATERIAL TO THE 2000 SP RESULTS OF OPERATIONS.
Net sales increased by approximately 2.2% in 2000 from 1999. Sales in 2000
increased 0.3% after excluding the impact of an acquisition completed in early
2000. In particular, sales for the Industrial Specialties and the
Transportation Accessories groups increased by approximately 2% and 6%,
respectively, compared to 1999. Excluding the effect of acquisitions, the
Transportation Accessories group's sales would have approximated 1999 levels.
The increase in Industrial Specialties group sales was primarily driven by
improved sales of specialty gaskets and related products, partially offset by a
decline in industrial fastener products. The decline in industrial fastener
products came as a result of the phase out of certain products and reduced
demand for fastener applications for heavy duty truck, agricultural,
distribution and off-road markets. Sales for the Rieke Packaging System group
decreased by approximately 5.2% versus 1999, driven primarily by a slowdown in
general industrial production beginning in late 2000.
Adjusted EBITDA margins were approximately 17.6% and 20.4% for 2000 and
1999, respectively. Margins were negatively impacted by sales declines for
certain products and start-up costs related to the launch of new products and
new manufacturing facilities.
The Rieke Packaging Systems group's Adjusted EBITDA decreased from $39.4
million in 1999 to $35.8 million in 2000 driven primarily by decreased sales in
higher margin products. The Industrial Specialties group's Adjusted EBITDA
declined from $77.8 million in 1999 to $64.6 million in 2000, primarily due to
reduced sales and the impact of a flood at our specialty insulation business.
The Transportation Accessories group's Adjusted EBITDA declined from $48.5
million in 1999 to $46.3 million in 2000. This decrease is primarily explained
by incremental cash fixed costs that more than offset the increase in sales.
Selling, general and administrative costs as a percentage of sales were
18.2% for 2000 as compared with 17.4% for 1999. Selling, general and
administrative expenses were approximately $143.7 million in 2000 as compared
with approximately $134.6 million in 1999. The percentage increase is
principally the result of increases in our administrative headcount and
discretionary spending.
Interest expense for 2000 was approximately $60.4 million as compared with
$55.4 million in 1999. The increase in interest expense is the result of a
higher average level of debt with Metaldyne and an increase in the rate charged
on advances by Metaldyne. This rate was 6.4% at December 31, 2000 and 5.85% at
December 31, 1999.
Other income (expense), net in 2000 was an expense of $58.5 million as
compared with an expense of $53.9 million in 1999. The increase of $4.6 million
is due primarily to the $5.0 million increase in interest expense.
Net income in 2000 was $17.1 million as compared with $35.3 million in
1999. Operating performance in 2000 was negatively impacted by those factors
referred to above as well as by costs and expenses related to the launch of
certain new products.
PERIOD FROM NOVEMBER 28, 2000 TO DECEMBER 31, 2000.
The 2000 SP (approximately one month) which includes the change in
accounting basis, reflects a net loss of approximately $4.2 million. The
primary reason for this loss relates to the underlying economics of our
businesses during a typical December, and in particular to the operating
environment in December 2000. December represents our seasonal low selling
month for our Transportation Accessories group. Additionally, in December 2000
we saw many of our customers reduce their order volumes greater than seasonal
history would suggest as the North American economy began to contract after
several years of significant growth. Further compounding the
39
underlying economic environment, we had just undergone an acquisition and
subsequent management change and we were slow to react with the necessary
workforce and related cost reductions.
PERIOD FROM JANUARY 1, 2000 TO NOVEMBER 28, 2000.
The 2000 LP (approximately 11 months), which is on a pre-acquisition
basis, reflects net income of $21.3 million. This period reflects the benefit
of a strong operating environment, principally in the first half of 2000 and
the exclusion of the results for the month of December discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Cash used for operating activities for the nine months ended September 29,
2002 was approximately $20.2 million as compared with cash provided by
operating activities of approximately $66.9 million for the comparable period
in 2001. The primary reason for the difference was due to the repurchase of
$74.5 million of receivables as the result of exiting Metaldyne's accounts
receivable securitization facility, and an $11.6 million payment to Metaldyne
to fund contractual liabilities. Inventories decreased from 2001 as a result of
our continued emphasis on inventory management, the impact of facility
consolidations and the utilization of "just-in-time" and other inventory
management techniques. Capital expenditures were approximately $20.1 million
for the nine months ended September 29, 2002 as compared with approximately
$13.7 million for the comparable period in 2001.
Cash provided by operating activities in 2001 was approximately $76.0
million as compared with approximately $132.1 million for 2000. Metaldyne's
accounts receivable securitization facility, initiated in 2000, is the primary
reason for the decrease in operating cash flow in 2001 relative to the full
year 2000. The remaining decrease in operating cash flow is explained by the
generally depressed operating environment in 2001 as compared with 2000.
Inventories decreased from 2000 as a result of our continued emphasis on
inventory management, the impact of facility consolidation and the utilization
of "just-in-time" and other inventory management techniques. Capital
expenditures were approximately $18.7 million in 2001 as compared with $22.8
million in 2000. The slight decline in capital expenditures was principally due
to a reduction in investment given the general economic conditions.
As a result of the transactions and the additional issuance, we are highly
leveraged and are required to dedicate significant portions of cash flow to
debt service, leases and other obligations. In addition to normal capital
expenditures, as we expand our business, we may have to incur other significant
expenditures to prepare for and manufacture these products. We may incur
material amounts of additional debt and further burden cash flow in pursuit of
our internal growth and acquisition strategies.
Our credit facility includes a $150 million revolving credit facility and
a $260 million term loan facility. Up to $100 million of our revolving credit
facility is available to be used and kept outstanding for one or more permitted
acquisitions. The credit facility also provides for an uncommitted $200 million
incremental term loan facility for one or more permitted acquisitions. Our
revolving credit balances will fluctuate daily based upon our working capital
and other ordinary course needs. Availability under our revolving credit
facility depends upon, among other things, compliance with the financial
covenants in our credit facility. Our other important source of liquidity is
our $125 million accounts receivable financing arrangement, under which we have
the ability to sell eligible accounts receivable to a third-party multi-seller
receivables funding company. We are not presently utilizing the receivables
facility. We estimate that as of September 29, 2002 net proceeds available to
us under our receivables facility would have been approximately $53.9 million.
Our amortization requirements of the term loan are: $625,000 due at the
end of each fiscal quarter beginning with the fourth quarter of 2002 through
June 30, 2009; $118,125,000 due on September 30, 2009; and $125,000,000 due on
December 31, 2009 in the final year of the seven and one-half year life of the
term loan. If we secure commitments for and utilize our $200 million of
incremental term loan capacity, it will likely mature after the term loan and
be similarly back-ended in its amortization, although we cannot be certain.
40
We have other cash commitments related to leases. We have engaged in a
number of sale-leaseback transactions. In January 2002, we entered into lease
transactions with respect to nine real properties for gross proceeds of
approximately $20.9 million, which were used to repay advances from Metaldyne.
Metaldyne guaranteed all of the leases which resulted in the leases being
accounted for as capital leases. In connection with the transactions, Metaldyne
was released from its guarantee and letters of credit with a face amount of
approximately $13.3 million were subsequently issued under our credit facility
with respect to our obligations under these leasing transactions. As a result
of the removal of the Metaldyne guarantee, we now account for these lease
transactions as operating leases and we eliminated the capitalized lease
obligation and related capitalized lease assets previously recorded. Annualized
rent expense related to these lease transactions is approximately $2.5 million.
During the nine months ended September 29, 2002, we entered into operating
leases for three additional facilities. Annual rent expense related to these
lease transactions is approximately $1.5 million. We expect to continue to
utilize leasing as a financing strategy in the future to both meet capital
expenditure needs and to reduce debt levels.
In addition to the foregoing contractual commitments, we have also agreed
to assume certain obligations resulting from the November 2000 acquisition of
Metaldyne by Heartland. At that time, Metaldyne made restricted stock grants to
employees with terms that allow eligible employees to elect to receive cash at
stipulated amounts in lieu of shares as the restricted stock grants vest. We
have agreed to be responsible for the cash costs of those elections to the
extent they relate to our current and former employees or allocable to current
and former Metaldyne corporate level employees in accordance with the
agreement. Under these arrangements, the approximate stipulated dollar value of
the shares for which we are responsible have vested or will vest as follows:
$3.5 million on January 14, 2002, $7.9 million on January 14, 2003 and $8.4
million on January 14, 2004.
To the extent that cash elections are not made, the employees will be
entitled to retain their shares in Metaldyne, but we may decide at any time to
work with Metaldyne to replace all or a portion of the restricted stock grants
and related obligations at Metaldyne with new restricted stock grants and
similar obligations.
In connection with the transactions, we entered into an agreement to sell,
on an ongoing basis, the trade accounts receivable of certain business
operations to a wholly-owned, bankruptcy-remote, special purpose subsidiary, or
TSPC, Inc. TSPC, subject to certain conditions, may from time to time sell an
undivided fractional ownership interest in the pool of domestic receivables, up
to approximately $125 million, to a third party multi-seller receivables
funding company, or conduit. Under the terms of the agreement, new receivables
will be added to the pool as collections reduce previously sold receivables.
The facility will be subject to customary termination events, including,
but not limited to, breach of representations on warranties, the existence of
any event that materially adversely affects the collectibility of receivables
or performance by a seller and certain events of bankruptcy or insolvency. The
proceeds of sale are less than the face amount of accounts receivable sold by
an amount that approximates the purchaser's financing costs. The agreement will
expire on June 6, 2005. If we are unable to renew or replace this facility, it
could materially adversely affect our liquidity.
Based on our capital structure and the geographic areas in which we
operate, we are subject to market risk due to changes in interest rates and
fluctuations in the value of foreign currencies. We do not currently use
derivative financial instruments to manage these risks.
Our exposure to interest rate risk results from the floating rates on our
$260 million senior term loan and our $150 million revolving credit facility
(under which we had $260 million and $0 million, respectively, outstanding at
September 29, 2002). Borrowings under our credit facility bear various interest
rates, as more fully described in Note 5 to our September 29, 2002 financial
statements. Based on current amounts outstanding, a 1% increase or decrease in
the per annum interest rate for the term loan would change interest expense by
$2.6 million annually.
We conduct business in several locations throughout the world and are
consequently exposed to market risk from changes in the value of foreign
currencies. The functional currencies of our foreign
41
subsidiaries are generally the local currency in the country of domicile. We
manage these operating activities at the local level and revenues and costs are
generally denominated in local currencies. Our largest concentrations of non-US
sales and operating net assets are in Europe, Australia and Canada. Total
non-US revenues approximated $73.6 million (approximately 12.8% of total
revenues) and $89.2 million (approximately 12.2% of total revenues) for the
nine months ended September 29, 2002 and the year ended December 31, 2001,
respectively. Operating net assets outside the US approximated $126 million and
$107.0 million at September 29, 2002 and December 31, 2001, respectively.
Substantially all of our imported purchased parts and finished goods are
denominated in U.S. dollars. Transaction gains (losses) due to changes in the
value of foreign currencies approximated $0.9 million and ($0.1) million for
the nine months ended September 29, 2002 and the year ended December 31, 2001,
respectively.
We believe that our liquidity and capital resources including anticipated
cash flow from operations will be sufficient to meet debt service, capital
expenditure and other short-term and long-term obligations and needs, but we
are subject to unforeseeable events and the risk that we are not successful in
implementing our business strategies. We may extend the average maturities of
debt through the issuance of long-term debt securities to the extent market
conditions permit us to increase our financial flexibility and ability to
pursue our business strategies.
CASH OBLIGATIONS
Under various agreements, we will be obligated to make future cash
payments in fixed amounts. These include payments under our long-term debt
agreements, rent payments required under operating lease agreements for 13
facilities and certain capital equipment, severance obligations related to our
cost savings plans and our allocable share of certain compensation and benefit
obligations due to Metaldyne as a result of entering into the transactions. The
following table summarizes our expected fixed cash obligations over various
future periods related to these items. The table does not include amounts that
we may pay in the near-term to adjust for our allocable share of certain
compensation or benefit plan obligations.
PAYMENTS DUE BY PERIODS
---------------------------------------------------------------
(IN MILLIONS)
LESS THAN 1-3 4-5 AFTER
CONTRACTUAL CASH OBLIGATIONS: TOTAL ONE YEAR YEARS YEARS 5 YEARS
- --------------------------------------- ----------- ----------- --------- --------- -----------
Long-term debt ........................ $ 613.8 $ 3.0 $ 8.0 $ 5.0 $ 597.8
Lease obligations ..................... 90.5 7.4 18.7 10.1 54.3
Restricted stock obligations .......... 16.0 7.6 8.4 -- --
Severance ............................. 11.6 5.5 6.1 -- --
-------- ------ ------ ------ --------
Total contractual obligations ......... $ 731.9 $ 23.5 $ 41.2 $ 15.1 $ 652.1
======== ====== ====== ====== ========
As of September 29, 2002, we are contingently liable for stand-by letters
of credit totaling $23.5 million issued on our behalf by financial institutions
under our revolving credit facility. These letters of credit are used for a
variety of purposes, including certain operating leases and meeting various
states' requirements in order to self-insure workers' compensation claims,
including incurred but not reported claims.
CRITICAL ACCOUNTING POLICIES
The following discussion of accounting policies is intended to supplement
the accounting policies presented in Note 3 to our 2001 financial statements.
The expenses and accrued liabilities or allowances related to certain of these
policies are based on our best estimates at the time of original entry in our
accounting records. Adjustments are recorded when actual experience differs
from the expected experience underlying the estimates. We make frequent
comparisons of actual versus expected experience to mitigate the likelihood of
material adjustments.
Accounting Basis for Transactions. Prior to June 6, 2002, we were owned by
Metaldyne. On November 28, 2000, Metaldyne was acquired by an investor group
led by Heartland. The
42
pre-acquisition basis of accounting for periods prior to November 28, 2000 is
reflected on the historical basis of accounting and all periods subsequent to
November 28, 2000 are reflected on a purchase accounting basis and are
therefore not comparable. On June 6, 2002, Metaldyne issued approximately 66%
of our fully diluted common stock to an investor group led by Heartland. As a
result of the transactions, we did not establish a new basis of accounting as
Heartland is our and Metaldyne's controlling shareholder and the transactions
were accounted for as a reorganization of entities under common control. Our
combined financial information includes allocations and estimates of direct and
indirect Metaldyne corporate administrative costs attributable to us, which are
deemed by management to be reasonable but are not necessarily reflective of
those costs to us on an ongoing basis.
Impact of New Accounting Pronouncements. In June 2001, the Financial
Accounting Standards Board approved Statements of Financial Accounting
Standards No. 141, "Business Combinations" ("SFAS 141") and No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142"), which are effective for us on July
1, 2001 and January 1, 2002, respectively. SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. SFAS 142, eliminates amortization of goodwill, including goodwill
recorded in past business combinations and certain other intangible assets, but
requires at least annual testing for impairment by comparison of estimated fair
value to carrying value. In addition, goodwill recorded as a result of business
combinations completed during the six-month period ended December 31, 2001 will
not be amortized.
Under SFAS No. 142, we estimate fair value of goodwill at a reporting unit
level using the present value of expected future cash flows and other valuation
measures. The factors considered by management in performing this assessment
include current operating results, business prospects, market trends, potential
product obsolescence, competitor activities and other economic factors. We
completed the transitional impairment test required under SFAS No. 142 for each
of our reporting units in the second quarter of 2002, which resulted in a
non-cash, after tax charge of $36.6 million related to our industrial fasteners
business within the Industrial Specialties group. We recognized this impairment
charge as of January 1, 2002, as a cumulative effect of change in accounting
principle. We will test for impairment of goodwill at least annually and
significant variations in expected future cash flows could result in additional
impairment of recorded goodwill.
The Financial Accounting Standards Board approved the issuance of SFAS No.
143, "Accounting for Asset Retirement Obligations" in June 2001, which is
effective January 1, 2003. SFAS No. 143 requires that an existing legal
obligation associated with the retirement of a tangible long-lived asset be
recognized as a liability when incurred and the amount of the liability be
initially measured at fair value. We are currently reviewing the provisions of
SFAS No. 143 and assessing the impact of adoption.
On January 1, 2002, we adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." Under SFAS No. 144, a single
accounting method was established for long-lived assets to be disposed. SFAS
No. 144 requires us to recognize an impairment loss only if the carrying amount
of a long-lived asset is not recoverable from its undiscounted cash flows and
the loss is the difference between the carrying amount and fair value. The
adoption of SFAS No. 144 did not have any impact on our financial position or
results of operations.
In July 2002, the Financial Accounting Standards Board approved the
issuance of SFAS 146, "Accounting for Costs Associated with Exit or Disposal
Activities." The provisions of SFAS No. 146 are to be applied prospectively to
exit or disposal activities initiated after December 31, 2002. SFAS No. 146
requires us to recognize costs associated with exit or disposal activities when
they are incurred rather than at the date of a commitment to an exit or
disposal plan.
Receivables. Receivables are presented net of allowances for doubtful
accounts. We monitor our exposure for credit losses and maintain adequate
allowances for doubtful accounts. We do not believe that significant credit
risk exists. Trade accounts receivable of substantially all domestic business
operations may be sold, on an ongoing basis, to TSPC, Inc., a wholly owned
subsidiary of the Company.
43
Depreciation and Amortization. Depreciation and amortization are computed
principally using the straight-line method over the estimated useful lives of
the assets. Annual depreciation/amortization rates are as follows: buildings
and land improvements, 2 1/2% to 10%: machinery and equipment, 6 2/3% to
33 1/3%, and: identified intangible including customer relationships,
trademarks/trade names and technology, 2 1/2% to 20%.
Pension and Postretirement Benefits Other than Pensions. Annual net
periodic expense and benefit liabilities under our defined benefit plans are
determined on an actuarial basis. Assumptions used in the actuarial
calculations have a significant impact on plan obligations and expense. Each
September, we review the actual experience compared to the more significant
assumptions used and make adjustments to the assumptions, if warranted. The
healthcare trend rates are reviewed with the actuaries based upon the results
of their review of claims experience. Discount rates are based upon an expected
benefit payments duration analysis and the equivalent average yield rate for
high-quality fixed-income investments. Pension benefits are funded through
deposits with trustees and the expected long-term rate of return on fund assets
is based upon actual historical returns modified for known changes in the
market and any expected change in investment policy. Postretirement benefits
are not funded and our policy is to pay these benefits as they become due.
Certain accounting guidance, including the guidance applicable to
pensions, does not require immediate recognition of the effects of a deviation
between actual and assumed experience or the revision of an estimate. This
approach allows the favorable and unfavorable effects that fall within an
acceptable range to be netted. Although this netting occurs outside the basic
financial statements, the net amount is disclosed as an unrecognized gain or
loss in the notes to our financial statements.
Other Loss Reserves. We have numerous other loss exposures, such as
environmental claims, product liability, litigation, recoverability of deferred
income tax benefits, and accounts receivable. Establishing loss reserves for
these matters requires the use of estimates and judgment in regard to risk
exposure and ultimate liability. We estimate losses under the programs using
consistent and appropriate methods; however, changes to our assumptions could
materially affect our recorded liabilities for loss. Where available, we
utilize published credit ratings for our debtors to assist us in determining
the amount of required reserves.
44
BUSINESS
We are a manufacturer of highly engineered products serving niche markets
in a diverse range of commercial, industrial and consumer applications. While
serving diverse markets, most of our businesses share important
characteristics, including leading market shares, strong brand names,
established distribution networks, high operating margins and relatively low
capital investment requirements. We estimate that approximately 70% of our 2001
net sales were in U.S. markets in which we enjoy the number one or number two
market position within our respective product categories. In addition, we
believe that in many of our businesses, we are one of only two or three
manufacturers.
We will seek to enhance our cash flow and return on assets through the
following operating and growth strategies:
o Capitalize on New Product Development Opportunities. Many of our
businesses have a long history of successfully developing innovative
products without the need for significant incremental capital
investment. We work closely with our customers to identify new product
opportunities. Once developed, new products benefit from our
significant existing brand awareness and successful distribution
networks. Examples of important new product extensions and innovations
include towing accessories designed to carry increased weight and
reduce load movement at high speeds, technically advanced
cost-efficient caps, closures and dispensing systems, and unique
one-sided aerospace fasteners for use on new lightweight composite
aircraft materials. We believe we have significant opportunities for
future product development in many of our businesses. These
opportunities include foaming dispensers and vented closure systems
that preserve package integrity and allow beverage containers to
resist shipping damage. Our management team has implemented systematic
project selection and investment criteria and intends to make greater
use of outside design, marketing and product development resources in
order to foster innovation in high growth product categories.
o Pursue Strategic Niche Acquisitions. We have a successful history of
completing acquisitions, having made over 25 since 1986. We believe we
have significant opportunities for strategic acquisitions that will
supplement existing product lines, add new distribution channels,
increase production capacity, provide new cost-effective technologies,
expand our geographic coverage or enable us to absorb overhead costs
more efficiently. Our principal focus will be on product line
extension and service enhancements for key customers. We believe that
there are many relatively small (less than $100 million in sales),
privately owned companies with limited product lines that lack the
capital to grow their business independently or consolidate their
respective markets and that these companies are likely to be
attractive acquisition candidates.
o Continue to Aggressively Pursue Cost Savings Initiatives. In 2001, our
new management team began the implementation of a detailed plan to
reorganize us into three business groups and eliminate duplicative
costs through a 9% headcount reduction, the consolidation of
manufacturing and distribution facilities and the development of a
comprehensive set of benefit programs to replace 20 different legacy
plans. Our net cash investment to implement this program is expected
to be $23.8 million, of which approximately $11.7 million has been
incurred through September 29, 2002. We expect this program to result
in annual cost savings of approximately $29 million by the second
quarter of 2004. We have already implemented cost savings actions that
we expect to result in approximately $16 million in annual cost
savings, or nearly 55% of our total annual cost savings program goal.
We believe that, as we implement our acquisition strategy, we will
have additional opportunities to consolidate plants, distribution
centers and sales forces and better absorb fixed costs.
45
o Continue to Emphasize Strong Free Cash Flow. We have grown by making
selective acquisitions using disciplined acquisition criteria that
focus on high margin businesses in niche markets with relatively low
capital requirements. We have maintained consistently high Adjusted
EBITDA margins in excess of 20% on average over the period of 1989
through 2001. Our capital expenditures averaged approximately 4.3% of
net sales from 1990 through 2001. As a result, we generated cumulative
cash flow, or Adjusted EBITDA minus capital expenditures, plus/minus
changes in net working capital, of approximately $1.0 billion from
1990 through 2001.
o Capitalize on Cyclical Recoveries. Several of our businesses sell into
industrial markets that experienced cyclical volume declines during
2001 as a result of general economic conditions as well as a sharp
liquidation of industrial inventories. In response, management has
aggressively pursued cost savings opportunities and projects and has
reduced our operating costs. While the timing of a recovery in
cyclical markets is uncertain, we believe that we are well positioned
to experience further margin improvement if volume increases given our
lower cost structure. Construction equipment, recreational vehicle and
light and heavy duty truck sales, towing and trailering accessories,
defense, aerospace and agricultural machinery are among the cyclical
industries that we serve.
o Leverage Economies of Scale and Utilize World Class Operating
Practices. By increasing our scale, we will have opportunities to
improve supply base management, internal sourcing of materials and
selective out-sourcing of support functions, such as risk management,
logistics and freight management. For example, management is
introducing sophisticated supplier ranking systems, preferred vendor
volume-for-price reduction programs and other strategies for reducing
materials costs to the Transportation Accessories group's annual
spending on materials, which is spread among nearly 1,600 suppliers.
In addition, the Transportation Accessories group has established a
sales force to serve as "one face" to its retail channel and to
deliver a cohesive sales program and category management that
represents the full portfolio of the Transportation Accessories group
products.
The principal products of our business segments are summarized below:
TRANSPORTATION ACCESSORIES GROUP RIEKE PACKAGING SYSTEMS GROUP INDUSTRIAL SPECIALTIES GROUP
- ---------------------------------- ---------------------------------------- ----------------------------------
5th wheel hitches Bottle closures and dispensers Blind bolt fasteners
Accessories for marine vehicles Drum closures and dispensers Center drills and cutters
ATV and motorcycle lifts Pail closures and dispensers Countersinks
Ballmounts Plastic industrial container closures End mills
Brake Controllers Plastic industrial dispensing products Ferrous specialty alloy fasteners
Couplers Specialty pumps Fiberglass facings
Dual Port System hitches and Specialty sprayers Flame-retardant facings and
accessories jacketing
Hitch accessories Specialty installation tooling High pressure gas cylinders
Hitch mounted accessories Steel industrial container closures Heat Jacks
Lifting, leveling and adjusting Rings and levers Cylinders for acetylene treating
products finishing services
Portable toilets Insulation tape
Roof racks Master gears, gages and punches
Sway controls Metallic industrial gaskets
Nonferrous specialty alloy
Towing electrical accessories fasteners
Towing brake controllers Nonmetallic industrial gaskets
Trailer brakes One piece aerospace fasteners
Trailer lighting products Precision cutting tools
Vehicle hitches and receivers Pressure-sensitive specialty tape
products
Weight distribution hitches Ring joint gaskets
46
TRANSPORTATION ACCESSORIES GROUP RIEKE PACKAGING SYSTEMS GROUP INDUSTRIAL SPECIALTIES GROUP
- ---------------------------------- ------------------------------- -----------------------------------
Winches Self-threading specialty fasteners
Wiring harnesses Specialized metallurgical and
finishing services
Work tables Specialized screws
Specialty engine and service
parts
Vapor barrier facings and
jacketing
Large diameter cartridge casings
TRANSPORTATION ACCESSORIES GROUP
Our Transportation Accessories group offers a wide range of products that
are used to "outfit and accessorize" light trucks, SUVs, recreational vehicles,
passenger cars, and trailers of all types, and operates as three business
units: (i) Towing Products, which includes Reese and Draw-Tite branded
products; (ii) Trailer Products, which includes Fulton and Wesbar branded
products; and (iii) TriMas Pty, Ltd., an Australian-based business, which
includes ROLA roof rack products and Hayman-Reese branded products, as well as
QTB Automotive, a supplier of towing products and towing accessories to
automotive OEMs in Australia. We are a leader in the design, manufacture and
distribution of towing systems products for light trucks, SUVs, passenger cars,
recreational vehicle, as well as trailer OEM and trailer aftermarket customers.
We believe that our product lines and brand names are the most recognized and
extensive in the transportation accessories industry, enabling us to provide
custom-designed products for virtually every towing and trailering need. Our
main products categories include:
o towing and hitch equipment, such as ballmounts and draw bars, hitch
receivers, 5th wheel hitches and weight distribution components;
o electrical accessories, such as trailer lighting products and wiring
harnesses;
o brakes and related brake components for both towing vehicles and
trailers;
o trailer components, such as winches, jacks, couplers, fenders and
ramps; and
o other accessories, such as bike racks, cargo carriers, hood
protection, light and receiver tube covers and marine locks.
We believe that opportunities for internal growth in the Transportation
Accessories group include increasing sales to mass merchants and specialty
retail chains, new product offerings in the trailer brake systems and lighting
categories, and increased volume in its newest patented product offering, Dual
Port System hitches, and its related accessories.
o Mass merchants (Wal-Mart), home centers (Lowe's and Home Depot), and
specialty auto retailers (Pep Boys, AutoZone and CSK Auto) are now
requiring suppliers to provide complete category management,
demographic analysis and for product offerings that enhance the
individual retailer's "gross margin per square foot." Mass merchants
are also consolidating categories to drive out costs and more broadly
leverage existing relationships. We believe we are well positioned to
take advantage of these trends, and we are implementing a supply-chain
and category management strategy to increase these customers'
switching costs.
o Trailer brakes represent a new product category that we believe will
allow us to utilize our existing supply relationships with OEM trailer
manufacturers to seek a greater share of their trailer component
purchases. We have introduced a new line of brake actuators which,
when bundled with our existing brake product lineup, enable us to
offer greater content per trailer to the trailer OEMs. We are also
broadening our traditional focus on Wesbar-branded waterproof trailer
lighting to include a full line of non-waterproof lights designed to
capture a greater share of the cargo and utility trailer market.
47
o Our recently introduced Dual Port System is an innovative and
patent-protected category of towing hitches designed to add greater
stability and carry more weight than traditional rear-of-vehicle
applications. Applications include bike carriers, cargo trays and
enclosed cargo carriers. We believe that our Dual Port System and
related accessory volume represent a significant growth opportunity
over the next several years.
The transportation accessories market is comprised of a large and highly
fragmented supplier base. We believe that we offer a substantially broader
range of products than our competitors. Through selective acquisitions, product
line extensions and use of our extensive distribution channels, we believe we
have an opportunity to become the broadest service and product line supplier to
OEMs, installers, retailers and the aftermarket. The nature of this product
breadth, coupled with our channel strength, will enable us to develop
relationships with our customers that facilitate better inventory management
through the entire supply chain and thereby enhance our operating results.
Marketing, Customers and Distribution
We have over 70 professionals within our Transportation Accessories group
employed in sales, marketing, and product management activities across all
customer channels. We have over 30 strategic market representatives, with
focused sales and account management accountability with specific customer
relationships. We employ a dedicated sales force in each of the primary
channels including retail, national account/OEM, installer/distributor, trailer
OEM, and trailer aftermarket/distributor.
The Transportation Accessories group's products are distributed through a
variety of channels. The towing products group principally distributes through
three channels. Draw-Tite products are distributed through a network of 60
distributors and over 4000 independent installer shops, 450 of which carry
Draw-Tite products on an exclusive or preferred basis. Our Reese towing
products, comprised principally of heavy-duty hitches, electrical and
brake-controller products, are distributed through recreational vehicle
distributors, the retail channel, as well as through Reese installers who sell
to the heavy-duty professional towing segment. We have a strong presence in the
retail channel with mass merchants, such as Wal-Mart, Lowe's, and Home Depot,
as well as specialty auto retailers, such as Pep Boys, AutoZone and CSK Auto.
We believe that we are the largest supplier to mass retailers within our
industry and that our relationships with these customers provide us with a
significant competitive advantage and position us for future growth. In
addition, we believe we are also the largest supplier of heavy-duty hitches and
a range of accessories to the distributor and independent installer channels.
Approximately 55% of our towing and other non-trailer products are sold through
our installer and distributor channel. Traditional recreational vehicle
distributors account for approximately 25% of our sales. Our fastest growing
segment, mass retailers, accounts for approximately 16% of our sales, with the
remainder of our business in other retail and OEM distribution.
Our Fulton and Wesbar-branded trailer and related accessory products are
sold directly to major trailer OEMs, recreational vehicle distributors, as well
as mass retailers. In general, the trailer OEM industry is highly fragmented
and specialized, and is generally a low value-added assembly industry. We rely
upon strong historical relationships, significant brand heritage, and our broad
product offering, to bolster our trailer and accessory products sales through
the OEM channel and in various aftermarket segments. End-users include owners
of personal watercraft, large commercial-industrial trailer users, as well as
horse and stock trailering customers. We believe that the breadth of our
customer penetration, coupled with the recognition of our strong brands,
provides a natural barrier to entry and allows us to build a scalable platform
for bundling of various applications and product extensions in all channels.
Manufacturing
As part of an integration and consolidation plan being executed in the
second half of 2002, towing products' manufacturing and warehousing processes
have been consolidated into a single, approximately 350,000 square-foot,
efficient-flow manufacturing and warehouse center in Goshen, Indiana. The
previous locations in Canton, Michigan and Elkhart, Indiana are expected to be
closed in the fourth quarter of 2002. The trailer products group performs all
metal-fabrication and converting
48
manufacturing at its Mosinee, Wisconsin facility. Electrical products
manufacturing for both the towing and trailer products groups is performed at a
single facility in Reynosa, Mexico.
The nature of the industry requires the towing products unit to
manufacture in small batches, and in significant variety as a result of the
need to maintain after-market inventory and maintenance of designs for 10-15
years on nearly every light vehicle for which there is likely to be a towing
application. In this "job shop" environment, we seek to maintain a lean, "quick
change" manufacturing culture and system. Our plants are highly vertically
integrated to receive raw materials and convert them to finished products
through three major steps: stamping and related methods of forming, cutting,
punching, boring and prepping; welding and assembly of components; and
cleaning, coating, painting and inspection of finished products. We also
maintain vacuum forming and blow forming processes for plastic accessories, an
in-house wire harness design and manufacturing capability, one of the
industry's largest research and development facilities for both testing and
design, and a "hub and spoke" distribution system with capability to meet
24-hour delivery needs for our customers.
The trailer products group's 190,000 square-foot Mosinee, Wisconsin
facility contains a wide range of manufacturing, distribution and research and
development capabilities. Major processes at this facility include metal
stamping (up to 800 ton press capacity), a steel tube mill, thread rolling and
riveting, high-volume welding and assembly, significant in-house mechanical and
electrical engineering capabilities and in-house tool, die and equipment
maintenance capabilities. We believe these capabilities provide us with
strategic cost advantages relative to our competition. In 2001, the trailer
products unit implemented the first phase of its cost savings plan,
consolidating Wesbar's West Bend, Wisconsin trailer components' selling and
administrative functions and all production activities into the Mosinee
facility. The second phase of this cost savings plan is the consolidation in
2002 of the remaining production of our Wesbar electrical trailer products,
previously in Peru, Indiana, into our Reynosa, Mexico facility.
We also have a towing products business in Australia, consisting of three
business units, manufacturing marketing and distributing ROLA roof racks,
Hayman-Reese towing products for the aftermarket, as well as OEM towing
products through our QTB Automotive unit.
The Transportation Accessories group conducts extensive testing of its
products in an effort to assure high quality, and reliable, safe product
performance. Engineering, product design and fatigue testing are performed
utilizing computer-aided design and finite element analysis. In addition,
on-road performance research is conducted on hitches with instrumentation
equipped trailers and towing vehicles. Extensive product testing programs are
intended to improve product safety and reliability, and to reduce manufacturing
costs.
Competition
We believe that the Transportation Accessories group is the largest North
American manufacturer and distributor of towing systems and trailer products.
The competitive environment for towing and trailer products is highly
fragmented and is characterized by numerous smaller suppliers, even the
strongest and largest of which tend to focus in narrow product categories. For
instance, across the various products only a few competitors of ours maintain a
significant or number-one market share in more than one specific product area.
By comparison, we compete on the basis of the broad range of our products, the
strength of our brands and distribution channels, as well as quality and
price-value. Our most significant competitors in towing products include Valley
(AAS), Hidden-Hitch, Putnam, Curt and Sure-Pull. Trailer Products' competitors
include Dutton-Lainson, Hammerblow, Peterson, Atwood and Shelby, each of whom
compete within only one or a few categories of Trailer Products' broad product
portfolio.
RIEKE PACKAGING SYSTEMS GROUP
Our Rieke Packaging Systems group is a market leader in the design and
manufacture of steel and plastic closure caps, drum enclosures, rings and
levers and dispensing systems, such as pumps and specialty sprayers. We
manufacture high performance, value-added products designed to enhance the
49
ability of a customer to store, ship, process and dispense various products in
the industrial, agricultural, consumer and pharmaceutical markets. Our
companies, such as Rieke, TOV, Englass and Stolz, are well recognized in their
markets.
o Rieke designs and manufactures traditional industrial closure and
dispensing products in North America, where we believe it has
significant market shares for many of its key products, such as steel
drum enclosures, plastic drum closures and plastic pail dispensers and
plugs;
o Englass, located in the United Kingdom, focuses on pharmaceutical and
personal care closures and dispensers and possesses product and
engineering knowledge that is applicable in the dynamic consumer
dispensing market in North America and in multiple other markets;
o Stolz is a European and NAFTA leader in plastic enclosures for sub-20
litre sized containers used in automotive and chemical applications;
and
o TOV, located in Italy, specializes in the lever and ring closures that
are used in the European industrial market.
In general, we have focused on profitable niche markets rather than
commodity products, such as generic bottle caps, due to the higher associated
margins. We believe that our experience with these more engineered products
provides us numerous opportunities to extend our products portfolio into new
markets, particularly within consumer markets in North America. In the North
American consumer market, there is an emphasis on unique packaging forms and
stylized containers and dispensers on which we have begun to focus our research
and development capabilities. Examples of higher margin, niche consumer
products that we have begun to distribute are finger operated patented
non-aerosol foamers for hair and body care, patented closures for orange juice,
patented twin airless dispensers and milk dispensers with Tetra Pak cartons. In
addition, we are currently manufacturing medical devices to mix water and
detergent for dialysis machines, plastic dispensers that are National
Sanitation Foundation-approved for food applications to replace previously
approved stainless steel pumps and a pump for highly viscous products. Rieke
has also patented a consumer paint container with a closure system that
eliminates paint spoilage due to exposure to air. We have received a positive
response from several major paint manufacturers and are currently beginning the
manufacture of this product. Rieke has focused on the large volume
opportunities available in the chemical consumer packaging market by developing
lower cost, high performance dispensing systems which are applicable to a
variety of pharmaceutical products as well as personal care items, household
and industrial chemicals, automotive fluids and cleaners and food products. All
of these new products represent improved functionality and style relative to
existing products in the marketplace and will provide Rieke with additional
growth opportunities in new markets with new customers.
Marketing, Customers and Distribution
The Rieke Packaging Systems group's customers represent a variety of
industries, including container manufacturers and independent distributors. We
engage in significant direct marketing to manufacturers of chemical, paint,
petroleum and consumer products and because of this approach, a significant
portion of Rieke's products are specified by end-users who also use Rieke's
specialty tooling equipment to install the products. Installation in customer
drum and pail plants of unique Rieke-designed insertion equipment and tools
which may be used only on Rieke manufactured closures and dispensers allows us
to generate a high degree of customer loyalty while maintaining appropriate
product pricing. We believe that our high level of customer recognition is due
to our emphasis on product development, product quality and performance
characteristics and its customer service standards. We have also been
successful in creating significant bundling opportunities for a variety of its
items by providing the broadest scope of products to customers. To this end, we
provide attractive pricing to the customer in exchange for developing a
preferred supplier status with respect to all associated products for a number
of years.
We employed a direct sales force of approximately 20 persons. Our primary
customers include Coca-Cola, Dow Chemical, BASF, Chevron, Sherwin Williams,
Pepsi, Proctor & Gamble, Valvoline,
50
Colgate, Bayer/Monsanto, Zeneca and major container manufacturers around the
world. We recently signed contracts to sell products to Glaxo, Jergens and
Tetra Pak, beginning in 2003. We maintain a customer service center that
provides technical support for the various systems and tooling supplied by us
as well as other technical assistance to customers to reduce overall production
costs. We also provide extensive in-house design and development technical
staff to provide a solution to customer requirements for closures and
dispensing. We have also begun to cross-market successful European products,
such as market rings and levers, to the North American market utilizing our
direct sales force. We also cross-sell the Stolz and Englass products
throughout the NAFTA and South American markets.
Manufacturing
Our Rieke Packaging Systems group maintains its global headquarters and
manufacturing and technology center in Auburn, Indiana and has manufacturing
operations in Canada, Mexico, England, Germany and Italy with contract
manufacturing in Asia. We also maintain distribution facilities in South
America and the Far East to serve our global customer base. Industrial
container closures and specialty dispensing and packaging products are
manufactured using metal forming and plastic injection molding technologies,
supplemented by automated assembly and material handling systems. Facilities in
all locations have technologically advanced injection molding machines as well
as automated, high-speed assembly equipment for multiple component products.
Consolidation actions are underway in Europe to concentrate (i) all plastic
molding throughout Europe into our Neunkirchen, Germany facility; (ii) all
metal forming capabilities into our Valmadrera, Italy facility; and (iii) our
assembly and "clean room" capabilities into our Leicester, England facility. In
North America, both metal forming and injection molding operations will be
located in Auburn, Michigan. Our Mexico City, Mexico facility will focus solely
on lower volume injection molding where multiple, labor-intensive components
will be assembled.
We believe that research and development are an essential component of our
manufacturing capabilities. For more than 75 years, Rieke's product development
programs have provided innovative and proprietary product solutions, such as
ViseGrip (Registered Trademark) steel flange and plug closure, the
Poly-ViseGrip (Registered Trademark) plastic closure, the all plastic,
environmentally safe, self-venting FlexSpout (Registered Trademark) flexible
pouring spout and the ViseGrip (Registered Trademark) drum closure. We have
over 25 patented or patent application pending systems of technologies.
Approximately 50% of this group's 2001 net sales relate to value-added products
based upon patented processes or technology.
A critical component of our growth, and maintenance of our market
position, depends upon the successful and cost-effective implementation of new
products and technologies, such as the shift from aerosol dispensing to foamer
technologies and the continuing shift of materials to plastics. We have a core
competence in the design, engineering and marketing of small, plastic,
injection molded dispensers and closures for industrial packaging. We intend to
employ this competence in pursuing opportunities within the consumer packaging
market in a manner similar to our Englass branding strategy in Europe. In
addition, we believe that there will be a shift from steel drum enclosures due
to a shift to plastics.
Competition
We believe that Rieke is the largest manufacturer in North America of
steel and plastic industrial container closures and dispensing products.
Primary competitors in the industrial closure market include American Flange
(division of Greif Brothers), Technocraft (India), and Bericap (Germany).
Dispensing products is a highly fragmented market with few large suppliers with
the exception of Rieke, Calmar, Indesco and Seaquist (Aptar Group). Rieke's
regional, niche market competitors include Airspray and Taplast.
INDUSTRIAL SPECIALTIES GROUP
Our Industrial Specialties group designs and manufactures a range of
industrial products for use in niche markets within the industrial automotive,
aerospace, construction, commercial, energy and defense markets. Such products
include precision tools, fasteners, gaskets, cylinders, steel munitions
51
casings and shells, pressure sensitive tape and vapor barrier facings, and
specialized oil and gas field engines. In general, our products are highly
engineered and customer-specific items that are sold into niche markets with
few suppliers. These products are manufactured under a number of names,
including Monogram Aerospace Fasteners, Entegra Fasteners, Lake Erie Screw,
Compac Corporation, Norris Cylinders, Arrow Engine, Keo Cutters, Richard's
Micro Tool and Precision Performance and, where useful, we seek to maintain the
names for customer brand recognition. These products include:
o Industrial fasteners comprised of large diameter bolts, customized
specialty bolts and small diameter specialty screws used in a variety
of industrial applications such as automotive and furniture and
fixtures;
o Specialty aerospace fasteners, comprised of permanent blind bolt and
temporary fasteners used in aircraft construction and other aerospace
applications;
o Metallic and non-metallic industrial gaskets and complementary
fasteners for refining, petrochemical and other industrial
applications principally in North America;
o Flame-retardant facings and jacketings used in connection with
fiberglass insulation as temperature and vapor barriers and
pressure-sensitive specialty tape products used for insulation;
o Precision cutting tools, such as center drills, carbide end mills and
precision spline gauges;
o Specialty engines, chemical pumps and engine replacement parts serving
principally the oil and natural gas extraction market;
o Large diameter cartridge casings provided to the U.S. and foreign
defense markets; and
o Most categories of industrial gas cylinders used by global industrial
gas and chemical companies.
We manufacture standard and custom-designed ferrous, nonferrous and
special alloy fasteners and highly engineered specialty fasteners for both
domestic and international general industrial and aerospace industries. We
specialize in manufacturing fasteners and other cold formed products, generally
in sizes 1/4" to 1 1/4" and also manufacture both ferrous and nonferrous
standard and specialty-designed small diameter fasteners, generally in sizes
5/8" and smaller. Our design and engineering capabilities enable us to
formulate fastener product programs to meet demanding metallurgical and
performance specifications for a wide variety of customers. We also provide
commercial heat treating and specialized metallurgical and finishing services
(e.g., plating) for fastener products used in various markets.
We are also a leader in the development of blind bolt fastener technology
for the aerospace industry. Our Visu-Lok (Registered Trademark) , Visu-Lok II
(Registered Trademark) and Radial Lok (Registered Trademark) blind bolts
which allow sections of aircraft to be joined together when access is provided
to only one side of the airframe, are lighter in weight, easier to install and
provide certain cost efficiencies over conventional two-sided fastening
devices.
Our fastener products are sold to distributors and manufacturers in the
agricultural, light and heavy duty truck, construction, fabricated metal
product and commercial and industrial maintenance markets. Additional markets
for our products include building products, heating and air conditioning, lawn
and garden, recreational, and furniture and fixtures.
We also manufacture flame-retardant facings and jacketings and insulation
tapes used in conjunction with fiberglass insulation as vapor barriers. These
products are principally used for commercial and industrial construction
applications, and are sold to all major manufacturers of fiberglass insulation.
Our product line also includes pressure-sensitive specialty tape products that
are marketed to insulation manufacturers as well as to numerous other
customers. Pressure-sensitive products for the insulation industry are utilized
for sealing pipe jacketing, ducts and fiberglass wrappings to increase the
efficiency and cost effectiveness of heating and cooling installations.
Combined with facing and jacketing products, pressure-sensitive specialty tapes
enable us to offer customers the only complete systems approach to insulation
installation. With important product positions in several specialty tape
markets, we are pursuing further opportunities to expand our
52
presence in the industry such as the introduction of an asphalt coater utilized
in residential insulation applications. Utilizing existing pressure-sensitive
adhesive technologies, we continue to develop new product programs to expand
our pressure-sensitive product positions into sub-segments of existing markets,
including the electronics and transportation industries.
We are also one of only three North American suppliers of a complete line
of large and intermediate size, high-pressure and low-pressure cylinders for
the transportation, storage and dispensing of compressed gases. Our large
high-pressure seamless compressed gas cylinders are used principally for
shipping, storing and dispensing oxygen, nitrogen, argon, helium and other
gases for industrial and health-care markets. In addition, we offer a complete
line of low-pressure welded cylinders used to contain and dispense acetylene
gas for the welding and cutting industries. We market cylinders primarily to
major industrial gas producers and distributors, welding equipment distributors
and equipment manufacturers. Cylinder products are sold through internal sales
personnel who operate in distinct geographic sales regions.
We also manufacture and distribute metallic and nonmetallic industrial
gaskets and complementary fasteners for refining, petrochemical and other
industrial applications principally in the United States and Canada. Gaskets
and complementary fasteners are supplied both for original installations and
replacement and maintenance. Gasket sales are made directly from the factory to
major customers, through thirteen company-owned distribution facilities in
major regional markets, or through a large network of independent distributors.
The Industrial Specialties group also produces a variety of specialty
precision tools such as center drills, cutters, end mills, reamers, master
gears, gages and punches, specialty engines and service parts and specialty
ordnance components. Principal markets served by these products include the
automotive, aerospace, appliance, electronics, energy and defense industries.
Marketing, Customers and Distribution
The customers of our Industrial Specialties group are within numerous
industries, primarily automotive, aerospace, construction, commercial and
defense. Given the niche nature of many of our products, our Industrial
Specialties group relies upon a combination of direct sales forces and
established networks of independent distributors with familiarity of the end
users. In each of the markets this group serves, its companies brand names are
synonymous with product applications. The narrow end user base of many of these
products makes it possible for this group to respond to customer-specific
engineered applications and provide a high degree of customer service. This
group serves both OEM and aftermarket customers in a wide variety of end
markets including -- energy, petrochemical, oil and gas, automotive,
electrical, agricultural, heavy duty truck, medical, aerospace, industrial and
defense.
Manufacturing
Our Industrial Specialties group employs various manufacturing processes
including annealing, CNC machining and stamping, fluting, forging, threading,
coating, cold heading and forming, heat treating and plating, laminating and
splitting, and deep-draw stamping that requires high tonnage presses. We are in
the process of restructuring this group to shed excess capacity and eliminate
sub-scale facilities that carry duplicative cost structures. We have merged
fastener and bolt manufacturing capacity and consolidated down stream
processing functions including heat-treating and plating at our Frankfort,
Indiana operations. We will also use the Frankfort facility as the "pick and
pack" shipping, distribution and warehouse location effectively eliminating
these functions elsewhere. All production will be funneled through the
Frankfort facility for final operations thereby significantly reducing the
amount of duplicative resources within the group. Executive management, sales
and support functions such as human resources, accounting, information
technology and purchasing will also be consolidated into one organization.
We are also in the process of restructuring our gasket products
manufacturing by moving a significantly higher share of manufacturing to our
newly built, technologically-advanced gasket manufacturing facility in Houston,
Texas and eliminating duplicative infrastructure activities that can now be
consolidated into this headquarters. Currently, we operate 13 disparate gasket
manufacturing
53
operations throughout the country. Under this consolidation, we will generate
significant savings from the rationalization of inefficient operations and the
shift to centralized manufacturing using current information technology systems
and third-party logistics vendors to provide parts just-in-time to customers.
Competition
This group's primary competitors include Fontana, Nucor and Infasco in
industrial fasteners; TAF (Textron) and Fairchild Fasteners (Alcoa) in
aerospace fasteners; Garlock (EnPro) and Flexitallic in gaskets; Texsteam,
Williams Pumps and Continental Engine Line in engines; Harsco and Worthington
in cylinders; 3M and Adco in pressure sensitive tapes; Johns Manville in
asphalt coating and laminating vapor barriers; and Lavalin and Chamberlain in
shell casings. This group's units supply highly engineered and non-commodity,
customer specific products and most have large shares of small markets supplied
by a limited number of competitors. In a significant number of areas,
value-added design, finishing, warehousing, packaging, distribution and
after-sales service have generated strong customer loyalty and supplement
low-cost, know-how based manufacturing skills in each business's overall
competitive advantage equation.
MATERIALS AND SUPPLY ARRANGEMENTS
We are sensitive to price movements in our raw materials supply base. Our
largest raw materials purchases are for steel, polyethylene and other resins
and energy. Metaldyne entered into several purchasing arrangements for its and
our steel and energy requirements that we previously benefited from as a
Metaldyne subsidiary. We and Metaldyne have agreed to cooperate to provide each
other with the benefits of these agreements in the future, but these benefits
may not continue to be available to us. Raw materials and other supplies used
in our operations are normally available from a variety of competing suppliers.
Steel is purchased primarily from steel mills with pricing guarantees in the
six-to twelve-month time frame. Polyethylene is generally a commodity resin
with multiple suppliers capable of providing product. For most polyethylene
purchases, we will negotiate the effective date of any upward pricing (usually
60 days). Our electricity requirements are managed on a regional basis
utilizing competition where deregulation is prevalent.
EMPLOYEES AND LABOR RELATIONS
As of September 29, 2002, we employed approximately 4,000 people, of which
approximately 13% were unionized. At such date, approximately 18% of our
employees were located outside the U.S. Employee relations have generally been
satisfactory. We cannot predict the impact of any further unionization of our
workplace.
SEASONALITY; BACKLOG
Sales of towing and trailer products within our Transportation Accessories
group are generally stronger in the first and second quarters, as trailer OEMs,
distributors and retailers acquire product for the spring selling season. No
other operating segment experiences significant seasonal fluctuation in its
business. We do not consider backlog orders to be a material factor in our
business.
ENVIRONMENTAL MATTERS
Our operations are subject to federal, state, local and foreign laws and
regulations pertaining to pollution and protection of the environment, health
and safety, governing among other things, emissions to air, discharge to waters
and the generation, handling, storage, treatment and disposal of waste and
other materials, and remediation of contaminated sites. Some of our
subsidiaries have been named as potentially responsible parties under the
Federal Superfund law or similar state laws at several sites requiring cleanup
based on disposal of wastes they generated. These laws generally impose
liability for costs to investigate and remediate contamination without regard
to fault and under certain circumstances liability may be joint and several
resulting in one responsible party being held responsible for the entire
obligation. Liability may also include damages to natural resources. We have
54
entered into consent decrees relating to two sites in California along with the
many other co-defendants in these matters. We have incurred substantial
expenses for all these sites over a number of years, a portion of which has
been covered by insurance. See "--Legal Proceedings" below. In addition to the
foregoing, our businesses have incurred and likely will continue to incur
expenses to investigate and clean up existing and former company-owned or
leased property, including those properties made the subject of sale-leaseback
transactions in the past 18 months for which we have provided environmental
indemnities to the lessor.
We believe that our business, operations and facilities are being operated
in compliance in all material respects with applicable environmental and health
and safety laws and regulations, many of which provide for substantial fines
and criminal sanctions for violations. Based on information presently known to
us and accrued environmental reserves, we do not expect environmental costs or
contingencies to have a material adverse effect on us. The operation of
manufacturing plants entails risks in these areas, however, and we may not
incur material costs or liabilities in the future that could adversely affect
us. Potentially material expenditures could be required in the future. For
example, we may be required to comply with evolving environmental and health
and safety laws, regulations or requirements that may be adopted or imposed in
the future or to address newly discovered information or conditions that
require a response.
INTANGIBLES AND OTHER ASSETS
Our identified intangible assets, consisting of customer relationships,
trademarks and trade names and technology, are valued at approximately $290
million at September 29, 2002, net of accumulated amortization. We engaged an
independent valuation expert to assist us in valuing our intangible assets in
connection with the acquisition of Metaldyne by Heartland. The valuation of
each of the identified intangibles was performed using broadly accepted
valuation methodologies and techniques.
Customer relationships - We have developed and maintained stable,
long-term buying relationships with customer groups for specific branded
products and/or niche market product offerings within each of our operating
group segments. Remaining useful lives of customer relationship intangibles
range from six to forty years and have been estimated using historic customer
retention and turnover data. Other factors contributing to estimated useful
lives include the diverse nature of niche markets and products of which the
Company has significant share, how customers in these markets make purchases
and these customers' position in the supply chain.
Trademarks and Trade Names - Each of our operating groups design and
manufacture products for niche markets under various trade names and trade
marks including Draw-tite, Reese, FultonWesbar, Lake Erie Screw, Visu-Lok
(Registered Trademark) , Poly-ViseGrip (Registered Trademark) , and FlexSpout
(Registered Trademark) among others. Our trademark / trade name intangibles
are well-established and considered long-lived asset that require maintenance
through adverting and promotion expenditures. Estimated useful lives of our
trademark / trade name intangibles are forty years.
Technology - We hold a number of U.S. and foreign patents, patent
applications, and unpatented or proprietary product and process oriented
technologies, particularly within our Rieke Packaging Systems group. We have,
and will continue to dedicate, technical resources toward the further
development of our products and processes in order to maintain our competitive
position in the transportation, industrial and commercial markets that we
serve. Estimated useful lives for our Technology intangible range from 5 to 30
years and are determined in part by any legal, regulatory, or contractual
provisions that would limit useful life. Other factors considered include the
expected use of the technology by the operating groups, the expected useful
life of the product and/or product programs to which the technology relates,
and the rate of technology adoption by the industry.
Annually, we assess whether the value of our identified intangibles has
been impaired. Factors considered in performing this assessment include current
operating results, business prospects, market trends, potential product
obsolescence, competitor activities and other economic factors. We continue to
invest in maintaining customer relationships, trademarks and trade names, and
the design, development and testing of proprietary technologies that we believe
will set our products apart from those of our competitors.
55
INTERNATIONAL OPERATIONS
Approximately 12.2% of our net sales for the fiscal year ended December
31, 2001 were derived from sales by our subsidiaries located outside of the
U.S., and we may significantly expand our international operations through
acquisitions. We operate manufacturing facilities in Australia, Canada,
England, Germany, Italy, Mexico and the United Kingdom. Within Australia, we
operate three facilities that manufacture and distribute hitches, towing
accessories and roof rack systems with approximately 230 employees. Our
Canadian operations, with approximately 115 employees, include the production
and distribution of towing products through the Transportation Accessories
group, distribution of closures and dispensing products through Rieke's
Canadian operations, and the manufacturing and distribution of gaskets produced
in three gasket facilities. Rieke Packaging Systems has approximately 400
employees. Within the United Kingdom, Englass produces specialty sprayers,
pumps and related products in one facility. TOV, a manufacturer of specialty
steel industrial container closures, operates in one location in Italy. In
Germany, Stolz has one facility that manufactures a wide variety of closures
for industrial packaging markets. In Mexico, we conduct contract manufacturing
of towing products including related electrical products and accessories.
Additionally, Rieke's Mexico City operations produces steel and plastic drum
closures and dispensing products in one factory.
PROPERTIES
Our principal manufacturing facilities range in size from approximately
10,000 square feet to approximately 420,000 square feet. Except as set forth in
the table below, all of our manufacturing facilities are owned. The leases for
our manufacturing facilities have initial terms that expire from 2003 through
2022 and are all renewable, at our option, for various terms, provided that we
are not in default thereunder. Substantially all of our owned U.S. real
properties are subject to liens under our credit facility. Our executive
offices are located in Bloomfield Hills, Michigan under a lease assumed by us
from Heartland under a term that expires in January 2007. See "Certain
Relationships and Related Party Transactions." Our buildings, machinery and
equipment have been generally well maintained, are in good operating condition
and are adequate for current production requirements. We may enter into leases
for equipment in lieu of making capital expenditures to acquire such equipment
or to reduce debt.
The following list sets forth the location of our principal owned and
leased manufacturing facilities and identifies the principal operating segment
utilizing such facilities. We have identified the operating segments for which
we conduct business at these facilities as follows: (1) Transportation
Accessories Group, (2) Industrial Specialties Group and (3) Rieke Packaging
Systems. Multiple footnotes to the same location denote separate facilities or
multiple activities in that location.
UNITED STATES
-------------
California ............ Vernon(2), Riverbank(2)** and Commerce(2)
Illinois .............. Wood Dale(2)*
Indiana ............... Auburn(3), Elkhart(1), Frankfort(2), Goshen(1)*,
Hamilton(3)* and Peru(1)*
Louisiana ............. Baton Rouge(3)
Massachusetts ......... Plymouth(2)*
Michigan .............. Bloomfield Hills (Corporate)*, Canton(1) and
Warren(2)*
New Jersey ............ Edison(2)* and Netcong(2)
Ohio .................. Lakewood(2)
Oklahoma .............. Tulsa(2)
Texas ................. Houston(2)* and Longview(2)
Wisconsin ............. Mosinee(1)*
56
FOREIGN
- -------
Canada ................. Fort Erie(2)*, Oakville(1), and Sarnia(2)(3)*
Mexico ................. Mexico City(3)
Australia .............. Victoria(1), Wakerley(1)* and Rhodes(1)*
Germany ................ Neunkirchen(3)
Italy .................. Valmadrera(3)
United Kingdom ......... Leicester(3)
- ----------
* Represents a leased facility. All of such leases are operating leases.
** Owned by U.S. Government, operated by TriMas under a facility maintenance
contract.
We have entered into a number of sale-leaseback transactions with respect
to nine real properties in the United States and Canada. Pursuant to the terms
of each sale-leaseback transaction, we transferred title of the real property
locations to a purchaser and, in turn, entered into separate leases with the
purchaser having a 20-year basic lease term plus two separate 10-year renewal
options. The renewal option must be exercised with respect to all, and not less
than all, of the property locations. Rental payments are due monthly. All of
the foregoing leases are accounted for as operating leases.
LEGAL PROCEEDINGS
A civil suit was filed in the United States District Court for the Central
District of California in April 1983 by the United States of America and the
State of California under the Federal Superfund law against over 30 defendants,
including a subsidiary of ours, for alleged release into the environment of
hazardous substances disposed of at the Stringfellow Disposal Site in
California. The plaintiffs have requested, among other things, that the
defendants clean up the contamination at that site. A consent decree has been
entered into by the plaintiffs and the defendants, including us, providing that
the consenting parties perform partial remediation at the site. The State has
agreed to take over clean-up of the site, as well as responsibility for
governmental entities' past response costs. We estimate that we will have no
share of the clean-up expense at this site. The plaintiffs had sought other
relief such as reimbursement of response costs and injunctive relief from the
defendants under CERCLA and other similar state law theories, but the consent
decree governs the remedy. Additionally, we and approximately 60 other entities
including the State are defendants in a toxic tort suit brought in the Superior
Court of the State of California in May 1998 by various persons residing in the
area of the site and seeking damages for alleged personal injuries claimed to
arise from exposure to contaminants from the site. The case is still in the
discovery stage but we believe there are good defenses to the claims against
us. Another civil suit was filed in the United States District Court for the
Central District of California in December 1988 by the United States of America
and the State against more than 180 defendants, including us, for alleged
release into the environment of hazardous substances disposed of at the
Operating Industries, Inc. site in California. This site served for many years
as a depository for municipal and industrial waste. The plaintiffs have
requested, among other things, that the defendants clean up the contamination
at that site. Consent decrees have been entered into by the plaintiffs and a
group of the defendants, including us, providing that the consenting parties
perform certain remedial work at the site and reimburse the plaintiffs for
certain past costs incurred by the plaintiffs at the site. We estimate that our
share of the clean-up will be $85,000. Plaintiff had sought other relief such
as damages arising out of claims for negligence, trespass, public and private
nuisance, and other causes of action, but the consent decree governs the
remedy. While based upon our present knowledge and subject to future legal and
factual developments, we do not believe that any of these litigations will have
a material adverse effect on our consolidated financial position, results of
operations or cash flow, future legal and factual developments may result in
materially adverse expenditures.
As of December 31, 2002, we were a party to approximately 455 pending
cases involving an aggregate of approximately 21,522 claimants alleging
personal injury from exposure to asbestos containing materials formerly used in
gaskets (both encapsulated and otherwise) manufactured or
57
distributed by certain of our subsidiaries for use in the petrochemical
refining and exploration industries. We manufactured three types of gaskets and
we ceased the use of asbestos in our U.S. products at various dates in the
1980's and 1990's. In addition, we acquired various companies to distribute our
products that had distributed gaskets of other manufacturers prior to
acquisition. We believe that many of our pending cases relate to locations at
which none of our gaskets were distributed or used. Total settlement costs
(exclusive of defense costs) for all such cases, some of which were filed over
12 years ago, have been approximately $1.9 million. We do not have significant
primary insurance to cover our settlement and defense costs. We believe that
there may be excess insurance policies of former owners available to us that we
are in the process of reconstructing, but they may not be available. Based upon
our experience to date and other available information, we do not believe that
these cases will have a material adverse effect on our financial condition or
future results of operation. However, we may be subjected to significant
additional claims in the future, the cost of settling cases in which product
identification can be made may increase, and we may be subjected to further
claims in respect of the former activities of our acquired gasket distributors.
We are subject to other claims and litigation in the ordinary course of
our business, but do not believe that any such claim or litigation will have a
material adverse effect on our financial position or results of operations.
58
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding our directors
and executive officers.
NAME AGE POSITION
- ---- --- --------
Samuel Valenti III ............ 56 Chairman of the Board of Directors
Gary M. Banks ................. 52 Director
Charles E. Becker ............. 54 Director
Timothy D. Leuliette .......... 53 Director
W. Gerald McConnell ........... 38 Director
David A. Stockman ............. 55 Director
Daniel P. Tredwell ............ 44 Director
Grant H. Beard ................ 41 President, Chief Executive Officer and Director
Todd R. Peters ................ 40 Executive Vice President and Chief Financial Officer
Lynn Brooks ................... 49 President, Rieke Packaging Systems
Scott Hazlett ................. 46 President, Transportation Accessories
Metaldyne has the right to appoint an additional director who has not yet
been identified.
SAMUEL VALENTI III. Mr. Valenti was elected as Chairman of our board of
directors in connection with the transactions and is a Senior Managing Director
of Heartland Industrial Partners, L.P. He has been a director of Masco Capital
Corporation since 1988. Mr. Valenti was formerly Vice President--Investments of
Masco Corporation from May 1977 to October 1998. Mr. Valenti is a director of
Collins & Aikman Corporation and Metaldyne Corporation.
GARY M. BANKS. Mr. Banks was elected as one of our directors in connection
with the transactions and is a Senior Managing Director of Heartland. He has
served as a Director of Documentum, Inc. since March 1999 and served as Vice
President and Chief Information Officer of Sithe Energies, an electricity
generation trading company in New York, from October 1999 to May 2000. From
August 1998 to July 1999, he was Vice President and Chief Information Officer
for Xerox Corporation, a manufacturing company. From June 1992 to July 1998,
Mr. Banks served as Director MIS for the agricultural division of Monsanto
Inc., a life sciences company. Before joining Monsanto, he spent 15 years with
Bristol-Myers Squibb Company, a pharmaceutical company. Mr. Banks is also a
director of Metaldyne.
CHARLES E. BECKER. Mr. Becker was elected as a director in connection with
the transactions. For over 25 years, through 1998, Mr. Becker was the CEO and
co-owner of Becker Group, Inc., a global automotive interiors components
supplier. Becker Group, Inc. was sold to Johnson Controls, Inc. in 1998. In
January 1999, Mr. Becker re-acquired 10 North American plastic molding and
tooling operations from Johnson Controls which subsequently became Becker
Group, LLC. Mr. Becker is also the owner and chairman of Becker Ventures, LLC,
which was established in 1998 to invest in a variety of business ventures,
including the manufacturing, real estate and service industries. Mr. Becker is
a director of Metaldyne and Collins & Aikman Corporation.
TIMOTHY D. LEULIETTE. Mr. Leuliette was elected as one of our directors in
connection with the transactions and currently serves as Metaldyne's Chairman,
President and Chief Executive Officer. He is the former Vice Chairman of
Detroit Diesel Corp. and has spent 27 years in management of manufacturing and
services businesses and in the investment of private capital. Mr. Leuliette
joined the Penske Corporation as President & Chief Operating Officer in 1996 to
address operational and strategic issues. From 1991 to 1996, Mr. Leuliette
served as President & Chief Executive Officer of ITT Automotive. He also serves
on a number of corporate and charitable boards, including serving as a Chairman
of The Federal Reserve of Chicago, Detroit Branch. Mr. Leuliette is a Senior
Managing Director and one of the co-founders of Heartland Industrial Partners,
L.P. Mr. Leuliette is also a director of Collins & Aikman Corporation.
W. GERALD MCCONNELL. Mr. McConnell was elected as a director in connection
with the transactions. Mr. McConnell is a Senior Managing Director of Heartland
Industrial Partners. Mr.
59
McConnell was formerly a managing director at Deutsche Banc Alex. Brown
(formerly Bankers Trust Co.), a banking firm, from 1997 until 1999. From 1991
until 1999, Mr. McConnell specialized in leveraged finance and financial
sponsor coverage at Deutsche Banc Alex. Brown. Mr. McConnell is also a director
of Collins & Aikman Corporation and Springs Industries, Inc.
DAVID A. STOCKMAN. Mr. Stockman was elected as one of our directors in
connection with the transactions. He is a Senior Managing Director and the
founder of Heartland Industrial Partners, L.P., a buyout firm, established in
1999, focused on industrial buyouts and buildups. Prior to founding Heartland,
he was a senior managing director of The Blackstone Group L.P. and had been
with Blackstone since 1988. Mr. Stockman is a director of Collins & Aikman
Corporation, Metaldyne Corporation and Springs Industries, Inc.
DANIEL P. TREDWELL. Mr. Tredwell was elected as one of our directors in
connection with the transactions. Mr. Tredwell is a Senior Managing Director
and one of the co-founders of Heartland Industrial Partners, L.P. He has more
than a decade of leveraged financing experience. Mr. Tredwell served as a
Managing Director at Chase Securities Inc. and had been with Chase Securities
since 1985. Mr. Tredwell is a director of Collins & Aikman Corporation,
Metaldyne Corporation and Springs Industries, Inc.
GRANT H. BEARD. Mr. Beard was appointed as our President and Chief
Executive Officer in March 2001 and was appointed as a director in connection
with the transactions. From August 2000 to March 2001, Mr. Beard was president,
Chief Executive Officer and Chairman of HealthMedia, Inc. From January 1996 to
August 2000, he was President of the Preferred Technical Group of Dana
Corporation, a manufacturer of tubular fluid routing products sold to vehicle
manufacturers. He has also served as Vice President of Sales, Marketing and
Corporate Development for Echlin, Inc., before the acquisition of Echlin by
Dana in late 1998. Mr. Beard has experience at two private equity/merchant
banking groups, Anderson Group and Oxford Investment Group, where he was
actively involved in corporate development, strategy and operations management.
TODD R. PETERS. Mr. Peters was appointed as our Executive Vice President
and Chief Financial Officer in connection with the transactions. From March
2001 to June 2002, Mr. Peters was our Vice President of Finance. From July,
1998 to March 2001, Mr. Peters held various senior financial and operational
roles at Dana Corporation. He also served as the Vice President of Finance for
Echlin Inc.'s Fluid Systems group from December 1994 to July 1998. Mr. Peters
is a Certified Public Accountant and has held various roles at
PricewaterhouseCoopers serving multi-national, industrial manufacturing
clients, both public and private.
LYNN BROOKS. Mr. Brooks has been President of the Rieke Packaging Systems
Group since July, 1996. He joined Rieke in May, 1978. Prior to his current
position, his responsibilities at Rieke included Assistant Controller,
Corporate Controller, and Vice President-General Manager of Rieke. Before
joining Metaldyne, he served with Ernst & Young in the Toledo, Ohio and Fort
Wayne, Indiana offices.
SCOTT HAZLETT. Mr. Hazlett joined us in August, 2001, prior to which he
was president of an internet based strategic sourcing start-up company that was
wound-up pursuant to an assignment of assets for the benefit of its creditors.
Mr. Hazlett previously held senior management positions from 1995 to 2000 with
Case Corporation and CNH Global (Case-New Holland), a global manufacturer of
agricultural and construction equipment, including Senior Vice-President,
Global Aftersales for CNH, where he was accountable for the post-merger
world-wide agricultural customer support and parts businesses;
Vice-President-General Manager, of Case's North American aftermarket parts
business, and General Manager, North American retail operations. Prior to
joining Case Corporation in 1995, Mr. Hazlett held plant management and
multi-plant business unit general management assignments in the paper industry
with James River Corporation. He held command and staff positions in the U.S.
military from 1981-1990, serving in Europe, and on the staff and faculty at the
United States Military Academy at West Point.
Committees of the Board of Directors. We presently have executive, audit
and compensation committees. We expect our audit committee to include at least
two independent directors.
60
EXECUTIVE COMMITTEE
We have elected to be governed by the provisions of Section 141(c)(2) of
the General Corporation Law of the State of Delaware, or DGCL, and have
established our executive committee under these provisions. Our executive
committee has all the powers and authority of our board of directors in the
management of our business and affairs, except in respect of:
o approving or adopting, or recommending to stockholders, any action or
matter expressly required by the DGCL to be submitted to stockholders
for approval, and
o adopting, amending or repealing any of our by-laws.
We call the types of actions described in the previous two bullets "full
board matters." Our executive committee has the power and authority to submit
recommendations to the board of directors with respect to all matters requiring
action by the full board of directors prior to the board of directors taking
any action.
The executive committee is comprised of Messrs. Stockman, Tredwell, Beard
and Valenti.
Audit Committee. The audit committee reviews our various accounting,
financial reporting and internal control functions, makes recommendations to
the Board of Directors for the selection of independent public accountants and
reviews our compliance with applicable laws and regulations. In addition, the
committee monitors the independence of our independent accountants. Messrs.
Tredwell, McConnell and Leuliette are the members of the audit committee. Mr.
Tredwell is the audit committee chairman.
Compensation Committee. The compensation committee is responsible for
developing and maintaining our compensation strategies and policies. The
compensation committee is responsible for monitoring and administering our
compensation and employee benefit plans and reviewing among other things base
salary levels, incentive awards and bonus awards for officers and key
executives. Messrs. Stockman (chairman), Leuliette and Valenti are members of
the Compensation Committee. The Compensation Committee has a Retirement-Plan
Administrative Sub-Committee composed of Messrs. Beard, Peters, Dwayne Newcom,
our Vice President--Human Resources and Ms. Janice McAdams. This sub-committee
is principally responsible for developing, maintaining and administering our
retirement plans.
Director Compensation. Outside directors who are not affiliated with
Heartland receive cash compensation of $50,000 per year (other than the
Chairman of the Board, if any, who may receive more) for their service as
members of the Board of Directors and they are reimbursed for reasonable
out-of-pocket expenses incurred in connection with their attendance at meetings
of the board of directors and committee meetings. In addition, outside
directors not affiliated with Heartland are eligible to receive awards under
our planned 2002 Long Term Equity Incentive Plan.
Compensation Committee Interlocks and Insider Participation. No member of
the compensation committee is an employee of ours.
61
DIRECTOR AND EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION
The following table summarizes the annual and long-term compensation paid
to those persons who, on such basis, would have been our five most highly paid
executive officers for 2002. All of the individuals in the table are referred
to collectively as the "named executive officers."
ANNUAL COMPENSATION
-----------------------------------------------------------------------
SECURITIES
UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) OPTIONS(2) PAYOUTS COMPENSATION(3)
- --------------------------- ------ ----------- ---------- ------------ ----------- ----------------
Grant H. Beard, President .............. 2002 $663,600 N/A 153,075 -- --
Todd R. Peters, Executive Vice President
and Chief Financial Officer ........... 2002 $320,600 N/A 45,922 -- --
Lynn Brooks, President, Rieke Packaging
Systems(4) ............................ 2002 $291,200 N/A 45,922 $215,300 --
Scott Hazlett, President, Transportation
Accessories ........................... 2002 $270,400 N/A 45,922 -- --
David Woodley, President, Industrial
Specialties(5) ........................ 2002 $131,500 $147,500 -- -- --
- ----------
(1) Bonuses are paid in the year subsequent to which they are earned. Bonus
amounts for 2002 have not yet been determined. Bonuses are scheduled to
be determined during the second fiscal quarter and are based on our
previous year's financial performance.
(2) Represents options to purchase Metaldyne common stock granted under the
Metaldyne 2001 Long-Term Equity Incentive Plan during 2002. See the
discussion of these options below under the heading "Management--Option
Grants in Last Fiscal Year." Options grants under the 2002 Long Term
Equity Incentive Plan for the year 2002 will be made in the year
subsequent to which they are earned.
(3) Officers may receive certain perquisites and personal benefits, the
dollar amounts of which are below current Commission thresholds for
reporting requirements for Messrs. Beard, Peters, Brooks and Woodley.
When bonuses are determined, we expect that Mr. Hazlett's bonus will be
at least an amount such that his perquisites and personal benefits are
also below current Commission thresholds for reporting requirements.
(4) Mr. Brooks has an additional 31,867 restricted share awards that vest
evenly in January 2003 and 2004. The aggregate value of the unvested
restricted shares is approximately $538,500 (using the $16.90 per share
cash price paid in the Heartland acquistion of Metaldyne).
(5) Mr. Woodley stepped down as our President, Industrial Specialties, in
June 2002. He received a payment of $147,500 in connection with his
departure. He will receive additional aggregate severance of $102,500
over the first two quarters of 2003.
OPTION GRANTS IN LAST FISCAL YEAR
Certain of our executive officers received options to purchase Metaldyne
common stock in 2002 as a portion of their compensation as Metaldyne employees.
Each vested option will be converted into options to purchase TriMas common
stock and the unvested options were canceled. In addition, appropriate
adjustments will be made to the Metaldyne options when they are converted into
TriMas options. See " Certain Relationships and Related Party
Transactions--Stock Purchase Agreement--Employee Matters." The table below
shows the option grants in 2002.
62
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS GRANT
UNDERLYING GRANTED TO EXERCISE DATE
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION PERCENT
NAME GRANTED(1) FISCAL YEAR SHARE DATE VALUE*
- ------ ------------ ------------------ ----------- ------------ --------
Grant H. Beard ............ 153,075 5.3% $ 16.90 3/8/2011 N.M.
Todd R. Peters ............ 45,922 1.6% $ 16.90 4/1/2011 N.M.
Lynn Brooks ............... 49,922 1.6% $ 16.90 3/8/2011 N.M.
Scott Hazlett ............. 45,922 1.6% $ 16.90 9/1/2011 N.M.
David Woodley (2) ......... 45,922 1.6% $ 16.90 10/1/2011 N.M.
- ----------
* The present value of the options as of their grant date is not presented
as it is not meaningful in the context of Metaldyne's common stock being
privately held.
(1) Each option to purchase shares of Metaldyne common stock will be canceled
and replaced with options to purchase our common stock under the 2002
TriMas Corporation Long-Term Equity Incentive Plan.
(2) Mr. Woodley stepped down as our President, Industrial Specialities, in
June 2002.
OPTION EXERCISES AND YEAR-END OPTION VALUE
No options were exercised in 2002 by any of the named executive officers.
PENSION PLANS
The executive officers participate in pension plans maintained by us for
certain of our salaried employees. The following table shows estimated annual
retirement benefits payable for life at age 65 for various levels of
compensation and service under these plans.
YEARS OF SERVICE
--------------------------------------------------------------------------
REMUNERATION(1) 5 10 15 20 25 30
- ------------------ --------- ---------- ---------- ---------- ---------- ----------
$100,000 ......... $ 5,645 $11,290 $ 16,935 $ 22,580 $ 28,225 $ 33,870
200,000 ......... 11,290 22,580 33,870 45,161 56,451 67,741
300,000 ......... 16,935 33,870 50,806 67,741 84,676 101,611
400,000 ......... 22,580 45,161 67,741 90,321 112,902 135,482
500,000 ......... 28,225 56,451 84,676 112,902 141,127 169,352
600,000 ......... 33,870 67,741 101,611 135,482 169,352 203,223
700,000 ......... 39,516 79,031 118,547 158,062 197,578 237,093
800,000 ......... 45,160 90,321 135,482 180,643 225,803 270,964
- ----------
(1) For purposes of determining benefits payable, remuneration in general is
equal to the average of the highest five consecutive January 1 annual
base salary rates paid by us prior to retirement.
(2) Vesting occurs after five full years of employment. The benefit amounts
set forth in the table above have been converted from the plans'
calculated five-year certain and life benefit and are not subject to
reduction for social security benefits or for other offsets, except to
the extent that pension or equivalent benefits are payable under a Masco
Corporation plan. The table does not depict Code limitations on
tax-qualified plans because one of our plans is a non-qualified plan
established to restore for certain salaried employees (including certain
of the named executive officers) benefits that are not otherwise limited
by the Code. Approximate years of credited service for the named
executive officers are: Mr. Beard-1; Mr. Brooks-23; Mr. Gardner-14 and
Mr. Peters-1. In connection with the transactions, the liability under
this plan was retained by Metaldyne. We established defined contribution
plans effective January 1, 2003.
63
Under the Metaldyne Supplemental Executive Retirement Plan, certain of our
officers and other key executives may receive retirement benefits in
addition to those provided under our other retirement plans. Each
participant is to receive annually upon retirement on or after age 65, an
amount which, when combined with benefits from our other retirement plans
(and, for most participants, any retirement benefits payable by reason of
employment by prior employers) equals up to 60 percent of the average of
the participant's highest three years' cash compensation received from us
(base salary and regular year-end cash bonus or equivalent estimates where
cash compensation has been reduced by agreement with us). A disability
benefit is payable to a participant who has been employed at least two
years and becomes disabled. Participants who terminate with more than five
years' service before age 65 become entitled to receive a benefit adjusted
by an age-and-service vesting schedule that provides for no more than 50
percent vesting upon attainment of age 50 and 100 percent vesting no
earlier than age 60, with provision for an additional 20 points of vesting
(not to exceed 100 percent in total) should termination by us without
cause occur prior to age 65. Such vested benefit is not payable until age
65 and is subject to offset for amounts earned from prior or future
employers. A surviving spouse will receive reduced benefits upon the
participant's death. A participant and his (or her) surviving spouse may
also receive supplemental medical benefits. The plan is unfunded, except
that accelerated payment on a present value basis is mandatory following a
change of control.
In connection with the transactions, as of June 6, 2002 the Metaldyne
pension plans were curtailed with respect to our employees. Service and salary
continued to accrue for our employees for benefit purposes until December 31,
2002. In its place, we will be implementing a defined contribution profit
sharing plan, including a Supplemental Executive Retirement Plan for key
officers.
2002 LONG TERM EQUITY INCENTIVE PLAN
We have an equity incentive plan, referred to as the 2002 Long Term Equity
Incentive Plan, for our employees, directors and consultants. It is intended to
provide incentives to attract, retain and motivate employees, consultants and
directors in order to achieve our long-term growth and profitability
objectives. The plan provides for the grant to eligible employees, consultants
and directors of stock options, stock appreciation rights, restricted shares,
restricted share units payable in shares of common stock or cash, performance
shares, performance units, dividend equivalents and other stock-based awards.
The plan is administered by the compensation committee of the board of
directors, which will have the authority to select persons to whom awards will
be granted, the types of awards to be granted and the terms and conditions of
the individual awards. Stock options granted under the plan vest over a period
of years and are not exercisable prior to certain liquidity events specified in
applicable awards agreements. Our employees who have Metaldyne vested options
will receive TriMas options, subject to adjustments, in substitution for those
options.
EMPLOYMENT AGREEMENTS
We expect to enter into employment agreements with certain of our senior
management, including Mr. Beard. We expect Mr. Beard's employment contract to
be comparable to his Metaldyne contract. We also expect to enter into
employment and change of control agreements with Messrs. Peters, Brooks, and
Hazlett. Each contract will state that the employee shall devote his full
business time and efforts to the performance of his duties and
responsibilities. Each agreement will provide for a specified annual fixed
salary and bonus expressed as a percentage of annual salary based on our
financial performance.
Mr. Beard's agreement is expected to terminate on December 31, 2003 and be
automatically renewable for successive one-year terms.
Each employment agreement is expected to provide the executive with
certain benefits, including participation in the planned 2002 Long Term Equity
Incentive Plan. Each agreement is expected to provide that we may, without
cause, and the employee may, for good reason, terminate the agreement such that
the employee would receive two years continued base salary, a bonus equal to
two times his target bonus opportunity for a 12 month period, pro rated bonus
for the year termination occurs and
64
continued benefits for up to 24 months. Each agreement is expected to further
provide that we may, for cause, and the executive may voluntarily, without good
reason, terminate the agreement without any severance payments. Cause is
expected to be defined in each agreement as the employee being convicted or
entering a plea of guilty or nolo contendere to a felony or the employee's
willful or sustained insubordinate or negligent conduct in the performance of
his duties. Further, each agreement is expected to provide that within ten days
of a qualified termination following a change of control, each executive, other
than Mr. Beard, would receive two and one-half times his base salary and a
bonus equal to two and one-half times the target bonus opportunity for such
fiscal year in addition to a two and one-half year continuation of benefits.
Mr. Beard would receive three times his base salary and a bonus equal to three
times the target bonus opportunity for such fiscal year in addition to a three
year continuation of benefits. Lastly, each employment agreement is expected to
stipulate that the executive shall refrain from competing with us for a period
of two years from the
date of termination.
65
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of February 3, 2003 by:
o each person known by us to beneficially own more than 5% of our common
stock;
o each of our directors;
o each of our current executive officers; and
o all of our directors and executive officers as a group.
The percentages of common stock beneficially owned are reported on the
basis of regulations of the Commission governing the determination of
beneficial ownership of securities. Under the rules of the Commission, a person
is deemed to be a beneficial owner of a security if that person has or shares
voting power, which includes the power to vote or to direct the voting of the
security, or investment power, which includes the power to dispose of or to
direct the disposition of the security. Except as indicated in the footnotes to
this table, we believe, each beneficial owner named in the table below will
have sole voting and sole investment power with respect to all shares
beneficially owned by them. There will be significant agreements relating to
voting and transfers of common stock in the Shareholders Agreement described
under "Certain Relationships and Related Party Transactions."
SHARES
BENEFICIALLY PERCENT
NAME AND BENEFICIAL OWNER OWNED OF CLASS(1)
- -------------------------- -------------- ------------
Heartland Industrial Associates, L.L.C.(2)(3) ................. 11,000,000 55%
55 Railroad Avenue
Greenwich, Connecticut 06830
Metaldyne Corporation(4) ...................................... 6,750,000 34%
47603 Halyard Drive
Plymouth, Michigan 48170
Masco Capital Corporation ..................................... 1,250,000 6%
21001 Van Born Road
Taylor, Michigan 48180
Gary Banks(3) ................................................. 11,000,000 55%
Charles E. Becker ............................................. 0 0
Grant H. Beard(5) ............................................. 0 0
Lynn Brooks(5) ................................................ 0 0
Scott Hazlett(5) .............................................. 0 0
Tim Leuliette(3) .............................................. 11,000,000 55%
W. Gerald McConnell(3) ........................................ 11,000,000 55%
Todd R. Peters(5) ............................................. 0 0
David A. Stockman(3) .......................................... 11,000,000 55%
Daniel P. Tredwell(3) ......................................... 11,000,000 55%
Samuel Valenti III(3) ......................................... 11,000,000 55%
All executive officers and directors as a group(3)(5) ......... 11,000,000 55%
- ----------
(1) Does not give effect to a proposed $20.0 million repurchase of our common
stock from Metaldyne with a portion of the proceeds from this offering.
If effected at the purchase price per share of their June 6, 2002
investment, the relative percentage interests of Heartland Industrial
Associates, L.L.C., Metaldyne and Masco Capital Corporation would be 58%,
30% and 7%, respectively.
(2) The shares of common stock will be beneficially owned indirectly by
Heartland Industrial Associates, L.L.C. as the general partner of each of
the limited partnerships which hold shares of common stock directly.
These partnerships hold common stock as follows: 10,074,005 shares are
held by TriMas Investment Fund I, L.L.C.; 675,000 shares are held by HIP
Side-by-Side Partners,
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L.P.; and 250,995 shares are held by TriMas Investment Fund II, L.L.C. In
addition, by reason of the Shareholders Agreement summarized under
"Related Party Transactions," Heartland Industrial Associates, L.L.C. may
be deemed to share beneficial ownership of shares of common stock held by
other stockholders party to the Shareholders Agreement. Such beneficial
ownership is hereby disclaimed.
(3) All shares are beneficially owned as disclosed in footnote (2). Mr.
Stockman is the Managing Member of Heartland Industrial Associates,
L.L.C., but disclaims beneficial ownership of such shares. Messrs. Banks,
Leuliette, McConnell, Tredwell and Valenti are also members of Heartland
Industrial Associates, L.L.C. and also disclaim beneficial ownership of
the shares. The business address for each such person is 55 Railroad
Avenue, Greenwich, CT 06830.
(4) Includes a presently exercisable warrant to purchase common stock.
(5) Does not include expected option grants under our anticipated equity
incentive plans. Such options are subject to vesting provisions and would
not be immediately exercisable. Vested options will be exercisable
following an initial public offering of our common shares and under
certain circumstances, such as a change of control, vesting of options and
exercisability may accelerate.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
STOCK PURCHASE AGREEMENT
On June 6, 2002, Metaldyne and Heartland consummated a stock purchase
agreement under which Heartland and other investors invested approximately $265
million in us to acquire approximately 66% of our fully diluted common stock.
As a result of the investment and other transactions described below, Metaldyne
received $840 million in the form of cash, retirement of debt we owed to
Metaldyne or owed by us under the Metaldyne credit agreement and the repurchase
of the balance of receivables we originated and sold under the Metaldyne
receivables facility. Metaldyne retained shares of our common stock valued at
$120 million. In addition, Metaldyne received a warrant to purchase additional
shares of our common stock valued at $15 million. The common stock and warrants
are valued based upon the cash equity investment being made by Heartland and
the other investors. Heartland and Metaldyne presently own approximately 55%
and 34% of our fully diluted common stock, respectively. In addition, we intend
to seek to repurchase up to $20.0 million of our common stock from Metaldyne at
the same price as valued on June 6, 2002 or at such other price as we may
agree. See "Use of Proceeds."
EMPLOYEE MATTERS
Pursuant to the stock purchase agreement, each outstanding option to
purchase Metaldyne common stock which has not vested, and which are held by
TriMas employees was canceled on the closing date. Each option held by certain
present and former employees which vested on or prior to the closing date will
be replaced by options to purchase our common stock, with appropriate
adjustments.
Pursuant to the stock purchase agreement, we agreed to promptly reimburse
Metaldyne upon its written demand for (i) cash actually paid in redemption of
certain restricted shares of Metaldyne held by certain employees under
restricted stock awards, and (ii) 42.01% of the amount of cash actually paid to
certain other employees by Metaldyne in redemption of restricted stock awards
held by such employees. We also have certain other obligations to reimburse
Metaldyne for the allocated portion of its current and former employee related
benefit plan responsibilities.
INDEMNIFICATION
Subject to certain limited exceptions, Metaldyne, on the one hand, and we,
on the other hand, retained the liabilities associated with our respective
businesses. Accordingly, we will indemnify and hold harmless Metaldyne from all
liabilities associated with us and our subsidiaries and their respective
operations and assets, whenever conducted, and Metaldyne will indemnify and
hold Heartland and us harmless from all liabilities associated with Metaldyne
and its subsidiaries (excluding us and our subsidiaries) and their respective
operations and assets, whenever conducted. In addition, we agreed with
Metaldyne to indemnify one another for our allocated share (57.99% in the case
of Metaldyne and 42.01% in our case) of liabilities not readily associated with
either business, or otherwise addressed including certain costs related to the
November 2000 acquisition. There are also indemnification provisions relating
to certain other matters intended to effectuate other provisions of the
agreement. These indemnification provisions survive indefinitely and are
subject to a $50,000 deductible.
SHAREHOLDERS AGREEMENT
Heartland, Metaldyne and other investors are parties to a shareholders
agreement regarding their ownership of our common stock. References to
Heartland refer to all of its affiliated entities collectively, unless
otherwise noted. The following description of certain terms relating to the
voting or disposition of shares is subject to change as the terms are subject
to negotiation and additional parties may be added should other persons
participate in the equity financing for the transactions. The agreement
contains other covenants for the benefit of the shareholders parties thereto.
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Election of Directors. The shareholders agreement provides that the
parties will vote their shares of common stock in order to cause (1) the
election to the board of directors of such number of directors as shall
constitute a majority of the board of directors as designated by Heartland; and
(2) the election to the board of directors of up to two directors designated by
Metaldyne.
Transfers of Common Stock. Prior to the date we have consummated a
qualifying public equity offering, the shareholders agreement restricts
transfers of common stock except for certain transfers, including (1) to a
permitted transferee of a stockholder, (2) pursuant to the "right of first
offer" provision discussed below, (3) pursuant to the "tag-along" provision
discussed below, (4) pursuant to the "drag-along" provision discussed below and
(5) pursuant to an effective registration statement or pursuant to Rule 144
under the Securities Act.
Right of First Offer. The shareholders agreement provides that, prior to a
qualifying public equity offering, no stockholder party to the agreement may
transfer any of its shares other than to a permitted transferee of such
stockholder or pursuant to the "tag-along" and "drag-along" provisions unless
such stockholder shall offer such shares to us. If we decline to purchase the
shares, then Heartland shall have the right to purchase such shares. Any shares
not purchased by us or Heartland can be sold by such stockholder party to the
agreement at a price not less than 90% of the price offered to us or Heartland.
Tag-Along Rights. The shareholders agreement grants the stockholders party
to the agreement, subject to certain exceptions, in connection with a proposed
transfer of common stock by Heartland or its affiliates, the right to require
the proposed transferee to purchase a proportionate percentage of the shares
owned by the other stockholders at the same price and upon the same economic
terms as are being offered to Heartland. These rights terminate upon a
qualifying public equity offering.
Drag-Along Rights. The shareholders agreement will provide that when
Heartland and its affiliates enter into a transaction resulting in a
substantial change of control of us, Heartland has the right to require the
other stockholders to sell a proportionate percentage of shares of common stock
in such transaction as Heartland is selling and to otherwise vote in favor of
the transactions effecting such substantial change of control. These rights
terminate upon a qualifying public equity offering.
Registration Rights. The shareholders agreement will provide the
stockholders party to the agreement with unlimited "piggy-back" rights each
time we file a registration statement except for registrations relating to (1)
shares underlying management options and (2) an initial public offering
consisting of primary shares. In addition, following a qualifying public equity
offering, Heartland and Metaldyne have the ability to demand the registration
of their shares, subject to various hold back, priority and other agreements.
The shareholders agreement grants three demand registrations to Metaldyne and
an unlimited number of demands to Heartland.
ADVISORY AGREEMENT
We and Heartland are parties to an Advisory Agreement pursuant to which
Heartland is engaged to provide consulting services to us with respect to
financial and operational matters. Heartland is entitled to receive a fee for
such services equal to $4 million per annum, payable quarterly, which is what
we believe we would pay an unaffiliated third party for such services. In
addition to providing ongoing consulting services, Heartland has also agreed to
assist in acquisitions, divestitures and financings, for which Heartland will
receive a fee equal to one percent of the value of such transaction. Heartland
received a fee of $9.75 million in connection with the transactions which was
calculated based on a percentage of the transaction value. The Advisory
Agreement also provides that Heartland will be reimbursed for its reasonable
out-of-pocket expenses. The Advisory Agreement terminates when Heartland owns
less than 10% of the common equity interest it acquired in us from the
transactions or such earlier date as Heartland and we shall agree.
CORPORATE SERVICES AGREEMENT
We and Metaldyne are party to a services agreement pursuant to which
Metaldyne will provide us use of its management information systems, legal,
tax, accounting, human resources and other support
69
services in return for payment of an annual fee of $2.5 million for the
services, payable in equal quarterly installments of $625,000 for the term of
the agreement, less any amounts equal to the cost of any of the services that
are assumed directly by us. The annual fee amount represents what we believe we
would pay an unaffiliated third party for such services. This term of the
agreement is one year and it is subject to annual renewal at the parties mutual
election.
ASSIGNMENT OF LEASE AGREEMENT
We and Heartland entered into an assignment of lease agreement for our
headquarters in Bloomfield Hills, Michigan for the remainder of the term. The
lease will expire on January 31, 2007 at which time we have the option to
extend the lease for one five year period. Pursuant to the terms of the
assignment, we will be responsible for payment of all rent for the premises
equaling approximately $23,400 per month for the first year, increasing to
approximately $25,100 per month for the remainder of the term. In addition, we
will be required to pay all applicable taxes, utilities and other maintenance
expenses and will be required to obtain general liability and fire insurance
for the premises.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Exchange Offer Registration Statement. We issued the original notes on
June 6, 2002. The initial purchasers have advised us that they subsequently
resold the original notes to "qualified institutional buyers" in reliance on
Rule 144A under the Securities Act and to certain persons in offshore
transactions in reliance on Regulation S under the Securities Act. As a
condition to the offering of the original notes, we entered into registration
rights agreements dated June 6, 2002 pursuant to which we agreed, for the
benefit of all holders of the original notes, at our own expense to use our
reasonable best efforts:
(1) to file the registration statement of which this prospectus is a
part with the Commission;
(2) to cause the registration statement to be declared effective under
the Securities Act and promptly thereafter commence the exchange
offer;
(3) to keep the registration statement effective until the closing of
the exchange offer; and
(4) to issue, on or prior to 60 days after the date on which the
exchange offer registration statement was declared effective by the
Commission, exchange notes in exchange for all original notes
tendered prior thereto.
Further, we agreed to keep the exchange offer open for acceptance for not
less than the minimum period required under applicable Federal and state
securities laws. For each original note validly tendered pursuant to the
exchange offer and not withdrawn, the holder of the original note will receive
an exchange note having a principal amount equal to that of the tendered
original note. Interest on each exchange note will accrue from the last date on
which interest was paid on the tendered original note in exchange therefor or,
if no interest was paid on such original note, from the issue date.
Additional Interest. If the exchange offer is not completed on or prior to
210 days after the issuance of the original notes, then we are obligated to pay
additional interest to each holder of original notes in an amount equal to
$0.0278 per day or $10.00 per year per $1,000 principal amount of original
notes.
Because the exchange offer was not completed on or prior to January 2,
2003, we are obligated to pay additional interest to each holder of original
notes in an amount equal to $0.0278 per day or $10.00 per year per $1,000
principal amount of original notes held by such holder, which represents an
aggregate amount of additional interest on the original notes of $9,799.25 per
day or $3,527,730 per year (calculated on the basis of a 360 day year). The
additional interest began to accrue on January 2, 2003 and will continue to
accrue with respect to the original notes until the exchange offer is
completed. Additional interest which has accrued on the original notes is due
and payable by us to the record holders of original notes (or, following the
closing of the exchange offer, to the record holder of exchange notes) entitled
to receive an interest payment made on each regularly scheduled interest
payment date. As of February 3, 2003, $323,375.25 in additional interest was
accrued but unpaid on the original notes. Following the closing of the exchange
offer, additional interest that is accrued but unpaid on the original notes
exchanged in this offer will be due and payable by us to the record holder of
exchange notes exchanged for original notes entitled to receive an interest
payment made on the first regularly scheduled interest payment date following
the completion of the exchange offer. Holders of original notes who do not
exchange their original notes in this offer will be entitled to receive
additional interest that is accrued and unpaid on the original notes on the
first regularly scheduled interest payment date following the completion of the
exchange offer.
Transferability. We issued the original notes on June 6, 2002 in a
transaction exempt from the registration requirements of the Securities Act and
applicable state securities laws. Accordingly, the original notes may not be
offered or sold in the United States unless registered or pursuant to an
applicable exemption under the Securities Act and applicable state securities
laws. Based on no-action letters issued by the staff of the Commission with
respect to similar transactions, we believe that the
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exchange notes issued pursuant to the exchange offer in exchange for original
notes may be offered for resale, resold and otherwise transferred by holders of
notes who are not our affiliates without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that:
(1) any exchange notes to be received by the holder were acquired in the
ordinary course of the holder's business;
(2) at the time of the commencement of the exchange offer the holder has
no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the
exchange notes in violation of the provisions of the Securities Act;
(3) the holder is not an "affiliate" of the Company or any guarantor, as
defined in Rule 405 under the Securities Act; and
(4) if the holder is a broker-dealer that will receive exchange notes
for its own account in exchange for the original notes that were
acquired as a result of market-making or other trading activities,
then such holder will deliver a prospectus in connection with any
resale of the exchange notes.
However, we have not sought a no-action letter with respect to the
exchange offer and the staff of the Commission may not make a similar
determination with respect to the exchange offer. Any holder who tenders his
original notes in the exchange offer with any intention of participating in a
distribution of exchange notes (1) cannot rely on the interpretation by the
staff of the Commission, (2) will not be able to validly tender original notes
in the exchange offer and (3) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any secondary
resale transactions.
The letter of transmittal accompanying this prospectus states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is acting in the capacity of an "underwriter" within
the meaning of Section 2(11) of the Securities Act. This prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of exchange notes received in exchange for original
notes where the original notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. Pursuant to our June
6, 2002 registration rights agreement, we agreed to make this prospectus
available to any such broker-dealer for use in connection with any such resale.
TERMS OF THE EXCHANGE OFFER
Upon satisfaction or waiver of all of the conditions of the exchange
offer, we will accept any and all original notes properly tendered and not
withdrawn prior to the expiration date and will issue the exchange notes
promptly after acceptance of the original notes. See "--Conditions to the
Exchange Offer" and "Procedures for Tendering Original Notes." We will issue
$1,000 principal amount of exchange notes in exchange for each $1,000 principal
amount of original notes accepted in the exchange offer. As of the date of this
prospectus, $352,773,000 aggregate principal amount of the original notes are
outstanding. Holders may tender some or all of their original notes pursuant to
the exchange offer. However, original notes may be tendered only in integral
multiples of $1,000.
The exchange notes are identical to the original notes except for the
elimination of certain transfer restrictions, registration rights, restrictions
on holding notes in certificated form and liquidated damages provisions. The
exchange notes will evidence the same debt as the original notes and will be
issued pursuant to, and entitled to the benefits of, the indenture pursuant to
which the original notes were issued and will be deemed one issue of notes,
together with the original notes.
This prospectus, together with the letter of transmittal, is being sent to
all registered holders and to others believed to have beneficial interests in
the original notes. Holders of original notes do not have any appraisal or
dissenters' rights under the indenture in connection with the exchange offer.
We intend to conduct the exchange offer in accordance with the applicable
requirements of the Securities Act, the Exchange Act and the rules and
regulations of the Commission promulgated thereunder.
72
For purposes of the exchange offer, we will be deemed to have accepted
validly tendered original notes when, and as if, we have given oral or written
notice thereof to the exchange agent. The exchange agent will act as our agent
for the purpose of distributing the exchange notes from us to the tendering
holders. If we do not accept any tendered original notes because of an invalid
tender, the occurrence of certain other events set forth in this prospectus or
otherwise, we will return the unaccepted original notes, without expense, to
the tendering holder thereof as promptly as practicable after the expiration
date.
Holders who tender private notes in the exchange offer will not be
required to pay brokerage commissions or fees or, except as set forth below
under "--Transfer Taxes," transfer taxes with respect to the exchange of
original notes pursuant to the exchange offer. We will pay all charges and
expenses, other than certain applicable taxes, in connection with the exchange
offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" shall mean 9:00 a.m., New York City time, on
March 6, 2003, unless we, in our sole discretion, extend the exchange offer,
in which case the term "expiration date" shall mean the latest date and time to
which the exchange offer is extended. In order to extend the exchange offer, we
will notify the exchange agent by oral or written notice and each registered
holder by means of press release or other public announcement of any extension,
in each case, prior to 9:00 a.m., New York City time, on the expiration date.
We reserve the right, in our sole discretion, (1) to delay accepting any
original notes, (2) to extend the exchange offer, (3) to terminate the exchange
offer if the conditions set forth below under "--Conditions" shall not have
been satisfied, or (4) to amend the terms of the exchange offer in any manner.
We will notify the exchange agent of any delay, extension, termination or
amendment by oral or written notice. We will additionally notify each
registered holder of any amendment. We will give to the exchange agent written
confirmation of any oral notice.
EXCHANGE DATE
As soon as practicable after the close of the exchange offer we will
accept for exchange all original notes properly tendered and not validly
withdrawn prior to 9:00 a.m., New York City time, on the expiration date in
accordance with the terms of this prospectus and the letters of transmittal.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the exchange offer, and subject to
our obligations under the June 6, 2002 registration rights agreement, we shall
not be required to accept any original notes for exchange or issue exchange
notes in exchange for any original notes and may terminate or amend the
exchange offer if, at any time before the acceptance of such exchange notes for
exchange, any of the following events shall occur:
(1) any injunction, order or decree shall have been issued by any court
or any governmental agency that would prohibit, prevent or otherwise
materially impair our ability to proceed with the exchange offer;
(2) any change, or any development involving a prospective change, in
our business or financial affairs or any of our subsidiaries has
occurred which, in our sole reasonable judgment, might materially
impair our ability to proceed with the exchange offer or materially
impair the contemplated benefits of the exchange offer to us;
(3) any law, statute, rule or regulation is proposed, adopted or enacted
which, in our sole reasonable judgment, might materially impair our
ability to proceed with the exchange offer or materially impair the
contemplated benefits of the exchange offer to us;
(4) any governmental approval has not been obtained, which approval, is
reasonably deemed necessary for the consummation of the exchange
offer as contemplated hereby; or
73
(5) the exchange offer will violate any applicable law or any applicable
interpretation of the staff of the Commission.
The foregoing conditions are for our sole benefit and may be asserted by
us regardless of the circumstances giving rise to any such condition or (other
than event (1) above) may be waived by us in whole or in part at any time and
from time to time, up until the expiration of the exchange offer in our sole
reasonable judgment. Our failure at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and such right shall be
deemed an ongoing right which may be asserted at any time and from time to
time.
In addition, we will not accept for exchange any original notes tendered,
and no exchange notes will be issued in exchange for any such original notes if
at such time any stop order shall be threatened by the Commission or be in
effect with respect to the registration statement of which this prospectus is a
part or the qualification of the indenture under the Trust Indenture Act of
1939, as amended.
The exchange offer is not conditioned on any minimum aggregate principal
amount of original notes being tendered for exchange.
CONSEQUENCES OF FAILURE TO EXCHANGE
Any original notes not tendered pursuant to the exchange offer will remain
outstanding and continue to accrue interest. The outstanding original notes
will remain "restricted securities" within the meaning of the Securities Act.
Accordingly, prior to the date that is one year after the later of the issue
date and the last date on which we or any of our affiliates was the owner of
the outstanding original notes, the outstanding original notes may be resold
only (1) inside the United States to a person who the seller reasonably
believes is a qualified institutional buyer (as defined in Rule 144A under the
Securities Act) in a transaction meeting the requirements of Rule 144A, (2)
outside the United States in an offshore transaction in accordance with Rule
904 under the Securities Act, (3) pursuant to an exemption from registration
under the Securities Act provided by Rule 144 thereunder (if available) or (4)
pursuant to an effective registration statement under the Securities Act, in
each of cases (1) through (4) in accordance with any applicable securities laws
of any state of the United States. As a result, the liquidity of the market for
non-tendered original notes could be adversely affected upon completion of the
exchange offer. The foregoing restrictions on resale will no longer apply after
the first anniversary of the issue date of the outstanding original note or the
purchase of the outstanding original notes from us or an affiliate.
FEES AND EXPENSES
We will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. The principal solicitation is being made by
mail; however, additional solicitations may be made in person or by telephone
by our officers and employees.
Expenses incurred in connection with the exchange offer will be paid by
us. Such expenses include, among others, the fees and expenses of the trustee
and the exchange agent, accounting and legal fees, printing costs and other
miscellaneous fees and expenses.
ACCOUNTING TREATMENT
We will not recognize any gain or loss for accounting purposes upon the
consummation of the exchange offer. We will amortize the expenses of the
exchange offer as additional interest expense over the term of the exchange
notes.
PROCEDURES FOR TENDERING ORIGINAL NOTES
The tender of original notes pursuant to any of the procedures set forth
in this prospectus and in the letter of transmittal will constitute a binding
agreement between the tendering holder and us in accordance with the terms and
subject to the conditions set forth in this prospectus and in the letter of
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transmittal. The tender of original notes will constitute an agreement to
deliver good and marketable title to all tendered original notes prior to the
expiration date free and clear of all liens, charges, claims, encumbrances,
interests and restrictions of any kind.
Except as provided in "--Guaranteed Delivery Procedures," unless the
original notes being tendered are deposited by you with the exchange agent
prior to the expiration date and are accompanied by a properly completed and
duly executed letter of transmittal, we may, at our option, reject the tender.
Issuance of exchange notes will be made only against deposit of tendered
original notes and delivery of all other required documents. Notwithstanding
the foregoing, DTC participants tendering through its Automated Tender Offer
Program ("ATOP") will be deemed to have made valid delivery where the exchange
agent receives an agent's message prior to the expiration date.
Accordingly, to properly tender original notes, the following procedures
must be followed:
Notes held through a Custodian. Each beneficial owner holding original
notes through a DTC participant must instruct the DTC participant to cause its
original notes to be tendered in accordance with the procedures set forth in
this prospectus.
Notes held through DTC. Pursuant to an authorization given by DTC to the
DTC participants, each DTC participant holding original notes through DTC must
(1) electronically transmit its acceptance through ATOP, and DTC will then edit
and verify the acceptance, execute a book-entry delivery to the exchange
agent's account at DTC and send an agent's message to the exchange agent for
its acceptance, or (2) comply with the guaranteed delivery procedures set forth
below and in a notice of guaranteed delivery. See "--Guaranteed Delivery
Procedures--Notes held through DTC."
The exchange agent will (promptly after the date of this prospectus)
establish accounts at DTC for purposes of the exchange offer with respect to
original notes held through DTC. Any financial institution that is a DTC
participant may make book-entry delivery of interests in original notes into
the exchange agent's account through ATOP. However, although delivery of
interests in the original notes may be effected through book-entry transfer
into the exchange agent's account through ATOP, an agent's message in
connection with such book-entry transfer, and any other required documents,
must be, in any case, transmitted to and received by the exchange agent at its
address set forth under "--Exchange Agent," or the guaranteed delivery
procedures set forth below must be complied with, in each case, prior to the
expiration date. Delivery of documents to DTC does not constitute delivery to
the exchange agent. The confirmation of a book-entry transfer into the exchange
agent's account at DTC as described above is referred to herein as a
"Book-Entry Confirmation."
The term "agent's message" means a message transmitted by DTC to, and
received by, the exchange agent and forming a part of the book-entry
confirmation, which states that DTC has received an express acknowledgment from
each DTC participant tendering through ATOP that such DTC participants have
received a letter of transmittal and agree to be bound by the terms of the
letter of transmittal and that we may enforce such agreement against such DTC
participants.
Cede & Co., as the holder of the global note, will tender a portion of the
global note equal to the aggregate principal amount due at the stated maturity
for which instructions to tender are given by DTC participants.
By tendering, each holder and each DTC participant will represent to us
that, among other things, (1) it is not our affiliate, (2) it is not a
broker-dealer tendering original notes acquired directly from us for its own
account, (3) it is acquiring the exchange notes in its ordinary course of
business and (4) it is not engaged in, and does not intend to engage in, and
has no arrangement or understanding with any person to participate in, a
distribution of the exchange notes.
We will not accept any alternative, conditional, irregular or contingent
tenders (unless waived by us). By executing a letter of transmittal or
transmitting an acceptance through ATOP, as the case may be, each tendering
holder waives any right to receive any notice of the acceptance for purchase of
its original notes.
We will resolve all questions as to the validity, form, eligibility
(including time of receipt) and acceptance of tendered original notes, and such
determination will be final and binding. We reserve
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the absolute right to reject any or all tenders that are not in proper form or
the acceptance of which may, in the opinion of our counsel, be unlawful. We
also reserve the absolute right to waive any condition to the exchange offer
and any irregularities or conditions of tender as to particular original notes.
Our interpretation of the terms and conditions of the exchange offer (including
the instructions in the letter of transmittal) will be final and binding.
Unless waived, any irregularities in connection with tenders must be cured
within such time as we shall determine. We, along with the exchange agent,
shall be under no duty to give notification of defects in such tenders and
shall not incur liabilities for failure to give such notification. Tenders of
original notes will not be deemed to have been made until such irregularities
have been cured or waived. Any original notes received by the exchange agent
that are not properly tendered and as to which the irregularities have not been
cured or waived will be returned by the exchange agent to the tendering holder,
unless otherwise provided in the letter of transmittal, as soon as practicable
following the expiration date.
LETTERS OF TRANSMITTAL AND ORIGINAL NOTES MUST BE SENT ONLY TO THE
EXCHANGE AGENT. DO NOT SEND LETTERS OF TRANSMITTAL OR ORIGINAL NOTES TO US OR
DTC.
The method of delivery of original notes, letters of transmittal, any
required signature guaranties and all other required documents, including
delivery through DTC and any acceptance through ATOP, is at the election and
risk of the persons tendering and delivering acceptances or letters of
transmittal and, except as otherwise provided in the applicable letter of
transmittal, delivery will be deemed made only when actually received by the
exchange agent. If delivery is by mail, it is suggested that the holder use
properly insured, registered mail with return receipt requested, and that the
mailing be made sufficiently in advance of the expiration date to permit
delivery to the exchange agent prior to the expiration date.
GUARANTEED DELIVERY PROCEDURES
Notes held through DTC. DTC participants holding original notes through
DTC who wish to cause their original notes to be tendered, but who cannot
transmit their acceptances through ATOP prior to the expiration date, may cause
a tender to be effected if:
(1) guaranteed delivery is made by or through a firm or other entity
identified in Rule 17Ad-15 under the Exchange Act, including:
o a bank;
o a broker, dealer, municipal securities dealer, municipal securities
broker, government securities dealer or government securities broker;
o a credit union;
o a national securities exchange, registered securities association or
clearing agency; or
o a savings institution that is a participant in a Securities Transfer
Association recognized program;
(2) prior to the expiration date, the exchange agent receives from any of
the above institutions a properly completed and duly executed notice of
guaranteed delivery (by mail, hand delivery, facsimile transmission or
overnight courier) substantially in the form provided with this prospectus; and
(3) book-entry confirmation and an agent's message in connection therewith
are received by the exchange agent within three NYSE trading days after the
date of the execution of the notice of guaranteed delivery.
Notes held by Holders. Holders who wish to tender their original notes but
(1) whose original notes are not immediately available and will not be
available for tendering prior to the expiration date, or (2) who cannot deliver
their original notes, the letter of transmittal, or any other required
documents to the exchange agent prior to the expiration date, may effect a
tender if:
o the tender is made by or through any of the above-listed institutions;
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o prior to the expiration date, the exchange agent receives from any
above-listed institution a properly completed and duly executed notice
of guaranteed delivery, whether by mail, hand delivery, facsimile
transmission or overnight courier, substantially in the form provided
with this prospectus; and
o a properly completed and executed letter of transmittal, as well as
the certificate(s) representing all tendered original notes in proper
form for transfer, and all other documents required by the letter of
transmittal, are received by the exchange agent within three NYSE
trading days after the date of the execution of the notice of
guaranteed delivery.
WITHDRAWAL RIGHTS
You may withdraw tenders of original notes, or any portion of your
original notes, in integral multiples of $1,000 principal amount due at the
stated maturity, at any time prior to 9:00 a.m., New York City time, on the
expiration date. Any original notes properly withdrawn will be deemed to be not
validly tendered for purposes of the exchange offer.
Notes held through DTC. DTC participants holding original notes who have
transmitted their acceptances through ATOP may, prior to 9:00 a.m., New York
City time, on the expiration date, withdraw the instruction given thereby by
delivering to the exchange agent, at its address set forth under "--Exchange
Agent," a written, telegraphic or facsimile notice of withdrawal of such
instruction. Such notice of withdrawal must contain the name and number of the
DTC participant, the principal amount due at the stated maturity of original
notes to which such withdrawal relates and the signature of the DTC
participant. Receipt of such written notice of withdrawal by the exchange agent
effectuates a withdrawal.
Notes held by Holders. Holders may withdraw their tender of original
notes, prior to 9:00 a.m., New York City time, on the expiration date, by
delivering to the exchange agent, at its address set forth under "--Exchange
Agent," a written, telegraphic or facsimile notice of withdrawal. Any such
notice of withdrawal must (1) specify the name of the person who tendered the
original notes to be withdrawn, (2) contain a description of the original notes
to be withdrawn and identify the certificate number or numbers shown on the
particular certificates evidencing such original notes and the aggregate
principal amount due at the stated maturity represented by such original notes
and (3) be signed by the holder of such original notes in the same manner as
the original signature on the letter of transmittal by which such original
notes were tendered (including any required signature guaranties), or be
accompanied by (x) documents of transfer in a form acceptable to us, in our
sole discretion, and (y) a properly completed irrevocable proxy that authorized
such person to effect such revocation on behalf of such holder. If the original
notes to be withdrawn have been delivered or otherwise identified to the
exchange agent, a signed notice of withdrawal is effective immediately upon
written, telegraphic or facsimile notice of withdrawal even if physical release
is not yet effected.
All signatures on a notice of withdrawal must be guaranteed by a
recognized participant in the Securities Transfer Agents Medallion Program, the
New York Stock Exchange Medallion Signature Program or the Stock Exchange
Medallion Program; provided, however, that signatures on the notice of
withdrawal need not be guaranteed if the original notes being withdrawn are
held for the account of any of the institutions listed above under
"--Guaranteed Delivery Procedures."
A withdrawal of an instruction or a withdrawal of a tender must be
executed by a DTC participant or a holder of original notes, as the case may
be, in the same manner as the person's name appears on its transmission through
ATOP or letter of transmittal, as the case may be, to which such withdrawal
relates. If a notice of withdrawal is signed by a trustee, partner, executor,
administrator, guardian, attorney-in-fact, agent, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person must
so indicate when signing and must submit with the revocation appropriate
evidence of authority to execute the notice of withdrawal. A DTC participant or
a holder may withdraw an instruction or a tender, as the case may be, only if
such withdrawal complies with the provisions of this prospectus.
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A withdrawal of a tender of original notes by a DTC participant or a
holder, as the case may be, may be rescinded only by a new transmission of an
acceptance through ATOP or execution and delivery of a new letter of
transmittal, as the case may be, in accordance with the procedures described
herein.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent for the exchange
offer. Questions, requests for assistance and requests for additional copies of
this prospectus or of the letter of transmittal should be directed to the
exchange agent addressed as follows:
By Registered or Certified Mail:
The Bank of New York
Corporate Trust Operations Reorganization Unit
101 Barclay Street - 7 East
New York, NY 10286
Attention: Bernard Arsenec
By Hand Delivery to 4:30 p.m.:
The Bank of New York
Corporate Trust Operations Reorganization Unit
101 Barclay Street - 7 East
New York, NY 10286
Attention: Bernard Arsenec
By Overnight Courier and by Hand Delivery After 4:30 p.m. of Expiration Date:
The Bank of New York
Corporate Trust Operations Reorganization Unit
101 Barclay Street - 7 East
New York, NY 10286
Attention: Bernard Arsenec
Facsimile: (212) 298-1915
Telephone: (212) 815-5098
Attention: Bernard Arsenec
The exchange agent also acts as trustee under the indenture.
TRANSFER TAXES
Holders of original notes who tender their original notes for exchange
notes will not be obligated to pay any transfer taxes in connection therewith,
except that holders who instruct us to register exchange notes in the name of,
or request that original notes not tendered or not accepted in the exchange
offer be returned to, a person other than the registered tendering holder will
be responsible for the payment of any applicable transfer tax thereon.
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DESCRIPTION OF CREDIT FACILITY
GENERAL
In connection with the transactions, TriMas Company LLC, a direct wholly
owned subsidiary of ours, or the borrower, entered into a credit facility with
JPMorgan Chase Bank, as administrative agent and collateral agent, CSFB Cayman
Islands Branch, as syndication agent and Comerica Bank, National City Bank and
Wachovia National Association, as documentation agents.
The credit facility consists of a senior revolving credit facility and a
senior term loan facility. The revolving credit facility is comprised of loans
in a total principal amount of up to $150 million. The term loan facility is
comprised of loans in a total principal amount of $260 million. The revolving
credit facility is available for general corporate purposes, including up to
$100 million for one or more permitted acquisitions.
The revolving credit facility has a five and one-half year maturity and
the term loan facility has a seven and one-half year maturity. Our credit
facility also provides for an uncommitted $200 million incremental term loan
facility for one or more permitted acquisitions.
The obligations under the credit facility are secured and unconditionally
and irrevocably guaranteed jointly and severally by the Issuer and each of the
borrower's existing and subsequently acquired or organized domestic
subsidiaries, other than TSPC, Inc., our receivables subsidiary, pursuant to
the terms of a separate guarantee agreement. Although no foreign subsidiaries
are currently borrowers under the credit facility, such entities may borrow
under the facility in the future.
In connection with the additional issuance, we amended our credit
agreement to permit us to repurchase up to $20 million of our stock from
Metaldyne and to hold the balance of the cash proceeds until June 29, 2003
pending use for any potential permitted acquisitions. If we do not utilize the
portion of the net proceeds being held for acquisitions or the stock repurchase
by June 29, 2003, we may apply some of the net proceeds to repay a portion of
our term credit facility. The amendment also permits us to delay including the
$85.0 million aggregate principal amount of the additional notes when
calculating total consolidated indebtedness for the purposes of our leverage
ratio until the earlier of June 29, 2003 or the use of net proceeds from the
additional issuance to fund acquisitions or repurchase stock from Metaldyne.
SECURITY INTERESTS
Our borrowings under the credit facility are secured by a first priority
perfected security interest in:
o our capital stock and all of the capital stock held by us or any
domestic subsidiary of ours and of each existing and subsequently
acquired or organized subsidiary of ours (which pledge, in the case of
any foreign subsidiary, shall be limited to 65% of the capital stock
of such foreign subsidiary to the extent the pledge of any greater
percentage would result in adverse tax consequences to us); and
o all of our tangible and intangible assets and of each existing or
subsequently acquired or organized domestic subsidiaries, other than
TSPC, Inc., with certain exceptions as set forth in the credit
facility.
INTEREST RATES AND FEES
Borrowings under the credit facility bear interest, at our option, at
either:
o a base rate used by JPMorgan Chase Bank, plus an applicable margin; or
o a eurocurrency rate on deposits for one, two, three or nine-month
periods (or nine or twelve-month periods if, at the time of the
borrowing, all lenders agree to make such a duration available), plus
the applicable margin.
The applicable margin on loans under the revolving credit facility to be
subject to change depending on a leverage ratio.
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We will also pay the lenders a commitment fee on the unused commitments
under the credit facility, which may vary based upon utilization of the
revolving credit facility payable quarterly in arrears. The commitment fee is
expected to be subject to reduction depending on the leverage ratio.
MANDATORY AND OPTIONAL REPAYMENT
Subject to exceptions for reinvestment of proceeds and other exceptions
and materiality thresholds, we are required to prepay outstanding loans under
the credit facility with excess cash flow, the net proceeds of certain asset
dispositions, casualty and condemnation recovery events and incurrences of
certain debt.
We may voluntarily prepay loans or reduce commitments under the credit
facility, in whole or in part, subject to minimum prepayments. If we prepay
eurodollar rate loans, we will be required to reimburse lenders for their
breakage and redeployment costs.
COVENANTS
The credit facility contains negative and affirmative covenants and
requirements affecting us and our subsidiaries.
The credit facility contains the following negative covenants and
restrictions which impose material restrictions on our business (and the
business of our subsidiaries):
Debt: A prohibition on the assumption or incurrence of indebtedness other
than categories of indebtedness including, without limitation, (1) indebtedness
with respect to our credit facility, (2) indebtedness with respect to the
original notes, (3) indebtedness with respect to our receivables facility, (4)
indebtedness between and among us and our subsidiaries, (5) indebtedness
arising from permitted acquisitions and (6) permitted subordinated
indebtedness;
Liens: A prohibition on the creation, assumption or incurrence of certain
liens upon any of our property, revenues or assets other than categories of
liens including, without limitation, (1) liens securing payment with respect to
our credit facility, (2) liens arising out of permitted acquisitions, (3) liens
arising out of our receivables facility and (4) liens arising from permitted
indebtedness;
Investments, Loans, Advancements, Guarantees and Acquisitions: A
prohibition on the creation, assumption or incurrence of investments, the
acquisition of options or warrants, the extension of loans or advances and the
guaranteeing of obligations, other than certain categories including, without
limitation, (1) investments in cash and cash equivalents, (2) permitted
acquisitions, (3) investments from permitted receivables financing, (4)
investments constituting permitted capital expenditures, (5) permitted joint
ventures and foreign subsidiary investments and (6) loans or advances extended
between us and one or more of our subsidiaries;
Fundamental Changes: A prohibition on the issuer engaging in activities
other than those reasonably associated with acting as a holding company and a
prohibition on the borrower engaging in business other than business which we
were engaged in on June 6, 2002 (the date of execution of the new credit
facility) and businesses reasonably related thereto, and liquidation or
dissolution, consolidation with, or merger into or with, any entity, or other
consummation of any acquisition of any entity or all or substantially all of
the assets of any entity, other than (1) the dissolution or merger of any of
our subsidiaries into us, (2) the purchase by us of the assets or capital stock
of any of our subsidiaries, (3) a liquidation of a subsidiary not party to the
credit facility that would not materially disadvantage the lenders and (4)
permitted negotiated mergers or acquisitions;
Asset Dispositions: A prohibition on asset dispositions other than
categories of asset dispositions including, without limitation, dispositions in
respect of permitted (1) sales (including sales in connection with the
receivables facility), (2) leasebacks, (3) consolidations, (4) mergers and (5)
acquisitions;
Sale-Leaseback Transactions: A prohibition on entering into any
sale-leaseback transaction except (1) where the assets are sold for not less
than the cost of such assets and in an aggregate amount less than or equal to a
permitted amount, (2) sale of up to $75 million of property owned as of June 6,
2002 sold for an aggregate amount of not less than its fair market value and
(3) an acquisition lease financing;
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Hedging Agreements: A prohibition on entering into any hedging agreement,
other than categories of hedging agreements that are either required or entered
into in the ordinary course of business for non-speculative purposes and
otherwise hedge or mitigate business risks;
Restricted Payments: A prohibition on entering into a synthetic purchase
agreement or making a dividend, distribution or payment in respect of the
issuer's and certain subsidiaries' equity interests, other than transactions
including, without limitation, a dividend, distribution or payment, as the case
may be (1) by the issuer solely in the form of the issuer's equity interests,
(2) ratably by our direct and indirect subsidiaries, (3) not exceeding $5
million pursuant to employee equity incentive plans, (4) by us to meet our tax
and permitted contractual obligations, (5) to refinance permitted indebtedness
and (6) that is required by the credit facilities;
Transactions with Affiliates: A prohibition on transactions with our
affiliates, other than transactions including, without limitation, (1) solely
among the issuer and/or its subsidiaries, or otherwise, (2) on terms customary
for similar arm's-length transactions, (3) that preexisted the credit facility,
(4) that relate to certain permitted fees and expenses to Heartland and (5)
that otherwise comply with the terms and conditions of our credit facility;
Restrictive Agreements: A prohibition on entering into any agreement
prohibiting (1) the creation or assumption of any lien upon our properties,
revenues or assets for the benefit of a secured party under the new credit
facility, (2) the ability of any subsidiary to pay dividends to the borrower
and (3) our ability to amend or otherwise modify our credit facility, in each
case subject to customary exceptions;
Amendments to Charter, By-laws and Other Material Documents: A prohibition
on the amendment, modification or waiver of any rights under (1) the
certificate of incorporation, by-laws or other organizational documents, (2)
the transaction documents and (3) any material agreements, in each case to the
extent that such amendment, modification or waiver is adverse to the lenders;
The credit facility also requires us and our subsidiaries to meet the
following financial covenants and ratios computed quarterly:
Leverage Ratio: Our leverage ratio (which is approximately the ratio of
(a) our total consolidated indebtedness and outstanding amounts under our
receivables facility to (b) consolidated EBITDA) may not be more than a maximum
ratio that ranges from 5.25:1 for the fourth fiscal quarter of fiscal 2002 to
3.25:1 for the last fiscal quarter of 2005 and each fiscal quarter thereafter;
Interest Expense Coverage Ratio: Our interest expense coverage ratio
(which is approximately the ratio of (a) consolidated EBITDA to (b) the sum of
(i) consolidated cash interest expense and (ii) preferred dividends) for the
most recent four consecutive fiscal quarters may not be less than a minimum
ratio that ranges from 2.50:1 for the fourth fiscal quarter of 2002 to 2.75:1
for the last fiscal quarter of fiscal year 2004 and each fiscal quarter
thereafter;
Capital Expenditures Covenant: A limitation on the aggregate amount of
capital expenditures for any period.
In our credit facility, "EBITDA" means, on a consolidated basis for any
applicable period ending on or after April 1, 2003 and with appropriate
adjustments to take account of permitted acquisitions, the sum of (a) our net
income, plus (b) without duplication and to the extent deducted from net
income, the sum of (i) interest expense, (ii) income tax expense, (iii)
depreciation and amortization and (iv) various other adjustments.
The credit facility contains the following affirmative covenants, among
others: mandatory reporting of financial and other information to the
administrative agent, notice to the administrative agent upon the occurrence of
certain events of default and other events, written notice of change of any
information affecting the identity of the record owner or the location of
collateral, preservation of existence and intellectual property, payment of
obligations, maintenance of properties and insurance, notice of casualty and
condemnation, access to properties and books by the lenders, compliance with
laws, use of proceeds and letters of credit, additional subsidiaries and
interest rate protection agreements.
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EVENTS OF DEFAULT
The credit facility specifies certain customary events of default,
including, among others, non-payment of principal, interest or fees, violation
of covenants, cross-defaults and cross-accelerations, inaccuracy of
representations and warranties in any material respect, bankruptcy and
insolvency events, change of control, failure to maintain security interests,
specified ERISA events, one or more judgments for the payment of money in an
aggregate amount in excess of specified amounts, the guarantees shall cease to
be in full force and effect or the subordination provisions of any of our
subordinated debt are found to be invalid.
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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
"TriMas" refers only to TriMas Corporation and not to any of its subsidiaries.
TriMas issued the original notes under an indenture among itself, the
Guarantors and The Bank of New York, as trustee, in a private transaction that
was not subject to the registration requirements of the Securities Act. When we
refer to the notes herein, we are referring to the original notes and the
exchange notes, unless the context otherwise requires. The terms of the
additional notes are the same in all material respects as they were issued
under the same indenture as the original notes. When we refer to outstanding
notes, we are referring to the original notes and additional notes
collectively. The terms of the notes include those stated in the indenture and
those made part of the indenture by reference to the Trust Indenture Act of
1939, as amended.
The following description is a summary of the material provisions of the
indenture and the June 6, 2002 registration rights agreement. It does not
restate those agreements in their entirety. We urge you to read the indenture
and the June 6, 2002 registration rights agreement because they, and not this
description, define your rights as holders of the notes. Copies of the
indenture and the June 6, 2002 registration rights agreement will be available
as set forth below under "--Additional Information." 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:
o are general unsecured obligations of TriMas;
o are subordinated in right of payment to all existing and future Senior
Debt of TriMas, including under the Credit Agreement;
o are pari passu in right of payment with all existing and future
unsecured senior subordinated Indebtedness of TriMas; and
o are unconditionally guaranteed by the Guarantors.
THE GUARANTEES
The notes are guaranteed by all of TriMas' Domestic Subsidiaries that
guarantee TriMas' Obligations under or are direct borrowers under the Credit
Agreement.
Each guarantee of the notes:
o is a general unsecured obligation of the Guarantor;
o is subordinated in right of payment to all existing and future Senior
Debt of that Guarantor;
o is pari passu in right of payment with all existing and future senior
subordinated Indebtedness of that Guarantor; and
o is senior in right of payment to all existing and future Indebtedness
of that Guarantor that is expressly subordinated in right of payment
to the notes.
TriMas and the Guarantors have total Senior Debt of approximately $260
million. 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.
Not all of our subsidiaries guarantee the notes. In the event of a
bankruptcy, liquidation or reorganization of any of these Non-Guarantor
Subsidiaries, the Non-Guarantor Subsidiaries will pay
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the holders of their debt and their trade creditors before they will be able to
distribute any of their assets to us. Disregarding our receivables subsidiary,
the Non-Guarantor Subsidiaries (other than our receivables subsidiary)
generated approximately 12.2% of our consolidated net sales for the year ended
December 31, 2001. See "Risk Factors--Your right to receive payment on the
notes is junior to the right of the holders of all of our existing senior
indebtedness and possibly to all of our future borrowings."
As of the date hereof, all of our Domestic Subsidiaries (other than our
receivables subsidiary) are "Restricted Subsidiaries." However, under the
circumstances described below under the subheading "--Certain
Covenants--Designation of Restricted and Unrestricted Subsidiaries," we will be
permitted to designate certain of our subsidiaries as "Unrestricted
Subsidiaries." Our Unrestricted Subsidiaries will not be subject to many of the
restrictive covenants in the indenture. Our Unrestricted Subsidiaries will not
guarantee the notes.
PRINCIPAL, MATURITY AND INTEREST
TriMas issued $352,773,000 in aggregate principal amount of notes in the
original offering on June 6, 2002. The indenture provides that TriMas may issue
additional notes thereunder from time to time after this offering. The
$85,000,000 aggregate principal amount notes issued on December 10, 2002 are
additional notes. Any offering of further additional notes is subject to 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 including the additional notes
issued on December 10, 2002 may be treated as a single class for all purposes
under the indenture, including, without limitation, waivers, amendments,
redemptions and offers to purchase. TriMas will issue notes in denominations of
$1,000 and integral multiples of $1,000. The notes will mature on June 15,
2012.
Interest on the notes will accrue at the rate of 9 7/8% per annum and will
be payable semi-annually in arrears on June 15 and December 15, commencing on
December 15, 2002. TriMas will make each interest payment to the Holders of
record on the immediately preceding June 1 and December 1.
Interest on the notes will accrue from the date of original issuance or,
if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
All payments on notes will be made at the office or agency of the paying
agent and registrar within the City and State of New York unless TriMas elects
to make interest payments by check mailed to the Holders at their address set
forth in the register of Holders. If a Holder has given wire transfer
instructions to TriMas, TriMas will pay all principal, interest and premium and
Liquidated Damages, if any, on that Holder's notes in accordance with those
instructions.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee will initially act as paying agent and registrar. TriMas may
change the paying agent or registrar without prior notice to the Holders of the
notes, and TriMas 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 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.
TriMas is not required to transfer or exchange any note selected for
redemption. Also, TriMas is not required to transfer or exchange any note for a
period of 15 days before a selection of notes to be redeemed.
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SUBSIDIARY GUARANTEES
The notes are guaranteed by each of TriMas' current and future Domestic
Subsidiaries that are guarantors or borrowers in respect of the Credit
Agreement. These Subsidiary Guarantees are joint and several obligations of the
Guarantors. Each Subsidiary Guarantee is subordinated to the prior payment in
full of all Senior Debt of that Guarantor. The obligations of each Guarantor
under its Subsidiary Guarantee are limited as necessary to prevent that
Subsidiary 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 noteholders to return payments
received from guarantors."
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 (whether or not
such Guarantor is the surviving Person), another Person, other than TriMas or
another Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default or
Event of Default exists; and
(2) except when a release of a Subsidiary Guarantee is obtained under the
provisions below, if, immediately after giving effect to such
transaction, the Person acquiring the property in any such sale or
disposition or the Person formed by or surviving any such
consolidation or merger is a Domestic Subsidiary, such Person assumes
all the obligations of that Guarantor under the indenture, its
Subsidiary Guarantee and the June 6, 2002 registration rights
agreement pursuant to a supplemental indenture satisfactory to the
trustee.
Notwithstanding the foregoing, the Subsidiary 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) a Restricted Subsidiary of
TriMas, if the sale or other disposition is not in violation with the
applicable provisions of the indenture;
(2) in connection with any sale or other disposition of all or a majority
of the Capital Stock of a Guarantor to a Person that is not TriMas or
a Restricted Subsidiary of TriMas, if the sale is not in violation
with the applicable provisions of the indenture; or
(3) if TriMas designates any Restricted Subsidiary that is a Guarantor as
an Unrestricted Subsidiary in accordance with the applicable
provisions of the indenture.
See "--Repurchase at the Option of Holders--Asset Sales."
SUBORDINATION
The payment of principal, interest and premium and Liquidated Damages, if
any, on the notes will be subordinated to the prior payment in full of all
Senior Debt of TriMas, including Senior Debt incurred after the date of the
indenture.
The holders of Senior Debt will be entitled to receive payment in full 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) 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 the trust
described under "--Legal Defeasance and Covenant Defeasance"), in the event of
any distribution to creditors of TriMas:
(1) in a liquidation or dissolution of TriMas;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to TriMas or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of TriMas' assets and liabilities.
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TriMas also may not make any payment in respect of the notes (except in
Permitted Junior Securities or from the trust described under "--Legal
Defeasance and Covenant Defeasance") 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 TriMas or the holders
of any Designated Senior Debt.
Payments on the notes may and will 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.
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 and
Liquidated Damages, 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 be made, the
basis for a subsequent Payment Blockage Notice unless such default has been
cured or waived for a period of not less than 90 days.
If the trustee or any Holder of the notes receives a payment in respect of
the notes (except in Permitted Junior Securities or from the trust described
under "--Legal Defeasance and Covenant Defeasance") 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, 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.
TriMas must promptly notify holders of Senior Debt if payment of 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 TriMas, Holders of notes may
recover less ratably than creditors of TriMas who are holders of Senior Debt.
See "Risk Factors--Your right to receive payment on the notes is junior to the
right of the holders of all of our existing indebtedness and possibly to all of
our future borrowings."
OPTIONAL REDEMPTION
At any time prior to June 15, 2005, TriMas may on any one or more
occasions redeem up to 35% of the aggregate principal amount of notes issued
under the indenture at a redemption price of 109.875% of the principal amount,
plus accrued and unpaid interest and Liquidated Damages, if any, to the
redemption date, with the net cash proceeds of one or more Equity Offerings;
provided that:
(1) at least 65% of the aggregate principal amount of notes issued under
the indenture remains outstanding immediately after the occurrence of
such redemption (excluding notes held by TriMas and its Subsidiaries);
and
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(2) the redemption occurs within 120 days of the date of the closing of
such Equity Offering.
Except pursuant to the preceding paragraph, the notes will not be
redeemable at TriMas' option prior to June 15, 2007.
After June 15, 2007, TriMas 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 and Liquidated Damages, if any, on the notes redeemed, to the
applicable redemption date, if redeemed during the twelve-month period
beginning on June 15 of the years indicated below:
YEAR PERCENTAGE
---- -------------
2007 ......................... 104.938%
2008 ......................... 103.292%
2009 ......................... 101.646%
2010 and thereafter .......... 100.000%
We cannot predict with certainty whether we will redeem the notes or the
criteria that we will use in determining whether to redeem the notes. In
addition, many of the factors that are likely to influence our decision are
likely to be beyond our control. The general economic environment, our
capitalization, the interest rate environment, refinancing options and our cash
flow are just a few of the many factors that may influence our decision at the
time. We may, for example, be more likely to redeem the notes if interest rates
are low, favorable refinancing alternatives are available or if we have
substantial excess cash flow.
MANDATORY REDEMPTION
TriMas 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 TriMas 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,
TriMas 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 and Liquidated Damages, if any, on the notes repurchased, to the date
of purchase. Within 15 days following any Change of Control, TriMas 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. TriMas 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, TriMas 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 conflict.
On the Change of Control Payment Date, TriMas 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
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(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
TriMas.
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 in a
principal amount of $1,000 or an integral multiple of $1,000.
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, TriMas
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. TriMas will publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.
The provisions described above that require TriMas 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 TriMas repurchase or
redeem the notes in the event of a takeover, recapitalization or similar
transaction.
TriMas will not be required to make a Change of Control Offer upon a
Change of Control if 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 TriMas
and purchases all notes properly tendered and not withdrawn under the Change of
Control Offer. Alternatively, TriMas may assign all or part of its obligations
to purchase all notes validly tendered and not properly withdrawn under a
Change of Control Offer to a third party. In the event of such an assignment,
TriMas shall be released from its obligations to purchase the notes as to which
the assignment relates subject to the third party purchasing such notes. A
Change of Control Offer may be made in advance of a Change of Control, and
conditioned upon such Change of Control if a definitive agreement is in place
for the Change of Control at the time of making of the Change of Control Offer.
Notes repurchased by TriMas pursuant to a Change of Control Offer will have the
status of notes issued but not outstanding or will be retired and canceled, at
the option of TriMas. Notes purchased by a third party upon assignment will
have the status of note issued and outstanding.
The Credit Agreement will provide that certain change of control events
with respect to TriMas would constitute an event of default thereunder. In the
event that at the time of such Change of Control the terms of the Credit
Agreement restrict or prohibit the repurchase of notes pursuant to this
covenant, then prior to the mailing of the Change of Control Offer but in any
event within 30 days following any Change of Control, TriMas would need to (i)
repay in full all Indebtedness under the Credit Agreement or (ii) obtain the
requisite consent under the Credit Facilities to permit the repurchase of the
notes as provided for in this covenant.
Future Indebtedness of TriMas and the Restricted Subsidiaries may contain
prohibitions of certain events that would constitute a Change of Control or
require such Indebtedness to be repurchased upon a Change of Control. A Change
of Control would also constitute a termination event in respect of our
receivables facility. Moreover, the exercise by the Holders of notes of their
right to require TriMas to repurchase the notes could cause a default under
such Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase. Finally, TriMas' ability to pay cash to
the Holders of notes upon a repurchase may be limited by TriMas' then existing
financial resources. There can be no assurance that sufficient funds will be
available when necessary to make any required repurchases. See "Risk
Factors--We may be prevented from financing, or may be unable to raise funds
necessary to finance, the change of control offer required by the indenture."
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
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TriMas 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 TriMas to repurchase its notes as a
result of a sale, lease, transfer, conveyance or other disposition of less than
all of the assets of TriMas and its Subsidiaries taken as a whole to another
Person or group may be uncertain.
ASSET SALES
TriMas will not, and will not permit any of the Restricted Subsidiaries
to, consummate an Asset Sale unless:
(1) TriMas (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;
(2) the fair market value is determined by TriMas' Board of Directors and
evidenced by a resolution of the Board of Directors set forth in an
officers' certificate delivered to the trustee; and
(3) either (a) at least 75% of the consideration received in the Asset
Sale by TriMas or such Restricted Subsidiary is in the form of cash or
(b) the aggregate non-cash consideration for all Asset Sales not
meeting the criteria set forth in the preceding clause (a) does not
exceed a fair market value in excess of $20.0 million. For purposes of
this provision, each of the following will be deemed to be cash:
(a) any liabilities, as shown on TriMas' or such Restricted
Subsidiary's most recent consolidated balance sheet, of TriMas or
any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the notes or
any Subsidiary Guarantee) that are assumed by the transferee of
any such assets pursuant to a customary novation agreement that
releases TriMas or such Restricted Subsidiary from further
liability; and
(b) any securities, notes or other obligations received by TriMas or
any such Restricted Subsidiary from such transferee to the extent
within 60 days, subject to ordinary settlement periods, they are
converted by TriMas or such Restricted Subsidiary into cash.
Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
TriMas may apply those Net Proceeds at its option:
(1) to permanently repay Indebtedness (other than Indebtedness that is by
its terms subordinated to, or pari passu with, the notes or any
Subsidiary Guarantee) of TriMas or any Restricted Subsidiary,
including any Obligations under a Credit Facility and, if the
Indebtedness repaid is revolving credit Indebtedness, to
correspondingly reduce commitments with respect thereto or to reduce
receivables advances and reduce commitments in respect of a
Receivables Facility;
(2) to acquire assets of, or a majority of the Voting Stock of, any person
owning assets used or usable in a business of TriMas and the
Restricted Subsidiaries; or
(3) to make a capital expenditure.
Pending the final application of any Net Proceeds, TriMas may temporarily
reduce revolving credit borrowings or otherwise invest or use 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 preceding paragraph will constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $25.0 million, TriMas will make an
Asset Sale Offer to all Holders of notes and all holders of other Indebtedness
that is pari passu 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
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the maximum principal amount of notes and such other pari passu Indebtedness
that may be purchased out of the Excess Proceeds. The offer price in any Asset
Sale Offer will be equal to 100% of principal amount plus accrued and unpaid
interest and Liquidated Damages, if any, to the date of purchase, and will be
payable in cash. If any Excess Proceeds remain after consummation of an Asset
Sale Offer, TriMas may use those Excess Proceeds for any purpose not otherwise
prohibited by the indenture. If the aggregate principal amount of notes and
other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the
amount of Excess Proceeds, the trustee will select the notes and such other
pari passu 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.
TriMas 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, TriMas 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 conflict.
The agreements governing TriMas' outstanding Senior Debt currently
prohibit TriMas from purchasing any notes, and also provides that certain
change of control or asset sale events with respect to TriMas would constitute
a default under these agreements. Any future credit agreements or other
agreements relating to Senior Debt to which TriMas becomes a party may contain
similar restrictions and provisions. In the event a Change of Control or Asset
Sale occurs at a time when TriMas is prohibited from purchasing notes, TriMas
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 TriMas
does not obtain such a consent or repay such borrowings, TriMas will remain
prohibited from purchasing notes. In such case, TriMas' 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 as follows:
(1) if the notes are listed on any national securities exchange, in
compliance with the requirements of the principal national securities
exchange on which the notes are listed; or
(2) if the notes are not listed on any national securities exchange, on a
pro rata basis, by lot or by such method as the trustee deems fair and
appropriate.
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 them called
for redemption.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
TriMas will not, and will not permit any of the Restricted Subsidiaries
to, directly or indirectly:
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(1) declare or pay any dividend or make any other payment or distribution
on account of TriMas' Equity Interests (including, without limitation,
any payment in connection with any merger or consolidation involving
TriMas or any of its Restricted Subsidiaries) or to the direct or
indirect holders of TriMas' Equity Interests in their capacity as such
(other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of TriMas or to TriMas or a Restricted
Subsidiary of TriMas);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving TriMas) any Equity Interests of TriMas;
(3) purchase, redeem, defease or otherwise acquire or retire for value any
Indebtedness that is subordinated to the notes or the Subsidiary
Guarantees, except a purchase, redemption, defeasance or other
acquisition or retirement for value in anticipation of satisfying a
sinking fund obligation, principal installment or final maturity, in
each case due within one year of the date of such acquisition or
retirement; 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; and
(2) TriMas would, 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 TriMas and the Restricted
Subsidiaries after the date of the indenture (excluding Restricted
Payments permitted by clauses (2), (3), (4), (8), (9) and, to the
extent reducing Consolidated Net Income, (10) of the next succeeding
paragraph), is less than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of TriMas for the period
(taken as one accounting period) from June 30, 2002 to the end of
TriMas' 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 net proceeds received by TriMas since the
date of the indenture, including the fair market value of
property other than cash (determined in good faith by the Board
of Directors), as a contribution to its common equity capital or
from the issue or sale of Equity Interests of TriMas (other than
Disqualified Stock) or from the issue or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable
debt securities of TriMas 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 TriMas), provided, that (1) any such net proceeds received,
directly or indirectly, by TriMas from an employee stock
ownership plan financed by loans from TriMas or a Subsidiary of
TriMas shall be included only to the extent such loans have been
repaid with cash on or prior to the date of determination and (2)
any net proceeds received in a form other than cash (other than
on conversion or in exchange for a security issued for cash to
the extent of the cash received) from a person that is an
Affiliate of TriMas prior to such receipt shall be excluded from
this clause (3)(b); plus
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(c) the amount by which Indebtedness of TriMas or any Restricted
Subsidiary is reduced on TriMas' balance sheet upon the
conversion or exchange (other than by a Restricted Subsidiary)
subsequent to the date of the indenture of any Indebtedness of
TriMas or any Restricted Subsidiary into Capital Stock (other
than Redeemable Stock) of TriMas (less the amount of any cash or
other property (other than such Capital Stock) distributed by
TriMas or any Restricted Subsidiary upon such conversion or
exchange); plus
(d) to the extent that any Restricted Investment that was made after
the date of the indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (i) the cash return
of capital with respect to such Restricted Investment (less the
cost of disposition, if any) and (ii) the initial amount of such
Restricted Investment; plus
(e) to the extent that any Unrestricted Subsidiary of TriMas is
redesignated as a Restricted Subsidiary after the date of the
indenture, the lesser of (i) the fair market value of TriMas'
Investment in such Subsidiary as of the date of such
redesignation or (ii) such fair market value as of the date on
which such Subsidiary was originally designated as an
Unrestricted Subsidiary.
So long as no Default has occurred and is continuing or would be caused
thereby (except as to clauses (1) through (4), (6) and (9) below), the
preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration of the dividend, if at the date of declaration the
dividend payment would have complied with the provisions of the
indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of TriMas or any
Guarantor or of any Equity Interests of TriMas in exchange for, or out
of the net cash proceeds of the substantially concurrent sale (other
than to a Restricted Subsidiary) of, Equity Interests (other than
Disqualified Stock) of TriMas or a substantially concurrent capital
contribution to TriMas; provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition will be excluded from
clause (3)(b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of TriMas or any Guarantor in exchange for,
or with the net cash proceeds from, an incurrence of Permitted
Refinancing Indebtedness or other Indebtedness Incurred under the
first paragraph of the covenant "Incurrence of Indebtedness and
Issuance of Preferred Stock";
(4) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness from Net Proceeds to the extent not
prohibited under "--Asset Sales," provided, that such purchase or
redemption shall be excluded from the calculation of the amount
available for Restricted Payments pursuant to the preceding paragraph;
(5) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness or Disqualified Stock of TriMas or any
Guarantor following a Change of Control after TriMas shall have
complied with the provisions under "--Change of Control," including
payment of the applicable Change of Control Payment;
(6) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of TriMas held by any member of TriMas'
(or any of its Subsidiaries') management pursuant to any management
equity subscription agreement, stock option agreement or other equity
incentive agreement or plan; provided that the aggregate price paid
for all such repurchased, redeemed, acquired or retired Equity
Interests may not exceed $5.0 million in any twelve-month period plus
any unutilized portion of such amount in any prior fiscal year;
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(7) any Investment made by the exchange for, or out of the proceeds of, a
capital contribution in respect of or the substantially concurrent
sale of, Capital Stock (other than Disqualified Stock) of TriMas to
the extent the net cash proceeds thereof are received by TriMas,
provided, that the amount of such capital contribution or proceeds
used to make such Investment shall be excluded from the calculation of
the amount available for Restricted Payments pursuant to the preceding
paragraph;
(8) other Restricted Payments in an aggregate amount not to exceed $20.0
million;
(9) payments required or contemplated by the terms of the Stock Purchase
Agreement and related documentation as in effect on the closing date
of the Transactions, including in respect of restricted stock awards
of TriMas or any direct or indirect payment of TriMas; and
(10) the payment of dividends on Disqualified Stock or Preferred Stock of
Restricted Subsidiaries subject to and permitted by the covenant
"Incurrence of Indebtedness and Issuance of Preferred Stock."
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 TriMas 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 acting in good faith
whose resolution with respect thereto will be conclusive.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
TriMas will not, and will not permit any of the 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 TriMas will not issue any Disqualified Stock and will not permit any
Restricted Subsidiary that is not a Guarantor to issue any shares of preferred
stock; provided, however, that TriMas may incur Indebtedness (including
Acquired Debt) or issue Disqualified Stock, and the Restricted Subsidiaries may
incur Indebtedness or Restricted Subsidiaries that are not a Guarantor may
issue preferred stock, if the Fixed Charge Coverage Ratio for TriMas' most
recently ended four full fiscal quarters for which financial statements are
available immediately preceding the date on which such additional Indebtedness
is incurred or such Disqualified Stock or preferred stock is issued would have
been at least 2.0 to 1.0 prior to June 15, 2005 and at least 2.25 to 1.0
thereafter, 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 preferred stock or Disqualified 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) (a) the incurrence by TriMas and any Restricted Subsidiary of
Indebtedness and letters of credit under the revolving facility
component of the Credit Facilities in an aggregate principal
amount at any one time outstanding under this clause (1)(a) (with
letters of credit being deemed to have a principal amount equal
to the maximum potential liability of TriMas and its Subsidiaries
thereunder) not to exceed $150.0 million less the aggregate
amount of all Net Proceeds of Asset Sales applied by TriMas or
any of the Restricted Subsidiaries to repay any Indebtedness
under the Credit Facilities and to effect a corresponding
commitment reduction thereunder pursuant to the covenant
described above under the caption "--Repurchase at the Option of
Holders--Asset Sales"; and
(b) the incurrence by TriMas and any Restricted Subsidiary of
Indebtedness under the term loan components of the Credit
Facilities in an aggregate principal amount at any one time
outstanding under this clause (1)(b) not to exceed $260.0 million
less the
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aggregate amount of all repayments, optional or mandatory, of the
principal of any term Indebtedness under a Credit Facility that
have been made by TriMas or any of the Restricted Subsidiaries
since the date of the indenture other than any repayment relating
to any amendment, restatement, modification, renewal, refunding,
replacement or refinancing of the principal of any term
Indebtedness under such Credit Facility; and
(c) the incurrence of Indebtedness of TriMas or any Restricted
Subsidiary under one or more receivables financing facilities
pursuant to which TriMas or any Restricted Subsidiary pledges or
otherwise borrows against its Receivables in an aggregate
principal amount which, when taken together with all other
Indebtedness Incurred pursuant to this clause (c) and then
outstanding, does not exceed 85% of the consolidated book value
of the Receivables of TriMas and the Restricted Subsidiaries (to
the extent such Receivables or any other Receivables of TriMas or
such Restricted Subsidiary, as the case may be, are not then
being financed pursuant to a Qualified Receivables Transaction or
as a basis for Indebtedness Incurred pursuant to clause (10) of
this paragraph);
(2) the incurrence by TriMas and the Restricted Subsidiaries of the
Existing Indebtedness;
(3) the incurrence by TriMas and the Guarantors of Indebtedness
represented by the notes and the related Subsidiary Guarantees to be
issued on the date of the indenture and the exchange notes and the
related Subsidiary Guarantees to be issued pursuant to the
registration rights agreement;
(4) the incurrence by TriMas or any of its 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
construction or improvement of property, plant or equipment used in
the business of TriMas or such Restricted Subsidiary ("Capital
Spending") and incurred no later than 270 days after the date of such
acquisition or the date of completion of such construction or
improvement, provided, that the principal amount of any Indebtedness
incurred pursuant to this clause (4) (other than Permitted Refinancing
Indebtedness) at any time during a single fiscal year shall not exceed
30% of the total Capital Spending of TriMas and the Restricted
Subsidiaries made during the period of the most recently completed
four consecutive fiscal quarters prior to the date of such incurrence;
(5) the incurrence by TriMas or any of the Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to refund, refinance or replace,
Indebtedness (other than intercompany Indebtedness) that was permitted
by the indenture to be incurred under the first paragraph of this
covenant or clause (2), (3), (4), (5), (8), (9) or (15) of this
paragraph;
(6) the incurrence by TriMas or any of the Restricted Subsidiaries of
intercompany Indebtedness between or among TriMas and any of the
Restricted Subsidiaries; provided, however, that:
(a) if TriMas or any Guarantor is the obligor on such Indebtedness,
such Indebtedness must be (i) unsecured and (ii) if the obligee
is neither TriMas nor a Guarantor, expressly subordinated to the
prior payment in full in cash of all Obligations with respect to
the notes (in the case of TriMas) (or the Subsidiary Guarantee,
in the case of a Guarantor); and
(b) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other
than TriMas or a Restricted Subsidiary of TriMas and (ii) any
sale or other transfer of any such Indebtedness to a Person that
is neither TriMas nor a Restricted Subsidiary of TriMas will be
deemed, in each case, to constitute an incurrence of such
Indebtedness by TriMas or such Restricted Subsidiary, as the case
may be, that was not permitted by this clause (6);
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(7) the incurrence by TriMas or any of the Restricted Subsidiaries of
Hedging Obligations that are incurred for the purpose of hedging (i)
interest rate risk or the impact of interest rate fluctuations on
TriMas or any of the Restricted Subsidiaries and (ii) in the case of
currency or commodity protection agreements, against currency exchange
rate or commodity price fluctuations in the ordinary course of TriMas
and the Restricted Subsidiaries' respective businesses and, in the
case of both (i) and (ii), not for purposes of speculation;
(8) the guarantee by TriMas or any of the Guarantors of Indebtedness of
TriMas or a Restricted Subsidiary that was permitted to be incurred by
another provision of this covenant;
(9) 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, and the payment
of dividends on Disqualified Stock in the form of additional shares of
similar 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 thereof is
included in Fixed Charges of TriMas as accrued;
(10) Indebtedness of Foreign Subsidiaries incurred for working capital
purposes if, at the time of incurrence of such Indebtedness, and after
giving effect thereto, the aggregate principal amount of all
Indebtedness of the Foreign Subsidiaries incurred pursuant to this
clause (10) and then outstanding does not exceed the amount equal to
the sum of (x) 80% of the consolidated book value of the accounts
receivable of the Foreign Subsidiaries and (y) 60% of the consolidated
book value of the inventories of the Foreign Subsidiaries;
(11) Indebtedness incurred in respect of (a) workers' compensation claims,
self-insurance obligations, bankers' acceptances, performance, surety
and similar bonds and completion guarantees provided by TriMas or a
Restricted Subsidiary in the ordinary course of business, (b) in
respect of performance bonds or similar obligations of TriMas or any
of the Restricted Subsidiaries for or in connection with pledges,
deposits or payments made or given in the ordinary course of business
and not for money borrowed in connection with or to secure statutory,
regulatory or similar obligations, including obligations under health,
safety or environmental obligations, and (c) arising from guarantees
to suppliers, lessors, licensees, contractors, franchises or customers
of obligations incurred in the ordinary course of business and not for
money borrowed;
(12) Indebtedness arising from agreements of TriMas or a Restricted
Subsidiary providing for indemnification, adjustment of purchase price
or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or Capital
Stock of a Restricted Subsidiary, provided, that the maximum aggregate
liability in respect of all such Indebtedness shall at no time exceed
the gross proceeds actually received by TriMas and the Restricted
Subsidiaries in connection with such disposition;
(13) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument (except in the
case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business, provided, however, that such Indebtedness
is extinguished within five Business Days of incurrence;
(14) the incurrence by a Receivables Subsidiary of Indebtedness in a
Qualified Receivables Transaction that is without recourse to TriMas
or to any other Subsidiary of TriMas or their assets (other than such
Receivables Subsidiary and its assets and, as to TriMas or any
Subsidiary of TriMas, other than pursuant to representations,
warranties, covenants and indemnities customary for such
transactions) and is not guaranteed by any such Person;
(15) the issuance and sale of preferred stock (a) by a Foreign Subsidiary
in lieu of the issuance of non-voting common stock if (i) the laws of
the jurisdiction of incorporation of such Subsidiary precludes the
issuance of non-voting common stock and (ii) the preferential rights
afforded to the holders of such preferred stock are limited to those
customarily
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provided for in such jurisdiction in respect of the issuance of
non-voting stock, (b) by a Restricted Subsidiary which is a joint
venture with a third party which is not an Affiliate of the Company or
a Restricted Subsidiary, and (c) by a Restricted Subsidiary pursuant
to obligations with respect to the issuance or sale of Preferred Stock
which exist at the time such Person becomes a Restricted Subsidiary
and which were not created in connection with or in contemplation of
such Person becoming a Restricted Subsidiary; and
(16) the incurrence by TriMas or any of the 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 refund, refinance or replace any
Indebtedness incurred pursuant to this clause (16), not to exceed
$35.0 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 (16) above, or is
entitled to be incurred pursuant to the first paragraph of this covenant,
TriMas 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 be deemed to have been incurred on
such date in reliance on the exception provided by clauses (1) and (2) of the
definition of Permitted Debt.
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 shall be
calculated based on the relevant currency exchange rate in effect on the date
such Indebtedness was incurred, in the case of term Indebtedness, or first
committed, in the case of revolving credit Indebtedness; provided, that 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 shall 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. Notwithstanding any
other provision of this covenant, the maximum amount of Indebtedness that
TriMas may incur pursuant to this covenant shall not be deemed to be exceeded
solely as a result of fluctuations in the exchange rate of currencies. The
principal amount of any Indebtedness incurred to Refinance other Indebtedness,
if incurred in a different currency from the Indebtedness being Refinanced,
shall be calculated based on the currency exchange rate applicable to the
currencies in which such Refinancing Indebtedness is denominated that is in
effect on the date of such Refinancing.
ANTI-LAYERING
TriMas will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt of TriMas and senior in any respect in right of
payment to the notes. No Guarantor will incur, create, issue, assume, guarantee
or otherwise become liable for any Indebtedness that is subordinate or junior
in right of payment to the Senior Debt of such Guarantor and senior in any
respect in right of payment to such
Guarantor's Subsidiary Guarantee.
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LIENS
TriMas will not and will not permit any of the Restricted Subsidiaries to,
directly or indirectly, create, incur, assume or otherwise cause or suffer to
exist or become effective any Lien of any kind securing Indebtedness (other
than Permitted Liens) upon any of their property or assets, now owned or
hereafter acquired to secure any Indebtedness without making, or causing such
Subsidiary to make, effective provision for securing the notes or, in respect
of Liens on any Guarantor's property or assets, any Guarantee of such
Guarantor, (x) equally and ratably with such Indebtedness as to such property
or assets for so long as such Indebtedness will be so secured or (y) in the
event such Indebtedness is subordinated Indebtedness, prior to such
Indebtedness as to such property or assets for so long as such Indebtedness
will be so secured.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
TriMas will not, and will not permit any of the Restricted Subsidiaries
to, directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
TriMas or any of the Restricted Subsidiaries, or with respect to any
other interest or participation in, or measured by, its profits, or
pay any indebtedness owed to TriMas or any of the Restricted
Subsidiaries;
(2) make loans or advances to TriMas or any of the Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to TriMas or any of the
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, modifications,
restatements, renewals, increases, supplements, refundings,
replacements or refinancings of those agreements, provided that the
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings are no 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 and the Subsidiary Guarantees;
(3) applicable law;
(4) customary non-assignment provisions in leases entered into in the
ordinary course of business and consistent with past practices;
(5) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on that property of the
nature described in clause (3) of the preceding paragraph;
(6) any agreement for the sale or other disposition of a Restricted
Subsidiary that restricts distributions by that Restricted Subsidiary
pending its sale or other disposition;
(7) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being
Refinanced;
(8) Liens securing Indebtedness otherwise permitted to be incurred under
the provisions of the covenant described above under the caption
"--Liens" that limit the right of the debtor to dispose of the assets
subject to such Liens;
(9) provisions with respect to the disposition or distribution of assets
or property in joint venture agreements, assets sale agreements, stock
sale agreements and other similar agreements entered into in the
ordinary course of business;
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(10) any agreement relating to any Indebtedness or Liens incurred by a
Person (other than a Subsidiary of TriMas that is a Subsidiary of
TriMas on the date of the indenture or any Subsidiary carrying on any
of the businesses of any such Subsidiary) prior to the date on which
such Person became a Subsidiary of TriMas and outstanding on such date
and not incurred in anticipation of becoming a Subsidiary and not
incurred to provide all or any portion of the funds utilized to
consummate such acquisition, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person,
other than the Person so acquired;
(11) any encumbrance or restriction with respect to a Foreign Subsidiary
pursuant to an agreement relating to Indebtedness which is permitted
under the "Incurrence of Indebtedness and Issuance of Preferred Stock"
covenant or Liens incurred by such Foreign Subsidiary;
(12) Indebtedness or other contractual requirements of a Receivables
Subsidiary in connection with a Qualified Receivables Transaction,
provided that such restrictions apply only to such Receivables
Subsidiary; and
(13) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business.
MERGER, CONSOLIDATION OR SALE OF ASSETS
TriMas may not, directly or indirectly: (1) consolidate or merge with or
into another Person (whether or not TriMas is the surviving corporation); or
(2) sell, assign, transfer, convey or otherwise dispose of all or substantially
all of the properties or assets of TriMas and the Restricted Subsidiaries taken
as a whole, in one or more related transactions, to another Person; unless:
(1) either: (a) TriMas is the surviving corporation; or (b) the Person
formed by or surviving any such consolidation or merger (if other than
TriMas) or to which such sale, assignment, transfer, conveyance or
other disposition has been made is a corporation organized or existing
under the laws of the United States, any state of the United States or
the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger (if
other than TriMas) or the Person to which such sale, assignment,
transfer, conveyance or other disposition has been made assumes all
the obligations of TriMas under the notes, the indenture and the
registration rights agreements pursuant to agreements reasonably
satisfactory to the trustee;
(3) immediately after such transaction, no Default or Event of Default
exists; and
(4) TriMas or the Person formed by or surviving any such consolidation or
merger (if other than TriMas), or to which such sale, assignment,
transfer, conveyance or other disposition has been made will, 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."
In addition, TriMas may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This "Merger, Consolidation or Sale of
Assets" covenant will not apply to a sale, assignment, transfer, conveyance or
other disposition of assets between or among TriMas and any of the Guarantors.
Notwithstanding anything in the indenture:
(a) a Restricted Subsidiary may consolidate with, merge into or convey,
lease, sell, assign, transfer or otherwise dispose of all or part of
its properties and assets to TriMas or a Restricted Subsidiary; and
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(b) TriMas may merge with an Affiliate incorporated solely for the purpose
of reincorporating TriMas in another jurisdiction in the United States
to realize tax or other benefits.
TRANSACTIONS WITH AFFILIATES
TriMas will not, and will not permit any of the 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 (each, an "Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are not materially less
favorable, taken as a whole, to TriMas or the relevant Restricted
Subsidiary than those that would have been obtained at the time in a
comparable transaction by TriMas or such Restricted Subsidiary with an
unaffiliated Person; and
(2) TriMas delivers to the trustee:
(a) except when the opinion referred to in the following clause (b)
is delivered, 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 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; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in
excess of $25.0 million, an opinion as to the fairness to TriMas
of such Affiliate Transaction from a financial point of view
issued by an accounting, appraisal or investment banking firm of
national standing.
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) loans or advances to employees, indemnification agreements with and
the payment of fees and indemnities to directors, officers and
full-time employees of TriMas and the Restricted Subsidiaries and
employment, non-competition or confidentiality agreements entered into
with any such person in the ordinary course of business;
(2) any issuance of securities, or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of,
employment, compensation or indemnification arrangements, stock
options and stock ownership plans in the ordinary course of business
to or with officers, directors or employees of TriMas and the
Restricted Subsidiaries, or approved by the Board of Directors;
(3) transactions between or among TriMas and/or the Restricted
Subsidiaries;
(4) transactions with a Person that is an Affiliate of TriMas solely
because TriMas owns an Equity Interest in, or controls, such Person;
(5) transactions pursuant to agreements existing on the date of the
indenture, including, without limitation, the Stock Purchase
Agreement, the Shareholders Agreement, the Corporate Services
Agreement and the Sublease Agreement, and, in each case, any amendment
or supplement thereto that, taken in its entirety, is no less
favorable to TriMas than such agreement as in effect on the date of
the indenture;
(6) sales of Equity Interests (other than Disqualified Stock) of TriMas to
Affiliates of TriMas or the receipt of capital contributions by
TriMas;
(7) payment of certain fees under the Advisory Agreement;
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(8) transactions (in connection with a Qualified Receivables Transaction)
between or among TriMas and/or its Restricted Subsidiaries or
transactions between a Receivables Subsidiary and any Person in which
the Receivables Subsidiary has an Investment;
(9) any management, service, purchase, lease, supply or similar agreement
entered into in the ordinary course of TriMas' business between TriMas
or any Restricted Subsidiary and any Unrestricted Subsidiary or any
Affiliate, so long as TriMas determines in good faith (which
determination shall be conclusive) that any such agreement is on terms
no less favorable to TriMas or such Restricted Subsidiary than those
that could be obtained in a comparable arm's-length transaction with
an entity that is not an Affiliate; and
(10) Restricted Payments and Permitted Investments that are permitted by
the provisions of the indenture described above under the caption
"--Restricted Payments."
ADDITIONAL SUBSIDIARY GUARANTEES
After the Issue Date, TriMas will cause each Restricted Subsidiary, other
than a Subsidiary which is a Subsidiary Guarantor, that becomes a guarantor or
other obligor with respect to the obligations of TriMas or a Domestic
Restricted Subsidiary under the Credit Agreement to execute and deliver to the
trustee a Guarantee pursuant to which such Guarantor will unconditionally
Guarantee, on a joint and several basis, the full and prompt payment of the
principal of, premium, if any, and interest on the notes on a senior
subordinated basis.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors 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 TriMas and
the Restricted Subsidiaries in the Subsidiary properly designated 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 first paragraph
of the covenant described above under the caption "--Restricted Payments" or
Permitted Investments, as determined by TriMas. 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 may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if the redesignation would not cause a Default.
REPORTS
Whether or not required by the rules and regulations of the SEC, so long
as any notes are outstanding, TriMas will furnish to the Holders of notes,
within the time periods specified in the SEC's rules and regulations:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the Commission on Forms 10-Q and 10-K
if TriMas were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report
on the annual financial statements by TriMas' certified independent
accountants; and
(2) all current reports that would be required to be filed with the SEC on
Form 8-K if TriMas were required to file such reports.
In addition, whether or not required by the SEC, TriMas will file a copy
of all of the information and reports referred to in clauses (1) and (2) above
with the Commission for public availability within the time periods specified
in the SEC's rules and regulations (unless the SEC will not accept such a
filing) and make such information available to securities analysts and
prospective investors upon request. In addition, TriMas and the Guarantors have
agreed that, for so long as any notes remain outstanding, they will furnish to
the Holders 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.
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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, or
Liquidated Damages with respect to, the notes whether or not
prohibited by the subordination provisions of the indenture;
(2) default in payment when due 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 TriMas or any of its Subsidiaries to comply with the
provisions described under the caption "--Repurchase at the Option of
Holders--Change of Control" or "--Certain Covenants--Merger,
Consolidation or Sale of Assets" after written notice to TriMas by the
trustee or the Holders of at least 25% in aggregate principal amount
of the outstanding notes;
(4) failure by TriMas or any of its Subsidiaries to comply with any of the
other agreements in the indenture continued for 60 days after written
notice to TriMas by the trustee or the Holders of at least 25% in
aggregate principal amount of the outstanding notes;
(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 TriMas or any of the Restricted
Subsidiaries (or the payment of which is guaranteed by TriMas or any
of the Restricted Subsidiaries), whether such Indebtedness or
guarantee now exists or is created after the date of the indenture, if
that default:
(a) is caused by a failure to pay principal of such Indebtedness at
the final maturity thereof (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its
express maturity,
and, in each case, 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 $20.0 million or more;
(6) failure by TriMas or any of the Restricted Subsidiaries to pay final
judgments aggregating in excess of $20.0 million (net of any insurance
proceeds available to pay such judgment), which judgments are not
paid, discharged or stayed for a period of 60 days;
(7) except as permitted by the indenture, any Subsidiary Guarantee shall
be held in any judicial proceeding to be unenforceable or invalid or
shall cease for any reason to be in full force and effect or any
Guarantor, or any Person acting on behalf of any Guarantor, shall deny
or disaffirm its obligations under its Subsidiary Guarantee; and
(8) certain events of bankruptcy or insolvency described in the indenture
with respect to TriMas or any of the Significant Subsidiaries thereof.
In the case of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to TriMas, 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
principal amount of the then outstanding notes may declare all the notes to be
due and payable immediately by giving notice in writing to us and the trustee
specifying the respective Event of Default (the "Acceleration Notice") or if
there are any amounts outstanding under the Credit Agreement, it shall become
immediately due and payable upon the first to occur of an acceleration under
the Credit Agreement or five business days after receipt by us and the
administrative agent under the Credit Agreement of such Acceleration Notice
(but only if such Event of Default is then continuing).
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, Holders of a
majority in principal amount of the then outstanding notes may direct the
trustee in its exercise of any trust or power. The trustee may
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withhold from Holders of the notes notice of any continuing Default or Event of
Default if it determines that withholding notes is in their interest, except a
Default or Event of Default relating to the payment of principal or interest or
Liquidated Damages.
The Holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the Holders of all of the
notes 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 Liquidated Damages on, or the principal of, the notes.
In the event of a declaration of acceleration of the notes because an
Event of Default described in clause (5) under "Events of Default" has occurred
and is continuing, the declaration of acceleration of the notes shall be
automatically annulled if the event of default or payment default triggering
such Event of Default pursuant to clause (5) shall be remedied or cured by
TriMas or a Restricted Subsidiary or waived by the holders of the relevant
Indebtedness within 60 days after the declaration of acceleration with respect
thereto and if (a) the annulment of the acceleration of the notes would not
conflict with any judgment or decree of a court of competent jurisdiction and
(b) all existing Events of Default, except nonpayment of principal, premium or
interest on the notes that became due solely because of the acceleration of the
notes, have been cured or waived.
TriMas 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, TriMas 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 TriMas or
any Guarantor, as such, will have any liability for any obligations of TriMas
or the Guarantors under the notes, the indenture, the Subsidiary 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
TriMas may, at its option and at any time, 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 Subsidiary
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 and Liquidated
Damages, if any, on such notes when such payments are due from the
trust referred to below;
(2) TriMas' 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
TriMas' and the Guarantors' obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, TriMas may, at its option and at any time, elect to have the
obligations of TriMas and the Guarantors released with respect to certain
covenants 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.
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In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) TriMas 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 firm of
independent public accountants, to pay the principal of, or interest
and premium and Liquidated Damages, if any, on the outstanding notes
on the stated maturity or on the applicable redemption date, as the
case may be, and TriMas must specify whether the notes are being
defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, TriMas has delivered to the trustee
an opinion of counsel reasonably acceptable to the trustee confirming
that (a) TriMas 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, TriMas has delivered 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 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);
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which TriMas or
any of its Subsidiaries is a party or by which TriMas or any of its
Subsidiaries is bound;
(6) TriMas must deliver to the trustee an officers' certificate stating
that the deposit was not made by TriMas with the intent of preferring
the Holders of notes over the other creditors of TriMas with the
intent of defeating, hindering, delaying or defrauding creditors of
TriMas or others; and
(7) TriMas 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.
In the event that TriMas exercises its legal defeasance option or covenant
defeasance option, each of the Guarantors will be released from all of its
obligations with respect to its guarantee. TriMas may exercise its legal
defeasance option notwithstanding its prior exercise of the covenant defeasance
option.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the indenture or
the notes may be amended or supplemented with the consent of the Holders of at
least a majority in 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
compliance with any provision of the indenture or the notes may be waived with
the consent of the Holders of a
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majority in 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 affected, an amendment or waiver may
not (with respect to any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes
(other than provisions relating to the covenants described above under
the caption "--Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any
note;
(4) waive a Default or Event of Default in the payment of principal of, or
interest or premium, or Liquidated Damages, 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 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 or Liquidated Damages, 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"); or
(8) 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,
TriMas, the Guarantors and the trustee may amend or supplement the indenture or
the notes:
(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 TriMas' obligations to Holders of
notes in the case of a merger or consolidation or sale of all or
substantially all of TriMas' assets;
(4) to make any change that would provide any additional rights or
benefits to the Holders of notes or that does not adversely affect the
legal rights under the indenture of any such Holder; or
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture
Act.
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 TriMas, have been delivered to the trustee for
cancellation; or
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(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 TriMas 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 and
Liquidated Damages, if any, and accrued interest to the date of
maturity or redemption;
(2) no Default or Event of Default has occurred and is continuing on the
date of the deposit or will occur as a result of the deposit and the
deposit will not result in a breach or violation of, or constitute a
default under, any other instrument to which TriMas or any Guarantor
is a party or by which TriMas or any Guarantor is bound;
(3) TriMas or any Guarantor has paid or caused to be paid all sums payable
by it under the indenture; and
(4) TriMas has delivered irrevocable instructions to the trustee under the
indenture to apply the deposited money toward the payment of the notes
at maturity or a redemption date, as the case may be.
In addition, TriMas 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 TriMas or any Guarantor, the
indenture limits its right 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 Commission for permission to continue or
resign.
The Holders of a majority in 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.
ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indenture and
registration rights agreements without charge by writing to TriMas Corporation,
39400 Woodward Avenue, Suite 130, Bloomfield Hills, Michigan, 48304, Attention:
Investor Relations.
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 such terms, 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 Subsidiary of such specified
Person, whether or not such Indebtedness is
105
incurred in connection with, or in contemplation of, such other Person
merging with or into, or becoming a Subsidiary of, such specified
Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Advisory Agreement" means that certain advisory agreement between TriMas
and Heartland, dated on or before the date of the indenture, or any amendment
or supplement thereto that, taken in its entirety, is no less favorable to
TriMas than such agreement as in effect on the date of the indenture.
"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. For purposes of this definition, the terms
"controlling," "controlled by" and "under common control with" have correlative
meanings. No Person (other than TriMas or any Subsidiary of TriMas) in which a
Receivables Subsidiary makes an Investment in connection with a Qualified
Receivables Transaction will be deemed to be an Affiliate of TriMas or any of
its Subsidiaries solely by reason of such Investment.
"Asset Sale" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights, other than dispositions in the ordinary course of business;
provided that the sale, conveyance or other disposition of all or
substantially all of the assets of TriMas and the Restricted
Subsidiaries taken as a whole will be governed by the provisions of
the indenture described above under the caption "--Repurchase at the
Option of Holders--Change of Control" and/or the provisions described
above under the caption "--Certain Covenants--Merger, Consolidation or
Sale of Assets" and not by the provisions of the Asset Sale covenant;
and
(2) the issuance of Equity Interests in any of the Restricted Subsidiaries
or the sale of Equity Interests in any of the 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 $2.5 million;
(2) a transfer of assets between or among TriMas and the Restricted
Subsidiaries;
(3) an issuance of Equity Interests by a Subsidiary to TriMas or to
another Restricted Subsidiary or any issuance of directors' qualifying
shares;
(4) the sale or other disposition of cash or Cash Equivalents;
(5) sales of accounts receivable and related assets of the type specified
in the definition of "Qualified Receivables Transaction" to a
Receivables Subsidiary;
(6) the surrender or waiver of contract rights or the settlement, release
or surrender of contract, tort or other claims of any kind;
(7) the grant in the ordinary course of business of licenses of patents,
trademarks and similar intellectual property;
(8) a disposition of obsolete or worn out equipment or equipment that is
no longer useful in the conduct of the business of TriMas and the
Restricted Subsidiaries and that is disposed of in each case in the
ordinary course of business;
(9) a Restricted Payment or Permitted Investment that is permitted by the
covenant described above under the caption "--Certain
Covenants--Restricted Payments"; and
(10) any issuance or sale of Equity Interests of any Unrestricted
Subsidiary.
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"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" will be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. 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;
(2) with respect to a partnership, the board of directors of the general
partner of the partnership; and
(3) with respect to any other Person, the board or committee of such
Person serving a similar function.
"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 in accordance with
GAAP.
"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
or membership interests (whether general or limited); 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.
"Cash Equivalents" means:
(1) cash;
(2) securities issued or directly and fully guaranteed or insured by the
United States, British or European Union government or any agency or
instrumentality of the United States, British or European Union
government (provided that the full faith and credit of the United
States, British or European Union is pledged in support of those
securities) having maturities of not more than six months from the
date of acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities
of six months or less from the date of acquisition, bankers'
acceptances 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, British or European Union commercial
bank having capital and surplus in excess of $150.0 million;
(4) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper with a maturity of 365 days or less from the date of
acquisition issued by a corporation organized under the laws of any
state of the United States of America or the District of Columbia or
any foreign country recognized by the United States of America whose
debt rating, at the time as of which such investment is made, is at
least "A-1" by Standard & Poor's Corporation or at least "P-1" by
Moody's Investors Service, Inc. or rated at least an equivalent rating
category of another nationally recognized securities rating agency;
107
(6) any security, maturing not more than 365 days after the date of
acquisition, backed by standby or direct pay letters of credit issued
by a bank meeting the qualifications described in clause (3) above;
(7) any security, maturing not more than 365 days after the date of
acquisition, issued or fully guaranteed by any state, commonwealth, or
territory of the United States of America, or by any political
subdivision thereof, and rated at least "A" by Standard & Poor's
Corporation or at least "A" by Moody's Investors Service, Inc. or
rated at least an equivalent rating category of another nationally
recognized securities rating agency; and
(8) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (7) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, 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 TriMas and the Restricted Subsidiaries, taken as a whole, to
any "person" (as that term is used in Section 13(d)(3) of the Exchange
Act) other than a Principal;
(2) the adoption of a plan relating to the liquidation or dissolution of
TriMas;
(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 the Principals or a Permitted Group,
becomes the Beneficial Owner, directly or indirectly, of more than 50%
of the Voting Stock of TriMas, measured by voting power rather than
number of shares; or
(4) the first day on which a majority of the members of the Board of
Directors of TriMas are not Continuing Directors.
"Consolidated Assets" of any Person as of any date of determination means
the total assets of such Person as reflected on the most recently prepared
balance sheet of such Person, determined on a consolidated basis in accordance
with GAAP.
"Consolidated Cash Flow" means, with respect to any specified Person for
any period, the Consolidated Net Income of such Person for such period plus:
(1) an amount equal to any extraordinary loss plus any net loss realized
by such Person or any of its Restricted Subsidiaries in connection
with an Asset Sale, to the extent such losses were deducted in
computing such Consolidated Net Income; plus
(2) 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; plus
(3) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (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), to the extent that any such expense
was deducted in computing such Consolidated Net Income; plus
(4) the loss on Qualified Receivables Transactions; plus
(5) dividends on preferred stock or accretion of discount on preferred
stock to the extent reducing Consolidated Net Income; plus
108
(6) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period) and other non-cash items (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 items were
deducted in computing such Consolidated Net Income; minus
(7) non-cash items increasing such Consolidated Net Income for such
period, other than the accrual of revenue in the ordinary course of
business; plus
(8) non-cash gains or losses resulting from fluctuations in currency
exchange rates will be excluded; plus
(9) the disposition of any securities or the extinguishment of any
Indebtedness will be excluded;
in each case, on a consolidated basis and determined in accordance with GAAP;
provided, however, that the provision for taxes based on the income or profits
of, the consolidated depreciation and amortization expense and such items of
expense or income attributable to, a Restricted Subsidiary shall be added to or
subtracted from Consolidated Net Income to compute Fixed Charge Coverage Ratio
only to the extent (and in the same proportion) that the net income of such
Restricted Subsidiary was included in calculating Consolidated Net Income.
"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:
(1) the Net Income of any Person that is not a Restricted Subsidiary or
that is accounted for by the equity method of accounting will be
included only to the extent of the amount of dividends or
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 Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition will
be excluded; and
(4) the cumulative effect of a change in accounting principles will be
excluded.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of TriMas who:
(1) was a member of such Board of Directors on the date of the indenture;
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 at the time of such nomination or election or
designated as a Director under the Shareholders Agreement.
"Corporate Services Agreement" means that certain corporate services
agreement by and between TriMas and Metaldyne Corporation pursuant to which
Metaldyne Corporation and its subsidiaries will provide management information
systems, legal, tax, accounting, human resources and other support services to
TriMas.
"Credit Agreement" means that certain Credit Agreement, dated as of June
6, 2002, by and among TriMas, certain of its subsidiaries and The Chase
Manhattan Bank, as administrative agent and collateral agent, Credit Suisse
First Boston Corporation, as syndication agent, Comerica Bank, as documentation
agent, National City Bank, as documentation agent, Wachovia National
Association, as
109
documentation agent, and the other lenders party thereto, as amended, modified,
renewed, refunded, replaced or refinanced from time to time.
"Credit Facilities" means, one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders 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 or refinanced in whole or in
part from time to time.
"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 all
Hedging Obligations with respect thereto; and
(2) after payment in full of all Obligations under the Credit Facilities,
any other Senior Debt permitted under the indenture the principal
amount of which is $25.0 million or more and that has been designated
by TriMas as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder of the Capital Stock),
or upon the happening of any event, matures or is mandatorily redeemable,
pursuant to a sinking fund obligation or otherwise, or redeemable at the option
of the holder of the Capital Stock, in whole or in part, on or prior to the
date 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 TriMas 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 TriMas 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."
"Domestic Subsidiary" means any Restricted Subsidiary of TriMas that was
formed under the laws of the United States or any state of the United States or
the District of Columbia or that guarantees or otherwise provides direct credit
support for any Indebtedness of TriMas.
"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 a primary sale of Capital Stock of TriMas or, to
the extent the net cash proceeds thereof are paid to TriMas as a capital
contribution, Capital Stock for cash to a Person or Persons other than a
Subsidiary of TriMas.
"Existing Indebtedness" means the Indebtedness of TriMas and its
Subsidiaries (other than Indebtedness under the Credit Agreement) in existence
on the date of the indenture, until such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any specified Person
for any period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the specified
Person or any of its Restricted Subsidiaries incurs, repays, repurchases,
redeems, defeases or otherwise retires any Indebtedness (other than ordinary
working capital 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, repayment, repurchase, redemption,
defeasance or other retirement 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.
110
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions of a business or operations that have been made by the
specified Person or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, 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 as if they had occurred on the first day of
the four-quarter reference period and Consolidated Cash Flow for such
reference period will be calculated on a pro forma basis determined in
good faith by a responsible financial or accounting officer of TriMas
(and such calculations may include such pro forma adjustments for
non-recurring items that TriMas considers reasonable in order to
reflect the ongoing impact of any such transaction on TriMas' results
of operations), but without giving effect to clause (3) of the proviso
set forth in the definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, will be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
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.
"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, to the
extent deducted in computing Consolidated Net Income; provided,
however, that with respect to any Restricted Subsidiary that is not a
Wholly-Owned Subsidiary, if the Consolidated Cash Flow of such
Restricted Subsidiary for such period is greater than or equal to such
consolidated interest expense of such Restricted Subsidiary for such
period, then such Person shall only include the consolidated interest
expense of such Restricted Subsidiary to the extent of the equity
ownership of such Person in such Restricted Subsidiary (calculated in
accordance with Section 13(d) of the Exchange Act); plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period, to the extent
deducted in computing Consolidated Net Income; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, whether or not such Guarantee or Lien is called upon;
plus
(4) the loss on Qualified Receivables Transactions; plus
(5) all dividends, whether paid in cash, assets or securities on any
series of preferred stock of TriMas or any Restricted Subsidiary,
other than dividends on Equity Interests payable solely in Equity
Interests of TriMas or a Guarantor (other than Disqualified Stock) or
to TriMas or a Restricted Subsidiary;
excluding, to the extent included in such consolidated interest expense, any of
the foregoing items of any Person acquired by TriMas or a Subsidiary of TriMas
in a pooling-of-interests transaction for any period prior to the date of such
transaction.
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"Foreign Subsidiary" means a Restricted Subsidiary that is organized under
the laws of any country other than the United States and substantially all the
assets of which are located outside the United States.
"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 from time to time.
"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.
"Guarantors" means each of:
(1) the Domestic Subsidiaries of TriMas as of the date of the indenture,
other than the Receivables Subsidiary; and
(2) any other subsidiary that executes a Subsidiary Guarantee in
accordance with the provisions of the indenture;
and their respective successors and assigns.
"Heartland" means Heartland Industrial Partners, L.P., a Delaware limited
partnership, and its successors.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates, commodity prices or currency
risks incurred in the ordinary course of business.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, 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;
(5) representing the balance deferred and unpaid of the purchase price of
any property, except any such balance that constitutes an accrued
expense or trade payable or non-competition or trade name licensing
arrangements on customary terms entered into in connection with an
acquisition; or
(6) representing any Hedging Obligations,
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.
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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; and
(2) the principal amount of the Indebtedness, together with any interest
on the Indebtedness that is more than 30 days past due, in the case of
any other Indebtedness.
"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. If TriMas or
any Subsidiary of TriMas sells or otherwise disposes of any Equity Interests of
any direct or indirect Subsidiary of TriMas such that, after giving effect to
any such sale or disposition, such Person is no longer a Subsidiary of TriMas,
TriMas will be deemed to have made an Investment on the date of any such sale
or disposition equal to the fair market value of TriMas' 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 TriMas
or any Subsidiary of TriMas of a Person that holds an Investment in a third
Person will be deemed to be an Investment by TriMas or such Subsidiary in such
third Person in an amount equal to the fair market value 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."
"Lien" means, with respect to any asset, any mortgage, lien, 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 thereof, any option or other agreement to sell or give a security
interest in and, except in connection with any Qualified Receivables
Transaction, any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"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, excluding, however:
(1) any gain or loss, together with any related provision for taxes on
such gain or loss, realized in connection with: (a) any Asset Sale; 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; and
(2) any extraordinary gain or loss, together with any related provision
for taxes on such extraordinary gain or loss.
"Net Proceeds" means the aggregate cash proceeds received by TriMas 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
incurred as a result of the Asset Sale, taxes paid or 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 Indebtedness under a
Credit Facility, 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-Guarantor Subsidiaries" means TSPC, Inc. and any other Receivables
Subsidiary, each non-Domestic Subsidiary and Domestic Subsidiary not required
to provide Guarantees under the Credit Agreement.
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"Non-Recourse Debt" means Indebtedness:
(1) as to which neither TriMas nor any of the 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 (other than the
notes) of TriMas or any of the 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 TriMas or any of the
Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Acquired Investment" means any Investment by any Person (the
"Subject Person") in another Person made prior to the time:
(1) the Subject Person became a Restricted Subsidiary,
(2) the Subject Person merged into or consolidated with a Restricted
Subsidiary, or
(3) another Restricted Subsidiary merged into or was consolidated with the
Subject Person (in a transaction in which the Subject Person became a
Restricted Subsidiary),
provided that such Investment was not made in anticipation of any such
transaction and was outstanding prior to such transaction; provided, further,
that the book value of such Investments (excluding all Permitted Investments
(other than those referred to in clause (14) of the definition thereof)) does
not exceed 5% of the Consolidated Assets of the Subject Person immediately
prior to the Subject Person becoming a Restricted Subsidiary.
"Permitted Group" means any group of investors that is deemed to be a
"person" (as that term is used in Section 13(d)(3) of the Exchange Act) at any
time prior to an underwritten initial public offering of common stock of
TriMas, by virtue of the Stockholders Agreement, as the same may be amended,
modified or supplemented from time to time, provided that no single Person
(other than the Principals) Beneficially Owns (together with its Affiliates)
more of the Voting Stock of TriMas that is Beneficially Owned by such group of
investors than is then collectively Beneficially Owned by the Principals in the
aggregate.
"Permitted Investments" means:
(1) any Investment in TriMas or in a Restricted Subsidiary of TriMas;
(2) any Investment in Cash Equivalents;
(3) any Investment by TriMas or any Subsidiary of TriMas in a Person, if
as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of TriMas; 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, TriMas or a Restricted Subsidiary of TriMas;
(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 the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales";
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(5) any acquisition of assets to the extent in exchange for the issuance
of Equity Interests (other than Disqualified Stock) of TriMas;
(6) any Investments received in compromise of obligations of such persons
incurred in the ordinary course of trade creditors or customers that
were incurred in the ordinary course of business, including pursuant
to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of any trade creditor or customer;
(7) Hedging Obligations;
(8) lease, utility and other similar deposits in the ordinary course of
business;
(9) Investments existing on the date of the indenture;
(10) loans or advances to employees for purposes of purchasing Capital
Stock of TriMas in an aggregate amount outstanding at any one time not
to exceed $5.0 million and other loans and advances to employees of
TriMas and its Subsidiaries in the ordinary course of business and on
terms consistent with practices in effect prior to the date of the
indenture, including travel, moving and other like advances;
(11) loans or advances to vendors or contractors of TriMas in the ordinary
course of business and consistent with past practices;
(12) Investments in Unrestricted Subsidiaries, partnerships or joint
ventures involving TriMas or its Restricted Subsidiaries, if the
amount of such Investment (after taking into account the amount of all
other Investments made pursuant to this clause (12), less any return
of capital realized or any repayment of principal received on such
Permitted Investments, or any release or other cancellation of any
Guarantee constituting such Permitted Investment, which has not at
such time been reinvested in Permitted Investments made pursuant to
this clause (12) does not exceed 2.5% of TriMas' Consolidated Assets);
(13) the acquisition by a Receivables Subsidiary in connection with a
Qualified Receivables Transaction of Equity Interests of a trust or
other Person established by such Receivables Subsidiary to effect such
Qualified Receivables Transaction; and any other Investment by TriMas
or a Subsidiary of TriMas in a Receivables Subsidiary or any
Investment by a Receivables Subsidiary in any other Person in
connection with a Qualified Receivables Transaction; and
(14) Permitted Acquired Investments.
"Permitted Junior Securities" means:
(1) Equity Interests in TriMas 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
Subsidiary Guarantees are subordinated to Senior Debt under the
indenture.
"Permitted Liens" means:
(1) Liens to secure Senior Debt of TriMas and any Guarantor or to secure
Indebtedness of a Restricted Subsidiary that is not a Guarantor,
including, without limitation, Indebtedness and other Obligations
under Credit Facilities;
(2) Liens in favor of TriMas or the Guarantors;
(3) Liens on property of a Person existing at the time such Person is
merged with or into or consolidated with TriMas or any Subsidiary of
TriMas; provided that such Liens were in existence prior to the
contemplation of such merger or consolidation and do not extend to any
assets other than those of the Person merged into or consolidated with
TriMas or the Subsidiary;
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(4) Liens on property existing at the time of acquisition of the property
by TriMas or any Subsidiary of TriMas, provided that such Liens were
in existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds 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 such
Indebtedness;
(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 by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as is
required in conformity with GAAP has been made therefor;
(9) Liens on assets of TriMas or a Receivables Subsidiary incurred in
connection with a Qualified Receivables Transaction;
(10) Liens replacing any of the items set forth in clauses (1), (3), (4)
and (7) above, provided, that (A) the principal amount of the
Indebtedness secured by such Liens shall not be increased (except with
respect to premiums or other payments paid in connection with a
concurrent Refinancing of such Indebtedness and the expenses incurred
in connection therewith), (B) the principal amount of the Indebtedness
secured by such Liens, determined as of the date of incurrence, has a
Weighted Average Life to Maturity at least equal to the remaining
Weighted Average Life to Maturity of the Indebtedness being Refinanced
or repaid, (C) the maturity of the Indebtedness secured by such Liens
is not earlier than that of the Indebtedness to be Refinanced, (D)
such Liens have the same or a lower ranking and priority as the Liens
being replaced, and (E) such Liens shall be limited to the property or
assets encumbered by the Lien so replaced;
(11) Liens encumbering cash proceeds (or securities purchased therewith)
from Indebtedness permitted to be incurred pursuant to the "Incurrence
of Indebtedness and Issuance of Preferred Stock" covenant which are
set aside at the time of such incurrence in order to secure an escrow
arrangement pursuant to which such cash proceeds (or securities
purchased therewith) are contemplated to ultimately be released to
TriMas or a Restricted Subsidiary or returned to the lenders of such
Indebtedness, provided, that such Liens are automatically released
concurrently with the release of such cash proceeds (or securities
purchased therewith) from such escrow arrangement;
(12) Liens (including extensions, renewals and replacements thereof) upon
property or assets created for the purpose of securing Indebtedness
incurred to finance or Refinance the cost (including the cost of
construction) of such property or assets, provided, that (A) the
principal amount of the Indebtedness secured by such Lien does not
exceed 100% of the cost of such property or assets, (B) such Lien does
not extend to or cover any property or assets other than the property
or assets being financed or Refinanced by such Indebtedness and any
improvements thereon, and (C) the incurrence of such Indebtedness is
permitted by the "Incurrence of Indebtedness and Issuance of Preferred
Stock" covenant;
(13) Liens securing Indebtedness of Foreign Subsidiaries permitted to be
incurred under the "Incurrence of Indebtedness and Issuance of
Preferred Stock" covenant;
(14) Liens (other than Liens securing subordinated Indebtedness) which,
when the Indebtedness relating to those Liens is added to all other
then outstanding Indebtedness of TriMas and its
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Restricted Subsidiaries secured by Liens and not listed in clauses (1)
through (13) above or (15) through (26) below, does not exceed 5% of
the Consolidated Assets of TriMas;
(15) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security or similar obligations, including any
Lien securing letters of credit issued in the ordinary course of
business consistent with past practice in connection therewith, or to
secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, government contracts, performance and
return-of-money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
(16) judgment Liens not accompanied by an Event of Default of the type
described in clause (6) under "Events of Default" arising from such
judgment;
(17) easements, rights-of-way, zoning restrictions, minor defects or
irregularities in title and other similar charges or encumbrances in
respect of real property not interfering in any material respect with
the ordinary conduct of business of TriMas or any of its Restricted
Subsidiaries;
(18) any interest or title of a lessor under any lease, whether or not
characterized as capital or operating; provided, that such Liens do
not extend to any property or assets which is not leased property
subject to such lease;
(19) Liens upon specific items of inventory or other goods and proceeds of
any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or
other goods;
(20) Liens securing reimbursement obligations with respect to letters of
credit which encumber documents and other property relating to such
letters of credit and products and proceeds thereof;
(21) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of TriMas
or any of the Restricted Subsidiaries, including rights of offset and
set-off;
(22) leases or subleases granted to others not interfering in any material
respect with the business of TriMas or the Restricted Subsidiaries;
(23) Liens securing Hedging Obligations;
(24) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of custom duties in connection with
importation of goods;
(25) Liens encumbering initial deposits and margin deposits, and other
Liens incurred in the ordinary course of business and that are within
the general parameters customary in the industry; and
(26) Liens arising from filing Uniform Commercial Code financing statements
regarding leases.
"Permitted Refinancing Indebtedness" means any Indebtedness of TriMas or
any of its Restricted Subsidiaries issued in exchange for, or the net proceeds
of which are used to extend, refinance, renew, replace, defease or refund other
Indebtedness of TriMas 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
extended, refinanced, renewed, replaced, defeased or refunded (plus
all accrued interest on the Indebtedness and the amount of all
expenses and 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
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Weighted Average Life to Maturity of, the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes,
such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and 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 extended, refinanced, renewed, replaced, defeased
or refunded; and
(4) such Indebtedness is incurred either by TriMas, a Guarantor or by the
Restricted Subsidiary who is the obligor on the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded.
"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 Heartland and any of its Affiliates.
"Qualified Receivables Transaction" means any transaction or series of
transactions entered into by TriMas or any of its Subsidiaries pursuant to
which TriMas or any of its Subsidiaries sells, conveys or otherwise transfers
to (i) a Receivables Subsidiary (in the case of a transfer by TriMas or any of
its Subsidiaries) and (ii) any other Person (in the case of a transfer by a
Receivables Subsidiary), or grants a security interest in, any accounts
receivable (whether now existing or arising in the future) of TriMas or any of
its Subsidiaries, and any assets related thereto including, without limitation,
all collateral securing such accounts receivable, all contracts and all
guarantees or other obligations in respect of such accounts receivable,
proceeds of such accounts receivable and other assets which are customarily
transferred or in respect of which security interests are customarily granted
in connection with asset securitization transactions involving accounts
receivable.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money.
"Receivables" shall include the indebtedness and payment obligations of any
Person to TriMas or a Subsidiary arising from a sale of merchandise or services
by TriMas or such Subsidiary in the ordinary course of its business, including
any right to payment for goods sold or for services rendered, and including the
right to payment of any interest, finance charges, returned check or late
charges and other obligations of such Person with respect thereto. Receivables
shall also include (a) all of TriMas' or such Subsidiary's interest in the
merchandise (including returned merchandise), if any, relating to the sale
which gave rise to such Receivable, (b) all other security interests or Liens
and property subject thereto from time to time purporting to secure payment of
such Receivable, whether pursuant to the contract related to such Receivable or
otherwise, together with all financing statements signed by an Obligor
describing any collateral securing such Receivable, and (c) all guarantees,
insurance, letters of credit and other agreements or arrangements of whatever
character from time to time supporting or securing payment of such Receivable
whether pursuant to the contract related to such Receivable or otherwise.
"Receivables Subsidiary" means a Subsidiary of TriMas which engages in no
activities other than in connection with the financing of accounts receivable
and which is designated by the Board of Directors of TriMas (as provided below)
as a Receivables Subsidiary (a) no portion of the Indebtedness or any other
Obligations (contingent or otherwise) of which (i) is guaranteed by TriMas or
any Subsidiary of TriMas (excluding guarantees of Obligations (other than the
principal of, and interest on, Indebtedness) pursuant to representations,
warranties, covenants and indemnities entered into in the ordinary course of
business in connection with a Qualified Receivables Transaction), (ii) is
recourse to or obligates TriMas or any Subsidiary of TriMas in any way other
than pursuant to representations, warranties, covenants and indemnities entered
into in the ordinary course of business in connection with a Qualified
Receivables Transaction or (iii) subjects any property or asset of TriMas or
any Subsidiary of TriMas (other than accounts receivable and related assets as
provided in the definition of "Qualified Receivables Transaction"), directly or
indirectly, contingently or otherwise, to the satisfaction thereof, other than
pursuant to representations, warranties, covenants, limited
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repurchase obligations and indemnities entered into in the ordinary course of
business in connection with a Qualified Receivables Transaction, (b) with which
neither TriMas nor any Subsidiary of TriMas has any material contract,
agreement, arrangement or understanding other than on terms no less favorable
to TriMas or such Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of TriMas, other than fees payable in the
ordinary course of business in connection with servicing accounts receivable
and (c) with which neither TriMas nor any Subsidiary of TriMas has any
obligation to maintain or preserve such Subsidiary's financial condition or
cause such Subsidiary to achieve certain levels of operating results. Any such
designation by the Board of Directors of TriMas will be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of the
Board of Directors (which resolution shall be conclusive) of TriMas giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions.
"Refinance" means, with respect to any Indebtedness, a renewal, extension,
refinancing, replacement, amendment, restatement or refunding of such
Indebtedness, and shall include any successive Refinancing of any of the
foregoing.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Debt" means:
(1) all Indebtedness of TriMas or any Guarantor outstanding under Credit
Facilities and all Hedging Obligations with respect thereto;
(2) any other Indebtedness of TriMas 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
Subsidiary 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 TriMas;
(2) any intercompany Indebtedness of TriMas or any of its Subsidiaries to
TriMas or any of its Affiliates;
(3) any trade payables; or
(4) the portion of any Indebtedness that is incurred in violation of the
indenture; provided that such Indebtedness shall be deemed not to have
been incurred in violation of the indenture for purposes of this
clause (4) if such Indebtedness consists of Indebtedness under any
Credit Facility and holders of such Indebtedness or their agent or
representative (i) had no actual knowledge at the time of the
incurrence that the incurrence of such Indebtedness violated the
indenture and (ii) shall have received an officers' certificate to the
effect that the incurrence of such Indebtedness does not violate the
provisions of the indenture.
"Shareholders Agreement" means certain shareholders agreement by and among
Heartland, Metaldyne Company LLC and other investors party thereto relating to
their ownership in TriMas.
"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
hereof.
"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 original documentation
governing such Indebtedness, and 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.
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"Stock Purchase Agreement" means that certain stock purchase agreement,
dated on or about May 15, 2002, by and among TriMas, Metaldyne Corporation and
Heartland under which Heartland and other investors will acquire a majority of
the common stock of TriMas.
"Sublease Agreement" means that certain lease by and between TriMas and
Valenti Capital, L.L.C. relating to TriMas' headquarters in Bloomfield Hills,
Michigan.
"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) 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).
"Transactions" means, collectively, the transactions pursuant to the Stock
Purchase Agreement and the related financings.
"Unrestricted Subsidiary" means any Subsidiary of TriMas that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to
a Board Resolution, but only to the extent that such Subsidiary is not party to
any agreement, contract, arrangement or understanding with TriMas or any
Restricted Subsidiary of TriMas unless the terms of all such agreements,
contracts, arrangements or understandings are no less favorable to TriMas or
such Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of TriMas.
Any designation of a Subsidiary of TriMas as an Unrestricted Subsidiary
will be evidenced to the trustee by filing with the trustee a certified copy of
the Board Resolution 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
"--Certain Covenants--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 TriMas 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 "--Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," TriMas will be in default of
such covenant. The Board of Directors of TriMas may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation will be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of TriMas 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 "--Certain
Covenants--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.
"Voting Stock" of any 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
120
(2) the then outstanding principal amount of such Indebtedness.
"Wholly-Owned Subsidiary" of any specified Person means a Subsidiary of
such Person all of the outstanding Capital Stock or other ownership interests
of which (other than directors' qualifying shares) will at the time be owned by
such Person or by one or more Wholly-Owned Subsidiaries of such Person and one
or more Wholly-Owned Subsidiaries of such Person.
121
SUMMARY OF MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material U.S. federal income tax
consequences of beneficial ownership and disposition associated with the
exchange of original notes for exchange notes and the acquisition of the
exchange notes. Except where otherwise noted, it deals with holders that hold
their notes as capital assets. This summary does not deal with special classes
of holders such as dealers in securities, partnerships or other pass-through
entities, financial institutions, life insurance companies, certain
expatriates, persons holding the notes as part of a straddle or hedging or
conversion transaction or persons whose functional currency is not the U.S.
dollar. Moreover, this summary is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations, rulings and
judicial decisions thereunder as now in effect, and such authorities may be
repealed, revoked or modified (possibly on a retroactive basis) so as to result
in federal income tax consequences different from those discussed below.
As used herein, a "U.S. holder" is a beneficial owner of the notes that
for U.S. federal income tax purposes is:
o a citizen or resident of the U.S.,
o a corporation (or an entity treated as a corporation) which is
organized under the laws of the U.S. or any political subdivision
thereof,
o an estate, the income of which is subject to U.S. federal income tax
without regard to its source, or
o a trust if a court within the U.S. is able to exercise primary
supervision over the administration of the trust and one or more U.S.
persons have the authority to control all substantial decisions of the
trust, or if the trust has made a valid election to be treated as a
United States person.
A Non-U.S. holder is a beneficial owner that is for U.S. federal income
tax purposes either a nonresident alien or a corporation, estate or trust that
is not a U.S. holder.
If a partnership holds the notes, the tax treatment of a partner will
generally depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding the notes, you
should consult your tax advisors.
EXCHANGE OF NOTES
The exchange of original notes for exchange notes pursuant to this
exchange offer will not constitute a taxable event for U.S. federal income tax
purposes to U.S. holders. Consequently, no gain or loss will be recognized by a
U.S. holder upon receipt of an exchange note. The holding period and tax basis
of an exchange note will be the same as the holding period and tax basis,
immediately before the exchange, of the note so exchanged.
U.S. HOLDERS
The following is a summary of the material U.S. federal tax consequences
that will apply to you if you are a U.S. holder of the notes. Material
consequences to Non-U.S. holders of the notes are described under "Non-U.S.
Holders" below.
PAYMENTS OF INTEREST
Payments of stated interest and additional interest, if any, on a note
will generally be taxable to a U.S. holder as ordinary income at the time it is
paid or accrued, depending on the U.S. holder's method of accounting for tax
purposes.
We intend to take the position that a repurchase at the option of holders
if a change of control occurs is remote and do not intend to treat the
possibility of a repurchase at the option of holders at a price in excess of
the aggregate principal amount, plus accrued interest as affecting the yield
and maturity of the notes. However, the IRS may take a different position which
could affect both the timing of a U.S. holder's recognition of income and the
availability of our deduction with respect to such additional amounts.
122
SALE, EXCHANGE AND RETIREMENT OF NOTES
Upon a sale, exchange (other than an exchange of original notes for
exchange notes) or retirement of a note, a U.S. holder generally will recognize
gain or loss equal to the difference between the amount received upon the sale,
exchange or retirement (less any amount attributable to accrued interest which
will be taxable as ordinary income, if not previously taken into income) and
the holder's tax basis in the note at that time.
Gain or loss realized on the sale, exchange or retirement of a note will
be capital gain or loss, except that gain may be treated as ordinary income to
the extent of any accrued market discount, and will be long-term capital gain
or loss if at the time of sale, exchange or retirement the note has been held
for more than one year. Under current law, long-term capital gains of certain
non-corporate holders are generally taxed at lower rates than items of ordinary
income. The use of capital losses is subject to limitations.
NON-U.S. HOLDERS
The following is a summary of the material U.S. federal tax consequences
that will apply to you if you are a Non-U.S. holder of the notes. This summary
does not present a detailed description of the U.S. federal tax consequences to
you in light of your particular circumstances. In addition, it does not deal
with Non-U.S. holders subject to special treatment under U.S. federal tax laws
(including if you are a controlled foreign corporation, a passive foreign
investment company, a foreign personal holding company, a corporation that
accumulates earnings to avoid U.S. federal income tax, or, in certain
circumstances, a United States expatriate).
Under present U.S. federal income tax law and subject to the discussion of
information reporting and backup withholding below, payments of interest on the
notes to or on behalf of any Non-U.S. holder who is not engaged in a trade or
business within the U.S. with which interest on the notes is effectively
connected will not be subject to U.S. federal income or withholding tax,
provided that:
o such beneficial owner does not actually or constructively own ten
percent or more of the total combined voting power of all classes of
our voting stock within the meaning of the Code and applicable U.S.
Treasury regulations,
o such beneficial owner is not a controlled foreign corporation for U.S.
federal income tax purposes (generally, a foreign corporation
controlled by U.S. shareholders) that is related to us through stock
ownership, and
o certain certification requirements are met.
A Non-U.S. holder will not be exempt from U.S. withholding tax, however,
if the withholding agent or intermediary knows or has reason to know the
Non-U.S. holder should not be exempt. If a Non-U.S. holder does not qualify for
the foregoing exemption, interest payments to the Non-U.S. holder generally
will be subject to a 30% withholding tax (unless reduced or eliminated by an
applicable treaty and certain certification requirements are met).
Any capital gain realized upon a sale, exchange or retirement of a note by
or on behalf of a Non-U.S. holder ordinarily will not be subject to a U.S.
federal withholding or income tax unless (i) such gain is effectively connected
with a U.S. trade or business of the holder or (ii) in the case of an
individual, such beneficial owner is present in the U.S. for 183 days or more
during the taxable year of the sale, exchange or retirement and certain other
requirements are met. As noted above, an exchange of a note for an exchange
note pursuant to the exchange offer will not constitute a taxable exchange.
If interest and other payments received by a Non-U.S. holder with respect
to the notes (including proceeds from the disposition of the notes) are
effectively connected with the conduct by the Non-U.S. holder of a trade or
business within the U.S. (or the Non-U.S. holder is otherwise subject to U.S.
federal income taxation on a net basis with respect to such holder's ownership
of the notes), such Non-U.S. holder will generally not be subject to
withholding tax (provided certain certification requirements are met), but
instead will generally be subject to the rules described above for a U.S.
123
holder (subject to any modification provided under an applicable income tax
treaty). Such Non-U.S. holder may also be subject to the "branch profits tax"
if such Non-U.S. holder is a corporation.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting will apply to payments of principal,
premium, if any, and interest on a note and the proceeds of the sale of a note
with respect to U.S. holders. Backup withholding at a rate of 30% (subject to
periodic reductions through 2006) will apply to such payments if a U.S. holder
fails to provide a taxpayer identification number to certify that such U.S.
holder is not subject to backup withholding, or otherwise to comply with the
applicable requirements of the backup withholding rules. Certain U.S. holders
(including, among others, corporations) are not subject to the backup
withholding and reporting requirements.
We must report annually to the IRS and to each Non-U.S. holder on Form
1042-S the amount of interest paid on a note, regardless of whether withholding
was required, and any tax withheld with respect to the interest. Under the
provisions of an income tax treaty and other applicable agreements, copies of
these information returns may be made available to the tax authorities of the
country in which the Non-U.S. holder resides.
Backup withholding generally will not apply to payments made by us or our
paying agent to a Non-U.S. holder of a note who provides the requisite
certification (on an IRS Form W-8BEN or other applicable form) or otherwise
establishes that it qualifies for an exemption from backup withholding.
Payments of the proceeds of a disposition of the notes by or through a U.S.
office of a broker generally will be subject to backup withholding and
information reporting unless the Non-U.S. holder certifies that it is a
Non-U.S. holder under penalties of perjury or otherwise establishes that it
qualifies for an exemption. Payments of principal or premium, if any, or the
proceeds of a disposition of the notes by or through a foreign office of a U.S.
broker or foreign broker with certain relationships to the United States
generally will be subject to information reporting, but not backup withholding,
unless such broker has documentary evidence in its records that the holder is a
Non-U.S. holder and certain other conditions are met, or the exemption is
otherwise established.
Backup withholding is not an additional tax; any amounts withheld under
the backup withholding rules will be allowed as a refund or a credit against
such holder's U.S. federal income tax liability provided the required
information is furnished to the IRS.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER IN LIGHT OF ITS PARTICULAR
CIRCUMSTANCES AND TAX SITUATION. A HOLDER SHOULD CONSULT SUCH HOLDER'S TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE OWNERSHIP AND
DISPOSITION OF THE NOTES, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL,
FOREIGN, AND OTHER TAX LAWS OR SUBSEQUENT VERSIONS THEREOF.
124
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of exchange notes received in
exchange for original notes where such original notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. We have agreed that for a period of 30 days after effectiveness of
the exchange offer registration statement, we will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells exchange notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of exchange notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The letter of transmittal states that, by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
By acceptance of the exchange offer, each broker-dealer that receives exchange
notes pursuant to the exchange offer hereby agrees to notify us prior to using
this prospectus in connection with the sale or transfer of exchange notes, and
acknowledges and agrees that, upon receipt of notice from us of the happening
of any event which makes any statement in this prospectus untrue in any
material respect or which requires the making of any changes in this prospectus
in order to make the statements herein not misleading (which notice we agree to
deliver promptly to such broker-dealer), such broker-dealer will suspend use of
this prospectus until we have amended or supplemented the prospectus to correct
such misstatement or omission and have furnished copies of the amended or
supplemented prospectus to such broker-dealer.
For a period of 30 days after effectiveness of the exchange offer
registration statement, we will promptly upon request send additional copies of
this prospectus and any amendment or supplement thereto to any broker-dealer
that requests such documents in the letter of transmittal. We have agreed to
pay all expenses incident to the exchange offer (including the expenses of any
one special counsel for the Holders of the Notes) other than commissions or
concessions of any broker or dealers and will indemnify the Holders of the
Notes participating in the exchange offer (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the notes will be
passed upon for us by Cahill Gordon & Reindel, New York, New York.
EXPERTS
The combined financial statements of TriMas Corporation as of December 31,
2001 and 2000 and for the year ended December 31, 2001, the period from
November 28, 2000 to December 31, 2000, the period from January 1, 2000 to
November 27, 2000 and the year ended December 31, 1999 included in this
prospectus and the financial statement schedule in the Registration Statement
have been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants given on the authority of said firm as experts in
auditing and accounting.
125
RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the fairness and integrity of the Company's
financial statements. In order to meet this responsibility, management
maintains formal policies and procedures that are consistent with high
standards of accounting and administrative practices which are regularly
communicated within the organization. In addition, management maintains a
program of internal auditing within the Company to examine and evaluate the
adequacy and effectiveness of established internal controls as related to
Company policies, procedures and objectives. Management believes that it is
essential for the Company to conduct its business affairs in accordance with
the highest ethical standards, as set forth in the Company's codes of conduct.
These guidelines, translated into numerous languages, are distributed to
employees throughout the world, and reemphasized through internal programs to
assure that they are understood and followed. The accompanying report of the
Company's independent accountants states their opinion on the Company's
financial statements, based on audits conducted in accordance with generally
accepted auditing standards.
126
INDEX TO FINANCIAL STATEMENTS
TRIMAS CORPORATION
PAGE NO.
---------
AUDITED COMBINED FINANCIAL STATEMENTS
Report of Independent Accountants ........................................... F-2
Combined Balance Sheets as of December 31, 2001 and 2000 .................... F-3
Combined Statements of Operations for the Periods Ended December 31, 2001,
December 31, 2000, November 27, 2000 and December 31, 1999 ................. F-4
Combined Statements of Cash Flows for the Periods Ended December 31, 2001,
December 31, 2000, November 27, 2000 and December 31, 1999 ................. F-5
Combined Statements of Changes in Metaldyne Corporation Net Investment and
Advances for Periods Ended December 31, 2001, December 31, 2000,
November 27, 2000 and December 31, 1999 .................................... F-6
Notes to Combined Financial Statements ...................................... F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS
Balance Sheet as of September 29, 2002 and December 31, 2001 ................ F-31
Statement of Operations for the Nine Months Ended September 29, 2002 and
September 30, 2001 ......................................................... F-32
Statement of Cash Flows for the Nine Months Ended September 29, 2002 and
September 30, 2001 ......................................................... F-33
Statement of Shareholders' Equity and Metaldyne Corporation Net Investment
and Advances for the Nine Months Ended September 29, 2002 .................. F-34
Notes to Financial Statements ............................................... F-35
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of TriMas Corporation:
In our opinion, the combined balance sheets and the related statements of
operations, of cash flows, and of Metaldyne Corporation net investment and
advances appearing in the accompanying financial statements as
'Post-acquisition Basis' present fairly, in all material respects, the
financial position of certain subsidiaries and divisions of subsidiaries of
Metaldyne Corporation which constitute TriMas Corporation at December 31, 2001
and 2000, and the results of their operations and their cash flows for the year
ended December 31, 2001 and the period from November 28, 2000 to December 31,
2000, in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 21(a)(1) as 'Post-acquisition
Basis' presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related combined financial
statements. These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined statements of operations, of cash flows, and
of Metaldyne Corporation net investment and advances appearing in the
accompanying financial statements as 'Pre-acquisition Basis' present fairly, in
all material respects, the results of operations and cash flows of certain
subsidiaries and divisions of subsidiaries of Metaldyne Corporation which
constitute TriMas Corporation for the period from January 1, 2000 to November
27, 2000 and the year ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the index appearing
under Item 21(a)(1) as 'Pre-acquisition Basis' presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related combined financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As more fully described in Note 2 to the combined financial statements,
effective November 28, 2000, the Company reflected a new basis of accounting
for their assets and liabilities. As a result, the combined financial
statements for the periods subsequent to November 27, 2000 reflect the
post-acquisition basis of accounting and are not comparable to the combined
financial statements prepared on a pre-acquisition basis.
PricewaterhouseCoopers LLP
Detroit, Michigan.
April 30, 2002, except for Note 19, as to which the date is June 6, 2002.
F-2
TRIMAS CORPORATION
COMBINED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
(IN THOUSANDS)
ASSETS
2001 2000
------------- -------------
Current assets:
Cash and cash equivalents ...................................... $ 3,780 $ 7,060
Receivables .................................................... 34,240 58,970
Inventories .................................................... 96,810 112,060
Deferred income taxes .......................................... 10,870 19,310
Prepaid expenses and other assets .............................. 6,170 4,810
---------- ----------
Total current assets ........................................... 151,870 202,210
Property and equipment, net ..................................... 254,380 269,340
Excess of cost over net assets of acquired companies ............ 541,870 554,730
Intangibles and other assets .................................... 317,620 331,840
---------- ----------
Total assets ................................................... $1,265,740 $1,358,120
========== ==========
LIABILITIES AND METALDYNE CORPORATION
NET INVESTMENT AND ADVANCES
Current liabilities:
Accounts payable ...................................................... $ 47,000 $ 47,680
Accrued liabilities ................................................... 56,190 63,190
Current maturities, long-term debt .................................... 28,900 40,350
---------- ----------
Total current liabilities ............................................. 132,090 151,220
Long-term debt ......................................................... 411,860 432,570
Deferred income taxes .................................................. 169,780 169,410
Other long-term liabilities ............................................ 31,010 38,120
---------- ----------
Total liabilities ..................................................... $ 744,740 $ 791,320
Metaldyne Corporation net investment and advances ...................... 521,000 566,800
---------- ----------
Total liabilities and Metaldyne Corporation net investment and advances
$1,265,740 $1,358,120
========== ==========
The accompanying notes are an integral part of these combined financial
statements.
F-3
TRIMAS CORPORATION
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
POST-ACQUISITION BASIS PRE-ACQUISITION BASIS
------------------------------- ------------------------------
NOVEMBER 28, JANUARY 1,
YEAR ENDED 2000 - 2000 - YEAR ENDED
DECEMBER 31, DECEMBER 31, NOVEMBER 27, DECEMBER 31,
2001 2000 2000 1999
-------------- -------------- -------------- -------------
Net sales ............................. $ 732,440 $ 50,640 $ 739,590 $ 773,100
Cost of sales ......................... (537,410) (36,490) (514,570) (519,610)
---------- --------- ---------- ----------
Gross profit ......................... 195,030 14,150 225,020 253,490
Selling, general and administrative
expenses ............................. (127,350) (13,200) (130,490) (134,560)
---------- --------- ---------- ----------
Operating profit ..................... 67,680 950 94,530 118,930
Other income (expense), net:
Interest expense ..................... (73,130) (5,000) (55,390) (55,380)
Other, net ........................... (4,000) (1,200) 3,050 1,450
---------- --------- ---------- ----------
Income (loss) before income taxes
(credit) ............................. (9,450) (5,250) 42,190 65,000
Income taxes (expense) credit ......... (1,870) 1,100 (20,910) (29,700)
---------- --------- ---------- ----------
Net income (loss) .................... $ (11,320) $ (4,150) $ 21,280 $ 35,300
========== ========= ========== ==========
The accompanying notes are an integral part of these combined financial
statements.
F-4
TRIMAS CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
POST-ACQUISITION BASIS PRE-ACQUISITION BASIS
----------------------------- ----------------------------
NOVEMBER 28, JANUARY 1,
YEAR ENDED 2000 - 2000 - YEAR ENDED
DECEMBER 31, DECEMBER 31, NOVEMBER 27, DECEMBER 31,
2001 2000 2000 1999
-------------- -------------- -------------- -------------
OPERATING ACTIVITIES:
Net income (loss) .................................... $ (11,320) $ (4,150) $ 21,280 $ 35,300
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization ...................... 53,780 4,540 38,400 38,520
Deferred income taxes ................................ 8,810 2,750 820 1,340
Proceeds from Accounts Receivable Securitization ..... 4,570 12,700 42,500 --
(Increase) decrease in receivables ................... 20,160 (810) (11,040) (1,390)
(Increase) decrease in inventories ................... 15,250 (2,740) 9,710 (5,220)
(Increase) decrease in prepaid expenses and other
current assets ..................................... (1,360) 280 1,710 4,060
Increase (decrease) in accounts payable and
accrued liabilities ................................ (7,680) 7,720 5,750 (11,620)
Other, net ........................................... (6,230) (1,580) 4,300 (5,010)
--------- --------- --------- ---------
Net cash provided by operating activities ............ 75,980 18,710 113,430 55,980
========= ========= ========= =========
FINANCING ACTIVITIES:
Increase in debt ..................................... -- 11,600 -- --
Payment of debt ...................................... (32,160) -- (59,260) (20,600)
Increase (decrease) in Metaldyne Corporation net
investment and advances ............................ (34,480) (28,390) (23,540) 1,190
--------- --------- --------- ---------
Net cash used for financing activities ............... (66,640) (16,790) (82,800) (19,410)
--------- --------- --------- ---------
INVESTING ACTIVITIES:
Acquisition of a business, net of cash acquired ...... -- -- (21,130) (4,070)
Capital expenditures ................................. (18,690) (3,260) (19,540) (42,320)
Proceeds from notes receivable ....................... -- -- 1,550 2,120
Proceeds from sale of fixed assets ................... 6,780 1,990 1,000 2,680
Other, net ........................................... (710) (30) 1,510 (3,280)
--------- --------- --------- ---------
Net cash used for investing activities ............... (12,620) (1,300) (36,610) (44,870)
--------- --------- --------- ---------
CASH AND CASH EQUIVALENTS:
Increase (decrease) for the period ................... (3,280) 620 (5,980) (8,300)
At beginning of period ............................... 7,060 6,440 12,420 20,720
--------- --------- --------- ---------
At end of period ..................................... $ 3,780 $ 7,060 $ 6,440 $ 12,420
========= ========= ========= =========
The accompanying notes are an integral part of these combined financial
statements.
F-5
TRIMAS CORPORATION
COMBINED STATEMENTS OF CHANGES IN METALDYNE CORPORATION
NET INVESTMENT AND ADVANCES
FOR THE YEAR ENDED DECEMBER 31, 2001,
FOR THE PERIOD NOVEMBER 28, 2000 - DECEMBER 31, 2000,
FOR THE PERIOD JANUARY 1, 2000 - NOVEMBER 27, 2000, AND
THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
TOTAL
METALDYNE
OTHER CORPORATION NET
NET INVESTMENT COMPREHENSIVE INVESTMENT AND
AND ADVANCES INCOME ADVANCES
---------------- --------------- ----------------
Balances, January 1, 1999 ................................. $ 588,820 $ (6,330) $ 582,490
Comprehensive income:
Net income ............................................. 35,300 35,300
Foreign currency translation ........................... 170 170
Minimum pension liability (net of tax, $(160)) ......... (280) (280)
---------
Total comprehensive income ............................ 35,190
Net change in investment and advances .................... 1,300 1,300
--------- ------------ ---------
Balances, December 31, 1999 ............................... 625,420 (6,440) 618,980
---------
Comprehensive income:
Net income ............................................. 21,280 21,280
Foreign currency translation ........................... (6,520) (6,520)
Minimum pension liability (net of tax, $(420)) ......... (710) (710)
---------
Total comprehensive income ............................ 14,050
Net change in investment and advances .................... (16,310) (16,310)
--------- ------------ ---------
Balances, November 27, 2000 ............................... $ 630,390 $ (13,670) $ 616,720
========= ============ =========
Balances, November 28, 2000 ............................... $ 599,340 $ -- $ 599,340
Comprehensive income:
Net loss ............................................... (4,150) (4,150)
Foreign currency translation ........................... 3,330 3,330
Minimum pension liability (net of tax, $(70)) .......... (110) (110)
---------
Total comprehensive income ............................ (930)
Net change in investment and advances .................... (31,610) (31,610)
--------- ------------ ---------
Balances, December 31, 2000 ............................... 563,580 3,220 566,800
---------
Comprehensive income:
Net loss ............................................... (11,320) (11,320)
Foreign currency translation ........................... (4,720) (4,720)
Minimum pension liability (net of tax, $110) ........... 180 180
---------
Total comprehensive income ............................ (15,860)
Net change in investment and advances .................... (29,940) (29,940)
--------- ------------ ---------
Balances, December 31, 2001 ............................... $ 522,320 $ (1,320) $ 521,000
========= ============ =========
The accompanying notes are an integral part of these combined financial
statements.
F-6
TRIMAS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements represent the combined
assets and liabilities and results of operations of certain subsidiaries and
divisions of subsidiaries of Metaldyne Corporation ("Metaldyne") which
constitute TriMas Corporation ("TriMas" or "the Company"). The combined
financial statements include all revenues and costs directly attributable to
the Company as well as an estimate of direct and indirect Metaldyne corporate
administrative costs attributable to TriMas, based on a management fee
allocation that approximates 1% of net sales. This allocation of costs is based
on estimates that management believes are reasonable in the circumstances.
However, the charges included herein are not necessarily indicative of the
amounts that would have been reported if the Company had operated as an
unaffiliated company.
TriMas is principally engaged in three unique segments with diverse
products and market channels. The Transportation Accessories Group produces
vehicle hitches and receivers, sway controls, weight distribution and 5th wheel
hitches, hitch mounted accessories, roof racks, trailer couplers, winches,
jacks, trailer brakes and lights and other vehicle and trailer accessories and
components that are distributed through independent installers and retail
outlets. The Rieke Packaging Systems Group is a leading source of closures and
dispensing systems for steel and plastic industrial and consumer packaging
applications. The Industrial Specialties Group produces a wide range of large
and small diameter standard and custom-designed ferrous, nonferrous and special
alloy fasteners, highly engineered specialty fasteners for the domestic and
international aerospace industry, flame-retardant facings and jacketing and
insulation tapes used in conjunction with fiberglass insulation,
pressure-sensitive specialty tape products, high-pressure and low-pressure
cylinders for the transportation, storage and dispensing of compressed gases,
metallic and nonmetallic industrial gaskets, specialty precision tools such as
center drills, cutters, end mills, reamers, master gears, gages and punches,
specialty engines and service parts and specialty ordnance components and
weapon systems.
2. METALDYNE RECAPITALIZATION AND CHANGE IN ACCOUNTING BASIS
METALDYNE RECAPITALIZATION
On November 28, 2000, the acquisition and recapitalization of Metaldyne by
Heartland Industrial Partners, L.P. ("Heartland") and its co-investors was
consummated in accordance with the terms of a recapitalization agreement. As a
result, each issued and outstanding share of Metaldyne's publicly traded common
stock at the time of the recapitalization was converted into the right to
receive $16.90 in cash (approximately $585 million in the aggregate) plus
additional cash amounts, if any, based upon the net proceeds from any future
disposition of the stock of an identified Metaldyne investment. In connection
with the recapitalization, Masco Corporation, Richard A. Manoogian and certain
of Metaldyne's other stockholders agreed to roll over a portion of their
investment in Metaldyne and consequently remain as stockholders. As a result of
the recapitalization, Metaldyne is controlled by Heartland and its
co-investors.
CHANGE IN ACCOUNTING BASIS
The pre-acquisition basis financial information for the periods prior to
November 28, 2000 are reflected on the historical basis of accounting and all
periods subsequent to November 28, 2000 are reflected on a purchase accounting
basis (hereafter referred to as the "Accounting Basis Change") and are
therefore not comparable.
For the purposes of these footnotes, the period from January 1, 2000 to
November 27, 2000 is referred to as "2000 LP" and the period from November 28,
2000 to December 31, 2000 is referred to as "2000 SP."
F-7
TRIMAS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. ACCOUNTING POLICIES:
Principles of Combination. The combined financial statements include the
accounts and transactions of TriMas. Significant intercompany transactions have
been eliminated.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires the Company to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements. Such estimates and assumptions also affect the
reported amounts of revenues and expenses during the reporting periods. Actual
results may differ from such estimates and assumptions.
Revenue Recognition. Revenues from the majority of product sales are
recognized when products are shipped or services are provided to customers, the
sales price is fixed and determinable and collectibility is reasonably assured.
For certain products shipped on a consignment basis, revenue is recognized when
the customer provides notice of end product use or sale.
Cash and Cash Equivalents. The Company considers cash on hand and on
deposit and investments in all highly liquid debt instruments with initial
maturities of three months or less to be cash and cash equivalents.
Receivables. Receivables are presented net of allowances for doubtful
accounts of approximately $3.7 million and $4.9 million at December 31, 2001
and 2000, respectively. The Company monitors its exposure for credit losses and
maintains allowances for doubtful accounts. The Company does not believe that
significant credit risk exists due to its diverse customer base. Trade accounts
receivable of substantially all domestic business operations are sold, on an
ongoing basis, to MTSPC, Inc., a wholly-owned subsidiary of Metaldyne.
Inventories. Inventories are stated at the lower of cost or net realizable
value, with cost determined using the first-in, first-out method. Direct
materials, direct labor and allocations of certain manufacturing overhead are
included in inventory cost.
Property and Equipment, Net. Property and equipment additions, including
significant betterments, are recorded at cost. Upon retirement or disposal of
property and equipment, the cost and accumulated depreciation are removed from
the accounts, and any gain or loss is included in the combined statement of
operations. Repair and maintenance costs are charged to expense as incurred.
Depreciation is computed principally using the straight-line method over the
estimated useful lives of the assets. Annual depreciation rates are as follows:
buildings and land improvements, 2-1/2 to 10 percent, and machinery and
equipment, 6-2/3 to 33-1/3 percent. TriMas periodically evaluates the carrying
value of long-lived assets and long-lived assets to be disposed of for
potential impairment. Projected future undiscounted cash flows, trends and
other circumstances are considered by TriMas in making such estimates and
evaluations.
Excess of Cost Over Net Assets of Acquired Companies and Other
Intangibles. The excess of cost over net assets of acquired companies
("Goodwill") at December 31, 2001 and 2000 is related to the Accounting Basis
Change. Goodwill is amortized using the straight-line method over 40 years.
Goodwill amortization expense was $13.6 million in 2001, $1.1 million in 2000
SP, $17.7 million in 2000 LP and $18.9 million in 1999. Accumulated
amortization was $14.7 million and $1.1 million at December 31, 2001 and 2000,
respectively. Other intangibles are amortized on appropriate bases over their
estimated lives. Customer relationships are amortized over periods ranging from
six years to as long as 40 years depending on the nature of the underlying
relationships. Trademarks and trade names are amortized over a 40 year period,
while technology and other intangibles are amortized over a period between
three and thirty years. No amortization period exceeds 40 years. At each
balance sheet date, management assesses whether there has been an impairment of
goodwill and other intangibles. When the carrying value of goodwill or an
intangible asset exceeds associated expected operating cash flows, it is
considered to be impaired and is written down to fair value, which is
F-8
TRIMAS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
measured based on either discounted future cash flows or appraised values. The
factors considered by management in performing this assessment include current
operating results, business prospects, market trends, potential product
obsolescence, competitive activities and other economic factors. Based on this
assessment, there was no impairment related to goodwill or other intangibles at
December 31, 2001.
Fair Value of Financial Instruments. The carrying value of financial
instruments reported in the balance sheet for current assets and current
liabilities approximates fair value. Management believes the carrying value of
long-term debt approximates fair value, which was estimated by discounting
future cash flows based on a borrowing rate for similar types of debt
instruments.
Shipping and Handling Expenses. A portion of shipping and handling
expenses are included in the selling, general and administrative category in
the combined statements of operations. Shipping and handling costs included in
selling, general and administrative accounts were approximately $12.7 million
in 2001, $1.0 million 2000 SP, $12.6 million in 2000 LP, and $12.7 million in
1999.
Advertising and Sales Promotion Costs. Advertising and sales promotion
costs are expensed as incurred. Advertising costs were approximately $7.2
million in 2001, $0.9 million in 2000 SP, $8.2 million in 2000 LP, and $8.0
million in 1999.
Research and Development Costs. Research and development costs are
expensed as incurred. External costs incurred were approximately $1.6 million
in 2001, $0.2 million in 2000 SP, $1.3 million in 2000 LP, and $1.4 million in
1999.
Income Taxes. TriMas computes income taxes using the asset and liability
method, whereby deferred income taxes are provided for the temporary
differences between the financial reporting basis and the tax basis of TriMas'
assets and liabilities. TriMas is included in the consolidated federal income
tax return of Metaldyne. Accordingly, substantially all current income tax
related liabilities are due to Metaldyne. Income tax expense is computed on a
separate return basis.
New Accounting Pronouncements and Reclassifications. In June 2001, the
Financial Accounting Standards Board approved Statements of Financial
Accounting Standards No. 141 "Business Combinations" ("SFAS 141") and No. 142
"Goodwill and Other Intangible Assets" ("SFAS 142") which are effective July 1,
2001 and January 1, 2002, respectively. SFAS 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001. Under SFAS 142, amortization of goodwill, including goodwill recorded
in past business combinations, will discontinue upon adoption of this standard.
In addition, goodwill recorded as a result of business combinations completed
during the six-month period ending December 31, 2001 will not be amortized. All
goodwill and intangible assets will be tested for impairment in accordance with
the provisions of SFAS 142. TriMas is currently reviewing the provisions of
SFAS 141 and 142 and assessing the impact of adoption.
At December 31, 2001, the Company's unamortized balance of goodwill
approximated $541.9 million. The following table summarizes the effect on net
income (loss) of excluding amortization expense related to goodwill that will
no longer be amortized.
(IN THOUSANDS)
2001 2000 SP 2000 LP 1999
------------- ------------ --------- ----------
Net income (loss) ....................... $(11,320) $ (4,150) $21,280 $35,300
Add back: Goodwill amortization ......... 13,600 1,100 17,700 18,900
-------- -------- ------- -------
Net income (loss), as adjusted .......... $ 2,280 $ (3,050) $38,980 $54,200
======== ======== ======= =======
In June and August 2001, the Financial Accounting Standards Board approved
Statements of Financial Accounting Standards No. 143 "Accounting for Asset
Retirement Obligations" ("SFAS 143") and No. 144 "Accounting for the Impairment
or Disposal of Long Lived Assets" ("SFAS 144")
F-9
TRIMAS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
which are effective January 1, 2003 and January 1, 2002, respectively, for
TriMas. SFAS 143 requires that an existing legal obligation associated with the
retirement of a tangible long-lived asset be recognized as a liability when
incurred and the amount of the liability be initially measured at fair value.
Under SFAS 144, a single accounting method was established for long-lived
assets to be disposed. SFAS 144 requires TriMas to recognize an impairment loss
only if the carrying amount of a long-lived asset is not recoverable from its
undiscounted cash flows and the loss is measured as the difference between
carrying amount and fair value. TriMas is currently reviewing the provisions of
SFAS 143 and 144 and assessing the impact of adoption.
4. ACQUISITIONS AND RESTRUCTURINGS:
Following the November 2000 acquisition of Metaldyne by Heartland,
Metaldyne employed a new senior management team for TriMas to reorganize and
restructure the TriMas business units and implement cost savings projects. The
new management team moved aggressively to develop and launch six major projects
and several smaller initiatives to consolidate sub-scale business units and
redundant plants and to streamline administrative costs. The following table
summarizes the purchase accounting adjustments established to reflect these
actions and subsequent related activity:
(IN THOUSANDS UTILIZED)
ORIGINAL RESERVE AT
ADJUSTMENT CASH CHARGES DECEMBER 31, 2001
------------ -------------- ------------------
Severance ................... $19,070 $ (5,860) $13,210
Other closure costs ......... 3,690 (80) 3,610
------- -------- -------
Total ....................... $22,760 $ (5,940) $16,820
======= ======== =======
Cash proceeds of approximately $5.2 million from the sale of redundant
facilities and equipment have been realized as a result of these projects
through December 31, 2001.
Approximately 450 jobs will be eliminated as a result of these
restructuring actions of which approximately 160 were eliminated as of December
31, 2001. The related severance will be paid through 2004. During 2001, our
Transportation Accessories group consolidated an acquired trailer products
manufacturing plant into an existing manufacturing facility and reduced the
towing products regional warehouse service centers from eleven to five
facilities by closing or selling six related properties. These actions resulted
in the elimination of approximately 70 positions. In 2002, the electrical
products manufacturing facility in Indiana will be closed and consolidated into
an existing low cost plant in Mexico. In addition, two duplicate, sub-scale
manufacturing facilities, each with its own separate master distribution
warehouse, will be closed and consolidated into a single existing third
facility, with one master warehouse on the same property. In the Packaging
Systems group the Company is rationalizing back office and manufacturing
operations. Through December 31, 2001, approximately 45 positions have been
eliminated. These actions are expected to be completed by the third quarter of
2002. In the Industrial Specialties group, the Company has adopted a multi-step
plan for our industrial fasteners product line to consolidate five sub-scale
manufacturing plants into three plants. Through December 31, 2001 the Company
has eliminated approximately 45 positions related to these activities.
Additional unaudited non-recurring expenses of approximately $4.5 million
and $5.1 million are expected to be incurred in 2002 and 2003, respectively, as
these projects are completed. These costs primarily relate to plant closure
costs that did not qualify for expense recognition treatment at December 31,
2001.
During early 2000, TriMas acquired Wesbar Corporation for total
consideration, net of cash acquired, of approximately $21.1 million, including
fees and expenses and the assumption of certain liabilities. The results for
2000 include Wesbar Corporation sales and operating results from the date of
acquisition.
F-10
TRIMAS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. ACCOUNTS RECEIVABLE SECURITIZATION:
In 2000, Metaldyne entered into an agreement to sell, on an ongoing basis,
the trade accounts receivable of substantially all domestic business operations
to MTSPC, Inc. ("MTSPC") a wholly owned subsidiary of Metaldyne. MTSPC from
time to time, may sell an undivided fractional ownership interest in the pool
of receivables up to approximately $225 million to a third party multi-seller
receivables funding company. Trade accounts receivable relating to TriMas
operations are included as part of this agreement. The Company maintains a
retained interest in the receivables. The information that follows represents
TriMas' attributed portion of receivables sold to MTSPC.
The net proceeds of sale are less than the face amount of accounts
receivable sold by an amount that approximates the purchaser's financing costs
amounting to a total of $3.6 million in 2001, $0.3 in 2000 SP and $1.3 million
in 2000 LP. These costs are included in other expense in the combined statement
of operations. These financing costs are determined by calculating the
estimated present value of the receivables sold compared to their carrying
amount. The estimated present value factor is based on historical collection
experience and a discount rate representing a spread over LIBOR as prescribed
under the terms of the securitization agreement. For 2001, the losses were
based on an average liquidation period of the portfolio of approximately 1.5
months and an average discount rate of 5.3%.
At December 31, 2001 and 2000, a total of approximately $59.8 million and
$55.2 million of TriMas receivables were sold and TriMas retained a
subordinated interest of approximately $12.2 million and $6.3 million,
respectively, which is included in the receivables line item in the combined
balance sheet. The retained interest represents the excess of receivables sold
to MTSPC over the amount funded to the Company. The fair value of the retained
interest is based on the present value of the receivables calculated in a
method consistent with the losses on sales of receivables discussed above, net
of anticipated credit losses.
The proceeds from the sale of TriMas' accounts receivable, net for the
year ended December 31, 2001 and 2000 was $4.6 and $55.2 million, respectively.
Amounts related to timing differences in the settlement of the securitization
are included in accrued liabilities.
6. INVENTORIES:
(IN THOUSANDS)
AT DECEMBER 31,
-----------------------
2001 2000
---------- ----------
Finished goods ........................ $59,510 $ 61,450
Work in process ....................... 13,470 16,620
Raw material .......................... 23,830 33,990
------- --------
$96,810 $112,060
======= ========
7. PROPERTY AND EQUIPMENT, NET:
(IN THOUSANDS)
AT DECEMBER 31,
-------------------------
2001 2000
----------- -----------
Cost:
Land and land improvements ........... $ 13,840 $ 15,100
Buildings ............................ 67,940 70,960
Machinery and equipment .............. 200,750 185,440
-------- --------
282,530 271,500
Less: Accumulated depreciation ......... 28,150 2,160
-------- --------
$254,380 $269,340
======== ========
F-11
TRIMAS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Depreciation expense was approximately $26.0 million in 2001, $2.2 million
in 2000 SP, $20.0 million in 2000 LP, and $18.9 million in 1999.
8. INTANGIBLES AND OTHER ASSETS:
(IN THOUSANDS)
--------------------------------------------------------
AS OF DECEMBER 31, 2001 AS OF DECEMBER 31, 2000
--------------------------- --------------------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
---------- -------------- ---------- -------------
INTANGIBLE CATEGORY BY USEFUL LIFE
- ------------------------------------
Customer Relationships:
6-12 years ........................ $ 26,500 $ (2,850) $ 26,500 $ (230)
15-25 years ....................... 62,000 (2,930) 62,000 (230)
40 years .......................... 112,000 (3,010) 112,000 (220)
-------- --------- -------- ----------
200,500 (8,790) 200,500 (680)
Trademarks/trade names:
40 years .......................... 54,390 (1,460) 54,390 (40)
Technology and other:
5-15 years ........................ 21,500 (2,910) 21,500 (230)
18-30 years ....................... 38,100 (1,840) 38,100 (260)
-------- --------- -------- ----------
59,600 (4,750) 59,600 (490)
-------- --------- -------- ----------
$314,490 $ (15,000) $314,490 $ (1,210)
======== ========= ======== ==========
Amortization expense was approximately $14.2 million in 2001, $1.3 million
in 2000 SP, $0.7 million in 2000 LP, and $0.7 million in 1999. Accumulated
amortization was $15.5 million and $1.3 million at December 31, 2001 and 2000,
respectively.
9. ACCRUED LIABILITIES:
(IN THOUSANDS)
AT DECEMBER 31,
-----------------------
2001 2000
---------- ----------
Insurance .................................................... $10,670 $10,790
Severance and other closure costs ............................ 12,630 10,750
Vacation, holiday and bonus .................................. 9,010 7,980
Accounts receivable securitization timing settlement ......... 4,370 8,000
Other ........................................................ 19,510 25,670
------- -------
$56,190 $63,190
======= =======
10. LONG-TERM DEBT:
(IN THOUSANDS)
AT DECEMBER 31,
-------------------------
2001 2000
----------- -----------
Bank debt .................................................... $440,600 $460,000
Other ........................................................ 160 12,920
-------- --------
440,760 472,920
Less: Current portion of long-term debt ...................... 28,900 40,350
-------- --------
Long-term debt ............................................... $411,860 $432,570
======== ========
F-12
TRIMAS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The bank debt is allocated to TriMas by Metaldyne and primarily represents
that portion of debt that is a joint and several obligation of Metaldyne and
certain subsidiaries of the Company. The bank debt includes limitations on the
distribution of funds by Metaldyne and the Company. These include limitations
on the ability to redeem the Metaldyne restricted stock awards if the result of
such redemption would give rise to a default under the Metaldyne credit
agreement. The Metaldyne credit facility contains other negative and
affirmative covenants and requirements affecting Metaldyne and the Company and
its subsidiaries, including restrictions on debt, liens, mergers, investments,
acquisitions and capital expenditures, asset dispositions, sale/leaseback
transactions, the ability to pay common stock dividends and transactions with
affiliates. The Metaldyne credit facility also requires it to meet certain
financial covenants and ratios to be computed quarterly commencing on December
31, 2000.
Other debt includes borrowings by the Company's subsidiaries denominated
in foreign currencies.
The interest rate charged by Metaldyne applicable to the bank debt
approximated eight and one-half percent at December 31, 2001, and 6.4% at
December 31, 2000. The Metaldyne credit facility is collateralized by
substantially all domestic assets of Metaldyne and TriMas (except for the
subordinated retained interest of securitized receivables) and by a portion of
the stock of foreign operations.
The maturities of debt as at December 31, 2001 during the next five years
are as follows (in millions): 2002 -- $29; 2003 -- $69; 2004 -- $78; 2005 --
$79; and 2006 and beyond -- $186.
11. COMMITMENTS AND CONTINGENCIES:
TriMas leases certain equipment and plant facilities under noncancellable
operating leases. Rental expense for TriMas totaled approximately $4.6 million
in 2001, $0.4 million in 2000 SP, $4.7 million in 2000 LP and $4.7 million in
1999.
Minimum payments for operating leases having initial or remaining
noncancellable lease terms in excess of one year at December 31, 2001 are
summarized below:
YEAR ENDING DECEMBER 31: (IN THOUSANDS)
- ------------------------------ ---------------
2002 ....................... $ 4,180
2003 ....................... 3,170
2004 ....................... 2,680
2005 ....................... 2,050
2006 ....................... 1,390
Thereafter ................. 2,630
-------
Total ...................... $16,100
=======
A civil suit was filed in the United States District Court for the Central
District of California in April 1983 by the United States of America and the
State of California under the Federal Superfund law against over 30 defendants,
including the company, for alleged release into the environment of hazardous
substances disposed of at the Stringfellow Disposal Site in California. The
plaintiffs have requested, among other things, that the defendants clean up the
contamination at that site. A consent decree has been entered into by the
plaintiffs and the defendants, including us, providing that the consenting
parties perform partial remediation at the site. The State has agreed to take
over clean-up of the site, as well as responsibility for governmental entities'
past response costs. Additionally, we and approximately 60 other entities
including the State are defendants in a toxic tort suit brought in the Superior
Court of the State of California in May 1998 by various persons residing in the
area of the site and seeking damages for alleged personal injuries claimed to
arise from exposure to contaminants from the site. The case is still in the
discovery stage but we believe there are good defenses to the claims against
us. Based upon the Company's present knowledge and subject to future factual
and
F-13
TRIMAS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
legal developments, the Company does not believe the ultimate outcome of this
matter will have a material adverse effect on its consolidated financial
position and future results of operations.
Another civil suit was filed in the United States District Court for the
Central District of California in December 1988 by the United States of America
and the State against more than 180 defendants, including us, for alleged
release into the environment of hazardous substances disposed of at the
Operating Industries, Inc. site in California. This site served for many years
as a depository for municipal and industrial waste. The plaintiffs have
requested, among other things, that the defendants clean up contamination at
that site. Consent decrees have been entered into by the plaintiffs and a group
of defendants, including us, providing that the consenting parties perform
certain remedial work at the site and reimburse the plaintiffs for certain past
costs incurred by the plaintiffs at the site.
Additionally, at April 26, 2002, the Company is party to approximately 368
pending cases involving approximately 6,581 claimants alleging personal injury
from exposure to asbestos containing materials formerly used in gaskets (both
encapsulated and otherwise) manufactured or distributed by certain of our
subsidiaries for use in the petrochemical refining and exploration industries.
There were three types of gaskets that we manufactured and we have ceased the
use of asbestos in our products. We believe that many of our pending cases
relate to locations which none of our gaskets were distributed or used. In
addition, we acquired various companies to distribute our products that
distributed gaskets of other manufacturers prior to acquisition. Approximately
530 cases involving 2,667 claimants (which are not included in the pending
cases noted above) have been either dismissed for lack of product
identification or otherwise or been settled or made subject to agreements to
settle. Our total settlement costs for all such cases, some of which were filed
over 12 years ago, have been approximately $1.5 million. Based upon our
experience to date and other available information, we do not believe that
these cases will have a material adverse effect on our financial condition or
results of operation. However, we cannot assure you that we will not be
subjected to significant additional claims in the future, that the cost of
settling cases in which product identification can be made will not increase or
that we will not be subjected to further claims with respect to the former
activities of our acquired gasket distributors.
The Company has provided accruals based upon our present knowledge and
subject to future legal and factual developments, we do not believe that any of
these litigations will have a material adverse effect on our combined financial
position, results of operations or cash flow. However, there can be no
assurance that future legal and factual developments will not result in
materially adverse expenditures.
The Company is subject to other claims and litigation in the ordinary
course of our business, but does not believe that any such claim or litigation
will have a material adverse effect on our financial position or results of
operations.
12. RELATED PARTIES:
Metaldyne Corporation
Net Investment and advances reflect the accumulation of transactions
between TriMas and Metaldyne through December 31, 2001. These transactions
include operating results, management fees and advances, as discussed below:
TriMas was charged a management fee by Metaldyne for various corporate
support staff and administrative services. Such fees approximate one percent of
net sales and amounted to $7.3 million in 2001, $0.5 million in 2000 SP, $7.3
million in 2000 LP and $7.7 million in 1999.
Certain of TriMas' employee benefit plans and insurance coverages are
administered by Metaldyne. These costs as well as other costs incurred on
TriMas' behalf were charged directly to TriMas.
TriMas has guaranteed approximately $8.7 million and $40.0 million of
Metaldyne bank debt that was not attributed to TriMas at December 31, 2001 and
2000, respectively.
F-14
TRIMAS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
TriMas was also charged interest expense at various rates on the debt
attributed to TriMas from Metaldyne and on the outstanding advance balance from
Metaldyne. These charges aggregated $73.1 million in 2001, $4.9 million in 2000
SP, $54.2 million in 2000 LP and $53.1 million in 1999. The related advances
are included in the Metaldyne net investment and advances balances in the
accompanying combined balance sheet.
13. STOCK OPTIONS AND AWARDS:
Prior to the Metaldyne recapitalization, Metaldyne's Long Term Stock
Incentive Plan provided for the issuance of stock-based incentives. Certain of
TriMas' salaried employees are holders of restricted stock awards issued under
that plan. Under the terms of the Metaldyne recapitalization agreement, those
shares become free of restriction, or vest, in four even installments as of the
closing of the recapitalization and January of 2002, 2003, and 2004. TriMas is
charged directly by Metaldyne for related expenses. TriMas' portion of
compensation expense for the vesting of long-term stock awards was
approximately $3.2 million in 2001, $0.8 million in 2000 LP and $0.6 million in
1999.
Holders of restricted stock may elect to receive all of the installment in
common shares of Metaldyne stock, 40% in cash and 60% in common shares of
Metaldyne stock, or 100% in cash. The number of shares or cash to be received
will increase by 6% per annum from the $16.90 per share recapitalization
consideration. TriMas is charged directly by Metaldyne for the interest
accretion on the stock awards. TriMas' portion of the interest accretion for
2001 was approximately $0.8 million.
In 2001, subsequent to the recapitalization, a new Long Term Equity
Incentive Plan (the "Plan") was adopted, which provides for the issuance of
equity-based incentives in various forms. During 2001, Metaldyne granted stock
options for 2,855,000 shares at a price of $16.90 per share to key employees of
Metaldyne, of which 336,763 were granted to TriMas employees. These options
have a ten year option period and vest ratably over a three year period from
the date of grant. The ability to exercise the options is limited in the
circumstances of a public offering whereby the shares are required to be held
and exercised after the elapse of certain time periods.
Metaldyne has elected to continue to apply the provisions of Accounting
Principles Board Opinion No. 25 and, accordingly, no stock option compensation
expense is included in the determination of net income (loss) in the combined
statement of operations. The weighted average fair value on the date of grant
of the Metaldyne options granted during 2001 was $3.80. Had stock option
compensation expense been determined pursuant to the methodology of SFAS No.
123, "Accounting for Stock-Based Compensation," the pro forma effect would have
reduced TriMas' 2001 earnings by approximately $0.2 million.
14. EMPLOYEE BENEFIT PLANS:
Pension and Profit-Sharing Benefits. Substantially all TriMas salaried
employees participate in Metaldyne-sponsored noncontributory profit-sharing
and/or contributory defined contribution plans, to which payments are approved
annually by Metaldyne's Board of Directors. Aggregate charges to income under
these plans were approximately $2.6 million in 2001, $0.3 million in 2000 SP,
$3.3 million 2000 LP and $3.8 million in 1999.
In addition, TriMas salary and non-union hourly employees participate in
defined-benefit pension plans sponsored by Metaldyne. The expense for these
plans was approximately $2.4 million in 2001, $0.3 million in 2000 SP, $3.1
million in 2000 LP and $3.6 million in 1999.
F-15
TRIMAS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Net periodic pension cost for TriMas defined benefit pension plans,
covering foreign employees and union-hourly employees, includes the following
components:
(IN THOUSANDS)
---------------------------------------------------
2001 2000 SP 2000 LP 1999
----------- --------- ----------- -----------
Service cost ............................... $ 540 $ 50 $ 600 $ 740
Interest cost .............................. 980 80 900 930
Expected return on assets .................. (1,330) (110) (1,180) (1,160)
Amortization of prior-service cost ......... -- -- 10 --
Amortization of net loss ................... -- -- (10) 10
--------- ------- --------- ---------
Net periodic pension cost .................. $ 190 $ 20 $ 320 $ 520
========= ======= ========= =========
Major actuarial assumptions used (as of September 30, 2001) in accounting
for the TriMas defined benefit pension plans at December 31 are as follows:
2001 2000 1999
---- ---- ----
Discount rate for obligations ............................. 7.625% 7.75% 7.75%
Rate of increase in compensation levels ................... 4.00% 4.00% 5.00%
Expected long-term rate of return on plan assets .......... 9.00% 9.00% 9.00%
The following provides a reconciliation of the changes in TriMas'
defined-benefit pension plan's projected benefit obligations and fair value of
assets covering foreign employees and union hourly employees for each of the
two years ended December 31, and the funded status as of December 31, 2000 and
2001:
(IN THOUSANDS)
-----------------------------
2001 2000
------------- -------------
CHANGES IN PROJECTED BENEFIT OBLIGATIONS
Benefit obligations at January 1 ......................... $ (13,230) $ (14,020)
Service costs .......................................... (540) (650)
Interest costs ......................................... (980) (980)
Plan amendments ........................................ (470) (70)
Actuarial gain ......................................... 610 1,450
Benefit payments ....................................... 630 480
Change in foreign currency ............................. 160 560
--------- ---------
Projected benefit obligations at December 31 ............. $ (13,820) $ (13,230)
========= =========
CHANGES IN PLAN ASSETS
Fair value of plan assets at January 1 ................... $ 14,920 $ 14,900
Actual return on plan assets ........................... (1,450) (100)
Contributions .......................................... 1,610 1,250
Benefit payments ....................................... (630) (480)
Expenses/Other ......................................... (200) (650)
--------- ---------
Fair value of plan assets at December 31 ................. $ 14,250 $ 14,920
========= =========
FUNDED STATUS
Plan assets greater than projected benefits at December 31
$ 430 $ 1,690
Unamortized prior-service cost ......................... 400 --
Unamortized net loss (gain) ............................ 1,980 (110)
----------- -----------
Net asset recognized at December 31 ...................... $ 2,810 $ 1,580
=========== ===========
F-16
TRIMAS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
---------------------
2001 2000
--------- ---------
COMPONENTS OF THE NET ASSET RECOGNIZED
Prepaid benefit cost .................................. $2,670 $2,470
Accrued benefit liability ............................. (370) (780)
Intangible asset ...................................... 440 --
Accumulated other comprehensive income (loss) ......... 70 (110)
------ ------
Net asset recognized at December 31 ................... $2,810 $1,580
====== ======
Postretirement Benefits. TriMas provides postretirement medical and life
insurance benefits, none of which are funded, for certain of its active and
retired employees. Net periodic postretirement benefit cost includes the
following components:
(IN THOUSANDS)
-----------------------------------------
2001 2000 SP 2000 LP 1999
------ --------- --------- --------
Service cost ...................................... $ 80 $10 $ 120 $ 150
Interest cost ..................................... 310 30 320 320
Net Amortization .................................. -- -- (170) (160)
---- --- ------ ------
Net periodic postretirement benefit cost .......... $390 $40 $ 270 $ 310
==== === ====== ======
The following provides a reconciliation of the changes in the
postretirement benefit plans' benefit obligations for each of the two years
ended December 31, 2001 and the status as of December 31, 2001 and 2000:
(IN THOUSANDS)
---------------------------
2001 2000
------------ ------------
CHANGES IN BENEFIT OBLIGATIONS
Benefit obligations at January 1 ........... $ (4,140) $ (4,750)
Service cost ............................. (80) (130)
Interest cost ............................ (310) (350)
Actuarial gain (loss) .................... (30) 790
Benefit payments ......................... 320 300
-------- --------
Benefit obligations at December 31 ......... $ (4,240) $ (4,140)
======== ========
STATUS
Benefit obligations at December 31 ......... $ (4,240) $ (4,140)
Unrecognized gain ........................ 30 --
-------- --------
Net liability at December 31 ............... $ (4,210) $ (4,140)
======== ========
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.63 percent in 2001 and 7.75 percent in 2000. The
assumed health care cost trend rate in 2001 was 11 percent, decreasing to an
ultimate rate in 2013 of 5 percent. If the assumed medical cost trend rates
were increased by one percent, the accumulated postretirement benefit
obligations would increase by $0.3 million and the aggregate of the service and
interest cost components of net periodic postretirement benefit obligations
cost would increase by $24 thousand. If the assumed medical cost trend rates
were decreased by one percent, the accumulated postretirement benefit
obligations would decrease by $0.3 million and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost would
decrease by $26 thousand.
15. SEGMENT INFORMATION:
TriMas' reportable operating segments are business units, each providing
their own unique products and services. Each operating segment is independently
managed, and requires different
F-17
TRIMAS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
technology and marketing strategies and has separate financial information
evaluated regularly by the Company's chief operating decision maker in
determining resource allocation and assessing performance. TriMas has three
operating segments involving the manufacture and sale of the following:
TRANSPORTATION ACCESSORIES GROUP -- Vehicle hitches and receivers, sway
controls, weight distribution and 5th wheel hitches, hitch mounted accessories,
roof racks, trailer couplers, winches, jacks, trailer brakes and lights and
other vehicle and trailer accessories.
PACKAGING SYSTEMS GROUP -- Closures and dispensing systems for steel and
plastic industrial and consumer packaging applications.
INDUSTRIAL SPECIALTIES GROUP -- Large and small diameter standard and
custom-designed ferrous, nonferrous and special alloy fasteners, highly
engineered specialty fasteners for the domestic and international aerospace
industry, flame-retardant facings and jacketing and insulation tapes used in
conjunction with fiberglass insulation, pressure-sensitive specialty tape
products, high-pressure and low-pressure cylinders for the transportation,
storage and dispensing of compressed gases, metallic and nonmetallic industrial
gaskets, specialty precision tools such as center drills, cutters, end mills,
reamers, master gears, gages and punches, specialty engines and service parts
and specialty ordnance components and weapon systems.
We use Earnings Before Interest, Taxes, Depreciation and Amortization
("Adjusted EBITDA") as an indicator of operating performance and as a measure
of cash generating capabilities. Adjusted EBITDA is one of the primary measures
used by management to evaluate performance. For purposes of this note, Adjusted
EBITDA is defined as operating profit before depreciation, amortization and
legacy stock award expense; operating net assets is defined as total assets
less current liabilities.
Operating net assets for 2001 and 2000 reflect the sale of TriMas'
accounts receivable through the securitization agreement with MTSPC.
Segment activity is as follows:
(IN THOUSANDS)
-----------------------------------------------------
2001 2000 SP 2000 LP 1999
----------- ----------- ----------- -----------
SALES
Transportation Accessories Group ......... $ 264,680 $ 15,390 $ 265,560 $ 265,100
Packaging Systems Group .................. 105,250 7,680 100,470 114,090
Industrial Specialties Group ............. 362,510 27,570 373,560 393,910
--------- -------- --------- ---------
Total .................................... $ 732,440 $ 50,640 $ 739,590 $ 773,100
========= ======== ========= =========
ADJUSTED EBITDA
Transportation Accessories Group ......... $ 42,820 $ 1,290 $ 44,960 $ 48,470
Packaging Systems ........................ 33,930 2,180 33,570 39,390
Industrial Specialties ................... 55,080 2,490 62,060 77,760
Metaldyne management fee and other
corporate expenses ...................... (7,170) (470) (6,890) (7,560)
--------- -------- --------- ---------
TOTAL ADJUSTED EBITDA ................... 124,660 5,490 133,700 158,060
Depreciation & amortization .............. (53,780) (4,540) (38,400) (38,520)
Legacy stock award expense ............... (3,200) -- (770) (610)
--------- -------- --------- ---------
Operating profit ......................... $ 67,680 $ 950 $ 94,530 $ 118,930
========= ======== ========= =========
F-18
TRIMAS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FINANCIAL SUMMARY BY SEGMENT:
(IN THOUSANDS)
DECEMBER 31,
---------------------------------------------
2001 2000 1999
------------- ------------- -------------
OPERATING NET ASSETS
Transportation Accessories Group ......... $ 350,300 $ 381,950 $ 287,340
Packaging Systems Group .................. 277,250 272,180 248,280
Industrial Specialties Group ............. 401,710 431,300 613,250
Corporate ................................ 104,390 121,470 6,590
---------- ---------- ----------
Total ................................... $1,133,650 $1,206,900 $1,155,460
========== ========== ==========
CAPITAL EXPENDITURES
Transportation Accessories Group ......... $ 5,350 $ 9,470 $ 9,190
Packaging Systems Group .................. 3,730 6,640 8,520
Industrial Specialties Group ............. 9,610 6,690 24,610
---------- ---------- ----------
Total ................................... $ 18,690 $ 22,800 $ 42,320
========== ========== ==========
(IN THOUSANDS)
-----------------------------------------------
2001 2000 SP 2000 LP 1999
---------- --------- --------- ----------
DEPRECIATION & AMORTIZATION
Transportation Accessories Group ......... $17,110 $1,420 $ 7,320 $ 6,590
Packaging Systems Group .................. 11,470 1,020 4,930 4,990
Industrial Specialties Group ............. 22,600 1,880 14,560 14,820
Corporate ................................ 2,600 220 11,590 12,120
------- ------ ------- -------
Total ................................... $53,780 $4,540 $38,400 $38,520
======= ====== ======= =======
The Company's export sales approximated $55.8 million, $53.9 million and
$56.4 million in 2001, 2000 and 1999, respectively.
The following table presents the TriMas non-United States (US) revenues
for each of the years ended December 31 and operating net assets at each year
ended December 31, attributed to each subsidiary's continent of domicile. There
was no single non-US country for which revenue and net assets were material to
the combined revenues and net assets of TriMas taken as a whole.
(IN THOUSANDS)
-----------------------------------------------------------------------------
2001 2000 1999
------------------------ ------------------------ -----------------------
OPERATING OPERATING OPERATING
NET NET NET
SALES ASSETS SALES ASSETS SALES ASSETS
---------- ----------- ---------- ----------- ---------- ----------
Europe ...................... $39,000 $63,000 $38,000 $ 66,000 $44,000 $71,000
Australia ................... 22,000 23,000 23,000 27,000 23,000 14,000
Other North America ......... 19,000 13,000 18,000 17,000 12,000 5,000
------- ------- ------- -------- ------- -------
Total non-US ............... $80,000 $99,000 $79,000 $110,000 $79,000 $90,000
======= ======= ======= ======== ======= =======
F-19
TRIMAS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
16. OTHER INCOME (EXPENSE), NET:
(IN THOUSANDS)
------------------------------------------------
2001 2000 SP 2000 LP 1999
----------- ----------- --------- --------
Other, net:
Interest income ......... $ 380 $ 60 $ 650 $ 900
Other, net .............. (4,380) (1,260) 2,400 550
--------- --------- ------- -------
$ (4,000) $ (1,200) $3,050 $1,450
========= ========= ======= =======
17. INCOME TAXES:
(IN THOUSANDS)
-----------------------------------------------------
2001 2000 SP 2000 LP 1999
------------- ------------ --------- ----------
Income (loss) before income taxes:
Domestic ........................... $ (17,550) $ (5,170) $29,360 $51,580
Foreign ............................ 8,100 (80) 12,830 13,420
--------- -------- ------- -------
$ (9,450) $ (5,250) $42,190 $65,000
========= ======== ======= =======
Provision for income taxes (credit):
Current payable (refundable):
Federal ........................... $ (10,080) $ (4,100) $ 9,650 $14,710
State and local ................... 490 270 710 1,500
Foreign ........................... 2,650 (20) 4,330 5,210
Deferred:
Federal ........................... 7,880 2,410 5,400 6,940
Foreign ........................... 930 340 820 1,340
--------- -------- ------- -------
Income taxes (credit) ............. $ 1,870 $ (1,100) $20,910 $29,700
========= ======== ======= =======
The components of deferred taxes at December 31, 2001 and 2000 are as
follows:
(IN THOUSANDS)
-------------------------------
2001 2000
-------------- --------------
Deferred tax assets:
Inventories ................................................. $ 1,800 $ 2,560
Accounts receivable ......................................... 1,610 1,060
Accrued liabilities and other long-term liabilities ......... 580 10,600
Deferred tax liabilities:
Property and equipment ...................................... (52,800) (51,460)
Intangible assets ........................................... (110,100) (112,860)
---------- ----------
Net deferred tax liability ................................. $ (158,910) $ (150,100)
========== ==========
F-20
TRIMAS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following is a reconciliation of tax computed at the U.S. federal
statutory rate to the provision for income taxes allocated to income (loss)
before income taxes:
(IN THOUSANDS)
-------------------------------------------------------
2001 2000 SP 2000 LP 1999
------------ ------------ ----------- -----------
U.S. federal statutory rate ................ 35% 35% 35% 35%
Tax at U.S. federal statutory rate ......... $ (3,310) $ (1,830) $14,770 $ 22,750
State and local taxes, net of federal tax
benefit ................................... 330 170 460 970
Higher effective foreign tax rate .......... 750 350 660 1,860
Amortization in excess of tax, net ......... 3,920 200 4,850 5,220
Other, net ................................. 180 10 170 (1,100)
-------- -------- ------- --------
Income taxes .............................. $ 1,870 $ (1,100) $20,910 $ 29,700
======== ======== ======= ========
Historically, the Company's operations have been included in Metaldyne's
consolidated income tax returns. The provision for income tax expense has been
calculated on a separate return basis. The deferred tax provision is determined
under the liability method. Deferred tax assets and liabilities are recognized
based on differences between the book and tax basis of assets and liabilities
using current enacted tax rates. The provision for income taxes is the sum of
the amount of tax paid or payable for the year as determined by applying the
provisions of enacted tax laws to the taxable income for that year and the net
change during the year in the Company's deferred tax assets and liabilities.
Liabilities for U.S. federal and state income taxes are payable to
Metaldyne. Cash taxes paid with respect to foreign jurisdictions were: $3.5
million in 2001; $4.5 million in 2000 LP, and; $5.3 million in 1999.
A provision has not been made for U.S. or additional foreign withholding
taxes on undistributed earnings of foreign subsidiaries of $72.1 million at
December 31, 2001, as those earnings are intended to be permanently reinvested.
Generally, such earnings become subject to U.S. tax upon the remittance of
dividends and under certain other circumstances. It is not practical to
estimate the amount of deferred tax liability on such undistributed earnings.
18. SUMMARY QUARTERLY FINANCIAL DATA (UNAUDITED--IN THOUSANDS)
POST-ACQUISITION BASIS
----------------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31, 2001
----------------------------------------------------------------------
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
--------------- ---------------- --------------- ---------------
Net sales ................. $199,690 $196,350 $178,970 $157,430
Gross profit .............. 56,140 53,750 47,620 37,520
Net income (loss) ......... 380 (1,520) (3,360) (6,820)
FOR THE YEAR ENDED DECEMBER 31, 2000
---------------------------------------------------------------------------------------
PRE-ACQUISITION BASIS POST-ACQUISITION BASIS
--------------------------------------------------------------- -----------------------
OCTOBER 1 -- NOVEMBER 28 --
NOVEMBER 27, DECEMBER 31,
FIRST QUARTER SECOND QUARTER THIRD QUARTER 2000 2000
--------------- ---------------- --------------- -------------- -----------------------
Net sales ............. $218,030 $217,760 $191,220 $112,580 $ 50,640
Gross profit .......... 70,510 68,650 54,490 31,370 14,150
Net income (loss) ..... 9,510 8,780 4,010 (1,020) (4,150)
F-21
TRIMAS CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
19. SUBSEQUENT EVENTS
RECAPITALIZATION
On June 6, 2002, the Company, Metaldyne and Heartland Industrial Partners
("Heartland") entered into a stock purchase agreement under which Heartland and
other investors invested $265 million in the Company to acquire approximately
66% of the Company's common stock on a fully diluted basis. To effect the
transactions contemplated by the stock purchase agreement, the Company also
entered into a senior credit facility consisting of a $150 million revolving
credit facility, a $260 million term loan facility, and a $125 million
receivables securitization facility, and issued senior subordinated debentures
with a face value of $352.8 million. The Company declared and paid a dividend
to Metaldyne of $840 million in the form of cash, retirement of debt owed by
TriMas to Metaldyne or attributed to TriMas under the Metaldyne credit
agreement and repurchase of TriMas originated receivables balances under the
Metaldyne receivables facility. TriMas was released from all obligations under
the Metaldyne credit agreement in connection with the common stock issuance and
related financing transactions. Under the terms of the stock purchase
agreement, Metaldyne retained shares of the Company's common stock valued at
$120 million and received a warrant to purchase 750,000 shares of common stock
at par value of $.01 per share, valued at $15 million. The common stock and
warrants are valued based upon the cash equity investment made by Heartland and
the other investors. Metaldyne currently owns 34% of the Company's common stock
on a fully diluted basis.
SUPPLEMENTAL GUARANTOR CONDENSED COMBINING FINANCIAL INFORMATION
On June 6, 2002, the Company ("Parent") issued 9 7/8% Senior Subordinated
Notes due 2012 with a total principal face amount of $352.8 million. These
notes are guaranteed by substantially all of our domestic subsidiaries
("Guarantor Subsidiaries"). All of the Guarantor Subsidiaries are 100% owned by
the Parent and their guarantee is full, unconditional, joint and several. Our
non-domestic subsidiaries and TSPC, Inc. have not guaranteed the outstanding
notes ("Non-Guarantor Subsidiaries"). The Guarantor Subsidiaries have also
guaranteed amounts issued and outstanding under the Company's Credit Facility,
which was also entered into on June 6, 2002.
The accompanying supplemental guarantor condensed, combining financial
information is presented on the equity method of accounting for all periods.
Under this method, investments in subsidiaries are recorded at cost and
adjusted for the Company's share in the subsidiaries' cumulative results of
operations, capital contributions and distributions and other changes in
equity. Elimination entries relate primarily to the elimination of investments
in subsidiaries and associated intercompany balances and transactions.
F-22
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED COMBINED
FINANCIAL STATEMENTS COMBINING BALANCE SHEET
(IN THOUSANDS)
POST-ACQUISITION BASIS
AS OF DECEMBER 31, 2001
-------------------------------------------------------------------------
NON- CONSOLIDATED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
---------- ------------ ------------ -------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............. $ -- $ 1,940 $ 1,840 $ -- $ 3,780
Receivables, trade .................... -- 19,250 14,990 -- 34,240
Receivable, intercompany .............. -- 1,730 2,200 (3,930) --
Inventories ........................... -- 85,720 11,090 -- 96,810
Deferred income taxes ................. -- 10,870 -- -- 10,870
Prepaid expenses and other assets ..... -- 4,810 1,360 -- 6,170
-------- ---------- -------- ---------- ----------
Total current assets ................ -- 124,320 31,480 (3,930) 151,870
Investment in subsidiaries ............. 521,000 43,000 -- (564,000) --
Property and equipment, net ............ -- 228,010 26,370 -- 254,380
Excess of cost over net assets of
acquired companies .................... -- 476,220 65,650 -- 541,870
Intangibles and other assets ........... -- 314,100 3,520 -- 317,620
-------- ---------- -------- ---------- ----------
Total assets ........................ $521,000 $1,185,650 $127,020 $ (567,930) $1,265,740
======== ========== ======== ========== ==========
LIABILITIES AND METALDYNE CORPORATION
NET INVESTMENT AND ADVANCES
CURRENT LIABILITIES:
Accounts payable--trade ............... $ -- $ 38,100 $ 8,900 $ -- $ 47,000
Accounts payable--intercompany ........ -- 2,200 1,730 (3,930) --
Accrued liabilities ................... -- 51,130 5,060 -- 56,190
Current maturities, long-term
debt ................................ -- 28,900 -- -- 28,900
--------- ---------- -------- ---------- ----------
Total current liabilities ........... -- 120,330 15,690 (3,930) 132,090
Long-term debt ......................... -- 411,860 -- -- 411,860
Deferred income taxes .................. -- 166,010 3,770 -- 169,780
Other long-term liabilities ............ -- 30,470 540 -- 31,010
--------- ---------- -------- ---------- ----------
Total liabilities ................... -- 728,670 20,000 (3,930) 744,740
Metaldyne Corporation net
investment and advances ............... 521,000 456,980 107,020 (564,000) 521,000
--------- ---------- -------- ---------- ----------
Total liabilities and Metaldyne
Corporation net investment
and advances ....................... $521,000 $1,185,650 $127,020 $ (567,930) $1,265,740
========= ========== ======== ========== ==========
F-23
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED COMBINED
FINANCIAL STATEMENTS COMBINING BALANCE SHEET
(IN THOUSANDS)
POST-ACQUISITION BASIS
AS OF DECEMBER 31, 2000
-------------------------------------------------------------------------
NON- CONSOLIDATED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
---------- ------------ ------------ -------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............. $ -- $ 1,460 $ 5,600 $ -- $ 7,060
Receivables, trade .................... -- 42,810 16,160 -- 58,970
Receivables, intercompany ............. -- 1,790 830 (2,620) --
Inventories ........................... -- 98,320 13,740 -- 112,060
Deferred income taxes ................. -- 19,310 -- -- 19,310
Prepaid expenses and other assets ..... -- 3,750 1,060 -- 4,810
-------- ---------- -------- ---------- ----------
Total current assets ................ -- 167,440 37,390 (2,620) 202,210
Investments in subsidiaries ............ 566,800 50,340 -- (617,140) --
Property and equipment, net ............ -- 241,240 28,100 -- 269,340
Excess of cost over net assets of
acquired companies .................... -- 488,720 66,010 -- 554,730
Intangibles and other assets ........... -- 328,900 2,940 -- 331,840
-------- ---------- -------- ---------- ----------
Total assets ........................ $566,800 $1,276,640 $134,440 $ (619,760) $1,358,120
======== ========== ======== ========== ==========
LIABILITIES AND METALDYNE CORPORATION
NET INVESTMENT AND ADVANCES
CURRENT LIABILITIES:
Accounts payable, trade ............... $ -- $ 39,070 $ 8,610 $ -- $ 47,680
Accounts payable, intercompany ........ -- 830 1,790 (2,620) --
Accrued liabilities ................... -- 58,430 4,760 -- 63,190
Current maturities, long-term
debt ................................ -- 28,600 11,750 -- 40,350
--------- ---------- -------- ---------- ----------
Total current liabilities ........... -- 126,930 26,910 (2,620) 151,220
Long-term debt ......................... -- 432,570 -- -- 432,570
Deferred income taxes .................. -- 166,580 2,830 -- 169,410
Other long-term liabilities ............ -- 36,930 1,190 -- 38,120
--------- ---------- -------- ---------- ----------
Total liabilities ................... -- 763,010 30,930 (2,620) 791,320
Metaldyne Corporation net
investments and advances .............. 566,800 513,630 103,510 (617,140) 566,800
--------- ---------- -------- ---------- ----------
Total liabilities and Metaldyne
Corporation net investment
and advances ....................... $566,800 $1,276,640 $134,440 $ (619,760) $1,358,120
========= ========== ======== ========== ==========
F-24
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED COMBINED FINANCIAL STATEMENTS
COMBINING STATEMENT OF OPERATIONS
(IN THOUSANDS)
POST-ACQUISITION BASIS
FOR THE YEAR ENDED DECEMBER 31, 2001
-----------------------------------------------------------------------------
NON- CONSOLIDATED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
------------ -------------- ------------ -------------- -------------
Net sales ......................... $ -- $ 658,680 $ 91,730 $ (17,970) $ 732,440
Cost of sales ..................... -- (491,030) (64,350) 17,970 (537,410)
--------- ---------- --------- --------- ----------
Gross profit ..................... -- 167,650 27,380 -- 195,030
Selling, general and administrative
expenses ......................... -- (112,540) (14,810) -- (127,350)
--------- ---------- --------- --------- ----------
Operating profit ................. -- 55,110 12,570 -- 67,680
Other income (expense), net:
Interest expense ................. -- (71,450) (1,680) -- (73,130)
Other, net ....................... -- (4,150) 150 -- (4,000)
--------- ---------- --------- --------- ----------
Income (loss) before income (taxes)
credit and equity in net income
(loss) of subsidiaries ........... -- (20,490) 11,040 -- (9,450)
Income (taxes) credit ............. -- 2,590 (4,460) -- (1,870)
Equity in net income (loss) of
subsidiaries ..................... (11,320) 3,590 -- 7,730 --
--------- ---------- --------- --------- ----------
Net income (loss) ................ $ (11,320) $ (14,310) $ 6,580 $ 7,730 $ (11,320)
========= ========== ========= ========= ==========
POST-ACQUISITION BASIS
FOR THE PERIOD NOVEMBER 28, 2000 - DECEMBER 31, 2000
--------------------------------------------------------------------------
NON- CONSOLIDATED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
----------- ------------ ------------ -------------- -------------
Net sales ......................... $ -- $ 45,030 $ 10,530 $ (4,920) $ 50,640
Cost of sales ..................... -- (33,180) (8,230) 4,920 (36,490)
-------- --------- -------- -------- ---------
Gross profit ..................... -- 11,850 2,300 -- 14,150
Selling, general and administrative
expenses ......................... -- (11,650) (1,550) -- (13,200)
-------- --------- -------- -------- ---------
Operating profit ................. -- 200 750 -- 950
Other income (expense), net:
Interest expense ................. -- (4,820) (180) -- (5,000)
Other, net ........................ -- (110) (1,090) -- (1,200)
-------- --------- -------- -------- ---------
Income (loss) before income (taxes)
credit and equity in net income
(loss) of subsidiaries ........... -- (4,730) (520) -- (5,250)
Income (taxes) credit ............. -- 1,190 (90) -- 1,100
Equity in net income (loss) of
subsidiaries ..................... (4,150) 40 -- 4,110 --
-------- --------- -------- -------- ---------
Net income (loss) ................ $ (4,150) $ (3,500) $ (610) $ 4,110 $ (4,150)
======== ========= ======== ======== =========
F-25
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED COMBINED FINANCIAL STATEMENTS
COMBINING STATEMENT OF OPERATIONS
(IN THOUSANDS)
PRE-ACQUISITION BASIS
FOR THE PERIOD JANUARY 1, 2000 - NOVEMBER 27, 2000
-------------------------------------------------------------------------
NON- CONSOLIDATED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
---------- ------------ ------------ -------------- -------------
Net Sales ................................ $ -- $ 667,060 $ 83,770 $ (11,240) $ 739,590
Cost of Sales ............................ -- (472,830) (52,980) 11,240 (514,570)
------- ---------- --------- --------- ----------
Gross Profit ............................ -- 194,230 30,790 -- 225,020
Selling, general and administrative
expenses ................................ -- (114,450) (16,040) -- (130,490)
------- ---------- --------- --------- ----------
Operating profit ........................ -- 79,780 14,750 -- 94,530
Other income (expense), net:
Interest expense ........................ -- (53,230) (2,160) -- (55,390)
Other, net .............................. -- 2,830 220 -- 3,050
------- ---------- --------- --------- ----------
Income before income taxes and
equity in net income of
subsidiaries ............................ -- 29,380 12,810 -- 42,190
Income taxes ............................. -- (15,600) (5,310) -- (20,910)
Equity in net income of subsidiaries ..... 21,280 4,650 -- (25,930) --
------- ---------- --------- --------- ----------
Net Income .............................. $21,280 $ 18,430 $ 7,500 $ (25,930) $ 21,280
======= ========== ========= ========= ==========
PRE-ACQUISITION BASIS
FOR THE YEAR ENDED DECEMBER 31, 1999
-------------------------------------------------------------------------
NON- CONSOLIDATED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
---------- ------------ ------------ -------------- -------------
Net Sales ................................ $ -- $ 693,340 $ 102,040 $ (22,280) $ 773,100
Cost of Sales ............................ -- (474,710) (67,180) 22,280 (519,610)
------- ---------- --------- --------- ----------
Gross Profit ............................ -- 218,630 34,860 -- 253,490
Selling, general and administrative
expenses ................................ -- (116,490) (18,070) -- (134,560)
------- ---------- --------- --------- ----------
Operating profit ........................ -- 102,140 16,790 -- 118,930
Other income (expense), net:
Interest expense ........................ -- (51,800) (3,580) -- (55,380)
Other, net .............................. -- 570 880 -- 1,450
------- ---------- --------- --------- ----------
Income before income taxes and
equity in net income of
subsidiaries ............................ -- 50,910 14,090 -- 65,000
Income taxes ............................. -- (22,970) (6,730) -- (29,700)
Equity in net income of subsidiaries ..... 35,300 4,190 -- (39,490) --
------- ---------- --------- --------- ----------
Net Income .............................. $35,300 $ 32,130 $ 7,360 $ (39,490) $ 35,300
======= ========== ========= ========= ==========
F-26
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED COMBINED FINANCIAL STATEMENTS
COMBINING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
POST-ACQUISITION BASIS
FOR THE YEAR ENDED DECEMBER 31, 2001
--------------------------------------------------------------------------
NON- CONSOLIDATED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
----------- ------------ ------------ -------------- -------------
OPERATING ACTIVITIES:
Net cash provided by operating
activities ........................... $ -- $ 63,000 $ 12,980 $ -- $ 75,980
-------- --------- --------- -------- ---------
FINANCING ACTIVITIES:
Payment of debt ........................ -- (20,410) (11,750) -- (32,160)
Decrease in Metaldine Corporation
net investment and advances .......... -- (31,410) (3,070) -- (34,480)
-------- --------- --------- -------- ---------
Net cash used for financial
activities ........................... -- (51,820) (14,820) -- (66,640)
-------- --------- --------- -------- ---------
INVESTING ACTIVITIES:
Captial expenditures ................... -- (15,990) (2,700) -- (18,690)
Proceeds from sale of fixed assets ..... -- 6,000 780 -- 6,780
Other, net ............................. -- (710) -- -- (710)
-------- --------- --------- -------- ---------
Net cash used for investing
activities ........................... -- (10,700) (1,920) -- (12,620)
-------- --------- --------- -------- ---------
CASH AND CASH EQUIVALENTS:
Increase (decrease) for the period ...... -- 480 (3,760) -- (3,280)
At beginning of period .................. -- 1,460 5,600 -- 7,060
-------- --------- --------- -------- ---------
At end of period ....................... $ -- $ 1,940 $ 1,840 $ -- $ 3,780
======== ========= ========= ======== =========
F-27
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED COMBINED FINANCIAL STATEMENTS
COMBINING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
POST-ACQUISITION BASIS
FOR THE PERIOD NOVEMBER 28, 2000 - DECEMBER 31, 2000
--------------------------------------------------------------------------
NON- CONSOLIDATED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
----------- ------------ ------------ -------------- -------------
OPERATION ACTIVITIES:
Net cash provided by (used for)
operating activities ................. $ -- $ 21,190 $ (2,480) $ -- $ 18,710
-------- --------- -------- -------- ---------
FINANCING ACTIVITIES:
Increase in debt ....................... -- -- 11,600 -- 11,600
Decrease in Metaldyne
Corporation net investment
and advances ......................... -- (19,470) (8,920) -- (28,390)
-------- --------- -------- -------- ---------
Net cash provided by (used for)
financing activities ................. -- (19,470) 2,680 -- (16,790)
-------- --------- -------- -------- ---------
INVESTING ACTIVITIES:
Capital expenditures ................... -- (2,510) (750) -- (3,260)
Proceeds from sale of fixed assets ..... -- 1,560 430 -- 1,990
Other, net ............................. -- (30) -- -- (30)
-------- --------- -------- -------- ---------
Net cash used for investing
activities ........................... -- (980) (320) -- (1,300)
-------- --------- -------- -------- ---------
CASH AND CASH EQUIVALENTS:
Increase (decrease) for the period ...... -- 740 (120) -- 620
At beginning of period ................. -- 720 5,720 -- 6,440
-------- --------- -------- -------- ---------
At end of period ..................... $ -- $ 1,460 $ 5,600 $ -- $ 7,060
======== ========= ======== ======== =========
F-28
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED COMBINED FINANCIAL STATEMENTS
COMBINING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
PRE-ACQUISITION BASIS
FOR THE PERIOD JANUARY 1, 2000 - NOVEMBER 27, 2000
--------------------------------------------------------------------------
NON- CONSOLIDATED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
----------- ------------ ------------ -------------- -------------
OPERATING ACTIVITIES:
Net cash provided by operating
activities ........................... $ -- $ 93,130 $ 20,300 $ -- $ 113,430
-------- --------- --------- -------- ---------
FINANCING ACTIVITIES:
Payment of debt ........................ -- (26,880) (32,380) -- (59,260)
Increase (decrease) in Metaldyne
Corporation net investments
and advances ......................... -- (35,210) 11,670 -- (23,540)
-------- --------- --------- -------- ---------
Net cash used for financing
activities ........................... -- (62,090) (20,710) -- (82,800)
-------- --------- --------- -------- ---------
INVESTING ACTIVITIES:
Acquisitions of businesses, net of
cash acquired ........................ -- (21,130) -- -- (21,130)
Capital expenditures ................... -- (14,840) (4,700) -- (19,540)
Proceeds from notes receivable ......... -- 1,550 -- -- 1,550
Proceeds from sale of fixed assets ..... -- 980 20 -- 1,000
Other net .............................. -- -- 1,510 -- 1,510
-------- --------- --------- -------- ---------
Net cash used for investing
activities .......................... -- (33,440) (3,170) -- (36,610)
-------- --------- --------- -------- ---------
CASH AND CASH EQUIVALENTS:
Decrease for the period ................ -- (2,400) (3,580) -- (5,980)
At beginning of period ................. -- 3,120 9,300 -- 12,420
-------- --------- --------- -------- ---------
At end of period ..................... $ -- $ 720 $ 5,720 $ -- $ 6,440
======== ========= ========= ======== =========
F-29
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
SUPPLEMENTAL GUARANTOR CONDENSED COMBINED FINANCIAL STATEMENTS
COMBINING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
PRE-ACQUISITION BASIS
FOR THE YEAR ENDED DECEMBER 31, 1999
--------------------------------------------------------------------------
NON- CONSOLIDATED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
----------- ------------ ------------ -------------- -------------
OPERATING ACTIVITIES:
Net cash provided by operating
activities ........................... $ -- $ 45,350 $ 10,630 $ -- $ 55,980
-------- --------- --------- -------- ---------
FINANCING ACTIVITIES:
Payment of debt ........................ -- (6,830) (13,770) -- (20,600)
Increase (decrease) in Metaldyne
Corporation net investment
and advances ......................... -- (1,360) 2,550 -- 1,190
-------- --------- --------- -------- ---------
Net cash used for financing
activities ........................... -- (8,190) (11,220) -- (19,410)
-------- --------- --------- -------- ---------
INVESTING ACTIVITIES:
Acquisitions of businesses, net of
cash acquired ........................ -- -- (4,070) -- (4,070)
Capital expenditures ................... -- (38,540) (3,780) -- (42,320)
Proceeds from notes receivable ......... -- 2,120 -- -- 2,120
Proceeds from sale of fixed assets ..... -- 2,400 280 -- 2,680
Other: net ............................. -- (3,280) -- -- (3,280)
-------- --------- --------- -------- ---------
Net cash used for investing
activities .......................... -- (37,300) (7,570) -- (44,870)
-------- --------- --------- -------- ---------
CASH AND CASH EQUIVALENTS:
Increase (decrease) for the period ..... -- (140) (8,160) -- (8,300)
At beginning of period ................. -- 3,260 17,460 -- 20,720
-------- --------- --------- -------- ---------
At end of period ..................... $ -- $ 3,120 $ 9,300 $ -- $ 12,420
======== ========= ========= ======== =========
F-30
TRIMAS CORPORATION
BALANCE SHEET
SEPTEMBER 29, 2002 AND DECEMBER 31, 2001
(UNAUDITED -- IN THOUSANDS)
CONSOLIDATED COMBINED
SEPTEMBER 29, DECEMBER 31,
2002 2001
--------------- -------------
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 39,300 $ 3,780
Receivables ..................................................... 110,060 34,240
Inventories ..................................................... 85,030 96,810
Deferred income taxes ........................................... 8,760 10,870
Prepaid expenses and other current assets ....................... 9,670 6,170
---------- ----------
Total current assets .......................................... 252,820 151,870
Property and equipment, net ...................................... 231,220 254,380
Excess of cost over net assets of acquired companies ............. 511,870 541,870
Other intangibles ................................................ 289,920 299,490
Other assets ..................................................... 52,550 18,130
---------- ----------
Total assets .................................................. $1,338,380 $1,265,740
========== ==========
LIABILITIES, SHAREHOLDERS' EQUITY AND
METALDYNE CORPORATION NET INVESTMENT AND ADVANCES
Current liabilities:
Accounts payable ................................................ $ 55,780 $ 47,000
Accrued liabilities ............................................. 70,030 56,190
Current maturities, long-term debt .............................. 3,000 28,900
Due to Metaldyne ................................................ 6,600 --
---------- ----------
Total current liabilities ..................................... 135,410 132,090
Long-term debt ................................................... 608,060 411,860
Deferred income taxes ............................................ 169,870 169,780
Other long-term liabilities ...................................... 33,460 31,010
Due to Metaldyne ................................................. 6,140 --
---------- ----------
Total liabilities ............................................. 952,940 744,740
========== ==========
Preferred stock $.01 par: Authorized 100,000,000 shares;
Issued and outstanding: None .................................... -- --
Common stock, $.01 par: Authorized 400,000,000 shares;
Issued and outstanding: 19,250,000 shares ....................... 190 --
Paid-in capital .................................................. 383,940 --
Retained deficit ................................................. (2,070) --
Accumulated other comprehensive income (loss) .................... 3,380 (1,320)
Metaldyne Corporation net investment and advances ................ -- 522,320
---------- ----------
Total shareholders' equity and Metaldyne Corporation net
investment and advances ....................................... 385,440 521,000
---------- ----------
Total liabilities, shareholders' equity and Metaldyne Corporation
net investment and advances ................................... $1,338,380 $1,265,740
========== ==========
The accompanying notes are an integral part of these financial statements.
F-31
TRIMAS CORPORATION
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2002 AND SEPTEMBER 30, 2001
(UNAUDITED -- IN THOUSANDS)
NINE MONTHS ENDED
--------------------------------
SEPTEMBER 29, SEPTEMBER 30,
2002 2001
--------------- --------------
CONSOLIDATED COMBINED
--------------- --------------
Net sales .......................................................... $ 574,140 $ 575,010
Cost of sales ...................................................... (429,180) (424,830)
---------- ----------
Gross profit .................................................... 144,960 150,180
Selling, general and administrative expenses ....................... (85,710) (92,750)
---------- ----------
Operating profit ................................................ 59,250 57,430
---------- ----------
Other income (expense), net:
Interest expense .................................................. (46,090) (55,410)
Other, net ........................................................ (4,110) (3,130)
---------- ----------
Other expense, net .............................................. (50,200) (58,540)
---------- ----------
Income (loss) before income taxes and cumulative effect of change in
accounting principle .............................................. 9,050 (1,110)
Income taxes ....................................................... (3,310) (3,380)
---------- ----------
Income (loss) before cumulative effect of change in accounting
principle ......................................................... 5,740 (4,490)
Cumulative effect of change in recognition and measurement of
goodwill impairment ............................................... (36,630) --
---------- ----------
Net loss ........................................................... $ (30,890) $ (4,490)
========== ==========
The accompanying notes are an integral part of these financial statements.
F-32
TRIMAS CORPORATION
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2002 AND SEPTEMBER 30, 2001
(UNAUDITED -- IN THOUSANDS)
NINE MONTHS ENDED
----------------------------------------
SEPTEMBER 29, 2002 SEPTEMBER 30, 2001
CONSOLIDATED COMBINED
-------------------- -------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................ $ (30,890) $ (4,490)
Adjustments to reconcile net loss to net cash provided by (used
for) operating activities, net of acquisition impact:
Cumulative effect of accounting change .............................. 36,630 --
Depreciation and amortization ....................................... 31,760 40,320
Provision for inventory write-down .................................. 8,500 --
Legacy stock award expense .......................................... 1,140 --
Amortization of debt issue costs .................................... 1,160 --
Deferred income taxes ............................................... 2,200 6,600
Proceeds from accounts receivable securitization .................... 14,560 6,570
Repurchase of securitized accounts receivable from Metaldyne ........ (74,540) --
Payment to Metaldyne to fund contractual liabilities ................ (11,640) --
Increase (decrease) in receivables .................................. (15,350) 7,640
Decrease in inventories ............................................. 3,800 19,270
Increase in prepaid expenses and other assets ....................... (2,960) (160)
Increase (decrease) in accounts payable and accrued liabilities ..... 15,580 (8,910)
Other, net .......................................................... (140) 50
---------- ---------
Net cash provided by (used for) operating activities ................. (20,190) 66,890
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................ (20,120) (13,700)
Proceeds from sale of fixed assets .................................. -- 4,270
Acquisition of a business, net of cash acquired ..................... (1,920) --
Other, net .......................................................... (60) 170
---------- ---------
Net cash used for investing activities ............................... (22,100) (9,260)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock .......................... 259,730 --
Proceeds from senior credit facility ................................ 260,000 --
Issuance of senior subordinated debentures .......................... 350,000 --
Debt issuance costs ................................................. (28,600) --
Repayment of bank debt attributed from Metaldyne .................... (440,760) (12,750)
Dividend to Metaldyne ............................................... (338,080) --
Net increase (decrease) in Metaldyne Corporation
net investment and advances ....................................... 15,520 (40,090)
---------- ---------
Net cash provided by (used for) financing activities ................. 77,810 (52,840)
---------- ---------
CASH AND CASH EQUIVALENTS:
Increase for the period ............................................. 35,520 4,790
At beginning of period .............................................. 3,780 7,060
---------- ---------
At end of period ..................................................... $ 39,300 $ 11,850
========== =========
The accompanying notes are an integral part of these financial statements.
F-33
TRIMAS CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY AND
METALDYNE CORPORATION NET INVESTMENT AND ADVANCES
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2002
(UNAUDITED -- IN THOUSANDS)
ACCUMULATED
METALDYNE OTHER
NET INVESTMENT COMMON PAID-IN RETAINED COMPREHENSIVE
AND ADVANCES STOCK CAPITAL DEFICIT INCOME (LOSS) TOTAL
---------------- -------- ----------- ------------ --------------- ------------
Combined balances,
December 31, 2001 .................... $ 522,320 $ -- $ -- $ -- $ (1,320) $ 521,000
----------
Comprehensive income (loss):
Net loss ............................. (28,820) (2,070) -- (30,890)
Foreign currency translation ......... 4,700 4,700
----------
Total comprehensive income (loss)
(26,190)
----------
Net proceeds from issuance of
common stock ......................... 130 259,600 259,730
Dividend to Metaldyne ................. (338,080) (338,080)
Net change in Metaldyne net
investments and advances ............. (31,020) (31,020)
Reclassification of Metaldyne
net investment and advances
balance .............................. (124,400) 60 124,340 --
---------- ------ -------- -------- -------- ----------
Consolidated balances,
September 29, 2002 ................... $ -- $190 $383,940 $ (2,070) $ 3,380 $ 385,440
========== ====== ======== ======== ======== ==========
The accompanying notes are an integral part of these financial statements.
F-34
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
TriMas Corporation ("TriMas" or the "Company") is a global manufacturer of
products for commercial, industrial, and consumer markets. The Company's
products include: hitches, trailer couplers, winches, jacks, and a complete
line of towing components and vehicle accessories, closures and dispensing
systems for industrial and consumer packaging applications, standard and
custom-designed ferrous, nonferrous and special alloy fasteners,
flame-retardant facings and jacketing and insulation tapes used in conjunction
with fiberglass insulation, pressure-sensitive specialty tape products,
compressed gas cylinders, industrial gaskets, specialty precision tools,
specialty engines and service parts and specialty ordnance component and weapon
systems.
Prior to June 6, 2002, and the common stock issuance and related financing
transactions discussed in Note 2 below, the accompanying financial statements
represented the combined assets and liabilities and results of operations of
certain subsidiaries and divisions of subsidiaries of Metaldyne Corporation
("Metaldyne") which constitute TriMas. The financial statements include
allocations and estimates of direct and indirect Metaldyne corporate
administrative costs attributable to TriMas. The methods by which such amounts
are attributed or allocated are deemed reasonable by management. Subsequent to
June 6, 2002, the financial position and results of operations of the Company
and its subsidiaries are presented on a consolidated basis and the Company will
no longer file a consolidated tax return with Metaldyne.
The financial statements presented herein are unaudited, but in the
opinion of management reflect those adjustments, consisting of only normal
recurring items, necessary for a fair presentation of such information. For
interim reporting periods, it is the Company's practice to make an estimate of
the effective tax rate expected to be applicable for the full fiscal year. The
rate so determined is used in providing for income taxes on a year-to-date
basis. Results for interim periods should not be considered indicative of
results for a full year. Reference should be made to the Company's combined
financial statements for the year ended December 31, 2001. Certain amounts for
prior periods were reclassified to conform to current period presentation.
The Company's fiscal year ends on December 31. The Company's fiscal
quarters end on the Sunday nearest March 31, June 30, and September 30. All
quarter references relate to the Company's fiscal year quarters unless
otherwise noted.
2. RECAPITALIZATION
On June 6, 2002, the Company, Metaldyne and Heartland Industrial Partners
("Heartland") entered into a stock purchase agreement under which Heartland and
other investors invested $265 million in the Company to acquire approximately
66% of the Company's common stock on a fully diluted basis. To effect the
transactions contemplated by the stock purchase agreement, the Company also
entered into a senior credit facility consisting of a $150 million revolving
credit facility, a $260 million term loan facility, and a $125 million
receivables securitization facility, and issued senior subordinated debentures
with a face value of $352.8 million. The Company declared and paid a dividend
to Metaldyne of $840 million in the form of cash, retirement of debt owed by
TriMas to Metaldyne or attributed to TriMas under the Metaldyne credit
agreement, and repurchase of TriMas originated receivables balances under the
Metaldyne receivables facility. TriMas was released from all obligations under
the Metaldyne credit agreement in connection with the common stock issuance and
related financing transactions. Under the terms of the stock purchase
agreement, Metaldyne retained shares of the Company's common stock valued at
$120 million and received a warrant to purchase 750,000 shares of common stock
at par value of $.01 per share, valued at $15 million. At September 29, 2002,
this warrant had not been exercised. The common stock and warrants are valued
based upon the cash equity investment made by Heartland and the other
investors. Metaldyne currently owns 34% of the Company's common stock on a
fully diluted basis.
As Heartland is both the Company's and Metaldyne's controlling
shareholder, this transaction was accounted for as a reorganization of entities
under common control and, accordingly, the Company
F-35
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
has not established a new basis of accounting in its assets or liabilities.
Additional adjustments to paid-in capital related to Metaldyne's investment in
the Company at September 29, 2002, may be recorded in subsequent periods to
reflect finalization of certain estimated amounts at the transaction closing
date.
3. GOODWILL AND OTHER INTANGIBLE ASSETS
On January 1, 2002, TriMas adopted Statement of Financial Accounting
Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." This
Statement eliminates amortization of goodwill and certain other intangible
assets, but requires at least annual testing for impairment by comparison of
estimated fair value to carrying value. The Company estimates fair value using
the present value of expected future cash flows and other valuation measures.
The Company completed the transitional impairment test in the second
quarter of 2002, which resulted in non-cash, after tax charge of $36.6 million
related to the Company's industrial fasteners business within the Industrial
Specialties Group. Sales, operating profits and cash flows for that business
were lower than expected beginning in the first quarter of 2001, and
experienced further deterioration during the remainder of 2001, due to the
overall economic downturn and cyclical declines in certain markets for the
Company's products. Based on that trend, the earnings and cash flow forecasts
for the next five years were revised resulting in the goodwill impairment loss.
Consistent with the requirements of Statement 142, the Company recognized this
impairment charge as of January 1, 2002, as part of the cumulative effect of
change in accounting principle during the nine months ended September 29, 2002.
The gross carrying amounts and accumulated amortization for the Company's
acquired intangible assets at September 29, 2002 and December 31, 2001, are
summarized below (in thousands):
AS OF SEPTEMBER 29, 2002 AS OF DECEMBER 31, 2001
--------------------------------- --------------------------------
GROSS CARRYING ACCUMULATED GROSS CARRYING ACCUMULATED
INTANGIBLE CATEGORY BY USEFUL LIFE AMOUNT AMORTIZATION AMOUNT AMORTIZATION
- ------------------------------------ ---------------- -------------- ---------------- -------------
Customer relationships:
6 -- 12 years ..................... $ 26,500 $ (4,810) $ 26,500 $ (2,850)
15 -- 25 years .................... 62,000 (4,950) 62,000 (2,930)
40 years .......................... 112,000 (5,130) 112,000 (3,010)
-------- --------- -------- ---------
200,500 (14,890) 200,500 (8,790)
Trademark/Trade names:
40 years .......................... 54,390 (2,490) 54,390 (1,460)
-------- --------- -------- ---------
Technology and other:
5 -- 15 years ..................... 22,500 (4,920) 21,500 (2,910)
18 -- 30 years .................... 38,100 (3,270) 38,100 (1,840)
-------- --------- -------- ---------
60,600 (8,190) 59,600 (4,750)
-------- --------- -------- ---------
$315,490 $ (25,570) $314,490 $ (15,000)
======== ========= ======== =========
Amortization expense for intangibles was $10.6 million for the nine months
ended September 29, 2002, and September 30, 2001, respectively. Estimated
amortization expense for the next five fiscal years beginning December 31, 2002
is $14,100 annually for 2003 through 2005, and $12,300 for 2006
and 2007.
F-36
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Changes in the carrying amount of goodwill for the nine months ended
September 29, 2002, are as follows (in thousands):
TRANSPORTATION PACKAGING INDUSTRIAL
ACCESSORIES SYSTEMS SPECIALTIES TOTAL
---------------- ----------- ------------- -----------
Balance, December 31, 2001 ...................... $228,400 $158,300 $ 155,170 $ 541,870
Impairment loss ................................ -- -- (36,630) (36,630)
Goodwill from acquisition ...................... -- -- 1,500 1,500
Impact of foreign currency translation ......... 310 4,840 (20) 5,130
-------- -------- --------- ---------
Balance, September 29, 2002 ..................... $228,710 $163,140 $ 120,020 $ 511,870
======== ======== ========= =========
The following table summarizes the effect on net income of excluding
amortization expense related to goodwill that is no longer being amortized (in
thousands):
NINE MONTHS ENDED
------------------------------
SEPTEMBER 29, SEPTEMBER 30,
2002 2001
--------------- --------------
Net loss, as reported ................... $ (30,890) $ (4,490)
Add back: goodwill amortization ......... -- 10,190
--------- --------
Net income (loss), as adjusted .......... $ (30,890) $ 5,700
========= ========
4. ACQUISITIONS AND RESTRUCTURINGS
Following the November 2000 acquisition of Metaldyne by Heartland,
Metaldyne employed a new senior management team for TriMas to reorganize and
restructure the TriMas business units and implement cost savings projects. The
new management team developed and launched six major projects and several
smaller initiatives to consolidate sub-scale business units and redundant
plants and to streamline administrative costs.
The following table summarizes the purchase accounting adjustments
established to reflect these actions and subsequent related activity:
(IN THOUSANDS)
OTHER
SEVERANCE CLOSURE COSTS TOTAL
----------- --------------- ----------
Reserve at December 31, 2001 .......... $ 13,210 $3,610 $ 16,820
Cash ................................ (1,380) (280) (1,660)
Non-cash ............................ -- -- --
-------- ------ --------
Reserve at March 31, 2002 ............. 11,830 3,330 15,160
Cash ................................ (1,540) (70) (1,610)
Non-cash ............................ -- -- --
-------- ------ --------
Reserve at June 30, 2002 .............. 10,290 3,260 13,550
Cash ................................ (1,700) (400) (2,100)
Non-cash ............................ -- -- --
-------- ------ --------
Reserve at September 29, 2002 ......... $ 8,590 $2,860 $ 11,450
======== ====== ========
Approximately 450 jobs have been or will be eliminated as a result of
these restructuring actions of which approximately 425 were eliminated as of
September 29, 2002. The Transportation Accessories group consolidated an
acquired trailer products manufacturing plant into an existing manufacturing
facility, and reduced the towing products regional warehouse service centers
from eleven to five facilities by closing or selling six related properties in
2001. In 2002, the electrical products manufacturing facility in Indiana was
closed and consolidated into an existing low cost plant in
F-37
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Mexico. In addition, two duplicate, sub-scale manufacturing facilities, each
with its own separate master distribution warehouse, will be closed and
consolidated into a single existing third facility, with one master warehouse
on the same property. These actions are expected to be completed during the
fourth quarter of 2002. These actions have resulted in the elimination of
approximately 275 positions through September 29, 2002. In the Packaging
Systems group the Company has rationalized back office and manufacturing
operations. Through September 29, 2002, approximately 55 positions have been
eliminated. In our Industrial Specialties group, the Company has adopted a
multi-step plan for the industrial fasteners product line to consolidate five
sub-scale manufacturing plants into three plants. The actions approved as part
of the original restructuring plan have been completed. Through September 29,
2002, the Company has eliminated approximately 95 positions related to these
activities.
The related severance will be paid through 2004. Additionally, estimated
non-recurring expenses of approximately $4.5 million and $5.1 million
(unaudited) are expected to be incurred in 2002 and 2003 respectively, as these
projects are completed. These costs primarily relate to plant closure costs
that do not qualify for expense recognition treatment at September 29, 2002.
5. LONG-TERM DEBT
On June 6, 2002, in connection with the issuance of common stock and
related financing transactions, the Company entered into two long-term
financing arrangements. In the first arrangement, the Company issued $352.8
million face value of 9 7/8% senior subordinated notes due 2012 ("Notes"), in a
private placement under Rule 144A of the Securities Act of 1933, as amended.
The Company also entered into a credit facility ("Credit Facility") with a
group of banks consisting of a $260 million senior term loan which matures
December 31, 2009, and is payable in quarterly installments of $0.625 million
beginning December 31, 2002. The Credit Facility also includes a senior
revolving credit facility with a total principal commitment of $150 million,
including up to $100 million for one or more permitted acquisitions, which
matures December 31, 2007. The Credit Agreement allows the Company to issue
letters of credit, not to exceed $40 million in aggregate, against revolving
credit facility commitments. At September 29, 2002, the Company had letters of
credit of approximately $23.5 million issued and outstanding. The Company pays
a commitment fee, ranging from 0.5% - 0.75%, with respect to unused principal
commitments, net of letters of credit issued, under the Credit Facility. The
obligations under the Credit Facility are collateralized by substantially all
of the Company's assets and unconditionally and irrevocably guaranteed jointly
and severally by TriMas Corporation, the parent company, and each of the
borrower's existing and subsequently acquired or organized domestic
subsidiaries, other than TSPC, Inc., TriMas' receivables subsidiary, pursuant
to the terms of a separate guarantee agreement. Although no foreign
subsidiaries are currently borrowers under the Credit Facility, such entities
may borrow under the facility in the future.
At December 31, 2001, bank debt was allocated to TriMas by Metaldyne and
primarily represented that portion of debt that was a joint and several
obligation of Metaldyne and certain subsidiaries of the Company. Other debt
included borrowings by the Company's subsidiaries denominated in foreign
currencies. The interest rate charged by Metaldyne applicable to the bank
debt approximated 8 1/2% at December 31, 2001.
F-38
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company's long-term debt, net of the unamortized discount of $2.710
million from face value of the Notes at September 29, 2002 and long-term debt
attributed from Metaldyne at December 31, 2001, is summarized below.
(IN THOUSANDS)
SEPTEMBER 29, DECEMBER 31,
2002 2001
--------------- -------------
Bank debt ..................................... $260,000 $440,600
9 7/8% Senior subordinated debentures, due 2012 350,060 --
Other ......................................... 1,000 160
-------- --------
611,060 440,760
Less: Current maturities, long-term debt ...... 3,000 28,900
-------- --------
Long-term debt .............................. $608,060 $411,860
======== ========
Borrowings under the Credit Facility bear interest at the Company's option
at either:
o A base rate used by JPMorgan Chase Bank, plus an applicable margin,
or;
o A eurocurrency rate on deposits for one, two, three or six month
periods (or nine or twelve month periods if, at the time of the
borrowing, all lenders agree to make such a duration available), plus
an applicable margin.
The applicable margin on borrowings is subject to change, depending on the
Company's Leverage Ratio, as defined, and is currently 1.75% on base rate
loans, and 2.75% on eurocurrency loans.
The bank debt is an obligation of subsidiaries of the Company. Although
the credit agreement does not restrict the Company's subsidiaries from making
distributions to it in respect of the exchange notes, it does contain certain
other limitations on the distribution of funds from TriMas Company LLC, the
principal subsidiary, to the Company. The restricted net assets of the
subsidiaries, $732.1 million at September 29, 2002, are presented in the
condensed consolidating financial information in Note 15. The Credit Facility
contains negative and affirmative covenants and other requirements affecting
the Company and its subsidiaries, including among others: restrictions on
incurrence of debt, except for permitted acquisitions and subordinated
indebtedness, liens, mergers, investments, loans, advances, guarantee
obligations, acquisitions, asset dispositions, sale-leaseback transactions
greater than $75 million if sold at fair market value, hedging agreements,
dividends and other restricted junior payments, stock repurchases, transactions
with affiliates, restrictive agreements and amendments to charters, by-laws,
and other material documents. The Credit Facility also requires us and our
subsidiaries to meet certain financial covenants and ratios computed quarterly,
including a leverage ratio (total consolidated indebtedness plus outstanding
amounts under the accounts receivable securitization facility over consolidated
EBITDA, as defined), interest expense ratio (cash interest expense over EBITDA,
as defined) and a capital expenditures covenant. The Company was in compliance
with these covenants at September 29, 2002.
The Company capitalized debt issuance costs paid of $13.1 million and
$15.5 million associated with the Credit Facility and the Notes, respectively.
These amounts consist primarily of legal, accounting and transaction advisory
fees, and facility fees paid to the lenders. Debt issuance costs and discount
on the Notes are amortized using the interest method over the term of the
Credit Facility and Notes, respectively. Unamortized debt issuance costs of
$12.6 million and $15.3 million related to the Credit Facility and Notes,
respectively, are included in Other Assets in the accompanying consolidated
balance sheet at September 29, 2002.
6. ACCOUNTS RECEIVABLE SECURITIZATION
Metaldyne sells on an ongoing basis, the trade accounts receivable of
substantially all domestic business operations to MTSPC, Inc. ("MTSPC"), a
wholly owned subsidiary of Metaldyne. MTSPC
F-39
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
from time to time, may sell an undivided fractional ownership interest in the
pool of receivables up to approximately $225 million to a third party
multi-seller receivables funding company. Prior to June 6, 2002, trade accounts
receivable relating to TriMas' operations were included as part of this
agreement. The net proceeds of TriMas' attributed portion of receivables sold
to MTSPC during the period January 1, 2002 to June 6, 2002, were less than the
face amount of accounts receivable sold by an amount that approximates the
purchaser's financing costs and approximated $2.3 million. These costs are
included in other expense in the statement of operations for the nine months
ended September 29, 2002. The proceeds from the sale of TriMas' accounts
receivable, net during this period was $14.6 million. In connection with the
common stock issuance and related financing transactions that occurred on June
6, 2002, the Company re-purchased an aggregate of $113.6 million of TriMas
receivables from MTSPC, including its retained subordinated interest of
approximately $39.1 million.
As part of the related financing transactions, TriMas established a
receivables securitization facility and organized TSPC, Inc. ("TSPC"), a
wholly-owned subsidiary to sell trade accounts receivable of substantially all
domestic business operations. TSPC from time to time, may sell an undivided
fractional ownership interest in this pool of receivables up to approximately
$125.0 million to a third party multi-seller receivables funding company. At
September 29, 2002, no receivables have been sold under this arrangement.
7. INVENTORIES
Inventories by component are as follows:
(IN THOUSANDS)
SEPTEMBER 29, DECEMBER 31,
2002 2001
--------------- -------------
Finished goods ................................ $46,330 $59,510
Work in process ............................... 12,650 13,470
Raw materials ................................. 26,050 23,830
------- -------
$85,030 $96,810
======= =======
8. PROPERTY AND EQUIPMENT, NET
Property and equipment, net reflects accumulated depreciation of $47.0
million and $28.2 million as of September 29, 2002 and December 31, 2001,
respectively.
9. COMPREHENSIVE INCOME (LOSS)
The Company's total comprehensive income (loss) for the nine months ended
September 29, 2002 and September 30, 2001, respectively, consists of:
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER
----------------------------
2002 2001
---- ----
Net loss, as reported ........................... $ (30,890) $ (4,490)
Foreign currency translation adjustment ......... 4,700 (4,330)
--------- --------
Total comprehensive loss ...................... $ (26,190) $ (8,820)
========= ========
10. SEGMENT INFORMATION
TriMas' reportable operating segments are business units, each providing
their own unique products and services. Each operating segment is independently
managed, and requires different technology and marketing strategies and has
separate financial information evaluated regularly by the
F-40
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Company's chief operating decision maker in determining resource allocation and
assessing performance. TriMas has three operating segments involving the
manufacture and sale of the following:
TRANSPORTATION ACCESSORIES GROUP -- Vehicle hitches and receivers, sway
controls, weight distribution and 5th wheel hitches, hitch mounted accessories,
roof racks, trailer couplers, winches, jacks, trailer brakes and lights and
other vehicle and trailer accessories.
PACKAGING SYSTEMS GROUP -- Closures and dispensing systems for steel and
plastic industrial and consumer packaging applications.
INDUSTRIAL SPECIALTIES GROUP -- Large and small diameter standard and
custom-designed ferrous, nonferrous and special alloy fasteners, highly
engineered specialty fasteners for the domestic and international aerospace
industry, flame-retardant facings and jacketing and insulation tapes used in
conjunction with fiberglass insulation, pressure-sensitive specialty tape
products, high-pressure and low-pressure cylinders for the transportation,
storage and dispensing of compressed gases, metallic and nonmetallic industrial
gaskets, specialty precision tools such as center drills, cutters, end mills,
reamers, master gears, gages and punches, specialty engines and service parts
and specialty ordnance components and weapon systems.
The Company has established Earnings Before Interest, Taxes, Depreciation
and Amortization ("Adjusted EBITDA") as an indicator of operating performance
and as a measure of cash generating capabilities. Adjusted EBITDA is one of the
primary measures used by management to evaluate performance. For purposes of
this note, Adjusted EBITDA is defined as operating profit before depreciation,
amortization and legacy stock award expense.
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER
-------------------------
SALES 2002 2001
--------- ----------- -----------
Transportation Accessories Group .......................... $ 236,160 $ 216,630
Packaging Systems Group ................................... 82,230 80,040
Industrial Specialties Group .............................. 255,750 278,340
--------- ---------
Total ................................................... $ 574,140 $ 575,010
========= =========
ADJUSTED EBITDA
---------------
Transportation Accessories Group .......................... $ 44,600 $ 37,490
Packaging Systems Group ................................... 28,130 25,510
Industrial Specialties Group .............................. 29,240 43,560
Metaldyne management fee and other corporate expenses ..... (8,100) (6,410)
--------- ---------
Total Adjusted EBITDA ................................... 93,870 100,150
Depreciation & amortization ............................... (31,760) (40,320)
Legacy stock award expense ................................ (2,860) (2,400)
--------- ---------
Operating profit ........................................ $ 59,250 $ 57,430
========= =========
11. COMMITMENTS AND CONTINGENCIES
The Company is subject to claims and litigation in the ordinary course of
business, but does not believe that any such claim or litigation will have a
material adverse effect on the Company's financial position or results of
operations.
At December 31, 2002, the Company is party to approximately 455 pending
cases involving approximately 21,522 claimants alleging personal injury from
exposure to asbestos containing materials formerly used in gaskets (both
encapsulated and otherwise) manufactured or distributed by certain of our
subsidiaries for use in the petrochemical refining and exploration industries.
The Company
F-41
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
manufactured three types of gaskets and has ceased the use of asbestos in its
products. We believe that many of our pending cases relate to locations which
none of our gaskets were distributed or used. In addition, we acquired various
companies to distribute our products that distributed gaskets of other
manufacturers prior to acquisition. Approximately 563 cases involving 3,309
claimants (which are not included in the pending cases noted above) have either
been dismissed for lack of product identification or otherwise or been settled
or made subject to agreements to settle. Our total settlement costs for all
such cases, some of which were filed over 12 years ago, have been (exclusive of
defense costs) approximately $1.9 million. Based upon our experience to date
and other available information, we do not believe that these cases will have a
material adverse effect on our financial condition or future results of
operations. However, we cannot assure you that we will not be subjected to
significant additional claims in the future, that the cost of settling cases in
which product identification can be made will not increase or that we will not
be subjected to further claims with respect to the former activities of our
acquired gasket distributors.
The Company has provided reserves based upon its present knowledge and
subject to future legal and factual developments, the Company does not believe
that the ultimate outcome any of these litigations will have a material adverse
effect on its consolidated financial position, and future results of operations
and cash flow. However, there can be no assurance that future legal and factual
developments will not result in a material adverse impact on our financial
condition and future results of operations.
12. RELATED PARTIES
Metaldyne Corporation
In connection with the common stock issuance and related financing
transactions, TriMas assumed certain liabilities and obligations of Metaldyne.
These amounts approximated $25.4 million and payments of $11.6 million have
been made to Metaldyne as of September 29, 2002 in respect to these
obligations. The remaining assumed liabilities, which approximate $12.7
million, are payable at various dates over the next two years and are reported
as Due to Metaldyne in the accompanying balance sheet at September 29, 2002.
Effective June 6, 2002, the Company also entered into a corporate services
agreement with Metaldyne. Under the terms of the agreement, TriMas will pay
Metaldyne an annual services fee of $2.5 million in exchange for human
resources, information technology, treasury, audit, internal audit, tax, legal
and other general corporate services. To the extent TriMas directly incurs
costs related to items covered by the agreement, the $2.5 million fee will be
reduced accordingly.
Net investment and advances reflected the accumulation of transactions
between TriMas and Metaldyne through June 6, 2002. These transactions included
operating results, management fees and advances, as discussed below.
-- TriMas was charged a management fee by Metaldyne for various corporate
support staff and administrative services. Such fees approximated one
percent of net sales and amounted to $3.3 million and $5.7 million for
the nine months ended September 29, 2002 and September 30, 2001,
respectively.
-- Certain of TriMas' employee benefit plans and insurance coverages are
administered by Metaldyne. These costs as well as other costs incurred
on TriMas' behalf were charged directly to TriMas.
-- TriMas was also charged interest expense at various rates on the debt
attributed to TriMas from Metaldyne and on the outstanding advance
balance from Metaldyne. These charges aggregated $29.4 million and
$55.4 million for the nine months ended September 29, 2002 and
September 30, 2001, respectively. The related advances were included
in Metaldyne Corporation net investment and advances in the
accompanying combined balance sheet. As a
F-42
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
result of the Company's common stock issuance and related transactions
completed during the second quarter of 2002, Metaldyne's net investment
and advances balance at June 6, 2002, net of the cash dividend paid and
certain subsequent adjustments to reflect finalization of estimated
amounts, was reclassified to paid-in capital in the statement of
shareholders' equity for the nine months ended September 29, 2002.
In connection with the common stock issuance and related financing
transactions, TriMas paid Heartland transaction advisory fees of $9.8 million.
Of this amount, approximately $3.9 million related to equity transaction costs
and were netted against proceeds of the common stock issuance recorded in
paid-in capital in the accompanying balance sheet. Approximately $5.9 million
related to costs incurred in connection with the Notes issuance and obtaining
the Credit Facility. These amounts were capitalized as debt issuance costs
related to these financing transactions and included in other assets in the
accompanying balance sheet. The Company also entered into an advisory services
agreement with Heartland at an annual fee of $4.0 million. In the quarter ended
September 29, 2002, Heartland was paid $1.0 million under this agreement and
such amount is included in selling, general and administrative expense in the
accompanying consolidated statement of operations.
13. CAPITALIZED LEASE ARRANGEMENT
In the first quarter 2002, as part of financing arranged by Metaldyne and
Heartland, the Company entered into sale/leaseback arrangements with a
third-party lender for certain facilities utilized by the Company. The proceeds
from these transactions were applied against the Metaldyne Corporation net
investment and advance balance. Metaldyne provided the third-party lender with
a guarantee of the Company's lease obligations. As a result, these lease
arrangements were accounted for as capitalized leases and lease obligations
approximating $19 million at March 31, 2002, were recorded in long-term debt.
As a result of the recapitalization and related financing transactions
completed during the second quarter of 2002, Metaldyne no longer guarantees the
Company's lease obligations with the third-party lender. Subsequent to June 6,
2002, the Company accounts for these lease transactions as operating leases.
During the quarter ended June 30, 2002, the Company eliminated the capitalized
lease obligation and related capitalized lease assets previously recorded. The
lease term continues until 2021 and requires annual lease payments of
approximately $2.5 million per year.
14. IMPACT OF NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") approved
the issuance of SFAS 143, "Accounting for Asset Retirement Obligations", which
is effective January 1, 2003. SFAS 143 requires that an existing legal
obligation associated with the retirement of a tangible long-lived asset be
recognized as a liability when incurred and the amount of the liability be
initially measured at fair value. The Company is currently reviewing the
provisions of SFAS 143 and assessing the impact of adoption.
On January 1, 2002, TriMas adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." Under SFAS No. 144, a single
accounting method was established for long-lived assets to be disposed of. This
Standard requires the Company to recognize an impairment loss only if the
carried amount of a long-lived asset is not recoverable from its undiscounted
cash flows, with the loss being the difference between the asset carrying
amount and fair value. Adoption of this Standard did not impact the Company's
financial statements.
In July 2002, the FASB approved the issuance of SFAS 146, "Accounting for
Costs Associated with Exit or Disposal Activities". The provisions of Statement
146 are to be applied prospectively to exit or disposal activities initiated
after December 31, 2002. The standard requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan.
F-43
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
15. SUPPLEMENTAL GUARANTOR CONDENSED COMBINING AND CONSOLIDATING FINANCIAL
INFORMATION
On June 6, 2002, TriMas Corporation, the parent company ("Parent"), issued
9 7/8% Senior Subordinated Notes due 2012 in a total principal amount of $352.8
million. These notes are guaranteed by substantially all of the Company's
domestic subsidiaries ("Guarantor Subsidiaries"). All of the Guarantor
Subsidiaries are 100% owned by the Parent and their guarantee is full,
unconditional, joint and several. The Company's non-domestic subsidiaries and
TSPC, Inc. have not guaranteed the Notes ("Non-Guarantor Subsidiaries"). The
Guarantor Subsidiaries have also guaranteed amounts outstanding under the
Company's Credit Facility.
The accompanying supplemental guarantor condensed, combining or
consolidating financial information is presented on the equity method of
accounting for all periods presented. Under this method, investments in
subsidiaries are recorded at cost and adjusted for the Company's share in the
subsidiaries' cumulative results of operations, capital contributions and
distributions and other changes in equity. Elimination entries relate primarily
to the elimination of investments in subsidiaries and associated intercompany
balances and transactions.
Prior to June 6, 2002, the Parent held equity investments directly in
certain of the Company's wholly-owned Non-Guarantor Subsidiaries, and equity in
these investees is included in the Parent column of the accompanying condensed
combining financial information for all periods presented. Subsequent to June
6, 2002, all investments in non-domestic subsidiaries are held directly at
TriMas Company LLC, a wholly-owned subsidiary of TriMas Corporation and
Guarantor Subsidiary, and equity in non-domestic subsidiary investees for all
periods subsequent to June 30, 2002 is included in the Guarantor Subsidiary
column of the accompanying consolidating financial information.
F-44
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEET
(IN THOUSANDS)
AS OF SEPTEMBER 29, 2002 (UNAUDITED)
-------------------------------------------------------------------------
NON- CONSOLIDATED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
---------- ------------ ------------ -------------- -------------
ASSETS
Current assets:
Cash and cash equivalents .................. $ -- $ 26,590 $ 12,710 $ -- $ 39,300
Receivables, trade ......................... -- 89,240 20,820 -- 110,060
Receivables, intercompany .................. -- 5,870 5,600 (11,470) --
Inventories ................................ -- 74,450 10,580 -- 85,030
Deferred income taxes ...................... -- 8,760 -- -- 8,760
Prepaid expenses and other assets .......... -- 8,850 820 -- 9,670
-------- ---------- -------- ---------- ----------
Total current assets ..................... -- 213,760 50,530 (11,470) 252,820
Investment in subsidiaries .................. 732,100 126,130 -- (858,230) --
Property and equipment, net ................. -- 202,720 28,500 -- 231,220
Excess of cost over net assets of
acquired companies ......................... -- 439,870 72,000 -- 511,870
Other intangibles ........................... -- 289,910 10 -- 289,920
Other assets ................................ 15,320 34,160 3,070 -- 52,550
-------- ---------- -------- ---------- ----------
Total assets ............................. $747,420 $1,306,550 $154,110 $ (869,700) $1,338,380
======== ========== ======== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade .................... $ 690 $ 44,700 $ 10,390 $ -- $ 55,780
Accounts payable, intercompany ............. -- 5,600 5,870 (11,470) --
Accrued liabilities ........................ 11,230 51,150 7,650 -- 70,030
Current maturities, long-term debt ......... -- 3,000 -- -- 3,000
Due to Metaldyne ........................... -- 6,600 -- -- 6,600
-------- ---------- -------- ---------- ----------
Total current liabilities ................ 11,920 111,050 23,910 (11,470) 135,410
Long-term debt .............................. 350,060 258,000 -- -- 608,060
Deferred income taxes ....................... -- 166,100 3,770 -- 169,870
Other long-term liabilities ................. -- 33,160 300 -- 33,460
Due to Metaldyne ............................ -- 6,140 -- -- 6,140
-------- ---------- -------- ---------- ----------
Total liabilities ........................ 361,980 574,450 27,980 (11,470) 952,940
Total shareholders' equity ............... 385,440 732,100 126,130 (858,230) 385,440
-------- ---------- -------- ---------- ----------
Total liabilities and
shareholders' equity .................... $747,420 $1,306,550 $154,110 $ (869,700) $1,338,380
======== ========== ======== ========== ==========
F-45
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED COMBINED FINANCIAL STATEMENTS
COMBINING BALANCE SHEET
(IN THOUSANDS)
AS OF DECEMBER 31, 2001
-----------------------------------------------------------------
NON- COMBINED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
---------- ------------ ------------ -------------- -------------
ASSETS
Current assets:
Cash and cash equivalents ................... $ -- $ 1,940 $ 1,840 $ -- $ 3,780
Receivables, trade .......................... -- 19,250 14,990 -- 34,240
Receivables, intercompany ................... -- 1,730 2,200 (3,930) --
Inventories ................................. -- 85,720 11,090 -- 96,810
Deferred income taxes ....................... -- 10,870 -- -- 10,870
Prepaid expenses and other assets ........... -- 4,810 1,360 -- 6,170
-------- ---------- -------- ---------- ----------
Total current assets ...................... -- 124,320 31,480 (3,930) 151,870
Investment in subsidiaries ................... 521,000 43,000 -- (564,000) --
Property and equipment, net .................. -- 228,010 26,370 -- 254,380
Excess of cost over net assets of acquired
companies ................................... -- 476,220 65,650 -- 541,870
Other intangibles ............................ 299,250 240 299,490
Other assets ................................. -- 14,850 3,280 -- 18,130
-------- ---------- -------- ---------- ----------
Total assets .............................. $521,000 $1,185,650 $127,020 $ (567,930) $1,265,740
======== ========== ======== ========== ==========
LIABILITIES AND METALDYNE
CORPORATION NET INVESTMENT
AND ADVANCES
Current liabilities:
Accounts payable -- trade ................... $ -- $ 38,100 $ 8,900 $ -- $ 47,000
Accounts payable -- intercompany ............ -- 2,200 1,730 (3,930) --
Accrued liabilities ......................... -- 51,130 5,060 -- 56,190
Current maturities, long-term debt .......... 28,900 -- -- 28,900
---------- -------- ---------- ----------
Total current liabilities ................. -- 120,330 15,690 (3,930) 132,090
Long-term debt ............................... -- 411,860 -- -- 411,860
Deferred income taxes ........................ -- 166,010 3,770 -- 169,780
Other long-term liabilities .................. -- 30,470 540 -- 31,010
-------- ---------- -------- ---------- ----------
Total liabilities ......................... -- 728,670 20,000 (3,930) 744,740
Metaldyne Corporation net investment and
advances .................................... 521,000 456,980 107,020 (564,000) 521,000
-------- ---------- -------- ---------- ----------
Total liabilities and Metaldyne
Corporation net investment and
advances ................................. $521,000 $1,185,650 $127,020 $ (567,930) $1,265,740
======== ========== ======== ========== ==========
F-46
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENT OF OPERATIONS
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2002 (UNAUDITED)
-----------------------------------------------------------------------------
NON- CONSOLIDATED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
------------ -------------- ------------ -------------- -------------
Net sales .................................. $ -- $ 510,110 $ 76,730 $ (12,700) $ 574,140
Cost of sales .............................. -- (388,020) (53,860) 12,700 (429,180)
--------- ---------- --------- --------- ----------
Gross profit .............................. -- 122,090 22,870 -- 144,960
Selling, general and administrative
expenses .................................. (300) (75,970) (9,440) -- (85,710)
--------- ---------- --------- --------- ----------
Operating profit .......................... (300) 46,120 13,430 -- 59,250
Other income (expense), net:
Interest expense .......................... (11,780) (33,930) (380) -- (46,090)
Other, net ................................ (10) (3,120) (980) -- (4,110)
--------- ---------- --------- --------- ----------
Income (loss) before income (taxes)
credit, equity in net income (loss) of
subsidiaries, and cumulative effect of
change in accounting principle ............ (12,090) 9,070 12,070 -- 9,050
Income (taxes) credit ...................... 4,020 (2,930) (4,400) -- (3,310)
Equity in net income (loss) of
subsidiaries .............................. (22,820) 6,960 -- 15,860 --
--------- ---------- --------- --------- ----------
Income (loss) before cumulative effect
of change in accounting principle ......... (30,890) 13,100 7,670 15,860 5,740
Cumulative effect of change in
accounting principle ...................... -- (36,630) -- -- (36,630)
--------- ---------- --------- --------- ----------
Net income (loss) .......................... $ (30,890) $ (23,530) $7,670 $ 15,860 $ (30,890)
========= ========== ========== ========= ==========
F-47
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENT OF OPERATIONS
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED)
-------------------------------------------------------------------------
NON- COMBINED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
----------- ------------ ------------ -------------- ------------
Net sales ......................... $ -- $ 514,740 $ 70,910 $ (10,640) $ 575,010
Cost of sales ..................... -- (385,170) (50,300) 10,640 (424,830)
-------- ---------- --------- --------- ----------
Gross profit ..................... -- 129,570 20,610 -- 150,180
Selling, general and administrative
expenses ......................... -- (82,160) (10,590) -- (92,750)
-------- ---------- --------- --------- ----------
Operating profit ................. -- 47,410 10,020 -- 57,430
Other income (expense), net:
Interest expense ................. -- (54,150) (1,260) -- (55,410)
Other, net ....................... -- (3,880) 750 -- (3,130)
-------- ---------- --------- --------- ----------
Income (loss) before income taxes
(credit) and equity in net income
(loss) of subsidiaries ........... -- (10,620) 9,510 -- (1,110)
Income (taxes) credit ............. -- 700 (4,080) -- (3,380)
Equity in net income (loss) of
subsidiaries ..................... (4,490) 3,080 -- 1,410 --
-------- ---------- --------- --------- ----------
Net income (loss) ................ $ (4,490) $ (6,840) $ 5,430 $ 1,410 $(4,490)
======== ========== ========= ========= ===========
F-48
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2002 (UNAUDITED)
-----------------------------------------------------------------------------
NON- CONSOLIDATED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
------------ -------------- ------------ -------------- -------------
OPERATING ACTIVITIES:
Net cash provided by (used for)
operating activities ..................... $ 4,030 $ (34,950) $ 10,730 $ -- $ (20,190)
---------- ---------- -------- --------- ----------
FINANCING ACTIVITIES:
Net proceeds from issuance of
common stock ............................. 259,730 -- -- -- 259,730
Increase in debt ........................... 350,000 260,000 -- -- 610,000
Debt issuance costs ........................ (15,450) (13,150) -- -- (28,600)
Payment of debt ............................ -- (440,760) -- -- (440,760)
Dividend to Metaldyne Corporation .......... (338,080) -- -- -- (338,080)
Intercompany transfers (to) from
subsidiary ............................... (260,790) 260,790 -- -- --
Increase in Metaldyne Corporation
net investments and advances ............. 560 11,300 3,660 -- 15,520
---------- ---------- -------- --------- ----------
Net cash provided by (used for)
financing activities ..................... (4,030) 78,180 3,660 -- 77,810
---------- ---------- -------- --------- ----------
INVESTING ACTIVITIES:
Capital expenditures ....................... -- (16,520) (3,600) -- (20,120)
Acquisition of a business, net of cash
acquired ................................. -- (1,920) -- -- (1,920)
Other, net ................................. -- (130) 70 -- (60)
---------- ---------- -------- --------- ----------
Net cash used for investing activities ..... -- (18,570) (3,530) -- (22,100)
---------- ---------- -------- --------- ----------
CASH AND CASH EQUIVALENTS:
Increase (decrease) for the period ......... -- 24,660 10,860 -- 35,520
At beginning of period ..................... -- 1,940 1,840 3,780
---------- ---------- -------- ----------
At end of period ........................... $ -- $26,600 $ 12,700 $ -- $39,300
========== ============ ======== ========= ===========
F-49
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
SUPPLEMENTAL GUARANTOR CONDENSED COMBINED FINANCIAL STATEMENTS
COMBINING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED)
-------------------------------------------------------------------------
NON- COMBINED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
----------- ------------ ------------ -------------- ------------
OPERATING ACTIVITIES:
Net cash provided by (used for)
operating activities ..................... $ -- $ 71,370 $ (4,480) $ -- $ 66,890
-------- --------- -------- -------- ---------
FINANCING ACTIVITIES:
Payment of debt ............................ -- (12,750) -- -- (12,750)
Increase (decrease) in Metaldyne
Corporation net investment and
advances ................................. -- (48,940) 8,850 -- (40,090)
-------- --------- -------- -------- ---------
Net cash provided by (used for)
financing activities ..................... -- (61,690) 8,850 -- (52,840)
-------- --------- -------- -------- ---------
INVESTING ACTIVITIES:
Capital expenditures ....................... -- (12,020) (1,680) -- (13,700)
Proceeds from sale of fixed assets ......... -- 3,500 770 -- 4,270
Other ...................................... -- 170 -- -- 170
-------- --------- -------- -------- ---------
Net cash used for investing activities ..... -- (8,350) (910) -- (9,260)
-------- --------- -------- -------- ---------
CASH AND CASH EQUIVALENTS:
Increase for the period .................... -- 1,330 3,460 -- 4,790
At beginning of period ..................... -- 1,460 5,600 -- 7,060
-------- --------- -------- -------- ---------
At end of period ........................... $ -- $ 2,790 $ 9,060 $ -- $ 11,850
======== ========= ======== ======== =========
16. DEBT ISSUANCE
On December 10, 2002, the Company completed an additional issuance of its
9 7/8% Senior Subordinated Notes due 2012, in a private placement under Rule
144A of the Securities Act of 1933, as amended. The notes were issued pursuant
to our indenture dated June 6, 2002, in the aggregate principal amount of $85.0
million.
17. ACQUISITION
On January 30, 2003, the Company acquired all of the capital stock of
HammerBlow Acquisition Corp., a manufacturer and distributor of towing, track
and other vehicle accessories throughout North America. The purchase price
approximated $142 million, less our previous investment of $9.0 million, of
which $7.5 million is payable in January 2004. The acquisition was financed
with cash on-hand and borrowings under our revolving credit facility.
F-50
February 3, 2003
TRIMAS CORPORATION
$352,773,000
9 7/8% SENIOR NOTES DUE 2012
---------------------
PROSPECTUS
---------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU
WRITTEN INFORMATION OTHER THAN THIS PROSPECTUS OR TO MAKE REPRESENTATIONS AS TO
MATTERS NOT STATED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES OR OUR SOLICITATION OF YOUR OFFER TO BUY THE SECURITIES IN ANY
JURISDICTION WHERE THAT WOULD NOT BE PERMITTED OR LEGAL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALES MADE HEREUNDER AFTER THE DATE OF THIS
PROSPECTUS SHALL CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR
OUR AFFAIRS HAVE NOT CHANGED SINCE THE DATE HEREOF.