-----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, MrgTu5V1ANVGryj1aG+3t2HtgSnzfSISlTIzqY7D0bfG7+Tj2FT4jcXjVtFKvIRF ec8Y+tpyJJIPEhbIY2QtWw== 0000950124-04-003685.txt : 20040809 0000950124-04-003685.hdr.sgml : 20040809 20040809160805 ACCESSION NUMBER: 0000950124-04-003685 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOWER AUTOMOTIVE INC CENTRAL INDEX KEY: 0000925548 STANDARD INDUSTRIAL CLASSIFICATION: METAL FORGING & STAMPINGS [3460] IRS NUMBER: 411746238 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12733 FILM NUMBER: 04961459 BUSINESS ADDRESS: STREET 1: 5211 CASCADE ROAD, SE STREET 2: SUITE 300 CITY: GRAND RAPIDS STATE: MI ZIP: 49546 BUSINESS PHONE: (616) 802-1600 MAIL ADDRESS: STREET 1: 5211 CASCADE ROAD, SE STREET 2: SUITE 300 CITY: GRAND RAPIDS STATE: MI ZIP: 49546 10-Q 1 k86671e10vq.txt QUARTERLY REPORT FOR PERIOD ENDED 06/30/04 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 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 1-12733 TOWER AUTOMOTIVE, INC. (Exact name of Registrant as specified in its charter) DELAWARE 41-1746238 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 27175 HAGGERTY ROAD 48377 NOVI, MICHIGAN (Zip Code) (Address of principal executive offices) (248) 675-6000 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ---- ---- Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No ---- ---- The number of shares outstanding of the Registrant's common stock, par value $.01 per share, at August 2, 2004 was 58,162,819 shares. TOWER AUTOMOTIVE, INC. FORM 10-Q TABLE OF CONTENTS
PART I FINANCIAL INFORMATION Item 1. Financial Statements: Condensed Consolidated Balance Sheets (unaudited) at June 30, 2004 and December 31, 2003 1 Condensed Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2004 and 2003 (Restated) 2 Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2004 and 2003 (Restated) 3 Notes to Condensed Consolidated Financial Statements 4 (unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 23 Item 3. Quantitative and Qualitative Disclosures About Market Risk See "Market Risk" section of Part I, Item 2 31 Item 4. Controls and Procedures 31 PART II OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds 32 Item 4. Submission of Matters to a Vote of Security Holders 32 Item 6. Exhibits and Reports on Form 8-K 32 Signatures 33
PART I -- FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS -- UNAUDITED)
June 30, December 31, Assets 2004 2003 - ------------------------------------------------------------------ -------------- -------------- Current assets: Cash and cash equivalents $ 192,885 $ 160,899 Accounts receivable 373,393 325,599 Inventories 138,041 130,004 Deferred income taxes, net 14,973 20,116 Prepaid tooling and other 158,838 91,662 ------------- -------------- Total current assets 878,130 728,280 ------------- -------------- Property, plant and equipment, net 1,151,900 1,055,873 Investments in joint ventures 207,779 248,133 Deferred income taxes 149,672 146,944 Goodwill 493,495 498,663 Other assets, net 162,540 168,516 ------------- -------------- $ 3,043,516 $ 2,846,409 ============= ============== Liabilities and Stockholders' Investment - ------------------------------------------------------------------ Current liabilities: Current maturities of long-term debt and capital lease Obligations $ 105,602 $ 99,597 Convertible Senior Debentures 35,745 -- Convertible Subordinated Notes -- 199,984 Accounts payable 646,984 556,036 Accrued liabilities 267,953 249,984 ------------- -------------- Total current liabilities 1,056,284 1,105,601 ------------- -------------- Long-term debt, net of current maturities 1,233,018 1,060,859 Convertible Senior Debentures 76,802 -- Obligations under capital leases, net of current maturities 36,924 42,798 Other noncurrent liabilities 220,910 223,641 ------------- -------------- Total noncurrent liabilities 1,567,654 1,327,298 ------------- -------------- Stockholders' investment: Common stock 663 661 Additional paid-in capital 681,466 680,608 Retained deficit (172,488) (181,849) Deferred compensation plans (8,488) (9,609) Accumulated other comprehensive loss (32,251) (22,751) Treasury stock (49,324) (53,550) ------------- -------------- Total stockholders' investment 419,578 413,510 ------------- -------------- $ 3,043,516 $ 2,846,409 ============= ==============
The accompanying notes are an integral part of these condensed consolidated financial statements. -1- TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS -- UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30, ---------------------------- --------------------------- 2003 2003 2004 (Restated) 2004 (Restated) ----------- ----------- ----------- ----------- Revenues $ 783,213 $ 743,179 $ 1,564,449 $ 1,475,757 Cost of sales 714,499 664,731 1,435,090 1,322,785 ----------- ----------- ----------- ----------- Gross profit 68,714 78,448 129,359 152,972 Selling, general and administrative expenses 35,141 39,135 69,295 73,811 Restructuring and asset impairment charge 304 15,378 (5,303) 15,378 ----------- ----------- ----------- ----------- Operating income 33,269 23,935 65,367 63,783 Interest expense, net 37,878 18,083 69,348 34,852 Unrealized loss on derivative 1,850 -- 1,850 -- ----------- ----------- ----------- ----------- Income (loss) before provision for income taxes (6,459) 5,852 (5,831) 28,931 Provision (benefit) for income taxes (2,196) 1,994 (1,718) 9,841 ----------- ----------- ----------- ----------- Income (loss) before equity in earnings of joint ventures and minority interest and gain in sale of joint venture (4,263) 3,858 (4,113) 19,090 Equity in earnings of joint ventures 3,522 3,144 6,969 3,788 Minority interest (1,916) (4,356) (3,227) (8,660) Gain on sale of joint venture -- -- 9,732 -- =========== =========== =========== =========== Net income (loss) $ (2,657) $ 2,646 $ 9,361 $ 14,218 =========== =========== =========== =========== Basic earnings (loss) per common share: $ (0.05) $ 0.05 $ 0.16 $ 0.25 =========== =========== =========== =========== Weighted average basic shares outstanding 58,067 56,556 57,705 56,375 =========== =========== =========== =========== Diluted earnings (loss) per common share: $ (0.05) $ 0.05 $ 0.16 $ 0.25 =========== =========== =========== =========== Weighted average diluted shares outstanding 58,067 57,054 58,500 56,632 =========== =========== =========== ===========
The accompanying notes are an integral part of these condensed consolidated financial statements. -2- TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS -- UNAUDITED)
SIX MONTHS ENDED JUNE 30, --------------------------- 2004 2003 (RESTATED) ----------- ----------- OPERATING ACTIVITIES: Net income $ 9,361 $ 14,218 Adjustments required to reconcile net income to net cash provided by operating activities - Restructuring and asset impairment charge (6,276) 15,368 Customer recovery related to program cancellation -- 15,600 Depreciation 76,353 79,106 Deferred income tax benefit (9,652) 811 Deferred compensation plans 724 94 Gain on sale of Joint venture investment (9,732) -- Equity in earnings of joint ventures, net (6,969) (3,788) Change in working capital and other operating items (23,360) (8,333) ----------- ----------- Net cash provided by operating activities 30,449 113,076 ----------- ----------- INVESTING ACTIVITIES: Capital expenditures, net (131,027) (98,726) Acquisitions, including joint venture interests, earnout payments and dividends (21,299) 274 Divestiture of joint venture investment 51,700 -- Other -- 3,232 ----------- ----------- Net cash used in investing activities (100,626) (95,220) ----------- ----------- FINANCING ACTIVITIES: Proceeds from borrowings 576,491 1,487,428 Repayments of debt (474,393) (1,314,182) Net proceeds from issuance of stock 65 482 ----------- ----------- Net cash provided by financing activities 102,163 173,728 ----------- ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS 31,986 191,584 CASH AND CASH EQUIVALENTS: Beginning of period 160,899 13,699 ----------- ----------- End of period $ 192,885 $ 205,283 =========== =========== Supplemental Cash Flow Information: Interest Paid, net of amounts capitalized $ 63,790 $ 33,363 Income taxes paid (refunded) $ (1,191) $ (415)
The accompanying notes are an integral part of these condensed consolidated financial statements. -3- TOWER AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements have been prepared by Tower Automotive, Inc. (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in the condensed consolidated financial statements includes primarily normal recurring adjustments and reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. Although the Company believes that the disclosures are adequate to make the information presented not misleading, it is suggested that these condensed consolidated financial statements be read in conjunction with the audited financial statements and the notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2003 (the "Annual Report"). Revenues and operating results for the three and six months ended June 30, 2004 are not necessarily indicative of the results to be expected for the full year or any future period. 2. RESTATEMENT As previously disclosed in the Company's Annual Report, certain amounts in the Statements of Operations for the 2003 periods are different from the amounts originally reported as a result of a restatement of a $7.7 million curtailment loss for pension and other post-retirement benefits related to the Company's 2003 restructuring plan (subsequently reduced to $6.3 million based upon updated actuary information in the fourth quarter of 2003). Statement of Financial Accounting Standards ("SFAS") No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits" requires curtailment losses to be recorded when probable and reasonably estimable. The Company determined that the curtailment loss related to the 2003 restructuring plan was probable and reasonably estimable in the second quarter of 2003. However, because the Company uses a September 30 measurement date for its pension and other post-retirement benefits, the curtailment loss, which was initially recorded in the second quarter of 2003, should have been recorded in the third quarter of 2003 (a three-month lag), as required by SFAS No. 88. A summary of the impact of this restatement is as follows:
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30, 2003 JUNE 30, 2003 ------------------------------------------ ---------------------------------------- AS PREVIOUSLY REPORTED AS RESTATED AS PREVIOUSLY REPORTED AS RESTATED ------------------------ ----------- ---------------------- ----------- Operating income $16,247 $23,935 $56,095 $63,783 Net income (loss) (2,423) 2,646 9,149 14,218 Basic earnings (loss) per share (0.04) 0.05 0.16 0.25 Diluted earnings (loss) per share (0.04) 0.05 0.16 0.25
This change did not impact the Company's results of operations for the year ended December 31, 2003. -4- 3. REVENUE RECOGNITION The Company recognizes revenue as its products are shipped to its customers at which time title passes. The Company participates in certain customers' steel repurchase programs. Under these programs, the Company purchases steel directly from a customer's designated steel supplier for use in manufacturing products for such customer. The Company takes delivery and title to such steel and bears risk of loss and obsolescence. The Company invoices its customers based upon annually negotiated selling prices, which include a component for steel under such repurchase programs. For sales where the Company participates in a customer's steel repurchase program, revenue is recognized on the entire amount of such sale, including the component for purchases under that customer's steel repurchase program. The Company enters into agreements to produce products for its customers at the beginning of a given vehicle's life. Once such agreements are entered into by the Company, fulfillment of the customers' purchasing requirements is the obligation of the Company for the entire production life of the vehicle, which range from three to ten years, and the Company has no provisions to terminate such contracts. In certain instances, the Company may be committed under existing agreements to supply product to its customers at selling prices which are not sufficient to cover the variable cost to produce such product. In such situations, the Company records a liability for the estimated future amount of such losses. Such losses are recognized at the time that the loss is probable and reasonably estimable and is recorded at the minimum amount necessary to fulfill the Company's obligations to its customers. Losses are discounted and are estimated based upon information available at the time of the estimate, including future production volume estimates, length of the program, selling price and production cost information. For certain design and development projects the Company recognizes revenues under the percentage of completion method. The amount of revenues recognized under such method is not significant for any period presented. 4. INVENTORIES Inventories are valued at the lower of first-in-first-out ("FIFO") cost or market, and consisted of the following (in thousands):
JUNE 30, DECEMBER 31, 2004 2003 -------- ------------ Raw materials $68,801 $ 56,100 Work in process 27,738 23,288 Finished goods 41,502 50,616 -------- ------------ $138,041 $130,004 ======== ============
5. STOCKHOLDERS' INVESTMENT EARNINGS PER SHARE Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share for the six months ended June 30, 2004 was determined based on the assumption that the stock options were exercised at the beginning of the period or at the time of issuance, if later. The effects of common stock equivalents have not been included in diluted loss per share for the three months ended June 30, 2004 as the effect would be anti-dilutive. Diluted earnings per share for the three and six months ended June 30, 2003 were determined based on the assumption that the Edgewood Notes were converted at the beginning of the period and that the stock options were exercised at the beginning of the period or at the time of issuance, if later. The shares into which the Convertible Subordinated Notes, which were extinguished in May 2004, and the Trust Preferred Securities, issued by the Tower Automotive Capital Trust, are convertible, totaling 16.2 million shares, were not included in the computation of earnings per share for the three and six months ended June 30, 2003, due to their anti-dilutive effect. The Company's 5.75% Convertible Senior Debentures, issued in May 2004, are presently not considered to be common stock equivalents because the shares into which the debentures are convertible are considered to be contingently issuable shares and all conditions necessary for conversion into shares of the Company's common stock have not been met. -5- Weighted average number of diluted shares outstanding was determined as follows (in thousands):
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------------- -------------------------- 2004 2003 2004 2003 --------------- ------------ ------------- --------- Weighted average number of common shares outstanding 58,067 56,556 57,705 56,375 Dilutive effect of stock options -- -- 142 -- Dilutive effect of restricted stock -- 493 653 246 Dilutive effect of Edgewood notes assuming conversion -- 5 -- 11 --------------- ------------ ---------- --------- Weighted average number of diluted shares outstanding 58,067 57,054 58,500 56,632 =============== ============ ========== =========
STOCK-BASED COMPENSATION The Company accounts for stock options under the provisions of Accounting Principles Board Opinion ("APB") No. 25, under which no compensation expense is recognized when the stock options are granted to colleagues and directors at fair market value as of the grant date. The Company may also grant stock options to outside consultants. The fair value of these option grants are expensed over the period services are rendered based on the Black-Scholes valuation model. The Company has three stock option plans: the 1994 Key Employee Stock Option Plan, the Long Term Incentive Plan and the Independent Director Stock Option Plan and three stock purchase plans: the Colleague Stock Discount Plan, the Key Leadership Deferred Income Stock Purchase Plan and the Director Deferred Income Stock Purchase Plan. Had compensation cost for these plans been determined as required under SFAS No. 123, "Accounting for Stock-Based Compensation," amended by SFAS No. 148, "Accounting for Stock-Based Compensation -- Transition and Disclosure," the Company's pro forma net income (loss) and pro forma income (loss) per share would have been as follows (in thousands, except per share data):
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------------- --------------------------- 2004 2003 2004 2003 -------- -------- -------- ------- Net income (loss): As reported: $ (2,657) $ 2,646 $ 9,361 $ 14,218 Add: Stock-based compensation included in reported net income (loss), net of tax 273 581 572 830 Deduct: Total fair value stock-based compensation expense for all awards, net of tax (541) (1,193) (1,136) (2,411) -------- -------- -------- -------- Pro Forma $ (2,925) $ 2,034 $ 8,797 $ 12,637 ======== ======== ======== ========
-6-
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- ------------------------ 2004 2003 2004 2003 ------- -------- ----- -------- Basic earnings (loss) per share As reported $(0.05) $0.05 $0.16 $0.25 Pro Forma (0.05) 0.04 0.15 0.22 Diluted earnings (loss) per share As reported $(0.05) $0.05 $0.16 $0.25 Pro Forma (0.05) 0.04 0.15 0.22
The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions: Risk free interest rates of 4.33% and 3.92% in the 2004 periods and a risk free interest rate of 2.91% in the 2003 periods; expected life of seven years for the 2004 and 2003 periods; expected volatility of 61.21% and 58% in the 2004 periods and 58% in the 2003 periods; and no expected dividends in both the 2004 and 2003 periods. 6. DEBT LONG-TERM DEBT Long-term debt consists of the following (in thousands):
JUNE 30, DECEMBER 31, 2004 2003 ----------- ------------ Revolving credit facility $ 46,500 $ -- Convertible Debentures 112,547 -- Senior Euro notes 182,775 188,640 Term credit facilities 375,000 239,512 Industrial development revenue bonds 43,765 43,765 Senior notes (net of discount of $6,788 and $6,955, respectively) 251,212 251,005 Due to Tower Automotive Capital Trust 258,750 258,750 Other foreign subsidiary indebtedness 148,965 145,373 Other 23,970 25,749 ----------- ------------ 1,443,484 1,152,794 Less-current maturities (133,664) (91,935) ----------- ------------ Total long-term debt $ 1,309,820 $ 1,060,859 =========== ============
On May 24 2004, the Company entered into a credit agreement (the "Credit Agreement") to replace its existing term credit facilities and issued $125 million of 5.75% Convertible Senior Debentures (the "Convertible Debentures"). The Company utilized the proceeds of the Credit Agreement and the Convertible Debentures to repay existing senior credit facilities in the amount of $239.5 million, call the $200 million 5.0% convertible subordinated notes due August 1, 2004, pay related fees and expenses and for general corporate purposes. The Credit Agreement The Credit Agreement provides for a revolving credit facility in the aggregate amount of $50.0 million, a first lien term loan of $375 million and a second lien letter of credit facility of $155 million. Revolving loans may be borrowed at any time subsequent to May 24, 2004 but prior to May 24, 2009, the revolving loan termination date. The revolving credit facility provides for the issuance of letters of credit under this revolving credit facility up to $25 million which constitute usage under the facility and will reduce availability of revolving loans dollar for dollar. Revolver letters of credit shall expire on the earlier of one year from the date of issuance, -7- unless otherwise agreed to by the issuer, or one business day prior to May 24, 2009, the revolving loan termination date. At June 30, 2004, the Company had no amounts available for borrowing under this revolving credit facility. The first lien term loan requires quarterly payments of $937,500 beginning September 30, 2004 through September 30, 2008 and a payment of $179.5 million on November 24, 2008 and May 24, 2009. Borrowings under outstanding revolving loans and the first lien term loan bear interest at a variable rate based upon a base rate, LIBOR or a Euro rate plus an applicable margin of between 3.25% and 4.25%. The Company pays a commitment fee of 0.50% per annum on the unused portion of the revolving credit facility. Beginning January 1, 2005, the applicable margin on outstanding borrowings and the commitment fee is subject to adjustment based on the Company's leverage ratio. The actual interest rate on amounts outstanding under revolving loans and the first lien term loan ranged from 5.43% to 5.82% during the period of May 24, 2004 through June 30, 2004. The revolving credit facility and the first lien term loan are secured by a first priority lien and security interest (subject to customary exceptions) in the present and future property and assets, real and personal, tangible and intangible of the Company and the proceeds and products of such property and assets. The Company must utilize the net proceeds of any equity issuances, asset dispositions, casualty losses or debt to make mandatory prepayments under the Credit Agreement. The second lien letter of credit facility is fully cash collateralized by third parties for purposes of replacing or backstopping letters of credit outstanding under the Company's previous credit agreement. The cash collateral was deposited by such third parties in a trust account and the Company has no right, title or interest in the trust account. The Company pays an annual fee on amounts deposited with the second lien letter of credit issuer equal to, at the election of the Company, the base rate plus a margin of 6.00% or LIBOR plus a margin of 7.00%, in each case, less the amount of interest earned on the amount deposited as cash collateral by the second lien participants. The second lien letters of credit expire on the earlier of one year from date of issuance, unless otherwise agreed to by the issuer, or on January 29, 2010, the stated maturity date of the second lien letter of credit facility. The total of issued and un-issued second lien letters of credit shall be reduced by $387,500 per quarter beginning December 31, 2004 through December 31, 2009, and by $146.9 million on January 29, 2010. At June 30, 2004, the Company had second lien letters of credit issued in the amount of $153.5 million. No draws were outstanding against the second lien letters of credit at June 30, 2004. The second lien letter of credit facility is secured by a second priority lien and security interest (subject to the same exceptions as the first lien collateral) in all first lien collateral, other than the principal manufacturing facilities located in the United States owned by the Company or any of its subsidiaries or shares of capital stock or indebtedness of certain subsidiaries. The Credit Agreement contains numerous covenants, which require the Company to meet certain financial maintenance tests including a minimum interest coverage and a total leverage ratio. In addition, the covenants limit: the creation of liens; the incurrence of indebtedness, guarantees and contingent obligations; mergers and consolidations, acquisitions, joint ventures and other investments; sales, transfers and other dispositions of assets; dividends and other distributions to stockholders; repurchasing shares of common stock; prepayment, redemption or repurchase of certain indebtedness and other matters customarily restricted in such agreements. Convertible Debentures On May 24, 2004, the Company issued the Convertible Debentures in the total amount of $125 million. The Convertible Debentures bear interest at a rate of 5.75% per annum paid semi-annually on May 15 and November 15 beginning November 15, 2004. The Convertible Debentures mature on May 15, 2024, unless earlier converted, redeemed or repurchased by the Company. The Convertible Debentures are general unsecured senior obligations of the Company and rank equally with any present and future senior debt of the Company. The Convertible Debentures rank senior to any subordinated debt of the Company and are effectively subordinated to any secured debt of the Company, to the extent of the amount of the assets securing such debt. The Convertible Debentures are structurally subordinated to present and future debt and other obligations of each subsidiary of the Company. -8- Holders may convert the Convertible Debentures into shares of the Company's common stock at a conversion rate of 231.0002 shares per $1,000 principal amount of the Convertible Debentures (equal to a conversion price of approximately $4.33 per share) subject to adjustment upon certain events, under the following circumstances: - prior to May 15, 2019, in any quarter subsequent to the quarter ended June 30, 2004, if the last reported sale of the Company's common stock for at least 20 trading days during the 30 consecutive trading days ending on the first trading day of such quarter is greater than 125% of the conversion price per share on such trading day; - on or after May 15, 2019, at any time after the last reported sales price of our common stock on any one day on or after May 15, 2019 is greater than 125% of the then current conversion price; - during the 5 business days after any 10 consecutive trading days in which the average of the trading prices per $1,000 principal amount of the Convertible Debentures for each day during such ten trading-day period was less than 98% of the product of the average of the last reported sale price of the common stock for each day during such ten trading-day period and the then current conversion rate; - and if the Convertible Debentures are called for redemption, upon the occurrence of certain transactions and upon the occurrence of certain credit rating events. Upon conversion, the Company has the right to deliver, in lieu of shares of the Company's common stock, cash or a combination of cash and shares of common stock. The Company may not presently issue more than 19,705,187 shares of common stock upon the conversion or repurchase of the Convertible Debentures unless and until the Company has obtained stockholder approval for the issuance of the Convertible Debentures and the common stock issuable upon conversion or repurchase. In circumstances under which the Company would be required to issue in excess of 19,705,187 shares of common stock, the Company will be required to pay cash in respect of all or a portion of converted or repurchased Convertible Debentures in order to ensure that the shares issued on conversion or repurchase do not exceed 19,705,187 shares (the "Embedded Conversion Option"). The initial value associated with the Embedded Conversion Option was $12.6 million and is being marked to market through the Company's Statement of Operations, until such time as the required additional number of shares of common stock is approved for authorization by the Company's stockholders. The Company recognized expense of approximately $1.9 million for the three and six months ended June 30, 2004, related to the change in fair value of the Embedded Conversion Option which is included in Unrealized Loss on Derivative in the accompanying Consolidated Statements of Operations. The portion of the Convertible Debentures, which must currently be settled in cash, will be reflected as a current liability in the Consolidated Balance Sheet, until such time as shareholder approval to issue additional shares is received. The Convertible Debentures are not redeemable prior to May 20, 2011. The Company may redeem the Convertible Debentures on or after May 20, 2011, in whole or in part, at any time, for cash at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest. The holders of the Convertible Debentures may require the Company to repurchase all or a portion of the Convertible Debentures on May 15, 2011, May 15, 2014 and May 15, 2019 or if the Company experiences certain fundamental changes at a repurchase price of 100% of principal amount, plus accrued and unpaid interest. Subject to the limitation on the issuance of the Company's common stock, referred to above, the Company, may at its option, pay the repurchase price in cash, shares of common stock or a combination thereof, except that the Company shall pay accrued and unpaid interest, if any, in cash. TOWER AUTOMOTIVE CAPITAL TRUST During the third quarter of 2003, the Company elected to adopt the current provisions of FASB Interpretation Number (FIN) 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51" as it relates to its mandatorily redeemable convertible trust preferred securities prior to the required effective date. Under FIN 46, the Tower Automotive Capital Trust (the "Trust"), which was previously consolidated by the Company, is no longer consolidated. As a result, the Company no longer presents the mandatorily redeemable convertible trust preferred securities as mezzanine financing, but instead records a debt obligation for the proceeds which are owed to the Trust by the Company. Interest is recorded at 6 3/4% on the amount owed by the Company to the Trust, which is equal to the amount that was previously presented as minority interest (net of tax) for the -9- dividends on the preferred stock. Interest expense increased by $4.4 million and $8.8 million, respectively, in the three and six months ended June 30, 2004 related to this reclassification. Pursuant to the guidance in FIN 46, the Company has elected not to reclassify the presentation in prior periods. The $258.8 million trust convertible preferred securities held by the Trust were issued in June 1998 at a dividend rate of 6 3/4% and are redeemable, in whole or in part, after June 30, 2001 but before June 30, 2018. The preferred securities are also convertible at the option of the holder into common stock of Tower at an equivalent conversion price of $30.713 per share. VARIABLE INTEREST ENTITY As of December 31, 2003, the Company consolidated the variable interest entity related to its Lansing, Michigan building and equipment leasing arrangement and, therefore, recorded property, plant and equipment of $25.7 million and related indebtedness of $25.7 million. At June 30, 2004, this indebtedness amounted to $23.9 million. INTEREST RATE SWAP CONTRACT The Company utilizes an interest rate swap contract to manage its interest rate exposure on approximately $160 million of its floating rate indebtedness under its Credit Agreement. The contract has the effect of converting the floating rate interest to a fixed rate of approximately 6.88%, plus any applicable margin required under the revolving credit facility. The interest rate swap contract was executed to balance the Company's fixed-rate and floating-rate debt portfolios and expires in September 2005. The Company has designated the interest rate swap as a cash flow hedge. Accordingly, gains and losses are recorded in accumulated other comprehensive income (loss), net of income taxes. As of June 30, 2004, $4.9 million (net of tax) is recorded in accumulated other comprehensive loss related to the cash flow hedge. Derivative liabilities relating to the interest rate swap agreement totaling $8.9 million have been recorded in accrued liabilities in the Condensed Consolidated Balance Sheet as of June 30, 2004. The fair value of the interest rate swap agreement is based upon the difference between the contractual rates and the present value of the expected future cash flows on the hedged interest rate. 7. ACQUISITIONS Effective February 27, 2004, the Company acquired the remaining 34% ownership interest in Seojin Industrial Company Limited ("Seojin") for consideration of approximately $21.3 million. Such consideration consisted of cash of $21.3 million offset by the repayment of $11.0 million of loans to Seojin's minority shareholder, resulting in a net cash outflow of $10.3 million. Seojin is a supplier of frames, modules and structural components to the Korean automotive industry with primary customers of Hyundai and Kia. The Company financed the acquisition through Korean debt facilities, which are not covered under the Company's Credit Agreement (Note 6). The acquisition was accounted for under the purchase method of accounting and, accordingly, the assets acquired and liabilities assumed have been recorded at the Company's preliminary estimate of fair value as of the date of acquisition. The excess of the purchase price over the fair value of the assets acquired and liabilities assumed, if any, will be recorded as goodwill. The purchase price and related allocation may be revised up to one year from the date of the acquisition. The Company can provide no assurances as to whether any revisions to the original purchase price allocation will be significant. Adjustments to the purchase price and related allocation may occur as a result of obtaining more information regarding property valuations, liabilities assumed and revisions of preliminary estimates of fair values made at the date of purchase. As the Company previously consolidated Seojin, Seojin's results of operations have been included in all periods presented and, as a result, no pro forma information is presented. -10- In conjunction with previous acquisitions, reserves have been established for certain costs associated with facility shutdown and consolidation activities, for general and payroll related costs primarily for planned employee termination activities, and for provisions for acquired loss contracts. A rollforward of these reserves is as follows (in millions):
FACILITY SHUTDOWN COSTS LOSS CONTRACTS -------------- -------------- December 31, 2003 $ 2.0 $ 2.9 Utilization (0.3) (1.3) -------------- -------------- June 30, 2004 $ 1.7 $ 1.6 ============== ==============
As of June 30, 2004, all of the identified facilities have been shutdown, but the Company continues to incur costs related to maintenance, taxes and other costs related to the buildings. The Company's acquisition reserves have been utilized as originally intended and management believes that the liabilities recorded for shutdown and consolidation activities are adequate as of June 30, 2004. 8. ACCOUNTS RECEIVABLE SECURITIZATION In June 2001, the Company entered into a financing agreement whereby its domestic operating units sold eligible customer receivables on an ongoing basis to a fully consolidated financing entity. In February 2004, the financing agreement was terminated. During the first six months of 2004, no customer receivables were sold under this financing agreement. 9. INVESTMENTS IN JOINT VENTURES In March 2004, the Company sold its 30.76% ownership interest in Yorozu Corporation ("Yorozu") to Yorozu, through a share buy-back transaction on the Tokyo Stock Exchange. Yorozu is a supplier of suspension modules and structural parts to the Asian and North American automotive markets. The Company received proceeds of approximately $51.7 million through this sale. The consideration for the sale was based on the prevailing price of Yorozu, as traded on the Tokyo Stock Exchange. The Company recognized a gain on the sale of $9.7 million. The proceeds of this divestiture were utilized for tooling purchases and other capital expenditures. On February 10, 2004, the Company announced that a decision had been finalized by DaimlerChrysler to move the current production of the frame assembly for the Dodge Ram light truck from the Company's Milwaukee, Wisconsin facility to the Company's 40% owned joint venture partner, Metalsa, located in Monterrey, Mexico. The current Dodge Ram frame program produced in the Milwaukee facility was expected to run through 2009. The production move to Mexico is planned for mid-2005. The Company is in the process of determining the expected net economic impact, if any, of DaimlerChrysler's decision to move the Dodge Ram frame line on its future consolidated results. The Company is also currently in negotiations with DaimlerChrysler regarding a settlement pertaining to costs associated with the move and/or replacement programs. The Company recognized revenue associated with the Dodge Ram frame program of $59.0 million and $56.4 million for the three months ended June 30, 2004 and 2003, respectively, and $119.2 million and $111.1 million for the six months ended June 30, 2004 and 2003, respectively. -11- 10. RETIREMENT PLANS The following table provides the components of net periodic pension benefit cost and other post-retirement benefit cost for the three months ended June 30, (in thousands):
PENSION BENEFITS OTHER BENEFITS 2004 2003 2004 2003 ------- ------- ------- ------- Service cost $ 2,140 $ 1,629 $ 94 $ 167 Interest cost 3,626 3,487 1,935 2,078 Expected return on plan assets (3,045) (2,438) -- -- Amortization of transition assets (1) (8) -- -- Amortization of prior service cost 1,054 595 -- -- Amortization of net losses 941 1,109 1,495 892 ------- ------- ------- ------- Net periodic benefit cost $ 4,715 $ 4,374 $ 3,524 $ 3,137 ======= ======= ======= =======
The following table provides the components of net periodic pension benefit cost and other post retirement benefit cost for the six months ended June 30, (in thousands):
PENSION BENEFITS OTHER BENEFITS 2004 2003 2004 2003 ------- ------- ------- ------- Service cost $ 4,280 $ 3,259 $ 189 $ 334 Interest cost 7,252 6,975 3,869 4,156 Expected return on plan assets (6,089) (4,876) -- -- Amortization of transition assets (2) (16) -- -- Amortization of prior service cost 2,108 1,190 -- -- Amortization of net losses 1,882 2,218 2,990 1,784 ------- ------- ------- ------- Net periodic benefit cost $ 9,431 $ 8,750 $ 7,048 $ 6,274 ======= ======= ======= =======
The reversal of the pension curtailment loss of $6.3 million, recognized in the first quarter of 2004, associated with the Company's decision to not move the Ford Ranger frame assembly is not reflected in the table above but is reflected in the Company's Statement of Operations for the six months ended June 30, 2004 as a restructuring charge reversal. (See Notes 2 and 12 to the Condensed Consolidated Financial Statements). The Company previously disclosed in its consolidated financial statements for the year ended December 31, 2003 that it expects its minimum pension funding requirements to be $38 million during 2004. During the three and six months ended June 30, 2004, the Company made contributions of $8.0 million and $14.0 million, respectively, to its pension plans. The Company presently anticipates contributing an additional $17.8 million to fund its pension plans in 2004 for a total of $31.8 million based upon the Company's most recent estimate. The Company contributed $1.4 million and $4.1 million, respectively, during the three and six months ended June 30, 2004 to its defined contribution employee savings plans. The Company presently anticipates that the Medicare Prescription Drug, Improvement and Modernization Act of 2003 will not have a material impact on net periodic benefit cost. 11. SEGMENT INFORMATION The Company produces a broad range of assemblies and modules for vehicle body structures and suspension systems for the global automotive industry. These operations have similar characteristics including the nature of products, production processes and customers, and produce lower vehicle structures, body structures (including Class A surfaces), suspension components, and suspension and powertrain modules for the automotive industry. Management reviews the operating results of the Company and makes decisions based upon two operating segments: North America and International. -12- Financial information by segment is as follows (in thousands):
NORTH AMERICA INTERNATIONAL TOTAL ----------- ------------- ---------- THREE MONTHS ENDED JUNE 30, 2004: Revenues $ 517,468 $ 265,745 $ 783,213 Operating income 13,553 19,716 33,269 Total assets 2,034,475 1,009,041 3,043,516 THREE MONTHS ENDED JUNE 30, 2003: Revenues 531,502 211,677 743,179 Operating income 3,153 20,782 23,935 Restructuring and asset impairment charge 15,378 -- 15,378 Total assets 2,099,964 838,442 2,938,406 SIX MONTHS ENDED JUNE 30, 2004: Revenues 1,051,350 513,099 1,564,449 Operating income 28,910 36,457 65,367 Total assets 2,034,475 1,009,041 3,043,516 SIX MONTHS ENDED JUNE 30, 2003: Revenues 1,063,564 412,193 1,475,757 Operating income 24,992 38,791 63,783 Restructuring and asset impairment charge 15,378 -- 15,378 Total assets 2,099,964 838,442 2,938,406
The change in the carrying amount of goodwill for the six months ended June 30, 2004, by operating segment, is as follows (in thousands):
NORTH AMERICA INTERNATIONAL TOTAL --------- ------------- --------- Balance at December 31, 2003 $ 336,468 $ 162,195 $ 498,663 Currency translation adjustment (302) (4,866) (5,168) --------- --------- --------- Balance at June 30, 2004 $ 336,166 $ 157,329 $ 493,495 ========= ========= =========
12. RESTRUCTURING AND ASSET IMPAIRMENT CHARGES MILWAUKEE RANGER AND NORTH AMERICA/CORPORATE OFFICE CONSOLIDATION ACTIVITIES (2003 PLAN): In October 2003, the Company announced plans to consolidate its Novi, Michigan North America oversight and Grand Rapids, Michigan corporate office activities and close its Rochester Hills, Michigan prototype tooling and technical center facility. Qualifying exit costs (in accordance with SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities") relating to these activities were recognized by the Company in the fourth quarter of 2003 totaling $3.7 million, comprised of cash charges of $2.1 million and non-cash asset impairment charges of $1.6 million. These costs are contained within the North America segment. The Company does not anticipate any significant additional expenses relating to this restructuring activity. On May 27, 2003, the Company announced that it would transfer the production of high-volume frame assemblies for the Ford Ranger from its Milwaukee, Wisconsin facility to its Bellevue, Ohio facility. During 2003, the Company recorded $25.0 million pre-tax restructuring and asset impairment charges relating to this event. These charges reflect estimated qualifying "exit costs" comprising cash charges of $6.1 million, pension and other post-retirement benefit plan curtailment costs of $6.3 million and non-cash asset impairment charges of $12.6 million, all within the North America segment. These charges did not cover certain aspects of the 2003 Plan, including movement of equipment and colleague relocation and training, which are recognized in future periods as incurred. On December 5, 2003, the Company announced that it had decided not to proceed with the relocation of the Ford Ranger line based on revised economic factors from the original May 2003 decision principally due to concessions received from the Milwaukee labor unions and a need for management to focus on its 2004 new product launch schedule. Because the Company's measurement date for pension and post-retirement benefits is September 30 and the decision to continue Ranger frame production in Milwaukee was made in December 2003, the curtailment loss -13- was reversed in the first quarter of 2004 (see Note 2). The cash charges of $6.1 million were incurred prior to the reversal of the original decision to move the Ford Ranger frame production. SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets" prohibits the restoration of the non-cash asset impairment charges of $12.6 million. During the three and six months ended June 30, 2004, the Company recognized restructuring charges pertaining to the 2003 Plan of $0.3 million and $1.0 million, respectively. The accrual for the 2003 Plan is included in accrued liabilities in the accompanying Condensed Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003. The table below summarizes the accrual for the 2003 Plan through June 30, 2004 (in millions):
SEVERANCE AND OUTPLACEMENT COSTS ------------------ Balance at December 31, 2003 $ 2.0 Cash usage (1.2) ------------------ Balance at June 30, 2004 $0.8 ==================
13. COMPREHENSIVE INCOME (LOSS) The following table presents comprehensive income (loss), net of tax (in thousands):
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- ------------------------ 2004 2003 2004 2003 (Restated) (Restated) --------- ---------- --------- ---------- Net income (loss) $ (2,657) $ 2,646 $ 9,361 $ 14,218 Change in cumulative translation adjustment (5,167) 7,772 (12,845) 10,145 Unrealized gain (loss) on qualifying cash flow hedges, net of tax 2,599 301 3,345 812 --------- ---------- --------- ---------- Comprehensive income (loss) $ (5,225) $ 10,719 $ (139) $ 25,175 ========= ========== ========= ==========
14. COMMITMENTS AND CONTINGENCIES LITIGATION: The Company is subject to various legal actions and claims incidental to its business. Litigation is subject to many uncertainties and the outcome of individual litigated matters is not predictable with assurance. After discussions with counsel, it is the opinion of management that the outcome of such matters will not have a material adverse impact on the Company's financial position, results of operations or cash flows. 15. CONSOLIDATING GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION: The following consolidating financial information presents balance sheets, statements of operations and cash flow information related to the Company's business. Each Guarantor, as defined, is a direct or indirect 100% owned subsidiary of the Company and has fully and unconditionally guaranteed the 9.25% senior unsecured Euro notes issued by R. J. Tower Corporation in 2000 and the 12% senior unsecured notes issued by R.J. Tower Corporation in 2003, on a joint and several basis. Tower Automotive, Inc. (the parent company) has also fully and unconditionally guaranteed the notes and is reflected as the Parent Guarantor in the consolidating financial information. The Non-Guarantor Restricted Companies are the Company's foreign subsidiaries except for Seojin Industrial Company Limited, which is reflected as the Non-Guarantor Unrestricted Company in the consolidating financial information. Separate financial statements and other disclosures concerning the Guarantors have not been presented because management believes that such information is not material to investors. -14- TOWER AUTOMOTIVE INC. CONSOLIDATING BALANCE SHEETS AT JUNE 30, 2004 (AMOUNTS IN THOUSANDS -- UNAUDITED)
NON-GUARANTOR NON-GUARANTOR R. J. TOWER PARENT GUARANTOR RESTRICTED UNRESTRICTED CORPORATION GUARANTOR COMPANIES COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED ----------- ----------- ----------- ------------- ------------- ------------ ------------ ASSETS - --------------------------------------- Current assets: Cash and cash equivalents $ 115,198 $ -- $ 219 $ 77,178 $ 290 $ -- $ 192,885 Accounts receivable 15,644 -- 179,427 163,490 14,832 -- 373,393 Inventories -- -- 76,685 47,806 13,550 -- 138,041 Deferred income taxes, net 14,249 -- -- 1,251 (527) -- 14,973 Prepaid tooling and other 4,583 -- 100,869 44,740 8,646 -- 158,838 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total current assets 149,674 -- 357,200 334,465 36,791 -- 878,130 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Property, plant and equipment, net 1,838 -- 689,691 290,663 169,708 -- 1,151,900 Investments in joint ventures 207,779 -- -- -- -- -- 207,779 Investment in subsidiaries 528,081 419,578 -- -- -- (947,659) -- Deferred income taxes, net 99,547 21,716 27,315 3,262 (2,168) -- 149,672 Goodwill -- -- 326,310 167,185 -- -- 493,495 Other assets, net 33,528 10,718 72,178 28,204 17,912 -- 162,540 ----------- ----------- ----------- ----------- ----------- ----------- ----------- $ 1,020,447 $ 452,012 $ 1,472,694 $ 823,779 $ 222,243 $ (947,659) $ 3,043,516 =========== =========== =========== =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' INVESTMENT - ----------------------------------------- Current liabilities: Current maturities of long-term debt and capital lease obligations $ 3,752 $ -- $ 3,619 $ 27,153 $ 71,078 $ -- $ 105,602 Convertible senior debentures -- 35,745 -- -- -- -- 35,745 Accounts payable 5,907 -- 443,403 158,993 38,681 -- 646,984 Accrued liabilities 52,341 15,520 121,728 70,625 7,739 -- 267,953 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total current liabilities 62,000 51,265 568,750 256,771 117,498 -- 1,056,284 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Long-term debt, net of current maturities 851,736 258,750 64,116 13,149 45,267 -- 1,233,018 Convertible senior debentures -- 76,802 -- -- -- -- 76,802 Obligations under capital leases, net of current maturities -- -- -- 35,383 1,541 -- 36,924 Due to/(from) affiliates (349,902) (354,383) 511,906 195,077 (2,698) -- -- Other noncurrent liabilities 19,693 -- 154,658 38,325 8,234 -- 220,910 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total noncurrent liabilities 521,527 (18,831) 730,680 281,934 52,344 -- 1,567,654 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Stockholders' investment 436,920 419,578 173,264 285,074 52,401 (947,659) 419,578 ----------- ----------- ----------- ----------- ----------- ----------- ----------- $ 1,020,447 $ 452,012 $ 1,472,694 $ 823,779 $ 222,243 $ (947,659) $ 3,043,516 =========== =========== =========== =========== =========== =========== ===========
-15- TOWER AUTOMOTIVE INC. CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2004 (AMOUNTS IN THOUSANDS - UNAUDITED)
NON-GUARANTOR NON-GUARANTOR R. J. TOWER PARENT GUARANTOR RESTRICTED UNRESTRICTED CORPORATION GUARANTOR COMPANIES COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED ----------- --------- --------- ------------ ------------- ------------ ------------ Revenues $ -- $ -- $ 507,904 $ 204,873 $ 70,436 $ -- $ 783,213 Cost of sales (1,509) -- 472,061 178,262 65,685 -- 714,499 --------- --------- --------- --------- --------- --------- --------- Gross profit 1,509 -- 35,843 26,611 4,751 -- 68,714 Selling, general and administrative expenses (7,345) -- 30,417 9,679 2,390 -- 35,141 Restructuring and asset impairment charge 227 -- 77 -- -- -- 304 --------- --------- --------- --------- --------- --------- --------- Operating income (loss) 8,627 -- 5,349 16,932 2,361 -- 33,269 Interest expense, net 26,639 9,461 (1,387) 1,317 1,848 -- 37,878 Unrealized loss on derivative -- 1,850 -- -- -- -- 1,850 --------- --------- --------- --------- --------- --------- --------- Income (loss) before provision for income taxes, equity in earnings of joint ventures and minority interest (18,012) (11,311) 6,736 15,615 513 -- (6,459) Provision (benefit) for income taxes (6,124) (3,846) 2,292 5,308 174 -- (2,196) --------- --------- --------- --------- --------- --------- --------- Income (loss) before equity in earnings of joint ventures and minority interest (11,888) (7,465) 4,444 10,307 339 -- (4,263) Equity earnings in joint ventures and subsidiaries, net 16,696 4,808 -- -- -- (17,982) 3,522 Minority interest, net -- -- -- (1,916) -- -- (1,916) --------- --------- --------- --------- --------- --------- --------- Net income (loss) $ 4,808 $ (2,657) $ 4,444 $ 8,391 $ 339 $ (17,982) $ (2,657) ========= ========= ========= ========= ========= ========= =========
-16- TOWER AUTOMOTIVE INC. CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2004 (AMOUNTS IN THOUSANDS - UNAUDITED)
NON-GUARANTOR NON-GUARANTOR R. J. TOWER PARENT GUARANTOR RESTRICTED UNRESTRICTED CORPORATION GUARANTOR COMPANIES COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED ----------- --------- ----------- ----------- ------------ ------------ ------------ Revenues $ -- $ -- $ 1,032,727 $ 393,998 $ 137,724 $ -- $ 1,564,449 Cost of sales (4,248) -- 967,438 344,765 127,135 -- 1,435,090 ----------- --------- ----------- ----------- ----------- ----------- ----------- Gross profit 4,248 -- 65,289 49,233 10,589 -- 129,359 Selling, general and administrative expenses (15,760) -- 60,799 19,274 4,982 -- 69,295 Restructuring and asset impairment charge 444 -- (5,747) -- -- -- (5,303) ----------- --------- ----------- ----------- ----------- ----------- ----------- Operating income 19,564 -- 10,237 29,959 5,607 -- 65,367 Interest expense, net 47,889 16,652 (1,906) 2,898 3,815 -- 69,348 Unrealized loss on derivative -- 1,850 -- -- -- -- 1,850 ----------- --------- ----------- ----------- ----------- ----------- ----------- Income (loss) before provision for income taxes, equity in earnings of joint ventures and minority interest (28,325) (18,502) 12,143 27,061 1,792 -- (5,831) Provision (benefit) for income taxes (9,366) (6,291) 4,130 9,200 609 -- (1,718) ----------- --------- ----------- ----------- ----------- ----------- ----------- Income (loss) before equity in earnings of joint ventures and minority interest (18,959) (12,211) 8,013 17,861 1,183 -- (4,113) Equity earnings in joint ventures and subsidiaries, net 30,799 21,572 -- -- -- (45,402) 6,969 Gain on sale of joint venture investment, net 9,732 -- -- -- -- -- 9,732 Minority interest, net -- -- -- (3,227) -- -- (3,227) ----------- --------- ----------- ----------- ----------- ----------- ----------- Net income $ 21,572 $ 9,361 $ 8,013 $ 14,634 $ 1,183 $ (45,402) $ 9,361 =========== ========= =========== =========== =========== =========== ===========
-17- TOWER AUTOMOTIVE INC. CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2004 (AMOUNTS IN THOUSANDS - UNAUDITED)
NON-GUARANTOR NON-GUARANTOR R. J. TOWER PARENT GUARANTOR RESTRICTED UNRESTRICTED CORPORATION GUARANTOR COMPANIES COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED ----------- --------- --------- ------------- ------------- ------------ ------------ OPERATING ACTIVITIES: Net income $ 21,572 $ 9,361 $ 8,013 $ 14,634 $ 1,183 $ (45,402) $ 9,361 Adjustments required to reconcile net income to net cash provided by (used in) operating activities Non-cash restructuring charge -- -- (6,276) -- -- -- (6,276) Depreciation 130 -- 47,497 20,182 8,544 -- 76,353 Deferred income tax provision (benefit) (7,855) -- (243) (2,053) 499 -- (9,652) Gain on sale of joint venture investment (9,732) -- -- -- -- -- (9,732) Equity in earnings of joint ventures, net (6,969) -- -- -- -- -- (6,969) Changes in working capital and other operating items (47,859) (1,099) (68,896) 39,916 9,900 45,402 (22,636) --------- --------- --------- --------- --------- --------- --------- Net cash provided by (used in) operating activities (50,713) 8,262 (19,905) 72,679 20,126 -- 30,449 --------- --------- --------- --------- --------- --------- --------- INVESTING ACTIVITIES: Capital expenditures, net (1,132) -- (96,446) (25,173) (8,276) -- (131,027) Divestitures and other (14,957) 66,657 -- -- -- -- 51,700 Acquisitions -- -- -- -- (21,299) -- (21,299) --------- --------- --------- --------- --------- --------- --------- Net cash provided by (used in) investing activities (16,089) 66,657 (96,446) (25,173) (29,575) -- (100,626) --------- --------- --------- --------- --------- --------- --------- FINANCING ACTIVITIES: Proceeds from borrowings 421,509 125,000 -- 3,608 26,374 -- 576,491 Repayment of debt (239,509) (199,984) (1,782) (14,355) (18,763) -- (474,393) Net proceeds from issuance of stock -- 65 -- -- -- -- 65 --------- --------- --------- --------- --------- --------- --------- Net cash provided by (used for) financing activities 182,000 (74,919) (1,782) (10,747) 7,611 -- 102,163 --------- --------- --------- --------- --------- --------- --------- NET CHANGE IN CASH AND CASH EQUIVALENTS 115,198 -- (118,133) 36,759 (1,838) -- 31,986 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -- -- 118,352 40,419 2,128 -- 160,899 --------- --------- --------- --------- --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 115,198 $ -- $ 219 $ 77,178 $ 290 $ -- $ 192,885 ========= ========= ========= ========= ========= ========= =========
-18- TOWER AUTOMOTIVE INC. CONSOLIDATING BALANCE SHEETS AT DECEMBER 31, 2003 (AMOUNTS IN THOUSANDS -- UNAUDITED)
NON-GUARANTOR NON-GUARANTOR R. J. TOWER PARENT GUARANTOR RESTRICTED UNRESTRICTED CORPORATION GUARANTOR COMPANIES COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED ----------- ---------- ----------- ------------- ------------- ------------ ------------ ASSETS - --------------------------------------- Current assets: Cash and cash equivalents $ -- $ -- $ 118,352 $ 40,419 $ 2,128 $ -- $ 160,899 Accounts receivable -- -- 177,177 129,633 18,789 -- 325,599 Inventories -- -- 73,760 44,876 11,368 -- 130,004 Deferred income taxes, net -- -- 14,250 5,866 -- -- 20,116 Prepaid tooling and other -- -- 39,849 41,445 10,368 -- 91,662 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total current assets -- -- 423,388 262,239 42,653 -- 728,280 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Property, plant and equipment, net -- -- 642,240 288,430 125,203 -- 1,055,873 Investments in joint ventures 247,756 -- -- 377 -- -- 248,133 Investment in subsidiaries 411,267 413,510 -- -- -- (824,777) -- Deferred income taxes, net -- 21,716 119,857 (3,406) 8,777 -- 146,944 Goodwill -- -- 326,309 172,354 -- -- 498,663 Other assets, net 14,881 7,096 82,162 37,574 26,803 -- 168,516 ----------- ----------- ----------- ----------- ----------- ----------- ----------- $ 673,904 $ 442,322 $ 1,593,956 $ 757,568 $ 203,436 $ (824,777) $ 2,846,409 =========== =========== =========== =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' INVESTMENT - ------------------------------------------ Current liabilities: Current maturities of long-term debt and capital lease obligations $ -- $ -- $ 3,622 $ 32,916 $ 63,059 $ -- $ 99,597 Convertible subordinated notes -- 199,984 -- -- -- -- 199,984 Accounts payable -- -- 399,319 114,333 42,384 -- 556,036 Accrued liabilities 11,124 4,166 161,788 64,044 8,862 -- 249,984 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total current liabilities 11,124 204,150 564,729 211,293 114,305 -- 1,105,601 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Long-term debt, net of current maturities 679,177 258,750 65,871 16,202 40,859 -- 1,060,859 Obligations under capital leases, net of current maturities -- -- -- 40,054 2,744 -- 42,798 Due to/(from) affiliates (479,789) (434,088) 758,417 147,123 8,337 -- -- Other noncurrent liabilities -- -- 180,827 34,431 8,383 -- 223,641 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total noncurrent liabilities 199,388 (175,338) 1,005,115 237,810 60,323 -- 1,327,298 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Stockholders' investment 463,392 413,510 24,112 308,465 28,808 (824,777) 413,510 ----------- ----------- ----------- ----------- ----------- ----------- ----------- $ 673,904 $ 442,322 $ 1,593,956 $ 757,568 $ 203,436 $ (824,777) $ 2,846,409 =========== =========== =========== =========== =========== =========== ===========
-19-
TOWER AUTOMOTIVE INC. CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2003 (Restated) (AMOUNTS IN THOUSANDS - UNAUDITED) NON-GUARANTOR NON-GUARANTOR R. J. TOWER PARENT GUARANTOR RESTRICTED UNRESTRICTED CORPORATION GUARANTOR COMPANIES COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED ----------- --------- --------- ------------- ------------- ------------ ------------ Revenues $ -- $ -- $ 491,019 $ 173,271 $ 78,889 $ -- $ 743,179 Cost of sales -- -- 446,051 146,695 71,985 -- 664,731 --------- --------- --------- --------- --------- --------- --------- Gross profit -- -- 44,968 26,576 6,904 -- 78,448 Selling, general and administrative expenses -- -- 28,286 9,305 1,544 -- 39,135 Restructuring and asset impairment charge -- -- 15,144 234 -- -- 15,378 --------- --------- --------- --------- --------- --------- --------- Operating income (loss) -- -- 1,538 17,037 5,360 -- 23,935 Interest expense, net 11,299 6,866 (3,098) 1,097 1,919 -- 18,083 --------- --------- --------- --------- --------- --------- --------- Income (loss) before provision for income taxes, equity in earnings of joint ventures and minority interest (11,299) (6,866) 4,636 15,940 3,441 -- 5,852 Provision (benefit) for income taxes (3,844) (2,334) 1,581 5,421 1,170 -- 1,994 --------- --------- --------- --------- --------- --------- --------- Income (loss) before equity in earnings of joint ventures and minority interest (7,455) (4,532) 3,055 10,519 2,271 -- 3,858 Equity earnings in joint ventures and subsidiaries, net 17,515 10,060 -- -- -- (24,431) 3,144 Minority interest, net -- (2,882) -- (1,474) -- -- (4,356) --------- --------- --------- --------- --------- --------- --------- Net income (loss) $ 10,060 $ 2,646 $ 3,055 $ 9,045 $ 2,271 $ (24,431) $ 2,646 ========= ========= ========= ========= ========= ========= =========
-20-
TOWER AUTOMOTIVE INC. CONSOLIDATING STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2003 (Restated) (AMOUNTS IN THOUSANDS - UNAUDITED) NON-GUARANTOR NON-GUARANTOR R. J. TOWER PARENT GUARANTOR RESTRICTED UNRESTRICTED CORPORATION GUARANTOR COMPANIES COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED ----------- --------- --------- ------------- ------------- ------------ ------------ Revenues $ -- $ -- $ 991,782 $ 328,096 $ 155,879 $ -- $ 1,475,757 Cost of sales -- -- 903,030 277,749 142,006 -- 1,322,785 ----------- --------- --------- ----------- ----------- ----------- ----------- Gross profit -- -- 88,752 50,347 13,873 -- 152,972 Selling, general and administrative expenses -- -- 52,531 18,197 3,083 -- 73,811 Restructuring and asset impairment charge -- -- 15,144 234 -- -- 15,378 ----------- --------- --------- ----------- ----------- ----------- ----------- Operating income -- -- 21,077 31,916 10,790 -- 63,783 Interest expense, net 23,325 13,732 (8,499) 2,518 3,776 -- 34,852 ----------- --------- --------- ----------- ----------- ----------- ----------- Income (loss) before provision for income taxes, equity in earnings of joint ventures and minority interest (23,325) (13,732) 29,576 29,398 7,014 -- 28,931 Provision (benefit) for income taxes (7,932) (4,669) 10,061 9,996 2,385 -- 9,841 ----------- --------- --------- ----------- ----------- ----------- ----------- Income (loss) before equity in earnings of joint ventures and minority interest (15,393) (9,063) 19,515 19,402 4,629 -- 19,090 Equity earnings in joint ventures and subsidiaries, net 44,438 29,045 -- -- -- (69,695) 3,788 Minority interest, net -- (5,764) -- (2,896) -- -- (8,660) ----------- --------- --------- ----------- ----------- ----------- ----------- Net income $ 29,045 $ 14,218 $ 19,515 $ 16,506 $ 4,629 $ (69,695) $ 14,218 =========== ========= ========= =========== =========== =========== ===========
-21- TOWER AUTOMOTIVE INC. CONSOLIDATING STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2003 (RESTATED)(AMOUNTS IN THOUSANDS - UNAUDITED)
NON-GUARANTOR NON-GUARANTOR R. J. TOWER PARENT GUARANTOR RESTRICTED UNRESTRICTED CORPORATION GUARANTOR COMPANIES COMPANIES COMPANIES ELIMINATIONS CONSOLIDATED ----------- --------- --------- ------------- ------------- ------------ ------------ OPERATING ACTIVITIES: Net income $ 29,045 $ 14,218 $ 19,515 $ 16,506 $ 4,629 $ (69,695) $ 14,218 Adjustments required to reconcile net income to net cash provided by (used in) operating activities Restructuring and asset impairment charge -- -- 15,134 234 -- -- 15,368 Customer recovery related to program cancellation -- -- 15,600 -- -- -- 15,600 Depreciation -- -- 52,299 22,821 3,986 -- 79,106 Deferred income tax provision (benefit) -- -- 5,013 (4,581) 379 -- 811 Equity in earnings of joint ventures, net (3,788) -- -- -- -- -- (3,788) Changes in working capital and other operating items (36,392) (8,039) (15,885) 19,407 2,189 30,481 (8,239) ----------- --------- --------- ------------- ------------- ------------ ------------ Net cash provided by (used in) operating activities (11,135) 6,179 91,676 54,387 11,183 (39,214) 113,076 ----------- --------- --------- ------------- ------------- ------------ ------------ INVESTING ACTIVITIES: Capital expenditures, net -- -- (76,435) (13,791) (8,500) -- (98,726) Acquisitions and other, net (192,252) (6,661) 163,205 -- -- 39,214 3,506 ----------- --------- --------- ------------- ------------- ------------ ------------ Net cash provided by (used in) investing activities (192,252) (6,661) 86,770 (13,791) (8,500) 39,214 (95,220) ----------- --------- --------- ------------- ------------- ------------ ------------ FINANCING ACTIVITIES: Proceeds from borrowings 1,451,296 -- 896 34,377 859 -- 1,487,428 Repayment of debt (1,247,909) -- (4,897) (55,514) (5,862) -- (1,314,182) Net proceeds from issuance of stock -- 482 -- -- -- -- 482 ----------- --------- --------- ------------- ------------- ------------ ------------ Net cash provided by (used for) financing activities 203,387 482 (4,001) (21,137) (5,003) -- 173,728 ----------- --------- --------- ------------- ------------- ------------ ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS -- -- 174,445 19,459 (2,320) -- 191,584 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD -- -- -- 9,191 4,508 -- 13,699 ----------- --------- --------- ------------- ------------- ------------ ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ -- $ -- $ 174,445 $ 28,650 $ 2,188 $ -- $ 205,283 =========== ========= ========= ============= ============= ============ ============
-22- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company produces a broad range of assemblies and modules for vehicle frames, upper body structures and suspension systems for the global automotive industry. Including 100% owned subsidiaries and investments in joint ventures, the Company has production and engineering facilities in the United States, Canada, Italy, Germany Belgium, Poland, France, Spain, Brazil, India, Slovakia, Korea, Japan, China and Mexico. The Company's products are manufactured utilizing steel and various purchased assemblies. The price of steel has increased significantly during 2004 compared to recent historical periods due to a shortage of certain raw materials necessary to produce steel and increased global demand, primarily in China. The Company purchases a substantial portion of its steel from its customers through the customers' repurchase programs. The purchases through customers' repurchase programs, have somewhat mitigated the severity of price increases associated with the procurement of steel. The remainder of the Company's steel purchasing requirements is met through contracts with steel producers and market purchases. Prices associated with such purchases have rapidly increased during 2004. We expect the effect of increased steel prices to continue to have an adverse impact on the Company's results of operations for the foreseeable future. The Company's agreements with its customers generally do not permit the Company to increase selling prices for increases in prices of raw material inputs. The Company is pursuing several initiatives to mitigate the impact of such raw material price increases on its results of operations. Such initiatives include pursuing selling price increases from customers and reducing other operating costs, among other initiatives. The Company can provide no assurances that such initiatives will be successful. The Company's gross margins have been declining since 1999. Generally, the Company's customers require the reduction of selling prices of the Company's products for each year during the respective lives of such product programs, generally five to seven years. The Company's ability to maintain or improve its profit margins is directly linked to its ability to offset these sales price reductions with reduced operating costs. During the three and six months ended June 30, 2004, selling price reductions reduced gross profit by $5.0 million and $10.6 million, respectively, in comparison to the corresponding periods of 2003. The number of new vehicle launches also impacts the Company's gross margins. The Company's operating costs are higher during a product launch period relative to when the vehicle has reached normal production volumes. In addition, the Company's gross margins are impacted by the commercial success of the vehicles to which the Company is a supplier, general global economic conditions and automotive production volumes. During the first six months of 2004, the Company was adversely impacted by the large number of new product launches in comparison to the corresponding period of 2003. These launches, which are significant both in terms of number and relative size, reduced gross profit by $5.1 million and $15.9 million, respectively, in the three and six months ended June 30, 2004 in comparison to the corresponding periods of 2003. The Company expects this impact to continue through at least some portion of the second half of 2004. General economic conditions, such as labor costs and health care, reduced gross profit by $11.4 million and $19.9 million, respectively, during the three and six months ended June 30, 2004 compared to the three and six months ended June 30, 2003. To address the deterioration in operating performance, management has initiated plans to: (a) centralize and standardize processes which were previously performed on a decentralized basis, including purchasing, customer quoting and product costing, product engineering and accounting; (b) rationalize capital expenditures to more closely align capital spending with expected product returns; -23- (c) use centralization and standardization to leverage cost improvement ideas across the Company's operating facilities globally; (d) and a number of other cost reduction initiatives. During the three and six months ended June 30, 2004, the Company reduced operating costs by $9.9 million and $15.8 million, respectively, in comparison to the corresponding periods of 2003. If the Company is not successful in implementing these actions, the Company may continue to experience declining gross margins, which would hinder the Company's ability to pay down existing indebtedness, fund future growth and provide returns to stockholders. On February 10, 2004, the Company announced that a decision had been finalized by DaimlerChrysler to move the current production of the frame assembly for the Dodge Ram light truck from the Company's Milwaukee, Wisconsin facility to the Company's 40% owned joint venture partner, Metalsa located in Monterrey, Mexico. The current Dodge Ram frame program produced in the Milwaukee facility was expected to run through 2009. The production move to Mexico is planned for mid-2005. The Company is in the process of determining the expected net economic impact, if any, of DaimlerChrysler's decision to move the Dodge Ram frame line on its future consolidated results. The Company is also currently in negotiations with DaimlerChrysler regarding a settlement pertaining to costs associated with the move and/or replacement programs. For a more detailed description of other factors that have had, or may in the future have, a significant impact on the Company's business, please refer to "Forward Looking Statements", "Market Risks" and "Opportunities" contained in this Management's Discussion and Analysis for insight on opportunities, challenges and risks, such as those presented by known material trends and uncertainties, on which the Company's management is most focused for both the short term and long term, as well as the actions management is taking to address these opportunities, challenges and risks. RESULTS OF OPERATIONS As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2003, certain amounts for the three and six months ended June 30, 2003 are different from the amounts originally reported as a result of a restatement of a $7.7 million curtailment loss for pension and other post-retirement benefits related to the Company's 2003 restructuring plan (subsequently reduced to $6.3 million based upon updated actuary information in the fourth quarter of 2003). See Note 2 to the Condensed Consolidated Financial Statements. THE THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2003 REVENUES. Revenues increased by $40.0 million, or 5.4%, during the three months ended June 30, 2004 to $783.2 million from $743.2 million during the three months ended June 30, 2003. Higher volume and product mix increased revenues by $36.8 million, while favorable foreign exchange effects increased revenues by $8.2 million during the 2004 period. These increases were partially offset by net selling price reductions of $5.0 million. GROSS PROFIT AND GROSS MARGIN. Gross margin for the quarter ended June 30, 2004 was 8.8% compared to 10.6% for the comparable period of 2003. Gross profit decreased by $9.7 million, or 12.4%, to $68.7 million during the 2004 period compared to $78.4 million during the 2003 period. The decrease in gross margin and gross profit resulted primarily from increased costs associated with the Company's product launch activities of $5.1 million, customer selling price reductions of $5.0 million and higher operating expenses of $11.4 million, which includes the effects of higher material costs, primarily steel ($4.9 million), higher health care costs ($4.9 million) and general economic conditions (i.e. general labor rate increases , higher energy costs, etc.) pertaining to the Company ($1.6 million). These declines were partially offset by operating efficiencies of $5.9 million, favorable foreign currency effects of $0.6 million and volume and product mix effects of $5.3 million. -24- SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses decreased by $4.0 million, or 10.2%, to $35.1 million during the three months ended June 30, 2004 from $39.1 million for the corresponding period of 2003. Selling, general and administrative expenses represented 4.5% of revenues during the 2004 period in comparison to 5.3% in the 2003 period. The decline resulted primarily from the Company's 2003 Restructuring Plan involving the Company's corporate consolidation activities. OPERATING INCOME. Operating income increased by $9.4 million, or 39.0%, to $33.3 million during the three months ended June 30, 2004 from $23.9 million during the comparable period of 2003. This increase was due to declines of $15.1 million and $4.0 million, respectively, in restructuring and impairment charges and selling, general and administrative expenses, which were partially offset by the above-mentioned decrease in gross profit. INTEREST EXPENSE, NET. Interest expense, net increased by $19.8 million to $37.9 million during the 2004 period in comparison to $18.1 million in the 2003 period. The increase was attributable to: (i) increased interest of $6.0 million related to the 12% senior notes issued in June 2003; (ii) $4.4 million related to the Trust Preferred Securities, which was recorded as minority interest during the 2003 quarter; (iii) $3.5 million associated with the write off of deferred financing fees related to debt paid off in the 2004 period; (iv) $1.4 million associated with a call premium pertaining to $200 million convertible subordinated notes which were extinguished in June 2004; (v) $0.9 million associated with the Company's 5.75% debentures issued in May 2004; and (vi) $3.6 million pertaining to increased debt balances and interest rates relating to the Company's credit agreement arrangements entered into in May 2004. UNREALIZED LOSS ON DERIVATIVE. The Company recognized an unrealized loss on derivative of $1.9 million during the three months ended June 30, 2004. The embedded conversion option associated with the 5.75% Convertible Senior Debentures, issued in May 2004, is required to be bifurcated from the host debt contract. This bifurcated derivative is being marked to market until such time as the required additional number of shares of common stock associated with the conversion feature is approved for authorization by the Company's stockholders. (See Note 6 to Condensed Consolidated Financial Statements). BENEFIT FOR INCOME TAXES. The Company recognized a tax benefit of $2.2 million (effective income tax benefit rate of 34.0%) for the three months ended June 30, 2004 compared to an income tax provision of $2.0 million (effective income tax rate of 34.1%) during the corresponding period of 2003. EQUITY IN EARNINGS OF JOINT VENTURES. Equity in earnings of joint ventures increased by $0.4 million, or 12.0%, to $3.5 million during the three months ended June 30, 2004 from $3.1 million during the three months ended June 30, 2003. The increase resulted from the Company's share of earnings from its joint venture interest in Metalsa of $2.0 million. This increase was partially offset by a decrease from the Company's share of earnings associated with its joint venture interests in Yorozu and DTA Development of $1.5 million and $0.1 million, respectively. The Company sold its 30.76% ownership interest in Yorozu on March 11, 2004. MINORITY INTEREST. Minority interest decreased by $2.4 million, or 56.0%, to $1.9 million during the three months ended June 30, 2004 from $4.4 million in the corresponding period of 2003. The 2003 period reflected dividends, net of income tax benefits, on the Company's Trust Preferred Securities in the amount of $2.9 million. This decrease was partially offset by an increase of $0.5 million due to improved earnings at Tower Golden Ring. -25- NET INCOME (LOSS). The Company recognized a net loss of $2.7 million, or $0.05 per basic and diluted share in the three months ended June 30, 2004 compared to net income of $2.6 million, or $0.05 per basic and diluted share. The net loss for the 2004 period was primarily attributable to the $19.8 million increase in interest expense and the $1.9 million unrealized loss on derivative. THE SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2003 REVENUES. Revenues for the first six months of 2004 increased by $88.7 million, or 6.0%, to $1.56 billion from $1.48 billion during the first six months of 2003. Higher volume and favorable product mix increased revenue by $71.3 million and foreign exchange effects increased revenues by $27.7 million. These increases were partially offset by net selling price reductions of $10.3 million. GROSS PROFIT AND GROSS MARGIN. Gross margin for the first six months of 2004 was 8.3% compared to 10.4% for the comparable period of 2003. Gross profit declined by $23.6 million, or 15.4%, to $129.4 million during the 2004 period compared to $153.0 million during the 2003 period. The decrease in gross margin and gross profit were primarily attributable to increased costs associated with the Company's product launch activities of $15.9 million during the 2004 period, customer selling price reductions of $10.6 million and higher operating expenses of $19.9 million, which includes the effects of higher material costs, primarily steel ($5.6 million), higher health care costs ($6.5 million) and $7.8 million pertaining to general economic conditions (i.e. general labor rate increases, higher energy costs, etc.) pertaining to the Company. These declines were partially offset by operating efficiencies of $11.3 million, favorable foreign currency effects of $1.6 million and volume and product mix effects of $9.9 million. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses declined by $4.5 million, or 6.1%, to $69.3 million during the first six months of 2004 from $73.8 million during the first six months of 2003. Selling, general and administrative expenses represented 4.4% of revenues during the 2004 period compared to 5.0% during the 2003 period. The decline is primarily attributable to lower expenses resulting from the Company's 2003 Restructuring Plan involving the Company's corporate consolidation activities. OPERATING INCOME. Operating income increased by $1.6 million, or 2.5%, to $65.4 million during the first six months of 2004 from $63.8 million during the corresponding period of 2003. This increase was attributable to the lower selling, general and administrative expenses of $4.5 million mentioned above and a decline in restructuring and asset impairment charges of $20.7 million. These declines were partially offset by the $23.6 million decline in gross profit. INTEREST EXPENSE. Interest expense, net increased by $34.5 million, or 99%, to $69.3 million for the first six months of 2004 from $34.9 million for the corresponding period of 2003. The increase was attributable to: (i) increased interest of $13.9 million related to the 12% senior notes issued in June 2003; (ii) $8.8 million related to the Trust Preferred Securities, which was recorded as minority interest during the first six months of 2003; (iii) debt issuance fees amounting to $3.5 million associated with the write off of deferred financing fees related to debt paid off in the second quarter of 2004; (iv) $1.4 million associated with a call premium pertaining to $200 million convertible subordinated notes which were repaid in June 2004; (v) $0.9 million associated with the Company's 5.75% debentures issued in May 2004 and (vi) $6.0 million pertaining to increased debt balances and interest rates relating to the Company's credit agreement arrangements entered into in May 2004. UNREALIZED LOSS ON DERIVATIVE. The Company recognized an unrealized loss on derivative in the amount of $1.9 million in the quarter ended June 30, 2004. The embedded conversion option associated with the 5.75% Convertible Senior Debentures, issued in May 2004, is required to be bifurcated from the host debt contract. This bifurcated derivative is being marked to market until such time the required additional number of shares of common stock associated with the conversion feature are approved for authorization by the Company's stockholders. -26- PROVISION FOR INCOME TAXES. The Company recognized a tax benefit of $1.7 million (effective income tax benefit rate of 29.5%) for the first six months of 2004 compared to an income tax provision of $9.8 million (effective income tax rate of 34.0%) during the corresponding period of 2003. The relatively lower income tax benefit rate for the 2004 period in comparison to federal statutory rates was due to a high proportion of non-deductible items in relation to the pre-tax loss. EQUITY IN EARNINGS OF JOINT VENTURES. Equity in earnings of joint ventures increased by $3.2 million, or 84.0%, during the six months ended June 30, 2004 to $7.0 million from $3.8 million during the six months ended June 30, 2003. The increase primarily resulted from the Company's share of earnings from its joint venture interests in Metalsa, Yorozu and DTA Development in the amounts of $2.1 million, $1.0 million and $0.1 million, respectively. MINORITY INTEREST. Minority interest declined by $5.5 million, or 62.7%, during the first six months of 2004 to $3.2 million from $8.7 million during the first six months of 2003. The 2003 period included dividends, net of income tax benefits on the Company's Trust Preferred Securities in the amount of $5.9 million, which are now classified as interest expense. This decrease was partially offset by an increase of $0.4 million, associated with improved earnings at Tower Golden Ring. GAIN ON SALE OF JOINT VENTURE. The gain on sale of joint venture of $9.7 million for the six months ended June 30, 2004 represents the Company's sale of its 30.76% ownership interest in Yorozu. (See Note 9 to the Condensed Consolidated Financial Statements). NET INCOME. Net income for the first six months of 2004 was $9.4 million, or $0.16 per basic and diluted share compared to $14.2 million, or $0.25 per basic and diluted share for the corresponding period of 2003. Net income for the 2004 period reflected a restructuring charge reversal, net of restructuring charges, of $3.7 million, net of tax and a divestiture gain, net of tax of $9.7 million. RESTRUCTURING AND ASSET IMPAIRMENT In October 2003, the Company announced plans to consolidate its Novi, Michigan North America oversight and Grand Rapids, Michigan corporate office activities and close its Rochester Hills, Michigan prototype tooling and technical center facility. In the fourth quarter of 2003, charges relating to these activities were recognized by the Company totaling $3.7 million, comprised of cash charges of $2.1 million and non-cash asset impairment charges of $1.6 million. These costs as well as any additional costs expected to be incurred relating to these activities are within the North America segment. The Company does not anticipate any significant additional expenses related to this restructuring activity. On May 27, 2003, the Company announced that it would transfer the production of high-volume frame assemblies for the Ford Ranger from its Milwaukee facility to its Bellevue, Ohio facility. During 2003, the Company recorded $25.0 million pre-tax restructuring and asset impairment charges relating to this event. These charges reflect estimated qualifying "exit costs" comprising cash charges of $6.1 million, pension and other post-retirement benefit plan curtailment costs of $6.3 million and non-cash asset impairment charges of $12.6 million, all within the North America segment. These charges did not cover certain aspects of the 2003 Plan, including movement of equipment and colleague relocation and training, which are being recognized as incurred. On December 5, 2003, the Company announced that it had decided not to proceed with the relocation of the Ford Ranger line based on revised economic factors from the original May 2003 decision principally due to concessions received from the Milwaukee labor unions and a need for management to focus on its 2004 new product launch schedule. Because the Company's measurement date for pension and post-retirement benefits is September 30, the decision to continue Ranger frame production in Milwaukee made in December 2003 resulted in a reversal of the curtailment loss on a three-month lag, in the first quarter of 2004, as discussed above. -27- The cash charges of $6.1 million were incurred prior to the reversal of the original decision to move the Ford Ranger frame production. SFAS No. 144, "Accounting for Impairment or Disposal of Long-Lived Assets" prohibits the restoration of the non-cash asset charges of $12.6 million. Management presently anticipates that the Company will incur cash restructuring expenses in the range of $2.0 million to $4.0 million for the remainder of 2004. The Company has historically executed various restructuring plans and may execute additional plans in the future to respond to customer sourcing decisions, to realign manufacturing capacity to prevailing global automotive production and to improve the utilization of remaining facilities. LIQUIDITY AND CAPITAL RESOURCES During the first six months of 2004, the Company's cash requirements were met through operations and commercial borrowings. At June 30, 2004, the Company had available liquidity in the amount of $192.9 million, which consisted of cash on hand. Net cash provided by operating activities was $30.4 million during the six months ended June 30, 2004 compared to net cash provided by operating activities of $113.1 million during the six months ended June 30, 2003. The amount provided during the first six months of 2004 primarily resulted from net income in the amount of $9.3 million and an increase in accounts payable of $90.9 million, which were partially offset by an increase in prepaid tooling balances of $70.0 million. The increases in accounts payable and prepaid tooling reflected the Company's higher business and product launch activity levels. Net cash utilized in investing activities was $100.6 million during the first six months of 2004 compared to net cash utilized of $95.2 million in the corresponding period of 2003. The utilization for the 2004 period resulted from capital expenditures of $131.0 million and the acquisition of the remaining 34% interest in Seojin Industrial Company Ltd. from the Company's joint venture partner for $21.3 million. The impact of these items was partially offset by proceeds of $51.7 million from the sale of Yorozu. Capital expenditures for 2004 are expected to be approximately $240.0 million or $195.0 million net of anticipated lease proceeds. Net cash provided by financing activities was $102.2 million during the first six months of 2004 compared to net cash provided of $173.7 million during the comparable period of 2003. During the six months ended June 30, 2004, the Company had proceeds from borrowings amounting to $576.5 million and repayments of debt in the amount of $474.3 million. At June 30, 2004, the Company had negative working capital of $178.2 as a result of its continuing focus on minimizing the cash flow cycle. The Company believes that funds generated by operations, together with cash on hand and available borrowing capacity should provide sufficient liquidity and capital resources to pursue its business strategy for the foreseeable future with respect to working capital, capital expenditures and other operating needs. The Company anticipates that it will meet its liquidity requirements through the prudent use of its cash resources, effective management of working capital and capital expenditures and also employing other potential financing and strategic alternatives, as required. Certain assumptions underlie this belief, including among others, that there will be no material adverse developments in the Company's business, the automotive market in general, or the Company's anticipated activities and costs associated with its new program launches scheduled for the remainder of 2004. On May 24 2004, the Company entered into a credit agreement involving a revolving loan commitment, a first lien term loan commitment and a second lien letter of credit commitment with various financial institutions. The Company also issued 5.75% Convertible Senior Debentures ("Convertible Debentures"). The Company utilized net proceeds associated with the Convertible -28- Debentures along with borrowings pertaining to the above mentioned loan commitments to repay existing senior credit facilities in the amount of $239.5 million, call the 5.0% convertible subordinated notes of $200.0 million due August 1, 2004 and pay related fees and expenses. Additional revolving loans and revolving letters of credit associated with the revolving loan facility, if any, made or issued from time to time will be used for the ongoing working capital needs and other general corporate purposes of the Company. The primary objectives of this refinancing are to reduce the Company's near term debt service requirements and to provide the financial flexibility appropriate for the Company's operations and upcoming product launch activities. (See Note 6 to Condensed Consolidated Financial Statements). CONTRACTUAL OBLIGATIONS AND COMMITMENTS During the quarter ended June 30, 2004, the Company repaid its term credit facility in the amount of $239.5 million, which was initially due in July 2006 and was classified as long-term debt at December 31, 2003. In addition, the Company repaid the $200.0 million 5.0% convertible subordinated notes, due August 1, 2004, during the quarter ended June 30, 2004. The Company's contractual obligations pertaining to long-term debt and its 5.75% Convertible Senior Debentures as of June 30, 2004 are as follows (in millions):
Payments Due by Period Contractual Obligations Total 1 year 1-3 Years 4-5 Years After 5 Years -------- ------ --------- --------- ------------- Long-term debt $1,330.9 $98.0 $70.3 $416.4 $746.2 Convertible Senior Debentures $125.0 -- -- -- $125.0
The Company's commercial commitments included up to $155.0 million of second lien letters of credit which are available under the terms of the Company's Credit Agreement of which $153.5 million were outstanding as of June 30, 2004. In addition, the Company's commercial commitments included up to $25.0 million in revolving letters of credit which are available in relation to the Company's revolving credit facility of which $3.4 million was outstanding as of June 30, 2004. DEBT RATINGS During May 2004, Moody's Investor Services ("Moody's") cut the Company's senior unsecured issuer rating to "Caa2," the eighth highest junk rating, from "B2." Moody's also cut the ratings of the Company's 12% guaranteed senior unsecured notes due in June 2013 to "B3" from "B1." MARKET RISK The Company is exposed to various market risks, including changes in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange and interest rates. The Company's policy is to not enter into derivatives or other financial instruments for trading or speculative purposes. The Company periodically enters into derivative instruments to manage and reduce the impact of changes in interest rates. At June 30, 2004, the Company had total debt and obligations under capital leases of $1,488.1 million. The debt is composed of fixed rate debt of $1,020.1 million and floating rate debt of $468 million. The pre-tax earnings and cash flow impact for the next year resulting from a one percentage point increase in interest rates on variable rate debt would be approximately $4.7 million, holding other variables constant. A one-percentage point increase in interest rates would not materially impact the fair value of the fixed rate debt. A portion of the Company's revenues was derived from manufacturing operations in Europe, Asia and South America. The results of operations and financial position of the Company's foreign operations are -29- principally measured in their respective currency and translated into U.S. dollars. The effects of foreign currency fluctuations in Europe, Asia and South America are somewhat mitigated by the fact that expenses are generally incurred in the same currency in which revenues are generated. The reported income of these subsidiaries will be higher or lower depending on a weakening or strengthening of the U.S. dollar against the respective foreign currency. A portion of the Company's assets are based in its foreign operations and are translated into U.S. dollars at foreign currency exchange rates in effect as of the end of each period, with the effect of such translation reflected as a separate component of stockholders' investment. Accordingly, the Company's consolidated stockholders' investment will fluctuate depending upon the weakening or strengthening of the U.S. dollar against the respective foreign currency. The Company's strategy for management of currency risk relies primarily upon conducting its operations in a country's respective currency and may, from time to time, also involve hedging programs intended to reduce the Company's exposure to currency fluctuations. Management believes the effect of a 100 basis point movement in foreign currency rates versus the dollar would not have materially affected the Company's financial position, results of operations or cash flows for the periods presented. OPPORTUNITIES The Company's recent growth in Europe and Asia along with foreign transplant operations in the U.S. has reduced its reliance on Ford and DaimlerChrysler, increased penetration into certain existing customers and added new customers such as Fiat, BMW, Volkswagen, Nissan and Hyundai/Kia. The Company expects this trend to continue as a result of its anticipated organic growth outside the U.S., from recent awards to supply foreign transplant operations in the U.S. and its efforts to diversify its customer base. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS All statements, other than statements of historical fact, included in this Form 10-Q or incorporated by reference herein, are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). When used in this Form 10-Q, the words "anticipate," "believe," "estimate," "expect," "intends", "project", "plan" and similar expressions, as they relate to the Company, are intended to identify forward-looking statements. Such forward-looking statements are based on the beliefs of the Company's management as well as on assumptions made by and information currently available to the Company at the time such statements were made. Various economic and competitive factors could cause actual results to differ materially from those discussed in such forward-looking statements, including factors which are outside the control of the Company, such as risks relating to: (i) the degree to which the Company is leveraged and the ability to generate sufficient cash flow from operations to meet future liquidity needs; (ii) the Company's reliance on major customers and selected vehicle platforms; (iii) the cyclicality and seasonality of the automotive market; (iv) the failure to realize the benefits of recent acquisitions and joint ventures; (v) the Company's ability to obtain new business on new and redesigned models; (vi) the Company's ability to achieve the anticipated volume of production from new and planned supply programs; (vii) the general economic or business conditions affecting the automotive industry (which is dependent on consumer spending), either nationally or regionally, being less favorable than expected; (viii) the Company's failure to develop or successfully introduce new products; (ix) increased competition in the automotive components supply market; (x) unforeseen problems associated with international sales, including gains and losses from foreign currency exchange; (xi) implementation of or changes in the laws, regulations or policies governing the automotive industry that could negatively affect the automotive components supply industry; (xii) changes in general economic conditions in the United States and Europe; and (xiii) various other factors beyond the Company's control. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on behalf of the Company are expressly qualified in their entirety by such cautionary statements. -30- ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See "Market Risk" section of Part I, Item 2 ITEM 4. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Company's Chief Executive Officer and the Company's Chief Financial Officer have reviewed and evaluated the effectiveness of the Company's disclosure controls and procedures as defined in the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of June 30, 2004 and have concluded that such disclosure controls and procedures are effective to ensure that information required to be disclosed in the Company's periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission's rules and regulations. CHANGES IN INTERNAL CONTROLS. No changes in the Company's internal controls over financial reporting occurred during the quarter ended June 30, 2004 that have materially affected or are reasonably likely to materially affect the Company's internal controls over financial reporting. -31- PART II -- OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On May 24, 2004, the Company completed a private placement of $125 million aggregate principal amount of 5.75% Convertible Senior Debentures due 2024 (the "Debentures"). The initial purchasers of the Debentures were J.P. Morgan Securities Inc. and Morgan Stanley & Co. Incorporated. The offering price of the Debentures was equal to the principal amount of the Debentures, less a discount to the initial purchasers, resulting in net proceeds to the Company of approximately $121 million after offering expenses. The sale of the Debentures to the initial purchasers was exempt from registration in reliance on Section 4(2) and Regulation D under the Securities Act of 1933, as amended, as a transaction not involving a public offering. The Debentures were re-offered by the initial purchasers to qualified institutional buyers in reliance on Rule 144A under the Securities Act. The Debentures mature on May 15, 2024, unless earlier converted, redeemed or repurchased. The interst rate on the Debentures is 5.75% per annum, payable semi-annually in arrears in cash on May 15 and November 15 of each year, commencing on November 15, 2004. The Debentures are convertible into shares of the Company's common stock at a conversion rate of 231.0002 shares per $1,000 principal amount of Debentures, subject to adjustment upon certain events, under certain specified circumstances. On or after May 20, 2011, the Company may redeem the Debentures, in whole or in part, at any time, for cash at a redemption price equal to 100% of the principal amount, plus any accrued and unpaid interest. Holders of Debentures may require the Company to repurchase some or all of that holder's Debentures on May 15, 2011, May 15, 2014, or May 15, 2019 at a repurchase price equal to 100% of the principal amount, plus any accrued and unpaid interest to the repurchase date. The Debentures are general unsecured senior obligations and rank equally with any of the Company's present and future senior debt. The Debentures rank senior to any of the Company's subordinated debt and will effectively be subordinated to any of the Company's secured debt. The Company has agreed to file a shelf registration under the Securities Act of 1933, as amended, covering resales of the Debentures and the shares of common stock issuable upon conversion of the Debentures. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. On May 20, 2004, the Company's 2004 Annual Meeting of Stockholders was held. A brief description of the matters voted upon at the meeting and the tabulation of the voting therefore follows: Proposal 1. Election of Directors.
Number of Votes Nominee For Withheld ------- --- -------- S.A. Johnson 50,994,061 2,688,256 Kathleen Ligocki 52,376,977 1,305,340 Anthony G. Fernandes 49,828,906 3,853,411 Jurgen M. Geissinger 53,167,307 515,010 Ali Jenab 49,783,239 3,899,078 F. Joseph Loughrey 53,166,187 516,130 James R. Lozelle 31,899,889 21,782,428 Georgia R. Nelson 53,162,610 519,707 Enrique Zambrano 52,372,468 1,309,849
There were no broker non-votes with respect to the election of directors. Proposal 2. Amendment to the Tower Automotive, Inc. Colleague Stock Discount Plan. A proposal to amend the Tower Automotive, Inc. Colleague Stock Discount Plan was adopted with 43,319,866 votes cast for, 852,111 votes cast against, 78,137 votes abstained and 9,432,203 broker non-votes. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: 4.8 Indenture for the 5.75% Convertible Senior Debentures dated as of May 24, 2004, between Tower Automotive, Inc., as Issuer, and BNY Midwest Trust Company, as Trustee (1) 4.9 Form of Tower Automotive, Inc. 5.75% Convertible Senior Debenture (1) 4.10 Resale Registration Rights Agreement dated as of May 24, 2004, for the Tower Automotive, Inc. 5.75% Convertible Senior Debentures Due 2024. (1) 4.11 Purchase Agreement dated May 17, 2004 for the 5.75% Convertible Senior Debentures due May 15, 2024 (1) 10.18 Change in Control Agreement between Tower Automotive, Inc. and Certain of its Employees. (2) 10.19 Retirement Agreement between Tower Automotive, Inc. and Dugald K. Campbell, dated September 17, 2003. (2) 10.20 Tower Automotive Supplemental Retirement Plan, effective January 1, 2001. (2) 10.21 Credit Agreement dated as of May 24, 2004, among R.J. Tower Corporation, Tower Automotive, Inc., and the various financial institutions from time to time parties thereto. (1) 31.1 Rule 15d-14(a) Certification of the Chief Executive Officer. (2) 31.2 Rule 15d-14(a) Certification of the Chief Financial Officer. (2) 32.1 Section 1350 Certification of the Chief Executive Officer. (2) 32.2 Section 1350 Certification of the Chief Financial Officer. (2) (1) Incorporated by reference to Form 8-K/A, dated May 25, 2004, filed on July 8, 2004. (2) Filed with this Form 10-Q. (b) During the quarter ended June 30, 2004, the Company filed the following Current Reports on Form 8-K with the Securities and Exchange Commission: 1. The Company's Current Report on Form 8-K, dated April 6, 2004 under Items 5 and 7. 2. The Company's Current Report on Form 8-K dated April 29, 2004 under Items 7 and 12. 3. The Company's Current Report on Form 8-K dated May 4, 2004 under Items 5 and 7. 4. The Company's Current Report on Form 8-K dated May 18, 2004 under Items 5 and 7. 5. The Company's Current Report on Form 8-K dated May 25, 2004 under Items 5 and 7. -32- SIGNATURE Pursuant to the requirements 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. TOWER AUTOMOTIVE, INC. ---------------------- Registrant Date: August 9, 2004 by /s/ Christopher T. Hatto -------------------------------- Christopher T. Hatto Chief Accounting Officer -33- Exhibit Index Exhibit No. Description ----------- ----------- 10.18 Change in Control Agreement between Tower Automotive, Inc. and Certain of its Employees. 10.19 Retirement Agreement between Tower Automotive, Inc. and Dugald K. Campbell, dated September 17, 2003. 10.20 Tower Automotive Supplemental Retirement Plan, effective January 1, 2001. 31.1 Rule 15d-14(a) certification of the Chief Executive Officer. 31.2 Rule 15d-14(a) certification of the Chief Financial Officer. 32.1 Section 1350 certification of the Chief Executive Officer. 32.2 Section 1350 certification of the Chief Financial Officer. -34- EX-10.18 2 k86671exv10w18.txt CHANGE IN CONTROL AGREEMENT [TOWER AUTOMOTIVE LOGO] EXHIBIT 10.18 CHANGE IN CONTROL AGREEMENT THIS AGREEMENT is entered into as of October 1, 2003, by and between Tower Automotive, Inc., a Delaware Corporation, and <> <>(the "Colleague"). WHEREAS, the Colleague currently serves as a key colleague of the Company and his/her services and knowledge are valuable to the Company in connection with leading one or more of the Company's principal operating facilities, divisions, departments or subsidiaries; and WHEREAS, the Board has determined that it is in the best interests of the Company and its stockholders to secure the Colleague's continued services and to ensure the Colleague's continued dedication and objectivity in the event of any threat or occurrence of, or negotiation or other action that could lead to, or create the possibility of, a Change in Control of the Company, without concern as to whether the Colleague might be hindered or distracted by personal uncertainties and risks created by any such possible Change in Control, and to encourage the Colleague's full attention and dedication to the Company, the Board has authorized the Company to enter into this Agreement. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements herein contained, the Company and the Colleague hereby agree as follows: SECTION 1. TERM. This Agreement will commence on the Effective Date and shall continue in effect until September 30, 2004. However, at the end of such period and, if extended, at the end of each additional year thereafter, the term of this Agreement shall be extended automatically for one (1) additional year, unless the Board delivers written notice six (6) months prior to the end of such term, or extended term, to the Colleague, that the Agreement will not be extended. In such case, the Agreement will terminate at the end of the term, or extended term, then in progress. However, in the event a Change in Control occurs during the original or any extended term, this Agreement will remain in effect for the longer of: (i) thirty-six (36) months beyond the month in which such Change in Control occurred; or (ii) until all obligations of the Company hereunder have been fulfilled, and until all benefits required hereunder have been paid to the Colleague. SECTION 2. DEFINITIONS. Whenever used in this Agreement, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized. 2.1 "Base Salary" means the salary of record paid to a Colleague as annual salary, excluding amounts received under incentive or other bonus plan, whether or not deferred. 2.2 "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. 2.3 "Beneficiary" means the persons or entities designated or deemed designated by the Colleague pursuant to Section 12.2. 2.4 "Board" means the Board of Directors of the Company. 2.5 "EVA Performance Variable" has the same meaning as defined in the EVA Performance Incentive Plan. 2.6 "Cause" means: (a) the Colleague's willful and continued failure to substantially perform [his/her] duties with the Company which do not differ, in any material respect, from the Colleague's duties and responsibilities during the ninety (90) day period immediately prior to a Change in Control (other than any such failure resulting from Disability or occurring after issuance by the Colleague of a Notice of Termination for Good Reason), after a written demand for substantial performance is delivered to the Colleague that specifically identifies the manner in which the Company believes that the Colleague has willfully failed to substantially perform [his/her] duties, and after the Colleague has failed to resume substantial performance of [his/her] duties on a continuous basis within fourteen (14) calendar days of receiving such demand; (b) the Colleague's willfully engaging in conduct (other than conduct covered under (a) above) which is demonstrably and materially injurious to the Company, monetarily or otherwise; or (c) the Colleague's having been convicted of a felony. For purposes of this subparagraph, no act, or failure to act, on the Colleague's part shall be deemed "willful" unless done, or omitted to be done, by the Colleague not in good faith and without reasonable belief that the action or omission was in the best interests of the Company. 2.7 "Change in Control," means an occurrence of a nature with respect to the Company that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act. Without limiting the inclusiveness of the definition in the preceding sentence, a Change in Control 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, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; or (b) At any time a majority of the Board of Directors of the Company is comprised of other than Continuing Directors (for purposes of this section, the term Continuing Director means a director who was either (i) first elected or appointed as a director prior to the Effective Date of this 2 Agreement; or (ii) subsequently elected or appointed as a director if such director was nominated or appointed by at least a majority of the then Continuing Directors; or (c) Any of the following occur: (i) Any merger or consolidation of the Company, other than a merger or consolidation in which the voting securities of the Company immediately prior to the merger or consolidation continue to represent (either by remaining outstanding or being converted into securities of the surviving entity) fifty percent (50%) or more of the combined voting power of the Company or surviving entity immediately after the merger of consolidation with another entity; (ii) Any sale, transfer, or other disposition (in a single transaction or a series of related transactions) of all or substantially all of the assets of the Company; (iii) Any liquidation or dissolution of the Company; (iv) Any reorganization, reverse stock split, or recapitalization of the Company which would result in a Change in Control; or (v) Any transaction or series of related transactions having, directly or indirectly, the same effect as any of the foregoing; or any agreement, contract, or other arrangement providing for any of the foregoing. 2.8 "Code" means the United States Internal Revenue Code of 1986, as amended. 2.9 "Committee" means the Compensation Committee of the Board or any other committee appointed by the Board to perform the functions of the Compensation Committee 2.10 "Company" means Tower Automotive, Inc., or any successor thereto as provided in Section 11. 2.11 "Deferred Stock Plan" means the Tower Automotive, Inc. Key Leadership Deferred Income Stock Purchase Plan. 2.12 "Disability" means that, as a result of the Colleague's incapacity due to physical or mental illness, the Colleague shall have been absent from the full-time performance of [his/her] duties with the Company for twelve (12) consecutive months and, within thirty (30) calendar days after written notice of suspension due to Disability is given, the Colleague shall not have returned to the full-time performance of [his/her] duties. 3 2.13 "Earned Incentive Compensation" has the same meaning as stated in the EVA Performance Incentive Plan. 2.14 "Effective Date" means the date of this Agreement set forth above. 2.15 "Effective Date of Termination" means (I) the date on which a Qualifying Termination occurs which triggers the payment of Severance Benefits under this Agreement, (ii) if the Colleague dies, the date of [his/her] death, (iii) if the Colleague becomes disabled, the date of [his/her] Disability, or (iv) if the Colleague's termination of employment is not a Qualifying Termination and not because of [his/her] death or Disability, the date specified in a written notice given pursuant to Section 12.1 prior to termination specifying the effective date of such termination. 2.16 "EVA Performance Incentive Plan" means the Tower Automotive EVA Performance Incentive Plan, which became effective January 1, 2000, or any successor plan. 2.17 "Exchange Act" means the United States Securities Exchange Act of 1934, as amended. 2.18 "Good Reason" shall mean, without the Colleague's express written consent, the occurrence of any one or more of the following: (a) The assignment of the Colleague to duties materially inconsistent with the Colleague's authorities, duties, and responsibilities, (including reporting requirements) as a colleague of the Company, or a reduction or alteration in the nature or status of the Colleague's authorities, duties, or responsibilities from those in effect during the immediately preceding fiscal year; (b) The Company's requiring the Colleague to be based at a location in excess of fifty (50) miles from the facility which is the Colleague's principal business office at the time of the Change in Control, except for required travel on the Company's business to an extent substantially consistent with the Colleague's business obligations as of the Effective Date; (c) A reduction by the Company in the Colleague's Base Salary or target incentive cash bonus as in effect on the Effective Date or as the same shall be increased from time to time; (d) A material reduction in the Colleague's level of participation in any of the Company's short- and/or long-term incentive compensation plans, or colleague benefit or retirement plans, policies, practices, or arrangements in which the Colleague participates as of the Effective Date; provided, however, that reductions in the levels of participation in any such plans 4 shall not be deemed to be "Good Reason" if the Colleague's reduced level of participation in each such program remains substantially consistent with the average level of participation of other Colleagues who have positions commensurate with the Colleague's position; (e) The failure of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform this Agreement, as contemplated in Section 11; (f) Any termination of Colleague's employment, by the Company that is not effected pursuant to a Notice of Termination; or (g) Any other reason determined in the discretion of the Board to be a "Good Reason." The existence of Good Reason shall not be affected by the Colleague's incapacity due to physical or mental illness. The Colleague's continued employment shall not constitute a waiver of the Colleague's rights with respect to any circumstance constituting Good Reason. 2.19 "Notice of Termination" has the meaning set forth in Section 3.7. 2.20 "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as provided in Section 13(d). 2.21 "Potential Change in Control" means the Company's entering into, or the Board of Directors authorizing, an agreement, the consummation of which would result in the occurrence of a Change in Control; or (ii) adoption by the Board of Directors of a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. 2.22 "Qualifying Termination" means any of the events described in Section 3.2, the occurrence of which triggers the payment of Severance Benefits under this Agreement. 2.23 "Retirement" shall mean voluntary termination of employment for other than Good Reason after attaining "Retirement Age" as defined in the TARP. 2.24 "Severance Benefits" means the payment of severance compensation as provided in Section 3.3. 2.25 "Target Bonus" has the meaning stated in the EVA Performance Incentive Plan. 2.26 "TARP" means the Tower Automotive Retirement Plan. 5 2.27 "Trust" means the Company grantor trust to be created pursuant to Section 6. SECTION 3. SEVERANCE BENEFITS. 3.1 Right To Severance Benefits. The Colleague shall be entitled to receive from the Company Severance Benefits, as described in Section 3.3, if there has been a Change in Control and if, within the six (6) month period prior to the effective date of a Change in Control, or within thirty-six (36) months following the effective date of a Change in Control, the Colleague's employment with the Company shall end for any reason specified in Section 3.2. The Colleague shall not be entitled to receive Severance Benefits if [he/she] is terminated for Cause, or if [his/her] employment with the Company ends due to death or Disability, or due to a voluntary termination of employment by the Colleague without Good Reason. 3.2 Qualifying Termination. The occurrence of any one or more of the following events within the six (6) month period prior to the effective date of a Change in Control, or within thirty-six (36) months following the effective date of a Change in Control shall trigger the payment of Severance Benefits to the Colleague under this Agreement: (a) An involuntary termination of the Colleague's employment by the Company for reasons other than Cause; (b) A voluntary termination by the Colleague for Good Reason; (c) A successor company fails or refuses to assume the Company's obligations under this Agreement, as required by Section 11; or (d) The Company or any successor company breaches any of the provisions of this Agreement. 3.3 Description Of Severance Benefits. If the Colleague becomes entitled to receive Severance Benefits, as provided in Sections 3.1 and 3.2, the Company shall pay to the Colleague and provide [him/her] with the following: (a) A lump sum cash amount equal to: (i) three (3) times the highest rate of the Colleague's annualized Base Salary rate in effect at any time up to and including the Effective Date of Termination, plus (ii) three (3), times the greater of: (A) the Colleague's average Earned Incentive Compensation over the three (3) full fiscal years prior to the Change in Control; or (B) the Colleague's target Incentive Compensation established for the bonus plan year in which the Change in Control occurs; provided however, that any amount to be paid pursuant to this Section 3.3(a) shall be reduced by any other amount of severance relating to salary or bonus continuation to be received by the Colleague upon termination of employment of the Colleague under any salary or bonus continuation guideline, plan, policy or arrangement of the Company and any severance payments the 6 Company is required to make pursuant to the requirements of any United States or foreign law or regulation. (b) A cash amount equal to the sum of (i) the Colleague's unpaid Base Salary and accrued vacation pay through the Effective Date of Termination, (ii) the Colleague's unpaid target Incentive Compensation, established for the plan year in which the Colleague's Effective Date of Termination occurs, multiplied by a fraction, the numerator of which is the number of days completed in the then- existing fiscal year through the Effective Date of Termination, and the denominator of which is three hundred sixty-five (365), (iii) any positive balance in the Colleague's EVA Performance Variable account, and (iv) any compensation previously deferred by the Colleague other than pursuant to the Deferred Stock Plan or any tax qualified plan (together with any interest and earnings thereon), in each case to the extent not previously paid. (c) A continuation of the welfare benefits of health care, life and accidental death and dismemberment, and disability insurance coverage for three (3) full years after the Effective Date of Termination. These benefits shall be provided to the Colleague at the same premium cost, and at the same coverage level, as in effect as of the Colleague's Effective Date of Termination. If, however, the premium cost and/or level of coverage shall change for all colleagues of the Company, the cost and/or coverage level, likewise, shall change for each Colleague in a corresponding manner. The continuation of these welfare benefits shall be discontinued prior to the end of the three (3) year period if the Colleague has available substantially similar benefits from a subsequent employer, as determined by the Committee. (d) All Deferred Profit Sharing Contributions under the TARP shall he one hundred percent (100%) vested. (e) The Flexible Perquisite Fund shall end immediately, provided however, that vehicle and club dues reimbursement shall be continued for a period of six (6) months. (f) All stock options, restricted awards, other equity based awards and all stock units and shares credited to the Colleague's account under the Deferred Stock Plan shall be fully vested. All stock options shall remain exercisable for a period of twenty-four (24) months from the Effective Date of Termination or the earlier expiration of their initial term; provided, that, if the Colleague would be prohibited from exercising any stock option due to pooling of interests or other restraints imposed under applicable accounting rules or securities laws, such option shall remain exercisable for thirty days after such restriction ceases to apply. (g) To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Colleague any other amounts or benefits required to be paid or provided or which the Colleague is eligible to receive under any plan, program, 7 policy or practice or contract or agreement of the Company and its affiliated companies through the Effective Date of Termination. 3.4 Termination For Disability. Following a Change in Control, if a Colleague's employment is terminated due to Disability, the Colleague shall receive [his/her] Base Salary through the Effective Date of Termination, at which point in time the Colleague's benefits shall be determined in accordance with the Company' disability, retirement, insurance, and other applicable plans and programs then in effect. 3.5 Termination For Retirement Or Death. Following a Change in Control, if the Colleague's employment is terminated by reason of [his/her] Retirement or death, the Colleague shall receive [his/her] base salary through the Effective Date of Termination, at which point in time, the Colleague's benefits shall be determined in accordance with the Company's retirement, survivor's benefits, insurance, and other applicable programs of the Company then in effect. 3.6 Termination For Cause, Or Other Than For Good Reason Or Retirement. Following a Change in Control, if the Colleague's employment is terminated either: (a) by the Company for Cause; or (b) by the Colleague (other than for Retirement) and other than for Good Reason, the Company shall pay the Colleague [his/her] full Base Salary and accrued vacation through the Effective Date of Termination, at the rate then in effect, plus all other amounts to which the Colleague is entitled under any compensation plans of the Company, at the time such payments are due, and the Company shall have no further obligations to the Colleague under this Agreement. 3.7 Notice Of Termination. Any termination by the Company for Cause or by the Colleague for Good Reason shall be communicated by a Notice of Termination. For purposes of this Agreement, a "Notice of Termination" shall mean a written notice which shall indicate the specific termination provision in this Agreement relied upon, and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Colleague's employment under the provision so indicated. SECTION 4. FORM AND TIMING OF SEVERANCE BENEFITS. 4.1 Form And Timing Of Severance Benefits. The Severance Benefits described in Sections 3.3(a), 3.3(b), and 3.3(g) shall be paid in cash to the Colleague in a single lump sum as soon as practicable following the Effective Date of Termination, but in no event beyond thirty (30) days from such date. 4.2 Withholding Of Taxes. The Company shall be entitled to withhold from any amounts payable under this Agreement all taxes as legally shall be required (including, without limitation, any United States federal taxes and any other state, city, or local taxes or foreign taxes). 8 SECTION 5. EXCISE TAX EQUALIZATION PAYMENT. 5.1 Excise Tax Equalization Payment. If the Colleague becomes entitled to Severance Benefits or any other payment or benefit under this Agreement, or under any other agreement with or plan of the Company (in the aggregate, the "Total Payments") , if all or any part of the Total Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may hereafter be imposed), the Company shall pay to the Colleague in cash an additional amount (the "Gross-Up Payment") such that the net amount retained by the Colleague after deduction of any Excise Tax upon the Total Payments and any federal, state, and local income tax, penalties, interest, and Excise Tax upon the Gross-Up Payment provided for by this Section 5.1 (including FICA and FUTA), shall be equal to the Total Payments. Such payment shall be made by the Company to the Colleague as soon as practical following the Effective Date of Termination, but in no event beyond thirty (30) days from such date. 5.2 Tax Computation. For purposes of determining whether any of the Total Payments will be subject to the Excise Tax and the amounts of such Excise Tax: (a) Any other payments or benefits received or to be received by the Colleague in connection with a Change in Control of the Company or the Colleague's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement, or agreement with the Company, or with any Person whose actions result in a Change in Control of the Company or any Person affiliated with the Company or such Persons) shall be treated as "parachute payments" within the meaning of Section 280G(b) (2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b) (1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel as supported by the Company's independent auditors and acceptable to the Colleague, such other payments or benefits (in whole or in part) do not constitute parachute payments, or unless such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b) (4) of the Code in excess of the base amount within the meaning of Section 280G(b) (3) of the Code, or are otherwise not subject to the Excise Tax; (b) The amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of: (i) the total amount of the Total Payments; or (ii) the amount of excess parachute payments within the meaning of Section 280G(b) (1) (after applying clause (a) above) ; and (c) The value of any noncash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with the principles of Sections 280G(d) (3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, the Colleague shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made, and to pay state and local income 9 taxes at the highest marginal rate of taxation in the state and locality of the Colleague's residence on the Effective Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. 5.3 Subsequent Recalculation. If the Internal Revenue Service adjusts the computation of the Company under Section 5.2 so that the Colleague did not receive the greatest net benefit, the Company shall reimburse the Colleague for the full amount necessary to make the Colleague whole, plus a market rate of interest, as determined by the Committee. SECTION 6. ESTABLISHMENT OF TRUST. As soon as practicable following the Effective Date hereof, the Company shall create a Trust (which shall be an irrevocable grantor trust within the meaning of Sections 671-678 of the Code) for the benefit of the Colleague and Beneficiaries, as appropriate. The Trust shall have a Trustee as selected by the Company, and shall have certain restrictions as to the Company's ability to amend the Trust or cancel benefits provided thereunder. Any assets contained in the Trust shall, at all times, be specifically subject to the claims of the Company's general creditors in the event of bankruptcy or insolvency; such terms to be specifically defined within the provisions of the Trust, along with the required procedure for notifying the Trustee of any bankruptcy or insolvency. At any time following the Effective Date hereof, the Company may deposit assets in the Trust in an amount equal to or less than the aggregate Severance Benefits which may become due to the Colleague under Sections 3.1, 3.2, and 5.1 of this Agreement. Upon the first to occur of a Potential Change in Control or Change in Control, the Company shall deposit assets in such Trust in an amount equal to the aggregate Severance Benefits which may become due to the Colleague under Sections 3.1, 3.2, and 5.1 of this Agreement, except to the extent that assets equal to any Severance Benefits payable pursuant to Sections 3.3(d), 3.3(f) or 3.3(g) are held in or required to be deposited in a separate grantor trust which is in effect as of the Potential Change in Control or Change in Control, as applicable. SECTION 7. THE COMPANY'S PAYMENT OBLIGATIONS. The Company's obligation to make the payments and the arrangements provided for herein shall be absolute and unconditional, and shall not be affected by any circumstances, including, without limitation, any offset, counterclaim, recoupment, defense, or other right which the Company may have against the Colleague or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final, and the Company shall not seek to recover all or any part of such payment from the Colleague or from whomsoever may be entitled thereto, for any reasons whatsoever. The Colleague shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Agreement, and the obtaining of any such other employment shall in no event effect any reduction of the Company's 10 obligations to make the payments and arrangements required to be made under this Agreement, except to the extent provided in Section 3.3(c). SECTION 8. LEGAL REMEDIES. 8.1 Payment Of Legal Fees. To the extent permitted by law, the Company shall pay all legal fees, costs of litigation, prejudgment interest, and other expenses incurred in good faith by the Colleague as a result of the Company's refusal to provide the Severance Benefits to which the Colleague becomes entitled under this Agreement, or as a result of the Company's contesting the validity, enforceability, or interpretation of this Agreement, or as a result of any conflict between the parties pertaining to this Agreement; provided, however, that the Company shall be reimbursed by the Colleague for all such fees and expenses if the Colleague fails to prevail with respect to any one material issue of dispute in connection with such legal action. 8.2 Arbitration. The Colleague shall have the right and option to elect (in lieu of litigation) to have any dispute or controversy arising under or in connection with this Agreement settled by arbitration, conducted before a panel of three (3) arbitrators sitting in a location selected by the Colleague within fifty (50) miles from the location of his employment with the Company, in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the award of the arbitrator in any court having proper jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel for the Colleague, shall be borne by the Company; provided, however, that the Company shall be reimbursed by the Colleague for all such fees and expenses if the Colleague fails to prevail with respect to any one material issue of dispute in connection with such arbitration. SECTION 9. OUTPLACEMENT ASSISTANCE. Following a Qualifying Termination (as described in Section 3.2), the Colleague shall be reimbursed by the Company for the costs of all outplacement services obtained by the Colleague within the three (3) year period after the Effective Date of Termination; provided, however, that the total reimbursement shall be limited to an amount equal to fifteen percent (15%) of the Colleague's Base Salary as of the Effective Date of Termination. SECTION 10. OBLIGATIONS OF THE COLLEAGUE. 10.1 Limitation on Colleague's Voluntary Termination. The Colleague agrees that if any Person attempts a Change in Control, [he/she] shall not voluntarily leave the employ of the Company without a Good Reason specified in Section 2.18(c) or 2.18(d) (a) until such attempted Change in Control terminates or (b) if a Change in Control shall occur, until ninety (90) days following such Change in Control. For purposes of clause (a) of the preceding sentence, Good Reason shall be determined as if a Change in Control had occurred when such attempted Change in Control became known to the Board. 11 10.2 Confidential Information and Non-Solicitation. (a) The Colleague acknowledges that, as a colleague of the Company, he will be making use of, acquiring and adding to confidential information of a special and unique nature and value relating to the Company and its strategic plan and financial operations. The Colleague further recognizes and acknowledges that all confidential information is the exclusive property of the Company, is material and confidential, and is critical to the successful conduct of the business of the Company. Accordingly, the Colleague covenants and agrees that he will use confidential information for the benefit of the Company only and shall not at any time, directly or indirectly, during the term of this Agreement or thereafter divulge, reveal or communicate any confidential information to any person, firm, corporation or entity whatsoever, or use any confidential information for his own benefit or for the benefit of others. The Colleague also agrees not to hire or solicit for hire, directly or indirectly, any colleague on the payroll of the Company for any third party during the term of this Agreement and for two (2) years after the Date of Termination without the prior written consent of the Company. In no event shall an asserted violation of the provisions of this Section 10.2 constitute a basis for deferring or withholding any amounts otherwise payable to the Colleague under this Agreement. (b) Any termination of the Colleague's employment or of this Agreement shall have no effect on the continuing operation of this Section 10.2. (c) The Colleague acknowledges and agrees that the Company will have no adequate remedy at law, and could be irreparably harmed, if the Colleague breaches or threatens to breach any of the provisions of this Section 10.2. The Colleague agrees that the Company shall be entitled to equitable and/or injunctive relief to prevent any breach or threatened breach of this Section 10.2, and to specific performance of each of the terms hereof in addition to any other legal or equitable remedies that the Company may have. The Colleague further agrees that he shall not, in any equity proceeding relating to the enforcement of the terms of this Section 10.2, raise the defense that the Company has an adequate remedy at law. SECTION 11. SUCCESSORS AND ASSIGNMENT. 11.1 Successors To The Company. (a) This Agreement shall not be terminated by any merger or consolidation of the Company whether the Company is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of the Company. In the event of any such merger, consolidation or transfer of assets, the provisions of this Agreement shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred. (b) The Company agrees that concurrently with any merger, consolidation or transfer of assets referred to in Section 11.1(a), it will cause any successor or transferee unconditionally to assume, by written instrument delivered to the Colleague (or his Beneficiary or estate), all of the obligations of the 12 Company hereunder. Failure of the Company to obtain such assumption prior to the effectiveness of any such merger, consolidation or transfer of assets shall be a breach of this Agreement and shall entitle the Colleague to compensation and other benefits from the Company in the same amount and on the same terms as the Colleague would be entitled hereunder if the Colleague's employment were terminated following a Change in Control voluntarily for Good Reason. For purposes of implementing the foregoing, the date on which any such merger, consolidation or transfer becomes effective shall be deemed the Effective Date of Termination. 11.2 Assignment By The Colleague. This Agreement shall inure to the benefit of and be enforceable by the Colleague's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If the Colleague dies while any amount would still be payable to [him/her] hereunder had [he/she] continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to the Colleague's Beneficiary. If the Colleague has not named a Beneficiary, then such amounts shall be paid to the Colleague's devisee, legatee, or other designee, or if there is no such designee, to the Colleague's estate. SECTION 12 MISCELLANEOUS. 12.1. Notices. For purposes of this Agreement, all notices, including without limitation, a Notice of Termination, and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or five days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed (1) if to the Colleague, to <> <> <> <> and if to the Company, to Tower Automotive, Inc., 5211 Cascade Road, Grand Rapids, Michigan, 49301, attention Richard S. Burgess, with a copy to the Secretary, or (2) to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 12.2 Employment Status. Except as may be provided under any other agreement between the Colleague and the Company, the employment of the Colleague by the Company is "at will," and may be terminated by either the Company or the Colleague at any time, subject to applicable law and subject to the respective obligations of the Company and the Colleague under the terms of this Agreement. 12.3 Beneficiaries. The Colleague may designate one or more persons or entities as the primary and/or contingent Beneficiaries of any Severance Benefits owing to the Colleague under this Agreement. Such designation must be in the form of a signed writing acceptable to the Committee. The Colleague may make or change such designations at any time. 12.4 Severability. In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and the Agreement shall be construed and enforced as if the illegal or invalid 13 provision had not been included. Further, the captions of this Agreement are not part of the provisions hereof and shall have no force and effect. 12.5 Modification. No provision of this Agreement may be modified, waived, or discharged unless such modification, waiver, or discharge is agreed to in writing and signed by the Colleague and by an authorized member of the Committee, or by the respective parties' legal representatives and successors. 12.6 Entire Agreement. This Agreement sets forth the entire agreement and understanding of the parties with respect to the subject matter hereof and supercedes all prior agreements, arrangements, and understandings related to the subject matter hereof. 12.7 Applicable Law. To the extent not preempted by the laws of the United States, the laws of the state of Michigan shall be the controlling law in all matters relating to this Agreement. IN WITNESS WHEREOF, the parties have signed this Agreement as of the day and year written above. TOWER AUTOMOTIVE, INC. By ____________________________ Its: _______________________ _______________________________ Colleague Signature <> <> _______________________________ 14 EX-10.19 3 k86671exv10w19.txt RETIREMENT AGREEMENT EXHIBIT 10.19 RETIREMENT AGREEMENT This is a Retirement Agreement ("Agreement") between Tower Automotive, Inc., a Delaware corporation, ("Tower Automotive" or "Company") and Dugald K. Campbell ("Mr. Campbell"), dated and signed by the parties as of the 17th day of September, 2003 (the "Effective Date"). BACKGROUND The Company was incorporated in March 1993 and acquired R.J. Tower Corporation, its first acquisition, shortly thereafter. Since December 1993, Mr. Campbell has served the Company as its President and Chief Executive Officer and as a member of its Board of Directors. At the time of his employment, he conveyed to the Board his desire to serve as the Company's chief executive through the first decade of its growth. The growth of the Company's annual revenues during his tenure attest to his success, having increased annual revenues from about $61 million in 1993 to an estimated $2.8 billion in 2003. Mr. Campbell has been active in his cooperation with the Company's Nominating and Corporate Governance Committee in the search for his successor. Ms. Kathleen Ligocki ("Ms. Ligocki") was elected by the Company's Board of Directors as the Company's President and Chief Executive Officer, effective August 18, 2003. Mr. Campbell is committed to work with Ms. Ligocki to assure an effective and orderly transition of his duties and responsibilities. Mr. Campbell will retire from the Company on June 30, 2004. In recognition of Mr. Campbell's contributions, the Company desires to provide certain retirement benefits for him. This Agreement will set forth the mutual agreements of the parties regarding the terms, conditions, obligations and benefits associated with Mr. Campbell's retirement. 1 The parties agree as follow: 1. RETIREMENT DATE. Effective June 30, 2004, Mr. Campbell will retire from his employment by Tower Automotive ("Retirement Date"). Except as set forth in this Agreement, all Mr. Campbell's compensation and benefits terminate on the Retirement Date. 2. RESIGNATIONS. Mr. Campbell submitted his resignation as the Company's President and Chief Executive Officer effective August 18, 2003, which was accepted by the Board of Directors. The Company has announced publicly the appointment of Ms. Ligocki as successor to Mr. Campbell as President and Chief Executive Officer of the Company. Mr. Campbell has submitted his resignation as a director of the Company effective as of the Effective Date. Ms. Ligocki has also succeeded Mr. Campbell as an officer, director and in all other positions held by him in the subsidiaries, affiliates, and related entities of the Company. The Company and Mr. Campbell understand that Mr. Campbell will not be nominated by the Board as a candidate to be elected as a director of the Company at the 2004 annual meeting of the shareholders of the Company 3. ADDITIONAL ANNOUNCEMENTS. The timing, form, manner and content of future public announcements, if any, containing additional material information relating to Mr. Campbell's resignation or retirement will occur in a mutually agreed-upon manner. 4. PERIOD OF TRANSITION AND COOPERATION. The Company and Mr. Campbell agree that he will continue to be employed by Tower Automotive at his current level of compensation and benefits until his Retirement Date, including any annual bonus earned for 2003 in accordance with the Company's annual incentive plan; provided, however, that he will not be entitled to: 2 (a) Participate in or receive any bonus or other payments under the Company's annual incentive plan for the year beginning January 1, 2004; or (b) Receive any new equity-based awards, such as options or restricted shares after the Effective Date, other than as expressly provided in this Agreement. Prior to his Retirement Date and during the three (3) consecutive year period commencing on the Retirement Date (the "Advisory Period"), Mr. Campbell agrees to cooperate with the Company in the orientation of, and transition of his duties and responsibilities to, Ms. Ligocki. In addition, Mr. Campbell agrees that during the Advisory Period, he will make himself reasonably available to Tower Automotive to provide information, testimony and other requested assistance to the Company with respect to any judicial or administrative dispute, charge, lawsuit or other proceeding. During the Advisory Period, he also agrees reasonably to remain on call to consult and advise the Chairman of the Board and the Chief Executive Officer, with respect to business issues and matters relating to the responsibilities of the Chief Executive Officer or the Board. 5. RETURN OF COMPANY PROPERTY. Mr. Campbell agrees that promptly after his Retirement Date, he will surrender to Tower Automotive all Company property and records, including but not limited to all business opportunities, confidential and proprietary information and trade secrets, that are in his possession or control except, as the Company and Mr. Campbell mutually agree, are necessary to provide services to the Company during the Advisory Period. Subject to such exceptions, Mr. Campbell attests that as of his Retirement Date he will not have retained any originals or copies of any confidential, non-public Company records, whether in paper, electronic or other form. 3 6. EXPENSE REIMBURSEMENT. Provided Mr. Campbell promptly provides suitable written expense reports and documentation, the Company will promptly reimburse him for all reasonable and necessary business expenses incurred prior to the Retirement Date, and during the Advisory Period with respect to any assistance or consultations requested by the Chairman of the Board or the Chief Executive Officer. 7. LIABILITY INSURANCE COVERAGE AND INDEMNIFICATION. With respect to Mr. Campbell's authorized activities and duties while employed by Tower Automotive and while serving as a director of Tower Automotive, nothing in this Agreement shall deprive Mr. Campbell of the benefits of Tower Automotive's existing officer and director liability insurance coverage, nor of any right to indemnification under Tower Automotive's Articles of Incorporation, By-laws or the written Indemnification Agreement between the Company and Mr. Campbell. 8. RETIREMENT PAYMENTS AND BENEFITS. Tower Automotive agrees to provide Mr. Campbell with the following retirement benefits. The provision of each of these benefits is contingent on Mr. Campbell signing, not revoking, and abiding by this Agreement and the attached ADEA Waiver. The Company will not be obligated to provide any benefits until after the seven-day revocation period set forth in the ADEA Waiver has expired. (a) Equity and Cash Retirement Benefits. (i) Stock Units Credited Under DISP Plan. As of the date of this Agreement, the Company grants to Mr. Campbell and will credit (A) to Mr. Campbell's Basic Account in the Company's Key Leadership Deferred Income Stock Purchase Plan ("DISP Plan"), the number of stock units determined by dividing $1,500,000 by the closing market price on the NYSE of the Company's 4 common stock on that date, and (B) to his Premium Account, the number of stock units determined as provided in the DISP Plan related to the foregoing credit to his Basic Account. As provided in the DISP Plan, the stock units credited to his Basic Account will be fully vested, and the stock units credited to his Premium Account will vest according to the applicable provisions of the DISP Plan. (ii) Cash Payment. Mr. Campbell will be paid Four Hundred Thousand Dollars ($400,000) in 2005 and Four Hundred Thousand Dollars ($400,000) in 2006 in eight (8) quarterly installments of One Hundred Thousand Dollars ($100,000) each, on the first day of January, April, July and October in the years 2005 and 2006. Mr. Campbell shall have one opportunity to elect to defer any or all of such cash payments for periods of not more than two (2) years from their respective due dates, by delivering notice to the Company at least twelve (12) months prior to the due date of the payment or payments to be deferred. No interest shall accrue or be payable in connection with any cash payments, whether or not due dates are deferred. (b) Group Health Plans. (i) Mr. Campbell will have the right to elect to continue his group health, dental and vision insurance coverage for himself and eligible dependants pursuant to COBRA. Any COBRA coverage will be at Mr. Campbell's sole expense. (ii) Mr. Campbell will have the right to elect to become a participant under the R. J. Tower Retiree Health Care Plan. Mr. Campbell will pay the full premium to provide coverage for himself and his wife until he reaches age sixty- 5 two (62), and beginning at that time the Company will contribute One Hundred Ten Dollars ($110) per month toward the premium for such coverage until he attains age sixty-five (65). (c) Compensation and Retirement Plans. Mr. Campbell's benefits, as a participant in the following Company plans, will vest and otherwise be determined and distributed strictly in accordance with the terms and conditions of each of such plans and of any agreements representing awards granted to Mr. Campbell under any of such plans: (i) Options and restricted shares issued to him and currently outstanding under the Tower Automotive Long Term Incentive Plan (effective March 1, 1999), but excluding options surrendered by Mr. Campbell pursuant to Paragraph 9 of this Agreement. (ii) Shares purchased by him pursuant to the Colleague Stock Discount Purchase Plan. (iii) Benefits deferred and earned under the DISP Plan. (iv) Performance cash award amounts accrued under the Tower Automotive Performance Cash Plan as applied to performance period 2001-2002, the final installment of which is payable to him in 2004. (v) Performance cash award amounts, if any, to be earned under the Tower Automotive Performance Cash Plan as applied to performance period 2003-2004, prorated, as provided in such Plan, payable in equal installments in 2005 and 2006. (vi) Benefits under the Tower Automotive Retirement Plan and Supplemental Employee Retirement Plan. 6 9. SURRENDER OF STOCK OPTIONS. Effective as of the date of this Agreement, Mr. Campbell agrees to forfeit and surrender to the Company for cancellation the following stock options granted to him under the Company's 1999 Long Term Incentive Plan:
Number of Shared Currently Date of Grant Number of Shares Exercise Price Exercisable - ------------- ---------------- -------------- ----------- 3/08/2000 200,000 $13.19 150,000 3/01/2001 165,700 $11.33 82,850 5/15/2002 165,000 $13.75 41,250
Mr. Campbell has not purchased any of the shares covered by these options. 10. RELEASE. Except as prohibited by law, Mr. Campbell releases Tower Automotive, its subsidiaries, related and affiliated entities, along with their former and current owners, directors, officers, employees, agents, insurers, and representatives from any and all administrative, judicial, common law, equitable, and/or statutory claims (whether known or unknown) under federal, state, or local laws, and which arose from or relate to his employment by or retirement from Tower Automotive. This Release is not revocable and shall be effective immediately as to all waivable claims, other than any claims that Mr. Campbell may have under the federal Age Discrimination in Employment Act ("ADEA"). As to any claims under the ADEA, no release will be effective unless Mr. Campbell signs the additional ADEA Waiver which is attached. Mr. Campbell will have twenty-one (21) days in which to consider the attached ADEA Waiver and acknowledges that he has been advised to consult with an attorney prior to signing the ADEA Waiver. Mr. Campbell will have seven (7) days after he signs the ADEA Waiver in which to exercise his right to revoke the ADEA Waiver. The ADEA Waiver will not become enforceable until that seven-day period has expired. 7 If, however, Mr. Campbell fails to sign the ADEA Waiver, or if he timely revokes the ADEA Waiver, Tower Automotive, in its sole discretion, may revoke this entire Agreement, or enforce or abide by the remaining provisions of this Agreement as written. If the Company revokes the entire Agreement and if, prior to revocation, any benefits under this Agreement have been provided by the Company to Mr. Campbell or provided by Mr. Campbell to the Company, such benefits shall be returned or cancelled, as the case may be. 11. CONFIDENTIAL AND PROPRIETARY INFORMATION. Mr. Campbell agrees that unless he receives prior written consent from the Chief Executive Officer of Tower Automotive, he will not disclose to any person outside Tower Automotive's employment, nor will he make any unauthorized use of (whether for the benefit of himself or others) any of Tower Automotive's confidential and proprietary information. Tower Automotive's confidential and proprietary information includes, but is not limited to, any non-public information pertaining to: (a) Inventions, trade secrets, business information, data, logic diagrams, flowcharts, prototypes, sketches, formula, algorithms, know-how, improvements, discoveries, developments, designs, mask works, writings, art designs, prints, labels, works of art, audiovisual works, other works of authorship and techniques, whether conceived, created or invented by Mr. Campbell, and whether or not reduced to practice; (b) Nonpublic information regarding research, development, new products, marketing and selling, manufacturing processes, business plans and strategy, proposals, budgets, unpublished financial statements, licenses, contracts, prices and costs, suppliers, customers, customer lists; and, (c) Non-public information regarding the skills and compensation of other employees of Tower Automotive. 8 In addition, Mr. Campbell remains bound by any non-conflicting terms of any prior confidentiality agreement that he entered into with the Company. 12. AGREEMENT NOT TO COMPETE/NO SOLICITATION. Beginning on the date of this Agreement and for a period of three (3) consecutive years commencing on the Retirement Date, Mr. Campbell agrees that he will not directly or indirectly become self-employed, employed by, serve as a director for, consult with, finance, take an ownership interest in, or otherwise work or perform services for or assist any entity or enterprise that is or is planning to become in competition with Tower Automotive. In addition, during the same period, Mr. Campbell agrees that he will not directly or indirectly solicit, induce or attempt to induce any employee of Tower Automotive to leave his or her employment with Tower Automotive. Nothing in this paragraph shall prohibit Mr. Campbell from owning 5% or less of the voting stock of any publicly traded corporation. 13. CONFIDENTIALITY. Unless and until the Company files this Agreement with the Securities and Exchange Commission or otherwise discloses it or its contents publicly, Mr. Campbell agrees that he and his agents will keep the terms and content of this Agreement confidential. He may, however, disclose the terms and content of this Agreement to his attorney, accountant, spouse, to federal, state, or local agencies that inquire about this Agreement, or as may be lawfully ordered by a court of competent jurisdiction. 14. NON-DISPARAGEMENT AND NON-INTERFERENCE. Mr. Campbell agrees that he will not disparage, criticize, condemn, or impugn Tower Automotive, its related and affiliated companies, their products nor any of the other persons released through this Agreement. In addition, Mr. Campbell agrees that he will not directly or indirectly interfere with, adversely affect, or attempt to interfere with or adversely affect, Tower Automotive's business relationships, reputation, contracts, pricing or other relationships that Tower Automotive has 9 with its former, current or prospective customers, suppliers, clients, employees, businesses, financial institutions, stockholders or others persons or entities with whom Tower Automotive interacts or relates. 15. COMPLETE AGREEMENT. This Agreement is the complete agreement between the parties with respect to the subject matter of this Agreement, and, except as expressly stated otherwise in this Agreement, supersedes all prior employment agreements, understandings or other agreements between the parties, whether oral or written, dealing with the same subject matter. 16. MODIFICATION. No modification of this Agreement will be enforceable, unless it is in writing, signed by Mr. Campbell and by the Chair of the Board for Tower Automotive, or by other Company officer authorized by the Board. 17. VOLUNTARY AND KNOWING CONSENT. Mr. Campbell attests that he signed this Agreement voluntarily, that he understands its content, meaning and effect, and that he had the opportunity to consult advisors of his choice prior to signing this Agreement. 18. NON-ADMISSION OF LIABILITY. By entering into this Agreement, Tower Automotive does not admit that it acted wrongfully or violated any federal, state, or local criminal or civil laws. 19. SEVERABILITY. If any term, clause, or provision of this Agreement is deemed unlawful, void, or otherwise unenforceable or invalid by a competent tribunal, that term, clause or provision shall be modified to make it enforceable to the maximum extent permitted by law. If not enforceable to any degree, then only that term, clause, or provision shall be deemed ineffective and thereby severed from the remainder of this Agreement. The remaining terms, clauses, and provisions of this Agreement shall remain in full effect, to the maximum extent permitted by law. 10 20. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of Mr. Campbell, his personal representatives, heirs and assigns, and the Company, its successors and assigns. 21. ARBITRATION. With the exception of claims to enforce paragraphs 5 (Return of Company Property), 11 (Confidential and Proprietary Information), 12 (Agreement Not to Compete/No Solicitation), 13 (Confidentiality) and 14 (Non-Disparagement and Non-interference), the parties agree that any dispute or breach between them that arises under or pertains in any way to this Agreement shall be resolved through arbitration. Any demand for arbitration must be made in writing and must be received by the other party within 30 calendar days of the date the demanding party knew of the alleged dispute or breach. The parties agree that any claim not timely filed under this arbitration procedure is waived. If Tower Automotive demands arbitration, Tower Automotive shall mail or deliver such written notice to Mr. Campbell's last known home address as directed in Paragraph 22 (Notices). If Mr. Campbell demands arbitration, Mr. Campbell shall address such demand to the Chief Executive Officer of Tower Automotive and mail or deliver it to Tower Automotive's corporate headquarters in Grand Rapids, Michigan as directed in Paragraph 22 (Notices). The parties will attempt to promptly agree on a single arbitrator to hear the dispute. If agreement on an arbitrator cannot be reached within 30 calendar days, either party may request a panel of arbitrators from the American Arbitration Association ("AAA"). The arbitration shall be conducted under the auspices of the AAA and any agreed-upon or selected arbitrator shall apply the AAA's National Rules for the Resolution of Employment Disputes. The arbitrator shall have subpoena power and have the authority to grant a reasonable period of discovery prior to the arbitration hearing. Discovery may be conducted through any means permitted under the Michigan Court Rules. The laws of 11 the State of Michigan shall apply. Any AAA fees and the costs and expenses of the arbitrator shall be shared equally by the parties. Each party shall be responsible for his/its own attorney fees, expert witness fees and other expenses associated with arbitration. The decision of the arbitrator shall be final and binding. Judgment shall be entered in a court of competent jurisdiction in accordance with the arbitrator's decision. If a party refuses to arbitrate or to abide by an arbitrator's decision, the other party may seek a court order from a court of competent jurisdiction to mandate the other party to arbitrate or to mandate compliance with the arbitrator's decision. The arbitration hearing shall be held in Grand Rapids, Michigan, or such other location mutually agreed-to by the parties. 22. NOTICES. All notices and other communications shall be in writing; shall be delivered by hand delivery to the other party or mailed by registered or certified mail, return receipt requested, postage prepaid; shall be deemed delivered on date of actual receipt; and shall be addressed as follows: If to Mr.Campbell: Dugald K. Campbell 4959 Winter Ridge Drive, S.E. Ada, Michigan 48117 If to the Company: Tower Automotive, Inc. 5211 Cascade Road, S.E., Suite 300 Grand Rapids, MI 49546 Attention: President or such other address as either party shall have forwarded to the other party in the manner stated above. 23. GOVERNING LAW AND JUDICIAL CLAIMS. This Agreement shall be governed by and construed according to the laws of the State of Michigan. The parties agree that any judicial 12 actions filed against the other to enforce paragraphs 5 (Return of Company Property), 11 (Confidential and Proprietary Information), 12 (Agreement Not to Compete/No Solicitation), 13 (Confidentiality) and 14 (Non-Disparagement and Non-Interference) shall be brought in a state or federal court situated in and having jurisdiction over claims in Kent County, Michigan. 24. BOARD APPROVAL AND AUTHORIZATION. On September 17, 2003, the Company's Board of Directors approved this Agreement and authorized it to be executed on behalf of the Company by the Chairman of the Board. /s/ Dugald K. Campbell Date: September________, 2003 ------------------------- Dugald K. Campbell Date: September________, 2003 Tower Automotive, Inc. By: /s/ XXXXX ---------------------- Its: Chairman of the Bord 13 ADEA WAIVER In conjunction with the consideration provided in my Retirement Agreement, and except as prohibited by law, I agree, knowingly and voluntarily, to waive any and all claims that I might have under the Age Discrimination in Employment Act of 1967, as amended, against Tower Automotive, Inc., its related and affiliated entities, and their former and current owners, directors, officers, employees, agents, insurers, and representatives, and which occurred on or before the date of this ADEA Waiver. I understand that this Waiver does not prevent me from later challenging the knowing and voluntary nature of this ADEA Waiver, nor does this Waiver attempt to waive any rights that under applicable law cannot be waived. I acknowledge that I have been advised to consult with an attorney prior to signing this ADEA Waiver and have been provided twenty-one (21) days within which to consider the ADEA Waiver. I further understand that I have seven (7) days after I sign this ADEA Waiver in which to revoke the ADEA Waiver. /s/ Dugald K. Campbell Date: Sept 17, 2003 ----------------------- Dugald K. Campbell 14 EX-10.20 4 k86671exv10w20.txt SUPPLEMENTAL RETIREMENT PLAN EXHIBIT 10.20 TOWER AUTOMOTIVE SUPPLEMENTAL RETIREMENT PLAN EFFECTIVE DATE: JANUARY 1, 2001 Prepared By: VARNUM, RIDDERING, SCHMIDT & HOWLETTLLP Bridgewater Place 333 Bridge Street, N.W. Grand Rapids, Michigan 49504 (616)336-6000 TABLE OF CONTENTS
PAGE ---- ARTICLE I -- PURPOSE 1 ARTICLE II -- DEFINITIONS AND CONSTRUCTION 1 2.1 Definitions 1 2.2 Construction 4 ARTICLE III -- PARTICIPATION AND SERVICE 4 3.1 Participation 4 3.2 Service 5 3.3 Participation and Service upon Reemployment 5 3.4 Changes of Employment Within the Company or Controlled Group 5 ARTICLE IV CONTRIBUTIONS 6 4.1 Company Contributions 6 4.2 Retirement Savings Agreements 7 4.3 Rules Relating to Reemployed Veterans 8 ARTICLE V -- ALLOCATIONS TO PARTICIPANT ACCOUNTS 9 5.1 Individual Accounts 9 5.2 Account Adjustments 9 ARTICLE VI -- BENEFITS 12 6.1 Retirement or Disability 12 6.2 Death 13 6.3 Termination for Other Reasons 14 6.4 Payment of Benefits 16 6.5 Withdrawals Pursuant to Qualified Domestic Relations Orders 17 6.6 Designation of Beneficiary 17 6.7 Hardship Withdrawals 17 ARTICLE VII -- FUND 18 ARTICLE VIII -- ADMINISTRATION 18 8.1 Allocation of Responsibilities 18 8.2 Indemnification 18 8.3 Records and Reports 18 8.4 Appointment of Committee 18 8.5 Claims Procedure 19 8.6 Rules and Decisions 20
-i- 8.7 Committee Procedures 20 8.8 Authorization of Benefit Payments 20 8.9 Application and Forms for Benefits 20 8.10 Facility of Payment 20 ARTICLE IX -- TERMINATION AND AMENDMENT 21 9.1 Amendments 21 9.2 Termination 21 ARTICLE X -- NONALIENATION OF BENEFITS AND DOMESTIC RELATIONS ORDER 21 10.1 Nonalienation of Benefits 21 10.2 Procedure for Domestic Relations Orders 21 ARTICLE XI -- MISCELLANEOUS 22 11.1 Status of Participants 22 11.2 No Interest in Company Affairs 23 11.3 Governing Law 23 11.4 Severability of Provisions 23
-ii- THE TOWER AUTOMOTIVE SUPPLEMENTAL RETIREMENT PLAN This Plan is adopted by R. J. Tower Corporation, a Michigan corporation, on behalf of itself and its subsidiary corporations, all of whom will be referred to collectively as the "Company," as a non-qualified supplemental retirement plan for a select group of management and highly compensated colleagues. ARTICLE I PURPOSE The Company is adopting this plan which will be called the Tower Automotive Supplemental Retirement Plan (the "Plan") effective as of January 1, 2001 to provide a plan for deferring compensation for certain of its colleagues who are restricted in their contributions to TARP by certain statutory limitations on benefits. This Plan is intended to be a non-qualified Plan that will not satisfy the requirements of Code Section 401(a) and to be a "top hat" plan that will be exempt from the requirements of Part 2, 3, and 4 of subtitle D of Title I of ERISA. ARTICLE II DEFINITIONS AND CONSTRUCTION 2.1 Definitions. The following words and phrases, when used in this document, will have the following meanings: (a) Authorized leave of absence: Any absence authorized by the Company under its standard personnel practices and from which colleagues must return to active employment with the Company within the period au- thorized for the leave. An absence due to service in the armed forces of the United States will be considered an authorized leave of absence provided that the colleague qualifies for reemployment rights under federal law, 38 USC Sections 2021 or 2024 or other statute of similar import, and returns to employment with the Company within the period provided by law. (b) Beneficiary: A person or persons, natural or otherwise, desig- nated in accordance with the Plan to receive any death benefit payable un- der this Plan. (c) Code: The Internal Revenue Code of 1986, as amended. -1- (d) Committee: The persons appointed to assist the Company in administering the Plan. (e) Company: R. J. Tower Corporation, a Michigan corporation, and all of its subsidiary corporations. (f) Compensation: The total of all amounts paid to a participant during the plan year as base salary for personal services rendered as an colleague and the amount of any elective contributions made for the participant to plans maintained pursuant to Code Sections 125 or 401(k) for the plan year. For participants who are classified in the "600 group", compensation will also include the amount of any bonuses paid to them by the Company during the plan year. (g) Disability: A physical or mental condition that permanently prevents a participant from satisfactorily performing the participant's usual duties for the Company or the duties of any position or job the Company makes available and for which the participant is qualified by reason of the participant's training, education, or experience. A participant will not be considered disabled for purposes of this Plan if the condition consists of or results from use of alcohol, narcotics, or other controlled substances, or from an intentionally self-inflicted injury or a felonious enterprise in which the participant was engaged. (h) Eligible colleague: A colleague who is in the "600 Group" or who is employed in a classification other than those listed as not eligible to participate in the Plan in Section 3.1 and whose base salary for the year is in excess of $100,000. The $100,000 threshold will be adjusted, as determined by the committee, for changes in the cost of living. (i) Colleague: Any person who is employed by the Company during the plan year as a common-law colleague, or who is on temporary layoff status or an authorized leave of absence from a position as a common-law colleague. (k) Employer contribution accounts: The accounts maintained to record a participant's share of the contributions made by the Company and the contributions made pursuant to retirement savings agreements between the participant and the Company. The following accounts will be maintained for each participant: -2- (1) Deferred profit sharing account. A participant's deferred profit sharing account will be maintained to record the participant's share of profit sharing contributions and income with respect to these contributions. (2) Retirement savings account. A participant's retirement savings account will be maintained to record contributions made for the participant pursuant to retirement savings agreements, the participant's share of discretionary contributions, the participant's share of matching contributions on base salary deferrals, and income with respect to these contributions. (3) Incentive matching account. A participant's incentive matching account will be maintained to record the participant's share of matching contributions on EVA incentive compensation bonus deferrals and income with respect to these contributions. (l) ERISA: Public Law No. 93-406, the Employee Retirement Income Security Act of 1974, as amended. (m) Forfeiture: The portion of a participant's accounts that is forfeited because of termination of employment before full vesting. (n) Fund: The fund known as the Tower Automotive Supplemental Retirement Fund and maintained in accordance with the terms of this Plan. (o) Participant: A colleague participating in the Plan in accordance with the provisions of Section 3.1 or a former colleague who has an account balance in the Plan or is eligible for a contribution for the plan year. (p) Plan: The Tower Automotive Supplemental Retirement Plan as set forth in this document and any later amendments. (q) Plan year: The "fiscal year" of the Plan which will be the period of 12 consecutive months ending on December 31 of every year. (r) Reemployed veteran: A colleague who returns to employment as an eligible colleague from a leave of absence for military service during the period in which reemployment rights are protected by federal law. -3- (s) Retirement Age: Age 65; or age 55 and 10 years of service; or any age and 30 or more years of service. (t) Service: The period of a participant's employment with the Company computed in accordance with 3.2. (u) Severance of service: The date determined in accordance with Section 3.2 on which a former colleague is deemed to have severed employment with the Company for the purposes of this Plan. (v) TARP: The Tower Automotive Retirement Plan, a qualified profit sharing 401(k) plan maintained by the Company. 2.2 Construction. Plural pronouns are used throughout the Plan for purposes of simplicity and will be interpreted to include the singular. ARTICLE III PARTICIPATION AND SERVICE 3.1 Participation. Eligible colleagues will become participants in the Plan for the limited purpose of making retirement savings contributions and sharing in matching and discretionary contributions on the first day of the next month after completing 60 days of employment with the Company. Eligible colleagues will become participants in the Plan for the purpose of sharing in profit sharing contributions beginning on the first day of the next month after completing one year of service. The following are not eligible to participate in the Plan: (a) Colleagues who are not citizens of the United States, who reside and are employed outside the United States, and whose compensation from the Company does not constitute income from sources within the United States; (b) Colleagues who perform services for the Company pursuant to an agreement between the Company and another person or entity such as an employment agency or colleague leasing organization; (c) Colleagues who perform service for the Company pursuant to a written agreement with the company that provides specifically that the colleague will not be eligible to participate in this Plan. -4- (d) Colleagues who are represented by a collective bargaining agent for purposes of bargaining about wages and conditions of employment with the Company. 3.2 Service. A participant will be credited with a year of service for each full year beginning on the participant's initial date of employment with the Company and terminating on the date of the participant's severance of service with the Company. A participant's severance of service will occur on the earlier of the following: (a) The date on which the participant quit, was discharged, died, or retired; or (b) The first anniversary of the date on which the participant was absent from employment (with or without pay) for any reason except an authorized leave of absence granted by the Company in writing, or for service in the Armed Forces of the United States. If a participant returns to work at any time within one year after the first day of an absence from employment described in (b), the absence will not result in a severance of service and the period of the absence will be counted in determining the participant's period of service. Reemployed veterans will be credited with the period of military service for the purposes of determining service. 3.3 Participation and Service upon Reemployment. Upon the reemployment of any colleague, the following rules will apply in determining participation in the Plan and years of service under Section 3.2: (a) Participation. If the colleague was eligible to participate in the Plan during the prior period of employment and is reemployed as an eligible colleague, the colleague will participate in the Plan as of the date of reemployment. If the colleague was not eligible to participate in the Plan during the prior period of employment and the colleague is reemployed as an eligible colleague, the colleague will be eligible to participate after satisfying the requirements of Section 3.1. (b) Service. Any service earned during the prior period of employment will be reinstated immediately. 3.4 Changes of Employment Within the Company or Controlled Group. (a) Changes Resulting in Eligibility to Participate. A colleague who becomes an eligible colleague as a result of a change in employment status -5- with the Company will be given credit for service in accordance with Section 3.2 for prior years of employment with the Company and will become a participant in the Plan on the first of the month after satisfying the service requirements of Section 3.1. (b) Changes Resulting in Ineligibility to Participate. A participant who ceases to be an eligible colleague as a result of a change in employment status with the Company will share in all Company contributions and forfeiture allocations based on compensation while eligible to participate in the Plan. The participant will be credited with service under Section 3.2 for all service with the Company. The participant will not be considered terminated or separated from service for purposes of this Plan as long as the participant is employed by the Company. ARTICLE IV CONTRIBUTION CREDITS 4.1 Contribution Credits. (a) Retirement Savings. As of the end of the last full payroll period of each month, the Company will credit to the fund as retirement savings contributions the total amount of the participants' retirement savings contributions for payroll periods ending during the month. (b) Matching. As of the end of the last full payroll period of each month, the Company will credit to the fund as matching contributions the amount determined by applying the matching contribution formula adopted by the Company to the amount of each participant's retirement savings contributions to this Plan and TARP, but minus the amount of the matching contributions made to the participant's account in TARP for the same accounting period. The Board of Directors of the Company may change the matching contribution formula at any time and may discontinue matching contribution credits to this Plan. (c) Profit Sharing. If the amount of forfeitures for a plan year is insufficient to make allocations to the accounts of reemployed veterans, the Company will credit the fund as of the end of each plan year with the amount required to satisfy these obligations. The Company will also credit the fund for each plan year with the additional amount determined by the Company as a profit sharing contribution for the plan year. -6- (d) Discretionary. The Company will credit the fund as of the end of each plan year with such additional amount as may be determined by the Company as discretionary contributions for the plan year for specified participants. 4.2 Retirement Savings Agreements. A participant may enter into a written retirement savings agreement with the Company. The retirement savings agreement will provide that the participant will accept a reduction of base salary and bonuses, if eligible, from the Company (minus retirement savings contributions to TARP) and the Company will credit the participant with retirement savings contributions in the amount of the agreed reduction. The retirement savings agreements will be administered in accordance with the following rules: (a) The amount of the reductions is limited to the following percentages: (1) For 2001, from 1% to 100% of base salary earned after the adoption of the Plan and for plan years after 2001, from 1% to 16% of base salary; and (2) For participants who are in the 600 Group: (A) From 1% to 100% of any annual incentive compensation; and (B) From 1% to 100% of any Long Term Incentive Plan Performance Cash payment. (b) A participant must maximize 401(k) savings contributions to TARP before being eligible to have retirement savings contributions credited to this Plan. Only contributions in excess of those allowable to TARP will be credited to the participant's account in this Plan; (c) A participant's initial retirement savings agreement may apply to payroll periods beginning after it is accepted by the Company if the agreement is filed with the Company within 30 days after the participant becomes eligible. If the initial agreement is not filed with the Company within 30 days after eligibility, then it will apply to compensation earned in -7- the plan year after the plan year in which the agreement is filed with the Company; (d) Retirement savings agreements will expire at the end of the plan year and may be suspended by participants at any time for the balance of the year. Participants may enter into new retirement savings agreements for every year and the agreements must be completed and filed with the Company prior to the beginning of the plan year. 4.3 Rules Relating to Reemployed Veterans. Reemployed veterans will be eligible for the following special considerations under the Plan: (a) General Provisions. They will be credited with service in accordance with Section 3.2 and entitled to an allocation of Company contributions in accordance with Section 5.2. They may elect to make retirement savings contributions for plan years during the period of military service and the Company will match the contributions using the matching contribution formulas in effect for the plan years ("makeup contributions"). The amount of the discretionary and makeup contributions will be based on the compensation the reemployed veterans would have received if they had remained in the employ of the Company and, if this cannot be determined with reasonable certainty, then on the basis of the average amount earned each month during the 12-month period immediately preceding the period of military service. Makeup contributions will be subject to the following: (1) Limits on Makeup Contributions. (A) Makeup Contribution Period. Makeup contributions must be made by the reemployed veteran and the Company during the period beginning on the reemployed veteran's reemployment date and ending on the date that is the lesser of three (3) times the period of military service or five (5) years. (B) Amount of Contributions. The amount of makeup contributions made for any plan year during the period of military service will be further limited as follows: -8- (i) The amount of makeup contributions will not include income on the trust occurring during the period of military service and will not be eligible for an allocation of future income until the contribution has been made; and (ii) Makeup contributions will not entitle the reemployed veteran to an allocation of any forfeitures that became available for allocation during the period of military service. ARTICLE V ALLOCATIONS TO PARTICIPANT ACCOUNTS 5.1 Individual Accounts. The Company will create and maintain adequate records to disclose the interest in the fund of each participant and beneficiary. The records will be in the form of individual accounts to reflect each participant's credits for retirement savings contributions, share of matching and discretionary contributions, and income. The Company will maintain deferred profit sharing, incentive matching, and retirement savings accounts for each participant, and such other accounts as may be required. Credits and charges will be made to each account in accordance with the provisions of this Plan. Withdrawals will be charged to an account as of the date paid. 5.2 Account Adjustments. The accounts of participants and beneficiaries will be adjusted in accordance with the following: (a) Income. The "income" of the fund will mean the net income or loss from investments, including realized and unrealized gains and losses on securities and other investment transactions, less expenses paid from the fund. All assets will be valued at their fair market value in determining unrealized gains and losses. If any assets are segregated for any purpose, the income from the segregated assets will not be included in account adjustments under this Subsection (a). -9- The income will be determined and credited to accounts as of the end of every business day. The income for each business day will be credited to the accounts of participants and beneficiaries who had unpaid balances in their accounts at the end of the day in proportion to the balances in such accounts at the beginning of the day less any distributions or withdrawals from the account during the day. If the Company does not create a fund for the Plan, income will be credited to accounts at the end of every calendar quarter at the rate of 110% of the applicable Federal Long Term Rate, as published by the IRS, per quarter. (b) Credits and Forfeitures. (1) Retirement Savings Credits. After the end of each month, retirement savings credits will be credited to the retirement savings accounts of participants in amounts equal to their retirement savings contributions for the month. (2) Matching Contribution Credits. (A) Eligibility. After the end of each month, matching contributions will be credited to the appropriate account of each participant who was credited with retirement savings contributions for the month. (B) Method of Allocation. (i) Matching on base salary deferrals. Matching contributions will be credited to retirement savings accounts in the amount determined by applying the matching contribution formula adopted by the Company to the amount of each eligible participant's retirement savings contributions from base salary to this Plan and TARP, and then reducing the amount so determined by the amount of -10- matching contributions credited to the participant's account in TARP. (ii) Matching on annual incentive compensation deferrals. Matching contributions will be credited to incentive matching accounts in the amount determined by applying the matching contribution formula adopted by the Company to the amount of each eligible participant's retirement savings contributions to this Plan from annual incentive compensation. A participant's retirement savings contributions to this Plan from Long Term Incentive Performance Cash payments are not eligible for matching contributions. (3) Profit Sharing Credits. (A) Eligibility. After each plan year, the Comp- any's profit sharing contribution will be credited to deferred profit sharing accounts in the following order of priority: (i) First, to the accounts of reemployed veterans; and (ii) Second, to the accounts of participants whose compensation for the year was in excess of the limit on compensation in Code Section 401 (a)(17), and who had been employed by the Company for at least six(6) months during the year or who- se employment -11- terminated during the year after reaching normal retirement age or because of death or disability (B) Military Service Allocations. Military ser- vice credits will be equal to the amount of profit sharing contributions that would have been credited to the accounts of reemployed veterans if they had been employed by the Company during the period of military service. (C) Method of Allocation. The balance of the profit sharing contribution after the credits under (B) will be credited to the accounts of all participants eligible under (A)(ii) in accordance with the ratio of each participant's "excess compensation" for the year to the total excess compensation of all eligible participants for the year. The term "excess compensation" will mean the participant's compensation that is in excess of the limit on compensation in Code Section 401(a)(17). (4) Discretionary Credits. As of the end of each plan year, the Company's discretionary contributions will be credited to the retirement savings account of each participant who is designated by the Company as eligible for a discretionary contribution and in the amount specified by the Company. ARTICLE VI BENEFITS 6.1 Retirement or Disability. Participants who are in the employ of the Company when they attain retirement age will become fully vested in their accounts, regardless of their years of service. Participants whose employment with the Company terminates at or after retirement age, or at an earlier age because of disability, will be entitled to receive the entire amount in their accounts. Participants who remain in the employ of the Company after retirement age will continue to participate in the Plan. -12- 6.2 Death. If a participant dies while in the employ of the Company, the entire amount in the participant's accounts will be paid to the participant's beneficiary. If a participant dies after termination of employment, the vested amount in the participant's accounts will be paid to the participant's beneficiary. -13- 6.3 Termination for Other Reasons. (a) Benefits. If employment terminates prior to retirement age for reasons other than disability or death, the participant will be entitled to receive, in accordance with Section 6.4, the sum of: (1) The amounts credited to the participant's retirement savings account; (2) An amount equal to the "vested percentage" of the participant's deferred profit sharing account. The vested percentage will be determined on the basis of years of service and the following schedule: YEARS OF SERVICE VESTED PERCENTAGE Less than three (3) 0% Three (3) or more 100%; and (3) An amount equal to the vested amounts in the participant's incentive matching account. The Company will credit the amount of each year's bonus matching contribution to a separate account and the participant will become vested in each separate account when the participant has earned three (3) additional years of service after the end of the year in which the bonus was earned. (b) Forfeitures. Upon termination of employment, the non-vested portion of a participant's accounts will be forfeited. If the accounts have been funded, then the amount of the forfeiture will be used to reduce the Company's obligation for military service credits or to pay administrative expenses for the Plan. If a participant whose account was forfeited returns to the employ of the Company, the participant will not have any rights with respect to the amount forfeited. (c) Vesting Upon Change in Control. If there is a change in control, the accounts of all participants will become fully vested and upon termination of employment for any reason, the participants will be entitled to receive the entire amount in their accounts. For purposes of this Plan, the term "change in control" will mean an occurrence of a nature with respect to the Company that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the -14- Securities Exchange Act of 1934. Without limiting the inclusiveness of the definition in the preceding sentence, a change in control shall be deemed to have occurred as of the first day that any one or more of the following conditions is satisfied: (1) any person is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities; or (2) At any time a majority of the board of directors of the Company is comprised of other than continuing directors (for purposes of this section, the term continuing director means a director who was either (A) first elected or appointed as a director prior to the effective date of this agreement; or (B) subsequently elected or appointed as a director if such director was nominated or appointed by at least a majority of the then continuing directors); or (3) Any of the following occur: (A) Any merger or consolidation of the Company, other than a merger or consolidation in which the voting securities of the Company immediately prior to the merger or consolidation continue to represent (either by remaining outstanding or being converted into securities of the surviving entity) fifty percent (50%) or more of the combined voting power of the Company or surviving entity immediately after the merger of consolidation with another entity; (B) 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 fifty percent (50%) of the assets or earning power of the Company on a consolidated basis; -15- (C) Any liquidation or dissolution of the Company; (D) Any reorganization, reverse stock split, or recapitalization of the Company which would result in a change in control; or (E) Any transaction or series of related transactions having, directly or indirectly, the same effect as any of the foregoing; or any agreement, contract, or other arrangement providing for any of the foregoing. 6.4 Payment of Benefits. (a) Commencement Date. Benefit payments will begin or be made, as the case may be, in January of the year following the year in which the participant becomes eligible for payment. (b) Form of Payment for Payments Made After Retirement Age or Because of Death or Disability. A participant whose employment terminates after normal retirement age or because of death or disability may determine the form in which benefits may be paid by filing an application for benefits with the committee at least 15 months prior to the month in which the participant's employment terminates. The application will constitute an irrevocable election of the form of payments. If a participant does not file an application for benefits on a timely basis, the committee will determine the form of payment which may be made in any of the following ways: (1) A single lump sum payment of the entire amount in the accounts; or (2) Annual payments over a period not to exceed 10 years if payment is made on account of termination of employment for reasons other than death and over a period of not more than five (5) years if termination occurs as a result of death. Each installment payment will be equal to the balance in the accounts divided by the number of installment payments then remaining. -16- (c) Form of Payment for Other Terminations of Employment. For participants whose employment terminates prior to retirement age for reasons other than death or disability, payment of their accounts will be made in a single lump payment of the entire amount in the accounts. 6.5 Withdrawals Pursuant to Qualified Domestic Relations Orders. Benefits payable to an alternate payee pursuant to a qualified domestic relations order will be paid to the alternate payee as soon as possible after application for withdrawal has been made by the alternate payee. 6.6 Designation of Beneficiary. If a participant dies before receipt of the participant's entire account balances, death benefits will be paid to the participant's beneficiary. A participant may designate a beneficiary or beneficiaries. Each beneficiary designation will be on a form prescribed by the Company and will be effective only when filed with the Company during the participant's lifetime. Each beneficiary designation filed with the Company will cancel all beneficiary designations previously filed. If any participant fails to designate a beneficiary, or if the beneficiary dies before the participant, the Trustee will distribute the benefits to the participant's spouse if surviving and if not to the participant's estate. 6.7 Hardship Withdrawals. The Company may permit a participant who is a colleague of the Company to withdraw the participant's retirement savings contributions if the Company determines that a withdrawal is necessary to enable the participant to meet immediate and heavy financial needs and the amount necessary to meet the need is not reasonably available to the participant from other sources. Hardships may include medical expenses of the participant or dependents, purchase of a principal residence or prevention of foreclosure on the principal residence, tuition and fees of the participant or dependents for the next academic year, and prevention of eviction. The amount of any hardship withdrawal may not exceed the lesser of the amount required to correct the hardship or the amount of the retirement savings account. The Company will consider all hardship requests on a uniform basis and may establish additional rules with respect to withdrawals. A participant requesting a hardship withdrawal must have received all other withdrawals and loans available from this Plan and any other qualified plan maintained by the Company. The retirement savings contributions of a participant receiving a hardship withdrawal will be suspended during the 12-month period following the withdrawal. -17- ARTICLE VII FUND The Company may establish a supplemental retirement fund for the amounts credited under this Plan. The Company will be the owner of the fund and may invest the assets of the fund with other assets of the Company, or may invest the assets in a separate account or accounts as determined by the Company. The Company may establish a trust for the fund and transfer the assets of the fund to the trust, but the assets of the trust will remain subject to the claims of the creditors of the Company. ARTICLE VIII ADMINISTRATION 8.1 Administrator. The Company will be the plan administrator for this Plan and will be responsible for the proper administration of the Plan. The Company will have the responsibility and discretionary authority for interpreting the terms of the Plan, for determining eligibility for participation and benefits, and for determining the amount of the participant's benefits. 8.2 Indemnification. The Company will indemnify the members of the committee and any other colleagues of the Company who are deemed fiduciaries under ERISA, and hold them harmless, against any and all liabilities, including legal fees and expenses, arising out of any act or omission made or suffered in good faith pursuant to the provisions of the Plan, or arising out of any failure to discharge any fiduciary obligation imposed by ERISA other than a willful failure to discharge an obligation of which the person was aware. 8.3 Records and Reports. The Company will exercise such authority and responsibility as it deems appropriate in order to comply with ERISA with regard to records of participant's service, account balances, and the vested percentages, notifications to participants, and annual reports to governmental agencies. 8.4 Appointment of Committee. The Company may appoint a committee to assist in the administration of the Plan. The committee will consist of as many persons as may be appointed by the Company and will serve at the pleasure of the Company. All usual and reasonable expenses of the committee will be paid by the Company. If a committee is not appointed, all duties assigned to the committee in this Plan will be performed by the Company. -18- 8.5 Claims Procedure. The Company will make all determinations regarding benefits based on its interpretation of the terms of the Plan. The Company will notify the participant or beneficiary in writing if any claim for benefits is denied. The notice of denial will be mailed by certified mail, return receipt requested, to the participant or beneficiary within 90 days after receipt of the request for benefits. The notice will explain the reasons for the denial in language that may be understood by the participant or beneficiary and will specify the Plan provisions upon which the denial is based. If the denial is based on the failure of the participant or beneficiary to supply certain materials or information, the notice will so state. The notice will advise that the denial may be appealed to the committee and will include an explanation of the appeal procedure. The appeal procedure will be as follows: (a) If claimants are not satisfied with a decision of the committee, they must exhaust their administrative remedies under this Plan by filing a written notice of appeal with the committee not later than 90 days after receipt of the notice of denial; (b) Claimants or their duly authorized representatives may review any documents that are pertinent to the appeal. Claimants or their duly authorized representatives must file in writing all materials to be reviewed in the appeal process and all arguments relevant to the appeal. All materials and arguments must be filed with the notice of appeal or within 30 days after filing the notice of appeal; (c) The Company will render its decision on the appeal within 60 days unless special circumstances require an extension of time for processing, in which case a decision will be rendered as soon as possible, but not later than 120 days after receipt of a request for review. If an extension of time for review is required because of special circumstances, the Company will notify the claimant of the extension prior to the commencement of the extension. An extension of time for review will not entitle the claimant to a hearing as to the appeal. All appeal materials must be submitted in writing; and (d) The Company will advise the claimant in writing of the decision on the appeal with an explanation of the reasons for the decision in language that may be understood by the claimant with references to the plan provisions upon which the decision is based. -19- 8.6 Rules and Decisions. The committee may adopt such rules as it deems necessary, desirable or appropriate. All rules and decisions of the committee will be uniformly applied to all participants in similar circumstances. When making a determination or calculation, the committee will be entitled to rely upon its interpretation of the terms of the Plan and information furnished by a participant or beneficiary, the Company and the legal counsel of the Company. 8.7 Committee Procedures. The committee may act at a meeting or in writing without a meeting. The committee may elect one of its members as chairman, appoint a secretary who need not be a committee member, and advise the Company of such actions in writing. The secretary will keep a record of all meetings. The committee may adopt such bylaws and regulations as it deems desirable for the conduct of its affairs. All decisions of the committee will be made by the vote of the majority including actions in writing taken without a meeting. 8.8 Authorization of Benefit Payments. The committee will issue directions to the Company concerning all benefits which are to be paid pursuant to the provisions of the Plan. 8.9 Application and Forms for Benefits. The Company may require a participant to complete and file an application for a benefit and all other forms approved by the Company, and to furnish all pertinent information requested by the Company. 8.10 Facility of Payment. Whenever a person entitled to receive any benefit is under a legal disability or is incapacitated in any way so as to be unable to manage financial affairs, the Company may make payments to the person or to a legal representative, a relative or friend for the person's benefit, or the Company may apply the payment for the benefit of the person in such manner as the Company considers advisable. If a person entitled to receive benefits is a minor and the value of the benefit exceeds $5,000, the Company may delay payment of the benefit until the minor has attained the age of majority or pay the benefit to a person who has been named by a court of competent jurisdiction as fiduciary for the minor. Any payment of a benefit in accordance with the provisions of this Section will discharge all liability for the benefit under the provisions of the Plan. -20- ARTICLE IX TERMINATION AND AMENDMENT 9.1 Amendments. The Company may at any time amend any or all of the provisions of this Plan, but may not reduce the amount of a participant's account balance or the vested amount of any participant's accounts. The enterprise leader of the Company, or such other officers as may be designated by the board of directors of the Company, may amend the Plan by executing a document that expressly provides that it is an amendment to the Plan. The amendment may apply prospectively or retroactively as permitted by law and the effective date of the amendment must be stated in the document. The compensation committee of the board of directors will approve any amendment that increases the general level of benefits in the Plan. 9.2 Termination. The Plan may be discontinued at any time by the Company. Upon complete or partial termination of the Plan, including complete discontinuance of contributions, the trust will be continued to be administered as provided in this Plan. ARTICLE X NONALIENATION OF BENEFITS AND DOMESTIC RELATIONS ORDERS 10.1 Nonalienation of Benefits. No interest, right, or claim in or to any part of the trust or any benefit payable from the Plan will be assignable, transferable, or subject to sale, assignment, garnishment, attachment, execution, or levy of any kind and the Company will not recognize any attempt to so transfer, assign, sell, pledge, or levy upon the same except to the extent required by law. This provision will not apply to any "qualified domestic relations order," as defined in Section 414(p) of the Code. 10.2 Procedure for Domestic Relations Orders. Whenever the Company is served with a domestic relations order from a court of competent jurisdiction, the Company will follow the following procedure in determining whether the order constitutes a "qualified domestic relations order" that would be exempt from the general spendthrift protection of this Article: (a) The Company will notify the participant and the "alternate payees" named in the order that the order was served on the Company and that objections concerning the order must be submitted in writing within 15 days; -21- (b) The Company will determine whether the order is a "qualified domestic relations order" as defined in Code Section 414(p) and notify the participant and each alternate payee of its determination. If the Company determines that the order is a qualified domestic relations order, the Company will direct the Trustee to make payment in accordance with the order; (c) During the period in which the Company is determining the status of the order, payment of any benefits in dispute will be deferred and the amount of the disputed payments will be segregated in a separate account in the Plan. If the order is determined to be a qualified domestic relations order within 18 months after segregation of the benefits in dispute, the Company will pay the segregated amount, plus income, to the persons entitled to receive them in accordance with the order; (d) If the Company determines that the order is not a qualified domestic relations order, or if the 18 month period described in (c) has expired and the qualification issue has not been resolved, the Company will pay the segregated funds to the person or persons who would have received them if the order had not been served on the Company. If the Company determines that the order is a qualified domestic relations order after expiration of the 18 month period, the order will be applied prospectively only; and (e) The Company will notify the participant and the alternate payees of its decision concerning the qualified status of the order. Payments pursuant to the order will be made as soon as practicable after the status of the order has been determined or as soon as the amounts become payable pursuant to the provisions of Article VI of this Plan. ARTICLE XI MISCELLANEOUS 11.1 Status of Participants. No participant will have any right or claim to any benefits under the Plan except in accordance with the provisions of the Plan. The adoption of the Plan will not be construed as creating any contract of employment between the Company and any participant or to otherwise confer upon any participant or other person any legal right to continuation of employment, nor as limiting or qualifying the right of the Company to discharge any participant without regard to any effect the discharge might have upon the participant's rights under the Plan. -22- 11.2 No Interest in Company Affairs. Nothing contained in this Plan or this document will be construed as giving any participant, colleague or beneficiary an equity or other interest in the assets, business, or affairs of the Company or the right to examine any of the books and records of the Company. 11.3 Governing Law. This Plan will be interpreted, construed, and enforced in accordance with the law of the state of Michigan except to the extent preempted by ERISA. 11.4 Severability of Provisions. If any provisions of the Plan will be declared void and unenforceable, the other provisions will be severable and will not be affected thereby, and to the extent that the trust or Plan will ever be in conflict with, or silent with respect to, the requirements of any other law or regulation, the provisions of the law or regulation will govern. IN WITNESS WHEREOF, the Company has caused this Plan document to be executed this 3 day of DEC, 2001. R. J. TOWER CORPORATION By /s/ XXXXX ------------------------------- Its CORPORATE OFFICER -23- FIRST AMENDMENT TO THE TOWER AUTOMOTIVE SUPPLEMENTAL RETIREMENT PLAN THIS FIRST AMENDMENT to the Tower Automotive Supplemental Retirement Plan (the "Plan") is adopted by R. J. Tower Corporation, a Michigan corporation (the "Company"), with reference to the following: A. The Company adopted a supplemental retirement plan for a select group of its management and highly compensated employees, effective January 1,2001. B. The Company wishes to amend the Plan to increase the percentage of base pay that may be deferred under the Plan. NOW, THEREFORE, the Plan is amended as follows: 1. Section 4.2(a)(1) of the Plan is amended in its entirety to read as follows: (1) For plan years after 2001, from 1% to 100% of base salary, minus the amounts the Company is required to withhold for payroll taxes; and 2. This Amendment will be effective as of January 1, 2002. IN WITNESS WHEREOF, the Company has caused this First Amendment to be adopted this 3 day of DEC., 2001. R. J. TOWER CORPORATION By /s/ XXXXX ----------------------------- Its CORPORATE OFFICER SECOND AMENDMENT TO THE TOWER AUTOMOTIVE SUPPLEMENTAL RETIREMENT PLAN THIS SECOND AMENDMENT to the Tower Automotive Supplemental Retirement Plan (the "Plan") is adopted by R. J. Tower Corporation, a Michigan corporation, with reference to the following: A. The Company adopted a supplemental retirement plan for a select group of its management and highly compensated, effective January 1, 2001. B. The Company wishes to amend the Plan to accelerate vesting for participants whose employment terminates as the direct result of the sale of a business unit. NOW, THEREFORE, the Plan is amended as follows: 1. A new subsection (d) is added to Section 6.3 of the Plan to read as follows: (d) Accelerated Vesting. Participants whose employment terminates as the direct result of a sale of a business unit will become 100% vested in all of their accounts regardless of their years of service. 2. This Amendment will be effective as of January 1, 2003. IN WITNESS WHEREOF, the parties have caused this Second Amendment to be adopted this 14 day of January, 2003. R. J. TOWER CORPORATION By /s/ XXXXX ----------------------------- Its Total Compensation Lender THIRD AMENDMENT TO THE TOWER AUTOMOTIVE SUPPLEMENTAL RETIREMENT PLAN This Third Amendment to the Tower Automotive Supplemental Retirement Plan (the "Plan") is adopted by R. J. Tower Corporation, a Michigan corporation (the "Company"), with reference to the following: A. The Company adopted a Supplemental Retirement Plan for a select group of its management or highly compensated employees in 2001, and amended the Plan on two occasions thereafter; and B. The Company wishes to amend the Plan further to modify the eligibility requirements and the provisions for payment of benefits. NOW, THEREFORE, the Plan is amended as follows: 1. Section 3.1 is amended by adding the following sentence at the end of the current paragraph of the section: Eligible colleagues who are in the "600 Group" and who have already made the maximum elective deferral contributions allowable for the year under Code Section 402(g) will become participants in the Plan for the limited purpose of making retirement savings contributions on the first day of the next month after their date of employment. 2. Section 6.4 is amended in its entirety to read as follows: 6.4 PAYMENT OF BENEFITS. (a) Payment Upon Retirement After Retirement Age or Because of Death or Disability. A participant whose employment terminates after retirement age or because of death or disability may determine the form and timing for payment of the participant's benefits by filing an election form with the committee at least 12 months prior to the month in which the participant's employment terminates. The last election form filed by a participant at least 12 months prior to the month in which the participant's employment terminates will constitute an irrevocable election as to the form and timing of payments. If a participant does not file an election form on a timely basis, the benefits will be paid as follows: (i) If employment terminates as a result of death or disability, payment will be made in a single lump sum payment of the entire amount in the participant's accounts during January of the year following the year in which employment terminates; and (ii) If employment terminates after retirement age for reasons other than death or disability, payments will be made in a single lump sum payment of the entire amount in the participant's accounts during January of the second year following the year in which employment terminates unless the participant files with the committee, at least 12 months prior to the month in which payment would otherwise be made, an irrevocable written election to defer payment until a later date specified in the written election, in which case payment will be made in accordance with the written election. (b) Payment Upon Termination of Employment Prior to Retirement Age for Reasons Other Than Death or Disability. For participants whose employment terminates prior to retirement age for reasons other than death or disability, payment will be made in the single lump sum payment of the entire amount in their accounts during January of the year following the year in which employment terminates. 3. This Amendment will be effective as of August 1, 2003. IN WITNESS WHEREOF, the Company has caused this Third Amendment to be executed this 17th day of September, 2003. R. J. TOWER CORPORATION By: ___________________________ Its _____________________ FOURTH AMENDMENT TO THE TOWER AUTOMOTIVE SUPPLEMENTAL RETIREMENT PLAN This Fourth Amendment to the Tower Automotive Supplemental Retirement Plan (the "Plan") is adopted by R. J. Tower Corporation, a Michigan corporation (the "Company"), with reference to the following: A. The Company adopted the Plan for a select group of its management or highly compensated employees in 2001, and amended the Plan on three occasions thereafter; and B. The Company wishes to amend the Plan further to allow inservice withdrawals from the Plan subject to a penalty. NOW, THEREFORE, the Plan is amended as follows: 1. ARTICLE VI IS AMENDED BY ADDING THE FOLLOWING AS A NEW SECTION 6.8: 6.8 Withdrawal with Penalty. Participants may withdraw from their accounts from time to time; provided, however, that an amount equal to 10% of the amount withdrawn or $25,000, whichever amount is smaller, will be forfeited by the participant and returned to the Company from the participant's account at the time of the withdrawal. The amount of any withdrawal plus the 10% forfeiture cannot exceed 100% of the vested balance of the participant's accounts. Participants may exercise their right to withdraw under this section at any time as long as they have not made a withdrawal under this section during the previous six (6) months. 2. THIS AMENDMENT WILL BE EFFECTIVE IMMEDIATELY UPON APPROVAL BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF THE COMPANY. IN WITNESS WHEREOF, the Company has caused this Amendment to be executed this_________day of December, 2003. R. J. TOWER CORPORATION By: ____________________________ Its _________________ EX-31.1 5 k86671exv31w1.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 31.1 CERTIFICATION I, Kathleen Ligocki, President and Chief Executive Officer of Tower Automotive, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2004 of Tower Automotive, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 9, 2004 /s/ Kathleen Ligocki -------------------------- Kathleen Ligocki President and Chief Executive Officer EX-31.2 6 k86671exv31w2.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER Exhibit 31.2 CERTIFICATION I, James A. Mallak, Chief Financial Officer and Treasurer of Tower Automotive, Inc., certify that: 1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2004 of Tower Automotive, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 9, 2004 /s/ James A. Mallak ----------------------------------- James A. Mallak Chief Financial Officer and Treasurer EX-32.1 7 k86671exv32w1.txt SECTION 1350 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 32.1 CERTIFICATE OF THE CHIEF EXECUTIVE OFFICER OF TOWER AUTOMOTIVE, INC. I, Kathleen Ligocki, President and Chief Executive Officer of Tower Automotive, Inc., hereby certify pursuant to Rule 15d-14 (b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of title 18 of the United States Code that to the best of my knowledge and belief: (1) The quarterly report on Form 10-Q for the quarterly period ended June 30, 2004, to which this statement is filed as an exhibit, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and; (2) The information contained in this quarterly report on Form 10-Q for the quarterly period ended June 30, 2004 fairly presents, in all material respects, the financial condition and results of operations of Tower Automotive, Inc. Date: August 9, 2004 By: /s/ Kathleen Ligocki ------------------------------- Kathleen Ligocki President and Chief Executive Officer EX-32.2 8 k86671exv32w2.txt SECTION 1350 CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 32.2 CERTIFICATE OF THE CHIEF EXECUTIVE OFFICER OF TOWER AUTOMOTIVE, INC. I, James A. Mallak, Chief Financial Officer and Treasurer of Tower Automotive, Inc., hereby certify pursuant to Rule 15d-14 (b) of the Securities Exchange Act of 1934, as amended, and Section 1350 of Chapter 63 of title 18 of the United States Code that to the best of my knowledge and belief: (1) The quarterly report on Form 10-Q for the quarterly period ended June 30, 2004, to which this statement is filed as an exhibit, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and; (2) The information contained in this quarterly report on Form 10-Q for the quarterly period ended June 30, 2004 fairly presents, in all material respects, the financial condition and results of operations of Tower Automotive, Inc. Date: August 9, 2004 By: /s/ James A. Mallak ------------------------------- James A. Mallak Chief Financial Officer and Treasurer -----END PRIVACY-ENHANCED MESSAGE-----