-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AggNY9eL8ZWvlXlv/F5M5v97cO+9jdD9JPSXjd19Dhz0nOXm88u5jULexkHDRKMo 3UUbHXu/yMZR+YvqxZsqmw== 0000950124-98-005151.txt : 19980924 0000950124-98-005151.hdr.sgml : 19980924 ACCESSION NUMBER: 0000950124-98-005151 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980923 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUTOCAM CORP/MI CENTRAL INDEX KEY: 0000879235 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 382790152 STATE OF INCORPORATION: MI FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19544 FILM NUMBER: 98713141 BUSINESS ADDRESS: STREET 1: 4070 EAST PARIS AVE CITY: KENTWOOD STATE: MI ZIP: 49512 BUSINESS PHONE: 6166980707 MAIL ADDRESS: STREET 1: 4070 EAST PARIS AVENUE SE CITY: KENTWOOD STATE: MI ZIP: 49512 10-K 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1998. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from__________ to__________ Commission file number 0-19544 AUTOCAM CORPORATION ------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) MICHIGAN 38-2790152 ---------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4070 EAST PARIS AVE., KENTWOOD, MICHIGAN 49512 ------------------------------------------- -------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code - (616) 698-0707 -------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ------------------------ None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, Without Par Value ------------------------------------------------------------------- (Title of Class) 2 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] 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 nonaffiliates was $31,486,213 as of September 4, 1998. The number of shares outstanding of the Registrant's common stock as of September 4, 1998 was 6,106,680 shares of common stock without par value. DOCUMENTS INCORPORATED BY REFERENCE Part of Form 10-K Into Which Portions of Document Documents are Incorporated - ---------------------------------- ------------------------------------------ Autocam Corporation 1998 Annual Report to Shareholders. Parts I, II and IV Definitive Proxy Statement for the 1998 Annual Meeting of Shareholders filed with Securities and Exchange Commission, September 1998. Part III [Cover page 2 of 2] 3 AUTOCAM CORPORATION FORM 10-K Year Ended June 30, 1998 TABLE OF CONTENTS
Page ---- PART I. Item 1. Business 1-5 Item 2. Properties 6 Item 3. Legal Proceedings 6 Item 4. Submission of Matters to a Vote of Security-Holders 6 PART II. Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 7 Item 6. Selected Financial Data 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 8. Financial Statements and Supplementary Data 7 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 8 PART III. Item 10. Directors and Executive Officers of the Registrant 8 Item 11. Executive Compensation 8 Item 12. Security Ownership of Certain Beneficial Owners and Management 8 Item 13. Certain Relationships and Related Transactions 8 PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - Index 8-12 SIGNATURES Principal Executive Officer, Principal Financial and Accounting Officer 13 Directors 13 EXHIBITS E-1 - E-156
4 PART I ITEM 1. BUSINESS GENERAL The Company designs and manufactures close-tolerance, specialty metal-alloy components sold to the transportation, medical device and computer electronics industries. These components are used primarily in gasoline and diesel fuel and braking systems, devices for surgical procedures, and computer rigid disk drives. 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 $90 million in fiscal 1998. The Company's management attributes its growth to the following factors: (i) increased sales of domestically-produced automobiles and the trend toward more environmentally efficient port electronic fuel injectors; (ii) increased sales of braking system components reflecting the acquisition of a leading supplier of braking system components in fiscal 1997 and increased demand and acceptance of anti-lock braking systems as a safety feature; (iii) the introduction of precision-machined medical devices to its product offerings; and, (iv) the proliferation of personal computers and their need for precise machined components. 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 1998, 55% of the Company's total sales were to two customers, Delphi Automotive Systems ("DAS"; a division of General Motors Corporation), and Robert Bosch Corporation ("Bosch"). - 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 and braking systems components, the medical devices industry, such as minimally invasive ophthalmic and cardiovascular surgery equipment components, and the computer electronics industry, such as rigid disk drive fasteners and motor and microprocessor heat dispersion components. The Company's manufacturing expertise includes process flexibility and product quality to meet customer demands. The Company was one of 41 of General Motors' worldwide supplier base of over 30,000 companies to receive the General Motors Supplier of the Year Award in June 1998, 1997 and 1996. In fiscal 1998, the Company also received the 1997 Partnership in Quality award from Hitachi Automotive Products, the top quality award bestowed by Hitachi on its suppliers. 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. 1 5 - 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. The Company intends to continue focusing on manufacturing components requiring high-volume, close-tolerance, high-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 will 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, medical devices and computer electronics 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 in North America, the largest user of Company products, is large and cyclical, with new vehicle demand tied closely to the overall strength of the North American 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. 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. Cost concerns are increasing the trend toward 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. 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 company's ability to meet the expectations of the medical industry. 2 6 Computer Electronics Industry. Computer electronics is a dynamic, innovative industry that encompasses a wide range of products. The Company has focused on the manufacture of precision components used in suspension assemblies for rigid disk drives, microprocessor heat dispersion units and rigid disk drive motors. These and other personal computer subassemblies require high-precision metal-machined components of the type manufactured by the Company. This industry also experiences frequent product changes with short lead times from development to market as a result of technology advances and increasing demand for a variety of product configurations. The Company believes its ability to make rapid product changeovers while maintaining high-volume production has, and will continue to, enable it to take advantage of certain opportunities as they arise. 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-3 of the Exhibit 13 to this Form 10-K. Fuel Systems. Sales of fuel system components represented 57%, 74% and 63% of the Company's sales for the years ended June 30, 1998, 1997 and 1996, respectively. Sales of such components to DAS represented 47%, 62% and 74% of total fuel system component sales for each of the respective periods presented. Sales of such components to Bosch represented 26%, 20% and 11% of total fuel system component sales for each of the respective periods presented. Fuel systems meter fuel flow more precisely than traditional carburation, and therefore, permit engines to burn less fuel cleaner. The Company expects fuel system components to be its primary product for the near-term. The Company has built a strong reputation in the industry for lowest total cost, which it has earned through continuous process improvement and equipment and labor adaptability. The Company believes that most light vehicles manufactured in North America are equipped with multi-port fuel injection systems, and it does not expect meaningful growth in North American light vehicle production in the foreseeable future. Management expects Company sales to grow in the face of these market conditions through employing a market diversification strategy. The Company has established relationships with several new customers in this market, including two that manufacture diesel fuel injectors, which should provide a majority of its fuel system sales growth in the near future. In addition, management expects that its focus on global expansion, through acquisition, will provide additional growth opportunities as it enters new markets. Braking Systems. Sales of braking system components represented 20%, 11% and 22% of the Company's sales for the years ended June 30, 1998, 1997 and 1996, respectively. The Company manufactures several production components for anti-lock braking systems ("ABS"), including components of pistons, sensors, plugs, solenoids and valve bodies. It also manufactures valve rods and push rod assemblies used in the assembly of ABS and conventional braking systems. The Company expects to benefit from a market diversification strategy in this area through exploiting core competencies for consistently holding to increasingly tight machining tolerances and stringent requirements for cleanliness. Other Automotive. Other automotive components sales represented 3%, 2% and 2% of the Company's sales for the years ended June 30, 1998, 1997 and 1996, respectively. The Company manufactures components used in automotive electronic motors, which allow the remote operation 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 11%, 10% and 7% of the Company's sales for the years ended June 30, 1998, 1997 and 1996, respectively. The Company manufactures components sold to the ophthalmic and cardiovascular surgical device industries. It continues to benefit from increased penetration by its largest ophthalmic surgical device customer into foreign markets. During late fiscal 1996, the Company began manufacturing precision-machined metal components for innovative cardiovascular surgical device manufacturers, including those that sell stents. 3 7 Computer Electronics. Sales of computer electronics components represented 7%, 3% and 7% of the Company's sales for the years ended June 30, 1998, 1997 and 1996, respectively. During fiscal 1996 and 1997, these components were primarily machined, precision fastening devices, known as baseplates, used to join certain components of rigid disk drives used on personal computers. Baseplate sales dropped during fiscal 1997 as the Company fell victim to characteristic life cycle shifts; specifically, demand for suspension assemblies that featured machined baseplates produced by the Company were replaced by those featuring stamped baseplates. The Company reversed this decline in sales in fiscal 1998 through the sale of high-volume, high-precision metal components used in the production of thermoplates for computer microprocessors. 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. The Company anticipates that additional manufacturing equipment will be necessary if firm orders are received during fiscal 1999 and 2000 in quantities currently contemplated under its existing contracts and purchase orders. The Company has entered into commitments to purchase certain of such equipment (See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" and "Business - Contracts and Purchase Orders"). Raw materials and other resources used by the Company are generally not restricted in availability; however, the Company obtains 70% of its supply of metal alloys from one supplier. While these materials are available from several other sources, the Company could experience production delays and lost sales while qualifying a new supplier. 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, domestically by its internal sales department and internationally through 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. In addition, 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, as is the case with most of its current business with DAS. 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 40 customers primarily covering transportation fuel and braking systems, medical devices, and computer electronics components. Orders are not firm under blanket purchase orders until specific releases are granted. 4 8 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 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. 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. Certain of the Company's competitors have greater resources than the Company and could move components currently manufactured by the Company in-house. The Company also competes with approximately 10 companies in Europe and Asia. 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 953 full-time employees as of June 30, 1998. Those employees can be segregated into the following disciplines:
Salaried Managerial Workers Engaged in and Administrative Salaried Engineers Manufacturing Total Kentwood, Michigan 56 17 236 309 Campinas, Brazil 22 4 211 237 Pinhal, Brazil 7 2 200 209 Dowagiac, Michigan 15 2 85 102 Hayward, California 4 4 39 47 Gaffney, South Carolina 4 1 28 33 Boituva, Brazil 2 14 16 --- -- --- --- Totals 108 32 813 953 === == === ===
None of the Company's U.S. employees are part of a collective bargaining unit, except for 85 employees of the Company's Dowagiac, Michigan facility who are represented by the two local units of The United Steelworkers of America. A governmental union represents all 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, 1998, 1997 and 1996, the Company's export sales of fuel and braking system, computer electronic, and refrigeration and air-conditioning system components to thirteen customers in Europe, Mexico, Canada, Brazil, and Asia were $9,032,600, $8,485,000 and $7,961,500, respectively. 5 9 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:
Approximate Square Feet ---- Owned: Kentwood, Michigan 88,000 Marshall, Michigan (opened July 1998) 56,000 Dowagiac, Michigan 67,000 Gaffney, South Carolina 25,000 Leased: Kentwood, Michigan 100,000 Hayward, California 27,000 Campinas, Brazil 22,000 Pinhal, Brazil 24,000 Boituva, Brazil (opened August 1998) 32,000
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 $108,445,000. The Company owns $88,606,000 of this equipment and $19,839,000 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 $20.1 million of equipment and invest $2.1 million in facilities over the next year (on which deposits of $3.7 million and $1.5 million, respectively, had been placed as of June 30, 1998). See Item 1 under "Business - Manufacturing" and "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources". 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. 6 10 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.
- -------------------------------------------------------------------------------------------------------------------- High Low - -------------------------------------------------------------------------------------------------------------------- Fiscal 1998: Fourth quarter 21 1/8 16 3/8 Third quarter 16 3/4 13 1/8 Second quarter 15 1/2 12 1/8 First quarter 13 1/8 10 1/4 Fiscal 1997: Fourth quarter 11 11/16 7 7/8 Third quarter 11 11/16 10 1/4 Second quarter 11 7/16 7 15/16 First quarter 10 7 15/16
As of September 4, 1998, 186 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-1 of the Company's 1998 Annual Report to Shareholders 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-2 - E-7 of the Company's 1998 Annual Report to Shareholders 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 page E-1 of the Company's 1998 Annual Report to Shareholders filed as Exhibit 13 hereto. 7 11 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III The Registrant hereby incorporates the information required by Form 10-K, Items 10-13 by reference to the Registrant's definitive proxy statement for its 1998 annual meeting of shareholders which will be filed with the Commission prior to September 30, 1998. 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-8 - E-23 of the Company's 1998 Annual Report to Shareholders filed as Exhibit 13 hereto are incorporated by reference in this Annual Report on Form 10-K: Consolidated Balance Sheets as of June 30, 1998 and 1997 For each of the three years in the period ended June 30, 1998: Consolidated Statements of Operations 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). 8 12 10(a) Revolving Credit Loan Agreement, dated June 27, 1997, between Comerica Bank and the Registrant (incorporated by reference to Exhibit 10(a) of the Registrant's Form 10-K, filed September 23, 1997). First Amendment to Revolving Credit Agreement, dated December 22, 1997, between Comerica Bank and the Registrant (filed herewith, E-24 - E-33). 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 (filed herewith, E-34 - E-36). 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 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). 9 13 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 (filed herewith, E-37 - E-59). 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). 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). 10 14 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 (filed herewith, E-60 - E-65). 2. Equipment Lease Agreement, dated May 1, 1994, between Registrant and John C. Kennedy, covering one Index MS-25 Multi-spindle Automatic Bar Machine, eight Tornos Bechler SAS-16 Multi-spindle Automatic Bar Machines, and one Cincinnati Milacron 220-8 Centerless Grinder (incorporated by reference to Exhibit 10(o)(7) of the Registrant's Form 10-K, filed September 23, 1994). 3. Aircraft Lease Agreement, dated November 21, 1991, between Registrant and General Electric Capital Corporation covering a Cessna Citation II aircraft (incorporated by reference to Exhibit 10(o)(13) of the Registrant's Form 10-K, filed September 25, 1992). Aircraft Lease Agreement Amendment, dated July 23, 1996, between Registrant and General Electric Capital Corporation covering a Cessna Citation II aircraft (incorporated by reference to Exhibit 10(o)(8) of the Registrant's Form 10-K, filed September 19, 1996). 4. 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 (filed herewith, E-66 - E-74). 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 (filed herewith, E-75 - E-87). 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) Promissory Note, dated May 12, 1995, between Old Kent Bank and the Registrant (incorporated by reference to Exhibit 10(r) of the Registrant's Form 10-K, filed September 25, 1995). 10(t) Documents pertaining to the issuance of Industrial Revenue Bonds by the Registrant: Loan Agreement, dated December 1, 1997, between Michigan Strategic Fund and the Registrant (filed herewith, E-88 - E-118). 11 15 Reimbursement Agreement, dated December 1, 1997, between Comerica Bank and the Registrant (filed herewith, E-119 - E-142). Pledge and Security Agreement, dated December 1, 1997, among Norwest Bank Wisconsin N.A., Comerica Bank and the Registrant (filed herewith, E-143 - E-147). Remarketing Agreement, dated December 1, 1997, between Robert W. Baird & Co., Inc., and the Registrant (filed herewith, E-148 - E-153). 13 1998 Annual Report to Shareholders (filed herewith, pages E-1 - E-23). 21 Subsidiaries of Registrant (filed herewith, page E-154). 23 Consent of Deloitte & Touche LLP (filed herewith, page E-155). 27 Financial Data Schedule (filed herewith, page E-156). (b) Reports on Form 8-K during quarter ended June 30, 1998 - None. 12 16 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 23, 1998 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.
Signature and Title Date Date ------------------------ ---- By: /s/ John C. Kennedy September 23, 1998 - ------------------------------------------------------- John C. Kennedy, Director By: /s/ Mark J. Bissell September 23, 1998 - ------------------------------------------------------- Mark J. Bissell, Director By: /s/ Robert L. Hooker September 23, 1998 - ------------------------------------------------------- Robert L. Hooker, Director By: /s/ Kim Korth September 23, 1998 - ------------------------------------------------------- Kim Korth, Director By: /s/ Kenneth K. Rieth September 23, 1998 - ------------------------------------------------------- Kenneth K. Rieth, Director By: /s/ Warren A. Veltman September 23, 1998 - ------------------------------------------------------- Warren A. Veltman, Director By: /s/ David J. Wagner September 23, 1998 - ------------------------------------------------------- David J. Wagner, Director
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. 13 17 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 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) Revolving Credit Loan Agreement, dated June 27, 1997, between Comerica Bank and the Registrant (incorporated by reference to Exhibit 10(a) of the Registrant's Form 10-K, filed September 23, 1997). First Amendment to Revolving Credit Agreement, dated December 22, 1997, between Comerica Bank and the Registrant (filed herewith, E-24 - E-33). 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 (filed herewith, E-34 - E-36). 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 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 (incoporated by reference to Exhibit 10(f) of the Registrant's Form S-1, Registration No. 33-42670, filed September 17, 1991). 18 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 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 (filed herewith, E-37 - E-59). 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). 19 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 (filed herewith, E-60 - E-65). 20 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION 2. Equipment Lease Agreement, dated May 1, 1994, between Registrant and John C. Kennedy, covering one Index MS-25 Multi-spindle Automatic Bar Machine, eight Tornos Bechler SAS-16 Multi-spindle Automatic Bar Machines, and one Cincinnati Milacron 220-8 Centerless Grinder (incorporated by reference to Exhibit 10(o)(7) of the Registrant's Form 10-K, filed September 23, 1994). 3. Aircraft Lease Agreement, dated November 21, 1991, between Registrant and General Electric Capital Corporation covering a Cessna Citation II aircraft (incorporated by reference to Exhibit 10(o)(13) of the Registrant's Form 10-K, filed September 25, 1992). Aircraft Lease Agreement Amendment, dated July 23, 1996, between Registrant and General Electric Capital Corporation covering a Cessna Citation II aircraft (incorporated by reference to Exhibit 10(o)(8) of the Registrant's Form 10-K, filed September 19, 1996). 4. 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 (filed herewith, E-66 - E-74). 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 (filed herewith, E-75 - E-87). 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) Promissory Note, dated May 12, 1995, between Old Kent Bank and the Registrant (incorporated by reference to Exhibit 10(r) of the Registrant's Form 10-K, filed September 25, 1995). 10(t) Documents pertaining to the issuance of Industrial Revenue Bonds by the Registrant: Loan Agreement, dated December 1, 1997, between Michigan Strategic Fund and the Registrant (filed herewith, E-88 - E-118). 21 INDEX TO EXHIBITS EXHIBIT NO. DESCRIPTION Reimbursement Agreement, dated December 1, 1997, between Comerica Bank and the Registrant (filed herewith, E-119 - E-142). Pledge and Security Agreement, dated December 1, 1997, among Norwest Bank Wisconsin N.A., Comerica Bank and Registrant (filed herewith, E-143 - E-147). Remarketing Agreement, dated December 1, 1997, between Robert W. Baird & Co., Inc., and the Registrant (filed herewith, E-148 - E-153). 13 1998 Annual Report to Shareholders (filed herewith, pages E-1 - E-23). 21 Subsidiaries of Registrant (filed herewith, page E-154). 23 Consent of Deloitte & Touche LLP (filed herewith, page E-155). 27 Financial Data Schedule (filed herewith, page E-156). (b) Reports on Form 8-K during quarter ended June 30, 1998 - None. EX-13 2 EXHIBIT 13 1 Exhibit 13 FINANCIAL HIGHLIGHTS QUARTERLY RESULTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------ First Quarter Second Quarter Third Quarter Fourth Quarter In thousands, except per share data 1998 1997 1998 1997 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------------ Sales $17,429 $14,648 $21,795 $15,270 $24,790 $16,058 $26,347 $16,011 Gross profit 3,413 3,331 5,315 3,627 6,504 3,107 5,697 3,304 Income from operations 2,361 2,483 3,939 2,680 4,783 2,029 3,755 2,391 Net income 1,136 1,404 2,104 1,541 2,482 1,080 2,019 1,386 Diluted net income per share (1) $.19 $.23 $.34 $.25 $.40 $.18 $.32 $.23 SELECTED FINANCIAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ In thousands, except per share data 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Statement of operations data: Sales $90,361 $61,986 $57,711 $54,304 $47,201 Gross profit 20,925 13,369 13,480 12,610 11,197 Income from operations 14,839 9,584 9,899 9,374 7,767 Net income 7,741 5,411 5,589 5,233 4,756 Diluted net income per share (1) $1.24 $ .89 $ .92 $ .86 $ .79 Cash dividends declared per share $ .08 $ .06 Balance sheet data: Current assets $20,801 $17,518 $13,768 $11,313 $9,106 Total assets 113,449 83,638 59,812 52,990 42,355 Current liabilities 17,675 13,216 9,241 9,163 7,423 Long-term obligations, net of current maturities 37,851 25,192 12,086 13,334 11,089 Deferred taxes 10,051 7,802 6,333 4,620 3,203 Minority interest 2,250 Shareholders' equity 45,061 36,615 31,286 25,218 19,759 STATISTICS - -------------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------- ------------------------------------------------ Book value per common share (1) 7.38 6.11 5.23 4.24 3.35 Current ratio 1.18 1.33 1.49 1.23 1.23 Ratio of debt to equity 0.99 0.85 0.51 0.68 0.73 Return on shareholders' equity 19.0% 15.9% 19.8% 23.3% 27.7%
(1) All amounts adjusted to give effect to all common share dividends and splits issued in fiscal 1994-1998. E-1 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. 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.
- --------------------------------------------------------------------------------------------------- For the year ended 6.30.98 6.30.97 6.30.96 - --------------------------------------------------------------------------------------------------- Sales 100.0% 100.0% 100.0% Cost of sales 76.8% 78.4% 76.6% ------- ------- ------ Gross profit 23.2% 21.6% 23.4% Selling, general and administrative expenses 6.5% 5.8% 5.9% Other operating expenses .2% .3% .4% ------- ------- ------ Income from operations 16.5% 15.5% 17.1% Interest and other expenses, net 3.0% 2.2% 2.4% Minority interest in net income .2% ------- ------- Income before tax provision 13.3% 13.3% 14.7% Tax provision 4.7% 4.6% 5.0% ------- ------- ------ Net Income 8.6% 8.7% 9.7% ======= ======= ======
E-2 3 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, 1998, 1997 and 1996.
- -------------------------------------------------------------------------------------------------------- For the year ended 6.30.98 6.30.97 6.30.96 - -------------------------------------------------------------------------------------------------------- Fuel systems $51,672 57.2% $45,700 73.7% $36,089 62.5% Braking systems 18,226 20.2% 6,744 10.9% 12,845 22.3% Other transportation 2,296 2.5% 1,416 2.3% 986 1.7% ------- ---- ------- ---- ------- ---- Total transportation 72,194 79.9% 53,860 86.9% 49,920 86.5% Medical devices 9,907 11.0% 6,299 10.2% 3,875 6.7% Computer electronics 6,458 7.1% 1,827 2.9% 3,916 6.8% Other 1,802 2.0%
Sales increased $28,375,000, or 46%, from fiscal 1997 to fiscal 1998, and $4,275,000, or 7%, from fiscal 1996 to fiscal 1997. The Company experienced sales growth over the three-year period ended June 30, 1998 in all product lines. Fiscal 1997 interruptions in sales growth to the computer electronics and braking systems industries were followed by strong gains in fiscal 1998. Sales of components for fuel system applications were $51,672,000 during the year ended June 30, 1998, an increase of 13% over fiscal 1997 sales, and fiscal 1997 sales of fuel system components increased 27% over fiscal 1996 levels. Combined sales of components to the Company's two largest fuel systems customers represented 73%, 82% and 85% of total fuel system component sales for the fiscal years ended June 30, 1998, 1997 and 1996, respectively. Both of these customers have embarked on new fuel injector programs during the periods presented resulting in increased sales. In addition, during fiscal 1998, the Company gained market share through the sale of $4,969,000 of diesel fuel injection components by acquiring a controlling interest in Qualipart Industria E Comercio, Ltda. ("Qualipart"), subsequently renamed, Autocam do Brasil Usinagem, Ltda. ("Autocam do Brasil") in January 1998. Sales of braking system components for the year ended June 30, 1998 were $18,226,000, almost three times fiscal 1997 levels, and fiscal 1997 sales were approximately one-half those reported in fiscal 1996. The increase in sales of these components during fiscal 1998 can be attributed to the June 1997 acquisition of The Hamilton Group ("Hamilton"), a precision metal machining company primarily supplying brake system components. During fiscal 1997, a large braking system customer eliminated certain components manufactured by the Company, which were no longer utilized on its new generation system, thereby explaining the decrease in sales from fiscal 1996 to 1997. Sales of components for medical device applications were $9,907,000 during fiscal 1998, an increase of 57% over fiscal 1997 levels, and fiscal 1997 sales were 63% greater than fiscal 1996 sales. The Company manufactures components sold to the ophthalmic and cardiovascular surgical device industries. During fiscal 1997 and 1998, the Company reaped the benefits of increased penetration by its largest ophthalmic surgical device customer into foreign markets. During late fiscal 1996, the Company began manufacturing precision-machined metal components for innovative cardiovascular surgical device manufacturers, including those that sell stents. Sales to these customers increased $3,596,000 and $1,539,000 during fiscal 1998 and 1997, respectively, over the preceding years. Sales of components for computer electronic applications were $6,458,000 during the year ended June 30, 1998, a four-fold increase over fiscal 1997 levels, and fiscal 1997 sales were 53% lower than fiscal 1996 sales. The increase in sales of computer electronic components from fiscal 1997 to 1998 was attributable to the production and sale of key components used in computer microprocessor subassemblies. No such components were produced during fiscal 1997. Fiscal 1997 sales decreased from fiscal 1996 levels as the Company's major customer for baseplates, a specialty metal fastener used in the manufacture of suspension assemblies for rigid disk drives, began purchasing precision-stamped baseplates which are more economical to manufacture than the Company's turned baseplates. E-3 4 Management believes that year-over-year sales growth in fiscal 1999 will exceed 20%, in spite of the negative impact presented by the protracted strike at General Motors Corporation ("GM") during July and August of 1998. Growth is expected to be generated primarily from increased sales of fuel and braking system components, while the Company expects declines in the sale of computer electronic components. The Company expects to see continued expansion of fuel system component sales as new injector programs move toward full production in fiscal 1999, and it reports a full year of sales from its Brazilian operations. Sales of high-precision metal components used in the production of thermoplates for computer microprocessors will decrease substantially in fiscal 1999 versus fiscal 1998 levels due to an anticipated change in design of the customer's heat dispersion system that eliminates the need for components produced by the Company. GROSS PROFIT Gross profit, as a percentage of sales, for the years ended June 30, 1998, 1997 and 1996 was 23.2%, 21.6% and 23.4%, respectively. 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. The decrease in gross profit margin between fiscal 1997 and 1996 can be attributed primarily to project start-up costs associated with new fuel system programs during the third and fourth quarters of fiscal 1997. Although it is common for margins to be lower on new program start-ups, fiscal 1997 third and fourth quarter margins were adversely affected by machine tools which were not only delivered late, but did not perform as expected. In order to meet customer demand for these components, the Company was forced to employ less efficient, work-around manufacturing processes in lieu of production processes that relied on the machine tools in question. The machine tools were in place and qualified for production as of the end of fiscal 1997. The negative impact on margins caused by these factors was partially offset by increased production of medical device components that allowed for improved utilization of existing equipment and labor. Management expects that fiscal 1999 gross profit, as a percentage of sales, will decline from fiscal 1998 levels, particularly in the first quarter of the year due primarily to the negative implications of the GM strike. The significant reduction in demand for fuel injector components from GM's Delphi Automotive Systems unit, and the Company's unwillingness to lay off employees in the face of extremely low unemployment rates for skilled machinists in the West Michigan area, are expected to reduce fiscal 1999 first quarter gross profit margins by approximately 3 percentage points below levels reported in the first quarter of fiscal 1998. Gross profit margins for the remainder of fiscal 1999 are expected to return to levels reported for the full fiscal year of 1998. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses, as a percentage of sales, were 6.5%, 5.8% and 5.9% in fiscal 1998, 1997 and 1996, respectively. These expenses increased monetarily during all periods presented commensurate with the growth in business. They increased as a percentage of sales due to the following factors: - Selling, general and administrative expenses, as a percentage of sales, were higher than historical Company levels at the former Hamilton facilities and Autocam do Brasil. - Royalty expense increased during fiscal 1998 commensurate with the increase in sales of stents (see Sales). E-4 5 Management expects that selling, general and administrative expenses, as a percentage of sales, will fall slightly in fiscal 1999 from fiscal 1998 levels as further integration of the former Hamilton and Brazilian operations occurs. OTHER OPERATING EXPENSES Other operating expenses represent the straight-line amortization of employment and deferred compensation agreements between the Company and a key employee. INTEREST AND OTHER EXPENSES, NET Net interest and other expenses increased $1,373,000 between fiscal 1997 and 1998 primarily as a result of interest incurred on notes issued by the Company to fund the Hamilton and Qualipart acquisitions. Management expects fiscal 1999 interest expense to increase over fiscal 1998 levels, both monetarily and as a percentage of sales. The Company will report a full year of interest expense on debt issued in connection with its acquisition of a majority interest in Qualipart, and the building and equipping of its Marshall, Michigan facility, thereby resulting in a combined increase in expense of $769,000 over fiscal 1998 levels. This increase in expense is expected to be partially offset by a decrease in interest expense on all other term debt as the Company satisfies its normal monthly principal obligations. MINORITY INTEREST IN NET INCOME Minority interest in net income represents Propart Corporation's ("Propart") 49% interest in the net income of Autocam do Brasil. TAX PROVISION United States Federal income tax has been provided on the earnings of its U.S. operations at effective tax rates of 34.0%, 33.7% and 33.9% for the years ended June 30, 1998, 1997 and 1996, respectively. The tax provision for fiscal 1998 includes provisions for Brazilian Federal and South Carolina state income taxes. All years presented include provisions for California Unitary taxes. Management does not expect the Company's effective income tax rate to change materially in fiscal 1999 from fiscal 1998 levels. LIQUIDITY AND CAPITAL RESOURCES The Company spent $17.5 million for fixed assets (excluding assets acquired in connection with business combinations) during the year ended June 30, 1998, including $1.5 million in facilities and $16 million in other fixed assets. All of these assets were financed through operating cash flows, bank borrowings ($625,000), and a portion of the funds raised through the issuance of Industrial Revenue Bonds ($9 million). E-5 6 In order to meet demand primarily from transportation customers, management will purchase $20.1 million of equipment and invest $2.1 million in facilities over the next year (on which deposits of $3.7 million and $1.5 million, respectively, had been placed as of June 30, 1998). Management expects to finance these purchases with cash on hand (some of which was generated from the issuance of Industrial Revenue Bonds), operating cash flows, operating leases, and/or bank borrowings, including its equipment line of credit ($6,000,000 in availability as of June 30, 1998) which allows the Company to retire borrowings over a period not to exceed six years with either variable or fixed interest rates. In December 1997, the Company issued Industrial Revenue Bonds totaling $9 million through the Michigan Strategic Fund in order to fund the construction of a new manufacturing facility in Marshall, Michigan and to purchase new equipment for that facility. Principal payments are due annually (amortizing over a 15-year period), with variable interest payments due monthly. The interest rate on the bonds resets weekly and was set at 3.7% per annum as of June 30, 1998. The January 1998 Qualipart acquisition was financed through bank borrowings and a note to Propart of $5.2 million and $5 million, respectively. Bank borrowings will be retired in 60 equal monthly principal installments, plus interest at 7.1% per annum. The note to Propart bears interest at 12% per annum to be paid quarterly. Annual principal obligations under the note are required to begin in 2004, but may be prepaid through a capital contribution made directly to Autocam do Brasil. Management believes that the Company has adequate credit facilities and cash available to meet its working capital needs through fiscal 1999. As of June 30, 1998, the Company had $4,119,200 in availability under its revolving line of credit. Management anticipates retiring current maturities of long-term obligations with future operating cash flows. As of June 30, 1998, $17 million of the Company's long-term debt was subject to variable interest rates. 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 packaged computer applications in its business and believes such applications to be Year 2000 compliant, management considers the risk of a material adverse effect on the operations of the Company to be remote. As of June 30, 1998, the Company had not spent any amounts in connection with the planned assessment. 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. It is the objective of Company management to complete the most serious Year 2000 compliance issues for information systems resident in United States facilities by December 1998 and for foreign facilities by July 1999. Management expects to contract with an outside consultant to assist in the assessment during the first quarter of fiscal 1999 at a cost not expected to exceed $50,000. Costs to test and remediate its systems, if any, are not expected to exceed $200,000. In addition to internal Year 2000 software and equipment remediation activities, the Company is in contact with its suppliers and electronic commerce customers to assess their compliance. There can be no absolute assurances that there will not be a material 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. E-6 7 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 7% of its sales during fiscal 1998 from manufacturing operations in Brazil. The financial position and results of operations of the Company's subsidiary in Brazil is measured in Brazilian Reais and translated into U.S. Dollars. With respect to 65% of this subsidiary's sales, 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. One percent of the Company's net assets at June 30, 1998 are based in Brazil and are translated into U.S. Dollars at the rate in effect as of that date (1.1501 Brazilian Reais per U.S. Dollar). Accordingly, the Company's consolidated shareholders' equity will fluctuate depending upon the weakening or strengthening of the U.S. Dollar. E-7 8 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------------- 6.30.98 6.30.97 - --------------------------------------------------------------------------------------------------------------------------- Assets Current assets: Cash $ 1,643,539 $ 2,510,500 Accounts receivable 11,679,824 8,841,516 Inventories 6,389,448 5,444,420 Prepaid expenses and other current assets 1,088,543 722,020 ------------- ------------ Total current assets 20,801,354 17,518,456 ------------- ------------ Deposits on equipment 4,411,227 2,642,269 Property, plant and equipment, net 64,421,470 53,291,418 Goodwill and other intangible assets, net 14,365,729 6,443,364 Restricted cash and equivalents 5,007,524 Other long-term assets 4,442,067 3,742,321 ------------- ------------ Total Assets $113,449,371 $83,637,828 ============= ============ Liabilities and Shareholders' Equity Current liabilities: Current maturities of long-term obligations $ 6,553,588 $ 5,905,541 Accounts payable 7,830,564 4,398,050 Accrued liabilities: Salaries and bonuses 1,955,741 839,416 Due to The Hamilton Group 171,925 1,000,000 Other 1,163,529 1,072,523 ------------- ------------ Total current liabilities 17,675,347 13,215,530 ------------- ------------ Long-term obligations, net of current maturities 37,850,874 25,191,778 Deferred taxes 10,051,018 7,802,000 Deferred credits and other 561,288 813,550 Minority interest 2,249,935 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; 6,102,568 and 5,711,587 shares issued and outstanding as of June 30, 1998 and 1997, respectively 31,840,086 26,270,940 Deferred compensation (490,833) (645,833) Cumulative effect of foreign currency translation adjustments (33,896) Retained earnings 13,745,552 10,989,863 ------------- ------------ Total shareholders' equity 45,060,909 36,614,970 ------------- ------------ Total Liabilities and Shareholders' Equity $113,449,371 $83,637,828 ============= ============
See notes to consolidated financial statements. E-8 9 CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------- For the year ended 6.30.98 6.30.97 6.30.96 - -------------------------------------------------------------------------------------------------------------------------- Sales $90,361,063 $61,986,238 $57,711,295 Cost of sales 69,435,961 48,617,727 44,231,105 ----------- ----------- ----------- Gross profit 20,925,102 13,368,511 13,480,190 Selling, general and administrative expenses 5,878,853 3,577,373 3,373,622 Other operating expenses 207,500 207,500 207,500 ----------- ----------- ----------- Income from operations 14,838,749 9,583,638 9,899,068 Interest and other expenses, net 2,718,720 1,345,533 1,396,155 Minority interest in net income 166,067 ----------- ----------- ----------- Income before tax provision 11,953,962 8,238,105 8,502,913 Tax provision 4,212,582 2,827,139 2,913,866 ----------- ----------- ----------- Net Income $ 7,741,380 $ 5,410,966 $ 5,589,047 =========== =========== =========== Basic Net Income Per Share $1.28 $.90 $.94 =========== =========== =========== Diluted Net Income Per Share $1.24 $.89 $.92 =========== =========== =========== Basic Weighted Average Shares Outstanding 6,040,147 5,989,674 5,968,619 Diluted Weighted Average Shares Outstanding 6,245,711 6,066,899 6,067,215
See notes to consolidated financial statements. E-9 10 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------------------------------------- Cumulative Effect of Foreign Deferred Currency Common Stock Compen- Translation Retained Shares Amount sation Adjustments Earnings Total - ---------------------------------------------------------------------------------------------------------------------------------- Balance, 7.1.95 5,140,882 $19,354,444 ($955,833) $6,819,217 $25,217,828 Net income 5,589,047 5,589,047 Share dividend 257,293 3,505,616 (3,507,130) (1,514) Exercise of stock options, including related tax benefits 15,700 137,786 137,786 Contribution of shares to 401(k) plan, net of share issuance costs 14,007 187,702 187,702 Amortization of deferred compensation 155,000 155,000 --------- ----------- ---------- ----------- ----------- Balance, 6.30.96 5,427,882 23,185,548 (800,833) 8,901,134 31,285,849 Net income 5,410,966 5,410,966 Share dividend 271,292 2,984,212 (2,985,335) (1,123) Cash dividends (336,902) (336,902) Exercise of stock options, including related tax benefits 12,413 101,180 101,180 Amortization of deferred compensation 155,000 155,000 --------- ----------- ---------- ----------- ----------- Balance, 6.30.97 5,711,587 26,270,940 (645,833) 10,989,863 36,614,970 Net income 7,741,380 7,741,380 Share dividend 286,550 4,512,895 (4,514,603) (1,708) Cash dividends (471,088) (471,088) Exercise of stock options, including related tax benefits 104,431 1,056,251 1,056,251 Foreign currency translation adjustments ($33,896) (33,896) Amortization of deferred compensation 155,000 155,000 --------- ----------- ---------- --------- ----------- ----------- Balance, 6.30.98 6,102,568 $31,840,086 ($490,833) ($33,896) $13,745,552 $45,060,909 ========= =========== ========== ========= =========== ===========
See notes to consolidated financial statements. E-10 11 CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------------- For the year ended 6.30.98 6.30.97 6.30.96 - --------------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Cash received from customers $89,784,141 $62,762,333 $57,135,200 Cash paid to suppliers and employees (64,794,377) (46,544,216) (42,244,679) Income taxes paid (2,396,115) (1,395,000) (1,475,000) Interest paid (2,507,465) (1,257,225) (1,349,677) -------------- ------------ ------------ Net Cash Provided by Operating Activities 20,086,184 13,565,892 12,065,844 -------------- ------------ ------------ Cash flows from investing activities: Capital expenditures (17,483,668) (10,205,483) (9,196,498) Proceeds from sale of fixed assets 384,868 7,050 235,850 Purchase of net assets of The Hamilton Group (890,884) (16,868,594) Purchase of majority interest in Autocam do Brasil (5,425,475) Payment of life insurance premiums and other (435,283) (473,578) (401,850) -------------- ------------ ------------ Net Cash Used in Investing Activities (23,850,442) (27,540,605) (9,362,498) -------------- ------------ ------------ Cash flows from financing activities: Repayments of line of credit, net (126,521) (162,000) Proceeds from issuance of long-term obligations 14,825,000 19,332,853 4,025,000 Increase in restricted cash and equivalents (5,007,524) Principal payments of long-term obligations (6,888,417) (4,060,549) (5,244,275) Cash dividends paid (472,796) (338,023) (1,514) Proceeds from exercise of employee stock options and other 567,555 84,181 102,670 -------------- ------------ ------------ Net Cash Provided by (Used in) Financing Activities 2,897,297 15,018,462 (1,280,119) -------------- ------------ ------------ Net increase (decrease) in cash (866,961) 1,043,749 1,423,227 Cash at beginning of period 2,510,500 1,466,751 43,524 -------------- ------------ ------------ Cash at End of Period $ 1,643,539 $ 2,510,500 $ 1,466,751 ============== ============ ============
See notes to consolidated financial statements. E-11 12 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 and braking systems, medical devices and computer electronics. It has six manufacturing facilities in the United States and three in Brazil. Its customers are located primarily in North America, Brazil, Austria and Germany. 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 consists 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 $447,500 and $17,100 as of June 30, 1998 and 1997, respectively. Amortization expense totaled $448,700, $3,700 and $3,700 for the years ended June 30, 1998, 1997 and 1996, respectively. Restricted cash and equivalents consists of highly-liquid investments with original maturities of three months or less at the date of purchase, restricted for use in connection with the building of a new manufacturing facility and purchasing equipment for such facility. E-12 13 Other long-term assets consists primarily of 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). 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). Net income per share - The Company has Adopted Statement of Financial Accounting Standard No. 128, Earnings Per Share. As required by this standard, basic net income per share excludes dilution and is computed by dividing net income by the weighted-average number of common shares outstanding for the periods presented. Diluted net income per share assumes the issuance of common stock for options outstanding under the Company's incentive stock option plan. Weighted average shares outstanding were determined as follows:
- ---------------------------------------------------------------------------------------------------------- For the year ended 6.30.98 6.30.97 6.30.96 - ---------------------------------------------------------------------------------------------------------- Weighted average shares outstanding 6,040,147 5,989,674 5,968,619 Dilutive effect of common stock options 205,564 77,225 98,596 --------- --------- --------- Shares applicable to diluted net income 6,245,711 6,066,899 6,067,215 ========= ========= =========
All share and per share amounts have been adjusted for the effects of share dividends and splits. Derivatives - The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used to manage foreign currency rate risks arising out of the Company's purchases of certain machinery and equipment (see Note 6). Gains or losses on foreign currency futures contracts are deferred and included in the cost of machinery and equipment purchased. 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). New Accounting Standards - In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive Income, and No. 131 ("SFAS 131"), Disclosures About Segments of an Enterprise and Related Information. SFAS 130 establishes standards for the reporting and presentation of comprehensive income and its components. SFAS 131 establishes standards for defining operating segments and the reporting of certain information regarding operating segments. Because these statements only impact how financial information is disclosed in interim and annual reports, the adoption will have no impact on the Company's financial condition or results of operations. Both accounting standards are effective for the Company's fiscal year ending June 30, 1999. Reclassifications - Certain reclassifications have been made to the 1996 financial statements to conform to the 1997 presentation. E-13 14 2. BUSINESS COMBINATIONS Effective January 1, 1998, the Company purchased 51% of the common stock of Qualipart Industria E Comercio, Ltda. ("Qualipart"; subsequently renamed, Autocam do Brasil Usinagem, Ltda., or "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 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. Cost in excess of the fair value of the net assets acquired (goodwill) of $7,462,300 is being amortized over 40 years on a straight-line basis. The final purchase price could be reduced by a maximum of $2,500,000 if earnings before interest and taxes during the eighteen months ending June 30, 1999 do not meet agreed-upon levels, and accordingly, may affect the preliminary purchase price allocation. Autocam-Pax, Inc. ("Autocam-Pax"), a wholly-owned subsidiary of the Company, was formed in June 1997, solely for the purpose of acquiring certain assets and assuming certain liabilities of Dowagiac Manufacturing Company and Hamilton-Pax, Inc. Autocam-Pax is engaged primarily in the manufacture of close-tolerance, specialty metal alloy components for automotive braking systems. On June 30, 1997, the acquisition was consummated for $18,081,000 in cash consideration and the assumption of $699,000 in liabilities. Of the total purchase price, $1,000,000 was held in escrow as contingent consideration until the related contingencies were discharged. 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 $7,196,600, which is being amortized over 20 years on a straight-line basis. The Consolidated Statements of Operations for fiscal 1998 include the results of Autocam-Pax as the transaction was consummated on the last day of fiscal 1997. The Consolidated Statements of Operations for fiscal 1998 include the results of Autocam do Brasil subsequent to January 1, 1998. The following unaudited pro forma information presents summary Consolidated Statements of Operations data of the Company as if the 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 purchase, less depreciation expense based on the fair market value of the property, plant and equipment acquired, and the amortization of intangibles arising from the transaction. 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, 1996 or which may be reported in the future.
- ---------------------------------------------------------------------------------------------------------------------------- For the year ended (unaudited) 6.30.98 6.30.97 - ---------------------------------------------------------------------------------------------------------------------------- Sales $97,005,700 $82,721,300 Net income 7,783,800 6,621,900 Diluted net income per share $1.25 $1.09
E-14 15 3. INVENTORIES Inventories consist of the following:
- --------------------------------------------------------------------------------------------------------------------------- 6.30.98 6.30.97 - --------------------------------------------------------------------------------------------------------------------------- Raw materials $1,510,100 $1,389,735 Production supplies 1,249,170 1,163,588 Work in-process 2,501,324 2,073,987 Finished goods 1,128,854 817,110 ---------- ---------- Total Inventories $6,389,448 $5,444,420 ========== ==========
4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:
- --------------------------------------------------------------------------------------------------------------------------- 6.30.98 6.30.97 - --------------------------------------------------------------------------------------------------------------------------- Land and improvements $ 1,768,504 $ 1,842,781 Buildings and improvements 6,814,988 6,869,861 Leasehold improvements 417,866 340,014 Machinery and equipment 73,222,104 59,268,918 Furniture and fixtures 3,931,500 2,543,855 Construction in progress 2,451,441 57,546 ------------ ------------ Total 88,606,403 70,922,975 Accumulated depreciation and amortization (24,184,933) (17,631,557) ------------ ------------ Property, Plant and Equipment, Net $64,421,470 $53,291,418 ============ ============
E-15 16 5. LONG-TERM OBLIGATIONS Long-term obligations consist of the following:
- ----------------------------------------------------------------------------------- ------------------ --- ------------------- 6.30.98 6.30.97 - ----------------------------------------------------------------------------------- ------------------ --- ------------------- Term notes payable to banks - payable in equal monthly installments, plus interest at fixed rates ranging from 6.4% to 9.25%; due through October 2003 $22,051,244 $21,599,739 Industrial Revenue Bonds - payable in annual installments beginning December 1998; interest paid monthly at variable interest rates, reset weekly by the remarketing agent (3.7% per annum as of June 30, 1998) 9,000,000 Note payable to Propart Corporation - principal payable in five equal annual installments beginning January 2004; interest at 12% per annum, payable quarterly 4,320,187 Mortgage payable to bank - payable in monthly installments, including interest at 9.35%; due February 2000 946,697 1,039,234 Second mortgage payable to bank - payable in monthly installments, including interest at 1/2% below LIBOR (7.29% per annum at June 30, 1998); due July 2003 948,035 1,007,829 Revolving credit note with bank - interest due monthly at 1/2% below the bank's prime rate (8% at June 30, 1998); due October 1999 7,000,800 6,782,853 Other 137,499 667,664 ----------- ----------- Total 44,404,462 31,097,319 Less current maturities 6,553,588 5,905,541 ----------- ----------- Long-Term $37,850,874 $25,191,778 =========== ===========
The Company has a master loan agreement (the "Agreement") with a bank which includes a $13.5 million revolving credit note, a $10 million acquisition term note, a $6 million equipment line of credit, and a $1.2 million acquisition mortgage note. Terms of the Agreement require that the Company maintain minimum levels of net worth and not exceed certain leverage ratios. Substantially all machinery and equipment of the Company have been offered as collateral for loans under the Agreement. The following portions of the revolving credit note have been reserved: $1,500,000 for foreign currency futures contracts, and $880,000 for two letters of credit. As of June 30, 1998, the remaining availability under the revolving line of credit was $4,119,200. No amounts are outstanding as of June 30, 1998 under the equipment line of credit. Borrowings under the equipment line of credit may be retired over a period not to exceed six years with either variable or fixed interest rates. 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 Qualipart. In December 1997, the Company issued Industrial Revenue Bonds totaling $9 million through the State of Michigan Strategic Fund in order to partially fund the construction of a new manufacturing facility in Marshall, Michigan and to purchase certain new equipment for that facility. The net proceeds from this bond offering are included in Restricted Cash and Equivalents. Certain land and equipment, a building and an irrevocable letter of credit issued by the Company through its bank have been offered as collateral for the bonds. At June 30, 1998, the annual aggregate maturities of long-term obligations for each of the five years subsequent thereto were as follows: E-16 17
- -------------------------------------------------------------------------------- Year ending 6.30 - -------------------------------------------------------------------------------- 1999 $ 6,553,588 2000 13,810,541 2001 5,221,541 2002 3,593,405 2003 2,987,841 Thereafter 12,237,546 ------------ Total $44,404,462 ===========
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 $45,582,400 as of June 30, 1998. 6. COMMITMENTS The Company leases a building and certain equipment under noncancellable operating leases. The operating leases generally contain renewal and purchase options at fair market value at the end of the lease terms. The Company also leased certain equipment under a capital lease. Such assets were purchased and the associated debt retired in November 1997. The cost and accumulated amortization of the Company's assets formerly under the capital lease were as shown below:
- -------------------------------------------------------------------------------- 6.30.97 - -------------------------------------------------------------------------------- Machinery and equipment $1,321,700 Less accumulated amortization 593,200 ----------- Total $ 728,500 ==========
Amortization of machinery and equipment under capital leases, determined on a straight-line basis over the useful lives of the assets, amounted to $42,600, $127,800 and $242,900 for the years ended June 30, 1998, 1997 and 1996, respectively. Minimum future lease payments under noncancellable operating leases (including noncancellable operating leases with the Company's majority shareholder -- see Note 9) as of June 30, 1998 are summarized as follows: - -------------------------------------------------------------------------------- Year ending 6.30 - -------------------------------------------------------------------------------- 1999 $ 3,809,800 2000 3,676,300 2001 3,191,900 2002 2,333,700 2003 1,805,600 Thereafter 2,647,300 ------------ Total $17,464,600 =========== Rent expense under operating leases summarized above was $3,460,300, $3,104,100 and $3,535,000 for the years ended June 30, 1998, 1997 and 1996, respectively. E-17 18 As of June 30, 1998, the Company had noncancellable purchase commitments for machinery and equipment totaling $8,159,600. 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. The Company has entered into two foreign currency futures contracts to reduce the impact of changes in foreign currency rates on firm commitments to purchase equipment. Under the contracts, the Company is obligated to purchase 1,345,400 Swiss Francs at a weighted-average rate of 1.50 Swiss Francs per U.S. Dollar. The contracts expire in August 1998. 7. INCOME TAXES The provisions for income taxes consist of the following:
- --------------------------------------------------------------------------------------------------------------------------- 6.30.98 6.30.97 6.30.96 - --------------------------------------------------------------------------------------------------------------------------- Current $2,361,500 $1,447,100 $1,220,900 Deferred 1,851,082 1,380,039 1,692,966 ----------- ----------- ----------- Total $4,212,582 $2,827,139 $2,913,866 ========== ========== ========== The Company`s effective income tax rate differs from the United States Federal ("Federal") statutory tax rate as follows: - --------------------------------------------------------------------------------------------------------------------------- 6.30.98 6.30.97 6.30.96 - --------------------------------------------------------------------------------------------------------------------------- Tax at Federal statutory rate 34.0% 34.0% 34.0% Research and development credit (0.5) (0.7) State income taxes 0.4 Effect of foreign operation 0.6 Other 0.7 1.0 .3 ----- ----- ----- Effective Tax Rate 35.2% 34.3% 34.3% ==== ==== ==== Temporary differences that give rise to deferred tax assets and liabilities at June 30, 1998 and 1997 are as follows: - ------------------------------------------------------- ---------------------------------- ----------------------------------- 6.30.98 6.30.97 Asset Liability Asset Liability - ------------------------------------------------------- --------------- -- --------------- ------------ --- ------------------ Depreciation $ 8,365,900 $6,740,000 Deferred compensation 223,400 294,000 Domestic international sales corporation income 1,125,200 911,000 Accrued expenses $215,800 $98,000 Other 336,518 (143,000) --------- -------------- --------- ----------- Total Deferred Taxes $215,800 $10,051,018 $98,000 $7,802,000 ======== =========== ======= ==========
On July 1, 1998, the Company established a foreign sales corporation, and in conjunction therewith, intends to terminate its interest-charged domestic international sales corporation in the first quarter of fiscal 1999. Upon dissolution, Federal income tax expense of $265,000 will be recognized. Undistributed earnings of the Company's Brazilian subsidiary amounted to $170,600 at June 30, 1998. All of these earnings are considered to be indefinitely reinvested, and accordingly, a provision for Federal and state income taxes has not been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes in Brazil. In the event that its Brazilian subsidiary's earnings were distributed, U.S. income taxes, net of foreign credits, would be immaterial. E-18 19 8. GEOGRAPHIC AREA AND SIGNIFICANT CUSTOMER INFORMATION The Company operates in a single industry -- precision metal machining. For fiscal 1997 and 1996, the Company had no foreign operations. Information about the Company by geographic operating area for fiscal 1998 is presented below:
- ----------------------------------------------------------------------------------------------------------------------------- For the year ended 6.30.98 - ----------------------------------------------------------------------------------------------------------------------------- Sales to Unaffiliated Customers from Company Facilities Located in: United States $84,235,573 Brazil 6,125,490 ------------- Total $90,361,063 =========== Operating Profit of Company Facilities Located in: United States $14,277,109 Brazil 561,640 ------------- Total $14,838,749 =========== Identifiable Assets of Company Facilities Located in: United States $ 98,205,614 Brazil 15,243,757 -------------- Total $113,449,371 ============
Included in the United States sales to unaffiliated customers are export sales of $9,032,600, $8,485,000 and $7,961,500, for the years ended June 30, 1998, 1997 and 1996, respectively, with the majority being to a customer in Austria. The Company had two transportation industry customers that exceeded 10% of consolidated sales for each of the three years ended June 30, 1998. Sales to those customers were as follows:
- --------------------------------------------------------------------------------------------------------------------------- For the year ended 6.30.98 6.30.97 6.30.96 - --------------------------------------------------------------------------------------------------------------------------- Transportation customer A $24,919,800 $28,188,500 $26,530,200 Transportation customer B 24,359,700 9,572,800 Transportation customer C 11,804,100 ------------ ------------ ----------- Total $49,279,500 $37,761,300 $38,334,300 =========== =========== ===========
9. RELATED PARTY TRANSACTIONS The Company leases certain production equipment from its majority shareholder under a long-term operating lease agreement. The lease, which expires in May 2001, grants the Company an option to purchase the equipment at the expiration of the lease term. Total lease expense, including amortization of a $234,800 initial payment over the lease term, was $351,000 for each period presented. The Company leases a building from a partnership in which a director has a 50% interest under a ten-year, noncancellable 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. The Company subleases a portion of this facility 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 $285,200, $259,600 and $231,500 in fiscal 1998, 1997 and 1996, respectively. E-19 20 During fiscal 1996, the Company chartered its leased aircraft to the majority shareholder and others through AMR Executive Charters, Inc. ("AMR"), an affiliate by virtue of the majority shareholder's then 100% ownership interest of AMR. The Company received $96,000 in charter revenue from AMR during the year ended June 30, 1996, and $15,100, $7,800 and $10,800 in charter revenue from its majority shareholder during the years ended June 30, 1998, 1997 and 1996, respectively. The Company paid AMR $68,900 during fiscal 1996 for various services and merchandise consisting primarily of the purchase of aviation fuel at AMR's cost. The majority shareholder sold his interest in AMR during November 1995. 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 Other Long-Term Assets, were $1,217,200, $1,080,000 and $901,000 at June 30, 1998, 1997 and 1996, respectively, including $811,200, $713,000 and $617,000, respectively, due from the majority shareholder. 10. COMMON STOCK The Board of Directors approved and distributed five-percent common share dividends in each year during the three-year period ended June 30, 1998. 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 787,500 common shares for issuance to employees under the 1991 Incentive Stock Option Plan (the "Plan"). 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. At June 30, 1998, 113,300 shares were available for future grants. Had the Company accounted for the Plan 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.
- --------------------------------------------------------------------------------------------------------------------------- For the year ended 6.30.98 6.30.97 6.30.96 - --------------------------------------------------------------------------------------------------------------------------- Net Income: As reported $7,741,400 $5,411,000 $5,589,000 ----------- Pro forma 7,321,600 5,292,900 5,533,700 --------- Basic Net Income Per Share: As reported $1.28 $.90 $.94 ----------- Pro forma 1.21 .88 .93 --------- Diluted Net Income Per Share: As reported $1.24 $.89 $.92 ----------- Pro forma 1.17 .87 .91 ---------
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 vesting 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, .48%; expected volatility, 45.09%; risk-free interest rate, 4%; and, expected life of options, 10 years. E-20 21 Transactions of the Plan for each of the three years ended June 30, 1998 were as follows:
- -------------------------------------------------------------------------------------------------------------------------- Weighted Average Fair Exercise Price Value of Options Granted Shares Ranges - -------------------------------------------------------------------------------------------------------------------------- Options Outstanding at 7.1.95 340,535 $6.05 to $13.60 Fiscal 1996: Options granted 53,493 $10.32 to $10.66 $6.17 Options exercised (17,309) $6.05 to $8.46 Options terminated (10,253) $6.05 to $13.60 -------- Options Outstanding at 6.30.96 366,466 $6.05 to $13.60 Fiscal 1997: Options granted 29,663 $8.46 to $10.42 $5.51 Options exercised (13,034) $6.05 to $8.46 Options terminated (12,410) $6.05 to $13.60 -------- Options Outstanding at 6.30.97 370,685 $6.05 to $13.60 Fiscal 1998: Options granted 257,029 $8.85 to $18.25 $6.18 Options exercised (105,517) $6.05 to $13.60 Options terminated (22,040) $6.80 to $18.25 -------- Options Outstanding at 6.30.98 500,157 $6.05 to $18.25 ======== Exercise price ranges and weighted average remaining contractual lives of options exercisable as of June 30, 1998 are as follows:
- ------------------------------------------------------------------------------------------------------------------------- Weighted Average Exercise Price Remaining Contractual Shares Ranges Life (Yrs.) - -------------------------------------------------------------------------------------------------------------------------- Fiscal 1992 grants 88,735 $6.05 to $7.48 3.36 Fiscal 1993 grants 14,874 $6.20 to $6.80 4.60 Fiscal 1994 grants 50,069 $8.46 to $10.28 5.13 Fiscal 1995 grants 16,610 $10.66 to $13.60 6.31 Fiscal 1996 grants 11,232 $10.32 to $10.66 7.32 Fiscal 1997 grants 4,815 $8.46 to $10.42 8.36 ------- Options Exercisable at 6.30.98 186,335 $6.05 to $13.60 5.03 =======
11. EMPLOYEE BENEFIT PLANS The Company maintains a self-funded medical and dental plan for the majority of its Kentwood, 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 a 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 $286,100, $246,300 and $204,100 for the years ended June 30, 1998, 1997 and 1996, respectively. E-21 22 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:
- ------------------------------------------------------------------------------------------------------------------------------ FOR THE YEAR ENDED 6.30.98 6.30.97 6.30.96 - --------------------------------------------------------------------------------------------------------- -------------------- Net income $ 7,741,380 $ 5,410,966 $ 5,589,047 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,654,238 5,521,243 4,877,683 Deferred taxes 2,101,100 1,397,000 1,720,000 Minority interest in net income 166,067 Other, net 77,628 Changes in assets and liabilities that provided (used) cash: Accounts receivable (858,595) 814,851 (622,824) Inventories 227,110 378,230 (362,599) Prepaid expenses and other current assets 28,329 (65,094) (69,146) Other long-term assets 202,904 212,838 274,368 Accounts payable 2,147,885 76,074 312,900 Accrued liabilities 427,942 (54,524) 134,616 Deferred credits and other 170,196 (125,692) 211,799 ------------ ----------- ----------- Net Cash Provided by Operating Activities $ 20,086,184 $13,565,892 $12,065,844 ============ =========== =========== Details of acquisitions (see Note 2): Fair value of assets acquired $ 14,444,190 $18,828,917 Cash paid (5,446,920) (16,868,594) Note issued to Propart (4,834,687) Professional fees and escrow amounts to be paid (130,000) (1,260,989) ------------ ----------- Liabilities assumed $ 4,032,583 $ 699,334 ============ ===========
The Company issued 5% share dividends during each year presented. E-22 23 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, 1998 and 1997, and the related consolidated statements of operations, shareholders' equity and of cash flows for each of the three years in the period ended June 30, 1998. 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, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1998, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Grand Rapids, Michigan July 29, 1998 E-23 EX-10.A 3 EXHIBIT 10A 1 Exhibit 10(a) FIRST AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT Dated as of December 22, 1997 By and Between AUTOCAM CORPORATION and COMERICA BANK E-24 2 FIRST AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT THIS FIRST AMENDMENT TO REVOLVING CREDIT LOAN AGREEMENT (thereinafter referred to as the "First Amendment"), made and delivered as of the 22nd day of December, 1997, by and between AUTOCAM CORPORATION, a Michigan corporation (the "Borrower"), whose address is 4070 East Paris, S.E., Kentwood, Michigan 49512, and COMERICA BANK, a Michigan banking corporation, whose address is 1000 Campau Square Plaza Building, 99 Monroe, N.W., Grand Rapids, Michigan (hereinafter referred to as the "Bank"). WHEREAS, the Bank and the Borrower entered into a certain Revolving Credit Loan Agreement dated as of June 27, 1997 (the "Agreement"); and WHEREAS, the Borrower has entered into an agreement to purchase fifty-one percent (51%) of the stock of Qualipart/Target, a Brazilian corporation ("Q/T") (the "Stock Purchase"); and WHEREAS, the Bank has agreed to provide Borrower with a term loan in the amount of up to Five Million Two Hundred Thousand Dollars ($5,200,000) (the "Q/T" Term Loan") to finance the Stock Purchase; and WHEREAS, Borrower has entered into a loan agreement with the Michigan Strategic Fund (the "Issuer") to borrow Nine Million Dollars ($9,000,000) to finance the acquisition, construction and equipping of a manufacturing facility in Marshall, Michigan (the "Project"), pursuant to a Loan Agreement dated as of December 1, 1997 (the "Loan Agreement"); and WHEREAS, the Issuer is issuing its Variable Rate Demand Limited Obligation Revenue Bonds, Series 1997 (Autocam Corporation Project) (the "Bonds") pursuant to a Trust Indenture dated as of December 1, 1997 (the "Indenture"), between the Issuer and Norwest Bank Wisconsin, N.A. (the "Trustee"); and WHEREAS, to induce the Bond Purchasers to purchase the Bonds and as security for the payment of the Bonds, the Bank has agreed to issue its irrevocable Letter of Credit in the initial stated amount of $9,138,082.19 (the "Letter of Credit") in favor of the Trustee pursuant to a Reimbursement Agreement dated as of December 1, 1997 (the "Reimbursement Agreement"); and WHEREAS, the Borrower and the Bank agree to amend the Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and subject to the conditions hereinafter set forth, Borrower and the Bank hereby agree as follows: ARTICLE 1 AMENDMENTS TO AGREEMENT 1.1 The definitions of "Commitments," "Funded Debt Leverage Ratio," "Loan," "Maturity Date," "Notes" and "Revolving Credit Commitment Amount" as stated in Section 1.1 of the Agreement are deleted in their entirety and the following substituted therefor: "Commitments" shall mean the Bank's commitments to make loans as set forth herein. For purposes of this Agreement, Commitments may be classified as Revolving Credit Commitments, Term Loan Commitments, Equipment Loan Commitments or Q/T Term Loan Commitments. "Funded Debt Leverage Ratio" shall mean the ratio of: (a) the Company's Funded Debt, less (b) the sum of (i) cash plus (ii) marketable securities held by the Company; to the Company's EBITDA. For purposes of this Agreement, the Funded Debt Leverage Ratio shall be calculated at the end of each quarter of the Company's fiscal year commencing December 31, 1997, using the previous four (4) quarters. E-25 3 "Loan" shall mean the Revolving Credit Loan, the Term Loan, the Equipment Loan, any Equipment Term Loan, and the Q/T Term Loan. Subject to the terms and conditions contained herein, such Loans may also be designated as a Prime Rate Loan, a Eurodollar Rate Loan or a Quoted Rate Loan, which are referred to herein as "types" of Loans. "Maturity Date" shall mean the earlier to occur of the date on which any Loan is accelerated pursuant to Section 9.2 or (i) with respect to the Term Loan, October 1, 2003; (ii) with respect to any Equipment Term Loan, the date that is not more than six (6) years after the first Equipment Loan relating to such Equipment Term Loan was made; and (iii) with respect to the Q/T Term Loan, January 1, 2003. "Notes" shall mean the Revolving Credit Note, the Term Note, the Equipment Note, any Equipment Term Note and the Q/T Term Note; and "Note" shall mean any one of them. "Revolving Credit Commitment Amount" shall mean, as of any applicable date of determination, Thirteen Million Five Hundred Thousand Dollars ($13,500,000) (or such lesser amount to which the Revolving Credit Commitment Amount may be reduced by the Borrower from time to time under Section 2.6.1 of this Agreement). Within the Revolving Credit Commitment Amount, Twelve Million Dollars ($12,000,000) is available to the Company for general corporate purposes and One Million Five Hundred Thousand Dollars ($1,500,000) is reserved exclusively to facilitate foreign exchange transactions. Within the Twelve Million Dollars ($12,000,000) (less the amount of the Bond Reserve) available for general corporate purposes, up to Five Hundred Thousand Dollars ($500,000) is reserved for the issuance of a letter of credit. The amount of any letters of credit issued by the Bank on behalf of the Company reduces the amount available to be advanced under the Revolving Credit Commitment. 1.2 The following definitions are hereby added to Section 1.1 of the Agreement: "Bond Reserve" shall mean a reduction in the amount available to be advanced under the Revolving Credit Commitment calculated as follows: On each March 1, June 1 and September 1 (each a "Reserve Determination Date"), an amount equal to twenty-five percent (25%) of the principal amount of the Bonds to be redeemed under the Redemption Notice (as defined in the Reimbursement Agreement) then in effect shall be determined (the "Quarterly Reserve"). The Bank shall then reduce the amount available to be advanced by the Quarterly Reserve; the total Bond Reserve shall be the sum of all of the Quarterly Reserves during the year; upon reimbursement to the Bank by the Company, the Bond Reserve shall be eliminated until the next Reserve Determination Date. "Pledge Agreement" shall mean a pledge agreement in the form and content satisfactory to the Bank pursuant to which the Company will pledge to the Bank all of the issued and outstanding capital stock of Q/T owned by the Company to the Bank as security for the Indebtedness. "Q/T Term Loan Commitment Amount" shall mean Five Million Two Hundred Thousand Dollars ($5,200,000). "Q/T Term Loan" shall mean any Borrowing under Section 2.3 of the Agreement, evidenced by the Q/T Term Note and made pursuant to Section 2.1.4. "Q/T Term Note" shall mean any promissory note of the Company evidencing the Q/T Term Loan, in the form of Exhibit A to the First Amendment, as it may be amended or modified from time to time, together with any promissory note or notes in exchange or replacement therefor. "Subordinated Debt" shall mean indebtedness of the Company to third parties which has been subordinated to the Indebtedness pursuant to a subordination agreement in form and content satisfactory to the Bank. "Subordination Agreement" shall mean a subordination agreement in the form and content satisfactory to the Bank making all present and future indebtedness of the Company to Propart Corporation relating to the Stock Purchase subordinate to the Indebtedness. E-26 4 "Tangible Effective Net Worth" shall mean, as of any applicable date of determination, Tangible Net Worth plus Subordinated Debt. 1.3 The definitions of "Guarantor Mortgage," "Guarantor Premises," "Mortgage Commitment," "Mortgage Loan," and "Mortgage Note" are hereby deleted from the Agreement. 1.4 Section 2.1.4 of the Agreement is deleted in its entirety and the following Section 2.1.4 is substituted therefor: 2.1.4 Q/T Term Loan Commitment. Upon satisfaction of the conditions contained in Sections 3.1, 3.2 and 3.4 of the Agreement, at any time prior to February 1, 1998, the Bank agrees, subject to the terms and conditions of the Agreement, to make the Q/T Term Loan to the Company, in such amounts as the Company requests pursuant to Section 2.3, in an amount not to exceed the Q/T Term Loan Commitment Amount. 1.5 Section 2.2.4 of the Agreement is deleted in its entirety and the following Section 2.2.4 is substituted therefor: 2.2.4 Q/T Term Note. The Q/T Term Loan shall be evidenced by the Q/T Term Note payable to the order of the Bank in an amount equal to the Q/T Term Loan. 1.6 Section 2.4.3 of the Agreement is deleted in its entirety and the following Section 2.4.3 is substituted therefor: 2.4.3 Quoted Rate Borrowings. All Quoted Rate Borrowings shall be for the entire outstanding principal amount of the Term Loan, the Q/T Term Loan or each Equipment Term Loan. 1.7 Section 2.5.2 of the Agreement is deleted in its entirety and the following Section 2.5.2 is substituted therefor: 2.5.2 Maturity Date. The outstanding principal balance (together with accrued interest thereon) of the Term Loan, the Q/T Term Loan and any Equipment Term Loans shall be due and payable on the respective Maturity Date. 1.8 Section 2.6.4 of the Agreement is deleted in its entirety and the following Section 2.6.4 is substituted therefor: 2.6.4 Q/T Term Loan Commitment. Effective January 31, 1998, the Q/T Term Loan Commitment shall be terminated if Borrower has not completed the Stock Purchase. 1.9 Section 2.8.2 of the Agreement is deleted in its entirety and the following Section 2.8.2 is substituted therefor: 2.8.2 Quoted Rate Election. (a) Term Loan. The Company may elect to have the entire outstanding principal balance of the Term Loan bear interest at a Quoted Rate for the Applicable Interest Period by delivering to the Bank an appropriate Notice of Borrowing confirming the Quoted Rate as provided in Section 2.3 of the Agreement. (b) Q/T Term Loan. The Company may elect to have the entire outstanding principal balance of the Q/T Term Loan bear interest at a Quoted Rate for the Applicable Interest Period by delivery to the Bank an appropriate Notice of Borrowing confirming the Quoted Rate as provided in Section 2.3 of the Agreement. (c) Equipment Term Loan. The Company may elect to have the entire principal balance of any Equipment Term Loan as of a Conversion Date bear interest at a Quoted Rate for the Applicable Interest Period by delivering to the Bank an appropriate Notice of Borrowing confirming the Quoted Rate as provided in Section 2.3 of the Agreement. 1.10 Section 3.4 of the Agreement is deleted in its entirety and the following Section 3.4 is substituted therefor: E-27 5 3.4 Additional Conditions for the Q/T Term Loan. in to the requirements set forth in Article III, the obligation of the Bank to make the Q/T Term Loan is subject to receipt by the Bank of the following documents and completion of the following matters, in form and substance satisfactory to the Bank: 3.4.1 Documents Executed and Filed. The Company shall have executed (or caused to be executed) and delivered to the Bank the following: (i) the Q/T Term Note; and (ii) either: (a) the Stock Pledge, or (b) the Subordination Agreement. 3.4.2 Stock Purchase Complete. The Stock Purchase shall have been completed on terms and conditions acceptable to the Bank and the Bank shall have been provided with a complete copy of the documentation related to the Stock Purchase. 1.11 Section 4.1.4 of the Agreement is deleted in its entirety and the following Section 4.1.4 is substituted therefor: 4.1.4 Q/T Term Loan. The Company shall pay to the Bank the principal amount of the Q/T Term Loan, unless accelerated pursuant to the terms of this Agreement, in not more than sixty (60) equal installments on the first day of each consecutive calendar month, beginning no later than March 1, 1998. All outstanding principal and accrued interest shall be due and payable on the Maturity Date. 1.12 Section 7.5 of the Agreement is deleted in its entirety and the following Section 7.,5 is substituted therefor: 7.5 Maintain Tangible Net Worth. On a consolidated basis, maintain a Tangible Net Worth for it of not less than Twenty-six Million Dollars ($26,000,000). ARTICLE 2 TERM LOAN/MORTGAGE LOAN 2.1 Term Loan. By September 30, 1997, the Company provided the Bank with an acceptable appraisal as requested in Section 2.6.2 of the Agreement. Therefore, there was no reduction in the Term Loan under Section 2.6.2. 2.1 Mortgage Loan. The Company elected not to take any disbursement of the Mortgage Loan. Therefore, the Mortgage Loan Commitment terminated September 30, 1997, and no Mortgage Loan was made. ARTICLE 3 OTHER TERMS Except as specifically amended above, all of the terms and conditions of the Agreement shall remain in full force and effect. ARTICLE 4 CONDITIONS The obligations of the Bank under this First Amendment are subject to the occurrence, prior to or simultaneously with the first borrowing hereunder, of each of the following conditions, any or all of which may be waived in whole or in part by the Bank in writing. 4.1 Documents Executed. The Borrower shall have executed and delivered to the Bank this First Amendment, the Q/T Term Note, the Stock Pledge Agreement, the Subordination Agreement, and an affirmation of the Guaranty in the form of Exhibit B to this First Amendment. E-28 6 4.2 Preparation Fees. The Company agrees to pay to the Bank the amount of the expenses (including without limit reasonable attorneys' fees and disbursements) incurred by the Bank from time to time in connection with the preparation of this First Amendment and related instruments. 4.3 Approval of Bank Counsel. All actions, proceedings, instruments and documents required to carry out the transactions contemplated by this First Amendment or incidental thereto and all other related legal matters shall have been satisfactory to and approved by Miller, Canfield, Paddock and Stone, counsel to the Bank, and said counsel shall have been furnished with such certified copies of actions and proceedings and such other instruments and documents as they shall have reasonably requested. ARTICLE 5MISCELLANEOUS 5.1 Successors. The First Amendment shall be binding upon the parties hereto and their respective successors, assigns, heirs, executors and administrators. 5.2 Governing Law. This First Amendment will be governed by and construed in accordance with the internal laws of Michigan. The parties hereto select the state and federal court of appropriate jurisdiction in Michigan as the sole proper forums having jurisdiction over all disputes arising from or in connection herewith. The parties hereto consent to be subject to jurisdiction of the courts of Michigan with respect to any such dispute. 5.3 Severability. If any part of this First Amendment is declared invalid or unenforceable, such provision may be changed to the extent reasonably necessary to make the provision, as changed, legal, valid and binding. If any provision hereof is declared invalid or unenforceable in its entirety, the other provisions hereof will not be affected, but will remain in full force and effect. 5.4 Counterparts. This First Amendment may be signed in counterparts, all of which together will be deemed an original. 5.5 Entire Agreement; Amendment. This First Amendment and the agreements referred to herein constitute the entire agreement of the parties hereto with respect to the subject matter hereof. This First Amendment may be amended only by a written instrument executed by all parties hereto. E-29 7 IN WITNESS WHEREOF, the parties have executed this First Amendment as of the date set forth in the introductory paragraph of this First Amendment. BANK: COMERICA BANK By: -------------------------------- Its: ------------------------------- BORROWER: AUTOCAM CORPORATION By: -------------------------------- Its: ------------------------------- E-30 8 EXHIBIT A Q/T TERM NOTE $5,200,000.00 December 22, 1997 FOR VALUE RECEIVED, the undersigned promises to pay to the order of COMERICA BANK (the "Bank") at any office of the Bank, the principal sum of Five Million Two Hundred Thousand and 00/100 Dollars ($5,200,000.00) in consecutive monthly installments as provided in that certain Revolving Credit Loan Agreement dated June 27, 1997 (the "Loan Agreement"), which Loan Agreement, as it may be amended from time to time, is by this reference incorporated herein and made a part hereof, beginning February 1, 1998, and on the first day of each month thereafter, with all outstanding principal and accrued but unpaid interest due and payable on January 1, 2003. The unpaid principal amount of this Note shall bear interest at the rate provided in the Loan Agreement. This Note is the Q/T Term Note referred to in the First Amendment to Loan Agreement. This Note is secured as described in the Loan Agreement, to which reference is made for, among other things, the conditions under which this Note may be accelerated. The Bank is hereby granted a security interest in all property of the undersigned at any time in the possession of the Bank or any Affiliate (as defined in the Agreement) of the Bank (or as to which the Bank or any Affiliate of the Bank at any time controls possession by documents or otherwise) and in all balances of deposit or other accounts (including without limit an account evidenced by a certificate of deposit) of the undersigned from time to time with the Bank or any Affiliate of the Bank. If an Event of Default (as defined in the Loan Agreement) occurs and is not cured within the time, if any, provided for by the Loan Agreement, the Bank may exercise any one or more of the rights and remedies granted by the Loan Agreement or any document contemplated thereby or given to a secured party under applicable law, including without limit the right to accelerate this Note and any other Indebtedness (as defined in the Loan Agreement), and may set off against the principal of and interest on this Note or against any other Indebtedness (i) any amount owing by the Bank to the undersigned, (ii) any property of the undersigned at any time in the possession of the Bank or any Affiliate of the Bank and (iii) any amount in any deposit or other account (including without limit an account evidenced by a certificate of deposit) of the undersigned with the Bank or any Affiliate of the Bank. The undersigned and all accommodation parties, guarantors and endorsers (i) waive presentment, demand, protest and notice of dishonor, (ii) agree that no extension or indulgence to the undersigned or release or non-enforcement of any security, whether with or without notice, shall affect the obligations of any accommodation party, guarantor or endorser, and (iii) agree to reimburse the holder of this Note for any and all costs and expenses incurred in collecting or attempting to collect any and all principal and interest under this Note (including, but not limited to, court costs and reasonable attorney fees, whether in-house or outside counsel is used and whether such costs and expenses are incurred al or informal collection actions, federal bankruptcy proceedings, appellate proceedings, probate proceedings, or otherwise). This Note shall be governed by and construed in accordance with the laws of the State of Michigan. To the extent not defined in this Note, capitalized terms used herein shall have the meanings assigned to them in the Loan Agreement. E-31 9 IN WITNESS WHEREOF, the undersigned has executed this Note as of the 22nd day of December, 1997. AUTOCAM CORPORATION By -------------------------------- Its -------------------------------- E-32 10 EXHIBIT B AFFIRMATION OF GUARANTY The undersigned hereby ratify and confirm their prior Guaranty in favor of Comerica Bank (the "Bank"), dated June 27, 1997 (the "Guaranty"), whereunder they guaranteed the indebtedness of Autocam Corporation, a Michigan corporation, of 4070 East Paris, S.E., Grand Rapids, Michigan 49512 (the "Borrower") in accordance with the terms contained in said Guaranty, and represent and warrant to the Bank that said Guaranty remains in full force and effect, is valid and binding in accordance with its terms, that they have no defenses to the enforceability thereof and that said Guaranty runs in favor of the Bank. The undersigned acknowledge and agree that the Borrower is incurring additional indebtedness from the Bank, including indebtedness and obligations pursuant to a Reimbursement Agreement dated as of December 1, 1997, relating to The Michigan Strategic Fund Variable Rate Demand Limited Obligation Revenue Bonds (Autocam Corporation Project), Series 1997, and the Q/T Term Loan in the amount of Five Million Two Hundred Thousand Dollars ($5,200,000). The undersigned have obtained such information as they desire as to the affairs of the Borrower and understand that the Bank has no duty or obligation, now or in the future, to supply them with any information whatsoever concerning the Borrower. The undersigned furthermore understand and agree that the giving of this affirmation at this time does not create an obligation on the Bank to obtain an affirmation in the future or affect the terms of the Guaranty as expressed therein, and that the failure of the Bank to obtain such an affirmation in the future shall not at any time affect the validity of the Guaranty. The failure of the Bank to obtain an affirmation from any other guarantor of the Borrower shall not at any time affect the validity of the Guaranty. Dated: December 22, 1997. AUTOCAM PAX, INC. AUTOCAM SOUTH CAROLINA, INC. By By ---------------------------- ---------------------------- Its Its ---------------------------- --------------------------- AUTOCAM LASER TECHNOLOGIES, INC. AUTOCAM ACQUISITION, INC. By By ---------------------------- ---------------------------- Its Its ---------------------------- --------------------------- E-33 EX-10.B 4 EXHIBIT 10B 1 EXHIBIT 10(b) STOCK REDEMPTION AGREEMENT THIS AGREEMENT is made and entered into this 1st day of September, 1998, by and among AUTOCAM CORPORATION, a Michigan corporation (hereinafter referred to as "Company"), and JOHN C. KENNEDY, in his individual capacity and as the donor and co-trustee of the John C. Kennedy Living Trust u/a dated February 14, 1986, as amended (hereinafter sometimes referred to as the "Living Trust"), and NANCY G. KENNEDY, in her individual capacity and as co-trustee of the Living Trust. John C. Kennedy and Nancy G. Kennedy are hereinafter sometimes referred to collectively as "Stockholders" and individually as a "Stockholder." WHEREAS, John C. Kennedy owns or controls a substantial number of the outstanding shares of Common stock of the Company; and WHEREAS, John C. Kennedy intends to make all of said stock presently owned or controlled by him subject to the terms of this Agreement; and WHEREAS, John C. Kennedy may in the future, during his lifetime or upon his death, transfer shares of said stock to the trustees of his Living Trust as to which the trustees desire to bind the Living Trust, and any trust or trust share established thereunder, to sell those shares of stock to the extent provided in this Agreement; and WHEREAS, the Company and the Stockholders have previously entered into certain Stock Redemption Agreements, dated November 6, 1992, September 20, 1993 and August 1, 1996, which provide for the redemption of up to Eighteen Million Dollars ($18,000,000) of the Stockholders' shares in the Company following both of their deaths; and WHEREAS, the Company has previously acquired Northwestern Mutual Joint Complife policies No. 12200147, No. 12443196 and No. 13542762 in the amount of Five Million Dollars ($5,000,000), Six Million Dollars ($6,000,000) and Seven Million Dollars ($7,000,000), respectively, in order to fund its obligations under the Stock Redemption Agreements; and WHEREAS, the Company and the Stockholders, for their mutual protection and the success of the Company, wish to make provisions for the redemption of an additional Five Million Dollars ($5,000,000) of the Stockholders' stock in the Company following both of their deaths. NOW, THEREFORE, in consideration of the mutual covenants to buy and sell and the obligations expressed herein by the parties, the Stockholders do hereby bind themselves, their executors, administrators, and the Living Trust, and the Company does hereby bind itself and its successors, and each hereto agree as follows: ARTICLE I Redemption of Decedent's Stock 1.1. Upon the death of the last to die of John C. Kennedy and Nancy G. Kennedy, the Company shall redeem and the estate of such deceased Stockholder, or trust holding stock includable in the estate of such deceased Stockholder, shall sell to the Company that number of shares of Common stock included in the deceased's estate for federal estate tax purposes, at the value specified in Article II, below, as shall equal (rounded down to the nearest whole share) the amount eligible for treatment as a Section 303 redemption but not more than Five Million Dollars ($5,000,000), in any event. For purposes of this Agreement, a Section 303 redemption means a distribution in full payment in exchange for stock pursuant to Section 303 of the Internal Revenue Code of 1986, as amended (the "Code"). E-34 2 1.2. If more than one entity bound by this Agreement owns shares of Common stock included in the estate of a deceased Stockholder, the redemption of which will qualify as a Section 303 redemption, then the redemption of shares of each class shall be made proportionately from each such holder according to the number of shares held by each. 1.3. The sale required by this Agreement shall be consummated within such time as to assure the redemption shall be treated as a Section 303 redemption. Subject to such limitation, the sale closing shall be held upon sixty (60) days' written notice given to the Company by the then holder of the stock to be redeemed but in no event shall the date specified for closing be earlier than two hundred forty (240) days after the death of the Stockholder. The closing of the redemption shall be at the principal office of the Company at which time the trustees of the Living Trust (or trust or trust shares established thereunder) or the Stockholder's legal representative, or both, shall deliver certificates representing the shares being redeemed under this Agreement appropriately endorsed in blank. 1.4. The redemption price shall be paid in cash in full at closing. 1.5. The Company shall, as part of this Agreement, purchase and maintain Northwestern Mutual Joint Complife Policy No. 14538421 on the lives of the Stockholders in the amount of Five Million Dollars ($5,000,000.00) (the "Policy"). The Policy and any proceeds received under the Policy shall be held by the Company in trust for the purposes of this Agreement. The Company shall pay all premiums on the Policy and shall give proof of payment to the Stockholders within 15 days after the due date of each premium. The Company shall be the sole owner of the Policy and may apply to the payment of premiums any dividends declared and paid on the Policy. ARTICLE II Valuation The price at which shares shall be redeemed hereunder shall be the value of the shares to be redeemed as included in the estate of the deceased Stockholder for federal estate tax purposes. ARTICLE III Miscellaneous 3.1. The Company and the Stockholders may alter, amend, or terminate this Agreement by a written agreement to that effect signed by the Company and all of the then living Stockholders. 3.2. The Stockholders, for themselves, their executors, administrators, and the Living Trust, and the Company, for itself and its successors, hereby agree to execute any and all instruments necessary to carry out the terms of this Agreement. 3.3. The references herein to Section 303 of the Code shall include any corresponding provisions of any successor federal revenue act. E-35 3 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day, month and year first above written. AUTOCAM CORPORATION By: \s\ John C. Kennedy ----------------------------- John C. Kennedy, President \s\ John C. Kennedy ------------------------------------------ John C. Kennedy, Individually and as co-Trustee of the John C. Kennedy Living Trust u/a dated February 14, 1986 \s\ Nancy G. Kennedy ------------------------------------------ Nancy G. Kennedy, Individually and as co-Trustee of the John C. Kennedy Living Trust u/a dated February 14, 1986 E-36 EX-10.N 5 EXHIBIT 10N 1 Exhibit 10(n) The Northwestern Mutual Life Insurance Company agrees to pay the benefits provided in this policy, subject to its terms and conditions. Signed at Milwaukee, Wisconsin on the Date of Issue. \s\ James D. Ericson \s\ John M. Brenner PRESIDENT AND C.E.O. SECRETARY JOINT LIFE PROTECTION POLICY INSURANCE PAYABLE ON SECOND DEATH Eligible for Annual Dividends. Premiums payable for period shown on page 3. Right To Return Policy - Please read this policy carefully. The policy may be returned by the Owner for any reason within ten days after it was received. The policy may be returned to your agent or to the Home Office of the Company at 720 East Wisconsin Avenue, Milwaukee, WI 53202. If returned, the policy will be considered void from the beginning. Any premium paid will then be refunded. INSURED Nancy G Kennedy AGE AND SEX 37 Female John C Kennedy III 40 Male POLICY DATE February 4, 1998 POLICY NUMBER 14 538 421 PLAN Joint Life Protection INITIAL TOTAL Payable on Second Death INSURANCE AMOUNT $5,000,000
This policy is a legal contract between the Owner and The Northwestern Mutual Life Insurance Company. Read your policy carefully. GUIDE TO POLICY PROVISIONS BENEFITS AND PREMIUMS SECTION 1. THE CONTRACT Life Insurance Benefit payable on death of the second of the insured to die. Notice and proof of death. Incontestability. Suicide. Definition of dates. SECTION 2. OWNERSHIP Rights of the Owner. Assignment as collateral. SECTION 3. ADDITIONAL PROTECTION Description of Additional Protection. Reduction of Additional Protection. E-37 2 SECTION 4. PREMIUMS AND REINSTATEMENT Payment of premiums. Grace period of 31 days to pay premium. Premium refund at second death. How to reinstate the policy. SECTION 5. DIVIDENDS Annual dividends. Paid-up additions and other dividend options. Dividend at death. SECTION 6. PAID-UP ADDITIONS SECTION 7. CASH VALUES AND PAID-UP INSURANCE Cash surrender value. What happens if premium is not paid. Basis of values. SECTION 8. LOANS Policy loans. Premium loans. Effect of policy debt. Interest on loans. SECTION 9. CHANGE OF POLICY SECTION 10. BENEFICIARIES Naming and change of beneficiaries. Succession in interest of beneficiaries. SECTION 11. PAYMENT OF POLICY BENEFITS Payment of death or surrender proceeds. Payment plans for policy proceeds. Right to increase income under payment plans. Guaranteed payment tables. ADDITIONAL BENEFITS (if any) APPLICATION STATEMENT OF POLICY COST AND BENEFIT INFORMATION FOR INFORMATION CONTACT YOUR AGENT OR THE HOME OFFICE ROBERT O. SMITH CLU THE NORTHWESTERN MUTUAL LIFE INS. CO. 85 CAMPAU N W 720 E. WISCONSIN AVENUE GRAND RAPIDS MI 49501 MILWAUKEE, WI 53202
PREMIUM INITIAL IF PAID YEARS PLAN AND ADDITIONAL BENEFITS AMOUNTS ANNUALLY PAYABLE JOINT LIFE PROTECTION PAYABLE ON SECOND DEATH BASIC AMOUNT $5,000,000 $46,100.00 FIRST 63
E-38 3
DIVIDENDS USED TO REDUCE PREMIUMS DIVIDENDS TO ADDITIONS* GUARANTEED CASH DIVIDEND TOTAL TOTAL POLICY DEATH CASH VALUE PAYABLE AT DEATH BENEFIT CASH VALUE YEAR BENEFIT END OF YEAR END OF YEAR* END OF YEAR END OF YEAR 1 5,000,000 0 598 5,003,937 598 2 5,000,000 41,850 3,198 5,024,118 45,699 3 5,000,000 85,700 4,398 5,051,240 94,286 4 5,000,000 131,750 5,698 5,085,490 146,791 5 5,000,000 180,000 7,048 5,126,762 203,412 10 5,000,000 458,250 15,498 5,446,021 563,176 15 5,000,000 807,900 26,198 5,961,368 1,095,204 20 5,000,000 1,242,200 50,748 6,763,001 1,908,684 23 5,000,000 1,506,400 80,298 7,614,390 2,609,071 28 5,000,000 1,993,200 108,748 9,463,033 4,235,160
BASIC POLICY BASIC POLICY 10 YEARS 20 YEARS 10 YEARS 20YEARS SURRENDER COST INDEX* .87 -.92 .68 -1.64 NET PAYMENT COST INDEX* 7.81 6.23 9.00 8.51 EQUIVALENT DIVIDEND INDEX* 1.41 2.99 1.55 3.55
NOTE-This statement is recommended by the National Association of Insurance Commissioners. It may not necessarily reflect all the benefits contained in the policy. Even though dividends must be used to buy additions in order to maintain the total death benefit of this policy, values are also shown for the premium reduction dividend option. An explanation of the intended use of the cost indexes and the equivalent level annual dividend is included in the Life Insurance Buyers Guide, available from your agent. *Dividends are refunds of premium and are determined annually. They reflect mortality and expense savings and investment gains. Not an estimate or guarantee of future results. VARIABLE RATE LOAN INTEREST OPTION PREPARED MARCH 27, 1998 THIS POLICY IS ISSUED IN A SELECT PREMIUM CLASS ON NANCY G KENNEDY AND A SELECT PREMIUM CLASS ON JOHN C KENNEDY III INSUREDS NANCY G KENNEDY AGE AND SEX 37 FEMALE JOHN C. KENNEDY III 40 MALE POLICY DATE FEBRUARY 4, 1998 POLICY NUMBER 14 538 421 E-39 4 BENEFITS AND PREMIUMS DATE OF ISSUE - JANUARY 20, 1998
Annual Years Plan and Additional Benefits Amount Premiums Payable Joint Life Protection Payable on Second Death Basic Amount $5,000,000 $46,100.00 To 2nd Death Additional Protection One Year Term Insurance 0++ Initial Totals $5,000,000 $46,100.00
++ Additional Protection is not part of this policy. Section 3 Additional Protection is of no effect. A monthly premium is payable on February 4, 1998 and on the 4th day of every calendar month after that. The first premium is $4,031.43 which consists of a monthly premium of $3,978.43 and $53.00 which provides coverage from the date of issue to the policy date. The minimum unscheduled additional premium under Section 4.3 is $100.00. This policy is issued in a select (nonsmoker) premium class on Nancy G Kennedy and in a select (nonsmoker) premium class on John C Kennedy III. DIRECT BENEFICIARY Autocam Corporation, employer OWNER Autocam Corporation, Other of the Insured INSURED Nancy G Kennedy AGE AND SEX 37 Female John C Kennedy 111 40 Male POLICY DATE February 4, 1998 POLICY NUMBER 14 538 421 PLAN Joint Life Protection INITIAL TOTAL Payable on Second Death INSURANCE AMOUNT $5,000,000
TABLE OF GUARANTEED VALUES FOR $5,000,000 BASIC AMOUNT
END OF POLICY PAID-UP YEAR February 4, CASH VALUE INSURANCE 1 1999 $ 0 $ 0 2 2000 41,850 260,000 3 2001 85,700 510,000 4 2002 131,750 745,000 5 2003 180,000 970,000 6 2004 230,600 1,185,000 7 2005 283,600 1,390,000 8 2006 339,150 1,585,000
E-40 5
END OF POLICY PAID-UP YEAR February 4, CASH VALUE INSURANCE 9 2007 $ 397,350 $ 1,770,000 10 2008 458,250 1,945,000 11 2009 522,050 2,110,000 12 2010 588,800 2,270,000 13 2011 658,600 2,420,000 14 2012 731,600 2,565,000 15 2013 807,900 2,700,000 16 2014 887,550 2,830,000 17 2015 970,750 2,950,000 18 2016 1,057,500 3,070,000 19 2017 1,147,950 3,180,000 20 2018 1,242,200 3,285,000 23 2021 1,506,400 3,570,000 28 2026 1,993,200 3,965,000 33 2031 2,521,200 4,275,000
Values are increased by paid-up insurance and decreased by policy debt. Values shown at end of policy year do not reflect any premium due on that policy anniversary. The mortality basis is the Commissioners 1980 Standard Ordinary Smoker/Nonsmoker Mortality Table with Ten-Year Select Mortality Factors for the sex of each Insured. Interest is based on an annual effective rate of 5% for the first 20 years and 4% thereafter. All values assume the continuous payment of premiums and the immediate payment of claims. TABLE OF CASH VALUES FOR $1.00 OF PAID-UP ADDITIONS
END OF END OF POLICY CASH POLICY CASH YEAR February 4, VALUE YEAR February 4, VALUE 0 1998 $.14479 50 2048 $ .85141 1 1999 .15202 51 2049 .86191 2 2000 .15962 52 2050 .87201 3 2001 .16758 53 2051 .88184 4 2002 .17594 54 2052 .89159 5 2003 .18470 55 2053 .90138 6 2004 .19389 56 2054 .91137 7 2005 .20352 57 2055 .92165 8 2006 .21361 58 2056 .93221 9 2007 .22418 59 2057 .94299 10 2008 .23525 60 2058 .95429 11 2009 .24685 61 2059 .96766 12 2010 .25898 62 2060 .98064 13 2011 .27168 14 2012 .28496 15 2013 .29885 16 2014 .31335
E-41 6
END OF END OF POLICY CASH POLICY CASH YEAR February 4, VALUE YEAR February 4, VALUE 17 2015 $ .32851 18 2016 .34433 19 2017 .36083 20 2018 .37804 21 2019 .39220 22 2020 .40678 23 2021 .42177 24 2022 .43716 25 2023 .45294 26 2024 .46908 27 2025 .48556 28 2026 .50234 29 2027 .51939 30 2028 .53669 31 2029 .55421 32 2030 .57188 33 2031 .58973 34 2032 .60766 35 2033 .62560 36 2034 .64347 37 2035 .66118 38 2036 .67864 39 2037 .69579 40 2038 .71258 41 2039 .72898 42 2040 .74495 43 2041 .76045 44 2042 .77542 45 2043 .78979 46 2044 .80350 47 2045 .81650 48 2046 .82879 49 2047 .84040
Values during a policy year will reflect any portion of the year's premium paid and the time elapsed in that year. These cash values are not guaranteed for increases in scheduled additional premiums or unscheduled additional premiums paid after the first 20 years. E-42 7 TABLE OF MAXIMUM ANNUAL PREMIUMS PER $1,000 OF TERM INSURANCE USED FOR CALCULATION OF ADDITIONAL PROTECTION PREMIUMS SEE SECTION 3.2 NOT APPLICABLE SECTION 1. THE CONTRACT 1.1 LIFE INSURANCE BENEFIT The Northwestern Mutual Life Insurance Company will pay a benefit on the death of the second of the Insureds to die (the "second death"). No benefit is payable on the death of the first of the Insureds to die. Subject to the terms and conditions of the policy: - payment of the death proceeds will be made after proof of the deaths of both Insureds is received at the Home Office; and - payment will be made to the beneficiary or other payee under Sections 10 and 11. The amount of the death proceeds when all premiums due have been paid will be: - the Basic Amount shown on page 3; plus - the amount of Additional Protection then in force under Section 3; plus - the amount of any paid-up additions then in force under Section 6.3; plus - the amount of any premium refund (Section 4.1) and any dividend at death (Section 5.3); less the amount of any policy debt (Section 8.3). These amounts will be determined as of the date of the second death. The amount of the death proceeds when the second death occurs during the grace period following the due date of any unpaid premium will be: - the amount determined above assuming the overdue premium had been paid; less - the amount of the unpaid premium. The amount of the death proceeds when the second death occurs while the policy is in force as paid-up insurance will be determined under Section 7.2. 1.2 NOTICE AND PROOF OF DEATH Written notice and proof of the death of each Insured must be given to the Company as soon as reasonably possible after each death. 1.3 ENTIRE CONTRACT; CHANGES This policy with the attached application is the entire contract. Statements in the application are representations and not warranties. A change in the policy is valid only if it is approved in writing by an officer the Company. The Company may require that the policy be sent to it for endorsement to show a change. No agent has the authority to change the policy or to waive any of its terms. E-43 8 1.4 INCONTESTABILITY The Company will not contest insurance under this policy after the insurance has been in force during the lifetime of at least one Insured for two years from the Date of Issue. In issuing the insurance, the Company has relied on the application. While the insurance is contestable, the Company, on the basis of a material misstatement in the application, may rescind the insurance or deny a claim. 1.5 SUICIDE If either Insured dies by suicide within one year from the Date of Issue, the policy will terminate. The amount payable by the Company will be limited to the premiums paid, less the amount of any policy debt, and less the cash value of any paid-up additions surrendered. 1.6 DATES Policy months, years and anniversaries are computed from the Policy Date. The contestable and suicide periods begin with the Date of Issue. These dates are shown on Sage 3. The Date of Issue for any insurance issued under Scheduled Additional Premiums After Issue (Section 4.2) or Unscheduled Additional Premium Option (Section 4.3) will be shown on an amendment to the Schedule of Benefits and Premiums. 1.7 MISSTATEMENT OF AGE OR SEX If the age or sex of either Insured has been misstated, the amount payable will be the amount which the premiums paid would have purchased at the correct age and sex. 1.8 PAYMENTS BY THE COMPANY All payments by the Company under this policy are payable at its Home Office. 1.9 INSURABILITY REQUIREMENTS To make some changes under this policy, the Insureds (or the surviving Insured) must meet the Company's insurability requirements. These requirements are as follows: - evidence of insurability must be given that is satisfactory to the Company; and - under the Company's underwriting standards, the Insureds are (or the surviving Insured is) in an underwriting classification that is the same as, or is better than, the one for this policy. SECTION 2. OWNERSHIP 2.1 THE OWNER The Owner is named on page 3. The Owner, or the Owner's successor or transferee, may exercise policy rights without the consent of any beneficiary. After the second death, policy rights may be exercised only as provided in Sections 10 and 11. 2.2 TRANSFER OF OWNERSHIP The Owner may transfer the ownership of this policy. Written proof of transfer satisfactory to the Company must be received at its Home Office. The transfer will then take effect as of the date that it was signed. The Company may require that the policy be sent to it for endorsement to show the transfer. E-44 9 2.3 COLLATERAL ASSIGNMENT The Owner may assign this policy as collateral security. The Company is not responsible for the validity or effect of a collateral assignment. The Company will not be responsible to an assignee for any payment or other action taken by the Company before receipt of the assignment in writing at its Home Office. The interest of any beneficiary will be subject to any collateral assignment made either before or after the beneficiary is named. A collateral assignee is not an Owner. A collateral assignment is not a transfer of ownership. Ownership can be transferred only by complying with Section 2.2. SECTION 3. ADDITIONAL PROTECTION 3.1 ADDITIONAL PROTECTION Description. Additional Protection consists of one year term insurance payable on the second death and paid-up additions payable on the second death. The amount of one-year term insurance will be reduced by the amount of paid-up additions purchased under Section 6.2 by dividends or by the payment of additional premiums. If the Company determines that the premium for Additional Protection is greater than the premium for the one year term insurance portion of Additional Protection, the amount by which the premium for Additional Protection exceeds the premium for one year term insurance will be treated as an additional premium under Section 6.2. Amount. The amount of Additional Protection for each policy year will be the amount shown on page 3 so long as premiums are paid when due unless: - the amount of Additional Protection is reduced by the Company under Section 3.2; or - the amount of Additional Protection is reduced by the Owner under Section 3.3. 3.2 REDUCTION BY COMPANY; OWNER'S RIGHT TO CONTINUE EXISTING PROTECTION If, on any policy anniversary, any part of Additional Protection is one year term insurance, the Company may reduce the one year term insurance. The Company will determine annually, based on the mortality, investment earnings and expense factors then being used to determine dividends payable on the policy, whether the Basic Amount and Additional Protection will generate sufficient values to pay the cost of one year term insurance. if the cost of one-year term insurance is greater than these values, the one year term insurance will be reduced so that its cost equals these values. The reduction of one-year term insurance will cause a like reduction in the amount of Additional Protection, so that the amount of Additional Protection will be less than the amount shown on page 3. The Company will send written notice of the reduction. The Owner may prevent a reduction that would otherwise occur by the payment of an increased premium for the portion of one-year term insurance that is part of Additional Protection. The premium rates for one-year term insurance will not be more than the rates shown on page 6. The increased premium for Additional Protection will be payable for the remainder of the premium paying period. The premium must be received at the Home Office within 31 days of the date the reduction would take effect. The right of the Owner to continue the amount of Additional Protection will terminate as of the first policy anniversary on which the Owner fails to pay an increased premium when due, or, if earlier, when the Owner reduces Additional Protection under Section 3.3. E-45 10 3.3 OTHER REDUCTIONS OF ADDITIONAL PROTECTION Reduction if Dividend Option Other Than Paid-Up Additions. If the Owner directs that dividends be used other than to purchase paid-up additions, any one year term insurance in force will terminate. The amount of Additional Protection will then be the amount of paid-up additions in force under Section 6.2. Reduction If Additions To Reduce Term Insurance Surrendered. If additions under Section 6.2 are surrendered, any one-year term insurance will terminate. The amount of Additional Protection will then be the amount of paid-up additions in force under Section 6.2. However, if the Company determines, based on the mortality, investment earnings and expense factors then being used to determine dividends on the policy, that the Basic Amount and Additional Protection, after the surrender of these additions, would generate sufficient values to pay the cost of one year term insurance, then: - one year term insurance will not terminate; and - the amount of Additional Protection will be reduced by the amount of paid-up additions under Section 6.2 that are surrendered SECTION 4. PREMIUMS AND REINSTATEMENT 4.1 PREMIUM PAYMENT Payment. All premiums after the first are payable at the Home Office or to an authorized agent upon delivery of a receipt signed by an officer of the Company. A premium must be paid on or before its due date. The date when each premium is due and the number of years for which premiums are payable are described on page 3. No premiums may be paid while this policy is in force as paid-up insurance under Section 7.2, except as provided in Reinstatement (Section 4.4). Frequency. Premiums are payable annually. Premiums may be paid on any other frequency with the consent of the Company. Grace Period. A grace period of 31 days will be allowed to pay a premium that is not paid on its due date. The policy will be in full force during this period. If the second death occurs during the grace period, any overdue premium will be paid from the proceeds of the policy. If a premium is not paid within the race period, the policy will terminate as of the due gate unless it continues as paid-up insurance under Section 7.2. Premium Refund At Second Death. The Company will refund a portion of a premium which was due and was paid for the policy year in which the second death occurs. The refund will be the amount by which the premium paid is more than the premium on an annual basis multiplied by the fraction of the policy year that has elapsed at the time of the second death. Any premium amount used to purchase a paid-up addition will not be included in determining the refund. The refund will be part of the policy proceeds. 4.2 AMOUNT OF PREMIUM; ADJUSTMENTS Scheduled Premiums. The premium due on this policy is the scheduled premium. The scheduled premium is the sum of the premium for the Basic Amount, any premium for Additional Protection, any scheduled additional premium used to purchase additions under Section 6.3, and any premium that is due for any additional benefit that is a part of this policy. These premium amounts at issue are shown on page 3. An increased premium for Additional Protection will be based on the attained ages of both Insureds and the amount of one year term insurance that is in force as part of Additional Protection as of the date used to determine the increased premium. E-46 11 Scheduled Additional Premiums At issue. This policy may have been issued with additional premiums. The amount of these additional premiums is shown on page 3. Scheduled Additional Premiums After Issue. The Owner may pay additional premiums by requesting that the premium payable on the policy be increased and paying any required fees. An increase in the level amount may be made at any time before the policy anniversary that is nearest to the 75th birthday of the older (or of the surviving) Insured. Additional premiums may be scheduled only if, at the time the increases are applied for: - the insurance in force after applying the scheduled additional premiums will be within the Company's issue limits; - the Company's insurability requirements are met (Section 1.9); and - the total amount of the scheduled additional premiums and other premiums paid to the Company under any policy for purchases of paid-up life insurance on the life of each Insured is within the Company's limits for such premiums; however, the Company may not set a limit below $1,000 per calendar year. Owner's Right To Decrease Scheduled Additional Premiums. The Owner may decrease the scheduled additional premium amount used to purchase paid-up additions under Section 6.3. This may be done at any time by written request sent to the Home Office. Later increases in the amount may be made only as provided in the preceding paragraph. Effective Date. A premium change will take effect on the first premium due date that follows the receipt at the Home Office of the Owner's written request for change. When the Owner increases or decreases premiums, the Company will send an amendment to the Schedule of Benefits and Premiums. Scheduled Additional Premiums Used To Purchase Paid-Up Additions. Each scheduled additional premium paid will be used, as of the due date of the premium, to purchase a paid-up addition as described in Section 6. 4.3 UNSCHEDULED ADDITIONAL PREMIUM OPTION Unscheduled additional premiums may be paid to the Company at any time before the policy anniversary that is nearest to the 75th birthday of the older (or of the surviving) Insured. An unscheduled additional premium may be paid only if, at the time the premium and any required fees are paid: - the insurance in force after applying the unscheduled additional premium will within the Company's issue limits; - the Company's insurability requirements are met; and - the total amount of unscheduled additional premiums and other premiums paid to the Company under any policy for purchases of paid-up life insurance on the life of each Insured is within the Company's limits for such premiums; however, the Company may not set a limit below $1,000 per calendar year. Each unscheduled additional premium may not be less than the minimum amount shown on page 3. Each unscheduled additional premium will be used, as of the date the premium is paid, to purchase a paid-up addition as described in Section 6. 4.4 REINSTATEMENT This policy may be reinstated within three years after the due date of the overdue premium. All unpaid premiums (except premiums that would purchase paid-up additions) and interest as required below must e received by the Company: - while both Insureds are alive; or - while one insured is alive if only that Insured was alive on the due date of the overdue premium. The policy may not be reinstated if the policy was surrendered for its cash surrender value. Any policy debt on the due date of the overdue premium, with interest from that date at the policy loan interest rate, must be repaid or reinstated. E-47 12 SECTION 5. DIVIDENDS 5.1 ANNUAL DIVIDENDS This policy will share in the divisible surplus of the Company. This surplus is determined each year. This policy's share will be credited as a dividend on the policy anniversary. 5.2 USE OF DIVIDENDS Annual dividends may be paid in cash or used for one of the following: - Paid-Up Additions. Dividends will purchase paid-up additional insurance as described in Section 6. - Premium Payment. Dividends will be used to reduce premiums. If the balance of a premium is not paid, or if this policy is in force as paid-up insurance, the dividend will purchase paid-up additions. Other uses of dividends may be made available by the Company. If no direction is given for the use of dividends, they will purchase paid-up additions. 5.3 DIVIDEND AT DEATH A dividend payable for the period from the beginning of the policy year to the date of the second death will be payable as part of the policy proceeds. SECTION 6. PAID-UP ADDITIONS 6.1 PURCHASE OF ADDITIONS; CHARGES Paid-up additions are purchased by additional premiums and by dividends. Paid-up auditions can be used to reduce term insurance (Section 6.2) or to increase coverage (Section 6.3). Paid-up additions increase the policy's cash value and will share in divisible surplus. They may be surrendered, subject to the limitations of Section 3.3, unless they are used for a loan. The Company may deduct a charge for expenses for each additional premium that is used to purchase a paid-up addition. The charge will be 9% for additional premiums that were scheduled at issue or that are applied for before the 20th policy anniversary. The charge will be 9% for unscheduled additional premiums that are paid before the 20th policy anniversary. 6.2 ADDITIONS TO REDUCE TERM INSURANCE This type of paid-up addition will be part of the Additional Protection. Each addition will reduce the amount of one-year term insurance that is in force as part of Additional Protection, and the amount of Additional Protection will remain unchanged. 6.3 ADDITIONS TO INCREASE COVERAGE This type of paid-up addition will be used to provide paid-up insurance that is not included in Additional Protection. Each addition will immediately increase the death proceeds payable under Section 1.1. E-48 13 6.4 ALLOCATION OF ADDITIONAL PREMIUMS AND DIVIDENDS When there is no one year term insurance in force as part of Additional Protection, the dividends and the additional premiums will be applied under Section 6.3. When there is one-year term insurance in force, dividends and any part of the premium for Additional Protection treated as an additional premium will be applied under Section 6.2. Scheduled additional premiums which are not part of the premium for Additional Protection will be applied under Section 6.3. Subject to the preceding paragraph, the Owner may change the allocation of additional premiums between Sections 6.2 and 6.3. This may be done by written request that is sent to the Home Office, if the Company's insurability requirements are met (Section 1.9). An allocation must e made in whole dollars. An increase in the amount of premium allocated to the Purchase of additions under Section 6.2 will be reflected as an increase in the amount of the premium payable for Additional Protection. In addition, for the policy to be reinstated more than 31 days after the end of the grace period: - evidence of insurability must be given that is satisfactory to the Company: a. for both Insureds; or b. for one Insured if only that Insured was alive on the due date of the overdue premium; and - all unpaid premiums (except premiums that would purchase paid-up additions) must be paid with interest from the due date of each premium. Interest is at an annual effective rate of 6%. SECTION 7. CASH VALUES AND PAID-UP INSURANCE 7.1 CASH VALUE The cash value for this policy, when all premiums due have been paid, will be the sum of: - the cash value from the Table of Guaranteed Values on page 4; and - the cash value of any paid-up additions. The cash value within three months after the due date of any unpaid premium will be the cash value on that due date reduced by any later surrender of paid-up additions. After that, the cash value will be the cash value of the insurance then in force. The cash value of any paid-up insurance or paid-up additions will be the net single premium for that insurance at the attained ages of both Insureds. 7.2 PAID-UP INSURANCE If any premium is unpaid at the end of the grace period, this policy will be in force as paid-up insurance. The amount of paid-up insurance will be determined by using the cash value from the Table of Guaranteed Values as a net single premium at the attained ages of both Insureds. Any paid-up additions and any policy debt will continue. Paid-up insurance will share in divisible surplus. The amount of the death proceeds when this policy is in force as paid-up insurance will be: - the amount of paid-up insurance determined above; plus - the amount of any in force paid-up additions; plus - the amount of any dividend at death (Section 5.3); less - the amount of any policy debt (Section 8.3). E-49 14 These amounts will be determined as of the date of the second death. If paid-up insurance is surrendered within 31 days after a policy anniversary, the cash value will not be less than the cash value on that anniversary reduced by any later surrender of paid-up additions. 7.3 CASH SURRENDER The Owner may surrender this policy for its cash surrender value. The cash surrender value is the cash value less any policy debt. A written surrender of all claims, satisfactory to the Company, will be required. The date of surrender will be the date of receipt at the Home Office of the written surrender. The policy will terminate and the cash surrender value will be determined as of the date of surrender. The Company may require that the policy be sent to it. 7.4 TABLE OF GUARANTEED VALUES Cash values and paid-up insurance for the Basic Amount are shown on page 4 for the end of the policy years indicated. These values assume that all premiums due have been paid for the number of years. They do not reflect paid-up additions or policy debt. Values during a policy year will reflect the time elapsed in that year. Cash values for paid-up additions are shown on page 5. Each cash value is equal to the net single premium at the attained ages of both Insureds. Values during a policy year reflect the time elapsed in that year. Values for policy years not shown are calculated on the same basis as those on page 4. A list of these values will be furnished on request. All values are at least as great as those required by the state in which this policy is delivered. 7.5 BASIS OF VALUES The cash value for each policy year not shown on page 4 equals the reserve the Basic Amount for that year calculated on the Commissioners Reserve Valuation Method. Cash values and net single premiums are calculated using the basis of values shown on page 4. Calculations assume the continuous payment of premiums and the immediate payment of claims. For unscheduled additional premiums or increases in scheduled additional premiums applied for after the 20th anniversary, the Company may base cash values an premiums on the interest rates and mortality tables being used as the basis of values for whole life insurance then being issued by the Company. SECTION 8. LOANS 8.1 POLICY AND PREMIUM LOANS The Owner may obtain a loan from the Company in an amount that is not more than the loan value. Policy Loan. The loan may be obtained on written request. The Company may defer making the loan for up to six months unless the loan is to be used to pay premiums due the Company. Premium Loan. If the premium loan provision is in effect on this policy, a loan will be made to pay an overdue scheduled premium. If the loan value is not large enough to pay the overdue scheduled premium on a quarterly frequency, the policy will continue in force or terminate as provided in Grace Period (Section 4.1). The Owner may elect or revoke the premium loan provision by written request received at the Home Office. E-50 15 8.2 LOAN VALUE The loan value is the smaller of a. or b., less any policy debt and any scheduled premium then due or billed; a. and b. are defined as: a. the cash value one year after the date of the loan, assuming all scheduled premiums due within that year are paid, less interest to one year from the date of the loan. b. the cash value on the due date of the first scheduled premium not yet billed that is due after the date of the loan, less interest from the date of the loan to that premium due date. 8.3 POLICY DEBT Poll debt consists of all outstanding loans and accrued interest. It may be paid to the Company at any time. Any policy debt will be deducted from the policy proceeds. If the policy debt equals or exceeds the cash value, this policy will terminate. Termination occurs 31 days after a notice has been mailed to the Owner and to any assignee on record at the Home Office. 8.4 LOAN INTEREST Interest accrues on a daily basis from the date of the loan on policy loans and from the premium due date on premium loans. Unpaid interest is added to the loan. Interest is payable at an annual effective rate that is set by the Company annually and applied to new or outstanding policy debt during the year beginning each January 1. The highest loan interest rate that may be set by the Company is the greater of: - a rate 1 % higher than the rate shown on page 4 used to calculate cash values and net single premiums; and - a rate based on the Corporate Bond Yield Averages -- Monthly Average Corporate for the immediately preceding October. This Average is published by Moody's Investors Service, Inc. If it is no Conger published, the highest loan rate will be based on some other similar average established by the insurance supervisory official of the state in which this policy is delivered. The loan interest rate set by the Company will not exceed the maximum rate permitted by the laws of the state in which this policy is delivered. The loan interest rate may be increased only if the increase in the annual effective rate is at least 1/2%. The loan interest rate will be decreased if the decrease in the annual effective rate is at least 1/2%. The Company will give notice: - of the initial loan interest rate in effect at the time a policy or premium loan is made. - of an increase in loan interest rate on outstanding policy debt no later than 30 days before the January 1st on which the increase takes effect. This policy will not terminate during a policy year as the sole result of an increase in the loan interest rate during that policy year. SECTION 9. CHANGE OF POLICY 9.1 CHANGE OF PLAN The Owner may reduce the amount of this policy, subject to the Company's minimum policy amount rules. The Owner may also change this policy to any permanent life insurance plan agreed to by the Owner and the Company by: - paying the required costs; and - meeting any other conditions set by the Company. E-51 16 9.2 POLICY SPLIT Policy Split Right. While both Insureds are alive, the Owner may exchange this policy for two policies (the "new policies"), one on the life of each Insured, if there is a change in federal estate tax law which results in either: a. the repeal of the unlimited marital deduction provision; or b. at least a 50% reduction in the maximum percentage rate set forth in the federal estate tax schedule in effect on the Date of Issue of this Policy. This exchange may be made without evidence of insurability. Conditions. The exchange may be made by meeting any conditions set by the Company, including the following: a. the Company must receive a written request from the owner no more than 180 days after the earlier of the date of enactment of the law repealing the unlimited marital deduction or the date of enactment of the law reducing the maximum percentage rate of federal estate tax by 50%; and b. any required costs are paid. These costs include the first premiums on the new policies and any difference in cash values between this policy and the new policies. Terms Of The New Policies. The new policies will be issued on the Whole Life Paid Up at 90 plan. The new policies will have the same Date of Issue and Policy Date as this policy. The new policies will take effect on the date the written request to exchange this policy for the new policies is received at the Home Office. This policy will terminate when the new policies take effect. The amount of the death benefit of each new policy will be one-half the amount of the death benefit this policy, including the amount of any additions purchased under Section 6.3. The cash value of this policy will be allocated to each new policy as determined appropriate by the Company. Any policy debt will be divided between the new policies in proportion to the cash value. Any assignment will continue on the new policies. The premium for each new policy will be based on the Company's premium rates in effect on the Policy Date of this policy, the Insured's sex, the Insured's age on the Policy Date of this policy, and the insured's underwriting classification for this policy. A new policy may have the Waiver of Premium Benefit if the Insured under the new policy is a Covered insured under the Waiver of Premium Benefit on this policy. If premiums are waived on this policy at the time of the exchange, premiums will continue to be waived on the new policy insuring the disabled Covered insured for as long as they would have been waived under this policy. If the sum of the cash values of the new policies is less than the cash value of this policy, the excess cash value will be used to purchase paid-up additions on the new policies. SECTION 10. BENEFICIARIES 10.1 DEFINITION OF BENEFICIARIES The term "beneficiaries" as used in this policy includes direct beneficiaries, contingent beneficiaries and further payees. 10.2 NAMING AND CHANGE OF BENEFICIARIES By Owner. The Owner may name and change the beneficiaries of death proceeds: - before the second death. E-52 17 - during the first 60 days after the date of the second death, if the second insured was not the Owner immediately prior to the second death. A change made during this 60 days may not be revoked. By Direct Beneficiary. A direct beneficiary may name and change the contingent beneficiaries and further payees of the direct beneficiary's share of the proceeds: - if the direct beneficiary is the Owner; - if, at any time after the second death, no contingent beneficiary or further payee of that share is living: or - if, after the second death, the direct beneficiary elects a payment plan. The interest of any other beneficiary in the share of that direct beneficiary will end. These direct beneficiary rights are subject to the Owner's rights during the 60 days after the second death. Effective Date. A naming or change of a beneficiary will be made on receipt at the Home Office of a written request that is acceptable to the Company. The request will then take effect as of the date it was signed. The Company is not responsible for any payment or other action that is taken by it before the receipt of the request. The Company may require that the policy be sent to it to be endorsed to show the naming or change. 10.3 SUCCESSION IN INTEREST OF BENEFICIARIES Direct Beneficiaries. The proceeds of this policy will be payable in equal shares to the direct beneficiaries who survive and receive payment. If a direct beneficiary dies before receiving all or part of the direct beneficiary's full share, the unpaid portion will be payable in equal shares to the other direct beneficiaries who survive and receive payment. Contingent Beneficiaries. At the death of all of the direct beneficiaries, the proceeds, or the present value of any unpaid payments under a payment plan, will be payable in equal shares to the contingent beneficiaries who survive and receive payment. If a contingent beneficiary dies before receiving all or part of the contingent beneficiary's full share, the unpaid portion will be payable in equal shares to the other contingent beneficiaries who survive and receive payment. Further Payees. At the death of all of the direct and contingent beneficiaries, the proceeds, or the present value of any unpaid payments under a payment plan, will be paid in one sum: - in equal shares to the further payees who survive and receive payment; or - if no further payees survive and receive payment, to the estate of the last to die of all of the direct and contingent beneficiaries. Owner Or The Owner's Estate. If no beneficiaries are alive on the date of the second death, the proceeds will be paid to the Owner or to the Owner's estate. 10.4 GENERAL Transfer Of Ownership. A transfer of ownership of itself will not change the interest of a beneficiary. Claims Of Creditors. So far as allowed by law, no amount payable under this policy will be subject to the claims of creditors of a beneficiary. Succession Under Payment Plans. A direct or contingent beneficiary who succeeds to an interest in a payment plan will continue under the terms of the plan. E-53 18 SECTION 11. PAYMENT OF POLICY BENEFITS 11.1 PAYMENT OF PROCEEDS Death proceeds will be paid under the payment plan that takes effect on the second death. The Interest Income Plan (Option A) will be in effect if no payment plan has been elected. Interest will accumulate from the date of the second death until a payment plan is elected or the proceeds are withdrawn in cash. Surrender proceeds will be the cash surrender value as of the date of surrender. These proceeds will be paid in cash or under a payment plan that is elected. The Company may defer paying the surrender proceeds for up to six months from the date of surrender. If payment is deferred for 30 days or more, interest will be paid on the surrender proceeds from the date of surrender to the date of payment. Interest will be at the annual effective interest rate shown on page 4 used to calculate cash values and net single premiums. 11.2 PAYMENT PLANS Interest Income Plan (Option A). The proceeds will earn interest, which may e received each month or accumulated. The first payment is due one month after the date on which the plan takes effect. Interest that has accumulated may be withdrawn at any time. Part or all of the proceeds may be withdrawn at any time. Installment Income Plans. Payments will be made each month on the terms of the plan that is elected. The first payment is due on the date that the plan takes effect. - Specified Period (Option B). The proceeds with interest will be paid over a period of from one to 30 years. The present value of any unpaid installments may be withdrawn at any time. - Specified Amount (Option D). Payments of not less than $10 per $1,000 of proceeds will be made until all of the proceeds with interest have been paid. The balance may be withdrawn at any time. Life Income Plans. Payments will be made each month on the terms of the plan that is elected. The first payment is due on the date that the plan takes effect. Proof of the date of birth, acceptable to the Company, must be furnished for each person on whose the payments are based. - Single Life Income (Option C). Payments will be made for a chosen period and, after that, for the life of the person on whose life the payments are based. The choices for the period are: a. zero years; b. 10 years; c. 20 years; or d. a refund period which continues until the sum of the payments that have been made is equal to the proceeds that were placed under the plan. - Joint And Survivor Life Income (Option E). Payments are based on the lives of two persons. Level payments will be made for a period of 10 years and, after that, for as long as one or both of the persons are living. - Other Selections. The Company may offer other selections under the Life Income Plans. - Withdrawal. The present value of any unpaid payments that are to be made for the chosen period (Option C) or the 10 year period (Option E) may be withdrawn only after the death of all of the persons on whose lives the payments are based. - Limitations. A direct or contingent beneficiary who is a natural person may be paid under a Life Income Plan only if the payments depend on that beneficiary's life. If a direct or contingent beneficiary is not a natural person, the Company's approval of the payment plan is required. Payment Frequency. On request, payments will be made once every 3, 6 or 12 months instead of each month. E-54 19 Transfer Between Payment Plans. A beneficiary who is receiving payment under a plan which includes the right to withdraw may transfer the amount withdrawable to any other plan that is available. Minimum Payment The Company may limit the election of a payment plan to one that results in payments of at least $50. If payments under a payment plan are or become less than $50, the Company may change the frequency of payments. If the payments are being made once every 12 months and are less than $50, the Company may pay the present value or the balance of the payment plan. 11.3 PAYMENT PLAN RATES Interest Income And Installment Income Plans. Proceeds will earn interest at rates declared each year by the Company. None of these rates will be less than an annual effective rate of 2%. Interest of more than 2% will increase the amount of the payments or, for the Specified Amount Plan (Option D), increase the number of payments. The Company may offer guaranteed rates of interest higher than 2% with conditions on withdrawal. The present value of the amount of any unpaid installments will be based on the rate of interest used to determine the amount of the payment. Life Income Plans. Payments will be based on rates declared by the Company. These rates will provide at least as much income as would the Company's rates, on the date that the payment plan takes effect, for a single premium immediate annuity contract. Payments under these rates will not be less than the amounts that are described in Minimum Payment Rates. Minimum Payment Rates. The minimum payment rates for the Installment Income Plans (Options B and D) and the Life Income Plans (Options C and E) are shown in the Minimum Payment Rate Tables. The Life Income Plan payment rates in those tables depend on the sex and on the adjusted age of each person on whose life the payments are based. The adjusted age is: - the age on the birthday that is nearest to the date on which the payment plan takes effect; plus - the age adjustment shown below for the number of policy years that have elapsed from the Policy Date to the date that the payment plan takes effect. A part of a policy year is counted as a full year.
POLICY AGE POLICY AGE YEARS ADJUSTMENT YEARS ADJUSTMENT ELAPSED ELAPSED 1 to 8 0 33 to 40 -4 9 to 16 -1 41 to 48 -5 17 to 24 -2 49 or more -6 25 to 32 -3
11.4 EFFECTIVE DATE FOR PAYMENT PLAN A payment plan that is elected for death proceeds will take effect on the date of the second death if: - the plan is elected by the Owner; and - the election is received at the Home Office before the second death. In all other cases, a payment plan that is elected will take effect: E-55 20 - on the date the election is received at the Home Office; or - on a later date, if requested. 11.5 PAYMENT PLAN ELECTIONS For Death Proceeds By Owner. The Owner may elect payment plans for death proceeds: - before the second death. - during the first 60 days after the date of the second death, if the second insured to die was not the Owner immediately prior to the second death. An election made during those 60 days may not be changed. For Death Proceeds By Direct Or Contingent Beneficiary. A direct or contingent beneficiary may elect payment plans for death proceeds payable to that beneficiary if no payment plan that has been elected is in effect. This right is subject to the Owner's rights during the 60 days after the date of the second death. For Surrender Proceeds. The Owner may elect payment plans for surrender proceeds. The Owner will be the direct beneficiary. 11.6 INCREASE OF MONTHLY INCOME A direct beneficiary who is to receive proceeds under a payment plan may increase the amount of the monthly payments. This is done by the payment of an annuity premium to the Company at the time the payment plan elected under Section 11.5 takes effect. The amount that will be applied under the payment plan will be the net premium. The net premium is the annuity premium less a charge of not more than 2% and less an any. The net premium will be applied under the same payment plan and at the same rates as the proceeds. The Company may limit this net premium to an amount that is equal to the direct beneficiary's share of the proceeds payable under this Policy. MINIMUM PAYMENT RATE TABLES Minimum Monthly income Payments Per $1,000 Of Proceeds INSTALLMENT INCOME PLANS (OPTIONS B AND D)
PERIOD MONTHLY PERIOD MONTHLY PERIOD MONTHLY (YEARS) PAYMENT (YEARS) PAYMENT (YEARS) PAYMENT 1 $84.09 11 $8.42 21 $4.85 2 42.46 12 7.80 22 4.67 3 28.59 13 7.26 23 4.51 4 21.65 14 6.81 24 4.36 5 17.49 15 6.42 25 4.22 6 14.72 16 6.07 26 4.10 7 12.74 17 5.77 27 3.98 8 11.25 18 5.50 28 3.87 9 10.10 19 5.26 29 3.77 10 9.18 20 5.04 30 3.68
E-56 21 MINIMUM PAYMENT RATE TABLES Minimum Monthly Income Payments Per $1,000 Of Proceeds LIFE INCOME PLAN (OPTION C) SINGLE LIFE MONTHLY PAYMENTS
MALE CHOSEN PERIOD (YEARS) FEMALE CHOSEN PERIOD (YEARS) ADJUSTED ADJUSTED AGE* ZERO 10 20 REFUND AGE ZERO 10 20 REFUND 55 $4.48 $4.43 $4.28 $4.29 55 $4.09 $4.07 $4.00 $ 3.99 56 4.56 4.50 4.34 4.36 56 4.15 4.13 4.05 4.05 57 4.65 4.59 4.40 4.43 57 4.22 4.20 4.11 4.11 58 4.75 4.68 4.46 4.50 58 4.30 4.27 4.17 4.17 59 4.85 4.77 4.52 4.58 59 4.38 4.34 4.23 4.24 60 4.96 4.87 4.59 4.66 60 4.46 4.42 4.29 4.30 61 5.07 4.97 4.66 4.75 61 4.55 4.50 4.36 4.38 62 5.20 5.08 4.72 4.84 62 4.65 4.59 4.43 4.46 63 5.33 5.19 4.79 4.94 63 4.75 4.69 4.50 4.54 64 5.48 5.32 4.86 5.04 64 4.86 4.79 4.57 4.62 65 5.63 5.44 4.92 5.15 65 4.97 4.89 4.64 4.71 66 5.80 5.58 4.99 5.26 66 5.10 5.01 4.71 4.81 67 5.97 5.72 5.05 5.38 67 5.23 5.12 4.79 4.91 68 6.16 5.86 5.12 5.51 68 5.38 5.25 4.86 5.02 69 6.36 6.01 5.18 5.64 69 5.53 5.39 4.93 5.14 70 6.58 6.17 5.23 5.78 70 5.70 5.53 5.01 5.26 71 6.81 6.33 5.29 5.93 71 5.88 5.68 5.08 5.39 72 7.O5 6.49 5.34 6.08 72 6.08 5.83 5.15 5.53 73 7.31 6.66 5.38 6.25 73 6.29 6.00 5.21 5.67 74 7.59 6.83 5.43 6.42 74 6.52 6.17 5.27 5.83 75 7.89 7.01 5.46 6.60 75 6.77 6.35 5.33 5.99 76 8.21 7.19 5.50 6.79 76 7.04 6.54 5.38 6.17 77 8.56 7.37 5.53 6.99 77 7.33 6.73 5.43 6.35 78 8.93 7.55 5.56 7.20 78 7.65 6.93 5.47 6.55 79 9.32 7.72 5.58 7.42 79 7.99 7.13 5.51 6.76 80 9.75 7.90 5.60 7.66 80 8.36 7.34 5.54 6.98 81 10.20 8.07 5.62 7.90 81 8.76 7.54 5.57 7.21 82 10.69 8.23 5.63 8.16 82 9.20 7.74 5.59 7.46 83 11.21 8.39 5.64 8.43 83 9.67 7.93 5.61 7.72 84 11.76 8.54 5.65 8.71 84 10.18 8.12 5.63 7.99 85 and over 12.35 8.68 5.66 9.01 85 and over 10.74 8.30 5.64 8.28
E-57 22 LIFE INCOME PLAN (OPTION E) JOINT AND SURVIVOR MONTHLY PAYMENTS
MALE FEMALE ADJUSTED AGE ADJUSTED AGE* 55 60 65 70 75 80 85 and over 55 $ 3.79 $ 3.93 $4.07 $4.19 $4.29 $4.35 $4.39 60 3.87 4.07 4.27 4.46 4.61 4.73 4.80 65 3.94 4.18 4.45 4.73 4.98 5.19 5.32 70 3.99 4.27 4.61 4.99 5.37 5.70 5.94 75 4.02 4.34 4.73 5.20 5.72 6.21 6.60 80 4.05 4.38 4.81 5.35 6.00 6.67 7.24 85 and over 4.06 4.40 4.86 5.45 6.18 7.00 7.75
*See Section 11.3 CHANGE OF INSURED PROVISION As of the Date of Issue, the policy is amended to include the following provision: Change. While both Insureds are alive, the Owner may change either Insured under this policy by: - paying the required costs; and - meeting any other conditions set by the Company, including the following: a. on the date of change, the new insured's age may not be more than 75; b. the new insured must have reached age 15 on or before the Policy Date of this policy; c. the new insured must be insurable; and d. the Owner must have an insurable interest in the life of the new insured. Date Of Change. The date of change will be the later of: - the date of the request to change; or - the date of the medical examination (or the non-medical application). Terms Of Policy After Change. The policy will cover the continuing Insured and the new insured starting on the date of change. When coverage on the new insured starts, coverage on the prior Insured will terminate. - The contestable and suicide periods for the new insured start on the date of change. - There will be no change in the death benefit of the policy at the time of change. - Any policy debt or assignment will continue after the change. \s\ John M. Brenner Secretary THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY E-58 23 Northwestern Mutual Life POLICY APPLICATION SUPPLEMENT FOR JOINT LIFE PROTECTION THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202 INSURED: Nancy G. Kennedy John C. Kennedy III POLICY: Basic Amount Additional Protection Additions to Increase Coverage Scheduled Annual Additional Premium to: Reduce Term Insurance increase Coverage Additional Initial Premium to: Reduce Term Insurance Increase Coverage Estate Preservation Rider First Insured: Disability Waiver Death Waiver Second Insured: Disability Waiver Death Waiver ANNUAL DIVIDENDS: Purchase paid-up additional insurance POLICY LOAN INTEREST RATE: Illustration No. MI1320-RRJNB-092131 Dividend Scale Year 1998 RR Inside Additions $0 Underwriting Amount $5,000,000 MI JCL - $5,000,000 Total Protection Age 37, Female, Select Age 40, Male, Select E-59 EX-10.P(1) 6 EXHIBIT 10P.1 1 Exhibit 10(p)(1) ================ MACHINE TOOLS EQUIPMENT SCHEDULE SCHEDULE NO. 018 DATED THIS November 1, 1997 TO MASTER LEASE AGREEMENT DATED AS OF August 21, 1989
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
Capitalized terms not defined herein shall have the meanings assigned to them in the Master Lease Agreement identified above ("Agreement"; the Agreement as it relates to this Schedule, together with this Schedule being collectively referred to as "Lease"). A. Equipment: Subject to the terms and conditions of the Lease, Lessor agrees to Lease to Lessee the Equipment described below (the "Equipment").
Number Capitalized Lessors of Units Cost Per Unit Manufacturer Serial Numbers Model and Type of Equipment -------- ------------- ------------ -------------- --------------------------- 1 $290,060.00 Tornos Bechler T.60704 BS-20B Multi Spindle Automatic Screw Machine
Equipment immediately listed above is located at: 4070 E. Paris Avenue, Kentwood, Kent County, MI 49512
B. Financial Terms 1. Advance Rent (if any): $ 3,500.36. 5. Basic Term Commencement Date: November 1, 1997. 2. Capitalized Lessor's Cost: $290,060.00. 6. Lessee Federal Tax ID No.: 38-2790152. 3. Basic Term (No. of Months): 96 Months. 7. Last Delivery Date: November 1, 1997. 4. Basic Term Lem Rate Factor: .01206771. 8. Daily Lease Rate Factor: .000402.
9. First Termination Date: Thirty-six (36) months after the Basic Term Commencement Date. 10. Interim Rent: For the period from and including the Lease Commencement Date to 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, 1997 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. E-60 2 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. 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 Capitalized Lessors Cost. D. Property Tax APPLICABLE TO EQUIPMENT LOCATED IN KENTWOOD, MI: Lessee agrees that it will (a) list all such Equipment, (b) report all property taxes assessed against such Equipment and (c) pay all such taxes when due directly to the appropriate taxing authority until Lessor shall otherwise direct in writing. Upon request of Lessor, Lessee shall promptly provide proof of filing and proof of payment to Lessor. 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 Tornos Technologies (THE "SUPPLIER(S)"), (B) 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 SECTION XII OF THE AGREEMENT. E-61 3
G. Stipulated Loss and Termination Value Table* Rental Termination Stipulated Loss Rental Termination Stipulated Loss Number Value % Value % Number Value % Value % 1 100.705 103.725 49 66.286 70.296 2 100.169 103.209 50 65.417 69.447 3 99.613 102.674 51 64.542 68.593 4 99.051 102.132 52 63.661 67.733 5 98.483 101.585 53 62.772 66.865 6 97.905 101.029 54 61.879 65.992 7 97.319 100.463 55 60.980 65.114 8 96.724 99.889 56 60.076 64.230 9 96.120 99.305 57 59.167 63.342 10 95.510 98.715 58 58.251 62.446 11 94.890 98.117 59 57.329 61.545 12 94.262 97.509 60 56.402 60.639 13 93.627 96.895 61 55.468 59.726 14 92.994 96.272 62 54.529 58.807 15 92.331 95.639 63 53.584 57.883 16 91.672 95.001 64 52.633 56.952 17 91.007 94.357 65 51.674 56.014 18 90.334 93.705 66 50.709 55.070 19 89.655 93.046 67 49.739 54.120 20 88.969 92.380 68 48.764 53.166 21 88.275 91.707 69 47.783 52.205 22 87.575 91.028 70 46.795 51.238 23 86.868 90.342 71 45.801 50.264 24 86.154 89.648 72 44.801 49.286 25 85.433 88.948 73 43.794 48.299 26 84.705 88.241 74 42.782 47.308 27 83.970 87.527 75 41.764 46.310 28 83.229 86.806 76 40.738 45.305 29 82.481 86.079 77 39.705 44.293 30 81.728 85.346 78 38.668 43.276 31 90.968 84.607 79 37.626 42.255 32 80.203 83.862 80 36.580 41.229 33 79.432 83.112 81 35.529 40.199 34 78.655 82.355 82 34.471 39.161 35 77.871 81.592 83 33.408 38.119 36 77.082 80.824 94 32.340 37.072 37 76.286 90.049 85 31.265 36.018 38 75.484 79.268 86 30.185 34.959 39 74.677 78.480 87 29.101 33.895 40 73.862 77.687 88 28.009 32.823 41 73.042 76.886 89 26.909 31.744 42 72.216 76.081 90 25.811 30.666 43 71.385 75.271 91 24.714 29.590 44 70.549 74.456 92 23.618 28.515 45 69.708 73.636 93 22.524 27.441 46 68.861 72.809 94 21.422 26.360 47 68.008 71.977 95 20.321 25.279
E-62 4
Rental Termination Stipulated Loss Rental Termination Stipulated Loss Number Value % Value % Number Value % Value % 49 67.151 71.140 96 19.221 24.200
*The Stipulated Loss Value of 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. Section I(a) of the Agreement is hereby deleted in its entirety and the following substituted in its stead: 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 Section XI of the Lease ("Return of Equipment"), 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 Section VII ("Service") 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 My 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 Lean: (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 die equipment by the Authorized Inspector as outlined above. E-63 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 die 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 de-installation, 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 d machine; (v) Lessee shall provide for transportation of the Equipment in a manner consistent with die manufacture'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) Lessee shall obtain and pay for a policy of await 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) Lessee shall 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 Lean at an accessible location satisfactory to Lessor. (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 conform 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 6A 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 die 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: (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 72 months from the Basic Term Commencement Date for a price equal to FORTY-THREE AND 794/100 percent (43.794%) of the Capitalized Lessor's Cost (the "FMV Early Option Price"), plus all applicable sales taxes. E-64 6 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 Section XIX(b) 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 Sections VII or XI 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 die 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: Company Name Address Amount Tornos Technologies 70 Pocono Road $290,060.00 Brookfield, CT06804 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) all 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. IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be executed by their duly authorized representatives as of die date first above written. LESSOR: LESSEE: General Electric Capital Corporation Autocam Corporation By: \s\ Stacy Porter By: \s\ Warren A. Veltman ------------------ ----------------------- Name: Stacy Porter Name: Warren Veltman Title: Region Credit Analyst Title: Treasurer Attest By: \s\ Mark R. Scott Name: Mark R. Scott E-65 EX-10.P(4) 7 EXHIBIT 10P.4 1 Exhibit 10(p)(4) ================ KeyCorp Leasing Ltd. EQUIPMENT SCHEDULE NO. 02 EQUIPMENT SCHEDULE NO. 02 dated as of September 18, 1997 (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 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: 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 attached hereto (the "Equipment"). The aggregate Total Cost of such Equipment is $553,940.00. 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 One Hundred Two (102) 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 One Hundred and Two (102) consecutive monthly installments payable in advance on the Rent Commencement Date and on the same day each month thereafter (each, a "Rent Payment Date"). Each such installment of Rent shall be in an amount equal to $6,543.07. 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. E-66 2 5. 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 State of New York ("New York"), 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, (iii) at and after the time of delivery of the Equipment to Lessee pursuant to this Lease, the Equipment shall be owned by Lessor for Federal income tax purposes and 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. E-67 3 6. TRUE LEASE TRANSACTION. (a) It is the express intent of the parties that this Lease constitutes 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 2X) 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. (b) Notwithstanding the express intent of Lessor and Lessee that this agreement constitute a true lease 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 recorded 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 the Lease. 7. LESSEE'S PURCHASE AND RENEWAL OPTIONS. Lessee shall have the purchase and renewal options set forth on the End of Lease Options Addendum attached hereto and made a part hereof. 8. MODIFICATIONS TO MASTER LEASE. With respect to the Equipment described on this Schedule, the Master Lease shall be modified as follows: (a) The following shall be inserted as the penultimate sentence of Section 11 of the Master Lease ("Use; Alterations"): Title to all such alterations, additions, modifications or improvements shall immediately, and without further act, vest in Lessor and thereupon shall be deemed to constitute Items of Equipment and be fully subject to this Lease as if originally leased hereunder. (b) The following shall be inserted as the penultimate sentence of Section 12 of the Master Lease ("Repairs and Maintenance"): Title to such replacement part shall immediately (and without further act) vest in Lessor upon installation, attachment or incorporation of the same in, on or into such Item of Equipment and thereupon shall be deemed to constitute an Item of Equipment and be fully subject to this Lease as if originally leased hereunder. (c) As used in Section 22(a) of the Master Lease ("Events of Default"), the term "Event of Default" shall also mean any of the following events: (1) a change in control occurs in Lessee or any Guarantor, or (2) the death or dissolution of Lessee or any Guarantor. E-68 4 (d) Section 22(b) of the Master Lease ("Events of Default") is hereby amended as follows: (1) 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; (2) 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 (3) with respect to Section 22(b)(7), the word "terminated" is hereby deleted and the words "canceled or terminated" are hereby substituted in its place. 9. STIPULATED LOSS VALUE. 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. 10. GOVERNING LAW. This Schedule is being delivered in the State of New York and shall in all respects be governed by, and construed in accordance with, the laws of the State of New York, including all matters of construction, validity and performance. 11. 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. 12. PERSONAL PROPERTY TAX. To insure Lessee's compliance with the provisions of the Lease with respect to the payment of personal property taxes on the Equipment described on this Schedule, Lessee hereby covenants and agrees that, 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, 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. 13. ADDITIONAL ADDENDA. In addition to the End of Lease Options Addendum, please see the following addenda to this Schedule, attached hereto and made a part hereof, for additional terms and conditions governing the leasing of the Equipment described on this Schedule: Early Buyout Addendum. 14. MORE THAN ONE LESSEE. If more than one person or entity executes this Schedule, and all addenda or other 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 the Lease, and all terms and conditions contained in the Master Lease are hereby incorporated herein by reference with the same force and effect as if such terms and conditions were fully stated herein. By execution of this Schedule, Lessee and Lessor reaffirm all terms and conditions of the Master Lease except as they may be modified hereby. To the extent that any of the terms and conditions of this Schedule are contrary to or inconsistent with any terms and conditions of the Master Lease, the terms and conditions 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 the Lease. E-69 5 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\ Warren A. Veltman By: \s\ Linda L. Huff Name: Warren A. Veltman Name: Linda L Huff Title: Chief Financial Officer Title: Vice President 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. E-70 6 Exhibit A --------- (EQUIPMENT DESCRIPTION) Lease: Equipment Schedule No. 02 dated as of September 18, 1997 to Master Equipment Lease Agreement Dated as of July 10, 1995 Lessor: KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC. Lessee: AUTOCAM CORPORATION Vendor HYDROMAT INC. 11600 ADIE ROAD ST. LOUIS, MO 63043 Quantity: Description: 1 ROTARY TRANSFER MACHINE 2 TRAINING VIDEOS E-71 7 KeyCorp Leasing Ltd. End of Lease Options Addendum To Equipment Schedule Number 02 To Master Equipment Lease Agreement Dated As Of July 10, 1995 Between KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC., As Lessor, And AUTOCAM CORPORATION, As Lessee. (First Amendment Option) THIS END OF LEASE OPTIONS ADDENDUM is annexed to, and made a part of, the above-referenced Equipment Schedule and Master Equipment Lease Agreement, as it relates to such Equipment Schedule (collectively, the "Lease"). Unless otherwise specified herein, all capitalized terms shall have the meanings ascribed to them in the Lease. Lessor and Lessee hereby agree as follows: 1. LESSEE'S PURCHASE AND RENEWAL, OPTIONS. (a) 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. (b) So long as no Default or Event of Default shall have occurred and be continuing and Lessee shall have given Lessor at least ninety (90) days prior written notice to Lessor, Lessee shall have the option (the "Purchase Option") to purchase all, but not less than all, Items of Equipment on the Initial Term Expiration Date at a price (the "Purchase Option Price") equal to the greater of (1) the then Fair Market Sale Value thereof, or (2) fifteen percent (15%) of the Total Cost of the Equipment, in each case plus any applicable sales taxes. 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) on or before the Initial Term Expiration Date, shall be made on the Initial Term Expiration Date 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. Lessor and Lessee shall mutually agree upon the Fair Market Sale Value with respect to the Purchase Option; provided, however ,that, if Lessor and Lessee are unable to agree upon the Fair Market Sale Value within fifteen (15) days after Lessor's receipt of the Option Notice, the Fair Market Sale Value shall be determined in accordance with the Appraisal Procedure. (c) If the Purchase Option is not exercised or consummated for any reason, then (1) the Term of the Lease shall be automatically extended for an additional, non-cancelable period of fifteen (15) months (the "Extended Lease Term"), and (2) Lessee hereby agrees to pay Rent For the Equipment throughout the Extended Lease Term in fifteen (15) consecutive monthly installments payable in advance commencing on the Initial Term Expiration Date and on the same day each month thereafter. Each such installment of Rent during the Extended Lease Term shall be in an amount equal to $5,891.87. E-72 8 (d) So long as no Default or Event of Default shall have occurred and is continuing upon not less than ninety (90) days prior written notice (the "Option Notice") to Lessor, Lessee shall have the option at the expiration of the Extended Lease Term (the "Extended Term Expiration Date") to (1) purchase all, but not less than all, Items of Equipment for a purchase price equal to the Fair Market Sale Value thereof, or (2) return the Equipment in accordance with the terms and conditions of this Lease. If Lessee fails to give Lessor the Option Notice at least ninety (90) days before the Extended Term Expiration Date, Lessee shall be deemed to have chosen option (1) above. Payment of the Fair Market Sale Value, applicable sales taxes, together with all other amounts due and owing by Lessee under the Lease (including, without limitation, Rent) on or before the Extended Term Expiration Date, shall be made on the Extended Term Expiration Date 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. 2. MODIFICATIONS TO MASTER LEASE. With respect to the Equipment described on this Schedule, Section 4(ae) of the Master Lease ("Definitions") is hereby deleted in its entirety and the following is substituted in its place: (ae) "Term" shall mean the Initial Term as defined in Section 8 hereof, any Renewal Term, as defined in Section 8 hereof, any Renewal Term, as defined in Section 8 hereof, and any Extended Lease Term, as defined in an Equipment Schedule. Except as modified hereby, all of the terms, covenants and conditions of the Lease shall remain in full force and effect and are in all respects hereby ratified and affirmed. IN WITNESS WHEREOF, Lessor and Lessee have executed this End of Lease Options Addendum as of September 18, 1997. Lessor: KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC. By: \s\ Linda Huff Name: Linda L. Huff Title: Vice President Lessee: AUTOCAM CORPORATION By: \s\ Warren A. Veltman Name: Warren A. Veltman Title: Chief Financial Officer E-73 9 KeyCorp Leasing Ltd. Early Buyout Addendum Equipment Schedule No.02 Master Equipment Lease Agreement dated as of July 10, 1995 This Early Buyout Addendum is annexed to, and made a part of, the above-referenced Equipment Schedule and Master Equipment Lease Agreement, as it relates to such Equipment Schedule (collectively, the "Lease"). Unless otherwise specified herein, all capitalized terms shall have the meanings ascribed to them in the Lease. Lessor and Lessee hereby agree as follows: 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 ninety (90) months after the Rent Commencement Date (the "EB0 Date") at a price (the "EBO Price") equal to twenty eight and forty five hundredths percent (28.45%) 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. 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. Except as modified hereby, all of the terms, covenants and conditions of the Lease shall remain in full force and effect and are in all respects hereby ratified and affirmed. IN WITNESS WHEREOF, Lessor and Lessee have executed this Early Buyout Addendum as of September 18,1997. Lessor: Lessee: KEYCORP LEASING, AUTOCAM CORPORATION A DIVISION OF KEY CORPORATE CAPITAL INC. By: \s\ Warren A. Veltman By: \s\ Linda L. Huff Name: Warren A. Veltman Name: Linda L Huff Title: Chief Financial Officer Title: Vice President E-74 10 Equipment Schedule No. 03 ------------------------- EQUIPMENT SCHEDULE NO. 03 dated as of December 5, 1997 (this "Schedule") between KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC. ("Lessor"), and AUTOCAM CORPORATION, a Michigan corporation ("Lessee"). INTRODUCTION: ------------- Lesson and Lessee have heretofore entered that certain Master Equipment Lease Agreement dated as of July 10, 1995 (the "Master Lease"; the Master Lease mid this Schedule 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: 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 $569,220.00. 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 one hundred and two (102) 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 one hundred and two (102) 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 $6,630.30. 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-75 11 5. 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 win (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 State of New York ("New York"), in each case on the basis that (1) each Item of Equipment constitutes seven-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 seven-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 seven-year property" within the meaning of Section 168(e) of the Code, (ii) Lessee shall not attempt to claim such Tax Benefits, (iii) at and after the time of delivery of the Equipment to Lessee pursuant to this Lease, the Equipment shall be owned by Lessor for Federal income tax purposes and 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. E-76 12 6. TRUE LEASE TRANSACTION. (a) It is the express intent of the parties that this Lease constitutes 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" is 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. (b) Notwithstanding the express intent of Lessor and Lessee that this agreement constitute a true lease 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 he 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 recorded 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 the Lease. 7. LESSEE'S PURCHASE AND RENEWAL OPTIONS. Lessee shall have the purchase and renewal options set forth on the End of Lease Options Addendum attached hereto and made a part hereof. 8. MODIFICATIONS TO MASTER LEASE. With respect to the Equipment described on this Schedule, the Master Lease shall be modified as follows: (a) The following shall be inserted as the penultimate sentence of Section 11 of the Master Lease ("Use; Alterations"): Title to all such alterations, additions, modifications or improvements shall immediately, and without further act, vest in Lessor and thereupon shall be deemed to constitute Items of Equipment and be fully subject to this Lease as if originally leased hereunder. (b) The following shall be inserted as the penultimate sentence of Section 12 of the Master Lease ("Repairs and Maintenance"): Title to such replacement part shall immediately (and without further act) vest in Lessor upon installation, attachment or incorporation of the same in, on or into such Item of Equipment and thereupon shall be deemed to constitute an Item of Equipment and be fully subject to this Lease as if originally leased hereunder. E-77 13 (c) As used in Section 22(a) of the Master Lease ("Events of Default"), the term "Event of Default" shall also mean any of the following events: (1) a change in control occurs in Lessee or any Guarantor; or (2) the death or dissolution of Lessee or any Guarantor. (d) Section 22(b) of the Master Lease ('Events of Default") is hereby amended as follows: (1) 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; (2) 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 (3) with respect to Section 22(b)(7), the word "terminated" is hereby deleted and the words "canceled or terminated" are hereby substituted in its place. 9. STIPULATED LOSS VALUE. The Stipulated Loss Values applicable to the Equipment and this Lease are as set forth oil a supplement (tile "Stipulated Loss Value Supplement") prepared by Lessor. 10. GOVERNING LAW. This Schedule is being delivered in the State of New York and shall in all respects be governed by, and construed in accordance with, the laws of the State of New York, including all matters of construction, validity and performance. 11. COUNTERPARTS. This Schedule may be executed in any number of counterparts, each executed counterpart consulting all original but all together one and the same instrument. 12. PERSONAL PROPERTY TAX. To insure Lessee's compliance with the provisions of the Lease with respect to the payment of personal property taxes on the Equipment described on this Schedule, Lessee hereby covenants and agrees that, 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, 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. 13. ADDITIONAL ADDENDA. In addition to the End of Lease Options Addendum, please see the following addenda to this Schedule, attached hereto and made a part hereof, for additional terms and conditions governing the leasing of the Equipment described on this Schedule: Early Buyout Addendum and Machine Tool Return Maintenance Addendum. 14. MORE THAN ONE LESSEE. If more than one person or entity executes this Schedule, and all addenda or other 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 the Lease, and all terms and conditions contained in the Master Lease are hereby incorporated herein by reference with the same force and effect as if such terms and conditions were fully stated herein. By execution of this Schedule, Lessee and Lessor reaffirm all terms and conditions of the Master Lease except as they may be modified hereby. To the extent that any of the terms and conditions of this Schedule are contrary to or inconsistent with any terms and conditions of the Master Lease, the terms and conditions 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 the Lease. E-78 14 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\ Warren A. Veltman By: \s\ Linda L. Huff Name: Warren A. Veltman Name: Linda L. Huff Title: Chief Financial Officer Title: Vice President 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. E-79 15 Exhibit A --------- (EQUIPMENT DESCRIPTION) Lease: Equipment Schedule No. 03 dated as of December 5,1997 to Master Equipment Lease Agreement Dated as of July 10, 1995 Lessor: KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC. Lessee: AUTOCAM CORPORATION Vendor: TORNOS TECHNOLOGIES 70 POCONO ROAD BROOKFIELD, CT 06804 Attention: ROLAND TROLLER Quantity: Description: 1 BS20.8 AUTOMATIC TORNOS BECHLER 8 SPINDLE AUTOMATIC TYPE BS-20.8 WITH STANDARD VOLTAGE 440, 8 SPINDLES, CAPACITY 21MM ROUND BAR, 18 MM HEX 15MM SQUARE, SERIAL # T.60891, WITH ALL STANDARD ACCESSORIES 1 AUTOMATIC BARLOADER, ROBOBAR MSL-320, SERIAL #C 13656 WITH ALL ACCESSORIES E-80 16 End of Lease Options Addendum (First Amendment Option) THIS END OF LEASE OPTIONS ADDENDUM is annexed to, and made a part of, Equipment Schedule Number 03 to Master Equipment Lease Agreement dated as of July 10, 1995, as it relates to such Equipment Schedule (collectively, the "Lease"). Unless otherwise specified herein, all capitalized terms; shall have the meanings ascribed to them in the Lease. Lessor and Lessee hereby agree as follows: LESSEE'S PURCHASE AND RENEWAL OPTIONS. With respect to the Equipment described on this Schedule, Section 32 of the Master Lease ("Renewal mid 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 and eighty (180) days prior written notice (the "Option Notice"), Lessee shall have the option, at the expiration of the Initial Term or any Renewal Term, to: (1) 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; (2) 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; (3) renew this Lease for a minimum period of not less than twelve (12) consecutive months at the then current Fair Market Rental Value; or (4) return such Equipment to Lessor pursuant to, and in the condition required by, the Lease, including but not limited to the following conditions: (a) Lessee agrees to pay for the shipment of equipment to any location in the world, (b) Lessee agrees to provide free storage of the equipment for a period of one hundred and eighty (180) days from the Initial Term Expiration Date. If Lessee fails to give Lessor the Option Notice, Lessee shall be deemed to have chosen option (2) 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. Except as modified hereby, all of the terms, covenants and conditions of the Lease shall remain in full force and effect and are in all respects hereby ratified and affirmed. IN WITNESS WHEREOF, Lessor and Lessee have executed this End of Lease Options Addendum as of December 5, 1997. 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 E-81 17 Equipment Schedule No. 04 ------------------------- EQUIPMENT SCHEDULE NO. 04 dated as of December 16, 1997 (this "Schedule") between KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC. ("Lessor"), and AUTOCAM CORPORATION, a Michigan corporation ("Lessee"). INTRODUCTION: ------------- Lesson and Lessee have heretofore entered that certain Master Equipment Lease Agreement dated as of July 10, 1995 (the "Master Lease"; the Master Lease mid this Schedule 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: 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 $1,423,236.00. 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 one hundred and two 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 one hundred and two (102) 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 $16,441.65. 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. 5. 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 win (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 State of New York ("New York"), in each case on the basis that (1) each Item of Equipment constitutes seven-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 seven-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". E-82 18 (b) Lessee represents and warrants to Lessor that (i) each Item of Equipment constitutes seven-year property" within the meaning of Section 168(e) of the Code, (ii) Lessee shall not attempt to claim such Tax Benefits, (iii) at and after the time of delivery of the Equipment to Lessee pursuant to this Lease, the Equipment shall be owned by Lessor for Federal income tax purposes and 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. 6. TRUE LEASE TRANSACTION. (a) It is the express intent of the parties that this Lease constitutes 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" is 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. E-83 19 (b) Notwithstanding the express intent of Lessor and Lessee that this agreement constitute a true lease 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 he 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 recorded 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 the Lease. 7. LESSEE'S PURCHASE AND RENEWAL OPTIONS. Lessee shall have the purchase and renewal options set forth on the End of Lease Options Addendum attached hereto and made a part hereof. 8. MODIFICATIONS TO MASTER LEASE. With respect to the Equipment described on this Schedule, the Master Lease shall be modified as follows: (a) The following shall be inserted as the penultimate sentence of Section 11 of the Master Lease ("Use; Alterations"): Title to all such alterations, additions, modifications or improvements shall immediately, and without further act, vest in Lessor and thereupon shall be deemed to constitute Items of Equipment and be fully subject to this Lease as if originally leased hereunder. (b) The following shall be inserted as the penultimate sentence of Section 12 of the Master Lease ("Repairs and Maintenance"): Title to such replacement part shall immediately (and without further act) vest in Lessor upon installation, attachment or incorporation of the same in, on or into such Item of Equipment and thereupon shall be deemed to constitute an Item of Equipment and be fully subject to this Lease as if originally leased hereunder. (c) As used in Section 22(a) of the Master Lease ("Events of Default"), the term "Event of Default" shall also mean any of the following events: (1) a change in control occurs in Lessee or any Guarantor; or (2) the death or dissolution of Lessee or any Guarantor. (d) Section 22(b) of the Master Lease ("Events of Default") is hereby amended as follows: (1) 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; (2) 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 (3) with respect to Section 22(b)(7), the word "terminated" is hereby deleted and the words "canceled or terminated" are hereby substituted in its place. 9. STIPULATED LOSS VALUE. The Stipulated Loss Values applicable to the Equipment and this Lease are as set forth in a supplement (the "Stipulated Loss Value Supplement") prepared by Lessor. 10. GOVERNING LAW. This Schedule is being delivered in the State of New York and shall in all respects be governed by, and construed in accordance with, the laws of the State of New York, including all matters of construction, validity and performance. E-84 20 11. COUNTERPARTS. This Schedule may be executed in any number of counterparts, each executed counterpart consulting all original but all together one and the same instrument. 12. PERSONAL PROPERTY TAX. To insure Lessee's compliance with the provisions of the Lease with respect to the payment of personal property taxes on the Equipment described on this Schedule, Lessee hereby covenants and agrees that, 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, 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. 13. ADDITIONAL ADDENDA. In addition to the End of Lease Options Addendum, please see the following addenda to this Schedule, attached hereto and made a part hereof, for additional terms and conditions governing the leasing of the Equipment described on this Schedule: Early Buyout Addendum and Machine Tool Return Maintenance Addendum. 14. MORE THAN ONE LESSEE. If more than one person or entity executes this Schedule, and all addenda or other 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 the Lease, and all terms and conditions contained in the Master Lease are hereby incorporated herein by reference with the same force and effect as if such terms and conditions were fully stated herein. By execution of this Schedule, Lessee and Lessor reaffirm all terms and conditions of the Master Lease except as they may be modified hereby. To the extent that any of the terms and conditions of this Schedule are contrary to or inconsistent with any terms and conditions of the Master Lease, the terms and conditions 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 the Lease. 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\ Warren A. Veltman By: \s\ Linda L. Huff Name: Warren A. Veltman Name: Linda L. Huff Title: Chief Financial Officer Title: Vice President 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. E-85 21 Exhibit A --------- (EQUIPMENT DESCRIPTION) Lease: Equipment Schedule No. 04 dated as of December 16,1997 to Master Equipment Lease Agreement Dated as of July 10, 1997 Lessor: KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC. Lessee: AUTOCAM CORPORATION Vendor: TORNOS TECHNOLOGIES 70 POCONO ROAD BROOKFIELD, CT 06804 Attention: ROLAND TROLLER Quantity: Description: 6 SAS-16.6 AUTOMATIC TORNOS BECHLER 6- SPINDLE AUTOMATIC LATHE TYPE SAS-16.6, SERIAL #'S: T.61676, T.61675, T.61886, T.61684, T61362 AND T.61381. E-86 22 End of Lease Options Addendum (FMV Option) ---------- THIS END OF LEASE OPTION ADDENDUM is annexed to, and made a part of, Equipment Schedule Number 04 to Master Equipment Lease Agreement dated as of July 10, 1995, as it relates to such Equipment Schedule (collectively, the "Lease"). Unless otherwise specified herein, all capitalized terms; shall have the meanings ascribed to them in the Lease. Lessor and Lessee hereby agree as follows: LESSEE'S PURCHASE AND RENEWAL OPTIONS. With respect to the Equipment described on this Schedule, Section 32 of the Master Lease ("Renewal mid 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 and eighty (180) days prior written notice (the "Option Notice"), Lessee shall have the option, at the expiration of the Initial Term or any Renewal Term, to: (1) 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; (2) 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; (3) renew this Lease for a minimum period of not less than twelve (12) consecutive months at the then current Fair Market Rental Value; or (4) return such Equipment to Lessor pursuant to, and in the condition required by, the Lease, including but not limited to the following conditions: (a) Lessee agrees to pay for the shipment of equipment to any location in the world, (b) Lessee agrees to provide free storage of the equipment for a period of one hundred and eighty (180) days from the Initial Term Expiration Date. If Lessee fails to give Lessor the Option Notice, Lessee shall be deemed to have chosen option (2) 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. Except as modified hereby, all of the terms, covenants and conditions of the Lease shall remain in full force and effect and are in all respects hereby ratified and affirmed. IN WITNESS WHEREOF, Lessor and Lessee have executed this End of Lease Options Addendum as of December 16, 1997. 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 E-87 EX-10.T 8 EXHIBIT 10T 1 Exhibit 10(t) LOAN AGREEMENT Between MICHIGAN STRATEGIC FUND (the "Issuer") and AUTOCAM CORPORATION (the "Obligor") Relating to the Issuance of $9,000,000 Michigan Strategic Fund Variable Rate Demand Limited Obligation Revenue Bonds, Series 1997 (Autocam Corporation Project) Dated as of December 1, 1997 The interest (subject to certain specified exclusions) of the Issuer in this Loan Agreement has been assigned to Norwest Bank Wisconsin, N.A., in its capacity as Trustee (the "Trustee") under a Trust Indenture dated as of December 1, 1997, between the Issuer and the Trustee. E-88 2 TABLE OF CONTENTS
PAGE DEFINITIONS.....................................................................................................-1- PREMISES........................................................................................................-3- ARTICLE I REPRESENTATIONS......................................................................-4- Section 1.1 Obligor Representations and Covenants Regarding the Internal Revenue Code................................................................-4- Section 1.2 Additional Covenants.................................................................-8- Section 1.3 Issuer Findings and Representations..................................................-9- Section 1.4 Additional Bonds.....................................................................-9- ARTICLE II THE BONDS AND THE PROCEEDS THEREOF...................................................-9- Section 2.1 The Bonds............................................................................-9- Section 2.2 Issuer Action on Redemption.........................................................-10- Section 2.3 Investment of Bond Fund and Project Fund; Non-Arbitrage Covenant..............................................................-10- Section 2.4 Credit Facility.....................................................................-10- Section 2.5 Tender..............................................................................-11- Section 2.6 Remarketing Agent...................................................................-11- Section 2.7 Right to Exercise Conversion Option.................................................-11- Section 2.8 Rebate Account......................................................................-11- ARTICLE III THE LOAN AND LOAN REPAYMENTS........................................................-12- Section 3.1 The Loan............................................................................-12- Section 3.2 Loan Repayments; Credit Facility....................................................-12- ARTICLE IV THE PROJECT.........................................................................-13- Section 4.1 Project Fund Disbursements..........................................................-13- Section 4.2 Obligation of the Obligor to Complete the Project...................................-14- Section 4.3 Completion Certificate..............................................................-14- Section 4.4 Use of Surplus Bond Proceeds........................................................-14- ARTICLE V OTHER PECUNIARY OBLIGATIONS OF THE OBLIGOR..........................................-15- Section 5.1 Taxes and Other Costs...............................................................-15- Section 5.2 Issuer Fees and Expenses............................................................-15- Section 5.3 Fees and Expenses of the Trustee and Remarketing Agent..............................-15- Section 5.4 Indemnification of the Issuer.......................................................-15- Section 5.5 Indemnification of the Trustee......................................................-17-
E-89 3
PAGE Section 5.6 Insurance...........................................................................-17- ARTICLE VI PROJECT MAINTENANCE.................................................................-17- Section 6.1 Maintenance and Operation; Removal from Site........................................-17- Section 6.2 Remodeling and Modifications........................................................-17- ARTICLE VII DAMAGE TO PROJECT AND CONDEMNATION..................................................-17- ARTICLE VIII ACTIONS AFFECTING OBLIGOR AND ISSUER INTERESTS IN THE AGREEMENT AND THE PROJECT..........................................-18- Section 8.1 Assignment of the Agreement.........................................................-18- Section 8.2 Obligor's Interest in the Agreement.................................................-18- Section 8.3 Liens by the Obligor................................................................-19- Section 8.4 Security Interest in the Project Fund...............................................-19- ARTICLE IX FURTHER OBLIGATIONS OF THE OBLIGOR..................................................-19- Section 9.1 Compliance with Laws................................................................-19- Section 9.2 Maintenance of Assets; Ownership of Project.........................................-19- Section 9.3 General Limitations with Respect to Non-Impairment of Tax-Exempt Status of the Bonds...................................................-20- Section 9.4 Access to Project and Records.......................................................-20- Section 9.5 Requirements of Tenants.............................................................-20- ARTICLE X EVENTS OF DEFAULT AND REMEDIES......................................................-21- Section 10.1 Events of Default...................................................................-21- Section 10.2 Remedies upon Event of Default......................................................-22- Section 10.3 Payment of Attorneys' Fees and Other Expenses.......................................-23- Section 10.4 Waivers and Limitation on Waivers...................................................-23- ARTICLE XI OBLIGATIONS OF OBLIGOR UNCONDITIONAL................................................-23- Section 11.1 Obligor Obligations.................................................................-23- ARTICLE XII MISCELLANEOUS.......................................................................-24- Section 12.1 Amounts Remaining in Funds..........................................................-24- Section 12.2 Obligor Bound by Indenture..........................................................-24- Section 12.3 Consents Under the Agreement........................................................-24- Section 12.4 Notices.............................................................................-24- Section 12.5 Amendment...........................................................................-25- Section 12.6 Binding Effect......................................................................-25- Section 12.7 Severability........................................................................-25- Section 12.8 Execution in Counterparts...........................................................-25- Section 12.9 Captions and Table of Contents......................................................-25- Section 12.10 Applicable Law......................................................................-25-
E-90 4
PAGE EXHIBIT A PROJECT DESCRIPTION..................................................................A-1 EXHIBIT B REQUISITION CERTIFICATE..............................................................B-1 EXHIBIT C COMPLETION CERTIFICATE...............................................................C-1 EXHIBIT D NO ACT OF BANKRUPTCY CERTIFICATE.....................................................D-1 EXHIBIT E PRIOR ISSUE CERTIFICATE..............................................................E-1
E-91 5 LOAN AGREEMENT THIS LOAN AGREEMENT (the "Agreement") is made and entered into as of December 1, 1997 by and between the Michigan Strategic Fund (the "Issuer") and Autocam Corporation, a Michigan corporation (the "Obligor"). DEFINITIONS Except as provided herein, all capitalized terms shall have the meanings ascribed to them in the Indenture (defined below). In addition to the words and terms elsewhere defined in the Agreement, each of the following words and terms as used in the Agreement shall have the following meaning unless the context or use indicates another or different meaning or intent and shall refer to all or part of the defined subject. "Additional Bonds" means the Additional Bonds which are authorized to be issued in accordance with Section 112 of the Indenture in one or more series from time to time to provide funds for the purposes contemplated by the Agreement. "Completion Certificate" means the certificate provided for in Section 4.3 hereof, in the form of Exhibit C hereto. "Completion Date" means the date of completion of the Project as such date shall be certified in the Completion Certificate. "Engineer" means any licensed professional architect/engineer or architectural/engineering firm (who may be in the employ of the Obligor or chosen by the Obligor). "Event of Default" means those events of default specified and defined in Section 10.1. "General Limitations" means those general limitations on Obligor action or failure to act specified in Section 9.3 hereof, sometimes referenced as a condition to a particular Obligor action but applicable to any action by the Obligor under the Agreement. "Improvements to the Project" means such additions, improvements, modifications or relocations as the Obligor may deem necessary or desirable in, on or to the Project, all of which shall be included in the Plans and shall become part of the Project. "Indemnified Persons" means the Issuer and its members, officers, agents and employees. "Indenture" means the Trust Indenture between the Issuer and the Trustee, dated as of December 1, 1997, as the same may be amended or supplemented in accordance with its terms. "Inducement Date" means November 19, 1997, on which date a resolution of intent or inducement to assist in the financing of the Project was adopted by the Issuer. "Issuance Costs" means items of expense payable or reimbursable directly or indirectly by the Issuer and related to the authorization, sale and issuance of the Bonds and authorization and execution of the Agreement, which items of expense shall include, but not be limited to, the Issuer's Issuance Fee, application fees and expenses, publication costs, printing costs, costs of reproducing documents, filing and recording fees, Bond Counsel and Counsel fees, initial Trustee's fees, placement agents' fees, costs of credit ratings, Credit Facility issuance fees and charges for execution, transportation and safekeeping of the Bonds and related documents, and other costs, charges and fees in connection with the foregoing. "Issuance Fee" means the Bond issuance fee payable to the Issuer on or before the Effective Date in the amount of one-quarter of one percent (0.25%) of the principal amount of the Bonds (i.e., $22,500). "Municipality" means the City of Marshall, County of Calhoun, Michigan. E-92 6 "Non-Arbitrage Certificate" means the Non-Arbitrage Certificate described in Section 1.1 hereof. "Permitted Encumbrances" means and includes (a) the rights of the Issuer, the Trustee and the Bank and the liens created under the Agreement; (b) the rights of the Issuer, the Trustee and the Bank created under the Indenture and assignment of the Agreement; (c) any liens granted to the Bank; and (d) liens permitted by the Reimbursement Agreement or consented to by the Bank in writing. "Plans" means the Obligor's plans and budget specifications for the Project, in such reasonable detail as to satisfy to the extent applicable the requirements of Section 9-110 of Act No. 174, Public Acts of Michigan, 1962, as amended, as the same may be revised from time to time in accordance with Article IV hereof, which plans are on file at the principal office of the Obligor. "Project" means the acquisition of land, construction on the land of a manufacturing facility and the acquisition and installation of machinery and equipment for that facility, as set forth in Exhibit A hereto, including such modifications thereof, substitutions therefor, and Improvements to the Project, and excluding such deletions therefrom, as shall be made in accordance with the Agreement. "Project Costs" means, as applicable (a) obligations of the Issuer or the Obligor incurred for labor and to contractors, builders and materialmen in connection with the acquisition, construction and installation of the Project; (b) the cost of contract bonds and of insurance of all kinds that may be required or necessary during the course of construction of the Project which is not paid by the contractor or contractors or otherwise provided for; (c) all costs of engineering services, including test borings, surveys, estimates, plans and specifications and preliminary investigations, and supervising construction, as well as for the performance of all other duties required by or consequent upon the proper construction of the Project; (d) Issuance Costs; (e) all other costs which the Obligor shall be required to pay, under the terms of any contract or contracts, for the acquisition, construction and installation of the Project; (f) other costs of a nature comparable to those described in clauses (a) through (e) above which the Obligor shall be required to pay as a result of the damage, destruction, condemnation or taking of the Project or any portion thereof; (g) interest on the Bonds or any interim obligation during the period of construction of the Project; or (h) any other costs incurred by the Obligor which are properly chargeable to the Project and which may be financed by the Bonds under the Act. "Project Purposes" means use of the Project for manufacturing purposes during a period of usefulness of the Project of at least 18 years in the estimate of the Obligor. The terms "redemption," "redeem" and "redeemed" when used with reference to the principal of the Bonds, means, when appropriate, prepayment, prepay and prepaid, respectively. "Requisition Certificate" means the certificate required by Section 4.1 hereof, in the form of Exhibit B hereto. PREMISES The Issuer is empowered under the Act to assist any person, firm or corporation in the financing of certain projects and facilities, through the issuance of its limited obligation revenue bonds. The Obligor has proposed the acquisition and construction of the Project and as an inducement therefor has requested the Issuer to assist in the financing of the Project and certain other expenses incidental thereto, as provided in the Act. E-93 7 The Issuer has determined that making the Loan to the Obligor will promote and serve the intended purposes of, and in all respects will conform to the provisions and requirements of the Act. In order to grant the Loan and thereby assist in the financing of the Project, the Issuer is issuing the Bonds. The Issuer, the Trustee and the Obligor understand and intend that the financing of the Project through issuance of the Bonds and the making of the Loan will be structured in the following general manner, as detailed in the Indenture and in the Agreement: The Issuer will issue the Bonds under the Act and use the principal amount thereof to make the Loan to the Obligor. The Loan shall be repaid by the Obligor in Loan Repayments sufficient to pay the principal, premium, if any, and interest on the Bonds as the same become due. From the proceeds of the Loan, the Obligor will complete the Project. Under the terms of the Agreement, the Obligor will make Loan Repayments, and will be responsible for paying any costs of the Project which exceed the principal amount of the Bonds, for maintaining and insuring the Project, and for paying all taxes and expenses relating to the Project. The Issuer's obligation with respect to the Bonds is subject to the limitations therein contained, viz., that the principal, premium, if any, and interest on the Bonds and any other costs or pecuniary liability relating to the Bonds, the Loan, the Project or the implementation thereof or any proceeding, document, or certification incidental to the foregoing, shall never be payable from tax revenues or public funds of the State or any agency thereof or general funds or assets of the Issuer, but shall be payable with Available Moneys solely and only from the Security. The Bonds shall not be secured by any interest in the Project or other assets of the Obligor. In addition, as part of the Security for the Loan Repayments, the Obligor will cause the Credit Facility to be delivered to the Trustee. The Trustee is instructed in the Indenture to draw under the Credit Facility up to (a) the principal amount of the Bonds (i) to enable the Trustee to pay the principal amount of the Bonds when due at maturity, by acceleration of maturity or otherwise or upon redemption or (ii) to enable the Trustee to pay the portion of the Purchase Price of Bonds delivered to the Trustee and not remarketed by the Remarketing Agent equal to the principal amount of such Bonds, plus (b) an amount equal to 56 days' (or, if required pursuant to Section 208 of the Indenture, 210 days') interest on the Bonds calculated at the Maximum Rate to enable the Trustee to pay interest on the Bonds plus (c) if the Credit Facility is so amended, any premium on the Bonds. The Issuer's participation in the financing of the Project is intended to enable the Obligor to utilize certain provisions of the Code. Section 103 of the Code encourages the construction of certain types of facilities and the public financing thereof through issuance of limited obligation revenue bonds by providing that the interest on such bonds, as contrasted with any bonds which might be issued by the Obligor itself, will be excluded from gross income for federal income tax purposes. This tax exclusion enables the purchasers of the Bonds to accept a lower rate of interest than they would otherwise require, and thereby further reduces the interest cost to the Obligor of financing the Project. ARTICLE I REPRESENTATIONS Section I.1 Obligor Representations and Covenants Regarding the Internal Revenue Code. The Obligor makes the following representations and warranties for the benefit and reliance of the Issuer, the Trustee and the Bank: (a) The Obligor is a Michigan corporation, is duly organized, validly existing and in good standing under the laws of the State. The Obligor (i) has full power and authority to own the properties and assets associated with the Project and to complete the Project, and (ii) has full power and authority to execute and deliver the Agreement, the Reimbursement Agreement, the Bond Purchase Agreement, the Remarketing Agreement and the Pledge Agreement, and to perform the obligations as contemplated thereunder. (b) Neither the execution and delivery of the Reimbursement Agreement, the Bond Purchase Agreement, the Remarketing Agreement, the Pledge Agreement or the Agreement, nor the consummation of the transactions contemplated thereby, nor the fulfillment of or compliance with the terms and conditions of the Reimbursement Agreement, the Bond Purchase Agreement, the Remarketing Agreement, the Pledge Agreement or the Agreement, will, to the best knowledge of the Obligor, violate the Articles of Incorporation or Bylaws of the Obligor, any provision of law, any order of any court or other agency of government, or any indenture, agreement or other instrument to which the Obligor is now a party or by which it or any of its properties or assets is bound, or will be in conflict with, result in a breach of, or constitute a default (with due notice or the passage of time or both) under, any such indenture, agreement, or other instrument. E-94 8 (c) The Agreement, the Reimbursement Agreement, the Bond Purchase Agreement, the Remarketing Agreement and the Pledge Agreement have been duly authorized, executed and delivered and are each valid and binding obligations of the Obligor enforceable in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws in effect from time to time affecting the enforceability of creditors' rights generally or by general principles of equity. (d) The Obligor intends to occupy the Project or cause the Project to be occupied and to operate or cause it to be operated at all times during the term of the Agreement for Project Purposes and does not know of any reason why the Project will not be so used by it in the absence of supervening circumstances not now anticipated by it or beyond its control. (e) The Project will be completed in such manner as to conform with all applicable zoning, planning, building and other regulations of governmental authorities having jurisdiction of the Project, all necessary utilities are or will be available to the Project, and the Obligor has obtained or will obtain all requisite zoning, planning, building, environmental or other permits necessary for the construction of the Project for Project Purposes, and additional permits necessary for the use of the Project are expected to be obtained upon application at the appropriate times. (f) The Obligor's estimates of Project Costs, the Completion Date and period of usefulness of the Project which were supplied to the Issuer have been made in good faith and are fair, reasonable and realistic. (g) No litigation or governmental proceeding is pending or, to the best knowledge of the Obligor, threatened against the Obligor which could have a material adverse effect on its financial condition or business, or its power to borrow or repay the Loan. (h) The Obligor does not have any material contingent obligations which are not disclosed in writing to the Bank. (i) All representations and warranties in the Reimbursement Agreement are incorporated herein as set forth therein. (j) The Project qualifies as a "project" under the Act and the Obligor intends to have the Project operated as such during the term of this Agreement. (k) The financing of the Project will result in the creation of approximately 200 new jobs and will not result in the transfer of employment of more than 20 full-time employees from another municipality to the Municipality in violation of the Act. (l) All the net Bond proceeds from the sale of the Bonds will be expended on the Project to be owned by the Obligor, except for proceeds used for the payment of costs of issuing the Bonds. Substantially all (at least 95%) of the costs of the Project are for the acquisition or construction of land or property of a character subject to the allowance for depreciation. (m) There are no other bond issues, which together with the Bonds, are to be used with respect to a single building, an enclosed shopping mall or a strip of offices, stores or warehouses using substantial common facilities. (n) No portion of the Bond proceeds will be used to provide any airplane, skybox or other private luxury box, any health club facility, any facility primarily used for gambling or any store the principal business of which is the sale of alcoholic beverages for consumption off premises. (o) Less than 25% of the Bond proceeds are to be used directly or indirectly for the acquisition of land used for other than farming purposes, and no portion of the Bond proceeds is to be used, directly or indirectly for the acquisition of land used for farming purposes. E-95 9 (p) None of the Bond proceeds is to be used for the acquisition of any property (or an interest therein) the first use of which property is not pursuant to such acquisition unless certain rehabilitation requirements as provided in Code Section 147(d) are met. (q) Substantially all (at least 95%) of the net proceeds of the Bonds (face amount) and all of the earnings on Bond proceeds deposited in the Project Fund will be used to provide manufacturing facilities within the meaning of Code Section 144(a)(12)(C). For this purpose, the term "manufacturing facility" means any facility which is used in the manufacturing or production of tangible personal property (including the processing resulting in a change in the condition of such property). The term "manufacturing facility" includes facilities which are directly related and ancillary to a manufacturing facility (determined without regard to this sentence) if a) such facilities are located on the same site as the manufacturing facility and b) not more than 25% of the net proceeds of the Bonds are used to provide such facilities. The Obligor, for purposes of this representation, is able to meet all of the criteria below regarding manufacturing facilities. Office space is directly related and ancillary to a manufacturing facility where such office is located on the premises of the manufacturing facility and not more than a de minimis (5%) portion of the functions to be performed at such office is not directly related to the day-to-day operations at such manufacturing facility. Facilities for the short-term warehousing of raw materials incidental to production or the temporary warehousing of finished product constitute facilities directly related and ancillary to a manufacturing facility. An on-site laboratory whose purpose is to test the manufactured product for quality or to experiment with different materials which might be used as raw materials for the product may be directly related and ancillary to a manufacturing facility. Loading docks or rail spurs to unload raw materials or load finished products may be directly related and ancillary. Forklifts or similar equipment are directly related and ancillary to a manufacturing facility, but trucks or vans to deliver the final product are not. A showroom staffed with full-time sales personnel is outside the scope of a manufacturing facility. (r) Except as is permitted by Code Section 149(b), the Bonds are not federally guaranteed within these provisions; specifically the payment of principal or interest with respect to the Bonds is not guaranteed in whole or in part by the United States or any agency or instrumentality thereof; the Bonds are not issued as part of an issue a significant portion of the proceeds of which is to be used in making loans the payment of principal or interest with respect to which is to be guaranteed in whole or in part by the United States or any agency or instrumentality thereof, or invested directly or indirectly in federally insured deposits or accounts; and the payment of principal or interest on the Bonds is not otherwise indirectly guaranteed in whole or in part by the United States or an agency or instrumentality thereof. (s) The sum of the authorized face amount of the Bonds allocable to each test-period beneficiary (as defined in Code Section 144(a)(10)) plus the respective aggregate face amount of all tax-exempt facility-related bonds presently outstanding (not including any obligations which are to be redeemed from the proceeds of the Bonds) which are allocable to each such test-period beneficiary does not exceed $40,000,000. The Obligor will not sell, lease or enter any other arrangement having the effect of causing another person to become a beneficiary of the Bond financed facility during the test-period which would have the effect of making interest on the Bonds includable in the gross income for federal income tax purposes of the holder thereof. (t) No more than 2% of the proceeds of the Bonds will be used for any Issuance Costs. (u) The weighted average maturity of the Bonds does not exceed 120% of the weighted average reasonably expected economic life of the Project financed with the net proceeds of the Bonds pursuant to Code Section 147(b). (v) No more than 25% of the net proceeds of the Bonds will be used to provide a facility the primary purpose of which is one of the following: retail food and beverage service, automobile sales or service, or the provision of recreation or entertainment pursuant to Code Section 144(a)(8)(A). (w) No portion of the proceeds of the Bonds will be used to provide any of the following: any private or commercial golf course, country club, massage parlor, tennis club, skating facility (including roller skating, skateboard, and ice skating), racquet sports facility (including any handball or racquetball court), hot tub facility, suntan facility, or racetrack pursuant to Code Section 144(a)(8)(B). E-96 10 (x) There are no "private activity bonds" as defined in Section 103 of the Code outstanding on the Effective Date, the proceeds of which have been or shall be used with respect to any facility located in the Municipality of which the Obligor or a related person to the Obligor is a principal user. (y) The face amount of the Bonds, plus the aggregate amount of capital expenditures (excluding capital expenditures paid for with proceeds of the Bonds) by the Obligor, any "related person" thereto, any principal user of the Project, and any "related person" thereto (all within the meaning ascribed in Code Section 144(a)(4)) in the Municipality and areas contiguous thereto or attributed to the Municipality beginning three years before the Effective Date and ending three years after the Effective Date do not and will not exceed $10,000,000. In addition, the Obligor will not violate any other provisions of the Code relating to the foregoing. (z) No expenditures for the Project were made prior to 60 days before the Issuer adopted its official intent resolution for the Project on the Inducement Date. (aa) The Project has not been "placed in service" more than 18 months prior to the date of issuance of the Bonds and no expenditure to be reimbursed with proceeds of the Bonds was made more than three years prior to the date of issuance of the Bonds. (bb) Other than the Bonds, there are no other tax exempt obligations issued for the benefit of the Obligor or any "related person" which were or are to be sold (a) within 15 days of the Effective Date, (b) pursuant to the same plan of financing as the Bonds, and (c) payable from the same source of funds as the Bonds. (cc) All representations and warranties of the Obligor set forth in the Non-Arbitrage Certificate and the Borrower's Questionnaire of the Obligor, each dated the Effective Date (including exhibits thereto) will be true and correct as of that date. Section 1.2 Additional Covenants. The Obligor hereby covenants that, unless advised otherwise by Bond Counsel, the Obligor will comply with the following: (a) Any proceeds received upon the sale of any of the property which is included in the Project (i) will be invested at a yield not in excess of the yield on the Bonds and used for the purpose of redeeming the Bonds at the first subsequent call date, or (ii) will be used for the purpose of acquiring property performing the same function as the disposed Project property. (b) If part or all of the Project wears out or becomes obsolete so that it is no longer functional to the Obligor and the Obligor deems it appropriate to dispose of such portion of the Project and, only if, the Obligor or any related party thereto receives no economic benefit from the disposal thereof, then the Obligor may dispose of such property other than as provided in (a) above. (c) The Obligor will not use accelerated depreciation for federal income tax purposes for any part of the Project financed with proceeds of the Bonds. Section 1.3 Issuer Findings and Representations. (a) The Issuer has the necessary power under the Act, and has duly taken all action on its part required to authorize, execute and deliver the Agreement and to issue the Bonds. The execution and performance by the Issuer of its obligations under this Agreement will not violate or conflict with any instrument by which the Issuer or its properties are bound. (b) All of the proceedings approving the Agreement and the Indenture relating to the Bonds were conducted by the Issuer at meetings which complied with Act No. 267, Michigan Public Acts, 1976, as amended. E-97 11 (c) No member of the Board of Directors of the Issuer is directly or indirectly a party to or in any manner whatsoever interested in the Agreement, the Indenture, the Bonds or the proceedings related thereto. Section I.4 Additional Bonds. At the request of the Obligor the Issuer may, but shall not be required to, authorize the issuance of Additional Bonds in accordance with Section 112 of the Indenture. Additional Bonds shall not be issued without the prior written consent of the Bank. The terms of any Additional Bonds shall be approved in writing by the Obligor. Additional Bonds may be issued only to finance any one or more of the following: (i) the costs of making Improvements to the Project; (ii) the refunding of all or any part of the Bonds; and (iii) the Issuance Costs relating to the Additional Bonds and other costs reasonably related to the financing as shall be agreed upon by the Obligor and the Issuer. Any Improvements to the Project acquired with the proceeds of the Additional Bonds shall become a part of the Project and shall be included under the Agreement. Refusal for any reason by the Issuer to issue Additional Bonds shall not release the Obligor from any provisions of the Agreement. ARTICLE II THE BONDS AND THE PROCEEDS THEREOF Section II.1 The Bonds. The Issuer has authorized the issuance and sale of the Bonds. Upon issuance and delivery of the Bonds, the proceeds of the sale of the Bonds derived by the Issuer shall be deposited with the Trustee as follows: (a) in the Bond Fund, a sum equal to the accrued interest, if any, on the Bonds and (b) in the Project Fund, the balance of the proceeds of sale of the Bonds. The obligations of the Issuer and the Obligor under the Agreement are expressly conditioned upon delivery of the Bonds and receipt of the proceeds thereof. Section II.2 Issuer Action on Redemption. The Issuer shall, at the request of the Obligor in the case of an optional redemption, or at the request of the Trustee in the case of a mandatory redemption on expiration of the Credit Facility, a mandatory redemption on Determination of Taxability or mandatory redemption from Surplus Bond Proceeds, forthwith take all steps as may be necessary under the Indenture to effect the earliest practicable redemption, as provided under the Indenture, of any or all of the Bonds or portions thereof as may be specified by the Obligor or Trustee, as the case may be. In the event of an optional redemption, mandatory redemption on Determination of Taxability or mandatory redemption on expiration of the Credit Facility, unless such redemption is effected in connection with a refunding, the Obligor will pay or cause to be paid pursuant to a draw on the Credit Facility (or, with respect to any premium, if premium is not covered by the Credit Facility, with Available Moneys) an amount equal to the applicable redemption price as a prepayment of the principal amount of the Loan corresponding to such Bonds or portions thereof and interest accrued to the redemption date. In the case of an extraordinary optional redemption, the Obligor's direction to the Issuer to redeem shall be given, if at all, within six months following the occurrence of the event giving rise to such redemption. In the event the Obligor receives notice under the provisions in the Bond Forms Appendix entitled Mandatory Redemption on Determination of Taxability that a proceeding has been instituted which could lead to a determination that interest on the Bonds is includable in gross income for federal income tax purposes and the resultant Mandatory Redemption on Determination of Taxability, the Obligor shall promptly notify the Trustee, the Bank and the Issuer of such proceeding. E-98 12 Section II.3 Investment of Bond Fund and Project Fund; Non-Arbitrage Covenant. Any moneys held as part of the Bond Fund or Project Fund shall be invested, reinvested or applied by the Trustee in accordance with and subject to the conditions of Article VII of the Indenture. The Obligor and the Issuer shall make no use of the proceeds of the Bonds, or any funds which may be deemed to be proceeds of the Bonds pursuant to Section 148 of the Code and the applicable regulations thereunder, which, if such use had been reasonably expected on the date of issuance of the Bonds, would have caused the Bonds to be "arbitrage bonds" within the meaning of such Section and such regulations, and the Obligor shall comply with the requirements of such Section and such regulations throughout the term of the Bonds as provided by and required in the Non-Arbitrage Certificate, the terms of which are incorporated herein and made a part hereof by this reference. The Obligor shall comply, for itself and on behalf of the Issuer, with all requirements of the Code. In particular, the Obligor will compute rebate due, if any, under Section 148 of the Code, pay any rebate due under the Code and retain records as required by the Code. Section II.4 Credit Facility. The Obligor shall cause the Credit Facility to be delivered to the Trustee on or before the Effective Date. The Credit Facility shall (a) be in an amount equal to the aggregate principal amount of the Bonds outstanding from time to time plus 56 days' (or if required pursuant to Section 208 of the Indenture, 210 days') interest thereon calculated at the Maximum Rate; (b) provide for payment to the extent of the amount specified in the preceding clause (a) in immediately available funds to the Trustee (upon receipt of the Trustee's request for payment of the principal of, premium, if any, and/or interest on the Bonds then outstanding on any Bond Payment Date, proposed Conversion Date, Conversion Date, Substitution Date, Purchase Date or redemption date pursuant to the Indenture); and (c) provide an expiration date no earlier than the earliest of (i) the payment in full by the Bank of funds authorized to be drawn thereunder so that there are no outstanding Bonds (ii) the honoring by the Bank of a draft on the Credit Facility for all outstanding Bonds, (iii) a stated expiration date, (iv) the day after any Conversion Date, or (v) the fifteenth day following an Event of Default pursuant to Section 801(d) of the Indenture. The Obligor will cause any extension of the Credit Facility to be deposited by the Bank with the Trustee at least 60 days prior to the last Interest Payment Date prior to the expiration of the Credit Facility or Substitute Credit Facility then in effect. Each extension of the Credit Facility shall be satisfactory in form and substance to the Trustee. Upon the conversion of the Bonds to Fixed Rate Bonds, the Bonds may, but need not, be secured by a Credit Facility. The Obligor shall have the right to provide a Substitute Credit Facility in accordance with Section 210 of the Indenture. Section II.5 Tender. The Issuer agrees to cause the Trustee in the Indenture to act as tender agent for the Obligor in connection with certain tenders of Variable Rate Bonds and as tender agent for the Bank in connection with certain other tenders of Variable Rate Bonds, all as provided in Article II of the Indenture. Section II.6 Remarketing Agent. The Obligor hereby approves of the appointment of Robert W. Baird & Co. Incorporated as the initial Remarketing Agent and covenants and agrees that, without prior written notice to the Trustee and without written approval by the Bank, it will not change the Remarketing Agent. Section II.7 Right to Exercise Conversion Option. Subject to the ability of the Obligor to satisfy certain conditions described in the Indenture, the right is reserved to the Obligor, upon receipt of prior approval from the Bank (but only if the existing Credit Facility will remain in effect following the proposed conversion or, in any event, if a draw may be made on the existing Credit Facility in connection with the proposed conversion), to exercise the conversion option in accordance with the Indenture. Section II.8 Rebate Account. The Obligor covenants and agrees that it will create and maintain on its books and records a "Rebate Account" as required to comply and evidence compliance with Section 2.3 hereof. ARTICLE III THE LOAN AND LOAN REPAYMENTS Section III.1 The Loan. Concurrently with the delivery of the Bonds, the Issuer will, upon the terms and conditions of the Agreement, lend to the Obligor, by deposit of the proceeds thereof with the Trustee in the Project Fund, an amount equal to the principal amount of the Bonds for application to Project Costs. The accrued interest, if any, received by the Issuer upon the sale of the Bonds shall be deposited into the Bond Fund and shall be applied to the first interest due on such Bonds. E-99 13 Section III.2 Loan Repayments; Credit Facility. Except as hereinafter provided, the Obligor shall pay or cause to be paid, in immediately available funds, to the Trustee, for the account of the Issuer, loan repayments corresponding to the principal, premium, if any, Purchase Price and interest payments on the Bonds when due (the "Loan Repayments"); in lieu of such payments, the Trustee shall draw on the Credit Facility, pursuant to Section 209 of the Indenture, amounts equal to such Loan Repayments. So long as the Credit Facility is in effect, the Loan Repayments representing principal of, premium, if any (if the Credit Facility then covers such premium), Purchase Price and interest payments on the Bonds shall be made by deposits of the proceeds of drawings under the Credit Facility and the Obligor shall reimburse the Bank in accordance with the Reimbursement Agreement. Payments of the principal and Purchase Price of, premium, if any, or interest on the Bonds shall be made solely from the Security, including draws under the Credit Facility (except with respect to premium unless the Credit Facility has been amended to cover premium on the Bonds). The Obligor's obligation to make Loan Repayments is and shall remain unconditional regardless of the sufficiency and availability of Available Moneys to make such payments. With the prior written approval of the Bank and written notice to the Issuer and the Trustee, the Obligor may prepay in whole or in part amounts due on account of the Loan Repayments or for the redemption of Bonds prior to maturity or purchase, but such prepayment shall not in any way alter or suspend any of the obligations of the Obligor under the terms of the Agreement and the Obligor shall continue to perform and be responsible for the performance of all other terms and provisions. Such notice shall be given at least 10 Business Days before the Trustee is to give notice of any related redemption pursuant to Article IV of the Indenture. The Issuer agrees that the Trustee may accept such prepayments when the same are tendered by the Obligor and that such prepayments may be directed by the Obligor to be used for credit on Loan Repayments or for the redemption or purchase of Bonds in the manner and to the extent provided herein and in the Indenture. In the event the Obligor prepays Loan Repayments in the following manner and in accordance with the provisions of the Indenture: (a) in Available Moneys, after delivering the No Act of Bankruptcy Certificate attached hereto as Exhibit D to the Trustee or (b) by causing the Trustee to draw on the Credit Facility, for deposit in the Bond Fund an amount of money which, together with amounts then on deposit in the Bond Fund and available therefor, shall be sufficient (i) to retire and redeem at the earliest date(s) permitted under the Indenture all of the then outstanding Bonds and (ii) to pay any interest accruing on the Bonds to maturity or redemption and shall also make provision satisfactory to the Issuer and the Trustee for all fees, costs and expenses specified in Article V hereof accruing through the final payment of the Bonds, then the Loan shall be deemed fully repaid and canceled, and the lien of the Indenture shall be discharged, except for the provisions providing for payment of principal and Purchase Price of, premium, if any, and interest to the Bondholders. ARTICLE IV THE PROJECT Section IV.1 Project Fund Disbursements. There is established with the Trustee under the Indenture the Project Fund, the moneys in which, subject to the terms hereof and of the Indenture, and subject to the security interest therein granted by the Obligor to the Issuer, shall be the property of the Obligor. Unless an Event of Default has occurred and is continuing which the Trustee is required to take notice of or is deemed to have notice of pursuant to Section 901(h) of the Indenture, the Trustee, as authorized by the Bank pursuant to the Indenture, shall disburse to or for the benefit of the Obligor out of the Project Fund the lesser of (a) the Project Costs, or (b) the proceeds of the Bonds deposited in the Project Fund and investment income in the Project Fund. Such disbursements shall be made from time to time to pay Project Costs so long as there are moneys in the Project Fund, upon presentation of Requisition Certificate(s) executed by the Obligor and approved for payment in writing by the Bank. The Trustee may also disburse moneys out of the Project Fund to or for the benefit of the Issuer upon the Obligor's failure to pay the fees, costs and expenses of the Trustee or Issuance Costs as required by Section 5.2 hereof. Disbursements from the Project Fund shall be made upon the Trustee's receipt of an executed and approved Requisition Certificate. E-100 14 The Obligor shall also deliver or cause to be delivered to the Trustee with a Requisition Certificate such other documents and certificates as may be required by the Bank, it being understood that the Trustee shall have no duty to review or approve such documents and certificates. Upon the occurrence of an Event of Default under the Indenture, any moneys in the Project Fund shall be transferred by the Trustee to the Bond Fund. Upon request and with reasonable notice, the Obligor shall permit the Trustee or the Issuer or its authorized agents to audit the records of the Obligor relating to Project Costs during normal business hours. Section IV.2 Obligation of the Obligor to Complete the Project. The Obligor shall proceed with reasonable dispatch to complete the Project substantially in accordance with the Plans. The Obligor may revise the Plans, subject to the General Limitations and under the conditions contained in this section. The Issuer makes no warranty, either express or implied, and offers no assurance as to the condition of the Project or that the Project is or will be suitable for the Obligor's purposes, or that the proceeds derived from the sale of the Bonds will be sufficient to pay all Project Costs, and the Issuer shall not be liable to the Obligor if for any reason the Project is not completed. In the event moneys in the Project Fund are insufficient to pay all Project Costs, the Obligor will complete the Project and pay the Project Costs in excess of the sum of moneys available in the Project Fund. By reason of the payment of any such portion of the Project Costs, the Obligor shall not be entitled to any reimbursement from the Issuer, the Trustee or the holders of the Bonds in respect thereof or to any diminution or abatement in the Loan Repayments payable under the Agreement. Section IV.3 Completion Certificate. The Obligor shall as promptly as practicable file with the Trustee, the Issuer and the Bank a certificate substantially in the form of Exhibit C attached hereto when the Project is complete. All moneys deposited in the Project Fund and not needed, as of the Completion Date, to pay or reimburse Project Costs (which moneys shall be used for such purposes if needed), shall, upon receipt of such certificate, and in any event on the third anniversary hereof, be deemed Surplus Bond Proceeds and shall be immediately transferred to the Bond Fund to be applied by the Trustee in the manner provided in Section 4.4 of this Agreement. Section IV.4 Use of Surplus Bond Proceeds. All moneys transferred to the Bond Fund pursuant to the provisions of Section 4.3, Section 6.1 and Article VII hereof ("Surplus Bond Proceeds") shall be applied by the Trustee for redemption of the Bonds pursuant to Mandatory Redemption from Surplus Bond Proceeds as provided in the Bond Forms Appendix to the Indenture or reimbursement of the Bank for honoring a drawing under the Credit Facility for such purpose, or may be used for any other purpose approved in writing by the Bank which is permitted by the Act and which, in the opinion of Bond Counsel, will not affect the exclusion from gross income for federal income tax purposes of interest on the Bonds. Prior to such use, such Surplus Bond Proceeds shall not be invested at a yield in excess of the yield on the Bonds, unless, in the opinion of Bond Counsel, the investment of Surplus Bond Proceeds at a yield in excess of the yield on the Bonds will not affect the exclusion from gross income for federal income tax purposes of the interest on the Bonds. In no event shall Surplus Bond Proceeds so transferred to the Bond Fund or the investment income thereon be used to pay interest on the Bonds. E-101 15 ARTICLE V OTHER PECUNIARY OBLIGATIONS OF THE OBLIGOR Section V.1 Taxes and Other Costs. The Obligor shall promptly pay, as the same become due, all lawful taxes and governmental charges of any kind whatsoever, including without limitation income, profits, receipts, business, property and excise taxes, with respect to any estate or interest in the Project, the Agreement, the Loan or any payments with respect to the foregoing, the costs of all building and other permits to be procured, and all utility and other charges and costs incurred in the operation, maintenance, use, occupancy and upkeep of the Project. The Obligor shall furnish the Issuer upon request proof of payment of any such taxes, charges or costs. The Obligor may in good faith contest, and during such contest not pay, any such taxes, charges and costs, as provided in the Reimbursement Agreement. Section V.2 Issuer Fees and Expenses. The Obligor shall pay all Issuance Costs and other reasonable out-of-pocket costs and expenses of the Issuer incidental to the performance of its obligations under the Agreement, the Indenture and with respect to its authorization, sale and delivery of the Bonds, including without limitation on or before the Effective Date the Issuer's Issuance Fee, or reasonably incurred by the Issuer in enforcing the provisions of the Agreement or the Indenture. Section V.3 Fees and Expenses of the Trustee and Remarketing Agent. The Obligor shall pay the reasonable fees, costs, expenses and advances of the Trustee, and the Remarketing Agent under the Indenture for services rendered in connection with the Bonds, the duties and services of such Trustee being set out in the Indenture, and it shall pay the Trustee, in addition, all reasonable out-of-pocket counsel fees, taxes and other fees, costs and expenses reasonably incurred by the Trustee in performing its duties as Trustee and in entering into the Indenture. All such payments shall be made as statements are rendered and shall be made by the Obligor directly to the Trustee except to the extent fees, costs, expenses and advances of the Trustee incurred in connection with the issuance of the Bonds are paid from proceeds of sale of the Bonds. Section V.4 Indemnification of the Issuer. (a) The Issuer and its members, officers, agents and employees (hereinafter, the "Indemnified Persons") shall not be liable to the Obligor for any reason. The Obligor shall indemnify and hold the Issuer and the Indemnified Persons harmless from any loss, expense (including reasonable counsel fees), or liability of any nature due to any and all suits, actions legal or administrative proceedings, or claims arising or resulting from, or in any way connected with: (i) the financing, installation, operation, use, or maintenance of the Project, (ii) any act, failure to act, or misrepresentation by any person, firm, corporation or governmental agency, including the Issuer, in connection with the issuance, sale, remarketing or delivery of the Bonds, (iii) any act, failure to act, or misrepresentation by the Issuer in connection with this Agreement or any other document involving the Issuer in this matter, or (iv) the selection and appointment of firms providing services to the Bond transaction. If any suit, action or proceeding is brought against the Issuer or any Indemnified Person, that action or proceeding shall be defended by counsel to the Issuer or the Obligor, as the Issuer shall determine. If the defense is by counsel to the Issuer, which is the Attorney General of the State, or may in some instances be private, retained counsel, the Obligor shall indemnify the Issuer and Indemnified Persons for the reasonable cost of that defense including reasonable counsel fees. If the Issuer determines that the Obligor shall defend the Issuer or Indemnified Person, the Obligor shall immediately assume the defense at its own cost. The Obligor shall not be liable for any settlement of any proceedings made without its consent (which consent shall not be unreasonably withheld). E-102 16 (b) The Obligor shall also indemnify the Issuer for all reasonable costs and expenses, including reasonable counsel fees, incurred in: (i) enforcing any obligation of the Obligor under this Agreement or any related agreement, (ii) taking any action requested by the Obligor, (iii)taking action required by this Agreement or any related agreement, or (iv) taking any action considered necessary by the Issuer and which is authorized by this Agreement or any related agreement. (c) The obligations of the Obligor under this Section shall survive any assignment or termination of this Agreement. (d) The Obligor shall not be obligated to indemnify the Issuer or any Indemnified Person under subsection (a) if a court with competent jurisdiction finds that the liability in question was caused by the willful misconduct or sole gross negligence of the Issuer or the involved Indemnified Person(s), unless the court determines that, despite the adjudication of liability but in view of all circumstances of the case, the Issuer or the Indemnified Person(s) is (are) fairly and reasonably entitled to indemnity for the expenses which the court considers proper. Section V.5 Indemnification of the Trustee. The Obligor shall indemnify and hold the Trustee harmless against any loss, liability or expense, including reasonable attorneys' fees, or settlement costs incurred without breach of the required standard of care set forth in the Indenture arising out of or in connection with claims or actions taken under or pursuant to the Indenture, including the costs and expenses of defense, including counsel selected by the Trustee, against any such claim or action or liability. Notwithstanding anything to the contrary in this Agreement, the Obligor expressly acknowledges and agrees that the obligations and liabilities of the Obligor as set forth in this Section 5.5 shall survive the resignation or removal of the Trustee. Section V.6 Insurance. The Obligor shall continuously insure against such risks and in such amounts as are required under the Reimbursement Agreement. ARTICLE VI PROJECT MAINTENANCE Section VI.1 Maintenance and Operation; Removal from Site. The Obligor, at its expense, shall maintain the Project in good condition, repair and working order, and shall make or cause to be made from time to time all necessary repairs, renewals and replacements, ordinary wear and tear and obsolescence excepted. Any property comprising a portion of the Project and purchased with Bond proceeds may not be removed from the site of the Project without the prior written consent of the Bank and unless (i) other property of equivalent or greater value and utility is substituted therefor or (ii) the proceeds of the sale of such property are used in accordance with Section 1.2(a) hereof, subject to the provisions of Section 1.2(b) hereof or (iii) the Obligor receives an opinion of Bond Counsel that noncompliance with (i) or (ii) above will not affect the exclusion of interest on the Bonds for federal income tax purposes under the Code and the Act. Section VI.2 Remodeling and Modifications. The Obligor may remodel or modify the Project as it, in its discretion, may deem to be desirable for its or any tenant's uses and purposes; provided that such remodeling or modifications shall not violate the General Limitations. The cost of such remodeling, modifications or improvements shall be paid by the Obligor. E-103 17 ARTICLE VII DAMAGE TO PROJECT AND CONDEMNATION In the event (i) the Project is damaged or destroyed, or (ii) failure of title to all or part of the Project occurs or title to or temporary use of the Project is taken in condemnation or by the exercise of the power of eminent domain by any governmental body or by any person, firm or corporation acting under governmental authority, the Obligor shall promptly give written notice thereof to the Issuer, the Trustee and, if the Credit Facility is in effect at the time, the Bank. As soon as practicable the Obligor shall elect in writing to the Issuer, the Bank and the Trustee, and with the written consent of the Bank as required by the Reimbursement Agreement, whether to deposit insurance or condemnation proceeds in the Project Fund or in the Bond Fund. If the Obligor shall elect to deposit such proceeds in the Project Fund, it shall proceed to restore the Project with reasonable dispatch, and such moneys shall be disbursed in accordance with Section 4.1 of this Agreement. If the Obligor shall elect to deposit such proceeds in the Surplus Bond Proceeds Account in the Bond Fund, such proceeds shall be used to redeem the Bonds to the extent of such proceeds in the manner provided in the Indenture and in the Bond Forms Appendix under Mandatory Redemption from Surplus Bond Proceeds. As long as any of the Bonds are outstanding, absent an approving opinion of Bond Counsel, all such funds shall not be invested at a yield in excess of the yield on the Bonds prior to their expenditure. ARTICLE VIII ACTIONS AFFECTING OBLIGOR AND ISSUER INTERESTS IN THE AGREEMENT AND THE PROJECT Section VIII.1 Assignment of the Agreement. The Issuer shall assign its rights under and interest in the Agreement (except Reserved Rights) and in all moneys deposited in the various Funds under the Agreement and the Indenture to the Trustee pursuant to the Indenture as security for payment of the principal of and interest on the Bonds, and such assignment shall entitle the Trustee to enforce any obligation of the Obligor under the Agreement. The Obligor hereby consents to any and all assignments described in the preceding sentence or set forth in the Indenture. The Issuer shall not amend the Indenture without the written consent of the Obligor, the Trustee and the Bank, as provided in the Indenture. Pursuant to the Act, the assignment of the Issuer's rights and interests pursuant to this Section 8.1 shall be valid and binding from the time this assignment is made. The money or property pledged and thereafter received by the Issuer immediately shall be subject to a lien in favor of the Trustee without a physical delivery, filing, or any further act. The lien of the Trustee shall be valid or binding as against parties having claims of any kind in tort, contract, or otherwise, against the Issuer irrespective of whether the parties have notice. Neither this Agreement, the Indenture, nor any other instrument by which the assignment is made need be filed or recorded. Section VIII.2 Obligor's Interest in the Agreement. The Obligor shall not assign or transfer its rights or obligations under the Agreement, except as permitted in the Agreement or consented to in writing by the Bank (which consent may be granted or withheld in the Bank's sole discretion) and as long as the General Limitations are complied with. Section VIII.3 Liens by the Obligor. The Obligor shall not create or permit the creation of any lien, encumbrance or charge upon the Project except Permitted Encumbrances. Section VIII.4 Security Interest in the Project Fund. To better secure its obligations hereunder, including the obligation to pay Loan Repayments as and when they are due, the Obligor hereby grants a security interest in the moneys at any time held in the Project Fund, and any proceeds thereof, to the Issuer and the Bank (to the extent the Trustee is directed to disburse such moneys to the Bank pursuant to the Indenture) to be perfected by possession of such moneys in the Project Fund by the Trustee and held therein for the benefit of the Bondholders and Bank as provided in the Indenture. E-104 18 ARTICLE IX FURTHER OBLIGATIONS OF THE OBLIGOR Section IX.1 Compliance with Laws. The Obligor shall, throughout the term of the Agreement and at no expense to the Issuer, promptly comply or cause compliance with all legal requirements of duly constituted public authorities which are applicable to the Project or to the repair and alteration thereof, or to the use or manner of use of the Project. Notwithstanding the foregoing, but subject to the General Limitations, the Obligor may exercise its rights to contest the legality of any such legal requirement as applied to the Project provided that in the opinion of Counsel such contest shall not in any way materially adversely affect or impair the obligations of the Obligor under the Agreement or the exclusion of interest on the Bonds from gross income for federal income tax purposes. Section IX.2 Maintenance of Assets; Ownership of Project. (a) The Obligor, unless and until the Project shall be sold and transferred to a new owner under paragraph (b) or (c) of this Section 9.2, will do or cause to be done all things necessary to perform its obligations under this Agreement and the other documents contemplated hereby and by the Reimbursement Agreement. Except as provided in paragraph (b), the Obligor shall not cause or permit the Project or any interest therein to be sold, assigned or transferred. (b) So long as no Event of Default shall have occurred and be continuing hereunder, the Project may be conveyed and transferred and this Agreement assigned to a new owner, which assignment must be in compliance with the General Limitations and with the prior written consent of the Bank (which consent may be granted or withheld in the Bank's sole discretion), and without the consent of the Trustee or any Bondholder; provided that (i) the new owner shall be a partnership, limited liability company or corporation duly organized and validly existing in good standing under the laws of any state and qualified to do business in Michigan and shall assume in writing the obligations of the Obligor under this Agreement and the other documents contemplated hereby and (ii) the Obligor shall, at least 30 days prior to any such assignment or transfer, provide the Issuer and the Trustee with written notice of such transfer accompanied by a copy of the assumption agreement and an opinion of nationally recognized bond counsel that such transfer will not cause or result in interest on the Bonds to be included in gross income for federal income tax purposes. (c) The Obligor shall at all times operate the Project or cause the Project to be operated in strict compliance with the terms of this Agreement so that it fulfills the public purposes of the Act. Section IX.3 General Limitations with Respect to Non-Impairment of Tax-Exempt Status of the Bonds. Notwithstanding any other provisions of the Agreement or any rights of the Obligor under the Agreement, the Obligor shall not take or permit to be taken by its agents or assigns any action which, or fail to take any reasonable action the omission of which, would (i) impair the exclusion of interest on the Bonds from gross income for federal income tax purposes; or (ii) affect the validity of the Bonds under the Act; or (iii) materially alter the scope, character, value, operation or utility of the Project. In addition, the Obligor shall comply, for itself and on behalf of the Issuer, with all requirements of the Code. The Issuer and the Trustee, upon notification of action to be taken by the Obligor or prior to taking any action requested by the Obligor under the Agreement may require at the expense of the Obligor, an opinion of Counsel or an Engineer or both, as may be appropriate, in writing with respect to compliance with the foregoing General Limitations. E-105 19 Section IX.4 Access to Project and Records. Subject to reasonable security and safety regulations and reasonable requirements as to notice, the Issuer, the Trustee, the Bank and their duly authorized agents shall have the right at all reasonable times to enter and inspect the Project. The Issuer, the Trustee, the Bank and their duly authorized agents shall also have the right to inspect the books and records of the Obligor pertaining to the Project and the Security (as defined in the Indenture), subject to reasonable requirements as to notice and during regular business hours. Section IX.5 Requirements of Tenants. If any portion of the Project is leased to another person, the Obligor shall use its best efforts to require each of its tenants occupying space in the Project within three years from the Completion Date in provisions of its lease or by means of a written certificate (a) to warrant and represent that it will not take or permit to be taken by its agents or assigns any action which, or fail to take any action the omission of which, would impair the exclusion of interest on the Bonds from gross income for federal income tax purposes, including a violation of the capital expenditure limitation of Section 144(a) of the Code, (b) to warrant and represent that it will for a period of three years after the date of original issuance of the Bonds, in the case of any tenant who occupies a sufficient portion of the Project to be a principal user of the Project under Section 144(a) of the Code, to file with the Obligor an annual report of its applicable capital expenditures, (c) to attach to the lease or certificate, a certificate of applicable capital expenditures within the Municipality for the period of three years prior to the issuance of the Bonds and any contemplated capital expenditures for a period of three years after the issuance of the Bonds, and (d) to attach to the lease or certificate a Prior Issue Certificate in the form attached hereto as Exhibit E. ARTICLE X EVENTS OF DEFAULT AND REMEDIES Section X.1 Events of Default. The term "Event of Default" shall mean, whenever used in the Agreement, any one or more of the following events: (a) Failure by the Obligor to pay any Loan Repayments in the amounts and at the times provided in the Agreement, but if and only if the Bank has, after demand under the Credit Facility, failed to pay the amount of such Loan Repayment as and when due. (b) Failure by the Obligor to observe and perform any other obligations in this Agreement on its part to be observed or performed for a period of 30 days after written notice specifying such failure and requesting that it be remedied, given to the Obligor by the Issuer, the Bank or the Trustee; provided, however, that if such Default shall be such that it cannot be corrected within such period, it shall not constitute an Event of Default if the Default is correctable without material adverse effect on the Bonds and if corrective action is instituted by the Obligor within such period and is diligently pursued until the Default is corrected. (c) Any representation or warranty made by the Obligor in any document delivered by the Obligor to the initial purchasers, the Trustee, the Bank or the Issuer in connection with the issuance, sale and delivery of the Bonds is untrue in any material adverse respect. (d) The occurrence of an Event of Default under the Indenture. (e) The occurrence of an Event of Default under the Reimbursement Agreement. E-106 20 The Events of Default described in subsection (b) above are also subject to the following limitation: If the Obligor by reason of force majeure is unable to carry out or observe the obligations described in such subsection (b), the Obligor shall not be deemed to be in breach or violation of this Agreement or in default during the continuance of such inability. The term "force majeure" as used herein shall include, without limitation, acts of public enemies; insurrections; riots; epidemics; landslides; lightning; earthquake; fire; hurricanes; tornadoes; storms; floods; washouts; droughts; arrests; civil disturbances; labor disturbances or strikes; explosions; breakage or accident to machinery, transmission pipes or canals; partial or entire failure of utilities; or any other cause or event other than financial inability not reasonably within the control of the Obligor. The Obligor agrees, however, insofar as possible, to remedy with all reasonable dispatch the causes preventing it from carrying out its agreement; provided, however, that the settlement of strikes, lockouts and other industrial disturbances shall be entirely within the exercise of the reasonable discretion of the Obligor. Section X.2 Remedies upon Event of Default. Whenever any Event of Default shall have occurred and be continuing, the Issuer, with the consent of the Trustee, or the Trustee acting alone, shall have and may exercise any one or more of the following remedial powers: (a) If the principal of and interest accrued on the Bonds shall have been declared immediately due and payable pursuant to the Indenture, to declare all Loan Repayments payable under Section 3.2 for the remainder of the term of the Agreement to be immediately due and payable, whereupon the same shall become immediately due and payable; provided, however, that, if the Trustee shall annul any such declaration pursuant to the Indenture, the declaration provided for in this clause (a) shall be deemed annulled; (b) If the principal of and interest accrued on the Bonds shall have been declared immediately due and payable pursuant to the Indenture, to institute any actions or proceedings at law or in equity for the collection of Loan Repayments or other sums due and unpaid under the Agreement, to prosecute any such action or proceeding to judgment or final decree, and to enforce any such judgment or final decree and collect in the manner provided by law any moneys adjudged or decreed to be payable; and (c) In case there shall be pending proceedings for the bankruptcy or for the reorganization of the Obligor under the federal bankruptcy laws or any other applicable law, or in case a receiver or trustee shall have been appointed for the property of the Obligor, to file and prove a claim or claims for the whole amount owing under the Agreement plus interest owing and unpaid in respect thereof and, in case of any judicial proceedings, to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee allowed in such judicial proceedings relative to the Obligor, its creditors, or its property, and to collect and receive any moneys or other property payable or deliverable on any such claims, and to distribute the same after the deduction of its charges and expenses. In case the Trustee or the Issuer shall have proceeded to exercise or enforce any right or remedy under the Agreement and such proceeding shall have been discontinued or abandoned for any reason, or shall have been determined adversely, then and in every such case, the Obligor, the Issuer and the Trustee shall be restored to their respective rights and positions hereunder and all rights and remedies of the Obligor, the Issuer and the Trustee shall continue as though no such proceeding had been taken, but subject to the limitations of any such adverse determination. Any amounts collected pursuant to action taken under this Section shall be paid into the Bond Fund and applied in accordance with the Indenture, except amounts collected pursuant to Article V for the benefit of the Issuer or the Issuer's Agents, which shall be paid to and retained by the Issuer. Section X.3 Payment of Attorneys' Fees and Other Expenses. In the event the Obligor should default under any of the provisions of the Agreement and the Issuer and/or the Trustee should employ attorneys or incur other expenses for the collection of the Loan or for the enforcement of performance or observance of any obligation of the Obligor in the Agreement or any other document related to the issuance of and security for the Bonds, the Obligor shall on demand therefor pay to the Issuer or the Trustee, or both, as the case may be, the reasonable fees of such attorneys and such other reasonable expenses so incurred. E-107 21 Section X.4 Waivers and Limitation on Waivers. By reason of the assignment of the Issuer's rights and interest in the Agreement to the Trustee, the Trustee shall have the power with the consent of the Bank to, and shall if requested by the Bank, waive or release the Obligor from any Event of Default or the performance or observance of any obligation or condition of the Obligor under the Agreement, provided such waiver or release is not prohibited by the Indenture and the Trustee and the Issuer receive an opinion of Counsel that such action will not impose any pecuniary obligation or liability or adverse consequence upon the Issuer or the Trustee and the Issuer and the Trustee shall have each been provided such indemnification from the Obligor as the Issuer or the Trustee shall deem necessary, and provided that, with respect to a waiver of an Event of Default such waiver shall be limited to the particular Event of Default so waived and shall not be deemed to waive any other Event of Default hereunder nor a waiver of a similar Event of Default on a future occasion. No delay or omission to exercise any right occurring upon any Event of Default shall impair any such right or shall be construed to be a waiver thereof, but any such right may be exercised from time to time and as often as may be deemed expedient. In order to exercise any remedy reserved to the Issuer or the Trustee in this Agreement, it shall not be necessary to give any notice other than such notice as may be herein expressly required. Notwithstanding anything to the contrary contained herein, the Obligor does not waive any statute of limitations under applicable law. ARTICLE XI OBLIGATIONS OF OBLIGOR UNCONDITIONAL Section XI.1 Obligor Obligations. The obligation of the Obligor to make Loan Repayments and the payments required by Article V hereof and to perform its other covenants hereunder shall be absolute and unconditional and shall not be subject to any diminution by right of set-off, counterclaim, recoupment or otherwise. During the term hereof, the Obligor (i) shall not suspend or discontinue its Loan Repayments, (ii) shall perform and observe all of its other obligations contained herein and (iii) except as explicitly permitted herein, shall not terminate the Agreement for any cause including, without limiting the generality of the foregoing, defect in title to the Project, failure to complete the Project, any acts or circumstances that may constitute failure of consideration, eviction or constructive eviction, destruction or damage to or condemnation of the Project, commercial frustration of purpose, any change in the tax or other law by the United States of America or the State or any political subdivision of either, or any failure of the Issuer to perform and observe any obligation or condition arising out of or connected with the Agreement. This shall not be construed to release the Issuer from the performance of any of its obligations under the Agreement; and in the event the Issuer shall fail to perform any such obligation, the Obligor may institute such action against the Issuer as the Obligor may deem necessary to compel performance; provided, however, that no such action shall violate this Section or diminish Loan Repayments. The Obligor may at its own cost and expense and in its own name or in the name of the Issuer, prosecute or defend any action or proceedings or take any other action involving third persons which the Obligor deems reasonably necessary in order to secure or protect its rights under the Agreement, and in such event the Issuer shall cooperate fully with the Obligor. ARTICLE XII MISCELLANEOUS Section XII.1 Amounts Remaining in Funds. Any amounts remaining in the Bond Fund, the Purchase Fund or the Project Fund upon expiration or sooner termination of the Agreement as herein provided, after payment in full of the Bonds (or provision therefor) in accordance with the Indenture, and all other costs and expenses of the Obligor specified under Article V, and all amounts owing the Issuer, the Trustee, the Bank, and the Remarketing Agent under the Agreement, the Indenture and the Reimbursement Agreement, shall be paid to the Obligor. Section XII.2 Obligor Bound by Indenture. The Obligor, by execution of this Agreement, acknowledges and agrees that it has participated in the drafting of the Indenture and agrees that it has approved the Indenture and agrees that it is bound by and shall have the rights set forth by the terms and conditions thereof and covenants and agrees to perform all obligations required of the Obligor pursuant to the terms of the Indenture. E-108 22 Section XII.3 Consents Under the Agreement. Unless otherwise expressly provided herein, all consents permitted or required to be given under the Agreement by the Issuer or the Trustee shall be reasonable and shall not be unreasonably withheld or delayed. Section XII.4 Notices. All notices, certificates or other communications hereunder shall be sufficiently given and shall be deemed given on the date shown as delivered when mailed by registered or certified mail, postage prepaid, return receipt requested, addressed to the Issuer, the Obligor, the Bank, the Remarketing Agent or the Trustee, as the case may be, at the Issuer's Address, the Obligor's Address, the Bank's Address, the Remarketing Agent's Address or the Trustee's Address, respectively, or hand delivered to the above at their respective addresses. A duplicate copy of each such notice, certificate or other communication given hereunder to the Issuer, the Obligor, the Bank, the Remarketing Agent or the Trustee shall also be given to the others. The Issuer, the Obligor, the Bank, the Remarketing Agent and the Trustee may, by written notice to the other parties, designate any further or different addresses to which subsequent notices, certificates or communications shall be sent. Section XII.5 Amendment. The Agreement may be amended only as provided in the Indenture, and no amendment to the Agreement shall be binding upon either party hereto until such amendment is reduced to writing and executed by the parties hereto. Section XII.6 Binding Effect. The Agreement shall be binding upon the parties hereto and upon its respective successors and assigns, and the words "Issuer" and "Obligor" shall include the parties hereto and their respective successors and assigns and include any gender, singular and plural, any individuals, partnerships, limited liability companies or corporations. Section XII.7 Severability. If any clause, provision or section of the Agreement be ruled invalid or unenforceable by any court of competent jurisdiction, the invalidity or unenforceability of such clause, provision or section shall not affect any of the remaining clauses, provisions or sections. Section XII.8 Execution in Counterparts. The Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section XII.9 Captions and Table of Contents. The captions or headings and the Table of Contents in the Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions of the Agreement. Section XII.10 Applicable Law. The Agreement shall be governed in all respects, whether as to validity, construction, performance or otherwise, by the laws of the State. E-109 23 IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be duly executed as of the day and year first above written. MICHIGAN STRATEGIC FUND (Issuer) By:____________________________ Its: Authorized Officer AUTOCAM CORPORATION (Obligor) By:____________________________ Its: Chief Financial Officer E-110 24 EXHIBIT APROJECT DESCRIPTION The Project consists of the acquisition of land, the construction of an approximately 56,000 square foot manufacturing facility and the acquisition and installation of machinery and equipment in the City of Marshall, County of Calhoun, Michigan. E-111 25 EXHIBIT B REQUISITION CERTIFICATE TO: Norwest Bank Wisconsin, N.A., as Trustee FROM: Autocam Corporation (the "Obligor") SUBJECT: $9,000,000 Michigan Strategic Fund Variable Rate Demand Limited Obligation Revenue Bonds, Series 1997 (Autocam Corporation Project) This represents Requisition Certificate No. ________ in the total amount of $___________ to pay those costs of the Project detailed in the schedule attached. The undersigned does certify that: 1. The expenditures for which moneys are requisitioned hereby represent proper charges against the Project Fund of the subject bond issue, have not been included in a previous requisition and have been properly recorded on the Obligor's books. 2. The moneys requisitioned hereby are not greater than those necessary to meet obligations due and payable or to reimburse the Obligor for its funds actually advanced for costs of the Project and do not represent a reimbursement to the Obligor for working capital. 3. The Obligor is not in default under the Agreement and nothing has occurred to the knowledge of the Obligor that would prevent the performance of its obligations under the Agreement. 4. In the event moneys in the Project Fund after payment of moneys herein requested are insufficient to pay Project Costs, the Obligor will pay such additional Project Costs as are incurred from such other funds which are available for such purpose. 5. All of the property acquired with the moneys hereby requested will be owned by the Obligor. 6. The sum of (A) moneys requisitioned hereby to pay (or reimburse the Obligor of its prior payment of) issuance costs of the Bonds (within the meaning of Section 147(g) of the Internal Revenue Code of 1986, as amended), plus (B) the total moneys previously disbursed from the Project Fund and similarly applied, does not exceed $180,000 (which is 2% of the face amount of the Bonds). E-112 26 7. Delivered herewith are the following requested certificates, sworn statements, waivers of lien, surveys, invoices, architect's certificates and other documents: Executed this _______ day of ____________, 199____. AUTOCAM CORPORATION, (Obligor) By:_______________________________________ Authorized Obligor Representative Approved By: COMERICA BANK, as Issuer of the Credit Facility By:________________________________________ Its:_______________________________________ E-113 27 SCHEDULE TO REQUISITION CERTIFICATE NO. ______________ Payee and Address Description of Property or Services Provided Amount - ----------------- -------------------------------------------- ------ E-114 28 EXHIBIT C COMPLETION CERTIFICATE TO: Michigan Strategic Fund (the "Issuer"), Comerica Bank (the "Bank") and Norwest Bank Wisconsin, N.A., as Trustee (the "Trustee") FROM: Autocam Corporation (the "Obligor") SUBJECT: $9,000,000 Michigan Strategic Fund Variable Rate Demand Limited Obligation Revenue Bonds, Series 1997 (Autocam Corporation Project) The undersigned does hereby certify: 1. The Project has been completed in accordance with the Plans and in such manner as to conform with all applicable zoning, planning and building regulations of the governmental authorities having jurisdiction of the Project, as of the date of this Certificate (the "Completion Date"). 2. The Costs of the Project have been paid in full except for those not yet due and payable, which are described below and for which moneys for payment thereof are being held in the Project Fund: (a) Cost of the Project not yet due and payable:
Description Amount $__________ TOTAL $_____________ (b) Payments being contested: Description Amount TOTAL $_____________
3. The moneys in the Project Fund in excess of the totals set forth in 2(a) and (b) above represent Surplus Bond Proceeds and the Trustee is hereby authorized and directed to apply such moneys pursuant to Section 4.4 of the Agreement. 4. No Event of Default has occurred under the Agreement or the Reimbursement Agreement nor has any event occurred which with the giving of notice or lapse of time or both shall become such an Event of Default. Nothing has occurred to the knowledge of the Obligor that would prevent the performance of its obligations under the Agreement or the Reimbursement Agreement. This certificate is given without prejudice to any rights against third parties which exist at the date hereof or which may subsequently come into being. E-115 29 Capitalized terms used herein have the meanings given them in the Trust Indenture for the Bonds. Executed this ______ day of ___________________, 19____ AUTOCAM CORPORATION (Obligor) By:______________________________________ Authorized Obligor Representative E-116 30 EXHIBIT D NO ACT OF BANKRUPTCY CERTIFICATE TO: Comerica Bank, as issuer of the Credit Facility (the "Bank") and Norwest Bank Wisconsin, N.A., as Trustee (the "Trustee") FROM: Autocam Corporation (the "Obligor") SUBJECT: $9,000,000 Michigan Strategic Fund Variable Rate Demand Limited Obligation Revenue Bonds, Series 1997 (Autocam Corporation Project) The undersigned does hereby certify to the Trustee and the Bank that, during and prior to the period beginning _____________________________ and continuing until the date hereof, no Act of Bankruptcy (as defined in that certain Loan Agreement, dated as of December 1, 1997, between the undersigned and the Michigan Strategic Fund) shall have occurred. The Obligor acknowledges that the Trustee and the Bank may conclusively rely on this Certificate. Under penalties of perjury, this certificate has been executed this _____ day of __________________, 19______, by the Obligor. AUTOCAM CORPORATION (Obligor) By:_______________________________________ Authorized Obligor Representative E-117 31 EXHIBIT E PRIOR ISSUE CERTIFICATE (To be attached as an addendum to any sale, assignment, or lease of the Project) The undersigned hereby executes this Prior Issue Certificate for the purposes of enabling Autocam Corporation, a Michigan corporation (the "Obligor"), as obligor on an issue of $9,000,000 Michigan Strategic Fund Variable Rate Demand Limited Obligation Revenue Bonds, Series 1997 (Autocam Corporation Project) (the "Bonds"), to comply with a provision of a Loan Agreement, dated as of December 1, 1997 (the "Agreement"), by and between the Obligor and the Michigan Strategic Fund, such provision being intended to prevent the loss of the exclusion from gross income for Federal income tax purposes of the interest on the Bonds by reason of Code Section 144. The undersigned undertakes and confirms that the Obligor is relying upon the information and representations contained herein, and that such information and representations are correct and complete. Failure to supply the correct information on this Certificate, notwithstanding anything in the Loan Agreement to the contrary, constitutes a breach of the Loan Agreement. The undersigned hereby certifies that the face amount of all outstanding tax-exempt facility-related bonds ("IDBs") allocated to the undersigned at the time the Bonds were issued pursuant to Code ss. 144(a)(10) was $______________. This is an amount which bears the same relationship to the face amount of the outstanding tax-exempt IDBs as the portion of the facilities financed by such IDBs used by the undersigned bears to all such facilities financed, or as the portion of the facilities owned by the undersigned bears to all such financed facilities. The undersigned hereby certifies that the face amount of the Bonds allocated to the undersigned, based upon the percentage of use or the percentage of ownership or use by the undersigned in the Bond-financed facility, is $______________________. The undersigned does hereby certify that he or she is a duly authorized officer of the proposed _____________________________, as indicated under his or her signature, and that he or she has been authorized to furnish the information and representations contained herein for use by the Obligor. __________________________________________ (Purchaser, Lessee, Sublessee, or Assignee) By:_____________________________ Dated:_________________________ Its:____________________________ E-118 32 REIMBURSEMENT AGREEMENT BETWEEN COMERICA BANK AND AUTOCAM CORPORATION Relating to: $9,000,000 Michigan Strategic Fund, Variable Rate Demand Limited Obligation Revenue Bonds (Autocam Corporation Project), Series 1997 Dated as of December 1, 1997 E-119 33 TABLE OF CONTENTS Page SECTION 1. Reimbursement and Other Payments -1- SECTION 2. Issuance of Letter of Credit -3- SECTION 3. Conditions Precedent to the Issuance of the Letter of Credit -4- SECTION 4. Obligations Absolute -6- SECTION 5. Representations and Warranties -6- SECTION 6. Affirmative Covenants -9- SECTION 7. Negative Covenants of the Obligor -11- SECTION 8. Events of Default -11- SECTION 9. Collateral Security -12- SECTION 10. Amendments, Waivers, Etc -12- SECTION 11. Addresses for Notices -12- SECTION 12. No Waiver; Remedies -13- SECTION 13. Indemnification -13- SECTION 14. Continuing Obligation -14- SECTION 15. Transfer of Letter of Credit -14- SECTION 16. Liability of the Bank -14- SECTION 17. Costs, Expenses and Taxes -15- SECTION 18. Disbursements -15- SECTION 19. Insurance -16- SECTION 20. Condemnation -17- SECTION 21. Severability -17- SECTION 22. Governing Law -17- SECTION 23. Authorized Signers -17- SECTION 24. Headings -17- SECTION 25. Waiver of Jury Trial -17- EXHIBIT A IRREVOCABLE LETTER OF CREDIT A-1 EXHIBIT B AMORTIZATION SCHEDULE B-1 EXHIBIT C REDEMPTION NOTICE C-1
E-120 34 REIMBURSEMENT AGREEMENT REIMBURSEMENT AGREEMENT (the "Agreement"), dated as of December 1, 1997 (the "Execution Date") by and between Autocam Corporation, a Michigan corporation, whose address is 4070 East Paris Avenue, S.E., Kentwood, MI 49512 (the "Obligor") and COMERICA BANK, a Michigan banking corporation, whose address is 1000 Campau Square Plaza, 99 Monroe Avenue, N.W., Grand Rapids, MI 49503 (the "Bank"). WITNESSETH: WHEREAS, the Obligor has requested the Michigan Strategic Fund (the "Issuer") to finance a part of the cost of the acquisition, construction and equipping of new production facilities (including machinery and equipment) to be located in the L. ALTA Brooks Industrial Park in the City of Marshall, Michigan (the "Project"), by the issuance and sale, pursuant to a Trust Indenture, dated as of December 1, 1997 (the "Indenture"), naming Norwest Bank Wisconsin, N.A. as trustee (the "Trustee"), of $9,000,000 principal amount of the Issuer's Variable Rate Demand Limited Obligation Revenue Bonds, Series 1997 (Autocam Corporation Project) (the "Bonds") to the purchaser or purchasers thereof (the "Bond Purchasers"); and WHEREAS, in order to induce the Bond Purchasers to purchase the Bonds, the Obligor has requested that the Bank issue an irrevocable letter of credit (such letter of credit and any successor letter of credit as described in Section 2 of this Agreement being herein called the "Letter of Credit"), in an amount not to exceed $9,138,082.19 (such amount being herein called the "Letter of Credit Amount") to secure payment of the principal of, purchase price of, and interest on, the Bonds. NOW, THEREFORE, in consideration of the premises, the Obligor and the Bank hereby agree as follows: E-121 35 SECTION 1. Reimbursement and Other Payments. (a) The Obligor hereby agrees with the Bank as follows: (i) to pay the Bank, following payment by the Bank of any draft presented under a Letter of Credit other than a "Purchase Draft" (as defined in the Letter of Credit), and on the same day on which such draft is so paid, a sum (and interest on such sum as provided in clause (iii) below) equal to the amount so paid under the Letter of Credit plus any and all reasonable charges and expenses which the Bank may pay or incur relative to such Letter of Credit; (ii) to pay the Bank, following payment by the Bank of a Purchase Draft, and on the same day on which a Purchase Draft is paid, an amount equal to the accrued interest paid by such payment, plus sums from time to time in installments sufficient to maintain the amortization schedule for the Bonds, which schedule is attached hereto as Exhibit B, together with interest on such moneys outstanding at a fluctuating interest rate per annum (computed on the basis of a 360 day year for the actual number of days elapsed) as shall be in effect from time to time, which rate per annum shall be equal to the rate publicly announced by the Bank as its "Prime Rate" (the "Prime Rate"), but such interest rate shall in no event be higher than the maximum rate permitted by law, which interest shall be payable monthly; and (iii) to pay the Bank, interest on any and all amounts remaining unpaid by the Obligor hereunder, other than the principal portion of a Purchase Draft following a Purchase Draft, at any time from the date any such amount becomes payable until payment in full, payable on demand, at a fluctuating interest rate per annum (computed on the basis of a 360 day year for the actual number of days elapsed) as shall be in effect from time to time, which rate per annum shall be equal to three percent (3%) above its Prime Rate, provided that such fluctuating interest rate shall in no event be higher than the maximum rate permitted by law and, in addition, upon demand by the Bank any and all reasonable expenses including but not limited to legal expenses incurred by the Bank in enforcing any rights under this Agreement or any other collateral agreement entered into in conjunction herewith. (b) In addition, the Obligor hereby agrees to pay to the Bank a commission with respect to the Letter of Credit, computed (on the basis of a year of 360 days for the actual number of days elapsed) at the rate of five-eighths percent (5/8%) per annum on the Letter of Credit Amount (or, in the event, and effective the date, of any reduction in the maximum amount available under the Letter of Credit in accordance with the terms thereof, on such smaller amount to which the maximum amount available under the Letter of Credit may have been so reduced from time to time) from and including the date of issuance of the Letter of Credit to but excluding the last day a drawing is available under the Letter of Credit (the "Expiration Date"), payable in advance in annual installments, on the first day of December of each year until the Expiration Date; provided, that the first installment shall be payable on the date of issuance of the Letter of Credit for the period from and including such date of issuance until December 1, 1998. If the Expiration Date occurs on a day before the date to which commission has been prepaid under this Section 1(b), the Bank agrees to repay to the Obligor, promptly after the Expiration Date, such portion of such commission as is allocable to the period from and including the Expiration Date until the day to which such commission has been prepaid; provided, that the Bank shall not be obligated to repay any portion of such commission at any time if at the close of the Bank's business on the Expiration Date there exists an Event of Default under this Agreement. (c) In addition, a $100 fee shall be payable by the Obligor at the time of each drawing on the Letter of Credit and a fee of $1,500 shall be paid by the Obligor upon the transfer of the Letter of Credit to a new trustee, except for a transfer at the request of the Bank. (d) If any change in any law or regulation or in the interpretation thereof by any court or administrative or governmental authority charged with the administration thereof shall either (i) impose, modify or deem applicable any reserve, special deposit, limitation or similar requirement against letters of credit issued by, or assets held by, or deposits in or for the account of, the Bank or (ii) impose on the Bank any other condition regarding this Agreement or the Letter of Credit, and the result of any event referred to in clause (i) or (ii) above shall be to increase the cost to the Bank of issuing or maintaining the Letter of Credit (which increase in cost shall be determined by the Bank's reasonable allocation of the aggregate of such cost increases resulting from such events), then, upon demand by the Bank, the Obligor shall immediately pay to the Bank, from time to time as specified by the Bank, additional amounts which shall be sufficient to compensate the Bank for such increased cost, together with interest on each such amount from the date demanded until payment in full thereof at the rate provided in subsection (a) above. A certificate as to such increased cost incurred by the Bank as a result of any event mentioned in clause (i) or (ii) above, submitted by the Bank to the Obligor, shall be conclusive as to the amount thereof. E-122 36 (e) All payments by the Obligor to the Bank hereunder shall be made in lawful money of the United States and in immediately available funds at the Bank's office at the address set forth above or in another matter acceptable to the Bank. All such payments shall be charged when due to account at the Bank, No. 1840378044 (or any other deposit or other account of the Obligor maintained with the Bank and designated as a replacement therefor); provided, however, this authorization shall not affect Obligor's obligation to pay, when due, any indebtedness hereunder whether or not account balances are sufficient to pay amounts due. SECTION 2. Issuance of Letter of Credit. On or before December 31, 1997, upon written notice from the Obligor to the Bank and subject to the satisfaction of the conditions precedent specified in Section 3 below, the Bank will issue the Letter of Credit in substantially the form of Exhibit A hereto, in favor of the Trustee and expiring no later than December 16, 2000 (the "Expiration Date"). So long as no Event of Default has occurred and is continuing, on December 1 of each year (the "Anniversary Date"), beginning December 1, 1998, the Expiration Date shall automatically be extended for an additional year, unless the Bank has notified the Obligor in writing on or before such Anniversary Date of the Bank's intention not to extend the Expiration Date. The Bank agrees to process an amendment to the Letter of Credit extending the Expiration Date promptly upon each extension. This procedure for the automatic extension of the Letter of Credit shall be applicable to successive Anniversary Dates, so long as the Letter of Credit shall not have been terminated as provided therein; provided, however, that the Expiration Date shall not be extended beyond December 16, 2012. SECTION 3. Conditions Precedent to the Issuance of the Letter of Credit. The obligation of the Bank to issue the Letter of Credit is subject to the satisfaction of the following conditions precedent: (a) On or before the date of issuance of the Letter of Credit, the Obligor shall have paid to the Bank the commission payable on such date of issuance under Section 1(b) above. (b) On or before the date of issuance of the Letter of Credit, the Bank shall have received the following, each dated contemporaneous with the date of issuance of the Letter of Credit and in form and substance satisfactory to the Bank: (i) certified copies of resolutions of the Board of Directors of the Obligor approving this Agreement, the form and content of the Letter of Credit and the other matters and documents contemplated hereby. (ii) a certificate of the Secretary or an Assistant Secretary (or other authorized officer or representative) of the Obligor, certifying the names and true signatures and incumbency of the officers of the Obligor authorized to sign this Agreement and the other documents to be delivered by it hereunder. (iii) a certified copy of the Articles of Incorporation of the Obligor and a certificate of good standing for the Obligor from each jurisdiction in which its conduct or activities require it to be licensed to do business. (iv) a full set of the Obligor's Bylaws duly certified by the Secretary or an Assistant Secretary (or other authorized officer) of the Obligor. (v) a favorable opinion of Dickinson, Wright, Moon, VanDusen & Freeman, counsel for the Obligor, in form and substance satisfactory to the Bank. (vi) a favorable opinion of Howard & Howard Attorneys, P.C., as Bond Counsel, in form and substance satisfactory to the Bank. (vii) a favorable opinion of Miller, Canfield, Paddock and Stone, P.L.C. as counsel for the Bank, in form and substance satisfactory to the Bank. (viii) an executed copy of the Indenture (or a copy thereof certified as to authenticity by the Trustee). E-123 37 (ix) an executed copy of that certain Loan Agreement dated as of the Execution Date between the Issuer and the Obligor (the "Loan Agreement") (or a copy thereof certified as to authenticity by Counsel for or an agent of the Issuer). (x) counterpart originals of the mortgages, security agreements, guarantees and other documents constituting the Collateral Documents (as defined in Section 9 of this Agreement) together with evidence of such recordings, filings of financing statements or of other actions necessary or desirable to establish the priority of lien in the Collateral Security (as defined in Section 9 of this Agreement) as the Bank may require. (xi) a copy of the preliminary Offering Circular and the final Offering Circular (together with the documents incorporated therein by reference, herein called the "Offering Circular") of the Issuer relating to the Bonds. (xii) an executed original of that certain Pledge and Security Agreement dated as of the Execution Date between the Obligor, the Bank and the Trustee. (xiii) a revocable redemption notice to the Trustee with respect to redemptions required by Section 6(c) hereof in the form of Exhibit C hereto. (xiv) such other documents, instruments, approvals (and, if requested by the Bank, certified duplicates of executed copies thereof) or opinions as the Bank may reasonably request. (c) The following statements shall be true and correct on and as of the date of issuance of the Letter of Credit, and the execution of this Agreement by a duly authorized officer of the Obligor shall be a confirmation of the following: (i) the representations and warranties contained in Section 5 of this Agreement are correct on and as of the date of such issuance as though made on and as of such date; and (ii) no event has occurred which constitutes an Event of Default (as defined in Section 8 hereof) or which would constitute an Event of Default but for the requirement that notice be given or time elapse or both, nor will the issuance of the Letter of Credit give rise to the occurrence of an Event of Default. (d) On or before the day of the issuance of the Letter of Credit: (i) the Issuer and the Trustee shall have duly authorized and executed the Indenture and the Indenture shall continue to be in full force and effect; (ii) the Issuer and the Obligor shall have duly authorized and executed the Loan Agreement and the Loan Agreement shall continue to be in full force and effect; (iii) the Obligor, or any other entity or person required to deliver the same, shall have duly authorized and executed the Collateral Documents and the Collateral Documents shall continue to be in full force and effect; and (iv) the Issuer and the Underwriter shall have duly authorized and executed the Bond Purchase Agreement (the "Bond Purchase Agreement") relating to the Bonds, which shall continue to be in full force and effect, and the Issuer shall have issued and delivered the Bonds under the Bond Purchase Agreement. SECTION 4. Obligations Absolute. The payment obligations of the Obligor under this Agreement shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including, without limitation, the following circumstances, either alleged or established: (a) any lack of validity or enforceability of the Letter of Credit, the Bonds, the Indenture, the Loan Agreement or any other agreement or instrument relating thereto; E-124 38 (b) any amendment or waiver of or any consent to departure from all or any of the foregoing; (c) the existence of any claim, set-off, defense or other right which the Obligor may have at any time against the Trustee, any beneficiary or any transferee of the Letter of Credit (or any persons or entities for whom the Trustee, any such beneficiary or any such transferee may be acting), the Bank or any other person or entity, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction; (d) any statement or any other document presented under the Letter of Credit proving to be erroneous, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (e) payment by the Bank in good faith under the Letter of Credit against presentation of a draft or certificate under circumstances where the draft or certificate is noncomplying in one or more respects; or (f) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. SECTION 5. Representations and Warranties. The Obligor represents and warrants as of the Execution Date, as follows: (a) It is a legal entity duly created, validly existing and in good standing under the laws of the State of Michigan and is qualified and in good standing in every jurisdiction in which its business or activities requires qualification. (b) The execution, delivery and performance by the Obligor of this Agreement, the Loan Agreement, the Pledge and Security Agreement, and the Collateral Documents, as the case may be, are within the Obligor's legal powers, have been duly authorized by all necessary legal action, do not contravene or violate (i) the Articles of Incorporation or Bylaws of the Obligor, (ii) any law, order, rule or regulation applicable to the Obligor, (iii) any contract or agreement to which the Obligor is a party or by which it is bound and does not result in or require the creation of any lien, security interest or other charge or encumbrance (other than pursuant to the Collateral Documents, this Agreement, the Indenture, the Pledge and Security Agreement or the Loan Agreement) upon or with respect to any of its properties. (c) All registration with, authorizations by, or approvals of any governmental body required to be obtained by the Obligor for the execution, delivery and performance of this Agreement, the Loan Agreement, the Pledge and Security Agreement and the Collateral Documents have been obtained and remain in full force and effect. (d) This Agreement, the Loan Agreement, the Pledge and Security Agreement, and the Collateral Documents are legal, valid and binding obligations of the Obligor, enforceable against it in accordance with their respective terms, except as enforceability may be subject, to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or similar law affecting creditors' rights generally. (e) There is not pending or, to the knowledge of the Obligor, threatened any action or proceeding before any court, governmental agency or arbitrator against or affecting the Obligor which, if determined adversely to the Obligor, would materially and adversely affect the financial condition or operations of the Obligor, except as previously disclosed to the Bank in writing or as set forth in the annual financial statements of the Obligor for the fiscal year ending June 30, 1997 and, and as to any actions and proceedings set forth in such financial statements, there has been no materially adverse development regarding any such action or proceedings. (f) The financial statements referred to in Section 5(e) above fairly present the financial position of the Obligor, as at such dates all in accordance with generally accepted accounting principles consistently applied, and since the dates of such statements, there has been no material adverse change in such condition or operations. E-125 39 (g) The Obligor has not incurred any material accumulated funding deficiency within the meaning of the Employment Retirement Income Security Act of 1974 ("ERISA") and has not incurred any material liability to the Pension Benefit Guaranty Corporation ("PBGC") in connection with any employee benefit plan established or maintained by the Obligor. (h) The Obligor has good and marketable fee simple absolute title to the real property upon which the Project will be constructed (the "Premises") free from all liens and encumbrances except Permitted Encumbrances (as defined in the Revolving Credit Loan Agreement dated June 27, 1997, between Obligor and the Bank (the "Credit Agreement")). (i) he Obligor is not in default in the payment of any indebtedness for borrowed money or under the terms and provisions of any agreement or instrument evidencing any such indebtedness. (j) The Project has adequate rights of access to all water, sanitary sewer and storm drain facilities and access to utilities necessary or convenient to the full use and enjoyment of the Project are available at the boundaries of the Premises, and if not now installed the same shall be constructed and installed to service the Project in a timely fashion. (k) The Project has adequate rights of access to public ways and all roads necessary for the full utilization of the Project for its intended purposes have either been completed or the necessary rights of way therefor have either been acquired by the appropriate governmental authorities or have been dedicated to public use and accepted by said governmental authorities, and all necessary steps have been taken by the Obligor and said governmental authorities to assure the complete construction and installation thereof. (l) The Obligor acknowledges that the Bank makes no representation or warranty as to the adequacy or accuracy of the environmental surveys and reports that have been procured by the Obligor and presented to the Bank in conjunction with the Project. The Obligor confirms the indemnification of the Bank with respect to environmental matters contained in the Collateral Documents and/or related documents or instruments. The Bank assumes no liability whatsoever with respect to such environmental surveys or reports. (m) The Obligor will employ the proceeds of the Bonds solely for the purpose of paying the costs of the Project. (n) No representation or warranty of the Obligor contained in this Agreement or in any of the Collateral Documents, and no statement contained in any certificate, schedule, list, financial statement or other instrument furnished to the Bank by or on behalf of the Obligor contains, or will contain, any untrue statement of a material fact, or omits, or will omit, to state a material fact necessary to make the statements contained herein or therein not misleading in any material respect when made. (o) The Obligor has obtained or will obtain all licenses, permits, authorizations, consents or approvals from each governmental authority necessary for the operation of the Project; and all such licenses, permits, authorizations, consents or approvals are or will be in full force and effect. SECTION 6. Affirmative Covenants. So long as a drawing is available under the Letter of Credit, the Obligor will, unless the Bank gives its prior consent in writing: (a) Comply with Credit Agreement. Comply with all of the terms and conditions contained in Section 7 of the Credit Agreement, which Section 7 as it may be amended from time to time, is hereby incorporated by reference. This reference to and incorporation of Section 7 of the Credit Agreement shall survive termination of the Credit Agreement and shall continue until termination of the Letter of Credit and fulfillment of all of Obligor's obligations under this Agreement. (b) Certain Covenants Relating to the Project. The Obligor covenants to: (i) Operate the Project in accordance with applicable lawful ordinances, rules and regulations and requirements of all governmental authorities having jurisdiction over the Project. E-126 40 (ii) Maintain, preserve and keep the Project and the grounds and structure, improvements and equipment appurtenant thereto or used therewith, and each and every part and parcel thereof, in good repair and working order, reasonable wear and tear excepted, and in safe condition at all times. (iii) During normal business hours, upon reasonable notice, permit the Bank or its duly authorized agents free access to the Project and make available for audit and inspection, at any reasonable time, with reasonable notice, by the Bank or its duly authorized agents, all property, equipment, books, contracts, records and other papers relating to the Project. All inspections shall be made to keep interference with production to the minimum amount possible. The Obligor shall keep the books and accounts of all operations relating to the Project at the Premises or at its principal office as shown on the first page hereof, in accordance with generally accepted accounting principles. (iv) Promptly respond to any reasonable inquiry from the Bank for information with respect to the Project, which information may be verified by the Bank; provided, however, that the Bank shall at all times be entitled to rely upon any statements or representations made by the Obligor, or its authorized representative. (v) Within thirty (30) days of written notification by Bank to the Obligor, the Obligor shall contribute to the Project (but not the Project Fund itself) such funds which when added to the remaining balance in the Project Fund (as defined in the Indenture) and moneys available to the Obligor from the Issuer, in the sole reasonable opinion of Bank, be sufficient to pay in full the remaining cost of the Project. (vi) Notify the Bank of any loss or damage to the Project in a single occurrence exceeding $100,000 in value within fifteen (15) days of the date the Obligor shall learn of said loss or damage. (vii) Keep valid and unimpaired the Collateral Documents, and to that end execute at any future time and as often as may be deemed necessary, on demand of the Bank, all further instruments, assignments and other acts in due form and effect as may be deemed proper by the Bank to the better carrying out of the true intent and meaning of this Agreement, and especially, at Obligor's sole cost, do all other things that may be reasonably required by the Bank to make and keep valid the liens on, and security interests in, the property described in the various Collateral Documents and to maintain the priority of the said mortgages and security interests. (viii) Notify the Bank in writing within ten (10) days thereof, should any mortgage or lien or any other security instrument whatsoever, including mechanics liens, be filed against the Premises or the Project claiming or securing an amount in excess of $50,000 in aggregate, other than those filed pursuant to the Collateral Documents. (ix) Upon the request of the Bank, bond off under the provisions of applicable law any lien or claim of lien filed for record, or insure over or deposit with the issuer of title insurance on the Project an amount of cash sufficient to satisfy said lien or claim, within ten (10)days of the date of filing of said claim, unless such lien or claim is being contested as hereinabove permitted. (x) Receive those advances made from the Project Fund and hold the right to receive the same as a trust fund for the purpose of paying the costs of the Project and apply the same first to such payment before using any part thereof for any other purpose. (c) Redemption Obligations. Through optional redemption or other means of payment permitted under the Indenture, to amortize the Bonds, including Bonds held by the Trustee under the Pledge and Security Agreement, on the basis required by Exhibit B hereof. SECTION 7. Negative Covenants of the Obligor. So long as a drawing is available under the Letter of Credit, the Obligor agrees that it will not, without the prior written consent of the Bank: E-127 41 (a) Amendment of Indenture or Loan Agreement. Enter into or agree to any amendment, change or modification of, or any waiver of any provision of, the Indenture, the Loan Agreement or the Collateral Documents. (b) Violate Provisions of Credit Agreement. Violate any of the terms and conditions contained in Section 8 of the Credit Agreement, which Section 8, as it may be amended from time to time, is hereby incorporated by reference. This reference to and incorporation of Section 8 of the Credit Agreement shall survive the termination of the Credit Agreement and shall continue until termination of the Letter of Credit and fulfillment of all of Obligor's obligations under this Agreement. (c) Notice of Conversion. Give notice to the Trustee of a Conversion to a Fixed Rate (as provided in the Indenture) without the prior written consent of the Bank, which consent will not be unreasonably withheld. SECTION 8. Events of Default. (a) The occurrence of any of the following events shall be an "Event of Default" hereunder unless waived by the Bank pursuant to Section 10 hereof: (i) Any representation or warranty made by the Obligor pursuant to Section 5 hereof shall prove to have been incorrect in any material respect when made; or (ii) The Obligor shall fail to pay when due any amount specified in Section 1 or Section 3 hereof; or (iii) The Obligor shall fail to perform or observe any other term, covenant or agreement herein contained, or in any other agreement with the Bank to which it may be a party; and such failure shall continue for a period of thirty (30) days after written notice to the Obligor from the Bank; or (iv) Any material provision of this Agreement shall at any time for any reason cease to be valid and binding on the Obligor, or shall be declared to be null and void, or the validity or enforceability thereof against the Obligor shall be contested by the Obligor or any governmental agency or authority, or the Obligor shall deny that it has any or further liability or obligation under this Agreement; or (v) If any of the Collateral Documents shall for any reason cease to create valid and enforceable obligations or a perfected lien on the property described therein, subject only to Permitted Encumbrances; or (vi) An Event of Default under and as defined in the Loan Agreement, the Indenture, the Pledge and Security Agreement, the Credit Agreement or the Collateral Documents shall have occurred and be continuing without the same being cured or waived pursuant to the terms thereof. (b) If any of the Events of Default specified in subsection (a) above shall have occurred and be continuing, in addition to the Bank's other remedies available under the Loan Agreement, the Indenture, the Pledge and Security Agreement, the Collateral Documents, or such other documents executed in connection herewith, or any other remedy available hereunder or at law or in equity, then the Bank may, at any time and in its sole discretion, but shall not be obligated to, terminate its commitment to issue the Letter of Credit or, if the Letter of Credit shall have been issued, may elect to give notice to the Trustee pursuant to the Indenture thereby requiring the Trustee to declare the principal of all Bonds then outstanding and the interest accrued thereon and any premium thereon and thereby owing to be immediately due and payable. E-128 42 SECTION 9. Collateral Security. To secure full and timely performance of the Obligor's covenants set out in this Agreement and to secure the repayment of all other moneys owing by the Obligor to the Bank whensoever arising and whether associated with this Agreement or otherwise, (i) the Obligor agrees to grant to the Bank a first perfected security interest and a first mortgage in the Project property located in Marshall, Michigan, (ii) Obligor and each subsidiary will grant to the Bank a first perfected security interest (if not previously provided) in all their machinery and equipment pursuant to security agreements acceptable to the Bank, and (iii) the Obligor will pledge to the Bank any and all of its interest in and to the trust account established by the Remarketing Agent in connection with the issuance of the Bonds. The mortgages and security agreements creating such rights in favor of the Bank shall be granted pursuant to documentation satisfactory in form and substance to the Bank (and are herein collectively with related documents called the "Collateral Documents"). SECTION 10. Amendments, Waivers, Etc. No amendments or waiver of any provision of this Agreement nor consent to any departure by the Obligor therefrom shall in any event be effective unless the same shall be in writing and signed by the Bank and the Obligor, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No amendment, waiver or consent with respect to any provision of this Agreement shall affect any other provision of this Agreement. SECTION 11. Addresses for Notices. All notices and other communications provided for hereunder shall be in writing and mailed or delivered as follows: if to the Obligor: 4070 East Paris Avenue, S.E. Kentwood, MI 49512 Attention: Warren Veltman if to the Bank: 1000 Campau Square Plaza 99 Monroe Avenue, N.W. Grand Rapids, MI 49503 Attention: Corporate Banking if to the Trustee: Norwest Bank Wisconsin, N.A. 100 E. Wisconsin Avenue Milwaukee, WI 53202 Attention: Corporate Trust Department or as to any party or the Trustee, at such other address as shall be designated by such party or the Trustee, as the case may be, in a written notice to the other party and the Trustee or the parties, as the case may be. All such notices and other communications shall, when mailed, be effective three days after the date of deposit in the mails, addressed as aforesaid. SECTION 12. No Waiver; Remedies. No failure on the part of the Bank to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and exclusive of any remedies provided by law. SECTION 13. Indemnification. The Obligor hereby indemnifies and holds the Bank harmless from and against any and all claims, damages, losses, liabilities, costs or expenses whatsoever which the Bank may incur (or which may be claimed against the Bank by any person or entity whatsoever): E-129 43 (a) by reason of any untrue statement or alleged untrue statement of fact contained in the Offering Circular or any amendment or supplement thereto or the Preliminary Offering Circular, or the omission or alleged omission to state therein facts necessary to make such statements, in the light of the circumstances under which they were made, not misleading; provided, however, that, the Obligor shall not be required to indemnify the Bank with respect to information concerning the Bank in Appendix A to the Offering Circular or in Appendix A to the Preliminary Offering Circular (the "Bank Information") which is finally determined to contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements in the Bank Information, in the light of the circumstances under which they were made, not misleading; or (b) by reason of or in connection with the execution and delivery or transfer of, or payment or failure to pay under, the Letter of Credit; provided, however, that the Obligor shall not be required to indemnify the Bank pursuant to this clause for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, caused by (i) the willful misconduct or gross negligence of the Bank, or (ii) the Bank's willful or grossly negligent failure to pay under the Letter of Credit after the presentation to it by the Trustee of a draft and certificates strictly complying with the terms and conditions of the Letter of Credit. Nothing in this Section 13 is intended, nor shall be deemed, to limit the Obligor's reimbursement obligation contained in Section 1 hereof. SECTION 14. Continuing Obligation. This Agreement is a continuing obligation and shall (i) be binding upon the Obligor, its successors and assigns, and (ii) inure to the benefit of and be binding upon and be enforceable by the Bank and its successors, transferees and assigns; provided, however, that the Obligor may not assign all or any part of this Agreement without the prior written consent of the Bank. The Obligor's warranties and representations made in Section 5 of this Agreement shall survive the delivery and performance of all documents and agreements contemplated by this Agreement. SECTION 15. Transfer of Letter of Credit. The Letter of Credit first issued by the Bank pursuant to Section 2 hereof may be transferred and each successor Letter of Credit may be successively transferred, all in accordance with the terms of such first Letter of Credit. SECTION 16. Liability of the Bank. The Obligor assumes all risks of the acts or omissions of the Trustee and any beneficiary or transferee of the Letter of Credit with respect to its use of the Letter of Credit. Neither the Bank nor any of its officers or directors shall be liable or responsible for: (a) the use which may be made of the Letter of Credit or for any acts or omissions of the Trustee and any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement(s) thereof, even if such documents should in fact prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by the Bank in good faith made against presentation of documents which do not comply fully with the terms of the Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under the Letter of Credit, except only that the Obligor shall have a claim against the Bank, and the Bank shall be liable to the Obligor, to the extent, but only to the extent, of any direct, as opposed to consequential, damages suffered by the Obligor which the Obligor proves were caused by (i) the Bank's willful misconduct or gross negligence or (ii) the Bank's willful or grossly negligent failure to pay under the Letter of Credit after the presentation to it by the Trustee or a successor trustee under the Indenture of a sight draft and certificate strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, the Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. This paragraph shall not diminish or act to exonerate the Trustee from the performance of its obligations and responsibilities established under the Trust Indenture. E-130 44 SECTION 17. Costs, Expenses and Taxes. The Obligor agrees to pay on demand all reasonable costs and expenses in connection with the preparation, execution, delivery, filing, recording, and administration of this Agreement, any other documents which may be delivered in connection with this Agreement and any transfer of the Letter of Credit including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Bank, with respect thereto and with respect to advising the Bank as to its rights and responsibilities under this Agreement and all costs and expenses, if any, in connection with the enforcement of this Agreement and such other documents which may be delivered in connection with this Agreement, including, but not limited to the Collateral Documents. In addition, the Obligor shall pay any and all stamp and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Agreement and such other documents and agrees to save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. SECTION 18. Disbursements. The Trustee shall be authorized to disburse the proceeds of the Bonds pursuant to the terms of the Indenture upon presentation by the Obligor of a requisition certificate conforming to the requirements therefor set forth in the Loan Agreement and herein, including endorsement of each requisition certificate by the Bank. The Obligor acknowledges and agrees that the Bank shall only be required to execute requisition certificates and thereby authorize disbursements to the Obligor upon satisfaction of the following conditions: (a) no Event of Default has occurred under this Agreement, the Pledge and Security Agreement, the Credit Agreement or the Collateral Documents and no event which with notice an/or the passage of time would become an Event of Default under this Agreement, the Pledge and Security Agreement, the Credit Agreement or the Collateral Documents has occurred, (b) the Project shall not have been materially damaged by fire or other casualty, or if so damaged the Obligor has complied with all insurance requirements hereunder, (c) in the case of disbursements to finance the purchase of machinery and equipment, the Obligor shall have complied with the Bank's usual requirements for equipment lending, including but not limited to: (i) approval of disbursements by Bank; and (ii) the amount of such requisition shall not exceed 100% of the cost of such machinery and equipment (exclusive of freight, taxes and installation), (d) in the case of disbursements to finance the construction of improvements to the Project real estate, the Obligor shall have complied with the Bank's usual requirements for construction lending, including but not limited to: (i) an ALTA Loan policy without standard exceptions insuring the first lien interests of the Bank in the Project real estate in the amount of $2,200,000, subject only to liens acceptable to the Bank, with such endorsements as the Bank may require, (ii) surveys showing the improvements situated on all such property to be within all lot lines and set-back lines, showing all easements (identified by recording information), showing no encroachments and showing such other information as the Bank may request, said surveys to be certified to the Bank and the title insurance company, (iii) an appraisal showing a net value of the Project real estate on an "as built" basis of at least $2,200,000 (using an appraiser and a methodology acceptable to the Bank), (iv) the Phase I environmental survey provided to the Bank and a Four Step Transaction Screen shall have been reviewed and approved by the Bank's environmental risk department, (v) submission of sworn statements and waivers of lien, (vi) endorsement of the title policy by the title insurance company, (vii) approval of the disbursement request by the Bank's architect as to the work and materials in place, and (viii) such other information as the Bank may request related thereto, all of which shall be in form and content satisfactory to the Bank in its sole discretion. At the time of each disbursement of the proceeds of the Bonds, the amount of the requested disbursement of Bond proceeds together with Bond proceeds previously advanced shall not exceed 100% of the net fair market value of the Project real estate securing the Bank (based on the appraisal provided to and satisfactory to the Bank), plus 100% of the cost of new machinery and equipment acquired with the proceeds of the Bonds (the "Available Collateral Requirement"). Each requisition shall be supported by presentation to the Bank of such documents, instruments or opinions as the Bank may reasonably require. E-131 45 SECTION 19. Insurance. In the event of any loss or damage to the Project resulting in a right accruing in favor of any party or the parties hereto for any payment of insurance proceeds occasioned by such loss or damage, all such payments of insurance proceeds shall be made in accordance with the terms and conditions set forth in the Credit Agreement. If the loss or damage is reasonably expected to result in insurance proceeds of less than $100,000, then the Bank shall permit the Obligor to make such use thereof as the Obligor shall direct. If such proceeds are reasonably expected to be $100,000 or more, then they shall be used only with the prior concurrence of the Bank, which the Bank shall provide to rebuild if insurance proceeds and other moneys are available to pay for rebuilding or restoring the Project in full. SECTION 20. Condemnation. In the event that by, or pursuant to, proper authority, the Premises, or any part thereof, is taken or condemned, under power of eminent domain exercised by any actual or quasi governmental authority or public utility, the provisions of the mortgage relating thereto shall govern with respect to any awards which may be made. SECTION 21. Severability. Any provision of this Agreement which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or nonauthorization without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction. SECTION 22. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Michigan. SECTION 23. Authorized Signers. The following officer of the Obligor is authorized on behalf of the Obligor to execute and deliver to the Bank all documents and instruments related to any amendment or extension of the Agreement or the Letter of Credit: Name Title Signature Warren A. Veltman see signature see signature page page
SECTION 24. Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. SECTION 25. Waiver of Jury Trial. The Obligor and the Bank after consulting with their respective legal counsel hereby irrevocably waive the right to trial by jury with respect to any and all actions or proceedings at any time in which the Obligor and the Bank are parties arising out of this Agreement or the other documents referenced hereunder. E-132 46 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. AUTOCAM CORPORATION By_________________________________ Warren A. Veltman Its: Chief Financial Officer COMERICA BANK By_________________________________ Its: Vice President E-133 47 EXHIBIT A Telex: 3772134 MNB INTL DET Comerica Bank Swift: MNBD US 33 One Detroit Center Fax: (313) 222-9324 500 Woodward Avenue 24th Floor, MC 3341 Detroit, MI 48226-3341 Beneficiary: Date of Issue: December 23, 1997 Norwest Bank Wisconsin, N.A. 100 E. Wisconsin Avenue Milwaukee, WI 53202 Attention: Corporate Trust Department Dear Sirs: We hereby establish, at the request and for the account of Autocam Corporation, a Michigan corporation, whose address is 4070 East Paris Avenue, S.E., Kentwood, MI 49519 (the "Obligor"), in your favor, as Trustee under the Trust Indenture, dated as of December 1, 1997 (the "Indenture") between the Michigan Strategic Fund (the "Issuer") and you, pursuant to which $9,000,000 in aggregate principal amount of the Issuer's Variable Rate Demand Limited Obligation Revenue Bonds, Series 1997 (Autocam Corporation Project) (the "Bonds"), are being issued, our Irrevocable Letter of Credit No. _____________, in the total amount of $9,138,082.19 (Nine Million One Hundred Thirty-Eight Thousand Eighty-Two and 19/100 U.S. Dollars) effective immediately and expiring on December 16, 2000 (the "Expiration Date") or earlier terminating as hereinafter provided. We hereby irrevocably authorize you to draw on us upon presentation of the certificate(s) in the forms of Annex A, B and C, as appropriate, attached hereto, as provided below: A. One or more drawings, each an "Interest Drawing" under Annex A, with respect to payment of interest on the Bonds, such Interest Drawing to be in an amount not exceeding $138,082.19 [56 days interest on the Bonds assuming an annual rate of 10% for a year of 365 days]; and B. One or more drawings, each a "Principal Drawing" under Annex B, with respect to payment of principal payments on the Bonds, whether by maturity, acceleration, optional redemption, or mandatory redemption, such Principal Drawing to be in an amount not exceeding $9,000,000; and C. One or more drawings, each a "Purchase Drawing" under Annex C, with respect to payment of the purchase price of the Bonds (based on a purchase at par plus accrued interest to the date of purchase), such Purchase Drawing to be in an amount not exceeding $9,138,082.19 [principal plus 56 days interest on the Bonds assuming an annual rate of 10% for a year of 365 days]. The amount available for payments with respect to Interest Drawings shall be automatically reinstated by the amount of any payment made by us of an Interest Drawing, unless you have received notice from us that we will not reinstate such amount, and thereupon you shall again be irrevocably authorized to draw on us Interest Drawings in the amount and in accordance with the terms and conditions set forth herein. This procedure for the automatic reinstatement of the amount available with respect to Interest Drawings shall be applicable to successive Interest Drawings, so long as this Letter of Credit shall not have been terminated as set forth below. E-134 48 The amount available under this Letter of Credit shall be automatically and immediately reduced by the amount of payment of a Principal Drawing or the principal portion of a Purchase Drawing. The amount of such reduction in the case of the payment of a Purchase Drawing shall be subject to reinstatement as set forth in the next paragraph. Reinstatement of amounts by which this Letter of Credit was reduced in connection with drawings made by presentation of Purchase Drawings shall be effective after you have been notified by the Bank in writing under the Pledge and Security Agreement, dated as of December 1, 1997, by and among the Obligor, the Bank and you (the "Pledge and Security Agreement"), that the conditions precedent to release of the Bonds as to which the Letter of Credit is to be reinstated (the "Bonds to be Released") have been satisfied. Prior to such notification and release you shall not draw on the Letter of Credit with respect to Bonds held by you under the Pledge and Security Agreement. After you have been notified of the satisfaction of such conditions, the reinstatement of the Letter of Credit shall be effective and irrevocable in the amount of the face amount of the Bonds to be Released. If we receive your Interest Drawing or Principal Drawing certificate(s) at such office, all in strict conformity with the terms and conditions of this Letter of Credit, we will honor the same by 11:30 a.m., Detroit time on the next business day with respect to such Drawings presented prior to 12:00 noon Detroit time (with respect to such Drawings presented after such time, we shall honor the same by 11:30 a.m. on the second business day after presentation thereof) in accordance with your payment instructions. Similarly, if we receive your Purchase Drawing certificate at such office, in strict conformity with the terms and conditions of this Letter of Credit, we will honor the same by 11:30 a.m., Detroit time on the same business day with respect to such Drawing presented prior to 9:30 a.m., Detroit time (with respect to such Drawing presented after such time, we will honor the same by 11:30 a.m. on the next business day after presentation thereof) in accordance with your payment instructions. Payment under this Letter of Credit shall be made by transfer or deposit of immediately available funds to your account as provided in the respective certificate. We agree that all payments made by us hereunder will be made with our own funds and not with any funds which could be deemed to belong to the Obligor or the Issuer, and will be made by us prior to any reimbursement thereof. As used herein "business day" means any day other than (i) a Saturday, (ii) a Sunday, (iii) a day on which banking institutions in the city in which your corporate trust office (or its bond registrar, paying agent or tender agent offices) designated for payment of the principal, interest and Purchase Price of the Bonds is located or the principal office of the Remarketing Agent (as defined in the Indenture) is located or the office of the undersigned at which action is to be taken to realize moneys under the Letter of Credit are required or authorized by law or executive order to be closed, or (iv) a day on which the New York Stock Exchange is closed. Presentation of any certificate (other than a certificate to instruct the Bank to transfer this Letter of Credit) shall be deemed effected for all purposes under this Letter of Credit upon presentation in person, or upon receipt by the Bank of facsimile transmission, telephone number (313) 222-9324, setting forth in full the contents of such certificate, and such original certificate shall be deposited in the United States mail, postage prepaid, and addressed to the Bank at the place provided herein for the presentation of certificates, prior to the sending of such facsimile. Upon the earliest of (i) your surrendering this Letter of Credit to us for cancellation, (ii) there being no Outstanding Bonds (as defined in the Indenture), (iii) the Expiration Date, (iv) our honoring Principal and Interest Drawings for all outstanding Bonds, or (v) the fifteenth calendar day following delivery to you of a direction under Section 801(d) of the Indenture to declare the Bonds immediately due and payable, this Letter of Credit automatically shall expire and terminate. This Letter of Credit is subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce, Publication No. 500 (the "Uniform Customs"). This Letter of Credit shall be deemed to be made under the laws of the State of Michigan, including Article 5 of the Uniform Commercial Code as now in effect in the State of Michigan, and shall be governed by and construed in accordance with the laws of the State of Michigan. As to any matter of conflict between the provisions of the Uniform Customs and the laws of the State of Michigan, the Uniform Customs shall govern this Letter of Credit. E-135 49 Notwithstanding anything in Article 48 of the Uniform Customs to the contrary, this Letter of Credit is transferable in its entirety (but not in part) to any transferee who has succeeded you as Trustee under the Indenture. Each letter of credit issued upon any such transfer may be successively transferred. Transfer of the available drawing(s) under this Letter of Credit to such transferee shall be effected by the presentation to us of this Letter of Credit accompanied by a certificate in the form of Annex D attached hereto. Upon such presentation we shall forthwith transfer the same to your transferee or, if so requested by your transferee, issue an irrevocable letter of credit to your transferee with provisions therein consistent with this Letter of Credit. This Letter of Credit sets forth in full our undertaking, and such undertaking shall not in any way be modified, amended, amplified or limited by reference to any document, instrument or agreement referred to herein, except only the certificate(s) referred to herein; and any such reference shall not be deemed to incorporate herein by reference any document, instrument or agreement except for such certificate(s). Very truly yours, COMERICA BANK By________________________________ Its: Vice President E-136 50 ANNEX A CERTIFICATE FOR INTEREST DRAWING To: Comerica Bank 500 Woodward Avenue Detroit, Michigan 48226 Attention: Standby-Letter of Credit Group The undersigned, a duly authorized officer of Norwest Bank Wisconsin N.A., hereby certifies as of the date hereof to you (the "Bank"), with reference to Irrevocable Letter of Credit No. ______________ (the "Letter of Credit"), the defined terms therein and herein used having the same meaning) issued by the Bank in favor of the Trustee and as Trustee under the Indenture, that: (1) It is hereby making a drawing under the Letter of Credit with respect to a payment of interest on the Bonds, either on a scheduled interest payment date or on a date of redemption or maturity of Bonds (whether stated or by acceleration) in the amount of $______________, which amount is (i) not greater than the amount available for Interest Drawings under the Letter of Credit, (ii) was computed in accordance with the terms and conditions of the Bonds and the Indenture, and (iii) does not include any amount of interest on the Bonds which is included in any other drawing presented on or prior to the date of this Certificate. (2) This Certificate is and is being presented to the Bank prior to 12:00 noon, Detroit time, on ______________, a date that is one business day prior to the date on which interest on the Bonds with respect to which the drawing is being made is due and payable under the terms of the Bonds and the Indenture. (3) Please pay the requested amount on ___________ (requested payment date) in the following manner:_______________________________________. Dated _______________ NORWEST BANK WISCONSIN, N.A. By_________________________________ [Name and Title] E-137 51 ANNEX B CERTIFICATE FOR PRINCIPAL DRAWING To: Comerica Bank 500 Woodward Avenue Detroit, Michigan 48226 Attention: Standby-Letter of Credit Group The undersigned, a duly authorized officer of ___________________, hereby certifies as of the date hereof to you (the "Bank"), with reference to Irrevocable Letter of Credit No. _____________ (the "Letter of Credit", the defined terms therein and herein used having the same meaning) issued by the Bank in favor of the Trustee and as Trustee under the Indenture that: (1) It is making a drawing under the Letter of Credit with respect to a principal payment on the Bonds, either at maturity (whether stated or accelerated) or by mandatory or optional redemption in the amount of $____________, which amount is (i) not greater than amounts available to be drawn as principal under the Letter of Credit, (ii) was computed in accordance with the terms and conditions of the Bonds and the Indenture, and (iii) does not include any amount of principal on the Bonds which is included in any other drawing presented on or prior to the date of this Certificate. (2) This Certificate is presented to the Bank prior to 12:00 noon, Detroit time, on _____________, a date that is one business day prior to the date on which an unpaid principal amount on the Bonds is due and payable under the terms of the Bonds and the Indenture. (3) We hereby authorize a reduction in the interest coverage included in the Letter of Credit to a new total interest coverage of $_____________ [56 days interest on the Bonds assuming an annual rate of 10% for a year of 365 days] with a new total Letter of Credit Amount of $--------------. (4) Please pay the requested amount on ___________ (requested payment date) in the following manner:__________________________________________. Dated _______________ NORWEST BANK WISCONSIN, N.A. By_________________________________ [Name and Title] E-138 52 ANNEX C CERTIFICATE FOR PURCHASE DRAWING To: Comerica Bank 500 Woodward Avenue Detroit, Michigan 48226 Attention: Standby-Letter of Credit Group The undersigned, a duly authorized officer of _________________, hereby certifies as of the date hereof to you (the "Bank"), with reference to Irrevocable Letter of Credit No. ________________ (the "Letter of Credit", the defined terms therein and herein used having the same meaning) issued by the Bank in favor of the Trustee and as Trustee under the Indenture, that: (1) It is making a drawing under the Letter of Credit with respect to a payment of the purchase price of Bonds being purchased by the Obligor and pledged to the Bank pursuant to the Pledge and Security Agreement, in the amount of $__________, representing $_________ principal amount of the Bonds at par and $_____________ accrued interest on the Bonds to the date of purchase, the foregoing amounts being the purchase price of the Bonds. (2) The undersigned or its agent received $_________ principal amount of Bonds, being all the Bonds being purchased with the proceeds of this Purchase Drawing, in such form as to enable the undersigned to reregister said Bonds in the name of the Obligor. (3) This Certificate is dated and is being presented to the Bank prior to 9:30 a.m., Detroit time, on _______________, the date on which the purchase price on the Bonds is due and payable. (4) Please pay the requested amount on ___________ (requested payment date) in the following manner:____________________________________. Dated _______________ NORWEST BANK WISCONSIN, N.A. By_________________________________ [Name and Title] E-139 53 ANNEX D CERTIFICATE FOR TRANSFER* To: Comerica Bank 500 Woodward Avenue Detroit, Michigan 48226 Attention: Standby-Letter of Credit Group For value received, the undersigned beneficiary hereby irrevocably transfers to: ______________________________________ [Name of Transferee] ______________________________________ [Address] all rights of the undersigned beneficiary to draw under Irrevocable Letter of Credit No. ____________. The undersigned represents that the transferee is the successor to the undersigned as Trustee under the Indenture, as defined in the Letter of Credit. By this transfer, all rights of the undersigned beneficiary in such Letter of Credit are transferred to the transferee and the transferee shall hereafter have the sole rights as beneficiary thereof; provided, however, that no rights shall be deemed to have been transferred to the transferee until such transfer complies with the requirements of such Letter of Credit pertaining to transfers. The Letter of Credit is returned herewith and in accordance with the Indenture we ask you to transfer the same to the transferee or, if so requested by the transferee, to issue a new irrevocable letter of credit in favor of the transferee with provisions consistent with the Letter of Credit. Very truly yours, NORWEST BANK WISCONSIN, N.A. By ___________________________ [Name and Title] *This certificate may not be presented by facsimile E-140 54 EXHIBIT B AMORTIZATION SCHEDULE Sufficient payments shall be made or actions taken by the Obligor so that the principal amount of Bonds outstanding is not greater than the specified amounts on the corresponding dates:
Dates (December 1) Outstanding Principal Amounts 12/01/1998 $9,000,000 12/01/1999 8,615,000 12/01/2000 8,205,000 12/01/2001 7,770,000 12/01/2002 7,310,000 12/01/2003 6,820,000 12/01/2004 6,305,000 12/01/2005 5,755,000 12/01/2006 5,175,000 12/01/2007 4,560,000 12/01/2008 3,905,000 12/01/2009 3,215,000 12/01/2010 2,480,000 12/01/2011 1,700,000 12/01/2012 875,000 12/01/2013 0
E-141 55 EXHIBIT C REDEMPTION NOTICE To: Norwest Bank Wisconsin, N.A., as Trustee Re: $9,000,000 Michigan Strategic Fund Variable Rate Demand Limited Obligation Revenue Bonds, Series 1997 (Autocam Corporation Project) (the "Bonds") Date: December 23, 1997 The undersigned, the Obligor (as defined in the Trust Indenture, dated as of December 1, 1997, pursuant to which the Bonds were issued (the "Indenture")) hereby gives notice of redemption to you as Trustee with respect to the Bonds pursuant to Section 401 of the Indenture. You are hereby directed to redeem the Bonds in the following amounts on the following dates (or on the first Business Day thereafter, if such dates are not in any case Business Days) in accordance with the provisions of the Indenture:
Dates (December 1) Amounts 12/01/1998 $385,000 12/01/1999 410,000 12/01/2000 435,000 12/01/2001 460,000 12/01/2002 490,000 12/01/2003 515,000 12/01/2004 550,000 12/01/2005 580,000 12/01/2006 615,000 12/01/2007 655,000 12/01/2008 690,000 12/01/2009 735,000 12/01/2010 780,000 12/01/2011 825,000 12/01/2012 875,000
This notice may only be revoked at the written direction of the undersigned, with the written concurrence of Comerica Bank and shall be of no further force and effect on and after the Conversion Date (as defined in the Indenture). AUTOCAM CORPORATION By_________________________________ Warren A. Veltman Its: Chief Financial Officer The Above Notice is Hereby Accepted: NORWEST BANK WISCONSIN, N.A., as Trustee By_______________________________________ Its Authorized Officer E-142 56 PLEDGE AND SECURITY AGREEMENT PLEDGE AND SECURITY AGREEMENT, dated as of December 1, 1997, made by Autocam Corporation, a Michigan corporation (the "Pledgor"), Norwest Bank Wisconsin, N.A., which is Trustee under the Indenture (as hereinafter defined) and as custodian hereunder (the "Agent"), and Comerica Bank, a Michigan banking corporation (the "Bank"), pursuant to the Reimbursement Agreement, dated as of December 1, 1997, between the Pledgor and the Bank (hereinafter, as the same may from time to time be amended or supplemented, called the "Reimbursement Agreement"): WITNESSETH: WHEREAS, the Michigan Strategic Fund (the "Issuer") has agreed with the Pledgor to issue its Variable Rate Demand Limited Obligation Revenue Bonds, Series 1997 (Autocam Corporation Project) (the "Bonds"), under the Trust Indenture, dated as of December 1, 1997 (the "Indenture"), between the Issuer and the Agent, as Trustee; WHEREAS, the Indenture requires the Pledgor under the circumstances provided therein to purchase Bonds duly tendered for purchase by the holders thereof and to register the Bonds so purchased in the name of the Pledgor in accordance with the Indenture (the "Tendered Bonds"); WHEREAS, in the Indenture the Issuer and the Trustee have agreed to certain remarketing provisions for the Bonds pursuant to which Comerica Securities or its successor remarketing agent (the "Remarketing Agent") has agreed to the remarketing of certain Bonds; WHEREAS, in connection with the issuance of the Bonds, the Pledgor and certain other persons and entities have agreed to enter into the Reimbursement Agreement in order to cause the Bank to issue an irrevocable letter of credit in favor of the Trustee (the "Letter of Credit") which may be used, inter alia, to pay all or a portion of the purchase price of the Tendered Bonds in the event the same are not remarketed prior to the date for purchase of the Tendered Bonds (any of such Tendered Bonds so purchased from a draw under the Letter of Credit being hereinafter referred to as the "Pledged Bonds"); WHEREAS, it is a condition precedent to the obligation of the Bank to enter into the Reimbursement Agreement and to issue the Letter of Credit that the Pledgor and the Agent shall have executed and delivered this Agreement to the Bank; NOW, THEREFORE, in consideration of the premises and in order to induce the Bank to enter into the Reimbursement Agreement and issue the Letter of Credit and for other good and valuable consideration, receipt of which is hereby acknowledged, the Pledgor and Agent hereby agree with the Bank as follows: 1. Defined Terms. Unless otherwise defined herein, terms defined in the Reimbursement Agreement shall have such defined meanings when used herein. 2. Pledge. The Pledgor hereby pledges, assigns, hypothecates, transfers, and delivers to the Bank or its designee all its right, title and interest in the Pledged Bonds as the same may be from time to time delivered to the Agent, by the holders thereof or by the Remarketing Agent and held by the Agent as agent for the Bank, and hereby grants to the Bank, a first lien on, and security interest in, its right, title and interest in and to the Pledged Bonds, together with all payments of principal, premium and interest thereon and all proceeds thereof, including without limitation remarketing proceeds (collectively, the "Collateral"), as collateral security for (a) the prompt and complete payment of all amounts payable to the Bank under the Reimbursement Agreement, (b) performance and observance of all covenants, terms and conditions upon which the Letter of Credit is issued, including without limitation the covenants, terms and conditions set forth in the Reimbursement Agreement, and (c) the performance of the covenants herein contained and any monies expended by the Bank in connection therewith (collectively, the "Obligations"). E-143 57 3. Payments on the Pledged Bonds. Payments received by the Agent in respect of the Pledged Bonds shall be held by the Agent in trust for the benefit of the Bank, and the Agent shall pay the same forthwith to the Bank. Upon receipt by the Bank, such amounts shall be credited against the Obligations to the Bank. 4. Release of Pledged Bonds. Upon reinstatement of the amount available under the Letter of Credit to be drawn as a Purchase Draft following payment by the Bank of a Purchase Draft under such Letter of Credit (which would occur following repayment to the Bank of all amounts owed by the Pledgor to the Bank in connection with payment by the Bank of such Purchase Draft or upon satisfaction of such other requirements as may be agreed to by Pledgor and the Bank), the Agent automatically shall release and deliver to the Pledgor or its designee Pledged Bonds (of the Bonds secured by such Letter of Credit) in a principal amount up to but not exceeding the amount by which the stated amount of the applicable Letter of Credit shall have been so increased; provided, however, that in any event, if all existing and future liabilities and obligations of Pledgor to the Bank under the Reimbursement Agreement are fully paid and fully secured, all Pledged Bonds shall be released and delivered to the Pledgor or its designee. The foregoing notwithstanding, all Pledged Bonds shall be released and delivered to the Trustee for cancellation at redemption or maturity. 5. Rights of the Bank. The Bank shall not be liable for failure to collect the Obligations or for failure to realize upon any collateral security or guarantee therefor, or any part thereof, or for any delay in so doing nor shall the Bank be under any obligation to take any action whatsoever with regard thereto. If an Event of Default under the Reimbursement Agreement has occurred and is continuing, the Bank may thereafter without notice exercise all rights, privileges or options pertaining to any Pledged Bonds as if it were the absolute owner thereof, upon such terms and conditions as it may determine, including, without limitation, the right to direct the agent as Trustee to cancel said Pledged Bond under the Indenture, all without liability except to account for property actually received by it, but the Bank shall have no duty to exercise any of the aforesaid rights, privileges or options and shall not be responsible for any failure to do so or delay in so doing. 6. Remedies. In the event that any portion of the Obligations has been declared due and payable, the Bank, without demand of performance or other demand, advertisement or notice of any kind (except the notice specified below of time and place of public or private sale) to or upon the Pledgor or any other person (all and each of which demands, advertisements and notices are hereby expressly waived), may forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and may forthwith sell, assign, give option or options to purchase, contract to sell or otherwise dispose of and deliver said Collateral, or any part thereof, in one or more parcels at public or private sale or sales, at any exchange, broker's board or at any of the Bank's offices, or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk, with the right to the Bank, upon any such sale or sales, public or private, to purchase the whole or any part of said Collateral so sold, free of any right or equity of redemption in the Pledgor, which right or equity is hereby expressly waived or released. The Bank shall apply the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred therein or incidental to the care, safekeeping or otherwise of any and all of the Collateral or in any way relating to the rights of the Bank hereunder, including reasonable attorney's fees and legal expenses, to the payment in whole or in part of the Obligations in such order as the Bank may elect, the Pledgor remaining liable for any deficiency remaining unpaid after such application, and only after so paying over such net proceeds and after the payment by the Bank of any other amount required by any provision of law, including, without limitation, Section 9504(1)(c) of the Uniform Commercial Code of the State of Michigan, and after expiration of the Letter of Credit, need the Bank account for the surplus, if any, to the Pledgor. The Bank agrees to give the Pledgor, the Agent and the Issuer not less than ten days' written notice of the time and place of any public sale and of the time after which a private sale or other intended disposition is to take place. The Pledgor agrees that such notice is reasonable notification of such matters. No notification need be given to the Pledgor if it has signed after default a statement renouncing or modifying any right to notification of sale or other intended disposition. In addition to the rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to any of the Obligations, the Bank shall have all the rights and remedies of a secured party under the Uniform Commercial Code of the State of Michigan. The Pledgor further agrees to waive and agrees not to assert any rights or privileges which it may acquire under Section 9112 of the Uniform Commercial Code and the Pledgor shall be liable for the deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay all amounts to which the Bank is entitled, and the fees of any attorneys employed by the Bank to collect such deficiency. E-144 58 7. Representations, Warranties and Covenants of the Pledgor. The Pledgor represents and warrants that: (a) on the date of delivery to the Bank or its designee of any Pledged Bonds in accordance with Section 2 hereof, neither the Issuer, the Remarketing Agent nor the Agent will have any right, title or interest in and to the Pledged Bonds; (b) it has, and on the date of delivery to the Bank or its designee of any Pledged Bonds will have, full power, authority and legal right to pledge all of its right, title and interest in and to the Pledged Bonds pursuant to this Agreement; (c) this Agreement has been duly authorized, executed and delivered by the Pledgor and constitutes a legal, valid and binding obligation of the Pledgor enforceable in accordance with its terms; (d) no consent of any other party (including, without limitation, any creditors of the Pledgor) and no consent, license, permit, approval or authorization of exemption by, notice or report to, or registration, filing or declaration with, any governmental authority, domestic or foreign, is required to be obtained by the Pledgor in connection with the execution, delivery or performance of this Agreement; (e) the execution, delivery and performance of this Agreement will not violate any provision of any applicable law or regulation or of any order, judgment, writ, award or decree of any court, arbitrator or governmental authority, domestic or foreign, or of the charter documents of the Pledgor or of any securities issued by the Pledgor, or of any mortgage, indenture, lease, contract, or other agreement, instrument or undertaking to which the Pledgor is a party or which purports to be binding upon the Pledgor or upon any of its assets and will not result in the creation or imposition of any lien, charge or encumbrance on or security interest in any of the assets of the Pledgor except as contemplated by this Agreement; and (f) the pledge, assignment and delivery of such Pledged Bonds pursuant to this Agreement will create a valid first lien on, and a first perfected security interest in, all right, title or interest of the Pledgor in or to such Pledged Bonds, and the proceeds thereof, subject to no prior pledge, lien, mortgage, hypothecation, security interest, charge, option or encumbrance or to any agreement purporting to grant to any third party a security interest in the property or assets of the Pledgor which would include the Pledged Bonds. The Pledgor covenants and agrees that it will defend the Bank's right, title and security interest in and to the Pledged Bonds and the proceeds thereof against the claims and demands of all persons whomsoever; and covenants and agrees that it will have like title to and right to pledge any other property at any time hereafter pledged to the Bank as Collateral hereunder and will likewise defend the Bank's right thereto and security interest therein. 8. No Disposition, etc. Except as otherwise provided in the Remarketing Agreement with respect to Pledged Bonds sold to or by the Remarketing Agent, the Pledgor agrees that it will not, without the prior written consent of the Bank sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Collateral, nor will it create, incur or permit to exist any pledge, lien, mortgage, hypothecation, security interest, charge, option or any other encumbrance with respect to any of the Collateral, or any interest therein, or any proceeds thereof, except for the lien and security interest provided for by this Agreement. 9. Sale of Collateral. (a) The Pledgor recognizes that the Bank may be unable to effect a public sale of any or all of the ledged Bonds by reason of certain prohibitions contained in the Securities Act of 1933, as amended, and applicable state securities laws, but may be compelled to resort to one or more private sales thereof to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. The Pledgor acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Bank shall be under no obligation to delay a sale of any of the Pledged Bonds for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if the issuer would agree to do so. (b) The Pledgor further agrees to do or cause to be done all such other acts and things as may be necessary to make such sale or sales of any portion or all of the Pledged Bonds valid and binding and in compliance with any and all applicable laws, regulations, orders, writs, injunctions, decrees or awards of any and all courts, arbitrators or governmental instrumentalities, domestic or foreign, having jurisdiction over any such sale or sales, all at the Pledgor's expense. E-145 59 10. Further Assurances. The Pledgor agrees that at any time and from time to time upon the written request of the Bank, it will execute and deliver such further documents and do such further acts and things as the Bank may reasonably request in order to effect the purposes of this Agreement. 11. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 12. No Waiver; Cumulative Remedies. The Bank shall not by any act, delay, omission or otherwise be deemed to have waived any of its rights or remedies hereunder and no waiver shall be valid unless in writing, signed by the Bank, and then only to the extent therein set forth. A waiver by the Bank of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Bank would otherwise have on any future occasion. No failure to exercise nor any delay in exercising on the part of the Bank, any right, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided are cumulative and may be exercised singly or concurrently, and are not exclusive of any rights or remedies provided by law. 13. Waivers, Amendments; Applicable Law. None of the terms or provisions of this Agreement may be waived, altered, modified or amended except by an instrument in writing, duly executed by all parties hereto. This Agreement and all obligations of the Pledgor hereunder shall be binding upon the successors and assigns of the Pledgor, and shall, together with the rights and remedies of the Bank hereunder, inure to the benefit of the Bank and its successors and assigns. This Agreement shall be governed by, and be construed and interpreted in accordance with, the laws of the State of Michigan. 14. Fees and Expenses. Pledgor agrees to pay and reimburse the Agent and the Bank for and indemnify and hold them harmless against all costs, expenses, taxes and fees (including reasonable attorneys' fees and disbursements) and any liability incurred in connection with the administration and enforcement of this Agreement. Such undertaking of Pledgor shall survive the termination of this Agreement. 15. Termination. This Agreement shall terminate upon the expiration of the Letter of Credit and payment in full and the performance and satisfaction of all Obligations, and upon such termination the Bank and the Trustee shall assign, transfer and deliver without recourse and without warranty the Collateral to Pledgor (and any property received in respect thereof) as has not theretofore been sold or otherwise applied pursuant to the provisions of this Agreement. 16. Waiver. The Bank hereby agrees to waive any and all claims, liabilities and causes of action against the Agent which may arise by reason of or in connection with any and all of the Agent's obligations, duties and responsibilities set forth in this Pledge Agreement, including but not limited to holding the Pledged Bonds and any payments with respect thereto as agent for the Bank and the release and delivery of the Pledged Bonds to the Pledgor or its designee; provided, however, that the Bank shall not be required to waive any claim, liability or cause of action against the Agent to the extent, but only to the extent, arising as a result of the willful and wrongful failure or willful and wrongful misconduct or gross negligence of the Agent. 17. Captions/Counterparts. Captions in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. This Agreement may be executed in any number of counterparts and if so executed shall be read and interpreted as a single agreement. E-146 60 IN WITNESS WHEREOF, the undersigned parties have executed and delivered this Agreement or have caused this Agreement to be duly executed and delivered by their duly authorized officers on the day and year first above written. AUTOCAM CORPORATION By: \s\ Warren A. Veltman ----------------------------- Warren A. Veltman Its: Chief Financial Officer NORWEST BANK WISCONSIN, N.A., Trustee By: \s\ Wendy M. DeToro ----------------------------- Wendy M. DeToro Its: Corporate Trust Officer COMERICA BANK By: \s\ Thomas Hammer ----------------------------- Thomas Hammer Its: Vice President E-147 61 REMARKETING AGREEMENT between AUTOCAM CORPORATION (the "Obligor") and ROBERT W. BAIRD & CO. INCORPORATED (the "Remarketing Agent") Dated as of December 1, 1997 Relating to $9,000,000 MICHIGAN STRATEGIC FUND Variable Rate Demand Limited Obligation Revenue Bonds, Series 1997 (Autocam Corporation Project) 62 REMARKETING AGREEMENT THIS REMARKETING AGREEMENT (the "Agreement") dated as of December 1, 1997 by and between AUTOCAM CORPORATION, a Michigan corporation (the "Obligor") and ROBERT W. BAIRD & CO. INCORPORATED (the "Remarketing Agent"). WHEREAS, the Michigan Strategic Fund (the "Issuer") has appointed the Remarketing Agent (and the Remarketing Agent hereby accepts the appointment) as Remarketing Agent under the Trust Indenture dated as of the date of this Agreement (the "Indenture") between the Issuer and Norwest Bank Wisconsin, N.A., as trustee (the "Trustee"), relating to the Issuer's $9,000,000 principal amount Variable Rate Demand Limited Obligation Revenue Bonds, Series 1997 (Autocam Corporation Project) (the "Bonds"); and WHEREAS, the Obligor has entered into a Loan Agreement dated as of the date of this Agreement (the "Loan Agreement") between the Issuer and the Obligor; and WHEREAS, the Remarketing Agent has been appointed by the Issuer to use its best efforts to remarket the Bonds subject to optional or mandatory purchase and to determine the interest rate necessary to remarket the Bonds at par; and WHEREAS, the Obligor and Remarketing Agent desire to make additional provisions regarding the Remarketing Agent's role as Remarketing Agent for the Bonds with respect to its obligations described in Section 203 of the Indenture. Terms used in this Agreement without being defined have the meanings given them in the Indenture. NOW, THEREFORE, the Obligor and Remarketing Agent hereby agrees as follows: Section 1. Duties. (a) The Remarketing Agent will perform the duties specified as Remarketing Agent under the Indenture, including, but not limited to, the determination of interest rates as set forth in Section 110 of the Indenture and the remarketing of the Bonds as set forth in Section 203 of the Indenture. Unless the Remarketing Agent is otherwise directed in writing by the Obligor and except as provided in the next paragraph, the Remarketing Agent shall use its best efforts to remarket Bonds subject to optional or mandatory purchase under Sections 201 and 202 of the Indenture, respectively. Bonds which are subject to mandatory purchase on the Conversion Date, a proposed Conversion Date or a Substitution Date shall be remarketed by the Remarketing Agent only to a buyer to whom the Remarketing Agent has delivered, at the time of such remarketing, a copy of the notice of conversion or notice of delivery of a Substitute Credit Facility, as applicable, pursuant to Section 113(b) of the Indenture. In the event the Bonds are remarketed pursuant to a mandatory purchase on the Conversion Date, a proposed Conversion Date or a Substitution Date, the Remarketing Agent shall be entitled to a fee (mutually agreed upon with the Obligor prior to the commencement of the remarketing) in addition to the annual remarketing fee received pursuant to Section 4 hereof. In acting as Remarketing Agent, the Remarketing Agent will act as agent and not as principal except as expressly provided in this Section 1. (b) The Remarketing Agent may, if it determines to do so in its sole discretion, buy as principal, but it will not in any event be obligated to do so, and if it buys Bonds it will have the same rights as would any other person holding the Bonds. E-149 63 Section 2. Disclosure Statement. If the Remarketing Agent determines that it is necessary or desirable to use a disclosure statement in connection with its offering of Bonds (a "Disclosure Statement"), and in any event upon conversion of the interest rate on the Bonds to a Fixed Rate, the Remarketing Agent will notify the Obligor and the Obligor will provide the Remarketing Agent with a Disclosure Statement satisfactory to the Remarketing Agent and its Counsel in respect of the Bonds. The Obligor will supply the Remarketing Agent, at the Obligor's expense, with such number of copies of the Disclosure Statement as the Remarketing Agent requests from time to time and will amend the document with respect to the Obligor and any summary of documents the amendment of which was approved by the Obligor (and/or the documents incorporated by reference in it) so that at all times the document will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements in the document, in light of the circumstances under which they were made, not misleading. Section 3. Indemnification and Contribution. (a) The Obligor will indemnify and hold harmless the Remarketing Agent, each of its directors, officers, employees and agents and each person who controls the Remarketing Agent within the meaning of Section 15 of the Securities Act of 1933, as amended (such Act being herein called the "Act" and any such person being herein sometimes called for purposes of this paragraph (a) an "Indemnified Party"), against any and all losses, claims, damages or liabilities, joint or several, to which such Indemnified Party may become subject under any statute or at law or in equity or otherwise, and will reimburse any such Indemnified Party for any legal or other expenses incurred by it in connection with investigating any claims against it and defending any actions, insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statements, or alleged untrue statement, of a material fact with respect to the Obligor contained in any Disclosure Statement referred to in Section 2 hereof or any amendment or supplement thereto, or any portion of the Disclosure Statement under the headings "Introductory Statement," "The Obligor and the Use of Proceeds," "The Bonds" (other than the information under the sub-heading "Book-Entry System"), "Sources of Payment and Security," "The Letter of Credit," "The Loan Agreement," "The Trust Indenture," "The Reimbursement Agreement," and "The Pledge and Security Agreement," or the omission or alleged omission to state therein a material fact necessary to make the statements therein with respect to the Obligor or under such headings not misleading. This indemnity agreement will not be construed as a limitation on any other liability which the Obligor may otherwise have to any Indemnified Party, but in no event shall the Obligor be obligated for double indemnification. The duty of the Obligor to indemnify and hold the Issuer and its directors, officers, employees and agents harmless shall be governed by Section 5.4 of the Loan Agreement, the provisions of which are incorporated herein by this reference. (b) The Remarketing Agent will indemnify and hold harmless the Obligor, each of its directors, officers, partners, employees and agents and each person who controls the Obligor within the meaning of Section 15 of the Act (for purposes of this paragraph (b), an "Indemnified Party") to the same extent as the foregoing indemnity in paragraph (a) from the Obligor to the Remarketing Agent, but only with reference to written information, if any, relating to the Remarketing Agent furnished to the Obligor by the Remarketing Agent specifically for use in the preparation of a Disclosure Statement. This indemnity agreement shall not be construed as a limitation on any other liability which the Remarketing Agent may otherwise have to any Indemnified Party, but in no event shall the Remarketing Agent be obligated for double indemnification. E-150 64 (c) An Indemnified Party (as defined in paragraph (a) or paragraph (b) of this Section 3) will, promptly after receiving notice of the commencement of any action against such Indemnified Party in respect of which indemnification may be sought against the Obligor or the Remarketing Agent, as the case may be (the "Indemnifying Party"), notify the Indemnifying Party in writing of the commencement of the action. Failure of the Indemnified Party to give such notice will reduce the liability of the Indemnifying Party under this Agreement by the amount of the damages attributable to the failure to give the notice; but the failure will not relieve the Indemnifying Party from any liability which it may have to such Indemnified Party otherwise than under the indemnity agreement in this Section 3. If such action is brought against an Indemnified Party and such Indemnified Party notifies the Indemnifying Party of the commencement of the action, the Indemnifying Party may, or if so requested by the Indemnified Party shall, participate in it or assume its defense, with counsel reasonably satisfactory to the Indemnified Party, and after notice from the Indemnifying Party to the Indemnified Party of an election so to assume the defense, the Indemnifying Party will not be liable to the Indemnified Party under this Section 3 for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense other than reasonable costs of investigation. If the Indemnifying Party does not employ counsel to take charge of the defense or if any Indemnified Party reasonably concludes that there may be defenses available to it which are different from or in addition to those available to the Indemnifying Party (in which case the Indemnifying Party will not have the right to direct the defense of such action on behalf of such Indemnified Party), legal and other expenses reasonably incurred by such Indemnified Party will be paid by the Indemnifying Party. (d) In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in paragraph (a) of this Section 3 is due in accordance with its terms but is for any reason held by a court to be unavailable from the Obligor on grounds of policy or otherwise, the Obligor and Remarketing Agent shall contribute to the total losses, claims, damages and liabilities (including legal or other expenses reasonably incurred in connection with investigating or defending the same) to which the Obligor and Remarketing Agent may be subject in such proportion so that the Remarketing Agent is responsible for that portion represented by the percentage that the fee to be paid to the Remarketing Agent under Section 4 hereof bears to the principal amount of the Bonds remarketed under this Agreement and the Obligor is responsible for the balance; but (i) in no case will the Remarketing Agent be responsible for any amount in excess of the fee applicable to the Bonds remarketed by the Remarketing Agent under this Agreement and (ii) no person guilty of fraudulent misrepresentation (within the meaning of section 11(f) of the Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 3(d), each person who controls the Remarketing Agent within the meaning of Section 15 of the Act will have the same rights to contribution as the Remarketing Agent and each person who controls the Obligor within the meaning of Section 15 of the Act and each officer, each director and each partner of the Obligor will have the same rights to contribute as the Obligor, subject in each case to clause (i) and (ii) of this Section 3(d). Any party entitled to contribution will, promptly after receiving notice of commencement of any action, suit or proceeding against such party in respect of which a claim for contribution may be made under this Section 3(d), notify each party from whom contribution may be sought, but the failure to notify such party shall not relieve any party from whom contribution may be sought from any other obligation it may have under this Agreement or otherwise than under this Section 3(d). Section 4. Fees and Expenses. In consideration of the Remarketing Agent's services under this Agreement, the Obligor will pay the Remarketing Agent a fee of 1/8 of 1% of the aggregate principal amount of Bonds at closing. Thereafter, the Obligor will pay a non-refundable fee of 1/8 of 1% per annum of the aggregate principal amount of the Bonds outstanding payable on December 1 of each year commencing December 1, 1998. The Obligor will also pay all expenses in connection with the delivery of remarketed Bonds and with preparing a disclosure document under Section 2 hereof and will reimburse the Remarketing Agent for all of its direct out-of-pocket expenses incurred by it as Remarketing Agent or otherwise under this Agreement, including reasonable Counsel fees and disbursements. Section 5. Remarketing Agent Not Liable for Failures by Purchasers of Bonds. The Remarketing Agent will not be liable to the Obligor on account of the failure of any person to whom the Remarketing Agent has sold a Bond to pay for it or to deliver any document in respect of the sale. Section 6. Representations and Warranties of the Obligor. The Obligor represents, warrants and covenants to and with the Remarketing Agent as follows: E-151 65 (a) All representations and warranties of the Obligor in the Bond Purchase Agreement dated December 15, 1997, among Robert W. Baird & Co. Incorporated, as underwriter, the Issuer and the Obligor (the "Bond Purchase Agreement") are true and correct as though made at and as of the date hereof. (b) The Obligor is fully empowered to enter into and perform all agreements on its part herein contained; the Obligor has been authorized to enter into and deliver this Agreement (by all necessary and proper legal action); and the execution and delivery by it of this Agreement and the performance of the agreements herein contained do not contravene or constitute a default under any agreement, indenture, mortgage, loan agreement, commitment, provision of its charter documents, or other existing requirements of law or regulation or any other agreement of any kind to which it is a party or by which it is or may be bound. Section 7. Termination. This Agreement will terminate upon the effective resignation or removal of the Remarketing Agent as Remarketing Agent in accordance with Section 912 of the Indenture. The Remarketing Agent may voluntarily resign as Remarketing Agent under this Agreement, and shall resign as Remarketing Agent under this Agreement if requested by the Obligor in writing, in each case upon 30 days' prior written notice. Following termination, the provisions of Section 3 will continue in effect, and each party will pay the other any amounts owing at the time of termination. Section 8. Miscellaneous. (a) This Agreement will be governed by the laws of the State of Michigan. (b) Notices will be given to the following addresses until a party designates a new address in writing: If to the Obligor: Autocam Corporation 4070 East Paris Avenue Kentwood, MI 49512 Attn:Warren A. Veltman, Chief Financial Officer If to the Remarketing Agent: Robert W. Baird & Co. Incorporated 777 East Wisconsin Avenue Milwaukee, WI 53202 Attn: Municipal Note Trading (c) Nothing contained in this Agreement shall be deemed to create any employment relationship between the parties hereto or to create any fiduciary obligations of the Remarketing Agent to the Obligor except as expressly provided herein. (d) This Agreement may be amended from time to time by an instrument in writing executed by the parties hereto. (e) Section headings are included herein for convenience of reference only and shall not be considered a part of this Agreement for any purpose. (f) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating any other provision hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. E-152 66 (g) The Remarketing Agent, in its individual capacity, may in good faith buy, sell, own, hold or deal in any of the Bonds, including Bonds which are remarketed, and may join in any action which any Bondholder may be entitled to take with like effect as if it did not act in any capacity hereunder. The Remarketing Agent, in its individual capacity, either as principal or agent, may also engage or be interested in any financial or other transaction with the Issuer or Obligor but it is understood and agreed that funds for the purchase of Bonds which are remarketed shall come only from the purchasers of Bonds which are remarketed or from the Obligor (including pursuant to any Credit Facility or Substitute Credit Facility) and not from the Remarketing Agent. (h) This Agreement may be executed in any number of counterparts, all of which shall be deemed originals hereof. ROBERT W. BAIRD & CO. INCORPORATED "Remarketing Agent" By:_______________________________ Its: Senior Vice President AUTOCAM CORPORATION "Obligor" By:_______________________________ Its: Chief Financial Officer E-153 EX-21 9 EXHIBIT 21 1 Exhibit 21 ========== SUBSIDIARIES OF REGISTRANT -------------------------- Autocam International Sales Corporation Autocam Acquisition, Inc. Autocam Laser Technologies, Inc. Autocam-Pax, Inc. Autocam South Carolina, Inc. Autocam do Brasil Usinagem, Ltda. Autocam Foreign Sales Corporation EX-23 10 EXHIBIT 23 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 July 29, 1998, incorporated by reference in this Annual Report on Form 10-K of Autocam Corporation for the year ended June 30, 1998. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Grand Rapids, Michigan September 23, 1998 E-155 EX-27 11 FINANCIAL DATA SCHEDULE
5 YEAR JUN-30-1998 JUL-01-1997 JUN-30-1998 1,643,539 0 11,679,824 0 6,389,448 20,801,354 88,606,403 24,184,933 113,449,371 17,675,347 37,850,874 0 0 31,840,086 13,220,823 113,449,371 90,361,063 90,361,063 69,435,961 69,435,961 0 0 2,718,720 11,953,962 4,212,582 7,741,380 0 0 0 7,741,380 1.28 1.24
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