-----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, IiR/IxxoQVxwRcijESFLGuTnxMcHHCDg1RUVb5FS78nmpdIyQ/umd2DiY+1gegFD tjqMe1s8eD1WBXgaKAr+8g== 0000950124-99-005278.txt : 19990928 0000950124-99-005278.hdr.sgml : 19990928 ACCESSION NUMBER: 0000950124-99-005278 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990927 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: 99717515 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) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1999. OR TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------- --------------- 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 No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of voting stock of the Registrant held by non-affiliates was $44,091,740 as of September 15, 1999. The number of shares outstanding of the Registrant's common stock as of September 15, 1999 was 6,311,090 shares of common stock without par value. DOCUMENTS INCORPORATED BY REFERENCE None. [Cover page 2 of 2] 3 AUTOCAM CORPORATION FORM 10-K Year Ended June 30, 1999 TABLE OF CONTENTS
Page ---- PART I. Item 1. Business 4-9 Item 2. Properties 9-10 Item 3. Legal Proceedings 10 Item 4. Submission of Matters to a Vote of Security-Holders 10 PART II. Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 11 Item 6. Selected Financial Data 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 8. Financial Statements and Supplementary Data 11 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 12 PART III. Item 10. Directors and Executive Officers of the Registrant 12-14 Item 11. Executive Compensation 14-19 Item 12. Security Ownership of Certain Beneficial Owners and Management 19 Item 13. Certain Relationships and Related Transactions 20-21 PART IV. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - Index 21-25 SIGNATURES Principal Executive Officer, Principal Financial and Accounting Officer 27 Directors 27 EXHIBITS E-1 - E-100
4 PART I ITEM 1. BUSINESS GENERAL The Company designs and manufactures close-tolerance, specialty metal-alloy components sold to the transportation and medical device industries. These components are used primarily in gasoline and diesel fuel, power steering and braking systems and devices for surgical procedures. The Company's production equipment consists of high-precision, automatic cam-driven turning machines and computer numerically-controlled turning, milling and grinding machines capable of high-volume production while maintaining close tolerances. BUSINESS STRATEGY The Company's sales have grown from $18 million in fiscal 1990 to $179 million in fiscal 1999. The Company's management attributes its growth to the following factors: (i) the strategic acquisitions of complementary businesses; (ii) the trend toward more environmentally efficient port electronic fuel injectors; (iii) increased sales of anti-lock braking and power steering system components reflecting increased demand and acceptance of these safety features; and, (iv) the introduction of precision-machined medical devices, including stents, to its product offerings. The Company's growth and profitability reflect its business strategy to: - Identify Products Which are Early in Their Life Cycles - The Company selectively pursues new sales opportunities based primarily on identifying products early in their product life cycles that have strong unit growth potential. The Company believes these components can be manufactured with unit price structures and quality standards that favor the Company in its highly competitive environment. By identifying products early in their life cycles and building strong customer relationships, sales growth has been enhanced through sole source, long-term supply contracts with selected customers. In fiscal 1999, 73% of the Company's total sales were to five customers, Robert Bosch Corporation, Delphi Automotive Systems, Inc., SMI-Koyo Group, ZF Friedrichshafen AG, and TRW, Inc. - Provide Technologically High Quality Products on a Timely Basis - The Company believes that the reputation it has achieved in supplying high quality components has been instrumental in allowing it to achieve new business and maintain existing business. The Company's manufacturing strategy is to produce high-volume, close-tolerance, high-precision components that have excellent growth prospects. To this end, the Company has identified products in the transportation industry, such as fuel, power steering and braking system components and the medical devices industry, such as minimally invasive ophthalmic and cardiovascular surgery equipment components. As the recipient of numerous quality awards from its customers, the Company has used in the past and expects to use in the future this experience and knowledge to diversify its industry, customer and product bases. - Focus on Aggressively Reducing Cost - Since its inception, the Company has emphasized a continuous improvement program involving all employees. The Company believes that this ongoing program, in conjunction with the capital expenditures it has made, allows it to be the low-cost producer of the products it manufactures. The Company believes that there are future opportunities to increase efficiency, improve productivity and reduce costs. - Capitalize on Acquisition Integration Experience - The Company has made four acquisitions since 1992. The Company has successfully integrated these acquisitions and implemented a series of strategic changes designed to improve product quality, and reduce manufacturing and administrative costs. The Company intends to continue focusing on manufacturing components requiring high-volume, close-tolerance, high- 4 5 precision production, which have excellent growth prospects. The Company's strategy is to expand its base of transportation customers as well as diversify its product mix to that market. Current and future supplier consolidation within the industry will require the Company to provide high-tolerance machining capability for the production of many more products in order to maintain its position as a premier supplier to the industry. In addition, the Company plans to increase its penetration of non-transportation markets, such as medical devices, by identifying products consistent with its business strategy. These expansion plans may be realized through strategic acquisitions. The Company is continually seeking to acquire businesses that complement and expand its product offerings. Such opportunities should be created as original equipment manufacturers ("OEM") continue to consolidate their supplier bases. MARKETS The Company currently sells its products in the transportation and medical devices industries as described below. Transportation Industry. The transportation parts industry is composed of two major segments -- the OEM market and the transportation aftermarket. The Company sells substantially all of its products to tier-one and tier-two suppliers to OEMs for installation as original equipment on new cars, trucks and heavy equipment. The market for new cars and light trucks is large and cyclical, with new vehicle demand tied closely to the overall strength of the local economy. Developments within the industry, including consolidation among suppliers and increased outsourcing of components by OEMs, have substantially altered the competitive environment for transportation suppliers and have had a favorable impact on the Company's growth. Due to ever-increasing global competition, OEMs are continually revising their supplier requirements. OEMs are requiring suppliers to meet increasingly strict standards of quality, overall cost reductions and increased support for up-front design, engineering and project management. These requirements are continually accelerating the trend toward consolidation of the OEMs' supplier bases. For more capable suppliers, the new environment will continue to create the opportunity to grow rapidly by obtaining business previously provided by other suppliers. In addition, automotive manufacturers are producing vehicles with more features designed for convenience, vehicle performance, and, in response to both state- and federally-imposed standards related to safety and the environment such as the Federal Corporate Average Fuel Economy Requirements, emission standards and passive restraint requirements. The requirements of reducing fuel consumption while meeting increasingly stringent exhaust emissions dictate increasing complexity in automotive engines and engine design. As a result, new, more sophisticated systems have been added to automobiles that require components of the type produced by the Company. As the OEMs follow this trend, significant opportunities should develop for the Company. The Company believes it will continue to be well positioned as a supplier to this market. Medical Devices Industry. The health care industry continues to undergo a major transformation affecting all segments of the industry. While the final outcome of this transformation is unknown, certain identifiable developments have already impacted this industry. Global and individual consumer economics are transforming the medical industry. Health care in the next century will be controlled by a concern for cost effectiveness, process efficiency, and ease of access. One of the most visible change resulting from this trend will be the proliferation of outpatient and non-physician attended facilities. These facilities will require more compact, mobile and user-friendly diagnostic and surgical devices. The industry is also demanding suppliers that enhance quality while lowering costs. 5 6 Research and development departments of leading medical instrument manufacturers are working diligently to respond to these changes with new and redesigned products. Leading companies are exploring design and production alternatives that will enhance quality while lowering overall costs. To help them achieve this goal, manufacturers are actively seeking partnerships with suppliers who can bring intelligence, ingenuity and expertise to the R&D process. Because of the Company's reputation as a low total cost supplier to the transportation market, it is in an excellent position to lead the medical industry's move to greater cost efficiency. The Company's goal is to apply proactive engineering services to the needs of this important and lucrative market. As the Company builds relationships with market leaders in ophthalmic instrumentation, it is actively pursuing additional partners in the areas of cardiovascular devices and other invasive surgical products. The Company believes it can capitalize on its transportation manufacturing expertise by applying these skills to similar manufacturing processes used within the medical devices industry. The Company has made positive impressions on companies within this market who were skeptical about a transportation company's ability to meet the expectations of the medical industry. PRODUCT APPLICATIONS A summary of the Company's sales and percentage of total sales by product application for each of the last three fiscal years is presented on page E-73 of the Exhibit 13 to this Form 10-K. Fuel Systems. Fuel system component sales represented 46%, 57% and 74% of the Company's sales for the years ended June 30, 1999, 1998 and 1997, respectively. The Federal Clean Air Act mandates drastic cuts in tailpipe emissions, creating intense market demand for cleaner-burning, more efficient fuel systems. The adoption of tougher Corporate Average Fuel Economy (CAFE) standards will further heighten this demand. From a fuel injection application standpoint, a leading automotive research firm estimates that approximately 21% of the vehicles produced use diesel engines and 8% use carburated engines, leaving the majority of the engines produced, approximately 71% or 37 million, as gasoline fuel injected. Autocam estimates that the average car has 3.86 fuel injectors. In large part, electronic fuel injection has replaced carburetors. Virtually all modern light vehicles in mature markets utilize fuel injection systems. Although that description suggests the market is saturated, fuel injection systems are evolving rapidly, and new components should stimulate opportunities for the Company to gain market share. Port Electronic Fuel Injection ("Port EFI") will play a key role in the worldwide move to greater fuel efficiency. These systems are rapidly replacing less efficient Throttle Body Injection (TBI) systems. Where TBI systems require only one or two injectors per engine, Port EFI systems require one injector per cylinder, exponentially increasing the size of the fuel injector market. Autocam manufactures several components used in Port EFI systems. Power Steering Systems. Power steering system component sales represented 24% of the Company's sales for the year ended June 30, 1999. No sales of these products were reported in fiscal 1998 or 1997. A manual power steering system incorporates the following elements: a steering wheel; shaft and column; either a manual gearbox and pitman arm or a rack and pinion assembly; linkage; steering knuckles and ball joints; and, wheel spindle assemblies. The power steering system adds a hydraulic pump, fluid reservoir, hoses, lines, and a power assist unit mounted on, or integral with, a power steering gear assembly. In the U.S. market, power steering appears as factory-installed equipment in slightly over 98% of all passenger cars and light trucks. The primary benefits to consumers are comfort, convenience, and possibly safety. Parking maneuvers, in particular, can be difficult without the multiplying effect of the powered assistance. 6 7 Growth of power steering for the U.S. market will depend on growth in the vehicle build, since this market is essentially saturated with the current technology. There appears to be more opportunity in other mature markets. In Europe, penetration has risen from 20% in 1989 to 60% in 1997. The pattern of adoption has been typical, with the features showing up first on large luxury vehicles and then trickling down to more mass-market applications. The room for penetration in the European market and the above-average complexity of the components used in these systems provides a vehicle for growth for the Company's French operations. Brake Systems. Braking system component sales represented 13%, 20% and 11% of the Company's sales for the years ended June 30, 1999, 1998 and 1997, respectively. Like fuel injection, the popularity of anti-lock brakes (ABS) is significant. Millions of safety-conscious consumers have embraced ABS, and it has become available on more and more lower-priced vehicles as the cost of the technology has declined. Once expected to reach extremely high penetration rates, the installation of the ABS feature has tapered off at 63% of North American light vehicles in 1998. Part of the problem can be traced to the debate over the effectiveness of ABS, an issue brake suppliers thought they had put to rest years ago. ABS suppliers are exploring technological changes that will make ABS lighter, more affordable, and better performing. It is likely that future growth of ABS will occur in conjunction with other electronic brake and suspension control systems. ABS components have been identified by Company management as fitting well with is core competencies, and the Company's customers recognize these competencies as the Company is quickly becoming the component supplier of choice to the ABS market. Its customers controlled over 70% of the 1998 light vehicle ABS market. These companies are also among the industry's technological leaders and frequently look to the Company for invaluable precision-machining expertise. The Company's engineers are constantly working to help its customers keep up with the pace of innovation, thereby increasing its market penetration. Other Transportation Applications. Other automotive components sales represented 11%, 3% and 2% of the Company's sales for the years ended June 30, 1999, 1998 and 1997, respectively. The Company manufactures components used in automotive electromechanical motors, which allow for the remote operation of power windows, door locks and seats. The Company believes that the consumer-desired safety and convenience of these features will lead to increased sales of these systems and corresponding increased sales of components manufactured by the Company. Medical Devices. Medical device components sales represented 4%, 11% and 10% of the Company's sales for the years ended June 30, 1999, 1998 and 1997, respectively. The Company believes it can capitalize on its transportation manufacturing expertise by applying these skills to similar manufacturing processes used within the medical devices industry. The Company has already made positive impressions on companies within this market who were skeptical about a transportation industry company's ability to meet the expectations of the medical industry. The Company's fastest growing market segment in the medical field, the stent business, is a high priority. The Company's sales staff is vigorously prototyping new designs and contacting potential new customers. Presently, there are four stent designs in use -- slotted tube, coil, wire mesh, and ring. Each has its advantages and disadvantages; however, the Company is presently producing only one of the designs, the slotted tube stent. This is the design that started the business and is the stent of choice for a majority of applications. Stents, a scaffold like device used to keep human blood vessels open after balloon angioplasty, were identified as a product that fit the Company's core competencies. The Company also produces components used in ophthalmic hand pieces. This is a mature product line with strong margins, but limited growth prospects with the current customer. 7 8 MANUFACTURING The Company manufactures its products using turning, grinding and milling processes. Substantially all of the Company's production machinery has been acquired new since 1985 and consists of high-precision, automatic cam-driven turning machines and computer numerically-controlled turning, milling and grinding machines. These machines are capable of high-volume production while maintaining close tolerances. Products are typically produced from bar stock using multi-spindle cam automatic bar machines or centerless grinders. Secondary machining in some cases is necessary. Parts are then deburred, cleaned, in some cases, plated or heat treated at outsource locations, packaged and shipped directly to the customer. On a new job, the first parts produced are used to establish process capability and sent to the customer for approval. After approval, the part is placed in the Company's production planning systems and, as production begins, statistical process control techniques are employed to maintain quality and gather data for the Company's continuous improvement efforts. The continuous improvement process focuses the attention of all employees on improving each step of the process in order to increase quality, lower cost and improve customer service. In the manufacturing area, this focus emphasizes reducing dimensional variation to narrow the tolerance range for a given process, increasing perishable tool life, reducing scrap, and increasing both human and equipment productivity. Raw materials and other resources used by the Company are generally not restricted in availability. The Company purchases certain specialty alloys from a dedicated source and the Company's customers allow for the pass through of certain raw material adjustments. In the last year, the Company has not experienced any significant price fluctuations. The Company does not purchase any raw materials pursuant to blanket resale programs with its customers. MARKETING AND SALES The Company markets its products primarily by bidding upon component specifications submitted by the customer. In addition, the Company makes direct calls on potential customers, through its internal sales department and the use of independent sales representatives. It is the Company's objective to establish long-term sole source contracts in order to strengthen its position in the marketplace. The Company continues to expand its base of customers in order to reduce its dependence on any particular customer or industry. CONTRACTS AND PURCHASE ORDERS The Company's transportation customers typically award blanket purchase orders for each calendar year, and is occasionally successful in receiving life-of-the-product supplier agreements. The remainder of its components may be subject to an annual rebidding process. Additionally, the Company is currently operating with open and blanket purchase orders from approximately 20 customers primarily covering transportation fuel, power steering and braking system and medical device components. Orders are not firm under blanket purchase orders until specific releases are granted. BACKLOG AND SEASONALITY The Company's business is relatively consistent throughout the year, except for slowness traditionally experienced in July and August due to automotive model changeovers and European holiday and during late December as its customers in the transportation industry typically shut down around the Christmas and New Year holidays. The Company does not reflect an order in backlog until it has received a purchase order and release committing to a quantity and delivery date. Generally, orders are shipped within three months of a release and as a result, the Company does not believe backlog is a material concept to its business. 8 9 COMPETITION The markets in which the Company competes are highly competitive, and the Company believes that it competes within the above industries on the basis of price, quality and technology. The Company believes that there are approximately 40 companies in the United States that have the equipment to be manufacturers of precision metal parts in competition with the Company. The Company also competes with approximately 10 companies in Europe and Asia. Certain of the Company customers have greater resources than the Company and could move component production currently manufactured by the Company in-house. Some of the components currently manufactured by the Company can also be manufactured using alternative technologies including stamping and coldheading processes which, in some cases, can process high-precision parts as efficiently as those technologies utilized by the Company. EMPLOYEES The Company had 1,773 full-time employees as of June 30, 1999. The following table shows employment by manufacturing facility: Pochons, France 467 Ternier, France 379 Kentwood, Michigan 252 Pinhal, Brazil 178 Campinas, Brazil 159 Dowagiac, Michigan 110 Boituva, Brazil 83 Marshall, Michigan 77 Hayward, California 42 Gaffney, South Carolina 26 ---- Totals 1,773 =====
None of the Company's U.S. employees are part of a collective bargaining unit. Governmental unions represent all French and Brazilian employees. The Company has never experienced a work stoppage and considers relations with its employees to be excellent. EXPORT SALES During the fiscal years ended June 30, 1999, 1998 and 1997, the Company's U.S. operations exported fuel and braking system, computer electronic, and refrigeration and air-conditioning system components to 14 customers in Europe, Mexico, Canada, Brazil and Asia resulting in sales of $8,296,000, $9,032,600 and $8,485,000, respectively. ITEM 2. PROPERTIES The Company owns or leases manufacturing facilities suitable and adequate for the production and marketing of its products. The Company's executive and administrative offices occupy 12,000 square feet of its Kentwood, Michigan facility. The following is a list of the Company's locations and approximate square footages: 9 10
Approximate Square Feet ---- Owned: Kentwood, Michigan 88,000 Dowagiac, Michigan 67,000 Marshall, Michigan 56,000 Gaffney, South Carolina 25,000 Leased: Pochons, France 143,000 Kentwood, Michigan 100,000 Ternier, France 73,000 Boituva, Brazil 36,000 Hayward, California 27,000 Pinhal, Brazil 24,000 Campinas, Brazil 22,000
The Company subleases 67,000 square feet of its leased Kentwood, Michigan facility to a company related by virtue of its 100%-ownership by the Company's president. The Company has machinery and equipment with an aggregate cost of $184,939,000. The Company owns $164,623,000 of this equipment and $20,316,000 is leased under operating leases. For information concerning minimum future lease payments under non-cancelable leases, see Note 6 of Notes to Consolidated Financial Statements filed as Exhibit 13 hereto. The Company believes its facilities are modern, well maintained, adequately insured and suitable for their present and intended uses. In order to meet demand primarily from transportation customers, management will purchase $15-20 million of equipment over the next year (on which deposits of $2.8 million had been placed as of June 30, 1999). See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources," below. ITEM 3. LEGAL PROCEEDINGS The Company is not presently involved in any legal proceedings other than ordinary or routine proceedings incidental to its operations, which in the opinion of management, would not have a material adverse effect on the Company if determined against the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS None. 10 11 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 1999: Fourth quarter 13 1/2 8 1/2 Third quarter 16 1/2 8 Second quarter 16 1/2 10 3/8 First quarter 17 1/8 11 5/16 Fiscal 1998: Fourth quarter 20 1/8 15 5/8 Third quarter 15 15/16 12 1/2 Second quarter 14 3/4 11 9/16 First quarter 12 1/2 9 3/4
As of September 15, 1999, 183 holders of record, and approximately 2,000 beneficial shareholders held the Company's common stock. Dividends The Company began paying quarterly cash dividends of two cents per common share in the second quarter of fiscal 1997. The Company expects this practice of paying quarterly dividends on its common shares will continue, although future dividends will continue to depend upon the Company's earnings, capital requirements, financial condition and other factors. ITEM 6. SELECTED FINANCIAL DATA Information required by this Item 6 is incorporated by reference to page E-71 of the Company's Consolidated Financial Statements for the years ended June 30, 1999, 1998 and 1997 filed as Exhibit 13 hereto. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required by this Item 7 is incorporated by reference to pages E-72 - E-79 of the Company's Consolidated Financial Statements for the years ended June 30, 1999, 1998 and 1997 filed as Exhibit 13 hereto. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Registrant hereby incorporates the financial statements required by this Item 8 by reference to Item 14(a)(1) hereof, and the supplementary financial information required by this Item 8 by reference to the Company's Consolidated Financial Statements as of June 30, 1999 and 1998 and for the years ended June 30, 1999, 1998 and 1997, filed as Exhibit 13 hereto. 11 12 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Board of Directors presently consists of seven members. The terms of the two existing directors in Class II, David J. Wagner and Kim Korth, expire at the Company's next annual meeting. They have agreed to stand for re-election and serve if elected. Although it has no present plans to do so, the bylaws of the Company permit the Board of Directors to further increase its number and to fill the vacancies thus created. The Articles of Incorporation of the Company provide that the directors are elected by classes, indicated by the table below, with terms expiring upon election of their successors at the annual meeting of shareholders following the close of the Company's 1999, 2000 and 2001 fiscal years, respectively. Thus, one class of directors, consisting of two or three members, as the case may be, are elected each year to serve for a three-year term. The table below identifies and provides certain information regarding each of the existing directors and the class to which each director is now elected. The table below also identifies and provides certain information regarding the executive officers and certain key employees of the Company. DIRECTORS WHOSE TERMS EXPIRE AT THE NEXT ANNUAL MEETING: Class II -- Nominated for election at the meeting to serve until the annual meeting of shareholders in 2002 and until their successors are elected:
Has Served as NAME PRINCIPAL OCCUPATION AGE DIRECTOR SINCE ---- -------------------- --- -------------- David J. Wagner (1)(2) Chairman, President, Chief Executive 45 October 1991 Officer of Old Kent Financial Corporation Kim Korth (1) President, International Resource Network, Inc. 44 August 1997
David J. Wagner has been Chairman since November 1995 and President and Chief Executive Officer since March 1995 and was President since March 1994 of Old Kent Financial Corporation, a bank holding company, and was has been Chairman of the Board and Chief Executive Officer of Old Kent Bank for more than the preceding five years. Kim Korth has been the owner and President of International Resource Network, Inc., an automotive consulting and market research firm, for more than five years. DIRECTORS WHOSE TERMS CONTINUE BEYOND THE NEXT ANNUAL MEETING: Class III -- To serve until the annual meeting of shareholders in 2000 and until their successors are elected: 12 13
PRINCIPAL HAS SERVED AS NAME OCCUPATION AGE DIRECTOR SINCE ---- ---------- --- -------------- John C. Kennedy President, Chief Executive Officer of Company 41 April 1988 Kenneth K. Rieth (2) President, Chief Executive Officer of Riviera 40 October 1991 Tool Company Mark J. Bissell (1) President, Chief Executive Officer of 42 October 1997 BISSELL Inc.
John C. Kennedy has been a Director and President of the Company since its inception in April 1988. Mr. Kennedy graduated with a Bachelor of Science degree in Accounting and Finance from the University of Detroit in 1979. Kenneth K. Rieth is a principal owner and for more than the past five years has been a director and the President and Chief Executive Officer of Riviera Tool Company, a Michigan corporation engaged in the manufacture of sheet metal stamping dies for the automotive industry. Mark J. Bissell has been President and Chief Executive Officer since April 1996, and President and Chief Operating Officer from January 1994 to March 1996 of BISSELL Inc., a manufacturer of floor care cleaning products, including carpet vacuums, cleaners and sweepers. For more than two years prior to that, he served as a Senior Vice President of BISSELL Inc., and as the General Manager of the BISSELL Homecare Division. Class I -- To serve until the annual meeting of shareholders in 2001 and until their successors are elected:
PRINCIPAL HAS SERVED AS NAME OCCUPATION AGE DIRECTOR SINCE ---- ---------- --- -------------- Warren A. Veltman Secretary, Treasurer, Chief Financial Officer 38 October 1991 of Company Robert L. Hooker (1) Chief Executive Officer, Mazda Great Lakes 69 January 1992
Warren A. Veltman has been with the Company since November 1990 as the Chief Financial Officer and Secretary/Treasurer since August 1991. Mr. Veltman graduated in 1983 with a Bachelor of Business Administration degree from the University of Michigan. Robert L. Hooker has been Chief Executive Officer of Mazda Great Lakes, a Michigan corporation engaged in the distribution of automobiles and related products, for more than five years. - ---------- (1) Member of Compensation Committee (2) Member of Audit Committee KEY EMPLOYEES:
NAME POSITION WITH COMPANY AGE ---- --------------------- --- David H. Livingston Chief Operating Officer 49 Thomas K. O'Mara Sales and Marketing Manager 38
David H. Livingston has been with the Company since 1998 as the Chief Operating Officer. Mr. Livingston was most recently Senior Vice President of Operations for Delco Remy America since 1996, and Vice President for United Technologies Automotive for more than two years prior thereto. Mr. Livingston graduated in 1973 with a Bachelor of Science degree in Mechanical Engineering from the University of Kentucky. 13 14 Thomas K. O'Mara has been with the Company since November 1989 as the Sales and Marketing Manager. Mr. O'Mara graduated in 1982 with a Bachelor of Science degree in Marketing from Central Michigan University. BOARD MEETINGS AND COMMITTEES The Directors had five meetings during the past fiscal year and acted twice by consent resolution. No director attended less than 75% of directors meetings, including appropriate committee meetings. The Board of Directors has an audit committee, which is responsible for approving the services performed by the Company's independent public accountants and reviewing and evaluating the Company's accounting principles, reporting practices and systems of internal control. The current members of the committee are Messrs. Rieth and Wagner. The committee held two meetings during the last fiscal year. The Board of Directors has a compensation committee, which has the responsibility of determining executive compensation and granting options pursuant to the Company's 1991 Incentive Stock Option Plan. During fiscal 1999, this committee consisted of Messrs. Wagner, Hooker, and Bissell and Ms. Korth. The committee met five times during the fiscal year. The Company has no nominating committee, the functions of which are performed by the Board of Directors. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires that the Company's directors and certain officers and persons who own 10% or more of the Company's common stock file with the SEC and the NASDAQ National Market System initial reports of ownership and reports of changes in ownership of Company Common Stock. These officers, directors and 10% shareholders are required by SEC regulation to furnish the Company with copies of these reports. To the Company's knowledge, based solely upon review of the copies of such reports furnished to the Company and written representations that no other reports were required during the fiscal year ended June 30, 1999, all Section 16(a) requirements applicable to its officers, directors and 10% beneficial owners were complied, except that Messrs. Kennedy, Veltman and Livingston were late in filing their required Forms 5, reporting their purchase of 318 shares of Company common stock via a matching contribution by the Company in the Company's 401(k) employee savings plan available to all regular employees of the Company. ITEM 11. EXECUTIVE COMPENSATION COMPENSATION COMMITTEE REPORT The Company's compensation program for officers is administered by the Compensation Committee of the Board of Directors which is currently composed of Ms. Korth and Messrs. Hooker, Wagner and Bissell. Overall Officer Compensation Policy The Company's compensation policy for executive officers is designed to support the overall objective of enhancing value for shareholders by attracting, developing, rewarding, and retaining highly qualified and productive individuals, relating compensation to both Company and individual performance, and ensuring compensation levels that are externally competitive and internally equitable. To that end, the committee had an updated executive compensation review performed in April 1999 by an independent compensation consultant, Watson Wyatt Worldwide. In short, the report concluded that the base compensation level for the Company's chief executive officer is "lower than would be expected," particularly in comparison to comparable companies. 14 15 The key elements of the Company's officer compensation consist of base salary, a maximum formula bonus for Mr. Kennedy and a discretionary bonus and stock options for Messrs. Veltman and Livingston. The Compensation Committee's policies with respect to each of these elements, including the bases for the compensation awarded to Mr. Kennedy, are discussed below. In addition, while the elements of compensation described below are considered separately, the Compensation Committee takes into account the full compensation package afforded by the Company to the individual, including insurance and other benefits. Base Salary The Committee reviews each officer's salary annually. In determining appropriate salary levels, consideration is given to scope of responsibility, experience, Company and individual performance as well as pay practices of other companies relating to executives with similar responsibility. With respect to the base salary of Mr. Kennedy in 1999, the Compensation Committee took into account a comparison of base salaries of chief executive officers of peer companies known to the members of the Committee, the Company's continued financial success, and the assessment by the Compensation Committee of Mr. Kennedy's individual performance. The Compensation Committee took into account the longevity of Mr. Kennedy's service to the Company and its belief that Mr. Kennedy is an excellent representative of the Company to the public by virtue of his stature in the community and the industry. Mr. Kennedy's base salary of $150,000 was established by the Board of Directors in September 1991. Taking into consideration the report and recommendations of Watson Wyatt Worldwide that Mr. Kennedy's base salary is below the 25th percentile among peer companies, the Compensation Committee decided that Mr. Kennedy's base salary should be increased. Effective April 29, 1999, his base compensation was increased to $200,000 per year and premiums on four existing split dollar insurance policies owned by Mr. Kennedy would continue to be paid by the Company. Mr. Kennedy pays the Company the portion of the premiums equal to the price of an equivalent amount of term insurance. The benefit to Mr. Kennedy of premiums paid by the Company is the interest-free use of the non-term portion of the premium. Such benefit was estimated at $86,333, calculated as the present value of the interest payments not required to be made assuming Mr. Kennedy would not repay the non-term portion until age 65, discounted at a market rate of 8.0% (see Summary Compensation Table below). The Company has a lien on the cash value and proceeds of each policy equal to the premiums paid by the Company. This lien amounted to $909,800 at June 30, 1999 and is carried as an officer receivable on the books of the Company. Bonus Awards The Company's officers may be considered for annual cash bonuses, which are awarded to recognize and reward corporate and individual performance based on meeting specified goals and objectives. The plan in effect for 1999 for Mr. Kennedy provides that a bonus, not exceeding 3.5% of the Company's income from operations before such bonus expense, will be awarded. This formula was established by the Board of Directors in 1991. In awarding a bonus to Mr. Kennedy, the Board reviews compensation levels and financial results available to it for chief executive officers for similarly sized companies as well as those located near the Company's headquarters. Mr. Kennedy sets Messrs. Veltman's and Livingston's bonus based on his review of corporate and individual performance as well as the performance bonus the management team awards to employees of the Company generally other than Messrs. Veltman, Livingston and Kennedy. Stock Options Under the Company's 1991 Incentive Stock Option Plan (the "1991 Plan"), which was approved by the shareholders, stock options are granted to the Company's key employees, including Messrs. Veltman, Livingston and O'Mara. Under the Company's 1998 Key Employee Stock Option Plan (the "1998 Plan"), also approved by the shareholders, stock options are granted to the Company's key employees, including Messrs. Kennedy, Veltman, Livingston and O'Mara. Key employees are determined by the Compensation Committee through recommendation by the Company's management, and the number of options granted under either plan is determined by the subjective evaluation of the person's ability to influence the Company's long-term growth and profitability. 15 16 Stock options are granted with an exercise price equal to the market price of the common shares on the date of grant. In fiscal 1999, options were granted to Messrs. Kennedy, Veltman, O'Mara and Livingston under the 1998 Plan. Since the value of an option bears a direct relationship to the Company's stock price, it is an effective incentive for employees to create value for shareholders. The Committee therefore views stock options as an important component of its compensation policy. Compensation Committee members: Robert L. Hooker David J. Wagner Kim Korth Mark J. Bissell. COMPENSATION OF EXECUTIVE OFFICERS Summary Compensation Table The following table sets forth the total compensation earned by each executive officer during the fiscal years ended June 30, 1999, 1998 and 1997 for services rendered to the Company in all capacities during such years.
Long-Term Annual Compensation (1) Compensation ----------------------- Awards Name and Other ------- Principal Position Annual Stock All Other at June 30, 1999 Year Salary Bonus Compensation Options Compensation (2)(3) ---------------- ---- ------ ----- ------------ ------- ------------------- John C. Kennedy, 1999 $154,808(4) $262,900 $6,136 47,250 $87,333 Chairman, President 1998 150,000 313,900 6,136 81,537 and Chief Executive 1997 150,000 202,557 6,136 82,776 Officer (4) David H. Livingston, 1999 103,846 25,025 26,250 14,967 Chief Operating Officer (5) Warren A. Veltman, 1999 85,096 121,025 15,750 38,096 Secretary, Treasurer 1998 75,000 110,900 14,760 and Chief Financial 1997 75,000 86,686 9,450 15,639 Officer (6)
- ---------- (1) Does not include any value that might be attributable to job-related personal benefits, the amount of which did not exceed the lesser of 10% of annual salary plus bonus or $50,000 for each executive officer. (2) Represents the benefit of the interest-free use of the non-term portion of the premium paid by the Company on insurance policies owned by the individual under split dollar arrangements. Such benefit was estimated as the present value of the interest payments which are not required to be made assuming the executive would not repay the non-term portion until age 65, discounted at a market rate of 8.0%. The portion of such premiums equal to the price of equivalent amounts of term insurance are paid to the Company by Messrs. Kennedy, Livingston and Veltman. (3) Includes $1,000, $1,000 and $2,000 each for Messrs. Kennedy and Veltman contributed by the Company during fiscal 1999, 1998 and 1997, respectively, to the 401(k) plan maintained by the Company for its employees generally. Includes $1,000 for Mr. Livingston contributed by the Company for fiscal 1999 to the same 401(k) plan. (4) Mr. Kennedy's current base compensation is $200,000 per annum commencing effective April 29, 1999. He is also 16 17 entitled to receive annual bonus compensation not greater than 3.5% of the Company's income from operations prior to such bonus calculation. (5) Mr. Livingston's current base compensation is $150,000 per annum. He is also entitled to receive a guaranteed bonus of not less than $85,000 at the completion of one year of service. (6) Mr. Veltman's current base compensation is $90,000 per annum. Included in Other Compensation is $23,388, equal to the dollar value of the difference between the option price for common stock pursuant to stock options exercised and the fair market value of the stock on the date of purchase. Option Grants in the Last Fiscal Year The following table provides information on options granted to each of the executive officers of the Company during the fiscal year ended June 30, 1999 pursuant to the 1991 Plan or the 1998 Plan:
Number of Percent of Potential Realizable Securities Total Options Value at Assumed Annual Underlying Granted to Exercise Rates of Stock Price Options Employees in of Base Appreciation for Granted Fiscal Year Price Expiration Date Option Term ------- ----------- ----- --------------- ----------- 5% 10% ---- ----- John C. Kennedy 47,250 22.7% $12.38 September, 30, 2008 $367,875 $ 932,268 David H. Livingston 26,250 12.6% 12.38 September, 30, 2008 204,375 517,926 Warren A. Veltman 15,750 7.6% 12.38 September, 30, 2008 122,625 310,756 ------ ----- -------- ---------- Total 89,250 42.9% $694,875 $1,760,950 ====== ===== ======== ==========
Aggregated Option Exercises in Last Fiscal Year and Option Values at Fiscal Year End The following table provides information on the value of options held by each of the executive officers of the Company at June 30, 1999 measured in terms of the closing price of the Company's common stock on that day. There were options exercised by officers during the year.
Shares Number of Unexercised Options Value of Unexercised In-The- Acquired at June 30, 1999 Money Options at June 30, 1999 on Value ---------------- ------------------------------ Name Exercise Realized Exercisable (1) Unexercisable Exercisable (1) Unexercisable ---- -------- -------- --------------- ------------- --------------- ------------- John C. Kennedy 9,450 37,800 $ 10,584 $42,336 David H. Livingston 5,250 21,000 5,880 23,520 Warren A. Veltman 2,500 $23,388 34,682 16,767 202,809 35,240
(1) Includes 9,450, 5,250 and 5,233 options which Messrs. Kennedy, Livingston and Veltman may exercise within sixty days of September 15, 1999, respectively. - ------------ The Company pays each director who is not an employee a fee of $10,000 per year. 17 18 PERFORMANCE GRAPH The following graph compares the cumulative total return of the Company's common stock, for periods subsequent to June 30, 1993, with the Standard & Poor's 500 Composite Index, the Standard & Poor's SmallCap 600 Index (Auto Parts and Equipment Industry Group) and an index of peer companies selected by the Company. The comparison assumes $100 was invested on June 30, 1994 in the Company's common stock, the Standard & Poor's 500 Composite Index, the Standard & Poor's SmallCap 600 Index (Auto Parts and Equipment Industry Group) and the peer group. The companies in the peer group, all of which are in the automotive parts industry, are as follows: Arvin Industries, Inc. Mascotech, Inc. Dana Corporation Modine Manufacturing Company Defiance, Inc. (1) Newcor, Inc. Douglas & Lomason Company (2) Redlaw Industries Excel Industries, Inc. (3) Simpson Industries, Inc. Federal Screw Works SPX Corporation Gentex Corporation Sudbury, Inc. (5) Howell Industries, Inc. (4) Walbro Corporation The Lamson & Sessions Company Worthington Industries, Inc. - ---------- (1) Defiance, Inc. was acquired by General Chemical Group in March 1999. (2) Douglas & Lomason was acquired by Magna International in November 1996. (3) Excel Industries, Inc. merged with Dura Automotive Systems in April 1999. (4) Howell Industries, Inc. acquired by Oxford Automotive in August 1997. (5) Sudbury, Inc. was acquired by Intermet Corporation in February 1997. [PERFORMANCE GRAPH] 18 19
INDEXED RETURNS - ------------------------------------------------------------------------------------------------------------------------------ YEARS ENDED ----------------------------------------------------------------------------------- BASE PERIOD COMPANY NAME/INDEX JUN94 JUN95 JUN96 JUN97 JUN98 JUN99 - ------------------ ----- ----- ----- ----- ----- ----- Autocam Corporation 100 80.63 72.32 89.38 130.73 112.18 S&P 500 Index 100 126.07 158.85 213.97 278.51 341.88 Peer Group 100 108.56 115.62 134.40 159.22 170.10 Auto Parts & Equipment - Small 100 90.82 123.10 154.10 166.58 174.30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT PRINCIPAL SHAREHOLDERS The following table sets forth information regarding the beneficial ownership of the Company's common shares by the persons who beneficially own more than 5% of its common shares, by each director and executive officer, and by all officers and directors of the Company as a group, as of September 15, 1999:
Name of Number of Shares Percent of Beneficial Owner Beneficially Owned Class (1) ---------------- ------------------ --------- John C. Kennedy (2)(3) 3,809,431 60.4% Warren A. Veltman (2)(4) 39,958 * Robert L. Hooker (5) 3,123 * David J. Wagner 4,486 * Kenneth K. Rieth 4,727 * Kim Korth * Mark J. Bissell 1,575 * David H. Livingston (2)(6) 5,354 * FMR Corporation (7) 469,902 7.4% All officers and directors and nominees as a group (8 persons) (2)(4)(5)(6) 3,868,654 61.3%
- ---------- (1) An asterisk indicates beneficial ownership of less than 1% of the Class. (2) Includes shares allocated to the individual accounts within the Company's 401(k) plan. (3) The business address for Mr. Kennedy is 4070 East Paris Avenue, Kentwood, Michigan 49512. Includes 9,450 shares of common stock Mr. Kennedy has the right to acquire within sixty days of September 15, 1999 through the exercise of stock options. Total also includes 4,450 shares owned by Mr. Kennedy's spouse and over which she exercises voting control, and 11,316 shares owned by the Kennedy Foundation and over which Mr. Kennedy and his wife exercise joint voting and investment control. For purposes of calculating the percentage of outstanding shares owned by Mr. Kennedy and the group, these shares are deemed to be owned by Mr. Kennedy. (4) Includes 34,682 shares of common stock Mr. Veltman has the right to acquire within sixty days of September 15, 1999 through the exercise of stock options. Total also includes 1,052 shares owned by Mr. Veltman's wife and over which she exercises sole voting control. For purposes of calculating the percentage of outstanding shares owned by Mr. Veltman and the group, these shares are deemed to be owned by Mr. Veltman. 19 20 (5) Includes 859 shares over which Mr. Hooker has voting control in a fiduciary capacity. For purposes of calculating the percentage of outstanding shares owned by Mr. Hooker and the group, these shares are deemed to be owned by Mr. Hooker. (6) Includes 5,250 shares of common stock Mr. Livingston has the right to acquire within sixty days of September 15, 1999 through the exercise of stock options. (7) The business address for FMR Corporation is 82 Devonshire Street, Boston, Massachusetts, 02109-3614. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Mr. Kennedy serves as President and Chief Executive Officer of the Company and serves on the Board of Directors of Riviera Tool Company, where Mr. Rieth is President and Chief Executive Officer and also on the Board of Directors. The Company's Compensation Committee consists of Ms. Korth and Messrs. Hooker, Wagner and Bissell. The Company has entered into four Stock Redemption Agreements (the "Agreements") dated as of November 6, 1992, September 20, 1993, August 1, 1996 and September 1, 1998 with John C. Kennedy and Nancy G. Kennedy, his wife, in their individual capacities and as co-trustees of the John C. Kennedy Living Trust u/a, dated February 14, 1986, as amended. The Agreements provide that upon the death of the last to die of Mr. or Mrs. Kennedy, the Company shall redeem up to $23,000,000 of common stock in a redemption under Section 303 of the Internal Revenue Code of 1986, as amended, in order to pay estate and inheritance taxes, and funeral and administrative expenses of the estate. It is the Company's belief that these Agreements will avoid a potentially significant market price impact that could result from the Kennedy estates needing to sell Company stock in order to pay death taxes and expenses. Pursuant to the Agreements, the Company maintains some life insurance policies in order to fund its obligations. The Company leases certain real property and formerly leased certain equipment from its majority shareholder. At the beginning of fiscal 1994, all such leases were on a month-to-month basis. Effective May 1994, the Company and its majority shareholder executed a long-term lease covering the equipment. The lease was to expire May 31, 2001 and granted the Company an option to purchase the equipment at the expiration of the term. Effective January 1, 1999, the equipment lease was terminated and the Company purchased the leased equipment from its majority shareholder for $625,400. Total lease expense for all items leased from the majority shareholder was $193,400 for fiscal 1999. The Company leases a building at 4060 East Paris Avenue, S.E., Kentwood, Michigan, adjacent to its primary facility, with approximately 100,000 square feet suitable for industrial use. Mr. Rieth, directly or indirectly through his wife, owns a 50% interest in such building. The lease expires in March 2005 and contains an option to purchase the facility for a fixed price of $3,125,000 at the expiration of the lease. Rent under the lease is fixed at $25,000 per month for its entire term but will be adjusted to reflect changes in the interest rate charged by the landlord's mortgage lender. Currently, that rate is fixed until 2000. The Company pays all taxes, maintenance, insurance and utilities. The Company subleases approximately 67,000 square feet of this building on a month-to-month basis to Conway Products Corporation, which is 100% owned by Mr. Kennedy, at a monthly rental charge, plus occupancy expense, taxes, utilities and insurance of approximately $283,300 in the aggregate during fiscal 1999. The Company leases an aircraft for use in its business activities. From time to time, Mr. Kennedy used the aircraft for personal use and paid the Company for the variable costs of operating the aircraft incurred by the Company. This reimbursement totaled $16,700 during fiscal 1999. On August 13, 1998, the Company committed to acquire an aircraft for use in its business operations from Cessna Aircraft 20 21 Corporation ("Cessna") pursuant to a fifteen-year lease based upon a market value of $4,700,000. This acquisition occurred in connection with a trade-in of the aircraft by Mazda Great Lakes Corporation ("Mazda") to Cessna. Mr. Hooker is an officer, director and greater than 10% shareholder of Mazda. On May 12, 1995, the Company obtained an equipment loan from Old Kent Bank ("Old Kent"), a division of Old Kent Financial Corporation, of which Mr. Wagner is President and Chief Executive Officer. At the end of fiscal 1998, the principal balance of the note was $1,458,330, which amount was secured by certain equipment of the Company. The Company paid this obligation in monthly installments of $41,660, plus interest of 8.35% per annum. On October 1, 1998, the Company refinanced this loan through its primary commercial lender, Comerica Bank ("Comerica"), as agent, and this loan has been repaid in full. On June 27, 1997, the Company entered into a credit agreement with Comerica, which included a $10,000,000 term loan payable in monthly principal installments of $138,889, plus interest of 7.76% per annum. Old Kent purchased a participation in this term loan from Comerica and the principal amount of $3,555,555 was due to Old Kent at the end of fiscal 1998. On October 1, 1998, the Company refinanced this loan through Comerica, as agent, and this loan has been repaid in full. Interest paid to Old Kent on this obligation was $60,398 during fiscal 1999. On December 23, 1997, the Company issued $9,000,000 in industrial revenue bonds, the entire amount of which was outstanding at the end of fiscal 1998. These bonds were backed in part by letters of credit issued by Comerica. Old Kent agreed to assume responsibility for satisfying 40%, or $3,600,000, of the letters of credit, and the Company agreed to be indebted to Old Kent in the amount of any such satisfaction. The total cost to the Company of the letters of credit during fiscal 1998 were $54,575, 40% of which was paid by Comerica to Old Kent. Old Kent did not participate in the new lending agreement with Comerica on October 1, 1998, and therefore, no letter of credit fees were paid to Old Kent in fiscal 1999. The Company has utilized and expects to continue utilizing the consulting services of International Resource Network, Inc. where Ms. Korth is President. During fiscal 1999, the Company incurred $51,541 in expense for such services. The Company believes that all of the transactions described above were at rents, prices and terms no less favorable to the Company than would have been available in similar transactions with unaffiliated third parties. The policy of the Company is that proposed transactions with affiliates of the Company must have the prior approval of a majority of the disinterested members of the Board of Directors and, as in prior transactions, will be made on terms no less favorable to the Company than could be obtained from unaffiliated parties. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - INDEX (a) The following documents are filed as a part of this report: 1. Financial Statements - The following consolidated financial statements and the report of independent auditors set forth on pages E-71 - E-97 of Exhibit 13 hereto: Consolidated Balance Sheets as of June 30, 1999 and 1998 21 22 For each of the three years in the period ended June 30, 1999: Consolidated Statements of Operations and Comprehensive Income Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Report of Independent Auditors 2. Financial Statement Schedules - No such schedules are included because of the absence of the conditions under which they are required, or because the information called for is included in the consolidated financial statements or notes thereto. 3. Exhibits 3(a) Amended and Restated Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3(a) of the Registrant's Form S-1, Registration No. 33-42670, filed September 17, 1991). 3(b) Bylaws of the Registrant (incorporated by reference to Exhibit 3(b) of the Registrant's Form S-1, Registration No. 33-42670, filed September 17, 1991). 4(a) Specimen Common Stock Certificate of Registrant (incorporated by reference to Exhibit 4(a) of the Registrant's Form S-1, Registration No. 33-42670, filed September 17, 1991). 10(a) Second Amended and Restated Revolving Credit and Term Note Agreement, dated November 12, 1998, between Comerica Bank, as agent, and the Registrant (incorporated by reference to Exhibit 10.1 of the Registrant's Form 10-Q, filed February 12, 1999). 10(b) Stock Redemption Agreements, dated November 6, 1992 and September 20, 1993, between John C. Kennedy and Nancy G. Kennedy in their individual capacities and as co-trustees of the John C. Kennedy Living Trust u/a, dated February 14, 1986, as amended, and the Registrant (incorporated by reference to Exhibit 10(b) of the Registrant's Form 10-K, filed September 27, 1993). Stock Redemption Agreement, dated August 1, 1996, between John C. Kennedy and Nancy G. Kennedy in their individual capacities and as co-trustees of the John C. Kennedy Living Trust u/a, dated February 14, 1986, as amended, and the Registrant (incorporated by reference to Exhibit 10(b) of the Registrant's Form 10-K, filed September 19, 1996). Stock Redemption Agreement, dated September 1, 1998, between John C. Kennedy and Nancy G. Kennedy in their individual capacities and as co-trustees of the John C. Kennedy Living Trust u/a, dated February 14, 1986, as amended, and the Registrant (incorporated by reference to Exhibit 10(b) of the Registrant's Form 10-K, filed September 23, 1998). 10(c) Autocam Corporation 1991 Incentive Stock Option Plan (incorporated by reference to Exhibit 10(c) of the Registrant's Form 10-K, filed September 23, 1994). 10(d) Employment Agreement dated September 1, 1991, between Registrant and Edward W. Hekman (incorporated by reference to Exhibit 10(e) of the Registrant's Form S-1, Registration No. 33-42670, filed September 17, 1991). 10(e) Northwestern Mutual Life Insurance Company Joint Comp Life insurance policies covering John C. Kennedy and Nancy G. Kennedy, Policy Nos. 12 443 196 and 12 200 147 (incorporated by reference to 22 23 Exhibit 10(e) of the Registrant's Form 10-K, filed September 27, 1993). 10(f) Northwestern Mutual Life Insurance Company Adjustable Whole Life Insurance Policies covering John C. Kennedy, Policy Nos. 9 718 337, 10 755 204 and 10 755 185 (incorporated by reference to Exhibit 10(f) of the Registrant's Form S-1, Registration No. 33-42670, filed September 17, 1991). 10(g) Northwestern Mutual Life Insurance Company Extraordinary Life Insurance Policies covering John C. Kennedy, Policy Nos. 9 053 592, 9 112 232 and 10 369 805 (incorporated by reference to Exhibit 10(g) of the Registrant's Form S-1, Registration No. 33-42670, filed September 17, 1991). 10(h) Northwestern Mutual Life Insurance Company Disability Income Policies covering John C. Kennedy, Policy Nos. D316131, D316137, D374518, D532736 (incorporated by reference to Exhibit 10(h) of the Registrant's Form S-1, Registration No. 33-42670, filed September 17, 1991). 10(i) Northwestern Mutual Life Insurance Company Joint Comp Life Insurance Policy covering John C. Kennedy and Nancy G. Kennedy, Policy No. 11 199 261 (incorporated by reference to Exhibit 10(i) of the Registrant's Form S-1, Registration No. 33-42670, filed September 17, 1991). 10(j) Northwestern Mutual Life Insurance Company Whole Life Insurance Policies covering John C. Kennedy, Policy Nos. 11 466 899 and 11 467 109 (incorporated by reference to Exhibit 10(j) of the Registrant's Form S-1, Registration No. 33-42670, filed September 17, 1991). 10(k) Connecticut Mutual Life Insurance Company Whole Life Insurance Policy covering John C. Kennedy, Policy No. 4 400 303 (incorporated by reference to Exhibit 10(k) of the Registrant's Form S-1, Registration No. 33-42670, filed September 17, 1991). 10(l) Northwestern Mutual Life Insurance Company Disability Income Policy covering Edward W. Hekman, Policy No. D597564 (incorporated by reference to Exhibit 10(l) of the Registrant's Form S-1, Registration No. 33-42670, filed September 17, 1991). 10(m) Northwestern Mutual Life Insurance Company Joint CompLife Policy covering John C. Kennedy and Nancy G. Kennedy, Policy No. 13 542 762 (incorporated by reference to Exhibit 10(m) of the Registrant's Form 10-K, filed September 19, 1996). 10(n) Northwestern Mutual Life Insurance Company Joint CompLife Policy covering John C. Kennedy and Nancy G. Kennedy, Policy No. 14 538 421 (incorporated by reference to Exhibit 10(n) of the Registrant's Form 10-K, filed September 23, 1998). 10(o) Lease Agreement, dated March 1, 1995, between Registrant as lessee, and Rieth Partners and Marys' Share, both Michigan partnerships, as lessors, regarding industrial facilities located at 4060 East Paris Avenue, Kentwood, Michigan (incorporated by reference to Exhibit 10(n) of the Registrant's Form 10-K, filed September 25, 1995). 23 24 10(p) Equipment Leases: 1. Master Lease Agreement, dated August 21, 1989, between Registrant and General Electric Capital Corporation, with Schedule Nos. 4 & 5, dated May 11, 1992 and June 30, 1992, respectively, covering three Tornos Bechler MS-7 Automatic Lathes, one Mikron PAS-16 Multi-spindle Horizontal Machining Center, and one Tornos Bechler SAS-16DC Multi-spindle Automatic Bar Machine (incorporated by reference to Exhibit 10(o)(1) of the Registrant's Form S-1, Registration No. 33-42670, filed September 17, 1991 (master lease) and the Registrant's Form 10-K, filed September 25, 1992 (schedules)). Equipment Lease Schedule Nos. 6, 7, 8 & 9, dated December 11, 1992, March 31, 1993, April 30, 1993, and June 1, 1993, respectively, covering five Tornos Bechler SAS-16DC Multi-spindle Automatic Bar Machines and one Mikron PAS-16 Multi-spindle Horizontal Machining Center (incorporated by reference to Exhibit 10(o)(1) of the Registrant's Form 10-K, filed September 27, 1993). Equipment Lease Schedule Nos. 10 and 11, dated September 10, 1993 and October 22, 1993, respectively, covering five Tornos Bechler SAS-16DC Multi-spindle Automatic Bar Machines (incorporated by reference to Exhibit 10(o)(1) of the Registrant's Form 10-K, filed September 23, 1994). Equipment Lease Schedule Nos. 12 and 13, both dated November 22, 1994, covering four Tornos Bechler SAS-16DCH Multi-spindle Automatic Screw Machines and two Mikron PAS-16 rotary transfer machines (incorporated by reference to Exhibit 10(o)(1) of the Registrant's Form 10-K, filed September 25, 1995). Equipment Lease Schedule No. 14, dated September 1, 1995, covering two Tornos Bechler SAS-16DCH Multi-spindle Automatic Screw Machines (incorporated by reference to Exhibit 10(o)(1) of the Registrant's Form 10-K, filed September 25, 1995). Equipment Lease Schedule Nos. 15 & 16, dated January 1, 1996, covering one Index G200 Horizontal Turning Center and one Index MS-25E Multi-spindle Automatic Screw Machine (incorporated by reference to Exhibit 10(o)(1) of the Registrant's Form 10-K, filed September 19, 1996). Equipment Lease Schedule No. 17, dated June 1, 1997, covering four Mikron CX-24 Rotary Transfer Machines (incorporated by reference to Exhibit 10(o)(1) of the Registrant's Form 10-K, filed September 23, 1997). Equipment Lease Schedule No. 18, dated November 1, 1997, covering one Tornos Bechler BS20B Multi-spindle Automotive Screw Machine (incorporated by reference to Exhibit 10(p)(1) of the Registrant's Form 10-K, filed September 23, 1998). Equipment Lease Schedule No. 19, dated November 1, 1998, covering two Mikron CX-24 Rotary Transfer Machines (filed herewith, E-1 - E-7). 2. Aircraft Lease Agreement, dated November 12, 1998, between Registrant and General Electric Capital Corporation covering a Cessna Citation V aircraft (filed herewith, E-8 - E-32). 24 25 3. Master Equipment Lease Agreement, dated July 10, 1995, between Registrant and KeyCorp Leasing, Ltd., with Schedule No. 1 covering four Tornos Bechler SAS-16DCH Multi-spindle Automatic Screw Machines (incorporated by reference to Exhibit 10(o)(12) of the Registrant's Form 10-K, filed September 25, 1995). Equipment Lease Schedule No. 2, dated September 18, 1997, covering one Hydromat Rotary Transfer Machine (incorporated by reference to Exhibit 10(p)(4) of the Registrant's Form 10-K, filed September 23, 1998). Equipment Lease Schedule No. 3 & 4, both dated December 16, 1997, covering one Tornos Bechler BS20.8 and six Tornos Bechler SAS-16DCH Multi-spindle Automatic Screw Machines (incorporated by reference to Exhibit 10(p)(4) of the Registrant's Form 10-K, filed September 23, 1998). Equipment Lease Schedule No. 5, dated May 21, 1999, covering two Sugino Jet Flex Centers (filed herewith, E-33 - E-42). Equipment Lease Schedule No. 6, dated June 28, 1999, covering four Tornos Bechler Multi-Spindle Automatic BS-20.8 Screw Machines (filed herewith, E-43 - E-52). Equipment Lease Schedule No. 7, dated August 23, 1999, covering one Mikron CX-24 Rotary Transfer Machine (filed herewith, E-53 - E-62). 10(q) Lifetime contract, dated April 26, 1993, between Registrant and General Motors Corporation (incorporated by reference to Exhibit 10(p) of the Registrant's Form 10-K, filed September 27, 1993, as amended by the Registrant's Form 10-K/A, Amendment No. 1, filed November 29, 1993). 10(r) Lifetime contract, dated May 1, 1994, between Registrant and General Motors Corporation (incorporated by reference to Exhibit 10(p) of the Registrant's Form S-3, filed September 23, 1994). 10(s) Autocam Corporation 1998 Key Employee Stock Option Plan (incorporated by reference to the Registrant's 1998 Definitive Proxy Statement, filed September 23, 1998). 10(t) Stock Purchase Agreement, dated October 1, 1998, between Autocam Corporation, Autocam France SARL and Compagnie Financiere du Leman, a French Societe Anonyme (incorporated by reference to Exhibit 2.1 of the Registrant's Form 8-K, filed October 14, 1998). 10(u) Indemnification Agreement, dated August 13, 1999, between Autocam Corporation and each member of its Board of Directors, individually (filed herewith, pages E-63 - E-70). 13 Consolidated Financial Statements for the Years Ended June 30, 1999, 1998 and 1997 (filed herewith, pages E-71 - E-97). 21 Subsidiaries of Registrant (filed herewith, page E-98). 23 Consent of Deloitte & Touche LLP (filed herewith, page E-99). 27 Financial Data Schedule (filed herewith, page E-100). (b) Reports on Form 8-K during quarter ended June 30, 1999 - None. 25 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AUTOCAM CORPORATION By: /s/ John C. Kennedy -------------------- John C. Kennedy, Principal Executive Officer By: /s/ Warren A. Veltman ---------------------- Warren A. Veltman, Principal Financial and Accounting Officer Dated: September 27, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature and Title Date ------------------- ---- By: /s/ John C. Kennedy September 27, 1999 - ------------------------- John C. Kennedy, Chairman of the Board By: /s/ Mark J. Bissell September 27, 1999 - ------------------------- Mark J. Bissell, Director By: /s/ Robert L. Hooker September 27, 1999 - -------------------------- Robert L. Hooker, Director By: /s/ Kim Korth September 27, 1999 - ------------------- Kim Korth, Director By: /s/ Kenneth K. Rieth September 27, 1999 - -------------------------- Kenneth K. Rieth, Director By: /s/ Warren A. Veltman September 27, 1999 - --------------------------- Warren A. Veltman, Director By: /s/ David J. Wagner September 27, 1999 - ------------------------- David J. Wagner, Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT. Not Applicable. 26 27 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 -------------------- EXHIBITS TO 1999 FORM 10-K UNDER THE SECURITIES AND EXCHANGE ACT OF 1934 ------------------- AUTOCAM CORPORATION ================================================================================ 27 28 Exhibit Index Exhibit No. Description 10(p) Equipment Leases: 1. Master Lease Agreement, dated August 21, 1989, between Registrant and General Electric Capital Corporation, with Schedule Nos. 4 & 5, dated May 11, 1992 and June 30, 1992, respectively, covering three Tornos Bechler MS-7 Automatic Lathes, one Mikron PAS-16 Multi-spindle Horizontal Machining Center, and one Tornos Bechler SAS-16DC Multi-spindle Automatic Bar Machine (incorporated by reference to Exhibit 10(o)(1) of the Registrant's Form S-1, Registration No. 33-42670, filed September 17, 1991 (master lease) and the Registrant's Form 10-K, filed September 25, 1992 (schedules)). Equipment Lease Schedule Nos. 6, 7, 8 & 9, dated December 11, 1992, March 31, 1993, April 30, 1993, and June 1, 1993, respectively, covering five Tornos Bechler SAS-16DC Multi-spindle Automatic Bar Machines and one Mikron PAS-16 Multi-spindle Horizontal Machining Center (incorporated by reference to Exhibit 10(o)(1) of the Registrant's Form 10-K, filed September 27, 1993). Equipment Lease Schedule Nos. 10 and 11, dated September 10, 1993 and October 22, 1993, respectively, covering five Tornos Bechler SAS-16DC Multi-spindle Automatic Bar Machines (incorporated by reference to Exhibit 10(o)(1) of the Registrant's Form 10-K, filed September 23, 1994). Equipment Lease Schedule Nos. 12 and 13, both dated November 22, 1994, covering four Tornos Bechler SAS-16DCH Multi-spindle Automatic Screw Machines and two Mikron PAS-16 rotary transfer machines (incorporated by reference to Exhibit 10(o)(1) of the Registrant's Form 10-K, filed September 25, 1995). Equipment Lease Schedule No. 14, dated September 1, 1995, covering two Tornos Bechler SAS-16DCH Multi-spindle Automatic Screw Machines (incorporated by reference to Exhibit 10(o)(1) of the Registrant's Form 10-K, filed September 25, 1995). Equipment Lease Schedule Nos. 15 & 16, dated January 1, 1996, covering one Index G200 Horizontal Turning Center and one Index MS-25E Multi-spindle Automatic Screw Machine (incorporated by reference to Exhibit 10(o)(1) of the Registrant's Form 10-K, filed September 19, 1996). Equipment Lease Schedule No. 17, dated June 1, 1997, covering four Mikron CX-24 Rotary Transfer Machines (incorporated by reference to Exhibit 10(o)(1) of the Registrant's Form 10-K, filed September 23, 1997). Equipment Lease Schedule No. 18, dated November 1, 1997, covering one Tornos Bechler BS20B Multi-spindle Automotive Screw Machine (incorporated by reference to Exhibit 10(p)(1) of the Registrant's Form 10-K, filed September 23, 1998). Equipment Lease Schedule No. 19, dated November 1, 1998, covering two Mikron CX-24 Rotary Transfer Machines (filed herewith, E-1 - E-7). 2. Aircraft Lease Agreement, dated November 12, 1998, between Registrant and General Electric Capital Corporation covering a Cessna Citation V aircraft (filed herewith, E-8 - E-32). 29 3. Master Equipment Lease Agreement, dated July 10, 1995, between Registrant and KeyCorp Leasing, Ltd., with Schedule No. 1 covering four Tornos Bechler SAS-16DCH Multi-spindle Automatic Screw Machines (incorporated by reference to Exhibit 10(o)(12) of the Registrant's Form 10-K, filed September 25, 1995). Equipment Lease Schedule No. 2, dated September 18, 1997, covering one Hydromat Rotary Transfer Machine (incorporated by reference to Exhibit 10(p)(4) of the Registrant's Form 10-K, filed September 23, 1998). Equipment Lease Schedule No. 3 & 4, both dated December 16, 1997, covering one Tornos Bechler BS20.8 and six Tornos Bechler SAS-16DCH Multi-spindle Automatic Screw Machines (incorporated by reference to Exhibit 10(p)(4) of the Registrant's Form 10-K, filed September 23, 1998). Equipment Lease Schedule No. 5, dated May 21, 1999, covering two Sugino Jet Flex Centers (filed herewith, E-33 - E-42). Equipment Lease Schedule No. 6, dated June 28, 1999, covering four Tornos Bechler Multi-Spindle Automatic BS-20.8 Screw Machines (filed herewith, E-43 - E-52). Equipment Lease Schedule No. 7, dated August 23, 1999, covering one Mikron CX-24 Rotary Transfer Machine (filed herewith, E-53 - E-62). 10(q) Lifetime contract, dated April 26, 1993, between Registrant and General Motors Corporation (incorporated by reference to Exhibit 10(p) of the Registrant's Form 10-K, filed September 27, 1993, as amended by the Registrant's Form 10-K/A, Amendment No. 1, filed November 29, 1993). 10(r) Lifetime contract, dated May 1, 1994, between Registrant and General Motors Corporation (incorporated by reference to Exhibit 10(p) of the Registrant's Form S-3, filed September 23, 1994). 10(s) Autocam Corporation 1998 Key Employee Stock Option Plan (incorporated by reference to the Registrant's 1998 Definitive Proxy Statement, filed September 23, 1998). 10(t) Stock Purchase Agreement, dated October 1, 1998, between Autocam Corporation, Autocam France SARL and Compagnie Financiere du Leman, a French Societe Anonyme (incorporated by reference to Exhibit 2.1 of the Registrant's Form 8-K, filed October 14, 1998). 10(u) Indemnification Agreement, dated August 13, 1999, between Autocam Corporation and each member of its Board of Directors, individually (filed herewith, pages E-63 - E-70). 13 Consolidated Financial Statements for the Years Ended June 30, 1999, 1998 and 1997 (filed herewith, pages E-71 - E-97). 21 Subsidiaries of Registrant (filed herewith, page E-98). 23 Consent of Deloitte & Touche LLP (filed herewith, page E-99). 27 Financial Data Schedule (filed herewith, page E-100). (b) Reports on Form 8-K during quarter ended June 30, 1999 - None. EX-10.P.1 2 EQUIPMENT LEASES 1 EXHIBIT 10(p)(1) MACHINE TOOLS EQUIPMENT SCHEDULE SCHEDULE NO. 019 DATED THIS NOVEMBER 1, 1998 TO MASTER LEASE AGREEMENT DATED AS OF AUGUST 21, 1994 LESSOR & MAILING ADDRESS: LESSEE & MAILING ADDRESS: GENERAL ELECTRIC CAPITAL CORPORATION AUTOCAM CORPORATION 1787 SENTRY PARKWAY/WEST 16 SENTRY PARK/ 4070 E. PARIS AVENUE WEST, SUITE 200 KENTWOOD, MI 49512 BLUE BELL, PA 19422 This Schedule is executed pursuant to, and incorporates by reference the terms and conditions of, and capitalized terms not defined herein shall have the meanings assigned to them in, the Master Lease Agreement identified above ("AGREEMENT" said Agreement and this Schedule being collectively referred to as "LEASE"). This Schedule, incorporating by reference the Agreement, constitutes a separate instrument of lease. A. EQUIPMENT: Subject to the terms and conditions of the Lease, Lessor agrees to Lease to Lessee the Equipment described below (the "EQUIPMENT").
NUMBER CAPITALIZED OF UNITS LESSOR'S COST MANUFACTURER SERIAL NUMBER MODEL AND TYPE OF EQUIPMENT -------- ------------- ------------ ------------- --------------------------- 1 $506,358.24 Mikron KA6038M CX-24 Rotary Transfer Machine 1 $682,143.29 Mikron KA6037M CX-24 Rotary Transfer Machine Equipment immediately listed above is located at: 4070 E. Paris Avenue, Kentwood, Kent County, MI 49512
B. FINANCIAL TERMS 1. Advance Rent (if any): $13,426,86 2. Capitalized Lessor's Cost: $1,188,501.53 3. Basic Term (No. of Months): 96 Months. 4. Basic Term Lease Rate Factor: 48 @ .01129730; 48 @ .0123000 5. Basic Term Commencement Date: NOVEMBER 1, 1998 6. Lessee Federal Tax ID No.: 38-2790152 7. Last Delivery Date: NOVEMBER 1, 1998 8. Daily Lease Rate Factor: 48 @ .000377; 48 @ .000410 9. First Termination Date: THRITY-SIX (36) months after the Basic Term Commencement Date. 10. Interim Rent: For the period from and including the Lease Commencement Date to but not including the Basic Term Commencement Date ('Interim Period'), Lessee shall pay as rent ('Interim Rent") for each unit of Equipment, the product of the Daily Lease Rate Factor times the Capitalized Lessor's Cost of such unit times the number of days in the Interim Period. Interim Rent shall be due on NOT APPLICABLE. 11. Basic Term Rent. Commencing on NOVEMBER 1, 1998 and on the same day of each month thereafter (each, a "Rent Payment Date") during the Basic Term, Lessee shall pay as rent ("Basic Term Rent") the product of the Basic Term Lease Rate Factor times the Capitalized Lessor's Cost of all Equipment on this Schedule. 12. Adjustment to Capitalized Lessor's Cost. Lessee hereby irrevocably authorizes Lessor to adjust the Capitalized Lessor's Cost up or down by no more than ten percent (10%) to account for equipment change orders, equipment returns, invoicing errors and similar matters. Lessee acknowledges and agrees that the Rent shall be adjusted as a result of such change in the Capitalized Lessor's Cost. E-29 2 Lessor shall send Lessee a written notice stating the final Capitalized Lessor's Cost, if different from that disclosed on this Schedule. C. TAX BENEFITS Depreciation Deductions: 1. Depreciation method is the 200% declining balance method, switching to straight line method for the 1st taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of such year will yield a larger allowance. 2. Recovery Period: SEVEN (7) YEARS. 3. Basis: 100% of the Capitalized Lessor's Cost. D. PROPERTY TAX APPLICABLE TO EQUIPMENT LOCATED IN KENTWOOD, MI: Lessee agrees that it will not list any of such Equipment for property tax purposes or report any property tax assessed against such Equipment until otherwise directed in writing by Lessor. Upon receipt of any property tax bill pertaining to such Equipment from the appropriate taxing authority, Lessor will pay such tax and will invoice Lessee for the expense. Upon receipt of such invoice, Lessee will promptly reimburse Lessor for such expense. Lessor may notify Lessee (and Lessee agrees to follow such notification) regarding any changes in property tax reporting and payment responsibilities. E. INSURANCE 1. Public Liability: At least $1,000,000 total liability per occurrence. 2. Casualty and Property Damage: An amount equal to the higher of the Stipulated Loss Value or the full replacement cost of the Equipment. F. ARTICLE 2A NOTICE IN ACCORDANCE WITH THE REQUIREMENTS OF ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE AS ADOPTED IN THE APPLICABLE STATE, LESSOR HEREBY MAKES THE FOLLOWING DISCLOSURES TO LESSEE PRIOR TO EXECUTION OF THE LEASE, (A) THE PERSON(S) SUPPLYING THE EQUIPMENT IS MIKRON CORP. (THE "SUPPLIER(S)"), (E) LESSEE IS ENTITLED TO THE PROMISES AND WARRANTIES, INCLUDING THOSE OF ANY THIRD PARTY, PROVIDED TO THE LESSOR BY SUPPLIER(S), WHICH IS SUPPLYING THE EQUIPMENT IN CONNECTION WITH OR AS PART OF THE CONTRACT BY WHICH LESSOR ACQUIRED THE EQUIPMENT AND (C) WITH RESPECT TO SUCH EQUIPMENT, LESSEE MAY COMMUNICATE WITH SUPPLIER(S) AND RECEIVE AN ACCURATE AND COMPLETE STATEMENT OF SUCH PROMISES AND WARRANTIES, INCLUDING ANY DISCLAIMERS AND LIMITATIONS OF THEM OR OF REMEDIES. TO THE EXTENT PERMITTED BY APPLICABLE LAW, LESSEE HEREBY WAIVES ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON A LESSEE IN ARTICLE 2A AND ANY RIGHTS NOW OR HEREAFTER CONFERRED BY STATUTE OR OTHERWISE WHICH MAY LIMIT OR MODIFY ANY OF LESSOR'S RIGHTS OR REMEDIES UNDER THE DEFAULT SECTION OF THE AGREEMENT. E-30 3 G. STIPULATED LOSS AND TERMINATION VALUE TABLE*
STIPULATION LOSS TERMINATION STIPULATION LOSS TERMINATION VALUE VALUE VALUE RENTAL VALUE PERCENTAGE PERCENTAGE RENTAL PERCENTAGE PERCENTAGE ------ ---------------- ---------- ------ ---------- ---------- 1 100.599 103.624 49 67.691 71.966 2 100.050 103.101 50 66.774 71.075 3 99.482 102.559 51 65.851 70.178 4 98.909 102.012 52 64.922 69.275 5 98.330 101.460 53 63.986 68.365 6 97.744 100.899 54 63.045 67.451 7 97.161 100.343 55 62.100 66.531 8 96.587 99.795 56 61.149 65.607 9 96.005 99.238 57 60.194 64.677 10 95.417 98.677 58 59.232 63.742 11 94.822 98.107 59 58.265 62.801 12 94.217 97.529 60 57.293 61.855 13 93.608 96.946 61 56.314 60.902 14 92.991 96.354 62 55.331 59.945 15 92.365 95.755 63 54.342 58.982 16 91.734 95.150 64 53.347 58.013 17 91.097 94.539 65 52.345 57.036 18 90.455 93.922 66 51.337 56.055 19 89.805 93.299 67 50.325 55.069 20 89.150 92.670 68 49.307 54.077 21 88.488 92.034 69 48.284 53.081 22 87.820 91.392 70 47.255 52.077 23 87.147 90.745 71 46.220 51.068 24 86.466 90.090 72 45.180 50.054 25 85.780 89.431 73 44.133 49.033 26 85.088 88.764 74 43.081 48.007 27 84.390 88.092 75 42.023 46.975 28 83.685 87.414 76 40.959 45.937 29 82.976 86.730 77 39.887 44.891 30 82.261 86.041 78 38.811 43.842 31 81.541 85.347 79 37.731 42.788 32 80.816 84.648 80 36.647 41.730 33 80.085 83.944 81 35.559 40.668 34 79.349 83.234 82 34.464 39.598 35 78.608 82.519 83 33.364 38.525 36 77.862 81.798 84 32.260 37.447 37 77.109 81.072 85 31.149 36.362 38 76.352 80.341 86 30.034 35.273 39 75.589 79.604 87 28.914 34.179 40 74.821 78.862 88 27.787 33.078 41 74.047 78.114 89 26.653 31.970 42 73.269 77.362 90 25.520 30.863 43 72.486 76.605 91 24.388 29.757
E-31 4 44 71.699 75.844 92 23.257 28.652 45 70.908 75.079 93 22.126 27.547 46 70.111 74.308 94 20.989 26.436 47 69.309 73.532 95 19.852 25.325 48 68.503 72.753 96 18.716 24.215
*The Stipulated Loss Value or Termination Value for any unit of Equipment shall be the Capitalized Lessor's Cost of such unit multiplied by the appropriate percentage derived from the above table. In the event that the Lease is for any reason extended, then the last percentage figure shown above shall control throughout any such extended term. H. MODIFICATIONS AND ADDITIONS FOR THIS SCHEDULE ONLY For purposes of this Schedule only, the Agreement is amended as follows: 1. The LEASING Section subsection (a) of the Lease is hereby deleted in its entirety and the following substituted in its stead: a) Subject to the terms and conditions set forth below, Lessor agrees to lease to Lessee, and Lessee agrees to lease from Lessor, the equipment ("Equipment") described in Annex A to any schedule hereto ('Schedule') or, if applicable, to Section A of any Schedule. Terms defined in a Schedule and not otherwise defined herein shall have the meanings ascribed to them in such Schedule. 2. EQUIPMENT SPECIFIC PROVISIONS RETURN PROVISIONS: In addition to the provisions provided for in the RETURN OF EQUIPMENT Section of the Lease, and provided that Lessee has elected not to exercise its option to purchase the Equipment, Lessee shall, at its expense: (a) Provide to Lessor at least two hundred forty (240) days prior to the expiration of the Lease a detailed inventory of all components of the Equipment with consideration to the conditions set forth in the SERVICE Section of the Lease. The inventory should include but not be limited to a detailed listing of all items of the Equipment by both the model and serial number for all components comprising this Agreement. (b) Ensure that the Equipment is returned to Lessor as follows: (i) all operating and application specific software used to control the machine will be updated to the most current release available from the manufacturer; (ii) all batteries for control memories must be fully charged; (iii) any tooling and/or grinding wheels returned to Lessor at lease termination should be identical to those on the original invoice. (c) At least ninety (90) days prior to the expiration of the Lease: (i) and upon receiving reasonable notice by Lessor, make the Equipment available for operational inspections (where applicable) by potential purchasers; (ii) cause the Manufacturer(s), or other persons expressly authorized by the Manufacturer and/or Lessor (the "Authorized Inspector'), to inspect, examine and test all material and workmanship to ensure the Equipment is operating within the manufacturer's specifications; (iii) provide to Lessor a written report from the Authorized Inspector detailing said inspection and condition of the Equipment; (iv) if during such inspection, examination and test, the Authorized Inspector finds any of the material or workmanship to be defective or the equipment not operating within the manufacturer's specifications, then Lessee shall repair or replace such defective material and, after corrective measures are completed Lessee will provide for another inspection of the equipment by the Authorized Inspector as outlined above. E-32 5 (d) At least forty-five (45) days prior to the expiration of the Lease and upon request by Lessor provide, or cause the Manufacturer(s) to provide to Lessor, the following documents: (i) one set of service and operating manuals including replacements and/or additions hereto, such that all documentation is completely up to date; (ii) one set of documents detailing equipment configuration, operating requirements, maintenance records, and other technical data concerning the set-up and operation of the Equipment including replacements and additions thereto, such that all documentation is completely up to date. (e) Provide for the deinstallation, packing and transporting of the Equipment to include, but not limited to the following: (i) the manufacturer's representative shall de-install all Equipment (including all wire, cable and mounting hardware); (ii) all process fluids shall be removed from the Equipment and disposed of in accordance with then current waste disposal laws and regulations including regulations specified by the Environmental Protection Agency (EPA) and related government agencies; (iii) dismantling and handling is to be done per the original manufacturer's specifications or normal industry accepted practices for new machines must be followed. Any special transportation devices such as metal skids, lifting slings, brackets, etc., which were with the machine when it originally arrived must be used; (iv) all keys belonging to the Equipment are to be wired together and secured to a major component of the machine; (v) provide for transportation of the Equipment in a manner consistent with the manufacturer's recommendations and practices to any locations within the continental United States as Lessor shall direct, and shall have the Equipment unloaded at such locations; (vi) obtain and pay for a policy of transit insurance for the delivery period in an amount equal to the replacement value of the Equipment with the Lessor named as loss payee on all such policies of insurance; (vii) provide safe, secure storage for the Equipment for a period of up to one hundred twenty (120) days after expiration or early termination of the Lease at an accessible location satisfactory to Lessor, (viii) cause all of the Equipment to be free ofany hazardous or toxic materials, or any materials which may be regulated under any and all applicable environmental laws, rules or regulations ('Hazardous Substances"). Without limiting the generality of the foregoing, Lessee represents, warrants and covenants that none of the Equipment will be contaminated with Hazardous Substances in the form of polychlorinated biphenyls ("PCBs") in surface concentrations greater than 10 microns/100 square centimeters, and none of the Equipment shall contain fluids having concentrations of Hazardous Substances in the form of PCBs in excess of 1 part per million. Lessee agrees to furnish to General Electric Capital Corporation documentary evidence confirming such condition prepared by a qualified testing laboratory satisfactory to General Electric Capital Corporation. (f) Provide that all Equipment will be cleaned and cosmetically acceptable (free from all Lessee installed markings), and in such condition so that it may be immediately installed and placed into use in a similar operating environment. (g) Ensure all Equipment and equipment operations confonn to all applicable local, state, EPA, and federal laws, health and safety guidelines. (h) Lessor has the right to attempt resale of the Equipment from Lessee's facility with the Lessee's full cooperation and assistance, for a period of one hundred twenty (120) days from the expiration of the Lease. During this period, the equipment must remain operational with the necessary electrical power, lighting, heat, water, lubricating fluids, air pollution controls and compressed air necessary to maintain and demonstrate the Equipment to any potential buyer. 3. LEASE TERM OPTIONS EARLY LEASE TERM OPTIONS The Lease is amended by adding the following thereto: EARLY PURCHASE OPTION: E-33 6 (a) Provided that the Lease has not been earlier terminated and provided further that Lessee is not in default under the Lease or any other agreement between Lessor and Lessee, Lessee may, UPON AT LEAST 30 DAYS BUT NO MORE THAN 270 DAYS PRIOR WRITTEN NOTICE TO LESSOR OF LESSEE'S IRREVOCABLE ELECTION TO EXERCISE SUCH OPTION, purchase on an AS IS BASIS all (but not less than all) of the Equipment listed and described in this Schedule on the rent payment date (the "Early Purchase Date') which is 84 months from the Basic Term Commencement Date for a price equal to THIRTY-ONE AND 149/1000 percent (31.149%) of the Capitalized Lessor's Cost (the 'FMV Early Option Price'), plus all applicable sales taxes. Lessor and Lessee agree that the FMV Early Option Price is a reasonable prediction of the Fair Market Value (as such term is defined in the PURCHASE OPTION Section subsection (b) of the Lease hereof) of the Equipment at the time the option is exercisable. Lessor and Lessee agree that if Lessee makes any non-severable improvement to the Equipment which increases the value of the Equipment and is not required or permitted by the SERVICE Section or the RETURN OF EQUIPMENT Section of the Lease prior to lease expiration, then at the time of such option being exercised, Lessor and Lessee shall adjust the purchase price to reflect any addition to the price anticipated to result from such improvement. (The purchase option granted by this subsection shall be referred to herein as the "Early Purchase Option".) (b) If Lessee exercises its Early Purchase Option with respect to the Equipment leased hereunder, then on the Early Purchase Option Date, Lessee shall pay to Lessor any Rent and other sums due and unpaid on the Early Purchase Option Date and Lessee shall pay the FMV Early Option Price, plus all applicable sales taxes, to Lessor in cash. I. PAYMENT AUTHORIZATION You are hereby irrevocably authorized and directed to deliver and apply the proceeds due under this Schedule as follows:
COMPANY NAME ADDRESS AMOUNT ------------ ------- ------ Autocam Corporation 4070 E. Paris Avenue $1,074,649.30 Kentwood, MI 49512 Mikron Corp. 600 Pepper Street $113,852.23 Monroe, CT 06468
This authorization and direction is given pursuant to the same authority authorizing the above-mentioned financing. PURSUANT TO THE PROVISIONS OF THE LEASE, AS IT RELATES TO THIS SCHEDULE, LESSEE HEREBY CERTIFIES AND WARRANTS THAT (i) AN EQUIPMENT LISTED ABOVE HAS BEEN DELIVERED AND INSTALLED (IF APPLICABLE) AS OF THE DATE STATED ABOVE; (ii) LESSEE HAS INSPECTED THE EQUIPMENT, AND ALL SUCH TESTING AS IT DEEMS NECESSARY HAS BEEN PERFORMED BY LESSEE, SUPPLIER OR THE MANUFACTURER; AND (iii) LESSEE ACCEPTS THE EQUIPMENT FOR ALL PURPOSES OF THE LEASE, THE PURCHASE DOCUMENTS AND ALL ATTENDANT DOCUMENTS. LESSEE DOES FURTHER CERTIFY, AND LESSOR HEREBY WAIVES ANY REQUIREMENT OF A SEPARATE CERTIFICATE OF ACCEPTANCE, THAT AS OF THE DATE HEREOF (i) LESSEE IS NOT IN DEFAULT UNDER THE LEASE; (ii) THE REPRESENTATIONS AND WARRANTIES MADE BY LESSEE PURSUANT TO OR UNDER THE LEASE ARE TRUE AND CORRECT ON THE DATE HEREOF AND (iii) LESSEE HAS REVIEWED AND APPROVES OF THE PURCHASE DOCUMENTS FOR THE EQUIPMENT, IF ANY. Except as expressly modified hereby, all terms and provisions of the Agreement shall remain in full force and effect. This Schedule is not binding or effective with respect to the Agreement or Equipment until executed on behalf of Lessor and Lessee by authorized representatives of Lessor and Lessee, respectively. E-34 7 IN WITNESS WHEREOF, Lessee and Lessor have caused this Schedule to be executed by their duly authorized representatives as of the date first above written. LESSOR: LESSEE: GENERAL ELECTRIC CAPITAL CORPORATION AUTOCAM CORPORATION By: /s/ Nabila S. Mahimud By: /s/ Warren A. Veltman Name: Nabila S. Mahimud Name: Warren A. Veltman Title: Risk Analyst Title: Chief Financial Officer E-35 EX-10.P.2 3 AIRCRAFT LEASE AGREEMENT 1 EXHIBIT 10(p)(2) AIRCRAFT LEASE AGREEMENT THIS AIRCRAFT LEASE AGREEMENT, dated as of November 12, 1998 (together with all supplements, annexes, exhibits and schedules hereto hereinafter referred to as the "Lease"), between GENERAL ELECTRIC CAPITAL CORPORATION, with an office at 1787 SENTRY PARKWAY/WEST 16 SENTRY PARK/WEST, SUITE 200, BLUE BELL, PA 19422 (hereinafter called, together with its successors and assigns, if any, "LESSOR") and AUTOCAM CORPORATION , a corporation organized and existing under the laws of the State of Michigan with its mailing address and chief place of business at 4070 E. PARIS AVENUE , KENTWOOD, MI 49512 (hereinafter called "LESSEE"). WITNESSETH: I. LEASING: (a) Subject to the terms and conditions set forth below, Lessor agrees to lease to Lessee, and Lessee agrees to lease from Lessor, the aircraft, including the airframe, engines and all appurtenant equipment (together hereinafter the "AIRCRAFT") described in Annex A. (b) The obligation of Lessor to purchase the Aircraft from the manufacturer or supplier thereof ("SUPPLIER") and to lease the same to Lessee hereunder shall be subject to the Commencement Date of the Lease, as that term is hereinafter defined in Section 11, occurring on or prior to the Last Delivery Date specified in Annex B, on the representations and warranties of Lessee contained herein being true and accurate as of the Commencement Date and further conditioned on receipt by Lessor, on or prior to the Commencement Date, of each of the following documents in form and substance satisfactory to Lessor: (i) a copy of this Lease executed by Lessee, (ii) unless Lessor shall have delivered its purchase order for such Aircraft or received a bill of sale for the Aircraft in the name of lessor (and in form and substance satisfactory to Lessor), the Purchase Document(s) Assignment and Consent in the form of annex C, with copies of the purchase order or other purchase documents attached thereto; (iii) copies of insurance policies or, at Lessor's option, such other evidence of insurance which complies with the requirements of Section X, (iv) evidence of an N number for the Aircraft together with an assignment of the rights thereto to Lessor; (v) evidence that the Aircraft has been duly certified as to type and airworthiness by the Federal Aviation Administration ("FAA"); (vi) evidence that Lessor's designated FAA escrow agent (which may be FAA counsel) has received in escrow the executed bill of sale and AC Form 8050-1 Aircraft Registration Form (except for the pink copy which shall be available to be placed on the Aircraft upon acceptance thereof), and an executed duplicate of this Lease all in proper form for filing with the FAA; (vii) resolution of lessee authorizing this Lease in the form of annex D; (viii) a completed inspection and/or survey with respect to the Aircraft in accordance with the requirements set forth in the Certificate of acceptance; and (ix) such other documents as Lessor may reasonably request. Lessor's obligation to lease the Aircraft hereunder is further conditioned upon (aa) the cost to Lessor of the acquisition of the Aircraft not exceeding the Capitalized Lessor's Cost stated on Annex A; (bb) upon delivery of the Aircraft, Lessee's execution and delivery to Lessor of a Certificate of Acceptance in the form of annex E; and (cc) filing of all necessary documents with, and the acceptance thereof by, the FAA. (c) Lessor hereby appoints Lessee its agent for inspection and acceptance of the Aircraft from the Supplier. Subject to the aforestated conditions, upon execution by Lessee of the Certificate of Acceptance, the Aircraft described thereon shall be deemed to have been delivered to, and irrevocably accepted by, Lessee for lease hereunder. E-36 2 II. TERM, RENT AND PAYMENT: (a) The rent ("RENT") payable hereunder and Lessee's right to use the Aircraft shall commence on the date of execution by Lessee of the Certificate of Acceptance ("COMMENCEMENT DATE"). The term ("TERM") of this Lease shall commence on the Commencement Date and shall continue, unless earlier terminated pursuant to the provisions hereof, until and including the Expiration Date stated in Annex B. If any Term is extended or renewed, the word "Term" shall be deemed to refer to all extended or renewal Terms, and all provisions of this Lease shall apply during any such extension or renewal Terms, except as may be otherwise specifically provided in writing. (b) Rent shall be paid to Lessor at its address stated above, except as otherwise directed by Lessor. Payments of Rent shall be in the amount, payable at such intervals and shall be due in accordance with the provisions of annex B. (Each payment of rent is hereinafter referred to as a "Rent Payment".) If one or more Advance Rent is payable, such Advance Rent shall be (i) set forth on Annex B and due in accordance with the provisions of annex B, and (ii) when received by Lessor, applied to the first Basic Term for Rent Payment as set forth on Annex B and the balance, if any, to the final Rent Payment(s), in inverse order of maturity. In no event shall any Advance Rent or any other Rent Payment be refunded to Lessee. If Rent is not paid within ten (10) days of its due date, Lessee agrees to pay a late charge of five cents (50) per dollar on, and in addition to, the amount of such Rent but not exceeding the lawful maximum, if any. III. RENT ADJUSTMENT: (a) The periodic rent payments in Annex B have been calculated on the assumption (which, as between Lessor and Lessee, is mutual) that the maximum effective corporate income tax rate (exclusive of any minimum tax rate) for calendar-year taxpayers ("Effective Rate") will be thirty-five percent (35%) each year during the Term of this Lease. (b) If, solely as a result of Congressional enactment of any law (including, without limitation, any modification of, or amendment or addition to, the Internal Revenue Code of 1986 as amended (the "Code"), the Effective Rate is higher than thirty-five percent (35%) for any year during the lease term, then Lessor shall have the right to increase such rent payments by requiring payment of a single additional sum equal to the product of (i) the Effective Rate (expressed as a decimal) for such year less .35 (or, in the event that any adjustment has been made hereunder for any previous year, the Effective Rate (expressed as a decimal) used in calculating the next previous adjustment) times (ii) the adjusted Termination Value divided by the difference between the new Effective Tax Rate (expressed as a decimal) and one (1). The adjusted Termination Value shall be the Termination Value (calculated as of the first rental due in the year for which such adjustment is being made) less the Tax Benefits that would be allowable under Section 168 of the Code (as of the first day of the year for which such adjustment is being made and all subsequent years of the lease term). Lessee shall pay to Lessor the full amount of the additional rent payment on the later of (i) receipt of notice or (ii) the first day of the year for which such adjustment is being made. (c) Lessee's obligations under this Section Ill shall survive any expiration or termination of this Lease. IV. TAXES AND FEES: Except as provided in Sections III and XV(c), Lessee shall have no liability for taxes imposed by the United States of America or any State or political subdivision thereof which are on or measured by the net income of Lessor. Lessee shall report (to the extent that it is legally permissible) and pay promptly all other taxes, fees and assessments due, imposed, assessed or levied against the Aircraft (or the purchase, ownership, delivery, leasing, possession, use or operation thereof), this Lease (or any rentals or receipts hereunder), Lessor or Lessee by any foreign, federal, state or local government or taxing authority during or related to the Term of this Lease, including, without limitation, all license and registration fees, and all sales, use, personal property, excise, gross receipts, franchise, stamp, value added, customer duties, lending fees, airport charges, navigation services charges, route navigation charges or other taxes, imposts, duties and charges, together with any penalties, fines or interest thereon (all hereinafter called "Taxes"). Lessee shall (a) reimburse Lessor upon receipt of written request for reimbursement for any Taxes charged to or assessed against Lessor, (b) on request of Lessor, submit to Lessor written evidence of Lessee's payment of Taxes, (c) on all reports or returns show the ownership of the Aircraft by Lessor, and (d) send a copy thereof to Lessor. V. REPORTS: Lessee will provide Lessor with the following in writing within the time periods specified: (a) notice of tax or other lien which attaches to the Aircraft within ten (10) days of Lessee's obtaining knowledge of such attachment and such E-37 3 additional information with respect to the tax or lien forthwith upon request of Lessor; (b) Lessee's balance sheet and profit and loss statement within ninety (90) days of the close of each fiscal year of lessee, and any further financial information or reports, upon request; (c) notice to Lessor of the Aircraft's location, and the location of all information, logs, documents and records regarding or in respect to the Aircraft and its use, maintenance and/or condition, immediately upon request; (d) notice to Lessor of the relocation of the Aircraft's primary hangar location, ten (10) days prior to any relocation; (e) notice of loss or damage to the Aircraft (which would cost more than the lesser of (i) ten percent (10%) of the original Capitalized Lessor's Cost or (ii) $250,000 to repair or replace) within ten (10) days of such loss or damage; (f) notice of any accident involving the Aircraft causing personal injury or property damage within ten (10) days of such accident; (g) copies of the insurance policies or other evidence of insurance required by the terms hereof, promptly upon request by Lessor; (h) copies of all information, logs, documents and records regarding or in respect to the Aircraft and its use, maintenance and/or condition, within ten (10) days of such request; (i) beginning on the first anniversary of the Commencement Date of this Lease and on each anniversary date thereafter, a certificate of the authorized officer of Lessee stating that he has reviewed the activities of Lessee and that, to the best of his knowledge, there exists no default (as described in Section XII) or event which with notice or lapse of time (or both) would become such a default; 0) such information as may be required to enable Lessor to file any reports required by any governmental authority as a result of Lessor's ownership of the Aircraft promptly upon request of Lessor; (k) copies of any manufacturer's maintenance service program contract for the airframe or engines, promptly upon request; (1) evidence of Lessee's compliance with FAA airworthiness directives and advisory circulars and of compliance with other maintenance provisions of Section VII hereof and the return provisions of Section XI, upon request of Lessor; and (in) such other reports as Lessor may reasonably request. VI. DELIVERY, REGISTRATION, USE AND OPERATION: (a) The Aircraft shall be delivered directly from the Supplier to Lessee unless the Aircraft is being leased pursuant to a sale leaseback transaction in which case Lessee acknowledges that it is in possession of the Aircraft as of the Lease Commencement Date. (b) Lessee, at its own cost and expense, shall cause the Aircraft to be duly registered in the name of Lessor under the Title 49, Subtitle VII of the United States Code, as amended (the "FAA ACT"), and shall not register the Aircraft under the laws of any other country. (c) The possession, use and operation of the Aircraft shall be at the sole risk and expense of Lessee. Lessee acknowledges that it accepts full operational control of the Aircraft. Lessee agrees that the Aircraft will be used and operated in compliance with any and all statutes, laws, ordinances, regulations and standards or directives issued by any governmental agency applicable to the use or operation thereof, in compliance with any airworthiness certificate, license or registration relating to the Aircraft issued by any agency and in a manner that does not modify or impair any existing warranties on the Aircraft or any part thereof. Lessee will not use or operate and will not permit the Aircraft to be used or operated in violation of any United States export control law. Lessee will operate the Aircraft predominantly in the conduct of its business and will not operate or permit the Aircraft to be operated (i) in a manner wherein the predominance of use during any consecutive twelve month period would be for a purpose other than transportation for Lessee, or in a manner, for any time period, such that Lessor or a third party shall be deemed to have "operational control" of the Aircraft, or (ii) for the carriage of persons or property for hire or the transport of mail or contraband. The Aircraft will, at all times be operated by duly qualified pilots holding at least a valid airline transport pilot certificate and instrument rating and any other certificate, rating, type rating or endorsement appropriate to the Aircraft purpose of flight, condition of flight or as other-wise required by the Federal Aviation Regulations ("FAR"). Pilots shall be employed and/or paid and contracted for by Lessee, shall meet all recency of flight requirements and shall meet the requirements established and specified by the insurance policies required hereunder and the FAA. The primary hangar location of the Aircraft shall be as stated in Annex B. Lessee shall not relocate the primary hangar location to a hangar location outside the United States. (d) AT ALL TIMES DURING THE TERM OF THE LEASE, THE AIRCRAFT WILL BE LOCATED AND USED SOLELY WITHIN THE CONTINENT OF NORTH AMERICA AND THE CARIBBEAN. (i) AT ALL TIMES DURING THE TERM OF THE LEASE, LESSEE AGREES NOT TO OPERATE OR LOCATE THE AIRCRAFT, OR SUFFER OR PERMIT THE AIRCRAFT TO BE OPERATED, LOCATED, OR OTHERWISE PERMITTED TO GO INTO OR OVER ANY AREA OF HOSTILITIES, ANY GEOGRAPHIC AREA WHICH IS NOT E-38 4 COVERED BY THE INSURANCE POLICIES REQUIRED BY THIS LEASE, OR ANY COUNTRY OR JURISDICTION FOR WHICH EXPORTS OR TRANSACTIONS ARE SUBJECT TO SPECIFIC RESTRICTIONS UNDER ANY UNITED STATES EXPORT OR OTHER LAW OR UNITED NATIONS SECURITY COUNCIL DIRECTIVE, INCLUDING WITHOUT LIMITATION: THE TRADING WITH THE ENEMY ACT, 50 U.S.C. APP. SECTIONS I ET SEQ., THE INTERNATIONAL EMERGENCY ECONOMIC POWERS ACT, 50 U.S.C. APP. SECTIONS 1701 ET SEQ., AND THE EXPORT ADMINISTRATION ACT, 50 U.S.C. APP. SECTIONS 2401 ET SEQ. OR TO OTHER WISE VIOLATE, OR SUFFER OR PERMIT THE VIOLATION OF, SUCH LAWS OR DIRECTIVES, LESSEE ALSO AGREES TO PROHIBIT ANY NATIONAL OF SUCH RESTRICTED NATIONS FROM OPERATING THE AIRCRAFT. (ii) Lessee represents and warrants that it does not on this date hold a contract or other obligation to operate the Aircraft in any of the following countries: Cuba, Iraq, Libya, Myanmar, North Korea, and the Federal Republic of Yugoslavia (Serbia and Montenegro). (iii) The engines set forth on Annex A shall be used only on the airframe described in Annex A and shall only be removed for maintenance in accordance with the provisions hereof (a) Lessee agrees ---, the Aircraft will be maintained in compliance with any and all statutes, laws, ordinances, regulations and standards or directives issued by any governmental agency applicable to the maintenance thereof, in compliance with any airworthiness certificate, license or registration relating to the Aircraft issued by any agency and in a manner that does not modify or impair any existing warranties on the Aircraft or any part thereof (b) Lessee shall maintain, inspect service, repair, overhaul and test the Aircraft (including each engine of same) in accordance with (i) all maintenance manuals initially furnished with the Aircraft including any subsequent amendments or supplements to such manuals issued by the manufacturer from time to time, (ii) all mandatory or otherwise required "SERVICE BULLETINS" issued, supplied, or available by or through the manufacturer and/or the manufacturer of any engine or part with respect to the Aircraft, (iii) all airworthiness directives applicable to the Aircraft issued by the FAA or similar regulatory agency having jurisdictional authority, and causing compliance to such directives to be completed through corrective modification in lieu of operating manual restrictions, and (iv) all maintenance requirements set forth in Annex G hereto. Lessee shall maintain all records, logs and other materials required by the manufacturer thereof for enforcement of any warranties or by the FAA. All maintenance procedures required hereby shall be undertaken and completed in accordance with the manufacturer's recommended procedures, and by properly trained, licensed, and certificated maintenance sources and maintenance personnel, so as to keep the Aircraft and each engine in as good operating condition as when delivered to Lessee hereunder, ordinary wear and tear excepted, and so as to keep the Aircraft in such operating condition as may be necessary to enable the airworthiness certification of such Aircraft to be maintained in good standing at all times under the FAA. (c) Lessee agrees, at its own cost and expense, to (i) cause the Aircraft and each engine thereon to be kept numbered with the identification in serial number therefor as specified in Annex A; (ii) prominently display on the Aircraft that N number, and only that N number, specified in Annex A; (iii) notify Lessor in writing thirty (30) days prior to making any change in the configuration (other than changes in configuration mandated by the FAA), appearance and coloring of the Aircraft from that in effect at the time the Aircraft is accepted by Lessee hereunder, and in the event of such change or modification of configuration, coloring or appearance, to restore, upon request of Lessor, the Aircraft to the configuration, coloring or appearance in effect on the Commencement Date or, at Lessor's option to pay to Lessor an amount equal to the reasonable cost of such restoration. Lessee will not place the Aircraft in operation or exercise any control or dominion over the same until such Aircraft marking has been placed thereon. Lessee will replace promptly any such Aircraft marking which may be removed, defaced or destroyed. E-39 5 (d) Lessee shall be entitled from time to time during the Term of this Lease to acquire and install on the Aircraft at Lessee's expense, any additional accessory, device or equipment as Lessee may desire (each such accessory, device or equipment, an "ADDITION"), but only so long as such Addition (i) is ancillary to the Aircraft; (ii) is not required to render the Aircraft complete for its intended use by Lessee; (iii) does not alter or impair the originally intended function or use of the Aircraft; and (iv) can be readily removed without causing material damage. Title to each Addition which is not removed by Lessee prior to the return of the Aircraft to Lessor shall vest in Lessor upon such return. Lessee shall repair all damage to the Aircraft resulting from the installation or removal of any Addition so as to restore the Aircraft to its condition prior to installation, ordinary wear and tear excepted. (e) Any alteration or modification (each an "ALTERATION") with respect to the Aircraft that may at any time during the Term of this Lease be required to comply with any applicable law or any governmental rule or regulation shall be made at the expense of Lessee. Any repair made by Lessee of or upon the Aircraft or replacement parts, including any replacement engine, installed thereon in the course of repairing or maintaining the Aircraft, or any Alteration required by law or any governments] rule or regulation, shall be deemed an accession, and title thereto shall be immediately vested in Lessor without cost or expense to Lessor. (f) Except as permitted under this Section VII, Lessee will not modify the Aircraft or affix or remove any accessory to the Aircraft leased hereunder. (g) If the Aircraft is to be operated at any time under Part 135 with the prior written consent of Lessor, then the Aircraft shall be maintained and operated in accordance with the applicable Part 135 standards. VIII. LIENS, SUBLEASE AND ASSIGNMENT: (a) LESSEE SHALL NOT SELL, TRANSFER, ASSIGN OR ENCUMBER THE AIRCRAFT, ANY ENGINE OR ANY PART THEREOF, LESSOR'S TITLE OR ITS RIGHTS UNDER THIS LEASE AND SHALL NOT SUBLET, CHARTER OR PART WITH POSSESSION OF THE AIRCRAFT OR ANY ENGINE OR PART THEREOF OR ENTER INTO ANY INTERCHANGE AGREEMENT. Lessee shall not permit any engine to be used on any other Aircraft. Lessee shall keep the Aircraft each engine and any part thereof free and clear of all liens and encumbrances other than those which result from (i) the respective rights of Lessor and Lessee as herein provided; (ii) liens arising from the acts of Lessor; (iii) liens for taxes not yet due; and (iv) inchoate materialmen's, mechanics', workmen's, repairmen's, employees' or other like liens arising in the ordinary course of business of Lessee for sums not yet delinquent or being contested in good faith (and for the payment of which adequate assurances in Lessor's judgment have been provided Lessor). (b) Lessor and any assignee of Lessor may assign this Lease, or any part hereof and/or the Aircraft subject hereto. Lessee hereby waives and agrees not to assert against any such assignee, or assignee's assigns, any defense, set-off, recoupment claim or counterclaim which Lessee has or may at any time have against Lessor for any reason whatsoever. E-40 6 IX. LOSS, DAMAGE AND STIPULATED LOSS VALUE: Lessee hereby assumes and shall bear the entire risk of any loss, theft, confiscation, expropriation, requisition, damage to, or destruction of, the Aircraft, any engine or part thereof from any cause whatsoever. Lessee shall promptly and fully notify Lessor in writing if the Aircraft, or any engine thereto shall be or become worn out, lost stolen, confiscated, expropriated, requisitioned, destroyed, irreparably damaged or permanently rendered unfit for use from any cause whatsoever (such occurrences being hereinafter called "CASUALTY OCCURRENCES"). In the event that in the opinion of Lessor, a Casualty Occurrence has occurred which affects only the engine(s) of the Aircraft, then Lessee, at its own cost and expense, shall replace such engine(s) with an engine(s) acceptable to Lessor and shall cause title to such engine(s) to be transferred to Lessor for lease to Lessee hereunder. Upon transfer of title to Lessor of such engine(s), such engine(s) shall be subject to the terms and conditions of this Lease, and Lessee shall execute whatever documents or filings Lessor deems necessary and appropriate in connection with the substitution of such replacement engine(s) for the original engine(s). In the event that, in the opinion of Lessor, a Casualty Occurrence has occurred in respect to the Aircraft in its entirety, on the Rent Payment Date next succeeding a Casualty Occurrence (the "PAYMENT DATE"), Lessee shall pay Lessor the sum of (a) the Stipulated Loss Value as set forth in Annex F calculated as of the Rent Payment Date immediately preceding such Casualty Occurrence; and (b) all Rent and other amounts which are due hereunder as of the Payment Date. Upon payment of all sums due hereunder, the Term of this Lease as to the Aircraft shall terminate and Lessor shall be entitled to recover possession of the salvage thereof X. INSURANCE: Lessee shall secure and maintain in effect at its own expense throughout the Term hereof insurance against such hazards and for such risks as Lessor may direct. All such insurance shall be with companies satisfactory to Lessor. Without limiting the generality of the foregoing, Lessee shall maintain (a) breach of warranty insurance, (b) liability insurance covering public liability and property, cargo and environmental damage, in amounts not less than fifty (50) million U.S. dollars for any single occurrence, (c) all-risk aircraft hull and engine insurance (including, without limitation, foreign object damage insurance) in an amount which is not less than the then Stipulated Loss Value, and (d) confiscation, expropriation and war risk insurance. All insurance shall name the Lessor as owner of the Aircraft and as loss payee and additional insured (without responsibility for premiums) and shall provide that any cancellation or substantial change in coverage shall not be effective as to the Lessor for thirty (30) days after receipt by Lessor of written notice from such insurer(s) of such cancellation or change, shall insure Lessor's interest regardless of any breach or violation by Lessee of any warranties, declarations or conditions in such policies, shall include a severability of interest clause providing that such policy shall operate in the same manner as if there were a separate policy covering each insured, shall waive any right of set-off against Lessee or Lessor, and shall waive any rights of subrogation against Lessor. Such insurance shall be primary and not be subject to any offset by any other insurance carried by Lessor or Lessee. Lessee hereby appoints Lessor as Lessee's attomey-in-fact to make proof of loss and claim for and to receive payment of and to execute or endorse all documents, checks or drafts in connection with all policies of insurance in respect of the Aircraft. Any expense of adjusting or collecting insurance proceeds shall be home by Lessee. Upon the occurrence of a default hereunder, Lessor may, at its option, apply proceeds of insurance, in whole or in part to (i) repair the Aircraft or repair or replace any part thereof or (ii) satisfy any obligation of Lessee to Lessor hereunder. XI. RETURN OF AIRCRAFT: (a) On the date of expiration or termination of this Lease (the Return Date), Lessee, at its own expense, will return the Aircraft and shall deliver all logs, loose equipment manuals and data associated with the Aircraft, including without limitation, inspection, modification and overhaul records required to be maintained with respect thereto under this Lease or under the applicable rules and regulations of the FAA and under the manufacturers recommended maintenance program, along with a currently effective FAA airworthiness certificate to Lessor to any location within the continental United States as Lessor shall direct. Lessee shall, upon request, assign to Lessor its rights under any manufacturer's maintenance service contract or extended warranty for the Aircraft any engine or part thereof All expenses for return of the Aircraft and delivery of the aforementioned logs, manuals and data shall be borne by Lessee. The Aircraft shall be returned in the condition in which the Aircraft is required to be maintained pursuant to Section VII hereof, but with all logos or other identifying marks of Lessee removed. Additionally, Lessee shall ensure that the Aircraft complies with all requirements and conditions set forth on Annex G hereto. E-41 7 (b) Lessor shall arrange for the inspection of the Aircraft on the Return Date to determine if the Aircraft has been maintained and returned in accordance with the provisions hereof. Lessee shall be responsible for the cost of such inspection and shall pay Lessor such amount as additional Rent within ten (10) days of demand for same. In the event that the results of such inspection indicate that the Aircraft any engine thereto or part thereof, has not been maintained or returned in accordance with the provisions hereof, Lessee shall pay to Lessor within ten (10) days of demand, as liquidated damages, the estimated cost ( "Estimated Cost") of servicing or repairing the Aircraft, engine or part. The Estimated Cost shall be determined by Lessor by obtaining two quotes for such service or repair work and taking the average of same. Lessee shall bear the cost, if any, incurred by Lessor in obtaining such quotes. (c) If Lessee fails to return the Aircraft on termination or expiration of the Term, Lessor shall be entitled to damages equal to the higher of (i) the Rent for the Aircraft, pro-rated on a per them basis, for each day the Aircraft is retained in violation of the provisions hereof, or (ii) the daily fair market rental for the Aircraft at termination or expiration, as applicable. Such damages for retention of the Aircraft after termination or expiration of the Term shall not be interpreted as an extension or reinstatement of the Term. (d) All of Lessor's rights contained in this Section shall survive the expiration or other termination of this Lease. XII. EVENTS OF DEFAULT: The term "EVENT OF DEFAULT", wherever used herein, shall mean any of the following events under this Lease, whatever the reason for such Event of Default and whether it shall be voluntary or involuntary, or come about or be effected by operation of law, or be pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation or any administrative or governmental body: (a) Lessee shall fail to make any payment of Rent or any other sums payable hereunder within ten (10) days after the same shall become due; or (b) Lessee shall fail to keep in full force and effect insurance required under this Lease; or (c) Lessee shall or shall attempt to (except as expressly permitted by the provisions of this Lease) remove, sell, transfer, encumber, part with possession of, assign, charter or sublet the Aircraft, any engine or any part thereof, use the Aircraft for an illegal purpose, or permit the same to occur; or (d) Lessee shall fail to perform or observe any covenant condition or agreement not included within (a), (b) or (c) above which is required to be performed or observed by it under this Lease or any agreement, document or certificate delivered by Lessee in connection herewith, and such failure shall continue for twenty (20) days after written notice thereof from Lessor to Lessee; or (e) any representation or warranty made by Lessee in this Lease or any agreement, document or certificate delivered by Lessee in connection herewith or pursuant hereto shall prove to have been incorrect in any material respect when any such representation or warranty was made or given (or, if a continuing representation or warranty, at any material time); or (o Lessee or any guarantor or other obligor for any of the obligations hereunder (collectively "GUARANTOR") shall generally fail to pay its debts as they become due or shall file a voluntary petition in bankruptcy or a voluntary petition or an answer seeking reorganization in a proceeding under any bankruptcy laws (as now or hereafter in effect) or an answer admitting the material allegations of a petition filed against Lessee or any Guarantor in any such proceeding, or Lessee or any Guarantor hereof shall, by voluntary petition, answer or consent, seek relief under the provisions of any other now existing or future bankruptcy or other similar law (other than a law which does not provide for or permit the readjustment or alteration of Lessee's obligations hereunder or the obligations of any guaranty hereto providing for the reorganization or liquidation of corporations, or providing for an agreement composition, extension or adjustment with its creditors; or (g) a petition is filed against Lessee or any Guarantor in a proceeding under applicable bankruptcy laws or other insolvency laws (other than any law which does not provide for or permit any readjustment or alteration of Lessee's obligations hereunder or the obligations of any guaranty hereof in each case), as now or hereafter in effect, and is not withdrawn or dismissed within ninety (90) days thereafter, or if, under the provisions of any law (other than any law which does not provide for or permit any readjustment or alteration of Lessee's obligations hereunder in each case) providing for reorganization or liquidation of corporations which may apply to Lessee or any Guarantor hereof, any court of competent jurisdiction shall assume jurisdiction, custody or control of Lessee or any Guarantor hereof or of any substantial part of any of such party's property and such jurisdiction, custody or control shall remain in force unrelinguished, unstayed or unterminated for a period of sixty (60) days; or (h) Lessee breaches or is in default under any other agreement by and between Lessor and Lessee; or (i) there is a material adverse change in the financial condition of Lessee or any Guarantor hereof from the time of execution hereof, or 0) there is any dissolution, termination of existence, merger, consolidation, change in controlling ownership, insolvency, or business failure of Lessee or any Guarantor hereof, or if Lessee or any Guarantor is a natural person, any death or incompetency of Lessee or such Guarantor. E-42 8 XIII. REMEDIES: (a) Upon the occurrence of any Event of Default and so long as the same shall be continuing, Lessor may, at its option, at any time thereafter, exercise one or more of the following remedies, as Lessor in its sole discretion shall lawfully elect: (i) demand that Lessee forthwith pay as liquidated damages, for loss of a bargain and not as a penalty, an amount equal to the Stipulated Loss Value of the Aircraft computed as of the Basic Rent Date immediately preceding such demand together with all Rent and other amounts due and payable for all periods up to and including the Basic Term Rent Date following the date on which Lessor made its demand for liquidated damages; (ii) demand that Lessee pay all amounts due for failure to maintain or return the Aircraft as provided herein and cause Lessee to assign to Lessor Lessee's rights under any manufacturer's service program contract or any extended warranty contract in force for the Aircraft; (iii) proceed by appropriate court action, either at law or in equity, to enforce the performance by Lessee of the applicable covenants ofthis Lease or to recover damages for breach hereof, (iv) by notice in writing terminate this Lease, whereupon all rights of Lessee to use of the Aircraft or any part thereof shall absolutely cease and terminate, and Lessee shall forthwith return the Aircraft in accordance with Section Xi, but Lessee shall remain liable as provided in Section XI; (v) request Lessee to return the Aircraft to a designated location in accordance with Section XI; (vi) enter the premises, with or without legal process, where the Aircraft is believed to be and take possession thereof, (vii) sell or other-wise dispose of the Aircraft at private or public sale, in bulk or in parcels, with or without notice, and without having the Aircraft present at the place of sale; (viii) lease or keep idle all or part of the Aircraft; (ix) use Lessee's premises for storage pending lease or sale or for holding a sale without liability for rent or costs; (x) collect from Lessee all costs, charges and expenses, including reasonable legal fees and disbursements, incurred by Lessor by reason of the occurrence of any Event of Default or the exercise of Lessor's remedies with respect thereto; (xi) in the case of a failure of Lessee to comply with any provision of this Lease, Lessor may effect such compliance, in whole or in part, and collect from Lessee as additional Rent, all monies spent and expenses incurred or assumed by Lessor in effecting such compliance; and/or (xii) declare any Event of Default under the terms of this Lease to be a default under any other agreement between Lessor and Lessee. (b) The foregoing remedies are cumulative, and any or all thereof may be exercised in lieu of or in addition to each other or any remedies at law, in equity, or under statute. (c) Lessor shall have the right to any proceeds of sale, lease or other disposition of the Aircraft if any, and shall have the right to apply same in the following order of priorities: (i) to pay all of Lessor's costs, charges and expenses incurred in enforcing its rights hereunder or in taking, removing, holding, repairing, selling, leasing or otherwise disposing of the Aircraft; then, (ii) to the extent not previously paid by Lessee, to pay Lessor all sums due from Lessee hereunder; then (iii) to reimburse to Lessee any sums previously paid by Lessee as liquidated damages; and (iv) any surplus shall be retained by Lessor. Lessee shall pay any deficiency in (i) and (ii) forthwith. (d) Waiver of any Event of Default shall not be a waiver of any other or subsequent Event of Default. Lessor's effecting compliance in accordance with sub-section (a)(xi) hereof shall not constitute a waiver of an Event of Default. The failure or delay of Lessor in exercising any rights granted it hereunder upon any occurrence of any of the contingencies set forth herein shall not constitute a waiver of any such right upon the continuation or recurrence of any such contingencies or similar contingencies and any single or partial exercise of any particular right by Lessor shall not exhaust the same or constitute a waiver of any other right provided for in this Lease. E-43 9 XIV. NET LEASE; NO SET-OFF, ETC: This Lease is a net lease. Lessee's obligation to pay Rent and other amounts due hereunder shall be absolute and unconditional. Lessee shall not be entitled to any abatement or reduction of, or set-offs against said Rent or other amounts, including, without limitation, those arising or allegedly arising out of claims (present or future, alleged or actual, and including claims arising out of strict tort or negligence of Lessor) of Lessee against Lessor under this Lease or otherwise. Nor shall this Lease terminate or the obligations of Lessee be affected by reason of any defect in or damage to, or loss of possession, use or destruction of, the Aircraft from whatsoever cause. It is the intention of the parties that Rent and other amounts due hereunder shall continue to be payable in all events in the manner and at the times set forth herein unless the obligation to do so shall have been terminated pursuant to the express terms hereof. XV. INDEMNIFICATION: (a) Lessee hereby agrees to indemnify, save and keep harmless Lessor, its agents, employees, successors and assigns from and against any and all losses, damages, penalties, injuries, claims, actions and suits, including legal expenses, of whatsoever kind and nature, in contract or tort whether caused by the active or passive negligence of Lessor or otherwise, and including, but not limited to, Lessor's strict liability in tort, arising out of (i) the selection, manufacture, purchase, acceptance or rejection of the Aircraft, the ownership of Aircraft during the Term of this Lease, and the delivery, lease, possession, maintenance, use, condition, return or operation of the Aircraft (including, without limitation, latent and other defects, whether or not discoverable by Lessor or Lessee and any claim for patent, trademark or copyright infringement), or (ii) the condition of the Aircraft sold or disposed of after use by Lessee, any sublessee or employees of Lessee. Lessee shall, upon request, defend any actions based on, or arising out of, any of the foregoing. (b) Lessee hereby represents and warrants that (i) on the Commencement Date, the Aircraft will qualify for all of the items of deduction and credit specified in Annex B ("TAX BENEFITS") in the hands of Lessor (all references to Lessor in this Section XV include Lessor and the consolidated taxpayer group of which Lessor is a member), and (ii) at no time during the Term of this Lease will Lessee take or omit to take, nor will it permit any sublessee or assignee to take or omit to take, any action (whether or not such act or omission is otherwise permitted by Lessor or the provisions of this Lease), which will result in the disqualification of the Aircraft for, or recapture of, all or any portion of such Tax Benefits. (c) If as a result of a breach of any representation, warranty or covenant of the Lessee contained in this Lease (i) tax counsel of Lessor shall determine that Lessor is not entitled to claim on its federal income tax return all or any portion of the Tax Benefits with respect to any Aircraft or (ii) any such Tax Benefit claimed on the Federal income tax return of Lessor is disallowed or adjusted by the Internal Revenue Service, or (iii) any such Tax Benefit is recomputed or recaptured (any such determination, disallowance, adjustment, recomputation or recapture being hereinafter called a "LOSS"), then Lessee shall pay to Lessor, as an indemnity and as additional Rent such amount as shall, in the reasonable opinion of Lessor, cause Lessor's after-tax economic yields and cash flows, computed on the same assumptions, including tax rates (unless any adjustment has been made under Section III hereof, in which case the Effective Rate used in the next preceding adjustment shall be substituted), as were utilized by Lessor in originally evaluating the transaction (such yields and flows being hereinafter called the "Net Economic Return") to equal the Net Economic Return that would have been realized by Lessor if such Loss had not occurred. Such amount shall be payable upon demand accompanied by a statement describing in reasonable detail such Loss and the computation of such amount. (d) All of Lessor's rights, privileges and indemnities contained in this Section shall survive the expiration or other termination of this Lease and the rights, privileges and indemnities contained herein are expressly made for the benefit of, and shall be enforceable by Lessor, its successors and assigns. E-44 10 XVI. DISCLAIMER: LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE AIRCRAFT WITHOUT ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES AND THAT LESSOR IS LEASING THE AIRCRAFT IN AN 'AS IS" CONDITION. LESSOR DOES NOT MAKE, HAS NOT MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE AIRCRAFT LEASED HEREUNDER OR ANY COMPONENT THEREOF, OR ANY ENGINE INSTALLED THEREON, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY AS TO CONDITION, AIRWORTHINESS, DESIGN, COMPLIANCE WITH SPECIFICATIONS, QUALITY OF MATERIALS OR WORKMANSHIP, MERCHANTABILITY, FITNESS FOR ANY PURPOSE, USE OR OPERATION, SAFETY, PATENT, TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE. All such risks, as between Lessor and Lessee, are to be borne by Lessee. Without limiting the foregoing, Lessor shall have no responsibility or liability to Lessee or any other person with respect to any of the following, regardless of any negligence of Lessor (i) any liability, loss or damage caused or alleged to be caused directly or indirectly by any Aircraft, any inadequacy thereof, any deficiency or defect (latent or otherwise) therein, or any other circumstance in connection therewith; (ii) the use, operation or performance of any Air-craft or any risks relating thereto; (iii) any interruption of service, loss of business or anticipated profits or consequential damages; or (iv) the delivery, operation, servicing, maintenance, repair, improvement or replacement of any Aircraft. If, and so long as, no default exists under this Lease, Lessee shall be, and hereby is, authorized during the Term to assert and enforce, at Lessee's sole cost and expense, from time to time, in the name of and for the account of Lessor and/or Lessee, as their interests may appear, whatever claims and rights Lessor may have against any Supplier of the Equipment. XVII. REPRESENTATIONS AND WARRANTIES OF LESSEE: Lessee hereby represents and warrants to Lessor that on the date hereof and at all times during the Term hereof (a) Lessee has adequate power and capacity to enter into, and perform under, this Lease and all related documents (together, the "Documents") and is duly qualified to do business wherever necessary to carry on its present business and operations, including the jurisdiction(s) where the Aircraft is or is to have its primary hangar location. (b) The Documents have been duly authorized, executed and delivered by Lessee and constitute valid, legal and binding agreements, enforceable in accordance with their terms, except to the extent that the enforcement of remedies therein provided may be limited under applicable bankruptcy and insolvency laws. (c) No approval, consent or withholding of objections is required from any governmental authority or instrumentality with respect to the entry into or performance by Lessee of the Documents except such as have already been obtained. (d) The entry into and performance by Lessee of the Documents will not: (i) violate any judgment, order, law or regulation applicable to Lessee or any provision of Lessee's Certificate of Incorporation or By-Laws; or (ii) result in any breach of, constitute a default under or result in the creation of any lien, charge, security interest or other encumbrance upon any Aircraft pursuant to any indenture, mortgage, deed of trust, bank loan or credit agreement or other instrument (other than this Lease) to which Lessee is a party, (e) There are no suits or proceedings pending or threatened in court or before any commission, board or other administrative agency against or affecting Lessee, which will have a material adverse effect on the ability of Lessee to fulfill its obligations under this Lease. (f) Each Balance Sheet and Statement of Income delivered to Lessor has been prepared in accordance with generally accepted accounting principles, and since the date of the most recent such Balance Sheet and Statement of Income, there has been no material adverse change. E-45 11 (g) Lessee is and will be at all times validly existing and in good standing under the laws of the State of its incorporation (specified in the first sentence of this Lease) and Lessee is and will continue to be a "CITIZEN OF THE UNITED STATES" within the meaning of Section 40102(15) of the FAA. Lessee shall not consolidate, reorganize or merge with any other corporation or entity or sell, convey, transfer or lease all or substantially all of its property during the Term hereof (h) The chief executive office or chief place of business (as either of such terms is used in Article 9 of the Uniform Commercial Code) of Lessee is located at the address set forth above, and Lessee agrees to give Lessor prior written notice of any relocation of said chief executive office or chief place of business from its present location. (i) A copy of this Lease, and a current and valid AC Form 8050-1 will be kept on the Aircraft at all times during the Term of this Lease. (j) Lessee has selected the Aircraft manufacturer and vendor thereof, and all maintenance facilities required hereby. (k) Lessee shall maintain all logs, books and records (including any computerized maintenance records) pertaining to the Aircraft and engines and their maintenance during the Term in accordance with FAA rules and regulations. (l) Lessee shall not operate the Aircraft under Part 135 of the Federal Aviation Regulations without the prior written approval of Lessor. (m) Lessee shall notify the local Flight Standards District Office of the FAA forty-eight (48) hours prior to the first flight of the Aircraft under this Lease. (n) Throughout the Term of this Lease, Lessee will not use or operate and will not permit the Aircraft to be used or operated "predominately" outside the United States as that phrase is used in Section 168(g)(1)(A) of the Code. XVIII. EARLY TERMINATION: (a) On or after the First Termination Date (specified in Annex B), Lessee may, so long as no default exists hereunder, terminate this Lease upon at least ninety (90) days prior written notice to Lessor effective on the Rent Payment Date ("TERMINATION DATE") specified in such notice. (b) Lessee shall, and Lessor may, solicit cash bids for the Aircraft on an AS IS, WHERE IS basis without recourse to or warranty ftom Lessor, express or implied ("AS IS BASIS"). Prior to the Termination Date, Lessee shall, (i) certify to Lessor any bids received by Lessee; and (ii) pay to Lessor, (a) the Termination Value (calculated as of the Termination Date) for the Aircraft; and (b) all Rent and other sums due and unpaid as of the Termination Date. Neither Lessee nor its agents shall be permitted to bid. (c) Provided that all amounts due hereunder have been paid on the Termination Date, Lessor shall (i) sell the Aircraft on an AS IS BASIS for cash to the highest bidder; and (ii) refund the proceeds of such sale (net of any related expenses) to Lessee up to the amount of the Termination Value paid by Lessee. If such sale is not consummated, no termination shall occur and Lessor shall refund the Termination Value (less any expenses incurred by Lessor) to Lessee. (d) Notwithstanding the foregoing, Lessor may elect by written notice, at any time prior to the Termination Date, not to sell the Aircraft. In that event, on the Termination Date Lessee shall: (i) return the Aircraft (in accordance with Section XI); and (ii) pay to Lessor all amounts required under Section XVIII(B) less the amount of the highest bid certified by Lessee to Lessor.] E-46 12 XIX. PURCHASE OPTION: (a) So long as no default exists hereunder and the lease has not been earlier terminated, Lessee may at Lease expiration, upon at least ninety (90) days, but not more than one hundred and eighty (180), days, prior written notice to Lessor, purchase the Aircraft on an AS IS BASIS for cash equal to its then Fair Market Value (plus all applicable sales taxes). (b) "FAIR MARKET VALUE" shall mean the price which a willing buyer (who is neither a lessee in possession nor a used equipment dealer) would pay for the Aircraft in an arm's-length transaction to a willing seller under no compulsion to sell; provided, however, that in such determination: (i) the Aircraft shall be assumed to be in the condition in which it is required to be maintained and returned under this Lease; (ii) in the case of any installed additions to the Aircraft, same shall be valued on an installed basis; and (iii) costs of removal of the Aircraft from the current location shall not be a deduction from such valuation. If Lessor and Lessee are unable to agree on the Fair Market Value at least sixty (60) days before Lease expiration, Lessor shall appoint an independent appraiser (reasonably acceptable to Lessee) to determine Fair Market Value, and that determination shall be final, binding and conclusive. Lessee shall bear all costs associated with any such appraisal. (c) Lessee shall be deemed to have waived this option unless it provides Lessor with written notice of its irrevocable election to exercise the same within fifteen (IS) days after Fair Market Value is determined (by agreement or appraisal). XX. EARLY PURCHASE OPTION: (a) Provided that the Lease has not been terminated and no default exists hereunder, LESSEE SHALL HAVE THE OPTION TO PURCHASE THE AIRCRAFT ON THE EARLY PURCHASE OPTION DATE INDICATED ON ANNEX B (the "PURCHASE OPTION DATE") FOR A PURCHASE PRICE EQUAL TO THE EARLY PURCHASE OPTION PRICE (the "OPTION PRICE") INDICATED ON ANNEX B. Lessor and Lessee agree that the Option Price is a reasonable prediction of the price that a willing buyer (who is neither a lessee in possession or a used aircraft dealer) would pay for the Aircraft on the Purchase Option Date in an arm's length transaction to a willing seller under no compulsion to sell. (b) LESSEE MAY EXERCISE SUCH OPTION ONLY BY GIVING NOTICE TO LESSOR AT LEAST 30 DAYS (BUT NOT MORE THAN 90 DAYS) PRIOR TO THE PURCHASE OPTION DATE. (c) On the Purchase Option Date, if Lessee has elected to purchase the Aircraft and no default has occurred and is continuing under the Lease or any other agreement between Lessee and Lessor: (i) Lessee shall pay to Lessor any rent and other sums due and unpaid on the Purchase Option Date; and (ii)Lessee shall purchase from Lessor, and Lessor shall sell to Lessee, the Aircraft on an AS IS, WHERE IS basis, without recourse to or warranty from Lessor (express or implied), for a consideration equal to the Option Price (together with any applicable sales taxes).] XXI. MISCELLANEOUS: (a) Unless and until Lessee exercises its rights under Sections XIX or XX above, nothing herein contained shall give or convey to Lessee any right, title or interest in and to the Aircraft except as a lessee under this Lease. Any cancellation or termination by Lessor, pursuant to the provisions of this Lease, or any supplement or amendment hereto, or the lease of any Aircraft hereunder, shall not release Lessee from any then outstanding obligations to Lessor hereunder. E-47 13 (b) Time is of the essence of this Lease. Lessee agrees, upon Lessor's request, to execute any instrument necessary or expedient for filing, recording or perfecting the interest of Lessor. LESSEE HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS LEASE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN LESSEE AND LESSOR RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN LESSEE AND LESSOR. The scope of this waiver is intended to be all encompassing of any and all disputes that may be filed in any court (including, without limitation, contract claims, tort claims, breach of duty claims, and all other common law and statutory claims). THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS LEASE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. In the event of litigation, this Lease may be filed as a written consent to a trial by the court. All notices required to be given hereunder shall be deemed adequately given if delivered in hand or sent by registered or certified mail to the addressee at its address stated herein, or at such other place as such addressee may have designated in writing. This Lease and any Annexes hereto constitute the entire agreement of the parties with respect to the subject matter hereof, and all Annexes referenced herein are incorporated herein by reference. NO VARIATION OR MODIFICATION OF THIS LEASE OR ANY WAIVER OF ANY OF ITS PROVISIONS OR CONDITIONS, SHALL BE VALID UNLESS IN WRITING AND SIGNED BY AN AUTHORIZED REPRESENTATIVE OF EACH PARTY HERETO. (c) Any Rent or other amount not paid to Lessor when due hereunder shall bear interest both before and after any judgment or termination hereof, at the lesser of eighteen percent (18%) per annum or the maximum rate allowed by law. Any provisions in this Lease which are in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto. XXII. TRUTH-LEASING: (a) LESSEE HAS REVIEWED THE AIRCRAFRS MAINTENANCE AND OPERATING LOGS SINCE ITS DATE OF MANUFACTURE AND HAS FOUND THAT THE AIRCRAFT HAS BEEN MAINTAINED AND INSPECTED UNDER PART 91 OF THE FEDERAL AVIATION REGULATIONS. LESSEE CERTIFIES THAT THE AIRCRAFT PRESENTLY COMPLIES WITH THE APPLICABLE MAINTENANCE AND INSPECTION REQUIREMENTS OF PART 91 OF THE FEDERAL AVIATION REGULATIONS. (b) LESSEE CERTIFIES THAT LESSEE, AND NOT LESSOR, IS RESPONSIBLE FOR OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE DURING THE TERM HEREOF. LESSEE FURTHER CERTIFIES THAT LESSEE UNDERSTANDS ITS RESPONSIBILITY FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS. (c) LESSEE CERTIFIES THAT THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER PART 91 OF THE FEDERAL AVIATION REGULATIONS FOR OPERATIONS TO BE CONDUCTED UNDER THIS LEASE. LESSEE UNDERSTANDS THAT AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT OFFICE, GENERAL AVIATION DISTRICT OFFICE, OR AIR CARRIER DISTRICT OFFICE. E-48 14 IN WITNESS WHEREOF, Lessee and Lessor have caused this Lease to be executed by their duly authorized representatives as of the date first above written. LESSOR: LESSEE: GENERAL ELECTRIC CAPITAL CORPORATION AUTOCAM CORPORATION By: /s/ Nabila S. Mahimud By: /s/ Warren A. Veltman Title: Risk Analyst Title: Treasurer E-49 15 AMENDMENT TO AIRCRAFT LEASE AGREEMENT DATED NOVEMBER 12, 1998 BETWEEN GENERAL ELECTRIC CAPITAL CORPORATION AS LESSOR, AND AUTOCAM CORPORATION AS LESSEE This Amendment dated as of November 12, 1998 amends and modifies the above-referenced Aircraft Lease Agreement (the "Lease") and is hereby incorporated into the Lease as though set forth therein. All terms not otherwise defined herein shall have the meaning ascribed to them in the Lease. A. AMENDMENT TO AIRCRAFT LEASE AGREEMENT SECTION I. LEASING (b) Section I (b) is hereby deleted in its entirety and replaced with the following: "The obligation of Lessor to purchase the Aircraft from Lessee and to lease the same to Lessee hereunder shall be subject to the Commencement Date of the Lease, as that term is hereinafter defined in Section 11, occurring on or prior to the Last Delivery Date specified in Annex B, on the representations and warranties of Lessee contained herein being true and accurate as of the Commencement Date and further conditioned on receipt by lessor, on or prior to the Commencement Date, of each of the following documents in form and substance satisfactory to Lessor: (i) a copy of this Lease executed by Lessee, (ii) Bill of Sale in the form of Annex C, transferring Lessee's interest in the Aircraft to Lessor, (iii) copies of insurance policies or, at Lessor's option, such other evidence of insurance which complies with the requirements of Section X, (iv) evidence of Lessee's reservation of an N number for the Aircraft together with an assignment of the rights thereto to Lessor, (v) evidence that the Aircraft has been duly certified as to type and airworthiness by the Federal Aviation Administration ("FAA"), (vi) evidence that the FAA counsel has received in escrow the executed bill of sale and AC Form 8050-1 Aircraft Registration Form (except for the pink copy which shall be available to be placed on the Aircraft upon acceptance thereof), and an executed duplicate of this Lease all in proper form for filing with the FAA, (vii) resolution of Lessee authorizing this Lease in the form of Annex D, (viii) a completed survey with respect to the Aircraft in accordance with subsection (c) hereof, and (ix) such other documents as Lessor may reasonably request. Simultaneous with the execution of the Bill of Sale, Lessee shall also execute a Certificate of Acceptance in the form of Annex E, covering the Aircraft described in the Bill of Sale. Lessor's obligation to lease the Aircraft hereunder is further conditioned upon (aa) the cost to Lessor of the acquisition of the Aircraft not exceeding the Capitalized Lessor's Cost stated on Annex A, (bb) upon delivery of the Aircraft, Lessee's execution and delivery to Lessor of a Certificate of Acceptance in the form of Annex E, and (cc) filing of all necessary documents with, and the acceptance thereof, by the FAA. (c) Section I (c) is hereby deleted in its entirety and replaced with the following: "Subject to the aforestated conditions, upon execution by Lessee of the Certificate of Acceptance, the Aircraft described thereon shall be deemed to have been delivered to, and irrevocably accepted by, Lessee for lease hereunder. SECTION III. RENT ADJUSTMENT (b) Section Ill (b) will be amended by inserting the following after the last sentence in this Section: "If the Effective Rate is lower than 35% for 1998 or any subsequent year during the lease term, Lessee shall have the right, upon request to a decrease in the rent payments calculated in the same manner as described above. Lessor shall effectuate any decrease due pursuant to the section by (i) remitting the decreased rent payment to Lessee as a single additional sum or, (ii) crediting such decrease against the next rent payment and subsequent rent payments, or (iii) decreasing the periodic rent payments by an amount equal to the total decrease divided by the number of periodic rent payments remaining under the Lease, at its sole discretion. The decrease in rent payment will be effective on the later of (x) receipt of notice of (y) the first day of the year for which the rent adjustment is being made. After the initial rent adjustment, the rent adjustment shall be calculated in the manner set forth above whenever the Effective Rate Changes for the one used for the previous rent adjustment." SECTION IV. TAXES AND FEES E-50 16 The second sentence of Section IV is hereby amended by inserting the following, "(other than Lessor's Michigan Single Business Tax)" after "franchise," but before "stamp". SECTION XXI. MISCELLANEOUS (c) The first sentence in Section XXI (c) is hereby amended by deleting the words "eighteen percent (18%)" and replacing them with "twelve percent (12%)". B. MISCELLANEOUS Except as expressly modified herein, all terms and provisions of the Lease shall remain in full force and effect. This Amendment shall not be binding nor effective with respect to the Lease of the Aircraft until executed by duly authorized representatives of Lessor and Lessee. IN WITNESS WHEREOF, Lessee and Lessor have caused this Amendment to be executed by their duly authorized representatives as of this 12th day of November, 1998. LESSOR: LESSEE: GENERAL ELECTRIC CAPITAL CORPORATION AUTOCAM CORPORATION By: /s/ Nabila S. Mahimud By: /s/ Warren A. Veltman Title: Risk Analyst Title: Treasurer E-51 17 ANNEX A DESCRIPTION OF AIRCRAFT, LESSOR'S COST, AND AIRCRAFT MARKINGS
I. DESCRIPTION COST: Cessna, Model Citation V 560 Aircraft which consists of the following $4,900,000.00 components: (a) Airframe bearing FAA Registration Mark N80GE and Manufacturer's Serial No. 0187; (b) , ( ) Pratt & Whitney JT15D-SA engines bearing Manufacturer's Serial Nos. PCE108382 and PCE 108383 respectively (each of which has 750 or more rated takeoff horsepower or the equivalent of such horsepower); (c) , ( ) propellers bearing, respectively bearing, Manufacturer's Serial Nos. N/A and N/A, each being rated as follows: (d) Standard accessories and optional equipment and such other items fitted or installed on the Aircraft and set forth hereinafter: (e) Those items of Lessee Furnished Equipment described in a bill of sale or bills of sale therefor (copies of which are appended hereto), delivered by Lessee to Lessor which constitute appliances and equipment which will be installed on the Aircraft; (f) Sales Tax (g) Other CAPITALIZED LESSOR'S COST $4,900,000.00
II. AIRCRAFT MARKINGS (REFERENCED IN THE MAINTENANCE SECTION OF LEASE) (a) Four-by-six inch plaque to be maintained in cockpit and affixed in conspicuous position stating: GENERAL ELECTRIC CAPITAL CORPORATION Owner and Lessor. AUTOCAM CORPORATION Lessee under a certain Lease dated as of November 12, 1998 has operational control of this aircraft. (b) Similar markings shall be permanently affixed to each engine. E-52 18 Initials: Lessee: /s/ WAV Lessor: /s/ NSM E-53 19 ANNEX B DATED THIS NOVEMBER 12, 1998 TO AIRCRAFT LEASE AGREEMENT DATED AS OF NOVEMBER 12, 1998
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 Aircraft Lease Agreement identified above. A. AIRCRAFT. Pursuant to the terms of the Lease, Lessor agrees to acquire and lease to Lessee the Aircraft described on Annex A to the Lease. B. FINANCIAL TERMS. 1. Advance Rent (if any): (a) Amount: $30,072.00. (b) Due Date: 11/12/98 2. Capitalized Lessor's Cost: $4,900,000.00. 3. Basic Term Commencement Date: November 12, 1998 4. Basic Term: 180 months. 5. First Basic Term Rent Date: November 12, 1998 6. Basic Term Rent Dates: ________________________. 7. First Termination Date: (36) months after the Basic Term Commencement Date. 8. Last Basic Term Rent Date: ________________________. 9. Last Delivery Date: November 12, 1998. 10. Primary Hangar Location: Kent County International Airport; Grand Rapids, MI 11. Supplier: Autocam Corporation. 12. Lessee Federal Tax ID No.: 38-2790152. 13. Early Purchase Option: Option Date: 84 months from the Basic Term Commencement Date Option Price: $4,246,830.00 14. Expiration Date: November 11, 2013 15. Daily Lease Rate Factor: 84 @ .00020457; 96 @.00024719. 16. Basic Term Lease Rate Factor: Factor Rental No. .00613714 1-84 .00741571 85-180
E-54 20 C. TAX BENEFITS. Depreciation Deductions: a. Depreciation Method: 200% declining balance method, switching to straight line method for the I st taxable year for which using the straight line method with respect to the adjusted basis as of the beginning of such year will yield a larger allowance. b. Recovery Period: 5 YEARS. c. Basis: 100% of Capitalized Lessor's Cost. D. TERM AND RENT. 1. Interim Rent. For the period from and including the Commencement Date to the Basic Tenn Commencement Date ("INTERIM PERIOD"), Lessee shall pay as Rent ("INTERIM RENT") for each unit of Aircraft, the product of the Daily Lease Rate Factor times the Capitalized Lessor's Cost of such unit times the number of days in the Interim Period. Interim Rent shall be due on N/A. 2. Basic Term Rent. Commencing on November 12, 1998 and on the same day of each month thereafter (each, a "RENT PAYMENT DATE") during the Basic Term, Lessee shall pay as Rent ("BASIC TERM RENT") the product of the Basic Term Lease Rate Factor times the Capitalized Lessor's Cost of the Aircraft on this Annex B. E. INSURANCE. 1. Public Liability: $50,000,000.00 total liability per occurrence. 2. Casualty and Property Damage: An amount equal to the higher of the Stipulated Loss Value or the full replacement cost of the Aircraft. F. ADDITIONAL MAINTENANCE REQUIREMENTS. G. AMENDMENTS TO LEASE. Except as expressly modified hereby, all terms and provisions of the Lease shall remain in full force and effect. This Annex B is not binding or effective with respect to the Lease or Aircraft until executed on behalf of Lessor and Lessee by authorized representatives of Lessor and Lessee, respectively. IN WITNESS WHEREOF, Lessee and Lessor have caused this Annex B to be executed by their duly authorized representatives as of the date first above written. LESSOR: LESSEE: GENERAL ELECTRIC CAPITAL CORPORATION AUTOCAM CORPORATION By: /s/ Nabila S. Mahimud By: /s/ Warren A. Veltman Name: Nabila S. Mahimud Name: Warren A. Veltman Title: Risk Analyst Title: Treasurer ATTEST By: /s/ Mark R. Scott Name: Mark R. Scott ANNEX C E-55 21 TO AIRCRAFT LEASE AGREEMENT DATED AS OF NOVEMBER 12, 1998 BILL OF SALE AUTOCAM CORPORATION (the "SELLER"), in consideration of the sum of FOUR MILLION, NINE HUNDRED THOUSAND AND 00/100 DOLLARS ($4,900,000.00) plus sales taxes in the amount of DOLLARS ($ ) (if exemption from sales tax is claimed, an exemption certificate must be furnished to Buyer herewith), paid by GENERAL ELECTRIC CAPITAL CORPORATION (the "BUYER"), receipt of which is acknowledged, hereby grants, set assigns, transfers and delivers to Buyer the equipment (the "EQUIPMENT") described in the above schedule (said schedule and related lease being collective referred to as "LEASE"), along with whatever claims and rights Seller may have agaitm the manufacturer and/or supplier of the Equipment (the "SUPPLIER" including but not limited to all warranties and representations. At Buyers request, Seller will cause Supplier to execute the attached Acknowledgement. Buyer is purchasing the Equipment for leasing back to Seller pursuant to the Lease. Seller represents and wan-ants to Buyer that (1) Buyer will acquire by t terms of this Bill of Sale good title to the Equipment free from all liens and encumbrances whatsoever (2) Seller has the right to sell the Equipment; and (the Equipment has been delivered to Seller in good order and condition, and conforms to the specifications, requirements and standards applicable thereto; a (4) the equipment has been accurately [awed, consistent with the requirements of 40 CFR part 82 Subpart E, with respect to products manufactured with controlled (ozone-depleting) substance. Seller agrees to save and hold harmless Buyer from and against any and all federal, state, municipal and local license fees and taxes of any kind or nature including, without limiting the generality of the foregoing, any and all excise, personal property, use and sales taxes, and from and against any and liabilities, obligations, losses, damages, penalties, claims, actions and suits resulting therefrom and imposed upon, incurred by or asserted against Buyer a consequence of the sale of the Equipment to Buyer. IN WITNESS WHEREOF, Seller has executed this Bill of Sale this 12th day of November, 1998. SELLER: AUTOCAM CORPORATION By: /s/ Warren A. Veltman Title: Treasurer E-56 22 ANNEX D CERTIFICATE CORPORATE LESSEE'S BOARD OF DIRECTORS RESOLUTION REGARDING AIRCRAFT LEASE AGREEMENT AUTHORIZATION AND INCUMBENCY OF OFFICERS The undersigned hereby certifies that he is the.Assistant Secretary of AUTOCAM CORPORATION, a corporation validly existing and organized under the laws of the State of Michigan, which Corporation is presently subsisting and in good standing under the laws of such State and is duly qualified to conduct its business within the States of Michigan that the following is a true, accurate and compared transcript of resolutions duly adopted at a meeting of the Board of Directors of said Corporation duly held on the 24th day of July, 1998, at which meeting a quorum was present and that the proceedings were in accordance with the Articles and by-laws of said Corporation, and that said resolutions have not been amended, rescinded, modified or revoked, and are in full force and effect: "RESOLVED, that each of the officers of this Corporation, whose name appears below, or the duly elected or appointed successor in office of any or all of them, be and he hereby is authorized and empowered in the name and on behalf of this Corporation to enter into, execute and deliver the Aircraft Lease Agreement dated as of November 12, 1998, with GENERAL ELECTRIC CAPITAL CORPORATION (hereinafter called "LESSOR") as Lessor and this Corporation as Lessee and providing for the leasing to (or sale and leaseback by) this Corporation of Aircraft; and (ii) further providing for this Corporation to execute and deliver any Annexes and supplements necessary to effectuate such Lease in such form and substance as may be agreed upon between Lessor and such ofricers or any of them as agent(s) of the Corporation; and (iii) to indemnify said Lessor against certain occurrences set forffi in the Lease; and FURTHER RESOLVED, that each officer of this Corporation is hereby authorized to do and perform all other acts and deeds that may be requisite or necessary to carry fully into effect the foregoing resolution; and FURTHER RESOLVED, that said Lessor is authorized to rely upon the aforesaid resolutions until receipt by it of written notice of any change, which changes of whatever nature shall not be effective as to said Lessor to the extent that it has theretofore relied upon the aforesaid resolutions in the above form." Treasurer Vice President (Signature) /s/ Warren A. Veltman (Signature) -------------------------- I FURTHER CERTIFY that the duly elected officers of this Corporation named in the foregoing resolution continue to hold their respective offices and that the signature set below the name of each such officer is the true and correct signature of such officer. IN WITNESS WHEREOF, I have set my hand and affixed the seal of said Corporation this 12th day of November, 1998. (CORPORATE SEAL) /s/ Rita A. Broekema Assistant Secretary E-57 23 ANNEX F STIPULATED LOSS AND TERMINATION VALUES The Stipulated Loss and Termination Value of the Aircraft shall be the percentage of Capitalized Lessor's Cost of the aircraft set forth opposite the applicable rent payment.
CAPITALIZED LESSOR'S COST $4,900,000.00 TERMINATION VALUE STIPULATED LOSS VALUE TERMINATION VALUE STIPULATED LOSS VALUE RENTAL PERCENTAGE PERCENTAGE RENTAL PERCENTAGE PERCENTAGE 1 103.429 107.413 91 84.046 86.538 2 103.437 107.403 92 83.603 86.078 3 103.420 107.370 93 83.160 85.618 4 103.400 107.334 94 82.712 85.154 5 103.378 107.296 95 82.264 84.690 6 103.347 107.247 96 81.815 84.224 7 103.306 107.190 97 81.362 83.755 8 103.255 107.122 98 80.909 83.285 9 103.194 107.045 99 80.454 82.814 10 103.131 106,965 100 79.996 82.339 11 103.058 106.876 101 79.535 81.861 12 102.976 106.777 102 79.073 81.382 13 102.891 106.675 103 78.609 80.902 14 102.796 106.564 104 76.145 80.421 15 102.692 106.443 105 77.680 79.939 16 102.585 106.319 106 77.211 79.454 17 102.475 106.193 107 76.741 78.968 18 102.359 106.061 108 76.271 78.481 19 102.238 105.923 109 75.797 77.990 20 102.110 105.779 110 75.321 77.498 21 101.977 105.628 111 74.845 77.006 22 101.840 105.476 112 74.366 76.510 23 101.698 105.317 113 73.883 76.010 24 101.550 105.152 114 73.399 75.510 25 101.399 104.984 115 72.914 75.008 26 101.242 104.811 116 72.428 74.506 27 101.079 104.631 117 71.942 74.002 28 100.913 104.449 118 71.451 73.496 29 100.745 104.264 119 70.960 72.988 30 100.573 104.076 120 70.468 72.479 31 100.397 103,883 121 69.972 71.967 32 100.218 103.687 122 69.476 71.454 33 100.034 103.487 123 68.978 70.940 34 99.848 103.284 124 68.477 70.422 35 99.658 103.078 125 67.973 69.901
E-58 24
TERMINATION VALUE STIPULATED LOSS VALUE TERMINATION VALUE STIPULATED LOSS VALUE RENTAL PERCENTAGE PERCENTAGE RENTAL PERCENTAGE PERCENTAGE 36 99.464 102.867 126 67.467 69.379 37 99.268 102.654 127 66.961 68.856 38 99.067 102.437 128 66.454 68.332 39 98.863 102.217 129 65.946 67.807 40 98.656 101.993 130 65.434 67.279 41 98.447 101.768 131 64.921 66.750 42 98.234 101.538 132 64.407 66.220 43 98.017 101.304 133 63.890 65.686 44 97.796 101.067 134 63.372 65.151 45 97.571 100.825 135 62.853 64.616 46 97.344 100.581 136 62.331 64.076 47 97.113 100.334 137 61.805 63.534 48 96.878 100.082 138 61.278 62.990 49 96.640 99.828 139 60.750 62.446 50 96.399 99.570 140 60.221 61.901 51 96.153 99.308 141 59.691 61.354 52 95.905 99.044 142 59.158 60.804 53 95.655 98.776 143 58.624 60.254 54 95.402 98.507 144 58.089 59.702 55 95.147 98.236 145 57.550 59.147 56 94.890 97.962 146 57.010 58.590 57 94.631 97.686 147 56.470 58.033 58 94.369 97.407 148 55.926 57.473 59 94.105 97.127 149 55.378 56.909 60 93.838 96.844 150 54.830 56.344 61 93.569 96.558 151 54.280 55.778 62 93.298 96.270 152 53.730 55.211 63 93.025 95.980 153 53.179 54.643 64 92.748 95.688 154 52.624 54.071 65 92.470 95.392 155 52.068 53.499 66 92.191 95.097 156 51.512 52.926 67 91.911 94.800 157 50.951 52.349 68 91.630 94.503 158 50.390 51.771 69 91.349 94.206 159 49.828 51.193 70 91.066 93.906 160 49.263 50.611 71 90.782 93.605 161 48.694 50.025 72 90.497 93.304 162 48.124 49.439 73 90.210 93.000 163 47.553 48.851 74 89.922 92.695 164 46.981 48.263 75 89.633 92.390 165 46.408 47.673 76 89.342 92.083 166 45.832 47.080 77 89.049 91.772 167 45.255 46.487 78 88.754 91.462 168 44.676 45.892
E-59 25
TERMINATION TERMINATION STIPULATED LOSS VALUE STIPULATED LOSS VALUE VALUE VALUE RENTAL PERCENTAGE PERCENTAGE RENTAL PERCENTAGE PERCENTAGE 79 86.460 91.150 169 44.095 45.294 80 88.164 90.838 170 43.512 44.694 81 87.869 90.526 171 42.928 44.094 82 87.570 90.211 172 42.341 43.491 83 87.272 89.896 173 41.751 42.883 84 86.972 89.580 174 41.169 42.285 85 86.670 89.261 175 40.595 41.694 86 86.238 88.813 176 40.029 41.112 87 85.805 88.363 177 39.472 40.538 88 85.369 87.910 178 38.911 39.961 89 84.929 87.454 179 38.359 39.392 90 84.488 86.996 180 37.814 38.831
Initials: /s/ NSM /s/ WAV Lessor Lessee E-60 EX-10.P.3 4 MASTER EQUIPMENT LEASE AGREEMENT 1 EXHIBIT 10(p)(3) EQUIPMENT SCHEDULE NO. 05 dated as of May 21, 1999 (this "Schedule") between KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC. ("Lessor"), and AUTOCAM CORPORATION, a Michigan corporation ("Lessee"). INTRODUCTION: Lessor and Lessee have heretofore entered into that certain Master Equipment Lease Agreement dated as of July 10, 1995 (the "Master Lease"; the Master Lease and this Schedule are hereinafter collectively referred to as, this "Lease"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings specified in the Master Lease. The Master Lease provides for the execution and delivery of a Schedule substantially in the form hereof for the purpose of confirming the acceptance and lease of the Equipment under this Lease as and when delivered by Lessor to Lessee in accordance with the terms thereof and hereof. NOW, THEREFORE, in consideration of the premises and other good and sufficient consideration, Lessor and Lessee hereby agree as follows: EQUIPMENT & INVOICING TERMS 1 EQUIPMENT. Pursuant to the terms and conditions of this Lease, Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the equipment listed on Exhibit A attached hereto (the "Equipment"). The aggregate Total Cost of such Equipment is $586,647.51. 2 TERM. The Initial Term of this Lease with respect to the Equipment described on this Schedule shall commence on the date on which such Equipment is delivered to Lessee, and, unless earlier terminated as provided herein, shall expire on a date which is ninety six (96) months after the Rent Commencement Date (the "Initial Term Expiration Date"). 3 RENT PAYMENT DATES; RENT. Lessee hereby agrees to pay Rent for the Equipment throughout the Initial Term in ninety six (96) consecutive monthly installments payable in arrears on the date which is one (1) month after the Rent Commencement Date and on the same day of each month thereafter (each, a "Rent Payment Date"). Each such installment of Rent shall be in an amount equal to $7,063.14. In addition, Lessee hereby agrees to pay Rent for the period commencing on the Interim Rent Commencement Date (as defined below) and ending on the day before the Rent Commencement Date in an amount equal to $235.44 per day, and agrees that, with respect to the Equipment described on this Schedule, the following modifications are hereby made to the Master Lease: (a) "Rent Commencement Date- shall mean, with respect to an Equipment Group, the first (1st) day of the first month following the date of the Certificate of Acceptance for such Equipment Group, (b) "Interim Rent Commencement Date" shall mean, with respect to an Equipment Group, the date of the Certificate of Acceptance for such Equipment Group, or such later date (prior to the Rent Commencement Date) as determined by Lessor in its sole discretion, (c) Section 6 of the Master Lease ("Ordering Equipment") is hereby amended to delete the term "Rent Commencement Date" and to substitute the term "Interim Rent Commencement Date" in its place and (d) Section 22(a)(9) of the Master Lease ("Events of Default; Remedies") is hereby amended to delete the term "Rent Commencement Date" and to substitute the phrase "Rent Commencement Date or Interim Rent Commencement Date, as the case may be," in its place. 4 EQUIPMENT LOCATION; BILLING ADDRESS. The Equipment described on this Schedule shall be located at, and except as otherwise provided in this Lease, shall not be removed from, the following address: 1511 George Brown Drive, Marshall, MI 49068. The billing address of Lessee is as follows: AUTOCAM CORPORATION, 4070 East Paris Avenue, Kentwood, MI 49512. E-61 2 TRANSACTION TYPE TERMS 5 PURCHASE, RENEWAL AND OPTION TERMS. (a) FMV. With respect to the Equipment described on this Schedule, Section 32 of the Master Lease ("Renewal and Purchase Options") is hereby deleted in its entirety and the following is substituted in its place: So long as no Default or Event of Default shall have occurred and be continuing and Lessee shall have given Lessor at least one hundred eighty (180) but not more than two hundred seventy (270) days prior written notice (the "Option Notice"), Lessee shall have the following purchase and renewal options at the expiration of the Initial Term, or any Renewal Term, to: (i) purchase all, but not less than all, Items of Equipment for a purchase price (the "Purchase Option Price") equal to the then Fair Market Sale Value thereof; (ii) renew this Lease on a month to month basis at the same Rent payable at the expiration of such Initial Term or Renewal Term, as the case may be; (iii) renew this Lease for a minimum period of not less than twelve (12) consecutive months at the then current Fair Market Rental Value; or (iv) return such Equipment to Lessor pursuant to, and in the condition required by, the Lease. If Lessee fails to give Lessor the Option Notice, Lessee shall be deemed to have chosen option (ii) above. Payment of the Purchase Option Price, applicable sales taxes, together with all other amounts due and owing by Lessee under the Lease (including, without limitation, Rent) during such Initial Term and Renewal Term shall be made on the last day of the Initial Term or Renewal Term, as the case may be, in immediately available funds against delivery of a bill of sale transferring to Lessee all right, title and interest of Lessor in and to the Equipment ON AN "AS IS" "WHERE IS" BASIS, WITHOUT ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE. LESSOR MAY SPECIFICALLY DISCLAIM ANY SUCH REPRESENTATIONS AND WARRANTIES. (b) EARLY BUYOUT OPTION. So long as no Default or Event of Default shall have occurred and be continuing, Lessee shall have the option to purchase all, but not less than all, Items of Equipment on the date which is eighty four (84) months after the Rent Commencement Date (the "EBO Date") at a price (the "EBO Price") equal to thirty one and twenty five hundredths percent (31.25%) of the Total Cost of the Equipment, plus any applicable sales taxes. For Lessee to exercise its option hereunder, Lessee shall notify Lessor in writing of its desire to effect such option at least ninety (90) days (but not more than one hundred eighty (180) days) prior to the EBO Date. Such notice shall be irrevocable. The EBO Price represents the parties present best estimate of the fair market value of the Equipment on the EBO Date determined by using commercially reasonable methods which are standard in the industry. Payment of the EBO Price, applicable sales taxes, together with all other amounts due and owing by Lessee under the Lease (including, without limitation, Rent) on or before the EBO Date, shall be made on the EBO Date in immediately available funds. Thereafter, upon Lessee's written request, Lessor shall deliver to Lessee a bill of sale transferring to Lessee all right, title and interest of Lessor in and to the Equipment ON AN "AS IS" "WHERE IS" BASIS, WITHOUT ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER. If Lessee shall fail to pay all amounts required to be paid under the Lease on the EBO Date, the Lease shall continue in full force and effect and Lessee agrees to reimburse Lessor for all reasonable costs, expenses and liabilities incurred in connection therewith. E-62 3 6. NATURE OF TRANSACTION; TRUE LEASE. (a) It is the express intent of the parties that this Lease constitute a true lease and not a sale of the Equipment Title to the Equipment shall at all times remain in Lessor, and Lessee shall acquire no ownership, title, property, right, equity, or interest in the Equipment other than its leasehold interest solely as Lessee subject to all the terms and conditions hereof. To the extent that Article 2A ("Article 2A") of the Uniform Commercial Code ("UCC") applies to the characterization of this Lease, the parties hereby agree that this Lease is a "Finance Lease" as defined therein. Lessee acknowledges: (i) that Lessee has selected the "Supplier" (as defined in the UCC) and has directed Lessor to purchase the Equipment from the Supplier in connection with this Lease, and (ii) that Lessee has been informed in writing in this Lease, before Lessee's execution of this Lease, that Lessee is entitled under Article 2A to the promises and warranties, including those of any third party, provided to Lessor by the Supplier in connection with or as part of the Purchase Agreement, and that Lessee may communicate with the Supplier and receive an accurate and complete statement of those promises and warranties, including any disclaimers and limitations of them or of remedies. The filing of UCC financing statements pursuant to Section 34 of the Master Lease is precautionary and shall not be deemed to have any effect on the characterization of this Lease. NOTWITHSTANDING THE FOREGOING, LESSOR HAS NOT MADE, AND HEREBY DISCLAIMS ANY ADVICE, REPRESENTATIONS, WARRANTIES AND COVENANTS, EITHER EXPRESSED OR IMPLIED, WITH RESPECT TO ANY LEGAL, ECONOMIC, ACCOUNTING, TAX OR OTHER EFFECTS OF THE LEASE AND THE TRANSACTION(S) CONTEMPLATED THEREBY, AND LESSEE HEREBY DISCLAIMS ANY RELIANCE ON ANY SUCH WARRANTIES, STATEMENTS OR REPRESENTATIONS MADE BY LESSOR WITH RESPECT THERETO. (b) Notwithstanding the express intent of Lessor and Lessee that this agreement constitute a true leage and not a sale of the Equipment, should a court of competent jurisdiction determine that this agreement is not a true lease, but rather one intended as security, then solely in that event and for the expressly limited purposes thereof, Lessee shall be deemed to have hereby granted Lessor a security interest in the Equipment and all accessions, substitutions and replacements thereto and therefor, and proceeds (cash and non-cash), including, without limitation, insurance proceeds thereof (but without power of sale), to secure the prompt payment and performance as and when due of all obligations and indebtedness of Lessee, now existing or hereafter created, to Lessee pursuant to this Lease or otherwise. In furtherance of the foregoing, Lessee shall execute and deliver to Lessor, to be filed at Lessee's expense, Uniform Commercial Code financing statements, statements of amendment and statements of continuation as reasonably may be required by Lessor to perfect and maintain perfected such security interest. (c) In the event that the Supplier erroneously invoices Lessee for the Equipment, Lessee agrees to forward said invoice to Lessor immediately. Lessee acknowledges that the Equipment is, and shall at all times remain, the property of Lessor, and that Lessee has no right, title or interest therein or thereto except as expressly set forth in this Lease. 7. TAX INDEMNIFICATION. (a) Lessee acknowledges that Lessor has executed this Lease, and that the Rent payable by Lessee under this Lease has been computed, upon the assumptions that Lessor will (i) be entitled to depreciation or cost recovery deductions ("MACRS Deductions") for Federal income tax purposes under the Modified Accelerated Cost Recovery System provided for in Section 168 of the Internal Revenue Code of 1986, as amended (the "Code"), and depreciation or cost recovery deductions ("State Depreciation Deductions") for state income tax purposes for the Equipment Location, in each case on the basis that (1) each Item of Equipment constitutes 7-year property" within the meaning of Section 168(e) of the Code, (2) the initial tax basis for each Item of Equipment will be equal to the Total Cost, (3) deductions for each Item of Equipment will be computed by using the method specified in Section 168(b)(1) of the Code over the 7-year recovery period described in Section 168(c) of the Code, and (4) the applicable convention for each Item of Equipment under Section 168(d) of the Code is the half-year convention; (ii) be entitled to deductions for Federal income tax purposes (available in the manner and as provided by Section 163 of the Code) for interest payable with respect to any indebtedness incurred by Lessor in connection with any financing by Lessor of any portion of the Total Cost of each Item of Equipment ("Interest Deductions"); and (iii) be subject to tax for each year at a composite Federal and New York corporate income tax rate equal to the then highest marginal rate for corporations provided for under the Code and the laws of New York (the "Highest Marginal Tax Rate"). The MACRS Deductions, State Depreciation Deductions and Interest Deductions are hereinafter collectively referred to as the "Tax Benefits". E-63 4 (b) Lessee represents and warrants to Lessor that (i) each Item of Equipment constitutes 7-year property" within the meaning of Section 168(e) of the Code, (ii) Lessee shall not attempt to claim such Tax Benefits, (ift) at and after the time of delivery of the Equipment to Lessee pursuant to this Lease the Lessee shall not claim any ownership or title in and to the Equipment, and (iv) Lessee has not, and will not, at any time after such delivery throughout the Term of this Lease, take any action or omit to take any action (whether or not the same is permitted or required hereunder) which will result in the loss by Lessor of all or any part of such Tax Benefits. (c) If, as a result of any act, omission or misrepresentation of Lessee, (x) the Tax Benefits are lost, disallowed, deferred, eliminated, reduced, recaptured, compromised or otherwise unavailable to Lessor, (y) for Federal, foreign, state or local income tax purposes, any item of income, loss or deduction with respect to any Item of Equipment is treated as derived from, or allocable to, sources outside the United States, or (z) there shall be included in the gross income of Lessor for Federal, state or local income tax purposes any amount on account of any addition, modification, substitution or improvement to or in respect of any Item of Equipment made or paid for by Lessee (any of the foregoing being hereinafter a "Tax Loss"), then, within thirty (30) days of Lessee's receipt of written notice from Lessor that such a Tax Loss has occurred, Lessee shall pay to Lessor an amount which, after deduction therefrom of all taxes to be paid in respect of the receipt thereof, will enable Lessor to receive the same Net Economic Return (as hereinafter defined) that Lessor would have realized on this Lease had such Tax Loss (together with any interest, penalties or additions to tax) not occurred. Any event which, by the terms of this Lease, requires payment by Lessee to Lessor of the Stipulated Loss Value of the Equipment shall not constitute the act of Lessee for purpose of the foregoing sentence. (d) As used in this Section, the term "Net Economic Return" shall mean Lessor's net after-tax yield, aggregate after-tax cash flow and return on assets, based on (i) the assumptions used by Lessor in originally calculating Rent and Stipulated Loss Value percentages, including the assumptions set forth above (as such assumptions may have been revised pursuant to the last sentence of this subsection) and (ii) the Highest Marginal Tax Rate actually in effect during each year from the date of such original calculations to the date of such Tax Loss, both dates inclusive. In the event Lessor shall suffer a Tax Loss with respect to which Lessee is required to pay an indemnity hereunder, and the full amount of such indemnity has been paid or provided for hereunder, the aforesaid assumptions, without further act of the parties hereto, shall thereupon be and be deemed to be amended, if and to the extent appropriate, to reflect such Tax Loss. (e) For purposes of this Section, the term "Lessor" shall include the entity or entities, if any, with which Lessor consolidates any tax return. Lessee acknowledges that it has neither sought nor received tax advice from Lessor as to the availability to Lessee of any tax benefits with respect to the Equipment. All of Lessor's rights and privileges arising from the indemnities contained in this Lease will survive the expiration or other termination or cancellation of this Lease. Such indemnities are expressly made for the benefit of, and are enforceable by, Lessor and its successors and assigns. 8. STIPULATED LOSS VALUE, DISCOUNT RATE. (a) The Stipulated Loss Values applicable to the Equipment and this Lease are as set forth on a supplement (the "Stipulated Loss Value Supplement") prepared by Lessor. (b) Any provision of this Lease to the contrary notwithstanding, all present value calculations to be made with respect to the Equipment described on this Schedule shall be made using a discount rate equal to three percent (3%). 9. PERSONAL PROPERTY TAX. Unless otherwise directed in writing by Lessor or required by Applicable Law, Lessee will not list itself as owner of any Item of Equipment for property tax purposes. Upon receipt by Lessee of any property tax bill pertaining to such Item of Equipment from the appropriate taxing authority, Lessee will promptly forward such property tax bill to Lessor. Upon receipt by Lessor of any such property tax bill (whether from Lessee or directly from the taxing authority), Lessor will pay such tax and will invoice Lessee for the expense. Upon receipt of such invoice, Lessee will promptly reimburse Lessor for such expense. 10. MODIFICATIONS TO MASTER LEASE. With respect to the Equipment described on this Schedule, the Master Lease shall be modified as follows: (a) Section 31 of the Master Lease ("Representations and Warranties of Lessee"), is hereby amended by adding the following additional representation: E-64 5 Lessee has conducted a comprehensive review and assessment of the Lessee's computer applications and made inquiry of the Lessee's key suppliers, vendors and customers with respect to the "year 2000 problem" (that is, the risk that computer applications may not be able to properly perform date-sensitive functions after December 31, 1999) and based on that review and inquiry, the Lessee does not believe the year 2000 problem will result in a material adverse change in the Lessee's business condition (financial or otherwise), operations, properties or prospects, or ability to perform the obligations of Lessee under this Lease. Conforming Modifications. With respect to the Equipment described on this Schedule, the Master Lease shall be modified as follows: (b) (1) The definitions of "Equipment" and "Term" in Section 4 of the Master Lease ("Definitions") are hereby deleted in their entirety and the following definitions are substituted in their place: "Equipment " shall mean an item or items of personal property designated from time to time by Lessee which are described on an Equipment Schedule and which are being or will be leased by Lessee pursuant to a Lease, together with all replacement parts, additions and accessories incorporated therein or affixed thereto including, without limitation, any software that is a component or integral part of, or is included or used in connection with, any Item of Equipment, but with respect to such software, only to the extent of Lessor's interest therein, if any. "Term" shall mean the Initial Term or any Renewal Term, each as defined in Section 8 hereof, and any Extended Lease Term or Interim Term as defined in an Equipment Schedule. (c) The following shall be inserted as the penultimate sentence of Section 11 of the Master Lease ("Use; Alterations"): All such alterations, additions, modifications or improvements shall immediately, and without further act, be deemed to constitute Items of Equipment and be fully subject to this Lease as if originally leased hereunder. (d) The following shall be inserted as the penultimate sentence of Section 12 of the Master Lease ("Repairs and Maintenance"): Upon installation, attachment or incorporation in, on or into such Item of Equipment, such replacement part shall immediately, and without further act, be deemed to constitute an Item of Equipment and be fully subject to this Lease as if originally leased hereunder. (e) Section 22 of the Master Lease ("Events of Default") is hereby amended as follows: (i) with respect to Section 22(a), the term "Event of Default" shall also mean any of the following which are hereby added as new subparts: (10) Lessee merges or consolidates with any other corporation or entity, or sells, leases or disposes of all or substantially all of its assets without the prior written consent of Lessor; (11) a change in control occurs in Lessee or any Guarantor; or (12) the death or dissolution of Lessee or any Guarantor; (ii) with respect to Section 22(b)(4), the word "terminate" is hereby deleted and the words "cancel or terminate" are hereby substituted in its place; (iii) with respect to Section 22(b)(5), the existing section is hereby deleted in its entirety and the following is substituted in its place: (5) demand that Lessee, and Lessee shall, upon written demand of Lessor and at Lessee's expense forthwith return all Items of Equipment to Lessor in the manner and condition required by Section 13 hereof, provided, however, that Lessee shall remain and be liable to Lessor for any amounts provided for herein or other damages resulting from the Equipment not being in the condition required by Section 12 hereof, and otherwise in accordance with all of the provisions of this Lease, except those provisions relating to periods of notice; (iv) with respect to Section 22(b)(6), the word "termination" is hereby deleted and the words "cancellation or termination" are hereby substituted in its place; and (v) Beginning with Section 22(b)(7) inclusive, the remainder of Section 22(b) is hereby deleted in its entirety and the E-65 6 following is substituted in its place: (7) by written notice to Lessee specifying a payment date (the "Remedy Date") demand that Lessee forthwith return all Items of Equipment to Lessor in the manner and condition required by Section 22(b)(5) hereof and, in addition, demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the Remedy Date, as liquidated damages for loss of a bargain and not as a penalty, any unpaid Rent due prior to the Remedy Date plus whichever of the following amounts Lessor, in its sole discretion, shall specify in such notice (together with interest on such amount at the Default Rate from the Remedy Date to the date of actual payment): (i) an amount, with respect to an Item of Equipment, equal to the Rent payable for such Item of Equipment for the remainder of the then current Term thereof, after discounting such Rent to present worth as of the Remedy Date on the basis of a per annum rate of discount equal to three percent (3%) from the respective dates upon which such Rent would have been paid had this Lease not been canceled or terminated; or (ii) the Stipulated Loss Value, computed as of the Remedy Date or, if the Remedy Date is not a Rent Payment Date, the Rent Payment Date next following the Remedy Date (provided, however, that, with respect to any proceeds actually received by Lessor for any Item of Equipment returned to or repossessed by Lessor, Lessor agrees that it shall first apply such proceeds to satisfy Lessee's obligation to pay the Stipulated Loss Value or, if Lessor has received payment in full of the Stipulated Loss Value from Lessee, Lessor shall remit such proceeds to Lessee (after first deducting any Lessor Expense) up to the amount of the Stipulated Loss Value; (8) cause Lessee, at its expense, to promptly assemble any and all Items of Equipment and return the same to Lessor at such place as Lessor may designate in writing; and (9) exercise any other right or remedy available to Lessor under applicable law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof or to rescind this Lease. In addition, Lessee shall be liable, except as otherwise provided above, for any and all unpaid Rent due hereunder before or during the exercise of any of the foregoing remedies, and for reasonable legal fees and other costs and expenses incurred by reason of the occurrence of any Event of Default or the exercise of Lessor's remedies with respect thereto. If an Event of Default occurs, Lessee hereby agrees that ten (10) days prior notice to Lessee of (A) any public sale or (B) the time after which a private sale may be negotiated shall be conclusively deemed reasonable and, to the extent permitted by Applicable Law, Lessee waives all rights and defenses with respect to such disposition of the Equipment. None of Lessor's rights or remedies hereunder are intended to be exclusive of, but each shall be cumulative and in addition to any other right or remedy referred to hereunder or otherwise available to Lessor at laiv or in equity, and no express or implied waiver by Lessor of any Event of Default shall constitute a waiver of any other Event of Default or a waiver of any of Lessor's rights. MISCELLANEOUS TERMS & CONDITIONS 11. ADDITIONAL MAINTENANCE REQUIREMENTS. Section 13 of the Lease ("Return of Equipment") shall be deleted in its entirety and the following substituted in its place: 13. Return of Equipment. (a) Upon the expiration of the Term of any Lease or upon demand by Lessor pursuant to Section 22 hereof, Lessee, at its sole expense, shall return all of the Equipment leased under the Lease by delivering it in a manner consistent with the manufacturer's recommendations and practices to such place or on board such carrier (packed properly and in accordance with the manufacturer's instructions) as Lessor shall specify. Lessee agrees that the Equipment, when returned, shall be free and clear of all Liens, and in the same condition as when delivered to Lessee, reasonable wear and tear excepted. Reasonable wear and tear shall mean that each item of the Equipment has been maintained by Lessee in "Average Saleable Condition" (as hereinafter defined) and that all components of the Equipment have been properly serviced, following the manufacturer's written operating and servicing procedures, such that the Equipment is eligible for a manufacturer's standard, full service maintenance contract without Lessor's incurring any expense to repair or rehabilitate the Equipment. If, in the opinion of Lessor, any item of the Equipment fails to meet the standards set forth in this Section 13, Lessee agrees to pay on demand all costs and expenses incurred in connection with repairing the Equipment, restoring it to such condition so as to meet such standards and assembling and delivering such Item of Equipment pursuant to Lessor's instructions. If Lessee fails to return any Item of Equipment as required hereunder, then, all of Lessee's obligations under this Lease (including, without limitation, Lessee's obligation to pay Rent for such Item of Equipment at the rental then applicable under this Lease) shall continue in full force and effect until such Item of Equipment shall have been returned in the condition required hereunder. (b) Lessee shall give Lessor at least one hundred eighty (180) but not more than two hundred seventy (270) days written notice that Lessee is returning the Equipment as provided for above (the "Return Notice") and shall include with such notice, all of the following: E-66 7 (i) a detailed inventory of all components of the Equipment including without limitation all of the model and serial numbers of any components; (ii) a complete set of current and up to date service and operating manuals for each Item of Equipment; (iii) a complete set of current and up to date maintenance logs and other appropriate documentation detailing the Equipment's then current configuration (including a description of all replacements and additions thereto made during the Term of the Lease) and all operating requirements and technical data regarding the setup, use and operation of the Equipment; (iv) an in-depth field service report (the "Report") detailing the results of an inspection conducted by a representative of the manufacturer or a qualified equipment maintenance provider acceptable to Lessor certifying that the Equipment has been properly inspected, examined, tested and is operating within the manufacturer's specification and addressing, at a minimum the following areas: (A) comprehensive physical inspection; (B) testing of all material and workmanship of the Equipment; and (C) conformation of all Equipment operations to Applicable Law and confirming that the Equipment is otherwise in Average Saleable Condition (as hereinafter defined). If the Report discloses that any of the material, workmanship or Equipment does not meet or, does not operate within, the manufacturer's specifications or any Applicable Law, Lessee shall, at its sole expense, take all necessary corrective measures and submit a second Report from the same inspector evidencing that the Equipment has been brought into conformity with the manufacturer's specifications and Applicable Law. (c) "Average Saleable Condition" shall mean that all of the following minimum standards have been met: Machine Tool Equipment (i) The Equipment has been or will be disassembled according to manufacturer's recommendations and by a licensed rigger/erector specializing in the Equipment, with any transportation devices, such as metal skids, lifting slings, and brackets which were with the machine when it originally arrived, included, and, in addition, all proper blueprinting, mapping, tagging and labeling of each individual part including cables, electrical apparatus and wires have been included, all process fluids and/or any hazardous materials have been removed from the Equipment and disposed of in accordance with Applicable Law. (ii) All manuals, maintenance records, log books, plans, drawings and schematics, inspection and overhaul records, operating requirements or other materials pertinent to the Equipment's operation, maintenance, assembly and disassembly have been assembled and are ready to be returned to Lessor. (iii) There is no structural or mechanical damage, and all frames, structural members, accessories and attachments are structurally sound without breaks or cracks and in compliance with all federal, state, local and other regulatory requirements. (iv) The Equipment is able to perform its required tasks effectively without repair including but not limited to electronic, electrical and mechanical controls, pumps, motors, belts, hoses, pins, bushings, measuring devices, screws, barrels, ways, rams, and clamps, and is operational and in compliance with all Applicable Law and is within manufacturer's design performance characteristics and tolerances. (v) The Equipment is clean and rust free, and sumps and tanks are clean and dry. (vi) Equipment with predictable or scheduled replacements or overhaul fives has not less than 50% useful life remaining before the next such replacement, overhaul, recalibration or rebuild. (vii) All major components and all wear points, including, but not limited to electronic and mechanical controls and pumps, motors, belts, hoses, pins, bushings, measuring devices, screws, barrels, ways, cams, clamps and supports, are within manufacturer's design performance characteristics and tolerances and are capable of performing as originally intended by the manufacturer and in a safe manner. (viii) The Equipment is complete, with no missing components or attachments. (ix) The Equipment has been lubricated according to the maintenance manual and/or lubrication schedule recommended by the manufacturer, and written records of the lubrication service have been kept, dated, and signed by the appropriate authority. (x) All internal fluids, such as lube oil and hydraulic oil, have been filled to operating levels, all filler caps have been secured and all disconnected hoses have been sealed to avoid accidental spillage. (d) In addition to all other rights of Lessor under the Lease, Lessor shall have the right to attempt to resell or auction the E-67 8 Equipment from Lessee's facility with the Lessee's full cooperation and assistance, for a period commencing with Lessor's receipt of the Return Notice and ending one hundred eighty (180) days after the Initial Term Expiration Date. Lessee agrees to pay the reasonable costs and expenses of such sale or auction (and all storage prior thereto), and agrees that the Equipment shall remain capable of operation during this period. Lessee shall provide adequate electrical power, lighting, heat, water and all other requirements sufficient to allow for normal maintenance and for demonstrations of the Equipment to any potential buyer. 12. GOVERNING LAW. This Schedule is being delivered in the State of New York and shall be governed by, and construed in accordance with, the laws of the State of New York, including all matters of construction, validity and performance without giving effect to any choice of law or conflict of laws provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. 13. COUNTERPARTS. This Schedule may be executed in any number of counterparts, each executed counterpart constituting an original but all together one and the same instrument. 14. MORE THAN ONE LESSEE. If more than one person or entity executes this Schedule, or any other Lease Documents executed in connection herewith, as "Lessee," the obligations of "Lessee" contained herein and therein shall be deemed joint and several and all references to "Lessee" shall apply both individually and jointly. 15. RELATIONSHIP TO MASTER LEASE; FURTHER ASSURANCES. This Schedule shall be construed in connection with and as part of this Lease, and all terms contained in the Master Lease are hereby incorporated herein by reference with the same force and effect as if such terms were fully stated herein. By execution of this Schedule, Lessee and Lessor reaffirm all terms of the Master Lease except as they may be modified hereby. To the extent that any of the terms of this Schedule are contrary to or inconsistent with any terms of the Master Lease, the terms of this Schedule shall govern. LESSEE HEREBY CERTIFIES TO LESSOR THAT THE REPRESENTATIONS AND WARRANTIES MADE BY LESSEE IN THE MASTER LEASE (INCLUDING, WITHOUT LIMITATION, SECTION 31 THEREOF) ARE TRUE AND CORRECT IN ALL MATERIAL RESPECTS AS OF THE DATE OF THIS SCHEDULE WITH THE SAME EFFECT AS THOUGH MADE ON AND AS OF SUCH DATE. Lessee shall take such additional actions and execute and deliver such additional documents as Lessor shall deem necessary from time to time to effectuate the terms of this Lease. 16. POWER OF ATTORNEY. LESSEE HEREBY APPOINTS LESSOR OR ITS ASSIGNEE AS ITS TRUE AND LAWFUL ATTORNEY IN FACT, IRREVOCABLY AND COUPLED WITH AN INTEREST, TO EXECUTE AND FILE ON BEHALF OF LESSEE ALL UCC FINANCING STATEMENTS WHICH IN LESSOR'S SOLE DISCRETION ARE NECESSARY OR PROPER TO SECURE LESSOR'S INTEREST IN THE EQUIPMENT IN ALL APPLICABLE JURISDICTIONS. Lessee hereby ratifies, to the extent permitted by law, all that Lessor shall lawfully and in good faith do or cause to be done by reason of and in compliance with this paragraph. E-68 9 IN WITNESS WHEREOF, Lessor and Lessee have caused this Schedule to be duly executed and delivered on the day and year first above written. LESSOR: LESSEE: KEYCORP LEASING, AUTOCAM CORPORATION A DIVISION OF KEY CORPORATE CAPITAL INC. By: /s/ Linda L. Huff By: /s/ Warren A. Veltman Name: Linda L. Huff Name: Warren A. Veltman Title: Vice President Title: Chief Financial Officer COUNTERPART NO. 1 OF 1 SERIALLY NUMBERED MANUALLY EXECUTED COUNTERPARTS. TO THE EXTENT THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL CODE, NO SECURITY INTEREST MAY BE CREATED THROUGH THE TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1. E-69 10 Exhibit A EQUIPMENT DESCRIPTION LESSOR: KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC. LESSEE: AUTOCAM CORPORATION LEASE: Equipment Schedule No. 05 dated as of May 21, 1999 to Master Equipment Lease Agreement Dated as of July 10, 1995 VENDOR: SUGINO CORP. 1700 PENNY LANE SCHAUMBURG, IL 60173 QUANTITY: DESCRIPTION: SERIAL NO. INVOICE NO. - --------- ------------ ---------- ----------- 2 JFC-V622 GMTE JET FLEX CENTER 963678 E-70 11 EQUIPMENT SCHEDULE NO. 06 dated as of August 23, 1999 (this "Schedule") between KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC. ("Lessor"), and AUTOCAM CORPORATION, a Michigan corporation ("Lessee"). INTRODUCTION: Lessor and Lessee have heretofore entered into that certain Master Equipment Lease Agreement dated as of July 10, 1995 (the "Master Lease"; the Master Lease and this Schedule are hereinafter collectively referred to as, this "Lease"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings specified in the Master Lease. The Master Lease provides for the execution and delivery of a Schedule substantially in the form hereof for the purpose of confirming the acceptance and lease of the Equipment under this Lease as and when delivered by Lessor to Lessee in accordance with the terms thereof and hereof. NOW, THEREFORE, in consideration of the premises and other good and sufficient consideration, Lessor and Lessee hereby agree as follows: EQUIPMENT & INVOICING TERMS 1 EQUIPMENT. Pursuant to the terms and conditions of this Lease, Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the equipment listed on Exhibit A attached hereto (the "Equipment"). The aggregate Total Cost of such Equipment is $1,599,227.48. 2 TERM. The Initial Term of this Lease with respect to the Equipment described on this Schedule shall commence on the date on which such Equipment is delivered to Lessee, and, unless earlier terminated as provided herein, shall expire on a date which is ninety six (96) months after the Rent Commencement Date (the "Initial Term Expiration Date"). 3 RENT PAYMENT DATES; RENT. Lessee hereby agrees to pay Rent for the Equipment throughout the Initial Term in ninety six (96) consecutive monthly installments payable in arrears on the date which is one (1) month after the Rent Commencement Date and on the same day of each month thereafter (each, a "Rent Payment Date"). Each such installment of Rent shall be in an amount equal to $19,941.05. In addition, Lessee hereby agrees to pay Rent for the period commencing on the Interim Rent Commencement Date (as defined below) and ending on the day before the Rent Commencement Date in an amount equal to $664.71 per day, and agrees that, with respect to the Equipment described on this Schedule, the following modifications are hereby made to the Master Lease: (a) "Rent Commencement Date- shall mean, with respect to an Equipment Group, the first (1st) day of the first month following the date of the Certificate of Acceptance for such Equipment Group, (b) "Interim Rent Commencement Date" shall mean, with respect to an Equipment Group, the date of the Certificate of Acceptance for such Equipment Group, or such later date (prior to the Rent Commencement Date) as determined by Lessor in its sole discretion, (c) Section 6 of the Master Lease ("Ordering Equipment") is hereby amended to delete the term "Rent Commencement Date" and to substitute the term "Interim Rent Commencement Date" in its place and (d) Section 22(a)(9) of the Master Lease ("Events of Default; Remedies") is hereby amended to delete the term "Rent Commencement Date" and to substitute the phrase "Rent Commencement Date or Interim Rent Commencement Date, as the case may be," in its place. 4 EQUIPMENT LOCATION; BILLING ADDRESS. The Equipment described on this Schedule shall be located at, and except as otherwise provided in this Lease, shall not be removed from, the following address: 4070 East Paris Avenue, Kentwood, MI 49512. The billing address of Lessee is as follows: AUTOCAM CORPORATION, 4070 East Paris Avenue, Kentwood, MI 49512. TRANSACTION TYPE TERMS 5 PURCHASE, RENEWAL AND OPTION TERMS. (a) FMV. With respect to the Equipment described on this Schedule, Section 32 of the Master Lease ("Renewal and Purchase E-71 12 Options") is hereby deleted in its entirety and the following is substituted in its place: So long as no Default or Event of Default shall have occurred and be continuing and Lessee shall have given Lessor at least one hundred eighty (180) but not more than two hundred seventy (270) days prior written notice (the "Option Notice"), Lessee shall have the following purchase and renewal options at the expiration of the Initial Term, or any Renewal Term, to: (i) purchase all, but not less than all, Items of Equipment for a purchase price (the "Purchase Option Price") equal to the then Fair Market Sale Value thereof; (ii) renew this Lease on a month to month basis at the same Rent payable at the expiration of such Initial Term or Renewal Term, as the case may be; (iii) renew this Lease for a minimum period of not less than twelve (12) consecutive months at the then current Fair Market Rental Value; or (iv) return such Equipment to Lessor pursuant to, and in the condition required by, the Lease. If Lessee fails to give Lessor the Option Notice, Lessee shall be deemed to have chosen option (ii) above. Payment of the Purchase Option Price, applicable sales taxes, together with all other amounts due and owing by Lessee under the Lease (including, without limitation, Rent) during such Initial Term and Renewal Term shall be made on the last day of the Initial Term or Renewal Term, as the case may be, in immediately available funds against delivery of a bill of sale transferring to Lessee all right, title and interest of Lessor in and to the Equipment ON AN "AS IS" "WHERE IS" BASIS, WITHOUT ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE. LESSOR MAY SPECIFICALLY DISCLAIM ANY SUCH REPRESENTATIONS AND WARRANTIES. (b) Early Buyout Option. So long as no Default or Event of Default shall have occurred and be continuing, Lessee shall have the option to purchase all, but not less than all, Items of Equipment on the date which is eighty four (84) months after the Rent Commencement Date (the "EBO Date") at a price (the "EBO Price") equal to thirty one and fifty one hundredths percent (31.51%) of the Total Cost of the Equipment, plus any applicable sales taxes. For Lessee to exercise its option hereunder, Lessee shall notify Lessor in writing of its desire to effect such option at least ninety (90) days (but not more than one hundred eighty (180) days) prior to the EBO Date. Such notice shall be irrevocable. The EBO Price represents the parties present best estimate of the fair market value of the Equipment on the EBO Date determined by using commercially reasonable methods which are standard in the industry. Payment of the EBO Price, applicable sales taxes, together with all other amounts due and owing by Lessee under the Lease (including, without limitation, Rent) on or before the EBO Date, shall be made on the EBO Date in immediately available funds. Thereafter, upon Lessee's written request, Lessor shall deliver to Lessee a bill of sale transferring to Lessee all right, title and interest of Lessor in and to the Equipment ON AN "AS IS" "WHERE IS" BASIS, WITHOUT ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER. If Lessee shall fail to pay all amounts required to be paid under the Lease on the EBO Date, the Lease shall continue in full force and effect and Lessee agrees to reimburse Lessor for all reasonable costs, expenses and liabilities incurred in connection therewith. 6. NATURE OF TRANSACTION; TRUE LEASE. (a) It is the express intent of the parties that this Lease constitute a true lease and not a sale of the Equipment Title to the Equipment shall at all times remain in Lessor, and Lessee shall acquire no ownership, title, property, right, equity, or interest in the Equipment other than its leasehold interest solely as Lessee subject to all the terms and conditions hereof. To the extent that Article 2A ("Article 2A") of the Uniform Commercial Code ("UCC") applies to the characterization of this Lease, the parties hereby agree that this Lease is a "Finance Lease" as defined therein. Lessee acknowledges: (i) that Lessee has selected the "Supplier" (as defined in the UCC) and has directed Lessor to purchase the Equipment from the Supplier in connection with this Lease, and (ii) that Lessee has been informed in writing in this Lease, before Lessee's execution of this Lease, that Lessee is entitled under Article 2A to the promises and warranties, including those of any third party, provided to Lessor by the Supplier in connection with or as part of the Purchase Agreement, and that Lessee may communicate with the Supplier and receive an accurate and complete statement of those promises and warranties, including any disclaimers and limitations of them or of remedies. The filing of UCC financing statements pursuant to Section 34 of the Master Lease is precautionary and shall not be deemed to have any effect on the characterization of this Lease. NOTWITHSTANDING THE FOREGOING, LESSOR HAS NOT MADE, AND HEREBY DISCLAIMS ANY ADVICE, REPRESENTATIONS, WARRANTIES AND COVENANTS, EITHER EXPRESSED OR IMPLIED, WITH RESPECT TO ANY LEGAL, ECONOMIC, ACCOUNTING, TAX OR OTHER EFFECTS OF THE LEASE AND THE TRANSACTION(S) CONTEMPLATED THEREBY, AND LESSEE HEREBY DISCLAIMS ANY RELIANCE ON ANY SUCH E-72 13 WARRANTIES, STATEMENTS OR REPRESENTATIONS MADE BY LESSOR WITH RESPECT THERETO. (b) Notwithstanding the express intent of Lessor and Lessee that this agreement constitute a true leage and not a sale of the Equipment, should a court of competent jurisdiction determine that this agreement is not a true lease, but rather one intended as security, then solely in that event and for the expressly limited purposes thereof, Lessee shall be deemed to have hereby granted Lessor a security interest in the Equipment and all accessions, substitutions and replacements thereto and therefor, and proceeds (cash and non-cash), including, without limitation, insurance proceeds thereof (but without power of sale), to secure the prompt payment and performance as and when due of all obligations and indebtedness of Lessee, now existing or hereafter created, to Lessee pursuant to this Lease or otherwise. In furtherance of the foregoing, Lessee shall execute and deliver to Lessor, to be filed at Lessee's expense, Uniform Commercial Code financing statements, statements of amendment and statements of continuation as reasonably may be required by Lessor to perfect and maintain perfected such security interest. (c) In the event that the Supplier erroneously invoices Lessee for the Equipment, Lessee agrees to forward said invoice to Lessor immediately. Lessee acknowledges that the Equipment is, and shall at all times remain, the property of Lessor, and that Lessee has no right, title or interest therein or thereto except as expressly set forth in this Lease. 7. TAX INDEMNIFICATION. (a) Lessee acknowledges that Lessor has executed this Lease, and that the Rent payable by Lessee under this Lease has been computed, upon the assumptions that Lessor will (i) be entitled to depreciation or cost recovery deductions ("MACRS Deductions") for Federal income tax purposes under the Modified Accelerated Cost Recovery System provided for in Section 168 of the Internal Revenue Code of 1986, as amended (the "Code"), and depreciation or cost recovery deductions ("State Depreciation Deductions") for state income tax purposes for the Equipment Location, in each case on the basis that (1) each Item of Equipment constitutes 7-year property" within the meaning of Section 168(e) of the Code, (2) the initial tax basis for each Item of Equipment will be equal to the Total Cost, (3) deductions for each Item of Equipment will be computed by using the method specified in Section 168(b)(1) of the Code over the 7-year recovery period described in Section 168(c) of the Code, and (4) the applicable convention for each Item of Equipment under Section 168(d) of the Code is the half-year convention; (ii) be entitled to deductions for Federal income tax purposes (available in the manner and as provided by Section 163 of the Code) for interest payable with respect to any indebtedness incurred by Lessor in connection with any financing by Lessor of any portion of the Total Cost of each Item of Equipment ("Interest Deductions"); and (iii) be subject to tax for each year at a composite Federal and New York corporate income tax rate equal to the then highest marginal rate for corporations provided for under the Code and the laws of New York (the "Highest Marginal Tax Rate"). The MACRS Deductions, State Depreciation Deductions and Interest Deductions are hereinafter collectively referred to as the "Tax Benefits". (b) Lessee represents and warrants to Lessor that (i) each Item of Equipment constitutes 7-year property" within the meaning of Section 168(e) of the Code, (ii) Lessee shall not attempt to claim such Tax Benefits, (ift) at and after the time of delivery of the Equipment to Lessee pursuant to this Lease the Lessee shall not claim any ownership or title in and to the Equipment, and (iv) Lessee has not, and will not, at any time after such delivery throughout the Term of this Lease, take any action or omit to take any action (whether or not the same is permitted or required hereunder) which will result in the loss by Lessor of all or any part of such Tax Benefits. (c) If, as a result of any act, omission or misrepresentation of Lessee, (x) the Tax Benefits are lost, disallowed, deferred, eliminated, reduced, recaptured, compromised or otherwise unavailable to Lessor, (y) for Federal, foreign, state or local income tax purposes, any item of income, loss or deduction with respect to any Item of Equipment is treated as derived from, or allocable to, sources outside the United States, or (z) there shall be included in the gross income of Lessor for Federal, state or local income tax purposes any amount on account of any addition, modification, substitution or improvement to or in respect of any Item of Equipment made or paid for by Lessee (any of the foregoing being hereinafter a "Tax Loss"), then, within thirty (30) days of Lessee's receipt of written notice from Lessor that such a Tax Loss has occurred, Lessee shall pay to Lessor an amount which, after deduction therefrom of all taxes to be paid in respect of the receipt thereof, will enable Lessor to receive the same Net Economic Return (as hereinafter defined) that Lessor would have realized on this Lease had such Tax Loss (together with any interest, penalties or additions to tax) not occurred. Any event which, by the terms of this Lease, requires payment by Lessee to Lessor of the Stipulated Loss Value of the Equipment shall not constitute the act of Lessee for purpose of the foregoing sentence. E-73 14 (d) As used in this Section, the term "Net Economic Return" shall mean Lessor's net after-tax yield, aggregate after-tax cash flow and return on assets, based on (i) the assumptions used by Lessor in originally calculating Rent and Stipulated Loss Value percentages, including the assumptions set forth above (as such assumptions may have been revised pursuant to the last sentence of this subsection) and (ii) the Highest Marginal Tax Rate actually in effect during each year from the date of such original calculations to the date of such Tax Loss, both dates inclusive. In the event Lessor shall suffer a Tax Loss with respect to which Lessee is required to pay an indemnity hereunder, and the full amount of such indemnity has been paid or provided for hereunder, the aforesaid assumptions, without further act of the parties hereto, shall thereupon be and be deemed to be amended, if and to the extent appropriate, to reflect such Tax Loss. (e) For purposes of this Section, the term "Lessor" shall include the entity or entities, if any, with which Lessor consolidates any tax return. Lessee acknowledges that it has neither sought nor received tax advice from Lessor as to the availability to Lessee of any tax benefits with respect to the Equipment. All of Lessor's rights and privileges arising from the indemnities contained in this Lease will survive the expiration or other termination or cancellation of this Lease. Such indemnities are expressly made for the benefit of, and are enforceable by, Lessor and its successors and assigns. 8. STIPULATED LOSS VALUE, DISCOUNT RATE. (a) The Stipulated Loss Values applicable to the Equipment and this Lease are as set forth on a supplement (the "Stipulated Loss Value Supplement") prepared by Lessor. (b) Any provision of this Lease to the contrary notwithstanding, all present value calculations to be made with respect to the Equipment described on this Schedule shall be made using a discount rate equal to three percent (3%). 9. PERSONAL PROPERTY TAX. Unless otherwise directed in writing by Lessor or required by Applicable Law, Lessee will not list itself as owner of any Item of Equipment for property tax purposes. Upon receipt by Lessee of any property tax bill pertaining to such Item of Equipment from the appropriate taxing authority, Lessee will promptly forward such property tax bill to Lessor. Upon receipt by Lessor of any such property tax bill (whether from Lessee or directly from the taxing authority), Lessor will pay such tax and will invoice Lessee for the expense. Upon receipt of such invoice, Lessee will promptly reimburse Lessor for such expense. 10. MODIFICATIONS TO MASTER LEASE. With respect to the Equipment described on this Schedule, the Master Lease shall be modified as follows: (a) Section 31 of the Master Lease ("Representations and Warranties of Lessee"), is hereby amended by adding the following additional representation: Lessee has conducted a comprehensive review and assessment of the Lessee's computer applications and made inquiry of the Lessee's key suppliers, vendors and customers with respect to the "year 2000 problem" (that is, the risk that computer applications may not be able to properly perform date-sensitive functions after December 31, 1999) and based on that review and inquiry, the Lessee does not believe the year 2000 problem wffl result in a material adverse change in the Lessee's business condition (financial or otherwise), operations, properties or prospects, or ability to perform the obligations of Lessee under this Lease. Conforming Modifications. With respect to the Equipment described on this Schedule, the Master Lease shall be modified as follows: (b) (1) The definitions of "Equipment" and "Term" in Section 4 of the Master Lease ("Definitions") are hereby deleted in their entirety and the following definitions are substituted in their place: "Equipment " shall mean an item or items of personal property designated from time to time by Lessee which are described on an Equipment Schedule and which are being or will be leased by Lessee pursuant to a Lease, together with all replacement parts, additions and accessories incorporated therein or affixed thereto including, without limitation, any software that is a component or integral part of, or is included or used in connection with, any Item of Equipment, but with respect to such software, only to the extent of Lessor's interest therein, if any. E-74 15 "Term" shall mean the Initial Term or any Renewal Term, each as defined in Section 8 hereof, and any Extended Lease Term or Interim Term as defined in an Equipment Schedule. (2) All references to the defined term "Late Payment Rate" shall be deemed to be references to the term "Default Rate", and the term "Default Rate" shall mean an annual interest rate equal to the lesser of 18% or the maximum interest rate permitted by Applicable Law. (c) The following shall be inserted as the penultimate sentence of Section 11 of the Master Lease ("Use; Alterations"): All such alterations, additions, modifications or improvements shall immediately, and without further act, be deemed to constitute Items of Equipment and be fully subject to this Lease as if originally leased hereunder. (d) The following shall be inserted as the penultimate sentence of Section 12 of the Master Lease ("Repairs and Maintenance"): Upon installation, attachment or incorporation in, on or into such Item of Equipment, such replacement part shall immediately, and without further act, be deemed to constitute an Item of Equipment and be fully subject to this Lease as if originally leased hereunder. (e) Section 22 of the Master Lease ("Events of Default") is hereby amended as follows: (i) with respect to Section 22(a), the term "Event of Default" shall also mean any of the following which are hereby added as new subparts: (10) Lessee merges or consolidates with any other corporation or entity, or sells, leases or disposes of all or substantially all of its assets without the prior written consent of Lessor; (11) a change in control occurs in Lessee or any Guarantor; or (12) the death or dissolution of Lessee or any Guarantor; (ii) with respect to Section 22(b)(4), the word "terminate" is hereby deleted and the words "cancel or terminate" are hereby substituted in its place; (iii) with respect to Section 22(b)(5), the existing section is hereby deleted in its entirety and the following is substituted in its place: (5) demand that Lessee, and Lessee shall, upon written demand of Lessor and at Lessee's expense forthwith return all Items of Equipment to Lessor in the manner and condition required by Section 13 hereof, provided, however, that Lessee shall remain and be liable to Lessor for any amounts provided for herein or other damages resulting from the Equipment not being in the condition required by Section 12 hereof, and otherwise in accordance with all of the provisions of this Lease, except those provisions relating to periods of notice; (iv) with respect to Section 22(b)(6), the word "termination" is hereby deleted and the words "cancellation or termination" are hereby substituted in its place; and (v) Beginning with Section 22(b)(7) inclusive, the remainder of Section 22(b) is hereby deleted in its entirety and the following is substituted in its place: E-75 16 (7) by written notice to Lessee specifying a payment date (the "Remedy Date") demand that Lessee forthwith return all Items of Equipment to Lessor in the manner and condition required by Section 22(b)(5) hereof and, in addition, demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the Remedy Date, as liquidated damages for loss of a bargain and not as a penalty, any unpaid Rent due prior to the Remedy Date plus whichever of the following amounts Lessor, in its sole discretion, shall specify in such notice (together with interest on such amount at the Default Rate from the Remedy Date to the date of actual payment): (i) an amount, with respect to an Item of Equipment, equal to the Rent payable for such Item of Equipment for the remainder of the then current Term thereof, after discounting such Rent to present worth as of the Remedy Date on the basis of a per annum rate of discount equal to three percent (3%) from the respective dates upon which such Rent would have been paid had this Lease not been canceled or terminated; or (ii) the Stipulated Loss Value, computed as of the Remedy Date or, if the Remedy Date is not a Rent Payment Date, the Rent Payment Date next following the Remedy Date (provided, however, that, with respect to any proceeds actually received by Lessor for any Item of Equipment returned to or repossessed by Lessor, Lessor agrees that it shall first apply such proceeds to satisfy Lessee's obligation to pay the Stipulated Loss Value or, if Lessor has received payment in full of the Stipulated Loss Value from Lessee, Lessor shall remit such proceeds to Lessee (after first deducting any Lessor Expense) up to the amount of the Stipulated Loss Value; (8) cause Lessee, at its expense, to promptly assemble any and all Items of Equipment and return the same to Lessor at such place as Lessor may designate in writing; and (9) exercise any other right or remedy available to Lessor under applicable law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof or to rescind this Lease. In addition, Lessee shall be liable, except as otherwise provided above, for any and all unpaid Rent due hereunder before or during the exercise of any of the foregoing remedies, and for reasonable legal fees and other costs and expenses incurred by reason of the occurrence of any Event of Default or the exercise of Lessor's remedies with respect thereto. If an Event of Default occurs, Lessee hereby agrees that ten (10) days prior notice to Lessee of (A) any public sale or (B) the time after which a private sale may be negotiated shall be conclusively deemed reasonable and, to the extent permitted by Applicable Law, Lessee waives all rights and defenses with respect to such disposition of the Equipment. None of Lessor's rights or remedies hereunder are intended to be exclusive of, but each shall be cumulative and in addition to any other right or remedy referred to hereunder or otherwise available to Lessor at laiv or in equity, and no express or implied waiver by Lessor of any Event of Default shall constitute a waiver of any other Event of Default or a waiver of any of Lessor's rights. MISCELLANEOUS TERMS & CONDITIONS 11. ADDITIONAL MAINTENANCE REQUIREMENTS. Section 13 of the Lease ("Return of Equipment") shall be deleted in its entirety and the following substituted in its place: 13. RETURN OF EQUIPMENT. (a) Upon the expiration of the Term of any Lease or upon demand by Lessor pursuant to Section 22 hereof, Lessee, at its sole expense, shall return all of the Equipment leased under the Lease by delivering it in a manner consistent with the manufacturer's recommendations and practices to such place or on board such carrier (packed properly and in accordance with the manufacturer's instructions) as Lessor shall specify. Lessee agrees that the Equipment, when returned, shall be free and clear of all Liens, and in the same condition as when delivered to Lessee, reasonable wear and tear excepted. Reasonable wear and tear shall mean that each item of the Equipment has been maintained by Lessee in "Average Saleable Condition" (as hereinafter defined) and that all components of the Equipment have been properly serviced, following the manufacturer's written operating and servicing procedures, such that the Equipment is eligible for a manufacturer's standard, full service maintenance contract without Lessor's incurring any expense to repair or rehabilitate the Equipment. If, in the opinion of Lessor, any item of the Equipment fails to meet the standards set forth in this Section 13, Lessee agrees to pay on demand all costs and expenses incurred in connection with repairing the Equipment, restoring it to such condition so as to meet such standards and assembling and delivering such Item of Equipment pursuant to Lessor's instructions. If Lessee fails to return any Item of Equipment as required hereunder, then, all of Lessee's obligations under this Lease (including, without limitation, Lessee's obligation to pay Rent for such Item of Equipment at the rental then applicable under this Lease) shall continue in full force and effect until such Item of Equipment shall have been returned in the condition required hereunder. (b) Lessee shall give Lessor at least one hundred eighty (180) but not more than two hundred seventy (270) days written notice that Lessee is returning the Equipment as provided for above (the "Return Notice") and shall include with such notice, all of the following: E-76 17 (i) a detailed inventory of all components of the Equipment including without limitation all of the model and serial numbers of any components; (ii) a complete set of current and up to date service and operating manuals for each Item of Equipment; (iii) a complete set of current and up to date maintenance logs and other appropriate documentation detailing the Equipment's then current configuration (including a description of all replacements and additions thereto made during the Term of the Lease) and all operating requirements and technical data regarding the setup, use and operation of the Equipment; (iv) an in-depth field service report (the "Report") detailing the results of an inspection conducted by a representative of the manufacturer or a qualified equipment maintenance provider acceptable to Lessor certifying that the Equipment has been properly inspected, examined, tested and is operating within the manufacturer's specification and addressing, at a minimum the following areas: (A) comprehensive physical inspection; (B) testing of all material and workmanship of the Equipment; and (C) conformation of all Equipment operations to Applicable Law and confirming that the Equipment is otherwise in Average Saleable Condition (as hereinafter defined). If the Report discloses that any of the material, workmanship or Equipment does not meet or, does not operate within, the manufacturer's specifications or any Applicable Law, Lessee shall, at its sole expense, take all necessary corrective measures and submit a second Report from the same inspector evidencing that the Equipment has been brought into conformity with the manufacturer's specifications and Applicable Law. (c) "Average Saleable Condition" shall mean that all of the following minimum standards have been met: Machine Tool Equipment (i) The Equipment has been or will be disassembled according to manufacturer's recommendations and by a licensed rigger/erector specializing in the Equipment, with any transportation devices, such as metal skids, lifting slings, and brackets which were with the machine when it originally arrived, included, and, in addition, all proper blueprinting, mapping, tagging and labeling of each individual part including cables, electrical apparatus and wires have been included, all process fluids and/or any hazardous materials have been removed from the Equipment and disposed of in accordance with Applicable Law. (ii) All manuals, maintenance records, log books, plans, drawings and schematics, inspection and overhaul records, operating requirements or other materials pertinent to the Equipment's operation, maintenance, assembly and disassembly have been assembled and are ready to be returned to Lessor. (iii) There is no structural or mechanical damage, and all frames, structural members, accessories and attachments are structurally sound without breaks or cracks and in compliance with all federal, state, local and other regulatory requirements. (iv) The Equipment is able to perform its required tasks effectively without repair including but not limited to electronic, electrical and mechanical controls, pumps, motors, belts, hoses, pins, bushings, measuring devices, screws, barrels, ways, rams, and clamps, and is operational and in compliance with all Applicable Law and is within manufacturer's design performance characteristics and tolerances. (v) The Equipment is clean and rust free, and sumps and tanks are clean and dry. (vi) Equipment with predictable or scheduled replacements or overhaul fives has not less than 50% useful life remaining before the next such replacement, overhaul, recalibration or rebuild. (vii) All major components and all wear points, including, but not limited to electronic and mechanical controls and pumps, motors, belts, hoses, pins, bushings, measuring devices, screws, barrels, ways, cams, clamps and supports, are within manufacturer's design performance characteristics and tolerances and are capable of performing as originally intended by the manufacturer and in a safe manner. (viii) The Equipment is complete, with no missing components or attachments. (ix) The Equipment has been lubricated according to the maintenance manual and/or lubrication schedule recommended by the manufacturer, and written records of the lubrication service have been kept, dated, and signed by the appropriate authority. (x) All internal fluids, such as lube oil and hydraulic oil, have been filled to operating levels, all filler caps have been secured and all disconnected hoses have been sealed to avoid accidental spillage. E-77 18 (d) In addition to all other rights of Lessor under the Lease, Lessor shall have the right to attempt to resell or auction the Equipment from Lessee's facility with the Lessee's full cooperation and assistance, for a period commencing with Lessor's receipt of the Return Notice and ending one hundred eighty (180) days after the Initial Term Expiration Date. Lessee agrees to pay the reasonable costs and expenses of such sale or auction (and all storage prior thereto), and agrees that the Equipment shall remain capable of operation during this period. Lessee shall provide adequate electrical power, lighting, heat, water and all other requirements sufficient to allow for normal maintenance and for demonstrations of the Equipment to any potential buyer. 12. GOVERNING LAW. This Schedule is being delivered in the State of New York and shall be governed by, and construed in accordance with, the laws of the State of New York, including all matters of construction, validity and performance without giving effect to any choice of law or conflict of laws provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. 13. COUNTERPARTS. This Schedule may be executed in any number of counterparts, each executed counterpart constituting an original but all together one and the same instrument. 14. MORE THAN ONE LESSEE. If more than one person or entity executes this Schedule, or any other Lease Documents executed in connection herewith, as "Lessee," the obligations of "Lessee" contained herein and therein shall be deemed joint and several and all references to "Lessee" shall apply both individually and jointly. 15. RELATIONSHIP TO MASTER LEASE; FURTHER ASSURANCES. This Schedule shall be construed in connection with and as part of this Lease, and all terms contained in the Master Lease are hereby incorporated herein by reference with the same force and effect as if such terms were fully stated herein. By execution of this Schedule, Lessee and Lessor reaffirm all terms of the Master Lease except as they may be modified hereby. To the extent that any of the terms of this Schedule are contrary to or inconsistent with any terms of the Master Lease, the terms of this Schedule shall govern. LESSEE HEREBY CERTIFIES TO LESSOR THAT THE REPRESENTATIONS AND WARRANTIES MADE BY LESSEE IN THE MASTER LEASE (INCLUDING, WITHOUT LIMITATION, SECTION 31 THEREOF) ARE TRUE AND CORRECT IN ALL MATERIAL RESPECTS AS OF THE DATE OF THIS SCHEDULE WITH THE SAME EFFECT AS THOUGH MADE ON AND AS OF SUCH DATE. Lessee shall take such additional actions and execute and deliver such additional documents as Lessor shall deem necessary from time to time to effectuate the terms of this Lease. 16. POWER OF ATTORNEY. LESSEE HEREBY APPOINTS LESSOR OR ITS ASSIGNEE AS ITS TRUE AND LAWFUL ATTORNEY IN FACT, IRREVOCABLY AND COUPLED WITH AN INTEREST, TO EXECUTE AND FILE ON BEHALF OF LESSEE ALL UCC FINANCING STATEMENTS WHICH IN LESSOR'S SOLE DISCRETION ARE NECESSARY OR PROPER TO SECURE LESSOR'S INTEREST IN THE EQUIPMENT IN ALL APPLICABLE JURISDICTIONS. Lessee hereby ratifies, to the extent permitted by law, all that Lessor shall lawfully and in good faith do or cause to be done by reason of and in compliance with this paragraph. E-78 19 IN WITNESS WHEREOF, Lessor and Lessee have caused this Schedule to be duly executed and delivered on the day and year first above written. Lessor: Lessee: KEYCORP LEASING, AUTOCAM CORPORATION A DIVISION OF KEY CORPORATE CAPITAL INC. By: /s/ Linda L. Huff By: /s/ Warren A. Veltman Name: Linda L. Huff Name: Warren A. Veltman Title: Vice President Title: Chief Financial Officer COUNTERPART NO. 1 OF 1 SERIALLY NUMBERED MANUALLY EXECUTED COUNTERPARTS. TO THE EXTENT THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL CODE, NO SECURITY INTEREST MAY BE CREATED THROUGH THE TRANSFER AND POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1. E-79 20 Exhibit A EQUIPMENT DESCRIPTION LESSOR: KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC. LESSEE: AUTOCAM CORPORATION LEASE: Equipment Schedule No. 06 dated as of June 28, 1999 to Master Equipment Lease Agreement Dated as of July 10, 1995 VENDOR: TORNOS TECHNOLOGIES 70 POCONO ROAD BROOKFIELD, CT 06804 QUANTITY: DESCRIPTION: SERIAL NO. INVOICE NO. - --------- ------------ ---------- ----------- 4 TORNOS-BECHLER 8-SPINDLE AUTOMATIC T.62342 D-218571 TYPE BS-20.8 WITH STANDARD VOLTAGE T.62909 D-220702 440V, 8 SPINDLES. CAPACITY 21MM ROUND T.61696 D-220701 BAR, 18MM HEX, 15MM SQUARE W/ ALL T.61842 D-223655 STANDARD ACCESSORIES E-80 21 EQUIPMENT SCHEDULE NO. 07 dated as of August 23, 1999 (this "Schedule") between KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC. ("Lessor"), and AUTOCAM CORPORATION, a Michigan corporation ("Lessee"). INTRODUCTION: Lessor and Lessee have heretofore entered into that certain Master Equipment Lease Agreement dated as of July 10, 1995 (the "Master Lease"; the Master Lease and this Schedule are hereinafter collectively referred to as, this "Lease"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings specified in the Master Lease. The Master Lease provides for the execution and delivery of a Schedule substantially in the form hereof for the purpose of confirming the acceptance and lease of the Equipment under this Lease as and when delivered by Lessor to Lessee in accordance with the terms thereof and hereof. NOW, THEREFORE, in consideration of the premises and other good and sufficient consideration, Lessor and Lessee hereby agree as follows: EQUIPMENT & INVOICING TERMS 1 EQUIPMENT. Pursuant to the terms and conditions of this Lease, Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the equipment listed on Exhibit A attached hereto (the "Equipment"). The aggregate Total Cost of such Equipment is $626,915.94. 2 TERM. The Initial Term of this Lease with respect to the Equipment described on this Schedule shall commence on the date on which such Equipment is delivered to Lessee, and, unless earlier terminated as provided herein, shall expire on a date which is ninety six (96) months after the Rent Commencement Date (the "Initial Term Expiration Date"). 3 RENT PAYMENT DATES; RENT. Lessee hereby agrees to pay Rent for the Equipment throughout the Initial Term in ninety six (96) consecutive monthly installments payable in arrears on the date which is one (1) month after the Rent Commencement Date and on the same day of each month thereafter (each, a "Rent Payment Date"). Each such installment of Rent shall be in an amount equal to $7,790.45. In addition, Lessee hereby agrees to pay Rent for the period commencing on the Interim Rent Commencement Date (as defined below) and ending on the day before the Rent Commencement Date in an amount equal to $259.68 per day, and agrees that, with respect to the Equipment described on this Schedule, the following modifications are hereby made to the Master Lease: (a) "Rent Commencement Date- shall mean, with respect to an Equipment Group, the first (1st) day of the first month following the date of the Certificate of Acceptance for such Equipment Group, (b) "Interim Rent Commencement Date" shall mean, with respect to an Equipment Group, the date of the Certificate of Acceptance for such Equipment Group, or such later date (prior to the Rent Commencement Date) as determined by Lessor in its sole discretion, (c) Section 6 of the Master Lease ("Ordering Equipment") is hereby amended to delete the term "Rent Commencement Date" and to substitute the term "Interim Rent Commencement Date" in its place and (d) Section 22(a)(9) of the Master Lease ("Events of Default; Remedies") is hereby amended to delete the term "Rent Commencement Date" and to substitute the phrase "Rent Commencement Date or Interim Rent Commencement Date, as the case may be," in its place. 4 EQUIPMENT LOCATION; BILLING ADDRESS. The Equipment described on this Schedule shall be located at, and except as otherwise provided in this Lease, shall not be removed from, the following address: 4070 East Paris Avenue, Kentwood, MI 49512. The billing address of Lessee is as follows: AUTOCAM CORPORATION, 4070 East Paris Avenue, Kentwood, MI 49512. TRANSACTION TYPE TERMS 5 PURCHASE, RENEWAL AND OPTION TERMS. (a) FMV. With respect to the Equipment described on this Schedule, Section 32 of the Master Lease ("Renewal and Purchase E-81 22 Options") is hereby deleted in its entirety and the following is substituted in its place: So long as no Default or Event of Default shall have occurred and be continuing and Lessee shall have given Lessor at least one hundred eighty (180) but not more than two hundred seventy (270) days prior written notice (the "Option Notice"), Lessee shall have the following purchase and renewal options at the expiration of the Initial Term, or any Renewal Term, to: (i) purchase all, but not less than all, Items of Equipment for a purchase price (the "Purchase Option Price") equal to the then Fair Market Sale Value thereof; (ii) renew this Lease on a month to month basis at the same Rent payable at the expiration of such Initial Term or Renewal Term, as the case may be; (iii) renew this Lease for a minimum period of not less than twelve (12) consecutive months at the then current Fair Market Rental Value; or (iv) return such Equipment to Lessor pursuant to, and in the condition required by, the Lease. If Lessee fails to give Lessor the Option Notice, Lessee shall be deemed to have chosen option (ii) above. Payment of the Purchase Option Price, applicable sales taxes, together with all other amounts due and owing by Lessee under the Lease (including, without limitation, Rent) during such Initial Term and Renewal Term shall be made on the last day of the Initial Term or Renewal Term, as the case may be, in immediately available funds against delivery of a bill of sale transferring to Lessee all right, title and interest of Lessor in and to the Equipment ON AN "AS IS" "WHERE IS" BASIS, WITHOUT ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE. LESSOR MAY SPECIFICALLY DISCLAIM ANY SUCH REPRESENTATIONS AND WARRANTIES. (b) EARLY BUYOUT OPTION. So long as no Default or Event of Default shall have occurred and be continuing, Lessee shall have the option to purchase all, but not less than all, Items of Equipment on the date which is eighty four (84) months after the Rent Commencement Date (the "EBO Date") at a price (the "EBO Price") equal to thirty one and forty six hundredths percent (31.46%) of the Total Cost of the Equipment, plus any applicable sales taxes. For Lessee to exercise its option hereunder, Lessee shall notify Lessor in writing of its desire to effect such option at least ninety (90) days (but not more than one hundred eighty (180) days) prior to the EBO Date. Such notice shall be irrevocable. The EBO Price represents the parties present best estimate of the fair market value of the Equipment on the EBO Date determined by using commercially reasonable methods which are standard in the industry. Payment of the EBO Price, applicable sales taxes, together with all other amounts due and owing by Lessee under the Lease (including, without limitation, Rent) on or before the EBO Date, shall be made on the EBO Date in immediately available funds. Thereafter, upon Lessee's written request, Lessor shall deliver to Lessee a bill of sale transferring to Lessee all right, title and interest of Lessor in and to the Equipment ON AN "AS IS" "WHERE IS" BASIS, WITHOUT ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER. If Lessee shall fail to pay all amounts required to be paid under the Lease on the EBO Date, the Lease shall continue in full force and effect and Lessee agrees to reimburse Lessor for all reasonable costs, expenses and liabilities incurred in connection therewith. 6. NATURE OF TRANSACTION; TRUE LEASE. (a) It is the express intent of the parties that this Lease constitute a true lease and not a sale of the Equipment Title to the Equipment shall at all times remain in Lessor, and Lessee shall acquire no ownership, title, property, right, equity, or interest in the Equipment other than its leasehold interest solely as Lessee subject to all the terms and conditions hereof. To the extent that Article 2A ("Article 2A") of the Uniform Commercial Code ("UCC") applies to the characterization of this Lease, the parties hereby agree that this Lease is a "Finance Lease" as defined therein. Lessee acknowledges: (i) that Lessee has selected the "Supplier" (as defined in the UCC) and has directed Lessor to purchase the Equipment from the Supplier in connection with this Lease, and (ii) that Lessee has been informed in writing in this Lease, before Lessee's execution of this Lease, that Lessee is entitled under Article 2A to the promises and warranties, including those of any third party, provided to Lessor by the Supplier in connection with or as part of the Purchase Agreement, and that Lessee may communicate with the Supplier and receive an accurate and complete statement of those promises and warranties, including any disclaimers and limitations of them or of remedies. The filing of UCC financing statements pursuant to Section 34 of the Master Lease is precautionary and shall not be deemed to have any effect on the characterization of this Lease. NOTWITHSTANDING THE FOREGOING, LESSOR HAS NOT MADE, AND HEREBY DISCLAIMS ANY ADVICE, REPRESENTATIONS, WARRANTIES AND COVENANTS, EITHER EXPRESSED OR IMPLIED, WITH RESPECT TO ANY LEGAL, ECONOMIC, ACCOUNTING, TAX OR OTHER EFFECTS OF THE LEASE AND THE TRANSACTION(S) CONTEMPLATED THEREBY, AND LESSEE HEREBY DISCLAIMS ANY RELIANCE ON ANY SUCH E-82 23 WARRANTIES, STATEMENTS OR REPRESENTATIONS MADE BY LESSOR WITH RESPECT THERETO. (b) Notwithstanding the express intent of Lessor and Lessee that this agreement constitute a true leage and not a sale of the Equipment, should a court of competent jurisdiction determine that this agreement is not a true lease, but rather one intended as security, then solely in that event and for the expressly limited purposes thereof, Lessee shall be deemed to have hereby granted Lessor a security interest in the Equipment and all accessions, substitutions and replacements thereto and therefor, and proceeds (cash and non-cash), including, without limitation, insurance proceeds thereof (but without power of sale), to secure the prompt payment and performance as and when due of all obligations and indebtedness of Lessee, now existing or hereafter created, to Lessee pursuant to this Lease or otherwise. In furtherance of the foregoing, Lessee shall execute and deliver to Lessor, to be filed at Lessee's expense, Uniform Commercial Code financing statements, statements of amendment and statements of continuation as reasonably may be required by Lessor to perfect and maintain perfected such security interest. (c) In the event that the Supplier erroneously invoices Lessee for the Equipment, Lessee agrees to forward said invoice to Lessor immediately. Lessee acknowledges that the Equipment is, and shall at all times remain, the property of Lessor, and that Lessee has no right, title or interest therein or thereto except as expressly set forth in this Lease. 7. TAX INDEMNIFICATION. (a) Lessee acknowledges that Lessor has executed this Lease, and that the Rent payable by Lessee under this Lease has been computed, upon the assumptions that Lessor will (i) be entitled to depreciation or cost recovery deductions ("MACRS Deductions") for Federal income tax purposes under the Modified Accelerated Cost Recovery System provided for in Section 168 of the Internal Revenue Code of 1986, as amended (the "Code"), and depreciation or cost recovery deductions ("State Depreciation Deductions") for state income tax purposes for the Equipment Location, in each case on the basis that (1) each Item of Equipment constitutes 7-year property" within the meaning of Section 168(e) of the Code, (2) the initial tax basis for each Item of Equipment will be equal to the Total Cost, (3) deductions for each Item of Equipment will be computed by using the method specified in Section 168(b)(1) of the Code over the 7-year recovery period described in Section 168(c) of the Code, and (4) the applicable convention for each Item of Equipment under Section 168(d) of the Code is the half-year convention; (ii) be entitled to deductions for Federal income tax purposes (available in the manner and as provided by Section 163 of the Code) for interest payable with respect to any indebtedness incurred by Lessor in connection with any financing by Lessor of any portion of the Total Cost of each Item of Equipment ("Interest Deductions"); and (iii) be subject to tax for each year at a composite Federal and New York corporate income tax rate equal to the then highest marginal rate for corporations provided for under the Code and the laws of New York (the "Highest Marginal Tax Rate"). The MACRS Deductions, State Depreciation Deductions and Interest Deductions are hereinafter collectively referred to as the "Tax Benefits". (b) Lessee represents and warrants to Lessor that (i) each Item of Equipment constitutes 7-year property" within the meaning of Section 168(e) of the Code, (ii) Lessee shall not attempt to claim such Tax Benefits, (ift) at and after the time of delivery of the Equipment to Lessee pursuant to this Lease the Lessee shall not claim any ownership or title in and to the Equipment, and (iv) Lessee has not, and will not, at any time after such delivery throughout the Term of this Lease, take any action or omit to take any action (whether or not the same is permitted or required hereunder) which will result in the loss by Lessor of all or any part of such Tax Benefits. (c) If, as a result of any act, omission or misrepresentation of Lessee, (x) the Tax Benefits are lost, disallowed, deferred, eliminated, reduced, recaptured, compromised or otherwise unavailable to Lessor, (y) for Federal, foreign, state or local income tax purposes, any item of income, loss or deduction with respect to any Item of Equipment is treated as derived from, or allocable to, sources outside the United States, or (z) there shall be included in the gross income of Lessor for Federal, state or local income tax purposes any amount on account of any addition, modification, substitution or improvement to or in respect of any Item of Equipment made or paid for by Lessee (any of the foregoing being hereinafter a "Tax Loss"), then, within thirty (30) days of Lessee's receipt of written notice from Lessor that such a Tax Loss has occurred, Lessee shall pay to Lessor an amount which, after deduction therefrom of all taxes to be paid in respect of the receipt thereof, will enable Lessor to receive the same Net Economic Return (as hereinafter defined) that Lessor would have realized on this Lease had such Tax Loss (together with any interest, penalties or additions to tax) not occurred. Any event which, by the terms of this Lease, requires payment by Lessee to Lessor of the Stipulated Loss Value of the Equipment shall not constitute the act of Lessee for purpose of the foregoing sentence. E-83 24 (d) As used in this Section, the term "Net Economic Return" shall mean Lessor's net after-tax yield, aggregate after-tax cash flow and return on assets, based on (i) the assumptions used by Lessor in originally calculating Rent and Stipulated Loss Value percentages, including the assumptions set forth above (as such assumptions may have been revised pursuant to the last sentence of this subsection) and (ii) the Highest Marginal Tax Rate actually in effect during each year from the date of such original calculations to the date of such Tax Loss, both dates inclusive. In the event Lessor shall suffer a Tax Loss with respect to which Lessee is required to pay an indemnity hereunder, and the full amount of such indemnity has been paid or provided for hereunder, the aforesaid assumptions, without further act of the parties hereto, shall thereupon be and be deemed to be amended, if and to the extent appropriate, to reflect such Tax Loss. (e) For purposes of this Section, the term "Lessor" shall include the entity or entities, if any, with which Lessor consolidates any tax return. Lessee acknowledges that it has neither sought nor received tax advice from Lessor as to the availability to Lessee of any tax benefits with respect to the Equipment. All of Lessor's rights and privileges arising from the indemnities contained in this Lease will survive the expiration or other termination or cancellation of this Lease. Such indemnities are expressly made for the benefit of, and are enforceable by, Lessor and its successors and assigns. 8. STIPULATED LOSS VALUE, DISCOUNT RATE. (a) The Stipulated Loss Values applicable to the Equipment and this Lease are as set forth on a supplement (the "Stipulated Loss Value Supplement") prepared by Lessor. (b) Any provision of this Lease to the contrary notwithstanding, all present value calculations to be made with respect to the Equipment described on this Schedule shall be made using a discount rate equal to three percent (3%). 9. PERSONAL PROPERTY TAX. Unless otherwise directed in writing by Lessor or required by Applicable Law, Lessee will not list itself as owner of any Item of Equipment for property tax purposes. Upon receipt by Lessee of any property tax bill pertaining to such Item of Equipment from the appropriate taxing authority, Lessee will promptly forward such property tax bill to Lessor. Upon receipt by Lessor of any such property tax bill (whether from Lessee or directly from the taxing authority), Lessor will pay such tax and will invoice Lessee for the expense. Upon receipt of such invoice, Lessee will promptly reimburse Lessor for such expense. 10. MODIFICATIONS TO MASTER LEASE. With respect to the Equipment described on this Schedule, the Master Lease shall be modified as follows: (a) Section 31 of the Master Lease ("Representations and Warranties of Lessee"), is hereby amended by adding the following additional representation: Lessee has conducted a comprehensive review and assessment of the Lessee's computer applications and made inquiry of the Lessee's key suppliers, vendors and customers with respect to the "year 2000 problem" (that is, the risk that computer applications may not be able to properly perform date-sensitive functions after December 31, 1999) and based on that review and inquiry, the Lessee does not believe the year 2000 problem wffl result in a material adverse change in the Lessee's business condition (financial or otherwise), operations, properties or prospects, or ability to perform the obligations of Lessee under this Lease. Conforming Modifications. With respect to the Equipment described on this Schedule, the Master Lease shall be modified as follows: (b) (1) The definitions of "Equipment" and "Term" in Section 4 of the Master Lease ("Definitions") are hereby deleted in their entirety and the following definitions are substituted in their place: "Equipment " shall mean an item or items of personal property designated from time to time by Lessee which are described on an Equipment Schedule and which are being or will be leased by Lessee pursuant to a Lease, together with all replacement parts, additions and accessories incorporated therein or affixed thereto including, without limitation, any software that is a component or integral part of, or is included or used in connection with, any Item of Equipment, but with respect to such software, only to the extent of Lessor's interest therein, if any. E-84 25 "Term" shall mean the Initial Term or any Renewal Term, each as defined in Section 8 hereof, and any Extended Lease Term or Interim Term as defined in an Equipment Schedule. (2) All references to the defined term "Late Payment Rate" shall be deemed to be references to the term "Default Rate", and the term "Default Rate" shall mean an annual interest rate equal to the lesser of 18% or the maximum interest rate permitted by Applicable Law. (c) The following shall be inserted as the penultimate sentence of Section 11 of the Master Lease ("Use; Alterations"): All such alterations, additions, modifications or improvements shall immediately, and without further act, be deemed to constitute Items of Equipment and be fully subject to this Lease as if originally leased hereunder. (d) The following shall be inserted as the penultimate sentence of Section 12 of the Master Lease ("Repairs and Maintenance"): Upon installation, attachment or incorporation in, on or into such Item of Equipment, such replacement part shall immediately, and without further act, be deemed to constitute an Item of Equipment and be fully subject to this Lease as if originally leased hereunder. (e) Section 22 of the Master Lease ("Events of Default") is hereby amended as follows: (i) with respect to Section 22(a), the term "Event of Default" shall also mean any of the following which are hereby added as new subparts: (10) Lessee merges or consolidates with any other corporation or entity, or sells, leases or disposes of all or substantially all of its assets without the prior written consent of Lessor; (11) a change in control occurs in Lessee or any Guarantor; or (12) the death or dissolution of Lessee or any Guarantor; (ii) with respect to Section 22(b)(4), the word "terminate" is hereby deleted and the words "cancel or terminate" are hereby substituted in its place; (iii) with respect to Section 22(b)(5), the existing section is hereby deleted in its entirety and the following is substituted in its place: (5) demand that Lessee, and Lessee shall, upon written demand of Lessor and at Lessee's expense forthwith return all Items of Equipment to Lessor in the manner and condition required by Section 13 hereof, provided, however, that Lessee shall remain and be liable to Lessor for any amounts provided for herein or other damages resulting from the Equipment not being in the condition required by Section 12 hereof, and otherwise in accordance with all of the provisions of this Lease, except those provisions relating to periods of notice; (iv) with respect to Section 22(b)(6), the word "termination" is hereby deleted and the words "cancellation or termination" are hereby substituted in its place; and (v) Beginning with Section 22(b)(7) inclusive, the remainder of Section 22(b) is hereby deleted in its entirety and the following is substituted in its place: E-85 26 (7) by written notice to Lessee specifying a payment date (the "Remedy Date") demand that Lessee forthwith return all Items of Equipment to Lessor in the manner and condition required by Section 22(b)(5) hereof and, in addition, demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the Remedy Date, as liquidated damages for loss of a bargain and not as a penalty, any unpaid Rent due prior to the Remedy Date plus whichever of the following amounts Lessor, in its sole discretion, shall specify in such notice (together with interest on such amount at the Default Rate from the Remedy Date to the date of actual payment): (i) an amount, with respect to an Item of Equipment, equal to the Rent payable for such Item of Equipment for the remainder of the then current Term thereof, after discounting such Rent to present worth as of the Remedy Date on the basis of a per annum rate of discount equal to three percent (3%) from the respective dates upon which such Rent would have been paid had this Lease not been canceled or terminated; or (ii) the Stipulated Loss Value, computed as of the Remedy Date or, if the Remedy Date is not a Rent Payment Date, the Rent Payment Date next following the Remedy Date (provided, however, that, with respect to any proceeds actually received by Lessor for any Item of Equipment returned to or repossessed by Lessor, Lessor agrees that it shall first apply such proceeds to satisfy Lessee's obligation to pay the Stipulated Loss Value or, if Lessor has received payment in full of the Stipulated Loss Value from Lessee, Lessor shall remit such proceeds to Lessee (after first deducting any Lessor Expense) up to the amount of the Stipulated Loss Value; (8) cause Lessee, at its expense, to promptly assemble any and all Items of Equipment and return the same to Lessor at such place as Lessor may designate in writing; and (9) exercise any other right or remedy available to Lessor under applicable law or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof or to rescind this Lease. In addition, Lessee shall be liable, except as otherwise provided above, for any and all unpaid Rent due hereunder before or during the exercise of any of the foregoing remedies, and for reasonable legal fees and other costs and expenses incurred by reason of the occurrence of any Event of Default or the exercise of Lessor's remedies with respect thereto. If an Event of Default occurs, Lessee hereby agrees that ten (10) days prior notice to Lessee of (A) any public sale or (B) the time after which a private sale may be negotiated shall be conclusively deemed reasonable and, to the extent permitted by Applicable Law, Lessee waives all rights and defenses with respect to such disposition of the Equipment. None of Lessor's rights or remedies hereunder are intended to be exclusive of, but each shall be cumulative and in addition to any other right or remedy referred to hereunder or otherwise available to Lessor at laiv or in equity, and no express or implied waiver by Lessor of any Event of Default shall constitute a waiver of any other Event of Default or a waiver of any of Lessor's rights. MISCELLANEOUS TERMS & CONDITIONS 11. ADDITIONAL MAINTENANCE REQUIREMENTS. Section 13 of the Lease ("Return of Equipment") shall be deleted in its entirety and the following substituted in its place: 13. RETURN OF EQUIPMENT. (a) Upon the expiration of the Term of any Lease or upon demand by Lessor pursuant to Section 22 hereof, Lessee, at its sole expense, shall return all of the Equipment leased under the Lease by delivering it in a manner consistent with the manufacturer's recommendations and practices to such place or on board such carrier (packed properly and in accordance with the manufacturer's instructions) as Lessor shall specify. Lessee agrees that the Equipment, when returned, shall be free and clear of all Liens, and in the same condition as when delivered to Lessee, reasonable wear and tear excepted. Reasonable wear and tear shall mean that each item of the Equipment has been maintained by Lessee in "Average Saleable Condition" (as hereinafter defined) and that all components of the Equipment have been properly serviced, following the manufacturer's written operating and servicing procedures, such that the Equipment is eligible for a manufacturer's standard, full service maintenance contract without Lessor's incurring any expense to repair or rehabilitate the Equipment. If, in the opinion of Lessor, any item of the Equipment fails to meet the standards set forth in this Section 13, Lessee agrees to pay on demand all costs and expenses incurred in connection with repairing the Equipment, restoring it to such condition so as to meet such standards and assembling and delivering such Item of Equipment pursuant to Lessor's instructions. If Lessee fails to return any Item of Equipment as required hereunder, then, all of Lessee's obligations under this Lease (including, without limitation, Lessee's obligation to pay Rent for such Item of Equipment at the rental then applicable under this Lease) shall continue in full force and effect until such Item of Equipment shall have been returned in the condition required hereunder. (b) Lessee shall give Lessor at least one hundred eighty (180) but not more than two hundred seventy (270) days written notice that Lessee is returning the Equipment as provided for above (the "Return Notice") and shall include with such notice, all of the following: (i) a detailed inventory of all components of the Equipment including without limitation all of the model and serial E-86 27 numbers of any components; (ii) a complete set of current and up to date service and operating manuals for each Item of Equipment; (iii) a complete set of current and up to date maintenance logs and other appropriate documentation detailing the Equipment's then current configuration (including a description of all replacements and additions thereto made during the Term of the Lease) and all operating requirements and technical data regarding the setup, use and operation of the Equipment; (iv) an in-depth field service report (the "Report") detailing the results of an inspection conducted by a representative of the manufacturer or a qualified equipment maintenance provider acceptable to Lessor certifying that the Equipment has been properly inspected, examined, tested and is operating within the manufacturer's specification and addressing, at a minimum the following areas: (D) comprehensive physical inspection; (E) testing of all material and workmanship of the Equipment; and (F) conformation of all Equipment operations to Applicable Law and confirming that the Equipment is otherwise in Average Saleable Condition (as hereinafter defined). If the Report discloses that any of the material, workmanship or Equipment does not meet or, does not operate within, the manufacturer's specifications or any Applicable Law, Lessee shall, at its sole expense, take all necessary corrective measures and submit a second Report from the same inspector evidencing that the Equipment has been brought into conformity with the manufacturer's specifications and Applicable Law. (c) "Average Saleable Condition" shall mean that all of the following minimum standards have been met: Machine Tool Equipment (xi) The Equipment has been or will be disassembled according to manufacturer's recommendations and by a licensed rigger/erector specializing in the Equipment, with any transportation devices, such as metal skids, lifting slings, and brackets which were with the machine when it originally arrived, included, and, in addition, all proper blueprinting, mapping, tagging and labeling of each individual part including cables, electrical apparatus and wires have been included, all process fluids and/or any hazardous materials have been removed from the Equipment and disposed of in accordance with Applicable Law. (xii) All manuals, maintenance records, log books, plans, drawings and schematics, inspection and overhaul records, operating requirements or other materials pertinent to the Equipment's operation, maintenance, assembly and disassembly have been assembled and are ready to be returned to Lessor. (xiii) There is no structural or mechanical damage, and all frames, structural members, accessories and attachments are structurally sound without breaks or cracks and in compliance with all federal, state, local and other regulatory requirements. (xiv) The Equipment is able to perform its required tasks effectively without repair including but not limited to electronic, electrical and mechanical controls, pumps, motors, belts, hoses, pins, bushings, measuring devices, screws, barrels, ways, rams, and clamps, and is operational and in compliance with all Applicable Law and is within manufacturer's design performance characteristics and tolerances. (xv) The Equipment is clean and rust free, and sumps and tanks are clean and dry. (xvi) Equipment with predictable or scheduled replacements or overhaul fives has not less than 50% useful life remaining before the next such replacement, overhaul, recalibration or rebuild. (xvii) All major components and all wear points, including, but not limited to electronic and mechanical controls and pumps, motors, belts, hoses, pins, bushings, measuring devices, screws, barrels, ways, cams, clamps and supports, are within manufacturer's design performance characteristics and tolerances and are capable of performing as originally intended by the manufacturer and in a safe manner. (xviii) The Equipment is complete, with no missing components or attachments. (xix) The Equipment has been lubricated according to the maintenance manual and/or lubrication schedule recommended by the manufacturer, and written records of the lubrication service have been kept, dated, and signed by the appropriate authority. (xx) All internal fluids, such as lube oil and hydraulic oil, have been filled to operating levels, all filler caps have been secured and all disconnected hoses have been sealed to avoid accidental spillage. (d) In addition to all other rights of Lessor under the Lease, Lessor shall have the right to attempt to resell or auction the Equipment from Lessee's facility with the Lessee's full cooperation and assistance, for a period commencing with Lessor's receipt E-87 28 of the Return Notice and ending one hundred eighty (180) days after the Initial Term Expiration Date. Lessee agrees to pay the reasonable costs and expenses of such sale or auction (and all storage prior thereto), and agrees that the Equipment shall remain capable of operation during this period. Lessee shall provide adequate electrical power, lighting, heat, water and all other requirements sufficient to allow for normal maintenance and for demonstrations of the Equipment to any potential buyer. 12. GOVERNING LAW. This Schedule is being delivered in the State of New York and shall be governed by, and construed in accordance with, the laws of the State of New York, including all matters of construction, validity and performance without giving effect to any choice of law or conflict of laws provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of New York. 13. COUNTERPARTS. This Schedule may be executed in any number of counterparts, each executed counterpart constituting an original but all together one and the same instrument. 14. MORE THAN ONE LESSEE. If more than one person or entity executes this Schedule, or any other Lease Documents executed in connection herewith, as "Lessee," the obligations of "Lessee" contained herein and therein shall be deemed joint and several and all references to "Lessee" shall apply both individually and jointly. 15. RELATIONSHIP TO MASTER LEASE; FURTHER ASSURANCES. This Schedule shall be construed in connection with and as part of this Lease, and all terms contained in the Master Lease are hereby incorporated herein by reference with the same force and effect as if such terms were fully stated herein. By execution of this Schedule, Lessee and Lessor reaffirm all terms of the Master Lease except as they may be modified hereby. To the extent that any of the terms of this Schedule are contrary to or inconsistent with any terms of the Master Lease, the terms of this Schedule shall govern. LESSEE HEREBY CERTIFIES TO LESSOR THAT THE REPRESENTATIONS AND WARRANTIES MADE BY LESSEE IN THE MASTER LEASE (INCLUDING, WITHOUT LIMITATION, SECTION 31 THEREOF) ARE TRUE AND CORRECT IN ALL MATERIAL RESPECTS AS OF THE DATE OF THIS SCHEDULE WITH THE SAME EFFECT AS THOUGH MADE ON AND AS OF SUCH DATE. Lessee shall take such additional actions and execute and deliver such additional documents as Lessor shall deem necessary from time to time to effectuate the terms of this Lease. 16. POWER OF ATTORNEY. LESSEE HEREBY APPOINTS LESSOR OR ITS ASSIGNEE AS ITS TRUE AND LAWFUL ATTORNEY IN FACT, IRREVOCABLY AND COUPLED WITH AN INTEREST, TO EXECUTE AND FILE ON BEHALF OF LESSEE ALL UCC FINANCING STATEMENTS WHICH IN LESSOR'S SOLE DISCRETION ARE NECESSARY OR PROPER TO SECURE LESSOR'S INTEREST IN THE EQUIPMENT IN ALL APPLICABLE JURISDICTIONS. Lessee hereby ratifies, to the extent permitted by law, all that Lessor shall lawfully and in good faith do or cause to be done by reason of and in compliance with this paragraph. IN WITNESS WHEREOF, Lessor and Lessee have caused this Schedule to be duly executed and delivered on the day and year first above written. Lessor: Lessee: KEYCORP LEASING, AUTOCAM CORPORATION A DIVISION OF KEY CORPORATE CAPITAL INC. By: /s/ Kelly M. Reale By: /s/ Warren A. Veltman Name: Kelly M. Reale Name: Warren A. Veltman Title: Regional Business Unit Manager Title: Chief Financial Officer COUNTERPART NO. 1 OF 1 SERIALLY NUMBERED MANUALLY EXECUTED COUNTERPARTS. TO THE EXTENT THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL CODE, NO SECURITY INTEREST MAY BE CREATED THROUGH THE TRANSFER AND POSSESSION OF ANY E-88 29 COUNTERPART OTHER THAN COUNTERPART NO. 1. E-89 30 Exhibit A EQUIPMENT DESCRIPTION LESSOR: KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC. LESSEE: AUTOCAM CORPORATION LEASE: Equipment Schedule No. 07 dated as of August 23, 1999 to Master Equipment Lease Agreement Dated as of July 10, 1995 VENDOR: MIKRON P.O. BOX 267 MONROE, CT 06468 QUANTITY: DESCRIPTION: SERIAL NO. INVOICE NO. - --------- ------------ ---------- ----------- 1 MIKRON CX-24 ROTARY TRANSFER KA0039M 171829 MACHINE E-90 EX-10.U 5 INDEMNIFICATION AGREEMENT 1 EXHIBIT 10(u) An Indemnification Agreement in the following form has been executed by the Company and each of John C. Kennedy, Warren A. Veltman, David J. Wagner, Robert L. Hooker, Kenneth K. Rieth, Mark J. Bissell and Kim Korth: AUTOCAM CORPORATION INDEMNIFICATION AGREEMENT This Agreement is made as of August 13, 1999, by and between Autocam Corporation (the "Corporation') a Michigan corporation, and [Individual Director's Name] ("Indemnitee"). Indemnitee is a director of the Corporation. It is essential to the Corporation to attract and retain as directors the most capable persons available. The Corporation's Articles of Incorporation, as approved by its shareholders, provide that the Corporation's directors shall be indemnified as of right to the fullest extent permitted by law. This Agreement implements that provision. In consideration of Indemnitee's agreement to serve as a director of the Corporation, the parties are entering into this Agreement. THEREFORE, the Corporation and Indemnitee agree: Section 1. Definitions. As used in this Agreement: (a) "Expenses" shall mean all reasonable costs, expenses, and obligations actually paid or incurred in connection with investigating, litigating, being a witness in, defending, or participating in, or preparing to litigate, defend, be a witness in, or participate in any matter that is the subject of a Proceeding (as defined below), including, without limitation, any attorney, accountant and expert fees and court costs. (b) "Proceeding" shall mean any threatened, pending, or completed action, suit, or proceeding, or any inquiry or investigation, whether brought by or in the right of the Corporation or otherwise, and whether of a civil, criminal, administrative, or investigative nature, including without limitation any administrative or civil action instituted by any federal or state securities regulatory agency, in which Indemnitee is, may be, or may have been involved as a party or otherwise by reason of the fact that Indemnitee is or was a director, officer, employee, or agent of the Corporation or by reason of any action taken by Indemnitee, or any inaction on Indemnitee's part, while acting as a director, officer, employee, or agent of the Corporation or by reason of the fact that Indemnitee is or was elected, appointed or serving at the request of the Corporation as a director, officer, partner, trustee, employee, agent or fiduciary of any other foreign or domestic corporation, partnership, joint venture, trust or other enterprise, whether for profit or not. (c) "Resolution Costs" shall include any amount paid in connection with a Proceeding and in satisfaction of a judgment, fine or penalty, or any amount paid in settlement of a Proceeding. E-91 2 (d) "Change in Control" shall mean an occurrence of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A issued under the Securities Exchange Act of 1934, as amended (the "Act"). Without limiting the inclusiveness of the definition in the preceding sentence, a Change in Control of the Corporation shall be deemed to have occurred as of the first day that any one or more of the following conditions is satisfied: (a) any Person is or becomes the "beneficial owner' (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Corporation representing 25% or more of the combined voting power of the Corporation's then outstanding securities; (b) the failure at any time of the Continuing Directors to constitute at least a majority of the board of directors of the Corporation; or (c) any of the following occur: (i) any merger or consolidation of the Corporation, other than a merger or consolidation in which the voting securities of the Corporation immediately prior to the merger or consolidation continue to represent (either by remaining outstanding or being converted into securities of the surviving entity) 60% or more of the combined voting power of the Corporation or surviving entity immediately after the merger or consolidation with another entity; (ii) any sale, exchange, lease, mortgage, pledge, transfer or other disposition (in a single transaction or a series of related transactions) of assets or earning power aggregating more than 50% of the assets or earning power of the Corporation on a consolidated basis; (iii) any complete liquidation or dissolution of the Corporation; (iv) any reorganization, reverse stock split or recapitalization of the Corporation which would result in a Change in Control as otherwise defined herein; or (v) any transaction or series of related transactions having, directly or indirectly, the same effect as any of the foregoing. (e) "Continuing Directors" means the individuals who were either (a) serving as directors of the Corporation on June 1, 1999, or (b) subsequently appointed or elected as a director, if appointed or nominated by at least a majority of the Continuing Directors in office at the time of the nomination or appointment, but specifically excluding any individual whose initial assumption of office occurs as a result of either an actual or threatened "election contest" (as the term is used in Rule 14a-11 of Regulation 14A promulgated under the Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Corporation's board of directors. (f) "Person" has the same meaning as set forth in Sections 13(d) and 14(d)(2) of the Act. (g) A "Potential Change in Control" shall be deemed to have occurred if (i) the Corporation enters into an agreement, the consummation of that would result in the occurrence of a Change in Control; (ii) any person (including the Corporation) publicly announces an intention to take or to consider taking actions that once consummated would constitute a Change in Control; or (iii) the Board of Directors adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. Section 2. Agreement To Serve. Indemnitee agrees to serve as a director and/or officer of the Corporation for so long as Indemnitee is duly electedor appointed or until the tender of Indemnitee's written resignation. Section 3. Indemnification. (a) The Corporation shall indemnify Indemnitee against all Expenses incurred by Indemnitee in connection with any Proceeding, except as otherwise provided in this Agreement. The Corporation shall indemnify Indemnitee against all Resolution Costs incurred by Indemnitee in connection with any Proceeding other than a Proceeding by or in the right of the Corporation, except as otherwise provided in this Agreement. However, no indemnification shall be made under this Section if and to the extent that such Expenses or Resolution Costs are: (i) with respect to remuneration paid Indemnitee if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; (ii) on account of any suit in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase and sale by Indemnitee of securities of the Corporation pursuant to the provisions of Section 16 of the Securities Exchange Act of 1934 and amendments thereto; E-92 3 (iii) on account of Indemnitee's conduct which is determined by a final judgment or other final adjudication to have been knowingly fraudulent, deliberately dishonest, or willful misconduct; (iv) on account of Indemnitee's conduct which is finally, affirmatively and unconditionally determined to have not been in good faith, to have not been believed by Indemnitee to have been in or not opposed to the best interests of the Corporation, or to have produced an unlawful personal benefit; (v) with respect to a criminal proceeding if the Indemnitee knew or reasonably should have known that Indemnitee's conduct was unlawful; or (vi) if a final decision by a court having jurisdiction in the matter shall determine that such indemnification is not lawful. (b) In addition to any indemnification provided under Subsection 3(a) above, the Corporation shall indemnify Indemnitee against any Expenses or Resolution Costs incurred by Indemnitee, regardless of the nature of the Proceeding that Expenses and/or Resolution Costs were incurred, if the Expenses or Resolution Costs would have been covered, insured or reimbursed under any insurance policy in effect on the effective date of this Agreement or that become effective on any later date. (c) It is the intent of this Agreement that, in addition to any indemnification provided under Subsections 3(a) and 3(b), the Corporation shall indemnify Indemnitee, to the fullest extent allowed by law as presently or hereafter enacted or interpreted, against any Expenses and Resolution Costs incurred by Indemnitee in connection with any Proceeding. To the extent a change in, or in the implementation or interpretation of, the Michigan Business Corporation Act or the federal or state securities laws (whether by statute, regulation, judicial decision or otherwise) permits greater indemnification, either by agreement or otherwise, than presently provided by law or this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. (d) Without limiting Indemnitee's right to indemnification under any other provision of this Agreement, the Corporation shall indemnify Indemnitee in accordance with the provisions of this Agreement if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that Indemnitee was or is a director, officer, employee, or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, agent, or fiduciary of another foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, whether for profit or not, against all Expenses and Resolution Costs incurred by Indemnitee, if it is determined that Indemnitee acted in good faith in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation or its shareholders, except that no indemnification shall be made under this Subsection in respect of any claim, issue, or matter as to which Indemnitee shall have been adjudged to be liable to the Corporation in the performance of his duty to the Corporation unless, and only to the extent that, any court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the relevant circumstances, Indemnitee is fairly and reasonably entitled to indemnity, in which event indemnification shall be limited to reasonable expenses incurred. (e) Notwithstanding anything in this Agreement to the contrary, prior to a Change in Control, Indemnitee shall not be entitled to indemnification pursuant to this Agreement in connection with any Proceeding initiated by Indemnitee against the Corporation or any director, officer, employee, agent, or fiduciary of the Corporation (in such capacity) unless the Corporation has joined in or consented to the initiation of such Proceeding. (f) Notwithstanding anything in this Agreement, no indemnification shall be paid in violation of Michigan or federal laws and regulations. E-93 4 Section 4. Payment Of Indemnification. (a) The Corporation shall pay or reimburse Indemnitee all Expenses and Resolution Costs for which Indemnitee is entitled to indemnification under Section 3, upon written demand for such payment or reimbursement from the Indemnitee, promptly if, when and to the extent that a determination has been made, or deemed to have been made, in the manner provided in this Section 4 that Indemnitee is entitled to indemnification under Section 3. (b) A determination as to whether or not Indemnitee is entitled to indemnification shall be made, no later than 30 days after receipt by the Corporation of a written demand of Indemnitee for such payment or reimbursement, by: (i) a majority vote of a quorum of directors who are not parties or threatened to be made parties to such Proceeding; (ii) if a quorum cannot be obtained under subsection (i), a majority vote of a committee of two or more directors, duly designated by the board, who are not parties or threatened to be made parties to such Proceeding; or (iii) if there are no directors who are not parties to the Proceeding, independent legal counsel selected by the board. If such determination is not referred to independent legal counsel, the board of directors, or committee provided in this subsection, shall be deemed to have made a determination that the Indemnitee is entitled to Indemnification under Section 3 and that the Expenses and Resolution Costs are reasonable, unless such board or committee determines, in writing and in unconditional terms, that indemnification is not allowed under Section 3 of this Agreement or that a specified portion of such Expenses and Resolution Costs are not reasonable. (c) If a Change in Control (as defined in Section 1 (d)) has occurred, the determination made under Section 4 shall be made by independent legal counsel and not the board of directors or a committee of the board of directors. If there has been a Change in Control, independent legal counsel shall be selected by Indemnitee. The Corporation shall pay the reasonable fees of the independent legal counsel and fully indemnify such counsel against any and all expense (including attorney fees), claims, liabilities, and damages arising out of or relating to this Agreement or its engagement pursuant thereto. (d) If the indemnification demand is referred to independent legal counsel under this Section 4, a determination as to whether or not Indemnitee is entitled to indemnification shall be made no later than 45 days after Indemnitee's initial demand to the Corporation. Independent legal counsel shall be deemed to have made a determination that indemnification is allowed under Section 3 of this Agreement and that the Expenses and Resolution Costs are reasonable, unless within that time independent legal counsel presents to the Corporation's board of directors a written opinion stating in unconditional terms that Indemnitee is not entitled to indemnification under Section 3 of this Agreement or that a specified portion of such Expenses and Resolution Costs are not reasonable. (e) If the Corporation has not made a determination as to whether or not indemnification is allowed under Section 3 within the 30 day period (or 45 day period if referred to independent legal counsel) prescribed in Section 4, the Corporation, shall be deemed to have made a determination that Indemnitee is entitled to indemnification under Section 3 and that the Expenses and Resolution Costs are reasonable. E-94 5 (f) The right to indemnification payments as provided by this Agreement shall be enforceable by Indemnitee in any court of competent jurisdiction. The burden of proving that indemnification is not required or permitted by this Agreement shall be on the Corporation or on the person challenging the indemnification. Neither the failure of the Corporation, including its board of directors, committee, or legal counsel to have made a determination prior to the commencement of any Proceeding that indemnification is proper, nor an actual determination by the Corporation, including its board of directors, committee, or independent legal counsel, that indemnification is not proper, shall bar an action by Indemnitee to enforce this Agreement or create a presumption that Indemnitee is not entitled to indemnification under this agreement. If the board of directors, committee, or independent legal counsel determines in accordance with Section 4 above that Indemnitee would not be permitted to be indemnified in whole or in part, Indemnitee shall have the right to commence litigation in any court in the State of Michigan having subject matter jurisdiction thereof and in which venue is proper seeking an independent determination by the court or challenging. any such determination by the board of directors, committee, or independent legal counsel, and the Corporation hereby consents to service of process and to appear in any such proceeding. Expenses incurred by Indemnitee in connection with successfully establishing Indemnitee's right to indemnification, in whole or in part, shall also be paid or reimbursed by the Corporation. (g) Indemnitee shall not participate in any way in the board of directors' or committees' discussion and approval of indemnification under this Section 4. However, Indemnitee may (i) participate in designation of a committee or a selection of independent legal counsel under Subsection 4(b) and (ii) present Indemnitee's request to the board of directors and respond to any inquiries concerning Indemnitee's involvement in the circumstances giving rise to the administrative proceeding or civil action. Section 5. Payment or Reimbursement of Indemnitee in Advance of Final Disposition. (a) The Corporation shall pay or reimburse Indemnitee all Expenses incurred by Indemnitee in advance of final disposition of a Proceeding, within 30 days after receipt by the Corporation of a written request for such advance payment or reimbursement, if: (i) Indemnitee has furnished the Corporation with a written affirmation of his or her good faith belief that he or she has met the applicable standard of conduct required of Indemnitee and for which the indemnification claim is based; and (ii) as of the date of such payment or reimbursement, a determination has not been made, in the manner provided in Section 4 of this Agreement, that the facts then known to those making the determination would preclude indemnification under this Agreement. (b) Indemnitee hereby undertakes that Indemnitee shall repay to the Corporation any amount advanced under this Agreement if an to the extent that it is ultimately determined that Indemnitee is not entitled to such indemnification. E-95 6 Section 6. Establishment of Trust. In the event of a Potential Change in Control of the Corporation, the Corporation shall, upon written request by Indemnitee, create a trust for the benefit of the Indemnitee and from time to time upon written request of Indemnitee shall fund the trust in an amount sufficient to satisfy any and all Expenses or Resolution Costs that may properly be subject to indemnification under Section 3 above anticipated at the time of each request. The amount or amounts to be deposited in the trust pursuant to this funding obligation shall be determined by a majority vote of a quorum consisting of directors who are Continuing Directors and not parties to the Proceeding or by the Chief Executive Officer of the Corporation. If all of those individuals are parties to the Proceeding, the amount or amounts to be deposited in the trust shall be determined by independent legal counsel. The terms of the trust shall provide that upon a Change in Control (i) the trust shall not be revoked or the principal of the trust fund invaded, without the written consent of the Indemnitee; (ii) the trustee shall advance, within two (2) business days of a request by the Indemnitee, any amount properly payable to Indemnitee under Sections 4 or 5 of this Agreement; (iii) the trust shall continue to be funded by the Corporation in accordance with the funding obligation set forth above; (iv) the trustee shall promptly pay to the Indemnitee all amounts that the Indemnitee shall be entitled to indemnification pursuant to this Agreement or otherwise; and (v) all unexpended funds in the trust shall revert to the Corporation upon a final determination by a court of competent jurisdiction that the Indemnitee has been fully indemnified under the terms of this Agreement. The trustee shall be chosen by the party determining the initial funding of the trust and shall be a national or state bank having a combined capital and surplus of not less than $20,000,000. At the time of each draw from the trust fund, the Indemnitee shall provide the trustee with a written request providing that Indemnitee undertakes to repay the amount to the extent that it is ultimately determined that Indemnitee is not entitled to indemnification. Any funds, including interest or investment earnings, remaining in the trust fund shall revert and be paid to the Corporation if (i) a Change in Control has not occurred; and (ii) if the Board of Directors by vote of a majority of a quorum consisting of Continuing Directors determines that the circumstances giving rise to that particular funding of the trust no longer exists. Nothing in this section shall relieve the Corporation of any of its obligations under this Agreement. Section 7. Partial Indemnification; Successful Defense. If Indemnitee is entitled under any provision of this Agreement to indemnification, or advance payment or reimbursement by the Corporation for some portion of the Expenses or Resolution Costs incurred by Indemnitee, but not for the total amount, the Corporation shall nevertheless indemnify Indemnitee or advanced payment or reimbursement for the portion of such Expenses or Resolution Costs to which Indemnitee is entitled. Notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all claims relating in whole or in part to a Proceeding or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses and Resolutions Costs incurred in connection with such Proceeding. Section 8. Consent to Settlement. Unless and until a Change in Control has occurred, the Corporation shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any Proceeding made without the Corporation's written consent. The Corporation shall not settle any Proceeding in any manner that would impose any penalty or limitation on Indemnitee or involve an admission of illegal conduct without Indemnitee's written consent. Neither the Corporation nor the Indemnitee will unreasonably withhold their consent to any proposed settlement. Section 9. Severability. If this Agreement or any portion hereof (including any provision within a single section, subsection, or sentence) shall be held to be invalid, void, or otherwise unenforceable on any ground by any court of competent jurisdiction, the Corporation shall nevertheless indemnify Indemnitee as to any Expenses or Resolution Costs with respect to any Proceeding to the full extent permitted by law or any applicable portion of this Agreement that shall not have been invalidated, declared void, or otherwise held to be unenforceable. Section 10. Indemnification Hereunder Not Exclusive. The indemnification provided by this Agreement shall be in addition to any other rights to which Indemnitee may be entitled under the Articles of Incorporation or Bylaws of the Corporation, any agreement, any vote of shareholders or disinterested directors, the Michigan Business Corporation Act, or otherwise, both as to actions in Indemnitee's official capacity and as to actions in another capacity while holding such office. E-96 7 Section 11. No Presumption. For purposes of this Agreement, the termination of any claim, action, suit, or proceeding, by judgment, order, settlement (whether with or without court approval), conviction, or upon a plea of nolo contenders, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. Section 12. Liability Insurance. If the Corporation maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by the policy or policies to the maximum extent of the coverage available for any director or officer of the Corporation. Indemnitee may be covered by the policy or policies whether or not the Corporation would have the power to indemnify him or her against liability under Sections 561 to 565 of the Michigan Business Corporation Act. Section 13. Subrogation. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents reasonably required and shall take all reasonable actions necessary to secure such rights, including the execution of such documents necessary to enable the Corporation to effectively bring suit to enforce such rights. (a) Section 14. No Duplication of Payments. The Corporation shall not be liable under this Agreement to make any payment to the extent Indemnitee has otherwise actually received payment (under any insurance policy, bylaw, or otherwise) of the amounts otherwise indemnifiable hereunder. Section 15. Notice. Any notice or other communication required under this Agreement shall be in writing and delivered or sent by postage prepaid first class mail, as follows: If to the Corporation: Autocam Corporation 4070 East Paris Avenue Kentwood, MI 49512 Attention: Corporate Secretary (or to any other individual or address that the Corporation designates in writing to Indemnitee) If to Indemnitee: Addressed to the address provided in this Agreement or such other address as Indemnitee may designate by written notice to the Corporation. Notice shall be deemed received three days after the date postmarked if properly addressed. The Corporation may designate any other address in writing to Indemnitee. Section 6. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute an original, and all of which taken together shall constitute a single document. Section 17. Continuation of Indemnification. The indemnification rights provided to Indemnitee under this Agreement shall continue after Indemnitee has ceased to be a director, officer, employee, agent, or fiduciary of the Corporation or any other foreign or domestic corporation, partnership, joint venture, trust, or other enterprise, whether for profit or not, in which Indemnitee served in any such capacity at the request of the Corporation. Section 18. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and assigns, including any direct or indirect successor by purchase, merger, consolidation, or otherwise to all or substantially all of the business or assets of the Corporation, and spouses, heirs, administrators and personal and legal representatives of Indemnitee. E-97 8 Section 19. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Michigan applicable to contracts made and to be performed in such state without giving effect to the principles of conflicts of laws, and the federal laws of the United States of America. Section 20. Period of Limitations. No legal action shall be brought and no cause of action shall be asserted by or on behalf of the Corporation or any affiliate of the Corporation against Indemnitee, Indemnitee's spouse, heirs, administrators or personal or legal representatives after the expiration of one (1) year from the date of accrual of the cause of action, and any claim or cause of action of the Corporation or its affiliate shall be extinguished and deemed released unless asserted by the timely filing of a legal action within the one (1) year period; provided, however, that if any shorter period of limitations is otherwise applicable to any cause of action the shorter period shall govern. Section 21. Amendments; Waiver. No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto or, in the case of waiver, by the party against whom the waiver is asserted. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver. The parties have executed this Agreement as of the date stated in the first paragraph of the Agreement. AUTOCAM CORPORATION By: /s/ John C. Kennedy ------------------- Its: President --------- INDEMNITEE: /s/ Individual Director's Name ------------------------------ Address: /s/ Individual Director's Address --------------------------------- E-98 EX-13 6 CONSOLIDATED FINANCIAL STATEMENTS 1 EXHIBIT 13 FINANCIAL HIGHLIGHTS
QUARTERLY RESULTS OF OPERATIONS - ------------------------------------------------------------------------------------------------------------------------------------ First Quarter Second Quarter Third Quarter Fourth Quarter In thousands, except per share data 1999 1998 1999 1998 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Sales $24,020 $ 17,429 $ 54,405 $ 21,795 $51,181 $24,790 $50,120 $26,347 Gross profit 3,441 3,413 8,678 5,315 8,032 6,504 8,833 5,697 Income from operations 1,646 2,361 6,000 3,939 5,305 4,783 5,824 3,755 Net income 178 1,136 2,099 2,104 2,042 2,482 1,951 2,019 Diluted net income per share (1) $ .03 $ .18 $ .32 $ .32 $ .32 $ .38 $ .30 $ .30 SELECTED FINANCIAL DATA - ------------------------------------------------------------------------------------------------------------------------------------ In thousands, except per share data 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Statement of operations data: Sales $179,726 $ 90,361 $ 61,986 $57,711 $54,304 Gross profit 28,984 20,925 13,368 13,480 12,610 Income from operations 18,776 14,839 9,583 9,899 9,374 Net income 6,270 7,741 5,411 5,589 5,233 Diluted net income per share (1) $ .96 $ 1.18 $ .85 $ .88 $ .82 Cash dividends declared per share (1) $ .08 $ .08 $ .05 Balance sheet data: Current assets $ 61,775 $ 20,801 $ 17,518 $13,768 $11,313 Total assets 229,491 113,449 83,638 59,812 52,990 Current liabilities 39,671 17,675 13,216 9,241 9,163 Long-term obligations, net of current maturities 109,560 37,851 25,192 12,086 13,334 Deferred taxes 25,628 10,051 7,802 6,333 4,620 Minority interest 2,813 2,250 Shareholders' equity 46,402 45,061 36,615 31,286 25,218 STATISTICS - ------------------------------------------------------------------------------------------------------------------------------------ 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Book value per common share (1) 7.36 7.03 5.82 5.03 4.04 Current ratio 1.56 1.18 1.33 1.49 1.23 Ratio of debt to equity 2.46 0.99 0.85 0.51 0.68 Return on shareholders' equity 13.7% 19.0% 15.9% 19.8% 23.3%
(1) All amounts adjusted to give effect to all common share dividends and splits issued in fiscal 1995-1999. E-99 2 MANAGEMENT'S DISCUSSION AND ANALYSIS Certain matters discussed in the following pages pertaining to fiscal 1999 information include forward looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements should be read with the cautionary statements and important factors included herein. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements, which are other than statements of historical facts. Such forward-looking statements may be identified, without limitation, by the use of the words "anticipates," "estimates," "expects," "intends," "plans," "predicts," "projects," and other similar expressions. The Company's expectations, beliefs and projections are expressed in good faith and are believed by the Company to have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in the Company's records and other data available from third parties. There can be no assurance that management's expectations, beliefs or projections will result or be achieved or accomplished. BUSINESS COMBINATIONS Effective October 1, 1998, the Company, through its wholly-owned subsidiary, Autocam France SARL ("Autocam France"), a French limited liability company, acquired the rights to all the outstanding common shares of Compagnie Financiere du Leman SA, a French holding corporation, which owns all of the equity interest of Frank & Pignard SA ("F&P"), a French corporation, for 300 million French Francs ("FF"), the equivalent of $53 million. The Company has agreed to pay a maximum additional amount of FF60 million ($9.5 million as of June 30, 1999) based upon the ability of F&P to meet certain predetermined operating performance goals in 1999. F&P, located in Cluses, France, is a leading manufacturer of precision-machined metal components consisting primarily of power steering, diesel fuel injection and braking system components to leading global transportation industry original equipment manufacturers and their tier-one suppliers. Through the stock purchase, which was accounted for under the purchase method of accounting, Autocam France acquired all the operating assets of F&P, and assumed all its liabilities, including $20 million in bank debt and leases of the manufacturing facilities. The purchase price was financed through a $140 million credit facility (the "Agreement") with the Company's primary lending institution, as agent, which includes a $70 million five-year revolving credit facility used to refinance the Company's existing bank debt, a FF281 million ($50 million) five-year acquisition term note used directly to fund the purchase of F&P, and a FF112 million ($20 million) six-year term note used to refinance existing F&P debt. Effective January 1, 1998, the Company purchased 51% of the common stock of Qualipart Industria E Comercio Ltda. ("Autocam do Brasil") from its parent, Propart Corporation ("Propart"). The purchase price was satisfied through the payment of $5.2 million in cash and the issuance of a $5 million note payable to Propart, which remains as the minority shareholder of Autocam do Brasil. Autocam do Brasil is a contract manufacturer of precision-machined gasoline and diesel fuel injection and electromechanical motor components to the transportation industry. The acquisition was accounted for as a purchase, and accordingly, the purchase price was allocated to assets acquired and liabilities assumed based upon their relative fair market values. The final purchase price was reduced during fiscal 1999 by $2.5 million as earnings before interest and taxes during the eighteen months ended June 30, 1999 did not meet agreed-upon levels. Cost in excess of the fair value of the net assets acquired (goodwill) of $3.3 million is being amortized over 40 years on a straight-line basis. E-100 3 Autocam-Pax, Inc. ("Autocam-Pax"), a wholly-owned subsidiary of the Company, was formed in June 1997, for the purpose of acquiring certain assets and assuming certain liabilities of Dowagiac Manufacturing Company and Hamilton-Pax, Inc. (together, "Hamilton"). Autocam-Pax is engaged primarily in the manufacture of close-tolerance components for automotive braking systems. On June 30, 1997, the acquisition was consummated for $18.1 million in cash consideration and the assumption of $699,000 in liabilities. The acquisition was accounted for as a purchase, and accordingly, the purchase price was allocated to assets acquired and liabilities assumed based upon their relative fair market values. During fiscal 1998, the parties agreed to certain amendments to the purchase agreement, and as a result, the purchase price allocation changed. Such amounts were finalized during fiscal 1998 resulting in cost in excess of the fair value of the net assets acquired (goodwill) of $7.2 million, which is being amortized over 20 years on a straight-line basis. RESULTS OF OPERATIONS For the periods indicated, the following table presents the components of the Company's Consolidated Statements of Operations as a percentage of sales.
- ------------------------------------------------------------------------------------------------------------------------------ For the year ended 6.30.99 6.30.98 6.30.97 - ------------------------------------------------------------------------------------------------------------------------------ Sales 100.0% 100.0% 100.0% Cost of sales 83.9% 76.8% 78.4% ----- ----- ----- Gross profit 16.1% 23.2% 21.6% Selling, general and administrative expenses 5.7% 6.7% 6.1% ----- ----- ----- Income from operations 10.4% 16.5% 15.5% Interest and other expenses, net 4.5% 3.0% 2.2% Minority interest in net income .3% .2% ----- ----- Income before tax provision 5.6% 13.3% 13.3% Tax provision 2.1% 4.7% 4.6% ----- ----- ----- Net Income 3.5% 8.6% 8.7% ===== ===== =====
SALES The following table indicates the Company's sales (in thousands) and percentage of total sales by product application for the years ended June 30, 1999, 1998 and 1997.
- ------------------------------------------------------------------------------------------------------------------------------ For the year ended 6.30.99 6.30.98 6.30.97 - ------------------------------------------------------------------------------------------------------------------------------ Fuel systems $ 82,298 45.8% $51,672 57.2% $45,700 73.7% Power steering systems 43,076 24.0% Braking systems 23,671 13.2% 18,226 20.2% 6,744 10.9% Other transportation 19,027 10.5% 2,296 2.5% 1,416 2.3% -------- ---- ------- ---- ------- ---- Total transportation 168,072 93.5% 72,194 79.9% 53,860 86.9% Medical devices 8,142 4.5% 9,907 11.0% 6,299 10.2% Other 3,512 2.0% 8,260 9.1% 1,827 2.9%
E-101 4 Sales increased $89,365,000, or 99%, from fiscal 1998 to 1999, and $28,375,000, or 46%, from fiscal 1997 to 1998. The Company gained market share through the acquisitions of F&P in October 1998 and Hamilton in June 1997 and the purchase of a controlling interest in Autocam do Brasil in January 1998 (the "Acquired Companies"). The Acquired Companies generated incremental sales of precision-machined components, mainly to the transportation industry, of $20,509,000 and $79,960,000 during fiscal 1998 and 1999, respectively. The Company's rapid incremental growth in sales of fuel injection components of $5,972,000 and $30,626,000 during fiscal 1998 and 1999, respectively, can be primarily attributable to demand from customers of the Acquired Companies. Sales of fuel injection components to customers of certain of the Acquired Companies increased by $4,969,000 and $14,233,000 when comparing fiscal 1997 to 1998 and 1998 to 1999, respectively. The remainder of the sales growth can be attributed to increases in demand from North American-based customers on several new programs awarded the Company during fiscal 1997, 1998 and 1999. Incremental growth in sales of braking system components of $11,482,000 and $5,445,000 during fiscal 1998 and 1999, respectively, can be primarily attributable to demand from customers of the Acquired Companies. Sales of braking system components to customers of certain of the Acquired Companies increased by $13,541,000 and $4,411,000 when comparing fiscal 1997 to 1998 and 1998 to 1999, respectively. The sales growth experienced between fiscal 1997 and 1998 attributable to the acquisitions was partially offset by the elimination of certain components manufactured by the Company, which were no longer utilized on a North American-based customer's new generation anti-lock braking system during fiscal 1997. With the acquisitions of Autocam do Brasil and F&P, the Company assumed several contracts for the production of power steering components and other transportation components for electromechanical motors and electronic transmissions. This new business accounts for the majority of the increases in power steering and other transportation sales from fiscal 1998 to 1999. Sales of components for medical device applications were $8,142,000 during fiscal 1999, an 18% decrease from fiscal 1998 sales of $9,907,000. Fiscal 1998 sales were 57% higher than fiscal 1997 levels. The Company manufactures components sold to the ophthalmic and cardiovascular surgical device industries. The increase in sales from fiscal 1997 to 1998 can be primarily attributed to the sale of cardiovascular stents. Sales of components for this product application increased $3.6 million during the year ended June 30, 1998. The decline in sales when comparing fiscal 1998 to 1999 can be primarily attributed to the cancellation of a contract with a significant cardiovascular stent customer in November 1998. The Company received $1,189,000 in fees from the customer for cancellation of the stent contract. Other sales increased from fiscal 1997 to 1998 and then declined in fiscal 1999 due primarily to a temporary increase in sales of components to the computer electronics industry. During fiscal 1998, the Company produced and generated $6,458,000 in sales of components used in computer microprocessor subassemblies and specialty metal fasteners used in the manufacture of suspension assemblies for rigid disk drives. The Company had virtually no sales to this industry during fiscal 1999 as short product life cycles eliminated the use of these components. Management believes that year-over-year sales growth in fiscal 2000 will range between 10-15%. The Company expects to generate $16 million in additional sales as it reports a full year of sales from its French operations. The remainder of the growth is expected to be generated through continued expansion of fuel, power steering and braking system component sales as new programs move toward full production. These sales gains are expected to be partially offset by a decline in sales of cardiovascular stents of $2.1 million caused by the stent contract cancellation referred to above. GROSS PROFIT Gross profit, as a percentage of sales, for the years ended June 30, 1999, 1998 and 1997 was 16.1%, 23.2% and 21.6%, respectively. The decrease in gross profit margin from fiscal 1998 to 1999 can be attributed to several factors, the most significant of which were the following: - - The loss of significant cardiovascular stent and computer electronics contracts (see Sales) reduced gross profit (as a percentage of E-102 5 sales) by 2% in fiscal 1999 relative to 1998 as such contracts carried gross margins higher than those typically experienced in the transportation industry. - - The negative impact on margins of the labor work stoppage at General Motors during the Company's first fiscal quarter of 1999. The Company's ability to reduce costs, particularly labor, was largely dictated by the West Michigan market for skilled machinists. With an area unemployment rate of 2-3%, management concluded that laying off quality machinists in answer to a short-term demand decline would adversely affect the Company's ability to attain future growth objectives if it were unable to retain its skilled labor base. - - There has been a fundamental shift in the mix of sales by the Company's North American operations. In certain instances, customers have phased out mature products as they change from old to new generation fuel and braking systems. The Company historically experiences lower margins on new program start-ups until its continuous improvement efforts can improve manufacturing efficiencies and reduce waste. The Company was involved in five major program start-ups during fiscal 1999. - - The Company expected to begin production on a new braking system program for its largest customer in the summer of 1998. The program was delayed until the third quarter of fiscal 1999; however, the Company had the necessary labor and equipment resources in place as of July 1998. Once the program began, demand was much higher than the customer originally anticipated which resulted in additional labor and freight costs. - - The Company experienced manufacturing difficulties resulting from the transfer of production for a key customer of its Brazilian operation to one of its North American facilities. The customer expedited the timetable for this transfer of production, which caused the Company to incur significantly more start-up costs than originally anticipated depressing the Company's overall gross profit (as a percentage of sales) by one-half of one percentage point for fiscal 1999 when comparing to fiscal 1998. - - F&P generated a lower gross profit percentage than that historically generated by the Company during fiscal 1999, which reduced gross profit (as a percentage of sales) by nearly one-half of one percentage point when compared to fiscal 1998. The increase in gross profit margin from fiscal 1997 to 1998 can be attributed to several factors, the most significant of which were: - - Increased contribution from the sale of medical device and computer electronic components as these products typically generate higher margins than the Company's overall gross margins. - - Growth in demand for new fuel system components that allowed for improved labor and equipment utilization. - - The integration of Hamilton's operations and the implementation of continuous improvement concepts resulted in better than average margins on new braking system products. Management expects that fiscal 2000 gross profit, as a percentage of sales, will improve over fiscal 1999 levels primarily through growth in demand for new fuel systems program components that should allow for improved labor and equipment utilization typically gained through continuous improvement activities. Management also anticipates early benefits through cost savings derived from the implementation of production and inventory control systems at its foreign operations, and in the North American operations through various manufacturing cost improvements. Additionally, the absence of a labor strike at General Motors similar to that experienced in the first quarter of fiscal 1999 should positively impact gross profit. E-103 6 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses, as a percentage of sales, were 5.7%, 6.7% and 6.1% in fiscal 1999, 1998 and 1997, respectively. These expenses increased monetarily during all periods presented commensurate with the growth in business. These expenses, as a percentage of sales, declined from fiscal 1998 to 1999 due primarily to the inclusion of F&P's operating results in the Company's 1999 Statement of Operations. F&P's selling, general and administrative expenses have historically approximated 4-4.5% of sales. Selling, general and administrative expenses, as a percentage of sales, increased from fiscal 1997 to 1998 due primarily to the inclusion of Hamilton's and Autocam do Brasil's operating results in the Company's 1998 Statement of Operations. Combined selling, general and administrative expenses have historically approximated 8% of sales for these facilities. Both the 1998 and 1999 fluctuations were also impacted by royalty expenses incurred in connection with the growth in sales of cardiovascular stents in fiscal 1998 and the subsequent decline in sales during fiscal 1999 (see Sales). Management expects that selling, general and administrative expenses, as a percentage of sales, for fiscal 2000 will approximate those reported during the fourth quarter of fiscal 1999. INTEREST AND OTHER EXPENSES, NET Net interest and other expenses increased $5,385,000 between fiscal 1998 and 1999, and $1,374,000 between fiscal 1997 and 1998, primarily as a result of interest incurred on notes issued by the Company to fund the investments in the Acquired Companies. Management expects fiscal 2000 interest expense to monetarily increase over fiscal 1999 levels as a full year of interest expense is recognized on the debt issued in connection with the Company's acquisition of F&P, and in total, represent 4-4.5% of sales. MINORITY INTEREST IN NET INCOME Minority interest in net income represents Propart's 49% interest in the net income of Autocam do Brasil. TAX PROVISION The Company's effective income tax rates were 37.5%, 35.2% and 34.3% for the years ended June 30, 1999, 1998 and 1997, respectively. The effective tax rate for fiscal 1999 exceeded the U.S. Federal statutory rate due primarily to the following: - - The recognition of French and Brazilian income taxes, which carry a statutory rate higher than that of the United States. - - The recognition of $265,000 in U.S. Federal income tax expense caused by the dissolution of the Company's interest-charged domestic international sales corporation during the first quarter. The fiscal 1998 effective tax rate exceeded the U.S. Federal statutory rate due primarily to the recognition of Brazilian and U.S. state income taxes. Management expects the Company's effective tax rate to approximate 38-39% during fiscal 2000. E-104 7 LIQUIDITY AND CAPITAL RESOURCES Management believes that the Company has adequate credit facilities and cash available to meet its working capital and capital expenditure needs for the foreseeable future. The Agreement includes a $70 million five-year revolving credit facility, a $50 million five-year acquisition term note and a $20 million six-year term note. Principal obligations under the revolving credit facility are due at the expiration of the facility. Principal obligations under the $50 million and $20 million term notes are as follows:
In thousands $50 million note $20 million note ---------------- ---------------- Fiscal 2000 $ 4,436 Fiscal 2001 11,091 Fiscal 2002 13,309 Fiscal 2003 13,309 Fiscal 2004 2,217 $11,036 Thereafter 6,622 ------- Total $ 44,362 $17,658 ======== =======
Interest is due monthly on all facilities under the Agreement at variable interest rates. The Agreement includes certain covenants requiring the Company to maintain minimum levels of tangible net worth and prohibits the Company from exceeding certain leverage ratios. The January 1998 Autocam do Brasil acquisition was financed through bank borrowings and a note to Propart of $5.2 million and $5 million, respectively. The bank borrowings were refinanced using proceeds from the Company's revolving credit facility in October 1998. The note to Propart bears interest at 12% per annum to be paid quarterly. Although annual principal obligations under the note are not required to begin until 2004, the note balance was reduced during fiscal 1999 such that the amount outstanding as of June 30, 1999 was $631,000. As of June 30, 1999, the Company had $18.7 million in availability under its revolving credit facility. Management anticipates retiring current maturities of long-term obligations with future operating cash flows. As of June 30, 1999, $113.4 million of the Company's long-term debt was subject to variable interest rates. New equipment placed into service and deposits paid on future equipment purchases during the year ended June 30, 1999 totaling $26.6 million were financed through operating cash flows and bank borrowings ($24.8 million) and operating lease agreements ($1.8 million). During the year ended June 30, 1999, the Company borrowed $834,000 to purchase equipment formerly leased under operating lease agreements, resulting in annual cash flow improvements of $398,500. In order to meet increased demand primarily from transportation customers, management will purchase $15-20 million of equipment over the next year (on which deposits of $2.8 million had been placed as of June 30, 1999). Management expects to finance these purchases with cash on hand, operating cash flows, operating leases, and/or bank borrowings. E-105 8 IMPACT OF YEAR 2000 ISSUE The Company recognizes the importance of the Year 2000 issue and has been giving high priority to it. In July 1998, the Company created a Year 2000 project team to supervise a comprehensive risk-based assessment of the Company's Year 2000 readiness. The team's objective is to ensure an uninterrupted transition into the Year 2000. The scope of the Year 2000 readiness effort includes software, hardware, electronic data interchange, manufacturing and lab equipment, environmental and safety systems, facilities, utilities and supplier readiness. Since the Company makes predominate use of recent operating versions of packaged computer applications in its business and believes such applications to be Year 2000 compliant, management considers the risk of a materially adverse effect on the operations of the Company to be remote. As of June 30, 1999, the Company had spent $16,000 in connection with the assessment phase of the project, which is now complete. The Company is utilizing both internal and external resources to remediate and test all applications and computer, manufacturing and facilities equipment that may be adversely impacted by Year 2000 issues. The Company has completed the testing of the most serious Year 2000 compliance issues for information systems resident in North American facilities and is expected to complete testing at its foreign facilities by September 1999 at an additional cost not expected to exceed $50,000. Total costs to test and remediate its systems, if any, are not expected to exceed $150,000. In addition to internal Year 2000 software and equipment remediation activities, the Company has contacted its key suppliers and all its electronic commerce customers to assess their compliance. There can be no absolute assurances that there will not be a materially adverse effect on the Company if third parties do not convert their systems in a timely manner and in a way that is compatible with the Company's systems. The Company believes that its diligent actions with suppliers and customers will minimize these risks. In any event, the Company believes that it has adequate back-up manual and contingency systems in place that will allow it to ship its primary products and invoice its customers in the unlikely event that its assessment, testing and remediation efforts do not detect a materially adverse Year 2000 compliance problem in its software or equipment or with its suppliers or customers. The Company's current estimates of the amount of time and costs necessary to remediate and test its computer systems are based on the facts and circumstances existing at this time. The estimates were derived utilizing multiple assumptions of future events including the continued availability of certain resources, third-party modification plans and implementation success, and other factors. New developments may occur that could affect the Company's estimates of the amount of time and costs necessary to modify and test its systems for Year 2000 compliance. These developments include, but are not limited to, (i) the availability and cost of personnel trained in this area, (ii) the ability to locate and correct all relevant computer code and equipment, and (iii) the planning and modification success attained by the Company's suppliers and customers. FOREIGN CURRENCY TRANSACTIONS The Company derived 48% and 7% of its sales during fiscal 1999 and 1998, respectively, from manufacturing operations in France and Brazil. The financial position and results of operations of the Company's subsidiary in France are measured in French Francs and translated into U.S. Dollars. The effects of foreign currency fluctuations in France is somewhat mitigated by the fact that expenses are generally incurred in French Francs, and the reported net income thereon will be higher or lower, depending on a weakening or strengthening of the U.S. Dollar. The financial position and results of operations of the Company's subsidiary in Brazil are measured in Brazilian Reais and translated into U.S. Dollars. With respect to 61% and 65% of this subsidiary's sales for fiscal 1999 and 1998, respectively, expenses associated therewith are generally incurred in Brazilian Reais, but sales are generated in U.S. Dollars. As such, results of operations with regard to these sales are directly influenced by a weakening or strengthening of the Brazilian Real versus the U.S. Dollar. The effects of foreign currency fluctuations are somewhat mitigated on the remainder of this subsidiary's sales by the fact that such sales and expenses associated therewith are generally incurred in Brazilian Reais and the reported income thereon will be higher or lower depending on a weakening or strengthening of the U.S. Dollar. Six and fifteen percent of the Company's net assets at June 30, 1999 are based in France and Brazil, respectively, and are E-106 9 translated into U.S. Dollars at the exchange rates in effect as of that date (1.721 Brazilian Reais per U.S. Dollar, and 6.343 French Francs per U.S. Dollar, respectively). Accordingly, the Company's consolidated shareholders' equity will fluctuate depending upon the weakening or strengthening of the U.S. Dollar. In January 1999, the Brazilian government permitted the Real to trade freely against the U.S. Dollar, resulting in a significant devaluation of the Real versus the U.S. Dollar. During fiscal 1999, the total devaluation was 50%. Since the Brazilian economy is not considered to be hyperinflationary (as defined by U.S. generally accepted accounting principles), the Company expects no materially negative impact on its future earnings; however, the devaluation has impaired the book value of net assets employed by Autocam do Brasil, and it has negatively impacted comprehensive income. If the Brazilian economy were to lapse into a hyperinflationary cycle, a material weakening of the Real versus the U.S. Dollar could have an impact on the earnings of the Company. On January 1, 1999, eleven of fifteen member countries of the European Union established fixed conversion rates between their existing currencies ("legacy currencies") and adopted the Euro as their new common currency. The Euro will trade on currency exchanges and the legacy currencies will remain legal tender in the participating countries for a transition period between January 1, 1999 and December 31, 2001. Beginning on January 1, 2002, legacy currencies will be withdrawn from circulation. The Company has established plans to assess and address the potential impact to its French operations that may result from the Euro conversion. These issues include, but are not limited to, (i) the technical challenges to adapt information systems to accommodate Euro transactions, (ii) the impact on currency exchange rate risks, (iii) the impact on existing contracts, and (iv) tax and accounting implications. The Company expects that the Euro conversion will not have a materially adverse impact on its financial condition or results of operations. E-107 10 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------------------ Amounts in thousands, except share information 6.30.99 6.30.98 - ------------------------------------------------------------------------------------------------------------------------------ Assets Current assets: Cash and equivalents $ 3,654 $ 1,644 Accounts receivable 40,781 11,680 Inventories 15,237 6,389 Prepaid expenses and other current assets 2,103 1,088 --------- ---------- Total current assets 61,775 20,801 --------- ---------- Property, plant and equipment, net 129,744 64,421 Goodwill and other intangible assets, net 28,376 14,366 Assets held for sale 534 Restricted cash and equivalents 5,008 Equipment deposits and other long-term assets 9,062 8,853 --------- ---------- Total Assets $ 229,491 $ 113,449 ========= ========== Liabilities and Shareholders' Equity Current liabilities: Current maturities of long-term obligations $ 4,478 $ 6,554 Accounts payable 22,130 7,830 Accrued liabilities: Compensation and related withholdings 9,683 1,956 Other 3,380 1,335 --------- ---------- Total current liabilities 39,671 17,675 --------- ---------- Long-term obligations, net of current maturities 109,560 37,851 Deferred taxes 25,628 10,051 Deferred credits and other 5,417 561 Minority interest 2,813 2,250 Shareholders' equity: Preferred stock - no par value, 200,000 shares authorized; no shares issued or outstanding Common stock - no par value, 10,000,000 shares authorized; 6,306,993 and 6,102,568 shares issued and outstanding as of June 30, 1999 and 1998, respectively 34,572 31,840 Deferred compensation (336) (491) Accumulated other comprehensive losses (3,306) (34) Retained earnings 15,472 13,746 --------- ---------- Total shareholders' equity 46,402 45,061 --------- ---------- Total Liabilities and Shareholders' Equity $ 229,491 $ 113,449 ========= ==========
See notes to consolidated financial statements. E-108 11 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
- ---------------------------------------------------------------------------------------------------------------------------- For the year ended 6.30.99 6.30.98 6.30.97 - ---------------------------------------------------------------------------------------------------------------------------- Amounts in thousands, except per share data Sales $ 179,726 $ 90,361 $ 61,986 Cost of sales 150,742 69,436 48,618 --------- --------- --------- Gross profit 28,984 20,925 13,368 Selling, general and administrative expenses 10,208 6,086 3,785 --------- --------- --------- Income from operations 18,776 14,839 9,583 Interest and other expenses, net 8,104 2,719 1,345 Minority interest in net income 645 166 --------- --------- Income before tax provision 10,027 11,954 8,238 Tax provision 3,757 4,213 2,827 --------- --------- --------- Net Income $ 6,270 $ 7,741 $ 5,411 ========= ========= ========= Basic Net Income Per Share $ .99 $ 1.22 $ .86 ========= ========= ========= Diluted Net Income Per Share $ .96 $ 1.18 $ .85 ========= ========= ========= Basic Weighted Average Shares Outstanding 6,352 6,342 6,289 Diluted Weighted Average Shares Outstanding 6,512 6,558 6,370 Statements of Comprehensive Income: Net income $ 6,270 $ 7,741 $ 5,411 Other comprehensive losses - Foreign currency translation adjustments (3,272) (34) --------- --------- Comprehensive Income $ 2,998 $ 7,707 $ 5,411 ========= ========= =========
See notes to consolidated financial statements. E-109 12 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------ Accumulated Deferred Other Common Stock Compen- Comprehensive Retained Shares Amount sation Losses Earnings Total - ------------------------------------------------------------------------------------------------------------------------------------ Amounts in thousands Balance, 7.1.96 5,428 $ 23,186 ($801) $ 8,901 $31,286 Net income 5,411 5,411 Share dividend 271 2,984 (2,985) (1) Cash dividends (337) (337) Exercise of stock options, including related tax benefits 13 101 101 Amortization of deferred compensation 155 155 ----- ------- Balance, 6.30.97 5,712 26,271 (646) 10,990 36,615 Net income 7,741 7,741 Share dividend 287 4,513 (4,515) (2) Cash dividends (470) (470) Exercise of stock options, including related tax benefits 104 1,056 1,056 Foreign currency translation adjustments ($34) (34) Amortization of deferred compensation 155 155 ----- ------- Balance, 6.30.98 6,103 31,840 (491) (34) 13,746 45,061 Net income 6,270 6,270 Share dividend 305 4,045 (4,047) (2) Share repurchases (115) (1,438) (1,438) Cash dividends (497) (497) Exercise of stock options, including related tax benefits 14 125 125 Foreign currency translation adjustments (3,272) (3,272) Amortization of deferred compensation 155 155 ----- ------- Balance, 6.30.99 6,307 $ 34,572 ($336) ($3,306) $ 15,472 $46,402 ===== ======== ===== ======= ======== =======
See notes to consolidated financial statements. E-110 13 CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------------- For the year ended 6.30.99 6.30.98 6.30.97 - --------------------------------------------------------------------------------------------------------------------------- Amounts in thousands Cash flows from operating activities: Cash received from customers $ 175,734 $ 89,784 $ 62,762 Cash paid to suppliers and employees (145,594) (64,794) (46,544) Income taxes paid (1,174) (2,396) (1,395) Interest paid (7,637) (2,508) (1,257) --------- -------- -------- Net Cash Provided by Operating Activities 21,329 20,086 13,566 --------- -------- -------- Cash flows from investing activities: Capital expenditures (25,682) (17,484) (10,205) Proceeds from sale of fixed assets 737 385 7 Acquisitions, net of cash received (54,164) (6,316) (16,869) Decrease (increase) in restricted cash and equivalents 5,008 (5,008) Payment of life insurance premiums and other 365 (435) (474) --------- -------- -------- Net Cash Used in Investing Activities (73,736) (28,858) (27,541) --------- -------- -------- Cash flows from financing activities: Payments on (repayments of) line of credit borrowings, net 10,742 (127) Proceeds from issuance of long-term obligations 73,651 14,825 19,333 Debt issue costs (1,815) Principal payments of long-term obligations (26,740) (6,888) (4,061) Contributions from minority shareholder 1,031 Repurchase of common shares (1,438) Cash dividends paid (499) (473) (338) Proceeds from exercise of employee stock options and other 106 568 84 --------- -------- -------- Net Cash Provided by Financing Activities 55,038 7,905 15,018 --------- -------- -------- Effect of exchange rate changes on cash and equivalents (621) --------- -------- -------- Net increase (decrease) in cash and equivalents 2,010 (867) 1,043 Cash and equivalents at beginning of period 1,644 2,511 1,468 --------- -------- -------- Cash and Equivalents at End of Period $ 3,654 $ 1,644 $ 2,511 ========= ======== ========
See notes to consolidated financial statements. E-111 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation - The accompanying consolidated financial statements include the accounts of Autocam Corporation and its subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. Nature of operations - The Company designs and manufactures close-tolerance, specialty metal alloy components for mechanical and electromechanical systems using turning, grinding and milling processes. Currently, the Company manufactures components for use on fuel, power steering and braking systems for the transportation industry and medical devices for the ophthalmic and cardiovascular surgery industries. It has six manufacturing facilities in the United States, two in France and three in Brazil. Its customers are located primarily in the United States, France, Germany, Austria and Brazil. Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes the estimates are reasonable, actual results could differ from those estimates. Financial instruments of the Company consist principally of cash, accounts receivable and payable, and debt. The carrying amounts of all financial instruments approximate estimated fair value. The Company has determined the estimated fair value amounts using available market information and valuation methodologies (see Note 5). Inventories are stated at the lower of standard cost, which approximates actual cost, on a first-in, first-out (FIFO) basis, or market. Property is stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows: Buildings and improvements 31 years Leasehold improvements 3 to 12 years Machinery and equipment 3 to 12 years Furniture and fixtures 5 to 10 years Maintenance and repairs that do not improve or extend the lives of the respective assets are charged to expense. When properties are retired or sold, the related cost and accumulated depreciation are removed from the accounts and any gain or loss on disposition is recognized in the results of operations. Gains arising from sale and leaseback transactions are deferred for amortization to income over the lives of the related operating leases. Goodwill and other intangible assets consist primarily of amounts paid in excess of the fair value of acquired net assets and are being amortized over estimated useful lives, ranging from 5 to 40 years, on a straight-line basis. The amounts are shown net of accumulated amortization of $1,227,000 and $447,500 as of June 30, 1999 and 1998, respectively. Amortization expense totaled $779,000, $448,700 and $3,700 for the years ended June 30, 1999, 1998 and 1997, respectively. Assets held for sale consists of a building and improvements and real estate expected to be sold during fiscal 2000. Equipment deposits and other long-term assets consists primarily of deposits on equipment to be placed into service in the future, the cash surrender value of keyman life insurance policies, receivables from officers and certain key employees under split-dollar life insurance agreements, and a payment for an option to purchase real estate (see Note 9). E-112 15 Deferred compensation - Unearned deferred compensation, recorded as an offset to shareholders' equity, is being amortized on a straight-line basis over the ten-year life of the associated employment agreement. Revenue recognition - Sales are recognized at the time product is shipped. Income taxes - Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities (see Note 7). Weighted average shares outstanding were determined as follows (amounts in thousands):
- -------------------------------------------------------------------------------------------------------------- For the year ended 6.30.99 6.30.98 6.30.97 - -------------------------------------------------------------------------------------------------------------- Weighted average shares outstanding 6,352 6,342 6,289 Dilutive effect of common stock options 160 216 81 ----- ----- ----- Shares applicable to diluted net income 6,512 6,558 6,370 ===== ===== =====
All share and per share amounts have been adjusted for the effects of share dividends and splits. Derivative and hedging activities - In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 133 ("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities, effective for the Company's fiscal year ending June 30, 2001. SFAS 133 expands the definition of the types of contracts considered to be derivatives, requires all derivatives to be recognized in the balance sheet as either assets or liabilities measured at their fair value and sets forth conditions in which a derivative instrument may be designated as a hedge. SFAS 133 further requires that changes in the fair value of derivatives be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to be recorded to other comprehensive income or to offset related results on the hedged item in earnings. From time to time, the Company manages foreign currency exchange risk in relation to certain equipment purchases through the limited use of foreign currency futures contracts to reduce the impact of changes in foreign currency rates on firm commitments to purchase equipment, although no such contracts are outstanding as of June 30, 1999. Stock-based compensation - The Company has adopted Statement of Financial Accounting Standard No. 123 ("SFAS 123"), Accounting for Stock-Based Compensation, and as permitted by this standard, will continue to apply the recognition and measurement principles prescribed under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, to its stock-based compensation (see Note 10). Reclassifications - Certain reclassifications have been made to the 1997 and 1998 financial statements to conform to the 1999 presentation. 2. BUSINESS COMBINATIONS Effective October 1, 1998, the Company, through its wholly-owned subsidiary, Autocam France SARL ("Autocam France"), a French limited liability company, acquired the rights to all the outstanding common shares of Compagnie Financiere du Leman SA, a French holding corporation, which owns all of the equity interest of Frank & Pignard SA ("F&P"), a French corporation, for 300 million French Francs ("FF"), the equivalent of $53 million. The final purchase price allocation has not been determined primarily due to the fact that the Company has agreed to pay a maximum additional amount of FF60 million ($9.5 million as of June 30, 1999) based upon the ability of F&P to meet certain predetermined operating performance goals in calendar 1999. E-113 16 F&P, located in Cluses, France, is a leading manufacturer of precision-machined metal components consisting primarily of power steering, diesel fuel injection and braking system components to leading global transportation industry original equipment manufacturers and their tier-one suppliers. Through the stock purchase, which was accounted for under the purchase method of accounting, Autocam France acquired all the operating assets of F&P, and assumed all its liabilities, including $20 million in bank debt and leases of the manufacturing facilities. The purchase price was allocated to assets acquired and liabilities assumed based upon their relative fair market values. Cost in excess of the fair value of the net assets acquired (goodwill) of $19 million as of June 30, 1999 is being amortized over 40 years on a straight-line basis. The purchase price was financed through a $140 million credit facility (the "Agreement") with the Company's primary lending institution, as agent, which includes a $70 million five-year revolving credit facility used to refinance the Company's existing bank debt, a FF281 million ($50 million) five-year acquisition term note used directly to fund the purchase of F&P, and a FF112 million ($20 million) six-year term note used to refinance existing F&P debt. Effective January 1, 1998, the Company purchased 51% of the common stock of Qualipart Industria E Comercio Ltda. ("Autocam do Brasil") from its parent, Propart Corporation ("Propart"). The purchase price was satisfied through the payment of $5.2 million in cash and the issuance of a $5 million note payable to Propart, which remains as the minority shareholder of Autocam do Brasil. Autocam do Brasil is a contract manufacturer of precision-machined gasoline and diesel fuel injection and electromechanical motor components to the transportation industry. The acquisition was accounted for as a purchase, and accordingly, the purchase price was allocated to assets acquired and liabilities assumed based upon their relative fair market values. The final purchase price was reduced during fiscal 1999 by $2.5 million as earnings before interest and taxes during the eighteen months ended June 30, 1999 did not meet agreed-upon levels. Cost in excess of the fair value of the net assets acquired (goodwill) of $3.3 million is being amortized over 40 years on a straight-line basis. Autocam-Pax, Inc. ("Autocam-Pax"), a wholly-owned subsidiary of the Company, was formed in June 1997, for the purpose of acquiring certain assets and assuming certain liabilities of Dowagiac Manufacturing Company and Hamilton-Pax, Inc. (together, "Hamilton"). Autocam-Pax is engaged primarily in the manufacture of close-tolerance components for automotive braking systems. On June 30, 1997, the acquisition was consummated for $18.1 million in cash consideration and the assumption of $699,000 in liabilities. The acquisition was accounted for as a purchase, and accordingly, the purchase price was allocated to assets acquired and liabilities assumed based upon their relative fair market values. During fiscal 1998, the parties agreed to certain amendments to the purchase agreement, and as a result, the purchase price allocation changed. Such amounts were finalized during fiscal 1998 resulting in cost in excess of the fair value of the net assets acquired (goodwill) of $7.2 million, which is being amortized over 20 years on a straight-line basis. The following unaudited pro forma information presents summary Consolidated Statements of Operations data of the Company as if the Autocam France and Autocam do Brasil acquisitions had occurred at the beginning of the earliest period presented below. These pro forma results are based upon assumptions considered appropriate by management and include adjustments as considered necessary in the circumstances. Such adjustments include interest expense that would have been incurred to finance the purchases, less depreciation expense based on the fair market value of the property, plant and equipment acquired, and the amortization of intangibles arising from the transactions. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of results which would have actually been reported had the acquisitions taken place on July 1, 1997 or which may be reported in the future.
- ----------------------------------------------------------------------------------------------------------------------------------- For the year ended (unaudited) 6.30.99 6.30.98 - ----------------------------------------------------------------------------------------------------------------------------------- Sales $199,417 $178,670 Net income 6,470 11,514 Diluted net income per share $ .99 $ 1.76
E-114 17 3. INVENTORIES
Inventories consist of the following: - ----------------------------------------------------------------------------------------------------------------------------------- Amounts in thousands 6.30.99 6.30.98 - ----------------------------------------------------------------------------------------------------------------------------------- Raw materials $ 3,179 $1,510 Production supplies 3,010 1,249 Work in-process 7,091 2,501 Finished goods 1,957 1,129 -------- ------ Total Inventories $ 15,237 $6,389 ======== ======
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following: - ----------------------------------------------------------------------------------------------------------------------------------- Amounts in thousands 6.30.99 6.30.98 - ----------------------------------------------------------------------------------------------------------------------------------- Land and improvements $ 1,796 $ 1,769 Buildings and improvements 8,953 6,815 Leasehold improvements 501 418 Machinery and equipment 146,867 73,222 Furniture and fixtures 5,466 3,931 Construction in progress 1,040 2,451 ---------- -------- Total 164,623 88,606 Accumulated depreciation and amortization (34,879) (24,185) ---------- -------- Property, Plant and Equipment, Net $ 129,744 $ 64,421 ========== ========
E-115 18 5. LONG-TERM OBLIGATIONS Long-term obligations consist of the following (percentages represent interest rates in effect as of June 30, 1999):
- ----------------------------------------------------------------------------------------------------------------------------------- Amounts in thousands 6.30.99 6.30.98 - ----------------------------------------------------------------------------------------------------------------------------------- Revolving credit loans with banks - principal payable October 2003; interest payable monthly at variable interest rates based on the bank's prime rate or LIBOR plus 2% (4.82%-7.37% per annum) $ 51,296 Acquisition term note with banks - principal payable in quarterly installments beginning in January 2000; interest payable monthly at variable interest rates based on LIBOR plus 3.75% (6.57% per annum) 44,362 Term note with banks - principal payable in quarterly installments beginning in July 2003; interest payable monthly at variable interest rates based on LIBOR plus .5% (3.17% per annum) 17,658 Note payable to Propart Corporation - principal payable in five equal annual installments beginning January 2004; fixed interest at 12% per annum, payable quarterly 631 $ 4,320 Term notes payable to banks - refinanced October 1998 22,051 Industrial Revenue Bonds - redeemed June 1999 9,000 Mortgages payable to bank - refinanced October 1998 1,895 Revolving credit note with bank - refinanced October 1998 7,001 Lines of credit and other 91 138 --------- -------- Total 114,038 44,405 Less current maturities 4,478 6,554 --------- -------- Long-Term $ 109,560 $ 37,851 ========= ========
In June 1999, the Company redeemed $8.6 million of Industrial Revenue Bonds using proceeds from its revolving credit loans. In connection with the Agreement, all of the Company's existing bank debt was refinanced using a $70 million revolving credit facility. The U.S. Dollar-denominated portion of the revolving credit facility bears interest at the bank's prime rate. The multi-currency-denominated portion of the revolving credit facility bears interest at the London interbank offered rate (LIBOR) plus 2%. Interest is due monthly on all facilities under the Agreement at variable interest rates, all of which are subject to change if certain financial ratios are not maintained. The Agreement includes certain covenants requiring the Company to maintain minimum levels of tangible net worth and prohibits the Company from exceeding certain leverage ratios. As of June 30, 1999, the remaining availability under the revolving line of credit was $18.7 million. In January 1998, the Company issued a $5.2 million term note payable to a bank and issued a $5 million note payable to Propart in connection with the Company's acquisition of a 51% ownership interest in the common stock of Autocam do Brasil. As of June 30, 1999, the annual aggregate maturities of long-term obligations for each of the five years subsequent thereto were as follows: E-116 19
- ----------------------------------------------------------------------------------------------------------------------------------- Year ending 6.30 - ----------------------------------------------------------------------------------------------------------------------------------- Amounts in thousands 2000 $ 4,478 2001 11,095 2002 13,312 2003 13,308 2004 64,677 Thereafter 7,168 ---------- Total $ 114,038 ==========
Based on the borrowing rates currently available to the Company for bank loans with similar terms and average maturities, the fair value of long-term debt was $114,256,500 as of June 30, 1999. 6. COMMITMENTS The Company leases various buildings and equipment under non-cancellable operating leases. The operating leases generally contain renewal and purchase options at fair market value at the end of the lease terms. Minimum future lease payments under these leases as of June 30, 1999 are summarized as follows:
- ----------------------------------------------------------------------------------------------------------------------------------- Year ending 6.30 - ----------------------------------------------------------------------------------------------------------------------------------- Amounts in thousands 2000 $ 4,552 2001 3,601 2002 3,007 2003 2,718 2004 2,307 Thereafter 6,888 -------- Total $ 23,073 ========
Rent expense under operating leases summarized above was $4,176,600, $3,460,300 and $3,104,100 for the years ended June 30, 1999, 1998 and 1997, respectively. As of June 30, 1999, the Company had non-cancellable purchase commitments for machinery and equipment totaling $8.1 million. In accordance with terms of the purchase agreements, final acceptance of such equipment is contingent upon the equipment demonstrating certain capabilities as documented in Company purchase orders. E-117 20 7. INCOME TAXES The provisions for income taxes consist of the following:
- ----------------------------------------------------------------------------------------------------------------------------------- 6.30.99 6.30.98 6.30.97 - ----------------------------------------------------------------------------------------------------------------------------------- Amounts in thousands Current $2,361 $2,362 $1,447 Deferred 1,396 1,851 1,380 ------ ------ ------ Total $3,757 $4,213 $2,827 ====== ====== ======
The Company`s effective income tax rate differs from the United States Federal ("Federal") statutory tax rate as follows:
- ----------------------------------------------------------------------------------------------------------------------------------- 6.30.99 6.30.98 6.30.97 - ----------------------------------------------------------------------------------------------------------------------------------- Tax at Federal statutory rate 34.0% 34.0% 34.0% Termination of domestic international sales corporation 2.7 Effect of foreign operations, net of related tax credits 2.7 0.6 Other (1.9) 0.6 0.3 ---- ---- ---- Effective Tax Rate 37.5% 35.2% 34.3% ==== ==== ====
Temporary differences that give rise to deferred tax assets and liabilities are as follows:
- ----------------------------------------------------------------------------------------------------------------------------------- 6.30.99 6.30.98 Asset Liability Asset Liability - ----------------------------------------------------------------------------------------------------------------------------------- Amounts in thousands Domestic international sales corporation income $ 1,243 $ 1,125 Accrued expenses $346 $216 Foreign tax credits 192 Valuation allowance on foreign tax credits (192) Depreciation and other 24,385 8,926 -------- ------- Total Deferred Taxes $346 $ 25,628 $216 $ 10,051 ==== ======== ==== =======
On July 1, 1998, the Company established a foreign sales corporation, and in conjunction therewith, terminated its interest-charged domestic international sales corporation and recognized Federal income tax expense of $265,000 during the first fiscal quarter of 1999. Undistributed earnings of the Company's French and Brazilian subsidiaries amounted to $2,972,000 and $604,400, respectively, as of June 30, 1999. A provision has been made for the Federal income tax effect of distributing the balance of the earnings from F&P to Autocam France. No provision has been made for the French withholding tax effects that would result from the repatriation of the undistributed earnings, as there is no plan to repatriate the earnings outside of France in the foreseeable future. In the event that these earnings were distributed to the United States, a French withholding tax of $118,000 would be due. The additional tax obligation of distributing the Brazilian earnings, which are deemed to be permanently reinvested, would not be significant. E-118 21 8. BUSINESS SEGMENT INFORMATION The Company has adopted Statement of Financial Accounting Standard No. 131 ("SFAS 131"), Disclosures about Segments of an Enterprise and Related Information, which requires companies to report certain information about their operating segments, products, geographic areas of operation and major customers. The Company has three operating segments: North America, Europe and South America. The North American segment provides precision-machined components to the transportation and medical devices industries, while the European and South American segments provide precision-machined components to the transportation industry. The Company has assigned specific business units to a segment based principally on their geographical location. Each of the Company's segments is individually managed and has separate financial results reviewed by the Company's chief executive and operating decision-makers. These results are used by the chief operating decision-makers both in evaluating the performance of, and in allocating current and future resources to, each of the segments. The Company evaluates segment performance primarily based on income from operations and the efficient use of total assets. The accounting policies of the segments are the same as those of the company as a whole. Totals presented below are inclusive of all adjustments needed to reconcile to the data provided in the Consolidated Financial Statements and related notes (for fiscal 1997, the Company had no foreign operations).
- ----------------------------------------------------------------------------------------------------------------------------------- For the year ended 6.30.99 6.30.98 - ----------------------------------------------------------------------------------------------------------------------------------- Amounts in thousands Sales to Unaffiliated Customers from Company Facilities Located in: North America $ 94,102 $ 84,236 Europe 72,983 South America 12,641 6,125 --------- --------- Total $ 179,726 $ 90,361 ========= ========= Income from Operations of Company Facilities Located in: North America $ 9,366 $ 14,277 Europe 8,318 South America 1,092 562 --------- --------- Total $ 18,776 $ 14,839 ========= ========= Depreciation and Amortization on Assets Located in: North America $ 9,566 $ 7,457 Europe 4,185 South America 378 197 --------- --------- Total $ 14,129 $ 7,654 ========= ========= Total Assets of Company Facilities Located in: North America $ 101,249 $ 98,205 Europe 117,447 South America 10,795 15,244 --------- --------- Total $ 229,491 $ 113,449 ========= ========= Capital Expenditures of Facilities Located in: North America $ 11,978 $ 17,034 Europe 11,414 South America 2,290 450 --------- --------- Total $ 25,682 $ 17,484 ========= =========
Included in the North American sales to unaffiliated customers are sales exported from facilities in the United States of E-119 22 $8,296,000, $9,032,600 and $8,485,000, for the years ended June 30, 1999, 1998 and 1997, respectively, with the majority being to customers in Austria and Germany. The Company had five transportation industry customers that exceeded 10% of consolidated sales for the year ended June 30, 1999, and two transportation industry customers that exceeded 10% of consolidated sales for each year in the two-year period ended June 30, 1998. Sales to those customers were as follows:
- ------------------------------------------------------------------------- ----------------- ---------------- ------------------ For the year ended 6.30.99 6.30.98 6.30.97 - ------------------------------------------------------------------------- ----------------- ---------------- ------------------ Amounts in thousands Transportation customer A $ 40,550 $28,861 $12,852 Transportation customer B 29,839 24,920 28,188 Transportation customer C 20,499 Transportation customer D 20,165 68 8 Transportation customer E 19,429 --------- Total $ 130,482 $53,849 $41,048 ========= ======= =======
9. RELATED PARTY TRANSACTIONS On January 1, 1999, the Company purchased certain production equipment formerly subject to a long-term operating lease agreement from its majority shareholder for $625,400. Total lease expense for this equipment was $193,400, $351,000 and $351,000 for years ended June 30, 1999, 1998 and 1997, respectively. The Company leases a building from a partnership in which a director has a 50% interest under a ten-year, non-cancellable operating lease expiring in March 2005. Annual rentals under the lease are $300,000, and for a consideration of $630,000 paid in March 1995, the Company obtained an option to purchase the building for $3,125,000 at the end of the lease term. A portion of this facility is subleased to Conway Products Corporation ("Conway"), an affiliate by virtue of the majority shareholder's 100% ownership of Conway. Income and reimbursement for utility costs under this sublease was $283,300, $285,200 and $259,600 in fiscal 1999, 1998 and 1997, respectively. The Company charters its leased aircraft to the majority shareholder from time to time. The Company received $16,700, $15,100 and $7,800 in charter revenue from its majority shareholder during the years ended June 30, 1999, 1998 and 1997, respectively. The Company has stock redemption agreements with its majority shareholder whereby the Company is obligated to redeem up to $23,000,000 of common shares following his and his spouse's death. The Company maintains joint life insurance policies in order to fund its obligations under the agreements. The Company has receivables from its officers and certain key employees in connection with a life insurance program, collateralized by the cash surrender value of the related insurance policies. Amounts receivable from such employees, included in Equipment Deposits and Other Long-Term Assets, were $1,416,600, $1,217,200 and $1,080,000 at June 30, 1999, 1998 and 1997, respectively, including $909,800, $811,200 and $713,000, respectively, due from the majority shareholder. E-120 23 10. COMMON STOCK The Board of Directors approved and distributed 5% common share dividends in each year during the three-year period ended June 30, 1999. All share and per share data presented for fiscal 1998 and 1997 have been adjusted to give effect to the 5% common share dividend distributed during fiscal 1999. The Board of Directors also approved 2 cent per share quarterly cash dividends in each fiscal quarter beginning with the second quarter of fiscal 1997. The Company has reserved 1,126,875 common shares, in aggregate, for issuance to employees under the 1991 Incentive Stock Option Plan and the 1998 Key Employee Stock Option Plan (together, the "Plans"). Options are not exercisable prior to twelve months from or ten years after the grant date. Options granted vest at a rate of twenty percent annually over a five-year period. Had the Company accounted for the Plans based on the fair value of awards at the grant dates as prescribed by SFAS 123, the Company's net income and net income per share would have been decreased as indicated below.
- ----------------------------------------------------------------------------------------------------------------------------------- For the year ended 6.30.99 6.30.98 6.30.97 - ----------------------------------------------------------------------------------------------------------------------------------- Amounts in thousands, except per share data Net Income: As reported $6,270 $7,741 $5,411 Pro forma 5,642 7,322 5,293 Basic Net Income Per Share: As reported $ .99 $ 1.22 $ .86 Pro forma .89 1.15 .84 Diluted Net Income Per Share: As reported $ .96 $ 1.18 $ .85 Pro forma .87 1.12 .83
The effects of applying SFAS 123 on a pro forma basis may not be representative of the effects on reported pro forma net income for future years as the estimated compensation costs reflect only options issued after June 30, 1995. Under the methodology of SFAS 123, the fair value of the Company's fixed stock options was estimated at the date of grant using the Black-Scholes option pricing model. The multiple option approach was used, with the following weighted-average assumptions: dividend yield, .59%; expected volatility, 45.31%; risk-free interest rate, 4%; and, expected life of options, 10 years. E-121 24 Transactions of the Plan for each of the three years ended June 30, 1999 were as follows:
- ----------------------------------------------------------------------------------------------------------------------------------- Weighted Average Fair Exercise Price Value of Options Shares Ranges Granted - ----------------------------------------------------------------------------------------------------------------------------------- Options Outstanding at 7.1.96 384,789 $5.76 to $12.95 Fiscal 1997: Options granted 31,146 $8.06 to $9.92 $5.25 Options exercised (13,686) $5.76 to $8.06 Options terminated (13,031) $5.76 to $12.95 ------- Options Outstanding at 6.30.97 389,218 $5.76 to $12.95 Fiscal 1998: Options granted 269,880 $8.43 to $17.38 $5.89 Options exercised (110,793) $5.76 to $12.95 Options terminated (23,142) $6.48 to $17.38 ------ Options Outstanding at 6.30.98 525,163 $5.76 to $17.38 Fiscal 1999: Options granted 208,288 $12.38 $6.88 Options exercised (14,465) $5.76 to $11.24 Options terminated (15,435) $8.06 to $17.12 ------- Options Outstanding at 6.30.99 703,551 $5.76 to $17.38 =======
Exercise price ranges and weighted average remaining contractual lives of options exercisable as of June 30, 1999 are as follows:
- ----------------------------------------------------------------------------------------------------------------------------------- Weighted Average Exercise Price Remaining Contractual Shares Ranges Life (Yrs.) - ----------------------------------------------------------------------------------------------------------------------------------- Fiscal 1992 grants 83,288 $5.76 to $7.12 2.36 Fiscal 1993 grants 15,615 $5.90 to $6.48 3.60 Fiscal 1994 grants 66,403 $8.06 to $9.79 4.13 Fiscal 1995 grants 23,492 $10.15 to $12.95 5.30 Fiscal 1996 grants 19,880 $9.83 to $10.15 6.32 Fiscal 1997 grants 12,617 $8.06 to $9.92 7.51 Fiscal 1998 grants 73,586 $8.43 to $17.38 8.34 ------- Options Exercisable at 6.30.99 294,881 $5.76 to $17.38 5.04 =======
11. EMPLOYEE BENEFIT PLANS The Company maintains a self-funded medical and dental plan for the majority of its Kentwood and Marshall, Michigan and Gaffney, South Carolina full-time employees. A third-party administrator makes benefit payments, and an estimate of the Company's liability for unpaid and incurred but not reported claims is accrued. Employees of the Company's other subsidiaries are enrolled in various insured group or governmental health plans. The Company sponsors a 401(k) savings plan (the "Plan") for all qualified full-time employees. The Plan provides for an annual discretionary employer matching contribution that has historically been dollar-for-dollar up to $1,000 per participant. Expense incurred in connection with the Plan was $378,600, $286,100 and $246,300 for the years ended June 30, 1999, 1998 and 1997, respectively. In conformity with French governmental labor laws, the Company is obligated to pay certain retirement benefits covering E-122 25 substantially all employees of its French operations. These benefits are calculated based on each employee's years of credited service and most recent monthly compensation and service category. These obligations are not funded, and accordingly, are included in Accrued Compensation and Related Withholdings. Employees become vested in accordance with governmental regulations in place at the time of retirement. For the purpose of calculating the actuarial present value of the Company's benefit obligation, discount and compensation growth rates of 3% and an average retirement age of 60 years were assumed. The actuarial present value of the Company's benefit obligation as of June 30, 1999 is calculated as follows (in thousands):
Accumulated benefit obligation $1,673 Effect of salary increases 682 ------ Projected Benefit Obligation $2,355 ====== The following provides a reconciliation of the benefit obligation during fiscal 1999 (in thousands): Projected benefit obligation as of October 1, 1998 $2,496 Net periodic pension cost 194 Effect of foreign currency translation loss (335) ------ Projected Benefit Obligation as of June 30, 1999 $2,355 ======
E-123 26 12. SUPPLEMENTAL CASH FLOW INFORMATION The following is a reconciliation of net income to net cash provided by operating activities and other supplemental cash flow information:
- ----------------------------------------------------------------------------------------------------------------------------------- For the year ended 6.30.99 6.30.98 6.30.97 - ----------------------------------------------------------------------------------------------------------------------------------- Amounts in thousands Net income $ 6,270 $ 7,741 $ 5,411 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 14,129 7,654 5,521 Deferred taxes 1,492 2,101 1,397 Minority interest in net income 645 166 Other, net 475 78 Changes in assets and liabilities that provided (used) cash: Accounts receivable (3,923) (858) 815 Inventories (813) 227 378 Prepaid expenses and other current assets (77) 28 (65) Other long-term assets 784 203 212 Accounts payable (1,937) 2,148 76 Accrued liabilities 2,926 428 (54) Deferred credits and other 1,358 170 (125) --------- -------- --------- Net Cash Provided by Operating Activities $ 21,329 $ 20,086 $ 13,566 ========= ======== ========= Details of acquisitions (see Note 2): Fair value of assets acquired $ 127,043 $ 14,444 $ 18,829 Cash paid (53,309) (5,446) (16,869) Note issued to Propart (4,835) Professional fees and escrow amounts paid (1,821) (130) (1,261) --------- -------- --------- Liabilities assumed $ 71,913 $ 4,033 $ 699 ========= ======== =========
According to terms of the agreement to acquire a controlling interest in Autocam do Brasil, the final purchase price could be reduced as a result of a deficiency in earnings before interest and taxes from an agreed-upon level during the eighteen months ended June 30, 1999. Since the maximum purchase price adjustment was realized, goodwill and long-term debt were reduced by $2.5 million during fiscal 1999. E-124 27 REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Directors of Autocam Corporation, We have audited the accompanying consolidated balance sheets of Autocam Corporation and subsidiaries as of June 30, 1999 and 1998, and the related consolidated statements of operations and comprehensive income, shareholders' equity and of cash flows for each of the three years in the period ended June 30, 1999. These financial statements are the responsibility of Autocam's management. Our responsibility is to express an opinion on these financial statements based upon our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Autocam Corporation and subsidiaries at June 30, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1999, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Grand Rapids, Michigan August 9, 1999 E-125 EX-21 7 SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF REGISTRANT Autocam International Sales Corporation, a Michigan corporation. Autocam Foreign Sales Corporation, a Barbados corporation. Autocam International, Ltd., a Michigan corporation. Autocam Acquisition, Inc., a Michigan corporation, doing business as Autocam California Autocam Laser Technologies, Inc., a Michigan corporation. Autocam-Pax, Inc., a Michigan corporation. Autocam South Carolina, Inc., a Michigan corporation. Autocam do Brasil Usinagem Ltda., a Brazilian corporation. Autocam Europe B.V., a Dutch holding company. Autocam France SARL, a French limited liability company. Frank & Pignard SA, a French corporation. E-126 EX-23 8 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT Autocam Corporation Grand Rapids, Michigan We consent to the incorporation by reference in Registration Statement No. 33-72816 and Registration Statement No. 33-80933 of Autocam Corporation on Forms S-8 of our report dated August 9, 1999, incorporated by reference in this Annual Report on Form 10-K of Autocam Corporation for the year ended June 30, 1999. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Grand Rapids, Michigan September 27, 1999 E-127 EX-27 9 FINANCIAL DATA SCHEDULE
5 YEAR JUN-30-1999 JUL-01-1998 JUN-30-1999 3,654 0 40,781 0 15,237 61,775 164,623 34,879 229,491 39,671 109,560 0 0 34,572 11,830 229,491 179,726 179,726 150,742 150,742 0 0 8,104 10,027 3,757 6,270 0 0 0 6,270 .99 .96
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