$165,000,000 Senior Secured Credit Facilities · 2014-01-13 · RBC Capital Markets Three World Financial Center, 9th Floor 200 Vesey Street New York, New York 10281-8098 Tel: (212)

$165,000,000 Senior Secured Credit Facilities

$25,000,000 Revolving Credit Facility $140,000,000 Term Loan B Facility

CONFIDENTIAL INFORMATION MEMORANDUM JULY 2011

FOR PUBLIC INVESTORS

Joint Lead Arranger, Joint Bookrunner, and Administrative Agent

Joint Lead Arranger and Joint Bookrunner

Joint Lead Arranger and Joint Bookrunner F

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Stackpole Table of Contents

i

Table of Contents Page No.

Table of Contents ........................................................................................................................ i

Invitation to Participate.............................................................................................................. ii

Notice to Recipients.................................................................................................................. iii

Form of Authorization Letter.................................................................................................... vi

Contact List.............................................................................................................................. viii

Syndication Timetable ............................................................................................................. 17

Executive Summary ................................................................................................................. 18

Historical Financial Overview ................................................................................................. 28

Investment Highlights.............................................................................................................. 29

Stackpole Overview ................................................................................................................. 43

Industry Overview .................................................................................................................... 43

Management ............................................................................................................................. 64

Historical Financial Overview ................................................................................................. 73

Management Discussion and Analysis .................................................................................. 74

Stackpole Invitation to Participate

ii

Invitation to Participate To: Prospective Lenders to Stackpole International Inc.

On behalf of Stackpole International Inc. (“Stackpole” or the “Borrower” or the “Company”), RBC Capital Markets (“RBC CM”), BNP Paribas Securities Corporation (“BNP Paribas”) and UBS Securities LLC (“UBS,” and, collectively with RBC CM and BNP Paribas the “Joint Lead Arrangers” and “Joint Bookrunners”) are pleased to invite you to participate in a financing consisting of (i) a $25 million 5-year Revolving Credit Facility (the "Revolver"), (ii) a $140 million 6-year Senior Secured Term Loan B Facility (the "Term Loan B” and with the Revolver the "Senior Secured Credit Facilities").

RBC CM, BNP Paribas, and UBS have enclosed this Confidential Information Memorandum containing information on the Company, the transaction, and a private, forward-looking financial projection supplement.

RBC CM will accept investor commitments to the Revolver and Term Loan B until 5:00 p.m. EST on July 26, 2011. Your commitment letter should follow the format of the Form of Commitment Letter included herein and should be sent via fax or email with an original to follow to:

David Lewis RBC Capital Markets Three World Financial Center, 9th Floor 200 Vesey Street New York, New York 10281-8098 Tel: (212) 602-5278 Fax: (212) 858-8337 Email: [email protected]

The Borrower and RBC CM, in their sole discretion, will determine final allocated commitment amounts on such date selected by the Borrower and RBC CM.

You are specifically directed not to market or discuss this transaction, or distribute or otherwise disseminate the Confidential Information Memorandum or any of its contents to any other person or entity except in accordance with the provisions of the Notice to Recipients set forth herein. In addition, you are directed not to market or discuss this transaction, or distribute the Confidential Information Memorandum in the secondary market, until you have received specific notice from the Joint Lead Arrangers that secondary marketing is permitted.

We look forward to working with you on this transaction.

Sincerely,

RBC Capital Markets, BNP Paribas, and UBS

July 2011

Stackpole Notice to Recipients

iii

Notice to Recipients Re: $25 million Senior Secured Revolving Credit Facility

$140 million First Lien Senior Secured Term Loan Facility

This Confidential Information Memorandum (the "Memorandum" or “CIM”) has been prepared solely for informational purposes from information supplied by or on behalf of Stackpole International Inc. (“Stackpole” or the “Company”) and its affiliates with the assistance of the management of Stackpole and is being furnished by RBC Capital Markets1 (“RBC CM”), BNP Paribas Securities Corporation (“BNP Paribas”) and UBS Securities LLC (“UBS,” and, collectively with RBC CM and BNP Paribas the “Joint Lead Arrangers” and “Joint Bookrunners”) to you in your capacity as a prospective lender (the "Recipient") in considering the proposed Senior Secured Credit Facilities described in the Confidential Information Memorandum.

ACCEPTANCE OF THIS CONFIDENTIAL INFORMATION MEMORANDUM CONSTITUTES AN AGREEMENT TO BE BOUND BY THE TERMS OF THIS NOTICE. IF THE RECIPIENT IS NOT WILLING TO ACCEPT THE CONFIDENTIAL INFORMATION MEMORANDUM ON THE TERMS SET FORTH IN THIS NOTICE, IT MUST RETURN THE CONFIDENTIAL INFORMATION MEMORANDUM TO THE LEAD ARRANGER IMMEDIATELY WITHOUT MAKING ANY COPIES THEREOF, EXTRACTS THEREFROM, OR USE THEREOF.

Confidentiality As used herein, “Evaluation Material” refers to the Confidential Information Memorandum and any other information regarding the Company or the Senior Secured Credit Facilities furnished or communicated to the Recipient by or on behalf of the Company only in connection with the Senior Secured Credit Facilities (whether prepared or communicated by the Joint Bookrunners, the Company, their respective advisors, or otherwise) and for no other purpose.

By its receipt of this Memorandum, the Recipient agrees that it and its agents, employees, advisors, and representatives (collectively the “Representatives”) will not photocopy, reproduce, or distribute this Memorandum or any part hereof without the prior written consent of the Joint Bookrunners and Stackpole. The Recipient further agrees that it and its Representatives will keep this Memorandum and all the information contained herein confidential and will use the same solely for the purpose of evaluating the Senior Secured Credit Facilities. The Recipient will furnish this Memorandum and the information contained herein only to those of its Representatives who have the need to know the information and who are informed by the Recipient of the confidential nature of this information and agree to be bound by this confidentiality provision. The Recipient agrees to be responsible for any breach of this confidentiality provision by its Representatives or any other person to whom it transmits or provides this information.

The Recipient shall be permitted to disclose the Memorandum in the event that it is required by law or regulation or requested by any governmental agency or other regulatory authority (including any self-regulatory organization) or in connection with any legal proceedings. The Recipient agrees that it will notify the Joint Bookrunners and the Company as soon as practical in the event of any request made of the Recipient for such disclosure or any requirement of such disclosure (other than at the request of a regulatory authority), unless such notification shall be prohibited by applicable law or legal process.

The Recipient shall have no obligation hereunder with respect to any information contained in the Memorandum to the extent that such information (i) is or becomes publicly available other than as a result of a disclosure by the Recipient in violation of this agreement, (ii) is independently developed by the Recipient, or (iii) becomes available to the Recipient on a non-confidential basis from a source other than the Company or the Joint Lead Arrangers, provided that the source of such information was not known by the Recipient, after good faith enquiry, to be bound by a confidentiality agreement with or other contractual, legal, or fiduciary obligation of confidentiality to the Company or any other party with respect to such information.

1 RBC Capital Markets is a marketing name for the investment banking businesses of Royal Bank of Canada and its subsidiaries worldwide.


iv

In the event that the Recipient of the Memorandum decides not to participate in the transaction described herein, upon request of the Joint Bookrunners, such Recipient shall as soon as practicable return the Memorandum and all copies to the Joint Bookrunners, or represent in writing to the Joint Bookrunners that the Recipient has destroyed all copies of the Memorandum unless the Recipient has advised the Joint Bookrunners that they are prohibited from doing so by the Recipient's internal policies and procedures.

Information The Joint Bookrunners have not undertaken any independent investigation or evaluation of statements, assumptions, forecasts, or other information contained herein. Neither Stackpole, the Joint Bookrunners, nor their respective representatives, make any representation, warranty, or undertaking, express or implied, nor assume any responsibility or liability for the validity, accuracy, or completeness (or lack thereof) of, or for any errors or omissions in, the information contained in this Memorandum or any further notice, document, or other information (whether transmitted in writing or orally) at any time supplied in connection with the Senior Secured Facilities. Only those particular representations and warranties that may be made to any prospective lender relating to the Senior Secured Credit Facilities in the final syndicated credit facilities agreement, when, as and if executed, and subject to such limitation and restrictions as may be specified in such agreement, shall have any legal effect. The information contained in this Memorandum is summary in nature, is subject to change or amendment, and does not purport to contain all of the information about Stackpole or their operations that a potential lender might require. Neither the Joint Bookrunners, nor any of its affiliates shall have any liability related to the use of information contained in this Memorandum or any related marketing materials by any recipient.

The sole purpose of this Memorandum is to provide background information to assist the Recipient in obtaining a general understanding of Stackpole and its business and does not purport to contain all of the information that a prospective lender may desire. It is not intended to provide the basis for credit or any other evaluation and is not a recommendation by the Joint Bookrunners or Stackpole that any Recipient of this Memorandum participate in the Senior Secured Credit Facilities. The Recipient represents that it is sophisticated and experienced in extending credit to entities similar to the Company. Each Recipient of this Memorandum contemplating participating in the Senior Secured Credit Facilities must make (and will be deemed to have made) its own independent investigations and appraisal of the business, financial condition, prospects, creditworthiness, status, and affairs of Stackpole or any other person that it considers necessary.

The Memorandum includes certain forward-looking statements and forecasts provided by the Company. Any such statements and forecasts reflect various estimates and assumptions by the Company concerning anticipated results and may involve elements of subjective judgment and analysis. The forward-looking statements and forecasts are not historical facts and are based on management’s analysis of information available at the time this Memorandum was prepared on assumptions and perspectives that may be unique to the management of the Company. These forward-looking statements and forecasts involve uncertainty and risk. No representations or warranties are made by the Company or any of their affiliates as to the accuracy of any such statements or forecasts and such statements and forecasts should not be relied upon as a promise or representation as to the future. Whether or not any such forward-looking statements or forecasts are in fact achieved will depend upon future events, some of which are not within the control of the Company. Accordingly, actual results may vary from the forecasted results and such variations may be material. Stackpole does not undertake any obligation to update the forward-looking statements or forecasts contained herein to reflect actual results, changes in assumptions, or changes in other factors affecting these statements or forecasts.

Statements contained herein describing documents and agreements are summaries only and such summaries are qualified in their entirety by reference to such documents and agreements.


v

General Although the Joint Bookrunners have given their consent to the issue of this Memorandum, they assume no responsibility or liability for the accuracy or otherwise of any statements, estimates, information, or data contained in this Memorandum.

This Memorandum contains references, inter alia, to abbreviated covenants and summaries of documents, and therefore should not be relied upon without reference to the final documentation as to their full effect.

It is understood that unless and until a definitive agreement regarding the Senior Secured Credit Facilities between the parties thereto has been executed, the Recipient will be under no legal obligation of any kind whatsoever with respect to the Senior Secured Credit Facilities by virtue of this Notice except for the matters specifically agreed to herein.

The Recipient agrees that money damages would not be a sufficient remedy for a breach of this Notice, and that in addition to all other remedies available at law or in equity, the Company and the Joint Bookrunners shall be entitled to equitable relief including injunction and specific performance, without proof of actual damages.

This Notice embodies the entire understanding and agreement between the Recipient and the Joint Bookrunners with respect to the Evaluation Material and supersedes all prior understandings and agreements relating thereto. The terms and conditions of this Notice shall apply until such time if any as you become a party to the definitive agreements regarding the Senior Secured Credit Facilities and thereafter the provisions relating to confidentiality contained in such agreements shall govern. If you do not enter into the Senior Secured Credit Facilities, the application of this Notice shall terminate with respect to all Evaluation Material on the date falling eighteen months after the date hereof.

This Notice shall be governed by and construed in accordance with the law of the State of New York, without regard to principles of conflicts of law.

RBC Capital Markets, BNP Paribas, and UBS

July 2011

Stackpole Form of Authorization Letter

vi

Form of Authorization Letter July 2011 RBC Capital Markets BNP Paribas UBS Securities LLC Three World Financial Center, 9th Floor 100 Crescent Court, Suite 500 299 Park Avenue 200 Vesey Street Dallas, TX 75201 New York, NY 10171 New York, New York 10281-8098 Re: $25 million Senior Secured Revolving Credit Facility

$140 million Senior Secured Term Loan B Facility Ladies and Gentlemen:

Stackpole International Inc. (“Stackpole” or the “Company”) hereby authorizes you and your affiliates to distribute the Confidential Information Memorandum (the “Memorandum”) dated July 2011 to potential lenders who accept the conditions set forth under “Notice to Recipients” in connection with the $165 million Senior Secured Credit Facilities to be made available to Stackpole that are comprised of a $25 million Senior Secured Revolving Credit Facility (the “Revolver”) and a $140 million Senior Secured Term Loan B Facility (the “Term Loan B”) described in the Memorandum.

We have reviewed such Memorandum and its attachments and hereby confirm to you and your affiliates that (a) all information and data (excluding financial estimates, forecasts and other forward looking information (collectively, the “Projections”) and information of a general economic industry nature) that have been made available by the Company in respect of the Company and its subsidiaries and contained in this Memorandum as of the date furnished do not, taken as a whole, contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements contained therein not misleading in light of the circumstances under which such statements are made and (b) all Projections that have been prepared by or on behalf of the Company or any of its affiliates, representatives, or advisors and included in the Memorandum have been prepared in good faith based upon assumptions believed by us to be reasonable as of the date of this Memorandum. Please note, however, that such Projections may be affected by inaccurate assumptions or by known or unknown risks and uncertainties and will depend upon future events, some of which are not within the control of the Company. Consequently, such Projections may differ materially from our actual future results.

Rahim Suleman Chief Financial Officer Stackpole International Inc.

Stackpole Form of Authorization Letter

vii

Form of Commitment Letter RBC Capital Markets Three World Financial Center, 9th Floor 200 Vesey Street New York, New York 10281-8098 Attention: David Lewis Fax: (212) 858-8337 Email: [email protected]

Re: Stackpole International Inc. $25 million Senior Secured Revolving Credit Facility $140 million Senior Secured Term Loan B Facility

Ladies and Gentlemen:

We hereby confirm to you that we have completed our credit review of the referenced transaction and hereby commit to you as a lender the amount of:

$___ million to the Senior Secured Revolving Credit Facility

$___ million to the Senior Secured Term Loan B Facility

Our commitment is subject only to satisfactory credit documentation. We understand that allocations will be made at the sole discretion of Stackpole International Inc. (“Stackpole” or the “Company”) and RBC Capital Markets (“RBC CM” or the “Joint Lead Arranger”).

We agree that no secondary selling or offers to purchase will occur until the Joint Lead Arranger declares the primary syndication to be complete.

Our decision to issue our commitment is based on our independent investigation of the financial condition, creditworthiness, affairs, and status of the Company, and their subsidiaries or affiliates and not on the reliance upon any material or information provided to us by the Company or the Joint Lead Arranger, any of their respective affiliates, or advisors which, if so furnished, are hereby acknowledged by us to have been for informational purposes only and without representation or warranty.

Very truly yours,

[Name of Lender]

Stackpole Contact List

viii

Contact List

Stackpole International Inc.

1325 Cormorant Road Ancaster, Ontario L9G 4V5

Name/Title Phone Email Peter Ballantyne (905) 304-5222 [email protected] President and Chief Executive Officer Rahim Suleman (905) 304-2692 [email protected] Chief Financial Officer


ix

The Sterling Group

Nine Greenway Plaza, Suite 2400 Houston, TX 77046

Name/Title Phone Email Kent Wallace (713) 341-5754 [email protected] Partner Luc Desjardins (713) 341-5730 [email protected] Operating Partner Francis Carr (713) 341-5739 [email protected] Director Steven Looke (713) 341-5758 [email protected] Senior Associate Simon Haidamous (713) 341-5703 [email protected] Associate


x

RBC Capital Markets

Three World Financial Center 200 Vesey Street, 9th Floor New York, NY 10281

Name/Title Phone Email Industrials Investment Banking Kevin Smith (212) 437-9088 [email protected] Managing Director, Group Head Bryan Cummings (212) 428-6276 [email protected] Director Kevin Tsang (212) 428-6681 [email protected] Analyst U.S. Leveraged Finance Michael Barrish (212) 658-6104 [email protected] Director Nicholas Chong (212) 428-5417 [email protected] Associate Chris Singh (212) 437-9064 [email protected] Analyst Jacob Solomon (212) 905-5927 [email protected] Analyst U.S. Loan Capital Markets Miguel Roman (212) 858-8348 [email protected] Managing Director, Group Co-Head David Nadelman (212) 428-7936 [email protected] Managing Director Steve Shirreffs (212) 428-2397 [email protected] Associate David Lewis (212) 602-5278 [email protected] Analyst


xi

RBC Capital Markets


Name/Title Phone Email U.S. Loan Sales Denis Cullen (212) 858-8339 [email protected] Managing Director Jack McCourt (212) 618-3255 [email protected] Managing Director Rich Rothschild (212) 428-5425 [email protected] Managing Director Charlie Short (212) 618-3201 [email protected] Managing Director David Atkinson (212) 618-3204 [email protected] Director Alan Berenbaum (212) 618-3223 [email protected] Director Jason Engelberg (212) 618-3203 [email protected] Director Dan Ponder (212) 618-7721 [email protected] Director Jeff Vanefsky (212) 618-3205 [email protected] Director Robert Mattar (212) 618-7821 [email protected] Associate Charles Towers (212) 428-6278 [email protected] Associate


xii

RBC Capital Markets


Name/Title Phone Email Corporate Banking James Disher (212) 428-6224 [email protected] Director James Parisi (212) 618-7501 [email protected] Associate


xiii

BNP Paribas Securities Corporation

100 Crescent Court, Suite 500 Dallas, TX 75201

787 7th Avenue, 3rd Floor New York, NY 10019

Name/Title Phone Email Merchant Banking Group Sean Davenport (214) 969-0380 [email protected] Managing Director Matt Wyatt (214) 953-9735 [email protected] Director Jennifer Masten (214) 953-9731 [email protected] Associate Loan Syndications – Structured Finance Robbin Park (212) 471-2825 [email protected] Managing Director Erin Brown (212) 471-8233 [email protected] Vice President


xiv

UBS Securities LLC

New York Office 299 Park Avenue New York, NY 10171

Name/Title Phone Email Financial Sponsors and Leveraged Finance Origination Peter Chomyonk (212) 821-3523 [email protected] Executive Director Daniel Kelsh (212) 821-2390 [email protected] Associate Director Lee Nussbaum (212) 821-6794 [email protected] Analyst Leveraged Capital Markets John Duggan (203) 719-7207 [email protected] Managing Director Kevin Pluff (203) 719-3849 [email protected] Executive Director Rayhaneh Sharif-Askary (203) 719-6679 [email protected] Analyst


xv

Weil Gotshal & Manges LLP – Company’s Counsel

767 Fifth Avenue New York, NY 10153

Name/Title Phone Email Elaine Stangland (212) 310-8315 [email protected] Partner Julian Lista (212) 310-8936 [email protected] Associate


xvi

Shearman & Sterling LLP – Lenders’ Counsel

599 Lexington Avenue New York, NY 10022

Name/Title Phone Email Michael Baker (212) 848-4855 [email protected] Partner Randal Palach (212) 848-4965 [email protected] Associate

Stackpole Syndication Timetable

17

Syndication Timetable

U.S. HolidayU.S. Holiday

Key Dates

July 2011S M T W T F S

1 23 4 5 6 7 8 910 11 12 13 14 15 1617 18 19 20 21 22 2324 25 26 27 28 29 3031

July 2011S M T W T F S

1 23 4 5 6 7 8 910 11 12 13 14 15 1617 18 19 20 21 22 2324 25 26 27 28 29 3031

August 2011

31302928272625242322212019181716151413121110987654321SFTWTMS

August 2011

31302928272625242322212019181716151413121110987654321SFTWTMS

Indicative Date Event

July 12th Investor Meeting Date: July 12th, 2011 Time: 9:30 AM EST Registration / 10:00 AM EST Meeting Location: The St. Regis New York

Fontainebleau Suite Two East 55th Street New York, NY 10022

US/Canada Dial-In Number: (800) 678-5699 International Dial-In Number: +1 (416) 981-9094 Reservation Number: 21532125 US/Canada Replay Number: (800)-558-5253 International Replay Number: +1 (416) 626-4100 Reservation Number: 21532125 Replay Dates: July 12 – July 26, 2011

July 26th Commitments due and credit documentation posted

July 29th Comments on credit documentation due

August 3rd Closing and funding

Stackpole Executive Summary

18

Executive Summary Transaction Overview On July 7th, 2011, the Sterling Group (“Sterling” or the “Sponsor”) entered into a definitive agreement with Tomkins Ltd. to acquire its Stackpole International Inc. division (“Stackpole" or the "Company"), for a total purchase price of $285.0 million (excluding transaction costs), or 5.7x 5/31/11 LTM Adjusted EBITDA of $50.3 million (the "Transaction").

The Transaction will be financed with (i) a $25.0 million 5-year Senior Secured Revolving Credit Facility (the "Revolver"), (ii) a $140.0 million Senior Secured 6-year Term Loan Facility (the "Term Loan”, and with the Revolver, the “Senior Secured Credit Facilities”), (iii) a $45.0 million 7-year Senior Subordinated Loan Facility and (iv) $116.4 million of contributed equity from the Sponsor. The Revolver is expected to be undrawn at close.

Pro forma for the Transaction, LTM 5/31/11 Total Senior Secured Leverage and Total Leverage will be 2.78x and 3.68x, respectively. The pro forma capital structure represents total sponsor equity to pro forma capitalization of approximately 39%.

In conjunction with the Transaction, the Borrower has engaged RBC Capital Markets (“RBC CM”), BNP Paribas Securities Corporation (“BNP Paribas”), and UBS Securities LLC (“UBS”) to act as Joint Lead Arrangers and Joint Bookrunners to syndicate the Senior Secured Credit Facilities.

Stackpole Overview Stackpole, headquartered in Ancaster, Ontario, is a leading supplier of a broad range of critical, highly-engineered transmission and engine oil pumps and powdered metal (“PM”) components to original equipment manufacturers (“OEM”) and their Tier 1 suppliers. Stackpole is a market leader in both of its two product segments, Oil Pumps and Powdered Metal, and has established a long-standing, proven track record with 20 years of pump and 55 years of powdered metal components manufacturing experience. Stackpole holds the #1 market position in fixed displacement pumps and #1 market position in variable displacement pumps in North America. In addition Stackpole is the #2 supplier of highly-engineered powdered metal products in North America.


19

With eight manufacturing facilities in North America, Europe, China and Korea, the Company serves its core markets with high-quality regional manufacturing and in-house design, development, and testing capabilities. OEM customers rely on the Company’s proprietary ability in designing and producing highly durable components for their most critical transmission and engine applications on widely marketed vehicle platforms, which have an average platform lifecycle of 10 – 15 years. Stackpole currently supplies to approximately 20 different platforms, each of which is used across multiple vehicle models, resulting in exposure to over 400 nameplate vehicles. Stackpole currently generates 97% of its revenue from North America and is well positioned to capture incremental growth opportunities in Europe and Asia. For the LTM period ended 5/31/11, Stackpole generated revenue of $285.8 million and Adjusted EBITDA of $50.3 million.

Stackpole North American Market Share

Market Share in N.A. Non-Captive Oil Pumps

Stackpole26%

Other21%

1%

1%

1%

4%

4%

20%

23%

Market Share in N.A. Powdered Metal

Others43%

Stackpole13%

5%5%

4% 5%

7%

18%

Source: Management Estimates.


20

Global Manufacturing Footprint

Legend

Manufacturing

Technical Centers

Joint Venture

Corporate Headquarters

Sales Office

Stratford, Ontario

Ancaster, Ontario

Mississauga, Ontario

Izmir, Turkey

Aachen, Germany

Ochang, South Korea

Beijing, China

Shanghai, China

Pumps

PM

Rochester Hills, Michigan

Legend

Manufacturing

Technical Centers

Joint Venture


Sales Office

Stratford, Ontario

Ancaster, Ontario


Izmir, Turkey

Aachen, Germany

Ochang, South Korea

Beijing, China

Shanghai, China

Pumps

PM


EP Mississauga, ON

EP Ancaster, ON

Izmir, Turkey

CSD Stratford, ONAGD Mississauga, ON

PMC Ancaster, ON

Halla StackpoleOchang, Korea

Halla StackpoleBeijing, China

Oil Pumps Facilities

Powdered Metal Facilities


21

Engineered Products Division (Oil Pumps) (48% of LTM 5/31/11 Total Revenue)

Stackpole’s extensive range of oil pumps is a critical component to the operation of automotive engines and transmissions, ensuring adequate lubrication throughout all ranges of the drive cycle. The Company has over 20 years of experience in designing and manufacturing highly complex oil pumps based on the complex engineering requirements of OEM customers. Stackpole produces 17,000 fixed and variable oil pumps per day in North America, making it one of the largest oil pump producers in the region and one of the top three players in the world within the non-captive market, which represents 70% of the overall pump market. Stackpole is known for pioneering the commercialization of variable vane pump technology more than 18 years ago and is the current market leader in variable displacement pumps, with over 21 million units produced to date. Variable displacement technology has been shown to improve an automobile’s fuel efficiency by 1–2% over fixed displacement technology and is expected to be a driver of future sales growth given increased regulatory and consumer trends favoring fuel efficiency. For LTM 5/31/11, the oil pumps segment generated revenue of $152.5 million.

Oil Pumps (48% of LTM 5/31/11 Total Revenue)

Transmission Oil Pumps

Engine Oil Pumps

Projected Variable Vane Penetration

12

4562

18

7287

222 32

0255075

100

2011 2015 2018

Pene

tratio

n (%

)

North America Europe Asia Source: IHS and management estimates.


22

Powdered Metal (52% of LTM 5/31/11 Total Revenue)

Stackpole’s highly engineered powdered metal components are widely used in critical applications such as transfer cases, automatic and manual transmissions, sprockets, clutch components, assemblies and pump components. Stackpole has been a leader in the North American PM manufacturing industry for 55 years and is the second largest automotive PM producer in North America. The Company is recognized widely as a technical leader in the metallurgical formulations and is one of the few suppliers that can offer customized, proprietary “black box” PM solutions suited for high-tolerance, critical applications. In addition, as a technology-driven supplier, Stackpole’s unique capabilities in PM enable the production of lighter weight parts that are most suited for the production of smaller engines and fuel efficient vehicles. As the Company also supplies key components to its oil pumps segment, the arrangement provides Stackpole with a unique advantage in competing with other pump manufacturers. For LTM 5/31/11, the Powdered Metal segment generated revenue of $164.0 million.

Powdered Metal (52% of LTM 5/31/11 Total Revenue)

Carriers

Gears and Sprockets

Clutch Components

Pump Components

Superior Tensile Strength While Reducing Weight by 10% and Reducing Material Waste by 20-30%

8 9

2325

0

5

10

15

20

25

30

7.0g/cc 7.2g/cc

Impa

ct S

treng

th (J

)

Conventional FC 0208Stackpole's Fe1Mn0.7C

480520

590670

0

100

200

300

400

500

600

700

800

7.0g/cc 7.2g/cc

Tens

ile S

treng

th (M

Pa)



23

Sources & Uses and Pro Forma Capitalization The following tables outline the estimated sources and uses of funds and pro forma capitalization for the transaction at closing:

Sources & Uses

SOURCES $MM USES $MM

Revolver ($25 MM) -$ Purchase Price 285.0$ Term Loan B 140.0 Transaction Costs 16.4 Senior Subordinated Loan Facility 45.0 Contributed Equity 116.4

Total Sources 301.4$ Total Uses 301.4$

Pro Forma Capitalization

$MM xEBITDAAmount % Cap LTM 5/31/11

Revolver ($25 MM) - 46.4% 2.8xTerm Loan B $140.0Total Sr. Secured Debt $140.0 46.4% 2.78xSenior Subordinated Loan Facility 45.0 0.89xTotal Debt $185.0 61.4% 3.68xContributed Equity 116.4 38.6% 2.3xTotal Capitalization $301.4 100.0%

Adjusted LTM EBITDA $50.3


24

Summary Term Sheet

Summary Terms and Conditions - Senior Secured Credit Facilities

Borrower: Sterling Powertrain International, ULC (the “Borrower”)

Guarantors: All current and future wholly-owned restricted subsidiaries (subject to certain customary exceptions)

Security: First priority pledge of the equity interests of the Borrower and each wholly-owned direct or indirect subsidiary of the Borrower and of each Guarantor and perfected security interests in, and mortgages on, substantially all tangible and intangible assets of the Borrower and each Guarantor (subject to certain customary exceptions)

Purpose: To finance the acquisition, to pay related transaction fees and expenses, and for general corporate purposes

Facilities: $25 million Revolving Credit Facility (the “Revolver”)

$140 million Term Loan Facility (the “Term Loan”)Tenor: Revolver: 5.0 years

Term Loan: 6.0 years Pricing: TBD

LIBOR Floor: TBD

Upfront Fee/OID: TBD

Revolver Commitment Fee: 62.5 bps per annum

Amortization: Term Loan: 1% per annum with the balance due at maturity

Mandatory Payments: 50.0% of the Borrower's annual excess cash flow (with step-downs based on the Total Leverage Ratio TBD)

100% of net cash proceeds of all non-ordinary course asset sales or other dispositions of property (subject to customary reinvestment rights and exceptions)

100% of the net cash proceeds of insurance and issuances of debt obligations (subject to customary exceptions)

Affirmative and Negative Covenants:

Customary for facilities and transactions of this type

Financial Covenants: Maximum Total Leverage Ratio

Minimum Interest Coverage Ratio

Borrower: Sterling Powertrain International, ULC (the “Borrower”)

Guarantors: All current and future wholly-owned restricted subsidiaries (subject to certain customary exceptions)

Security: First priority pledge of the equity interests of the Borrower and each wholly-owned direct or indirect subsidiary of the Borrower and of each Guarantor and perfected security interests in, and mortgages on, substantially all tangible and intangible assets of the Borrower and each Guarantor (subject to certain customary exceptions)

Purpose: To finance the acquisition, to pay related transaction fees and expenses, and for general corporate purposes

Facilities: $25 million Revolving Credit Facility (the “Revolver”)

$140 million Term Loan Facility (the “Term Loan”)Tenor: Revolver: 5.0 years

Term Loan: 6.0 years Pricing: TBD

LIBOR Floor: TBD

Upfront Fee/OID: TBD

Revolver Commitment Fee: 62.5 bps per annum

Amortization: Term Loan: 1% per annum with the balance due at maturity

Mandatory Payments: 50.0% of the Borrower's annual excess cash flow (with step-downs based on the Total Leverage Ratio TBD)

100% of net cash proceeds of all non-ordinary course asset sales or other dispositions of property (subject to customary reinvestment rights and exceptions)

100% of the net cash proceeds of insurance and issuances of debt obligations (subject to customary exceptions)

Affirmative and Negative Covenants:

Customary for facilities and transactions of this type

Financial Covenants: Maximum Total Leverage Ratio

Minimum Interest Coverage Ratio

Please see Intralinks posting for detailed Term Sheet.

Senior Secured Credit Ratings

Rating Moody's Standard & Poor'sCorporate Family Rating B2 B+Revolver B1 BB-Term Loan B B1 BB-


25

Sponsor Overview

Founded in 1982, The Sterling Group is a private equity investment firm that targets controlling interests in basic manufacturing, industrial services and distribution companies. Typical enterprise values of these companies range from $100 to $500 million. In March 2010, Sterling closed Sterling Group Partners III, L.P. (“Fund III”) at $820 million. With the close of Fund III, Sterling has approximately $1.3 billion in committed capital under management.

The firm’s success earned it the distinction of being named #12 of 317 General Partners by Dow Jones Private Equity News for 2010. The firm has generated superior investment performance over a 29 year period including:

39 middle-market platform investments (including 19 carve-outs) and more than 30+ add-on acquisitions

4.4x return on exited transactions throughout history 60 - 80% of returns over 29 years have been driven by operational improvements

Sterling targets businesses where it has identified opportunities to help a company reach its potential. Prior to investing in a business, Sterling identifies specific, quantifiable initiatives to grow the company’s cash flows either through revenue growth opportunities or through cost reduction initiatives. In Stackpole’s case, Sterling sees significant opportunities to grow revenues by transitioning the business to a standalone enterprise and through further expansion in Europe and Asia as well as into new product markets. Sterling has significant experience in European and Asian expansion, via former portfolio company Hudson, and current portfolio companies UFS and Velcon.

Furthermore, as one of the premiere operationally focused middle market sponsors, Sterling has experienced success in similar carve out transactions. In 2001, Sterling acquired Exopack, a leading provider of flexible packaging products, from International Paper. Sterling recognized that allowing Exopack to operate on a standalone basis would allow the company to improve its operating margins, which were below the industry average. Sterling assisted Exopack with its separation from International paper, including recruiting senior personnel. When Sterling sold the company to Sun Capital Partners in October 2005, Exopack had demonstrated strong revenue and EBITDA CAGRs from 2001-2005 of 9.8% and 14.7%, respectively. Sterling was able to generate a 4.0x return on its initial investment in Exopack.

Sterling is partnering on this transaction with Current Capital, which has extensive experience and relationships in the automotive sector.

Representative Portfolio Companies


26

Sterling Investment Rationale

New vehicle production levels are currently below the long-term average while vehicle age is oldest in historyThe industry is poised for continued growth over next 3-5 years The Company is positioned to benefit from trends towards increased fuel efficiency

Opportunistic Time To Invest in Auto Industry

Best-in-class compared to other middle-market companies of this size Management team will be energized and motivated to grow business as a standalone entity

Excellent Management Team

98% of projections represent existing, booked business - $2.0+ billionThe ramp up of existing, locked-in business will continue to drive EBITDA growthNew contract wins and international growth represent additional upside

Booked, Contracted Business Drives Returns

From 2008-2010, the Company showed remarkable resilience, successfully grew EBITDA, maintained margins and won market share versus competitorsThe Company considerably outperformed the overall automotive market

Resilient Financial Performance During Downturn

Platform lifecycle typically 10-15 years which includes 3-5 years lead planning time Mid-cycle supplier re-sourcing is difficult and unlikely on major programsVolumes and pricing as sole source supplier protected by highly engineered nature of productsSubstantial upfront capital investments required given OEM specifications for parts

High Barriers to Entry and High Switching Costs


27

Auto Supplier Perceptions vs. Stackpole

Through each phase of extensive due diligence on Stackpole, Sterling became increasingly convinced of the Company’s value proposition due to the following key competitive differentiators:

Volumes expected to grow much quicker than projected in North American auto due to the platform ramp-ups and growth in Europe and Asia

“Automotive suppliers' volumes typically track North American automotive production”

Initial Perception of Automotive Suppliers

The Stackpole Difference

“Commoditized products” Highly engineered products, core to a vehicle’s engine and transmission

“Products sourced competitively from multiple suppliers”

Nearly all major platforms are sole-sourced

“Short product lifecycles of 5 years or less”

10-15 year product lifecycles

“Single-digit, declining margins” Double-digit, strengthening EBITDA margins

“Dramatic declines in profitability during the recession”

Growth in both revenue and EBITDA from 2008-2010. Significant outperformance vs. industry

“Lack of innovation and declining growth prospects”

Innovation of the fuel-efficient variable vane pump, providing significant growth potential domestically and in Europe / Asia

“Poor industry fundamentals” Auto industry healthier than it has been in years

Volumes expected to grow much quicker than projected in North American auto due to the platform ramp-ups and growth in Europe and Asia

“Automotive suppliers' volumes typically track North American automotive production”

Initial Perception of Automotive Suppliers

The Stackpole Difference

“Commoditized products” Highly engineered products, core to a vehicle’s engine and transmission

“Products sourced competitively from multiple suppliers”

Nearly all major platforms are sole-sourced

“Short product lifecycles of 5 years or less”

10-15 year product lifecycles

“Single-digit, declining margins” Double-digit, strengthening EBITDA margins

“Dramatic declines in profitability during the recession”

Growth in both revenue and EBITDA from 2008-2010. Significant outperformance vs. industry

“Lack of innovation and declining growth prospects”

Innovation of the fuel-efficient variable vane pump, providing significant growth potential domestically and in Europe / Asia

“Poor industry fundamentals” Auto industry healthier than it has been in years

Stackpole Historical Financial Overview

28

Historical Financial Overview

Year Ending December 31,($ in millions) 2008 2009 2010 LTM 5/31/11Revenue

Oil Pump $91.6 $82.9 $127.0 $152.5Powdered Metal 99.0 89.1 135.8 164.0Corporate and Other Adjustments (1) (15.4) (9.6) (14.6) (30.7)

Total Revenue $175.2 $162.4 $248.2 $285.8

Oil Pump Revenue % Growth (9.5%) 53.2% NMPowdered Metal Revenue % Growth (10.0%) 52.4% NMTotal Revenue % Growth (7.3%) 52.8% NM

Total Gross Profit $31.5 $35.1 $56.4 $58.9% Margin 18.0% 21.6% 22.7% 20.6%

Adj. EBITDA (2) $19.8 $18.4 $46.1 $50.3% Margin 11.3% 11.3% 18.6% 17.6%

Capital Expenditures $17.4 $10.2 $25.3 $28.1% Revenue 9.9% 6.3% 10.2% 9.8%

Key Balance Sheet Items:Inventory $11.2 $8.0 $15.8 NAAccounts Receivable 26.3 34.5 43.9 NANet PP&E 134.1 152.0 163.4 NA

(1) Primarily relates to intercompany sales from PM to pump division. (2) Includes pro forma standalone costs. Refer to Adjusted EBITDA reconciliation on page 80 for summary details of adjustments.

Stackpole Investment Highlights

29

Investment Highlights

98% of revenue forecast accounted for through existing, booked business, which is expected to renew through 2016 - $2.0+ billion

Substantial revenue visibility due to long-lived nature of platform lifecycle (15-20 years)

Limited in-cycle supplier switching due to “black box” design, upfront costs and long-lead time to validate a new supplier

Substantial Revenue Visibility

Sole source supplier to significant platforms that underpin approximately 400+ nameplate vehicles, including a number of long-standing, industry best-selling models

Stackpole is protected from shifting consumer demand as its components are diversified across both vehicle pricing and size spectrums

Company’s highly diversified exposure affords growth across multiple regions, models, long-standing platforms as well as new development platforms

Highly Diversified by Product Type, Platform, and Vehicle Nameplate

Incumbent supplier to top OEM customers; decade-long customer relationships with GM (35 years), Ford (27 years) and Chrysler (22 years)

Given critical nature of powertrain products, OEMs want proven supplier and incumbent suppliers such as Stackpole have significant advantages over new entrants

Deeply integrated into OEMs’ key platforms given significant upfront investments and hard-to-replicate “black-box” design

Deep Customer Relationships with Well-Entrenched Leading Platform Positions

Stackpole’s leading technology and long-standing incumbent supplier track record provide a significant competitive advantage over its new market entrants

20 years of oil pump and 55 years of powdered metal manufacturing experience

Strong North American market leadership with #1 market share in non-captive fixed displacement pumps and #1 market share in non-captive variable displacement pumps

#2 market share in powdered metal components in North America

Leading North American Supplier of Highly Engineered Automotive Pumps & Powdered Metal Products


30

Majority of long-term contracts contain material pass-through pricing provisions

Methodical and disciplined approach to capital investments - excellent historical payback and return on growth capital expenditures

- Ability to stage capex, spending only when new business is awarded

Post-transaction, FCF improvements from favorable tax treatment as a result of asset basis step-up and the associated tax shield benefit

- Cumulative $5 million in cash taxes paid during projection period

Senior debt pays down 100% in five years under conservative assumptions

Solid Free Cash Flow Generation

Resilient financial performance as indicated by outperformance against automotive industry in downturn: 2009 revenue decline of 7% versus revenue declines by Ford of 19% and GM of 30%

Revenue grew from $175 million in 2008 to $248 million in 2010, a CAGR of 19%

Achieved significant margin improvements through cost initiatives, automation projects, redesign programs and new market share gains through launches of major programs from 2008 - 2010

Strong Historical Financial Performance

Stackpole has valuable asset coverage supported by approximately $221 million in current assets and net PP&E

Replacement value for plants estimated much higher by management

Owns 7 of its 8 global manufacturing facilities which will support strong recovery value

Significant Asset Coverage

Senior management has an average of 19 years in the industry and 7 years with the Company

Management energized and motivated by substantial upside associated with running as a standalone entity

Sterling is an operationally-focused sponsor with significant experience investing in manufacturing and carve-outs (19 of 39 transactions) and has historically achieved 4.4x return on investments

Experienced Management Team with Leading Sponsor

New vehicle production levels are currently well below the long-term average while vehicle age is the oldest, suggesting significant pent-up demand for new vehicles (10.8 years vs. 9.5 year average since 1999)

Increased OEM outsourcing to suppliers; 70% of automotive oil pump and PM market is non-captive, expected to increase to 80% by 2015

Increased OEM demand for fuel-efficient powertrain components, advantage for Stackpole as it is a leader in fuel-efficient variable vane oil pump technology

North American light vehicle production of 12.2 million units in 2010 vs. long-term average of 14.8 million units

Positive Automotive Industry Fundamentals


31

Leading North American Supplier of Highly Engineered Automotive Pumps & Powdered Metal Products

Stackpole has established a long-standing track record as a leading supplier with 20 years of oil pump and 55 years of powdered metal manufacturing experience. The Company is the North American market share leader for highly-engineered automotive pumps in the important non-captive segment, which accounts for 70% of the market. Stackpole produces over 17,000 oil pumps per day in North America, making it one of the largest non-captive automotive oil pump producers and one of the top three players in the world. Stackpole is #1 in non-captive fixed displacement pumps with 26% market share and #1 in non-captive variable displacement pumps with 64% market share. Within the variable displacement pump market, Stackpole led the commercialization of the industry’s first variable displacement pump 18 years ago, a technology that is proven to improve an automobile’s fuel efficiency by 1-2% over fixed displacement technology and increasingly favored by regulatory and consumer trends. As the world’s largest variable vane pump producer with over 21 million installed units, Stackpole is well-positioned to maintain market leadership and gain new market share.

With over 47 million powdered metal components produced in 2010, Stackpole is the second largest powdered metal supplier in North America with 13% market share. The Company possesses broad PM technological expertise that includes patent-protected processes in raw material blends, sophisticated product design capabilities such as selective densification, patented compacting processes and high temperature sintering and vacuum-carburizing heat with best-in-class manufacturing capabilities. Stackpole has consistently achieved world-class Parts Per Million (“PPM”) ratings of less than ten across all product lines and a delivery rating of approximately 100% to OEM customers. The Company’s proprietary technology and processes produce products with distinct advantages over the competition, including superior tensile strength, a 20-30% reduction in material wastage, and a 10% reduction in weight vs. wrought steel parts.

North American Market Share

Market Share in N.A. Non-Captive Oil Pumps

Stackpole26%

Other21%

1%

1%

1%

4%

4%

20%

23%

Market Share in N.A. Powdered Metal

Others43%

Stackpole13%

5%5%

4% 5%

7%

18%



32

Substantial Revenue Visibility

As a leading supplier of oil pumps and powdered metal components to engine and transmission platforms, Stackpole benefits from substantial revenue visibility associated with the long-lived nature of the platform lifecycle. A typical engine and transmission platform lifecycle, due to its critical powertrain function, spans over 10 – 15 years with very limited in-cycle supplier switching. In-cycle switching is typically prompted by significant quality issues and entails substantial time and costs by OEM customers to test and qualify a new supplier. The long term production schedule of each platform provides a predictable ramp-up and stable revenue growth for Stackpole. The Company has accounted for 98% of its revenue forecast through existing, contracted business, which is expected to renew through 2017 and beyond.

Stackpole typically begins working with an OEM 2-3 years in advance of initial production to plan capacity requirements in multiple phases across a seven to ten year volume production window – each phase being an incremental uplift in production volumes. For example, Stackpole started working with Chrysler in 2004 on Pentastar, a new variable displacement engine oil pump. The Company was awarded the business in 2006 and started shipping units in 2009 at very low volumes. As various vehicle platforms have migrated to the new Pentastar engine platform (as planned), volumes have ramped to more than 500,000 units in 2011 and are expected to grow to more than 700,000 units by 2013. The underlying vehicle migration timing is planned by Chrysler and underlying vehicle demand is diversified across multiple nameplates, protecting Stackpole from shifting consumer trends. For example, the parts for Pentastar will be used across 28 nameplate vehicles. Given continued recovery in production volume and contracted pricing, Stackpole is positioned to benefit from future incremental volume growth.

Booked vs. Targeted Business

100% 100% 100% 97%92%

8%

0%

25%

50%

75%

100%

2011 2012 2013 2014 2015

Booked Revenue Targeted Business

3%


33

Highly Diversified by Product Type, Platform and Vehicle Nameplate

Stackpole is the sole source supplier to significant platforms that support approximately 400 different nameplate vehicles including long-standing, best-selling models. The Company’s highly diversified exposure to multiple vehicle nameplates positions Stackpole for aggregate growth across multiple regions, models and development platforms. Automotive OEMs increasingly utilize single engine and transmission platforms to meet specific needs globally in order to minimize costs and streamline development, and optimize commonality of powertrain components. As a leading supplier to these critical and multi-vehicle platforms, Stackpole’s growth is correlated to growth in volume of best-selling vehicles as well as exposure to other new vehicle brands and high-growth regions. Stackpole is also protected from shifting consumer demand trends as the components it supplies are utilized in a variety of vehicle types across both size and price spectrums. For example, Stackpole supplies fixed displacement pumps to 6R transmission platform which is used in Ford's best-selling F-150 truck, Ford Mustang, Ford Econoline, Ford Ranger, and Ford Crown Victoria as well as higher end models such as Ford Expedition and Lincoln Navigator. In a similar example for powdered metal components, Stackpole supplies to the GF-6 platform which is used in the Chevrolet Captiva, Chevrolet Malibu, Chevrolet Equinox, Chevrolet Cruze and Chevrolet Sonic. As OEM customers continue to favor shared powertrain technology, incumbent suppliers with long-standing reputations such as Stackpole become increasingly critical partners in the OEM supply chain.

Illustrative Diversity of GF-6 Components Across Different Vehicles

Selected Consumer Vehicles

Backing Plates

Carriers

GF6 Transmission

Chevrolet Captiva - China

Chevrolet Cruze - WorldChevrolet Equinox – NA

Opel Astra – Europe, South AfricaBuick Excelle – China

Chevrolet Astra – Latin AmericaChevrolet Sonic – NA (2012)

Chevrolet Malibu – NA


34

2011E Sales by Platform

6L Group14%

6T70 / 6F10%

6R16%

GF-69%

DV68%

GF6 Carriers7%

Pentastar7%

HFV64%

Other18%

Carrier Line3%

6L Family2%

L850 VVT2%

Vehicles Served by Platform

6L Group(14% of Sales)

BMW1-Series & 3-SeriesBMW X1 / X3 / X5BMW Z4Buick Park AvenueCadillac ATS / CTS / Escalade / STS / XTSChevroletAvalanche / Camaro / Colorado / Corvette / Express /Silverado / Suburban / TahoeGMCCanyon / Savana / Sierra /Yukon

6T70 / 6F(10% of Sales)

BuickGL8 / LaCrosse / Regal / EnclaveCadillacSRX / STS / XTS / E-CUVChevrolet Captiva Sport / Equinox / ImpalaMalibu / D-CUV / TraverseGMCTerrain / AcadiaSaab 9-4X FordC-Max / Edge / Escape / Explorer Flex / Focus / Fusion / GalaxyKuga / Mondeo / Taurus Transit Connect LincolnC-CUV / E-CUV / MKC / MKS / MKTMKX / MKX / MKZ / MKZMazda Tribute

GF-6(9% of Sales)

BuickEncore / Excelle / Alpheon/Excelle / GL8 / LaCrosse / Regal / Verano / Anthem ChevroletAveo / B-CUV / Cruze / Gentra Lova / Sonic /Captiva / Epica Malibu / Captiva / Equinox / Impala DaewooLacetti Premiere / Matiz CreativeMPV7 / Tosca / Tosca / WinstormHolden CruzeOpelAntara / Astra / Calibra / CorsaInsignia / Meriva / ZafiraRoewe750 / D-SedanGMCTerrain

6R(16% of Sales)

FordF-150E-SeriesEverest ExpeditionExpedition EL MustangRangerTransit LincolnNavigatorMazdaBT-50


35

Deep Customer Relationships with Well-Entrenched Important Platform Positions

Stackpole is an incumbent supplier to its top OEM customers and enjoys decade-long customer relationships with GM (35 years), Ford (27 years) and Chrysler (22 years). Over the years, as OEMs have migrated to more global powertrain platforms and added an increasing number of vehicles to each platform, the powertrain’s system components and the supply chain supporting the powertrain have become increasingly crucial to an OEM’s success. As the powertrain is the centerpiece of the vehicle platform, Stackpole’s status as the sole source supplier for all of its pumps and the majority of its powdered metal components further affirms its industry leading reputation for best-in-class, proven durability and delivery. The Company’s deep relationships are strengthened by the long-lived nature of powertrain platform lifecycle which spans over 10-15 years, during which Stackpole’s highly customized and engineered components are deeply integrated across 20 platforms supporting over 400 widely marketed nameplate vehicles.

Stackpole has a symbiotic, mutually beneficial and heavily entrenched relationship with its customers. Due to the critical function of powertrain components, OEMs want proven technologies from proven suppliers, and established incumbent suppliers such as Stackpole have significant competitive advantages over any new market entrants. Other high barriers to entry include the proprietary nature of the technology that Stackpole employs in meeting highly specified requirements of OEMs, otherwise known as the “black box” nature of the product design. Since Stackpole owns the technology and design blueprint, the “black box” nature from a customer’s perspective makes it difficult for the customer to switch supplier mid-cycle to fulfill the same exact requirements. High start-up costs such as upfront capital expenditures, where both Stackpole and the customer make substantial upfront capital expenditures to support a given platform and vehicle design, as well as a 3-year specification and validation process before any cash flows can be realized represent cost prohibitive barriers and long-lead times for any new competitors. Once a powertrain program is underway, it is very difficult for an OEM to switch suppliers since changing the key components of an engine or transmission would have ripple effects throughout the design that would be highly costly with significant time delay. Due to Stackpole’s strong relationships and proven track record, the Company in its entire history has very rarely had a customer switch supplier during a platform lifecycle.

Top Customers & Select Platform Summary

Length of Relationship

% of 2010 Revenue

35 46%

27 27%

22 11%

10 5%

8 3%

5 2%

14 2%

3 1%

1 -

1 -

Platform Customer Illustrative End Vehicle

NameplatePM /

PumpSole

SourceProgram End Date

6R Ford F150 Pump Yes 2017+

HFV6 GM Chevrolet Traverse Pump Yes 2015

6T70 / 6F GM / Ford GMC Acadia / Ford Taurus Pump Yes 2017+

Pentastar Chrysler Jeep Cherokee Pump Yes 2017+

DV6 PSA/Ford Peugot 301 Pump Yes 2016

GF-6 GM Chevrolet Cruze PM No 2017+

Carrier Line Magna Various Magna Platforms PM Yes 2017+

6L Group GM Chevrolet Silverado PM Yes 2017+


36

Positive Automotive Industry Fundamentals

Following one of the most severe contractions ever experienced by the global automotive market in 2008 through 2009, the industry is in the early stages of recovery as a result of renewed end market demand and operational and cost restructuring among the largest OEMs. From a long-term perspective, the automotive industry has been relatively stable over the last thirty years. Over the last twenty years, North American vehicle production has averaged 14.8 million vehicles per year. Vehicle production levels in 2009 were the lowest in twenty years at 8.8 million, indicating that a recovery to the mean as well as further growth will provide a significant uplift to the supplier industry. 2010 industry volume has improved significantly relative to 2009, as excess capacity has been reduced with the decline in dealer inventory levels. This positive momentum is also expected to continue in the next few years due to the increasing age of cars on the road and the return of consumer confidence, which is highly correlated with auto sales.

In 2010, the average age of a car on the road was over 10 years, the highest it has ever been. Aging vehicle population remains a driver of pent up demand for new vehicles, and as consumer confidence continues to recover, production volume is poised for a strong, sustainable recovery trajectory. Stackpole’s largest OEM customers (Ford, GM and Chrysler) are the healthiest they have been in years with significant end market demand, better balance sheets and an improved vehicle portfolio.

Currently, 70% of the market for automotive pumps and 100% of the market for powdered metal components is non-captive, and this percentage for automotive pumps is projected to grow to 80% by 2015 as automotive manufacturers continue to outsource to reduce cost, enhance flexibility and benefit from product innovation driven by specialized suppliers. In addition, recovery is also driven by strong secular emerging markets demand driving additional upside for global OEMs and suppliers. Higher energy costs and more stringent emissions regulation are also driving OEM demand for fuel-efficient powertrain components, which should benefit Stackpole given its long-standing market leadership in variable vane oil pump technology.

North American Production

12.5

11.7 12

.7 14.2 15

.7

15.3

15.4 16

.1

16.0

17.6

17.7

15.8 16

.7

16.2

16.2

16.3

15.9

15.4

12.9

8.8

12.2 13

.0 14.3 14

.9 15.7 16

.3

0

4

8

12

16

20

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Uni

ts (m

illion

s)

1990 – 2010 Average: 14.8M Units

Source: IHS


37

Average Age of US Vehicle Population

8.8 8.9 8.9 9.0 9.19.4 9.5

9.7 9.810.0

10.2

10.8

8.0

8.5

9.0

9.5

10.0

10.5

11.0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: AAIA, 2010 figure per Uni-Select Annual Report.

IHS Automotive (“IHS”) provides independent unit projections for each of Powertrain’s platforms. As evidenced in the table below, the Company’s volume projections for the top six overall platforms are generally conservative or in line with IHS.

IHS is the most widely used and known independent source of automotive forecasting data. IHS employs over 130 automotive experts to produce extremely detailed auto production forecasts (down to the vehicle level), and its customers include 85% of the largest OEMs.

Top 6 Overall Platform(1) Projections - IHS vs. Stackpole

8.7

9.49.6

9.4

7.4

8.58.37.5

8.1

8.9

7.0

8.0

9.0

10.0

2011 2012 2013 2014 2015

Uni

ts (M

illio

ns)

IHS Stackpole

Source: IHS Feb 2011 (1) Top 6 platforms include 6R, Pentastar, HFV6, 6T70-6F, GF-6 and 6L


38

Stackpole is the clear market leader in variable vane displacement oil pumps with 100% market share for non-captive variable transmission oil pumps and 40% for non-captive variable engine oil pumps in North America. As the trend towards variable displacement pumps continues, Stackpole’s experience in this area will be a differentiating factor. This technology costs approximately $20 more per pump than a traditional fixed displacement pump, but improves fuel efficiency by 1-2%. OEM’s have historically paid $100+ for similar improvements in fuel efficiency, implying that the value-proposition for variable vane displacement pumps is very attractive. Currently, variable vane displacement pumps represent just 12% of the North American pump market, but are expected to reach 45% of the North American pump market by 2015, according to IHS and management estimates. The relatively low variable vane penetration today reflects the long platform lifecycles of existing fixed displacement technology. The following chart shows the expected increase in variable vane penetration in North America:

Projected Variable Vane Penetration

12

4562

18

7287

222 32

0255075

100

2011 2015 2018

Pene

tratio

n (%

)

North America Europe Asia Source: IHS and management estimates.


39

Strong Historical Performance and Free Cash Flow Generation

Despite the severe economic downturn, revenue grew from $175 million in 2008 to $286 million during LTM May 31, 2011, representing a CAGR of 22%. The Company’s management team successfully navigated Stackpole through the downturn by maintaining margins, achieving cost-saving efficiencies through various automation programs, and moderating the decline in revenue through improved business mix, ramp-up on key platforms and market share gains. While Stackpole’s revenue declined 7% in 2009, the broader automotive industry went into double digit decline with the Company’s top two OEMs, Ford and GM declining by 19% and 30%, respectively, for the same period. Stackpole’s superior performance relative to the industry during the recession was driven by new platform wins such as the Pentastar, new nameplates and volume such as the Phase II ramp of the 6R and the ramp of other early stage platforms including the 6F and GF-6.

In addition, Stackpole began an aggressive set of cost controls and cut-backs in late 2007 and instituted several short-term cost savings policies such as supplier re-pricing, hiring freezes, lay offs, work-share and other labor and cost containment exercises. Stackpole also completed several major automation projects that were initiated in 2007 and 2008 and yielded significant savings from these projects in 2008 and 2009. These cost-savings actions are sustainable initiatives, and as a result, the Company was able to gain greater leverage over fixed costs when volume recovered in 2010, contributing to vastly improved margins. Moreover, the Company enjoys fixed cost leverage with the Company’s plant level SG&A and P&PD costs being fixed. Therefore, the Company benefits from improved margins when volumes increase.

Stackpole’s solid free cash flow generation profile is sustained by high revenue visibility inherent in the long-term nature of platform lifecycle as well as the Company’s contracted business. As the majority of its long-term contracts contain raw material pass-through pricing provisions, Stackpole expects to generate and sustain margin improvements as volume increases and the Company gains leverage over its fixed manufacturing costs. In addition, Stackpole maintains a methodical and disciplined approach to capital investments, and has prioritized superior economic returns on it success-based, growth capital expenditures. Once a powertrain platform cycle is underway, Stackpole’s incumbent supplier status will benefit from incremental volume expansion and the Company has historically realized excellent historical payback on growth capital expenditures. Furthermore, post-transaction, the Company’s free cash flow generation will be further bolstered by favorable tax treatment as a result of asset basis step-up and the associated tax shield benefit. Total cumulative cash taxes during the projection period are estimated to be $5 million.

Revenue and EBITDA Margin (2008 – LTM 5/31/11)

$ in millions

$175.2 $162.4

$248.2$285.8

11.3%10.5%

18.6%17.6%

$0

$100

$200

$300

$400

2008A 2009A 2010A LTM 5/31/110.0%

5.0%

10.0%

15.0%

20.0%

Revenue PF Adj EBITDA Margin

22.5% CAGR


40

Platform Growth – 2009-2010

$ in millions

$248.2

$162.4$9.2 $6.7

$15.5$19.1 $7.1

$28.2

$0.0

$50.0

$100.0

$150.0

$200.0

$250.0

$300.0

$350.0

2009 Sales 6T70/6FNew

Nameplates

GF6 Carriers- Add'lVolume

6R - Phase II 6L - Add'lVolume

PentastarNew

Contract

MarketRecovery &

Other

2010 Sales

New Phases / NameplatesRe-launch Existing Platforms

New Platform Growth

Y-o-Y Change in Sales (Indexed to 2007)

100.0%

108.6%

100.0%

81.5%

76.7%71.1%

64.2%

73.5%

40%

60%

80%

100%

120%

140%

2007 2008 2009 2010

Company N.A. Industry Volume


41

Significant Asset Coverage

Stackpole has $221 million in book asset value which will provide excellent asset coverage for the Senior Secured Credit Facilities. In addition, Stackpole owns 7 of its 8 facilities which will support strong recovery value; upfront investments in facilities also constitute a significant barrier of entry given high ramp-up costs for specific platform and vehicle design. Management believes market value and replacement value significantly exceed book value.

Key Balance Sheet Items

($ in millions) 3/31/11

Working Capital $30.4

PP&E 178.9

Investment in Affiliates 11.6

Total $221.0

1st Lien Funded Debt at Close ($140.0)

Coverage Multiple 1.6x

(1)

(1) Working Capital is net of accounts payable.

Overview of Major Facilities

Leased70,720PM components, transmission, chassis

Precision Metal ComponentsBeijing, China(HSC JV)

Owned174,650Powdered metal, transmission, engine,

chassis and home appliance

Precision Metal ComponentsOchang, Korea (HSC JV)

Owned130,974Oil pumpsEngineered Products DivisionIzmir, Turkey

Owned86,358Oil pumpsEngineered Products Division (“EPA”)

Ancaster, Ontario

Owned100,000Oil pumpsEngineered Products Division (“EPM”)


Owned240,000Automotive Transmission Sprockets

Automotive Gear Division (“AGD”)


Owned140,440Automotive PM components

Precision Metal Components (“PMC”)

Ancaster, Ontario

Owned210,000Planetary gear carriers & assemblies

Carrier Systems Division (“CSD”)Stratford, Ontario

Owned/ Leased

Size (sq. ft)Product LineDivisionLocation

Leased70,720PM components, transmission, chassis

Precision Metal ComponentsBeijing, China(HSC JV)

Owned174,650Powdered metal, transmission, engine,

chassis and home appliance

Precision Metal ComponentsOchang, Korea (HSC JV)

Owned130,974Oil pumpsEngineered Products DivisionIzmir, Turkey

Owned86,358Oil pumpsEngineered Products Division (“EPA”)

Ancaster, Ontario

Owned100,000Oil pumpsEngineered Products Division (“EPM”)


Owned240,000Automotive Transmission Sprockets

Automotive Gear Division (“AGD”)


Owned140,440Automotive PM components

Precision Metal Components (“PMC”)

Ancaster, Ontario

Owned210,000Planetary gear carriers & assemblies

Carrier Systems Division (“CSD”)Stratford, Ontario

Owned/ Leased

Size (sq. ft)Product LineDivisionLocation


42

Highly Experienced Management Team

Stackpole benefits from a management team that has an extensive background and knowledge of the automotive pumps and powdered metal industries. The Company’s senior management has an average of 19 years in the industry and 7 years with the Company. The depth and extensive industry experience of the management team provide solid leadership for continued growth and expansion with new product initiatives and operational excellence. The team has successfully executed numerous cost-savings initiatives as well as key platform launches while further strengthening key customer relationships. The Company’s CEO previously held senior positions such as Group General Manager and VP of Operations at Magna International. The Company’s CFO formerly served as Global Finance Manager at GE Digital Energy. Robert Mooy, the head of the oil pump operating division, has extensive experience in management and engineering roles with Stackpole and other Tier One suppliers.

The management team is energized by the prospects of running the business as a standalone entity. The Sterling Group believes this management team is best-in-class and exceeds the quality of other middle-market companies of this size.

Management Team

1524Technical Director Stackpole, EuropeManfred Arnold

Years of Experience

Name Title Industry Company

Peter Ballantyne President and Chief Executive Officer 25 2Rahim Suleman Chief Financial Officer 7 1

Andrew Dempsey Director, Powdered Metal Business Development and Engineering

20 11

Robert Mooy VP Engineered Products Division 18 8

Mohamad El-Mahmoud Business Unit Director, Asia 11 10

Stuart Holtshouser VP Sales 25 1

Total Years of Experience 130 48

Average Years of Experience 19 7


Years of Experience




20 11






Stackpole Stackpole Overview

43

Stackpole Overview Overview

Stackpole, headquartered in Ancaster, Ontario, is a leading supplier of engine and transmission oil pumps and powdered metal (“PM”) components for automotive powertrains to original equipment manufacturers (“OEM”). With eight manufacturing facilities in North America, Europe, China and Korea, the company serves its core markets and customers with regional manufacturing and in-house design, development, and testing capabilities. Stackpole’s customers, which include some of the largest automotive OEMs such as General Motors, Ford, Chrysler and Audi, rely on the Company’s ability to design and produce critical components for their most important and widely market vehicle platforms.

The Company’s products are specified into specific powertrain (engine and transmission) platforms. Stackpole currently supplies to approximately 20 different platforms, each of which is used across multiple vehicle models, resulting in exposure to approximately 400 nameplate vehicles. Stackpole’s components are designed into these platforms, and are generally supplied for the entire 10 – 15 year platform lifecycle. Stackpole generates 97% of its revenue from North America and is well positioned to capture incremental growth opportunities in Europe and Asia. For the last twelve months ended May 31, 2011, Stackpole’s revenues and Adjusted EBITDA were $285.8 million and $50.3 million.

Stackpole is a market leader in both of its two distinct product segments: oil pumps and powdered metal components.

Oil Pumps – Representing 48% of Stackpole’s LTM May 31, 2011 revenue, the Company manufactures fixed and variable displacement oil pumps used in engines and transmissions. The Company is one of the top three non-captive (70% of the market) automotive oil pump producers in the world. Stackpole is known for its production of complex and difficult-to-manufacture fixed displacement oil pumps, which represented approximately 60% of the oil pump division’s revenue in 2010. The Company also pioneered the development of variable vane oil pump technology and is the largest variable displacement pump producer in the world with 21 million installed units. For LTM May 31, 2011 oil pumps generated revenue of $152.5 million.

Powdered Metal Components – Representing 52% of Stackpole’s LTM May 31, 2011 revenue, the Company manufactures complex gears, sprockets, assemblies and pump components. The Company is the second largest automotive powdered metal producer in North America. For LTM 5/31/11, the Powdered Metal segment generated revenue of $164.0 million.


44

Engineered Products Division (Oil Pumps) (48% of LTM 5/31/11 Total Revenue)

Business Overview

The Company’s oil pump products are an important component in the operation of automotive engines and transmissions, ensuring that there is adequate lubrication throughout all ranges of the drive cycle. The Company designs and manufactures transmission and engine oil pumps based on the engineering requirements of the original equipment manufacturers. The Company has shipped more than 21 million variable displacement oil pumps globally and currently produces 17,000 fixed and variable oil pumps per day in North America, making it one of the largest non-captive oil pump producers in the region and one of the top three players in the world.

Oil Pumps – History of Continued Success

Morphed from gear finishing inside PM plant

First “black box“ oil pump design wins inaugural pump for Cadillac

1990

1993

1999

2001/2

2003/4

2006

2008 –2011

Success prompted outsource of captive Transmission Oil Pump (TOP) for GM in 1993

Minor growth through 1990’s with GM

Presented a unique modular solution to GM for its largest TOP, with a launch in 2001– Increased capacity from zero to 6,000 units/day, literally over night– Contract formed the backbone of the relationship with GM

Quality of GM TOP led to engine oil pump awards in 2002

Expanded customer base to Chrysler with contracts for TOPs and Engine Oil Pumps (EOPs)

Expanded customer base to Ford TOPs in 2004

New Greenfield facility required to support growth

Commenced technology transfer with EP Aachen and awarded Audi contract within two years

Launched EU production in 2008

EU experienced significant growth on the back of VVP design and manufacturing technology

Commenced technology transfer with EP Asia and received two LOIs within two years

Awarded CG first and only VVP for Engine 2008

Awarded first Ford EOP and VVP in 2010, eliminating a key competitor


45

Product Overview

Oil Pumps Segment Products Overview

As the first company to launch variable displacement pumps for transmission applications more than 18 years ago, Stackpole pioneered the mass commercialization of the variable displacement oil pump. Stackpole’s variable displacement oil pump represents a highly attractive solution for oil-on-demand in an engine or transmission lubrication system. The pump operates with the capacity to meet an engine’s maximum oil requirements, with oil output directly linked to engine needs by a feedback control mechanism. When the engine oil flow requirement is reduced, the variable displacement oil pump control mechanism is activated, reducing pump displacement to the required volume, thereby reducing fuel consumption and emissions without any performance trade-off in the lubrication system. Variable displacement transmission oil pumps function in a similar manner, providing flow on demand with similar energy savings.

Top Customers

The highly technical and consultative nature of the sales process for oil pumps requires significant early and on-going interaction with customers’ engineering teams as a new powertrain platform is conceived, developed and manufactured. This process provides both insight into customer priorities and industry trends and develops long-term working relationships that make the Company hard to displace. For the oil pump division, Ford accounts for 52% of total oil pump revenue, GM accounts for 31% of total oil pump revenue and Chrysler accounts for 11% of total oil pump revenue.

Customer Summary

20162017+

20162016

2017+2017+2014

2017+202020202015

2017+20172017+

EOP

A4, A6, Q5, Q7Chrysler 300, Dodge Durango

Jeep Cherokee, Chrysler 300, Dodge CaravanRam 2500/3500, Jeep CherokeeDodge Durango, Jeep Cherokee, Ram Dakota

Cadillac Escalade, GMC SierraBuick Regal, Chevrolet Malibu & Equinox, GMC AcadiaBuick Excelle GT, Chevrolet Cruze, Opel AgilaBuick Enclave, Cadillac Malibu, Chevrolet Impala

F-150, Mustang, EconolineExplorer, Edge, Flex, TaurusEscape, Fusion

End Vehicle Nameplates Customer Relationship(Yrs)

% of 2010 Pump Rev.

Key Platforms

8 52% 6R 6F

HF35

20 31% 6L6T70

GM SGEHFV6

13 11% Pentastar68RFE45FRE

6 4% V6V8

4 2% DV EUR5EB

20162017+

20162016

2017+2017+2014

2017+202020202015

2017+20172017+

EOP

A4, A6, Q5, Q7Chrysler 300, Dodge Durango

Jeep Cherokee, Chrysler 300, Dodge CaravanRam 2500/3500, Jeep CherokeeDodge Durango, Jeep Cherokee, Ram Dakota

Cadillac Escalade, GMC SierraBuick Regal, Chevrolet Malibu & Equinox, GMC AcadiaBuick Excelle GT, Chevrolet Cruze, Opel AgilaBuick Enclave, Cadillac Malibu, Chevrolet Impala

F-150, Mustang, EconolineExplorer, Edge, Flex, TaurusEscape, Fusion


% of 2010 Pump Rev.

Key Platforms

8 52% 6R 6F

HF35

20 31% 6L6T70

GM SGEHFV6

13 11% Pentastar68RFE45FRE

6 4% V6V8

4 2% DV EUR5EB


46

Diversity of Vehicle Applications

Stackpole’s products are specified into specific powertrain platforms which are used across multiple vehicle platforms. As a result, the Company’s performance is less dependent on the success of individual vehicle models. See below for an illustrative explanation of this concept.

Stackpole is Sole Source Supplier to Ford 6R Which Supports Numerous Vehicles

Fixed Displacement

Transmission Oil Pump Ford 6 Speed RWD Transmission

Region: NAPeak Revenue = $70 millionStatus: Start Of Production 2004

F150 Mustang

Crown Victoria Ranger

Selected Consumer Vehicle Applications

Econoline

Stackpole is Sole Source Supplier to Audi V6 Engine Oil Pump Which Supports Numerous Vehicles

Variable Displacement

Engine Oil Pump

Audi V6 TDI Engine

Region: EU and NAPeak Revenue = $7 millionStatus: Start Of Production 2010

A6 Wagon A6 Sedan

Q5Q7

Selected Consumer Vehicle Applications

Product Differentiation

Stackpole is the clear market leader in variable vane displacement oil pumps with 100% market share for non-captive variable transmission oil pumps and 40% for non-captive variable engine oil pumps in North America. This technology costs approximately $20 more per pump than a traditional fixed displacement pump, but improves fuel efficiency by 1-2%. OEM’s have historically paid $100+ for similar improvements in fuel efficiency, implying that the value-proposition for variable vane displacement pumps is very attractive. Currently, variable vane displacement pumps represent just 12% of the North American pump market, but are expected to reach 45% of the North American pump market by 2015, according to IHS and management estimates. The relatively low variable vane penetration today reflects the long platform lifecycles of existing fixed displacement technology. As the trend towards variable displacement pumps continues, Stackpole’s


47

experience in this area will be a differentiating factor. The following chart shows the expected increase in variable vane penetration in North America:

Expected Penetration of Variable Displacement Pumps in Engine

12

4562

18

7287

222 32

0255075

100

2011 2015 2018

Pene

tratio

n (%

)

North America Europe Asia

Source: Management estimates Design and Engineering

The Company’s engineering team has 20 years of experience designing automotive pumps—more design experience than any of its competitors. The Company’s full service engineering department is equipped with a complete range of in-house testing capabilities, including hydraulic performance, sound testing, pressure pulse evaluation, cold prime, hot prime, contamination resistance and durability testing. Moreover, as an extension of the pump business, Stackpole has full metallurgical capability within the powdered metal organization. This level of vertical integration is unique in the industry and provides significant advantages in material selection and engineering of structural pump components. The Company’s internal powdered metal capabilities are viewed by the customer base as a major advantage during pump development and post launch operations.

Stackpole has led the technological development of variable displacement oil pumps. The Company’s technological leadership and established market presence with variable displacement oil pumps represent a significant head start over other competitors. This advantage has enabled the Company to lock in profitable new business on rapidly growing platforms for multi-year periods, while positioning it as the likely nominee on several new platforms in development. Stackpole has also developed various proprietary software programs and general design tools to aid in the design of pumps and provide an important competitive advantage to the Company. Stackpole’s design capabilities are recognized by its customer base as world-class. Stackpole maintains a disciplined, design-for-manufacturing approach to product and process planning and has a well-established history of successful product launches and stable and reliable production processes. Multi-disciplinary teams are responsible for ensuring all aspects are considered during development phases.

Manufacturing

Stackpole’s oil pump manufacturing operations are conducted in three facilities around the world. In North America, the pump activities occur in Mississauga and Ancaster, Ontario. In Europe, pump manufacturing historically occurred in Aachen, Germany, but these operations are currently in the process of being moved to Izmir, Turkey. Major components purchased include raw high pressure aluminum die castings, raw high precision powdered metal components, raw forgings, raw cast iron castings, semi finished steel shafts, bearings, seals, piston rings, steel stampings, fasteners, electronic valves, spool valves, miscellaneous small steel components, and polymer components. Major components undergoing value adding operations (such as finishing machining, turning, grinding, milling) include aluminum die castings, powdered metal components, cast iron components, steel forgings, and cast iron castings.


48

Stackpole is one of the most innovative pump manufacturers in the industry, with 20 years of experience manufacturing pumps. Many of Stackpole’s internally developed processes and procedures have become industry standards or examples of best-in-class approaches to pump design and manufacture. Stackpole has developed a robust and responsive supply chain, as well as a number of value-added operations that other players in the industry do not have. Additional value is derived from the vertical integration of certain processes. For example, certain PM products become direct components of other Stackpole products such as oil pumps. The enhanced value from vertical integration is not matched by competitors, who have to outsource more components for their products compared to Stackpole. The Company’s broad portfolio of manufacturing solutions enables it to exploit new business opportunities in a highly capital-efficient manner, through the use of flex capacity lines where volumes are lower, such as in Europe and Asia, or by redeploying existing assets into new configurations. These capabilities allow for increased flexibility in manufacturing and asset utilization as programs mature or expire.

The Company’s pump assembly operations rely on highly automated, high-volume, low-error-rate production processes. The diagram below provides a flow diagram of the typical manufacturing process employed by the Company.

Stackpole’s Oil Pump Manufacturing Process

Incoming

Inspection—Al Castings

OP 10

4 axis CNC machining

OP 20

4 axis CNC machining (as

required)

OP 30


required)

Deburr Wash

Complex Aluminum Components

IncomingInspection

OP 10

Double Disk Grind

OP 10


(as required)

Deburr Wash

Less Complex Aluminum Components

Powder Metal Components

IncomingInspection

OP 10

Double Disk Grind

OP 10


(as required)

Deburr Wash

Incoming

Inspection—Al Castings

OP 10


OP 20


required)

OP 30


required)

Deburr Wash

Complex Aluminum Components

IncomingInspection

OP 10

Double Disk Grind

OP 10


(as required)

Deburr Wash

Less Complex Aluminum Components

Powder Metal Components

IncomingInspection

OP 10

Double Disk Grind

OP 10


(as required)

Deburr Wash


49

Stackpole’s North American pump manufacturing processes have a strong track record of operational performance. The division ships approximately four million pumps annually and has achieved defective PPM of less than ten across all product lines. The division also has leading warranty performance, with defective PPM of less than three and essentially has had 100% delivery over the past eight years.

Stackpole’s Pump Assembly Process

Manual Load Shaft Cover, Intermediate

Cover Housing, VR & Slide

EndfaceGauging

Error Proof Station

Install seals & Seal

Supports

PerformanceTest

(Air Test)Serialization

Spring & Ball Install

Install Solenoid Valve & Retainer

Press Pivot Pin

Load Cover & Drive Screws

Install Vanes

Install Assembly

bolts

Install pickup tube

Press PTFE Bushings & Dowels into Shaft Cover

Install Rotor

Install Shaft & Press

Sprocket

Install Vane Ring

Press Locating Pin

Priming Spring Install

Cover Screw Station

END

START

Manual Load Shaft Cover, Intermediate

Cover Housing, VR & Slide

EndfaceGauging

Error Proof Station

Install seals & Seal

Supports

PerformanceTest

(Air Test)Serialization

Spring & Ball Install

Install Solenoid Valve & Retainer

Press Pivot Pin

Load Cover & Drive Screws

Install Vanes

Install Assembly

bolts

Install pickup tube

Press PTFE Bushings & Dowels into Shaft Cover

Install Rotor

Install Shaft & Press

Sprocket

Install Vane Ring

Press Locating Pin

Priming Spring Install

Cover Screw Station

END

START

Market Size and Growth Drivers

Management estimates the global powertrain oil pump market was about $1.5 billion in 2010, excluding captive OEM oil pumps business, and is expected to grow to $2.0 billion by 2015, representing a CAGR of 5.9%. About 2.8% of the growth is due to OEMs increasing reliance on the non-captive supply base.

Consumers and regulators continue to demand higher levels of fuel efficiency and performance, which variable displacement pumps provide at a relatively small incremental cost. As the adoption of more complex and higher priced variable displacement pumps continues, OEMs are increasing their reliance on non-captive oil pump producers.


50

Power Consumption by Automotive Oil Pump

Wasted Power2 Stage

Power Savings

Typical Drive Range

Variable Displacement Power Savings

Engine Demand

Fixed Displacement


2 Stage Variable

Displacement

0

100

80

60

40

20

0

Pow

er

1,000 2,000 3,000 4,000 5,000 6,000 7,000

Speed (RPM)

Fuel Consumption Savings

2.54%

1.50%

2.60%

NAV6 Asia V6 Europe V6 Source: Management estimates. Note: Fuel savings independently verified by Stackpole’s customers.

Competitive Landscape

Stackpole competes against a handful of variable displacement pump manufacturers in North America and Europe. The typical variable displacement pump supplier in North America is a diversified manufacturer of powertrain-related components. Competition in emerging markets such as China and South America is generally more fragmented among domestic suppliers with limited technological capabilities or foreign suppliers aligned with global OEMs who have a strong foothold in the region. Engine and transmission oil pumps are a critical powertrain component, where failure leads to catastrophic damage. Suppliers therefore compete along technical expertise and warranty performance as pump quality and durability are particularly important. Price is also an important consideration in supplier selection.

Stackpole is one of a few pump suppliers that can provide full-service design support globally, demonstrate fuel efficiency gains with variable displacement technology and offer world-class manufacturing. The Company has years of experience supporting both fixed and variable displacement pump technology. Stackpole has consistently demonstrated best-in-class key global metrics in areas of plant quality, product delivery and historical warranty performance.


51

Primary Competition in Oil Pumps

Full Service Product Technology N.A. Non-Captive Market ShareCompany HQ Design Support Performance Leadership Fixed Variable

26% 64%

12% 0%

23% 26%

0% 0%

4% 0%

1% 0%

1% 4%

Stackpole

High Low

Source: Management estimates

Growth Opportunities & Strategic Priorities

Stackpole is aggressively pursuing growth opportunities in a range of regions where customer localization opportunities exist. A customer localization opportunity emerges when an OEM implements the use of an engine platform from one country to another, with a high probability of the incumbent supplier being awarded the business in the new region. Stackpole, as the incumbent supplier of oil pumps for GM’s SGE and PSA’s EB engines in their home markets, has a high probability of securing these platforms in Asia, where the two OEMs are expected to localize production of these engines. Stackpole also has opportunities in more mature markets, such as Europe and North America, where GM is likely to localize the production of F1G4. In addition, Stackpole is in the final stages of repositioning its European manufacturing footprint to improve its cost structure and better capitalize on that market’s strong growth trends.

Expanding Engineering & Manufacturing Footprint – Stackpole can leverage its North American assets and resources as the Company develops its footprint internationally. Specifically, the Company plans to expand its European manufacturing facility to meet demand for its European pump business, as well as launch its variable displacement oil pump business in Asia.

Continue to Advance Variable Displacement Technologies – Stackpole is continuously working to refine current variable displacement pump technology to achieve additional efficiency improvements. The Company’s initiatives include refining pump control mechanisms and materials for optimum efficiency and improved costs, while also investigating electric/mechanical solutions for hybrid applications.


52

Powdered Metal Division (52% of LTM 5/31/11 Total Revenue)

Business Overview

Stackpole has been a leader in the North American powdered metal manufacturing industry for more than fifty years. The Company has strong engineering and manufacturing capabilities and is recognized by its customers as a high-quality, high service-level supplier of powdered metal components.

Powdered metallurgy is the process of forming and fabricating metal components through the application of pressure and heat to metal powder. Metal alloys in powder form are compacted and then subjected to high heat in a process called sintering. Sintering bonds the aggregate particles together, turning the component into a single solid piece, which is then taken through finishing processes.

Product Overview

Powdered Metal Segment Products Overview

Stackpole specializes in products that are used primarily in transfer cases, automatic and manual transmissions, and engines. These include:

Gears and sprockets Clutch components Synchronizer assemblies • Pump components Planetary carriers Engine components

The Company’s PM operations also provide key components to the oil pump business, an arrangement that provides Stackpole with a unique advantage in competing with other pump manufacturers.

All of the Company’s products are highly specialized, complex, high-tolerance components that require high levels of structural strength and mechanical performance. The Company’s key development priorities are to grow the powdered metal business on carriers for new eight-speed transmissions and support growth of the Company’s oil pump business by supplying internal requirements for pump components.


53

Top Customers

Stackpole has developed a strong track record with nearly all major customers of its powdered metal automotive components. The Company’s top customers have, in most instances, been with Stackpole for decades. The Company’s customers include both OEM and Tier One suppliers, as well as other industrial customers. For the powdered metal division, GM accounts for 60% of PM sales, Magna accounts for 10% of PM sales and Chrysler accounts for 10% of PM sales. Ford Motor Company is aligned with other powdered metal suppliers and therefore does not use Stackpole for powdered metals directly, but does rely on Stackpole’s PM expertise indirectly as a result of vertical integration within the oil pump group. Ford aims to maintain a diversified supplier base for its components in order to avoid supply disruptions.

Customer Summary

2015+

2017+

20142017+2015

2017+2015+

2017+2017+2019+2017+2017+

EOP

Components for blenders

Buick Verano, Cadillac STS, GMC Canyon

Dodge Durango, Jeep Cherokee, Ram DakotaRam 2500/3500Chrysler 200, Dodge Caravan

Cadillac Escalade, GMC SierraBuick Regal, Chevrolet Malibu, GMC AcadiaBuick Excelle GT, Chevrolet Cruze, Opel AgilaBuick LaCrosse, Chevrolet Aveo, GMC TerrainBuick Enclave, Cadillac SRX, Chevrolet Impala


% of 2010 PM Rev.

Key Platforms

35 60% 6L6T70

GM SGE GF6

HFV6

10 10% X2TTrilobe

22 10% 45RFE68RFE62TE

8 6%L850 VVT

14 5% 2015+

2017+

20142017+2015

2017+2015+

2017+2017+2019+2017+2017+

EOP

Components for blenders

Buick Verano, Cadillac STS, GMC Canyon

Dodge Durango, Jeep Cherokee, Ram DakotaRam 2500/3500Chrysler 200, Dodge Caravan

Cadillac Escalade, GMC SierraBuick Regal, Chevrolet Malibu, GMC AcadiaBuick Excelle GT, Chevrolet Cruze, Opel AgilaBuick LaCrosse, Chevrolet Aveo, GMC TerrainBuick Enclave, Cadillac SRX, Chevrolet Impala


% of 2010 PM Rev.

Key Platforms

35 60% 6L6T70

GM SGE GF6

HFV6

10 10% X2TTrilobe

22 10% 45RFE68RFE62TE

8 6%L850 VVT

14 5%

Diversity of Vehicle Applications

Stackpole’s PM products are used across multiple vehicle platforms and are well-diversified globally.

Transmission Carriers and Backing Plates

GF6 Transmission

Backing Plates

Carriers

Chevrolet Captiva - China

Chevrolet Cruze - WorldChevrolet Equinox – NA

Opel Astra – Europe, South AfricaBuick Excelle – China

Chevrolet Astra – Latin America

Chevrolet Sonic – NA (2012)

Chevrolet Malibu – NA

Selected Consumer Vehicles


54

Product Differentiation

Stackpole services all of the major North American automotive original equipment manufacturers and has developed one of the broadest portfolios of powdered metal manufacturing capabilities. In particular, the Company has developed a robust portfolio of patent-protected processes, as well as numerous trade secrets underlying its manufacturing, design and development processes. The differentiated nature of Stackpole’s powdered metal products is demonstrated by the difficulty competitors have had attempting to replicate Stackpole’s capabilities. Advantages of Stackpole’s powdered metal products include:

Superior tensile strength 10% reduction in weight vs. cast/wrought iron parts 20-30% reduction in material wastage

Conventional FeCuC Vs. Stackpole’s FeMnC Alloys

480520

590670

0

100

200

300

400

500

600

700

800

7.0g/cc 7.2g/cc

Tens

ile S

treng

th (M

Pa)


8 9

2325

0

5

10

15

20

25

30

7.0g/cc 7.2g/cc

Impa

ct S

treng

th (J

)



Pricing

For the majority of Stackpole’s platforms, the selling price per unit is locked in with the customer for three to five years. The contracts generally start with an initial price that decreases by 3% per year, typically for the first three years, to account for the ramping volumes. Given the interdependency between Stackpole and its customers, there is limited pricing pressure once the initial contract has been negotiated and the program has begun.


55

Manufacturing

Stackpole’s powdered metal operations are conducted in five facilities around the world, two of which are through a 30% JV with Halla in Korea and Beijing. In North America, Stackpole operates facilities in Stratford, Ancaster and Mississauga, Ontario. Powdered metallurgy is the process of forming and fabricating metal components through the application of pressure and heat to metal powder.

The process begins with metal alloys in powder form that are pressed, or compacted, to produce a weakly cohesive structure that approximates the dimensions and shape of the final part. The component is placed under high heat for a period of time, in a process called sintering. Under heat, bonding takes place between the porous aggregate particles and, once cooled, the component becomes a single solid piece. A number of additional steps are then required to machine the finished part, deburr and process the surface.

The manufacturing process is multi-stage and complex and has been refined over a number of decades, and therefore is very difficult to replicate.

Stackpole’s Manufacturing Process for Selected Product Types

Inspect Raw Materials

Powder Metal Carriers

Blend Powder #1

Blend Powder #2

Blend Brazing Compound

Compact Part #1

Compact Part #2

Compact Brazing

Wafer/Pellet

Assemble Carrier Sinter-Braze Surface

Preparation

Non-Destructive

Test

Machine Op 10–Turn

Powder Metal Carriers (cont.)


Machine Op 30-Broach

Machine Op 40–Drill &

Ream

Machine Op 50–Mill Deburr Wash/Dry Balance

Non-Destructive

Test


Powder Metal VVT/Pump Component

Compact Sinter SizeInduction Harden & Temper

Double Disc Grind Deburr Wash/Dry

Non-Destructive

Test



Blend Powder #1

Blend Powder #2


Compact Part #1

Compact Part #2

Compact Brazing

Wafer/Pellet


Preparation

Non-Destructive

Test



Blend Powder #1

Blend Powder #2


Blend Powder #1

Blend Powder #2


Compact Part #1

Compact Part #2

Compact Brazing

Wafer/Pellet

Compact Part #1

Compact Part #2

Compact Brazing

Wafer/Pellet


Preparation

Non-Destructive

Test






Ream


Non-Destructive

Test






Ream


Non-Destructive

Test





Non-Destructive

Test





Non-Destructive

Test Stackpole’s powdered metal division manufactured 47 million powdered metal parts over the past year. The division consistently achieves world-class PPM ratings and warranty claims/durability issues in the field PPM of less than one. The powdered metal division also has an OEM delivery rating of approximately 100%.


56


The global powdered metal structural components market is approximately $4.3 billion, of which the North America market is about $1.9 billion. The Company’s primary market, the North American automotive PM components segment, is estimated to be $1.3 billion.

Factors driving growth in the industry include improved fuel efficiency due to higher energy costs and more stringent environmental regulation which create demand for more advanced technologies. These technologies are becoming increasingly complex, and as such require the precision, strength, density, and performance of PM fabrication. Growth opportunities in emerging markets, specifically Asia are driving volume demand. Key technologies which are expected to experience the most growth are: dual clutch transmissions, hybrid power-trains, eight-speed transmissions, and variable valve timing mechanisms.

Competitive Landscape

The automotive powdered metal industry is highly fragmented, with numerous competitors producing components for a wide variety of applications. However, the number of players focused on powertrain applications and product development capabilities is more limited. While several competitors maintain a global presence, the industry is largely regional in nature due to high delivery costs and service requirements of automotive OEMs.

Automotive PM suppliers generally compete on price, quality, manufacturing capabilities and engineering support. In many cases, price is not necessarily the primary consideration for components that Stackpole focuses on because the combination of complex shape, tight tolerances and mechanical properties is difficult to attain. Stackpole draws on proprietary technology and patented IP to achieve the desired combination of properties and this provides a distinct advantage over the competition.

Primary Competition in Powdered Metal

Automotive Powdered Metal Component Capacity

Company HQ Clutch Plates

Planetary Carriers

Planetary Assembly

Synch Hubs

Synch Assembly

Synch Systems

Pump Parts

WT Parts

Gears/ Sprockets

Strength of Technology

Market Share

Stackpole 13%

18%

7%

5%

5%

5%

4%

N/A

High Low



57

Growth Opportunities & Strategic Priorities

Halla Stackpole Corporation JV (“HSC”) – Stackpole and Halla, a Korean conglomerate, created a joint venture in March of 2008 to produce shock absorber components, compressor components, engine sprockets, synchronizer hubs and steering components. Stackpole holds 30% of ownership and holds two of the six Board of Director seats. The joint venture acquired the PM assets and business of Saeron Automotive Corporation and Stackpole has licensed HSC to produce various GF-6 products to supply to GM in Korea and China, to which it has exclusive PM rights in both Korea and China. Operations began in October 2009 at the Ochang, Korea facility, and the JV’s Chinese subsidiary, Halla Stackpole Beijing, began operation in China in 2010. Major customers include Mando, S&T Daewoo, GMK (General Motors Korea), Halla Climate Control, and Hyundai Motor Company.

Stackpole has placed significant focus on HSC. The JV operates in two of the fastest growing automobile markets in the world, China and South Korea, and provides for significant growth opportunities. This business benefits Stackpole in four main ways: (i) Access to the Asian markets through local footprint; (ii) Supply to manufacturers such as Hyundai which also have large North American footprints; (iii) Royalty payments for GF-6 components at 3% for carriers, 2.5% for speed sensors and 2% for backing plates; and (iv) no continuing cash requirement.

Automotive Green Energy Technologies – Factors driving Stackpole’s growth in the PM division are linked to a move towards greater fuel efficiency; higher energy costs and more stringent environmental regulation drives the demand for more advanced technology, which requires powdered metal processing due to their strength, near exact shape, and performance properties. Many key technology innovations include a higher proportion of PM parts than traditional technologies. Therefore growth is two fold; (i) a result of increased volumes of end technologies requiring PM parts, and (ii) a result of increased volumes of PM parts in each end technology. Key technologies which are expected to experience the most growth are:

Dual clutch transmissions

Hybrid power-trains

Eight-speed transmissions

Variable valve timing mechanisms

Non-automotive Products – In addition to supplying the auto industry, powdered metal components are expanding into new product markets. Currently, Stackpole is in low-volume production for Bloom Energy, an energy production company that uses coated powdered metal plates to produce electricity for commercial applications whose customers include Bank of America, the Coca Cola Company and Walmart. This opportunity for Stackpole alone could represent up to $50 million in new business by 2014.


58

Sales Organization and Customer Satisfaction

Stackpole maintains sales forces in Rochester Hills, Michigan, Aachen, Germany, and Shanghai, China, which are supported by technical groups located in each region. The sales strategy is tied directly to the Company’s five year business plan, which is driven by Stackpole’s product and customer strategies. The Company assesses the market and strives to identify key programs on future powertrain platforms where Stackpole’s products and/or technical capabilities create a competitive advantage, and where the platform volumes and other strategic factors make the new business opportunity an attractive target.

The Company generally tracks target programs, seeking to establish early Stackpole involvement with customer design and engineering teams. The intent is to leverage world class design and engineering with commercial intelligence/relationships to position Stackpole as the supplier of choice. The Company will typically enter into commercial activities with customer purchasing teams two to three years prior to start of production.

Stackpole Industry Awards

Company/Competition AwardChrysler Gold Pentastar AwardGeneral Motors Supplier of the Year AwardSaturn Outstanding Quality AchievementWhirlpool Supplier PerformanceAME Commitment to Manufacturing ExcellenceAutomotive News and Ernst & Young Pace Award (Premier Automotive Supplier Contributions and Excellence)CME Canadian Innovation Award for Productivity Improvement—Lean ManufacturingEuropean Powdered Metal Association International AwardMPIF International Powder Metallurgy Design Competition

Grand Prize4 speed Planetary Carrier6 speed Planetary CarrierTransmission SprocketHelical GearAward of DistinctionTransmission SprocketInnovative Functional AssemblyTransmission Oil Pump

Metal Powder Industries Federation (MPIF)

Outstanding Technical Paper

Queens Award Technology & ExportsSociety of Automotive Engineers Arch T. Colwell Merit Award


59

Customer Contracts

Stackpole’s customer contracts generally last between 3-5 years and provide for scheduled price changes during the term. Given that the platform lifecycles average in excess of ten years, Stackpole will undergo multiple contract renewal discussions with customers during the course of the platform’s lifecycle. The Ford contracts are different than for GM and the other customers – the contract is only one-year in length with automatic rollovers, but pricing is locked in for 3-5 years through a separate LTA agreement.

Historically, none of Stackpole’s customers have replaced its products on a major platform mid-cycle; as described earlier, this would be highly unlikely in the absence of a serious quality or safety issue with the product given the substantial time and costs of testing and qualifying a new supplier. The following table summarizes the contract terms for the Company’s eleven major platforms:

Top Customer Contract Summary

Platform Customer Pump / PMPass

Through Expiration

Date Comments

6R Pump Yes LTA - 2015 Annual contract w/ rolloverProgram extends beyond 2017+

HFV6 Pump No 2015 Program extends beyond 2017+

6T70 / 6F Pump Yes 2014 Program extends beyond 2017+

Pentastar Pump Yes 2014 Program extends beyond 2017+

DV6 Pump Yes 2015 Program ends 2015-2016

GF-6 PM Yes 2013 Partial renewals expected Program extends beyond 2017+

6L PM No 2014 Program extends beyond 2017+

GF-6 Carriers PM Yes 2016 Program extends beyond 2017+

Carrier Line PM Yes 2014 Program extends beyond 2017+

L850 VVT PM Yes 2010 Contract renewal underway Program extends beyond 2017+


60

Vehicles Served

Stackpole’s products are used in a diverse range of vehicles and no one vehicle accounts for more than 7% of total volume. The following table outlines Stackpole’s top 20 vehicle exposure:

Vehicle Concentration (% of Total 2011 – 2015 Production)

# Top Names Category % 1 Ford F-150 Light Truck - Pickup 6.5%2 Chevrolet-Malibu Car - Mid-Size 6.3%3 Chevrolet-Equinox Light Truck - SUV Mid/Full Size 4.8%4 Chevrolet-Silverado Light Truck - Pickup 3.9%5 Buick-LaCrosse Car - Mid-Size 3.5%6 Chevrolet-Cruze Car - Compact 3.3%7 Buick-Regal Car - Mid-Size 2.6%8 GMC-Terrain Light Truck - Compact/Crossover 2.2%9 Chevrolet-Impala Car - Full-Size 1.8%10 Ford-Focus Car - Compact 1.8%11 Ford-Explorer Light Truck - SUV Mid/Full Size 1.7%12 Dodge-Caravan Light Truck - Other 1.7%13 Cadillac-SRX Light Truck - SUV Mid/Full Size 1.7%14 Chevrolet-Camaro Car - Full-Size 1.6%15 Chevrolet-Traverse Light Truck - SUV Mid/Full Size 1.6%16 Ford-Edge Light Truck - SUV Mid/Full Size 1.5%17 GMC-Sierra Light Truck - Pickup 1.5%18 Chrysler-Town & Country Light Truck - Other 1.4%19 Jeep-Grand Cherokee Light Truck - SUV Mid/Full Size 1.4%20 Ford-Taurus Car - Full-Size 1.4%

Total 52.2% Estimated based on IHS volume projections by platform and corresponding nameplate.


61

Suppliers

Stackpole’s supplier base is diversified with no one supplier accounting for more than 10% of purchases in 2010. Stackpole’s largest raw material purchases include steel and aluminum castings for oil pumps and iron for powdered metals. Due to the commodity nature of these raw materials, Stackpole has alternate suppliers for all of its major purchases and did not experience supply constraints in 2010, even when sales increased significantly beyond initial expectations.

Stackpole – Summary of Top 10 Vendors

For the year ended 2010 % ofVendor Name 2010

Quebec Metal Powders Limited 9.9%

Accurcast Inc 8.4%

IMCG Global Inc 3.9%

Amt Die Castings 3.5%

North American Hoganas Inc 3.1%

Premier Tool And Die Cast Corp 3.1%

Acupowder International, Llc 2.5%

Koyo Bearings Canada Inc. 2.4%

Hydro One 2.2%

Little Lakes Machine 2.2%

Total for Top 10 41.2%Total 2010 Purchases 100.0%

The Company is able to pass through the largest material purchases (aluminum and steel) on to its customers in the majority of its contracts. Approximately 90% of Stackpole’s pump contracts and 40% of PM contracts in North America have pass through for raw material price exposure. In the oil pump division, approximately 45% of total material purchases are commodity-based, and of those purchases, 60% are tied to the underlying commodity price. The raw material content is significantly less for PM products, lessening the need for raw material pass through clauses.


62

Employees

Stackpole has a strong performance-oriented culture, and continues to place a high value on the role of its employees. Throughout its history, the Company has been successful at attracting and retaining top talent across all levels of the organization.

Head Count As of March 31, 2011, the Company had 1,680 non-unionized employees, 474 of whom were salaried, 874 were hourly and 332 were temporary. The Company has historically experienced relatively low turnover (average of 1.03% in 2010) and considers its relations with its employees to be excellent. All North American locations are non-unionized. The exhibit below sets forth the Company’s headcount, broken down by division and function.

Headcount by Division (March 2011)

Oil Pumps Powdered Metal Corporate Total

ProductionSalaried 131 210 - 341 Hourly 277 597 - 874 Temporary 106 226 - 332

Sales 6 - 5 11

Admin 65 20 37 122

Grand Total 585 1,053 42 1,680

Facility Overview

The majority of Stackpole’s facilities and operations are based in Ontario, Canada. While Canada has higher labor costs than Asia, the Company’s manufacturing footprint does not provide a significant competitive disadvantage due to the highly automated nature of its manufacturing operations and customer’s preference to source from regional suppliers. Management is comfortable that the existing facilities will be able to accommodate future growth in North America. Capacity utilization across the oil pump facilities is approximately 80% and capacity utilization across the powdered metal facilities is approximately 70% with the exception of the AGD facility, which has utilization of approximately 40%. The following chart provides an overview of Stackpole’s facilities:


63

Facilities Overview

Location Division Sq. Ft.Owned / Leased

Stratford, Ontario Powdered Metal 210,000 Owned Ancaster, Ontario Powdered Metal 140,440 Owned Mississauga, Ontario Powdered Metal 240,000 Owned Mississauga, Ontario Pumps 100,000 Owned Ancaster, Ontario Pumps 86,358 Owned Izmir, Turkey Pumps 130,974 Owned Ochang, Korea (HSC JV) Powdered Metal 174,650 Owned Beijing, China (HSC JV) Powdered Metal 70,720 LeasedChangzhou, China Pumps TBD Owned

Global Manufacturing Footprint

Legend

Manufacturing

Technical Centers

Joint Venture


Sales Office

Stratford, Ontario

Ancaster, Ontario


Izmir, Turkey

Aachen, Germany

Ochang, South Korea

Beijing, China

Shanghai, China

Pumps

PM


Legend

Manufacturing

Technical Centers

Joint Venture


Sales Office

Stratford, Ontario

Ancaster, Ontario


Izmir, Turkey

Aachen, Germany

Ochang, South Korea

Beijing, China

Shanghai, China

Pumps

PM


EP Mississauga, ON

EP Ancaster, ON

Izmir, Turkey

CSD Stratford, ONAGD Mississauga, ON

PMC Ancaster, ON

Halla StackpoleOchang, Korea

Halla StackpoleBeijing, China

Oil Pumps Facilities

Powdered Metal Facilities

Stackpole Automotive Industry Overview

64

Automotive Industry Overview Global Light Vehicle Market Overview

The global automotive market is poised for a continued recovery after one of the most severe contractions in its history. In mature markets, macroeconomic factors such as unemployment and consumer sentiment continue to improve from the historic lows seen during the trough of the recession in mid-2009. While light vehicle productions in North America have been lower in 2010 than historic averages, they have improved significantly relative to 2009, up 9.7% in October, 9.5% in November and 2.8% in December 2010. This positive momentum is expected to continue into 2011 due to the increasing age of cars on the road and the return of consumer confidence and credit availability.

The automotive industry underwent a large scale restructuring during the economic downturn. Significant manufacturing capacity was eliminated as many OEMs and suppliers overhauled operations or went out of business. Industry participants are now profitable at much lower production levels and many expect profit margins to continue to improve as volumes return to historical levels.

Light Vehicle Production SAAR—North America

12.5

11.7 12

.7 14.2 15

.7

15.3

15.4 16.1

16.0 17

.6

17.7

15.8 16.7

16.2

16.2

16.3

15.9

15.4

12.9

8.8

12.2 13.0 14

.3

14.9 15.7

16.3

0

4

8

12

16

20

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Uni

ts (m

illion

s)

1990 - 2010 Average: 14.8 million

Source: IHS, June 2011

Light Vehicle Production—Europe Light Vehicle Production—China

'11 - '15 CAGR = 4.9%

21.7 20.516.3

18.8 18.9 20.2 21.2 22.1 22.9

05

10152025

2007

A

2008

A

2009

A

2010

A

2011

E

2012

E

2013

E

2014

E

2015

E

Uni

ts (m

m)

Source: IHS, February 2011

'11 - '15 CAGR = 10.9%

7.2 7.511.3

15.0 16.118.8 20.4 22.5 24.2

05

10152025

2007

A

2008

A

2009

A

2010

A

2011

E

2012

E

2013

E

2014

E

2015

E

Uni

ts (m

m)

Source: IHS, June 2011


65

Positive Automotive Industry Fundamentals The outlook for automotive suppliers is favorable as economic conditions continue to improve, demand for new vehicles returns and operational improvements take hold. OEMs are investing in new products featuring an increasing amount of technology-rich content.

Continued Outsourcing of Engineering and Production: OEMs continue to outsource an increasing amount of engineering and production to suppliers. Industry-wide, OEMs are increasing the technology content of products as new legislation and shifting consumer preferences favor sophisticated infotainment systems, improved fuel efficiency, higher safety standards and high levels of vehicle performance. This focus on technology favors specialization in design, development and manufacturing.

Focus on Fuel Efficiency and Emissions Reductions: Higher energy costs and more stringent mileage and emissions regulation is driving OEMs to produce more fuel efficient vehicles. North America is beginning to shift its focus to powertrain technology that provides greater fuel efficiency and reduced emissions while maintaining vehicle performance. In April 2009 the European Parliament and the Council of the European Union adopted regulations to reduce the average CO2 emissions of all new passenger cars sold in Europe by 19% to 130 grams per kilometer by 2015; and in October 2009, the European Commission proposed reduced CO2 emission limits for light trucks and vans of 175 grams per kilometer by 2016. These developments in the US and Europe provide significant growth opportunity for powertrain technology components that improve fuel efficiency and reduce emissions.

Substantial Growth Opportunities in Emerging Markets: The number of first-time car buyers in emerging markets continues to grow rapidly. China is the world’s fastest growing automotive market and has recently become the world’s largest automotive market overall. Suppliers who entered China early in order to gain access to low-cost labor are now competing for business on domestically built automobiles for the Chinese market that utilize technology developed in Europe and North America.

Improved Profitability Going Forward: The automotive space went through an industry-wide restructuring in the downturn. OEMs closed twelve manufacturing facilities in North America during the crisis and have implemented capacity reductions of 15% since 2005 (35% for the Detroit Three). Suppliers made even deeper cuts to support the capacity reduction. Healthcare and labor costs are now sustainably lower due to reduced headcount and the introduction of Tier Two workers. As a result, the operations of OEMs and suppliers now support profitability at much lower production volumes. The average North American auto supplier is now break-even at a SAAR of 9.6 million units annually.


66

Auto Platforms

Auto platforms are a shared set of common design, engineering, and production efforts, as well as major components over a number of outwardly distinct models and even types of automobiles, often from different, but related nameplates. Platforms, given the substantial time and resources put into their development, typically have a 10-15 year life – well beyond the life of any specific model. By winning a sole supplier position for a particular component on a platform, Stackpole is able to lock in sales to a number of vehicle models. This ensures a level of cross-sell to a variety of end products and protects sales from volatility associated with a specific model. This ensures that sales of platform-specific components go on in parallel with a given platform, improving the economics of producing a new component and mitigating consumer risk associated with specific car models, since a platform can be used with a wide variety of model-types.

Automotive Oil Pump Market

Technology Overview

There are currently two main types of automotive engine and transmission oil pumps, fixed displacement and variable displacement, which both circulate oil in proportion to engine speed.

The traditional configuration has been fixed displacement pumps which provide capacity that is essentially directly proportional to engine speed. The main drawback of this configuration is that fixed displacement pumps have a tendency to over produce oil at certain points in the drive cycle. The result is a sub-optimal level of wasted oil since the overall rate of oil consumption is elevated beyond what is actually required to operate the engine adequately. There are two types of fixed displacement pumps:

Gear-type: The most common type of gear pump is the crescent pump. These pumps have two gears like other gear pumps but they are designed with an outer gear with internal teeth and a smaller inner gear with external teeth. As the teeth mesh they carry with them and force fluid from the inlet port to the outlet port. The gap narrows as it nears the outlet port. The gears then force the pressurized fluid through the outlet port to create transmission line pressure. These pumps have strict tolerances between the gears and the housing. Excessive wear greatly reduces this pumps output and efficiency. These are known as fixed-displacement pumps.

Rotor-type: The rotor-type pump is similar to the crescent gear-type except it utilizes rotors instead of gears. The inside rotor turns the outside rotor. The gap between the rotors increases as it moves away from the inlet port and decreases as it moves closer to the outlet port. This action squeezes the fluid and creates the line pressure necessary to lubricate and hold the transmissions friction bands and clutches. These are also known as fixed-displacement pumps.

Variable displacement pumps correct for the inefficiency found in fixed displacment pumps by changing the size of the pump during the drive cycle, leading to reduced losses and improved fuel efficiency. Variable displacement pumps are more technologically advanced than fixed displacement pumps and require more sophisticated manufacturing capabilities to produce. OEMs have traditionally manufactured fixed displacement engine oil pumps in-house but are shifting the business to suppliers as they recognize the benefits of more advanced pump technology resident in the supply base. The main type of variable displacement pump is the vane-type pump :


67

Vane-type: Vane type pumps use a slide located inside the pump housing to vary the size of the inlet and outlet ports according to transmissions requirements. This slide is moved against spring pressure by a small sample of the fluid output. This keeps the fluid pressure at a minimum when the needs are not as great and maximum when necessary. These are known as variable-displacement pumps.


Management estimates the global powertrain oil pump market is about $1.5 billion in 2010, excluding captive OEM oil pumps business, and is expected to grow to $2.0 billion by 2015, representing a CAGR of 5.9%. About 2.8% of the growth is due to OEMs increasing reliance on the non-captive supply base.

Global Oil Pump Market Breakdown(1)

By Geography By Application By Technology

Asia43%

Europe31%

North America27%

Engine64%

Transmission36%


10%

Fixed Displacement

90%

Global Oil Pump Market = $1.5 billion Source: Management estimates (1) Revenue by geography, application and technology excludes captive OEM oil pump market.

A continued emphasis on fuel efficiency is driving increased adoption of variable displacement pumps. Management estimates that fixed displacement pumps are the primary technology in approximately 90% of powertrain platforms today. While the current global penetration of variable displacement pumps is only about 10%, it is expected to grow to 40% by 2015 as old powertrain platforms are phased out and replaced. According to The Energy Information Administration (“EIA”) the consumption of ‘Finished Motor Gasoline’ in the U.S. in 2010 was 138.5 billion gallons, so even a 1% reduction would result in a 1.38 billion gallon cut in fuel consumption. Stackpole currently has a leading position in variable displacement pumps globally and is expected to be a major beneficiary from this trend.

Expected Penetration of Variable Displacement Pumps in Engine

12

4562

18

7287

222 32

0255075

100

2011 2015 2018

Pene

tratio

n (%

)

North America Europe Asia



68

Automotive Powdered Metal Components Market

Technology Overview

Powdered metallurgy is a process for forming metal parts by heating compacted metal powders to below their melting points. Powdered metal technologies compete with other metal processing technologies, such as casting, stamping, forging and steel fabrication. PM offers distinct advantages over other metal forming technologies in material utilization, shape complexity, near-net-shape dimensional control, among others. These advantages make PM components particularly attractive for automotive powertrain applications, which require unique and complex shapes, high wear resistance and tight tolerances. The automotive industry is the largest purchaser of powdered metal components, making up nearly 70% of the market.

PM manufacturing technology consists of three steps; mixing elemental or alloy powders, compacting those powders in a die at room temperature and then sintering or heating the shape in a controlled atmosphere furnace to bond the particles together metallurgically .

Mixing: Elemental, partially alloyed or prealloyed metal powders are mixed with lubricants to produce a homogeneous mixture of ingredients.

Compacting: A controlled amount of mixed powder is automatically gravity-fed into a precision die and is compacted. Usually this is done at room temperature at compaction pressures ranging from 400 MPa (30 tons per square inch) to 827 MPa (60 tons per square inch) depending on the density requirements of the part and powder being pressed. The compacted or “green” part has the size and shape of the finished part when ejected and has sufficient green strength to be handled and transported to the sintering furnace.

Sintering: In the sintering step, the green compact is placed on a mesh belt, and slowly moves through a controlled atmosphere furnace where the parts are heated to a temperature below the melting point of the base metal, held at the sintering temperature and then cooled. The sintering step transforms compacted mechanical bonds between the powder particles into metallurgical bonds by a solid state transformation process.


69

The Powdered Metal Process

Optional

Operations

Elemental or Alloy Metal Powders

Additives(graphite, die lubricants)

Compaction

Mixing

Optional Manufacturing Steps

Sizing

Select Densification

Finished Product

Sintering

Machining

Steam Treating

Plating

Oil Impregnation

Heat Treating

Plastic Impregnation

Tumbling

Shot Peening

Optional Finishing Steps

Machining

Steam Treating

Plating

Oil Impregnation

Heat Treating


Tumbling

Shot Peening

Machining

Steam Treating

Plating

Oil Impregnation

Heat Treating


Tumbling

Shot Peening

Optional Finishing Steps

Raw Materials

Forming

Sintering

Source: The Metal Powder Industries Federation (MPIF)


The global powdered metal structural components market is approximately $4.3 billion. The North America market is about $1.9 billion. The Company’s primary market, the North American automotive PM components segment, is estimated to be $1.3 billion.

Powdered Metal Market Segmentation by:

By Geography By Application

Europe22%

Asia32% North

America46%

Recreation, Hand Tools and Hobby

16%

Household Appliances

3%

Automotive70%

Other11%

Global Structural PM Components Market = $4.3 billion



70

The automotive PM components market is closely tied to overall global automotive production, although the market for PM components is expected to grow faster than the market for new automobiles. Higher energy costs and more stringent mileage and emissions regulation is driving OEMs to produce more fuel efficient vehicles, which in turn is increasing the demand for advanced powertrain technologies. The National Highway Traffic Safety Administration (“NHTSA”) estimates that automakers will spend an additional $968 per car and $1,214 per light truck in North America on average to meet new fuel economy and emission standards by 2016. Key technologies expected to experience the most robust growth include dual clutch transmissions (from 0.4% share in 2009 to 20% in 2016) and hybrid powertrains (from 3% share in 2009 to 8% in 2016). The increased penetration of fuel efficient technologies may result in increased PM content per vehicle. Eight-speed transmissions may require additional PM carriers and backing plates, dual clutch transmissions require additional synchronizer hubs and sleeves. Variable valve timing is growing rapidly on intake and exhaust cams to improve gas mileage and reduce emissions. Variable valve timing assemblies require six to ten powdered metal parts per engine.

Powdered metals have recently expanded beyond the automobile industry, and in 2010, non automotive uses accounted for 30% of demand. As engineering capabilities become more advanced, more non-traditional uses, such as energy production, are using PM products for their shape and strength capabilities. Stackpole’s reputation has successfully spread beyond the automobile industry into these expansion markets, evidenced by the size of the customer relationship with Whirlpool (top 5 customer) and production contracts from Bloom Energy, a non-traditional energy start-up with substantial corporate support.

Stackpole Management

71

Management

The following table contains certain information with respect to the Company’s key executives.

Management Team


Years of Experience




20 11







Years of Experience




20 11






Peter Ballantyne - President and Chief Executive Officer

Mr. Ballantyne has served as President of Stackpole since 2010. He joined Tomkins as VP Business Improvement in 2009. Prior to joining Stackpole, Mr. Ballantyne worked for Magna International as Group General Manager since 2007 and VP Operations, Managing Director since 2003. Mr. Ballantyne has over 25 years of experience in the automotive industry. He graduated from Queen’s University with a B.Sc. in Engineering and holds a business diploma from Wilfrid Laurier University.

Rahim Suleman – Chief Financial Officer

Mr. Suleman has served as the Director Finance since joining Stackpole in July 2010. Prior to joining Stackpole, Mr. Suleman was the Global Finance Manager for GE Digital Energy. He has served as Corporate Controller and VP Finance for various organizations and has experience in the manufacturing, information technology and real estate industries. He has over seven years of experience in the automotive industry. Mr. Suleman is a Chartered Accountant (CA) and holds a Master of Accountancy and a Bachelor of Arts (Accountancy) from the University of Waterloo.

Andrew Dempsey – Director, Powdered Metal Business Development and Engineering

Mr. Dempsey has served as Director Engineering since November 2008. He joined Stackpole in November 1998 and has held several roles of increasing responsibility in the engineering organization. Prior to joining Stackpole, Mr. Dempsey served in technical roles of increasing responsibility with several PM manufacturers. Mr. Dempsey holds an M.A.Sc. in Metallurgy and Materials Science and a B.A.Sc. in Metallurgical Engineering and is a member of the Professional Engineers of Ontario.

Stackpole

72

Robert Mooy – Vice President Engineered Products Division

Mr. Mooy has served as VP Engineered Products Division since April 2008. He joined Stackpole in 2002 as Director of Product Development and was promoted to VP of Product/Business Development in 2005. Prior to joining Stackpole, Mr. Mooy held several management and engineering roles of increasing responsibility in the Tier one automotive supplier segment. He holds a Bachelors Degree in Mechanical Engineering and is a member of the Professional Engineers of Ontario.

Mohamad El-Mahmoud – Business Unit Director, Asia

Mr. El-Mahmoud entered Gates GmbH Aachen as a Mechanical Designer in 2000. In 2002 he was promoted to Systems Engineering Manager, a position he kept until July 2004 when he was dispatched to Asia on an assignment as Engineering Manager with target to build up and expand the technical organization in China, Korea and India. He later served as Asia Business Development Director until August 2008 when he became responsible for Engineered Products Asia activities with a focus on variable vane oil pumps. Prior for working with Gates, Mr. El-Mahmoud was a mechanical designer with PH-Mechanik, an automation company based in Aachen, Germany. He has eleven years of automotive experience and holds BS in Mechanical Engineering and Aeronautics from Aachen University of Applied Science.

Manfred Arnold – Technical Director, Stackpole Europe

Manfred has served as the Technical Director of Stackpole, Europe since 2009. He has been with Stackpole since 1995 and has served in a variety of roles, including Director Oil Pump Business Unit Europe, Global Business Manger, System Engineering Manager, and Project Engineer. He holds a PhD in Mechanical Engineering from Technical University Aachen.

Stackpole Historical Financial Overview

73

Historical Financial Overview

Stackpole Summary of Historical Financial Performance

Year Ending December 31,

($ in millions) 2008 2009 2010 LTM 5/31/11Revenue

Oil Pump $91.6 $82.9 $127.0 $152.5Powdered Metal 99.0 89.1 135.8 164.0Corporate and Other Adjustments (1) (15.4) (9.6) (14.6) (30.7)

Total Revenue $175.2 $162.4 $248.2 $285.8

Oil Pump Revenue % Growth (9.5%) 53.2% NMPowdered Metal Revenue % Growth (10.0%) 52.4% NMTotal Revenue % Growth (7.3%) 52.8% NM

Total Gross Profit $31.5 $35.1 $56.4 $58.9% Margin 18.0% 21.6% 22.7% 20.6%

Adj. EBITDA (2) $19.8 $18.4 $46.1 $50.3% Margin 11.3% 11.3% 18.6% 17.6%

Capital Expenditures $17.4 $10.2 $25.3 $28.1% Revenue 9.9% 6.3% 10.2% 9.8%

Key Balance Sheet Items:Inventory $11.2 $8.0 $15.8 NAAccounts Receivable 26.3 34.5 43.9 NANet PP&E 134.1 152.0 163.4 NA

(1) Primarily relates to intercompany sales from PM to pump division. (2) Includes pro forma standalone costs. Refer to Adjusted EBITDA reconciliation on page 80 for summary details of adjustments.

Stackpole Management Discussion and Analysis

74

Management Discussion and Analysis Year to Date May 31, 2011 versus Year to Date May 31, 2010

Revenue

Stackpole’s May 2011 YTD revenue is $134.3 million compared to $96.7 million for the same period in 2010, an increase of $37.6 million or 38.9%. In North America, revenue increased from $94.3 million to $128.0 million, an increase of 35.7% and in the Rest of the World (ROW), revenue increased from $2.3 million to $6.3 million, an increase of 174%. Revenue growth has been supported by the re-launch of the AGD facility in North America, new program launches in North America and Europe and the general continued recovery and growth of the automotive market.

In North America, $11.7 million of the revenue growth came from the re-launch of the AGD facility, which is not included in the 2009 and 2010 financials. Revenue from the other plants in North America increased by $21.9 million, or 23.2% over the prior period. The increase was driven by key platforms that the Company has targeted for future growth along with an improvement in the underlying automotive market fundamentals. These key platforms, including Pentastar, 6R, and the GF6 (among others), continue to grow very strongly as the customers migrate vehicle nameplates to these platforms. This is a continuing trend from 2010 and has been part of the Company’s strategy of targeting key platforms for Customer consolidation and worldwide growth.

Presently in ROW, Europe is generating revenue whereas the Company’s operations in Asia consist primarily of customer and technical development. In Europe, revenue growth of $4.0 million or 174% comes primarily from the recent launch of several new programs in the recently constructed Izmir facility. In the second half of 2010, the Company launched three program variations for Audi, and in 2011 the Company is launching a significant program for PSA/Ford. The May 2011 YTD revenue levels are still considered infancy revenue levels and the PSA/Ford volumes (for the DV6 program) are pre-production volumes only with the program launching later this year.

Gross Profit

Stackpole’s May 2011 YTD Gross Profit is $25.3 million or 18.8% of sales compared to $22.8 million or 23.6% of sales in the prior period. Overall, Gross Profit grew by $2.5 million or 10.8% from the prior year. The smaller increase in Gross Margin (and diluted Gross Margin %) is related to specific launch and business activity changes in the YTD May 2011 period and Management does not consider them to be a change in the overall profitability profile of Company.

In the AGD facility in North America, Gross Profit was ($1.0) million, despite revenue (and revenue growth) of $11.7 million. This is related to the re-launch of the AGD facility. The Company is ramping up costs and infrastructure in anticipation of the contracted sales volumes. However, given the largely dormant infrastructure at the beginning of the year, the ramp of our production capability generally precedes the realization of sales. In addition, AGD has incurred start-up costs related to the re-launch of the various parts.

For the other plants in North America, Gross Profit was $28.8 million or 24.8% of sales compared to $23.1 million or 24.5% of sales in the prior period. Overall, Gross Profit grew by $5.7 million on increased sales of $22.0 million or 25.9%. This growth in both dollars and rate is a result of the Company’s strong commitment to cost improvement initiatives as well as improvements from increased operating leverage on sales. Cost


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improvement activities, including various automation projects related to capacity, throughput and quality continue to come on-line in 2011 with a significant automation project completed in Q1-2011 and another project underway as at May 2011.

In ROW, Gross Profit is ($2.5) million compared to ($0.3) million in 2010. The decline in profitability (or increased loss) is generally related to two issues. First, the Company has recently expanded the infrastructure in Europe with the construction of the Izmir, Turkey manufacturing location. In 2010, a small amount of manufacturing was done in Germany. However, the Company has since moved all manufacturing functions to Turkey. This movement and new infrastructure creates a cost structure that has not yet been absorbed by the sales plan, including the launch of the DV6 program. Secondly, the Company has increased its investment and commitment to the Asia business. As of May 2011, the Company has secured two LOIs and one nomination letter for future business in Asia.

Operating Expenses

Operating Expenses grew by $2.3 million from $4.8 million in YTD May 2010 to $7.1 million in YTD May 2011, reflecting new hires and other SG&A for the ramping AGD and Europe plant operations. In the other North America plants outside of AGD, the company experienced considerable fixed cost leverage with operating expenses declining as a percentage of sales, as would be expected due to the improving volumes.

Adjusted EBITDA

After reflecting adjustments and pro forma for the standalone cost structure that will be in place for Stackpole going forward, Adjusted EBITDA increased from $18.2 million in YTD May 2010 to $22.3 million in YTD May 2011, reflecting a growth rate of 22.5%. More detail on EBITDA adjustments is included subsequent to this MD&A section.


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Fiscal Year Ended December 31, 2010 versus Fiscal Year Ended December 31, 2009

Revenue

Stackpole’s 2010 net revenue is $248.2 million compared to $162.4 million in 2009, an increase of 52.8%. In North America, total revenue increased from $158.4 million to $240.6 million, an increase of 51.9% and in Europe, total revenue increased from $4.0 million to $7.8 million, a 94.7% growth. As a result of the turnaround in the automotive sector that began in the second half of 2009 and continued throughout 2010, net revenue in Q1 2010 exceeded $50.0 million for the first time since Q2 2007.

In North America, customers began to approach or exceed their previous volume forecasts. This sustained level of increased revenue is more than a “system-refill” but is rather a tangible improvement in the end markets of Stackpole’s key platforms. Stackpole is also seeing significant growth in a breadth of key platforms that Stackpole has won more recently and invested significantly in past years. Throughout the second half of 2010, Stackpole’s key growth platforms continued to surpass volume expectations. Stackpole has been very successful in leveraging the growth on these platforms.

In Europe, revenues were significantly stronger in the second half of the year (63% of annual revenue) due primarily to the launch of three additional oil pumps in the European market. These three launches, which will get much more traction in 2011, along with an additional significant launch in Q1 2011, will drive the strong expected revenue growth in 2011 in Europe.

Stackpole has developed the European market for the past few years and is now launching, or preparing to launch, several significant programs that will drive very strong growth in Europe in the future.

Gross Profit

Stackpole’s gross margin is 22.7% in 2010 compared to 21.6% in 2009, showing further improvement from the 18.0% level achieved in 2008. The improvement in margin is based largely on three positive factors offset by annual customer price give-backs.

First, the Company was able to achieve very strong operating leverage on the rapid increase in sales. Throughout 2007-2008, Stackpole made significant key investments in various Customer platforms that were intended to be the growth drivers over the coming years. With the downturn in late 2008 and 2009, Stackpole had improved capabilities and capacity available to it but sluggish customer demand. The strong sales turnaround through the second half of 2009 and throughout 2010 has enabled Stackpole to leverage the additional revenue to operating profit at a very high conversion rate.

Second, Stackpole continues a strong pattern of continuous improvement and cost reduction programs. Stackpole has made several key investments and executed projects to enable the Company to increase its capacity to keep up with customer demand with reduced incremental costs. These investments, including automation, in-line quality checks and assembly process redesign, provide on-going benefits to Stackpole. The Company has strong plans for additional cost improvements to be realized in 2011.

Third, Stackpole continues to seek out and win high-value business. In several cases, Stackpole has secured business to enable it to provide more value-added services and thus achieve additional margins. Stackpole believes that it will continue to be successful with this strategy.


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Operating Expenses

Stackpole’s operating expenses (after adjustments) rose from $9.6 million in 2009 to $12.4 million in 2010. As a percentage of revenues, the adjusted operating expenses decreased from 5.9% in 2009 to 5.0% in 2010. In North America, adjusted operating expenses rose by $2.2 million representing a small infrastructure rebuild relative to the strong increase in sales of $82.2 million. The Company made efforts to hold its operating expenses firm until such time as the economic rebound materialized. The Company continued to control its operating expenses very tightly but recognized the need to make appropriate investments in the latter part of 2010 and planned in 2011. In Europe, adjusted operating expenses rose from $0.7 million to $1.5 million. This increase is due partly to the increased distribution costs that accompany the volume increase and Izmir transition ($0.5 million) and investments in the European infrastructure to support future European growth ($0.5 million). Operating expenses in Europe shall continue to rise as distribution costs increase with volumes and the Company continues to build the appropriate infrastructure to support its sales growth plan.

Adjusted EBITDA

Adjusted EBITDA was $46.1 million (18.6% margin) in 2010 growing from $18.4 million (11.3% margin) in 2009. As mentioned above, the primary reasons for the improvement in EBITDA relate to strong leverage on volume improvements (a 52.8% increase in revenue) with continued cost-control and several cost-saving initiatives. Stackpole believes that it is well-positioned to further improve EBITDA as it executes a number of key projects and meets growing customer demand on an incremental margin basis.

Capital Expenditures

Capital expenditures increased from $10.3 million in 2009 to $25.3 in 2010. Maintenance capex primarily supports on-going tooling refurbishments, renewals and replacements necessary to support production and facility maintenance related expenditures. Growth capex includes continuous improvement projects, volume/efficiency projects, quality improvement projects, new program launch costs and facility infrastructure costs, with 35-40% of growth capital invested for a platform representing dedicated capital, or replacement capex. Historically, growth capital spent to support the top 5 platforms has generated excellent returns for Stackpole.


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Fiscal Year Ended December 31, 2009 versus Fiscal Year Ended December 31, 2008

Revenue

Total net revenue for Stackpole declined to $162.4 million in 2009 from the 2008 level of $175.2 million, a decline of 7.3%. This was largely a result of the severe economic downturn in the automotive market in 2009. During this period, two key North American customers of Stackpole, GM and Chrysler, conducted significant restructuring activities during which many production facilities were either slowed or halted.

Throughout the 2008 and 2009 period, 98% of Stackpole’s net revenues were produced in North America. The downturn in North America’s total revenue began in late 2007 and early 2008 and reached its trough in the middle of 2009. Conversely, the subsequent turnaround in North America’s total revenue and production occurred relatively quickly through the second half of 2009 and through 2010. Total revenue for the first half of 2009 reached a low of $63.1 million in North America versus $91.5 million in the first half of 2008. By the second half of 2009, the market and Stackpole’s North American volumes had recovered to produce $95.3 million in revenue versus $80.2 million in second half of 2008 and were slightly ahead of the $93.4 million of revenue levels in 2007.

Despite this significant downturn in the entire automotive segment, Stackpole was able to secure additional volume on key platforms and was able to negotiate price increases with a key customer to counter-act the impact of the volume declines.

Gross Profit

Despite the decrease in revenue, Stackpole was able to improve its Gross Margin both in percentage (from 18.0% to 21.6%, in 2008 and 2009, respectively) and in absolute dollars (from $31.5 million to $35.1 million, in 2008 and 2009, respectively), through aggressive cost-saving activities in both years. These improvements have been sustained and continue to yield improved margins into the current year.

Stackpole’s management team began to anticipate the downturn late in 2007 and began an aggressive set of cost controls and cut-backs. Stackpole instituted several short-term cost savings policies such as supplier re-pricing, hiring freezes, lay offs, work-share and other labor and cost containment exercises. Cost-initiatives and various continuous improvement and redesign programs led to very significant cost savings for the Company. Stackpole completed several major automation projects that were initiated in 2007 and 2008 and yielded significant savings from these projects in 2008 and 2009. These cost-savings actions are sustainable initiatives that will continue to contribute to stronger margins going forward. In addition, Stackpole launched several key platforms during this period with very strong and improving margins. These platforms were able to obtain a strong foothold in late 2009 and continue to be strong contributors to growth in 2010 and into the future.

When the automotive sector began to turn around in the second half of 2009, the benefits of the reduced cost-base yielded positive operating outcomes and high operating leverage. Throughout the recovery and subsequent growth periods, Stackpole has been careful to manage the growth of its cost-base to ensure that the savings achieved during the downturn will continue to yield lasting benefits.

Stackpole continues to utilize automation projects, where applicable, to improve its cost-structure and the benefits of these initiatives continue to show positive results for the Company.


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Operating Expenses

As noted above, Stackpole anticipated and began executing cost-cutting measures in 2008 and 2009 including hiring freezes and other cost containment initiatives. Adjusted Operating expenses were held constant through 2008 and 2009 through reduced expenses in North America through cost-containment exercises which offset the increased expenses in Europe due to infrastructure growth.

Adjusted EBITDA

Adjusted EBITDA decreased slightly from $19.8 million (11.3% margin) in 2008 to $18.4 million (11.3% margin) in 2009 but the Company maintained its margin despite the decrease in revenue. As discussed above, the primary reasons for stabilization of EBITDA margin was driven primarily by cost-control initiatives, implementation of significant automation and continuous improvement projects, traction in the launches of major programs and increased volumes in the second half of 2009, which continued throughout 2010.

Capital Expenditures

Capital expenditures decreased from $17.4 million in 2008 to $10.3 in 2009. This decrease was largely driven by a decrease in growth capex from $13.4 million in 2008 to $8.3 million in 2009. Maintenance capex also decreased as a percentage of sales, declining from $4.1 million in 2008 to $2.0 million in 2009.


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Summary of EBITDA Adjustments

EBITDA Adjustments

LTM($ millions) 2009 2010 5/31/11

EBITDA $22.8 $41.1 $44.6

Start-up Costs 0.8 3.5 3.3Facility Relocation One-Time Costs 0.0 2.7 1.8Europe Delay - - 1.5Facility Relocation Cost Savings 0.5 0.7 0.9FormFlo Adjustments 0.4 0.6 0.8Terminations / Severance 0.8 0.7 0.3Miscellaneous (1.8) (0.0) (0.1)Pension Curtailment Gain (2.6) 0.0 0.0Out of Period Tooling Income (0.3) (0.7) 0.0Stand-alone Costs (2.1) (2.4) (2.7)

Pro Forma Adj. EBITDA $18.4 $46.1 $50.3

Start-up Costs: Includes start-up costs associated with a non-standard business venture with Bloom Energy and with a new Chinese facility.

Facility Relocation One-Time Costs: Includes one-time transition costs associated with transfer of European manufacturing operations from Germany to Izmir, Turkey.

Delay European DV-6 Platform: The DV-6 program in Europe was delayed from a Q1/Q2 2011 ramp to Q4 2011. Stackpole is currently incurring monthly costs related to the DV-6 without the associated revenue. This adjustment adds back the interim costs, but does not adjust for delayed revenue.

Facility Relocation Cost Savings: Includes expected cost savings associated with transfer of European manufacturing operations from Germany to Izmir, Turkey.

FormFlo Adjustments: Non-recurring intellectual property royalty payments made to Gates Canada and a gain on the sale of FormFlo’s assets in 2010.

Terminations / Severance: Payments related to the termination of hourly laborers in 2009 and salaried employees in 2010.

Pension Curtailment Gain: Reversal of non-cash gain associated with switch from defined benefit to defined contribution pension plan in Dec. 2009.

Out of Period Tooling Income: Includes net unclaimed liability due to a customer tooling development order from 2005 and out-of-period expenses related to tools purchased for Halla Stackpole JV in 2009.

Stand-alone Costs: Includes costs associated with back-office functions, information technology, and insurance resulting from the separation of the Company from Tomkins.


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Foreign Exchange Exposure

In 2010, the Company operated primarily in North America, with approximately 97% of the sales being in North America with the remaining 4% in Europe. The Company’s North American operations are located exclusively in Canada and the Canadian dollar (“CAD”) is the Company’s functional currency. However, all external reporting is conducted in USD.

In North America, substantially all of the Company’s revenue contracts are denominated in CAD. The Company’s labor and infrastructure costs are substantially all denominated in CAD. The Company has some supply contracts, primarily commodity-based, that are denominated in USD. Management estimates that approximately 20% of all cash-outlays are denominated in USD.

In Europe, all of the Company’s revenue’s contracts are denominated in Euro. All manufacturing labor and infrastructure costs are denominated in Turkish Lire while engineering and sales labor costs are denominated in Euros. Supply contracts in Europe are apportioned between USD, CAD and Euro depending on the nature of the commodity and the supplier. Based on the current size of the European operation, Management estimates that it has small net outlays in each of Euros, Turkish Lire, USD and CAD in Europe. In future periods, Management estimates that it will have net inflows in Euros and outflows in USD and Turkish Lire.

Given the predominantly C$ revenues from the Company, following the transaction the Company will swap a significant portion of its US $-denominated debt into C$ with a cross currency swap.


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Consolidated Balance Sheet

Consolidated Balance Sheet

As of($ in millions) 3/31/11AssetsAccounts receivable $64.6Inventory 20.5Capital assets 178.9Investment in affiliates 11.6Total Assets $275.7

LiabilitiesTotal payables $54.7Post-employment benefit obligations 6.2Total Liabilities $61.0

Total Equity $214.7

Total Liabilities and Equity $275.7

Documents

$165,000,000 Senior Secured Credit Facilities · 2014-01-13 · RBC Capital Markets Three World Financial Center, 9th Floor 200 Vesey Street New York, New York 10281-8098 Tel: (212)