<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 1, 2000 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
-------- -------
COMMISSION FILE NO. 333-56461
TALON AUTOMOTIVE GROUP, INC
(Exact name of registrant as specified in its charter)
MICHIGAN 38-3382174
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
900 WILSHIRE DRIVE, SUITE 203, TROY, MICHIGAN 48084
(Address of principal executive offices) (Zip Code)
(248) 362-7600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
---------- ----------
APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares Outstanding
Class at May 15, 2000
----------------------------- ---------------------
Class A Voting Common Stock 4,074
Class B Non-Voting Common Stock 158,853
Exhibit Index located at page 12
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TALON AUTOMOTIVE GROUP, INC.
FORM 10 Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Statements of Operations (unaudited) for the
Three Months Ended April 1, 2000 and April 3, 1999
Consolidated Balance Sheets at April 1, 2000 (unaudited)
and December 31, 1999
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended April 1, 2000 and April 3, 1999
Notes to Consolidated Financial Statements (unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II OTHER INFORMATION
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TALON AUTOMOTIVE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED:
---------------------------------
APRIL 1, APRIL 3,
2000 1999
---- ----
<S> <C> <C>
Net sales $ 85,682 $ 71,020
Cost of sales 74,779 63,566
-------- --------
Gross profit 10,903 7,454
Operating expenses:
SG&A 7,263 5,539
Amortization 411 379
-------- --------
Income from operations 3,229 1,536
Other (income) expenses:
Interest 4,619 4,014
Foreign currency (8) 2
-------- --------
Loss before income taxes (1,382) (2,480)
Provision for income taxes 989 877
-------- --------
Net loss $ (2,371) $ (3,357)
======== ========
</TABLE>
See accompanying notes.
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TALON AUTOMOTIVE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
ASSETS APRIL 1, 2000 DECEMBER 31, 1999
------ ---------------- -----------------
<S> <C> <C>
Current assets:
Cash $ 1,300 $ 708
Accounts receivable 60,535 49,527
Inventory 17,582 18,062
Reimbursable tooling 30,508 20,727
Prepaid expenses 3,023 3,082
--------- ---------
Total current assets 112,948 92,106
Property, plant and equipment, net 88,660 90,578
Goodwill and other assets, net 62,232 62,573
--------- ---------
$ 263,840 $ 245,437
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 51,559 $ 46,495
Accrued liabilities 24,968 20,252
Deferred tooling revenue 28,434 26,667
Current portion of debt and capital leases 1,670 1,861
--------- ---------
Total current liabilities 106,631 95,275
Long term debt 170,690 161,318
Capital leases 1,434 1,507
Deferred income taxes 1,935 1,931
--------- ---------
Total non-current liabilities 174,059 164,756
Shareholders' equity:
Common stock 1,250 1,250
Paid in capital 1,413 1,413
Retained earnings (deficit) (19,051) (16,680)
Accumulated other comprehensive income (loss) (462) (577)
--------- ---------
Total shareholders' equity (16,850) (14,594)
--------- ---------
$ 263,840 $ 245,437
========= =========
</TABLE>
See accompanying notes.
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TALON AUTOMOTIVE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS - UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED:
APRIL 1, APRIL 3,
2000 1999
----- -----
<S> <C> <C>
Net loss $ (2,371) $ (3,357)
Depreciation and amortization 2,640 2,929
Other non-cash expenses 166 195
Change in operating assets and liabilities:
Accounts receivable (10,949) 891
Inventories 487 906
Reimbursable tooling, net (8,018) 676
Prepaids 60 (2,003)
Accounts payable 4,905 3,533
Accrued liabilities 4,696 5,517
Other operating items -- (482)
-------- --------
Cash provided by (used in) operating activities (8,384) 8,805
Investing Activities:
Additions to property and equipment (305) (8,446)
Financing Activities:
Proceeds from long-term borrowings 9,508 2,111
Payments on long-term debt (403) (166)
Deferred financing costs -- (243)
-------- --------
Cash provided by financing activities 9,105 1,702
Effects of exchange rates 176 793
-------- --------
Net change in cash 592 2,854
Beginning cash 708 9,412
-------- --------
Ending cash $ 1,300 $ 12,266
======== ========
</TABLE>
See accompanying notes.
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TALON AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by Talon Automotive Group, Inc. (the "Company"), pursuant to the rules and
regulations of the Securities and Exchange Commission. The information furnished
in the consolidated financial statements includes normal recurring adjustments
and reflects all adjustments which are, in the opinion of management, necessary
for a fair presentation of such financial statements. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The unaudited consolidated
financial statements should be read in conjunction with the Company's audited
consolidated financial statements and notes thereto for the year ended December
31, 1999.
The Company reports quarterly financial information in thirteen-week increments
and ends each respective quarter on the Saturday following the thirteenth week
with the fiscal year ending December 31.
2. EFFECT OF ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, "Accounting for Derivatives Instruments
and Hedging Activities--Deferral of the Effective Date of FASB Statement No.
133--an Amendment of FASB Statement No. 133." Statement No. 137 defers the
effective date of Statement No. 133 by one year to fiscal years beginning after
June 15, 2000. Accordingly, the Company plans to adopt Statement No. 133
beginning in 2001. Implementation of this statement is not expected to have a
material impact on the Company's results of operations.
In September 1999, the Financial Accounting Standards Board reached a consensus
on EITF Statement No. 99-5, "Accounting for Pre-Production Costs Related to
Long-Term Supply Arrangements". Statement No. 99-5 restricts capitalization of
pre-production costs based on certain criteria and is effective, on a
prospective basis, for fiscal years beginning after December 31, 1999. On
January 1, 2000, the Company adopted Statement 99-5 and did not capitalize any
pre-production costs for the first quarter. This accounting change has the
effect of accelerating expense recognition of advance costs related to business
that has not yet begun production. If the Company is not able to meet
capitalization criteria prescribed by Statement 99-5 during 2000, it could
reduce the Company's reported earnings by up to $3,000 as compared to 1999. The
change has no effect on cash flow.
3. COMMITMENTS AND CONTINGENCIES
As of April 1, 2000, there were no significant changes to the status of
commitments and contingencies presented in the footnotes to the financial
statements for the fiscal year ended December 31, 1999.
4. INVENTORIES
Inventory consisted of the following:
<TABLE>
<CAPTION>
APRIL 1, 2000 DECEMBER 31, 1999
------------- ----------------
UNAUDITED
<S> <C> <C>
Raw material $ 8,212 $ 8,739
Work in process 5,531 5,629
Finished goods 3,840 3,694
------- -------
Total Inventory $17,582 $18,062
======= =======
</TABLE>
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5. COMPRENSIVE LOSS
The Company's comprehensive loss includes the reported net loss and the change
in accumulated foreign currency translation adjustment. For the first quarter
2000, the comprehensive loss was $2,256 as compared to $2,564 for the first
quarter 1999.
6. SUPPLEMENTAL GUARANTOR INFORMATION
Veltri Metal Products Co. and Veltri Holdings, Inc. (collectively, the "Veltri
Group") are wholly owned subsidiaries of the Company and constitute all of the
direct and indirect subsidiaries of the Company. The Veltri Group has fully and
unconditionally guaranteed, on a joint and several basis, the obligation to pay
principal, premium, if any, and interest with respect to the Company's senior
subordinated notes.
There are no restrictions on the ability of the Veltri Group to transfer funds
to the Company in the form of cash dividends, loans or advances, except as
follows: (i) pursuant to the senior credit agreement the Veltri Group agreed not
to (a) declare or make any dividend or other distribution with respect to any
shares of capital stock; or (b) make loans, advances or extensions of credit to
any person (except for credit sales in the ordinary course of business and loans
to affiliates in an aggregate amount not to exceed $15,000 at any time
outstanding); and (ii)pursuant to the indenture agreement for the Company's
senior subordinated notes, the Veltri Group is prohibited from making loans or
advances to the Company if a default or event of default shall have occurred
under the indenture.
Management does not believe that separate financial statements for the Veltri
Group is material to investors. Therefore, separate financial statements and
other disclosures concerning the Veltri Group have been omitted, and in lieu
thereof, summarized financial information relating to the Veltri Group is shown
as follows:
<TABLE>
<CAPTION>
APRIL 1, 2000 DECEMBER 31, 1999
--------------- -----------------
UNAUDITED
<S> <C> <C>
Current assets $58,137 $46,868
Non-current assets 51,518 55,016
Current liabilities 62,846 56,394
Non-current liabilities 29,226 29,525
THREE MONTHS ENDED:
APRIL 1, 2000 APRIL 3, 1999
------------- -------------
UNAUDITED UNAUDITED
Net sales $34,448 $28,939
Gross profit 7,440 5,321
Net income 1,582 978
</TABLE>
7. RELATED PARTY TRANSACTIONS
The Company has a business services agreement with Talon L.L.C., an affiliated
company owned by the shareholders of the Company. Under this agreement, the
Company receives services of risk management, benefits management, tax
preparation and other services from Talon L.L.C.as requested by the Company. For
the three month period ended April 1, 2000 and April 3, 1999, the Company paid
fees to Talon L.L.C. of $125 under this agreement.
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In 1996, the Company purchased the outstanding capital stock of the Veltri Group
and a former shareholder of the Veltri Group was appointed as an officer of the
Company. The stock purchase agreement included certain earnout provisions
payable to the former shareholder. On April 6, 2000, the Company made an earnout
payment of approximately $1,781, including interest, for the calendar year 1999.
This was the Company's final earnout payment due under the stock purchase
agreement.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 1, 2000 AS COMPARED TO THE THREE MONTHS ENDED APRIL 3,
1999
Net Sales
Net sales for the three month period ended April 1, 2000 ("first quarter 2000")
were $85.7 million compared to $71.0 million for the three month period ended
April 3, 1999 ("first quarter 1999"). This represents an increase of
$14.7 million or 21% as compared to the prior year. The increase was primarily
due to higher industry volumes and incremental new business on the General
Motors GMT 800 truck platform, Honda Odyssey minivan and the GM
Aurora/LeSabre/Bonneville platform.
Gross Profit
Gross profit for the first quarter 2000 was $10.9 million or 12.7% of net sales
compared to $7.5 million or 10.5% of net sales for the first quarter 1999. This
represents an increase of $3.4 million or 46% as compared to the prior year. The
increase was due to higher sales, the effect of new welding automation and
certain launch costs that reduced gross profit in the prior year period.
Selling, General and Administrative Expenses ("SG&A")
SG&A expenses for the first quarter 2000 were $7.3 million or 8.5% of net sales
compared to $5.5 million or 7.8% of net sales for the first quarter 1999. The
increase of $1.8 million or 21% was primarily from incremental investment in
advance engineering and program management for future programs, the addition of
a new warehouse facility and a $0.2 million bad debt provision in the first
quarter 2000.
Interest Expense
Interest expense for the first quarter 2000 was $4.6 million or 5.4% of net
sales, as compared to $4.0 million or 5.7% of net sales for the first quarter
1999. The increase of $0.6 million or 15% was due to carrying costs of new
equipment for business not yet launched and higher interest rates on the
Company's senior credit facility.
Income Taxes
The Company's shareholder's have elected under the provisions of the Internal
Revenue Code to be treated as an S-Corporation with respect to the Company's
U.S. operations. As a result, income taxes relate solely to the Company's
Canadian operations. The provision for Canadian income taxes for the first
quarter 2000 was $1.0 million compared to $0.8 million for the first quarter
1999. The effective tax rate for the first quarter 2000 was approximately 40%
and differed from the statutory rate primarily as a result of non-deductible
goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow used in operating activities totaled $8.4 million in the first
quarter 2000 as compared to $8.8 million from operating activities in the first
quarter 1999. The change compared to the prior year period was primarily from
increased receivables on higher sales and the timing of expenditures for
reimbursable tooling.
Net cash used in investing activities relate to capital expenditures. Capital
expenditures totaled $0.3 million for the first quarter 2000 as compared to $8.4
million for the first quarter 1999 for new machinery and equipment. The
decrease, as compared to the prior year period, was largely due to a
sale-leaseback transaction in February 2000 for which the Company was reimbursed
$6.4 million.
The Company has made significant capital expenditures related to a new
production facility and new equipment for the 2002 Jeep Cherokee program ("KJ").
Through April 1, 2000, construction-in-process related to the KJ totaled
approximately $14.3 million. The Company believes the new KJ business will
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launch by the second quarter 2001 and additional KJ capital expenditures of
approximately $5.0 million will be required through that date.
Net cash provided by financing activities totaled $9.1 million for the first
quarter 2000 compared to $1.7 million for the first quarter 1999. Financing
activities primarily related to incremental borrowings on the Company's senior
credit facility for working capital requirements, new equipment and reimbursable
tooling investments.
EBITDA for the first quarter 2000 was $5.9 million as compared to $4.5 million
for the first quarter 1999. This represents an increase of $1.4 million or 32%
as compared to the prior year period. EBITDA is defined as income from
operations plus depreciation and amortization and may not be comparable to
similarly-titled measures of other companies. EBITDA is presented because it is
a widely accepted non-GAAP financial indicator of a company's ability to incur
and service debt. However, EBITDA should not be considered in isolation as a
substitute for net income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity.
The Company has a $100.0 million senior credit facility with a syndicate of
banks. On April 1, 2000, borrowings on this facility totaled $50.0 million and
the Company had the ability to borrow an additional $6 million under the terms
of its agreement. The Company believes borrowing availability under its senior
credit facility, together with funds generated by operations, should provide
sufficient liquidity and capital resources to meet its working capital
requirements, capital expenditures and other operating needs for the foreseeable
future.
Effective February 15, 2000, the Company's senior credit facility was amended to
revise financial covenants related to interest coverage and leverage. The
amendment also increased the interest rate on eurocurrency loans by 50 basis
points and limited borrowings on the facility to $63.0 million on an interim
basis. The Company expects to amend its senior credit facility again in 2000 to
increase its borrowing limit.
FORWARD LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. When used in this section, the words
"anticipate", "believe", "estimate" and "expect" and similar expressions are
generally intended to identify forward-looking statements. Readers are cautioned
that any forward-looking statements, including statements regarding the intent,
belief, or current expectations of the Company or its management, are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those in the forward-looking
statements as a result of various factors including, but not limited to: (i)
general economic conditions in the markets in which the Company operates; (ii)
the degree to which the Company is leveraged; (iii) labor disputes involving the
Company or its significant customers; (iv) changes in practices and/or policies
of the Company's significant customers toward outsourcing automotive components
and systems; (v) the Company's reliance on major customers and selected models;
(vi) foreign currency and exchange fluctuations; and (viii) other risks detailed
from time to time in the Company's filings with the Securities and Exchange
Commission. The Company does not intend to update such forward-looking
statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the potential loss arising from adverse changes in market rates
and prices, including changes in foreign currency exchange rates, interest rates
and commodity prices. The Company believes there was no significant change in
its market risk factors since December 31, 1999.
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PART II. OTHER INFORMATION
TALON AUTOMOTIVE GROUP, INC.
Item 1. Legal Proceedings: None
Item 2. Change in Securities: None
Item 3. Defaults Upon Senior Securities: None
Item 4. Submission of Matters to a Vote of Security Holders: None
Item 5. Other Information: None
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibit 10(e) - Fourth Amendment to Credit Agreement dated as of April
28, 1998 by and between the Company, as Borrower, and Comerica Bank, as
Agent for the Lenders.
(a) Exhibit 27 - Financial Data Schedule
(c) The Company filed no Reports on Form 8-K during the three months ended
April 1, 2000.
SIGNATURE
Pursuant to the requirements of the Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
TALON AUTOMOTIVE GROUP, INC.
By: /s/ David J. Woodward
----------------------------
David J. Woodward
Vice President of Finance, Chief Financial
Officer and Treasurer
Date: May 15, 2000
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EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10.1 (e) Fourth Amendment to Credit Agreement dated as of April 28,
1998 by and between the Company, as Borrower, and Comerica
Bank, as Agent for the Lenders.
27 Financial Data Schedule
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EXHIBIT 10.1(e)
FOURTH AMENDMENT TO CREDIT AGREEMENT DATED 4/28/98
This Fourth Amendment to Credit Agreement dated as of February 15, 2000 by
and between Talon Automotive Group, Inc., a Michigan corporation ("TAG"), Veltri
Metal Products Co., a Nova Scotia corporation ("Veltri") (Veltri, called
together with TAG, the "Borrowers"), the Banks party hereto, and Comerica Bank,
a Michigan banking corporation, as agent for the Banks (in such capacity,
"Agent").
WHEREAS, Borrowers, Agent and the Banks entered into a certain Credit
Agreement dated as of April 28, 1998, a certain First Amendment to Credit
Agreement dated as of August 31, 1998, a certain Second Amendment to Credit
Agreement dated as of March 26, 1999, and a certain Third Amendment to Credit
Agreement dated as of December 30, 1999 (as so amended, the "Agreement"),
pursuant to which Borrowers incurred certain indebtedness and obligations and
granted the Agent, on behalf of the Banks, certain security for such
indebtedness and obligations;
WHEREAS, Borrowers have requested Agent and Banks to amend certain
provisions of the Agreement and to grant waivers of certain provisions of the
agreement; and
WHEREAS, Agent and the Banks are willing to do so, but only on the terms
and conditions set forth herein;
NOW, THEREFORE, it is agreed:
1. DEFINITIONS
1.1 Capitalized terms used herein and not defined to the contrary have the
meanings given them in the Agreement.
2. AMENDMENT
2.1 The following definition is hereby added to Article 1 of the Agreement
by inserting it in correct alphabetical sequence among the existing definitions
therein:
" `Fourth Amendment Effective Date' shall mean the date
specified in a written notice from Agent, on which all of the
conditions to the effectiveness of the Fourth Amendment to Credit
Agreement dated as of February 15, 2000 between Borrowers, Agent
and Banks have been satisfied in accordance with Section 5.1 thereof."
2.2 Section 1.12 of the Agreement is hereby amended by replacing
the pricing grid set forth therein in its entirety with the following
pricing grid:
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<TABLE>
====================================================================================================================
Prime-based Loans
Prime-based Loans denominated in Eurocurrency-based Loans
Denominated in U.S. Canadian Dollars and Letter of Credit Fees
Leverage Ratio Dollars Facility Fees
====================================================================================================================
<S> <C> <C> <C> <C>
Level I 1.50% 2.50% 3.50% .50%
>6.0
- -
- --------------------------------------------------------------------------------------------------------------------
Level II 1.00% 2.00% 2.25% .50%
>5.5 but < 6.0
- -
- --------------------------------------------------------------------------------------------------------------------
Level III 0.75% 1.75% 2.00% 0.50%
>5.0 but < 5.5
- -
- --------------------------------------------------------------------------------------------------------------------
Level IV 0.50% 1.50% 1.75% 0.50%
>4.5 but <5.0
- -
- --------------------------------------------------------------------------------------------------------------------
Level V 0.25% 1.25% 1.55% 0.45%
>3.5 but <4.5
- -
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
2.3 The proviso appearing at the end of Section 1.16 of the Agreement is
hereby amended and restated as follows:
"provided, however, that from and after the Fourth Amendment Effective
Date, the Borrowing Base shall be limited to the lesser of (i) the
amount determined pursuant to the foregoing calculation, or (ii) Sixty
Three Million Dollars ($63,000,000)."
2.4 Section 1.61 of the Agreement is hereby amended and restated as
follows:
"1.61 `Interest Period' shall mean:
(a) in the case of any Prime-based Loan, an initial
period beginning on the date of the Advance thereof
and ending on the next occurring Quarterly Date and
thereafter, successive Interest Periods beginning on
the day after each Quarterly Date and ending on each
succeeding Quarterly Date; and
(b) in the case of any Loan which is a Eurocurrency-based
Loan one (1), two (2) or three (3) months as selected
by a Borrower.
provided however, that:
(i) any Interest Period which would otherwise
end on a day which is not a Business Day
shall be extended to the next succeeding
Business Day unless the next succeeding
Business Day falls in another calendar
month, in which case, such Interest Period
shall end on the immediately preceding
Business Day;
(ii) when an Interest Period for a
Eurocurrency-based Loan begins on a day
which has no numerically corresponding day
in another calendar month during which such
Interest Period is to end, it shall end on
the last Business Day of such other calendar
month; and
(iii) no Interest Period for any Loan shall extend
beyond the Maturity Date."
2.5 Section 1.88 of the Agreement is hereby amended and restated as
follows:
"Permitted Acquisition" shall mean (i) the merger of a Borrower or a
Subsidiary with another Person which has been approved in writing by Agent and
all of the Banks, or (ii) the acquisition by a Borrower or a Subsidiary of a
majority of the Stock of, or all or substantially all of the assets of, any
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Person or of an operating division of any Person, or the investment by a
Borrower or a Subsidiary of a Borrower in a Person who is not a Borrower or a
Subsidiary of a Borrower, which has been approved in writing by Agent and the
Majority Banks."
2.6 Section 1.116 of the Agreement is hereby amended and restated in its
entirety as follows:
"1.116 `Swing Loan Commitment' shall mean, as of any date,
(a) With respect to Swing Loans made by Agent to TAG, Ten Million
Dollars ($10,000,000);
(b) with respect to Swing Loans made by the Canadian Swingline Lender
to Veltri, Twelve Million Five Hundred Thousand Canadian Dollars
($12,500,000 Cdn); and
(c) with respect to all Swing Loans outstanding at any time (whether
advanced by Agent or the Canadian Swingline Lender, or both of
them) the principal amount by which the Revolving Maximum exceeds
the aggregate amount of Revolving Loans and Letter of Credit
Obligations then outstanding."
2.7 Section 9.1 of the Agreement is hereby amended and restated in its
entirety as follows:
"9.1 Reporting Requirements Covenants. Furnish or cause to be
furnished to Agent (with a copy for each Bank):
(a) as soon as available and in any event within ninety (90)
days after the close of each fiscal year of TAG, balance
sheets of TAG (i) as at the end of such fiscal year and the
related statements of operations, stockholders equity and
cash flows for such fiscal year, setting forth comparative
figures for the preceding fiscal year, and a report on such
balance sheets and financial statements by independent
certified public accountants of recognized national
standing, which report shall not be qualified as to the
scope of audit or as to the status of Borrowers as a going
concern, and shall state that such financial statements
fairly present, in all material respects, the financial
position of Borrowers as at the dates indicated and the
results of their operations and their cash flows for the
periods indicated, in conformity with GAAP, and (ii) copies
of tax returns filed for the Borrowers for the fiscal year
then ended;
(b) as soon as available and in any event within thirty (30)
days after the end of each month: (i) the consolidated and
consolidating balance sheets of TAG as at the end of such
month and the related statements of operations, of
stockholders' equity and of cash flows for such month and
for the elapsed portion of the fiscal year ended with the
last day of such month, and in each case setting forth
comparative figures for the related periods in the prior
fiscal year, subject to normal year-end audit adjustment,
and (ii) reports on the Loan Parties' Inventory, agings of
each Loan Parties' Accounts Receivable (with an aging
summary) and accounts payable (with an aging summary), in
each case, in form and content satisfactory to Agent and
certified by the chief financial officer, controller or
chief accounting officer of Borrowers;
(c) at the time of the delivery of the financial statements
provided for in Subsections 9.1(a) and (b),(i) a certificate
of the chief financial officer, controller or chief
accounting officer of TAG to the effect that no Default or
Event of
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Default exists, or, if any Default or Event of Default does
exist, specifying the nature and extent thereof, which
certificate shall be accompanied by a compliance certificate
in a form reasonably acceptable to the Agent setting forth
the calculations required to establish whether Borrowers
were in compliance with the covenants in this Agreement as
at the end of such period, and (ii) a compliance certificate
from the chief financial officer, controller or chief
accounting officer of Veltri dated as of the end of the
month ended immediately prior thereto, in a form reasonably
acceptable to the Agent, setting forth the calculations
required to establish whether Veltri was in compliance with
the terms and conditions for EDC Financing;
(d) within seven (7) days after the end of each week, a
Borrowing Base calculation and certification and an Accounts
Receivable summary report, in form and content satisfactory
to Agent and certified by the chief financial officer,
controller or chief accounting officer of Borrowers;
(e) promptly upon receipt thereof, a copy of each annual
"management letter" submitted to Borrowers by its
independent accountants in connection with any annual audit
made by them of the books of Borrowers;
(f) promptly upon any officer of a Borrower obtaining knowledge
of any condition or event which constitutes a Default or
Event of Default, or becoming aware that any Bank has given
any notice or taken any other action with respect to a
claimed Default or Event of Default under this Agreement, an
officers' certificate specifying the nature and period of
existence of any such condition or event, or specifying the
nature of such claimed Default or Event of Default, and
explaining the action Borrowers have taken or proposes to
take with respect thereto;
(g) within (i) ninety (90) days after the end of each fiscal
year of TAG, a copy of TAG's Form 10-K Report filed with the
Securities Exchange Commission for such annual accounting
period, and (ii) forty five (45) days after the end of each
fiscal quarter of TAG, a copy of TAG's Form 10-Q Report
filed with the Securities Exchange Commission for such
quarterly accounting period; and
(h) with reasonable promptness, such other information and data
with respect to Loan Parties as from time to time may be
reasonably requested by any Bank."
2.8 The following Section 9.14 is hereby added to the Agreement,
immediately after Section 9.13 of the Agreement:
"9.14 Appraisals. On or before April 15, 2000, Borrowers shall provide
to Agent (with sufficient copies thereof for each of the Banks) appraisals
of all of Equipment (other than Equipment held pursuant to leases) and Real
Property of the Borrowers and the other Loan Parties, which appraisals
shall have been conducted by licensed appraisers satisfactory to Agent, and
shall be in form and content satisfactory to Agent."
2.9 Section 10.4 of the Agreement is hereby amended and restated in its
entirety as follows:
Page 16
<PAGE> 5
"10.4 Financial Covenants. Permit:
(a) the Interest Coverage Ratio to be less than:
(i) as of the end of the last quarter of Borrowers' 1999
fiscal year: 1.2:1;
(ii) as of the end of the first and second quarters of
Borrowers' 2000 fiscal year: 1.3:1;
(iii) as of the end of the third and fourth quarters of
Borrowers' 2000 fiscal year and the first quarter of
Borrowers' 2001 fiscal year: 1.2:1;
(iv) as of the end of the second quarter of Borrowers' 2001
fiscal year: 1.3:1;
(v) as of the end of the third quarter of Borrowers' 2001
fiscal year: 1.5:1;
(vi) as of the end of the fourth quarter of Borrowers' 2001
fiscal year: 1.6:1; and
(v) as of the end of any fiscal quarter thereafter: 1.7:1.
(b) the Leverage Ratio to be greater than:
(i) as of the end of the last quarter of Borrowers' 1999
fiscal year: 8.2:1;
(ii) as of the end of the first quarter of Borrowers' 2000
fiscal year: 8.5:1;
(iii) as of the end of the second quarter of Borrowers' 2000
fiscal year: 8.9:1;
(iv) as of the end of the third quarter of Borrowers' 2000
fiscal year: 9.4:1;
(v) as of the end of the fourth quarter of Borrowers' 2000
fiscal year: 8.9:1;
(vi) as of the end of the first quarter of Borrowers' 2001
fiscal year: 8.4:1;
(vii) as of the end of the second quarter of Borrowers' 2001
fiscal year: 7.4:1;
(viii) as of the end of the third quarter of Borrowers' 2001
fiscal year: 6.2:1;
(ix) as of the end of the fourth quarter of Borrowers' 2001
fiscal year: 5.7:1;
(x) as of the end of the first and second quarters of
Borrowers' 2002 fiscal year: 5.4:1; and
(xi) as of the end of any quarter thereafter: 5.3:1.
(c) EBITDA, to be less than:
(i) for the second quarter of Borrowers' 2000 fiscal year:
$5,607,000;
(ii) for the third quarter of Borrowers' 2000 fiscal year:
$3,276,000;
(iii) for the fourth quarter of Borrowers' 2000 fiscal year:
$5,033,000;
(iv) for the first quarter of Borrowers' 2001 fiscal year:
$8,243,000;
(v) for the secon quarter of Borrowers' 2001 fiscal year:
$8,927,000;
(vi) for the third quarter of Borrowers' 2001 fiscal year:
$7,810,000;
(vii) for the fourth quarter of Borrowers' 2001 fiscal year:
$9,045,000;
(viii) for the first quarter of Borrowers' 2002 fiscal year:
$9,788,000;
(ix) for the second quarter of Borrowers' 2002 fiscal year:
$9,288,000;
(x) for the third quarter of Borrowers' 2002 fiscal year:
$7,605,000; and
(xi) for the fourth quarter of Borrowers' 2002 fiscal year:
$8,892,000."
Page 17
<PAGE> 6
2.10 Exhibits "H" and "I" of the Agreement are hereby amended and restated
in their entirety with Exhibits "H" and "I" hereto.
3. WAIVER
3.1 Agent and the Banks hereby permanently waive any Default or Event of
Default arising as a result of breaches by Borrowers: (a) as of September 30,
1999, of the requirements of Section 10.4(a), (b) and (c) of the Agreement and
(b) as of December 31, 1999, of the requirements of Section 10.4(c) of the
Agreement (as such Section was in effect prior to this Amendment).
4. REPRESENTATIONS
Borrowers hereby represents and warrants that:
4.1 Execution, delivery and performance of this Amendment and any other
documents and instruments required under this Amendment or the Agreement are
within Borrowers' powers, have been duly authorized, are not in contravention of
law or the terms of Borrowers' Articles of Incorporation or Bylaws, and do not
require the consent or approval of any governmental body, agency, or authority.
4.2 This Amendment, and the Agreement as amended by this Amendment, and any
other documents and instruments required under this Amendment or the Agreement,
when issued and delivered under this Amendment or the Agreement, will be valid
and binding in accordance with their terms.
4.3 The continuing representations and warranties of Borrowers set forth in
Sections 8.1 through 8.7 and 8.9 through 8.19 of the Agreement are true and
correct on and as of the date hereof with the same force and effect as if made
on and as of the date hereof.
4.4 The continuing representations and warranties of Borrowers set forth in
Section 8.8 of the Agreement are true and correct as of the date hereof with
respect to the most recent financial statements furnished to Bank by Borrowers
in accordance with Section 9.1 of the Agreement.
4.5 Except to the extent expressly waived hereby to the best of Borrowers'
knowledge, no Event of Default, or condition or event which, with the giving of
notice or the running of time, or both, would constitute an Event of Default
under the Agreement, has occurred and is continuing as of the date hereof.
5. MISCELLANEOUS
5.1 This Amendment may be executed in as many counterparts as Agent, Banks
and Borrowers deem convenient and shall be deemed to be effective upon the later
of February 15, 2000 and the date of satisfaction of the following conditions:
(a) delivery to Agent of counterparts hereof executed by each of the Borrowers,
Agent and the Majority Banks; (b) delivery by Borrowers to Agent, in form and
substance satisfactory to Agent, of each of the documents and instruments listed
on the Checklist attached as Exhibit "A" hereto; and (c) payment by Borrowers to
the Agent, for distribution to each Bank who has executed this amendment on or
before close of business February 15, 2000, an amendment and waiver fee in the
amount of 0.15 percent of each such Bank's share of the Revolving Loan
Commitment. Agent shall provide Banks with written notice of the date upon which
this Amendment becomes effective.
5.2 Borrowers, Agent and the Banks acknowledge and agree that:
(a) in the determination of Net Income under the Agreement, Borrowers
have historically capitalized "pre-contract costs" (defined below) but that
there are in effect changes to GAAP which may require such pre-contract costs to
be expensed. In the event that, upon the advice of its auditors, Borrowers
hereafter determine that such pre-contract costs must be expensed, Borrowers,
Agent and the Banks shall, in good faith, negotiate amendments to Section 10.4
of the Agreement and/or to the definitions impacted by such change in accounting
treatment
Page 18
<PAGE> 7
for the purpose of eliminating such impact in the determination of Borrower's
compliance with Section 10.4 hereof, provided, however (i) that nothing above
shall be interpreted or construed as requiring Agent or any Bank to enter into
or consent to any such amendment, to the extent that, after giving effect
thereto, the covenants set forth in Section 10.4 of the Agreement (as so
amended) would be in any respect less protective of the Agent and the Banks than
such covenants are after giving effect to this Amendment, (ii) Borrowers shall
notify Agent and the Banks, in writing, of any determination that pre-contract
costs must be expensed on or before March 31, 2000 and, together with such
notification, shall provide such information as Agent or any Bank requires to
evaluate the impact of such change in accounting treatment, and (iii) to the
extent that any such amendment is agreed to by Borrowers, Agent and the Banks
and such amendment is limited strictly to eliminating the impact of such change
in accounting treatment, no amendment fee shall be due in connection therewith;
and
(b) except as specifically amended and/or waived herein and hereby, all
of the terms and conditions of the Agreement and the Loan Documents, remain in
full force and effect in accordance with their original terms.
"Pre-contract costs", as used in Section 5.2(a) above, means advance
program management and engineering costs in amounts of up to Two Million Dollars
($2,000,000) during any fiscal year in connection with Borrowers' design and
development of products to be sold under long-term supply arrangements.
5.3 Borrowers shall pay all of Agent's legal costs and expenses (including
attorneys' fees and expenses) incurred in the negotiation, preparation and
closing hereof, including, without limitation, costs of all lien searches and
financing statement filings.
5.4 Except as specifically set forth herein, nothing set forth in this
Amendment shall constitute, or be interpreted or construed to constitute, a
waiver of any right or remedy of Agent or the Banks, or of any default or Event
of Default whether now existing or hereafter arising.
[SIGNATURE PAGE FOLLOWS]
Page 19
<PAGE> 8
WITNESS the due execution hereof as of the day and year first above
written.
TALON AUTOMOTIVE GROUP, INC. VELTRI METAL PRODUCTS CO.
By: By:
----------------------------------- ----------------------------------
Its: Its:
---------------------------------- ----------------------------------
COMERICA BANK, as Agent and Bank LASALLE BANK NATIONAL ASSOCIATION
(formerly LaSalle National Bank)
By: By:
----------------------------------- ----------------------------------
Its: Its:
---------------------------------- ----------------------------------
NATIONAL BANK OF CANADA, PARIBAS
NEW YORK BRANCH
By: By:
----------------------------------- ----------------------------------
Its: Its:
---------------------------------- ---------------------------------
And And
By: By:
----------------------------------- ----------------------------------
Its: Its:
---------------------------------- ----------------------------------
MICHIGAN NATIONAL BANK BANK BOSTON, N.A.
By: By:
----------------------------------- ----------------------------------
Its: Its:
---------------------------------- ----------------------------------
DRESDNER BANK AG NEW YORK AND
GRAND CAYMEN BRANCHES
By:
-----------------------------------
Its:
----------------------------------
And
By:
----------------------------------
Its:
----------------------------------
Page 20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AS OF APRIL 1, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-01-2000
<CASH> 1,300
<SECURITIES> 0
<RECEIVABLES> 60,535
<ALLOWANCES> 408
<INVENTORY> 17,582
<CURRENT-ASSETS> 112,948
<PP&E> 138,483
<DEPRECIATION> 49,823
<TOTAL-ASSETS> 263,840
<CURRENT-LIABILITIES> 106,631
<BONDS> 120,000
0
0
<COMMON> 1,250
<OTHER-SE> (18,100)
<TOTAL-LIABILITY-AND-EQUITY> 263,840
<SALES> 85,682
<TOTAL-REVENUES> 85,682
<CGS> 74,779
<TOTAL-COSTS> 7,674
<OTHER-EXPENSES> (8)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,619
<INCOME-PRETAX> (1,232)
<INCOME-TAX> 989
<INCOME-CONTINUING> (2,371)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,371)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
