Filed pursuant to Rule 424(b)(3)
Registration No. 333-105950
FINAL PROSPECTUS DATED JULY 21, 2003
PROSPECTUS
TRIMAS CORPORATION
OFFER TO EXCHANGE ITS $85,000,000 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 $85,000,000 AGGREGATE PRINCIPAL AMOUNT OF
9 7/8% SENIOR SUBORDINATED NOTES DUE 2012
(CUSIP NOS. 896215 AD 2 AND U89616 AB 9)
---------------------
TERMS OF EXCHANGE OFFER
The information in this preliminary prospectus is not complete and may be
changed. We may not consummate the exchange offer until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
o Expires 9:00 a.m., New York City time, on August 20, 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 (CUSIP Nos.
896215 AD2 and U89616 AB9) that are validly tendered and not withdrawn will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o Tenders of original notes may be withdrawn any time prior to the expiration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 JULY 21, 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 .......................................................................... 23
Capitalization ........................................................................... 24
Unaudited Pro Forma Financial Information ................................................ 25
Selected Historical Financial Data ....................................................... 34
Management's Discussion and Analysis of Financial Condition and Results of Operations .... 36
Business ................................................................................. 48
Management ............................................................................... 63
Director and Executive Officer Compensation .............................................. 67
Principal Stockholders ................................................................... 71
Certain Relationships and Related Party Transactions ..................................... 73
The Exchange Offer ....................................................................... 76
Description of Amended and Restated Credit Facility ...................................... 84
Description of Notes ..................................................................... 88
Summary of Material United States Federal Income Tax Considerations ...................... 127
Plan of Distribution ..................................................................... 130
Legal Matters ............................................................................ 130
Experts .................................................................................. 130
Responsibility for Financial Statements .................................................. 131
Index to Financial Statements ............................................................ F-1
WHERE YOU CAN FIND MORE INFORMATION
We are subject to and currently file 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 2002
net sales were in 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, owned the remaining 34% of our fully diluted common equity.
As of May 15, 2003, Heartland owned approximately 61% 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 four operating segments: Cequent
Transportation Accessories, Rieke Packaging Systems, Fastening Systems and
Industrial Specialties.
o Cequent Transportation Accessories. 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 in towing and trailering products, including Draw-Tite,
Reese, Hidden-Hitch, Tekonsha, Fulton, Wesbar, Bull Dog (Registered
Trademark) , ECLIPSE by HammerBlow (Registered Trademark) ,
HammerBlow/Snowco (Registered Trademark) , Hayman-Reese, QTB
Automotive and ROLA. We are also a leading supplier of cargo
management and vehicle protection products sold under trade names such
as "Highland. The Pro's Brand;" Ramp Champ, SpaceMaster, Highland
Ultimate, Triple Strength, Contura, AdvanTech and Car Top. Our
products and brand names 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 and wholesale distributors 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. 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 Rieke
Packaging Systems 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
1
technologies. Approximately 50% of this group's 2002 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 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 Fastening Systems. This group manufacturers a wide range of ferrous,
nonferrous and special alloy fasteners and provides specialized metal
treating and finishing services including small specialty and custom
fasteners, build-to-print large diameter fasteners, highly engineered
specialty fasteners for the domestic and international aerospace
industry and the associated aftermarket for replacement and
maintenance parts. Our companies and brands include Lake Erie Products
and Monogram Aerospace Fasteners, Inc. This group supplies products
utilized by thousands of end-users in diverse markets such as
agricultural and transportation equipment, construction and fabricated
metal products, commercial and industrial maintenance and aerospace.
Our customers in this group include American Axle, Anderson Windows,
Boeing, Caterpillar, Collins & Aikman, Dana, Delta Faucets and John
Deere.
o Industrial Specialties. 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 and other products for use primarily in the automotive,
aerospace, construction, commercial, energy and defense markets. Our
companies and brands include Compac Corporation, Lamons Metal Gasket,
Norris Cylinders, Arrow Engine, and the Precision Tool Company that
includes the Keo Cutters, Richard's Micro Tool and Reska brands. 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, BOC, Delphi, Dow, ExxonMobil,
Grainger, Honeywell, Knauf and 3M.
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 30 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 certain
operations and eliminate duplicative costs that we expect will result
in cumulative annual cost savings of approximately $25 million for
completed actions by the second quarter of 2003.
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
2002 as a result of general economic conditions
2
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.
THE TRANSACTIONS
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 approximately $352.8 million of 9 7/8% senior
subordinated notes due 2012 and raised $265 million in cash through the
issuance of common stock. We used borrowings under our credit facility and
proceeds from the June 6, 2002 senior subordinated 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 Amended and Restated 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."
In December 2002, we issued an additional $85 million of 9 7/8% senior
subordinated notes due 2012. The proceeds, net of fees paid to the initial
purchasers, approximated $84.1 million and were designated for the repurchase
of one million shares of our common stock from Metaldyne at $20 per share, to
fund potential acquisitions, for debt repayment and for other general corporate
purposes. We refer to the $85 million of senior subordinated notes due 2012
issued in December 2002 as the "original notes."
On March 6, 2003, we completed a registered exchange offer whereby we
exchanged $350.6 million aggregate principal amount of 9 7/8% senior
subordinated notes due 2012 in exchange for like amount of outstanding 9 7/8%
senior subordinated notes due 2012. Our registration statement on Form S-4 was
declared effective by the Commission on February 5, 2003. The exchange offer
raised no new proceeds for us and was made in accordance with contractual
commitments arising from the June 6, 2002 notes issuance.
3
RECENT ACQUISITIONS
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 $142.3 million (including our previous investment of
$9.0 million), subject to adjustment. Of this amount, $7.2 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 $109.5
million for the twelve months ended November 30, 2002.
On February 21, 2003, we acquired all of the capital stock of Highland
Group Corporation from the shareholders and option holders of Highland and FNL
Management Corp. for a purchase price of approximately $70.5 million, plus the
amount of future tax benefits. The purchase price is subject to adjustment
based upon actual working capital and taxes owed at closing. For the year ended
December 31, 2002, Highland had net sales of approximately $50.4 million.
Livonia Fittings Acquisition. On May 9, 2003, we acquired an automotive
fasteners manufacturing business from Metaldyne for approximately $23 million
on a debt-free basis, which we refer to as the "Livonia acquisition." In
connection with the acquisition, we agreed to sublease from Metaldyne its
Livonia, Michigan facility where the acquired business is currently located.
The acquired business is a leading manufacturer of specialized fittings and
cold-headed parts used in automotive and industrial applications. Its products
include specialty tube nuts, spacers, hollow extruded components, and locking
nut systems used in brake, fuel, power steering, engine, transmission and
chassis applications. These products are supplied to OEMs as well as a number
of Tier One suppliers. The acquired business will become part of our Fastening
Systems group. See "Certain Relationships and Related Party Transactions."
Because Metaldyne and TriMas were under common control prior to the Livonia
acquisition, we may be required to restate in future filings our results from
prior periods and the first six months of 2003 to include the business we
acquired in the Livonia acquisition. We are currently evaluating whether we will
report our first six months of 2003 results inclusive of the acquired business
for the entire period and compare those results with restated results for the
comparable period of 2002 that include the acquired business. During 2002, the
acquired business' unaudited results of operations included net sales of
approximately $16.7 million, an operating profit of approximately $3.4 million
and net income of approximately $1.2 million.
RECENT DEVELOPMENTS
Stock Repurchase. On April 2, 2003, we repurchased one million shares of
our common stock from Metaldyne at $20 per share, the same price as it was
valued on June 6, 2002. This sale decreased Metaldyne's ownership percentage in
us from approximately 31% to approximately 28% on a fully diluted basis. See
"Certain Relationships and Related Party Transactions."
Credit Facility Amendment. On June 6, 2003, we amended and restated our
credit agreement to modify certain financial covenants, increase our term loan
facility from $260.0 million to $335.0 million and reduce our incremental term
loan capacity by $75.0 million to $125.0 million. The new term loan principal
amount will be amortized on a pro rata basis across the remaining scheduled
original term loan payments. In addition, the applicable margins used to
calculate the interest rate applicable to both our revolving credit facility
and term loan credit facility will be increased by 0.50%. The proceeds from the
increased term loan were utilized to repay outstanding borrowings under our
revolving credit facility and to reduce outstanding balances under our accounts
receivable facility. See "Description of Amended and Restated Credit Facility."
Sale/Leaseback Transaction. On June 26, 2003, the Company completed a sale
and subsequent leaseback of certain property and equipment with General Electric
Capital Corporation that resulted in net cash proceeds of approximately $23.4
million. The proceeds will be used for general corporate purposes. Annual rent
expenses related to this transaction is expected to approximate $4.0 million.
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 AD 2
and CUSIP U89616 AB 9) which were issued in a
private offering on December 10, 2002. As of
the date of this prospectus, there is
$85,000,000 principal amount at maturity of
original notes outstanding. We will issue
exchange notes promptly after the expiration of
the exchange offer.
We expect that the exchange notes will be part
of the same class of notes and otherwise
identical to our currently outstanding
registered 9 7/8% Senior Subordinated Notes due
2012.
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
5
activities must acknowledge that it will
deliver this prospectus in connection with any
sale of exchange notes.
Expiration Date............... 9:00 a.m., New York City time, on August 20,
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............ $85,000,000 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
$85,000,000 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 amended and restated 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 amended and restated
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 March 30, 2003, the exchange notes and the
guarantees would have ranked junior to:
o approximately $273.8 million of senior
indebtedness; and
o other liabilities, including trade payables
but excluding intercompany obligations, of
our non-guarantor subsidiaries.
8
At March 30, 2003, the notes and related
guarantees then outstanding were not senior to
any of our indebtedness and the notes and
related guarantees are not currently senior to
any of our indebtedness. Further, at March 30,
2003, on a pro forma basis after giving effect
to the amendment and restatement of our credit
facility and the Livonia acquisition, the
exchange notes and the guarantees would have
ranked junior to approximately $349.2 million
of senior indebtedness and we could have
incurred up to an aggregate of $84.2 million
in additional senior indebtedness under our
revolving credit facility and/or receivables
facility. The $352.8 million aggregate
principal amount 9 7/8% senior subordinated
notes due 2012 rank 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 $2,361.11 per day or
$850,000 per year (calculated on the basis of a
360 day year). The additional interest began to
accrue on July 8, 2003 and will continue to
accrue until the exchange offer is completed.
As of July 18, 2003, $25,972.21 of additional
interest was accrued but unpaid on the original
notes. Immediately prior to the closing of
the exchange offer, additional interest that is
accrued but
9
unpaid on the original notes to be exchanged in
this offer will be due and payable by us to the
record holder of such notes as of the closing
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 upon the closing 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) 631-5450.
10
SUMMARY HISTORICAL FINANCIAL DATA
The following table sets forth our summary historical financial data for
the five years ended December 31, 2002 and the three months ended March 31,
2002 and March 30, 2003. The financial data for the fiscal years ended December
31, 2000, 2001 and 2002 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, 1999 was derived from
our audited combined 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 three months ended March 31, 2002 and
March 30, 2003 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
DECEMBER 31, DECEMBER 31, 1/1/2000-
1998(1) 1999 11/27/2000
-------------- -------------- ------------
(in thousands)
STATEMENT OF OPERATIONS DATA:
Net sales ..................... $ 707,180 $ 773,100 $ 739,590
Cost of sales ................. 485,280 529,910 524,400
--------- --------- ---------
Gross profit .................. 221,900 243,190 215,190
Selling, general and
administrative ............... 112,640 124,260 120,660
--------- --------- ---------
Operating profit .............. 109,260 118,930 94,530
--------- --------- ---------
Net income (loss)(2) .......... 41,650 35,300 21,280
OTHER FINANCIAL DATA:
Depreciation and
amortization ................. $ 31,780 $ 38,520 $ 38,400
Capital expenditures .......... 39,200 42,320 19,540
Cash flow from (used by):
operating activities ......... 93,970 55,980 113,430
investing activities ......... (91,130) (44,870) (36,610)
financing activities ......... (81,960) (19,410) (82,800)
Ratio of earnings to fixed
charges(3) ................... 1.8x 2.1x 1.7x
POST-ACQUISITION BASIS
------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
11/28/2000- DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 30,
12/31/2000 2001 2002 2002 2003
------------- -------------- -------------- -------------- -------------
(in thousands)
STATEMENT OF OPERATIONS DATA:
Net sales ..................... $ 50,640 $ 732,440 $ 733,580 $ 190,940 $ 213,780
Cost of sales ................. 37,300 543,310 552,350 135,380 162,120
---------- --------- --------- --------- -----------
Gross profit .................. 13,340 189,130 181,230 55,560 51,660
Selling, general and
administrative ............... 12,390 121,450 114,090 31,310 35,320
---------- --------- --------- --------- -----------
Operating profit .............. 950 67,680 67,140 24,250 16,340
---------- --------- --------- --------- -----------
Net income (loss)(2) .......... (4,150) (11,320) (35,760) (33,080) (7,320)
OTHER FINANCIAL DATA:
Depreciation and
amortization ................. $ 4,540 $ 53,780 $ 38,870 $ 11,500 $ 10,950
Capital expenditures .......... 3,260 18,690 32,140 4,600 4,040
Cash flow from (used by):
operating activities ......... 18,710 75,980 (25,110) 11,190 48,240
investing activities ......... (1,300) (12,620) (37,240) (4,440) (162,670)
financing activities ......... (16,790) (66,640) 159,010 (7,110) 44,650
Ratio of earnings to fixed
charges(3) ................... -- -- 1.0x 1.3 --
11
AS OF
MARCH 30, 2003
---------------
SELECTED BALANCE SHEET DATA:
Cash and cash equivalents .................................... $ 30,660
Working capital .............................................. 86,210
Excess of cost over net assets of acquired companies and other
intangibles ................................................ 980,840
Total assets ................................................. 1,525,780
Total debt ................................................... 718,550
Shareholders' equity ......................................... 415,380
- --------------
(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) 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 year
ended December 31, 2001, and three months ended March 30, 2003,
additional earnings of $5.3 million, $9.6 million, and $12.1 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 $7.3 million for the three months ended March 30, 2003, due
principally to a $12.2 million pre-tax loss recorded in connection with the
sale and subsequent leaseback of an operating facility and other machinery and
equipment. 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 Cequent
Transportation Accessories 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
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 $142.3 million (including our previous investment of
$9.0 million), subject to adjustment. Of this amount, $7.2 million of the
purchase price is payable in January 2004. On February 21, 2003, we acquired
all of the capital stock of Highland Group Corporation from the shareholders
and option holders of Highland and FNL Management Corp. for a purchase price of
approximately $70.5 million, plus the amount of future tax benefits. The
purchase price is subject to adjustment based upon actual working capital and
taxes owed at closing. On May 9, 2003, we completed the acquisition of an
automotive manufacturing
13
business from Metaldyne for approximately $23.0 million on a debt-free basis.
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
December 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 15, 2003, Metaldyne owns approximately 28% 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 December 31, 2002, approximately 12.0% 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 Cequent 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.
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
15
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. 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 13.5% of our net sales for the fiscal year ended December
31, 2002 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 March 30, 2003, our goodwill and intangible assets were approximately
$980.8 million, and represented approximately 64% of our total assets. Our net
loss of $35.8 million for the year ended December 31, 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
28% of our fully diluted common stock. As described elsewhere and in another
risk
16
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
exchange notes and our amended and restated credit facility or cause a change
in control. In addition, to the extent permitted by the indenture governing the
exchange notes and our amended and restated 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 March 30, 2003, we had approximately $718.6 million of
outstanding debt and approximately $415.4 million of shareholders' equity.
Further, as of March 30, 2003 on a pro forma basis after giving effect to our
April 2 repurchase of our shares from Metaldyne, the Livonia acquisition and
the amendment and restatement of our credit facility and application of the
proceeds therefrom, we would have had approximately $794.0 million of
outstanding debt and approximately $400.4 million of shareholder's equity. At
March 30, 2003, approximately $273.8 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 $2.7 million.
After giving effect to the amendment and restatement of our credit facility and
the application of proceeds therefrom, our current annual debt service payment
obligations as of March 30, 2003 would have been approximately $3.4 million on
that basis. See "Use of Proceeds." Amounts due under operating lease
arrangements in the next year as of March 30, 2003 on a pro forma basis after
giving effect to the Livonia acquisition are approximately $13.4 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 amended and restated 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
March 30, 2003, assuming the receipt and application of $75.0 million proceeds
as a result of the amended and restated credit facility and the Livonia
acquisition,
17
the documents governing the terms of our indebtedness would have permitted us
to incur up to an additional approximate $162.2 million in the aggregate of
additional indebtedness to fund acquisitions, all of which could be senior
indebtedness, subject to certain limitatiions. 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."
RESTRICTIONS IN OUR AMENDED AND RESTATED CREDIT FACILITY AND UNDER THE
INDENTURE GOVERNING THE EXCHANGE NOTES LIMIT OUR ABILITY TO TAKE CERTAIN
ACTIONS.
Our amended and restated 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 amended and restated 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 amended and restated 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 amended and restated 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
amended and restated 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 amended and restated 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 amended and restated credit facility, and all of our future
borrowings, except any future indebtedness that expressly provides that it
ranks
18
equally with, or is subordinated in right of payment to, the notes. As of March
30, 2003, on a pro forma basis after giving effect to the amendment and
restatement of our credit facility and the Livonia acquisition, the notes and
the related guarantees then outstanding were effectively subordinated to
approximately $349.2 million of senior secured indebtedness under our amended
and restated 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 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 amended and restated 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 amended
and restated 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
amended and restated credit facility is accelerated, the lenders under our
amended and restated 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 amended and restated 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 amended and restated 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, 2002, our non-guarantor
subsidiaries had net sales of approximately $99.4 million and net assets of
approximately $128.8 million.
WE HAVE SIGNIFICANT OPERATING LEASE OBLIGATIONS, AND OUR FAILURE TO MEET THOSE
OBLIGATIONS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
As of March 30, 2003, on a pro forma basis after giving effect to the
Livonia acquisition, we had operating leases for certain of our facilities and
certain capital equipment. Our annual rent expense
19
under these leases would be approximately $13.4 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 amended and restated 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 amended and restated 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 amended and restated 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 amended and restated 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 amended and restated credit facility and wind down our accounts
receivable facility. We may not be able to repay amounts outstanding under our
amended and restated 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 amended and
restated 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
20
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.
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. While we expect the exchange notes
to trade as part of the same class of notes as our currently outstanding
registered 9 7/8% Senior Subordinated Notes due 2012, these outstanding notes
have a limited trading market and are not 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.
21
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.
22
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 were approximately $83.3
million.
We used $63.3 million of the net proceeds from the original offering to
consummate the HammerBlow and Highland acquisitions and $20.0 million to
repurchase a portion of our common stock owned by Metaldyne.
23
CAPITALIZATION
The following table sets forth our unaudited cash and cash equivalents and
capitalization as of March 30, 2003 on an actual and as adjusted basis. You
should read this table in conjunction with our unaudited consolidated financial
statements as of March 30, 2003 and the notes to those financial statements
included elsewhere in this prospectus.
AS OF MARCH 30, 2003
-------------------------------
ACTUAL AS ADJUSTED (1)
------------- ----------------
(IN THOUSANDS)
Cash and cash equivalents ............................................... $ 30,660 $ 10,660
========== ==========
Long-term debt (including current maturities):
Senior credit facility (2) ............................................. $ 273,750 $ 349,150
9 7/8% senior subordinated notes due 2012 (issued June 6, 2002) (3) ..... 350,170 350,170
Original notes (4) ..................................................... 85,805 85,805
Other ................................................................... 8,825 8,825
---------- ----------
Total long-term debt ................................................... 718,550 793,950
Total shareholders' equity .............................................. 415,380 400,380
---------- ----------
Total capitalization ................................................... $1,133,930 $1,194,330
========== ==========
- ----------
(1) Gives effect to the application of $20.0 million of the proceeds from the
original issuance to repurchase shares of our common stock from Metaldyne
on April 2, 2003, the Livonia acquisition and the receipt and application
of $75.0 million proceeds from the amendment and restatement to our
credit facility. The Livonia acquisition was funded using approximately
$18 million in borrowings under our revolving credit facility and $5.0
million of cash equity contribution by Heartland.
(2) Our amended and restated credit facility is comprised of a $150 million
revolving credit facility that matures in December 2007 and a $335
million term loan that matures in December 2009. As of March 30, 2003, we
utilized approximately $23.7 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 amended
and restated credit facility also includes an uncommitted additional $125
million term loan facility that we may utilize upon receipt of
commitments from existing or new lenders for permitted acquisitions. See
"Description of Amended and Restated 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 9 7/8% senior subordinated notes due 2012
(issued June 6, 2002), net of unamortized discount.
(4) Includes $85.0 million aggregate principal amount of the original notes
plus the $0.85 million premium paid in connection with the issuance of
the original notes, net of amortized bond premium.
24
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma 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, the original issuance and the HammerBlow and Highland
acquisitions.
The unaudited pro forma combined statement of operations for the year
ended December 31, 2002 and unaudited pro forma consolidated statement of
operations for the three months ended March 30, 2003 give pro forma effect to
the transactions, the HammerBlow and Highland acquisitions and the original
issuance as if they had occurred on January 1, 2002.
The unaudited pro forma 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, the additional issuance and the HammerBlow and Highland
acquisitions occurred at such time or to project our results of operations for
any future period or date.
The unaudited pro forma combined balance sheet as of March 30, 2003, gives
pro forma effect to the repurchase of $20 million of our shares from Metaldyne
that occurred on April 3, 2003 as if it had occurred on March 30, 2003. The
impact of the transactions and the HammerBlow and Highland acquisitions are
included in the TriMas balance sheet at March 30, 2003.
The unaudited pro forma statement of operations and balance sheet do not
include the impact of the amended restated credit agreement. See note 5 to the
Unaudited Pro Forma Financial Information for disclosure of the impact. 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 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.
25
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
(IN MILLIONS)
TRIMAS HIGHLAND HAMMERBLOW PRO FORMA PRO FORMA
HISTORICAL HISTORICAL PRO FORMA (1) ADJUSTMENTS COMBINED
------------ ------------ --------------- --------------- ----------
Net sales ............................... $ 733.6 $ 49.2 $ 109.5 $ -- $ 892.3
Cost of sales ........................... (552.4) (31.2) (70.3) (0.6)(2) (655.0)
(0.5)(3)
-------- ------- -------- ------- --------
Gross profit ........................... 181.2 18.0 39.2 (1.1) 237.3
Selling, general and administrative (3.7)(3)
expenses ............................... (114.1) (9.2) (25.2) (0.8)(4) (153.0)
-------- ------- -------- ------- --------
Operating profit ....................... 67.1 8.8 14.0 (5.6) 84.3
Interest expense ....................... (60.0) (0.8) ( 3.9) 1.6 (5) (63.1)
Other, net ............................. (4.0) -- ( 4.5) (0.1)(6) (8.6)
-------- ------- -------- ---------- --------
Income before income tax (expense)
credit and cumulative effect of
change in accounting principle ......... 3.1 8.0 5.6 (4.1) 12.6
Income tax (expense) credit ............. (2.3) (3.4) ( 4.7) 1.6 (7) (8.8)
-------- ------- -------- ---------- --------
Income before cumulative effect of
change in accounting principle (a) ..... 0.8 $ 4.6 $ 0.9 $ (2.5) $ 3.8
======== ======= ======== ========== ========
Cumulative effect of change in
recognition and measurement of
goodwill impairment .................... (36.6)
--------
Net loss ............................... $ (35.8)
========
- ----------
(a) The cumulative effect of change in accounting principle is excluded
from the pro forma presentation.
See notes to Unaudited Pro Forma Financial Information.
26
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 30, 2003
(IN MILLIONS)
TRIMAS HAMMERBLOW HIGHLAND PRO FORMA PRO FORMA
HISTORICAL HISTORICAL HISTORICAL ADJUSTMENTS CONSOLIDATED
------------ ------------ ------------ --------------- -------------
Net sales ......................... $ 213.8 $ 10.7 $ 5.1 $ -- $ 229.6
Cost of sales ..................... (162.1) (6.6) (3.6) 2.3 (8) (170.0)
-------- ------- ------ ------- --------
Gross profit ..................... 51.7 4.1 1.5 2.3 59.6
(0.4)(3)
Selling, general and administrative
expenses ......................... (35.3) (2.3) (1.1) 0.3 (4) (38.8)
-------- ------- ------ ------- --------
Operating profit .................. 16.4 1.8 0.4 2.2 20.8
Other income (expense), net:
Interest expense ................. (16.0) (0.3) (0.1) -- (5) (16.4)
Other, net ....................... (12.4) (0.2) -- (0.2)(6) (12.8)
-------- ------- ------ ------- --------
Income (loss) before income tax
(expense) credit and cumulative
effect of change in accounting
principle ........................ (12.0) 1.3 0.3 2.0 (8.4)
Income taxes ...................... 4.7 (0.5) (0.1) (0.8)(7) 3.3
-------- ------- ------ ------- --------
Net income (loss) ................. $ (7.3) $ 0.8 $ 0.2 $ 1.2 $ (5.1)
======== ======= ====== ======= ========
See notes to Unaudited Pro Forma Financial Information.
27
TRIMAS CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
The Unaudited Pro Forma Combined Statement of Operations for the year
ended December 31, 2002 and the Unaudited Pro Forma Consolidated Statement of
Operations for the three months ended March 30, 2003 include adjustments
necessary to reflect the estimated effect of the transactions, the HammerBlow
and Highland acquisitions and the original issuance as if they had occurred on
January 1, 2002.
For purposes of the Unaudited Pro Forma Combined Statement of Operations
for the year ended December 31, 2002, the results of TriMas for the twelve
months ended December 31, 2002 have been combined with the results of Highland
for the twelve months ended December 31, 2002 and with the results of
HammerBlow Pro Forma for the twelve months ended November 30, 2002 to represent
the Unaudited Pro Forma Combined Statement of Operations for the year ended
December 31, 2002.
For purposes of the Unaudited Pro Forma Consolidated Statement of
Operations for the three months ended March 30, 2003, the results for
HammerBlow and Highland prior to the acquisition dates of January 30, 2003, and
February 21, 2003, respectively, are separately presented. Subsequent to the
acquisition dates, the results of HammerBlow and Highland are included in the
results of operations for TriMas. In addition, the impact of the transactions,
and the original issuance are also included in the results of operations for
TriMas for the three months ended March 30, 2003.
PRO FORMA ADJUSTMENTS
1. HammerBlow acquired Tekonsha Towing Systems and Sure Pull Towing Systems
("Tekonsha / Sure Pull") from Dana Corporation on November 21, 2002.
HammerBlow's historical fiscal year results of operations do not include
the results of Tekonsha / Sure Pull prior to that date. The HammerBlow pro
forma results include adjustments necessary to reflect the estimated
effects of this acquisition as if it had occurred on December 1, 2001. The
information for Tekonsha / Sure Pull has been derived from financial
information available for the period from December 1, 2001 to the date of
the acquisition. Financial information subsequent to the date of the
acquisition is included in the results of HammerBlow.
HammerBlow's fiscal year end is November 30 and the HammerBlow Pro Forma
Statement of Operations for the twelve months ended November 30, 2002 is
included below (in millions). The impact of the acquisition of Tekonsha /
Sure Pull is included in the consolidated balance sheet of HammerBlow at
November 30, 2002.
28
TRIMAS CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
HAMMERBLOW TEKONSHA/SURE PRO FORMA HAMMERBLOW
HISTORICAL PULL HISTORICAL ADJUSTMENTS PRO FORMA
------------ ----------------- ----------------- -----------
Net Sales .................................. $ 68.0 $ 41.5 $ -- $ 109.5
Cost of sales .............................. (43.9) (26.2) (0.2)(a) (70.3)
------- ------- -------- --------
Gross profit ............................... 24.1 15.3 (0.2) 39.2
Selling, general and administrative
expense ................................... (14.2) (11.3) 0.3 (a) (25.2)
------- ------- -------- --------
Operating profit ........................... 9.9 4.0 0.1 14.0
Interest expense ........................... (2.9) -- (1.0)(b) (3.9)
Other, net ................................. (4.4) (0.1) -- (4.5)
------- ------- -------- --------
Income from continuing operations
before income tax ......................... 2.6 3.9 (0.9) 5.6
Income tax expense ......................... (2.1) (2.9) 0.3 (c) (4.7)
------- ------- -------- --------
Income from continuing operations .......... $ 0.5 $ 1.0 $ (0.6) $ 0.9
======= ======= ======== ========
- ----------
(a) Reflects increased depreciation and amortization of $0.2 million
related to property and equipment and identified intangibles, based on
estimated fair values at the date of acquisition and estimated
remaining useful lives ranging from five to thirty years. Selling,
general and administrative expense has been decreased $0.3 million to
reflect revenue for management services provided to a related entity.
(b) Reflects increased interest expense due to a change in capital
structure. This includes $10 million in various term loans bearing an
average rate of 5.6%, a $5.3 million revolver bearing a rate of 5.5%,
a purchase note of $0.5 million bearing 8.5%, and loan origination
costs that are being amortized over the life of the related debt (3
years).
(c) Reflects the estimated tax effect of the above adjustments at a
marginal tax rate of 38%.
2. 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 twelve months ended
December 31, 2002. An additional add-back of $0.9 million related to
interest expense on the capitalized lease obligation for the twelve months
ended December 31, 2002 is included in adjustment (4) below as a result of
eliminating this interest expenses.
3. Reflects increased depreciation and amortization of $4.2 million and $0.4
million for the year ended December 31, 2002 and three months ended March
30, 2003, respectively, related to the step-up of property and equipment
and identified intangibles to estimated fair values, based on estimated
remaining useful lives at the date of acquisition ranging from three to
forty years.
4. Pro forma adjustment to reflect ongoing corporate operating costs and
related party contractual arrangements with Heartland, Metaldyne and the
former owners of HammerBlow. Subsequent to June 6, 2002, certain
stand-alone operating costs and related party contract costs have been
recorded by the Company. The pro forma adjustments for the year ended
December 31, 2002 for the transactions and original issuance are
incremental to such costs recorded after June 6, 2002.
29
TRIMAS CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 2002 MARCH 30, 2003
------------------- -------------------
(IN MILLIONS)
Corporate office costs (a) ............................ $ 2.5 $ --
Heartland advisory fee (b) ............................ 1.7 --
Corporate services agreement (c) ...................... 1.0 --
Management fee income (d) ............................. (0.5) (0.1)
------ ------
Total Corporate operating costs .................... 4.7 (0.1)
------ ------
Less: Historical management fee and other (e) ......... (3.9) (0.2)
------ ------
Pro forma adjustment .................................. $ 0.8 $ (0.3)
====== ======
- ----------
(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
plus expenses.
(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, and
tax, legal and other general corporate services.
(d) The Company has entered into a management agreement with the former
owners of HammerBlow to continue to provide shared services to a
previously related entity. Annual fees to the Company for providing
such services are $0.8 million. The pro forma adjustment includes only
that amount which is incremental to the amount already considered in
note (1) adjustment (a) above.
(e) Adjustment to eliminate the historical 1% management fee paid to
Metaldyne for corporate support and the historical management fees of
$0.3 million and $0.1 million for the year ended December 31, 2002 and
the three months ended March 30, 2003 paid to each of the previous
shareholders of HammerBlow and Highland, respectively. Metaldyne
charged its management fee to TriMas through June 6, 2002, at which
point the Company began to incur the costs summarized in notes (a),
(b) and (c) above.
5. Pro forma adjustment to reflect interest expense related to borrowings
under the Company's bank credit agreement as a result of the June 6, 2002
transactions, as a result of issuance of the 9 7/8% senior subordinated
notes due 2012 (issued June 6, 2002) and the original notes, and as a
result of the acquisition of HammerBlow and Highland.
30
TRIMAS CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 2002 MARCH 30, 2003
------------------- -------------------
(IN MILLIONS)
Interest on revolving credit facility(a) ..................... $ 2.8 $ 0.8
Interest on $260 million bank term loan(b) ................... 11.5 2.9
Interest on 9 7/8% senior subordinated notes due 2012 ......... 43.2 11.3
Interest accretion on deferred purchase price(c) ............. 0.3 0.1
Amortization of debt issue costs(d) .......................... 3.6 0.9
Commitment and letter of credit fees(e) ...................... 1.6 0.4
Accretion on original notes(f) ............................... 0.2 --
Amortization on additional notes(g) .......................... (0.1) --
------ ------
Pro forma interest expense .................................. 63.1 16.4
Less: historical and pro forma interest expense .............. 64.7 16.4
------ ------
Pro forma adjustment ........................................ $ (1.6) $ --
====== ======
- ----------
(a) The interest on the revolving credit facility is variable based on
LIBOR plus 2.00% - 2.75%, depending on our leverage ratio. At March
30, 2003, the interest rate on the revolver was 4.42% (LIBOR plus
2.75%). TriMas had not utilized the revolver as of December 31, 2002
for operating purposes. The revolving credit facility was used to
partially finance the acquisitions of HammerBlow and Highland. For
purposes of the Unaudited Pro Forma Combined Statement of Operations,
the revolving credit facility was assumed to be used to finance a
portion ($57.1 million) of the Highland acquisition and interest
expense related to these borrowings is $2.5 million. The revolver was
also assumed to fund working capital requirements of HammerBlow and
Highland during 2002 and interest on these borrowings was $0.3
million.
A 0.125% increase or decrease in the assumed interest rate for the
revolving credit facility would change pro forma interest expense by
$0.1 million for the year ended December 31, 2002.
(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. At
March 30, 2003, the interest rate on the term loan facility was 4.42%
(LIBOR plus 2.75%).
A 0.125% increase or decrease in the assumed interest rate for the
term loan facility would change pro forma interest expense by $0.1
million and $0.3 million for the three months ended March 30, 2003 and
the twelve months ended December 31, 2002, respectively.
Under the Company's amended and restated credit agreement, applicable
margins used to calculate the interest rate applicable to the
revolving credit and term loan facilities increased by 0.50%. Assuming
incremental term loan borrowings of $75.0 million and an increase of
0.50% in the margin rate, interest expense (pre-tax) related to all
borrowings under the term loan and revolving credit facilities would
have increased approximately $3.9 million and $0.9 million in the year
ended December 31, 2002 and three months ended March 30, 2003,
respectively.
Assuming $75.0 million of incremental term loan borrowings, the
Company would not have been required to utilize the accounts
receivable securitization facility to fund the HammerBlow acquisition
(see note 6). The assumed loss on sale of receivables would have
decreased $2.1 and $0.2 million in the year ended December 31, 2002
and three months ended March 30, 2003, respectively, offset by an
increase in commitment fees related to such facility of $0.3 million
in the year ended December 31, 2002.
31
TRIMAS CORPORATION
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION -- (CONTINUED)
The net impact of the amended and restated credit agreement would be
to reduce pro forma pre-tax income $2.1 million for the year ended
December 31, 2002 and increase the pro forma pre-tax loss $0.7 million
in the three months ended March 30, 2003.
(c) Represents interest accretion on deferred purchase price of $7.5
million related to the acquisition of HammerBlow, due January 2004.
(d) Costs of approximately $31.9 million were incurred in connection with
obtaining our senior credit facility ($13.1 million) and the issuance
of the notes ($18.8 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.
(e) Consists of commitment fees on the revolving credit facility.
(f) Represents accretion of discount on the 9 7/8% senior subordinated
notes due 2012 (issued June 2002) to their face value of $352.8
million.
(g) Represents amortization of premium on the original notes to their face
value of $85.0 million.
6. Adjustment to Other, net is comprised of the following:
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 2002 MARCH 30, 2003
------------------- -------------------
(IN MILLIONS)
Commitment fees(a) ............................................ $ 0.3 $ --
Elimination of accounts receivable financing costs(b) ......... (2.3) --
Loss on sale of receivables(c) ................................ 2.1 0.2
------ ----
Pro forma adjustment .......................................... $ 0.1 $ 0.2
====== =====
- ----------
(a) Consists of commitment fees on our accounts receivable securitization
facility incurred in conjunction with the transactions.
(b) Adjustment to eliminate financing costs related to our participation
in the Metaldyne accounts receivable securitization facility through
June 6, 2002.
(c) Adjustment for the loss on the sale of receivables under the accounts
receivable securitization facility which was assumed to be used to
partially finance the acquisition of HammerBlow. We have not utilized
the accounts receivable securitization facility as of March 30, 2003
and December 31, 2002 for operating purposes.
7. To reflect the estimated tax effect of the above adjustments at a marginal
tax rate of 38%.
8. The estimated fair values of inventories acquired were increased by $4.0
million from historical amounts, of which approximately $2.3 million of
this amount was included in cost of sales during the three months ended
March 30, 2003; this adjustment reflects elimination of this non-recurring
amount from cost of sales.
32
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 30, 2003
(IN THOUSANDS)
COMPANY PRO FORMA PRO FORMA
HISTORICAL ADJUSTMENTS BASIS
-------------- ------------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................................. $30,660 $ (20,000)(1) $10,660
Receivables ................................................ 88,490 -- 88,490
Inventories ................................................ 122,260 -- 122,260
Deferred income taxes ...................................... 18,740 -- 18,740
Prepaid expenses and other current assets .................. 12,110 -- 12,110
------------ ---------- -----------
Total current assets ..................................... 272,260 (20,000) 252,260
Property and equipment, net ................................. 207,860 -- 207,860
Excess of cost over net assets of acquired companies ........ 619,150 -- 619,150
Other intangibles ........................................... 361,690 -- 361,690
Other assets ................................................ 64,820 -- 64,820
------------ ---------- -----------
Total assets ................................................ $1,525,780 $ (20,000) $1,505,780
============ ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................... $80,030 -- $80,030
Accrued liabilities ........................................ 83,590 -- 83,590
Current maturities, long-term debt ......................... 10,640 -- 10,640
Due to Metaldyne ........................................... 11,790 -- 11,790
------------ ---------- -----------
Total current liabilities ................................ 186,050 -- 186,050
Long-term debt .............................................. 707,910 -- 707,910
Deferred income taxes ....................................... 187,270 -- 187,270
Other long-term liabilities ................................. 21,940 -- 21,940
Due to Metaldyne ............................................ 7,230 -- 7,230
------------ ---------- -----------
Total liabilities ........................................ 1,110,400 -- 1,110,400
------------ ---------- -----------
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: 20,000,000 shares .................. 210 (10) 200
Paid-in capital ............................................. 418,110 (19,990) 398,120
Retained deficit ............................................ (14,260) -- (14,260)
Accumulated other comprehensive income ...................... 11,320 -- 11,320
------------ ---------- -----------
Total shareholders' equity ............................... 415,380 (20,000)(1) 395,380
------------ ---------- -----------
Total liabilities and shareholders' equity ............... $1,525,780 $ (20,000) $1,505,780
============ ========== ===========
- ----------
(1) Represents repurchase of 1 million shares of our common stock from
Metaldyne that occurred on April 2, 2003 as part of the use of proceeds
resulting from the original issuance.
33
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth our summary historical financial data for
the five years ended December 31, 2002 and the three months ended March 31,
2002 and March 30, 2003. The financial data for the fiscal years ended December
31, 2000, 2001 and 2002 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, 1999 was derived from
our audited combined 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 three months ended March 31, 2002 and
March 30, 2003 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
DECEMBER 31, DECEMBER 31, 1/1/2000-
1998(3) 1999 11/27/2000
-------------- -------------- ------------
STATEMENT OF (IN THOUSANDS)
OPERATIONS
DATA:
Net sales ........... $ 707,180 $ 773,100 $ 739,590
Cost of sales ....... 485,280 529,910 524,400
----------- --------- ---------
Gross profit ........ 221,900 243,190 215,190
Selling, general
and
administrative ..... 112,640 124,260 120,660
----------- --------- ---------
Operating profit .... 109,260 118,930 94,530
Net income (loss)
(1) ................ 41,650 35,300 21,280
OTHER FINANCIAL
DATA:
Depreciation and
amortization ....... $ 31,780 $ 38,520 $ 38,400
Capital
expenditures ....... 39,200 42,320 19,540
Cash flow from
(used by):
operating
activities ......... 93,970 55,980 113,430
investing
activities ........ (91,130) (44,870) (36,610)
financing
activities ........ (81,960) (19,410) (82,800)
POST-ACQUISITION BASIS
------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
11/28/2000- DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 30,
12/31/2000 2001 2002 2002 2003
------------- -------------- -------------- -------------- -------------
STATEMENT OF
OPERATIONS
DATA:
Net sales ........... $ 50,640 $ 732,440 $ 733,580 $ 190,940 $ 213,780
Cost of sales ....... 37,300 543,310 552,350 135,380 162,120
---------- --------- --------- --------- -----------
Gross profit ........ 13,340 189,130 181,230 55,560 51,660
Selling, general
and
administrative ..... 12,390 121,450 114,090 31,310 35,320
---------- --------- --------- --------- -----------
Operating profit .... 950 67,680 67,140 24,250 16,340
Net income (loss)
(1) ................ (4,150) (11,320) (35,760) (33,080) (7,320)
OTHER FINANCIAL
DATA:
Depreciation and
amortization ....... $ 4,540 $ 53,780 $ 38,870 $ 11,500 $ 10,950
Capital
expenditures ....... 3,260 18,690 32,140 4,600 4,040
Cash flow from
(used by):
operating
activities ......... 18,710 75,980 (25,110) 11,190 48,240
investing
activities ........ (1,300) (12,620) (37,240) (4,440) (162,670)
financing
activities ........ (16,790) (66,640) 159,010 (7,110) 44,650
34
PRE-ACQUISITION BASIS
--------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, 1/1/2000-
1998(3) 1999 11/27/2000
-------------- -------------- --------------
Ratio of
earnings to
fixed
charges(2) .......... 1.8x 2.1x 1.7x
Pro forma ratio
of earnings to
fixed
charges(4) .......... -- -- --
SELECTED
BALANCE
SHEET DATA:
Total assets ......... $1,239,740 $1,247,160 $1,192,810
Total debt ........... 541,150 520,560 461,300
Goodwill and
other
intangibles ......... 729,810 717,320 709,140
POST-ACQUISITION BASIS
------------------------------------------------------------------------
THREE MONTHS THREE MONTHS
YEAR ENDED YEAR ENDED ENDED ENDED
11/28/2000- DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 30,
12/31/2000 2001 2002 2002 2003
------------- -------------- -------------- -------------- -------------
Ratio of
earnings to
fixed
charges(2) .......... -- -- 1.0x 1.3x --
Pro forma ratio
of earnings to
fixed
charges(4) .......... -- -- 1.2x -- --
SELECTED
BALANCE
SHEET DATA:
Total assets ......... $1,358,120 $1,265,740 $1,410,770 $1,266,370 $1,525,780
Total debt ........... 472,920 440,760 696,180 447,260 718,550
Goodwill and
other
intangibles ......... 868,010 841,360 798,110 809,660 980,840
- ----------
(1) 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.
(2) 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 year
ended December 31, 2001, and three months ended March 30, 2003 additional
earnings of $5.3 million, $9.6 million and $12.1 million, respectively,
would have been required to make the ratio 1.0x.
(3) 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.
(4) The Pro forma ratio of earnings to fixed charges is calculated in the
same manner as is described above in footnote (2) for the unadjusted
ratio of earnings to fixed charges. However, the Pro forma ratio is
calculated using the unaudited Pro forma financial information resulting
from the Highland and HammerBlow acquisitions and the amended and
restated credit agreement. For the three months dated March 30, 2003,
additional earnings of $9.1 million would have been required to make the
ratio 1.0x.
35
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. Effective January 1, 2003, we reorganized our business operations
by creating a Fastening Systems segment from our industrial fasteners
businesses that were previously part of Industrial Specialties. As a result,
prior period financial information has been reclassified to conform to this
change. We have four operating groups or segments: Cequent Transportation
Accessories, Rieke Packaging Systems, Fastening 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 certain inefficiencies that
resulted from our historical acquisitions and the inability to fully integrate
these businesses. 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 achieve approximately $25.0 million in cumulative
annual savings for completed actions by the second quarter of 2003. The total
net cash cost for these savings is expected to be $18.1 million, of which
approximately $17.9 million was spent by the end of the first quarter ended
March 30, 2003; these figures are net of discontinued property sold or to be
sold. The key elements and status of the plans are summarized below:
General:
o a 10% 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 have
developed a comprehensive plan with an outside consultant to harmonize
the programs, eliminate excess overhead and remove inequities between
the programs. Effective January 1, 2003, these actions have been
completed; we expect annual savings from these actions to be
approximately $1.5 million, as compared to our 2001 costs.
Cequent 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 contract
manufacturing plant in Mexico. In addition, as part of an integration
and consolidation plan that was executed in the second half of 2002,
two duplicate, sub-scale manufacturing facilities, each with its own
separate master distribution warehouse, were consolidated into a
single, approximately 350,000 square-foot manufacturing and warehouse
facility in Goshen, Indiana. We expect to finalize these actions,
including receipt of proceeds from real estate disposals of the closed
facilities, during 2003.
Fastening Systems Group:
o we have adopted a multi-step plan for our industrial fasteners product
businesses to consolidate five sub-scale manufacturing plants into
three remaining plants. The plant closures have been completed at
December 31, 2002. We will continue to rationalize the manufacturing
capabilities among the three remaining plants in 2003.
o as previously announced, we acquired an automotive fasteners business
from Metaldyne Corporation in May 2003. This business will be included
in our Fastening Systems group and
36
we expect it to positively impact the rationalization of the
manufacturing capabilities of our industrial fasteners business. We
are currently assessing the cost and timing of changes to our existing
rationalization and capital investment plans.
o in 2003, we will also continue to rationalize the back office and
general and administrative support within the industrial fasteners
facilities.
Industrial Specialties Group:
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 will be 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. These actions are
expected to commence during the fourth quarter of 2003.
SEGMENT INFORMATION AND SUPPLEMENTAL FINANCIAL ANALYSIS
The following table summarizes financial information for our four
operating segments:
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
------------------------------------- ------------------------
2000 2001 2002 MARCH 31, MARCH 30,
PRO FORMA HISTORICAL HISTORICAL 2002 2003
----------- ------------ ------------ ----------- ------------
(IN THOUSANDS)
NET SALES:
Cequent Transportation Accessories ...................... $280,950 $264,680 $ 282,400 $ 75,410 $ 98,890
Rieke Packaging Systems ................................. 108,150 105,250 109,050 26,630 30,270
Fastening Systems ....................................... 177,700 143,700 132,820 33,910 30,790
Industrial Specialties .................................. 223,430 218,810 209,310 54,990 53,830
-------- -------- --------- -------- --------
Total ................................................ $790,230 $732,440 $ 733,580 $190,940 $213,780
======== ======== ========= ======== ========
OPERATING PROFIT:
Cequent Transportation Accessories ...................... $ 28,440 $ 24,870 $ 31,880 $ 11,570 $ 8,130
Rieke Packaging Systems ................................. 23,530 21,640 27,000 6,980 7,580
Fastening Systems ....................................... 22,560 11,070 1,360 1,740 380
Industrial Specialties .................................. 19,030 20,580 23,500 6,650 6,160
Management fee and other corporate expenses (1) ......... (7,360) (7,280) (12,360) (1,890) (4,640)
Legacy stock award expense .............................. (3,200) (3,200) (4,240) (800) (1,270)
-------- -------- --------- -------- --------
Total ................................................ $ 83,000 $ 67,680 $ 67,140 $ 24,250 $ 16,340
======== ======== ========= ======== ========
CAPITAL EXPENDITURES:
Cequent Transportation Accessories ...................... $ 9,470 $ 5,350 $ 12,320 $ 920 $ 1,300
Rieke Packaging Systems ................................. 6,640 3,730 10,720 1,730 1,740
Fastening Systems ....................................... 2,950 6,090 4,480 840 490
Industrial Specialties .................................. 3,740 3,520 4,170 1,110 440
Corporate ............................................... -- -- 450 -- 70
-------- -------- --------- -------- --------
Total ................................................ $ 22,800 $ 18,690 $ 32,140 $ 4,600 $ 4,040
======== ======== ========= ======== ========
- ----------
(1) In 2000 Pro Forma and 2001, the Metaldyne management fee approximated 1%
of net sales. The increase in management fee and other corporate expenses
in 2002 resulted from $2.7 million of incremental employment and
operating costs for the establishment of a corporate office (previously
considered part of the Metaldyne management fee) and $2.8 million of fees
and expenses paid to Heartland. The increase in management fee and other
corporate expenses in 2003 resulted from $1.3 million of incremental
employment and operating costs for the establishment of a corporate
office (previously considered part of the Metaldyne management fee) and
$1.2 million of management fees and expenses paid to Heartland.
37
TRIMAS CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2000
(In thousands)
COMPANY HISTORICAL PRO FORMA
---------------------------------------------------------------- -------------------
JANUARY 1, 2000 -- JANUARY 1, 2000 --
NOVEMBER 28, 2000 -- JANUARY 1, 2000 -- DECEMBER 31, 2000 PRO FORMA DECEMBER 31,
DECEMBER 31, 2000 NOVEMBER 27, 2000 COMBINED ADJUSTMENTS 2000
---------------------- -------------------- -------------------- ----------------- -------------------
Net sales ................... $ 50,640 $ 739,590 $ 790,230 $ -- $ 790,230
Cost of sales ............... (37,300) (524,400) (561,700) (14,680)(1) (576,380)
--------- ----------- ----------- ----------- -----------
Gross profit ................ 13,340 215,190 228,530 (14,680) 213,850
Selling, general and
administrative expenses .... (12,390) (120,660) (133,050) 2,200(2) (130,850)
--------- ----------- ----------- ----------- -----------
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 tax (expense) 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 includes 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 financial statements for the year ended
December 31, 2002.
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.
3. Adjustment to reflect the estimated tax effect of the above
adjustments, as applicable, at an estimated effective tax rate of 38%.
38
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 30, 2003 COMPARED WITH THREE MONTHS ENDED MARCH 31,
2002
Including $27.1 million in sales from entities acquired during the period,
net sales for the three months ended March 30, 2003 increased by approximately
12.0% compared to the three months ended March 31, 2002. Excluding the impact
of acquisitions, net sales decreased 2.2%. Net sales for Cequent Transportation
Accessories increased 31.1%. This increase was due to the $27.1 million impact
from the acquisitions of HammerBlow and Highland. Excluding the impact of
acquisitions, Cequent Transportation Accessories sales decreased 4.8% due to
weakness in demand in the overall market for towing and trailer accessories,
principally in the RV and marine markets and retail distribution through mass
merchandisers and independent retail outlets. Rieke Packaging Systems net sales
increased 13.7% primarily due to the benefit of sales of new products.
Fastening Systems net sales decreased 9.2%, as we have continued to see
weakness in demand for our fastener products in the general distribution and
aerospace channels. Industrial Specialties net sales decreased 2.1%. The
reduction in sales in the Industrial Specialties group was primarily due to
reduced demand for our specialty gasket products provided to the energy and
petrochemical sectors, as well as, timing differences in revenue recognition
for our defense related products.
Operating profit margins approximated 7.6% and 12.7% for the three months
ended March 30, 2003 and March 31, 2002, respectively. Excluding the impact of
acquisitions, the operating profit margin for the three months ended March 30,
2003 approximated 8.1%. Operating profit for the three months ended March 30,
2003 was $16.3 million, a decrease of $7.9 million compared to the three months
ended March 31, 2002. Excluding the $1.2 million favorable impact from
acquisitions, operating profit decreased $9.1 million. This reduction in
operating profit is partially attributable to $5.4 million of incremental costs
and operational inefficiencies primarily incurred in connection with
restructuring activities within our Cequent Transportation Accessories and
Fastening Systems groups and $1.1 million of incremental charges related to
severance, move and other restructuring costs. The costs related to Cequent
Transportation Accessories resulted from the start-up of our Goshen, Indiana
manufacturing facility, the expansion of operations in Reynosa, Mexico, and the
closure of our Elkhart, Indiana and Canton, Michigan manufacturing facilities.
We have finalized these closures in the second quarter of 2003. Additionally,
there is $1.3 million of incremental lease costs, $.5 million of incremental
legacy stock award expense (this expense will run off completely in 2003), $1.3
million of incremental costs associated with our separation from Metaldyne
(such costs include incremental employment and operating costs), and $1.2
million of management fees and expenses paid to Heartland included in the first
quarter results for 2003. These costs have been offset by $1.6 million of
reduced depreciation and amortization expense primarily attributable to our use
of leasing.
Selling, general and administrative costs were approximately $35.3
million, or 16.5% as a percentage of net sales, for the three months ended
March 30, 2003 as compared with $31.3 million, or 16.4% as a percentage of net
sales, for the three months ended March 31, 2002. The increase is primarily due
to the $4.9 million impact of acquisitions and increased costs associated with
our separation from Metaldyne. Such costs principally include $1.3 million of
incremental employment and operating costs for the establishment of a corporate
office (previously considered part of the Metaldyne management fee) and $1.2
million of management fees and expenses paid to Heartland. These additional
costs have been offset by reduced costs from our cost reduction activities.
Other expense, net was $28.4 million for the three months ended March 30,
2003, a $9.6 million increase over the $18.8 million of expense for the three
months ended March 31, 2002. The Company recorded a $12.2 million loss, net
from the sale and disposition of fixed assets in the first quarter of 2003.
This loss was primarily from the sale and leaseback of certain manufacturing
equipment and facilities during the first quarter. In connection with these
sale-leaseback transactions, the Company received $36.2 million of net proceeds
which were used to pay down amounts outstanding under our revolving credit
facility. The Company also received proceeds of approximately $5.9 million from
the sale of certain facilities and equipment, and used these proceeds to pay
down amounts outstanding under our revolving credit facility. The $1.4 million
reduction in interest expense was primarily due to a reduction in total
indebtedness resulting from the recapitalization of the Company in June 2002.
39
Net loss for the three months ended March 30, 2003 was $7.3 million as
compared to a net loss of $33.1 million for the three months ended March 31,
2002. The results for the three months ended March 31, 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.
YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEAR ENDED DECEMBER 31, 2001
Net sales increased by approximately 0.2% in 2002 from 2001. Net sales for
Cequent Transportation Accessories and Rieke Packaging Systems increased by
6.7% and 3.6%, respectively. The increases were due to greater demand for these
groups' products, primarily in North America. These increases were offset by a
7.6% and 4.3% decline in sales for Fastening Systems and the Industrial
Specialties group. The reduction in sales in Fastening Systems and 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
utilized their excess inventories in lieu of making new purchases.
Operating profit margins approximated 9.2% for each of the years ended
December 31, 2002 and 2001. Operating profit for the year ended December 31,
2002 was impacted by an incremental $13.3 million of costs and charges
consisting of $8.5 million of non-cash charges related primarily to excess and
obsolete inventory and cash charges of $4.8 million for restructuring
activities, and $1.9 million of incremental lease expense. These costs and
charges were partially offset by the favorable $4.4 million impact of our cost
reduction activities in our operating segments, and the $1.0 million favorable
mix on slightly increased net sales. In addition, operating profit for the year
ended December 31, 2002 was impacted by the elimination of $13.6 million of
goodwill amortization. This benefit was offset by increased costs associated
with our separation from Metaldyne. These increased costs principally include
increased legal and audit fees and management fees payable to Heartland and
Metaldyne.
Cequent Transportation Accessories' operating profit increased $7.0
million for the year ended December 31, 2002 compared to the prior year.
Operating profit for the year ended December 31, 2002 benefited from a $2.9
million favorable impact related to increased sales volume and $3.6 million
favorable impact from lower operating costs. These items were offset by charges
of $4.1 million related to restructuring activities and $0.7 million of
incremental lease expense. In addition, Cequent Transportation Accessories'
operating profit for the year ended December 31, 2002 benefited from $5.3
million of reduced depreciation and amortization, principally related to the
elimination of goodwill amortization in 2002. Rieke Packaging Systems'
operating profit increased $5.4 million for the year ended December 31, 2002
compared to the prior year. Operating profit for the year ended December 31,
2002 benefited from a $1.2 million favorable impact related to increased sales
and $1.0 million favorable impact from lower operating costs. These
improvements were partially offset by incremental restructuring charges and
incremental lease expense of $1.0 million. In addition, Rieke Packaging System
group's operating profit for the year ended December 31, 2002 benefited from
$4.1 million of reduced depreciation and amortization, principally related to
the elimination of goodwill amortization in 2002. Fastening Systems operating
profit decreased $9.7 million for the year ended December 31, 2002 compared to
2001 principally due to $7.2 million of incremental charges chiefly related to
excess and obsolete inventory, a $4.4 million unfavorable impact of higher
operating costs and a $1.8 million reduction resulting from decreased sales.
This decrease was partially offset by the benefit of $4.0 million of reduced
depreciation and amortization resulting from the elimination of goodwill
amortization and the closure of a specialty fastener plant in 2001. The
Industrial Specialties group's operating profit increased $2.9 million for the
year ended December 31, 2002 compared to 2001, principally due to a $4.2
million favorable impact of lower operating costs and benefit of $1.6 million
of reduced depreciation and amortization resulting from the elimination of
goodwill amortization. These favorable impacts were partially offset by a $1.4
reduction resulting from decreased sales and $1.5 million of incremental
restructuring charges and incremental lease expense.
Selling, general and administrative costs were approximately $114.1
million, or 15.6% as a percentage of sales, for the year ended December 31,
2002 as compared with $121.5 million, or 16.6%
40
as a percentage of sales, for the year ended December 31, 2001. The decrease
was due primarily to the elimination of $13.6 million in goodwill amortization.
This benefit was partially offset by increased costs associated with our
separation from Metaldyne. Such costs principally include $2.7 million of
incremental employment and operating costs for the establishment of a corporate
office (previously considered part of the Metaldyne management fee) and $2.8
million of management fees and expenses paid to Heartland.
Interest expense was $60.0 million for the year ended December 31, 2002,
as compared with $73.1 million for the year ended December 31, 2001. The
decrease was due primarily to a reduction in interest resulting from a lower
net investment and advances balance with Metaldyne in 2002 and the impact of
lower total indebtedness resulting from the transactions.
Other income (expense), net for the year ended December 31, 2002 was
expense of $64.0 million compared with expense of $77.1 million for the year
ended December 31, 2001. The reduction of $13.1 million is primarily due to a
reduction in interest expense as explained above.
Net loss for the year ended December 31, 2002 was $35.8 million as
compared to a net loss of $11.3 million for the year ended December 31, 2001.
The results for the year ended December 31, 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 $0.9 million
for the year ended December 31, 2002 as compared to a loss of $11.3 million for
the year ended December 31, 2001. The improvement is principally due to the
impact of lower operating costs, lower interest expense and the elimination of
$13.6 million of goodwill amortization resulting from the adoption of SFAS No.
142, and partially offset by incremental restructuring costs and charges,
incremental legacy stock award expense and incremental corporate costs as
explained above.
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 Cequent Transportation Accessories, Rieke Packaging
Systems, Fastening Systems and Industrial Specialties decreased by
approximately 5.8%, 2.7% 19.1% and 2.1%, 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 Fastening Systems 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
Fastening Systems group and Cequent Transportation Accessories were
particularly affected by reduced demand for products with applications in the
marine, heavy truck, recreational vehicle, and off-road markets, which were
adversely impacted segments of the transportation industry. We did experience
improvements in certain Industrial Specialties businesses which offset the
negative impact of the economy, such as increased sales of specialty gaskets
and related products.
Operating profit margins approximated 9.2% and 10.5% 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.
Cequent Transportation Accessories' operating profit decreased by $ 3.6
million for the year ended December 31, 2001 compared to the prior year. Apart
from the impact of lower volumes, these decreases were partially attributed to
operating inefficiencies related to variable costs not changing in relation to
the decline in sales volume. Rieke Packaging Systems' operating profit
decreased $1.9 million for the year ended December 31, 2001 compared to the
same period in 2000, driven primarily by lower volumes. Fastening Systems
operating profit decreased $11.5 million for the year ended December 31, 2001
compared to 2000, primarily due to reduced sales and expenses related to a
specialty fastener plant closure. The Industrial Specialties group's operating
profit increased $1.6 million for the year ended December 31, 2001 compared to
2000, primarily due to lower operating costs.
41
Selling, general and administrative costs as a percentage of sales were
16.6% for 2001 as compared with 16.6% for 2000. Selling, general and
administrative costs were approximately $121.5 million in 2001 as compared with
approximately $130.9 million in 2000. The reduction of $9.4 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 attributed
to those factors mentioned above.
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 Cequent
Transportation Accessories. 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 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 provided by operating activities for the three months ended March 30,
2003 was approximately $48.2 million as compared with approximately $11.2
million for the three months ended March 31, 2002. The $37.1 million difference
is due principally to net proceeds received from the accounts receivable
securitization programs. Capital expenditures were approximately $4.0 million
for the quarter ended March 30, 2003, as compared with approximately $4.6
million for the comparable period in 2002.
Cash used for operating activities for the year ended December 31, 2002
was approximately $25.1 million as compared with cash provided by operating
activities of approximately $76.0 million for the year ended December 31, 2001.
The primary reason for the difference was the repurchase of $74.5 million of
receivables as the result of exiting Metaldyne's accounts receivable
securitization facility, and $15.1 million of payments to Metaldyne to fund
contractual liabilities. Capital expenditures were approximately $32.1 million
for the year ended December 31, 2002, as compared with approximately $18.7
million for the comparable period in 2001. The increase in spending in 2002
versus 2001 was due to investments in new plants and equipment and represents
an increase from a lower than average level of investment in 2001.
At March 30, 2003, our credit facility included a $150 million revolving
credit facility and a $260 million term loan facility. Up to $100 million of
our revolving credit facility was available to be used and kept outstanding for
one or more permitted acquisitions. The credit facility also provided for an
42
uncommitted $200 million incremental term loan facility for one or more
permitted acquisitions. Our amended and restated credit facility increased our
term loan facility to $335 million and reduced our uncommitted incremental term
loan facility to $125 million. 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 amended and restated
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. At March 30, 2003, the Company had received net proceeds of
$57.4 million under the accounts receivable facility with an additional $4.8
million available, but not utilized. At March 30, 2003, on a pro forma basis
after giving effect to the amendment and restatement of the credit facility,
the Company could have incurred $84.2 million of additional senior indebtedness
under our revolving credit facility and/or our accounts receivable facility to
fund operations and up to $162.2 million to fund acquisitions, subject to
certain limitations.
Our amortization requirements of the term loan are: $0.6 million due at
the end of each calendar quarter beginning with the fourth quarter of 2002
through June 30, 2009; $118.1 million due on September 30, 2009 and $125.0
million due on December 31, 2009 in the final year of the seven and one half
year life of the term loan. Our amortization requirements under the amended and
restated credit facility are: $0.6 million due each calendar quarter ending
June 2003 and September 2003, $0.86 million due at the end of each calendar
quarter beginning with the fourth quarter of 2003 through June 30, 2009, $159.0
million due on September 30, 2009 and $168.3 million 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 $125 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.
In early 2003, the Company completed the acquisition of HammerBlow
Acquisition Corp. ("HammerBlow") and Highland Group Industries ("Highland").
The Company made an initial $9.0 million investment in HammerBlow in November
2002. The incremental combined acquisition price for HammerBlow and Highland of
approximately $206.4 million (before realization of proceeds from completed
asset sales) was funded with $63.3 million of net proceeds from the issuance of
our senior subordinated notes, $30.0 million of cash equity received from
Heartland, the issuance of a $7.5 million deferred note payable, and the
balance satisfied with borrowings under our revolving credit agreement and
accounts receivable securitization facility.
On May 9, 2003, the Company completed the acquisition of an automotive
manufacturing business from Metaldyne for approximately $23.0 million on a
debt-free basis. The acquired business is a leading manufacturer of specialized
fittings and cold-headed parts used in automotive and industrial applications.
The transaction was funded by a combination of borrowings under the Company's
revolving credit facility and a cash equity contribution by Heartland. The
acquired business had 2002 revenues of approximately $16.7 million.
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. 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 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 year ended December 31, 2002, we entered into operating leases for
three additional facilities. Annual rent expense related to these lease
transactions is approximately $1.5 million. During the fourth quarter we also
entered into sale-leaseback transactions with respect to certain manufacturing
equipment. We realized proceeds of approximately $5.7 million. Annual rent
expense related to these transactions is approximately $0.9 million. On March
26, 2003, the Company completed a sale and subsequent lease back of certain
personal property with General Electric Capital Corporation that
43
resulted in net cash proceeds of approximately $28.4 million. On June 26, 2003,
the Company completed another sale and subsequent leaseback of additional
property and equipment with General Electric Capital Corporation that resulted
in net cash proceeds of approximately $23.4 million. The proceeds will be used
for general corporate purposes. Annual rent expense related to these lease
transactions is expected to approximate $4.4 million and $4.0 million,
respectively. In March, 2003 we completed the sales and subsequent leaseback
with respect to two real properties for gross proceeds of approximately $7.8
million. Annual rent expense related to these transactions is expected to be
$0.8 million. In connection with the Livonia acquisition we agreed to sublease
from Metaldyne the facility where the acquired business is currently located.
Annual rent expense related to this sublease is expected to be $0.2 million. We
expect to continue to utilize leasing as a financing strategy in the future to
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 that have vested or will vest, are as
follows: $4.2 million on January 14, 2002, $7.6 million on January 14, 2003 and
$8.1 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.
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
$260.0 million senior term loan and our $150 million revolving credit facility
(under which we had $259.8 million and $15.0 million, respectively, outstanding
at March 30, 2003). Borrowings under our credit facility bear interest, at
various rates, as more fully described in Note 11 to our December 31, 2002
audited financial statements. Based on current amounts outstanding, a 1%
increase or decrease in the per annum interest rate for the term loan and
revolving credit facility would change interest expense by $2.7 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 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.
As a result of the financing transactions entered into on June 6, 2002,
the additional issuance of $85 million aggregate principal amount of senior
subordinated notes, and recent acquisitions, we are highly leveraged. In
addition to normal capital expenditures, we may incur significant amounts of
additional debt and further burden cash flow in pursuit of our internal growth
and acquisition strategies.
At March 30, 2003, the terms of our credit facility required the Company
and its subsidiaries to meet certain restrictive 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 (EBITDA over cash
interest expense, as defined) and a capital expenditures covenant, the most
restrictive of which is the leverage ratio. Our permitted leverage ratio was
5.25 to 1.00 at March 30, 2003. The permitted leverage ratio becomes more
restrictive in future periods, declining to 4.50 to 1.00 at December 31, 2003,
3.75 to 1.00 at December 31, 2004 and 3.25 to 1.00 at December 31, 2005 and
thereafter. Under the amended and restated credit facility, the permitted
leverage ratio similarly becomes more restrictive in future
44
periods, declining to 4.75 to 1.00 at December 31, 2003, 4.0 to 1.00 at December
31, 2004 and 3.25 to 1.00 at December 31, 2005 and thereafter.
We believe that our liquidity and capital resources, including anticipated
cash flows from operations, will be sufficient to meet debt service, capital
expenditure and other short-term and long-term obligations needs for the
foreseeable future, but we are subject to unforeseeable events and risks.
OFF-BALANCE SHEET ARRANGEMENTS
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,
TSPC, Inc. ("TSPC"). 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. Upon sale to TSPC, the Company retains
a subordinated interest in the receivables. Under the terms of the agreement,
new receivables can be added to the pool as collections reduce previously sold
receivables. The facility is anticipated to be an important source of liquidity
in 2003 and subsequent years. At March 30, 2003, we had received net proceeds
of $57.4 million under this facility.
The facility will be subject to customary termination events, including,
but not limited to, breach of representations or 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
expires on June 6, 2005. If we are unable to renew or replace this facility, it
could materially adversely affect our liquidity.
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 certain
of our 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. The following table summarizes our
expected fixed cash obligations over various future periods related to these
items.
PAYMENTS DUE BY PERIODS (IN MILLIONS)
-------------------------------------------------------------
LESS THAN 1 -- 3 4 -- 5 AFTER
TOTAL ONE YEAR YEARS YEARS 5 YEARS
----------- ----------- -------- -------- -----------
Contractual cash obligations:
Long-term debt ........................ $ 720.5 $ 10.6 $ 7.8 $ 5.0 $ 697.1
Lease obligations ..................... 134.1 13.2 37.0 22.1 61.8
Restricted stock obligations .......... 8.1 8.1 -- -- --
Severance ............................. 9.3 4.1 1.2 0.6 3.4
-------- ------- ------ ------ --------
Total contractual obligations ......... $ 872.0 $ 36.0 $ 46.0 $ 27.7 $ 762.3
======== ======= ====== ====== ========
As of March 30, 2003, we are contingently liable for stand-by letters of
credit totaling $23.7 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 2002 audited 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.
45
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. Thepre-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.
Livonia Fittings Acquisition Accounting. Because Metaldyne and TriMas were
under common control prior to the Livonia acquisition, we may be required to
restate in future filings our results from prior periods and the first six
months of 2003 to include the business we acquired in the Livonia acquisition.
We are currently evaluating whether we will report our first six months of 2003
results inclusive of the acquired business for the entire period and compare
those results with restated results for the comparable period of 2002 that
include the acquired business. During 2002, the acquired business' unaudited
results of operations included net sales of approximately $16.7 million, an
operating profit of approximately $3.4 million and net income of approximately
$1.2 million.
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.
Depreciation and Amortization. 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 buildings/land improvements,
2.5% to 10% and machinery and equipment, 6.7% to 33.3%. Capitalized debt
issuance costs are amortized over the underlying terms of the related debt
securities. Customer relationship intangibles are amortized over periods
ranging from 6-40 years, trademarks/trade names are amortized over a 40-year
period, while technology and other intangibles are amortized over periods
ranging from 5-30 years.
Excess of Cost over Net Assets of Acquired Companies and Other
Intangibles. The Company tests goodwill for impairment on an annual basis,
unless a change in business conditions occurs which requires a more frequent
evaluation, by comparison of estimated fair value to carrying value. In
assessing the recoverability of goodwill, the Company estimates fair value
using the present value of expected future cash flows and other valuation
measures. The Company also tests its other intangibles for impairment on an
annual basis, or more frequently if events or changes in circumstances indicate
that their carrying amount may not be recoverable. 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.
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,
46
including the guidance applicable to pensions, does not require immediate
recognition or 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.
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.
CHANGE IN CERTIFYING ACCOUNTANT
On June 20, 2003, the Audit Committee of our Board of Directors approved
the appointment of KPMG LLP as our independent accountants, and the dismissal
of PricewaterhouseCoopers LLP, which had previously served in this capacity.
During the years ended December 31, 2002 and 2001 and through June 20,
2003, KPMG LLP has not been engaged as an independent accountant to audit
either our financial statements or those of any of our subsidiaries, nor has it
been consulted regarding the application of accounting principles to any
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on our financial statements, or any matter that
was the subject of a disagreement or reportable event.
During the years ended December 31, 2002 and 2001, and through June 20,
2003, there were no disagreements with PricewaterhouseCoopers LLP on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure which, if not resolved to the satisfaction of
PricewaterhouseCoopers LLP, would have caused it to make reference to the
subject matter of such disagreement in their reports on the financial
statements for such years. The report of PricewaterhouseCoopers LLP on the
financial statements for the years ended December 31, 2002 and 2001 did not
include any adverse opinion or disclaimer of opinion, or any qualification or
modification as to uncertainty, audit scope or accounting principles.
In connection with its 2001 audit, PricewaterhouseCoopers LLP reported no
material weaknesses in our internal control systems and there were no other
reportable events as defined in Regulation S-K Item 304(a)(1)(v).
In connection with its 2002 audit, PricewaterhouseCoopers LLP communicated
to the Audit Committee and to management two material weaknesses in our
internal control systems, relating to: (1) our closing, consolidation and
financial monitoring processes, and (2) the use of standardized policies and
procedures appropriate to each business unit's activities. We are addressing
the first matter through augmentation of corporate and business unit staffing
levels and expected to implement revised closing and consolidation procedures in
conjunction with our second quarter 2003 closing and consolidation. The revised
procedures specify required activities, due dates, assigned responsibilities,
management review and approval levels, and require certain account
reconciliations and roll forward analyses to be performed monthly. In regard to
the use of standardized policies and procedures, management reviews the
business units' accounting practices to identify inconsistent use or
application with our critical accounting policies and records adjusting entries
for such items, as appropriate. We have also initiated actions to formally
document and communicate application and use of our critical accounting
policies and related procedures to appropriate business unit personnel and
expect to complete these actions during the second half of 2003.
PricewaterhouseCoopers LLP is not in a position to comment on the adequacy of
these corrective actions. We have authorized PricewaterhouseCoopers LLP to
respond fully to any inquiries by KPMG LLP.
Except as stated above, there are no other reportable events, as
defined in Regulation S-K Item 304(a)(1)(v), that PricewaterhouseCoopers LLP
advised the Company of during the year ended December 31, 2002 and through June
20, 2003.
47
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 2002
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
aerospace fastening systems allowing for one-side installations 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 30 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 certain operations and eliminate duplicative costs through
a 10% 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 $18.1 million,
of which approximately $17.9 million has been incurred through March
30, 2003. We expect to achieve approximately $25.0 million in
cumulative annual savings for completed actions by the second quarter
of 2003. These figures are net of discontinued property sold or to be
sold. 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.
48
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. Our capital expenditures averaged approximately
4.3% of net sales from 1990 through 2002.
o Capitalize on Cyclical Recoveries. Several of our businesses sell into
industrial markets that experienced cyclical volume declines during
2002 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 Cequent Transportation Accessories' annual spending
on materials, which is spread among nearly 1,600 suppliers. In
addition, Cequent Transportation Accessories has established a sales
force to serve as "one face to the customer" to its retail channel and
to deliver a cohesive sales program and category management that
represents the full portfolio of the Cequent Transportation
Accessories' products.
The principal products of our business segments are summarized below:
CEQUENT TRANSPORTATION FASTENING
ACCESSORIES RIEKE PACKAGING SYSTEMS SYSTEMS INDUSTRIAL SPECIALTIES
- ------------------------------- -------------------------------- ---------------------------- -----------------------------
5th wheel hitches Bottle dispensers Blind bolt fasteners Combined drill and
Accessories for marine Drum closures and Ferrous specialty alloy countersinks
vehicles dispensers fasteners Cylinders for acetylene
ATV and motorcycle lifts Pail closures and dispensers Nonferrous specialty alloy treating finishing services
Ballmounts Plastic industrial container fasteners End mills
Brake Controls closures One-sided aerospace Fiberglass facings
Cargo liners Plastic industrial dispensing fasteners Flame-retardant facings and
Couplers products Self-threading specialty jacketing
Dual Port System hitches Rings and levers fasteners Heat Jackets
and accessories Specialty installation tooling Specialized metallurgical High pressure gas cylinders
Floor mats Specialty pumps and finishing services Insulation tape
Hitches and Hitch Specialty sprayers Specialized screws Metallic industrial gaskets
accessories Steel installation tooling NC spotting drills
Hitch mounted accessories Nonmetallic industrial
Industrial/Agricultural gaskets
umbrellas Precision cutting tools
Lifting, leveling and Pressure-sensitive tape
adjusting products products
Portable toilets Ring joint gaskets
Roof racks Specialty engine and service
Single receiver hitches parts
Splash guards Spline gages and master
Sway controls gears
Tie downs Vapor barrier facings and
Towing electrical accessories jacketing
Trailer brakes
Trailer lighting products
Travel carriers
Weight distribution hitches
Winches
Wiring harnesses
Working tables
49
CEQUENT TRANSPORTATION ACCESSORIES
Cequent Transportation Accessories 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 five business units:
(i) Towing Products, which includes Reese, Draw-Tite, and Hidden-Hitch branded
products; (ii) Trailer Products, which includes Fulton, Wesbar and Bulldog
branded products; (iii) Electrical Products, which include Tekonsha branded
products; (iv) Consumer Products, which includes Highland The Pro's Brand!
branded products; and (v) 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 brake controls, brakes and related brake components for both towing
vehicles and trailers;
o trailer components, such as winches, jacks, couplers, fenders and
ramps;
o cargo management accessories, such as tie-downs and soft travel-cargo
carriers;
o vehicle protection accessories, such as floor mats and cargo liners;
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 Cequent
Transportation Accessories include increasing sales to mass merchants and
specialty retail chains, new product offerings in the trailer brake systems and
lighting categories, product handling for RV and automotive OEM's, and
increased volume in our newest patented product offering, Dual Port System
("DPS") 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 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.
o Automotive and RV OEM--The recent acquisitions of HammerBlow and
Highland have provided a strong platform for additional growth in
North America. Existing relationships with European, Japanese, Korean
and domestic manufacturers have positioned Cequent to expand beyond
towing into bundled accessory solutions. Product development includes
the
50
DPS system and accessories, cargo management, plastics, programmable
converters, and advanced trailer brake control technology. The RV OEM
channel provides a very similar opportunity to now bring a full
product and solutions portfolio of towing and cargo management
solutions for large RV manufacturers.
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 Cequent Transportation Accessories
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.
Cequent Transportation Accessories' products are distributed through a
variety of channels. The towing products group principally distributes through
three channels. Draw-Tite and Hidden-Hitch products are distributed through a
network of 60 distributors and over 4000 independent installer shops, 450 of
which carry Draw-Tite Hidden-Hitch products on an exclusive or preferred basis.
Our Reese towing products, comprised principally of heavy-duty hitches, as well
as our Tekonsha electrical and brake-control 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 40% of our towing and other non-trailer products are
sold through our installer and distributor channel. Traditional recreational
vehicle distributors account for approximately 11% of our sales. Trailer OEM's
account for 24% of our sales. Mass retailers account for approximately 25% of
our sales, with the remainder of our business in other retail and OEM
distribution.
Our Fulton, Bulldog 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, executed in the second
half of 2002, Cequent Transportation Accessories manufacturing and warehousing
processes were consolidated into a single,
51
approximately 350,000 square-foot, efficient-flow manufacturing and warehouse
center in Goshen, Indiana. The previous locations in Canton, Michigan and
Elkhart, Indiana were closed in Quarter one 2003. Towing Products manufacturing
capacity in Huntsville, ON and Sheridan, AR, former HammerBlow facilities, will
also be integrated into the Goshen facility over the next 12 to 18 months. The
trailer products group performs metal-fabrication and conversion manufacturing
at our Mosinee, Wisconsin facility, as well as our Juarez, MX plant. Trailer
Products manufacturing capacity in Wausau, WI, part of the former HammerBlow
Corporation, will be integrated into the Mosinee, WI and Juarez, MX facilities
over the next 6 to 12 months. Electrical products manufacturing is performed at
a contract manufacturing facility in Reynosa, Mexico, as well as at the former
Tekonsha facility in Tekonsha, MI.
The nature of the industry requires the Cequent Transportation Accessories
group 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. This plant is 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 Cequent Transportation Accessories 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 Cequent Transportation Accessories group 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 was the consolidation, in the fourth quarter of 2002, of the
remaining production of our Wesbar electrical trailer products, previously in
Peru, Indiana, into our Reynosa, Mexico facility.
The Tekonsha, MI electrical products facility contains world-class
electrical manufacturing of proprietary brake-control and accessory products,
as well as broad engineering capacity to support all Cequent Transportation
Accessories' electrical product categories.
We also have a towing products business in Australia, consisting of three
business units. We manufacture, market and distribute ROLA roof racks,
Hayman-Reese towing products for the aftermarket, as well as OEM towing
products through our QTB Automotive unit.
Cequent Transportation Accessories 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 Cequent Transportation Accessories is the largest North
American manufacturer and distributor of towing systems, trailer, electrical,
and cargo management 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 maintain a significant or number-one
52
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), Putnam and Curt. Trailer
Products' competitors include Dutton-Lainson, Peterson, Atwood and Shelby, each
of whom compete within one or at most a few categories of Trailer Products'
broad product portfolio.
RIEKE PACKAGING SYSTEMS
Rieke Packaging Systems 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 ability of a customer
to store, ship, process and dispense various products in the industrial,
agricultural, consumer and pharmaceutical markets. Our companies, including
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, located in Germany, is a European 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 highly 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 delivery system for 1 gallon and 1 quart
containers that reduces paint spoilage due to exposure to air. We have received
positive responses from the paint and solvent market and are currently
manufacturing this delivery system for a major paint manufacturer. 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
Rieke Packaging Systems' 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
53
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 the maintenance
of customer service standards. We have also been successful in creating
significant bundling opportunities for a variety of our 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 employ a direct sales force of approximately 20 persons. Our primary
customers include Coca-Cola, Diversey, Dow Chemical, BASF, Chevron, Go-Jo,
Sherwin Williams, Pepsi, Proctor & Gamble, Valvoline, Colgate, Bayer/Monsanto,
Zeneca and major container manufacturers around the world. 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 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
Rieke Packaging Systems maintains its global headquarters and manufacturing
and technology center in Auburn, Indiana and has manufacturing operations in
Mexico, England, Germany and Italy with contract manufacturing in Asia. We also
maintain distribution facilities in Canada, 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 and Hamilton, Indiana.
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 2002 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.
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
54
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.
FASTENING SYSTEMS
Lake Erie Products and Monogram Aerospace Fasteners, Inc. form our
Fastening Systems segment. Lake Erie is the result of the merger of four
industrial fastener operations which had been historically operated as separate
businesses. In 2003, the operations from the Livonia acquisition have been
combined with Lake Erie. The Livonia acquisition augments the manufacturing and
commercial reach of Lake Erie by adding world-class manufacturing capabilities,
engineering skills and additional product offerings. Lake Erie is a
manufacturer of both standard and custom-designed ferrous, nonferrous and
special alloy fasteners, tube nuts, fittings and security wheel locks sold to
automotive, commercial and industrial markets. We also provide metal treating
services for manufacturers of fasteners and similar products out of our
Lakewood and Frankfort facilities. Monogram is a leading manufacturer of
permanent blind bolt and temporary fasteners used in commercial and military
aircraft construction and assembly.
Lake Erie offers its customers a wide-range of fastener manufacturing and
finishing capabilities. Lake Erie is positioning itself as a full service
organization and is making investments in design and engineering personnel to
focus on applications engineering for current and targeted customers. Lake Erie
recently made investments which expand its in-house heat treating and plating
processes to improve control over quality and to reduce lead times and material
handling. Additionally, it continues to invest in tertiary processing resulting
from customers' increasing needs for longer lived products, improved adhesion
properties, improved aesthetics and other requirements. These in-house tertiary
processes include application of specialty chromates, patches and adhesives, wax
applications and others. We believe that these investments in our engineering
and process capability will continue to position Lake Erie as a leading provider
of engineered fastening solutions.
Lake Erie's design and engineering capabilities enable it to formulate
fastener product programs to meet demanding metallurgial and performance
specifications for a wide variety of customers. The Company believes that this
emphasis on design and engineering, coupled with an ability to offer
just-in-time delivery, has established Lake Erie's premier reputation in the
industry for product quality and service.
Lake Erie specializes in manufacturing both standard and custom-designed
large diameter fasteners, generally in sizes up to 1 1/4" in its Frankfort,
Indiana and Livonia, Michigan manufacturing facilities and manufactures tube
nuts, fittings and security wheel locks at its Livonia facility. Lake Erie
manufactures both ferrous and nonferrous standard and specialty-designed small
diameter fasteners, generally in sizes 3/8" and smaller through its Wood Dale,
Illinois facility. Lake Erie's strategy for these applications is to focus on
niche markets which require high value-added products for critical
applications. For example, Lake Erie's Plask (Registered Trademark) line of
self-threading specialty fasteners, are designed for use in applications where
the absence of drilling chip contamination is critical. A typical application
would be electronic or electrical assemblies installed within metallic or
plastic housings which require no chip contamination to qualify for UL or other
certification.
Monogram is the leader in the development of blind bolt fastener
technology for the aerospace industry. Its Visu-Lok (Registered Trademark) ,
Visu-Lok (Registered Trademark) II and Radial-Lok (Registered Trademark) blind
bolts, allow sections of aircraft to be joined together when access is provided
to only one side of the airframe, providing certain cost efficiencies over
conventional two-sided fastening devices. Monogram's Composi-Lok (Registered
Trademark) and Composi-Lok (Registered Trademark) II blind bolts are designed
to solve unique fastening problems associated with the assembly of composite
aircraft structures, and are therefore particularly well suited to take
advantage of the increasing use of composite materials in aircraft
construction. Monogram developed the OSI-Bolt (Registered Trademark) fastener,
the first aerospace blind fastener approved to replace traditional two piece
fasteners in certain applications on the primary aircraft structure. Monogram
is working with current customers on improving the OSI-Bolt (Registered
Trademark) fastener to reduce weight and cost attributes.
55
Marketing, Customers and Distribution
Our fasteners are sold through our own sales personnel and independent
sales representatives. Although the overall market for fasteners and
metallurgical services is highly competitive, we provide products and services
primarily for specialized market niches, and compete principally as quality-
and service-oriented suppliers in their respective markets.
Lake Erie products are sold to distributors and manufacturers in the
agricultural, transportation, construction, fabricated metal products, and
commercial and industrial maintenance markets. Lake Erie is a leading
manufacturer of private brand products for the equipment maintenance
aftermarket, supplying national and regional private brand distributor
organizations.
Monogram's products are sold to manufacturers and distributors within the
commercial and military aerospace industry. Monogram works directly with
aircraft manufacturers to develope and test new products and improve existing
products. This close working relationship is a necessity given the critical
safety nature and regulatory environment of our customers' products.
Manufacturing
We are in the process of restructuring the Lake Erie manufacturing
operations to shed excess capacity and to eliminate sub-optimal facilities. We
will utilize our Lakewood, Ohio facility to provide raw material processing for
our cold-heading operations in Frankfort, Indiana, Wood Dale, Illinois and
Livonia, Michigan facilities. The Frankfort, Indiana facility is the center of
excellence for our down stream processing functions including heat-treating and
plating and other tertiary processes. We also use the Frankfort facility as the
"pick and pack" shipping, distribution and warehouse location effectively
eliminating these functions elsewhere. Executive management, sales and support
functions such as human resources, accounting, information technology and
purchasing will also be consolidated for all Lake Erie operations.
Monogram manufactures and assembles highly engineered specialty fasteners
for the domestic and international aerospace industry in its Commerce,
California facility.
Competition
This group's primary competitors include Fontana, Nucor, Infasco, Federal
Screw Works, Huck Fasteners (Alcoa), and SPS Technologies in industrial
fasteners; H&L (Chicago River) in tube nuts, fittings and wheel locking nuts;
TAF (Textron) and Fairchild Fasteners (Alcoa) in aerospace fasteners.
INDUSTRIAL SPECIALTIES
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, gaskets, cylinders, steel munitions 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 Compac
Corporation, Norris Cylinders, Arrow Engine, Keo Cutters, Richard's Micro Tool
and Reska Spline Products and, where useful, we seek to maintain the names for
customer brand recognition. These products include:
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 combined drills and countersinks and
carbide end mills along with precision spline gauges;
o Specialty engines, chemical pumps and engine replacement parts serving
principally the oil and natural gas extraction market;
56
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 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 expanding our presence in the industry utilizing an asphalt
coater 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 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
buying groups as well as 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 eleven company-operated 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 combined drills and countersinks, NC spotting drills,
key seat 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, construction, commercial, defense and energy.
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 many 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, construction,
industrial and defense.
Manufacturing
Our Industrial Specialties group employs various manufacturing processes
including CNC machining and stamping, fluting, forging, coating, cold heading
and forming, laminating and splitting, and deep-draw stamping that requires
high tonnage presses. We are in the process of restructuring our
57
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 11
disparate gasket manufacturing 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 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 December 31, 2002, we employed approximately 3,770 people, of which
approximately 12% were unionized. At such date, approximately 19% 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 Cequent Transportation
Accessories 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
58
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 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 $361.7
million at March 30, 2003, 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. 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 designs and
manufactures products for niche markets under various trade names and trade
marks including Draw-Tite, Reese, Hidden-Hitch, Bulldog, Tekonsha, Highland The
Pro's Brand!, Fulton, Wesbar, 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 assets that require maintenance
through advertising 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 Rieke Packaging Systems. 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 intangibles range from five to thirty years and
are determined in part by any legal, regulatory, or contractual provisions that
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, or as conditions may warrant, 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
59
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.
INTERNATIONAL OPERATIONS
Approximately 13.5% of our net sales for the fiscal year ended December
31, 2002 were derived from sales by our subsidiaries located outside of the
U.S., and we may significantly expand our international operations through
acquisitions. In addition, approximately 10.6% of our operating net assets as
of December 31, 2002 were located outside of the U.S. 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
220 employees. Our Canadian operations, with approximately 140 employees,
include the production and distribution of towing products through Cequent
Transportation Accessories, distribution of closures and dispensing products
through Rieke Packaging Systems' U.S. operations, and the manufacturing and
distribution of gaskets produced in three gasket facilities. Within the United
Kingdom, Rieke Packaging Systems Ltd. has approximately 340 employees. 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 Cequent Transportation Accessories' electrical
products and accessories, as well as metal fabrication. Additionally, Rieke's
Mexico City operations produces steel and plastic drum closures and dispensing
products in one factory. For information pertaining to the net sales and
operating net assets attributed to our international operations, refer to Note
17, "Segment Information," to the financial statements included in this
prospectus.
Sales outside of the United States, particularly sales to emerging
markets, are subject to 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 portions of our cash flow from non-U.S. subsidiaries.
PROPERTIES
Our principal manufacturing facilities range in size from approximately
10,000 square feet to approximately 380,000 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 under the lease agreements. Substantially all of our owned
U.S. real properties are subject to liens under our amended and restated 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. Multiple references to the same location denote
separate facilities or multiple activities in that location. The Company
maintains its corporate office in Bloomfield Hills, MI, a leased facility.
60
CEQUENT TRANSPORTATION FASTENING
ACCESSORIES RIEKE PACKAGING SYSTEMS SYSTEM INDUSTRIAL SPECIALTIES
- ------------------------- ------------------------- ---------------- -----------------------
United States: United States: United States: United States:
Arkansas: Indiana: California: California:
Sheridan Auburn Commerce(1) Riverbank(2)
Indiana: Hamilton(1) Illinois: Vernon
Elkhart Wood Dale(1) Louisiana:
Goshen(1) International: Indiana: Baton Rouge
Michigan: Canada: Frankfort(3) Massachusetts:
Tekonsha(1) Germany: Michigan: Plymouth(1)
Pennsylvania: Neunkirchen Livonia(1) Michigan:
Sheffield Italy: Ohio: Warren(1)
Wisconsin: Valmadrera Lakewood New Jersey
Mosinee(1) Mexico: Edison(1)
Wausau Mexico City Netcong
United Kingdom: Oklahoma:
International: Lelcester Tulsa:
Australia: Texas:
Dandenmong, Victoria Houston(1)
Regents Park, Longview
New South Wales(1)
Wakerley, International:
Queensland(1) Canada:
Canada: Fort Erie, Ontario(1)
Huntsville, Ontario Sarnia, Ontario(1)
Oakville, Ontario
Mexico:
Juarez(1)
- ----------
(1) Represents a leased facility. All of such leases are operating leases.
(2) Owned by U.S. Government, operated by TriMas under a facility maintenance
contract.
(3) We currently own this facility but are in the process of entering into a
sale-leaseback with respect thereto.
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 of
California 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 Superior Court of the State of California has issued an order dismissing
all plaintiffs in the action. Plaintiffs have an opportunity to appeal. Another
civil suit
61
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 not
exceed $150,000, for which we have insurance proceeds. 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 June 5, 2003, we were a party to approximately 588 pending cases
involving an aggregate of approximately 26,959 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.
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 $2.3 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.
62
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 ................ 42 President, Chief Executive Officer and Director
Todd R. Peters ................ 40 Executive Vice President and Chief Financial Officer
Lynn Brooks ................... 50 President, Rieke Packaging Systems
Scott Hazlett ................. 46 President, Cequent Transportation Accessories
Terry Campbell ................ 38 President, Fastening Systems
Ed Schwartz ................... 41 President, Industrial Specialties
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 Industrial
Partners, L.P. 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
also 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.
63
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 L.P. Mr. 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 also 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 also 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 Rieke Packaging Systems
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.
TERRY CAMPBELL. Mr. Campbell was appointed President of our Fastening
Systems group in February 2003. From April 2001 to February 2003 he was the
Executive Vice President and General Manager of Genfast Manufacturing Company
and General Fastener Company, divisions of MNP Corporation, which manufacture
and distribute standard and special cold-headed fasteners. He also served as
Vice President of Operations, Director of Materials, Operations Manager and
Human Resource Manager during his tenure with Genfast beginning in February
1998. Mr. Campbell held supervisory and management positions with ABT Canada
from 1995 to 1998 and was a staff representative for the United Steelworkers of
America from 1993 to 1995.
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
64
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.
ED SCHWARTZ. Mr. Schwartz joined TriMas as President of Industrial
Specialties group in February 2003, prior to which he was Executive Vice
President of LG.Philips--Display Americas region. Mr. Schwartz served
LG.Philips--Display from December 2001 until his recent role with TriMas. Under
Mr. Schwartz's responsibility with LG.Philips--Display was CRT commercial and
industrial activities in North/South America. From February 2000 until November
2001, Mr. Schwartz worked for Philips Electronics as Vice President in Hasselt,
Belgium and Eindhoven, The Netherlands. During this assignment Mr. Schwartz
lead various projects in support of Philips Patent Portfolio efforts of CD/DVD
technology. From September 1998 till January 2000, Mr. Schwartz was General
Manager for Philips Electronics, in Wetzlar, Germany. During this assignment,
Mr. Schwartz managed commercial/industrial activities in Europe for automotive
components.
Committees of the Board of Directors. We presently have executive, audit
and compensation committees.
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
65
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.
66
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 $750,000 153,075 -- --
Todd R. Peters, Executive Vice President
and Chief Financial Officer ........... 2002 $320,600 $204,000 45,922 -- --
Lynn Brooks, President, Rieke Packaging
Systems(4) ............................ 2002 $291,200 $181,700 45,922 $215,300 --
Scott Hazlett, President, Cequent
Transportation Accessories ............ 2002 $270,400 $201,100 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.
(2) Represents options to purchase Metaldyne common stock granted under the
Metaldyne 2001 Long-Term Equity Incentive Plan during 2001. 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.
(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 resigned as our President, Industrial Specialties, in June
2002. During 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 2001 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 2001.
67
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 resigned 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 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.
68
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. Effective January 1, 2003, we implemented a defined contribution profit
sharing plan, including a Supplemental Executive Retirement Plan for key
officers.
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 have agreed to enter into, subject to the approval of our board of
directors which we received in April 2003, employment agreements with Messrs.
Beard, Peters, Brooks and Hazlett. Each such employment agreement states that
the employee shall devote his full business time and efforts to the performance
of his duties and responsibilities.
Mr. Beard's employment agreement provides that he will serve as our
President and Chief Executive Officer and will receive an annual salary of
$750,000 and be eligible to receive a bonus up to 100% of base salary. Mr.
Peters' employment agreement provides that he will serve as our Executive Vice
President and Chief Financial Officer and will receive an annual salary of
$340,000 and will participate in our bonus plan. Mr. Brooks' employment
agreement provides that he will serve as our Group President and will receive a
salary of $291,200 and will participate in our bonus plan. Mr. Hazlett's
employment agreement provides that he will serve as our Group President and
will receive a salary of $290,000 and will participate in our bonus plan. Mr.
Beard's agreement terminates on December 31, 2006 and is automatically
renewable for successive one-year terms unless notice is given 30 days prior to
the end of the term. Messrs. Peters', Brooks' and Hazlett's employment
agreements each expire on December 31, 2004 and each is automatically renewable
for successive one-year terms unless notice is given 30 days prior to the end
of the term.
69
Each employment agreement provides the executive with certain benefits,
including participation in the planned 2002 Long Term Equity Incentive Plan.
Each agreement provides 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 continued benefits for up to 24 months. Mr. Beard would receive 30
months' continued base salary, a bonus equal to the highest of the previous
five years' bonus award payable over 30 months and continued benefits for 30
months. Each agreement further provides that we may, for cause, and the
executive may voluntarily, without good reason, terminate the agreement without
any severance payments. Cause is defined in each agreement as the employee
being convicted or entering a plea of guilty or no lo contendere to a felony or
the employee's willful or sustained insubordinate or negligent conduct in the
performance of his duties. Further, each agreement provides 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 stipulates
that the executive shall refrain from competing with us for a period of two
years from the date of termination.
70
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of July 15, 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
- -------------------------------------------------------- -------------- ---------
Heartland Industrial Associates, L.L.C.(1)(2) .......... 12,750,000 61%
55 Railroad Avenue
Greenwich, Connecticut 06830
Metaldyne Corporation(3) ............................... 5,750,000 28%
47603 Halyard Drive
Plymouth, Michigan 48170
Masco Capital Corporation .............................. 1,250,000 6%
21001 Van Born Road
Taylor, Michigan 48180
Gary Banks(2) .......................................... 12,750,000 61%
Charles E. Becker ...................................... 0 0
Grant H. Beard(4) ...................................... 0 0
Lynn Brooks(4) ......................................... 0 0
Scott Hazlett(4) ....................................... 0 0
Terry Campbell(4) ...................................... 0 0
Ed Schwartz(4) ......................................... 0 0
Tim Leuliette(2) ....................................... 12,750,000 61%
W. Gerald McConnell(2) ................................. 12,750,000 61%
Todd R. Peters(4) ...................................... 0 0
David A. Stockman(2) ................................... 12,750,000 61%
Daniel P. Tredwell(2) .................................. 12,750,000 61%
Samuel Valenti III(2) .................................. 12,750,000 61%
All executive officers and directors as a group(2)(4) .. 12,750,000 61%
- ----------
(1) 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: 11,754,260 shares are
held by TriMas Investment Fund I, L.L.C.; 675,000 shares are held by HIP
Side-by-Side Partners, L.P.; and 270,740 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
71
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.
(2) 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.
(3) Includes a presently exercisable warrant to purchase common stock.
(4) 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.
72
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. Further, since January 1,
2003 and in connection with each of the HammerBlow, Highland and Livonia
acquisitions, Heartland purchased an aggregate of approximately $35 million of
our common stock. The common stock and warrants are valued based upon the cash
equity investment being made by Heartland and the other investors. In addition,
we repurchased $20.0 million of our common stock from Metaldyne at the same
price as valued on June 6, 2002. Heartland and Metaldyne presently own
approximately 61% and 28% of our fully diluted common stock, respectively. 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.
73
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 and $0.85 million in connection with the
transactions and the original issuance which were calculated based on a
percentage of the transaction value. Also, in the quarter ended March 30, 2003,
Heartland was paid $2.1 million in advisory services in connection with the
acquisitions of HammerBlow and Highland. 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
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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. 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.
LIVONIA FITTINGS ACQUISITION
On May 9, 2003, we acquired an automotive fasteners manufacturing business
from Metaldyne for approximately $23 million on a debt-free basis. In
connection with the acquisition, we agreed to sublease from Metaldyne, its
Livonia, Michigan facility where the acquired business is currently located.
The acquired business is a leading manufacturer of specialized fittings and
cold-headed parts used in automotive and industrial applications. Its products
include specialty tube nuts, spacers, hollow extruded components, and locking
nut systems used in brake, fuel, power steering, and engine, transmission and
chassis applications. These products are supplied to OEMs as well as a number
of Tier I suppliers. The acquired business will become part of our Fastening
Systems group.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Exchange Offer Registration Statement. We issued the original notes on
December 10, 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 December 10, 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 has not be completed on or prior to July 8,
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 $2,361.11 per
day or $850,000 per year (calculated on the basis of a 360 day year). The
additional interest began to accrue on July 8, 2003 and will continue to accrue
with respect to the original notes until the exchange offer is completed. As of
July 18, 2003, $25,972.21 of additional interest was accrued but unpaid on the
original notes. Additional interest which has accrued on the original notes is
due and payable by us to the record holders of original notes immediately prior
to the closing of the exchange offer. Immediately prior to the closing of the
exchange offer, additional interest that is accrued but unpaid on the original
notes to be exchanged in this offer will be due and payable by us to the record
holder of exchange notes to be exchanged for original notes. 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 at
the same time.
Transferability. We issued the original notes on December 10, 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 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:
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(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
December 10, 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, $85,000,000 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.
We expect that the exchange notes will be part of the same class of notes
and otherwise identical to our currently outstanding registered 9 7/8% Senior
Subordinated Notes due 2012.
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.
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
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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
August 20, 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 December 10, 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
(5) the exchange offer will violate any applicable law or any applicable
interpretation of the staff of the Commission.
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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
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.
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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 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
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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;
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
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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.
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.
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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 AMENDED AND RESTATED 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.
On June 6, 2003, we amended and restated our credit agreement to modify
certain financial covenants, increase our term loan facility by $75.0 million
to $335.0 million and reduce our incremental term loan capacity by $75.0
million to $125.0 million. The new term loan principal amount will be amortized
on a pro rata basis across the remaining scheduled original term loan payments.
In addition, the applicable margins used to calculate the interest rate
applicable to both our revolving credit facility and term loan credit facility
were increased by 0.50%. The proceeds from the increased term loan were
utilized to repay outstanding borrowing under our revolving credit facility and
to reduce outstanding balances under our accounts receivable facility.
The amended and restated 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 $335.0
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 amended and
restated credit facility also provides for an uncommitted $125.0 million
incremental term loan facility for one or more permitted acquisitions.
The obligations under the amended and restated 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 amended and restated
credit facility, such entities may borrow under the facility in the future.
In connection with the original issuance, we previously amended our credit
agreement to permit us to repurchase up to $20 million of our stock from
Metaldyne and to utilize the balance of the cash proceeds for the HammerBlow
and Highland acquisitions.
SECURITY INTERESTS
Our borrowings under the amended and restated 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 amended and
restated credit facility.
INTEREST RATES AND FEES
Borrowings under the amended and restated 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.
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The applicable margin on loans under the revolving credit facility to be
subject to change depending on a leverage ratio.
We will also pay the lenders a commitment fee on the unused commitments
under the amended and restated 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 amended and restated 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 amended
and restated 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 amended and restated credit facility contains negative and affirmative
covenants and requirements affecting us and our subsidiaries.
The amended and restated 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 9 7/8%
Senior Subordinated Notes due 2012 (issued June 6, 2002), (3) indebtedness with
respect to the original notes, (4) indebtedness with respect to our receivables
facility, (5) indebtedness between and among us and our subsidiaries, (6)
indebtedness arising from permitted acquisitions and (7) 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;
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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;
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 amended and restated 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 second fiscal quarter of fiscal 2003 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 2.35:1 for the second fiscal quarter of 2003 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 amended and restated 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 amended and restated credit facility contains the following
affirmative covenants, among others: mandatory reporting of financial and other
information to the administrative agent, notice to
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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.
EVENTS OF DEFAULT
The amended and restated 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
original notes are the same in all material respects as they were issued under
the same indenture as the 9 7/8% senior subordinated notes due 2012 issued June
6, 2002. 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, as supplemented, 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 December 10, 2002 registration rights agreement. It does not
restate those agreements in their entirety. We urge you to read the indenture
and the December 10, 2002 registration rights agreement because they, and not
this description, define your rights as holders of the notes. Copies of the
indenture and the December 10, 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.
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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 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 9 7/8% senior
subordinated notes due 2012 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 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 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 December 10, 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
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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;
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(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
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(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
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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.
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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
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(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.
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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.
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Amortizable Bond Premium. In general, if a U.S. holder purchases a note
for an amount in excess of the sum of all amounts payable on the note after the
acquisition date (other than stated interest payments), such excess will
constitute amortizable bond premium. A U.S. holder generally may elect to
amortize the premium over the remaining term of the note on a constant yield
method as an offset to interest when includible in income under such holder's
regular accounting method. The notes are subject to call provisions at our
option at various times, as described in under "Description of Notes--Optional
Redemption." A U.S. holder will calculate the amount of amortizable bond
premium based on the amount payable at the applicable call date, but only if
the use of the call date (in lieu of the stated maturity date) results in a
smaller amortizable bond premium for the period ending on the call date. If a
U.S. holder does not elect to amortize bond premium, that premium will decrease
the gain or increase the loss such holder would otherwise recognize on
disposition of the note. An election to amortize premium on a constant yield
method will also apply to all debt obligations held or subsequently acquired by
the electing U.S. holder on or after the first day of the first taxable year to
which the election applies. The election may not be revoked without the consent
of the IRS. U.S. holders should consult their own tax advisers before making
this election.
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).
128
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.
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 28% (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.
129
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 LLP, New York, New York.
EXPERTS
The financial statements of TriMas Corporation as of December 31, 2002 and
2001 and for the years ended December 31, 2002 and 2001, the period from
November 28, 2000 to December 31, 2000, and for the period from January 1, 2000
to November 27, 2000 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. The combined
financial statements of Highland Group
130
Corporation as of December 31, 2002 and 2001 and for the years ended December
31, 2002, 2001 and 2000 included in this prospectus in the Registration
Statement have been so included in reliance on the report of Walthall, Drake &
Wallace LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
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.
131
INDEX TO FINANCIAL STATEMENTS
TRIMAS CORPORATION
PAGE NO.
---------
AUDITED FINANCIAL STATEMENTS
Report of Independent Accountants .......................................... F-2
Balance Sheets as of December 31, 2002 and 2001 ............................ F-3
Statement of Operations for the Periods Ended December 31, 2002, December
31, 2001, December 31, 2000 and November 27, 2000 ......................... F-4
Statement of Cash Flows for the Periods Ended December 31, 2002, December
31, 2001, December 31, 2000 and November 27, 2000 ......................... F-5
Statement of Shareholders' Equity and Metaldyne Corporation Net Investment
and Advances for Periods Ended December 31, 2002, December 31, 2001,
December 31, 2000 and November 27, 2000 ................................... F-6
Notes to Financial Statements .............................................. F-7
UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
Balance Sheet as of March 30, 2003 and December 31, 2002 ................... F-43
Statement of Operations for the Three Months Ended March 30, 2003 and
March 31, 2002 ............................................................ F-44
Statement of Cash Flows for the Three Months Ended March 30, 2003 and
March 31, 2002 ............................................................ F-45
Statement of Shareholders' Equity for the Three Months Ended March 30, 2003 F-46
Notes to Financial Statements .............................................. F-47
HIGHLAND GROUP CORPORATION
AUDITED FINANCIAL STATEMENTS
Independent Auditor's Report ....................................... F-67
Balance Sheets as of December 31, 2002 and 2001 .................... F-68
Statements of Operations and Retained Earnings for the Years Ended
December 31, 2002, 2001 and 2000 .................................. F-69
Statements of Cash Flows for the Years Ended December 31, 2002, 2001
and 2000 .......................................................... F-70
Notes to Financial Statements ...................................... F-71
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of
TriMas Corporation:
In our opinion, the consolidated and combined balance sheets and the
related statements of operations, of cash flows and of shareholders' equity and
Metaldyne Corporation net investment and advances appearing in the accompanying
financial statements as "Post-acquisition Basis" present fairly, in all
material respects, the consolidated financial position of TriMas Corporation
and its subsidiaries at December 31, 2002 and the financial position of certain
subsidiaries and divisions of subsidiaries of Metaldyne Corporation which
constitute TriMas Corporation at December 31, 2001, and the results of their
operations and their cash flows for the years ended December 31, 2002 and 2001
and for 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 consolidated and 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 shareholders' equity and 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, 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 consolidated and combined
financial statements, effective November 28, 2000, the Company reflected a new
basis of accounting for their assets and liabilities. As a result, the
consolidated and 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.
As more fully described in Note 5 to the consolidated and combined
financial statements, the Company adopted Statement of Financial Accounting
Standards No. 142 effective January 1, 2002.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
March 27, 2003, except as to Note 17, for
which the date is June 5, 2003
F-2
TRIMAS CORPORATION
BALANCE SHEETS
DECEMBER 31, 2002 AND DECEMBER 31, 2001
(IN THOUSANDS)
CONSOLIDATED COMBINED
DECEMBER 31, DECEMBER 31,
2002 2001
-------------- -------------
ASSETS
Current assets:
Cash and cash equivalents ............................... $ 100,440 $ 3,780
Receivables ............................................. 95,580 34,240
Inventories ............................................. 91,410 96,810
Deferred income taxes ................................... 18,290 10,870
Prepaid expenses and other current assets ............... 9,810 6,170
---------- ----------
Total current assets ................................. 315,530 151,870
Property and equipment, net ................................ 234,990 254,380
Excess of cost over net assets of acquired companies ....... 511,840 541,870
Other intangibles .......................................... 286,270 299,490
Other assets ............................................... 62,140 18,130
---------- ----------
Total assets ......................................... $1,410,770 $1,265,740
========== ==========
LIABILITIES, SHAREHOLDERS' EQUITY AND
METALDYNE CORPORATION NET INVESTMENT AND ADVANCES
Current liabilities:
Current maturities, long-term debt ...................... $ 2,990 $ 28,900
Accounts payable ........................................ 54,480 47,000
Accrued liabilities ..................................... 63,140 56,190
Due to Metaldyne ........................................ 9,960 --
---------- ----------
Total current liabilities ............................ 130,570 132,090
Long-term debt ............................................. 693,190 411,860
Deferred income taxes ...................................... 155,920 169,780
Other long-term liabilities ................................ 31,080 31,010
Due to Metaldyne ........................................... 11,960 --
---------- ----------
Total liabilities .................................... 1,022,720 744,740
---------- ----------
Commitments and contingencies (Note 13)
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 ............................................ 387,500 --
Retained deficit ........................................... (6,940) --
Accumulated other comprehensive income (loss) .............. 7,300 (1,320)
Metaldyne Corporation net investment and advances .......... -- 522,320
---------- ----------
Total shareholders' equity and Metaldyne
Corporation net investment and advances ................ 388,050 521,000
---------- ----------
Total liabilities, shareholders' equity and Metaldyne
Corporation net investment and advances ................ $1,410,770 $1,265,740
========== ==========
The accompanying notes are an integral part of these financial statements.
F-3
TRIMAS CORPORATION
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2001,
FOR THE PERIOD NOVEMBER 28, 2000 -- DECEMBER 31, 2000, AND
FOR THE PERIOD JANUARY 1, 2000 -- NOVEMBER 27, 2000
(IN THOUSANDS)
PRE-ACQUISITION
POST-ACQUISITION BASIS BASIS
------------------------------------------------ ----------------
NOVEMBER 28, JANUARY 1,
2000 -- 2000 --
DECEMBER 31, DECEMBER 31, DECEMBER 31, NOVEMBER 27,
2002 2001 2000 2000
-------------- -------------- -------------- ----------------
Net sales ............................ $ 733,580 $ 732,440 $ 50,640 $ 739,590
Cost of sales ........................ (552,350) (543,310) (37,300) (524,400)
---------- ---------- --------- ----------
Gross profit ................... 181,230 189,130 13,340 215,190
Selling, general and administrative
expenses ............................ (114,090) (121,450) (12,390) (120,660)
---------- ---------- --------- ----------
Operating profit ..................... 67,140 67,680 950 94,530
Other income (expense), net: .........
Interest expense .................... (60,010) (73,130) (5,000) (55,390)
Other, net .......................... (4,010) (4,000) (1,200) 3,050
---------- ---------- --------- ----------
Other expense, net ............. (64,020) (77,130) (6,200) (52,340)
---------- ---------- --------- ----------
Income (loss) before income tax
(expense) credit and cumulative
effect of change in accounting
principle ........................... 3,120 (9,450) (5,250) 42,190
Income tax (expense) credit .......... (2,250) (1,870) 1,100 (20,910)
---------- ---------- --------- ----------
Income (loss) before cumulative
effect of change in accounting
principle ........................... 870 (11,320) (4,150) 21,280
Cumulative effect of change in
recognition and measurement of
goodwill impairment ................. (36,630) -- -- --
---------- ---------- --------- ----------
Net income (loss) .................... $ (35,760) $ (11,320) $ (4,150) $ 21,280
========== ========== ========= ==========
The accompanying notes are an integral part of these financial statements.
F-4
TRIMAS CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2001,
FOR THE PERIOD NOVEMBER 28, 2000 -- DECEMBER 31, 2000, AND
FOR THE PERIOD JANUARY 1, 2000 -- NOVEMBER 27, 2000
(IN THOUSANDS)
PRE-ACQUISITION
POST-ACQUISITION BASIS BASIS
---------------------------------------------- ----------------
YEAR ENDED YEAR ENDED NOVEMBER 28 -- JANUARY 1 --
DECEMBER 31, DECEMBER 31, DECEMBER 31, NOVEMBER 27,
2002 2001 2000 2000
-------------- -------------- ---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ....................................... $ (35,760) $ (11,320) $ (4,150) $ 21,280
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities,
net of acquisition impact:
Cumulative effect of accounting change ................ 36,630 -- -- --
Depreciation and amortization ......................... 38,870 53,780 4,540 38,400
Provision for inventory write-down .................... 8,500 -- -- --
Legacy stock award expense ............................ 4,240 -- -- --
Amortization of debt issue costs ...................... 2,150 -- -- --
Deferred income taxes ................................. (7,200) 8,810 2,750 820
Proceeds from accounts receivable
securitization ...................................... 14,560 4,570 12,700 42,500
Repurchase of securitized accounts
receivable from Metaldyne ........................... (74,540) -- -- --
Payment to Metaldyne to fund contractual
liabilities ......................................... (15,130) -- -- --
(Increase) decrease in receivables .................... (170) 20,160 (810) (11,040)
(Increase) decrease in inventories .................... (2,580) 15,250 (2,740) 9,710
(Increase) decrease in prepaid expenses and
other assets ........................................ (1,020) (1,360) 280 1,710
Increase (decrease) in accounts payable and
accrued liabilities ................................. 6,680 (7,680) 7,720 5,750
Other, net ............................................ (340) (6,230) (1,580) 4,300
---------- --------- --------- ---------
Net cash provided by (used for) operating
activities, net of acquisition impact .............. (25,110) 75,980 18,710 113,430
---------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .................................... (32,140) (18,690) (3,260) (19,540)
Proceeds from notes receivable .......................... -- -- -- 1,550
Proceeds from sale of fixed assets ...................... 5,720 6,780 1,990 1,000
Acquisition of a business, net of cash acquired ......... (1,920) -- -- (21,130)
Investment in HammerBlow ................................ (9,000) -- -- --
Other, net .............................................. 100 (710) (30) 1,510
---------- --------- --------- ---------
Net cash used for investing activities .............. (37,240) (12,620) (1,300) (36,610)
---------- --------- --------- ---------
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 .............. 435,850 -- -- --
Debt issuance costs ..................................... (31,920) -- -- --
Repayment of bank debt attributed from
Metaldyne .............................................. (440,760) -- -- --
Dividend to Metaldyne ................................... (338,080) -- -- --
Net increase (decrease) in Metaldyne
Corporation net investment and advances ................ 14,990 (34,480) (28,390) (23,540)
Borrowings (payments) of debt ........................... (800) (32,160) 11,600 (59,260)
---------- --------- --------- ---------
Net cash provided by (used for) financing
activities ......................................... 159,010 (66,640) (16,790) (82,800)
---------- --------- --------- ---------
CASH AND CASH EQUIVALENTS:
Increase for the period ................................. 96,660 (3,280) 620 (5,980)
At beginning of period .................................. 3,780 7,060 6,440 12,420
---------- --------- --------- ---------
At end of period .................................... $ 100,440 $ 3,780 $ 7,060 $ 6,440
========== ========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-5
TRIMAS CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY AND
METALDYNE CORPORATION NET INVESTMENT AND ADVANCES
FOR THE YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2001,
FOR THE PERIOD NOVEMBER 28, 2000 -- DECEMBER 31, 2000, AND
FOR THE PERIOD JANUARY 1, 2000 -- NOVEMBER 27, 2000
(IN THOUSANDS)
NET ACCUMULATED
INVESTMENT OTHER
AND COMMON PAID-IN RETAINED COMPREHENSIVE
ADVANCES STOCK CAPITAL DEFICIT INCOME (LOSS) TOTAL
------------ -------- ------------ ------------ --------------- -------------
PRE-ACQUISITION BASIS:
Balances, January 1, 2000 .................... $ 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 of $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
========== ==== ========= ======== ========= ==========
POST-ACQUISITION BASIS:
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 of $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 of $(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
----------
Comprehensive income (loss):
Net income (loss) ............................ (28,820) -- -- (6,940) -- (35,760)
Foreign currency translation ................. -- -- -- -- 9,990 9,990
Minimum pension liability
(net of tax of $600) ........................ -- -- -- -- (1,370) (1,370)
----------
Total comprehensive income (loss) ............ -- -- -- -- -- (27,140)
----------
Net proceeds from issuance of
common stock ................................. -- 130 259,600 -- -- 259,730
Dividend to Metaldyne Corporation ............. (338,080) -- -- -- -- (338,080)
Net change in Metaldyne Corporation net
investments and advances ..................... (9,970) -- -- -- -- (9,970)
Reclassification of Metaldyne Corporation net
investment and advances balance .............. (145,450) 60 145,390 -- -- --
Net adjustments to reflect settlement of
contractual obligations ...................... -- -- (17,490) -- -- (17,490)
---------- ---- --------- -------- --------- ----------
Balances, December 31, 2002 ................... $ -- $190 $ 387,500 $ (6,940) $ 7,300 $ 388,050
========== ==== ========= ======== ========= ==========
The accompanying notes are an integral part of these financial statements.
F-6
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 is
principally engaged in three segments with diverse products and market
channels. Cequent Transportation Accessories produces vehicle hitches and
receivers, sway controls, weight distribution and fifth 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, wholesale distributors and
retail outlets. Rieke Packaging Systems 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.
Prior to June 6, 2002 and the common stock issuance and related financing
transactions discussed in Note 2 below, the accompanying 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. The combined financial statements
include all revenues and costs directly attributed to the Company as well as an
estimate of direct and indirect Metaldyne corporate administrative costs
attributed to TriMas, based on a management fee allocation that approximated 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. 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 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 co-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 December 31, 2002,
this warrant had not been exercised. The common stock and warrants are valued
based upon
F-7
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
the cash equity investment made by Heartland and the other investors. At
December 31, 2002, Metaldyne owned 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 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 December
31, 2002 may be recorded in subsequent periods to reflect finalization of
certain estimated amounts at the transaction closing date.
METALDYNE RECAPITALIZATION
On November 28, 2000, the acquisition and recapitalization of Metaldyne by
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 period 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 (hereafter referred to as the "Accounting Basis Change") and are
therefore not comparable.
For the purposes of these notes to the financial statements, 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."
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated and 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 $4.3 million and $3.7 million at December 31, 2002
and 2001, respectively. The Company monitors its exposure for credit losses and
maintains allowances for doubtful accounts. The Company does not
F-8
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
believe that significant credit risk exists due to its diverse customer base.
In 2001 and through June 6, 2002, trade accounts receivable of substantially
all domestic business operations were 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 consolidated statement of
operations. Repair and maintenance costs are charged to expense as incurred.
Depreciation and Amortization. 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 buildings / land improvements,
2.5% to 10%, and machinery and equipment, 6.7% to 33.3%. Capitalized debt
issuance costs are amortized over the underlying terms of the related debt
securities. Customer relationship intangibles are amortized over periods
ranging from 6 -- 40 years, trademarks/trade names are amortized over a 40-year
period, while technology and other intangibles are amortized over a periods
ranging from 5 -- 30 years.
Excess of Cost over Net Assets of Acquired Companies. The excess of cost
over net assets of acquired companies ("Goodwill") at December 31, 2002 and
2001 is related principally to the Accounting Basis Change. Prior to 2002,
goodwill was amortized using the straight-line method over 40 years. Effective
January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" and
discontinued amortizing goodwill. The Company tests goodwill for impairment on
an annual basis, unless a change in business conditions occurs which requires a
more frequent evaluation, by comparison of estimated fair value to carrying
value. In assessing the recoverability of goodwill, the Company estimates fair
value using the present value of expected future cash flows and other valuation
measures.
Other Intangibles. Effective January 1, 2002, the Company adopted SFAS No.
144, "Accounting for the Impairment or Disposal of Long Lived Assets." SFAS No.
144 requires the Company to recognize an impairment loss if the carrying amount
of long-lived assets is not recoverable from the assets' undiscounted cash
flows. The Company tests other intangibles for impairment on an annual basis,
or more frequently if events or changes in circumstances indicate that their
carrying amount may not be recoverable. 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.
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, based on market-based comparisons to
debt instruments of like kind and quality.
Foreign Currency Translation. The financial statements of subsidiaries
located outside of the United States ("U.S.") in non-highly inflationary
economies are measured using the currency of the primary economic environment
in which they operate as the functional currency, which for the most part
represents the local currency. Transaction gains (losses) were approximately
$1.2 million, $(0.1) million, $0.1 million and $ (0.3) million in 2002, 2001,
2000 SP and 2000 LP, respectively, and are included in other expense, net in
the accompanying statement of operations. When translating into U.S. dollars,
income and expense items are translated at average monthly exchange rates and
assets and liabilities are translated at exchange rates in effect at the
balance sheet date. Translation adjustments resulting from translating the
functional currency into U.S. dollars are deferred as a
F-9
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
component of accumulated other comprehensive income (loss) in the statement of
shareholders' equity and Metaldyne Corporation net investment and advances.
Self-insurance. The Company is generally self-insured for losses and
liabilities related primarily to workers' compensation, health and welfare
claims and comprehensive general, product and vehicle liability. Reserves are
recorded based upon the Company's estimates of the aggregate liability for
claims incurred using certain actuarial assumptions about future events.
Changes in assumptions for things such as medical costs and actual experience
could cause these estimates to change.
Pension Plans and Postretirement Benefits Other Than Pensions. Annual net
periodic pension expense and benefit liabilities under defined benefit pension
plans are determined on an actuarial basis. Assumptions used in the actuarial
calculations have a significant impact on plan obligations and expense.
Annually, the Company reviews the actual experience compared to the more
significant assumptions used and makes 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 it is the Company's policy to pay
these benefits as they become due.
Shipping and Handling Expenses. Freight costs are included in cost of
sales and a portion of shipping and handling expenses are included in the
selling, general and administrative category in the accompanying statement of
operations. Shipping and handling costs included in selling, general and
administrative accounts were approximately $2.3 million in 2002, $2.9 million
in 2001, $0.2 million 2000 SP, and $2.8 million in 2000 LP.
Advertising and Sales Promotion Costs. Advertising and sales promotion
costs are expensed as incurred. Advertising costs were approximately $7.8
million in 2002, $7.2 million in 2001, $0.9 million in 2000 SP and $8.2 million
in 2000 LP.
Research and Development Costs. Research and development("R&D") costs are
expensed as incurred. External R&D costs incurred were approximately $1.3
million in 2002, $1.6 million in 2001, $0.2 million in 2000 SP and $1.3 million
in 2000 LP.
Stock-based Compensation. In January 2003, the FASB issued SFAS 148,
"Accounting for Stock-Based Compensation -- Transition and Disclosure -- an
amendment of FASB Statement No. 123." SFAS No. 148 amends SFAS No. 123 to
provide alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of SFAS No. 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results. The Company adopted SFAS No. 148
effective for the fiscal year ended December 31, 2002. The following disclosure
assumes that the Company continues to account for stock-based employee
compensation using the intrinsic value method under Accounting Principles Board
(APB) No. 25, "Accounting for Stock Issued to Employees."
As more fully described in Note 16, in 2001 and up to June 6, 2002,
certain TriMas employees participated in Metaldyne's Long Term Equity Incentive
Plan and were granted an aggregate of 336,763 options to purchase Metaldyne's
common stock. As part of the stock purchase agreement on June 6, 2002, each
vested option will be converted into options to purchase TriMas common stock
while the unvested options were canceled.
The Company accounts for stock options under the recognition and
measurement principles of APB No. 25 and related Interpretations. No
stock-based employee compensation cost is reflected in
F-10
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
net income, as all options granted had an exercise price equal to the fair
market value of the underlying common stock on the date of grant. The following
table illustrates the effect on net income if the Company had applied the fair
value recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation," to stock-based employee compensation:
(IN THOUSANDS)
---------------------------------------------------------
2002 2001 2000 SP 2000 LP
------------- ------------- ------------ ----------
Net income (loss) as reported ....................... $ (35,760) $ (11,320) $ (4,150) $21,280
Deduct: Total stock-based employee compensation
expense determined under fair value based method
for all awards, net of related tax effects ......... -- (180) -- --
--------- --------- -------- -------
Pro forma net income (loss) ......................... $ (35,760) $ (11,500) $ (4,150) $21,280
========= ========= ======== =======
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. Subsequent to June 6, 2002, the Company no longer files
a consolidated tax return with Metaldyne. In 2001 and prior years, TriMas was
included in the consolidated federal income tax return of Metaldyne. Income tax
expense was computed on a separate return basis in those years; however,
substantially all current income tax related liabilities were due to Metaldyne.
Reclassifications. Certain prior year amounts have been reclassified to
conform with the current year presentation.
4. IMPACT OF NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
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 does not believe the adoption of SFAS 143 will have a
material impact on its financial condition or results of operations.
In June 2002, the FASB issued 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.
In November 2002, the FASB issued FASB Interpretation (FIN) 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 clarifies the disclosure
requirements for certain guarantees. In addition, for guarantees issued or
modified after December 31, 2002, FIN 45 will require guarantors to record a
liability at fair value for certain guarantees at the time of issuance of the
guarantee. The Company offers limited warranty protection on certain of its
products covering defects in material and workmanship. The specific terms and
conditions vary depending on the product sold, but generally are in effect for
one to three years following the date of sale. Warranty reserves are recorded
based upon historical and anticipated warranty claims. The Company monitors the
adequacy of its warranty reserves on an ongoing basis and records adjustments
to the reserves as required. Warranty expenses incurred in 2002 approximated
$0.2 million.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities, an Interpretation of ARB 51." FIN 46 requires primary
beneficiaries in a variable interest entity to consolidate the entity even if
the primary beneficiary does not have a majority voting interest. This
F-11
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
consolidation requirement is effective immediately for any variable interest
entity created on or after January 31, 2003 and after June 30, 2003 for
entities created before January 31, 2003. In addition, FIN 46 requires
disclosure of information regarding guarantees or loss exposures related to a
variable interest entity created prior to January 31, 2003 in financial
statements issued after January 31, 2003. The Company does not believe the
adoption of FIN 46 will have a material impact on its financial condition or
results of operations.
5. GOODWILL AND OTHER INTANGIBLE ASSETS
On January 1, 2002, TriMas adopted 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 a 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 the cumulative effect of change in
accounting principle. As of December 31, 2002, the Company's test for
impairment indicates that fair value of goodwill exceeds the related carrying
value.
Changes in the carrying amount of goodwill for the year ended December 31,
2002 are as follows (in thousands):
CEQUENT RIEKE
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 ....................... -- -- 1,220 1,220
Impact of foreign currency
translation ................................... 1,040 6,340 (90) 7,290
Restructuring reserve and other adjustments ..... (2,840) 590 340 (1,910)
-------- -------- --------- ---------
BALANCE, DECEMBER 31, 2002 ....................... $226,600 $165,230 $ 120,010 $ 511,840
======== ======== ========= =========
The following table summarizes the effect on net income of excluding
amortization expense related to goodwill that is no longer being amortized (in
thousands):
2002 2001 2000 SP 2000 LP
------------- ------------- ------------ ----------
Net income (loss), as reported ........... $ (35,760) $ (11,320) $ (4,150) $21,280
Add back: goodwill amortization .......... -- 13,600 1,100 17,700
--------- --------- -------- -------
Net income (loss), as adjusted ........... $ (35,760) $ 2,280 $ (3,050) $38,980
========= ========= ======== =======
F-12
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The gross carrying amounts and accumulated amortization for the Company's
acquired other intangible assets at December 31, 2002 and December 31, 2001 are
summarized below (in thousands):
AS OF DECEMBER 31, 2002 AS OF DECEMBER 31, 2001
--------------------------------- --------------------------------
INTANGIBLE CATEGORY BY GROSS CARRYING ACCUMULATED GROSS CARRYING ACCUMULATED
USEFUL LIFE AMOUNT AMORTIZATION AMOUNT AMORTIZATION
- -------------------------------------- ---------------- -------------- ---------------- -------------
Customer relationships:
6 -- 12 years ....................... $ 26,500 $ (5,460) $ 26,500 $ (2,850)
15 -- 25 years ...................... 62,000 (5,630) 62,000 (2,930)
40 years ............................ 111,580 (5,790) 112,000 (3,010)
-------- --------- -------- ---------
Total customer relationships ......... 200,080 (16,880) 200,500 (8,790)
-------- --------- -------- ---------
Trademark/Trade names:
40 years ............................ 54,390 (2,830) 54,390 (1,460)
-------- --------- -------- ---------
Technology and other:
5 -- 15 years ....................... 22,500 (5,670) 21,500 (2,910)
18 -- 30 years ...................... 38,190 (3,510) 38,100 (1,840)
-------- --------- -------- ---------
Total technology and other ........... 60,690 (9,180) 59,600 (4,750)
-------- --------- -------- ---------
$315,160 $ (28,890) $314,490 $ (15,000)
======== ========= ======== =========
Amortization expense for intangibles was approximately $13.9 million and
$14.2 million for the years ended December 31, 2002 and 2001, respectively, and
is included in cost of sales in the accompanying statement of operations.
Estimated amortization expense for the next five fiscal years beginning after
December 31, 2002 is as follows: 2003 - $13.9 million; 2004 - $13.9 million;
2005 - $13.8 million; 2006 - $12.3 million; and 2007 - $11.7 million. The
Company also recorded a non-cash charge of $0.4 million for the year ended
December 31, 2002 related to impairment of a customer relationship intangible
as the Company no longer maintains a sales relationship with two customers in
the Industrial Specialties segment. The non-cash charge is recorded in cost of
sales in the accompanying statement of operations.
6. 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):
F-13
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
OTHER
SEVERANCE CLOSURE COSTS TOTAL
----------- --------------- ----------
Reserve at November 28, 2000 ......... $ 19,070 $ 3,690 $ 22,760
Cash ............................... -- -- --
Non-cash ........................... -- -- --
-------- -------- --------
Reserve at December 31, 2000 ......... 19,070 3,690 22,760
Cash ............................... (5,860) (80) (5,940)
Non-cash ........................... -- -- --
-------- -------- --------
Reserve at December 31, 2001 ......... 13,210 3,610 16,820
Cash ............................... (6,070) (1,020) (7,090)
Non-cash ........................... -- (110) (110)
Adjustments to restructuring
reserves .......................... (2,550) -- (2,550)
-------- -------- --------
Reserve at December 31, 2002 ......... $ 4,590 $ 2,480 $ 7,070
======== ======== ========
Approximately 600 jobs have been or will be eliminated as a result of
these restructuring actions of which approximately 565 were eliminated as of
December 31, 2002. Cequent Transportation Accessories 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 contract manufacturing plant in Mexico.
In addition, two duplicate, sub-scale manufacturing facilities, each with its
own separate master distribution warehouse, were consolidated into a single
existing third facility, with one master warehouse on the same property. These
actions have resulted in the elimination of approximately 410 positions through
December 31, 2002. Rieke Packaging Systems has rationalized back office and
manufacturing operations. Through December 31, 2002, approximately 55 positions
have been eliminated. Industrial Specialties 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 December 31, 2002,
Industrial Specialties has eliminated approximately 100 positions related to
these activities.
7. ACCOUNTS RECEIVABLE SECURITIZATION
Prior to June 6, 2002, TriMas sold certain of its accounts receivable to
MTSPC, Inc. ("MTSPC"), a wholly owned subsidiary of Metaldyne. MTSPC sold an
undivided fractional ownership interest in the pool of receivables to a third
party multi-seller funding company. In connection with the common stock
issuance and related financing transactions that occurred on June 6, 2002, the
Company repurchased an aggregate of $113.6 million of TriMas receivables from
MTSPC, including its retained subordinated interest of approximately $39.1
million.
The proceeds from the sale of TriMas' accounts receivable were $14.6
million during the period January 1, 2002 to June 6, 2002 and $59.8 million
through December 31, 2001. The net proceeds of TriMas' attributed portion of
receivables sold to MTSPC were less than the face amount of accounts receivable
sold by approximately $2.3 million during the period January 1, 2002 to June 6,
2002, $3.6 million in 2001, $0.3 million in 2000 SP and $1.3 million in 2000
LP. These differences approximate the purchaser's financing costs and are
included in other expense in the accompanying statement of operations. The
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. During the period January 1, 2002 to June 6, 2002,
the financing costs were based on an average liquidation period of the
portfolio of approximately 1.5
F-14
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
months and an average discount rate of 1.9%. In 2001, the financing costs were
based on an average liquidation period of the portfolio of approximately 1.5
months and average discount rate of 5.3%.
At December 31, 2001, TriMas retained a subordinated interest in its
receivables sold of approximately $12.2 million, which is included in the
accompanying 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 losses.
As part of the 2002 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. From time to time, TSPC 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
December 31, 2002, no receivables have been sold under this arrangement.
8. INVENTORIES
Inventories by component are as follows:
(IN THOUSANDS)
------------------------------
DECEMBER 31, DECEMBER 31,
2002 2001
-------------- -------------
Finished goods .............. $50,220 $59,510
Work in process ............. 12,860 13,470
Raw materials ............... 28,330 23,830
------- -------
Total inventories ......... $91,410 $96,810
======= =======
9. PROPERTY AND EQUIPMENT, NET
Property and equipment by component are as follows:
(IN THOUSANDS)
------------------------------
DECEMBER 31, DECEMBER 31,
2002 2001
-------------- -------------
Land and land improvements ............. $ 8,810 $ 13,840
Buildings .............................. 46,100 67,940
Machinery and equipment ................ 226,380 200,750
-------- --------
281,290 282,530
Less: Accumulated depreciation ......... 46,300 28,150
-------- --------
Property and equipment, net ............ $234,990 $254,380
======== ========
Depreciation expense was approximately $24.4 million in 2002, $26.0
million in 2001, $2.2 million in 2000 SP and $20.0 million in 2000 LP.
F-15
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. ACCRUED LIABILITIES
(IN THOUSANDS)
------------------------------
DECEMBER 31, DECEMBER 31,
2002 2001
-------------- -------------
Self-insurance ............................ $ 13,090 $ 10,670
Vacation, holiday and bonus ............... 10,030 9,010
Severance and other closure costs ......... 7,070 12,630
Other ..................................... 32,950 23,880
-------- --------
Total accrued liabilities ............... $ 63,140 $ 56,190
======== ========
11. LONG-TERM DEBT
The Company's long-term debt at December 31, 2002, net of the unamortized
discount of $2.7 million from face value of the Notes issued in June 2002 and
the $0.9 million premium on the face value of the additional Notes issued in
December 2002, and the long-term debt attributed from Metaldyne at December 31,
2001, is as follows:
(IN THOUSANDS)
------------------------------
DECEMBER 31, DECEMBER 31,
2002 2001
-------------- -------------
Bank debt .............................................. $259,375 $440,600
9 7/8% senior subordinated notes, due June 2012 ......... 435,975 --
Other .................................................. 830 160
-------- --------
696,180 440,760
Less: Current maturities, long-term debt ............... 2,990 28,900
-------- --------
Long-term debt ......................................... $693,190 $411,860
======== ========
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 June 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 which began on 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. There were no borrowings on the revolving
facility at December 31, 2002. The Credit Facility allows the Company to issue
letters of credit, not to exceed $40 million in aggregate, against revolving
credit facility commitments. At December 31, 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% to 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
borrowers existing and subsequently acquired or organized domestic
subsidiaries, other than TSPC, 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.
Borrowings under the Credit Facility bear interest at the Company's option
at either a base rate used by JPMorgan Chase Bank, plus an applicable margin,
or a Eurodollar 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
F-16
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
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 1.75% on base rate loans and 2.75%
on Eurodollar loans at December 31, 2002. The effective interest rate on credit
facility borrowings was 4.44% at December 31, 2002.
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
guarantor subsidiaries, approximately $808.6 million at December 31, 2002, are
presented in the consolidating financial information in Note 20. 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 the Company and its subsidiaries to meet certain restrictive 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 its covenants
at December 31, 2002.
On December 10, 2002, the Company issued an additional $85.0 million face
value of 9 7/8% senior subordinated notes due June 2012 pursuant to the June 6,
2002 indenture, bringing the aggregate amount outstanding under the indenture
to $435,975. These notes were issued at a premium of approximately $0.9
million. The bonds were issued to obtain cash to repurchase approximately $20.0
million of TriMas common stock owned by Metaldyne, to fund potential
acquisitions, for debt repayment and for other general corporate purposes.
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all existing and future senior debt of
TriMas, including amounts outstanding under the Credit Facility. The Notes are
pari passu in right of payment with all existing and future unsecured senior
subordinated indebtedness of TriMas and are unconditionally guaranteed by all
of the Company's domestic subsidiaries that are direct borrowers under the
Credit Facility. Interest on the Notes accrues at the rate of 9 7/8% per annum
and is payable semi-annually in arrears on June 15 and December 15, commencing
December 15, 2002.
At any time prior to June 15, 2005, TriMas may redeem up to 35% of the
aggregate principal amount of Notes issued at a redemption price of 109.875% of
the principal amount, plus accrued and unpaid interest 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 and (2) the redemption occurs within 120 days of the date of the
closing of such equity offering. Except as outlined herein, the Notes are not
redeemable at the Company's option prior to June 15, 2007.
F-17
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
After June 15, 2007, TriMas may redeem all or a part of the Notes at the
redemption prices (expressed as percentages of principal amount) set forth
below plus accrued and unpaid interest 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%
The Notes indenture contains negative and affirmative covenants and other
requirements that are comparable to those contained in the Credit Facility. At
December 31, 2002, the Company was in compliance with all such covenant
requirements.
The Company capitalized debt issuance costs paid of $13.1 million and
$18.8 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
$12.1 million and $17.7 million related to the Credit Facility and Notes,
respectively, are included in other assets in the accompanying consolidated
balance sheet at December 31, 2002.
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. The interest
rate charged by Metaldyne applicable to the bank debt approximated 8.5% at
December 31, 2001.
Subsequent to June 6, 2002, the Company paid cash for interest of
approximately $22.9 million. Prior to June 6, 2002 and in 2001 and 2000,
interest expense allocated to TriMas was paid by Metaldyne.
Future maturities of the face value of long-term debt at December 31, 2002
are as follows:
(IN THOUSANDS)
YEAR ENDING DECEMBER 31: ---------------
2003 ....................... $ 2,990
2004 ....................... 2,830
2005 ....................... 2,500
2006 ....................... 2,500
2007 ....................... 2,500
Thereafter ................. 684,660
--------
Total ...................... $697,980
========
12. LEASES
TriMas leases certain equipment and plant facilities under non-cancelable
operating leases. Rental expense for TriMas totaled approximately $6.4 million
in 2002, $4.6 million in 2001, $0.4 million in 2000 SP and $4.7 million in 2000
LP.
F-18
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Minimum payments for operating leases having initial or remaining
non-cancelable lease terms in excess of one year at December 31, 2002 are
summarized below:
(IN THOUSANDS)
YEAR ENDING DECEMBER 31: ---------------
2003 ....................... $ 8,010
2004 ....................... 7,640
2005 ....................... 7,140
2006 ....................... 6,520
2007 ....................... 6,250
Thereafter ................. 51,430
-------
Total ...................... $86,990
=======
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 20 year
lease term continues until 2022 and requires annual lease payments of
approximately $2.5 million per year. The proceeds from these transactions were
applied against the Metaldyne Corporation net investment and advance balance.
Because Metaldyne provided the third-party lender with a guarantee of the
Company's lease obligations, 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.
13. COMMITMENTS AND CONTINGENCIES
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 of California has
agreed to take over clean-up of the site, as well as responsibility for
governmental entities' past response costs. The defendants are negotiating a
Consent Decree with the United States, which will dismiss the defendants from
the case subject only to the failure of the State of California to perform
under its Consent Decree with the defendants. Additionally, TriMas 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. During the discovery stage, the Judge of the Superior Court of the
State of California issued an order dismissing all plaintiffs in the action.
Plaintiffs have an opportunity to appeal. Based upon the Company's present
knowledge, the Company does not believe the ultimate outcome of these matters
will have a material adverse effect on its consolidated financial statements
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 TriMas, 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
F-19
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
the defendants clean up contamination at that site. Consent decrees have been
entered into by the plaintiffs and a group of defendants, including TriMas,
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.
As of March 26, 2003, the Company is party to approximately 502 pending
cases involving approximately 24,363 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 manufactured three types of gaskets and has ceased the use of
asbestos in its products. The Company believes that many of the pending cases
relate to locations at which none of our gaskets were distributed or used. In
addition, TriMas acquired various companies to distribute the Company's
products that distributed gaskets of other manufacturers prior to acquisition.
Total settlement costs (exclusive of defense costs) for all such cases, some of
which were filed over 12 years ago, have been approximately $2.3 million. Based
upon the Company's experience to date and other available information, the
Company does not believe that these cases will have a material adverse effect
on its financial condition or future results of operations. However, there can
be no assurance that the Company 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 the Company will
not be subjected to further claims with respect to the former activities of its
acquired gasket distributors.
The Company has provided reserves based upon its present knowledge and,
subject to future legal and factual developments, does not believe that the
ultimate outcome of any of these litigations will have a material adverse
effect on its consolidated financial position and future results of operations
and cash flows. 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.
The Company is subject to other 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.
14. RELATED PARTIES
Metaldyne Corporation
Prior to June 6, 2002, the Company was wholly-owned by Metaldyne and
participated in joint activities including employee benefits programs, legal,
treasury, information technology and other general corporate activities.
In connection with the common stock issuance and related financing
transactions, TriMas assumed certain liabilities and obligations of Metaldyne,
mainly comprised of contractual obligations to former TriMas employees, tax
related matters, benefit plan liabilities and reimbursements to Metaldyne for
normal course payments to be made on TriMas' behalf. As of December 31, 2002,
total liabilities and obligations assumed approximated $37.0 million, with
payments made to Metaldyne of $15.1 million in respect to these obligations.
The remaining assumed liabilities of approximately $21.9 million are payable at
various dates over the next two years and are reported as Due to Metaldyne in
the accompanying balance sheet at December 31, 2002.
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 our 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
F-20
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
with Metaldyne to indemnify one another for our allocated share (42.01%) 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.
Effective June 6, 2002, the Company also entered into a corporate services
agreement with Metaldyne. Under the terms of the agreement, TriMas pays
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 and remittance of certain third-party
charges on TriMas' behalf. To the extent TriMas directly incurs costs related
to items covered by the agreement, the $2.5 million fee is reduced accordingly.
Effective January 1, 2003, the corporate services agreement was amended whereby
Metaldyne will continue to receive an annual fee of $2.5 million for services
rendered to TriMas. However, the fee will no longer be reduced for TriMas'
third-party charges.
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:
o 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 in 2002, $7.3
million in 2001, $0.5 million in 2000 SP and $7.3 million in 2000 LP.
o 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.
o 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 in
2002, $73.1 million in 2001, $4.9 million in 2000 SP and $54.2 million
in 2000 LP. The related advances were included in Metaldyne
Corporation net investment and advances in the accompanying
consolidated balance sheets. As a 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.
Heartland Industrial Partners
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 original 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 plus
expenses. During 2002, Heartland was paid $2.8 million under this agreement and
such amount is included in selling, general and administrative expense in the
accompanying consolidated statement of operations.
In December 2002, TriMas paid Heartland approximately $0.9 million in
connection with the issuance of the additional $85 million of Notes. Such fees
have been capitalized as a component of other assets in the accompanying
balance sheet and are being amortized over the life of the Notes.
F-21
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Related Party Sales
During 2002, the Company consummated sales transactions with Metaldyne for
approximately $0.5 million and with an affiliate of a shareholder for
approximately $4.7 million. These amounts are included in net sales in the
accompanying statement of operations.
15. EMPLOYEE BENEFIT PLANS
Pension and Profit-Sharing Benefits. Effective through December 31, 2002,
substantially all TriMas salaried employees participated in Metaldyne-sponsored
noncontributory profit-sharing and/or contributory defined contribution plans,
to which payments were approved annually by Metaldyne's Board of Directors.
Aggregate charges included in the accompanying statement of operations under
these plans were approximately $2.6 million in 2002, $2.6 million in 2001, $0.3
million in 2000 SP and $3.3 million in 2000 LP. In addition, TriMas salary and
non-union hourly employees participated in defined-benefit pension plans
sponsored by Metaldyne. The expense for these plans was approximately $1.7
million in 2002, $2.4 million in 2001, $0.3 million in 2000 SP and $3.1 million
in 2000 LP.
On June 6, 2002, the Metaldyne defined benefit pension plans were
curtailed with respect to TriMas employees. Service and salary continued to
accrue for the TriMas employees for benefit purposes until December 31, 2002.
The liability for these plans remains the obligation of Metaldyne. TriMas
implemented a new defined contribution profit sharing plan effective January 1,
2003.
In addition, TriMas' foreign and union-hourly employees participate in
defined benefit pension plans. Certain Metaldyne employees also participated in
the TriMas union-hourly plans. In connection with TriMas' recapitalization, the
Metaldyne employees and the related plan assets were transferred out of the
plans, with the plans continuing with TriMas employees only. The plan assets
were allocated between Metaldyne and TriMas employees, and a greater portion of
the plan assets were attributed to Metaldyne employees based on statutory asset
allocation rules.
In connection with the June 6, 2002 transactions, the Company also assumed
a liability of approximately $0.5 million related to a defined benefit
restoration plan for certain TriMas employees. As a part of the restructuring
activities during 2002, this plan was curtailed, yielding a curtailment gain of
approximately $0.2 million.
Net periodic pension cost for TriMas defined benefit pension plans,
covering foreign employees, union-hourly employees and certain salaried
employees includes the following components:
(IN THOUSANDS)
---------------------------------------------------
2002 2001 2000 SP 2000 LP
----------- ----------- --------- -----------
Service cost ............................... $ 640 $ 540 $ 50 $ 600
Interest cost .............................. 1,100 980 80 900
Expected return on assets .................. (1,410) (1,330) (110) (1,180)
Amortization of prior-service cost ......... 30 -- -- 10
Curtailment gain ........................... (240) -- -- --
Amortization of net loss ................... -- -- -- (10)
-------- -------- ------ --------
Net periodic pension cost ................. $ 120 $ 190 $ 20 $ 320
======== ======== ====== ========
F-22
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Major actuarial assumptions used (measurement date of September 30) in
accounting for the U.S. TriMas defined benefit pension plans at December 31 are
as follows:
2002 2001 2000
--------- --------- ---------
Discount rate for obligations ............................. 6 3/4% 7 5/8% 7 3/4%
Rate of increase in compensation .......................... N/A 4% 4%
Expected long-term rate of return on plan assets .......... 9% 9% 9%
Major actuarial assumptions used (measurement date of September 30) in
accounting for the non-U.S. TriMas defined benefit pension plans at December 31
are as follows:
2002 2001 2000
--------- --------- ---------
Discount rate for obligations ............................. 7% 7% 7%
Rate of increase in compensation .......................... 4 1/2% 4 1/2% 4 3/4%
Expected long-term rate of return on plan assets .......... 9% 9% 9%
The following provides a reconciliation of the changes in TriMas' defined
benefit pension plans' projected benefit obligations and fair value of assets
covering foreign employees and union-hourly employees for each of the years
ended December 31, 2002 and 2001 and the funded status as of December 31, 2002
and 2001:
(IN THOUSANDS)
-----------------------------
2002 2001
------------- -------------
CHANGES IN PROJECTED BENEFIT OBLIGATIONS
Benefit obligations at January 1 ......................... $ (13,820) $ (13,230)
Service costs ............................................ (640) (540)
Interest costs ........................................... (1,100) (980)
Contribution ............................................. (70) --
Assumption of benefit restoration plan liability ......... (460) --
Actuarial gain (loss) .................................... (1,770) 610
Benefit payments ......................................... 600 630
Curtailment gain ......................................... 240 --
Change in foreign currency ............................... (620) 160
Plan amendments .......................................... -- (470)
--------- ---------
Projected benefit obligations at December 31 ............. $ (17,640) $ (13,820)
========= =========
F-23
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
-------------------------
2002 2001
------------ ----------
CHANGES IN PLAN ASSETS
Fair value of plan assets at January 1 ................... $ 14,250 $ 14,920
Actual return on plan assets ............................. (530) (1,450)
Contributions ............................................ 440 1,610
Benefit payments ......................................... (600) (630)
Asset transfer adjustment ................................ (1,280) --
Changes in foreign currency .............................. 470 (200)
-------- --------
Fair value of plan assets at December 31 ................. $ 12,750 $ 14,250
======== ========
FUNDED STATUS
Plan assets greater than (less than) projected benefits at
December 31 ............................................ $ (4,890) $ 430
Unamortized prior-service cost ........................... 370 400
Unamortized net loss ..................................... 5,240 1,980
-------- --------
Net asset recognized at December 31 ...................... $ 720 $ 2,810
======== ========
(IN THOUSANDS)
-------------------------
2002 2001
----------- -----------
COMPONENTS OF THE NET ASSET RECOGNIZED
Prepaid benefit cost ........................................... $ 3,030 $ 2,670
Accrued benefit liability ...................................... (4,680) (370)
Intangible asset ............................................... 370 440
Accumulated other comprehensive (income) loss .................. 2,000 70
-------- -------
Net asset recognized at December 31 ............................ $ 720 $ 2,810
======== =======
PLANS WITH BENEFIT OBLIGATION EXCEEDING PLAN ASSETS
Benefit obligation ............................................. $ 15,850 $12,050
Plan assets .................................................... 8,930 10,400
-------- -------
Benefit obligation in excess of plan assets at December 31 ..... $ 6,920 $ 1,650
======== =======
Postretirement Benefits. TriMas provides postretirement medical and life
insurance benefits, none of which are funded, for certain of its active and
retired employees. As a part of the recapitalization on June 6, 2002, the
Company assumed a liability of approximately $0.3 million related to a
postretirement benefit plan specific to a TriMas location. In addition, the
Company closed a plant in 2002 and terminated certain of the employees, thereby
yielding a curtailment gain of approximately $0.3 million.
Net periodic postretirement benefit cost includes the following
components:
(IN THOUSANDS)
--------------------------------------
2002 2001 2000 SP 2000 LP
------ ------ --------- --------
Service cost ..................................... $ 90 $ 80 $10 $ 120
Interest cost .................................... 480 310 30 320
Net amortization ................................. 100 -- -- (170)
---- ---- --- ------
Net periodic postretirement benefit cost ......... $670 $390 $40 $ 270
==== ==== === ======
F-24
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following provides a reconciliation of the changes in benefit
obligations and status for each of the years ended December 31, 2002 and 2001:
(IN THOUSANDS)
---------------------------
2002 2001
------------ ------------
CHANGES IN BENEFIT OBLIGATIONS
Benefit obligations at January 1 .......................... $ (4,240) $ (4,140)
Service cost .............................................. (90) (80)
Interest cost ............................................. (480) (310)
Assumption of additional postretirement liability ......... (255) --
Actuarial loss ............................................ (3,455) (30)
Curtailment gain .......................................... 290 --
Benefit payments .......................................... 510 320
-------- --------
Benefit obligations at December 31 ........................ $ (7,720) $ (4,240)
======== ========
STATUS
Benefit obligations at December 31 ........................ $ (7,720) $ (4,240)
Unrecognized loss ......................................... 3,250 30
-------- --------
Net liability at December 31 .............................. $ (4,470) $ (4,210)
======== ========
The discount rate used in determining the accumulated postretirement
benefit obligation was 6.75% in 2002 and 7.63% in 2001. The assumed health care
cost trend rate in 2002 was 10.5%, decreasing to an ultimate rate in 2013 of
5%. If the assumed medical cost trend rates were increased by 1%, the
accumulated postretirement benefit obligations would increase by $0.6 million
and the aggregate of the service and interest cost components of net periodic
postretirement benefit obligations cost would increase by $45,000. If the
assumed medical cost trend rates were decreased by 1%, the accumulated
postretirement benefit obligations would decrease by $0.5 million and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost would decrease by $40,000.
16. 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 and vest in four equal installments as of the
closing of the recapitalization and January of 2002, 2003 and 2004. 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 compensation expense, including interest accretion, for the
vesting of long-term stock awards was approximately $3.3 million in 2002, $4.0
million in 2001 and $0.8 million in 2000 LP.
In 2001, subsequent to the recapitalization, a new Metaldyne 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. Of
this amount, 81,640 options have vested and the remaining 255,123 options were
canceled in connection with the June 6, 2002 transactions. These options have a
ten year option 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.
F-25
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In connection with the stock purchase agreement on June 6, 2002, each
vested option in the Plan will be converted into an option to purchase TriMas
common stock. TriMas created the 2002 Long-Term Equity Incentive Plan during
2002, which allows issuance of equity-based incentives in various forms. No
options for TriMas common stock have been granted as of December 31, 2002.
Metaldyne has elected to continue to apply the provisions of APB No. 25
and, accordingly, no stock option compensation expense is included in the
determination of net income (loss) in the consolidated statements of
operations. The weighted average fair value on the date of grant of the
Metaldyne options granted during 2001 was $3.80. There were no Metaldyne stock
option grants in 2002 to TriMas employees.
17. SEGMENT INFORMATION
TriMas' reportable operating segments are business units, each providing
their own unique products and services. Each operating segment is independently
managed, requires different 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. During the first quarter of 2003, the Company re-aligned its
operating segments and appointed a group president for its Fastening Systems
group. Prior period segment information has been revised to conform to the
current structure and presentation. TriMas has four operating segments
involving the manufacture and sale of the following products:
CEQUENT TRANSPORTATION ACCESSORIES -- 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.
RIEKE PACKAGING SYSTEMS -- Closures and dispensing systems for steel and
plastic industrial and consumer packaging applications.
FASTENING SYSTEMS -- Large and small diameter standard and custom-designed
ferrous, nonferrous and special alloy fasteners, and highly engineered
specialty fasteners for the domestic and international aerospace industry.
INDUSTRIAL SPECIALTIES -- 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 ordinance components and
weapon systems.
Fastening Systems was previously included in the Industrial Specialties
group. Goodwill relating to Fastening Systems approximated $49.5 million and
$85.8 million at December 31, 2002 and 2001, respectively, and was reduced
during the year by the impact of the SFAS No. 142 impairment ($36.6 million)
and increased by restructuring reserve and other adjustments ($0.3 million).
The Company uses Earnings (Operating Profit) Before Interest, Taxes,
Depreciation and Amortization ("EBITDA") as an indicator of operating
performance and as a measure of cash generating capabilities. EBITDA is one of
the primary measures used by management to evaluate performance. Legacy stock
award expense represents a contractual obligation from the November 2000
acquisition which will run off completely in 2003. For purposes of this note,
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.
F-26
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Segment activity is as follows:
(IN THOUSANDS)
-----------------------------------------------
2002 2001 2000 SP 2000 LP
----------- ----------- ----------- -----------
NET SALES
Cequent Transportation Accessories ........ $ 282,400 $264,680 $ 15,390 $265,560
Rieke Packaging Systems ................... 109,050 105,250 7,680 100,470
Fastening Systems ......................... 132,820 143,700 10,630 167,070
Industrial Specialties .................... 209,310 218,810 16,940 206,490
--------- -------- -------- --------
Total ................................... $ 733,580 $732,440 $ 50,640 $739,590
========= ======== ======== ========
OPERATING PROFIT
Cequent Transportation Accessories ........ $ 31,880 $ 24,870 $ (170) $ 34,570
Rieke Packaging Systems ................... 27,000 21,640 1,020 25,030
Fastening Systems ......................... 1,360 11,070 (1,130) 24,590
Industrial Specialties .................... 23,500 20,580 1,700 18,080
Other Corporate expenses and Management
fees .................................... (12,360) (7,280) (470) (6,970)
Legacy stock award expense ................ (4,240) (3,200) -- (770)
--------- -------- -------- --------
Total ................................... $ 67,140 $ 67,680 $ 950 $ 94,530
========= ======== ======== ========
EBITDA
Cequent Transportation Accessories ........ $ 44,520 $ 42,820 $ 1,290 $ 44,960
Rieke Packaging Systems ................... 35,190 33,930 2,180 33,570
Fastening Systems ......................... 10,040 23,720 (50) 35,130
Industrial Specialties .................... 32,710 31,360 2,540 26,930
Other Corporate expenses and Management
fees .................................... (12,210) (7,170) (470) (6,890)
Legacy stock award expense ................ (4,240) (3,200) -- (770)
--------- -------- -------- --------
Total ................................... $ 106,010 $121,460 $ 5,490 $132,930
========= ======== ======== ========
F-27
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
FINANCIAL SUMMARY BY SEGMENT:
(IN THOUSANDS)
DECEMBER 31,
----------------------------------------------
2002 2001 2000
------------- -------------- -------------
OPERATING NET ASSETS
Cequent Transportation Accessories ......... $ 394,070 $ 385,430 $ 417,080
Rieke Packaging Systems .................... 337,210 311,920 306,850
Fastening Systems .......................... 212,750 250,950 260,680
Industrial Specialties ..................... 203,890 189,820 209,660
Corporate .................................. 132,280 (4,470) 12,630
---------- ---------- ----------
Total .................................... $1,280,200 $1,133,650 $1,206,900
========== ========== ==========
CAPITAL EXPENDITURES
Cequent Transportation Accessories ......... $ 12,320 $ 5,350 $ 9,470
Rieke Packaging Systems .................... 10,720 3,730 6,640
Fastening Systems .......................... 4,480 6,090 2,950
Industrial Specialties ..................... 4,170 3,520 3,740
Corporate .................................. 450 -- --
---------- ---------- ----------
Total .................................... $ 32,140 $ 18,690 $ 22,800
========== ========== ==========
(IN THOUSANDS)
------------------------------------------------
2002 2001 2000 SP 2000 LP
---------- ---------- --------- ----------
DEPRECIATION AND AMORTIZATION
Cequent Transportation Accessories ......... $12,640 $17,970 $1,460 $10,390
Rieke Packaging Systems .................... 8,190 12,330 1,160 8,540
Fastening Systems .......................... 8,680 12,670 1,080 10,540
Industrial Specialties ..................... 9,210 10,810 840 8,850
Corporate .................................. 150 -- -- 80
------- ------- ------ -------
Total .................................... $38,870 $53,780 $4,540 $38,400
======= ======= ====== =======
The Company's export sales approximated $36.5 million, $55.8 million and
$53.9 million in 2002, 2001, and 2000, respectively.
The following table presents the TriMas non-United States 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 singsle 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)
2002 2001 2000
---------------------- ---------------------- ---------------------
OPERATING OPERATING OPERATING
NET NET NET
SALES ASSETS SALES ASSETS SALES ASSETS
---------- ----------- ---------- ----------- ---------- ----------
Europe ...................... $39,000 $ 83,000 $37,000 $63,000 $38,000 $ 66,000
Australia ................... 29,000 26,000 22,000 23,000 23,000 27,000
Other North America ......... 31,000 27,000 33,000 13,000 33,000 17,000
------- -------- ------- ------- ------- --------
Total non-US .............. $99,000 $136,000 $92,000 $99,000 $94,000 $110,000
======= ======== ======= ======= ======= ========
F-28
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
18. INCOME TAXES
(IN THOUSANDS)
---------------------------------------------------------
2002 2001 2000 SP 2000 LP
------------- ------------- ------------ ----------
Income (loss) before income tax expense
(credit):
Domestic ............................ $ (16,380) $ (17,550) $ (5,170) $29,360
Foreign ............................. 19,500 8,100 (80) 12,830
--------- --------- -------- -------
$ 3,120 $ (9,450) $ (5,250) $42,190
========= ========= ======== =======
Income tax expense (credit):
Current payable (refundable):
Federal ............................. $ 3,390 $ (10,080) $ (4,100) $ 9,650
State and local ..................... 600 490 270 710
Foreign ............................. 5,460 2,650 (20) 4,330
Deferred: .............................
Federal ............................. (9,070) 7,880 2,410 5,400
Foreign ............................. 1,870 930 340 820
--------- --------- -------- -------
$ 2,250 $ 1,870 $ (1,100) $20,910
========= ========= ======== =======
The components of deferred taxes at December 31, 2002 and 2001 are as
follows:
(IN THOUSANDS)
-------------------------------
2002 2001
-------------- --------------
Deferred tax assets:
Inventories ................................................. $ 2,500 $ 1,800
Accounts receivable ......................................... 1,750 1,610
Accrued liabilities and other long-term liabilities ......... 14,330 580
Net operating loss .......................................... 11,380 --
Deferred tax liabilities:
Property and equipment ...................................... (54,880) (52,800)
Intangible assets ........................................... (107,750) (110,100)
Other, principally investments .............................. (4,960) --
---------- ----------
Net deferred tax liability .................................. $ (137,630) $ (158,910)
========== ==========
F-29
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The following is a reconciliation of tax computed at the U.S. federal
statutory rate to income tax expense (credit) allocated to income (loss) before
income taxes:
(IN THOUSANDS)
------------------------------------------------------
2002 2001 2000 SP 2000 LP
---------- ------------ ------------ -----------
U.S. federal statutory rate ........................... 35% 35% 35% 35%
Tax at U.S. federal statutory rate .................... $1,090 $ (3,310) $ (1,830) $14,770
State and local taxes, net of federal tax benefit ..... 390 330 170 460
Higher effective foreign tax rate ..................... 500 750 350 660
Amortization in excess of tax, net .................... -- 3,920 200 4,850
Other, net ............................................ 270 180 10 170
------ -------- -------- -------
Income tax expense (credit) ........................... $2,250 $ 1,870 $ (1,100) $20,910
====== ======== ======== =======
As a result of the common stock issuance and related financing
transactions that occurred on June 6, 2002, the Company will no longer file a
consolidated return with Metaldyne and its subsidiaries for U.S. Federal income
tax purposes after such date. Under the terms of the TriMas stock purchase
agreement, the income of the Company through June 6, 2002 (inclusive of
interest push-down) will be absorbed by the Metaldyne and subsidiaries
consolidated loss and the Company is not required to reimburse Metaldyne. The
current federal tax provision of $3.4 million approximates this amount.
As of December 31, 2002, the Company has unused U.S. net operating losses
("NOL") carryforwards of approximately $32.5 million which expire in 2022. This
amount includes a Federal NOL of approximately $21.3 million generated by
TriMas for the period June 7 through December 31, 2002 and $10.8 million of the
Metaldyne and subsidiaries consolidated NOL that is required to be allocated to
the Company under the Internal Revenue Code and used on the Company's own
separately filed Federal tax returns. The Company is required to reimburse
Metaldyne for the utilization of the $10.8 million NOL as it occurs.
At December 31, 2002, the Company has not made a provision for U.S. or
additional foreign withholding taxes on approximately $57.5 million of
undistributed earnings of foreign subsidiaries since the Company intends to
permanently reinvest those earnings. Generally, such earnings become subject to
U.S. taxation upon the remittance of dividends and under certain other
circumstances. It is not practicable to estimate the amount of deferred tax
liability on such undistributed earnings.
Tax expense for the period January 1, 2002 through December 31, 2002 is
shown before the change in recognition and measurement of goodwill impairment
of $36.6 million, for which no tax benefit is available.
In 2001 and prior years, the Company's results of operations were included
in Metaldyne's consolidated income tax returns and the provision for income tax
expense has been calculated on a separate return basis. The deferred tax
provision was determined under the asset and liability method. Deferred tax
assets and liabilities were recognized based on differences between the book
and tax basis of assets and liabilities using current enacted tax rates. The
provision for income taxes was 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 for periods prior to
June 6, 2002 were payable to Metaldyne. Cash taxes paid with respect to foreign
jurisdictions were: $3.3 million in 2002; $3.5 million in 2001; and $4.5
million in 2000 LP. There were no cash taxes paid with respect to foreign
jurisdictions in 2000 SP.
F-30
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
19. SUMMARY QUARTERLY FINANCIAL DATA (UNAUDITED, IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, 2002
-----------------------------------------------
POST-ACQUISITION BASIS
-----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
Net sales ............................... $ 190,940 $201,290 $181,910 $159,440
Gross profit ............................ 55,560 62,740 26,660 36,270
Income (loss) before cumulative effect of
change in accounting principle ........ 3,550 6,350 (4,160) (4,870)
Net income (loss) ....................... (33,080) 6,350 (4,160) (4,870)
FOR THE YEAR ENDED DECEMBER 31, 2001
-----------------------------------------------
POST-ACQUISITION BASIS
-----------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
Net sales ................. $199,690 $196,350 $178,970 $157,430
Gross profit .............. 53,170 51,900 45,120 38,940
Net income (loss) ......... 380 (1,520) (3,360) (6,820)
FOR THE YEAR ENDED DECEMBER 31, 2000
----------------------------------------------------------------
POST-
ACQUISITION
PRE-ACQUISITION BASIS BASIS
-------------------------------------------------- -------------
OCTOBER 1- NOVEMBER 28-
FIRST SECOND THIRD NOVEMBER 27, DECEMBER 31,
QUARTER QUARTER QUARTER 2000 2000
----------- ----------- ----------- -------------- -------------
Net sales ................. $218,030 $217,760 $191,220 $112,580 $ 50,640
Gross profit .............. 67,910 65,570 51,810 29,900 13,340
Net income (loss) ......... 9,510 8,780 4,010 (1,020) (4,150)
20. SUPPLEMENTAL GUARANTOR CONDENSED COMBINING AND CONSOLIDATING FINANCIAL
INFORMATION
Under an indenture dated June 6, 2002, TriMas Corporation, the parent
company ("Parent"), issued 9 7/8% Senior Subordinated Notes due 2012 in a total
principal amount of $437.8 million (face value). 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-31
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(continued)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEET
(IN THOUSANDS)
POST-ACQUISITION BASIS
AS OF DECEMBER 31, 2002
-----------------------------------------------------------------
NON- CONSOLIDATED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
---------- ------------ ------------ -------------- -------------
ASSETS
Current assets:
Cash and cash equivalents ..................... $ -- $ 86,570 $ 13,870 $ -- $ 100,440
Receivables, trade ............................ 60 77,760 17,760 -- 95,580
Receivables, intercompany ..................... -- 6,030 6,120 (12,150) --
Inventories ................................... -- 79,720 11,690 -- 91,410
Deferred income taxes ......................... -- 18,290 -- -- 18,290
Prepaid expenses and other .................... -- 8,900 910 -- 9,810
-------- ---------- -------- ---------- ----------
Total current assets ........................... 60 277,270 50,350 (12,150) 315,530
Investments in subsidiaries .................... 808,620 128,830 -- (937,450) --
Property and equipment, net .................... -- 204,130 30,860 -- 234,990
Excess of cost over net assets of acquired
companies ..................................... -- 437,590 74,250 -- 511,840
Intangibles and other assets ................... 17,710 327,470 3,230 -- 348,410
-------- ---------- -------- ---------- ----------
Total assets ................................... $826,390 $1,375,290 $158,690 $ (949,600) $1,410,770
======== ========== ======== ========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Current maturities,
long-term debt .............................. $ -- $ 2,990 $ -- $ -- $ 2,990
Accounts payable, trade ....................... 440 40,090 13,950 -- 54,480
Accounts payable, intercompany ................ -- 6,120 6,030 (12,150) --
Accrued liabilities ........................... 1,950 56,970 4,220 -- 63,140
Due to Metaldyne .............................. -- 9,960 -- -- 9,960
-------- ---------- -------- ---------- ----------
Total current liabilities ...................... 2,390 116,130 24,200 (12,150) 130,570
Long-term debt ................................. 435,950 257,240 -- -- 693,190
Deferred income taxes .......................... -- 150,560 5,360 -- 155,920
Other long-term liabilities .................... -- 30,780 300 -- 31,080
Due to Metaldyne ............................... -- 11,960 -- -- 11,960
-------- ---------- -------- ---------- ----------
Total liabilities .............................. 438,340 566,670 29,860 (12,150) 1,022,720
Total shareholders' equity ..................... 388,050 808,620 128,830 (937,450) 388,050
-------- ---------- -------- ---------- ----------
Total liabilities and shareholders' equity ..... $826,390 $1,375,290 $158,690 $ (949,600) $1,410,770
======== ========== ======== ========== ==========
F-32
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- 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
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:
Current maturities,
long-term debt .......................... $ -- $ 28,900 $ -- $ -- $ 28,900
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
-------- ---------- -------- ---------- ----------
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-33
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(continued)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATING STATEMENT OF OPERATIONS
(IN THOUSANDS)
POST-ACQUISITION BASIS
FOR THE YEAR ENDED DECEMBER 31, 2002
-------------------------------------------------------------------
NON- CONSOLIDATED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
------------ ------------ ------------ -------------- -------------
Net sales ................................... $ -- $ 650,310 $ 99,410 $ (16,140) $ 733,580
Cost of sales ............................... -- (499,450) (69,040) 16,140 (552,350)
--------- ---------- --------- --------- ----------
Gross profit ................................ -- 150,860 30,370 -- 181,230
Selling, general and administrative
expenses ................................... (340) (101,850) (11,900) -- (114,090)
--------- ---------- --------- --------- ----------
Operating profit ............................ (340) 49,010 18,470 -- 67,140
Other income (expense), net:
Interest expense ........................... (21,300) (37,010) (1,700) -- (60,010)
Other, net ................................. (2,110) (4,260) 2,360 -- (4,010)
--------- ---------- --------- --------- ----------
Income (loss) before income tax (expense)
credit, equity in net income of
subsidiaries, and cumulative effect of
change in accounting principle ............. (23,750) 7,740 19,130 -- 3,120
Income tax (expense) credit ................. -- 5,080 (7,330) -- (2,250)
Equity in net income (loss) of
subsidiaries ............................... (12,010) 14,120 -- (2,110) --
--------- ---------- --------- --------- ----------
Income (loss) before cumulative effect of
change in accounting principle ............. (35,760) 26,940 11,800 (2,110) 870
Cumulative effect of change in accounting
principle .................................. -- (36,630) -- -- (36,630)
--------- ---------- --------- --------- ----------
Net income (loss) ........................... $ (35,760) $ (9,690) $ 11,800 $ (2,110) $ (35,760)
========= ========== ========= ========= ==========
F-34
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- COMBINED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
------------ ------------ ------------ -------------- -------------
Net sales ....................................... $ -- $ 658,680 $ 91,730 $ (17,970) $ 732,440
Cost of sales ................................... -- (496,620) (64,660) 17,970 (543,310)
--------- ---------- --------- --------- ----------
Gross profit .................................... -- 162,060 27,070 -- 189,130
Selling, general and administrative expenses -- (106,950) (14,500) -- (121,450)
--------- ---------- --------- --------- ----------
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 tax (expense)
credit and equity in net income (loss) of
subsidiaries ................................... -- (20,490) 11,040 -- (9,450)
Income tax (expense) 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)
========= ========== ========= ========= ==========
F-35
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(continued)
SUPPLEMENTAL GUARANTOR CONDENSED COMBINED
FINANCIAL STATEMENTS
COMBINING STATEMENT OF OPERATIONS
(IN THOUSANDS)
POST-ACQUISITION BASIS
FOR THE PERIOD NOVEMBER 28, 2000 - DECEMBER 31, 2000
-----------------------------------------------------------------
NON- COMBINED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
----------- ------------ ------------ -------------- ------------
Net sales ........................................... $ -- $ 45,030 $ 10,530 $ (4,920) $ 50,640
Cost of sales ....................................... -- (33,890) (8,330) 4,920 (37,300)
-------- --------- -------- -------- ---------
Gross profit ........................................ -- 11,140 2,200 -- 13,340
Selling, general and administrative expenses -- (10,940) (1,450) -- (12,390)
-------- --------- -------- -------- ---------
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 tax (expense)
credit and equity in net income (loss) of
subsidiaries ....................................... -- (4,730) (520) -- (5,250)
Income tax (expense) 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-36
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- COMBINED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
---------- ------------ ------------ -------------- -------------
Net sales ..................................... $ -- $ 667,060 $ 83,770 $ (11,240) $ 739,590
Cost of sales ................................. -- (480,990) (54,650) 11,240 (524,400)
------- ---------- --------- --------- ----------
Gross profit .................................. -- 186,070 29,120 -- 215,190
Selling, general and administrative
expenses ..................................... -- (106,290) (14,370) -- (120,660)
------- ---------- --------- --------- ----------
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 tax expense and
equity in net income of subsidiaries ......... -- 29,380 12,810 -- 42,190
Income tax expense ............................ -- 15,600 5,310 -- 20,910
Equity in net income of subsidiaries .......... 21,280 4,650 -- (25,930) --
------- ---------- --------- --------- ----------
Net income (loss) ............................. $21,280 $ 18,430 $ 7,500 $ (25,930) $ 21,280
======= ========== ========= ========= ==========
F-37
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(continued)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 31, 2002
--------------------------------------------------------------------
NON- CONSOLIDATED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
------------- ------------ ------------ -------------- -------------
OPERATING ACTIVITIES:
Net cash provided by (used for)
operating activities ..................... $ (20,270) $ (21,410) $ 16,570 $ -- $ (25,110)
---------- ---------- -------- ---- ----------
INVESTING ACTIVITIES:
Capital expenditures ....................... -- (27,510) (4,630) -- (32,140)
Acquisition of a business, net of cash
acquired ................................. -- (1,920) -- -- (1,920)
Investment in HammerBlow ................... -- (9,000) -- -- (9,000)
Proceeds from sale of fixed assets ......... -- 5,720 -- -- 5,720
Other, net ................................. -- 100 -- -- 100
---------- ---------- -------- ---- ----------
Net cash used for investing
activities ............................... -- (32,610) (4,630) -- (37,240)
---------- ---------- -------- ---- ----------
FINANCING ACTIVITIES:
Net proceeds from issuance
of common stock .......................... 259,730 -- -- -- 259,730
Increase in debt ........................... 435,850 260,000 -- -- 695,850
Debt issuance costs ........................ (18,760) (13,160) -- -- (31,920)
Payment of debt ............................ -- (441,560) -- -- (441,560)
Dividend to Metaldyne
Corporation .............................. (338,080) -- -- -- (338,080)
Intercompany transfers (to) from
subsidiary ............................... (260,790) 260,790 -- -- --
Net increase (decrease) in Metaldyne
Corporation net investments and
advances ................................. (57,680) 72,580 90 -- 14,990
---------- ---------- -------- ---- ----------
Net cash provided by financing activities.. 20,270 138,650 90 -- 159,010
---------- ---------- -------- ---- ----------
CASH AND CASH EQUIVALENTS
Increase (decrease) for the period .......... -- 84,630 12,030 -- 96,660
At beginning of period ..................... -- 1,940 1,840 -- 3,780
---------- ---------- -------- ---- ----------
At end of period ........................... $ -- $ 86,570 $ 13,870 $ -- $ 100,440
========== ========== ======== ==== ==========
F-38
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- COMBINED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
-------- ------------ ------------ -------------- ------------
OPERATING ACTIVITIES:
Net cash provided by operating activities....... $ -- $ 63,000 $ 12,980 $ -- $ 75,980
---- --------- --------- ---- ---------
INVESTING ACTIVITIES:
Capital 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)
---- --------- --------- ---- ---------
FINANCING ACTIVITIES:
Payment of debt ................................ -- (20,410) (11,750) -- (32,160)
Net decrease in Metaldyne Corporation
net investment and advances .................. -- (31,410) (3,070) -- (34,480)
---- --------- --------- ---- ---------
Net cash used for financing activities ......... -- (51,820) (14,820) -- (66,640)
---- --------- --------- ---- ---------
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-39
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- COMBINED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
-------- ------------ ------------ -------------- -----------
OPERATING ACTIVITIES:
Net cash provided by (used for)
operating activities .................... $ -- $ 21,190 $ (2,480) $ -- $ 18,710
---- --------- -------- ---- ---------
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)
---- --------- -------- ---- ---------
FINANCING ACTIVITIES:
Increase in debt .......................... -- -- 11,600 -- 11,600
Net 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)
---- --------- -------- ---- ---------
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-40
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- COMBINED
PARENT GUARANTORS GUARANTORS ELIMINATIONS TOTAL
-------- ------------ ------------ -------------- -----------
OPERATING ACTIVITIES:
Net cash provided by operating
activities ....................... $ -- $ 93,130 $ 20,300 $ -- $ 113,430
---- --------- --------- ---- ---------
INVESTING ACTIVITIES:
Acquisition of a business,
net of cash acquired ............. -- (21,130) -- -- (21,130)
Capital expenditures ............... -- (14,840) (4,700) -- (19,540)
Proceeds from notes
receivables ...................... -- 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)
---- --------- --------- ---- ---------
FINANCING ACTIVITIES:
Payment of debt .................... -- (26,880) (32,380) -- (59,260)
Net 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)
---- --------- --------- ---- ---------
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-41
TRIMAS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(concluded)
21. SUBSEQUENT EVENTS
On January 30, 2003, the Company acquired all of the capital stock of
HammerBlow Acquisition Corp. ("HammerBlow"), 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 $142.5 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 take into account 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.
On February 21, 2003, the Company acquired Highland Group Industries
("Highland") for approximately $70.5 million, subject to adjustment. Highland
is a market-leading supplier of cargo management products and a full line
supplier of vehicle protection products, specializing in products that help
people safely load, anchor, secure, tow, carry, trailer, and organize cargo, as
well as protect the vehicle and its cargo area. Highland had 2002 revenues of
approximately $50.4 million.
It is not practicable to present balance sheet information for the
businesses acquired, as described above, as the Company has not completed its
initial purchase price allocation.
On March 6, 2003, the Company completed its registered exchange offer
whereby the Company exchanged its $352.8 million aggregate principal amount of
9 7/8% senior subordinated notes due 2012 in exchange for a like amount of
outstanding 9 7/8% senior subordinated notes due 2012. The Company's
registration statement on Form S-4 was declared effective by the Commission on
February 5, 2003. The exchange offer raised no new proceeds for the Company and
was made in accordance with contractual commitments under the bond indenture
dated June 6, 2002.
F-42
[THIS PAGE INTENTIONALLY LEFT BLANK.]
TRIMAS CORPORATION
CONSOLIDATED BALANCE SHEET
MARCH 30, 2003 AND DECEMBER 31, 2002
(UNAUDITED - DOLLARS IN THOUSANDS)
MARCH 30, DECEMBER 31,
2003 2002
------------- -------------
ASSETS
Current assets:
Cash and cash equivalents .......................................... $ 30,660 $ 100,440
Receivables ........................................................ 88,490 95,580
Inventories ........................................................ 122,260 91,410
Deferred income taxes .............................................. 18,740 18,290
Prepaid expenses and other current assets .......................... 12,110 9,810
---------- ----------
Total current assets ............................................. 272,260 315,530
Property and equipment, net ......................................... 207,860 234,990
Excess of cost over net assets of acquired companies ................ 619,150 511,840
Other intangibles ................................................... 361,690 286,270
Other assets ........................................................ 64,820 62,140
---------- ----------
Total assets ..................................................... $1,525,780 $1,410,770
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities, long-term debt ................................. $ 10,640 $ 2,990
Accounts payable ................................................... 80,030 54,480
Accrued liabilities ................................................ 83,590 63,140
Due to Metaldyne ................................................... 11,790 9,960
---------- ----------
Total current liabilities ........................................ 186,050 130,570
Long-term debt ...................................................... 707,910 693,190
Deferred income taxes ............................................... 187,270 155,920
Other long-term liabilities ......................................... 21,940 31,080
Due to Metaldyne .................................................... 7,230 11,960
---------- ----------
Total liabilities ................................................ 1,110,400 1,022,720
---------- ----------
Commitment and contingencies (Note 11) .............................. -- --
Preferred stock, $0.01 par: Authorized 100,000,000 shares; Issued
and outstanding: None .............................................. -- --
Common stock, $0.01 par: Authorized 400,000,000 shares; Issued
and outstanding 20,750,000 and 19,250,000 shares, respectively ..... 210 190
Paid-in capital ..................................................... 418,110 387,500
Retained deficit .................................................... (14,260) (6,940)
Accumulated other comprehensive income .............................. 11,320 7,300
---------- ----------
Total shareholders' equity ....................................... 415,380 388,050
---------- ----------
Total liabilities and shareholders' equity ....................... $1,525,780 $1,410,770
========== ==========
The accompanying notes are an integral part of these financial statements.
F-43
TRIMAS CORPORATION
STATEMENT OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 30, 2003 AND MARCH 31, 2002
(UNAUDITED - IN THOUSANDS)
THREE MONTHS ENDED
----------------------------------
MARCH 30, 2003 MARCH 31, 2002
CONSOLIDATED COMBINED
---------------- ---------------
Net sales .................................................... $ 213,780 $ 190,940
Cost of sales ................................................ (162,120) (135,380)
---------- ----------
Gross profit ................................................ 51,660 55,560
Selling, general and administrative expenses ................. (35,320) (31,310)
---------- ----------
Operating profit ............................................ 16,340 24,250
---------- ----------
Other income (expense), net:
Interest expense ............................................ (16,040) (17,400)
Other, net ................................................ (12,400) (1,390)
---------- ----------
Other expense, net ........................................ (28,440) (18,790)
---------- ----------
Income (loss) before income tax (expense) credit and
cumulative effect of change in accounting principle ......... (12,100) 5,460
Income tax (expense) credit .................................. 4,780 (1,910)
---------- ----------
Income (loss) before cumulative effect of change in
accounting principle ........................................ (7,320) 3,550
Cumulative effect of change in recognition and measurement
of goodwill impairment ...................................... -- (36,630)
---------- ----------
Net loss ..................................................... $ (7,320) $ (33,080)
========== ==========
The accompanying notes are an integral part of these financial statements.
F-44
TRIMAS CORPORATION
STATEMENT OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 30, 2003 AND MARCH 31, 2002
(UNAUDITED - IN THOUSANDS)
THREE MONTHS ENDED
----------------------------------
MARCH 30, 2003 MARCH 31, 2002
CONSOLIDATED COMBINED
---------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................................... $ (7,320) $ (33,080)
Adjustments to reconcile net loss to net cash provided by (used
for) operating activities, net of impact of acquisitions:
Cumulative effect of accounting change ........................... -- 36,630
Net loss on sales of fixed assets ................................ 12,150 --
Depreciation and amortization .................................... 10,950 11,500
Legacy stock award expense ....................................... 1,270 --
Amortization of debt issue costs ................................. 940 --
Deferred income taxes ............................................ (7,420) 2,200
Net proceeds from accounts receivable securitization ............. 57,430 22,460
Payment to Metaldyne to fund contractual liabilities ............. (4,570) --
Increase in receivables .......................................... (26,450) (37,290)
(Increase) decrease in inventories ............................... (1,350) 3,960
(Increase) decrease in prepaid expenses and other assets ......... (2,410) 1,780
Increase in accounts payable and accrued liabilities ............. 13,930 2,000
Other, net ....................................................... 1,090 1,030
---------- ---------
Net cash provided by operating activities, net of
acquisition impact ............................................ 48,240 11,190
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................................... (4,040) (4,600)
Proceeds from sales of fixed assets ................................ 42,120 160
Acquisition of businesses, net of cash acquired .................... (200,750) --
---------- ---------
Net cash used for investing activities .......................... (162,670) (4,440)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock ......................... 30,000 --
Proceeds from borrowings on revolving credit facility .............. 191,700 --
Repayments of borrowings on revolving credit facility .............. (176,700) --
Debt issuance costs ................................................ (250) --
Payment on note payable ............................................ (100) --
Net decrease in Metaldyne Corporation net investment and
advances ......................................................... -- (13,610)
Increase in debt ................................................... -- 19,730
Payment of debt .................................................... -- (13,230)
---------- ---------
Net cash provided by (used for) financing activities ............ 44,650 (7,110)
---------- ---------
CASH AND CASH EQUIVALENTS:
Decrease for the period ............................................ (69,780) (360)
At beginning of period ............................................. 100,440 3,780
---------- ---------
At end of period ................................................ $ 30,660 $ 3,420
========== =========
The accompanying notes are an integral part of these financial statements.
F-45
TRIMAS CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 30, 2003
(UNAUDITED - IN THOUSANDS)
ACCUMULATED
COMMON PAID-IN RETAINED OTHER COMPREHENSIVE
STOCK CAPITAL DEFICIT INCOME TOTAL
-------- ----------- ------------ -------------------- -----------
Balances, December 31, 2002 ............. $190 $387,500 $ (6,940) $ 7,300 $388,050
--------
Comprehensive income (loss):
Net loss ............................... -- -- (7,320) -- (7,320)
Foreign currency translation ........... -- -- -- 4,020 4,020
--------
Total comprehensive loss ............... -- -- -- -- (3,300)
--------
Net proceeds from issuance of common
stock .................................. 20 29,980 -- -- 30,000
Net adjustments to reflect settlement of
contractual obligations ................ -- 630 -- -- 630
---- -------- --------- ------- --------
Balances, March 30, 2003 ................ $210 $418,110 $ (14,260) $11,320 $415,380
==== ======== ========= ======= ========
The accompanying notes are an integral part of these financial statements.
F-46
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
TriMas Corporation ("TriMas" or the "Company") is a global manufacturer of
products for commercial, industrial and consumer markets. During the first
quarter of 2003, the Company re-aligned its operating segments and appointed a
group president for its Fastening Systems group. Prior period segment
information has been revised to conform to the current structure and
presentation. The Company is principally engaged in four segments with diverse
products and market channels. Cequent Transportation Accessories produces
vehicle hitches and receivers, sway controls, weight distribution and fifth
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. Rieke Packaging Systems is a leading source of closures and
dispensing systems for steel and plastic industrial and consumer packaging
applications. The Fastening Systems group produces a wide range of large and
small diameter standard and custom-designed ferrous, nonferrous and special
alloy fasteners and highly engineered specialty fasteners for the domestic and
international aerospace industry. The Industrial Specialties group produces
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.
Prior to June 6, 2002 and the common stock issuance and related financing
transactions discussed in Note 2 below, the accompanying financial statements
represents the combined assets and liabilities and results of operations of
certain subsidiaries and divisions of subsidiaries of Metaldyne Corporation
("Metaldyne") which constituted TriMas. The combined financial statements
include all revenues and costs directly attributed to the Company as well as an
estimate of direct and indirect Metaldyne corporate administrative costs
attributed to TriMas, based on a management fee allocation that approximated 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. 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 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.
The accompanying condensed financial statements include the accounts of
the Company and its subsidiaries and in the opinion of management, contain all
adjustments, including adjustments of a normal and recurring nature, necessary
for a fair presentation of financial position and results of operations.
Certain prior year items have been reclassified to conform to the current year
presentation. Results of operations for interim periods are not necessarily
indicative of results for the full year. The accompanying consolidated
financial statements and notes thereto should be read in conjunction with the
Company's 2002 Annual Report on Form 10-K.
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 co-investors invested $265 million in the Company to acquire
approximately 66% of the Company's common stock on a fully
F-47
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
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 March
30, 2003, this warrant had not been exercised. The common stock and warrants
were valued based upon the cash equity investment made by Heartland and the
other investors. At March 30, 2003, Metaldyne owned 31.4% 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 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 may be
recorded in subsequent periods to reflect finalization of certain estimated
amounts at the transaction closing date.
3. ACQUISITIONS
On January 30, 2003, the Company acquired all of the capital stock of
HammerBlow Acquisition Corp. ("HammerBlow"), from 2000 Riverside Capital
Appreciation Fund, L.P., and other stockholders of HammerBlow. The total
consideration paid was $142.3 million (including our previous investment of
$9.0 million), subject to a trade working capital adjustment pursuant to the
purchase agreement. Of this amount, $7.2 million, net of the purchase price is
deferred, payable in January 2004. HammerBlow is a manufacturer and distributor
of towing, trailer, and other vehicle accessories throughout North America and
the purchase includes The HammerBlow Corporation, Hidden Hitch, Tekonsha Towing
Systems ("Tekonsha") and Sure Pull Towing Systems ("SurePull"). HammerBlow
acquired Tekonsha and SurePull from Dana Corporation on November 21, 2002.
On February 21, 2003, the Company acquired Highland Group Industries
("Highland") from the shareholders and option holders of Highland and FNL
Management Corp. The total consideration paid was $73.1 million, subject to a
trade working capital adjustment pursuant to the purchase agreement. Highland
is a market-leading supplier of cargo management products and a full line
supplier of vehicle protection products, specializing in products that help
people safely load, anchor, secure, tow, carry, trailer, and organize cargo, as
well as protect the vehicle and its cargo area.
The acquisitions of HammerBlow and Highland provide additional
opportunities to leverage new product extensions and innovations in our towing
and trailer products businesses with customers in new markets through enhanced
brand awareness and distribution, particularly in the end consumer retail
channel.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the acquisition dates. The Company is in
the process of evaluating third-party valuations of certain intangible assets
and analyzing costs of integration of these businesses. The allocation of the
purchase price is subject to refinement of these estimates as well as any
changes resulting from finalizing working capital adjustments pursuant to the
terms of the purchase agreements (in thousands):
F-48
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
HAMMERBLOW HIGHLAND TOTAL
------------ ---------- ----------
Current assets ...................... $ 36,300 $19,070 $ 55,370
Property and equipment .............. 22,200 5,980 28,180
Other intangible assets ............. 54,290 24,700 78,990
Goodwill ............................ 69,800 35,160 104,960
Deferred taxes and other ............ 2,380 1,280 3,660
-------- ------- --------
Total assets acquired .............. 184,970 86,190 271,160
-------- ------- --------
Current liabilities ................. 22,200 3,140 25,340
Deferred tax liabilities ............ 20,470 9,950 30,420
-------- ------- --------
Total liabilities assumed .......... 42,670 13,090 55,760
-------- ------- --------
Net assets acquired ................. $142,300 $73,100 $215,400
======== ======= ========
The estimated fair values of inventories acquired were increased $4.0
million from historical amounts, of which approximately $2.3 million of this
amount was included in cost of sales during the quarter ended March 30, 2003.
Based on preliminary estimates, of the $79.0 million of acquired other
intangible assets, $40.9 million was assigned to Customer Relationships with a
useful life of 15 years, $34.6 million was assigned to Trademarks with a useful
life of 40 years and the remaining $3.5 million was assigned to Technology and
Other with useful lives ranging from 7 to 10 years. The $105.0 million of
goodwill is assigned to the Cequent Transportation Accessories segment.
The results of these acquisitions are included in the March 30, 2003
consolidated financial statements of the Company from the respective dates of
acquisition. The following selected unaudited pro forma combined results of
operations for the Company, HammerBlow and Highland have been prepared assuming
that the acquisitions occurred at the beginning of the respective periods. The
selected unaudited pro forma combined results are based on the historical
information for TriMas and Highland and pro forma combined results of
operations for HammerBlow assuming that the acquisition of Tekonsha and
SurePull occurred at the beginning of the respective periods. The pro forma
financial information is not necessarily indicative of the combined results of
operations that would have been attained had the acquisitions taken place at
the beginning of 2003 and 2002, nor are they indicative of future results. The
expense associated with the step-up in basis of inventory has been excluded as
it will not be recurring.
The selected unaudited pro forma financial information presented does not
include the adjustments needed to give effect to the recapitalization described
in Note 2 or the June 6, 2003 amendment and restatement of the credit facility.
THREE MONTHS ENDED
-----------------------------------------------------------
MARCH 30, 2003 MARCH 31, 2002
--------------------------- -----------------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
------------- ----------- ------------- -------------
(IN THOUSANDS)
Net sales ............................... $213,780 $229,550 $ 190,940 $ 230,450
Operating profit ........................ $ 16,340 $ 20,800 $ 24,250 $ 28,550
Income (loss) before cumulative effect of
accounting change ...................... $ (7,320) $ (5,080) $ 3,550 $ 5,450
Net income (loss) ....................... $ (7,320) $ (5,080) $ (33,080) $ (31,180)
4. GOODWILL AND OTHER INTANGIBLE ASSETS
On January 1, 2002, TriMas adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." This Statement eliminated amortization of goodwill and
certain other intangible assets, but requires at
F-49
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
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 its transitional impairment test in the second
quarter of 2002, which resulted in a non-cash, after tax charge of $36.6
million related to the Company's Fastening Systems 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 Fastening Systems 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 the
cumulative effect of change in accounting principle. As of December 31, 2002,
the Company's test for impairment indicated that the fair value of goodwill
exceeds the related carrying value.
Changes in the carrying amount of goodwill for the quarter ended March 30,
2003 are as follows (in thousands):
CEQUENT RIEKE
TRANSPORTATION PACKAGING FASTENING INDUSTRIAL
ACCESSORIES SYSTEMS SYSTEMS SPECIALTIES TOTAL
---------------- ----------- ----------- ------------- -----------
Balance, December 31, 2002 ......... $226,600 $165,230 $49,510 $70,500 $511,840
Goodwill from acquisitions ......... 104,960 -- -- 740 105,700
Impact of foreign currency
translation and other ............. 900 220 230 260 1,610
-------- -------- ------- ------- --------
Balance, March 30, 2003 ............ $332,460 $165,450 $49,740 $71,500 $619,150
======== ======== ======= ======= ========
The gross carrying amounts and accumulated amortization for the Company's
acquired other intangible assets as of March 30, 2003 and December 31, 2002 are
summarized below (in thousands):
AS OF MARCH 30, 2003 AS OF DECEMBER 31, 2002
--------------------------------- --------------------------------
GROSS CARRYING ACCUMULATED GROSS CARRYING ACCUMULATED
INTANGIBLE CATEGORY BY USEFUL LIFE AMOUNT AMORTIZATION AMOUNT AMORTIZATION
- -------------------------------------- ---------------- -------------- ---------------- -------------
Customer relationships:
6 - 12 years ........................ $ 26,500 $ (6,120) $ 26,500 $ (5,460)
15 - 25 years ....................... 102,900 (6,730) 62,000 (5,630)
40 years ............................ 111,580 (6,490) 111,580 (5,790)
-------- --------- -------- ---------
Total customer relationships ......... 240,980 (19,340) 200,080 (16,880)
-------- --------- -------- ---------
Trademark/Trade names:
40 years ............................ 89,470 (3,280) 54,390 (2,830)
-------- --------- -------- ---------
Technology and other:
5 - 15 years ........................ 26,000 (6,390) 22,500 (5,670)
18 - 30 years ....................... 38,190 (3,940) 38,190 (3,510)
-------- --------- -------- ---------
Total technology and other ........... 64,190 (10,330) 60,690 (9,180)
-------- --------- -------- ---------
$394,640 $ (32,950) $315,160 $ (28,890)
======== ========= ======== =========
Amortization expense related to intangibles was approximately $4.0 million
and $3.5 million for the three months ended March 30, 2003 and March 31, 2002,
respectively, and is included in cost of sales in the accompanying statement of
operations. Estimated amortization expense for the next five
F-50
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
fiscal years beginning after December 31, 2002 is as follows: 2003 -- $17.7
million; 2004 -- $18.1 million; 2005 -- $18.0 million; 2006 -- $16.6 million;
and 2007 -- $15.9 million.
5. 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. During the 2003 first quarter,
the Company established a preliminary estimate of integration costs associated
with its acquisitions of HammerBlow and Highland. The reserve amount of $5.2
million is a preliminary cost estimate of integrating manufacturing, sourcing,
distribution and back office activities into our existing operating cost
structure. No costs were incurred and charged to this reserve during the
quarter ended March 30, 2003.
The following table summarizes the purchase accounting adjustments
established to reflect these actions and subsequent related activity (in
thousands):
OTHER CLOSURE
SEVERANCE COSTS TOTAL
----------- -------------- -----------
Reserve at December 31, 2002 ......... $ 4,590 $2,480 $ 7,070
Cash ................................ (1,290) (210) (1,500)
Non-cash ............................ -- -- --
Accrued integration costs ........... 3,000 2,200 5,200
-------- ------ --------
Reserve at March 30, 2003 ............ $ 6,300 $4,470 $ 10,770
======== ====== ========
Approximately 580 jobs have been or will be eliminated as a result of
these restructuring actions of which approximately 540 were eliminated as of
March 30, 2003. Cequent Transportation Accessories 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 contract manufacturing plant in Mexico.
In addition, two duplicate, sub-scale manufacturing facilities, each with its
own separate master distribution warehouse were consolidated into a single
existing third facility, with one master warehouse on the same property. These
actions have resulted in the elimination of approximately 385 positions through
March 30, 2003. Rieke Packaging Systems has rationalized back office and
manufacturing operations. Through March 30, 2003, approximately 55 positions
have been eliminated. Fastening Systems 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 March 30, 2003, Fastening
Systems has eliminated approximately 100 positions related to these activities.
6. ACCOUNTS RECEIVABLE SECURITIZATION
As part of the 2002 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 the pool of receivables up to approximately
$125 million to a third party multi-seller receivables funding company. 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, which amounted to
a total of $0.3 million for the three months ended March 30, 2003. These
amounts are
F-51
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
included in other expense, net in the Company's consolidated statement of
operations. At March 30, 2003, the Company's funding under the facility was
$57.4 million with an additional $4.8 million available but not utilized. When
the Company sells its receivables to TSPC, it retains a subordinated interest
in the receivables sold. The retained interest is included in accounts
receivable in the accompanying balance sheet and approximated $42.8 million at
March 30, 2003. At December 31, 2002, no receivables were sold under this
arrangement. The discount rate at March 30, 2003 was 2.36%. The usage fee under
the facility is 1.5%. In addition, the Company is required to pay a fee of 0.5%
on the unused portion of the facility. This facility expires in June 2005.
Prior to June 6, 2002, TriMas sold certain of its accounts receivable to
MTSPC, Inc. ("MTSPC"), a wholly owned subsidiary of Metaldyne. MTSPC sold an
undivided fractional ownership interest in the pool of receivables to a third
party multi-seller funding company. The information that follows represented
TriMas' attributed portion of receivables sold to MTSPC. The net proceeds of
sales were less than the face amount of accounts receivable sold by an amount
that approximates the purchaser's financing costs, which amounted to a total of
$0.9 million for the three months ended March 31, 2002. This amount is included
in other expense, net in the Company's combined statement of operations. At
March 31, 2002, the Company's funding under this arrangement was $82.3 million.
7. INVENTORIES
Inventories by component are as follows (in thousands):
MARCH 30, DECEMBER 31,
2003 2002
----------- -------------
Finished goods ............ $ 61,220 $50,220
Work in process ........... 17,860 12,860
Raw materials ............. 43,180 28,330
-------- -------
Total inventories ......... $122,260 $91,410
======== =======
8. PROPERTY AND EQUIPMENT, NET
Property and equipment by component are as follows (in thousands):
MARCH 30, DECEMBER 31,
2003 2002
----------- -------------
Land and land improvements ............. $ 5,140 $ 8,810
Buildings .............................. 61,310 46,100
Machinery and equipment ................ 187,730 226,380
-------- --------
254,180 281,290
Less: Accumulated depreciation ......... 46,320 46,300
-------- --------
Property and equipment, net ............ $207,860 $234,990
======== ========
9. LONG-TERM DEBT
The Company's long-term debt at March 30, 2003, net of the unamortized
discount of $2.6 million and unamortized premium of $0.8 million from face
value of the Company's 9 7/8% senior subordinated notes, is as follows (in
thousands):
F-52
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
MARCH 30, DECEMBER 31,
2003 2002
----------- -------------
Senior term loan ................................................. $258,750 $259,375
Revolver loan .................................................... 15,000 --
9 7/8% senior subordinated notes, due June 2012 ("Notes") ........ 435,975 435,975
Other ............................................................ 8,825 830
-------- --------
718,550 696,180
Less: Current maturities ......................................... 10,640 2,990
-------- --------
Long-term debt ................................................... $707,910 $693,190
======== ========
The Company's credit facility ("Credit Facility") with a group of banks
consists of a $260 million senior term loan which matures December 31, 2009 and
is payable in quarterly installments of $0.625 million which began on 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 Facility allows the Company to issue letters of credit, not to exceed
$40 million in aggregate, against revolving credit facility commitments. The
Company had letters of credit of approximately $23.7 and $23.5 million issued
and outstanding at March 30, 2003 and December 31, 2002, respectively.
Borrowings under the Credit Facility bear interest at the Company's option
at either a base rate used by JPMorgan Chase Bank, plus an applicable margin,
or a Eurodollar 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 1.75% on base rate loans and 2.75%
on Eurodollar loans at March 30, 2003. The effective interest rate on Credit
Facility borrowings was 4.42% at March 30, 2003 and 4.44% at December 31, 2002.
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
guarantor subsidiaries, approximately $849.8 million at March 30, 2003, are
presented in the consolidating financial information in Note 17. 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 the Company and its subsidiaries to meet certain restrictive 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 (EBITDA over cash interest expense, as defined) and a
capital expenditures covenant. The Company was in compliance with its covenants
at March 30, 2003.
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all existing and future senior debt of
TriMas, including amounts outstanding under the Credit Facility. The Notes are
pari passu in right of payment with all existing and future unsecured senior
subordinated indebtedness of TriMas and are unconditionally guaranteed by all
of the Company's domestic subsidiaries that are direct borrowers under the
Credit Facility. Interest on the Notes accrues at the rate of 9 7/8% per annum
and is payable semi-annually in arrears on June 15 and December 15, commencing
December 15, 2002. The Notes indenture contains negative and affirmative
F-53
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
covenants and other requirements that are comparable to those contained in the
Credit Facility. At March 30, 2003, the Company was in compliance with all such
covenant requirements.
The Company has net unamortized debt issuance costs related to the Credit
Facility and Notes of $29.8 million and $30.5 million at March 30, 2003 and
December 31, 2002, respectively. These amounts are included in other assets in
the accompanying consolidated balance sheet. Debt issuance costs and the
discount and premium on the Notes are amortized using the interest method over
the term of the Credit Facility and Notes, respectively.
The Company paid cash for interest of approximately $3.8 million for the
quarter ended March 30, 2003. For the quarter ended March 31, 2002, interest
expense allocated to TriMas was paid by Metaldyne.
Future maturities of the face value of long-term debt at March 30, 2003
are as follows (in thousands):
YEAR ENDING DECEMBER 31:
- --------------------------
2003 .................. $ 10,640
2004 .................. 2,830
2005 .................. 2,500
2006 .................. 2,500
2007 .................. 17,500
Thereafter ............ 684,650
--------
Total ................. $720,620
========
10. LEASES
TriMas leases certain equipment and plant facilities under non-cancelable
operating leases. Rental expense for TriMas totaled approximately $2.6 million
and $1.2 million in the quarter ended March 30, 2003 and March 31, 2002,
respectively.
In the first quarter 2003, the Company entered into sale-leaseback
arrangements with third-party lenders for certain machinery and equipment and
facilities used by the Company. These leases are accounted for as operating
leases. The Company has an eight year lease term with respect to machinery and
equipment which requires annual lease payments of approximately $4.4 million.
The Company has a fifteen year lease term with respect to its leaseback of two
facilities which require annual lease payments of approximately $0.9 million.
The proceeds from these transactions were applied against outstanding balances
under the Company's revolving credit facility. In connection with these
sale-leaseback transactions the Company recorded net book value losses of
approximately $12.0 million, which is included in other, net in the
accompanying statement of operations.
Minimum payments for operating leases having initial or remaining
non-cancelable lease terms in excess of one year at March 30, 2003 are
summarized below (in thousands):
YEAR ENDING DECEMBER 31:
- --------------------------
2003 .................. $ 11,960
2004 .................. 12,910
2005 .................. 12,410
2006 .................. 11,790
2007 .................. 11,520
Thereafter ............ 74,640
--------
Total ................. $135,230
========
F-54
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
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 20 year
lease term continues until 2022 and requires annual lease payments of
approximately $2.5 million per year. The proceeds from these transactions were
applied against the Metaldyne Corporation net investment and advance balance.
Because Metaldyne provided the third-party lender with a guarantee of the
Company's lease obligations, these lease arrangements were accounted for as
capitalized leases and lease obligations approximating $19 million at March 31,
2002 and 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.
11. COMMITMENTS AND CONTINGENCIES
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 of California has
agreed to take over clean-up of the site, as well as responsibility for
governmental entities' past response costs. The defendants are negotiating a
Consent Decree with the United States, which will dismiss the defendants from
the case subject only to the failure of the State of California to perform
under its Consent Decree with the defendants. Additionally, TriMas 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. During the discovery stage, the Judge of the Superior Court of the
State of California issued an order dismissing all plaintiffs in the action.
Plaintiffs have an opportunity to appeal. Based upon the Company's present
knowledge, the Company does not believe the ultimate outcome of these matters
will have a material adverse effect on its consolidated financial statements
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 TriMas, 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 TriMas, 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.
As of May 12, 2003, the Company is party to approximately 581 pending
cases involving approximately 25,352 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 manufactured three types of gaskets and has ceased the use of
asbestos in its products. The Company believes that many of the pending cases
relate to locations at which none of our gaskets were distributed or used. In
addition, TriMas acquired various companies to distribute the Company's
F-55
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
products and also had distributed gaskets of other manufacturers prior to
acquisition. Total settlement costs (exclusive of defense costs) for all such
cases, some of which were filed over 12 years ago, have been approximately $2.3
million. Based upon the Company's experience to date and other available
information, the Company does not believe that these cases will have a material
adverse effect on its financial condition or future results of operations.
However, there can be no assurance that the Company 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 the Company
will not be subjected to further claims with respect to the former activities
of its acquired gasket distributors.
The Company has provided reserves based upon its present knowledge and,
subject to future legal and factual developments, does not believe that the
ultimate outcome of 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.
The Company is subject to other 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.
12. RELATED PARTIES
Metaldyne Corporation
Prior to June 6, 2002, the Company was wholly owned by Metaldyne and
participated in joint activities including employee benefits programs, legal,
treasury, information technology and other general corporate activities.
In connection with the common stock issuance and related financing
transactions, TriMas assumed certain liabilities and obligations of Metaldyne,
mainly comprised of contractual obligations to former TriMas employees, tax
related matters, benefit plan liabilities and reimbursements to Metaldyne for
normal course payments to be made on TriMas' behalf. The amount of these
liabilities and obligations were $19.0 million and $21.9 million as of March
30, 2003 and December 31, 2002, respectively. These amounts are payable at
various dates over the next two years and are included in Due to Metaldyne in
the accompanying consolidated balance sheets.
The Company is also party to a corporate services agreement with
Metaldyne. Under the terms of the agreement, TriMas pays 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 and remittance of certain third-party charges on TriMas'
behalf.
Prior to the June 6, 2002 transactions, 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 $1.9
million in the three months ended March 31, 2002.
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 net investment and
advances balance with Metaldyne. These charges aggregated $17.4 million in the
quarter ended March 31, 2002.
Heartland Industrial Partners
In connection with the common stock issuance and related financing
transactions in June 2002, the Company entered into an advisory services
agreement with Heartland at an annual fee of $4.0
F-56
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
million plus expenses. During the quarter ended March 30, 2003, Heartland was
paid $1.2 million in connection with this agreement and this amount is included
in selling, general and administrative expense in the accompanying consolidated
statement of operations.
Also in the quarter ended March 30, 2003, TriMas paid Heartland
approximately $2.1 million in advisory services in connection with the
acquisitions of HammerBlow and Highland. Such fees have been capitalized as
transaction costs as a component of total consideration paid and allocated to
the fair value of assets acquired and liabilities assumed in the respective
acquisitions.
13. STOCK OPTIONS AND AWARDS
In 2001, a new Metaldyne 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. Of this amount, 81,640 options have vested and the
remaining 255,123 options were canceled in connection with the June 6, 2002
transactions. These options have a ten year option 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 lapse of certain time periods.
In connection with the stock purchase agreement on June 6, 2002, each
vested option in the Plan will be converted into an option to purchase TriMas
common stock. TriMas created the 2002 Long-Term Equity Incentive Plan during
2002, which allows issuance of equity-based incentives in various forms. No
options for TriMas common stock have been granted as of March 30, 2003.
14. SEGMENT INFORMATION
TriMas' reportable operating segments are business units, each providing
their own unique products and services. Each operating segment is independently
managed, requires different 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. During the first quarter of 2003, the Company re-aligned its
operating segments and appointed a group president for its Fastening Systems
group. Prior period segment information has been revised to conform to the
current structure and presentation. TriMas has four operating segments
involving the manufacture and sale of the following products:
CEQUENT TRANSPORTATION ACCESSORIES -- 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.
RIEKE PACKAGING SYSTEMS -- Closures and dispensing systems for steel and
plastic industrial and consumer packaging applications.
FASTENING SYSTEMS -- Large and small diameter standard and custom-designed
ferrous, nonferrous and special alloy fasteners, and highly engineered
specialty fasteners for the domestic and international aerospace industry.
INDUSTRIAL SPECIALTIES -- 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 uses Earnings (Operating Profit) Before Interest, Taxes,
Depreciation and Amortization ("EBITDA") as an indicator of operating
performance and as a measure of cash
F-57
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
generating capabilities. EBITDA is one of the primary measures used by
management to evaluate performance. Legacy stock award expense represents a
contractual obligation from the November 2000 acquisition which will run off
completely in 2003.
Segment activity is as follows (in thousands):
THREE MONTHS ENDED
----------------------------------
MARCH 30, 2003 MARCH 31, 2002
---------------- ---------------
NET SALES
Cequent Transportation Accessories ....... $ 98,890 $ 75,410
Rieke Packaging Systems .................. 30,270 26,630
Fastening Systems ........................ 30,790 33,910
Industrial Specialties ................... 53,830 54,990
-------- --------
Total .................................... $213,780 $190,940
======== ========
OPERATING PROFIT
Cequent Transportation Accessories ....... $ 8,130 $ 11,570
Rieke Packaging Systems .................. 7,580 6,980
Fastening Systems ........................ 380 1,740
Industrial Specialties ................... 6,160 6,650
Corporate expenses and management fees ... (4,640) (1,890)
Legacy stock award expense ............... (1,270) (800)
-------- --------
Total .................................... $ 16,340 $ 24,250
======== ========
EBITDA
Cequent Transportation Accessories ....... $ 12,410 $ 15,010
Rieke Packaging Systems .................. 9,590 9,400
Fastening Systems ........................ 2,450 4,690
Industrial Specialties ................... 8,380 9,340
Corporate expenses and management fees ... (4,270) (1,890)
Legacy stock award expense ............... (1,270) (800)
-------- --------
Total .................................... $ 27,290 $ 35,750
======== ========
15. IMPACT OF NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2003, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 143, "Accounting for Asset Retirement
Obligations." 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 adoption of SFAS 143 did not have an impact on the Company's
financial condition or results of operations.
Effective January 1, 2003, the Company adopted SFAS 146, "Accounting for
Costs Associated with Exit or Disposal Activities." The provisions of SFAS 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.
Effective December 31, 2002, the Company adopted Financial Accounting
Standards Board ("FASB") Interpretation ("FIN") No. 45, "Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN 45 clarifies the disclosure requirements for
certain guarantees. In addition, for guarantees issued or modified after
December 31,
F-58
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
2002, FIN 45 requires guarantors to record a liability at fair value for
certain guarantees at the time of issuance of the guarantee. The Company offers
limited warranty protection on certain of its products covering defects in
material and workmanship. The specific terms and conditions vary depending on
the product sold, but generally are in effect for one to three years following
the date of sale. Warranty reserves are recorded based upon historical and
anticipated warranty claims. The Company monitors the adequacy of its warranty
reserves on an ongoing basis and records adjustments to the reserves as
required. The adoption of this statement did not have a material effect on the
Company's results of operations or financial condition.
In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities, an Interpretation of ARB 51." FIN 46 requires primary
beneficiaries in a variable interest entity to consolidate the entity even if
the primary beneficiary does not have a majority voting interest. This
consolidation requirement is effective immediately for any variable interest
entity created on or after January 31, 2003, and after June 30, 2003 for
entities created before January 31, 2003. In addition, FIN 46 requires
disclosure of information regarding guarantees or loss exposures related to a
variable interest entity created prior to January 31, 2003 in financial
statements issued after January 31, 2003. The Company is currently reviewing
activity with potential variable interest entities, including lessors under
certain of the Company's operating lease agreements to determine the impact of
FIN 46. It is possible this pronouncement could require us to consolidate any
variable interest entities for which we are the primary beneficiary. However,
the Company does not believe the adoption of FIN 46 will have a material impact
on its financial condition or results of operations.
16. SUBSEQUENT EVENTS
On April 2, 2003, TriMas repurchased one million shares of its common
stock from Metaldyne at $20 per share, the same price as it was valued on June
6, 2002. This sale decreased Metaldyne's ownership percentage in TriMas from
approximately 31% to approximately 28% on a fully diluted basis.
On May 9, 2003, the Company completed the acquisition of an automotive
manufacturing business from Metaldyne for approximately $24.0 million on a
debt-free basis. The acquired business is a leading manufacturer of specialized
fittings and cold-headed parts used in automotive and industrial applications.
The transaction was funded by a combination of borrowings under the Company's
revolving credit facility and a cash equity contribution by Heartland. The
acquired business had 2002 revenues of approximately $16.7 million.
17. SUPPLEMENTAL GUARANTOR CONDENSED COMBINING AND CONSOLIDATING FINANCIAL
INFORMATION
Under an indenture dated June 6, 2002, TriMas Corporation, the parent
company ("Parent"), issued 9 7/8% Senior Subordinated Notes due 2012 in a total
principal amount of $437.8 million (face value). 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
F-59
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
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-60
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
AS OF MARCH 30, 2003 (UNAUDITED)
-----------------------------------------------------------------------
CONSOLIDATED
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
---------- ------------- --------------- ---------------- -------------
ASSETS
Current assets:
Cash and cash equivalents ............. $ -- $ 25,730 $ 4,930 $ -- $ 30,660
Receivables, trade .................... 60 62,510 25,920 -- 88,490
Receivables, intercompany ............. -- 3,130 1,040 (4,170) --
Inventories ........................... -- 103,220 19,040 -- 122,260
Deferred income taxes ................. -- 18,470 270 -- 18,740
Prepaid expenses and other current
assets .............................. -- 10,930 1,180 -- 12,110
-------- ---------- -------- ------------ ----------
Total current assets ............... 60 223,990 52,380 (4,170) 272,260
Investments in subsidiaries ............ 847,000 153,060 -- (1,000,060) --
Property and equipment, net ............ -- 170,280 37,580 -- 207,860
Excess of cost over net assets of
acquired companies .................... -- 527,970 91,180 -- 619,150
Other intangibles and other assets ..... 17,580 391,900 17,030 -- 426,510
-------- ---------- -------- ------------ ----------
Total assets ....................... $864,640 $1,467,200 $198,170 $ (1,004,230) $1,525,780
======== ========== ======== ============ ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities, long-term debt $ -- $ 10,640 $ -- $ -- $ 10,640
Accounts payable, trade ............... 50 56,960 23,020 -- 80,030
Accounts payable, intercompany ........ -- 1,040 3,130 (4,170) --
Accrued liabilities ................... 13,230 62,820 7,540 -- 83,590
Due to Metaldyne ...................... -- 11,790 -- -- 11,790
-------- ---------- -------- ------------ ----------
Total current liabilities .......... 13,280 143,250 33,690 (4,170) 186,050
Long-term debt ......................... 435,980 271,930 -- -- 707,910
Deferred income taxes .................. -- 176,100 11,170 -- 187,270
Other long-term liabilities ............ -- 21,690 250 -- 21,940
Due to Metaldyne ....................... -- 7,230 -- -- 7,230
-------- ---------- -------- ------------ ----------
Total liabilities .................. 449,260 620,200 45,110 (4,170) 1,110,400
Total shareholders' equity ......... 415,380 847,000 153,060 (1,000,060) 415,380
-------- ---------- -------- ------------ ----------
Total liabilities and
shareholders' equity ............. $864,640 $1,467,200 $198,170 $ (1,004,230) $1,525,780
======== ========== ======== ============ ==========
F-61
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
AS OF DECEMBER 31, 2002 (UNAUDITED)
-----------------------------------------------------------------------------
CONSOLIDATED
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
---------- ------------- --------------- -------------- -------------
ASSETS
Current assets:
Cash and cash equivalents ................. $ -- $ 86,570 $ 13,870 $ -- $ 100,440
Receivables, trade ........................ 60 77,760 17,760 -- 95,580
Receivables, intercompany ................. -- 6,030 6,120 (12,150) --
Inventories ............................... -- 79,720 11,690 -- 91,410
Deferred income taxes ..................... -- 18,290 -- -- 18,290
Prepaid expenses and other current
assets .................................. -- 8,900 910 -- 9,810
-------- ---------- -------- ---------- ----------
Total current assets ................... 60 277,270 50,350 (12,150) 315,530
Investments in subsidiaries ................ 808,620 128,830 -- (937,450) --
Property and equipment, net ................ -- 204,130 30,860 -- 234,990
Excess of cost over net assets of
acquired companies ........................ -- 437,590 74,250 -- 511,840
Other intangibles and other assets ......... 17,710 327,470 3,230 -- 348,410
-------- ---------- -------- ---------- ----------
Total assets ........................... $826,390 $1,375,290 $158,690 $ (949,600) $1,410,770
======== ========== ======== ========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities, long-term
debt .................................... $ -- $ 2,990 $ -- $ -- $ 2,990
Accounts payable, trade ................... 440 40,090 13,950 -- 54,480
Accounts payable, intercompany ............ -- 6,120 6,030 (12,150) --
Accrued liabilities ....................... 1,950 56,970 4,220 -- 63,140
Due to Metaldyne .......................... -- 9,960 -- -- 9,960
-------- ---------- -------- ---------- ----------
Total current liabilities .............. 2,390 116,130 24,200 (12,150) 130,570
Long-term debt ............................. 435,950 257,240 -- -- 693,190
Deferred income taxes ...................... -- 150,560 5,360 -- 155,920
Other long-term liabilities ................ -- 30,780 300 -- 31,080
Due to Metaldyne ........................... -- 11,960 -- -- 11,960
-------- ---------- -------- ---------- ----------
Total liabilities ...................... 438,340 566,670 29,860 (12,150) 1,022,720
Total shareholders' equity ............. 388,050 808,620 128,830 (937,450) 388,050
-------- ---------- -------- ---------- ----------
Total liabilities and
shareholders' equity ................. $826,390 $1,375,290 $158,690 $ (949,600) $1,410,770
======== ========== ======== ========== ==========
F-62
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED MARCH 30, 2003 (UNAUDITED)
-------------------------------------------------------------------------------
CONSOLIDATED
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
------------ ------------- --------------- -------------- -------------
Net sales ........................... $ -- $ 186,080 $ 33,730 $ (6,030) $ 213,780
Cost of sales ....................... -- (144,670) (23,480) 6,030 (162,120)
--------- ---------- --------- -------- ----------
Gross profit ..................... -- 41,410 10,250 -- 51,660
Selling, general and administrative
expenses ........................... (20) (29,250) (6,050) -- (35,320)
--------- ---------- --------- -------- ----------
Operating profit ................. (20) 12,160 4,200 -- 16,340
Other income (expense), net:
Interest expense .................... (11,810) (4,220) (10) -- (16,040)
Other, net .......................... (70) (11,900) (430) -- (12,400)
--------- ---------- --------- -------- ----------
Income (loss) before income tax
(expense) credit and equity in net
income of subsidiaries ............. (11,900) (3,960) 3,760 -- (12,100)
Income tax (expense) credit ......... -- 6,360 (1,580) -- 4,780
Equity in net income (loss) of
subsidiaries ....................... 4,580 2,180 -- (6,760) --
--------- ---------- --------- -------- ----------
Net income (loss) ................... $ (7,320) $ 4,580 $ 2,180 $ (6,760) $ (7,320)
========= ========== ========= ======== ==========
F-63
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL GUARANTOR CONDENSED COMBINED
FINANCIAL STATEMENTS
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
-------------------------------------------------------------------------------
CONSOLIDATED
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
------------ ------------- --------------- -------------- -------------
Net sales ............................. $ -- $ 170,540 $ 24,500 $ (4,100) $ 190,940
Cost of sales ......................... -- (122,970) (16,510) 4,100 (135,380)
--------- ---------- --------- -------- ----------
Gross profit ....................... -- 47,570 7,990 -- 55,560
Selling, general and administrative
expenses ............................. -- (27,570) (3,740) -- (31,310)
--------- ---------- --------- -------- ----------
Operating profit ...................... -- 20,000 4,250 -- 24,250
Other income (expense), net:
Interest expense ..................... -- (17,300) (100) -- (17,400)
Other, net ........................... -- (970) (420) -- (1,390)
--------- ---------- --------- -------- ----------
Income (loss) before income taxes
(credit) and equity in net income
(loss) of subsidiaries ............... -- 1,730 3,730 -- 5,460
Income taxes (expense) credit ......... -- (560) (1,350) -- (1,910)
Equity in net income (loss) of
subsidiaries ......................... (33,080) 870 -- 32,210 --
--------- ---------- --------- -------- ----------
Income (loss) before cumulative
effect of change in accounting
principle ............................ (33,080) 2,040 2,380 32,210 3,550
Cumulative effect of change in
accounting principle ................. -- (36,630) -- -- (36,630)
--------- ---------- --------- -------- ----------
Net income (loss) .................. $ (33,080) $ (34,590) $ 2,380 $ 32,210 $ (33,080)
========= ========== ========= ======== ==========
F-64
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL GUARANTOR
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENT OF CASH FLOWS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED MARCH 30, 2003 (UNAUDITED)
---------------------------------------------------------------------------
CONSOLIDATED
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
-------- ------------- --------------- -------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating
activities, net of acquisition
impact ................................... $ 250 $ 25,350 $ 22,640 $-- $ 48,240
------ ---------- --------- --- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ...................... -- (3,430) (610) -- (4,040)
Proceeds from sales of fixed assets ....... -- 42,120 -- -- 42,120
Acquisition of businesses, net of cash
acquired ................................. -- (169,780) (30,970) -- (200,750)
------ ---------- --------- --- ----------
Net cash used for investing activities .... -- (131,090) (31,580) -- (162,670)
------ ---------- --------- --- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of
common stock ............................. -- 30,000 -- -- 30,000
Proceeds from revolving credit
facility ................................. -- 191,700 -- -- 191,700
Repayments of credit facility
borrowings ............................... -- (176,700) -- -- (176,700)
Debt issuance costs ....................... (250) -- -- -- (250)
Payment of note payable ................... -- (100) -- -- (100)
------ ---------- --------- --- ----------
Net cash provided by (used for)
financing activities ..................... (250) 44,900 -- -- 44,650
------ ---------- --------- --- ----------
CASH AND CASH EQUIVALENTS:
Increase for the period ................... -- (60,840) (8,940) -- (69,780)
At beginning of period .................... -- 86,570 13,870 -- 100,440
------ ---------- --------- --- ----------
At end of period .......................... $ -- $ 25,730 $ 4,930 $-- $ 30,660
====== ========== ========= === ==========
F-65
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
SUPPLEMENTAL GUARANTOR CONDENSED COMBINED
FINANCIAL STATEMENTS
COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
-------------------------------------------------------------------------
CONSOLIDATED
PARENT GUARANTOR NON-GUARANTOR ELIMINATIONS TOTAL
-------- ----------- --------------- -------------- -------------
OPERATING ACTIVITIES:
Net cash provided by (used for)
operating activities ................. $-- $ 1,490 $ 9,700 $-- $ 11,190
--- --------- -------- --- ---------
FINANCING ACTIVITIES:
Increase in debt ....................... -- 19,730 -- -- 19,730
Payment of debt ........................ -- (13,230) -- -- (13,230)
Decrease in Metaldyne
Corporation net investment and
advances ............................. -- (5,640) (7,970) -- (13,610)
--- --------- -------- --- ---------
Net cash provided by (used for)
financing activities ................. -- 860 (7,970) -- (7,110)
--- --------- -------- --- ---------
INVESTING ACTIVITIES:
Capital expenditures ................... -- (3,640) (960) -- (4,600)
Proceeds from sale of fixed assets ..... -- 150 10 -- 160
--- --------- -------- --- ---------
Net cash used for investing
activities ........................... -- (3,490) (950) -- (4,440)
--- --------- -------- --- ---------
CASH AND CASH EQUIVALENTS:
Increase (decrease) for the period ..... -- (1,140) 780 -- (360)
At beginning of period ................. -- 1,940 1,840 -- 3,780
--- --------- -------- --- ---------
At end of period .................... $-- $ 800 $ 2,620 $-- $ 3,420
=== ========= ======== === =========
F-66
[THIS PAGE INTENTIONALLY LEFT BLANK.]
INDEPENDENT AUDITORS' REPORT
January 17, 2003
To the Shareholders
HIGHLAND GROUP CORPORATION
We have audited the accompanying balance sheets of Highland Group
Corporation as of December 31, 2002 and 2001, and the related statements of
operations and retained earnings, and cash flows for the years ended December
31, 2002, 2001 and 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Highland Group Corporation
as of December 31, 2002 and 2001, and the results of its operations and its
cash flows for the years ended December 31, 2002, 2001 and 2000 in conformity
with accounting principles generally accepted in the United States of America.
As discussed in Note 12 to the financial statements, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" effective January 1, 2002.
Walthall, Drake & Wallace LLP
Certified Public Accountants
F-67
HIGHLAND GROUP CORPORATION
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
ASSETS
2002 2001
------------- -------------
CURRENT
Cash ....................................................... $ 291,369 $ 401,799
Receivables, net of allowance of $106,252 and $421,000 in
2002 and 2001, respectively .............................. 9,441,336 7,181,310
Inventories ................................................ 7,180,531 5,460,922
Prepaid expenses ........................................... 427,968 524,283
Deferred tax asset ......................................... 30,000 175,000
----------- -----------
TOTAL CURRENT ASSETS ..................................... 17,371,204 13,743,314
PROPERTY, PLANT AND EQUIPMENT
Land ....................................................... 80,400 80,400
Building and improvements .................................. 1,945,850 1,877,087
Machinery and equipment .................................... 520,755 459,937
Tooling .................................................... 2,773,952 2,480,934
Data processing and office equipment ....................... 411,747 337,830
Show booth ................................................. 120,290 112,493
----------- -----------
5,852,994 5,348,681
Less: Accumulated depreciation ........................... 2,106,192 1,384,922
----------- -----------
3,746,802 3,963,759
OTHER ASSETS
Goodwill, net .............................................. 9,964,892 9,964,892
Patent, net ................................................ 212,917 234,208
Deposits ................................................... 13,521 12,350
Debt issuance costs, net ................................... -- 50,000
----------- -----------
10,191,330 10,261,450
----------- -----------
TOTAL ASSETS ................................................ $31,309,336 $27,968,523
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
2002 2001
----------- -----------
CURRENT
Bank overdraft ............................................. $ 604,396 $ 632,249
Long-term debt, current portion ............................ 2,200,000 2,250,000
Accounts payable ........................................... 1,936,007 1,910,702
Accrued liabilities ........................................ 2,306,219 2,072,182
----------- -----------
TOTAL CURRENT LIABILITIES ................................ 7,046,622 6,865,133
LONG-TERM DEBT
Long-term debt, less current portion ....................... 3,681,361 5,881,361
Revolving credit line ...................................... 1,531,061 1,012,792
Deferred tax liability ..................................... 315,000 25,000
----------- -----------
5,527,422 6,919,153
----------- -----------
TOTAL LIABILITIES ........................................... 12,574,044 13,784,286
COMMON STOCK
No par value; 2000 shares authorized; 1000 shares issued and
outstanding .............................................. 6,266,666 6,266,666
RETAINED EARNINGS ........................................... 12,468,626 7,917,571
----------- -----------
TOTAL STOCKHOLDERS' EQUITY .................................. 18,735,292 14,184,237
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................. $31,309,336 $27,968,523
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-68
HIGHLAND GROUP CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
-------------- -------------- --------------
SALES
Gross sales ......................................... $52,944,587 $43,887,409 $36,754,017
Less returns and allowances ......................... 3,709,967 2,895,378 2,273,208
----------- ----------- -----------
NET SALES ............................................ 49,234,620 40,992,031 34,480,809
COST OF SALES ........................................ 31,248,218 25,417,507 21,664,797
----------- ----------- -----------
GROSS PROFIT ......................................... 17,986,402 15,574,524 12,816,012
IMPORT/ROYALTY INCOME ................................ 15,345 58,946 22,053
DISTRIBUTION EXPENSES ................................ 2,805,963 2,259,296 2,220,283
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ......... 6,385,505 7,220,089 5,848,966
----------- ----------- -----------
OPERATING INCOME ..................................... 8,810,279 6,154,085 4,768,816
OTHER EXPENSE
Amortization, debt issue costs ...................... 50,000 50,000 50,000
Interest, net ....................................... 772,479 1,114,601 1,595,518
----------- ----------- -----------
822,479 1,164,601 1,645,518
----------- ----------- -----------
INCOME BEFORE TAXES .................................. 7,987,800 4,989,484 3,123,298
PROVISION FOR INCOME TAXES ........................... 3,436,745 1,701,821 1,277,037
----------- ----------- -----------
NET INCOME ........................................... 4,551,055 3,287,663 1,846,261
RETAINED EARNINGS -- BEGINNING ....................... 7,917,571 4,629,908 2,783,647
----------- ----------- -----------
RETAINED EARNINGS -- ENDING .......................... $12,468,626 $ 7,917,571 $ 4,629,908
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F-69
HIGHLAND GROUP CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
2002 2001 2000
--------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ............................................. $ 4,551,055 $ 3,287,663 $ 1,846,261
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................ 792,561 1,598,093 1,353,569
Deferred taxes ....................................... 435,000 (150,000) --
------------ ------------ ------------
5,778,616 4,735,756 3,199,830
Changes in assets and liabilities:
Accounts receivable .................................. (2,260,026) (14,178) (321,695)
Inventories .......................................... (1,719,609) (1,459,733) 78,894
Other current assets ................................. 96,315 208,428 617,306
Deposits ............................................. (1,171) 2,676 (5,695)
Accounts payable ..................................... 25,305 146,154 838,557
Other accrued liabilities ............................ 234,037 873,511 139,281
------------ ------------ ------------
Total changes in assets and liabilities .............. (3,625,149) (243,142) 1,346,648
------------ ------------ ------------
Net cash provided by operating activities ......... 2,153,467 4,492,614 4,546,478
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment .............. (504,313) (887,271) (1,894,784)
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft ......................................... (27,853) 66,393 80,349
Revolving credit line, net ............................. 518,269 (980,173) (943,655)
Payments on long-term debt ............................. (2,250,000) (2,302,083) (1,777,084)
------------ ------------ ------------
Net Cash Used in Financing Activities ............. (1,759,584) (3,215,863) (2,640,390)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH ......................... (110,430) 389,480 11,304
Cash -- Beginning ................................. 401,799 12,319 1,015
------------ ------------ ------------
Cash -- Ending .................................... $ 291,369 $ 401,799 $ 12,319
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year:
Interest ............................................. $ 813,497 $ 1,229,889 $ 1,561,502
============ ============ ============
Income taxes ......................................... $ 2,771,897 $ 1,710,390 $ 1,078,306
============ ============ ============
The accompanying notes are an integral part of the financial statements.
F-70
HIGHLAND GROUP CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Highland Group Corporation was incorporated in December 1997 for the
purpose of acquiring the operating business of Highland Group Industries LP,
effective January 1, 1998. The Company is engaged in the manufacturing and
distribution of automotive accessories with a manufacturing facility located in
Sheffield, Pennsylvania and corporate offices located in Solon, Ohio. Major
retail chains make up the principal market.
RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Receivables are stated at the amount management expects to collect from
outstanding balances. Management provides for probable uncollectible amounts
through a charge to earnings and a credit to a valuation allowance based on its
assessment of the current status of individual accounts. Balances that are
still outstanding after management has used reasonable collection efforts are
written off through a charge to the valuation allowance and a credit to trade
accounts receivable.
INVENTORIES
Inventories are stated at the lower of cost or market with cost being
determined on the first-in, first-out (FIFO) basis. Finished goods is comprised
of both finished goods and products purchased for resale.
The following is a summary of inventories at the lower of cost or market:
2002 2001
------------- -------------
Raw Materials ............ $2,396,552 $2,122,313
Work-In-Process .......... 380,091 389,851
Finished Goods ........... 4,403,888 2,948,758
---------- ----------
$7,180,531 $5,460,922
========== ==========
DEPRECIATION
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Depreciation expense totaled $721,270, $620,902 and $376,377 for the years
ended 2002, 2001 and 2000, respectively.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred
$1,657,067, $1,699,887 and $1,631,690 in advertising and marketing expenses
during 2002, 2001 and 2000, respectively.
STATEMENTS OF CASH FLOWS
The Company considers cash-on-hand and demand deposits in banks as cash
for the purpose of the Statements of Cash Flows.
Debt issuance costs Debt issuance costs are amortized over the term of the
related contract. Amortization charged to operations for 2002, 2001 and 2000
was $50,000 each year.
STOCK OPTION PLAN
The Company has a stock-based employee compensation plan, which is
described more fully in Note 9. The Company accounts for this plan under the
recognition and measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations. No
F-71
HIGHLAND GROUP CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
stock-based employee compensation cost is reflected in net income, as all
options granted under this plan had an exercise price equal to the market value
of the underlying stock on the date of grant. The following table illustrates
the effect on net income and earnings per share if the Company had applied the
fair value recognition provisions of FASB Statement No. 123, "Accounting for
Stock-Based Compensation," to stock-based employee compensation.
2002 2001 2000
------------- ------------- ------------
Net income, as reported ........................................... $4,551,055 $3,287,663 1,846,261
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards .......... (12,453) (24,906) (51,324)
---------- ---------- ---------
$4,538,602 $3,262,757 1,794,937
========== ========== =========
NOTE 2 -- USE OF ESTIMATES
In preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management makes estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3 -- REVOLVING CREDIT LINE
The Company has a revolving line of credit agreement with a commercial
bank which allows for maximum borrowings of $10,000,000. Interest is payable
monthly at a fluctuating rate based on the prime rate plus a margin amount. The
margin amount can range from .5% to 1.0% based upon certain financial ratios of
the Company. The Company may also elect a fixed interest rate for a specified
period of time, based on the applicable LIBOR rate and margin amount. The
margin amount for LIBOR loans is either 2.75% or 3.25%, based upon certain
financial ratios of the Company. The interest rate at December 31, 2002 is
4.75%. The loan is secured by eligible accounts receivable, inventories,
equipment and a first mortgage on the Company's real property. Amounts borrowed
under this agreement totaled $1,531,061 and $1,012,792 at December 31, 2002 and
2001, respectively.
The Company is also required to pay a commitment fee to the bank on the
unused portion of the credit line, at an annual rate of .375%.
The Company's cash management arrangement with its commercial bank
provides automatic coverage of overdrafts up to its credit limit.
NOTE 4 -- RELATED PARTY TRANSACTIONS
Management services are being provided by the majority shareholder of the
Company under a management agreement for a fee of $25,000 per month. The total
fees paid in 2002, 2001 and 2000 were $300,000 each year. The agreement is for
a one-year term commencing in January 1998 with an annual renewal provision.
The Company has a note payable (see Note 5) to the majority shareholder of the
Company. Interest expense under this note for 2002, 2001 and 2000 was $168,000
each year.
F-72
HIGHLAND GROUP CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- LONG-TERM DEBT
The following is a summary of long-term debt:
2002 2001
----------------------------- -----------------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------------- ------------- ------------- -------------
The Company had a note payable to a
commercial bank, dated January 9, 1998, in
the original amount of $8,000,000. This note
was increased in January 2000, with an
additional $2,000,000 being lent, resulting in
an adjusted amount of $8,131,261. The note is
payable in twenty-four quarterly principal
payments which increase from $250,000 to
$375,000 through 2006. Interest is payable
quarterly at prime rate plus a margin amount.
The margin amount can range from .5% to
1.5%, based upon certain financial ratios of
the Company. The Company may also elect a
fixed rate based on the applicable LIBOR
rate and margin amount. The margin amount
for the LIBOR rate is either 3.25% or 3.75%,
based upon certain financial ratios of the
Company. The interest rate at December 31,
2002 is 5.25%. $1,500,000 $2,981,361 $1,437,500 $4,481,361
The Company had a liability to the partners of
the Company's predecessor entity, in the
original amount of $3,250,000 pursuant to an
earn-out agreement. The agreement required
a payment of $812,500 in addition to the
execution of a promissory note in the amount
of $2,437,500 and was payable in three annual
installments of $812,500 each, commencing
March 15, 2000 with the final payment March
15, 2002. Interest was payable monthly, at an
annual rate of 10% on the outstanding
balance. -- -- 812,500 --
The Company has a note payable to the
majority shareholder of the Company, dated
January 9, 1998, in the original amount of
$1,400,000. The note is payable in two
installments of $700,000 each on December
31, 2003 and 2004. Interest is payable
monthly, at an annual rate of 12%, on the
outstanding balance. 700,000 700,000 -- 1,400,000
F-73
HIGHLAND GROUP CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 5 -- LONG-TERM DEBT (CONTINUED)
The following are maturities of long-term debt:
YEAR
- --------------
2003 ......... $2,200,000
2004 ......... 2,200,000
2005 ......... 1,410,900
2006 ......... 70,461
----------
$5,881,361
==========
Interest expense for 2002, 2001 and 2000 totaled $772,479, $1,114,601 and
$1,595,518, respectively.
NOTE 6 -- LEASES
The Company leases office space in Solon, Ohio. Rent expense for 2002,
2001 and 2000 under this lease was $63,136 each year. The Company leases
equipment under operating leases expiring through 2004. Equipment rental
expense for 2002, 2001 and 2000 under these leases totaled $58,520, $59,252 and
$55,272, respectively.
The future minimum rentals under these agreements are as follows:
YEAR EQUIPMENT REAL ESTATE
- --------------- ----------- ------------
2003 .......... $39,435 $ 63,136
2004 .......... 7,690 52,613
2005 .......... 2,723 --
------- --------
$49,848 $115,749
======= ========
NOTE 7 -- PROFIT SHARING PLAN
The Company has a qualified profit sharing plan which permits participants
to make contributions by salary reduction pursuant to Section 401(k) of the
Internal Revenue Code. The Company contributes 3% of each qualified employee's
salary into the plan. The cost incurred for contributions under this
arrangement was $180,924, $194,070 and $113,303 for 2002, 2001 and 2000,
respectively.
NOTE 8 -- CONTINGENCIES
The Company is from time to time named as a defendant in lawsuits filed by
consumers. The consumers allege the Company manufactured faulty products which
caused harm. The lawsuits seek compensatory and punitive damages in various
amounts. The Company believes the suits are completely without merit and
intends to vigorously defend its position.
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. In the opinion of management, the amount of
ultimate liability, if any, with respect to these actions will not materially
affect the financial position of the company.
NOTE 9 -- STOCK OPTION PLAN
Effective February 24, 1999 the Company adopted the Highland Group
Corporation 1999 Key Employees Stock Option Plan. Effective August 7, 2001 the
plan was amended, restated and renamed the Highland Group Corporation
Management Stock Option Plan. The plan allows for options to be granted to Key
employees as well as outside directors of the Company. Options granted under
this plan are nonqualified stock options. Options may be issued for an
aggregate of 64 shares under this plan. For Key employees options vest over a
two-year period from the grant date, with 50% vesting after one year. For
F-74
HIGHLAND GROUP CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 9 -- STOCK OPTION PLAN (CONTINUED)
outside directors, options are 50% vested as of the grant date, 25% as of
January 10, 2002 and the remaining 25% on January 10, 2003. The options expire
on the tenth anniversary of the effective date.
GRANT NUMBER OF SHARES EXERCISE PRICE FOR
DATE OPTIONS GRANTED FOR EACH OPTION
- ----------------- --------------------- -------------------
2/24/99 ......... 38.50 $11,545
6/01/00 ......... 4.25 23,000
8/07/01 ......... 8.49 9,000
Options for a total of 51.24 shares have been granted, or approximately 5%
of the equity value of the Company.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APBO No. 25), and related
interpretations, in accounting for this stock option plan. The company has
elected this treatment because, as discussed below, the alternative fair value
accounting provided for under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS No. 123), requires the use
of highly subjective assumptions in option valuation models. Under APBO No. 25,
no compensation expense has been recognized on the financial statements because
the exercise price of the Company's stock options is not less than the fair
market value of the shares at the grant date.
Pro forma information regarding net income, determined as if the Company
had adopted SFAS No. 123, is required by that statement, and is disclosed in
Note 1 of these statements. The fair value for these options was estimated at
the grant date using the Black-Scholes option pricing model with the following
assumptions for all options granted: a risk-free interest rate of 4.89%; an
expected life of the options of five years for 1999 options; four years for
2000 options; two years for 2002 options; no expected dividend yield; and no
volatility factor.
NOTE 10 -- INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. The deferred tax benefit is comprised of allowance for doubtful
accounts, depreciation, amortization of goodwill, and various expense accruals.
The provision for income tax consists of the following:
2002 2001 2000
------------- ------------- -------------
Current tax expense ........... $3,136,745 $1,851,821 $1,277,037
Deferred tax benefit .......... 300,000 (150,000) --
---------- ---------- ----------
$3,436,745 $1,701,821 $1,277,037
========== ========== ==========
NOTE 11 -- MAJOR CUSTOMERS AND SUPPLIERS
Sales to one customer aggregated 44% in 2002. Sales to the Company's top
three customers aggregated 63% and 57% in 2001 and 2000. The Company made
approximately 48% of its purchases from two suppliers in each of 2002 and 2001
and this purchases amount was 49% in 2000. The Company grants credit to
customers, many of whom are major retail chains.
NOTE 12 -- INTANGIBLE ASSETS
Effective January 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS No.
142), which provides that Goodwill shall no longer
F-75
HIGHLAND GROUP CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 12 -- INTANGIBLE ASSETS (CONTINUED)
be amortized. Instead, Goodwill is to be tested for impairment on an annual
basis. The effect of this standard is that the Company will no longer recognize
amortization expense on its books for Goodwill. If Goodwill were determined to
be impaired, a charge to current operation would be made in the year of
impairment. The Company completed its transitional goodwill impairment
assessment and its annual impairment assessment with no adjustment to the
carrying value of its goodwill. Goodwill continues to be amortized for tax
purposes. The Company has a patent that is being amortized over a 15-year
period on a straight-line basis. Aggregate intangible amortization expense was
$21,292, $927,191 and $927,191 in 2002, 2001 and 2000, respectively.
2002 2001
--------------------------------- ---------------------------------
GROSS GROSS
CARRYING ACCUMULATED CARRYING ACCUMULATED
AMOUNT AMORTIZATION AMOUNT AMORTIZATION
-------------- ---------------- -------------- ----------------
Amortizable Intangible Assets:
Patent ......................... $ 319,375 $ (106,458) $ 319,375 $ (85,167)
=========== ============ =========== ============
Unamortizable Intangible Assets:
Goodwill ....................... $13,588,489 $ (3,623,597) $13,588,489 $ (3,623,597)
=========== ============ =========== ============
FUTURE ESTIMATED AMORTIZATION EXPENSE
For the year ended:
2003 $21,292
2004 21,292
2005 21,292
2006 21,292
2007 21,292
PRO FORMA INFORMATION
2002 2001 2000
------------- ------------- -------------
Reported net income ...................... $4,551,055 $3,287,663 $1,846,261
Add back: Goodwill amortization .......... -- 905,899 905,899
---------- ---------- ----------
Adjusted net income ...................... $4,551,055 $4,193,562 $2,752,160
========== ========== ==========
F-76
July 21, 2003
TRIMAS CORPORATION
$85,000,000
9 7/8% SENIOR NOTES DUE 2012
---------------------
PROSPECTUS
---------------------
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OUR AFFAIRS HAVE NOT CHANGED SINCE THE DATE HEREOF.