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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-19544
AUTOCAM CORPORATION
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(Exact name of Registrant as specified in its charter)
Michigan 38-2790152
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4070 East Paris Ave., Kentwood, Michigan 49512
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (616) 698-0707
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Without Par Value
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(Title of Class)
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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 No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of voting stock of the Registrant held by
non-affiliates was $44,091,740 as of September 15, 1999.
The number of shares outstanding of the Registrant's common stock as of
September 15, 1999 was 6,311,090 shares of common stock without par value.
DOCUMENTS INCORPORATED BY REFERENCE
None.
[Cover page 2 of 2]
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AUTOCAM CORPORATION
FORM 10-K
Year Ended June 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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PART I.
<S> <C> <C>
Item 1. Business 4-9
Item 2. Properties 9-10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security-Holders 10
PART II.
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 11
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 11
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 12
PART III.
Item 10. Directors and Executive Officers of the Registrant 12-14
Item 11. Executive Compensation 14-19
Item 12. Security Ownership of Certain Beneficial Owners and Management 19
Item 13. Certain Relationships and Related Transactions 20-21
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - Index 21-25
SIGNATURES
Principal Executive Officer, Principal Financial and Accounting Officer 27
Directors 27
EXHIBITS E-1 - E-100
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
The Company designs and manufactures close-tolerance, specialty metal-alloy
components sold to the transportation and medical device industries. These
components are used primarily in gasoline and diesel fuel, power steering and
braking systems and devices for surgical procedures. The Company's production
equipment consists of high-precision, automatic cam-driven turning machines and
computer numerically-controlled turning, milling and grinding machines capable
of high-volume production while maintaining close tolerances.
BUSINESS STRATEGY
The Company's sales have grown from $18 million in fiscal 1990 to $179 million
in fiscal 1999. The Company's management attributes its growth to the following
factors: (i) the strategic acquisitions of complementary businesses; (ii) the
trend toward more environmentally efficient port electronic fuel injectors;
(iii) increased sales of anti-lock braking and power steering system components
reflecting increased demand and acceptance of these safety features; and, (iv)
the introduction of precision-machined medical devices, including stents, to its
product offerings. The Company's growth and profitability reflect its business
strategy to:
- Identify Products Which are Early in Their Life Cycles - The Company
selectively pursues new sales opportunities based primarily on
identifying products early in their product life cycles that have
strong unit growth potential. The Company believes these components can
be manufactured with unit price structures and quality standards that
favor the Company in its highly competitive environment. By identifying
products early in their life cycles and building strong customer
relationships, sales growth has been enhanced through sole source,
long-term supply contracts with selected customers. In fiscal 1999, 73%
of the Company's total sales were to five customers, Robert Bosch
Corporation, Delphi Automotive Systems, Inc., SMI-Koyo Group, ZF
Friedrichshafen AG, and TRW, Inc.
- Provide Technologically High Quality Products on a Timely Basis - The
Company believes that the reputation it has achieved in supplying high
quality components has been instrumental in allowing it to achieve new
business and maintain existing business. The Company's manufacturing
strategy is to produce high-volume, close-tolerance, high-precision
components that have excellent growth prospects. To this end, the
Company has identified products in the transportation industry, such as
fuel, power steering and braking system components and the medical
devices industry, such as minimally invasive ophthalmic and
cardiovascular surgery equipment components. As the recipient of
numerous quality awards from its customers, the Company has used in the
past and expects to use in the future this experience and knowledge to
diversify its industry, customer and product bases.
- Focus on Aggressively Reducing Cost - Since its inception, the Company
has emphasized a continuous improvement program involving all
employees. The Company believes that this ongoing program, in
conjunction with the capital expenditures it has made, allows it to be
the low-cost producer of the products it manufactures. The Company
believes that there are future opportunities to increase efficiency,
improve productivity and reduce costs.
- Capitalize on Acquisition Integration Experience - The Company has made
four acquisitions since 1992. The Company has successfully integrated
these acquisitions and implemented a series of strategic changes
designed to improve product quality, and reduce manufacturing and
administrative costs.
The Company intends to continue focusing on manufacturing components requiring
high-volume, close-tolerance, high-
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precision production, which have excellent growth prospects. The Company's
strategy is to expand its base of transportation customers as well as diversify
its product mix to that market. Current and future supplier consolidation within
the industry will require the Company to provide high-tolerance machining
capability for the production of many more products in order to maintain its
position as a premier supplier to the industry. In addition, the Company plans
to increase its penetration of non-transportation markets, such as medical
devices, by identifying products consistent with its business strategy. These
expansion plans may be realized through strategic acquisitions. The Company is
continually seeking to acquire businesses that complement and expand its product
offerings. Such opportunities should be created as original equipment
manufacturers ("OEM") continue to consolidate their supplier bases.
MARKETS
The Company currently sells its products in the transportation and medical
devices industries as described below.
Transportation Industry. The transportation parts industry is composed of two
major segments -- the OEM market and the transportation aftermarket. The Company
sells substantially all of its products to tier-one and tier-two suppliers to
OEMs for installation as original equipment on new cars, trucks and heavy
equipment. The market for new cars and light trucks is large and cyclical, with
new vehicle demand tied closely to the overall strength of the local economy.
Developments within the industry, including consolidation among suppliers and
increased outsourcing of components by OEMs, have substantially altered the
competitive environment for transportation suppliers and have had a favorable
impact on the Company's growth.
Due to ever-increasing global competition, OEMs are continually revising their
supplier requirements. OEMs are requiring suppliers to meet increasingly strict
standards of quality, overall cost reductions and increased support for up-front
design, engineering and project management. These requirements are continually
accelerating the trend toward consolidation of the OEMs' supplier bases. For
more capable suppliers, the new environment will continue to create the
opportunity to grow rapidly by obtaining business previously provided by other
suppliers.
In addition, automotive manufacturers are producing vehicles with more features
designed for convenience, vehicle performance, and, in response to both state-
and federally-imposed standards related to safety and the environment such as
the Federal Corporate Average Fuel Economy Requirements, emission standards and
passive restraint requirements. The requirements of reducing fuel consumption
while meeting increasingly stringent exhaust emissions dictate increasing
complexity in automotive engines and engine design. As a result, new, more
sophisticated systems have been added to automobiles that require components of
the type produced by the Company. As the OEMs follow this trend, significant
opportunities should develop for the Company.
The Company believes it will continue to be well positioned as a supplier to
this market.
Medical Devices Industry. The health care industry continues to undergo a major
transformation affecting all segments of the industry. While the final outcome
of this transformation is unknown, certain identifiable developments have
already impacted this industry. Global and individual consumer economics are
transforming the medical industry. Health care in the next century will be
controlled by a concern for cost effectiveness, process efficiency, and ease of
access. One of the most visible change resulting from this trend will be the
proliferation of outpatient and non-physician attended facilities. These
facilities will require more compact, mobile and user-friendly diagnostic and
surgical devices. The industry is also demanding suppliers that enhance quality
while lowering costs.
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Research and development departments of leading medical instrument manufacturers
are working diligently to respond to these changes with new and redesigned
products. Leading companies are exploring design and production alternatives
that will enhance quality while lowering overall costs. To help them achieve
this goal, manufacturers are actively seeking partnerships with suppliers who
can bring intelligence, ingenuity and expertise to the R&D process. Because of
the Company's reputation as a low total cost supplier to the transportation
market, it is in an excellent position to lead the medical industry's move to
greater cost efficiency. The Company's goal is to apply proactive engineering
services to the needs of this important and lucrative market. As the Company
builds relationships with market leaders in ophthalmic instrumentation, it is
actively pursuing additional partners in the areas of cardiovascular devices and
other invasive surgical products.
The Company believes it can capitalize on its transportation manufacturing
expertise by applying these skills to similar manufacturing processes used
within the medical devices industry. The Company has made positive impressions
on companies within this market who were skeptical about a transportation
company's ability to meet the expectations of the medical industry.
PRODUCT APPLICATIONS
A summary of the Company's sales and percentage of total sales by product
application for each of the last three fiscal years is presented on page E-73 of
the Exhibit 13 to this Form 10-K.
Fuel Systems. Fuel system component sales represented 46%, 57% and 74% of the
Company's sales for the years ended June 30, 1999, 1998 and 1997, respectively.
The Federal Clean Air Act mandates drastic cuts in tailpipe emissions, creating
intense market demand for cleaner-burning, more efficient fuel systems. The
adoption of tougher Corporate Average Fuel Economy (CAFE) standards will further
heighten this demand. From a fuel injection application standpoint, a leading
automotive research firm estimates that approximately 21% of the vehicles
produced use diesel engines and 8% use carburated engines, leaving the majority
of the engines produced, approximately 71% or 37 million, as gasoline fuel
injected. Autocam estimates that the average car has 3.86 fuel injectors.
In large part, electronic fuel injection has replaced carburetors. Virtually all
modern light vehicles in mature markets utilize fuel injection systems. Although
that description suggests the market is saturated, fuel injection systems are
evolving rapidly, and new components should stimulate opportunities for the
Company to gain market share.
Port Electronic Fuel Injection ("Port EFI") will play a key role in the
worldwide move to greater fuel efficiency. These systems are rapidly replacing
less efficient Throttle Body Injection (TBI) systems. Where TBI systems require
only one or two injectors per engine, Port EFI systems require one injector per
cylinder, exponentially increasing the size of the fuel injector market. Autocam
manufactures several components used in Port EFI systems.
Power Steering Systems. Power steering system component sales represented 24% of
the Company's sales for the year ended June 30, 1999. No sales of these products
were reported in fiscal 1998 or 1997. A manual power steering system
incorporates the following elements: a steering wheel; shaft and column; either
a manual gearbox and pitman arm or a rack and pinion assembly; linkage; steering
knuckles and ball joints; and, wheel spindle assemblies. The power steering
system adds a hydraulic pump, fluid reservoir, hoses, lines, and a power assist
unit mounted on, or integral with, a power steering gear assembly.
In the U.S. market, power steering appears as factory-installed equipment in
slightly over 98% of all passenger cars and light trucks. The primary benefits
to consumers are comfort, convenience, and possibly safety. Parking maneuvers,
in particular, can be difficult without the multiplying effect of the powered
assistance.
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Growth of power steering for the U.S. market will depend on growth in the
vehicle build, since this market is essentially saturated with the current
technology. There appears to be more opportunity in other mature markets. In
Europe, penetration has risen from 20% in 1989 to 60% in 1997. The pattern of
adoption has been typical, with the features showing up first on large luxury
vehicles and then trickling down to more mass-market applications. The room for
penetration in the European market and the above-average complexity of the
components used in these systems provides a vehicle for growth for the Company's
French operations.
Brake Systems. Braking system component sales represented 13%, 20% and 11% of
the Company's sales for the years ended June 30, 1999, 1998 and 1997,
respectively. Like fuel injection, the popularity of anti-lock brakes (ABS) is
significant. Millions of safety-conscious consumers have embraced ABS, and it
has become available on more and more lower-priced vehicles as the cost of the
technology has declined. Once expected to reach extremely high penetration
rates, the installation of the ABS feature has tapered off at 63% of North
American light vehicles in 1998. Part of the problem can be traced to the debate
over the effectiveness of ABS, an issue brake suppliers thought they had put to
rest years ago. ABS suppliers are exploring technological changes that will make
ABS lighter, more affordable, and better performing. It is likely that future
growth of ABS will occur in conjunction with other electronic brake and
suspension control systems.
ABS components have been identified by Company management as fitting well with
is core competencies, and the Company's customers recognize these competencies
as the Company is quickly becoming the component supplier of choice to the ABS
market. Its customers controlled over 70% of the 1998 light vehicle ABS market.
These companies are also among the industry's technological leaders and
frequently look to the Company for invaluable precision-machining expertise. The
Company's engineers are constantly working to help its customers keep up with
the pace of innovation, thereby increasing its market penetration.
Other Transportation Applications. Other automotive components sales represented
11%, 3% and 2% of the Company's sales for the years ended June 30, 1999, 1998
and 1997, respectively. The Company manufactures components used in automotive
electromechanical motors, which allow for the remote operation of power windows,
door locks and seats. The Company believes that the consumer-desired safety and
convenience of these features will lead to increased sales of these systems and
corresponding increased sales of components manufactured by the Company.
Medical Devices. Medical device components sales represented 4%, 11% and 10% of
the Company's sales for the years ended June 30, 1999, 1998 and 1997,
respectively. The Company believes it can capitalize on its transportation
manufacturing expertise by applying these skills to similar manufacturing
processes used within the medical devices industry. The Company has already made
positive impressions on companies within this market who were skeptical about a
transportation industry company's ability to meet the expectations of the
medical industry.
The Company's fastest growing market segment in the medical field, the stent
business, is a high priority. The Company's sales staff is vigorously
prototyping new designs and contacting potential new customers. Presently, there
are four stent designs in use -- slotted tube, coil, wire mesh, and ring. Each
has its advantages and disadvantages; however, the Company is presently
producing only one of the designs, the slotted tube stent. This is the design
that started the business and is the stent of choice for a majority of
applications. Stents, a scaffold like device used to keep human blood vessels
open after balloon angioplasty, were identified as a product that fit the
Company's core competencies.
The Company also produces components used in ophthalmic hand pieces. This is a
mature product line with strong margins, but limited growth prospects with the
current customer.
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MANUFACTURING
The Company manufactures its products using turning, grinding and milling
processes. Substantially all of the Company's production machinery has been
acquired new since 1985 and consists of high-precision, automatic cam-driven
turning machines and computer numerically-controlled turning, milling and
grinding machines. These machines are capable of high-volume production while
maintaining close tolerances. Products are typically produced from bar stock
using multi-spindle cam automatic bar machines or centerless grinders. Secondary
machining in some cases is necessary. Parts are then deburred, cleaned, in some
cases, plated or heat treated at outsource locations, packaged and shipped
directly to the customer.
On a new job, the first parts produced are used to establish process capability
and sent to the customer for approval. After approval, the part is placed in the
Company's production planning systems and, as production begins, statistical
process control techniques are employed to maintain quality and gather data for
the Company's continuous improvement efforts. The continuous improvement process
focuses the attention of all employees on improving each step of the process in
order to increase quality, lower cost and improve customer service. In the
manufacturing area, this focus emphasizes reducing dimensional variation to
narrow the tolerance range for a given process, increasing perishable tool life,
reducing scrap, and increasing both human and equipment productivity.
Raw materials and other resources used by the Company are generally not
restricted in availability. The Company purchases certain specialty alloys from
a dedicated source and the Company's customers allow for the pass through of
certain raw material adjustments. In the last year, the Company has not
experienced any significant price fluctuations. The Company does not purchase
any raw materials pursuant to blanket resale programs with its customers.
MARKETING AND SALES
The Company markets its products primarily by bidding upon component
specifications submitted by the customer. In addition, the Company makes direct
calls on potential customers, through its internal sales department and the use
of independent sales representatives. It is the Company's objective to establish
long-term sole source contracts in order to strengthen its position in the
marketplace. The Company continues to expand its base of customers in order to
reduce its dependence on any particular customer or industry.
CONTRACTS AND PURCHASE ORDERS
The Company's transportation customers typically award blanket purchase orders
for each calendar year, and is occasionally successful in receiving
life-of-the-product supplier agreements. The remainder of its components may be
subject to an annual rebidding process.
Additionally, the Company is currently operating with open and blanket purchase
orders from approximately 20 customers primarily covering transportation fuel,
power steering and braking system and medical device components. Orders are not
firm under blanket purchase orders until specific releases are granted.
BACKLOG AND SEASONALITY
The Company's business is relatively consistent throughout the year, except for
slowness traditionally experienced in July and August due to automotive model
changeovers and European holiday and during late December as its customers in
the transportation industry typically shut down around the Christmas and New
Year holidays.
The Company does not reflect an order in backlog until it has received a
purchase order and release committing to a quantity and delivery date.
Generally, orders are shipped within three months of a release and as a result,
the Company does not believe backlog is a material concept to its business.
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COMPETITION
The markets in which the Company competes are highly competitive, and the
Company believes that it competes within the above industries on the basis of
price, quality and technology. The Company believes that there are approximately
40 companies in the United States that have the equipment to be manufacturers of
precision metal parts in competition with the Company. The Company also competes
with approximately 10 companies in Europe and Asia. Certain of the Company
customers have greater resources than the Company and could move component
production currently manufactured by the Company in-house. Some of the
components currently manufactured by the Company can also be manufactured using
alternative technologies including stamping and coldheading processes which, in
some cases, can process high-precision parts as efficiently as those
technologies utilized by the Company.
EMPLOYEES
The Company had 1,773 full-time employees as of June 30, 1999. The following
table shows employment by manufacturing facility:
<TABLE>
<S> <C>
Pochons, France 467
Ternier, France 379
Kentwood, Michigan 252
Pinhal, Brazil 178
Campinas, Brazil 159
Dowagiac, Michigan 110
Boituva, Brazil 83
Marshall, Michigan 77
Hayward, California 42
Gaffney, South Carolina 26
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Totals 1,773
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</TABLE>
None of the Company's U.S. employees are part of a collective bargaining unit.
Governmental unions represent all French and Brazilian employees. The Company
has never experienced a work stoppage and considers relations with its employees
to be excellent.
EXPORT SALES
During the fiscal years ended June 30, 1999, 1998 and 1997, the Company's U.S.
operations exported fuel and braking system, computer electronic, and
refrigeration and air-conditioning system components to 14 customers in Europe,
Mexico, Canada, Brazil and Asia resulting in sales of $8,296,000, $9,032,600 and
$8,485,000, respectively.
ITEM 2. PROPERTIES
The Company owns or leases manufacturing facilities suitable and adequate for
the production and marketing of its products. The Company's executive and
administrative offices occupy 12,000 square feet of its Kentwood, Michigan
facility. The following is a list of the Company's locations and approximate
square footages:
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<TABLE>
<CAPTION>
Approximate Square
Feet
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Owned:
Kentwood, Michigan 88,000
Dowagiac, Michigan 67,000
Marshall, Michigan 56,000
Gaffney, South Carolina 25,000
Leased:
Pochons, France 143,000
Kentwood, Michigan 100,000
Ternier, France 73,000
Boituva, Brazil 36,000
Hayward, California 27,000
Pinhal, Brazil 24,000
Campinas, Brazil 22,000
</TABLE>
The Company subleases 67,000 square feet of its leased Kentwood, Michigan
facility to a company related by virtue of its 100%-ownership by the Company's
president.
The Company has machinery and equipment with an aggregate cost of $184,939,000.
The Company owns $164,623,000 of this equipment and $20,316,000 is leased under
operating leases. For information concerning minimum future lease payments under
non-cancelable leases, see Note 6 of Notes to Consolidated Financial Statements
filed as Exhibit 13 hereto.
The Company believes its facilities are modern, well maintained, adequately
insured and suitable for their present and intended uses. In order to meet
demand primarily from transportation customers, management will purchase $15-20
million of equipment over the next year (on which deposits of $2.8 million had
been placed as of June 30, 1999). See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources," below.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently involved in any legal proceedings other than
ordinary or routine proceedings incidental to its operations, which in the
opinion of management, would not have a material adverse effect on the Company
if determined against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol ACAM. The following table sets forth the
range of high and low sales prices of the Company's common stock as reported by
the Nasdaq Stock Market, adjusted for the effects of share dividends issued
during the periods presented.
<TABLE>
<CAPTION>
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High Low
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<S> <C> <C>
Fiscal 1999:
Fourth quarter 13 1/2 8 1/2
Third quarter 16 1/2 8
Second quarter 16 1/2 10 3/8
First quarter 17 1/8 11 5/16
Fiscal 1998:
Fourth quarter 20 1/8 15 5/8
Third quarter 15 15/16 12 1/2
Second quarter 14 3/4 11 9/16
First quarter 12 1/2 9 3/4
</TABLE>
As of September 15, 1999, 183 holders of record, and approximately 2,000
beneficial shareholders held the Company's common stock.
Dividends
The Company began paying quarterly cash dividends of two cents per common share
in the second quarter of fiscal 1997. The Company expects this practice of
paying quarterly dividends on its common shares will continue, although future
dividends will continue to depend upon the Company's earnings, capital
requirements, financial condition and other factors.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this Item 6 is incorporated by reference to page E-71 of
the Company's Consolidated Financial Statements for the years ended June 30,
1999, 1998 and 1997 filed as Exhibit 13 hereto.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information required by this Item 7 is incorporated by reference to pages E-72 -
E-79 of the Company's Consolidated Financial Statements for the years ended June
30, 1999, 1998 and 1997 filed as Exhibit 13 hereto.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Registrant hereby incorporates the financial statements required by this Item 8
by reference to Item 14(a)(1) hereof, and the supplementary financial
information required by this Item 8 by reference to the Company's Consolidated
Financial Statements as of June 30, 1999 and 1998 and for the years ended June
30, 1999, 1998 and 1997, filed as Exhibit 13 hereto.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Board of Directors presently consists of seven members. The terms of the two
existing directors in Class II, David J. Wagner and Kim Korth, expire at the
Company's next annual meeting. They have agreed to stand for re-election and
serve if elected.
Although it has no present plans to do so, the bylaws of the Company permit the
Board of Directors to further increase its number and to fill the vacancies thus
created.
The Articles of Incorporation of the Company provide that the directors are
elected by classes, indicated by the table below, with terms expiring upon
election of their successors at the annual meeting of shareholders following the
close of the Company's 1999, 2000 and 2001 fiscal years, respectively. Thus, one
class of directors, consisting of two or three members, as the case may be, are
elected each year to serve for a three-year term.
The table below identifies and provides certain information regarding each of
the existing directors and the class to which each director is now elected. The
table below also identifies and provides certain information regarding the
executive officers and certain key employees of the Company.
DIRECTORS WHOSE TERMS EXPIRE AT THE NEXT ANNUAL MEETING:
Class II -- Nominated for election at the meeting to serve until the annual
meeting of shareholders in 2002 and until their successors are elected:
<TABLE>
<CAPTION>
Has Served as
NAME PRINCIPAL OCCUPATION AGE DIRECTOR SINCE
---- -------------------- --- --------------
<S> <C> <C> <C>
David J. Wagner (1)(2) Chairman, President, Chief Executive 45 October 1991
Officer of Old Kent Financial Corporation
Kim Korth (1) President, International Resource Network, Inc. 44 August 1997
</TABLE>
David J. Wagner has been Chairman since November 1995 and President and Chief
Executive Officer since March 1995 and was President since March 1994 of Old
Kent Financial Corporation, a bank holding company, and was has been Chairman of
the Board and Chief Executive Officer of Old Kent Bank for more than the
preceding five years.
Kim Korth has been the owner and President of International Resource Network,
Inc., an automotive consulting and market research firm, for more than five
years.
DIRECTORS WHOSE TERMS CONTINUE BEYOND THE NEXT ANNUAL MEETING:
Class III -- To serve until the annual meeting of shareholders in 2000 and until
their successors are elected:
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<TABLE>
<CAPTION>
PRINCIPAL HAS SERVED AS
NAME OCCUPATION AGE DIRECTOR SINCE
---- ---------- --- --------------
<S> <C> <C> <C>
John C. Kennedy President, Chief Executive Officer of Company 41 April 1988
Kenneth K. Rieth (2) President, Chief Executive Officer of Riviera 40 October 1991
Tool Company
Mark J. Bissell (1) President, Chief Executive Officer of 42 October 1997
BISSELL Inc.
</TABLE>
John C. Kennedy has been a Director and President of the Company since its
inception in April 1988. Mr. Kennedy graduated with a Bachelor of Science degree
in Accounting and Finance from the University of Detroit in 1979.
Kenneth K. Rieth is a principal owner and for more than the past five years has
been a director and the President and Chief Executive Officer of Riviera Tool
Company, a Michigan corporation engaged in the manufacture of sheet metal
stamping dies for the automotive industry.
Mark J. Bissell has been President and Chief Executive Officer since April 1996,
and President and Chief Operating Officer from January 1994 to March 1996 of
BISSELL Inc., a manufacturer of floor care cleaning products, including carpet
vacuums, cleaners and sweepers. For more than two years prior to that, he served
as a Senior Vice President of BISSELL Inc., and as the General Manager of the
BISSELL Homecare Division.
Class I -- To serve until the annual meeting of shareholders in 2001 and until
their successors are elected:
<TABLE>
<CAPTION>
PRINCIPAL HAS SERVED AS
NAME OCCUPATION AGE DIRECTOR SINCE
---- ---------- --- --------------
<S> <C> <C> <C>
Warren A. Veltman Secretary, Treasurer, Chief Financial Officer 38 October 1991
of Company
Robert L. Hooker (1) Chief Executive Officer, Mazda Great Lakes 69 January 1992
</TABLE>
Warren A. Veltman has been with the Company since November 1990 as the Chief
Financial Officer and Secretary/Treasurer since August 1991. Mr. Veltman
graduated in 1983 with a Bachelor of Business Administration degree from the
University of Michigan.
Robert L. Hooker has been Chief Executive Officer of Mazda Great Lakes, a
Michigan corporation engaged in the distribution of automobiles and related
products, for more than five years.
- ----------
(1) Member of Compensation Committee
(2) Member of Audit Committee
KEY EMPLOYEES:
<TABLE>
<CAPTION>
NAME POSITION WITH COMPANY AGE
---- --------------------- ---
<S> <C> <C>
David H. Livingston Chief Operating Officer 49
Thomas K. O'Mara Sales and Marketing Manager 38
</TABLE>
David H. Livingston has been with the Company since 1998 as the Chief Operating
Officer. Mr. Livingston was most recently Senior Vice President of Operations
for Delco Remy America since 1996, and Vice President for United Technologies
Automotive for more than two years prior thereto. Mr. Livingston graduated in
1973 with a Bachelor of Science degree in Mechanical Engineering from the
University of Kentucky.
13
<PAGE> 14
Thomas K. O'Mara has been with the Company since November 1989 as the Sales and
Marketing Manager. Mr. O'Mara graduated in 1982 with a Bachelor of Science
degree in Marketing from Central Michigan University.
BOARD MEETINGS AND COMMITTEES
The Directors had five meetings during the past fiscal year and acted twice by
consent resolution. No director attended less than 75% of directors meetings,
including appropriate committee meetings.
The Board of Directors has an audit committee, which is responsible for
approving the services performed by the Company's independent public accountants
and reviewing and evaluating the Company's accounting principles, reporting
practices and systems of internal control. The current members of the committee
are Messrs. Rieth and Wagner. The committee held two meetings during the last
fiscal year.
The Board of Directors has a compensation committee, which has the
responsibility of determining executive compensation and granting options
pursuant to the Company's 1991 Incentive Stock Option Plan. During fiscal 1999,
this committee consisted of Messrs. Wagner, Hooker, and Bissell and Ms. Korth.
The committee met five times during the fiscal year.
The Company has no nominating committee, the functions of which are performed by
the Board of Directors.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's
directors and certain officers and persons who own 10% or more of the Company's
common stock file with the SEC and the NASDAQ National Market System initial
reports of ownership and reports of changes in ownership of Company Common
Stock. These officers, directors and 10% shareholders are required by SEC
regulation to furnish the Company with copies of these reports. To the Company's
knowledge, based solely upon review of the copies of such reports furnished to
the Company and written representations that no other reports were required
during the fiscal year ended June 30, 1999, all Section 16(a) requirements
applicable to its officers, directors and 10% beneficial owners were complied,
except that Messrs. Kennedy, Veltman and Livingston were late in filing their
required Forms 5, reporting their purchase of 318 shares of Company common stock
via a matching contribution by the Company in the Company's 401(k) employee
savings plan available to all regular employees of the Company.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
The Company's compensation program for officers is administered by the
Compensation Committee of the Board of Directors which is currently composed of
Ms. Korth and Messrs. Hooker, Wagner and Bissell.
Overall Officer Compensation Policy
The Company's compensation policy for executive officers is designed to support
the overall objective of enhancing value for shareholders by attracting,
developing, rewarding, and retaining highly qualified and productive
individuals, relating compensation to both Company and individual performance,
and ensuring compensation levels that are externally competitive and internally
equitable. To that end, the committee had an updated executive compensation
review performed in April 1999 by an independent compensation consultant, Watson
Wyatt Worldwide. In short, the report concluded that the base compensation level
for the Company's chief executive officer is "lower than would be expected,"
particularly in comparison to comparable companies.
14
<PAGE> 15
The key elements of the Company's officer compensation consist of base salary, a
maximum formula bonus for Mr. Kennedy and a discretionary bonus and stock
options for Messrs. Veltman and Livingston. The Compensation Committee's
policies with respect to each of these elements, including the bases for the
compensation awarded to Mr. Kennedy, are discussed below. In addition, while the
elements of compensation described below are considered separately, the
Compensation Committee takes into account the full compensation package afforded
by the Company to the individual, including insurance and other benefits.
Base Salary
The Committee reviews each officer's salary annually. In determining appropriate
salary levels, consideration is given to scope of responsibility, experience,
Company and individual performance as well as pay practices of other companies
relating to executives with similar responsibility.
With respect to the base salary of Mr. Kennedy in 1999, the Compensation
Committee took into account a comparison of base salaries of chief executive
officers of peer companies known to the members of the Committee, the Company's
continued financial success, and the assessment by the Compensation Committee of
Mr. Kennedy's individual performance. The Compensation Committee took into
account the longevity of Mr. Kennedy's service to the Company and its belief
that Mr. Kennedy is an excellent representative of the Company to the public by
virtue of his stature in the community and the industry. Mr. Kennedy's base
salary of $150,000 was established by the Board of Directors in September 1991.
Taking into consideration the report and recommendations of Watson Wyatt
Worldwide that Mr. Kennedy's base salary is below the 25th percentile among peer
companies, the Compensation Committee decided that Mr. Kennedy's base salary
should be increased. Effective April 29, 1999, his base compensation was
increased to $200,000 per year and premiums on four existing split dollar
insurance policies owned by Mr. Kennedy would continue to be paid by the
Company. Mr. Kennedy pays the Company the portion of the premiums equal to the
price of an equivalent amount of term insurance. The benefit to Mr. Kennedy of
premiums paid by the Company is the interest-free use of the non-term portion of
the premium. Such benefit was estimated at $86,333, calculated as the present
value of the interest payments not required to be made assuming Mr. Kennedy
would not repay the non-term portion until age 65, discounted at a market rate
of 8.0% (see Summary Compensation Table below). The Company has a lien on the
cash value and proceeds of each policy equal to the premiums paid by the
Company. This lien amounted to $909,800 at June 30, 1999 and is carried as an
officer receivable on the books of the Company.
Bonus Awards
The Company's officers may be considered for annual cash bonuses, which are
awarded to recognize and reward corporate and individual performance based on
meeting specified goals and objectives. The plan in effect for 1999 for Mr.
Kennedy provides that a bonus, not exceeding 3.5% of the Company's income from
operations before such bonus expense, will be awarded. This formula was
established by the Board of Directors in 1991. In awarding a bonus to Mr.
Kennedy, the Board reviews compensation levels and financial results available
to it for chief executive officers for similarly sized companies as well as
those located near the Company's headquarters. Mr. Kennedy sets Messrs.
Veltman's and Livingston's bonus based on his review of corporate and individual
performance as well as the performance bonus the management team awards to
employees of the Company generally other than Messrs. Veltman, Livingston and
Kennedy.
Stock Options
Under the Company's 1991 Incentive Stock Option Plan (the "1991 Plan"), which
was approved by the shareholders, stock options are granted to the Company's key
employees, including Messrs. Veltman, Livingston and O'Mara. Under the Company's
1998 Key Employee Stock Option Plan (the "1998 Plan"), also approved by the
shareholders, stock options are granted to the Company's key employees,
including Messrs. Kennedy, Veltman, Livingston and O'Mara. Key employees are
determined by the Compensation Committee through recommendation by the Company's
management, and the number of options granted under either plan is determined by
the subjective evaluation of the person's ability to influence the Company's
long-term growth and profitability.
15
<PAGE> 16
Stock options are granted with an exercise price equal to the market price of
the common shares on the date of grant. In fiscal 1999, options were granted to
Messrs. Kennedy, Veltman, O'Mara and Livingston under the 1998 Plan. Since the
value of an option bears a direct relationship to the Company's stock price, it
is an effective incentive for employees to create value for shareholders. The
Committee therefore views stock options as an important component of its
compensation policy.
Compensation Committee members:
Robert L. Hooker
David J. Wagner
Kim Korth
Mark J. Bissell.
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table
The following table sets forth the total compensation earned by each executive
officer during the fiscal years ended June 30, 1999, 1998 and 1997 for services
rendered to the Company in all capacities during such years.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation (1) Compensation
----------------------- Awards
Name and Other -------
Principal Position Annual Stock All Other
at June 30, 1999 Year Salary Bonus Compensation Options Compensation (2)(3)
---------------- ---- ------ ----- ------------ ------- -------------------
<S> <C> <C> <C> <C> <C> <C>
John C. Kennedy, 1999 $154,808(4) $262,900 $6,136 47,250 $87,333
Chairman, President 1998 150,000 313,900 6,136 81,537
and Chief Executive 1997 150,000 202,557 6,136 82,776
Officer (4)
David H. Livingston, 1999 103,846 25,025 26,250 14,967
Chief Operating
Officer (5)
Warren A. Veltman, 1999 85,096 121,025 15,750 38,096
Secretary, Treasurer 1998 75,000 110,900 14,760
and Chief Financial 1997 75,000 86,686 9,450 15,639
Officer (6)
</TABLE>
- ----------
(1) Does not include any value that might be attributable to job-related
personal benefits, the amount of which did not exceed the lesser of 10% of
annual salary plus bonus or $50,000 for each executive officer.
(2) Represents the benefit of the interest-free use of the non-term portion of
the premium paid by the Company on insurance policies owned by the individual
under split dollar arrangements. Such benefit was estimated as the present value
of the interest payments which are not required to be made assuming the
executive would not repay the non-term portion until age 65, discounted at a
market rate of 8.0%. The portion of such premiums equal to the price of
equivalent amounts of term insurance are paid to the Company by Messrs. Kennedy,
Livingston and Veltman.
(3) Includes $1,000, $1,000 and $2,000 each for Messrs. Kennedy and Veltman
contributed by the Company during fiscal 1999, 1998 and 1997, respectively, to
the 401(k) plan maintained by the Company for its employees generally. Includes
$1,000 for Mr. Livingston contributed by the Company for fiscal 1999 to the same
401(k) plan.
(4) Mr. Kennedy's current base compensation is $200,000 per annum commencing
effective April 29, 1999. He is also
16
<PAGE> 17
entitled to receive annual bonus compensation not greater than 3.5% of the
Company's income from operations prior to such bonus calculation.
(5) Mr. Livingston's current base compensation is $150,000 per annum. He is
also entitled to receive a guaranteed bonus of not less than $85,000 at the
completion of one year of service.
(6) Mr. Veltman's current base compensation is $90,000 per annum. Included in
Other Compensation is $23,388, equal to the dollar value of the difference
between the option price for common stock pursuant to stock options exercised
and the fair market value of the stock on the date of purchase.
Option Grants in the Last Fiscal Year
The following table provides information on options granted to each of the
executive officers of the Company during the fiscal year ended June 30, 1999
pursuant to the 1991 Plan or the 1998 Plan:
<TABLE>
<CAPTION>
Number of Percent of Potential Realizable
Securities Total Options Value at Assumed Annual
Underlying Granted to Exercise Rates of Stock Price
Options Employees in of Base Appreciation for
Granted Fiscal Year Price Expiration Date Option Term
------- ----------- ----- --------------- -----------
5% 10%
---- -----
<S> <C> <C> <C> <C> <C> <C>
John C. Kennedy 47,250 22.7% $12.38 September, 30, 2008 $367,875 $ 932,268
David H. Livingston 26,250 12.6% 12.38 September, 30, 2008 204,375 517,926
Warren A. Veltman 15,750 7.6% 12.38 September, 30, 2008 122,625 310,756
------ ----- -------- ----------
Total 89,250 42.9% $694,875 $1,760,950
====== ===== ======== ==========
</TABLE>
Aggregated Option Exercises in Last Fiscal Year and Option Values at Fiscal Year
End
The following table provides information on the value of options held by each of
the executive officers of the Company at June 30, 1999 measured in terms of the
closing price of the Company's common stock on that day. There were options
exercised by officers during the year.
<TABLE>
<CAPTION>
Shares Number of Unexercised Options Value of Unexercised In-The-
Acquired at June 30, 1999 Money Options at June 30, 1999
on Value ---------------- ------------------------------
Name Exercise Realized Exercisable (1) Unexercisable Exercisable (1) Unexercisable
---- -------- -------- --------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
John C. Kennedy 9,450 37,800 $ 10,584 $42,336
David H. Livingston 5,250 21,000 5,880 23,520
Warren A. Veltman 2,500 $23,388 34,682 16,767 202,809 35,240
</TABLE>
(1) Includes 9,450, 5,250 and 5,233 options which Messrs. Kennedy, Livingston
and Veltman may exercise within sixty days of September 15, 1999, respectively.
- ------------
The Company pays each director who is not an employee a fee of $10,000 per year.
17
<PAGE> 18
PERFORMANCE GRAPH
The following graph compares the cumulative total return of the Company's common
stock, for periods subsequent to June 30, 1993, with the Standard & Poor's 500
Composite Index, the Standard & Poor's SmallCap 600 Index (Auto Parts and
Equipment Industry Group) and an index of peer companies selected by the
Company.
The comparison assumes $100 was invested on June 30, 1994 in the Company's
common stock, the Standard & Poor's 500 Composite Index, the Standard & Poor's
SmallCap 600 Index (Auto Parts and Equipment Industry Group) and the peer group.
The companies in the peer group, all of which are in the automotive parts
industry, are as follows:
Arvin Industries, Inc. Mascotech, Inc.
Dana Corporation Modine Manufacturing Company
Defiance, Inc. (1) Newcor, Inc.
Douglas & Lomason Company (2) Redlaw Industries
Excel Industries, Inc. (3) Simpson Industries, Inc.
Federal Screw Works SPX Corporation
Gentex Corporation Sudbury, Inc. (5)
Howell Industries, Inc. (4) Walbro Corporation
The Lamson & Sessions Company Worthington Industries, Inc.
- ----------
(1) Defiance, Inc. was acquired by General Chemical Group in March 1999.
(2) Douglas & Lomason was acquired by Magna International in November 1996.
(3) Excel Industries, Inc. merged with Dura Automotive Systems in April 1999.
(4) Howell Industries, Inc. acquired by Oxford Automotive in August 1997.
(5) Sudbury, Inc. was acquired by Intermet Corporation in February 1997.
[PERFORMANCE GRAPH]
18
<PAGE> 19
<TABLE>
<CAPTION>
INDEXED RETURNS
- ------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED
-----------------------------------------------------------------------------------
BASE PERIOD
COMPANY NAME/INDEX JUN94 JUN95 JUN96 JUN97 JUN98 JUN99
- ------------------ ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Autocam Corporation 100 80.63 72.32 89.38 130.73 112.18
S&P 500 Index 100 126.07 158.85 213.97 278.51 341.88
Peer Group 100 108.56 115.62 134.40 159.22 170.10
Auto Parts & Equipment - Small 100 90.82 123.10 154.10 166.58 174.30
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding the beneficial ownership of
the Company's common shares by the persons who beneficially own more than 5% of
its common shares, by each director and executive officer, and by all officers
and directors of the Company as a group, as of September 15, 1999:
<TABLE>
<CAPTION>
Name of Number of Shares Percent of
Beneficial Owner Beneficially Owned Class (1)
---------------- ------------------ ---------
<S> <C> <C>
John C. Kennedy (2)(3) 3,809,431 60.4%
Warren A. Veltman (2)(4) 39,958 *
Robert L. Hooker (5) 3,123 *
David J. Wagner 4,486 *
Kenneth K. Rieth 4,727 *
Kim Korth *
Mark J. Bissell 1,575 *
David H. Livingston (2)(6) 5,354 *
FMR Corporation (7) 469,902 7.4%
All officers and directors and nominees as a
group (8 persons) (2)(4)(5)(6) 3,868,654 61.3%
</TABLE>
- ----------
(1) An asterisk indicates beneficial ownership of less than 1% of the Class.
(2) Includes shares allocated to the individual accounts within the Company's
401(k) plan.
(3) The business address for Mr. Kennedy is 4070 East Paris Avenue, Kentwood,
Michigan 49512. Includes 9,450 shares of common stock Mr. Kennedy has the right
to acquire within sixty days of September 15, 1999 through the exercise of stock
options. Total also includes 4,450 shares owned by Mr. Kennedy's spouse and over
which she exercises voting control, and 11,316 shares owned by the Kennedy
Foundation and over which Mr. Kennedy and his wife exercise joint voting and
investment control. For purposes of calculating the percentage of outstanding
shares owned by Mr. Kennedy and the group, these shares are deemed to be owned
by Mr. Kennedy.
(4) Includes 34,682 shares of common stock Mr. Veltman has the right to acquire
within sixty days of September 15, 1999 through the exercise of stock options.
Total also includes 1,052 shares owned by Mr. Veltman's wife and over which she
exercises sole voting control. For purposes of calculating the percentage of
outstanding shares owned by Mr. Veltman and the group, these shares are deemed
to be owned by Mr. Veltman.
19
<PAGE> 20
(5) Includes 859 shares over which Mr. Hooker has voting control in a fiduciary
capacity. For purposes of calculating the percentage of outstanding shares owned
by Mr. Hooker and the group, these shares are deemed to be owned by Mr. Hooker.
(6) Includes 5,250 shares of common stock Mr. Livingston has the right to
acquire within sixty days of September 15, 1999 through the exercise of stock
options.
(7) The business address for FMR Corporation is 82 Devonshire Street, Boston,
Massachusetts, 02109-3614.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Kennedy serves as President and Chief Executive Officer of the Company and
serves on the Board of Directors of Riviera Tool Company, where Mr. Rieth is
President and Chief Executive Officer and also on the Board of Directors. The
Company's Compensation Committee consists of Ms. Korth and Messrs. Hooker,
Wagner and Bissell.
The Company has entered into four Stock Redemption Agreements (the "Agreements")
dated as of November 6, 1992, September 20, 1993, August 1, 1996 and September
1, 1998 with John C. Kennedy and Nancy G. Kennedy, his wife, in their individual
capacities and as co-trustees of the John C. Kennedy Living Trust u/a, dated
February 14, 1986, as amended. The Agreements provide that upon the death of the
last to die of Mr. or Mrs. Kennedy, the Company shall redeem up to $23,000,000
of common stock in a redemption under Section 303 of the Internal Revenue Code
of 1986, as amended, in order to pay estate and inheritance taxes, and funeral
and administrative expenses of the estate. It is the Company's belief that these
Agreements will avoid a potentially significant market price impact that could
result from the Kennedy estates needing to sell Company stock in order to pay
death taxes and expenses. Pursuant to the Agreements, the Company maintains some
life insurance policies in order to fund its obligations.
The Company leases certain real property and formerly leased certain equipment
from its majority shareholder. At the beginning of fiscal 1994, all such leases
were on a month-to-month basis. Effective May 1994, the Company and its majority
shareholder executed a long-term lease covering the equipment. The lease was to
expire May 31, 2001 and granted the Company an option to purchase the equipment
at the expiration of the term. Effective January 1, 1999, the equipment lease
was terminated and the Company purchased the leased equipment from its majority
shareholder for $625,400. Total lease expense for all items leased from the
majority shareholder was $193,400 for fiscal 1999.
The Company leases a building at 4060 East Paris Avenue, S.E., Kentwood,
Michigan, adjacent to its primary facility, with approximately 100,000 square
feet suitable for industrial use. Mr. Rieth, directly or indirectly through his
wife, owns a 50% interest in such building. The lease expires in March 2005 and
contains an option to purchase the facility for a fixed price of $3,125,000 at
the expiration of the lease. Rent under the lease is fixed at $25,000 per month
for its entire term but will be adjusted to reflect changes in the interest rate
charged by the landlord's mortgage lender. Currently, that rate is fixed until
2000. The Company pays all taxes, maintenance, insurance and utilities. The
Company subleases approximately 67,000 square feet of this building on a
month-to-month basis to Conway Products Corporation, which is 100% owned by Mr.
Kennedy, at a monthly rental charge, plus occupancy expense, taxes, utilities
and insurance of approximately $283,300 in the aggregate during fiscal 1999.
The Company leases an aircraft for use in its business activities. From time to
time, Mr. Kennedy used the aircraft for personal use and paid the Company for
the variable costs of operating the aircraft incurred by the Company. This
reimbursement totaled $16,700 during fiscal 1999.
On August 13, 1998, the Company committed to acquire an aircraft for use in its
business operations from Cessna Aircraft
20
<PAGE> 21
Corporation ("Cessna") pursuant to a fifteen-year lease based upon a market
value of $4,700,000. This acquisition occurred in connection with a trade-in of
the aircraft by Mazda Great Lakes Corporation ("Mazda") to Cessna. Mr. Hooker is
an officer, director and greater than 10% shareholder of Mazda.
On May 12, 1995, the Company obtained an equipment loan from Old Kent Bank ("Old
Kent"), a division of Old Kent Financial Corporation, of which Mr. Wagner is
President and Chief Executive Officer. At the end of fiscal 1998, the principal
balance of the note was $1,458,330, which amount was secured by certain
equipment of the Company. The Company paid this obligation in monthly
installments of $41,660, plus interest of 8.35% per annum. On October 1, 1998,
the Company refinanced this loan through its primary commercial lender, Comerica
Bank ("Comerica"), as agent, and this loan has been repaid in full.
On June 27, 1997, the Company entered into a credit agreement with Comerica,
which included a $10,000,000 term loan payable in monthly principal installments
of $138,889, plus interest of 7.76% per annum. Old Kent purchased a
participation in this term loan from Comerica and the principal amount of
$3,555,555 was due to Old Kent at the end of fiscal 1998. On October 1, 1998,
the Company refinanced this loan through Comerica, as agent, and this loan has
been repaid in full. Interest paid to Old Kent on this obligation was $60,398
during fiscal 1999.
On December 23, 1997, the Company issued $9,000,000 in industrial revenue bonds,
the entire amount of which was outstanding at the end of fiscal 1998. These
bonds were backed in part by letters of credit issued by Comerica. Old Kent
agreed to assume responsibility for satisfying 40%, or $3,600,000, of the
letters of credit, and the Company agreed to be indebted to Old Kent in the
amount of any such satisfaction. The total cost to the Company of the letters of
credit during fiscal 1998 were $54,575, 40% of which was paid by Comerica to Old
Kent. Old Kent did not participate in the new lending agreement with Comerica on
October 1, 1998, and therefore, no letter of credit fees were paid to Old Kent
in fiscal 1999.
The Company has utilized and expects to continue utilizing the consulting
services of International Resource Network, Inc. where Ms. Korth is President.
During fiscal 1999, the Company incurred $51,541 in expense for such services.
The Company believes that all of the transactions described above were at rents,
prices and terms no less favorable to the Company than would have been available
in similar transactions with unaffiliated third parties. The policy of the
Company is that proposed transactions with affiliates of the Company must have
the prior approval of a majority of the disinterested members of the Board of
Directors and, as in prior transactions, will be made on terms no less favorable
to the Company than could be obtained from unaffiliated parties.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - INDEX
(a) The following documents are filed as a part of this report:
1. Financial Statements - The following consolidated financial statements
and the report of independent auditors set forth on pages E-71 - E-97
of Exhibit 13 hereto:
Consolidated Balance Sheets as of June 30, 1999 and 1998
21
<PAGE> 22
For each of the three years in the period ended June 30, 1999:
Consolidated Statements of Operations and Comprehensive Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors
2. Financial Statement Schedules - No such schedules are included because
of the absence of the conditions under which they are required, or
because the information called for is included in the consolidated
financial statements or notes thereto.
3. Exhibits
3(a) Amended and Restated Articles of Incorporation of the
Registrant (incorporated by reference to Exhibit 3(a) of the
Registrant's Form S-1, Registration No. 33-42670, filed
September 17, 1991).
3(b) Bylaws of the Registrant (incorporated by reference to Exhibit
3(b) of the Registrant's Form S-1, Registration No. 33-42670,
filed September 17, 1991).
4(a) Specimen Common Stock Certificate of Registrant (incorporated
by reference to Exhibit 4(a) of the Registrant's Form S-1,
Registration No. 33-42670, filed September 17, 1991).
10(a) Second Amended and Restated Revolving Credit and Term Note
Agreement, dated November 12, 1998, between Comerica Bank, as
agent, and the Registrant (incorporated by reference to
Exhibit 10.1 of the Registrant's Form 10-Q, filed February 12,
1999).
10(b) Stock Redemption Agreements, dated November 6, 1992 and
September 20, 1993, between John C. Kennedy and Nancy G.
Kennedy in their individual capacities and as co-trustees of
the John C. Kennedy Living Trust u/a, dated February 14, 1986,
as amended, and the Registrant (incorporated by reference to
Exhibit 10(b) of the Registrant's Form 10-K, filed September
27, 1993).
Stock Redemption Agreement, dated August 1, 1996, between John
C. Kennedy and Nancy G. Kennedy in their individual capacities
and as co-trustees of the John C. Kennedy Living Trust u/a,
dated February 14, 1986, as amended, and the Registrant
(incorporated by reference to Exhibit 10(b) of the
Registrant's Form 10-K, filed September 19, 1996).
Stock Redemption Agreement, dated September 1, 1998, between John
C. Kennedy and Nancy G. Kennedy in their individual capacities and
as co-trustees of the John C. Kennedy Living Trust u/a, dated
February 14, 1986, as amended, and the Registrant (incorporated by
reference to Exhibit 10(b) of the Registrant's Form 10-K, filed
September 23, 1998).
10(c) Autocam Corporation 1991 Incentive Stock Option Plan (incorporated
by reference to Exhibit 10(c) of the Registrant's Form 10-K, filed
September 23, 1994).
10(d) Employment Agreement dated September 1, 1991, between Registrant
and Edward W. Hekman (incorporated by reference to Exhibit 10(e)
of the Registrant's Form S-1, Registration No. 33-42670, filed
September 17, 1991).
10(e) Northwestern Mutual Life Insurance Company Joint Comp Life
insurance policies covering John C. Kennedy and Nancy G. Kennedy,
Policy Nos. 12 443 196 and 12 200 147 (incorporated by reference
to
22
<PAGE> 23
Exhibit 10(e) of the Registrant's Form 10-K, filed September
27, 1993).
10(f) Northwestern Mutual Life Insurance Company Adjustable Whole Life
Insurance Policies covering John C. Kennedy, Policy Nos. 9 718
337, 10 755 204 and 10 755 185 (incorporated by reference to
Exhibit 10(f) of the Registrant's Form S-1, Registration No.
33-42670, filed September 17, 1991).
10(g) Northwestern Mutual Life Insurance Company Extraordinary Life
Insurance Policies covering John C. Kennedy, Policy Nos. 9 053
592, 9 112 232 and 10 369 805 (incorporated by reference to
Exhibit 10(g) of the Registrant's Form S-1, Registration No.
33-42670, filed September 17, 1991).
10(h) Northwestern Mutual Life Insurance Company Disability Income
Policies covering John C. Kennedy, Policy Nos. D316131, D316137,
D374518, D532736 (incorporated by reference to Exhibit 10(h) of
the Registrant's Form S-1, Registration No. 33-42670, filed
September 17, 1991).
10(i) Northwestern Mutual Life Insurance Company Joint Comp Life
Insurance Policy covering John C. Kennedy and Nancy G. Kennedy,
Policy No. 11 199 261 (incorporated by reference to Exhibit 10(i)
of the Registrant's Form S-1, Registration No. 33-42670, filed
September 17, 1991).
10(j) Northwestern Mutual Life Insurance Company Whole Life Insurance
Policies covering John C. Kennedy, Policy Nos. 11 466 899 and 11
467 109 (incorporated by reference to Exhibit 10(j) of the
Registrant's Form S-1, Registration No. 33-42670, filed September
17, 1991).
10(k) Connecticut Mutual Life Insurance Company Whole Life Insurance
Policy covering John C. Kennedy, Policy No. 4 400 303
(incorporated by reference to Exhibit 10(k) of the Registrant's
Form S-1, Registration No. 33-42670, filed September 17, 1991).
10(l) Northwestern Mutual Life Insurance Company Disability Income
Policy covering Edward W. Hekman, Policy No. D597564 (incorporated
by reference to Exhibit 10(l) of the Registrant's Form S-1,
Registration No. 33-42670, filed September 17, 1991).
10(m) Northwestern Mutual Life Insurance Company Joint CompLife Policy
covering John C. Kennedy and Nancy G. Kennedy, Policy No. 13 542
762 (incorporated by reference to Exhibit 10(m) of the
Registrant's Form 10-K, filed September 19, 1996).
10(n) Northwestern Mutual Life Insurance Company Joint CompLife Policy
covering John C. Kennedy and Nancy G. Kennedy, Policy No. 14 538
421 (incorporated by reference to Exhibit 10(n) of the
Registrant's Form 10-K, filed September 23, 1998).
10(o) Lease Agreement, dated March 1, 1995, between Registrant as
lessee, and Rieth Partners and Marys' Share, both Michigan
partnerships, as lessors, regarding industrial facilities located
at 4060 East Paris Avenue, Kentwood, Michigan (incorporated by
reference to Exhibit 10(n) of the Registrant's Form 10-K, filed
September 25, 1995).
23
<PAGE> 24
10(p) Equipment Leases:
1. Master Lease Agreement, dated August 21, 1989, between
Registrant and General Electric Capital Corporation, with
Schedule Nos. 4 & 5, dated May 11, 1992 and June 30, 1992,
respectively, covering three Tornos Bechler MS-7 Automatic
Lathes, one Mikron PAS-16 Multi-spindle Horizontal Machining
Center, and one Tornos Bechler SAS-16DC Multi-spindle
Automatic Bar Machine (incorporated by reference to Exhibit
10(o)(1) of the Registrant's Form S-1, Registration No.
33-42670, filed September 17, 1991 (master lease) and the
Registrant's Form 10-K, filed September 25, 1992
(schedules)).
Equipment Lease Schedule Nos. 6, 7, 8 & 9, dated December
11, 1992, March 31, 1993, April 30, 1993, and June 1, 1993,
respectively, covering five Tornos Bechler SAS-16DC
Multi-spindle Automatic Bar Machines and one Mikron PAS-16
Multi-spindle Horizontal Machining Center (incorporated by
reference to Exhibit 10(o)(1) of the Registrant's Form 10-K,
filed September 27, 1993).
Equipment Lease Schedule Nos. 10 and 11, dated September 10,
1993 and October 22, 1993, respectively, covering five
Tornos Bechler SAS-16DC Multi-spindle Automatic Bar Machines
(incorporated by reference to Exhibit 10(o)(1) of the
Registrant's Form 10-K, filed September 23, 1994).
Equipment Lease Schedule Nos. 12 and 13, both dated November
22, 1994, covering four Tornos Bechler SAS-16DCH
Multi-spindle Automatic Screw Machines and two Mikron PAS-16
rotary transfer machines (incorporated by reference to
Exhibit 10(o)(1) of the Registrant's Form 10-K, filed
September 25, 1995).
Equipment Lease Schedule No. 14, dated September 1, 1995,
covering two Tornos Bechler SAS-16DCH Multi-spindle
Automatic Screw Machines (incorporated by reference to
Exhibit 10(o)(1) of the Registrant's Form 10-K, filed
September 25, 1995).
Equipment Lease Schedule Nos. 15 & 16, dated January 1,
1996, covering one Index G200 Horizontal Turning Center and
one Index MS-25E Multi-spindle Automatic Screw Machine
(incorporated by reference to Exhibit 10(o)(1) of the
Registrant's Form 10-K, filed September 19, 1996).
Equipment Lease Schedule No. 17, dated June 1, 1997,
covering four Mikron CX-24 Rotary Transfer Machines
(incorporated by reference to Exhibit 10(o)(1) of the
Registrant's Form 10-K, filed September 23, 1997).
Equipment Lease Schedule No. 18, dated November 1, 1997,
covering one Tornos Bechler BS20B Multi-spindle Automotive
Screw Machine (incorporated by reference to Exhibit 10(p)(1)
of the Registrant's Form 10-K, filed September 23, 1998).
Equipment Lease Schedule No. 19, dated November 1, 1998,
covering two Mikron CX-24 Rotary Transfer Machines (filed
herewith, E-1 - E-7).
2. Aircraft Lease Agreement, dated November 12, 1998, between
Registrant and General Electric Capital Corporation covering
a Cessna Citation V aircraft (filed herewith, E-8 - E-32).
24
<PAGE> 25
3. Master Equipment Lease Agreement, dated July 10, 1995,
between Registrant and KeyCorp Leasing, Ltd., with Schedule
No. 1 covering four Tornos Bechler SAS-16DCH Multi-spindle
Automatic Screw Machines (incorporated by reference to
Exhibit 10(o)(12) of the Registrant's Form 10-K, filed
September 25, 1995).
Equipment Lease Schedule No. 2, dated September 18, 1997,
covering one Hydromat Rotary Transfer Machine (incorporated
by reference to Exhibit 10(p)(4) of the Registrant's Form
10-K, filed September 23, 1998).
Equipment Lease Schedule No. 3 & 4, both dated December 16,
1997, covering one Tornos Bechler BS20.8 and six Tornos
Bechler SAS-16DCH Multi-spindle Automatic Screw Machines
(incorporated by reference to Exhibit 10(p)(4) of the
Registrant's Form 10-K, filed September 23, 1998).
Equipment Lease Schedule No. 5, dated May 21, 1999, covering
two Sugino Jet Flex Centers (filed herewith, E-33 - E-42).
Equipment Lease Schedule No. 6, dated June 28, 1999,
covering four Tornos Bechler Multi-Spindle Automatic BS-20.8
Screw Machines (filed herewith, E-43 - E-52).
Equipment Lease Schedule No. 7, dated August 23, 1999,
covering one Mikron CX-24 Rotary Transfer Machine (filed
herewith, E-53 - E-62).
10(q) Lifetime contract, dated April 26, 1993, between Registrant
and General Motors Corporation (incorporated by reference to
Exhibit 10(p) of the Registrant's Form 10-K, filed September 27,
1993, as amended by the Registrant's Form 10-K/A, Amendment No. 1,
filed November 29, 1993).
10(r) Lifetime contract, dated May 1, 1994, between Registrant and
General Motors Corporation (incorporated by reference to Exhibit
10(p) of the Registrant's Form S-3, filed September 23, 1994).
10(s) Autocam Corporation 1998 Key Employee Stock Option Plan
(incorporated by reference to the Registrant's 1998 Definitive
Proxy Statement, filed September 23, 1998).
10(t) Stock Purchase Agreement, dated October 1, 1998, between Autocam
Corporation, Autocam France SARL and Compagnie Financiere du
Leman, a French Societe Anonyme (incorporated by reference to
Exhibit 2.1 of the Registrant's Form 8-K, filed October 14, 1998).
10(u) Indemnification Agreement, dated August 13, 1999, between
Autocam Corporation and each member of its Board of Directors,
individually (filed herewith, pages E-63 - E-70).
13 Consolidated Financial Statements for the Years Ended June
30, 1999, 1998 and 1997 (filed herewith, pages E-71 - E-97).
21 Subsidiaries of Registrant (filed herewith, page E-98).
23 Consent of Deloitte & Touche LLP (filed herewith, page E-99).
27 Financial Data Schedule (filed herewith, page E-100).
(b) Reports on Form 8-K during quarter ended June 30, 1999 - None.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AUTOCAM CORPORATION
By: /s/ John C. Kennedy
--------------------
John C. Kennedy,
Principal Executive Officer
By: /s/ Warren A. Veltman
----------------------
Warren A. Veltman,
Principal Financial and
Accounting Officer
Dated: September 27, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature and Title Date
------------------- ----
<S> <C>
By: /s/ John C. Kennedy September 27, 1999
- -------------------------
John C. Kennedy, Chairman of the Board
By: /s/ Mark J. Bissell September 27, 1999
- -------------------------
Mark J. Bissell, Director
By: /s/ Robert L. Hooker September 27, 1999
- --------------------------
Robert L. Hooker, Director
By: /s/ Kim Korth September 27, 1999
- -------------------
Kim Korth, Director
By: /s/ Kenneth K. Rieth September 27, 1999
- --------------------------
Kenneth K. Rieth, Director
By: /s/ Warren A. Veltman September 27, 1999
- ---------------------------
Warren A. Veltman, Director
By: /s/ David J. Wagner September 27, 1999
- -------------------------
David J. Wagner, Director
</TABLE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
Not Applicable.
26
<PAGE> 27
================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
--------------------
EXHIBITS
TO
1999
FORM 10-K
UNDER
THE SECURITIES AND EXCHANGE ACT OF 1934
-------------------
AUTOCAM CORPORATION
================================================================================
27
<PAGE> 28
Exhibit Index
Exhibit No. Description
10(p) Equipment Leases:
1. Master Lease Agreement, dated August 21, 1989, between
Registrant and General Electric Capital Corporation, with
Schedule Nos. 4 & 5, dated May 11, 1992 and June 30, 1992,
respectively, covering three Tornos Bechler MS-7 Automatic
Lathes, one Mikron PAS-16 Multi-spindle Horizontal Machining
Center, and one Tornos Bechler SAS-16DC Multi-spindle
Automatic Bar Machine (incorporated by reference to Exhibit
10(o)(1) of the Registrant's Form S-1, Registration No.
33-42670, filed September 17, 1991 (master lease) and the
Registrant's Form 10-K, filed September 25, 1992
(schedules)).
Equipment Lease Schedule Nos. 6, 7, 8 & 9, dated December
11, 1992, March 31, 1993, April 30, 1993, and June 1, 1993,
respectively, covering five Tornos Bechler SAS-16DC
Multi-spindle Automatic Bar Machines and one Mikron PAS-16
Multi-spindle Horizontal Machining Center (incorporated by
reference to Exhibit 10(o)(1) of the Registrant's Form 10-K,
filed September 27, 1993).
Equipment Lease Schedule Nos. 10 and 11, dated September 10,
1993 and October 22, 1993, respectively, covering five
Tornos Bechler SAS-16DC Multi-spindle Automatic Bar Machines
(incorporated by reference to Exhibit 10(o)(1) of the
Registrant's Form 10-K, filed September 23, 1994).
Equipment Lease Schedule Nos. 12 and 13, both dated November
22, 1994, covering four Tornos Bechler SAS-16DCH
Multi-spindle Automatic Screw Machines and two Mikron PAS-16
rotary transfer machines (incorporated by reference to
Exhibit 10(o)(1) of the Registrant's Form 10-K, filed
September 25, 1995).
Equipment Lease Schedule No. 14, dated September 1, 1995,
covering two Tornos Bechler SAS-16DCH Multi-spindle
Automatic Screw Machines (incorporated by reference to
Exhibit 10(o)(1) of the Registrant's Form 10-K, filed
September 25, 1995).
Equipment Lease Schedule Nos. 15 & 16, dated January 1,
1996, covering one Index G200 Horizontal Turning Center and
one Index MS-25E Multi-spindle Automatic Screw Machine
(incorporated by reference to Exhibit 10(o)(1) of the
Registrant's Form 10-K, filed September 19, 1996).
Equipment Lease Schedule No. 17, dated June 1, 1997,
covering four Mikron CX-24 Rotary Transfer Machines
(incorporated by reference to Exhibit 10(o)(1) of the
Registrant's Form 10-K, filed September 23, 1997).
Equipment Lease Schedule No. 18, dated November 1, 1997,
covering one Tornos Bechler BS20B Multi-spindle Automotive
Screw Machine (incorporated by reference to Exhibit 10(p)(1)
of the Registrant's Form 10-K, filed September 23, 1998).
Equipment Lease Schedule No. 19, dated November 1, 1998,
covering two Mikron CX-24 Rotary Transfer Machines (filed
herewith, E-1 - E-7).
2. Aircraft Lease Agreement, dated November 12, 1998, between
Registrant and General Electric Capital Corporation covering
a Cessna Citation V aircraft (filed herewith, E-8 - E-32).
<PAGE> 29
3. Master Equipment Lease Agreement, dated July 10, 1995,
between Registrant and KeyCorp Leasing, Ltd., with Schedule
No. 1 covering four Tornos Bechler SAS-16DCH Multi-spindle
Automatic Screw Machines (incorporated by reference to
Exhibit 10(o)(12) of the Registrant's Form 10-K, filed
September 25, 1995).
Equipment Lease Schedule No. 2, dated September 18, 1997,
covering one Hydromat Rotary Transfer Machine (incorporated
by reference to Exhibit 10(p)(4) of the Registrant's Form
10-K, filed September 23, 1998).
Equipment Lease Schedule No. 3 & 4, both dated December 16,
1997, covering one Tornos Bechler BS20.8 and six Tornos
Bechler SAS-16DCH Multi-spindle Automatic Screw Machines
(incorporated by reference to Exhibit 10(p)(4) of the
Registrant's Form 10-K, filed September 23, 1998).
Equipment Lease Schedule No. 5, dated May 21, 1999, covering
two Sugino Jet Flex Centers (filed herewith, E-33 - E-42).
Equipment Lease Schedule No. 6, dated June 28, 1999,
covering four Tornos Bechler Multi-Spindle Automatic BS-20.8
Screw Machines (filed herewith, E-43 - E-52).
Equipment Lease Schedule No. 7, dated August 23, 1999,
covering one Mikron CX-24 Rotary Transfer Machine (filed
herewith, E-53 - E-62).
10(q) Lifetime contract, dated April 26, 1993, between Registrant and
General Motors Corporation (incorporated by reference to Exhibit
10(p) of the Registrant's Form 10-K, filed September 27, 1993, as
amended by the Registrant's Form 10-K/A, Amendment No. 1, filed
November 29, 1993).
10(r) Lifetime contract, dated May 1, 1994, between Registrant and
General Motors Corporation (incorporated by reference to Exhibit
10(p) of the Registrant's Form S-3, filed September 23, 1994).
10(s) Autocam Corporation 1998 Key Employee Stock Option Plan
(incorporated by reference to the Registrant's 1998 Definitive
Proxy Statement, filed September 23, 1998).
10(t) Stock Purchase Agreement, dated October 1, 1998, between Autocam
Corporation, Autocam France SARL and Compagnie Financiere du
Leman, a French Societe Anonyme (incorporated by reference to
Exhibit 2.1 of the Registrant's Form 8-K, filed October 14, 1998).
10(u) Indemnification Agreement, dated August 13, 1999, between
Autocam Corporation and each member of its Board of Directors,
individually (filed herewith, pages E-63 - E-70).
13 Consolidated Financial Statements for the Years Ended June
30, 1999, 1998 and 1997 (filed herewith, pages E-71 - E-97).
21 Subsidiaries of Registrant (filed herewith, page E-98).
23 Consent of Deloitte & Touche LLP (filed herewith, page E-99).
27 Financial Data Schedule (filed herewith, page E-100).
(b) Reports on Form 8-K during quarter ended June 30, 1999 - None.
<PAGE> 1
EXHIBIT 10(p)(1)
MACHINE TOOLS EQUIPMENT SCHEDULE
SCHEDULE NO. 019
DATED THIS NOVEMBER 1, 1998
TO MASTER LEASE AGREEMENT
DATED AS OF AUGUST 21, 1994
LESSOR & MAILING ADDRESS: LESSEE & MAILING ADDRESS:
GENERAL ELECTRIC CAPITAL CORPORATION AUTOCAM CORPORATION
1787 SENTRY PARKWAY/WEST 16 SENTRY PARK/ 4070 E. PARIS AVENUE
WEST, SUITE 200 KENTWOOD, MI 49512
BLUE BELL, PA 19422
This Schedule is executed pursuant to, and incorporates by reference the terms
and conditions of, and capitalized terms not defined herein shall have the
meanings assigned to them in, the Master Lease Agreement identified above
("AGREEMENT" said Agreement and this Schedule being collectively referred to as
"LEASE"). This Schedule, incorporating by reference the Agreement, constitutes a
separate instrument of lease.
A. EQUIPMENT: Subject to the terms and conditions of the Lease, Lessor
agrees to Lease to Lessee the Equipment described below (the "EQUIPMENT").
<TABLE>
<CAPTION>
NUMBER CAPITALIZED
OF UNITS LESSOR'S COST MANUFACTURER SERIAL NUMBER MODEL AND TYPE OF EQUIPMENT
-------- ------------- ------------ ------------- ---------------------------
<S> <C> <C> <C> <C>
1 $506,358.24 Mikron KA6038M CX-24 Rotary Transfer Machine
1 $682,143.29 Mikron KA6037M CX-24 Rotary Transfer Machine
Equipment immediately listed above is located at: 4070 E. Paris Avenue, Kentwood, Kent County, MI 49512
</TABLE>
B. FINANCIAL TERMS
1. Advance Rent (if any): $13,426,86
2. Capitalized Lessor's Cost: $1,188,501.53
3. Basic Term (No. of Months): 96 Months.
4. Basic Term Lease Rate Factor: 48 @ .01129730; 48 @ .0123000
5. Basic Term Commencement Date: NOVEMBER 1, 1998
6. Lessee Federal Tax ID No.: 38-2790152
7. Last Delivery Date: NOVEMBER 1, 1998
8. Daily Lease Rate Factor: 48 @ .000377; 48 @ .000410
9. First Termination Date: THRITY-SIX (36) months after the Basic Term
Commencement Date.
10. Interim Rent: For the period from and including the Lease Commencement Date
to but not including the Basic Term Commencement Date ('Interim Period'),
Lessee shall pay as rent ('Interim Rent") for each unit of Equipment, the
product of the Daily Lease Rate Factor times the Capitalized Lessor's Cost
of such unit times the number of days in the Interim Period. Interim Rent
shall be due on NOT APPLICABLE.
11. Basic Term Rent. Commencing on NOVEMBER 1, 1998 and on the same day of each
month thereafter (each, a "Rent Payment Date") during the Basic Term, Lessee
shall pay as rent ("Basic Term Rent") the product of the Basic Term Lease
Rate Factor times the Capitalized Lessor's Cost of all Equipment on this
Schedule.
12. Adjustment to Capitalized Lessor's Cost. Lessee hereby irrevocably
authorizes Lessor to adjust the Capitalized Lessor's Cost up or down by no
more than ten percent (10%) to account for equipment change orders,
equipment returns, invoicing errors and similar matters.
Lessee acknowledges and agrees that the Rent shall be adjusted as a result
of such change in the Capitalized Lessor's Cost.
E-29
<PAGE> 2
Lessor shall send Lessee a written notice stating the final Capitalized
Lessor's Cost, if different from that disclosed on this Schedule.
C. TAX BENEFITS Depreciation Deductions:
1. Depreciation method is the 200% declining balance method, switching to
straight line method for the 1st taxable year for which using the
straight line method with respect to the adjusted basis as of the
beginning of such year will yield a larger allowance.
2. Recovery Period: SEVEN (7) YEARS.
3. Basis: 100% of the Capitalized Lessor's Cost.
D. PROPERTY TAX
APPLICABLE TO EQUIPMENT LOCATED IN KENTWOOD, MI: Lessee agrees that it will
not list any of such Equipment for property tax purposes or report any
property tax assessed against such Equipment until otherwise directed in
writing by Lessor. Upon receipt of any property tax bill pertaining to such
Equipment from the appropriate taxing authority, Lessor will pay such tax
and will invoice Lessee for the expense. Upon receipt of such invoice,
Lessee will promptly reimburse Lessor for such expense.
Lessor may notify Lessee (and Lessee agrees to follow such notification)
regarding any changes in property tax reporting and payment
responsibilities.
E. INSURANCE
1. Public Liability: At least $1,000,000 total liability per occurrence.
2. Casualty and Property Damage: An amount equal to the higher of the
Stipulated Loss Value or the full replacement cost of the Equipment.
F. ARTICLE 2A NOTICE
IN ACCORDANCE WITH THE REQUIREMENTS OF ARTICLE 2A OF THE UNIFORM COMMERCIAL
CODE AS ADOPTED IN THE APPLICABLE STATE, LESSOR HEREBY MAKES THE FOLLOWING
DISCLOSURES TO LESSEE PRIOR TO EXECUTION OF THE LEASE, (A) THE PERSON(S)
SUPPLYING THE EQUIPMENT IS MIKRON CORP. (THE "SUPPLIER(S)"), (E) LESSEE IS
ENTITLED TO THE PROMISES AND WARRANTIES, INCLUDING THOSE OF ANY THIRD
PARTY, PROVIDED TO THE LESSOR BY SUPPLIER(S), WHICH IS SUPPLYING THE
EQUIPMENT IN CONNECTION WITH OR AS PART OF THE CONTRACT BY WHICH LESSOR
ACQUIRED THE EQUIPMENT AND (C) WITH RESPECT TO SUCH EQUIPMENT, LESSEE MAY
COMMUNICATE WITH SUPPLIER(S) AND RECEIVE AN ACCURATE AND COMPLETE STATEMENT
OF SUCH PROMISES AND WARRANTIES, INCLUDING ANY DISCLAIMERS AND LIMITATIONS
OF THEM OR OF REMEDIES. TO THE EXTENT PERMITTED BY APPLICABLE LAW, LESSEE
HEREBY WAIVES ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON A LESSEE IN
ARTICLE 2A AND ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE OR
OTHERWISE WHICH MAY LIMIT OR MODIFY ANY OF LESSOR'S RIGHTS OR REMEDIES
UNDER THE DEFAULT SECTION OF THE AGREEMENT.
E-30
<PAGE> 3
G. STIPULATED LOSS AND TERMINATION VALUE TABLE*
<TABLE>
<CAPTION>
STIPULATION LOSS TERMINATION STIPULATION LOSS
TERMINATION VALUE VALUE VALUE
RENTAL VALUE PERCENTAGE PERCENTAGE RENTAL PERCENTAGE PERCENTAGE
------ ---------------- ---------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C>
1 100.599 103.624 49 67.691 71.966
2 100.050 103.101 50 66.774 71.075
3 99.482 102.559 51 65.851 70.178
4 98.909 102.012 52 64.922 69.275
5 98.330 101.460 53 63.986 68.365
6 97.744 100.899 54 63.045 67.451
7 97.161 100.343 55 62.100 66.531
8 96.587 99.795 56 61.149 65.607
9 96.005 99.238 57 60.194 64.677
10 95.417 98.677 58 59.232 63.742
11 94.822 98.107 59 58.265 62.801
12 94.217 97.529 60 57.293 61.855
13 93.608 96.946 61 56.314 60.902
14 92.991 96.354 62 55.331 59.945
15 92.365 95.755 63 54.342 58.982
16 91.734 95.150 64 53.347 58.013
17 91.097 94.539 65 52.345 57.036
18 90.455 93.922 66 51.337 56.055
19 89.805 93.299 67 50.325 55.069
20 89.150 92.670 68 49.307 54.077
21 88.488 92.034 69 48.284 53.081
22 87.820 91.392 70 47.255 52.077
23 87.147 90.745 71 46.220 51.068
24 86.466 90.090 72 45.180 50.054
25 85.780 89.431 73 44.133 49.033
26 85.088 88.764 74 43.081 48.007
27 84.390 88.092 75 42.023 46.975
28 83.685 87.414 76 40.959 45.937
29 82.976 86.730 77 39.887 44.891
30 82.261 86.041 78 38.811 43.842
31 81.541 85.347 79 37.731 42.788
32 80.816 84.648 80 36.647 41.730
33 80.085 83.944 81 35.559 40.668
34 79.349 83.234 82 34.464 39.598
35 78.608 82.519 83 33.364 38.525
36 77.862 81.798 84 32.260 37.447
37 77.109 81.072 85 31.149 36.362
38 76.352 80.341 86 30.034 35.273
39 75.589 79.604 87 28.914 34.179
40 74.821 78.862 88 27.787 33.078
41 74.047 78.114 89 26.653 31.970
42 73.269 77.362 90 25.520 30.863
43 72.486 76.605 91 24.388 29.757
</TABLE>
E-31
<PAGE> 4
<TABLE>
<S> <C> <C> <C> <C> <C>
44 71.699 75.844 92 23.257 28.652
45 70.908 75.079 93 22.126 27.547
46 70.111 74.308 94 20.989 26.436
47 69.309 73.532 95 19.852 25.325
48 68.503 72.753 96 18.716 24.215
</TABLE>
*The Stipulated Loss Value or Termination Value for any unit of Equipment
shall be the Capitalized Lessor's Cost of such unit multiplied by the
appropriate percentage derived from the above table. In the event that the
Lease is for any reason extended, then the last percentage figure shown
above shall control throughout any such extended term.
H. MODIFICATIONS AND ADDITIONS FOR THIS SCHEDULE ONLY
For purposes of this Schedule only, the Agreement is amended as follows:
1. The LEASING Section subsection (a) of the Lease is hereby deleted in
its entirety and the following substituted in its stead:
a) Subject to the terms and conditions set forth below, Lessor agrees
to lease to Lessee, and Lessee agrees to lease from Lessor, the equipment
("Equipment") described in Annex A to any schedule hereto ('Schedule') or,
if applicable, to Section A of any Schedule. Terms defined in a Schedule
and not otherwise defined herein shall have the meanings ascribed to them
in such Schedule.
2. EQUIPMENT SPECIFIC PROVISIONS
RETURN PROVISIONS: In addition to the provisions provided for in the RETURN
OF EQUIPMENT Section of the Lease, and provided that Lessee has elected not
to exercise its option to purchase the Equipment, Lessee shall, at its
expense:
(a) Provide to Lessor at least two hundred forty (240) days prior to the
expiration of the Lease a detailed inventory of all components of the
Equipment with consideration to the conditions set forth in the SERVICE
Section of the Lease. The inventory should include but not be limited to a
detailed listing of all items of the Equipment by both the model and serial
number for all components comprising this Agreement.
(b) Ensure that the Equipment is returned to Lessor as follows: (i) all
operating and application specific software used to control the machine
will be updated to the most current release available from the
manufacturer; (ii) all batteries for control memories must be fully
charged; (iii) any tooling and/or grinding wheels returned to Lessor at
lease termination should be identical to those on the original invoice.
(c) At least ninety (90) days prior to the expiration of the Lease: (i) and
upon receiving reasonable notice by Lessor, make the Equipment available
for operational inspections (where applicable) by potential purchasers;
(ii) cause the Manufacturer(s), or other persons expressly authorized by
the Manufacturer and/or Lessor (the "Authorized Inspector'), to inspect,
examine and test all material and workmanship to ensure the Equipment is
operating within the manufacturer's specifications; (iii) provide to Lessor
a written report from the Authorized Inspector detailing said inspection
and condition of the Equipment; (iv) if during such inspection, examination
and test, the Authorized Inspector finds any of the material or workmanship
to be defective or the equipment not operating within the manufacturer's
specifications, then Lessee shall repair or replace such defective material
and, after corrective measures are completed Lessee will provide for
another inspection of the equipment by the Authorized Inspector as outlined
above.
E-32
<PAGE> 5
(d) At least forty-five (45) days prior to the expiration of the Lease and
upon request by Lessor provide, or cause the Manufacturer(s) to provide to
Lessor, the following documents: (i) one set of service and operating
manuals including replacements and/or additions hereto, such that all
documentation is completely up to date; (ii) one set of documents detailing
equipment configuration, operating requirements, maintenance records, and
other technical data concerning the set-up and operation of the Equipment
including replacements and additions thereto, such that all documentation
is completely up to date.
(e) Provide for the deinstallation, packing and transporting of the
Equipment to include, but not limited to the following: (i) the
manufacturer's representative shall de-install all Equipment (including all
wire, cable and mounting hardware); (ii) all process fluids shall be
removed from the Equipment and disposed of in accordance with then current
waste disposal laws and regulations including regulations specified by the
Environmental Protection Agency (EPA) and related government agencies;
(iii) dismantling and handling is to be done per the original
manufacturer's specifications or normal industry accepted practices for new
machines must be followed. Any special transportation devices such as metal
skids, lifting slings, brackets, etc., which were with the machine when it
originally arrived must be used; (iv) all keys belonging to the Equipment
are to be wired together and secured to a major component of the machine;
(v) provide for transportation of the Equipment in a manner consistent with
the manufacturer's recommendations and practices to any locations within
the continental United States as Lessor shall direct, and shall have the
Equipment unloaded at such locations; (vi) obtain and pay for a policy of
transit insurance for the delivery period in an amount equal to the
replacement value of the Equipment with the Lessor named as loss payee on
all such policies of insurance; (vii) provide safe, secure storage for the
Equipment for a period of up to one hundred twenty (120) days after
expiration or early termination of the Lease at an accessible location
satisfactory to Lessor, (viii) cause all of the Equipment to be free ofany
hazardous or toxic materials, or any materials which may be regulated under
any and all applicable environmental laws, rules or regulations ('Hazardous
Substances"). Without limiting the generality of the foregoing, Lessee
represents, warrants and covenants that none of the Equipment will be
contaminated with Hazardous Substances in the form of polychlorinated
biphenyls ("PCBs") in surface concentrations greater than 10 microns/100
square centimeters, and none of the Equipment shall contain fluids having
concentrations of Hazardous Substances in the form of PCBs in excess of 1
part per million. Lessee agrees to furnish to General Electric Capital
Corporation documentary evidence confirming such condition prepared by a
qualified testing laboratory satisfactory to General Electric Capital
Corporation.
(f) Provide that all Equipment will be cleaned and cosmetically acceptable
(free from all Lessee installed markings), and in such condition so that it
may be immediately installed and placed into use in a similar operating
environment.
(g) Ensure all Equipment and equipment operations confonn to all applicable
local, state, EPA, and federal laws, health and safety guidelines.
(h) Lessor has the right to attempt resale of the Equipment from Lessee's
facility with the Lessee's full cooperation and assistance, for a period of
one hundred twenty (120) days from the expiration of the Lease. During this
period, the equipment must remain operational with the necessary electrical
power, lighting, heat, water, lubricating fluids, air pollution controls
and compressed air necessary to maintain and demonstrate the Equipment to
any potential buyer.
3. LEASE TERM OPTIONS
EARLY LEASE TERM OPTIONS
The Lease is amended by adding the following thereto:
EARLY PURCHASE OPTION:
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<PAGE> 6
(a) Provided that the Lease has not been earlier terminated and
provided further that Lessee is not in default under the Lease or any other
agreement between Lessor and Lessee, Lessee may, UPON AT LEAST 30 DAYS BUT
NO MORE THAN 270 DAYS PRIOR WRITTEN NOTICE TO LESSOR OF LESSEE'S
IRREVOCABLE ELECTION TO EXERCISE SUCH OPTION, purchase on an AS IS BASIS
all (but not less than all) of the Equipment listed and described in this
Schedule on the rent payment date (the "Early Purchase Date') which is 84
months from the Basic Term Commencement Date for a price equal to
THIRTY-ONE AND 149/1000 percent (31.149%) of the Capitalized Lessor's Cost
(the 'FMV Early Option Price'), plus all applicable sales taxes.
Lessor and Lessee agree that the FMV Early Option Price is a reasonable
prediction of the Fair Market Value (as such term is defined in the
PURCHASE OPTION Section subsection (b) of the Lease hereof) of the
Equipment at the time the option is exercisable. Lessor and Lessee agree
that if Lessee makes any non-severable improvement to the Equipment which
increases the value of the Equipment and is not required or permitted by
the SERVICE Section or the RETURN OF EQUIPMENT Section of the Lease prior
to lease expiration, then at the time of such option being exercised,
Lessor and Lessee shall adjust the purchase price to reflect any addition
to the price anticipated to result from such improvement. (The purchase
option granted by this subsection shall be referred to herein as the "Early
Purchase Option".)
(b) If Lessee exercises its Early Purchase Option with respect to the
Equipment leased hereunder, then on the Early Purchase Option Date, Lessee
shall pay to Lessor any Rent and other sums due and unpaid on the Early
Purchase Option Date and Lessee shall pay the FMV Early Option Price, plus
all applicable sales taxes, to Lessor in cash.
I. PAYMENT AUTHORIZATION
You are hereby irrevocably authorized and directed to deliver and apply the
proceeds due under this Schedule as follows:
<TABLE>
<CAPTION>
COMPANY NAME ADDRESS AMOUNT
------------ ------- ------
<S> <C> <C>
Autocam Corporation 4070 E. Paris Avenue $1,074,649.30
Kentwood, MI 49512
Mikron Corp. 600 Pepper Street $113,852.23
Monroe, CT 06468
</TABLE>
This authorization and direction is given pursuant to the same authority
authorizing the above-mentioned financing.
PURSUANT TO THE PROVISIONS OF THE LEASE, AS IT RELATES TO THIS SCHEDULE,
LESSEE HEREBY CERTIFIES AND WARRANTS THAT (i) AN EQUIPMENT LISTED ABOVE HAS BEEN
DELIVERED AND INSTALLED (IF APPLICABLE) AS OF THE DATE STATED ABOVE; (ii) LESSEE
HAS INSPECTED THE EQUIPMENT, AND ALL SUCH TESTING AS IT DEEMS NECESSARY HAS BEEN
PERFORMED BY LESSEE, SUPPLIER OR THE MANUFACTURER; AND (iii) LESSEE ACCEPTS THE
EQUIPMENT FOR ALL PURPOSES OF THE LEASE, THE PURCHASE DOCUMENTS AND ALL
ATTENDANT DOCUMENTS.
LESSEE DOES FURTHER CERTIFY, AND LESSOR HEREBY WAIVES ANY REQUIREMENT OF
A SEPARATE CERTIFICATE OF ACCEPTANCE, THAT AS OF THE DATE HEREOF (i) LESSEE IS
NOT IN DEFAULT UNDER THE LEASE; (ii) THE REPRESENTATIONS AND WARRANTIES MADE BY
LESSEE PURSUANT TO OR UNDER THE LEASE ARE TRUE AND CORRECT ON THE DATE HEREOF
AND (iii) LESSEE HAS REVIEWED AND APPROVES OF THE PURCHASE DOCUMENTS FOR THE
EQUIPMENT, IF ANY.
Except as expressly modified hereby, all terms and provisions of the
Agreement shall remain in full force and effect. This Schedule is not binding or
effective with respect to the Agreement or Equipment until executed on behalf of
Lessor and Lessee by authorized representatives of Lessor and Lessee,
respectively.
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<PAGE> 7
IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL CORPORATION AUTOCAM CORPORATION
By: /s/ Nabila S. Mahimud By: /s/ Warren A. Veltman
Name: Nabila S. Mahimud Name: Warren A. Veltman
Title: Risk Analyst Title: Chief Financial Officer
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<PAGE> 1
EXHIBIT 10(p)(2)
AIRCRAFT LEASE AGREEMENT
THIS AIRCRAFT LEASE AGREEMENT, dated as of November 12, 1998 (together with all
supplements, annexes, exhibits and schedules hereto hereinafter referred to as
the "Lease"), between GENERAL ELECTRIC CAPITAL CORPORATION, with an office at
1787 SENTRY PARKWAY/WEST 16 SENTRY PARK/WEST, SUITE 200, BLUE BELL, PA 19422
(hereinafter called, together with its successors and assigns, if any, "LESSOR")
and AUTOCAM CORPORATION , a corporation organized and existing under the laws of
the State of Michigan with its mailing address and chief place of business at
4070 E. PARIS AVENUE , KENTWOOD, MI 49512 (hereinafter called "LESSEE").
WITNESSETH:
I. LEASING:
(a) Subject to the terms and conditions set forth below, Lessor agrees to
lease to Lessee, and Lessee agrees to lease from Lessor, the aircraft, including
the airframe, engines and all appurtenant equipment (together hereinafter the
"AIRCRAFT") described in Annex A.
(b) The obligation of Lessor to purchase the Aircraft from the manufacturer
or supplier thereof ("SUPPLIER") and to lease the same to Lessee hereunder shall
be subject to the Commencement Date of the Lease, as that term is hereinafter
defined in Section 11, occurring on or prior to the Last Delivery Date specified
in Annex B, on the representations and warranties of Lessee contained herein
being true and accurate as of the Commencement Date and further conditioned on
receipt by Lessor, on or prior to the Commencement Date, of each of the
following documents in form and substance satisfactory to Lessor: (i) a copy of
this Lease executed by Lessee, (ii) unless Lessor shall have delivered its
purchase order for such Aircraft or received a bill of sale for the Aircraft in
the name of lessor (and in form and substance satisfactory to Lessor), the
Purchase Document(s) Assignment and Consent in the form of annex C, with copies
of the purchase order or other purchase documents attached thereto; (iii) copies
of insurance policies or, at Lessor's option, such other evidence of insurance
which complies with the requirements of Section X, (iv) evidence of an N number
for the Aircraft together with an assignment of the rights thereto to Lessor;
(v) evidence that the Aircraft has been duly certified as to type and
airworthiness by the Federal Aviation Administration ("FAA"); (vi) evidence that
Lessor's designated FAA escrow agent (which may be FAA counsel) has received in
escrow the executed bill of sale and AC Form 8050-1 Aircraft Registration Form
(except for the pink copy which shall be available to be placed on the Aircraft
upon acceptance thereof), and an executed duplicate of this Lease all in proper
form for filing with the FAA; (vii) resolution of lessee authorizing this Lease
in the form of annex D; (viii) a completed inspection and/or survey with respect
to the Aircraft in accordance with the requirements set forth in the Certificate
of acceptance; and (ix) such other documents as Lessor may reasonably request.
Lessor's obligation to lease the Aircraft hereunder is further conditioned upon
(aa) the cost to Lessor of the acquisition of the Aircraft not exceeding the
Capitalized Lessor's Cost stated on Annex A; (bb) upon delivery of the Aircraft,
Lessee's execution and delivery to Lessor of a Certificate of Acceptance in the
form of annex E; and (cc) filing of all necessary documents with, and the
acceptance thereof by, the FAA.
(c) Lessor hereby appoints Lessee its agent for inspection and acceptance
of the Aircraft from the Supplier. Subject to the aforestated conditions, upon
execution by Lessee of the Certificate of Acceptance, the Aircraft described
thereon shall be deemed to have been delivered to, and irrevocably accepted by,
Lessee for lease hereunder.
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<PAGE> 2
II. TERM, RENT AND PAYMENT:
(a) The rent ("RENT") payable hereunder and Lessee's right to use the
Aircraft shall commence on the date of execution by Lessee of the Certificate of
Acceptance ("COMMENCEMENT DATE"). The term ("TERM") of this Lease shall commence
on the Commencement Date and shall continue, unless earlier terminated pursuant
to the provisions hereof, until and including the Expiration Date stated in
Annex B. If any Term is extended or renewed, the word "Term" shall be deemed to
refer to all extended or renewal Terms, and all provisions of this Lease shall
apply during any such extension or renewal Terms, except as may be otherwise
specifically provided in writing.
(b) Rent shall be paid to Lessor at its address stated above, except as
otherwise directed by Lessor. Payments of Rent shall be in the amount, payable
at such intervals and shall be due in accordance with the provisions of annex B.
(Each payment of rent is hereinafter referred to as a "Rent Payment".) If one or
more Advance Rent is payable, such Advance Rent shall be (i) set forth on Annex
B and due in accordance with the provisions of annex B, and (ii) when received
by Lessor, applied to the first Basic Term for Rent Payment as set forth on
Annex B and the balance, if any, to the final Rent Payment(s), in inverse order
of maturity. In no event shall any Advance Rent or any other Rent Payment be
refunded to Lessee. If Rent is not paid within ten (10) days of its due date,
Lessee agrees to pay a late charge of five cents (50) per dollar on, and in
addition to, the amount of such Rent but not exceeding the lawful maximum, if
any.
III. RENT ADJUSTMENT:
(a) The periodic rent payments in Annex B have been calculated on the
assumption (which, as between Lessor and Lessee, is mutual) that the maximum
effective corporate income tax rate (exclusive of any minimum tax rate) for
calendar-year taxpayers ("Effective Rate") will be thirty-five percent (35%)
each year during the Term of this Lease.
(b) If, solely as a result of Congressional enactment of any law
(including, without limitation, any modification of, or amendment or addition
to, the Internal Revenue Code of 1986 as amended (the "Code"), the Effective
Rate is higher than thirty-five percent (35%) for any year during the lease
term, then Lessor shall have the right to increase such rent payments by
requiring payment of a single additional sum equal to the product of (i) the
Effective Rate (expressed as a decimal) for such year less .35 (or, in the event
that any adjustment has been made hereunder for any previous year, the Effective
Rate (expressed as a decimal) used in calculating the next previous adjustment)
times (ii) the adjusted Termination Value divided by the difference between the
new Effective Tax Rate (expressed as a decimal) and one (1). The adjusted
Termination Value shall be the Termination Value (calculated as of the first
rental due in the year for which such adjustment is being made) less the Tax
Benefits that would be allowable under Section 168 of the Code (as of the first
day of the year for which such adjustment is being made and all subsequent years
of the lease term). Lessee shall pay to Lessor the full amount of the additional
rent payment on the later of (i) receipt of notice or (ii) the first day of the
year for which such adjustment is being made.
(c) Lessee's obligations under this Section Ill shall survive any
expiration or termination of this Lease.
IV. TAXES AND FEES: Except as provided in Sections III and XV(c), Lessee shall
have no liability for taxes imposed by the United States of America or any State
or political subdivision thereof which are on or measured by the net income of
Lessor. Lessee shall report (to the extent that it is legally permissible) and
pay promptly all other taxes, fees and assessments due, imposed, assessed or
levied against the Aircraft (or the purchase, ownership, delivery, leasing,
possession, use or operation thereof), this Lease (or any rentals or receipts
hereunder), Lessor or Lessee by any foreign, federal, state or local government
or taxing authority during or related to the Term of this Lease, including,
without limitation, all license and registration fees, and all sales, use,
personal property, excise, gross receipts, franchise, stamp, value added,
customer duties, lending fees, airport charges, navigation services charges,
route navigation charges or other taxes, imposts, duties and charges, together
with any penalties, fines or interest thereon (all hereinafter called "Taxes").
Lessee shall (a) reimburse Lessor upon receipt of written request for
reimbursement for any Taxes charged to or assessed against Lessor, (b) on
request of Lessor, submit to Lessor written evidence of Lessee's payment of
Taxes, (c) on all reports or returns show the ownership of the Aircraft by
Lessor, and (d) send a copy thereof to Lessor.
V. REPORTS: Lessee will provide Lessor with the following in writing within the
time periods specified: (a) notice of tax or other lien which attaches to the
Aircraft within ten (10) days of Lessee's obtaining knowledge of such attachment
and such
E-37
<PAGE> 3
additional information with respect to the tax or lien forthwith upon request of
Lessor; (b) Lessee's balance sheet and profit and loss statement within ninety
(90) days of the close of each fiscal year of lessee, and any further financial
information or reports, upon request; (c) notice to Lessor of the Aircraft's
location, and the location of all information, logs, documents and records
regarding or in respect to the Aircraft and its use, maintenance and/or
condition, immediately upon request; (d) notice to Lessor of the relocation of
the Aircraft's primary hangar location, ten (10) days prior to any relocation;
(e) notice of loss or damage to the Aircraft (which would cost more than the
lesser of (i) ten percent (10%) of the original Capitalized Lessor's Cost or
(ii) $250,000 to repair or replace) within ten (10) days of such loss or damage;
(f) notice of any accident involving the Aircraft causing personal injury or
property damage within ten (10) days of such accident; (g) copies of the
insurance policies or other evidence of insurance required by the terms hereof,
promptly upon request by Lessor; (h) copies of all information, logs, documents
and records regarding or in respect to the Aircraft and its use, maintenance
and/or condition, within ten (10) days of such request; (i) beginning on the
first anniversary of the Commencement Date of this Lease and on each anniversary
date thereafter, a certificate of the authorized officer of Lessee stating that
he has reviewed the activities of Lessee and that, to the best of his knowledge,
there exists no default (as described in Section XII) or event which with notice
or lapse of time (or both) would become such a default; 0) such information as
may be required to enable Lessor to file any reports required by any
governmental authority as a result of Lessor's ownership of the Aircraft
promptly upon request of Lessor; (k) copies of any manufacturer's maintenance
service program contract for the airframe or engines, promptly upon request; (1)
evidence of Lessee's compliance with FAA airworthiness directives and advisory
circulars and of compliance with other maintenance provisions of Section VII
hereof and the return provisions of Section XI, upon request of Lessor; and (in)
such other reports as Lessor may reasonably request.
VI. DELIVERY, REGISTRATION, USE AND OPERATION:
(a) The Aircraft shall be delivered directly from the Supplier to Lessee
unless the Aircraft is being leased pursuant to a sale leaseback transaction in
which case Lessee acknowledges that it is in possession of the Aircraft as of
the Lease Commencement Date.
(b) Lessee, at its own cost and expense, shall cause the Aircraft to be
duly registered in the name of Lessor under the Title 49, Subtitle VII of the
United States Code, as amended (the "FAA ACT"), and shall not register the
Aircraft under the laws of any other country.
(c) The possession, use and operation of the Aircraft shall be at the sole
risk and expense of Lessee. Lessee acknowledges that it accepts full operational
control of the Aircraft. Lessee agrees that the Aircraft will be used and
operated in compliance with any and all statutes, laws, ordinances, regulations
and standards or directives issued by any governmental agency applicable to the
use or operation thereof, in compliance with any airworthiness certificate,
license or registration relating to the Aircraft issued by any agency and in a
manner that does not modify or impair any existing warranties on the Aircraft or
any part thereof. Lessee will not use or operate and will not permit the
Aircraft to be used or operated in violation of any United States export control
law. Lessee will operate the Aircraft predominantly in the conduct of its
business and will not operate or permit the Aircraft to be operated (i) in a
manner wherein the predominance of use during any consecutive twelve month
period would be for a purpose other than transportation for Lessee, or in a
manner, for any time period, such that Lessor or a third party shall be deemed
to have "operational control" of the Aircraft, or (ii) for the carriage of
persons or property for hire or the transport of mail or contraband. The
Aircraft will, at all times be operated by duly qualified pilots holding at
least a valid airline transport pilot certificate and instrument rating and any
other certificate, rating, type rating or endorsement appropriate to the
Aircraft purpose of flight, condition of flight or as other-wise required by the
Federal Aviation Regulations ("FAR"). Pilots shall be employed and/or paid and
contracted for by Lessee, shall meet all recency of flight requirements and
shall meet the requirements established and specified by the insurance policies
required hereunder and the FAA. The primary hangar location of the Aircraft
shall be as stated in Annex B. Lessee shall not relocate the primary hangar
location to a hangar location outside the United States.
(d) AT ALL TIMES DURING THE TERM OF THE LEASE, THE AIRCRAFT WILL BE LOCATED
AND USED SOLELY WITHIN THE CONTINENT OF NORTH AMERICA AND THE CARIBBEAN.
(i) AT ALL TIMES DURING THE TERM OF THE LEASE, LESSEE AGREES NOT TO
OPERATE OR LOCATE THE AIRCRAFT, OR SUFFER OR PERMIT THE AIRCRAFT TO BE OPERATED,
LOCATED, OR OTHERWISE PERMITTED TO GO INTO OR OVER ANY AREA OF HOSTILITIES, ANY
GEOGRAPHIC AREA WHICH IS NOT
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<PAGE> 4
COVERED BY THE INSURANCE POLICIES REQUIRED BY THIS LEASE, OR ANY COUNTRY OR
JURISDICTION FOR WHICH EXPORTS OR TRANSACTIONS ARE SUBJECT TO SPECIFIC
RESTRICTIONS UNDER ANY UNITED STATES EXPORT OR OTHER LAW OR UNITED NATIONS
SECURITY COUNCIL DIRECTIVE, INCLUDING WITHOUT LIMITATION: THE TRADING WITH THE
ENEMY ACT, 50 U.S.C. APP. SECTIONS I ET SEQ., THE INTERNATIONAL EMERGENCY
ECONOMIC POWERS ACT, 50 U.S.C. APP. SECTIONS 1701 ET SEQ., AND THE EXPORT
ADMINISTRATION ACT, 50 U.S.C. APP. SECTIONS 2401 ET SEQ. OR TO OTHER WISE
VIOLATE, OR SUFFER OR PERMIT THE VIOLATION OF, SUCH LAWS OR DIRECTIVES, LESSEE
ALSO AGREES TO PROHIBIT ANY NATIONAL OF SUCH RESTRICTED NATIONS FROM OPERATING
THE AIRCRAFT.
(ii) Lessee represents and warrants that it does not on this date hold
a contract or other obligation to operate the Aircraft in any of the following
countries: Cuba, Iraq, Libya, Myanmar, North Korea, and the Federal Republic of
Yugoslavia (Serbia and Montenegro).
(iii) The engines set forth on Annex A shall be used only on the
airframe described in Annex A and shall only be removed for maintenance in
accordance with the provisions hereof
(a) Lessee agrees ---, the Aircraft will be maintained in compliance with
any and all statutes, laws, ordinances, regulations and standards or directives
issued by any governmental agency applicable to the maintenance thereof, in
compliance with any airworthiness certificate, license or registration relating
to the Aircraft issued by any agency and in a manner that does not modify or
impair any existing warranties on the Aircraft or any part thereof
(b) Lessee shall maintain, inspect service, repair, overhaul and test the
Aircraft (including each engine of same) in accordance with (i) all maintenance
manuals initially furnished with the Aircraft including any subsequent
amendments or supplements to such manuals issued by the manufacturer from time
to time, (ii) all mandatory or otherwise required "SERVICE BULLETINS" issued,
supplied, or available by or through the manufacturer and/or the manufacturer of
any engine or part with respect to the Aircraft, (iii) all airworthiness
directives applicable to the Aircraft issued by the FAA or similar regulatory
agency having jurisdictional authority, and causing compliance to such
directives to be completed through corrective modification in lieu of operating
manual restrictions, and (iv) all maintenance requirements set forth in Annex G
hereto. Lessee shall maintain all records, logs and other materials required by
the manufacturer thereof for enforcement of any warranties or by the FAA. All
maintenance procedures required hereby shall be undertaken and completed in
accordance with the manufacturer's recommended procedures, and by properly
trained, licensed, and certificated maintenance sources and maintenance
personnel, so as to keep the Aircraft and each engine in as good operating
condition as when delivered to Lessee hereunder, ordinary wear and tear
excepted, and so as to keep the Aircraft in such operating condition as may be
necessary to enable the airworthiness certification of such Aircraft to be
maintained in good standing at all times under the FAA.
(c) Lessee agrees, at its own cost and expense, to (i) cause the Aircraft
and each engine thereon to be kept numbered with the identification in serial
number therefor as specified in Annex A; (ii) prominently display on the
Aircraft that N number, and only that N number, specified in Annex A; (iii)
notify Lessor in writing thirty (30) days prior to making any change in the
configuration (other than changes in configuration mandated by the FAA),
appearance and coloring of the Aircraft from that in effect at the time the
Aircraft is accepted by Lessee hereunder, and in the event of such change or
modification of configuration, coloring or appearance, to restore, upon request
of Lessor, the Aircraft to the configuration, coloring or appearance in effect
on the Commencement Date or, at Lessor's option to pay to Lessor an amount equal
to the reasonable cost of such restoration. Lessee will not place the Aircraft
in operation or exercise any control or dominion over the same until such
Aircraft marking has been placed thereon. Lessee will replace promptly any such
Aircraft marking which may be removed, defaced or destroyed.
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<PAGE> 5
(d) Lessee shall be entitled from time to time during the Term of this
Lease to acquire and install on the Aircraft at Lessee's expense, any additional
accessory, device or equipment as Lessee may desire (each such accessory, device
or equipment, an "ADDITION"), but only so long as such Addition (i) is ancillary
to the Aircraft; (ii) is not required to render the Aircraft complete for its
intended use by Lessee; (iii) does not alter or impair the originally intended
function or use of the Aircraft; and (iv) can be readily removed without causing
material damage. Title to each Addition which is not removed by Lessee prior to
the return of the Aircraft to Lessor shall vest in Lessor upon such return.
Lessee shall repair all damage to the Aircraft resulting from the installation
or removal of any Addition so as to restore the Aircraft to its condition prior
to installation, ordinary wear and tear excepted.
(e) Any alteration or modification (each an "ALTERATION") with respect to
the Aircraft that may at any time during the Term of this Lease be required to
comply with any applicable law or any governmental rule or regulation shall be
made at the expense of Lessee. Any repair made by Lessee of or upon the Aircraft
or replacement parts, including any replacement engine, installed thereon in the
course of repairing or maintaining the Aircraft, or any Alteration required by
law or any governments] rule or regulation, shall be deemed an accession, and
title thereto shall be immediately vested in Lessor without cost or expense to
Lessor.
(f) Except as permitted under this Section VII, Lessee will not modify the
Aircraft or affix or remove any accessory to the Aircraft leased hereunder.
(g) If the Aircraft is to be operated at any time under Part 135 with the
prior written consent of Lessor, then the Aircraft shall be maintained and
operated in accordance with the applicable Part 135 standards.
VIII. LIENS, SUBLEASE AND ASSIGNMENT:
(a) LESSEE SHALL NOT SELL, TRANSFER, ASSIGN OR ENCUMBER THE AIRCRAFT, ANY
ENGINE OR ANY PART THEREOF, LESSOR'S TITLE OR ITS RIGHTS UNDER THIS LEASE AND
SHALL NOT SUBLET, CHARTER OR PART WITH POSSESSION OF THE AIRCRAFT OR ANY ENGINE
OR PART THEREOF OR ENTER INTO ANY INTERCHANGE AGREEMENT. Lessee shall not permit
any engine to be used on any other Aircraft. Lessee shall keep the Aircraft each
engine and any part thereof free and clear of all liens and encumbrances other
than those which result from (i) the respective rights of Lessor and Lessee as
herein provided; (ii) liens arising from the acts of Lessor; (iii) liens for
taxes not yet due; and (iv) inchoate materialmen's, mechanics', workmen's,
repairmen's, employees' or other like liens arising in the ordinary course of
business of Lessee for sums not yet delinquent or being contested in good faith
(and for the payment of which adequate assurances in Lessor's judgment have been
provided Lessor).
(b) Lessor and any assignee of Lessor may assign this Lease, or any part
hereof and/or the Aircraft subject hereto. Lessee hereby waives and agrees not
to assert against any such assignee, or assignee's assigns, any defense,
set-off, recoupment claim or counterclaim which Lessee has or may at any time
have against Lessor for any reason whatsoever.
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<PAGE> 6
IX. LOSS, DAMAGE AND STIPULATED LOSS VALUE: Lessee hereby assumes and shall bear
the entire risk of any loss, theft, confiscation, expropriation, requisition,
damage to, or destruction of, the Aircraft, any engine or part thereof from any
cause whatsoever. Lessee shall promptly and fully notify Lessor in writing if
the Aircraft, or any engine thereto shall be or become worn out, lost stolen,
confiscated, expropriated, requisitioned, destroyed, irreparably damaged or
permanently rendered unfit for use from any cause whatsoever (such occurrences
being hereinafter called "CASUALTY OCCURRENCES"). In the event that in the
opinion of Lessor, a Casualty Occurrence has occurred which affects only the
engine(s) of the Aircraft, then Lessee, at its own cost and expense, shall
replace such engine(s) with an engine(s) acceptable to Lessor and shall cause
title to such engine(s) to be transferred to Lessor for lease to Lessee
hereunder. Upon transfer of title to Lessor of such engine(s), such engine(s)
shall be subject to the terms and conditions of this Lease, and Lessee shall
execute whatever documents or filings Lessor deems necessary and appropriate in
connection with the substitution of such replacement engine(s) for the original
engine(s). In the event that, in the opinion of Lessor, a Casualty Occurrence
has occurred in respect to the Aircraft in its entirety, on the Rent Payment
Date next succeeding a Casualty Occurrence (the "PAYMENT DATE"), Lessee shall
pay Lessor the sum of (a) the Stipulated Loss Value as set forth in Annex F
calculated as of the Rent Payment Date immediately preceding such Casualty
Occurrence; and (b) all Rent and other amounts which are due hereunder as of the
Payment Date. Upon payment of all sums due hereunder, the Term of this Lease as
to the Aircraft shall terminate and Lessor shall be entitled to recover
possession of the salvage thereof
X. INSURANCE: Lessee shall secure and maintain in effect at its own expense
throughout the Term hereof insurance against such hazards and for such risks as
Lessor may direct. All such insurance shall be with companies satisfactory to
Lessor. Without limiting the generality of the foregoing, Lessee shall maintain
(a) breach of warranty insurance, (b) liability insurance covering public
liability and property, cargo and environmental damage, in amounts not less than
fifty (50) million U.S. dollars for any single occurrence, (c) all-risk aircraft
hull and engine insurance (including, without limitation, foreign object damage
insurance) in an amount which is not less than the then Stipulated Loss Value,
and (d) confiscation, expropriation and war risk insurance. All insurance shall
name the Lessor as owner of the Aircraft and as loss payee and additional
insured (without responsibility for premiums) and shall provide that any
cancellation or substantial change in coverage shall not be effective as to the
Lessor for thirty (30) days after receipt by Lessor of written notice from such
insurer(s) of such cancellation or change, shall insure Lessor's interest
regardless of any breach or violation by Lessee of any warranties, declarations
or conditions in such policies, shall include a severability of interest clause
providing that such policy shall operate in the same manner as if there were a
separate policy covering each insured, shall waive any right of set-off against
Lessee or Lessor, and shall waive any rights of subrogation against Lessor. Such
insurance shall be primary and not be subject to any offset by any other
insurance carried by Lessor or Lessee. Lessee hereby appoints Lessor as Lessee's
attomey-in-fact to make proof of loss and claim for and to receive payment of
and to execute or endorse all documents, checks or drafts in connection with all
policies of insurance in respect of the Aircraft. Any expense of adjusting or
collecting insurance proceeds shall be home by Lessee. Upon the occurrence of a
default hereunder, Lessor may, at its option, apply proceeds of insurance, in
whole or in part to (i) repair the Aircraft or repair or replace any part
thereof or (ii) satisfy any obligation of Lessee to Lessor hereunder.
XI. RETURN OF AIRCRAFT:
(a) On the date of expiration or termination of this Lease (the Return
Date), Lessee, at its own expense, will return the Aircraft and shall deliver
all logs, loose equipment manuals and data associated with the Aircraft,
including without limitation, inspection, modification and overhaul records
required to be maintained with respect thereto under this Lease or under the
applicable rules and regulations of the FAA and under the manufacturers
recommended maintenance program, along with a currently effective FAA
airworthiness certificate to Lessor to any location within the continental
United States as Lessor shall direct. Lessee shall, upon request, assign to
Lessor its rights under any manufacturer's maintenance service contract or
extended warranty for the Aircraft any engine or part thereof All expenses for
return of the Aircraft and delivery of the aforementioned logs, manuals and data
shall be borne by Lessee. The Aircraft shall be returned in the condition in
which the Aircraft is required to be maintained pursuant to Section VII hereof,
but with all logos or other identifying marks of Lessee removed. Additionally,
Lessee shall ensure that the Aircraft complies with all requirements and
conditions set forth on Annex G hereto.
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(b) Lessor shall arrange for the inspection of the Aircraft on the Return
Date to determine if the Aircraft has been maintained and returned in accordance
with the provisions hereof. Lessee shall be responsible for the cost of such
inspection and shall pay Lessor such amount as additional Rent within ten (10)
days of demand for same. In the event that the results of such inspection
indicate that the Aircraft any engine thereto or part thereof, has not been
maintained or returned in accordance with the provisions hereof, Lessee shall
pay to Lessor within ten (10) days of demand, as liquidated damages, the
estimated cost ( "Estimated Cost") of servicing or repairing the Aircraft,
engine or part. The Estimated Cost shall be determined by Lessor by obtaining
two quotes for such service or repair work and taking the average of same.
Lessee shall bear the cost, if any, incurred by Lessor in obtaining such quotes.
(c) If Lessee fails to return the Aircraft on termination or expiration of
the Term, Lessor shall be entitled to damages equal to the higher of (i) the
Rent for the Aircraft, pro-rated on a per them basis, for each day the Aircraft
is retained in violation of the provisions hereof, or (ii) the daily fair market
rental for the Aircraft at termination or expiration, as applicable. Such
damages for retention of the Aircraft after termination or expiration of the
Term shall not be interpreted as an extension or reinstatement of the Term.
(d) All of Lessor's rights contained in this Section shall survive the
expiration or other termination of this Lease.
XII. EVENTS OF DEFAULT: The term "EVENT OF DEFAULT", wherever used herein, shall
mean any of the following events under this Lease, whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary, or come about
or be effected by operation of law, or be pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or regulation or any
administrative or governmental body: (a) Lessee shall fail to make any payment
of Rent or any other sums payable hereunder within ten (10) days after the same
shall become due; or (b) Lessee shall fail to keep in full force and effect
insurance required under this Lease; or (c) Lessee shall or shall attempt to
(except as expressly permitted by the provisions of this Lease) remove, sell,
transfer, encumber, part with possession of, assign, charter or sublet the
Aircraft, any engine or any part thereof, use the Aircraft for an illegal
purpose, or permit the same to occur; or (d) Lessee shall fail to perform or
observe any covenant condition or agreement not included within (a), (b) or (c)
above which is required to be performed or observed by it under this Lease or
any agreement, document or certificate delivered by Lessee in connection
herewith, and such failure shall continue for twenty (20) days after written
notice thereof from Lessor to Lessee; or (e) any representation or warranty made
by Lessee in this Lease or any agreement, document or certificate delivered by
Lessee in connection herewith or pursuant hereto shall prove to have been
incorrect in any material respect when any such representation or warranty was
made or given (or, if a continuing representation or warranty, at any material
time); or (o Lessee or any guarantor or other obligor for any of the obligations
hereunder (collectively "GUARANTOR") shall generally fail to pay its debts as
they become due or shall file a voluntary petition in bankruptcy or a voluntary
petition or an answer seeking reorganization in a proceeding under any
bankruptcy laws (as now or hereafter in effect) or an answer admitting the
material allegations of a petition filed against Lessee or any Guarantor in any
such proceeding, or Lessee or any Guarantor hereof shall, by voluntary petition,
answer or consent, seek relief under the provisions of any other now existing or
future bankruptcy or other similar law (other than a law which does not provide
for or permit the readjustment or alteration of Lessee's obligations hereunder
or the obligations of any guaranty hereto providing for the reorganization or
liquidation of corporations, or providing for an agreement composition,
extension or adjustment with its creditors; or (g) a petition is filed against
Lessee or any Guarantor in a proceeding under applicable bankruptcy laws or
other insolvency laws (other than any law which does not provide for or permit
any readjustment or alteration of Lessee's obligations hereunder or the
obligations of any guaranty hereof in each case), as now or hereafter in effect,
and is not withdrawn or dismissed within ninety (90) days thereafter, or if,
under the provisions of any law (other than any law which does not provide for
or permit any readjustment or alteration of Lessee's obligations hereunder in
each case) providing for reorganization or liquidation of corporations which may
apply to Lessee or any Guarantor hereof, any court of competent jurisdiction
shall assume jurisdiction, custody or control of Lessee or any Guarantor hereof
or of any substantial part of any of such party's property and such
jurisdiction, custody or control shall remain in force unrelinguished, unstayed
or unterminated for a period of sixty (60) days; or (h) Lessee breaches or is in
default under any other agreement by and between Lessor and Lessee; or (i) there
is a material adverse change in the financial condition of Lessee or any
Guarantor hereof from the time of execution hereof, or 0) there is any
dissolution, termination of existence, merger, consolidation, change in
controlling ownership, insolvency, or business failure of Lessee or any
Guarantor hereof, or if Lessee or any Guarantor is a natural person, any death
or incompetency of Lessee or such Guarantor.
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XIII. REMEDIES:
(a) Upon the occurrence of any Event of Default and so long as the same
shall be continuing, Lessor may, at its option, at any time thereafter, exercise
one or more of the following remedies, as Lessor in its sole discretion shall
lawfully elect: (i) demand that Lessee forthwith pay as liquidated damages, for
loss of a bargain and not as a penalty, an amount equal to the Stipulated Loss
Value of the Aircraft computed as of the Basic Rent Date immediately preceding
such demand together with all Rent and other amounts due and payable for all
periods up to and including the Basic Term Rent Date following the date on which
Lessor made its demand for liquidated damages; (ii) demand that Lessee pay all
amounts due for failure to maintain or return the Aircraft as provided herein
and cause Lessee to assign to Lessor Lessee's rights under any manufacturer's
service program contract or any extended warranty contract in force for the
Aircraft; (iii) proceed by appropriate court action, either at law or in equity,
to enforce the performance by Lessee of the applicable covenants ofthis Lease or
to recover damages for breach hereof, (iv) by notice in writing terminate this
Lease, whereupon all rights of Lessee to use of the Aircraft or any part thereof
shall absolutely cease and terminate, and Lessee shall forthwith return the
Aircraft in accordance with Section Xi, but Lessee shall remain liable as
provided in Section XI; (v) request Lessee to return the Aircraft to a
designated location in accordance with Section XI; (vi) enter the premises, with
or without legal process, where the Aircraft is believed to be and take
possession thereof, (vii) sell or other-wise dispose of the Aircraft at private
or public sale, in bulk or in parcels, with or without notice, and without
having the Aircraft present at the place of sale; (viii) lease or keep idle all
or part of the Aircraft; (ix) use Lessee's premises for storage pending lease or
sale or for holding a sale without liability for rent or costs; (x) collect from
Lessee all costs, charges and expenses, including reasonable legal fees and
disbursements, incurred by Lessor by reason of the occurrence of any Event of
Default or the exercise of Lessor's remedies with respect thereto; (xi) in the
case of a failure of Lessee to comply with any provision of this Lease, Lessor
may effect such compliance, in whole or in part, and collect from Lessee as
additional Rent, all monies spent and expenses incurred or assumed by Lessor in
effecting such compliance; and/or (xii) declare any Event of Default under the
terms of this Lease to be a default under any other agreement between Lessor and
Lessee.
(b) The foregoing remedies are cumulative, and any or all thereof may be
exercised in lieu of or in addition to each other or any remedies at law, in
equity, or under statute.
(c) Lessor shall have the right to any proceeds of sale, lease or other
disposition of the Aircraft if any, and shall have the right to apply same in
the following order of priorities: (i) to pay all of Lessor's costs, charges and
expenses incurred in enforcing its rights hereunder or in taking, removing,
holding, repairing, selling, leasing or otherwise disposing of the Aircraft;
then, (ii) to the extent not previously paid by Lessee, to pay Lessor all sums
due from Lessee hereunder; then (iii) to reimburse to Lessee any sums previously
paid by Lessee as liquidated damages; and (iv) any surplus shall be retained by
Lessor. Lessee shall pay any deficiency in (i) and (ii) forthwith.
(d) Waiver of any Event of Default shall not be a waiver of any other or
subsequent Event of Default. Lessor's effecting compliance in accordance with
sub-section (a)(xi) hereof shall not constitute a waiver of an Event of Default.
The failure or delay of Lessor in exercising any rights granted it hereunder
upon any occurrence of any of the contingencies set forth herein shall not
constitute a waiver of any such right upon the continuation or recurrence of any
such contingencies or similar contingencies and any single or partial exercise
of any particular right by Lessor shall not exhaust the same or constitute a
waiver of any other right provided for in this Lease.
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XIV. NET LEASE; NO SET-OFF, ETC:
This Lease is a net lease. Lessee's obligation to pay Rent and other amounts due
hereunder shall be absolute and unconditional. Lessee shall not be entitled to
any abatement or reduction of, or set-offs against said Rent or other amounts,
including, without limitation, those arising or allegedly arising out of claims
(present or future, alleged or actual, and including claims arising out of
strict tort or negligence of Lessor) of Lessee against Lessor under this Lease
or otherwise. Nor shall this Lease terminate or the obligations of Lessee be
affected by reason of any defect in or damage to, or loss of possession, use or
destruction of, the Aircraft from whatsoever cause. It is the intention of the
parties that Rent and other amounts due hereunder shall continue to be payable
in all events in the manner and at the times set forth herein unless the
obligation to do so shall have been terminated pursuant to the express terms
hereof.
XV. INDEMNIFICATION:
(a) Lessee hereby agrees to indemnify, save and keep harmless Lessor, its
agents, employees, successors and assigns from and against any and all losses,
damages, penalties, injuries, claims, actions and suits, including legal
expenses, of whatsoever kind and nature, in contract or tort whether caused by
the active or passive negligence of Lessor or otherwise, and including, but not
limited to, Lessor's strict liability in tort, arising out of (i) the selection,
manufacture, purchase, acceptance or rejection of the Aircraft, the ownership of
Aircraft during the Term of this Lease, and the delivery, lease, possession,
maintenance, use, condition, return or operation of the Aircraft (including,
without limitation, latent and other defects, whether or not discoverable by
Lessor or Lessee and any claim for patent, trademark or copyright infringement),
or (ii) the condition of the Aircraft sold or disposed of after use by Lessee,
any sublessee or employees of Lessee. Lessee shall, upon request, defend any
actions based on, or arising out of, any of the foregoing.
(b) Lessee hereby represents and warrants that (i) on the Commencement
Date, the Aircraft will qualify for all of the items of deduction and credit
specified in Annex B ("TAX BENEFITS") in the hands of Lessor (all references to
Lessor in this Section XV include Lessor and the consolidated taxpayer group of
which Lessor is a member), and (ii) at no time during the Term of this Lease
will Lessee take or omit to take, nor will it permit any sublessee or assignee
to take or omit to take, any action (whether or not such act or omission is
otherwise permitted by Lessor or the provisions of this Lease), which will
result in the disqualification of the Aircraft for, or recapture of, all or any
portion of such Tax Benefits.
(c) If as a result of a breach of any representation, warranty or covenant
of the Lessee contained in this Lease (i) tax counsel of Lessor shall determine
that Lessor is not entitled to claim on its federal income tax return all or any
portion of the Tax Benefits with respect to any Aircraft or (ii) any such Tax
Benefit claimed on the Federal income tax return of Lessor is disallowed or
adjusted by the Internal Revenue Service, or (iii) any such Tax Benefit is
recomputed or recaptured (any such determination, disallowance, adjustment,
recomputation or recapture being hereinafter called a "LOSS"), then Lessee shall
pay to Lessor, as an indemnity and as additional Rent such amount as shall, in
the reasonable opinion of Lessor, cause Lessor's after-tax economic yields and
cash flows, computed on the same assumptions, including tax rates (unless any
adjustment has been made under Section III hereof, in which case the Effective
Rate used in the next preceding adjustment shall be substituted), as were
utilized by Lessor in originally evaluating the transaction (such yields and
flows being hereinafter called the "Net Economic Return") to equal the Net
Economic Return that would have been realized by Lessor if such Loss had not
occurred. Such amount shall be payable upon demand accompanied by a statement
describing in reasonable detail such Loss and the computation of such amount.
(d) All of Lessor's rights, privileges and indemnities contained in this
Section shall survive the expiration or other termination of this Lease and the
rights, privileges and indemnities contained herein are expressly made for the
benefit of, and shall be enforceable by Lessor, its successors and assigns.
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<PAGE> 10
XVI. DISCLAIMER:
LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE AIRCRAFT WITHOUT ANY
ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES AND THAT LESSOR IS LEASING THE
AIRCRAFT IN AN 'AS IS" CONDITION. LESSOR DOES NOT MAKE, HAS NOT MADE, NOR SHALL
BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS
OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE AIRCRAFT LEASED HEREUNDER OR
ANY COMPONENT THEREOF, OR ANY ENGINE INSTALLED THEREON, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTY AS TO CONDITION, AIRWORTHINESS, DESIGN, COMPLIANCE WITH
SPECIFICATIONS, QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS
FOR ANY PURPOSE, USE OR OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT
INFRINGEMENT, OR TITLE. All such risks, as between Lessor and Lessee, are to be
borne by Lessee. Without limiting the foregoing, Lessor shall have no
responsibility or liability to Lessee or any other person with respect to any of
the following, regardless of any negligence of Lessor (i) any liability, loss or
damage caused or alleged to be caused directly or indirectly by any Aircraft,
any inadequacy thereof, any deficiency or defect (latent or otherwise) therein,
or any other circumstance in connection therewith; (ii) the use, operation or
performance of any Air-craft or any risks relating thereto; (iii) any
interruption of service, loss of business or anticipated profits or
consequential damages; or (iv) the delivery, operation, servicing, maintenance,
repair, improvement or replacement of any Aircraft. If, and so long as, no
default exists under this Lease, Lessee shall be, and hereby is, authorized
during the Term to assert and enforce, at Lessee's sole cost and expense, from
time to time, in the name of and for the account of Lessor and/or Lessee, as
their interests may appear, whatever claims and rights Lessor may have against
any Supplier of the Equipment.
XVII. REPRESENTATIONS AND WARRANTIES OF LESSEE:
Lessee hereby represents and warrants to Lessor that on the date hereof and
at all times during the Term hereof
(a) Lessee has adequate power and capacity to enter into, and perform
under, this Lease and all related documents (together, the "Documents") and is
duly qualified to do business wherever necessary to carry on its present
business and operations, including the jurisdiction(s) where the Aircraft is or
is to have its primary hangar location.
(b) The Documents have been duly authorized, executed and delivered by
Lessee and constitute valid, legal and binding agreements, enforceable in
accordance with their terms, except to the extent that the enforcement of
remedies therein provided may be limited under applicable bankruptcy and
insolvency laws.
(c) No approval, consent or withholding of objections is required from any
governmental authority or instrumentality with respect to the entry into or
performance by Lessee of the Documents except such as have already been
obtained.
(d) The entry into and performance by Lessee of the Documents will not: (i)
violate any judgment, order, law or regulation applicable to Lessee or any
provision of Lessee's Certificate of Incorporation or By-Laws; or (ii) result in
any breach of, constitute a default under or result in the creation of any lien,
charge, security interest or other encumbrance upon any Aircraft pursuant to any
indenture, mortgage, deed of trust, bank loan or credit agreement or other
instrument (other than this Lease) to which Lessee is a party,
(e) There are no suits or proceedings pending or threatened in court or
before any commission, board or other administrative agency against or affecting
Lessee, which will have a material adverse effect on the ability of Lessee to
fulfill its obligations under this Lease.
(f) Each Balance Sheet and Statement of Income delivered to Lessor has been
prepared in accordance with generally accepted accounting principles, and since
the date of the most recent such Balance Sheet and Statement of Income, there
has been no material adverse change.
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<PAGE> 11
(g) Lessee is and will be at all times validly existing and in good
standing under the laws of the State of its incorporation (specified in the
first sentence of this Lease) and Lessee is and will continue to be a "CITIZEN
OF THE UNITED STATES" within the meaning of Section 40102(15) of the FAA. Lessee
shall not consolidate, reorganize or merge with any other corporation or entity
or sell, convey, transfer or lease all or substantially all of its property
during the Term hereof
(h) The chief executive office or chief place of business (as either of
such terms is used in Article 9 of the Uniform Commercial Code) of Lessee is
located at the address set forth above, and Lessee agrees to give Lessor prior
written notice of any relocation of said chief executive office or chief place
of business from its present location.
(i) A copy of this Lease, and a current and valid AC Form 8050-1 will be
kept on the Aircraft at all times during the Term of this Lease.
(j) Lessee has selected the Aircraft manufacturer and vendor thereof, and
all maintenance facilities required hereby.
(k) Lessee shall maintain all logs, books and records (including any
computerized maintenance records) pertaining to the Aircraft and engines and
their maintenance during the Term in accordance with FAA rules and regulations.
(l) Lessee shall not operate the Aircraft under Part 135 of the Federal
Aviation Regulations without the prior written approval of Lessor.
(m) Lessee shall notify the local Flight Standards District Office of the
FAA forty-eight (48) hours prior to the first flight of the Aircraft under this
Lease.
(n) Throughout the Term of this Lease, Lessee will not use or operate and
will not permit the Aircraft to be used or operated "predominately" outside the
United States as that phrase is used in Section 168(g)(1)(A) of the Code.
XVIII. EARLY TERMINATION:
(a) On or after the First Termination Date (specified in Annex B), Lessee
may, so long as no default exists hereunder, terminate this Lease upon at least
ninety (90) days prior written notice to Lessor effective on the Rent Payment
Date ("TERMINATION DATE") specified in such notice.
(b) Lessee shall, and Lessor may, solicit cash bids for the Aircraft on an
AS IS, WHERE IS basis without recourse to or warranty ftom Lessor, express or
implied ("AS IS BASIS"). Prior to the Termination Date, Lessee shall, (i)
certify to Lessor any bids received by Lessee; and (ii) pay to Lessor, (a) the
Termination Value (calculated as of the Termination Date) for the Aircraft; and
(b) all Rent and other sums due and unpaid as of the Termination Date. Neither
Lessee nor its agents shall be permitted to bid.
(c) Provided that all amounts due hereunder have been paid on the
Termination Date, Lessor shall (i) sell the Aircraft on an AS IS BASIS for cash
to the highest bidder; and (ii) refund the proceeds of such sale (net of any
related expenses) to Lessee up to the amount of the Termination Value paid by
Lessee. If such sale is not consummated, no termination shall occur and Lessor
shall refund the Termination Value (less any expenses incurred by Lessor) to
Lessee.
(d) Notwithstanding the foregoing, Lessor may elect by written notice, at
any time prior to the Termination Date, not to sell the Aircraft. In that event,
on the Termination Date Lessee shall: (i) return the Aircraft (in accordance
with Section XI); and (ii) pay to Lessor all amounts required under Section
XVIII(B) less the amount of the highest bid certified by Lessee to Lessor.]
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<PAGE> 12
XIX. PURCHASE OPTION:
(a) So long as no default exists hereunder and the lease has not been
earlier terminated, Lessee may at Lease expiration, upon at least ninety (90)
days, but not more than one hundred and eighty (180), days, prior written notice
to Lessor, purchase the Aircraft on an AS IS BASIS for cash equal to its then
Fair Market Value (plus all applicable sales taxes).
(b) "FAIR MARKET VALUE" shall mean the price which a willing buyer (who is
neither a lessee in possession nor a used equipment dealer) would pay for the
Aircraft in an arm's-length transaction to a willing seller under no compulsion
to sell; provided, however, that in such determination: (i) the Aircraft shall
be assumed to be in the condition in which it is required to be maintained and
returned under this Lease; (ii) in the case of any installed additions to the
Aircraft, same shall be valued on an installed basis; and (iii) costs of removal
of the Aircraft from the current location shall not be a deduction from such
valuation. If Lessor and Lessee are unable to agree on the Fair Market Value at
least sixty (60) days before Lease expiration, Lessor shall appoint an
independent appraiser (reasonably acceptable to Lessee) to determine Fair Market
Value, and that determination shall be final, binding and conclusive. Lessee
shall bear all costs associated with any such appraisal.
(c) Lessee shall be deemed to have waived this option unless it provides
Lessor with written notice of its irrevocable election to exercise the same
within fifteen (IS) days after Fair Market Value is determined (by agreement or
appraisal).
XX. EARLY PURCHASE OPTION:
(a) Provided that the Lease has not been terminated and no default exists
hereunder, LESSEE SHALL HAVE THE OPTION TO PURCHASE THE AIRCRAFT ON THE EARLY
PURCHASE OPTION DATE INDICATED ON ANNEX B (the "PURCHASE OPTION DATE") FOR A
PURCHASE PRICE EQUAL TO THE EARLY PURCHASE OPTION PRICE (the "OPTION PRICE")
INDICATED ON ANNEX B. Lessor and Lessee agree that the Option Price is a
reasonable prediction of the price that a willing buyer (who is neither a lessee
in possession or a used aircraft dealer) would pay for the Aircraft on the
Purchase Option Date in an arm's length transaction to a willing seller under no
compulsion to sell.
(b) LESSEE MAY EXERCISE SUCH OPTION ONLY BY GIVING NOTICE TO LESSOR
AT LEAST 30 DAYS (BUT NOT MORE THAN 90 DAYS) PRIOR TO THE PURCHASE OPTION DATE.
(c) On the Purchase Option Date, if Lessee has elected to purchase the
Aircraft and no default has occurred and is continuing under the Lease or any
other agreement between Lessee and Lessor:
(i) Lessee shall pay to Lessor any rent and other sums due and unpaid on
the Purchase Option Date; and
(ii)Lessee shall purchase from Lessor, and Lessor shall sell to Lessee, the
Aircraft on an AS IS, WHERE IS basis, without recourse to or warranty
from Lessor (express or implied), for a consideration equal to the
Option Price (together with any applicable sales taxes).]
XXI. MISCELLANEOUS:
(a) Unless and until Lessee exercises its rights under Sections XIX or XX
above, nothing herein contained shall give or convey to Lessee any right, title
or interest in and to the Aircraft except as a lessee under this Lease. Any
cancellation or termination by Lessor, pursuant to the provisions of this Lease,
or any supplement or amendment hereto, or the lease of any Aircraft hereunder,
shall not release Lessee from any then outstanding obligations to Lessor
hereunder.
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<PAGE> 13
(b) Time is of the essence of this Lease. Lessee agrees, upon Lessor's
request, to execute any instrument necessary or expedient for filing, recording
or perfecting the interest of Lessor. LESSEE HEREBY UNCONDITIONALLY WAIVES ITS
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF, DIRECTLY OR INDIRECTLY, THIS LEASE, ANY OF THE RELATED DOCUMENTS, ANY
DEALINGS BETWEEN LESSEE AND LESSOR RELATING TO THE SUBJECT MATTER OF THIS
TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING
ESTABLISHED BETWEEN LESSEE AND LESSOR. The scope of this waiver is intended to
be all encompassing of any and all disputes that may be filed in any court
(including, without limitation, contract claims, tort claims, breach of duty
claims, and all other common law and statutory claims). THIS WAIVER IS
IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND
THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS LEASE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR
AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. In the event
of litigation, this Lease may be filed as a written consent to a trial by the
court. All notices required to be given hereunder shall be deemed adequately
given if delivered in hand or sent by registered or certified mail to the
addressee at its address stated herein, or at such other place as such addressee
may have designated in writing. This Lease and any Annexes hereto constitute the
entire agreement of the parties with respect to the subject matter hereof, and
all Annexes referenced herein are incorporated herein by reference. NO VARIATION
OR MODIFICATION OF THIS LEASE OR ANY WAIVER OF ANY OF ITS PROVISIONS OR
CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND SIGNED BY AN AUTHORIZED
REPRESENTATIVE OF EACH PARTY HERETO.
(c) Any Rent or other amount not paid to Lessor when due hereunder shall
bear interest both before and after any judgment or termination hereof, at the
lesser of eighteen percent (18%) per annum or the maximum rate allowed by law.
Any provisions in this Lease which are in conflict with any statute, law or
applicable rule shall be deemed omitted, modified or altered to conform thereto.
XXII. TRUTH-LEASING:
(a) LESSEE HAS REVIEWED THE AIRCRAFRS MAINTENANCE AND OPERATING LOGS SINCE
ITS DATE OF MANUFACTURE AND HAS FOUND THAT THE AIRCRAFT HAS BEEN MAINTAINED AND
INSPECTED UNDER PART 91 OF THE FEDERAL AVIATION REGULATIONS. LESSEE CERTIFIES
THAT THE AIRCRAFT PRESENTLY COMPLIES WITH THE APPLICABLE MAINTENANCE AND
INSPECTION REQUIREMENTS OF PART 91 OF THE FEDERAL AVIATION REGULATIONS.
(b) LESSEE CERTIFIES THAT LESSEE, AND NOT LESSOR, IS RESPONSIBLE FOR
OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE DURING THE TERM HEREOF.
LESSEE FURTHER CERTIFIES THAT LESSEE UNDERSTANDS ITS RESPONSIBILITY FOR
COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS.
(c) LESSEE CERTIFIES THAT THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED
UNDER PART 91 OF THE FEDERAL AVIATION REGULATIONS FOR OPERATIONS TO BE CONDUCTED
UNDER THIS LEASE. LESSEE UNDERSTANDS THAT AN EXPLANATION OF FACTORS BEARING ON
OPERATIONAL CONTROL AND PERTINENT FEDERAL AVIATION REGULATIONS CAN BE OBTAINED
FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT OFFICE, GENERAL AVIATION DISTRICT
OFFICE, OR AIR CARRIER DISTRICT OFFICE.
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<PAGE> 14
IN WITNESS WHEREOF, Lessee and Lessor have caused this Lease to be executed
by their duly authorized representatives as of the date first above written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL CORPORATION AUTOCAM CORPORATION
By: /s/ Nabila S. Mahimud By: /s/ Warren A. Veltman
Title: Risk Analyst Title: Treasurer
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<PAGE> 15
AMENDMENT TO AIRCRAFT LEASE AGREEMENT DATED NOVEMBER 12, 1998
BETWEEN GENERAL ELECTRIC CAPITAL CORPORATION AS LESSOR,
AND AUTOCAM CORPORATION AS LESSEE
This Amendment dated as of November 12, 1998 amends and modifies the
above-referenced Aircraft Lease Agreement (the "Lease") and is hereby
incorporated into the Lease as though set forth therein. All terms not otherwise
defined herein shall have the meaning ascribed to them in the Lease.
A. AMENDMENT TO AIRCRAFT LEASE AGREEMENT
SECTION I. LEASING
(b) Section I (b) is hereby deleted in its entirety and replaced with the
following: "The obligation of Lessor to purchase the Aircraft from
Lessee and to lease the same to Lessee hereunder shall be subject to
the Commencement Date of the Lease, as that term is hereinafter defined
in Section 11, occurring on or prior to the Last Delivery Date
specified in Annex B, on the representations and warranties of Lessee
contained herein being true and accurate as of the Commencement Date
and further conditioned on receipt by lessor, on or prior to the
Commencement Date, of each of the following documents in form and
substance satisfactory to Lessor: (i) a copy of this Lease executed by
Lessee, (ii) Bill of Sale in the form of Annex C, transferring Lessee's
interest in the Aircraft to Lessor, (iii) copies of insurance policies
or, at Lessor's option, such other evidence of insurance which complies
with the requirements of Section X, (iv) evidence of Lessee's
reservation of an N number for the Aircraft together with an assignment
of the rights thereto to Lessor, (v) evidence that the Aircraft has
been duly certified as to type and airworthiness by the Federal
Aviation Administration ("FAA"), (vi) evidence that the FAA counsel has
received in escrow the executed bill of sale and AC Form 8050-1
Aircraft Registration Form (except for the pink copy which shall be
available to be placed on the Aircraft upon acceptance thereof), and an
executed duplicate of this Lease all in proper form for filing with the
FAA, (vii) resolution of Lessee authorizing this Lease in the form of
Annex D, (viii) a completed survey with respect to the Aircraft in
accordance with subsection (c) hereof, and (ix) such other documents as
Lessor may reasonably request. Simultaneous with the execution of the
Bill of Sale, Lessee shall also execute a Certificate of Acceptance in
the form of Annex E, covering the Aircraft described in the Bill of
Sale. Lessor's obligation to lease the Aircraft hereunder is further
conditioned upon (aa) the cost to Lessor of the acquisition of the
Aircraft not exceeding the Capitalized Lessor's Cost stated on Annex A,
(bb) upon delivery of the Aircraft, Lessee's execution and delivery to
Lessor of a Certificate of Acceptance in the form of Annex E, and (cc)
filing of all necessary documents with, and the acceptance thereof, by
the FAA.
(c) Section I (c) is hereby deleted in its entirety and replaced with the
following: "Subject to the aforestated conditions, upon execution by
Lessee of the Certificate of Acceptance, the Aircraft described thereon
shall be deemed to have been delivered to, and irrevocably accepted by,
Lessee for lease hereunder.
SECTION III. RENT ADJUSTMENT
(b) Section Ill (b) will be amended by inserting the following after the
last sentence in this Section: "If the Effective Rate is lower than 35%
for 1998 or any subsequent year during the lease term, Lessee shall
have the right, upon request to a decrease in the rent payments
calculated in the same manner as described above. Lessor shall
effectuate any decrease due pursuant to the section by (i) remitting
the decreased rent payment to Lessee as a single additional sum or,
(ii) crediting such decrease against the next rent payment and
subsequent rent payments, or (iii) decreasing the periodic rent
payments by an amount equal to the total decrease divided by the number
of periodic rent payments remaining under the Lease, at its sole
discretion. The decrease in rent payment will be effective on the later
of (x) receipt of notice of (y) the first day of the year for which the
rent adjustment is being made. After the initial rent adjustment, the
rent adjustment shall be calculated in the manner set forth above
whenever the Effective Rate Changes for the one used for the previous
rent adjustment."
SECTION IV. TAXES AND FEES
E-50
<PAGE> 16
The second sentence of Section IV is hereby amended by inserting the following,
"(other than Lessor's Michigan Single Business Tax)" after "franchise," but
before "stamp".
SECTION XXI. MISCELLANEOUS
(c) The first sentence in Section XXI (c) is hereby amended by deleting the
words "eighteen percent (18%)" and replacing them with "twelve percent
(12%)".
B. MISCELLANEOUS
Except as expressly modified herein, all terms and provisions of the Lease shall
remain in full force and effect. This Amendment shall not be binding nor
effective with respect to the Lease of the Aircraft until executed by duly
authorized representatives of Lessor and Lessee.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Amendment to be executed
by their duly authorized representatives as of this 12th day of November, 1998.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL CORPORATION AUTOCAM CORPORATION
By: /s/ Nabila S. Mahimud By: /s/ Warren A. Veltman
Title: Risk Analyst Title: Treasurer
E-51
<PAGE> 17
ANNEX A
DESCRIPTION OF AIRCRAFT, LESSOR'S COST, AND AIRCRAFT MARKINGS
<TABLE>
<CAPTION>
I. DESCRIPTION COST:
<S> <C>
Cessna, Model Citation V 560 Aircraft which consists of the following $4,900,000.00
components:
(a) Airframe bearing FAA Registration Mark N80GE and Manufacturer's
Serial No. 0187;
(b) , ( ) Pratt &
Whitney JT15D-SA engines bearing Manufacturer's Serial Nos. PCE108382 and
PCE 108383 respectively (each of which has 750 or more rated takeoff
horsepower or the equivalent of such horsepower);
(c) , ( )
propellers bearing, respectively
bearing, Manufacturer's Serial Nos. N/A and N/A, each being rated as
follows:
(d) Standard accessories and optional equipment and such other items fitted
or installed on the Aircraft and set forth hereinafter:
(e) Those items of Lessee Furnished Equipment described in a bill of sale
or bills of sale therefor (copies of which are appended hereto), delivered
by Lessee to Lessor which constitute appliances and equipment which will be
installed on the Aircraft;
(f) Sales Tax
(g) Other
CAPITALIZED LESSOR'S COST $4,900,000.00
</TABLE>
II. AIRCRAFT MARKINGS (REFERENCED IN THE MAINTENANCE SECTION OF LEASE)
(a) Four-by-six inch plaque to be maintained in cockpit and affixed in
conspicuous position stating:
GENERAL ELECTRIC CAPITAL CORPORATION Owner and Lessor.
AUTOCAM CORPORATION Lessee under a certain Lease dated as of November 12, 1998
has operational control of this aircraft.
(b) Similar markings shall be permanently affixed to each engine.
E-52
<PAGE> 18
Initials:
Lessee: /s/ WAV Lessor: /s/ NSM
E-53
<PAGE> 19
ANNEX B
DATED THIS NOVEMBER 12, 1998
TO AIRCRAFT LEASE AGREEMENT
DATED AS OF NOVEMBER 12, 1998
<TABLE>
<CAPTION>
<S> <C>
Lessor & Mailing Address: Lessee & Mailing Address:
GENERAL ELECTRIC CAPITAL CORPORATION AUTOCAM CORPORATION
1787 SENTRY PARKWAY/WEST 16 SENTRY PARK/WEST, SUITE 200 4070 E. PARIS AVENUE
BLUE BELL, PA 19422 KENTWOOD, MI 49512
</TABLE>
Capitalized terms not defined herein shall have the meanings assigned to them in
the Aircraft Lease Agreement identified above.
A. AIRCRAFT.
Pursuant to the terms of the Lease, Lessor agrees to acquire and lease
to Lessee the Aircraft described on Annex A to the Lease.
B. FINANCIAL TERMS.
<TABLE>
<S> <C> <C>
1. Advance Rent (if any): (a) Amount: $30,072.00.
(b) Due Date: 11/12/98
2. Capitalized Lessor's Cost: $4,900,000.00.
3. Basic Term Commencement Date: November 12, 1998
4. Basic Term: 180 months.
5. First Basic Term Rent Date: November 12, 1998
6. Basic Term Rent Dates: ________________________.
7. First Termination Date: (36) months after the Basic Term Commencement Date.
8. Last Basic Term Rent Date: ________________________.
9. Last Delivery Date: November 12, 1998.
10. Primary Hangar Location: Kent County International Airport; Grand Rapids, MI
11. Supplier: Autocam Corporation.
12. Lessee Federal Tax ID No.: 38-2790152.
13. Early Purchase Option: Option Date: 84 months from the Basic Term Commencement Date
Option Price: $4,246,830.00
14. Expiration Date: November 11, 2013
15. Daily Lease Rate Factor: 84 @ .00020457; 96 @.00024719.
16. Basic Term Lease Rate Factor:
Factor Rental No.
.00613714 1-84
.00741571 85-180
</TABLE>
E-54
<PAGE> 20
C. TAX BENEFITS.
Depreciation Deductions:
a. Depreciation Method: 200% declining balance method, switching to
straight line method for the I st taxable year for which using the
straight line method with respect to the adjusted basis as of the
beginning of such year will yield a larger allowance.
b. Recovery Period: 5 YEARS.
c. Basis: 100% of Capitalized Lessor's Cost.
D. TERM AND RENT.
1. Interim Rent. For the period from and including the Commencement
Date to the Basic Tenn Commencement Date ("INTERIM PERIOD"),
Lessee shall pay as Rent ("INTERIM RENT") for each unit of
Aircraft, the product of the Daily Lease Rate Factor times the
Capitalized Lessor's Cost of such unit times the number of days in
the Interim Period. Interim Rent shall be due on N/A.
2. Basic Term Rent. Commencing on November 12, 1998 and on the same
day of each month thereafter (each, a "RENT PAYMENT DATE") during
the Basic Term, Lessee shall pay as Rent ("BASIC TERM RENT") the
product of the Basic Term Lease Rate Factor times the Capitalized
Lessor's Cost of the Aircraft on this Annex B.
E. INSURANCE.
1. Public Liability: $50,000,000.00 total liability per occurrence.
2. Casualty and Property Damage: An amount equal to the higher of the
Stipulated Loss Value or the full replacement cost of the
Aircraft.
F. ADDITIONAL MAINTENANCE REQUIREMENTS.
G. AMENDMENTS TO LEASE.
Except as expressly modified hereby, all terms and provisions of the Lease shall
remain in full force and effect. This Annex B is not binding or effective with
respect to the Lease or Aircraft until executed on behalf of Lessor and Lessee
by authorized representatives of Lessor and Lessee, respectively.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Annex B to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL CORPORATION AUTOCAM CORPORATION
By: /s/ Nabila S. Mahimud By: /s/ Warren A. Veltman
Name: Nabila S. Mahimud Name: Warren A. Veltman
Title: Risk Analyst Title: Treasurer
ATTEST
By: /s/ Mark R. Scott
Name: Mark R. Scott
ANNEX C
E-55
<PAGE> 21
TO
AIRCRAFT LEASE AGREEMENT
DATED AS OF NOVEMBER 12, 1998
BILL OF SALE
AUTOCAM CORPORATION (the "SELLER"), in consideration of the sum of FOUR MILLION,
NINE HUNDRED THOUSAND AND 00/100 DOLLARS ($4,900,000.00) plus sales taxes in the
amount of DOLLARS ($ ) (if exemption from
sales tax is claimed, an exemption certificate must be furnished to Buyer
herewith), paid by GENERAL ELECTRIC CAPITAL CORPORATION (the "BUYER"), receipt
of which is acknowledged, hereby grants, set assigns, transfers and delivers to
Buyer the equipment (the "EQUIPMENT") described in the above schedule (said
schedule and related lease being collective referred to as "LEASE"), along with
whatever claims and rights Seller may have agaitm the manufacturer and/or
supplier of the Equipment (the "SUPPLIER" including but not limited to all
warranties and representations. At Buyers request, Seller will cause Supplier to
execute the attached Acknowledgement.
Buyer is purchasing the Equipment for leasing back to Seller pursuant to the
Lease. Seller represents and wan-ants to Buyer that (1) Buyer will acquire by t
terms of this Bill of Sale good title to the Equipment free from all liens and
encumbrances whatsoever (2) Seller has the right to sell the Equipment; and (the
Equipment has been delivered to Seller in good order and condition, and conforms
to the specifications, requirements and standards applicable thereto; a (4) the
equipment has been accurately [awed, consistent with the requirements of 40 CFR
part 82 Subpart E, with respect to products manufactured with controlled
(ozone-depleting) substance.
Seller agrees to save and hold harmless Buyer from and against any and all
federal, state, municipal and local license fees and taxes of any kind or nature
including, without limiting the generality of the foregoing, any and all excise,
personal property, use and sales taxes, and from and against any and
liabilities, obligations, losses, damages, penalties, claims, actions and suits
resulting therefrom and imposed upon, incurred by or asserted against Buyer a
consequence of the sale of the Equipment to Buyer.
IN WITNESS WHEREOF, Seller has executed this Bill of Sale this 12th day of
November, 1998.
SELLER:
AUTOCAM CORPORATION
By: /s/ Warren A. Veltman
Title: Treasurer
E-56
<PAGE> 22
ANNEX D
CERTIFICATE
CORPORATE LESSEE'S BOARD OF DIRECTORS RESOLUTION
REGARDING AIRCRAFT LEASE AGREEMENT AUTHORIZATION AND
INCUMBENCY OF OFFICERS
The undersigned hereby certifies that he is the.Assistant Secretary of
AUTOCAM CORPORATION, a corporation validly existing and organized under the laws
of the State of Michigan, which Corporation is presently subsisting and in good
standing under the laws of such State and is duly qualified to conduct its
business within the States of Michigan that the following is a true, accurate
and compared transcript of resolutions duly adopted at a meeting of the Board of
Directors of said Corporation duly held on the 24th day of July, 1998, at which
meeting a quorum was present and that the proceedings were in accordance with
the Articles and by-laws of said Corporation, and that said resolutions have not
been amended, rescinded, modified or revoked, and are in full force and effect:
"RESOLVED, that each of the officers of this Corporation, whose name
appears below, or the duly elected or appointed successor in office of any or
all of them, be and he hereby is authorized and empowered in the name and on
behalf of this Corporation to enter into, execute and deliver the Aircraft Lease
Agreement dated as of November 12, 1998, with GENERAL ELECTRIC CAPITAL
CORPORATION (hereinafter called "LESSOR") as Lessor and this Corporation as
Lessee and providing for the leasing to (or sale and leaseback by) this
Corporation of Aircraft; and (ii) further providing for this Corporation to
execute and deliver any Annexes and supplements necessary to effectuate such
Lease in such form and substance as may be agreed upon between Lessor and such
ofricers or any of them as agent(s) of the Corporation; and (iii) to indemnify
said Lessor against certain occurrences set forffi in the Lease; and
FURTHER RESOLVED, that each officer of this Corporation is hereby
authorized to do and perform all other acts and deeds that may be requisite or
necessary to carry fully into effect the foregoing resolution; and
FURTHER RESOLVED, that said Lessor is authorized to rely upon the
aforesaid resolutions until receipt by it of written notice of any change, which
changes of whatever nature shall not be effective as to said Lessor to the
extent that it has theretofore relied upon the aforesaid resolutions in the
above form."
Treasurer Vice President
(Signature) /s/ Warren A. Veltman (Signature)
--------------------------
I FURTHER CERTIFY that the duly elected officers of this Corporation
named in the foregoing resolution continue to hold their respective offices and
that the signature set below the name of each such officer is the true and
correct signature of such officer.
IN WITNESS WHEREOF, I have set my hand and affixed the seal of said Corporation
this 12th day of November, 1998.
(CORPORATE SEAL)
/s/ Rita A. Broekema
Assistant Secretary
E-57
<PAGE> 23
ANNEX F
STIPULATED LOSS AND TERMINATION VALUES
The Stipulated Loss and Termination Value of the Aircraft shall be the
percentage of Capitalized Lessor's Cost of the aircraft set forth opposite the
applicable rent payment.
<TABLE>
<CAPTION>
CAPITALIZED LESSOR'S COST $4,900,000.00
TERMINATION
VALUE STIPULATED LOSS VALUE TERMINATION VALUE STIPULATED LOSS VALUE
RENTAL PERCENTAGE PERCENTAGE RENTAL PERCENTAGE PERCENTAGE
<S> <C> <C> <C> <C> <C>
1 103.429 107.413 91 84.046 86.538
2 103.437 107.403 92 83.603 86.078
3 103.420 107.370 93 83.160 85.618
4 103.400 107.334 94 82.712 85.154
5 103.378 107.296 95 82.264 84.690
6 103.347 107.247 96 81.815 84.224
7 103.306 107.190 97 81.362 83.755
8 103.255 107.122 98 80.909 83.285
9 103.194 107.045 99 80.454 82.814
10 103.131 106,965 100 79.996 82.339
11 103.058 106.876 101 79.535 81.861
12 102.976 106.777 102 79.073 81.382
13 102.891 106.675 103 78.609 80.902
14 102.796 106.564 104 76.145 80.421
15 102.692 106.443 105 77.680 79.939
16 102.585 106.319 106 77.211 79.454
17 102.475 106.193 107 76.741 78.968
18 102.359 106.061 108 76.271 78.481
19 102.238 105.923 109 75.797 77.990
20 102.110 105.779 110 75.321 77.498
21 101.977 105.628 111 74.845 77.006
22 101.840 105.476 112 74.366 76.510
23 101.698 105.317 113 73.883 76.010
24 101.550 105.152 114 73.399 75.510
25 101.399 104.984 115 72.914 75.008
26 101.242 104.811 116 72.428 74.506
27 101.079 104.631 117 71.942 74.002
28 100.913 104.449 118 71.451 73.496
29 100.745 104.264 119 70.960 72.988
30 100.573 104.076 120 70.468 72.479
31 100.397 103,883 121 69.972 71.967
32 100.218 103.687 122 69.476 71.454
33 100.034 103.487 123 68.978 70.940
34 99.848 103.284 124 68.477 70.422
35 99.658 103.078 125 67.973 69.901
</TABLE>
E-58
<PAGE> 24
<TABLE>
<CAPTION>
TERMINATION
VALUE STIPULATED LOSS VALUE TERMINATION VALUE STIPULATED LOSS VALUE
RENTAL PERCENTAGE PERCENTAGE RENTAL PERCENTAGE PERCENTAGE
<S> <C> <C> <C> <C> <C>
36 99.464 102.867 126 67.467 69.379
37 99.268 102.654 127 66.961 68.856
38 99.067 102.437 128 66.454 68.332
39 98.863 102.217 129 65.946 67.807
40 98.656 101.993 130 65.434 67.279
41 98.447 101.768 131 64.921 66.750
42 98.234 101.538 132 64.407 66.220
43 98.017 101.304 133 63.890 65.686
44 97.796 101.067 134 63.372 65.151
45 97.571 100.825 135 62.853 64.616
46 97.344 100.581 136 62.331 64.076
47 97.113 100.334 137 61.805 63.534
48 96.878 100.082 138 61.278 62.990
49 96.640 99.828 139 60.750 62.446
50 96.399 99.570 140 60.221 61.901
51 96.153 99.308 141 59.691 61.354
52 95.905 99.044 142 59.158 60.804
53 95.655 98.776 143 58.624 60.254
54 95.402 98.507 144 58.089 59.702
55 95.147 98.236 145 57.550 59.147
56 94.890 97.962 146 57.010 58.590
57 94.631 97.686 147 56.470 58.033
58 94.369 97.407 148 55.926 57.473
59 94.105 97.127 149 55.378 56.909
60 93.838 96.844 150 54.830 56.344
61 93.569 96.558 151 54.280 55.778
62 93.298 96.270 152 53.730 55.211
63 93.025 95.980 153 53.179 54.643
64 92.748 95.688 154 52.624 54.071
65 92.470 95.392 155 52.068 53.499
66 92.191 95.097 156 51.512 52.926
67 91.911 94.800 157 50.951 52.349
68 91.630 94.503 158 50.390 51.771
69 91.349 94.206 159 49.828 51.193
70 91.066 93.906 160 49.263 50.611
71 90.782 93.605 161 48.694 50.025
72 90.497 93.304 162 48.124 49.439
73 90.210 93.000 163 47.553 48.851
74 89.922 92.695 164 46.981 48.263
75 89.633 92.390 165 46.408 47.673
76 89.342 92.083 166 45.832 47.080
77 89.049 91.772 167 45.255 46.487
78 88.754 91.462 168 44.676 45.892
</TABLE>
E-59
<PAGE> 25
<TABLE>
<CAPTION>
TERMINATION TERMINATION STIPULATED LOSS
VALUE STIPULATED LOSS VALUE VALUE VALUE
RENTAL PERCENTAGE PERCENTAGE RENTAL PERCENTAGE PERCENTAGE
<C> <C> <C> <C> <C> <C>
79 86.460 91.150 169 44.095 45.294
80 88.164 90.838 170 43.512 44.694
81 87.869 90.526 171 42.928 44.094
82 87.570 90.211 172 42.341 43.491
83 87.272 89.896 173 41.751 42.883
84 86.972 89.580 174 41.169 42.285
85 86.670 89.261 175 40.595 41.694
86 86.238 88.813 176 40.029 41.112
87 85.805 88.363 177 39.472 40.538
88 85.369 87.910 178 38.911 39.961
89 84.929 87.454 179 38.359 39.392
90 84.488 86.996 180 37.814 38.831
</TABLE>
Initials: /s/ NSM /s/ WAV
Lessor Lessee
E-60
<PAGE> 1
EXHIBIT 10(p)(3)
EQUIPMENT SCHEDULE NO. 05 dated as of May 21, 1999 (this "Schedule")
between KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC. ("Lessor"),
and AUTOCAM CORPORATION, a Michigan corporation ("Lessee").
INTRODUCTION:
Lessor and Lessee have heretofore entered into that certain Master
Equipment Lease Agreement dated as of July 10, 1995 (the "Master Lease"; the
Master Lease and this Schedule are hereinafter collectively referred to as, this
"Lease"). Unless otherwise defined herein, capitalized terms used herein shall
have the meanings specified in the Master Lease. The Master Lease provides for
the execution and delivery of a Schedule substantially in the form hereof for
the purpose of confirming the acceptance and lease of the Equipment under this
Lease as and when delivered by Lessor to Lessee in accordance with the terms
thereof and hereof.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, Lessor and Lessee hereby agree as follows:
EQUIPMENT & INVOICING TERMS
1 EQUIPMENT. Pursuant to the terms and conditions of this Lease, Lessor
hereby leases to Lessee, and Lessee hereby leases from Lessor, the
equipment listed on Exhibit A attached hereto (the "Equipment"). The
aggregate Total Cost of such Equipment is $586,647.51.
2 TERM. The Initial Term of this Lease with respect to the Equipment
described on this Schedule shall commence on the date on which such
Equipment is delivered to Lessee, and, unless earlier terminated as
provided herein, shall expire on a date which is ninety six (96) months
after the Rent Commencement Date (the "Initial Term Expiration Date").
3 RENT PAYMENT DATES; RENT. Lessee hereby agrees to pay Rent for the
Equipment throughout the Initial Term in ninety six (96) consecutive
monthly installments payable in arrears on the date which is one (1) month
after the Rent Commencement Date and on the same day of each month
thereafter (each, a "Rent Payment Date"). Each such installment of Rent
shall be in an amount equal to $7,063.14. In addition, Lessee hereby agrees
to pay Rent for the period commencing on the Interim Rent Commencement Date
(as defined below) and ending on the day before the Rent Commencement Date
in an amount equal to $235.44 per day, and agrees that, with respect to the
Equipment described on this Schedule, the following modifications are
hereby made to the Master Lease: (a) "Rent Commencement Date- shall mean,
with respect to an Equipment Group, the first (1st) day of the first month
following the date of the Certificate of Acceptance for such Equipment
Group, (b) "Interim Rent Commencement Date" shall mean, with respect to an
Equipment Group, the date of the Certificate of Acceptance for such
Equipment Group, or such later date (prior to the Rent Commencement Date)
as determined by Lessor in its sole discretion, (c) Section 6 of the Master
Lease ("Ordering Equipment") is hereby amended to delete the term "Rent
Commencement Date" and to substitute the term "Interim Rent Commencement
Date" in its place and (d) Section 22(a)(9) of the Master Lease ("Events of
Default; Remedies") is hereby amended to delete the term "Rent Commencement
Date" and to substitute the phrase "Rent Commencement Date or Interim Rent
Commencement Date, as the case may be," in its place.
4 EQUIPMENT LOCATION; BILLING ADDRESS. The Equipment described on this
Schedule shall be located at, and except as otherwise provided in this
Lease, shall not be removed from, the following address: 1511 George Brown
Drive, Marshall, MI 49068. The billing address of Lessee is as follows:
AUTOCAM CORPORATION, 4070 East Paris Avenue, Kentwood, MI 49512.
E-61
<PAGE> 2
TRANSACTION TYPE TERMS
5 PURCHASE, RENEWAL AND OPTION TERMS.
(a) FMV. With respect to the Equipment described on this Schedule, Section 32 of
the Master Lease ("Renewal and Purchase Options") is hereby deleted in its
entirety and the following is substituted in its place:
So long as no Default or Event of Default shall have occurred and be
continuing and Lessee shall have given Lessor at least one hundred eighty
(180) but not more than two hundred seventy (270) days prior written notice
(the "Option Notice"), Lessee shall have the following purchase and renewal
options at the expiration of the Initial Term, or any Renewal Term, to:
(i) purchase all, but not less than all, Items of Equipment for a purchase
price (the "Purchase Option Price") equal to the then Fair Market Sale Value
thereof; (ii) renew this Lease on a month to month basis at the same Rent
payable at the expiration of such Initial Term or Renewal Term, as the case
may be; (iii) renew this Lease for a minimum period of not less than twelve
(12) consecutive months at the then current Fair Market Rental Value; or
(iv) return such Equipment to Lessor pursuant to, and in the condition
required by, the Lease. If Lessee fails to give Lessor the Option Notice,
Lessee shall be deemed to have chosen option (ii) above.
Payment of the Purchase Option Price, applicable sales taxes, together with
all other amounts due and owing by Lessee under the Lease (including, without
limitation, Rent) during such Initial Term and Renewal Term shall be made on the
last day of the Initial Term or Renewal Term, as the case may be, in immediately
available funds against delivery of a bill of sale transferring to Lessee all
right, title and interest of Lessor in and to the Equipment ON AN "AS IS" "WHERE
IS" BASIS, WITHOUT ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE. LESSOR MAY
SPECIFICALLY DISCLAIM ANY SUCH REPRESENTATIONS AND WARRANTIES.
(b) EARLY BUYOUT OPTION. So long as no Default or Event of Default shall have
occurred and be continuing, Lessee shall have the option to purchase all, but
not less than all, Items of Equipment on the date which is eighty four (84)
months after the Rent Commencement Date (the "EBO Date") at a price (the "EBO
Price") equal to thirty one and twenty five hundredths percent (31.25%) of the
Total Cost of the Equipment, plus any applicable sales taxes. For Lessee to
exercise its option hereunder, Lessee shall notify Lessor in writing of its
desire to effect such option at least ninety (90) days (but not more than one
hundred eighty (180) days) prior to the EBO Date. Such notice shall be
irrevocable. The EBO Price represents the parties present best estimate of the
fair market value of the Equipment on the EBO Date determined by using
commercially reasonable methods which are standard in the industry. Payment of
the EBO Price, applicable sales taxes, together with all other amounts due and
owing by Lessee under the Lease (including, without limitation, Rent) on or
before the EBO Date, shall be made on the EBO Date in immediately available
funds. Thereafter, upon Lessee's written request, Lessor shall deliver to Lessee
a bill of sale transferring to Lessee all right, title and interest of Lessor in
and to the Equipment ON AN "AS IS" "WHERE IS" BASIS, WITHOUT ANY WARRANTIES,
EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER. If Lessee shall fail to pay all
amounts required to be paid under the Lease on the EBO Date, the Lease shall
continue in full force and effect and Lessee agrees to reimburse Lessor for all
reasonable costs, expenses and liabilities incurred in connection therewith.
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<PAGE> 3
6. NATURE OF TRANSACTION; TRUE LEASE. (a) It is the express intent of the
parties that this Lease constitute a true lease and not a sale of the
Equipment Title to the Equipment shall at all times remain in Lessor,
and Lessee shall acquire no ownership, title, property, right, equity,
or interest in the Equipment other than its leasehold interest solely
as Lessee subject to all the terms and conditions hereof. To the
extent that Article 2A ("Article 2A") of the Uniform Commercial Code
("UCC") applies to the characterization of this Lease, the parties
hereby agree that this Lease is a "Finance Lease" as defined therein.
Lessee acknowledges: (i) that Lessee has selected the "Supplier" (as
defined in the UCC) and has directed Lessor to purchase the Equipment
from the Supplier in connection with this Lease, and (ii) that Lessee
has been informed in writing in this Lease, before Lessee's execution
of this Lease, that Lessee is entitled under Article 2A to the
promises and warranties, including those of any third party, provided
to Lessor by the Supplier in connection with or as part of the
Purchase Agreement, and that Lessee may communicate with the Supplier
and receive an accurate and complete statement of those promises and
warranties, including any disclaimers and limitations of them or of
remedies. The filing of UCC financing statements pursuant to Section
34 of the Master Lease is precautionary and shall not be deemed to
have any effect on the characterization of this Lease. NOTWITHSTANDING
THE FOREGOING, LESSOR HAS NOT MADE, AND HEREBY DISCLAIMS ANY ADVICE,
REPRESENTATIONS, WARRANTIES AND COVENANTS, EITHER EXPRESSED OR
IMPLIED, WITH RESPECT TO ANY LEGAL, ECONOMIC, ACCOUNTING, TAX OR OTHER
EFFECTS OF THE LEASE AND THE TRANSACTION(S) CONTEMPLATED THEREBY, AND
LESSEE HEREBY DISCLAIMS ANY RELIANCE ON ANY SUCH WARRANTIES,
STATEMENTS OR REPRESENTATIONS MADE BY LESSOR WITH RESPECT THERETO.
(b) Notwithstanding the express intent of Lessor and Lessee that this
agreement constitute a true leage and not a sale of the Equipment, should a
court of competent jurisdiction determine that this agreement is not a true
lease, but rather one intended as security, then solely in that event and for
the expressly limited purposes thereof, Lessee shall be deemed to have hereby
granted Lessor a security interest in the Equipment and all accessions,
substitutions and replacements thereto and therefor, and proceeds (cash and
non-cash), including, without limitation, insurance proceeds thereof (but
without power of sale), to secure the prompt payment and performance as and when
due of all obligations and indebtedness of Lessee, now existing or hereafter
created, to Lessee pursuant to this Lease or otherwise. In furtherance of the
foregoing, Lessee shall execute and deliver to Lessor, to be filed at Lessee's
expense, Uniform Commercial Code financing statements, statements of amendment
and statements of continuation as reasonably may be required by Lessor to
perfect and maintain perfected such security interest.
(c) In the event that the Supplier erroneously invoices Lessee for the
Equipment, Lessee agrees to forward said invoice to Lessor immediately. Lessee
acknowledges that the Equipment is, and shall at all times remain, the property
of Lessor, and that Lessee has no right, title or interest therein or thereto
except as expressly set forth in this Lease.
7. TAX INDEMNIFICATION. (a) Lessee acknowledges that Lessor has executed
this Lease, and that the Rent payable by Lessee under this Lease has been
computed, upon the assumptions that Lessor will (i) be entitled to depreciation
or cost recovery deductions ("MACRS Deductions") for Federal income tax purposes
under the Modified Accelerated Cost Recovery System provided for in Section 168
of the Internal Revenue Code of 1986, as amended (the "Code"), and depreciation
or cost recovery deductions ("State Depreciation Deductions") for state income
tax purposes for the Equipment Location, in each case on the basis that (1) each
Item of Equipment constitutes 7-year property" within the meaning of Section
168(e) of the Code, (2) the initial tax basis for each Item of Equipment will be
equal to the Total Cost, (3) deductions for each Item of Equipment will be
computed by using the method specified in Section 168(b)(1) of the Code over the
7-year recovery period described in Section 168(c) of the Code, and (4) the
applicable convention for each Item of Equipment under Section 168(d) of the
Code is the half-year convention; (ii) be entitled to deductions for Federal
income tax purposes (available in the manner and as provided by Section 163 of
the Code) for interest payable with respect to any indebtedness incurred by
Lessor in connection with any financing by Lessor of any portion of the Total
Cost of each Item of Equipment ("Interest Deductions"); and (iii) be subject to
tax for each year at a composite Federal and New York corporate income tax rate
equal to the then highest marginal rate for corporations provided for under the
Code and the laws of New York (the "Highest Marginal Tax Rate"). The MACRS
Deductions, State Depreciation Deductions and Interest Deductions are
hereinafter collectively referred to as the "Tax Benefits".
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(b) Lessee represents and warrants to Lessor that (i) each Item of
Equipment constitutes 7-year property" within the meaning of Section 168(e) of
the Code, (ii) Lessee shall not attempt to claim such Tax Benefits, (ift) at and
after the time of delivery of the Equipment to Lessee pursuant to this Lease the
Lessee shall not claim any ownership or title in and to the Equipment, and (iv)
Lessee has not, and will not, at any time after such delivery throughout the
Term of this Lease, take any action or omit to take any action (whether or not
the same is permitted or required hereunder) which will result in the loss by
Lessor of all or any part of such Tax Benefits.
(c) If, as a result of any act, omission or misrepresentation of Lessee,
(x) the Tax Benefits are lost, disallowed, deferred, eliminated, reduced,
recaptured, compromised or otherwise unavailable to Lessor, (y) for Federal,
foreign, state or local income tax purposes, any item of income, loss or
deduction with respect to any Item of Equipment is treated as derived from, or
allocable to, sources outside the United States, or (z) there shall be included
in the gross income of Lessor for Federal, state or local income tax purposes
any amount on account of any addition, modification, substitution or improvement
to or in respect of any Item of Equipment made or paid for by Lessee (any of the
foregoing being hereinafter a "Tax Loss"), then, within thirty (30) days of
Lessee's receipt of written notice from Lessor that such a Tax Loss has
occurred, Lessee shall pay to Lessor an amount which, after deduction therefrom
of all taxes to be paid in respect of the receipt thereof, will enable Lessor to
receive the same Net Economic Return (as hereinafter defined) that Lessor would
have realized on this Lease had such Tax Loss (together with any interest,
penalties or additions to tax) not occurred. Any event which, by the terms of
this Lease, requires payment by Lessee to Lessor of the Stipulated Loss Value of
the Equipment shall not constitute the act of Lessee for purpose of the
foregoing sentence.
(d) As used in this Section, the term "Net Economic Return" shall mean
Lessor's net after-tax yield, aggregate after-tax cash flow and return on
assets, based on (i) the assumptions used by Lessor in originally calculating
Rent and Stipulated Loss Value percentages, including the assumptions set forth
above (as such assumptions may have been revised pursuant to the last sentence
of this subsection) and (ii) the Highest Marginal Tax Rate actually in effect
during each year from the date of such original calculations to the date of such
Tax Loss, both dates inclusive. In the event Lessor shall suffer a Tax Loss with
respect to which Lessee is required to pay an indemnity hereunder, and the full
amount of such indemnity has been paid or provided for hereunder, the aforesaid
assumptions, without further act of the parties hereto, shall thereupon be and
be deemed to be amended, if and to the extent appropriate, to reflect such Tax
Loss.
(e) For purposes of this Section, the term "Lessor" shall include the
entity or entities, if any, with which Lessor consolidates any tax return.
Lessee acknowledges that it has neither sought nor received tax advice from
Lessor as to the availability to Lessee of any tax benefits with respect to the
Equipment. All of Lessor's rights and privileges arising from the indemnities
contained in this Lease will survive the expiration or other termination or
cancellation of this Lease. Such indemnities are expressly made for the benefit
of, and are enforceable by, Lessor and its successors and assigns.
8. STIPULATED LOSS VALUE, DISCOUNT RATE. (a) The Stipulated Loss Values
applicable to the Equipment and this Lease are as set forth on a supplement (the
"Stipulated Loss Value Supplement") prepared by Lessor.
(b) Any provision of this Lease to the contrary notwithstanding, all
present value calculations to be made with respect to the Equipment described on
this Schedule shall be made using a discount rate equal to three percent (3%).
9. PERSONAL PROPERTY TAX. Unless otherwise directed in writing by Lessor or
required by Applicable Law, Lessee will not list itself as owner of any Item of
Equipment for property tax purposes. Upon receipt by Lessee of any property tax
bill pertaining to such Item of Equipment from the appropriate taxing authority,
Lessee will promptly forward such property tax bill to Lessor. Upon receipt by
Lessor of any such property tax bill (whether from Lessee or directly from the
taxing authority), Lessor will pay such tax and will invoice Lessee for the
expense. Upon receipt of such invoice, Lessee will promptly reimburse Lessor for
such expense.
10. MODIFICATIONS TO MASTER LEASE. With respect to the Equipment described
on this Schedule, the Master Lease shall be modified as follows:
(a) Section 31 of the Master Lease ("Representations and Warranties of
Lessee"), is hereby amended by adding the following additional representation:
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Lessee has conducted a comprehensive review and assessment of the Lessee's
computer applications and made inquiry of the Lessee's key suppliers,
vendors and customers with respect to the "year 2000 problem" (that is, the
risk that computer applications may not be able to properly perform
date-sensitive functions after December 31, 1999) and based on that review
and inquiry, the Lessee does not believe the year 2000 problem will result
in a material adverse change in the Lessee's business condition (financial
or otherwise), operations, properties or prospects, or ability to perform
the obligations of Lessee under this Lease.
Conforming Modifications. With respect to the Equipment described on this
Schedule, the Master Lease shall be modified as follows:
(b) (1) The definitions of "Equipment" and "Term" in Section 4 of the
Master Lease ("Definitions") are hereby deleted in their entirety and the
following definitions are substituted in their place:
"Equipment " shall mean an item or items of personal property designated
from time to time by Lessee which are described on an Equipment Schedule
and which are being or will be leased by Lessee pursuant to a Lease,
together with all replacement parts, additions and accessories incorporated
therein or affixed thereto including, without limitation, any software that
is a component or integral part of, or is included or used in connection
with, any Item of Equipment, but with respect to such software, only to the
extent of Lessor's interest therein, if any. "Term" shall mean the Initial
Term or any Renewal Term, each as defined in Section 8 hereof, and any
Extended Lease Term or Interim Term as defined in an Equipment Schedule.
(c) The following shall be inserted as the penultimate sentence of Section
11 of the Master Lease ("Use; Alterations"):
All such alterations, additions, modifications or improvements shall
immediately, and without further act, be deemed to constitute Items of
Equipment and be fully subject to this Lease as if originally leased
hereunder.
(d) The following shall be inserted as the penultimate sentence of Section
12 of the Master Lease ("Repairs and Maintenance"):
Upon installation, attachment or incorporation in, on or into such Item of
Equipment, such replacement part shall immediately, and without further
act, be deemed to constitute an Item of Equipment and be fully subject to
this Lease as if originally leased hereunder.
(e) Section 22 of the Master Lease ("Events of Default") is hereby amended
as follows:
(i) with respect to Section 22(a), the term "Event of Default" shall also
mean any of the following which are hereby added as new subparts: (10)
Lessee merges or consolidates with any other corporation or entity, or
sells, leases or disposes of all or substantially all of its assets without
the prior written consent of Lessor; (11) a change in control occurs in
Lessee or any Guarantor; or (12) the death or dissolution of Lessee or any
Guarantor;
(ii) with respect to Section 22(b)(4), the word "terminate" is hereby
deleted and the words "cancel or terminate" are hereby substituted in its
place;
(iii) with respect to Section 22(b)(5), the existing section is hereby
deleted in its entirety and the following is substituted in its place:
(5) demand that Lessee, and Lessee shall, upon written demand of Lessor
and at Lessee's expense forthwith return all Items of Equipment to
Lessor in the manner and condition required by Section 13 hereof,
provided, however, that Lessee shall remain and be liable to Lessor for
any amounts provided for herein or other damages resulting from the
Equipment not being in the condition required by Section 12 hereof, and
otherwise in accordance with all of the provisions of this Lease,
except those provisions relating to periods of notice;
(iv) with respect to Section 22(b)(6), the word "termination" is hereby
deleted and the words "cancellation or termination" are hereby substituted
in its place; and
(v) Beginning with Section 22(b)(7) inclusive, the remainder of Section
22(b) is hereby deleted in its entirety and the
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following is substituted in its place:
(7) by written notice to Lessee specifying a payment date (the "Remedy
Date") demand that Lessee forthwith return all Items of Equipment to Lessor in
the manner and condition required by Section 22(b)(5) hereof and, in addition,
demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the Remedy
Date, as liquidated damages for loss of a bargain and not as a penalty, any
unpaid Rent due prior to the Remedy Date plus whichever of the following amounts
Lessor, in its sole discretion, shall specify in such notice (together with
interest on such amount at the Default Rate from the Remedy Date to the date of
actual payment): (i) an amount, with respect to an Item of Equipment, equal to
the Rent payable for such Item of Equipment for the remainder of the then
current Term thereof, after discounting such Rent to present worth as of the
Remedy Date on the basis of a per annum rate of discount equal to three percent
(3%) from the respective dates upon which such Rent would have been paid had
this Lease not been canceled or terminated; or (ii) the Stipulated Loss Value,
computed as of the Remedy Date or, if the Remedy Date is not a Rent Payment
Date, the Rent Payment Date next following the Remedy Date (provided, however,
that, with respect to any proceeds actually received by Lessor for any Item of
Equipment returned to or repossessed by Lessor, Lessor agrees that it shall
first apply such proceeds to satisfy Lessee's obligation to pay the Stipulated
Loss Value or, if Lessor has received payment in full of the Stipulated Loss
Value from Lessee, Lessor shall remit such proceeds to Lessee (after first
deducting any Lessor Expense) up to the amount of the Stipulated Loss Value; (8)
cause Lessee, at its expense, to promptly assemble any and all Items of
Equipment and return the same to Lessor at such place as Lessor may designate in
writing; and (9) exercise any other right or remedy available to Lessor under
applicable law or proceed by appropriate court action to enforce the terms
hereof or to recover damages for the breach hereof or to rescind this Lease. In
addition, Lessee shall be liable, except as otherwise provided above, for any
and all unpaid Rent due hereunder before or during the exercise of any of the
foregoing remedies, and for reasonable legal fees and other costs and expenses
incurred by reason of the occurrence of any Event of Default or the exercise of
Lessor's remedies with respect thereto. If an Event of Default occurs, Lessee
hereby agrees that ten (10) days prior notice to Lessee of (A) any public sale
or (B) the time after which a private sale may be negotiated shall be
conclusively deemed reasonable and, to the extent permitted by Applicable Law,
Lessee waives all rights and defenses with respect to such disposition of the
Equipment. None of Lessor's rights or remedies hereunder are intended to be
exclusive of, but each shall be cumulative and in addition to any other right or
remedy referred to hereunder or otherwise available to Lessor at laiv or in
equity, and no express or implied waiver by Lessor of any Event of Default shall
constitute a waiver of any other Event of Default or a waiver of any of Lessor's
rights.
MISCELLANEOUS TERMS & CONDITIONS
11. ADDITIONAL MAINTENANCE REQUIREMENTS. Section 13 of the Lease ("Return
of Equipment") shall be deleted in its entirety and the following substituted in
its place:
13. Return of Equipment. (a) Upon the expiration of the Term of any Lease
or upon demand by Lessor pursuant to Section 22 hereof, Lessee, at its sole
expense, shall return all of the Equipment leased under the Lease by delivering
it in a manner consistent with the manufacturer's recommendations and practices
to such place or on board such carrier (packed properly and in accordance with
the manufacturer's instructions) as Lessor shall specify. Lessee agrees that the
Equipment, when returned, shall be free and clear of all Liens, and in the same
condition as when delivered to Lessee, reasonable wear and tear excepted.
Reasonable wear and tear shall mean that each item of the Equipment has been
maintained by Lessee in "Average Saleable Condition" (as hereinafter defined)
and that all components of the Equipment have been properly serviced, following
the manufacturer's written operating and servicing procedures, such that the
Equipment is eligible for a manufacturer's standard, full service maintenance
contract without Lessor's incurring any expense to repair or rehabilitate the
Equipment. If, in the opinion of Lessor, any item of the Equipment fails to meet
the standards set forth in this Section 13, Lessee agrees to pay on demand all
costs and expenses incurred in connection with repairing the Equipment,
restoring it to such condition so as to meet such standards and assembling and
delivering such Item of Equipment pursuant to Lessor's instructions. If Lessee
fails to return any Item of Equipment as required hereunder, then, all of
Lessee's obligations under this Lease (including, without limitation, Lessee's
obligation to pay Rent for such Item of Equipment at the rental then applicable
under this Lease) shall continue in full force and effect until such Item of
Equipment shall have been returned in the condition required hereunder.
(b) Lessee shall give Lessor at least one hundred eighty (180) but not more than
two hundred seventy (270) days written notice that Lessee is returning the
Equipment as provided for above (the "Return Notice") and shall include with
such notice, all of the following:
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(i) a detailed inventory of all components of the Equipment including
without limitation all of the model and serial numbers of any components;
(ii) a complete set of current and up to date service and operating
manuals for each Item of Equipment;
(iii) a complete set of current and up to date maintenance logs and
other appropriate documentation detailing the Equipment's then current
configuration (including a description of all replacements and additions
thereto made during the Term of the Lease) and all operating requirements
and technical data regarding the setup, use and operation of the Equipment;
(iv) an in-depth field service report (the "Report") detailing the
results of an inspection conducted by a representative of the manufacturer
or a qualified equipment maintenance provider acceptable to Lessor
certifying that the Equipment has been properly inspected, examined, tested
and is operating within the manufacturer's specification and addressing, at
a minimum the following areas:
(A) comprehensive physical inspection;
(B) testing of all material and workmanship of the Equipment; and
(C) conformation of all Equipment operations to Applicable Law and
confirming that the Equipment is otherwise in Average Saleable
Condition (as hereinafter defined).
If the Report discloses that any of the material, workmanship or Equipment
does not meet or, does not operate within, the manufacturer's
specifications or any Applicable Law, Lessee shall, at its sole expense,
take all necessary corrective measures and submit a second Report from the
same inspector evidencing that the Equipment has been brought into
conformity with the manufacturer's specifications and Applicable Law.
(c) "Average Saleable Condition" shall mean that all of the following minimum
standards have been met:
Machine Tool Equipment
(i) The Equipment has been or will be disassembled according to
manufacturer's recommendations and by a licensed rigger/erector
specializing in the Equipment, with any transportation devices, such as
metal skids, lifting slings, and brackets which were with the machine when
it originally arrived, included, and, in addition, all proper blueprinting,
mapping, tagging and labeling of each individual part including cables,
electrical apparatus and wires have been included, all process fluids
and/or any hazardous materials have been removed from the Equipment and
disposed of in accordance with Applicable Law.
(ii) All manuals, maintenance records, log books, plans, drawings and
schematics, inspection and overhaul records, operating requirements or
other materials pertinent to the Equipment's operation, maintenance,
assembly and disassembly have been assembled and are ready to be returned
to Lessor.
(iii) There is no structural or mechanical damage, and all frames,
structural members, accessories and attachments are structurally sound
without breaks or cracks and in compliance with all federal, state, local
and other regulatory requirements.
(iv) The Equipment is able to perform its required tasks effectively
without repair including but not limited to electronic, electrical and
mechanical controls, pumps, motors, belts, hoses, pins, bushings, measuring
devices, screws, barrels, ways, rams, and clamps, and is operational and in
compliance with all Applicable Law and is within manufacturer's design
performance characteristics and tolerances.
(v) The Equipment is clean and rust free, and sumps and tanks are
clean and dry.
(vi) Equipment with predictable or scheduled replacements or overhaul
fives has not less than 50% useful life remaining before the next such
replacement, overhaul, recalibration or rebuild.
(vii) All major components and all wear points, including, but not
limited to electronic and mechanical controls and pumps, motors, belts,
hoses, pins, bushings, measuring devices, screws, barrels, ways, cams,
clamps and supports, are within manufacturer's design performance
characteristics and tolerances and are capable of performing as originally
intended by the manufacturer and in a safe manner.
(viii) The Equipment is complete, with no missing components or
attachments.
(ix) The Equipment has been lubricated according to the maintenance
manual and/or lubrication schedule recommended by the manufacturer, and
written records of the lubrication service have been kept, dated, and
signed by the appropriate authority.
(x) All internal fluids, such as lube oil and hydraulic oil, have been
filled to operating levels, all filler caps have been secured and all
disconnected hoses have been sealed to avoid accidental spillage.
(d) In addition to all other rights of Lessor under the Lease, Lessor shall have
the right to attempt to resell or auction the
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Equipment from Lessee's facility with the Lessee's full cooperation and
assistance, for a period commencing with Lessor's receipt of the Return Notice
and ending one hundred eighty (180) days after the Initial Term Expiration Date.
Lessee agrees to pay the reasonable costs and expenses of such sale or auction
(and all storage prior thereto), and agrees that the Equipment shall remain
capable of operation during this period. Lessee shall provide adequate
electrical power, lighting, heat, water and all other requirements sufficient to
allow for normal maintenance and for demonstrations of the Equipment to any
potential buyer.
12. GOVERNING LAW. This Schedule is being delivered in the State of New
York and shall be governed by, and construed in accordance with, the laws of the
State of New York, including all matters of construction, validity and
performance without giving effect to any choice of law or conflict of laws
provision or rule (whether of the State of New York or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of New York.
13. COUNTERPARTS. This Schedule may be executed in any number of
counterparts, each executed counterpart constituting an original but all
together one and the same instrument.
14. MORE THAN ONE LESSEE. If more than one person or entity executes this
Schedule, or any other Lease Documents executed in connection herewith, as
"Lessee," the obligations of "Lessee" contained herein and therein shall be
deemed joint and several and all references to "Lessee" shall apply both
individually and jointly.
15. RELATIONSHIP TO MASTER LEASE; FURTHER ASSURANCES. This Schedule shall
be construed in connection with and as part of this Lease, and all terms
contained in the Master Lease are hereby incorporated herein by reference with
the same force and effect as if such terms were fully stated herein. By
execution of this Schedule, Lessee and Lessor reaffirm all terms of the Master
Lease except as they may be modified hereby. To the extent that any of the terms
of this Schedule are contrary to or inconsistent with any terms of the Master
Lease, the terms of this Schedule shall govern. LESSEE HEREBY CERTIFIES TO
LESSOR THAT THE REPRESENTATIONS AND WARRANTIES MADE BY LESSEE IN THE MASTER
LEASE (INCLUDING, WITHOUT LIMITATION, SECTION 31 THEREOF) ARE TRUE AND CORRECT
IN ALL MATERIAL RESPECTS AS OF THE DATE OF THIS SCHEDULE WITH THE SAME EFFECT AS
THOUGH MADE ON AND AS OF SUCH DATE. Lessee shall take such additional actions
and execute and deliver such additional documents as Lessor shall deem necessary
from time to time to effectuate the terms of this Lease.
16. POWER OF ATTORNEY. LESSEE HEREBY APPOINTS LESSOR OR ITS ASSIGNEE AS ITS
TRUE AND LAWFUL ATTORNEY IN FACT, IRREVOCABLY AND COUPLED WITH AN INTEREST, TO
EXECUTE AND FILE ON BEHALF OF LESSEE ALL UCC FINANCING STATEMENTS WHICH IN
LESSOR'S SOLE DISCRETION ARE NECESSARY OR PROPER TO SECURE LESSOR'S INTEREST IN
THE EQUIPMENT IN ALL APPLICABLE JURISDICTIONS. Lessee hereby ratifies, to the
extent permitted by law, all that Lessor shall lawfully and in good faith do or
cause to be done by reason of and in compliance with this paragraph.
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IN WITNESS WHEREOF, Lessor and Lessee have caused this Schedule to be duly
executed and delivered on the day and year first above written.
LESSOR: LESSEE:
KEYCORP LEASING, AUTOCAM CORPORATION
A DIVISION OF KEY CORPORATE CAPITAL INC.
By: /s/ Linda L. Huff By: /s/ Warren A. Veltman
Name: Linda L. Huff Name: Warren A. Veltman
Title: Vice President Title: Chief Financial Officer
COUNTERPART NO. 1 OF 1 SERIALLY NUMBERED MANUALLY EXECUTED COUNTERPARTS. TO THE
EXTENT THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL
CODE, NO SECURITY INTEREST MAY BE CREATED THROUGH THE TRANSFER AND POSSESSION OF
ANY COUNTERPART OTHER THAN COUNTERPART NO. 1.
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Exhibit A
EQUIPMENT DESCRIPTION
LESSOR: KEYCORP LEASING,
A DIVISION OF KEY CORPORATE CAPITAL INC.
LESSEE: AUTOCAM CORPORATION
LEASE: Equipment Schedule No. 05 dated as of May 21, 1999 to
Master Equipment Lease Agreement Dated as of July 10, 1995
VENDOR: SUGINO CORP.
1700 PENNY LANE
SCHAUMBURG, IL 60173
QUANTITY: DESCRIPTION: SERIAL NO. INVOICE NO.
- --------- ------------ ---------- -----------
2 JFC-V622 GMTE JET FLEX CENTER 963678
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EQUIPMENT SCHEDULE NO. 06 dated as of August 23, 1999 (this "Schedule")
between KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC. ("Lessor"),
and AUTOCAM CORPORATION, a Michigan corporation ("Lessee").
INTRODUCTION:
Lessor and Lessee have heretofore entered into that certain Master
Equipment Lease Agreement dated as of July 10, 1995 (the "Master Lease"; the
Master Lease and this Schedule are hereinafter collectively referred to as, this
"Lease"). Unless otherwise defined herein, capitalized terms used herein shall
have the meanings specified in the Master Lease. The Master Lease provides for
the execution and delivery of a Schedule substantially in the form hereof for
the purpose of confirming the acceptance and lease of the Equipment under this
Lease as and when delivered by Lessor to Lessee in accordance with the terms
thereof and hereof.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, Lessor and Lessee hereby agree as follows:
EQUIPMENT & INVOICING TERMS
1 EQUIPMENT. Pursuant to the terms and conditions of this Lease, Lessor
hereby leases to Lessee, and Lessee hereby leases from Lessor, the
equipment listed on Exhibit A attached hereto (the "Equipment"). The
aggregate Total Cost of such Equipment is $1,599,227.48.
2 TERM. The Initial Term of this Lease with respect to the Equipment
described on this Schedule shall commence on the date on which such
Equipment is delivered to Lessee, and, unless earlier terminated as
provided herein, shall expire on a date which is ninety six (96) months
after the Rent Commencement Date (the "Initial Term Expiration Date").
3 RENT PAYMENT DATES; RENT. Lessee hereby agrees to pay Rent for the
Equipment throughout the Initial Term in ninety six (96) consecutive
monthly installments payable in arrears on the date which is one (1) month
after the Rent Commencement Date and on the same day of each month
thereafter (each, a "Rent Payment Date"). Each such installment of Rent
shall be in an amount equal to $19,941.05. In addition, Lessee hereby
agrees to pay Rent for the period commencing on the Interim Rent
Commencement Date (as defined below) and ending on the day before the Rent
Commencement Date in an amount equal to $664.71 per day, and agrees that,
with respect to the Equipment described on this Schedule, the following
modifications are hereby made to the Master Lease: (a) "Rent Commencement
Date- shall mean, with respect to an Equipment Group, the first (1st) day
of the first month following the date of the Certificate of Acceptance for
such Equipment Group, (b) "Interim Rent Commencement Date" shall mean, with
respect to an Equipment Group, the date of the Certificate of Acceptance
for such Equipment Group, or such later date (prior to the Rent
Commencement Date) as determined by Lessor in its sole discretion, (c)
Section 6 of the Master Lease ("Ordering Equipment") is hereby amended to
delete the term "Rent Commencement Date" and to substitute the term
"Interim Rent Commencement Date" in its place and (d) Section 22(a)(9) of
the Master Lease ("Events of Default; Remedies") is hereby amended to
delete the term "Rent Commencement Date" and to substitute the phrase "Rent
Commencement Date or Interim Rent Commencement Date, as the case may be,"
in its place.
4 EQUIPMENT LOCATION; BILLING ADDRESS. The Equipment described on this
Schedule shall be located at, and except as otherwise provided in this
Lease, shall not be removed from, the following address: 4070 East Paris
Avenue, Kentwood, MI 49512. The billing address of Lessee is as follows:
AUTOCAM CORPORATION, 4070 East Paris Avenue, Kentwood, MI 49512.
TRANSACTION TYPE TERMS
5 PURCHASE, RENEWAL AND OPTION TERMS.
(a) FMV. With respect to the Equipment described on this Schedule, Section 32
of the Master Lease ("Renewal and Purchase
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Options") is hereby deleted in its entirety and the following is substituted in
its place:
So long as no Default or Event of Default shall have occurred and be
continuing and Lessee shall have given Lessor at least one hundred eighty
(180) but not more than two hundred seventy (270) days prior written notice
(the "Option Notice"), Lessee shall have the following purchase and renewal
options at the expiration of the Initial Term, or any Renewal Term, to:
(i) purchase all, but not less than all, Items of Equipment for a purchase
price (the "Purchase Option Price") equal to the then Fair Market Sale
Value thereof; (ii) renew this Lease on a month to month basis at the same
Rent payable at the expiration of such Initial Term or Renewal Term, as the
case may be; (iii) renew this Lease for a minimum period of not less than
twelve (12) consecutive months at the then current Fair Market Rental
Value; or (iv) return such Equipment to Lessor pursuant to, and in the
condition required by, the Lease. If Lessee fails to give Lessor the Option
Notice, Lessee shall be deemed to have chosen option (ii) above.
Payment of the Purchase Option Price, applicable sales taxes, together with
all other amounts due and owing by Lessee under the Lease (including, without
limitation, Rent) during such Initial Term and Renewal Term shall be made on the
last day of the Initial Term or Renewal Term, as the case may be, in immediately
available funds against delivery of a bill of sale transferring to Lessee all
right, title and interest of Lessor in and to the Equipment ON AN "AS IS" "WHERE
IS" BASIS, WITHOUT ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE. LESSOR MAY
SPECIFICALLY DISCLAIM ANY SUCH REPRESENTATIONS AND WARRANTIES.
(b) Early Buyout Option. So long as no Default or Event of Default shall have
occurred and be continuing, Lessee shall have the option to purchase all, but
not less than all, Items of Equipment on the date which is eighty four (84)
months after the Rent Commencement Date (the "EBO Date") at a price (the "EBO
Price") equal to thirty one and fifty one hundredths percent (31.51%) of the
Total Cost of the Equipment, plus any applicable sales taxes. For Lessee to
exercise its option hereunder, Lessee shall notify Lessor in writing of its
desire to effect such option at least ninety (90) days (but not more than one
hundred eighty (180) days) prior to the EBO Date. Such notice shall be
irrevocable. The EBO Price represents the parties present best estimate of the
fair market value of the Equipment on the EBO Date determined by using
commercially reasonable methods which are standard in the industry. Payment of
the EBO Price, applicable sales taxes, together with all other amounts due and
owing by Lessee under the Lease (including, without limitation, Rent) on or
before the EBO Date, shall be made on the EBO Date in immediately available
funds. Thereafter, upon Lessee's written request, Lessor shall deliver to Lessee
a bill of sale transferring to Lessee all right, title and interest of Lessor in
and to the Equipment ON AN "AS IS" "WHERE IS" BASIS, WITHOUT ANY WARRANTIES,
EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER. If Lessee shall fail to pay all
amounts required to be paid under the Lease on the EBO Date, the Lease shall
continue in full force and effect and Lessee agrees to reimburse Lessor for all
reasonable costs, expenses and liabilities incurred in connection therewith.
6. NATURE OF TRANSACTION; TRUE LEASE. (a) It is the express intent of the
parties that this Lease constitute a true lease and not a sale of the Equipment
Title to the Equipment shall at all times remain in Lessor, and Lessee shall
acquire no ownership, title, property, right, equity, or interest in the
Equipment other than its leasehold interest solely as Lessee subject to all the
terms and conditions hereof. To the extent that Article 2A ("Article 2A") of the
Uniform Commercial Code ("UCC") applies to the characterization of this Lease,
the parties hereby agree that this Lease is a "Finance Lease" as defined
therein. Lessee acknowledges: (i) that Lessee has selected the "Supplier" (as
defined in the UCC) and has directed Lessor to purchase the Equipment from the
Supplier in connection with this Lease, and (ii) that Lessee has been informed
in writing in this Lease, before Lessee's execution of this Lease, that Lessee
is entitled under Article 2A to the promises and warranties, including those of
any third party, provided to Lessor by the Supplier in connection with or as
part of the Purchase Agreement, and that Lessee may communicate with the
Supplier and receive an accurate and complete statement of those promises and
warranties, including any disclaimers and limitations of them or of remedies.
The filing of UCC financing statements pursuant to Section 34 of the Master
Lease is precautionary and shall not be deemed to have any effect on the
characterization of this Lease. NOTWITHSTANDING THE FOREGOING, LESSOR HAS NOT
MADE, AND HEREBY DISCLAIMS ANY ADVICE, REPRESENTATIONS, WARRANTIES AND
COVENANTS, EITHER EXPRESSED OR IMPLIED, WITH RESPECT TO ANY LEGAL, ECONOMIC,
ACCOUNTING, TAX OR OTHER EFFECTS OF THE LEASE AND THE TRANSACTION(S)
CONTEMPLATED THEREBY, AND LESSEE HEREBY DISCLAIMS ANY RELIANCE ON ANY SUCH
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WARRANTIES, STATEMENTS OR REPRESENTATIONS MADE BY LESSOR WITH RESPECT
THERETO.
(b) Notwithstanding the express intent of Lessor and Lessee that this
agreement constitute a true leage and not a sale of the Equipment, should a
court of competent jurisdiction determine that this agreement is not a true
lease, but rather one intended as security, then solely in that event and for
the expressly limited purposes thereof, Lessee shall be deemed to have hereby
granted Lessor a security interest in the Equipment and all accessions,
substitutions and replacements thereto and therefor, and proceeds (cash and
non-cash), including, without limitation, insurance proceeds thereof (but
without power of sale), to secure the prompt payment and performance as and when
due of all obligations and indebtedness of Lessee, now existing or hereafter
created, to Lessee pursuant to this Lease or otherwise. In furtherance of the
foregoing, Lessee shall execute and deliver to Lessor, to be filed at Lessee's
expense, Uniform Commercial Code financing statements, statements of amendment
and statements of continuation as reasonably may be required by Lessor to
perfect and maintain perfected such security interest.
(c) In the event that the Supplier erroneously invoices Lessee for the
Equipment, Lessee agrees to forward said invoice to Lessor immediately. Lessee
acknowledges that the Equipment is, and shall at all times remain, the property
of Lessor, and that Lessee has no right, title or interest therein or thereto
except as expressly set forth in this Lease.
7. TAX INDEMNIFICATION. (a) Lessee acknowledges that Lessor has executed
this Lease, and that the Rent payable by Lessee under this Lease has been
computed, upon the assumptions that Lessor will (i) be entitled to depreciation
or cost recovery deductions ("MACRS Deductions") for Federal income tax purposes
under the Modified Accelerated Cost Recovery System provided for in Section 168
of the Internal Revenue Code of 1986, as amended (the "Code"), and depreciation
or cost recovery deductions ("State Depreciation Deductions") for state income
tax purposes for the Equipment Location, in each case on the basis that (1) each
Item of Equipment constitutes 7-year property" within the meaning of Section
168(e) of the Code, (2) the initial tax basis for each Item of Equipment will be
equal to the Total Cost, (3) deductions for each Item of Equipment will be
computed by using the method specified in Section 168(b)(1) of the Code over the
7-year recovery period described in Section 168(c) of the Code, and (4) the
applicable convention for each Item of Equipment under Section 168(d) of the
Code is the half-year convention; (ii) be entitled to deductions for Federal
income tax purposes (available in the manner and as provided by Section 163 of
the Code) for interest payable with respect to any indebtedness incurred by
Lessor in connection with any financing by Lessor of any portion of the Total
Cost of each Item of Equipment ("Interest Deductions"); and (iii) be subject to
tax for each year at a composite Federal and New York corporate income tax rate
equal to the then highest marginal rate for corporations provided for under the
Code and the laws of New York (the "Highest Marginal Tax Rate"). The MACRS
Deductions, State Depreciation Deductions and Interest Deductions are
hereinafter collectively referred to as the "Tax Benefits".
(b) Lessee represents and warrants to Lessor that (i) each Item of
Equipment constitutes 7-year property" within the meaning of Section 168(e) of
the Code, (ii) Lessee shall not attempt to claim such Tax Benefits, (ift) at and
after the time of delivery of the Equipment to Lessee pursuant to this Lease the
Lessee shall not claim any ownership or title in and to the Equipment, and (iv)
Lessee has not, and will not, at any time after such delivery throughout the
Term of this Lease, take any action or omit to take any action (whether or not
the same is permitted or required hereunder) which will result in the loss by
Lessor of all or any part of such Tax Benefits.
(c) If, as a result of any act, omission or misrepresentation of Lessee,
(x) the Tax Benefits are lost, disallowed, deferred, eliminated, reduced,
recaptured, compromised or otherwise unavailable to Lessor, (y) for Federal,
foreign, state or local income tax purposes, any item of income, loss or
deduction with respect to any Item of Equipment is treated as derived from, or
allocable to, sources outside the United States, or (z) there shall be included
in the gross income of Lessor for Federal, state or local income tax purposes
any amount on account of any addition, modification, substitution or improvement
to or in respect of any Item of Equipment made or paid for by Lessee (any of the
foregoing being hereinafter a "Tax Loss"), then, within thirty (30) days of
Lessee's receipt of written notice from Lessor that such a Tax Loss has
occurred, Lessee shall pay to Lessor an amount which, after deduction therefrom
of all taxes to be paid in respect of the receipt thereof, will enable Lessor to
receive the same Net Economic Return (as hereinafter defined) that Lessor would
have realized on this Lease had such Tax Loss (together with any interest,
penalties or additions to tax) not occurred. Any event which, by the terms of
this Lease, requires payment by Lessee to Lessor of the Stipulated Loss Value of
the Equipment shall not constitute the act of Lessee for purpose of the
foregoing sentence.
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(d) As used in this Section, the term "Net Economic Return" shall mean
Lessor's net after-tax yield, aggregate after-tax cash flow and return on
assets, based on (i) the assumptions used by Lessor in originally calculating
Rent and Stipulated Loss Value percentages, including the assumptions set forth
above (as such assumptions may have been revised pursuant to the last sentence
of this subsection) and (ii) the Highest Marginal Tax Rate actually in effect
during each year from the date of such original calculations to the date of such
Tax Loss, both dates inclusive. In the event Lessor shall suffer a Tax Loss with
respect to which Lessee is required to pay an indemnity hereunder, and the full
amount of such indemnity has been paid or provided for hereunder, the aforesaid
assumptions, without further act of the parties hereto, shall thereupon be and
be deemed to be amended, if and to the extent appropriate, to reflect such Tax
Loss.
(e) For purposes of this Section, the term "Lessor" shall include the
entity or entities, if any, with which Lessor consolidates any tax return.
Lessee acknowledges that it has neither sought nor received tax advice from
Lessor as to the availability to Lessee of any tax benefits with respect to the
Equipment. All of Lessor's rights and privileges arising from the indemnities
contained in this Lease will survive the expiration or other termination or
cancellation of this Lease. Such indemnities are expressly made for the benefit
of, and are enforceable by, Lessor and its successors and assigns.
8. STIPULATED LOSS VALUE, DISCOUNT RATE. (a) The Stipulated Loss Values
applicable to the Equipment and this Lease are as set forth on a supplement (the
"Stipulated Loss Value Supplement") prepared by Lessor.
(b) Any provision of this Lease to the contrary notwithstanding, all
present value calculations to be made with respect to the Equipment described on
this Schedule shall be made using a discount rate equal to three percent (3%).
9. PERSONAL PROPERTY TAX. Unless otherwise directed in writing by Lessor or
required by Applicable Law, Lessee will not list itself as owner of any Item of
Equipment for property tax purposes. Upon receipt by Lessee of any property tax
bill pertaining to such Item of Equipment from the appropriate taxing authority,
Lessee will promptly forward such property tax bill to Lessor. Upon receipt by
Lessor of any such property tax bill (whether from Lessee or directly from the
taxing authority), Lessor will pay such tax and will invoice Lessee for the
expense. Upon receipt of such invoice, Lessee will promptly reimburse Lessor for
such expense.
10. MODIFICATIONS TO MASTER LEASE. With respect to the Equipment described
on this Schedule, the Master Lease shall be modified as follows:
(a) Section 31 of the Master Lease ("Representations and Warranties of
Lessee"), is hereby amended by adding the following additional representation:
Lessee has conducted a comprehensive review and assessment of the Lessee's
computer applications and made inquiry of the Lessee's key suppliers,
vendors and customers with respect to the "year 2000 problem" (that is, the
risk that computer applications may not be able to properly perform
date-sensitive functions after December 31, 1999) and based on that review
and inquiry, the Lessee does not believe the year 2000 problem wffl result
in a material adverse change in the Lessee's business condition (financial
or otherwise), operations, properties or prospects, or ability to perform
the obligations of Lessee under this Lease.
Conforming Modifications. With respect to the Equipment described on this
Schedule, the Master Lease shall be modified as follows:
(b) (1) The definitions of "Equipment" and "Term" in Section 4 of the
Master Lease ("Definitions") are hereby deleted in their entirety and the
following definitions are substituted in their place:
"Equipment " shall mean an item or items of personal property designated
from time to time by Lessee which are described on an Equipment Schedule
and which are being or will be leased by Lessee pursuant to a Lease,
together with all replacement parts, additions and accessories incorporated
therein or affixed thereto including, without limitation, any software that
is a component or integral part of, or is included or used in connection
with, any Item of Equipment, but with respect to such software, only to the
extent of Lessor's interest therein, if any.
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<PAGE> 15
"Term" shall mean the Initial Term or any Renewal Term, each as defined in
Section 8 hereof, and any Extended Lease Term or Interim Term as defined in an
Equipment Schedule.
(2) All references to the defined term "Late Payment Rate" shall be
deemed to be references to the term "Default Rate", and the term "Default Rate"
shall mean an annual interest rate equal to the lesser of 18% or the maximum
interest rate permitted by Applicable Law.
(c) The following shall be inserted as the penultimate sentence of Section
11 of the Master Lease ("Use; Alterations"):
All such alterations, additions, modifications or improvements shall
immediately, and without further act, be deemed to constitute Items of
Equipment and be fully subject to this Lease as if originally leased
hereunder.
(d) The following shall be inserted as the penultimate sentence of Section
12 of the Master Lease ("Repairs and Maintenance"):
Upon installation, attachment or incorporation in, on or into such Item of
Equipment, such replacement part shall immediately, and without further
act, be deemed to constitute an Item of Equipment and be fully subject to
this Lease as if originally leased hereunder.
(e) Section 22 of the Master Lease ("Events of Default") is hereby amended
as follows:
(i) with respect to Section 22(a), the term "Event of Default" shall also
mean any of the following which are hereby added as new subparts: (10)
Lessee merges or consolidates with any other corporation or entity, or
sells, leases or disposes of all or substantially all of its assets without
the prior written consent of Lessor; (11) a change in control occurs in
Lessee or any Guarantor; or (12) the death or dissolution of Lessee or any
Guarantor;
(ii) with respect to Section 22(b)(4), the word "terminate" is hereby
deleted and the words "cancel or terminate" are hereby substituted in its
place;
(iii) with respect to Section 22(b)(5), the existing section is hereby
deleted in its entirety and the following is substituted in its place:
(5) demand that Lessee, and Lessee shall, upon written demand of Lessor
and at Lessee's expense forthwith return all Items of Equipment to
Lessor in the manner and condition required by Section 13 hereof,
provided, however, that Lessee shall remain and be liable to Lessor for
any amounts provided for herein or other damages resulting from the
Equipment not being in the condition required by Section 12 hereof, and
otherwise in accordance with all of the provisions of this Lease,
except those provisions relating to periods of notice;
(iv) with respect to Section 22(b)(6), the word "termination" is hereby
deleted and the words "cancellation or termination" are hereby substituted
in its place; and
(v) Beginning with Section 22(b)(7) inclusive, the remainder of Section
22(b) is hereby deleted in its entirety and the following is substituted in
its place:
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(7) by written notice to Lessee specifying a payment date (the "Remedy
Date") demand that Lessee forthwith return all Items of Equipment to Lessor in
the manner and condition required by Section 22(b)(5) hereof and, in addition,
demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the Remedy
Date, as liquidated damages for loss of a bargain and not as a penalty, any
unpaid Rent due prior to the Remedy Date plus whichever of the following amounts
Lessor, in its sole discretion, shall specify in such notice (together with
interest on such amount at the Default Rate from the Remedy Date to the date of
actual payment): (i) an amount, with respect to an Item of Equipment, equal to
the Rent payable for such Item of Equipment for the remainder of the then
current Term thereof, after discounting such Rent to present worth as of the
Remedy Date on the basis of a per annum rate of discount equal to three percent
(3%) from the respective dates upon which such Rent would have been paid had
this Lease not been canceled or terminated; or (ii) the Stipulated Loss Value,
computed as of the Remedy Date or, if the Remedy Date is not a Rent Payment
Date, the Rent Payment Date next following the Remedy Date (provided, however,
that, with respect to any proceeds actually received by Lessor for any Item of
Equipment returned to or repossessed by Lessor, Lessor agrees that it shall
first apply such proceeds to satisfy Lessee's obligation to pay the Stipulated
Loss Value or, if Lessor has received payment in full of the Stipulated Loss
Value from Lessee, Lessor shall remit such proceeds to Lessee (after first
deducting any Lessor Expense) up to the amount of the Stipulated Loss Value; (8)
cause Lessee, at its expense, to promptly assemble any and all Items of
Equipment and return the same to Lessor at such place as Lessor may designate in
writing; and (9) exercise any other right or remedy available to Lessor under
applicable law or proceed by appropriate court action to enforce the terms
hereof or to recover damages for the breach hereof or to rescind this Lease. In
addition, Lessee shall be liable, except as otherwise provided above, for any
and all unpaid Rent due hereunder before or during the exercise of any of the
foregoing remedies, and for reasonable legal fees and other costs and expenses
incurred by reason of the occurrence of any Event of Default or the exercise of
Lessor's remedies with respect thereto. If an Event of Default occurs, Lessee
hereby agrees that ten (10) days prior notice to Lessee of (A) any public sale
or (B) the time after which a private sale may be negotiated shall be
conclusively deemed reasonable and, to the extent permitted by Applicable Law,
Lessee waives all rights and defenses with respect to such disposition of the
Equipment. None of Lessor's rights or remedies hereunder are intended to be
exclusive of, but each shall be cumulative and in addition to any other right or
remedy referred to hereunder or otherwise available to Lessor at laiv or in
equity, and no express or implied waiver by Lessor of any Event of Default shall
constitute a waiver of any other Event of Default or a waiver of any of Lessor's
rights.
MISCELLANEOUS TERMS & CONDITIONS
11. ADDITIONAL MAINTENANCE REQUIREMENTS. Section 13 of the Lease ("Return
of Equipment") shall be deleted in its entirety and the following substituted in
its place:
13. RETURN OF EQUIPMENT. (a) Upon the expiration of the Term of any Lease
or upon demand by Lessor pursuant to Section 22 hereof, Lessee, at its sole
expense, shall return all of the Equipment leased under the Lease by
delivering it in a manner consistent with the manufacturer's
recommendations and practices to such place or on board such carrier
(packed properly and in accordance with the manufacturer's instructions) as
Lessor shall specify. Lessee agrees that the Equipment, when returned,
shall be free and clear of all Liens, and in the same condition as when
delivered to Lessee, reasonable wear and tear excepted. Reasonable wear and
tear shall mean that each item of the Equipment has been maintained by
Lessee in "Average Saleable Condition" (as hereinafter defined) and that
all components of the Equipment have been properly serviced, following the
manufacturer's written operating and servicing procedures, such that the
Equipment is eligible for a manufacturer's standard, full service
maintenance contract without Lessor's incurring any expense to repair or
rehabilitate the Equipment. If, in the opinion of Lessor, any item of the
Equipment fails to meet the standards set forth in this Section 13, Lessee
agrees to pay on demand all costs and expenses incurred in connection with
repairing the Equipment, restoring it to such condition so as to meet such
standards and assembling and delivering such Item of Equipment pursuant to
Lessor's instructions. If Lessee fails to return any Item of Equipment as
required hereunder, then, all of Lessee's obligations under this Lease
(including, without limitation, Lessee's obligation to pay Rent for such
Item of Equipment at the rental then applicable under this Lease) shall
continue in full force and effect until such Item of Equipment shall have
been returned in the condition required hereunder.
(b) Lessee shall give Lessor at least one hundred eighty (180) but not more
than two hundred seventy (270) days written notice that Lessee is returning
the Equipment as provided for above (the "Return Notice") and shall include
with such notice, all of the following:
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(i) a detailed inventory of all components of the Equipment including
without limitation all of the model and serial numbers of any components;
(ii) a complete set of current and up to date service and operating
manuals for each Item of Equipment;
(iii) a complete set of current and up to date maintenance logs and
other appropriate documentation detailing the Equipment's then current
configuration (including a description of all replacements and additions
thereto made during the Term of the Lease) and all operating requirements
and technical data regarding the setup, use and operation of the Equipment;
(iv) an in-depth field service report (the "Report") detailing the
results of an inspection conducted by a representative of the manufacturer
or a qualified equipment maintenance provider acceptable to Lessor
certifying that the Equipment has been properly inspected, examined, tested
and is operating within the manufacturer's specification and addressing, at
a minimum the following areas:
(A) comprehensive physical inspection;
(B) testing of all material and workmanship of the Equipment; and
(C) conformation of all Equipment operations to Applicable Law and
confirming that the Equipment is otherwise in Average Saleable Condition
(as hereinafter defined).
If the Report discloses that any of the material, workmanship or Equipment
does not meet or, does not operate within, the manufacturer's
specifications or any Applicable Law, Lessee shall, at its sole expense,
take all necessary corrective measures and submit a second Report from the
same inspector evidencing that the Equipment has been brought into
conformity with the manufacturer's specifications and Applicable Law.
(c) "Average Saleable Condition" shall mean that all of the following minimum
standards have been met:
Machine Tool Equipment
(i) The Equipment has been or will be disassembled according to
manufacturer's recommendations and by a licensed rigger/erector
specializing in the Equipment, with any transportation devices, such as
metal skids, lifting slings, and brackets which were with the machine when
it originally arrived, included, and, in addition, all proper blueprinting,
mapping, tagging and labeling of each individual part including cables,
electrical apparatus and wires have been included, all process fluids
and/or any hazardous materials have been removed from the Equipment and
disposed of in accordance with Applicable Law.
(ii) All manuals, maintenance records, log books, plans, drawings and
schematics, inspection and overhaul records, operating requirements or
other materials pertinent to the Equipment's operation, maintenance,
assembly and disassembly have been assembled and are ready to be returned
to Lessor.
(iii) There is no structural or mechanical damage, and all frames,
structural members, accessories and attachments are structurally sound
without breaks or cracks and in compliance with all federal, state, local
and other regulatory requirements.
(iv) The Equipment is able to perform its required tasks effectively
without repair including but not limited to electronic, electrical and
mechanical controls, pumps, motors, belts, hoses, pins, bushings, measuring
devices, screws, barrels, ways, rams, and clamps, and is operational and in
compliance with all Applicable Law and is within manufacturer's design
performance characteristics and tolerances.
(v) The Equipment is clean and rust free, and sumps and tanks are clean and
dry.
(vi) Equipment with predictable or scheduled replacements or overhaul fives
has not less than 50% useful life remaining before the next such
replacement, overhaul, recalibration or rebuild.
(vii) All major components and all wear points, including, but not limited
to electronic and mechanical controls and pumps, motors, belts, hoses,
pins, bushings, measuring devices, screws, barrels, ways, cams, clamps and
supports, are within manufacturer's design performance characteristics and
tolerances and are capable of performing as originally intended by the
manufacturer and in a safe manner.
(viii) The Equipment is complete, with no missing components or
attachments.
(ix) The Equipment has been lubricated according to the maintenance manual
and/or lubrication schedule recommended by the manufacturer, and written
records of the lubrication service have been kept, dated, and signed by the
appropriate authority.
(x) All internal fluids, such as lube oil and hydraulic oil, have been
filled to operating levels, all filler caps have been secured and all
disconnected hoses have been sealed to avoid accidental spillage.
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(d) In addition to all other rights of Lessor under the Lease, Lessor shall have
the right to attempt to resell or auction the Equipment from Lessee's facility
with the Lessee's full cooperation and assistance, for a period commencing with
Lessor's receipt of the Return Notice and ending one hundred eighty (180) days
after the Initial Term Expiration Date. Lessee agrees to pay the reasonable
costs and expenses of such sale or auction (and all storage prior thereto), and
agrees that the Equipment shall remain capable of operation during this period.
Lessee shall provide adequate electrical power, lighting, heat, water and all
other requirements sufficient to allow for normal maintenance and for
demonstrations of the Equipment to any potential buyer.
12. GOVERNING LAW. This Schedule is being delivered in the State of New
York and shall be governed by, and construed in accordance with, the laws of the
State of New York, including all matters of construction, validity and
performance without giving effect to any choice of law or conflict of laws
provision or rule (whether of the State of New York or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of New York.
13. COUNTERPARTS. This Schedule may be executed in any number of
counterparts, each executed counterpart constituting an original but all
together one and the same instrument.
14. MORE THAN ONE LESSEE. If more than one person or entity executes this
Schedule, or any other Lease Documents executed in connection herewith, as
"Lessee," the obligations of "Lessee" contained herein and therein shall be
deemed joint and several and all references to "Lessee" shall apply both
individually and jointly.
15. RELATIONSHIP TO MASTER LEASE; FURTHER ASSURANCES. This Schedule shall
be construed in connection with and as part of this Lease, and all terms
contained in the Master Lease are hereby incorporated herein by reference with
the same force and effect as if such terms were fully stated herein. By
execution of this Schedule, Lessee and Lessor reaffirm all terms of the Master
Lease except as they may be modified hereby. To the extent that any of the terms
of this Schedule are contrary to or inconsistent with any terms of the Master
Lease, the terms of this Schedule shall govern. LESSEE HEREBY CERTIFIES TO
LESSOR THAT THE REPRESENTATIONS AND WARRANTIES MADE BY LESSEE IN THE MASTER
LEASE (INCLUDING, WITHOUT LIMITATION, SECTION 31 THEREOF) ARE TRUE AND CORRECT
IN ALL MATERIAL RESPECTS AS OF THE DATE OF THIS SCHEDULE WITH THE SAME EFFECT AS
THOUGH MADE ON AND AS OF SUCH DATE. Lessee shall take such additional actions
and execute and deliver such additional documents as Lessor shall deem necessary
from time to time to effectuate the terms of this Lease.
16. POWER OF ATTORNEY. LESSEE HEREBY APPOINTS LESSOR OR ITS ASSIGNEE AS ITS
TRUE AND LAWFUL ATTORNEY IN FACT, IRREVOCABLY AND COUPLED WITH AN INTEREST, TO
EXECUTE AND FILE ON BEHALF OF LESSEE ALL UCC FINANCING STATEMENTS WHICH IN
LESSOR'S SOLE DISCRETION ARE NECESSARY OR PROPER TO SECURE LESSOR'S INTEREST IN
THE EQUIPMENT IN ALL APPLICABLE JURISDICTIONS. Lessee hereby ratifies, to the
extent permitted by law, all that Lessor shall lawfully and in good faith do or
cause to be done by reason of and in compliance with this paragraph.
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IN WITNESS WHEREOF, Lessor and Lessee have caused this Schedule to be duly
executed and delivered on the day and year first above written.
Lessor: Lessee:
KEYCORP LEASING, AUTOCAM CORPORATION
A DIVISION OF KEY CORPORATE CAPITAL INC.
By: /s/ Linda L. Huff By: /s/ Warren A. Veltman
Name: Linda L. Huff Name: Warren A. Veltman
Title: Vice President Title: Chief Financial Officer
COUNTERPART NO. 1 OF 1 SERIALLY NUMBERED MANUALLY EXECUTED COUNTERPARTS. TO THE
EXTENT THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL
CODE, NO SECURITY INTEREST MAY BE CREATED THROUGH THE TRANSFER AND POSSESSION OF
ANY COUNTERPART OTHER THAN COUNTERPART NO. 1.
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Exhibit A
EQUIPMENT DESCRIPTION
LESSOR: KEYCORP LEASING,
A DIVISION OF KEY CORPORATE CAPITAL INC.
LESSEE: AUTOCAM CORPORATION
LEASE: Equipment Schedule No. 06 dated as of June 28, 1999 to
Master Equipment Lease Agreement Dated as of July 10, 1995
VENDOR: TORNOS TECHNOLOGIES
70 POCONO ROAD
BROOKFIELD, CT 06804
QUANTITY: DESCRIPTION: SERIAL NO. INVOICE NO.
- --------- ------------ ---------- -----------
4 TORNOS-BECHLER 8-SPINDLE AUTOMATIC T.62342 D-218571
TYPE BS-20.8 WITH STANDARD VOLTAGE T.62909 D-220702
440V, 8 SPINDLES. CAPACITY 21MM ROUND T.61696 D-220701
BAR, 18MM HEX, 15MM SQUARE W/ ALL T.61842 D-223655
STANDARD ACCESSORIES
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<PAGE> 21
EQUIPMENT SCHEDULE NO. 07 dated as of August 23, 1999 (this "Schedule")
between KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC. ("Lessor"),
and AUTOCAM CORPORATION, a Michigan corporation ("Lessee").
INTRODUCTION:
Lessor and Lessee have heretofore entered into that certain Master
Equipment Lease Agreement dated as of July 10, 1995 (the "Master Lease"; the
Master Lease and this Schedule are hereinafter collectively referred to as, this
"Lease"). Unless otherwise defined herein, capitalized terms used herein shall
have the meanings specified in the Master Lease. The Master Lease provides for
the execution and delivery of a Schedule substantially in the form hereof for
the purpose of confirming the acceptance and lease of the Equipment under this
Lease as and when delivered by Lessor to Lessee in accordance with the terms
thereof and hereof.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, Lessor and Lessee hereby agree as follows:
EQUIPMENT & INVOICING TERMS
1 EQUIPMENT. Pursuant to the terms and conditions of this Lease, Lessor
hereby leases to Lessee, and Lessee hereby leases from Lessor, the
equipment listed on Exhibit A attached hereto (the "Equipment"). The
aggregate Total Cost of such Equipment is $626,915.94.
2 TERM. The Initial Term of this Lease with respect to the Equipment
described on this Schedule shall commence on the date on which such
Equipment is delivered to Lessee, and, unless earlier terminated as
provided herein, shall expire on a date which is ninety six (96) months
after the Rent Commencement Date (the "Initial Term Expiration Date").
3 RENT PAYMENT DATES; RENT. Lessee hereby agrees to pay Rent for the
Equipment throughout the Initial Term in ninety six (96) consecutive
monthly installments payable in arrears on the date which is one (1) month
after the Rent Commencement Date and on the same day of each month
thereafter (each, a "Rent Payment Date"). Each such installment of Rent
shall be in an amount equal to $7,790.45. In addition, Lessee hereby agrees
to pay Rent for the period commencing on the Interim Rent Commencement Date
(as defined below) and ending on the day before the Rent Commencement Date
in an amount equal to $259.68 per day, and agrees that, with respect to the
Equipment described on this Schedule, the following modifications are
hereby made to the Master Lease: (a) "Rent Commencement Date- shall mean,
with respect to an Equipment Group, the first (1st) day of the first month
following the date of the Certificate of Acceptance for such Equipment
Group, (b) "Interim Rent Commencement Date" shall mean, with respect to an
Equipment Group, the date of the Certificate of Acceptance for such
Equipment Group, or such later date (prior to the Rent Commencement Date)
as determined by Lessor in its sole discretion, (c) Section 6 of the Master
Lease ("Ordering Equipment") is hereby amended to delete the term "Rent
Commencement Date" and to substitute the term "Interim Rent Commencement
Date" in its place and (d) Section 22(a)(9) of the Master Lease ("Events of
Default; Remedies") is hereby amended to delete the term "Rent Commencement
Date" and to substitute the phrase "Rent Commencement Date or Interim Rent
Commencement Date, as the case may be," in its place.
4 EQUIPMENT LOCATION; BILLING ADDRESS. The Equipment described on this
Schedule shall be located at, and except as otherwise provided in this
Lease, shall not be removed from, the following address: 4070 East Paris
Avenue, Kentwood, MI 49512. The billing address of Lessee is as follows:
AUTOCAM CORPORATION, 4070 East Paris Avenue, Kentwood, MI 49512.
TRANSACTION TYPE TERMS
5 PURCHASE, RENEWAL AND OPTION TERMS.
(a) FMV. With respect to the Equipment described on this Schedule, Section 32
of the Master Lease ("Renewal and Purchase
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Options") is hereby deleted in its entirety and the following is substituted in
its place:
So long as no Default or Event of Default shall have occurred and be
continuing and Lessee shall have given Lessor at least one hundred eighty
(180) but not more than two hundred seventy (270) days prior written notice
(the "Option Notice"), Lessee shall have the following purchase and renewal
options at the expiration of the Initial Term, or any Renewal Term, to:
(i) purchase all, but not less than all, Items of Equipment for a purchase
price (the "Purchase Option Price") equal to the then Fair Market Sale
Value thereof; (ii) renew this Lease on a month to month basis at the same
Rent payable at the expiration of such Initial Term or Renewal Term, as the
case may be; (iii) renew this Lease for a minimum period of not less than
twelve (12) consecutive months at the then current Fair Market Rental
Value; or (iv) return such Equipment to Lessor pursuant to, and in the
condition required by, the Lease. If Lessee fails to give Lessor the Option
Notice, Lessee shall be deemed to have chosen option (ii) above.
Payment of the Purchase Option Price, applicable sales taxes, together with
all other amounts due and owing by Lessee under the Lease (including, without
limitation, Rent) during such Initial Term and Renewal Term shall be made on the
last day of the Initial Term or Renewal Term, as the case may be, in immediately
available funds against delivery of a bill of sale transferring to Lessee all
right, title and interest of Lessor in and to the Equipment ON AN "AS IS" "WHERE
IS" BASIS, WITHOUT ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE. LESSOR MAY
SPECIFICALLY DISCLAIM ANY SUCH REPRESENTATIONS AND WARRANTIES.
(b) EARLY BUYOUT OPTION. So long as no Default or Event of Default shall have
occurred and be continuing, Lessee shall have the option to purchase all, but
not less than all, Items of Equipment on the date which is eighty four (84)
months after the Rent Commencement Date (the "EBO Date") at a price (the "EBO
Price") equal to thirty one and forty six hundredths percent (31.46%) of the
Total Cost of the Equipment, plus any applicable sales taxes. For Lessee to
exercise its option hereunder, Lessee shall notify Lessor in writing of its
desire to effect such option at least ninety (90) days (but not more than one
hundred eighty (180) days) prior to the EBO Date. Such notice shall be
irrevocable. The EBO Price represents the parties present best estimate of the
fair market value of the Equipment on the EBO Date determined by using
commercially reasonable methods which are standard in the industry. Payment of
the EBO Price, applicable sales taxes, together with all other amounts due and
owing by Lessee under the Lease (including, without limitation, Rent) on or
before the EBO Date, shall be made on the EBO Date in immediately available
funds. Thereafter, upon Lessee's written request, Lessor shall deliver to Lessee
a bill of sale transferring to Lessee all right, title and interest of Lessor in
and to the Equipment ON AN "AS IS" "WHERE IS" BASIS, WITHOUT ANY WARRANTIES,
EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER. If Lessee shall fail to pay all
amounts required to be paid under the Lease on the EBO Date, the Lease shall
continue in full force and effect and Lessee agrees to reimburse Lessor for all
reasonable costs, expenses and liabilities incurred in connection therewith.
6. NATURE OF TRANSACTION; TRUE LEASE. (a) It is the express intent of the
parties that this Lease constitute a true lease and not a sale of the Equipment
Title to the Equipment shall at all times remain in Lessor, and Lessee shall
acquire no ownership, title, property, right, equity, or interest in the
Equipment other than its leasehold interest solely as Lessee subject to all the
terms and conditions hereof. To the extent that Article 2A ("Article 2A") of the
Uniform Commercial Code ("UCC") applies to the characterization of this Lease,
the parties hereby agree that this Lease is a "Finance Lease" as defined
therein. Lessee acknowledges: (i) that Lessee has selected the "Supplier" (as
defined in the UCC) and has directed Lessor to purchase the Equipment from the
Supplier in connection with this Lease, and (ii) that Lessee has been informed
in writing in this Lease, before Lessee's execution of this Lease, that Lessee
is entitled under Article 2A to the promises and warranties, including those of
any third party, provided to Lessor by the Supplier in connection with or as
part of the Purchase Agreement, and that Lessee may communicate with the
Supplier and receive an accurate and complete statement of those promises and
warranties, including any disclaimers and limitations of them or of remedies.
The filing of UCC financing statements pursuant to Section 34 of the Master
Lease is precautionary and shall not be deemed to have any effect on the
characterization of this Lease. NOTWITHSTANDING THE FOREGOING, LESSOR HAS NOT
MADE, AND HEREBY DISCLAIMS ANY ADVICE, REPRESENTATIONS, WARRANTIES AND
COVENANTS, EITHER EXPRESSED OR IMPLIED, WITH RESPECT TO ANY LEGAL, ECONOMIC,
ACCOUNTING, TAX OR OTHER EFFECTS OF THE LEASE AND THE TRANSACTION(S)
CONTEMPLATED THEREBY, AND LESSEE HEREBY DISCLAIMS ANY RELIANCE ON ANY SUCH
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<PAGE> 23
WARRANTIES, STATEMENTS OR REPRESENTATIONS MADE BY LESSOR WITH RESPECT
THERETO.
(b) Notwithstanding the express intent of Lessor and Lessee that this
agreement constitute a true leage and not a sale of the Equipment, should a
court of competent jurisdiction determine that this agreement is not a true
lease, but rather one intended as security, then solely in that event and for
the expressly limited purposes thereof, Lessee shall be deemed to have hereby
granted Lessor a security interest in the Equipment and all accessions,
substitutions and replacements thereto and therefor, and proceeds (cash and
non-cash), including, without limitation, insurance proceeds thereof (but
without power of sale), to secure the prompt payment and performance as and when
due of all obligations and indebtedness of Lessee, now existing or hereafter
created, to Lessee pursuant to this Lease or otherwise. In furtherance of the
foregoing, Lessee shall execute and deliver to Lessor, to be filed at Lessee's
expense, Uniform Commercial Code financing statements, statements of amendment
and statements of continuation as reasonably may be required by Lessor to
perfect and maintain perfected such security interest.
(c) In the event that the Supplier erroneously invoices Lessee for the
Equipment, Lessee agrees to forward said invoice to Lessor immediately. Lessee
acknowledges that the Equipment is, and shall at all times remain, the property
of Lessor, and that Lessee has no right, title or interest therein or thereto
except as expressly set forth in this Lease.
7. TAX INDEMNIFICATION. (a) Lessee acknowledges that Lessor has executed
this Lease, and that the Rent payable by Lessee under this Lease has been
computed, upon the assumptions that Lessor will (i) be entitled to depreciation
or cost recovery deductions ("MACRS Deductions") for Federal income tax purposes
under the Modified Accelerated Cost Recovery System provided for in Section 168
of the Internal Revenue Code of 1986, as amended (the "Code"), and depreciation
or cost recovery deductions ("State Depreciation Deductions") for state income
tax purposes for the Equipment Location, in each case on the basis that (1) each
Item of Equipment constitutes 7-year property" within the meaning of Section
168(e) of the Code, (2) the initial tax basis for each Item of Equipment will be
equal to the Total Cost, (3) deductions for each Item of Equipment will be
computed by using the method specified in Section 168(b)(1) of the Code over the
7-year recovery period described in Section 168(c) of the Code, and (4) the
applicable convention for each Item of Equipment under Section 168(d) of the
Code is the half-year convention; (ii) be entitled to deductions for Federal
income tax purposes (available in the manner and as provided by Section 163 of
the Code) for interest payable with respect to any indebtedness incurred by
Lessor in connection with any financing by Lessor of any portion of the Total
Cost of each Item of Equipment ("Interest Deductions"); and (iii) be subject to
tax for each year at a composite Federal and New York corporate income tax rate
equal to the then highest marginal rate for corporations provided for under the
Code and the laws of New York (the "Highest Marginal Tax Rate"). The MACRS
Deductions, State Depreciation Deductions and Interest Deductions are
hereinafter collectively referred to as the "Tax Benefits".
(b) Lessee represents and warrants to Lessor that (i) each Item of
Equipment constitutes 7-year property" within the meaning of Section 168(e) of
the Code, (ii) Lessee shall not attempt to claim such Tax Benefits, (ift) at and
after the time of delivery of the Equipment to Lessee pursuant to this Lease the
Lessee shall not claim any ownership or title in and to the Equipment, and (iv)
Lessee has not, and will not, at any time after such delivery throughout the
Term of this Lease, take any action or omit to take any action (whether or not
the same is permitted or required hereunder) which will result in the loss by
Lessor of all or any part of such Tax Benefits.
(c) If, as a result of any act, omission or misrepresentation of Lessee,
(x) the Tax Benefits are lost, disallowed, deferred, eliminated, reduced,
recaptured, compromised or otherwise unavailable to Lessor, (y) for Federal,
foreign, state or local income tax purposes, any item of income, loss or
deduction with respect to any Item of Equipment is treated as derived from, or
allocable to, sources outside the United States, or (z) there shall be included
in the gross income of Lessor for Federal, state or local income tax purposes
any amount on account of any addition, modification, substitution or improvement
to or in respect of any Item of Equipment made or paid for by Lessee (any of the
foregoing being hereinafter a "Tax Loss"), then, within thirty (30) days of
Lessee's receipt of written notice from Lessor that such a Tax Loss has
occurred, Lessee shall pay to Lessor an amount which, after deduction therefrom
of all taxes to be paid in respect of the receipt thereof, will enable Lessor to
receive the same Net Economic Return (as hereinafter defined) that Lessor would
have realized on this Lease had such Tax Loss (together with any interest,
penalties or additions to tax) not occurred. Any event which, by the terms of
this Lease, requires payment by Lessee to Lessor of the Stipulated Loss Value of
the Equipment shall not constitute the act of Lessee for purpose of the
foregoing sentence.
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<PAGE> 24
(d) As used in this Section, the term "Net Economic Return" shall mean
Lessor's net after-tax yield, aggregate after-tax cash flow and return on
assets, based on (i) the assumptions used by Lessor in originally calculating
Rent and Stipulated Loss Value percentages, including the assumptions set forth
above (as such assumptions may have been revised pursuant to the last sentence
of this subsection) and (ii) the Highest Marginal Tax Rate actually in effect
during each year from the date of such original calculations to the date of such
Tax Loss, both dates inclusive. In the event Lessor shall suffer a Tax Loss with
respect to which Lessee is required to pay an indemnity hereunder, and the full
amount of such indemnity has been paid or provided for hereunder, the aforesaid
assumptions, without further act of the parties hereto, shall thereupon be and
be deemed to be amended, if and to the extent appropriate, to reflect such Tax
Loss.
(e) For purposes of this Section, the term "Lessor" shall include the
entity or entities, if any, with which Lessor consolidates any tax return.
Lessee acknowledges that it has neither sought nor received tax advice from
Lessor as to the availability to Lessee of any tax benefits with respect to the
Equipment. All of Lessor's rights and privileges arising from the indemnities
contained in this Lease will survive the expiration or other termination or
cancellation of this Lease. Such indemnities are expressly made for the benefit
of, and are enforceable by, Lessor and its successors and assigns.
8. STIPULATED LOSS VALUE, DISCOUNT RATE. (a) The Stipulated Loss Values
applicable to the Equipment and this Lease are as set forth on a supplement (the
"Stipulated Loss Value Supplement") prepared by Lessor.
(b) Any provision of this Lease to the contrary notwithstanding, all
present value calculations to be made with respect to the Equipment described on
this Schedule shall be made using a discount rate equal to three percent (3%).
9. PERSONAL PROPERTY TAX. Unless otherwise directed in writing by Lessor or
required by Applicable Law, Lessee will not list itself as owner of any Item of
Equipment for property tax purposes. Upon receipt by Lessee of any property tax
bill pertaining to such Item of Equipment from the appropriate taxing authority,
Lessee will promptly forward such property tax bill to Lessor. Upon receipt by
Lessor of any such property tax bill (whether from Lessee or directly from the
taxing authority), Lessor will pay such tax and will invoice Lessee for the
expense. Upon receipt of such invoice, Lessee will promptly reimburse Lessor for
such expense.
10. MODIFICATIONS TO MASTER LEASE. With respect to the Equipment described
on this Schedule, the Master Lease shall be modified as follows:
(a) Section 31 of the Master Lease ("Representations and Warranties of
Lessee"), is hereby amended by adding the following additional representation:
Lessee has conducted a comprehensive review and assessment of the Lessee's
computer applications and made inquiry of the Lessee's key suppliers,
vendors and customers with respect to the "year 2000 problem" (that is, the
risk that computer applications may not be able to properly perform
date-sensitive functions after December 31, 1999) and based on that review
and inquiry, the Lessee does not believe the year 2000 problem wffl result
in a material adverse change in the Lessee's business condition (financial
or otherwise), operations, properties or prospects, or ability to perform
the obligations of Lessee under this Lease.
Conforming Modifications. With respect to the Equipment described on this
Schedule, the Master Lease shall be modified as follows:
(b) (1) The definitions of "Equipment" and "Term" in Section 4 of the
Master Lease ("Definitions") are hereby deleted in their entirety and the
following definitions are substituted in their place:
"Equipment " shall mean an item or items of personal property designated
from time to time by Lessee which are described on an Equipment Schedule
and which are being or will be leased by Lessee pursuant to a Lease,
together with all replacement parts, additions and accessories incorporated
therein or affixed thereto including, without limitation, any software that
is a component or integral part of, or is included or used in connection
with, any Item of Equipment, but with respect to such software, only to the
extent of Lessor's interest therein, if any.
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"Term" shall mean the Initial Term or any Renewal Term, each as defined in
Section 8 hereof, and any Extended Lease Term or Interim Term as defined in an
Equipment Schedule.
(2) All references to the defined term "Late Payment Rate" shall be
deemed to be references to the term "Default Rate", and the term "Default Rate"
shall mean an annual interest rate equal to the lesser of 18% or the maximum
interest rate permitted by Applicable Law.
(c) The following shall be inserted as the penultimate sentence of Section
11 of the Master Lease ("Use; Alterations"):
All such alterations, additions, modifications or improvements shall
immediately, and without further act, be deemed to constitute Items of
Equipment and be fully subject to this Lease as if originally leased
hereunder.
(d) The following shall be inserted as the penultimate sentence of Section
12 of the Master Lease ("Repairs and Maintenance"):
Upon installation, attachment or incorporation in, on or into such Item of
Equipment, such replacement part shall immediately, and without further
act, be deemed to constitute an Item of Equipment and be fully subject to
this Lease as if originally leased hereunder.
(e) Section 22 of the Master Lease ("Events of Default") is hereby amended
as follows:
(i) with respect to Section 22(a), the term "Event of Default" shall also
mean any of the following which are hereby added as new subparts: (10)
Lessee merges or consolidates with any other corporation or entity, or
sells, leases or disposes of all or substantially all of its assets without
the prior written consent of Lessor; (11) a change in control occurs in
Lessee or any Guarantor; or (12) the death or dissolution of Lessee or any
Guarantor;
(ii) with respect to Section 22(b)(4), the word "terminate" is hereby
deleted and the words "cancel or terminate" are hereby substituted in its
place;
(iii) with respect to Section 22(b)(5), the existing section is hereby
deleted in its entirety and the following is substituted in its place:
(5) demand that Lessee, and Lessee shall, upon written demand of Lessor
and at Lessee's expense forthwith return all Items of Equipment to
Lessor in the manner and condition required by Section 13 hereof,
provided, however, that Lessee shall remain and be liable to Lessor for
any amounts provided for herein or other damages resulting from the
Equipment not being in the condition required by Section 12 hereof, and
otherwise in accordance with all of the provisions of this Lease,
except those provisions relating to periods of notice;
(iv) with respect to Section 22(b)(6), the word "termination" is hereby
deleted and the words "cancellation or termination" are hereby substituted
in its place; and
(v) Beginning with Section 22(b)(7) inclusive, the remainder of Section
22(b) is hereby deleted in its entirety and the following is substituted in
its place:
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(7) by written notice to Lessee specifying a payment date (the "Remedy
Date") demand that Lessee forthwith return all Items of Equipment to Lessor in
the manner and condition required by Section 22(b)(5) hereof and, in addition,
demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the Remedy
Date, as liquidated damages for loss of a bargain and not as a penalty, any
unpaid Rent due prior to the Remedy Date plus whichever of the following amounts
Lessor, in its sole discretion, shall specify in such notice (together with
interest on such amount at the Default Rate from the Remedy Date to the date of
actual payment): (i) an amount, with respect to an Item of Equipment, equal to
the Rent payable for such Item of Equipment for the remainder of the then
current Term thereof, after discounting such Rent to present worth as of the
Remedy Date on the basis of a per annum rate of discount equal to three percent
(3%) from the respective dates upon which such Rent would have been paid had
this Lease not been canceled or terminated; or (ii) the Stipulated Loss Value,
computed as of the Remedy Date or, if the Remedy Date is not a Rent Payment
Date, the Rent Payment Date next following the Remedy Date (provided, however,
that, with respect to any proceeds actually received by Lessor for any Item of
Equipment returned to or repossessed by Lessor, Lessor agrees that it shall
first apply such proceeds to satisfy Lessee's obligation to pay the Stipulated
Loss Value or, if Lessor has received payment in full of the Stipulated Loss
Value from Lessee, Lessor shall remit such proceeds to Lessee (after first
deducting any Lessor Expense) up to the amount of the Stipulated Loss Value; (8)
cause Lessee, at its expense, to promptly assemble any and all Items of
Equipment and return the same to Lessor at such place as Lessor may designate in
writing; and (9) exercise any other right or remedy available to Lessor under
applicable law or proceed by appropriate court action to enforce the terms
hereof or to recover damages for the breach hereof or to rescind this Lease. In
addition, Lessee shall be liable, except as otherwise provided above, for any
and all unpaid Rent due hereunder before or during the exercise of any of the
foregoing remedies, and for reasonable legal fees and other costs and expenses
incurred by reason of the occurrence of any Event of Default or the exercise of
Lessor's remedies with respect thereto. If an Event of Default occurs, Lessee
hereby agrees that ten (10) days prior notice to Lessee of (A) any public sale
or (B) the time after which a private sale may be negotiated shall be
conclusively deemed reasonable and, to the extent permitted by Applicable Law,
Lessee waives all rights and defenses with respect to such disposition of the
Equipment. None of Lessor's rights or remedies hereunder are intended to be
exclusive of, but each shall be cumulative and in addition to any other right or
remedy referred to hereunder or otherwise available to Lessor at laiv or in
equity, and no express or implied waiver by Lessor of any Event of Default shall
constitute a waiver of any other Event of Default or a waiver of any of Lessor's
rights.
MISCELLANEOUS TERMS & CONDITIONS
11. ADDITIONAL MAINTENANCE REQUIREMENTS. Section 13 of the Lease ("Return
of Equipment") shall be deleted in its entirety and the following substituted in
its place:
13. RETURN OF EQUIPMENT. (a) Upon the expiration of the Term of any Lease
or upon demand by Lessor pursuant to Section 22 hereof, Lessee, at its sole
expense, shall return all of the Equipment leased under the Lease by delivering
it in a manner consistent with the manufacturer's recommendations and practices
to such place or on board such carrier (packed properly and in accordance with
the manufacturer's instructions) as Lessor shall specify. Lessee agrees that the
Equipment, when returned, shall be free and clear of all Liens, and in the same
condition as when delivered to Lessee, reasonable wear and tear excepted.
Reasonable wear and tear shall mean that each item of the Equipment has been
maintained by Lessee in "Average Saleable Condition" (as hereinafter defined)
and that all components of the Equipment have been properly serviced, following
the manufacturer's written operating and servicing procedures, such that the
Equipment is eligible for a manufacturer's standard, full service maintenance
contract without Lessor's incurring any expense to repair or rehabilitate the
Equipment. If, in the opinion of Lessor, any item of the Equipment fails to meet
the standards set forth in this Section 13, Lessee agrees to pay on demand all
costs and expenses incurred in connection with repairing the Equipment,
restoring it to such condition so as to meet such standards and assembling and
delivering such Item of Equipment pursuant to Lessor's instructions. If Lessee
fails to return any Item of Equipment as required hereunder, then, all of
Lessee's obligations under this Lease (including, without limitation, Lessee's
obligation to pay Rent for such Item of Equipment at the rental then applicable
under this Lease) shall continue in full force and effect until such Item of
Equipment shall have been returned in the condition required hereunder.
(b) Lessee shall give Lessor at least one hundred eighty (180) but not more than
two hundred seventy (270) days written notice that Lessee is returning the
Equipment as provided for above (the "Return Notice") and shall include with
such notice, all of the following:
(i) a detailed inventory of all components of the Equipment including
without limitation all of the model and serial
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numbers of any components;
(ii) a complete set of current and up to date service and operating
manuals for each Item of Equipment;
(iii) a complete set of current and up to date maintenance logs and
other appropriate documentation detailing the
Equipment's then current configuration (including a description of all
replacements and additions thereto made during the Term of the Lease) and
all operating requirements and technical data regarding the setup, use and
operation of the Equipment;
(iv) an in-depth field service report (the "Report") detailing the
results of an inspection conducted by a representative of the manufacturer
or a qualified equipment maintenance provider acceptable to Lessor
certifying that the Equipment has been properly inspected, examined, tested
and is operating within the manufacturer's specification and addressing, at
a minimum the following areas:
(D) comprehensive physical inspection;
(E) testing of all material and workmanship of the Equipment; and
(F) conformation of all Equipment operations to Applicable Law and
confirming that the Equipment is otherwise in Average Saleable Condition
(as hereinafter defined).
If the Report discloses that any of the material, workmanship or Equipment
does not meet or, does not operate within, the manufacturer's
specifications or any Applicable Law, Lessee shall, at its sole expense,
take all necessary corrective measures and submit a second Report from the
same inspector evidencing that the Equipment has been brought into
conformity with the manufacturer's specifications and Applicable Law.
(c) "Average Saleable Condition" shall mean that all of the following minimum
standards have been met:
Machine Tool Equipment
(xi) The Equipment has been or will be disassembled according to
manufacturer's recommendations and by a licensed rigger/erector
specializing in the Equipment, with any transportation devices, such as
metal skids, lifting slings, and brackets which were with the machine when
it originally arrived, included, and, in addition, all proper blueprinting,
mapping, tagging and labeling of each individual part including cables,
electrical apparatus and wires have been included, all process fluids
and/or any hazardous materials have been removed from the Equipment and
disposed of in accordance with Applicable Law.
(xii) All manuals, maintenance records, log books, plans, drawings and
schematics, inspection and overhaul records, operating requirements or
other materials pertinent to the Equipment's operation, maintenance,
assembly and disassembly have been assembled and are ready to be returned
to Lessor.
(xiii) There is no structural or mechanical damage, and all frames,
structural members, accessories and attachments are structurally sound
without breaks or cracks and in compliance with all federal, state, local
and other regulatory requirements.
(xiv) The Equipment is able to perform its required tasks effectively
without repair including but not limited to electronic, electrical and
mechanical controls, pumps, motors, belts, hoses, pins, bushings, measuring
devices, screws, barrels, ways, rams, and clamps, and is operational and in
compliance with all Applicable Law and is within manufacturer's design
performance characteristics and tolerances.
(xv) The Equipment is clean and rust free, and sumps and tanks are
clean and dry.
(xvi) Equipment with predictable or scheduled replacements or overhaul
fives has not less than 50% useful life remaining before the next such
replacement, overhaul, recalibration or rebuild.
(xvii) All major components and all wear points, including, but not
limited to electronic and mechanical controls and pumps, motors, belts,
hoses, pins, bushings, measuring devices, screws, barrels, ways, cams,
clamps and supports, are within manufacturer's design performance
characteristics and tolerances and are capable of performing as originally
intended by the manufacturer and in a safe manner.
(xviii) The Equipment is complete, with no missing components or
attachments.
(xix) The Equipment has been lubricated according to the maintenance
manual and/or lubrication schedule recommended by the manufacturer, and
written records of the lubrication service have been kept, dated, and
signed by the appropriate authority.
(xx) All internal fluids, such as lube oil and hydraulic oil, have been
filled to operating levels, all filler caps have been secured and all
disconnected hoses have been sealed to avoid accidental spillage.
(d) In addition to all other rights of Lessor under the Lease, Lessor shall have
the right to attempt to resell or auction the Equipment from Lessee's facility
with the Lessee's full cooperation and assistance, for a period commencing with
Lessor's receipt
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of the Return Notice and ending one hundred eighty (180) days after the Initial
Term Expiration Date. Lessee agrees to pay the reasonable costs and expenses of
such sale or auction (and all storage prior thereto), and agrees that the
Equipment shall remain capable of operation during this period. Lessee shall
provide adequate electrical power, lighting, heat, water and all other
requirements sufficient to allow for normal maintenance and for demonstrations
of the Equipment to any potential buyer.
12. GOVERNING LAW. This Schedule is being delivered in the State of New
York and shall be governed by, and construed in accordance with, the laws of the
State of New York, including all matters of construction, validity and
performance without giving effect to any choice of law or conflict of laws
provision or rule (whether of the State of New York or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of New York.
13. COUNTERPARTS. This Schedule may be executed in any number of
counterparts, each executed counterpart constituting an original but all
together one and the same instrument.
14. MORE THAN ONE LESSEE. If more than one person or entity executes this
Schedule, or any other Lease Documents executed in connection herewith, as
"Lessee," the obligations of "Lessee" contained herein and therein shall be
deemed joint and several and all references to "Lessee" shall apply both
individually and jointly.
15. RELATIONSHIP TO MASTER LEASE; FURTHER ASSURANCES. This Schedule shall
be construed in connection with and as part of this Lease, and all terms
contained in the Master Lease are hereby incorporated herein by reference with
the same force and effect as if such terms were fully stated herein. By
execution of this Schedule, Lessee and Lessor reaffirm all terms of the Master
Lease except as they may be modified hereby. To the extent that any of the terms
of this Schedule are contrary to or inconsistent with any terms of the Master
Lease, the terms of this Schedule shall govern. LESSEE HEREBY CERTIFIES TO
LESSOR THAT THE REPRESENTATIONS AND WARRANTIES MADE BY LESSEE IN THE MASTER
LEASE (INCLUDING, WITHOUT LIMITATION, SECTION 31 THEREOF) ARE TRUE AND CORRECT
IN ALL MATERIAL RESPECTS AS OF THE DATE OF THIS SCHEDULE WITH THE SAME EFFECT AS
THOUGH MADE ON AND AS OF SUCH DATE. Lessee shall take such additional actions
and execute and deliver such additional documents as Lessor shall deem necessary
from time to time to effectuate the terms of this Lease.
16. POWER OF ATTORNEY. LESSEE HEREBY APPOINTS LESSOR OR ITS ASSIGNEE AS ITS
TRUE AND LAWFUL ATTORNEY IN FACT, IRREVOCABLY AND COUPLED WITH AN INTEREST, TO
EXECUTE AND FILE ON BEHALF OF LESSEE ALL UCC FINANCING STATEMENTS WHICH IN
LESSOR'S SOLE DISCRETION ARE NECESSARY OR PROPER TO SECURE LESSOR'S INTEREST IN
THE EQUIPMENT IN ALL APPLICABLE JURISDICTIONS. Lessee hereby ratifies, to the
extent permitted by law, all that Lessor shall lawfully and in good faith do or
cause to be done by reason of and in compliance with this paragraph.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Schedule to be duly
executed and delivered on the day and year first above written.
Lessor: Lessee:
KEYCORP LEASING, AUTOCAM CORPORATION
A DIVISION OF KEY CORPORATE CAPITAL INC.
By: /s/ Kelly M. Reale By: /s/ Warren A. Veltman
Name: Kelly M. Reale Name: Warren A. Veltman
Title: Regional Business Unit Manager Title: Chief Financial Officer
COUNTERPART NO. 1 OF 1 SERIALLY NUMBERED MANUALLY EXECUTED COUNTERPARTS. TO THE
EXTENT THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL
CODE, NO SECURITY INTEREST MAY BE CREATED THROUGH THE TRANSFER AND POSSESSION OF
ANY
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<PAGE> 29
COUNTERPART OTHER THAN COUNTERPART NO. 1.
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<PAGE> 30
Exhibit A
EQUIPMENT DESCRIPTION
LESSOR: KEYCORP LEASING,
A DIVISION OF KEY CORPORATE CAPITAL INC.
LESSEE: AUTOCAM CORPORATION
LEASE: Equipment Schedule No. 07 dated as of August 23, 1999 to
Master Equipment Lease Agreement Dated as of July 10, 1995
VENDOR: MIKRON
P.O. BOX 267
MONROE, CT 06468
QUANTITY: DESCRIPTION: SERIAL NO. INVOICE NO.
- --------- ------------ ---------- -----------
1 MIKRON CX-24 ROTARY TRANSFER KA0039M 171829
MACHINE
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<PAGE> 1
EXHIBIT 10(u)
An Indemnification Agreement in the following form has been executed by the
Company and each of John C. Kennedy, Warren A. Veltman, David J. Wagner, Robert
L. Hooker, Kenneth K. Rieth, Mark J. Bissell and Kim Korth:
AUTOCAM CORPORATION
INDEMNIFICATION AGREEMENT
This Agreement is made as of August 13, 1999, by and between Autocam
Corporation (the "Corporation') a Michigan corporation, and [Individual
Director's Name] ("Indemnitee").
Indemnitee is a director of the Corporation. It is essential to the
Corporation to attract and retain as directors the most capable persons
available. The Corporation's Articles of Incorporation, as approved by its
shareholders, provide that the Corporation's directors shall be indemnified as
of right to the fullest extent permitted by law. This Agreement implements that
provision. In consideration of Indemnitee's agreement to serve as a director of
the Corporation, the parties are entering into this Agreement.
THEREFORE, the Corporation and Indemnitee agree:
Section 1. Definitions. As used in this Agreement:
(a) "Expenses" shall mean all reasonable costs, expenses, and
obligations actually paid or incurred in connection with investigating,
litigating, being a witness in, defending, or participating in, or
preparing to litigate, defend, be a witness in, or participate in any
matter that is the subject of a Proceeding (as defined below),
including, without limitation, any attorney, accountant and expert fees
and court costs.
(b) "Proceeding" shall mean any threatened, pending, or
completed action, suit, or proceeding, or any inquiry or investigation,
whether brought by or in the right of the Corporation or otherwise, and
whether of a civil, criminal, administrative, or investigative nature,
including without limitation any administrative or civil action
instituted by any federal or state securities regulatory agency, in
which Indemnitee is, may be, or may have been involved as a party or
otherwise by reason of the fact that Indemnitee is or was a director,
officer, employee, or agent of the Corporation or by reason of any
action taken by Indemnitee, or any inaction on Indemnitee's part, while
acting as a director, officer, employee, or agent of the Corporation or
by reason of the fact that Indemnitee is or was elected, appointed or
serving at the request of the Corporation as a director, officer,
partner, trustee, employee, agent or fiduciary of any other foreign or
domestic corporation, partnership, joint venture, trust or other
enterprise, whether for profit or not.
(c) "Resolution Costs" shall include any amount paid in
connection with a Proceeding and in satisfaction of a judgment, fine or
penalty, or any amount paid in settlement of a Proceeding.
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<PAGE> 2
(d) "Change in Control" shall mean an occurrence of a nature
that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A issued under the Securities Exchange Act
of 1934, as amended (the "Act"). Without limiting the inclusiveness of
the definition in the preceding sentence, a Change in Control of the
Corporation shall be deemed to have occurred as of the first day that
any one or more of the following conditions is satisfied: (a) any
Person is or becomes the "beneficial owner' (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the
Corporation representing 25% or more of the combined voting power of
the Corporation's then outstanding securities; (b) the failure at any
time of the Continuing Directors to constitute at least a majority of
the board of directors of the Corporation; or (c) any of the following
occur: (i) any merger or consolidation of the Corporation, other than a
merger or consolidation in which the voting securities of the
Corporation immediately prior to the merger or consolidation continue
to represent (either by remaining outstanding or being converted into
securities of the surviving entity) 60% or more of the combined voting
power of the Corporation or surviving entity immediately after the
merger or consolidation with another entity; (ii) any sale, exchange,
lease, mortgage, pledge, transfer or other disposition (in a single
transaction or a series of related transactions) of assets or earning
power aggregating more than 50% of the assets or earning power of the
Corporation on a consolidated basis; (iii) any complete liquidation or
dissolution of the Corporation; (iv) any reorganization, reverse stock
split or recapitalization of the Corporation which would result in a
Change in Control as otherwise defined herein; or (v) any transaction
or series of related transactions having, directly or indirectly, the
same effect as any of the foregoing.
(e) "Continuing Directors" means the individuals who were
either (a) serving as directors of the Corporation on June 1, 1999, or
(b) subsequently appointed or elected as a director, if appointed or
nominated by at least a majority of the Continuing Directors in office
at the time of the nomination or appointment, but specifically
excluding any individual whose initial assumption of office occurs as a
result of either an actual or threatened "election contest" (as the
term is used in Rule 14a-11 of Regulation 14A promulgated under the
Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Corporation's board of
directors.
(f) "Person" has the same meaning as set forth in Sections
13(d) and 14(d)(2) of the Act.
(g) A "Potential Change in Control" shall be deemed to have
occurred if (i) the Corporation enters into an agreement, the
consummation of that would result in the occurrence of a Change in
Control; (ii) any person (including the Corporation) publicly announces
an intention to take or to consider taking actions that once
consummated would constitute a Change in Control; or (iii) the Board of
Directors adopts a resolution to the effect that, for purposes of this
Agreement, a Potential Change in Control has occurred.
Section 2. Agreement To Serve. Indemnitee agrees to serve as a director
and/or officer of the Corporation for so long as Indemnitee is duly electedor
appointed or until the tender of Indemnitee's written resignation.
Section 3. Indemnification.
(a) The Corporation shall indemnify Indemnitee against all
Expenses incurred by Indemnitee in connection with any Proceeding,
except as otherwise provided in this Agreement. The Corporation shall
indemnify Indemnitee against all Resolution Costs incurred by
Indemnitee in connection with any Proceeding other than a Proceeding by
or in the right of the Corporation, except as otherwise provided in
this Agreement. However, no indemnification shall be made under this
Section if and to the extent that such Expenses or Resolution Costs
are:
(i) with respect to remuneration paid Indemnitee if it
shall be determined by a final judgment or other final
adjudication that such remuneration was in violation of law;
(ii) on account of any suit in which judgment is
rendered against Indemnitee for an accounting of profits made
from the purchase and sale by Indemnitee of securities of the
Corporation pursuant to the provisions of Section 16 of the
Securities Exchange Act of 1934 and amendments thereto;
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(iii) on account of Indemnitee's conduct which is
determined by a final judgment or other final adjudication to
have been knowingly fraudulent, deliberately dishonest, or
willful misconduct;
(iv) on account of Indemnitee's conduct which is finally,
affirmatively and unconditionally determined to have not been
in good faith, to have not been believed by Indemnitee to have
been in or not opposed to the best interests of the
Corporation, or to have produced an unlawful personal benefit;
(v) with respect to a criminal proceeding if the
Indemnitee knew or reasonably should have known that
Indemnitee's conduct was unlawful; or
(vi) if a final decision by a court having jurisdiction in
the matter shall determine that such indemnification is not
lawful.
(b) In addition to any indemnification provided under
Subsection 3(a) above, the Corporation shall indemnify Indemnitee
against any Expenses or Resolution Costs incurred by Indemnitee,
regardless of the nature of the Proceeding that Expenses and/or
Resolution Costs were incurred, if the Expenses or Resolution Costs
would have been covered, insured or reimbursed under any insurance
policy in effect on the effective date of this Agreement or that become
effective on any later date.
(c) It is the intent of this Agreement that, in addition to
any indemnification provided under Subsections 3(a) and 3(b), the
Corporation shall indemnify Indemnitee, to the fullest extent allowed
by law as presently or hereafter enacted or interpreted, against any
Expenses and Resolution Costs incurred by Indemnitee in connection with
any Proceeding. To the extent a change in, or in the implementation or
interpretation of, the Michigan Business Corporation Act or the federal
or state securities laws (whether by statute, regulation, judicial
decision or otherwise) permits greater indemnification, either by
agreement or otherwise, than presently provided by law or this
Agreement, it is the intent of the parties hereto that Indemnitee shall
enjoy by this Agreement the greater benefits so afforded by such
change.
(d) Without limiting Indemnitee's right to indemnification
under any other provision of this Agreement, the Corporation shall
indemnify Indemnitee in accordance with the provisions of this
Agreement if Indemnitee is a party to or threatened to be made a party
to or otherwise involved in any Proceeding by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact
that Indemnitee was or is a director, officer, employee, or agent of
the Corporation or is or was serving at the request of the Corporation
as a director, officer, partner, trustee, employee, agent, or fiduciary
of another foreign or domestic corporation, partnership, joint venture,
trust, or other enterprise, whether for profit or not, against all
Expenses and Resolution Costs incurred by Indemnitee, if it is
determined that Indemnitee acted in good faith in a manner which
Indemnitee reasonably believed to be in or not opposed to the best
interests of the Corporation or its shareholders, except that no
indemnification shall be made under this Subsection in respect of any
claim, issue, or matter as to which Indemnitee shall have been adjudged
to be liable to the Corporation in the performance of his duty to the
Corporation unless, and only to the extent that, any court in which
such Proceeding was brought shall determine upon application that,
despite the adjudication of liability but in view of all the relevant
circumstances, Indemnitee is fairly and reasonably entitled to
indemnity, in which event indemnification shall be limited to
reasonable expenses incurred.
(e) Notwithstanding anything in this Agreement to the
contrary, prior to a Change in Control, Indemnitee shall not be
entitled to indemnification pursuant to this Agreement in connection
with any Proceeding initiated by Indemnitee against the Corporation or
any director, officer, employee, agent, or fiduciary of the Corporation
(in such capacity) unless the Corporation has joined in or consented to
the initiation of such Proceeding.
(f) Notwithstanding anything in this Agreement, no
indemnification shall be paid in violation of Michigan or federal laws
and regulations.
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Section 4. Payment Of Indemnification.
(a) The Corporation shall pay or reimburse Indemnitee all
Expenses and Resolution Costs for which Indemnitee is entitled to
indemnification under Section 3, upon written demand for such payment
or reimbursement from the Indemnitee, promptly if, when and to the
extent that a determination has been made, or deemed to have been made,
in the manner provided in this Section 4 that Indemnitee is entitled to
indemnification under Section 3.
(b) A determination as to whether or not Indemnitee is
entitled to indemnification shall be made, no later than 30 days after
receipt by the Corporation of a written demand of Indemnitee for such
payment or reimbursement, by: (i) a majority vote of a quorum of
directors who are not parties or threatened to be made parties to such
Proceeding; (ii) if a quorum cannot be obtained under subsection (i), a
majority vote of a committee of two or more directors, duly designated
by the board, who are not parties or threatened to be made parties to
such Proceeding; or (iii) if there are no directors who are not parties
to the Proceeding, independent legal counsel selected by the board. If
such determination is not referred to independent legal counsel, the
board of directors, or committee provided in this subsection, shall be
deemed to have made a determination that the Indemnitee is entitled to
Indemnification under Section 3 and that the Expenses and Resolution
Costs are reasonable, unless such board or committee determines, in
writing and in unconditional terms, that indemnification is not allowed
under Section 3 of this Agreement or that a specified portion of such
Expenses and Resolution Costs are not reasonable.
(c) If a Change in Control (as defined in Section 1 (d)) has
occurred, the determination made under Section 4 shall be made by
independent legal counsel and not the board of directors or a committee
of the board of directors. If there has been a Change in Control,
independent legal counsel shall be selected by Indemnitee. The
Corporation shall pay the reasonable fees of the independent legal
counsel and fully indemnify such counsel against any and all expense
(including attorney fees), claims, liabilities, and damages arising out
of or relating to this Agreement or its engagement pursuant thereto.
(d) If the indemnification demand is referred to independent
legal counsel under this Section 4, a determination as to whether or
not Indemnitee is entitled to indemnification shall be made no later
than 45 days after Indemnitee's initial demand to the Corporation.
Independent legal counsel shall be deemed to have made a determination
that indemnification is allowed under Section 3 of this Agreement and
that the Expenses and Resolution Costs are reasonable, unless within
that time independent legal counsel presents to the Corporation's board
of directors a written opinion stating in unconditional terms that
Indemnitee is not entitled to indemnification under Section 3 of this
Agreement or that a specified portion of such Expenses and Resolution
Costs are not reasonable.
(e) If the Corporation has not made a determination as to
whether or not indemnification is allowed under Section 3 within the 30
day period (or 45 day period if referred to independent legal counsel)
prescribed in Section 4, the Corporation, shall be deemed to have made
a determination that Indemnitee is entitled to indemnification under
Section 3 and that the Expenses and Resolution Costs are reasonable.
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(f) The right to indemnification payments as provided by this
Agreement shall be enforceable by Indemnitee in any court of competent
jurisdiction. The burden of proving that indemnification is not
required or permitted by this Agreement shall be on the Corporation or
on the person challenging the indemnification. Neither the failure of
the Corporation, including its board of directors, committee, or legal
counsel to have made a determination prior to the commencement of any
Proceeding that indemnification is proper, nor an actual determination
by the Corporation, including its board of directors, committee, or
independent legal counsel, that indemnification is not proper, shall
bar an action by Indemnitee to enforce this Agreement or create a
presumption that Indemnitee is not entitled to indemnification under
this agreement. If the board of directors, committee, or independent
legal counsel determines in accordance with Section 4 above that
Indemnitee would not be permitted to be indemnified in whole or in
part, Indemnitee shall have the right to commence litigation in any
court in the State of Michigan having subject matter jurisdiction
thereof and in which venue is proper seeking an independent
determination by the court or challenging. any such determination by
the board of directors, committee, or independent legal counsel, and
the Corporation hereby consents to service of process and to appear in
any such proceeding. Expenses incurred by Indemnitee in connection with
successfully establishing Indemnitee's right to indemnification, in
whole or in part, shall also be paid or reimbursed by the Corporation.
(g) Indemnitee shall not participate in any way in the board
of directors' or committees' discussion and approval of indemnification
under this Section 4. However, Indemnitee may (i) participate in
designation of a committee or a selection of independent legal counsel
under Subsection 4(b) and (ii) present Indemnitee's request to the
board of directors and respond to any inquiries concerning Indemnitee's
involvement in the circumstances giving rise to the administrative
proceeding or civil action.
Section 5. Payment or Reimbursement of Indemnitee in Advance of Final
Disposition.
(a) The Corporation shall pay or reimburse Indemnitee all
Expenses incurred by Indemnitee in advance of final disposition of a
Proceeding, within 30 days after receipt by the Corporation of a
written request for such advance payment or reimbursement, if:
(i) Indemnitee has furnished the Corporation with a
written affirmation of his or her good faith belief that he or
she has met the applicable standard of conduct required of
Indemnitee and for which the indemnification claim is based;
and
(ii) as of the date of such payment or reimbursement,
a determination has not been made, in the manner provided in
Section 4 of this Agreement, that the facts then known to
those making the determination would preclude indemnification
under this Agreement.
(b) Indemnitee hereby undertakes that Indemnitee shall repay
to the Corporation any amount advanced under this Agreement if an to
the extent that it is ultimately determined that Indemnitee is not
entitled to such indemnification.
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Section 6. Establishment of Trust. In the event of a Potential Change
in Control of the Corporation, the Corporation shall, upon written request by
Indemnitee, create a trust for the benefit of the Indemnitee and from time to
time upon written request of Indemnitee shall fund the trust in an amount
sufficient to satisfy any and all Expenses or Resolution Costs that may properly
be subject to indemnification under Section 3 above anticipated at the time of
each request. The amount or amounts to be deposited in the trust pursuant to
this funding obligation shall be determined by a majority vote of a quorum
consisting of directors who are Continuing Directors and not parties to the
Proceeding or by the Chief Executive Officer of the Corporation. If all of those
individuals are parties to the Proceeding, the amount or amounts to be deposited
in the trust shall be determined by independent legal counsel. The terms of the
trust shall provide that upon a Change in Control (i) the trust shall not be
revoked or the principal of the trust fund invaded, without the written consent
of the Indemnitee; (ii) the trustee shall advance, within two (2) business days
of a request by the Indemnitee, any amount properly payable to Indemnitee under
Sections 4 or 5 of this Agreement; (iii) the trust shall continue to be funded
by the Corporation in accordance with the funding obligation set forth above;
(iv) the trustee shall promptly pay to the Indemnitee all amounts that the
Indemnitee shall be entitled to indemnification pursuant to this Agreement or
otherwise; and (v) all unexpended funds in the trust shall revert to the
Corporation upon a final determination by a court of competent jurisdiction that
the Indemnitee has been fully indemnified under the terms of this Agreement. The
trustee shall be chosen by the party determining the initial funding of the
trust and shall be a national or state bank having a combined capital and
surplus of not less than $20,000,000. At the time of each draw from the trust
fund, the Indemnitee shall provide the trustee with a written request providing
that Indemnitee undertakes to repay the amount to the extent that it is
ultimately determined that Indemnitee is not entitled to indemnification. Any
funds, including interest or investment earnings, remaining in the trust fund
shall revert and be paid to the Corporation if (i) a Change in Control has not
occurred; and (ii) if the Board of Directors by vote of a majority of a quorum
consisting of Continuing Directors determines that the circumstances giving rise
to that particular funding of the trust no longer exists. Nothing in this
section shall relieve the Corporation of any of its obligations under this
Agreement.
Section 7. Partial Indemnification; Successful Defense. If Indemnitee
is entitled under any provision of this Agreement to indemnification, or advance
payment or reimbursement by the Corporation for some portion of the Expenses or
Resolution Costs incurred by Indemnitee, but not for the total amount, the
Corporation shall nevertheless indemnify Indemnitee or advanced payment or
reimbursement for the portion of such Expenses or Resolution Costs to which
Indemnitee is entitled. Notwithstanding any other provision of this Agreement,
to the extent that Indemnitee has been successful on the merits or otherwise in
defense of any or all claims relating in whole or in part to a Proceeding or in
defense of any issue or matter therein, including dismissal without prejudice,
Indemnitee shall be indemnified against all Expenses and Resolutions Costs
incurred in connection with such Proceeding.
Section 8. Consent to Settlement. Unless and until a Change in Control
has occurred, the Corporation shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any Proceeding made without
the Corporation's written consent. The Corporation shall not settle any
Proceeding in any manner that would impose any penalty or limitation on
Indemnitee or involve an admission of illegal conduct without Indemnitee's
written consent. Neither the Corporation nor the Indemnitee will unreasonably
withhold their consent to any proposed settlement.
Section 9. Severability. If this Agreement or any portion hereof
(including any provision within a single section, subsection, or sentence) shall
be held to be invalid, void, or otherwise unenforceable on any ground by any
court of competent jurisdiction, the Corporation shall nevertheless indemnify
Indemnitee as to any Expenses or Resolution Costs with respect to any Proceeding
to the full extent permitted by law or any applicable portion of this Agreement
that shall not have been invalidated, declared void, or otherwise held to be
unenforceable.
Section 10. Indemnification Hereunder Not Exclusive. The
indemnification provided by this Agreement shall be in addition to any other
rights to which Indemnitee may be entitled under the Articles of Incorporation
or Bylaws of the Corporation, any agreement, any vote of shareholders or
disinterested directors, the Michigan Business Corporation Act, or otherwise,
both as to actions in Indemnitee's official capacity and as to actions in
another capacity while holding such office.
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Section 11. No Presumption. For purposes of this Agreement, the
termination of any claim, action, suit, or proceeding, by judgment, order,
settlement (whether with or without court approval), conviction, or upon a plea
of nolo contenders, or its equivalent, shall not create a presumption that
Indemnitee did not meet any particular standard of conduct or have any
particular belief or that a court has determined that indemnification is not
permitted by applicable law.
Section 12. Liability Insurance. If the Corporation maintains an
insurance policy or policies providing directors' and officers' liability
insurance, Indemnitee shall be covered by the policy or policies to the maximum
extent of the coverage available for any director or officer of the Corporation.
Indemnitee may be covered by the policy or policies whether or not the
Corporation would have the power to indemnify him or her against liability under
Sections 561 to 565 of the Michigan Business Corporation Act.
Section 13. Subrogation. In the event of payment under this Agreement,
the Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents reasonably
required and shall take all reasonable actions necessary to secure such rights,
including the execution of such documents necessary to enable the Corporation to
effectively bring suit to enforce such rights.
(a)
Section 14. No Duplication of Payments. The Corporation shall not be
liable under this Agreement to make any payment to the extent Indemnitee has
otherwise actually received payment (under any insurance policy, bylaw, or
otherwise) of the amounts otherwise indemnifiable hereunder.
Section 15. Notice. Any notice or other communication required under
this Agreement shall be in writing and delivered or sent by postage prepaid
first class mail, as follows:
If to the Corporation:
Autocam Corporation
4070 East Paris Avenue
Kentwood, MI 49512
Attention: Corporate Secretary (or to any other
individual or address that the Corporation designates in
writing to Indemnitee)
If to Indemnitee:
Addressed to the address provided in this Agreement or such other
address as Indemnitee may designate by written notice to the
Corporation.
Notice shall be deemed received three days after the date postmarked if properly
addressed. The Corporation may designate any other address in writing to
Indemnitee.
Section 6. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall constitute an original, and all of which
taken together shall constitute a single document.
Section 17. Continuation of Indemnification. The indemnification rights
provided to Indemnitee under this Agreement shall continue after Indemnitee has
ceased to be a director, officer, employee, agent, or fiduciary of the
Corporation or any other foreign or domestic corporation, partnership, joint
venture, trust, or other enterprise, whether for profit or not, in which
Indemnitee served in any such capacity at the request of the Corporation.
Section 18. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto, and their respective
successors and assigns, including any direct or indirect successor by purchase,
merger, consolidation, or otherwise to all or substantially all of the business
or assets of the Corporation, and spouses, heirs, administrators and personal
and legal representatives of Indemnitee.
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Section 19. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Michigan applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws, and the federal laws of the United States of
America.
Section 20. Period of Limitations. No legal action shall be brought and
no cause of action shall be asserted by or on behalf of the Corporation or any
affiliate of the Corporation against Indemnitee, Indemnitee's spouse, heirs,
administrators or personal or legal representatives after the expiration of one
(1) year from the date of accrual of the cause of action, and any claim or cause
of action of the Corporation or its affiliate shall be extinguished and deemed
released unless asserted by the timely filing of a legal action within the one
(1) year period; provided, however, that if any shorter period of limitations is
otherwise applicable to any cause of action the shorter period shall govern.
Section 21. Amendments; Waiver. No supplement, modification, or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto or, in the case of waiver, by the party against whom the
waiver is asserted. No waiver of any of the provisions of this Agreement shall
be deemed or shall constitute a waiver of any other provisions hereof (whether
or not similar) nor shall such waiver constitute a continuing waiver.
The parties have executed this Agreement as of the date stated in the
first paragraph of the Agreement.
AUTOCAM CORPORATION
By: /s/ John C. Kennedy
-------------------
Its: President
---------
INDEMNITEE:
/s/ Individual Director's Name
------------------------------
Address: /s/ Individual Director's Address
---------------------------------
E-98
<PAGE> 1
EXHIBIT 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
QUARTERLY RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
In thousands, except per share
data 1999 1998 1999 1998 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $24,020 $ 17,429 $ 54,405 $ 21,795 $51,181 $24,790 $50,120 $26,347
Gross profit 3,441 3,413 8,678 5,315 8,032 6,504 8,833 5,697
Income from operations 1,646 2,361 6,000 3,939 5,305 4,783 5,824 3,755
Net income 178 1,136 2,099 2,104 2,042 2,482 1,951 2,019
Diluted net income per share (1) $ .03 $ .18 $ .32 $ .32 $ .32 $ .38 $ .30 $ .30
<CAPTION>
SELECTED FINANCIAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
In thousands, except per share data 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Sales $179,726 $ 90,361 $ 61,986 $57,711 $54,304
Gross profit 28,984 20,925 13,368 13,480 12,610
Income from operations 18,776 14,839 9,583 9,899 9,374
Net income 6,270 7,741 5,411 5,589 5,233
Diluted net income per share (1) $ .96 $ 1.18 $ .85 $ .88 $ .82
Cash dividends declared per share (1) $ .08 $ .08 $ .05
Balance sheet data:
Current assets $ 61,775 $ 20,801 $ 17,518 $13,768 $11,313
Total assets 229,491 113,449 83,638 59,812 52,990
Current liabilities 39,671 17,675 13,216 9,241 9,163
Long-term obligations, net of current
maturities 109,560 37,851 25,192 12,086 13,334
Deferred taxes 25,628 10,051 7,802 6,333 4,620
Minority interest 2,813 2,250
Shareholders' equity 46,402 45,061 36,615 31,286 25,218
<CAPTION>
STATISTICS
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Book value per common share (1) 7.36 7.03 5.82 5.03 4.04
Current ratio 1.56 1.18 1.33 1.49 1.23
Ratio of debt to equity 2.46 0.99 0.85 0.51 0.68
Return on shareholders' equity 13.7% 19.0% 15.9% 19.8% 23.3%
</TABLE>
(1) All amounts adjusted to give effect to all common share dividends and splits
issued in fiscal 1995-1999.
E-99
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
Certain matters discussed in the following pages pertaining to fiscal 1999
information include forward looking statements as defined by the Private
Securities Litigation Reform Act of 1995. Forward-looking statements should be
read with the cautionary statements and important factors included herein.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements, which are other than statements of historical facts. Such
forward-looking statements may be identified, without limitation, by the use of
the words "anticipates," "estimates," "expects," "intends," "plans," "predicts,"
"projects," and other similar expressions. The Company's expectations, beliefs
and projections are expressed in good faith and are believed by the Company to
have a reasonable basis, including without limitation, management's examination
of historical operating trends, data contained in the Company's records and
other data available from third parties. There can be no assurance that
management's expectations, beliefs or projections will result or be achieved or
accomplished.
BUSINESS COMBINATIONS
Effective October 1, 1998, the Company, through its wholly-owned subsidiary,
Autocam France SARL ("Autocam France"), a French limited liability company,
acquired the rights to all the outstanding common shares of Compagnie Financiere
du Leman SA, a French holding corporation, which owns all of the equity interest
of Frank & Pignard SA ("F&P"), a French corporation, for 300 million French
Francs ("FF"), the equivalent of $53 million. The Company has agreed to pay a
maximum additional amount of FF60 million ($9.5 million as of June 30, 1999)
based upon the ability of F&P to meet certain predetermined operating
performance goals in 1999.
F&P, located in Cluses, France, is a leading manufacturer of precision-machined
metal components consisting primarily of power steering, diesel fuel injection
and braking system components to leading global transportation industry original
equipment manufacturers and their tier-one suppliers. Through the stock
purchase, which was accounted for under the purchase method of accounting,
Autocam France acquired all the operating assets of F&P, and assumed all its
liabilities, including $20 million in bank debt and leases of the manufacturing
facilities.
The purchase price was financed through a $140 million credit facility (the
"Agreement") with the Company's primary lending institution, as agent, which
includes a $70 million five-year revolving credit facility used to refinance the
Company's existing bank debt, a FF281 million ($50 million) five-year
acquisition term note used directly to fund the purchase of F&P, and a FF112
million ($20 million) six-year term note used to refinance existing F&P debt.
Effective January 1, 1998, the Company purchased 51% of the common stock of
Qualipart Industria E Comercio Ltda. ("Autocam do Brasil") from its parent,
Propart Corporation ("Propart"). The purchase price was satisfied through the
payment of $5.2 million in cash and the issuance of a $5 million note payable to
Propart, which remains as the minority shareholder of Autocam do Brasil. Autocam
do Brasil is a contract manufacturer of precision-machined gasoline and diesel
fuel injection and electromechanical motor components to the transportation
industry. The acquisition was accounted for as a purchase, and accordingly, the
purchase price was allocated to assets acquired and liabilities assumed based
upon their relative fair market values. The final purchase price was reduced
during fiscal 1999 by $2.5 million as earnings before interest and taxes during
the eighteen months ended June 30, 1999 did not meet agreed-upon levels. Cost in
excess of the fair value of the net assets acquired (goodwill) of $3.3 million
is being amortized over 40 years on a straight-line basis.
E-100
<PAGE> 3
Autocam-Pax, Inc. ("Autocam-Pax"), a wholly-owned subsidiary of the Company, was
formed in June 1997, for the purpose of acquiring certain assets and assuming
certain liabilities of Dowagiac Manufacturing Company and Hamilton-Pax, Inc.
(together, "Hamilton"). Autocam-Pax is engaged primarily in the manufacture of
close-tolerance components for automotive braking systems. On June 30, 1997, the
acquisition was consummated for $18.1 million in cash consideration and the
assumption of $699,000 in liabilities. The acquisition was accounted for as a
purchase, and accordingly, the purchase price was allocated to assets acquired
and liabilities assumed based upon their relative fair market values. During
fiscal 1998, the parties agreed to certain amendments to the purchase agreement,
and as a result, the purchase price allocation changed. Such amounts were
finalized during fiscal 1998 resulting in cost in excess of the fair value of
the net assets acquired (goodwill) of $7.2 million, which is being amortized
over 20 years on a straight-line basis.
RESULTS OF OPERATIONS
For the periods indicated, the following table presents the components of the
Company's Consolidated Statements of Operations as a percentage of sales.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
For the year ended 6.30.99 6.30.98 6.30.97
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales 100.0% 100.0% 100.0%
Cost of sales 83.9% 76.8% 78.4%
----- ----- -----
Gross profit 16.1% 23.2% 21.6%
Selling, general and administrative expenses 5.7% 6.7% 6.1%
----- ----- -----
Income from operations 10.4% 16.5% 15.5%
Interest and other expenses, net 4.5% 3.0% 2.2%
Minority interest in net income .3% .2%
----- -----
Income before tax provision 5.6% 13.3% 13.3%
Tax provision 2.1% 4.7% 4.6%
----- ----- -----
Net Income 3.5% 8.6% 8.7%
===== ===== =====
</TABLE>
SALES
The following table indicates the Company's sales (in thousands) and percentage
of total sales by product application for the years ended June 30, 1999, 1998
and 1997.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
For the year ended 6.30.99 6.30.98 6.30.97
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fuel systems $ 82,298 45.8% $51,672 57.2% $45,700 73.7%
Power steering systems 43,076 24.0%
Braking systems 23,671 13.2% 18,226 20.2% 6,744 10.9%
Other transportation 19,027 10.5% 2,296 2.5% 1,416 2.3%
-------- ---- ------- ---- ------- ----
Total transportation 168,072 93.5% 72,194 79.9% 53,860 86.9%
Medical devices 8,142 4.5% 9,907 11.0% 6,299 10.2%
Other 3,512 2.0% 8,260 9.1% 1,827 2.9%
</TABLE>
E-101
<PAGE> 4
Sales increased $89,365,000, or 99%, from fiscal 1998 to 1999, and $28,375,000,
or 46%, from fiscal 1997 to 1998. The Company gained market share through the
acquisitions of F&P in October 1998 and Hamilton in June 1997 and the purchase
of a controlling interest in Autocam do Brasil in January 1998 (the "Acquired
Companies"). The Acquired Companies generated incremental sales of
precision-machined components, mainly to the transportation industry, of
$20,509,000 and $79,960,000 during fiscal 1998 and 1999, respectively.
The Company's rapid incremental growth in sales of fuel injection components of
$5,972,000 and $30,626,000 during fiscal 1998 and 1999, respectively, can be
primarily attributable to demand from customers of the Acquired Companies. Sales
of fuel injection components to customers of certain of the Acquired Companies
increased by $4,969,000 and $14,233,000 when comparing fiscal 1997 to 1998 and
1998 to 1999, respectively. The remainder of the sales growth can be attributed
to increases in demand from North American-based customers on several new
programs awarded the Company during fiscal 1997, 1998 and 1999.
Incremental growth in sales of braking system components of $11,482,000 and
$5,445,000 during fiscal 1998 and 1999, respectively, can be primarily
attributable to demand from customers of the Acquired Companies. Sales of
braking system components to customers of certain of the Acquired Companies
increased by $13,541,000 and $4,411,000 when comparing fiscal 1997 to 1998 and
1998 to 1999, respectively. The sales growth experienced between fiscal 1997 and
1998 attributable to the acquisitions was partially offset by the elimination of
certain components manufactured by the Company, which were no longer utilized on
a North American-based customer's new generation anti-lock braking system during
fiscal 1997.
With the acquisitions of Autocam do Brasil and F&P, the Company assumed several
contracts for the production of power steering components and other
transportation components for electromechanical motors and electronic
transmissions. This new business accounts for the majority of the increases in
power steering and other transportation sales from fiscal 1998 to 1999.
Sales of components for medical device applications were $8,142,000 during
fiscal 1999, an 18% decrease from fiscal 1998 sales of $9,907,000. Fiscal 1998
sales were 57% higher than fiscal 1997 levels. The Company manufactures
components sold to the ophthalmic and cardiovascular surgical device industries.
The increase in sales from fiscal 1997 to 1998 can be primarily attributed to
the sale of cardiovascular stents. Sales of components for this product
application increased $3.6 million during the year ended June 30, 1998. The
decline in sales when comparing fiscal 1998 to 1999 can be primarily attributed
to the cancellation of a contract with a significant cardiovascular stent
customer in November 1998. The Company received $1,189,000 in fees from the
customer for cancellation of the stent contract.
Other sales increased from fiscal 1997 to 1998 and then declined in fiscal 1999
due primarily to a temporary increase in sales of components to the computer
electronics industry. During fiscal 1998, the Company produced and generated
$6,458,000 in sales of components used in computer microprocessor subassemblies
and specialty metal fasteners used in the manufacture of suspension assemblies
for rigid disk drives. The Company had virtually no sales to this industry
during fiscal 1999 as short product life cycles eliminated the use of these
components.
Management believes that year-over-year sales growth in fiscal 2000 will range
between 10-15%. The Company expects to generate $16 million in additional sales
as it reports a full year of sales from its French operations. The remainder of
the growth is expected to be generated through continued expansion of fuel,
power steering and braking system component sales as new programs move toward
full production. These sales gains are expected to be partially offset by a
decline in sales of cardiovascular stents of $2.1 million caused by the stent
contract cancellation referred to above.
GROSS PROFIT
Gross profit, as a percentage of sales, for the years ended June 30, 1999, 1998
and 1997 was 16.1%, 23.2% and 21.6%, respectively. The decrease in gross profit
margin from fiscal 1998 to 1999 can be attributed to several factors, the most
significant of which were the following:
- - The loss of significant cardiovascular stent and computer electronics
contracts (see Sales) reduced gross profit (as a percentage of
E-102
<PAGE> 5
sales) by 2% in fiscal 1999 relative to 1998 as such contracts carried
gross margins higher than those typically experienced in the transportation
industry.
- - The negative impact on margins of the labor work stoppage at General Motors
during the Company's first fiscal quarter of 1999. The Company's ability to
reduce costs, particularly labor, was largely dictated by the West Michigan
market for skilled machinists. With an area unemployment rate of 2-3%,
management concluded that laying off quality machinists in answer to a
short-term demand decline would adversely affect the Company's ability to
attain future growth objectives if it were unable to retain its skilled
labor base.
- - There has been a fundamental shift in the mix of sales by the Company's
North American operations. In certain instances, customers have phased out
mature products as they change from old to new generation fuel and braking
systems. The Company historically experiences lower margins on new program
start-ups until its continuous improvement efforts can improve
manufacturing efficiencies and reduce waste. The Company was involved in
five major program start-ups during fiscal 1999.
- - The Company expected to begin production on a new braking system program
for its largest customer in the summer of 1998. The program was delayed
until the third quarter of fiscal 1999; however, the Company had the
necessary labor and equipment resources in place as of July 1998. Once the
program began, demand was much higher than the customer originally
anticipated which resulted in additional labor and freight costs.
- - The Company experienced manufacturing difficulties resulting from the
transfer of production for a key customer of its Brazilian operation to one
of its North American facilities. The customer expedited the timetable for
this transfer of production, which caused the Company to incur
significantly more start-up costs than originally anticipated depressing
the Company's overall gross profit (as a percentage of sales) by one-half
of one percentage point for fiscal 1999 when comparing to fiscal 1998.
- - F&P generated a lower gross profit percentage than that historically
generated by the Company during fiscal 1999, which reduced gross profit (as
a percentage of sales) by nearly one-half of one percentage point when
compared to fiscal 1998.
The increase in gross profit margin from fiscal 1997 to 1998 can be attributed
to several factors, the most significant of which were:
- - Increased contribution from the sale of medical device and computer
electronic components as these products typically generate higher margins
than the Company's overall gross margins.
- - Growth in demand for new fuel system components that allowed for improved
labor and equipment utilization.
- - The integration of Hamilton's operations and the implementation of
continuous improvement concepts resulted in better than average margins on
new braking system products.
Management expects that fiscal 2000 gross profit, as a percentage of sales, will
improve over fiscal 1999 levels primarily through growth in demand for new fuel
systems program components that should allow for improved labor and equipment
utilization typically gained through continuous improvement activities.
Management also anticipates early benefits through cost savings derived from the
implementation of production and inventory control systems at its foreign
operations, and in the North American operations through various manufacturing
cost improvements. Additionally, the absence of a labor strike at General Motors
similar to that experienced in the first quarter of fiscal 1999 should
positively impact gross profit.
E-103
<PAGE> 6
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses, as a percentage of sales, were
5.7%, 6.7% and 6.1% in fiscal 1999, 1998 and 1997, respectively. These expenses
increased monetarily during all periods presented commensurate with the growth
in business. These expenses, as a percentage of sales, declined from fiscal 1998
to 1999 due primarily to the inclusion of F&P's operating results in the
Company's 1999 Statement of Operations. F&P's selling, general and
administrative expenses have historically approximated 4-4.5% of sales.
Selling, general and administrative expenses, as a percentage of sales,
increased from fiscal 1997 to 1998 due primarily to the inclusion of Hamilton's
and Autocam do Brasil's operating results in the Company's 1998 Statement of
Operations. Combined selling, general and administrative expenses have
historically approximated 8% of sales for these facilities.
Both the 1998 and 1999 fluctuations were also impacted by royalty expenses
incurred in connection with the growth in sales of cardiovascular stents in
fiscal 1998 and the subsequent decline in sales during fiscal 1999 (see Sales).
Management expects that selling, general and administrative expenses, as a
percentage of sales, for fiscal 2000 will approximate those reported during the
fourth quarter of fiscal 1999.
INTEREST AND OTHER EXPENSES, NET
Net interest and other expenses increased $5,385,000 between fiscal 1998 and
1999, and $1,374,000 between fiscal 1997 and 1998, primarily as a result of
interest incurred on notes issued by the Company to fund the investments in the
Acquired Companies. Management expects fiscal 2000 interest expense to
monetarily increase over fiscal 1999 levels as a full year of interest expense
is recognized on the debt issued in connection with the Company's acquisition of
F&P, and in total, represent 4-4.5% of sales.
MINORITY INTEREST IN NET INCOME
Minority interest in net income represents Propart's 49% interest in the net
income of Autocam do Brasil.
TAX PROVISION
The Company's effective income tax rates were 37.5%, 35.2% and 34.3% for the
years ended June 30, 1999, 1998 and 1997, respectively. The effective tax rate
for fiscal 1999 exceeded the U.S. Federal statutory rate due primarily to the
following:
- - The recognition of French and Brazilian income taxes, which carry a
statutory rate higher than that of the United States.
- - The recognition of $265,000 in U.S. Federal income tax expense caused by
the dissolution of the Company's interest-charged domestic international
sales corporation during the first quarter.
The fiscal 1998 effective tax rate exceeded the U.S. Federal statutory rate due
primarily to the recognition of Brazilian and U.S. state income taxes.
Management expects the Company's effective tax rate to approximate 38-39% during
fiscal 2000.
E-104
<PAGE> 7
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the Company has adequate credit facilities and cash
available to meet its working capital and capital expenditure needs for the
foreseeable future. The Agreement includes a $70 million five-year revolving
credit facility, a $50 million five-year acquisition term note and a $20 million
six-year term note. Principal obligations under the revolving credit facility
are due at the expiration of the facility. Principal obligations under the $50
million and $20 million term notes are as follows:
<TABLE>
<CAPTION>
In thousands $50 million note $20 million note
---------------- ----------------
<S> <C> <C>
Fiscal 2000 $ 4,436
Fiscal 2001 11,091
Fiscal 2002 13,309
Fiscal 2003 13,309
Fiscal 2004 2,217 $11,036
Thereafter 6,622
-------
Total $ 44,362 $17,658
======== =======
</TABLE>
Interest is due monthly on all facilities under the Agreement at variable
interest rates. The Agreement includes certain covenants requiring the Company
to maintain minimum levels of tangible net worth and prohibits the Company from
exceeding certain leverage ratios.
The January 1998 Autocam do Brasil acquisition was financed through bank
borrowings and a note to Propart of $5.2 million and $5 million, respectively.
The bank borrowings were refinanced using proceeds from the Company's revolving
credit facility in October 1998. The note to Propart bears interest at 12% per
annum to be paid quarterly. Although annual principal obligations under the note
are not required to begin until 2004, the note balance was reduced during fiscal
1999 such that the amount outstanding as of June 30, 1999 was $631,000.
As of June 30, 1999, the Company had $18.7 million in availability under its
revolving credit facility. Management anticipates retiring current maturities of
long-term obligations with future operating cash flows. As of June 30, 1999,
$113.4 million of the Company's long-term debt was subject to variable interest
rates.
New equipment placed into service and deposits paid on future equipment
purchases during the year ended June 30, 1999 totaling $26.6 million were
financed through operating cash flows and bank borrowings ($24.8 million) and
operating lease agreements ($1.8 million). During the year ended June 30, 1999,
the Company borrowed $834,000 to purchase equipment formerly leased under
operating lease agreements, resulting in annual cash flow improvements of
$398,500.
In order to meet increased demand primarily from transportation customers,
management will purchase $15-20 million of equipment over the next year (on
which deposits of $2.8 million had been placed as of June 30, 1999). Management
expects to finance these purchases with cash on hand, operating cash flows,
operating leases, and/or bank borrowings.
E-105
<PAGE> 8
IMPACT OF YEAR 2000 ISSUE
The Company recognizes the importance of the Year 2000 issue and has been giving
high priority to it. In July 1998, the Company created a Year 2000 project team
to supervise a comprehensive risk-based assessment of the Company's Year 2000
readiness. The team's objective is to ensure an uninterrupted transition into
the Year 2000. The scope of the Year 2000 readiness effort includes software,
hardware, electronic data interchange, manufacturing and lab equipment,
environmental and safety systems, facilities, utilities and supplier readiness.
Since the Company makes predominate use of recent operating versions of packaged
computer applications in its business and believes such applications to be Year
2000 compliant, management considers the risk of a materially adverse effect on
the operations of the Company to be remote. As of June 30, 1999, the Company had
spent $16,000 in connection with the assessment phase of the project, which is
now complete.
The Company is utilizing both internal and external resources to remediate and
test all applications and computer, manufacturing and facilities equipment that
may be adversely impacted by Year 2000 issues. The Company has completed the
testing of the most serious Year 2000 compliance issues for information systems
resident in North American facilities and is expected to complete testing at its
foreign facilities by September 1999 at an additional cost not expected to
exceed $50,000. Total costs to test and remediate its systems, if any, are not
expected to exceed $150,000.
In addition to internal Year 2000 software and equipment remediation activities,
the Company has contacted its key suppliers and all its electronic commerce
customers to assess their compliance. There can be no absolute assurances that
there will not be a materially adverse effect on the Company if third parties do
not convert their systems in a timely manner and in a way that is compatible
with the Company's systems. The Company believes that its diligent actions with
suppliers and customers will minimize these risks. In any event, the Company
believes that it has adequate back-up manual and contingency systems in place
that will allow it to ship its primary products and invoice its customers in the
unlikely event that its assessment, testing and remediation efforts do not
detect a materially adverse Year 2000 compliance problem in its software or
equipment or with its suppliers or customers.
The Company's current estimates of the amount of time and costs necessary to
remediate and test its computer systems are based on the facts and circumstances
existing at this time. The estimates were derived utilizing multiple assumptions
of future events including the continued availability of certain resources,
third-party modification plans and implementation success, and other factors.
New developments may occur that could affect the Company's estimates of the
amount of time and costs necessary to modify and test its systems for Year 2000
compliance. These developments include, but are not limited to, (i) the
availability and cost of personnel trained in this area, (ii) the ability to
locate and correct all relevant computer code and equipment, and (iii) the
planning and modification success attained by the Company's suppliers and
customers.
FOREIGN CURRENCY TRANSACTIONS
The Company derived 48% and 7% of its sales during fiscal 1999 and 1998,
respectively, from manufacturing operations in France and Brazil. The financial
position and results of operations of the Company's subsidiary in France are
measured in French Francs and translated into U.S. Dollars. The effects of
foreign currency fluctuations in France is somewhat mitigated by the fact that
expenses are generally incurred in French Francs, and the reported net income
thereon will be higher or lower, depending on a weakening or strengthening of
the U.S. Dollar.
The financial position and results of operations of the Company's subsidiary in
Brazil are measured in Brazilian Reais and translated into U.S. Dollars. With
respect to 61% and 65% of this subsidiary's sales for fiscal 1999 and 1998,
respectively, expenses associated therewith are generally incurred in Brazilian
Reais, but sales are generated in U.S. Dollars. As such, results of operations
with regard to these sales are directly influenced by a weakening or
strengthening of the Brazilian Real versus the U.S. Dollar. The effects of
foreign currency fluctuations are somewhat mitigated on the remainder of this
subsidiary's sales by the fact that such sales and expenses associated therewith
are generally incurred in Brazilian Reais and the reported income thereon will
be higher or lower depending on a weakening or strengthening of the U.S. Dollar.
Six and fifteen percent of the Company's net assets at June 30, 1999 are based
in France and Brazil, respectively, and are
E-106
<PAGE> 9
translated into U.S. Dollars at the exchange rates in effect as of that date
(1.721 Brazilian Reais per U.S. Dollar, and 6.343 French Francs per U.S. Dollar,
respectively). Accordingly, the Company's consolidated shareholders' equity will
fluctuate depending upon the weakening or strengthening of the U.S. Dollar.
In January 1999, the Brazilian government permitted the Real to trade freely
against the U.S. Dollar, resulting in a significant devaluation of the Real
versus the U.S. Dollar. During fiscal 1999, the total devaluation was 50%. Since
the Brazilian economy is not considered to be hyperinflationary (as defined by
U.S. generally accepted accounting principles), the Company expects no
materially negative impact on its future earnings; however, the devaluation has
impaired the book value of net assets employed by Autocam do Brasil, and it has
negatively impacted comprehensive income. If the Brazilian economy were to lapse
into a hyperinflationary cycle, a material weakening of the Real versus the U.S.
Dollar could have an impact on the earnings of the Company.
On January 1, 1999, eleven of fifteen member countries of the European Union
established fixed conversion rates between their existing currencies ("legacy
currencies") and adopted the Euro as their new common currency. The Euro will
trade on currency exchanges and the legacy currencies will remain legal tender
in the participating countries for a transition period between January 1, 1999
and December 31, 2001. Beginning on January 1, 2002, legacy currencies will be
withdrawn from circulation. The Company has established plans to assess and
address the potential impact to its French operations that may result from the
Euro conversion. These issues include, but are not limited to, (i) the technical
challenges to adapt information systems to accommodate Euro transactions, (ii)
the impact on currency exchange rate risks, (iii) the impact on existing
contracts, and (iv) tax and accounting implications. The Company expects that
the Euro conversion will not have a materially adverse impact on its financial
condition or results of operations.
E-107
<PAGE> 10
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Amounts in thousands, except share information 6.30.99 6.30.98
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and equivalents $ 3,654 $ 1,644
Accounts receivable 40,781 11,680
Inventories 15,237 6,389
Prepaid expenses and other current assets 2,103 1,088
--------- ----------
Total current assets 61,775 20,801
--------- ----------
Property, plant and equipment, net 129,744 64,421
Goodwill and other intangible assets, net 28,376 14,366
Assets held for sale 534
Restricted cash and equivalents 5,008
Equipment deposits and other long-term assets 9,062 8,853
--------- ----------
Total Assets $ 229,491 $ 113,449
========= ==========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term obligations $ 4,478 $ 6,554
Accounts payable 22,130 7,830
Accrued liabilities:
Compensation and related withholdings 9,683 1,956
Other 3,380 1,335
--------- ----------
Total current liabilities 39,671 17,675
--------- ----------
Long-term obligations, net of current maturities 109,560 37,851
Deferred taxes 25,628 10,051
Deferred credits and other 5,417 561
Minority interest 2,813 2,250
Shareholders' equity:
Preferred stock - no par value, 200,000 shares authorized; no shares issued or
outstanding
Common stock - no par value, 10,000,000 shares authorized; 6,306,993 and 6,102,568
shares issued and outstanding as of June 30, 1999 and 1998, respectively 34,572 31,840
Deferred compensation (336) (491)
Accumulated other comprehensive losses (3,306) (34)
Retained earnings 15,472 13,746
--------- ----------
Total shareholders' equity 46,402 45,061
--------- ----------
Total Liabilities and Shareholders' Equity $ 229,491 $ 113,449
========= ==========
</TABLE>
See notes to consolidated financial statements.
E-108
<PAGE> 11
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
For the year ended 6.30.99 6.30.98 6.30.97
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amounts in thousands, except per share data
Sales $ 179,726 $ 90,361 $ 61,986
Cost of sales 150,742 69,436 48,618
--------- --------- ---------
Gross profit 28,984 20,925 13,368
Selling, general and administrative expenses 10,208 6,086 3,785
--------- --------- ---------
Income from operations 18,776 14,839 9,583
Interest and other expenses, net 8,104 2,719 1,345
Minority interest in net income 645 166
--------- ---------
Income before tax provision 10,027 11,954 8,238
Tax provision 3,757 4,213 2,827
--------- --------- ---------
Net Income $ 6,270 $ 7,741 $ 5,411
========= ========= =========
Basic Net Income Per Share $ .99 $ 1.22 $ .86
========= ========= =========
Diluted Net Income Per Share $ .96 $ 1.18 $ .85
========= ========= =========
Basic Weighted Average Shares Outstanding 6,352 6,342 6,289
Diluted Weighted Average Shares Outstanding 6,512 6,558 6,370
Statements of Comprehensive Income:
Net income $ 6,270 $ 7,741 $ 5,411
Other comprehensive losses - Foreign currency
translation adjustments (3,272) (34)
--------- ---------
Comprehensive Income $ 2,998 $ 7,707 $ 5,411
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
E-109
<PAGE> 12
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Deferred Other
Common Stock Compen- Comprehensive Retained
Shares Amount sation Losses Earnings Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Amounts in thousands
Balance, 7.1.96 5,428 $ 23,186 ($801) $ 8,901 $31,286
Net income 5,411 5,411
Share dividend 271 2,984 (2,985) (1)
Cash dividends (337) (337)
Exercise of stock options,
including related tax
benefits 13 101 101
Amortization of deferred
compensation 155 155
----- -------
Balance, 6.30.97 5,712 26,271 (646) 10,990 36,615
Net income 7,741 7,741
Share dividend 287 4,513 (4,515) (2)
Cash dividends (470) (470)
Exercise of stock options,
including related tax
benefits 104 1,056 1,056
Foreign currency translation
adjustments ($34) (34)
Amortization of deferred
compensation 155 155
----- -------
Balance, 6.30.98 6,103 31,840 (491) (34) 13,746 45,061
Net income 6,270 6,270
Share dividend 305 4,045 (4,047) (2)
Share repurchases (115) (1,438) (1,438)
Cash dividends (497) (497)
Exercise of stock options,
including related tax
benefits 14 125 125
Foreign currency translation
adjustments (3,272) (3,272)
Amortization of deferred
compensation 155 155
----- -------
Balance, 6.30.99 6,307 $ 34,572 ($336) ($3,306) $ 15,472 $46,402
===== ======== ===== ======= ======== =======
</TABLE>
See notes to consolidated financial statements.
E-110
<PAGE> 13
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
For the year ended 6.30.99 6.30.98 6.30.97
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amounts in thousands
Cash flows from operating activities:
Cash received from customers $ 175,734 $ 89,784 $ 62,762
Cash paid to suppliers and employees (145,594) (64,794) (46,544)
Income taxes paid (1,174) (2,396) (1,395)
Interest paid (7,637) (2,508) (1,257)
--------- -------- --------
Net Cash Provided by Operating Activities 21,329 20,086 13,566
--------- -------- --------
Cash flows from investing activities:
Capital expenditures (25,682) (17,484) (10,205)
Proceeds from sale of fixed assets 737 385 7
Acquisitions, net of cash received (54,164) (6,316) (16,869)
Decrease (increase) in restricted cash and equivalents 5,008 (5,008)
Payment of life insurance premiums and other 365 (435) (474)
--------- -------- --------
Net Cash Used in Investing Activities (73,736) (28,858) (27,541)
--------- -------- --------
Cash flows from financing activities:
Payments on (repayments of) line of credit
borrowings, net 10,742 (127)
Proceeds from issuance of long-term obligations 73,651 14,825 19,333
Debt issue costs (1,815)
Principal payments of long-term obligations (26,740) (6,888) (4,061)
Contributions from minority shareholder 1,031
Repurchase of common shares (1,438)
Cash dividends paid (499) (473) (338)
Proceeds from exercise of employee stock options and other 106 568 84
--------- -------- --------
Net Cash Provided by Financing Activities 55,038 7,905 15,018
--------- -------- --------
Effect of exchange rate changes on cash and equivalents (621)
--------- -------- --------
Net increase (decrease) in cash and equivalents 2,010 (867) 1,043
Cash and equivalents at beginning of period 1,644 2,511 1,468
--------- -------- --------
Cash and Equivalents at End of Period $ 3,654 $ 1,644 $ 2,511
========= ======== ========
</TABLE>
See notes to consolidated financial statements.
E-111
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation - The accompanying consolidated financial statements
include the accounts of Autocam Corporation and its subsidiaries (the
"Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
Nature of operations - The Company designs and manufactures close-tolerance,
specialty metal alloy components for mechanical and electromechanical systems
using turning, grinding and milling processes. Currently, the Company
manufactures components for use on fuel, power steering and braking systems for
the transportation industry and medical devices for the ophthalmic and
cardiovascular surgery industries. It has six manufacturing facilities in the
United States, two in France and three in Brazil. Its customers are located
primarily in the United States, France, Germany, Austria and Brazil.
Estimates - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Although management believes the estimates are reasonable,
actual results could differ from those estimates.
Financial instruments of the Company consist principally of cash, accounts
receivable and payable, and debt. The carrying amounts of all financial
instruments approximate estimated fair value. The Company has determined the
estimated fair value amounts using available market information and valuation
methodologies (see Note 5).
Inventories are stated at the lower of standard cost, which approximates actual
cost, on a first-in, first-out (FIFO) basis, or market.
Property is stated at cost. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets as follows:
Buildings and improvements 31 years
Leasehold improvements 3 to 12 years
Machinery and equipment 3 to 12 years
Furniture and fixtures 5 to 10 years
Maintenance and repairs that do not improve or extend the lives of the
respective assets are charged to expense. When properties are retired or sold,
the related cost and accumulated depreciation are removed from the accounts and
any gain or loss on disposition is recognized in the results of operations.
Gains arising from sale and leaseback transactions are deferred for amortization
to income over the lives of the related operating leases.
Goodwill and other intangible assets consist primarily of amounts paid in excess
of the fair value of acquired net assets and are being amortized over estimated
useful lives, ranging from 5 to 40 years, on a straight-line basis. The amounts
are shown net of accumulated amortization of $1,227,000 and $447,500 as of June
30, 1999 and 1998, respectively. Amortization expense totaled $779,000, $448,700
and $3,700 for the years ended June 30, 1999, 1998 and 1997, respectively.
Assets held for sale consists of a building and improvements and real estate
expected to be sold during fiscal 2000.
Equipment deposits and other long-term assets consists primarily of deposits on
equipment to be placed into service in the future, the cash surrender value of
keyman life insurance policies, receivables from officers and certain key
employees under split-dollar life insurance agreements, and a payment for an
option to purchase real estate (see Note 9).
E-112
<PAGE> 15
Deferred compensation - Unearned deferred compensation, recorded as an offset to
shareholders' equity, is being amortized on a straight-line basis over the
ten-year life of the associated employment agreement.
Revenue recognition - Sales are recognized at the time product is shipped.
Income taxes - Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future.
Such deferred income tax asset and liability computations are based on enacted
tax laws and rates applicable to periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities (see Note 7).
Weighted average shares outstanding were determined as follows (amounts in
thousands):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
For the year ended 6.30.99 6.30.98 6.30.97
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average shares outstanding 6,352 6,342 6,289
Dilutive effect of common stock options 160 216 81
----- ----- -----
Shares applicable to diluted net income 6,512 6,558 6,370
===== ===== =====
</TABLE>
All share and per share amounts have been adjusted for the effects of share
dividends and splits.
Derivative and hedging activities - In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standard No. 133 ("SFAS
133"), Accounting for Derivative Instruments and Hedging Activities, effective
for the Company's fiscal year ending June 30, 2001. SFAS 133 expands the
definition of the types of contracts considered to be derivatives, requires all
derivatives to be recognized in the balance sheet as either assets or
liabilities measured at their fair value and sets forth conditions in which a
derivative instrument may be designated as a hedge. SFAS 133 further requires
that changes in the fair value of derivatives be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to be recorded to
other comprehensive income or to offset related results on the hedged item in
earnings. From time to time, the Company manages foreign currency exchange risk
in relation to certain equipment purchases through the limited use of foreign
currency futures contracts to reduce the impact of changes in foreign currency
rates on firm commitments to purchase equipment, although no such contracts are
outstanding as of June 30, 1999.
Stock-based compensation - The Company has adopted Statement of Financial
Accounting Standard No. 123 ("SFAS 123"), Accounting for Stock-Based
Compensation, and as permitted by this standard, will continue to apply the
recognition and measurement principles prescribed under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, to its
stock-based compensation (see Note 10).
Reclassifications - Certain reclassifications have been made to the 1997 and
1998 financial statements to conform to the 1999 presentation.
2. BUSINESS COMBINATIONS
Effective October 1, 1998, the Company, through its wholly-owned subsidiary,
Autocam France SARL ("Autocam France"), a French limited liability company,
acquired the rights to all the outstanding common shares of Compagnie Financiere
du Leman SA, a French holding corporation, which owns all of the equity interest
of Frank & Pignard SA ("F&P"), a French corporation, for 300 million French
Francs ("FF"), the equivalent of $53 million. The final purchase price
allocation has not been determined primarily due to the fact that the Company
has agreed to pay a maximum additional amount of FF60 million ($9.5 million as
of June 30, 1999) based upon the ability of F&P to meet certain predetermined
operating performance goals in calendar 1999.
E-113
<PAGE> 16
F&P, located in Cluses, France, is a leading manufacturer of precision-machined
metal components consisting primarily of power steering, diesel fuel injection
and braking system components to leading global transportation industry original
equipment manufacturers and their tier-one suppliers. Through the stock
purchase, which was accounted for under the purchase method of accounting,
Autocam France acquired all the operating assets of F&P, and assumed all its
liabilities, including $20 million in bank debt and leases of the manufacturing
facilities. The purchase price was allocated to assets acquired and liabilities
assumed based upon their relative fair market values. Cost in excess of the fair
value of the net assets acquired (goodwill) of $19 million as of June 30, 1999
is being amortized over 40 years on a straight-line basis.
The purchase price was financed through a $140 million credit facility (the
"Agreement") with the Company's primary lending institution, as agent, which
includes a $70 million five-year revolving credit facility used to refinance the
Company's existing bank debt, a FF281 million ($50 million) five-year
acquisition term note used directly to fund the purchase of F&P, and a FF112
million ($20 million) six-year term note used to refinance existing F&P debt.
Effective January 1, 1998, the Company purchased 51% of the common stock of
Qualipart Industria E Comercio Ltda. ("Autocam do Brasil") from its parent,
Propart Corporation ("Propart"). The purchase price was satisfied through the
payment of $5.2 million in cash and the issuance of a $5 million note payable to
Propart, which remains as the minority shareholder of Autocam do Brasil. Autocam
do Brasil is a contract manufacturer of precision-machined gasoline and diesel
fuel injection and electromechanical motor components to the transportation
industry. The acquisition was accounted for as a purchase, and accordingly, the
purchase price was allocated to assets acquired and liabilities assumed based
upon their relative fair market values. The final purchase price was reduced
during fiscal 1999 by $2.5 million as earnings before interest and taxes during
the eighteen months ended June 30, 1999 did not meet agreed-upon levels. Cost in
excess of the fair value of the net assets acquired (goodwill) of $3.3 million
is being amortized over 40 years on a straight-line basis.
Autocam-Pax, Inc. ("Autocam-Pax"), a wholly-owned subsidiary of the Company, was
formed in June 1997, for the purpose of acquiring certain assets and assuming
certain liabilities of Dowagiac Manufacturing Company and Hamilton-Pax, Inc.
(together, "Hamilton"). Autocam-Pax is engaged primarily in the manufacture of
close-tolerance components for automotive braking systems. On June 30, 1997, the
acquisition was consummated for $18.1 million in cash consideration and the
assumption of $699,000 in liabilities. The acquisition was accounted for as a
purchase, and accordingly, the purchase price was allocated to assets acquired
and liabilities assumed based upon their relative fair market values. During
fiscal 1998, the parties agreed to certain amendments to the purchase agreement,
and as a result, the purchase price allocation changed. Such amounts were
finalized during fiscal 1998 resulting in cost in excess of the fair value of
the net assets acquired (goodwill) of $7.2 million, which is being amortized
over 20 years on a straight-line basis.
The following unaudited pro forma information presents summary Consolidated
Statements of Operations data of the Company as if the Autocam France and
Autocam do Brasil acquisitions had occurred at the beginning of the earliest
period presented below. These pro forma results are based upon assumptions
considered appropriate by management and include adjustments as considered
necessary in the circumstances. Such adjustments include interest expense that
would have been incurred to finance the purchases, less depreciation expense
based on the fair market value of the property, plant and equipment acquired,
and the amortization of intangibles arising from the transactions. These pro
forma results have been prepared for comparative purposes only and do not
purport to be indicative of results which would have actually been reported had
the acquisitions taken place on July 1, 1997 or which may be reported in the
future.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
For the year ended (unaudited) 6.30.99 6.30.98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales $199,417 $178,670
Net income 6,470 11,514
Diluted net income per share $ .99 $ 1.76
</TABLE>
E-114
<PAGE> 17
3. INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of the following:
- -----------------------------------------------------------------------------------------------------------------------------------
Amounts in thousands 6.30.99 6.30.98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 3,179 $1,510
Production supplies 3,010 1,249
Work in-process 7,091 2,501
Finished goods 1,957 1,129
-------- ------
Total Inventories $ 15,237 $6,389
======== ======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
Property, plant and equipment consists of the following:
- -----------------------------------------------------------------------------------------------------------------------------------
Amounts in thousands 6.30.99 6.30.98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land and improvements $ 1,796 $ 1,769
Buildings and improvements 8,953 6,815
Leasehold improvements 501 418
Machinery and equipment 146,867 73,222
Furniture and fixtures 5,466 3,931
Construction in progress 1,040 2,451
---------- --------
Total 164,623 88,606
Accumulated depreciation and amortization (34,879) (24,185)
---------- --------
Property, Plant and Equipment, Net $ 129,744 $ 64,421
========== ========
</TABLE>
E-115
<PAGE> 18
5. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following (percentages represent interest
rates in effect as of June 30, 1999):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Amounts in thousands 6.30.99 6.30.98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revolving credit loans with banks - principal payable October 2003; interest
payable monthly at variable interest rates based on the bank's prime rate or
LIBOR plus 2% (4.82%-7.37% per annum) $ 51,296
Acquisition term note with banks - principal payable in quarterly installments
beginning in January 2000; interest payable monthly at variable interest
rates based on LIBOR plus 3.75% (6.57% per annum) 44,362
Term note with banks - principal payable in quarterly installments beginning in
July 2003; interest payable monthly at variable interest rates based on
LIBOR plus .5% (3.17% per annum) 17,658
Note payable to Propart Corporation - principal payable in five equal annual
installments beginning January 2004; fixed interest at 12% per annum,
payable
quarterly 631 $ 4,320
Term notes payable to banks - refinanced October 1998 22,051
Industrial Revenue Bonds - redeemed June 1999 9,000
Mortgages payable to bank - refinanced October 1998 1,895
Revolving credit note with bank - refinanced October 1998 7,001
Lines of credit and other 91 138
--------- --------
Total 114,038 44,405
Less current maturities 4,478 6,554
--------- --------
Long-Term $ 109,560 $ 37,851
========= ========
</TABLE>
In June 1999, the Company redeemed $8.6 million of Industrial Revenue Bonds
using proceeds from its revolving credit loans.
In connection with the Agreement, all of the Company's existing bank debt was
refinanced using a $70 million revolving credit facility. The U.S.
Dollar-denominated portion of the revolving credit facility bears interest at
the bank's prime rate. The multi-currency-denominated portion of the revolving
credit facility bears interest at the London interbank offered rate (LIBOR) plus
2%. Interest is due monthly on all facilities under the Agreement at variable
interest rates, all of which are subject to change if certain financial ratios
are not maintained. The Agreement includes certain covenants requiring the
Company to maintain minimum levels of tangible net worth and prohibits the
Company from exceeding certain leverage ratios. As of June 30, 1999, the
remaining availability under the revolving line of credit was $18.7 million.
In January 1998, the Company issued a $5.2 million term note payable to a bank
and issued a $5 million note payable to Propart in connection with the Company's
acquisition of a 51% ownership interest in the common stock of Autocam do
Brasil.
As of June 30, 1999, the annual aggregate maturities of long-term obligations
for each of the five years subsequent thereto were as follows:
E-116
<PAGE> 19
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year ending 6.30
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Amounts in thousands
2000 $ 4,478
2001 11,095
2002 13,312
2003 13,308
2004 64,677
Thereafter 7,168
----------
Total $ 114,038
==========
</TABLE>
Based on the borrowing rates currently available to the Company for bank loans
with similar terms and average maturities, the fair value of long-term debt was
$114,256,500 as of June 30, 1999.
6. COMMITMENTS
The Company leases various buildings and equipment under non-cancellable
operating leases. The operating leases generally contain renewal and purchase
options at fair market value at the end of the lease terms. Minimum future lease
payments under these leases as of June 30, 1999 are summarized as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Year ending 6.30
- -----------------------------------------------------------------------------------------------------------------------------------
Amounts in thousands
<S> <C>
2000 $ 4,552
2001 3,601
2002 3,007
2003 2,718
2004 2,307
Thereafter 6,888
--------
Total $ 23,073
========
</TABLE>
Rent expense under operating leases summarized above was $4,176,600,
$3,460,300 and $3,104,100 for the years ended June 30, 1999, 1998 and 1997,
respectively.
As of June 30, 1999, the Company had non-cancellable purchase commitments for
machinery and equipment totaling $8.1 million. In accordance with terms of the
purchase agreements, final acceptance of such equipment is contingent upon the
equipment demonstrating certain capabilities as documented in Company purchase
orders.
E-117
<PAGE> 20
7. INCOME TAXES
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
6.30.99 6.30.98 6.30.97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amounts in thousands
Current $2,361 $2,362 $1,447
Deferred 1,396 1,851 1,380
------ ------ ------
Total $3,757 $4,213 $2,827
====== ====== ======
</TABLE>
The Company`s effective income tax rate differs from the United States Federal
("Federal") statutory tax rate as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
6.30.99 6.30.98 6.30.97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at Federal statutory rate 34.0% 34.0% 34.0%
Termination of domestic international sales corporation 2.7
Effect of foreign operations, net of related tax credits 2.7 0.6
Other (1.9) 0.6 0.3
---- ---- ----
Effective Tax Rate 37.5% 35.2% 34.3%
==== ==== ====
</TABLE>
Temporary differences that give rise to deferred tax assets and liabilities are
as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
6.30.99 6.30.98
Asset Liability Asset Liability
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Amounts in thousands
Domestic international sales corporation income $ 1,243 $ 1,125
Accrued expenses $346 $216
Foreign tax credits 192
Valuation allowance on foreign tax credits (192)
Depreciation and other 24,385 8,926
-------- -------
Total Deferred Taxes $346 $ 25,628 $216 $ 10,051
==== ======== ==== =======
</TABLE>
On July 1, 1998, the Company established a foreign sales corporation, and in
conjunction therewith, terminated its interest-charged domestic international
sales corporation and recognized Federal income tax expense of $265,000 during
the first fiscal quarter of 1999.
Undistributed earnings of the Company's French and Brazilian subsidiaries
amounted to $2,972,000 and $604,400, respectively, as of June 30, 1999. A
provision has been made for the Federal income tax effect of distributing the
balance of the earnings from F&P to Autocam France. No provision has been made
for the French withholding tax effects that would result from the repatriation
of the undistributed earnings, as there is no plan to repatriate the earnings
outside of France in the foreseeable future. In the event that these earnings
were distributed to the United States, a French withholding tax of $118,000
would be due. The additional tax obligation of distributing the Brazilian
earnings, which are deemed to be permanently reinvested, would not be
significant.
E-118
<PAGE> 21
8. BUSINESS SEGMENT INFORMATION
The Company has adopted Statement of Financial Accounting Standard No. 131
("SFAS 131"), Disclosures about Segments of an Enterprise and Related
Information, which requires companies to report certain information about their
operating segments, products, geographic areas of operation and major customers.
The Company has three operating segments: North America, Europe and South
America. The North American segment provides precision-machined components to
the transportation and medical devices industries, while the European and South
American segments provide precision-machined components to the transportation
industry. The Company has assigned specific business units to a segment based
principally on their geographical location. Each of the Company's segments is
individually managed and has separate financial results reviewed by the
Company's chief executive and operating decision-makers. These results are used
by the chief operating decision-makers both in evaluating the performance of,
and in allocating current and future resources to, each of the segments. The
Company evaluates segment performance primarily based on income from operations
and the efficient use of total assets. The accounting policies of the segments
are the same as those of the company as a whole.
Totals presented below are inclusive of all adjustments needed to reconcile to
the data provided in the Consolidated Financial Statements and related notes
(for fiscal 1997, the Company had no foreign operations).
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
For the year ended 6.30.99 6.30.98
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Amounts in thousands
Sales to Unaffiliated Customers from Company Facilities Located in:
North America $ 94,102 $ 84,236
Europe 72,983
South America 12,641 6,125
--------- ---------
Total $ 179,726 $ 90,361
========= =========
Income from Operations of Company Facilities Located in:
North America $ 9,366 $ 14,277
Europe 8,318
South America 1,092 562
--------- ---------
Total $ 18,776 $ 14,839
========= =========
Depreciation and Amortization on Assets Located in:
North America $ 9,566 $ 7,457
Europe 4,185
South America 378 197
--------- ---------
Total $ 14,129 $ 7,654
========= =========
Total Assets of Company Facilities Located in:
North America $ 101,249 $ 98,205
Europe 117,447
South America 10,795 15,244
--------- ---------
Total $ 229,491 $ 113,449
========= =========
Capital Expenditures of Facilities Located in:
North America $ 11,978 $ 17,034
Europe 11,414
South America 2,290 450
--------- ---------
Total $ 25,682 $ 17,484
========= =========
</TABLE>
Included in the North American sales to unaffiliated customers are sales
exported from facilities in the United States of
E-119
<PAGE> 22
$8,296,000, $9,032,600 and $8,485,000, for the years ended June 30, 1999, 1998
and 1997, respectively, with the majority being to customers in Austria and
Germany.
The Company had five transportation industry customers that exceeded 10% of
consolidated sales for the year ended June 30, 1999, and two transportation
industry customers that exceeded 10% of consolidated sales for each year in the
two-year period ended June 30, 1998. Sales to those customers were as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------- ----------------- ---------------- ------------------
For the year ended 6.30.99 6.30.98 6.30.97
- ------------------------------------------------------------------------- ----------------- ---------------- ------------------
<S> <C> <C> <C>
Amounts in thousands
Transportation customer A $ 40,550 $28,861 $12,852
Transportation customer B 29,839 24,920 28,188
Transportation customer C 20,499
Transportation customer D 20,165 68 8
Transportation customer E 19,429
---------
Total $ 130,482 $53,849 $41,048
========= ======= =======
</TABLE>
9. RELATED PARTY TRANSACTIONS
On January 1, 1999, the Company purchased certain production equipment formerly
subject to a long-term operating lease agreement from its majority shareholder
for $625,400. Total lease expense for this equipment was $193,400, $351,000 and
$351,000 for years ended June 30, 1999, 1998 and 1997, respectively.
The Company leases a building from a partnership in which a director has a 50%
interest under a ten-year, non-cancellable operating lease expiring in March
2005. Annual rentals under the lease are $300,000, and for a consideration of
$630,000 paid in March 1995, the Company obtained an option to purchase the
building for $3,125,000 at the end of the lease term. A portion of this facility
is subleased to Conway Products Corporation ("Conway"), an affiliate by virtue
of the majority shareholder's 100% ownership of Conway. Income and reimbursement
for utility costs under this sublease was $283,300, $285,200 and $259,600 in
fiscal 1999, 1998 and 1997, respectively.
The Company charters its leased aircraft to the majority shareholder from time
to time. The Company received $16,700, $15,100 and $7,800 in charter revenue
from its majority shareholder during the years ended June 30, 1999, 1998 and
1997, respectively.
The Company has stock redemption agreements with its majority shareholder
whereby the Company is obligated to redeem up to $23,000,000 of common shares
following his and his spouse's death. The Company maintains joint life insurance
policies in order to fund its obligations under the agreements.
The Company has receivables from its officers and certain key employees in
connection with a life insurance program, collateralized by the cash surrender
value of the related insurance policies. Amounts receivable from such employees,
included in Equipment Deposits and Other Long-Term Assets, were $1,416,600,
$1,217,200 and $1,080,000 at June 30, 1999, 1998 and 1997, respectively,
including $909,800, $811,200 and $713,000, respectively, due from the majority
shareholder.
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<PAGE> 23
10. COMMON STOCK
The Board of Directors approved and distributed 5% common share dividends in
each year during the three-year period ended June 30, 1999. All share and per
share data presented for fiscal 1998 and 1997 have been adjusted to give effect
to the 5% common share dividend distributed during fiscal 1999. The Board of
Directors also approved 2 cent per share quarterly cash dividends in each fiscal
quarter beginning with the second quarter of fiscal 1997.
The Company has reserved 1,126,875 common shares, in aggregate, for issuance to
employees under the 1991 Incentive Stock Option Plan and the 1998 Key Employee
Stock Option Plan (together, the "Plans"). Options are not exercisable prior to
twelve months from or ten years after the grant date. Options granted vest at a
rate of twenty percent annually over a five-year period. Had the Company
accounted for the Plans based on the fair value of awards at the grant dates as
prescribed by SFAS 123, the Company's net income and net income per share would
have been decreased as indicated below.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
For the year ended 6.30.99 6.30.98 6.30.97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amounts in thousands, except per share data
Net Income:
As reported $6,270 $7,741 $5,411
Pro forma 5,642 7,322 5,293
Basic Net Income Per Share:
As reported $ .99 $ 1.22 $ .86
Pro forma .89 1.15 .84
Diluted Net Income Per Share:
As reported $ .96 $ 1.18 $ .85
Pro forma .87 1.12 .83
</TABLE>
The effects of applying SFAS 123 on a pro forma basis may not be representative
of the effects on reported pro forma net income for future years as the
estimated compensation costs reflect only options issued after June 30, 1995.
Under the methodology of SFAS 123, the fair value of the Company's fixed stock
options was estimated at the date of grant using the Black-Scholes option
pricing model. The multiple option approach was used, with the following
weighted-average assumptions: dividend yield, .59%; expected volatility, 45.31%;
risk-free interest rate, 4%; and, expected life of options, 10 years.
E-121
<PAGE> 24
Transactions of the Plan for each of the three years ended June 30, 1999 were as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted Average Fair
Exercise Price Value of Options
Shares Ranges Granted
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options Outstanding at 7.1.96 384,789 $5.76 to $12.95
Fiscal 1997:
Options granted 31,146 $8.06 to $9.92 $5.25
Options exercised (13,686) $5.76 to $8.06
Options terminated (13,031) $5.76 to $12.95
-------
Options Outstanding at 6.30.97 389,218 $5.76 to $12.95
Fiscal 1998:
Options granted 269,880 $8.43 to $17.38 $5.89
Options exercised (110,793) $5.76 to $12.95
Options terminated (23,142) $6.48 to $17.38
------
Options Outstanding at 6.30.98 525,163 $5.76 to $17.38
Fiscal 1999:
Options granted 208,288 $12.38 $6.88
Options exercised (14,465) $5.76 to $11.24
Options terminated (15,435) $8.06 to $17.12
-------
Options Outstanding at 6.30.99 703,551 $5.76 to $17.38
=======
</TABLE>
Exercise price ranges and weighted average remaining contractual
lives of options exercisable as of June 30, 1999 are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted Average
Exercise Price Remaining Contractual
Shares Ranges Life (Yrs.)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fiscal 1992 grants 83,288 $5.76 to $7.12 2.36
Fiscal 1993 grants 15,615 $5.90 to $6.48 3.60
Fiscal 1994 grants 66,403 $8.06 to $9.79 4.13
Fiscal 1995 grants 23,492 $10.15 to $12.95 5.30
Fiscal 1996 grants 19,880 $9.83 to $10.15 6.32
Fiscal 1997 grants 12,617 $8.06 to $9.92 7.51
Fiscal 1998 grants 73,586 $8.43 to $17.38 8.34
-------
Options Exercisable at 6.30.99 294,881 $5.76 to $17.38 5.04
=======
</TABLE>
11. EMPLOYEE BENEFIT PLANS
The Company maintains a self-funded medical and dental plan for the majority of
its Kentwood and Marshall, Michigan and Gaffney, South Carolina full-time
employees. A third-party administrator makes benefit payments, and an estimate
of the Company's liability for unpaid and incurred but not reported claims is
accrued. Employees of the Company's other subsidiaries are enrolled in various
insured group or governmental health plans.
The Company sponsors a 401(k) savings plan (the "Plan") for all qualified
full-time employees. The Plan provides for an annual discretionary employer
matching contribution that has historically been dollar-for-dollar up to $1,000
per participant. Expense incurred in connection with the Plan was $378,600,
$286,100 and $246,300 for the years ended June 30, 1999, 1998 and 1997,
respectively.
In conformity with French governmental labor laws, the Company is obligated to
pay certain retirement benefits covering
E-122
<PAGE> 25
substantially all employees of its French operations. These benefits are
calculated based on each employee's years of credited service and most recent
monthly compensation and service category. These obligations are not funded, and
accordingly, are included in Accrued Compensation and Related Withholdings.
Employees become vested in accordance with governmental regulations in place at
the time of retirement.
For the purpose of calculating the actuarial present value of the Company's
benefit obligation, discount and compensation growth rates of 3% and an average
retirement age of 60 years were assumed.
The actuarial present value of the Company's benefit obligation as of June 30,
1999 is calculated as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Accumulated benefit obligation $1,673
Effect of salary increases 682
------
Projected Benefit Obligation $2,355
======
The following provides a reconciliation of the benefit obligation during fiscal
1999 (in thousands):
Projected benefit obligation as of October 1, 1998 $2,496
Net periodic pension cost 194
Effect of foreign currency translation loss (335)
------
Projected Benefit Obligation as of June 30, 1999 $2,355
======
</TABLE>
E-123
<PAGE> 26
12. SUPPLEMENTAL CASH FLOW INFORMATION
The following is a reconciliation of net income to net cash provided by
operating activities and other supplemental cash flow information:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
For the year ended 6.30.99 6.30.98 6.30.97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amounts in thousands
Net income $ 6,270 $ 7,741 $ 5,411
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 14,129 7,654 5,521
Deferred taxes 1,492 2,101 1,397
Minority interest in net income 645 166
Other, net 475 78
Changes in assets and liabilities that provided (used) cash:
Accounts receivable (3,923) (858) 815
Inventories (813) 227 378
Prepaid expenses and other current assets (77) 28 (65)
Other long-term assets 784 203 212
Accounts payable (1,937) 2,148 76
Accrued liabilities 2,926 428 (54)
Deferred credits and other 1,358 170 (125)
--------- -------- ---------
Net Cash Provided by Operating Activities $ 21,329 $ 20,086 $ 13,566
========= ======== =========
Details of acquisitions (see Note 2):
Fair value of assets acquired $ 127,043 $ 14,444 $ 18,829
Cash paid (53,309) (5,446) (16,869)
Note issued to Propart (4,835)
Professional fees and escrow amounts paid (1,821) (130) (1,261)
--------- -------- ---------
Liabilities assumed $ 71,913 $ 4,033 $ 699
========= ======== =========
</TABLE>
According to terms of the agreement to acquire a controlling interest in Autocam
do Brasil, the final purchase price could be reduced as a result of a deficiency
in earnings before interest and taxes from an agreed-upon level during the
eighteen months ended June 30, 1999. Since the maximum purchase price adjustment
was realized, goodwill and long-term debt were reduced by $2.5 million during
fiscal 1999.
E-124
<PAGE> 27
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of Autocam Corporation,
We have audited the accompanying consolidated balance sheets of Autocam
Corporation and subsidiaries as of June 30, 1999 and 1998, and the related
consolidated statements of operations and comprehensive income, shareholders'
equity and of cash flows for each of the three years in the period ended June
30, 1999. These financial statements are the responsibility of Autocam's
management. Our responsibility is to express an opinion on these financial
statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Autocam Corporation and subsidiaries at June
30, 1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 1999, in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Grand Rapids, Michigan
August 9, 1999
E-125
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Autocam International Sales Corporation, a Michigan corporation.
Autocam Foreign Sales Corporation, a Barbados corporation.
Autocam International, Ltd., a Michigan corporation.
Autocam Acquisition, Inc., a Michigan corporation, doing business as Autocam
California
Autocam Laser Technologies, Inc., a Michigan corporation.
Autocam-Pax, Inc., a Michigan corporation.
Autocam South Carolina, Inc., a Michigan corporation.
Autocam do Brasil Usinagem Ltda., a Brazilian corporation.
Autocam Europe B.V., a Dutch holding company.
Autocam France SARL, a French limited liability company.
Frank & Pignard SA, a French corporation.
E-126
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
Autocam Corporation
Grand Rapids, Michigan
We consent to the incorporation by reference in Registration Statement No.
33-72816 and Registration Statement No. 33-80933 of Autocam Corporation on Forms
S-8 of our report dated August 9, 1999, incorporated by reference in this Annual
Report on Form 10-K of Autocam Corporation for the year ended June 30, 1999.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Grand Rapids, Michigan
September 27, 1999
E-127
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 3,654
<SECURITIES> 0
<RECEIVABLES> 40,781
<ALLOWANCES> 0
<INVENTORY> 15,237
<CURRENT-ASSETS> 61,775
<PP&E> 164,623
<DEPRECIATION> 34,879
<TOTAL-ASSETS> 229,491
<CURRENT-LIABILITIES> 39,671
<BONDS> 109,560
0
0
<COMMON> 34,572
<OTHER-SE> 11,830
<TOTAL-LIABILITY-AND-EQUITY> 229,491
<SALES> 179,726
<TOTAL-REVENUES> 179,726
<CGS> 150,742
<TOTAL-COSTS> 150,742
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,104
<INCOME-PRETAX> 10,027
<INCOME-TAX> 3,757
<INCOME-CONTINUING> 6,270
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,270
<EPS-BASIC> .99
<EPS-DILUTED> .96
</TABLE>
